SP CI L TT NTION drected t0 the cautonary notce on ths page that pub-

_____ ____ shed rungs of the ureau do not have the force and effect
of Treasury Decsons and that they are appcabe ony to facts presented n the pubshed case
Treasury Department : : : : : ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn -2
ULY-D C M R 1936
IN T IS ISSU
Pte
Introductory Notes D
Contents - II
Rungs Nos. 8150-8459
oard of Ta ppeas 1-51
Income Ta . _
Part I (1936, 1935, and 1934 cts) 53-178
Part D (1932 ct) 179-185
Part III (1928 ct) 186-249
Part I (1926 and Pror cts) 250-292
Msceaneous Ta es
state and Gft Ta es 293-311
Capta Stock and cess-Profts Ta es .... 312-323
Saes Ta es 324-375
Soca Securty Ta es 376-423
Msceaneous Rungs 424-582
Inde 583-599
The ratngs reported n the Interna Revenue uetn are for the nformaton of ta payers and ther counse as
showng the trend of offca opnon n the admnstraton of the ureau of Interna Revenue the rungs other than
Treasury Decsons have none of the force or effect of Treasury Decsons and do not commt the Department to
any nterpretaton of the aw whch has not been formay approved and promugated by the Secretary of the
Treasury. ach rung embodes the admnstratve appcaton of the aw and Treasury Decsons to the entre
state of facts upon whch a partcuar case rests. It s especay to be noted that the same resut w not neces-
sary be reached n another case uness a the matera facts are dentca wth those of the reported case. s t s
not aways feasbe to pubsh a compete statement of the facts underyng each rung, there can be no assurance
that any new case s dentca wth the reported case. s bearng out ths dstncton, t may be observed that the
ratngs pubshed from tme to tme may appear to reverse rungs prevousy pubshed.
Orncers of the ureau of Interna Revenue are especay cautoned aganst reachng a concuson n any case
merey on the bass of smarty to a pubshed rung, and shoud base ther |udgment on the appcaton of a per-
tnent provsons of the aw and Treasury Decsons to a the facts n each case. These rungs shoud be used as
sds n studyng the aw and ts forma constructon as made n the reguatons end Treasury Decsons prevousy
ssaed.
In addton to pubshng a Interna Revenue Treasury Decsons, t s the pocy of the ureau of Interna Revenue
to pubsh a rungs and decsons, ncudng opnons of the ssstant Genera Counse for the ureau of Interna
Revenue, whch, because they announce a ratng or decson upon a nove queston or upon a queston n regard
to whch there e sts no prevousy pubshed rung or decson, or for other reasons, are of such mportance as
to he of genera nterest. It s aso the pocy of the ureau to pubsh at rungs or decsons whch revoke, modfy,
amend, or affect n any manner whatever any pubshed rung or decson. In many nstances opnons of the
ssstant Genera Counse for the ureau of Interna Revenue are not of genera nterest because they announce
bo new rung or no new constructon of the revenue aws but smpy appy rungs aready made pubc to certan
stuatons of tact whch are wthout speca sgnfcance. It s not the pocy of the ureau to pubsh such opnons.
Therefore, the numbers assgned to the pubshed opnons of the ssstant Genera Counse for the ureau of
Interna Revenue are not consecutve. No unpubshed rung or decson w be cted or reed upon by any offcer
or empoyee of the ureau of Interna Revenue as a precedent n the dsposton of other cases. Uness otherwse
specfcay ndcated, a pubshed rungs and decsons have receved the consderaton and approva of tho
ssstant Genera Counse for the ureau of Interna Revenue.
UNIT D ST T S GO RNM NT PRINTING O IC , W S INGTON : 1937
or sae by the Superntendent of Documents, Washngton. D.C - See back of tte for prcea
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The Interna Revenue uetn servce for 1937 w consst of weeky
buetns and semannua cumuatve buetns.
The weeky buetns w contan the rungs and decsons to be
made pubc and a Treasury Department decsons (known as Treasury
decsons) pertanng to Interna Revenue matters. The semannua
cumuatve buetns w contan a rungs and decsons (ncudng
Treasury decsons) pubshed durng the prevous s months.
The compete uetn servce may be obtaned, on a subscrpton
bass, from the Superntendent of Documents, Government Prntng
Offce, Washngton, D. C, for 2 per year. Snge copes of the weeky
uetn, 5 cents each.
New subscrbers and others desrng to obtan the 1919, 1920, and
1921 Income Ta Servce may do so from the Superntendent of Docu-
ments at prces as foows: Dgest of Income Ta Rungs No. 19
(contanng dgests of a rungs appearng n Cumuatve uetns
1 to 5, ncusve), 50 cents per copy Cumuatve uetns Nos. 1 to 5,
contanng n fu a rungs pubshed snce pr, 1919, to and n-
cudng December, 1921, as foows: No. 1, 30 cents No. 2, 25 cents
No. 3, 30 cents No. 4, 30 cents: No. 5, 25 cents.
Persons desrng to obtan the Saes Ta Cumuatve uetns for
anuary- une and uy-December, 1921, may procure them from the
Superntendent of Documents at 5 cents per copy.
Persons desrng to obtan the Interna Revenue uetn servce for
the years 1922 to 1936, ncusve, may do so at prces as foows:
Cumuath
e uetn
Year
rst 6
Second 6
Prce
(cents)
months
months
1922
1-1
1-2
40,
30
1923- --- -
II-
II-2
30,
40
1924
1II-1
III-2
50,
50
1925 - --
I -1
I -2
40,
35
1926
-
-2
40,
30
1927
I-1
I-2
40,
40
1928
II-1
vn-2
35,
50
1929....
III-1
III-2
50,
55
1930.
I -1
I -2
50,
50
1931...
-
-2
65,
30
1932.
I-1
I-2
30,
30
1933 .-
II-1
II-2
30,
50
1934
III-1
III-2
50,
50
1935
I -1
I -2
50,
50
-1
-2
65,
4. .
Persons desrng to obtan the servce n dgest form may do so at
prces as foows: Dgest No. 13 (1922-1924), 60 cents Dgest No. 17
(1925), 25 cents Dgest No. 21 (1926), 15 cents Dgest No. 22 (1925-
1927), 35 cents and Dgest (ncome ta rungs ony, pr, 1919, to
December, 1930, ncusve), 1.50.
nqures n regard to these pubcatons and subscrptons shoud
be sent to the Superntendent of Documents, Government Prntng
Offce, Washngton, D. C.
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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn -2, n addton to
a decsons of the Treasury Department (caed Treasury decsons)
pertanng to Interna Revenue matters, contans Genera Counse s
and ssstant Genera Counse s opnons, and rungs and decsons
pertanng to ncome, estate, gft, saes, capta stock, e cess profts,
soca securty, and msceaneous ta es, as ndcated on the tte page
of ths uetn, pubshed n the weeky uetns ( oume , Nos.
27 to 52, ncusve) for the perod uy 1 to December 31, 1936. It
aso contans a cumuatve st of announcements reatng to decsons
of the Unted States oard of Ta ppeas pubshed n the Interna
Revenue uetn Servce from anuary 1, 1932, to December 31,1936.
Income Ta rungs are prnted n four parts. Rungs under the
Revenue cts of 1936, 1935, and 1934 are prnted as Part I ( ,
1936 ct, , 1935 ct, and C, 1934 ct), the secton headngs
correspondng wth the sectons of those cts. The rungs under
the Revenue ct of 1936 are pubshed under the artce headngs cor-
respondng to the artce headngs of Reguatons 94. Rungs under
the Revenue ct of 1934 w be prnted under the artce headngs
correspondng to the artce headngs of Reguatons 86. Rungs
under the Revenue ct of 1932 are pubshed as Part II, the secton
and artce headngs correspondng wth the secton and artce
headngs of the Revenue ct of 1932 and Reguatons 77. Rungs
under the Revenue ct of 1928 are prnted as Part III, the secton
and artce headngs correspondng wth the secton and artce
headngs of the Revenue ct of 1928 and Reguatons 74. Rungs
under the Revenue ct of 1926 and pror cts are prnted as Part I .
the secton and artce headngs correspondng wth the secton and
artce headngs of the Revenue ct of 1926 and Reguatons 69.
Rungs under Tte III of the Soca Securty ct w be pubshed
under artce headngs of Reguatons 91, rungs under Tte I of the
Soca Securty ct w be pubshed under artce headngs of Regu-
atons 90, and rungs under Tte III of the Revenue ct of 1936
Ta on un|ust enrchment w be coded under the sectons of that
ct and the artce headngs of Reguatons 95.
R I TIONS.
The foowng abbrevatons are used throughout the uetn:
, , C, etc. The names of ndvduas.
. R. M. Commttee on ppeas and Revew memorandum.
. R. R. Commttee on ppeas and Revew recommendaton.
. T. . oard of Ta ppeas.
C. . Cumuatve uetn.
Ct. D. Court decson.
C. S. T. Capta Stock Ta Dvson.
D. C. Treasury Department crcuar.
. T. state Ta Dvson.
G. C. M. Genera Counse s or ssstant Genera Counse s memorandum.
I. R. . Interna Revenue uetn.
I. T. Income Ta Unt.
( I)
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I
M, N, , Y, Z, etc. The names of corporatons, paces, or busnesses, accord-
ng to conte t.
Mm. Mmeographed etter.
MS. Msceaneous Dvson.
O. or L. O. Soctor s aw opnon.
0. D. Offce decson.
Op. . G. Opnon of the ttorney Genera.
P. T. Processng Ta Dvson.
S. T. Saes Ta Dvson.
S. Sver Ta Dvson.
S. M. Soctor s memorandum.
So. Op. Soctor s opnon.
S. R. Soctor s recommendaton.
S. S. T. -Soca Securty ta and Carrers ta .
T. Tobacco Dvson.
T. . M. dvsory Ta oard memorandum.
T. . R. dvsory Ta oard recommendaton.
T. D. Treasury decson.
and y are used to represent certan numbers, and when used wth the word
doars represent sums of money.
The practce of promugatng Treasury decsons that embody
court decsons reatng to the nterna revenue has been dscontnued.
ereafter opnons of the courts, wth approprate headnotes for the
nformaton and gudance of ta payers and offcers and empoyees of
the ureau of Interna Revenue, w be pubshed n the Interna
Revenue uetn wthout forma approva and promugaton by the
Secretary of the Treasury.
NNOUNC M NT R L TING TO O RD O T PP LS D CISIONS.
Under the provsons of the recent Revenue cts, reatng to ap-
peas to the oard of Ta ppeas, the Commssoner may acquesce
m the decson of the oard or he may, f the appea was heard by
the oard pror to the passage of the 1926 ct, cause to be nsttuted
a proceedng n court for the coecton of any part of a ta deter-
mned by the Commssoner to be due but dsaowed by the oard,
provded that such proceedng s commenced wthn one year after
fna decson of the oard. s to appeas heard by the oard after
the passage of the 1926 ct, the Commssoner may, wthn s
months after the oard s decson s rendered, fe a petton for a
revew of the decson by a Crcut Court of ppeas or by the Unted
State Court of ppeas for the Dstrct of Coumba however, as to
decsons rendered on and after une 7, 1932, pettons for revew
must be fed wthn three months after the decson s rendered.
In order that ta payers and the genera pubc may be nformed as to
whether or not the Commssoner has acquesced n a decson of the
oard of Ta ppeas dsaowng a ta determned by the Comms-
soner to be due, announcement w be made n the weeky uetn
at the earest practcabe date. notce that the Commssoner has
acquesced or has nonacquesced n a oard decson reates, however,
ony to the ssue or ssues decded n favor of the ta payer. Dec-
sons so acquesced n shoud be reed upon by offcers and empoyees
of the ureau of Interna Revenue as precedents n the dsposton of
other cases before the ureau.
or addtona nformaton whch w be of assstance n the use
of the Interna Revenue uetn servce read the Introductory Notes
to the atest Dgest.
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CONT NTS.
Rung No.
-27-8159
-27-8160
-27-8161
-27-8162
-27-8163
-27-8164
-27-8165
-27-8166
-27-8167
-27- 168
-27-8169
-28-8178
-28-8179
-28-8180
-28-8181
-29-8191
-29-8192
-30-8202
-30-8205
-30-8204
-31-8224
-31-8226
-31-8226
-3I-8227
-32-S238
-32-8239
-32-8240
-34-8261
-34-8260
-3. 8270
-35-8271
-35-8272
-35-8273
-35-8274
-35-8275
-35-8276
-35-8277
-35-8278
-35-8279
-35-8284
-35-8281
-35-8282
-36-8292
-36-8290
-36-8291
-38-8312
-38-8213
-39-S328
-39-8329
-40-8340
-41-8341
-43-S365
-44-8371
M5-8382
-46-8888
-46-8390
-48-8391
-47-8397
-17-8402
-47-8401
-47-8398
-47-8399
-47-8400
-17-8403
-47-8404
-48-8412
-4S-8413
-49-8424
-49-8427
Page.
435
443
466
409
472
473
474
476
177
478
817
618
627
69
636
2 6
121
312
360
837
624
424
428
156
63
622
352
100
93
516
489
500
490
511
504
510
608
493
492
118
us
814
520
506
494
324
s
167
159
293
162
362
524
268
381
268
351
465
484
484
I s
182
483
4S5
487
479
480
500
98
Rung.
Treasury decsons Con.
4719
4720..
4721....
Court decsons:
1133.
1134
1135
1136
1137
1138
1139
1140
1141
1142
1113
1144
1145
1146
1147
1148
1149
1150
1151..
1152
1153
1154.
1155
1156
1157
1158
1159
1160
1161
1162
1163..
1164..
1165
1166
1167
1168
1169
1170
1171
1172..
1173
1174
1175
1176
1177
1178
1179
1180
1181 --
1182
1183
1184...
Genera Counse s memo
randa:
16651
16793
16807
16861
16932
16934
17014
17025
17026
17195
17213
Rung No.
-50-8437
-50-8438
-51-43450
-27-8154
-27-8155
-28-8173
-28-8174
-29-8185
-29-8186
-30 197
-30-5198
-31-S209
-31-8210
-32-8231
32-8232
-33-8244
-33-8245
-34-8254
-34-8253
-35-8286
-35-8288
-36-8288
-36-8289
-37-8298
-37-8299
-38-8305
-38-8306
-39-8316
-39-8317
-40-8334
-40-8335
-41-8343
-41-8344
-42-8352
-12-8361
-43-8360
-13-8361
-44-8369
-14-8370
-45-8378
-45-8379
- S3S9
-46-8388
-47-8395
-47-8396
-48-8409
-s s
-49-8419
-19-8420
-50-8435
-50-8436
-51-8444
-51-8445
-52-8453
-52-8454
-28-8171
-36-8287
Y-41-8342
-29-8184
-38-8307
-32-8233
-35-8283
-35-8266
-36-8294
-44-S368
-45-8376
( )
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Rung.
Genera Counse s memo-
randa Contnued.
17232
17233
17265
17322
17340
17517
oard of Ta ppeas:
19175.
18791.
28427.
41404.
49064.
49065.
49066.
49067.
49068.
49069.
49070-
49347-
62340.
52894.
66182.
66465..
60850.
61568.
61602.
61735.
61741.
63523.
63954.
63968.
67217.
67873.
67874.
C7967.
68316
69193.
69719.
70407.
70463.
70887.
70S88.
70889.
70890.
70891.
70892.
71445.
72904.
72905.
72932.
72933.
72943.
78763.
74642.
75102..
75103.
75143.
76485.
76486.
76816.
76957..
76147.
76148.
78160.
76443.
76762.
76802..
76803.
76813..
76927.
77017..
77375..
77376..
77377..
77414..
77415.
77416..
77417..
77997..
78346..
78362..
78456..
78662..
Rung No.
Page.
-43-8366
119
-43-8359
U
-52-8455
243
-46-8387
161
-49-8417
81
-52-8457
321
-40-8330
22,46
-40-8330
22,46
-39-8314
5
-29-8182
20
-37-8296
32
-37-8296
2
-37-8296
2
-37-8296
2
-37-8296
17
-37-8296
12
-37-8296
12
-62-8461
14
-27-8151
49
-42-S349
26
-4S-8405
25
-28-8170
41,
-27-8151
39
-32-8228
10
-30-8193
45
-27-8151
14
-33-8241
7
-42-8349
44
-31-8206
45
-31-8206
45
-34-8250
33,38
-35-S262
3
-35-8262
3
-39-8314
32
-27-8161
14,38
-32-8228
411
-30-8193
45
-32-8228
10
-39-8314
8
-27-8161
46
-27-8151
45
-27-8151
32
-27-8151
39
-27-8151
35
-27-8151
32
-40-8330
39
-33-8241
7
-33-8241
7
-44-8367
48
-14-8367
39
-33-8241
60
-43-8357
19
-35- 262
45
-30-8193
31
-30-8193
7
-46-8375
28
-49-8414
28
-49-8414
28
-61-8439
29
-61-8439
39
-33-8241
40
-33-8241
40
-39-8314
36
-35-8262
32
-60-8428
25
-38-8303
35
-38-8303
35
-32-8228
48
-38-8303
35
-29-8182
39
-51-8439
34
-51-8439
28
-51-8439
50
-37-8296
46
-37-8296
46
-37-8296
46
-37-8296
46
-28-8170
35
-35-8262
61
-3G-82S5
9,33
-32-8228
34
-44-S367
13
Rung.
oard of Ta ppeas Con
78907
79059..
79130..
79322..
79450-
79652..
79748-
80244-
80545..
80769. _
81027.
81323
81324
81325.
81826
Offce decsons (I. T.):
2987...
2988
2988
2990-
2991..
2992-
2993.
2994..
2995-
2998
2997...
2998
2999.
3000
3001
3002.
3003
3004
3005
3006
3007
3008
3009
3010
3011. _
3012
3013.
3014
3015
3016.
3017.
3018
3019.
3020.
3021.
3022
3023.
3024
3025
3026
3027
3028
3029
3030
3031
3032.
3033
3034
3035
Offce decson ( . T.):
8
Offco decsons (S. T.):
840 ,
841
842
843
844
845
848
847
848
849 :
860
861
852
Offce decson (C. 8. T.):
1
Rung No.
Page.
-29-8182
18
-49-8414
36
-50-8428
44
-39-8314
43
-)9-8414
36
-30-8193
It
-38-8303
38
-40-8330
45
-43-8357
26,50
-61-8439
41
-33-8241
26
-45-8375
35
-45-8375
33
-46-8375
35
-40-S330
31
-27-8152
169
-27-8I53
179
-28-8172
164
-29-81S3
170
-29-8187
258
-30-8194
76
-30-8195
146
-30-8166
148
-31-8207
137
-32-S229
166
-33-8242
106
-33-8243
138
-34-8251
139
-34 252
140
-35-8263
78
-S5-82S4
142
-35-8267
258
-S6-82S6
143
-37-8297
134
-38-8304
)
-39-8315
78
v m mt
129
-40-8332
157
-40-S333
174
-42-8350
132
-43-8358
79
- S384
76
-46-8385
105
-4S-8386
136
-47-8392
7
-47-8 83
97
-47-8394
105
-48-840C
80
-48-8407
108
-48-8408
143
-49-8415
76
-49-S416
80
-49-8418
117
-50-W29
83
-50-8430
83
-50-8431
83
-50-8432
85
50-8433
88
-60-8434
89
-51-8440
74
-51-8441
129
-51-8442
131
-51-8443
138
-52-8452
92
-43-83C2
297
-28-8177
333
-31-8213

-31-8223
348
-34-825S
1
-39-8318
330
-39-8319
340
-39 8320
342
-39-8321
347
-41-S347
342
-49-8421
331
-49-8422
361
-51-8446
339
-52-8458
341
-W-8336
315
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3
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II
Rung.
Offce decsons (S. S. T.):
9
10
11..
11...
13...
14...
15...
1 ...
17..
18...
19...
20...
a...
22...
23...
24...
25...
25...
27...
28...
29...
30...
31...
32...
33...
34...
35...
36...
37
38...
39...
40...
41...
42...
43...
44...
...
46...
47...
48...
49...
50...
61...
Rung No.
-27-8156
-27-8157
-28-8175
-28-8176
-29-S188
-29-8189
-29-8190
-30-RI99
-3O-820O
-30-8201
-31-8216
-31-8217
-31-8218
-31-8219
-32-8234
-32-8235
-32-8236
-32-8237
-33-8213
-33-8247
-33-S248
-34-8256
-34-8257
-35-8269
-36-8293
37 S3O0
-37-8301
-37-8302
-38-8309
-38-8310
-38-8311
-39-S322
-39-8323
-39-8324
-40-8337
-10-8338
-41-8345
-41-8346
-42-8353
42-8354
-42-83.W
-13-8363
-43-8364
Page.
372
411
392
417
397
398
401
380
402
416
399
4112
404
410
405
408
40t
414
393
397
417
399
400
373
403
80S
407
413
380
400
407
408
417
418
387
388
408
419
409
420
420
394
421
Rung.
Offce decsons (S. S. T.)-
Cont.uued
52
53
54.
56
57
58
59
60
Offce decsons (MS.):
177
178
179
180
181
Offce decsons (T.):
24
25
28
27
28
29
Mmeographs:
4170 (rev.)
4467 _
4471
4472
4477
4479.
4483
4490
4496.
4497
4498
4507
4514
Department crcuar:
230 (revsed)
Msceaneous..
Rung No.
rage.
-44-S372
3S9
-45-8380
390
-4S-8410
421
-49-8423
412
-51-8447
393
-51-S448
396
-51-8449
414
-52-8158
391
-52-8459
379
-31-8214
533
-35-8280
534
-39-8327
635
-44-8374
538
-49-S420
637
-27-8158
538
-31-8222
538
-36-8295
638
-40-8339
538
-44-8373
539
-49-8425
639
-31-8208
148
-31-8212
339
-27-8150
112
-30-8203
120
-31-8211
332
-31-8215
639
-32-8230
175
-34-S259
333
-39-8328
530
v-39-8.325
354
-38-8308
376
-42-8356
540
-45-8377
90
-41-R318
541
1 -31-8220
681
-31 8221
343
-33-8249
579
-34-82S8
678
-45-8381
558
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CONT NTS O CUMUL TI ULL TINS (I. T.) 1 TO S S. T. OR 1920 ND 1921 INT RN .
R NU 1-1,1-2, II I, II-2. III-, I -2, I -1, I -2. -. -2, I-1, I-2. O-1. -2, IU-1, I-2,
r -, -2, -, -2, -. -2, u-, n-2. n-, n-2. v-, rv-2, v-, and v-.
Cumuatve uetn.
Income Ta :
December, 1919 (No. 1)
anuary- une, 1920 (No. 2)
uy-December, 1920 (No. 3)
anuary- une, 1921 (No. 4)
uy-December, 1921 (No. 5)
Saes Ta :
1920 (S. T. 1-20)
anuary- une, 1921
uy-December, 1921..
Interna Revenue uetn:
anuary- une, 1922 (No. 1-1)
uy-December, 1922 (No. 1-2)...
anuary- une, 1923 (No. II-)
uy-December, 1923 (No. II-2)...
anuary- une, 1924 (No. I 1)
uy-December, 1924 (No. III-2)..
anuary- une, 1925 (No. I -1)...
uy-December, 1925 (No. I -2)..
anuary- une, 1926 (No. -)
uy-December, 1926 (No. -2)...
anuary- une, 1927 (No. I-1)...
uy-December, 1927 (No. I-2)..
anuarv- une, 1928 (No. II-1)..
uy-December, 1928 (No. II-2).
anuary- une, 1929 (No. III-1)..
uy-December, 1929 (No. III-2)
anuarv- une, 1930 (No. I -1)...
uy-December, 1930 (No. I -2)..
anuary- une, 1931 (No. -)
uy-December, 1931 (No. -2)...
anuary- une, 1932 (No. I-1)...
uy-December, 1932 (No. I-2)..
anuary- une, 1933 (No. II-1)..
uv-December, 1933 (No. II-2).
anuarv- unc, 1934 (No. III-1).
uy-December, 1934 (No. 1II-2)
anuary- une, 1935 (No. I -)._
uy-December, 1935 (No. I -2)
anuary- une, 1936 (No. -1)...
uv-December, 1936 (No. -2).
( III)
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3
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O RD O T PP LS.
CUMUL TI LIST O NNOUNC M NTS R L TING TO
D CISIONS O T UNIT D ST T S O RD O T
PP LS PU LIS D IN T INT RN L R NU UL-
L TIN S R IC ROM NU RY 1, 1932, TO D C M R 31,
1936, INCLUSI .
nnouncements reatng to the acquescence or nonacquescence of the Commssoner n
decsons of the Unted States oard of Ta ppeas, as pubshed n the weeky Interna
evenue uetn, from December 22, 1924, to December 31, 1931, ncusve, are prnted n
Cumuatve uetn -2, pages 1-106. The st beow, therefore, contans ony such announce-
ments pubshed n the weeky uetns from anuary 1,1932, to December 31,1936, Incusve.
0 -52-8451
The Commssoner acquesces n the foowng decsons of the
Unted States oard of Ta ppeas:
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
40546
24
435
37695
24
435
37693
24
435
37694
24
435
37696
24
435
41034
24
435
25194
38687
24
429
39980
25
211
39593
25
1246
39593
25
1246
56960
69007
28
586
74759
33
373
20765
24
376
41295
27
1091
60700
28
1291
39019
27
1210
44S60
30
636
25414
25
834
31704
25
1276
40039
28
868
30133

31998
56024
30
1182
63436

.
bees, Chares T__
bees, Cfford
bees, rancs, estate of
bees, ohn T
bees, atherne
bees, Wemene
cme Manfodng Co., Inc
deade Park Land et a., trustees.
fremow, Davd, estate of
fremow, Sarah, e ecutr
abama Mnera Land Co
bcrs, Wam .1
bert Lea Packng Co., Inc
brecht et a., atherne ., e ecutrces 3_
coma Corporaton
e ander, . ., estate of
egheny Garbage Co
en, Irene C
ed mercan Corporaton
mbassador Petroeum Co
mercan Centra Lfe Insurance Co. .
1 cquescence reates to deducton for contrbutons.
1 state ta decson acquescence reates to deducton of 133,000.
1 cquescence reates to ssue whether pottoner receved nterest on mortgages when t bd n property
upon forecosure.
Rung No. 8451 ncudes a acquescence and nonacquescence notces pubshed n the Interna Rev-
enue uetn servce from anuary 1, 1932, to December 31, 1936.
(1)
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cqt|escenceS Contnued.
Ta payer.
mercan Cgar Co
mercan eature m Co
mercan Gas ectrc Co. and subsdary com-
panes.
mercan Prntng Co
mercan Securty Trust Co. et a., e ecutors
mercan South frcan Lne, Inc

nco Investment Co._

nderson, C.
nderson, Gu tave
nderson, .
nderson, Staney S___
nn rbor R. R. Co..
rgumbau, rank M.
rmstrong, C. George.
rmstrong, Wam .
rnod Wnsor Co..
shforth, bert ., estate of .
shforth et a., Mabe ., e ecutors .
tkns, . ., estate of.
tkns, Mrs. .
tantc Coast Lne R. R. Co.
twater, Davd .3
twater, ohn .3
twater, r., Wam C.3.
ton, dwn D
ton, Robert L
ton, Wood
.
abbtt, Inc., . T. (Deaware) -
abbtt, Inc., . T. (New York)
aker, L
adwn, orence G
afour, Sr Robert
a, Php D. C
atmore Oho R. R. Co
atmore Oho R. R. Co.4
ankers Dary Credt Corporaton.
arber, rthur
arber, Php C
arber, St. George
arber Trusts, Sarah P
oard of Ta ppeas.
No.
oume.
Page.
16229
21
464
27623
24
18
67368
1
67369
33
471
69800

39721
27
1270
39167
24
334
62955
1
68830
30
753
70701

58647
30
988
33242
27
1305
36224
26
1208
63827
30
1274
42053
33
88
25869
29
331
73614
31
604
58400
31
418
58603
32
1261
61553
29
670
47190
1
48009
) 26
1188
49354

47190
1
48009
26
1188
49354

38520
28
500
38519
28
500
58958
1
65310
31
730
65311

49066
34
845
49067
34
845
49065
34
845
56160
32
613
56162
32
613
56441
32
613
74047
32
693
74047
32
693
56348
32
613
32387
23
512
40230
25
154
36737
27
388
53702
29
368
37239
30
194
48329
26
886
26747
25
513
26755
25
513
26757
25
513
26747
25
513
26757
8743
26
970
arcay, W. L
state ta decson.
Nonacquescence pubshed n uetn II-1, wthdrawn.
cquescence wth respect to hodng that pettoner was not a transferee.
cquescence reates to ssue nvovng contrbutons by shppers for constructon of sde and spur tracks
and deducton for nterna-revenue stamps aff ed to bonds.
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0
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0
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8
8
9
3
3
6
8
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cquescences Contnued.
Ta payer
arker, red
arnes, enry
asch, N.
Ice Coa Co
easey, W.
eaumont, Lous D
ebb, Rchard ., estate of .
eers, Cara O -
eers, rank T
eggs, ohn L (Trusts)
ear, Chares
e, Ivor .1
eows as Power Co
enedum, M. L.3
ent Co., R. G
crde, r., Chares P
ernsten, Isaac M
est, rank
ups, George W
ngham, Robert W
rckhead, Over W
rdneck Reaty Corporaton
scayne ay Isands Co
ar, r., Mrs. Wey
oodgood, dth
um, uus, trustee.-
umentha, Lucy
oehrnger, Rudoph 4
oos ros. Cafetera Co
org eck Co
ostck, r., ohn, trustee
owden, Pau kers
owen, dwn L.8
raun, rthur ., trustee
rnton, Lan McDonad...
rown, erence
ryan et u ., C.
ryan et u ., L.
uck, ohn ., estate of
1 state ta decson acquescence reates to deducton of 133,000.
1 cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton ssue.
1 cquescence reates to rght of overrdng royaty owners to beneft of secton 211 (b), Rovenue ct of
1918.
1 cquescence reates to ssue nvovng secton 115 (g) of the Revenue ct of 1928.
cquescence reates to ssue as to basc vaues of stock.
1 state ta decson acquescence reates to vaue of certan rea estate n San rancsco and vaue of
stock of Langendorf akng Co. for estate ta purposes and reasonabeness of Commssoner s aowance
or support of the wdow.
oard of Ta ppeas.
No.
oume.
Page.
51102
28
657
56440
32
613
45928
30
305
67637
27
1346
60061
31
580
31931
1
46569
25
474
49422

41295
27
1091
67873
34
754
67874
34
754
65675
30
370
39534
30
1290
22335
27
377
18592
29104
25
195
30990
28
917
57312
59796
26
1369
70298
32
600
36729
28
744
36746
26
1(171)
54917
29
804
51051
27
186
72389
33
466
46079
25
1084
27616
1
35098
23
731
40147

69682
31
212
26750
25
513
39242

40939
45741
25
119
51507
|
64975
30
591
49891
29
8
39200
25
651
24223
34964

995
68382
31
25
54923
26
1410
62985
33
208
54556
29
1161
53715
28
472
24667
36637
25
814
24036
19
111
24037
19
111
32584

44153
25
780
44684

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8
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3
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cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
uck et a., Mary M., e ecutors _
uena sta Land Deveopment Co.
uffao Unon Iron urnace Co.1
ungton, Orve
ungton, Mrs. Sade
us, een
uock, George
urdck, a P., trustee
urdck, oe W., estate of
urnham, Sas
urroughs, mbrose ., estate of_
urton, en|amn T
uter, U.
yers Trust, . T.
Caforna Coast O Co_.
Camp Manufacturng Co
Canadav, Inc., Ward M
Canfed et a., rances Marsha, e ecutors.
Canfed, George ., estate of
Cannng, ohn
Capta Compress Co
Carman, .
Carne, Goude Manufacturng Co.
Caro, Sue (Mrs. Nck Stuart)
Carona, Cnchfed Oho Ry...
Carona Contractng Co
Carter Pubcatons, Inc
Caspar Lumber Co
Cat hey, George
Cathey, Luke
Catn, Dane
Catn, Theron
Centra Market Street Co.
Centra Natona ank
Centra Natona ank, trustee
Centra Renderng Corporaton
Centra Trust (savngs ank
Century Crcut, Inc., of Deaware-
Champon, Davd .5
Champon, T. Perre 5
32584
44153
44684
2025
16075
16076
69684
69679
68164
73954
31209
46322
46322
61009
53795
69797
61055
46055
68382
25018
35955
58632
68415
68415
41482
49303
44321
44939
50178
20074
27095
63963
71025
71649
71650
77638
44838
66891
57729
46056
46057
25421
25413
24837
42587
28701
20776
42588
69345
55569
63818
55568
25
13
23
31
31
32
23
29
29
29
29
28
24
31
25
25
29
31
31
29
31
25
24
30
31
32
28
30
24
24
25
25
25
29
25
24
29
31
27
27
1 state ta decson acquescence reates to vaue of certan rea estate In San rancsco and vaue of
stock of Langendorf akng Co. for estate ta purposes and reasonabeness of Commssoner s aowance
for support of the wdow.
1 cquescence reates to ssue regardng deductons for obsoescence of bast furnaces.
cquescence reates to ssue 2 of decson.
cquescence reates to Issue regardng apportonment of ta es among affated corporatons.
cquescence reates to bass upon whch gan or oss upon redempton of stock shoud be computed.
G
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8
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5
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Chapman Dewey Land Co.
Chapman Dewey Lumber Co.
Co. .
Chcago Northwestern Ry.
Chrstopher, Rache S.s
Cty ank armers Trust Co., e ecutor
Cty ank armers Trust Co. et a., e ecutors .
Cark et a., ames, e ecutors
Ceand state Co., Inc., enry . .
Cements, W. L
Ceveand Trndad Pavng Co.4
Cnchfed Securtes Co
Cnton Cotton Ms, Inc..
P.s.
Coats, Inc. (R. I.), .
Cogate, Marv
Coorado Utah Coa Co..
Coumban Carbon Co.
Coumbus rck Te Co.7
Commerca Investment Trust Corporaton
Communty Mausoeum Co.
Cone, mma S., e ecutr 1
Cone, Irvng ., estate of 1
Connay, Mary W. T
Connectcut Rver Power Co
Conney, ames .10.
Conney, L. . .
Conney, Mary .10
Conservatve Gas Co
Contnenta Lega and Protectve ssocaton.
Contnenta O Co.
37403
51059
33466
37402
47130
50196
51058
36343
47704
59797
31869
34499
33585
40890
51197
46058
41962
46297
40554
54880
38904
61882
53799
42743
42707
43495
50051
70384
68034
68034
60434
18591
29106
44081
45833
46267
51967
60566
66948
44083
45834
44082
72391
44859
28427
25
25
22
20
29
23
24
29
24
20
25
28
28
27
26
25
26
28
33
31
32
25
30
30
30
30
30
34
cquescence reates to foowng ssues: Matera and suppes ad|ustment amortzaton of bond
premum assessment of ssocaton of Raway ecutves raroad Y. M. C. .
state ta decson.
1 cquescence does not reate to bass of property devsed sub|ect to a fe estate.
Nonacquescenoe notce pubshed n Cumuatve uetn -2 revoked.
1 cquescence reates to contrbutons ssue and ssue respectng deducton of amount pad to treasurer
of Rhode Isand on account of Increasng capta stock.
1 Nonacquescenoe pubshed n Interna Revenue uetn I-14 revoked.
cquescence reates to ncuson n consodated nvested capta of capta stock ssued for a te and
brck manufacturng pant, etc.
cquescence reates to the foowng ssues: Deducton of e penses n connecton wth ssuance of
preferred stock deducton for dvdends credted to accounts of empoyees for purchase of stock.
1 cquescence reates to ssue whether a sae of a cemetery crypt s a sae of reaty enttng the ta payer
to the nstament bass when tota amounts receved n basc year do not e ceed 40 er cent of uross prce.
16 cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
ncome.
cquescence n oard s decson wt respect to computaton of ncome for wrod anuary 1 to March
IS, 1920.
G
e
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2
0
1
3
-
0
1
-
2
2

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4
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3
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0
0
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8
8
9
3
3
6
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cquescences Contnued.
Ta payer.
Contractors Constructon Suppy Co.1.
Cook, zabeth .a
Cook, M. M., estate of
Cook, P. W -
Cooke, eatrce
Coombs, zabeth M
Coombs, . oward
Cooper, ohn I
Corbett, ott R
Cornng Trust Co., trustee
Corn we, . L
Cosmopotan ond Mortgage Co.
Costco, oseph 1
Cotton, G.
Couchmau, Wam ennng-
Coursev, Sarah . W.
Co , tta
Co , Carre G
Crane, e ander ., estate of
Crane ct a., e ander M., e ecutor .
Crews, Chares.
Crews, verett..
Crews, Raph W.
Crews, Robert _
Croker, ua
Cromwe et a., Wam Neson, e ecutors
Cronan, Mr. and Mrs. rancs M
Crouse, George N
Crowey, oseph ., estate of 8._
Crownnshed Shpbudng Co.
Cuver, Wmer T
Cunard Coa Co. .
Curts, Laura M_.
D.
Dah, ndrew ., estate of I 44845
Dah et a., ua, e ecutors I 4484
41963
38579
53044
/ 54740
60228 /
26751
44768
44769
32610
40115
40926
29252
30303
44617
22640
59655
67729
70957
71755
69698
69698
71718
71718
66766
66767
66701
66702
41121
42619
78185
43446
51419
35472
18987
37574
26874
26875
28792
56314
oard of Ta
oume.
20
25
27
32
25
25
25
24
27
26
24
30
27
30
33
31
31
30
30
30
31
33
33
30
31
33
30
31
33
27
24
33
26
25
24
24
26
28
24
24
Page.
772
1351
33
100
513
1320
1320
216
388
1359
915
717
377
866
118
1068
819
819
29
29
615
187
441
36
615
187
441
615
187
441
588
461
668
477
340
925
1013
234
631
1167
1167
1 Nonacquescence notce pubshed In Cumuatve uetn -2 revoked.
1 cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to ssue nvovng method of accountng used by ta payer.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton ssue.
cquescence reates to the foowng ssue: Incuson n pettoner s taabe net ncome for 1930 the
tota proft receved from sae of rea estate by the trust.
Nonacquescence pubshed n Cumuatve uetn III-1 wthdrawn.
state ta decson nonacquescence pubshed n Cumuatve uetn -2 revoked.
1 state ta decson.
cquescence reates to deductons for addtona royates and ofoers saares and drectors fees.
G
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cquescences Contnued.
Ta payer
Daey, ugene S., e ecutor..
Day, Margaret P
Dana, Myer
Dancer, dth M., estate of _
Davdson, dth L
Davdson, ames
Davs, ohn
Dav, Chares, estate of ..
De orest, ate R.1
Deaware 4 udson Co.
Dennett, Car P.
Dennett, Mare G.4 ---
Denns, rank ., estate of --
Denns, Merry M., e ecutr 1
Dennv, Regnad
Detrot Trust Co. et a., e ecutors
Dckey, Water S., estate of
Dcknson, bert G
Don, erbert L
Drksen, nna L., e ecutr
Drksen, Theodore ., estate of..
Dttmar, mmy
Dockwcerct a., Isdore ., e ecutors and trustees .
Doernbecher Manufacturng Co.
Dohme, fred R. L --
Doese Shepherd Co. Syndcate No. 3.
Dome Co
Domnon Natona ank
Donney, Catherne, estate of
Donney et a., Garrett ., e ecutors
Dorc partment Co
Dougas Co., ohn
Drake, rancs
Dre e Packng Co
Duff, Robert C.7.
Duncan, T. P -
Duncan, Mrs. T. P
Dunham, Water
Dunne, ney Peter
du Pont, Perre S.8..
Docket
oard of Ta ppeas.
No.
oume.
Page.
26045
25
949
05213
32
905
50248
30
83
70456
30
1277
72905
34
555
/ 01711
-
655
72904
20703
24
36
75103
34
11
37284
27
373
/ 50553
50629
26
520
71858
30
49
72023
30
49
50203
26
1120
50263
26
1120
49516
33
738
35472
25
340
51043
32
1283
f 35015
43176
23
1211
/ 58025
59280
32
1254
17717
24
1152
17717
4
1152
63931
32
349
50828
30
1136
1 34853
43527
46421
1 50007
30
973
63628
I, 71534
68159
31
071
41136
30
1171
41887
26
907
52165
26
421
50443
31
577
50443
31
577
44055
32
1187
38726
23
1307
46804
30
475
20775
24
376
37552
23
1342
65921
31
212
05924
31
212
60308
27
1068
54444
29
1109
20996
18
1028
1 state ta decson.
1 state ta decson acquescence reates to deducton of attorneys fees n connecton wth the admn-
straton of the estate whch had been estmated and contracted for but not yet pad.
Gft ta decson.
1 Nonacquescenc pubshed n Cumuatve uetn I-2, wthdrawn.
cquescence reates to deductbty of osse sustaned by pettoners upon aeged saes of stock to
tach other durng the ta year.
1 cquescence reates to ssue nvovng deducton of operatng e penses of aeropane and deprecaton
thereon and whether amounts e pended for costumes, make-up, and wgs are deductbe as ordnary
and necessary e penses.
7 cquescence reates to Issue 1 of decson.
nnapfPfwnMt nnhtth d n Cumuatve uetn I -2, revoked.
G
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1
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-
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8
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cqt|escences Contnued.
Ta payer.
oard of Ta ppeas.
age Pass Pedras Negras rdge Co.
asterwood, r., W.
asterwood, r., Mrs. .
sendrath, dwn W
sendrath et a., dw n W., e ecutors.
sendrath, Maron
sendrath et a., Rose L., trustees
sendrath, Wam
sendrath, Wam N., estate of
drdge, ce .
drdge, . .
gn Compress Co
ott-Grante Lnen Corporaton
more Mng Co
nameed Metas Co
nns Ice Co.
rb et a., Ray L., e ecutors 2
vans, . T
vans et a., nson, trustees
vans Products Co
vergreen Cemetery ssocaton.
.
ack, e ander D
as Cty Ice everage Co.
ame Cannng Co
armers ducatona and Cooperatve State Unon
of Nebraska
armers Lfe Insurance Co.8
armers Loan Trust Co., trustee
armers Unon State change
awsctt, Chares
edera Street Peasant aey Passenger Ry. Co.
erguson, arod G
dety Savngs fc Loan ssocaton.
dety Unon Trust Co., e ecutor
fth venue ank of New York, e ecutor 4.
rst Ctzens ank Trust Co
rst Natona ank of oston, admnstrator.
rst Natona ank of ey West
rst Natona ank n Mobe
sher, Chares D., estate of
42460
40181
63416
40182
63417
36726
36724
36727
36728
36725
36724
64779
64778
49302
48212
46768
52972
19011
22021
22022
26259
42184
29200
64397
62664
43044
30726
20452
67636
20774
10596
18105
27194
31748
43317
29465
18105
64474
29758
70463
14862
31801
39406
45215
69193
69166
71599
36438
46583
45186
63732
23
28
28
28
28
28
28
28
28
30
30
31
26
27
25
24
29
30
29
29
25
26
27
24
30
27
26
30
31
24
34
23
33
32
32
25
26
30 I
32
1 cquescence reates to ssue whether dvdends decared n 1929 consttuted Income to the pettoners
n 1929 or 193U.
cquescence reates to market vaue of o and gas eases on March L 1913.
cquescence reates to ssue n connecton wth opton payment receved for purchase of and.
state ta decson.
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cquesc nces Contnued.
Ta payer.
tch, orence --.
emng, Lamar L.1
orence Manufacturng Co
ok, . .
ordyce et a., Wam C, trustees.
orest Products Chemca Co.
orres, Lord
orrester, W.
oster, L. .2
oster, N. C, estate of
oster et a., Ward, e ecutor 3
o , ontane 4
ranckc, Chares
rank, m ---
rankn Teegraph Co
rankn Tte Trust Co.5.
rschkorn Deveopment Co.
uhage, fred .
G.
Gamb, . ..
Gambe, Cec ., e ecutor
Gambe, ames N, estate of
Gambe, Mary ., estate of
Gambe Stockton Co.7
Gardner, Chares .
Garron et a., Isabe . ., e ecutors s.
Gaston, Wam
Gay, D. .
Gay, . C
Genera Outdoor dvertsng Co., Inc.8..
George, erome R
George Machnery Co., R.
Gbbs, G. Wdy
Rubber Co
Docket
No.
Of.
51670
78362
15383
26079
28396
31018
58647
46621
40229
43973
73591
43086
32984
32984
71084
56438
50224
29695
f 51947
60167
67805
30496
35170
42452
61754
47902
60840
55595
60840
42707
38575
47705
52163
62309
58787
58788
66511
45240
61218
31329
43052
50073
27628
27629
54556
oard of Ta ppeas.
oume.
29
1299
34
384
25
676
25
599
30
988
27
638
25
154
32
745
26
1328
25
414
25
414
30
451
32
613
27
1158
26
914
32
266
30
8
32
222
26
995
33
94
32
892
33
94
26
794
25
1351
26
292
34
57
31
580
31
580
32
1011
27
765
26
594
28
18
31
483
24
18
24
18
29
1161
Gnsberg, bert _.
Gnsberg, Nathan
Gven, T. ., estate
cquescence reates to Issue nvovng ncuson n ncome Interest on the decedent s share of part-
nershp capta and ncuson In ncome the decedent s share of certan commssons earned by the
partnershp.
cquescence reates to Issue regardng fng of separate return for 1925.
1 state ta decson.
cquescence reates to deducton for deprecaton on premses and ncuson n year 1930 n pettoner
o s ncome, 7,400 representng renta vaue of premses occuped by hm.
4 cquescence reates to Issue nvovng deducton of commssons pad on sae of mortgage notes.
cquescence reates to ssue whether ta payer s entted to the statutory persona e empton as the
bead of a famy.
cquescence reates to ncuson n consodated nvested capta of capta stock ssued for a te and
brck manufacturng pant, etc.
1 cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
1 cquescence reates to ssue whether pettoner reazed gan on transfer of certan of Its assets to Centra
Outdoor dvertsng Co. for stock of that company.
G
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1
3
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2

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10
cquescences Contnued.
Ta payer.
Gancy, Inc., . R.
Gobe Constructon Co
Godwn, rthur M
God Stock Teegraph Co
Goden, dward
Godman, Ma we
Godsmth, Ma
Gordon, fred W
Gordon, zze 1
Gordon, Ma L.1
Gore ros., Inc
Gotteb Reaty Co
Graeper, W.
Grand Rver Grave Co...
Grant, arry ohnston
Great Southern Lfe Insurance Co.
Green, Robert D.8 --
Green, W. S
Grev u Corporaton
Grffs, Stanton 4
Grffths, va Lavno
Grffths, George W
Grffths, ohn
Grswod Co
Guaranty udng Loan Co
Gudeon, Water T
Guf Coast Irrgaton Co.5
Guett, C.
Guett, W.
Gummey, rank .
Gurnce, ugustus Coe, estate of 7.-
.
aberand, Pau
afner, fred
aev-Oa Coa Co
aa day, Sarah P
amburg, r., Sam
andy, rankn Mer
Docket
No.
C2002
43438
51694
53310
61568
70407
29470
27625
30302
59722
57483
22332
22333
39538
42528
46619
23085
51794
56540
64064
71114
53647
43786
46373
63487
47376
38577
63354
42498
43074
68628
55352
54739
60229
33694
40081
41343
52517
52518
61056
42619
29289
48389
57132
30962
26754
30304
f 66810
67671
74406
oard of Ta ppeas.
oume.
31
25
34
26
24
24
29
29
27
27
30
28
27
22
30
33
24
27
25
30
25
25
33
27
32
24
31
31
26
24
25
31
24
25
24
30
1 cquescence reates to that port of decson hodng that Water . ettman s not abe as a
and to mtaton ssue.
1 cquescence n ssue nvovng deductbty of nterest pad on matured coupons surrendered.
8 cquescence reates to transactons 1, 2, 3. and 4.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred
purchased.
cquescence reates to a ssues e cept affaton ssue.
e Nonacquescence pubshed n Cumuatve uetn II-1, wthdrawn.
state ta decson nonacquescence pubshed n Cumuatve uetn -2, revoked.
stock
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11
cquescence Contnued.
Ta payer.
oard of Ta ppeas
No.
oume.
Page.
62718
31
1126
62718
31
1126
44992
24
173
44992
24
173
33076
51012

542
65169
71310

1100
71311
31
1100
69636
31
224
6S636
31
224
62784
31
1126
25269
27
1305
21843
27
1305
50594
30
455
29958
1
41736
26
134
53600

63789
29
163
63790
29
163
38864
27
1305
72788
32
1
32841
25
1161
60690
29
1061
60690
29
1061
37499
25
96
16552
25
736
61334
29
595
56161
32
613
38573
25
1351
63321
33
73
63321
33
73
56668
62845
30
301
60729
68821
32
349
46806
25
1282
33279
24
475
22341
27
377
57032
63141
30
962
1 6253
24
438
62676
31
1126
62676
31
1126
41728

42769
26
541
45663

47781
26
1351
27352
26
241
27351
26
241
33374
24
22
33375
24
22
64127
29
1272
54282
27
621
29461
26
1359
, R. ., estate of
anna, rgna W., e ecutr
anscom, dward ., estate of 1
anscom et a., Meve, e ecutors
arbeson Lumber Co., W.
.
arkness, dward S
arkncss, Mary S
arnschfeger, enry, estate of 1
arnschfeger et a., Mare ., e ecutors
arper, . T
arrah, Mare
arrah, Wam
arrson, Inc., . M
artford- mpre Co.
astngs, Cve, estate of
astngs, .
astngs, rederck
atfed, . T
avard, Chares
awk, enry C, estate of
awk, Ida W., e ecutr
ay, W.
ayman Co.,
azewood, N.
eck, dwn
emph, Cfford
enke Trust, Mrs. Catherne.
enke, enry, estate of
ennngsen, Water
erff 4 Dttmar Land Co.
ervey, W. R
ess, Nathane
ettman, Water .
ewtt, rskne
ckman, anne Snyder
man, . D., estate of
man et a., udson McCntock, admnstrators.
mehoch ros. Co
res Co., Chares
obbs, enrv
obbs, Teck ..
offer, nta Owens
offer, T. _
oday, ohn
ongsworth, .
oster, George ue..
1 state ta decson.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
1 cquescence reates to that part of decson hod ng that Water . ettman s not abe as a transferee
feud to mtaton
G
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2

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12
cquescences Contnued.
Ta payer.
oy Deveopment Co
omby Corporaton
omes, George W
oughton, anson
oughton, r., mory, estate of_
oughton, rthur
oughton, Chares ., estate of_.
ouston ros.1
ouston, George T
ouston, orace .1
ouston Land Trust Co., trustee.
ouston, Php D.1
oward et a., ohn
ubbard, dward, estate of
ubbard, Mdred M
ubbard, Mdred M., formery e ecutr .
ubbard, Mdred M., transferee
ughes, .
unter, C. W., e ecutor
unter, George ., estate of...
unter, r., Thomas .
untngton, enry ., estate of
unttng, enry R
urbut, . M
urt et a., Mrs. . ., e ecutors
urt, oe, estate of
utchns, Chares P.
utchng, Lena C
urer s, Inc.
Inos Centra R. R. Co_
Inos Power Lght Corporaton.
Independent Ice Coa Co
Indana Lamp Corporaton
Ingas, Chares C, estate of5
Insu, Margaret
Insu, Samue
Insu, r., Samue
Internatona Ocean Teegraph Co.
Interstate Reaty Co
Dockot
No.
42771
52661
51303
53797
29445
2944 1
29446
29465
12052
13104
22008
22009
63321
22007
52163
62309
63878
67569
63837
63878
67569
67335
45417
45417
58490
45429
75304
71788
28099
28099
49070
49069
28369
29154
39841
oard of Ta ppeas.
oume.
33
28
29
26
26
26
26
22
22
22
33
22
34
30
30
30
30
32
26
26
33
28
32
33
30
30
34
34
24
62023
30
62991
34
56299
33
59687
67639
27
52761
28
57835
25
68002
32
68504
68003
32
68503
68001
32
68505
29585
26
46272
25
50981
1 cquescence reates ony to deducton for busness e penses n 1920 and to number of feet of tmber
cut durng 1919.
2 cquescence n ssue as to whether pettoner receved a ta abe dstrbuton from Marsha ed Co.
on anuary 5, 1927, n the amount of 1,118.51.
cquescence reates to ssue regardng oss from operaton of a frm n 1925 and 1926 and ssue regardng
ncreasng defcency for 1925 by amount of nterest accrued on bonds e changed for art ob|ects.
cquescence wth respect to hodng that pettoner was not a transferee.
1 state ta decson.
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1
3
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2

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13
cquescences Contnued
Ta payer.
Iten scut Co
Iverson, I. C
Iverson, Ruphane ___
ames, Wam L
ohnson, orence D., estate of_
ones, Chester ddson 1
ones, R. D
ammerdner,
ansas Cty Leasehod Improvement Co.2.
ansas Cty Memphs arms Co
ansas Cty Southern Raway Co. and affated
companes 3
asch, d
asch, Theodora-
e, rank
e, Mrs. rank -
e, oe
e, We May.
eey, ohn P
ent, verett .
esser, . M
bee, O. .4
ng, enretta M., estate of
ngsbury, . R
nney Co., Inc., G. R
rchner, uus C
eberg et a., Robert ., e ecutors.
nght, . D.
onnk|ke, N. ., oandsche Loyd (Roya
oand Loyd)
raemer, Samue
uhn, Ida L
unau et a., Oscar . C, trustees
Docket
No.
16429
20899
4SS.3S
48837
70278
75969
50206
69858
41643
46555
35718
51060
22668
35527
35528
35529
35530
35531
48293
48293
69677
69678
69681
69685
38233
39576
42589
46064
52640
24882
52632
56382
31397
32980
25428
52632
56865
78662
37822
/ 32609
40267
64815
34630
36940
oard of Ta ppeas.
oume.
25
29
29
30
33
31
29
25
17
25
22
25
25
31
31
31
31
26
26
31
27
31
31
20
27
31
28
34
25
24
27
25
I cquescence as to ssue whether pettoner shoud be aowed to fe hs return on communty property
bass.
1 cquescence reates to March 1, 1913, vaue for purposes of cacuatng gan or oss upon sae of and
at ersaes, Mo. whether the nvested capta of the Smcoe Reaty Co. shoud be Increased for 1918
and the March 1,1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
cquescence reates to the foowng Issues Deducton of contrbutons to Y. M. C. ., Prests of Paace,
and ssocaton of Raway ecutves and amortzaton of commssons and e penses ncurred n sae
of bonds.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton 1
G
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a
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d

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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
3
1

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2
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0
0
0
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8
8
9
3
3
6
8
8
P
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14
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Landers, Dougas ., estate of1
Lang et a., orence O. R., e ecutors 1
Lang, enry, estate of1
Lang, uus C, estate of
Langworthy, Mar|ore C.3..
Lansk, Samue
Lawrence, Gadys G
Lawson, ohn
Leamngton ote Co
Ledcsdorf, Samue D
Leonard odng Corporaton, George ., estate of
Letts, r., rthur
Lews, Sr., . S
Ley, George W.1
Ley, Mary C.4
Lberty arms Co
Lberty osery Ms
Ldo udng Co., Inc
Lncon, Robert Todd, estate of
Lppncott et a., . ertram, e ecutors
Lppncott, Water, estate of1
Lttauer, ugene, estate of 5
Lttauer et a., Lucus N., e ecutors
Ltte, C.
Loyd, S. Rose
Loyd, Water
Loeb, r., et a., Wam, trustees
Loge, oseph
Longyear, r., ohn M.
Longyear, Mary ., estate of
Loughborough Deveopment Corporaton.
Loure, Davd
Luhrg Coeres Co
Co.
M.
MacCaum Gauge Co
Mata Tempe ssocaton 7
Manhattan Lfe Insurance Co_
Manstque Lake Superor R. R.
Markham Irrgaton Co.9
Marston, dgar L
Martn, C.
Martn ote Co. and affated corporatons.
Martn et a., . are, trustees
Martn, T. S., estate of
35443
71117
71117
68316
71961
49347
75494
40232
48413
48305
48871
62106
56163
22336
22337
26717
29899
66546
53385
39167
49233
49233
51858
51858
01821
75765
44089
34161
37762
40071
47117
56027
62410
36438
46583
51064
27630
40048
70437
29476
32940
35337
41344
61961
61735
16275
44583
44583
21
32
32
34
30
34
33
25
26
26
26
30
32
27
27
22
31
31
24
27
27
25
25
27
32
30
26
24
28
25
29
24
26
32
16
32
29
24
29
34
24
24
24
state ta decson.
state ta decson acquescence reates to deductbty of fu amount of 1,M1.S9 addtona ncome
ta es accrued on decedent s separate ncome ta return for 1927.
cquescence reates to reorganzaton ssue.
cquescence reates to that part of decson hodng that Water . ettman Is not abe as a
transferee and to mtaton ssue.
state ta decson acquescence reates to ssues 4, 5, and 7 of decson.
cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
Income.
Nonacquescence pubshed n Cumuatve uetn III-2 wthdrawn.
cquescence reates to a ssues e cept affaton ssue.
G
e
n
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d

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8
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3
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15
cquescence Contnued.
Ta payer.
Martns, ndy 1
Marvn, Water S. .
Mason, Pau
Matagarda Cana Co. ..
Matehette, rankn ...
Matthews, . P
Maudn, L M._ --.
Mc uffe, gnes
McCa, orence 4
McCarter, Uza
McConne, Stea
McCoo, ess
McDonad, L. G
Mc wan, nna
Mc wan et a., nna .,
Mc wan, .
Mc wan, Lan G
Mc wan, W. ., estate of
McGrew, zabeth W
McLaughn, Thomas
McLennan, . R
McMan, Wam Northrup, estate of 8.
McRae, Louse C, e ecutr
McRae, Php, estate of 4
e ecutors.
Mead Coa Co., C.
Memphs Memora Park
Mente Co., Inc
Mente, ugene W
Mente, . G
Mercante-Commerce Natona ank n St. Lous
et a., e ecutors and trustees 4
Mercante Trust Co. of atmore eta
Merr, Isaac L --
Messer, Rchard ., estate of
Metropotan Propertes Corporaton
Mchgan Centra R. R. Co.
Mchgan Trust Co. et a., e ecutors
Mby Dow Coa Mnng Co.
Mgrm ros., Inc., .T
Mken, Sae Gbbs...
Mnneapos, St. Pau Saut Ste. Mare Ry. Co..
Msssspp Packng Co., Inc
Docket
No.
22334
38578
58413
40082
41345
40710
26250
2G239
49071
47702
69193
43478
46059
25427
25996
25997
25995
25994
25997
26753
59788
26730
45966
32303
32303
42718
42719
54660
49259
53458
51305
54701
54708
35443
68338
61722
42513
45032
19930
42513
22021
22022
26259
42184
33177
31330
74118
20772
oard of Ta ppeas.
oume.
27
25
33
24
26
22
22
29
26
33
29
24
27
26
26
26
26
26
25
29
25
27
30
30
28
28
29
29
29
21
32
31
27
24
28
27
24
24
28
34
24
cquescence reates to that part of decson hodng that Water . ettman Is not abe as a transferee
and to mtaton Issue.
cquescence reates to Issues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to a ssues e cept affaton ssue.
state ta decson.
state ta decson acquescence, e cept In so far as concerns the queston of stus.
cquescence reates to the foowng ssues: Whether amount pad by New York Centra R. R. Co. to
6tote of Inos n connecton wth ssuance of bonds was a ta or fee savage recovered from ore docks
credt representng deprecaton on property retred n 1918.
cquescence reates to ssue 1 of decson.
G
e
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16
cqcescences Contnued.
Ta payer.
Mssour State Lfe Insurance Co.1.
Mtche, L. C.
Mtche, Oscar
Mobe Lght Raroad Co.
Moore, dward W., estate of4.
Moore, Louse C, e ecutr 4
Moorehead, Wam
Moorshead, O
Morgan, atherne untngton, estate of.
Mossman, . Pau 5
Mossman, Wam ., estate of
Muchnc, . ., admnstrator
Munroc, Grace ohnson
Murchson, Mrs. .
Murphy, Mae . cey
Murray, dward
Murray, Rebecca
Murtha Schmoh Co
Musgrove, oyd L
Mutua ssurance Socety of rgna.
N.
Na et a., R. ., e ecutors
Natona Capta Insurance Co. of the Dstrct of
Coumba
Natona Casket Co., Inc.8
Natona Contractng Co.7
Natona M Suppy Co
Docket
No.
58241
62386
41610
41680
41874
54673
41026
42062
58720
58720
25853
57045
79652
59747
59747
63789
76942
62838
38222
40176
58858
40174
58857
17911
42591
43911
53044
56748
50320
24520
37001
/ 31668
33971
64013
74411
38053
38053
38052
38050
36319
28045
38049
oard of Ta ppeas.
oume.
29
28
27
23
33
33
22
28
34
32
32
29
32
28
26
28
28
17
27
24
27
28
29
25
23
24
30
32
26
26
26
26
27
26
26
Page.
401
767
101
543
108
108
858
253
433
696
596
163
995
257
212
624
624
442
654
1102
33
1078
139
407
1362
952
32
236
101
101
101
101
1097
696
101
Natona Packng Corporaton
Natona Te Co
Neracher, George
Netcher, Chares, estate of
Netcher, Gadys Over, e ecutr
Netcher, Irvng
Netcher, Townscnd
Ncwavgo Portand Cement Co
Newbock O Co. of Te as 8
Newbury, Moe Netcher
cquescence does not reate to foowng ssues: Deducton for reserve set up to meet abty upon
matured coupons ad|ustment of ncome for renta of space occuped n home offce budng and deprecaton
upon such budng.
cquescence reates to Issues regardng assgnment of earnngs of ron mnes n payment of ega servces
and deducton of amount pad to son for aeged servces rendered.
cquescence reates to foowng ssues: 1. Whether payments receved by a trustee on behaf of pet-
toner n the ta abe years n accordance wth a wrtten agreement entered nto by and between pettoner
and another n 1906 consttute ta abe payments of rent or nonta abe payments on the seng prce of
assets. 2. Whether pettoner sustaned statutory net osses for 924 and 1926 whch can be deducted from
ts Income for 1925 and 1926, respectvey.
state ta decson acquescence n hodng that the commuted vaues of the nstament poces n
the frst two groups shoud be ncuded n the gross estate.
1 state ta decson.
cquescence reates to deducton of corporaton e cse ta es.
1 cquescence n oard s decson that pettoner had the rght to aocate overhead e penses to each
contract on competed bass and that formua used by pettoner was permssbe and ssue reatve to
neggence.
Nonacquescence pubshed n Cumuatve uetn I-2 revoked.
G
e
n
e
r
a
t
e
d

f
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Z
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1
3
-
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1
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2

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/

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0
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0
0
8
8
9
3
3
6
8
8
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#
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17
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Newbury, Moe Netcher, trustee..
Newe et a., Sterng, e ecutors
New ngand Power Co
Newman et a., Rose, e ecutors
Newman, Samue, estate of 1
New Market Investment Co.
Newton, zabeth .
Newton, oseph R., estate of 1
New York Centra R. R. Co.
New York, Chcago St. Lous R. R. Co
Nagara Share Corporaton of Maryand
Nbey-Mmnaugh Lumber Co
Ncodemus, r., . C.4
Nppert et a., fred ., e ecutors and trustees.
Noonan state Trust, . R
North Sde Lumber Tmber Co
Northern Coa Co.
Noyes, ansen 6
Oakey, Rchard
O Donohoe, ohn
O Donohoe, Mrs. ohn
Ods, Margaret .7
George
Omsted, Iva C.8.
38052
57s:5
18593
29105
59598
59598
35719
47703
47705
19932
34437
62040
21047
70813
17527
52326
62569
55595
62664
34924
34945
38574
45778
69686
69680
49068
44090
45745
48121
54714
60746
44089
45746
48143
54713
60745
64272
35721
32335
59957
26
101
25
773
25
195
31
772
31
772
17
213
26
292
26
292
28
437
23
177
31
832
32
791
26
125
32
892
29
710
27
1187
24
307
25
1351
24
1082
31
212
31
212
34
845
30
331
30
331
30
114
17
213
28
698
29
374
Oympa arbor Lumber Co
Ontaro Reaty Co.
O Rear, . C. .
Osborne, Owen, estate of 10
1 state ta decson.
1 cquescence reates to March 1,1913, vaue (or purposes of cacuatng gan or oss upon sae of and at
ersaes, Mo. whetherthe Invested capta of theSmcoe Reaty Co. shoud be ncroased for 1918 and the
March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
cquescence reates to the foowng ssues: Whether amount pad by New York Centra R. R. Co.
to State of Inos In connecton wth Issuance of bonds was a ta or fee savage recovered from ore docks
credt representng deprecaton on property retred In 1918.
1 Nonacquescence pubshed n Cumuatve uetn I-2 wthdrawn.
cquescence reates to Inventory ssue.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
: cquescence wth respect to hodng that pettoner was not a transferee.
cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
ncome.
cquescence reates to ssue as to aowabe deducton of cost of operatng automobe party used n
ta payer s busness n 1924.
Nonacqnescence pubshed n Cumuatve uetn III-1 wthdrawn.
G
e
n
e
r
a
t
e
d

f
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0
1
3
-
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1
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2
2

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4
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2
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3
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0
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0
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8
8
9
3
3
6
8
8
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#
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18
cquescenoes Contnued.
Ta payer.
Pacfc tantc Teegraph Co. of the Unted
States
Pacfc Coast scut Co. ct a.1
Package Machnery Co
Page, De Wtt
Pane et a., rancs Ward, e ecutors
Pane, Wam ., estate of
Pam each Mather Co...
Pamer, radey W.
Parke, Davs Co
Parker, Cara ., e ecutr 8
Parker, George D., estate of
Parkand Ice Coa Storage Co
Parrott, . .
Patterson, zabeth P
Peavy- yrnes Lumber Co
Peavy-Moore Lumber Co.
Peavy-Wson Lumber Co
Peck, Cara S., estate of
Peck et a., remont C, e ecutors
Pegg, bert 0.
Pcnn Mutua Lfe Insurance Co
Pennsyvana Indemnty Co
Pennsyvana Investors Co
Peopes Lfe Insurance Co.8
Perata, ohn M
Perkns et a., acob
1 cquescence wth respect to deducton of e pense Incdent to amendment of pettoner s charter.
1 cquescence reates to ssue whether stock rghts were capta assets where the stock n respect of
whch they wero ssued had been hed for more than two years pror to sae of the rghta.
3 cquescence reates to a questons wheren decson was not whoy tn favor of Commssoner e cept
decson regardng e stence of partnershp of George D. Parker Co.
4 cquescence reates to rght of overrdng royaty owners to beneft of secton 211(b), Revenue ct of
1918.
cquescence reates to that part of decson hodng that Water . ITettman Is not abe as a trans-
feree and to mtaton ssue.
cquescence reates ony to treatment of renta vaue.
Docket
No.
oard of Ta ppeas.
oume.
Page.
29586
26
914
71588
32
39
54334
28
980
78907
34
590
34113
25
764
34113
25
764
43850
24
536
62652
32
550
62717
31
427
58604
31
644
58604
31
644
67640
27
1346
30989
28
917
76058
33
57
15824
16354
25
223
25984
15823
16355
25
223
25986
15822
16356
25
223
25985
61520
61521

87
61520
61521
87
22338
27
377
52577
32
f 839
59670
876
71992
30
413
20766
24
376
66969
71744

706
57923
33
843
28701
25
1123
G
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a
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1
3
-
0
1
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2
2

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2
7
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0
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8
8
9
3
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6
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#
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19
cqt|tescences Contnued.
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
57848
58305
58306
58443
58475
58770
58772
58904
33
606
58905
58906
58907
58917
58918
58925
69855
33
394
63645
32
442
26749
25
513
26748
25
513
54050
28
976
47901
26
995
48867
29
291
43995
26
472
25126
43860
28
412
65173
31
403
60569
1
66964
27
1074
67422

44858
30
636
72157
72158
32
66
46585
22
161
50576
54779

360
67638
27
1346
29274
25
1161
64464
27
55
50380
26
509
73763
34
655
57117
29
113
40659
24
216
41072
24
216
32996
1
47845
25
676
47846
|
45896
59468
27
28
26752
25
513
59957
29
374
34743
26
655
69683
31
212
Perkns et a., Thomas N. _
Perrv, oward
Perry, Raymond ., estate of.
Pershouse, ce
Perehouse, Mabe
Peters, ndrew .1
Phps, C.
Phoen Insurance Co
Pctora Revew Co
Pggy Wggy Corporaton
Ptkn, George P
Pttsburgh thetc Co.2
Pttsburgh Metng Co
Pttsburgh 4 West rgna Ry. Co.
Pztz Dry Goods Co., Lous
P-M- Petroeum Co. . --
Poar Ice Coa Co
Pope, Ove R
Powe, T. L are4 --
Powe, en|amn I
Powe, oseph W
Prare O Gas Co
Prce, Laura M
Prce, W.
Prophyactc rush Co.
Prosperty Co., Inc.5
Prosser, Constance
Provdent Trust Co. of Phadepha, e ecutor
st
1 cquescence reates to the foowng ssues:
Is any part of the defcency as to astern Carbon ack Co., Thompson O Co., . n. M. Co., and Davs
ros. Co. due to fraud wth ntent to evade ta
Dd the shares of Interstate Oas Co. stock receved by . . M. Co. as a dvdend from astern Carbon
ack Co. consttute n part a qudatng dvdend
1 Nonacquescence pubshed n Cumuatve uetn II-2 revoked.
1 cquescence reates to thrd ssue of decson.
Nonacquescence pubshed n Cumuatve uetn II-1 wthdrawn.
1 cquescence reates to deducton of oss resutng from qudaton of one of ts subsdares.
Nonacquescence pubshed n Cumuatve uetn III- wthdrawn.
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20
cqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
unn, van
unn, Martn M.
unn, Pau
R.
Ramsh, doph
Rarash, Inc., doph
Randa, Mar|ore G.1
Rapp, ohn W., estate of
Rauh Reaty Co --
Ray O Co.
Reardon Sons Co., ohn
Record Petroeum Co
Reese, ugusta ss
Remco Steamshp Co -.
Rew, George Campbe, estate of-
Reynard Corporaton1
Reynods Catte Co
Rhea, Isaac T --
Rhea, Mrs. Isaac T
Rhodes, erman M._
Rato Mnng Corporaton
Rchards rsehfed, Inc
Rchardson, my S., e ecutr 4
Rchardson, Chares W., estate of
Rchmond, redercksburg Potomac R. R. Co. ..
Rggs Natona unk 6
Rtter Lumber Co. et a., W. M.
Roach Studos, Inc., a...
Robertson, Cae
Robertson, R. R
Robson, Lester L
Robson, Cara P., estate of.
828
635
635
1107
949
936
207
1 cquesconce In that part of decson reatng to deductbty of oss sustaned n 1924 from sae of
resdence.
1 cquescence reates to ssue whether pettoner was ta abe n 1923 as a trust or as an assocaton.
1 cquescence reates to deducton for deprecaton on premses and ncuson In year 1930 n pettoner
o s ncome. 7,400, representng renta vaue of premses occuped by hm.
state ta decson.
cquescence reates to Increased deducton for oss on retrements of roadway property.
Nonacquescence pubshed n Cumuatve uetn -2 wthdrawn.
1 cquescence reates to deducton of contrbuton to ctory ghway ssocaton.
Rodeo- ae|o erry Co.7
Rogers, rown Crocker ros., Inc.
8544
8598
8574
39568
39569
38971
28618
32822
34332
20773
50962
62424
57728
41404
67386
70795
68445
71463
54960
54959
54899
48692
56877
21715
64023
64023
68876
30903
42833
42834
42835
42836
43604
43605
43606
48749
57319
57320
57321
57322
61750
42496
42497
63878
26645
36411
48528
67581
26
26
26
30
30
27
24
26
28
24
32
29
30
34
30
31
29
29
34
25
24
31
31
33
17
30
33
31
28
28
33
25
24
32
970
970
970
1290
1290
475
1061
48
1204
376
1270
565
579
451
451
206
804
804
212
980
1280
245
245
895
615
231
117
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21
c tn SC NC S Contnued.
Roande, Guano 1
Rosenberg, Lous
Rosenboom nance Corporaton
Roeshem, Irvng D.
Roth, Gorton
Rov 4 Ttcomb, Inc
Ruz. M
Russe, C. C
Russe, Mrs. C. C
S.
St. ohns Investment Co
St. Lous Unon Trust Co. et a., cotrustees.
St. Lous Unon Trust Co., e ecutor 4
Sanders, W. C
San Marcos Compress Co
San Martnez O Co
Sappngton, G. Rdgey
Savngs eature of the Reef Department of the
atmore Oho R. R. Co
Scatena, vra 8
Schepp Co., L
Schermerhorn, arret Puman
Schumacher, . P
Scov Manufacturng Co
Scruggs, Gross R
Scruggs Investment Co
Scruggs, Maran P...
Seaconnet Coa Co.
Seares Rea state Trust
Second Natona ank of Phadepha
Securtes Co
Securty rst Natona ank of Los ngees et a.,
e ecutors 7
Sebert, Ltd.. --
Ses Sportng Goods Co
Shaffer, C.
Shand, Gadsden
Shapro, Samue
Shaw, Davd, estate of
Shea, R. P
Docket
No.
57479
67286
27626
35778
40903
57503
22568
29138
67097
46060
46061
50613
65675
45966
26651
49304
37447
43121
51944
59486
61156
63920
42908
43145
59612
29854
30238
33610
46270
38711
18089
24489
76825
40553
45429
57059
20771
29259
26238
65158
34499
37835
40034
oard of Ta ppeas.
oume.
33
24
24
31
26
24
30
24
24
30
30
27
25
31
25
25
32
32
25
26
32
25
24
24
24
24
25
33
25
28
29
24
29
22
29
24
24
1 cquescence reates to reducton of proft of members of syndcate by the 2 per cent commsson due
yndcate manager: and whether porton of the syndcate ncome consstng of dvdends shoud be ta ed to
the ndvduas ony at surta rates.
1 cquescence reates to hodng of oard that dstrbutons receved from oseph . nch Co. were
not parta qudatng dvdends.
1 cquescence reates to Issue whether pettoner reazed addtona compensaton on sae of stock of
Warner ros. Pctures, Inc., In 1928.
state ta decson acquescence, e cept In so far as concerns the queston of stus.
cquescence reates to ssue nvovng ncuson of far market vaue of rghts to buy bonds n pet-
toner s ncome.
cquescence reates to Inventory ssue.
cquescence reates to Issue regardng oss from operaton of a farm n 1925 and 1926 and ssue regard -
ng Increasng defcency for 1925 by amount of ntorest accrued on bonds e changed for art ob|ects.
cquescence reates to market vaue of o and gas eases on March 1. 1913.
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22
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Shepherd, Cette G., estate of 1
Smcoe Reaty Co.2
Smmons, II., et a., dward C, e ecutors-
Smmons, dward
Smmons, George W., estate of
Smmons et a., Rchard W., e ecutors
Smmons, Waace D., estate of
Smms, . .5
Smms O Co.
Smms Petroeum Co.4
Sncare et a., een ., e ecutors..
Sncare, enry P., estate of
Sncare, r., enry P., estate of
Sncare et a., Murray, e ecutors
Sncare, Regnad
Sncare, Wam, estate of
Sou as Meta Cuvert Co
Spes, asper
Soss, atte echt4
Smathers, . ., estate of8
Smathers Power Typewrter Co
Smth et a., zabeth D., e ecutors.
Smth, I. N., estate of
Smth, esse, e ecutr
Smth, Mrs. esse
Smth, Lous, estate of
Smoot, Lews
Sneed, r., . T...
South Memphs Land Co
Southard, enne
Southern tantc Teegraph Co.
Southern Raway Co. et a.
Spanger, Georga M
Spanger, . W
Sprague-Ses Corporaton.
69166
35720
47210
47211
47212
47212
47210
19175
19791
61497
61496
37703
29252
37520
37520
37864
37703
41070
72605
64835
29260
43968
39291
49668
39291
49668
18876
22313
18876
32578
45694
44500
42592
29694
f 21481
I 29951
37887-
37898
56320
56321
42006
42434
32
17
32
32
32
32
32
28
28
28
26
20
26
20
20
20
20
31
33
2
28
25
25
24
24
24
25
30
8 33
27
27
20
27
29
29
30
1 state ta decson.
cquescence reates to March 1, 1913, vaue for purposes of cacuatng gan or oss upon sae of and
at ersaes, Mo. whether the nvested capta of the Smcoe Reaty Co. shoud be Increased for 1918:
and the March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
cquescence reates to ssues 3, 5, and 7 set forth In syabus of pubshed decson.
cquescence reates to bass for computng deprecaton on assets acqured by Smms O Co. In 192S
from Cayton O Refnng Co.
cquescence reates to the foowng queston: Dd pettoner receve a dvdend from echt road-
way Corporaton n 1929 n the amount of 1,603
cquescence reates to market vaue of o and gas eases on March 1, 1913.
cquescence reates to oard s hodng that bonuses shoud be ta ed as separate or communty property
In accordance wth the cassfcaton of the propertes under the ease and ssue n connecton wth assess-
ment of defcency for 1925.
cquescence reates to ssue nvovng deducton for depeton from advanced royates or bonuses.
6 cquescence reates to foowng ssues: 1. Dd pettoner reaze ta abe ncome from unrcfunded
portons of amounts deposted by shppers for constructon of factes for use of such shppers 2. Where
bonds wore sod at a premum pror to March 1, 1913, Is the amortzed porton of such premum ta abe
Income 3. Dd Commssoner erroneousy e cude from ad|ustment for matera and suppes an amount
equvaent to nfaton contaned n book vaue of such materas and suppes as were not used durng 1920
G
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1
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2

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23
cquescences Contnued.
Ta payer.
Sprague Son Co., C. ._
Sprunt 4 Son, Inc.,
Standard eef Co
Standard Conveyor Co.
M.
Standfer Constructon Corporaton, G.
Starr, rank C
Stauffen, Theodora --
Steams, Robert L
Steege, W.
Stegeman, .
Stegeman, r., bert
Stegeman, anne L
Stegeman, . M
Stegeman, . R
Stegeman, Mabe
Stegeman, Wam L
Stephenson, Ida
Sternberg, erman
Stevens, ohn
Stevenson Consodated O Co.
Stewart, Maco, e ecutor
Stewart, Theodore
Stock Yards ank of Cncnnat
Stockham, |ah
Stone et a., Irvng ., e ecutors and trustees
Stone, Irvng Lee, estate of
Stoneman, Davd
Storey, . M ---
Straube, . L. G -
Stromeyer, Irene
Stromever, Wam
Strong, arod C.4
Stuart, Chares
Stuart, r., Woughby
Sugar Creek Coa Mnng Co
SuUvan, ugene C
Summerfed Co
Sunburst O Refnng Co.
Swenhart, ames
Tabot, . . .
Teague, .
Irrgaton Co. .
ucv , Water
Thompson, dward W.
Thompson, W. L
Three Rvers Securty Corporaton.
Co
Docket
No.
34946
38408
20770
33159
36393
40873
51636
69259
26756
37573
67098
26643
26650
26644
26647
26646
26649
26648
62825
55758
29685
43416
63645
70297
41085
22569
43830
43830
27627
62813
50S67
55341
55342
38576
53796
73869
73758
29389
58711
45979
54784
36191
73034
40083
41346
67506
51103
51104
44857
44880
50653
oard of Ta ppeas.
oume.
24
24
24
25
30
31
25
24
30
25
25
25
25
25
25
25
33
32
24
23
32
32
25
26
26
26
24
31
29
28
28
25
29
32
31
26
29
23
2d
23
32
24
32
28
28
30
29
1 cquescence reates to nventory Issue.
cquescence reates to ssues regardng reducton of Income for fsca year endng November 30, 1921,
by o s sustaned for 11 months endng November 30, 1922, and Incuson n Income for a years of 1 par
vaue of capta stock of Sunburst O Oas Co. receved by pettoner as a premum.
state ta decson acquescence reates to ssue Invovng deductons from gross estate.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to oss ncurred In sae of a boat.
cquescence reates to a ssues e cept affaton ssue.
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1
3
-
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1
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2
2

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1

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24
cqdksc ences Contnued.
Ta payer.
Tfft, Chares
TfTt, Lews .
Tmes-Pcayune Pubshng Co
Tobey, Maurce
Toerton Warfcd Co.1 --
Torrens, ames .2
Tracy, Davd ., estate of
Tracy et a., Gertrude emer, trustee
Tracy, Wam R.-.
Tresncr, my
Trcou, Sae S
Trnty Drng Co.
Tro, nne
Trost, dward
Trout, . W -
True, dward C.
Turbeve, e M
Turner, atheen M.
Turrsh, enry
Twn e O Syndcate
Twnng, dmund S
U.
Uster Deaware R. R. Co -
Unon Lard Corporaton
Unon Pacfc R. R. Co.5
Docket
No.
31029
33464
42340
45957
31030
33465
42341
45958
48892
49539
27624
45320
53778
54828
62982
54828
62982
45513
66703
28093
40258
61498
61215
73848
39020
68501
43733
47900
55553
64334
64560
22340
44742
29518
70296
2S927
20769
51530
70183
70219
oard of Ta ppeas.
oume.
25
25
27
24
23
31
30
30
25
30
31
33
25
28
33
34
27
31
31
27
24
26
32
25
24
32
cquescence reates to Issue regardng deducton o oss sustaned by pettoner durng nonaffated
perod.
1 cquescence n oard s decson n so far as t hods that pettoner was not ta abe on any part of the
proceeds of the 100 shares preferred stock gven by hm to hs four sons n 1928.
8 cquescence reates to bnss for computng deprecaton on assets acqured by Smms O Co. n 1925
from Cayton O 4 Refnng Co.
cquescence reates to that part of decson hodng that Water . ettman a not abe as a trans-
feree and to mtaton ssue.
cquescence reates to ssues wth respect to oss sustaned by O. W. R. R. Co. on e change of and
In Seatte In 192.5 amount of oss sustaned by O. W. Raroad Navgaton Co. In 1926 on sae of
and n Mutnomah County, Oreu contrbutons to hospta departments In 1924,1925, and 1926 amorta-
tou of dscount on bonds ssued pror to March 1, 1913, and commssons unrefundabe porton of depost
made wth pettoner In connecton wth constructon of branch ne.
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2
0
1
3
-
0
1
-
2
2

0
4
:
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1

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0
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0
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8
8
9
3
3
6
8
8
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25
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Unon Pacfc R. R. Co. et a.1
Unon Peopes Natona ank of ackson et a.,
admnstrators 1
Unon Trust Co. of Pttsburgh, trustee
Unted utographc Regster Co
Unted States Trust Co. of New York, trustee
aUant, the Netcher
ermont ydro- ectrc Corporaton.
rgna Iron, Coa Coke Co
oge, R. red, estate of
W.
Waker, George ., estate of .
Waker Products Corporaton.
Waker, R. D
Ward ros. Co
Warner Co.8.
Warner, Raph C
Washngton Market Co
Waterbury, Charotte M.
Waterbury, Donad N.4
Waterbury, ugene W.4
Waterbury, Whtford N.4
Watson, r., ohn
Wayne County ome Savngs ank 5_
Weddng, G. G
Weeks, anson
Wes, Samue W
Wheeock, R. L
Wheeock, Mrs. R. L
Whte Oak Transportaton Co. . -.
Whtman, Ward Lee Co
Whtney, Ward M
Wht8on, Thomas
Wco , C.
Wams, r., ford
Wams, a --
Wams, L. ... -
Wams, W. W - -
Wamson, e ander
(35639-
35049
35684
35685
40060
40061
40002
70456
61009
30384
/20747-
26757
38051
59638
51576
56182
31869
44856
76762
30992
53039
53040
59190
62510
43912
73381
73380
73383
73382
53414
49144
56442
63916
62126
37806
37S0.-)
18088
61552
37927
40233
40371
(f. ) 15
29273
58789
46062
40231
43972
26
30
29
11
25
26
29
29
34
23
30
34
24
26
31
25
33
33
33
33
27
26
32
31
30
28
28
24
29
26
25
27
29
25
31
24
25
1126
1277
731
433
513
101
1006
1087
580
663
636
983
989
1225
1126
576
208
208
208
208
463
761
613
627
478
611
611
307
670
212
154
580
892
1161
580
506
154
1 cquescence reates to donatons ssue amortzaton of dscount on bends ssued pror to 1913 com-
putaton of ta for 1920.
1 state ta decson.
1 Nonacquescence pubshed n rumuatho uetn II-1., wthdrawn.
I cquescence reates to ssue as to basc vaues of sock.
Nonacquescence pubshed n Cumuatve uetn -2, revoked.
1 cquescence reates to nventory ssue.
121397 37 2
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26
cquescknc es Contnued.
Ta payer.
Wamson, rchbad (Lord orres)
Wamson, esse C.1
Ws, Mary
Wson, enton
Wson Co., Inc., of Caforna
Wson Co., Lee
Wson Commsson Co
Wson urs, Inc
Wson, George S., estate of
Wson Shpbudng Co.3
Wnne, Water G
Wndow, Marv N
Wof, . C
Wood, red T
Wood Lumber Co., .
Woodard, ohn S.4
Woodward, rthur P
Work, orace ., estate of
Wray, za
Wrght, George M
Wrght, Leonard Marsha
Y.
Yazoo Msssspp aey Ry. Co_
Young, the P
Yukon aska Trust
Z.
Znsser Co
Docket
No.
40229
43973
80545
66718
52894
20768
33826
20767
57058
50828
34337
60900
76059
56439
38808
23605
24156
71962
54741
60227
81027
25S81
25S54
45508
62023
62991
38S68
34161
5242
oard of Ta ppeas.
oume.
25
34
30
31
33
33
24
25
24
29
30
25
27
33
32
27
25
30
32
31
24
22
20
30
34
24
26
21
1 cquescence reates to
state ta decson.
cquescenc3 does not reate to ssue 5 of decson
cquescence reates to reoymmon ssue.
net gan ssue as to stock sod n 1933.
The Commssoner has wthdrawn hs acquescence n the foowng
decsons of the Unted States oard of Ta ppeas:
oard of T
oume.
ppea .
Ta payer.
Docket
No.
45008
45008
43164
43164
22
22
21
21
1093
Mchennv, ohn D., estate of 1 --
1093
339
339
Wade, eptha 11., estate of1
Wade, r., et a., eptha ., e ecutors 1
1 state ta decson acquescence pubshed n Cumuatve uetn -2.
G
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1
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8
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3
3
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27
The Commssoner does NOT acquesce n the foowng decsons
of the Unted States oard of Ta ppeas:
Ta| payer.
Docket
No.
oard of Ta ppeas.
oume.
beson Reaty Co., Inc.
beson s, Inc
ckerman, Irvng C.
ameda Park Co
bers, Wam .1
brecht et a., atherne ., e ecutrces 2.
ker, era M. oher
ed urrers Corporaton
mercan rck Te Corporaton
mercan Centra Lfe Insurance Co. .
mercan Gas ectrc Securtes Corporaton..
mercan Idea Ceanng Co
mercan Raways Co
mercan Refrgerator Transt Co.
mercan Seatng Co.
mes, Mure Oakes
mes, r., Ward
partment Corporaton
ppeby, rancs S
rabo Manufacturng Co
rchbad, dward
rchbad, oseph
rchbad, r., oseph
rmstrong, Wam M.
rmstrong, Warr
shton, Ward .
tas Lfe Insurance Co
uto Strop Safety Razor Co., Inc.
.
abson, red
abson, Gustavus
abson, enry
anger, esse M., e ecutr 5.
anger, Water ., estate of ..
atmore Oho R. R. Co.
53792
53793
30311
31634
40948
40949
8355
74759
41295
36116
50059
29994
30133
31998
56024
63436
62604
49205
67662
64782
67602
72861
14676
71811
49817
42024
73089
50489
61660
65064
61661
65062
61673
65063
40419
39148
40544
40751
67199
57374
52224
52223
52222
32177
32177
37239
24
686
24
686
1
512
1
25
850
33
373
27
1091
25
243
24
457
22
1121
1
I 30
1182
1
33
245
30
529
30
939
)
465
14
328
30
516
27
624
26
849
31
533
26
1068
27
837
27
837
27
837
25
928
28
582
29
750

28
621
27
27
27
23
23
30
1 onacquescence reates to ssue concernng oss on sae of stock of . Nash Co.
1 state ta decson nonacquesccr.ee reates to State nhertance ta ssue.
1 Nonacquescence reates to ssue whether certan funds denomnated Insured s personn beneft fund
were reserve funds requred by aw and ssue whether the pettoner s abty en outstandng unsur-
rendered unpad coupons consttutes a reserve fund renured by nw.
1 cquescence pubshed n Cumuatve uetn III-2 wthdrawn.
1 state ta decson.
Nonscquesttnce reates to deductbty as e pense for year 1920 of amount for mantenance of ways
Md structures.
G
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2
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1
3
-
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1
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2
2

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8
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3
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28
Nonacquebcences Contnued.
Ta payer.
ank of Caforna, Natona ssocaton
ankers Trust Co., trustee
arradae, . Morgan
artett, . emp
ashford, Raymond I
ass, rancs M
ateman, . L
av, Robert P
ebb, Rchard ., estate of
echte, enneth
echtc, Stephen D
cebe, unus, trustee
eebe, Marcus, estate of
ehan, Thomas W
efast Investment Co.
e, rederc D., estate of
e Sons, Samue -
eresford, ven een de a Poor, estate of 3_
erkeey a Schoo, Inc
ndey, Mary M., estate of
smarck Trbune Co
ar, Cec Chares
ar, dward T_
Docket
Nu.
ss, Sydney R
ss, aentne
um, esse
um, Davd
unentha, arry S
oard of ro Underwrters of the Cty of Duuth..
oca Cega Deveopment Co
oehrnger. Rudoph 4
onwt, Pau
oston Safe Depost Trust Co. et a., e ecutors
owen, dwn L.
owman- tmore otes Corporaton-
owman ote Corporaton-
Ltd.
rackman, . W
radbury, I. C
rskey Co
rtsh- mercan Tobacco Co.,
rookyn Cty R. R. Co
rookyn ueens Transt Corporaton-
rookyn Rado Servce Corporaton
rooks, Regnad
rown, rank ., estate of
55537
60G99
32459
77376
63632
71566
73626
47772
66014
41295
75485
75486
52707
52707
75428
19128
69534
38056
41647
45616
G7259
47415
58871
59660
69803
42313
63741
55902
53422
52221
52220
75143
43150
40446
49891
53661
49272
62985
41472
43629
10651
24912
28971
38006
45714
45780
60899
41224
20353
20353
61229
68560
47677
oard of Ta .
oume.

30
24
34
28
33
30
34
28
27
34
34
26
26
32
17
31
32
22
31
31
28
33
29
31
26
26
29
29
34
26
25
29
33
30
33
24
24
24
23
29
27
27
27
31
31
26
1 state ta decson nonacquescence reates to State nhertance ta ssue.
1 N on acquescence n ssue as to whether pettoner s entted to deducton for amortzaton of the 1
tract warehouse for 1918.
Nonacquescence reates to ssue nvovng reorganzaton.
st ate ta decson.
Nonacquescence reates to ssue whether gans on sae of stock of the Waterbury Chemca Co.
ta abe to pettoners or to trusts created by them.
G
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f
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
3
1

G
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2
7
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3
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0
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0
0
8
8
9
3
3
6
8
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29
Nonacqdescences Contnued.
Ta payer.
rown, . C
rown, arry
rown, Pear ., e ecutr -
rownng, ohn N
rownng, S. P
uck, ohn ., estate of
uck et a., Mary M., e ecutors _
uckhardt, ugust
uffao Unon Iron urnace Co.3..
uock, George
unge North mercan Gran Corporaton.
urdette, Cara
urey, anche ., e ecutr
burr, dward L
usche, . C. .
usness Rea state Trust of oston.
uter- etch Co
C.
Cadwaader, Mary een
Cadwaader, r., Rchard M.
Carey, Robert
Carey bre Products Co.,
Carey Sat Co
Carro, .
Carro, Lena Carter
Carson state Co
merson.
Carson, ohn
Carson, Rose L
Carter, . L
Carter, . L., admnstrator
Carter, Mrs. . L
Carter, .
Carter, Le N
Carter, Maude ., estate of
Carter, r., W. T
Case, Montgomery
Casses, Robert
Centra Market Street Co.
Centra Unon Trust Co. of New York, e ecutor.
1 state ta decson nonacquescence reates to deducton of amount of a cam fed agunst the estate
and aowed by probate court. .,
1 Nonacquescence reates to ssuo regardng deducton from gross ncome of fsca year ended pr |u,
1010, of reserve for renng bast furnaces.
1 Nonacquescence reates to ssue 1 of decson.
1 n Cumuatve uetn - wthdrawn.
s to ssue regardng oard s ursdcton of subsdares.
Docket
No.
33343
48136
47677
72713
72714
32584
44153
44684
32584
44153
44684
76255
16075
16076
31209
47800
37321
44909
58795
9447
10202
10755
33469
42684
50305
45169
45170
46327
71800
54033
60432
67415
36381
36382
51880
51881
47444
53489
45393
45392
51882
47669
51883
51884
51885
47669
51886
75816
58793
24837
31736
oard of Ta ppeas.
oume.
25
26
26
31
31
25
25
32
23
23
27
25
26
26
10
25
23
27
32
31
26
26
27
27
31
28
28
27
27
27
27
27
27
27
34
26
25
25
G
e
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a
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2
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1
3
-
0
1
-
2
2

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4
:
3
1

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3
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0
0
0
0
8
8
9
3
3
6
8
8
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30
Nonacqt|escences Contnued.
Ta payer.
Centra Unted Natona ank.
Champon, Davd .1
Champon, T. Perre 1
Chander, Constance
Chander, arrson Gray
Chander, een
Chander, Maran Ots
Chander, Norman
Chander, Php
Chapman, C.
Charavay, Marus
Chemca Natona ank of New York..
Chenowth, . C
Chcago Dock Cana Co
Chcago North Western Ry. Co.5
Chdaw, arry
Chrstensen, Nes
Cark, Percy
Cark Thread Co.s
Ceand state Co., Inc., enry .
Covs, C.
Coastwse Transportaton Corporaton..
Cobegh, Margaret dwards, estate of 5
Cochrane, Davd .
Coumba Pacfc Shppng Co
Coumbus rck Te Co.
Commerca Garage Co
Commerca Investment Trust Corporaton 8.
Communty ond Mortgage Corporaton..
Communty Mausoeum Co.
Communty Teephone Co
Communty Water Servce Co
Cone, dward
Conney, ames .10..
Docket
oard of Ta nneas.
No.
oume.
Page.
/ 69212
71063
33
5SS
/ 55569
63818
-
1312
55568
27
1312
67471
32
720
67470
32
720
67475
32
720
67468
32
720
67473
32
720
67476
32
720
52496
28
63
f 70005
71592
29
1255
45604
30
178
38349
26
301
48268
32
231
36343
22
1407
69782
29
1096
72424
33
79
65177
31
1082
/ 38903
47974
28
1127
f 33585
1
I 40890
) 29
436
51197

68433
32
646
39910
28
725
40705
24
176
6042
26
1167
50968
29
964
42707
26
794
41040
22
793
/ 43495
50051
28
143
43784
27
480
70384
33
19
77508
32
164
77500
32
164
58777
26
1401
I 44081
45833
) 46267
30
331
51967 1
60566 1
66948
Nonacquescenco reates to ssue whether redempton of stock was equvaent (o ta abe dvdend.
Nonacqueseence reates to foowng ssues: Undermantenance proft and oss on bonds retred
amortzaton of bond dscount.
Nonacqueseence reates to ssne respectng deprecaton.
Nonacqueseence reates to bass for determnaton of gan or oss on the sae of property devsed sub|ect
to a re estate.
8 state ta decson.
6 cquescence pubshed n Cumuatve uetn II-1 revoked.
7 Nonaoqueseence reates to ncuson n consodated nvested capta or capta stock ssued for prom-
ssory notes.
8 Nonacquescence reates to deducton n 1926 of e cess of market vaue over sae prce of t
empoyees.
Nonacquescenco reates to ssue whether the fna nstament ou the sae prco of
to be retaned by a trust ee as a perpetua care fund shoud be e cuded from the fu contract
putng proft, the ta payer reportng ou the accrua nstament bass.
Iu Nonacqueseence reates to ssue nvovng the amounts pad to stockhoders by . G. Curts Leather
Co. u| on canceaton of certan stock.
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31
Nonacquescences Contnued.
Conney, L. .1
Conney, Marv .1
Cook, zabeth .a...
Cook, Sam
Cooper, . T.
Cosmopotan ond Mortgage Co.4..
Coughn, R. Lawrence and veyn W.
Coursey, Sarah . W.5
Cre, Grace Mc rde
Crspn, Mrs. gerton
Crosby, Oscar T
Cross, Maurce
Cunard Coa Co.1
Cuppa, erome C
Curee, Sheby ., trustee.
Curren, ector McGowan.
Cza|ke, I. T., transferee
Davdson, Watson P.
Davs, C. R.7
Davs, rederck
Davs, Thomas L
Day, Chares, estate of8
Degener, ohn ., es ate of
Degener, r., et a., ohn P., e ecutors9.
De Lsscr, orace, estate of 10
de Me, Cec . .
de Me Productons, Inc., Cec . _
de Me Productons, Inc., Wam C.
Dennett, Mare G.
Denny, Regnad 13
Depew, Ganson
44083
45834
44082
38579
35014
3144
44617
76106
71755
43136
45267
51317
32735
26874
26S75
28792
58545
48833
81826
64639
46486
10299
32950
37324
37395
75102
38500
38500
2459
52995
61291
65122
71951
52996
61290
65123
53108
61321
72023
49516
50860
30
331
30
331
25
1351
25
92
7
798
30
717
32
1048
33
1068
26
1020
28
236
27
1234
24
1079
26
234
26
1401
28
773
34
946
33
564
27
158
10
1233
20
931
24
405
24
405
34
11
26
185
26
185
2
102
31
1161
31
1161
30
826
30
49
33
738
27
515
1 Nonacquescence reates to ssue nvovng the amounts pad to stockhoders by . G. Curts Lether
Co. upon canceaton of certan stock.
1 Nonacquescence reates to vaue of common stock of mercan Chafn Co., Tnc, and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
1 cquescence pubshed n Cumuatve uetn II-1 wthdrawn.
4 Nonacquescence reates to ssue nvovng commssons charged on rea estate oans.
1 Nonacquescence reates to the foowng ssue: Computaton of ta abe proft to pettoner from sae
of and by the trust durng 1930 on the bass of the vaue of sad and as of March 1, 19.. .
1 Nonacquescence reates to e pendtures for mne equpment.
1 cquescence pubshed n Cumuatve uetn - wthdrawn.
I state ta decson nonacquescence reates to deducton of baance due on pedges made by decedent
durng hs fetme to certan chartabe and educatona nsttutons.
state ta decson.
u state ta decson acquescence pubshed n Cumuatve uetn -2 recaed.
II Nonacquescence does not reate to the case of Constance . de Me, Docket 71952, whch was dsposed
of by stpuaton.
M Nonacquescence reates to deductbty of 10,000 because of the fact that a bond n whch pettoner
had Invested became worthess n 1930, athough that fact was not ascertaned unt 1931.
11 Nonacquescence reates to deducton of amount e pended for denta brdge work and amount e pended
n keepng pettoner n frst-cass physca condton.
G
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32
Nonacquescences Contnued.
Ta| payer.
dee Cognets, stee
des Cognets, Lous, estate of
Des Mones Improvement Co.1.
Dohrmann, ndrew . C
Doomte, Inc
Donner, Carro
Donner et a., Carro ., e ecutors..
Donner et a., Carro ., guardans..
Donner, oseph W
Donner, r., oseph W
Dort, . Daas, estate of 2
Dougass, oward W.( estate of1
Drawoh, Inc
Drunheer, George
Duff, Robert C
Dunham et a., Lucy ee, e ecutors 2.
Dunham, Mary rgna, estate of1
Dye, Carke
.
ast Coast O Co., S.
ckhart, ernard ., estate of -
dson Securtes Corporaton...
dward Securtes Corporaton..
fert, ar C
drdge, ce .4
drdge, . S.4
khorn Coa Co.
kns, ae D.
kns, Wam L., estate of
s, It. R., estate of
y, zabeth Tayor
mery, Mary M., estate of 6
qutabe Lfe ssurance Socety of the Unted
States
qutabe Trust Co., of New York, ancary admn-
strator 2
rb et a., Ray L., e ecutors 7
the D. Co
usts, ugustus .
venng Star Newspaper Co
verhart, ames Wam
70892
70889
8573
20658
23969
60661
60237
60236
60235
60236
60235
44735
40031
45014
41515
45752
37552
74911
58180
76443
52662
71208
45781
64779
64778
49064
39255
56449
67967
76546
4C .U)
31110
33241
57867
67259
29260
32032
71637
61870
66855
26675
34
34
7
19
19
28
32
32
32
32
32
26
30
28
27
23
33
31
33
29
30
23
30
30
34
24
28
34
33
25
33
31
29
27
30
28
26
cquescence pubshed n Cumuatve uetn II-1 wthdrawn.
1 state ta decson.
Nonacquescenee reates to Issue 2 of decson.
4 Nonacquescenee reates to deducton of oss In transfer of securtes to a corporaton fn whch pettoner
owned a the stock e cept quafyng shares.
Nonacquescenee wth respect to the hodng that there was a reorganzaton.
cquescence pubshed n Cumuatve uetn -2 revoked.
T Nonacquescenee reates to the foowng ssues: Reducton of cost bass (March 1.1913, vaue) of assets
od by a partnershp n 1919 by deprecaton aowed n computng ncome for perod March 1, 1913, to
December 1. 1915 computaton of 1919 partnershp proft on safe of assets by consderng as part of the sae
prce ta es of the partners pad n 1920 Y y the vendee.
cquescence pubshed n Cumuatve uetn III-2 wthdrawn.
G
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33
Nonacquescences Contnued.
Ta payer.
.
armount Cemetery ssocaton
ason, . M
armers Cotton O Co
armers Lfe Insurance Co.1
awsett, Chares
edman, enry O
erree, C.
dety Coumba Trust Co., trustee ---
dety Unon Trust Co. et a., e ecutors
ed, Marsha -
fth venue ank of New York, e ecutor
fth Street udng
rst Natona ank n St. Lous
rst Natona ank of oston, admnstrator 1
rst Peopes Trust
sher sher, Inc
sher, Irvng
tzgerad, Thomas
etmann, Wam M., estate of5
etmann, r., et a., Wam M., e ecutors
emng, Lamar L.
emng, Wam
emng, Mrs. Wam
etcher, Gaathe R -
ntermann, Car . L., estate of 1
oey, Thomas ., estate of
oger Co., .
oger state Co -
orest Gen Creamery Co
oster, Carone ., estate of
oster et a., Chares . W., e ecutors
oster, L. .
ounders ssocates
o , ontane
o Rver Paper Co
rankn Tte Trust Co.7.--
Docket
No.
30925
42811
81324
42679
43317
72057
45359
61542
65041
65042
72236
36908
69534
16627
29264
45537
44278
48078
44746
45403
60929
61622
62075
28449
28449
78362
61042
65676
61043
65677
33041
75516
67217
22212
30721
31200
35147
51833
46672
46672
43086
62684
71084
20878
51947
60167
67805
oard of Ta ppeas.
oume.
Page.
25
1272
34
918
27
105
27
423
30
908
28
236
32
725
30
562
31
171
26
116
31
945
32
701
24
876
23
1124
25
612
26
551
32
211
30
433
29
1113
22
1291
22
1291
34
384
31
623
31
623
24
75
32
996
34
258
27
1
27
1
33
564
26
708
26
708
26
1328
29
326
30
451
28
1183
32
266
1 Nonacquesoence does not reate to Issue In connecton wth opton payment receved for purchase
cfand.
1 state ta decson.
1 cquescence notce pubshed n Cumuatve uetn -2 recaed.
1 Nonacquescence reates to ssue nvovng ncuson In ncome the decedent s share of profts of a part-
nershp of whch he was a member up to the date of hs death.
1 Nonacquesoence reates to deductons In 1924 and 1925 on account of osses resutng from aeged sab s
of securtes.
Nonacquescence reates to ncuson n ncome of corporaton for years ended March 31, 1930, and
March 31, 1931, amounts representng renta of premses occuped by ts presdent.
T Nonacquescence reates to the queston whether rankn ond Mortage Co. was entted to deduc t
pad on the sae of ts bonds Instead of proratng cost over the fe of the bonds.
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34
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
ranks, ack M
uhage, fred .1..
uer, van T
urnture Corporaton of merca, Ltd.
G.
Inc.6.
Gae, my
Gambe Stockton Co. .
Garcn, dward
Gardner, Chares .
Garre, Dane T., estate of
Garvan, ohn oseph, estate of 4_
Gary, rgna ., e ecutr
Gassner, Lous 6
Genera Machnery Corporaton.
Genera Outdoor dvertsng Co.,
Genera Uttes Operatng Co.
Gerard, re
Gcrhnrdt, Php L
Gerach, Theodore R
Gerste et aL, Mark L.7
Conner, erman
Grard Trust Co. et aL, admnstrators
Gaddng, Mary D., estate of4
. M. 8. Co
Goet|en Metson Co
Goforth, Marv
Goforth, R. S
Godberg, arry S.s
Godschmdt et a., Georgette, e ecutors
Godschmdt, enry P., estate of
Goodae, Water S
Goodan, May Chander
Graham, M.
Grant, een .
Great Southern Lfe Insurance Co.10-
53685
61754
73759
72800
72801
61672
42707
21657
38575
31736
44746
40031
4017
70449
66511
52770
45221
77375
(380421
41641/
62854
77506
75624
31435
16383
17875
52316
52316
5389
16138
16138
78456
67472
3 335
f 62029
65577
I 68324
f 56540
64064
I 71114

83
32
31
30
27
26
22
25
25
25
30
4
33
32
29
28
34
27
33
32
32
27
26
26
32
32
4
14
14
34
32
26
29
33
1 Nonacquescenee reates to ssue whether redempton of shares of stock represents payment In parta
qudaton of a corporaton or a ta abe dvdend.
1 Nonacquescenee reates to ncuson n consodated nvested capta of capta stock ssued for proms-
sory notes.
Nonacquescenee reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme and
under the same agreement.
4 state ta decson.
cquescence pubshed n Cumuatve uetn - wthdrawn.
Nonacquescenee n ssuo nvovng counse fees pad n connecton wth tgaton.
7 Nonacquescenee reates to the foowng queston: re pettoners entted to deduct on ther nd-
vdua returns the operatng and capta osses sustaned by rea estate syndcates of whch they were
members
1 nd 19 reated dockets.
state ta decson: acquescence pubshed n Cumuatve uetn -2 recaed.
10 Nonacquescenee n foowng ssues
Dd the ta payer reaze nterest accrued upon a oan where t forecosed ens on certan bonds pedged
as coatera
Dd ta payer reaze nterest as ta abe net ncome where notes were e changed for new notes whch
ncuded nterest and the new notes were not ad durng the ta abe year
Whore ta payer acqured the assets and busness of three other nsurance companes durng the ta abe
year, w as ncome reazed upon the coecton of nterest that was accrued but not pad as of date of pur-
chase
G
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35
Nonacquescences Contnued.
Ta payer.
Great Western Power Co. of Caforna-
Green, .
Green, Robert D.
Greeneaf Te te Corporaton
Gregorv, vevn
Grffs/Stantoh 1
Grosvenor, Theodore P
Gutar Trust state
Guf Coast Irrgaton Co.s.
Guf Mobe Northern R. R. Co.
Gund, arone ., estate of
.
ackfed, ohann redrch, estate of .
ae, rnest
ae, R. W
ae, W. T.--
a, arry . R., estate of
a, Martha M
aock, enry, estate of
ancock, G. an
anson, Chares C
arbson, Raph W.7
arbson, Wam bert7.
ardwck, Mar|ory Tayor.
aran, George
arrs, en 8
arrs, Smon
arrson, ames M
arrson, .
art, ohn
artey, Cavour, e ecutor-
artey, G. G., estate of
auser, W.
awkns, . C
awkns, May me
awey Investment Co
Docket
No.
48617
74910
53647
46746
55299
38577
60381
35102
33694
40081
41343
24887
42150
70891
77997
67105
67750
67751
70004
71598
64501
76802
76803
76927
36867
15398
54346
54347
76545
60500
10980
31632
66193
45361
52795
60115
42343
42343
43301
43302
81323
81325
45169
45170
oard of Ta ppeas.
oume.
30
33
24
26
27
25
31
25
24
22
34
33
33
32
32
29
31
34
25
23
26
26
33
30
10
24
SO
28
27
27
T
26
34
34
23
1 Nonacquescence reates to transacton 5.
1 Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
1 Nonacquescence reates to affaton ssue
1 Nonacquescence reates to ssues nvovng award of Interstate Commerce Commsson n 1920 for
transportaton of Unted States mas In 1916 and 1917 and deducton n 1928 for deprecaton on ways
and structures.
1 Nonacquescence appes to the entre decson of the oard n so far as t s adverse to the Commssoner.
Parta acquescence pubshed n uetn I-28 revoked.
state ta decson.
T cquescence pubshed n Cumuatve uetn II-1 wthdrawn.
1 cquescence pubshed n Cumuatve uetn - wthdrawn.
G
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1
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1
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2
2

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#
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36
Nonacquebcences Contnued.
Ta payer.
azetne Corporaton
Wrck, . T
cfTcfnger, rank T ---
enz, oward
eer, . G
emph, Cfford 1
cndrckson, oseph G., estate of
enn, . W
enrtze, .
enrtze, Ne
enrtze, T. R-
enrtze, T. W
ermann, ohn C
crtcnsten, reda M
erte tcn, rederck.
ckman, oward C
eronvmus, Car Rchard, estate of
ghands, vanston-I/nconwood Subdvson,
rst ddton, Trust No. 1546, et a
ghands, vanston-Lnconwood Subdvson,
Trust No. 1521, et a
ghway Traer Co
gev k Co., .
, D. ., estate of
ct a., Pau ., e ecutors
nds, Water DeWtt, estate of1
tte, ohn
ochstetter, Raph
odges, gnes Wey, e ecutr
odges, W. L., estate of
odges, W. L., trustee
oge, rthur ., estate of
oge, anche C, e ecutr
oge et a., the ., e ecutors
oge, ames D., estate of
odng Corporaton, O. P. P
omes akery Confectonery
omes, Car
omes, . ., trustee
omes, Margaret
Docket
No.
42277
47011
51931
60313
33533
41145
44852
53881
63407
09694
73479
79059
79450
40634
38573
73029
37102
60609
60607
t ,06()S
60606
51959
55936
37369
48930
74464
74465
44568
51003
29399
29399
49860
70820
76160
38336
38336
38337
68435
68435
58118
58119
58118
58119
60674
44943
52861
51473
53395
44943
52861
48631
51570
53394
oard of Ta ppeas.
oume.
32
24
32
34
25
25
32
20
28
28
28
28
27
29
29
27
24
32
32
28
25
24
24
32
33
34
26
26
26
32
32
33
33
30
27
27
27
27
IS orncquescence reates to vaue of common stock of mercan Chan Oo., Inc., and the
on of cost between sad common sock and preferred stock of sad company acqured at the
and under the same agreement.
1 state ta decson.
of aocs-
ame tme
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1
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3
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37
Nonacquescences Contnued.
Ta payer.
ome Tte Insurance Co
onnod, W. L
ousehod Products, Inc
ousman, Carence
ousman, rederck
ouston aseba ssocaton
ouston ros.1
ouston, George T.1
ouston, orace .1
ouston, Php D. -
uburd, Chares ., estate of
uburd, De orest, ndvduay and as e ecutor
and trustee
umme-Ross bre Corporaton --.
umphrey, Dudey T
unter, G. W., estate of 2
unter, r., Thomas .3
untngton, enry ., estate of -
utchson Coa Co
yde, ames
I.
Inos Lfe Insurance Co
Impera evator Co
Impera Investment Co
Indanapos, Crawfordsve Danve ectrc
Ry. Co
Indanapos Northwestern Tracton Co
Ingram, Thomas
Irvngton Investments Co
It n scut Co
Ives, Chares
Ives Dary, Inc
Iwck, . W., transferee.
.
ackson astern Ry. Co.
ackson, Pau Wde, trust-
ackson, Wermch Trust
amson Coa Coke Co..
Docket
No.
63737
55211
44809
58798
58774
43985
45430
12052
13104
22008
22009
22007
22028
22028
59865
64376
33564
58490
45429
34939
65495
69952
67201
35688
29291
33859
33861
56943
77557
43667
45164
51527
39873
64653
3S295
542149
74928
32307
31690
34088
51172
43149
61345
79029
oard of Ta ppeas.
oume.
33
30
24
26
26
24
22
22
22
22
27
27
31
32
25
33
28
2 4
31
30
25
23
24
24
32
32
25
29
23
33
22
33
24
24
28
25
32
33
33
Page.
318
774
594
1401
1401
69
51
51
51
51
1123
1123
451
280
1078
941
289
973
256
1160
234
1281
197
197
1063
1165
870
822
579
564
233
311
150
554
39
1335
156
551
551
anotta, Stea S.
efferson Standard Lfe Insurance Co
ohnson, . M
ohnston, . arod, e ecutor
ohnston, . M., estate of
Nonacquescence reates to March 1, 1913, vaue, and to the bass for the deducton for depeton and
for the computaton of gan or oss upon subsequent sae of the tmber.
1 state ta decson.
Nonacquescence n ssue Invovng queston of reazaton of ta abe proft on e change of cass IS
common stock for cass stock.
Nonacquescence reates to ssue whether ta payer sustaned a net oss n any busness reguary carred
0D n 1924 whch coud be carred forward and deducted from ta abe ncome n 1925.
Nonacquescence reates to ssue Invovng deducton for deprecaton on ways and structures.
Gft ta decson.
G
e
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r
a
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e
d

f
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1
3
-
0
1
-
2
2

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8
8
9
3
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6
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38
NoN cqu SC NC S Contnued.
Ta payer.
oard of Ta ppeas.
ohnston, ugh Mc rney, ndvduay and as e -
ecutor and trustee
ones, esse R
ones, Chester ddson 1
unge, Caus, transferee
.
ansas Cty Southern Ry. Co. and affated com-
panes
eener O Gass Co
eeys, dward L
ehoe, ohn
ehoe, Sarah
ey, rancs ., e ecutor 3
ey, Rose ., estate of
erbaugh, enry S
errgan, rthur L
ng, ohn M
rkpatrck, ohn L
tseman, C. M., estate of
napp, tte .4_
neeand, Yae, estate of3
no , Seymour
och, arry
ountze, Chares T
ountze et a., Chares T., e ecutors.
ountze, Luther L., estate of
rause et a., rancos ., e ecutors 3.
rug, George
ru, rancs 5
2202S
58285
50206
64637
22068
35527
35528
35529
35530
35531
60789
45360
64609
64609
70899
70899
68976
58794
41549
67474
77812
2775
79748
65203
55318
37323
37535
37535
49860
46713
10985
27
27
31
33
La rum et a., Catherne, e ecutors 67217
Lafayette Lfe Insurance Co 49 (53
68316
57203
57203
71961
70007
71595
45347
45348
69481
69750
45266
Lang, uus C, estate of8
Langford Investment Co., trustee
Langford, r., et a., Perce P
Langworthy, Mar|ore C.7
Laube, ustus
Laun, fred
Laun, .
Lazarus Co., . R
Leeper, rank ., estate of
1 Nonacquescence as to ssue regardng deducton for depeton.
Nonacquescence reates to the foowng ssues: Deducton of amounts e pended to restore pettoner s
property notwthstandng the fact that the Drector Genera of Raroads made payment to pettoner for
hs faure to mantan the property e cuson from gross ncome of ntercompany freght charges on matera
and suppes used n makng addtons and betterments to pettoner s property.
3 state ta decson.
1 cquescence pubshed n Cumuatve uetn II-1 wthdrawn.
cquescence pubshed n Cumuatve uetn - wthdrawn.
state ta decson nonacquescence reates to deducton for funera e penses ncudng cost of crypt.
7 Nonacquescence reates to queston w hether dstrbuton of stock had the effect of dstrbuton of s
ta abe dvdend.
1123
22
949
32
186
28
236
34
59
34
59
31
941
31
941
29
1014
26
1401
26
1158
32
720
33
494
7
790
34
816
33
972
26
1025
24
405
24
405
24
405
32
254
30
1375
10
1096
34
258
26
946
34
337
28
222
28
222
30
1216
29
1255
26
764
26
764
32
633
28
236
G
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8
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39
Nonacquescences Contnued.
Ta payer.
Leeper, Pear
Leetona urnace Co
Lembeke, George
Leon 4 Son, Inc., bert
Levne, yman 1
Lews, Wadsworth R
Lberty Marne Insurance Co
Lebes Co.,
I.nderman, Wam S., e ecutor
Lqudatng Co
Lttauer, ugene, estate of
Lttauer et a., Lucus N., e ecutors
Lvngood, Chares ., e ecutor3
Loyd, . Darse
Loyd, Water
Loffand, . M.s- -
Loffand, T. S. ---
Lous, Cora
Lousve Trust Co. ct a., trustees
Lucas, Mabee T
Lustg, Davd L., estate of
Docket
No.
M.
Maernee, D.
Maorv, L. W., estate of
Maoy Co
Manchester Coa Co
Manhattan Lfe Insurance Co_
662
750
1130
577
129
281
540
1015
199
958
1351
305
958
493
682
682
1090
1096
1096
1096
1096
1096
: cquescence pubshed n Cumuatve uetn - wthdrawn.
1 state ta decson nonacquescencc n respect to that part of decson whch hods that accrued nterest
pad on edera ncome ta es for 1927 and 1928 from date of decedent s death to November .5, 1930, s a proper
aowabe admnstratve e pense.
1 cquescence pubshed n Cumuatve uetn I-2 revoked.
1 Nonacquescence reates to ssue nvovng the amounts pad to stockhoders by . O. Curts Leather
Co. upon canceaton of certan stock.
Nonacquescence reates to deprecaton aowabe under the Revenue ct of 1913: acquescence pub-
shed n Cumuatve uetn III-1 wthdrawn n so far as t appes to ths ssue.
state ta decson.
Nonacquescence reates to affaton ssue.
1 Nonacquescence reates to vaue- of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme
b agreement.
George D
Mannng, Chares N
Manus-Muer Co., Inc ---
Margay O Corporaton
Markham Irrgaton Co. 7
Marvn, Water S.8
Marvn, Wam Genn, estate of
Matagarda Cana Co. 7
Matheson, ugh M
Mathews, Susan ., e ecutr
Mathews, W. ., estate of
McCabe, en C
McCabe, George ., estate of
McCabe, ames
McCabe, ames Roscoe
McCabe. Mton Mathew...
,
45265
32272
75365
53440
7435
75957
67263
28544
35038
58871
60850
51858
51858
40899
71445
48120
13425
13426
49179
65040
72933
70582
C3553
33231
57906
33392
60827
54223
63370
70890
59778
44891
41344
38578
77017
40082
41345
71353
43208
43208
69783
69779
69778
69781
69777
69780
oard of Ta ppeas.
28
23
33
29
8
34
32
23
28
33
25
25
25
33
30
10
d
2 )
30
3t
33
31
27
33
24
28
33
34
30
26
24
25
34
24
31
33
33
20
29
29
20
20
29
Page.
236
979
700
251
298
996
736
787
113
1173
21
21
585
903
331
14
14
1200
562
877
1225
G
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8
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3
3
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40
N on acquescence e Contnued.
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
69784
29
1096
69193
34
535
44139
26
1172
32444
25
994
67681
31
379
65040
30
562
65042
30
562
65039
30
562
52931
57226
29
304
45823
32
450
48562
27
155
45966
27
318
76148
34
163
76147
34
163
73406
32
658
70103
33
1151
53936
69525
32
5S7
64654
33
564
44032
27
44
19930
28
437
36379
25
243
51394
31
443
45368
28
236
58797
26
1401
54227
34
145
58241
62386
29
401
74720
32
1093
65834
33
806
41680
1
41874
27
101
54673

58799
26
1401
42494
1
53990
29
576
61861

49517
28
1051
64790
68219
30
1197
41645
22
793
58720
33
108
38351
26
301
64791
68218
30
1197
58720
33
108
26369
24
776
37406
1
44759
25
1135
50490

McCabe, r., Wam ohn

McCarter, Uza ., estate of
McCormck et aL, Cyrus ., trustees...
McCrory, Luke W., trustee
McCurdy, Wam ., estate of 1
McGrath, ames W. and ntonette
MeGrath, Mare Louse
McGrath, Robert
Mcvane et a., Wam ., trustees...
Mc nney, Ida I
MeLster, Prank
McMan, Wam Northrup, estate of 2
Menzes, Chares M
Menzes, Inc., C. M
Merner, Deght Ward
Merre, Irvng S
Metropotan Ice Co.
Meyer, George L., transferee
Mover, Robert R
Mchgan Centra R. R. Co.
Mgetta, Oga
Mes Reaty Co
Mer, bert
Ms, . . Goadby
Mnnesota Tea Co
Mssour State Lfe Insurance Co.5
Mtche, Chares
Mtche, . .
Mtche, Oscar
Mtche, Wam
Mtten Management, Inc
Mod|csk, Raph
Moore, ma
Moore read Co
Moore, dward W., estate of7
Moore, G.
Moore, ohn R
Moore, Louse C, e ecutr 7
Morgante rush Co., Inc
Moro Reaty odng Corporaton.
1 state ta decson.
1 state ta decson nonacquescence as to queston of stus.
3 cquescence pubshed n Cumuatve uetn I -2 wthdrawn.
Nonacquescence reates to foowng ssues: Whether ma pay receved n 1921 consttuted Income In
1920 renta nterest receved on competed addton and betterments n fna settement wth the Drector
Genera.
onacqucscence reates to deducton for reserve set up to meet abty upon matured coupons ad|ust-
ment of ncome for renta of space occuped n home offce budng and depredaton upon such budng.
8 Nonacquescence reates to ssue regardng deducton from ncome of sprnkng ta .
state ta decson nonacquescence n the concusons on the thrd group of poces that the proceeds
thereof shoud be e cuded from the gross estate.
G
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0
8
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9
3
3
6
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41
Nonacquescences Contnued.
Ta payer.
Morrs, rthur
Morr.ss ct a., ua L.
Morrss Reaty Co. Trust No. 1.
Morrss Reaty Co. Trust No. 2.
Morse, mma R., estate of 1
Moser, Caroyn L
Mosser, Chares
Mott, Chares Stewart..
Mueer, ar W_.
Mueahv, ohn
Murphy et a., red T.,
Murphy Persona Property Trust
Mutua Lfe Insurance Co.
of New York,
Myrck, uan S
N.
Nashve, Chattanooga St. Lous Ry
Natona Casket Co., Inc.
Natona Contractng Co.
Natona Grange Mutua Labty Co
Natona Land Constructon Co
Natona Outdoor dvertsng ureau, Inc.
Natona Ppe oundry Co.4
Nea et a., . enry, trustees
Nef, ames
Nems, rank aywood
Nems, Mrs. rank aywood
Netcher, Chares, estate of
Newberry Lumber k Chemca Co
Newbury, Moe Netcher, trustee
Newport Co
Docket
No
New York Centra R. R. Co. .
New York Lfe Insurance Co
New York, Ontaro Western Ry. Co.
Nbey-Mmnaugh Lumber Co... _
Nchos Co Lumber Co
Nchoson, ames
Ncoa, . ...
Nesen Co., .
64246
41023
41024
45863
45864
41023
45863
41024
45864
44652
55937
55399
51585
57506
45362
80769
43795
43795
9764
51526
63376
33799
50320
24520
73099
40126
65252
70999
32997
45403
9290
51887
5 1 SS
42435
68511
42435
35431
19932
34437
62040
3SN.S0
52693
17527
23601
06966
57417
8899
oard of Ta ppeas.
oume.
33
23
23
23
27
29
27
30
28
34
25
25
23
29
_ (
29
25
31
25
32
19
26
8
1 7
27
31
33
31
. 4
28
24
dO
26
24
32
33
26
Page
241
1076
1076
1076
1070
216
513
1040
236
1229
724
724
749
822
856
139
407
666
562
1025
242
551
299
65
65
41
150
41
1246
437
1217
408
978
54
977
1113
223
1 state ta decson.
1 Nonacquescence reates to the appcaton of a net amount of operatng osses after appvng the profts
of a subsdary durng the perod of affaton to reduce the oss sustaned by a parent company on the
qudaton of a subsdary company.
Nonacquescence reates to ssue 1 of decson and ssue regardng deductbty of overhead costs n 1925.
4 cquescence pubshed n Cumuatve uetn I -2 revoked. Revocaton of pror acquescence and
present nonacquescence are due to the faure of the oard s decson to mt the word dstrbuted
to the cash dstrbutons made to the stockhoders.
1 cquescence pubshed n Cumuatve uetn - wthdrawn.
Nonacquescence reates to foowng ssues: Whether ma pay receved n 1921 consttuted ncome n
1920 renta Interest receved on competed addton and betterments n fna settement wth the Drector
Otnera.
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42
Nonacquesce.nces Contnued.
Ta payer.
North mercan Investment Co.
Northern Coa Co.1
Northport Shores, Inc
Noyes, anscn 2
O.
Oakman et a., Mame R.
O Donne, Thomas
Ogden, ugh W
Od Coony Trust Co., trustee
Od Msson Portand Cement Co
Od Natona ank n vansve, e ecutor 3_
Onger Mortuary ssocaton
Over, Ove ume
Omsted, George W.4.
Omsted, Iva C.4.
Ostad, Oscar
Omaha Coca-Coa ottng Co.
O Rear, . C.5
Oregon Termnas Co
Oswego as Corporaton.
Owens, . T
Owens, Mrs. . T.
Owens, 0.0
Docket
No.
30183
34945
64500
38574
42 7
52987
62979
23943
74928
38853
67681
36502
65640
44090
45745
48121
54714
60746
44089
45746
48143
54713
60745
76683
52641
32335
68893
28301
32673
34352
63149
63150
31986
71588
45169
45170
28776
62652
58604
58604
53320
53320
oard of Ta
oume.
24
24
31
25
24
32
24
33
25
31
23
30
30
30
32
26
28
29
26
27
27
26
32
2
32
31
31
30
30
Pacfc Coast scut Co. et a.
Pacfc Nash Motor Co
Pacfc Rock Grave Co
Pamer, radey W.
Parker, Cara ., e ecutr 9
Parker, George D., estate of8
Parker, erbert L., estate of8
Parker et a., my ng, trustees
1 Nonacquescence reates to statute of mtatons ssue.
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
3 state ta decson.
4 Nonacquescence reates to ssue nvovng the amounts pad to stockhoders by . G. Curts Leather
Co, upon canceaton of certan stock.
Nonacquescence reates to ssue regardng amount of oss sustaned by pettoner by reason of destruc-
ton by fre of hs resdence and furnture.
8 Nonacquescence wth respect to deducton of amounts e pended n connecton wth dssouton and
qudaton of a corporaton.
7 Nonacquescence n oard s decson hodng that the Superpower rghts were not dvdends.
1 Nonacquescence reates to ssue regardng e stence of Georgo D. Parker Co. partnershp.
G
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43
Nos acquescence s Contnued-
Ta payer.
Parrott, . .1
Peabody, Cornea aven, estate of 1
Peabody et a., Stephen, e ecutors
Pennsyvana Co. for Insurances on Lves
Grantng nnutes, e ecutor and trustee..
and
Perkns et a., Thomas N.3.
Petauma 4 Santa Rosa R. R. Co.4..
Pheps et a., Lus ames, e ecutors s.
Phps, Wam S
Perce, dward
Pttsburgh 4 Lake re R. R. Co. ...
Pans Reaty Co
Pant, enry radey.
Pettner, Maude rown
P-M- Petroeum Co. ..
Porter, e ander ., estate of 1
Portand urnture Manufacturng Co_
Post Shedon Corporaton.
Prce, arry
Prester, . C.
Docket
No.
30989
39647
39647
73029
57848
58305
58306
58443
58475
58770
58772
58P04
5S905
58906
58907
58917
58918
58925
13830
50336
24446
31769
58796
42764
48977
65492
67197
43889
48984
52094
55659
60923
33345
50576
54779
79322
61809
70367
56C95
70008
71596
55195
oard o Ta ppeas.
oume.
2S
24
24
32
33
11
27
24
26
28
31
30
25
24
34
30
2S
29
33
1 Nonacquescence reates to nterpretaton of artce 1567, Refatons 45, as apped to e change of stock
of Pttsburgh Te as O 4 Oas Co.
1 state ta decson.
1 onacqucscence reates to the foowng ssues:
Dd the statute of mtatons, at the tme of the mang of the defcency notces, bar assessment and
coecton of the defcences as to Thompson O Co., astern Carbon ack Co., W. . Davs, Lan .
Davs, Matda M. Davs, ton N. Davs, mma Luette Davs, e ecutr , u/w O. L. Davs, Lue Davs
ad Davs ros. Co., where the ncome ta returns were fed wth a deputy coector
Dd the statute of mtatons, at the tme of the mang of the defcency notces, bar assessment and
coecton of the defcency as to Thompson O Co., where a consodated return was orgnay fed and the
on
greater than 14,179.75 as an addtona bonus to ts genera
Commssoner ater rued aganst consodaton
Is O. . M. Co. entted to a deducton g
Nonacquescence reates to that part of decson concernng purchase of ta payer s own bonds at ess
than par whch were hed as an Investment. cquescence notce as to ths ssue pubshed n Cumuatve
uetn II-2 revoked.
1 state ta decson nonacquescence wth respect to the trusts for the son and daughter.
Nonacquescence reates to renta nterest queston and oard s decson wth respect to porton of ma
Pay receved In 1921.
1 onacquesoence reates to frst ssue of decson.
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44
Nonacqt|e ce ces Contmed.
Ta payer.
Proctor Shop, Inc.1
Prosperty Co., Inc.2
Prouty, Ove
Prudenta Insurance Co. of merca.
Pryor Lockart Deveopment Co.
Purse, ames N
unn, Porte -
.
R.
Ranbow Gasone Corporaton.
Randoph, ranke Carter
Randoph, R. D
Randoph, rg P., trust
Ray O Co.3.
Raymond, oward W
Raymond, Raph Lese
Reaty ssocates, as syndcate manager 4
Reed, Latham R
Reese, ugusta ss
Rehtam, Inc
Reybne, pheus, estate of5
Reybnc, Martha ., e ecutr 6
Reynard Corporaton
Rchardson et a., orrest, e ecutors 5
Rchfed O Co
Rchmond, redercksburg Potomac R. R. Co.7
Rde, enry 8
Rey, nna
Rey Stoker Corporaton
Rey, Thomas ., transferee
Ro Grande Land Cana Co
Ro Grande Reservor Dtch Co
Robbna, arwood
Roberts, G. P
Roberts, Water
Robertson, . G
oard of Ta ppeas.
58909
66268
45S96
59468
57829
56641
.ss
67238
38872
45668
51326
63523
54124
67156
30
27
30
33
26
34
27
31
65152
72365

1050
51890
27
65
51889
27
65
48833
28
773
43123
1
45219
4S015
1204
61554

58544
26
1401
79130
34
1171
27921
17
1173
58800
26
1401
70410
30
1
45016
28
666
60660
31
314
60660
31
314
67386
70795
30
451
44652
27
1070
42921
25
101
68876
33
895
3576
3
436
61066
29
160
36584
26
749
64638
33
564
71350
31
607
71351
31
507
67076
33
880
68434
32
646
37534
24
405
49552
52370
2S
53
1 cquescence pubshed In Cumuatve uetn III-2, revoked,
1 Nonacquescence reates to overstatement of oss sustaned as a resut of qudaton of subsdary.
3 Nonacquescence reates to ssue whether pettoner was t.f.be for years 1926 to 1929, ncusve, as a
trust or as an assocaton.
cquescence pubshed n Cumuatve uetn -2 wthdrawn.
state ta decson.
Nonacquescence reates to ncuson n ncome of corporaton for years ended March 31, 1930, and
March 31, 1931, amounts representng renta of premses occuped by ts presdent.
7 Nonacquescence reates to ssue nvovng the queston, re payments made to hoders of guaranteed
stock desgnated n certfcates as dvdends deductbe as nterest.
8 . state ta decson acquescence pubshed n Cumuatve uetn -2 recaed.
G
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45
Nonacquescence8 Contnued.
Ta yer.
Rockwood, George 0
Rockwood, Wam M
Rodeo- ae|o erry Co. .
Rogers, May.
Roande, Guano
Rons, arry T
Rons, Raph
Roosevet Son Investment und.
Rormer, Lous
Rosenboom nance Corporaton .
Ross, anche 8
Ross, Water L
Rosser, . M., e ecutor s
Rosshem, Irvng D.
Roth, W. .
Sabatn, Rafae.
S.
St. Lous Southwestern Ry. Co.
St. Lous Unon Trust Co., e ecutor 8.
Saomon, Leon 7
San Caros Mng Co., Ltd.
San acnto Lfe Insurance Co
Sand Sprngs Ry. Co
Sather Lease Thomas Sather Co..
Sauk Investment Co
Scatcna, vra 10
Schoen, Lous
Schumacher Wa oard Corporaton.
8chwartz- asser Improvement Co
Scott, Thomas ., estate of 11
8cott, Thomas S
Scove, Cnton ., estate of s
Scrpps, Robert P
Scuy, nrqueta ngea 5
Seaconnet Coa Co.u
Scatree, Wam rnest
Docket
No.
72711
72712
36411
43528
45051
57479
67286
63954
63958
76196
58850
35778
40903
51171
73282
40765
57503
45065
50134
13319
27768
33938
45966
3725
12231
39525
75348
32438
32439
31979
74642
63920
56776
61602
69719
36876
50336
70888
49272
77116
80244
18089
22094
33640
oard of Ta ppeas.
oume.
31
31
24
31
32
33
31
34
34
27
24
28
30
24
31
22
32
24
27
4
S
2
34
21
20
34
32
30
3. 5
26
27
34
an
33
31
24
25
1 Nonacquescence reates to frst Issue of decson.
1 Nonacquescence as to Issue regardng ta abty n 1929 of dvdends decared n stock n 1928, eertf-
caes for whch were not devered unt 1929.
Nonacquescence does not reate to the oard s hodng that dstrbutons receved from oseph U.
nch Go. were not parta qudatng dvdends.
Gft ta decson.
1 state ta decson.
Nonacquescence reates to ssue whether Commssoner s entted to ncreased defcency as rased
by hs amended answer fed wth the oard.
cquescence pubshed n Cumuatve uetn - wthdrawn.
I state ta decson nonacquescence as to queston of stus.
cquescence as to ssue 2 and non acquescence as to ssue 1 pubshed n Cumuatve uetn I-1
wthdrawn.
Nonacquescance reates to dvdend ssue.
state ta decson nonacquescence wth respect to the trusts for the son and daughter.
II Nonacquescence reates to statute of mtatons ssue.
G
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1
3
-
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1
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2
2

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46
Nonacqt|escences Contnued.
Ta payer.
Securty rst Natona ank of Los ngees et a.,
e ecutors
Securty Savngs Commerca ank.
Sewyn ddy Co
Shaffer, C. .
Shaffer, ohn C
Sharp et a., dth uggard, e ecutors _
Sharp, Water P., estate of s
Sheaffer Penn Co., W.
Shepherd Syndcate
Shenker, Smon .
Sbey et a., ohn R., e ecutors 4_
Sbey, Rufus ., estate of 4
Sberbatt, Soomon
Smms, . .
Skewes-Co , dth Page
Skff, rank .
Sma s, Inc
Smathers, . ., estate of _
Smey, bert
Smey, rancs G
Smth, C.
Smth, Mrs. Grant-
Smth, Mton
Smth, Mton, estate of
Smth, r., Mton, e ecutor
Smth, Sarah vs
Smth Transportaton Co
Smth, Wam den, estate of
Sneed, r., . T
Snyder, Inc., . S. M. W
Southern e Teephone Teegraph Co.
Southern Caforna Rock Grave Co
Southern Raway Co. et a.8.
Spang, Chafant Co.
Spencer, George rnck, estate of 3.
Docket
No.
45429
59523
21612
29259
/ 50086
59511
48317
48317
36604
/ 48332
51327
58801
24921
24921
46335
/ 19175
I 19791
61669
6S335
51173
53791
29260
74424
74425
77417
43300
43305
43306
77414
52132
52132
77416
77415
56465
45094
36686
70887
30S98
f 214S1
29951
137887-
3789S
58790
72236
oard of Ta ppeas.
oume.
28
29
25
29
28
30
33
30
33
27
26
26
16
16
28
28
29
28
24
20
33
33
34
26
34
2S
28
34
34
34
30
26
34
26
27
31
31
1 Nonacquescence reates to Issue whether ta payer sustaned a net oss n any busness reguary carred
on In 1924 whch coud be carred forward and deducted from ta abe ncome n 1925.
1 NTonacquescence reates to the foowng ssues: Reducton of cost bass (March 1, 1913, vaue) of assets
sod by a partnershp n 1919 by deprecaton aowed n computng ncome for perod March 1, 1913, to
December 1, 1915 computaton of 1919 partnershp proft on sae of assets by consderng as part of the sae
prc . ta es of the partners pad n 1920 by the vendee.
state ta decson.
cquescence pubshed n Cumuatve uetn TII-2 wthdrawn.
Nonaequesccnce reates to ssues 1 and 4 set forth n syabus of pubshed decson.
6 Gft ta decson.
Nonacquesecnce reates to ssue whether certan nterest n rea estate stuated n Te as was acqured
by pettoner pror or subsequent to hs marrage and that part of decson whch hods that deay rentas
receved are communty ncome notwthstandng that the ands from whch they arse may be the separate
property of ether spouse.
Nonncquoseence reates to ssues nvovng addtona compensaton, renta Interest on addtons and
betterments, and back ma pay for uso of propertes durng edera contro.
cquescence pubshed n Cumuatve uetn I -2 wthdrawn.
G
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a
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2
0
1
3
-
0
1
-
2
2

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4
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8
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3
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8
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47
Nonacqotesoences Contnued.
Ta payer.
Soever, ames
Sprague, C. O. M
Sprague fe Son Co., C. .1.
Sprng Cty oundry Co...
Sredes, Inc
Staney Co. of merca.
Stay ton, r., Wam
Stearns, Marsha, admnstrator
Steee, Wam, estate of
Stern et a., Samue . ., e ecutors 2.
Stetson, Ioa Wse
Stevens, y am .
Stevens, Wam D
Stevenson Consodated O Co.3
Stewart, ohn
Stewart, Wam Rhneandcr, estate of4 5
Stewart, r., et a., Wam Rhneander, e ecu-
tors4 5
Stfe, rthur C
Stfe, dward W
Stfe, enrv G
Stne, Doe M
Stne, M. osephne.
Stockhom . nskda ank
Stone, . C, estate of
Stone, Mrs. . C, e ecutr
Stone et a., Irvng ., e ecutors and trustees .
Stone, Irvng Lee, estate of9
Straub, Teca M
Straus, aron
Strayer, Water
Strecfkcrk, Mrs. S
Strong, arod C
Sturgeon- ubbard Trust
Sturgeon et a., Ron S., trustees
Suvan. oseph
Suncrest Lumber Co
Swartz, Inc., dward G
Swft, Marv Dodson, estate of
Swsky, Toby W.
Swss O Corporaton.
Docket
No.
56435
65833
34946
21169
45015
31516
33142
40023
71867
48930
73347
2459
41743
70006
71593
70009
71594
43416
57531
67776
67776
60738
60739
60740
62694
62695
55755
38336
38336
43830
43830
55935
65091
48564
45363
3 576
37095
37095
56671
33244
36650
44909
42032
60177
61002
63088
70998
oard of Ta ppeas.
oume.
30
33
24
2. )
28
26
32
24
34
2
26
27
29
29
23
29
31
31
29
29
29
32
32
25
26
26
26
26
29
27
27
2S
25
25
25
33
25
25
26
25
32
1 Nonacqueseence reates to statute of mtatons ssue.
state ta decson acquescence pubshed u Cumuatve uetn -2 recaed.
1 onacquescence reates to ssue regardng ncuson n ncome for 1921 of 180,823.35 receved upon
e change by pettoner of 2S0,0O0 shares of Sunburst O Gas Co. stock wth that corporaton.
1 state ta decson nonacqueseence reates to far market vaue of an undvded or fractona nterest
In certan rea property.
1 state ta decson nonacqueseence reates to far market vaue of 3,f shares of stock of Rhneander
Rea state Co. as of September 4, 1929. cquescence as to ths ssue pubshed n uetn I -7 wth-
drawn.
state ta decson nonacqueseence reates to ssue nvovng proper y transferred by trust agreement.
T Nonacqueseence reates to vaue of common stock of mercan Chan Co.. Inc., and the bass of ao-
caton nf cost between sad common stock and preferred stock tf sad company acqured at the same tme
and under the same agreement.
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48
Nonacquescences Contnued.
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
77923
33
671
77923
33
671
76813
34
603
20411
27
829
36191
23
792
20409
27
829
20409
27
829
64444
27
220
64444
27
220
51891
27
65
51 92
27
65
68197
29
1113
33383
24
369
49832
53429
33
906
63699

43766
50762
32
60596

71157
33858
24
197
33860
24
197
45446
26
1418
65835
33
806
40083
41346

958
59457
32
125
56888
65545
30
510
46298
26
1201
65041
30
562
52449
31
994
55546
32
1176
65089
27
762
39936
29
1208
44167
27
913
73785
33
25
20705
24
36
42268
33
928
37536
24
405
45320
23
892
53778
31
787
40508
25
922
73186
32
940
74541
32
940
72932
34
877
61932
31
938
62834
71349

507
62833
71348

507
Tart, nna S., estate of
Taft, Robert ., e ecutor 1
Taft, Robert ., trustee
Tabot, rederck C, estate of
Tabot, . .
Tabot et a., Susan D., e ecutors
Tabot, Wam ., estate of
Tayor, . Sedon, estate of 1
Tayor, r., et a., . Sedon, e ecutors 1
Tayor, esse Carter
Tayor, udson L
Ten yck, Peter G
Tennessee Consodated Coa Co
Termna Raroad ssocaton of St. Lous
Termna Reaty Corporaton
Terre aute, Indanapos astern Tracton Co
Terre aute Tracton Lght Co ---
Terry, nna Davs
Terry, r., . T
Te as Irrgaton Co.
Te as Ppe Lne Co
Thatcher Son, ohn
The ub, Inc..
Theman, Mrs. Leo
Thra, dna May...
353 Le ngton venue Corporaton
Tde Water O Co
Totson Manufacturng Co
Tte Trust Co
Ttus, C. Dckson
Ttus, Inc., C. W-. -
Todd, Ws
Toerton Warfed Co.4..
Torrens, ames .
Towers Suvan Manufacturng Co
Townsend, .
Townsend, W. S
Toy, arvey M
Transatantc Shppng Co., Inc
Traveers ank Trust Co. -
Traveers re Insurance Co
state ta derson. , , .
Nouacquescence reates to deprecaton aowance n computng oss n sae o a Doat.
Nonacquescence reates to affaton Issue.
Nonacquescence reates to ssue regardng deducton of oss sustaned by two amatcd companes
durng fsca year ended anuary 31, 1924, and tho ta abe -rod ebruary 1 to pr 25,1924, In computng
the consodated net ncome for ta abe perod pr 26 to December 31, 1924. and the year 1925.
Nonacquescence reates to the trust and dvdend ssues.
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49
Nonacqtescence8 Contnued
Ta payer.
Indemnty Co__
Tro|an O Co...
Turnev, W. W..
Turney, Mrs. W.
Tuth, r., orace S
Tutte, Car
Twn e O Syndcate
Tyer et a., Sdney ., trustees.
U.
t, oseph
nn, manue Soomon
a, r., oseph
u, Samue, estate of
Unann et a., Theresa, e ecutors
Unon Guardan Trust Co., admnstrator
Unon Guardan Trust Co., e ecutor 1
Unon Pacfc R. R. Co.
Unon Pacfc R. R. Co. et a. .
Unon Trust Co., trustee
Unted Natona Corporaton.
Unted O Co
Inc.
an Camp Packng Co.
ancoh Reaty Co
an Schaek, George 6., Superntendent of Insur-
ance of New York, qudator
an orst Co., C.
aughan, Wam W
oebe, acob, estate of
oebe, Water W., e ecutor
ounteer State Lfe Insurance Co
on Guntcn, Chrstan W
onnegut ardware Co
W.
57916
62832
71347
33757
65258
65257
52448
70558
45052
.M 149
51234
56470
56471
56472
56472
75516
44735
51530
70183
70219
35639-
35649
35684
35685
40060
40061
40062
42917
67949
38082
42922
46131
52340
67263
70366
67843
6009
6009
54176
61278
44940
oard of Ta ppeas.
oume.
31
26
31
31
31
32
31
26
28
30
30
30
30
30
32
26
32
26
24
33
25
26
33
32
30
31
7
7
27
28
2s
Waggoner, a.. I 33517 I 24
Waggoner, W. T_. I 33516 24
state ta decson.
Nooacquescence reates to the ssues regardng cost of Intercompany transportaton of matera used
In constructon of capta assets sae n 1926 of bock 394. Seat te Tde Lands sae of and to ansas Cty
Sarmna Raway Co. ad|ustment for deprecaton sustaned pror to anuary 1,1909, of equpment retred
1924.
1 Nonacquescence reates to ssne regardng renta Interest and ssue concernng net oss of Los ngees
4 Sat Lake . R. Co. for perod anuary 1 to pr 30, 1921.
state ta decson acquescence pubshed n Cumuatve uetn -2 recaed.
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1
3
-
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1
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2

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50
Nonacques nces Contnued.
Ta payer.
Waker, Tabot C.
Wa, rank . ._
Waters, ohn W.
Ward et a., Dasy M
Ward man, arry
Warner Coeres Co. of Deaware_
Watab Paper Co.
Waterbury, Charotte M. .
Waterbury, Donad N.
Waterburv, ugene W.s
Waterbury, Whtford N.a
Watson-Moore Co
Wavburn, Ned
Wes argo ank Unon Trust Co., admnstrator.
Wes, ames
Wes, Thomas . ---
West rgna-Pttsburgh Coa Co
Western Power Corporaton
Wheeer, Dwght C
Wheeer, P. L ---
Wheeng Mod oundry Co. (De.)
Whppe, rank
Whte, uet C
Whte Oak Transportaton Co.s
Whte, Rta M. oher
Whte, Sdney
Wco Sons, .
We, dwn
Wams et a., rank G., e ecutors
Wamson, esse C.7
Wamson, Ruth Chander
Wson, ngs
Wson, ohn P
Wson, Luke ., estate of
Wson, Peter ., transferee
Wson Shpbudng Co.8
Wnston ros. Co
Wobber ros
Wobbers, Inc
Wopert, Urban
cquescence pubshed n Cnn ve uetn - wthdrawn.
Nonacqucscence reates to ssue whether sans on sae of stock of the aterbury Chemca Co. were
ta abe to pettoner or to trusts created by them. ...
Nonacqueseence reates to ssue whether pans on sae of sock of the aterbury L nemca L o. were
ta abe to pettoner or to trusts created by them.
(ft ta decson.
1 Nonacqucscence reates to statute of mtatons Issue.
Nonacqueseence reates to the trust and dvdend ssues.
Nonacqucscence n ssue whether bass for pan or oss on subsequent sae wthn meanng of secton
113 (a)S, Revenue ct of 1932, was tme of actua dstrbuton or date of court order of dstrbuton.
1 Nonacqueseence reates to ssue 5 of decson.
oard of Ta ppeas.
No.
oume.
Page.
20407
27
829
7359
4
915
70010
71597
29
1255
62644-
02049
29
1251
22348
24
102
34679
26
1047
24773
280S2
38685
41733
27
488
46076
, 51387
73381
33
208
73380
33
208
73383
33
208
73382
33
20S
62179
30
1197
74348
32
813
20411
27
829
62948
29
222
78829
34
315
20337
25030
-
234
72943
34
618
71338
32
909
69028
32
917
23410
27
929
57532
29
809
58775
26
1401
18088
24
307
36112
25
243
5S776
6
1401
40619
28
878
54451
31
787
33564
25
1078
80545
34
/ 668
924
67468
32
720
7377
34
1229
52931
57226
29
304
32444
25
994
61655
33
564
34337
25
182
59270
29
905
36875
26
322
36874
26
322
48563
27
155
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51
Nonacquespences Contnued.
Ta payer.
Wood, en yer
Wood urnture Co., .
Wood, r., . O-
Wood, eremah
Wood, Stuart, estate of
Wood, Ws D
Woodard, ohn S.1
Woodward, George 1
Y.
Young, Du os
Youngstown Sheet Tube Co
Z.
Zeger, bert W
Zeger, Cfford ...
Zmmerman and wfe, Cavn.
Zobeen, George
Zobeen, Mrs. dward
tor,
Docket
No.
65211
40565
65832
74090
74688
75624
69844
71962
42279
78345
28149
35511
46291
46292
71145
45352
45353
76120
oard of Ta ppeas.
oume.
29
21
33
31
32
33
30
23
34
24
23
:
31
28
28
33
1 onaequesccnce reates to queston whether dstrbuton of stock had the effect of dstrbuton of a
ta abe dvdend.
cquescence pubshed n Cumuatve uetn -2 wthdrawn.
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3
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INCOM T RULINGS. P RT I.
R NU CTS O 1936, 1935, ND 1934.
. R NU CT O 1936.
SU TITL . G N R L PRO ISIONS.
P RT I. R T S O T .
S CTION 14. SURT ON UNDISTRI UT D PRO ITS.
( so Sectons 26, 27, and 115.) -32-8238
T. D.4674
INCOM T R NU CT O 1036.
Reguatons under secton 14, reatng to surta on undstrbuted
profts of corporatons, secton 26 and secton 27, reatng to credts
of corporatons, and secton 115, reatng to dstrbutons by corpo-
ratons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coector of Interna Revenue and Others Concerned:
Pursuant to the provsons of secton 62 of the Revenue ct of 1936,
and other provsons of the nterna revenue aws, the foowng reg-
uatons are hereby prescrbed wth respect to the surta mposed on
corporatons by secton 14 of the ct and the credts of corporatons
provded by sectons 26 and 27 of the ct, and wth respect to the
provsons of secton 115 of the ct reatve to dstrbutons by
corporatons:
P T I. G N R L
Tcr. 1. cope of reguatons Secton 14 of the Revenue ct of 1936
mposes a surta upon the net Income of every corporaton not e pressy
e empt from such ta whch s n addton to the norma ta mposed by sec-
ton 13 of the ct. These reguatons are mted to a consderaton of factors
nvoved n the computaton of the surta .
bt. 2. Genera arrangement. These reguatons are dvded nto fve parts.
Part I s genera. Part II reates to the computaton of the surta on net
ncome of corporatons Imposed by secton 14 of the ct. It ncudes artces
14-1 to 14-5, both ncusve. Part III reates to certan credts aowed to
corporatons n computng the surta . Ths part Incudes artces 26-1 to 26-3,
both ncusve. Part I reates to the credts aowed corporatons under sec-
ton 27 of the ct for dvdends pad. It ncudes artces 27-1 to 27-8, both
Incusve. Part reates to the provsons of secton 115 of the ct, deans
wth dstrbutons by corporatons. It ncudes artces 115-1 to 115-4, both
Incusve.
In each of Parts II to , ncusve, the partcuar secton of the aw s quoted
In fu, foowed by the artces of the reguatons appertanng thereto. The
artces have been gven key numbers correspondng to the numbers of the
(53)
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sectons of the ct to whch they reate. or e ampe, artces 14-1 to 14-5
reate to secton 14 of the ct.
rt. 3. Defntons. s used n these reguatons, the term
(a) ct means the Revenue ct of 1986 (Puhc, No. 740, Seventy-fourth
Congress, second sesson, approved une 22, 1936, 9 p. m.).
(b) ct ncome means the gross ncome computed under secton 22 of the
ct ess the deductons aowed by secton 23 of the ct.
(0) d|usted net ncome means the net ncome mnus the sum of
(1) the norma ta Imposed by secton 13 of the ct and
(2) the credt provded n secton 26(a) of the ct, reatng to nterest on
obgatons of the Unted States and ts nstrumentates. (See Part III,
artce 26-1 of these reguatons.)
In the case of a hodng company affate, as defned n secton 2 of the
ankng ct of 1933, the amount to be deducted n determnng ad|usted net
ncome ncudes aso the credt aowed under secton 26(d) of the ct. In
the case of a natona mortgage assocaton created under Tte III of the
Natona ousng ct the amount to be deducted aso ncudes the amount
aowed as a credt under secton 26(e) of the ct.
(d) Undstrbuted net ncome means the ad|usted net Income mnus the
sum of
(1) the dvdends pad credt provded n secton 27 of the ct (artces
27-1 to 27-8, ncusve, of these reguatons) and
(2) the credt provded n secton 26(c) of the ct reatng to contracts
restrctng the payment of dvdends. (See artce 26-3 of these reguatons.)
(c) Surta , uness otherwse ndcated, means the surta on the net ncome
of corporatons mposed by secton 14 of the ct.
Tart II. Surta on Undstrbuted Profts.
Secton 14 of the ct provdes:
Seo. 14. Surta on Undstrbuted Profts.
(a) Defntons. s used n ths tte
(1) The term ad|usted net ncome means the net ncome mnus the
sum of
( ) The norma ta Imposed by secton 13.
( ) The credt provded n secton 26(a), reatng to Interest on certan
obgatons of the Unted States and Government corporatons.
(C) In the case of a hodng company affate (as defned n secton 2
of the ankng ct of 1933), the amount aowed as a credt under secton
26(d).
(D) In the case of a natona mortgage assocaton created under Tte
III of the Natona ousng ct, the amount aowed as a credt under
secton 26(e).
(2) The term undstrbuted net ncome means the ad|usted net ncome
mnus te sum of the dvdends pad credt provded n secton 27 and the
credt provded n secton 20(c), reatng to contracts restrctng dvdends.
(b) Imposton of ta . There sha be eved, coected, and pad for each
ta abe year u on the net ncome of every corporaton a surta equa to the
sum of the foowng, sub|ect to the appcaton of the specfc credt as provded
n subsecton (c) :
7 per centum of the porton of the undstrbuted net Income whch s not
n e cess of 10 per centum of the ad|usted net ncome.
12 per centum of the porton of the undstrbuted net ncome whch s n
e cess of 10 per centum and not n e cess of 20 per centum of the ad|usted net
ncome.
17 per centum of the porton of the undstrbuted net ncome whch s n
e cess of 20 er centum and not n e cess of 40 per centum of the ad|usted net
ncome.
22 per centum of the porton of the undstrbuted net ncome whch s n
e cess of 40 per centum and not n e cess of 60 per centum of the ad|usted net
ncome.
27 per centum of the porton of the undstrbuted net ncome whch s n
e cess of 60 per centum of the ad|usted net ncome,
(c) d|usted net ncome ess than o0,000.
(1) Specfc credt. It the ad|usted net ncome s ess than 50,000, there
sha be aowed a specfc credt equa to the porton of the undstrbuted net
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Income whch Is n e cess of 10 per centum of the ad|usted net ncome and not
n e cess of 5,000, such credt to be apped as provded n paragraph (2).
(2) ppcaton of specfc credt. If the corporaton s entted to a specfc
credt, the ta sha be equa to the sum of the foowng:
( ) ta computed under subsecton (b) upon the amount of the unds-
trbuted net ncome reduced by the amount of the specfc credt, pus
( ) 7 per centum of the amount of the specfc credt.
(d) empton from surta . The foowng corporatons sha not be sub|ect
to the surta mposed by ths secton:
(1) anks as defned n secton 104.
(2) Domestc corporatons whch for any porton of the ta abe year are n
bankruptcy under the aws of the Unted States, or are nsovent and n recever-
shp n any court of the Unted States or of any State, Terrtory, or the Dstrct
of Coumba.
(3) Insurance companes sub|ect to the ta mposed under secton 201, 204,
or 207.
(4) oregn corporatons.
(5) Corporatons whch, by reason of dervng a arge porton of ther gross
ncome from sources wthn a possesson of the Unted States, are entted to
the benefts of secton 251.
(6) Corporatons organzed under the Chna Trade ct, 1922.
(7) ont stock and banks organzed under the edera arm Loan ct, as
amended.
(e) empt corporatons. or corporatons e empt from ta aton under ths
tte, see secton 101.
(f) Ta on persona hodng companes. or surta on persona hodng
companes, see secton 351.
(g) Improper accumuaton of surpus. or surta on corporatons whch
accumuate surpus to avod surta on stockhoders, see secton 102.
bt. 14-1. Measure of surta . The surta mposed by secton 14 of the ct
s upon the net ncome of the corporaton hut u an amount measured by the
undstrbuted net ncome, as denned n artce 3( /) of these reguatons. It s
appcabe to each ta abe year egnnng after December 31, 1935.
bt. 14-2. Rates of surta . The rates of surta are graduated n brackets.
The owest rate s 7 per cent of that porton of the undstrbuted net ncome not
n e cess of 10 per cent of the ad|usted net ncome, as defned n artce 3(c) of
these reguatons. The hghest rate s 27 per cent of that porton of the un-
dstrbuted net ncome whch s n e cess of 60 per cent of the ad|usted net
ncome.
rt. 14-3. Method of computatons. ampe. The appcaton of the pro-
vsons of secton 14(b) of the ct to corporatons havng an ad|usted net n-
come of not ess than 50,000 may be ustrated generay by the foowng
e ampe:
ampe: The Compnny, a domestc corporaton, has for the caendar year
1936 a D#t ncome of 500,000, ncudng nterest on Unted States obgatons
n the amount of 25,000 and dvdends amountng to 50,000 from domestc
corporatons sub|ect to ta aton under Tte I of the ct. The norma ta of
the Company (not a mutua nvestment company) computed under secton
13 of the ct Is 63,715. Its dvdends pad credt computed under secton 27
of the ct (see artces 27-1 to 27-8, Incusve, of these reguatons) amounts to
100,000, and Its credt under secton 20(c) of the ct (see artce 20-3 of these
reguatons) reatng to contracts restrctng the payment of dvdends amounts
to 80,000. The surta for the caendar year 1036 Is 36,4S7.73, computed as
foows:
Net ncome 500,000
Mnus:
(1) Norma ta under secton 13 63,715
(2) Credt under secton 26(a) for nterest on Unted
States obgatons 25, 000 88, 715
d|usted net ncome as defned n secton 14(a) 411,285
Mnus:
(1) Dvdends pad credt under secton 27 100,000
(2) Credt reatng to contractua restrctons under
secton 28(c) - 80,000 180,000
Undstrbuted net Income as defned n secton 14(a)2 231,285
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The brackets nto whch the undstrbuted net ncome s dvded, the amount
of the undstrbuted net ncome n each bracket, the rate of surta appcabe
thereto, the surta at such rate, and the tota surta , are as foows:
racket.
mount of un-
dstrbuted net
ncome.
Rate of
ta .
Surta .
rst, porton of undstrbuted net ncome not
n e cess of 10 per cent of ad|usted net n-
come (10 per cent of 411,285). . -
41, 128. 50
41, 128. 50
82, 257. 00
Percent.
7
2, 879. 00
4, 935. 42
Second, porton of undstrbuted net ncome n
e cess of 10 per cent of ad|usted net ncome
and not n e pess of 20 per cent of ad|usted
net ncome (10 per cent of 411,285)
12
Thrd, porton of undstrbuted net ncome n
e cess of 20 per cent of ad|usted net ncome
and not n e cess of 40 per cent of ad|usted
net ncome (20 per cent of 411,285)
17
13, 98a 69
ourth, porton of undstrbuted net ncome n
e cess of 40 per cent of ad|usted net ncome
and not n e cess of 60 per cent of ad|usted
net ncome ( 231,285 ess 164,514, the sum
of 41,128.50 pus 41,128.50 pus 82,257)--
66, 771. 00
22
14, 689. 62
Tota
231, 285. 00
36, 487. 73
rt. 14-4. Specfc credt f ad|usted net ncome s ess than 50,000. Secton
14(c) of the ct provdes for a specfc credt n the case of a corporaton whch
has an ad|usted net ncome of ess than 50,000. Ths secfc credt s an
amount equa to the e cess of 5,000 or the tota undstrbuted net ncome, whch-
ever s ess, over 10 per cent of the ad|usted net ncome and s to be deducted
from the undstrbuted net ncome before computng the surta . fter deductng
the specfc credt from the undstrbuted net ncome a surta s computed on the
remander. The computaton Is made frst accordng to the brackets as set forth
In secton 14(b) of the ct. Then there s added 7 per cent of the amount of the
specfc credt. The sum s the tota surta on the corporaton s net ncome.
The appcaton of the specfc credt may be ustrated by the foowng
e ampes:
ampe (1): The Company has an ad|usted net ncome for the caendar
year 193G of 1,000. Its undstrbuted net ncome kewse Is 1,000. Gvng
effect to the specfc credt, the surta payabe s 70, computed as foows:
d|usted net ncome 1,000
Undstrbuted net ncome 1,000
Computaton of specfc credt:
Undstrbuted net ncome, or 5,000, whchever s ess 1,000
Less 10 per cent of ad|usted net ncome 100
Specfc credt under secton 14(c) 900
Computaton of the surta :
Undstrbuted net ncome 1,000
Less specfc credt 900
Remander sub|ect to surta under secton 14(b) 100
Surta ou remander (7 per cent of 100) 7
Pus 7 per cent of amount of specfc credt (7 per cent of 900) 63
Tota surta computed under secton 14(c)2 70
In those cases n whch the undstrbuted net ncome does not e ceed 5,000,
the resut produced by appcaton of the statutory method of computaton Ius-
trated by ths e ampe s obtnnabe by computng the surta drectv as 7 per
cent on the whoe of the undstrbuted net ncome.
ampe (2): The 15 Company has an ad|usted net ncome for the caendar
year IMG of 5,000. It pays no dvdends durng Its ta abe year and s aowed
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no credt under secton 26(c) of the ct It has, consequenty, an undstrbuted
net ncome of 25,000. Gvng effect to the specfc credt, the surta payabe s
4,(525, computed as foows:
d|usted net ncome . 25, 000
Undstrbuted net ncome 25,000
Computaton of specfc credt:
Undstrbuted net ncome, or 5,000, whchever s ess 5,000
Less 10 per cent of ad|usted net ncome 2, 500
Specfc credt under secton 14(c) 2, 500
Computaton of the surta :
Undstrbuted net ncome. 25, 000
Less specfc credt 2,500
Remander sub|ect to surta under secton 14(1)) 22,500
Surta on 22,500 4,450
Pus 7 per cent of amount of specfc credt (7 per cent of 2,500) 175
Tota surta computed under secton 14(c)2 4,625
ampe (3): The C Company has an ad|usted net ncome for the caendar
year 1986 of 49,900. It pays no dvdends durng ts ta abe year, and Is
entted to no credts, other than the specfc credt, so that t has for the ta abe
year an undstrbuted net ncome of an equa amount. Gvng effect to the
specfc credt, the surta payabe s 10,227.50, computed as foows:
d|usted net ncome 49, 900. 00
Undstrbuted net ncome 49,900.00
Computaton of specfc credt:
Undstrbuted net ncome, or 5,000, whchever Is ess 5, 000. 00
Less 10 per cent of ad|usted net ncome 4, 990. 00
Specfc credt under secton 14(c) 10.00
Computaton of the surta :
Undstrbuted net ncome 49,900.00
Less specfc credt 10. 00
Remander sub|ect to surta under secton 14(b) 49,800.00
Surta on 49,890 10,226.80
Pus 7 per cent of amount of specfc credt (7 per cent of 10)_ . 70
Tota surta computed under secton 14(c)2 10.227.50
rt. 14-5. empton from surta . Those corporatons e empt from ncome
ta aton n genera pursuant to the provsons of secton 101 of the ct are
e empt from the surta mposed by secton 14 of the ct. Certan other cor-
poratons, enumerated n secton 14(d) of the ct, are e pressy e empted
from the surta .
Part III. Credts of Corporatons.
Secton 26 of the ct provdes:
Sec. 26. Credts of corporatons.
In the case of a corporaton the foowng credts sha be aowed to the
e tent provded n the varous sectons mposng ta
(a) Interest on obgatons of the Unted States and ts nstrumentates.
The amount receved as nterest upon obgatons of the Unted States or of cor-
poratons organzed under ct of Congress whch s aowed to an ndvdua as
a credt for purposes of norma ta by secton 25(a) (1) or (2).
(b) Dvdends receved. 85 per centum of the amount receved as dvdends
from a domestc corporaton whch s sub|ect to ta aton under ths tte. The
credt aowed by ths subsecton sha not be aowed n respect of dvdends
receved from a corporaton organzed under the Chna Trade ct, 1922, or from
a corporaton whch under secton 251 s ta abe ony on ts gross ncome from
121397 37 3
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58
sources wthn the Unted States by reason of Its recevng a arge percentage of
Its gross Income from sources wthn a possesson of the Unted States.
(c) Contracts restrctng payment of dvdends.
(1) Prohbton on payment of dvdends. n amount equa to the e cess
of the ad|usted net ncome over the aggregate of the amounts whch can be ds-
trbuted wthn the ta abe year as dvdends wthout voatng a provson of a
wrtten contract e ecuted by the corporaton pror to May 1, 193G, whch prov-
son e pressy deas wth the payment of dvdends. If a corporaton woud be
entted to a credt under ths paragraph because of a contract provson and aso
to one or more credts because of other contract provsons, ony the argest of
such credts sha be aowed, and for such purpose f two or more credts are
equa n amount ony one sha be taken Into account
(2) Dsposton of profts of ta abe year. - n amount equa to the porton
of the earnngs and profts of the ta abe year whch s requred (by a provson
of a wrtten contract e ecuted by the corporaton pror to May 1, 1936. whch pro-
vson e pressy deas wth the dsposton of earnngs and profts of the ta abe
year) to be pad wthn the ta abe year n dscharge of a debt, or to be rrevo-
caby set asde wthn the ta abe year for the dscharge of a debt to the e tent
that such amount has been so pad or set asde. or the purposes of ths para-
graph, a requrement to pay or set asde an amount equa to a percentage of earn-
ngs and profts sha be consdered a requrement to pay or set asde such per-
centage of earnngs and profts. s used In ths paragraph, the word debt
does not ncude a debt ncurred after pr 30, 1936.
(3) Doube credt not aowed. If both paragraph (1) and paragraph (2)
appy, the one of such paragraphs whch aows the greater credt sha be
apped and, f the credt aowabe under each paragraph s the same, ony one
of such paragraphs sha be apped.
(d) ank aff.a.tcs. In the case of a hodng company affate (as defned
n secton 2 of the ankng ct of 1933), the amount of the earnngs or profts
whch the oard of Governors of the edera Reserve System certfes to the
Commssoner has been devoted by such affate durng the ta abe year to the
acquston of ready marketabe assets other than bank stock n compance wth
secton 5144 of the Revsed Statutes. The aggregate of the credts aowabe
under ths subsecton for a ta abe years sha not e ceed the amount requred
to be devoted under such secton 5144 to such purposes.
(e) Natona mortgage assocatons. In the case of a natona mortgage
assocaton created under Tte III of the Natona ousng ct, the amount of
the earnngs or profts whch the edera ousng dmnstrator certfes to the
Commssoner has been devoted by such assocaton durng the ta abe year to
the acquston of such reserves as the dmnstraton may requre under the
provsons of secton 303 of that ct.
rt. 26-1. Credts of corporaton for surta . or the purpose of computng
the surta Imposed on corporatons by secton 14 of the ct, there are aowed
the credts provded n secton 26 of the ct e cept the credt for dvdends
receved provded n secton 2G(b) of the ct whch s aowed for norma ta
purposes ony.
bt. 26-2. Interest on obgatons of the Unted States and ts nstrumen-
tates. The credt aowed by secton 26(a) of the ct for the purpose of
computng the ad|usted net ncome s an amount equa to the nterest receved
upon obgatons of the Unted States or of a corporaton organzed under ct
of Congress (f such corporaton s an nstrumentaty of the Unted States
and under the ct authorzng the ssue of such obgatons, as amended and
suppemented, such nterest s n the case of ndvduas e empt from norma
ta ) whch s ncuded n gross ncome under secton 22 of the ct
kt. 26-3. (a) Contracts restrctng payment of dvdends. The credt pro-
vded n secton 26(c) of the ct (for the purpose of computng the unds-
trbuted net ncome) wth respect to contracts restrctng the payment of dv-
dends s not avaabe under every contract whch mght operate to restrct
the payment of dvdends, but ony wth respect to those provsons of wrtten
contracts e ecuted by the corporaton pror to May 1, 1936, whch satsfy the
condtons prescrbed In the ct. The charter of a corporaton does not con-
sttute a wrtten contract e ecuted by the corporaton wthn the meanng of
secton 26(c) of the ct. The provsons recognzed by the ct are of two
genera types as foows:
(1) those whch come wthn secton 20(e) of the ct, n that they pro-
hbt or mt the payment of dvdends durng the ta abe year and
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59
14.
(2) those whch come wthn secton 2G(c)2 of the ct, n that they requre
the payment, or rrevocabe settng asde, of a specfed porton of the earnngs
or profts of the ta abe year for the dscharge of a debt ncurred on or before
pr 30, 193G.
If a corporaton s restrcted wth respect to the payment of dvdends by
two or more contract provsons conng wthn secton 2G(c) of the ct,
ony the argest of the credts computed wth respect to each of such provsons,
and not ther sum, sha be aowabe under secton 2t (c) of the ct and,
for such purpose, f two or more credts are equa n amount, ony one sha
be taken nto account. owever, secton 20(c)3 of the ct provdes that f
both secton 26(c) and secton 26(c)2 of the ct appy, ony the one of
such paragraphs whch aows the greater credt sha be apped, and, f the
credt aowabe under each paragraph s the same, ony one of such paragraphs
sha be apped.
(6) Prohbton on payment of dvdends. The credt provded n secton
26(c) of the ct s aowabe ony wth respect to a wrtten contract e ecuted
by the corporaton pror to May 1, 1936, whch e pressy deas wth the pay-
ment of dvdends and operates as a ega restrcton upon the corporaton as
to the amounts whch t can dstrbute wthn the ta abe year as dvdends.
If an amount can be dstrbuted wthn the ta abe year as a dvdend
(1) n one form (as, for e ampe, n stock or bonds of the corporaton) wth-
out voatng the provsons of a contract, but can not be dstrbuted wthn the
ta abe year as a dvdend n another form (as, for e ampe, n cash) wthout
voatng such provsons, or
(2) at one tme (as, for e ampe, durng the ast haf of the ta abe year)
wthout voatng the provsons of a contract, but can not be dstrbuted as a
dvdend at another tme wthn the ta abe year (as, for e ampe, durng the
frst haf of the ta abe year) wthout voatng such provsons
then the amount s one whch, under secton 28(c) 1, can be dstrbuted wthn
the ta abe year as a dvdend wthout voatng such provsons.
The credt provded n secton 26(c) 1 of the ct s equa to the e cess of the
ad|usted net ncome, as defned n secton 14(a) of the ct, over the aggregate
of the amounts whch can be dstrbuted wthn the ta abe year wthout voat-
ng the provsons of such contract. The requrement that the provsons of the
contract e pressy dea wth the payment of dvdends s not met n case (1) a
corporaton Is merey requred to set asde perodcay, a sum to retre ts
bonds, or (2) the contract merey provdes that whe ts bonds are outstandng
the current assets sha not be reduced beow a specfed amount.
The computaton of the credt aowabe under secton 2G(c) of the ct may
b ustrated by the foowng e ampes:
ampe (/): or the caendar year 1936 the Corporaton (whch was
organzed In 1918) has a net ncome (on the accrua bass) of 200,000, a
norma ta abty of 28,8-10, and an ad|usted net ncome of . 171,160. t
the begnnng of the ta abe year t had 0,000 of accumuated earnngs and
profts. Its earnngs and profts of the ta abe year before deductng edera
ncome ta es amount to 210,000. The corporaton has second mortgage 6 per
cent bonds outstandng at the cose of the year, Issued pror to May 1, 1936, n
the amount of 1,000,000. n amount of the earnngs and prots suffcent to
retre 10 per cent of such bonds must, by the provsons of the underyng
mortgage, be set asde annuay before any dvdends can be pad on ts stock.
The credt aowabe under secton 26(c) of the ct s 10,000, computed as
foows:
d|usted net ncome 171,160
ggregate of amounts whch can be dstrbuted :
arnngs and profts of the ta abe year before deductng
edera ncome ta es 210,000
Less norma ta 28, 840
1S1,160
Pus earnngs and profts at begnnng of ta abe year,
accumuated nfter ebruary 28, 1913 50, 000
231,100
Less amount requred for retrement of bonds 100,000
131,160
Credt aowabe 40, 000
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ampe (2) . Under the terms of n contract entered nto pror to May 1,1930,
Corporaton obtaned a oan of 300,000. The contract provded that as ong
as the debt remans unpad not more than 50 per cent of the annua earnngs
sha be used for the payment of dvdends. Corporaton has ad|usted net
ncome (on the accrua bass) of 162,660 and a norma ta abty of 27,340.
The current earnngs and profts amount to 140,000 before deductng edera
ncome ta es and n addton thereto the corporaton had at the begnnng of ts
ta abe year 40,000 representng earnngs and profts accumuated after ebru-
ary 28, 1913. The credt aowabe under secton 26(c) of the ct s 66,330,
computed as foows:
d|usted net ncome 162,600
ggregate of amounts whch can be dstrbuted:
Current earnngs and profts 140,000
Less norma ta 27,340
Current earnngs and profts avaabe 112,660
Pus earnngs and profts at begnnng of ta abe year
accumuated after ebruary 28, 1913 40,000
Tota 152, 660
Less amount restrcted: 50 per cent of current earnngs,
. e., 50 per cent of 112,060 56,330
96.330
Credt aowabe 66.330
(c) Dsposton of profts of ta abe year. Under the provsons of secton
26(c)2 of the ct, a corporaton s aowed a credt n an amount equa to that
porton of the earnngs and profts of the ta abe year whch, by the terms of
a wrtten contract e ecuted by the corporaton pror to May 1, 1936, and
e pressy deang wth the dsposton of the earnngs and profts of the ta -
abe year, t s requred wthn the ta abe year to pay n, or rrevocaby to
set asde for, the dscharge of a debt Incurred on or before pr 30, 1936. The
credt s mted to that amount whch s actuay so pad or rrevocaby set
asde durng the ta abe year pursuant to the requrements of such a contract.
Ony a contractua provson whch e pressy deas wth the dsposton of
the earnngs and profts of the ta abe year sha be recognzed as a bass for
the credt provded n secton 20(c)2 of the ct. corporaton havng out-
standng bonds s not entted to a credt under a provson merey requrng
t, for e ampe, (1) to retre annuay a certan percentage or amount of such
bonds, (2) to mantan a snkng fund suffcent to retre a or a certan
percentage of such bonds by maturty, (3) to pay nto a snkng fund for the
retrement of such bonds a specfed amount per thousand feet of tmber cut
or per ton of coa mned, or (4) to pay nto a snkng fund for the retrement
of such bonds an amount equa to a certan percentage of gross saes or gross
ncome. Such provsons do not e pressy dea wth the dsposton of earn-
ngs and profts of the ta abe year. contractua provson, however, sha
not be consdered as not e pressy deang wth the dsposton of earnngs
and profts of the ta abe year merey because t deas wth suc earnngs
and profts n terms of net ncome, net earnngs, or net profts.
The term debt as used n secton 20(c)2 of the ct does not ncude an
obgaton of the corporaton to a sharehoder, as such, as dstngushed from
a credtor. ccordngy, amounts pad nto, or set asde for, a snkng fund
by a corpora on for the retrement of preferred stock, pursuant to the terms
of an agreement underyng the preferred stock Issue, sha not be consdered
as set asde for the dscharge of n debt. n ndebtedness evdenced by bonds
or other smar obgatons ssued by a corporaton s ncurred as of the
date such obgatons are ssued, and the amount of such ndebtedness s the
amount represented by the face vaue of the obgatons. or the purpose of
ths artce a bond or other smar obgaton s not ssued unt t s e e-
cuted and devered to a person who hods It as a debt of the corporaton.
onds Issued after pr 30, fG, In e change In refundng a pree stng ssue
represent debts ncurred after pr 30, 1936, wthn the meanng of secton
26(c)2 of the ct.
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514.
Part I . Corporaton Credt for Dvdends Pad.
Secton 27 of the ct provdes:
Sec. 27. Corporaton ckedt for dvdends tad.
(a) Dvdends pad credt n genera. or the purposes of ths tte, the
dvdends pad credt sha be the amount of dvdends pad durng the ta abe
year.
(b) Dvdend carry-over. In computng the dvdends pad credt for any
ta abe year, f the dvdends pad durng the ta abe year are ess than the
ad|usted net ncome, there sha be aowed as part of the dvdends pad credt,
and n the foowng order:
(1) Dvdends pad durng the second precedng ta abe year n e cess of
the ad|usted net ncome for such year, to the e tent not needed as a dvdends
pad credt for the ta abe year precedng the ta abe year the ta for whch
s beng computed and
(2) Dvdends pad durng the frst precedng ta abe year n e cess of the
ad|usted net ncome for such year.
No credt sha be aowed for dvdends pad by a corporaton pror to ts
frst ta abe year under ths tte.
(c) Dvdends n knd. If a dvdend s pad In property other than money
(ncudng stock of the corporaton f hed by the corporaton as an nvest-
ment) the dvdends pad credt wth respect thereto sha he the ad|usted
bass of the property n the hands of the corporaton at the tme of the pay-
ment, or the far market vaue of the property at the tme of the payment,
whchever s the ower.
(d) Dvdends n obgatons of the corporaton. If a dvdend s pad n
obgatons of the corporaton, the amount of the dvdends pad credt wth
respect thereto sha be the face vaue of the obgatons, or ther far market
vaue at the tme of the payment, whchever s the ower. If the far market
vaue s ower than the face vaue, then when the obgaton s redeemed by
the corporaton, the e cess of the amount for whch redeemed over the far
market vaue at the tme of the dvdend payment (to the e tent not aowabe
as a deducton n computng net ncome for any ta abe year) sha be treated
as a dvdend pad n the ta abe year n whch the redempton occurs.
(e) Ta abe stock dvdends. In case of a stock dvdend or stock rght
whch s a ta abe dvdend In the hands of sharehoders under secton 115(f),
the dvdends pad credt wth rcs ect thereto sha be the far market vaue of
the stock or the stock rght at the tme of the payment.
(f) Dstrbutons n qudaton. In the case of amounts dstrbuted n
qudaton the part of such dstrbuton whch s propery chargeabe to the
earnngs or profts accumuated after ebruary 28, 1913, sha, for the purposes
of computng the dvdends pad credt under ths secton, be treated as a ta abe
dvdend pad.
(g) Preferenta dvdends. No dvdends pad credt sha be aowed wth
respect to any dstrbuton uness the dstrbuton s pro rata, equa n amount,
and wth no preference to any share of stock as compared wth other shares of
the same cass.
(h) Nonta abe dstrbutons. If any part of a dstrbuton (ncudng stock
dvdends and stock rghts) s not a ta abe dvdend n the hands of such of the
sharehoders as are sub|ect to ta aton under ths tte for the perod n whch
the dstrbuton s made, no dvdends pad credt sha be aowed wth respect
to such part.
Secton 43 of the ct provdes:
Sec. 43. Perod kor wncn deductons and credts taken.
The deductons and credts (other than the dvdends pad credt provded
n secton 27) provded for n ths tte sha be taken for the ta abe year n
whch pad or accrued or pad or ncurred, dependent upon the method of
accountng upon the bass of whch the net ncome s computed, uness n order
to ceary refect the ncome the deductons or credts shoud be taken as of a
dfferent perod. In the case of the death of a ta payer there sha be aowed
as deductons and credts for the ta abe perod n whch fas the date of hs
death, amounts accrued up to the date of hs death f not otherwse propery
aowabe n respect of such perod or a pror perod.
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Secton 121 of the ct provdes:
Sec. 121. Deducton of dvdends pad on certan preferred stock of cm-
tan CORPOR TIONS.
In computng the net ncome of any natona bankng assocaton, or of any
bank or trust company organzed under the aws of any State, Terrtory, pos-
sesson of the Unted States, or the Cana Zone, or of any other bankng cor-
poraton engaged n the busness of ndustra bankng and under the super-
vson of a State bankng department or of the Comptroer of the Currency, or
of any ncorporated domestc nsurance company, there sha be aowed as a
deducton from gross ncome, n addton to deductons otherwse provded for
n ths tte, any dvdend (not ncudng any dstrbuton u qudaton) pad,
wthn such ta abe year, to the Unted States or to any nstrumentaty thereof
e empt from edera ncome ta es, on the preferred stock of the corporaton
owned by the Unted States or such nstrumentaty. The amount aowabe
as a deducton under ths secton sha be deducted from the dvdends pad
credt otherwse computed under secton 27.
rt. 27-1. Dvdends pad cr edt n genera. (a) owance. or the pur-
poses of the surta mposed by secton 14 of the ct a dvdends pad credt s
aowed aganst ad|usted net ncome n determnng undstrbuted net ncome.
The amount of the credt s the amount of the dvdends pad durng the tu -
abe year sub|ect, however, to the quafcatons, mtatons, and e ceptons
prescrbed u subsectons (b) to (h), ncusve, of secton 27 of the ct. See
aso secton 121 of the ct wth respect to dvdends pad on preferred stock
owned by the Unted States or nstrumentates thereof.
(6) When dvdends are consdered pad. dvdend w be consdered as
pad when t s receved by the sharehoder. dvdends pad credt can not
be aowed uness the sharehoder receves the dvdend durng the ta abe year
for whch the credt s camed.
If a dvdend s pad by check and the check bearng a date wthn the ta abe
ye|r s deposted n the mas, n a cover propery stamped and addressed to the
sharehoder nt hs st known address, at such tme that n the ordnary handng
of the mas the dvdend woud be receved by the sharehoder wthn the ta -
abe year, a presumpton arses that the dvdend was pad to the sharehoder
n such year.
The payment of a dvdend durng the ta abe year to the authorzed agent
of the sharehoder w be deemed payment of the dvdend to the sharehoder
durng such year.
If a corporaton, nstead of payng the dvdend drecty to the sharehoder,
credts the account of the sharehoder on the books of the corporaton wth the
amount of the dvdend, the credt for a dvdend pad w not be aowed uness
It be shown to the satsfacton of the Commssoner that such credtng const-
tuted payment of the dvdend to the sharehoder wthn the ta abe year.
credt w not be aowed for the amount of a dvdend credted durng the
ta abe year upon an obgaton of the sharehoder to the corporaton uness
t be shown to the satsfacton of the Commssoner that such credtng const-
tuted payment of the dvdend to the sharehoder wthn the ta abe year.
In the case of a stock dvdend, f the shares consttutng the dvdend are not
entered or regstered on the books of the corporaton n the name of the share-
hoder (or hs nomnee or transferee) wthn the ta abe year, the dvdend w
not be deemed to have been pad n such year. Devery of a certfcate, or
certfcates, for such new shares, wthn the ta abe year, consttutes prma
face evdence of the payment of the dvdend.
If the dvdend s payabe u obgatons of the corporaton, they shoud be
entered or regstered n the ta abe year on the books of the corporaton, n
the name of the sharehoder (or hs nomnee or transferee), and, n the case of
obgatons payabe to bearer, shoud be receved n the ta abe year by the
sharehoder (or hs nomnee or transferee), to consttute payment of the dv-
dend wthn the ta abe year.
(c) Methods of accountng. The determnaton of whether a dvdend has been
pad to the sharehoder by the corporaton durng ts ta abe year s In no way
dependent upon the method of accountng reguary empoyed by the corporaton
n keepng ts books or upon the method of accountng upon the bass of whch
the net ncome of the corporaton s computed. See secton 43 of the ct,
(d) Records. very corporaton camng a dvdends pad credt sha keep
ch permanent records as are necessary (1) to estabsh that the dvdends
wth respect to whch such credt s camed were nctuay pad durng the
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63
ta abe year and (2) to suppy the nformaton requred to be fed wth the
ncome ta return of the corporaton. Such corporaton sha fe wth ts
return (a) a true copy of the dvdend resouton, and (o) a concse statement
of the facts reed upon to show payment of the dvdend wthn the ta abe
year, ceary specfyng (1) the medum of payment and (2), f not pad n
money, the far market vaue and ad|usted bass (or face vaue, f pad n ts
own obgatons) on the date of dstrbuton of the property dstrbuted, and
the manner n whch such far market vaue and ad|usted bass were determned.
Canceed dvdend checks and recepts obtaned from sharehoders acknowedg-
ng payment of dvdends pad otherwse than by check need not be fed wth the
return but sha be kept by the corporaton as a part of ts records.
kt. 27-2. Dvdend carry-over. corporaton s aowed under secton
27(b) of the ct to ncude n ts dvdends pad credt a dvdend carry-over
from certan precedng ta abe years, n addton to the credt for dvdends
pad durng the ta abe year. If n the ta abe year no dvdends are actuay
pad or f n such year dvdends actuay pad are ess n amount than the
ad|usted net ncome for such year, there sha be Incuded as part of the
dvdends pad credt for such ta abe year n the foowng order
(1) the amount by whch dvdends whch were actuay pad durng the
second precedng ta abe year e ceeded the ad|usted net ncome for such
year, but ony to the e tent that the e cess was not needed as part of the
dvdends pad credt for the frst precedng ta abe year (whether or not
the part needed was actuay ncuded n the dvdends pad credt of such
frst precedng ta abe year) and
(2) the amount by whch the dvdends actuay pad durng the frst
precedng ta abe year e ceeded the ad|usted net ncome for such year.
The ct prohbts any part of the dvdend carry-over from consstng of
dvdends pad by the corporaton durng any ta abe year or perod begnnng
pror to anuary 1, 1936. The frst ta abe year or perod n whch a cor-
poraton may ava tsef of the beneft of the dvdend carry-over s ts second
ta abe year or perod begnnng after December 31, 1935.
very corporaton camng a dvdend carry-over for any ta abe year or
perod sha fe wth ts return for such year or perod a concse statement
settng forth the amount of the dvdend carry-over camed and a matera
and pertnent facts reatve thereto, ncudng a detaed schedue showng
the computaton of the dvdend carry-over camed.
The appcaton of secton 27(b) of the ct may be ustrated by the
foowng e ampes:
ampe ): The N Corporaton has an ad|usted net ncome of 80,000
for the caendar year 1936, and durng that year pays dvdends aggregatng
190.000. or the caendar year 1937, the corporaton has an ad|usted net
ncome of 120,000 and durng that year pays dvdends n the amount of
50,000. The dvdends pad credt for the caendar year 1937 s 60,000,
computed as foows:
Dvdends pad durng 1936 90. 000
d|usted net ncome for 1936 80.000
cess of dvdends pad durng 1930 over ad|usted net ncome
for that year 10,000
Dvdends pad durng 1937 50,000
Pus e cess of dvdends pad durng 1936 over ad|usted net ncome
for 1936 10.000
Dvdends pad credt for 1937 00, 000
ampe (2): The R Corporaton has an ad|usted net ncome of 60,000 for
the caendar year 1936 and for that year pays dvdends aggregatng 75,000.
or the caendar year 1937 the corporaton has au ad|usted net ncome of
100,000 and durng that year pays dvdends aggregatng 90,000. Durng the
caendar year 1938 the corporaton pays dvdends of 50,000, the ad|usted net
ncome for that year beng 80,000. The dvdends pad credt for the caendar
year 1937 s 100,000, computed as foows:
Dvdends pad durng 1937 90, 000
Porton of 15,000, the e cess of dvdends pad durng 19:G ( 75,000)
over ad|usted net ncome for that year ( 00,000) needed as a dv-
dends pad credt for 1937 10. 000
Dvdends pad credt for 1937 OO, 000
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(14. 64
The dvdends pad credt for the caendar year 1938 s 55,000, computed as
foows:
Dvdends pad durng 1038 50,000
Pus:
The e cess of dvdends pad durng 1036 over ad|usted net ncome
for that year ( 75,000- 00,000) or 15,000, to the e tent not
needed as dvdends pad credt for 1937 ( 15,000- 10,000) 5,000
cess of dvdends pad durng 1937 over ad|usted net ncome for
that year None
Dvdends pad credt for 1938 55. 000
s apped to ths e ampe, the ct provdes for a 2-year dvdend carry-over
n computng the dvdends pad credt for 1938, snce the e cess ( 15,000) of
the dvdends pad durng 1936 over the ad|usted net ncome for that year s
aowed as part of the dvdends pad credt for 1937 and 1038, 10,000 of such
e cess beng appcabe to 1037 and the remanng 5,000 to 1938. Of the 15,000
e cess, the entre amount of 10,000 (the dfference between the ad|usted net
ncome of 100,000 and the dvdends of 90,000 pad durng 1937) must be
apped, f at a, as part of the dvdends pad credt for 1937.
rt. 27-3. Dvdends n knd. Secton 27(c) of the ct mposes mtatons
upon the e tent to whch dvdends pad n assets (other than money) may be
recognzed for purposes of determnng the amount of dvdends pad credt.
Irrespectve of the form of the corporate resouton by whch a dvdend s
decared, f the dvdend s utmatey and actuay pad by the corporaton n
any property consttutng ts corporate assets other than money, the amount
of the dvdends pad credt to whch the corporaton s entted wth respect
thereto can not e ceed the esser of the two foowng amounts determned as
of the tme of payment:
(1) the ad|usted bass of such property n the hands of the corporaton as
provded for n secton 113 of the ct or
(2) the far market vaue of such property.
s used n ths artce the term property ncudes shares of capta stock
of the corporaton makng the dvdend dstrbuton f such shares of stock are
hed by t as an nvestment. Uness shown to the contrary, shares of capta
stock once ssued but thereafter acqured by the corporaton n any manner
whatsoever, but not retred, sha be deemed to be hed by the corporaton as
an nvestment. The term property aso ncudes obgatons upon whch
the corporaton makng the dstrbuton s abe as a guarantor, ndorser, or
surety.
The appcaton of secton 27(c) of the ct may be ustrated by the fo-
owng e ampe:
ampe: The S Corporaton, n 1930, purchased stock of the Y Corporaton
for 100,000. In 1936 such stock had a far market vaue of 70,000. Durng
the perod of ts ownershp of such stock, the S Corporaton receved dstrbu-
tons amountng to 5,000, out of earnngs or profts of Corporaton accumu-
ated before March 1, 1913. In 1936 the corporaton used such stock for the
payment of a dvdend. The dvdends pad credt for 1936 s 70,000, computed
as foows:
Purchase prce, or cost of stock 100.000
Less ta -free dstrbuton 5,000
d|usted bass of stock n the hands of corporaton at the tme of the
dvdend payment 95, 000
ar market vaue of stock at the tme of the dvdend payment 70.000
Dvdends pad credt for 1936 L UL_ 70.000
Snce the far market vaue of the stork ( 70,000) at the tme of the dv-
dend payment s ess than the ad|usted bass ( 95,000) of the stock n the
hands of the corporaton at the tme of the dvdend payment, the esser
amount ( 70.0110) shoud be used as the dvdends pad credt for 1930 wth
respect to such stock.
rt. 27-4. Dvdend n obgatons of the corporaton. Secton 27(d) of the
ct Is concerned soey wth the amount of dvdends pad credt aowabe to
the e tent that dvdends are pad by a corporaton n ts own obgatons. If
the corporaton utmatey pays a dvdend n ts own obgatons (regardess of
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the form of the corporate resouton by whch the dvdend s decared), the
amount of the dvdends pad credt to whch t s entted wth respect thereto
for the year n whch such dvdend s pad s mted to the esser of the face
vaue or far market vaue of such obgatons as of the date of payment. If the
dvdends pad credt as of the date of payment s mted to the far market
vaue of the corporate obgatons dstrbuted, the corporaton becomes entted
to an addtona dvdends pad credt for the ta abe year n whch t redeems
such obgatons, but ony n the event that the amount at whch such obga-
tons are redeemed s hgher than ther far market vaue at the tme of the
dstrbuton. The amount of such addtona dvdends pad credt s the e cess
of the prce at whch such obgatons are redeemed over ther far market vaue
at the tme of the dstrbuton, sub|ect to the restrcton that such e cess be
dmnshed by any amounts whch were aowabe as deductons for amortzed
bond dscount or bond ssue commssons and e penses aocabe to the obga-
tons redeemed n computng the net ncome of the corporaton for any ta abe
year. corporaton s entted to such addtona dvdends pad credt regard-
ess of the dentty of the hoders of the obgatons at the tme of ther
redempton.
The term obgatons as used n ths artce moans any ega abty on
the part of the corporaton (not ncudng abty as a guarantor, ndorser, or
surety), regardess of when ncurred, to pay a f ed or determnabe sum of
money, evdenced n wrtng e ecuted by the corporaton. The term redeemed
as used n ths artce ncudes (1) repurchase n the open market for nvestment
or snkng fund purposes, (2) retrement, or (3) canceaton of the obgatons
before, at, or after maturty.
The appcaton of secton 27(d) of the ct may be ustrated by the foowng
e ampe:
ampe: The Corporaton decared a dvdend of 85,000 n 1036, payabe
n that year n ts 5 per cent bonds at 85. Pursuant to such decaraton, bonds
havng an aggregate face vaue of 100,000 were ssued durng 1936 n payment
of the dvdend. The far market vaue of the bonds at the tme of ssuance
was 75,000. The dvdends pad credt for 1936 s the far market vaue of the
bonds at the tme of the dvdend payment ( 75,000), snce such far market
vaue s ower than the face vaue ( 100,000) of the obgatons.
The corporaton pror to the redempton of the bonds at face vaue deducted
n ts returns over the fe of the bonds the 15,000 bond dscount resutng from
the payment In 1936 of the 85,000 dvdend In bonds havng a face vaue of
100,000. The dvdends pad credt wth respect to the bond redempton for
the ta abe year n whch the redempton of the bonds occurred s 10,000,
computed as foows:
Redempton prce of bonds 100,000
Less far market vaue of bonds when dvdend was pad n 1936_. 75,000
Dfference 25, 000
Less bond dscount aowed as a deducton n computng net ncome 15,000
mount treated as dvdend pad n ta abe year n whch redemp-
ton occurs 10,000
rt. 27-5. Ta abe gtock dvdends. very corporaton sub|ect to ta under
secton 14 of the ct s entted to a dvdends pad credt wth respect to
dstrbutons n stock dvdends or stock rghts whch are ta abe dvdends
n the hands of sharehoders under secton 115(f) of the ct and artce 115-3
of these reguatons. Such credt, however, s mted n amount to the far
market vaue of such stock or stock rghts at the tme of the payment of the
dvdend. s to a dstrbuton by a corporaton of ts own capta stock hed
as an Investment, see artce 27-3 of these reguatons.
bt. 27-6. Dvdends pad credt for dstrbutons n qudaton. (a) Ds-
trbutons whch dmnsh earnngs or profts. To the genera rue that the
dvdends pad credt s aowabe ony wth respect to ta abe dvdends pad,
secton 27(f) of the ct makes one e cepton, namey, for that part, of an
amount dstrbuted n qudaton whch, under the ct, consttutes a dstrbu-
ton of, and s propery chargeabe to, earnngs or profts accumuated after
ebruary 28, 1913. Thus, a dstrbuton ether n compete or parta quda-
ton of a corporaton s treated by the ct as one consttutng In part a ds-
trbuton of, and beng propery chargeabe to, earnngs or profts, f
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14.
66
(1) under the provsons of secton 115(c) of the ct, the amounts ds-
trbuted n qudaton are treated as receved n payment e change for the
stock and
(2) under the provsons of secton 112 of the ct, the gan or oss, f any,
from such e change s recognzed. In such a case, a dvdends pad credt s
aowabe for the amount actuay nvoved n such dstrbuton whch s
propery chargeabe to the earnngs or profts accumuated after ebruary 28,
1913, even though the method of ta aton of the dstrbuton s that ordnary
empoyed wth respect to the gan or oss reazed and recognzed upon an e -
change, rather than that empoyed wth respect to a ta abe dvdend.
On the other hand, certan transactons descrbed n sectons 112 and 115 of
the ct are treated for the purposes of the ct, not as dstrbutons to the share-
hoders of earnngs or profts, but as transfers of such earnngs or profts ntact
to another corporaton n whose hands such earnngs or profts, beng avaabe
for dstrbuton by t as dvdends to ts sharehoders, have essentay the same
status for the purposes of the ct as earnngs or profts derved from ts own
operatons. Characterstc of these transactons s the crcumstance that the
gan or oss reazed from the recept by the sharehoders of property s not
recognzed by the ct. No dvdends pad credt s aowabe wth respect to
such transactons.
(6) mount propery chargeabe to earnngs or profts. In the case of a ds-
trbuton n qudaton wth respect to whch a dvdends pad credt s aow-
abe (see paragraph (a) of ths artce) the amount of the credt s equa to the
part of such dstrbuton whch s propery chargeabe to the earnngs or profts
accumuated after ebruary 28, 1913. To determne the amount propery charge-
abe to the earnngs or profts accumuated snce ebruary 28, 1913, there must
be deducted from the amount of the dstrbuton that part aocabe to capta
account. The capta account, for purposes of these reguatons, ncudes not
ony amounts representng the par or stated vaue of the stock wth respect to
whch the qudatng dstrbuton s beng made but aso that stock s proper
share of the pad-n surpus, and such other corporate tems, f any, whch, for
purposes of ncome ta aton, are treated ke capta In that they are not ta abe
dvdends when dstrbuted but are apped aganst and reduce the ad|usted
bass of the stock. The remander of the dstrbuton n qudaton s, ord-
nary, propery chargeabe to the earnngs or profts accumuated snce ebruary
28, 1913. The appcaton of ths paragraph may be ustrated by the foowng
e ampe:
ampe: The Y Corporaton was organzed on anuary 1, 1910, wth an
authorzed and outstandng capta stock of 2,000 shares of common stock of a
par vaue of 100 each and 1.000 shares of partcpatng preferred stock of a
par vaue of 100 each. The preferred stock was to receve annua dvdends of
7 per share and 100 per share on compete qudaton of the corporaton n
prorty to any payments on common stock, was to partcpate equay wth the
common stock n ether nstance after the common stock had receved a smar
amount. owever, the preferred stock was redeemabe n whoe or n part at
the opton of the board of drectors at any tme at 106 per share pus ts
proporton of the earnngs of the company at the tme of such redempton. In
1010 the preferred stock was ssued at 106 per share, for a tota of 106,000,
und the common stock was ssued, at 100 per share, for a tota of 200,000.
On uy 15, 1936, the company had a pad-n surpus of 6,000, consstng of
the premum receved on the preferred stock, earnngs or profts of 30,000
accumuated pror to March 1, 1913, and earnngs or profts accumuated snce
ebruary 28, 1913, of 75,000. On uy 15, 1936, the opton wth respect to
the preferred stock was e ercsed and the entre amount of such stock was
redeemed at 141 per share or a tota of 141,000 n a transacton upon whch
gan or oss to the dstrbutees resutng from the e change was determned
and recognzed under the ct, such transacton beng ony a parta quda-
ton under secton 115(c) of the ct. The amount of the dstrbuton aocabe
to capta account was 116,000 ( 100,000 attrbutabe to par vaue, 6,000
attrbutabe to pad-n surpus, and 10,000 attrbutabe to earnngs or profts
accumuated pror to March 1, 1913). The remander, 25,000 ( 141,000. the
amount of the dstrbuton, ess 116,000, the amount aocabe to capta ac-
count), s propery chargeabe to the earnngs or profts accumuated snce
ebruary 28, 1913, and s aowabe as a dvdends pad credt
(c) Credt n respect of earnngs or profts transferred under certan ta -
free transactons It the earnngs or profts of a corporaton sha have be-
come the earnngs or profts of another corporaton as the resut of a trans-
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67
acton descrbed n secton 112 of the rt havng occurred durng the ta abe
year of the transferor corporaton, any dvdends pad by the transferee cor-
poraton durng that porton of the transferor s ta abe year subsequent to the
consummaton of such transacton may, wth the approva of the Commssoner
of Interna Revenue, be apportoned and aocated to (he transferor corpora-
ton and the transferee corporaton, respectvey, and the porton so aocated to
the transferor corporaton may be used ony n the computaton of the dv-
dends pad credt aowabe to the transferor corporaton. No such apporton-
ment and aocaton sha be recognzed uness proper appcaton therefor,
to the Commssoner of Interna Revenue, duy e ecuted n dupcate by both
corporatons, s submtted wth the returns of the corporatons for the ta -
abe years nvoved. The return of each corporaton sha contan a state-
ment settng forth concsey the amount and the date of the severa dvdend
dstrbutons sub|ect to such apportonment and the portons thereof aocated
to the transferor corporaton and to the transferee corporaton, respectvey.
Upon the audt of the returns, the Commssoner w decde whether the
appcaton for apportonment and aocaton w be approved.
bt. 27-7. Preferenta dstrbuton. Secton 27(g) of the ct mposes a m-
taton upon the genera rue that a corporaton s entted to a dvdends pad
credt wth respect to a dvdends whch t actuay pays durng the ta abe
year. efore a corporaton may be entted to any dvdends pad credt wth
respect to a dstrbuton, regardess of the medum n whch the dstrbuton s
made, every share of stock of the cass to the hoders of whch the dstrbuton
s made must be treated the same as every other share of stock of that cass.
The e stence of a preference s decared by the ct as suffcent to prohbt the
dvdends pad credt, regardess of the fact (1) that such preference s e er-
csed wth the consent of a the sharehoders and (2) that the amounts receved
by the sharehoders benefted by the preference are ta abe to them as dvdends.
Under no crcumstances w a corporaton be entted to a dvdends pad credt
wth respect to any dstrbuton, whether t be a dvdend as defned n secton
115 of the ct or a dstrbuton n qudaton referred to n secton 27(f) of the
ct, f any sharehoder of the cass to whom the dstrbuton s made receved
(In proporton to the number of shares of stock hed by hm) more or ess than
a pro rata amount of such dstrbuton as compared wth the amount dstrbuted
to the owners of other shares of the same cass of stock. The dsaowance of
the dvdends pad credt, where any preference or nequaty n fact e sts, e -
tends to the entre amount of the dstrbuton and not merey to a part of such
dstrbuton.
The appcaton of the provsons of secton 27(g) of the ct, reatng to ds-
trbutons whch are preferenta or unequa n amount, may be ustrated by
the foowng e ampes:
ampe (1): , , C, and D are the owners of a the shares of cass com-
mon stock n the M Corporaton whch makes ts ncome returns on a caendar
year bass. Wth the consent of a the sharehoders, the M Corporaton, on
uy 15, 1936, decared a dvdend of 5 a share payabe n cash on ugust 1,
1936, to . On September 15, 1936, t decared a dvdend of 5 a share payabe
n cash on October 1, 1936, to , C, and D. No dvdends pad credt for the
ta abe year 1936 s aowabe to the M Corporaton wt respect to any part
of the dvdends pad on ugust 1, 1936, and October 1, 1930.
ampe (2): The N Corporaton has a capta of 100,000 (consstng of
1,000 shares of common stock of a par vaue of 100) and earnngs or profts ac-
cumuated after ebruary 28, 1913, n the amount of 50,000. In the year 1930,
the N Corporaton dstrbutes 7,500 n canceaton of 50 shares of the stock
owned by three of the four sharehoders of the corporaton. No dvdends pad
credt s aowabe under sccton 27(g) of the ct wth respect to such
dstrbuton.
rt. 27-8. Nonta abe dstrbutons. No dvdends pad credt sha be a-
owed wth respect to any part of the dstrbuton by a corporaton to ts
sharehoders whch s
(a) not out of earnngs or profts of the ta abe year or out of earnngs or
profts of the corporaton accumuated subsequent to ebruary 28, 1913 (see
secton 115 of the ct), or, n the case of dstrbutons n qudaton, not
propery chargeabe to earnngs or profts of the corporaton accumuated after
ebruary 28, 1913, under artce 27-6 of these reguatons
(6) n the case of a corporaton whch was cassfed as a persona servce
corporaton under the Revenue ct of 1918 or the Revenue ct of 1921, out of
earnngs or profts whch were ta abe n accordance wth the provsons of
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14.
secton 218 of the Revenue ct of 1918 or secton 218 of the Revenue ct of
1921 ( ee secton 115(e) of the ct) or
(o) a dstrbuton n stock of the corporaton or rghts to acqure ts stock
whch does not consttute ncome to ts sharehoder wthn the meanng of the
s teenth amendment to the Consttuton (see secton 115(f) of the ct and
artces 115-3 and 115-4 of these reguatons).
The effect of subsectons (g) and (h) of secton 27 of the ct s that no
dvdends pad credt s aowed wth respect to any dstrbuton uness each of
the sharehoders of that cass, who are sub|ect to ta aton under Tte I of the
ct for the perod n whch the dstrbuton s made, receves a ta abe dvdend
as a resut of the dstrbuton.
The appcaton of secton 27(h) of the ct may be Iustrated by the foow-
ng e ampes:
ampe (1): , , 0, and D are the sharehoders of the Y Corporaton
whch makes ts returns on the caendar year bass, D beng an educatona
corporaton e empt from ncome ta under secton 101 of the ct. On uy 15,
1936, the Y Corporaton pad a dvdend (wthn the meanng of secton 115 of
the ct) n cash of 1,000. and make ther returns on the caendar year
bass but C makes hs return on the bass of the fsca year endng uy 31.
Corporaton Y s entted to a dvdends pad credt In the amount of 1,000
wth respect to the dvdends pad on uy 15.
ampe (2) If the facts n the precedng e ampe are the same, e cept
that , , and C make ther returns on the bass of the fsca year endng uy
31, the Y Corporaton s entted to a dvdends pad credt n the amount of
1,000 wth respect to the dvdends pad on uy 15.
Part . Dstrbutons by Corporatons.
Secton 115 of the ct provdes:
Sec. 115. Dstrbutons by corporatons.
(a) Defnton of dvdend. The term dvdend when used n ths tte
(e cept n secton 203(a) (3) and secton 207(c) (1), reatng to Insurance com-
panes) means any dstrbuton made by a corporaton to ts sharehoders,
whether n money or n other property, (1) out of ts earnngs or profts accu-
muated after ebruary 28, 1913, or (2) out of the earnngs or profts of the
ta abe year (computed as of the cose of the ta abe year wthout dmnuton
by reason of any dstrbutons made durng the ta abe year), wthout regard
to the amount of the earnngs and profts at the tme the dstrbuton was made.
(b) Source of dstrbutons. or the purposes of ths ct every dstrbuton
s made out of earnngs or profts to the e tent thereof, and from the most
recenty accumuated earnngs or profts. ny earnngs or profts accumuated,
or ncrease n vaue of property accrued, before March 1, 1913, may be dstrb-
uted e empt from ta , after the earnngs and profts accumuated after ebru-
ary 28, 1913, have been dstrbuted, but any such ta -free dstrbuton sha be
apped aganst and reduce the ad|usted bass of the stock provded n secton
113.
(c) Dstrbutons n qudaton. mounts dstrbuted n compete quda-
ton of a corporaton sha be treated as In fu payment In e change for the
stock, and amounts dstrbuted n parta qudaton of a corporaton sha be
treated as In part or fu payment In e change for the stock. The gan or oss
to the dstrbutee resutng from such e change sha be determned under sec-
ton 111, but sha be recognzed ony to the e eent provded n secton 112. De-
spte the provsons of secton 117(a), 100 per centum of the gan so recognzed
sha be taken nto account n computng net ncome, e cept n the case of
amounts dstrbuted n compete qudaton of a corporaton. or the purpose
of the precedng sentence, compete qudaton ncudes any one of a seres
of dstrbutons made by a corporaton n compete canceaton or redempton of
a of ts stock n accordance wth a bona fde pan of qudaton and under
whch the transfer of the property under the qudaton s to be competed
wthn a tme specfed n the pan, not e ceedng two years from the cose of
the ta abe year durng whch s made the frst of the seres of dstrbutons
under the pan. In the case of amounts dstrbuted (whether before anuary 1,
1934, or on or after such date) In parta qudaton (other than a dstrbuton
wthn the provsons of subsecton (h) of ths secton of stock or securtes n
connecton wth a reorganzaton) the part of such dstrbuton whch s prop-
ery chargeabe to capta account sha not be consdered a dstrbuton of
earnngs or profts.
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69
14.
(d) Other dstrbutons from capta. If any dstrbuton (not n parta or
compete qudaton) made by a corporaton to ts sharehoders s not out of
ncrease n vaue of property accrued before March 1, 1913, and s not a dv-
dend, then the amount of such dstrbuton sha be apped aganst and reduce
the ad|usted bass of the stock provded n secton 113, and f n e cess of
such bass, such e cess sha be ta abe n the same manner as a gan from the
sae or e change of property.
(e) Dstrbutons by persona servce corporatons. ny dstrbuton made
by a corporaton whch was cassfed as a persona servce corporaton under
the provsons of the Revenue ct of 1918 or the Revenue ct of 1921, out of ts
earnngs or profts whch were ta abe n accordance wth the provsons of
secton 218 of the Revenue ct of 1918 or secton 218 of the Revenue ct of
1921, sha be e empt from ta to the dstrbutees.
(f) Stock dvdends.
(1) Genera rue. dstrbuton made by a corporaton to ts sharehoders
n ts stock or n rghts to acqure ts stock sha not be treated as a dvdend
to the e tent that t does not consttute ncome to the sharehoder wthn the
meanng of the s teenth amendment to the Consttuton.
(2) ecton of sharehoders as to medum of payment. Whenever a ds-
trbuton by a corporaton s, at the eecton of any of the sharehoders
(whether e ercsed before or after the decaraton thereof), payabe ether ( )
n ts stock or u rghts to acqure ts stock, of a cass whch f dstrbuted
wthout eecton woud be e empt from ta under paragraph (1), or ( ) n
money or any other property (Incudng ts stock or n rghts to acqure ts
stock, of a cass whch f dstrbuted wthout eecton woud not be e empt from
ta under paragraph (1)), then the dstrbuton sha consttute a ta abe
dvdend n the hands of a sharehoders, regardess of the medum n whch
pad.
(g) Redempton of sock. If a corporaton cances or redeems ts stock
(whether or not such stock was ssued as a stock dvdend) at such tme and
n such manner as to make the dstrbuton and canceaton or redempton n
whoe or n part essentay equvaent to the dstrbuton of a ta abe dv-
dend, the amount so dstrbuted n redempton or canceaton of the stock, to
the e tent that t represents a dstrbuton of earnngs or profts accumuated
after ebruary 28, 1913, sha be treated as a ta abe dvdend.
(h) ffect on earnngs and profts of dstrbutons of stock. The dstrbu-
ton (whether before anuary 1, 1936, or on or after such date) to a ds-
trbutee by or on behaf of a corporaton of ts stock or securtes or stock
or securtes n another corporaton sha not be consdered a dstrbuton of
earnngs or profts of any corporaton
(1) f no gan to such dstrbutee from the recept of such stock or securtes
was recognzed by aw, or
(2) f the dstrbuton was not sub|ect to ta n the hands of such ds-
trbutee because t dd not consttute ncome to hm wthn the meanng of
the s teenth amendment to the Consttuton or because e empt to hm under
secton 115(f) of the Revenue ct of 1934 or a correspondng provson of a
pror Revenue ct.
s used n ts subsecton the term stock or securtes ncudes rghts to
acqure stock or securtes.
() Defnton of parta qudaton. s used n ths secton the term
amounts dstrbuted n parta qudaton means a dstrbuton by a corpo-
raton n compete canceaton or redempton of a part of ts stock, or one of
a seres of dstrbutons n compete canceaton or redempton of a or a
porton of ts stock.
(|) auaton of dvdend. If the whoe or any part of a dvdend s pad
to a sharehoder n any medum other than money the property receved other
than money sha be ncuded n gross ncome at ts far market vaue at the
tme as of whch t becomes ncome to the sharehoder.
rt. 115-1. Dvdends. The term dvdend for the purpose of Tte I of
the ct (e cept when used n sectons 203(a)3 and 207(c) thereof) com-
prses any dstrbuton n the ordnary course of busness, even though e traor-
dnary n amount, made by a domestc or foregn corporaton to ts share-
hoders out of ether
(1) earnngs or profts accumuated snce ebruary 28, 1913, or
(2) earnngs or prots of the ta abe year compured wthout regard to the
fmount of the earnngs or profts (whether of such year or accumuated snce
ebruary 2S, 1913) at the tme the dstrbuton was made.
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70
The earnngs or profts of the ta abe year sha be computed as of the
cose of such year, wthout dmnuton Iby reason of any dstrbutons made
durng the ta abe year. or the purpose of determnng whether a dstr-
buton consttutes a dvdend, t s unnecessary to ascertan the amount of
the earnngs and profts accumuated snce ebruary 28, 1913, If the earnngs
and profts of the ta abe year are n e cess of the tota amount of the
dstrbutons made wthn such year.
ta abe dstrbuton made by a corporaton to Its sharehoders sha be
ncuded n the gross Income of the dstrbutees when the cash or other
property s unquafedy made sub|ect to ther demands.
The appcaton of secton 115(a) of the ct may be ustrated by the
foowng e ampe:
ampe: t the begnnng of the caendar year 1936, the M Corporaton
had an operatng defct of 200,000 and the earnngs or profts for the year
amounted to 100,000. egnnng on March 16, 1936, the corporaton made
quartery dstrbutons durng the ta abe year to ts sharehoders of 25,000
each. ach dstrbuton s a ta abe dvdend n fu, rrespectve of the
actua or the pro rata amount of the earnngs or profts on hand at any of
the dntes of dstrbuton, snce the tota dstrbutons made durng the year
( 100,000) dd not e ceed the tota earnngs or profts of the year ( 100,000).
kt. 115-2. Sources of dstrbutons n genera. or the purpose of ncome
ta aton every dstrbuton made by a corporaton Is made out of earnngs
or profts to the e tent thereof and from the most recenty accumuated earn-
ngs or profts. In determnng the source of a dstrbuton, consderaton
shoud be gven frst, to the earnngs or profts of the ta abe year second,
to the earnngs or profts accumuated snce ebruary 28, 1913, ony n the
case where, and to the e tent that, the dstrbutons made durng the ta abe
year are not regarded as out of the earnngs or profts of that year thrd,
to the earnngs or profts accumuated pror to March 1, 1913, ony after a
the earnngs or profts of the ta abe year and a the earnngs or profts ac-
cumuated snce ebruary 28, 1913, have been dstrbuted and, fourth, to
sources other than earnngs or profts ony after the earnngs or profts have
been dstrbuted.
If the earnngs or profts of the ta abe year (computed as of the coae
of the year wthout dmnuton by reason of any dstrbutons made durng
the year and wthout regard to the amount of earnngs or profts at the tme
of the dstrbuton) are suffcent n amount to cover a the dstrbutons
made durng that year, then each dstrbuton s a ta abe dvdend. (See
artce 115-1 of these reguatons.) If the dstrbutons made durng the
ta abe year e ceed the earnngs or profts of such year, then that proporton
of each dstrbuton whch the tota of the earnngs or profts of the year bears
to the tota dstrbutons made durng the year sha be regarded as out of the
earnngs or profts of that year. The porton of each such dstrbuton whch s
not regarded as out of earnngs or profts of the ta abe year sha be consd-
ered a ta abe dvdend to the e tent of the earnngs or profts accumuated
snce ebruary 28, 1913, and avaabe on the date of the dstrbuton. In any
case n whch It s necessary to determne the amount of earnngs or profts
accumuated snce ebruary 28, 1913, and the actua earnngs or profts to the
date of a dstrbuton wthn any ta abe year (whether begnnng before anu-
ary 1, 1936, or, n the case of an operatng defct, on or after that date) can not
be shown, the earnngs and profts for the year (or accountng perod, f ess
than a year) n whch the dstrbuton was made sha be prorated to the
date of the dstrbuton not countng the date on whch the dstrbuton was
made. The provsons of ths artce may be ustrated by the foowng
e ampe:
ampe: t the begnnng of the caendar year 1936, the M Corporaton
had 12,000 n earnngs and profts accumuated snce ebruary 28, 1913. ts
earnngs and profts for 1936 amounted to 30,000. Durng the year, t made
quartery dstrbutons of 15,000 each. Of each of the four dstrbutons made
7,500 (that porton of 15,000 whch the amount of 30,000, the tota earnngs
and profts of the ta abe year, bears to 60,000, the tota dstrbutons made
durng the year) was pad out of the earnngs and profts of the ta :a e
year and of the frst and second dstrbutons, 7,500 and 4,500, respectvey,
were pad out of the earnngs and profts accumuated after ebruary 2
1913, and pror to the ta abe year, as foows:
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14.
Dstrbutons durng 1936.
Date.
mount.
Porton out of
earnngs or
profts of the
ta abe year.
Port on out of
earnngs accu-
muated snce
eb. 2S. 1913,
and pror to
ta abe year.
Ta abe
amount of
each dstr-
buton.
Mar. 10.
une 10.
Scpt. 10.
Dec. 10..
15, 000
15, 000
15, 000
15, 000
7, 500
7, 500
7, 500
7, 500
7, 500
4, 500
Tota amount ta abe as dvdends.
15, 000
12, 000
7, 500
7, 500
42, 000
ny dstrbuton by a corporaton out of earnngs or profts accumuated pror
to March 1, 1913, or out of ncrease In vaue of property accrued pror to March
1, 1913 (whether or not reazed by sae or other dsposton, and, f reazed,
whether pror to or on or after March 1, 1913), s not a dvdend wthn the
meanng of Tte I of the ct.
rt. 115-3. toch dvdends. dstrbuton made by a corporaton to Its
sharehoders n ts stock or n rghts to acqure ts stock sha be treated as a
dvdend to the fu e tent that t consttutes ncome to the sharehoders wthn
the meanng of the s teenth amendment to the Consttuton. The Supreme
Court has ponted out some of the characterstcs dstngushng a stock dv-
dend whch consttutes ncome from one whch does not consttute ncome
wthn the meanng of the Consttuton. The dstncton between a stock dv-
dend whch does not and one whch does consttute ncome to the sharehoder
wthn the meanng of the s teenth amendment to the Consttuton s the ds-
tncton between a stock dvdend whch works no change n the corporate
entty, the same nterest n the same corporaton beng represented after the ds-
trbuton by more shares of precsey the same character, and a stock dvdend
where there ether has been a change of corporate dentty or a change n the
nature of the shares ssued as dvdends whereby the proportona nterest of
the sharehoder after the dstrbuton s essentay dfferent from hs former
nterest. stock dvdend consttutes ncome f t gves the sharehoder an
nterest dfferent from that whch hs former stock hodngs represented.
stock dvdend does not consttute ncome f the new shares confer no dfferent
rghts or nterests than dd the od the new certfcates pus the od represent-
ng te same proportonate nterest n the net assets of the corporaton as dd
the od.
ampe (1): The Corporaton had an authorzed capta stock of 300,000
of common stock, par vaue 10 a share, and 100,000 of 7 per cent cumuatve
preferred stock, par vaue 100 a share, whch s preferred as to dvdends, has
no votng rghts, and may be redeemed at any tme at 105 per share. The
artces of ncorporaton provde that the annua dvdend on the preferred stock
may be pad n cash or, at the opton of the corporaton, n one share of common
stock for each share of preferred. On uy 1, 1930, the Corporaton had out-
standng 200,000 of common stock and 100,000 of preferred stock, earnngs and
profts of G0,0 ) accumuated snce ebruary 28, 1913, and earnngs and profts
of the ta abe year amountng to 15,000. On uy 1, 1936, t dstrbuted 1,000
shares of ts common stock of an aggregate par vaue (and far market vaue)
of 10,000 to the hoders of ts preferred stock n payment of the annua dvdend
on such stock. The stock so dstrbuted consttutes a ta abe stock dvdend to
the hoders of the preferred stock.
ampe (2): On uy 1, 1936, the T Corporaton hud an authorzed capta
stock consstng of 1,000 shares of common stock, par vaue 100 a share, of
whch 500 shares were outstandng. It had earnngs and profts of 40,000
accumuated snce ebruary L 8, 1913, and 5,000 of earnngs and profts of the
See sner v. Uacomber (252 U. S., 1S9 T. T . 3010, C. . 3, 25 ) and oshand v.
ffrtrrrtno (5( Sup. ft., 7(17 ft. D. 1124, C. . -1, 2191). Compart- Unted Mtten v.
Phrn (257 u. S 156 T. D. 3270, C. . 5, 37 ) Rockefeer v. Unted States (257 U. S.,
1 6 T. D. 3271. C. . 5. 341 Cuhan v. Waker (262 U. S.. 134 T. 1). 3508, C. . 11-2.
551) Wess v. tean (205 U. S., 242 T. D. 3009, C. . III-2, 51 ) and Uarr v. Unted
Maes (208 U. S., 530 IT. D. 3755. C. . I -2, 11C ).
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14, rt. 14-1.
72
ta abe year. On uy 1, 1936, the Y Corporaton Issued and dvded among ts
sharehoders 2S0 addtona shares of ts common stock of a tota par vaue of
25,000 and transferred an equvaent amount from surpus account to capta
stock account. The stock so dstrbuted does not consttute a ta abe stock
dvdend to the sharehoders.
ampe (3): The Z Corporaton had an authorzed capta stock of 30,000
shares of common, wthout par vaue, and 10,000 shares of 7 per cent cumuatve
preferred stock, par 100, whch s preferred as to dvdends, has votng rghts
and may be redeemed on the 1st of anuary or uy of any year by the payment
of 105 per share and accrued dvdends. On uy 1, 1936, the company s ssued
and outstandng stock amounted to 20,000 shares of common and 6,000 shares of
preferred, and t had 250,000 earnngs and profts accumuated snce ebruary
28, 1913, and 90,000 earnngs and profts of the ta abe year. On uy 1, 1936,
t pad a dvdend on ts common stock n preferred stock at the rate of one-tenth
share of preferred on each share of common outstandng. The preferred stock
so dstrbuted consttutes a ta abe stock dvdend to the hoders of common
stock.
bt. 115-4. ecton of sharehoders as to medum of payment. If the share-
hoder has the rght to an eecton or opton wth respect to whether a dstrbu-
ton sha be pad ether (o) In money or any other property or (6) In stock or
rghts to acqure stock of a cass whch, f dstrbuted wthout an eecton, woud
not consttute ncome wthn the meanng of the s teenth amendment to the
Consttuton, then the entre dstrbuton Is a ta abe dvdend regardess of
(1) whether the dstrbuton s actuay made, n whoe or n part, In stock
or n stock rghts whch, If dstrbuted wthout eecton, woud not consttute
a ta abe dvdend
(2) whether the eecton s e ercsed or e ercsabe before or after the
decaraton of the dstrbuton or
(3) whether the decaraton of the dvdend provdes that payment w be
made n one medum uness the sharehoder specfcay requests payment n the
other.
The term any other property as used n ths artce ncudes stock of the
corporaton or rghts to acqure ts stock, of a cass whch f dstrbuted wthout
an eecton, woud consttute Income wthn the meanng of the s teenth
amendment to the Consttuton. (See artce 115-3 of these reguatons.)
(Ped wth the Dvson of the edera Regster ugust 7,1986,12.64 p. m.)
Persona hodng companes as defned n secton 351 of the
evenue ct of 1936 are sub|ect not ony to the surta Imposed by
that secton but are aso sub|ect to the surta mposed by secton
14 of that ct.
dvce s requested whether persona hodng companes are sub-
|ect to both the surta on persona hodng companes mposed by
secton 351 of the Revenue ct of 1936 and the surta on unds-
trbuted profts mposed by secton 14 of that ct.
Secton 351(a), Tte I of the Revenue ct of 1936, whch m-
poses a surta on persona hodng companes, provdes n part as
foows:
(a) Imposton of ta . There sha be eved, coected, and pad, for each
ta abe year (n addton to the ta es mposed by Tte I), upon the unds-
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved ugust 6, 1936.
. Moroenthau, r.,
rtce 14-1: Surta on undstrbuted profts
of corporatons.
R NU CT O 1936.
-45-8376
G. C. M. 17213
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73
14, rt. 14-1.
trbuted ad|usted net ueone of every persona hodng company a surta equa
to the sum of the foowng:
Secton 14(b), Tte I of the Revenue ct of 1936, whch mposes
a surta on undstrbuted profts of corporatons, provdes n part
that:
(b) Imposton of ta . There ha bo eved, coected, and pad for each
ta abe year upon the net ncome of every corporatou a surta equa to the
sum of the foowng, :
It s noted that secton 351(a) of the ct provdes that the ta es
mposed by that secton sha be n addton to the ta es mposed by
Tte I. The surta on persona hodng companes s mposed under
Tte I of the ct whe the surta on undstrbuted profts s one
of the ta es mposed by Tte I.
Secton 14(d) of the ct provdes for the e empton of certan
corporatons from the surta on undstrbuted profts but persona
hodng companes are not ncuded n such e emptons. urther-
more, secton 102 of the ct, mposng a surta on corporatons m-
propery accumuatng surpus, provdes that the surta mposed
under that secton does not appy to a persona hodng company as
denned n secton 351 of the ct, but there s no correspondng pro-
vson of the ct whch provdes that the surta mposed by secton
14 does not appy to a persona hodng company as defned n secton
851.
In vew of the foregong, t s the opnon of ths offce that persona
hodng companes as defned n secton 351 of the Revenue ct of
1936 are sub|ect not ony to the surta mposed by that secton but
are aso sub|ect to the surta mposed by secton 14 of that ct.
erman Otphant,
Genera Counse for the Department of the Treasury.
rtce 14-1: Surta on undstrbuted profts of
corporatons.
R NU CT O 1936.
Consodated returns of raroad corporatons as bass of surta
under secton 14 of the Revenue ct of 1936. (See I. T. 3018, page 105.)
rtce 14-1: Surta on undstrbuted profts -47-8392
of corporatons. I. T. 3016
R NU CT O 193G.
corporaton s sub|ect to the .surta mposed by secton 14 of
the Revenue ct of 193f on ts undstrbuted net ncome for 19. ,
even though the corporaton s restrcted by State aw n decarng
and payng dvdends whe ts capta remans mpared.
Durng the years 1932 to 1935, ncusve, the M Corporaton sus-
taned substanta osses. s a resut of such osses ts capta be-
came mpared as of anuary 1, 1936. Its ad|usted net ncome for
the year 1936 w be substanta but not suffcent n amount to equa
the mparment of ts capta at the begnnng of that year. Under
the State aw t can ony decare and pay dvdends out of surpus
and, therefore, t can not, wthout voatng the State aw, decare
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14, rt. 14-1.
74
and pay any dvdends from ts 193G earnngs. Under these crcum-
stances advce s requested whether the company s sub|ect to surta
under secton 14 of the Revenue ct of 1936 on ts undstrbuted net
ncome for the year 1936.
Secton 14 of the Revenue ct of 1936 mposes a surta upon the
net ncome of every corporaton, not e pressy e empt from such ta ,
whch s n addton to the norma ta mposed by secton 13 of that
ct. Ony those corporatons e empt from ncome ta n genera
under secton 101 of the ct and certan other corporatons enumer-
ated n secton 14(d) of the ct are e empt from the surta mposed
by secton 14. Nether under secton 26(c) of the Revenue ct of
1936, whch provdes for a credt n determnng surta abty m-
posed by secton 14 of the ct n the case of contracts restrctng pay-
ment of dvdends, nor under any other secton of the ct s any pro-
vson made for accordng speca treatment to a corporaton because
t s restrcted under the State aw n decarng and payng dvdends
whe ts capta remans mpared. Consequenty, the M Corpora-
ton s sub|ect to the surta mposed by secton 14 of the Revenue ct
of 1936 upon ts undstrbuted net ncome for the ta abe year 1936.
rtce 14-1: Surta on undstrbuted profts -51-8440
of corporatons. I T. 3031
R NU CT O 1936.
Where a corporaton keeps ts books of account on the nsta-
ment bass, the net ncome for the purpose of the surta on unds-
trbuted profts mposed by secton 14 of the Revenue ct of 1936
s the net ncome computed on the nstament bass.
dvce s requested whether the net ncome of a corporaton whch
s determned on the nstament bass shoud be used as the net
ncome for the computaton of the surta mposed by secton 14
of the Revenue ct of 1936 upon the undstrbuted profts of the
corporaton.
The surta mposed by secton 14 of the Revenue ct of 1936 s
computed upon the undstrbuted net ncome of a corporaton. The
term undstrbuted net ncome means the ad|usted net ncome
mnus the sum of (1) the dvdends pad credt provded n secton
27 of the ct, and (2) the credt provded n secton 26(c) of the
ct, reatng to contracts restrctng dvdends. The ad|usted
net ncome of the corporaton n the nstant case means the net
ncome mnus the sum of (1) the norma ta mposed by secton
13 of the ct, and (2) the credt provded n secton 26(a) of the
ct, reatng to nterest on certan obgatons of the Unted States
and ts nstrumentates. The net ncome to be used as the bass
for the aforementoned computaton must be computed n accord-
ance wth the method of accountng reguary empoyed by the
ta payer corporaton n keepng ts books and makng ts edera
ncome ta returns. In the case of a corporaton whch keeps ts
books on the nstament bass, the net ncome for the purpose of
the surta on undstrbuted profts mposed by secton 14 of the
Revenue ct of 1936 s the net ncome computed on the nstament
bass.
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75 23(a), rt. 23(a)-.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
rtce 22(a)T: Gross ncome of farmers. -30-8194
I. T. 2992
R NU CTS O 1934 ND 1936.
Payments under So Conservaton and Domestc otment pt.
Payments or grants made by the Secretary of grcuture to
agrcutura producers, ncudng tenants and share-croppers, pur-
suant to the provsons of the ct entted n ct to provde for
the protecton of and resources aganst so eroson, and for other
purposes ( . R. 7054, Pubc, ISo. 46, Seventy-fourth Congress,
49 Stat., 163), approved pr 27, 1935, as amended by the So Con-
servaton and Domestc otment ct (S. 3780, Pubc, No. 461,
Seventy-fourth Congress), approved ebruary 29, 1936, consttute
ta abe ncome to the recpents for edera ncome ta purposes.
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 23(a)-: usness e penses. -46-8384
I. T. 3013
R NU CT O 1936.
Contrbutons made by empoyers under the Indana unempoy-
ment compensaton act consttute ordnary and necessary busness
e penses whch are deductbe, for edera ncome ta purposes,
n the return for the ta abe year n whch they are pad or
accrued.
dvce s requested whether contrbutons made by the M Com-
pany to the Indana unempoyment compensaton fund are deduct-
be as busness e penses n ts edera ncome ta returns.
The contrbutons n queston are requred to be made by em-
poyers under the Indana unempoyment compensaton act, chapter
, cts 1936, Speca Sesson, the tte of whch reads: n act con-
cernng unempoyment compensaton, stabzaton of empoyment,
empoyment servce, and provdng for contrbutons by empoyers
and empoyees n connecton therewth. The act was approved and
became effectve March 18,1936.
Under the provsons of the Indana aw no part of the contrbu-
tons requred to be made by an empoyer to the State unempoyment
compensaton fund s recoverabe so ong as the edera Soca Secu-
rty ct (Pubc, No. 271, Seventy-fourth Congress, 49 Stat., 620) s
operatve. Such contrbutons pad or accrued wthout contest to
the State fund consttute ordnary and necessary busness e penses
whch are deductbe, for edera ncome ta purposes, n the return
for the ta abe year n whch they are pad or accrued, dependng
upon the method of bookkeepng used by the empoyer. No deduc-
tons are aowabe wth respect to such contrbutons f they are
captazed on the books of the empoyer.
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23(c), rt. 23(c)- .
76
rtce 23(a)-2: Traveng e penses. -49-8415
I. T. 3022
R NU CT O 1036.
The cost of transportaton of dependents of offcers and ensted
men of te Coast Guard whch s pad by the Government const-
tutes ta abe ncome to such offcers and ensted men, and no de-
ducton therefor s aowabe n computng net ncome.
dvce s requested whether amounts pad by the Government to
offcers and ensted men of the Coast Guard for cost of transportaton
of ther dependents consttute ta abe ncome.
The ureau has hed that amounts pad by the Government on
account of the transportaton of fames of rmy offcers are n the
nature of addtona compensaton and as such must be ncuded n
gross ncome. (O. D. 1135, C. . 5,174.) The same rue s appcabe
to payments by the Government representng the cost of transporta-
ton of the dependents of offcers and ensted men n the Coast Guard.
urthermore, under the provsons of secton 24(a) of the Revenue
ct of 1936, n computng net ncome no deducton s aowabe n
respect of persona, vng, or famy e penses. The oard of Ta
ppeas has hed that traveng e penses of a nava offcer s wfe from
one post of duty to another are persona e penses and, therefore, not
deductbe n computng the offcer s net ncome. ( ppea of Leand
D. Webb, 1 . T. ., 759 cf. Water Schmdt v. Commssoner, 11
. T. ., 1199.)
In vew of the foregong, t s hed that the cost of transportaton
of dependents of offcers and ensted men of the Coast Guard whch
s pad by the Government must be reported as ta abe ncome of such
offcers and ensted men, and no deducton therefor may be aowed
n computng net ncome.
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 23 (c)-: Ta es. -35-S263
I. T. 3001
R NU CTS OP 1934 ND 1038.
The cost of stamps requred to be attached to packages of cga-
rettes under the provsons of the North Dakota aws s an aow-
abe deducton as a ta ony In the return of the deaer or
dstrbutor who Is requred to purchase the stamps.
dvce s requested as to who may deduct, for edera ncome ta
purposes, the cost of stamps requred to be attached to packages of
cgarettes under the provsons of the North Dakota aws.
The ta evdenced by the stamps s mposed under the provsons
of chapter 106, Laws of North Dakota, 1927, as amended bv chapter
105, Laws of North Dakota, 1931, approved March 12. 1931. Chapter
105 s entted n act amendng and reenactng sectons 3, 5, 7, and
8 of chapter 106, Laws of North Dakota for the year 1927, reatng
to the sae of cgarettes, and cgarette papers and wrappers and
papers used and prepared for the makng of cgarettes provdng
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23(c), rt. 23(c)- .
for ssung censes for th purpose of makng saes thereof and
furnshng of bond provdng for the evy, assessment, coecton
and payment of a ta thereon provdng for the reguaton of the
saes thereof, and penaty for voaton of ths act | .
Under the frst four sectons of the act provson s made for
the ssuance of an annua permt to the vendor, who s requred
to fe a bond for performance, ncudng the payment of a ta es
mposed, and to pay the cense fee requred. Secton 5 of the act
reads n part as foows:
Sec. 5. rom and after the takng effect of ths act, there s hereby eved and
assessed and sha be coected and pad to the State treasurer upon a cga-
rettes, cgarette papers or wrappers and tubes the foowng ta es
to be pad pror to the tme of sae and devery thereof to the consumer:

cgarettes sod n ths State under the provsons of ths act sha be put
op In packages . Immedatey upon recept by the censee, each pack-
age sha have securey aff ed thereto, n such manner as to sea
the openng of the package, and be destroyed by the openng thereof, a sutabe
stamp denotng the ta thereon, and sad stamp sha be propery canceed
pror to sae or remova for consumpton, under such reguatons as the State
treasurer sha prescrbe. Provded that cgarettes or snuff sod to a consumer
n cartons, ros or other contaners havng more than one package or bo theren,
sha have aff ed thereto n the manner heren provded, stamps n the amount
by ths act requred to be paced upon the severa packages, bo es or recep-
taces, theren contaned. nch package stored or possessed
sha have securey aff ed thereto a sutabe stamp, or stamps, denotng the ta
thereon, whch stamps sha be canceed at the tme and n the manner heren-
before requred .
Under secton 6 of the act the State audtor s requred to prepare
and have sutabe stamps for use on each knd of package ta ed under
secton 5. These stamps must be devered upon requston to the
State treasurer, who may se them ody to deaers hodng permts.
Records of saes must be kept and the permttee s requred to report
hs saes twce each year to the attorney genera.
Secton 23 (c) of the Revenue cts of 1934 and 1936 provdes that
n computng net ncome there sha be aowed as deductons ta es
pad or accrued wthn the ta abe year, wth certan e ceptons not
here matera. rtce 23(c)- of Reguatons 86, reatng to the
Revenue ct of 1934, states that n genera ta es are deductbe ony
by the person upon whom they are mposed.
Under the provsons of the State aw any dstrbutor of cga-
rettes to consumers must secure a permt, ony permt hoders may
purchase stamps, and n purchasng the stamps the dstrbutor pays
the ta . or edera ncome ta purposes, the cost of the stamps
s an aowabe deducton as a ta ony n the return of the deaer
or dstrbutor who s requred to purchase the stamps. The cost
of the stamps, however, may not be deducted separatey as a ta
f t s ncuded as a part of the busness e pense of the deaer or
dstrbutor, or s otherwse used to reduce hs net ncome. The pur-
chaser or consumer of the cgarettes may not deduct the cost of the
stamps as a ta even though t s passed on to hm by the vendor.
To the consumer the cost of the stamps s merey an addtona cost
of the artce purchased.
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23(c), rt. 23(c)- .
78
btce 23 (c)-: Ta es. - -39-S315
I. T. 3007
R NU CT O 1036.
The 10 per cent ta mposed on quor sod by the Pennsyvana
Lquor Contro oard, effectve une 9, 1936, s an aowabe deduc-
ton n the edera ncome ta return of the person who purchases
the quor from the board.
dvce s requested whether the 10 per cent ta on quor sod
by the Pennsyvana Lquor Contro oard n Pennsyvana s de-
ductbe, for edera ncome ta purposes, by the purchaser of the
quor.
The ta n queston s eved under act No. 4 of the Genera
ssemby of Pennsyvana, e traordnary sesson of 1936, and became
effectve on une 9, 1936. The statute s entted n act mposng
an emergency State ta for a mted perod of tme on quor as
heren defned sod by the Pennsyvana Lquor Contro oard, pro-
vdng for the coecton and payment of such ta and mposng dutes
upon the Department of Revenue and the Pennsyvana Lquor
Contro oard.
Lquor s defned to ncude any acohoc, sprtuous, vnous, fer-
mented, or other acohoc beverage, or combnaton ot quors and
m ed quor, a part of whch s sprtuous, vnous, fermented, or
otherwse acohoc, and a drnks or drnkabe quds, preparatons,
or m tures ntended for beverage purposes whch contan more than
one-haf of 1 per cent of acoho by voume, e cept acoho and mat
or brewed beverages. Pertnent sectons of the act read as foows:
Seo. 2. Unt the 1st day of une, 1937, an emergency State ta s hereby
mposed and assessed at the rate of 10 per centum of the net prce of a
quor sod by the board. The ta heren mposed sha be coected by the
board from the purchasers of the quor from the board. ta es coected
by the board under the provsons of ths act sha be pad nto the State
treasury through the department n the manner and wthn the tmes heren
specfed nnd sha be credted to the genera fund.
Sec. 3. It sha be the duty of the board to transmt to the department on
or before the 15th day of each caendar month a statement of ts recepts from
saes of quor and ta es coected durng the precedng fsca month and
such other nformaton as may be necessary to effectuate the provsons of ths
act at whch tme t sha aso be the duty of the board to pay to the depart-
ment the ta mposed upon fucI quor by the provsons of ths act.
Secton 23(c) of the Revenue ct of 1936 provdes that n comput-
ng net ncome there sha be aowed as deductons ta es pad or
accrued wthn the ta abe 3 ear, wth certan e ceptons not here
matera. In genera, ta es are deductbe ony by the person upon
whom they are mposed.
The State aw shows that t was the egsatve ntent to mpose the
10 per cent emergency quor ta upon the purchaser and to make the
seer, the Pennsyvana Lquor Contro oard, the coector of the
ta for and on behaf of the State. or edera ncome ta purposes,
therefore, the ta s an aowabe deducton as a ta n the return of
the one who purchases the quor from the Pennsyvana Lquor
Contro oard. In the event the ta s added to or made a part of
the busness e pense of the purchaser, or s otherwse used to reduce
hs net ncome, t may not be deducted separatey as a ta .
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79
23(c), rt. 23(c)-1.
|mct 23 (c)-: Ta es. -43-8358
I. T. 3012
R NU CTS O 1934 ND 1936.
The saes ta Imposed by the Idaho cooperatve emergency
revenue act of 1935 s deductbe as a ta , for edera ncome
ta purposes, by the purchaser or consumer.
dvce s requested whether the consumer s entted to deduct,
for edera ncome ta purposes, the saes ta mposed under the
cooperatve emergency revenue -act of 1935 by the State of Idaho.
The act under whch the ta s mposed s set forth n chapter
12, traordnary Sesson Laws of Idaho, 1935, and s effectve from
March 15, 1935, to March 15, 19S7, ncusve. It s entted n
act to provde for the method and manner of rasng revenue for
emergency purposes by mposng a ta upon the reta purchase of
certan commodtes, admssons and servces and for the ascertan-
ment, assessment, and coecton of sad ta es, . Prov-
sons of the act pertnent to a dscusson of the queston nvoved
read as foows:
Sec. 6. Levy of ta ta rate. rom and after the 15th day of March, 1935,
and to and ncudng the 15th day of March, 1937, there s hereby mposed a
ta of two per cent (27c) of the gross recepts upon every reta sae
or sae at reta as defned n ths act. Such ta sha be pad at the tme
and n the manner herenafter provded, and sha be n addton to any
aud a other ta es.
Sec. 8. Coecton. very person recevng any payment or consderaton
upon saes of tangbe persona property or servce or other tems sub|ect to
ta under the provsons of ths act, or to whom such payment or consderaton
s payabe, sha be responsbe for the coecton of the amount of the ta
mposed on sad saes and sha on or before the 15th day of each month, make a
verfed return to the department for the precedng month and at sad tme
sha remt a ta es due and payabe to the department of fnance. The
retaer sha coect the ta from the consumer, but n no case sha he coect
as ta an amount (wthout regard to fractona parts of 1 cent) n e cess of
the ta computed at the rates prescrbed by ths act. Such returns sha con-
tan such nformaton and be made n such manner as the department of fnance
may by reguaton prescrbe. t sha be unawfu for any retaer to advertse
or hod out to the pubc that the ta or any part thereof mposed by ths
act s assumed or absorbed by the retaer.
rtce 23 of the saes ta reguatons, ssued by the commssoner
of fnance of the State of Idaho, provdes that f artces sod are
returned and the sae entrey rescnded by refundng the entre
amount pad, ncudng ta , no ta s payabe on the transacton and,
f pad, the ta may be taken as a credt on a subsequent return.
Refunds of ta are made to the purchaser by the retaer when the
sae s rescnded and by the State to the retaer when the ta has
been overpad. rtce 24 of the reguatons provdes that every
vendor s requred to keep and preserve such records as are neces-
sary to determne the amount of the ta for the coecton of whch
he s abe under the act. Under artce 25 t s stated that the
ta s mposed upon the saes to fna buyers or consumers, and that
the burden of proof rests upon the person who makes the sae to
determne whether the purchaser s e empt from payment of the ta .
The State aw and the reguatons thereunder show that t was
the egsatve ntent to mpose the saes ta under the provsons
of the Idaho cooperatve emergency revenue act of 1935 upon the
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523(c), rt. 23(c)- .
SO
purchaser or consumer, and to make the retaer or vendor the co-
ector of the ta on behaf of the State.
Secton 23(c) of the Revenue cts of 1934 and 1936 provdes that
n computng net ncome there sha be aowed as deductons ta es
pad or accrued wthn the ta abe year, wth certan e ceptons not
here matera. rtce 23(c)- of Reguatons 86, reatng to the
Revenue ct of 1934, provdes that n genera ta es are deductbe
ony by the person upon whom they are mposed. Snce the Idaho
cooperatve emergency revenue act of 1935 mposes the ta upon the
purchaser or consumer, he may deduct the amount pad by hm as
a ta n hs edera ncome ta return. In the event the ta s added
to or made a part of hs busness e penses, or s otherwse used to
reduce hs net ncome, t may not be deducted separatey as a ta .
rtce 23(c)-1: Ta es. -18-8406
I. T. 3019
R NU CT O 1930.
Deductbty for edera ncome ta purposes of ta es mposed
by the State of Maryand under the provsons of chapter 10, cts
of the Speca Sesson of the Genera ssemby, 1930, effectve from
pr 1, 1836, to March 31, 1037, ncusve, wth respect to beer,
dsted sprts, admssons, and toet artces and cosmetcs.
or edera ncome ta purposes, the ta on beer mposed under
chapter 10 of the cts of the Speca Sesson of the Genera s-
semby of Maryand, 1936, effectve from pr 1, 1936, to March 31,
1937, ncusve, s deductbe by the whoesaer or manufacturer.
The ta on dsted sprts mposed under chapter 10, supra, s
deductbe by the manufacturer thereof.
The ta on admssons to any pace of amusement or entertanment
mposed under chapter 10, supra, s deductbe by the operator of
such pace of amusement or entertanment.
The ta on toet artces and cosmetcs mposed under chapter 10,
supra, s deductbe by the seer or deaer.
The ta es n queston are deductbe, for edera ncome ta pur-
poses, under the provsons of secton 23(c) of the Revenue ct of
1936 by the person upon whom they are mposed as shown by the
provsons of the ct and the reguatons thereunder. The amount
of such ta may not be deducted separatey as a ta f t s ncuded
as a part of the ta payer s busness e pense or otherwse used to
reduce hs net ncome.
rtce 23 (c)-: Ta es. -49-8416
I. T. 3023
R NU CTS O 19.14 ND 1936.
The ta mposed on motor fues by the State of New ersey
under chapter 319 of the aws of 1935 s deductbe as a ta n the
edera ncome ta return of the consumer who pays t and to
whom t s not refunded. If, however, the ta s added to or made
a part of the busness e penses of the consumer, t s not deductbe
by hm separatey as a ta .
rung s requested as to the deductbty, for edera ncome ta
purposes, of the gasone ta pad by n the State of New ersey
subsequent to une 30, 1935.
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81
523(c), rt, 23(c)-.
In I. T. 2696 (C. . II-1, 33) t was hed that the New ersey
motor vehce fues ta s deductbe by the consumer. The aws
under whch that rung was made were revoked by chapter 319, Laws
of New ersey, 1935, approved uy 1, 1935. Chapter 319 s entted
n act mposng a ta on motor fues.
n e amnaton of chapter 319, supra, shows that n so far as the
provsons of the act reatng to the present ssue are concerned they
are not materay dfferent from the provsons of the earer act.
It was ceary the ntent of the Legsature of the State of New
ersey to mpose the ta n queston upon the consumer.
Secton 23(c) of the Revenue cts of 1934 and 1936 provdes that
n computng net ncome there sha be aowed as deductons ta es
pad or accrued wthn the ta abe |ear, wth certan e ceptons not
here matera. rtce 23(c)- of Reguatons 86 and 94, reatng
to the Revenue cts of 1934 and 1936, respectvey, states that n
genera ta es are deductbe ony by persons upon whom they are
mposed. Snce the ta mposed under chapter 319, Laws of New
ersey, 1935, s mposed upon the consumer, t s deductbe as a ta
n hs edera ncome ta return. owever, the ta may not be
deducted separatey as a ta f t s added to or made a part of the
busness e pense of the consumer or s otherwse used to reduce
hs net ncome.
rtce 23 (c)-: Ta es. -49-8417
G. C. M. 17340
R NU CTS O 1934 ND 1936.
The accrua date for capta stock ta es for each of the years
endng une 30, 1935, une 30, 1930, and une 30, 1937, s the
begnnng of such capta stock ta year (that s, uy 1, 1934,
uy 1, 1935, and uy 1, 1936, respectvey), f the corporaton was
engaged n busness on those dates.
dvce s requested reatve to the proper accrua dates of capta
stock ta es mposed by secton 215 of the Natona Industra Recov-
ery ct, secton 701 of the Revenue ct of 1934, and secton 105 of
the Revenue ct of 1935 as amended by secton 401 of the Revenue
ct of 1936.
In I. T. 2726 (C. . II-2, 42) t was hed that the accrua date
of the capta stock ta for the year ended une 30, 1933, mposed
by secton 215 of the Natona Industra Recovery ct was une
16, 1933, the date of the enactment of that ct. Pror to the enact-
ment of that ct the event whch gave rse to the accrua had not
occurred. (See Unted States v. nderson, 269 U. S., 422.) The
capta stock ta mposed by secton 701 of the Revenue ct of 1934
was dfferent n ts provsons and under an entrey dfferent ct of
Congress. Consequenty, t was hed n G. C. M. 13(581 (C. . I -1,
58) that the event whch estabshed the accrua date for the year
endng une 30, 1934, was the date of enactment of the Revenue ct
of 1934. namey, May 10,1934. It was aso hed n that memorandum
that nasmuch as the ta was eved wth respect to (and was con-
tngent upon) carryng on or dong busness, the ta for the fsca
year ended une 30, 1935, accrued on uy 1, 1934, the begnnng of
that fsca year, n the case of a corporaton dong busness on that
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23(c), rt. 23(c)- .
S-2
date. (Cf. Coumban Carbon Co. v. Commssoner, 25 . T. .,
456.) Upon the same theory, ths offce s of the opnon that the
capta stock ta for the fsca year ended une 30, 1936, shoud be
accrued as of uy 1, 1935, and such ta for the fsca year endng
une 30, 1937, shoud be accrued as of uy 1, 1936.
In vew of the decson of the Unted States Supreme Court n
awcus Machne Co. v. Unted States (282 U. S., 375), the ureau
has hed that where the ta ng pocy of a State or government s
contnuous, a new aw whch merey ncreases the rate of ta aton
and whch s retroactve n effect shoud not be used as a bass for
shftng the otherwse recognzed accrua date. (I. T. 2675, C. .
II-1,105 I. T. 3000, page 140, ths uetn.) fter the enactment
of the Revenue ct of 1934 the pocy of the Government wth respect
to capta stock ta es was contnuous, that s, the aw was reenacted
n secton 105 of the Revenue ct of 1935, wth sghty changed
provsons, and amended by secton 401 of the Revenue ct of 1936.
Therefore, the prncpes outned n I. T. 3000, supra, and G. C. M.
13681, supra, shoud be foowed regardess of the changes n the
capta stock ta made by the Revenue ct of 1935 and the Revenue
ct of 1936, and, as ndcated above, the accrua date for capta
stock ta es for each of the years endng une 30, 1935, une 30, 1936,
and une 30, 1937, s the begnnng of such capta stock ta year
( uy 1, 1934, uy 1, 1935, and uy 1, 1936, respectvey), f the
corporaton was engaged n busness on those dates rather than the
date of enactment of the Revenue ct of 1935 or the Revenue ct
of 1936.
erman Ophant,
Genera Counse for the Department of the Treasury.
rtce 23(c)-: Ta es. -50-8429
I. T. 3025
R NU CT O 1036.
The ta on un|ust enrchment mposed under Tte III of the
Revenue ct of 1936 s a edera ncome (a and s not deductbe
n computng net ncome for edera ncome ta purposes.
dvce s requested whether the ta on un|ust enrchment mposed
by Tte III of the Revenue ct of 1936 s deductbe for edera
ncome ta purposes.
Secton 23(c) of the Revenue ct of 1936 provdes for the deduc-
ton n computng net ncome of Ta es pad or accrued wthn the
ta abe year, e cept
(1) edera ncome ta es .
Secton 501(a) of Tte III of the Revenue ct of 1936 mposes the
ta on un|ust enrchment n the foowng terms:
(a) The foowng ta es sha be eved, coected, and pad for each ta abe
year (n addton to any other ta on net ncome), upon the -net ncome of
every person whch arses from the sources specfed beow: Itacs supped.
The ta on un|ust enrchment mposed under Tte III of the
Revenue ct of 1936 s a edera ncome ta and s, therefore, not
deductbe n computng net ncome for edera ncome ta purposes
n vew of the provsons of secton 23(c) of the Revenue ct of
1936.
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83
26, rt. 26-2-
S CTION 24. IT MS NOT D DUCTI L .
rtce 24-2: Capta e pendtures. -5 -8430
I. T. 3026
R NU CT OP 1936.
The fee pad by the M Corporaton to the Securtes and -
change Commsson for the regstraton of ts securtes as
requred by secton 0(b) of the Securtes ct of 1933 (48 Stat.,
74) s not deductbe n computng net ncome.
dvce s requested by the M Corporaton reatve to the deduct-
bty for edera ncome ta purposes of a fee pad by t to the
Securtes and change Commsson for the regstraton of ts
securtes. The fee s requred by reason of the provsons of secton
6(b) of the Securtes ct of 1933 (48 Stat., 74), whch provdes as
foows:
(b) t the tme of fng a regstraton statement the appcant sha pay
to the commsson a fee of one one-hundredth of 1 per centum of the ma mum
aggregate prce at whch such securtes are proposed to be offered, but n no
case sha such fee be ess than 25.
The fee pad by the M Corporaton to the Securtes and change
Commsson for the regstraton of ts securtes s not deductbe
n computng the ta payer s net ncome for edera ncome ta pur-
poses nasmuch as the amount s a capta e pendture.
S CTION 26. CR DITS O CORPOR TIONS.
R NU CT O 193C.
Reguatons reatng to credts of corporatons. (See T. D. 4674,
page 53.)
rtce 26-2: Credt n connecton wth con- -50-8431
tracts restrctng payment of dvdends. I. T. 3027
R NU CT O 1336.
bond ndenture dated n 1935 requrng that an amount equva-
ent to a stated per cent of the ta payer s net earnngs avaabe for
dvdends for the precedng caendar year be pad nto a snkng
fund for the retrement of ts bonds does not satsfy the requre-
ments of secton 26(c)2 of the Revenue ct of 1936 and artce 26-2
of Reguatons 94, reatve to the credt aowabe under that sec-
ton n computng the surta on undstrbuted profts, for the reason
that such contractua provson does not e pressy dea wth the
dsposton of the earnngs and profts of the current ta abe year.
dvce s requested whether under the provsons of a certan bond
ndenture the M Corporaton s entted to the credt provded n
secton 26(c) 2 of the Revenue ct of 1936 n computng ts unds-
trbuted net ncome for the purpose of the surta mposed by secton
14 of the ct. The bond ndenture dated n 1935 provdes n part
as foows:
s a snkng fund for the retrement of the bonds the company covenants and
agrees that t w dever to the trustee on or before the day of ,
1936, or w duy ca for redempton and w redeem and pay on sad day
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26, rt. 20-2.
84
of , 1936, an aggregate prncpa amount of the bonds, equvaent
to per cent of the net earnngs avaabe or dvdends n the precedng
caendar year but n any event not ess than nor more than
prncpa amount of the bonds, and that annuay thereafter on or before the
day of n each year to and ncudng the day of , 1045,
or unt a bonds sha have been theretofore pad or retred, t w smary
dever, or w ca for redempton and w redeem nud pay, an aggregate
prncpa amount, of the bonds equvaent to per cent of the net earnngs
avaabe for dvdends n the precedng caendar year but n any event not
ess than doars nor more than 3| doars prncpa amount of the bonds.
onds so devered to the trustee on or before each such day of
sha be canceed. The company may dever bonds to the trustee n e cess
or advance of the foregong requrements and sha be credted on ts obgaton
as aforesad n the ne t succeedng snkng fund perod or perods for any such
e cess or advance .
The ta payer presents the foowng queston:
re the provsons of the bond ndenture
such as to consttute a requrement to set asde certan amounts from
the earnngs and profts of the ta abe year 1936 for purposes of re-
dempton of bonds wthn the meanng of secton 26(c)2 of the
Revenue ct of 1936
Secton 26 of the Revenue ct of 1936 provdes n part:
Sec. 26. Credts of Corporatons.
In the case of a corporaton the foowng credts sha be aowed to the e tent
provded n the varous sectons mposng ta

(c) Contracts restrctng payment of dvdends.

(2) Dsposton of profts of ta abe year. n amount equa to the porton of
the earnngs and profts of the ta abe year whch s requred (by a provson of
a wrtten contract e ecuted by the corporaton pror to May 1, 1936, whch pro-
vson e pressy deas wth the dsposton of earnngs and profts of the ta abe
year) to be pad wthn the ta abe year n dscharge of a debt, or to be rrev-
ocaby set asde wthn the ta abe year for the dscharge of a debt to the
e tent that such amount has been so pad or set asde. or the purposes of ths
paragraph, a requrement to pay or set asde an amount equa to a percentage
of earnngs and profts sha be consdered a requrement to pay or set asde such
percentage of earnngs and profts. s used n ths paragraph, the word debt
does not ncude a debt ncurred after pr 30, 1936.
In order to meet the condtons prescrbed by secton 26(c) 2 of the
Revenue ct of 1936 and artce 26-2 of Reguatons 94, the contrac-
tua provson reatng to the payment or redempton of bonds must
dea e pressy wth the dsposton of the earnngs and profts of the
ta abe year. In ths case the provsons of the bond ndenture requre
wth respect to the payment of the bonds (1) redempton and payment
annuay of an aggregate prncpa amount of the bonds equvaent to
a certan percentage of the net earnngs avaabe for dvdends for
the precedng caendar year, and (2) n any event an amount not ess
than doars nor more than 3,c doars prncpa amount of the bonds.
Nether of the foregong requrements can be sad to reate e pressy
to the earnngs of the ta abe year. Under the frst requrement, pay-
ment or redempton depends on the e stence of earnngs avaabe for
dvdends for the precedng caendar year. Standng aone ths re-
qurement does not meet the condtons of the statute snce there s no
reaton to earnngs of the ta abe year. Under such a provson no
payment or settng asde woud be necessary regardess of the amount
of earnngs for the ta abe year f there were no earnngs avaabe
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85
26, rt, 26-2.
for dvdends n the precedng caendar year. On the other hand, f
the earnngs avaabe for dvdends n the precedng caendar year
were arge, the amount pad or rrevocaby set asde woud be corre-
spondngy arge even though the earnngs for the ta abe year mght
be sma. urthermore, f there were no earnngs avaabe for dv-
dends for the current ta abe year, the second requrement woud pre-
va and the corporaton woud be requred to set asde an amount not
ess than doars and, regardess of the amount of earnngs avaabe
for dvdends for the precedng caendar year, the ta payer s not
requred n any year to pay or redeem bonds n e cess of doars.
Such requrement s n substance an agreement to retre annuay a
certan percentage or amount of the bonds, and under the reguatons
such an agreement does not meet the condtons of secton 26(c) 2.
(See artce 26-2(c) of Reguatons 94.)
In vew of the foregong, t s hed that the bond ndenture dated
n 1935 requrng that an amount equvaent to per cent of the
net earnngs avaabe for dvdends for the precedng caendar year
be pad nto a snkng fund for the retrement of such bonds does not
satsfy the requrements of secton 26(c)2 of the Revenue ct of
1936 and artce 26-2 (c) of Reguatons 94, for the reason that, such
contractua provson does not e pressy dea wth the dsposton
of the earnngs and profts of the current ta abe year.
rtce 26-2: Credt n connecton wth con- -50-8432
tracts restrctng payment of dvdends. I. T. 3028
R NU CT O 1936.
Where a bond ndenture provdes that so ong as any of the
bonds of the corporaton are outstandng or provson s not made
for payment or redempton thereof no cash dvdend may be de-
cared or capta stock retred, the ta payer does not quafy for
the aowance of the credt for the purpose of the surta on un-
dstrbuted profts provded by secton 26(c) of the evenne ct
of 1936 on account of contracts prohbtng the payment of dv-
dends.
dvce s requested whether the M Company s entted to the
credt provded under secton 26(c) of the Revenue ct of 1936
whch provdes n part as foows:
In the case of a corporaton the foowng credts sha be aowed to the
e tent provded n the varous sectons mposng ta

(c) Contracts restrctng payment of dvdends.
(1) Prohbton on payment of dvdends. n amount equa to the e cess of
the ad|usted net ncome over the aggregate of the amounts whch can be ds-
trbuted wthn the ta abe year as dvdends wthout voatng a provson of
a wrtten contract e ecuted by the corporaton pror to May 1, 1036, whch
provson e pressy deas wth the payment of dvdends. If a corporaton
woud be entted to a credt under ths paragraph because of a contract pro-
vson and aso to one or more credts because of other contract provsons,
ony the argest of such credts sha be aowed, and for such purpose f two
or more credts are equa n amount ony one sha be taken nto account.
Under a bond ndenture or agreement e ecuted by the M Company
n 1928, t ssued 40,r doars of bonds desgnated as coatera trust
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26, rt. 20-2.
86
snkng fund god bonds, seres of 1038. These, bonds are due and
payabe on pr 1,1938. The agreement provdes n part as foows:
That the corporaton sha not so ong as any of the bonds ssued hereunder
are outstandng, or provson has not been made for the payment or redemp-
ton thereof decare or pay any cash dvdend on any of ts capta
stock, or retre any of ts outstandng capta stock.
The queston presented s whether n vew of the agreement above
referred to the corporaton w be aowed a credt for undstrbuted
profts ta purposes under secton 26(c) of the Revenue ct of
1936 on account of a contract prohbtng the payment of dvdends.
rtce 26-2(6) of Reguatons 94, reatng to the foregong pro-
vson of the ct, provdes that the credt s aowabe ony wth
respect to a wrtten contract whch e pressy deas wth the payment
of dvdends and operates as a ega restrcton upon the corporaton
as to the amounts whch t can dstrbute wthn the ta abe year as
dvdends and f an amount can be dstrbuted n one form (as, for
e ampe, n stock or bonds of the corporaton) wthout voatng the
provsons of a contract, but can not be dstrbuted wthn the ta -
abe year as a dvdend n another form (as, for e ampe, n cash)
wthout voatng such provsons, then the amount s one whch,
under secton 26(c) 1, can be dstrbuted wthn the ta abe year as a
dvdend wthout voatng such provsons. It s aso provded n
artce 26-2(6) that the requrement that the provsons of the con-
tract e pressy dea wth the payment of dvdends s not met where
the contract merey provdes that whe ts bonds are outstandng the
current assets sha not be reduced beow a specfed amount.
In the opnon of ths offce the provsons of the present bond n-
denture or agreement do not operate as a ega restrcton upon the
corporaton as to any amount whch can be dstrbuted n stock or
bonds of the corporaton, snce such provson reates specfcay to
the payment of any cash dvdend on any of ts capta stock, and
to a payment to retre any of ts outstandng capta stock, whch
are the ony acts restrcted or prohbted unt provson has been
made for the payment or redempton of the outstandng bonds. In
effect, ths provson of the bond ndenture or agreement merey re-
qures that so ong as any of the bonds ssued thereunder are out-
standng, or provson has not been made for the payment or redemp-
ton thereof, the current assets sha not be reduced.
In vew of the foregong, t s hed that the M Company does not
quafy for the credt provded under secton 26(c) of the Revenue
ct of 1936.
rtce 26-2: Credt n connecton wth con- -50-8433
tracts restrctng payment of dvdends. I. T. 3029
R NU CT OP 1030.
Where an ndenture e ecuted between the M Company and the N
ank, as trustee, contans no anguage e pressy deang wth the
payment of dvdends and merey pedges the ncome and other
assets of the company as securty for ts debts, the statutory re-
qurements wh respect to the aowance of the credt provded n
secton 26 (c)(1) and (c)(2) of the Revenue ct of 11)30, respec-
tvey, for the purpose of the surta on undstrbuted profts, are
not met.
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87
26, rt. 26-2.
dvce s requested whether an ndenture e ecuted between the M
Company and the N ank, trustee, consttutes a wrtten contract
wthn the meanng of secton 26(c) of the Revenue ct of 1936 whch
woud entte the company to ether of the credts provded under
secton 26(c) of that ct for the purpose of computng the surta on
undstrbuted profts mposed by secton 14 of the ct.
The ndenture here nvoved was e ecuted by the company n 1931.
It s provded theren that a rents, royates, ssues, profts and
other ncome aso a cash, bs recevabe, accounts recevabe, stores
and suppes, and a other assets ordnary cassfed as current
assets by standard accountng practce are pedged to the trustee to
secure the payment of the prncpa and nterest of the bonds, n add-
ton to a the rea and persona property of the company, ncudng
ntangbe property. It s stated that shoud the company not appy
ts profts and ncome to the redempton of ts bonds and the payment
of nterest thereon t woud thereby defaut n ts contractua obga-
tons under the ndenture. Durng the year 1936 the company, n
compance wth the ndenture, w redeem doars of ts outstand-
ng bonds. cacuaton based on nne months of actua operatons
and an estmate determned upon the three remanng months n 1936
ndcates that the company, after payng ts norma edera ncome
ta , w have an ad|usted net ncome, as we as an undstrbuted net
ncome, n the appro mate amount of 1,034a doars and, pursuant
to the requrements of the ndenture, the company w dscharge ts
current bond payments soey from ts earnngs reazed durng the
rear 1936. There s no other source from whch such payments may
be made e cept by borrowng, snce the aggregate amount requred
w absorb practcay the entre amount of the company s net ncome.
The ndenture aso provdes that the company covenants and agrees
to pay to the trustee cash n suffcent amounts to retre ts bond ob-
gaton on certan dates, as foows:
The company covenants and agrees that It w forthwth create and, so
ong as any of the bonds are outstandng, mantan a snkng fund,
end that t w pay to the trustee, upon each snkng fund payment date, so
ong as any bonds are outstandng, for the account of such snkng
fund, cash suffcent n amount to retre, at the redempton prce the foowng
aggregate prncpa amount of bonds .
Secton 26(c) of the Revenue ct of 1936 provdes for the
aowance of a credt n connecton wth contracts restrctng payment
of dvdends of
n amount equa to the e cess of the ad|usted net ncome over the
aggregate of the amounts whch can be dstrbuted wthn the ta abe year as
dvdends wthout voatng a provson of a wrtten contract e ecuted by the
corporaton pror to May 1, 1030, whch provson e pressy deas wth the
payment of dvdends.
rtce 26-2 (a) of Reguatons 94 provdes that the credt under
secton 26(c) 1 s not avaabe under every contract whch mght
operate to restrct the payment of dvdends, but onv wth respect
to those provsons of wrtten contracts e ecuted pror to May 1.
1936, whch satsfy the condtons prescrbed n the ct. rtce
26-2(b) of Reguatons 94 provdes that the credt under secton
26(c) 1 of the ct s aowabe ony wth respect to a wrtten con-
tract e ecuted by the corporaton pror to May 1, 1936, whch e -
pressy deas wth the payment of dvdends and operates as a ega
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27.
88
restrcton upon the corporaton as to the amounts whch t can
dstrbute wthn the ta abe year as dvdends and that the requre-
ment that the provsons of the contract e pressy dea wth the
payment of dvdends s not met where (1) a corporaton s merey
requred to set asde perodcay a sum to retre ts bonds, or (2)
the contract merey provdes that whe ts bonds are outstandng
the current assets sha not be reduced beow a specfed amount.
The present ndenture does not contan any anguage whch e -
pressy deas wth the payment of dvdends. It s, therefore, hed
that the ndenture does not meet the condtons prescrbed n secton
26(c) of the ct wth respect to the credt provded n the case of
a contract restrctng payment of dvdends, and that such credt s
not aowabe under that provson.
Secton 26(c)2 aows a credt to the e tent of
n amount eqnn to the porton of the earnngs and profts of the ta abe
year whch s requred (by a provson of a wrtten contract e ecuted by the
corporaton pror to May 1, 1936, whch provson e pressy deas wth the
dsposton of earnngs and profts of the ta abe year) to be pad wthn he
ta abe year n dscharge of a debt, or to be rrevocaby set asde wthn the
ta abe year for the dscharge of a debt to the e tent that such amount has
been so pad or set asde. or the purposes of ths paragraph, a requrement
to pay or set asde an amount equa to a percentage of earnngs and profts
sha be consdered a requrement to pay or set asde such percentage of
earnngs and profts. s used n ths paragraph, the word debt does not
ncude a debt ncurred after pr 30, 1936.
The facts n the present case do not brng t wthn the statutory
anguage. The statutory requrement for a provson e pressy pro-
vdng for payment out of earnngs s not met by a mere pedge of
the earnngs as securty for such payment. There s a dstncton
between payment out of a gven fund and a pedge of the fund as
securty for payment. It appears that the purpose of the so-caed
pedge of ncome n the nstant case s not to earmark t for payment
of the bonds but merey to sub|ect t, ke a the other corporate
assets, to the en of the ndenture. The mposton of the en no
more requres payment of the debt out of the ncome than out of any
of the other assets sub|ect to the en. So ong as the ndebtedness s
met the ta payer s at berty to obtan the necessary funds n any
ega manner by appyng accumuated surpus, f any, by sae of
assets, by ssung addtona stock or bonds, or borrowng n any
other way.
In the opnon of ths offce the pedgng of ncome, together wth
a other assets, as securty for a debt does not meet the statutory
prerequste of a provson e pressy requrng utzaton of ncome
for satsfacton of ndebtedness. The credt provded by secton
2G(c)2 s, therefore, not aowabe.
S CTION 27. CORPOR TION CR DIT OR
DI ID NDS P ID.
R NU CT O 1936.
Reguatons reatng to credts of corporatons. (See T. D. 4674,
page 53.)
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89
527(a), rt. 27(a)-.
S CTION 27(a). CORPOR TION CR DIT OR DI ID NDS
P ID: DI ID NDS P ID CR DIT IN G N R L.
rtce 27 (a)-1: Dvdends pad credt n genera. -50-8434
I. T. 3030
R NU CT O 1936.
dvdend pad by a corporaton durng ts ta abe year, whch
Is a fsca year endng n 1937, so as to be receved by the share-
hoders before the cose of such fsca year meets the requrements
of secton 27(a) of the Revenue ct of 1936 and artce 27(a)- of
Reguatons 94, reatng to the dvdends pad credt, regardess of
the ta abe year of the stockhoders.
dvce s requested whether n order to obtan the beneft of the
dvdends pad credt provded n secton 27(a) of the Revenue ct
of 1936 a corporaton must pay the dvdends durng the ta abe year
of the sharehoder. The present case nvoves a corporaton havng
a fsca year endng anuary 31, 1937, and sharehoders whose ta -
abe year s the caendar year endng December 31, 1936. In such a
case must the corporaton pay dvdends on or before December 31,
1936, n order to obtan the beneft of the dvdends pad credt wth
respect to such dvdends n the return of the corporaton for ts
fsca year endng anuary 31, 1937
Secton 27(a) of the Revenue ct of 1936 provdes that for the
purposes of Tte I of that ct the dvdends pad credt sha be
the amount of dvdends pad durng the ta abe year. rtce
27(a - of Reguatons 94, reatng to the dvdends pad credt,
provdes n part as foows:
(6) When dvdends are consdered pad. dvdend w be consdered as
pad when t s receved by the sharehoder. dvdends pad credt can not be
aowed uness the sharehoder receves the dvdend durng the ta abe year for
whch the credt s camed.
If a dvdend s pad by check and the check bearng a date wthn the ta abe
year s deposted n the mas, n a cover propery stamped and addressed to the
sharehoder at hs ast known address, at such tme that n the ordnary han-
dng of the mas the check woud be receved by the sharehoder wthn the
ta abe year, a presumpton arses that the dvdend was pad to the share-
hoder In such year.
It s hed that the term ta abe year as used n secton 27(a) of
the Revenue ct of 1936 and n the above-quoted provsons of artce
27(a)-1 of Reguatons 94 means the ta abe year of the corporaton
payng the dvdend. Therefore, n the case of a corporaton havng a
ta abe year whch s a fsca year endng n 1937, a dvdend pad by
the corporaton durng ts ta abe year so as to be receved by the
sharehoders before the cose of the corporaton s fsca year meets the
requrements of secton 27(a) of the Revenue ct of 1936 and the
above-quoted provsons of artce 27 (a)-1 of Reguatons 94, regard-
ess of the ta abe year of the sharehoders. In the case of a corpora-
ton havng a fsca year endng anuary 31, 1937, a dvdend pad
durng such ta abe year so as to be receved by the sharehoders
before the cose of the corporaton s fsca year s aowabe as a dv-
dends pad credt, even though the ta abe year of the sharehoders
s the caendar year endng December 31, 1936, and the dvdend s
not receved by the sharehoders on or before that date.
121397 37 4
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527(g), rt. 27(g)- .
90
S CTION 27(g). CORPOR TION CR DIT OR DI I-
D NDS P ID: PR R NTI L DI ID NDS.
rtce 27(g)-1: Preferenta dstrbutons. -45-8377
Mn. 4514
Credt for dvdends pad for the purpose of the surta on
undstrbuted profts mposed by secton 14 of the Revenue ct of
1936.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, October 17,1936.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Reference s made to Treasury Decson 4674, approved ugust 6.
1936) page 53, ths uetn), prescrbng reguatons under secton 14
of the Revenue ct of 1936, reatng to surta on undstrbuted
profts of corporatons, secton 26 and secton 27 of that ct, reatng
to credts of corporatons and secton 115 of that ct, reatng to
dstrbutons by corporatons.
rtce 27-1 (b) of the above-mentoned reguatons, reatng to
the dvdends pad credt, provdes n part:
In the case of a stock dvdend, f the shares consttutng the dvdend are
not entered or regstered on the books of the corporaton n the name of the
sharehoder (or hs nomnee or transferee) wthn the ta abe year, the dv-
dend w not be deemed to have been pad n such year. Devery of a
certfcate, or certfcates, for such new shares, wthn the ta abe year,
consttutes prma face evdence of the payment of the dvdend.
rtce 27-7 of the above-mentoned reguatons, reatng to pref-
erenta dstrbutons, provdes n part:
Secton 27(g) of the ct mposes a mtaton upon the genera
rue that a corporaton s entted to a dvdends pad credt wth respect to a
dvdends whch t actuay pays durng the ta abe year. efore a corpora-
ton may be entted to any dvdends pad credt wth respect to a dstrbuton,
regardess of the medum n whch the dstrbuton s made, every share of
stock of the cass to the hoders of whch the dstrbuton s made must be
treated the same as every other share of stock of that cass. The e stence of
a preference s decared by the ct as suffcent to prohbt the dvdends pad
credt, regardess of the fact (1) that such preference s e ercsed wth the
consent of a the sharehoders and (2) that the amounts receved by the share-
hoders benefted by the preference are ta abe to them as dvdends. Under
no crcumstances w a corporaton be entted to a dvdends pad credt wth
respect to any dstrbuton, whether It be a dvdend as defned n secton 115
of the ct or a dstrbuton In qudaton referred to n secton 27(f) of the
ct, f any sharehoder of the cass to whom the dstrbuton s made receved
(n proporton to the number of shares of stock hed by hm) more or ess
than a pro rata amount of such dstrbuton as compared wth the amount
dstrbuted to the owners of other shares of the same cass of stock. The
dsaowance of the dvdends pad credt, where any preference or Inequaty
n fact e sts, e tends to the entre amount of the dstrbuton and not merey
to a part of such dstrbuton.
The queston has been presented whether the above-quoted prov-
sons of the reguatons woud prevent the aowance of a dvdends
pad credt where a stock dvdend s dstrbuted whch s ta abe
under secton 115(f) of the Revenue ct of 1936, and under the
foowng crcumstances scrp certfcates are ssued to sharehoders
who are entted to receve a fracton of a share of stock, or a cash
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91
27(g|, rt. 27(g)-.
ad|ustment s made n the case of sharehoders entted to sma
fractons of shares of stock:
The M Corporaton had outstandng 800,000 shares of common
stock and 140,000 shares of preferred stock. The earnngs of the
company for the caendar year 1936 avaabe for dvdends on the
common stock amounted to 2,600,000. Durng that year the com-
pany dstrbuted cash dvdends on the common stock amountng to
81,600,000 and n addton dstrbuted an e tra dvdend on the com-
mon stock, such dvdend (ta abe under secton 115(f) of the eve-
nue ct of 1936) consstng of preferred stock at the rate of one
one-hundredth of a share of preferred stock on each share of com-
mon stock. The hoder of 1 share of common stock receved a scrp
certfcate representng one one-hundredth of a share of preferred
stock. Ths certfcate coud be combned wth other scrp certf-
cates and surrendered for a fu share of preferred stock accom-
paned by the dvdends whch woud have become payabe up to the
date of such e change, a reasonabe tme beng aowed for combn-
ng such scrp. In the case of the hoder of 100 shares of common
stock, nstead of dstrbutng to hm 100 scrp certfcates, each rep-
resentng one one-hundredth of a share of preferred stock, a certf-
cate for 1 whoe share of preferred stock was ssued to such hoder
n the frst nstance. In the case of a sharehoder wTho by vrtue of
the stock dvdend became entted ony to a very sma number of
the fractons of shares of preferred stock, a cash ad|ustment was
made based upon the far market vaue of the preferred stock ssued
as a stock dvdend. The scrp certfcates dd not confer the rght to
vote or any other rghts of a sharehoder unt the scrp certfcates
were combned nto a fu share. The scrp certfcates contaned a
provson that the certfcates woud become vod uness combned
and e changed for a certfcate representng a fu share wthn a
reasonabe tme. n approprate entry was made on the corporate
books showng that the scrp certfcates (both n regstered or bearer
form) were ssued to the sharehoders. The acton of the corpora-
ton n payng the dvdend representng the fractona shares of
stock n scrpt certfcates foowed the standard practce whch recog-
nzes that t woud be e tremey costy and entrey mpractcabe to
ssue certfcates for fractona shares of stock entted to dvdends
and votng rghts before beng combned nto fu shares. The cash
ad|ustments made by the corporaton n the case of the sharehoders
entted to receve a sma number of fractona shares of preferred
stock aso foowed the standard practce whch s adopted n such
cases because of beng more economca and convenent. The ssu-
ance of bearer scrp certfcates representng fractona shares of
stock (nstead of havng such scrp certfcates regstered n the name
of the owner) kewse foowed the standard practce whch s adopted
n such cases because of the fact that f a sharehoder receves ony a
fracton of a share t s not possbe to regster a fu share n hs
name unt he combnes and surrenders the scrp certfcates, and
because t s much more convenent and economca to ssue bearer
certfcates to represent fractona shares than to have such scrp
certfcates regstered n the name of the owner.
It s hed that the above-quoted provsons of the reguatons do
not prevent the aowance of a dvdends pad credt where a stock
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27 (h), rt. 27(h)- .
dvdend s dstrbuted whch s ta abe under secton 115(f) of the
Revenue ct of 1936, and under the above-descrbed crcumstances
scrp certfcates are ssued to sharehoders who are entted to re-
ceve a fracton of a share of stock, or a cash ad|ustment s made n
the case of sharehoders entted to sma fractons of shares of stock.
Correspondence and nqures regardng ths mmeograph shoud
refer to the number thereof and the symbos IT: CTR.
Chas. T. Russe,
ctng Commssoner.
S CTION 27(h). CORPOR TION CR DIT OR DI ID NDS
P ID: NONT L DISTRI UTIONS.
rtce 27(h)-: Nonta abe dstrbutons. T-52-8452
I. T. 3035
R NU CT O 103G.
The dvdends pad credt aowabe to n persona hodng com-
pany for the caendar year 1936 for the purpose of the surta
on undstrbuted profts mposed by secton 14 of the Revenue
ct of 1936 s mted to the amount of dvdends pad to, receved
by, and ta abe to sharehoders n that year. The dvdends
pad credt does not ncude dstrbutons n 1936 whch were re-
ported by the sharehoders as ncome for the years 1984 and 1935
n accordance wth the provsons of secton 351(d) of the Revenue
ct of 1934.
dvce s requested by the M Corporaton as to the dvdends pad
credt aowabe n computng the surta on undstrbuted profts
mposed by secton 14 of the Revenue ct of 1936.
It s stated that the stockhoders of the corporaton reported n
ther returns for 1934 and 1935 ther entre pro rata shares of the
corporaton s undstrbuted net ncome as provded by secton 351(d)
of the Revenue ct of 1934 and pad the ndvdua ta thereon. In
the year 1936 the corporaton pad dvdends equa to the accumuated
amounts reported by the ndvduas n 1934 and 1935, and aso pad
a dvdend from 1936 earnngs. Informaton s requested whether
the sum of the three amounts may be ncuded n the dvdends pad
credt for the purpose of the surta on undstrbuted profts.
Secton 27(h) of the Revenue ct of 1936 provdes:
(h) Nonta abe dstrbutons. If any part of a dstrbuton s not
a ta abe dvdend n the hands of such of the sharehoders as are sub|ect to
ta aton under ths tte for the perod n whch the dstrbuton s made, no
dvdends pad credt sha be aowed wth respect to such part.
It s hed that the dvdends pad credt aowabe to a persona
hodng company for the caendar year 1936 for the purpose of the
surta on undstrbuted profts mposed by secton 14 of the Revenue
ct of 1936 s mted to the amount of dvdends pad to, receved
by, and ta abe to sharehoders n that year. The dvdends pad
credt does not ncude dstrbutons n 1936 whch were reported by
the sharehoders as ncome for 1934 and 1935 n accordance wth the
provsons of secton 351(d) of the Revenue ct of 1934.
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93 48(e).
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 48(e). D INITIONS: MUTU L IN ST-
M NT COMP NI S.
-34-8260
T. D.4678
Income ta . Reguatons reatng to the ta aton of mutua n-
vestment companes under the Revenue ct of 1936.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 13(a) of the Revenue ct of 193G (Pubc,
No. 740, Seventy-fourth Congress, second sesson, approved une 22,
1936, 9 p. m.) provdes:
Sec. 13. Norma ta on corporatons.
(a) Defnton. s used n ths tte the term norma-ta net ncome
means the net ncome mnus the sum of
(1) Interest on ohW|atons of the Unted States and ts nstrumentates.
The credt provded n secton 26(a).
(2) Dvdends receved. The credt provded n secton 26(b). Such credt
sha not be aowed n the case of a mutua nvestment company, as denned
n secton 48.
(3) Dvdends pad. In the case of a mutua nvestment company the credt
provded n secton 27, computed wthout the beneft of subsecton (b) thereof
(reatng to dvdend carry-over).
Pah. . Secton 48 of the Revenue ct of 1936 provdes n part:
Seo. 48. Defntons.
When used n ths tte

(e) Mutua nvestment companes.
(1) Genera defnton. The term mutua Investment company means any
corporaton (whether chartered or created as an nvestment trust, or otherwse),
other than a persona hodng company as denned n secton 351, f
( ) It s organzed for the purpose of, and substantay a ts busness con-
ssts of, hodng, nvestng, or renvestng n stock or securtes and
( ) t east 95 per centum of ts gross ncome s derved from dvdends,
nterest, and gans from saes or other dsposton of stock or securtes and
(C) Less than 30 per centum of ts gross ncome s derved from the sae or
other dsposton of stock or securtes hed for ess than s months and
(D) n amount not ess than 90 per centum of ts net ncome s dstrbuted to
ts sharehoders as ta abe dvdends durng the ta abe year and
( ) Its sharehoders are, upon reasonabe notce, entted to redempton of
ther stock for ther proportonate nterests n the corporaton s propertes, or
the cash equvaent thereof ess a dscount not n e cess of 3 per centum thereof.
(2) Lmtatons. Despte the provsons of paragraph (1) a corporaton
sha not be consdered as a mutua nvestment company f, subsequent to a date
30 days after the date of the enactment of ths ct, at any tme durng the
ta abe year
( ) More than 5 per centum of the gross assets of the corporaton, taken at
cost, was nvested n stock or securtes, or both, of any one corporaton, gov-
ernment, or potca subdvson thereof, but ths mtaton sha not appy to
nvestments In obgatons of the Unted States or n obgatons of any cor-
poraton organzed under genera ct of Congress f such corporaton s an
nstrumentaty of the Unted States or
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48(e)
94
( ) It owned more than 10 per centum of the outstandng stock or securtes,
or both, of any one corporaton or
(0) It had any outstandng bonds or ndebtedness n e cess of 10 per centum
of ts gross assets taken at cost or
(D) It fas to compy wth any rue or reguaton prescrbed by the Com-
mssoner, wth the approva of the Secretary, for the purpose of ascertanng
the actua ownershp of ts outstandng stock.
Par. C. Secton 351 (b) of the Revenue ct of 1936 provdes:
Sec. 351. Surta on persona hodng companes.

(b) Defntons. s used n ths tte
(1) The term persona hodng company means any corporaton (otht r
than a corporaton e empt from ta aton under secton 101, and other than a
bank, as defned n secton 104, and other than a fe-nsurance company or
surety company) f ( ) at east 80 per centum of ts gross ncome for the
ta abe year s derved from royates, dvdends, nterest, annutes, and (e -
cept n the case of reguar deaers n stock or securtes) gans from the sae
of stock or securtes, and ( ) at any tme durng the ast haf of the ta abe
year more than 50 per centum n vaue of ts outstandng stock s owned,
drecty or ndrecty, by or for not more than ve ndvduas. or the purpose
of determnng the ownershp of stock n a persona hodng company (C)
stock owned, drecty or ndrecty, by a corporaton, partnershp, estate, or
trust sha be consdered as beng owued proportonatey by ts sharehoders,
partners, or benefcares (D) an ndvdua sha be consdered as ownng, to
the e cuson of any other ndvdua, the stock owned, drecty or ndrecty,
by hs famy, and ths rue sha be apped n such manner as to produce the
smaest possbe number of ndvduas ownng, drecty or ndrecty, more
than 50 per centum n vaue of the outstandng stock and ( ) the famy of
an ndvdua sha ncude ony hs brothers and ssters (whether by the whoe
or haf bood) spouse, ancestors, and nea descendants.
Par. D. Secton 62 of the Revenue ct of 1936 provdes:
Sec. 02. u.es and reguatons.
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths tte.
Pursuant to the above-quoted provsons of the Revenue ct of
1936 and the provsons of other nterna revenue aws, the foowng
reguatons are hereby prescrbed wth respect to mutua nvestment
companes:
rtce 1. Ta aton of mutua nvestment companes. Genera. If a cor-
poraton, as defned n secton 1001 of the ct, shows to the satsfacton of the
Commssoner of Interna Revenue that t s entted to the status of a mutua
nvestment company, as defned n secton 48(e) of the ct, t s aowed, under
secton 13(a)3 of the ct, a credt for dvdends pad, as provded n secton 27
of the ct. computed wthout the beneft of secton 27(b) of the ct reatng to
dvdend carry-over, but, under secton 18(a)2 of the ct t s not aowed the
credt for dvdends receved provded n secton 20(b) of the ct. It s aso
requred to keep records satsfactory to the Commssoner of Interna Revenue
for the purpose of ascertanng the actua ownershp of Its outstandng stock.
In a other respects a mutua nvestment company s treated, for purposes of
ta aton, as any other corporaton sub|ect to ta aton under the ct.
rt. 2. Defnton of a mutua nvestment company. The term mutua nvest-
ment company means a corporaton whether chartered or ncorporated, or
created under a trust nstrument or otherwse, as an nvestment trust, and
whether of the f ed or genera management type (other than a persona hodng
company as defned n secton 351 of the ct), whch compes wth a the con-
dtons prescrbed by secton 48(e) of the ct. s to defnton of a corporaton
see secton 1001 of the ct.
rt. 3. Proof of status of a mutua nvestment company. (a) The ct re-
qures that the company must have been organzed for the purpose of, and that
substantay a of ts busness must have conssted of, hodng, nvestng or
renvestng n, stock or securtes. It s not sufcent that the corporaton s
engaged n hodng, nvestng or renvestng n, stock or securtes. It must
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93
848(e).
have been organzed for that purpose, and, throughout the ta abe year, operated
prmary as a medum through whch contrbutng sharehoders are offered
centrazed management and dversty of nvestments. If ts predomnant pur-
pose s to hod, nvest or renvest n, stock or securtes, and f substantay a
of ts busness conssts of hodng, nvestng or renvestng n, such stock or
securtes, the e stence or e ercse of ncdenta powers to engage n other bus-
ness w not deprve a corporaton of cassfcaton as a mutua nvestment com-
pany. fnance company, or a company engaged n the busness of a deaer n
stock or securtes, or of a trader n stock or securtes for ts own account, s
not a mutua nvestment company.
(6) The ct provdes that at east 95 per cent of the company s gross ncome
for the ta abe year must be derved from dvdends, nterest, and gans from
saes or other dsposton of stock or securtes, and that ess than 30 per cent
of the company s gross ncome for the ta abe year must have been derved
from the sae or other dsposton of stock or securtes hed for ess than s
months. (See secton 48(e) ( ) and (C) of the ct.) In determnng the
percentage of the company s gross ncome whch has been derved from such
sources, a oss from the sae or other dsposton of stock or securtes does not
enter nto the computaton. The determnaton of the perod for whch stock or
securtes have been hed sha be governed by the provsons of secton 117(c)
of the ct n so far as appcabe.
(o) The ct provdes that an amount not ess than 90 per cent of the
company s net ncome for the ta abe year must have been dstrbuted to ts
sharehoders as ta abe dvdends durng the ta abe year. The term ta abe
dvdends means dvdends (as defned n secton 115 of the ct) whch are
ta abe n the hands of such sharehoders as are sub|ect to ta aton under
the ct, and ncudes the proportonate share of the net earnngs of the current
year to the date of redempton dstrbuted to the sharehoder upon redempton.
ta abe dvdend s not dstrbuted to ts sharehoders durng the ta abe
year wthn the meanng of secton 48(e)(D) of the ct, uness the dvdend
s receved by the sharehoders durng the ta abe year of the company. See
artce 27-1 of Treasury Decson 4074, approved ugust 6, 1936, (page 53, ths
uetn), reatng to surta mposed by the ct on undstrbuted profts of
corporatons.
(d) The ct requres that sharehoders must, upon reasonabe notce, be
entted at a tmes durng the ta abe year to redempton or purchase of ther
stock for ther proportonate nterests n the corporaton s propertes, or the
cash equvaent thereof, ess a dscount not n e cess of 3 per cent thereof.
Redempton wthn 60 days of wrtten notce s redempton upon reasonabe
notce, even though sub|ect to e cepton n case of e traordnary crses.
(e) Corporatons are gven 80 days after une 22, 1936, the date of the
enactment of the ct, wthn whch to compy wth the provsons of secton
48(e)2 of the ct. though a corporaton may be otherwse cassfed as a
mutua nvestment company, It w not be consdered such for any ta abe
year f at any tme (after uy 22, 1936) durng the ta abe year t faed to
compy wth secton 48(e)2 of the ct.
rt. 4. Records to be kept for purpose of ascertanng actua otcncrsp of
outstandng stock of mutua nvestment companes. very mutua nvestment
company sha mantan n the coecton dstrct n whch t Is requred to
fe ts ncome ta return permanent records showng the nformaton reatve
to the actua owners of ts stock contaned n the wrtten statements requred
by these reguatons to be demanded from the sharehoders. The term actua
owner of stock, as used n these reguatons, ncudes the person who s
requred to ncude Id gross ncome n hs return the dvdends receved on
the stock. such records sha be open for nspecton, by any duy author-
zed offcer or empoyee of the ureau of Interna Revenue, for a perod of
four years from the end of the ta abe year of the company to whch they
reate.
mutua nvestment company sha demand of each of ts sharehoders (or
n the case of a company a or substantay a of the capta stock of whch
s hed by trustees for the purpose of e ercsng votng rghts, such company
sha demand of each of the regstered hoders of certfcates of benefca n-
terest n the company) on or before the payment of any dvdend made after
30 days from the date these reguatons are approved, a wrtten statement gvng
(1) the name and address of the actua owner, or the names and addresses of
the actua owners, of the stock wth respect to whch the dvdend s payabe,
(2) the name and address of the person who e ecutes the statement, and (3)
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648(e).
90
the number of shares to whch the statement pertans, or f the statement Is
made by the actua owner or hs agent, the tota number of shares actuay
owned by such person.
t the tme the frst demand s made after the e praton of SO days from the
date ths reguaton s approved, a ke statement sha be demanded as of the
date of payment of any pror dvdends pad wthn the ta abe year.
rt. 5. Records to be kept for purpose of determnng whether a company
camng to be a mutua nvestment company s a persona hodng company.
or the purpose of determnng whether a company camng to be a mutua
nvestment company s a persona hodng company as defned n secton 351 of
the ct, the permanent records of the company sha show the addtona nfor-
maton requred by these reguatons dscosng the ma mum number of shares
actuay owned by each person at any tme durng the ast haf of the company s
ta abe year (n the case of an ndvdua actua owner, nformaton aso gvng,
to the best of hs knowedge and beef, the names and addresses of, and the
ma mum number of shares actuay owned by each member of hs famy (as
defned n secton 351 (b) of the ct) at any tme durng the ast haf of the
company s ta abe year, and n case the actua owner s a corporaton, partner-
shp, estate, or trust, nformaton aso gvng the names and addresses and the
proportonate nterests of such sharehoders, partners, or benefcares, who had
benefca nterests to the e tent of at east 10 per cent at any tme durng the
ast haf of the mutua nvestment company s ta abe year). Statements gvng
such addtona nformaton sha be demanded not ater than 30 days after the
cose of the company s ta abe year, as foows:
(1) n the case of a company havng 2,000 or more actua owners of Its stock
on any dvdend payment date, as dscosed by statements receved n response
to demands made by the company as provded n artce 8, from each person
so dscosed or known to the company as the actua owner of 5 per cent or more
of ts stock or
(2) n the case of a company havng ess than 2,000 and more than 200 actua
owners of ts stock as so dscosed, from each person so dscosed or known to
the company as actuay ownng 1 per cent or more of ts stock or
(3) n the case of a company havng 200 or ess actua owners of ts stock
fom each person who Is the actua owner of one-haf of 1 per cent or more of
ts stock.
rt. 6. ddtona nformaton requred n returns of sharehoders. ny
person who fas or refuses to compy wth the demand of a mutua nvestment
company for the wrtten statements whch artces 3 and 4 above requre the
company to demand from ts sharehoders sha submt as a part of the Income
ta return requred by the ct of such person a stntement showng, to the best
of hs knowedge and beef
(1) the number of shares actuay owned by hm at any and a tmes durng
the perod for whch the return s fed n any company camng to be a mutua
nvestment company
(2) the dates of acquston of any such stock durng such perod and the
names and addresses of persons from whom t was acqured
(3) the dates of dspostons of any such stock durng such perod and the
names and addresses of the transferees thereof
(4) the names and addresses of the members of hs famy, as defned n sec-
ton 351 of the ct reatng to persona hodng companes and the ma mum
number of shares, f any, actuay owned by each n any company camng to
be a mutua nvestment company, at any tme durng the ast haf of the ta abe
year of such company
(5) the names and addresses of any corporaton, partnershp, assocaton or
trust n whch he had a benefca nterest to the e tent of at east 10 per cent
nt any tme durng the perod for whch such return s made, and the number of
shares of any company camng to be a mutua nvestment company actuay
owned by each and
(6) the amount and date of recept of each dvdend receved durng such
perod from every company camng to be a mutua nvestment company.
When makng demand for the wrtten statements requred of each sharehoder
under these reguatons, the company sha nform each of the sharehoders of
hs duty to submt as a part of hs ncome ta return the statements whch are
requred by the precedng paragraph f he fas or refuses to compy wth such
demand. st of the persons fang or refusng to compy n whoe or n part
wth a company s demand sha be mantaned as a part of ts records requred
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97
51, rt. 61-1.
by these reguatons. company whch fas to keep such records to show the
actua ownershp of Its outstandng stock as are requred by these reguatons, or
whch may be requred from tme to tme by any rue or reguaton prescrbed
by the Commssoner, wth the approva of the Secretary, for such purpose, sha
not be ta abe as a mutua nvestment company.
Nothng n these reguatons sha be construed to reeve mutua nvestment
companes or ther sharehoders from the duty of fng nformaton returns
requred by reguatons prescrbed under sectons 147 and 148 of the ct.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved ugust 18,1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 20, 103G, 10.59 a. m.)
P RT . R TURNS ND P YM NT O T .
S CTION 51. INDI IDU L R TURNS.
rtce 51-1: Indvdua returns. 7-8393
I. T. 3017
R NU CT O 1930.
Under secton 169 of the Cv Code of Caforna, 1931, the earn-
ngs of the wfe, when vng separate from her husband, are her
separate property and as such must be reported n her separate
return.
dvce s requested reatve to the appcaton of I. T. 2630 (C. .
I-1, 54) to the case of a wfe who receves compensaton for serv-
ces rendered by her after separaton from her husband.
In the case whch was the sub|ect of I. T. 2630, the ta payer was
marred and vng wth hs wfe n the State of Caforna unt
ugust 1, 1930, when a separaton occurred. Thereafter they ved
apart but there was no dvorce. The queston nvoved was whether
the saary of the husband for the entre year coud be reported one-
haf by the husband and one-haf by the wfe for edera ncome ta
urposes. It was hed that under the aws of Caforna they were
usband and wfe for the entre ta abe year, and the saary of the
husband for the entre year was dvsbe between the husband and
wfe for ncome ta purposes.
The pertnent provson of secton 169 of the Cv Code of Ca-
forna, 1931, reatng to the earnngs of the wfe vng separate from
her husband, reads as foows:
arnngs of cfe, when vng separate, separate property. The
earnngs and accumuatons of the wfe, and of her mnor chdren vng wth
her or n her custody, whe she s vng separate from her husband, are the
separate property of the wfe.
The present nqury s whether under the foregong provsons of
State aw compensaton receved by a wfe for servces rendered by
her after separaton must be reported n her separate return.
Secton 169 of the Cv Code of Caforna specfcay states that
the earnngs of the wfe, when vng separate from her husband, are
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54, rt. 54-1.
98
her separate property. ccordngy, t s hed that n such a case
the earnngs of the wfe are her separate property and as such must
be reported n her separate return.
I. T. 2630, supra, s not appcabe to cases comng wthn the scope
of secton 169 of the Cv Code of Caforna.
S CTION 54. CORDS ND SP CI L R TURNS.
rtce 54-1: ds to coecton of ta . 19-8427
( so Secton 351, rtce 351-8 Secton 503, T. D. 4718
rtce 27, Reguatons 95.)
INCOM R TURNS.
Informaton requred regardng the preparaton of ncome returns
under Tte I and Tte I , Revenue ct of 1936, for the caendar
year 1936 and succeedng ta abe perods, and Tte III of such ct
for ta abe years endng durng the caendar year 1935 and subse-
quent ta abe perods.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
Coectors of Interna Revenue and Others Concerned:
Tte I (Income Ta ) of the Revenue ct of 1936 provdes n part:
Sec. 54. Recobdb and Speca Returns.
(a) y ta payer. very person abe to any ta mposed by ths tte or for
the coecton thereof, sha keep such records, render under onth such state-
ments, make such returns, and compy wth such rues and reguatons, as the
Commssoner, wth the approva of the Secretary, may from tme to tme
prescrbe.

Sec. 62. Rues and Reguatons.
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths tte.
Tte I ( ddtona Income Ta es) of the Revenue ct of 1936
provdes n part:
Sec. 351. Surta on Persona odng Companes.

(c) dmnstratve provsons. provsons of aw (ncudng penates)
appcabe n respect of the ta es mposed by Tte I of ths ct, sha nsofar as
not nconsstent wth ths secton, be appcabe n respect of the ta mposed
by ths secton, e cept that the provsons of secton 131 of that tte sha not
be appcabe.
Tte III (Ta on Un|ust nrchment) of the Revenue ct of
1936 provdes n part:
Sec. 503. dmnstratve Provsons.
(a) provsons of aw (ncudng penates) appcabe wth respect to ta es
mposed by Tte I of ths ct, sha, nsofar as not nconsstent wth ths tte,
be appcabe wth respect to the ta es mposed by ths tte, e cept that the
provsons of sectons 101, 131, 251, and 252 sha not be appcabe.
Pursuant to the authorty n the above-quoted provsons of the ct,
the foowng reguatons reatng to advce or assstance n the prep-
araton of ncome returns are hereby prescrbed:
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99
54, rt. 64-1.
rtce 1. Scope of reguatons. (a) These reguatons appy to a ncome
returns requred under Tte I, Tte I , and Tte III of the Revenue ct of
1936, e cept
( ) Returns requred to be made by ndvduas on orm 1040 (returns
of net ncome not e ceedng 5,000 and derved chefy from saares and wages)
( ) Returns requred under sectons 143 and 144 (reatng to wthhodng
of ta at the source)
(C) Returns requred to be made by departng aens under secton 146
(reatng to cosng of ta abe year)
(D) Returns requred under sectons 147, 148, and 149 (reatng to nforma-
ton at source) and
( ) Returns by subsdary corporatons ncuded In consodated returns.
(b) The term return as used hereafter n these reguatons means an n-
come return to whch these reguatons are appcabe.
(c) The terms preparaton, actua preparaton, and assstance as
used n these reguatons do not refer to mere mechanca assstance or prepara-
ton, as for e ampe, the work done by a stenographer or a typst n the prep-
araton of the return.
rt. 2. dvce or assstance n respect of the return. very return sha con-
tan a statement by the person or persons requred to make the return showng:
(a) Whether any other person or persons advsed n respect of any queston
or matter affectng any tem or schedue of the return, or asssted or advsed n
the preparaton of the return, or actuay prepared the return
(6) The name and address of the person or persons (f any) so assstng or
advsng or so preparng the return
(c) The nature and e tent of the assstance or advce (f any) receved and
the tems or schedues n respect of whch the assstance or advce was re-
ceved and
( f) If the return s actuay prepared by any person or persons for another
person, the source of the Informaton reported n the return and the manner
In whch t was furnshed to or obtaned by the person or persons preparng the
return.
rt. 3. ffdavt by person preparng the return for another person. If any
person or persons actuay prepare a return for another person, the prescrbed
form of affdavt on the return sha be subscrbed and sworn to by such person
or persons preparng the return.
rt. 4. Partcuar cases. (a) If the return Is the separate return of a
marred person, the requrements of artces 2 and 3 appy, athough the one
assstng or advsng ncdent to, or actuay preparng, the return s the hus-
band or wfe of the ta payer.
(6) If the assstance or advce ncdent to, or the actua preparaton of, the
return s a reguar and usua ncdent of the empoyment of one reguary and
contnuousy empoyed by the person for whom the return Is made for the fu
tme of such empoyee (as cerk, secretary, bookkeeper, accountant, etc.), the
requrements of artce 3 do not appy. If, however, the empoyee s not regu-
ary or contnuousy empoyed by the person for whom the return s made for
fu tme, or assstance or advce Incdent to, or the actua preparaton of, the
return s not a reguar and usua ncdent of such empoyment, the requrements
of both artces 2 and 3 appy. Thus, f the return s prepared by an accountant
or frm of accountants makng perodca audts of the accounts of the person
for whom the return s prepared, the sworn statement requred by artce 3
sha be made.
(c) If, n the course of hs offca dutes, a deputy coector, an nterna reve-
nue agent, or other offcer or empoyee of the ureau of Interna Revenue as-
ssts or advses In the preparaton of the return, or actuay prepares the return,
the person for whom the return s made sha make n the return a bref state-
ment to that effect, and t w not be necessary to make the compete statement
requred by artce 2 or the sworn statement requred by artce 3.
Gut T. everng,
Commssoner.
pproved December 2, 1936.
Wayne C. Tayor,
ctng Secretary of the T casury.
( ed wth the Dvson of the edera Regster December 5, 1036, 10.42 a. m.)
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SU2(b)6. 100
S CTION 55(a). PU LICITY O R TURNS.
R NU CT O 1936.
Commttee on ducaton and Labor, Unted States Senate. (See
T. D. 4665, page 266.)
R NU CT O 1936.
Speca Commttee to Investgate Producton, Transportaton, and
Marketng of Woo, Unted States Senate. (See T. D. 4705, page 268.)
SU TITL O SUPPL M NT L PRO ISIONS.
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112(b) 6. R COGNITION O G IN OR LOSS.
( so Secton 113 (a) 15.) -34-8261
T. D. 4677
Income ta Revenue ct of 1936. Reguatons under sectons
112(b)6 and 113(a)15, reatng to nonrecognton of gan or oss
upon recept by corporaton of property, and bass of property, ds-
trbuted n compete qudaton of another corporaton.
Treasury Department,
Offce of Commssoker of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 112(b)6 (Tte I Income Ta ) of the Rev-
enue ct of 1936, approved une 22, 1936 (Pubc, No. 740, Seventy-
fourth Congress, second sesson), provdes:
Sec. 112. Recognton op oan oe oss.

(b) cauges soey n knd.

(6) Property receved by corporaton on compete qudaton of another. No
gan or oss sha be recognzed upon the recept by a corporaton of property
dstrbuted n compete qudaton of another corporaton. or the purposes of
ths paragraph a dstrbuton sha be consdered to be n compete qudaton
ony If
( ) the corporaton recevng such property was, on the date of the adopton
of the pan of qudaton, and has contnued to be at a tmes unt the recept
of the property, the owner of stock (n such other corporaton) possessng at
east 80 per centum of the tota combned votng power of a casses of stock
entted to vote and the owner of at east 80 per centum of the tota number of
shares of a other casses of stock (e cept nonvotng stock whch s mted and
preferred as to dvdends), and was at no tme on or after the date of the
adopton of the pan of qudaton and unt the recept of the property the
owner of a greater percentage of any cass of stock than the percentage of such
cass owned at the tme of the recept of the property and
(I ) no dstrbuton under the qudaton was made before the frst day of the
frst ta abe year of the corporaton begnnng after December 81, 1935 and
ether
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101
112(b)6.
(O) the dstrbuton s by such other corporaton n compete canceaton or
redempton of a ts stock, and the transfer of a the property occurs wthn the
ta abe year n such case the adopton by the stockhoders of the resouton
under whch s authorzed the dstrbuton of a the assets of such corporaton
n compete canceaton or redempton of a ts stock, sha be consdered an
adopton of a pan of qudaton, even though no tme for the competon of the
transfer of the property s specfed n such resouton or
(D) such dstrbuton s one of a seres of dstrbutons by such other cor-
poraton n compete canceaton or redempton of a ts stock n accordance
wth a pan of qudaton under whch the transfer of a the property under
the qudaton s to be competed wthn three years from the cose of the
ta abe year durng whch s made the frst of the seres of dstrbutons under
the pan, e cept that f such transfer s not competed wthn such perod, or
If the ta payer does not contnue quafed under subparagraph ( ) unt the
competon of such transfer, no dstrbuton under the pan sha be consdered
a dstrbuton n compete qudaton.
If such transfer of a the property does not occur wthn the ta abe year the
Commssoner may requre of the ta payer such bond, or waver of the statute
of mtatons on assessment and coecton, or both, as he may deem necessary
to nsure, f the transfer of the property s not competed wthn such 3-yenr
perod, or f the ta payer does not contnue quafed under subparagraph ( )
unt the competon of such transfer, the assessment and coecton of a ncome,
war-profts, and e cess-profts ta es then mposed by aw for such ta abe year
or subsequent ta abe years, to the e tent attrbutabe to property so receved.
dstrbuton otherwse consttutng a dstrbuton n compete qudaton
wthn the meanng of ths paragraph sha not be consdered as not consttutng
such a dstrbuton merey because t does not consttute a dstrbuton or
qudaton wthn the meanng of the corporate aw under whch the dstrbu-
ton s made: and for the purposes of ths paragraph a transfer of property of
such other corporaton to the ta payer sha not be consdered as not consttutng
a dstrbuton (or one of a seres of dstrbutons) n compete canceaton or
redempton of a the stock of such other corporaton, merey because the carry-
ng out of the pan nvoves (1) the transfer under the pan to the ta payer by
such other corporaton of property, not attrbutabe to shares owned by the
ta payer, upon an e change descrbed n paragraph (4) of ths subsecton, and
() the compete canceaton or redempton under the pan, as a resut of
e changes descrbed n paragraph (3) of ths subsecton, of the shares not owned
by the ta payer.
Par. . Secton 113(a) 15 of the Revenue ct of 1936 provdes:
Sec. 113. d|usted bass for determnng gan or oss.
(a) ass (unad|usted) of property. The bass of property sha be the cost
of such property e cept that

(15) Property receved by a corporaton on compete qudaton of another.
If the property was receved by a corporaton upon a dstrbuton n compete
qudaton of another corporaton wthn the meanng of secton 112(b)6, then
the bass sha be the same as t woud be n the hands of the transferor.
Pursuant to the provsons of secton 62 of the Revenue ct of
1936, the foowng reguatons are hereby prescrbed wth respect to
sectons 112(b)6 and 113(a) 15 of the ct:
rtce 1. Dstrbutons n qudaton of subsdary corporaton. (a) Gen-
era. Under the genera rue prescrbed by secton 115(c) of the ct for the
treatment of dstrbutons n qudaton of a corporaton, amounts receved by
one corporaton n compete qudaton of another corporaton are treated as
n fu payment n e change for stock n such other corporaton, and gan or
oss from the recept of such amounts s to be determned as provded n secton
111 of the ct. The scope of ths treatment s governed by the meanng of the
term amounts dstrbuted n compete qudaton of a corporaton ns used n
ecton 115(c) of the ct. Secton 112(b)6 of the ct e cepts from the genera
rue property receved, under certan specfcay descrbed crcumstances, by one
corporaton as a dstrbuton n compete qudaton of another corporaton
and provdes for the nonrecognton of gan or oss n those cases whch meet the
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112(b)C
102
tatutory requrements. Secton 112() of the ct paces a mtaton on the
appcaton of secton 112(b)6 of the ct n he case of foregn corporatons.
(6) Requrements for nonrccogtton of gan or oss. The nonrecognton of
gan or oss s mted to the recept of such property by a corporaton whch
s the actua owner of stock (n the qudatng corporaton) possessng at east
80 per cent of the tota combned votng power of a casses of stock entted
to vote and the owner of at east 80 per cent of the tota number of shares of
a other casses of stock (e cept nonvotng stock whch s mted and pre-
ferred as to dvdends). The ct e pressy requres that the recpent corpo-
raton must have been the owner of the spected amount of such stock on the
date of the adopton of the pan of qudaton and have contnued so to be
at a tmes unt the recept of the property. The ct aso e pressy requres
that the recpent corporaton sha, at no tme on or after the date of the
adopton of the pan and unt the recept of the property, be the owner of a
greater percentage of any cass of stock than the percentage of such cass
owned at the tme of the recept of the property. If the recpent corpora-
ton does not contnue quafed wth respect to the ownershp of stock of the
qudatng corporaton and f the faure to contnue quafed occurs at any
tme pror to the competon of the transfer of a the property, the provsons
for the nonrecognton of gan or oss do not appy to any dstrbuton receved
uuder the pan.
The provsons of secton 112 (b)G of the ct do not appy to any quda-
ton f any dstrbuton n pursuance thereof has been made before the 1st
day of the frst ta abe year of the recpent corporaton begnnng after
December 31, 1935. Secton 112 (b)G of the Revenue ct of 1934, as added by
secton 110 of the Revenue ct of 1935, reatng to the nonrecognton of gan
or oss n the ease of qudatons begun ufter ugust 30, 1935, s noperatve
and does not appy to any qudaton, regardess of when t was made.
To consttute a dstrbuton n compete qudaton wthn the meanng o
secton 112(b)6 of the ct, the dstrbuton must be (o) made by the qudat-
ng corporaton n compete canceaton or redempton of a ts stock n accord-
ance wth a pan of qudaton or (6) one of a seres of dstrbutons n com-
pete canceaton or redempton of a ts stock n accorduuee wth a pan of
qudaton. It s essenta that a status of qudaton e st at the tme the
frst dstrbuton s made under the pan and that such status contnue to
the date of dssouton of the corporaton. status of qudaton e sts when
the corporaton ceases to be a gong concern and ts actvtes are merey for the
purpose of wndng up ts affars, payng ts debts and dstrbutng any reman-
ng baance to ts sharehoders. qudaton may be competed pror to the
actua dssouton of the qudatng corporaton but no qudaton s competed
unt the qudatng corporaton and the recever or trustees n qudaton are
fnay dvested of a the property (both tangbe and ntangbe).
If a transacton consttutes a dstrbuton n compete qudaton wthn the
meanng of the ct and satsfes the requrements of secton 112(b)6 of the
ct, t s not matera that t s otherwse descrbed under the oca aw. If a
qudatng corporaton dstrbutes a of ts property n compete qudaton and
f pursuant to the pan for such compete qudaton a corporaton ownng the
spected amount of stock n the qudatng corporaton receves property con-
sttutng amounts dstrbuted n compete qudaton wthn the meanng of the
ct and aso receves other property attrbutabe to shares not owned by t, the
transfer of the property to the recpent corporaton sha not be treated, by
reason of the recept of such other property, as not a dstrbuton (or one of a
seres of dstrbutons) n compete canceaton or redempton of a of the stock
of the qudatng corporaton wthn the meanng of secton 112(b)6 of the
ct, even though for purposes of those provsons n secton 112 of the ct reat-
ng to reorganzatons the amount receved by the recpent corporaton n e cess
of ts ratabe share s regarded as acqured upon the ssuance of ts stock or
securtes n a ta -free e change as descrbed n secton 112(b)4 of the ct and
the canceaton or redempton of the stock not owned by the recpent corpora-
ton s treated as occurrng as a resut of a ta -free e change descrbed In
secton 112(b)3 of the ct. The appcaton of ths paragraph may be ustrated
by the foowng e ampe:
ampe: On uy 1, 1936, the M Corporaton had outstandng capta stock
consstng of 3,000 shares of common stock, par vaue 100 a share, and 1,000
shares of preferred stock, par vaue 100 a share, whch was mted and pre-
ferred as to dvdends and had no votng rghts. On uy 1, 1936, and thereafter
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103
112(b)6.
unt the date of dssouton of the M Corporaton, the O Corporaton owned
2,500 shares of the common stock of the M Corporaton. y a statutory merger
consummated on ugust 1, 1936, pursuant to a pan of qudaton adopted on
uy 1, 1936, the M Corporaton was merged nto the O Corporaton, the O Cor-
poraton under the pan ssung stock whch was receved by the hoders of the
stock of the M Corporaton not owned by the O Corporaton n e change for
ther stock n the M Corporaton. The recept by the O Corporaton of the
propertes of the M Corporaton s a dstrbuton receved by the O Corporaton
In compete qudaton of the M Corporaton wthn the meanng of secton
112(b)6 of the ct, and no gan or oss s recognzed as the resut of the recept
of such propertes.
rt. 2. Lqudatons competed cthn one ta aoe year. If In a qudaton
competed wthn one ta abe year, pursuant to a pan of compete qudaton,
dstrbutons n compete qudaton are receved by a corporaton whch owns
the specfed amount of stock n the qudatng corporaton and whch contnues
quafed wth respect to the ownershp of such stock unt the transfer of a the
property wthn such year s competed (see artce 1 of these reguatons), then
no gan or oss sha be recognzed wth respect to the dstrbutons receved by
the recpent corporaton. In such case no waver or bond s requred of the
recpent corporaton under secton 112(b)6 of the ct
rt. 3. Lqudaton coverng more than one ta aoe year. If the pan of
qudaton s consummated by a seres of dstrbutons coverng a perod of
more than one ta abe year, the nonrecognton of gan or oss wth respect to
the dstrbutons n qudaton sha, n addton to the requrements of artce 1
of these reguatons, be sub|ect to the foowng requrements:
(a) In order for the dstrbuton n qudaton to be brought wthn the e -
cepton provded n secton 112(b)6 of the ct to the genera rue for comput-
ng gan or oss wth respect to amounts receved n qudaton of a corporaton,
the entre property of the corporaton sha be transferred n accordance wth
a pan of qudaton, whch pan sha ncude a statement showng the perod
wthn whch the transfer of the property of the qudatng corporaton to the
recpent corporaton s to be competed. The transfer of a the property under
the qudaton must be competed wthn three years from the cose of the
ta abe year durng whch s made the frst of the seres of dstrbutons under
the pan.
(6) or each of the ta abe years whch fas whoy or party wthn the
perod of qudaton, the recpent corporaton sha, at the tme of fng ts
return, fe wth the coector of nterna revenue for transmtta to the Com-
mssoner of Interna Revenue a waver of the statute of mtatons on assess-
ment The waver sha be e ecuted on such form as may be prescrbed by the
Commssoner of Interna Revenue and sha e tend the perod for assessment
of a ncome and profts ta es for each such year to a date not earer than
one year after the ast date of the perod for assessment of such ta es for the
ast ta abe year In whch the transfer of the property of the qudatng cor-
poraton to the controng corporaton may be competed n accordance wth
secton 112(b)6 of the ct. Such waver sha aso contan such other terms
wth respect to assessment as may be consdered by the Commssoner of In-
terna Revenue to be necessary to nsure the assessment and coecton of the
correct ta abty for each year wthn the perod of qudaton.
(c) or each of the ta abe years whch fas whoy or party wthn the
perod of qudaton, the recpent corporaton sha fe a bond, the amount
of whch sha be f ed by the Commssoner of Interna Revenue. The bond
sha contan a terms specfed by the Commssoner of Interna Revenue,
Incudng provsons unequvocay assurng prompt payment of the e cess of
ncome and profts ta es (pus penaty, f any, and nterest) as computed by
the Commssoner of Interna Revenue wthout regard to the provsons of
sectons 112(b)6 and 113(a)15 of the ct over such ta es computed wth regard
to such provsons, regardess of whether such e cess may or may not be made
the sub|ect of a notce of defcency under secton 272 of the ct and regardess
of whether It may or may not be assessed. ny bond requred under secton
112(b)6 of the ct sha have such surety or suretes as the Commssoner of
Interna Revenue may requre. owever, see secton 1126 of the Revenue ct
of 1926, as amended, provdng that where a bond s requred by aw or regu-
atons, n eu of surety or suretes there may be deposted bonds or notes of
the Unted States. Ony surety companes hodng certfcates of authorty from
the Secretary of the Treasury as acceptabe suretes on edera bonds w be
approved as suretes. The bonds sha be e ecuted n trpcate so that the
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S 2(b)6.
104
Commssoner of Interna Revenue, the ta payer, and the surety or the depos-
tory may each have a copy.
Pendng the competon of the qudaton, f there s a compance wth para-
graphs (o), (b), and (c) of ths artce and artce 1 of these reguatons wth
respect to the nonrecognton of gan or oss, the ncome and profts ta a-
bty of the recpent corporaton for each of the years covered n woe or n
part by the qudaton sha be determned wthout the recognton of any
gan or oss on account of the recept of the dstrbutons n qudaton.
In such determnaton, the bass of the property or propertes receved by
the recpent corporaton sha be the bass whch such property or prop-
ertes woud have had n the hands of the qudatng corporaton wth
proper ad|ustments. See sectons 113(a)15 and 113(b) of the ct and artce 5
of these reguatons. owever, f the transfer of the property s not competed
wthn the 3-year perod aowed by secton 112(b)6 of the ct or f the re-
cpent corporaton does not contnue quafed wth respect to the ownershp of
stock of the qudatng corporaton as requred by that secton, gan or oss
sha be recognzed wth respect to each dstrbuton and the ta abty for
-ach of the years covered n whoe or In part by the qudaton sha be re-
computed wthout regard to the provsons of secton 112(b)6 or secton 113(a)15
of the ct and the amount of any addtona ta due upon such recomputaton
sha be prompty pad.
bt. 4. Dstrbutons n qudaton as affectng mnorty nterests. Upon the
qudaton of a corporaton n pursuance of a pan of compete qudaton, the
gan or oss of mnorty sharehoders sha be determned wthout regard to
secton 112(b)6 of the ct, snce t does not appy to that part of dstrbutons
n qudaton receved by mnorty sharehoders.
rt. 5. ass of property receved n compete qudaton. The bass of prop-
erty receved n compete qudaton, wthout the recognton of gan or oss as
provded n secton 112(b)6 of the ct, sha be the same as the bass of the
property n the hands of the qudatng corporaton wth proper ad|ustments as
provded n secton 113 of the ct. See sectons 113(a)15 and 113(b) of the
ct.
rt. 6. Records to be kept and nformaton to be fed wth return. (a)
Perrnanent records n substanta form sha be kept by every corporaton
recevng dstrbutons n compete qudaton wthn the e cepton provded n
secton 112(b)6 of the ct showng the nformaton requred by ths artce
to be submtted wth ts return. The pan of qudaton must be adopted by
each of the corporatons partes thereto and the adopton must be shown by
the acts of ts duy consttuted responsbe offcers, and appear upon the
offca records of each such corporaton.
(6) or the ta abe year n whch the qudaton occurs, or, f the pan
of qudaton provdes for a seres of dstrbutons over a perod of more than
one year, for each ta abe year n whch a dstrbuton s receved under the
pan, the recpent sha e wth ts return a compete statement of a facts
pertnent to the nonrecognton of gan or oss, ncudng
(1) duy certfed copy of the pan for compete qudaton, and of the
resoutons under whch the pan was adopted and the qudaton was author-
zed, together wth a statement under oath showng n deta a transactons
ncdent to, or pursuant to, the pan.
(2) st of a the propertes receved upon the dstrbuton, showng the
cost or other bass of such propertes to the qudatng corporaton at the
date of dstrbuton and the far market vaue of such propertes on the date
dstrbuted.
(3) statement as to ts ownershp of a casses of stock of the qudatng
corporaton (showng as to each cass the number of shares and percentage
owned and the votng power of each share) as of the date of the adopton of
the pan of qudaton, and at a tmes snce, to and ncudng the date of
the dstrbuton n qudaton, and the cost or other bass of such stock.
Cas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved ugust 18, 193G.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 20, 1936, 10.59 a. m.)
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105 141, rt. 141-1.
S CTION 113(a) 15. D UST D SIS OR
D T RMINING G IN OR LOSS.
rtce 113(a) (15)-1: ass of property receved
n compete qudaton.
R NU CT O 1936.
Reguatons reatng to bass of property dstrbuted n compete
qudaton of another corporaton. (See T. D. 4677, page 100.)
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
R NU CT O 1936.
Reguatons reatng to dstrbutons by corporatons. (See T. D.
4G74, page 53.)
SUPPL M NT C CR DITS G INST T .
S CTION 131. T S O OR IGN COUNTRI S
ND POSS SSIONS O UNIT D ST T S.
rtce 131-5: Countres whch do not -46-8385
satsfy the smar credt requrement. I. T. 3014
R NU CTS OP 1934 ND 1936.
The Government of the Netherands Indes does not satsfy the
smar credt requrement of secton 131 (a)3 of the Revenue cts
of 1934 and 1936 for any ta abe perod snce the passage of the
ordnance of May 5, 1934 (Indan Offca Gazette No. 921).
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 141. CONSOLID T D R TURNS O
R ILRO D CORPOR TIONS.
rtce 141-1: Consodated returns of -47-8394
affated corporatons for ta abe years I. T. 3018
begnnng after December 31, 1935.
( so Secton 14, rtce 14-1.)
R NU CT O 1936.
Where a consodated retnrn Is made under secton 141 of the
Revenue ct of 1936 by an affated group of raroad corpora-
tons for the purpose of the ta mposed by secton 13 of that ct,
the return w be the bass for the mposton of the surta on
undstrbuted profts under secton 14 of the ct.
dvce s requested whether a consodated return must be fed for
the purpose of the ta mposed by secton 14 of the Revenue ct of
1936, reatng to the surta on undstrbuted profts, where a conso-
dated return s fed under secton 141 by an affated group of raroad
corporatons for the purpose of the norma ta mposed by secton 13
of that ct.
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143, rt. 143-1.
106
In Senate nance Commttee s eport No. 2156, page 19, under
the headng Secton 141. Consodated Returns, t s stated n part
as foows:
The prvege of fng a consodated return, once the eecton to fe
such a return has been e ercsed under the provsons of ths h, e tends to
both the norma ta and surta but not to ether one separatey.
It s hed that where a consodated return s made by an affated
group of raroad corporatons for the purpose of the ta mposed by
secton 13 of the Revenue ct of 1936 such return w be the bass for
the mposton of the surta on undstrbuted profts under secton 14
of that ct.
S CTION 143. WIT OLDING O T
T SOURC .
rtce 143-1: Wthhodng ta at source. -33-8242
I. T. 2997
R NU CT O 1030.
Where stock ssued by domestc corporatons s regstered n the
name of a domestc partnershp as nomnee but s actuay owned
by nonresdent aens, the nomnee s requred to wthhod ncome
ta at the rate of 10 per cent n accordance wth secton 143(b) of
the Revenue ct of 1936, when makng payments of dvdends on and
after uy 2, 1936, through ts London offce.
rtce 143-1: Wthhodng ta at source. -48-8407
( so Secton 144, rtce 144-1.) I. T. 3020
R NU CT O 1936.
ppcaton of the provsons of sectons 143 and 144 of the Reve-
nue ct of 1936, reatng to wthhodng of ncome ta at the source.
In repy to a number of questons reatng to the wthhodng of
ncome ta at the source under the provsons of sectons 143 and 144
of the Revenue ct of 1936, the foowng answers were made:
(1) Ta s to be wthhed at the rates prescrbed by the Revenue
ct of 1936 on a payments or credts made on and after uy 2,1936,
even though such payments or credts represent nterest, dvdends,
or other f ed or determnabe annua or perodca ncome due and
payabe pror to uy 2, 193G.
(2) Checks for dvdends, nterest, or other f ed or determnabe
annua or perodca ncome maed or devered by a payor corpora-
ton are sub|ect to wthhodng by the payor corporaton or the
nomnee or other person recevng them for the account of a non-
resdent aen or nonresdent foregn corporaton, and upon presen-
taton of such checks to the bank on whch drawn for coecton the
payng bank need not be concerned wth wthhodng.
(3) resdent foregn corporaton may fe one etter as authorty
for reef from the wthhodng provsons of the Revenue ct of
1936 through the frst coecton bank n the Unted States rather
than forward such etter wth the coupons of the payng agent or
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107
146, rt. 146-1.
obgor corporaton, the payng agent or corporaton reyng upon
the statement of the coectng bank aff ed to the coupons by rubber
stamp or otherwse that the coupons are owned by a resdent foregn
corporaton.
(4) The payor corporaton may make proper ad|ustment n cases
where the ta has been wthhed from any payments upon the recept
of a sgned statement that the owner of the ncome s a ctzen, res-
dent aen, or resdent foregn corporaton at any tme pror to the
date when the payor corporaton s requred to pay the ta to the
coector.
(5) The ta must be wthhed at the source from the gross amount
of any dstrbuton made by a corporaton, other than a nonta abe
dstrbuton payabe n stock or stock rghts, or a dstrbuton n
parta or compete qudaton, wthout regard to any cam that a
or a porton of such dstrbuton s not ta abe. pproprate ad|ust-
ments, f any, w be made upon the tmey fng of cams for
refund.
(6) The amount reported on orm 1041 as the nonresdent aen
benefcary s share of the net ncome of an estate or trust consttutes
f ed or determnabe annua or perodca ncome of such benefcary
and as such s sub|ect to wthhodng to the e tent that t consttutes
ncome from sources wthn the Unted States.
(7) Ta need not be wthhed on accrued nterest pad n connec-
ton wth the sae of bonds between nterest dates.
(8) Where ony 15 per cent of 10 per cent of a dvdend pad to
a nonresdent foregn corporaton has been wthhed pror to uy 2,
1936, no ad|ustment s to be made upon the cam of the corporaton
that the stock s not owned by t the ta so wthhed must be pad
and apped aganst the ncreased rate of ta due for the frst naf
of the year 1936 and any cams for the ad|ustment of the y per
cent ta must be fed wth the ureau for consderaton.
S CTION 144. P YM NT O CORPO TION INCOM
T T SOURC .
rtce 144-1: Wthhodng n the case of nonresdent
foregn corporatons.
R NU CT O 1936.
Deducton of ncome ta at the source. (See I. T. 3020, page 106.)
S CTION 146. CLOSING Y COMMISSION R
O T L Y R.
rtce 146-1: Termnaton of the ta abe 4-8368
perod by Commssoner. G. C. M. 17195
R NU CT O 1936.
Where a nonresdent aen engaged n trade or busness In the
Unted States makes two vsts to the Unted States durng the
same year, hs ta abe perod may be Immedatey termnated after
each stay under the provsons of secton 146 of the Revenue ct
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140, rt. 146-1.
108
of 1936, and hs ncome and deductons for the second perod shoud
be combned wth those of the frst perod. t the end of the
caendar year and not ater than une 15 of the succeedng year, he
shoud fe a compete return for the 12-month perod and pay any
baance of ta cue or cam refund of any overpayment of ta .
n opnon s requested reatve to the proper method to be fo-
owed n determnng the ta abty of for the ta abe year 1936.
The ta payer, , s a nonresdent aen and from tme to tme a
engaged professonay n ths country, so that he may propery be
cassfed as a nonresdent aen engaged n hs trade or busness n
the Unted States. When the ta payer departed from ths country
on une 30, 1936, hs ta abe perod was termnated under the pro-
vsons of secton 140 of the Revenue ct of 1936. Snce the ta -
payer has now returned to the Unted States, the queston s pre-
sented whether n vew of the fact that hs ta abe perod was term-
nated on une 30,1936, t may agan be termnated upon hs departure
from ths country at the end of hs second vst wthn the year. In
other words, may the ta payer s ta abe perod be termnated twce
n the same year and hs ncome and deductons for both perods
be combned
Secton 116 of the evenue ct of 1936 reads as foows:
(a) Ta n |eopard /. If the Commssoner fnds that a ta payer desgns
qucky to depart from the Unted States or to remove hs property therefrom,
or to concea hmsef or hs property theren, or to do any other act tendng to
pre|udce or to render whoy or party Ineffectua proceedngs to coect the
ta for the ta abe year then ast past or the ta abe year then current uness
such proceedngs be brought wthout deay, the Commssoner sha decare the
ta abe perod for such ta payer mmedatey termnated and sha cause
notce of such fndng and decaraton to be gven the ta payer, together wth
a demand for mmedate payment of the ta for the ta abe perod so decared
termnated and of the ta for the precedng ta abe year or so much of such
ta as s unpad, whether or not the tme otherwse aowed by aw for fng
return and payng the ta has e pred and such ta es sha thereupon become
mmedatey due and payabe.
(b) Securty for payment. ta payer who s not n defaut n makng any
return or payng ncome, war-profts, or e cess-profts ta under any ct of
Congress may furnsh to the Unted States, under reguatons to be prescrbed
by the Commssoner, wth the approva of the Secretary, securty approved by
the Commssoner that he w duy make the return ne t thereafter requred to
be fed and pay the ta ne t thereafter requred to be pad. The Commssoner
may approve and accept n ke manner securty for return and payment of
ta es made due and payabe by vrtue of the provsons of ths secton, provded
the ta payer has pad n fu a other ncome, war-profts, or e cess-profts
ta es due from hm under any ct of Congress.

(e) Departure of aen. No aen sha depart from the Unted States uness
e frst procures from the coector or agent n charge a certfcate that he has
comped wth a the obgatons mposed upon hm by the ncome, war-profts,
and e cess-profts ta aws.
The above-quoted provsons of aw frst appeared n secton 250(g)
of the Revenue ct of 1918. The aw was changed n the Revenue
ct of 1921 so as to have the ta abe perod mmedatey term-
nated rather than termnated at the end of the caendar month
then ast past. The Revenue ct of 1936 contans the words mme-
datey termnated. The congressona reports pertanng to these
provsons of the varous Revenue cts are rather meager. On page
10 of the report of the Commttee on nance (report No. 617), per-
tanng to the Revenue ct of 1918, appears the foowng:
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109
146, rt. 146-1.
uthorty s gven to the Commssoner to take summary proceedngs for the
coecton of the ta n cases where there s evdence that the ta payer desgns
to evade the ta by a sudden departure from the Unted States or by remova
or conceament of hs property. (Secton 250(g).)
On page 61 of the conference commttee report (No. 1037), pertan-
ng to the Revenue ct of 1918, s found the foowng:
mendment No. 203: The effect of ths amendment s to prevent ta payers
departng from the Unted States or removng ther property therefrom before
the cose of the reguar ta abe year n order to avod payment of the Income
ta es and the ouse recedes.
There are no court decsons bearng drecty on the queston. In
err v. owers (66 ed. (2d), 419), nvovng the Revenue ct of
1918, the court made the foowng comment:
The ony way of makng an assessment or of coectng a ta In ugust.
1920, on ncome for that year was to empoy the method provded for In secton
250(g) of the Revenue ct of 1918 (40 Stat., 1082). Under that secton, If the
Commssoner had feared that err or Cegg was to remove hs property from
the Unted States, he mght have decared the ta abe perod for such tn -
payer termnated at the end of the caendar month then ast past, have gven
notce to the ta payer, and demanded mmedate payment.
Mmeograph 2195 (C. . 1, 253, pr-December, 1919), con-
tanng the frst nstructons regardng the enforcement of secton
250(g) of the Revenue ct of 1918, does not cover the partcuar
queston at ssue. Nor s the queston covered by artce 146-1 of
Reguatons 86, reatng to the termnaton of the ta abe perod by
the Commssoner. That artce was amended by Treasury Decson
4595 (C. . I -2, 142), dated October 29, 1935, but not n a way
whch affects the queston presented.
The purpose of secton 146 of the Revenue ct of 1936 was, as
stated n the commttee reports wth respect to the same provsons
contaned n secton 250(g) of the Revenue ct of 1918, to gve
authorty to the Commssoner to take summary proceedngs for
the coecton of ncome ta es n cases where there s evdence that
the ta payer desgns to evade the ta by a sudden departure from
the Unted States, or the remova or conceament of hs property.
It s not a pena provson but s an admnstratve measure to nsure
the coecton of the ta whch otherwse mght not be coectbe
after the aen has eft the Unted States. The revenues can not
be propery protected by computng the ta on part of the ncome
when t s known as a matter of fact that the ta payer has prevousy
and wthn the same ta abe year receved other ncome. To ter-
mnate the ta payer s ta abe year twce n 1936, and ncude n
the second return, orm 1040C, ony ncome receved snce une 30,
1936, woud have the effect of permttng the ta payer to evade the
payment of ta es |usty due the Government, the very thng Con-
gress sought to prevent by the enactment of secton 146 of the
Revenue ct of 1936. The fundamenta scheme of ncome ta aton
s for a ta upon the net ncome for a perod of 12 successve months.
ankers Trust Co. v. owers, 295 ed., 89.)
nonresdent aen as we as a ctzen or resdent of the Unted
States s requred to fe for each ta abe year a return under oath
statng specfcay the tems of hs gross ncome and the deductons
and credts aowed, provded such nonresdent aen (as n the
nstant case) s engaged n trade or busness n the Unted States
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146, rt. 146-1.
110
or has an offce or pace of busness theren. (Sectons 51 and 211(b),
Revenue ct of 1936.) ta payer may receve ncome for the
frst s months and sustan arge osses for the ast s months.
s osses and other deductons, as we as credts, may be such that
he has no ta abe ncome for the ta abe year of 12 months. To
ta hm on hs ncome for the frst s months by termnatng hs
ta abe perod and not aow hm any deductons on account of
osses and other specfed deductons for the ast s months woud
work an undue hardshp and gnore the fundamenta scheme of the
ta ng statute. The fact that secton 146 of the Revenue ct of
1936 prescrbes an admnstratve measure for protectng the Gov-
ernment revenues can not be used as a bass for penazng a ta -
payer. In the opnon of ths offce, a ta payer whose ta abe perod
has been termnated may nevertheess fe, and s requred to fe,
a return for the fu ta abe year.
If an aen receves ncome durng the frst s months of the year,
undoubtedy hs ta abe perod may be termnated under the prov-
sons of secton 146(a) and 146(e) of the Revenue ct of 1936 when
he eaves the Unted States, or does anythng ese to pre|udce the
coecton of the ta . If after hs ta abe perod has been term-
nated he returns to the Unted States and receves other ta abe n-
come, he agan makes hmsef amenabe to secton 146 of the ct
To hod otherwse woud prevent the coecton of the revenue egay
due the Government. avng n mnd the purpose of that secton
of aw, t w n |ustce to the Government be necessary to combne
the ncome and deductons of the frst perod wth the ncome and
deductons of the second perod. Ths w aow the aen the fu
beneft of a hs statutory deductons and credts and at the same
tme enabe the Government to coect the proper ta by pacng
the net ncome n whatever bracket t fas. t the end of the
caendar year, and not ater than uno 15 of the succeedng year,
the aen shoud under the aw fe a compete return of hs ncome,
deductons, and credts for the 12-month ta abe year and pay any
baance of ta due or cam a refund of any overpayment of ta .
(See sectons 51, 212, 213, and 322 of the Revenue ct of 1936.)
The above concusons are ampy supported by the provsons of aw
referred to heren, and work no n|ustce ether to the aen or to
the Government.
ppyng the foregong to the nstant case, t s the opnon of
ths offce that the ta abe perod of the ta payer may be mmedatey
termnated upon hs second departure from ths country n 1936, even
though hs ta abe perod was prevousy termnated on une 30,1936.
If ths s done, the gross ncome, deductons, and credts for the two
perods shoud be combned and the ta computed on the combned
net ncome. fter the end of the caendar year 1936, the ta payer
may fe a compete return for the entre 12-month perod endng
December 31, 1936, n order that a determnaton may be made by the
Commssoner of any defcency n ta , or any overpayment or over-
assessment of ta .
erman Opha t,
Genera Counse for the Department of the Treasury.
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I
162, rt. 162-1
SUPPL M NT . ST T S ND TRUSTS.
S CTION 162. N T INCOM .
rtce 162-1: Income of estates and trusts. -43-8359
G. C. M. 17233
R NU CTS OP 1032, 1934, ND 1938.
Gans derved from the sae of a part of the corpus of the M Trust
whch are dstrbuted to the benefcares of the trust n accordance
wth the terms of the trust nstrument gvng the trustee dscre-
tonary power to dstrbute ncome or prncpa or both consttute
ncome propery pad or credted wthn the meanng of secton
162(c) of the Revenue ct of 1932 and correspondng provsons of
subsequent Revenue cts and are ta abe to the benefcares of the
trust
dvce s requested whether gans derved from the sae of a part
of the corpus of the M Trust whch are pad or credted to the bene-
fcares of the trust under dscretonary power vested n the trustee
are ta abe to the trust or to the benefcares.
The pertnent provsons of the trust nstrument n the present
case under whch dstrbutons may be made by the trustee are as
foows:
rt. : If at any tme durng the fe of the trust hereby created, the trustee,
In hs dscreton, sha concude that the then crcumstances of the benefcary
affectng her genera we beng, are such as to |ustfy the payment thereof
to the benefcary, or the use thereof by the trustee on behaf of the benef-
cary, then the trustee may pay to, or use on behaf of the benefcary, so
much of the ncome or prncpu or both, of the trust estate, as n the |udgment
of the trustee at the tme, s e pedent to meet the sad then e stng need of
the benefcary and sad dscretonary power may be e ercsed by the trustee
from tme to tme.
Under secton 162(c) of the Revenue ct of 1932, and the corre-
spondng sectons of subsequent Revenue cts, t s provded n part
that:
n the case of ncome whch, n the dscreton of the fducary, may
be ether dstrbuted to the benefcary or accumuated, there sha be aowed
as an addtona deducton n computng the net ncome of the estate or trust the
amount of the ncome of the estate or trust for ts ta abe year whch s propery
pad or credted durng such year to any egate 1, her, or benefcary, but the
amount so aowed as a deducton sha )e ncuded n computng the net ncome
of the egatee, her, or benefcary.
The term ncome as used n the above-quoted secton means n-
come n the sense used generay n the Revenue cts and n that sense
t undoubtedy ncudes gan derved from the sae of trust corpus. In
determnng what consttutes ncome of a trust (or of a decedent s
estate) n the frst nstance, the ureau s not governed by State aws,
for most of such aws regard proft from the sae of trust corpus as
consttutng capta, whereas such proft s of course ncome under the
edera Revenue cts. owever, m determnng whether the ncome
of a trust or of a decedent s estate s dstrbutabe perodcay to the
benefcares or s to be accumuated by the trustees, the ureau has
ong hed that the queston s to be decded by the terms of the trust
nstrument or w, as construed under the appcabe State aw.
(S. O. 1012, C. . 2, 34 O. D. 808, C. . 4, 226 S. M. 4241, C. .
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211, rt. 211-7.
112
I -2, 191 G. C. M. 4596, C. . II-2, 133 state of enry Mayer
v. Commssoner, 16 . T. ., 1164, acquescence, C. . I -1, 35.)
Under the me foowed by the courts of the State of Mssour,
where the trusc now under consderaton s beng admnstered, gan
derved from the sae of trust corpus, n the absence of any pro-
vson to the contrary n the trust nstrument, must be added to the
corpus and s not dstrbutabe unt the corpus tsef s dstrbuted.
In ths connecton see ayes v. St. Lous Unon Trust Co. (317 Mo..
1028, 298 S. W., 91) and Seeck v. awey (331 Mo., 1038, 56 S. W.
(2d), 387). In the atter case, however, the Supreme Court of
Mssour quoted the foowng from the opnon of the Unted States
Supreme Court n Gbbons v. Moton (136 U. S., 549):
In ascertanng the rghts of such persons, the ntenton of the testator, so
far as manfested by hm, must of course contro but when he has gven no
speca drecton upon the queston as to what sha be consdered prncpa
and what ncome, he must be presumed to have had n vew the awfu power
of the corporaton over the use and apportonment of ts earnngs, and to have
Intended that the determnaton of that queston shoud depend upon the
reguar acton of the corporaton wth regard to a Its shares.
In the opnon of ths offce, there can be no queston that under the
aw of the State of Mssour (or under the aw of any other State
foowng the same genera rue) gan derved from the sae of trust
corpus whch s dstrbuted to the benefcares s ncome propery
pad or credted wthn the meanng of secton 162(c), supra, where,
as n the rbtant case, the w or deed of trust authorzes payment
to be made from the ncome or prncpa or both n the dscreton
of the fducary. ccordngy, t s hed that the ncome of the M Trust
pad or credted to the benefcary pursuant to the provsons of the
trust nstrument s ta abe to the benefcary to whom pad or credted,
notwthstandng such ncome ncuded n part gan derved from the
sae of trust corpus.
erman Ofhant,
Genera Counse for the Department of the Treasury.
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 211. T ON NONR SID NT LI N
INDI IDU LS.
rtce 211-7: Ta aton of nonresdent aen -27-8150
ndvdua. Mm. 4471
( so Secton 231, rtce 231-1.)
Ta aton of nonresdent aen ndvduas and foregn corpora-
tons under the Revenue ct of 1936.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, uy 3, 1936.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
The Revenue ct of 1936 (Pubc, No. 740, Seventy-fourth Con-
gress, second sesson, . R. 12395) was approved by the Presdent
une 22, 1936, 9 p. m., eastern standard tme.
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113
211, rt. 211-7.
Secton 211 of the ct, reatng to the ta on nonresdent aen
ndvduas, provdes:
8dc. 211. Ta on Nonresdent en Indvduas.
(a) No Unted States busness or offce. There sha be eved, coected,
and pad for each ta abe year, n eu of the ta mposed by sectons 11 and
12, upon the amount receved, by every nonresdent aen ndvdua not engaged
In trade or busness wthn the Unted States and not havng an offce or
pace of busness theren, from sources wthn the Unted States as nterest
(e cept nterest on deposts wth persons carryng on the bankng busness),
dvdends, rents, saares, wages, premums, annutes, compensatons, remunera-
tons, emouments, or other f ed or determnabe annua or perodca gans,
profts, and ncome, a ta of 10 per centum of such amount, e cept that such
rate sha be reduced, n the case of a resdent of a contguous country, to such
rate (not ess than 5 per centum) as may be provded by treaty wth such
country.
(b) Unted States busness or offce. nonresdent aen ndvdua engaged
In trade or busness n the Unted States or havng an offce or pace of busness
theren sha be ta abe wthout regard to the provsons of subsecton (a). s
used In ths secton, secton 119, secton 143, secton 144, and secton 231, the
phrase engaged n trade or busness wthn the Unted States ncudes the
performance of persona servces wthn the Unted States at any tme wthn
the ta abe year, but does not Incude the performance of persona sen-ces
for a nonresdent aen Indvdua, foregn partnershp, or foregn corporaton,
not engaged n trade or busness wthn the Unted States, by a nonresdent
aen ndvdua temporary present n the Unted States for a perod or perods
not e ceedng a tota of 90 days durng the ta abe year and whose compensa-
ton for such servces does not e ceed n the aggregate 3,000. Such phrase does
not Incude the effectng of transactons n the Unted States n stocks, secur-
tes, or commodtes through a resdent broker, commsson agent, or custodan.
Secton 212(a), reatng to gross ncome, provdes:
Sec. 212. Gross Income.
(a) Genera rue. In the case of a nonresdent aen Indvdua gross
ncome Incudes ony the gross Income from sources wthn the Unted States.
Secton 219 of the ct, reatng to partnershps, provdes:
Sec. 219. Partnershps.
or the purpose of ths tte, a nonresdent aen ndvdua sha be con-
sdered as beng engaged n a trade or busness wthn the Unted States
f the partnershp of whch he s a member s so engaged and as havng an
offce or pace of busness wthn the Unted States If the partnershp of whch
he Is a member has such an offce or pace of busness.
Secton 231 of the ct, reatng to the ta on foregn corpora-
tons, provdes n part:
Sec. 231. Ta on oregn Corporatons.
(a) Nonresdent corporatons. There sha be eved, coected, and pad
for each ta abe year, n eu of the ta Imposed by sectons 13 and 14, upon
the amount receved by every foregn corporaton not engaged In trade or
busness wthn the Unted States and not havng an offce or pace of busness
theren, from sources wthn the Unted States as nterest (e cept nterest
on deposts wth persons carryng on the bankng busness), dvdends, rents,
saares, wages, premums, annutes, compensatons, remuneratons, emouments,
or other f ed or determnabe annua or perodca gans, profts, and ncome,
a ta of 15 per centum of such amount, e cept that n the case of dvdends
the rate sha be 10 per centum, and e cept that n the case of corporatons
organzed under the aws of a contguous country such rate of 10 per centum
wth respect to dvdends sha be reduced to such rate (not ess than 5 per
centum) as may be provded by treaty wth such country.
(b) Resdent corporatons. foregn corporaton engaged In trade or bus-
ness wthn the Unted States or havng an offce or pace of busness theren
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211, rt. 211-7.1
114
sha be ta abe wthout regard to the provsons of subsecton (a), but the
norma ta Imposed by secton 13 sha be at the rate of 22 per centum nstead
of at the rates provded n such secton.
(c) Undstrbuted profts surta . foregn corporaton sha not be sub-
|ect to the surta mposed by secton 14.
(d) Gross ncome. In the case of a foregn corporaton gross ncome n-
cudes ony the gross ncome from sources wthn the Unted States.
The above-quoted provsons appy to ta abe years begnnng on
and after anuary 1, 1936, but have no retroactve appcaton to
pror years. The ncreased rates of ta are appcabe to ta abe
years begnnng on or after anuary 1, 1936, notwthstandng the
fact that the provsons of sectons 143 and 144 of the ct reatng
to the ncreased rates of wthhodng, are not effectve unt uy 2,
1936. See Treasury Decson 4649, approved une 25, 1936 (C. .
-1, page 49).
NONR SID NT LI N INDI IDU LS.
y the provsons of secton 211 nonresdent aen ndvduas are
dvded nto two casses, (1) nonresdent aen ndvduas not en-
gaged n trade or busness wthn the Unted States and not havng
an offce or pace of busness theren, and (2) nonresdent aen nd-
vduas engaged n trade or busness n the Unted States or havng
an offce or pace of busness theren.
When used n ths mmeograph, the term nonresdent aen nd-
vdua ncudes a nonresdent aen fducary.
(a) No Unted States busness or offce. very nonresdent aen
ndvdua not engaged n trade or busness wthn the Unted States
and not havng an offce or pace of busness theren s ta abe at the
rate of 10 per cent upon hs gross ncome from sources wthn the
Unted States consstng of nterest (e cept nterest on deposts wth
persons carryng on the bankng busness), dvdends, rents, saares,
wages, premums, annutes, compensatons, remuneratons, emou-
ments, or other f ed or determnabe annua or perodca gans,
profts, and ncome, ncudng royates, e cept that the rate of 10
per cent sha be reduced, n the case of a resdent of Canada or
Me co, to such rate (not ess than 5 per cent) as may be provded
by treaty wth those countres. s yet the Unted States has not
entered nto any such treaty. The tems of ncome enumerated and
any other f ed or determnabe annua or perodca ncome are the
ony tems of ncome from sources wthn the Unted States upon
whch such a nonresdent aen ndvdua s abe to ta . s ta -
abe ncome does not ncude profts derved from the effectng of
transactons n the Unted States n stocks, securtes, or commod-
tes through a resdent broker, commsson agent, or custodan, or
profts derved from the sae wthn the Unted States of other
property, whether rea or persona.
nonresdent aen ndvdua who s sub|ect to ta under secton
211(a) s not aowed any deductons or credts, the ta beng m-
posed upon the amount of gross ncome receved.
(b) Unted States busness or offce. nonresdent aen nd-
vdua engaged n trade or busness n the Unted States or havng
an offce or pace of busness theren s not ta abe at the rate of 10
er cent upon hs gross ncome from sources wthn the Unted
tates. s net ncome from sources wthn the Unted States (gross
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115
21, rt. 211-7.
ncome from sources wthn the Unted States ess statutory deduc-
tons) ess credts aganst net ncome s sub|ect to the norma ta
of per cent (mposed by secton 11 of the ct) and surta es (m-
posed by secton 12(b) o the ct).
The gross ncome of a nonresdent aen ndvdua engaged n
trade or busness wthn the Unted States or havng an offce or
pace of busness theren s not mted to the tems of gross ncome
specfed n secton 211(a) but ncudes any tem of gross ncome
whch s treated as ncome from sources wthn the Unted States,
e cept those tems whch are e empted from ta aton by statute.
In genera, any nonresdent aen ndvdua who performs per-
sona servces wthn the Unted States and receves compensaton
therefor, s consdered as beng engaged n trade or busness wthn
the Unted States, and therefore any ncome from sources wthn the
Unted States, ncudng hs compensaton, s sub|ect to the norma
ta of 4 per cent and surta es. owever, the phrase engaged n
trade or busness wthn the Unted States does not appy to the
persona servces performed n the Unted States for a nonresdent
aen ndvdua, foregn partnershp or foregn corporaton, not
engaged n trade or busness wthn the Unted States, by a non-
resdent aen ndvdua temporary present n the Unted States
for a perod or perods not e ceedng a tota of 90 days durng the
ta abe year and whose compensaton for such servces does not e -
ceed n the aggregate 3,000. Such compensaton s not ncome from
sources wthn the Unted States, under secton 119(a)3 of the ct.
The effectng of transactons n the Unted States n stocks, se-
curtes, or commodtes, trough a resdent broker, commsson
agent, or custodan, does not brng a nonresdent aen ndvdua
wtun the cass of nonresdent aen ndvduas engaged n trade
or busness wthn the Unted States. If, however, a nonresdent aen
ndvdua by reason of renderng persona servces n the Unted
States, or for other reasons s cassed as a nonresdent aen ndvdua
engaged n trade or busness wthn the Unted States or havng
an offce or pace of busness theren, he s ta abe upon a ncome
from sources wthn the Unted States, ncudng profts derved
from the effectng of transactons n the Unted States n stocks,
securtes, or commodtes through a resdent broker, commsson
agent, or custodan, and profts derved from the sae wthn the.
Unted States of persona property or of rea property ocated
theren.
(c) Partnershps. Whether a nonresdent aen ndvdua who
s a member of a partnershp s ta abe under the provsons of sec-
ton 211 (a) or (b) depends upon the status of the partnershp.
nonresdent aen ndvdua who s not otherwse engaged n trade
or busness wthn the Unted States or who has not otherwse an
offce or pace of busness theren s ta abe under secton 211(a)
f he s a member of a partnershp whch s not engaged n trade
or busness wthn the Unted States or has no offce or pace of
busness theren. nonresdent aen ndvdua who s a member
of a partnershp whch s engaged n trade or busness wthn the
Unted States or has an offce or pace of busness theren s consd-
ered as beng engaged n trade or busness wthn the Unted States
or as havng an offce or pace of busness theren and s therefore
ta abe under secton 211(b).
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211, rt. 211-7.
116
OR IGN CORPOR TIONS.
The provsons of secton 231 dvde foregn corporatons n genera
(e cudng foregn corporatons carryng on the nsurance busness
n the Unted States) nto two casses: (1) foregn corporatons not
engaged n trade or busness wthn the Unted States and not havng
an offce or pace of busness theren, and (2) foregn corporatons
engaged n trade or busness wthn the Unted States or havng an
offce or pace of busness theren.
oregn corporatons comng wthn the frst cass are desgnated
by the ct as nonresdent corporatons, whe foregn corporatons
comng wthn the second cass are desgnated as resdent corpora-
tons. or the sake of brevty, foregn corporatons are referred to
n ths mmeograph as nonresdent foregn corporatons and resdent
foregn corporatons.
foregn corporaton, whether nonresdent or resdent, s not
sub|ect to the surta mposed by secton 14 on undstrbuted profts.
(a) Nonresdent foregn corporatons. very nonresdent foregn
corporaton s ta abe at the rate of 15 per cent upon ts gross ncome
from sources wthn the Unted States consstng of nterest (e cept
nterest on deposts wth persons carryng on the bankng busness),
rents, saares, wages, premums, annutes, compensatons, remunera-
tons, emouments, and other f ed or determnabe annua or perod-
ca ncome, ncudng royates, but not ncudng dvdends. Dv-
dends whch are treated as ncome from sources wthn the Unted
States are ta ed at the rate of 10 per cent, e cept that n the case of
nonresdent foregn corporatons organzed under the aws of Canada
or Me co such rate of 10 per cent wth respect to dvdends sha be
reduced to such rate (not ess than 5 per cent) as may be provded by
treaty wth those countres. s yet the Unted States has not entered
nto any such treaty.
The ta abe ncome of a nonresdent foregn corporaton does not
ncude any proft derved from effectng transactons n the Unted
States n stocks, securtes, or commodtes through a resdent broker,
commsson agent, or custodan, or the proft derved from the sae
wthn the Unted States of other property, ether rea or persona.
The tems of ncome enumerated n secton 231(a) and any other
f ed or determnabe annua or perodca ncome from sources
wthn the Unted States are the ony tems of ncome from sources
wthn the Unted States whch are ta abe to a nonresdent foregn
corporaton.
nonresdent foregn corporaton s not aowed any deductons,
the ta beng mposed upon the amount of gross ncome receved.
( ) Resdent foregn corporatons. resdent foregn corpora-
ton s not ta abe at the rate of 15 per cent or 10 per cent upon the
tems of ncome enumerated n secton 231 (a) but ts net ncome
from sources wthn the Unted States (gross ncome from sources
wthn the Unted States ess statutory deductons) ess the credts
aganst net ncome aowabe to corporatons, s sub|ect to the norma
ta of 22 per cent. The gross ncome of a resdent foregn corpora-
ton s not mted to the tems of f ed or determnabe annua or
perodca ncome referred to n secton 231(a) but ncudes every
tem of gross ncome whch s treated as ncome from sources wthn
the Unted States, e cept those tems whch are specfcay e empt
from ta aton by statute.
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117
351, rt. 3o.
foregn corporaton whch effects transactons n the Unted
States n stocks, securtes, or commodtes through a resdent broker,
commsson agent, or custodan s not merey by reason of such trans-
actons consdered as beng engaged n trade or busness wthn the
Unted States whch woud cause t to be cassed as a resdent foregn
corporaton. though a nonresdent foregn corporaton s e empt
from ta wth respect to profts derved from such transactons, a
foregn corporaton whch s otherwse engaged n trade or busness
n the Unted States or has an offce or pace of busness theren,
beng a resdent foregn corporaton, s ta abe upon ts ncome from
a sources wthn the Unted States, ncudng the profts resutng
from such transactons. Such a resdent foregn corporaton s aso
ta abe upon profts derved from sources wthn the Unted States
reazed from the sae wthn the Unted States of persona property
and of rea property ocated theren.
Inqures and correspondence regardng ths mmeograph shoud
refer to ts number and the symbos IT: : CT .
Gut T. evebng, Commssoner.
S CTION 212. GROSS INCOM .
rtce 212-2: cuson of earnngs of foregn -49-8418
shps from gross ncome. I. T. 3024
R NU CT O 1936.
Sweden does not satsfv the equvaent e empton requrements
of sectons 212(b) and 231(e) of the Revenue ct of 1936.
SUPPL M NT I. OR IGN CORPOR TIONS.
S CTION 231. T ON OR IGN CORPOR TIONS.
rtce 231-1: Ta aton of foregn corporatons.
R NU CT O 1936.
Instructons reatve to ta aton of foregn corporatons. (See
Mm. 4471, page 112.)
TITL I . DDITION L INCOM T S.
S CTION 351. SURT ON P RSON L
OLDING COMP NI S.
rtce 351: Return and payment of ta .
R NU CT O 1936.
Informaton requred regardng the preparaton of ncome returns
under Tte I of the Revenue ct of 1936 for the caendar year
1936 and succeedng ta abe perods. (See T. D. 4718, page 98.)
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53, Regs. 95, rt. 32. 118
TITL III. T ON UN UST NRIC M NT.
S CTION 53. TIM ND PL C OR ILING R TURNS.
Reguatons 95, rtce 32: tensons of -35-8284
tme for fng returns. T.D.4689
Ta on un|ust enrchment (wndfa ta ). Tte III of the
Revenue ct of 1036. tenson of tme for fng returns.
Treast|by Department,
Offce of Commssoner of Interna Revenue,
Washngton, I). O.
To Coectors of Interna Revenue and Others Concerned:
Pursuant to the provsons of secton 53 of the Revenue ct of
1936, an e tenson of tme for such perod as may be necessary, but
not ater than December 15, 1936, s hereby granted for the fng of
returns under Tte III of the Revenue ct of 1936, for any ta abe
year endng on or before ugust 31,1936.
Ths Treasury decson s ssued under the authorty prescrbed by
sectons 53 and 62 of the Revenue ct of 1936.
Gut T. everng,
Commssoner of Interna Revenue.
pproved ugust 26, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 27, 1036, 1.19 p. m.)
Reguatons 95, rtce 32: tensons of -38-8313
tme for fng returns. T. D. 4696
( so Secton 503, rtce 35.)
Ta on un|ust enrchment (wndfa ta ) Tte III of the Rev-
enue ct for 193C. tenson of tme for fng returns nnd payng
ta .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
The frst paragraph of Treasury Decson 4689, approved ugust
2G, 193G (see above), s hereby amended to provde as foows:
Pursuant to the provsons of secton 53 and secton 503 of the Revenue ct
of 1936, on e tenson of tme for such perod as may be necessary, but not
ater than December 15, 1930, s hereby granted for the fng of returns and
payng the ta under Tte III of the Revenue ct of 1936, for any ta abe
year ended on or before ugust 31, 1936.
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119 6501, Regs. 85, rt. 1
Ths Treasury decson s ssued under the authorty prescrbed
by sectons 53, 62, and 503 of the Revenue ct of 1936.
Gut T. everng,
Commssoner of Interna Revenue.
pproved September 14, 1936.
. MoRG NT U, r.,
Secretary of the Treasury.
( ed wth the DTson of the edera Regster September 15, 1936, 12.33 p. m.)
S CTION 501. T ON N T INCOM ROM
C RT IN SOURC S.
Reguatons 95, rtce 1: Defntons. -43-8366
G. C. M. 17232
R NU CT O 1936.
Payments or credts made tona fde by the M Company to Its
Tendees under certan agreements entered nto on or before March
8, 1936, are deductbe from seng prce under secton 501 (f)3
of the Revenue ct of 1936, or may quafy as a ta ad|ustment
under secton 501 (|)4 of that ct.
The M Company s a processor of wheat. It entered nto wrtten
agreements wth ts vendees whereunder t agreed that:
ny decrease n the processng ta as now or hereafter mposed by the
Unted States sha nure to the beneft of the buyer and be credted aganst
the contract prces named n ths contract to the e tent -and ony to the
e tent that the gran used n the manufacture of the product covered by ths
contract s med after the decrease n the processng tu takes effect and to
the e tent that the seer s thereby reeved from the processng ta .
dvce s requested as to the treatment whch w be accorded,
n the computaton of the ta mposed by Tte III of the Revenue
ct of 1936, to payments or credts made by the M Company to ts
vendees under the above-quoted provson.
Secton 501(f)3 of the Revenue ct of 1936 provdes as foows:
The term seng prce means seng prce mnus ( ) amounts subse-
quenty pad or credted to the purchaser on or before une 1, .YM, or there-
after In the bona fde settement of a wrtten agreement entered nto on or
before March 3, 1936, as rembursement for the amount ncuded n such prce
on account of a edera e cse ta .
Secton 501(|)4 of the Revenue ct of 1036 provdes as foows:
The term ta ad|ustment means a repayment or credt by the ta payer
to hs vendee of an amount equa to the edera e cse ta wth respect to an
artce (ess reasonabe e pense to the vendor n connecton wth the nonpay-
ment or recovery by hm of the amount of such ta and n connecton wth the
makng of such repayment or credt) If such repayment or credt s made on
or before une 1, 1936, or thereafter n the bona fde settement of a wrtten
agreement entered Into on or before March 3, 1936.
rtce ( ) of Reguatons 95, ssued under Tte III of the
Revenue ct of 1936, provdes:
wrtten agreement wthn the meanng of secton 501 (f)3 means
a promse, even though not egay enforceabe, communcated n wrtng on or
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503, Regs. 95, rt. 34.
120
before March 3, 1036, by the ta payer to the purchaser n queston, to pay or
credt the amount of rembursement camed as a deducton n computng
seng prce.
rtce k) of eguatons 95 provdes:
wrtten agreement wthn the meanng of secton 501 (|)4
means a promse, even though not egay enforceabe, communcated n wrtng
on or before March 3, 1936, by the ta payer to the vendee n queston, to make
the repayment or credt.
In the case of agreements contanng the above-quoted provson
whch were made on or before March 3, 1936, t s hed that any pay-
ment or credt made bona fde to vendees thereunder s pad or cred-
ted pursuant to a wrtten agreement wthn the meanng of that
term as used n secton 501(f)3 and secton 501 (|)4 of the Revenue
ct of 1936. Consequenty, such payments or credts may be de-
ducted from the seng prce of artces or such payments or
credts may quafy as a ta ad|ustment f they are for the fu
amount of the edera e cse ta wth respect to the artce n
queston, ess the aocabe porton of the reasonabe professona
fees and other e penses pad or ncurred n connecton wth the
nonpayment or recovery of the amount of such ta , or n connecton
wth the makng of such repayment or credt.
erman Ophant,
Genera Counse for the Department of the Treasury.
S CTION 503. DMINISTR TI PRO ISIONS.
Reguatons 95, rtce 27: Returns.
R NU CT O 1936.
Informaton requred regardng the preparaton of ncome returns
under Tte III of the Revenue ct of 1936 for ta abe years endng
durng the caendar year 1935 and subsequent ta abe perods. (See
T. D. 4718, page 98.)
Reguatons 95, rtce 34: Payment of the ta . -30-8203
Mm.4472
Ta on un|ust enrchment (wndfa ta ) Tte III of the
Revenue ct of 1936.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, uy 6,1936.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
The Revenue ct of 1936 (Pubc, No. 740, Seventy-fourth Con-
gress, second sesson, . R. 12395) was approved by the Presdent
une 22, 1936, 9 p. m., eastern standard tme. ttenton s nvted
to Tte I of that ct, reatng to the ncome ta at the rate of 80
per cent on un|ust enrchment. Copes of the ct may be obtaned
from coectors of nterna revenue.
The ta es mposed by Tte III of the Revenue ct of 1936 are
upon the net ncome of every person whch arses from the sources
specfed theren, and appy wth respect to ta abe years ended
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121
106.
durng the caendar year 1935 and to subsequent ta abe years. The
returns under Tte III for ta abe years ended pror to the date of
the enactment of the Revenue ct of 1936 are requred to be fed
wth the coector of nterna revenue on or before September 15,
1936. The ta es under Tte III for such years are requred to be
pad to the coector of nterna revenue on or before September 15,
1936. The returns under Tte III for ta abe years endng after the
date of the enactment of the ct are requred to be fed, and the
ta es under Tte III for such years are requred to be pad n the
same manner and at the same tme as provded wth respect to n-
come ta es mposed by Tte I of the ct.
The reguatons and return forms necessary for the admnstraton
of the provsons of Tte III of the ct are now beng prepared.
s soon as they are competed they w be gven due pubcty
through the usua channes. When the reguatons and return
forms are avaabe for dstrbuton, they may be obtaned from co-
ectors of nterna revenue.
Inqures and correspondence regardng ths mmeograph shoud
refer to ts number and the symbos IT: : CTR.
Gut T. everng,
Commssoner.
Reguatons 95, rtce 35: tenson of tme for
payment of the ta or nstament thereof.
tenson of tme for payng ta on un|ust enrchment (wndfa
ta ). (See T. D. 4696, page 118.)
. R NU CT O 1933.
TITL I. INCOM ND C SS-PRO ITS T S.
S CTION 106. C SS-PRO ITS T .
-29-8192
T. D.4666
C SS-PRO ITS T .
Reguatons reatng to the e cess-profts ta Imposed by secton
106 of the Revenue ct of 1935, as amended by the Revenue ct
of 1936. Treasury Decson 4618 C. . 1 -2, 47 revoked.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 402 (Tte II Capta Stock and cess-
profts Ta ) of the Revenue ct of 1936 provdes:
Sec. 402. cess-Phofts Ta .
(a) Secton 100(b) of the Revenue ct of 1935 Is amended by strkng out
e cept that there sha be deducted the amount of ncome ta mposed for
121307 37 5
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106.
122
such year by secton 13 of the Revenue ct of 1934, as amended and Insertng
n eu thereof computed wthout the deducton of te ta mposed by ths
secton, but wth a credt aganst net neone equa to the credt for dvdends
receved provded n secton 26(b) of the Revenue ct of 1936.
(b) The amendment made by subsecton (a) sha not appy to an ncome-
ta ta abe year begnnng before anuary 1, 1936.
Par. . Secton 106 (Tte I) of the Revenue ct of 1935, as
amended by secton 402 of the Revenue ct of 1936, provdes:
Sec. 106. cess-Profts Ta .
(a) There s hereby mposed upon the net ncome of every corporaton for
each ncome-ta ta abe year endng after the cose of the frst year n respect
of whch t s ta abe under secton 105, an e cess-profts ta equa to the sum
of the foowng:
6 per centum of such porton of ts net Income for such ncome-ta ta abe
year as s n e cess of 10 per centum and not n e cess of 15 per centum of
the ad|usted decared vaue
12 per centum of such porton of Its net ncome for such ncome-ta ta abe
year as s n e cess of 15 per centum of the ad|usted decared vaue.
(b) The ad|usted decared vaue sha be determned as provded n secton
105 as of the cose of the precedng ncome-ta ta abe year (or as of the date
of organzaton f It had no precedng ncome-ta ta abe year). If the ncome-
ta ta abe year n respect of whch the ta under ths secton s mposed s
a perod of ess than 12 months, such ad|usted decared vaue sha be reduced
to an amount whch bears the same rato thereto as the number of months n
the perod bears to 12 months. or the purposes of ths secton the net ncome
sha be the same as the net ncome for ncome ta purposes for the year In
respect of whch the ta under ths secton s mposed, computed wthout the
deducton of the ta Imposed by ths secton, but wth a credt aganst net
Income equa to the credt for dvdends receved provded n secton 26(b) of
the Revenue ct of 1936.
(c) provsons of aw (ncudng penates) appcabe In respect of the
ta es mposed by Tte I of the Revenue ct of 1934, as amended, sha, nsofar
as not Inconsstent wth ths secton, be appcabe n respect of the ta m-
posed by ths secton, e cept that the provsons of secton 131 of that tte
sha not be appcabe.
(d) The e cess-profts ta Imposed by secton 702 of the Revenue ct of
1934 sha not appy to any ta payer wth respect to any ncome-ta ta abe
year endng after une 30, 1936.
Par. C. Secton 26(b) (Tte I Income Ta ) of the Revenue ct
of 1936 provdes:
Seo. 26. Credts of Corporatons.
In the case of a corporaton the foowng credts sha be aowed to the
e tent provded n the varous sectons mposng ta

(b) Dvdends receved. 85 per centum of the amount receved as dvdends
from a domestc corporaton whch s sub|ect to ta aton under ths tte.
The credt aowed by ths subsecton sha not be aowed In respect of dv-
dends receved from a corporaton organzed under the Chna Trade ct, 1922,
or from a corporaton whch under secton 251 s ta abe ony on Its gross
ncome from sources wthn the Unted States by reason of ts recevng a arge
percentage of ts gross Income from sources wthn a possesson of the Unted
States.
Par. D. Secton 401 (Tte II) of the Revenue ct of 1936 pro-
vdes :
Sec. 401. Capta Stock Ta .
(a) Secton 105 of the Revenue ct of 1935 s amended by strkng out
1.40 wherever appearng theren and nsertng n eu thereof 1.
(b) Subsecton (c) of such secton s amended by strkng out 1934 and
nsertng n eu thereof 1936, and by strkng out , as amended wherever
appearng n such subsecton.
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123
106.
(c) Subsecton (f)(4) of such secton s amended to read as foows: (4)
the e cess of ts ncome whoy e empt from the ta es Imposed by the ap-
pcabe ncome-ta aw over the amount dsaowed as a deducton by secton
24(a) (5) of the Revenue ct of 1934 or a correspondng provson of a ater
Revenue ct, and.
Pab. . Secton 105 (Tte I) of the Revenue ct of 1935, as
amended by secton 401 of the Revenue ct of 1936, provdes:
Sec. 105. Capta Stock Ta .
(a) or each year endng une 30, begnnng wth the year endng une 30,
1936, there s hereby mposed upon every domestc corporaton wth respect
to carryng on or dong busness for any part of such year an e cse tu of
1 for each 1,000 of the ad|usted decared vaue of ts capta stock.
(b) or each year endng une 30, begnnng wth the year endng une 30,
1936, there s hereby mposed upon every foregn corporaton wth respect to
carryng on or dong busness n the Unted States for any part of such yeur
an e cse ta equvaent to 1 for each 1,000 of the ad|usted decared vaue
of capta empoyed In the transacton of ts busness n the Unted States.
(c) The ta es mposed by ths secton sha not appy
(1) to any corporaton enumerated n secton 101 of the Revenue ct of
1936
(2) to any nsurance company sub|ect to the ta mposed by secton 201,
204, or 207 of such ct.
(d) very corporaton abe for ta under ths secton sha make a return
under oath wthn one month after the cose of the year wth respect to whch
such ta s mposed to the coector for the dstrct n whch s ocated ts
prncpa pace of busness or, f t has no prncpa pace of busness n the
Unted States, then to the coector at atmore, Md. Such return sha con-
tan such nformaton and be made n such mner as the Commssoner wth
the approva of the Secretary may by reguatons prescrbe. The ta sha,
wthout assessment by the Commssoner or notce from the coector, be due
and payabe to the coector before the e praton of the perod for fng the
return. If the ta s not pad when due, there sha be added as part of the
ta nterest at the rate of 6 per centum per annum from the tme when the
a became due unt pad. provsons of aw (ncudng penates) app-
cabe n respect of the ta es mposed by secton COO of the Revenue ct of
1926 sha, nsofar as not nconsstent wth ths secton, be appcabe n respect
of the ta es mposed by ths secton. The Commssoner may e tend the tme
for makng the returns and payng the ta es mposed by ths secton, under
such rues and reguatons as he may prescrbe wth the approva of the
Secretary, but no such e tenson sha be for more than GO days.
(e) eturns requred to be fed for the purpose of the ta mposed by ths
secton sha be open to nspecton n the same manner, to the same e tent,
and sub|ect to the same provsons of aw. ncudng penates, as returns made
under Tte II of the Revenue ct of 1926.
(f) or the frst year endng une 30, n respect of whch a ta s mposed
by ths secton upon any corporaton, the ad|usted decared vaue sha be the
vaue, as decared by the corporaton n ts frst return under ths secton
(whch decaraton of vaue can not be amended), as of the cose of ts ast
ncome-ta ta abe year endng at or pror to the cose of the year for whch
the ta s mposed by ths secton (or as of the date of organzaton n the
case of a corporaton havng no ncome-ta ta abe year endng at or pror to
the cose of the year for whch the ta s mposed by ths secton). or any
subsequent year endng une 30, the ad|usted decared vaue n the case of a
domestc corporaton shu be the orgna decared vaue pus (1) the cash
and far market vaue of property pad n for stock or shares, (2) pad n
surpus and contrbutons to capta, (3) ts net ncome, (4) the e cess of ts
ncome whoy e empt from the ta es mposed by the appcabe ncome-ta
aw over the amount dsaowed us a deducton by secton 24(a)(0) of the
Revenue ct of 1934, or a correspondng provson of a ater Revenue ct, and
(5) the amount of the dvdend deducton aowabe for ncome ta purposes,
and mnus ( ) the vaue of property dstrbuted n qudaton to sharehoders,
(R) dstrbutons of earnngs or profts, and (C) the e cess of the deductons
aowabe for ncome ta purposes over ts gross ncome ad|ustment beng
made for each ncome-ta ta abe year ncuded n the perod from the date as
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106.
124
of whch the orgna decared vaue was decared to the cose of Its ast
ncome-ta ta abe year endng at or pror to the cose of the year for whch
the ta s mposed by ths secton. The amount of such ad|ustment for each
such year sha be computed (on the bass of a separate return) accordng to
the ncome ta aw appcabe to such yenr. or any subsequent year endng
une 30, the ad|usted decared vaue n the case of a foregn corporaton sha
be te orgna decared vaue ad|usted (for the same ncome-ta ta nbe
years as n the case of a domestc corporaton), n accordance wth reguatons
prescrbed by the Commssoner wth the approva of the Secretary, to refect
ncreases or decreases n the capta empoyed n the transacton of ts busness
n the Unted States.
(g) or the purpose of the ta mposed by ths secton there sha be
aowed n the case of a corporaton organzed under the Chna Trade ct,
1922, as a credt aganst the ad|usted decared vaue of Its capta stock, an
amount equa to the proporton of such ad|usted decared vaue whch the
par vaue of the shares of stock of the corporaton, owned on the ast day
of the ta abe year by (1) persons resdent n Chna, the Unted States,
or possessons of the Unted States, and (2) ndvdua ctzens of the Unted
States or Chna wherever resdent, bears to the par vaue of the whoe number
of shares of stock of the corporaton outstandng on such date. or the
purposes of ths subsecton shares of stock of a corporaton sha be consdered
to be owned by the person n whom the equtabe rght to the ncome from
such shares s n good fath vested and as used n ths subsecton the term
Chna sha have the same meanng as when used n the Chna Trade
ct, 1922.
(h) The capta stock ta mposed by secton 701 of the Revenue ct of
1934 sha not appy to any ta payer wth respect to any year after the year
endng une 30, 1935.
Par. . Secton 52 (Tte I Income Ta ) of the Revenue ct of
1934 provdes:
Sec. 52. Corporaton Retuhns.
very corporaton sub|ect to ta aton under ths tte sha make a return,
statng specfcay the tems of ts gross ncome and the deductons and credts
aowed by ths tte. The return sha be sworn to by the presdent, vce
presdent, or other prncpa offcer and by the treasurer, assstant treasurer,
or chef accountng offcer. In cases where recevers, trustees n bankruptcy,
or assgnees are operatng the property or busness of corporatons, such
recevers, trustees, or assgnees sha make returns for such corporatons n
the same manner and form as corporatons are requred to make returns.
ny ta due on the bass of such returns made by recevers, trustees, or
assgnees sha be coected n the same manner as f coected from the cor-
poratons of whose busness or property they have custody and contro.
Par. G. Secton 53 (Tte I Income Ta ) of the Revenue ct of
1934 provdes, n part, as foows:
Sec. 53. Tme and Pace fob ng Returns.
(a) Tme for fng.
(1) Genera rue. Returns made on the bass of the caendar year sha
be made on or before the 15th day of March foowng the cose of the caendar
year. Returns made on the bass of a fsca year sha be made on or before
the 15th day of the thrd month foowng the cose of the fsca year.
(2) tenson of tme. The Commssoner may grant a reasonabe e tenson
of tme for fng returns, under such rues and reguatons as he sha pre-
scrbe wth the approva of the Secretary. cept n the case of ta payers
who are abroad, no such e tenson sha be for more than s months.
(b) To whom return made.

(2) Corporatons. Returns of corporatons sha be made to the coector
of the dstrct n whch s ocated the prncpa pace of busness, or prncpa
offce or agency of the corporaton, or, f t has no prncpa pace of busness
or prncpa offce or agency In the Unted States, then to the coector at
Ratmore, Md.
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125
106.
Pak. . Secton 56 (Tte I Income Ta ) of the Revenue ct of
1934 provdes, n part, as foows:
Sec. 56. Payment of Ta .
(a) Tme of payment. The tota amount of ta mposed by ths tte sha
be pad on the 15th cay of March foowng the cose of the caendar year,
or, f the return shoud be made on the bass of a fsca year, then on the
15th day of the thrd month foowng the cose of the fsca year.

(c) tenson of tme for payment. t the request of the ta payer, the
Commssoner may e tend the tme for payment of the amount determned
as the ta by the ta payer, or any nstament thereof, for a perod not to
e ceed s months from the date prescrbed for the payment of the ta or an
nstament thereof. In such case the amount n respect of whch the e tenson
s granted sha be pad on or before the date of the e praton of the perod
of the e tenson.

Par. L Secton 145 (Tte I Income Ta ) of the Revenue ct
of 1934 provdes:
Seo. 145. Penates.
(a) ny person requred under ths tte to pay any ta , or requred by
aw or reguatons made under authorty thereof to make a return, keep
any records, or suppy any nformaton, for the purposes of the computaton,
assessment, or coecton of any ta mposed by ths tte, who wfuy fas
to pay such ta , make such return, keep such records, or suppy such nforma-
ton, at the tme or tmes requred by aw or reguatons, sha, n nddton to
other penates provded by aw, be guty of a msdemeanor and, upon con-
vcton thereof, be fned not more than 10,000, or mprsoned for not more
than one year, or both, together wth the costs of prosecuton.
(b) ny person requred under ths tte to coect, account for, and pay over
any ta mposed by ths tte, who wfuy fas to coect or truthfuy
account for and pay over such ta and any person who wfuy attempts
n any manner to evade or defeat any ta mposed by ths tte or the payment
thereof, sha, n addton to other penates provded by aw, be guty of
a feony and, upon convcton thereof, he fned not more than 10,000, or
mprsoned for not more than fve years, or both, together wth the costs
of prosecuton.
(c) The term person as used n ths secton ncudes an offcer or empoyee
of a corporaton or a member or empoyee of a partnershp, who as such
offcer, empoyee, or member s under a duty to perform the act n respect
of whch the voaton occurs.
Par. . Secton 61 (Tte I Income Ta ) of the Revenue ct of
1934 provdes:
Sec. 61. Laws Made ppcabe.
admnstratve, speca, or stamp provsons of aw, ncudng the aw
reatng to the assessment of ta es, so far as appcabe, are hereby e tended
to and made a part of ths tte.
Par. . Secton 62 (Tte I Income Ta ) of the Revenue ct of
1934 provdes:
Seo. 62. Rtn. 8 and Reguatons.
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths tte.
Pursuant to the above-quoted provsons and other provsons of
the nterna revenue aws, the foowng reguatons are hereby pre-
scrbed wth respect to the e cess-profts ta mposed by the Revenue
ct of 1935, as amended:
rtce 1. Defntons. s used n these reguatons, the term
(a) d|usted decared vaue means n the case of a domestc corporaton
the ad|usted decared vaue of ts capta stock as determned under secton
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106.
126
105 of the Revenue ct of 1935, as amended, and the reguatons Issued
respectng the capta stock ta mposed by that secton and n the case of a
foregn corporaton the ad|usted decared vaue of capta empoyed n the
transacton of ts busness n the Unted States as determned under such
secton and the reguatons ssued n reference thereto.
(6) Taw, e cept as otherwse ndcated, means the e cess-profts ta
mposed by secton 106 of the Revenue ct of 1035, as amended.
(c) Income-ta ta abe year means the caendar year, the fsca year
endng durng such caendar year, or the fractona part of a year, upon the
bass of whch the corporaton s net ncome s computed and for whch ts
ncome ta returns are made for edera ncome ta purposes.
(d) Net ncome means (1) Net ncome wthn the contempaton of
secton 21 of the Revenue ct of 1934, or (2) n the case of an ncome-ta
ta abe year governed by the Revenue ct of 1936, net ncome wthn
the contempaton of secton 21 of the Revenue ct of 1936. In the case of
ncome-ta ta abe years governed by the Revenue ct of 1934, the credts
aowed corporatons aganst net ncome for ncome ta purposes (for e ampe,
the credt aowed by secton 26 of the Revenue ct of 1934) are not appcabe
n respect of the e cess-profts ta , but the amount of ncome ta Imposed for
the same ta abe year sha be deducted from net ncome In computng the
e cess-profts ta . In the case of ncome-ta ta abe years, governed by the
Revenue ct of 1936, nether the amount of ncome ta Imposed by the
Revenue ct of 1936 nor the amount of the e cess-profts ta mposed by the
Revenue ct of 1935, as amended, sha be deducted from net ncome n
computng the e cess-profts ta and none of the credts aowed corporatons
aganst net ncome for ncome ta purposes are appcabe n respect of the
e cess-profts ta e cept the credt aganst net ncome equa to the credt for
dvdends receved provded n secton 26(b) of the Revenue ct of 1936. (See
paragraph C.)
rt. 2. Scope of ta- . The e cess-profts ta , mposed by secton 106 of the
Revenue ct of 1935, as amended, s mposed upon a certan porton of the net
ncome of every corporaton for each ncome-ta ta abe year endng after
the cose of the frst year n respect of whch the corporaton s sub|ect to the
capta stock ta mposed by secton 105 of that ct.
rt. 3. Measure and rate of ta . (a) Domestc and foregn corporatons.
The ta s mposed n an amount equa to the sum of (1) 6 per cent of such
porton of the corporaton s net ncome for the Income-ta ta abe year as Is
n e cess of 10 per cent and not In e cess of 15 per cent of the ad|usted
decared vaue phs (2) 12 per cent of such porton of ts net ncome for the
ncome-ta ta abe year as s n e cess of 15 per cent of the ad|usted decared
vaue, as of the cose of the ast precedng ncome-ta ta abe year (or as of
the date of organzaton If the corporaton had no precedng ncome-ta ta abe
year).
(6) d|usted decared vaue. No varaton s permtted between the ad|usted
decared vaue set forth n the corporaton s capta stock ta return and the
ad|usted decared vaue set forth n ts e cess-profts ta return, e cept that
n the case of an e cess-profts ta return for an ncome-ta ta abe year
whch s a perod of ess than 12 months the ad|usted decared vaue set forth
n ts capta stock ta return sha be reduced to an amount whch bears the
same rato thereto as the number of months In the perod bears to 12 months.
bt. 4. Method of computaton, e ampes. The appcaton of the provsons
of artce 3 of these reguatons may be ustrated generay by the foowng
e ampes:
ampe (f): The M Corporaton, the ncome-ta ta abe year of whch Is
the caendar year, s sub|ect to the capta stock ta mposed by secton 105
of the Revenue ct of 1935, as amended, for the year endng une 30, 1936.
The vaue decared n ts capta stock ta return for the year endng une 30,
). ( , of ts capta stock as of the cose of ts precedng Income-ta ta abe
year (the caendar year 1935) s 100,000. The net Income of the corpora-
ton for the caendar year 1936, determned under the Revenue ct of 1936,
s . 25,000. (The net ncome for ncome-ta ta abe years begnnng after
December 31, OI-.|, sha be determned under the Revenue ct of 1936.) Dur-
ng ts ta abe year the corporaton receved dvdends from corporatons sub-
|ect to ta aton under Tte I of the Revenue ct of 1936, amountng to 3,000.
(See paragraph C.) The e cess-profts ta for the caendar year 1936 s 990,
computed as foows:
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127
106.
Net Income for caendar year 1936 25, 000. 00
Less:
Credt for dvdends receved (85 per cent of 5,000) 4, 250. 00
aance of net ncome 20, 750. 00
Less:
10 per cent of the vaue decared In the capta stock ta return
for the vear endng une 30, 11)36, of the capta stock as of
December 31, 1935 (10 per cent of 100,000) 10,000. 00
Net ncome sub|ect to e cess-profts ta 10, 750.00
Less:
mount ta abe at 6 per cent, porton of net ncome n e cess
of 10 per cent and not n e cess of 15 per cent of the ad|usted
decared vaue of the capta stock as of December 31, 1935
( 15,000 mnus 10,000) - 5, 000. 00
mount ta abe at 12 per cent 5, 750. 00
cess-profts ta at 6 per cent (6 per cent of 5.000) 300.00
cess-profts ta at 12 per cent (12 per cent of 5,750) 690.00
Tota e cess-profts ta ( 300 pus 090) 990.00
ampe (2): The O Corporaton, the ncome-ta ta abe year of whch s
the fsca year endng uy 31, s sub|ect to the capta stock ta mposed by-
secton 105 of the Revenue ct of 1935, as amended, for the year endng une
30, 1936. The vaue decared n ts capta stock ta return for the year end-
ng une 30, 1936, of ts capta stock as of the cose of ts precedng ncome-
ta ta abe year (the fsca year ended uy 31, 19 S) s 108,000. The net
ncome of the corporaton for the fsca year endng uy 31, 1930, determned
under Tte I of the Revenue ct of 1934, s 25,0( 0. (The net ncome for
ncome-ta ta abe years begnnng after uy 31, 1935, and before anuary 1,
1936, sha be determned under Tte I of the Revenue ct of 1934.) The
e cess-profts ta for the fsca year endng uy 31, 1936, s 967.50, computed
as foows:
Net ncome for fsca year endng uy 31, 1936 25,000.00
Less:
Income ta for fsca year endng uy 31, 1936 3, 437. 50
aance of net ncome 21, 502. 50
Less:
10 per cent of the vaue decared n the capta stock ta return
for the year endng une 30, 1936, of the capta stock as of
uy 31, 1935 (10 per cent of 108,000) 10,800.00
Net ncome sub|ect to e cess-profts ta 10, 762. 50
Less:
mount ta abe at 6 per cent, porton of net ncome n e cess
of 10 per cent and not In e cess of 15 per cent of the ad|usted
decared vaue of the capta stock as of uy 31, 1935
( 16,200 mnus 10,800) 5,400.00
mount ta abe at 12 per cent 5, 362. 50
cess-profts ta at 6 per cent (6 per cent of 5,400) 324.00
cess-profts ta at 12 per cent (12 per cent of 5,302.50) 643. 50
Tota e cess-profts ta ( 324 pus 643.50) 907.50
bt. 5. Return. very corporaton whch Is sub|ect to the capta stock ta
Imposed by secton 105 of the Revenue ct of 1935, as amended, sha make
an e cess-profts ta return for each ncome-ta ta abe year whch ends after
the cose of the frst year n respect of whch t Is sub|ect to such capta stock
ta . There s no provson In the Revenue ct of 1935 whch authorzes the
makng of a consodated return by an affated group of corporatons for the
purpose of the e cess-profts ta mposed by secton 106 of that ct. ccord-
ngy, every corporaton whch s abe for the makng of an e cess-profts ta
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100.
128
return under secton 106 of the Revenue ct of 1935, as amended (for any
ncome-ta ta abe year endng une 30, 1930), whether or not such corpora-
ton s a member of an affated group of corporatons, must make ts e cess-
profts ta return and compute ts net ncome separatey, wthout regard to the
provsons of secton 141 of the Revenue ct of 1934.
The e cess-profts ta return sha be made wthn the tme prescrbed for
makng the corporaton s edera ncome ta return for the Income-ta ta abe
year, and sha be made to the coector of nterna revenue to whom such
ncome ta return s requred to be made.
rt. 6. Payment of ta . The e cess-profts ta for any ncome-ta ta abe
year sha be pad wthn the tme prescrbed for payng the edera ncome
ta for such ta abe year. (See paragraph I, above.)
rt. 7. Credts aoanst ta prohbted. oregn ncome and profts ta es may
not be credted agfnst the e cess-profts ta mposed by secton 106 of the
Revenue ct of 193 ), as amended.
rt. 8. Determnaton of ta , assessment, coecton. The determnaton,
assessment, and coecton of the ta , and the e amnaton of returns and
cams n connecton therewth, w be made under such procedure as may be
prescrbed from tme to tme by the Commssoner.
rt. 9. Reocaton of Treasury Decson /618. Treasury Decson 4618 C. .
I -2, 47 , approved December 20, 1935, s hereby revoked.
Guy T. everng,
Commssoner of Interna Revenue.
pproved uy 16, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 18, 1930, 12.58 p. m.)
-35-8281
T. D. 4690
cess profts ta . mendment of Treasury Decson 4666
page 121, ths uetn , reatng to the e cess-profts ta mposed
by secton 106 of the Revenue ct of 1935, as amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 3(6) ( d|usted decared vaue) of Treasury Decson 4666
(page 121, ths uetn), reatng to the e cess-profts ta mposed by
secton 106 of the Revenue ct of 1935, as amended, s amended by
addng thereto the foowng sentence:
The frst return of a corporaton coverng the part of the year n whch t was
ncorporated, or the fna return of a corporaton coverng the part of the year n
whch t was dssoved, s a return for 12 months and not for a perod of ess
than 12 months.
The ast sentence of artce 5 (Return) of Treasury Decson 4666 s
amended to read :
ccordngy, every corporaton whch s abe for the makng of an e cess-
profts ta return under secton 100 of the Revenue ct of 1935, as amended (for
any Income-ta ta abe year endng after une 30, 1936), whether or not such
corporaton s a member of an affated group of corporatons, must make ts
e cess-profts ta return and compute ts net ncome separatey, wthout regard
to the provsons of secton 141 of the Revenue ct of 1934 or secton 141 of the
Revenue ct of 1936.
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129 106.
Ths Treasury decson s ssued under the authorty prescrbed by
secton 62 of the Revenue ct of 1934.
Gut T. everng,
Commssoner of Interna Revenue.
pproved ugust 26, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 28, 1930, 12.34 p. m.)
-40-8331
I. T. 3008
R NU CT O 1035.
very corporaton requred to fe an e cess-profts ta return
on orm 1121 for a fsca year ended after une 30, 1936, and not
ater than November 30, 1936, s requred to fe such form regard-
ess of whether the return shows any e cess-profts ta abty
for that ta abe year.
dvce s requested reatve to whether corporatons wth a fsca
year ended after une 30, 1936, and not ater than November 30, 1936,
whch fe nonta abe corporaton ncome ta returns w be re-
qured to fe nonta abe e cess-profts ta returns on orm 1121 for
such fsca year.
It s hed that every corporaton whch s sub|ect to the capta
stock ta mposed by secton 105 of the Revenue ct of 1935 for
the year ended une 30, 1936, and havng a fsca year ended after
une 30, 1936, and not ater than November 30, 1936, s requred to
fe an e cess-profts ta return on orm 1121 for such fsca year
regardess of whether the return shows any e cess-profts ta abty
for that ta abe year under secton 106 of the Revenue ct of 1935.
-51-8441
I. T. 3032
R NU CT O 1935.
T here a corporaton made a decaraton that Its capta stock
had no vaue for capta stock ta purposes, the corporaton s
sub|ect to e cess-profts ta at the rate of 12 per cent upon Its
entre net ncome as defned In the ct
dvce s requested whether the e cess-profts ta mposed by
secton 106(a) of the Revenue ct of 1935 shoud be computed at
the rate of 12 per cent n the case of a corporaton whch decared
that ts capta stock had no vaue for the purpose of the capta
stock ta mposed by secton 105 of that ct.
Secton 106(a) of the Revenue ct of 1935 provdes:
There s hereby mposed upon the net ncome of every corporaton
for each ncome-ta ta abe year endng after the cose of the frst year n
respect of whch t s ta abe under secton 105 capta stock ta an e cess-
profts ta equa to the sum of the foowng:
6 per centum of such porton of ts net ncome for such ncome-ta ta abe
year as s n e cess of 10 per centum and not n e cess of 15 per centum of
the ad|usted decared vaue of ts capta stock
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22(a), rt. 22(a)-16.
130
12 per centum of such porton of Its net Income for such ncome-ta ta abe
year as s n e cess of 15 per centum of the ad|usted decared vaue of ts
capta stock .
Snce the ct specfcay mposes a ta at the rate of 12 per
cent upon such porton of the corporaton s net ncome as s n
e cess of 15 per cent of the ad|usted decared vaue of ts capta
stock, and snce n ths case the entre net ncome of the corpora-
ton consttutes such porton of ts net ncome as s n
e cess of 15 per cent of the ad|usted decared vaue, the corpora-
ton s sub|ect to e cess profts ta at the rate of 12 per cent upon
ts entre net ncome as defned n the ct. (See secton 106(b) of
the Revenue ct of 1935, as amended by secton 402(a) of the
Revenue ct of 1936.)
C. R NU CT O 19S4.
SU TITL . G N R L PRO ISIONS.
P ST II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
rtce 22 (a)-1: What ncuded n gross ncome.
R NU CT OP 1034.
Interest accrued on bonds pror to donaton to a trust. (See I. T.
3011, page 132.)
rtce 22(a)-7: Gross ncome of farmers.
R NU CT O 1034.
Payments under So Conservaton and Domestc otment ct.
(See I. T. 2992, page 75.)
rtce 22(a)-16: cquston or dsposton -28-8171
by a corporaton of ts own capta stock. G. C. M. 16651
R NG CT O 1034.
Profts reazed by the M Company upon the sae of ts capta
stock to ts empoyees under a stock purchase pan, the stock havng
been acqured by the company n the open market, consttute
ta abe ncome.
dvce s requested whether the sae of ts stock by the M Company
n the year 1934 to ts empoyees under a stock purchase pan s a
transacton n whch gan or oss shoud be recognzed to the corpo-
raton for edera ncome ta purposes.
or a number of years empoyees of the M Company have been
offered the opportunty of subscrbng for a mted number of
common shares of the corporaton n accordance wth the terms and
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131
22(b), rt. 22(b)(2)-2.
condtons of a stock purchase pan. To provde the shares of stock
subscrbed for under the pan, the corporaton purchased the shares
n the open market and upon the resae thereof to the empoyees
n 1934 the corporaton reazed substanta profts. The ssue pre-
sented s whether such profts shoud be returned as ta abe ncome.
In the opnon of ths offce the queston s governed by artce
22(a)-16 of Reguatons 8G, whch provdes n part as foows:
f a corporaton deas n ts own shares as t mght n the shares of
another corporaton, the resutng gan or oss s to be computed n the same
manner as though the corporaton were deang n the shares of another.
So aso f the corporaton receves ts own stock as consderaton upon the
sae of property by t, or n satsfacton of ndebtedness to t, the gan or oss
resutng s to be computed n the same manner as though the payment had
been made n any other property. ny gan derved from such transactons s
sub|ect to ta , and any oss sustaned s aowabe as a deducton where
permtted by the provsons of the ct.
(See aso Commssoner v. S. . Woods Mack. Co., 57 ed. (2d),
635, Ct. D. 666, C. . II-1, 275, certorar dened, 287 U. S., 613,
n whch t was hed that the acquston or sae by a corporaton
of ts own stock, other than n a read|ustment of ts capta structure
n the nature of a capta transacton, may resut n ta abe gan
T. D. 4430, C. . III-1, 36 G. C. M. 12955, C. . III-1, 107.)
In vew of the foregong, t s the opnon of ths offce that the
gan derved by the M Company through the sae of ts stock to ts
empoyees under a stock purchase pan consttutes ta abe ncome.
erman Ophant,
Genera Counse for the Department of the Treasury.
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 22(b) (2)-2: nnutes. -51-8442
I. T. 3033
R NU CT O 1934.
Treatment for edera ncome ta purposes of amounts re-
ceved by the wdow of where the proceeds of an endowment
pocy whch matured durng s fetme were eft wth the n-
surance company to acqure a guaranteed Income contract where-
by monthy payments were to be made to for fe, then to the
wdow durng her fetme, wth any remander to the survvor s
estate.
dvce s requested reatve to the proper treatment for edera
ncome ta purposes of amounts receved n 1934 by the ta payer,
the wdow of , under the terms of a guaranteed ncome contract.
It s stated that the proceeds of an endowment pocy whch
matured n 1933 durng the fetme of , who ded n ebruary,
1934, were eft wth the nsurance company to acqure a contract
guaranteeng 3 per cent ncome wth such surpus ncome as mght
be added. Monthy payments were to be made to durng hs fe-
tme then to the wdow, wth any remander to the estate of the
survvor. Payments were receved under the contract by dur-
ng hs fetme and are now beng receved by the wdow. The
ssue presented s the proper method of reportng such payments
for edera ncome ta purposes.
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522(b), rt. 22(b)(3)- .
132
The transacton whereby the proceeds of the endowment pocy
were used to acqure the annuty contract s to be treated for edera
ncome ta purposes as f the nsured had wthdrawn the maturty
vaue of the endowment pocy and wth the proceeds thereof pur-
chased an annuty. Under the evenue ct of 1932 amounts pad
or payabe under an nsurance contract by reason of the maturty of
the contract as an endowment, to the e tent that such amount
e ceed the aggregate premums pad for the contract, are to be
ncuded n gross ncome n the year n whch the contract matures
as an endowment.
The monthy payments receved under the guaranteed ncome con-
tract are to be treated as payments under an annuty contract. Un-
der the provsons of the Revenue ct of 1932 (n effect at the tme
the annuty was purchased) and subsequent Revenue cts, a bene-
fcary under an annuty contract s entted to recover ta -free the
consderaton pad for the annuty regardess of the fact that the
consderaton was pad by one other than the annutant. (I. T.
2635, C. . I-2, 63.) Under secton 22(b) 2 of the Revenue ct
of 1934, the e cess of the amount receved each year over 3 per cent
of the consderaton pad for the annuty s recoverabe ta -free
unt the aggregate of the sums recovered under the Revenue ct of
1934 and pror Revenue cts equas the consderaton pad. When
the aggregate of the amounts receved ta -free and e cuded from
gross ncome equas the consderaton pad for the annuty, the en-
tre amount receved thereafter must be ncuded n gross ncome for
the year of ts recept.
The amount of ta abe ncome receved by the wdow n 1934
from ths source shoud be computed under the provsons of artce
22(b) (2)-2 of Reguatons 86, reatng to the Revenue ct of 1934.
rtce 22(b) (3)-: Gfts and bequests. -42-8350
( so Secton 22(a), rtce 22(a)- and I. T. 3011
Secton 41, rtce 41-1.)
R NU CT O 1934.
Interest accrued on bonds pror to donaton to a trust s ncome
ta abe to tbe settor and not to the benefcares even though the
settor returns hs ncome on the cash recepts and dsbursements
bass.
dvce s requested whether the benefcares of a trust reaze ta -
abe ncome from the coecton of nterest whch accrued before the
creaton of the trust or whether such nterest s ta abe to the settor
(donor).
In 1935 estabshed a trust fund for the beneft of and C by
depostng wth the M Trust Co., as trustee, certan bonds on whch,
the nterest s payabe semannuay ebruary 1 and ugust 1 of
each year. Interest had accrued on the bonds pror to the creaton
of the trust. Under the terms of the trust agreement, the net n-
come from the securtes s to be pad to the respectve benefcares
|onty durng ther ves and to the survvor for the duraton of
her fe. t the death of the survvor the prncpa of the fund
reverts to the chdren of the settor.
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133
23(a), t. 23(a)-.
Secton 22(b)3 of the Revenue ct of 1934 provdes n part as
foows:
The foowng tems sha not be Incuded In gross Income and
sha be e empt from ta aton under ths tte:

(3) Gfts, bequests, and devses. The vaue of property acqured by gft,
bequest, devse, or nhertance (but the ncome from such property sha be
Incuded n gross ncome).
If the accrued nterest n queston s regarded as part of the prop-
erty acqured by gft when the trust was created wthn the meanng
of the above provson, t s not ta abe to the benefcares of the
trust, whe, on the other hand, f t s regarded as ther ncome
from such property, t may be so ta ed. In the opnon of ths
offce the nterest whch accrued pror to the creaton of the trust
consttuted part of the property acqured by gft wthn the meanng
of secton 22(b) 3 of the Revenue ct of 1934 and t shoud not,
therefore, be ncuded n the gross ncome of the benefcares.
It s hed, however, that the accrued nterest shoud be ncuded
n the gross ncome of , the settor of the trust. Ths concuson s
|ustfed by the fact that at the tme the nterest accrued the property
from whch t was derved beonged to the settor, and by the further
fact that the settor s faure actuay to receve such accrued nterest
was due soey to the vountary assgnment of t to the benefcares
of the trust. (See generay George W. akw v. Commssoner,
77 ed. (2d), 569: an Meter v. Commssoner, 61 ed. (2d), 816,
Ct. D. 675, C. . II-1 207 cf. T. D. 4276, C. . III-2, 83.)
urthermore, t can not be questoned that accrued nterest const-
tutes ncome wthn the meanng of the s teenth amendment, and the
Unted States Supreme Court has stated that t was the ntenton of
Congress n enactng the varous Revenue cts to e ercse ts const-
tutona power to the fuest e tent (See Irwn v. Gavt, 268 U. S.,
161, T. D. 3710, C. . I -1, 123.) Ceary, Congress dd not ntend
that accrued nterest shoud escape ta aton merey because t s
made the sub|ect of a gft.
The fact that the settor may return hs ncome on the cash recepts
and dsbursements bass does not prevent the mposton of the ta .
Secton 41 of the Revenue ct of 1934 provdes that f the method of
accountng empoyed by the ta payer does not ceary refect the n-
come, the computaton sha be made n accordance wth such method
as n the opnon of the Commssoner does ceary refect the ncome.
In order that the returns of the settor n the nstant case may ceary
refect hs ncome, the accrued nterest shoud be ncuded n hs gross
ncome for the year 1935 when t was coectbe.
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 23(a)-: usness e penses.
R NU CT OP 1034.
mounts e pended for edera mgratory brd huntng stamp and
for huntng censes n New York, North Carona, and Pennsy-
vana. (See I. T. 2999, page 139.)
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23(a), rt. 23(a)- .
134
rtce 23(a)-: usness e penses. -37-8297
I. T.3005
R NU CT O 1934.
Deductbty for edera Income ta purposes of reserves and
contrbutons of empoyers under tbe Wsconsn unempoyment
reserves and compensaton act, as amended n 1935.
dvce s requested wth respect to the deductbty, for edera
ncome ta purposes, of contrbutons made by empoyers under the
Wsconsn unempoyment reserves and compensaton act, effectve
uy 1, 1934, as amended n 1935.
The deductbty of such contrbutons made by empoyers under
the provsons of the Wsconsn unempoyment reserves and com-
pensaton act pror to ts amendment n 1935 was consdered by the
ureau n I. T. 2866 (C. . I -1, 54) and the foowng concusons
were reached:
or edera ncome ta purposes, deductons w be aowed as ordnary and
necessary e penses, on account of the abtes of empoyers for contrbutons
under the act, as foows:
(1) mounts pad or ncurred durng the ta abe year (dependent upon
the method of accountng reguary empoyed) to the unempoyment admn-
straton fund on account of actua and uncontested abtes, and
(2) mounts pad or ncurred durng the ta abe year to empoyees out of
or aganst bookkeepng reserves n the case of quafed empoyers, or
amounts pad or ncurred durng the ta abe year to empoyees out of or
aganst unempoyment reserve funds In the hands of the State or other
fducares, provded such payments or charges represent actua and uncontested
abtes.
Reserves set up by empoyers, or contrbutons made to unempoyment re-
serve funds n the hands of the State or other fducares, are not deductbe
as such but, as prevousy stated, the amounts of actua and uncontested
abtes for such e penses pad from or Incurred aganst such reserves or
unempoyment reserve funds are deductbe.
Such contrbutons, under the aw pror to the amendments, were
recoverabe by empoyers n severa nstances, that s, upon gong out
of busness, ceasng to be sub|ect to the aw, or removng from the
State of Wsconsn.
Chapters 192 and 446, Wsconsn Laws, 1935, effectve une 26,
1935, and September 11, 1935, respectvey, materay amended the
Wsconsn unempoyment reserves and compensaton ct. or the
purpose of rung as to the deductbty of pror and future con-
trbutons made by empoyers n Wsconsn such empoyers are
grouped nto three casses, namey, (1) those empoyers who were
orgnay sub|ect to the State unempoyment compensaton aw, dd
not eect to foow an e empt pan provded for theren, and who
are sub|ect to the aw as amended n 1935 (2) those empoyers who
were orgnay sub|ect to the unempoyment compensaton aw,
eected to foow an e empt pan provded for theren, but who
have snce accepted the 1935 amendments and (3) those empoyers
who were orgnay sub|ect to the unempoyment compensaton aw,
eected to foow an e empt pan provded for theren, but who have
not accepted the 1935 amendments.
eferrng to group (1) set out above, t appears that subsequent
to the 1935 amendments to the aw contrbutons are not generay
recoverabe and that any baance remanng n an empoyer s account
after he has for any reason ceased on or after anuary 2, 1936, to be
sub|ect to the unempoyment egsaton and after such account has
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135
23(a), rt. 23(a)-.
ceased to be abe for benefts to hs empoyees, sha be credted by
the commsson nto a baancng tem wthn the fund desgnated
as Cosed accounts. If, however, such empoyer went out of bus-
ness or ceased to be sub|ect to the act pror to anuary 2, 1936, the
amounts whch he has pad to the fund w be reeased to hm. Ths
provson s contaned n rue 107 of the rues of the Wsconsn In-
dustra Commsson. It aso appears n subsecton 9 of secton
108.16 that any empoyer who pror to anuary 1,1936, pad nto hs
account n the fund contrhutons e ceedng the amounts requred of
hm under secton 108 sha, upon appcaton to the commsson, be
permtted as of or before anuary 1, 1936, but not thereafter, to
recover from hs account the amount by whch hs past contrbutons
e ceed the contrbutons requred under secton 108. ccordngy,
empoyers fang wthn group (1) set out above may deduct con-
trbutons pad or accrued (dependng upon the method of bookkeep-
ng used) wthout contest to the Wsconsn Industra Commsson,
e cept that empoyers who ceased to be sub|ect to the act pror to
anuary 2,1936, may deduct ony contrbutons whch represent pay-
ments (or accruas) on account of actua and uncontested abtes,
and empoyers who have recovered contrbutons pursuant to sub-
secton 9 of secton 108.16 may not deduct such amounts pad and
recovered. urthermore, such deductons may ony be taken for
ta abe perods endng subsequent to the effectve date of the 1935
amendment to the Wsconsn unempoyment compensaton act under
whch contrbutons became nonrecoverabe.
Referrng to group (2) set out above, under the provsons of sub-
secton 12 of secton 108.15 contrbutons payabe on and after the
effectve date of the empoyer s acceptance of the 1935 amendment to
the act sha be pad to the commsson and sha be duy credted
by t to the fund, and wthn 90 days after the effectve date of the
empoyer s acceptance he sha transfer to the commsson for hs
account n the fund an amount of cash equa to hs past contrbu-
tons requred under ths chapter. (Chapter 446, Laws of 1935.)
e may at such tme, upon appcaton to the commsson, wthhod
or recover a amounts n e cess of the contrbutons duy requred
under secton 108. mpoyers fang wthn group (2) may deduct
contrbutons pad or accrued (dependng upon the method of book-
keepng used) wthout contest to the Wsconsn Industra Comms-
son, e cept that empoyers who ceased to be sub|ect to the act pror
to anuary 2, 1936, may deduct ony contrbutons whch represent
payments (or accruas) on account of actua and uncontested ab-
tes, and empoyers who wthhod or recover contrbutons pursuant
to subsecton 12 of secton 108.15 are not entted to deductons for
such amounts wthhed or recovered. urthermore, deductons may
be taken ony for ta abe perods endng subsequent to the date on
whch the empoyer formay accepts the 1935 amendments to the
Wsconsn unempoyment compensaton act causng hm to transfer
hs pror contrbutons (those made to a speca trustee or set up n
a speca fund or bookkeepng reserve) to the Wsconsn Industra
Commsson and makng contrbutons nonrecoverabe.
Referrng to group (3| set out above, the empoyers thereunder
are not entted to deductons for any contrbutons made to a speca
trustee or set up n a speca fund or bookkeepng reserve, snce
deductons are ony aowabe for nonrecoverabe contrbutons made
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23(a), rt. 23(a)-2.
136
to the Wsconsn Industra Commsson. mpoyers n ths group
may deduct ony payments (or accruas) on account of actua and
uncontested abtes.
It s hed further that no deductons are aowabe wth respect to
such contrbutons f they are captazed on the books of the
empoyer.
Wth respect to contrbutons to the admnstratve fund, the
amended aw makes no changes. Therefore, n accordance wth the
rung of the ureau n I. T. 2866, supra, such contrbutons are de-
ductbe for edera ncome ta purposes.
rtce 23(a)-1: usness e penses. -46-8386
, I. T. 3015
R -NU CT O 1934.
Deductbty of premum pad for automobe abty nsurance.
Where an automobe s used party for peasure and party for
busness, the premum pad for abty nsurance shoud De appor-
toned and that part of the premum attrbutabe to busness may be
deducted as a busness e pense for edera ncome ta purposes.
That part of artce No. 14, Your Income Ta , reeased to the
press durng ebruary, 1936, statng that
utomobe abty nsurance may be deducted ony when the auto-
mobe s used whoy n pursut of the ta payer s professon, and the cost of the
entre upkeep may egtmatey be camed as a professona e pense
s amended accordngy.
rtce 23(a)-: usness e penses.
R NU CT OP 1934.
True hedgng futures transactons on commodty e changes as
nsurance. (See G. C. M. 17322, page 151.)
rtce 23 (a)-2: Traveng e penses. --51-8443
I. T. 3034
R NU CT O 1934.
pendtures for meas and odgng by the ta payer, a non-
resdent aen, who had the status of a transent whe engged
n a concert tour n the Unted States n 1034, are aowabe deduc-
tons as ordnary and necessary busness e penses.
dvce s requested as to the deductbty of e penses for meas
and odgng ncurred by a nonresdent aen n the course of a con-
cert tour n ths country.
The ta payer s a nonresdent aen. e arrved n the Unted
States for a concert tour n anuary, 1934, and eft n pr, 1934,
upon the competon of the tour, havng made appearances n 31
dfferent ctes. The ta payer was marred and durng the ta abe
year mantaned hs wfe and famy n a permanent home n a for-
egn country. e had no reguar pace of busness n the Unted
States and dd not mantan a resdence n ths country whe makng
the concert tour.
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137
523(c), rt. 23(c)-.
Secton 23(a) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as a deducton:
the ordnary and necessary e penses pad or ncurred durng
the ta abe year n carryng on any trade or busness traveng
e penses (ncudng the entre amount e pended for meas and odgng) whe
away from home n the pursut of a trade or busness .
rtce 23(a)-2 of Reguatons 86, reatng to the Revenue ct of
1934. wth respect to traveng e penses, states n part:
If the trp s soey on busness, the reasonabe and necessary trave-
ng e penses, ncudng raroad fares, meas, and odgng, are busness e penses.
It s hed that e pendtures for meas and odgng n 1934 by the
ta payer, a nonresdent aen, who had the status of a transent
whe on a concert tour n ths country, are aowabe deductons as
ordnary and necessary busness e penses for that year.
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 23(c)-: Ta es. -31-8207
I. T. 2995
R NU CT O 1934.
In genera, ta payers n Mchgan who keep ther books of
account on the accrua bass shoud accrue both persona and
rea property ta es as of the second Monday n pr for edera
ncome ta purposes. Ta payers n ctes whch operate under
speca charters shoud accrue ther property ta es as of the as-
sessment day prescrbed by such charters.
dvce s requested reatve to the proper accrua date, for ed-
era ncome ta purposes, of persona and rea property ta es n the
State of Mchgan.
The pertnent provsons of the State aw are found n voume 1 of
the Comped Laws of Mchgan, 1929, and the 1933 and 1935 sup-
pements thereto, and read n part as foows:
3391. Same partes assessabe persons treated as owner property of de-
censed persons. Sec. 3. Rea property sha be assessed n the townshp or
pace where stuated, to the owner f known, and aso to the occupant, f any
f the owner be not known, and there be an occupant, then to such occupant, and
ether or both sha be abe for the ta es on sad property, and f there be
no owner or occupant known, then as unknown. The rea property
whch beonged to a person deceased, not beng n contro of an e ecutor or
admnstrator, may be assessed to hs hers or devsees |onty, wthout namng
them, unt they sha have gven notce of ther respectve uunes to the super-
vsor, and of the dvson of the estate.

3398. nnua assessment. Sec. 10. n assessment of a the property n the
State, abe to ta aton, sha be made annuay n the severa townshps,
vages and ctes thereof by the supervsors of the severa townshps nnd
wards, or n vage and ctes where provson s made n the acts of ncorpora-
ton or charter for some other assessng offcer, then by such assessng offcer,
as herenafter provded.

3401. Ta abe stus. Sec. 13. persona property, e cept as herenafter pro-
vded, sha be assessed to the owner n the townshp n whch he s an nhabt-
ant, on the second (2d) Monday of pr, of the year for whch the assessment
Is made.

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523(c), rt. 23(c)- .
138
3412. ssessment ro tme, contents, method. Sec. 24. On or before the frst
(1st) Monday n une n each year, the supervsor or assessor sha make and
compete an assessment ro, upon whch he sha set down the name of every
person abe to be ta ed n hs townshp or assessment dstrct, wth a fu
descrpton of a the rc property theren abe to be ta ed. The
supervsor sha estmate (he true cash vaue of every parce of rea
property and set the same down opposte such parce. e sha aso estmate
the true cash vaue of a the persona property of each person, and set the
same down opposte the name of such person. In determnng the property to
be assessed and n estmatng such vaue, he sha e ercse hs best
|udgment.
Reatve to the proper accrua date of ta es for edera ncome ta
purposes, t s stated n Unted States v. nderson (269 U. S., 422
T. D. 3839, C. . -, 179) as foows:
In a technca ega sense t may be argued that a ta does not
accrue unt t has been assessed and becomes due but t s aso true that n
advance of the assessment of a ta , a the events may occur whch f the
amount of the ta and determne the abty of the ta payer to pay
It.
The ureau, n pursuance of the rue ad down n Unted States
v. nderson, supra, has consstenty hed that the event whch de-
termnes the abty for property ta es s the ownershp of the
property on the day as of whch the assessment s made under the
State aw. (See G. C. M. 15305. C. . I -2, 80, and cases cted
theren.) The Comped Laws of Mchgan provde n genera that
persona property sha be assessed to the owner wth respect to ts
vaue as of the second Monday n pr of each year. (Panfed
Tp. v. Sage, 107 Mch., 19, 64 N. W., 731 Mtche v. Lake Tp., 126
Mch., 367, 85 N. W., 865.) though no specfc date as of whch
rea property sha be assessed s prescrbed by State statute, t ap-
pears that a unform date as of whch assessment s made, based on
the ownershp of the property on the second Monday n pr, ap-
pes to both persona and rea property. (See generay Rothschd
v. egoe, 105 Mch., 388, 63 N. W., 309, and secton 3412 of the Com-
ped Laws of Mchgan, 1929.) The concuson reached s consstent
wth the poston of the Mchgan State Ta Commsson. The
genera rue as to the date of assessment s, however, sub|ect to e -
ceptons n the case of certan ctes whch operate under speca
charters.
It s hed that, n genera, ta pa|rers n Mchgan who keep ther
books of account on the accrua bass shoud accrue both persona
and rea property ta es as of the second Monday n pr for ed-
era ncome ta purposes. It s further hed that ta payers n ctes
whch operate under speca charters shoud accrue ther property
ta es as of the assessment day prescrbed by such charters.
rtce 23 (c) -1: Ta es. -33-8243
I. T. 2998
R NU CT O 1934.
Deductbty of motor vehce fue ta es Imposed by the State
of rkansas.
The motor vehce fue ta of G1/- cents per gaon mposed by the
State of rkansas under act Go, 1929, as amended and suppemented
by ater acts, s deductbe as a ta , for edera ncome ta purposes,
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139
23(c), rt. 23(c)-.
by the purchaser or consumer by whom the ta s pad and to whom
t s not refunded. The motor fue ta of 2 cents per gaon mposed
by that State (act 706, 1923), appcabe to Phps County, rk.,
ony, s aso deductbe as a ta by the consumer. If, however, such
ta es are added to or made a part of the busness e pense of the
consumer, they may not be deducted by hm separatey as a ta .
mounts e pended for a edera Mgratory brd huntng
stamp and for huntng censes n New York, North Carona, and
Pennsyvana are not deductbe as ta es. If, however, the stamp
and censes are acqured for use n the conduct of a trade or bus-
ness, such amounts are deductbe ae busness e penses.
dvce s requested whether amounts e pended for a edera
Mgratory brd huntng stamp and for huntng censes n New
York, North Carona, and Pennsyvana are deductbe as ta es
under secton 23(c) of the evenue ct of 1934.
Under the ct approved March 16, 1934 (48 Stat., 451), and as
amended une 15, 1935 (49 Stat., 378), a edera mgratory brd
huntng stamp s a prerequste to the takng of mgratory water-
fow. The pertnent New York statutes reatng to huntng censes
are found n chapter 10 of CahPs Consodated Laws of New York,
1930, and secton 104 of the State fnance aw, as amended by chapter
105, Laws of New York, 1935 the pertnent North Carona statute
s contaned n chapter 38 of the Game Laws, North Carona Code
of 1935, nnotated and tte 34, Purdon s Pennsyvana Statutes,
nnotated, as amended to and ncudng the year 1935, prescrbes
the requrements n that State.
ssentay, a ta s an enforced contrbuton mposed and co-
etted for the purpose of rasng revenue to be used for pubc or
governmenta purposes and not for the payment for some speca
prvege granted or servces rendered. In 26 R. C. L., 17, the genera
rue s stated as foows:
Some governments derve a consderabe revenue from a |udcous
e ercse of the power of reguaton but snce a ta s a charge mposed for
the purpose of rasng revenue, a charge prmary Imposed for the purpose of
reguaton s not a ta , and s not sub|ect to the consttutona mtatons upon
the power of ta aton. If the prmary purpose of the egsaton In
Imposng such a charge Is to reguate the occupaton or the act, the charge s
not a ta , even If t produces revenue for the pubc.
n e amnaton of the provsons of the statute under whch the
edera mgratory brd huntng stamp s requred and the provsons
of the New York, North Carona, and Pennsyvana statutes reat-
ng to huntng censes shows that the purposes of the ssuance of the
stamps and hcenses are reguatory n nature. In other words, the
charges n queston are mposed prmary for the purpose of regu-
aton and not for rasng revenue. It aso appears that the funds
coected are to be used n defrayng the e penses of such reguaton.
rtce 23(c)-: Ta es.
( so Secton 23(a), rtce 23(a)-.)
-34-8251
I. T. 2999
R NU CT O 1934.
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23(c), rt. 23(c)- .
140
It s hed, therefore, that nasmuch as the edera mgratory brd
huntng stamp and the huntng censes n New York, North Caro-
na, and Pennsyvana are ssued for reguatory and not for revenue
producng purposes and are not coected as ta es, the cost of
such tems s not deductbe as ta es under secton 23(c) of the Rev-
enue ct of 1934. If, however, the stamps and censes are acqured
for use n the conduct of a trade or busness, such amounts are de-
ductbe as busness e penses under secton 23(a) of the Revenue ct
of 1934. Ths concuson s n accord wth I. T. 2796 (C. . III-2,
48), nvovng the cost of huntng and fshng censes n the State
of North Dakota.
The 10 per cent addtona corporate e cse ta Imposed under
chapter 4S0. Laws of Massachusetts, 1935, whch s an ncrease
n an e stng ta , shoud be accrued as a part of the ta to whch
t Is an addton.
dvce s requested as to the proper accrua date, for edera n-
come ta purposes, of the 10 per cent addtona Massachusetts
corporate e cse ta mposed under chapter 480, Laws of Massa-
chusetts, 1935, effectve ugust 13, 1935. Chapter 480 reads n part
as foows:
Secton 1. There s hereby mposed, In addton to the ta es eved
under the provsons of sectons 30 to 60, ncusve, of chapter C 3 of the
Genera Laws, as appearng n the Tercentenary dton, and a acts n amend-
ment thereof and n addton thereto, an addtona ta equa to 10 per cent
of the ta es mposed under the provsons of sad sectons, acts and chapters,
and a provsons of aw reatve to the assessment, payment, coecton and
abatement of the sad ta es sha appy to the ta es mposed by ths secton
provded, that no ta assessed under ths secton n or on account of the
caendar year 1935 sha bear nterest pror to October 1 of sad year.

Sec. 4. Secton 1 sha appy ony to the assessment of ta es n or on account
of the caendar year 1935.
Sectons 30 to 60 of chapter 63 of the genera aws of Massa-
chusetts mentoned n secton 1 of chapter 480, supra, reate to the
ta aton of busness corporatons, the e cse ta on domestc corpora-
tons beng mposed under secton 32, as amended. The pertnent
statutory provsons are as foows:
Sec. 32. cse on domestc busness corporatons. cept as otherwse pro-
vded n sectons 34 and 38 , every domestc busness corporaton sha pay
annuay an e cse equa to the sun of the foowng, provded, that every
such corporaton sha pay annuay a tota e cse not ess n amount than
one-twenteth of 1 per cent of the far vaue of ts capta stock on the day
f ed for determnaton of the vaue of ts corporate e cess:
(1) n amount equa to 5 per thousand upon the vaue of ts corporate
e cess.
(2) n amount equa to 2 per cent of ts net ncome determned to be
ta abe n accordance wth the provsons of ths chapter.
rtce 23(c)-1: Ta es.
( so Secton 41, rtce 41-2.)
-34-8252
L T. 3000
R NU CT O 1934.
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141
23(c), rt. 23(c)-.
Labty for snch e cse sha be ncurred by corporate e stence at any
tme wthn the ta abe year, or, In case the corporaton has not estabshed
a ta abe year, upon pr 1 of the year n whch the e cse s to be as-
sessed.

Sec. 80. Defntons. When used n ths secton and sectons 31 to 52, n-
cusve, the foowng terms sha have the foowng meanngs:

8. Corporate e cess, n the case of a domestc busness corporaton, e cept
as herenafter provded, the far vaue of ts capta stock on the ast day of
the ta abe year as denned In paragraph numbered 6 of ths secton, ess the
vaue of the foowng on such date:

5. Net ncome, e cept as otherwse provded n sectons 34 and 89, the
net ncome for the ta abe year as requred to be returned by the corporaton
to the edera Government under the edera Revenue ct appcabe for the
perod, addng thereto .
6. Ta abe year, the fsca or caendar year for whch the corporaton was
requred to make ts ast return to the edera Government due pror to pr 1
of the year n whch the ta s to be assessed, or, f such return was for a
fractona perod, a fu year, ncudng and endng wth such fractona
perod.
The corporate e cse ta s assessed by the State of Massachusetts
as of pr 1 of each year, and n the case of a domestc busness
corporaton s based upon the vaue of the corporate e cess. The
date f ed for the determnaton of the vaue of the corporate e -
cess s the ast day of the corporaton s ta abe year, fsca or caen-
dar, for whch the corporaton was requred to make ts ast return
to the edera Government due pror to pr 1 of the year n whch
the ta s to be assessed. Secton 4 of the aw mposng the tem-
porary addtona ta equa to 10 per cent of the corporate e cse
ta states that the addtona ta sha appy ony to the assess-
ment of ta es n or on account of the caendar year 1935.
In G. C. M. 8553 (C. . I -2, 109) t was hed under the Massa-
chusetts corporaton e cse ta aw (secton 32 of chapter 63 of the
Genera Laws of Massachusetts, as amended pr 15, 1927, effectve
anuary 1, 1928) that a corporaton whch fed ts ncome ta re-
turn for the year 1928 on the bass of the caendar year and kept ts
books on the accrua bass shoud accrue as of December 31, 11 8,
the corporate e cse ta payabe to the State of Massachusetts n
October, 1929. In other words, the ta mposed under secton 32
s accruabe on the ast day of the corporaton s ta abe year. The
ta mposed under chapter 480, supra, s merey an ncrease over
the e stng ta . s a genera rue, where the pocy of a State or
government wth respect to the mposton of ta es s contnuous, a
new aw whch merey ncreases the rate of ta aton and whch s
retroactve n effect snoud not be used as a bass for shftng the
otherwse recognzed accrua date. ccordngy, the 10 per cent
addtona Massachusetts e cse ta n queston shoud be accrued
wth and as a part of the ta to whch t s an addton. (See I. T.
2675, C. . II-1, 105.) In the case of a corporaton keepng ts
accounts on the accrua bass and fng ts ncome ta return on the
caendar year bass for 1934, the addtona e cse ta s accruabe
as of December 81, 1934, as a part of, or an addton to, the e cse
ta accruabe under the rue ad down n G. C. M. 8553, supra.
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142
rtce 23(c)-1: Ta es.
-35-8264
I. T. 30O2
Y N CT O 1934.
The prvege dvdend ta mposed under secton 3, chapter 505,
Laws of Wsconsn, 1935, effectve September 26, 1935, s deductbe
as a ta , for edera ncome ta purposes, by the stockhoder re-
cevng the dvdend.
dvce s requested whether, for edera ncome ta purposes, the
corporaton payng a dvdend or the stockhoder recevng t s en-
tted to deduct the prvege dvdend ta of 2y2 Pe cent mposed
by the State of Wsconsn under secton 3 of chapter 505, Laws of
Wsconsn, 1935.
Chapter 505 s entted n act to amend paragraph (d) of sub-
secton (2) of secton 71.02 and secton 71.045 of the statutes, reatng
to computaton of proft or oss from the sae or dsposton of prop-
assstance . (Secton 71 referred to s the ncome ta act
of the State of Wsconsn.) Pertnent sectons of the aw, whch
was pubshed and became effectve September 26, 1935, are as
foows:
Sec. 3. Prvege dvdend ta . (1) or the prvege of decarng and re-
cevng dvdends, out of ncome derved from property ocated and busness
transacted In ths State, there s hereby mposed a ta equa to 2 per centum
of the amount of such dvdends decared or pad by a corporatons (foregn
and oca) after the passage and pubcaton of ths act and pror to uy 1,
1937. Such ta sha be deducted and wthhed from such dvdends payabe
to resdents and nonresdents by the payor corporaton.
(2) very corporaton requred to deduct and wthhod any ta under ths
secton sha, on or before the ast day of the month foowng the payment
of the dvdend, make return thereof and pay the ta to the ta commsson,
reportng such ta on the forms to be prescrbed by the ta commsson.
(3) very such corporaton hereby made abe for such ta , shaU deduct
the amount of such ta from the dvdends so decared.
(4) In the case of corporatons dong busness wthn or wthout the State
of Wsconsn, such ta sha appy ony to dvdends decared and pad out
of ncome derved from busness transacted and property ocated wthn the
State of Wsconsn. .

(G) The provsons of ths secton sha not appy to dvdends decared and
pad by a Wsconsn corporaton out of ts ncome whch t has reported for
ta aton under the provsons of chapter 71, f the busness of such corpora-
ton conssts n the recept of dvdends and the dstrbuton thereof to ts
stockhoders.

(9) The ta hereby mposed sha, when coected by the ta commsson,
be pad by t nto the State treasury.
The tte of the aw and ts provsons show that t was the nten-
ton of the State egsature to evy an e cse ta on the recept of
dvdends and to make the corporaton decarng and payng the
dvdend the coector of the ta for and on behaf of the State by
requrng the corporaton to wthhod the ta from the stockhoder
and to pay the amount wthhed to the State ta commsson, whch
n turn pays t nto the State treasury.
Secton 23(c) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad or
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143
23(c), rt. 23(c)-.
accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)- of Reguatons 86, reatng to the Revenue
ct of 1934, provdes that n genera ta es are deductbe ony by
the person upon whom they are mposed.
It s hed that the prvege dvdend ta s an e cse ta mposed
upon the stockhoder recevng the dvdend, who may deduct the
amount of the ta n hs edera ncome ta return. The stock-
hoder, however, shoud report n hs return the fu amount of the
dvdend, ncudng the ta wthhed.
rtce 23(c) 1: Ta es.
R NU CT O 1934.
North Dakota cgarette ta . (See I. T. 3001, page 76.)
rtce 23(c)-: Ta es. -36-828G
I. T. 3004
R NU CT OP 1934.
The Caforna use ta of 1935 (chapter 361, Caforna Statutes,
1935) Is deductbe by the purchaser or consumer for edera
ncome ta purposes. If, however, the ta s added to or made a
part of the ta payer s busness e pense, or s otherwse used to
reduce hs net ncome, t may not be deducted separatey as a ta .
dvce s requested reatve to the deductbty for edera ncome
ta purposes of the Caforna use ta of 1935.
The use ta act of 1935 (chapter 361, Caforna Statutes, 1935),
effectve uy 1, 1935, s entted n act mposng an e cse ta on
the storage, use or other consumpton n ths State of tangbe per-
sona property, provdng for the regstraton of retaers, provdng
for the evyng, assessng, coectng payng and dsposng of such
ta . Pertnent sectons of the aw are as foows:
Sh 2.

(a) Storage means and Incudes any keepng or retenton In ths State for
any purpose e cept sae In the reguar course of busness of tangbe persona
property purchased from a retaer.
(b) Use means and ncudes the e ercse of any rght or power over
tangbe persona property ncdent to the ownershp of that property, e cept
that t sha not ncude the sae of that property n the reguar course of
busness.

(f) Retaer means and ncudes every person engaged In the busness of
makng saes for storage, use or other consumpton
(g) oard means the State board of equazaton.

Sec. 3. n e cse ta s hereby mposed on the storage, use or other consump-
ton n ths State of tangbe persona property purchased from a retaer on or
after uy 1, 1935, for storage, use or other consumpton In ths State at the
rate of 3 per cent of the saes prce of such property.
very person storng, usng or otherwse consumng n ths State tangbe
persona property purchased from a retaer sha be abe for the ta mposed
by ths act, and the abty sha not be e tngushed unt the ta has been
pad to ths State provded, however, that a recept from a retaer mantanng
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23(c), rt. 23(c)- .
144
a pace of busness n ths State, gven to the purchaser n accordance wth the
provsons of secton 6 hereof, sha he suffcent to reeve the purchaser from
further abty tor the ta to whch such recept may refer provded, further,
that the board n,ay by rue and reguaton provde that a recept from a retaer
who does not mantan a pace of busness n ths State sha aso be suffcent
to reeve the purchaser from further abty for the ta to whch such recept
may refer.
Sec. 6. very retaer mantanng a pace of busness n ths State and mak-
ng saes of tangbe persona property for storage, use or other consumpton
n ths State, not e empted under the provsons of secton 4 hereof, sha at
the tme of makng such saes coect the ta mposed by ths act from the pur-
chaser, and gve to the purchaser a recept therefor n the manner and form
prescrbed by the board. The ta requred to be coected by the retaer from
the purchaser sha be dspayed separatey from the st, advertsed n the
premses, marked or other prce on the saes check or other proof of sae.
It sha be unawfu for any retaer to advertse or hod out or state to the
pubc or to any customer, drecty or ndrecty, that the ta or any part thereof
mposed by ths act w be assumed or absorbed by the retaer or that t w
not 1)0 added to the seng prce of the property sod, or f added that t or any
part thereof w be refunded. ny person voatng any of the provsons of
ths secton sha be guty of a msdemeanor.
The ta heren requred to be coected by the retaer sha consttute a debt
owed by the retaer to ths State.
The reguatons ssued by the State board of equazaton provde
n part as foows:
Purchasers of tangbe persona property, the storage, use or other
consumpton of whch s sub|ect to the ta , are abe for the ta and must pay
the same to the board uness a recept has been obtaned showng payment of the
ta to a retaer mantanng a pace of busness n ths State or to a retaer
havng a certfcate of authorty from the board to coect the ta .
In the event of overpayment of ta , the act provdes for refund to
the person from whom t was coected.
Secton 23(c) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad
or accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)- of Reguatons 86, reatng to the Revenue
ct of 1934, provdes that n genera ta es are deductbe ony by the
person upon whom they are mposed.
The State aw and the reguatons thereunder show that t was
the egsatve ntent to mpose the ta under the Caforna use ta
act of 1935 upon the purchaser or consumer and to make the retaer
the coector of the ta for and on behaf of the State. Purchasers
or consumers of tangbe persona property sub|ect to the ta , who
purchase from retaers unabe under the aw to furnsh the pur-
chaser a recept for the ta , must pay the ta drect to the board.
Inasmuch as the ta s mposed upon the purchaser or consumer,
he may deduct the amount pad by hm as a ta n hs edera ncome
ta return. In the event the ta s added to or made a part of hs
busness e pense, or s otherwse used to reduce hs net ncome, t may
not be deducted separatey as a ta .
rtce 23(c)-: Ta es.
R NU CT O 1934.
Idaho saes ta . (See I. T. 3012, page 79.)
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145 23(c), rt. 23(c)-.
rtce 23(c)-1 : Ta es.
-48-8408
I. T. 3021
R NU CTS O 1932 ND 1934.
Rea and persona property ta es n the State of Coorado
accrue on pr 1 of each year for edera ncome ta purposes.
dvce s requested as to the proper accrua date for edera ncome
ta purposes of rea and persona property ta es mposed by the
State of Coorado.
The pertnent provsons of Coorado aw are contaned n voume
3, Courtrght s Ms nnotated Statutes of the State of Coorado,
and read as foows:
C182. Ta eved Len Property omtted sub|ect to ta . ta es sha be
eved for the fsca year whch sha end wth November 30.

6228. ssessor eave banks onrcsdcnt Schedue. On the 1st day of
anuary n each year, or as soon thereafter as practcabe, the assessor or
hs deputy sha ca upon each nhabtant of hs county, and dever
or eave for hm or her the proper banks for the return of the property of
such nhabtant for assessment.

0230. Owner descrbe rea estate Lst mnng cam. very such nhabtant
makng any such schedue sha set down theren a rea estate stuate wthn
the county by bm owned or controed on the 1st day of pr, of the then
current year, descrbng the same by secton .

6251. Persona property sted and assessed pr 1. persona property
wthn ths State on pr 1 n the then current year sha be sted and assessed
In the county where t sha be on sad pr 1.

6417 a. Len attach on pr /. The en of genera ta es for the current ta
year sha attach to a property, rea and persona, not e empt by aw, on the
1st day of pr n each year.
In Unted States v. nderson (269 U. S., 422, T. D. 3839, C. .
-, 179), t was stated wth respect to the proper accrua date of
ta es for edera ncome ta purposes that:
In a technca ega sense t may be argued that a ta does not
accrue unt t has been assessed and becomes due but t s aso true that n
advance of the assessment of a ta , a the events may occur whch f the
amount of the ta and determne the abty of the ta payer to pay t.
The event whch determnes the abty for property ta es s
the ownershp of the property on the date as of whch assessment s
made under State aw. (See generay G. C M. 9793, C. . -2,
142, and the rungs cted theren.) s abty for rea and per-
sona property ta es n the State of Coorado s ncurred by reason of
ownershp of the property on pr 1 of each year, such ta es accrue
on that date for edera ncome ta purposes.
rtce 23(c)-: Ta es.
R NU CT O 1934.
ccrua date for capta stock ta es. (See G. C. M. 17340, page 81.)
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23(1), rt. 23(1)-3. 146
rtce 23(c)-1: Ta es.
R NU CT OP 1934.
New ersey motor fue ta . (See I. T. 3023, page 80.)
S CTION 23(k). D DUCTIONS ROM GROSS
INCOM : D D TS.
rtce 23(k)-: ad debts. -30-8196
I. T. 2994
R NU CTS OP 1932 ND 1934.
Treasury Decson 4633 (C. . -1, 118), reatng to deduc-
tons for debts charged off by banks or other corporatons n
obedence to specfc orders of edera or State supervsory author-
tes, s appcabe to bonds.
dvce s requested whether bonds are ncuded n the cassfca-
ton of debts as used n Treasury Decson 4633, whch reads n
part as foows:
Where banks or other corporatons whch are sub|ect to supervson by
edera authortes (or by State authortes mantanng substantay equva-
ent standards) n obedence to the specfc orders of such supervsory offcers
charge off debts n whoe or n part, such debts sha be concusvey presumed,
for ncome ta purposes, to be worthess or recoverabe ony n part, as the
ease may be, but n order that any amount of the charge-off may be aowed
as a deducton for any ta abe year t must be shown that the charge-off took
pace wthn such ta abe year.
That Treasury decson, whch amended the ast paragraph of
artce 23(k)- of Reguatons 86, pertanng to the Revenue ct of
1934, and artce 191 of Reguatons 77, pertanng to the Revenue
ct of 1932, s appcabe to bonds, snce the reatonshp of debtor
and credtor e sts n such nstruments.
S CTION 23(1). D DUCTIONS ROM GROSS
INCOM : D PR CI TION.
rtce 23()-3: Deprecaton of ntangbe -30-8195
property. I. T. 2993
R NU CT O 1934.
Where , a baseba payer, entered nto a unform payer s con-
tract for one year wth the M aseba Cub, the contract havng
a renewa cause, and after the payng season had ended the
contract was purchased by the N aseba Cub, whch engaged
s servces for two years, the cost of the contract purchased
shoud be amortzed by the N aseba Cub over the fe of the
new contract entered nto wth .
dvce s requested reatve to the deductbty of 2 doars pad
by the N aseba Cub for the contract of , who s a professona
baseba payer.
entered nto a unform payer s contract for the year 1933
wth the M aseba Cub. The contract contaned the renewa cause
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147
23(1), rt. 23()-3.
whch s customary ncuded n professona baseba payers con-
tracts. It provded:
(a) On or before ebruary 15 (or f Sunday, then the succeedng busness
day) of the year ne t foowng the ast payng season covered by ths con-
tract, by wrtten notce to the payer at hs address foowng hs sgnature
hereto (or f none be gven, then at hs ast address of record wth the cub),
the cub or any assgnee hereof may renew ths contract for the term of that
year e cept that the saary sha be such as the partes may then agree upon,
or n defaut of agreement the payer w accept such saary rate as the cub
may f , or ese w not pay baseba otherwse than for the cub or for an
assgnee hereof.
(b) The cub s rght of reservaton of the payer, and of renewa of ths
contract as aforesad, and the promse of the payer not to pay otherwse than
wth the cub or an assgnee hereof, have been taken nto consderaton n
determnng the saary specfed heren and the undertakng by the cub to pay
sad saary s the consderaton for both sad reservaton, renewa opton and
promse, and the payer s servce.
In November, 1933, after the payng season had ended the M
aseba Cub e ecuted an assgnment of s contract to the N
aseba Cub for the sum of 2a doars. In anuary, 1934, the
N aseba Cub entered nto a contract wth for the years 1934
and 1935 n accordance wth the renewa cause contaned n the
orgna contract. The queston presented s whether the amount of
2 doars pad to the M aseba Cub represents a part of the cost
of the N aseba Cub s contract wth whch shoud be amortzed
over the years 1934 and 1935, or whether under I. T. 2932 (C. .
I -2,6) the amount of 2 doars shoud be deducted as a busness
e pense for 1934, the year n whch the contract was purchased.
In I. T. 2932, supra, the foowng rues are ad down:
The cost of a baseba-payer contract whch at the tme of ts acquston
has a perod of one year or ess to run shoud be deducted as a busness e pense
n the year n whch such cost s pad or accrued, regardess of whether the
contract contans a renewa opton.
The cost of a baseba-payer contract whch at the tme of Its acquston
has a perod of more than one year to run shoud be amortzed over the fe
of the contract and an annua aowance for such amortzaton shoud be
deducted each year durng whch the orgna contract contnues.
If an opton to renew a baseba-payer contract s e ercsed, the arrangement
shoud be treated as a new contract for the perod of the renewa.
The above rues contempate a stuaton where, at the tme the
contract s sod, the assgnor s rghts to the payer s servces (other
than the renewa rghts) have not e pred, as, for e ampe, where
a 2-year contract s purchased at the end of the frst year. Thus,
the assgnee cub acqures (1) mportant rghts to the payer s
servces under the e stng contract, and (2) the renewa rghts.
In that stuaton t s dffcut to determne what part of the
purchase prce s pad for (1) and what part, f any, for (2).
urthermore, at the tme the contract s purchased, the assgnee
cub may not have decded whether t w e ercse ts renewa rghts.
In such cases the rues ad down n I. T. 2932 correcty prescrbe
the manner n whch the purchase prce s to be treated. The
nstant case s materay dfferent. The contract purchased covered
ony the year 1933 and at the tme t was assgned n November,
1933, the 1933 baseba season had ended. though t appears that
techncay the contract dd not e pre unt December 31, 1933,
the mportant rghts to the payer s servces (other than the renewa
rghts) had e pred and the renewa rghts aone gave the contract
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23(1), rt. 23()-5.
148
vaue. Therefore, the N aseba Cub shoud be treated as havng
purchased ony the renewa rghts.
It s hed, therefore, that when renewa or opton rghts aone
are purchased n such a case, the amount pad shoud be regarded
as part of the cost of the contract entered nto pursuant to the
e ercse of such rghts. Consequenty, n the present case, the 2
doars pad by the N aseba Cub shoud be treated as part of
the cost of the contract entered nto wth for the years 1934 and
1935, and doars shoud be deducted for each of those years.
rtce 23()-5: Method of computng depre- -31-8208
caton aowance. Mn. 4170 (Rev.)
Informaton necessary n support of deprecaton deductons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, uy 10, 1930.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
In order that nstructons as to the data or nformaton necessary
n support of deprecaton deductons may be accessbe n one reease,
the provsons of Mmeograph 4170 (C. . III 1, 59), as modfed
by artce 23(e)-3 of Reguatons 86, as amended by Treasury Dec-
son 4G12 (C. . I -2, 99), are restated as foows:
Treasury Decson 4422 (C. . III-1, 58) provdes that ta -
payers camng deductons from gross ncome for deprecaton must
furnsh fu and compete nformaton regardng (1) the cost or
other bass of assets for whch deprecaton s camed, (2) the
age, condton, and remanng usefu fe of the assets, (3) the
porton of the cost or other bass whch has been recovered through
deprecaton aowances for pror ta abe years, and (4) such other
nformaton as may be requred to estabsh the correctness of the
deducton camed or to determne the amount of the deducton
propery aowabe.
The deducton for deprecaton n respect of any deprecabe prop-
erty for any ta abe year s mted by Treasury Decson 4422 to such
ratabe amount as may reasonaby be consdered necessary to recover
durng the remanng usefu fe of the property the unrecovered
cost or other bass under the appcabe aw and reguatons.
ta payer s not permtted under the aw to take advantage n ater
ears of hs pror faure to take any deprecaton aowance or of
s acton n takng an aowance pany nadequate under the known
facts n pror years.
The nformaton above referred to has been requred under pre-
vous reguatons but n many nstances t has ether not been fur-
nshed or has been prepared for the ta payer by the e amnng
offcer. One of the prncpa purposes of Treasury Decson 4422
s to pace the burden of proof of the correctness of deductons
camed for deprecaton squarey upon the ta payer, and to requre
that a schedues and other data deemed necessary sha be prepared
by the ta payer and not by the e amnng offcer.
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149
23(1), rt. 23()-5.
In cases where the requred nformaton has not been furnshed,
the revenue agent or other e amnng offcer shoud advse the ta -
payer wth respect to the schedue and supportng nformaton whch
must be prepared. If upon the revew of the return of any ta payer
t s apparent that the deducton camed for deprecaton s a very
mnor factor n determnng net ncome, or that the facts ndcate
concusvey that the deducton camed n the return s not n e cess
of the correct amount, or where t s ceary evdent that no ta abe
ncome w be deveoped, the schedues need not be furnshed for
such year. In a other cases the nformaton requred by Treasury
Decson 4422 and by ths mmeograph must be furnshed, and after
verfcaton by the e amnng offcer shoud be made a part of hs
report.
Where t s camed by a ta payer that the nformaton necessary
for the proper determnaton of the aowabe deprecaton has been
prevousy prepared and fed n connecton wth pror ncome ta
returns, the e amnng offcer must satsfy hmsef that the nforma-
ton on fe s n accordance wth the requrements of ths mmeo-
graph, and an affrmatve statement to that effect must be made n
hs report.
D PR CI TION SC DUL .
The accompanyng form of schedue has been prepared for use n
compng the nformaton requred, and whe t s beeved app-
cabe to most cases, any form that w ceary set forth the nforma-
ton requred may be used n order to substantate the cost or other
bass of the property and the deprecaton camed. Wth respect to
property acqured pror to March 1, 1913, property acqured by gft
or transfer n trust, property transmtted at death, property acqured
upon an e change, property acqured n a reorganzaton after
December 31 1917, property acqured after December 31. 1920, by a
corporaton n e change for ts stock where mmedatey after the
transfer the transferor of the property s n contro of the corpora-
ton, property acqured by an nvountary converson, property ac-
qured durng affaton, and certan other speca cases, the statutes
prescrbe certan mtatons wth whch compance must be made.
If n any case, therefore, deprecabe assets have been ncuded n the
property account on any bass other than the actua cost of property
acqured for cash, the ta payer must furnsh the nformaton and
evdence necessary to estabsh defntey the correctness of the bass
camed.
In preparng the schedues, the orgna cost or other bass of the
property and gross addtons by years must be set forth separatey.
The schedue for each cass of assets must kewse ceary refect a
ad|ustments to the property accounts whch have been or shoud have
been made n pror vears as a resut of the emnaton of assets fuy
deprecated, the safe, abandonment, or retrement of assets, or for
any other reason. The ad|usted property account as shown n the
schedue shoud be reconced wth the property account as refected
on the books of the ta payer.
If the segregaton of property accounts n the past has not been
suffcenty detaed to afford a reasonabe bass for the determnaton
of the deprecaton deducton, the cost or other bass shoud be segre-
gated nto groups of accounts contanng smar assets havng
appro matey the same average ves to serve as a bass for depre-
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23(1), rt. 23()-5.
150
caton deductons for current and future years. If, however, a
ta payer for ts own purpose keeps a record of each ndvdua tem
or cassfes ts accounts nto a arge number of dfferent groups, the
data requred by ths mmeograph shoud be summarzed n such form
as w present an accurate statement of each dstncty dfferent cass
of deprecabe assets and of the reserve that has been accrued aganst
each cass to date for ncome ta purposes. The e amnng offcer
shoud verfy the correctness of these summarzed schedues from the
ta payer s records, but the ncuson n the schedue of a voumnous
mass of deta s not ordnary necessary.
In computng the reserve for deprecaton, credts to the reserve
on account of deprecaton sha be n the amount aowabe for each
year e cept for such cosed years for whch a greater amount has been
aowed, n whch case the tota amount aowed sha be credted to
the reserve. If for ncome ta accountng other credts, such as
savage vaue, have been added to the reserve, these shoud be set
forth separatey wth an e panaton of such credts. Charges to the
reserve that have not been recovered as e pense or otherwse n cos-
ng pror ncome ta returns shoud be set up separatey n the
schedue. These charges, n addton to the cost of property retred,
may be such tems as repars, renewas, fuy deprecated assets, etc.,
a of whch shoud be dentfed wth an e |anaton respectng any
unusua charges.
D PR CI TION D T RMIN TION OR Y R UND R CONSID R TION.
If, upon e amnaton and verfcaton of the schedue, t s found
that the cost or other bass of any deprecabe property has been fuy
recovered though the property s st n use, or where the reserve as
provded s hgher than s |ustfed by the actua physca condton
of the property, t w be presumed that the deprecaton rates
aowed n the past have been e cessve. fter carefu consderaton
of the nformaton fed n accordance wth the requrements of ths
mmeograph, the e amnng offcer shoud foow the provsons of
ths mmeograph and of Treasury Decson 4422 n determnng rates
of deprecaton for the years under consderaton.
R TIR M NT O SS TS.
If the deprecabe assets of a ta payer consst of more than one tem
and deprecaton, whether n respect of tems or groups of tems, s
based upon the average ves of such assets, osses camed on the nor-
ma retrement of such assets are not aowabe, nasmuch as the use
of an average rate contempates a norma retrement of assets both
before and after the average fe has been reached and there s, there-
fore, no possbty of ascertanng any actua oss under such cr-
cumstances unt a assets contaned n the group have been retred.
In order to account propery for such retrement, the entre cost or
other bass of assets retred, ad|usted for savage, w be charged to
the deprecaton reserve account, whch w enabe the fu cost or
other bass of the property to be recovered.
In cases n whch deprecabe property s dsposed of due to causes
other than e hauston, wear and tear, and norma obsoescence, such
as casuaty, obsoescence other than norma, or sae, a deducton for the
dfference between the bass of the property (ad|usted as provded n
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151
41, rt. 41-3.
secton 113(b) of the Revenue ct of 1934 and artces 113(a) (14)-1,
113(b)-, and 113(b)-2) of Reguatons 86 and ts savage vaue
and/or amount reazed upon ts dsposton may be aowed sub|ect
to the mtatons provded n the ct upon deductons for osses, but
ony f t s ceary evdent that such dsposton was not contempated
n the rate of deprecaton.
In the case of cassfed accounts, f t s the consstent practce of
the ta payer to base the rate of deprecaton on the e pected fe of the
ongest ved asset contaned n the account, or n the case of snge
tem accounts, f the rate of deprecaton s based on the ma mum
e pected fe of the asset, a deducton for the bass of the asset (ad-
|usted as provded n secton 113(b) and artces 113(a) (14)-1,
113(b)-, and 113(b)-2), ess ts savage vaue, s aowabe upon ts
retrement. (See artces 23(1)-1 to 23()-7, artces 23()-8 and
23()-9. as amended by Treasury Decson 4585 (C. . I -2, 54),
and artce 23(1)-10 of Reguatons 86.)
R TRO CTI PRO ISION.
The procedure outned n ths mmeograph sha be foowed n a
cases and pror nstructons to the contrary are hereby revoked.
Guy T. everng,
Commssoner.
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 41. G N R L RUL .
rtce 41-1: Computaton of net ncome.
R NU CT O 1934.
Interest accrued on bonds pror to donaton to a trust. (See I. T.
3011, page 132.)
rtce 41-2: ases of computaton and changes n
accountng methods.
R NU CT O 1934.
ccrua of temporary addtona Massachusetts e cse ta . (See
I. T. 3000, page 140.)
rtce 41-3: Methods of accountng. -46-8367
( so Secton 117, rtce 117-1 and G. C. M. 17322
Secton 23(a), rtce 23(a)-4.)
R NU CT O 1934.
Treatment of hedgng transactons for edera Income ta
purposes.
The opnon of ths offce s requested whether osses from hedgng
futures transactons on commodty e changes consttute capta
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41, rt. 41-3.
152
osses sub|ect to the mtatons of secton 117(d) of the Revenue ct
of 1934, whch provdes n part that Losses from saes or
e changes of capta assets sha be aowed ony to the e tent of
2,000 pus the gans from such saes or e changes.
The nstant ta payer s a te te manufacturer. s a means of
protectng tsef aganst fuctuatons n the prce of cotton, the ta -
payer entered nto a seres of hedgng transactons n cotton futures
whch resuted n a net oss n 1934. Typca stuatons n whch
protecton s obtaned by the use of hedgng transactons are sub-
mtted by the ta payer and may be ustrated as foowa:
(1) The ta payer buys quanttes of spot cotton, whch w neces-
sary be on hand for some months before beng manufactured nto
goods and sod. In order to be protected aganst osses whch woud
be ncurred f the cotton market decned durng those months, the
ta payer, at the same tme the above purchases are made, enters nto
futures sae contracts for the devery of equvaent amounts of cotton
a few months hence. s the above quanttes of spot cotton are sub-
sequenty dsposed of by saes from tme to tme of manufactured
cotton goods, the above futures sae contracts are concurrenty ds-
posed of by futures purchase contracts whch serve as offsettng trans-
actons cosng out the futures sae contracts.
(2) The ta payer makes contracts for future devery of cotton
goods, the manufacture of whch w requre more cotton than the
amount on hand or the amount whch can be mmedatey purchased
advantageousy. In order to secure protecton aganst a rsng cotton
market durng the months that ntervene between the date of the
order for cotton goods and the agreed devery date, the ta payer, at
the same tme the above orders are taken, enters nto futures pur-
chase contracts for cotton n amounts necessary to provde the desred
protecton. s the ta payer from tme to tme buys spot cotton for
the manufacture of the goods specfed n the above orders, the
futures purchase contracts are dsposed of by futures sae contracts
whch servo as offsettng transactons cosng out the futures pur-
chase contracts.
Such hedges, whch emnate specuatve rsks due to fuctuatons
n the market prce of cotton and thereby tend to assure ordnary
operatng profts, are common trade practces and are generay
regarded as a form of nsurance (the ony knd avaabe as protec-
ton aganst such rsks) necessary to conservatve busness operaton.
Where futures contracts are entered nto ony to nsure aganst the
above-mentoned rsks nherent n the ta payer s busness, the hedg-
ng operatons shoud be recognzed as a egtmate form of busness
nsurance. s such, the cost thereof (whch ncudes osses sus-
taned theren) s an ordnary and necessary e pense deductbe
under secton 23(a) of the Revenue ct of 1934 and correspondng
provsons of pror Revenue cts. Smary, the proceeds there-
from n the form of gans reazed upon hedgng transactons are
refected n net ncome, ether urect by compensatng for osses
reazed on the sae of spot cotton thereby makng such osses non-
deductbe, or drecty by ther ncuson n ncome as compensatng
for fuctuatons n the market prce of cotton adversey affectng the
seng prce of cotton goods or the cost of raw materas necessary
to the manufacture thereof.
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153
41, rt. 41-3.
The dscusson n the precedng paragraph s phrased n anguage
ony reazed gans or osses. owever, ta payers who empoy ac-
countng methods refectng reazabe gans and osses through the
use of nventores nvovng ad|ustments to market prce of goods on
hand kewse nduge n hedgng operatons for a ke reason and
wth smar resuts. Dfferences n accountng methods do not af-
fect the prncpe though they vary ts appcaton. or e ampe,
f reazed osses compensated for by nsurance or otherwse are not
deductbe, t foows that unreazed osses ordnary taken nto
account by the permssbe use of such nventores are not deductbe
when compensaton therefor has been provded by nsurance or other-
wse. Inventores nvovng ad|ustments to market at most permt
ad|ustments n ta abe ncome to take nto account reazabe rather
than reazed gans or osses and requre correspondng changes n
the bases for computng gan or oss. That s, essentay nventores
nvovng ad|ustments to market take nto account the effect of mar-
ket fuctuatons durng the ta abe year on a ta payer s fnanca
condton at the cose of the accountng perod. Where nsurance
emnates the rsks, the resuts of whch nventores nvovng ad|ust-
ments to market were desgned to take nto account, obvousy ether
the goods nvoved must be emnated from such nventores or the
dstorted resuts attaned n net ncome by ncudng such goods n
nventores must be corrected n some way. s the emnaton of
spot goods protected by hedges from nventory presents substanta
practca dffcutes, t seems preferabe n the ordnary case to aow
such cotton to reman n nventory and to emnate the resutng
dstorton n net ncome by correctve offsettng ad|ustments thereto.
In S. M. 5693 (C. . -2, 20), n whch a smar queston nvovng
cotton and gran deaers was consdered, the permssbe accountng
methods for correcty ascertanng net ncome were summarzed as
foows:
The practce foowed by cotton and gran deaers, of brngng a eements
to market prce at date of cosng, whch has been n use for a ong perod
of years and whch conforms to the best accountng practce In the trade, s
recognzed as the ony practca method of arrvng at a true and correct resut
of the operatons. Ths means
(1) That cotton and gran actuay on hand at the cose of the year (the
physca nventory) shoud be vaued at market
(2) That cotton and gran deaers shoud ncorporate n ther baance sheets
at the cose of the ta abe year at market such open future contracts to whch
they are partes as are hedges aganst actua spot or cash transactons or
aganst forward saes or purchases, as the case may be provded, that no
purey specuatve transactons n futures not offset by actua spot or cash
transactons or concurrent forward purchases or saes may be so Incuded or
taken nto the ta payer s account n any manner unt such transactons are
actuay cosed by qudaton and provded further, that the vaues of the
commodty covered by such open future contracts sha not be added to or
deducted from the nventory of the ta payer
(3) That any proft from such contracts as are requred under (2) to be
Incorporated n the baance sheets shoud be taken nto ncome and any oss
therefrom deducted from ncome.
It w be noted that the effect of the above-quoted rung was to
e cude from the ncome computaton the proft or oss refected
n nventory due to market fuctuatons, and that such e cuson
was accompshed by adoptng the accountng practce of refectng
n ta abe ncome at the cose of the accountng perod a proft or
121307 37 G
accountng methods refectng
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41. rt. 41-3.
154
oss (though such tems had not then accrued n the ordnary sense)
from the open futures contracts to offset or nufy the oss or proft
n nventory due to market fuctuatons. That rung requred the
use of the accountng practce theren prescrbed as the one best
desgned to refect ncome n the case of gran and cotton deaers.
The stuaton of the te te manufacturer dffers materay from
that of the deaer n cotton. The deaer regards the commodty
handed as a fungbe and consders cost accountng mpractcabe.
The manufacturer dentfes each bae of cotton and shows the cost
thereof. The vauaton of goods on hand whch s requred n
nventory at market s not compcated n the case of the deaer
n raw materas by reason of stock n process or by ts converson
nto fnshed goods, as s true n the case of a manufacturer. ur-
thermore, the deaer has no such dffcuty as has the manufacturer
n competey hedgng aganst market fuctuatons, wth the resut
that the deaer s ordnary competey hedged whe the manufac-
turer s generay ong on cotton.
The nventory method generay n use n the cotton te te ndustry
s cost or market, whchever s ower. Whe such method nvoves
ad|ustments to market vaues at the cose of the accountng perod,
ony those market fuctuatons beow cost are taken nto account.
Open hedges, however, cover the entre range of market fuctuatons.
It s thus apparent that uness the hedges are earmarked as protect-
ng specfc baes of spot cotton (and the practca dffcuty of so
dentfyng hedges s recognzed), t s mpossbe to ascertan the
e tent to whch gans or osses on open hedges shoud be refected
n ncome at the cose of the accountng perod to offs t or nufy
the profts or osses n nventory due to market fuctuatons where
the nventory s taken at cost or market, whchever s ower. Man-
festy, the accountng practce prescrbed by the quoted rung to
correcty refect ncome n the case of cotton and gran deaers s
not a sutabe accountng practce for cotton te te manufacturers.
The accountng practce generay n use n that ndustry refects
gans and osses from hedgng transactons ony to the e tent reazed
by those cosed out wthn the accountng perod. Separatey con-
sdered, that treatment of such tems s correct, for, as ndcated
above, the osses are not ncurred e pense and the gans are not
accrued ncome, as the case may be, unt the hedges are cosed out.
ccordngy, the ony remanng queston s whether by such treat-
ment of hedgng gans and osses a manufacturer who nventores at
cost or market, whchever s ower, emnates from net ncome the
dstorted resuts arsng from nventoryng at market where the rsks
of market fuctuatons have been emnated by hedges. ghy
sgnfcant n ths connecton s the asserton that the amount of such
gans or osses w not ordnary dffer materay n any ta abe
year, whether such tems are treated as accrued or ncurred ony
when the hedges are cosed out or as accrued or ncurred on open
hedges at the cose of the accountng perod. Ths smarty of resut
s due n part to the fact that most hedgng transactons are cosed
out n the year they are entered nto. Those that are open at the
cose of any accountng perod are cosed out durng the succeedng
year, as hedges can not be obtaned for onger than an 11-month
perod. so, t appears that about the same number of hedges are
carred over from year to year. Such wash factors resutng from
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155
42, rt. 42-3.
the consstent use of the present accountng practce operate nde-
pendenty of the usua wash tendences resutng from the consstent
use of the same method of nventory from year to year. It accord-
ngy appears that the above-dscussed accountng and nventory
methods now n use n the cotton te te ndustry are desgned to
refect ncome correcty.
It foows from the above that hedgng transactons are essentay
to be regarded as nsurance rather than a deang n capta assets
wthn the comprehenson of secton 117 of the Revenue ct of 1934.
Regardess of accountng or nventory methods n use, provsons per-
tanng to capta gans and osses govern gans or osses on futures
contracts whch are specuatve. utures contracts representng true
hedges aganst prce fuctuatons n spot goods are not specuatve
transactons, though not concurrent wth spot transactons. utures
contracts whch are not hedges aganst spot transactons are specu-
atve uness they are hedges aganst concurrent futures or forward
saes or purchases.
erman Ophant,
Genera Counse for the Department of the Treasury.
S CTION 42. P RIOD IN W IC IT MS O
GROSS INCOM INCLUD D.
rtce 42-3: ampes of constructve recept. -35-8265
G. C. M. 17025
R NU CTS O 11)18 ND 1934.
Where the wthdrawa of stock n a budng and oan assoca-
ton before maturty entas the forfeture of certan accumuatons
whch are dstrbuted ony to members who carry ther stock to
maturty, the accumuatons credted do not become unquafedy
sub|ect to the demand of the stockhoder unt the year of the
maturty of the stock and consttute ncome for that year.
Recommended that O. D. 1081 (C. . 5, 90) be revoked.
Ths offce has been requested to reconsder O. D. 1081 (C. . 5, 99),
whch t s stated s apparenty n confct wth G. C. M. 15565 (C. .
I -2, 105).
O. D. 1081 nvoved a case where under the by-aws of a cooperatve
bank the profts credted to a sharehoder coud not be wthdrawn n
ther entrety unt fve years had eapsed, but three fourths of such
profts coud be wthdrawn at any tme upon 30 days notce, n
whch case the other fourth woud be forfeted. It was hed n that
case that:
three-fourths of the profts credted to the sharehoder are credted
to or s t apart for hm wthout restrcton, and as such shoud be Incuded
n gross ncome for the year n whch so credted or set apart. The remanng
one-fourth becomes ncome, constructvey receved, at the end of the 5-year
perod, provded he has not prevousy wthdrawn hs shares.
G. C. M. 15565, supra, whch s n harmony wth the prncpe
announced n S. M. 5680 (C. . -, 32), hods that there can be
no constructve recept of that whch can be acqured or reduced to
possesson ony upon the surrender of vauabe rghts, and that
where the wthdrawa of stock n a budng and oan assoca-
ton before maturty entas the forfeture of certan accumuatons
whch are dstrbuted ony to members who carry ther stock to
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55(a).
156
maturty, the accumuatons credted do not become unquafedy
sub|ect to the demand of the stockhoder unt the year of the
maturty of the stock. ccordngy, t was concuded that such
accumuatons shoud be ncuded n gross ncome n the year of
the maturty of the stock.
In vew of the confct between the concuson reached n O. D.
1081, supra, and that contaned n G. C. M. 15565, supra, t s
recommended that O. D. 1081 be revoked.
erman Ophant,
Genera Counse for the Department of the Treasury.
P RT . R TURNS ND P YM NT O T .
S CTION 53. TIM ND PL C OR
ILING R TURNS.
rtce 53-2: tensons of tme for fng -31-8227
returns. T. D. 4673
Income ta Mutua nsurance companes other than fe. ur-
ther e tenson of tme for fng returns.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, I). C.
To Coectors of Interna Revenue and Others Concerned:
Pursuant to the provsons of secton 53 of the Revenue ct of 1934,
a further e tenson of tme for such perod as may be necessary, but
not ater than ugust 15, 1936, s hereby granted to mutua nsurance
companes other than fe for the fng of ncome ta returns, orm
1030, for the caendar year 1935.
Ths document s ssued under the authorty prescrbed by sectons
53 and 62 of the Revenue ct of 1934.
Guy T. everng,
Commssoner of Interna Revenue.
pproved uy 30, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 81, 1936, 3.30 p. m.)
S CTION 5.5(a) PU LICITY O R TURNS.
R NU CT O 1934.
Commttee on ducaton and Labor, Unted States Senate. (See
T. D. 4665, page 266.)
R NU CT O 1934.
Speca Commttee to Investgate Producton, Transportaton, and
Marketng of Woo, Unted States Senate. (See T. D. 4705, page 268.)
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157 101, rt. 101(8)-1.
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 101. MPTIONS ROM T
ON CORPOR TIONS.
rtce 101(4)-1: udng and oan assocatons -40-8332
and cooperatve banks. I. T. 3009
R NU CT O 1934.
The M Corporaton, organzed for the purpose of takng over
and qudatng the assets of a budng and oun assocaton
whch had been granted e empton from edera ncome ta aton,
s not tsef entted to such e empton.
dvce s requested whether the M Corporaton s entted to
e empton as a budng and oan assocaton under secton 101(4)
of the Revenue ct of 1934.
The facts n the case dscose that the M Corporaton was ncor-
porated n 1935 under the aws of the State of R, wth broad powers
to engage n busness, especay to buy, se, ease, e change, hod,
and dea n rea and persona property. It appears, however, that
the organzaton was ncorporated for the prmary purpose of tak-
ng over and qudatng the assets of the N Savngs and Loan sso-
caton, an organzaton e empt from edera ncome ta aton under
the provsons of secton 103(4) of the Revenue ct of 1932 and
correspondng provsons of pror Revenue cts.
The M Corporaton s an entty separate and dstnct from the N
Savngs and Loan ssocaton. The fact that the atter corporaton
was hed e empt from edera ncome ta aton- does not affect the
status of the M Corporaton. Snce two separate corporate enttes
are nvoved, the stuaton n the nstant case s dstngushabe from
that consdered n G. C. M. 12000 (C. . II-2, 62), n whch t was
concuded that where trustees hande a porton of the assets of a
bank for the purpose of qudatng them, the trust s not a separate
ta abe entty.
There s no provson of the Revenue ct of 1934 under whch the
organzaton n queston may be granted e empton from edera n-
come ta aton.
rtce 101(9)-1: Soca cubs. -41-8342
G. C. M. 16807
R NU CTS O 1026, 1028, 10U2, ND 1931.
The M Tenns Cub, whch rents that part of ts property not
occuped by cub budngs or tenns courts, s not entted to
e empton from edera ncome ta aton.
n opnon s requested whether the M Tenns Cub s entted
to e empton from edera ncome ta aton under secton 101(9)
of the Revenue ct of 1934 and the correspondng provsons of the
Revenue cts of 1926 to 1932, ncusve.
The M Tenns Cub was ncorporated under the aws of the State
of R as a nonproft organzaton, wthout capta stock, for the pur-
pose of acqurng and mantanng tenns courts, cubhouses, and
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101, rt. 101(9)- .
158
cubrooms for ts members. The cub purchased one entre cty bock
wth budngs thereon nasmuch as the owner of the property re-
fused to se a part of the premses. Subsequenty, a part of the
property was used for the cub budngs and tenns courts and the
remander was used for renta purposes. The property w be
rented unt the cub desres the use thereof to enarge ts actvtes.
The cub s ncome was derved from ntaton fees, dues, assess-
ments, and renta from the propertes. It s stated that no member
of the cub, uness he was a bondhoder under the second mortgage
coverng the premses, receved any porton of the cub s ncome. n
temzed statement submtted by the cub showng recepts and ds-
bursements coverng both cub actvtes and the rented propertes
for the years 1925 to 1935, ncusve, shows that the cub s net ncome
from rents durng those years was appro matey the same as the
net ncome from dues fees, and assessments.
Secton 101 of the Revenue ct of 1934 provdes that there sha
be e empt from ta aton
(9) Cubs organzed and operated e cusvey for peasure, recreaton, and
other nonproftabe purposes, no part of the net earnngs of whch nures to
the beneft of any prvate sharehoder
rtce 101(9)-1 of Reguatons 86 reads as foows:
Soca cubs. The e empton granted by secton 101(9) appes to practcay
a soca and recreaton cubs whch are supported by membershp fees, dues,
and assessments. If a cub, by reason of the comprehensve powers granted
n ts charter, engages n traffc, n agrcuture or hortcuture, or n the
sae of rea estate, tmber, etc., for proft, such cub Is not organzed and
operated e cusvey for peasure, recreaton, or soca purposes, and any proft
reazed from such actvtes s sub|ect to ta . If a cub, otherwse e empt,
ses any of Its property at a proft, t Is not e empt for the ta abe year
for whch the proft s ta abe.
In order to be entted to e empton under secton 101(9) of the
Revenue ct of 1934 and the reguatons ssued thereunder, two con-
dtons must be present, . e., (1) the cub must be operated e cu-
svey for nonproftabe purposes, and (2) no part of the net earn-
ngs may nure to the beneft of any prvate sharehoder. In rentng
ts property under the crcumstances stated, the organzaton here
nvoved was engagng n a busness ordnary carred on for proft.
Such actvtes were not carred on for the accommodaton of the
cub members or ther guests. It foows, therefore, that the organ-
zaton was not operated e cusvey for peasure, recreaton, or other
nonproftabe purposes.
In G. C. M. 9470 (C. . -2, 162), a gof cub, n order to secure
the and desred for cub purposes, was requred to purchase a arger
tract than t needed. It thereafter sod the surpus and for a proft
but was dened e empton. In that case t was sad:
cub may engage n ncdenta ncome-producng actvtes wthout osng
ts rght to e empton, but such actvtes shoud be mted to those carred on
for the accommodaton of members and ther guests. It Is not beeved that the
reguatons of the Department contempate that an organzaton organzed as
a soca or recreatona cub may engage n actvtes of the character here n
queston and be e empt on the theory that the cub s merey usng the ncome
so derved n the furtherance of ts actvtes.
Wth respect to the second test mposed by the ct, t appears that
f the cub dd not receve the renta ncome t woud have to modfy
or dscontnue ts other actvtes or rase ts membershp dues, whch
s ndcatve that the rentas do nure to the beneft of ts members.
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159
, 112(0, rt. 112(0-1.
In ths connecton reference s made to Unform Prntng Suppy
Co. v. Commssoner (33 . (2d), 445, certorar dened, 280 U. S.,
591), wheren the court sad:
True, such profts or net earnngs were nvested n machnery and
addtons, but that does not mean that such profts or net earnngs dd not
nure to the beneft of the stockhoders, so as to e empt pettoner from the
payment of ta es. The vaue of the property of pettoner was enhanced to
the e tent of the profts earned durng that year. Therefore, such profts
or net earnngs dd nure to the beneft of the stockhoders. The property of
pettoner company may be sod at any tme, and the proceeds thereof dvded
among the stockhoders. In other words, the profts or net Income Is Incuded
n the vaue of the property owned by pettoner company, and, upon utmate
dssouton, the proceeds may be dvded among ts stockhoders. ( emper
Mtary Schoo v. Crutchcy (D. C), 274 ., 125.)
In The ssocates v. Commssoner (28 . T. ., 521) the cub was
organzed to engage n soca and recreatona pursuts, ncudng
fshng, gof, and tenns, apparenty wth a vew to accumuatng a
budng fund. It bought and sod securtes and made a substanta
proft thereby. The oard hed that the cub was not e empt from
ta aton, regardess of whether such proft mght nure to the beneft
of any prvate sharehoder, nasmuch as the cub was not operated e -
cusvey for the purposes specfed n the ct.
The prncpe s frmy estabshed that statutory e emptons must
be strcty construed. The Unted States Supreme Court n Chcago
Theoogca Semnary v. Inos (188 U. S., 662) stated:
The rue s that, n cams for e empton from ta aton under egsatve
authorty, the e empton must be pany and unmstakaby granted t can
not e st by mpcaton ony a doubt Is fata to the cam.
In vew of the foregong, t s the opnon of ths offce that the
M Tenns Cub s not entted to e empton from edera ncome
ta aton under secton 101(9) of the Revenue ct of 1934 and the
correspondng provsons of pror Revenue cts.
erman Ophant,
Genera Counse for the Department of the Treas ry.
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112(f). R COGNITION O G IN OR LOSS:
IN OLUNT RY CON RSIONS.
rtce 112(f)-: Renvestment of proceeds of -39-8329
nvountary conversons. T. D. 4098
( so Secton 113(a), rtce 113(a) (9)-.)
INCOM T .
rtces 112(f)- and 113(a) (9)- of Reguatons 83, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The second paragraph of artce 112(f)- of Reguatons 86 s
amended to read:
If, n a condemnaton proceedng, the Government retans out of the award
suffcent funds to satsfy ens and mortgages aganst the property and tsef
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160
pays the same, the amount so retaned shoud be Incuded In determnng the
amount of the net award. n amount e pended for repacement of an asset, n
e cess of the recovery for oss, represents a capta e pendture and Is not a
deductbe oss for Income ta purposes.
rtce 113(a)(9)- of Reguatons 86 s amended to read:
rt. 113(a) (9)-. Property acqured as a resut of an nvountary conver-
son. The provsons of secton 113(a) (9) may be ustrated by the foowng
e ampe:
ampe: vesse purchased by n 1926 for 100,000 s destroyed n 1034 and
receves nsurance n the amount of 200,000. Dsregardng, for the purpose
of ths e ampe, the ad|ustment for deprecaton, f Invests 150,000 In a new
vesse, ta abe gan the e tent of 50,000 woud be recognzed. The bass of the
new vesse s 100,000 that s, the cost of the od vesse ( 100,000) mnus the
money receved by the ta payer whch was not e pended n the acquston of
the new vesse ( 50,000) pus the amount of gan recognzed upon the converson
( 50,000).
If any amount In e cess of the proceeds of the converson s e pended n the
acquston of the new property, such amount may be added to the bass otherwse
determned.
Ths Treasury decson s ssued under the authorty prescrbed by
secton 62 of the Revenue ct of 1934.
Gt|y T. everng,
Commssoner of Interna Revenue.
pproved September 23, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 25, 1930, 2.38 p. m.)
S CTION 113(a). D UST D SIS OR D T RMINING
G IN OR LOSS: SIS (UN D UST D) O PROP RTY.
rtce 113(a) (9)-: Property acqured as a resut of
an nvountary converson.
R NU CT O 1934.
mendment of Reguatons 86, artce 113(a) (9)-. (See T. D.
4698, page 159.)
S CTION 116. CLUSIONS ROM GROSS INCOM .
-38-8304
L T. 3006
NO CT O 1934.
If an mercan consuar agent meets the requrements of secton
116(a) of the Revenue ct of 1934, the fees receved by hm for the
servces enumerated n secton 8 of the ct of pr 5, 1906, shoud
not be ncuded n gross ncome In computng the edera Income
ta abty of such an ndvdua.
dvce s requested concernng the status, for edera ncome ta
purposes, of fees retaned by mercan consuar agents.
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161
117, rt. 117-1.
The pertnent secton of the ct approved pr 5, 1906 (34 Stat.,
99), whch reates to the compensaton of consuar agents, s as
foows:
Sec. 8. That a fees, offca or unoffca, receved by any offcer n the con-
suar servce for servces rendered n connecton wth the dutes of hs offce or
as a consuar offcer, ncudng fees for notara servces, and fees for takng
depostons, e ecutng commssons or etters rogatory, settng estates, recevng
or payng out moneys, carng for or dsposng of property, sha be accounted for
and pad nto the Treasury of the Unted States, and the soe and ony com-
pensaton of such offcers sha be by saares f ed by aw but ths sha not
appy to consuar agents, who sha be pad by one haf of the fees receved n
ther offces, up to a ma mum sum of 1,000 n any one year, the other haf beng
accounted for and pad nto the Treasury of the Unted States.
Itacs supped.
Secton 116 of the Revenue ct of 1934 provdes n part that the
foowng tems sha not be ncuded n gross ncome and sha be
e empt from ta aton under that ct:
(a) arned ncome from sources wthout Unted Sates. In the case of an
ndvdua ctzen of the Unted States, a bona fde nonresdent of the Unted
States for more than s months durng the ta abe year, amounts receved from
sources wthout the Unted States (e cept amounts pad by the Unted States
or any agency thereof) f such amounts woud consttute earned ncome as defned
n secton 25(a) f receved from sources wthn the Unted States but such
ndvdua sha not be aowed as a deducton from hs gross ncome any deduc-
tons propery aocabe to or chargeabe aganst amounts e cuded from gross
Income under ths subsecton.
The ureau has hed n construng the phrase a bona fde non-
resdent of the Unted States for more than s months durng the
ta abe year that t appes to any mercan ctzen who s actuay
outsde the Unted States for more than s months durng the ta abe
year. The absence need not be contnuous, but may be made up of
severa trps where the perods of absence from the Unted States
amount n the aggregate to more than s months durng the ta abe
year. (G. C. M. 9848, C. . -2,178.)
ees for notara servces, for takng depostons, e ecutng com-
mssons or etter rogatory, settng estates, recevng or payng out
moneys, carng for or dsposng of property, and/or smar servces
rendered by an ndvdua consttute earned ncome wthn the
meanng or that term as denned n secton 25(a) of the Revenue ct
of 1934.
ccordngy, f an mercan consuar agent meets the requrements
of secton 116(a) of the Revenue ct of 1934, the fees receved by
hm for the servces enumerated n secton 8 of the ct of pr 5,
1906, supra, shoud not be ncuded n gross ncome n computng the
edera ncome ta abty of such an ndvdua.
S CTION 117. C PIT L G INS ND LOSS S.
rtce 117-1: Meanng of capta assets.
R NU CT O 1934.
Transactons n futures contracts on commodty e changes. (See
G. C. M. 17322, page 151.)
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5117, rt. 117-4. 162
rtce 117-3: Determnaton of perod for -41-8341
whch capta assets are hed. T. D. 4700
R NU CT O 1934.
Income ta . rtce 117-3 of Reguatons 86, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
The second, thrd, and fourth sentences of the frst paragraph of
artce 117-3 of Reguatons 86 are amended by strkng out the
words added to and nsertng n eu thereof the words ncuded
n.
Ths document s ssued under the authorty prescrbed by secton
62 of the Revenue ct of 1934.
Gut T. evehng,
Commssoner of Interna Revenue.
pproved October 2, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster October 6, 1936, 12.49 p. m.)
rtce 117-4: ppcaton of secton 117 -36-8287
generay. G. C. M. 16793
R NU CT O 1034.
oss sustaned by n 1934 upon the sae of property used
by hn as a persona resdence from the date of acquston n 1921
unt paced on the market for sae n 1929, and thereafter hed ony
for that purpose, s not an aowabe deducton. The provsons of
secton 23(|) and secton 117(d) of the Revenue ct of 1934 do not
permt the aowance of such a oss.
purchased property n 1921 and used t as hs persona resdence
unt 1929, when t was paced on the market for sae. The property
was hed ony for that purpose unt 1934, when he dsposed of t at a
substanta oss. The opnon of ths offce s requested whether any
part of such oss s deductbe n vew of the provsons of secton
23(|) of the Revenue ct of 1934 and secton 117(d) of that ct.
Secton 23 of the Revenue ct of 1934 provdes n part that
In computng net ncome there sha be aowed as deductons:

(e) Louses by ndvduas. In the case of an ndvdua, osses sustaned
durng the ta abe yetr and not compensated for by nsurance or otherwse
(1) f ncurred n trade or busness or
(2) f ncurred n any transacton entered nto for proft, though not con-
nected wth the trade or busness

( ) Capta osses. Losses from saes or e changes of capta assets sha be
aowed ony to the e tent provded n secton 117(d).
Secton 117 of the Revenue ct of 1931 provdes n part as foows:
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163
117, rt. 117-4.
(a) Genera rue. In the case of a ta payer, ether than a corporaton,
ony the foowng percentages of the gan or oss recognzed upon the sae
or e change of a capta asset sha be taken nto account n computng net
ncome:

(d) Lmtaton on capta osses. Losses from saes or e changes of capta
assets sha be aowed ony to the e tent of 2,000 pus the gans from such
saes or e changes. Itacs supped.
rtce 23(e)- of Reguatons 86 provdes n part as foows:
oss on the sae of resdenta property purchased or constructed by the
ta payer for use as hs persona resdence and so used by hm up to the tme
of the sae s not deductbe. If, however, property so purchased or constructed
s pror to ts sae rented or otherwse approprated to ncome-producng pur-
poses and s used for such purposes up to the tme of ts sae, a oss from the sae
of the property, computed as provded n secton 111, s, sub|ect to the mtatons
provded n secton 117, an aowabe deducton n an amount not to e ceed
the e cess of the vaue of the property at the tme t was approprated to
ncome-producng purposes (wth proper ad|ustment for deprecaton) over the
amount reazed from the sae. Itacs supped.
The Crcut Court of ppeas for the fth Crcut n Morgan v.
Commssoner (76 ed. (2d), 390), affrmng memorandum opnon
of the oard of Ta ppeas, certorar dened (296 U. S., 601),
dened a oss camed under the Revenue ct of 1928 on the sae
of a resdence whch had been abandoned as such and paced on the
market for sae or rent, but n respect of whch there was before
the sae no actua transacton entered nto for proft. In the nstant
case the ta payer contends that the rue announced n that decson
s not appcabe under the Revenue ct of 1934, n whch secton
23 (|) was contaned for the frst tme, and that the oss sustaned by
hm on the sae of a capta asset consttutes a proper deducton
to the e tent of 2,000 under the mtaton on capta osses con-
taned n secton 117(d) of the Revenue ct of 1934.
It s cear, n the opnon of ths offce, from the above-quoted
statutory provsons that the mtaton n secton 117(d) on osses
from saes or e changes of capta assets to 2,000 pus the gans
from such saes or e changes s n respect of such osses whch are
recognzed under the aw and taken nto account n computng net
ncome. Snce a oss from the sae by an ndvdua of a house used
by hm ony for persona resdence purposes s nether ncurred
n trade or busness nor n any transacton entered nto for proft,
though not connected wth the trade or busness, t s not a oss so
recognzed and taken nto account n computng net ncome. c-
cordngy, such a oss s not aowabe as a deducton to any e tent.
Secton 23(|) s. n the opnon of ths offce, but a cross-reference
to secton 117(d) for the purpose of nvtng attenton to the m-
taton on osses from the sae or e change of capta assets whch
are recognzed and taken nto account n computng net ncome.
That the mtaton n secton 117(d) reates ony to capta osses
whch are recognzed and taken nto account n computng net
ncome and that secton 23(|) s merey a cross-reference to such
mtaton s confrmed by the anguage contaned n reports of the
Commttee on Ways and Means and the Senate Commttee on nance
on the egsaton. The commttees recommended n part as foows:
rst. To measure the gan or oss from the sae of property by an n-
dvdua accordng to the ength of tme he has hed the property, ony the
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121.
164
foowng percentages of te recognzed gan or oss are taken nto account for
ta purposes:

Second. In the cases where the osses taken nto account as above e ceed
the gans so taken nto account, the e cess osses are entrey dsaowed.

Secton 23 (e) and (f). Losses: These subsectons are the same as e st-
ng aw e cept for cerca changes.
Secton 23(|). Capta osses:
Ths provson s an mportant part of the new pocy recommended for the
treatment of capta gans and osses from the sae or e change of property,
as aready descrbed. It makes t cear that ndvduas and corporatons are
entted to deduct capta osses ony to the e tent provded n secton
117. Itacs supped.
(See Commttee on Ways and Means Report No. 704, pages 10 and
22 Senate Commttee on nance Report No. 558, pages 12 and 25.)
Moreover, to aow a oss, even n a mted amount, from the sae
of a house used by a ta payer for persona resdence purposes ony
woud be repugnant to the provsons of secton 24(a) 1 of the
Revenue ct of 1934, whch provdes that n computng net ncome
no deducton sha n any case be aowed n respect of persona,
vng, or famy e penses.
The rue that ambgutes n statutes mposng ta es are to be
resoved n favor of ta payers does not appy. Deductons are
aowed onv when pany authorzed. (Chares Ifed Co. v. er-
nandez, 292 U. S., 62, Ct. D. 819, C. . III-1, 139 New Coona
Ice Co. v. everng, 292 U. S., 435, Ct. D. 841, C. . III-1. 194
everng v. Inter-Mountan Lfe Ins. Co., 294 U. S., 686, Ct. D.
950, C. . I -1, 339.)
In vew of the foregong, t s the opnon of ths offce that the
oss n the nstant case shoud not be aowed n any amount.
erman Ophant,
Genera Counse for the Department of the Treasury.
S CTION 121. D DUCTION O DI ID NDS P ID
ON C RT IN PR RR D STOC O
C RT IN CORPOR TIONS.
-28-8172
I. T. 2989
R NU CT OP 1034.
Under secton 121 of the Revenue ct of 1934, added thereto by
the ct of ugust 27, 1935 (49 Stat., 908), dvdends pad on pre-
ferred stock of the M ank owned by the N Securtes Corpora-
ton but used as coatera for obtanng a oan by the M ank
from the Reconstructon nance Corporaton are not deductbe
n computng the edera ncome ta abty of the bank, not-
wthstandng a suppementa agreement to appy such dvdends
n payment of nterest on the oan.
dvce s requested reatve to the deductbty by the M ank
of dvdends pad on ts cass preferred stock owned by the N
Securtes Corporaton but used by the M ank as coatera n secur-
ng a oan from the Reconstructon nance Corporaton. The de-
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1G5
( 121.
dueton s camed under the provsons of secton 121 of the Revenue
ct of 1934, as added by the ct of ugust 27, 1935 (49 Stat., 908).
Durng the year 1935 the M ank had outstandng cass pre-
ferred stock and ca s preferred stock, on both of whch ssues
reguar dvdends were pad durng that year. of the cass
preferred stock of the bank, ssued n uy, 1934, was sod to the
Reconstructon nance Corporaton. The M ank organzed a sep-
arate corporaton known as the N Securtes Corporaton wth a
nomna capta, whch corporaton subscrbed for the entre ssue
of cass preferred stock of the M ank. The cass stock, a-
though subscrbed for and sod to the N Securtes Corporaton, was
used by the M ank, together wth other coatera, as securty for
an addtona oan from the Reconstructon nance Corporaton.
t the tme of securng the oan the M ank e ecuted an agreement
under the terms of whch the votng prveges of the stock were
assgned to the Reconstructon nance Corporaton, and t was
further agreed that the dvdends on the cass stock woud be pad
drect to the Reconstructon nance Corporaton to be apped frst
on the payment of nterest on the oan and the baance, f any, on
the prncpa of a note ssued to the N Securtes Corporaton by the
M ank on account of the use of the stock n queston as coatera
securty. The ssue presented s whether such dvdends are deduct-
be by the M ank under the provsons of the ct of ugust 27,
1935, supra, whch provdes:
Sec. 3. Tte I of the Revenue ct of 1034, reatng to ncome ta , s amended
by addng after secton 120 a new secton readng as foows:
Sec. 121. Deducton of dvdends pad on certan preferred stock of certan
corporatons. In computng the net ncome, for any ta abe year begnnng
after December 31, 1934, of any natona bankng assocaton, or of any bank or
trust company organzed under the aws of any State, Terrtory, possesson
of the Unted States, or the Cana Zone, or of any other bankng corporaton
engaged n the busness of ndustra bankng and under the supervson of a
State bankng department or of the Comptroer of the Currency, or of any
ncorporated domestc nsurance company, there sha be aowed as a deducton
from gross ncome, n addton to deductons otherwse provded for n ths
tte, any dvdend (not ncudng any dstrbuton n qudaton) pad, wthn
such ta abe year, to the Unted States or to any nstrumentaty thereof
e empt from edera ncome ta es, on the preferred stock of the corporaton
owned by the Unted States or such nstrumentaty.
In order for the above amendment to the Revenue ct of 1934 to
appy, the preferred stock of the casses of nsttutons named n the
ct must be owned by the Unted States, or an nstrumentaty
thereof e empt from edera ncome ta es. The facts n the present
case dscose that the cass stock of the M ank s not owned by the
Reconstructon nance Corporaton but was subscrbed for and sod
to the N Securtes Corporaton, a separate corporate entty. That
corporaton s the ega owner of the stock, wnch was used as co-
atera securty for an addtona oan from the Reconstructon
nance Corporaton. ccordngy, dvdends pad by the M ank
on cass stock owned by the N Securtes Corporaton, notwth-
standng a suppementa agreement wth respect to the use of the
dvdends thereon to pay nterest on the oan, are not deductbe
by the M ank n computng ts edera ncome ta abty.
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5165.
166
SUPPL M NT C CR DITS G INST T .
S CTION 131. T S O OR IGN COUNTRI S
ND POSS SSIONS O UNIT D ST T S.
rtce 131-5: Countres whch do or do not satsfy
the smar credt requrement.
R NU CT O 1934.
Netherands Indes. (See I. T. 3014, page 105.)
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 143. WIT OLDING O T T SOURC .
rtce 143-1: Wthhodng ta at source.
R NU CT O 193 4.
Labty of the M Penson Trust to fe wthhodng returns. (See
I. T. 2996, beow.)
S CTION 147. IN ORM TION T SOURC .
rtce 147-3: Cases where no return of nformaton requred.
R NU CT O 1934.
Labty of the M Penson Trust to fe nformaton returns. (See
I. T. 2996, beow.)
SUPPL M NT . ST T S ND TRUSTS.
S CTION 162. N T INCOM .
rtce 162-1: Income of estates and trusts.
R NU CT O 1934.
Profts from sae of trust corpus pad or credted to benefcares.
(See G. C. M. 17233, page III.)
S CTION 165. MPLOY S TRUSTS.
( so Secton 143, rtce 143-1 Secton -32-8229
147, rtce 147-3.) I. T. 2996
R NU CT O 1934.
Labty of the M Penson Trust, an empoyees trust under
secton 165 of the Itevenue ct of 1934, to fe fducary, nforma-
ton, and wthhodng returns.
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167
207, rt. 207-1.
The M Penson Trust, whch was formed by the N Company for
the purpose of payng retrement aowances or pensons to ts em-
poyees, a number of whom are nonresdent aens, and whch qua-
fes as an empoyees trust under the provsons of secton 165 of the
Revenue ct of 1934, has requested advce reatve to ts abty to
fe fducary, nformaton, and wthhodng returns under the Reve-
nue ct of 1934.
The ureau has hed that a fducary return on orm 1041 s not
requred to be fed by a trust whch comes wthn the provsons of
secton 165 of the Revenue ct of 1928. (G. C. M. 6060, C. .
III-1, 108.) The same rue s appcabe under the Revenue ct
of 1934.
The domestc trustees of the M Penson Trust shoud fe returns
of nformaton on orm 1099 wth respect to pensons pad to retred
empoyees as provded by artce 147-2 of Reguatons 86. owever,
returns of nformaton need not be fed n cases where (1) the pen-
son s pad to a nonresdent aen ndvdua as compensaton for
abor or servces performed wthout the Unted States, or (2) the
penson s pad to a ctzen of the Unted States for servces rendered
abroad and the pensoner s a bona fde nonresdent of the Unted
States for more than s months durng the ta abe year n whch
the penson s receved.
No wthhodng return of ncome pad to a nonresdent aen bene-
fcary s requred to be fed by the domestc trustees. (See artce
143-1, Reguatons 86.) If the penson pad to such nonresdent aen
benefcary represents compensaton for abor or servces performed
wthn the Unted States, and s, therefore, ncome from sources
wthn the Unted States, a return n hs behaf on orm 1040- s
requred to be fed by the fducary. (See artce 142-5, Reguatons
86.)
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 207. MUTU L INSUR NC COMP NI S
OT R T N LI .
rtce 207-1: Casses of mutua nsurance -39-8328
companes other than fe. T. U. 4697
Mutua nsurance companes otcr than fe. Deductons. rt-
ce 207-1, Reguatons 86, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 207-1 of Reguatons 86 s hereby revoked and n eu
thereof there are hereby prescrbed the foowng reguatons:
rt. 207-1. Gross ncome of mutua nsurance companes other than fe.
The gross ncome of mutua nsurance companes (other than fe) conssts
of ther tota revenue from the operaton of the busness and of ther ncome
from a other sources wthn the ta abe year, e cept as otherwse provded
by the ct. Gross ncome ncudes net premums (that s, gross premums
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207, rt. 207-1.
168
ess returned premums on poces canceed and premums on poces not
taken), nvestment ncome, profts from te sae of assets, and a gans,
profts, and ncome reported to the State nsurance departments, e cept ncome
specfcay e empt from ta . Premums receved by mutua marne nsurance
companes whch are pad out for rensurance shoud be emnated from
gross Income and the payments for rensurance from dsbursements. Depost
premums on perpetua rsks receved and returned by mutua fre nsurance
companes shoud be treated n the same manner, as no reserve w be
recognzed coverng abty for such deposts. The earnngs on such deposts,
ncudng such porton, f any, of the deposts as s not returned to the
pocyhoders upon canceaton of the poces, must be ncuded In the gross
ncome. net decrease In reserve funds requred by aw wthn the ta abe
year must be ncuded n the gross ncome to the e tent that such funds are
reeased to the genera uses of the company and ncrease ts free assets. ny
net decrease n reserves sha be added to the gross ncome, uness the company
sha show that such decrease resuted from the appcaton of reserves to
the purposes for whch they were estabshed.
rt. 207-2. Deductons aowed mutua nsurance companes other than fe
nsurance companes. Mutua nsurance companes (other than fe nsurance
companes) are entted to the same deductons from gross ncome as other cor-
poratons, and aso to the deducton of the net addton requred by aw to be
made wthn the ta abe year to reserve funds and of the sums other than dv-
dends pad wthn the ta abe year on pocy and annuty contracts. s to fe
nsurance companes, see sectons 201-203 and artces 201(a)--203(c)-. In-
surance companes, other than mutua and fe companes, are entted ony to
the deductons aowed by secton 204(c). (See artce 204(c)-.) Mutua n-
surance companes are not entted to the deductons aowed by secton 204(c),
but (e cept n the case of fe nsurance companes) are entted to the deduc-
tons aowed by secton 23. Pad ncudes accrued or Incurred (con-
strued accordng to the method of accountng upon the bass of whch the net
ncome s computed) durng the ta abe year, but does not ncude any estmate
for osses ncurred but not reported durng the ta abe year.
rt. 207-3. Requred addton to reserve funds of mutua nsurance com-
panes. Mutua nsurance companes, other than fe nsurance companes, may
deduct from gross ncome the net addton requred by aw to be made wthn
the ta abe year to reserve funds, ncudng n the case of assessment nsurance
companes the actua depost of sums wth State or Terrtora offcers pursuant
to aw as addtons to guarantee or reserve funds. Reserve funds requred by
aw ncude not ony reserves requred by e press statutory provsons but aso
reserves requred by the rues and reguatons of State nsurance departments
when promugated n the e ercse of an approprate power conferred by statute,
but do not ncude assets requred to be hed for the ordnary runnng e penses
of the busness, such as ta es, saares, rensurance, and unpad brokerage.
Ony reserves commony recognzed as reserve funds n nsurance accountng are
to be taken nto consderaton n computng the net addton to reserve funds
requred by aw. In the case of a fre nsurance company the ony reserve fund
commony recognzed Is the unearned-premum fund. or a genera defnton
of reserve fund see artce 203(a) (2)-. Mutua ha and mutua cycone
Insurance companes are entted to deduct from gross ncome the net addton
whch they are requred to make to the guarantee surpus fund or smar
fund.
rt. 207-4. Speca deductons aowed mutua marne nsurance companes.
Mutua marne nsurance companes shoud ncude In gross Income the gross
premums coected and receved by them ess amounts pad for rensurance.
They may deduct from gross ncome amounts repad to pocyhoders on account
of premums prevousy pad by them, together wth the nterest actuay pad
upon such amounts between the date of ascertanment and the date of payment
thereof. The remander of the premums accordngy forms part of the net
ncome of the company, e cept to the e tent that t s sub|ect to the deductons
aowed such nsurance companes and other corporatons.
rt. 207-5. Speca deductons ao oed mutua nsurance companes. Mutua
nsurance companes (ncudng nternsurers and recproca underwrters, hut
not ncudng mutua fe and mutua marne nsurance companes), whch re-
qure ther members to make premum deposts to provde for osses and e -
penses, are aowed to deduct from gross ncome the aggregate amount of pre-
mum deposts returned to ther pocyhoders or retaned for the payment of
osses, e penses, and rensurance reserves. In determnng the amount of
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216, rt, 216-1.
premum deposts retaned by a mutua fre or mutua casuaty Insurance com-
pany for the payment of osses, e penses, aud rensurance reserves, t w be
presumed that osses and e penses have been pad out of earnngs aud profts
other than premums to the e tent of such earnngs and profts. If, however,
any porton of such amount s apped durng the ta abe year to the payment
of osses, e enses, or rensurance reserves, for whch a separate aowance s
taken, then such porton s not deductbe and f any porton of such amount
for whch an aowance s taken s subsequenty apped to the payment of
e penses, osses, or rensurance reserves, then such payment can not be sepa-
ratey deducted. The amount of premum deposts retaned for the payment of
e penses and osses, and the amount of such e penses and osses, may not
both be deducted. company whch nvests part of the premum deposts so
retaned by t n nterest-bearng securtes may nevertheess deduct such part,
but not the nterest receved on such securtes. mutua fre nsurance com-
pany whch has a guaranty capta s ta ed ke other mutua fre nsurance
companes. stock fre nsurance company, operated on the mutua pan to
the e tent of payng dvdends to certan casses of pocyhoders, may make a
return on the same bass as a mutua fre nsurance company wth respect to
ts busness conducted on the mutua pan.
rt. 207-6. Returns of nsurance companes. Insurance companes transact-
ng busness n the Unted States or dervng any ncome from sources theren
are requred to fe returns of ncome. The return sha be on orm 1120, e cept
that fe nsurance companes sha make return on orm 11201... s an ad
n audtng the returns, wherever possbe a copy of the report to the State
nsurance department shoud be submtted wth the return. Otherwse a copy
of Schedue D, parts 1, 3, and 4, of the report shoud be attached to the return,
showng the edera, State, and muncpa obgatcns from whch the nterest
omtted from gross ncome was derved, and a copy of the compete report
shoud be furnshed as soon as ready for fng.
Ths document s ssued pursuant to the authorty conferred by sec-
ton 62 of the Revenue ct of 1934.
Gt|y T. everng,
Commssoner of Interna Revenue.
pproved September 22, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 25, 1936, 9.43 a. n.)
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 216. R TURNS.
rtce 216-1: Return of ncome of nonresdent -27-8152
aen ndvduas, I. T. 2987
R NU CT O 1934.
If a return Is fed by a person havng charge or care of the
person or property of a nonresdent aen, a power of attorney,
orm 935, need not be attached. Such a return shoud, however,
be accompaned by a statement that t s fed n accordance wth
artce 216-1 of Reguatons 80.
dvce s requested whether powers of attorney must accompany
returns fed n behaf of certan nonresdent aens for whom and
I act as agents n the coecton of ncome from sources wthn the
Unted States. and act under genera powers of attorney for
severa nonresdent aens and receve sma amounts of ncome,
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251, rt. 251-1.
170
such as nterest, rent, etc., accrung to the nonresdent aens from
estates of deceased persons n the process of admnstraton.
Secton 51(c) of the Revenue ct of 1934 provdes that f the ta -
ayer s unabe to make hs own return, the return sha be made
y a duy authorzed agent or by the guardan or other person
charged wth the care of the person or property of such ta payer.
Under the provsons of artce 216-1, Reguatons 86, as we as
other artces of the reguatons, a person havng the contro of the
ncome of a nonresdent aen s requred to fe a return and pay
the ta n behaf of such nonresdent aen ndvdua. rtce 216 1
of Reguatons 86 provdes n part as foows:
The responsbe representatves or agents of nonresdent aens n
connecton wth any sources of ncome whch such nonresdent aens may
have wthn the Unted States sha make a return of the ncome from such
sources, and sha pay any norma ta or surta assessed upon the ncome re-
ceved by them n behaf of ther nonresdent aen prncpas, n a cases
where the ta on ncome so n ther recept, custody, or contro sha not have
been wthhed at the source.
That provson of the reguatons contempates that an ndvdua
return on orm 1040- sha be fed by the responsbe representa-
tve of the nonresdent aen wth respect to a ncome receved by
such representatve from sources wthn the Unted States beongng
to the nonresdent aen. In such cases f the responsbe representa-
tve does not have a specfc power of attorney from the nonresdent
aen to fe a return n hs behaf, the return shoud be accompaned
by a statement to the effect that the representatve does not possess
specfc power of attorney to fe a return, orm 1040- , but that the
return s fed n accordance wth the provsons of artce 216-1 of
Reguatons 86. In other words, f a return s fed n pursuance
to a requrement of the reguatons by a person havng charge or
care of the person or property of the ta payer, the return need not
be accompaned by a power of attorney, orm 935.
SUPPL M NT . POSS SSIONS O T UNIT D ST T S.
S CTION 251. INCOM ROM SOURC S WIT IN
POSS SSIONS O UNIT D ST T S.
rtce 251-1: Ctzens of the Unted States and -29-8183
domestc corporatons dervng ncome from I. T. 2990
sources wthn a possesson of the Unted States.
R NU CT O 1934.
The Phppne Isands come wthn the cassfcaton of posses-
sons of the Unted States for edera ncome ta purposes,
notwthstandng the estabshment of the Commonweath of the
Phppnes under the ct of March 24, 1934 (48 Stat., 456).
dvce s requested reatve to the status of the Phppne Isands
snce the procamaton by the Presdent of the Unted States of the
e stence of the Commonweath of the Phppnes, dated November
14, 1935. The queston arses by reason of the provsons of secton
251 of the Revenue ct of 1934, reatng to the method of ta ng
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251, rt. 251-1.
ncome receved by ctzens of the Unted States and domestc cor-
poratons from sources wthn possessons of the Unted States.
The procamaton by the Presdent of the Unted States reads n
part as foows:
Whereas pursuant to the provsons of the ct of Congress entted n ct
to provde for the compete ndependence of the Phppne Isands, to provde
for the adopton of a consttuton and a form of government for the Phppne
Isands, and for other purposes, approved March 24, 1934 (48 Stat., 456), and
n accordance wth the consttuton of the Commonweath of the Phppnes
heretofore adopted and ratfed by the peope of the Phppne Isands, an eec-
ton was hed n the Phppne Isands on September 17, 1935, for the purpose
of eectng offcers of the government of the Commonweath of the Phppnes

nd I do further announce and procam that, n accordance wth the pro-
vsons of the aforesad ct, upon such promugaton of ths procamaton the
e stng Phppne Government sha termnate and the government of the
Commonweath of the Phppnes sha enter upon ts rghts, prveges, powers,
and dutes as provded under the sad consttuton of the Commonweath of the
Phppnes.
The ct approved March 24, 1934 (48 Stat., 456), provdes that
unt the compete wthdrawa of the soveregnty of the Unted States
over the Phppnes, whch w not occur unt the 4th day of uy
mmedatey foowng the e praton of a perod of 10 years from the
Unted States retans certan rghts of possesson, supervson, |urs-
dcton, contro, and soveregnty over the terrtory and peope of the
Phppnes. Unt the fna and compete wthdrawa of the sov-
eregnty of the Unted States, a ctzens of the Phppne Isands
owe aegance to the Unted States. very offcer of the government
of the Commonweath of the Phppne Isands upon enterng the
dscharge of hs dutes must take ana subscrbe an oath of offce de-
carng, among other thngs, that he recognzes and accepts the su-
preme authorty of the Unted States and w mantan true fath
and aegance to t. The foregn affars of the Phppne Isands
are under the drect supervson and contro of the Unted States and
the decsons of the courts of the Commonweath of the Phppne
Isands are sub|ect to revew by the Supreme Court of the Unted
States.
The Unted States may, by Presdenta procamaton, e ercse the
rght to ntervene for the preservaton or mantenance of the gov-
ernment of the Commonweath of the Phppnes and for the pro-
tecton of fe, property, and ndvdua berty, and the dscharge
of government obgatons under and n accordance wth the prov-
sons of ts consttuton prescrbed by the ct of March 24, 1934.
The trade reatons between the Unted States and the Phppne
Isands are to be governed by e stng aw and certan eves on
mports are estabshed. very amendment to the consttuton of
the Commonweath of the Phppnes must be submtted to the
Presdent of the Unted States for approva. The Presdent of the
Unted States has the authorty to suspend the takng effect of or
the operaton of any aw, contract, or e ecutve order of the govern-
ment of the Phppnes whch n hs |udgment w resut n a
faure of the government of the Commonweath of the Phppne
Isands to fuf ts contracts, or to meet ts bonded ndebtedness, or
s abe to mpar the reserves for the protecton of the currency of
new Phppne Government, the
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172
the Phppnes, or whch n hs |udgment w voate nternatona
obgatons of the Unted States. Provson s made for the appont-
ment by the Presdent of the Unted States of a representatve n
the person of the Unted States gh Commssoner, who sha hod
offce at the peasure of the Presdent.
The Government of the Unted States e ercses powers over the
Phppne Isands whch are those of a soveregn. s prevousy
stated, the compete soveregnty of the Unted States w not be
surrendered unt the 4th day of uy mmedatey foowng the
e praton of a perod of 10 years from the date of the nauguraton
of the new Phppne Government.
In vew of the foregong, t s evdent that by the estabshment of
the Commonweath of the Phppnes under the ct of March 24,
1934, the Phppne Isands have not ceased to be a possesson of the
Unted States. It s hed, therefore, that the Phppne Isands
come wthn the cassfcaton of possessons of the Unted States
for edera ncome ta purposes.
SUPPL M NT L. SS SSM NT ND COLL CTION O D ICI NCI S.
S CTION 272. PROC DUR IN G N R L.
rtce 272-1: ssessment of a defcency. -33-8244
Ct. D. 1145
INCOM T R NU CTS O 192S ND 1934 D CISION O COURT.
oard of Ta ppeas ursdcton Pettons Dspatched dt
r Ma Deay n ng Due to dverse Weather Cond-
tons.
Where pettons for redetermnaton of defcences were maed
n tme, under the schedued ar ma servce, to be receved by the
oard of Ta ppeas wthn the 90-day perod prescrbed by sec-
ton 272(a) of the Revenue ct of 1928, as amended by secton 501
of the Revenue ct of 1934, but due to adverse weather condtons
they were not receved and fed unt the nnety-second day after
the defcency notces were maed, the oard has no rght or power
to consder the pettons.
Unted States Crcut Court of ppeas fob the fth Crcut.
Tom Poynor, pettoner, v. Commssoner of Interna Revenue, respondent.
Mrs. Tom Poynor, pettoner, v. Commssoner of Interna Revenue, rctyondent.
Pettons for revew of decsons of Unted States oard of Ta ppeas (dstrct of
Te as).
efore oster, Sbey, aud Waker, Crcut udges.
March 7, 1936.
opnon.
Waker, Crcut udge: In each of these cases the oard of Ta ppeas
sustaned a moton of the respondent to dsmss the ta payer s petton to
the oard for a redetermnaton of a defcency determned by the Comms-
soner wth respect to the pettoner s ncome ta abty for the year 1929,
on the ground ttat the petton was not fed wth the oard wthn the 90-day
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173
272, t. 272-1.
perod prescrbed by statute. On October 23, 1934, respondent maed to the
pettoner n each of the cases a notce of a stated defcency. On anuary 19,
1935. pettons for redetermnaton of the asserted defcences were deposted
n the Unted States post offce at ort Worth, Te ., as regstered ar ma,
addressed to the Unted States oard of Ta ppeas at Washngton, D. C.
The pettons were receved and fed by the oard of Ta ppeas on anu-
ary 23, 1935, the nnety-second day after the defcency notces were maed.
On te hearng of the motons to dsmss the pettoners ntroduced evdence
whch showed that under the schedued ar ma servce the pettons woud
have been devered to the oard on anuary 21, 1935, the nneteth day after
the mang of the defcency notces, and that the deay of devery beyond the
nneteth day was due to adverse weather condtons.
Secton 272(a) (c) of the Revenue ct of 192S (45 Stat., 791) authorzed
the Commssoner to send notces of defcences to the ta payer by regstered
ma, and provded:
Wthn 60 days after such notce Is maed (not countng Sunday
as the s teth day), the ta payer may fe a petton wth the oard of Ta
ppeas for a redetermnaton of Ue defcency.

(c) aure to fe petton. If the ta payer does not fe a petton wth
the oard wthn the tme prescrbed n subsecton (a) of ths secton, the
defcency, notce of whch has been maed to the ta payer, sha be assessed,
and sha be pad upon notce and demand from the coector.
y secton 501 of the Revenue ct of 1934 (48 Stat., 080), secton 272(a)
of the Revenue ct of 1928 was amended by strkng out 00 days and nsert-
ng n eu thereof 90 days by strkng out not countng Sunday as the
s teth day and Insertng n eu thereof not countng Sunday or a ega
hoday n the Dstrct of Coumba as the nneteth day and by strkng out
60- ay and nsertng n eu thereof 90-day. y e pct anguage of the
statute the rght conferred on the ta payer to petton for a redetermnaton of
a defcency s sub|ect to the condton that such petton be fed wth the
oard of Ta ppeas wthn the tme prescrbed and, f the ta payer does
not fe such petton wth the oard of Ta ppeas wthn the tme prescrbed,
that oard s requred to assess the defcency, notce of whch has been maed
to the ta payer. Those provsons negatve the concuson that the oard
of Ta ppeas has the rght or power to consder a petton for a redeterm-
naton of a defcency where such petton s fed wth t after the e praton
of the prescrbed perod. (Chambers v. Lucas, 41 ed. (2d), 299 Lews- a
Iron Works v. ar, 23 ed. (2d), 972.) It we may be nferred that, n
enargng the tme for fng pettons for redetermnaton of defcences, the
awmakers had n mnd reasonaby to be e pected deays n the transmsson
of papers by ma or other methods of conveyance. It seems that the pet-
toners made no aowance for a faure of ma to move strcty accordng
to schedue. paper s fed when t s devered to the proper offca and by
hm receved to be kept on fe. Depostng a paper n the post offce n tme
for t to reach the oard of Ta ppeas n the usua course of ma wthn
the tme aowed s not a fng of the paper wth the oard. (Unted States v.
Lombardo, 141 U. S., 73.) The oard was wthout power to dspense on
equtabe grounds wth the requrement of fng wthn the tme aowed.
(Yturbde s ecutors v. Unted States, 22 ow., 290. See aso Mwkerou v.
adwn, 70 ed. (2d), 728.)
In support of the contenton that the pettons for redetermnaton were
fed wthn the tme aowed counse for ettone s ca attenton to the
foowng statutory provson:
The mang by regstered ma of any peadng, decson, order, notce, or
process n respect of proceedngs before the oard sha be hed suffcent servce
of such peadng, decson, order, notce, or process. (45 Stat., 872.)
The |ust set out provson does not purport to dea wth the matter of a
ta payer fng wth the oard of Ta ppeas a petton for redetermnaton
of a ta defcency determned by the Commssoner, or to supersede or affect
any statutory provson deang wth that sub|ect.
It was open to the pettoners to test the correctness of the defcences
requred to be assessed u n ther faure to fe wth the oard of Ta
ppeas pettons for redetermnaton wthn the tme prescrbed, by payng
the amounts assessed and sung for refunds thereof. (Secton 322(a) (c) of
Revenue ct of 1928. 45 Stat., 791.)
The pettons are dened.
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351, rt. 351-2. 174
TITL I . DDITION L INCOM T S.
S CTION 351. SURT ON P RSON L OLDING
COMP NI S.
rtce 351-2: Cassfcaton of a persona -40-8333
hodng company. I. T. 3010
R NU CT O 1934.
corporaton whch was engaged n the busness of tradng n com-
modtes n 1934 and whch derved 80 per cent or more of ts gross
ncome therefrom s not a persona hodng company wthn the
meanng of secton 351 of the Revenue ct of 1934.
dvce s requested whether a corporaton whch derved 80 per cent
or more of ts gross ncome from tradng n commodtes such as cotton,
wheat, etc., and the stock of whch s owned drecty or ndrecty by or
for not more than fve ndvduas, s a persona hodng company
wthn the purvew of secton 351 of the Revenue ct of 1934 and
the artces of Reguatons 86 nterpretatve thereof.
Secton 351(b) of the Revenue ct of 1934 provdes n part as
foows:
(b) Defntons. s used In ths tte
(1) The term persona hodng company means any corporaton (other
than a corporaton e empt from ta aton under secton 101, and other than a
bank or trust company Incorporated under the aws of the Unted States or of
any State or Terrtory, a substanta part of whose busness s the recept of
deposts, and other than a fe-nsurance company or surety company) f
( ) at east 80 per centum of ts gross ncome for the ta abe year s derved
from royates, dvdends, nterest, annutes, and (e cept n the case of reguar
deaers n stock or securtes) gans from the sae of stock or securtes, and ( )
at any tme durng the ast haf of the ta abe year more than 50 per centum
n vaue of ts outstandng stock s owned, drecty or ndrecty, by or for not
more than fve ndvduas.
rtce 351-2 of Reguatons 86 provdes, n part, as foows:
It Is the nature of the gross ncome and the ownershp of the outstandng
stock whch determne the cassfcaton as a persona hodng company, and
the severa condtons wth respect to both must be satsfed to brng a cor-
poraton wthn the cassfcaton. Gross ncome must be determned for the
entre ta abe year and the ownershp of the stock outstandng must be de-
termned accordng to ts ownershp at any tme durng the ast haf of the
ta abe year.

rom the standpont of the nature of the gross ncome, a corporaton comes
wthn the defnton of a persona hodng company for any ta abe year when
80 per cent or more of ts gross ncome for such ta abe year was derved
from the foowng sources:

(5) Gans from the sae of stock or securtes. The term gans from the
sae of stock or securtes appes to a gans (Incudng gans from qudat-
ng dvdends and other dstrbutons from capta) from the sae or e change
of stock or securtes ncudbe n gross ncome under Tte I. The term stock
or securtes ncudes shares or certfcates of stock or Interest n any corpora-
ton (ncudng any |ont-stock company, nsurance company, assocaton or
other organzaton cassfed ns a corporaton by the ct), certfcates of nterest
or partcpaton n any proft-sharng agreement or n any o, gas, or other
mnera royaty or ease, coatera trust certfcates, votng trust certfcates,
stock rghts or warrants, bonds, debentures, certfcates of Indebtedness, notes,
car trust certfcates, bs of e change, obgatons Issued by or on behaf of
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175
801, rt. 801-3.
a Government, State, Terrtory, or a potca subdvson thereof, etc. In the
case of reguar deaers n stock or securtes the term does not ncude gans
derved from the sae or e change of stock or securtes made n the norma
course of busness. The term reguar deaers n stocks or securtes means
corporatons wth an estabshed pace of busness reguary engaged n the
purchase of stock or securtes and ther resae to customers. corporaton
whch s a reguar deaer In stock or securtes but whch buys or ses or
hods stock or securtes for nvestment or specuaton Is not a deaer wth
respect to such stock or securtes.
It w be observed that the term stock or securtes as construed
by the above-quoted provsons of artce 351-2(5) of the regua-
tons does not ncude commodtes. It s hed that a corporaton
whch was engaged n the busness of tradng n commodtes durng
the ta abe year 1934 and whch derved 80 per cent or more of ts
gross ncome from such busness s not a persona hodng com-
pany wthn the meanng of secton 351 of the evenue ct of
1934, even though the ownershp of ts outstandng capta stock
durng the ast haf of such ta abe year meets the test provded
n that secton of the statute.
TITL I. G N R L PRO ISIONS.
S CTION 801. D INITIONS.
rtce 801-3: ssocaton dstngushed from -32-8230
Mm.4483
Trusts ta abe as assocatons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, uy 21,1936.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Reference s made to the decsons of the Unted States Supreme
Court, rendered December 16, 1935, n the cases entted everng v.
Coeman-Gbert ssocates (296 U. S., 369, Ct. D. 1067, C. . -1,
261) Morrssey et a., Trustees, v. Commssoner (296 U. S., 344, Ct.
D. 1064, C. . -1, 264) Swanson et a., Trustees, v. Commssoner
(296 U. S., 362, Ct. D. 1065, C. . -1, 270) and everng v.
Combs et a, Trustees (296 U. S., 365, Ct. D. 1066, C. . -1, 272).
The above-mentoned cases arose under the provsons of the
Revenue cts of 1924, 1926, and 1928, reatng to the ta abty of
certan casses of trusts as assocatons or corporatons nstead of as
strct trusts.
In each of the above-mentoned cases the Court hed that the
trust was ta abe as an assocaton. The trustees n each case had
absoute contro and management of the trust property. The trust
property n each case conssted, respectvey, of about 20 apartment
houses, a gof course wth an ad|onng rea estate subdvson, a
snge apartment house, and an o ease. Wth respect to the apart-
ment houses, the trustees were authorzed to manage, se, remode,
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S01, rt. 801-3.
176
coect rents, etc. Wth respect to the gof course and rea estate
subdvson, they were authorzed to purchase, encumber, se, ease,
and operate the descrbed or other ands and to construct and
operate gof courses, receve rents, profts, and ncome, etc. Wth re-
spect to the o ease, the trustees were authorzed to use the money
deposted by benefcares to pay for abor and other materas nc-
dent to drng an o we and to se the products produced from
the we.
The benefcares nterests n each trust were evdenced by trans-
ferabe certfcates. The Court stated, however, that The test of
an assocaton s not to be found n the mere forma evdence of
nterests or n a partcuar method of transfer. The benefcares
nterests n such trusts were persona property and the death of a
benefcary dd not termnate the trust or entte the ega represent-
atves of the decedent to an accountng by the trustees. The trustees
coud not bnd the benefcares personay, nor were the trustees
abe ndvduay e cept for wfu msconduct.
In everng v. Coeman-Gbert ssocates there were no meet-
ngs and no corporate records. In Swanson et a., Trustees, v. Com-
mssoner the trustees never assembed n forma meetngs, kept
no mnute book, had no by-aws, eected no offcers, and the opera-
tons dd not e tend beyond the property frst acqured. In
Ieverng v. Combs et a., Trustees, the trust had no offce or pace
of busness, no sea, by-aws, or offca name, and the operatons of
the trustees were confned to the one ease acqured. The Court
hed that the sgnfcant resembance of trustees to drectors does
not e n the formates of meetngs or records but n the fact that,
by vrtue of the agreement for the conduct of the busness of a
|ont enterprse, the partes have secured the centrazed manage-
ment of ther undertakng through desgnated representatves
that the fact partcuar forms of corporate procedure are absent s
not controng and that the essenta features of an enterprse are
not affected by the fact that the partes confne ther operatons to
the property frst acqured. The Court aso hed that ack of contro
of a trust by the benefcares shoud not be determnatve as to
whether t s an assocaton wthn the meanng of the statute that
an assocaton may not have drectors or offcers but the
trustees may functon n much the same manner as the drectors
n a corporaton and that the provsons of the trust nstrument
may take the pace of by-aws.
In Morrssey et a., Trustees, v. Comms oner the Court sad n
part:
3. ssocaton Impes assocates. It mpes the enterng nto a |ont
enterprse, and, as the appcabe reguaton mports, an enterprse for the
transacton of busness. Ths s not the characterstc of an ordnary trust
whether created by w, deed, or decaraton by whch partcuar property s
conveyed to a trustee or s to be hed by the settor on specfed trusts, for
the beneft of named or descrbed persons. Such benefcares do not ordnary,
and as mere cestus que trustcnt, pan a common effort or enter nto a
combnaton for the conduct of a busness enterprse. Undoubtedy the terms
of an assocaton may make the takng or acqurng of shares or nterests
suffcent to consttute partcpaton, and may eave the management, or even
contro of the enterprse, to desgnated persons. ut the nature and purpose
of the cooperatve undertakng w dfferentate t from an ordnary trust
In what are caed busness trusts the ob|ect s not to hod and conserve
partcuar property, wth ncdenta powers, as n the tradtona type of
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177
801, rt. 801-3.
trusts, but to provde a medum for the conduct of a busness and sharng
ts gans. Thus a trust may be created as a convenent method by whch
persons become assocated for deangs n rea estate, tbe deveopment of tracts
of and, the constructon of mprovements, and the purchase, management and
sae of propertes or for deangs n securtes or other persona property
or for the prodncton, or manufacture, and sae of commodtes or for com-
merce, or other sorts of busness where those who become benefcay n-
terested, ether by |onng n the pan at the outset, or by ater partcpaton
accordng to the terms of the arrangement, seek to share the advantages of
a unon of ther nterests n the common enterprse.
The Government contends that such an organzed communty of effort for
the dong of busness presents the essenta features of an assocaton. Pet-
toners stress the sgnfcance of, and the mtatons sad to be mped n, the
provson cassfyng assocatons wth corporatons.
4. The ncuson of assocatons wth corporatons mpes resembance but
t s resembance and not dentty. The resembance ponts to features ds-
tngushng assocatons from partnershps as we as from ordnary trusts.
s we have seen, the cassfcaton can not be sad to requre organzaton under
a statute, or wth statutory prveges. The term embraces assocatons as
they may e st at common aw. ( tcht v. Macy, supra.) We have aready
referred to the defntons, quoted n that case, showng the ordnary meanng
of the term as appcabe to a body of persons unted wthout a charter but
upon the methods and forms used by ncorporated bodes for the prosecuton
of some common enterprse. These defntons, whe hepfu, are not to be
pressed so far as to make mere forma procedure a controng test. The pro-
vson tsef negatves such a constructon. Thus unncorporated |ont-stock
companes have generay been regarded as bearng the cosest resembance to
corporatons. ut, n the Revenue cts, assocatons are mentoned separatey
and are not to e treated as mted to |ont-stock companes, athough beong-
ng to the same group. Whe the use of corporate forms may furnsh persua-
sve evdence of the e stence of an assocaton, the absence of partcuar
forms, or of the usua termnoogy of corporatons, can not be regarded as
decsve. Thus an assocaton may not have drectors or offcers but the
trustees may functon n much the same manner as the drectors In a
corporaton for the purpose of carryng on the enterprse. The reguatory
provsons of the trust nstrument may take the pace of by-aws. nd as
there may be, under the reasonng n the echt case, an absence of contro by
benefcares such as Is commony e ercsed by stockhoders n a busness cor-
poraton, t can not be consdered to be essenta to the e stence of an assoca-
ton that those benefcay nterested shoud hod meetngs or eect ther repre-
sentatves. gan, whe the facuty of transferrng the nterests of members
wthout affectng the contnuty of the enterprse may be deemed to be char-
acterstc, the test of an assocaton s not to be found n the mere forma
evdence of Interests or n a partcuar method of transfer.
What, then, are the saent features of a trust when created and man-
taned as a medum for the carryng on of a busness enterprse and sharng
ts gans whch may be regarded as makng t anaogous to a corporate organ-
zaton corporaton, as an entty, hods the tte to the property embarked n
the corporate undertakng. Trustees, as a contnung body wth provson for
successon, may afford a correspondng advantage durng the e stence of a
trust. Corporate organzaton furnshes the opportunty for a centrazed
management through representatves of the members of the corporaton. The
desgnaton of trustees, who are charged wth the conduct of an enterprse
who act n much the same manner as drectors may provde a smar
scheme, wth correspondng effectveness. Whether the trustees are named n
the trust nstrument wth power to seect successors, so as to consttute a sef-
perpetuatng body, or are seected by, or wth the advce of, those benefcay
nterested n the undertakng, centrazaton of management anaogous to that
of corporate actvtes may be acheved. n enterprse carred on by ments
of a trust may be secured from termnaton or nterrupton by the deat of
owners of benefca nterests and n ths respect ther nterests are dstn-
gushed from those of partners and are akn to the nterests of members of a
corporaton. nd the trust type of organzaton factates, as does corporate
organzaton, the transfer of benefca nterests wthout affectng the contnuty
of the enterprse, and aso the ntroducton of arge numbers of partcpants.
The trust method aso permts the mtaton of the persona abty of partc-
pants to the property embarked In the undertakng.
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801, rt. 801-3.
178
It Is no answer to say that these advantages fow from the very nature of
trusts. or the queston has arsen because of the use and adapton of the
trust mechansm. The suggeston gnores the postuate that we are consder-
ng those trusts whch have the dstnctve feature of beng created to enabe the
partcpants to carry on a busness and dvde the gans whch accrue from
ther common undertakng trusts that thus satsfy the prmary concepton of
assocaton and have the attrbutes to whch we have referred, dstngushng
them from partnershps. In such a case, we thnk that these attrbutes make
the trust suffcenty anaogous to corporate organzaton to |ustfy the con-
euson that Congress ntended that the ncome of the enterprse shoud be ta ed
n the same manner as that of corporatons.
Snce the provsons of the Revenue cts of 1926 and 1928 wth
respect to the ta abty of certan casses of trusts as assocatons
of corporatons nstead of as strct trusts are substantay the same
as the correspondng provsons of the Revenue cts of 1932 and
1934, the above-mentoned decsons are equay appcabe under the
Revenue cts of 1932 and 1934. Care shoud be taken n the e am-
naton of returns nvovng the queston as to whether a trust s ta -
abe as an assocaton or corporaton nstead of as a strct trust n
order that fu effect may be gven to the above-mentoned decsons
of the Unted States Supreme Court n the determnaton of the n-
come ta abty of the ta payers concerned. Partcuar attenton s
aso nvted to artces 801-1 to 801-3 of Income Ta Reguatons 86.
Correspondence and nqures regardng ths mmeograph shoud
refer to the number thereof and the symbos IT: : CTR.
Gut T. everng,
Commssoner.
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179 ( 23(o), rt. 151.
INCOM T RULINGS. P RT II.
R NU CT O 1932.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
ktce 84: Interest upon State obgatons. -29-8184
G. C. M. 16861
R NU CT O 1932.
The bass for the concuson reached n G. C. M. 13469 (C. .
III-2, 125) wth respect to the ta abty of nterest on speca
ta bs ssued by a cty to a contractor n payment for street
mprovements s appcabe to the facts nvoved n O. D. 447
(C. . 2, 03) and O. D. 491 (C. . 2, 93).
G. C. M. 13409 modfed. Recommended that O. D. 447 and
O. D. 491 be revoked.
Reference s made to G. C. M. 13469, n whch t was hed that
nterest on speca ta bs ssued by the cty of R to a contractor
n payment for street mprovements the cty not beng abe for
the payment of such bs, whch are ens aganst the property
specay benefted s not e empt from edera ncome ta .
It was ponted out n that memorandum that O. D. 447 and
0. D. 491, coverng bonds ssued by certan ctes under smar cr-
cumstances, were not controng n that case. Upon further con-
sderaton of the ssues n the three cases cted above, ths offce
s of the opnon that the bass of the concuson reached n G. C. M.
13469, supra s appcabe to the facts nvoved n O. D. 447 and
0. D. 491. In none of those cases were the obgatons n queston
obgatons of the cty and there was no drect burden on the
borrowng power of the cty. (See generay the authortes cted n
G. C. M. 13469.)
ccordngy, G. C. M. 13469 s modfed, and t s recommended
that O. D. 447 and O. D. 491 be revoked.
erman Ophant,
Genera Counse for the Department of the Treasury.
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM :T S G N R LLY.
rtce 151: Ta es. -27-8153
I. T. 2988
R NU CT OP 11)32.
Deductbty of the Caforna franchse ta by n corporaton
on the accrua bass for fsca years ended October 31, 1933, and
October 31, 1934, the frst fsca year beng a perod of ess than
12 months.
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23(c , rt. 151.
180
dvce s requested reatve to the proper accrua date of the Ca-
forna franchse ta for the frst and second fsca years of the M
Company ended October 31, 1933, and October 31, 1934. The cor-
poraton was organzed on March 1, 1933, so that the frst ta abe
perod was a perod of ess than 12 months.
The ureau hed n I. T. 2770 (C. . III-1, 111) that a corpora-
ton ffng ts return on the accrua bass for the caendar year 1931
was entted to deduct for that year the amount of the Caforna
franchse ta mposed by the act of March 1, 1929 (as amended by
chapters 64 and 65, Caforna Statutes, 1931), whch ta accrued on
anuary 1,1931, and was measured by the net ncome for the caendar
year 1930.
Secton 4, chapter 13, Caforna Statutes, 1929, was further
amended by chapter 303, Caforna Statutes, 1933, effectve May 12,
1933, and appcabe to computaton of ta es accrung subsequent to
December 31, 1932, whch reads n part as foows:
very mercante, manufacturng and busness corporaton dong busness
wthn the mts of the State sha annuay pay to the State, for
the prvege of e ercsng ts corporate franchses wthn ths State, a ta
accordng to or measured by ts net ncome, to be computed, n the manner
herenafter provded, at the rate of 2 per centum upon the bass of ts net
ncome for the ne t precedng fsca or caendar year.
In any event, each such corporaton sha pay annuay to the State, for the
sad prvege, a mnmum ta of 25.

Ta es under ths secton sha accrue on the frst day after the
cose of the ta abe year, as defned n secton 11 hereof.
Secton 11 of chapter 13, Caforna Statutes, 1929, provdes:
The term ta abe year, as heren used, means the caendar year, or the
fsca year endng durng such caendar year, upon the bass of whch the net
ncome s computed heren.
Secton 13, chapter 13, Caforna Statutes, 1929, as further
amended by cha|ter 303, Caforna Statutes, 1933, reads n part as
foows:
bank whch ocates or commences to do busness wthn the mts of ths
State, and a corporaton whch commences to do busness n ths State, after
the effectve date of ths act, sha thereupon prepay the mnmum ta here-
under, whch prepayment must be made before the bank or corporaton fes
wth the Secretary of State ts artces of Incorporaton or duy certfed copy
thereof as the case may be. Upon the fng of ts return wthn 2 months and
15 days after the cose of ts frst ta abe year ts ta for that year sha be
ad|usted upon the bass of the net ncome receved durng that ta abe year,
a credt beng aowed for the prepayment of the mnmum ta . Sad return
sha aso, n accordance wth sectons 23 to 26 ncusve, be the bass for
the ta of sad bank or corporaton for ts second ta abe year, f ts frst
ta abe year s a perod of 12 months. In every case n whch the frst ta abe
year of a bank or corporaton consttutes a perod of ess than 12 months,
sad bank or corporaton sha pay as a prepayment of the ta for ts second
ta abe year an amount equa to the ta (after the offset aowance has been
computed) for ts frst ta abe year, the same to be due and payabe at the
same tmes and n the same manner, as f that amount were the entre amount
of ts ta (after the offset aowance has been computed) for that year and
upon the fng of ts ta return wthn 2 months and 15 days after the cose
of ts second ta abe year t sha pay a ta for sad year based upon ts net
ncome receved durng that year, aowng a credt for the prepayment but
n no event sha the ta for the second ta abe year be ess than the amount
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181
23(|), rt. 191.
of the prepayment for that year, und sad return for ts second ta abe year
sha aso, n accordance wth sectons 23 to 26, ncusve, be the bass for
the ta of sad bunk or corporaton for ts thrd ta abe year. Ths paragraph
sha not appy to a bank or corporaton whch commences to do busness n
ths State, pursuant to a reorganzaton or pursuant to a consodaton of two
or more 1 anks or corporatons.
In the nstant case, under the specfc provsons of the Caforna
statutes, the franchse ta for the fsca year ended October 31,
1933 (a perod of ess than 12 months), accrued, for edera ncome
ta purposes, as of the frst day of that ta abe year, that s, the
ta or the fsca year ended October 31, 1933, accrued on March 1,
1933, the frst day on whch the corporaton e ercsed ts franchse.
The ta s deductbe for the fsca year ended October 31, 1933, and
s measured n ths nstance by the net ncome for the same perod.
or the year ended October 31, 1934, the franchse ta mposed
under the Caforna Statutes, 1929, as amended, accrued n the n-
stant case for edera ncome ta purposes, as of the frst day of
the ta abe year, that s, the ta for the fsca year ended October
31, 1934, accrued on November 1, 1933. The ta s deductbe for
the fsca year ended October 31, 1934, and s measured by the ta -
paver s net ncome for the same perod.
(See I. T. 2971 (C. . -1, 107) reatve to the deductbty
of the Caforna franchse ta , and the measure thereof, n the case
of a corporaton havng a fsca year ended uy 31, 1935.)
rtce 151: Ta es.
R NU CT O 1932.
Date of accrua of Coorado property ta es. (See I. T. 3021,
page 145.)
S CTION 23 (|). D DUCTIONS ROM GROSS
INCOM : D D TS.
rtce 191: ad debts.
R NU CT O 1932.
ppcabty of Treasury Decson 4633 (C. . -1, 118) to
bonds. (See I. T. 2994, page 146).
rtce 191: ad debts.
R NC CT O 1932.
Charge-off by trustee, bankrupt ntentonay refranng from dong
so n earer year. (See Ct. D. 1153, page 182.
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43, rt. 342. 182
P RT I . CCOUNTING P RIODS ND M T ODS O CCOUNTING.
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
rtce 342: When charges deductbe. -37-8298
( so Secton 23 (|), rtce 191.) Ct. D. 1153
INCOM T R NU CT O 1832 D CISION OP COURT.
1. Deducton Loss Stock or Insovent ank.
Where State bankng authortes n 1931 ordered that a trust
company be cosed and ts assets qudated, not because of nso-
vency but because t was deemed unsafe to permt t to contnue n
busness, and fna apprasement vaues were determned n 1932,
when nsovency was concusvey estabshed, the oss sustaned
by the stockhoders occurred n 1931, when the bank was cosed,
and not n 1932.
2. Deducton Loss ad Debts scertaned to be Worthess
but not Charged Off Wthn Ta abe Year.
Where a ta payer who was ad|udcated bankrupt n 1934 had n-
tentonay refraned from chargng off on hs books n 1933 debts
whch had undoubtedy been ascertaned to be worthess n that
year, the trustee n bankruptcy s not entted to charge them off
and cam the deducton, n spte of the fact that the debts were
charged off by accountants, actng for the credtors, three months
or more after the cose of the ta abe year.
Dstrct Court of the Unted States for the astern Dstrct of
Pennsyvana.
In the Matter of Lews . offman, Indvduay and Tradng as Lccs .
offman O Co., ankrupt.
Sur certfcate for revew.
efore W. . bkpatbck, .
pr 27, 1936.
OPINION.
petton n bankruptcy was fed aganst Lews . offman on une 7, 1934,
and an ad|udcaton foowed. though he had been n busness for a number
of years he had never fed an Income ta return, and the coector of nterna
revenue made assessments and presented ta cams before the referee amount-
ng wth penates to 11,892.73, coverng the years 1926 to 1930, Incusve, and
1932 and 1933. Wthout the penates, whch t s conceded are not coectbe
( ankruptcy ct, secton 67(|)), the amount camed s 8,611.80 wth nterest.
The referee proceeded under authorty of secton 64(a) of the ankruptcy
ct to determne the amount of ta egay due, reduced the abty for the
year 1932 from 3,449.54 camed to 89.33, reduced the abty for 1933 from
1,496.01 to nothng, and aowed the coector s cam for the baance, or
3,763.64. Two dstnct questons were nvoved n the referee s rungs. rst,
as to the 1932 ta , the referee found that the bankrupt sustaned a oss of
24,500 durng that year by reason of the nsovency of the rankn Trust Co.,
of the stock of whch nsttuton the bankrupt owns 400 shares. The coector
contended that the oss was sustaned n the year 1931. Second, for the year
1933 the referee aowed a deducton of 22,569.05 for bad debts. The coector
admtted that these bad debts had been ascertaned to be worthess n that
year, but contended that they had not been charged off on the books of the
bankrupt and therefore were not deductbe. The referee agreed that the
deducton woud not have been avaabe to the ta payer hmsef but neverthe-
ess aowed t under the genera power vested n the court by secton 64(a)
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183
43, rt. 342.
of the ankruptcy ct to ascertan the amount of ta es egay cue and owng,
hodng that the trustee n bankruptcy was not affected by the bankrupt ta -
payer s faure to charge off the debts durng the year for whch they were
camed as deductons.
I. s to the rankn Trust Co. oss the referee s fndngs are as foows:
The rankn Trust Co. cosed ts doors on October 1, 1931, on an order ot
the State bankng department, not because of Insovency but because It was
deemed unsafe to be permtted to contnue n busness. Lqudaton of the
bank s assets was ordered on December 31, 1931. The nventory and apprase-
ment of the bank s assets, whch was fed une 20, 1932, showed book vaues
of 38,828,146.83, wth abtes of 16,118,514.36. The qudaton vaue of the
book assets as shown n the nventory and apprasement was 19,236,439.74.
The bank had pad a dvdend to ts stockhoders on October 1, 1931, shorty
before t was cosed. The Government refused to aow depostors of ths
bank to deduct ther depost osses unt 1932. It aso appears that In une,
1932, an apprasement was made by offca apprasers whch f ed the quda-
ton vaue of the assets of the bank as of that date at a fgure far beow the
assets and concusvey estabshed Insovency. Dstrbutons were made to
depostors thereafter but none has been or ever w be made to stockhoders.
The queston s whether the fact that a bank s cosed by the authortes
(wthout a fndng of nsovency) and qudaton ordered n a gven year estab-
shes the worthessness of the stock as of that year.
What was sad by udge Dawson n Wesch v. eburn (5 ed. Sup., 581)
s appcabe to ths stuaton. Ta aton s emnenty a practca matter, and
a reasonabe and practca constructon shoud be gven to secton 23(a).
In Lucas v. mercan Code Co. (280 U. S., 445 Ct. D. 168, O. . I -1,
314 ), t Is decared: The genera requrement that osses be de-
ducted n the year n whch they are sustaned cas for a practca not a ega
test.
In dscussng a smar provson of the 1918 ct, the Supreme Court of the
Unted States, n the case of Unted States v. 8. 8. Whte Denta Manufacturng
Co. (274 U. S., 398 T. D. 4059, C. . I-2, 198 ), used ths anguage:
The statute obvousy does not contempate and the reguatons (artce 144)
forbd the deducton of osses resutng from the mere fuctuaton n vaue of
property owned by the ta payer . ut wth equa certanty they do
contempate the deducton from gross ncome of osses whch are f ed by
dentfabe events.
To say that the stockhoders of a bank whch has been cosed by order of the
authortes and ordered qudated do not sustan a oss upon ther stock unt
some subsequent date when qudaton fnay takes pace or unt the offcu
apprasement of the bank s assets, seems to me to be osng touch wth reaty.
It s |ust concevabe that causes mght arse n whch some reazaton coud
be had by the stockhoders n the ong future. s a practca matter however,
the busness word never remotey consders that contngency. To a ntents
and purposes the stock of a bank becomes unsaabe at any prce when the bank
s taken over and qudaton begns.
The Government s poston that the oss occurred n the year n whch the bank
was cosed s n accordance wth the genera practce of the Department. There
s no forma reguaton and t woud not be controng f there were, but t s
certany a sensbe, practca rue and n accordance wth actua facts. I
therefore hod that the bankrupt s oss n the rankn Trust Co. stock was
sustaned n the year 1931 and not n the year 1932.
II. s to the bad debt cam. ary n 1934 offman got nto fnanca
dffcutes and attempted to negotate wth hs credtors. ccountants were
empoyed to nvestgate hs fnanca condton. The accountant turned up
among other thngs a st of debts amountng to 22,569.05, whch wthout gong
nto detas, had undoubtedy been ascertaned to be worthess by the bankrupt
durng the year 1933. They had not however been charged off on hs books.
The bankrupt probaby dd not want to reduce hs net worth for credt purposes.
The accountant physcay charged off the debts upon the bankrupt s books
some tme n 1934 the trustee says about March 15, but an I read the testmony
the accountant sad In une of 10.34, pr or May. owever t s not partcu-
ary mportant. The fact s that the bankrupt dd not charge them off n 1033.
I agree that a reasonabe tme after the cose of the ta abe year may bo
aowed for the charge-off, but n ths case the bankrupt pany dd not ntend
to charge the debts off n 1033 but meant to carry them on hs books as good
for an ndefnte tme. It was not a case of mere careess faure to put hmsef
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103, rt. 530.
184
In a poston to cam a deducton, t was hs w and purpose that these
accounts shoud be treated n hs busness accountng as ve accounts.
The referee so hed but fet that the credtors through the trustee were
entted to make the charge-off and cam the deducton. I do not thnk that
the decsons cted by the referee estabsh ths rght. It s, of course, we
setted that credtors w not be pre|udced by the bankrupt s faure to take
steps to protect hs estate aganst ta abty when such faure s due to
deberate fraud upon hs part. Or t may be that they w not be pre|udced
by the neggency of the bankrupt, where the neggence conssts n fang to
compy wth certan reguatons or to do certan thngs requred by the aw
n order to avod penates and abty. These cases however do not contro
the present one. The requrement that the debts be charged off wthn the
ta abe year s part of the statutory descrpton of the knd of debts whch may
be deducted. The charge-off s of the essence of the deducton. The ta payer
may f he chooses brng worthess debts wthn the cass deductbe or he may
not, but wthout hs affrmatve act they w not come wthn that cass. If,
for reasons of hs own, he fas to act, the resut smpy s that there s no
deductbe debt. Ths s qute dfferent from a case n whch he has a perfecty
epa deducton and neggenty or frauduenty fas to ava hmsef of t.
The concuson s that, where the ta payer has ntentonay refraned from
chargng off wthn the ta abe year debts ascertaned to be worthess, hs
trustee n bankruptcy can not cam a deducton for such debts, n spte of the
fact that a charge-off was made by accountant actng for ta payer s credtors
three months or more after the cose of the ta abe year.
The order of the referee s reversed and the cam of the coector aowed n
the amount of 8,611.86 wth nterest.
P RT . R TURNS ND P YM NT O T .
S CTION 55. PU LICITY O R TURNS.
rtce 421: Inspecton of returns.
R NU CT O 1932.
Commttee on ducaton and Labor, Unted States Senate. (See
T. D. 4665, page 266.)
rtce 421: Inspecton of returns.
R NU CT O 932.
Speca Commttee to Investgate Producton, Transportaton, and
Marketng of Woo, Unted States Senate. (See T. D. 4705, page 263.)
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 103. MPTIONS ROM T
ON CORPOR TIONS.
rtce 530: Soca cubs.
R NU CT O 1932.
Tenns cub occupyng part of property and rentng remander.
(See G. C. M. 16807, page 157.)
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185 ( 1111, rt. 1314.
SUPPL M NT . ST T S ND TRUSTS.
S CTION 162 N T INCOM .
rtce S62: Method of computaton of net ncome and ta .
R NU CT O 1932.
Profts from sae of trust corpus pad or credted to benefcares.
(See G. C. M. 17233, page 111.)
TITL I . DMINISTR TI ND G N R L
PRO ISIONS.
S CTION 1111. D INITIONS.
rtce 1314: ssocaton dstngushed from trust.
R NU CT O 1032.
Ta abty of certan casses of trusts as assocatons or corporatons
nstead of as strct trusts. (See Mn. 4483, page 175.)
121M7 37 7
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22(a), rt. 61. 186
INCOM T RULINGS. P RT III.
R NU CT O 1928.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
rtce 51: What ncuded n gross ncome, -36-8288
Ct. D. 1151
INCOM T R NU CT O 192S D CISION O COURT.
Income O and Gab Lease Competey or Partay Deveoped
Wes urden of Proof.
Where the essee of o and gas ands entered nto agreements
dsposng of unt nterests n o and gas to e produced from
certan wes, under customary methods permttng such a essee
ether to contract for the net proft from competey deveoped
wes or to covenant that funds obtaned from such agreements w
be e pended to deveop partay dred or new wes, the amount
receved as consderaton for the agreements consttuted ta abe
ncome, the essee havng faed to mantan the burden of provng
that the specfed wes were not competed or that the cost of
deveopng partay dred or new wes was as much as the
amount of the consderaton.
Unted States Crcut Court of ppeas for the Nnth Crcut.
at Rogan, Unted, States Coector of Interna Revenue for the S th Coerton
Dstrct of Caforna, camant and appeant, v. ue Rdge O Co., Ld,
a Corporaton, L. . Copeand, Recever, and oseph . Rfknd, ttorney for
Recever, appeees.
Upon nppea from the Dstrct Court of the Unted States, Southern Dstrct of Caforna,
Centra Dvson.
efore Wbur, Garrecht, and Denman, Crcut udges.
pr 20, 1936.
OPINION.
Denman, Crcut udge: The coector of nterna revenue appeas from an
order of the dstrct court made n the ue Rdge O Co. recevershp proceed-
ngs, whch order re|ected the Government s cam for Income ta es assessed
aganst the company for the year 1930.
The o company, ta payer, hed an o and gas ease In I/OS ngees County.
Tte ease s not set out n the record. Durng 1930 ta payer receved 94,300.01
ns consderaton for makng of agreements for unt Interests In o and gas to
be produced from specfed wes. The agreements are evdenced by certfcates.
The Government assessed a ta of 11,784.48 on the consderaton for the
agreements. The dstrct |udge, n denyng the ta cam, was of the opnon
that the sum receved as such consderaton was not ncome to the bankrupt
The queston s the ony one here nvoved.
Ths case dffers from the Monrova O case, to-day decded. ere, If the
queston of nn assocaton such as found n that case s nvoved. It has to do
ony wth the creaton of the assocaton and not the ncome produced by the
assocaton and dstrbuted to the assocates. It s entrey concevabe that
the essee of an o fed may make a proft In creatng an assocaton to
whch he contrbutes certan factors, whch proft Is entrey apart from the
profts arsng from the operatons of the assocaton thereafter.
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187
22(a), rt. 51.
Lkewse, assumng but not concedng, that (he essee was n some way the
trustee or agent of the certfcate hoders (see Thompson v. Comm., 28 . (2d),
247, 249), t Is equay concevabe that the essee coud reaze a proft n
creatng such agency or trust, whch proft woud be persona to the essee.
There are two genera casses of certfcates evdencng the contract between
the essee and the partcpants n the petroeum product or net profts of the
operaton of wes on easehods. One cass of agreements has to do wth the
entre nterest of the essee In the o fed and the partes contracted wth may
obtan certfcates evdencng such a partcpancy n a the operatons of the
essee. y another customary form the essee contracts wth the certfcate
hoders for a share of the product or net revenue of a specfcay named we.
It Is wth ths atter cass of contracts, deang wth a snge we, that ths
case s concerned.
The method of dsposton of part nterests of the essees of o ands by
saes of percentages In the petroeum product or agreements to dvde the net
proceeds of operaton of wes on the easehod, has been ong estabshed In
the o feds of Caforna. (1) Such Interests are created n the proceeds or
agreed as to the net proft of a we aready deveoped. Ths affords the
owner of the easehod an opportunty to rase the funds to dr other wes
n whch the essee w have the entre nterest. (2) The essee may have
a we partay dred and desre funds wth whch to carry on the drng,
or he may contempate an entrey new we. In these atter stuatons t has
been hed that the essee In makng hs contracts mpedy covenants that the
money w be used for the drng of the we. (Dffcrdng v. aagh, 121
Ca. pp., 1.) It s obvous, however, that n both the atter stuatons the
we may be dred and competed and paced on the contempated producton
wthout usng the entre amount contrbuted by the hoders of the percentage
Interest. fter they are on producton a part of the certfcate hoder s share
s to provde for contnued operaton.
It s cear that In the frst case above descrbed, where the contract Is for
the product or net ncome of a competed we specfcay descrbed n the
certfcate evdencng the contract, ncome to the essee has resuted.
In the second case above descrbed, there Is no obgaton to return to the
certfcate hoder the e cess of moneys receved by the essee as consderaton
for the contract, above the cost of the we. Such e cess consttutes ncome
to the essee.
ere the moneys receved by the essee as a consderaton for the contracts
for produced o s assessed as Income by the Commssoner of Interna
Revenue. Such assessment has the support of the presumpton of correct-
ness and the ta payer has the burden of provng t to be wrong. (Wech
v. everng, 290 U. S., I, 115 Ct. D. 755, C. . II-2, 112 .) The burden
of proof s therefore upon the ta payer essee to show that the we whch
s the sub|ect of the contract ether (a) was not a competed we, or (6) that
the cost of ts drng or competon was as much as the amount pad n
consderaton for the contracts.
The record n ths case shows an assessment as an tem of ncome to the
ta payer the sum of 94,800.01 from the creaton of an ndetermnate number
of agreements, of whch the foowng Is an e empfcaton:
Number 68. Royates 2/10 of 1
C RTI IC T O ROY LTY INT R STS.
C. W. and.
W RD N NTM R ON .
Canceed Never Issued. . M. . Canceed.
Never Issued.
Ths s to certfy that eata W. Cass s the owner of an undvded two-
tenths of one per cent of a o, gas and other hydro-carbon substances to be
produced, saved and sod by the undersgned, from we Warden Number One
pursuant to that certan ease dated ugust 15, 1930, e ecuted by . R. ustn
to C. W. and and Prce son, coverng the foowng descrbed property
and premses n Los ngees, Caf., to-wt:
Lots one (1) and two (2) n bock thrteen (13) of De Rey each tract
In the cty of Los ngees, as per map recorded In book 6, pages 186 and 187
of Maps Records of Los ngees County, State of Caforna, sub|ect, however,
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22(a), rt. 51.
188
to a deducton of eght doars ( 8.00) per month on each one per cent covered
by ths certfcate to be reserved for the cost of mantenance and operaton
of we Warden Number One, after sad we Is paced on producton and sub-
|ect aso to the payment and deducton by the undersgned of a proportonate
amount of the mnera rghts ta upon the subessee s Interest In sad ease
and property.
Ts certfcate s sub|ect to a the terms and condtons of the sad o
ease, recorded In book 10250, page 81, Offca Records of Los ngees County,
Caf.
In wtness whereof the sad C. W. and and Prce son have caused
these presents to be e ecuted and sgned ths 7th day of October, 1890.
C. W. and
Prce son.
It w be noted that the certfcate hoder Is to furnsh funds for other
operatons after competon.
There s nothng In the record to show how many such contract obgatons
were created. The ony testmony on ths sub|ect s as foows:
Durng that year (1 30) the corporaton receved the sum of 94,300.01
as the proceeds from the sae of percentage nterests.
Whe the pura nterests may evdence more than one contract, t does
not evdence more than two nor does t evdence that the two contracts were
not made wth one person.
The ower court makes no fndng wth regard to the number of such con-
tracts or the person or persons wth whom the ta payer made them, or the
reatve amount of nterest In the we retaned by the ta payer after makng
the contracts.
There s no evdence as to how much of the consderaton receved for the
contracts was e pended on the we Warden Number One. The ony test-
mony of ths sub|ect s as foows:
The proceeds from the sae of these per cent nterests were entrey used
n drng o wes durng the year. ppro matey four-ffths of these pro-
ceeds were e pended upon ntangbe drng costs and one-ffth thereof upon
tangbe drng costs.
Ths evdence that the money was e pended n drng undentfed o wes
(pura) s not evdence that t was spent on drng we Warden Number
One. or a the record dscoses we Warden Number One may have been
competed and paced on producton for an e pendture of but a sma porton
of the amount receved from the contracts, and the remanng money, after the
we was competed, e pended by the ta payer n the deveopment of other
wes upon the property for ts own beneft and n whch the contracts gave
no Interest to the certfcate hoders.
Snce the Commssoner of Interna Revenue s assessment of 94,300.01
as Income s prma face correct, and snce the burden of proof s upon the
ta payer to show to what e tent, f any, t was not ncome, and snce the
ta payer has faed to mantan such burden of proof, we hod that the assess-
ment s vad. In so far as It s In confct wth ts hodng, the order beow
Ih reversed.
rtce 51: What ncuded n gross ncome. -3G-8289
Ct. D. 1152
INCOM T R Nt CT O 1928 D CISION O COt RT.
1. Income ssgnment of Interest n Revenue from Sae of O
and Gas urden of Proof.
Where the ta payer entered nto agreements, evdenced by certf-
cates, assgnng to each certfcate hoder a fractona nterest n the
revenue derved from the sae of o and gas produced from a par-
tcuar we, the amount receved s consderaton for the agree-
ments, ess commssons, consttuted ta abe ncome, the tn payer
havng faed to meet the burden of showng the reatve number of
contracts as to each we, the amount of partcpancy n nterest n
each, or the cost of drng, or what part, f any, of the consdera-
ton receved was not Income.
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189
22(a), rt. 61.
2. Decson oowed.
Rogan v. ue Rdge O Co., decded pr 20, 1936 ( ed.
(2d), ) Ct D. 1151, page 186, ths uetn , foowed.
Unted States Crcut Court of ppeas for the Nnth Crcut.
Unted States, appeant, v. no -Powe Stockton Co., Inc., Ltd., ankrupt,
. W. rckson, Trustee, appeees.
Upon appea from the Dstrct Court of the Unted States In and for the Southern
Dstrct of Caforna, Centra Dvson.
efore Wbur, Gahrecht, and Denman, Crcut udges.
pr 20, 1936.
opnon.
Denman, Crcut udge: Ths Is an appea from an order of the dstrct court
confrmng the order of a referee In bankruptcy whch re|ected a cam of the
Unted States for ncome ta es assessed aganst the bankrupt corporaton for
the year 1930.
The bankrupt corporaton, herenafter caed the ta payer, was durng the
tmes matera to be consdered, engaged n drng o wes upon ands stuate
n the cty of Los ngees, Caf., and In seng o and gas therefrom. s a
means of fnancng Its operatons, t entered Into certan agreements evdenced
In transferabe certfcates, each In form as foows:
Partcpatng Interest n O and Gas Producton.
or and n consderaton of the sum of doars, recept whereof s
hereby acknowedged, the no -Powe-Stockton Co., Inc. (Lmted) hereby
assgns to per cent nterest In and to a revenues derved from the
sae of o and/or gas produced and saved from the W. G. Davs O We No. 1,
ocated on ots 10 and 12, bock , Ocean Strand tract, cty of Los ngoes.
operated by sad company, payabe wthn ffteen (15) days from the date sad
revenues are receved by the company from the corporaton or frm purchasng
sad o or gas.
Provded, however, that for the purpose of defrayng operatng costs and
estabshng a reserve fund to provde for contngences, there sha be wthhed
by the company the sum of 15 cents ( 0.15) per day for each one-tenth of 1 per
cent nterest of sad o producton, the unused porton of whch sha be hed n
trust for the certfcate hoders and to be returned to them as ther nterest may
appear when o drng operatons on sad premses sha have been abandoned,
or when n the |udgment of the drectors of the company, no further necessty
e sts for the mantenance of sad fund. assgnments of ths certfcate sha
carry wth t an assgnment of a Interest n any such fund.
Nothng heren sha be construed to consttute the certfcate hoder as a
partner n sad enterprse, t beng the Intent of the partes that sad certfcate
hoder sha partcpate ony n the revenues derved from the sae of gas or
o as hs nteres may appear. Itacs supped.
ere, as n the case of ogan v. ue Rdge O Co., Ltd., to-day decded, the
certfcate hoder s share s to furnsh funds for operaton after competon of
the we.
Durng 1930, ta payer receved as consderaton for the contracts evdenced
by these certfcates 298,100, ess 34,687.78 commssons. ssertng ths to
be Income, the Unted States fed a cam beow for 34,109.11 assessed as
Income ta on the tota consderaton for the contracts. The trustee n bank-
ruptcy and the dstrct court In denyng the cam, rued that the recepts
dd not consttute ncome.
The dsposton of ths case s governed by the prncpes set forth n Rogan
t. ue Rdge O Co. There are ony two dfferences between the two cases
matera to be consdered.
In the frst pace, the no -Powe-Stockton partcpatng certfcate pur-
ports to assgn to the hoder a fractona Interest n the proceeds of the sae
of o to be produced from a specfed we, whereas the ue Rdge certfcate
gave a present assgnment of the o to be produced. Ths dfference has
no bearng upon the queston whether the consderaton for the contracts con-
sttuted ncome to the ta payer. Regardess of whch form of certfcate was
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22(a), rt. 52.1
190
used f te essee created n the certfcate hoders nterests n a we aready
deveoped, or, f the essee dd not use up the moneys receved from the
certfcate hoders n drng a we from whch the certfcate hoders were
to receve fractona shares n proceeds or product, Income woud resut to
the essee.
In the second pace, the stpuaton of facts n the present case sets out
n more deta what was done wth the proceeds of certfcate saes than does
the evdence n the ue Rdge case. It s stpuated that a the partcpatng
nterests from whch the ta payer derved the sum aeged by the Unted
States to be ncome are e empfed by the certfcate whch has been set out
n ths opnon. Thus t s seen that the certfcates gave each hoder au
nterest ony n the revenue from a partcuar we, not n the tota revenue
from a the wes. The stpuaton then rectes:
That the money derved by the bankrupt from the sae of sad partcpatng
Interests was used by the bankrupt n the drng of four o wes n the
ence De Rey o fed e cept such part of sad funds so receved as were
pad out as commsson for the sae of the Interests.
That o and gas were produced from sad o and gas wes. That pay-
ments of proceeds of producton from sad o and gas wes was made by the
bankrupt to the owners of the partcpatng Interests Itacs
supped.
We know from ths rectaton that a the money taken n by the ta payer
was used n the drng of four wes, and that each certfcate contract ev-
denced partcpaton to some degree n some partcuar one of the four wes.
The stpuaton s sent, however, as to the reatve number of contracts as
to any we or amount of partcpancy n nterest n the partcuar we or Its
net revenue. It s sent as to the cost of the drng of any one of the wes.
Thus t Is qute possbe that certfcate purchasers hodng an nterest n the
proceeds of W. G. Davs O We No. 1 pad for ther certfcates more
than t cost the ta payer essee to dr W. . Davs O We No. 1. If so,
the e cess s ncome to the essee. It can do wth such e cess what t peases.
The fact that such e cess, f any there was, was used to dr a second we
for the revenue of whch other partcpatng nterests had been contracted,
woud not make such e cess any the ess Income to the ta payer essee. There
s obvousy no assocaton reatonshp between a group of certfcate
hoders who own nterests e cusvey n we and another group hodng
nterests e cusvey n we . nd a proft receved by the ta payer essee
n creatng an assocaton (assumng that one was created) n the producton
of we , s no ess ncome to t becnuse t chooses to devote such proft
to the operatons of an assocaton created n the producton of we .
nough has been sad to ustrate how ncome may have been receved by
the ta payer n the consderaton for the contracts to partcpate n revenues
from one or another of the four wes even though the tota amount receved
was entrey consumed n the drng of the four wes. The burden s upon
the ta payer to show what part, f any, of the moneys receved was not
ncome. avng faed to do so, the prma face showng of the assessment
s not overcome and the ta must be sustaned.
Order reversed.
rtce 51: What ncuded n gross ncome.
Profts from sae where transfer of part nterest made to wfe after
contract to se. (See Ct. D. 1156, page 218.)
R NU CT O 1928.
rtce 52: Compensaton for persona
servces.
-31-8209
Ct. D. 1141
INCOM T R NU CT OP 1928 D CISION O COURT.
1. Income Compensaton fob Past Servces Gft.
Where, pursuant to a resouton adopted by the drectors of
a corporaton of whch the ta payer had been rce presdent and
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191
22(a), rt. 62.
genera manager for many years unt hs resgnaton n December,
1927, a sum equa to hs annua saary, ess the amount of hs
persona Indebtedness to the corporaton, was receved by hm n
1928, the payment consttuted addtona compensaton for past
servces and not a gft, n vew of the anguage used n the resou-
ton, the fact that the corporaton deducted the amount In ts
return as compensaton aowed the ta payer for servces to
December 31, 1927, and that the payment had not been submtted
to the stockhoders for ratfcaton.
2. ursdcton of Crcut Court of ppeas Communty Income.
The crcut court of appeas s wthout ursdcton to pass upon
the queston of whether compensaton receved by the ta payer
was communty ncome, where the petton before the oard reated
ony to whether the amount In queston consttuted ncome.
8. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. ., 656) affrmed.
Unted States Crcut Court of ppeas for the Nnth Crcut.
Davd erbert otchford, pettoner, v. Commssoner of Interna Revenue,
respondent.
Upon petton to revew an order of the Unted States oard of Ta ppeas.
efore Wbur, Garbecht, and anet, Crcut udges.
ebruary 24, 1936.
OPINION.
Garbecht, Crcut udge: The pettoner had been vce presdent and genera
manager of the Coumba Stee Corporaton (prevousy named Coumba
Stee Co.) for 14 years pror to anuary, 1928. s saary had been f ed at
20,000 per year unt ugust 1, 1927, when t was f ed at 30,000 per year.
In September of 1927 he became 111, necesstatng a vacaton of severa weeks.
t the concuson of ths vacaton, no notceabe mprovement beng apparent,
he took another vacaton of severa weeks. eng unabe to contnue wth
hs work, he tendered hs resgnaton to the corporaton n December of the
game year, t beng accepted on December 19, 1927. few days ater, Decem-
ber 23, a speca meetng of the e ecutve commttee of the board of drectors
of the corporaton was hed, at whch the foowng resouton was adopted:
D. - otchford, Remuneraton :
On moton of Drector eshhacker, seconded by Drector Drum t was
Resoved that the e ecutve commttee recommend to the board of drectors
for ther approva the foowng settement to be made wth Mr. otchford
upon hs eavng the company.
That Mr. otchford s connecton wth the company cease as of December
81, 1927 that an addtona year s saary be credted to Mr. otchford, there
beng charged aganst ths amount the persona account of Mr. otchford
wth the company, and the remanng baance to be pad to Mr. otchford
In 12 equa monthy nstaments durng the year 1928 and that Presdent
Grant and Drector Da be consttuted a commttee of two to draft approprate
resoutons coverng ths acton, for consderaton by the board.
On anuary 1C, 1928, the board of drectors adopted the foowng resouton:
Resoved: That whereas D. . otchford resgned as genera manager of
ths corporaton on December 19, 1927, after havng been n the servce of
ths corporaton and ts predecessor for many years and
Whereas the condton of the heath of sad D. . otchford mght make
t dffcut for hm to procure mmedate remuneratve empoyment
Resoved: That ths corporaton pay to . D. Grant and C. G. Da the
um of 30,000 ess the amount of the persona ndebtedness of sad I . .
otchford to ths corporaton and that sad . D. Grant and ( . G. Da sha
hod the sum so pad to them for the beneft of D. . otchford and sha
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22(a), rt. 52.
192
be authorzed to pay over sad um to hm In 12 equa Instaments durng
the caendar year 1928, or at such other tmes or manner as sad . D. Grant
and C. G. Da sha determne.
The persona ndebtedness of pettoner to the corporaton referred to In
the resouton amounted to 14,417.84. Ths sum was to be credted to pet-
toner s account and the baance of the 30,000 pad n nstaments. These
payments were made monthy n amounts of 1,500, the fna baance beng
044.90, pad n December, 1928. In ts ncome ta return for that year the
company deducted the payment of 30,000 as an e pense under the capton,
Compensaton aowed D. . otchford for servces to December 31, 1927,
30,000. The payment of ths sum was not shown to have been submtted
to the stockhoders for ratfcaton.
The pettoner dd not return the 30,000 n hs return for 1928. def-
cency was found by the Commssoner n the amount of 5,563.05, upon the
ground that the 30,000 was addtona compensaton. The pettoner con-
tends the sum was a gft
Pettoner s bref states the queston as foows: The pont of ssue,
therefore, Is whether the 30,000, whch the board of drectors voted to be pad
the pettoner was a gft, as contended by the ta payer, or addtona com-
pensaton, as camed by the Income Ta Department, and If t s ta abe
compensaton, whether a of sad sum shoud be ta abe to pettoner wthn
the communty property aws of the State of Caforna, or ony one-haf of
such sums as were pad or credted to pettoner.
The respondent asserts that the payment was not a gft, but was addtona
compensaton that the oard found that the pettoner had not sustaned
the burden of estabshng an Intenton on the part of the corporaton to make
a gft and, that decson beng a queston of fact, ths court s mted n Its
Inqury as to whether or not there s any substanta evdence to support It.
To make a vad gft there must be an Intent on the part of the donor to
make the gft, a devery of the tng gven, and an acceptance on the part
of the donee. (13 Ca. ur., 36.) (Mercante Trust Co. v. Reay, 96 Ca. pp.,
508, 572.) The eements essenta to consttute a vad gft are an ntenton
to gve, and the devery, ether actua or symboca, of the thng ntended
to be gven. Nether aone Is suffcent (Suvan v. Shea, 32 Ca. pp.,
869, 370.) gft Is a vountary transfer of hs property by one to another,
wthout any consderaton or compensaton therefor. It s an essen-
ta characterstc of a gft, however, that It be a transfer wthout consdera-
ton. If there s a consderaton for the transacton, It Is not a gft. (Noe
v. Parrott, 15 . (2d), 669, 671 (O. O. . 4) T. D. 3908, O. . -2, 149 .)
The genera rue s that there Is no presumpton In favor of a gft (Dengan
v. berna S. L. Soo., 127 Ca., 137) and that the burden of provng a
gft s upon the donee (Suvan v. Shea, supra, at page 871).
The doctrne that bonus payments and gratutous addtona compensa-
ton for past servces may consttute ta abe Income has been frequenty
recognzed In decsons of the ower edera courts and of the oard of Ta
ppeas. ( sher v. Commssoner, 59 . (2d), 192, 193 (C. C. . 2). See
oe v. Parrott, supra Schumacher v. Unted States, 55 . (2d), 1007 (Ct
CI.) ret. D. 480, C. . I-1, 216 ass v. awey, 62 . (2d), 721 (C. C. . 5)
Ct. D. 693, C. . II-2, 169 Levey v. everng, etc., 68 . (2d), 401 (Ct
p. D. C.).)
The pettoner here brought before the oard wtnesses who were drectors
of the corporaton at the tme payment of the sum was voted, and who voted
on the resouton. These wtnesses testfed that the payment was ntended
as a gft In ths, pettoner contends, the Instant case s dstngushabe from
those cted above. owever, pettoner s confronted wth the fact that the
e ecutve commttee s resouton s captoned remuneraton, contans the
words settement and saary that the resouton authorzng payment
rectes Mr. otehford s many years servce and the condton of hs heath.
so before the oard was the fact that the corporaton camed as a de-
ducton ( (mpensaton aowed D. . otchford for servces to December 31,
19 7, 30,000 n Its ta return. ery mportant too, s the fact that drectors
of a corporaton, as a genera rue, have no power or authorty to grc atray
any of the assets of the corporaton, and here the payment was not submtted
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193
22(a), rt. 52.
to the stockhoders for ratfcaton. If the drectors coud not gve away ths
sum, and the books of the corporaton show that t was not gven away, t
must be presumed that the payment was not a gft. t any rate, there was
evdence, pro and con, before the oard from whch t was to fnd the fact.
It has ong been setted that determnatons of fact for ordnary admns-
tratve purposes are not sub|ect to revew. (Phps v. Commssoner, 283
U. S., 589, 600 Ct. D. 350, C. . -, 264 .) The determnaton of the oard
of Ta ppeas of a pure queston of fact w not be e amned by ths court
beyond ascertanng t there s any evdence to support such fndng. ( er
verng v. mes, 71 P. (2d), 939, 943 (C. 0. . 8). See aso Turn water Lumber
Ms Co. v. Commssoner, 65 . (2d), 675, 076 (C. C. . 9) Commssoner v.
Crescent Leather Co., 40 . (2d), 833, 835 (C. C. . 1).) The evdence s
egay suffcent to sustan the fndng f there be substanta evdence to sup-
port t, and the record as a whoe does not ceary, convncngy, or even
possby, ndsputaby requre a contrary concuson. (Tracy v. Comms-
soner, 53 . (2d), 575, 579 (C. C. . 6) Ct. D. 468, C. . I-1, 205 .)
Moreover, a decson of the oard of Ta ppeas when based upon test-
mony taken at the tra of an ssue of fact, shoud not be reversed by an
appeate court because of a dfference of opnon as to the mere weght of the
evdence. (W. . enderson Iron Works Suppy Co. v. ar, 25 . (2d),
538, 539 (Ct. p. D. C.).)
In Levey v. everng, supra, the corporaton n computng ts net ncome
dd not deduct the sums pad ts offcer as e tra compensaton, and In the
resouton tsef the payment was desgnated as a gft and yet the court of
appeas hed the payment to be not a gft. It does not appear that the pay-
ment was ever submtted to the stockhoders for ratfcaton. In the Schumacher
ease, supra, and n Noe v. Parrott, supra, the payments were submtted to the
stockhoders, nevertheess, those payments were hed to be addtona compensa-
ton by the courts.
The Crcut Court of ppeas for the Second Crcut sad, n sher v. Com-
mssoner, supra, at page 193:
Whether a payment n a gven case sha be deemed ta abe compensaton
or a gft e empt from ta depends upon the Intenton of the partes, and
partcuary that of the empoyer, to be determned from the facts and cr-
cumstances surroundng the transacton. In the case at bar, the omes com-
pany ceary ndcated ts ntenton by chargng the payment upon ts books
to saary account and so reportng t n ts ta returns. It s urged that these
were the acts of subordnate offcas not shown to have been authorzed to so
treat the payment, but surey the burden of provng ther ack of authorty, f
such was the fact, was upon the ta payer. Nor s there mert n the pet-
toner s contenton that the soe stockhoder approved the payment and hence
presumptvey ntended to make a gft rather than to pay addtona compensa-
ton. There was no acton by the corporate stockhoder ts presdent woud
have no authorty by vrtue of hs offce to gve away ts property.
ar v. Rosseter (33 . (2d), 286 (C. C. . 9)) s nstanty dstngushabe
In that the payment there n controversy was denomnated a gft by both
stockhoders and drectors. In Lunsford v. Commssoner (62 . (2d), 740
(C. C. . 6)), the donee was not connected n any way wth the donor corpora-
ton the donor dd not report the sum as an e pense In ts ta return and
handed the matter upon ts records as a gft nether was there any consdera-
ton, past, present, or future. In that case there was no evdence n the record
that the stockhoders authorzed or approved the gft. That fact, however, does
not change our concuson n the case at bar.
The pettoner contends that f the payment of 30,000 Is rued to consttute
ta abe ncome t shoud e dvded between the husband and wfe as com-
munty Income. It s ponted out by the Commssoner that the prayer to the
petton before the oard reates ony to whether or not the amount was ta -
abe ncome. The contenton was made for the frst tme before ths court and
was not presented before the oard of Ta ppeas whch, therefore, dd not
have the opportunty of rung thereon. In the crcumstances, the queston
Is not propery before ths court. See ottemann v. Commssoner, No. 7727,
decded by ths court anuary 27, 1936.
The decson of the oard of Ta ppeas s affrmed.
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22(b), rt. 83.
194
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 83: Gfts and bequests. -28-8173
Ct. D. 1135
INCOM T R NU CT OP 1928 D CISION O COURT.
1. Income Interest n Insurance Contract Dstrbuton a to
ers n cess of aue or Decedent s Interest.
Where the ta payer acqured by Inhertance and by gft hs
father s nterest n a contract by whch an Insurance company
agreed to dstrbute earnngs upon certan poces annuay for a
perod of years to the former stockhoders of ts predecessor, dstr-
butons to the ta payer n e cess of the vaue of the decedent s n-
terest n the contract at the date of hs death, as accepted for estate
ta purposes, consttuted payments of ncome from nherted
property.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (31 . T. ., 894) affrmed.
3. Certorar Dened.
Petton for certorar dened pr 27, 1936.
Unted States Crcut Court of ppeas for the ghth Crcut.
George . Peak, pettoner, v. Commssoner of Interna Revenue,
respondent.
On petton to revew decson of the Unted States oard of Ta ppeas.
efore Gardm-s, oodrouoh, and an at.kenburgh, Crcut udges,
anuary 6, 1936.
opnon.
Gardner, Crcut udge, devered the opnon of the court
Ths s a proceedng to revew a decson of the oard of Ta ppeas
determnng defcences n the ncome ta es of pettoner for the years 1928,
1929, and 1930.
Pror to 1919, George . Peak, father of pettoner, owned 1,040 of the
2,000 outstandng shares of stock of the Centra Lfe ssurance Socety,
whch was a stock nsurance company organzed and e stng under the aws
of the State of Iowa, wrtng both partcpatng and nonpartcpatng poces
of nsurance. In that year, a new corporaton of the same name was organzed
under the aws of Iowa, to take over the assets, assume the abtes, and
contnue the busness of the stock company. The new corporaton was a
mutua nsurance company, authorzed to wrte partcpatng Insurance e -
cusvey. The transacton was consummated under a contract of May 15,
1919, between the two companes. It provded, among other thngs, that the
new company shoud segregate and manage the nonpartcpatng busness of
the od company, then amountng to about 49,000,000, annuay determne
the earnngs on t, and for a perod of 22 years, dstrbute those earnngs to
the former stockhoders of the od company pro rata. fund of 100,000
was to be hed as a reserve unt the end of that perod, when t was est:
mated a the nonpartcpatng poces woud be qudated, ether by sur-
renders, deaths, or otherwse. egnnng wth the year 1921, dstrbutons
to the former stockhoders of the od company have been made n accordance
wth ths contract.
George . Peak ded testate on ugust 24, 1923. s wdow, ce . Peak,
mother of pettoner, renounced the w and eected to take her statutory
one-thrd share n the estate. She, the pettoner, and hs sster, esta Peak
Ma we, nherted the estate, each recevng one-thrd thereof. In 1928, Mrs.
Peak made a gft to pettoner and to hs sster, Mrs. Ma we, equay of
the nterest she had nherted In the contract between the Insurance compa-
nes. Snce that tme, a dstrbutons under the contract have been dvded
equay between pettoner and hs sster, Mrs. Ma we. or the purpose
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195
22(b), rt, 83.
of the edera estate ta upon the estate of George . Peak, deceased, the
vaue of the nterest of the decedent In ths contract was f ed at 700,000,
as of the date of hs death. Ths vaue was accepted by the e ecutors and
benefcares of the estate, and by the ureau of Interna Revenue, In a fna
settement of estate ta abty.
Certan dstrbutons had been made under ths contract to George . Peak
n hs fetme, and foowng hs death, pettoner, hs mother, and sster
receved the dstrbutons. The dstrbutons receved by them n 1928 brought
the tota recepts of the Peak hers under the contract to over 700,000. The
Commssoner ncuded In the ta abe ncome of pettoner and hs sster re-
spectvey for 1928, one-haf of the amount of the dstrbuton under the contract
n e cess of 700,000, and for the years 1929 and 1930 kewse ncuded In the
ta abe ncome of each one-haf of each annua dstrbuton under the contract,
so that there was ncuded as ncome a amounts dstrbuted to pettoner and
hs sster under sad contract n e cess of . 700,000. The Commssoner accord-
ngy determned defcences n the ta aganst pettoner and hs sster for
the years 1928, 1929, and 1930.
rom these determnatons, the pettoner and hs sster appeaed to the
oard of Ta ppeas, whch sustaned the acton of the Commssoner and
uphed the defcences. Ths acton of the oard of Ta ppeas s here
chaenged. It has been stpuated that the case of Mrs. Ma we shoud abde
the decson rendered n ths case.
Pettoner s contentons may be summarzed as foows: (1) the decedent
had an nterest n the assets of the corporaton, n whch nterest pettoner
nherted a share (2) he can not be ta ed upon recept of that share as for
new ncome receved (3) the courts must determne what s ncome.
In the case of Centra Lfe ssurance Socety v. Commssoner of Interna
Revenue (51 ed. (2d), 939) we hed that the earnngs of the nonpartcpatng
busness were not ta abe ncome of the mutua nsurance company, as t was
a mere coector or condut through whch the ncome passed, and that the
purpose of the ncome ta aw was to ta the ncome to the person who had
the rght or benefca nterest theren.
The pertnent provsons of the contract between the two nsurance companes
s as foows:
That pror to ebruary 15, 1920, and pror to such date n each year there-
after for a perod of 22 years, the sad mutua company sha make up a
gan and oss e hbt, as of date anuary 1 of such year, n such department,
and sha on ebruary 15, 1921, and on ebruary 15 of each year thereafter
durng such perod, dstrbute a surpus, f any, n e cess of 100,000. as
shown by such e hbt, to the persons hereafter named, ther hers, persona
representatves or assgns, the whoe amount to be dstrbuted beng represented
by 2,000 and the dstrbuton to ench person, hs hers, persona representatves
or assgns so named beng n proporton that the amount set opposte hs name
heren bears to 2,000: here foow the names of the stockhoders and the
stock each owns, George . Peak beng shown to own 1,040 shares .
It s conceded by pettoner that current earnngs on the assets as pad to
hn shoud be ta ed as ta abe ncome, but he contends that the baance s
but a dstrbuton of the nterest whch he has nherted and upon whch no
ncome ta shoud be ad.
Secton 22(b)3 of the Revenue ct of 1928 provdes that the vaue of prop-
erty acqured by gft, bequest, devse, or Inhertance sha not be Incuded n
gross Income. Of course, t s ony pettoner s ncome that may be ta ed,
and f a ta s ad on property whch s not ncome, t can not be sustaned,
for that woud be to evy a drect ta requrng apportonment. ( cvcrng
v. Independent Lfe Insurance Co., 292 U. S., 371 Ct. D. 839, C. . III-1,
802 .)
The queston to be determned s whether a the pettoner s recepts from
the mutua company were dstrbutons of corpus. The oard of Ta ppeas
had before t the evdence that the corpus had been vaued at 700,000. Ths
vauaton had been accepted by the e ecutors and benefcares of the estate,
and by the ureau of Interna Revenue, and no evdence was submtted to
dscredt It. We are of the vew that ths was competent and credbe evdence
of the vaus of the corpus receved by nhertance. (Runet v. Logan, 283
U. S., 404 Ct. D. 351, C. . -, 345 .)
In the ast cted case. It appeared that a decedent owned stock In one of
severa stee companes whch were owners of the stock of a company engaged
In mnng ore under a ong term ease. y agreement among themseves, the
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22(b), rt. 83.
196
stee companes were entted to share the ore e tracted accordng to ther
stock hodngs n the mnng company. In 1916, decedent end her cosharehod-
ers sod ther shares to another stee company, whereby t became entted to
partcpate n the ores thereafter taken from the eased mne. The consdera-
ton for the sae was party cash and n part the agreement of the purchaser
to pay annuay thereafter for dstrbuton among the seng stockhoders
a royaty of 60 cents for each ton of ore apportoned to It. The decedent ded
n 1917, and bequeathed her nterest n the payments to be made by the
purchaser of her stock to Mrs. Logan. The vaue of decedent s nterest was
assessed for the payment of the edera estate ta . In the course of the
opnon t s sad:
rom her mother s estate Mrs. Logan obtaned the rght to share In possbe
proceeds of a contract thereafter to pay ndefnte sums. The vaue of ths
was assumed to be 277,164.50, and ts transfer was so ta ed. Some vauaton
specuatve or otherwse was necessary n order to cose the estate. It may
never yed as much t may yed more. If a sum equa to the vaue thus
ascertaned had been nvested n an annuty contract, payments thereunder
woud have been free from ncome ta unt the owner had recouped hs
capta nvestment. We thnk a ke rue shoud be apped here. The statute
defntey e cepts bequests from recepts whch go to make up ta abe ncome.
In Muquenn v. Commssoner (C. G. . 2) (65 ed. (2d), 365), t was hed
that where a ta payer made no attempt to show that a porton of the corpus
was not sub|ect to ta aton as Income, t was not error to treat the whoe as
ncome.
In ths proceedng pettoner has offered no evdence to show a vaue dffer-
ent than 700,000, nor has he offered evdence tendng to show that a or any
porton of the dstrbutons ta ed were n fact dstrbutons of the nherted
property, and hence, the estate ta vauaton stands as the ony credbe proof
of that vaue. The record warrants but one concuson, that payments to pet-
toner and hs sster In e cess of 700,000 were payments of ncome from the
Inherted property. The queston of whether secton 22(b)3 of the Revenue
ct of 1928 s consttutona n a Its aspects, In e emptng vaue rather than
property devsed, bequeathed or nherted, s not before the court because
pettoner, under ths record, has been ta ed ony on ncome. e s, therefore,
not threatened wth any oss or n|ury from the statute, and hence, can not
compan of ts provsons. The queston s an academc one, whch ths court
has no authorty to decde. (Monamotor O Co. v. ohnson, 292 U. S., 86
Whte v. ohnson, 282 D. S., 367.)
The order of the oard of Ta ppeas s therefore affrmed.
rtce 83: Gfts and bequests. -42-8351
Ct. D. 1164
INCOM T R NU CT O 1928 D CISION O COURT.
1. Gross Income Interest on Pecunary Legacy.
n amount dstrbuted to the pettoner as nterest on a pecuuary
egacy under the w of her deceased husband, pursuant to the
Pennsyvana fducares act of 1917, consttuted ta abe ncome
under the provsons of secton 22(b)3 of the Revenue ct of 1928.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (32 . T. , 959) affrmed.
Unted States Crcut Court of ppeas for the Thrd CucrT.
Mnne L. Wof, pettoner, v. Commssoner of Interna Revenue, respondent.
Petton for revew from the Unted States oard of Ta ppeas.
efore uffngton and Thompson, Crcut udges, and Dcknson, Dstrct
udge.
May 28, 1936.
OPINION.
uffngton. .: Ths s a petton for revew of a decson of the oard of
Ta ppeas. The pettoner receved : pecunary egacy of 600,000 by the w
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197
22(c), rt. 105.
of her husband. The w contaned no provson n respect to nterest upon
ths egacy. Pursuant to the Pennsyvana fducares act of 1017, secton 21,
the e ecutors pad the pettoner 29,300 as Interest on her egacy. The pet-
toner dd not ncude ths sum n her ncome ta return and the Commssoner
assessed a defcency. The oard sustaned the Commssoner.
The pettoner rees upon secton 22(b)3 of the Revenue ct of 1928 whch
provdes that the vaue of property acqured by gft, bequest, devse, or n-
hertance s to be e cuded from gross ncome. The same secton, however,
e pressy provdes that the ncome from such property sha be ncuded n gross
ncome. The Pennsyvana act provdes that where a pecunary egacy s
bequeathed to or for the use of the wdow of the testator, nterest
sha, uness a contrary ntenton appear by the w, begn to run from the
date of the death of the testator. It woud therefore seem that the 29,300
was ncome to the pettoner from the property acqured by the bequest to her
and shoud have been ncuded n her gross ncome.
We thnk the nterest aowed by statute was ncome and ta abe as such.
The statutory nterest aowed her was not egacy or part of her egacy and was
not provded for n the w, but was attrbutabe to the statute of the State.
It woud be captous to adhere strcty to the narrow defnton of the word
nterest as s urged by the pettoner.
So hodng, the acton of the Ta oard s affrmed.
S CTION 22(c). GROSS INCOM : IN NTORI S.
ncome ta revenue act of 1928 decson of supreme court.
1. Gross Income Inventores Deaer n Securtes.
brokerage frm whch traded on the New York Stock change
for others and aso bought and sod securtes for Itsef s not a
deaer n securtes, wthn the meanng of artce 105 of Regu-
atons 74, as to the securtes bought and sod for ts own account,
where the evdence shows that the stocks were purchased soey n
e pectaton of a rse n market for sae to anyone at a proft, and
the frm s not, therefore, entted to nventory such securtes at
cost or market, whchever was ower, n computng ts ncome for
1929.
2. Decson ffrmed.
Decson of the Unted States Court of ppeas for the Dstrct
of Coumba (83 ed. (2d), 317), affrmng decson of the oard
of Ta ppeas (32 . T. ., 2S9), affrmed.
gernon 8. Schafer, pettoner, v. Guy T. cvcrng, Commssoner of Interna
Revenue.
dward Schafer, pettoner-, v. Guy T. cvcrng, Commssoner of Interna
Revenue.
Leonard Schafer, pettoner, v. Guy T. cvcrng, Commssoner of Interna
Revenue.
On wrts of certorar to the Unted States Court of ppeas for the Dstrct of Coumba
Mr. ustce McRetnous devered the opnon of the Court.
Pettoners n these three causes were partners In Schafer ros., brokers at
120 roadway, and member of the New York Stock change. The frm traded
for others aso bought and sod securtes for tsef. The atter were carred
on ts books n the so-caed error account.
rtce 105: Inventores by deaers n
securtes.
-52-8453
Ct. D. 1183
Supreme Court of the Unted States.
December 7, 1936.
OPINION.
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22(0), rt. 105.
198
In order to ascertan the partners ta abe profts durng 1929 the Comms-
soner hed that securtes n that account shoud be vaued at ther cost prce
tat as to them the partnershp was not a deaer permtted to use nventores
under artce 105, Treasury Reguatons 74. ccordngy he found matera
defcences aganst each of the pettoners. The oard of Ta ppeas sus-
taned hs acton the court beow affrmed.
The petton, upon whch we granted the wrts, states ths as the queston
presented : Was the partnershp of whch these pettoners were members
a deaer n securtes as to securtes bought and sod for ts own account,
and as such entted to nventory such securtes at cost or market, whchever
was ower, n computng ts Income for 1929 Determnaton of the
amount thus to be ncuded n the ncome of each pettoner depends upon the
bass upon whch the partnershp ncome Is computed.
nd as reasons for grantng the wrts t averred: (1) The decson of
the Court of ppeas of the Dstrct of Coumba s n rreconcabe confct
on a matter of statutory Interpretaton wth the decson of the Court of
ppeas for the Second Crcut In Commssoner v. Stevens (78 . (2d), 713)
and wth the decson of the Court of ppeas for the Thrd Crcut n Com-
mssoner v. Charavay (79 . (2d), 406). (2) The precse queston of statu-
tory constructon here presented s one of genera pubc mportance whch has
never been setted, and shoud be determned by ths Court because of the
number of pendng cases nvovng the queston, as we as the frequent occa-
sons that the queston s bound to arse n the future.
Our consderaton s confned to the ssue so tendered by the petton.
Commssoner v. Stevens and Commssoner v. Charavay, supra, turned on the
queston whether Stevens and Legg, a specast on the New York Stock
change, was a deaer whose profts shoud be determned upon nventores
under artce 105, Treasury Reguatons 74. The oard of Ta ppeas hed t
was, and the Crcut Court of ppeas n both the Second and Thrd Crcuts
approved that vew. Consderng the dfferng crcumstances, we fnd no rea
confct between the hodngs n those cases and the rung beow. (See aughan
v. Commssoner, 85 . (2d), 497.)
Pertnent provsons, Revenue ct of 1928 (ch. 852, 45 Stat., 791), and Treas-
ury Reguatons 74, are n the margn.1
Sehafer ros, was not a specast n the stocks entered n ts error
account The oard of Ta ppeas found: The stocks n dspute were
purchased for the frm s own account soey n e pectaton of a rse n the market,
for sae to anyone at a proft, as dstngushed from a purchase to create a
stock of securtes to take care of future buyng orders In e cess of seng
orders. They were purchased soey n e pectaton of a rse n the market,
Revenue ct of 1928 (ch. 852, 45 Stat., 791) I
Sec. 22. Gross Income.

(c) Inventores. Whenever In the opnon of the Commssoner the use of Inventores
Is necessary In order ceary to determne the Income of any ta payer, Inventores sha
be taken by such ta payer upon such bass as the Commssoner, wth the approva of
the Secretary, may prescrbe as conformng as neary as may be to the best accountng
practce n the trade or busness and as most ceary refectng the ncome.
Treasury Reguatons 74 :
rt. 101. eed of nventores. In order to refect the net ncome correcty, nventores
at the begnnng and end of each year are necessary n every case n whch the produc-
ton, purchase, or sae of merchandse s an ncome-producng factor.
rt. 105. Inventores by deaer n securtes. deaer n securtes, who In hs books
of account reguary nventores unsod securtes on hand ether
(a) t cost
(b) t cost or market, whchever s ower or
(c) t market vaue,
may mako hs return upon the bass upon whch hs accounts are kept: provded that a
descrpton of the method empoyed sha be Incuded n or attached to the return, that a
the securtes must be Inventored by the same method, and that such method must be
adhered to n subsequent years, uness another be authorzed by the Commssoner. or
the purpose of ths rue a deaer In securtes s a merchant of securtes, whether an
ndvdua, partnershp, or corporaton, wth an estabshed pace of busness, reguary
engaged n the purchase of securtes and ther resae to customers: that s, one who as
a merchant buys securtes and ses them to customers wth a vew to the gans and
profts that may be derved therefrom. If such busness Is smpy a branch of the
actvtes carred on by such person, the securtes Inventored as here provded may
Incude ony those hed for purposes of resae and not for Investment. Ta payers who bay
and se or hod securtes for Investment or specuaton and not n the course of aa
estabshed busness, and offcers of corporatons and members of partnershps who a
ther ndvdua capactes buy and se securtes, are not deaers In securtes wthn
the meanng of ths rue.
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22(c), . 106.
for the partnershp s own account for resae, to any buyer, at a proft. The
meanng of deaer n securtes, as defned n the controng reguaton, has
been consdered many tmes by the courts, and ths oard. It s mted to one
who, as a merchant, buys and ses securtes to customers for the proft thereon.
The evdence adequatey supports these fndngs.
Seeey v. Comm soncr (77 . (2d), 323), ammtt v. Commssoner (79 .
(2d), 494), and augan v. Commssoner, supra, re n harmony wth our
concuson.
We fnd no adequate reason for dsturbng the chaenged |udgment, and t
s affrmed.
ffrmed.
rtce 105: Inventores by deaers n -52-8454
securtes. Ct. D. 1184
INCOM T R NU CT O 1928 D CISION O SUPR M COURT.
1. Gross Income Inventores Deaer n Securtes Speca-
st.
brokerage frm whch operated upon the New York Stock -
change as a specast n certan securtes, namey, a quafed
member who accepts orders n seected securtes from other mem-
bers for e ecuton, Is a deaer n respect to such stocks and Is
entted to the prvege of nventoryng unsod securtes at market
vaue for ta purposes, under the provsons of artce 105 of
Reguatons 74, where the frm snce ts Incepton had reguary
empoyed that method, and where the evdence shows that t had
an estabshed pace of busness, that t reguary engaged n the
purchase of certan specfed securtes and ther resae to cus-
tomers, and that as a merchant t bought securtes and sod them
to customers wth a vew to the gans and profts that mght be
derved therefrom.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, Second Crcut (83
ed. (2d), 193). reversng decson of the oard of Ta ppeas
(31 . T. ., 638), affrmed.
Supreme Court of the Unted States.
Ouy T. cverng, Commssoner of Interna Revenue, pettoner, v. bert
red.
Gvy T. evcrng, Commssoner of Interna Revenue, pettoner, v. en|amn
nhorn.
On wrts of certorar to the Unted States Crcut Court o ppeas for the Second
Crcut.
December 7, 1936.
opnon.
Mr. ustce McRetnods devered the opnon of the Court.
Respondents n these two causes were partners as bert rsd Co., brokers,
member of the New York Stock change, wth offces at 120 roadway. When
he undertook to determne ther ndvdua ta abe profts durng 1931 the
Commssoner dened ther cam that the frm s operatons on the change
as a specast In 13 stocks gave It the status of dener theren, entted to the
prvege of nventoryng such securtes for ta purposes at market vaue
under artce 105, Treasury Reguatons 74, Revenue ct 1928.
Upon stpuated facts the oard of Ta ppeas, athough sharpy dvded,
sustaned hs acton. The court beow hed the frm was a deaer wthn the
reguatons, regarded Commssoner v. Stevens (78 . (2d), 713) as controng,
and reversed the oard s decson. Certorar was granted here upon the
Commssoner s petton, whch affrms that the queston presented s whether
the respondents were deaers n certan securtes n whch they specazed so
as to entte them to nventory the securtes at market vaue n determnng
Income.
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23(a), rt. 121.
200
Pertnent provsons of the Revenue ct and Treasury reguatons are set
out n the opnon n gernon 8. Schafer ct a. v. Commssoner, ths day
announced Ct D. 1183, page 197, ths uetn .
The stpuated facts show
fred Pred and en|amn nhorn composed the frm, fred red Co.,
120 roadway, organzed n 1920, and member of New York Stock change.
It Is a specast n 13 specfed stocks there bought and sod. specast
s a quafed member who accepts orders n seected securtes from other
members for e ecuton.
s such specast the frm fed orders ether by buyng or seng ts own
securtes or by matchng ke orders of buyer and seer. It eased space on
the change foor at an annua renta of 2,000, and there carred on busness
n the 13 stocks. The frm was known to a members as a specast and
was reguary and consstenty engaged n purchases and resaes. It s the
practce for a member who desres to buy or se a stock to pace hs order
wth the specast theren. The frm aways had on hand the securtes n
whch t specazed. The number (from 10,300 to 62,300) of shares of these
owned by the frm at the end of each month In the year under revew s stated.
In one month an e ampe of the 126,200 shares r Reducton stock sod on
the change, 59 per cent was sod by red Co.
stocks bought and sod by the frm were actuay receved and devered.
Durng the ta year It sod 1,762,100 shares of the 13 stocks. Of other stocks
It sod 119,600 shares.
Snce ts ncepton the frm has reguary nventored unsod securtes at the
market and computed ta abty on that bass. On numerous occasons It
purchased and sod n order to mantan far and equtabe markets and, as
far as possbe, has tred to prevent wde fuctuaton n prces. Durng the
year the partnershp sod to 431 customers n amounts rangng from 100 to
5,700 shares. These customers were other members of the Stock change
actng for themseves or ther prncpas.
We thnk the facts stpuated adequatey estabsh that red Co. had an
estabshed pace of busness that t reguary engaged n the purchase of
certan specfed securtes and ther resae to customers that as a merchant
It bought securtes and sod them to customers wth a vew to the gans and
profts that mght be derved therefrom. so that the evdence afforded no
adequate bass for a contrary fndng by the oard of Ta ppeas.
The oard s concuson was announced (1934) pror to the decson 11935) of
Commssoner v. Stevens, supra. In that cause, aso n aughan v. Comms-
soner (85 . (2d), 497), the Crcut Court of ppeas, Second Crcut, de-
scrbes the actvtes of specasts on the Stock change and concudes
that they are deaers or merchants, n respect of the securtes wheen they
specaze, entted to the beneft of artce 105 of Treasury Reguatons 74.
We accept the concusons reached beow and need not repeat the adequate
arguments advanced to support them.
ffrmed.
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 121: usness e penses.
R NU CT O 1928.
Lega fees and e penses of merger. (See Ct. D. 1137, page 212.)
rtce 121: usness e penses. -41-8343
Ct. D. 1161
INCOM T R NU CT O 192S D CISION O COURT.
Deducton Ordnary and Necessaby usness penses ttor-
ney s ees and penses Pad by Tbust enefcary.
ttorney s and accountant s fees and e penses pad by the pet-
toner n order to obtan addtona ncome from a testamentary
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201
23(a), rt. 121.
trust of whch she was a benefcary are not deductbe as ordnary
and necessary busness e penses under the provsons of secton
u3(a) of the Revenue ct of 1928.
Unted States Court of ppeas fob the Dstrct of Coumba.
Dorothy . orse nee rown), pettoner, v. Guy T. everng, Commssoner
of Interna Revenue.
On petton for revew of decson of the Unted States oard of Ta ppeas.
efore Martn, Chef ustce, and an Obsde, Groner, and Stephens,
ssocate ustces.
une 1, 1936.
OPINION.
Martn, Chef ustce: Ths case s brought In ths court to revew a
decson of the Unted States oard of Ta ppeas affrmng a defcency
determned by the Commssoner of Interna Revenue n the ncome ta
return of the present pettoner for the year 1930.
The soe queston nvoved n the case s whether or not certan attorney s
fees and charges pad by pettoner durng the ta abe year n order to
secure the payment of addtona Income to pettoner as benefcary of a trust
created by w are deductbe as ordnary and necessary busness e penses.
The controng statute n the case Is secton 23 of the Revenue ct of
1928 (ch. 832, 45 Stat., 791), whch reads as foows:
Sec. 23. Deductons from Gross Income.
In computng net ncome there sha be aowed as deductons:
(a) penses. the ordnary and necessary e penses pad or ncurred
durng the ta abe year n carryng on any trade or busness.
The facts as found by the Unted States oard of Ta ppeas are as
foows: Pettoner, Dorothy rown Morse, a resdent of Greenwch, Conn.,
s the granddaughter of Pau rown of St. Lous, Mo., who ded testate on
November 18, 1927. In hs w he eft one-s th of hs resduary estate to
the Mercante Trust Co., now the Mercante-Commerce ank Trust Co. of
St. Lous, Mo., n trust for the beneft of hs two grandchdren, the pet-
toner and her haf brother, Pau rown, III. y the terms of the w,
the trustee was drected to dvde ths one-s th nterest In the resduary
estate nto two equa parts, one porton to be hed n trust for the beneft
of pettoner and the other for the beneft of Pau rown, III. Wth respect
to the porton to be hed In trust for pettoner the w provded that the
trustee shoud pay over from tme to tme so much of the net Income and
revenue derved therefrom as In the |udgment of the trustee sha seem
meet and proper for the mantenance, educaton, comfort, and support of my
sad granddaughter, unt she attans the age of 25 years and that the
une pended ncome sha be added to and become part of the corpus of the
trust estate heren created for her beneft . t the tme of decedent s
death pettoner was a mnor. She reached her ma|orty In March, 1929.
In ebruary, 1928, pettoner and her mother, her natura guardan, consuted
an attorney reatve to the payments pettoner was recevng under the trust
created for her beneft. They fet that pettoner was entted to receve a arger
porton of the ncome of the trust than the trustee was then payng her, whch was
835 per month, pus the cost of some speca trps. The attorney whom they
empoyed made a demand on the trustee for addtona ncome, and after pro-
onged negotatons and dscussons, the trustee fnay agreed, on December 8,
1930, to pay pettoner 75 per cent of the Income of the trust that had accumu-
ated pror to that tme and 75 per cent of the Income that woud accrue there-
after unt she arrved at the age of 25 when, under the terms of the w, she
was to receve a of the Income. Ths agreement resuted In a payment to
pettoner out of the ncome accrued at that tme In her trust of 107,224.98.
Ths sum was pad to attorney for pettoner by the trustee on December 8,1930,
and on December 16, 1930, the attorney deducted from that sum, on account of
hs fees and e penses, and for the purpose of payng the accountant engaged n
these matters, the sum of 16,623.41. In her ncome ta return fed for the
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23(c), rt. 154.
202
caendar year 1930, pettoner deducted ths 16,023.41 from her gross ncome and
e paned sad deducton under schedue of her return as foows:
ttorney s and accountant s fees n connecton wth obtanng ncome sette-
ment from trustees for Dorothy rown u/w of Pau rown, deceased,
16,623.41.
The deducton of 16,623.41 wns camed by pettoner under the provson for
ordnary and necessary e penses pad or ncurred durng the ta abe year n
carryng on any trade or busness. The Commssoner of Interna Revenue hed
that the servces rendered by her attorney n the year 1930 n seekng and obtan-
ng a settement of the amount due to her from the trustee under her grand-
father s w were not ordnary and necessary e penses pad or ncurred n carry-
ng on any trade or busness, but were persona e penses ony. ccordngy he
determned a defcency n the ncome ta es of pettoner for the year 1930 n the
amount of 2,818.03, and ths determnaton was affrmed by the Unted States
oard of Ta ppeas.
We are of the opnon that the acton of the Commssoner and the decson of
the oard were correct.
n e amnaton of the authortes dscoses that ths queston has been fre-
quenty consdered by the courts and the rue has been we setted that fees
pad to an attorney under crcumstances such as these nvoved n the present
ease are not deductbe us ordnary busness e penses.
In utchngs v. urnet (61 pp. D. C, 109, 58 . (2d), 514), we hed that fees
pad to an attorney for servces rendered n acqurng o ands under royaty
eases, and n defendng cent s tte thereto, and n preparng ta returns, were
not deductbe as ordnary or necessary e penses n carryng on any trade or
busness. The facts nvoved n that case were essentay smar to those
Invoved n tho present case.
In an Wart v. Commssoner of Interna Revenue (295 U. S., 112 Ct. D. 963.
C. . r -1, 292 ), t appeared that the soe queston for determnaton was
whether an attorney s fees pad by a guardan for conductng tgaton to secure
Income for hs ward, hs mnor daughter, was a busness e pense wthn the
purvew of secton 214 (a)1 of the Revenue ct of 1924. and therefore deductbe
from the mnor s ndvdua gross ncome. The guardan wns successfu n a
sut to compe the trustees to dstrbute to hm accumuated and future accruas
of ncome from a trust created for the beneft of hs ward, who was resdng wth
hm. In the ncome ta return for 1924 whch he fed on her behaf, he camed
u deducton for the attorney s fee ncurred n such tgaton. The Commssoner
determned that ths was a persona e pense of the mnor ta payer and e cuded
from deducton by secton 215(a)1 of that ct. The Crcut Court of ppeas for
the fth Crcut uphed the Commssoner s determnaton (69 . (2d), 299),
and the Supreme Court, statng, among other thngs, that The ward was not
engaged n any busness, uphed the decson of the ower court. It s cear that
the Instant case s concuded by ths decson. In both cases the fees were
e pended for the purpose of securng for the ta payer-benefcary addtona
Income from the trusts and the cases are not dstngushabe on ther facts.
In the foregong decson the Supreme Court cted wth approva utchng v.
urnet, supra, together wth ornhauser v. Unted States (276 U. S., 145 T. D.
4222, C. . III-2, 107 ), Commssoner v. ed (42 . (2d), 820), Waker v.
Commssoner (63 . (2d). 351), Lndey v. Commssoner (63 . (2d), 807
rCt. D. 724, C. . II-2, 108 ).
We consder the foregong authortes as concusve and affrm the decson of
the Unted States oard of Ta ppeas.
ffrmed.
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 154: edera estate and State nhert- -33-8245
ance ta es. Ct. D. 1146
INCOM T R NU CT O 1928 D CISION O COURT.
Deducton State Inhertance Ta ks Retroactvty of Statute.
enefcares of a decedent s estate may not deduct n ther n-
dvdua ncome a returns for 1928 an amount representng State
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203
23(c)( rt, 154.
Inhertance ta es pad by the admnstrator of the estate durng
that year. Secton 703(a) of the Revenue ct of 1928 appes
ony to such ta es pad under the Revenue ct of 1926 or any pror
ct, and therefore the deducton can be aowed ony as provded
by secton 23(c)3 of the Revenue ct of 1928. The fact that the
payment was actuay made pror to the enactment of the Revenue
ct of 1928 does not render the atter secton nappcabe. The
ct was made effectve as of anuary 1, 1928, and retroactvty of
the statute Is not a vad ob|ecton.
Unted States Ctbcut Coubt op ppeas tob the Nnth Crcut.
Regna Martz and . . Martz, pettoners, v. Commssoner of Interna Revenue,
respondent.
Upon petton to revew an order of the oard of Ta ppeas.
efore Wbur, Garrboht, and aney, Crcut udges.
March 2, 1936.
OPINION.
Gabbecht, Crcut udge: Ths petton to revew arses out of two conso-
dated cases before the oard of Ta ppeas wheren t was decded that
there was a defcency of 5,496.20 for the year 192S In the case of Regna
Martz and a defcency for the same year of 14,581.53 n the case of . .
Martz.
zabeth Martz, mother of the pettoners, ded November 20, 1927, and
. . Martz was apponted admnstrator of her estate. Inhertance ta es n
the sum of 427,043.16 were pad the State of Caforna, out of the estate, on
May 10, 1928. On May 29, 1928, a parta dstrbuton of the estate was made
to pettoners here, whch estate conssted of ncome producng rea estate.
The ncome from the estate so dstrbuted to the pettoners amounted to ap-
pro matey 21,000 per month. The pettoners n ther Indvdua ncome
ta returns for the year 1928, fed n March, 1929, each camed a deducton of
213,521.58, beng one-haf of the nhertance ta pad by the estate. . .
Martz, as admnstrator of the estate, n the ncome ta return of the estate
for the year 1928, dd not take the amount of the nhertance ta as a deduc-
ton. The respondent dsaowed these amounts taken as deductons from the
ncome of the pettoners.
The Revenue ct of 1928 was passed May 29, 1928, but made effectve as of
anuary 1, 1928.
Pettoners assert that at the tme payment of the Inhertance ta was made
the Revenue ct of 1928 had not yet been passed, and that f secton 23 s ap-
pcabe they w be In|ured by ts retroactve effect That a ta measure s
retroactve s not a vad ob|ecton. s a matter of fact most ncome ta cts
are retroactve, n that they are generay passed after a part of the year for
whch they are appcabe has eapsed and are gven an effectve date back to
the frst of that year. The rght of Congress to have Imposed ths ta by a
new statute, athough the measure of t was governed by the ncome of the
past year, can not be doubted much ess can t be doubted that t coud m-
pose such a ta on the ncome of the current year, though part of that year
had eapsed when the statute was passed. (Stockdae v. The Insurance Com-
panes, 87 T . S., 323, 331. See aso Updke et at. v. Unted States (C. C. . 8),
8 . (2d), 913, 916 T. D. 3815, C. . -, 312 , and cases there cted.)
Secton 23(c)3 of the 1928 ct (45 Stat., 791) provdes that estate,
Inhertance, egacy, and successon ta es accrue on the date thereof, e cept as
otherwse provded by the aw of the |ursdcton mposng such ta es, and
sha 6e attoced as a deducton ony to the estate. Itacs ours. Respond-
ent contends that ths above quoted part of the statute forbds the camed
deductons for the reason that the Inhertance ta es here Invoved were deduct-
be by the estate, but coud not be deducted by the dstrbutees.
On the other hand, pettoners contend that the secton set out above and
reed upon by respondent does not appy for nasmuch as the ct was made
retroactve, there was ncuded n sad ct a savng cause whch must be
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23(c), t. 154.
204
apped to the facts heren. Secton 703(a) of sad ct reed upon reads as
foows:
In determnng the net ncome of an her, devsee, egatee, dstrbutee, or
benefcary (herenafter n ths secton referred to as benefcary ) or of an
estate for any ta abe year, under the Revenue ct of 1926 or any pror
Revenue ct, the amount of estate, nhertance, egacy, or successon ta es
pad or accrued wthn such ta abe year sha be aowed as a deducton as
foows:
(1) If the deducton has been camed by the estate, but not by the bene-
fcary, t sha be aowed to the estate
(2) If the deducton has been camed by the benefcary, but not by the
estate, t sha be aowed to the benefcary
(3) If the deducton has been camed by the estate and aso by the bene-
fcary, t sha be aowed to the estate (and not to the benefcary) f the
ta was actuay pad by the ega representatve of the estate to the ta ng
authortes of the |ursdcton mposng the ta and t sha be aowed to
the benefcary (and not to the estate) f the ta was actuay pad by the
benefcary to such ta ng authortes.
Pettoners argue that athough the ct of 1928 was made retroactve to a
date pror to the payment of the Caforna nhertance ta , the fact that the
payment was actuay made before the ct of 1926 had been superseded that
therefore secton 703(a) shoud be here apped.
The readng of secton 703(a) pany ndcates that t s ntended to appy
to nhertance ta es pad pror to the year 1928, and, therefore, the ncome
ta es here In controversy are to be computed In accordance wth secton
23(c)3 of the ct of 1928.
Drecty n pont s respondent s eadng authorty, Gette v. Commssoner
(76 P. (2d), 6 (C. C. . 2)). There the pettoner personay pad the In-
hertance ta es hmsef, after a |udgment of the Superor Court of Caforna
therefor had been entered aganst hm. That case requred the constructon
of the very statutes here nvoved. Lkewse, the camed deducton was for
Caforna nhertance ta es. The Caforna Inhertance ta act (Stats. 1921,
1500) requres the e ecutor or trustee n charge of an estate or property sub-
|ect to nhertance ta es to deduct the ta therefrom and not to dever np
any property unt he had coected the ta thereon. It s aso provded by the
same act that nhertance ta es sha be a en upon property transferred
unt such ta es are pad. The court sad (page 7) :
It s argued that secton 23(c)3 does not appy to the present case because,
under secton 703(a)2 of the same Revenue ct of 1928 (26 U. S. C. .,
secton 2703(a)2), nhertance ta es were to be aowed as a deducton to the
benefcary, f camed by the atter, and not by the estate. ere they were pad
and camed as a deducton by the benefcary, made a abty of the atter
by udgment of the Superor Court of Caforna, and nether pad nor camed
as a deducton by the e ecutor of Lna Gette or by the trustees under her
trust deed. Secton 703(a)2 by ts terms ony affected determnaton of the
net ncome of a benefcary or dstrbutee under the Revenue ct of 1928
or any pror Revenue ct, and consequenty bore no reaton to the present
case where secton 23(c) of the ct of 192S had become controng.

The Caforna statute reatng to the mposton and coecton of nhert-
ance ta es docs not dffer essentay from that of New York dscussed by the
Supreme Court n eth v. ohnson (271 U. S., 1 T. D. 3864, C. . -, 236 ),
or that of Te as deat wth n Unted States v. Mtche (271 U. S., 9 T. D. 3SG5,
C. . -, 2331). Under the nhertance ta aws of a three States the
estate s prmary responsbe for the payment of the ta . The |udgment
aganst the ta payer n the Caforna Superor Court dd not reeve the
estate of Lna Gette from a prmary duty to pay the ta . The State ony
obtaned a |udgment aganst the pettoner heren because the trustees had
not pad the ta as they were n the frst nstance bound to do.
The decsons of the oard of Ta ppeas are affrmed.
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205
23(e), rt. 171.
ktce 154: edera estate and State nhert- O-8334
ance ta es. Ct. D. 1159
ncome ta revenue act of 1028 decson of court.
Deducton State Inhertance Ta es Not Deductbe by Trust
enefcaby.
The benefcary under a testamentary trust, whch provded that
a Inhertance ta es be pad from the resduary estate, s not en-
tted to a deducton n the amount of such ta es pad by the
e ecutors and trustees upon the apprased vauaton of the fe
estate of the benefcary n 1931, when she receved the ncome
therefrom undmnshed by any payment of State nhertance
ta es.
Unted States Crcut Court of ppeas for the Thrd Crcut.
dythe . Rcsten, pettoner, v. Commssoner of Interna Revenue, respondent.
Upon petton to revew the decson of the Unted States oard of Ta ppeaa.
efore uffngton, Davs, and Thompson, Crcut udges.
pr 15, 1936.
OPINION.
Thompson, Crcut udge: Ths s a petton for revew of a decson of the
oard of Ta ppeas. The pettoner s a benefcary under a trust created
by her husband s w. The apprased vauaton of her fe estate was
1,026,219.40. The w provded that a nhertance ta es be pad from the
resduary estate. In 1931 the pettoner receved 51,109 as ncome from her
fe estate. In the same year the e ecutors and trustees pad Pennsyvana
State nhertance ta es out of funds of the resduary estate n the sum of
30,536.70 of whch 20,524.38 represented the amount of ta due on the ap-
prased vauaton of the pettoner s fe estate. The pettoner camed the
rght to deduct ths sum of 20,524.38 from her gross ncome for 1931. The
pettoner s contenton Is that the provson n the w under whch she was
reeved of the payment of State Inhertance ta es consttuted a egacy or
bequest to her of the amount of the State nhertance ta es pad by the e ecu-
tors and trustees and that as a coroary she was entted under the provsons
of the Revenue ct of 1928 (45 Stat., 791) to a deducton from her ncome of
the amount of such so-caed egacy. Whe, under the provsons of the w,
the pettoner was reeved of payment of State nhertance ta es, t s unds-
puted that no ta was assessed by the Commssoner on the 20,524.38 pad to
the Commonweath of Pennsyvana. The ta assessed was upon 51,109 actu-
ay dstrbuted to her as Income from the resduary estate. In accordance
wth the provsons of the w the State Inhertance ta was not pad out
of ths ncome. The pettoner receved the ncome undmnshed by any ta
payment. The opnon of the oard of Ta ppeas ceary and fuy sets out
the facts and the ega concusons deducbe therefrom. We are n entre
accord wth the reasonng of the oard and fnd ts concusons ampy sup-
ported by the facts and the aw.
The decson of the oard of Ta ppeas s accordngy affrmed.
S CTION 23(e). D DUCTIONS ROM GROSS
INCOM : LOSS S Y INDI IDU LS.
rtce 171: Losses. -37-8299
Ct. D. 1154
INCOM T R NU CT O 1928 D CISION O COURT.
Deducton Loss Transfer of Corporate Stock Sae or Gft.
Where the ta payer n 1930 transferred to hs son, for a con-
sderaton of 1, certan shares of corporate stock whch he had
purchased n 1915 for 10,000, and the evdence showed that the
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23(e), rt. 171.
206
stock had a substanta vaue at the tme of the transfer, the
transacton was not In reaty a sae but was ntended to operate
as a gft, and the ta payer s not entted to deduct as a oss
the dfference between the cost prce and the amount receved from
the son.
Unted States Crcut Court of ppeas fob the fth Crcut.
Commssoner of Interna Revenue, pettoner, v. ctor . hrhart, respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas (dstrct of
orda).
efore oster, Sbey, and Waker, Crcut udges.
ebruary 27, 1936.
OPINION.
Waker, Crcut udge: In hs ncome ta return for the year 1930 the
respondent camed as a deductbe oss the sum of 59,999, beng the dfference
between the prce, 10,000, pad by respondent n 1915 for 100 shares of the
stock of the Consodated Co., an Inos corporaton (whch stock was sur-
rendered to that corporaton for 60 shares of ts stock, that e change resutng
n nether gan nor oss), and the amount 1, for whch respondent transferred
that stock to hs son n December, 1930. The Commssoner dsaowed that
deducton. On a petton for a redetermnaton of the defcency determned
by the Commssoner, the oard of Ta ppeas aowed that deducton.
stpuaton of facts was fed wth the oard of Ta ppeas. That stpuaton
showed the foowng:
The stock pad no dvdends snce anuary 8, 1921. In 1927 the respondent
camed hs nvestment n the stock as a oss. The oss, 10,000, was dsaowed
by the Commssoner. Durng 1930 the pettoner (respondent here) sod
ths stock to hs son, . P. hrhart, presdent of the amestown Pant
arnsh Co., amestown, Pa., for 1. The stock certfcate was actuay de-
vered and the consderaton was actuay pad, the entre transacton havng
been handed by etters. The ncome ta returns of the Consodated Co. for
the year 1928, 1929, and 1930 were ntroduced n evdence n the hearng
before the oard of Ta ppeas. Those returns showed that that company
was dong a arge voume of busness n those years, but that ths voume
of busness was greaty reduced n 1930 from what t was n the two pror
years. There was a heavy oss n 1930, but the corporaton s ncome ta
return for that year showed that at the end of that year ts surpus and
undvded profts, shown on ts books, amounted to 13,537.63, and that at the
end of that year t had accounts and notes recevabe amountng to 153,659.77.
Under the evdence adduced before the oard t s not open to dspute that
the stock n queston had a substanta vaue, very greaty In e cess of the
amount pad for t by the respondent s son. There was no evdence tendng
to prove that at the tme of the transfer the stock was worth ess than
10,000, the amount whch respondent pad for t. rom the facts dscosed
by the stpuaton of partes and other evdence t appears that the amount
pad by the transferee was so trva as compared wth the vaue of the stock
transferred as to requre the concuson that the transacton was not n reaty
a sae, but was ntended to operate as a gft that the purported sae was a
mere sham. dfferent resut s not requred by the crcumstance that the
partes stpuated n wrtng that durng 1930 the pettoner sod ths stock
to hs son . If the |ust set out part of the stpuaton Is to be
regarded as an agreement concernng the ega effect of admtted facts, that
part or feature of the stpuaton s noperatve, as the ega effect of a trans-
acton s a queston of aw, as to whch the court can not be controed by the
agreement of partes. (Swft f Co. v. ockng aey Ry. Co., 243 U. S., 281,
289 (O C. ., 50.) transfer of property of substanta vaue s not kept
from beng a gft by the payment of a trva or merey nomna consderaton.
( drdge v. drdge, 202 Mo., 505, 573 state of a, 154 Ca., 527, 531.)
Crcumstances attendng the transacton In queston, notaby the reaton of
father am son between the partes to t and the gross dsparty between the
vaue of the stock and the sum pad for t, kept that transacton from havng
the sembance of a rea sae for a vauabe consderaton.
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207
23(e), rt. 171.
The asserted rght to the deducton camed Is based upon the provson of
secton 23(e)2 of the Revenue ct of 1928 ( 45 Stat., T91) aowng deductons
or osses by ndvduas durng the ta abe year, f ncurred In any trans-
acton entered nto for proft, though not connected wth any trade or busness.
The burden was on the ta payer to show that he comes wthn the terms of
that provson. (New Coona Co. v. everng, 292 U. S., 435 Ct. D. 841, C. .
III-1, 194 .) Where the deducton camed Is based on an aeged sae of
property for ess than t cost the ta payer he must show that the sae and
the oss were genune and rea. (Wess v. Stearns, 265 U. S., 242 T. D. 36119,
C . III-2, 51 Commssoner of Interna Revenue v. ae, 67 ed. (2d),
661.) It does not appear from the record that by the transacton dscosed
the respondent sustaned a deductbe oss n the amount camed. The aow-
ance of the camed deducton n queston was erroneous. The petton Is
granted, and the cause s remanded to the oard of Ta ppeas for further
proceedngs consstent wth ths opnon.
Petton granted.
rtce 171: Losses -45-8378
Ct. D. 1169
INCOM T R NU CT O 1928 D CISION O COURT.
Deductons Losses Gambno Transactons.
The amount of osses sustaned n 1931 n gambng transactons
In rance were not deductbe as osses ncurred n transactons en-
tered nto for proft, wthn the meanng of secton 23(e) of the
Revenue ct of 1928, where the record shows that the ta payer was
a weathy man, and, whe not a professona gamber, had nduged
n that pastme habtuay for many years pror to 1931, and had
consstenty ost.
Couet op Cams of the Unted States.
The Ctzens d Southern Natona ank and Lctte P. vans, ecutors of
. . Whtehead, Deceased, v. The Unted States.
une 1, 1936.
OPINION.
Whaet, udge, devered the opnon of the court.
Ths s a sut for the recovery of ncome ta for 1931. The one queston
Invoved s whether pantffs are entted to a deducton on account of osses
sustaned by ther decedent n gambng transactons n Prance at paces where
gambng was carred on egay. The appcabe statute, secton 23(e), Revenue
ct of 1028, provdes for the aowance of deductons for osses, f not compen-
sated by nsurance or otherwse, (1) f ncurred n trade or busness or (2) f
ncurred n any transacton entered nto for proft, though not connected wth the
trade or busness.
dmttedy the decedent was not engaged n gambng as a trade or busness
and the osses were not compensated by nsurance or otherwse. The deducton
Is accordngy aowabe, f at a, by vrtue of the second provso whch permts
the aowance of the deducton If the transactons were entered nto for proft
even though not connected wth hs trade or busness. The partes agree that
the oss camed was sustaned, e cept to a possbe neggbe amount, and
therefore the soe queston remanng, s whether the transactons were entered
nto for proft, a queston of fact.
We have found adversey to pantffs on the factua queston. We are sats-
fed the record fuy |ustfes a fndng that the transactons were not entered
Into for proft. The decedent was an Indvdua who had nherted a great
fortune and who had never earned any money, e cept for a short tme when
be was n the Navy durng the Word War. Whe testfyng n 1935 he coud
not gve an accurate statement of hs net worth though he estmated that t was
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23(e), rt. 171.
208
appro matey 2,500,000. s ncome for 1931 (appro matey 250,000) was
derved from dvdends on nherted property and whe he was nomnay the
head of one of the corporatons n whch he hed stock he gave tte tme to the
drecton of ts affars or the affars of any other property n whch he was n-
terested. e coud not gve the name of a Parsan corporaton n whch he
had nvested a consderabe sum athough t had ony gone out of busness n
1931.
rom 1921 to 1935 the decedent spent roost of hs tme n urope wth head-
quarters n Pars where he ed a fe of esure and as a so-caed sportsman.
Durng these 14 years he vsted Cannes, Deauve, and other peasure resorts
spendng appro matey s weeks n each reguar season at each of the two
paces mentoned. e was not a professona gamber, but, whe at the varous
paces where gambng was permtted, he nduged n that aurng pastme,
partcuary at Cannes and Deauve where he payed chemn de fer. s
testmony s that he payed that game at those paces for s or seven yeara
pror to 1931, but that he was never a wnner when he eft a casno. We under-
stand from the atter statement that he dd wn at tmes, but that the net
resut of pay at a tmes was a oss. The osses n those years were not. of
the magntude sustaned n 1931 they are not nvoved n ths proceedng and
decedent testfed that they were not entered nto for proft. We do not have,
therefore, a stuaton whch sometmes arses where an ndvdua has been
ta ed n the fat years and dened osses n the ean years. (Cf. eaumont
v. cvcrng, 73 ed. (2d), 110 Ct. D. 924, C. . I -1, 217 .)
In spte of the ack of success attendng hs efforts over s or seven years,
and n the face of the fact that the decedent reazed the odds were aganst
hm and hs past e perence bore eoquent testmony to that effect he testfed
that he payed the game n 1931 for proft when he ost the arge amounts whch
are now camed as deductons, and that he resorted to t for that purpose for
the reason that hs arge ncome was nsuffcent to meet hs e penses, ncudng
amony to two wves and a pendng breach of promse sut for haf a mon
doars. What the decedent woud have us beeve s that, n a game where he
had consstenty ost for years and where he reazed the odds were aganst
hm, he proceeded to that source for the purpose of reazng a proft to meet
hs mountng e penses. e s the ony wtness and hs memory s couded as
to a other transactons e cept ths partcuar gambng venture.
Such testmony overta es our creduty and stretches credence to the breakng
pont. We do not understand that every tme a game of chance s entered nto
wth the evanescent hope that the payer w wn consttutes a transacton
entered nto for proft wthn the meanng of the statute. In our opnon, the
words used connote transactons for proft n the reasonabe sense that any
busness s undertaken. Surey, a reasonaby prudent busness man woud not
embark n a busness venture where the odds were admttedy aganst hm and
where hs own unbroken ne of e perence had demonstrated over a perod of
years that osses woud be the ony frut of hs efforts. Of course, many peope
engage n such pastmes, even though the vast ma|orty of them ose, and t
must be so, otherwse the gambng casno coud not stay n e stence. ut
proft n the busness sense s not what usuay motvates the contnued payng
t s the thr and e heraton whch are nherent n takng a chance. s the
oard of Ta ppeas sad n Lous D. eaumont (25 . T. ., 474, affrmed
eaumont v. cvcrng, 73 ed. (2d), 110), a gambng transactons are not
entered nto for proft wthn the meanng of the statute.
The system evoved and used by the decedent, as a resut of the study whch
he sad he had made of the game, seems nothng more than a vaporous suppos-
ton that uck woud attend hs efforts f foowed n a certan sequence, even
though he knew the odds were aganst hm and that osses by payers made
possbe the contnued operaton of the cub. The osses sustaned are apparenty
arge but, when consdered n reaton to hs great weath, arge ncome and
hs modern standards and prevous habts of vng, the amounts ost are not
more than a man of ths type mght we be e pected to spend n the pursut of
peasure.
On the whoe we are satsfed that the record does not estabsh that the
gambng transactons whch resuted n the osses camed were entered nto
for proft wthn the meanng of the statute. The petton must accordngy be
dsmssed. It s so ordered.
Wams, udge Ltteton, udge Ghken, udge and ooth, Chef ustce,
concur.
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209
23(e), rt. 174.
rtce 174: Shrnkage n vaue of stocks.
( so Secton 112, rtce 577.)
-30-8197
Ct. D. 1139
INCOM T R NU CT O 1928 D CISION O COURT.
1. Deducton Loss Worthess Stock Proof of aue.
Where, under a pan proposed by a stockhoder of a corporaton
whch had been operatng at a oss athough t had vaunbe prop-
ertes, a new corporaton was organzed n 1930 to take over and
contnue the busness, and hoders of the fve casses of securtes
of the od corporaton surrendered them n e change for common
stock of the new corporaton on an agreed bass (provded one
share of common of the od was surrendered for one share of
common of the new), or bought for cash one share of new com-
mon stock for each share of od common not surrendered, the com-
mon stock of the od corporaton dd not become worthess n
1930. The acton of the partes was suffcent proof that the stock
had some vaue.
2. Gan or Loss change of Stock foe Stock Reorganzaton.
Where a corporaton was organzed to take over the assets and
assume the abtes of another, a the stockhoders of the new
corporaton were hoders of securtes n the od and receved
In e change for the od stock a substanta and defnte Interest n
the new corporaton, athough ther proportonate Interests were
dfferent, and none of the consderaton for such e change was
cash or short-term notes, the transacton consttuted a reorganza-
ton n whch nether gan nor oss can be recognzed under the
provsons of secton 112 (b) (3) and (1) (1) of the Revenue ct
of 1928.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (31 . T. ., 319) affrmed.
Unted States Crcut Court of ppeas for the Tenth Crcut.
W. C. Coeman, pettoner, v. Commssoner of Interna Revenue, respondent.
On petton to revew the decson of the Unted States oard of Ta ppeas.
McDbrmott, Crcut udge, devered the opnon of the court.
Coeman charged off 125,000 In hs ncome ta return for 1930 as a oss
resutng from an Investment of that amount In the common stock of the
Mountan Cross Grante Co. The Commssoner dsaowed It and the oard
of Ta ppeas affrmed on two grounds one that Coeman s proof dd not
dscose that the stock became worthess durng the ta abe year, the other
that there had been a reorganzaton as defned by secton 112 (b)(3), (1)(1),
Revenue ct of 1928, nnd hence no gan or oss was recognzabe.
In 1927 and 1928 Coeman pad 125,000 for 5,000 shares of the common
stock of the company. The company owned arge deposts of fne grante
and a modern pant, but t was deratng at a oss an audt of ebruary,
1930, dscosed t was out of funds and credt, had 30,000 current, and
120,000 bond, abtes. Its baance sheet dscosed no vaue to the common
stock. Coeman and other stockhoders beeved the company had possbtes
If the storm coud be weathered, but addtona capta was needed Immedatey.
Other efforts fang, one Wagren agreed to put 97,500 In cash nto a new
corporaton whc woud take over the assets of the od aud assume ts
abtes.
efore Lews, Phps, and McDkrmott, Crcut udges.
anuary 21, 1936. .
opnon.
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523(e), rt. 174.
210
The od company had fve casses of securtes outstandng: onds, preferred
stock, pror preferred stock, cass common stock, and common stock.
Coeman owned some of a casses e cept the second Wagren owned some
of the thrd and fourth casses. The votng power was confned to the ffth.
cass.
The new company had three casses of securtes bonds, preferred stock,
and common stock. otng power was n the common. Wagren s proposa
was to take 13,000 shares of the new common at 7.50 a share and pay there-
for 97,500 n cash. e aso was to take 8,000 shares of common at 7.50
by surrenderng 1,000 shares of pror preferred of the od company at 60
a share and 1,000 shares of cass common at 10 a share. s proposa
took care of the hoders of securtes of the od corporaton by ssung to
them common stock In the new company at 7.50 per share whch coud be
pad for by surrenderng securtes of the od company on the bass of (a)
par for bonds, (b) 50 per share for pror preferred, (c) 33.33 per share
for preferred, and (d) 10 per share for cass common provded that one
share of common stock of the od company must be surrendered for each
share of common of the new company subscrbed for common-stock hoders of
the od company who dd not surrender ther stock accordng to ths pan,
were gven the rght to buy one share of the new company for 7.50 cash for
each share of common owned n the od. Preferred stock In the new company
was offered securty hoders of the od at 100 per share upon surrender of
securtes of the od at the same scae.
Ths pan was carred out. Wagren, wth no votng power In the od
company, had contro of the new other securty hoders of the od company
had common or preferred, or both, of the new company. Wagren surrendered
hs senor securtes and put n 97,500 n cash and got a ma|orty of the
votng stock of the new the od securty hoders ost contro, but dd have
common and preferred stock n a company wth Its current bs pad and
some workng capta.
1. Whether the common stock became worthess In 1030 s a queston of
fact. The Commssoner found t dd not, and the oard has affrmed. Does
the proof ncontrovertby show the contrary We thnk not further, we are
n accord wth the oard s concuson. Doubtess If the company had
qudated n 1930 the common stock woud have been wped out ut It
was not qudated and t was not qudated because of the potenta vaue
n the practcay unmted grante of fne quaty avaabe n varous coors
and a competed pant of modern type. Its dffcutes arose from the depressed
market and ack of workng capta. The partes themseves barganed on
the bass of a vaue n the common stock. Coeman has now 35,050 shares
of common and 1,551 shares of preferred of the new company, concededy of
vaue he acqured that by e changng hs securtes n the od company.
Incudng hs common. n nseparabe part of the trade was the surrender
of the common stock. ven those common-stock hoders who owned no senor
securtes were gven rghts to purchase common of the new company at
7.50 a share, a rght whch the pubc dd not have. When partes ascrbe
a vaue to stock by tradng t n on stock of conceded vaue, t s substanta
evdence that t had some vaue. In tre v. Unted States (C. C. . 10)
(79 P. (2d), 259, certorar dened, U. S., ), t appeared that stock of
uncertan vaue was traded n at 25 a share for other stock we hed The
acton of the partes was suffcent proof of vaue
2. We aso approve the fndng of the Commssoner and the oard that
there was a reorganzaton n whch nether gan nor oss can be recognzed
under the defnton contaned n secton 112, Revenue ct 1928. The new
company acqured a the propertes of the od and assumed a ts Indebtedness
a the stockhoders of the new corporaton were stockhoders In the od
new money wont nto the new corporaton, but Coeman dd not se hs stock,
nor the transferor corporaton ts propertes, for cash or short-term notes
Instead the od stockhoders receved for ther securtes In the od corporaton
a substanta and defnte nterest n the new. The corporate set-up was
ntered, to be sure, and the proportonate nterests of the owners were neces-
sary dfferent because new money was supped, as s the case whenever
now capta comes nto a corporaton. ut such crcumstance s not Inconsstent
wth reorganzaton.
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211
523(e), rt. 174.
8eeton 112(b)3, Revenue ct of 1928, provdes:
No gan or oss sha be recognzed f stock or securtes n a corporaton
a party to a reorganzaton are, n pursuance of the pan of reorganzaton,
e changed soey for stock or securtes n such corporaton or n another
corporaton a party to the reorganzaton.
Coeman e changed hs securtes soey for stock or securtes n the
new company. oth companes were partes to the transacton. Was the
transacton a reorganzaton That term s defned n ()() of the same
secton:
The term reorganzaton means ( ) a merger or consodaton (ncudng
the acquston by one corporaton of at east a ma|orty of the tota
number of shares of a other casses of stock of another corporaton, or
substantay a the propertes of another corporaton), .
The new company acqured a the propertes of the od. ut one queston
remans, Dd the transacton smack enough of a merger or consodaton
that t can fary be sad to fa wthn the parenthetca phrase
Recent decsons of the Supreme Court afford the answer. In Pneas Ice
Co. v. Commssoner (287 U. S., 462 Ct. D. 630, C. . II-1, 161 ) the Court
sad:
The words wthn the parenthess may not be dsregarded. They e pand
the meanng of merger or consodaton so as to ncude some thngs
whch partake of the nature of a merger or consodaton but are beyond
the ordnary and commony accepted meanng of those words so as to em-
brace crcumstances dffcut to demt but whch n strctness can not be
desgnated as ether merger or consodaton. ut the mere purchase for
money of the assets of one company by another s beyond the evdent purpose
of the provson, and has no rea sembance to a merger or consodaton.
Certany, we thnk that to be wthn the e empton the seer must acqure
an nterest n the affars of the purchasng company more defnte than that
Incdent to ownershp of ts short-term purchase-money notes.
ve cases decded by the Supreme Court of the Unted States on December
16, 1935, appy ths rue to varous corporate transactons. In everng v.
Mnnesota Tea Co. ( U. S., Ct. D. 1060, C. . -1, 189 ) t was hed
that the nterest whch the seer acqures n the affars of the buyer must be
defnte and matera t must represent a substanta part of the vaue of
the tdng transferred. ut f t does, t s not matera that the reatonshp
of the ta payer to the assets conveyed was substantay changed nor that
a arge part of the consderaton was cash so ong as the ta payer receved
an nterest In the affars of the transferee whch represented a matera
part of the vaue of the transferred assets. In everng v. Watts ( U. S.,
Ct. D. 1063, C. . -1, 276 ), stockhoders e chnnged a the stock of one
corporaton for stock and bonds n another. No ta abe gan resuted to the
Indvdua stockhoders, t was hed, athough t was conceded that an e change
of stock for bonds resuted n a substanta change of poston for the
stockhoders. In ohn . Neson Co. v. cverng ( U. S., Ct. D. 1062,
O. . -1, 274 ), corporaton transferred the greater porton of ts assets
to corporaton to whch passed contro of corporaton, the consderaton
passng to corporaton consstng of nonvotng securtes. It was hed to be
a reorganzaton, the Court sayng:
The owner of preferred stock s not wthout substanta nterest n the
affars of the ssung corporaton, athough dened votng rghts. The statute
does not requre partcpaton n the management of the purchaser nor does
It demand that the conveyng corporaton be dssoved. controng nterest n
the transferee corporaton s not made a requste by secton 203(h)( ).
The same rue was apped to other facts n O. . Manufacturng Co. v.
everng ( U. S., Ct. D. 1059, O. . -1, 188 ) and us Transport
Securtes Corporaton v. everng ( . S., Ct. D. 1061, C. . -1, 192 ),
decded the same day.
The facts n the case at bar brng t we wthn the rues thus ad down.
The decson of the oard of Ta ppeas s. therefore, affrmed.
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23(f), rt. 171.
212
S CTION 23(f). D DUCTIONS ROM GROSS INCOM :
LOSS S Y CORPOR TIONS.
rtce 171: Losses. -29-8185
( so Secton 23 (a), rtce 121.) Ct. D. 1137
ncome ta revenue act of 1928 decson of court.
1. Deducton usness Losses penses of Organzaton and
Increase n Stock ees.
pendtures ncurred by a corporaton In connecton wth ts
organzaton n 1923 and ater Increases of ts capta stock, and
fees pad for stng ts stock on the New York Stock change,
were not deductbe as osses sustaned n busness n 1929, n whch
year the corporaton was merged wth another.
2. Deducton Ordnary and Necessary penses ees and -
penses of Merger.
Lega fees and e penses pad In connecton wth the merger of
a corporaton wth another are not deductbe as ordnary and nec-
essary e penses ncurred n busness.
8. Decson ffrmed.
Decson of the oard of Ta ppeas (82 . T. ., 47) affrmed.
Unted States Crcut Court of ppeas fob the Second Crcut.
Moton Pcture Capta Corporaton, appeant, v. Commssoner of Interna
Revenue, respondent.
Investors quty Co., Inc., appeant, v. Commssoner of Interna Revenue,
respondent.
Pettons to revew decsons of the oard of Ta ppeas redetermnng a defcency In
the ncome ta es of Moton Pcture Capta Corporaton for the perod begnnng
anuary 1, 1929, and endng October 22. 1929 and that Investors quty Co., Inc., was
abe for payment as transferee. ffrmed.
efore Manton, ugustus N. and, and Chase, Crcut udges.
anuary 6, 1936.
OPINION.
Chase, Crcut udge: s Investors quty Co., Inc., does not dspute ts
abty for the defcency as transferee provded any ta s due, we sha dscuss
the merts as though Moton Pcture Capta Corporaton were aone the
pettoner.
It was organzed n 1923 under the aws of Deaware. The e penses of Its
organzaton were 49,464.83 and some tme ater t pad 10,440.50 n addton
for e penses ncurred n ncreasng ts capta. These payments concededy
were capta tems nether deducted nor deductbe In the ta abe perod pad
or ncurred. Its stock was sted on the New York Stock change at a cost
n fees of 3,749.42 and remaned so sted up to the tme pettoner was merged
wth Investors quty Co., Inc., another Deaware corporaton, October 23, 1929.
These fees were aso propery treated as a nondeductbe capta tem when they
were pad. The pettoner pad 12,871.43 for ega fees and e penses n con-
necton wth the merger above mentoned. of these tems were camed
as deductons for the ta abe perod n ssue on the ground that the frst three
were busness osses then ncurred and that the ast was a deductbe e pense.
were dsaowed.
It s we understood that before any Income can be freed from ta aton by
means of deductons there must be an appcabe statute permttng t. ( eto
Coona Co. v. cverng. 292 U. S., 435 Ct. D. 841, C. . III-1, 194 .) The
ony ground for nsstng upon the deducton of the frst three tems s that they
were osses sustaned by the pettoner n ts busness n 1929. There s no proof
that the pettoner had assets at the begnnng of 1929, whch t had acqured
n makng the payments, then equa In vaue to those payments and ost darng
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23(m), rt. 230.
the perod nvoved. It s apparent the pettoner had had the beneft of Its
organzaton as a corporaton durng a the years of ts e stence of ts
ncreased capta stock snce that took pace: and of havng ts stock sted upon
the e change from the tme that occurred. Those benefts up to the begnnng
of 1929 may we have been worth as much or more than what was pad to secure
them. ut however that may be, they were persona advantages whch con-
tnued to be vauabe so ong as they were usefu. Nevertheess, they were n
no rea sense osses to the amount of cost or n any amount when the merger
occurred. Instead, they were but part of the capta cost to the pettoner of
rghts essenta to ts e stence but havng no vaue as an asset apart from the
pettoner tsef. ecause It obtaned ony persona advantages when t made
the payments t had nothng to show for them whch coud be sub|ect to oss
wthn the deducton statute. In ths respect they are ke commssons pad
by a corporaton for seng ts own stock to obtan capta whch are not
deductbe though the net return from the sae, . e., the capta obtaned, s so
much the ess. (See arbour Coa Co. v. Commssoner, 74 ed. (2d), 163
atmore f Oho R. R. Co. v. Commssoner, 78 ed. (2d), 460.)
Nor were the merger e penses deductbe. Whe t s true that they were
ordnary and necessary e penses of the merger and t may be true n broad
concept that mergers are ordnary and necessary busness occurrences (see
Wech v. everng, 290 U. S., I Ct. D. 755, C. . II-2, 1121), the e penses
to be deductbe must be ncurred by a ta payer n dong the ordnary and neces-
sary thngs hs busness requres to be done to make t functon as such. These
e penses were ncurred n connecton wth the ta payer s busness but were not
necessary n the ordnary course of ts conduct. On the contrary they were
made necessary by ts decson to carry on ts busness no onger. Uness we
were abe, as of course we are not, to eave reaty far enough behnd to vsuaze
as a part of the ta payer s ordnary and necessary busness actvtes the merger
of tsef wth another corporaton, we can not brng the payment wthn the
scope of the deducton statute.
ffrmed.
S CTION 23(m). D DUCTIONS ROM GROSS INCOM :
SIS OR D PR CI TION ND D PL TION.
rtck 230: Determnaton of quantty of -39-831G
o n ground. Ct. D. 1157
INCOM T R NU CT O 1928 D CISION O COURT.
1. Deducton Depeton uthorty of C ommssoneb to Re-
estmate O Reserves Interpretaton op Reguatons.
The Commssoner had authorty to reestmate o reserves upon
a anuary 1, 1928, bass for the purpose of computng depeton
aowance, where nformaton obtaned ceary showed that the
March 1, 1913, bass of vaues and reserves, used for the years
pror to 1928, was materay erroneous. The approva of the
Commssoner, as used n artce 230 of Reguatons 74, ncudes
the act of the Commssoner n makng the revson hmsef.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 61) affrmed.
Unted States Crcut Court of ppeas for the Thrd Crcut.
ff our O rf Gas Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton for revew from tbe Unted States oard of Ta ppeas.
efore Davs and Thompson, Crcut udges, and ake, Dstrct udge.
pr 2, 1936.
opnon.
Per curam: The pettoner s the owner of certan o eases upon whch
the Commssoner of Interna Revenue aowed depeton for the year 1928
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24, rt. 282.
214
at the rate of 27 per cent of ncome producton. or the years pror to
1928 depeton aowances were ascertaned upon the bass of vaues and re-
serves as of March 1, 1913, as estmated by the pettoner. That estmate was
found to be too ow as to three eases, to wt: the . . Seed, the L. M. Seed
and the Sherman Gespe eases, and to ths the pettoner accedes. The
petton aso admts that f the Commssoner has authorty to reestmate the
o eases above enumerated and change the unt rate of depeton as of an-
nary 1, 1928, then the defcency determnaton s correct. ence, t foows
that the ony queston to be answered here s: Dd the Commssoner have
authorty to reestmate the o reserves
rtce 230 of Reguatons 74, among other tngs provdes that, When the
nformaton subsequenty obtaned ceary shows the estmate to have been
materay erroneous, It may be revsed wth the approva of the Commssoner.
In the opnon fed by the oard of Ta ppeas It was found that an error
of 6.06 per cent occurred n the estmate and that ths error amounted to
110,000 barres of o. We agree wth the opnon of the oard that ths s
of suffcent moment to be consdered materay erroneous.
It s urged by the pettoner that artce 230 of Reguatons 74 vests the
rght to revse an erroneous estmate n the owner or essee and not n the
Commssoner. We can not foow such an nterpretaton. The nterpretaton
paced upon t by the oard s: The reguaton does not specfy who sha
make the revsed estmate, It smpy provdes that an erroneous
estmate may be revsed wth the approva of the Commssoner. If the atter
makes the revson hmsef, fary and wthout arbtrary caprce, It may be
assumed he approves hs own handwork. We mght quote more fuy from
the opnon of the oard, but further repetton woud unnecessary encumber
the record.
We fnd ourseves n fu accord wth the entre opnon of the oard of Ta
ppeas. Its decson s, therefore, affrmed.
S CTION 24. IT MS NOT D DUCTI L .
rtce 282: Capta e pendtures. -35-8266
Ct. D. 1149
INCOM T R NU CT O 1928 D CISION O COURT.
1. Deducton Ordnary and Necessary usness pense)
teraton or usness Property.
n amount spent for ateratons upon busness property due to
rasng the eve of a contguous street, and whch was n e cess of
the damages pad by the cty, s not deductbe as an ordnary and
necessary busness e pense, but must be treated as an addtona
capta nvestment.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (31 . T. ., 349) affrmed.
Unted States Crcut Court of ppeas for the fth Crcut.
Connoy Reaty Co., pettoner, v. Commssoner of Interna Revenue, retpondent.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of
Georga).
efore oster, Sbey, and Waker, Crcut udges.
March 11, 1936.
OPINION.
Sbey, Crcut udge: The stpuated facts are that the ta payer, Connay
Reaty Co., owned n 1927 and snce a budng at the corner of Whteha and
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24, rt. 282.
abama Streets In tanta, havng ts man entrance on Whteha Street and
ve stores frontng on abama Street ad|usted to the descendng grade of that
street, wth access to eevators from both streets. The cty of tanta greaty
rased the eve of abama Street, thereby cuttng off access to the budng
from that street To meet the change and to use the ower foor space proftaby
an nteror arcade was bnt, the entrance from Whteha Street was atered,
nnd an entrance from abama Street at ts new eve was constructed and the
eevators were somewhat changed, a at an outay of about 35,000. The cost
of the Whteha Street ateratons were captazed n the accounts. The cty
pad net damages of 18,750, and the remanng e pense due to the abama
Street ateratons of 9,376.47 was charged to the repar account on the com-
pany s books and taken as a deducton aganst ncome ou ts ta return for the
year 1930. It s further stpuated that the vaue of the property was not
ncreased by the e pendtures n controversy above ts vaue before the street
was changed, nor was ts fe proonged, nor were ts rentas even fuy restored
n 1930. The Commssoner dsaowed the deducton, and added the amount to
the deprecaton bass and aowed addtona deprecaton on account of t.
The oard of Ta ppeas uphed that acton, sayng the e pendture was
nether an ordnary e pense of busness nor a repar. Ths petton for revew
asserts that the e pendture s an ordnary and necessary e pense of busness,
deductbe under Revenue ct of 1928, secton 23(a), and not an amouut pad
out for new budngs or for permanent mprovements or betterments made to
ncrease the vaue of any property or estate whch Is not deductbe under
secton 24(a)2.
Ths outay of money s not an e pense of busness key to happen any year,
but was occasoned by an unusua occurrence, one that does not often happen
at aL Repars to a budng are necessary, and regarded as ordnary athough
occasoned n unusua degree by storm, food or the ke. ut ths budng fe
nto no dsrepar, nor was t physcay n|ured n any way requrng restoraton.
The cty atered ts street wth detrment to the desrabty of portons of the
budng for rent, but, so far as appears, wthout touchng the budng. The
outay was made n an effort to adapt the budng to changed surroundngs,
but not to repar any physca damage to t. The wthdrawa of a raroad
frontage or the change of a neghborhood from resdenta to busness or the ke
sometmes requres remodeng or aterng budngs to mantan ther rent-
abty. These are not ordnary e penses, athough necessary, but are addtona
nvestments not repars, but Improvements. If they do not make the property
worth more, or to rent for more than before the change of condtons whch
requred the ateratons, they make t worth much more than t woud be wthout
the ateratons. The added nvestment may forecast a oss, but the oss for
Income ta purposes s reazed ony when the budng Is dsposed of. There
Is here a physca structure representng the nvestment. The beneft s not
mted to the year of the e pendture, but Is e pected to contnue for the fe
of the property. The e pendture beng consderabe can not be regarded as an
ordnary e pense of a snge year, but must be treated as an addtona capta
nvestment. ack ardware Co. v. Commssoner, 39 ed. (2d), 400.) The
petton for revew s dened.
rtce 282: Capta e pendtures. -38-8305
Ct. D. 1155
ncome ta revenue act of 102s decson of court.
Deducton Ordnary and Necessary usness pense Capta
pendture mount Pad for Intebest n Partnershp.
Where the ta payer bought an Interest In a partnershp frm,
part of the purchase prce beng transferred by the nn to Its
capta account and part credted to the persona accounts of the
partners In accordance wth ther respectve nterests, the atter
amount, ess the credt awed to the ta payer, was not deductbe
as an ordnary and necessary e pense of busness, but was n fact
a capta e pendture.
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216
Unted States Crcut Court or ppeas fob the Seventh Crcut.
athaway Watson, pettoner, v. Commssoner of Interna Revenue, respondent.
Tetton for revew of decson of the Unted States oard of Ta ppeas.
efore vans and Sparks, Crcut udges, and Lndey, Dstrct udge.
March 3, 1930.
OPINION.
Lndey, Dstrct udge: Ths s an appea from a decson of the Unted
States oard of Ta ppeas approvng the assessment of an addtona ncome
ta aganst pettoner for the year 1930. The oard refused to accept pet-
toner s contenton that he was entted to deduct from hs gross ncome 57,000,
part of the sum whch he pad to a partnershp frm when he became a member
thereof. The facts were stpuated.
On September 1, 1930, pettoner bought a 5 per cent Interest n au e stng
and estabshed commsson brokerage frm, and agreed to pay therefor 120,000.
ccordngy, on ugust 29, 1930, pettoner devered to the partnershp hs
check, drawn to the order of the frm, for sad sum, and ths amount was
credted to hs account upon the books of the frm. Of ths, 60,000 was trans-
ferred to the capta account of the frm, whch, n turn, devered t to the
partner who had transferred to pettoner the 5 per cent nterest n the partner-
shp, to remburse hm therefor. The other 60,000 was credted to the persona
accounts of the partners n accordance wth ther respectve partnershp
Interests, ncudng 3,000 to pettoner. No part of ths atter 00,000 was
charged to the capta account and no part thereof, other than 3,000, was
repad or agreed to be repad to pettoner. In hs ncome ta return for 1930,
pettoner camed the rght to deduct ths 60,000, ess the 3,000 credted to
hm, from hs gross ncome as an ordnary and necessary e pense of busness.
Ths deducton was dsaowed upon the ground that the payment was n fact
a capta e pendture and not a deductbe e pense.
The pertnent part of secton 23 of the Revenue ct of 1928 (ch. 852, 45 Stat,
791) s as foows:
Sec. 23. Deductons from Gross Income.
In computng net ncome there sha be aowed as deductons:
(a) penses. the ordnary and necessary e penses pad or ncurred
durng the ta abe year n carryng on any trade or busness, ncudng a
reasonabe aowance for saares or other compensaton for persona servces
actuay rendered and rentas or other payments requred to be
made as a condton to the contnued use or possesson, for purposes of the
trade or busness, of property to whch the ta payer has not taken or s not
takng tte or n whch he has no equty.
Rotan v. Commssoner of Interna Revenue (56 . (2d), 153 (C. C. . 5)
(dstrct court opnon reported n 43 . (2d), 232)) s smar to the present
case. There Rotan was admtted to partnershp n a prevousy e stng frm,
upon nvestng certan capta and, n addton, payng a sum of money to a
former member of the frm for an nterest n the good w of the bnsness. The
agreement provded that n the event of Rotan s death or ncapacty, before the
e praton of the partnershp, a proportonate amount of the money pad for
good w woud be returned to hm or hs estate but there was no provson
to return anythng pad for good w at the e praton of the partnershp by
mtaton f ed n the agreement or other dssouton. The Commssoner ds-
aowed a deducton of the amount pad for good w as an e pense of dong
busness, and the court sustaned hs acton.
Pettoner contends that that case dffers materay from the one here, n
that the sum there pad was stated e pressy to have been pad for good w
that, nasmuch as the purchaser had an opportunty to get back such part of
the cost or more, f he shoud dspose of hs nterest n the partnershp, there
was no bass for deducton of the tem. ere, the agreement provded that
no partner shoud have any nterest n good w and that no vaue for account-
ng or other purpose shoud be paced upon the same. The agreement, however,
recognzed the e stence of good w and provded that t shoud reman wth
and n the survvng or remanng partners. The contract rected a capta of
1,200,000, though n fact, due to the dstrbuton of 60,000 to the partners, as
aforesad, the capta actuay remaned at 1,200,000. Such capta, however,
dd not ncude the varous e change and market membershps, costng over
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217
24, rt. 282.
600,000, hed by varous members of the frm, the use of whch, for a stpuated
consderaton, was granted to the partnershp. Nor dd the capta ncude the
offce eases or furnture. In short, the rght of the frm to en|oy the ntangbes
beongng thereto was a property rght not ncuded n the stated capta
nvestment.
or hs 5 per cent nterest n the copartnershp, for the prvege of sharng
n the profts of the frm and en|oyng the use of the ntangbes thereof, n
addton to the stated capta, pettoner was wng to and dd uvest 120,000.
The payment of such consderaton was a condton precedent to hs procure-
ment of a property rght n everythng beongng to or en|oyed by the copart-
nershp. The fact that one-haf of the purchase prce was upon ts recept by
the copartnershp, dstrbuted to a the partners, Incudng pettoner, n effect,
at east, a dvson of proft, does not ater the stuaton. ad the entre
120,000 been dstrbuted to the members of the copartnershp, Incudng pet-
toner, n accordance wth ther respectve hodngs, the resut woud have been
the same. s property rghts were acqured and hs nterests f ed, when he
devered the 120,000. What the frm thereafter dd wth any part of that
sum seems to us whoy mmatera, so far as the present controversy s
concerned.
We agree that the sum sought to be deducted was part purchase prce of an
nterest n the frm and, therefore, a capta nvestment and that when the
accounts are cast up on the date of dssouton, t w be tme enough to take
account of the e pendture now sought to be deducted.
The decson of the oard s affrmed.
rtce 282: Capta e pendtures. -49-8419
Ct. D. 1177
ncome ta revenue act of 1028 decson of court.
1. Income Deducton Ordnary and Necessary pense Cap-
ta pendture greement etween Corporaton and
Wdow to Pay nnuty n Consderaton for Reease of
Dower.
Where devsees under a w, whch made no provson for the
wdow s dower, formed a company to manage the reaty devsed
and caused the company to agree wth the wdow that, n consd-
eraton of her reease of dower, she shoud receve an annua
amount equa to one-thrd of the net annua ncome from the prop-
erty, and, f any pot was sod, she shoud receve a sum to be
estmated accordng to the then vaue of an annuty at 5 per cent,
the annua profts from the reaty consttuted ncome to the com-
pany, the wdow havng retaned no Interest n the reaty by such
an agreement, and payments made to her pursuant thereto were
not deductbe by the company as ordnary and necessary e -
penses, but were capta e pendtures.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (32 . T. ., 003) affrmed.
Unted States Crcut Court of ppeas for the Second Crcut.
Robert oe state Co., Inc., pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton to revew the order of the oard of Ta ppeas f ng a defcency n ncome
ta es.
efore L. and, ugustus N. and, and Chase, Crcut udges.
uy 6, 1036.
OPINION.
Per curam: The queston on ths appea s whether annua profts receved
from certan rea estate are to be charged aganst the ta payer as ncome.
121397 37 8
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218
Robert oe ded sezed of reaty, and eavng a w whch made no provson
for hs wfe s dower. s devsees, wshng to manage the property |onty,
formed a company, the ta payer, to whch they conveyed ther nterests: and,
snce they had to bar ther mother n order to make a good tte, tey caused
the company to agree wth her, In consderaton of the reease of her dower
consummate, to pay her annuay for and dnng the perod of her natura
fe, an amount equa to one-thrd share of the net an-
nuu ncome receved annuay by the corporaton from the severa pots
as ong as the corporaton sha contnue to reman the owner. If any pot
was sod, the company promsed to pay a gross sum n eu of her dower
to be estmated accordng to the then vaue of an annuty at 5
per cent reckoned by annuty tabes. The ta payer s theory s that ths agree-
ment dverts one-thrd of the profts as they are receved from the and drecty
to the wdow more strcty than she retaned an nterest n the and, whose
profts therefore become her ncome as they accrue. The Commssoner rued
that the ncome was the ta payer s, and that the payments coud not be taken
as deductons, but mght be used ony as part of the bass n the cacua-
ton of gan or oss, when the and was sod.
Perhaps an agreement between the devsees and the wdow, whch preceded
that of the company, may have been n effect an admeasurement of her dower,
as the ta payer argues, but If so t s rreevant, uness from ths t foowed
that she retaned some nterest In the ands. That she certany dd not do
the promse was not to pay her one-thrd of the profts n knd, to say nothng
of gvng her any rght n the and tsef t was genera and created a gen-
era obgaton had the company ost the money, even after the utmost d-
gence to keep t, t woud st have been abe payment and payment aone
woud be a dscharge. The profts therefore beong to the ta payer, though
they measure Its performance to the ast cent for good or the partes meant
the wdow to part wth a nterest n the and and ts usufruct she was to
be content wth the promse aone.
averng v. uttcrworth (290 U. S., 365 Ct. D. 769, C. . III-1, 151 ) does
not touch ts stuaton at a. It dd hod that a wdow who accepted a pro-
vson In the w n eu of dower was not a purchaser, but a benefcary of
the estate. No doubt a testator makng such a w means that the reease of
her dower sha be n e change for whatever he gves hs wfe, but he by no
means ntends that t sha be merey a qud pro quo, for the bequest or devse
may have no reaton whatever to the vaue of the dower. (Warner v. Com-
mssoner. 00 ed. (2d), 403, 406 (C C. . 2).) The reaton of the company
to the wdow n ths case was not that t was an e change and ony an e -
change, as s shown by the e act correspondence of the consderatons. In-
deed, that s the strength of the argument, so far as t has any, that the trans-
acton was not ntended to create ony an obgaton but was a reservaton to
the wdow of some |us n re. esdes, by no stretch can she be treated as the
benefcary of an estate, whether there was a sae or not.
Order affrmed.
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 44. INST LLM NT SIS.
rtce 352: Sae of rea property nvovng -38-8306
deferred payments. Ct. D. 1156
( so Secton 22(a), rtce 51.)
INCOM T R NU CT O 1028 D CISION O COURT.
1. Incomk Sae op Corporate ssets New Corporaton Organ-
zed to ffect Sae Construct-tve Recept Instament
ass.
The entre assets of a corporaton were bought at recever s
snp by a credtor, and, pursuant to an agreement between the ta -
payer (an offcer of the company) and the trustee for the credtor,
the ta payer obtaned a purchaser for the propertes and was to
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219
44, rt. 352.
retan a the proceeds of the sae In e cess of a certan amount.
The assets were then transferred to the ta payer, and, at the re-
quest of the purchaser, a new corporaton was organzed for the
purpose of transferrng tte, the same attorney actng for the
vendor, the vendee, and the ntermedary corporaton. Payment of
the purchase prce was made to the new corporaton n cash and a
promssory note, the purchaser assumng the outstandng mort-
gages. Under these crcumstances, the new corporaton, whch dd
no other busness than that connected wth the sae and transfer
and was subsequenty dssoved, was a mere condut between the
ta payer and the purchaser, and the purchase prce must be
regarded as constructvey receved by the ta payer. s the frst
payment aggregated more than 40 per cent of the purchase prce,
the transacton was not a sae on the nstament bass under sec-
ton 44(b) of the Revenue ct of 1928 and artce 352 of Regua-
tons 74.
2. Income Profts from Sae Transfer to Wfe of One-haf
Interest n Property.
Where the ta payer transferred to hs wfe a one-haf nterest
n propertes for whch he had obtaned a purchaser, and, upon
the effectng of the sae, the wfe |oned n the e ecuton of a
documents necessary to the transfer of the property, the ta payer
dd not ntend to make a present bona fde gft of one-haf the
property to hs wfe, but had a contnung ntenton to effect the
sae upon terms prevousy arranged, the transfer to the wfe
beng a mere ncdent, and the entre profts derved from the sae
were ta abe to hm.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. ., 1) affrmed.
Unted States Crcut Court of ppeas for the S th Crcut.
/. L. Mcncrncu, pettoner, v. Commssoner of Interna Revenue, respondent.
Petton to revew an order of the Unted Statea oard of Ta ppeas.
efore cks, Smons, and en, Crcut udges.
March 9, 1936.
OPINION.
en, Crcut udge: Ths case arses on petton to revew nn order of
the oard of Ta ppeas redetermnng a defcency n ncome ta for the
caendar year 1928 In the amount of 20,407.24. (29 . T. ., 1.)
The pettoner, pror to uy 11, 1927, was genera manager of the Natona
Sprng Wre Co. of Grand Rapds, Mch. The company was then paced n
recevershp, and Wam . adwn, a credtor, bought the entre assets at
the recever s sae. Thereafter George Wtshre was apponted trustee for
adwn, and authorzed to operate the propertes, whe pettoner contnued
n the empoy of the company as presdent and genera manager.
Wtshre desred to se the propertes, and agreed wth pettoner that n
case he shoud arrange a sae, pettoner mght retan a of the proceeds In
e cess of 225,000. Pettoner negotated from the eary part of 1928 wth
the Natona Marsha Sprng Corporaton, a subsdary of the Nachman Sprng
ed Corporaton of Chcago, reachng an agreement for sae n November
of that year. Wtshre, as trustee for adwn, transferred the propertes,
rea and persona, to the pettoner on November 8, 1928, the rea estate beng
conveyed sub|ect to three mortgages, one for 10,000, one or 30,000, and one
for 60,000, whch ast mortgage was e tngushed by merger. The consdera-
ton was 225,000 and the assumpton by pettoner of abtes of the cor-
poraton n the amount of 279,070.03 Incudng the mortgages. These ab-
tes must have been ncurred, f ncurred at a, n the operaton subsequent
to the recever s sae. adwn, as purchaser at the recever s sae, acqured
tte free and cear of a obgatons e cept ens of record. The corporaton
was operated after the sae for ess than two years. The record does not tem-
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220
ze the abtes, and pettoner nowhere states that he baa paw any of them.
e smpy adds 279,070.03 to 225,000 and returns the prce as 504,070.03 ess
the mortgages assumed, namey, 404,070.03.
The Natona Marsha Sprng Corporaton nssted that a corporaton be
formed through whch t mght secure tte to the property. ccordngy on
December 4, 1928, George . ngston organzed the second Natona Sprng
Wre Co. for ths purpose. ngston was attorney for the pettoner, and aso
attorney for Wtshre and the Natona Marsha Sprng Corporaton. The
Natona Sprng Wre Co. had a capta of 1,000 consstng of 10 shares of
stock of 100 par vaue, 8 of whc were hed by ngston, who was presdent
and treasurer, 1 by ngston s secretary, and the remanng share by
pettoner s stenographer.
On December 16, 1928, pettoner e ecuted a b of sae of one-haf of the
personaty to hs wfe, atherne Mcnerney. On December 17, 1928, pettoner
e ecuted a qutcam deed to the rea estate, n whch hs wfe oned, n favor
of ngston s secretary, who on the same day e ecuted a qutcam deed to
the same property n favor of pettoner and hs wfe. so on the same day
pettoner and hs wfe |onty offered to se to the Natona Sprng Wre
Co. a of the rea and persona property for a consderaton of 572,700, the
purchaser to assume the mortgages. The offer provded that sad sae, f
consummated, shoud be made as of November 24, 1928, and requred
225,000 to be pad on the date of the acceptance, 150,000 to be pad on
anuary 15, 1929, and the baance on anuary 15, 1930, wth Interest. The
offer was accepted on December 18, 1928, and pettoner and hs wfe e ecuted
the necessary deed and b of sae. On the same date the board of drectors
was authorzed to se a of the Natona Sprng Wre Co. s assets to the
Natona Marsha Sprng Corporaton, and the offer was duy made to se
and convey the property as of November 24, 1928, sub|ect to the mortgages,
for the consderaton of 515,700, payabe 400,000 n cash and the baance
In a promssory note. On the same day the corporaton conveyed the rea
property to the Natona Marsha Sprng Corporaton, and on December 19,
1928, t e ecuted a b of sae of the personaty.
The Natona Marsha Sprng Corporaton, on December 22, 1928, pad the
Natona Sprng Wre Co. 374,224 n cash and gave ts note for 115,700 wth
nterest 225,000 of the 374,224 was remtted to the partnershp of whch
adwn was a member under wrtten authorty from pettoner and hs wfe.
On anuary 2, 1929, the treasurer reported to the stockhoders the recept of
25,000, whch was appro matey the baance of the cash payment due. On
that day the Natona Sprng Wre Co. had a cash baance of 174,224, e -
cusve of cash capta pad n, and the treasurer was authorzed to pay one-
haf of ths amount to the pettoner, and a ke amount to hs wfe, whch was
cone.
The Natona Sprng Wre Co. dd no busness e cept that connected wth
the sae and transfer of the assets of the former corporaton to the Natona
Marsha Sprng Co. It was dssoved In 1931.
The oard of Ta ppeas decded that the corporaton was created for the
soe purpose of passng tte to the purchaser and of passng payment to the
pettoner, and that as t was controed by the attorney who acted for a the
partes to the sae, the payment of 374,224 made to the corporaton for the
purchaser must e regarded as constructvey receved by the pettoner n 1928,
so as to come wthn the provsons of artce 352 of Treasury Reguatons 74.
It aso found that under the facts the vendor dd not ntend to make a present
bona fde gft of one-haf of the property to hs wfe, but had a contnung nten-
ton to effect the sae upon the terms prevousy arranged by hm whch the
wfe carred out, and that the entre profts receved n 1928, namey, 115,405.46,
were ta abe to hm.
1 rt. 352. render secton 44 deferred-payment saes of rea property fa
nto two cnsscs when consdered wth respect to the terms of sae, as foows:
(1) Saes of property on the Instament pan, that Is. saes In whch the payment re-
ceved In cash or property other than evdences of ndebtedness of the purchaser durng
the ta abe year In wnch tn sae s made do not e ceed 40 per cent of the sene prce.
(2) Deferred-payment saes not on the nstament pan, that s, saes n whch te
pnyments reoeved n cash or property oer than evdences of ndebtedness of the pur-
chaser durng the ta abe year n whch the sae s made e ceed 40 per cent of the sen
prce.
Saes fang wthn cass (1) and cass (2) ake Incude ( ) agreements of purchase
and sae whch contempate that a conveyance s not to be made at the outset, but on|
after a or a substanta porton of the seng prce has been pad, and (6) saes wbe
there s an mmedate transfer of tte, the vendor beng protected by a mortgage or other
en as to deferred payments.
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221
44, rt. 352.
It Is conceded by the Commssoner that under artce 352 of Treasury Regua-
tons 74 the mortgages are to be Incuded In the gross seng prce, but the
Commssoner contends that the nta payment was not confned to 225,000,
that the ta payer receved more than 40 per cent of the seng prce as the
nta payment and that the proft coud not propery be returned as ncome
on the nstament bass. If the pettoner constructvey receved 374,224 on
December 22,1928, the decson of the oard s correct.
The Natona Sprng Wre Co. had no assets and carred on no busness.
Its ony functon was to compete ths partcuar sae and transfer. avng a
capta of 1,000, t agreed to buy rea and persona property for a consderaton
of 572,700. No securty and no notes were gven to Wtshre by pettoner, nor
to pettoner by the Natona Sprng Wre Co. n the transacton. partes
treated the Natona Sprng Wre Co. as ntermedary and agent for both the
vendor and vendee, and not as purchaser. Under the contract, the sae was made
as of November 24, 1928, and of the down payment agreed on, 374,224 was
actuay pad wthn that year to the corporaton domnated by the pettoner s
attorney.
The record affords ampe support for the concuson of the oard that the
Natona Sprng Wre Co. was a mere condut between the partes. s the
frst payment aggregated more than 40 per cent of the purchase prce, and as
the corporaton was the agent of the pettoner, the proft was rghty determned
on the competed sae bass. (Cf. Maryand Casuaty Co. v. Unted States,
251 U. S., 342.)
Wth respect to the second Issue, the pettoner contends that he transferred
to hs wfe as a gft a one-haf nterest n the propertes, both rea and persona
that one-haf of the proceeds derved from the sae beonged to her, and that he
s ta abe ony on one-haf of the proft.
The varous documents e ecuted by the pettoner and hs wfe created an
estate by the entrety n the rea estate under the aws of Mchgan (Detrot t
Securty Trust Co. v. ramer, 247 Mch., 468), but not n the tangbe persona
property (Schoten v. Schoten, 238 Mch., 679). (Cf. Commssoner v. art,
76 ed. (2d), 864 (C. C. . 6).) So far as form s concerned, the transfers were
effected by proper deeds and by propery e ecuted b of sae. owever, the
oard found that the ntenton to make a bona fde gft of the nterest was
ackng. t the tme the camed gft was made, every arrangement had been
competed for the sae. ary n 1928 pettoner approached the Natona
Marsha Sprng Co. about buyng the propertes, and not unt the arrangements
were made were the propertes transferred to hm. No securty for the transfer
was gven by pettoner, and whe the tte In hm became absoute upon November
8, 1928, It s evdent that the conveyances were consummated n pursuance of
pettoner s contract to se the property. In pursuance of the same contract, the
Natona Stee Wre Co. was organzed. The corporaton was formed 12
days pror to the camed transfer to pettoner s wfe. The sae was carred
out precsey as arranged, wth the wfe |onng n the e ecuton of a necessary
documents. If pettoner s contenton be true, hs wfe offered to se her
nterest on the same day that the documents conveyng the rea estate were
e ecuted, and she actuay conveyed her nterest wthn two or three days
thereafter. Two hundred and twenty-fve thousand doars of the 374,224
was apped, n accordance wth the contract made many months before, n pay-
ment to adwn. Under the crcumstances t appears that t was not the
Intenton of the pettoner that hs wfe shoud have any rea nterest n ths
property. e had agreed to dspose of a of t ong before, and hs wfe acted
at every pont n accordance wth the agreement. contnung ntenton
e sted to effect the sae, and the transfer to the wfe was a mere Incdent.
snge transacton may not be broken up nto varous eements to avod a
ta . (Cf. es Reaty Corporaton v. Commssoner, 71 ed. (2d), 150. 151
(C. C. . 2) Ct. D. 931, C. . I -1, 245 West Te as Refnng d Deveopment
Co. v. Commssoner, 68 ed. (2d), 77 (C. C. . 10) Shocnberg v. Commssoner,
kt. 332. (2)
In the sae ot mortgaged property the amount of the mortgage, whether the property a
merey taken sub|ect to the mortgage or whether the mortgage s assumed by the pur-
chaser, sha be ncuded as a part of the seng prce, nt the amount of the mort-
gage, to the e tent It does not e ceed the bass to the vendor of the property sod, sha
not be consdered as a part of the nta payments or of the tota contract prce, as
those terms are used n secton 44, n artces 351 and 353. and In ths artce. Comms-
sons and other seng e penses pad or ncurred by the vendor are not to be deducted
or taken Into account In determnng the amount of the Inta payments, the tota
contract prce, or the seng prce.
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C1, rt. 381.
222
77 ed. (2d), 440, 448 (C. O. . 8) Ct. D. 1051, C. . I -2, ICO .) The
pettoner asks us to separate one eement of the transacton from a of the
others. ewng the stuaton as a whoe, we concude that there s evdence
supportng the fndng of the oard of Ta ppeas. The gft was a gft of an
Interest n the profts and does not reeve the pettoner of ta abty. (Cf.
urnet, Commssoner, v. Ccnnocr, 285 U. S., 138 Lucas, Commssoner, v. ar,
281 U. 8., I Wood v. Commssoner, 74 ed. (2d), 78 (C. G. . 6) Ct. D. 058,
C. . I -1, 279 .)
The order of the oard of Ta ppeas s affrmed.
P RT . R TURNS ND P YM NT O T .
S CTION 51. INDI IDU L R TURNS.
rtce 381: Indvdua returns. -27-8154
Ct. D. 1133
INCOM T R NU CT O 1928 D CISION OP COURT.
Income Communty Income ecton to e ont or Separate
Return ercse of ecton.
The ta payer, domced n Caforna, fed a |ont return for
1028 for hmsef and hs w fe, attachng to such return a rder rect-
ng that no bndng eecton was thereby e ercsed, that no oppor-
tunty had been afforded to choose between |ont and separate
returns, no rues and reguatons havng been prescrbed for deter-
mnng the porton of ther ncome earned after uy 29, 1927 (the
date of revson of the Caforna communty property aw), whch
shoud be treated as communty ncome under the oca aw, and
that the rght was reserved ater to amend the return by subst-
tutng separate returns and to have any e cessve ta refunded.
Such separate returns were never fed, the ta payer nstead fng
a refund cam. Under these crcumstances, the ta payer e er-
csed hs opton to fe a |ont Instead of a separate return, notwth-
standng the reservaton of the rght to amend, and can not cam
a refund on the bass of a separate return cacuaton dvdng
the earnngs of the communty.
Unted States Crcut Court of ppeas for the Nnth Crcut.
Unted States of merca, appeant, v. Percy L. Pettgrew, appeee.
Upon appea from the Dstrct Court of the Unted States for the Northern Dstrct of
Caforna. Southern Dvson.
anuary 27, 1930.
opnon.
Denman, Crcut udge: The Government appeas from a |udgment n favor
of appeee, Percy Pettgrew, for the sum of . 3,424.99, the same beng ncome
ta es aeged to be egay and erroneousy assessed for the year 1928. The
facts are not n dspute and may be brefy summarzed as foows:
Pantff Pettgrew on March 15, 1929, returned a net ncome for 1928 of
78,780.93. Of ths tota 1,215 represented fees and saary pad pantff In
return for persona servces rendered as a corporaton drector. The baance
represented profts resutng from pantff s deangs n securtes and was
attrbutabe to both capta and persona servces. The court found that per-
sona servces were responsbe for 39,926.87 of the baance, over and above
the 1,215 tem.
Pantff s wfe, Laura Doe Pettgrew, receved no ncome durng 1928 other
than communty ncome earned by her husband, and made no separate return.
On the return fed by pantff, n nnswer to the form query Is ths a |ont
return of husband and wfe , appeared the ta payer s notaton See rder
attached. The attached rder, sent n wth the return, was as foows:
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223
51, rt. 331.
NOTIC .
Commssoner op Interna Revenue,
Washngton, D. C,
and
Coector or Interna Revenue,
San rancsco, Caf.
Srs : Ths return refects the combned ncome of Percy L. Pettgrew and
Laura Doe Pettgrew, husband and wfe, both domced n the State of Ca-
forna durng the entre ta abe year 1928.
In fng a |ont return at ths tme these ta payers wsh t to be specfcay
of record that they do not e ercse a bndng eecton to fe a |ont return of
communty ncome. Wth the e cepton of saares heren reported, whatever
communty ncome may have been receved durng the year was receved as
the resut of the empoyment of both persona servces and capta, and unt
rues and reguatons are prescrbed by the ureau of Interna Revenue and by
the courts under whch ta payers may determne the porton of ther ncome
earned after uy 29, 1927, whch they are entted to treat as communty n-
come under the aws of the State of Caforna and report separatey, no oppor-
tunty has been afforded ten to choose between a |ont and separate return.
The rght s therefore reserved to amend ths return at a ater date substtutng
therefor separate returns of husband and wfe and to have any e cessve ta
pad as the resut of rng ths return refunded.
Percy L. Pettgrew
Laura Doe Pettgrew
y Percy L. Pettghew,
s gent n bsence of Ta payer.
The ta payer contends that because a Treasury decson for a pror ta ct
In effect forbade the fng of a separate return dvdng Caforna communty
Income, he shoud be permtted to fe hs |ont return under the 1928 ct wth
a reservaton of a rght to amend by makng a separate return on the bass of
hs haf nterest n hs persona servce earnngs. The separate return for whch
reservaton was made was never fed, ta payer Instead fng a cam for a
refund.
Up to the revson of the Caforna communty property aw by the State
egsatve act of uy 29, 1927 (Ca. Cv Code, 161 a), ta payers earnngs
were not ncome beongng one-haf to each of the spouses under the edera
ta ng statutes. (Unted States v. Robbns, 2C9 U. S., 315, 325 T. D. 3817,
C. . -, 188 .) That act created an mmedate nterest n each spouse n
the earnngs of the other, thereafter receved. rom the tme of that enact-
ment ta payer was entted to fe a return of but haf the communty ncome
of subsequent persona earnngs.
Ta payer here had from uy 29, 1927, unt March 15, 1929, to advse hm-
sef of the condton of the aw of hs domce. If he had any doubt In hs own
mnd he shoud have resoved t n favor of a return contanng hs haf of the
communty earnngs. ad he attempted to fe such a return and the Treasury
Department refused to accept t, hs case mght present dfferent consderatons.
Not ony s no such refusa to accept a separate return (wth ts mped co-
ercon to fe a |ont return) shown n the record, but It does not appear that
he even nqured of the coector s agents whether he coud fe t.
The cases cted by ta payer, n whch, under e ceptona crcumstances,
amended returns have been aowed, have no appcaton. ere the ta payer
had abundant tme to Inform hmsef as to the communty property aw, faed
to do so, and chose to fe a |ont return.
The Commssoner s contenton that havng, n the crcumstances of ths
case, e ercsed hs opton to fe a |ont nstead of a separate return, he can not
cam a refund on the bass of a separate return cacuaton dvdng the earn-
ngs of the communty, must be sustaned. (Safety cotro Products Co. v.
everng (C. C. . 9), 70 ed. (2d), 439, 440 uttoph v. Commssoner of
Interna Revenue (C. C. .), 29 ed. (2d), 095, 096 Lucas v. St. Lous Natona
aseba Cub (C. C. .), 42 ed. (2d), 984 Ct. D. 243, C. . I -2, 392
Rose v. Grant (C. C. .), 39 ed. (2d), 340, 341 Morrs v. Commssoner of
Interna Revenue (C. C. .), 40 ed. (2d), 504 ameda Investment Co. v.
McLaughn (C. C. . 9), 33 ed. (2d), 120 Ct. D. 101, C. . III-2, 326
nderson v. Unted States (C. C. .), 48 ed. (2d), 201, 202 Radant Gass
Co. v. urnet ( pp. D. C), 54 ed. (2d), 718, 719 Ct. D. 533, C. . I-2, 300 .)
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51, rt. 381.
224
rtce 381: Indvdua returns. -34-8253
Ct. D. 1148
INCOM T R NU CT O 1928 D CISION O COURT.
L Income Communty or Separate Property Partnershp Pbof-
ts vdence urden of Proof.
Where the ta payer, subsequent to hs marrage and whe
domced n Oregon, acqured an Interest n an Oregon partner-
shp whch conducted a arge proporton of ts busness n Ca-
forna, and n 1928 estabshed hs domce n Caforna, hs
dstrbutve share of the partnershp profts derved n 1928 and
1929 from certan contracts n Caforna was ta abe as ncome
from separate property, and the amount of saary for persona
servces was ta abe as communty ncome. Where communty
and separate ncome are commnged and no evdence Is offered
as to the amount of earnngs derved from capta and those
derved from persona servces, the Commssoner s determna-
ton of the amount of each s presumed to be correct, and hs
acton shfts the burden of proof to the ta payer to show that
such determnaton was erroneous.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (30 . T. ., 1265) affrmed.
Unted States Crcut Court of ppeas for the Nnth Crcut.
Chares . Shea, pettoner, v. Commssoner of Interna Revenue, respondent.
Upon petton to revew an order of the oard of Ta ppeas.
efore Wbur, Gabrecht, and Mathews, Crcut udges.
ebruary 19, 1936.
opnon.
Wbur, Crcut udge: Ths Is an appea from a decson of the oard of
Ta ppeas affrmng the Commssoner s determnaton that certan ncome
of pettoner, reported by pettoner and hs wfe as communty property
ta abe one-haf to each, was a ta abe to hm under the revenue aws.
Pettoner and hs wfe were marred n 1907. They were resdents of the
State of Oregon unt 1928. In the year 1920, the partnershp known as the
. . Shea Co. was organzed n that State by pettoner and hs father and
was engaged n the genera contractng busness. The pettoner became
owner of a 40 per cent nterest In the partnershp by reason of hs contrbuton
of cash to capta and the assumpton by hm of certan obgatons owng for
the pant and equpment. Pettoner s father owned a 40 per cent nterest n
the partnershp. Upon the father s death n 1926 pettoner nherted one-
nnth of hs Interest, and thus owned a 44 4/9 per cent nterest n the partner-
shp. arge proporton of the partnershp busness was conducted n Ca-
forna. In the eary part of 1928, pettoner moved hs famy to Caforna
and estabshed hs domce there.
The ta es Invoved are for the years 1928 and 1929, and the ncome n
queston was derved from the profts of certan constructon contracts n
Caforna n whch the copartnershp of . . Shea Co. |oned wth Twohy
ros, as contractors.
The Commssoner of Interna Revenue n hs defcency notce hed that
a the Income of the pettoner derved from the . . Shea Co. s operatons
n Caforna n 1928 and 1929 was ta abe to hm as hs ncome e ceptng the
8,000 saary whch he receved for hs persona servces from the . . Shea
Co. The amount of ths saary for the years 1928 and 1929 was determned
by the Commssoner to be ta abe as |onty owned by pettoner and hs
wfe, and he was hed ta abe for ony one-haf that amount.
t the end of 1928, the partnershp assets of . . Shea Co. were 1,151,212.91.
So far as the pettoner s nterest theren was acqured by descent or owned
by hm whe he was domced In Oregon, t consttuted hs separate property
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225
51, rt. 381.
under the aw of Oregon whch does not recognze communty property. fter
the pettoner became domced n Caforna, t remaned hs separate property
under the aw of Caforna (In re Thornton s state, 1 Ca. (2d), 2 33 Pac.
(2d), 1). The Income derved from these partnershp assets, as dstngushed
from the persona servces of the pettoner rendered to the copartnershp,
became hs separate property (Ca. Cv. Code, secton 163). Whe that
porton of t attrbutabe to hs persona servces was communty property
under the aw of Caforna (Ca. Cv. Code, secton 164 Pcrera v. Perera,
156 Ca., 1 In re God s state, 170 Ca., 621 Lennger v. Lcnnger, 167 Ca.,
297 state of Pepper, 158 Ca., 619) It was st so far sub|ect to hs domnaton
that t was ta abe n the same manner as separate property Income unt
the amendment of the Code of Caforna n 1927 (Ca. Cv. Code, secton 161(a)
Unted States v. Macom, 282 U. S., 792), whereby each spouse was gven an
undvded nterest n communty property thereafter acqured.
The pettoner s frst four contentons reate to the matter of proof and are
thus stated by hm: rst, a property acqured by ether spouse durng
marrage Is presumed to be communty property second, the presumpton
can be overcome ony by cear and convncng proof thrd, f commnged
communty and separate funds can not be accuratey segregated, the whoe
Is treated as communty fourth, f ncome produced by credt of husband
not shown to be separate credt, t s communty property.
These four propostons are thoroughy estabshed as the aw of Cnforna
by ts statutes and by the decsons of ts courts. They are not appcabe
here, however, for the reason that the source of the ncome derved by the
ta payer s defntey ascertaned to have been n arge part the ncome derved
from hs separate property. The ncome derved from ths capta Investment
s ta abe to the husband as hs ncome. The presumpton that t s communty
property acqured after uy 29, 1927, so far as appcabe n a ta case, has
been overcome.
The ony dffcuty remanng arses from the fact that the ncome derved
from the husband s servces whch were communty property were commnged
wth the profts derved from the busness n whch the husband s capta was
nvested. Ths queston of the commngng of the husband s capta and hs
servces has been frequenty before the Caforna courts, and t as been hed
that the amount derved from the capta nvestment shoud be separated
from the amount derved from the husband s servces n determnng whch s
communty property and whch hs separate property. (Perera v. Pcrera,
156 Ca., 1, and other Caforna cases cted, supra.)
No evdence was offered by the pettoner as to the reatve return from
hs servces for whch he receved the saary of 8,000 and of hs capta
whch was empoyed n the ventures from whch the proft was derved. Under
these crcumstances, t has been hed by a Caforna court that n the absence
of other evdence, where the husband receved a saary from the busness,
t s proper to attrbute the baance of the ncome derved by hm from the
busness as ncome upon hs separate property. ( an Camp v. an Camp,
53 Ca. pp., 17.)
The pettoner cams that the profts of the Caforna contracts n whch
the . . Shea Co. |oned wth Twohy ros, are communty property earned
after uy, 1927, and hence, owned equay by the pettoner and hs wfe,
because the funds advanced to the |ont venture by . . Shea Co. ( 185,0S3.75)
had been repad by October 11, 1926, and that on uy 31, 1927, the partnershp
was Indebted to the |ont venture n the sum of 155,000. Ths does not
foow. The profts pad n 1927 from the |ont venture were the resut of
the capta nvestment of the pettoner In the . . Shea Co. and by that
company n the |ont venture, and aso of hs persona servces. The book
baances of the |ont venture referred to are entrey evdentary, f at a
matera. The fact that the capta nvestment had been returned dd not
absove the . . Shea Co. from the hazards of the |ont venture nor termnate
ts connecton wth t. The profts arose from the venture as a whoe, and
are not affected by the state of the accounts of the venture from tme to tme.
The proper dvson of the separate property from the communty property
n such a case s a matter of consderabe dffcuty and s a queston of fact
to be determned from the evdence n the partcuar case. It as been hed
n some cases that the apportonment shoud be made In the rates that the
capta and servces contrbuted n producng the ncome. (In re od s
state, supra: Perera v. Pcrera, supra see dscusson n 10 Ca. Law Revew,
271. 14 d., 402.)
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103, rt. 530.
226
In the case at bar tbe Commssoner has segregated the ncome of the
partnershp nto separate and communty property. e has been sustaned
by the oard of Ta ppeas. The man questons are factua. Uness these
decsons are the resut of an error of aw, they must stand.
The pettoner s ffth contenton s that the property n queston was
acqured after uy 29, 1927, wfe has a present vested Interest theren and
she s ta abe therefor. Ths proposton can not be sustaned for t s
obvous that the ncome from the partnershp was n the mam the husband s
separate property. The error of aw pressed upon us by the pettoner s
the faure of the oard to Induge n the presumpton that a the partnershp
ncome was communty property because the porton whch was separate
was not ceary defned. It may we be questoned whether the ta payer
can now rey upon ths basc presumpton where the Commssoner has n
fact made such segregaton. s acton s presumed to be correct unt
shown to be erroneous. The Commssoner has n fact determned the amount
of each. Can the ta payer now, In ths court, rey upon the presumpton
arsng from the decsons of the Caforna courts for the determnaton of
doubts arsng from the commngng of communty and separate property where
the aw of the Unted States fortfes the decson of the Commssoner segregat-
ng such property wth a presumpton that the ncome s correcty segregated.
It seems fary cear that the acton of the Commssoner shfted the burden
of proof to the ta payer to show that hs acton was n error. (See Gordon
v. Commssoner, 75 . (2d), 429 Pedder v. Commssoner, 60 . (2d), 866.)
Ths he has not done. On the contrary the evdence ceary sustans the
Commssoner.
The order s affrmed.
S CTION 55. PU LICITY O R TURNS,
rtce 421: Inspecton of returns.
R NU CT O 1928.
Commttee on ducaton and Labor, Unted States Senate. (See
T. D. 4065, page 206.)
rtce 421: Inspecton of returns.
R NU CT O 1928.
Speca Commttee to Investgate Producton, Transportaton, and
Marketng of Woo, Unted States Senate. (See T. D. 4705, page 268.)
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 103. MPTIONS ROM T
ON CORPOR TIONS.
rtce 530: Soca cubs.
R NU CT O 1028.
Tenns cub occupyng part of property and rentng remander.
(See G. C. M. 10807, page 157.)
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227 112, rt. 674.
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112. R COGNITION O G IN OR LOSS.
rtce 574: changes n connecton wth
corporate reorganzatons.
-30-8198
Ct. D. 1140
INCOM T R NU CT O 1923 D CISION O COURT.
1. Income Stock Receved n Consderaton fob greement not
to Compete n usness change of Stock fob Stock
change of Stock for Capta sset.
Where a stockhoder In n corporaton whch sod Its assets and
, busness to another for stock of the purchasng corporaton and
then dssoved, receved stock of the atter corporaton n consdera-
ton for hs agreement to enter ts empoy and to refran from
engagng n a competng busness wthn a specfed area for fve
years, the vaue of the stock receved consttuted ta abe ncome.
The provsons of sectons 112(b) and 101 (c)8 of the Revenue
ct of 1928 are not appcabe, the stock not beng e changed soey
for stock, nor receved n e change for property whch consttuted a
capta asset.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (31 . T. ., 9GG) affrmed.
Unted States Crcut Court of ppeas for the Second Crcut.
state of ohn D. eats, ohn D. eats, r., and Dougas Nchoson, ecutors,
pettoner, v. Commssoner of Interna Revenue, respondent (and four com-
panon cases).
Tettons by fve ta payers, each seekng to revew an order of the oard
of Ta ppeas redetermnng a defcency n hs Income ta for the year 1928.
ffrmed.
Swan, Crcut udge: These fve cases present the same queston, namey,
whether the vaue of certan shares of stock receved by the ta payer In the
year 1928 was ta abe ncome to hm n that year. Subsequent to the transac-
tons nvoved n ths tgaton two of the ta payers, ohn D. eas and Water
R. Comfort, ded, and the pettons wth respect to ther ta es are prosecuted
by ther respectve ega representatves. y stpuaton the fve cases were
consodated and heard upon a snge record.
The ta payers were offcers and sharehoders of Red Ice Cream Co., a cor-
poraton hereafter caed Red, whch agreed to se to the orden company
as of the cose of busness on December 31, 1927, a ts assets and busness
as a gong concern. The purchaser agreed, among other thngs, to ssue to
Red certfcates for 89,000 shares of orden common stock. The contract was
carred out and these shares were dstrbuted by Red to ts sharehoders n
anuary, 1928. Red was then dssoved. These 89,000 shares are not, however,
the shares whch gve rse to the present controversy. Ths arses out of the
Issuance of addtona shares of orden stock under crcumstances about to be
stated. The contract of sae requred Red to dever to orden agreements by
three of the ta payers, Water R. Comfort, Wam . Weer, and ohn D.
eas, by whch they severay promsed orden to make certan guarantes,
to enter ts empoy, and not otherwse to engage n the ce cream busness
wthn a mted area for a term of fve years. In consderaton for the dev-
ery of such agreements, orden agreed to dever to sad ta payers 4,667 shares
of orden stock to be dvded between them as they mght mutuay decde.
Red was aso requred to dever agreements by Robcff . ones, arod W.
ppeas from the oard of Ta ppeas.
efore L. and, Swan, and Chase, Crcut udges.
ebruary 10, 1936.
OPINION.
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112, rt. 574.
228
Comfort, and Water R. Comfort, r. (the atter not beng a party to ths tga-
ton), by whch they boun themseves to orden not to engage n the ce cream
busness, e cept n orden s empoy, for a term of fve years and wthn a
specfed terrtora area and for such agreements orden agreed to dever
to them 2,500 shares of ts stock to be dvded between them. These agreements
were devered to orden on anuary 3, 1928, and the ta payers receved 6,667
shares, as foows: Water R. Comfort, 2,060 shares Wam . Weer, 1,960
shares ohn D. cas, 047 shares Robcff . ones and arod W. Comfort,
1,000 shares each. It has been stpuated that 75 per cent of the shares so
obtaned by the three frst-named ta payers was consderaton for ther agree-
ments to refran from competton wth the orden company. The far market
vaue of orden stock on anuary 3, 1928, was 170 a share. The resouton
of orden s board of drectors authorzng the contract wth Red rected that
90,167 shares of stock was to bo pad for the acquston of Red s property
and busness. The ta payers returned as ncome for 1928 none of the orden
shares receved by them as consderaton for ther severa agreements not to
engage In a competng busness. In audtng ther returns the Commssoner
ncuded as ta abe ncome the vaue of such stock. Ths produced the def-
cences companed of. The oard has sustaned the Commssoner s deter-
mnaton and these appeas queston the correctness of that rung.
It Is contended by the ta payers that the shares In queston were not ta -
abe as ncome n the year 1928 because they were receved pursuant to a
pan of reorganzaton and under secton 112(b) of the Revenue ct of 1928
(45 Stat., 816) any gan so reazed s not recognzabe for ta purposes
unt the stock Is sod. It may be assumed that the sae by Red of ts assets
and busness for cash and stock of the orden company was a reorganzaton
wthn secton 112(b)4. (See evcrng v. Mnnesota Tea Co., 296 U. S.,
(December 16. 1935) Ct. D. 1060, C. . -1, 189 .) We may kewse assume
that the 89.000 shares of orden stock dstrbuted by Red to ts stockhoders
nvoved no recognzabe gan to them because of secton 112(b)3. No ques-
ton s rased as to ths. ut that secton does not embrace the shares re-
ceved as consderaton for the ta payers agreements to refran from com-
petton wth orden. It reads as foows:
(3) Stock for stock on reorganzaton. No gan or oss sha be recognzed
f stock or securtes n a corporaton a party to a reorgansaton are, n
pursuance of the pan of reorganzaton, e changed soey for stock or secur-
tes n such corporaton or n another corporaton a party to the reorganzaton.
The orden stock n queston was certany not e changed soey for
stock n the Red corporaton. Uness t was, the secton reed upon can
have no appcaton. It s urged that the ta payers restrctve covenants not
to compete wth orden were merey ancary to the contract of sae between
Red and orden and a necessary feature of the pan of reorganzaton n
order to protect the transfer of Red s good w. Grantng a ths, t merey
shows that the shares n queston were ssued n pursuance of the pan of
reorganzaton. It does not show they were e changed soey for stock or
securtes. On the contrary, t s pan that they were ssued n return for
the ta payers restrctve covenants and not as consderaton for any nterest
they owned n Red. Whether ths was an unawfu consderaton as to
orden, as the ta payers contend n reance upon Thomas v. Sutherand (62
. (2d), 592, 597 (O. C. . 3)), we need not consder, for ther vaue In the
hands of the ta payers Is not questoned. The contenton that secton 112(b)3
appes to the shares n queston can not stand.
s an aternatve contenton the ta payers argue that the shares were
receved n e change for property and the gan thereby reazed must be
ta ed as upon the dsposton of a capta asset, pursuant to secton 101 (c)8
of the Revenue ct of 192S (45 Stat., 811). ut f t be conceded that the
prvege of each of the ta payers to engage n the ce cream busness s a
rght of property n hm, such property was not conveyed to orden. orden
dd not and coud not get hs prvege a It got was hs promse not to
e ercse hs prvege, and t pad hm n advance for the performance of ths
promse. promse not to work for others or for onesef s no more a con-
veyance of property than s a promse to enter the promsee s empoy. Pay-
ment for ether promse s ncome, not proceeds receved on dsposa of a
capta asset. Ths has aready been authortatvey decded. (Savage v.
Commssoner, 76 . (2d), 112 (O. O. . 2), affrmed, 296 U. S., ( anuary
13. 11)30) Ct. D. 1075, C. . -1, 207 .)
The orders are affrmed.
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229
112, rt. 575.
rtce 575: changes n reorganzatons -34-8254
for stock or securtes and other property Ct. D. 1147
or money.
ncome ta revenue act of 192s decson of court.
1. Gan ob Loss change of Stock fob Stock and Cash Re-
organzaton Three Transfers Consttutng One Transac-
ton.
Where, pursuant to a pan of reorganzaton adopted by a cor-
poraton, the stockhoders e ercsed the opton accorded them
to e change a porton of ther common stock for preference stock
n a new corporaton formed to take over the assets and assume
the abtes of the od, on the same date transferred the reman-
der of ther common stock n the od corporaton to that cor-
poraton for cash, and seven days ater e changed ther speca
stock n the od corporaton for common stock n the new, there
was a corporate reorganzaton wthn the meanng of secton
112(1)1 of the Revenue ct of 1928, the three transfers were In
substance but one transacton, and the ta abe gan derved there-
from was mted to the e tent of the cash receved.
2. ursdcton of Crcut Court of ppeas Power to Pass
Upon ueston Not ssgned as rror n Petton fob Re-
vew.
Upon petton for revew of a decson of the oard of Ta
ppeas hodng that, under the facts presented, there was no
reorganzaton, the crcut court of appeas may consder and
decde whether there was error n the oard s hodng that there
were three separate e changes rather than one, snce, n order to
determne whether the oard erred In ts hodng as to reorgan-
zaton, t was necessary to e amne the nature of the transfers.
Where the court corrects an error of the oard, t has power to
correct another error affectng the same matter, athough no
error has been assgned wth respect thereto. The fndng of the
oard was not a fndng of fact hut a mere concuson whch the
facts do not support
3. Decson Reversed.
Decson of the oard of Ta ppeas (31 . T. ., 071) reversed.
4. Certorar Dened.
Petton for certorar dened May 25, 1936.
Unted States Crcut Court of ppeas fob the ourth Cbcut.
rank C. Starr, pettoner, v. Commssoner of Interna Revenue, respondent.
dward C. True and dee Dohme True, hs vtfe, pettoners, v. Commssoner
of Interna Revenue, respondent.
fred R. L. Dohme, pettoner, v. Commssoner of Interna Revenue,
respondent.
On pettons to revew the decsons of the Unted States oard of Ta ppeas.
efore Parker, Northcott, and Sopeb, Crcut udges.
pr C, 1930.
opnon.
Parker, Crcut udge: In the year 1029 the offcers of Sharp Dohme, a
Maryand corporaton whch had been ncorporated n 1020, decded on and
carred out a pan of reorganzaton the genera purpose of whch was to se
to the outsde pubc a arge nterest n the busness and decrease the reatve
hodngs n the company of the persons who hed at that tme ts tota capta
of 90,000 shares of non par vaue common stock. They caused to be formed,
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112, rt. 575.
230
pursuant to ths pan, a new corporaton of the same name, whch agreed to
take over the assets and assume the abtes of the od corporaton and to
pay to that corporaton the sum of 13,500,000 and ssued to t 225,000 shares
of nou par vaue common stock. Ths amounted to the new corporaton s gvng
to the od the sum of 100 n money and 2y2 shares of ts common stock for
each of the shares of the outstandng common stock of the od corporaton.
The od corporaton, under the pan of reorganzaton, was thereupon to re-
deem ts common stock at 100 per share and to dstrbute among ts stock-
hoders the common stock receved from the new corporaton. Ths dstrbu-
ton of the common stock of the new corporaton was to be accompshed, how-
ever, not by smpe dstrbuton but by havng the od corporaton ssue 9,000
shares of speca stock as a stock dvdend to ts stockhoders, who were
thereupon to e change wth the od corporaton the speca stock thus re-
ceved for common stock n the new corporaton whch the od corporaton
was to receve. ve hundred shares of mted stock at 1 per share were
ssued by the od corporaton to the new to be hed by the atter for the pur-
pose of keepng the od corporaton ave after ts other stock shoud have
been redeemed.
Money was beng rased by the new corporaton by the sae of ts prefer-
ence stock at 62.50 per share and, under the pan of reorganzaton, an
(pton was gven the stockhoders of the od corporaton to e change not e -
ceedng one-thrd of ther hodngs of common stock n that corporaton for
ths preference stock at the rate of 1 share of common for 2 preference. The
common stock thus acqured by the new corporaton was to be used n eu of
cash at 150 per share n ts settement wth the od corporaton and t ap-
pears that 50,359 shares of the new corporaton s preference stock were
e changed for common stock of the od corporaton under ths opton.
Ths pan of reorganzaton was carred out, and the ta payers who are
pettoners here avaed themseves of the opton accorded them to e change
shares of common stock n the od corporaton for preference shares n the
new. In workng out ther rghts under the pan they made the foowng
transfers of stock, vz: (1) On ugust 6, 1929, they e changed common stock
of the od corporaton for preference stock of the new, ths e change beng
made wth the new corporaton (2) on the same date, ugust 6, 1929, they
transferred the remander of ther common stock n the od corporaton to
that corporaton for cash and (3) on ugust 13, 1929, they e changed ther
speca stock n the od corporaton for common stock n the new.
The Commssoner hed that the transfers were made pursuant to a pan of
corporate reorganzaton, but treated a three of them as consttutng one trans-
acton and mposed the ta on the entre proft derved therefrom, mted,
however, to the amount of cash receved. The ta payers appeaed to the oard
of Ta ppeas, contendng that the three transfers consttuted three separate
and dstnct transactons, n two of whch stock was e changed for stock and
no proft was reazed, and that ony wth respect to the transfer of stock
for cash was there reazed a proft whch was ta abe. The oard found that
there were actuay three rea e changes and each had ts usua and sepa-
rate effect for ta purposes but hed that there was no reorganzaton wthn
the meanng of the statute and that the entre proft derved from the transfers
shoud be ta ed wthout mtaton to the amount of cash receved. (31 . T. .,
671.) Ta payers have pettoned for a revew of ths hodng.
Counse for the Commssoner, wthout formay confessng error, vrtuay
concede that the oard was n error n hodng that the transfers were not
made pursuant to a pan of corporate reorganzaton wthn the meanng
of the statute appcabe. Ths s unquestonaby correct. The case s one
where substantay a the propertes of one corporaton were acqured by
another, where the seer acqured a defnte and substanta nterest n the
affars of the purchasng corporaton whch represented a substanta part
of the vaue of the thng transferred, and where what was done was not a
mere sae but genuney partook of the nature of merger or consodaton.
In the ght of recent decsons of the Supreme Court, there can be no doubt
but that the facts present a cear case of reorganzaton wthn the meanng
of secton 112(1)1 of the Revenue ct of 1928 ( 45 Stat, 818). ( everng v.
Mnnesota Tea Co., U. S., , 56 S. Ct., 2(59 TCt. D. 1060, C. . -1, 189
ohn . Neson Co. v. everng, U. S., , 56 S. Ct., 273 Ct. D. 1062, C. .
-1, 2741 everng v. Watts, U. S., , 56 S. Ct., 275 Ct. D. 1063, C. .
-1, 276 O. . Mfg. Co. v. everng, U. S., , 56 S. Ct, 276 Ct D.
1059, C. . -1, 188 .)
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231
112, rt. 575.
Counse for the Commssoner contended, however, that, n reversng the
oard on the queston of reorganzaton, we shoud sustan the Commssoner s
contenton that there was n effect ony one transfer, and that, under secton
112(c) of the ct (45 Stat., 817), ta payers shoud be ta ed on the entre
proft derved from the reorganzaton, mted, however, to the amount of
cash receved n the transacton. Ta payers contend that the queston as to
whether there were three transfers or ony one s not propery before us,
that, f It s before us, we are concuded by the fndng of the oard wth
respect thereto, and that, n any event, the record concusvey shows that
there were three separate transfers.
We can not agree that the queston as to whether there were three trans-
fers or ony one s not before us. There s no dspute as to the facts. Upon
these the oard has hed that there were three transfers and no reorganza-
ton. The petton of ta payers aeges that there was error n hodng that
the transfers were not made pursuant to a pan of corporate reorganzaton
but to determne whether ths was error or not, we must e amne nto the
nature of the transfers. If, n dong so, we reach the concuson that the
three transfers, as a matter of aw, were but parts of one transacton and
were ta abe as such, t s our duty to ca attenton to that error n the
decson of the oard as we as to the error n hodng that the facts shown
dd not consttute a corporate reorganzaton wthn the meanng of the
statute, to the end that when the case s remanded to the oard ta es may
be assessed by t upon the proper bass. We do not understand that where,
upon the petton of ta payers, we correct an error aganst them, we are
wthout power to correct another error affectng the same matter, merey
because they have not assgned error wth respect thereto. On the contrary,
we conceve t to be our duty to pont out the correct rue of aw appcabe
n the premses, so that the ta es due may be propery assessed. In ths con-
necton, t appears to us that t woud be most unfortunate, f when the
courts are cearng themseves of the reproach of hypertechncaty n ther
own procedure, they shoud permt the same ev to creep nto the procedure
provded for revewng decsons of admnstratve trbunas.
So far as the fndng by the oard s concerned, the facts are admtted and
the fndng s not a fndng of fact at a but a mere concuson whch the facts
do not support. It s perfecty cear that the three transfers were but steps
n the carryng out of one genera pan, a of the detas of whch were agreed
upon before any of the transfers were made. The substance of that pan,
strpped of rreevant deta, was that, for each share of stock n the od cor-
poraton, the stockhoder shoud have 2 shares of common stock n the new
and 100 n cash, wth the opton on hs part to take preference stock In the
new corporaton at 62.50 per share n eu of one-thrd of the cash to whch
he woud otherwse be entted. The record shows that, by acton of the
stockhoders n approvng the pan and ndcatng ther eecton under the
opton offered them, every deta of the three transfers was arranged before
any of them took pace and one contract, e ecuted four days after the stock-
hoders meetng, bound the new corporaton to e change preference stock for
common stock as provded n the opton, as we as to pay cash and ssue com-
mon stock to the od corporaton n e change for ts assets. It dd not
destroy the unty of what was done that the od corporaton frst Issued the
speca stock and then e changed the common stock of the new corporaton
for t, nor that the od stockhoders were gven the opton of takng pref-
erence stock n eu of one-thrd of the cash to whch they were entted.
efore any e change was made, the od corporaton was bound to e change
common stock of the new for ts speca stock the new corporaton was
bound to e change ts preference stock for common stock of the od, n an
amount whch had been f ed by pror acceptance of the opton the od cor-
poraton was bound to redeem ts common stock whether tendered by ts
stockhoders or by the new corporaton and the common stock was caed for
redempton. The varous transactons contempated by the pan were nter-
dependent, and the carryng out of the pan as a whoe was the rea consdera-
ton for each of the transfers.
The statute appcabe s secton 112(c) of the Revenue ct of 1928 ( 45
Stat., 817), whch s as foows:
(1) M an e change woud be wthn the provsons of subsecton (b) (1),
(2), (3), or (5) of ths secton f t were not for the fact that the property
receved n e change conssts not ony of property permtted by such para-
graph to be receved wthout the recognton of gan, but aso of other prop-
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112, rt. 575.
232
erty or money, then the gan, If any, to the recpent sha be recognzed, but
In an amount not In e cess of the sum of such money and the far market vaue
of such other property.
The evdent purpose of ths statute s that, n case of reorganzaton and
other somewhat smar transactons covered by the statute, profts reazed In
cash or other property sha be ta ed as s other Income but that mere paper
profts sha not be ta ed. To the e tent that stock s retaned n the new cor-
poraton, the stockhoder Is carryng aong hs orgna nvestment but to the
e tent that he reazes money or other property upon the reorganzaton, he s
wthdrawng that from the enterprse. If the stock In the new corporaton s
worth as much as or more than the cost to hm of the stock n the od, he s
merey wthdrawng hs proft from the enterprse when he receves money or
property upon the reorganzaton. In such case, the reorganzaton enabes the
stockhoder to reaze n cash the ncrease n vaue of hs stock and Congress
evdenty thought t |ust that he account for same as ncome, |ust as he woud
account for dvdends receved on hs stock.
Where transfers are made pursuant to such a pan of reorganzaton, they are
ordnary parts of one transacton and shoud be so treated n appcaton of
the we setted prncpe that, n appyng ncome ta aws, the substance, and
not the form, of the transacton sha contro. ( rst Seatte D. . Nat. ank
v. Commssoner (C. C. . 9), 77 ed. (2d), 45 Prare O d Oas Co. v. otter
(C. C. . 10), 66 ed. (2d), 309 Ot. D. 767, O. . III-1, 183 oward v.
Commssoner (C. C. . 6), 56 ed. (2d), 781 mercan Securty Trust Co.
v. Tat, 5 ed. Supp., 337.) Ths s demanded, aso by the prncpe, equay
we setted, that a snge transacton may not be broken up nto varous ee-
ments to avod a ta . ( hes Reaty Corporaton v. Commssoner (C. C. .
2), 71 ed. (2d), 150, 151 Ot. D. 931, O. . I -1, 245 West Te as
Refnng Co. v. Commssoner (C. C. . 10), 68 ed. (2d), 77, 79, 80 Prare
O Gas Co. v. Motter, supra (O. C. . 10), 66 ed. (2d), 309, 311 Tusa
Trbune Co. v. Commssoner (0. O. . 10), 58 ed. (2d), 937.)
Ta payers rey upon the decson of the Supreme Court n Genera Uttes
Co. v. everng ( U. S., , 56 S. Ct., 185 Ct. D. 1055, O. . -1, 214 ).
In that case, however, no corporate reorganzaton was nvoved and there
was no unfyng contract such as we have here. Shares of stock were ds-
trbuted by way of dvdend among the corporaton s stockhoders and were
sod by the stockhoders, who were not bound to se, to a purchaser who had
made an offer to the corporaton and the decson was that these facts dd
not warrant a hodng that the sae was made by the corporaton so as to
ustfy the mposton of a ta aganst t on the theory that It had made the
sae and reazed a proft. s ponted out by the Crcut Court of ppeas of
the Second Crcut n Chshom v. Commssoner (79 ed. (2d), 14, 16), a df-
ferent case woud have been presented If the dstrbutors of the stock had
been bound to make sae at the prce offered to the corporaton.
Ta payers rey aso upon ruce v. everng ( pp. D. C.) (76 ed. (2d),
442). In that case, however, the ta payer had agreed to se 200 shares of
stock for cash before earnng of a contempated reorganzaton. Later she
earned of the reorganzaton and e changed 500 shares of stock n the od
corporaton for 1,200 shares n the new. The two transactons were separate
and dstnct and made pursuant to ndependent contracts. The court was at
pans to pont out, however, that, f the sae of the 200 shares had been con-
dtoned on the e change of the 500 shares for stock, the ease woud have come
drectv under the provsons of secton 112(c) of the statute. On ke
prncpe, everng v. Ward (C. C. . 8) (79 ed. (2d), 381) and Lonsdae v.
Commssoner (C. C. . 8) (32 ed. (2d), 537 Ct. D. 93, C. . I -2, 237 ),
may be dstngushed.
The ony authorty cted by the oard for ts acton was Its own decson In
Gregory v. necerng (27 . T. ., 223), but n vew of the decson of the
Supreme Court n the same case (Gregory v. everng, 293 U. S., 465 Ct. D.
O, C. . I -1, 193 ), t woud appear that the oard erred there n payng
too much attenton to the mere form of transactons entered nto for the pur-
pose of escapng ta es. The Court sad of the corporaton organzed and used
there as the bass of the pea of corporate reorganzaton : Puttng asde, then,
the queston of motve n respect of ta aton atogether, and f ng the char-
acter of the proceedng by what actuay occurred, what do we fnd Smpy
an operaton havng no busness or corporate purpose a mere devce whch
put on the form of a corporate reorganzaton as a dsguse for conceang
ts rea character, and the soe ob|ect and accompshment of whch was the
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233
116, rt. 643.
consummaton of a preconceved pan, not to reorganze a busness or any
part of a busness, but to transfer a parce of corporate shares to the pet-
toner. No doubt, a new and vad corporaton was created. ut that corpora-
ton was nothng more than a contrvance to the end ast descrbed. It was
brought nto e stence for no other purpose t performed, as t was ntended
from the begnnng t shoud perform, no other functon. When that mted
functon had been e ercsed, t mmedatey was put to death. The same thng
n amost the same words mght be sad of the devce of ssung the speca
stock of the od corporaton and e changng for t the common stock of the
new, or of the devce of havng common stock of the od corporaton e -
changed wth the new for ts preference stock and then retred.
or the reasons stated, the decson of the oard to the effect that the trans-
fers by ta payers were not made pursuant to a pan of corporate reorganza-
ton w be reversed but In the assessment of ta es the oard w treat as
reated steps n one consodated transacton the three e changes of stock to
whch we have referred.
Reversed and remanded.
rtce 577: Defntons.
R NU CT O 1028.
Reorganzaton. The same securty hoders n od and new cor-
poratons but proportonate nterests dfferent. (See Ct. D. 1139.
page 209.)
S CTION 116. CLUSIONS ROM GROSS
INCOM .
rtce 643: Compensaton of State offcers -51-8444
and empoyees. Ct. D. 1181
INCOM T R NU CTS OP 1924, 1926, ND 1928 D CISION O COURT
1. Gross Income empton Compensaton Pad to Cv n-
gneer by Muncpates.
ees and saary receved by the ta payer In the years 1924 to
1930, Incusve, for engneerng servces rendered to certan munc-
pates n Oho were not e empt from edera ta aton as compen-
saton pad to an offcer of the muncpates engaged n carryng
out essenta functons of government.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (30 . T. ., 17) affrmed.
3. Certorar Dened.
Petton for certorar dened October 12, 1936.
Unted States Crcut Court of ppeas fob the S th Crcut.
. . Pease, pettoner, v. Commssoner of Interna Revenue, respondent.
Petton to revew an order of the Unted States oard of Ta ppeas.
efore Moorman, cks, and en, Crcut udges.
pr 15, 1930.
OPINION.
Moorman, Crcut udge: The pettoner, a cv engneer, was presdent and
prncpa stockhoder of the Pease ngneerng Co. of Ceveand, Oho. In the
ta ng years of 1924 to 1930, ncusve, he supervsed the constructon, m-
provements and repars of streets, aeys, brdges, sdewaks and sewer drans
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116, rt. 643.
234
n eght vages and one cty In Oho, for whch he was pad for hs servces
to the vages fees equa to an agreed percentage of the cost of ther mprove-
ments. The cty, Ceveand eghts, pad a f ed saary. In each of the years
he was pad a saary as presdent of the Pease ngneerng Co. and was free
to practce hs professon. The Commssoner of Interna Revenue assessed a
ta aganst hs ncome receved from the muncpates after aowng deduc-
tons therefrom for aboratory, offce and overhead e penses and for saares
and wages pad to assstants and empoyees. The oard of Ta ppeas
sustaned the Commssoner.
The pettoner contends that he was an offcer of each of the muncpates
engaged n carryng out essenta functons of government, and that the fees
and saary receved by hm for hs servces were mmune from ta aton. (The
Coector v. Day, 11 Waace, 113.) e rees on Wryht v. Cark (119 0. S,
402) as f ng hs sta-tus. That was a sut by ta payers on behaf of the
vage of edford, Oho, to recover money pad to Wrght for suppes fur-
nshed for pubc works whe he was actng as engneer for the vage. The
sut was brought under secton 3808 of the Genera Code of Oho, whch pro-
vded that no offcer of the corporaton shoud have any nterest n the e pend-
ture of money on the part of the corporaton other than hs f ed compensaton,
and that any voaton of the provson by an offcer shoud render hm abe
for a sums of money receved contrary thereto. Wrght was apponted
engneer of the vage by the counc for two years and was to be pad for
hs servces on a commsson bass. The court hed that he was abe as an
offcer wthn the meanng of the statute.
Whe the edera courts are bound by a State statute as construed by the
hghest court of the State wth reference to a rue of property In the State
or a queston of State aw, t has never been hed that they must adopt a State
defnton of terms n appyng edera ta ng cts. They may accept such
defntons n the absence of a defnton n the edera ct (Wurtzcr Co. v.
Commssoner, decded by ths court anuary 16, 1930) but there s no rue
of aw or constructon that requres them to do so. They are free, n such
cases, to adopt the defnton and make t ther own or to gve a dfferent
one. esdes, n ths case the cam of the pettoner s not based on a term
used n a edera statute but rests on a rght camed under the edera Con-
sttuton. The e stence of the rght can not be determned by a State enact-
ment or the nterpretaton of a State statute by the hghest court of a State.
The theory on whch t s sometmes hed that a saary receved from a mu-
ncpaty s mmune from ta aton by the edera Government s that the
person recevng the saary s an nstrument or means used by the muncpaty
to perform ts governmenta functons, and that a ta on hs saary woud be
a burden on the actvtes of the muncpaty. Whether there s a resutng
burden from the mposton of the ta depends not upon the tte gven the
person, but upon the e pendtures made by the muncpaty as they reate to
and affect ts norma governmenta functons. ( everno v. Powers, 293 U. 8.,
214 Ct D. 900, C. . III-2, 213 .) We thnk the pettoner s earnngs can
not be sad to be a part of the norma functons of muncpa government
Nor was the pettoner an offca representatve of the muncpates. There
was, t s true, an offce of engneer n each of the vages for whch he per-
formed servces, but that fact, wth the denomnatng of hm by the pubc
as vage engneer, does not affect the queston. e was obvousy not a res-
dent of or an eector In each of the muncpates. Ordnary an offcer of a
State or muncpaty s a resdent of the State or muncpaty, a partcpant
as eector and ctzen n Its affars. Ordnary, too, he takes an oath of offce
and has a tenure and duraton of offce wth compensaton f ed by statute. In
Metcaf ddy v. Mtche (209 U. S., 514 TT. D. 3824, C. . -, 218 ), the
Court enumerated certan ndca of offca, poston, among them tenure,
duraton, emoument, dutes and compensaton f ed by aw. ere the pet-
toner s empoyment In some nstances was for bref perods, n others front
year to year, and others for the duraton of a partcuar work undertaken. e
was pad on a commsson bass accordng to agreement negotated wth the
cty counc or wth the cty manager, and empoyed hs assstants and hepers
and pad them out of hs own earnngs. e was engaged In practcng hs
professon of engneerng and was empoyed by each of the muncpates as
he mght or coud have been empoyed by any other cent. In our opnon he
was an ndependent contractor, and the ncome whch he receved from hs
empoyment was ta abe.
The order of the oard of Ta ppeas Is affrmed.
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235
162, rt. 861.
SUPPL M NT ST T S ND TRUSTS.
S CTION 162. N T INCOM .
rtce 861: states and trusts. -43-8360
Ct. D. 1165
ncome ta revenue act of 1928 decson of court.
1. Income Trust ssgnment n ntcpaton of ccrua and
Payment Loca Law.
n assgnment n 1920 by the benefcary of a trust of ncome
thereafter to accrue was Invad, where the trust nstrument pro-
vded that payments of ncome were to be made upon the soe order
and recept of the benefcary wthout power of antcpaton by
vountary or Invountary assgnment or otherwse. Under the oca
aw, ncome accrung under a trust contanng such a provson
can not be assgned n antcpaton of Its accrua, and the ncome
accrung and pad to the assgnee durng the years 1929 and 1930
beonged to the benefcary and was propery ta ed to her.
2. Decson ffbmed.
Decson of the Dstrct Court, Dstrct of Massachusetts (Ct. D.
1087, C. . -1, 159 12 . Supp., 614), afSrned.
Unted States Crcut Court of ppeas fob the bst Cbcut.
ce S. ng, pettoner, appeant, v. Unted States of merca, defendant,
appeee.
ppea from the Dstrct Court of the Unted States tor the dstrct of Massachusetts.
May 23, 1936.
opnon.
noham, .: The statutes here nvoved are secton 161(a)2 and secton
162(b) of the Revenue ct of 1928 (eta. 852, 45 Stat., 791). The queston s
whether the ncome that accrued from the trust fund n the hands of the trustees
durng the years 1929 and 1930 and pad by them to enry P. ng was ncome
beongng to the appeant and ta abe to her, notwthstandng her assgnment
or attempted assgnment made n 20 n antcpaton of ts accrua n those
years.
There can be no queston that, accordng to the terms of the trust, the appe-
ant was the benefcary to whom the net ncome was to be pad durng her
fe, and the queston s whether by the ast cause of the trust that pay-
ments of ncome hereunder are to be made upon the soe order or recept of
the benefcary wthout power of antcpaton by vountary or nvountary assgn-
ment or otherwse and free from the contro of any credtors, so restrcted
her power of aenaton n antcpaton of the accrua and payment to her of
the ncome that the nstrument of pr 1, 1920, was neffectua as a transfer
and assgnment of ncome thereafter to accrue.
We are not concerned here, as the appeant seems to thnk, wth the queston
whether she had an equtabe nterest n the corpus of the trust that she coud
assgn wthout quafcaton. udge omes, as ater ponted out, ndcates that
her estate was a mted one not absoute. The queston before us, however, s
a more restrcted one. It Is rather whether her power of aenaton wth re-
spect to the ncome was so restrcted that she coud not antcpate ts accrua
by a vountary assgnment or otherwse for, f the ast cause of the trust
Imposed such a restrcton t woud be a vad one n Massachusetts where the
trust was created and the partes resded and the assgnment woud be nvad.
We thnk that the cause ceary mposed such a restrcton and that the n-
strument of pr 1, 1920, accordng to ts terms and Intent, was an attempted
assgnment made n voaton of the restrcton.
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162, rt. 861.
236
In roadway Natona ank v. dams (133 Mass., 170) the testator, In hs
w, created a trust of whch he made hs e ecutors trustees and gave them
75,000 to pay the net ncome thereof, semannuay, to my sad brother
Chares W. dams, durng Is natura fe, such payments to be made to hm
personay when convenent, otherwse, upon hs order or recept In wrtng
n ether case free from the nterference or contro of hs credtors, my ntenton
beng that the use of sad ncome sha not be antcpated by assgnment.
There the pantff, a credtor of the benefcary, sought to reach and appy n
payment of hs debt the ncome of the trust fund created for the benefcary s
beneft by hs brother s w. The benefcary, however, had not attempted to
antcpate the ncome by an assgnment, but the pantff, a credtor, was seekng
to reach and appy the Income as It accrued n contraventon of the provsons
of the trust that the ncome shoud be free from the nterference and contro
of hs credtors and nonassgnabe. In that case It was sad :
That, f the ntenton of the founder of a trust, ke the one before us, s
to gve to the equtabe fe tenant a quafed and mted, and not an absoute,
estate n the ncome, such fe tenant can not aenate t by antcpaton, and hs
credtors can not reach It at aw or In equty. It seems to us that ths
prncpe e tends to and covers the case at bar. The founder of ths trust
was the absoute owner of hs property. e had the entre rght to dspose
of t, ether by an absoute gft to hs brother, or by a gft wth such restrctons
or mtatons, not repugnant to aw, as he saw ft to mpose. s cear nten-
ton, as shown In hs w, was not to gve hs brother an absoute rght to the
ncome whch mght hereafter accrue upon the trust fund, wth the power of
aenatng t n advance, but ony the rght to receve semannuay the ncome
of the fund, whch upon ts payment to hm, and not before, was to become
hs absoute property. s Intentons ought to be carred out, uness they are
aganst pubc pocy. There s nothng n the nature or tenure of the estate
gven to the cestu que trust whch woud prevent ths. The power of aenatng
n advance tacs supped s not a necessary attrbute or ncdent of such
an estate or Interest, so that the restrant of such aenaton woud ntroduce
repugnant or nconsstent eements.
In oston Safe Depost Trust Co. v. Luke ( - 20 Mass., 484), the Depost
Trust company by the testator s w was gven the sum of 75,000, but n trust
to pay over the net ncome and prncpa thereof, as foows:
(1) The whoe of the net ncome thereof to be pad my adopted daughter,
anne Leghton Luke, wfe of Ots . Luke, of sad rookne durng her fe
quartery n each year together wth such porton of the prncpa of sad
trust fund as sha make the amount to be pad her at east three thousand
doars a year durng her fe, sad ncome to be free from the Interference
or contro of her credtors.
The trustees (the Depost Trust company) brought a b In equty seekng
nstructons as to whether the nterest of anne Leghton Luke under the
above cause passed to the trustee n bankruptcy of her estate. The Massa-
chusetts court was of the opnon that the equtabe fe nterest of the bene-
fcary was assgnabe, as there was nothng n the w whch forbade the fe
tenant s assgnng t but they nevertheess hed that the mmunty of the
equtabe fe nterest went back to the fact that t was not sub|ect to bank-
ruptcy proceedngs at a, and sad:
y the terms of the w creatng t the equtabe fe nterest here n
queston s to be free from nterference or contro of her (the fe tenant s)
credtors. It s mmatera whether the machnery set n moton by the
credtors s a b n equty to reach and appy her equtabe nterests, or an
nvountary petton n bankruptcy to secure a her property ega and equtabe.
The equtabe fe estate created by the w here n queston s to be free from
te nterference or contro of her credtors, and under the doctrne of roadway
Notona ank v. dams (133 Mass., 170), that drecton w be enforced.
y the terms of the w the whoe of the net Income s to e free from
the nterference or contro of her (the fe tenant s) credtors. The whoe
ncome, ncudng a arrearages, Is to be pad to the fe tenant.
Ths case was taken to the Supreme Court of the Unted States ( aton v.
oston Safe Depost d Tust Co., 240 U. S., 427) and the decree of the Massa-
chusetts court was affrmed n an opnon wrtten by Mr. ustce omes. e
evdenty questoned whether the bankrupt s equtabe fe nterest was un-
quafedy assgnabe, even though there was no e press provson n the w
forbddng the fe tenant assgnng t. s to ths he sad:
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237
162, rt. 862.
If t be true wthout quafcaton that the bankrupt coud have assgned
her nterest and by so dong coud have freed from the trust both the fund and
any proceeds receved by her, the argument woud be very strong that the
statute (the ankruptcy ct) ntended the fund to pass. There woud be an
anaogy at east wth the provson gvng the trustee a powers that the
bankrupt mght have e ercsed for her own beneft, secton 70a (3), and there
woud be dffcuty n admttng that a person coud have property over whch
he coud e ercse a the powers of ownershp e cept to make t abe for hs
debts. The concuson that the fund was assgnabe was based on two cases,
and we presume was meant to go no further than ther authorty requred.
The frst of these smpy hed that the e ecutor was not abe on hs bond for
payng over an annuty to an assgnee as t fe due, when the assgnor to whom
t was bequeathed free from credtors had not attempted to avod hs act. ( mes
v. Cark, 106 Mass., 573.) The other case does not go beyond a dctum that car-
res the prncpe no further. untress v. en, 195 Mass., 226.) It s true
that where the restrcton has been enforced there generay has been a cause
aganst antcpaton, but the present decson n foowng them hods the
restrctng cause paramount, and therefore we fee warranted n assumng
that the power of aenaton w not be pressed to a pont nconsstent wth
the domnant ntent of the w. Whether f that power were absoute the
restrcton st shoud be uphed as In case of a statutory e empton that
eaves the bankrupt free to convey hs rghts t s unnecessary to decde.
Itacs supped.
Ths decson n effect hods that the power of aenaton s restrcted, not
absoute, even where the cause smpy provdes that the ncome be free from
the nterference or contro of hs credtors. e then says:
The aw of Massachusetts treats such restrctons as mtng the character
of the equtabe property and nherent n t. (Dunn v. Dobson, 198 Mass., 142,
146 Lathrop v. Merr, 207 Mass., 6, 9.)
In vew of these decsons of the Massachusetts court and of the Supreme
Court of the Unted States we concude that, under the aw of Massachusetts,
ncome accrung under a trust contanng such provsons as are here shown
s made ncapabe of transfer In antcpaton of ts accrua by an assgnment of
the benefcary. The assgnment of ce S. ng to her son enry P. ng
was nvad the ncome accrung from the trust fund durng the years 1929 and
1930 beonged to her and was propery ta ed to her.
The |udgment of the dstrct court s affrmed, wth costs to the appeee n
both courts.
INCOM T R NU CT O 1928 D CISION O COURT.
1. Net Income Sae of Trust Corpus Proft Ta abe to Trustee.
The proft derved from the sae of certan securtes by a trustee
n 1928 was ta abe to the trustee and not to the fe benefcary,
where the terms of the trust vested n the trustee absoute aud
unrestrcted dscreton as to payment of prncpa to the bene-
fcary, and where under the oca aw the proft on sae of trust
property s not dstrbutabe to the trust benefcary but ncreases
the trust corpus.
2. Sut ass Canceaton of Certfcate of Overassess-
ment ccount Stated Cam fob Refund.
Where the Commssoner assessed a defcency ta aganst a trust
benefcary on the ground that proft reazed on the sae of trust
securtes was ta abe to her and aowed an overassessment to
the trustee who bad returned and pad the ta , and ater re-
versed hs acton, hodng that under the terms of the trust the
proft was not to be dstrbuted currenty by the trustee, the
Commssoner had the rght to cance the certfcate of overassess-
ment and the trustee may not recover ether upon an aeged
account stated or upon a re|ected cam for refund.
rtce 862: Method of computaton of net
ncome and ta .
-44-83G9
Ct. D. 1167
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238
Court or Cuus of the Unted States.
Wam D. udson, Trustee, drenne . Chares Trust, v. The Unted State .
une 1, 1936.
OPINION.
These two suts reate to the same amount of 4,225.00 wth nterest, ncome
ta for 1928.
The frst sut Is based upon an aeged account stated and the second upon
a re|ected cam for refund fed by pantff whch nvoves the merts of the
queston whether a certan proft from the sae of securtes beongng to a
trust, of whch pantff was the trustee, was, under the terms of the trust,
dstrbutabe to the benefcary and therefore ta abe to her nstead of the
trustee by whom the ta was returned and pad.
Ltteton, udge, devered the opnon of the court.
Pantff as trustee of the drenne . Chares Trust, quoted n fndng 1,
sod durng 1928 certan stocks and bonds whch he hed sub|ect to the terms
of a trust and reazed a proft of 44,470.94. In March, 1929, he fed a fdu-
cary return for 1928 reportng, among other ncome, ths proft from the sae
of trust securtes. On the same day he fed an ndvdua ncome ta return
(as trustee) for 1928 showng a ta of 4,225.00 based upon the above-men-
toned proft of 44,470.94. Ths ta he pad durng 1029. t the tme the
returns mentoned were fed by the trustee, drenne . Chares fed her
ndvdua ncome ta return for 1928 showng a ta of 40.49. Thereafter, n
November, 1930, subsequent to the death of drenne . Chares, the fe bene-
fcary under the trust, the Commssoner of Interna Revenue proposed a
defcency of 6,100.62 n respect of the ncome of drenne . Chares for
1928, whch proposed addtona ta resuted from the concuson reached by
the Commssoner at that tme that the proft of 44,470.94 from the sae of the
securtes mentoned was dstrbutabe under the terms of the trust, and
therefore was ncome to the benefcary. Shorty thereafter pantff, as trus-
tee, fed a cam for refund.
fter the Commssoner had aowed an overassessment to the trustee and
had assessed a defcency aganst the benefcary, he reversed hs acton on the
ground that he had made a mstake. Thereupon he hed that under the terms
of the trust the proft n queston was not to be dstrbuted currenty by the
fducary to the benefcary and that the proft from the trust had been correcty
reported by the fducary In the return for 1928. ccordngy, he abated the
addtona assessment In respect of the ncome of drenne . Chares for 1923
and re|ected pantff s cam for refund. We are of opnon that the Comms-
soner s fna decson was correct and that pantff s not entted to recover
n ether acton.
Secton 162 of the Revenue ct of 1928 provdes that the net ncome of
an estate or trust sha be computed n the same manner and on the same
bass as n the case of an ndvdua, e cept that there sha be aowed as
an addtona deducton, n computng the net ncome of the trust, the amount
of the ncome of the estate or trust for ts ta abe year whch s to be ds-
trbuted currenty to the benefcary. The gan of 44,470.94 nvoved n ths
case was derved by pantff as fducary from the sae of a part of the trust
corpus, and the queston s whether t was ncome of the trust whch was
dstrbutabe to the fe benefcary under the terms of the trust nstrument
quoted n fndng 1. though ths gan was Income n a genera sense,
t does not foow that such gan was a part of the net ncome dstrbutabe
to the benefcary and ta abe to her. In order to determne ths queston
we must ascertan (1) the ntenton of the partes, (2) whether dstrbuton
was mandatory or dscretonary under the terms of the trust, (3) whether ds-
trbuton was n fact made, and (4) f the foregong ponts are found n favor
of pantff, the treatment of the gan under the aws of the State where the
trust s beng admnstered. The ntenton of the partes to the trust that the
trustee was not requred under the tenns of the trust to dstrbute the profts
s ceary estabshed by the facts showng that they so construed the trust and
when t was proposed to treat the gan as ncome dstrbutabe to the bene-
fcary vgorous protests were made by both partes. We thnk t s aso cear
that the dstrbuton of the ncome here nvoved was dscretonary wth the
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239
167, rt. 881.
trustee. The provson of the trust quoted n fndng 1 vested n the trustee
the absoute and unrestrcted dscreton to pay to the benefcary so much of the
prncpa of the trust as the trustee mght determne, even to the whoe of
the prncpa. It seems cear therefore that the proft derved from the suo
of the trust pro erty consttuted an accreton to the trust corpus rather than
the ncome from such corpus, and the proft derved from the sae of the
securtes n queston was ta abe to the trustee and not to the fe benefcary.
Subdvson (b) of secton 162 of the Revenue ct of 1928 provdes that In
computng net ncome the trustee may cam as a deducton the amount of
ncome for the ta abe year whch Is to be dstrbuted currenty by the
fducary to the benefcary. No drecton can be found n the trust nstrument
requrng the trustee to pay to the fe benefcary any porton of the corpus.
That matter was commtted to hs dscreton. though the agreement re-
qured the trustee to receve and coect the ncome, dvdends, and profts
from the trust property, he was requred to dstrbute to the benefcary ony
the net ncome. The tem here n controversy was a proft derved from
the sae of a part of the corpus of the trust as dstngushed from ncome of
the trust as the term ncome apears to have been used n the trust and
as understood by the partes, and we fnd nothng n the trust agreement whch
requred the trustee to dstrbute the profts. The ntenton of the partes to
the trust, as evdenced by ther actons, must be gven effect n determnng
whether the ncome of the trust, ncudng proft from the sae of the corpus,
was by the terms of the trust to be dstrbuted currenty or n the dscreton
of the trustee. We thnk the facts and crcumstances requre the concuson
that the dstrbuton of the proft n queston was eft entrey to the dscreton
of the trustee.
Whe State aws and decsons of State courts can not restrct the operaton
of edera ta ng statutes, the aw of the State where the trust was e ecuted
and admnstered s persuasve n determnng whether a proft s ncome of
that character whch must be dstrbuted to the benefcary under the terms
of the trust n queston. Under the decsons of the New York courts, the
proft on the sae of the trust property s not dstrbutabe to the fe bene-
fcary but ncreases the trust corpus.
We thnk the ta sought to be recovered was propery reported and pad
by the trustee and no recovery can therefore be had. The pettons are ds-
mssed and t s so ordered.
Whaet. udge Wams, udge Green, ud e and ooth, Chef ustce,
concur.
S CTION 167. INCOM OR N IT O GR NTOR.
INCOM T R NU CT O 192S D CISION O COtT T.
1. Income Trust nnua Payments n Consderaton of Re-
nqushment of mony and Dower Rghts Ta abe to
Grantor.
Where the ta payer and hs wfe, from whom he was separated,
and subsequenty dvorced, entered nto an agreement provdng for
the creaton of a trust fund for the beneft of the wfe n con-
sderaton of her renqushment of a cams for amony, dower,
support, and mantenance, the trust ncome pad to her was ta abe
to the husband. The trust was not estabshed as a vountary gft,
but was n dscharge of the husband s ega obgaton of support.
2. Decson oowed.
Dougas v. WUcuU (296 U. S., 1 Ct. D. 1041, C. . I -2, 250 )
foowed.
8. Decson Reversed.
Decson of the oard of Ta ppeas (31 . T. ., 256) reversed.
btce 881: Income of trusts ta abe to
grantor.
-32-8231
Ct. D. 1143
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1C7, rt. 881.
240
Unted States Crcut Court op ppeas fob the Second Crcut.
Commssoner of Interna Revenue, pettoner, v. ames . yde, respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore Manton, Swan, and Chase, Crcut udges.
March 2, 193C
OPINION.
Ths petton for revew brought by the Commssoner nvoves ncome ta es
of respondent yde for the yenrs 1929 and 1930. The oard decded that there
was no defcency. Reversed.
Swan, Crcut udge: The queston here presented, ke that In the preced-
ng case of Commssoner v. rooks, s whether the respondent s ta abe on
ncome pad to bs dvorced wfe under an rrevocabe trust created by hm for
her beneft.
On October 29, 1918, the respondent yde and hs wfe entered nto an agree-
ment, whch was apparenty made In Pars, rance. fter rectng that Mrs.
yde was vng separate from her husband and was about to nsttute an acton
for dvorce from hm, the agreement provded, among other thngs, for the
custody of the chd, that the wfe shoud brng an acton for dvorce before
the Trbuna of the Sene based upon grounds of deserton ony, that she woud
wave a dower or other rghts, and that the husband shoud create a trust
fund suffcent to pay her durng her fe an annua Income of 30,000, whch
shoud be reduced to 15,000 n the event of her remarrage It was provded
that the agreement shoud be construed and nterpreted accordng to the aws
of the State of New York. On ebruary 13, 1919, a decree of dvorce was
granted by the Trbuna of the Sene. It contaned no provson for amony
or otherwse for the support or mantenance of Mrs. yde. On ugust 2,
1919, the respondent created a trust n accordance wth the terms of the pror
agreement. The trust ndenture was sgned by the dvorced wfe as we as by
the settor and contaned a provson that she hereby renqushed a
cams for amony, dower, support and mantenance and woud e ecute any
further nstruments requred to that end. The trust Income pad by the
trustee to Mrs. yde durng 1929 and 1930 was treated by the Commssoner
as ta abe ncome of the respondent for those years and defcences were
assessed accordngy. The oard set them asde.
efore the oard the ta payer apparenty contended ony that an rrevocabe
trust estabshed by a husband In favor of hs dvorced wfe precuded the
ncome dstrbutabe to her from beng ta abe to hm, even though she ha
renqushed cams for amony, dower rghts and support n connecton wth
the creaton of the trust. So the oard hed but ths bass for the decson
was destroyed by Dougas v. Wcuts (290 U. S., 1). Consequenty the ta -
payer now tres to sustan t upon a new ground, whch he earnesty contends
makes the Dougas case nappcabe. s argument runs as foows: The
agreement of October, 1918, was a contract between husband and wfe promot-
ng ther dvorce hence t was ega and eft unaffected the husband s duty to
support hs wfe such duty was termnated by the absoute decree of dvorce
whch contaned no provson for amony therefore the trust subsequenty
estabshed was a vountary gft and the trust ncome receved by the wfe
dscharged no obgaton of the husband to hs dvorced wfe.
Obvousy the argument s hghy technca. The husband has had the fu
beneft of the agreement, whether vad or not. ut for hs promse to create
the trust, the wfe woud undoubtedy have asked for and obtaned n her
decree of dvorce terms provdng for amony for hersef and support of ther
chd. oth partes have performed the agreement and equty woud eave
them where t fnds them, even f the agreement were ega. (See Schey v.
ndrews, 225 N. Y., 110, 113.) The trust ndenture Itsef contans a renqush-
ment by the wfe of a cams for support and dower and an agreement by her
to e ecute such further nstruments as may be necessary to effectuate such
renqushment. Under such crcumstances to hod that the trust was estab-
shed as a vountary gft and that the trust ncome has not been used to
satsfy the husband s obgaton of support woud be to cose one s eyes to the
reates. In substance the stuaton s no dfferent than In Commssoner v.
rooks.
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241
167, rt. 881.
ut even on the technca bass on whch the ta payer s argument s presented
we thnk t faacous. e has assumed that vadty of the contract s to be
determned by the aw of New York. ccordngy he has cted secton 51 of
the New York domestc reatons aw whch provdes that a husband and
wfe can not contract to ater or dssove the marrage , and has
reed upon such cases as Schey v. ndrews (225 N. Y., 110) and Lake v. Lake
(136 N. Y. pp. Dv., 47). These, among other authortes, decare the aw
of New York to be that a contract havng a drect tendency to promote dvorce
Is contrary to pubc pocy and unenforceabe. ut the ne s not easy drawn
between such ega contracts and vad agreements made whe the partes
are separated, whch contempate a dvorce but are not shown to be an actua
Inducement to severng the marta reaton. Ths s we ustrated by the
recent decson n uter v. Marcus (264 N. Y., 519). In that case the husband
and wfe, whe vng apart, entered nto an agreement wheren provson was
made for the wfe s support. It contaned the condton that f the partes
were st marred a year ater, the contract shoud no onger be bndng but f
ether shoud have obtaned a dvorce, ts provsons were to contnue n effect.
fter obtanng a dvorce n Nevada the wfe brought sut to enforce payment
under the contract. The defendant set up n defense that when the contract
was made no acton for dvorce or separaton was pendng, and that the con-
tract was contngent upon severance of the marrage and hence vod. Ths
answer was strcken and summary |udgment awarded the pantff. The |udg-
ment was affrmed wthout opnon n 239 N. Y. pp. Dv., 912, two |udges
dssentng on the ground that Schey v. ndrews, supra, requred reversa of
the |udgment and dsmssa of the compant. Despte the dssent, the court of
appeas affrmed wthout opnon. In the case at bar the agreement rected
that the spouses were aready separated and the wfe was about to nsttute an
acton for dvorce. We shoud hestate to hod, n the absence of controng
authorty, that an agreement, made under such crcumstances, mtng the
dvorce acton whch the wfe ntended to brng to a specfc trbuna and to
the aegaton of a snge specfed ground and provdng for a settement of
the property and persona rghts of the partes n antcpaton of such a
dvorce contravened the pubc pocy of New York or voated secton 51 of the
domestc reatons aw. The cases do not appear to requre such a hodng.
(Compare Cark s Trustee v. osdck, 118 N. Y., 7 uter v. Marcus, 264 N. Y.,
519.)
urthermore, we can not accept the ta payer s assumpton that the vadty
of the contract must be determned by the aw of New York. pparenty the
agreement was made n rance, and many of Its provsons were to be performed
there. The rectaton that t was to be construed and nterpreted by the aw
of New York can not be taken as an e presson of ntenton that ts vadty
was to be governed by that aw nor woud such ntenton, f e pressed, be
controng. It can ony mean that the meanng and effect to be gven the
terms of the contract were to be governed by New York aw. The egaty of
a contract s to be determned by the aw of the pace where t s made. ( m.
L. Inst. Restatement, Confct of Laws, secton 347 . Oer Co. v. Cunard
. 8. Co., 48 . (2d), 115, 117 (C. C. . 2).) The ta payer had the burden of
provng that the defcency assessed by the Commssoner was ega. (3e-
verng v. Tayor, 293 U. S., 507, 515 Ct. D. 912, C. . I -1, 168 Wckncre v.
Renecke, 275 U. S., 101, 105 T. D. 4126, C. . II-1, 316 .) ence t devoved
upon hm to estabsh the soundness of the premses upon whch rests hs con-
cuson that the assessment was wrong that s, he had to show that by the
aw of rance the agreement was ega and vod and that the decree of
dvorce rrevocaby ended the wfe s rght to support. e made no proof what-
ever as to the rench aw. We can not take |udca notce of that aw, nor,
snce the cv aw s the bass of rench |ursprudence, can we presume that
the rench aw Is the same as our common aw, nor appy the aw of the forum.
(See Danese v. ae, 91 U. S., 13, 20 Cuba R. R. Co. v. Crosby, 222 U. S., 473
. Oer d Co. v. Cunard S. 8. Co., 48 . (2d), 115, 117 (O. C. . 2) Thompson
v. etcham. 8 ohns. (N. Y.), 189 Crashey v. Press Pub. Co., 179 N. Y., 27, 32
Leach v. Psbury, 15 N. ., 137 Mae v. Roberts, 8 sp. N. P., 163 aes,
Presumpton of oregn Law, 19 arv. L. Rev., 401.) Therefore the ta payer
has faed to prove the syogsm nvoved n hs argument. s concuson that
the subsequenty estabshed trust coud not satsfy nny obgaton of the ta -
payer to hs dvorced wfe has not been estabshed, nor has the rue of
Dougas v. Wcuts been shown to be nappcabe. The order of the oard
Is reversed.
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242
rtce 881: Income of trusts ta abe to
grantor.
-3 -8317
Ct D. 1158
INCOM T R NU CT O 1928 D CISION O COURT.
1. Income Trust Payments of Trust Income to Dvorced
Wfe Ta abe to Settor.
Where the ta payer on une 4, 1030, created an Irrevocabe
trust for the beneft of hs wfe, who was sung for dvorce, the
trust nstrument provdng for payment to the wfe durng her fe
of a certan amount a year out of the trust ncome n settement
of ther marta property rghts, and the decree of dvorce, entered
on une 5, contaned no provson as to amony or property rghts,
the trust ncome was used to dscharge the ega obgaton of the
husband and hence was ta abe to hm.
2. Decson oowed.
Dougas v. Wcuts (296 U. S., 1, Ct. D. 1041, C. . I -2, 250)
foowed.
8. Decson Reversed.
Decson of the oard of Ta ppeas (31 . T. ., 70) reversed.
Unted States Crcut Court of ppeas fob the Second Crcut.
Ouy T. cverng, Commssoner of Interna Revenue, pettoner, v. Regnad
rooks, respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas.
Swan, Crcut udge: On une 4, 1930, the respondent rooks created an
Irrevocabe trust whch provded for the payment to Mrs. rooks durng her
fe of 12,000 a year out of the trust ncome. She was then sung her hus-
band for dvorce n orda, and n that proceedng a decree of dvorce was
entered on une 5. The decree contaned no provson as to amony or
property rghts of the wfe. It s stpuated, however, that the husband and
wfe had agreed upon the trust ndenture as a settement of ther property
rghts arsng from the reatonshp of the marrage. Out of the trust
ncome for 1930 the trustee pad the dvorced wfe 6,868.67. Ths sum the
Commssoner ncuded as ta abe Income of the respondent for the year 1930,
but the oard reversed hs rung.
The oard s decson was rendered pror to the Supreme Court s opnon n
Dougas v. Wcuts (296 U. S., 1), whch the Commssoner contends s con-
cusve n hs favor. The ta payer argues that there s a dstncton between
an agreement to pay amony and an agreement for the settement of property
rghts between husband and wfe. The asserted dstncton s wthout sub-
stance on the present ssue. Whether the trust Income s used to dscharge
the husband s duty, made specfc by agreement, to support the wfe, or to
dscharge an obgaton to pay her agreed sums for a reease of rghts
n hs property can not be matera n determnng the ta abty of the hus-
band. The creaton of a trust the ncome of whch Is to be used to dscharge
any ega obgaton of the settor enabes hm to en|oy the beneft of the
ncome hence the Income s propery ta abe to hm. Compare everng v.
umcnha (296 U. S., 552), everng v. Schwetzer (296 U. S., 551), cver-
ng v. Stokes (296 U. S., 551), everng v. Co ey (297 U. S., 694), a of
whch have been recenty decded on the authorty of Dougas v. Svcuts.
Indeed, n the Dougas case tsef the trust provsons for the wfe were In
settement not ony of amony but aso of any and a dower rghts or statu-
tory nterests n the estate of the husband, and the court ponted out (at page
8) that ths dd not affect the essenta quaty of the paymeuts. On the
authorty of the cases above cted the order of the oard s reversed.
efore Manton, Swan, and Chase, Crcut udges.
March 2, 1936.
OPINION.
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1S2, rt. 902.
S CTION 182. T O P RTN RS.
rtce 902: Dstrbutve shares of partners. -52-8455
G. C. M. 17255
R NU CT O 1928.
Where a nonresdent aen member of a partnershp operatng
n the Unted States and n a foregn country devotes hs tme
soey to the foregn branch and the partnershp agreement pro-
vdes that he sha be pad a saary out of the profts of the
foregn branch, the amount of the so-caed saary s part of hs
dstrbutve share of partnershp profts and consttutes ncome
from sources wthout the Unted States to the e tent that ncome
of the foregn branch s avaabe to make such dstrbuton.
G. C. M. 13771 (C. . III-2, 220) modfed.
Ths offce as been requested to reconsder G. C. M. 13771 (C. .
III-2, 229), n whch t was hed (syabus)
n amount desgnated as saary receved by a nonresdent aen member
of a partnershp engaged n busness n the Unted States and n a foregn
country s ncome from sources party wthn and party wthout the Unted
States. The ta payer s dstrbutve share of the partnershp ncome arsng
from busness attrbutabe to the Unted States offce s sub|ect to edera
ncome ta , whe the ncome arsng from busness attrbutabe to the foregn
branch offce s ncome from sources wthout the Unted States and s not
sub|ect to edera ncome ta .
The facts are stated n G. C. M. 13771 n part as foows:
The ta payer, a nonresdent aen, s a member of a partnershp whch
carres on busness n a foregn country and n the Unted States. e s
occuped soey wth the busness of the frm n the foregn country. The ta -
payer was admtted to the partnershp n pr, 1931, and pror to that tme
had been a saared offca of the frm.
n e amnaton of the evdence n the fe reveas that when the ta -
payer was admtted as a member of the partnershp the capta he contrbuted
to the frm was reatvey sma compared to the capta contrbuted by the other
members. Inasmuch as the ta payer s sk and management warranted greater
compensaton than he woud receve measured by hs capta contrbuton, t was
agreed among the partners that he shoud draw a saary, whch was to be
charged aganst the profts of the foregn offce and was to be pad to the ta payer
regardess of the gan derved or oss sustaned from the busness of that
offce.
In the opnon of ths offce the concuson s correct as set forth n
G. C. M. 13771, supra, that the ta payer may not be treated as an
empoyee of the partnershp n the sense that he s n the servce of
another that the ta payer s so-caed saary s n fact a part of hs
dstrbutve share of the partnershp profts and that the partnershp
ncome arsng from busness attrbutabe to the foregn branch offce
s ncome from sources wthout the Unted States. owever, n vew
of the specfc provsons of the partnershp agreement that the ta -
payer s so-caed saary shoud be charged aganst the profts of the
foregn branch, t s hed that to the e tent the ncome of the foregn
branch was avaabe to make the dstrbuton n queston t shoud ue
treated as ncome from sources wthout the Unted States.
G. C. M. 13771, supra, s modfed n so far as nconsstent herewth.
erman Ophant,
Genera Counse for the Department of the Treasury.
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203, rt. 971.
244
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 203. N T INCOM O LI
INSUR NC COMP NI S.
rtce 1)71: Ta -e empt nterest and reserve
funds.
-4 -8409
Ct. D. 1175
INCOM T R NU CT OP 1028 D CISION O SUPR M COURT.
1. Deducton Lfe Insurance Company Reserve unds Re-
qured by Law Survvorshp Investment unds.
n nsurance company s assets reserved In 1029 n respect of ts
survvorshp nvestment funds, havng no reaton to fe nsurance
rsks, are not ncudbe n reserve funds requred by aw wthn
the meanng of secton 203(a)2 of the Revenue ct of 1928.
2. Decson oowed.
cverng, Commssoner, v. Intermountan Lfe Insurance Co.
(294 U. S., GSG (Ct. D. 950, C. . I -1, 339)) foowed.
3. Decson Reversed.
Decson of the Crcut Court of ppeas, Seventh Crcut (80
ed. (2d), 280), affrmng 30 . T. ., 1100, reversed.
uy T. cverng, Commssoner of Interna Revenue, pettoner, v. Inos Lfe
Insurance Co.
Mr. ustce uter devered the opnon of the Court.
In ts ncome ta return for 192 ), respondent made a deducton of 133,755.71.
The oard of Ta ppeas hed the deducton rghty taken (30 . T. ., 1160,
1102) the Crcut Court of ppeas affrmed. (80 . (2d), 2S0.) Upon pet-
toner s nsstence that the decson beow confcts wth cverng v. Insurance
Co. (294 U. S., G8f ), we granted ths wrt.
The case nvoves a constructon of a cause of secton 203(a)2, Revenue ct
of 1928 (45 Stat., 842), whch dechres that, n case of a fe nsurance company,
net ncome means gross Income ess, among other permssbe deductons, an
amount equa to 4 per cent of the mean of the reserve funds requred by aw and
hed at the begnnng and end of the ta abe year. That provson s a reen-
actment of secton 245(a)2, Revenue ct of 1921, whch n cverng v. Insur-
ance Co. we hed not to appy to assets reserved by a fe nsurance company
aganst matured, unsurrendered and unpad coupons attached to ts poces.
That decson rests upon the ground that the reserves n respect of the coupon
abty were not essentay nsurance reserves whch aone consttute the base
on whch deducton s computed. The queston now for decson s whether
respondent s assets reserved n 1929 n respect of ts survvorshp Investment
funds are ncuded n that base.
The reserves n queston convenenty may be descrbed by reference to a
typca pocy. ppcabe to age 35, t contans the company s agreement, upon
death of the nsured, to pay 10,000 to the benefcary the annua premum s
379.90, payabe for 20 years. The company aso agrees that, out of each year s
premum after the frst, G4.G0 w be paced n the survvorshp Investment
Supreme Court of the Unted States.
Ou wrt of certorar to the Unted States Crcut Court of ppeas
for the Seventh Crcut.
November 9, 193G.
OPINION.
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245
272, rt. 1171.
fund appcabe to poces on the survvorshp nvestment pan ssued In the
same caendar year that no deducton sha be made from the fund that a
contrbutons to t sha be accumuated at three and a haf per cent compound
nterest that, f the nsured sha survve the twenteth annversary of the
pocy, the company w apporton to the pocy as a survvorshp nvestment a
sum bearng the same proporton to the tota n the fund as the contrbutons
from premums pad on that pocy bear to the aggregate contrbutons from
premums pad on a poces n the same cass n force at the end of 20 years.
Thus, the entre fund s dvded among the persstent survvng contrbutors.
The pocy provdes for optona settements at the end of 20 years: ( ) The
nsured may contnue the pocy as one fuy pad up and n addton receve
ether cash payment of the survvorshp nvestment apportoned to t or, f then
nsurabe, a fuy pad-up fe nsurance pocy for such amount as woud be
purchased by the survvorshp nvestment. ( ) The nsured may surrender the
pocy and receve payment of the cash vaue, 6,100, and n addton the
survvorshp nvestment.
The mean of pettoner s abtes n respect of the survvorshp nvestment
funds at the begnnng and end of 1029 was 3,343,982.67, 4 per cent of whch s
the tem n controversy.
The phrase requred by aw ncudes ony reserves that drecty pertan to
fe nsurance. Other reserves, even though requred by State statutes regua-
tory of the busness authorzed to be carred on by fe nsurance companes, are
not Incuded. Under these poces the company s abtes on account of the
nvestment funds are ndependent of those attrbutabe to fe nsurance rsks.
The rght to partcpate n the nvestment funds s not dependent upon death of
the nsured. The company s abty s the tota of contrbutons to the fund
pus the nterest agreed to be pad. It s bound to dscharge ths abty at
the end of 20 years. Its fe nsurance abty arses upon the death of the
nsured. scertanment of the reserves attrbutabe to that abty nvoves
consderaton of the amount contrbuted to them out of premums pus nterest
for a perod estmated on the bass of mortaty.1 The survvorshp nvestment
fund feature of these poces has no reaton to fe nsurance rsks. Under
our decson In everng v. Insurance Co., supra, reserves n respect of that
feature are not covered.
Reversed.
SUPPL M NT L. SS SSM NT ND COLL CTION O D ICI NCI S.
S CTION 272. PROC DUR IN G N R L.
rtce 1171: ssessment of a defcency.
R NU CT O 192S.
Petton fed on nnety-second day. (See Ct. D. 1145, page 172.)
The aws of Inos, under whch respondent was organzed, decares: vauatons
made by t the department of trade and commerce or by Its authorty sha be made
npon the net premum bass. The ega mnmum standard for vauaton of con-
tracts sha be the mercan perence Tabe of Mortaty wth nterest at
3 per centum per annum. (Cabn s Inos Revsed Statutes (101 ). ch. 73, paragraph
331.)
It s aso decared : that f any company sha ssue any nonpartcpatng
pocy under the terms of whch any stpuated part of premums receved s to be paced
n a separate fund for subsequent apportonment, such company sha furnsh the depart-
ment of trade and commerce each year a statement concernng the fund so
provded for and the amount of sad fund at the end of the year whch sha be
carred as a dstnct and separate reserve abty of the company for the beneft of
the casses of poces from the premum payments on whch the sum was accumuated.
No part of sad fund pror to the tme of dstrbuton stpuated n the contract sha be
consdered n determnng the oan and cash and other surrender vaues provded for by
ths act. No such pocy sha be Issued whch by Its terms sha provde that
more than 25 per cent of the annua premum sha be paced n such fund.
(Idem, paragraph 375, secton 5-c.)
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701, rt. 1312. 246
TITL . G N R L PRO ISIONS.
S CTION 701. D INITIONS.
btce 1312: ssocaton. -2 -8186
Ct. D. 1138
INCOM T R NU CT O 1028 D CISION O COURT.
1. Trust Ta abe as ssocaton Composte und Sep-
abate ntty.
composte fund estabshed by a bankng corporaton, for
the purpose of nvestng sma amounts for nvestors wth mted
capta, under a decaraton of trust provdng that the bank woud
dever to tsef, as trustee, trust funds to be deposted n the com-
poste fund for nvestment, and that the trustee shoud have fu
power to nvest and renvest the money so deposted, was ta abe
as an assocaton, where, pursuant to such authorty, the securtes
of the fund were actvey traded n and separate and ndependent
accounts were kept for the fund. The fact that there was but one
trustee does not precude the fndng that an assocaton e sted
between the nvestors and ther trustee, or among the nvestors
aone. The fund was a separate entty and remaned a separate
entty for ta purposes.
2. Res udcata.
The decson of a dstrct court nvovng recovery from the
coector of a stamp ta pad on certfcates of ownershp ssued
by the composte fund s not res |udcata aganst the Commssoner
n proceedngs aganst the bank, as trustee of the fund, for pay-
ment of an ncome ta defcency.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (31 . T. ., 1070) affrmed.
4. Certorar Dened.
Petton for certorar dened pr 13, 1036.
Unted States Crcut Court of ppeas for the Second Crcut.
Irookyn Trust Co., as Trustee Under Its Decaraton of Trust bearng date
pr 22, 29, pettoner, v. Commssoner of Interna Revenue, respondent.
On petton to revew a decson of the Unted States oard of Ta ppeas sustanng
the Commssoner s determnaton of a defcency n the ta payer s return for 1030.
The ta payer appeas. Decson affrmed.
efore Manton, ugustus N. and, and Chase, Crcut udges.
anuary 0, 1936.
OPINION.
Manton, Crcut udge: The rookyn Trust Co., a bankng corporaton under
the aws of the State of New York, as trustee, conducts a arge trust busness
Invovng the handng of a forms of trust estates. In pr, 1929, t hed
trust funds n e cess of 2o0,000,0 )0 and these were nvested separatey. Trusts
of ess than 20,000 or 25,000 coud not be handed proftaby and were gen-
eray not accepted by the bank. To permt these funds to be commnged and
to afford those wth mted capta a trust medum by whch sma sums coud
be e perty nvested n dversfed securtes wthout deay or undue e pense
and under condtons whch woud permt a ready qudaton of the nvestment,
by a decaraton of trust dated pr 22, 1929, the Trust company created a
Composte fund, Seres , under whch t was provded that the bank woud
receve from Itsef In ts capacty as trustee of persona trusts, trust funds
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247
701, rt. 1312.
to be deposted n ths composte fund for nvestment. The decaraton of trust
so e ecuted was approved by the New York State superntendent of banks. It
provded that the fund shoud consst of such moneys as the bank, actng n
ts fducary capacty and wth e press authorty so to do, shoud depost wth
tsef for nvestment and renvestment or such other dsposton as the decara-
ton provded. The fund was to be dvded Into unts of a face vaue of 100
each n such number as the bank shoud determne. rtce 3 of the decaraton
provded that the bank shoud dever to tsef as trustee of the partcuar
trust whose funds had been deposted, a certfcate of ownershp statng the
number of unts of the fund secured by each depost. These certfcates were
made assgnabe to other trusts of the bank and were redeemabe n cash at
the opton of the bank or the hoder. method of computng the net vaue of
the fund and the certfcates was set forth. y another provson, at the ast
day of every busness month, the ncome of the fund was to be dvded by the
number of unts consttutng the fund on that day and a proportonate part
of the ncome was to be credted to each unt and pad over to the certfcate
hoders when coected. The bank reserved the rght to dstrbute capta
gans. The bank had no fnanca nterest n the composte fund and receved no
compensaton for managng t. It receved, however, commssons for actng
as trustee under each persona trust. It had the power to nvest and renvest
a sums of money deposted wth the composte fund makng nvestments n
ts soe dscreton ncudng common stocks and commerca paper, rrespectve
of whether or not such nvestments are provded by aw for nvestment of trust
funds t coud vote a stock hed In the composte fund, or s-sue pro es
to vote such stock or to e ercse any other powers n respect to such stock
or other securtes hed by the fund. It reserved the rght to hod nvestments
of the composte fund In ts own name, or n the e ercse of ts dscreton, n
the name of a copartnershp as ts nomnee and to engage the servces of
brokers and others not n ts empoy and defray from the composte fund ther
reasonabe charges and dsbursements. fter e ecuton of the decaraton,
any funds of whch the bank was trustee mght be nvested n the composte
fund and commnged wth the funds of other trusts when so authorzed n
the specfc trust agreements, but woud not be so nvested n the absence o au
agreement between the settor and the bank n ts capacty as hs trustee.
Purchases and saes of securtes on behaf of the composte fund were made
n the name of the rookyn Trust Co., Trust Department. but separate and
ndependent accounts were kept for the composte fund. Statements showng
the nvestments and the status of the fund were stnt out eac month on behaf
of every trust, the funds of whch were nvested n the composte fund. In
an advertsng pamphet the bank stated that the composte fund on ugust
31, 1031, comprsed 102 separate securtes e cusve of frst mortgages on ren
estate, ncudng 25 bonds, 32 preferred stocks, and 45 common stocks, and that
the vaue of the composte fund on that day was 12,135,278 that there were
143,311 unts then outstandng. Meetngs were hed once or twce a week as
requred by a commttee of the bank s offcers and drectors, who drected the
nvestment and management of the composte fund. The securtes seected
for purchase were of the nvestment type and not of a specuatve character.
The record shows that n 1929 the fund made 359 purchases at a cost of
6,017,448.51 and 16 saes at a prce of 318,035.87 n 1930, the fund made
341 purchases at a cost of 8,569,343.31 and 107 saes at a prce of 2,853,703.91.
In 1929 and 1930 the record shows there were 40 nstances where stocks were
sod wthn two months of ther purchase. These fgures ndcate that the
fund was actvey managed for nvestment to the best advantage n a change-
abe market.
The bank fed fducary returns n whch t reported the operatons of the
composte fund. The Commssoner rued. uy 20, 1932, that the fund woud
be ta ed as an assocaton. In uy, 1932, the coector of nterna revenue
demanded a stamp ta of 8,752.55 on the certfcate of ownershp ssued by the
fund on the theory that they partook of the nature of corporate shares. The
bank pad ths stamp ta and sued successfuy for ts recovery. ( rookyn
Trust Co. v. Corwn, 5 ed. Supp., 287.) In March, 1932, the Commssoner
asserted a defcency n Income ta es of 23,481.05, for the year 1930, aganst
the bank as trustee of the composte fund, basns t upon the theory that ths
was an assocaton wthn secton 701 (a)2 of the Revenue ct of 192S (26
U. S. C. ., 1696) and Treasury fruatons 74, artces 1312, 1314.
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701, rt. 1312.
248
The Supreme Court, on December 16, 1935, defned an assocaton wthn
the ta ng ct n a seres of four cases T. . Morrssey et a, Trustees, v. Com-
mssoner of Interna Revenue LCt. D. 1004, C. . 1, 204 Swanson v.
Commssoner Ct. D. 1065, C. . -1, 270 everng v. Combs Ct. D. 1066,
0. . -1, 272 and everng v. Coeman- bert ssocates Ct. D. 1067,
C. . -1, 261 . The Court sad n the Morrssey case:
ssocaton Impes assocates. It mpes the enterng Into a |ont enter-
prse, and, as the appcabe reguaton Imports, an enterprse for the transac-
ton of busness. Ths Is not the characterstc of an ordnary trust whether
created by w, deed, or decaraton by whch partcuar property Is conveyed
to a trustee or s to be hed by the settor, on specfed trusts, for the beneft
of named or descrbed persons. ut the nature and purpose of the
cooperatve undertakng w dfferentate t from an ordnary trust In what
are caed busness trusts, the ob|ect Is not to hod and conserve partcuar
property, wth ncdenta powers, as In the tradtona type of trusts, but to
provde a medum for the conduct of a busness and sharng Its gans.
In tteson v. nderson (67 ed. (2d), 323 (C. C. . 2) Ct. D. 816, C. R
III-1, 419 ), we hed that the determnaton of the queston of whether an
enterprse nomnay a trust was an assocaton turned on the degree of the
trustees actvty n the conduct of a busness, and not on the forma resembance
to a corporate set-up. We sad that when the trustee of an estate consstng
of securtes engages n consderabe busness actvty and s tradng those
securtes and oans and Invests the proceeds so that he s In reaty conductng
an nvestment busness for profts, then the estate s n busness and s ta abe
as an assocaton. Whe the facts of the Instant case are not qute as strong
as In the Itteson case, n the character of the busness done, they are substan-
tay the same so far as the busness actvty of the trustee Is concerned, as
those whch moved the court to hod the trustee engaged In busness and the
ncome ta abe as that of an ssocaton, In Investment Trust of Mutua
Investment Co. v. Commssoner (27 . T. ., 1322 affrmed wthout opnon
by ths court, 71 ed. (2d), 1009).
These cases support the reguatons by whch the Treasury Department has
sought to draw the ne between trusts and assocatons on the character of the
actvty of the trustees and whether the trust was set up for the purpose of
carryng on a busness. (Treasury Reguatons 74, artces 1312, 1314.) ere,
the trustees of the composte fund were, pursuant to the purpose of the trust,
carryng on the busness of nvestment. They were not, to appy the recenty
pronounced test of the Supreme Court, hodng and preservng partcuar prop-
erty, wth ncdenta powers, but were conductng a ve Investment busness
and sharng Its gans. See Scars Roebuck d Co. mpoyees Savngs, etc, v.
Commssoner (45 ed. (2d), 506, 508 (C. C. . 7, 1930)), where the court, n
hodng a devce an assocaton sad:
owever Invested, the Investment of the fund was not merey a matter of
a cerk wrtng or teephonng a broker to buy a desred number of shares, but
what, how much, and when to buy were thngs that had to be determned, not
as a matter of guesswork, but by those who understood market condtons, the
company s busness condtons, and who had an Integent vew of the busness
future.
The arge nvestment here n the varous types of securtes requred actve
management To keep such a fund nvested n securtes to the best advantage
was to engage n busness n the fuest sense. In Staney Securtes Co. v.
Unted States (38 ed. (2d), 307, Ct Cams, 1930, certorar dened, 282 U. S.,
845), a corporaton dong much ess n the management of stock Investments
was hed to be dong busness and ta abe for the e ercse of the prvege
The fact that there s but one trustee does not precude the fndng that an
assocaton e sts between the nvestors and ther trustee, or among the n-
vestors aone. (See Itteson v. nderson, supra, at page 324 Page v. McLaugh-
n, 7 ed. Sup., 75, 77 ( . D. Pa.) cf. Iecht v. Maey, 265 U. S., 144, 160, 161
T. D. 3595, C. . I-1, 4S9 .) Thus ths fund was propery ta abe as an
assocaton.
Moreover, the composte fund s separabe from the ndvdua trust estates
from whch the money nvested n the fund came. If an Indvdua desred to
become a partcpant n the fund, nstead of buyng a number of unts drecty,
he woud have to pay hs money to the rookyn Trust Co. and sgn a short
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249
701, rt. 1312.
form of trust agreement Ths merey authorzed the trustee to Invest In the
composte fund. Ths forma Interposton of the composte trustee n the roe
of an ndvdua trustee can not avod the ta here. The record does not show
how much of the composte fund came from these short form trusts. It does
gve evdence that the company socted nvestments of ths type. ven the
so-caed strct trusts were merey the sources from whch money for the com-
poste trust came. Ths was a separate entty, set up by the decaraton of
pr 22, 1929, and remans a separate entty for ta purposes.
The decson of the dstrct court n rookyn Trust Co. v. Corwn (5 ed.
Supp., 287), Invovng a recovery of the stamp ta from the coector, s not
res a t|udcata aganst the Commssoner here. (. ankers Pocahontas Coa Oo.
v. urnet, 287 U. S., 308 Ct D. 618, C. . II-1, 272 Tat v. Western Mary-
and Raway Co., 289 U. S., 620 Ct D. 6S3, C. . II-1, 351 .)
Decson affrmed.
121397 37-
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201, rt. 1542. 250
INCOM T RULINGS. P RT I .
R NU CT O 1926 ND PRIOR CTS.
TITL IL INCOM T .
P RT I. G N R L PRO ISIONS.
S CTION 201. DISTRI UTIONS Y CORPOR TIONS.
rtce 1542: Source of dstrbuton. -28-8174
Ct. D. 113C
INCOM T R NU CT O 1926 D CISION O COURT.
1. Dvdends Source of Dstrbuton odng and Subsdary Cor-
poratons Nonta abe Reorganzaton Deducton Payments
Made as Surety.
hodng company In 1026 made a dstrbuton to stockhoders, one
of whom was the ta payer, out of dvdends receved n 1924 from a
subsdary company organzed n a pror year to take over the busness
of ve operatng water companes owned by the hodng company, the
transfer of the stock of the predecessor companes n e change for a
the stock of the new company consttutng a nonta abe reorganzaton.
There beng avaabe to the subsdary for dstrbuton part of the prce
receved on sae of one of the water systems and the combned earn-
ngs of tsef and ts predecessors accumuated after ebruary 2S. 1913,
n e tess of the amount actuay dstrbuted, the amount receved by
the ta payer n 1026 was not a return of capta, but a ta abe dvdend,
under the provsons of secton 201 (a) and (b) of the Revenue ct of
1926 and the appcabe reguatons, athough the hodng company
advsed ts stockhoders that a certan percentage of the dvdends pad
woud be taken from surpus accumuated pror to March 1, 1913. In
determnng the amount avaabe for dstrbuton, no deducton can be
aowed for amounts pad by the hodng company n dscharge of ts
obgaton as surety tor another company, where the payments were
charged to the atter as a debt and had never been charged off as
worthess.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 704) affrmed.
Untes States Crcut Court of ppeas for the Second Crcut.
George . aker, r., ecutor of the state of George . aker, Sr., pettoner,
v. Comm soner of Interna Revenue, respondent.
Petton to revew the decson of the oard of Tu ppeas redetermnng a defcency
In Income ta es for the year 19- 8. ffrmed.
efore Manton, L. and, and Chase, Crcut udges.
anuary 6, 1936.
OfN ION.
Chase, Crcut udge: The pettoner s the e ecutor of the estate of George
. aker, Sr., a former resdent of the cty of New York who ded May 2,
1931. The controversy reates to the ncome ta es of the decedent for the
ta abe year 1926. e w be referred to as the ta payer.
In that year e owned 5,000 shares of the capta stock of the New ersey
Genera Securty Co. whch he had acqured n 1894 at a prce whch was not
ess than the March 1, 1913, vaue of the stock. In 1926 the corporaton bad
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251
201, rt. 1542.
outstandng 19,785 shares, ncudng those owned by Mr. aker, and n tat
year dstrbuted to ts stockhoders 2,631,804, of whch the ta payer receved
665,000. Of ths amount, he receved 505,000 on pr 1, 1920, beng 275,000
n cash and bonds of the Passac Consodated Water Co. then worth 320,000.
Wth the recept of ths pr 1, 1926, dstrbuton he was notfed by the Secu-
rty company that t had been advsed that about 38.902 per cent of t woud be
taken from surpus accumuated n the proft and oss account of the company
before March 1, 1913. The ta payer reported n hs return for 1926 a of the
dstrbuton e had receved n that year from the Securty company e cept
231,466.90 whch was the 38.902 per cent of t whch he treated as a return
of capta. The addton of ths amount to hs ta abe ncome created the
defcency.
The ssue s whether the 1928 dstrbutons to the ta payer were correcty
treated by the Commssoner and the oard of Ta ppeas as a made from
earnngs and profts of the Securty company accumuated snce ebruary 28,
1913, and therefore ncome ta abe to the recpent n vew of the facts about
to be stated and the provsons of secton 201(a) (b) of the Revenue ct of
1928 suppemented by Treasury Reguatons 69, artces 1541 and 1542, promu-
gated thereunder and prnted n the margn.1
rom December 31, 1900, to October 31, 1923, the Securty company owned
a of the stock of the Montcar Water Co., cquackanonk Water Co., ast
ersey Water Co., Passac Water Co., and earney Water Co. On the
ast mentoned date, t caused the Passac Consodated Water Co. to be
organzed to whch t transferred a of the stock of the fve companes n
return for a of the stock of the Consodated company whch then took over
a of the assets and assumed a of the abtes of the fve companes. Ths
was a nonta abe reorganzaton made for the purpose of factatng the sae
of the water systems to the communtes whch they served. rom as eary as
1919 such a sae had been a probabty. Late n 1923 the Montcar system
was sod.
On March 11, 1924, the Consodated company receved from the town of
Montcar as part of the purchase prce of the water dstrbuton system of
Montcar Water Co. bought pursuant to prevous negotatons, 1,200,000
n cash and on March 13, 1924, used t to purchase a ke amount of Unted
States Treasury certfcates whch It hed unt November 18, 1924, when t
devered them to the Securty company, ts soe stockhoder, pursuant to a
resouton provdng for the dstrbuton of the town of Montcar payment as a
dvdend. It s undsputed that on December 31, 1923, the Consodated had
undstrbuted earnngs and profts of the fve companes t took over whch
had been accumuated snce ebruary 28, 1913, whch aggregated 1,142,231.05.
It aso had earnngs of Its own amountng to 05,446.02 makng a tota of
1,207,677.67. Its ad|usted net oss from anuary 1 to une 11, 1924, was
49,219.39, eavng t wth 1,158,458.28 of post ebruary 28, 1913, profts
avaabe for dstrbuton on the atter date. It dd on une 11, 1924, dstrbute
140,000 to ts soe stockhoder as a dvdend foowed that on November 18,
1924, by the dstrbuton of the 1,200,000 n Unted States Treasury certf-
cates and on December 23, 1924, by 140,000 n addton makng a tota ds-
1 Sec. 201. (a) The term dvdend -when used In ths tte (e cept In paragraph (9)
of subdvson (a) of secton 234 and paragraph (4) of subdvson (a) of secton 243)
means any dstrbuton mado by a corporaton to Its sharehoders, whether In money or n
other property, out of Its earnngs or profts accumuated after ebruary 28, 1918,
(b) or the purposes of ths ct every dstrbuton Is made out of earnngs or profts
to the e tent thereof, and from the most recenty accumuated earnngs or profts. ny
earnngs or profts accumuated, or ncrease In vaue of property accrued, before March 1.
11 3, may be dstrbuted e empt from ta , after the earnngs and profts accumuated
after ebruary 28, 1913, have been dstrbuted, but any such ta -free dstrbuton sha
be apped aganst and reduce the bass of the stock provded In secton 204.

Treasury Reguatons 09, promugated under the Uovenue ct of 1920:
rt. 1541. Dvdends. Dvdends for the purpose of Tte II comprse any dstrbuton
In the ordnary course of busness, even though e traordnary n amount, mado by a
domestc or foregn corporaton to ts sharehoders out of ts earnngs or profts ac-
cumuated snce ebruary 28, 1913. though Interest on State bonds and certan other
obgatons Is not ta abe when receved by a corporaton, upon amagamaton wth the
other funds of the corporaton such ncome oses ts dentty and when dstrbuted to
sharehoders n dvdends s ta abe to the same e tent as other dvdends.

rt. 1542. Source of dttrbuton. or the purpose of ncome ta aton every dstrbu-
ton made by corporaton s made out of earnngs or profts to the e tent thereof and
from the most recenty accumuated earnngs or profts.
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201, rt. 1542.
252
trbuton to the Securty company of 1,480,000 In 1924. Of ths amount 1,158,-
458.28 computed as above was treated by the oard as havng been from
earnngs and profts accumuated snce ebruary 28, 1913.
The respondent s computaton shows that at the begnnng of 1926 the
Securty company had earnngs and profts accumuated snce ebruary 28,
1913, to the amount of 2,594,973.44. The pettoner agrees e cept as to the
above 1,158,458.28 whch s ncuded n t and as to 384,223.26 whch he
cams shoud be deducted as a oss sustaned by the Securty company n
performng a surety agreement.
The camed deductons whch were dsaowed n computng the earnngs and
profts of the Securty company snce ebruary 28, 1913, were based upon
payments made by t durng 1923, 1924, 1925, and 1926 to dscharge ts ob-
gaton as surety for the ersey Cty Water Suppy Co. whch had been organ-
zed to bud, and had but, a water system for the cty of ersey Cty. It
competed that n 1911 and then ts capta stock was reduced to a 1 vaue by
returnng 99 per share to Its stockhoders. The Securty company owned about
77 per cent of ts capta stock from 1913 to 1926, a perod durng whch
varous damage suts were brought aganst the Suppy company. On ebruary
28, 1913, the Suppy company pad the Securty company 115,000 n cash In
consderaton for ts agreement to become surety for the Suppy company for
the payment of damage cams and further agreed that the Securty company
shoud have recourse upon the Suppy company to ndemnfy t for the pay-
ments t mght have to make to dscharge ts obgaton as surety. Durng
the years above mentoned the Securty company pad 384,223.26 as such
surety and charged the payments on ts books as a debt aganst the Suppy-
company. In 1927 these advances were pad by the Suppy company out of a
udgment t recovered n a sut whch had been pendng aganst the cty of
ersey Cty snce 1911. The Suppy company had no other assets out of
whch the Securty company coud have coected ts payments when they were
charged on ts books and the recovery of any |udgment was then doubtfu but
the fact remans that no part of the debt so set up was found to be worthess
and charged off n any of the years for whch t s now camed that deducton
shoud be aowed.
If It was correct to ncude these two amounts n the post ebruary 28, 1913,
earnngs and profts of the Securty company avaabe for dstrbuton n
1926, they were suffcent to pay a of the dvdends receved by ts stock-
hoders, ncudng the ta payer, n that year.
Whether the dstrbuton made by Consodated to Securty In 1924 was cor-
recty determned to have been out of ta abe earnngs to the e tent of 1,158,-
458.28 depends upon whether It was bound to dstrbute such earnngs be-
fore t coud make any ta -free dstrbuton. It had not n fact earned a of
ths amount tsef but the combned ta abe earnngs of tsef and of the
fve predecessor companes made up that amount. s the takng over of those
fve companes by Consodated was a nonta abe reorganzaton ther earnngs
had the same ta abe status after the reorganzaton as before. They became
the post ebruary 28, 1913, earnngs and profts of Consodated so far as ta a-
ton Is concerned. (Commssoner v. Sansonw, 60 ed. (2d), 931 (C. C. . 2)
Ct. D. 607, C. . I-2, 175 Unted States v. auffman, 62 ed. (2d),
1045.) Ths beng so, there was avaabe to Consodated for dstrbuton
to ts soe stockhoder, Securty, when t made the dstrbuton of 1,200,000
on November 18, 1924, earnngs and profts to the amount of 1,158,458.28
whch mght have been so used. The dstrbuton, therefore, fas squarey
wthn the provsons of secton 201(a) (b) of the 1926 ct and artce 1542
of Treasury Reguatons 09 and became to the e tent of 1,158,458.28 a ta abe
dvdend to Securty whch augmented ts post ebruary 28, 1913, earnngs and
profts avaabe n 1926 for dstrbuton to ts own stockhoders.
The argument of the pettoner to the effect that the oard erred n fang
to fnd that the sae of the Montcar system was part of a genera pan
to se a the propertes of the fve companes whch went nto Consodated
makng the dstrbuton a nonta abe dvdend In parta qudaton Is notced
ony to pont out ts mmateraty. Whether t was a dvdend n parta
qudaton or not does not ater the fact that Consodated had the 1,158,458.28
of earnngs and profts accumuated snce ebruary 28, 1913, when It ds-
trbuted that amount and more and t s but the 1,158,458.28 wth whch
we are concerned. We hod ony that t coud not dstrbute the Montcar
payment ta -free unt t had dstrbuted Its avaabe ta abe earnngs and
profts.
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201, rt. 1548.
Nor was t error to make up those earnngs and profts by ncudng theren
the 384,223.26 camed as a deducton. Those payments were a made under
an agreement whch bound the Suppy company to repay them to the Securty
company and they were so made and charged to the Suppy company. They
were not deductbe e penses because they were advances on credt. ( end-
nnng McLesh d Co. v. Commssoner, 61 ed. (2d), 950 Ct. D. 681, C. .
II-1, 279 Isand Petroeum Co. v. Commssoner, 57 ed. (2d), 992.) fter
beng charged as debts they woud not be deductbe unt charged off as worth-
ess a thng never done. ccordngy the Securty had prevous earnngs and
profts avaabe n 1926 for dstrbuton whch It had accumuated snce ebru-
ary 28, 1913, amountng to 2,594,973.44. In that year It had earnngs and profts
of 555,790.98 makng n a 3,150,764.42 of ta abe earnngs and profts ava-
abe for dstrbuton n that year. s t dstrbuted ony 2,631,804 In 1926 a
the dvdends the ta payer receved coud have been pad from earnngs and
profts accumuated snce ebruary 28, 1913, and were ta abe dvdends
when receved by hm under secton 201(a) (b) and the appcabe reguatons
noted above.
The errors camed n permttng cross-e amnaton to e tend beyond the
mts of the drect and the recepton of evdence sub|ect to moton to strke
whch was made and dened woud not affect any of hs substanta rghts
even f the pettoner were techncay correct n hs crtcsm of what was
done n that regard.
ffrmed.
rtce 1545: Dstrbutons n qudaton. -43-8361
Ct. D. 11G6
INCOM T R NU CT O 1920 D CISION O COURT.
1. Gan or Loss ass Dstrbutons by Corporaton Whether
Ordnary or Lqudatng Dvdends.
Dstrbutons made by a corporaton to ts stockhoders durng the
year n whch It was dsncorporated and competey qudated wer
not made n the ordnary course of busness, but were qudatng
dvdends consttutng fu payment n e change for a outstandng
stock, and pettoner reazed a ta abe gan. The fact that the ds-
trbutons were made n part from earnngs and profts and that
some were made before qudaton or dssouton proceedngs were
commenced Is not controng, the determnng eement beng whether
they were made wth the Intent to mantan the corporaton as a
gong concern or wth the Intent to qudate the busness.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 1092) affrmed.
Unted States Crcut Court of ppeas for the Nnth Crcut.
omby Corporaton, pettoner, v. Commssoner of Interna Revenue,
respondent.
Upon petton to revew an order of the Unted States oard of Ta ppeas.
efore Wbur, Mathews, and anky, Crcut udges.
pr 27, 1930.
OPINION.
Mathews, Crcut udge: Ths petton brngs here for revew a decson of
the oard of Ta ppeas (28 . T. ., 1092), redetermnng pettoner s n-
come ta abty for the year 1926. The facts are these:
Pettoner was the owner of 49,995 shares of the capta stock of the road-
way Department Store, a corporaton, herenafter caed roadway. The cost
bass of pettoner s roadway stock was 7,269,195. roadway was dsn-
corporated and competey qudated n 1926. It made three dstrbutons to
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201, rt. 1545.
254
Its stockhoders In that year. Pettoner receved, n the frst dstrbuton,
2,499,750 n the second, 574,025.03 n the thrd, 5,010,293.09 n a,
8,084,068.12.
It was and s pettoner s contenton that the frst and second dstrbutons
were dvdends, that the thrd was a qudaton dstrbuton, consttutng
fu payment n e change for a outstandng roadway stock, and that, there-
fore, nstead of reazng a proft from the redempton of ts roadway stock,
pettoner sustaned a oss of 2,258,901.91. The oard re|ected ths contenton
and hed that a three dstrbutons were qudaton dstrbutons, consttutng,
n the aggregate, fu payment n e change for a outstandng roadway stock,
and that, therefore, nstead of sustanng a oss from the redempton of ts
roadway stock, pettoner reazed a proft of 814,873.12, n consequence of
whch there was a defcency of 270,820.13 n ts ncome ta for 1926.
The case s governed by subdvsons (a), (b), (c), and (h) of secton 201
of the Revenue ct of 1926 (ch. 27, 44 Stat., 10, 26 U. S. C. ., 1925 edton,
secton 932). Subdvson (a) provdes: The term dvdend when used n
ths tte (Tte II)1 means any dstrbuton made by a corporaton
to ts sharehoders, whether n money or n other property, out of ts earnngs
or profts accumuated after ebruary 28, 1913.
Subdvson (b) provdes: or the purposes of ths ct every dstrbuton
s made out of earnngs or profts to the e tent thereof, and from the most
recenty accumuated earnngs or profts.
Subdvson (c) provdes: mounts dstrbuted n compete qudaton of a
corporaton sha be treated as n fu payment n e change for the stock, and
amounts dstrbuted n parta qudaton of a corporaton sha be treated as
In part or fu payment n e change for the stock. In the case of
amounts dstrbuted n parta qudaton the part of such dstrbu-
ton whch s propery chargeabe to capta account sha not be consdered a
dstrbuton of earnngs or profts wthn the meanng of subdvson (b) of ths
secton for the purpose of determnng the ta abty of subsequent dstrbu-
tons by the corporaton.
Subdvson (h) provdes: s used n ths secton the term amounts ds-
trbuted n parta qudaton means a dstrbuton by a corporaton n com-
pete canceaton or redempton of a part of ts stock, or one of a seres of
dstrbutons n compete canceaton or redempton of a or a porton of ts
stock.
The oard found, as facts, that the dstrbutons here n queston were not
made n the ordnary course of busness, that each of sad dstrbutons waa
n parta qudaton of a corporaton ( roadway), and that each was one
of a seres of dstrbutons n compete canceaton and redempton of a the
stock of sad corporaton. These fndngs are supported by substanta evdence
and are, therefore, concusve. ( urnet v. Lennger, 285 U. S., 136, 138 Phps
v. Commssoner, 283 U. S., 589, 600 Ct. D. 350, C. . -, 264 Comms-
soner v. ank of Caforna (C. C. . 9), 80 . (2d), 389, 390 Commssoner v.
drdge (C. C. . 9), 79 . (2d), 629, 630 Commssoner v. Gerard (C. C.
9), 75 . (2d), 542, 544.)
On the facts, as found, the oard s concuson that the dstrbutons In ques-
ton were not dvdends, but were dstrbutons n qudaton of a corpora-
ton, was ceary correct. The fact that the dstrbutons were caed dv-
dends and were made, n part, from earnngs and profts, and that some of
them were made before qudaton or dssouton proceedngs were commenced,
s not controng. ( cmch v. eman, 276 U. S., 233, 236 T. D. 4217, C. .
II-2, 238 Cana-Commerca Trust Savngs ank v. Commssoner (C. C.
. 5), 63 . (2d), 619, 620 Ct. D. 788, C. . III-1, 181 Oossett v. Comms-
soner (C. C. . 4), 59 . (2d), 305, 307 Toote v. Commssoner (C. C. . 8),
58 . (2d), 576, 580 Ct. D. 574, C. . I-2, 170 .) The determnng eement s
whether the dstrbutons were n the ordnary course of busness and wth
ntent to mantan the corporaton as a gong concern, or after decdng to qut
and wth ntent to qudate the busness. (Cana-Commerca Trust d Savngs
ank v. Commssoner, supra.) On that ssue, the oard s fndngs were aganst
pettoner and, beng supported by substanta evdence, are concusve.
Decson affrmed.
rtce 1541 of Reguatons 69, Revenue ct of 1926, provdes: Dvdends for the
purpose of Tte II comprse any dstrbuton In the ordnary course of busness, even
though e traordnary In amount, made by a domestc or foregn corporaton to Its share-
hoders out of ts earnngs or profts accumuated snce ebruary 28 1913.
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255
202, rt. 15G1.
S CTION 202. D T RMIN TION O MOUNT
O G IN OR LOSS.
rtce 1561: Determnaton of the amount of -40-8335
gan or oss. Ct. D. 11G0
INCOM T R NU CT O 1024 D CISION O COURT.
1. Gan ob Loss Sae of Corporate ssets Recept by Corpo-
raton of Its Own Stock as Parta Consderaton.
Where the ta payer corporaton sod a Its property and assets
n consderaton of the payment of cash and the surrender for
canceaton of a porton of the outstandng shares of ts own
capta stock, the far market vaue of the stock receved and
canceed s to be ncuded n the amount reazed from the sae,
n computng the gan therefrom under the provsons of secton
202(c) of the Revenue ct of 1924.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. ., 1194) affrmed.
Unted States Crcut Court of ppeas for the S th Crcut.
The yne-Zerk Co., pettoner, v. Commssoner of Interna Revenue, respondent.
Petton to revew an order of the Unted States oard of Ta ppeas.
efore Moorman, oks, and en, Crcut udges.
pr 16, 1936.
OPINION.
en, Crcut udge: The oard of Ta ppeas sustaned a determnaton
of ncome ta defcency for the year 1924 n the sum of 26,846.46.
The queston s whether the vaue of ts own stock, receved by a corporaton
as parta consderaton n a sae of Its assets, whch stock s canceed upon
ts recept, s to be regarded as gross ncome for the purpose of determnng
ta abe net ncome.
The matera facts are stpuated. On December 29, 1924, the pettoner
agreed to se to the assck Manufacturng Co. a of ts property and assets.
The assck company agreed, among other thngs, to pay 410,066.67 and to sur-
render to pettoner for canceaton 5,640 3 of the 12,533 outstandng shares
of pettoner s capta stock. The contract was fuy performed durng the
year 1924, and the pettoner receved and canceed the stock certfcates smu-
taneousy wth the cosng of the transacton. The pettoner fed a certfcate
of dssouton on ebruary 9, 1925. The stock surrendered s admtted to
have been worth 210,961.89, and the respondent computed gan from the sae
by addng to the cash prce of 410,066.67 the vaue of the shares, makng
tota recepts of 621,028.56, and deductng therefrom the net cost of the assets
vaued at 466,997.24.
The pettoner s man contenton s that snce the shares surrendered to t
were canceed, they were not assets In ts hands, that the beneft sustaned
accrued to the Indvdua stockhoders, and not to the corporaton, and that
hence no ta abe gan resuted, but that a oss was sustaned n the sae. If
the vaue of the stock be dsregarded, t s true that there was a oss of
56,930.57. We do not agree, however, that ts vaue shoud be dsregarded.
It s true that the vaue of the remanng shares was substantay enhanced
by the canceaton of the certfcates surrendered, and n ths sense the re-
manng sharehoders were benefted. owever, the pettoner receved the
stock as a part of the consderaton for the sae of the assets. ence the
transacton fas wthn the e act terms of secton 202(c) of the Revenue ct
of 1924 (ch. 234, 45 Stat., 253), The amount reazed from the sae or other
dsposton of property sha be the sum of any money receved pus the far
market vaue of the property (other than money) receved. s the shares
admttedy were worth 210,961.89, the aggregate recepts from the sae are
not compete uness they Incude ths vaue. So ncuded, ta abe gan was
reazed and correcty computed by the oard.
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204, rt. 1596.
256
Whe the queston s cose, we thnk the rue foowed by the oard s
sound. In genera, the queston whether acquston by a corporaton of ts
own capta stock gves rse to a ta abe gan depends upon the rea nature
of the transacton nvoved. (Commssoner v. S. . Woods Machne Co., 57
ed. (2d), 635 (C. C. . 1) Ct. D. 666, C. . II-1, 275 Commssoner v. oca
Cega Deveopment Co., 66 ed. (2d), 1004 (0. C. . 3) Ct. D. 802, C. .
III-1, 263 .) When the stock s receved n a sae under secton 202(c) of
the Revenue ct of 1924, the far market vaue of the stock must be ncuded In
the amount reazed. In the Woods Machne Co. case the corporaton receved
ts own stock n settement of a sut, and retred t. It was hed that ta abe
gan resuted. ere the pettoner receved ts own stock n part payment for
a sae of ts assets, and canceed t. What a ta payer does wth ncome re-
ceved s of no moment. (Cf. Lucas v. ar, 281 T . S., I urnet v. Lennger,
285 U. S., 136.)
The order of the oard of Ta ppeas s affrmed.
S CTION 204. SIS OR D T RMINING G IN OR
LOSS, D PL TION, ND D PR CI TION.
rtce 1596: Property acqured upon an -51-8445
e change. Ct D. 1182
ncome ta revenue acts of 1921 and 1920 decson of court.
1. Gan oe Loss ass Sae of Corporate Stock cqured n
Ta - ree change.
The bass for determnng oss on the sae n 1926 of corporate
stock acqured n 1922 n a ta -free e change was the same as for
the securtes e changed and not the 1922 vaue of the atter. y
sectons 203(b) and 204(a)6 of the Revenue ct of 1926 Congress
ntended to contnue to regard nonta abe e changes under the
Revenue ct of 1921 as they had been treated by that ct wth
respect to the bass to be used n determnng gan or oss upon the
sae or other dsposton of new stock receved upon such e change,
2. Certorar Dened.
Petton for certorar dened October 12, 1936.
Court of Cams of the Unted States.
Gertrude anderbt Whtney et a., e ecutors of the state of arry Payne
Whtney, v. The Unted States.
une 1, 1936.
opnon.
Ltteton, udge, devered the opnon of the court
The provsons of the Revenue ct of 1921, as amended by the ct of March
4, 1923, and the Revenue ct of 1926 reatng to the queston presented n ths
case are set forth n the footnote.1
1 Revenue ct of 1921, secton 202(c) : or the purposes of ths tte, on an e change
of property, rea, persona or m ed, for any other such property, no gan or oss sha
be recognzed uness the property receved In e change has a ready reazabe market
vaue but even If the property receved n e change has a ready reasabe market vaue,
no gan or oss sha be recognzed
(1) When any such prowrty hed for nvestment, or for productve use In trade or
busness (not Incudng stock-n-trade or other property hed prmary for ae), a
e changed for property of a ke knd or use
8 c. 202. (d)(1) Where property s e changed for other property and no gan or oss
Is recognzed under the provsons of subdvson (c), the property receved sha, for the
purposes of ths secton, be treated ns takng the pace of the property e changed therefor,
e -ept as provded n subdvson (e).
ct of March 4. 1988: Tat paragraph (1) of subdvson (c) of secton 202 of the
Revenue ct of 1921 Is amended, to take, effect anuary 1, 1923, to read as foows: (1)
When any such property hed for nvestment, or for productve use n trade or busness
(not ncudng stock-n-trade or other property hed prmary for sae, and In the case of
pro erty bed for nvestment not ncudng sock, bonds, notes, choses n acton, certfcates
of trust or benefca nterest, or other securtes or evdences of Indebtedness or Interest),
Is e changed for property of a ke knd or use.
Revenue ct of 1926, secton 203(a) : Upon the sae or e change of property the
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257
204, rt. 1596.
When the decedent acqured the stock of the Mammoth O Co. n 1922 he
became the owner of property whch, at that tme, was worth 1,905,913.17 more
than the cost to hm or the March 1, 1913, vaue of the stocks of the Standard
O Co. and the R. . Reynods Tobacco Co. whch he e changed therefor. ow-
ever, ths gan was not ta abe for the reason that the 1921 Revenue ct provded
that no gan or oss shoud be recognzed upon e change of property hed for
nvestment. ut ths was not a ta e empton under the 1921 ct. That pro-
vson of the 1921 ct was based upon the prncpe that nothng of substance
had happened snce the stock receved n e change smpy took the pace of the
stock e changed therefor. The bass to be used n determnng gan or oss on
the sae or dsposton of the newy acqured stock was therefore pany the
cost or the March 1, 1913, vaue of the od stock e changed therefor.
One of pantffs contentons s that the bass for the determnaton of gan
or oss on the sae or dsposton of new stock was the vaue n 1922 of the od
stock e changed therefor. Under ths contenton the decedent coud, e cept
for the provsons of secton 202(d) 1 of the 1921 ct, have sod the stock of the
Mammoth O Co. for ts then reazabe market vaue mmedatey upon com-
peton of the e change and reazed an actua cash proft of 1,905,913.17 wthout
any porton thereof beng sub|ect to ncome ta . It s cear, we thuk, that ths
woud have been contrary to the pan purpose and ntent of secton 202(c) of
the 1921 ct, even though subdvson (d)(1) thereof had not been enacted.
Subdvson (d)(1) of secton 202 pany prohbted such a resut. It provded
that Where property s e changed for other property and no gan or oss s
recognzed under the provsons of subdvson (c), the property receved sha,
for the purposes of ths secton, be treated as tacng the pace of the property
e changed therefor, e cept as provded n subdvson (e). Ths provson ony
made pan what otherwse woud have foowed n practce n e changes of ths
character, namey, that the bass of the new stock shoud be the bass of the od
stock e changed for t.
Pantffs argue that secton 204(a)6 of the Revenue ct of 1926 reates ony
to e changes whch are ta free under that ct and to e changes of the same
knd whch were ta abe under earer cts, and that n draftng secton 204(a)6
of the 1926 ct Congress overooked the fact that certan e changes theren
made ta abe had been free of ta under the ct of 1921. It s upon ths nter-
pretaton of the 1926 ct that they based ther cam for a oss n 1926 of
1,905,913.17 n e cess of ther actua oss. When Congress provded by secton
202(c) of the Revenue ct of 1921 that no gan or oss shoud be recognzed n
the case of an e change of property hed for nvestment, we thnk t s cear
that t dd not overook the fact that the property receved upon such e change
mght thereafter be sod. In order, therefore, that no permanent ta e empton
of gan mght be gven or oss dened, subdvson (d)(1) of the secton was
enacted to make t pan that the property receved shoud take the pace of the
property e changed therefor. Thus Congress provded for the utmate deter-
mnaton of gan or oss upon the bass of actua facts and we are of opnon that
ths rde was not changed by sectons 203(d) 1 and 204(a)6 of the Revenue ct
of 1926.
Secton 202(c) 1 of the 1921 ct was amended by the ct of March 4, 1923, by
whch amendment gan or oss was recognzed for ncome ta purposes upon
e changes of the character nvoved n the case at bar. Ths ct of 1923 dd
not amend secton 202(d) 1 of the 1921 ct, thereby preventng an ncrease of
bass n the case of nonta abe e changes under the Revenue ct of 1921. In
entre amount of the gan or oss, determned under secton 202, sha be recognzed, e cept
as herenafter provded n ths secton.
(b) (1) No gan or oss sha be recognzed f property hed for productve use n trade
or busness or for nvestment (not ncudng stock n trade or other property hed prmary
for sae, nor stocks, bonds, notes, chosea n acton, certfcates of trust or benefca
nterest, or other securtes or evdences of ndebtedness or nterest) s e changed soey
for property of a ke knd to be hed ether for productve use n trade or busness or for
nvestment, or f common stock n a corporaton s e changed soey for common stock n
the same corporaton, or f preferred stock n a corporaton s e changed soey for preferred
stock n the same corporaton.
Sec. 204. (a) The bass for determnng the gan or oss from the sae or other dspos-
ton of property acqured after ebruary 28, 1013, sha be the cost of such propery:
e cept that -

(C) If the property was acqured upon an e change descrbed n subdvson (b), (d).
(e), or (f) of secton 203, the bass sha be the same as n the case of the property
e changed, decreased In the amount of any money receved by the ta payer and ncreased
n the amount of gan or decreased n the amount of oss to the ta payer that was
recognzed upon such e change under the aw appcabe to the year n whch the e change
was made. .
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213(b), rt. 74.
258
ths amendment of the 1921 ct t s cear that Congress was aware of the fact
that such e changes had theretofore been nonta abe.
That porton of secton 204(a)6 of the Revenue ct of 1926 heretofore
quoted, and upon whch pantffs rey, s dentca wth secton 204(a)6 of
the Revenue ct of 1924, and we thnk t s cear that Congress dd not overook
the fact n the enactment of these two statutes n 1924 and 1926 that e changes
of property of the character here Invoved had theretofore been nonta abe.
The report of the Commttee on Ways and Means, S ty-eghth Congress, frst
sesson, wth reference to the bass for determnng gan or oss stated wth
reference to secton 204 of the Revenue ct of 1924, as foows:
(2) Paragraph (6) corresponds to secton 202(d) of the e stng aw ( ct
of 1921). The genera theory of ths secton s that where no gan or oss s
recognzed as resutng from an e change, the new property receved sha, for
purposes of determnng gan or oss from a subsequent sae and for depreca-
ton and depeton, be consdered as takng the pace of the od property gven
up n connecton wth the e change. The provsons of secton 203 of the b
that no gan or oss Is recognzed from certan e changes do not grant an
e empton and are not so Intended.
What we have tated above shows, we thnk, that Congress was aware at a
tmes that certan of the e changes of property descrbed In the statutes
subsequent to the 1921 ct and ncudng the ct of 192C were nonta abe
under the Revenue ct of 1921. The hstory of the entre egsaton on ths sub-
|ect compes the concuson that by sectons 204(a)6 and 203(b) of the
Revenue ct of 1926 Congress ntended to contnue to regard nonta abe e -
changes under the 1921 ct as they had been treated by that ct wth respect
to the bass to be used In the determnaton of gan or oss upon the sae or
dsposton of new stock receved upon such e changes.
We thnk the Commssoner was ceary rght In hs determnaton, and pan-
tffs are not entted to recover. The petton Is therefore dsmssed, and t
s so ordered.
Whaey, udge Wams, udge Gbeen, udge and ooth, Chef ustce,
concur.
P RT II. INDI IDU LS.
S CTION 213(a). GROSS INCOM D IN D:
INCLUSIONS.
rtce 52: ampes of constructve recept. -35-8267
L T. 3003
R NU CT O 1018.
Offce Decson 1081 (C. . 5, 99) s revoked, n vew of G. C. M.
1T025. (See page 155.)
S CTION 213(b). GROSS INCOM D IN D:
CLUSIONS.
rtce 74: Interest upon State obgatons. -29-8187
I. T. 2991
R NU CT O 1918.
O. D. 447 (C. . 2, 93) and O. D. 491 (C. . 2, 93) are revoked, n
vew of G. C. M. 16861. (See page 179.)
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259 240, rt. 634.
btce 88: Compensaton of State offcers and empoyees.
R NU CTS OP 1924 ND 192C.
ngneer renderng servces to muncpates. (See Ct. D. 1181,
page 233.)
P RT III. CORPOR TIONS.
S CTION 231. CONDITION L ND OT R
MPTIONS O CORPOR TIONS.
rtce 520: Soca cubs.
R NU CT O 1926.
Tenns cub occupyng part of property and rentng remander.
(See G. C. M. 16807, page 157.)
S CTION 238. CR DIT OR T S IN C S
O CORPOR TIONS.
rtce G: Credt for foregn ta es.
R NU CT O 1918.
Ta es pad to Domnon of Canada by Canadan subsdary of
domestc corporaton. (See Ct. D. 1168, page 274.)
S CTION 240. CONSOLID T D R TURNS O
CORPOR TIONS.
rtce 634: Change n ownershp durng ta - 15-8379
abe year. Ct.D.1170
INCOM ND C SS PRO ITS T R NU CT O 1917 D CISION O
COURT.
1. ffated Cobpoeatons Consodated ob Sepabate Retuens
ass op Cam fob Refund stoppe.
parent company and Its whoy owned subsdary ceased to be
affated on une 20, 1917, when the subsdary transferred a of
ts assets to the parent by a qudatng dvdend and took appro-
prate acton to dssove, and thereafter the parent became the oper-
atng company. consodated return was fed for 1917, and both
the ta payer and the Commssoner n ther subsequent deangs
treated such return as the ony one requred by aw from the parent
or the subsdary. The ta payer ater f|d a cam for refund
and supportng brefs, and nsttuted an acton n court, a based
soey upon the contenton that the amount of consodated nvested
capta for 1917 had been f ed by the Commssoner at too ow a
fgure. Under the facts and the aw, the ta payer s precuded
from now, for the frst tme, basng any part of ts cam for refund
upon the aeged rght to fe two returns for 1917.
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240, rt. 634.
260
2. ffated Corporatons Consodated or Separate Retubns
Termnaton of ffated Status Durng Caendar Year.
Where the affated status of two corporatons was termnated
on une 20, 1917, and thereafter the subsdary dssoved and the
parent contnued as the operatng company, the fng of two returns
for 1917 (a consodated return for the porton of the caendar year
pror to une 20 and a separate return for the porton subsequent
thereto) was not requred under the provsons of the Revenue ct
of 1917 and artce 634 of Reguatons 45, snce there was no perod
durng the year when the two corporatons were carryng on the
busness nuthorzed by ther respectve charters and were not
affated.
Dstrct Court op the Unted States for the Southern Dstrct of Indana,
Indanapos Dvson.
Stutz Motor Car Co. of merca, Inc., pantff, v. Unted States of merca,
defendant.
une 20, 1936.
OPINION.
atze, .: The Stutz Motor Car Co. of merca, Inc. (herenafter referred
to as the pantff), was ncorporated under the aws of New York on une
22, 1916. On the same date pantff sod to an . Ryan Co., for 1,125,000,
a of ts authorzed capta stock consstng of 75,000 shares of common stock,
no par vaue. The money receved from ths sae was used by pantff to pur-
chase a of the capta stock of the Stutz Motor Car Co. of Indana (heren-
after referred to as the Indana company), consstng of 1,000 shares of an
aggregate par vaue of 100,000 such purchase beng on the same day as the
sae of pantff s stock to Ryan Co. The Indana company was an Indana
corporaton and was engaged n the busness of manufacturng and seng auto-
mobes and parts.
The Indana company, as the whoy owned subsdary of pantff, contnued
ts manufacturng operatons unt une 20, 1917, at whch tme t ceased a
busness operatons, transferred a of ts assets to pantff by way of qudat-
ng dvdend and took approprate acton to dssove under the Indana aws.
The fna dssouton certfcate was ssued by the secretary of state of Indana
on September 14, 1917. The qudatng dvdend by whch pantff s subsdary
transferred a of ts assets to Its parent company, on une 20, 1917, resuted
n the surrender and canceaton of the entre capta stock of the Indana
company, and thereafter pantff became the operatng company. The Indana
company whoy ceased to functon on une 20, 1917, e cept to compete ts ds-
souton n accordance wth the aws of the State under whch It was Incor-
porated.
On pr 22, 1918, pantff fed wth the coector of nterna revenue at
Indanapos a consodated return for pantff and ts whoy owned subsdary,
coverng the entre caendar year of 1917. Such return was accepted by the
Commssoner of Interna Revenue, and was the ony return ever fed by pan-
tff, or ts subsdary, for that year. oth the pantff and Commssoner n
a ther subsequent deangs treated such return as beng the ony return re-
qured to be fed by pantff, or ts subsdary, under the 1917 Revenue ct,
and as the ony return upon whch pantff s 1917 Income and e cess profts
ta es shoud be computed. The return, as fed, was e amned and checked by
the fed e amner, who found and reported to the Indanapos revenue agent n
charge that the consodated Invested capta camed by pantff was greaty In
e cess of the correct amount of the consodated nvested capta upon whch
pantff s 1917 e cess proft ta aowance shoud be computed.
In an effort to estabsh the correct ta abty of pantff under Its 1917
consodated return, t subsequenty fed wth the Commssoner a number of
protests or brefs. The prmary ob|ect of such protests was to present to the
Commssoner the rght of pantff to have Its 1917 consodated Invested
capta ncreased over the amount recommended In te fed e amner s report
on the consodated return for that year. The controversy between pantff
and the Commssoner was soey as to amount of pantffs consodated n-
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261 240, rt. 634.
Tested capta for the year 1917. The Commssoner f ed the amount thereof
at 1,699,307.30, whch resuted n a substanta ncrease n the ncome and
proft ta es owng under pantff s 1917 consodated return. Upon ths bass,
an ncome and proft ta of 460,885.01 was assessed aganst pantff, whch
amount was pad, n two nstaments, vz: 380,206.93 on une 28, 1918, and
S0.678.08 on October 30, 1919.
On ebruary 9, 1924, pantff fed a cam for refund, aegng an over-
payment of 350,000 n ts ncome and proft ta es account under ts 1917 con-
sodated return. The queston presented by pantff n ts cam for refund
was as to the amount of ts consodated Invested capta. It was the contenton
of pantff, n ts cam and n ts brefs fed n support thereof, that the amount
of ts consodated nvested capta was greaty n e cess of 1,699,367.30, the
amount theretofore f ed by the Commssoner, whether computed by the usua
method provded n the 1917 Revenue ct, or under the so-caed reef pro-
vsons contaned n secton 210 of the ct In ts cam for refund the bass
therefor and the queston whch was presented for the Commssoner s dec-
son are stated by pantff as foows:
Ths cam coverng the years 1917 and 1918 s based upon a petton for
assessment under the provsons of secton 210 and 327 and 328 of the Revenue
cts of 1917 and 1918 respectvey.
The grounds on whch our petton for reef s based are specfcay set
forth n an appen fed May 7, 1923, coverng the year 1917. Ths appea was
taken from the acton of the Income Ta Unt ns shown n -2 etter dated
ebruary 9, 1923. Symbos IT: S : CR: : LST.
The appea of May 7, 1923, to whch the attenton of the Commssoner was
drected n pantff s cam for refund requested hm to rue upon the foow-
ng propostons asserted by pantff:
We respectfuy request, that the vaue of nvested capta as at date of
transfer ( une 22, 1916) be computed as foows:
Tangbe assets acqured wth cash , 500, 571. 62
Good w acqured wth cash 558,428.38
Tota cash pad 1,125,000.00
Good w purchased wth stock 37.500 shares no par vaue worth
16.48 per share ( 618,263.62/37,500) 018,263.62
1,743,263. 62
The ta payer s nformed and therefore aeges that such ta s In e cess
of that pad by other representatve concerns n the same ne of busness wth
whch ta payer s fary comparabe, and therefore pettons that hs ta for
1917 be assessed and determned under the provsons of secton 210 of the
Revenue ct of 1917 and to predcate such petton upon the foowng specfc
facts and reasons:
1st, the great dsproporton between the ta computed wthout the beneft
of ths secton and the ta computed by reference to other representatve
concerns.
2d, the faure of the books and account to dscose the ta payer s true
nvested capta.
3d, the reazaton n the ta abe year 1917 of the fruts of actvty antedatng
that ta abe perod.
The Commssoner was not requested by pantff s cam for refund, or other-
wse, to consder or rue on ether of the foowng propostons:
(1) Whether two separate returns shoud have been fed for the caendar
year 1917, to-wt, a consodated return for the perod from anuary 1 to une
20, 1917 (the date on whch pantff s subsdary ceased dong busness and
egan ts dssouton proceedngs), and a separate return for the perod from
une 20 to December 31, 1917.
(2) Whether pantff was entted to a part of the refund camed by t
upon the ground that t had the rght to separate the net ta abe Income receved
by t durng each of sad two perods and to twce deduct ts fu unnvested
capta aowance ( 203,010.20) n computng ts e cess proft ta abty for
the entre caendar year 1917 that s, by deductng the sum of 203,010.20, n
computng the e cess proft ta owng by t under ts consodated return for
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240, rt. 634.
262
the frst perod and by agan deductng the sum of 263,010.20 tn computng
the ta owng under the separate return for the second perod.
The mere fact that the Commssoner was aware, from the report of the
fed e amner, of the fact that pantff s subsdary ceased to e st for any
busness purpose on une 20, 1917, and that pantff thereafter was the operat-
ng company, dd not charge hm wth notce that he was e pected to consder
or rue upon these two propostons. The facts set forth n pantff s refund
cam, and supportng brefs, were stated for the soe purpose of cang the
attenton of the Commssoner to one aeged error ony, that s, that pantff s
consodated nvested capta for the caendar year 1917 had been f ed at too
ow a fgure. Whe t may not be necessary for a ta payer, n connecton wth
hs refund cam, to Inform the Commssoner as to the partcuar ega theory
upon whch he rees for recovery, t s necessary for the ta payer to ca the
attenton of the Commssoner to each ground or bass of recovery whch he
desres to be consdered by the Commssoner n the determnaton of whether
the ta payer s entted to a refund of a or any part of the amount whch he
s seekng to recover by hs refund cam. (Oray s, etc., Corporaton v. Unted
States, 45 . (2d), 259, 282 Tte Insurance Co. v. Goodce, Coector of Interna
Revenue, 60 . (2d), S03 Ct. D. 005, C. . I-2, 438 Red Wng Co. v. Wcuts,
Coector of Interna Revenue, 15 . (2d), 026, 634 T. D. 3980, C. . I-1, 225 .)
The varous negotatons between pantff and the Commssoner, wth reference
to pantff s 1917 ncome and proft ta abty and ts cam for refund, were
conducted under the beef that the 1917 Revenue ct requred pantff to fe
one consodated return for tsef and subsdary coverng the entre year of 1917.
cept as to mnor tems, at no tme was any consderaton gven by ether
pantff or the Commssoner to any queston other than the queston as to
whether pantff had the rght, under the 1917 Revenue ct, to have ts 1917
consodated nvested capta ncreased over the amount aowed by the
Commssoner.
The pantff dd not, n Its orgna compant, fed n ths cause on une 2,
1928, or n ts frst amended compant fed on September 20, 1928. or n Its
second amended compant fed on December 4, 1934, or at the tra of ths cause,
present for consderaton or ad|udcaton by ths court ether of the two propos-
tons above stated. The controversy between pantff and defendant reated
soey to the amount of pantffs nvested capta for the ta abe year 1917.
Upon appea, the Court of ppeas so stated n the foowng anguage:
The controversy has been the aeged fact that the Commssoner
vaued the capta nvestment too ow, etc. (Stutz Motor Car Co. of merca v.
Unted States, SO . (2), 623 (C. C. . 7).)
Under the facts and the aw, the pantff can not now, for the frst tme,
base part of ts cam for refund upon ts aeged rght to fe two separate
1917 returns, thereby separatng ts net ta abe ncome nto two dfferent
perods, and to deduct the fu amount of the nvested capta aowance n each
return, n order to reduce ts 1917 e cess profts ta abty and thus estabsh
ts rght to an addtona refund. The fng of a cam for refund, settng forth
the bass therefor, s a prerequste to any sut to recover aeged overpayment
of edera Income ta es. One of the ob|ects of such a requrement s to gve
the Commssoner an opportunty to consder and rue upon the egaty of the
bass upon whch the ta payer asserts hs rght to a refund. Ths s necessary
to an ordery admnstraton of the revenue aws. The faure of pantff to do
so n the nstant case precudes t from basng any part of ts cam for refund
upon the grounds whch t s now, for the frst tme, assertng. (Unted States
v. et f Tarrant Manufacturng Co., 283 U. S., 269 75 L. d., 1025 51 S. Ct.,
376 Ct. D. 336, C. . -, 431 Cont. ank v. Unted States, 67 . (2d), 153,
154, 155 certorar dened, 291 U. S., 663 Weagant v. owers, 57 . (2d), 679
(C. C. . 2) Ct. D. 526, C. . I-2, 237 Red Wng v. Wcuts, 15 . (2d),
626, 634, certorar dened, 273 U. S., 673 erguson v. Unted States, 2 . Supp.,
1012, 1015 Ct. D. 715, C. . II-2, 259 , certorar dened, 290 U. S., 694.)
In the case of Unted States v. et Tarrant Manufacturng Co., supra, the
Supreme Court of the Unted States hed:
Secton 1318 provdes that no sut sha be mantaned n any
court for the recovery of any Interna-revenue ta aeged to have been
Iegay coected unt a cam for refund or credt has
been duy fed wth the Commssoner of Interna Revenue, accordng to the
provsons of aw n that regard, and the reguatons of the Secretary of the
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263
240, rt. 634.
Treasury . rtce 1086, Treasury Reguatons 62, provdes that cam
for refund sha be made on orm 843 and that a the facts reed upon In
support of the cam shoud be ceary set forth under oath.
Respondent fed an appcaton under oath for reducton of Its 1917 ta
abty and for a correspondng return of ta es pad, on orm 843, whch s
desgnated a cam for refund of ta es egay coected. ut the soe ground
stated for the demanded reducton of ta was that pettoner had fed wth
the Commssoner an appcaton for speca reef from the amount of ts
e cess profts ta under secton 210 of the ct of 1917 (40 Stat. L., 307, ch. 63).
That secton provded for a speca method of assessment of e cess profts
ta es n any case where the Secretary of the Treasury s unabe satsfactory
to determne the nvested capta of the ta payer. It has no reaton to deduc-
tons from gross ncome on account of e hauston or obsoescence of patents.
In support of ts cam, whch was utmatey aowed In part, respondent pre-
pared and fed a bref, and an ora argument was hed n the offce of the
Commssoner but nether n ts cam for refund, ts bref, nor at the hearng,
was menton made of the deducton now camed.
The fng of a cam or demand as a prerequste to a sut to recover ta es
pad s a famar provson of the revenue aws, compance wth whch may be
nssted upon by the defendant, whether the coector or the Unted States.
Tucker v. e ander, 275 U. S., 228, 72 L. d., 253, 48 S. Ct., 45 T. D. 3973,
C. . I-1, 287 Maryand Casuaty Co. v. Unted States, 251 U. S., 342, 353,
354 64 L. d., 297, 304 40 S. Ct., 155 ngs County Sav. Inst. v. ar, 116
U. S., 200 29 L. d, 657 6 S. Ct., 303 Nchos v. Unted States, 7 Wa., 122,
130 19 L. d., 125, 128.)
One ob|ect of such requrements s to advse the approprate offcas of the
demand or cam ntended to be asserted, so as to nsure an ordery admnstra-
ton of the revenue (Nchos v. Unted States, supra, 7 Wa., 130, 19 L. d., 128),
a purpose not accompshed wth respect to the present demand by the bare
decaraton n respondent s cam that t was fed to protect a possbe ega
rghts of the ta payer. The cam for refund, whch secton 1318 makes
prerequste to sut, obvousy reates to the cam whch may be asserted by the
sut
See aso, Weagant v. owers, supra, wheren the court states the aw as
foows:
We may assume that the ta was pad to avod dstrant, as the
compant aeges, athough the stpuaton of facts admts ony the fact of
payment, and was egay coected. (See onvot Teer f Co. v. Unted States,
283 U. S., 258 51 S. Ct., 305 75 L. d., 1018 Ct D. 334, C. . -, 328 .) ut
grantng ths, the queston s of the pantffs rght to recover t when hs cam
for refund nether asserted as a ground that the ta was coected more than
fve years after the return was fed nor aeged facts showng ths to be the
case. Revsed Statutes, secton 3228 (28 U. S. O. ., secton 156), requres a
cam for refund to be made n accordance wth the reguatons, and these
requred that a facts reed upon shoud be ceary set forth. ( rtce 1030,
Reguatons 62 artce 1306, Reguatons 65.) The pantff fed two cams
for refund of the 1917 ta , but each reed soey upon the ground that the
dsputed tem of ncome was a gft. Nether cam dscosed the date when
the ta payer s return was fed and therefore dd not set forth a the facts
necessary to show that the ta was coected too ate. Consequenty the pont s
not now avaabe to the pantff. Connc v. opkns (43 . (2d), 773
(D. C. N. D. Te .) Ct D. 248, C. . I -2, 407 ) s squarey n pont, and cases
too numerous for compete ctaton have recognzed the prncpe that a ta payer
who brngs sut after a refund has been dened can rey for recovery ony on,
grounds presented to the Commssoner. (See Unted States v. et Tarrant
Mfg. Co., 283 U. S., 269, 272 51 S. Ct., 376 75 L. d., 1025 . P. Stevens n-
gravng Co. v. Unted States, 53 . (2d), 1 (C. C. . 5) Lews . Crossett Co. v.
Unted States, 50 . (2d), 292 (Ct. CI.) Ct. D. 373, C. . -2, 392 Tucker v.
e ander, 15 ed. (2d), 350 (C. O. . 8), reversed on another ground n 275
U. S., 228 48 S. Ct., 45 72 L. d., 253.)
The court s unabe to agree wth pantff n ts poston that t shoud have
fed two returns for the year 1917. The Indana company had no separate
e stence for any busness purpose after the termnaton of the affated status
between t and the pantff therefore, pantff had no rght to fe two 1917
returns, as now contended. (See oughton Duon Co. v. Comms oner, 20
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240, rt. 634.
. T. ., 1422 unge, etc., Corporaton v. Commssoner, 27 . T. ., ISO, 153
Sprague-Ses Corporaton v. Commssoner, 30 . T. ., 1165, 1170.)
On une 20, 1917, the Indana company went out of busness, transferred a
of ts property, assets, busness and good w to pantff by way of qudatng
dvdend and took approprate acton to dssove. Subsequent thereto t had no
nssets, transacted no busness, receved no ncome, had no outstandng corporate
stock, and had no corporate e stence e cept to compete Its dssouton n the
manner requred by the aws of the State of ts ncorporaton. Subsequent to
une 20, 1917, pantff owned a of the property, assets, busness and good w
formery owned by the Indana company, ts whoy owned subsdary, and there-
after the busness of manufacturng and seng Stutz cars whch had been the
Indana company s busness was carred on by It.
In a the deangs between pantff and the Commssoner, reatve to pan-
tff s cam for refund, t was assumed by both that pantff had correcty fed
one consodated return for the entre caendar year 1917. Ths return was
fed on pr 22, 1918. On pr 1, 1936, after the decson of the crcut court
of appeas n the case of Stutz Motor Car Co. of merca v. Unted States, supra,
pantff, for the frst tme, presented to ths court the questons: (1) whether
pantff had the rght to fe two 1917 returns (a consodated return for the
perod from anuary 1 to une 20, 1917, and a separate return for the perod
from une 20 to December 31, 1917), and (2) whether pantff coud Increase
the amount of ts refund by deductng the fu amount of ts nvested capta
aowance n each return.
The court has heretofore n ths memorandum concuded that the pantff Is
precuded from assertng now, for the frst tme, the rght to ncrease ts refund
upon such grounds, and f t be not so precuded, the queston yet remans
whether the 1917 Revenue ct and reguatons requred the fng of two returns.
Reguatons 45, artce 634, provde n substance that where two corporatons are
affated at the begnnng of the ta abe year but the affated status s term-
nated durng the year on account of a change n ownershp of the stock of the
tmbsuary or a change n contro of the subsdary, then a fu dscosure of
(he crcumstances of such changes of stock ownershp or contro sha be sub-
mtted to the Commssoner and, where ony two corporatons are nvoved, a
consodated return shoud, under ordnary crcumstances, be fed to date of
change of stock ownershp or contro, and each corporaton shoud fe a separate
return from such date to the end of the ta abe perod. Where two corpora-
tons ony (a parent and a subsdary) are concerned, the ogca and reasonabe
constructon to be gven ths reguaton s that two returns shoud be fed n
those cases ony where, after termnaton of the affated status, the parent
company and ts former subsdary each contnues to e ercse one or more of
the busness powers conferred on It by ts charter thus makng It necessary
for each of the two corporatons to fe a return for the ta abe perod subsequent
to the termnaton of the affated status as woud have been requred f each
corporaton had begun busness when the affated status was termnated. In
the nstant case, after the affated status between pantff and the Indana
company was termnated on une 20, 1917, the Indana company had no e stence
for the purpose of carryng on any busness authorzed by ts charter wthn
the meanng of Reguatons 45, artce 634. There was, therefore, no perod
(urng the caendar year when pantff and the Indana company wore carryng
on the busness authorzed by ther respectve charters and were not affated.
The mere fact that the Indana company was beng dssoved n accordance
wth the Indana aws between une 20 and September 14, 1917, dd not neces-
sary change pantffs contro of the Indana company. ( urnet v. umnum
Goods Co., 2S7 U. S., 544, 54S 77 L. d., 4S4 53 S. Ct, 227 Ct. D. 631, C. .
II-1, 283 .)
In the case of Stutz Motor Car Co. of merca v. Unted States, supra, the
court sad: from the above consderatons we are convnced that the far
market vaue of the Indana Corporaton stock, at the tme t was acqured by
appeant, was 2,708,550 and It shoud have been ncuded In appeant s
nvested capta at that vauaton. avng arrved at the concuson that the
amount of the refund must be determned upon the bass of a snge consodated
return, and the court of appeas havng f ed the vaue of the Indana eompanv s
stock to be ncuded n pantffs nvested capta, t foows, therefore, that
udgment must be rendered In favor of pantff n the sum of 101,353.44, wth
nterest thereon accordng to aw.
ntry w be prepared accordngy.
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265
240, rt. 635.
rtce 635: Consodated net ncome of -47-8395
affated corporatons. Ct. D. 1173
INCOM T R NU CT O 1924 D CISION OP COURT.
1. ffated Corporatons Deductons Operatng Losses
Lqudatng Losses Doube Deducton.
Where a nonoperatng parent of an affated group, whch had
fed consodated returns durng the perod of affaton, qudated
two of ts operatng subsdares n 1925, and the members of the
group had avaed themseves of the operatng osses of these
subsdares for pror years n reducton of ther net ncome, the
parent may not deduct the qudatng osses from consodated
net ncome for 1925. snce ther aowance woud resut n a doube
deducton of the same osses.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (31 . T. ., 374) affrmed.
Unted States Crcut Court of ppeas for the Thrd Crcut.
Oref Cooperage Corporaton, pettoner, v. Commssoner of Interna Revenue,
respondent.
Upon petton for revew from the Unted States oard of Tar ppeas.
efore Davs and Thompson, Crcut udges, and ake, Dstrct udge.
uy 10, 1936.
OPINION.
Thompson, Crcut udge: Ths s a petton for revew of a decson of the
oard of Ta ppeas. The pettoner was the parent and nonoperatng com-
pany of an affaton of 23 operatng companes, among whch were the
Tuscaoosa Cooperage Co., herenafter caed Tuscaoosa, and the Sandpeeco
eneer Co., herenafter caed Sandpeeco. The pettoner acqured a of the
stock of Tuscaoosa n uy, 1920, at a cost of 113,100. It qudated that
company n 1925, receved 35,539.97 as a qudatng dvdend and charged
off 77,560.03 on ts books as a oss. In ugust, 1920, the pettoner pur-
chased a of the stock of Sandpeeco at a cost of 100,000 and qudated that
company In 1925. It charged off on ts books ts entre Investment of 100,000.
Durng the perod of affaton for whch consodated ta returns were fed,
Sandpeeco s, Tuscaoosa s and the pettoner s operatng osses and ta abe
Income were as foows:
Sandpeeco eneer Co.
Year.
Net oss.
Ta abe
Year.
Net oss.
Ta abo
ncome.
Income.
1920
16,070. 24
1924
26, 494. 40
9,317.62
1921
16,654. 96
22,114.17
1925
1922
1923
29, 832. S2
Tota
104,413.06
16, 070. 24
Tuscaoosa Cooperage Corporaton.
Year.
Net oss.
Ta abe
Income.
Year.
Net oss.
Ta abe
ncome
vao....
2,274. 73
64, 682. 54
85,167.19
,024
11,412.98
8, 112.24
::
Ira ::..::::::::::::::::
26, 223. 93
Tota
111,649.08
26, 223. 93
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257, rt. 1090. 266
Gref Cooperage Corporaton.
Year.
Net oss.
Ta abe
Income.
Year.
Net oss.
Ta abe
ncome.
1920
1924
S3,363. 33
33,782.50
1921
37,712.50
1925
1922
2,179.47
2,356.64
1923
Tota
74,858.33
4.536.11
s w be seen from the Gref Cooperage tabuaton, the pettoner had no
ta abe Income of Its own e cept for the years 1922 and 1923, and the In-
come for Ihose years was offset by the pettoner s 1921 operatng osses. The
affates, however, dd return ta abe ncome for a but the year 1921 as s
shown by the foowng tabe:
Consodated net ncome and osses (e cusve of the pettoner s nvestment
osses).
Year.
Income.
Loss.
Year.
Income.
Loss.
1920
129,973. 43
1923
603,958. 25
236,699.47
581,569.88
1921
43,952.50
1924
1922
29,837.46
1925
The members of the affated group avaed themseves of the operatng
osses of Sandpeeco and Tuscaoosa In reducton of ther net ncome. In
ts 1925 consodated ncome ta return the pettoner reduced the net ncome
by 100,000 as a qudatng oss on the Sandpeeco nvestment and 77,560.03
os a qudatng oss on the Tuscaoosa nvestment. The Commssoner ds-
aowed both deductons and determned a defcency, whch determnaton was
sustaned by the oard of Ta ppeas.
The aw s we setted that qudatng osses such as those Incurred by the
pettoner n the nstant case are not aowabe If ther aowance resuts ether
drecty or ndrecty n a doube deducton by the ta payer of the same osses.
(Ifed Co. v. ernandez, 292 U. 62 Ct. D. 819, O. . III-1, 139 Mc-
Laughn v. Lumber Co., 293 U. S., 351 Ct. D. 907, O. . I -1, 335 Com-
mssoner of Interna Rev. v. Natona Casket Co., 78 . (2d), 940 Ct. D. 1097,
C. . -1, 243 .) The pettoner argues, however, that nasmuch as It
personay had no ta abe ncome durng the perod of affaton aganst whch
the operatng osses of the two subsdares coud have been used as a deducton.
It s not askng for a doube deducton. Ths contenton Ignores the fact that
the pettoner and Its 23 affates made themseves a snge ta ng unt by
eectng to fe consodated ta returns and that ths ta ng unt through the
medum of some of the affates took advantage of the Sandpeeco and Tusca-
oosa operatng osses by a reducton of ther ta abe ncome. It s cear,
therefore, that the pettoner receved the benefts of the deducton, snce ts
own ncome was entrey dependent on the surpus whch the whoy owned
subsdares ncqured. Nether the unt nor the pettoner aone may repeat
the deducton by takng an aowance for the nvestment oss.
The decson of the oard of Ta ppeas s affrmed.
P RT I . DMINISTR TI PRO ISIONS.
S CTIO 257. R TURNS TO PU LIC R CORDS.
rtce 1090: Inspecton of returns. -29-8191
T. D. 4665
Reguatons governng the nspecton of ncome, profts and capta
stock ta returns by the Commttee on ducaton and Labor, Unted
States Senate.
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267
257, rt. 1090.
Treasury Department,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Pursuant to the provsons of secton 257(a) of the Revenue ct
of 1926 secton 55 of the Revenue ct of 1928 secton 55 of the
Revenue ct of 1932, as amended by secton 218(h) of the Natona
Industra Recovery ct secton 215(e) of the Natona Industra
Recovery ct secton 55(a) and secton 701(e) of the Revenue ct
of 1934 secton 105(e) of the Revenue ct of 1935 and secton 55(a)
of the Revenue ct of 1936, ncome, proft, and capta stock ta
returns made under the Revenue ct of 1936, the Revenue ct of
1935, the Revenue ct of 1934, the Revenue ct of 1932, as amended
by the Natona Industra Recovery ct, the Natona Industra
Recovery ct, and under the pror Revenue cts, may be nspected
by the Commttee on ducaton and Labor, Unted States Senate, or
any duy authorzed subcommttee thereof, for the purpose of, and
to the e tent necessary n the nvestgaton whch such commttee or
subcommttee s authorzed to make by Senate Resouton 266,
Seventy-fourth Congress, second sesson, passed une 6, 1936. The
nspecton of returns heren authorzed may be by such commttee or
subcommttee or by or through such e amners or agents as such
commttee or subcommttee may desgnate or appont. Upon wrtten
notce by the charman of such commttee or subcommttee to the
Secretary of the Treasury, gvng the names and addresses of the
ta payers whose returns t s necessary to nspect and the ta abe
perods covered by the returns, the Secretary and any offcer or
empoyee of the Treasury Department sha furnsh such commttee
or subcommttee wth any data reatng to or contaned n any such
return, or sha make such return avaabe for nspecton by such
commttee or subcommttee or by such e amners or agents as such
commttee or subcommmttee may desgnate or appont, n the offce
of the Commssoner of Interna Revenue. ny nformaton thus
obtaned by such commttee or subcommttee whch s reevant or
pertnent to the purpose of the nvestgaton, may be submtted by
such commttee or subcommttee to the Unted States Senate.
Wayne C. Tayor,
ctng Secretary of the Treasury.
pproved uy 9,1936.
rankn D. Roosevet,
The Whte Iouse.
( ed wth the Dvson of the edera Regster uy 10, 1936, 1.15 p. m.)
CUTI ORD R UT ORIZ TION O COMMITT ON DUC TION ND
L OR, UNIT D ST T S S N T , TO INSP CT INCOM , PRO ITS, ND
C PIT L STOC T R TURNS.
y vrtue of and pursuant to the authorty vested n me by secton
257(a) of the Revenue ct of 1926 (44 Stat., 9, 51) secton 55 of the
Revenue ct of 1928 (45 Stat., 791, 809) secton 55 of the Revenue
ct of 1932 (47 Stat., 169, 189), as amended by secton 218(h) of
the Natona Industra Recovery ct (48 Stat.. 195, 209) secton
215(e) of the Natona Industra Recovery ct (48 Stat., 195, 208)
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257, rt. 1090.
2G8
secton 55(a) and secton 701(e) of the Revenue ct of 193-4 (48
Stat., 680, 698, 770) secton 105(e) of the Revenue ct of 1935 (49
Stat., 1014, 1018) and secton 55(a) of the Revenue ct of 1936
(Pubc, No. 7-10, Seventy-fourth Congress), t s hereby ordered that
ncome, profts, and capta stock ta returns made under the Rev-
enue ct of 1936, the Revenue ct of 1935, the Revenue ct of 1934,
the Natona Industra Recovery ct, the Revenue ct of 1932, as
amended by the Natona Industra Recovery ct, and the pror
Revenue cts sha be open to nspecton by the Commttee on du-
caton and Labor, Unted States Senate, or any duy authorzed sub-
commttee thereof, whch commttee or subcommttee s authorzed
by Senate Resouton 266, Seventy-fourth Congress, second sesson,
passed uno 6, 1936, to make an nvestgaton of voatons of the
rghts of free speech and assemby and undue nterference wth the
rght of abor to organze and bargan coectvey such nspecton
to be n accordance and upon compance wth the rues and regua-
tons prescrbed by the Secretary of the Treasury n the Treasury
decson reatng to the nspecton of returns by that commttee, or
any duy authorzed subcommttee thereof, approved by me ths date.
rankn D. Roosevet.
The Whte ouse,
uy 9, 1936.
(7411)
rtce 1090: Inspecton of returns. -46-8390
T. D. 4705
Reguatons governng the Inspecton of ncome, profts, and
capta stock ta returns by the Speca Commttee to Investgate
Producton, Transportaton, and Marketng of Woo, Unted States
Senate.
Treasury Department,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerne:
Pursuant to the provsons of secton 257(a) of the Revenue ct
of 1926 secton 55 of the Revenue ct of 1928 secton 55 of the
Revenue ct of 1932, as amended by secton 218(h) of the Natona
Industra Recovery ct secton 215(e) of the Natona Industra
Recovery ct secton 55(a) and secton 701(e) of the Revenue ct
of 1931 secton 105(e) of the Revenue ct of 1935 and secton 55(a)
of the Revenue ct of 1936, ncome, profts, and capta stock ta
returns made under the Revenue ct of 1936, the Revenue ct of
1935 the Revenue ct of 1934, the Revenue ct of 1932, as amended
by the Natona Industra Recovery ct, the Natona Industra
Recovery ct, and under the pror Revenue cts, may be nspected
by the Speca Commttee to Investgate Producton, Transportaton,
and Marketng of Woo, Unted States Senate, or any duy author-
zed subcommttee thereof, for the purpose of, and to the e tent
necessary n the nvestgaton whch such commttee or subcommttee
s authorzed to make by Senate Resouton 160, Seventy-fourth Con-
gress, frst sesson, passed uy 10, 1935, and Senate Resouton 315,
Seventy-fourth Congress, second sesson, passed une 6, 1936. The
npecton of returns heren authorzed may be by such commttee
or subcommttee or by or through such e amners or agents as such
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269
257, rt. 1090.
commttee or subcommttee may desgnate or appont. Upon wrtten
notce by the charman of such commttee or subcommttee to the
Secretary of the Treasury, gvng the names and addresses of the
ta payers whose returns t s necessary to nspect and the ta abe
perods covered by the returns, the Secretary and any offcer or
empoyee of the Treasury Department sha furnsh such commttee
or subcommttee wth any data reatng to or contaned n any such
return, or sha make such return avaabe for nspecton by such
commttee or subcommttee or by such e amners or agents as such
commttee or subcommttee may desgnate or appont, n the offce
of the Commssoner of Interna Revenue.
Wayne C. Tayor,
ctng Secretary of the Treasury.
pproved November 2, 1936.
rankn D. Roosevet,
The Whte ouse.
( ed wth the Dvson of the edera Regster November 9, 1936, 12.40 p. m.)
CUTI ORD R UT ORIZING T SP CI L COMMITT TO IN STI-
G T PRODUCTION. TR NSPORT TION, ND M R TING O WOOL, UNIT D
ST T S S N T , TO INSP CT INCOM , PRO ITS, ND C PIT L STOC T
R TURNS.
y vrtue of and pursuant to the authorty vested n me by sec-
ton 257(a) of the Revenue ct of 1926 (44 Stat., 9, 51) secton
55 of the Revenue ct of 1928 (45 Stat., 791, 809) secton 55 of
the Revenue ct of 1932 (47 Stat., 169, 189), as amended by sec-
ton 218(h) of the Natona Industra Recovery ct (48 Stat., 195,
209) secton 215(e) of the Natona Industra Recovery ct (48
Stat., 195, 208): secton 55(a) and secton 701(e) of the Revenue
ct of 1934 (48 Stat., 680, 698, 770) secton 105(e) of the Revenue
ct of 1935 (49 Stat., 1014, 1018) and secton 55(a) of the Revenue
ct of 1936 (Pubc, No. 740, Seventy-fourth Congress), t s hereby
ordered that ncome, profts, and capta stock ta returns made
under the Revenue ct of 1936, the Revenue ct of 1935, the Revenue
ct of 1934, the Natona Industra Recovery ct, the Revenue ct
of 1932, as amended by the Natona Industra Recovery ct, and
the pror Revenue cts, sha be open to nspecton by the Speca
Commttee to Investgate Producton, Transportaton, and Marketng
of Woo, Unted States Senate, or any duy authorzed subcommttee
thereof, whch commttee or subcommttee s authorzed by Senate.
Resouton 160, Seventy-fourth Congress, frst sesson, passed uy 10,
1935, and Senate Resouton 315, Seventy-fourth Congress, second
sesson, passed une 6, 1936, to make an nvestgaton of the produc-
ton, transportaton, and marketng of woo such nspecton to bo
n accordance and upon compance wth the rues and reguatons
prescrbed by the Secretary of the Treasury n the Treasury decson
reatng to the nspecton of returns by that commttee, or any duy
authorzed subcommttee thereof, approved by me ths date.
rankn D. Roosevet.
The Whte ouse,
November 2,1036.
( ed wth the Dvson of the edera Regster November 7, 1938, 10.13 a. m.)
(7483)
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5270, rt. 1204.
270
P RT . P YM NT, COLL CTION, ND R UND O T
ND P N LTI S.
S CTION 270. D T ON W IC T S LL
P ID.
rtce 1204: Coecton of ta by dstrant. -31-8210
Ct. D. 1142
INCOM T R NU CT O 1926 R IS D ST TUT S D CISION OP
COURT.
Dstrant Lfe Insurance Pocy Loca Law ttachment of
Property.
warrant of dstrant aganst the ta payer s property rghts n
a fe nsurance pocy of whch hs wfe was benefcary, wth
rghts reserved to change the benefcary, to borrow on the pocy,
and to receve the cash surrender vaue, s enforceabe. The oca
aw e emptng such a pocy from cams of credtors s not ap-
pcabe, Congress havng made no provson for the appcaton of
State e empton statutes to the revenue aws. In the absence of
any decsons by the Pennsyvana courts hodng to the contrary,
the property rghts n the pocy are n the assured durng bs fe-
tme to an e tent suffcent to sub|ect those rghts to dstrant by
the Government for ta es due t by the assured. Secton 933,
Revsed Statutes, reatng to attachment of property upon process
nsttuted n a court of the Unted States, does not appy to sezure
under warrant of dstrant.
Unted States Crcut Court of ppeas for the Thrd Crcut.
Wam . ye, ctng Coector of Interna Revenue for the rst Coecton
Dstrct of Pennsyvana, defendant-appeant, v. Margaret . McOurk,
pant ff-a ppeee.
Upon appea from the Dstrct Court of the Unted States for the astern Dstrct of
Pennsyvana.
ebruary 13, 1038.
OPINION.
Thompson, Crcut udge: Ths s an appea by ye, actng coector of In-
terna revenue, herenafter referred to as the coector, from a decree of the
Dstrct Court for the astern Dstrct of Pennsyvana. The coector mposed
a en for ta es aganst ohn . McOurk for . 3,648.82. McGurk was the as-
sured In a standard contract of fe nsurance of whch hs wfe, the appeee
heren, was benefcary. The assured had the rght to change the benefcary,
to borrow on the pocy and to receve the cash surrender vaue. The coector
ssued a warrant of dstrant drectng that a evy be made on the property
rghts of McGurk In the pocy. The warrant was served upon the nsurance
company whch had ssued the pocy to McGurk, to recover the vaue of the
pocy. The appeee fed a petton n the dstrct court prayng that the war-
rant of dstrant be vacated upon the ground that under the aws of the State
of Pennsyvana no dstrant to satsfy credtors of an assured can be made
upon a pocy of nsurance payabe to the wfe of the assured.
The Pennsyvana act of une 28, 1923, P. L. 884, upon whch the appeee
rees provdes:
That the net amount payabe under any pocy of fe nsurance or under
any annuty contract upon the fe of any person, heretofore or hereafter made
for the beneft of or assgned to the wfe or chdren or dependent reatve of
such person, sha be e empt from a cams of the credtors of such person
arsng out of or based upon any obgaton created after the passage of ths
act, whether or not the rght to change the named benefcary Is reserved by
or permtted to such person.
The dstrct court hed that the act apped and entered a decree quashng
the warrant of dstrant. The coector appeaed. e questons the |ursdcton
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271
270, rt. 1204.
of the dstrct court to enter the decree and contends thnt the warrant of
dstrant was vad and enforceabe.
The dstrant s ceary nonenforeeabe f the State e empton act cted above
appes. We fnd no authorty for appyng the act. s was sad by the tenth
crcut n Cannon v. Nchoas, opnon fed December 9, 1935 Ct. D. 1113, C. .
-1, 313 :
State e empton aws, e propro vgore, do not appy. ( nk v. O Ne,
106 U. S., 272.) Congress has not n the revenue aws, as t dd n bank-
ruptcy, recognzed State e empton statutes nor has t e empted ether annuty
contracts or fe nsurance poces.
Our attenton has been drected to the fact that n owers v. Renhard (78
. (2d), 776) we apped the State e empton statute. It may be noted, how-
ever, that secton 6 of the ankruptcy ct (11 U. S. C. ., 24) specfcay pro-
vdes that State e empton aws are appcabe n bankruptcy. The assured n
owers v. Renhard, supra, was a bankrupt, whereas the assured n the nstant
case s not a bankrupt. Inasmuch as Congress has provded for the appca-
ton of State e empton statutes n bankruptcy proceedngs, but has made no
such provson appcabe to the revenue aws, we may concude that there was
no Intenton to so appy them n the admnstraton of the revenue aws.
The dstrant s kewse nonenforeeabe f the property rghts n the pocy
beong to the wfe of the assured as benefcary, for f, by the aw of Penn-
syvana, ownershp of the pocy s n the wfe, the pocy may not be sub|ected
to the payment of the ta es of the assured. We have been referred to no dec-
sons of the Supreme Court of Pennsyvana whch drecty rue the queston
whether a pocy such as the one nvoved n the nstant case s the property
of the assured or of the benefcary. The vews of the Pennsyvana Supreme
Court as decared n We, appeant, v. Marqus (256 Pa., 608) were that the
benefcary had an nchoate rght whch rpened nto a vested nterest upon the
death of the assured. In dctum the court ndcated that the assured durng hs
fetme was the rea owner of the pocy (see aso Irvng ank, appeant, v.
e ander et a., 280 Pa., 466), and that athough the pocy was for the beneft
of the wfe, her rghts were contngent upon her survva of the assured wth-
out a change of benefcary havng been made and wthout a apse of the pocy
for nonpayment of premums. In the absence of any decsons by the Pennsy-
vana courts hodng to the contrary, we are of the opnon that the property
rghts n the pocy are In the assured durng hs fetme to an e tent suffcent
to sub|ect those rghts to dstrant by the Government for ta es due t by the
assured. owers v. Renhard, supra, s not to the contrary, for our rung n
that case was based soey on the concuson that the pocy In sut was made
for the beneft of the wfe.
The dstrct court fet constraned, n vew of R. S. 933 ( 28 U. S. C. .,
746), to quash the warrant of dstrant. We thnk, however, nasmuch as the
coector had Insttuted summary proceedngs for the coecton of nterna
revenue, the statute referrng to an attachment of property upon process nst-
tuted n a court of the Unted States does not appy. The coector s process
was not nsttuted n the court beow. e was brought Into that court through
process nsttuted aganst hm by the appeee. The fna paragraph of the
statute reads:
Nothng heren contaned sha nterfere wth any prorty of the
Unted States n the payment of debts.
We thnk ths ndcates that the ntenton of Congress was that State aws
shoud not nterfere wth the e pedtous coecton of debts due the Unted
States.
The decree of the dstrct court s reversed.
rtce 1204: Coecton of ta by dstrant. -41-8344
Ct. D. 1162
INCOM T R NU CT O 1026 R IS D ST TUT S D CISION O
COURT.
1. Dstrant In|uncton Lfe Insurance Pocy Interest of
enefcary Loca Law Surrender of Pocy.
b n equty w not e by an Insurance company to have a
warrant for dstrant quashed and an n|uncton granted to re-
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270, rt. 1204.
272
stran the coector of Interna revenue from coectng edera
ta es out of the Insured s nterest n a fe nsurance pocy under
whch the chdren of the nsured were the benefcares and where
the nsured had the rght to change the benefcares, to borrow on
the pocy, and to receve the cash surrender vaue. Under the aw
of the State of Oho a benefcary under such a pocy has a mere
e pectancy, not a vested nterest, and the property n the pocy re-
mans n the nsured unt hs death, at whch tme the rght to the
proceeds becomes vested n the then benefcares. The requrement
that a pocy must be surrendered n order to obtan ts cash sur-
render vaue can not affect the authorty of the coector to coect
a edera ta by dstrant upon property of the nsured.
2. Decsons oowed.
Decsons of the Unted States Crcut Court of ppeas, Tenth
Crcut, n the case of Cannon v. Nchoas (80 ed. (2d), 934 Ct D.
1113, C. . -1, 313), and the Unted Staes Crcut Court of
ppeas, Thrd Crcut, n the case of ye v. McOurk (82 ed.
Dstrct Court of the Unted States foe the Dstrct of Massachusetts.
(2d), 212 Ct. D. 1142, page 270, ths uetn), foowed.
The Coumban Natona Lfe Insurance Co. v. W. M. Wech, Coector of
Interna Revenue.
ugust 3, 1930.
OPINION.
rewster, .: The pantff, a Massachusetts corporaton, s engaged n the
busness of fe nsurance, wth ts prncpa offce n oston, Mass. In Its b
the pantff aeges that t has nsured one ames . ouse, a resdent of Oho,
by a pocy of pad-up fe nsurance, n an amount of 2,500. copy of ths
pocy s attached to the b of compant. The pocy contans the provsons
permttng the nsured to change the benefcares at any tme, to borrow money
on the securty of the pocy, and to receve the cash surrender vaue of the
pocy. t the present tme, the cash surrender vaue of the pocy, after
deductng the ndebtedness of the nsured because of a oan on the pocy, s
186.79. t present the benefcares are, and at a tmes matera have been,
chdren of the nsured. It s further aeged that a notce of evy and war-
rant of dstress have been served upon the pantff n an attempt to coect
ta es, sad to be due from the Insured to the Unted States. The pantff
seeks to have the warrant quashed, and the defendant, the coector of nterna
revenue for the dstrct of Massachusetts, perpetuay en|oned from attemptng
to coect ta es eved upon the nsured from the pantff In ths manner. The
defendant has fed a moton to dsmss, on the grounds that the facts, as set
forth, do not entte the pantff to mantan such a sut that an n|uncton
n a case of ths nature Is forbdden by statutes of the Unted States and that
ths court acks power to quash such a warra t.
The pantff seeks to attack the present warrant on two grounds, namey,
that the benefcares n the present case have such an nterest as to prevent the
proceeds of the pocy from beng readed to pay the ta es of the nsured, and
that, n any event, the defendant can have no rght to the proceeds of the pocy
wthout surrenderng physca possesson of the pocy, as the nsured woud
have been requred to do before recevng the cash surrender vaue.
s to pantff s frst ob|ecton, the Oho Code, secton 9394, provdes as
foows:
poces of fe nsurance for the beneft of wfe or
chdren or any reatve dependent upon such person, or any credtor, sha be
hed sub|ect to a change of benefcary f desred free and cear from
a cams of the credtors of such nsured person and the proceeds or avas
of a such fe nsurance sha be e empt from a abtes from any debt or
debts of such nsured person.
The statutory authorty of the coector to make a evy under the present cr-
cumstances s to be found n secton 3188 of the Revsed Statutes (U. S. C, Tte
26, secton 1582), whch provdes:
In case of negect or refusa, the coector may evy, or by war-
rant may authorze a deputy coector to evy, upon a property and rghts to
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273
270, rt. 1204.
property, e cept such as are e empt by the precedng secton, beongng to
such person, or on whch the en e sts, .
It Is necessary to determne, therefore, frst, whether the nsured, under
the aw of Oho, has any property and rghts to property n ths pocy,
wthn the meanng of the above-quoted statute, and, second, whether the Oho
statute, set out above, prevents such rghts from beng reached for ta es, or
converts them nto rghts beongng to the benefcares.
In Cannon v. Nchoas (80 . (2d), 934 Ct D. 1113, C. . -1, 313 ), a
coector sezed, under warrant of dstress, three poces of fe nsurance, paya-
be to the wfe of the nsured, and contanng a rght to change the benefcary.
The poces were advertsed for sae n ther entrety. efore the sae was
hed, these proceedngs were begun to quash the warrant of dstress. The court
sad that f the wfe had any property rghts n these poces under the aw
of Coorado, whch governed the case, such rghts coud not be taken for the
ta es of the husband. The court then hed that, under the aw of Coorado,
a wfe had certan rghts n a pocy for her beneft, even where the pocy
contaned a rght to revoke or change the benefcary. The court went on to
say, however, that t by no means foowed that the husband mght not aso
have property rghts n such a pocy whch woud be sub|ect to evy for the
payment of ta es, ntmatng that f these rghts ony were eved upon, the
evy woud be proper. Snce the coector had attempted to seze the entre
poces, however, the court en|oned a sae on such terms.
In ye v. McGurk (82 . (2d), 212 Ct. D. 1142, page 270, ths uetn ), the
coector ssued a warrant of dstrant, drectng that a evy be made upon the
property rghts of a ta payer n an nsurance pocy on hs own fe. The
pocy contaned a rght to change the benefcary and to receve the cash
surrender vaue of the pocy. Pennsyvana statute provded that the net
amount payabe under any pocy of fe nsurance for the beneft of the wfe of
the nsured, shoud be e empt from a cams of credtors. The dstrct court
hed that as a resut of ths statute, the wfe was gven an nterest by State
aw of such a nature as to prevent a evy. The decson of the dstrct court
was reversed. The court hed that the Pennsyvana statute was an e empton
statute, not a statute defnng property rghts n nsurance poces, and there-
fore not appcabe e propro vgore to a ta case. The court further hed
that the nsured had suffcent property rghts n such a pocy under State
aw, to sub|ect those rghts to dstrant for nonpayment of ta es.
Under the Oho decsons, a benefcary under a pocy contanng a rght to
change the benefcary, s sad to have a mere e pectancy, not a vested nterest.
( atz v. Oho Natona ank, 127 Ch. S., 531, 191 N. ., 782 Oettng v. Sparks,
109 Ch. S., 94, 143 N. ., 184.) It woud appear, therefore, that under the aw
of Oho, the property n ths pocy remaned n the nsured unt hs death,
at whch tme the rght to the proceeds woud become vested n the then e st-
ng benefcary. In any event, It Is evdent that the Insured, under a pocy
retanng a rght to change the benefcary, and contanng a rght to receve
the cash surrender vaue of the pocy, has certan rghts, n the nature of
property rghts. (Cohen v. Samues, 245 T . S., 50 Chase Natona ank v.
Unted States, 278 U. S., 827 Ct. D. 40, C. . III-1, 308 .) It s equay ev-
dent that the Oho statute here nvoved does not dffer In any matera man-
ner from the Pennsyvana statute consdered In ye v. Mc urk, supra. The
nstant case, accordngy, seems ndstngushabe n prncpe from ye v.
Mc urk, supra, and Cannon v. Nchoas, supra.
The pantff aso argues that the proceeds of a pocy can not be reached
by dstrant uness the pocy Is tsef surrendered. It Is doubtess true that
the pantff woud be entted to nsst upon surrender of the nstrument before
payng over to the nsured the cash surrender vaue. I do not beeve, however,
that compance wth condtons of ths nature s wthn a far nterpretaton
of the statutes authorzng dstrant. fe nsurance pocy s not a negotabe
Instrument. Such provsons, therefore, were nserted merey for the con-
venence of the pantff and shoud not serve as a means of avodng the ob-
gaton Imposed by edera statutes reatng to coecton of ta es by dstrant.
The pantff w presumaby be protected aganst further sut by the nsured
by payment under the warrant of dstress.
I have not been abe to fnd any case e acty In pont. In the somewhat
anaogous nstance of the requrement of savngs banks that the depost bonk
be produced when wthdrawas are sought, It has been hed that ths condton
can not defeat the rght of a credtor to reach the depost by trustee process.
(Maoney v. Casey, 164 Mass., 124, 128.)
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279, rt. 12S1.
274
oowng the reasonng of that ease, t woud seem that an nsurance com-
pany coud not, by ncorporatng provsons for ts beneft, affect the author-
ty of the defendant, as coector of nterna revenue, to coect a edera ta
by dstrant upon property of the ta payer.
It s my concuson, n vew of the foregong, that the pantff does not make
out a case enttng t to n|unctve reef, nor s the court |ustfed n quashng
the warrant.
decree may be entered dsmssng the b of compant.
S CTION 272. O RP YM NTS.
rtce 1221: Overpayments.
R NU CT O 1018.
Interest on overpayment for 1920 resutng from correcton of
error n nvested capta. (See Ct. D. 11G8, beow.)
S CTION 279. OP RDY SS SSM NTS.
rtce 1281: eopardy assessments. -44-8370
( so Secton 320 (Revenue ct 1918), rtce Ct. D. 1168
831 (Reguatons 45) Secton 238, rtce
611 Secton 1110, rtce 1371 and Sec-
ton 272, rtce 1221.)
INCOM ND C SS TRO ITS T R NU CTS O 1018, 1024, ND 1020
D CISION O COURT.
1. eopardy ssessment adty Revew by Court.
Where the Commssoner, before reachng a fna decson regard-
ng pantffs ta abty for 1918 and subsequent years, made a
|eopardy assessment of addtona ta for 1918 because the perod
of mtaton as e tended by wavers woud have e pred at an eary
date, the assessment was not vod. The Commssoner had author-
ty, under secton 274 (a) and (d) of the Revenue ct of 1924,
ether to ma a |eopardy 60-day etter or to make a |eopardy assess-
ment, and the fact that he pursued the atter method dd not render
hs acton ega or arbtrary and sub|ect to revew by the court.
The |eopardy assessment beng egay made, the pantff can not
recover any porton of the addtona ta assessed and coected for
1918 or the overpayments for other years aowed and credted
aganst the 1918 ta .
2. Invested Capta cquston or Stock or notoer Corpora-
ton.
corporaton organzed n 1911 ssued ts preferred and common
stock to the stockhoders of the ta payer corporaton n e change
for the common stock of the atter and aso made a payment of cash,
thus becomng the soe stockhoder of the ta payer corporaton. In
1917, the ta payer acqured the stock of the hodng corporaton by
an ssue of preferred and common stock to the atter s stockhoders,
and by the payment of cash. It then canceed the stock of the new
corporaton and ts own orgna common stock, and shorty there-
after dssoved the new corporaton. Under these facts, the ta -
payer s not entted to an ncrease n nvested capta for ta pur-
poses by reason of ts acquston of the stock of the new corpora-
ton, nothng havng boon pad n thereby n the form of nvested
capta as defned n secton 32G(a)2 of the Revenue ct of 1918.
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275
5279, rt. 1281.
8. Credt for oregn Ta es.
Where the Cfmadan subsdary of a domestc corporaton pad
to the Domnon of Canada, n 1921 and 1922, ta es on ncome de-
rved n 1919 from sources wthout the Unted States, and In 1920
pad to the domestc corporaton dvdends from profts reazed
pror thereto, the domestc corporaton s not entted to a credt
for 1920 on account of the foregn ta es accrued or whch were
pad by the Canadan corporaton to the Domnon of Canada wth
respect to ts 1919 ncome, snce they were not actuay pad unt
subsequent to that year. though pad as used In secton
238(a) of the Revenue ct of 1918 means pad or accrued, secton
240(c) of that ct provdes a dfferent rue wth respect to a for-
egn subsdary, and specfcay e cudes as a credt ta es accrued
but not pad.
4. Interest upon Overpayment Credted to Ta es for Pror Tears.
No nterest s aowabe upon an overpayment of 1924 ta es
credted aganst ta es determned for pror years, under secton
1116 of the Revenue ct of 1926, and an entry upon the certfcate
of overassessment showng an tem of Interest on such overpayment
was ceary erroneous and ega, and the ta payer therefore can
not recover on ths tem.
5. Invested Capta Recovery of Overpayment Resutng from
Correcton of rror.
Where, n determnng nvested capta for 1920, the Comms-
soner reduced earned surpus and 1020 nvested capta by the
amount of ta es for 1918 and 1019, and subsequenty reduced the
amount of the 1919 ta wthout makng any change In 1920 n-
vested capta on account of such reducton, the ta payer s
entted to recover, wth nterest, an overpayment for 1920 produced
by the correcton of the error.
Court of Cams of the Unted States. Nos. 42394 and M-155.
The oundaton Oo. v. The Unted States.
une 1, 1936.
OPINION.
In these two cases pantff seeks to recover a tota of 400,532.17, Income
and profts ta of 362,909.43 and 35,692.91 aeged to have been erroneousy
and egay coected for 1918 and 1920, respectvey, wth nterest from
certan dates on whch varous amounts makng up the tota camed were
pad or coected by credt, and 1,929.83 as Interest aeged to have been aowed
but not pad for 1924. Case No. 42394 reates to 1918 for whch the Comms-
soner coected an addtona ta of 362,909.43 whch pantff cams was
barred by the statute of mtaton. The amount of 274,348.05 of ths ta was
coected by credt of overpayments totang that sum for 1917, 1919, 1920,
1921, 1924, and 1926. The baance of 88,561.38 was pad In cash. In ths
case pantff sues aso, n the aternatve, for the overpayments for (he years
mentoned wth Interest.
Case M-155 reates to 1920 for whch pantff cams an addtona overpay-
ment of 35,692.91 wth Interest, based upon certan questons reatng to n-
vested capta, addtona credt for foregn ta es, and aso the queston of
the statute of mtaton nvoved n the 1918 case nasmuch as an overpayment
for 1920 was credted to the addtona ta for 1918.
In addton, the above-mentoned Interest of 1,929.83 s sought to be recov-
ered on the ground that t was shown on the certfcate of overassessment for
1924 and not refunded or credted.
The defendant contends that the addtona ta for 1918 was egay assessed
and coected wthn the tme aowed by aw and that the ta for 1920 was
correcty determned by the Commssoner, e cept that nn ad|ustment shoud
be made ncreasng nvested capta on account of the deducton therefrom of
ta es n e cess of the amounts due for other years, and that by reason of ths
ad|ustment pantff s entted to recover 4,350.76 for 1920 wth nterest
Ltteton, udge, devered the opnon of the court
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279, rt. 1281.
276
The soe queston reatng to the year 1918 nvoved n case No. 42394 Is
whether a |eopardy assessment of an addtona ta made by the Commssoner
on December 22, 1925, under secton 274(d) of the Revenue ct of 1924, was
ega and vod under the facts and crcumstances dscosed by the record.
Whe the ta abty of pantff for ths year was under consderaton by
the Commssoner pantff e ecuted wavers of the statute of mtaton, n the
ast of whch the tme wthn whch the Commssoner mght assess any add-
tona ta found due was e tended to December 31, 1925, and for an add-
tona perod of 60 days thereafter f a defcency notce was maed under
secton 274(a) of the Revenue ct of 1924 and no appea was taken to the
oard of Ta ppeas, and by the number of days between the mang of a
defcency notce and the fna decson by the oard f a defcency notce
shoud be maed under secton 274(a) and an appea taken to the oard.
In December, 1925, the Commssoner was engaged n audtng pantffs
ta abty for 1918 and had not reached a fna decson wth respect thereto
for the reason that at the same tme he was consderng the ta abty of
pantff for other years, and the questons Invoved n a of these years reated
to nventory and nvested capta ad|ustments. s a resut of ths stuaton
the Commssoner, because of the approachng e praton of the statute of
mtaton on assessment as e tended by the wavers, made a |eopardy assess-
ment on December 22, 1925, of nn addtona ta of 447,623.09 for 1918 under
secton 274(d) of the Revenue ct of 1924. fter notce and demand for pay-
ment had been served by the coector a teephone conversaton took pace
between pantff and the Commssoner, as a resut of whch mmedate co-
ecton of the assessment was postponed by the coector at the suggeston of
the Commssoner, and pantff dd not fe any cam for abatement or bond.
Pantff was fuy abe to pay any ta found to be due and the Commssoner
dd not make the |eopardy assessment because of any apprehenson or beef
on hs part that coecton of the ta woud be |eopardzed by the nabty of
the pantff to pay the amount whch appeared at that tme to be due. The
Commssoner made the |eopardy assessment because he had not been abe
to reach a fna decson as to the e act amount due and coud not do so
before December 31, 1925, when the statute of mtaton woud bar assess-
ment and coecton of any amount for 1918, uness a |eopardy 60-day defcency
notce was maed uuder secton 274(a) or a |eopardy assessment was made
under secton 274(d) of the Revenue ct of 1924. The matter of the correct
ta abty for 1918 and aso the ta abty for the years 1917 to 1926, In-
cusve, was thereafter consdered by the Commssoner unt he reached hs
fna decson wth respect thereto. The fna decson of the Commssoner
was that pantff owed an addtona ta of 362,909.43 for 1918, a of whch,
e cept 88,561.38, was coected by credts of overpayments determned and
aowed for the years 1917 and 1919 to 1921, ncusve, and for 1924 and 1926.
We are unabe to concur n pantff s contenton that the court may revew
the Commssoner s determnaton that a |eopardy assessment for 1918 shoud
be made. The decsons of the Unted States oard of Ta ppeas and of
the courts are unform that the matter of whether he shoud make an add-
tona assessment before he has reached a fna decson wth respect to the
correct ta abty for any year s by the statute eft whoy to the Comms-
soner, and that hs beef, evdenced by such an assessment, can not be n-
qured nto by the court for the purpose of determnng whether he was |ust-
fed n beevng that assessment or coecton of the ta woud be |eopardzed
f the assessment were deayed, or whether he shoud have pursued a dffer-
ent course that may aso have been authorzed by the statute. (Wamsport
Wre Rope Co. v. Unted States, 277 U. S., 551 T. D. 4172, C. . II-2, 323
Caforna ssocated Rasn Co., 1 . T. ., 1251 Oakdae Coa Co., 1 . T. ..
773 W. S. Tyer, 9 . T. ., 255 ames Couzcns, 11 . T. ., 1040 eeder t.
Commssoner, 10 . T. ., 884, 36 ed. (2d), 342 Ct. D. 159, C. . I -1, 256
and Manz v. Unted States, 74 C. Cs., 5, 13.) Counse for the pantff makes
a very thorough and nterestng argument wth reference to |eopardy assess-
ments and the mang of defcency notces whch s based upon the prov-
sons and hstory of the Revenue cts of 1921 and 1924 concernng determna-
tons, assessments, and appeas wth respect to ta es In e cess of amounts
shown upon returns fed. owever, wc are unabe to fnd anythng n ths
argument to convnce us that a court may nqure nto the matter of whether
Ihe Commssoner durng hs consderaton and audt was |ustfed n beevng
that an addtona assessment shoud be made n order that coecton of any
addtona ta fnay determned to be due for the year or years under con-
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277
279, rt. 1281.
federaton mght not be |eopardzed. Secton 274 (a) and (d) provde as
foows:
(a) If, In the case of any ta payer, the Commssoner determnes that there
s a defcency n respect of the ta mposed by ths tte, the ta payer, e cept
as provded n subdvson (d), sha be notfed of such defcency by regstered
ma, but such defcency sha be assessed ony as herenafter provded. Wthn
WO days after such notce s maed the ta payer may fe an appea wth the
oard of Ta ppeas estabshed by secton 900.
(d) If the Commssoner beeves that the assessment or coecton of a
defcency w be eopardzed by deay such defcency sha be assessed mme-
datey and notce and demand sha be made by the coector for the payment
thereof. In such case the assessment may be made (1) wthout gvng the
notce provded n subdvson (a) of ths secton, or (2) before the e praton
of the 60-day perod provded n subdvson (a) of ths secton even though
each notce has been gven, or (3) at any tme pror to the fna decson by
the oard upon such defcency even though the ta payer has fed an appea.
If the ta payer does not fe a cam n abntement as provded n secton 279
the defcency so assessed (or, f the cam so fed covers ony a part of the
defcency, then the amount not covered by the cam) sha be pad upon
notce and demand from the coector.
The quoted secton contempates that when the Commssoner has reached a
fna decson as to the ta abty for any year he sha, f the ta determned
s greater than that shown on the return and he concudes that there s no
reason to beeve that assessment or coecton of the ta w be |eopardzed
by deay, ma a defcency notce from whch the ta payer may, wthn (50
days thereafter, take the case to the oard of Ta ppeas for hearng and
decson by that trbuna before payment. The secton aso contempates that
f, for any reason, the Commssoner beeves that assessment or coecton of
any addtona ta w be |eopardzed by deay n makng an assessment, he
sha make an mmedate assessment wthout mang a 60-day defcency notce
f he has not competed hs consderaton and reached a fna decson, and
that such 60-day notce sha be gven when he has competed hs audt and
made a fna determnaton of the amount due. rom ths fna notce the
ta payer may, f he has otherwse comped wth the statute, take the case
before the oard of Ta ppeas. oseph Oameau Co., Inc., 1 . T. ., 75
Termna Wne Co., 1 . T. ., 697.) In addton secton 274 e pressy pro-
vdes that athough the 60-day defcency notce has been maed, the Com-
mssoner sha make an mmedate assessment before an appea s fed wth
the oard f he beeves that the assessment or coecton of the t w be
|eopardzed by deay of assessment, and f no abatement cam Is fed the
amount so assessed sha be coected. The Commssoner s aso authorzed
by ths secton to make such |eopardy assessment after an appea has been
taken to the oard of Ta ppeas and before that trbuna has decded the
case. In the case at bar the Commssoner was ceary authorzed to pursue
any or a of the courses specfed, but the fact that he foowed one rather
than another dd not render hs ncton ega or arbtrary and sub|ect to revew
by the court. It s admtted that assessment and coecton of any ta for
1918 woud have been barred wthn nne days If the Commssoner had not made
the |eopardy assessment when he dd, or If he had not ended hs audt and
consderaton of the case by preparng and mang to the pantff a 60-day
defcency notce of hs fna determnaton n respect of the tn abtv for
1918.
The crcumstances dscosed by the record ndcate that the Commssoner, n
makng the |eopardy assessment, was endeavorng to compy wth pantff s
urgent request that the questons nvoved n the severa years under consdera-
ton be e pedted and fnay determned as soon as possbe (fndng 24). y
smpy makng a eopardy assessment for 1918 under secton 274(d) n order
to protect the ta aganst the bar of the statute of mtaton by reason of
pantff s faure to offer an addtona waver nstead of mang a eopardy
60-day defcency notce under secton 274(a) the Commssoner kept the year
1918, as we as other years, before hm so that he coud proceed therewth
to a compete and fna ad|udcaton of a the matters n controversy, ncudng
speca assessment, and cose the cases by fnay determnng the ta abty
for 1918 and schedung the overpayments for other years. oth the Comms-
soner and the pantff were aware at that tme that pantff had the rght
to have the fna decson as to any year n whch a defcency, as defned by
the statute, was determned, revewed by the oard of Ta ppeas even
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279, rt. 1281.
278
though a |eopardy assessment had been made. owever, It was obvous that
there woud be great deay If the year 1918 was forced Into the oard of
Ta ppeas n the condton In whch It was on December 22, 1925. Tme
woud have been requred to prepare and fe a petton and the answer of the
Commssoner, and to prepare for tra and to try the case before the oard.
In the meantme the overpayments for the years 1917 to 1926 woud have
been hed up pendng a decson of the oard as to the amount of addtona
ta due for 1918. If t be sad that the Commssoner coud have maed a
|eopardy GO-day defcency notce and contnued wth hs consderaton of the
case, the answer s that he was not requred to do so, and the egsatve
hstory of the Revenue ct of 1920 dscoses that ths practce was not adopted
to any e tent unt about 1927 when the speca advsory commttee was organ-
zed pursuant to the Revenue ct of 1926. (Cf. Laurence R. Connor et a..
Trustees, v. Unted States, 82 C. Cs., , 13 . Supp., 435.)
The makng of the eopardy assessment dd not deprve pantff of any
ega rghts wth respect to the ta for 1918 or any of the other years under
consderaton, and the ony reason pantff s appea to the Unted States oard
of Ta ppeas from the Commssoner s fna determnaton on pr 9, 1927,
for 1918 was not consdered and decded by the oard on ts merts was because
pantff had not fed a cam for abatement and bond for the ta theretofore
assessed by the Commssoner. ut the fact that a bond was necessary n order
that pantff mght have the nfterts of the Commssoner s fna determnaton
revewed by the oard can not affect the egaty of the assessment made under
secton 274(d) of the Revenue ct of 1924. The procedure foowed by the
Commssoner was e pressy authorzed by aw and the statute e pressy pro-
vded for both the assessment and the bond. The Commssoner was not bound
to seect one course of procedure n preference to another merey because the
course whch he dd not pursue mght have better peased the ta payer. More-
over, at the tme the |eopardy assessment was made the Commssoner, as t
nppears under the facts and crcumstances, was not In a poston to ma a
60-dny defcency notce under secton 274(a) dscosng a consdered and accu-
rate determnaton wth respect to the ta abty for 1918, for the reason,
ns dscosed n hs etters to pantff, that ncome and nvested capta for
1918 were affected by nventory ad|ustments nvoved for a pror year and the
ta for subsequent years under consderaton was affected by nventory and
nvested capta ad|ustments for 1918. though the Commssoner mght have
done so, t seems cear from the provsons of secton 274(a) that t was not
contempated that the Commssoner shoud ma 60-day eopardy defcency
notces n cases where he had not competed hs audt and made a consdered
determnaton as to the ta abty for the year nvoved, thereby coggng the
docket of the Unted States oard of Ta ppeas wth I-consdered cases.
or the foregong reasons pantff s not entted to recover any porton
of the addtona ta assessed and coected for 1918 or the overpayments
aowed for other years Invoved In case No. 42394.
The remanng questons arse n case M-155, In whch pantff seeks to
recover an addtona overpayment of 35,692.91 for 1920 and Interest of
1,929.83 on an overpayment aowed for 1924. Pantff pad 139,529.52 by
cash and credt for 1920. The Commssoner determned an overpayment of
103,529.52 whch was apped as a credt aganst the addtona ta assessed
for 1918. In ths determnaton the Commssoner f ed the correct ta of
pantff for 1920 at 35,092.91 and pantff seeks to recover ths amount wth
Interest. The foregong decson that the addtona ta for 1918 was tmey
assessed dsposes of pantff s cam that It Is entted to recover the 1920 over-
payment aowed by the Commssoner on the ground that the 1918 ta aganst
whch It was credted was barred. Pantff contends however, that the ta for
1920 was overpad n the amount of 35,092.91 n e cess of the overpayment
aowed by the Commssoner. The aeged addtona overpayment for 1920
s bused upon the cams (1) that nvested capta for 1920 shoud be Increased
n the amount of 341,502 n e cess of that aowed by the Commssoner by
reason of the acquston by pantff n May, 1917, of stock of the oundaton
company, a Deaware corporaton, as dscosed In fndngs 2 to 16, ncusve
(2) that an addtona credt of 34,406.25 shoud have been aowed aganst the
1920 ta by reason of certan ncome and profts ta es pad by a whoy owned
subsdary of pantff to the Domnon of Canada and (3) that Invested capta
for 1920 was erroneous and e cessvey reduced on account of 1918 and 1919
ta es.
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279
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In addton to the above, pantff seeks to recover an tem of Interest of
1,929.83 aeged to huve been aowed but not refunded.
Wth reference to the nvested capta, tem (1) above, the ssue s the
amount whch pantff s entted to ncude n ts nvested capta for 1920 on
account of certan transactons between tsef and another corporaton of the
same name but ncorporated under the aws of another State, and the stock-
hoders of the two corporatons. Pantff was ncorporated under the aws
of New York and the other corporaton under the aws of Deaware.
Pantff was organzed n 1902 at whch tme common stock was ssued of
a par vaue of 50,000. In 1903 t ssued addtona stock of the same par
vaue, thus makng ts stock outstandng 100,000. of the stock was ssued
for cash and tangbe property of an aggregate cash vaue equa to the par
vaue of such stock. The same stock was outstandng n 1911 when the frst
transactons took pace between pantff and the Deaware company and the
stockhoders of the two corporatons, as herenafter shown.
The Deaware company was organzed May 18, 1911, wth an authorzed
capta stock of 2,100,000, consstng of 5,000 shares of preferred stock of a
par vaue of 100 a share and 16,000 shares of common stock of a par vaue
of 100 a share. May 19, 1911, the Deaware company ssued a of Its pre-
ferred stock (par vaue, 500,000) for 500,000 In cash, to certan ndvduas,
s of whom owned a the stock of pantff and receved one-haf of the pre-
ferred stock of the Deaware company. On the same day the Deaware com-
pany ssued a of ts common stock to the stockhoders of pantff for a the
stock of pantff, par vaue of 100,000, and, n addton, pad to such stock-
hoders 500,000 In cash. It w thus be seen that after ths transacton was
competed the Deaware company was the soe stockhoder of pantff and that
condton contnued unt May, 1917, when the stuaton was reversed and
pantff acqured the stock of the Deaware company, as w be shown beow.
May 17, 1917, pantff secured an authorzaton to ssue 5,000 shares of pre-
ferred stock of a par vaue of 100 a share and 16,000 shares of common stock
wthout par vaue n eu of ts e stng stock of 1,000 shares of common stork
of a par vaue of 100 a share. Then, or shorty thereafter, n May, 1917,
pnntff ssued ts preferred stock of 500,000 to the stockhoders of the Dea-
ware company for ke stock of a ke par vaue, and, n addton, pad 50,000
to the preferred stockhoders of the Deaware company. t or about the same
tme n May, 1917, pantff ssued a of ts common stock of 16,000 shares to the
common-stock hoders of the Deaware company for the atter company s com-
mon stock of a par vaue of 1,600,000. Lkewse at or about the same tme
pantff canceed the stock of the Deaware company and ts orgna stock of a
par vaue of 100,000, and shorty thereafter dssoved the Deaware company.
Pantff s contenton s that the transacton n 1917 gave rse to a stuaton
where pursuant to secton 326(a)21 of the Revenue ct of 1918 and sub|ect to
the mtaton of secton 331 of the same ct t s entted to have ncuded n
Invested capta the actua cash vaue of the stock of the Deaware company
at the tme pad n for stock of pantff n 1917, but not n e cess of the cost
of such stock to the prevous owners. The Commssoner has admttedy gven
proper recognton to a costs for thngs pad In to pantff other than on
account of the 1917 stock transacton and has made proper ad|ustment on
account of preferred stock. The queston here presented s whether that whch
occurred n 1917 gave rse to an ncrease n pantff s Invested capta on account
1 (a) That as used Id ths tte the term nvested capta for any year means (e cept
as provded n subdvsons (b) and (c) of ths secton) :

(2) ctua cash vaue of tangbe property, other than cash, bona fde pad n for
stock or shares, at the tme of such payment, but n no case to e ceed the par vaue of
the orgna stock or shares specfcay ssued therefor, uness the actua cash vaue of
such tangbe property at the tme pad In s shown to the satsfacton of the Com-
mssoner to have been ceary and substantay n e cess of such par vaue. In whch
case such e cess sha be treated as pad-n surpus.
In the case of the reorganzaton, consodaton, or chanue (f ownershp of a trndo
or busness, or change of ownershp of property, after March 3, 1U17, f an Interest or
contro n such trade or busness or property of 50 per centum or more remans In the
same persons, or any of them, then no asset transferred or receved from the prevous
owner sha, for the purpose of determnng Invested capta, be aowed a greater vaue
than woud have been aowed under ths tte u computng the nvested capta of such
prevous owner f such asset had not been so transferred or receved : Provded, That f
such prevous owner was not a corporaton, then the vaue of any asset so transferred or
receved sha be taken at Its cost of acquston (at the date when acqured by such
prevous owner) wth proper aowance for deprecaton, mparment, betterment, or de-
veopment, but no addton to the orgna cost sha be made for any charge or e -
pendture deducted as e pense or otherwse on or after March 1, 1913, n computng the
net ncome of such prevous owner for purposes of ta aton.
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279, rt. 1281.
280
of the market vaue attachng to the Deaware stock at the tme pantff s new
stock was ssued therefor.
We are of opnon that the cam for addtona nvested capta on ths
account s wthout mert. Nothng occurred n 1911 whch gave rse to an
ncrease n pantff s Invested capta snce In that year the Deaware company
was formed and n a crcutous transacton became the hodng company of
pantff, havng at ts concuson 500,000 of preferred stock and 1,600,000 of
common stock outstandng and havng as the asset back of ths stock the entre
stock of pantff, par vaue 100,000. Obvousy, there was not thereby anythng
pad n to pantff.
The Deaware company contnued to hod pantffs stock unt May, 1917,
when the stuaton was reversed. t that tme pantff secured an authorzaton
by whch It Issued 500,000 of preferred stock to the preferred stockhoders of
the Deaware company for preferred stock of the same par vaue and at the
same tme Issued 16,000 shares of common stock wthout par vaue to the
common-stock hoders of the Deaware company for common stock of a par
vaue of 1,600,000. Pantff then canceed a of the Deaware company stock,
ts own orgna stock of 100,000, and shorty thereafter dssoved the Deaware
company. rom ths we fnd nothng beng pad n or comng to pantff n
the form of statutory nvested capta. It woud be egastc fcton to say
that anythng was thereby pad to pantff. Nothng came to t but stock
of the Deaware company whch had back of t the orgna stock of pantff
and both were mmedatey erased from the pcture, eavng pantff where t
started, n so far as anythng beng pad n s concerned, e cept for the fact
t had ncreased ts stock from common stock of 100,000 to preferred stock of
500,000 and common stock of 16,000 shares, wthout par vaue. Recognton
of an ncrease n Invested capta n such crcumstances woud thwart the
purpose of sectons 326 and 331 and woud be contrary to the prncpes ad
down n La ee Iron Works v. Unted States (256 U. S., 377 Ct. D. 12, C. .
4,373 ), and subsequenty foowed. Rega Shoe Co. (1 , T. ., 896) and Unted
Cgar Stores of merca v. Unted States (62 O. Cs., 134), and other cases
based thereon, cted by pantff, dd not Invove comparabe facts and can not be
consdered controng In the stuaton here presented. Pantff can not there-
fore recover on ths pont.
Wth reference to the camed addtona credt of 34,406.25 n e cess of the
amount of 35,778.29 aowed by the Commssoner, the facts show that durng
1920 and pror thereto pantff owned a the stock of the oundaton Co.
of rtsh Coumba, Ltd., a corporaton of the Domnon of Canada. The
Canadan corporaton pad to the Domnon of Canada durng 1921 and 1922
ncome and profts ta es of 61,111.25 on a net ta abe Income of 244,444.93
derved from sources wthout the Unted States. Ths amount was ncome of
the Canadan corporaton In 1919 and the aforesad ta was pad by the Cana-
dan company on such ncome. The net ncome of pantff for 1920 as nay
determned was 295,440.55, whch ncuded dvdends of 150,000 receved by t
from the Canadan corporaton, whch were not deductbe under secton 234
of the Revenue ct of 1918. These dvdends were pad by the Canadan com-
pany from profts reazed by t pror to 1920. oth the Canadan compan|
and pantff empoyed the accrua method of accountng n keepng ther books.
Pantff contends that nasmuch as the accrua method of accountng was
used, t s entted to a foregn ta credt of 34,406.25 aganst ts ta for 1920
on account of the above-mentoned ta of 61,111.25 pad by the Canadan
corporaton to the Domnon of Canada, and ths camed credt s based upon
the provsons of secton 238 and 240 of the Revenue ct of 1918 and secton 23-8
of the Revenue ct of 1921. The Commssoner aowed pantff a foregn
ta credt of 35,778.29 for 1920 on account of a ta of 58,993.54, whch t
pad to the Domnon of Canada, n respect of Its ncome for 1919 but dsaowed
the camed credt of 34,406.25 cue the Domnon of Canada from the rtsh
Coumba company, pantff s subsdary, for the reason that the ta of the
Canadan corporaton upon whch the camed credt was based was not pad
to the Domnon of Canada unt subsequent to 1920. In ths we thnk the
Commssoner was correct. Secton 238(a) of the Revenue ct of 1918 provded
for a credt of the amount of any ta pad durng the ta abe year to any
foregn country upon ncome derved from sources theren, and secton 240(c),
n provdng how the credt to be aowed to a domestc corporaton affated
wth a foregn corporaton shoud be determned, provded that
or the purposes of secton 238 a domestc corporaton whch owns a
ma|orty of the votng stock of a foregn corporaton sha be deemed to have
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281
326, rt. 831.
pad the same proporton of any ta es pad (but not ncudng ta es
accrued) by such foregn corporaton durng the ta abe year to any foregn
country upon ncome derved from sources wthout the Unted States,
whch the amount of any dvdends (not deductbe under secton 234) receved
by such domestc corporaton from such foregn corporaton durng the ta abe
year bears to the tota ta abe ncome of such foregn corporaton upon or wth
respect to whch such ta es were pad.
The provsons of secton 238(a) reate to credts for ta es pad to a foregn
country by a domestc corporaton. In that secton the word pad means
pad or accrued. The Commssoner aowed pantff the credt provded for
n that secton on account of that porton of the foregn ta accrued or whch
was pad by pantff. owever, secton 240(c) provded a dfferent rue wth
respect to ta es pad by a foregn subsdary of a domestc corporaton. In
such a case ta es accrued but not pad are specfcay e cuded as a credt by
the statute. The actua payment to the foregn country s made the test of
the credt. The Revenue ct of 1921 provded a dfferent rue wth respect to
such credts but that ct was not retroactve and had no appcaton to the
year 1920.
Wth reference to the camed Interest of 1,929.83 for 1924 whch s sought
to be recovered on the ground that t was shown on the certfcate of over-
assessment for 1924 and nether credted nor refunded, It appears that the
Commssoner determned an overpayment of 31,807.50 for 1924, of whch
22,589.55 was credted to 1918 and the baance to the ta of pantff as then
determned for 1920 and 1921. The overpayment and the credt were aowed
after the enactment of secton 1116 of the Revenue ct of 1926. Inasmuch as
the entre overpayment for 1924 was credted to ta es for pror years, no
nterest whatever was aowabe under the statute on such overpayment. The
Commssoner aowed no nterest on the 1920 overpayment however by an
entry made by the coector the certfcate of oveassessment devered to the
pantff showed nterest of 2,271.02 on the part of the 1924 overpayment
credted aganst the 1918 addtona assessment, 241.19 of whch was apped
by the coector n connecton wth varous credts whch he made. The ba-
ance of 1,929.83, whch s sought to be here recovered, was nether credted
nor refunded. The entry by the coector on the certfcate of overassessment
of the nterest In queston was ceary a mstake and was ega and erroneous,
and pantff s therefore not entted to recover on ths tem.
The ast tem reates to ad|ustment of nvested capta for 1920 on account
of ncome and profts ta es for 1918 and 1919. In determnng nvested capta
for 1920, the Commssoner reduced earned surpus by 447,623.09 representng
the amount of the |eopardy assessment made n 1925 for 1918. e kewse re-
duced 1920 nvested capta by an amount of ta determned for 1919, whch was
subsequenty reduced wthout any change beng made n 1920 nvested capta on
account of such reducton. In hs fna determnaton for 1920, the Comms-
soner erroneousy reduced pantff s earned surpus n the amount of 108,359.83
on account of the 1918 and 1919 ta es. The correcton of ths error produces
an overpayment for 1920 of 4,356.76 n e cess of the overpayment determned
and aowed by the Commssoner. Ths amount pantff Is entted to recover
wth nterest n case M-155, and |udgment n ts favor w accordngy be
entered.
Pantff s not entted to recover In case No. 42394 reatng to 1918 and the
petton s dsmssed. In ease M-155 pantff s entted to recover 4,356.70
wth Interest on 887.30 from ugust 10, 1921, and on 3,469.46 from pr 8,
1921, to such date as the Commssoner may determne n accordance wth sec-
ton 177(b) of the udca Code as amended by the Revenue ct of 1928, and
|udgment w accordngy be entered. It s so ordered.
S CTION 32G (R NU CT O 191S). IN ST D
C PIT L.
rtce 831 (Reguatons 45) : Meanng of nvested capta.
R NU CT O 1918.
cquston of stock of new corporaton. (See Ct. D. 1168, page
274.)
121397 37 10
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61113, rt. 1351. 282
TITL L G N R L DMINISTR TI PRO ISIONS.
S CTION 1113. LIMIT TIONS UPON SUITS ND
PROC DINGS Y T T P Y R.
rtce 1351: Suts for recovery of ta es -35-6268
erroneousy coected. Ct. D. 1150
INCOM T R NU CT O 1926 D CISION O COURT.
Sut Mandamus Statute or Lmtatons Trust Income Ds-
trbuted to enefcary ssessment ganst Tru tke.
The Commssoner aowed cams for refund of ta es pad upon
Income dstrbuted to the benefcary of a testamentary trust, based
upon decsons of three crcut courts of appeas hodng that such
ncome was n eu of dower and not ta abe, and dsaowed deduc-
ton therefor by the trustee, resutng n defcency n ta from
whch the trustee appeaed to the oard of Ta ppeas, but eected
to pay the ta nstead of fng bond. The oard sustaned the
Commssoner s acton, and, after reversa of ts decson upon
appea on authorty of a decson by the Supreme Court, the oard
entered an order fndng an overpayment by the trustee. In vew
of the facts that the statute of mtatons had then Intervened to
prevent recovery from the benefcary and that a refund to the
trustee woud redound to the beneft of the benefcary, who owed
a arger amount than the refund sought n ths proceedng, the
trustee s not entted to a wrt of mandamus to compe the Com-
mssoner to refund the overpayment. though the ega rghts are
n the trustee s favor, the remedy by mandamus a controed by
equtabe prncpes, and to grant t n ths case woud not vndcate
a rght but do a wrong.
Unted States Court or ppeas for the Dstrct or Coumba.
Unted States, e reatone, Orard Trust Co., Trustee Under the W of
ohn . rown, r., Deceased, appeant, v. uy T. everng, Commssoner
of Interna Revenue, appeee.
ppea from the Supreme Court of the Dstrct of Coumba.
May 18, 1936.
opnon.
Ghonhr, .: ohn . rown, r., a ctzen and resdent of Pennsyvana, ded
testate n 1919. In hs w he drected appeant, whom we sha ca Grard,
to take over hs resduary estate n trust, coect the ncome and, after pay-
ment of certan e penses, to dstrbute the net to the e tent of 200,000 an-
nuay to hs wdow. arret . rown. The wdow eected, In compance wth
the aws of Pennsyvana, to accept the ncome n eu of her statutory share
of the estate. Grard n the performance of the trust dstrbuted to the wdow
the entre net ncome of the estate (whch dd not e ceed 200,000 annuay)
for the years 1924 to 19I 0, ncusve and, In computng the net ta abe ncome
of the estate, for each of those years, It deducted the amount so dstrbuted.
(Secton 219(a)2, Revenue ct of 1924, and correspondng sectons of subsequent
cts). The wdow reported the amounts receved by her as ta abe ncome
for the years 1924 to 1927, ncusve. She dd not report as ncome the amounts
receved n 192S and thereafter.
etween 1926 and 1 28 three crcut courts -of appeas1 hed that Income
receved by a wdow, who had accepted such ncome n eu of dower or statu-
1 Warner v. M ash (15 . (2d). 387 (6 m. ed. Ta Rep., 6340) T. D. 4257, G. .
III-2, 245 ) Untrd States v. oster (20 . (2d), 760 (0 m. ed. Ta Rep., 77f7)
IT. D. 4258, C. R. III-1. 2471) en v. Urandrs (20 . (2d), 363 (7 m. ed. Ta
Rep., 8305) T. D. 4250, C . III-1, 243 ).
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tory rghts, was not ta abe. These cases hed that by renqushment of her
rghts, she came to occupy the poston of the purchaser of an annuty. (290
U. 8., 305, 369.) The wdow, reyng on those decsons, ted cams 2 wth the
Commssoner for refund of ta es whch she had pad on the ncome dstrbuted
to her by Grard durng the caendar years 1924 to 1927, ncusve. The Com-
mssoner, aso reyng on the decsons, assessed defcences Invovng the
same ncome dstrbuted to the wdow aganst Grard for the years 1924 and
1925, on the ground that In computng the ta abe net ncome of the trust the
deducton by Grard of the amounts of Income currenty dstrbuted to the
wdow had been mpropery taken. (We assume the seecton ony of the
years 1924-1925, was because of the approachng bar of the statute of mta-
tons. ) On appea by Grard the oard sustaned the Commssoner. The
Commssoner, thereupon, September 17, 1931, pad the refund camed by the
wdow, In an aggregate sum of appro matey 78,000. owever, In December
foowng, Grard fed a petton for revew of the decson of the oard as to
It, but n eu of bond pad the assessment aganst It wth Interest, In an aggre-
gate amount of s ty-four thousand odd doars. In pr, 1933, the Court of
ppeas n the Thrd Crcut reversed the decson of the oard and hed that
the ncome payabe to the wdow was not ta abe to Grard, and that the atter
as trustee was authorzed to deduct, as t had, the amount dstrbuted to the
wdow, n makng Its return. Thereafter the oard, pursuant to the mandate
of the court, entered Its order uy 7, 1934, fndng that there were no defcen-
ces due from Grard for 1924 and 1925 but overpayments for such years n the
aggregate amount of ts 1932 cash payment made, as we have seen, n eu of
bond pus a further and ater payment of around 4,000 for the year 192.8.
In December, 1933, the Supreme Court decded everng v. vtterarth
(290 U. S., 365 Ct. D. 769, C. . III-1, 151 ), settng the confct n the
crcuts and hodng that such ncome as Is here nvoved was ta abe aganst
the wdow. The resut of ths was to nvadate the refund made by the Com-
mssoner to the wdow. ut the statute of mtatons had, n September,
1933, run aganst recovery from the wdow. In ths state of the case, the
Commssoner decned to refund to Grard the ta es erroneousy coected from
It and the purpose of ths sut s to requre the Commssoner to make repay-
ment In compance wth the decson of the oard, whch ong ago became
fna.
Layng asde for the tme beng the technca aspect of the queston, and
havng regard ony to the utmate facts, the case s ths: Mrs. rown owes
the Unted States a arge amount of money for ta es. The statute of mta-
tons has ntervened, and the Government can not coect On the other hand,
her trustee, Grard, has pad to the Unted States a arge amount of money for
ta es for whch t was not abe nnd whch the oard has determned t s
entted to recover. The money, however, whch t mstakeny pad beonged
to Mrs. rown and, f recovered, w be payabe to her so that f we sha
order the ower court to ssue the wrt, the resut w be to requre the Unted
States to pay over money whch whe techncay that of Grard actuay
woud go to Mrs. rown. Obvousy ths s nequtabe and ought not to be
done uness requred as a matter of aw. In sayng ths much, we are not
nfuenced by the fact that the Government s tsef a party or that the sub|ect
we are deang wth s ta aton. The resut to be reached shoud be whoy
unnfuenced by those facts. When the Unted States s propery a party In a
tgaton In ts own courts, t occupes no dfferent or better poston than the
humbest ctzen. Overreachng on ts part shoud be no more condoned than
f practced by an ndvdua. We have sad as much before. (O Lav(|h) v.
everng, 81 . (2d), 269 (par. 558).) Impeed by these consderatons, we
proceed to a dscusson of the case as made.
rst. We are tod by counse for Grard that the Commssoner s duty to
refund the overpayments s mandatory. It s sad that under secton 1001 of
the Revenue ct of 1926, as amended by secton 003 of the Revenue ct of
1928, when the ta payer oses hs case before the oard and ap eas to the
court, he may ether fe a bond to stay coecton or pay the amount camed
wth the assurance that t w be returned to hm f hs appea s successfu
wthout the necessty of foowng the technca procedure of fng a cam as
March. 102 ) ugust, 1020 anuary, 1031.
March, 1029.
4 See ttcrwortta ease ( 3 . (2d). 044 (12 m. ed. Ta I ep.. 341)), n companon
enso tn t f. ( rard appea, the rung In whch resuted n a reversa of the oard In the
Grard appea.
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284
n the case of an ordnary ta payer n short, that payment under these cr-
cumstances s n the nature of a cash depost n eu of a surety bond. Ths
s, we thnk, a correct statement of the aw. Grard, havng eected to pay
rather than gve a bond and havng won ts case n the court of appeas, was
entted when the decson of that court became fna assumng that no other
ta es were camed and shown to be due to a refund of the amount pad. Ths
we sad n McCar v. Leand (42 . (2d), 346 (8 m. ed. Ta Rep., 11156)).
Undoubtedy, as we thnk, the decson of the court and the fndng of the
oard made mandatory the duty of the Commssoner to make the refund.
( ar v. Unted States, 6 . (2d), 484 (5 m. ed. Ta ep., 5477) ames v.
Unted States, 38 . (2d), 140 (8 m. ed. Ta Rep., 10133) Ct D. 175, C. .
I -1, 241 .) We are, therefore, compeed to re|ect the proposton of the
Commssoner that the statute authorzng refunds, under the crcumstances we
have mentoned, nvoves the e ercse of |udgment and dscreton.
Second. We kewse fnd ourseves n dsagreement wth the Commssoner
on the pont that Grard has an adequate remedy at aw. The suggeston that
t coud, by acton n the Court of Cams or the dstrct court, enforce payment
of ts cam aganst the Unted States, s wthout force. It has a |udgment
or the equvaent of a |udgment n the order of the oard of Ta ppeas
now fua and nothng t coud obtan from ether the Court of Cams or a
dstrct court woud be any more adequate or specfc. The statute mposes
on the Commssoner the duty of makng payment n accordance wth the fna
determnaton of the oard and f, as we thnk, ths duty s mandatory, the
wrt here prayed for s an approprate remedy. (See ouston v. Ormes, 252
U. S., 469, 472 Coe v. everna, 64 pp. D. C, 85, 73 . (2d), 852 (14 m.
ed. Ta Rep., 769) McCar v. Leand, 59 pp. D. C, 362, 42 . (2d), 846
(8 m. ed. Ta Rep., 11155) Lucas v. ackstone, 59 pp. D. C, 389, 45 .
(2d), 291 (9 m. ed. Ta Rep., 564) Ct D. 356, C. . -2, 270 .) nd If t
can be shown that t ought to ssue, t s of no consequence that another rem-
edy n another trbuna mght produce the same resut. ( no County v.
tpnwa, 24 ow., 376, 385 ar v. Unted States, supra.)
Thrd. Ths brngs us to consder the ony remanng ground of defense,
whch s that Grard, n equty and good conscence, s not entted to the wrt
of mandamus. In support of ths poston, the Commssoner says that Grard
and the wdow are the same partes n nterest and shoud be treated, n a pe-
tton addressed to the conscence of the court, precsey as though the cam
of the Government aganst the wdow was n fact a cam aganst Grard. In
reachng the concuson we have reached we sha assume, as Grard nssts
that ordnary a fna decson of the oard of Ta ppeas that an over-
payment has been made, s concusve between the partes. (Od Coony Trust
Co. v. Commssoner, 279 U. S., 716, 727 (7 m. ed. Ta Rep., 8875) Ct. D.
80, C. . II1-2, 222 .) ut we can not assume, as s contended by Grard,
that because the Commssoner before the oard faed to nterpose the
defense he now makes here, he s estopped to make t anywhere ese. The
erroneous refund to the wdow was not a queston wthn the oard s |urs-
dcton. Its statutory authorty goes no further than the ascertanment that
the ta payer has made an overpayment and s entted to a refund. ut we
do not rest our decson on that pont aone, but aso, and more partcuary,
upon the ground that the wrt of mandamus s not a wrt of rght, but Is
awarded ony n the e ercse of a sound |udca dscreton and to compe the
performance of an act whch In equty and good conscence ought to be per-
formed. Stated otherwse, the grantng of the wrt does not foow of neces-
sty the showng of a ega rght. (Unted States v. ern, 289 U. S., 852, 859.)
ven n such crcumstances, t shoud be dened f the resut w be to accom-
psh a mora thng. It ssues to remedy a wrong, not to promote one to
compe the performance of a duty whch ought to be performed, not to drect
an act whch w work a pubc or prvate mschef or w be wthn the strct
etter of the aw but n dsregard of ts sprt. (Duncan Tovcnste Co. v.
Lane, 245 U. S., 308, 811.) We may, therefore, grant Grard s contenton that
there s no statute permttng the overpayment of ta by one ta payer to be
set off aganst a ta cue from another ta payer, and we may ay asde ato-
gether the dsputed ega rght of the Unted States to a countercam or re-
coupment. We may concede, furthermore, that the cam of the Unted States
aganst the wdow s not a cam for ta es but a cam for money erroneousy
pad and that there s nothng n the statute whch permts the money due
Grard to be credted aganst the ta es due by the wdow and we may grant
that, by reason of the runnng of the statute, the Unted States s whoy
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wthout a rght to credt on the one hand or coect on the other. ut we never-
theess get back to the snge proposton whether, n a case ke ths, the court
ought to e ercse the power, whch ordnary t has, to compe the dong of
the thng whch Grard asks.
There s no charge of fraud or bad fath n ths case. P oth Mrs. rown
and the Commssoner acted on the natura and reasonabe assumpton that
the aw had been defntey setted by the decsons n the three crcuts. It s
true that, when a dfferent court of appeas decded that the Commssoner
had erroneousy assessed and coected the ta from Grard, there was st
tme n whch to brng sut aganst Mrs. rown to get back the money the
Commssoner had mstakeny refunded to her. ut n the meantme the con-
fct of vew n the severa crcuts had been submtted to the Supreme Court.
The Commssoner, nstead of actng on the safer sde, awated the decson of
that Court. We do not thnk hs Inacton In ths respect shoud be charac-
terzed as so gross as to create n ths proceedng equtes n favor of the
wdow or to destroy the equtes n favor of the Unted States. Mrs. rown
owes the Unted States a arger sum of money than the sum nvoved n ths
proceedng. If the atter sum had been pad to the Commssoner by her
rather than by her trustee, ceary she woud not now be abe to recover t.
ut here t s nssted that, because the trustee s a dstnct and separate
entty and because the assessment was made aganst t and the payment made
by t, a dfferent concuson must be reached, even though t be conceded the
money pad by t beonged to Mrs. rown.
nderson, v. Wson (289 U. S., 20, 26, 27 (12 m. ed. Ta Rep., 7) Ct.
D. 650, C. . II-1, 253 ) and Wynne v. Commssoner (77 . (2d), 473 (par.
1271 of P.- . ed. Ta Servce for 1935)) recognze the prncpe that the
trustee and benefcary are not dentca and uburd v. Commssoner (296
U. S., 300, 305) appes the rue that one ta payer may not be assessed to pay
the ta es of another. ut n the vew we take these prncpes have no rea-
ton to the stuaton here. eepng n mnd the prncpe that mandamus
shoud never ssue to work a pubc or prvate mschef, the rue n those cases
gves pace to that other rue whch Is |ust as frmy estabshed that when
necessary to prevent a wrong or do a rght, courts n order to do equty w
ook through the shadow to the substance.
In Luckenbach S. S. Co., Inc., v. W. R. Grace Co. (267 ed., 676, 081), a sub-
sdary corporaton whoy owned by ts parent breached ts contract to fur-
nsh cargo space for the carrage of ntrates between Che and the Unted
States. The subsdary was fnancay unabe to respond, and n a sut aganst
the parent, the atter was hed abe on the ground that the two corporatons
were, n the crcumstances, substantay one. udge napp sad:
or a practca purposes the two concerns are one, and t woud be un-
consconabe to aow the owner of ths feet of steamers, worth mons of
doars, to escape abty because t had turned them over a year before to a
10,000 corporaton, whch Is smpy Itsef n another form.
Under a dfferent state of facts, but to the same end, the Supreme Court,
n Chcago f. Co. v. Mnneapos sso. (247 U. S., 490), sad that courts w
not permt themseves to be bnded or deceved by mere forms of aw but, re-
gardess of fctons, w dea wth the substance of the transacton nvoved as
f the corporate agency dd not e st and as the |ustce of the case may requre.
(See, aso, to the same effect: berorombe v. rnkman, 293 ed., 375 Lews
v. fth-Thrd Natona ank, 274 ed., 5S7.)
cept for procedura dfferences, ths case s dentca wth Whte v. Stone
(78 . (2d), 136 (par. 1449 of P.- . ed. Ta Servce for 1935)). In that
case the proceedng was an acton for money had and receved here for man-
damus but n each, to secure the refund of ta es assessed aganst and pad
by trustees, not abe, for the beneft of the benefcary, who was. There It
was hed the trustees coud ony recover by showng superor equtes n ther
favor. We can thnk of no reason why the same rue shoud not appy here.
In ether case the mora obgaton s the same. In dsposng of the case, the
court sad:
Mrs. Stone s ave and the soe benefcary under the trust. If the trus-
tees are aowed to recover, t w redound to her beneft, and t s agreed that,
had the ncome n queston been ta ed to her nstead of to the trustees, she
woud have been requred to pay a greater sum than w he offset by the
aowance of ths pea. Ceary no n|ustce w be done her by so dong.
urthermore Mrs. Stone, the soe benefcary, Is the rea pantff In nterest,
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286
and equty and ustce requre that her ta abty shoud be offset aganst
the cam of the trustees.
Grard s case has been presented and argued wth force and abty am,
f the answer depended ony on the ascertanment of ts ega rghts, the con-
cuson woud have to be n ts favor bnt, as we have shown, the remedy by
mandamus s controed by equtabe prncpes. Consdered from that pont
of vew, to grant t here woud not vndcate a rght but do a wrong. ecause
of that, we thnk t s our duty to eave the partes as we fnd them.
ffrmed.
rtce 1351: Suts for recovery of ta es erro- -50-8435
ueousy coected. Ct. D. 1179
INCOM ND C SS-PRO ITS T R NU CT O 1921 UDICI L COD
D CISION O COURT.
1. Sut ursdcton of Coukt Coecton or arred Defcency
by Credt of Overpayments.
Where a barred defcency n ta for 1917 was coected, as au-
thorzed by the Commssoner, n 1924 by the credtng thereto of
overpayments for 1918 and 1919, the dstrct court has no |urs-
dcton of a sut brought aganst the Unted States to recover,
snce coecton by the appcaton of money aready n the hands
of Treasury offcas was a coecton by the Commssoner and not
by a coector, and secton 24 of the udca Code pany mts the
ursdcton of the dstrct court, where the amount camed s over
10,000, to eases n whch the ta sought to be recovered was co-
ected by a coector who s dead or out of offce at the tme the sut
was commenced.
2. Certorar Dened.
Petton for certorar dened October 12, 1930.
Unted States Crcut Court of ppeas for the S th Crcut.
Unted States, appeant, v. The Reeves ros. Co., appeee.
ppea from the Dstrct Court of the Unted Sates for te Northern Dstrct of Oho,
astern Dvson.
efore Moorman, cks, and ces, Crcut udges.
pr 8, 1936.
opnon.
Moorman, Crcut udge: ppeee fed wth the coector of Interna revenue
for the approprate dstrct corporaton ncome and e cess-proft ta returns
for te years 1917, 1918, and 1919 and pad the ta es shown theren to be due.
fter audtng the returns, the Commssoner of Interna Revenue determned
that addtona ta es were due from te appeee for the year 1917, but that
there had been overassessments for the years 1918 and 1919. The appeee was
notfed by te Commssoner that a certfcate of overassessment for 1918 and
1919 for the amounts he had determned woud be ssued through the offce of
the coector for te appeee s dstrct and woud be apped by that offcer In
accordance wth the provsons of secton 252 of the Revenue ct of 1921 (42
Stat., 227, ch. 130). On March 29, 1924, the Commssoner sgned a schedue
of overassessments showng the overassessments for 1918 and 1919. On the
schedue he Instructed the coector to appy payments that had been made on
the overassessments as credts aganst ta es due from the ta payer. The co-
ector comped wth the nstructon and returned the schedue to the Conuns-
soner, who on May 6, 1924, authorzed the dsbursng cerk of the Treasury
Department to appy te overpayments for 1918 and 1919 to the ta for 1917.
t that tme the coecton of the 1917 ta was barred. Camng that the credt
amounted to an overpayment of 1917 ta es, the appeee brought sut aganst
Routzan, the coector, to recover t. We hed n outeahn v. Reeves ros. Co.
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287
1116, rt. 1371.
(59 . (2d), 915 (11 m. ed. Ta Rep., 622) Ct. D. 590, O. . I-2, 407 ),
that the credtng of the overpayments to the 1917 ta amounted to the payment
of the ta , but we aso hed that t coud not be recovered from Coector
Routzahn because he had not receved or coected t. Thereafter the appeee
brought ths sut aganst the Unted States n the Dstrct Court for the Northern
Dstrct of Oho to recover t as an overpayment of 1917 ta es.
The sut s not on an account stated (cf. onct Teer Co. v. Unted States,
283 U. S., 258 (51 S. Ct, 395, 75 L. d., 1018, 9 m. ed. Ta Rep., 1421) Ct
D. 334, C. . -, 328 ), nor to recover an overpayment of ta es for the year
1918 and 1919, but to recover a sum egay coected from the appeee as a
1917 ta . The tra court aowed a recovery and entered |udgment accordngy.
The cam s for a ta n e cess of 10,000. The Government rases a queston
of the |ursdcton of the dstrct court to entertan a sut to recover t. ursdc-
ton of the court, f t e sted, must be found n secton 24 of the udca Code
(28 U. S. C. ., secton 41(20)), whch gves to dstrct courts concurrent urs-
dcton wth the Court of Cams of a cams not e ceedng 10,000 founded
upon the Consttuton of the Unted States or any aw of Congress, and of any
sut or proceedng commenced after the passage of the Revenue ct of 1921 for
the recovery of any nterna revenue ta aeged to have been erroneousy or
egay assessed or coected, or of any penaty camed to have been coected
wthout authorty, or any sum aeged to have been e cessve or n any manner
wrongfuy coected under the nterna revenue aws even f the cam e ceeds
10,0 ), f the coector of nterna revenue by whom such ta , penaty or sum
was coected s dead or s not n offce as coector of nterna revenue at the
tme such sut or proceedng s commenced.
Under ths statute the |ursdcton of a dstrct court, n a sut to recover a
ta n e cess of 10,000 erroneousy or egay coected by the Government,
depends on whether the ta was coected by a coector of nterna revenue who
at the tme the sut s commenced s dead or s not n offce. Routzahn s the
present coector for the dstrct n queston. The ta was coected by the ap-
pcaton thereto of money aready n the hands of Treasury offcas. It was
not coected by a coector of nterna revenue. When the funds apped to the
ta came nto the possesson of the Treasury they passed, t s true, through the
hands of a coector for the dstrct, Routzahn s predecessor, who s not now n
offce, but they passed through hs hands as ta es for 1918 and 1919 and not as
1917 ta es. fter reachng the Treasury n ths manner, they were hed by the
Treasury offcas unt May 6, 1924, when the Commssoner of Interna Revenue
authorzed ther appcaton to the defcency n the appeee s 1917 ta es. Ths
act coected the ta for 1917, the ta whch the appeee s here seekng to
recover as an overpayment for that year. (Uttcd States v. Swft Co., 282
U. S., 468 51 S. Ct., 202, 75 L. d., 404, 9 m. ed. Ta Rep., 970 Ct. D. 290,
C. . -, 283 .) It was an act of the Commssoner, a coecton by the Comms-
soner and not by Routzahn s predecessor n offce, through whose hands the
funds had passed to the Treasury for other purposes.
The |ursdcton conferred on dstrct courts to hear and determne suts
aganst the Unted States for the recovery of an egay or erroneousy e acted
ta n e cess of 10,000 s pany mted by secton 24 of the udca Code to
cases where the ta was coected by a coector of nterna revenue who s dead
or out of offce. It s qute as essenta to the |ursdcton that the ta was
coected by a coector of nterna revenue as, where so coected, that he be
dead or out of offce. ere the ta was not coected by a coector of nterna
revenue, and a Unted States dstrct court has no |ursdcton of an acton to
recover t. (See Moses v. Unted States, 61 . (2d), 791 (11 m. ed. Ta Rep.,
993) (C. C. . 2) Ct. D. 673, C. . II-1, 328 .)
The |udgment s reversed and the cause remanded wth nstructon to dsmss
the petton.
S CTION 1116. INT R ST ON R UNDS ND CR DITS.
btce 1371: Interest on refunds and credts.
R NU CTS O 1924 ND 1D26.
Interest on overpayment credted aganst ta es for pror vears.
(See Ct. D. 1168, page 274.)
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111S, rt. 1391.
288
S CTION 1118. P YM NT O ND R C IPTS
OR T S.
rtce 1391: Payment of ta by Treasury cer- -45-8382
tfcates of ndebtedness and Treasury notes. T. D. 4703
Reguatons governng the acceptance of Treasury bs, Treas-
ury certfcates of ndebtedness, and Treasury notes In payment
of ncome and profts ta es. rtces 1391 and 1392, as amended,
of Reguatons 69 revoked.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Pursuant to the provsons of sectons 1118(a) and 1101 of the
Revenue ct of 1926 and secton 5 of the Second Lberty ond ct
of 1917, as amended, and by vrtue of a other authorty of aw, the
foowng reguatons are hereby prescrbed:
rtce 1. cceptance of Treasury bs, Treasury certfcates of ndebtedness,
and Treasury notes n payment of ncome and profts ta es. Coectors of n-
terna revenue are authorzed and drected to receve, at par or doar face
amount, n payment of ncome and profts ta es whch the ta payer Is re-
qured to pay on the date of maturty of the bs, certfcates or notes, respec-
tvey, that s, ta es due for the frst tme on that date and whch woud be
overdue thereafter, Treasury bs, Treasury certfcates of ndebtedness and
Treasury notes, the maturty dates of whch are the 15th day of any caendar
month, and whch accordng to the e press terms of ther ssue are made ac-
ceptabe n payment of ncome and profts ta es. Coectors are not authorzed
hereunder to receve In payment of ta es any Treasury bs, Treasury certf-
cates of ndebtedness or Treasury notes whch are not accordng to the e press
terms of ther ssue made acceptabe n payment of ta es, nor any such bs,
certfcates or notes whch mature on a date other than the date on whch the
ta es, n payment of whch the bs, certfcates or notes, respectvey, are
tendered, are requred to be pad. When the ta es are due on Sunday, the
bs, certfcates or notes n payment thereof may be accepted on the foowng
day. In a other cases coectors are authorzed to receve Treasury bs.
Treasury certfcates of Indebtedness and Treasury notes In payment of ncome
and profts ta es ony on the date of maturty of the bs, certfcates or notes,
or wthn a reasonabe tme mmedatey pror thereto. Interest coupons
attached to Treasury certfcates of ndebtedness and Treasury notes sha be
detached by the ta payer before presentaton to the coector and coected In
ordnary course when due. Recepts gven by coectors to ta payers sha
show the descrpton of the bs, certfcates or notes receved In payment of
ta es, ncudng the e act doar face amount thereof, and that the bs, certf-
cates or notes, respectvey, are tendered by the ta payer and receved by the
coector, sub|ect to no condton, quafcaton or reservaton whatsoever, n
payment of no more than an amount of ta es equa to such doar face amount.
Coectors shu n no case pay nterest on the bs, certfcates or notes, or
accept them for an amount ess or greater than ther doar face amount. If
any bs, certfcates of Indebtedness or notes are offered n payment of ncome
or profts ta es sub|ect to any condton, quafcaton or reservaton whatso-
ever, or for any greater amount than the par or doar face amount thereof,
they w not he deemed to be duy tendered and the coectors sha refuse any
such offer and return the bs, certfcates of ndebtedness or notes, respectvey,
to the ta payer mmedatey.
rt. 2. Procedure wth respect to Treasury bs, Treasury certfcates of
ndebtedness, and Treasury noes. Deposts of Treasury bs, Treasury cer-
tfcates of ndebtedness and Treasury notes receved n payment of ncome and
profts ta es sha be made by coectors, uness otherwse specfcay Instructed
by the Secretary of the Treasury, wth the edera reserve bank of the dstrct
n whch the coector s head offce s ocated, or, In case such head offce s
ocated n the same cty wth a branch edera reserve bank, wth such branch
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289
1118, rt. 1391.
edera reserve bank. Specfc Instructons may be gven to coectors by tbe
Secretary of the Treasury In certan nstances for the depost of the bs,
certfcates and notes wth edera reserve banks of other dstrcts and branch
edera reserve banks. The term edera reserve banks where t appears
heren, uness otherwse ndcated by the conte t, ncudes branch edera
reserve banks. Treasury bs, Treasury certfcates and Treasury notes ac-
cepted by the coector pror to the date or dates wth respect to whch they are
acceptabe n payment of ta es sha be forwarded by the coector to the
edera reserve bank to be hed for account of the coector unt the ta -
payment date and for depost on such date.
Coectors of nterna revenue are not authorzed, uness e press nstructons
otherwse are gven by the Secretary of the Treasury, to receve n payment of
ncome or profts ta es nterm recepts ssued by edera reserve banks n eu
of defntve bs, defntve certfcates or defntve notes.
Treasury bs, Treasury certfcates of ndebtedness and Treasury notes sha
n a cases be ndeby stamped on the face thereof, as foows, by the co-
ector, and when so stamped sha be devered to the edera reserve bank n
person f the coector s ocated n the same cty and n a other cases
forwarded by regstered ma unnsured:
19
Ths b/note/certfcate has been accepted n payment of ncome and profts
ta es and w not be redeemed by the Unted States e cept for credt of the
undersgned.
Coector of Interna Revenue
for the dstrct of
When Treasury bs, Treasury certfcates of ndebtedness or Treasury notes
ore devered to the edera reserve bank n person rather than by regstered
ma unnsured, where the coector s head offce and the edera reserve bank
are ocated n the same cty, coectors sha make, In tabuar form, a schedue
n dupcate of the bs, certfcates of ndebtedness or notes to be presented
to the edera reserve bank, showng the sera number of each b, certfcate
or note, the date of ssue and maturty, wth sera desgnaton, and doar face
amount. s, certfcates of ndebtedness and Treasury notes accepted here-
under pror to the ta -payment date sha be schedued separatey. t the
bottom of each schedue there shoud be wrtten or stamped Income and
Profts Ta es, , whch amount must agree wth the tota shown on the
schedue. One copy of ths schedue sha accompany bs, certfcates or notes
presented to the edera reserve bank and the other be retaned by the co-
ector. The ncome and profts ta deposts resutng from the deposts of
such bs, certfcates or notes sha n a cases be shown on the face of the
certfcate of depost ( orm 15), separate and dstnct from the tem of
msceaneous nterna revenue coectons.
Where the coector s head offce and the edera reserve bank are not ocated
n the same cty, and t s necessary to transmt the bs, certfcates or notes
to the edera reserve bank by regstered ma unnsured, the foowng re-
qurements, wth respect to the preparaton of shpments, sha be observed.
The bs, certfcates or notes sha n a cases be stamped on the face thereof,
and the schedue of bs, certfcates or notes transmtted sha be prepared as
prescrbed n the case of bs, certfcates or notes devered to the edera
reserve bank n person, e cept that the schedue of securtes sha be prepared
n trpcate. The orgna copy of such schedue sha be forwarded to the
edera reserve bank by separate regstered ma, and sha bear a certfcate
sgned by two empoyees of the offce of the coector, statng
(a) That they nspected and checked the shpment before seang
(6) That each b, certfcate or note sted was propery canceed by stamp-
ng on the face thereof the prescrbed egend
(c) That the shpment was scaed n ther presence before t eft ther
mmedate contro and
(d) That each and every securty sted was n the package when maed.
The dupcate copy of the schedue sha be ncosed wth the securtes, and
the trpcate retaned by the coector. It s mportant that the coector s
retaned copy be carefuy preserved, and n ths connecton t s recommended
that the certfcate of the two empoyees be entered aso on the retaned copy,
In order that no compcaton may arse n the event that the orgna copy
Is ost or destroyed.
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1122.
290
Unt certfcates of depost are receved from the edera reserve banks,
the amounts represented by the bs, certfcates of ndebtedness or notes for-
warded for depost sha be carred by coectors as cash on hand or In banks,
and not credted as coectons, as the dates of certfcates of depost determne
the dates of coectons.
or the purpose of savng ta payers the e pense of transmttng such bs,
certfcates or notes as are hed n edera reserve ctes or edera reserve
branch bank ctes to the offce of the coector n whose dstrct the ta es are
payabe, ta payers desrng to pay ncome and profts ta es by such Treasury
bs, Treasury certfcates of ndebtedness or Treasury notes acceptabe n
payment of ta es, shoud communcate wth the coector of the dstrct n
whch the ta es are payabe and request, from hm authorty to depost such
bs, certfcates or notes wth the edera reserve bank n the cty n whch
the bs, certfcates or notes are hed. Coectors are authorzed to permt
deposts of Treasury bs, Treasury certfcates of ndebtedness or Treasury
notes n any edera reserve bank, wth the e press understandng that the
edera reserve bank s to ssue a certfcate of depost n the coector s name
coverng the doar face amount of the bs, certfcates or notes, and to state
on the face of the certfcate of depost that the amount represented thereby
s n payment of an equa doar amount of ncome or profts ta es. The
edera reserve bank shoud forward the orgna certfcate of depost to the
Treasurer of the Unted States wth ts day transcrpt, and transmt the
dupcate to the Commssoner of Interna Revenue, ccounts and Coectons
Unt, Washngton, D. C, and the trpcate to the coector, accompaned by
a statement gvng the name of the ta payer for whom the payment s made,
n order that the coector may make the necessary record. Recepts gven
by the edera reserve banks to the ta payers for the bs, certfcates or notes
deposted by such ta payers shoud show the descrpton of such bs, cer-
tfcates or notes receved n payment of ta es, ncudng the e act doar face
amount thereof, and that the bs, certfcates or notes, respectvey, are
tendered by the ta payer and receved by the edera reserve bank, sub|ect
to no condton, quafcaton or reservaton whatsoever, n payment of no more
than an amount of ta es equa to such doar face amount.
rt. 3. Pror reguatons revoked. rtces 1391 and 1392, as amended, of
Reguatons 69 and the provsons of any reguaton, rue, order or nstructon
nconsstent wth ths Treasury decson are revoked as of.the date of the
approva of ths Treasury decson.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved November 3, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 4, 1936, 3.23 p. m.)
S CTION 1122. URISDICTION O COURTS.
-32-8232
Ct. D. 1144
ncome and pkofts ta revenue act of 1918 decson of court.
Sut Res udcata Whether Pkor Decson Was Upon Merts.
|udgment of the crcut court of appeas dsmssng a sut for
recovery of an overpayment of 1918 ta es on the ground that no
suffcent and tmey cam for refund had been fed s res |udcata
and a bar to a sut n the Court of Cams upon the same cause of
acton. The pror |udgment was upon the merts, nasmuch as the
cause of acton depended n part upon whether a proper and tmey
cam had been fed, and the court had |ursdcton to determne
that queston. The fact that the case was decded upon a pont of
aw does not make the |udgment one not rendered upon the merts.
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291
51122.
Coubt of Cams op the Unted States.
rt Meta Constructon Co. v. The Unted States.
March 2, 1936.
OPINION.
Gbeen, udge, devered the opnon of the court
Pantff brngs ths sut to recover 41,146.12 wth nterest, beng the amount
of admtted overpayment of ts ta es for the year 1918. It Is conceded by
defendant that pantff woud be entted to recover ths sum wth nterest f
ths were the frst tme sut had been brought on ths cause of acton. It appears
that n 1928 the pantff brought a sut to recover the amount of ths same
overpayment wth nterest In the Dstrct Court of the Unted States for the
Western Dstrct of New York and In that court obtaned a udgment for
41,146.12 wth nterest rom ths |udgment the defendant took an appea to
the Crcut Court of ppeas for the Second Crcut, where ths udgment was
reversed and the cause of acton remanded wth nstructons to dsmss the
petton. fter an neffectua attempt on the part of the pantff to obtan a
certorar from the Supreme Court the case was dsmssed. y reason of these
proceedngs the defendant now contends that the pantff s cam Is res
ad|udcata.
The argument made on behaf of pantff s that the udgment upon whch
defendant rees was not rendered upon the merts of the case, that pantff s
case was dsmssed for want of |ursdcton, and that therefore the |udgment
rendered s no bar to the sut now pendng n ths court. Ths contenton s
based on the fact that the opnon of the crcut court of appeas, of whch ths
court w take |udca notce, shows that the pror sut was dsmssed upon
the ground that no suffcent and tmey cam for refund had ever been fed
by the pantff. Severa cases are cted whch seem to hod that where no
proper cam for refund was fed the court has no |ursdcton. If as a mat-
ter of aw the court had no |ursdcton to hear and determne the case, there
was no tra on the merts, and the |udgment rendered n the former sut woud
not be a bar to the present acton. Ths makes t necessary to determne
whether the decree of the court rendered n the former sut was based on ack
of |ursdcton.
The precse queston whch s now before us was not nvoved In any of the
cases whch are cted by counse for pantff, and we can not therefore regard
the anguage used n these decsons as controng. In a of these cases and
n the sut formery begun the court had |ursdcton to enter upon the tra
of the case and hear the evdence offered. If the evdence faed to show some
fact whch under the statute must be estabshed n order for pantff to man-
tan ts acton, ths, n our vew, was smpy a faure of proof of one of the
essenta features of pantffs ease. In Ordway v. oston, etc., R. Co. (69 N. .,
429, 430), quotng from a Georga case and ctng ack on udgments, t was
sad:
|udgment Is 1 upon the merts when t amounts to a decaraton of the
aw as to the respectve rghts and dutes of the partes, based upon the ut-
mate fact or state of facts dscosed by the peadngs and evdence, and upon
whch the rght of recovery depends, .
Pantff s cause of acton depended n part upon whether a proper and
tmey cam was fed. We thnk the court ceary had |ursdcton to deter-
mne ths matter and that t was an nherent part of pantff s case.
No reference Is made In the opnon of ether the dstrct court or the crcut
court of appeas to a want of |ursdcton, and (he fact that the case was
decded on a pont of aw does not make the |udgment one whch was not
rendered upon the merts. In Unted States v. foser (266 U. S., 236) the
Supreme Court sad:
determnaton In respect of the status of an ndvdua upon whch hs
rght to recover depends Is as concusve as a decson upon any other
matter. (Cemens v. Cemens, 37 N. Y., 59, 72 Pttsford v. Chttenden, supra ).
The dstrct court n ts opnon stated that the ssues n the case were
rst, whether the statute of mtaton bars recovery and, second, whether
the orgna cam for refund fed by pantff was defectve and nsuffcent
58 t., 49.
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1122.
292
n fang to ask the beneft of speca assessment and, thrd, whether the
cam was sub|ect to amendment before re|ecton.
It w be observed that these are the same ssues that are presented by
pantffs petton to ths court. They are a questons of ether aw or fact,
or m ed questons of aw and fact. The dstrct court, and the crcut court
of appeas n revewng ts decson, had |ursdcton to determne a of these
ssues, and they were determned so far as was necessary for a decson of the
case and an entry of |udgment theren. The fna decson of the former sut
was not n accordance wth the aw as stated by ths court and affrmed by
the Supreme Court, but the |udgment rendered theren was nevertheess an
ad|udcaton of pantff s rghts. We thnk that everythng appears whch s
requste to make the former |udgment fna.
The case presents an unfortunate stuaton, but we thnk t cear that the
|udgment rendered n the pror sut s a bar to the acton now pendng n ths
court and that pantff s petton must be dsmssed. It s so ordered.
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MISC LL N OUS T RULINGS.
TITL IIL ST T T . (1926)
S CTION 302, R NU CT O 1926, S M ND D Y S CTION 202,
R NU CT O 1935.
Reg atons 80, rtce 13 : Optona vauaton -40-8340
date. T. D. 4G99
state ta . Reguatons 80 amended. Optona date of vaua-
ton of gross estate.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 80, reatng to the estate ta and approved November 7,
1934, are hereby amended by addng the foowng between artces
13 and 14:
Sec. 202. (Revenue ct of 1935.) state Ta auaton.
(a) Secton 302 of the Revenue ct of 19120, as amended, s amended by add-
ng a new subdvson as foows:
(|) If the e ecutor so eects upon bs return (f fed wthn the tme pre-
scrbed by aw or prescrbed by the Commssoner n pursuance of aw), the
v::ue of the gross estate sha be determned by vaung a the property n-
cuded theren on the date of the decedent s death as of the date one year after
the decedent s death, e cept that (1) property ncuded n the gross estate on
the date of death and, wthn one year after the decedent s death, dstrbuted
by the e ecutor (or, n the case of property ncuded n the gross estate under
subdvson (c), (d), or (f) of ths secton, dstrbuted by the trustee under the
nstrument of transfer), or sod, e changed, or otherwse dsposed of, sha be
ncuded at ts vaue as of the tme of such dstrbuton, sae, e change, or other
dsposton, whchever frst occurs, nstead of ts vaue as of the date one year
after the decedent s death, and (2) any nterest or estate whch s affected by
mere apse of tme sha be Incuded at ts vaue as of the tme of death
(nstead of the ater date) wth ad|ustment for any dfference n ts vaue as
of the ater date not due to mere apse of tme. No deducton under ths tte
of any tem sha be aowed f aowance for such tem s n effect gven by
the vauaton under ths subdvson. Wherever n any other subdvson or
secton of ths tte or n Tte II of the Revenue ct of 1932, reference s made
to the vaue of property at the tme of the decedent s death, such reference
sha be deemed to refer to the vaue of such property used n determnng the
vaue of the gross estate. In case of an eecton made by the e ecutor under
ths subdvson, then for the purposes of the deducton under secton 303(a) (3)
or secton 303(b)(3), any bequest, egacy, devse, or transfer enumerated
theren sha be vnued as of the date of decedent s deat) wth ad|ustment for
any dfference n vaue (not due to mere apse of tme or the occurrence or non-
occurrence of a contngency) of the property as of the date one year after the
decedent s death (substutng the date of sae or e change n the case of
property sod or e changed durng such one-year perod).
(b) The amendment made by ths secton sha be effectve ony wth respect
to transfers of estates of decedents dyng after the date of the enactment of
tn s ct.
(293)
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Regs. 80, rt, 13y2.
294
rt. 1314. Optona vauaton date. In genera, the ob|ect of subdvson ( )
of secton 302 s to make provson whereby the amount of ta otherwse pay-
abe may be essened when, wthn the year foowng the decedent s death, he
gross estate has suffered a shrnkage n ts aggregate vaue.
If the decedent ded after ugust 30. 1935, the e ecutor may, by an eecton
upon hs return. orm 70C, f fed wthn the tme prescrbed by aw or pre-
scrbed by the Commssoner n pursuance of aw, have the property whch was
ncuded n the gross estate on the date of the decedent s death vaued as of the
appcabe dates, as foows:
(1) ny property dstrbuted, sod, e changed, or otherwse dsposed of wthn
me year after the decedent s death, vaued as of the date of such dstrbuton,
sae, e change, or other dsposton, whchever frst occurs
(2) ny property not dstrbuted, sod, e changed, or otherwse dsposed of
wthn such 1-year perod, vaued as of the date one year after the date of the
decedent s death
(3) ny property, nterest, or estate whch s affected by mere apse of tme,
vaued as of the date of decedent s death e cept that an ad|ustment s to be
made for any dfference n ts vaue, not due to such apse of tme, as of the
date one year after the date of decedent s death, or as of the date of ts dstr-
buton, sae, e change, or other dsposton, whchever date frst occurs.
Property dstrbuted s mted to dstrbutons thereof by the e ecutor, or
by the trustee n the case of property ncuded n the gross estate under subd-
vson (c), (d), or (f) of secton 302, as amended. Dstrbuton may be
effected by the entry of the order or decree of dstrbuton, or, f there s no
such order or decree, by the segregaton or separaton of the property from the
estate or the trust, or by the actua payng over or devery of the property to
the person entted thereto by the w, or under the aw, or by the terms of te
trust.
The sae, e change, or other dsposton, to whch subdvson (|) refers, may
be one made by the e ecutor, or by the trustee of property ncuded n the gross
estate under subdvson (c), (d), or (f) of secton 302, as amended, or by any
other person to whom the property had not been dstrbuted by the e ecutor
or by such a trustee, or to whom t had not passed from the gross estate as the
resut of a sae, e change, or other dsposton thereof, as, for e ampe, a sae,
e change, or other dsposton by an her, devsee, donee, or grantee to whom
the decedent n hs fetme transferred the property, or by the survvor of the
decedent f the property had been hed by them sub|ect to the rght of
survvorshp.
Property, n the case of a sae, e change, or other dsposton thereof wthn
the 1-year perod, s to be vaued as of the date when It ceases to form a
part of the gross estate, that s, the date when the tte passes as the resut
of ts sae, e change, or other dsposton. The terms, dstrbuted, sod,
e changed, or otherwse dsposed of, comprehend a possbe ways by
whch property may be separated or passed from the gross estate. Thus, money
on hand at decedent s death whch s thereafter used n the payment of the
funera e enses, or n settement of cams aganst the estate, or s nvested,
fus wthn the term otherwse dsposed of.
The property to be vaued as of one year after the date of decedent s death,
or as of date of decedent s death, or as of some Intermedate date, s the prop-
erty ncuded n the gross estate on the date of the decedent s death. s
property and ts vaue are separate and dstnct, the former denotng ega
rghts, the atter the monetary measure of such rghts, and as subdvson ( )
treats of the two separatey, It w be necessary n every case frst to deter-
mne what property consttuted the gross estate at decedent s death. Other
subdvsons of secton 302, as amended, rather than subdvson (|), suppy the
nformaton necessary to that determnaton, subdvson (|) beng, n the man,
confned to the date or dates as at whch the vaue Is to be ascertaned.
Interest-bearng obgatons, such as bonds and notes, embody two promses,
one to pay prncpa and the other to pay nterest, and both promses are a part
of the gross estate at the death of the decedent, If the obgaton was then owned
by hm, or had been prevousy so transferred by hm, or at hs death there
was vested n hm any such rght or power n or wth respect to the obgaton
as to brng t wthn any of the other subdvsons of secton 302, as amended.
If the vauaton date s that of decedent s death, the prncpa of the obgaton
and nterest then accrued and unpad thereon are to be vaued as of that date.
If the vauaton date s subsequent to death, the prncpa and Interest then
uccrued and unpad are to be vaued as of that date. The vauaton date of
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295
Regs. 80, rt. 18)4.
any part payment of prncpa or of any nstament of nterest, made between
decedent s death and the date as at whch the obgaton s to be vaued, w
be the date of such payment.
Lke rues w govern, so far as appcabe, when any other obgaton s
nvoved, as, for e ampe, one cang for the payment of rent or a royaty. Thus,
In the case of rent, f the reaty and the obgaton to pay the rent reserved were
parts of the gross estate at the tme of decedent s death, the vaue of the former
must be determned as of the appcabe vauaton date, and aso the vaue of
the rent then accrued and unpad reserved by the atter. The vauaton date of
any rent pad n the nterm pursuant to the renta obgaton w be the date
of ts payment.
s n the case of bonds and notes, the nterest accrued and unpad upon a
|udgment on the date as of whch the |udgment s to be vaued s to be ncuded
n the vauaton. The vauaton date of any part payment of the udgment,
or of any nterest thereon (wthout regard to whether earned before or after
decedent s death), made between decedent s death and the date as of whch
the udgment s to be vaued, w be the date of such payment.
When corporate stock s a part of the gross estate at decedent s death, and
a dvdend n parta qudaton s thereafter pad on or before the date as of
whch the stock s to be vaued, the vauaton date of such dvdend w be the
date of ts payment. Smary, a dvdend pad wthn the same perod out of
earnngs, whether made or accumuated pror or subsequent to decedent s
death, w be vaued as of the date of ts payment. arnngs of the corporaton
nether decared as a dvdend nor pad between decedent s death and the vaua-
ton date of the stock, w be refected n the vaue of the stock. ut a dvdend
decared pror to the vauaton date of the stock but payabe subsequent thereto
w not be so refected f e dvdend on vauaton date of the stock, but s
to be vaued as of that date.
Dfferng from payments of prncpa and nterest n the case of bonds and
notes, those made upon a udgment are not pursuant to a promse but to an
obgaton mposed by aw, whch obgaton, n ts totaty, s a part of the
gross estate at decedent s death f comng wthn any of the other subdvsons
of secton 302, as amended. So, too, qudatng dvdends and dvdends pad
from earnngs are not pursuant to a promse but are referabe to ega rghts
nherent n stock ownershp.
y way of ustratng the operaton of subdvson (|), there s gven the
foowng e ampe n whch the death of the decedent w be taken to have
occurred December 1, 1935:
Descrpton.
auaton
date.
aue at
vauaton
date.
aue at
date of
death.
Improved rea estate not dsposed ot wthn year foowng
Dec. 1,1936
Dec. 1,1936
an. 1,1936
une 1.1936
une 1,1936
pr. 1,1938
Nov. 1,1938
ug. 1,1936
Oct. 1,1936
30,000
900
600
69,400
400
1,200
35,000
600
Rents accrued but unpad under ease antedatng decedent s death-
onds sod une 1,1936
60,000
400
Interest pad pr 1.1936
oo. ooo
200,000
100.000
12,000
12,000
80
Corporate stock not dsposed ot wthn year foowng decedent s
death, and upon whch no dvdend was pad n that perod
Oct. 1,1936
pr. 1,1936
240
240
Dec. 1,1936
60,000
100,000
Tota vaue of gross estate as of date of decedent s death
354,980
407,980
Propertes, nterests, or estates whch are affected by mere apse of tme n-
cude patents, estates for the fe of another other than the decedent, re-
manders, reversons, and other ke propertes, nterests, or estates. The
phrase, affected by mere apse of tme, has no reference to obgatons for
the payment of money, whether or not nterest-bearng, the vaue of whch
changes wth the passng of tme. owever, such an obgaton, ke any other
property, may become affected by apse of tme when made the sub|ect of a
bequest or transfer whch tsef s creatve of an nterest or estate so affected.
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Regs. 80, rt. 13 - 296
The date of vauaton of any property, nterest, or estate so affected s, as
prescrbed n subdvson (|), the date of decedent s death, but wth an ad-
|ustment to be made of the vaue then obtanng whch ad|ustment, whe ds-
regardng any ater ncrease or decrease n vaue due soey to apse of tme,
adds to or subtracts from the vaue at death any dfference between that vaue
and the vaue as of the date one year after decedent s death, or the appcabe
ntermedate date, f, and to the e tent that, such dfference was due to a cause
or causes other than apse of tme. ccordngy, n the vauaton of any prop-
erty, Interest, or estate affected by apse of tme, the dfference between ts
vaue at decedent s death and ts vaue as of the ater date must be anayzed
to determne the porton of such dfference attrbutabe to other cause or
causes, and that porton ony s to be apped n ad|ustng the vaue as of
the date of the decedent s death. If, for e ampe, the decedent owned a patent
whch on the date of hs death had an une pred term of 10 years and a vaue
df 100,000, and f the patent was sod s months after the decedent s death
at whch tme, because of the apse of tme and other causes, ony 83,000 was
reazed therefor, the vaue woud be determned as foows:
aue of patent on date of decedent s death 100,000
Dfference between vaue on date of death and date of sae
( 100,000 mnus 85,000) 35,000
Porton of such dfference due to the s months eapsng
between date of death and date of sae (one-haf of 10
per cent of 100,000) 5,000
Porton of dfference due to causes other than apse of tme 80,000
d|usted vaue of patent 70,000
Or, to gve another e ampe, t may be supposed that the decedent was en-
tted to receve property, whch at the tme of hs own death was worth
50,000, upon the death of another person who was entted to the ncome
therefrom for fe and who was 31 years od at the tme of the decedent s
death. The vaue at decedent s death of hs remander nterest woud, as e -
paned n the ffth e ampe of artce 13(10) of these reguatons, be 15,631,
and f, due to economc condtons, the property decned n vaue and became
worth 40,000 one year after the date of decedent s death, the vaue of the
remander nterest woud be determnabe n the foowng manner:
aue of remander nterest at decedent s death (50,000 tmes factor
(0.31262) shown opposte age 31 n coumn 3 of Tabe , artce 13
of eguatons 80) , 15,631.00
aue of remauder nterest one year after decedent s death (40,000
tmes factor (0.31929) shown n Tabe , for age 32) 12, 771.60
Net dfference due n part to decne n vaue of the property and
n part to ncrease n the vaue of the remander nterest due to
apse of tme 2, 859. 40
mnaton of the ncrease due to apse of tme (50,000 tmes the
dfference between the factor for age 32 and the factor for age 31,
or 0.00667) 333.50
Porton of the dfference n vaue due to the decne n vaue of
the property 3,192.90
aue of remander nterest at decedent s death , 15,631.00
Less porton of dfference not due to apse of tme 3,192. 90
d|usted vaue of remander Interest 12, 438.10
(The amount of the ad|ustment may be computed more ready by mutpy-
ng the decne n the vaue of the property ( 10,000) by the factor (0.31929)
appcabe to the ater date.)
Deductons authorzed under secton 303 are mted to the e tent that aow-
ance thereof Is not, n effect, gven n the vaung of the gross estate. Prop-
erty passng by decedent s w, or passng by a transfer made by the decedent
n hs fetme (f the transfer was such as to requre the property transferred
to be ncuded n the gross estate) to or for any such pubc, chartabe,
or regous uses as are descrbed n secton 303(a)3 or n secton 303(b)3,
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297
Regs. 80, rt. 13.
s deductbe at Its vaue as of the date of the decedent s death, sub|ect,
however, to ad|ustment for any dfference n vaue one year after such death,
or at the date of the sae or e change In the case of property sod or e changed
durng such 1-year perod. ut no such ad|ustment may take Into account
any dfference In vaue due to apse of tme or to the occurrence or non-
occurrence of a contngency.
The eecton s avaabe to the e ecutor ony at the tme the return s
fed, and ony f the return s fed wthn 15 months from the decedent s
death, or wthn the perod of an e tenson of tme for fng granted under
the provsons of artce 68 or 69, as amended by Treasury Decson 4627
C. . -1, 341 , of these reguatons. The eecton appes to a the prop-
erty ncuded n the gross estate on the date of the decedent s death. It can not
be apped ony to a porton of such property. The eecton, If e ercsed, can not
be rescnded.
In every case where the eecton Is e ercsed, the return, orm 706, must
set forth (1) an temzed descrpton of a property ncuded In the gross
estate on the date of the decedent s death together wth the vaue of each
tem as of that date, (2) an temzed dscosure of a dstrbutons, saes,
e changes, and other dspostons of any of the pro erty durng the 1-year
perod after the decedent s death, together wth the dates thereof, and (3)
the vaue of each tem of property determned 4n accordance wth the prov-
sons of subdvson (|). The amount of any ncome accrued and unpad at
the date of the decedent s death on each tem of prncpa, the amount of any
ncome coected or otherwse reazed thereon after the decedent s death
and pror to the date as of whch the tem of prncpa s to be vaued, and
the amount of any Income accrued and unpad thereon at such subsequent
vauaton date, sha be separatey shown. the nformaton ndcated by
orm 706 must be supped. Statements as to dstrbutons, saes, e changes,
and other dspostons of the property wthn the 1-year perod must be
supported by evdence. If the court makes an order or decree of dstrbuton
durng that perod, a certfed copy thereof must be submtted as part of the
evdence. The Commssoner may requre the submsson of such addtona
evdence as Is deemed necessary.
If the eecton Is e ercsed, then wherever n any other artce of these
reguatons, e cept n artces 57 and 63, as amended by Treasury Decson
4627, reference s made to the vaue of property at the tme of the decedent s
death, such reference sha be deemed to refer to the vaue thereof used n
determnng the vaue of the gross estate.
Ths Treasury decson s prescrbed pursuant to the authorty
contaned n secton 1101 of the Revenue ct of 1926.
Guy T. everng,
Commssoner of Interna Revenue.
pproved September 25, 1936.
Wayne C. Tayoh,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 28, 1936, 12.53 p. m.)
TITL IIL ST T T . (1926)
S CTION 302 O T R NU CT O 1926, S M ND D Y
S CTION 404 O T R NU CT O 1934.
Reguatons 80, rtce 13: auatons. -43-8362
.T.8
auaton of mortgages and mortgage partcpaton certfcates
for edera estate ta purposes.
dvce s requested as to the evdence whch must be furnshed by
an estate for consderaton by the ureau n determnng the vaue
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Regs. 80, rt. IS.
298
of mortgages and mortgage partcpaton certfcates owned by a
decedent at the date of death.
Secton 302 of the Revenue ct of 1926, as amended by secton
404 of the Revenue ct of 1934, provdes n part as foows:
The vaue of the gross estate of the decedent sha be determned by n-
cudng the vaue at the tme of hs death of aU property, rea or persona,
tangbe or ntangbe, wherever stuated, e cept rea property stuated outsde
the Unted States.
rtce 13, subdvson (5), of Reguatons 80 reads as foows:
Notes, secured and unsecured. The vaue of notes, whether secured
or unsecured, w be presumed to be the amount of unpad prncpa, pus
accrued nterest to the date of decedent s death, uness the e ecutor estab-
shes a ower vaue, or t s shown that they are worthess. Uness returned
at face vaue, pus accrued nterest, t must be shown by satsfactory evdence
that the note s worth ess than the unpad amount because of the nterest
rate, or date of maturty, or other cause, or that t s uncoectbe, ether n
whoe or n part, by reason of the nsovency of the party or partes abe, or
for other cause, and that the property, f any, pedged or mortgaged as securty
s nsuffcent to satsfy t.
The foregong rues are aso appcabe to mortgages and mortgage
partcpaton certfcates. The presumpton that ther face vaue
s ther true vaue governs uness the representatve of the estate
submts convncng evdence to the contrary.
If t s contended that tbe actua vaue of mortgages or mortgage
partcpaton certfcates s ess than ther face vaue, the vauaton of
rea estate and any coatera covered by the mortgages, arrears n
ta es and nterest, gross and net rentas, forecosure proceedngs,
assgnment of rents, pror ens or encumbrances, present nterest
yed, over-the-counter saes, bd and asked quotatons, and other
pertnent factors w be taken nto consderaton n f ng tbe correct
vaue. The e stence of an over-the-counter market for such secur-
tes and the quotatons and opnons of vaue furnshed by brokers
and rea estate apprasers can not be accepted as concusve evdence
of the vaue of such securtes. Such saes and bd and asked quota-
tons are merey tems to be consdered wth other evdence n f ng
vaues.
In vaung unt mortgages consderaton w be gven frst to the
vaue of the property securng the mortgages, appyng the same
factors as are used n f ng the vauaton of rea estate owned n
fee. Where the mortgage s ampy secured the vaue w be de-
termned to be ts face vaue pus accrued nterest to the date of
death. Where the securty s nsuffcent, the mortgage w be vaued
upon the bass of the far market vaue of the property ess back
ta es, estmated forecosure e penses, and, where |ustfed, the e pense
of rehabtaton. If the mortgage s not affected by moratorum
aws, the mortgagee s recourse aganst the mortgagor personay w
be taken nto consderaton. The vauaton of such assets s a ques-
ton of fact and the burden of proof s upon the estate to overcome
the presumpton that the face vaue s the true vaue where a ower
vaue s sought to be estabshed.
Inasmuch as a reevant eements and factors must be consdered
n determnng the actua vaue of mortgages or mortgage partcpa-
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299
Regs. 80(1934), rt. 2T
ton certfcates, there has been prepared a vauaton questonnare,
whch w be desgnated as orm o. 947, embodyng the prncpa
essenta factors of vauaton. Ths questonnare shoud be fed by
representatves of the estate wth the return on orm 706, or subse-
quent thereto, n a cases wheren mortgages or mortgage partcpa-
ton certfcates are camed to be worth ess than ther face vaue.
The nformaton ncorporated on ths form, together wth other ree-
vant evdence supped Dy representatves of the estate or secured upon
nvestgaton, w be consdered n the fna determnaton of the
vaue of such securtes.
S CTION 302 (g) ND (h) O T R NU CT O 1926, ND COR-
R SPONDING PRO ISIONS O RLI R R NU CTS. ( LSO
S CTION 902(c), R NU CT O 1926, S M ND D Y PU LIC
R SOLUTION 131, S NTY- IRST CONGR SS (46 ST T., 1516), ND
Y S CTION 803(a), R NU CT O 1932, ND CORR SPONDING
PRO ISIONS O RLI R R NU CTS.)
Reguatons 80(1934). rtce 27: Insurance -38-8307
recevabe by other benefcares (and corre- G. C. M. 16932
spondng provsons of earer reguatons).
so rtce 15, Reguatons 80(1934), and cor-
respondng provsons of earer reguatons.)
Ta abty of proceeds of fe nsurance poces. G. C. M. 1164
(C. . I-1, 315) revoked n part.
Ths offce s requested to reconsder G. C. M. 1164 (C. . I-1,
315) n the ght of the decsons of the Unted States Supreme
Court n ngham v. Unted States (296 U. S., 211, Ct. D. 1058,
C. . -1,367) and Industra Trust Co. v. Unted States (296 U. S.,
220, Ct. D. 1057, C. . -1, 348).
In G. C. M. 1164 t was hed that:
Tbe proceeds of nsurance poces carred on the fe of a decedent dyng
after the effectve date of Tte I of the Revenue ct of 1918 may not be
ncuded n the gross estate of such decedent under secton 402(c) of sad ct,
or under smar provsons of subsequent cts, even though a pocy, amountng
to more than 40,000, may have been assgned, or the benefcary named, n
contempaton of or ntended to take effect n possesson or en|oyment at or
after death.
fter carefu consderaton of the questons whch the facts and
aw nvoved n that memorandum present, ths offce s of the opnon
that the rung contaned n that memorandum s too broad and,
accordngy, t s hereby revoked e cept to the e tent that t hods
that the specfc e empton of 40,000 contaned n secton 402(f)
of the Revenue ct of 1918 s aowabe n such cases fang under
secton 402(c) of that ct and the correspondng provsons of
subsequent Revenue cts.
erman Otphant,
Genera Counse for the Depwtment of the Treasury.
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Regs. 70(1929), rt. 15.
300
S CTION 302.
Reguatons 70(1929), rtce 15: Transfers
durng fe.
-46-S38S
Ct. D. 1172
ST T T R NU CT O 1920 D CISION O COURT.
Geoss state Transfer or Corporate Stock Contempaton or
The decedent, who ded anuary 8, 1929, at the age of 85 years,
transferred practcay a of hs property In 1928 to a corporaton
for stock, and on uy 9 of that year transferred the entre stock
to hs chdren wthout consderaton In money or money s worth,
n proportons agreed upon among the chdren. The record shows
that the decedent had been under hospta treatment n 1923, was
dscharged wthout mprovement n hs heath, and that hs cond-
ton grew worse that he had retred and had paced the manage-
ment of hs busness n the hands of hs sons ong pror to the tme
the transfers were made that the fna dstrbuton of a hs prop-
erty was not In contnuaton of any estabshed pocy of makng
gfts to hs chdren n hs fetme that certan awsuts nsttuted
aganst the decedent n connecton wth hs busness had been ds-
posed of before the transfers were made, and that he had taken
steps to protect hs persona estate aganst further tgaton. Un-
der these facts, the record not ony fas to prove that the domnant
motve of the decedent n makng the transfer of uy 9, 1928, was
other than contempaton of death, but requres the concuson that
the transfer was testamentary n character and was made In con-
tempaton of death.
Water unter, ecutor of the W of Chares W. unter, v. The Unted States.
Ltteton, udge, devered the opnon of the court
The decedent, Chares W. unter, ded anuary S, 1929, at the age of 85 years.
The property n queston was actuay transferred by the decedent to seven of
hs nne chdren uy 9, 1928, about fve months pror to hs death. owever,
he had endeavored n une, 1925, to transfer such property to trustees for the
beneft of a of hs chdren, whch transfer was not competed by reason of
a dsagreement among the chdren as to the nterests whch they were to re-
ceve. The Commssoner of Interna Revenue determned that the property
nvoved was transferred by the decedent n contempaton of death, and such
determnaton must stand uness It s overcome by proof that the domnant
motve of the decedent for makng the transfer was other than contempaton
of death. In our opnon the record not ony fas to overcome the Comms-
soner s determnaton, but t requres the concuson that the transfer n ques-
ton was testamentary n character and was made n contempaton of death.
The decedent was n poor heath n 1923 before he gave any serous consdera-
ton to the matter of transferrng hs property to hs chdren. e went to
ohns opkns ospta ugust 3, 1923, where hs condton was dagnosed as
cerebrospna syphs and arterosceross. e remaned there under treatment
unt ugust 31, 1923, when e was dscharged, wthout mprovement of the
ness wth whch he was found to be affcted. The decedent returned to hs
home n Memphs and hs condton appears to have grown worse.
In the atter part of 1923 or eary n 1924 the decedent began consderng
the transfer of a of hs property to hs nne chdren. s a resut of ths
deberaton he e ecuted a common-aw trust on une 9, 1925, equay dvdng
hs entre property among a of hs chdren. Ths dvson of the property was
ob|ected to by one of the chdren wth the resut that the transfer was not
consummated. The decedent eft the matter of agreeng upon a substtuted
pan entrey to hs chdren. The trust was fnay revoked and In 1928 the
eath.
Couut of Cams of the Unted States.
May 4, 1936.
OPINION.
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301 Regs. 70(1929), rt. 15.
decedent transferred a of hs property, e cept an automobe and a fe estate
n the home n whch he ved, to a corporaton for stock. S months ater he
transferred the entre stock of the corporaton to hs chdren wthout consd-
eraton n money or money s worth n the proportons agreed upon among the
chdren.
Pantff contends that the mpeng motves for the transfer by the decedent
of a of hs property to the chdren were (1) to accompsh a f ed purpose
and desre whch he had as eary as 1913 to retre from actve busness and to
pace the management of hs busness wth hs sons (2) to reeve hmsef from
worres and responsbtes (3) to equaze hs bounty among hs chdren
(4) to contnue hs pocy of makng gfts n hs fetme so that the chdren
mght be ndependenty estabshed and (5) to protect hmsef from possbe
|udgments and awsuts whch mght arse out of operaton of hs busness.
Wth reference to aeged motves (1) and (2), the facts dscose that the
decedent had retred from actve busness and had paced the management
thereof wth hs sons ong pror to the tme the transfers n queston here were
made. Ths thought therefore dd not, we thnk, prompt the decedent to dspose
of hs property when the transfer was made. Inasmuch as he had prevousy
dvested hmsef of a responsbtes and worres connected wth hs busness
affars. Wth reference to aeged motve (3), the facts show that the decedent
gave no consderaton n the fna dvson of hs property to equazng the gfts
made to hs chdren. When he e ecuted the common-aw trust n une, 1925,
whch had been under consderaton by hm snce the atter part of 1923 or eary
n 1924, he provded for the ssuance of certfcates of benefca nterest to a
hs chdren. The certfcates entted each chd to an equa share n hs estate.
In the trust provsons no consderaton was gven to advancements prevousy
made to any of the chdren. They a shared equay under the trust. Ths
trust was to become effectve when the trustees had obtaned the sgnatures of
the benefcares named theren. The decedent dd a that was requred of hm
to make the trust effectve and It probaby woud have become effectve had not
one of the chdren ob|ected to the manner n whch the property was beng
dvded. Thereupon a controversy arose among the chdren wth reference to
the nterest whch each of them shoud have n the property by reason of the
fact that the decedent n the trust had gven no consderaton to pror advances
made to two of hs sons. ach chd endeavored to obtan as arge a share
of the estate as possbe and the decedent eft to hs chdren the matter of
agreeng upon the dvson of hs property. They fnay agreed and aso agreed
upon the substtuted pan herenbefore mentoned, whch the decedent carred
out. Wth reference to aeged motve (4), that the decedent desred to con-
tnue hs pocy of makng gfts n hs fetme so that the chdren mght be
ndependenty estabshed, the facts show that the chdren were aready nde-
pendenty estabshed. Water and rank unter were engaged n busness
for themseves dward unter had compete charge of fed operatons of
hs father s busness Chatham had compete charge of the admnstratve and
fnanca ends of the busness and Manue aso worked for hs father, both n
the fed and n the offce. The four daughters were a marred and the
record does not show that they were n any way dependent upon the decedent.
Moreover, the facts do not estabsh that the decedent had ever adopted a con-
sstent pocy of makng gfts to hs chdren durng hs fetme. that the
facts show n ths respect s, that at the tme Water and rank unter entered
busness the decedent advanced some money to them for that purpose and,
subsequenty, when Water became fnancay nvoved, the decedent pad
certan notes whch he had guaranteed at the tme the obgaton was con-
tracted that he gave one of hs daughters suffcent money for a trp to urope
and that he bore the e pense of hs younger son at Yae. These facts do not
ustfy the concuson that the decedent had adopted a generous pocy of
makng gfts to hs chdren durng hs fetme n order to estabsh ther
Independence, and the fna dstrbuton by the decedent of a hs property to
hs chdren, at a tme when hs heath and physca condton were such as
dscosed by the record, can not be consdered as the contnuaton of such
aeged pocy. Wth reference to aeged motve (5), It appears that the
awsuts whch had been nsttuted aganst the decedent under the pena statutes
of Msssspp for cuttng trees on property, whch t was aeged he dd not
own or had not eased, had a been dsposed of pror to the tme when the
transfers here n queston were made. Moreover the decedent had fuy pro-
tected hmsef aganst adverse resuts from further awsuts of ths character
n organzng the aey Contractng Co. n March, 1926, whch company entered
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Regs. 70, rt. 39.
302
uto contracts for the furnshng of wows. The decedent s persona estate
was therefore entrey e empt from e ecuton under any |udgment that mght
be obtaned aganst the aey Contractng Co.
or the foregong reasons and upon the facts n ths case, we are of opnon
that the transfer made by the decedent uy 9, 1928, of practcay hs entre
estate was n eu of a testamentary dsposton and that such transfer was
made n contempaton of death (fndng 23). The pantff s therefore not
entted to recover and the petton s dsmssed. It Is so ordered.
Whaey, udge Wams, udge Green, udge and ooth, Chef ustce,
concur.
S CTION 303(a).
Reguatons 70, rtce 39: Losses from 42-8352
casuaty or theft. Ct. D. 11G3
ST T T R NU CT O 1020 D CISION O COURT.
Deducton- Loss bandonment of God Standard by Great
rtan not an Other Casuaty.
Where securtes whch formed a part of the gross estate of the
decedent were sod by the pedgees thereof durng the settement
of the estate at a vaue ess than the quoted market vaues
at the dute of death, the dfference between the two vaues was not
deductbe as a oss on the ground that the abandonment of the
god standard by Great rtan was an other casuaty wthn
the meanng of that term as used n secton 303(a) of the Revenue
ct of 1920.
Unted States Crcut Court of ppeas for the rst Crcut.
rank W. Lyman et a., ecutors, pettoners for revew, v. Commssoner of
Interna Revenue.
ppea from oard of Ta ppeas.
efore noham, Wson, and Morton, .
May 23, 1930.
OPINION.
Wson, .: Ths s a petton for revew of a decson of the oard of Ta
ppeas entered une 0, 1935, and nvovng estate ta es to the amount of
f4,C57.91. The statute Invoved s chapter 27 of the Revenue ct of 1926.
Secton 302 of that ct provdes that the vaue of the gross estate of the
decedent sha be determned by ncudng the vaue at the tme of hs death
of a property, rea and persona, tangbe or ntangbe, wherever stuated
Secton 303 provdes, or the purpose of the ta the vaue of the net estate
sha be determned
(a) In the case of a resdent, by deductng from the vaue of the gross
estate
(1) osses ncurred durng the settement of the estate arsng
from fres, storms, shpwreck, or other casuaty, or from theft, when such osses
are not compensated for by nsurance or otherwse, .
rtce 13 of Treasury Reguatons 70 promugated under the Revenue ct
of 1920 provdes:
(1) Genera. The vaue of a property ncudbe In the gross estate s
the far market vaue thereof at the tme of the decedent s death. The far
market vaue Is the prce at whch property woud change hands between a
wng buyer and a wng seer, nether beng under any compuson to buy
or se. Where the property Is sod wthn a reasonabe perod after the
decedent s death, and t s shown that the seng prce refects the far market
vaue thereof as of the date of decedent s death, the seng prce w be
accepted. Nether deprecaton nor apprecaton n vaue subsequent to the
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303
Regs. 70, rt. 39.
date of decedent s death w be consdered. reevant facts and eements
of vaue shoud be consdered n every case.

(3) Stocks and bonds. The vnue of stocks and bonds sted upon a stock
e change shoud be determned by takng the mean between the hghest and
owest quoted seng prces upon the date of death. If the decedent ded on
a Sunday or hoday, the transacton of the ne t prevous busness day w
govern. If there were no saes on the date of death, the vaues shoud be
determned by takng the mean between the hghest and owest saes upon
the nearest date ether before or after the date of death, f wthn a reasonabe
perod. If the securty s sted upon more than one e change, the records
of the prncpa e change shoud be empoyed. In vaung sted stocks and
bonds the e ecutor shoud observe care to consut accurate records to obtan
vaues as of the date of death.
The facts out of whch the ssues arse are as foows: The pettoners
are the e ecutors of the estate of esse P. Lyman, who ded September 14,
1931. In fng the estate ta return they set up two sets of vaues for the
securtes sted theren. One set represented the quoted market vaues of the
securtes on the date of the death of the decedent and were substantay the
same vaues as were adopted by the e ecutors and set forth n the Inventory
fed n the probate court.
The second set represented vaues whch the e ecutors contend more accuratey
refect the far market vaues of the securtes at the date of death, as pro-
vded n artce 13. The dfference between the market vaues as shown n
the frst set and the vaues contended for by the e ecutors as shown In the
second set s 254,290.86, whch sum the pettoners contend shoud be ether
e cuded from the gross estate or aowed as a oss Incurred durng the sette-
ment of the estate arsng from fres, storms, shpwreck, or other casuaty,
and heren es the man contenton between the partes.
t the date of death of the decedent neary a hs assets were pedged
wth dfferent banks and brokerage houses, and, owng to the deprecaton
of ther market vaue, they were sod by the pedgees for a sum whch was
266,461.47 ess than the vaue at whch they were returned by the e ecutors
for estate ta purposes.
In audtng the estate ta return fed by the e ecutors, the Commssoner
adopted the market vaues of the securtes on the date of the death of the
decedent, and determned the defcency resutng therefrom. The oard of
Ta ppeas found as a fact that the vaue of the gross estate was 1,960,002.16
that the estate was entted to a deducton of 1,750,054.35, and that the
net estate was 203,947.81, and affrmed the defcency found by the Comms-
soner.
The oard of Ta ppeas aso found as a fact that the vaues of the gross
and net estate were the same as determned by the Commssoner, and snce
the vaue of securtes on a partcuar date Is a queston of fact, the ony
questons open for revew are whether there was any substanta evdence to
support such fndng (TTeefc v. everng, 68 ed. (2d), 693), and whether the
oard has erred n nterpretng secton 303(a) aowng a deducton for
osses.
The pettoners rey upon two propostons: (1) that the vaues set forth
n ther second set of vaues, whch are 254,290.86 ess than the vaues f ed
by the market quotatons at the death of the pettoners testate, more accu-
ratey refect the true vaue of the securtes at the death of the decedent and
(2) f the vaues of the gross estnte are to be determned by the market quota-
tons as of the death of the decedent, then the pettoners shoud be aowed
the sum of 254,290.86 as a oss resutng from fres, storms, shpwreck, or
other casuaty, and they urge that the act of Great rtan n gong off the
god standard on September 21, 1931, was an other casuaty wthn the
meanng of the ct.
The pettoners adduced no evdence, e cept saes by the pedgees, whch
occurred a year or two years ater, that tends to support the esser vaue as
refectng the true vaue of the gross estate, whch they contend shoud have
been accepted by the Commssoner and onrd of Ta pppas. They concede
that the vaues determned by the Commssoner are substantay the quoted
market vaues of the securtes on the stock e change as of the date of the
death of the decedent, and that such vaues are substantay the same as
reported In the nventory fed In the probate court. The Commssoner s
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Regs. 70, rt. 39.
304
method of vaung the securtes was n accordance wth the provsons of
artce 13 of Treasury Reguatons 70.
Ths eaves as the ony rea queston, whether the gong off the god standard
by Great rtan was a casuaty wthn the meanng of secton S03(a) of the
Revenue ct of 192(5. The anguage of the statute, we thnk, renders ths
case a proper one for the appcaton of the c|usdem geners rue n ts construc-
ton, vz: where words of a partcuar or specfc meanng are foowed by
genera words, the genera words are construed to appy ony to persons or
condtons of the same genera knd as those specfcay mentoned, uness there
are other provsons ceary ndcatng that the rue s not appcabe. ( ck-
man et a. v. Cabot, 1S3 ed., 747 Shearer v. nderson, 16 ed. (2d), 095
Swft d Co. v. Coumba Ry. Gas eetre Co., 17 ed. (2d), 46, 48 O Connor
et u . v. Great Lakes rpe Ln-e Co. et a., 63 ed. (2d), 523.)
Congress gave no such Indcaton n ths statute, and It must be presumed
to have had n mnd that ts anguage woud be construed accordng to the
estabshed rues of constructon.
The anguage of the court n the case of Srft d Co. v. Coumba Ry. Gas d
ectrc Co., supra, s appcabe to the dstncton e stng between the casua-
tes named n the statute and the abandonment of the god standard by Great
rtan: nd t s we setted that n such case the rue of constructon known
as Lord Tenderden s rue s appcabe, that, where partcuar words of descrp-
ton are foowed by genera terms, the atter w be regarded as referrng to
thngs of a ke cass wth those partcuary descrbed e|usdem geners.
( ckman v. Cabot, 183 ed., 747 Southern Ry. Co. v. Coumba Compress Co.,
280 ed., 344 Carnege Stee Co. v. Unted States, 240 U. S., 156.) Crop short-
age s not ncuded among the causes specfcay mentoned, nor Is t of the
same genera cass. of the causes mentoned specfcay are such as woud
drecty Interfere wth recevng, usng, or appyng eectrc current, whereas a
crop shortage coud nterfere ony ndrecty, by ts effect upon trade condtons.
Itacs supped.
The deductons specfcay nowed under the anguage of secton 303(a)
are osses arsng from fres, storms and shpwreck, whch obvousy are
casuates drecty affectng the property of the deceased. We do not thnk
Congress had n mnd, n usng the words or other casuaty, acton by foregn
countres whch mght ndrecty affect securtes here. Undoubtedy word
condtons n 1931 were In an unbaanced state, and Investors n ths country and
the vaue of securtes foowng the debace n the fa of 1929, were In a
poston to be affected by fnanca events abroad but we thnk Congress coud
not have had n mnd, n enactng secton 303 n 1926, osses ncurred through
such events as a change n Great rtan s fnanca pocy In 1931, or that of
any foregn country.
It s dffcut to conceve of t as another casuaty of the same cass as a
re or a shpwreck or a storm, by whch oss s drecty caused. It requres
no student of fnance, or e pert n securty vaues, or a psychatrst, to deter-
mne when osses are the resut of a fre, storm, or a shpwreck. food caused
by the breakng of a dam, or osses resutng from an earthquake, are aso
other casuates by whch a oss of property may be drecty caused.
Therefore, the enumeraton of fre, storm, or shpwreck ceary does not
ncude a the casuates of ths cass, and thus eaves the words or other
casuaty wthout meanng, as contended by the pettoners, and so requres
the e tenson of the words or other casuaty to ncude any unforeseen event
resutng ndrecty n the depresson of the vaue of securtes. (Unted
States v. Mcsen, 215 U. S., 26, 31 Ratona ank of Commerce v. Rpey,
161 Mo., 126, 132 Stft d Co. v. Coumba Ry. Gas d ectro Co., supra.
The effect of foregn fnanca poces on the market vaues of securtes
here, though une pected, we thnk s not wthn the meanng of ths statute,
and the evdence of such e perts as those above referred to, offered by the
pettoners, as to the ndrect resuts of such poces on securtes n the Unted
States, was not mpropery e cuded. The oard of Ta ppeas s an admn-
stratve body and the rues of evdence apped n courts of aw are not neces-
sary bndng on the oard. It may hoar or e cude such evdence as It
thnks Is hepfu on the one hand, or mmatera on the other, so on# as It
docs not deprve a ta payer of a far hearng and due process. The e cep-
tons taken to the e cudng of the testmony of the e perts referred to do
not ava the pettoners.
The order of the oard of Ta ppeas s affrmed.
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305 Regs. 70(1926), rt. 47.
S CTION 303(a)3.
Regttatons 70(1926), rtce 47: Condtona -27-8155
bequests. Ct. D. 1134
ST T T R NU CT O 1926 D CISION O COURT.
1. Deducton Chartabe equests Uncertanty and Contn-
gency of equests Renuncaton of Poweb of ppontment.
The decedent bequeathed hs resduary estate n trust, the n-
come to be pad to hs wfe durng her fetme and the corpus to
be dstrbuted upon her death as she shoud drect by w n the
event of faure to e ercse her power of appontment, the ncome
was to be pad to her mother, f vng, durng her fetme, and
the corpus was to be dstrbuted upon the mother s death to certan
chartabe corporatons. S years after the decedent s death,
the mother havng prevousy ded, the wdow formay renounced
and surrendered the power of appontment. Under these facts, the
chartabe bequests were so contngent and uncertan at the date
of the decedent s death that they do not fa wthn the deducton
aowed by secton 303(a)3 of the Revenue ct of 1926.
2. Decson fftbmed.
Decson of the oard of Ta ppeas (31 . T. ., 101) affrmed.
Unted States Crcut Court of ppeas for the Second Crcut.
George W. Davson, as ecutor Under the Last W and Testament of Roswe
drdge, Deceased, pettoner-appeant, v. Commssoner of Interna Revenue,
respondent-appeee.
ppea from the oard of Ta ppeas.
efore Manton, ugustus N. and, and Chase, Crcut udges.
anuary 13, 1936.
opnon.
Petton by George W. Davson, as e ecutor under the ast w and testament
of Roswe drdge, deceased, to revew an order of the oard of Ta ppeas
determnng a defcency n the estate ta upon the estate of Roswe drdge,
who ded on anuary 27, 1927, a resdent of the State of New York.
UGUSTUS N. and, Crcut udge: The queston nvoved on ths appea s
whether the e ecutor of the w of Roswe drdge, who ded on anuary
27, 1927, a resdent of the State of New York, Is entted to have the vaue of
three chartabe bequests deducted from the gross estate n order propery to
determne the net estate for purposes of ta aton.
The appcabe portons of the Revenue ct are as foows:
Sec. 303. or the purpose of the ta the vaue of the net estate sha be
determned
(a) In the case of a resdent, by deductng from the vaue of the gross
estate

(3) The amount of a bequests, egaces, devses, or transfers, to
any corporaton organzed and operated e cusvey for regous, chartabe,
scentfc, terary, or educatona purposes no part of the net earn-
ngs of whch nures to the beneft of any prvate stockhoder or nd-
vdua, . (U. S. C, Tte 26, secton 412.)
The testator eft hs resduary estate n trust, the ncome to be apped to the
use of bs wfe Louse U. drdge durng her fe and the corpus, uwn her
death, to be dstrbuted to such of the nea descendants of hs brother Lews
. drdge and/or to such persons, assocatons, corporatons and nsttu-
tons and n such manner as hs wfe shoud drect by her w wth fu
power to dspose of such trust fund n a respects as f such trust fund were
her own property . The testator further provded that n the event
that hs wdow faed to e ercse the power of appontment, the trustees, upon
her death, shoud appy the ncome of the trust to the use of hs mother-n-
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Regs. 70(1926), rt. 47. 306
aw, Lousa U. Skdnore, and on Mrs. Skdmore s death, or If she dd not
survve hs wdow, then upon the atter s death, shoud pay over the prncpa
to three chartabe corporatons, 100,000 to St. George s Church, empstead,
N. Y. 200,001) to rends oardng ouse of Concord uartery Meetng,
West Chester, Pa. and 50,000 to Nassau ospta, Mneoa, N. Y.
The pettoner, George W. Davson quafed as e ecutor on pr 22, 1027.
Mrs. Skdmore, the mother-n-aw of the testator, ded on une 5, 1927, but
hs wdow s vng. The amount of the deducton camed by reason of the
chartabe bequests, namey, 273,588, was based upon the vauaton at the
tme of the testator s death of the remander nterest of the chartabe egatees
n the egaces of 400,000, whch were sub|ect to the fe estates of the wdow
and Mrs. Lousa U. Skdnore. The deducton was dsaowed by the Com-
mssoner whose acton was affrmed by the oard of Ta ppeas on the
ground that the chartabe bequests were so contngent and uncertan that they
dd not fa wthn the deducton aowed by secton 303(a)3 of the Revenue
ct of 1926. It s contended by the pettoner that these bequests were suf-
fcenty certan to entte the estate to the deducton camed.
The w of Roswe drdge was admtted to probate by the surrogate of
Nassau County on pr 22, 1927. On May 27, 1927, hs wdow, Lousa U.
drdge e ecuted her w and provded n respect to the power of appontment
gven her by her husband s w over the trust fund n the resduary estate as
foows: for the reason that I desre the wshes of my ate hus-
band carred out, I do not e ercse such power of appontment,
and I gve no drecton and make no dsposa of such trust fund, to the end
that there sha be an absence of any drecton by me. On pr 10, 1929,
Mrs. drdge e ecuted another w contanng the same provson. She made
no other testamentary dspostons after that tme e cept two codcs by
nether of whch was the cause decnng to e ercse the power of appontment
affected. ut on anuary 24, 1933, she e ecuted an nstrument of renunca-
ton and surrender of the power of appontment granted to her by her hus-
band s w and fed t n the surrogate s court on that date. On ts face t
was an agreement between hersef and the Commssoner of Interna Revenue
and In t Mrs. drdge decared and agreed that she had not e ercsed and
woud not e ercse the power of appontment, so that the bequests to charty
woud be absoute, and woud be e empt from a ta es.
It s pan that, when Roswe drdge ded, t coud not be determned
whether the chartabe bequests woud utmatey take effect or not, for the
reason that the fund out of whch they mght be pad was sub|ect to pass to
others under the w of Mrs. drdge. In such crcumstances, the gft to
chartes was essentay dependent upon the e ercse of the power by Mrs.
drdge and t can make no dfference whether the egaces In a technca
sense were formay contngent or were vested sub|ect to be dvested. In
ether case the rghts of the egatees to the chartabe bequests were actuay
contngent and whoy uncertan.
It s hard to see how the e ecutor of the w of Mr. drdge s n any bet-
ter poston to cam that the corpus of the trust, whch had been bequeathed
to the chartabe corporatons, shoud be deducted n order to ascertan the net
ta abe estate than e woud be f Mrs. drdge had ded shorty after her
husband wthout e ercsng the power of appontment gven her by hs w. In
the atter case t can hardy be supposed that a deducton woud have been
aowabe, otherwse the practce of determnng the vaue of the remanders
as of the date of the testator s death by the use of mortaty tabes, rather than
by eventuates woud be erroneous. The bequests to charty to be deductbe
under secton 303(a)3 of the Revenue ct of 1926 must be reasonaby certan
at the tme of the testator s death and ceary they were not so n the present
case. The decsons n Ithaca Trust Co. v. Unted States (279 U. S., 151 Ct D.
61, C. . III-1, 313 ) and Unted States v. Provdent Trust Co. (291 C. S.,
272 Ct. I 797, C. . III-1, 305 ) are n no way contrary to the foregong
rue for n each case there was a practca certanty at the tme of the testator s
death that the chartabe bequests woud take effect. umes v. Unted States
(276 U. S., 487 T. D. 4185, C. . II-2, 3781) seems to govern.
The recent decson of the Supreme Court n cverng v. Grnne (294 U. S.,
153) can not hep the ta payer. There the testator had created a trust for the
fe of wth power of appontment n the fe benefcary by w, and In de-
faut of appontment had bequeathed the corpus of the trust to and C.
ded and by w e ercsed the power of appontment n favor of and C who
woud receve the same egaces whether they accepted them under the orgna
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307
Regs. 68, rt. 47.
w or under the power. They chose to take under the orgna w n order
to escape ta aton whch woud not be ad upon gfts passng under t. There
was no queston whether, when the orgna testator ded, the gfts to and O
were reasonaby certan to take effect. The ony queston was under whch w
the egaces passed. The court hed that they dd not puss by vrtue of the
e ercse of the power because the egatees had the rght to choose what
egaces they woud receve.
The ta payer especay rees on umphrey v. Mard (79 ed. (2d), 107
(C. C. . 2)) and Smth v. Commssoner (78 ed. (2d), 897 (C. C. . 1)).
The frst decson deat wth the New York mortman act whch provdes that
no person, havng a husband, wfe, chd, descendant or parent sha by w
make bequests to chartabe corporatons n trust or otherwse of more than
one-haf of hs estate. Under the decsons of the New York courts gfts In
e cess of one-haf of the estate mght be avoded at the nstance of the person
to be benefted by the statute, but were not vod. The bequests to charty
whch on the face of the w were free from any contngency were hed de-
ductbe under secton 303(a)3 because the probate of the w rendered them
safe from the danger of abatement. The second case came up under a Rhode
I and statute permttng modfcatons of a decedent s w by agreement and
probate of the w as thus modfed. The w was modfed so as to ncude
gfts to chartabe corporatons whch dd not appear n the orgna nstrument,
but were added by vrtue of the agreement. The Court of ppeas of the rst
Crcut hed that the Rhode Isand statute rendered the w as modfed and
thus probated the w of the testator for a purposes and that the chartabe
gfts were deductbe under secton 303(a)3 of the Revenue ct of 192C. Whe
there may be doubt whether such a statutory modfcaton of a decedent s w
coud brng the facts wthn e emptons created by Congress, both Smth v.
Commssoner and umphrey v. Mard dffer from the present case because
the decrees of probate whch vadated the bequests freed them from every
eement of uncertanty and created ndefeasbe rghts In the egatees whc
took effect shorty after decedent s death. ere the chartabe bequests re-
maned n vacuo for a ong tme and not unt s years had eapsed was the
ambuatory power to dvert the 400,000 from chartabe ob|ects renounced
by the donee of the power n a way that was Irrevocabe.
It may we be that a renuncaton of the power of appontment woud for
some purposes reate back to the date of the death of the orgna testator.
ut we can not beeve that a rght to appont whch nhered n the donee of
the power for s years before t was formay renounced and whch If e er-
csed woud have termnated the chartabe bequests n remander may, by
appyng the ega fcton of reaton, be treated as though t had never
e sted. The practca certanty requred n order to |ustfy the deductons
of bequests to charty under secton 303(a)3 s not to be satsfed In such an
unrea way.
In our opnon the oard of Ta ppeas propery hed that such certanty
as the Supreme Court has found necessary to |ustfy the deducton of char-
tabe bequests under secton 303(a)3 dd not e st n the present case.
The order of the oard of Ta ppeas s accordngy affrmed.
ST T T R NU CT OP 192C D CISION O COURT.
1. Gkoss state Deducton Condtona Gft.
Where the decedent e ecuted an nstrument of gft to a church
provdng for the creaton of a fund for the erecton of a com-
munty house, upon condton that the church shoud contrbute
an equa amount, that constructon shoud begn wthn a specfed
tme, and certan other condtons, the gft was based upon cond-
tons precedent, and, there beng nothng n the record to show
that the condtons had been comped wth at the date of the
decedent s death, t consttuted a part of hs gross estate and was
not an aowabe deducton.
2. Ceetoeak Dened.
Petton for certorar dened on October 12, 1936.
Reguatons 70(1929), rtce 47: Condtona
bequests.
-49-8420
Ct. D. 1178
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Regs. 70(1920), rt. 47.
308
Unted States Crcut Court of ppeas for the Tenth Crcut.
Unted States of merca, appeant, v. The ourth Natona ank n Wchta,
Wchta, ans., ecutor of the state of oward . Case, Deceased,
appeee.
ppea from the Dstrct Court of the Unted States for the Dstrct of ansas, Second
Dvson.
pr 11, 1036.
OPINION.
ennedy, Dstrct udge, devered the opnon of the court.
The appeee as pantff sued to recover certan ta es aeged to have been
erroneousy coected and from a porton of the |udgment aowng a deducton
from an estate for ta purposes, the Government ap as.
Pror to the year 3030 one oward . Case and hs wfe e ecuted ont and
mutua ws eavng n trust property of whch the survvor ded sezed.
Subsequent to the death of the wfe and on November 13, 1030, Case e ecuted
an nstrument of gft to the rst Presbyteran Church of Wchta, ans.
It provded, n substance, that he -was gvng 100,000 toward the creaton
of a fund for the erecton of a communty ad|unct to the church upon condton
that the church shoud contrbute an equa amount, wth other stpuatons.
The nstrument s set forth n fu n note .1
Case ded anuary 4, 1931. The Commssoner assessed a defcency n ta
upon te 100,000 whch had been deducted from hs estate for ta purposes
by the e ecutor, whch ta such e ecutor ater pad and brought ths sut to
recover.
The record reveas nothng n regard to the stuaton whch e sted concern-
ng the respect n whch the donee had comped wth the condtons of the
nstrument n the matter of securng pedges for ts share of the budng fund
at the tme of the death of the donor. fter the death of Case certan tga-
ton took pace Invovng the gft n the ansas courts. The frst contest ev-
denty concerned the power and authorty of the donor to make the gft n
vew of the ont ws of Case and hs wfe, n whch t was decded by the
Supreme Court of ansas that Case was capabe of makng the gft. ( ourth
Natona ank v. Presbyteran Church, 134 an., 043.) Later a contest arose
over the queston as to whether or not the tme to compy wth the condtons
of the gft had not e pred, and t was determned by the supreme court that
the tme mt under the terms of the gft was suspended by the ensung
tgaton. ( ourth Natona ank v. Presbyteran Church, 138 an., 102.)
It s stpuated n the record that wthn two months after the tra of the
case at bar, the actua budng of the communty ad|unct to the church was
commenced and contnued to competon wthn a reasonabe tme, under the
condtons of the 100,000 donaton by Case,
The statutes nvoved are 26 U. S. C. ., 411 (44 Stat., 9) :
The vaue of the gross estate of the decedent sha be determned by n-
cudng the vaue nt the tme of hs death of a property, rea or persona,
tangbe or ntangbe, wherever stuated, e cept rea property stuated outsde
the Unted States .
(a) Decedent s nterest. To the e tent of the nterest theren of the
decedent at the tme of hs death.
nd 26 U. S. C. ., 412:
or the purpose of the ta the vaue of the net estate sha be determned
n the case of a ctzen or resdent of the Unted States by deductng from
the vaue of the gross estate .
(d) The amount of a bequests, egaces, devses, or transfers, to or for
the use of the Unted States, any State, Terrtory, or potca subdvson
thereof, or the Dstrct of Coumba, for e cusvey pubc purposes, or to or
for the use of any corporaton organzed and operated e cusvey for regous,
chartabe, scentfc, terary, or educatona purposes.
The appcabe Treasury reguaton s artce 47 of Reguatons 68:
Condtona bequests. When the transfer s dependent upon the perform-
ance of some act or the happenng of some event, n order to become effectve,
1 Not prnted.
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309
Regs. 70(1929), rt. 47.
It Is necessary that the performance of the act or the occurrence of the event
sha have taken pace before the deducton can be aowed.
The soe queston presented here s, whether or not the 100,000 was a part
of the Case estate at the tme of hs death and as such sub|ect to the ta
provded by statute. The rght of the church to have the beneft of the gft
Is not questoned.
Condtona gfts or bequests under ths ta ng statute have frequenty been
revewed by the edera courts. Some of those cases are, umes v. Unted
States (276 U. S., 487 T. D. 4185, C. . II-2, 878 ), Ithaca Trust Oo. v. Unted
States (279 U. S., 151 Ct. D. 61, C. . III-1, 313 ), Unted Mates v. Prov-
dent Trust Co. (291 U. S., 272 Ct. D. 797, C. . III-1, 365 ), rst Natona
ank of rmngham v. 8nead (U ed. (2d), 186), arrngton v. Commssoner
(30 . (2d), 915), Lucas v. Mercante Trust Co. (43 . (2d), 39), Deaware
Trust Co. v. andy (53 . (2d), 1042), St. I|OU s Unon Trust Co. v. urnet
(59 . (2d), 922), Msssspp aey Trust Co. v. Commssoner (72 . (2d),
197), Cty ank armers Trust Oo. v. Unted States (74 . (2d), 692), um-
phrey v. Mard (79 . (2d), 107).
In the Ithaca Trust case, supra, t was sad that the estate transferred was to
be vaued as of the tme of the death of the testator. There the testator gave
the resdue of hs estate to hs wfe wth authorty to use from the prncpa
any sum whch mght be necessary to mantan her n as much comfort as she
then en|oyed, and after her death t was bequeathed n trust for chartes. It
was hed that the vaue of the bequest to chartes at the tme of the death of
the testator coud be reasonaby ascertaned by the use of mortaty tabes n
con|uncton wth the amount necessary to reasonaby mantan the wdow
throughout her fe, and that the approprate deducton shoud be aowed.
The umes case, supra, concerned a bequest to chartes contngent upon the
death of a nece wthout ssue before she attaned the age of 40, the nece
beng then vng, of the age of 15 years, and unmarred. It was hed that the
use of mortaty tabes for the purpose of showng the probabty of the woman
dyng at a gven age, woud de unmarred and that f marred she woud de
chdess, were too specuatve and uncertan and that by such means there was
no defnte way of determnng the vaue of the contngent bequest, resutng
n a dsaowance of the deducton for ta aton purposes. In Unted States
v. Provdent Trust case, supra, the court observed that the queston to be con-
sdered was the vaue of the nterest to be saved from the ta . The cond-
ton consdered was a bequest to chartabe nsttutons contngent upon the
death of a daughter wthout ssue, the daughter at the tme of testator s death
beng 50 years of age, n poor heath, wthout chdren, and havng bad an
operaton whch from scentfc knowedge woud prevent her from havng
chdren. It was hed that the vaue of the contngent nterest was ascertan-
abe because t was mpossbe to say, as a practca matter, that the daughter
was capabe of bearng a chd after the death of the testator, and the deducton
was aowabe. The rst Natona ank of rmngham case, supra, nvoved
a stuaton of a bequest to chartabe nsttutons sub|ect to an aowance
for the proper support of the wdow out of the corpus n the event the ncome
from the trust estate shoud not be suffcent for the proper support of the
wfe, and t was there hed that the vaue of the contngency was reasonaby
ascertanabe, the deducton beng aowed. The arrngton case, supra, con-
cerned a bequest for educatona purposes contngent upon the death of a
daughter wthout ssue, the daughter beng at the tme of the death of the tes-
tator 52 years of age, and t was hed by a dvded court that the contngency
of the daughter dyng wthout ssue was of such a specuatve and uncertan
character that the vaue coud not be reasonaby ascertaned, the deducton not
beng aowed. The Mercante Trust Co. case, supra, concerned a smar
bequest to chartabe nsttutons contngent upon tte use of a suffcent por-
ton of the corpus to mantan the wfe n a manner necessary for her comfort
and mantenance durng her fe, and t was there hed that the vaue of the
contngency was ascertanabe by reasonabe methods of computaton and that
the deducton shoud be aowed. The Deaware Trust Co. case, supra, nvoved
a bequest for chartabe purposes condtoned upon no apse n the reducton or
dscontnuance of a vcar s saary for a perod of 50 years, and t was there hed
that the vaue of the contngency was not ascertanabe by any known stand-
ards and the deducton was dsaowed. The St. Lous Unon Trust Co. case,
supra, nvoved a bequest to a regous organzaton condtoned upon the
contrbuton by the church wthn 10 years of an amount equa to the net
ncome from certan stocks set asde and paced n trust for Its use and beneft.
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Regs. 70(1929), rt, 47.
310
It was hed that the vaue of the contngent nterest coud not defntey be
ascertaned and that there shoud be no deducton. udge an akenburgh
In speakng for the court at page 925, says:
t the tme of the testator s death, t was mpossbe defntey to deter-
mne whether for the e tended perod named the church woud devote the
net ncome from the stock to the precse uses prescrbed, or that t woud or
coud secure from ts membershp annuay an amount equa to at east doube
the amount of sad net ncome from sad preferred stock.
The Msssspp aey Trust Co. case, supra, nvoved a w e pressng the
wsh that the sons of the testator shoud make certan donatons to charty
whch he had prevousy e pressed to them, as n ther dscreton mght seem
best, and t was hed that the power havng been eft to the sons to e ercse
n ther dscreton the deducton of gfts made by the sons was not aowabe
for ta aton purposes. The Cty ank armers Trust Co. case, supra, con-
cerned a bequest for chartabe purposes contngent upon the death of a
daughter wthout ssue, the daughter beng 59 years of age at the tme of the
death of the testator, and t was hed that the mprobabty of the daughter
havng chdren was so great as to enabe the court to determne wth reason-
abe certanty the vaue of the contngency, the deducton beng aowed.
The umphrey case, supra, grew out of a stuaton of a testator devsng for
chartabe or benevoent purposes contngent upon the rght to the use of a
porton of the corpus needed for the support of the wdow durng her fe
whch the wdow subsequenty waved, and t was hed that no such uncertanty
e sted as of the date of the death of the testator as to requre a dsaowance
of the deducton for ta aton purposes.
y ths revew t w ready be seen that the determnaton of a deducton
under the statute depends upon the facts and crcumstances n each ndvdua
case where a condton s attached, and where the gft or bequest s based
upon such condton, f the vaue of that contngent nterest can be ascer-
taned by reasonabe methods or by recognzed data as of the date of the
death of a testator, the amount for deducton shoud be so determned and
the deducton aowed. ere we are confronted wth the task of f ng vaue
on a contngency n connecton wth a church congregaton rasng a fund
appro matng 100,000 wthn a gven tme, whch broady woud seem more
specuatve and uncertan than any of the e ampes set forth n the revewed
cases, e cept perhaps the St. Lous Trust Co. case, supra, n whch the facts
were somewhat anaogous and the deducton dened.
ut whether or not our concuson s sound, n attemptng to appy the rue
of ad|udcated cases to the nstrument under consderaton, there s a queston
pecuar to the stuaton presented whch shoud be e pored. Does the nstru-
ment of gft contan a condton precedent to the vestng of the tte to the
gft property n the church, or does the tte become vested n the church at the
date of ts depost sub|ect to beng subsequenty defeated If the gft s
based upon a condton precedent, there beng nothng n the record tendng
to show that the condton had been comped wth at the date of the death
of the testator, the fund woud then reman as a part of hs estate and as a
consequence the deducton manfesty shoud not be aowed.
Condtons precedent are consdered In 12 C. . at page 407:
Condton Precedent. (Par. 1.) . In genera. One whch s to be per-
formed before some rght dependent thereon s performed one whch must be
performed before the nterest affected by t can vest one that must happen
before the estate dependent upon t can arse or be enarged one that must
happen or be performed before the estate can vest or be enarged. In con-
tracts, a condton whch cas for the performance of some act or the happen-
ng of some event after the terms of the contract have been agreed upon,
before the contract sha take effect that s to say, the contract s made n
form, but does not become operatve as a contract unt some future specfed
act s performed, or some subsequent event occurs. It seems to be agreed
that n regard to a condtons whether n a deed or w or n smpe con-
tracts, where the condton s n the nature of a consderaton for the con-
cesson, ts performance w be regarded as Intended to precede the vestng
of any rght, and so a condton precedent. condton precedent mpes
an e stng fact, or state of facts, whch must be so changed as to brng t
nto a condton desred. condton whch nvoves anythng n the nature
of a consderaton s, n genera, a condton precedent.
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311 Regs. 70(1929), rt. 47.
Mr. ustce Poer n dscussng the sub|ect n New Oreans v. Te as
Pacfc Raway (171 U. S., 312), at page 334, says:
Where the undertakng on one sde s n terms a condton to the stpua-
ton on the other, that s, where the contract provdes for the performance
of some act, or the happenng of some event, and the obgatons of the con-
tract are made to depend on such performance or happenng, the condtons
are condtons precedent. The reason and sense of the contempated transac-
ton, as t must have been understood by the partes and s to be coected
from the whoe contract, determne whether ths s so or not or It may be
determned from the nature of the acts to be done and the order n whch
they must necessary precede and foow each other n the progress of
performance.
ary n ne wth the hodng of many courts, ths statement s found n
the case of rank v. Stratford- andcock (13 Wyo., 37), at page 57:
Condtons precedent are to be strcty comped wth. Such a condton
s one that must happen or be performed before the estate dependent upon
t can arse or be enarged, whe a condton subsequent defeats the estate
n case t does not happen or s not performed. In determnng whether a
partcuar provson amounts to a condton or not, the rue s that the nten-
ton of the grantor governs such Intenton s to be gathered from the whoe
nstrument and the e stng facts. The authortes ay down the prncpe
that whether a condton s precedent or subsequent depends upon the ntent
of the partes, as coected from the whoe contract, whatever the order n
whch they are found, or the manner n whch they are e pressed, athough
certan words are customary when a condton rather than a covenant s
ntended.
oowng the rue that what was meant by the transacton evdenced by the
nstrument of gft must be coected from that Instrument, we fnd: that the
donor e pressed hmsef as wng to contrbute one-haf of the cost of the
structure upon the condton that the other one-haf woud be obtaned by dona-
tons or pedges that the 100,000 was devered to the bank as agent of the
donee to be hed for the church, but sub|ect to the condtons e pressed n the
nstrument that ony such amount of the 100,000 shoud be gven to the church
as shoud equa one-haf the cost of the structure and that any amount reman-
n shoud be pad by the bank to the |ont trust estate that n the event the
structure shoud not be started wthn 15 months from the date of the nstrument
and n case the condtons sha not have been performed wthn that tme, then
the entre sum shoud be turned over to the |ont trust estate that such struc-
ture shoud not be commenced e cept upon the e press condton that the funds
necessary sha have been rased to nsure ts competon that the gft was
made avaabe when the church shoud certfy to the bank n wrtng that ts
necessary one-haf had been rased n compance wth the terms of the gft
nstrument that the gft s Intended as a present gft but the devery Is to be
competed upon the condtons rected that the rght was eft to the bank to
pass upon the fnanca responsbty of pedgors or promsors and to accept or
refuse the same that the donor reserved the rght to receve Interest or earn-
ngs comng from the funds durng the tme that such funds shoud not be actu-
ay avaabe for the purposes e pressed n the nstrument and that the cost
of the structure ncudng the vaue of the rea estate, shoud not be ess than
150,000.
We thnk that when fary anayzed ths gft was based upon condtons prec-
edent, n fu harmony wth the defntons to whch reference has heretofore
been made. There s no evdence n ths record, even were t persuasve, that
pror to the death of Case there had been any acceptance of the gft on the part
of the donee, nor that the church had at the tme of hs death certfed to the
bank Its compance wth the condtons of the nstrument so as to make the
gft avaabe. The gft beng based upon a condton precedent the requrements
of whch had not been comped wth at the tme of the death of the donor, t
can not he sad that at that tme the fund was not a part of hs estate. Ths
vew woud kewse seem to be n compete harmony wth the appcabe
Treasury reguatons.
The 100,000 fund must be hed to have been a part of the estate of Case at
the tme of hs death and as such ta abe under the statutes nvoked. The
udgment of the tra court w be reversed and the case remanded wth n-
structons to modfy the |udgment by e cudng a recovery of the proportonate
ta upon ths fund.
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401.
312
TITL I. C PIT L STOC ND C SS-PRO ITS
T S. (1935)
S CTION 105, R NU CT O 1935, S M ND D Y S CTION 401,
R NU CT O 1936. C PIT L STOC T .
-30-82O2
T. D. 46G7
C PIT L STOC T .
Reguatons 64 (1030 edton) amended to accord wth provsons
of the Revenue ct of 1036.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 105 of the Revenue ct cf 1085, reatng to the capta
stock ta , has been amended by secton 401 of the Revenue ct of
1936, as foows:
Sec. 401.
(a) Secton 105 of the Revenue ct of 1935 Is amended by strkng out
1.40 wherever appearng theren and nsertng n eu thereof 1.
(b) Subsecton (c) of such secton s amended by strkng out 1934 and
Insertng n eu thereof 1930, and by strkng out , as amended wherever
appearng n such subsecton.
(c) Subsecton (f)(4) of such secton s amended to read as foows: (4)
the e cess of ts ncome whoy e empt from the ta es mposed by the appcabe
Income-ta aw over the amount dsaowed as a deducton by secton 24(a)(5)
of the Revenue ct of 1934 or a correspondng provson of a ater Revenue ct,
and.
Correspondng changes are hereby made n the foowng quota-
tons from the Revenue ct of 1935 n Reguatons 64 (1936 edton),
approved May 6, 1936:
1. Secton 105 (a) and (f) appearng before artce 41.
2. Secton 105 (b) appearng before artce 61.
3. Secton 105 (c) appearng before artce 71.
y vrtue of the amendment provded for n secton 401(b) of
the Revenue ct of 1936, ony those organzatons enumerated n
secton 101 of the Revenue ct of 1936 and those nsurance com-
panes sub|ect to ncome ta mposed by secton 201, 204, or 207 of
the Revenue ct of 1936 are e empt from the capta stock ta under
secton 105(c) of the Revenue ct of 1935. ccordngy, the
changes set form hereunder are made wth respect to the quotatons
of the provsons of aw governng the e emptons from the capta
stock ta so provded:
4. The subheadng mmedatey after the quotaton of secton
105(c) of the Revenue ct of 1985, appearng n Chapter II, s
changed to read as foows: Secton 101 of the Revenue ct of
1936.
5. Sectons 101 of the Revenue ct of 1934 and of the Revenue ct
of 1936 are dentca e cept for the addton of subsecton (18) n
the Revenue ct of 1936, whch provdes an addtona cass of
e empt organzatons. The foowng quotaton of subsecton (18)
s nserted after the quotaton of subsecton (17) n Chapter II:
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313
(18) Regous or apostoc assocatons or corporatons, f such assocatons
or corporatons have a common treasury or communty treasury, even f such
assocatons or corporatons engage n busness for the common beneft of the
members, but ony If the members thereof ncude (at the tme of fng ther
returns) n ther gross ncome ther entre pro-rata shares, whether dstrbuted
or not, of the net ncome of the assocaton or corporaton for such year. ny
amount so Incuded n the gross ncome of a member sha be treated as a
dvdend receved.
6. Immedatey after the nserton provded for n the precedng
paragraph 5, a new subheadng s nserted as foows: Sectons
201 (a) and (b)(3), 204(a) (1) and (3), and 207(a) of the Revenue
ct of 1936.
7. The provsons of subsecton (a) of secton 201 of the Revenue
ct of 1936 are dentca wth those of subsecton (a) of secton 201
of the Revenue ct of 1934. owever, secton 201 of the Revenue
ct of 1936 contans n subsecton (b) a new paragraph numbered
(3) affectng the e empton of nsurance companes from the
capta stock ta . ccordngy, mmedatey after the quotaton of
subsecton (a) of secton 201, appearng n Chapter II, the fo-
owng quotaton from subsecton (b) s nserted:
(b) Imposton of ta .

(3) To Unted States nsurance busness. oregn fe nsurance companes
not carryng on an nsurance busness wthn the Unted States and hodng no
reserve funds upon busness transacted wthn the Unted States, sha not be
ta abe under ths secton but sha be ta abe as other foregn corporatons.
8. The quotaton, n part, of subsecton (a) of secton 204 of the
Revenue ct of 1934, appearng n Chapter II, s deeted and the
foowng quotaton of subdvsons (1) and (3) of subsecton (a)
of secton 204 of the Revenue ct of 1936 s nserted n eu thereof:
Sbc. 204.
(a) Imposton of ta .
(1) In genera. In eu of the ta mposed by sectons 13 and 14, there
sha be eved, coected, and pad for each ta abe year upon the norma-
ta net ncome of every nsurance company (other than a fe or mutua
nsurance company) a ta of 15 per centum of the amount thereof.

(3) To Unted States nsurance busness. oregn nsurance companes not
carryng on an Insurance busness wthn the Unted States sha not be ta abe
under ths secton but sha be ta abe as other foregn corporatons.
9. The quotaton of subsecton (a) of secton 207 of the Revenue
ct of 1934, appearng n Chapter II, s deeted and the foowng
quotaton, n part, of subsecton (a) of secton 207 of the Revenue
ct of 1936 s nserted n eu thereof:
Sec. 207.
(a) ppcaton of tte. Mutua nsurance companes, other than fe
nsurance companes, sha be ta abe n the same manner as other corporatons,
e cept as herenafter provded n ths secton, : but foregn nsurance
companes not carryng on an nsurance busness wthn the Unted States
sha be ta abe as other foregn corporatons.
Pursuant to the foregong provsons and other provsons of
nterna revenue aws, Reguatons 64 (1936 edton), approved May
6, 1936, are hereby amended, as foows:
10. rtce 33, frst sentence of the frst paragraph: 1934 s
changed to 1936.
121397 37 11
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Regs. 64(1936), rts. 34 and 62. 314
11. rtce 41, fourth sentence: 1.40 s changed to 1.
12. rtce 44, paragraph (a) : The perod at the end of ths
paragraph s changed to a comma and the foowng phrase s added,
mmedatey thereaf ter: as amended by secton 402 of the Revenue
ct of 1936.
13. rtce 45, subdvson (b) (4) s changed to read as foows :
(4) The entre amount of the corporate Income whoy e empt from tre
ta Imposed by Tte I of the Revenue ct of 1934 (or a correspondng tte
of a Inter Revenue ct) ess the amount dsaowed as a deducton by secton
24(a) (5) of the Revenue ct of 1934 (or a correspondng secton of the ater
Revenue ct). In computng ths addton a ncome of whatever nature
and whatever source, whch though not specfed as e empt from ncome ta
by the provsons of the appcabe Revenue ct s nevertheess whoy e empt
from the ta Imposed thereunder, must be Incuded. or e ampe, the ncome
from eases of State schoo ands must be Incuded.
14. rtce 61, second sentence: 1.40 s changed to 1.
15. rtce 71, frst sentence of the frst paragraph and thrd
sentence of the second paragraph: 1934 s changed to 1936.
16. rtce 72, frst sentence of the frst paragraph: 1934 s
changed to 1936/
Ths document s promugated under the authorty contaned n
secton 1101 of the Revenue ct of 1926.
Gut T. everng,
Commssoner of Interna Revenue.
pproved uy 18, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 21, 1936, 3.53 p. m.)
Reguatons 64(1936), rtce 34: Return by -35-8282
foregn corporaton. T. D. 4691
rtce 62: Carryng on or dong busness
n the Unted States.
Capta stock ta . Reguatons 64 (1936 edton) amended wth
respect to artces reatng to ta aton of foregn corporatons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 64 (1936 edton), approved May 6, 1936, as amended,
reatng to the capta stock ta , are further amended as foows:
rtce 34 s amended to read as foows:
rt. 34. Return by foregn corporaton. capta stock ta return must be
fed (1) by every foregn corporaton whch, whether on a caendar or a fsca
year bass, s requred to fe an ncome ta return of net ncome for purposes
of the norma ta mposed under secton 13 of the Revenue ct of 936 and (2)
by every foregn corporaton whch on a fsca year bass has a capta stock ta
ta abe year endng wthn an ncotue-ta ta abe year governed by the Revenue
ct of 193 . The rue frst stated appes to a capta stock ta ta abe years
and uuder such rue capta stock ta returns are requred for the capta stock
ta ta ube years ended une 30, 103(3, and for subsequent capta stock ta
ta abe years. The second rue appes ony to the capta stock ta ta abe
year ended uno 30, 1 36, and under that rue every foregn corporaton re-
qured under the Revenue ct of 1934 to fe an Income ta return of net Income
for an ncome-ta fsca year endng wth any month from une, 1936, to
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315
Regs. 64(1936), rt. 45.
November, 1936, both ncusve, s requred to fe a capta stock ta return
for the capta stock ta ta abe year ended une 30, 1936. Whether a foregn
corporaton requred to fe a capta stock ta return under the atter rue w
be requred to fe capta stock ta returns for capta stock ta ta abe years
subsequent to une 30, 1936, w depend upon whether the case wth respect to
such subsequent years comes wthn the frst rue.
The frst capta stock ta return under the ct must be fed n trpcate on
orm 708 and contan an unquafed decaraton of vaue n terms of Unted
States doars for the capta empoyed n the transacton of busness n the
Unted States, as specfed n artce 32 wth respect to decaratons of vaue n
the case of domestc corporatons. (See aso artces 65 and 65 (a).) s to sub-
sequent returns, see artce 65(b). If, n accordance wth the provsons of the
precedng paragraph, a foregn corporaton s requred to fe a capta stock ta
return, but, nevertheess cams that ts actvtes n the Unted States do not
consttute carryng on or dong busness, the return must contan a decaraton
of vaue as above stated, but n such case the corporaton, n eu of payng the
ta , may cam e empton from the ta (see artce 73) because of not dong
busness and attach to the return a detaed statement of the actvtes n ths
country durng the ta abe year as outned n the nstructons on the return
form.
rtce 62 s amended to read as foows:
bt. 02. Carryng on or dong busness n the Unted States. The deter-
mnaton as to whether a foregn corporaton s carryng on or dong busness
n the Unted States wthn the meanng of the ct depends upon the par-
tcuar facts of each case. Ordnary, f n the furtherance of efforts n
the pursut of proft or gan a foregn corporaton mantans an agent, an
offce, warehouse, or other pace of busness, n the Unted States, t w be
regarded as carryng on or dong busness n the Unted States. s to the
meanng of carryng on or dong busness, n genera, see artces 42 and 43.
The foregong amendments are predcated upon the new prov-
sons of the evenue ct of 1936 wth respect to the ta aton of for-
egn corporatons n genera. The amendments appy ony to the
capta stock ta mposed under secton 105 of the Revenue ct of
1935, as amended by secton 401 of the Revenue ct of 1936, for
the ta abe year ended une 30, 1936, and for subsequent ta abe
years and not to the capta stock ta mposed by any pror ct.
Ths Treasury decson s ssued under the authorty contaned
n secton 1101 of the Revenue ct of 1926.
Guy T. evebno,
Commssoner of Interna Revenue.
pproved ugust 26, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 28, 1930, 12.34 p. m.)
TITL L INCOM ND C SS-PRO ITS ND
C PIT L STOC T S. (1935)
S CTION 105 O T R NU CT O 1935, S M ND D Y S C-
TION 401 O T R NU CT O 1936. C PIT L STOC T .
Reguatons 64(1936), rtce 45: d|usted
decared vaue.
-40-8336
C. S. T. 1
No addton to the orgna decared vaue of the capta stock
of the M Corporaton for the year ended une 30, 1936, w be
requred to be made for the year endng une 30, 1937, by reason
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Regs. 64(1936), rt. 45. 316
of the qudaton of the N Corporaton, a subsdary, durng the
M Corporaton 8 ncome-ta ta abe year (caendar year 1936),
where under secton 112(b)6 of the Revenue ct of 1936 no rec-
ognzabe gan resuted from the qudaton.
dvce s requested whether the M Corporaton, a domestc cor-
poraton whch fes ts ncome ta returns on the caendar year bass,
w be requred to ncrease the orgna decared vaue of ts capta
stock as of une 30,1936, for the year endng une 30,1937, by reason
of the qudaton of the N Corporaton, a subsdary, durng the
caendar year 1936 (the parent corporaton s ncome-ta ta abe
year), whch qudaton resuted n no recognzabe gan for ncome
ta purposes.
Secton 105 of the Revenue ct of 1935, as amended by secton
401 of the Revenue ct of 1936, mposes an e cse ta upon every
domestc corporaton wth respect to the carryng on or dong bus-
ness for each ta abe year endng une 30, or any fractona part
thereof, begnnng wth the year endng une 30, 1936, at the rate of
1 for each 1,000 of the ad|usted decared vaue of the capta stock
of the corporaton.
Secton 105(f) of the Revenue ct of 1935, as amended by secton
401(c) of the Revenue ct of 1936, provdes n part that for any
year endng after une 30, 1936, the ad|usted decared vaue n the
case of a domestc corporaton sha be the orgna decared vaue
pus (1) the cash and far market vaue of property pad n for
stock or shares, (2) pad-n surpus and contrbutons to capta, (3)
ts net ncome, (4) the e cess of ts ncome whoy e empt from the
ta es mposed by the appcabe ncome ta aw over the amount ds-
aowed as a deducton by secton 24(a)5 of the Revenue ct of 1934
or a correspondng provson of a ater Revenue ct.
The term net ncome, as used n secton 701 (f)3 of the Revenue
ct of 1934 wth respect to the capta stock ta mposed by that
ct, has been hed to mean the same as the net ncome for ncome
ta purposes under secton 21 of the Revenue ct of 1934. (S. T.
781, C. . III-2, 415.) rtce 45(3) of Reguatons 64(1936), wth
respect to the determnaton of ad|usted decared vaue, provdes that
Net ncome s the net ncome requred to be shown on the ncome
ta return for the ncome-ta ta abe year endng on or before
une 30.
Secton 112(b) 6 of the Revenue ct of 1936 provdes that no gan
or oss sha be recognzed upon the recept by a corporaton of prop-
erty dstrbuted n compete qudaton of another corporaton, f
the corporaton recevng such property was, on the date of the adop-
ton of the pan of qudaton, and contnued to be at a tmes unt
the recept of the property, the owner of at east 80 per cent of the
tota combned votng power of a casses of stock entted to vote
and the owner of at east 80 per cent of the tota number of shares
of a other casses of stock of such other corporaton, wth certan
e ceptons not here matera. Snce, under the facts submtted to the
ureau, the qudaton of the N Corporaton comes wthn the pro-
vsons of secton 112(b) 6 of the Revenue ct of 1936, no recognzabe
gan resuted from such qudaton.
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317
Regs. 64(1936), rt. 62.
rtce 46 of Reguatons 64(193G), wth respect to the ad|ustments
of decared vaue requred as a resut of the merger of corporatons,
reads n part as foows:
(c) Mergers. If, on the other hand, the contnung corporaton, as
parent company, aready owned the capta stock of the merged corporaton
and the merger was effected by surrender of such stock n e change for the
assets of the merged corporaton, no ad|ustment woud resut (e cept as re-
fected n net ncome), snce there woud be merey the e change of one form
of property (stock of the subsdary) for another (assets of the subsdary).
The qudaton of the N Corporaton resuted merey n the e -
change of one form of property (capta stock of the N Corpora-
ton) by the M Corporaton for another form of property (assets of
the N Corporaton), whch e change does not requre an ad|ustment
of the decared vaue of the capta stock e cept as refected n net
ncome. Inasmuch as under secton 112(b)6 of the Revenue ct of
1936 no recognzabe gan resuted from the qudaton, t foows
that the net ncome of the M Corporaton was not affected by the
qudaton, and that no ncrease of the orgna decared vaue of
the capta stock of the M Corporaton as of une 30, 1936, w be
requred for the year endng une 30, 1937, by reason of the quda-
ton of the N Corporaton.
S CTION 105(b), S M ND D Y S CTION 401 O T R NU
CT O 1936. C PIT L STOC T .
Reguatons 64(1930), rtce 62: Carryng on -35-8283
or dong busness n the Unted States. G. C. M. 17014
Where a foregn coporaton has a capta stock ta ta abe
year endng wthn an ncome-ta ta abe year controed by the
Revenue ct of 1936. and such corporaton has no offce or pace
of busness wthn the Unted States, and ts ony actvtes con-
sst of effectng transactons n the Unted States n stocks, secur-
tes, or commodtes through a resdent broker, commsson agent,
or custodan, such corporaton s e empt from the capta stock
ta mposed by secton 105(b) of the Revenue ct of 1935, as
amended.
Where a foregn corporaton has a capta stock ta ta abe
year endng wthn an ncome-ta ta abe year controed by the
Revenue ct of 1934, as amended, the provsons of secton 211(b)
of the Revenue ct of 1930 can not be used as a test to determne
whether the foregn corporaton s carryng on or dong busness
wthn the Unted States.
n opnon s requested whether a foregn corporaton, whch has
no offce or pace of busness wthn the Unted States and s not
engaged n any actvtes n the Unted States other than effectng
transactons n stocks, securtes, or commodtes through a resdent
broker, commsson agent, or custodan, s sub|ect to capta stock
ta under secton 105(b) of the Revenue ct of 1935, as amended
by secton 401 of the Revenue ct of 1936, where such corporaton
has a capta stock ta ta abe year endng wthn an ncome-ta
ta abe year controed by the Revenue ct of 1936 and whether
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Reg|. 64(1936), rt. 62.
318
the provsons of secton 211 fb) of the Revenue ct of 1936 may
be apped n determnng whether such a corporaton, havng a
capta stock ta ta abe year endng wthn an ncome-ta ta abe
year controed by the Revenue ct of 1934, as amended, s carryng
on or dong busness wthn the Unted States.
Secton 105(b) of the Revenue ct of 1935, as amended by secton
401 of the Revenue ct of 1936, provdes as foows:
(b) or each year endng une 30, begnnng wth the year endng une 30,
1036, there s hereby mposed upon every foregn corporaton wth respect to
carryng on or dong busness n the Unted States for any part of such year
an e cse ta equvaent to 1 for each 1,000 of the ad|usted decared vaue of
capta empoyed n the transacton of ts busness n the Unted States.
Secton 211(b) of the Revenue ct of 1936, reatng to the ncome
ta of nonresdent aen ndvduas, provdes that the phrase en-
gaged n trade or busness wthn the Unted States does not ncude
the effectng of transactons n the Unted States n stocks, secur-
tes, or commodtes through a resdent broker, commsson agent, or
custodan.
Secton 231(b) of the Revenue ct of 1936, reatng to the ncome
ta on foregn corporatons, provdes as foows:
(b) Resdent corporatons. foregn corporaton engaged In trade or bus-
ness wthn the Unted States or havng an offce or pace of busness theren
sha be ta abe wthout regard to the provsons of subsecton (a), but the
norma ta mposed by secton 13 sha be at the rate of 22 per centum nstead
of at the rates provded n such secton.
The phrase engaged n trade or busness wthn the Unted States
as used n secton 231(b) has the same meanng as that phrase when
used n secton 211. (See secton 211(b).)
Snce the abty of a foregn corporaton for capta stock ta
under secton 105(b) of the Revenue ct of 1935, as amended, supra,
s based on carryng on or dong busness n the Unted States,
the queston s presented whether a foregn corporaton, whch has no
offce or pace of busness wthn the Unted States, but s engaged
n the mted actvtes specfed n secton 211(b) of the Revenue
ct of 1936, s to be regarded as carryng on or dong busness n the
Unted States for capta stock ta purposes for any year, whether
before or after the ta abe year ended une 30.1936.
The scheme of ta aton under secton 231(a) wth respect to the
ncome of foregn corporatons not engaged n trade or busness
wthn the Unted States and not havng an offce or pace of busness
theren s that they sha pay a fat rate of ta upon gross ncome
receved from sources wthn the Unted States, consstng of n-
terest, dvdends, rents, saares, wages, and other f ed and deter-
mnabe ncome. (See Report No. 2475, Commttee on Ways and
Means, dated pr 21, 1936, pages 9 and 10.) Wth respect to the
method of ta ng nonresdent foregn corporatons t s aso stated
n report of the Senate Commttee on nance, No. 2156, dated une 1,
1936, page 23, as foows:
In the case of a foregn corporaton not engaged n trade or busness wthn
the Unted States and not havng an offce or pace of busness theren, the
ouse b woud evy a fat rate of ta of 15 per cent on the gross ncome of
such corporaton from nterest, dvdends, rents, saares, wages, and other
f ed and determnabe ncome from sources wthn the Unted States (not
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319
Regs. 64(1936), rt. 62.
ncudng capta gans), the ta beng coected n the usua case by wthhodng
at the source, wth no deductons or credts aowed.
The provsons of secton 231 of the Revenue ct of 1936 dvde
foregn corporatons (e cudng foregn corporatons carryng on the
nsurance busness -wthn the Unted States) nto two casses, (1)
foregn corporatons not engaged n trade or busness wthn the
Unted States and not havng an offce or pace of busness theren,
and (2) foregn corporatons engaged n trade or busness wthn the
Unted States or havng an offce or pace of busness theren. or-
egn corporatons comng wthn the frst cass are desgnated as
nonresdent corporatons, whe foregn corporatons comng wthn
the second cass are desgnated as resdent corporatons. foregn
corporaton n the frst cass s sub|ect to ta aton under secton
231(a) of the Revenue ct of 1936 ony wth respect to the tems of
f ed or determnabe ncome specfed n the statute and, as ndcated
above, the ncome ta s requred to be wthhed at the source n
accordance wth the provsons of secton 144 of the Revenue ct of
1936. Where the ncome ta abty of the nonresdent corporaton
s satsfed at the source, no ncome ta return s requred of such
corporaton. urthermore, foregn corporatons not engaged n
trade or busness n the Unted States and not havng an offce or
pace of busness theren are not aowed any deductons.
though the Revenue ct of 1936 wth reference to ncome ta
has used the e presson n secton 211(b) engaged n trade or bus-
ness wthn the Unted States and the Revenue ct of 1935 n
secton 105(b) has used the e presson carryng on or dong busness
n the Unted States, and, athough the defnton n secton 211(b)
was not e pressy made a||pcabe to capta stock ta the e pres-
sons are, for ta ng purposes, synonymous so that the statutory
e cuson of certan actvtes from the one may we be regarded as
e cuson of such actvtes from the other. Consequenty, a corpo-
raton not engaged n trade or busness n the Unted States for
ncome ta purposes coud not ogcay be consdered as carryng
on or dong busness n the Unted States for capta stock ta pur-
poses merey by reason of the fact that t effected transactons on
the stock e change through a resdent broker. In other words, f a
foregn corporaton s not engaged n trade or busness n the
Unted States t s aso not carryng on or dong busness n the
Unted States. The fact that the two dfferent sectons of the ta ng
statute use dfferent words to e pan the same meanng does not
necessary carry wth t the mpcaton that a dfferent constructon
s to be made. On ths pont the Crcut Court of ppeas for the
Thrd Crcut n Leweyn v. Pttsburgh, . L. . R. Go. (222 ed.,
177) stated (at pages 185 and 186):
The manner n whch the e pressons engaged n, carryng on, or
dong busness are |oned n the statute does not denote that the e pressons
are used n opposton to one another, or that separatey they e press dfferent
meanngs. They are used n the con|unctve sense, and are empoyed to nd-
cate the one character of corporate busness ntended by the statute to be ta ed.
Therefore the e presson engaged n busness means the same thng as
carryng on busness, and the atter e presson has the same meanng as
dong busness. The three e pressons, ether separatey or connectedy,
convey the dea of progresson, contnuty, or sustaned actvty. ngaged n
busness means occuped n busness empoyed n busness. Carryng on
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Regs. 64(1936), rt. 62.1 320
busness does not mean the performance of a snge dsconnected busness act.
It means conductng, prosecutng, and contnung busness by performng pro-
gressvey a the acts normay ncdent thereto, and kewse the e presson
dong busness, when empoyed as descrptve of an occupaton, conveys the
Idea of busness beng done, not from tme to tme, but a the tme.
That the e pressons are used synonymousy s borne out aso by
reference to such cases as McCoach v. Mneh Ry. Co. (228 U. S.,
295), on aumbach v. Sargent Land Co. (242 U. S., 503), dwards
v. Che Copper Co. (270 U. S., 452), and cases cted theren.
The frst capta stock ta return requred under secton 105(b) of
the Revenue ct of 1935, as amended, s for the year ended une 30,
1936. The ad|usted decared vaue of the corporaton s capta em-
poyed for that year s the vaue as of the cose of ts ast ncome-
ta ta abe year endng at or pror to the cose of the capta stock
ta year. s ndcated above, t apparenty was the ntenton of
Congress that the test of abty for ncome ta , e cess-profts ta ,
and capta stock ta , n so far as such ta es were based upon, or
measured by, engagng n or dong busness wthn the Unted States,
shoud be dentca. That s, f a foregn corporaton was engaged n
trade or busness for ncome ta purposes, t was engaged m trade
or busness for e cess profts ta purposes, and was dong busness for
capta stock ta purposes. Conversey, f a foregn corporaton was
not engaged n busness for ncome ta purposes, t was not engaged
n busness for e cess profts ta purposes and thus not dong busness
for capta stock ta purposes.
Secton 1 of the Revenue ct of 1936 provdes as foows:
The provsons of ths tte Income Ta sha appy ony to ta abe years
begnnng after December 31,1935. Income, war-profts, and e cess-profts ta es
for ta abe years begnnng pror to anuary 1, 1936, sha not be affected by the
provsons of ths tte, but sha reman sub|ect to the appcabe provsons of
pror Revenue cts, e cept as such provsons are modfed by egsaton
enacted subsequent to ths ct.
In vew of the apparent ntenton of Congress, as dscosed by the
commttee reports and the specfc provsons of aw referred to
heren, to harmonze the ta es requred of foregn corporatons, ths
offce s of the opnon that (1) where a foregn corporaton has a
capta stock ta ta abe year endng wthn an ncome-ta ta abe
year controed by the Revenue ct of 1936, and such corporaton has
no offce or pace of busness wthn the Unted States, and ts ony
actvtes consst of effectng transactons n the Unted States n
stocks, securtes, or commodtes through a resdent broker, comms-
son agent, or custodan, such corporaton s e empt from the capta
stock ta mposed by secton 105(b) of the Revenue ct of 1935, as
amended, and (2 where a foregn corporaton has a capta stock ta
ta abe year endng wthn an ncome-ta ta abe year controed by
the Revenue ct of 1934, as amended, the provsons of secton 211(b)
of the Revenue ct of 1936 can not be used as a test to determne
whether the foregn corporaton s carryng on or dong busness
wthn the Unted States.
erman Ophant,
Genera Counse for the Department of the Treasury.
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321
Regs. 64(1934), rt. 53.
TITL . C PIT L STOC ND C SS PRO ITS
T S. (1934)
S CTION 701(b). C PIT L STOC T .
Reguatons 64(1934), rtce 53: Carryng
on or dong busness.
( so Secton 215(b) of the Natona Indus-
tra Recovery ct and rtce 31 of Regu-
atons 64(1933).)
The M Company, a foregn corporaton, whch purchases and sea
securtes n the Unted States through ts mercan correspondent,
s dong busness n ths country for capta stock ta purposes
wthn the meanng of secton 215(b) of the Natona Industra
Recovery ct and secton 701(b) of the Revenue ct of 1934.
dvce s requested whether the M Company, a foregn corpora-
ton, was carryng on or dong busness n the Unted States wthn
the meanng of secton 215 (b| of the Natona Industra Recovery
ct and secton 701 (b) of the Revenue ct of 1934 mposng a capta
stock ta .
Secton 215(b) of the Natona Industra Recovery ct mposes an
e cse ta upon every foregn corporaton wth respect to carryng on
or dong busness n the Unted States (after une 15, 1933) for
any part of a ta abe year endng on une 30. Secton 701(b) of
the Revenue ct of 1934 mposes an e cse ta upon every foregn
corporaton wth respect to carryng on or dong busness n the
Unted States (after May 9,1934) durng any part of a ta abe year
endng on une 30, begnnng wth the year endng une 30, 1934.
The M Company s a foregn corporaton engaged n the bankng
busness and has no offce or pace of busness n the Unted States.
One of ts actvtes s deang n foregn e change. In connecton
wth ts foregn e change operatons t mantans funds on depost
wth ts correspondent bank n the Unted States, and when such
deposts become arger than are mmedatey requred, t acts through
the correspondent bank n purchasng bonds and other securtes,
saes beng made when t s necessary to ncrease the funds on depost.
These transactons are effected soey by ts correspondent bank n
the Unted States pursuant to nstructons from the M Company,
whch has no empoyee or representatve n the Unted States other
than the correspondent bank.
The M Company contends that n carryng on ts actvtes through
ts correspondent bank n the Unted States n the manner stated
heren the correspondent bank, and not the M Company, s carryng
on or dong busness n the Unted States wthn the meanng of the
aw and reguatons, and rees upon certan court decsons reatng
to the servce of process, such as ank of merca v. Whtney Centra
Notona ank (261 U.S., 171).
It s cear from a revew of pertnent court decsons that a defnte
dstncton s drawn between the cases nvovng foregn corporatons
dong busness for the purpose of servce of process and other cases
-52-8457
G. C. M. 17517
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Rogs. 64(1934), rt. 53.
322
nvovng foregn corporatons dong busness. Ths dstncton s
ponted out by the Unted States Supreme Court n ank of merca
v. Whtney Centra Natona ank, supra, wheren t s stated:
The |ursdcton taken of foregn corporatons, n the absence of
statutory requrement or e press consent, does not rest upon a fcton of con-
structve presence, ke qu fact per aum fact per se. It fows from the fact
that the corporaton tsef does busness n the State or dstrct n such a manner
and to such an e tent that ts actua presence there Is estabshed.
rom that anguage t foows that a foregn corporaton whch
has an agent wthn the State and s, therefore, constructvey present
under the doctrne of qu fact per aum fact per se s dong bus-
ness wthn the State even though t may not be dong busness n
such a manner and to such an e tent that t s actuay present n the
State and, therefore, amenabe to the |ursdcton of ts courts. In
other words, to be sub|ect to the |ursdcton of a court t s not suff-
cent that a foregn corporaton be dong busness wthn such |urs-
dcton. It must be actuay present. It has been hed by the Unted
States Supreme Court that a foregn corporaton s not sub|ect to
the |ursdcton of a court uness () t s dong busness wthn the
State of the court s |ursdcton, and (2) servce s made upon some
duy authorzed offcer or agent of the corporaton. erndcn-Carter
Co. v. ames N. Norrs Son Co., 224 U. S., 496.) Ths rue s stated
as foows n 5 ncy. of Unted States Supreme Court Reports
(Permanent Suppement), page 230:
To sub|ect a foregn corporaton to servce of process, t must be
dong busness of such a nature, character and e tent as to warrant the
nference that t has sub|ected tsef to the oca |ursdcton and Is, by ts duy
authorzed offcers or agents, present wthn the State or dstrct.
That the ank of merca v. Whtney Centra Natona ank dec-
son s controng ony n cases nvovng a |ursdctona queston,
and s not controng n cases nvovng the queston whether a for-
egn corporaton s dong busness wthn a State through an agent,
s further estabshed by the decson of the Unted States Supreme
Court n Cannon Manufacturng Co. v. Cudahy Packng Co. (267
U. S., 333), wheren (at page 336) the Court stated:
The defendant wanted to have busness transactons wth persons resdent
n North Carona, but for reasons satsfactory to tsef dd not choose to enter
the State n ts corporate capacty. It mght have conducted such busness
through an Independent agency wthout sub|ectng tsef to the ursdcton.
( ank of merca v. Whtney Centra Natona ank, 261 D. S., 171.)
The queston s aso rased whether there s any dfference, for
capta stock ta purposes, between a foregn corporaton carryng on
busness n the Unted States through a factor and a foregn cor-
poraton carryng on such busness through an agent. In the ank
of merca v. Whtney Centra Natona ank, supra, the Unted
States Supreme Court, n referrng to the way n whch the New
Oreans bank nvoved n that case conducted ts New York busness
through ts correspondent banks, sad In ths respect ther reaton-
shp s comparabe to that of a factor actng for an absent prnc-
pa. In ts statement of the facts n that case, the Court sad that
the transactons of the New Oreans bank wth ts New York cor-
respondent banks necessary nvoved the reatonshp of prncpa
and agent. The fact that n the course of ts opnon the Court
sad that reatonshp was comparabe to that of a factor actng
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323 Regs. 64(1934), rt. 53.
for an absent prncpa ceary shows that such a factor s an agent.
If the factor were not an agent, the Court woud not have referred
to the reatonshp as one of prncpa and agent n ts statement
of the facts and ater n ts opnon referred to t as prncpa and
factor. That a factor s an agent s further shown by reference to
the te tbook wrters and court decsons bearng drecty on that
pont. (See Mechem on gency, pars. 2498 and 2513 ouver Law
Dctonary (3d Revson), voume 2, page 1176 Words and Phrases,
Thrd Seres, voume 3, page 496 Moody v. Goodwn, 200 P., 733
Lemnos road Sk Works, Inc., v. Spegeberg, 217 N. Y. S., 595
The Robn Gray, 53 ed. (2d), 1037.)
rtce 53 of Reguatons 64 (1934 edton) ndcates that n
genera the term carryng on or dong busness has the same mean-
ng wth respect to both domestc and foregn corporatons. Con-
sequenty, the same actvtes whch woud sub|ect a domestc cor-
poraton to the ta w sub|ect a foregn corporaton to the ta f
carred on wthn the Unted States, even though the transactons are
conducted through a factor or an agent.
In vew of the foregong, t s hed that the M Company n con-
ductng ts varous transactons for the purchase and sae of secur-
tes n the Unted States through ts correspondent bank n the
Unted States n the manner stated was carryng on or dong bus-
ness n the Unted States wthn the meanng of secton 215(b) of the
Natona Industra Recovery ct and secton 701(b) of the Revenue
ct of 1934, and was sub|ect to the capta stock ta mposed by
those cts. Ths s true regardess of whether the correspondent
bank was actng n the capacty of a factor or an agent.
Ths rung s not appcabe to smar questons arsng under
secton 105 of the Revenue ct of 1935, as amended by secton 401
of the Revenue ct of 1936, whch are consdered n Treasury De-
cson 4691 (page 314, ths uetn) and G. C. M. 17014 (dem, 317).
erman Ofhant,
Genera Counse for the Department of the Treasury.
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Regs. 48, Chs. I and II. 324
TITL I . CIS T S. (1934)
S CTION 602 /2 O T R NU CT O 1934 S M ND D Y S C-
TION 702 O T R NU CT O 1936. PROC SSING T ON
C RT IN OILS.
Reguatons 48, Chapters I and II. -38-8312
T. D. 4695
Processng ta on certan os Secton 602 of the Revenue
ct of 1934 and secton 702 of the Revenue ct of 1936. Chapters
I and II, Reguatons 48, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Otters Concerned:
Chapter I of Reguatons 48, approved ugust 17, 1934, s
amended, n conformty wth the provsons of secton 702 of the
Revenue ct of 1936, to read as foows:
chapter .
Defntons.
Secton 801(a) of the Revenue ct of 1934.
Sec. 801. (a) When used In ths ct
(1) The term person means an ndvdua, a trust or estate, a
partnershp, or a corporaton.
(2) The term corporaton ncudes assocatons, |ont-stock
companes, and nsurance companes.
(3) The term partnershp ncudes a syndcate, group, poo, |ont
venture, or other unncorporated organzaton, through or by means
of whch any busness, fnanca operaton, or venture s carred on,
and whch s not, wthn the meanng of ths ct, a trust or estate
or a corporaton and the term partner ncudes a member n such
a syndcate, group, poo, ont venture, or organzaton.

(10) The term Unted States when used n a geographca sense
ncudes ony the States, the Terrtores of aska and awa, and the
Dstrct of Coumba.
(11) The term Secretary means the Secretary of the Treasury.
(12) The term Commssoner means the Commssoner of Interna
Revenue.
(13) The term coector means coector of nterna revenue.
(14) The term ta payer means any person sub|ect to a ta m-
posed by ths ct.
Secton 602 (a) of the Revenue ct of 1034.
Sec. 002 . (a) or the purposes of ths secton the term
frst domestc processng means the frst use n the Unted States,
n the manufacture or producton of an artce ntended for sae, of
the artce wth respect to whch the ta s mposed, but does not n-
cude the use of pam o n the manufacture of tn pate.
rtce 1. Defntons. hen used n these reguatons, the term
(a) ct means the Revenue ct of 1934, approved May 10, 1934 (Pubc,
No. 210, Seventy-thrd Congress), as amended by the Revenue ct of 1936,
approved une 22, 1930 (Pubc, No. 740, Seventy-fourth Congress).
(6) Ta means the processng ta mposed by secton 602 of the Revenue
ct of 1934. as amended by secton 702 of the Revenue ct of 1936.
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325
Regs. 48, Chs. I and II.
(c) Person Incudes an ndvdua, a corporaton, a partnershp, a trust or
estate, a |ont-stock company, an assocaton, or a syndcate, group, poo,
|ont venture, or other unncorporated organzaton or group, through or by
means of whch any busness, fnanca operaton, or venture s carred on.
It ncudes a guardan, commttee, recever, assgnee for the beneft of credtors,
conservator, or any person actng n a fducary capacty.
(d) Unted States ncudes ony the States, the Terrtores of aska and
awa, and the Dstrct of Coumba.
(e) Secretary means the Secretary of the Treasury Commssoner, the Com-
mssoner of Interna Revenue and coector, a coector of nterna revenue.
(f) Ta payer means any person sub|ect to abty for the ta mposed by
secton 602 of the Revenue ct of 1934, as amended by secton 702 of the
Revenue ct of 1936.
(#) O or os. (1) or the perod 1140 a. m., eastern standard tme. May
10, 1934, to 12 mdnght, eastern standard tme, ugust 20, 1936. Durng the
perod 11.40 a. m., eastern standard tme, May 10, 1934, to 12 mdnght, eastern
standard tme, ugust 20, 1936, o or os means coconut o, sesame o,
pam o, pam kerne o, sunfower o, or any combnaton or m ture con-
tanng a substanta quantty of any one or more of such os wth respect
to any of whch os there has been no prevous frst domestc processng.
(2) or the perod begnnng wth 12.01 a. m., eastern standard tme, ugust
21, 1936. or the perod begnnng wth 12.01 a. m., eastern standard tme,
ugust 21, 1936, o or os means coconut o, pam o, pam kerne o, fatty
acds derved from any of the foregong os, sats of any of the foregong
(whether or not such os, fatty acds, or sats have been refned, suphonated,
suphated, hydrogenated, or otherwse processed), or any combnaton or m -
ture contanng a substanta quantty of any one or more of such os, fatty
acds, or sats. The term aso ncudes sesame o, sunfower o (or any
combnaton or m ture contanng a substanta quantty of sesame o, or
sunfower o), f such o or such combnaton or m ture of such o contaned
theren was mported nto the Unted States pror to 12.01 a. m., eastern standard
tme, ugust 21, 1936. It shoud be noted that fatty acds and sats of sesame
o or sunfower o mported pror to the above-mentoned tme and date are
not Incuded.
(3) Combnaton or m ture means an artce n the formaton of whch
any of the os have been bended, con|oned, unted, adm ed, combned, ama-
gamated, emboded, or merged, ether by chemca or mechanca means, wth
or wthout the presence of any other substance, and whch retans a substan-
ta porton (10 per cent or more) of substantay a the essenta components
of nny of the o or os enterng nto such combnaton or m ture. It ncudes
artces n whch any of the o or os have been sub|ected to premnary proc-
essng outsde the Unted States or before the effectve date, or both, and n
whch substantay a of the components of such o or os are present, even
though the os themseves may no onger e st as such. Substanta quan-
tty means ten (10) per cent or more, by weght, of the combnaton or
m ture.
( .) atty acds, for the purposes of ths ct, are those organc acds found
n the free or combned state n coconut o, pam o, or pam kerne o.
( ) Sats, for the purposes of ths ct, are those compounds formed by the
Interacton of fatty acd, free or combned, of coconut o, pam o, or pam
kerne o, wth a meta or meta-ke substance or an organc radca.
(/) rtce processed whoy or n chef vaue from an artce wth respect
to whch a ta s mposed means any artce made entrey from o or os, or
any artce made of two or more components, the o or os consttutng a com-
ponent havng a vaue greater than that of any other component. n artce
s made from an o or os when the o or os, or any of ther processed
forms, have been used n makng the artce. In determnng the vaue of the
o or os as a component, the combned vaues of the o or os, and of every
processed form thereof used n makng the artce, sha be the vaue of the
o or os as a component
(k) ffectve date n respect to the provsons of secton G021/2 of the Revenue
ct of 1934, as orgnay enacted, means May 10, 1934, begnnng at 11.40 a. m.,
eastern standard tme, and n respect to secton 602 of the Revenue ct of
1934, as amended by secton 702 of the Revenue ct of 193G, means ugust 21,
1936, begnnng at 12.01 a. m., eastern standard tme.
(I) Processng means the use of the o or os n the manufacture or produc-
ton of an artce ntended for sae.
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egs. 48, Ch . I and II.
326
(m) Use has a very broad meanng. The term Incudes, among other
thngs, the usng or makng use of, or empoyng, any one or more of the
os, or any combnaton or m ture of the os, n any process, or stage or
step n the manufacture or producton of an artce ntended for sae, and
ncudes the manufacture or producton of such artce n ts entrety, whether
such o Is used as a component or consttuent or ngredent of the artce,
or s used merey as a means or ad n the manufacture or producton of the
artce, and not as a component or consttuent or ngredent. ampes
whch are n no measure a-ncusve of the use contempated are:
(1) eachng, neutrazng, refnng, deodorzng, hydrogenatng, supho-
natng, twtchezng, poymerzng, saponfyng, or any other commerca
processng or any combnaton of these commerca processngs, f such proc-
ess or combnaton of processes produces an artce ntended for sae.
(2) The entre process of manufacture or producton of an artce ntended
for sae, where any one or more of the above-enumerated processes are but
ncdenta steps or stages n a contnuous course of manufacture or producton
of the artce.
(8) The manufacture or producton of an artce ntended for sae from
an o or os upon whch any of the processes enumerated n (1), above, have
been performed ether ( ) pror to the mportaton of the partcuar o, or
( ) pror to the effectve date of the ct.
(4) The use of the o or os n connecton wth any process or stage of the
manufacture or producton of an artce ntended for sae, even though the
o s not consumed theren or does not become a component matera of the
artce so produced. ut such a use of pam o, by the processor. In the
manufacture of tn pate Is specfcay e cepted by the ct.
(n) rst domestc processng means the frst use n the Unted States
on or after the effectve date of the ct. t a tmes n these reguatons,
the term processng or frst domestc processng w be deemed to be synony-
mous wth use or frst use n the Unted States on or after the effectve
date, respectvey, and w Incude the meanngs mped In the atter terms
by subdvson (m), above.
(o) Processor s any person who does the frst domestc processng.
(p) portaton means the severance of an artce from the mass of thngs
beongng wthn the Unted States wth the ntenton of untng t wth the
mass of thngs beongng wthn some foregn country or wthn a possesson
of the Unted States.
(q) porter means the person named as shpper or consgnor n the
e port b of adng.
(r) Incudes and ncudng, when used n a statement contaned n these
reguatons, sha not be deemed to e cude other thngs otherwse wthn
the meanng of such statement.
Chapter II of Reguatons 48 s amended by nsertng the foowng
after the quotaton of secton 602 (a) of the Revenue ct of 1934:
Secton 702 (a) and (b) of the Revenue ct of 1936.
Sec. 702. Processng ta on certan os.
(a) The frst sentence of secton 602 of the Revenue ct of 1934
Is amended to read as foows:
(a) There s hereby mposed upon the frst domestc processng of
coconut o, pam o, pam-kerne o, fatty acds derved from any of
the foregong os, sats of any of the foregong (whether or not such
os, fatty acds, or sats have been refned, suphonated, suphated,
hydrogenated, or otherwse processed), or any combnaton or m ture
contanng a substanta quantty of any one or more of such os, fatty
acds, or sats, a ta of 3 cents per pound to be pad by the processor,
but the ta under ths secton sha not appy (1) wth respect to
any fatty acd or sat resutng from a prevous frst domestc process-
ng ta ed under ths secton or upon whch an mport ta has been pad
under secton 601(c)(8) of the Revenue ct of 1932, as amended, or
(2) wth respect to any combnaton or m ture by reason of ts con-
tanng an o, fatty acd, or sat wth respect to whch there has been
a prevous frst domestc processng or upon whch an mport ta has
been pad under such secton 601(c)(8).
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327
Regs. 48, Chs. I and II.
(b) Notwthstandng the provsons of subsecton (a) of ths sec-
ton, the frst domestc processng of sunfower o or sesame o (or
any combnaton or m ture contanng a substanta quantty of sun-
fower o or sesame o), f such o or such combnaton or m ture
of such o contaned theren was mported pror to the effectve date
of ths tte, sha be ta ed n accordance wth the provsons of secton
602 of the Revenue ct of 1031 n force on the date of the enactment
of ths ct
Secton 602 of the Revenue ct of 1934.
Sec. G02. Ta on certan os.
Secton 001 (c) of the Revenue ct of 1932 s amended by addng
at the end thereof a new paragraph as foows:
(8) Whae o (e cept sperm o), fsh o (e cept cod o, cod-ver
o, and habut-ver o), marne-anma o, and any combnaton or
m ture contanng a substanta quantty of any one or more of such
os, 3 cents per pound. The ta on the artces descrbed n ths para-
graph sha appy ony wth respect to the mportaton of such artces
after the date of the enactment of the Revenue ct of 1934, and sha
not be sub|ect to the provsons of subsecton (b)(4) of ths secton
(prohbtng drawback) or secton 629 (reatng to e praton of
ta es).
Secton 701 of the Revenue ct of 1036.
Sec. 701. Ta on certan os.
The frst sentence of secton 601(c) (8) of the Revenue ct of 1932,
as amended, s amended to read as foows:
(8) Whae o (e cept sperm o), fsh o (e cept cod o, cod-ver
o, and habut-ver o), marne-anma o, taow, nedbe anma
os, nedbe anma fats, Inedbe anma greases, fatty acds derved
from any of the foregong, and sats of any of the foregong a the
foregong, whether or not refned, suphonated, suphated, hydrogenated,
or otherwse processed, 3 ceuts per pound sesame o provded for n
paragraph 1732 of the Tarff ct of 1930, sunfower o, rapeseed o,
kapok o, hempseed o, pera o, fatty acds derved from any of the
foregong or from nseed o, and sats of any of the foregong a
the foregong, whether or not refned, suphonated, suphated, hy-
drogenated, or otherwse processed, 4 cents per pound any artce,
merchandse, or combnaton (e cept os specfed n secton 60214 of
the Revenue ct of 1934, as amended), 10 per centum or more of the
quantty by weght of whch conssts of, or Is derved drecty or nd-
recty from, one or more of the products specfed above n ths para-
graph or n secton 6O2 2 of the Revenue ct of 1934, as amended, a
ta at the rate or rates per pound equa to that proporton of the rate or
rates prescrbed n ths paragraph or such secton 602 n respect of
such product or products whch the quantty by weght of tho mported
artce, merchandse, or combnaton, consstng of or derved from
uch product or products, bears to the tota weght of the mported
artce, merchandse, or combnaton hempseed, pera seed, rapeseed,
sesame seed, and kapok seed, 2 cents per pound.
Secton 704 of the Revenue ct of 1936.
Sec. 704. ffectve date.
The provsons of ths tte sha be effectve on and after the s teth
day foowng the date of the enactment of ths ct.
Note. or nformaton reatve to secton 601(c)8 of the Revenue ct of 1932, as
amended, communcate wth the ureau of Customs, Washngton, D. C.
rtces 2 to 6, ncusve, are amended respectvey to read as
foows:
bt. 2. Nature of the ta . The ta s an e cse, not a property ta , nor an
mport ta . It s ad not upon the os as such, or upon the sae of such os,
or upon the mportaton of such os, but ony upon ther use n the manufacture
of an artce ntended for sae.
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Regs. 48, Cha. I and II.
328
rt. 3. Imposton of the ta . (a) or the perod U f a. m., eastern standard
tme. May 10, 1934, to 12 mdnght, eastern standard tme, ugust 20, 1936.
Durng the perod 11.40 a. m., eastern standard tme, May 10, 1934, to 12 md-
nght, eastern standard tme, ugust 20,1930, ta s mposed on the frst domestc
processng of coconut o, pam o, pam kerne o, sesame o, sunfower o, or
any combnaton or m ture of such os.
(b) or the perod begnnng wth 12.01 a. m., eastern standard tme, ugust
21, 1936. egnnng wth 12.01 a. m., eastern standard tme, ugust 21,1936, ta
s mposed on the frst domestc processng of coconut o, pam o, pam kerne
o, fatty acds and sats derved from such os as we as combnatons or m -
tures of such os, fatty acds, or sats. owever, ta sha not be Imposed on
any fatty acd or sat (1) resutng from a frst domestc processng of coconut
o, pam o, or pam kerne o upon whch ta has been pad under secton
of the Revenue ct of 1934, as amended, or (2) upon whch an mport duty
has been pad under secton 601(c)8 of the Revenue ct of 1932, as amended.
egnnng wth 12.01 a. m., eastern standard tme, ugust 21, 1936, no ta
sha be mposed wth respect to a combnaton or m ture of coconut o,
pam o, pam kerne o, fatty acd, or sat of such os where such o,
fatty acd, or sat has (1) prevousy been sub|ected to ta under secton 602
of the Revenue ct of 1934, as amended, or (2) been sub|ected to the mport
ta mposed under secton 601(c)8 of the Revenue ct of 1932, as amended.
The ta sha appy to sesame o, sunfower o, or any combnaton or m -
ture of sesame o or sunfower o, If such o, combnaton or m ture, or
the o contaned n such combnaton or m ture was mported pror to 12.01
a. m., eastern standard tme, ugust 21, 1936.
(c) cepton. No ta s mposed on the use of pam o, by the processor,
n the manufacture of tn pate.
rt. 4. When ta attaches. (a) Generay. The ta attaches upon the
frst domestc processng of the o. If some part of the processng of a par-
tcuar quantty of o takes pace on or after the effectve date, the ta
attaches notwthstandng that some part of the processng of such quantty
took pace before the effectve date.
(6) or the perod U f a. m., eastern standard tme, May 10, 1934, to 1Z
mdnght, eastern standard tme, ugust 20, 1936. If coconut o, pam o,
pam kerne o, sesame o, sunfower o, or a combnaton or m ture of such
os, has been refned, suphonated, suphated, hydrogenated, or otherwse
processed, ether pror to the mportaton thereof or pror to 11.40 a. m.,
eastern standard tme, May 10, 1934, or both, the ta attaches to the frst
domestc processng of such os, or combnatons or m tures, after such tme.
In the manufacture or producton of an artce ntended for sae.
(c) or the perod begnnng wth 12.01 a. m., eastern standard tme, ugust
21, 1936. egnnng wth 12.01 a. m., eastern standard tme, ugust 21, 1936,
(e ta w attach to the frst domestc processng of coconut o, pam o,
pam kerne o, fatty acds and sats derved from such os as we as com-
bnatons or m tures of such os, fatty acds, or sats.
The ta attaches to sesame o or sunfower o, or a combnaton or m ture
of such os, mported pror to 12.01 a. m., eastern standard tme, ugust 21,
1930, and frst domestcay processed subsequent to such tme.
owever, no ta w attach to the frst domestc processng of fatty acds
or sats of coconut o, pam o, or pam kerne o f the coconut o, pam
o, or pam kerne o from the frst domestc processng of whch the fatty
acds or sats resuted, had been sub|ected to ta under secton 602 of the
Revenue ct of 1934, as amended, or f such os had been sub|ected to the
mport ta mposed under secton 601(c)8 of the Revenue ct of 1982, as
amended.
No ta sha attach to a combnaton or m ture of coconut o, pam o, pam
kerne o, fatty acds or sats of such os, where such o, fatty acd, or sat has
prevousy been sub|ected to ta under secton 602 of the Revenue ct of 1934,
as amended, or been sub|ected to the mport ta mposed under secton 601 (c)8
of the Revenue ct of 1932, as amended.
No ta sha attach to sesame o, sunfower o, or any combnaton or m ture
of such os, f such os, combnatons or m tures, or the os contaned n such
combnatons or m tures were mported subsequent to 12 mdnght, eastern
standard tme, ugust 20, 1936.
rt. 5. Measure of the taw. (a) Generay. The measure of the ta s the
quantty of o or os (n pounds) put nto process, that s, the amount of ta
r
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329
Regs. 48, Chs. I and II.
w be determned by the quantty of te o or os whch, n any way, enters
nto the frst domestc processng.
(6) or the perod 11.40 a. m., eastern standard tme, May 10, 1934, to 12 md-
nght, eastern standard tme, ugust 20, 1936. Durng the perod 11.40 a. m.,
eastern standard tme, May 10, 1034, to 12 mdnght, ugust 20, 1936, f o or
os whch have been processed and upon whch the ta has been pad are com-
bned wth o or os upon whch no ta has been pad, the measure of the ta
on the processng of the combnaton or m ture s the tota quantty (n pounds)
of such combnaton or m ture.
(c) or the perod begnnng wth 12.01 a. ., eastern standard tme, ugust
21, 1936. egnnng wth 12.01 a. m., eastern standard tme, ugust 21, 1938, f
o or os whch have been processed and upon whch ta has been pad under
secton 602 of the Revenue ct of 1934, as amended, or under secton 601(c)8
of the Revenue ct of 1932, as amended, are combned wth o or os upon whch
no ta has been pad, the measure of the ta on the processng of the combna-
ton or m ture s the quantty (n pounds) of the nonta -pad o or os contaned
n the combnaton or m ture.
bt. 6. Rate of ta . (a) or the perod 11.40 a. m., eastern standard tme,
May 10, 1934, to 12 mdnght, eastern standard tme, ugust 20, 1936. Durng
the perod 11.40 a. m., eastern standard tme, May 10, 1934, to 12 mdnght, east-
ern standard tme, ugust 20, 1936, the rate of ta s 3 cents per pound on sesame
o, pam o, pam kerne o, sunfower o, or a combnaton or m ture contan-
ng a substanta quantty of one or more of such os, wth respect to any of
whch os there has been no prevous frst domestc processng.
(b) or the perod begnnng wth 12.01 a. m., eastern standard tme, ugust
21,1936. egnnng wth 12.01 a. m., eastern standard tme, ugust 21,1936, the
rate of ta s 3 cents per pound on pam o, pam kerne o, fatty acds or sats
derved from pam o, or pam kerne o, fatty acds, or sats derved from
coconut o, or a combnaton or m ture contanng a substanta quantty of one
or more of the foregong, wth respect to any of whch there has been no prevous
frst domestc processng.
Sesame o or sunfower o, or a combnaton or m ture of such os, mported
pror to 12.01 a. m., eastern standard tme, ugust 21, 1936, and frst domest-
cay processed subsequent to such tme s ta abe at the rate of 3 cents per
pound.
(c) egnnng wth 11.40 a. m., eastern standard tme, May 10, 1934, e cept as
set forth n (d), beow, the rate of ta s 5 cents per pound on coconut o, or
on any combnaton or m ture contanng a substanta quantty of coconut o,
wth respect to whch o there has been no prevous frst domestc processng.
(d) The rate of ta s 3 cents per pound on coconut o and on any combna-
ton or m ture contanng a substanta quantty of coconut o, If a of such
coconut o (aone or n combnaton or m ture)
(1) Is whoy the producton of any possesson of the Unted States, ncudng
the Phppne Isands or
(2) Was produced whoy from materas, the growth or producton of any
possesson of the Unted States, ncudng the Phppne Isands or
(3) Was brought nto the Unted States before une 10, 1934 or
(4) Was produced from materas brought nto the Unted States before une
10, 1934 or
(5) Was purchased under a bona fde contract entered nto pror to pr
26, 1984 or
(6) Was produced from materas purchased under a bona fde contract
entered Into pror to pr 26, 1934.
Nora. Secton 702 of the Revenue ct of 1936 made no change wth respect to the
rate of ta on coconut o whether of Phppne Isands orgn or otherwse.
These reguatons are prescrbed under the authorty of secton 1101 of the
Revenue ct of 1926, made appcabe by secton 602 (f) of the Revenue ct
of 1934.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved September 11, 1936.
. MO G NT U, r.,
Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 14, 1936, 12.46 p. m.)
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Regs. 44(1934), rt. 43.
330
TITL I . M NU CTUR RS CIS T S. (1932)
S CTION 601(c) O T R NU CT O 1932, S M ND D Y T
CT O UN 16, 1933 (PU LIC, NO. 73, S NTY-T IRD CONGR SS),
ND Y S CTION 603(a) O T R NU CT O 1934.
Manufacturers or producers of whte o of certan specfcatons
may se such o for nonubrcatng purposes free from ta wthout
obtanng e empton certfcates from the purchasers.
dvce s requested whether whte o of the knd herenafter de-
scrbed may be sod by the manufacturer or producer for nonubr-
catng purposes free from ta wthout securng from the purchasers
the e empton certfcates requred by artce 43 of Reguatons 44
(1934), as amended by Treasury Decson 4604 (C. . I -2, 379).
Secton 601 (c) of the Revenue ct of 1932, as amended, mposes
a ta of 4 cents a gaon upon the sae of ubrcatng o by the manu-
facturer or producer. Saes by the manufacturer or producer of an
o havng both ubrcatng and nonubrcatng uses when made for
nonubrcatng purposes are not sub|ect to ta , provded the o s put
nto a channe of consumpton or dstrbuton for use other than that
of ubrcaton and the manufacturer or producer obtans the e emp-
ton certfcate requred by artce 43 of Reguatons 44(1934), as
amended by Treasury Decson 4604, supra.
The whte o n queston s a hghy refned product of petroeum
specay manufactured for use amost e cusvey for other than
ubrcatng purposes. It s odoress, tasteess, and of 30 Saybot coor
or hgher. Substantay a (at east 99 per cent) of such o s
used for pharmaceutca, cosmetc, and other purposes whch do not
nvove ubrcatng uses, and the baance s sod nto ta -e empt chan-
nes. The manufacturng process and the treatment requred to pro-
duce whte o of the above specfcatons resut n a oss of 30 to 60
per cent of the orgna ubrcatng o put n process, and as a conse-
quence the prce of such o s much hgher than that charged for
ordnary ubrcatng os.
It s hed that whte o whch s odoress, tasteess, and of 30 Say-
bot coor or hgher, and whch s sedom sod or used for ubrcatng
purposes even though t has quates whch make t capabe of beng
used for such purposes to a mted e tent, may be sod free from ta
for nonubrcatng purposes on or after une 21, 1932, wthout re-
qurng the manufacturers or producers thereof to secure e empton
certfcates usuay requred n respect of such saes, provded, now-
ever, that the manufacturers or producers of such whte o sha ac-
count for and pay the ta wth respect to any of such o whch may
actuay be sod or used for ubrcatng purposes. compete record
of a saes of such whte o must be retaned by the manufacturer or
producer thereof for a perod of four years and be kept avaabe for
nspecton by representatves of the ureau.
Ths rung s not to be taken as a precedent n consderng the ta -
abe status of the sae of any other ta abe artces.
Reguatons 44(1934), rtce 43: Saes of
o for nonubrcatng uses.
-39-831S
S. T. 844
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331 Regs. 44(1934), rt. 43.
Reguatons 44(1934), rtce 43: Saes of -49-8421
o for nonubrcatng uses. S. T. 849
empton certfcates wth respect to saes of ubrcatng o for
nonubrcatng purposes.
dvce s requested whether ubrcatng o packaged n seaed con-
taners of 1 gaon or ess, abeed to ndcate specfc nonubrcatng
uses and advertsed and sod for such uses, may be sod by manufac-
turers, producers, or deaers free from ta wthout obtanng e emp-
ton certfcates from the purchasers.
Secton 601 (c) of the Revenue ct of 1932, as amended by the
ct of une 16, 1933 (Pubc, No. 73, Seventy-thrd Congress), and
by secton 603(a) of the Revenue ct of 1934, mposes a ta of 4
cents a gaon upon the sae of ubrcatng o by the manufacturer
or producer. Saes by the manufacturer or producer of an o havng
both ubrcatng and nonubrcatng uses are not sub|ect to ta when
made e cusvey for nonubrcatng purposes, provded the o s put
nto a channe of consumpton or dstrbuton tor use other than that
of ubrcaton and the manufacturer or producer obtans the e emp-
ton certfcate requred by artce 43 of Reguatons 44 (1934), as
amended by Treasury Decson 4604 (C. . I -2 379).
It s hed that manufacturers, producers, or deaers who package
ubrcatng o n seaed contaners of 1 gaon or ess, abeed to
ndcate specfc nonubrcatng uses, and who advertse and se the
product so packaged and abeed soey for use or for resae for
nonubrcatng purposes, may se such o ta -free wthout obtan-
ng e empton certfcates from the purchasers thereof. owever,
where ubrcatng o s sod n buk or n packages contanng more
than 1 gaon, the ta mposed under secton 601 (c), as mended,
attaches to the manufacturer s or producer s sae of the product
and no refund or credt of the ta pad may be obtaned uness
the utmate vendor furnshes the manufacturer or producer who
pad the ta to the Government wth the evdence outned n
artce 84 of Reguatons 44, as amended by Treasury Decson 4604
(C. . I -2, 381), showng that the product was actuay sod by
hm for nonubrcatng purposes. Where a manufacturer or pro-
ducer ses ubrcatng o n buk to a deaer for resae for non-
ubrcatng purposes and the deaer packages such o n seaed
contaners of 1 gaon or ess, abeed to ndcate specfc nonubr-
catng uses, the o so packaged and abeed may be sod ta -free
by the deaer wthout obtanng e empton certfcates from each
consumer. In such cases the deaer who packages the o shoud
furnsh the manufacturer or producer from whom the produc was
purchased a sworn statement to the effect that the o was packaged
n contaners of 1 gaon or ess, and was abeed, advertsed, and
sod for specfc nonubrcatng uses.
Where saes of ubrcatng o are made by a deaer for nonubr-
catng uses n contaners furnshed by consumers, t w be necessary
for such deaer to obtan an e empton certfcate from each con-
sumer to support hs ta -free sae of the product for nonubrcatng
purposes. Otherwse, the manufacturer or producer who pad the
ta to the Government may not secure a refund or credt of the
ta so pad. Lkewse, where a manufacturer or producer ses
ubrcatng o for nonubrcatng uses n contaners furnshed by
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Regs. 46, rt. 22.
332
consumers, t w be necessary for the manufacturer or producer
to obtan from each consumer an e empton certfcate smar to
that outned n artce 43 of Reguatons 44, as amended by Treasury
Decson 4604, supra.
In respect of a such saes, manufacturers, producers, and deaers
must pay the ta due under the aw uness they have pesona
knowedge or ndsputabe proof that the o s ntended for a non-
ubrcatng use, especay where saes are made n cousumers
contaners.
Ths rung s restrcted n ts appcaton to saes of ubrcatng
o for nonubrcatng purposes and s not to be taken as a precedent
n consderng the ta abe status of the sae of any other ta abe
product.
S CTION 601(c)3. GR P CONC NTR T , TC.
-31-8211
Mm. 4477
mendment to the Revenue ct of 1932 by the Lquor Ta d-
mnstraton ct wth respect to the ta mposed on grape con-
centrate.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, uy 8, 1936.
Coectors of Interna Revenue and Others Concerned:
Under the provsons of secton 336 of the Lquor Ta dmns-
traton ct (Pubc, No. 815, Seventy-fourth Congress), the ta
mposed under secton 601(c) 3 of the Revenue ct of 1932 sha
not appy to saes after une 26, 1936, of grape concentrate, evapo-
rated grape |uce, or grape srup, by the manufacturer, producer, or
mporter thereof.
Inqures reatve to ths mmeograph shoud refer to the number
and the symbos MT: ST.
Guy T. everno,
Commssoner.
S CTION 603. TOIL T PR P R TIONS, TC.
Reguatons 46, rtce 22: Scope of ta . -2S-8177
S. T. 840
S. T. 818 (C. . I -2, 36C) made appcabe wthout retroactve
effect
It was hed n S. T. 488 (C. . I-2, 457) that permanent wave
pads used as accessores to permanent wave machnes and the accom-
panyng permanent wave souton are not ta abe as toet prepara-
tons under secton 603 of the Revenue ct of 1932, but that sub-
stances or preparatons apped drecty to the har n producng
fnger waves or wave sets are ta abe under that secton when
sod by the manufacturer, producer, or mporter.
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333
Regs. 46, rt. 24.
S. T. 488 was modfed by S. T. 818 (C. . I -2, 366), whch
hods that permanent wave soutons apped or ntended to be
apped, drecty to the har, or to both the har and wave pads, n
gvng permanent waves, are toet preparatons wthn the meanng
of secton 603 of the Revenue ct of 1932 and are sub|ect to the ta
mposed by that secton and that the fact that n some cases the
permanent wave souton s apped ony to the wave pads does not
e cude the souton from the ta .
Secton 1108(a) of the Revenue ct of 1926, as amended by sec-
ton 605 of the Revenue ct of 1928, and by secton 506 of the Reve-
nue ct of 1934, provdes as foows:
(a) The Secretary, or the Commssoner wth the approva of the Secretary,
may prescrbe the e tent, f any, to whch any rung, reguaton, or Treasury
decson, reatng to the nterna revenue aws, sha be apped wthout
retroactve effect.
Under the authorty conferred by that secton, the modfcaton
of S. T. 488 by S. T. 818 w be apped wthout retroactve effect,
that s, ony to saes made on and after ugust 26, 1935 (date of
pubcaton of S. T. 818). owever, any cam for credt or refund
of ta pad pror to that date w be sub|ect to the requrements of
secton 621 (d) of the Revenue ct of 1932.
Guy T. everng,
Commssoner of Interna Revenue.
pproved.
Stephen . Gbbons,
ctng Secretary of the Treasury.
S CTION 604 O T R NU CT O 1932, S M ND D Y S C-
TION 608 O T R NU CT O 1934, ND Y S CTION 810 O
T R NU CT O 1936. URS.
Reguatons 46, rtce 24: Scope of ta . -34-8259
Mm. 4490
Proper method for determnng the ta abty of fur-trmmed
garments.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ugust 13, 1936.
Coectors of Interna Revenue and Others Concerned:
Secton 604 of the Revenue ct of 1932, as amended, mposes a
ta upon the sae by manufacturer, producer, or mporter of artces
made of fur on the hde or pet or of whch any such fur s the com-
ponent matera of chef vaue. The ta was orgnay mposed at
the rate of 10 per cent of the sae prce. Secton 608 of the Revenue
ct of 1934 provded for an e empton from the ta wth respect
to artces sod for ess than 75. Secton 810 of the Revenue ct
of 1936, effectve une 23, 1936, reduced the rate of ta from 10 per
cent to 3 per cent and dscontnued the e empton wth respect to
artces sod for ess than 75. ccordngy, on and after une 23,
1936, the ta of 3 per cent appes to a saes of artces made of
fur or of whch fur s the component matera of chef vaue, re-
gardess of the saes prce of the artces.
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egs. 46, rt. 24.
334
The matera components of fur-trmmed garments recognzed
for ta purposes by the Treasury Department are the fur set, the
coth she, the nng she, and the fndngs. Snce the cost of the
coth she s greater than that of the nng she or of the fndngs,
the ta abty of a fur-trmmed garment w be determned by a com-
parson of the cost of the fur set wth the cost of the coth she.
When the cost of the fur set e ceeds the cost of the coth she, the
garment s ta abe, and conversey when the cost of the coth she
s greater, the garment s not ta abe.
The cost of the fur set conssts of the net purchase prce e cusve
of the ta on the fur trmmng ncuded theren.
The cost of the coth she conssts of:
1. The net cost of the coth used n makng the she
2. Thread
3. n aocated part of the e penses and osses ncdent to the
handng of the coth, namey, the shrnkage, spongng, m damage,
net remnant oss, ncomng freght and e press, and cartage to
contractors
4. The cost e pended for drect abor n makng the coth she,
that s, cuttng or coth, operatng on coth she, and underpressng,
pressng and fnshng on coth she pror to ts assemby wth the
nng or the fur and
5. n aocated part of the factory overhead. or ths purpose
the factory overhead ncudes a e penses whch, under recognzed
cost accountng prncpes, come wthn the cassfcaton of factory
overhead, such as, e pense of desgnng department, purchase of
modes, e pense of sampe taors, factory storeroom, rent, ght,
heat, and power for the factory, etc.
In computng the cost of the coth she, the e penses and osses
ncdenta to the handng of the coth sha be aocated on the bass
of the tota quantty of coth used durng the season n the manu-
facture of a garments, whether fur-trmmed or not. Thus, the
tota of such ncdenta e penses and osses for the season sha be
dvded by the number of yards of coth used durng the season to
determne the amount of the handng cost per yard. The aocaton
of such ncdenta e penses and osses to the coth she sha then be
made by mutpyng the number of yards of coth used n makng
the coth she by the amount of the handng cost per yard.
In apportonng the factory overhead to the cost of the coth she,
the factory overhead sha frst be determned upon a per garment
bass. That s, the tota amount of the factory overhead for the
season sha be dvded by the tota number of a garments, whether
fur-trmmed or not, produced durng the season. The factory over-
head per garment so determned sha then be aocated to the cost
of the coth she n the rato or percentage that the drect abor
e pended upon the coth she bears to the tota drect abor e pended
upon the competed garment.
Ordnary, the cost of the coth and of the drect abor used n
makng the coth she are ascertanabe at any tme but the ncdenta
costs for handng the coth and the aocaton of the factory overhead
e penses can not be determned or made unt the end of the season,
or n most cases unt after the competed garment has been sod.
or that reason and snce fur-trmmed garments, f ta abe, are to be
sod on a ta -e tra bass, t s necessary to make a tentatve de-
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335
Regs. 40, rt. 24.
termnaton of the ta abty of fur-trmmed garments. Such tenta-
tve determnaton of ta abty may be made n accordance wth the
foowng formua:
The ta abty of fur-trmmed garments sha be determned tenta-
tvey by comparson of the actua net cost of the fur set wth a
tentatve cost of the coth she computed:
1. On the bass of actua costs for the current season wth respect
to the currenty ascertanabe tems, or the cost of the coth and the
drect abor used n makng the coth she, and
2. On the bass of the actua costs for the ast competed season wth
respect to the tems not currenty ascertanabe, or the ncdenta han-
dng costs of coth and the factory overhead e penses.
The foregong tentatve determnaton of ta abty must be made
wth respect to each stye of fur-trmmed garment n producton dur-
ng the current season. or that purpose a comparson sheet sha be
made for each stye as foows, whch sheet must be fed wth the
permanent cost records:
Stye No Season1 , 19
Cost of fur.
Net cost of fur (e cusve of ta )
Cost of coth she.
1. Net cost of coth ( yards per yard)
2. Thread
3. owance for handng coth as computed n Schedue
on the bass of the handng costs for the ast competed
season ( yards per yard)
4. actory cost of coth
5. Drect abor:
Cuttng coth .
Operatng on coth she .
nshng on coth she pror to assemby wth nng
or fur .
Underpressng and pressng on coth she pror to assem-
by wth nng or fur .
6. Tota drect abor on coth she.
7. Prme cost of coth she
8. owance for overhead:
a. actory overhead per garment produced durng ast
competed season as computed n Schedue
6. Tota drect abor appyng to ths stye and number
as computed on stye sheet or other ke cost record-
c. Percentage of drect abor on coth she to drect abor
on garment (No. 6 dvded by No. 8b)
d. Overhead appcabe to coth she (No. 8a mutped
by No. 8c)
9. Tota cost of coth she
10. Seng prce of ths stye number
1 Current season.
In accordance wth the above-stated formua, the costs for the coth
and drect abor to be entered on the comparson sheet sha be deter-
mned by the actua costs for the current season whe the aowance to
be made for the cost of handng coth and for the factory overhead
sha be determned by the actua costs of those tems for the ast
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egs. 46, rt. 24.
336
competed season. The computaton of the cost of handng coth
per yard and of the factory overhead per garment for the ast com-
peted season sha be made on separate schedues as foows, whch
schedues must aso be fed wth the permanent cost records:
SC DL .
Computaton of cost of handng coth for the season ,
1. penses chargeabe to handng coth:
Shrnkage
Spongng
M damage
Net remnant oss
Incomng freght and e press on coth-
Cartage on coth to contractors
2. Tota e penses chargeabe to handng coth .
3. Tota number of yards used durng the season n the manufacture
of a garments, whether fur-trmmed or not .
4. andng cost per yard (No. 2 dvded by No. 3) .
Schedue .
Computaton of factory overhead for the season , 19 .
1. actory overhead e penses (that s, a e penses whch, under
recognzed prncpes of cost accountng, come wthn the cassfca-
ton of factory overhead, such as e pense of desgnng department,
purchase of modes, e pense of sampe taors, factory storerooms,
rent, ght, heat, and power for the factory, etc.) (Lst each tem
accordngy as entered on books) :
2. Tota factory overhead
3. Tota number of garments produced durng the season (ncude a
casses, whether fur-trmmed or not)
4. Overhead per garment (No. 2 dvded by No. 3)
Last competed season.
It must be ceary understood that athough the handng cost of
coth per yard and the factory overhead per garment may be based
upon the e perence of the ast competed season, the costs so com-
puted are merey estmates of such costs for the current season whch
are aowed for the soe purpose of makng a tentatve determnaton
of the ta abty of fur-trmmed garments. Moreover, whe the han-
dng cost per yard and the factory overhead per garment for the ast
competed season are thus apped as estmates for the current season,
the handng cost of coth and factory overhead for the ast competed
season may not be estmated but must be computed on the bass of
actua cost records for the ast competed season.
The foregong prncpes and procedure are sub|ect to the foowng
condtons:
1. The cost eements to be used n determnng the ta abty of
fur-trmmed garments must be substantated by cear and accurate
accounts and records.
2. ny tem ncuded n the cost of the coth she for ta purposes
but not substantated by the accounts and records w not be regarded
as part of such cost.
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337
Regs. 46, Ch. I
3. The use of the costs ncurred durng the ast competed season
for handng coth and for factory overhead to estmate the costs of
such tems for the current season s aowed soey for the purpose of
makng a tentatve determnaton of the ta abty of the fur-trmmed
garments produced durng the current season.
4. Upon the audt of saes ta returns and e amnaton of the
manufacturers accounts and records, the determnaton of the ta -
abty of fur-trmmed garments sha be made on the bass of the
actua costs for the season n whch the garments were manufactured,
and sha be computed as such costs may be substantated by the ac-
counts and records or as the crcumstances of the case may requre a
determnaton of the costs.
5. If upon such foregong audt or e amnaton t s determned on
the bass of the actua costs for the current season that a ta s due
upon garments whch on the bass of the tentatve determnaton of
ta abnty were found to be nonta abe, the ta due w nevertheess
be coected even though the garments may have been sod as non-
ta abe. On the other hand, f a garment was determned to be ta -
abe on the bass of the tentatve determnaton and the garment was
sod accordngy on a ta -e tra bass, and f ater the garment
s found to be nonta abe on the bass of the actua costs of produc-
ton, no refund of the ta pad thereon w be made uness the ta -
payer compes wth the requrements of secton 621(d) of the
Revenue ct of 1932, as amended.
Inqures reatve to ths mmeograph shoud refer to the number
and the symbos MT: ST.
Chas. T. Russe,
ctng Commssoner.
Reguatons 46, Chapter I : urs. -30-8204
T. D.4669
Ta on furs. Secton 604 of the Revenue ct of 1932, secton
608 of the Revenue ct of 1934, and secton 810 of the Revenue
ct of 1936. Chapter I , Reguatons 46, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washng/ton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Chapter I of Reguatons 46, approved une 18, 1932, as amended
by Treasury Decson 4361 (C. . II-1, 392), approved anuary 25,
1933, and Treasury Decson 4449 (C. . III-2, 402), approved uy
16, 1934, s further amended, n conformty wth the provsons of
secton 810 of the Revenue ct of 1936, to read as foows:
Chapteb I .
URS.
Secton G04 of the Revenue ct of 1932.
There s hereby mposed upon the foowng artces, sod by the
manufacturer, producer, or mporter, a ta equvaent to 10 per centum
of the prce for whch so sod: rtces made of fur on the hde or pet
or of whch any such fur s the component matera of chef vaue.
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Regs. 46, Ch. I .
338
Secton COS of the Revenue ct of 1034.
The ta Imposed by secton 604 of the Revenue ct of 1932 sha not
appy to artces sod by the manufacturer, producer, or mporter, after
the date of the enactment of ths ct, for ess than 75.
Secton 810 of the Revenue ct of 1930.
(a) ffectve after the date of the enactment of ths ct, secton 604
of the Revenue ct of 1932 s amended by strkng out 10 per centum
and Insertng n eu thereof 3 per centum.
(b) The e empton of artces sod for ess than 75, provded by sec-
ton 608 of the Revenue ct of 1934, sha not appy to artces sod
after the date of the enactment of ths ct.
rt. 24. Scope of ta.r. The ta s mposed upon the sae by the manufacturer
of (1) artces made of fur on the bde or pet and (2) artces of whch fur on
the hde or pet s the component matera of chef vaue.
Prom une 21, 1932, to May 10, 1934 (both dates ncusve), and on or after
une 23, 1936, the ta attaches to the fu seng prce of the foregong artces
regardess of the amount for whch sod.
Durng the perod May 11, 1934, to une 22, 1936 (both dates ncusve), the
ta attaches to the entre amount for whch any of the foregong artces are
sod, f sod for 75 or more.
In the event the manufacturer ses the artce durng the perod May 11,
1934, to une 22, 1036 (both dates ncusve), for 75 or more, the ta attaches
to the entre prce for whch t s sod and not to the amount by whch such
prce e ceeds 75.
The ta s not confned to the sae of artces of fur used as wearng appare
but aso attaches to artces susceptbe of other uses, such as rugs, robes, etc.
Raw fur s not sub|ect to the ta .
The ta attaches to the sae as specfed n the foregong paragraphs of any
artce f such artce s made of fur on the hde or pet, or f the component
matera of chef vaue of such artce s fur on the hde or pet To determne
whether fur s the component matera of chef vaue, the respectve vaues of
the varous materas, ncudng the fur, shoud be compared. The comparson
shoud be made mmedatey before the assembng of the materas after they
have been competey prepared and nothng remans to be done to make the
competed artce e cept assembng the component parts. Labor charges for
assembng the components nto the competed artce or for other work re-
qured sha not be taken nto consderaton n determnng the vaue of the fur
or other components. If the fur s not e ceeded n vaue by any other snge
component matera, the fur s consdered the component matera of chef vaue.
ur coars, fur cuffs, fur trmmngs, fur nngs, and other competed artces
of fur are ta abe when sod by the manufacturer thereof durng the perod
une 21, 1932, to May 10, 1934 (both dates ncusve), and on or after une 23,
1936, regardess of the prce for whch sod, or when sod by the manufacturer
thereof durng the perod May 11, 1934, to une 22, 1936 (both dates ncusve),
for 75 or more, even though to be Incorporated nto other artces of whch fur
Is not the component matera of chef vaue.
bt. 25. Repars. Ordnary repars to an artce made whoy or n part of
fur on the hde or pet are not ta abe, but where new fur s supped the ta
attaches to the sae of such new fur. The prce pad for the repar |ob w be
presumed to be the prce for whch such fur s sod uness the abor and new
fur are bed as separate tems. Where the prce attrbutabe to the new
fur s shown as a separate tem on the Invoce furnshed to the customer, or f
the prce of the new fur used can be estabshed to the satsfacton of the Com-
mssoner by adequate records, the ta w attach to the sae prce of the new
fur ony. New fur furnshed In repar |obs competed or devered durng the
perod une 21, 1932, to May 10, 1934 (both dates ncusve), and on or after
une 23, 1936, s sub|ect to ta regardess of the prce charged for such fur.
No ta w attach to new fur furnshed n repar |obs competed and devered
durng the perod May 11, 1934, to une 22, 1936 (both dates ncusve), where
the prce charged for such fur s ess than 75.
bt. 26. Safes for further manufacture. rtces made of fur on the hde or
pet may not be sod ta free under certfcate for further manufacture, because
such artces are specfcay e cepted from the terms of the aw authorzng the
sae of certan artces free of ta for further manufacture. (See artce 7.)
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339
Regs. 46, rt. 44.
Provsons under whch a manufacturer may take credt for ta pad by a pror
manufacturer, etc., are set forth n artce 71.
bt. 27. Rate of ta . The ta s payabe by the manufacturer at the rate of
10 per cent of the sae prce durng the perod une 21, 1932, to une 22, 1936
(both dates Incusve), and 3 per cent of the sae prce on or after une 23,
1936, as outned n artces 8 to 15, ncusve, and n artce 24.
These reguatons are prescrbed under the authorty of secton
1101 of the Revenue ct of 1926 and secton 628 of the Revenue ct
of 1932.
Gut T. everng,
Commssoner of Interna Revenue.
pproved uy 22,1936.
Watne C. Tator,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 25, 1936, 12.54 p. m.)
S CTION 605. W LRY, TC
-31-8212
Mn. 4467
mendment to the Revenue ct of 1932 by the Revenue ct of
1936 wth respect to the ta mposed on |ewery, etc.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, une 9, 1936.
Coectors of Interna Revenue and Others Concerned:
Under the provsons of secton 809 of the Revenue ct of 1936,
the ta mposed by secton 605 of the Revenue ct of 1932 sha
not appy to saes of |ewery, etc., by the manufacturer, producer,
or mporter on or after une 23, 1936.
Inqures n regard to ths mmeograph shoud refer to the number
and the symbos MT: ST.
Gut T. everng,
C ommssoner.
S CTION 607. R DIO R C I ING S TS, TC.
Reguatons 46, rtce 44: Scope of ta . -51-8446
S. T. 851
ass for computng the ta under secton 607 of the Revenue ct
of 1932 upon the sae by the manufacturer of a rado recevng set
where the cabnet was purchased by hm ta -pad and the chasss
was of hs own manufacture.
dvce s requested as to the proper bass for computng the ta
under secton 607 of the Revenue ct of 1932 upon the sae of a rado
recevng set by the manufacturer where the cabnet was purchased
by hm ta -pad and the chasss was of hs own manufacture.
Secton 607 mposes a ta upon the sae by the manufacturer, pro-
ducer, or mporter of chasss, cabnets, tubes, reproducng unts,
power packs, and phonograph mechansms, sutabe for use n con-
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Regs. 46, rt. 49.
340
necton wth or as a part of rado recevng sets or combnaton rado
and phonograph sets, ncudng parts or accessores therefor sod on
or n connecton therewth or wth the sae thereof. sae of any two
or more of such artces s, for the purpose of the ta , consdered to
be a sae of each separatey. Where a manufacturer assembes ta -
abe artces manufactured by hm wth artces purchased ta -pad
from other manufacturers, the sae of the assemby s sub|ect to ta
ony wth respect to the artces manufactured by the assember.
Where the manufacturer ses a rado recevng set, consstng of
a cabnet purchased ta -pad and a chasss of hs own manufacture,
and there s no separate bng to show the actua sae prce of the
ta -pad cabnet, t s necessary to estabsh the far market prce of
the cabnet n order to determne the porton of the entre seng
prce whch shoud be aocated to the ta -pad cabnet on whch the
manufacturer of the set s not requred to pay another ta . In such
a case the manufacturer may estabsh the far market prce of the
ta -pad cabnet by aocatng to the cabnet an amount whch bears
the same rato to the prce for whch the set s sod as the cost of
the cabnet bears to the entre cost of the set. The seng prce of the
set mnus the far market prce of the cabnet s the proper bass for
computng the ta under secton 607 of the Revenue ct of 1932.
S CTION 608. M C NIC L R RIG R TORS.
Reguatons 46, rtce 49: Refrgerators. -39-8319
S. T. 845
Meanng of the term househod type refrgerators n secton
608 of the Revenue ct of 1032.
Inqury s made whether refrgerators havng a net cubca content
n e cess of 20 cubc feet are househod type refrgerators, wthn
the meanng of secton 608 of the Revenue ct of 1932, whch pro-
vdes n part as foows:
There s hereby mposed upon the foowng artces, sod by the manufac-
turer, producer, or mporter, a ta equvaent to 5 per centum of the prce for
whch so sod:
(a) ousehod type refrgerators (for snge or mutpe cabnet nstaatons)
operated wth eectrcty, gas, kerosene, or other means (ncudng parts or
accessores therefor sod on or n connecton therewth or wth the sae
thereof).
(b) Cabnets, compressors, condensers, e panson unts, absorbers, and con-
tros (herenafter referred to as refrgerator components ) for, or sutabe
for use as a part of or wth, any of the artces enumerated n subsecton (a)
(ncudng n each case parts or accessores for such refrgerator components
sod on or n connecton therewth or wth the sae thereof) e cept when sod
as component parts of compete refrgerators or refrgeratng or coong
apparatus.
rtce 49 of Reguatons 46 reads n part as foows:
Refrgerators. The term househod type refrgerators ncudes
those for snge or mutpe cabnet nstaatons whch are operated wth eec-
trcty, gas, kerosene, or other means, but does not ncude refrgerator cabnets
cooed entrey by ce. Refrgerators for commerca use of a arge voume or
capacty, and of a type not used n the househod, are not wthn the scope of
secton 008.
It s hed that refrgerators operated wth eectrcty, gas, kerosene,
or other means, whch are desgned for use n the home, arranged to
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341
egs. 46, rt. 53.
provde for refrgerated storage space for the preservaton of food
products, and a ow temperature space for makng ce cubes and
frozen desserts, and havng a net cubca content not e ceedng 20
cubc feet, are househod type refrgerators, wthn the meanng
of secton 608 of the Revenue ct of 1932 and artce 49 of Regua-
tons 46.
S CTION 609. SPORTING GOODS.
Reguatons 46, rtce 53: Scope of ta . -52-8456
S. T.852
Scope of the term unforms as used n secton 609 of the
Revenue ct of 1932.
dvce s requested as to the scope of the term unforms as used
n secton 609 of the Revenue ct of 1932, whch mposes a ta of
10 per cent upon the sae by the manufacturer, producer, or mporter
of unforms and certan other enumerated artces, and a smar
artces commony or commercay known as sportng goods.
unforms specay desgned for or commony used n athetc
contests or games are sub|ect to ta under secton 609. (S. T. 481,
C. . I-2, 479.) part of a unform, whch s by ts constructon
and desgn susceptbe for use n any contest or game and s not
customary used for genera wear, s sub|ect to the ta , and artces
such as pan basketba shrts and footba |erseys whch are not
n themseves ta abe artces become ta abe artces f embems,
paddng, numeras, or other speca features are attached thereto.
(S. T. 542, C. . I-2, 480.)
The term other speca features s used n S. T. 542 n a com-
prehensve sense. It s not possbe to specfy a of the numerous
features whch come wthn the scope of that term. owever, where
devces or nsgna are attached to an artce whch s not normay
ta abe and effect a change whch ndcates that, as so changed, the
artce s ntended for use as a part of a ta abe unform, the nonta -
abe artce s thereby converted nto a ta abe artce. or e ampe,
the foowng devces or nsgna are ustratve but not a-ncusve
of such speca features: (1) etters, numeras, monograms, or nsg-
na attached to shrts or |erseys (2) renforcements on ebows or
shouders of shrts or |erseys (3) paddng on ebows or shouders
of shrts or |erseys (4) eather, canvas, gabardne, or other mate-
ras attached to seeves, ebows, shouders, or the back or front of
shrts or |erseys, provded any such feature ndcates a sportng
purpose or use.
It s hed that any artce of cothng desgned, ntended, or spe-
cay adapted for use n the payng of a game or sport as dstn-
gushed from an artce of cothng of genera wear wth ony a pos-
sbe or ncdenta use n payng a game or sport, whether sod as a
unt or sod separatey, s ether a unform or a part of a unform
wthn the meanng of secton 609 of the Revenue ct of 1932. Shoes
specay adapted for use n payng certan games and n engagng
n certan sports are ta abe as sportng goods and are not ta abe
as parts of a unform. Where hose are sod n connecton wth a ta -
abe unform, the ta attaches to the sae of the entre assemby,
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Regs. 44(1934), rt. 33.
342
that s, the unform and hose. ose sod separatey whch are not
specay adapted for use n any sport are not sub|ect to the ta .
The same rue appes to the sae of bets and other artces custom-
ary used for genera wear whch are used ony occasonay or
ncdentay by partcpants n athetc events and games.
S CTION 616 O T R NU CT O 1932, S M ND D Y T
CT O UN 16, 1933 (PU LIC, NO. 73, S NTY-T IRD CONGR SS).
L CTRIC L N RGY.
Reguatons 42, rtce 40: Scope of ta . -41-8347
S. T. 848
Saes of eectrca energy through a separate meter for use n the
operaton of an ar-condtonng system n an offce or apartment
budng are ta abe.
dvce s requested whether saes of eectrca energy to the owner
or essee of an offce or apartment budng through a separate meter
for use n the operaton of an ar-condtonng system for the budng
are sub|ect to ta under secton 616 of the Revenue ct of 1932, as
amended by the ct of une 16, 1933 (Pubc, No. 73, Seventy-thrd
Congress).
Secton 616, as amended, mposes a ta upon the sae of eectrca
energy for domestc or commerca consumpton and not for resae
at the rate of 3 per cent of the prce for whch the energy s sod,
the ta to be pad by the vendor. Under the aw the test of ta abty
s the purpose for whch eectrca energy s sod. If the sae s made
for domestc or commerca consumpton, t s ta abe. If made for
any other purpose, no ta s due.
Saes of eectrca energy when made through a separate meter
to the owner or essee of an offce or apartment budng for use n
the operaton of an ar-condtonng system for the budng are saes
for domestc or commerca consumpton, as the case may be, and are
sub|ect to ta under secton 616 of the Revenue ct of 1932, as
amended.
S CTION 617, S M ND D Y S CTIONS 211(a) ND 217 (a) ND (b)
O T N TION L INDUSTRI L R CO RY CT, ND Y S CTION
603 (b) ND (c) O T R NU CT O 1934. G SOLIN .
Reguatons 44(1934), rtce 33: Saes of -39-8320
benzo, benzene, naphtha, or other ta abe S. T. 846
quds to nonmotor fue users.
Manufacturers or deaers who package naphtha n seaed contan-
ers of 5 gaons or ess, abeed to ndcate specfc nonmotor fue
uses, and who advertse and se such product for use or resae for
nonmotor fue purposes, may se the product so packaged ta -free
wthout obtanng e empton certfcates from the purchasers.
dvce s requested whether naphtha packaged n seaed contaners
of 5 gaons or ess and advertsed and sod for nonmotor fue pur-
poses may be sod by manufacturers or deaers wthout obtanng
e empton certfcates from the purchasers.
It s contended that the sae of naphtha n ether 1-gaon or 5-ga-
on seaed contaners effectvey paces the product so sod n the non-
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343
620.
motor fue use cass, because the tota prce of the product, whether n
1-gaon or 5-gaon contaners, s much greater than the prevang
reta prce of gasone.
It s hed that manufacturers or deaers who package naphtha n
seaed contaners of 5 gaons or ess, abeed to ndcate specfc non-
motor fue uses, and who advertse and se such product for use or
for resae ony for nonmotor fue purposes, may se t ta -free
wthout the necessty of obtanng e empton certfcates from the
purchasers thereof. owever, where naphtha s sod n buk, the
ta mposed under secton 617 of the evenue ct of 1932, as
amended, attaches to the producer s sae of the product and no refund
or credt of the ta pad may be obtaned uness the utmate vendor
furnshes the producer who pad the ta to the Government wth
the evdence outned n artce 84 of Reguatons 44, as amended by
Treasury Decson 4604 (C. . I -2, 381).
Pror to October 1, 1935, the ureau permtted ta -free saes of
naphtha n contaners of 5 gaons or ess wthout requrng e emp-
ton certfcates. Snce October 1, 1935, the ureau has permtted
ta -free saes of naphtha wthout e empton certfcates ony when
sod n contaners of 1 gaon or ess. Ths rung reverts to the
requrements n effect before October 1, 1935, by permttng on or
after that date saes, free from ta , wthout the necessty of obtan-
ng e empton certfcates, where the naphtha s sod n seaed con-
taners of 5 gaons or ess soey for specfed nonmotor fue uses.
Ths rung s not to be taken as a precedent n consderng the
ta abe status of the sae of any other ta abe product.
S CTION 620 O T R NU CT O 1932, S M ND D Y S C-
TION 4 O T CT O UN 16, 1933 (48 ST T 254), ND Y S CTION
401 O T R NU CT O 1935. T - R S L S.
-31-8221
Standard form of Unted States Government ta e empton
certfcate and other standard forms approved by the Comp-
troer Genera of the Unted States on une 19, 1936, for genera
use by a departments, estabshments, and agences of the Unted
States Government In the purchase of ta abe artces for the e -
cusve use of the Unted States.
UNIT D ST T S GO RNM NT T MPTION C RTI IC T .
(1936. Genera Reguatons No. 86.)
Genera ccountng Offce,
Offce of the Comptroer Genera of
the Unted States,
Washngton, une 19, 1936.
1. Certan States, muncpates, and oca authortes have m-
posed a saes ta on sundry commodtes from the payment of whch
the Unted States s e empt, and the Revenue ct of 1932, as
amended, mposng an e cse ta on manufacturers, producers, and
mporters, provdes for the e empton from the payment of such ta
when the merchandse s sod drect to the Unted States Govern-
ment, and for the ad|ustment or refund of such ta to the manu-
facturers, producers, or mporters n those cases where the merchan-
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620.
344
dse on -whch the ta was pad s resod for the use of the Unted
States Government, e cusve of the edera ta .
2. In vew thereof, the foowng standard forms are hereby ap-
proved for genera use by a departments, estabshments, and
agences of the Unted States Government n the purchase of such
merchandse for the e cusve use of the Unted States Government:
No. 1094. Unted States Government ta e empton certfcate.
No. 1094a. Cover of Unted States Government ta e empton cer-
tfcate book (front, outsde and nsde back, outsde).
No. 1094b. Tabuaton sheet (nsert).
No. 1094c. Unted States Government ta e empton dentfcaton
card
whch w be used n eu of Standard orm No. 44, revsed, -
empton of Unted States Government from State or oca ta ,
Standard orm No. 45, Unted States Government motor fues e -
empton dentfcaton card, and Standard orm No. 1066, revsed,
Unted States Government motor fues ta e empton recept,
heretofore approved.
3. Standard orm No. 1094
. W be used when a State or oca saes ta attaches at the
tme of sae to the consumer and (1) the vendor ses at a prce
e cusve of such ta , n whch case the form w be for use by
the vendor n camng e empton from the payment of the ta
to the ta ng authorty (2) the vendor refuses to se at a prce
e cusve of such ta , n whch case the form w be used by the
Unted States Government as the bass for bng the ta ng author-
ty for a refund of the ta es pad.
. May be used when t has been defntey estabshed at tme
of purchase that the prce pad s e cusve of the edera ta
mposed by the Revenue ct of 1932, as amended, n whch case
t w be for use by the seer as evdencng the sae to the Unted
States Government of the commodty and n the quantty stated.
C. May be used where purchases are made under contract pro-
vdng for deveres e tendng over a perod of tme, n whch case
a certfcate may be ssued by the offce purchasng, and gven to
the contractor to support nvoces coverng actua deveres to the
Unted States Government of the commodty and n the quantty
stated.
4. When a certfcate s ssued under the condtons descrbed n
aragraph 3 (2) above, the sera number of the certfcate w
3 shown on the payment voucher.
5. If the merchandse purchased s sub|ect ony to the edera
ta and such ta s ncuded n the prce pad, Standard orm
No. 1094 shoud not be used, nor shoud t be used by edera
offcas or empoyees (a) for tems of subsstence e pense when a
per dem n eu of subsstence s granted, (b) when usng ther
personay-owned motor vehces for whch a meage aowance s
authorzed, or (c) by ndvduas n offca trave status, uness
payment s actuay made at the tme of purchase.
G. separate certfcate for each knd of ta ( edera and State,
oca, etc.) nvoved w be prepared under the condtons descrbed
n paragraph 3 above. In the ssuance of these certfcates care
must be e ercsed by the purchaser to f n the bock provded for
showng on each certfcate the separate amounts of the ta es n-
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345
620.
voved so that the certfcates may be used ony for the purpose
ntended. The purchaser w, n addton to hs sgnature and
tte, nsert on the ne provded therefor hs dentfcaton card
number.
7. When Standard orm No. 1094, e ecuted under the condtons
n 3 (2), above, s receved n the admnstratve offce, there w be
noted on the form the bureau or offce number of the payment
voucher. The admnstratve offce w b the State or oca ta ng
agency for refund of the ta es pad, and copes of such bs (or
schedues thereof), showng the appropratons nvoved and the
amount of ta es, w be furnshed to the Genera ccountng Offce
at the cose of each month. The amount (s) coected w be trans-
mtted to the dsbursng offcer for credt to the appropraton (s)
from whch the vouchers were pad, or to msceaneous recepts ac-
count, 4326, Refund, State and oca ta es, f the appropraton can
not be ready dentfed. In the event the admnstratve offce fas
to secure refund of the amount of ta es pad, t w transmt
prompty to the Genera ccountng Offce the sad ta e empton
certfcates, f avaabe, together wth a correspondence wth the
ta ng agency, reatng thereto, and nformaton as to the dsbursng
offcer s voucher number on whch payment for the merchandse
was made, for use by the Genera ccountng Offce n effectng co-
ecton thereof as requred by secton 236, Revsed Statutes, as
amended by the udget and ccountng ct, 1921.
8. In order to secure e empton from a ta n the purchase of mer-
chandse for the e cusve use of the Unted States Government the
purchaser shoud be propery dentfed by means of Standard orm
No. 1094c, Unted States Government ta e empton dentfcaton
card. The cards w be 4 4 by 2y2 nches n sze and seray
numbered, as provded n paragraph 9, nfra.
9. orm 1094, Unted States Government ta e empton certfcate,
prescrbed heren, w be 8 by 31/- nches n sze, bound n books of
25 certfcates each, wth a carbon paper nsert for use when more
than one certfcate s requred, and w be seray numbered. The
sera numbers of Standard orms 1094 and 1094c w be preceded
by the dentfyng symbo etter(s) of the branch of the servce usng
the form, such symbo etter(s) to be the same as those prescrbed for
transportaton requests n accordance wth Genera Reguatons No.
46 and suppements thereto.
10. The new standard forms, numbered 1094, 1094a, 1094b. and
1094c, w be prnted ony at the ureau of ngravng and Prntng,
and requston for the number of books of Unted States Government
ta e empton certfcates and Unted States Government ta e emp-
ton dentfcaton cards to meet the needs of ther organzatons
shoud be addressed by each department, estabshment, and agency
of the Government, to the Secretary of the Treasury, Dvson of
Prntng. compete record of a books of Unted States Govern-
ment ta e empton certfcates and Unted States Government ta
e empton dentfcaton cards ssued to each department, estabsh-
ment, and agency of the Government w be mantaned n the Treas-
ury Department, and each department, estabshment, and agency
w make semannua returns (September 30 and March 31) to the
Treasury Department, Dvson of Prntng, showng the baance of
121307 37 12
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Regs. 46, rt. 17.
34G
Unted States Government ta e empton certfcate books and
Unted States Government ta e empton dentfcaton cards on
hand at the begnnng of the perod, f any, the number of each re-
ceved durng the perod, the number of each ssued durng the perod,
and the baance on hand at the end of the perod.
11. The Pubc Prnter s authorzed to destroy any standng type
or pate matter heretofore used for the purposes covered by the stand-
ard forms heren prescrbed.
12. uthorty s granted to prnt on the cover of the Unted States
Government ta e empton certfcate book, Standard orm No.
1094a, where economca and advantageous to do so, upon requston
therefor, the name of the department or estabshment and bureau
or servce. ny devatons from the approved Standard orms Nos.
1094, 1094a, 1094b. or 1094c, whch are for any reason regarded as
necessary, shoud be submtted to ths offce for approva before
prntng.
13. Genera Reguatons No. 73 and Suppement No. 1 thereto,
dated uy IT. 1930, and September 29, 1932, respectvey, are re-
scnded, effectve uy 1, 1936.
. R. McCak.
Comptroer Genera of the Unted State .
S CTION 620, S M ND D Y T CT O UN 16, 1933 (PU LIC,
NO. 73, S NTY-T IRD CONGR SS), ND Y S CTION 401(a) O
T R NU CT O 1935. T - R S L S.
Reguatons 46, rtce 17: Saes to States -31-8223
or potca subdvsons thereof and to the S. T. 842
Unted States.
( so rtce 24, Reguatons 44.)
Ta abty of saes of artces ta abe under Tte I of the
Revenue ct of 1932 to corporatons the capta stock of whch |s
whoy or party owned by the Unted States.
dvce s requested whether the e empton from manufacturers
-e cse ta es (mposed by Tte I of the Revenue ct of 1932) con-
taned n secton 620(3) of the Revenue ct of 1932, as amended by
the ct of une 16, 1933 (Pubc, No. 73, Seventy-thrd Congress),
and by secton 401(a) of the Revenue ct of 1935, appes to saes
to corporatons the capta stock of whch s whoy or party owned
by the Unted States.
Secton 620 of the Revenue ct of 1932, as amended, provdes n
part as foows:
Under reguatons prescrbed by the Commssoner wth the approva of the
Secretary, no ta under ths tte sha be mposed wth respect to the sae of
any artce

(3) for the e cusve use of the Unted States, any State, Terrtory of the
Unted States, or any potca subdvson of the foregong, or the Dstrct of
Coumba.
In the report of the Senate nance Commttee (page 12) reatve
to secton 401(a) of the Revenue ct of 1935, t s stated that the
amendment permts ta -free saes to or for the e cusve use of the
Unted States and that So far as saes for the use of the Unted
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347
Regs. 44(1934), rt. 24.
States are concerned there appears to be no compeng reason for
requrng the ta abty of such saes, snce the coecton of the ta
merey resuts n takng money from one department of the edera
Government and payng t over to another.
It s hed that saes of artces ta abe under Tte I of the Rev-
enue ct of 1932, as amended, by the manufacturer, producer, or
mporter to a corporaton the capta stock of whch s whoy owned
by the Unted States are saes for the e cusve use of the Unted
States, wthn the meanng of the above-quoted provson of the
statute, and are therefore, e empt from ta , provded the evdence
requred by artce 17 of Reguatons 46, as amended bv Treasury
Decson 4605 (C. . I -2, 383), and artce 24 of Reguatons 44,
as amended by Treasury Decson 4604 (C. . I -2, 373), s fur-
nshed. The e empton does not appy to saes of such artces to a
corporaton the capta stock of whch s party owned by the Unted
States.
The foowng are e ampes of corporatons, the capta stock of
whch s whoy owned by the Unted States, to whch saes of
artces ta abe under Tte I of the Revenue ct of 1932, as
amended, may be made ta -free by the manufacturer, producer, or
mporter on and after October 1, 1935, provded such saes are made
n accordance wth the provsons of artce 17 of Reguatons 40,
as amended, and artce 24 of Reguatons 44, as amended: edera
Intermedate Credt anks, ome Owners Loan Corporaton, Pro-
ducton Credt Corporaton, and Reconstructon nance Corpora-
ton. ampes of corporatons whose capta stock s ony party
owned by the Unted States and to whch saes of artces ta abe
under Tte I of the Revenue ct of 1932, as amended, may not be
made ta -free are edera Depost Insurance Corporaton, edera
ome Loan anks, edera Land anks, and anks for Coopera-
tves.
Under the provsons of secton 401(a) of the Revenue ct of
1935, amendng secton 620(3) of the Revenue ct of 1932, there s
no doubt that no ta attaches to such saes when made to unncor-
porated unts of the edera Government for ther e cusve use,
such as the grcutura d|ustment dmnstraton, edera mer-
fency Reef dmnstraton, edera mergency dmnstraton of
ubc Works, Cv Works dmnstraton, Works Progress d-
mnstraton, etc. owever, ta -free saes of such artces may not
be made to contractors engaged n Works Progress dmnstraton
or smar pro|ects.
Reguatons 44(1934), rtce 24: Saes to -39-8321
States or potca subdvsons thereof and S. T. 847
to the Unted States.
Saes of gasone and/or ubrcatng o on and after October 1,
1935, are e empt from ta when made for use on vesses owned
by the Unted States whch are under the contro of the Depart-
ment of Commerce and are operated, through the Secretary of
Commerce, by the Unted States Shppng oard Merchant eet
Corporaton under a managng agency agreement.
dvce s requested whether the e empton from manufacturers
e cse ta es (mposed by Tte I of the Revenue ct of 1932, as
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egs. 47(1924), rt. 21.
348
amended) contaned n secton 620(3) of the Revenue ct of 1932,
as amended by the ct of une 16, 1933 (Pubc, No. 73, Seventy-
thrd Congress), and by secton 401(a) of the Revenue ct of
1935, appes to saes of gasone and/or ubrcatng o for use on
vesses owned by the Unted States whch are under the contro
of the Department of Commerce and are operated on behaf of the
Unted States, through the Secretary of Commerce, by the Unted
States Shppng oard Merchant eet Corporaton under a
managng agency agreement.
Secton 620 of the Revenue ct of 1932, as amended, provdes n
part as foows:
Under reguatons prescrbed by the Commssoner wth the approva of the
Secretary, no ta under ths tte sha be mposed wth respect to the sae of
tny artce

(3) for te e cusve use of the Unted States, any State, Terrtory of the
Unted States, or any potca subdvson of the foregong, or the Dstrct of
Coumba.
It s hed that saes of gasone and/or ubrcatng o on and after
October 1, 1935, for use on vesses owned by the Unted States and
controed and operated n the manner above stated are saes for the
e cusve use of the Unted States wthn the meanng of secton
620(3) of the Revenue ct of 1932, as amended, and are, therefore,
e empt from ta , provded the evdence requred by artce 24 or
Reguatons 44(1934). as amended by Treasury Decson 4604 (C. .
I -2, 373), s furnshed.
TITL I. CIS T S. (1924)
S CTION 600.
Reguatons 47(1924), rtce 21: Con-operated -46-S389
devces and machnes. Ct. D. 1171
D R L T S R IS D ST TUT S D CISION O COURT.
Compromse Penaty and Intvrest ab to Recovery of Ta .
n offer n compromse of penates and Interest, submtted by
the ta payer and accepted by the Government after payment of the
ta , s bndng upon both partes and precudes a sut to recover the
ta pad. Snce the ta , penates, and Interest are one coordnated
abty, a compromse of the penaty and nterest was an adms-
son of vad ta assessment and was a settement of a parts of
such snge abty.
Unted States Crcut Court or ppeas for the Seventh Crcut.
rson-Wggn Pano Co., appeant, v. The Unted States of merca, appeee.
une 2, 1936.
OPINION.
ppea from the Dstrct Court of the Unted States for the Northern Dstrct
of Inos, astern Dvson.
Lndey, Dstrct udge: ppeant sued to recover a payment of 10,334.37
for manufacturer s e cse ta es mposed by the Revenue ct of 1924 on saes of
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349 Regs. 47(1924), rt. 21.
con-operated devces, aeged to have been wrongfuy assessed and coected on
automatc panos. The Commssoner of Interna evenue found that automatc
panos manufactured and sod by appeant were con-operated devces wthn
secton 600(8) of the Revenue ct of 1924, whch eves a ta upon con-
operated devces, con-operated machnes, and devces and machnes operated by
any substtute for a con . The dstrct court hed for appeee, and
ths ap ea foowed.
The ta companed of was mposed by the coector upon saes of panos
between une 2, 1924, and ebruary 25, 1926. It ncuded penates and nterest.
The ta tsef was 8,629.S4, and was pad n fu on anuary 21, 1929. cam
for refund was dened by the Commssoner.
On anuary 24, 1929, after payment of the ta n fu, appeant submtted ts
offer of 1,754.53 n compromse of a 25 per cent penaty and 5 per cent penaty
and nterest assessed, a aggregatng 3,827.82, pus unussessed accrued nterest.
On pr 4, 1929, the Commssoner, wth the consent of the Secretary of the
Treasury, accepted ths offer and abated the unpad baance. The assessment
of nterest had been eved under secton 003 of the Revenue ct of 1924, and
the penates under secton 3176 of the Revsed Statutes, whch provde that
penates and nterest sha be added to the ta and coected as a part thereof.
ppeee nssts that the |udgment shoud be affrmed because, as t says, a
vountary compromse of penates and nterest, ncudng a reease from abty
to pay ta , pus penates and nterest, consttutes fu settement of a snge ta
abty by the partes and precudes recovery of any amount pad.
Under the cts of Congress mentoned, the nterest and penates are added
to and become a part of the ta . They are consttuent parts of one assessment,
effectng a snge abty, and are not merey an aggregaton of separate tems
of ndebtedness. ( y C- Waker Dry Goods Co. v. Unted States, 34 . (2d), 429
(C. C. . 8) tOt. D. 102, C. . III-2, 343 Zemurray v. Unted States, 64 Ct.
Cs., 657 Caforna Wne ssocaton of ew York v. Unted States, 65 Ct. Cs.,
7 s Damond Ms Co. v. Unted States, 51 . (2d), 721 (C. C. . 8) as-
usscn v. rown fed-Cant Carpet Co., 31 . (2d), 89 (C. C. . 9) Waker v.
amo oods Co., 10 . (2d), 694, certorar dened, 274 D. S., 741 T. D. 3984,
C. . I-1, 274 .)
In y d Waker Dry Goods Co. v. Unted States, supra, the court hed that a
compromse of both prncpa and penaty was a bar to recovery of the ta
pad. In Waker v. amo oods Co., supra, the addtona ta conssted of
342,000 pus penaty. The ta payer offered and the Government receved
318,000 n payment of a ncome and e cess profts ta es and n compromse
of a penates and a cv and crmna abtes . It was hed that
the ta payer coud not recover.
In g Damond Ms Co. v. Unted States, supra, upon whch appeant
rees, the court hed the ta and nterest to be one abty, and remarked that
there was no authorty to compromse the nterest ndependenty of the ta .
The court hed further, however, that f there were no ta due the compromse
as to the nterest fas. It s because of ths hodng that appeant Inssts the
present compromse s not a bar.
ere there was a bona fde dspute as to the vadty of the assessment. Ths
was pad, and appeant thereafter compromsed the penates and nterest, a
consttuent part of the ta . Snce ta , penates and nterest are one coord-
nated abty, and there can be no penaty or nterest uness there s a vad
ta , a compromse of such penaty and nterest s tn admsson of vad ta
assessment and under the rues governng compromses, must be a settement
of the entre snge abty. Compromses are contracts of settement, and the
compromse of one aquot part of a snge dsputed abty and payment of
the baance n fu s a settement of a parts of such snge abty. It bnds
both partes and precudes sut to recover.
In vew of our concusons t s unnecessary to notce other assgnments of
error.
The |udgment of the dstrct court s affrmed.
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Regs. 8(1934), rt. 76.
350
TITL I . T ON CIG RS, TO CCO, ND M NU-
CTUR S T R O . (1926)
SU DI ISION P C G S OR CIG RS ND CIG R TT S.
Reguatons No. 8, reatng to the ta es on tobacco, snuff, cgars,
and cgarettes, aso on cgarette papers and tubes and purchase
and sae of eaf tobacco, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 76, Reguatons No. 8, as revsed and approved November
12,1934, s amended to read as foows:
rt. 76. Subdvson packages. The statutory number of cgars and cgarettes
contaned n the bo or package may be subdvded by the use of paper or
rbbon bands or separated Into parces. Cgars weghng more than 3 pounds
per thousand may be separated nto parces contanng not more than 10 cgars
each by ncosure n fo, fo paper, wa paper, ceophane, or ghtweght card-
board wth cut-out wndows or open at one end. Cgarettes (Incudng sma
cgars weghng not more than 8 pounds per thousand) may not be separated
nto parces contanng a statutory number, I. e., 5, 8, 10, 12, 15, 16, 20, 24, 40, 50,
80, or 100 cgars or cgarettes, uness such parces are made of fo, fo paper,
wa paper, ceophane, or other unsubstanta matera upon whch t woud be
mpractcabe to prnt the requred factory brand and cauton notce, or to aff
the nterna revenue stamp. owever, separate parces of such cgars or
cgarettes whch contan a number not prescrbed by secton 400(d) of the
Revenue ct of 1926 to be put up by the manufacturer n packages or parces,
may be made of the same materas as the separate parces used n packng
cgars weghng more than 3 pounds per thousand.
The cauton notce abe (artce 84), factory brand (artce 85), and cassf-
caton abe (artce 80) must not appear on any subdvson or parce of a
statutory package, but must appear ony on the statutory package on whch the
requste stamp s aff ed. No subdvson or separate parce sha bear any
statement whch ndcates that the ta has been pad on the contents of any
such subdvson or parce.
Cgars and cgarettes so subdvded or separated nto parces must reman n
the stamped statutory bo or package unt they are sod or devered drect to
the consumer, and the whoe number of cgars or cgarettes packed In each
statutory bo or package must correspond to the denomnaton of the stamp
aff ed to the bo or package.
Ths Treasury decson s promugated under the authorty con-
taned n secton 1101 of the Revenue ct of 1926.
Gut T. everng,
Commssoner of Interna Revenue.
pproved uy 22,193G.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 25, 1936, 12.51 p. m.)
Reguatons 8(1931), rtce 76: Subdvson
packages.
-30-820.-)
T. D. 46G8
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351 Regs. 43(1932), rt. 44.
TITL . DMISSIONS ND DU S. (1926)
S CTION 500, S M ND D.
Reguatons 43(1932), rtce 44: Records 6-8391
dmssons. T. D. 4706
rtce 45: Returns and payments dmssons.
Ta on admssons. Secton 000(a) 1 of the Revenue ct of 1926,
as amended by secton 411(a) of the Revenue ct of 1928, secton
711(a) of the Revenue ct of 1932, secton 212 of the Natona
Industra Recovery ct, and further amended by Pubc Resouton
No. 36, Seventy-fourth Congress, approved une 28, 1935.
rtces 44 and 45 (as amended by T. D. 4309, approved une 23,
1933 C. . II-2, 352 , and T. D. 4379, approved ugust 9, 1933
C. . II-2, 352 ) of Reguatons 43, approved une 14, 1932,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
The second paragraph of artce 44 of Reguatons 43 s amended
to read:
very ndvdua, corporaton, partnershp, or assocaton requred by the
provsons of the ct to pay any ta on charges n e cess of the estabshed
prce must keep or cause to be kept a day record whch shows a saes of
tckets by casses (n each of whch a the tckets are dentca) n respect
to (1) the pace to whch admsson s granted by the tcket, (2) the estabshed
prce (e cusve of admsson tu ) of the admsson granted by the tcket, and
(3) the actua prce (e cusve of any amount representng an admsson ta )
at whch that sae of the tcket s made. Ths day record must show n the
case of each such cass (a) a fgures and other nformaton necessary to
determne the amount of ta due for that day, and (b) the amount due as
ta es on charges n e cess of the estabshed prce, for that day. Whenever
In the course of the busness a report s prepared day or at some other
reguar nterva or at any tme by a treasurer or manager for the beneft of
the propretor, or by the propretor, treasurer, or manager for the beneft of
some other nterested party, a sworn copy of such report must be attached
to and made part of such day record. day records, ncudng the fore-
gong sworn copes of reports, must be kept on fe at the pace of busness, or
at some other convenent ocaton, for a perod of at east four years from
the date the ta became due, In such a manner as to be ready accessbe to
nterna revenue offcers. In addton to the foregong records, every ndvdua,
corporaton, partnershp, or assocaton seng for resae tckets of admsson to
brokers, hotes, cubs, newsstands, or others (requred to be regstered on orm
752 as outned n artce 46), must keep ov cause to be kept a day account
record substantay n the form outned beow on page 352 :
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Regs. 43(1932), rt. 44. 352
Day record of e cess charges on tckets of admsson sod for resae
for caendar month ended , 93__.
Name ddress
( roker, hote, cub, etc.) (Street, Post Offce, and State.)
IN CCOUNT WIT
(Customer s name.)
( ddress.)
venng
or
Number
stabshed
bo offce
prce for
geng
prce
of each
tcket.
cess
charge
on each
tcket.
mount
Data.
Theater (or other pace).
of
tckets.
matnee.
each tcket.
rtce 45 of Reguatons 43 as amended by Treasury Decson
43G9, approved une 23, 1933, and Treasury Decson 4379, approved
ugust 9, 1933, s further amended by addng thereto a fourth para-
graph readng as foows:
very ndvdua, corporaton, partnershp, or assocaton, requred under the
provsons of ths ct to coect and pay any ta on charges n e cess of the
estabshed prce of tckets sod for admsson to theaters (or other paces of
amusement), sha prepare from the day record, requred by artce 44, as
amended, an nformaton return n dupcate on orm 729- , revsed, for each
theater (or other pace of amusement), n accordance wth the Instructons
prnted on the back of that form. Where the ndvdua, corporaton, partner-
shp, or assocaton has more than one offce, one consodated nformaton
return for each theater (or other pace of amusement), coverng a branch
offces shoud be fed. copy of such form for each theater (or other pace
of amusement) must be attached to the orgna and dupcate copes of the
ta return on orm 720, revsed, fed for each caendar month. ny person
who wfuy fas to keep records as requred by artce 44, as amended, or
to fe the nformaton returns prescrbed heren, s abe to the penates
prescrbed by aw. or penates see artce 56.
Ths Treasury decson s ssued under the authorty contaned n
secton 1101 of the Revenue ct of 1926.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved November 7, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 10, 1936, 12.14 p. m.)
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353
Regs. 43(1932), rt. 12.
Reguatons 43(1932), rtce 12: dmssons -32-8240
to whch e empton appes. T. D. 4676
rtce 26 4: Concerts conducted by cvc or
communty membershp assocatons.
Ta on admssons. Secton 500(b)2 of the Revenue ct of 1926,
amended by secton 801 of the Revenue ct of 1936. Reguatons 43
(revsed une, 1932), amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Under the authorty of secton 1101 of the Revenue ct of 1926,
Reguatons 43, approved une 14, 1932. are hereby amended as fo-
ows, to gve effect to the provsons or secton 801 of the Revenue
ct of 1936, whch are effectve 9 p. m., eastern standard tme, une
22, 1936.
1. There s nserted mmedatey precedng artce 12 the foowng:
Secton 801 of the Revenue ct of 1036.
Secton 500(b)2 of the Revenue ct of 1926 Is amended by strkng
out the perod at the end thereof and nsertng n eu thereof a comma
and Ihe foowng: and any admssons to concerts conducted by a cvc
or communty membershp assocaton f no part of the net earnngs
thereof nures to the beneft of any stockhoders or members of such
assocaton.
2. The frst two paragraphs of artce 12 are emnated, and the
foowng are nserted n eu thereof:
rt. 12. dmssons to whch e empton appes. Secton 500(b) of the Reve-
nue ct of 1926, e cept as modfed by secton 500(e) of that ct, added by
secton 711(c) of the Revenue ct of 1932, Is st n fu force and effect.
Secton 801 of the Revenue ct of 1936 adds a new e empton.
The modfcaton of secton 500(b) made by secton 500(e) s effectve une
21. 1932. The amendment to secton 500(b)2 Is effectve 9 p. m., eastern stand-
ard tme, une 22, 1936.
Precedng artce 27 there s nserted the foowng new artce,
namey:
rt. 26M . Concerts conducted by cvc or communty membershp assoca-
tons. oca assocaton composed of ctzens of the cty or communty n
whch t s organzed for the purpose of conductng concerts for ts members or
others s entted to e empton from coecton of ta on admssons to the con-
certs provded none of the net earnngs of the assocaton nures to the beneft of
any of ts stockhoders or members.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved ugust 6, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 8, 1936, 12.36 p. m.)
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800.
354
TITL III O T R NU CT O 1926, S
M ND D. ST MP T S.
Secton 800. -39-8325
Mn. 4497
ppcaton of stamp ta es under Tte III of the Revenue
ct of 1926, as amended, wth respect to transactons nvovng
e empt edera governmenta agences.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, September 1,1936.
Coectors of Interna Revenue and Others Concerned:
uestons have been presented reatve to the appcaton of the
stamp ta es mposed under Tte III of the Revenue ct of 1926,
as amended, where one of the partes to the transacton nvoved s
the Reconstructon nance Corporaton, a edera and bank, or
some other governmenta agency whch s specfcay e empted from
the ta .
Secton 800 of the Revenue ct of 1926 mposes a abty to the
stamp ta upon any person who makes, sgns, ssues, ses, removes,
consgns, or shps the severa nstruments descrbed n Schedue
of Tte III, or for whose use or beneft the same are made, sgned,
ssued, sod, removed, consgned, or shpped, and, e cept as theren
or otherwse e empted, ether party to any of the transactons n-
voved s sub|ect to the ta . The fact that a edera agency specf-
cay e empted from the ta s a party to the transactons does not
reeve the other partes to the transactons from abty for the pay-
ment of the ta es, uness such partes are agences or nstrumentates
of a State or the Unted States or are otherwse not sub|ect to the ta .
Where a none empt party to a transacton nvovng a ta abe n-
strument s unabe or unwng to pay the ta due, the transacton,
nevertheess, s sub|ect to the ta , and f the edera governmenta
agency n such a case pays the ta , such payment s to be regarded
as a payment on behaf of the ta abe party. Coectors shoud not,
however, make any attempt to effect drect coecton of such ta es
from the edera governmenta agences. In any case where t s
found that the stamp ta due on such a transacton has not been
pad, coecton of the ta shoud be made from the other partes to
the transactons who are abe.
In any transacton nvovng the conveyance of reaty, the nstru-
ment of conveyance s sub|ect to ta , and the queston of whether or
not the deed of conveyance may be devered to the purchaser wthout
havng aff ed thereto stamps denotng payment of the ta s gov-
erned by the aw of the oca |ursdcton. In the case of a sae under
forecosure, where the purchaser s an e empted edera agency, the
mortgagor s abe for the ta . In such a case, f the mortgagor does
not vountary aff the stamps, the sherff, or other person makng
the sae, shoud aff the requred stamps on behaf of the mortgagor
and ncude the cost thereof as a necessary e pense of the sae or
where a conveyance s made by a defautng mortgagor to an e empted
edera agency as mortgagee, the requred stamps must be aff ed
to the deed of conveyance by the mortgager.
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355 (Regs. 71(1926), rt. 34.
The queston of whether unstamped deeds of conveyance may be
receved by State recordng offcers for the purpose of recordaton s
kewse governed by the aw of the oca |ursdcton. There s no
e stng edera statute under the provsons of whch the recordng
of unstamped deeds woud be contrary to the aw. The ureau en-
deavors to secure the cooperaton of State recorders n assstng the
edera Government to coect any revenue to whch t may be |usty
entted, and requests such recorders to advse the coectors of nterna
revenue n a cases where deeds are presented for recordaton wth-
out havng the proper stamps aff ed thereto.
Correspondence n regard to the nstructons set forth heren shoud
refer to the number of ths mmeograph and to the symbos MT: ST.
Guy T. everng,
Commssoner.
TITL III. ST MP T S. (1926)
Reguatons 71(1926), rtce 34: Saes or -50-8436
transfers sub|ect to ta . Ct. D. 1180
stamp ta revenue act of 1920 decson of court.
Dstrbuton op Stock by ecutors Transfer of Lega Tte
Caforna Law.
The dstrbuton of certfcates of stock by the e ecutors under
a decedent s w to the resduary egatee was a transfer of ega
tte to the stock and sub|ect to the documentary stamp ta m-
posed by Schedue -3, Tte III of the Revenue ct of 1920.
though under the Caforna statute both rea and persona prop-
erty of a decedent pass drecty to hs hers or to the benefcares
named n the w, the rue of common aw s appcabe n ths
case, snce the edera statute does not by e press anguage or nec-
essary mpcaton make ts own operaton dependent upon the
State aw.
Unted States Crcut Court of ppeas for the Nnth Crcut.
Wech, Coector of Interna Revenue for the S th Coecton Dstrct of Ca-
forna, appeant, v. Louse . crckhoff, appeee.
efore Wbur, Mathews, and aney, Crcut udges.
une 8, 1936.
OPINION.
aney, Crcut udge: ppeee recovered |udgment aganst appeant for
the amount aeged to be egay coected for documentary stamps whch were
aff ed to certan stock certfcates ssued to appeee.
The facts were stpuated. ppeee s husband ded on ebruary 23, 1929,
eavng a w, by the terms of whch appeee was named as resduary egatee.
The stock certfcates receved by appeee may be segregated nto three groups,
a of whch were n the possesson of the e ecutors of decedent s w, mme-
datey pror to the tme of ther dstrbuton to apeee, whch took pace
about September 25, 1930.
The frst group of certfcates represented stock n Wm. G. crckhoff Co.,
herenafter caed the frst corporaton. Decedent was desgnated as the owner
of such stock n the certfcates at the tme of hs death. Some tune pror to
eptember 17, 1930, these certfcates were surrendered to the corporaton, can-
ceed, and new certfcates for the same tota number of shares were ssued,
whch certfcates desgnated the e ecutors as the owner of the stock repre-
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Rcga. 71(1926), rt. 34.
356
sented by the certfcates. On September 17, 1930, an order was made n the
probate proceedngs of decedent s estate, orderng dstrbuton of the stock of
the frst corporaton to appeee. When the stock was dstrbuted to appeee,
she e pended 700 for documentary stamps, whch were aff ed to the cer-
tfcates receved by her and canceed. It does not appear whether or not any
ta was pad at the tme these certfcates were surrendered and ressued to the
e ecutors.
The stock receved by appeee comprsng the second group of certfcates
mentoned came nto the possesson of the e ecutors n a dfferent manner.
t the tme of decedent s death, the frst corporaton owned a the stock of
abash Securtes Co., herenafter caed the second corporaton. Sad second
corporaton owned certan other stocks whch we w ca market stocks.
Some tme pror to the date of the order of dstrbuton, the frst corporaton
dstrbuted a the stock whch t owned n the second corporaton to the e -
ecutors. It does not appear whether or not the certfcates for stock n the
second corporaton receved by the e ecutors were surrendered and ressued
n the names of the e ecutors nor does t appear that any ta was pad
on the transacton. It kewse does not appear how the dstrbuton of the
stock of the second corporaton was made by the frst corporaton, that Is
whether t was made as an ordnary, or a qudatng dvdend, or n some
other manner.
fter the dstrbuton to the e ecutors, of the stock of the second corporaton,
t was dssoved and ts assets, ncudng the market stocks mentoned were
dstrbuted n the hands and names of the e ecutors. though t does not
appear that the dstrbuton of the market stocks was a qudatng dvdend,
presumaby such was the fact. The record does not dscose whether or not
any ta was pad on the dstrbuton of the market stocks to the e ecutors.
The order of dstrbuton, above mentoned, aso ncuded these market stocks,
and thereafter the certfcates representng such stocks were by the e ecutors
duy ndorsed and dstrbuted to appeee. t the tme of ths dstrbuton to
nppeee, she e pended money (the amount of whch does not appear) for docu-
mentary stamps whch were aff ed to the certfcates for the market stocks and
were canceed.
Possesson by the e ecutors of the thrd group of certfcates mentoned, was
obtaned n a manner somewhat smar to the manner n whch the e ecutors
obtaned possesson of the second group of certfcates. t the tme of hs death,
decedent owned a of the ssued and outstandng stock of Terre aute Cor-
poraton, herenafter caed the thrd corporaton. Sad thrd corporaton owned
a the ssued and outstandng stock of San Marno Lmted, herenafter caed
the fourth corporaton. Sad fourth corporaton owned certan other stocks
whch we w refer to as dstrbuted stocks.
On uy 17, 1930, the thrd corporaton was dssoved and the stock of the
fourth corporaton owned by the thrd corporaton, was dstrbuted to the e ecu-
tors. Presumaby ths dstrbuton was a qudatng dvdend, athough such
fact does not appear n the record. On September 3, 1930, the fourth corpora-
ton was dssoved, and ts assets ncudng the dstrbuted stocks mentoned,
were dstrbuted n the hands and names of the e ecutors, presumaby as a
qudatng dvdend, such fact not beng shown n the record.
The record does not dscose whether or not the certfcates, for the stock of
the thrd corporaton owned by decedent at the tme of hs death were sur-
rendered and ressued n the names of the e ecutors, and f so, whether or not
any ta was pad on the transacton. It kewse does not appear whether or
not the certfcates, for stock of the fourth corporaton receved by the e ecu-
tors on dssouton of the thrd corporaton, were surrendered and ressued n
the names of the e ecutors, and f so, whether or not any ta was pad on the
transacton.
The above-mentoned order of dstrbuton aso ordered dstrbuton of the
dstrbuted stocks, and pursuant thereto the e ecutors duy ndorsed and ds-
trbuted such stocks to appeee. t the tme of ths dstrbuton to appeee,
she e pended a certan sum of money (the amount not beng stated n the
record) for documentary stamps whch were aff ed to the certfcates for sad
dstrbuted stocks and duy canceed.
The tota cost, of the stamps aff ed to the certfcates n the second and thrd
groups of securtes was 716.24, and the tota cost of the stamps aff ed to the
certfcates n a three groups was 1,410.24.
The tra court hed that tte to the property evdenced by the certfcates
of stock upon whch stamps were aff ed was transferred and wssed to the
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357
Regs. 71(1926), rt. 34.
pantff (appeee) by operaton of aw upon the death of her husband, and
rendered udgment n favor of appeee for the fu amount e pended for stamps.
The Revenue ct of 1926 mposes a ta (eh. 27, secton 800) on a saes
deveres of, or transfers of ega tte to shares or certfcates of
stocks or to rghts to receve such shares or certfcates,
whether made upon or shown by the books of the corporaton, or by any assgn-
ment n bank, or by any devery, or by any paper or agreement or memorandum
or other evdence of transfer or sae, whether enttng the hoder n any manner
to the beneft of such stock, nterest, or rghts, or not .
rtce 34 of Treasury Reguatons 71 promugated under the above ct,
provdes among other thngs:
The foowng transactons are sub|ect to the ta :
(c) The transfer of stock to or by trustees.
(m) The transfer of stock n pursuance of a gft, bequest, or conveyance
by trustees.
(n) The transfer of stock from partes occupyng fducary reatons to
those for whom they hod stock.
(o) The transfer of certfcates of stock by an admnstrator or e ecutor
to the egatee or dstrbutee.
rtce 35 of sad reguatons provdes among other thngs:
The foowng transactons are not sub|ect to the ta :
(g) The transfer of certfcates of stock from the decedent to the admns-
trator or e ecutor of the estate.
(g) Transfers of shares or certfcates of stock whch resut whoy by
operaton of aw are not sub|ect to the ta . Transfers of ths character are
those whch the aw tsef w effect wthout any vountary act of the partes,
such as transfer of stock from the decedent to e ecutor.
ppeee contends that under the aw of Caforna the rea and persona
property of the decedent pass mmedatey upon hs death to hs hers or to
the benefcares named n the w 1 that a egatee may be desgnated by the
w, but t s ony by vrtue of the statute, that s, by operaton of aw, that the
egatee acqures tte that therefore the transfers fa wthn artce 35( )
of the reguatons quoted, and are not ta abe.
oth partes have presented arguments wth respect to the queston as to
whether oca aw, whch purports to contro or mt the operaton of a edera
ta ng ct, must be apped. In urnet v. arme (287 U. S.. 103, 110, 77 L.
d., 199, 53 S. Ct., 74 Ct. D. 611, C. . I-2, 210 ) the rue regardng ths
queston s stated to be that State aw may contro ony when the edera
ta ng ct, by e press anguage or necessary mpcaton, makes ts own
operaton dependent upon State aw.
Thus, oca aw was hed to be Imped for the determnaton of what s a
budng and oan assocaton, because the statute referred to such assocatons
as domestc assocatons, meanng assocatons sanctoned by the severa
States. (Unted States v. Loan and dg. Co., 278 U. S., 55, 73 L. d., 180, 49
S. Ct., 39.) nd n Crooks v. arreson (282 U. S., 55, 75 L. d., 156, 51 S. Ct.,
49 Ct. D. 271, C. . -, 469 ), the edera ta ng statute requred property
of a decedent whch was sub|ect to the payment of e penses of admnstraton,
to be Incuded n the gross vaue of the estate for estate ta purposes, and oca
aw was apped to determne whether or not the property n queston was
sub|ect to such payment. nd where t s necessary to determne the e tent
of one s ownershp n property, under a ta ng act whch made no determna-
ton thereof, oca aw has been apped to determne the e tent of such own-
ershp. (Tyer v. Unted States, 281 U. S., 497, 74 L. d., 991, 50 S. Ct., 353
Ct. D. 190, C. . I -1, 383 Poe v. Seaborn, 282 U. S., 101, 75 L. d., 239. 51
S. Ct, 58 Ot. D. 259, C. . I -2. 202 .)
On the other hand, four cases have been cted wheren oca aw was not
apped. In Unted States v. Chds (266 U. S., 304, 69 L. d., 299, 45 S. Ct.,
Ctng: Murphy v. Crouse (135 Ca., 14 66 P. 071) Marffcw v. San rancsco
an Rafae R. R. Co. (107 Cat., 587 40 P.. 810) : state of Pcrcy (108 Ca., 750- 145 P.,
88) urton . Tes (21 Ca., 87, 9) Western Pacfc Ru. Co. v. Godfrey (106 Ca., 348,
849 136 P.. 284) sectons 28, 122, and 120 of the Caforna Probate Code.
Ctng: state of Stanford (120 Ca., 112, 118 54 P., 259) tate of Patterson (155
Ca., 632 102 P., 941, 944) state of Yorba (170 Ca.. 100, 16 107 P.. 854)
oowed In: Ooode v. och (282 U. S., 118, 75 L. fd.. 247, 51 S. Ct., 62) op-
tns . acon (282 U. 8., 122, 75 L. d., 249. 51 S. Ct.. 02) ender . Pfuff (282 T . 8.,
127. 75 L. d., 252, 51 S. Ct.. 04 Ct. I . 201, C. . I -2, 200 ) Unted States . Macom
(282 U. 8., 792, 75 d., 714, CI 8. Ct., 184).
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Regs. 71(1926), rt. 84.
858
110 T. D. 3C71, O. . I -1, 241 ), where a cam Incudng Interest thereon,
but not ncudng a penaty, mght be fed aganst a bankrupt s estate, and the
cam presented, arose by vrtue of a ta ng act whch prescrbed a rate of
nterest, whch under the oca aw woud be consdered as at east partay
pena, t was hed that notwthstandng such oca aw, the cam propery-
ncuded the nterest prescrbed by the ta ng act, for the edera statute
s precse. In urk-Wuggoncr ssn. v. opkns (2(59 U. S., 110, 70 L. d., 183,
46 S. Ct., 48 T. D. 3790, C. . -, 147 ), a |ont stock assocaton was propery
ta ed as a corporaton, even though the oca aw consdered such assocatons
as partnershps.
In Wess v. Wencr (279 U. S., 333, 73 L. d., 72C, 49 S. Ct, 337), the ta ng
net permtted a deducton for obsoescence actuay suffered as a present oss.
The ta payer camed a deducton for obsoescence of budngs hed by hm
under ong term eases, whch under the oca aw were treated n many re-
spects as conveyances of the fee, and camed that beng the owner he was
entted to such deducton because the oss was a present one. It was hed that
the deducton coud not be camed, because the oss mght never fa on the
ta payer, snce he mght, as e had done wth other eases, ether assgn or
surrender the same to the essors.
In urnet v. arme, supra, the ta payer ncuded bonus payments receved
by vrtue of an o and gas ease e ecuted by hm, as gan from sae of capta
assets, because under the oca aw, tte to the o and gas deposts passed
to the essee on e ecuton of the ease. It was hed that the ta ng statute
nether says nor mpes the determnaton of gan from the sae or e change
of capta assets s to be controed by State aw. It was further hed that
the fact of the passng of tte to the o and gas s ony an ncdent to the
use of hs (owner s) and for o producton and that the operaton, consd-
ered n ts entrety, can not be vewed as a sae or a converson of capta
assets.
The statute before us, n so far as here appcabe, dscoses an undoubted
ntent to ta deveres of, or transfers of, ether (1) ega tte to shares or
certfcates of stock, or (2) rghts to receve such shares or certfcates. Lter-
ay read, the statute ta es such a transfer or devery, whether effected by
vountary act, nvountary act, or by operaton of aw, for t makes no
e emptons.
In the nstant case, however, we are not concerned wth the queston as to
whether or not the so-caed transfers to the persona representatves, of
decedent s estate are ta abe. The soe ssue s whether or not the so-caed
transfers from the e ecutors to the egatee are ta abe. t frst bush, t woud
seem that artce 34(o) woud make the transactons ta abe, but that artce
and the statute, each mpose a ta on a transfer or devery of ether the ega
tte or the rght to receve the stock. If the e ecutors transferred or devered
nether the ega tte nor rght to receve the stock, then there was no ta abe
transacton. If we ook to the aw of Caforna for a determnaton of the
queston as to whether or not the e ecutors transferred or devered ether ega
tte or rght to receve the stock, then the ega tte to and the rght to receve
the stock was aready vested n appeee, and the e ecutors coud not have trans-
ferred or devered ether to appeee. Thus we are confronted wth the ques-
ton as to whether or not we w appy the Caforna aw.
The statute does not e pressy make ts nterpretaton depend on oca aw.
Nor do we thnk dependence of the statute on oca aw s mped. The com-
mon aw of the States as admnstered by the edera courts s we abe to
determne what s a transfer under such crcumstances, wthout the ad of
oca aw. Such common aw rue, whch e sts n most States e pressy hods
that tte to decedent s personaty on hs death becomes vested In hs persona
representatve. Construng the transfers under such rue, and not under the
rue pecuar to Caforna, t s cear that the e ecutors transferred ega tte,
and therefore the transfers are ta abe.
In urnet v. arme (supra, 110) t s sad:
ere we are concerned ony wth the meanng and appcaton of a statute
enacted by Congress, n the e ercse of ts penary power under the Consttuton,
to ta ncome. The e erton of that power s not sub|ect to State contro. It
Is the w of Congress whch contros, and the e presson of ts w n egsa-
ton, n the absence of anguage evdencng a dfferent purpose s to be nter-
preted so as to gve a unform appcaton to a Naton-wde scheme of
ta aton .
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359 Regs. 71(1926), rt. 34.
In the Instant case we fnd no anguage evdencng a purpose that the app-
caton of the statute sha be controed by oca aw, and n the absence of such
anguage we haye apped a genera aw whch gves a unform appcaton
to a Naton-wde scheme of ta aton.
ppeee rees on the statement n Poe v. Seaborn (supra, 117), that the
consttutona requrement of unformty s not ntrnsc, but geographc. That
rue s not appcabe here. It s appcabe n cases where the statute by
e press anguage or necessary mpcaton, makes ts own operaton dependent
on State aw.
It s true that Congress can not make a transfer out of a transacton whch s
not so n fact. ppyng common aw to the nstant transacton, there was n
fact a transfer. Thus a ta s mposed on a transacton whch s a transfer
under common aw, but whch under oca aw may not be such. In Unted
States v. Chds, supra, athough a penaty was prohbted, a cam for nterest
whch was n fact nterest under the edera statute, was proper, athough
under the oca aw, the nterest woud be partay pena. In urk-Waggoucr
ssn. v. opkns, supra, an organzaton was ta ed as beng a |ont stock
assocaton when known as such n common parance, athough t was not so
n fact under the oca aw. These decsons teach that the e stence of the
necessary fact s determned by the seecton of the aw whch we w appy.
nd we appy the common aw, e cept when the edera statute by e press
anguage or necessary mpcaton, makes ts own operaton dependent upon
State aw.
In vew of these concusons t s unnecessary to consder the effect of R|-
toestos-Manhattan, Inc., v. Unted States (296 U. S., 60, 80 L. d., 42, 66 S. Ct.,
63 Ct. D. 1039, C. . I -2, 400 ) (paragraph 9007 heren) and McLaughn v.
Coos ay Lumber Co. (80 . (2d), 763) (paragraph 9029 heren), on the second
and thrd groups of securtes transferred to appeee.
In the orgna compant fed, appeee aeged that a the property of
decedent was communty property. That aegaton was dened by the answer.
The stpuaton does not dscose whether or not the property was n fact
communty property. Whether or not the e stence of the fact woud make a
dfference, s not rased or dscussed by ether party. Under these crcum-
stances, we e press no opnon on the queston as to whether or not the fact,
that the property was communty property, woud change our resut
Reversed.
SC DUL - O TITL III O T R NU CT O 1926, S
M ND D Y S CTION 721(a) O T R NU CT O 1932.
ONDS O IND T DN SS.
( so Secton 800.) -31-8213
S. T. 841
The ssuance of bonds, debentures, certfcates of ndebtedness,
or other nstruments descrbed In Schedue - of Tte III of
the Revenue ct of 1926, as amended, by a State bank to the e-
constructon nance Corporaton s sub|ect to stamp ta .
dvce s requested whether the ssuance of bonds, debentures,
certfcates of ndebtedness, or other nstruments descrbed n
Schedue - of Tte III of the Revenue ct of 1926, as amended
by secton 721(a) of the Revenue ct of 1932, by a State bank to the
Reconstructon nance Corporaton s sub|ect to stamp ta .
Schedue - of Tte III of the Revenue ct of 1926, as amended,
mposes a stamp ta on a bonds, debentures, or certfcates of n-
debtedness ssued by any corporaton, and a nstruments, however
termed, ssued by any corporaton wth nterest coupons or n regs-
tered form, known generay as corporate securtes. very renewa
of the foregong s ta abe as a new ssue. Secton 800 of the Reve-
nue ct of 1926 mposes a dua abty n res| ect of stamp ta es on
bonds, debentures, or certfcates of stock and of ndebtedness, and
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Regs. 71, rt. 28.
360
other nstruments mentoned and descrbed n Schedue of Tte
III of the Revenue ct of 1926. Under secton 10 of the ct of
anuary 22, 1932 (47 Stat., 5), the Reconstructon nance Corpora-
ton s e empt from ta aton. Consequenty, when bonds, debentures,
certfcates of ndebtedness, or other nstruments enumerated n
Schedue - of Tte III of the Revenue ct of 1926, as amended,
are ssued to that corporaton, or when t s a party to the transfer
thereof, t s not abe for stamp ta wth respect thereto. ow-
ever, under the dua abty provsons emboded n secton 800, the
other party to the transacton, uness otherwse e empt, s abe for
the ta .
The queston arses whether the ct of March 20,1936 (Pubc, No.
482, Seventy-fourth Congress, C. . -1, 521), affects the ab-
ty for stamp ta n such a case. That ct provdes n part that
shares of preferred stock, capta notes, and debentures of State
banks and trust companes, heretofore or hereafter acqured by the
Reconstructon nance Corporaton, sha not, so ong as
Reconstructon nance Corporaton sha contnue to own the same,
be sub|ect to any ta aton by the Unted States, . The
foregong e empton provsons appy ony so ong as the nstruments
specfed are owned by the Reconstructon nance Corporaton. They
do not appy to the ssuance of stock, notes, or debentures to such cor-
poraton, an act whch s separate and dstnct from ownershp, and
do not affect n any way the dua abty for stamp ta es referred to
above.
In vew of the foregong, t s hed that the ssuance of bonds, de-
bentures, certfcates of ndebtedness, or other nstruments descrbed
n Schedue - of the Revenue ct of 1926, as amended, by a State
bank to the Reconstructon nance Corporaton s sub|ect to stamp
ta , and that the ssung bank s abe for such ta .
SC DUL -2 O TITL III O T R NU CT O 1926, S
M ND D Y S CTION 722(a) O T R NU CT O 1932. ( LSO
SC DUL -3 O TITL III O T R NU CT O 1926, S
M ND D Y S CTION 723(a) O T R NU CT O 1932.
Reguatons 71, rtce 28: Issues sub|ect -34 8255
to ta . S. T. 843
( so rtce 34, Reguatons 71.)
Membershp certfcates ssued by nn ncorporated cub represent-
ng an undvded nterest n the cub s assets are sub|ect to stamp
ta upon the ssuance or transfer thereof.
dvce s requested whether the ssuance or transfer of member-
shp certfcates ssued by the M Cub s sub|ect to stamp ta under
Schedues -2 or -3 of Tte III of the Revenue ct of 1926, as
amended by secton 722(a) and secton 723(a) of the Revenue ct
of 1932, respectvey.
Schedue -2 of Tte III of the Revenue ct of 1926, as
amended, mposes a stamp ta on each orgna ssue of shares or
certfcates of stock, or of profts, or of nterest n property or ac-
cumuatons, by any corporaton, or by any nvestment trust or
smar organzaton (or by any person on behaf of such nvestment
trust or smar organzaton). Schedue -3 of Tte III of the
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361
Regs. 71, rt. 84.
Revenue ct of 1926, as amended, mposes a stamp ta on a saes,
or agreements to se, or memoranda of saes or deveres of, or
transfers of ega tte to any of the shares or certfcates mentoned
or descrbed n Schedue -2 as amended.
The M Cub s a corporaton. It ssues three casses of member-
ach membershp certfcate represents an undvded nterest n the
assets of the cub, as provded n the artces of ncorporaton. Snce
each membershp certfcate represents an undvded nterest n the
assets of the M Cub, such certfcates consttute certfcates of nter-
est n property or accumuatons ssued by a corporaton wthn the
meanng of the aw. ccordngy, the ssuance or transfer of such
certfcates s sub|ect to stamp ta under Schedue -2 or Schedue
-3 of Tte III of the Revenue ct of 1926, as amended, as the
case may be.
SC DUL -3 O TITL III O T R NU CT O 1926, S
M ND D Y S CTION 723(a) O T R NU CT O 1932, ND
T CT O UN 29, 1936 (PU LIC, NO. 842, S NTY- OURT
CONGR SS).
Reguatons 71, rtce 34: Saes or trans- -49-8422
fers .sub|ect to ta . S.T. 850
The transfer by a broker to hs customer of a stock dvdend
Issued n the name of the broker n respect of stock beongng to
the customer s sub|ect to stamp ta .
dvce s requested whether the transfer by a broker to a customer
of stock ssued n the name of the broker as a dvdend on stock
purchased and hed by the broker for hs customer s sub|ect to
the stamp ta mposed by Schedue -3 of Tte III of the Reve-
nue ct of 1926, as amended.
Schedue -3 of Tte III of the Revenue ct of 1926, as
amended, mposes a stamp ta
On a saes, or agreements to se, or memoranda of saes or de-
veres of, or transfers of ega tte to any of the shares or certfcates men-
toned or descrbed n subdvson 2, or to rghts to subscrbe for or to receve
such shares or certfcates. Provded further, That the ta sha not
be mposed upon deveres or transfers to a broker or hs regstered nomnee
for sae, nor upon deveres or transfers by a broker or hs regstered nomnee
to a customer for whom and upon whose order the broker has purchased
same, but such deveres or transfers sha be accompaned by a
certfcate settng forth the facts .
The e empton from stamp ta provded by the aw wth respect
to deveres or transfers of stock by a broker or hs regstered nom-
nee to a customer appes ony to such deveres or transfers to a
customer for whom, and upon whose order the broker purchased the
stock. The dvdend stock whch was transferred by the broker to
the customer n the nstant case was not purchased by the broker for
or upon the customer s order. Consequenty, the e empton does not
appy to such transfer.
In vew of the foregong, t s hed that the transfer of stock ssued
as a stock dvdend from the name of the broker to the name of the
customer s sub|ect to the stamp ta mposed by Schedue -3 of
Tte III of the Revenue ct of 1926. as amended.
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egs. 71, rt. 35.
362
Reguatons 71, rtce 35: Saes or trans- -43-8365
fers not sub|ect to ta . T. D. 4701
( so rtce 120: Regstraton.)
rtces 35 (to), (n), and (o) and 126 of Reguatons 71 (revsed
uy, 1932), amended to Rve effect to ct of une 29, 1936 (Pubc,
No. 842, Seventy-fourth Congress).
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The ct approved une 29, 1936 (Pubc, No. 842, Seventy-fourth
Congress), amended subdvson 3 of Schedue of Tte III of
the Revenue ct of 1926 to read as foows:
3. Capta stock (and smar nterests), saes or transfers. On a saes,
or agreements to se, or memoranda of saes or deveres of, or transfers of
ega tte to any of the shares or certfcates mentoned or descrbed n subd-
vson 2, or to rghts to subscrbe for or to receve such shares or certfcates,
whether made upon or shown by the books of the corporaton or other organza-
ton, or by any assgnment n bank, or by any devery, or by any paper or
agreement or memorandum or other evdence of transfer or sae (whether
enttng the hoder n any manner to the beneft of such share, certfcate,
nterest, or rghts, or not), on each 100 of par or face vaue or fracton thereof
of the certfcates of such corporaton or other organzaton (or of the shares
where no certfcates were ssued) 4 cents unt uy 1, 1937, and 2 cents
thereafter, and where such sares or certfcates are wthout par or face vaue,
the ta sha be 4 cents unt uy 1, 1937, and 2 cents thereafter, on the transfer
or sae or agreement to se on each share (corporate share, or nvestment trust
or other organzaton share as the case may be) : Provded, That n case the
seng prce, f any, s 20 or more per share the above rate sha be 5 cents
nstead of 4 cents unt uy 1, 1937 : Provded further, That t Is not ntended
by ths tte to mpose a ta upon an agreement evdencng a depost of certf-
cates as coatera securty for money oaned thereon, whch certfcates are
not actuay sod, nor upon the devery or transfer for such purpose of certfcates
so deposted nor upon the return of stock oaned: Provded further. That the
ta sha not be mposed upon deveres or transfers to a broker or hs
regstered nomnee for sne, nor upon deveres or transfers by a broker or
hs regstered nomnee to a customer for whom and upon whose order the
broker has purchased same, nor upon deveres or transfers by a purchasng
broker to hs regstered nomnee f the shares or certfcates so devered or
transferred are to be hed by such nomnee for the same purpose as f hed by
the broker, but such deveres or transfers sha be accompaned by a certfcate
settng forth the facts: Provded further, That the ta sha not be mposed
upon deveres or transfers from a fducary to a nomnee of such fducary,
or from one nomnee of such fducary to another, f such shares or certfcates
contnue to be hed by such nomnee for the same purpose for whch they woud
be hed f retaned by such fducary, or from the nomnee to such fducary,
but such deveres or transfers sha be accompaned by a certfcate settng
forth the facts: Provded further, That n case of sae where the evdence of
transfer s shown ony by the books of the corporaton or other organzaton
the stamp sha be paced upon such books and where the change of owner-
shp s by transfer of the certfcate the stamp sha be paced upon the certf-
cate and n cases of an agreement to se or where the transfer s by devery
of the certfcate assgned n bank there sha be made and devered by the
seer to the buyer a b or memorandum of such sae, to whch the stamp
sha be aff ed and every b or memorandum of sae or agreement to se
before mentoned sha show the date thereof, the name of the seer, the
amount of the sae, and the matter or thng to whch t refers. ny person
abe to pay the ta as heren provded, or anyone who acts n the matter
as agent or broker for such person, who makes any such sae, or who n
pursuance of any such sae devers any certfcate or evdence of the sae
of any stock, shaTe, nterest or rght, or b or memorandum thereof, as heren
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363
Regs. 71, rt. 35.
requred, wthout havng the proper stamps aff ed thereto, wth Intent to evade
the foregong provsons, sha be deemed guty of a msdemeanor, and upon
convcton thereof sha pay a fne of not e ceedng 1,000, or be mprsoned
not more than s months, or both: Provded further, That as used n tns
secton the term regstered nomnee sha mean any person regstered wth
the coector of nterna revenue n accordance wth such rues and reguatons
as the Commssoner of Interna Revenue wth the approva of the Secretary
of the Treasury sha prescrbe.
Pursuant to the above amendment and pursuant to the authorty
conferred by varous other nterna revenue aws, Reguatons 71
(revsed uy, 1932) are hereby amended as foows:
(1) The subtte whch mmedatey foows the chapter headng
of Chapter III and whch reads as foows:
Schedue -3 of Tte III of the Revenue ct of 1926, as amended by secton
723(a) of the Revenue ct of 1932,
s hereby emnated, and n eu thereof there s substtuted the
foowng:
Schedue -3 of Tte III of the Revenue ct of 1926 as amended by secton
723(a) of the Revenue ct of 1932 as amended by the ct approved une 29,
1936 (Pubc, No. 842, Seventy-fourth Congress).
(2) The quotatons of Schedue -3 of Tte III of the Revenue
ct of 1926, as amended by secton 723(a) of the Revenue ct of 1932,
and of secton 723(c) of the Revenue ct of 1932, at the begnnng
of Chapter III are hereby emnated, and n eu thereof there s sub-
sttuted Schedue -3, as amended by the ct of une 29, 1936,
quoted above.
(3) Paragraphs (m), (n), and (o) of artce 35 are amended to
read, respectvey, as foows:
( ) The devery or transfer of a certfcate of stock by or on behaf of a
customer to hs broker or (on or after une 29, 1936) to the regstered nom-
nee of the broker, soey for the purpose of enabng such broker to make a sae
thereof for the customer, s not sub|ect to stamp ta provded the broker sha,
In every case, at the tme of such devery or transfer to hm or hs regstered
nomnee make and sgn a certfcate statng that the devery or transfer to
hm or to hs regstered nomnee was made soey to enabe the broker to se
the stock for the owner.
(n) The devery or transfer of a certfcate of stock from a broker, or (on
or after une 29, 1936) from hs regstered nomnee, to a customer for whom
the broker has purchased such certfcate, or (on or after une 29, 1936) from
a purchasng broker to hs regstered nomnee of a certfcate of stock purchased
for a customer, f such stock Is to be hed by the regstered nomnee for the
game purpose as f hed by the broker, where the ta has been pad upon the
transfer of the stock to the broker, s not sub|ect to stamp ta , provded the
broker sha, n every case, at the tme of such devery or transfer make and
sgn a certfcate n whchever of the forms gven beow s appcabe.
(0) The certfcates requred by the two precedng paragraphs sha be n the
foowng form:
(1) (In the case of a transfer to a broker or hs regstered nomnee)
We hereby certfy that of the shares represented by ths stock cer-
tfcate are transferred by the owner thereof to the undersgned or our regstered
nomnee soey for the purpose of sae.
( roker sgn here.)
(2) (In the case of a transfer by a broker or hs regstered nomnee)
We hereby certfy that the transfer of of the shares represented by
ths stock- certfcate to the names Indcated Is made soey to compete the pur-
chase made by us for our customer or customers.
( roker sgn here.)
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Regs. 71, rt. 84.
364
(3) (In the case of a transfer uy a broker to hs regstered nomnee)
We hereby certfy that the transfer of of the shares represented b|
ths stock certfcate purchased by us for a customer Is made to our regstered
nomnee to be hed by hm ony for the same purpose as f hed by the
undersgned,
( roker sgn here.)
No broker who has fed a certfcate on the form prescrbed under (1) 6ha
fe a certfcate on the form prescrbed under (2) wth reaton to the same
transfer of shares of stock.
The broker s certfcate sha, n every case, be attached to the certfcates of
stock and presented to the transfer agent at the tme such certfcates of stock
are surrendered for transfer and sha be preserved wth the od certfcates by
such transfer agent for not e6s than four years for the Inspecton of a revenue
offcer.
(4) rtce 126 s amended by the addton of a new paragraph to
be desgnated as ( ), readng as foows:
(h) ny person conductng a stock brokerage busness, who has regstered
wth the coector as provded by ths artce, may appont or seect some person
to act as hs nomnee n hodng stock on behaf of such broker. The name of
the person so nomnated sha be furnshed to the coector of nterna revenue
for the dstrct n whch the prncpa offce of the broker Is ocated. Substtu-
tons of nomnees may be effected by kewse regsterng the name of the
successor nomnee. Record of such regstraton sha be kept by the coector
wth other regstratons as provded by artce 12T. The coector sha In each
case furnsh the broker a statement showng that the nomnee has been duy
rostered. No speca form Is prescrbed for use n regstraton.
Ths Treasury decson s ssued under the authorty contaned n
secton 1101 of the Revenue ct of 1926.
G |t T. everng,
Commssoner of Interna Revenue.
pproved October 16, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster October 20, 1936, 12.46 p. m.)
SC DUL -8 O TITL III O T R NU CT O 1926, S
DD D Y S CTION 725 O T R NU CT O 1932. CON-
Y NC S.
Reguatons 71, rtce 84: What consttutes -32-8233
rea property determnabe by aw of State G. C. M. 16934
where ocated.
n o and gas ease of Indefnte duraton coverng ands n
Caforna Is sub|ect to stamp ta as a conveyance of reaty.
dvce s requested whether an o and gas ease of ndefnte
duraton, coverng ands n Caforna, s sub|ect to the stamp ta on
conveyances mposed by Schedue -8 of Tte III of the Revenue
ct of 1926, as added by secton 725 of the Revenue ct of 1932.
The aw mposes a stamp ta on any Deed, nstrument,
or wrtng whereby any ands, tenements, or other reaty
sod sha be granted, assgned, transferred, or otherwse conveyed
to, or vested n, the purchaser or purchasers , when the
consderaton or vaue of the nterest or property conveyed, e cu-
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365
Regs. 71, rt, 84.
sve of the vaue of any en or encumbrance remanng thereon at the
tme of sae, e ceeds 100 .
The ease n queston contans the usua provsons of an o and
gas ease, the cause reatng to the term readng as foows:
The term of ths ease sha be for twenty (20) years from the date of ths
ndenture, and thereafter so ong as o, gas and/or other hydrocarbon sub-
stances sha be produced and saved from sad eased ands n commercay
payng quanttes, provded that the drng term wthn whch new wes
may be dred upon sad ands s mted to sad perod of twenty (20) years
but any we whch s n process of drng at the e praton of sad twenty
(20) years may thereafter be dred to competon.
The queston presented s whether the ease conveys ands, tene-
ments, or other reaty wthn the meanng of the aw. The words
ands, tenements, or other reaty have been construed to mean
that estate or nterest n and known as rea property, whch must
be an estate for fe or a greater estate. (G. C. M. 11732, C. .
II-1, 439.) The foowng concusons were reached n G. C. M.
11732 wth respect to royaty deeds conveyng an undvded n-
terest n and to a of the o, gas, and other mneras that mght be
produced from certan ands n Okahoma:
1. That a royaty deed of unmted duraton s a conveyance of rea property.
2. That a so-caed royaty deed for a mted number of years (or months),
and thus havng a defnte tme for termnaton, s a conveyance of an estate
for years, that s, t s a chatte rea or persona property.
3. That f a so-caed royaty deed contans what s known as an e tenson
or thereafter cause, whereby the grantee of the deed may e pore for and
e tract o and gas for a defnte term and thereafter as ong as gas or o s
produced or thereafter as ong as gas or o s produced n payng quan-
ttes, or smar e tenson of the me mted n the deed, such royaty
deed conveys a determnabe fee and consttutes a conveyance of rea property.
royaty deed that fas wthn cass (1) or cass (3) s ta abe under the
statute as a conveyance of ands, tenements, or oher reaty. One that fas
wthn cass (2) s not so ta abe, Inasmuch as t s a conveyance of persona
property.
It s the opnon of ths offce that the concusons reached n
G. C. M. 11732, supra, reatve to royaty deeds are appcabe to
the nstrument here under consderaton even though t s desgnated
as a ease.
or stamp ta purposes, the aw of the State n whch the and s
stuated determnes what consttutes ands, tenements, or other
reaty. ( rtce 84, Reguatons 71.) The Supreme Court of Ca-
forna n Dabney v. dwards (53 P. (2d), 962) consdered eases
nvovng thereafter causes such as the nstant ease. In the
course of ts opnon the court sad:
we are of the opnon that the two eases whch provde n add-
ton to the defnte f ed term specfed that the eases are to contnue so
ong thereafter as o or gas or ether of sad substances s produced there-
from n quanttes suffcent to pay to pump or otherwse to secure and save
are ncuded n the term, rea estate. It foows ogcay that f the ega
nterest created by o and gas eases whch provde for a defnte term of
years, beng cassfed as estates for years at common aw, are deemed to
be persona property and are therefore e cuded from the defnton of rea
estate as used n subdvson 5, secton 1624 Cv Code, that the ega nter-
est created by o and gas eases whch provde for a term of ndefnte and
uncertan duraton, whch under common aw are cassfed as freehod estates
n the nature of a quafed or determnabe fee, must be doened to be rea
property and therefore ncuded In the defnton of rea estate as used n sad
secton.
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Regs. 71, rt. 84.
366
In vew of the foregong, t s the opnon of ths offce that the
o and gas ease n queston, whch has a term of ndefnte dura-
ton, consttutes a conveyance of reaty wthn the meanng of the
aw and s, therefore, sub|ect to stamp ta under Schedue -8 of
Tte III of the Revenue ct of 1926. as added by secton 725 of
the Revenue ct of 1932.
erman Ophant,
Genera Counse for the Department of the Treasury.
Reguatons 71, rtce S4: What consttutes -36-8294
rea property determnabe by aw of State G. C. M. 17026
where ocated.
n o and sas ease of ndefnte duraton coverng ands n Penn-
syvana s sub|ect to stamp ta as a conveyance of reaty.
dvce s requested whether an o and gas ease of ndefnte dura-
ton coverng ands n Pennsyvana s sub|ect to the stamp ta on
conveyances mposed by Schedue -8 of Tte III of the Revenue
ct of 1926, as added by secton 725 of the Revenue ct of 1932.
The aw mposes a stamp ta on any Deed, nstrument,
or wrtng whereby any ands, tenements, or other reaty
sod sha be granted, assgned, transferred, or otherwse conveyed to,
or vested n, the purchaser or purchasers when the consd-
eraton or vaue of the nterest or property conveyed, e cusve of the
vaue of any en or encumbrance remanng thereon at the tme of
sae, e ceeds 100 . What consttutes ands, tenements,
or other reaty s determnabe by the aw of the State n whch
the property s stuated. ( rtce 843 Reguatons 71.)
The ease n queston s a typca o and gas ease and rectes that
the essor
has granted, demsed, eased aad et and by these presents does
grant, demse, and et, wth covenants of quet possesson and soe rght to
convey, unto the sad essee, for the soe and ony purpose of mnng and op-
eratng for o and gas, and of ayng ppe nes, and of budng tanks, statons,
teephone, teegraph and eectrc power nes, houses for gates, meters and
reguators, wth a other rghts, prveges, appances and structures, ncud-
ng free o, gas, gasone, and water from the and, necessary, ncdent or
convenent for the operaton of ths and aone and con|onty wth neghborng
ands,

It s agreed that ths ease sha reman n force for the term of 10 years
from ths date, and as ong thereafter as the sad and s operated by the
essee n the search for or producton of o or gas, wth the e tenson of term
by payment of rentas as herenafter set forth.
In ahey v. Marsha (174 Pa, St, 425, 34 t., 564, 565) the
Supreme Court of Pennsyvana sad:
s was hed n ppea of Stoughton (88 Pa. St, 201) and other
cases In same ne, o n pace s a mnera, and, beng a mnera, t s part of
the reaty. n o ease Investng the essee wth the rght to remove a the
o n pace n the premses, n consderaton of hs gvng the essors a certan
per centum thereof, s, In ega effect, a sae of a porton of the and .
(See aso Marsha v. Meon, 179 Pa. St., 371, 36 t., 201 Smth
v. rown, 294 Pa., 203, 143 t., 913 compare aso ansas Natura
Gas Co. v. aske, 172 ed., 545, 563, affrmed n 221 U. S., 229 see
aso 224 U. S., 217.)
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367
Regs. 71, rt. 84.
In Penn-OMo Gas Co. v. rank s ers (185 t., 280), decded
May 25, 1936, the Supreme Court of Pennsyvana consdered an
o and gas ease provdng n part as foows:
That the grantors do hereby grant and convey a the
o and gas n and under the foowng descrbed tract of and, and aso a
the sad tract of and for the soe and ony purpose and wth the e cusve
rght of drng and operatng thereon, and aso a such other
prveges as are necessary for sad operatons, for the
term of fve (5) years and as much onger as the sad premses
are beng dred or operated for the producton of o or gas .
In support of ts concuson that the ease conveyed tte to the
o and gas n pace, the court cted prevous cases nvovng eases
of the knd here under consderaton and, n the course of ts opnon,
sad (page 281) :
n agreement of the type nvoved n ths case s not merey a ease
of the and for the purpose of e porng, drng, and operatng for o and gas,
but e pressy and n apt terms s a defeasbe grant of a the o and gas n
and under the descrbed premses, wth the ncdenta rght of egress and
Ingress for the purpose of drng and operatng o and gas wes. (Sturde-
vant v. Thompson, dm., 280 Pa., 233, 236, 124 ., 434 Mcntosh v. Ropp, 233
Pa., 497, 82 ., 949 akey v. Marsha, 174 Pa., 425, 34 ., 564 utton v.
Carnege at . Gas Co., 51 Pa. Super., 376, 381. )
In vew of the foregong, t s the opnon of ths offce that the
o and gas ease n queston, whch has a term of ndefnte duraton,
consttutes a conveyance of reaty wthn the meanng of the aw,
and s, therefore, sub|ect to stamp ta under Schedue -8 of Tte
III of the Revenue ct of 1926, as added by secton 725 of the
Revenue ct of 1932.
erman Ophant,
Genera Counse for the Department of the Treasury.
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3226 and 3228, R. S.
368
S CTIONS 3226 ND 3228, R IS D ST TUT S,
S M ND D.
-47-8396
Ct. D. 1174
D R L T S R IS D ST TUT S D CISION OP COURT.
Sut ursdcton of Court Whether Statute Prescrbng Tme
Wthn Whch Cam must be ed and Sut rought s
One op Lmtaton or of ursdcton.
The provsons of sectons 3226 and 3228, Revsed Statutes, as
amended, tat a cam for refund be fed wthn four years after
payment of the ta and that sut be commenced wthn two years
after dsaowance thereof are not statutes of mtaton as gen-
eray understood, but are substantve |ursdctona requrements,
and a pea of genera ssue s a suffcent defense n a sut to
recover ta es pad.
Unted States Crcut Court of ppeas for the Seventh Crcut.
The Unted States of merca, appeant, v. Chcago of Cub, appeee.
ppea from the Dstrct Court of the Unted States for the Northern Dstrct of Inos,
astern Dvson.
une 22, 1936.
opnon.
atze, Dstrct udge: The appeee s an Inos corporaton, organzed
for the purpose of promotng the game of gof, and other outdoor sports. y-
aws were adopted by t whch have been In fu force and effect at a tmes
snce ts ncorporaton. There s a certan cass of membershp known as the
transferabe resdent membershp, the hoders of whch, under the provsons
of the by-aws, were entted to an ndvdua nterest n the property of appeee
n the same rato as the membershp bore to the tota membershp. certan
fee was charged for each such membershp whch was consdered by appeant
to be an ntaton fee and sub|ect to a ta under the revenue aws. Conse-
quenty, begnnng on pr 28, 1921, and contnung to ugust 24, 1926, appeee
was requred by appeant to pay, and dd pay under protest, ta es upon such
membershp fees coected by t durng that tme n the tota sum of 11,834.45,
of whch nmont 10 was a penaty.
It was contended by appeee at a tmes that, under the aw, such fees were
not ta abe and that t shoud not be requred to pay a ta thereon. The
Court of Cams, n the case of ance Country Cub v. Unted States (62 Ct.
CI., 579 T. D. 3955, C. . I-1, 302 ), afterwards decded upon the same set of
facts that fees coected as membershp fees, smar to those In the nstant
case, were not ta abe. ppeant accepted ths as the aw and requred no
further payments from appeee after that decson, and therefore, the ast
payment made by t was on ugust 24, 1926.
On pr 4, 1928, appeee fed ts cam for refund wth the Commssoner of
Interna Revenue, wheren t camed a refund of the tota amount theretofore
pad, that s, the sura of 11,834.45. ppeant conceded that the money had
been erroneousy or egay coected as ta es, but contended that t coud not
aow a refund of the entre amount, because a part of t had been pad more
than four years pror to the fng of the cam. It dd, however, aow the
amount that had been pad durng the perod mmedatey precedng the fng
of the cam, that s, from pr 4, 1924, to ugust 24, 1926, n the sum of
4,540.59, but re|ected the amounts pad more than four years pror thereto
n the sum of 7,277.SG. On anuary 2, 1929, appeee fed ts cam for a re-
fund of the amount prevousy re|ected, whch cam was dened on ebruary
14, 1929, and a reconsderaton and reopenng of the same was refused on
ugust 8 of the same year. Sut was fed n the dstrct court by appeee on
ugust 0, 1931, whch was more than two years after the re|ecton of ts cam.
In such sut |udgment aganst appeant n the sum of 7,277.86 wth nterest
was sought. To the compant a genera appearance was entered by appeant,
and the ony peadng or answer fed by t was that of the genera ssue. The
dstrct court fed speca fndngs of fact upon whch t concuded as a matter
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369
3226 and 3228, R. S.
of aw, (1) that defendant can not under the pea of the genera Issue rase
the queston of tmeness of the fng of the cam for refund (2) that
under the peadngs and evdence pantff Is entted to recover the sum of
7,277.86 together wth nterest thereon. udgment was accordngy entered
for such amount.
It s the contenton of appeant that the provsons of sectons 3226 and
8228, Revsed Statutes,1 whch f the tme n whch cams must be fed and n
whch sut sha be begun after dsaowance thereof, consttute a part of the
terms upon whch t has consented to be sued. It s further contended by t that
no sut can be mantaned uness the provsons of such statutes have been
fuy comped wth that appeee s compance therewth s a condton or
quafcaton of ts rght to sue, and that t must both aege and prove facts
consttutng compance therewth. It s further contended by appeant that
the two requrements of the statute, that Is, the fng of the cam for refund
wthn four years after the payment of the ta , and the commencement of
sut wthn two years after re|ecton of the cam, are substantve |ursdctona
requrements, and that, n ther absence, or n the absence of ether of them,
the court has no ursdcton.
It s the contenton of appeee that the provsons of these statutes, n so far
as they reate to the tme of the fng of a cam and the commencement of a
sut, are statutes of mtatons that they are not |ursdctona, and that f
appeant had desred to ava Itsef of them, t shoud have specay peaded
them. It Is further contended that, snce t faed to so pead them, t can not
now compan, and that t Is bound by the |udgment of the dstrct court.
ppeant does not contest the correctness of the amount of the |udgment, or
the fact that such amount was erroneousy or egay coected by t. ence,
the ony queston for determnaton s whether the tme mtatons contaned In
the statutes for the fng of a cam for refund and for the fng of a sut after
the dsaowance thereof are statutes of mtatons and must, therefore, have
been specay peaded by appeant, or whether they consttute eements of the
condtons upon whch the Unted States has consented to be sued and are
substantve ursdctona requrements and need not to have been specay
peaded. If these two requrements are |ursdctona, then t s eementary
that n ts compant appeee must have aeged compance therewth, and In
the tra t must have proven such aegatons. On the other hand, f such
requrements are not |ursdctona, but n effect are statutes of mtatons, then
no such aegatons and proof were requred of t In that event, f appeant
had desred ther beneft, t was requred to pead them specay, a pea of
the genera ssue not beng suffcent
The Unted States can not be sued uness t gves ts consent. Such consent
may be condtoned or mted, as t desres, or t may be refused atogether.
If consent, however, Is gven, the one wshng to ava hmsef thereof must
compy strcty wth a of the requrements or condtons of the statute under
whch such consent s gven. The requrements or condtons are aways to be
found n the statute wheren the consent s gven. The provsons of sectons
8226 and 3228, Revsed Statutes, supra, are specfc, and Impose upon a ta -
payer certan dutes to be performed by hm before he has permsson to man-
tan a sut aganst the Unted States for the recovery of ta es erroneousy or
Iegay pad. The dutes thus mposed are that he fe a cam for refund wth
the Commssoner of Interna Revenue wthn four years ne t after the pay-
ment of such ta . (Secton 322S.) If the cam s dsaowed by the Com-
mssoner, another duty s then mposed upon hm, f he desres to proceed
further, and that s to fe a sut wthn two years after the dsaowance.
(Secton 3226.) The condtons under whch the Unted States has consented to
be sued for the recovery of ta es erroneousy or egay pad are, therefore,
(1) that a cam for refund must be presented to the Commssoner of Interna
.Sec. 3220. No sut or proceedng sha he mantaned In any court for the recovery
of any nterna revenue ta unt a cam for refund or credt has heen duy
fed wth the Commssoner of Interna Revenue, accordng to the provsons of aw n
that regard, and the reguatons of the Secretary of the Treasury estabshed n pursuance
thereof . No such sut or proceedng sha be egun after the
e praton of fve years from the date of the payment of such ta , uness such
sut or proceedng s begun wthn two years after the dsaowance of the part of such
cam to whch such sut or proceedng reates . (Revsed Statutes, secton
3220.)
Sue. 3228. (a) cams for the refundng or credtng of any Interna revenue (a
must be presented to the Commssoner wthn four years ne t after
the payment of such ta . (Revsed Statutes, secton 322S 20 U. S. C. .,
secton 33.)
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3226 and 3228, R. S.
370
Revenue wthn four years ne t after the payment of such ta (2) that snt
nmst be begun wthn two years after the dsaowance of the cam. The
tme wthn whch the cam must be fed and the tme wthn whch sut
must be begun after the dsaowance thereof are not statutes of mtatons
as generay understood, but are condtons under whch the Unted States has
consented to be sued. The burden was, therefore, upon appeee to have aeged
and proven that t had comped wth those condtons before Its sut coud be
mantaned. Ths burden t dd not and can not sustan under the facts.
These requrements are |ursdctona and must be estabshed by the person
nvokng the ursdcton of the court. It Is not ncumbent upon the Unted
States to specay pead such requrements as a defense, and the dstrct court
shoud have dsmssed the sut for want of |ursdcton.
The Supremo Court of the Unted States, n the case of nn v. Unted States
(123 U. S., 227 31 L. d., 128 88 S. Ct., 82), n dscussng ths queston, sad:
We are of opnon that the cam here n sut can not propery
be made the bass of a |udgment n that court. s the Unted States are not
abe to be sued, e cept wth ther consent, It was competent for Congress
to mt Ther abty, n that respect, to specfed causes of acton brought
wthn a prescrbed perod. The duty of the court, under such cr-
cumstances, whether mtaton was peaded or not, was to dsmss the petton
for the statute, n our opnon, makes t a condton or quafcaton of the rght
to a |udgment aganst the Unted States that the cam must be put
n sut by the vountary acton of the camant, or be presented to the proper
department for settement, wthn s years after sut coud be commenced
thereon aganst the Government. The genera rue that mtaton
does not operate by Its own force as a bar, but s a defense, and that the party
makng such a defense must pead the statute If he wshes the beneft of ts
provsons, has no appcaton to suts n the Court of Cams aganst the
Unted States. n ndvdua may wave such a defense by fang
to pead the statute but the Government has not e pressy or by mpcaton
conferred authorty upon any of ts offcers to wave the mtaton mposed by
statute upon suts aganst the Unted States n the Court of Cams.
True, ths was not a sut for refund of ta es erroneousy or egay coected,
and the Court was not consderng the provsons of the statutes In queston
n the Instant case, but the sut was the outgrowth of a cam aganst the
Unted States and the provsons of the statute under whch t was asserted
dd provde for the commencement of the acton wthn a defnte perod.
It s aso true that the Court was consderng the queston of the |ursdcton
of the Court of Cams, and not of a dstrct court. In suts for the recovery
of ta es erroneousy or Iegay coected, the dstrct court, however, s gven
concurrent |ursdcton wth the Court of Cams (28 U. S. O. ., secton 41),
and the rue thus announced by the Supreme Court s, therefore, equay
tppcabe to the dstrct court. If the mtatons defned n one statute con-
sttute a condton upon whch the Unted States has consented to be sued,
t seems ogca that t shoud appy to another smar statute, whether It
be a cam for the refund of ta es or for another type of cam.
The Supreme Court dd. however, have under consderaton secton 3220,
Revsed Statutes, supra, n the case of Unted Staes v. Mche (282 U. S.. 656
75 L. d., 598 51 S. Ct, 284 Ct. D. 310, C. . -, 297 ). In that case
the cam for refund was propery fed and was dsaowed upon a certan
date. Notce of the dsaowance was not forwarded to the ta payer for a
consderabe ength of tme thereafter. Sut was begun wthn two years after
the recept of notce, but more than two years after the dsaowance of the
cam. The Court, speakng through Mr. ustce uter, sad:
y ths statute the Unted States waved Its soveregn mmunty from
sut. The permsson to sue s condtoned on the fng of a cam and the
apse of s months or the dsaowance of the cam wthn that perod, and
s mted to not more than fve years after payment of the ta uness the
cam has been dsaowed and the acton s commenced wthn two years
from the dsaowance. y the terms of the statute the perod wthn
whch the Government consented to be sued commenced at the e praton
of such s months and contnued unnterruptedy through the 5-year perod
foowng the date of payment and unt two years after the dsaowance.
ut t s aso we estabshed that sut may not be mantaned
aganst the Unted States n any case not ceary wthn the terms of the
statute by whch t consents to be sued. The permsson to each of
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371
3226 and 3228, R. S.
the pantffs to brng sut e pred two years after hs cam was dsaowed.
Our tacs.
In that case the queston was presented by a moton to dsmss n the nature
of a genera demurrer, but the anguage of the Court s to the effect that one
of the condtons whch the Government has attached to ts consent to be
sued s that sut must be brought wthn the tme prescrbed n the statute
and s, therefore, |ursdctona. No speca peadng on the part of the Gov-
ernment s requred to rase that queston. (Sec M Creek d neh Nav.
R. Co. v. Unted States, 246 P., 1013 (D. C.) Rttcr v. Unted States, 19 .
(2d), 251 (D. C.) 28 . (2d), 265 (C. C. . 6) T. D. 4234, C. . II-2, 212
Unted States v. Connor, 128 U. S., 61 34 L. d., 8G0 11 S. Ct., 229 Unted States
v. reathotsc, 166 U. S., 601 41 L. d., 1130 17 S. Ct., 701 Unted States v.
Wardwe. 172 U. S., 48 43 L. d., 3G0 19 S. Ct., 86 Unted States e re,
Lousve Cement Co. v. Interstate Commerce Commsson, 246 U. S., 63S 62
L. d., 914 38 S. Ct., 408 Tucker v. e ander, Coector, 275 U. S., 228 72
L,. d., 253 48 S. Ct., 45 T. D. 3973, C. . I-1, 287 .)
Speakng of the poston n whch the ta payer fnds hmsef, under cond-
tons smar to those n the nstant case, the Court of ppeas for the S th
Crcut, In the case of Rtter v. Unted States, supra, sad:
There s no queston but that the ta nvoved n ths sut was on over-
payment nnocenty made. In order to have t refunded, however, t was nec-
essary that a cam be fed wth the Commssoner of Interna Revenue wthn
four years from the date of payment. It s unfortunate and to be regretted
that the pantff fnds hmsef In the poston n whch hs neggence, msunder-
standng, or the unauthorzed statement of the fed agent, Tmberake, paces
hm, but the soveregn Government may not be sued, e cept upon ts consent,
and then ony upon the condtons under whch t as consented to be sued,
even though they be purey forma. (Cases cted.) One of the condtons
n ths case s that the cam for refund must have been fed wth the Com-
mssoner of Interna Revenue wthn four years after the tme of payment
of such ta .
In the case of Tucker v. e ander, Coector, supra, the Court sad, n ds-
cussng the queston of the suffcency of the form of the cam fed :
We can perceve no vad reason why the requrements of the reguatons
may not be waved for that purpose. We are not unmndfu of those eases
hodng n suts aganst the Government no offcer of the Government may wave
statutes of mtatons. ( nn v. Unted States, 123 U. S., 227.) Such wavers,
If aowed, woud defeat the ony purpose of the statute and mpose a abty
upon the Unted States whch otherwse woud not e st consequences whch
do not attach to the waver here.
The dstrct court, n the case of Creek Mvch Nav. rf R. Co. v. Unted
States, supra, sad, In speakng of the tme wthn whch sut must be brought
aganst the Unted States under the provsons of a edera statute, that such
tme s strcty a condton of the remedy gven, and not a statute of mtaton
n bar of the acton. Ths case was affrmed bv the Supreme Court (251 U. S.,
539 64 L. d., 404 40 S. Ct., 118.)
The tme wthn whch sut must be begun, as provded n secton 19 of the
Word War eterans ct 1924, as amended, has been hed to be a condton
upon whch the Government has gven ts consent to be sued. In Lynch v.
Unted States (80 . (2d), 418 (C. C. . 5)) the court hed that The Unted
States has consented to be sued upon war rsk nsurance contracts ony upon
the facts stated n secton 19 of the Word War eterans ct 1924. as amended
by the ct of uy 3, 1930, prncpa requrement of the secton s
that no sut be permtted uness brought wthn the tme mted by the
statute. (See Roherts v. Unted States, 66 . (2d), 273 (C. C. . 10).)
In arrvng at the concuson that the two requrements of sectons 3226 and
3228, Revsed Statutes, supra, that s, the 4-year perod wthn whch appeee
shoud have presented ts cam, and the 2-year perod after dsaowance thereof
wthn whch t must have begun sut, are substantve |ursdctona requre-
ments and need not have been specay peaded by appeant, we are not un-
mndfu of the decson of the Supreme Court n the case of Rctzer v. Wood,
Coector (109 U. S., 185 27 L. d., 900 38 S. Ct., 164), upon whch both the
dstrct court and appeee reed. We are of the opnon, however, that we
must foow the rue adopted by the Supreme Court In ts more recent decsons.
The |udgment of the dstrct court s reversed wth drectons to dsmss the
sut for want of |ursdcton.
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egs. 93, rt. 6(b).
372
C RRI RS T ING CT, PPRO D UGUST 29, 1935
(PU LIC, NO. 400, S NTY- OURT CONGR SS).
S CTION 7. INCOM T ON MPLOY S R PR S NT TI .
Reguatons 93, rtce 6(b) : Defnton of com- -27-8156
pensaton n the case of a representatve . S. S. T. 9
( so Secton 11.)
Labty of empoyees representatves, empoyees of such repre-
sentatves, carrers, and empoyees of carrers for ta es mposed
by the Carrers Ta ng ct and the Soca Securty ct.
The foowng questons are presented wth respect to the ta
abty of an empoyees representatve and an empoyee of an em-
oyees representatve or empoyee organzaton under the Carrers
a ng ct, approved ugust 29, 1935 (Pubc, No. 400, Seventy-
fourth Congress), and the abty of carrers, empoyees of car-
rers, and empoyees representatves for the ta es mposed by Ttes
III and I of the Soca Securty ct (Pubc, No. 271, Seventy-
fourth Congress):
1. Whether the amount of an empoyees representatve s dues pad
to an empoyee organzaton n the form of servces performed by
the representatve n coectng dues from members of such organ-
zaton consttutes compensaton wthn the meanng of artce
6 (ft) of Reguatons 93.
2. Whether the compensaton of an empoyee of an empoyees
representatve or empoyee organzaton whose dutes are e cusvey
of a cerca nature s sub|ect to the ta mposed by secton 7 of
the ct
3. Whether carrers, empoyees of carrers, and empoyees repre-
sentatves, sub|ect to the ta es mposed by the Carrers Ta ng ct,
are aso sub|ect to the ta es mposed by Ttes III and I of the
Soca Securty ct.
rtce 6(Z ) of Reguatons 93, reatng to the Carrers Ta ng
ct, reads n part as foows:
When used n these reguatons, the term compensaton, n the case
of a representatve, means a remuneraton receved by hm for servces per-
formed as nn offcer or other offca of the empoyee organzaton. If the re-
muneraton of the representatve for servces performed durng any caendar
month e ceeds 300, the term does not ncude that part of such remuneraton
whch s n e cess of the frst 300 thereof.
The empoyees representatves ta mposed by secton 7 of the
Carrers Ta ng ct appes ony to an ndvdua whose dutes after
ugust 28, 1935, as a duy eected or desgnated offcer or other offca
of an empoyee organzaton ncude representng empoyees under
and n accordance wth the Raway Labor ct, that s, the handng
of grevances or dsputes growng out of the nterpretaton or app-
caton of agreements concernng rates of pay, rues, or workng con-
dtons, or dsputes concernng changes n rates of pay, rues, or
workng condtons. owever, no ndvdua may be a representa-
tve, wthn the meanng of the aw, uness (or unt), whe n the
empoy of a carrer or mmedatey thereafter, he engaged (or en-
gages) n representng carrer empoyees.
Wth respect to the frst queston, t s hed that the amount of dues
of an empoyees representatve pad to an empoyee organzaton n
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373
Regs. 93, rt. 802.
the form of servces performed by the representatve n coectng
dues from the members of such organzaton s compensaton
wthn the meanng of artce G(b) of Reguatons 93, and s ta abe
as such.
In regard to the second queston, t s hed that an empoyee of an
empoyees representatve or empoyee organzaton whose dutes are
e cusvey of a cerca nature s not an offcer or other offca
wthn the meanng of artce 5, Reguatons 93. Consequenty, the
compensaton receved by such an empoyee s not sub|ect to the ta
mposed by secton 7 of the ct.
Wth respect to the thrd queston, secton 11 of the Carrers Ta -
ng ct provdes:
The term empoyment, as defned In subsecton (b) of secton 8t of
Tte III of the Soca Securty ct, sha not ncude servce performed n
the empoy of a carrer as defned n subdvson (a) of secton 1 of ths ct.
ccordngy, the remuneraton pad by a carrer, as defned n
the ct, and receved by an ndvdua for servces performed n the
empov of such carrer, s not sub|ect to the ta es mposed by sectons
801 and 804 of Tte III of the Soca Securty ct. The provsons
of secton 11 are aso appcabe wth respect to servces performed
for an empoyee organzaton by an empoyees representatve, as
defned n the Carrers Ta ng ct. Smary, the remuneraton
pad and receved for such servces s not sub|ect to the ta es mposed
by Tte III of the Soca Securty ct.
The ta under Tte I of the Soca Securty ct s mposed upon
empoyers havng 8 or more ndvduas n ther empoy on each of
some 20 days durng a caendar year, each cay beng n a dfferent
caendar week. There s no provson of aw e emptng carrers
from the ta mposed by Tte I of the Soca Securty ct. Con-
sequenty, every carrer havng 8 or more ndvduas n ts empoy
(as above specfed) s sub|ect to the ta mposed by that tte.
R GrL To s 93, rtce 502: When represent - -35-82G9
tves ta attaches. S. S. T. 32
( so Secton 2 and rtce 202.)
Determnaton of ta abe compensaton under the Carrers Ta -
ng ct, approved ugust 29, 193 ) (49 Stat., 974), where an nd-
vdua s both an empoyee of a carrer and a representatve of an
empoyee organzaton. S. S. T. 9 page 372, ths uetn modfed.
dvce s requested as to the method to be used n determnng
the amount of compensaton whch s ta abe under the Carrers
Ta ng ct, approved ugust 29, 1935 (49 Stat., 974), where an
ndvdua receves compensaton both as an empoyee of a carrer
and as a representatve of an empoyee organzaton.
Secton 2 of the ct mposes an ncome ta at the rate of 3 2
per cent of the compensaton, not n e cess of 300 per month,
receved by an empoyee of a carrer durng the perod March 2,
1936, to ebruary 28, 1937, both dates ncusve, wth respect to
servces performed for a carrer after ugust 28, 1935. Secton
3(a) of the ct requres that ths ta be coected by the empoyer
of the ta payer by deductng the amount thereof from the compensa-
ton of the empoyee as and when pad.
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Regs. 93, rt. 502.
374
Secton 7 of the ct mposes an ncome ta at the rate of 7
per cent of the compensaton, not n e cess of 300 per month,
receved by a representatve of an empoyee organzaton durng the
perod March 2, 1936, to ebruary 28, 1937, both dates ncusve,
wth respect to servces performed for the empoyee organzaton
after ugust 28, 1935. or the purpose of ascertanng the ta
thereon, the compensaton of a representatve, as near as may be,
sha be the same as f the representatve were st n the empoy of
hs ast former carrer empoyer. In no event, however, s the ta
under secton 7 to be computed on any amount n e cess of the com-
pensaton receved by the representatve for servces performed for
the empoyee organzaton.
Where an ndvdua, who s both an empoyee of a carrer and a
representatve of an empoyee organzaton, does not have hs com-
pensaton for servces performed durng a gven caendar month as
a carrer empoyee reduced by reason of tme off durng such month
to perform compensated servces for the empoyee organzaton, the
ndvdua s sub|ect ony to the empoyees ta mposed under secton
2 of the ct at the rate of Sy2 per cent of the compensaton, not n
e cess of 300 per month, receved by hm as a carrer empoyee.
Tnder these crcumstances, any amount receved by the ndvdua
for servces performed for the empoyee organzaton durng such
month s not sub|ect to the representatves ta .
ampe : n ndvdua receves 250 for servces performed
durng a gven caendar month as a carrer empoyee and aso re-
ceves 50 for servces performed durng the same month for an
empoyee organzaton, the atter servces beng rendered under such
crcumstances as do not cause the ndvdua to take any tme off
from hs carrer empoyment. The ndvdua s sub|ect ony to the
empoyees ta at the rate of Zy2 per cent of 250, whch amount of
ta hs carrer empoyer s requred to deduct from hs compensaton
as and when pad. The 50 receved for servces performed for the
empoyee organzaton s not sub|ect to ta .
If an ndvdua, who s both an empoyee of a carrer and a
representatve of an empoyee organzaton, does have hs compensa-
ton for servces performed durng a gven caendar month as a car-
rer empoyee reduced by reason of tme off durng such month to
perform compensated servces for the empoyee organzaton, the
ndvdua s sub|ect to the empoyees ta mposed under secton 2
of the ct and s aso sub|ect to the representatves ta mposed
under secton 7 thereof. The empoyees ta s computed at the rate
of 3 2 per cent of the compensaton, not n e cess of 300 per month,
receved by hm for servces performed durng the month as a car-
rer empoyee, and the representatves ta s computed at the rate
of 7 per cent of that part of the compensaton receved by hm for
servces performed durng such month for the empoyee organzaton
whch s necessary to brng the actua amount of compensaton he
receves as a carrer empoyee up to the amount he woud have re-
ceved f he had not taken tme off to perform servces for the em-
poyee organzaton, or up to 300 per month, whchever s the ower.
ampe : If an ndvdua had not taken tme off from hs
carrer empoyment durng a gven caendar month to perform serv-
ces for an empoyee organzaton, he woud have receved 190 as
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375
Regs. 93, rt. 502.
compensaton. ecause he took such tme off, however, he receved
ony 150. or hs servces performed durng the same month for
the empoyee organzaton he receved 60 as compensaton. The
ndvdua s sub|ect to the empoyees ta at the rate of 3 per cent
of 150, whch amount of ta hs carrer empoyer s requred to
deduct from hs compensaton as and when pad. In addton to
ths, the ndvdua s aso sub|ect to the representatves ta at the
rate of 7 per cent of that porton of 60 whch s necessary to brng
150 up to 190, or 40. The remander, or 20, receved for servces
performed for the empoyee organzaton s not sub|ect to ta .
ampe C: If an ndvdua had not taken tme off from hs
carrer empoyment durng a gven caendar month to peform serv-
ces for the empoyee organzaton, he woud have receved 350 as
compensaton. ecause he took such tme off, however, he receved
ony 290. or hs servces performed durng the same month for
the empoyee organzaton he receved 80 as compensaton. The
ndvdua s sub|ect to the empoyees ta at the rate of 3 /2 per cent
of 290, whch amount of ta hs carrer empoyer s requred to
deduct from hs compensaton as and when pad. In addton to
ths, the ndvdua s aso sub|ect to the representatves ta at the
rate of 7 per cent of that porton of 80 whch s necessary to brng
29 up to 300, the ma mum ta abe compensaton, or 10. The
remander, or 70, receved for servces performed for the empoyee
organzaton s not sub|ect to ta .
In the event the reduced compensaton receved by an ndvdua
for servces performed durng a gven caendar month as a carrer
empoyee amounts to 300 or more, none of the compensaton receved
by such ndvdua for servces performed durng the same month
for the empoyee organzaton s sub|ect to the representatves ta .
n ndvdua who s both an empoyee of a carrer and a repre-
sentatve of an empoyee organzaton must attach to each return
fed by hm on orm 943 a statement settng forth n deta the
method used n determnng the amount of ta abe compensaton
reported thereon. Such ndvdua, n addton to keepng the records
requred by artce 608(c) of Reguatons 93, must aso keep per-
manent accurate records wth respect to the remuneraton receved
from the carrer. These records must show the name of the carrer
for whch the ndvdua performed servces as an empoyee, the
amount of each remuneraton payment (ncudng empoyees ta ),
the date of ts recept, the perod of servces covered thereby, and
the amount of empoyees ta deducted from each such payment.
The repy to the frst queston consdered n S. S. T. 9 page 372,
ths uetn s modfed to agree wth the foregong.
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Regs. 91, rt. 201.1 376
SOCI L S CURITY CT.
TITL III. T S WIT R SP CT TO MPLOYM NT.
Secton 801: Income ta on empoyees. -38 8308
Reguatons 91, rtce 201: Measure of Mm. 4498
empoyees ta .
( so Secton 801: Reguatons 91, rtce 301
Secton 901 Reguatons 90, rtce 200.)
Soca Securty ct Ttes III and I .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, September 1,1936.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Offcers and mpoyees of the ureau of Interna Revenue, and
Others Concerned:
Under the provsons of the edera Soca Securty ct, approved
ugust 14, 1935 (49 Stat., 620), the ureau of Interna Revenue s
made responsbe for coectng the ta es mposed by that ct. Two
ta es are mposed by Tte III and one ta by Tte I of the
ct. Labty for the ta es mposed under Tte III s deter-
mned under the provsons of that tte. Smary, abty for
the ta mposed under Tte I s determned under the provsons
of that tte. The provsons of ether tte are nappcabe to any
ta mposed by the other tte.
The ta es mposed under Tte III become effectve on anuary
1, 1937, and w be admnstered by the Msceaneous Ta Unt
of the ureau. The ta mposed under Tte I became effectve
as of anuary 1, 1936, and s beng admnstered by the Income Ta
Unt of the ureau. It s the purpose of ths mmeograph to ca
attenton to the prncpa provsons of Ttes III and I of the
ct whch affect persons sub|ect to the ta es mposed thereby.
tte v.
Secton 801, Tte III of the Soca Securty ct, mposes an
ncome ta upon every empoyee measured by the amount of
wages receved by hm on and after anuary 1, 1937, wth respect
to empoyment on and after such date. Secton 802(a) of the
ct requres that ths ta sha be coected by the empoyer of the
ta payer by deductng the amount thereof from the wages as and
when pad. The empoyer s made abe for the payment of ths
ta whether or not t s coected from the empoyee.
Secton 804, Tte III of the Soca Securty ct, mposes an
e cse ta upon every empoyer (rrespectve of the number of nd-
vduas empoyed) measured by the amount of w7ages pad by
hm on and after anuary 1, 1937, wth respect to empoyment
on and after such date.
ach ta under Tte III s mposed at the foowng rates:
(1) Wth respect to empoyment durng the caendar years 1937,
1938, and 1939, the rate sha be 1 per cent.
(2) Wth respect to empoyment durng the caendar years 1940,
1941, and 1942, the rate sha be y2 per cent.
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Regs. 91, rt. 201.
(8) Wth respect to empoyment durng the caendar years 1943,
1944, and 1945, the rate sha be 2 per cent.
(4) Wth respect to empoyment durng the caendar years 1946,
1947, and 1948, the rate sha be 2 per cent.
(5) Wth respect to empoyment after December 31, 1948, the rate
sha be 3 per cent.
The terms wages and empoyment, for the purposes of Tte
III, are denned m secton 811 of the ct as foows:
(a) The term wages means a remuneraton for empoyment, ncudng
the cash vaue of a remuneraton pad n any medum other than cash e cept
that such term sha not ncude that part of te remuneraton whch, after
remuneraton equa to 3,000 has been pad to an ndvdua by an empoyer
wth respect to empoyment durng any caendar year, s pad to such ndvdua
by such empoyer wth respect to empoyment durng such caendar year.
(b) The term empoyment means any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer, e cept
(1) grcutura abor
(2) Domestc servce n a prvate home
(3) Casua abor not n the course of the empoyer s trade or busness
(4) Servce performed by an ndvdua who has attaned the age of 65
(5) Servce performed as an offcer or member of the crew of a vesse
documented under the aws of the Unted States or of any foregn country
(6) Servce performed n the empoy of the Unted States Government or
of an nstrumentaty of the Unted States
(7) Servce performed n the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons
(8) Servce performed n the empoy of a corporaton, communty chest,
fund, or foundaton, organzed and operated e cusvey for regous, chartabe,
scentfc, terary, or educatona purposes, or for the preventon of cruety to
chdren or anmas, no part of the net earnngs of whch Inures to the beneft
of any prvate sharehoder or ndvdua.
Under the provsons of secton 11 of the Carrers Ta ng ct,
approved ugust 29, 1935 (49 Stat., 974), servce performed as an
empoyee of a carrer, or as a representatve of such empoyees, wthn
the meanng of that ct, are aso e cepted from empoyment as
that term s used n Tte III.
Detaed reguatons under Tte III whch w contan prov-
sons e panng ts appcaton (ncudng provsons wth respect to
records to be kept, the method of payng the ta es, etc.) for the gud-
ance of nterna revenue offcers and empoyees, ta payers, and other
nterested persons, are n the course of preparaton. It s e pected
that such reguatons w be promugated pror to anuary 1, 1937,
the date the ta es become effectve. When promugated, copes of
the reguatons w be made avaabe at the offces of coectors o
nterna revenue.
TITL I .
Secton 901, Tte I of the Soca Securty ct, mposes an
e cse ta upon empoyers wth respect to havng 8 or more nd-
vduas n ther empoy on each of some 20 days durng the ta abe
year, each such day beng n a dfferent caendar week, equa to the
foowng percentages of the tota wages payabe by them wth re-
spect to empoyment durng the caendar year:
(1) Wth respect to empoyment durng the caendar year 1936
the rate sha be 1 per cent
(2) Wth respect to empoyment durng the caendar year 1937
the rate sha be 2 per cent
121307 37 13
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Regs. 91, rt. 201.
378
(3) Wth respect to empoyment after December 31, 1937, the rate
sha be 3 per cent.
The ta appes ony wth respect to servces performed by em-
poyees wthn the Unted States and the foowng servces are
e cepted:
(1) grcutura abor
(2) Domestc servce n a prvate home
(3) Servce performed as an offcer or member of the crew of a
vesse on the navgabe waters of the Unted States
(4) Servce performed by an ndvdua n the empoy of hs son,
daughter, or spouse, and servce performed by a chd under the age of
21 n the empoy of hs father or mother
(5) Servce performed n the empoy of the Unted States Govern-
ment or of an nstrumentaty of the Unted States
(6) Servce performed n the empoy of a State, a potca subdv-
son thereof, or an nstrumentaty of one or more States or potca
subdvsons
(7) Servce performed n the empoy of a corporaton, communty
chest, fund, or foundaton, organzed and operated e cusvey for re-
gous, chartabe, scentfc, terary, or educatona purposes, or for
the preventon of cruety to chdren or annas, no part of the net
earnngs of whch nures to the beneft of any prvate sharehoder or
ndvdua.
The measure of the ta s the tota amount of remuneraton pad or
ayabe by empoyers to ther empoyees wth respect to empoyment
urng the caendar year.
Under secton 902 of the ct, the ta payer may credt aganst the
ta mposed by secton 901 of the. ct contrbutons, wth respect to
empoyment durng the ta abe year, pad by hm (before the date
of fng hs return for the ta abe year) nto an unempoyment fund
under the aws of a State whch has been certfed by the Soca Se-
curty oard to the Secretary of the Treasury. The tota credt may
not e ceed 90 per cent of the ta mposed by secton 901 of the ct.
The credt w not be aowed uness the ta payer fes the proof of
credt provded by artce 212 of Reguatons 90, promugated wth
respect to the ta ng provsons of Tte I of the ct.
very empoyer sub|ect to the provsons of Tte I of the ct s
requred to fe a return on orm 940 on or before the 31st day of
anuary foowng the cose of the caendar year wth the coector of
nterna revenue for the dstrct n whch s ocated the prncpa pace
of busness of the empoyer, and f the empoyer has no prncpa
pace of busness n the Unted States, the return must be fed wth
the coector of nterna revenue at atmore, Md. The Commssoner
may e tend the tme for fng the return for a perod not to e ceed
60 days from the date prescrbed by aw for fng the return. y
artce 304 of Reguatons 90, authorty to grant e tensons of tme
for fng returns has been deegated to the varous coectors of nter-
na revenue and such e tensons w he granted n the same manner
and under the same condtons as are appcabe n the case of ncome
ta returns. ppcaton for such e tensons shoud be made to the
coector of nterna revenue for the dstrct n whch the empoyer
fes hs returns.
The ta computed on the return s due and payabe on the 31st day
of anuary foowng the cose of the caendar year but the ta payer
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379
Regs. 91, rt. 204.
may eect to pay such ta n four equa nstaments. If the ta payer
eects to pay the ta n four nstaments, one-fourth of the ta s due
and payabe on anuary 31, pr 30, uy 31, and October 31, respec-
tvey, foowng the cose of the caendar year. n e tenson of tme
not to e ceed s monts from the date prescrbed for the payment of
the ta or any nstament thereof may be granted by the Comms-
soner under such rues and reguatons as he may prescrbe wth the
approva of the Secretary of the Treasury.
Inqures concernng Tte III of the ct shoud refer to the num-
ber of ths mmeograph and the symbos MT: SS, and nqures con-
cernng the ta ng provsons of Tte I of the ct and Reguatons
90 shoud refer to the number of ths mmeograph and the symbos
IT: RR.
Persons desrng nformaton n regard to provsons of the ct
other than those reatng to ta es are referred to the foowng
agences:
Od-age assstance, ad to dependent chdren, and ad to the bnd
unempoyment compensaton od-age benefts Ttes I, II, III, I ,
II, and and sectons 903, 904, and 910 of Tte I of the Soca
Securty ct. ureau of Informatona Servce, Soca Securty
oard, Washngton, D. C.
Materna and chd heath servces, servces for crpped chdren,
and chd wefare servces Tte , Parts 1, 2, 3, and 5, of the Soca
Securty ct. Chdren s ureau, Department of Labor, Washmrton,
D. C.
Pubc heath work Tte I of the Soca Securty ct. ureau
of Pubc eath Servce, Department of the Treasury, Washngton,
ocatona rehabtaton Tte , Part 4, of the Soca Securty
ct. Offce of ducaton, Department of the Interor, Washngton.
D.C. .
Guy T. everng,
Commssoner.
Secton 802: Deducton of ta from wages. -52-8459
Reguatons 91, rtce 204: Coecton of, S. S. T. CO
and abty for, empoyees ta .
Payment by the empoyer of the empoyees ta Imposed by sec-
ton 801 of the Soca Securty ct.
dvce s requested reatve to the payment by the empoyer of the
empoyees ta mposed by secton 801 of the Soca Securty ct on
wages of hs empoyees wthout deductng such ta from the em-
poyees wages.
Secton 801 of the Soca Securty ct reads n part as foows:
Sec. 801. In addton to other ta es, there sha be eved, coected, and pad
upon the ncome of every ndvdua a ta equa to the foowng percentages
of the wages (as defned n secton 811) receved by hm after December 81,
1936, wth respect to empoyment (as defned n secton 811) after such date.
Secton 802 of the ct provdes n part as foows:
Sec. 802. (a) The ta mposed by secton 801 sha be coected by the em-
poyer of the ta payer, by deductng the amount of the ta from the wages as
and when pad. very empoyer requred so to deduct the ta s hereby made
abe for the payment of such ta .
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Regs. 91, rt. 304.
rtce 204 of Reguatons 91 provdes n part as foows:
ht. 204. Coecton of, and abty for, empoyees ta . The empoyer sha
coect from each of hs empoyees the empoyees ta wth respect to wages for
empoyment performed for the empoyer by the empoyee. The empoyer sha
make the coecton by deductng or causng to be deducted the amount of the
empoyees ta from such wages as and when pad, ether actuay or construc-
tvey. The empoyer s abe for the empoyees ta on a wages
pad by hm to each of hs empoyees whether or not t s coected from the
empoyee. If, for e ampe, the empoyer deducts ess than the correct amount
of ta , or f he fas to deduct any part of the ta , he s nevertheess abe for
the correct amount of the ta .
Under the provsons of the aw and reguatons, the empoyees
ta s requred to be coected by the empoyer from the empoyee,
but f the empoyer fas to make such coecton he s nevertheess
abe for the ta .
Secton 804: cse ta on empoyers.
Reguatons 91, rtce 301: Measure of empoyers ta .
Prncpa provsons of Tte III of the Soca Securty ct
affectng persons sub|ect to ta mposed thereunder. (See Mm.
4498, page 376.)
Secton 804: cse ta on empoyers. -38-8309
Reguatons 91, rtce 304: Labty for S. S. T. 37
empoyers ta .
( so Secton 901 Reguatons 90, rtce 200.)
Under the provsons of secton 22 of the ct of March 1, 1879
(20 Stat., 327), nsovent banks whch have ceased to do busness
by reason of nsovency or bankruptcy and whose assets are nsuff-
cent to pay ther depostors n fu may be reeved from payng
the ta es mposed on empoyers by the Soca Securty ct. The
ct of March 1, 1879, s uot appcabe, however, to such banks
wth respect to ta es deducted from ther empoyees wages In
accordance wth secton 802 of the Soca Securty ct.
dvce s requested whether certan nsovent banks whch are
beng qudated by the superntendent of banks of the State of R are
e empt from the ta es mposed by Ttes III and I of the
Soca Securty ct n vew of the provsons of secton 22 of the
ct of March 1, 1879 (20 Stat., 327), whch reads as foows:
Sbc. 22. That whenever and after any bank has ceased to do busness by
reson of nsovency or bankruptcy, no ta sha be assessed or coected, or
pad nto the Treasury of the Unted States, on account of such bank, whch
sha dmnsh the assets thereof necessary for the fu payment of a Its
depostors and such ta sha be abated from such natona banks as are
found by the Comptroer of the Currency to be nsovent and the Commssoner
of Interna Revenue, when the facts sha so appear to hm, s authorzed to
remt so much of sad ta aganst nsoveut State and savngs banks as sha
be found to affect the cams of ther depostors.
Sectons 804 and 901 of the Soca Securty ct evy e cse ta es
on empoyers, whch ta es are payabe nto the Treasury of the
Unted States. Whe nsovent banks are not specfcay e empted
from the provsons of the Soca Securty ct, that ct contans
no provson whch woud make secton 22 of the ct of March 1,
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381
Regs. 91, rt. 406.
1879, nappcabe wth respect to such ta es. It s hed, therefore,
that nsovent banks sub|ect to the ta ng provsons of the Soca
Securty ct whch have ceased to do busness by reason of nso-
vency or bankruptcy and whose assets are nsuffcent to pay ther
depostors n fu may be reeved from payng the ta es mposed
by the Soca Securty ct by vrtue of the provsons of the ct of
March 1, 1879, upon the submsson of satsfactory evdence. The
provsons of the ct of March 1, 1879, are not appcabe, however,
to such banks wth respect to ta es whch they have deducted from
ther empoyees wages n accordance wth secton 802 of the Soca
Securty ct. (Cf. I. T. 2644, C. . I-2, 120.) The amount of
such ta es consttutes a speca fund hed n trust for the Unted
States and s not a part of the genera assets of the banks. (Secton
607 of the Revenue ct of 1934.)
Secton 807: Coecton and payment of ta es. -45-8383
Reguatons 91, rtce 406: Use of numbers T. D. 4704
assgned to empoyers and empoyees under
Tte III.
Identfcaton of ta payers under Tte III of the Soca
Securty ct. ssgnment of dentfcaton numbers to empoyers
and account numbers to empoyees.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 801 of the Soca Securty ct provdes, n
part:
In addton to other ta es, there sha be eved, coected, and pad upon
the ncome of every ndvdua a ta equa to the foowng percentages of the
wages (as defned n secton 811) receved by hm after December 31, 1936, wth
respect to empoyment (as defned n secton 811) after such date:
(1) Wth respect to empoyment durng the caendar years 1937, 1938, and
1939, the rate sha be 1 per centum.

Pah. . Secton 802(a) of the Soca Securty ct provdes:
The ta Imposed by secton 801 sha be coected by the empoyer of the
ta payer, by deductng the amount of the ta from the wages as and when pad.
very empoyer requred so to deduct the ta s hereby made abe for the
payment of such ta , and s hereby ndemnfed aganst the cams and demands
of any person for the amount of any such payment made by such empoyer.
Par. C. Secton 804 of the Soca Securty ct provdes, n part:
In addton to other ta es, every empoyer sha pay an e cse ta , wth
respect to havng ndvduas n hs empoy, equa to the foowng percentages
of the wages (as defned n secton 811) pad by hm after December 31, 1936,
wth respect to empoyment (as defned n secton 811) after such date:
(1) Wth respect to empoyment durng the caendar years 1937, 1938, and
1939, the rate sha be 1 per centum.

Par. D. Secton 811 of the Soca Securty ct provdes:
When used n ths tte
(a) The term wages means a remuneraton for empoyment, ncudng the
cash vaue of a remuneraton pad n any medum other than cash e cept
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Regs. 91, rt. 406.
382
that such term sha not Incude that part of the remuneraton whch, after
remuneraton equa to 3,000 has been pad to an ndvdua by an empoyer
wth respect to empoyment durng any caendar year, Is pad to such nd-
vdua by such empoyer wth respect to empoyment durng such caendar year.
(b) The term empoyment means any servce, of whatever nature, per-
formed wthn the Unted Stutes by an empoyee for hs empoyer, e cept
(1) grcutura abor
(2) Domestc servce n a prvate home
(3) Casua abor not n the course of the empoyer s trade or busness
(4) Servce performed by an ndvdua who has attaned the age of
s ty-fve
(5) Servce performed as an offcer or member of the crew of a vesse
documented under the aws of the Unted States or of any foregn country
(6) Servce performed In te empoy of the Unted States Government
or of an nstrumentaty of the Unted States
(7) Servce performed n the empoy of a State, a potca subdvson
thereof, or an Instrumentaty of one or more States or potca subdvsons
(8) Servce performed In the empoy of a corporaton, communty chest,
fund, or foundaton, organzed and operated e cusvey for regous, char-
tabe, scentfc, terary, or educatona purposes, or for the preventon of
cruety to chdren or anmas, no part of the net earnngs of whch nures
to the beneft of any prvate sharehoder or ndvdua.
Secton 11 of the Carrers Ta ng ct, approved ugust 29, 1935
(49 Stat., 974), provdes:
The term empoyment, as defned n subsecton (b) of secton S of
Tte III of the Soca Securty ct, sha not ncude servce performed n
the empoy of a carrer as defned In subdvson (a) of secton 1 of ths ct.
Par. . Secton 1101(a) of the Soca Securty ct provdes, n
part:
When used n ths ct
(1) The term State ncudes aska, awa, and the Dstrct
of Coumba.
(2) The term Unted States when used n a geographca sense means the
States, aska, awa, and the Dstrct of Coumba.
(3) The term person means an Indvdua, a trust or estate, a partnershp,
or a corporaton.
(4) The term corporaton ncudes assocatons, ont-stock companes, an
nsurance companes.

(6) The term empoyee Incudes an offcer of a corporaton.
Par. . Secton 807 of the Soca Securty ct provdes, n part:
(a) The ta es mposed by ths tte sha be coected by the ureau of
Interna Revenue under the drecton of the Secretary of the Treasury and
sha be pad nto the Treasury of the Unted States as nterna-revenue
coectons.
(b) Such ta es sha be coected and pad In such manner, at such troes,
and under such condtons, not Inconsstent wth ths tte (ether by makng
and fng returns, or by stamps, coupons, tckets, books, or other reasonabe
devces or methods necessary or hepfu In securng a compete and proper
coecton and payment of the ta or n securng proper dentfcaton of the
ta payer), as may be prescrbed by the Commssoner of Interna Revenue,
wth the approva of the Secretary of the Treasury.
(c) provsons of aw, ncudng penates, appcabe wth respect to
any ta mposed by secton C00 or secton 800 of the Revenue ct of 1926, and
the provsons of secton 607 of the Revenue ct of 1934, sha, Insofar as
appcabe and not Inconsstent wth the provsons of ths tte, be appcabe
wth respect to the ta es Imposed by ths tte.

Par. G. Secton 1102(a) of the Revenue ct of 1926 provdes:
very person abe to any ta mposed by ths ct, or for the coecton
thereof, sha keep such records, render under oath such statements, make such
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383
Reg9. 91, rt. 406.
returns, and compy wth such rues and reguatons, as the Commssoner, wth
the approva of the Secretary, may from tme to tme prescrbe.
Par. . Secton 1114(a) of the Revenue ct of 1926 provdes:
ny person requred under ths ct to pay any tu , or requred by aw or
reguatons made under authorty thereof to make a return, keep any records,
or suppy any nformaton, for the purposes of the computaton, assessment, or
coecton of any ta Imposed by ths ct, who wfuy fas to pay such ta ,
make such return, keep such records, or suppy such nformaton, at the tme
or tmes requred by aw or reguatons, sha, In addton to other penates
provded by aw, be guty of a msdemeanor and, upon convcton thereof, be
fned not more than 10,0C0, or mprsoned for not more than one year, or
both, together wth the costs of prosecuton.
Par. I. Secton 808 of the Soca Securty ct provdes:
The Commssoner of Interna Revenue, wth the approva of the Secretary
of the Treasury, sha make and pubsh rues and reguatons for the enforce-
ment of ths tte.
Pursuant to the above-quoted provsons of aw and other prov-
sons of aw, the foowng reguatons are hereby prescrbed:
btce 1. Defntons. s used n these reguatons
(a) The terms defned n paragraphs D and , above, sha have the respectve
meanngs theren assgned to them.
(b) ct means the Soca Securty ct (Pubc, No. 271, Seventy-fourth Con-
gress 49 Stat, G20).
(c) mpoyer means a person empoyng one or more empoyees.
( f) mpo/cc means an empoyee performng servces n empoyment (See
paragraphs D and , above.)
(e) Soca Securty oard means the oard estabshed pursuant to Tte II
of the ct.
kt. 2. Ta es under Tte III of the ct. Secton 801 of the ct mposes an
ncome ta on every empoyee, referred to heren as the empoyees ta . Secton
802(a) of the ct requres the empoyer to coect the empoyees ta by deduct-
ng the amount thereof from the wages of the empoyee when pad. Secton 804
of the ct mposes an e cse ta on every empoyer, referred to heren as the
empoyers ta . The empoyees ta and the empoyers ta become effectve
anuary 1, 1937, and are admnstered by the ureau of Interna Revenue under
the drecton of the Secretary of the Treasury. These ta es w be coected
by means of monthy ta returns to be fed by empoyers.
Informaton returns w aso be requred of every empoyer, reportng the
ta abe wages whch are pad to each of hs empoyees. mpoyees are not
requred to make returns under Tte III of the ct. Reguatons 01, reatng
to the empoyees ta and the empoyers ta , set out the requrements wth
res|ect to ta returns, nformaton returns, records, and payment of ta es under
Tte III, and contan provsons e panng n deta the appcaton of such
tte. owever, the reguatons contaned n ths Treasury decson set forth
addtona dutes of empoyers and empoyees under Tte III wth respect to
obtanng the assgnment of numbers to be used by them for dentfcaton pur-
poses n connecton wth the empoyees ta and the empoyers ta .
rt. 3. ssgnment of dentfcaton numbers and account numbers n genera.
n dentfyng number w be assgned to each empoyer and to each empoyee
under Tte III of the Soca Securty ct The procedure for obtanng an
assgnment of such number s set forth n these reguatons. The number to
be assgned to an empoyer s hereby desgnated as an dentfcaton number.
The number to be assgned to an empoyee s hereby desgnated as an account
number. The dentfcaton number assgned to the empoyer and aso the
account number assgned to each of hs empoyees sha be shown by the
empoyer n hs records, returns, and cams to the e tent requred by artces
400 and 412 of Reguatons 91. The Postmaster Genera and the Soca Securty
oard (and such of ther offcers and empoyees as they may desgnate) w
receve appcatons for Identfcaton numbers and appcatons for account
numbers and w assgn such numbers.
bt. 4. ssgnment of dentfcaton numbers to empoyers. (a) Persons who
are empoyers on November 16, 1936. very person who s an empoyer on
November 16, 1936, sha fe an empoyer s appcaton for dentfcaton number
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Regs. 91, rt. 406.
384
on orm SS-4. The appcaton sha be fed, In accordance wth nstructons
on te form, wth the postmaster from whose post offce the busness ma of the
empoyer s estabshment s devered. If the empoyer has more than one
estabshment on November 1(5, 1936, the empoyer sha fe a separate appca-
ton for each estabshment. The empoyer sha fe each appcaton under
ths paragraph on or before November 21, 1936. The term estabshment as
used n ths artce means each separate pace of empoyment. or e ampe:
If Company has two reta stores and a manufacturng pant n New York
Cty, and a genera offce n Chcago, t hns four estabshments, that s, each
of the two reta stores, the manufacturng pant, and the genera offce s a
separate estabshment.
(6) Persons who become empoyers ater November 16, 1936. very person
not an empoyer on November 16, 1936, who becomes an empoyer after such
date, sha fe an empoyer s appcaton for dentfcaton number on orm
SS-4. ach appcaton under ths paragraph sha be fed wth the Soca
Securty oard at Washngton, D. C, or at any fed offce of the oard ocated
n the area n whch the headquarters of the empoyer s stuated. The em-
poyer sha nsert on ne 3 of the appcaton the date on whch he became an
empoyer, and sha fe the appcaton on or before the thrteth day after uch
date.
(c) Genera provsons reatng to appcatons for dentfcaton ntmbers.
Copes of the prescrbed form, orm SS 4, may be obtaned pror to anuary
1, 1937, at any post offce. etween anuary 1, 1937, and March 31, 1937, both
dates ncusve, copes of such form may be obtaned at the Soca Securty
oard, Washngton, D. C, or at any fed offce of the Soca Securty oard,
or at any post offce. fter March 31, 1937, copes of the form w be avaabe
at the Soca Securty oard, Washngton, D. C, or at fed offces of the Soca
Securty oard. To the e tent practcabe n connecton wth appcatons to
be fed on or before November 21, 1936, postmasters w dever copes of the
form to empoyers. owever, an empoyer w not be e cused from makng
an appcaton because no appcaton form has been furnshed to hm. m-
poyers shoud request copes of the form n ampe tme to have ther appca-
tons prepared and fed on or before the due date. ach empoyer sha care-
fuy prepare hs appcaton so as to set forth fuy and ceary the data
theren caed for. ach appcaton sha be sgned by the empoyer. If, how-
ever, the empoyer s not an ndvdua, the appcaton sha be sgned by a
member or responsbe offca of the empoyer havng knowedge of the em-
poyer s affars. Identfcaton numbers w be assgned to empoyers n doe
course upon the bass of nformaton reported on appcatons requred under
ths artce.
rt. 5. ssgnment of account numbers to empoyees. (a) Indvduas who
are empoyees on November 24, 19S6. very ndvdua who s an empoyee on
November 24, 1936, sha fe an appcaton for an account number on orm
SS-5. The appcaton sha be fed, n accordance wth Instructons on the
form, wth any postmaster. The empoyee sha fe the appcaton on or before
December 5, 1936.
(6) Indvduas who become, empoyees after November , 1936. very nd-
vdua not an empoyee on November 24, 1936, who becomes an empoyee after
such date, sha fe an appcaton for an account number on orm SS-5. The
empoyee sha nsert n the bank space at the end of ne 13 of the appcaton
the date on whch he became an empoyee, and sha fe the appcaton on or
before the thrteth day after such date. ach appcaton under ths para-
graph sha be fed as foows
(1) If fed before anuary 1, 1937. the appcaton sha be fed wth any
postmaster.
(2) If fed durng the perod anuary 1, 1937, to March 31, 1937, both dates
ncusve, the appcaton sha be fed wth any postmaster, or at any fed
offce of the Soca Securty oard ocated n the area n whch the empoyee
works.
(3) If fed after March 31, 1937, the appcaton sha be fed wth the Soca
Securty oard at Washngton, D. C, or at any fed offce of the Soca
Securty oard ocated n I e area n whch the empoyee works.
(e) Crcumstances under whch empoyers are requred to f out and fe
appcatons for empoyees. If an ndvdua who s an empoyee on the ast
day of the perod covered by any nformaton return (see artces 402 to 405,
ncusve, of Reguatons 91) has faed to fe an appcaton for an account
number on orm SS-5, the empoyer sha fe an appcaton for the empoyee
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385
Regs. 91, rt. 406.
on or before the tenth day after such ast day. If an empoyee has faed to
fe an appcaton on orm SS-5 pror to the date he attans age 65, or the
date he des before attanng age 65, or the date he eaves the servce of the
empoyer, the empoyer sha fe an appcaton for the ndvdua on or before
the tenth day after such date. owever, the empoyer sha not fe an app-
caton for any empoyee who s not n hs empoy after December 31, 1936. n
empoyee s not reeved from hs duty to fe an appcaton on orm SS-5, by
reason of hs empoyer havng fed an appcaton for hm. very appcaton
fed by an empoyer under ths paragraph sha be fed on orm SS-5. ach
such appcaton sha be fed out on the nformaton and beef of the em-
poyer, settng out as fuy and ceary as practcabe the data theren caed
for. The empoyer sha nsert on the form the reason why he fed the app-
caton, such as: mpoyee st n my empoy but faed to fe appcaton on
or before , the ast day covered by nformaton return
(date)
or mpoyee ded on , before attanng age 65, wthout
(date)
fng appcaton or mpoyee attaned age 60 on wthout
(date)
fng appcaton or mpoyee eft my servce on wth-
(date)
out fng appcaton. The empoyer sha sgn each such appcaton on the
ne provded on the form for the empoyee s sgnature, nsertng after the sgna-
ture the word mpoyer. ach appcaton under ths paragraph sha be
fed as foows
(1) If fed before pr 1, 1937, the appcaton sha be fed wth any post-
master, or at any fed offce of the Soca Securty oard ocated n the area
n whch the empoyee works.
(2) If fed after March 31, 1937, the appcaton sha be fed wth the
Soca Securty oard at Washngton, D. C, or at any fed offce of the Soca
Securty oard ocated n the area n whch the empoyee works.
((f) Genera provsons reatng to appcatons for empoyee account num-
bers. Copes of the prescrbed form. orm SS-5, may be obtaned pror to
anuary 1, 1937, at any post offce. etween anuary 1, 1937, and March 31,
1937, both dates ncusve, copes of such form may be obtaned at the Soca
Securty oard, Washngton, D. C, or at any fed offce of the Soca Securty
oard, or at any post offce. fter March 31, 1937, copes of the form w be
avaabe at the Soca Securty oard, Washngton, D. O., or at fed offces
of the Soca Securty oard. To the e tent practcabe n connecton wth
appcatons to be fed on or before December 5, 1936, the forms w be de-
vered to empoyers for dstrbuton to empoyees. owever, no empoyee or
empoyer w be e cused from makng an appcaton because an appcaton
form has not been furnshed to hm. mpoyees and empoyers shoud request
copes of the form n ampe tme to have the appcatons prepared and fed
on or before the due date. ach appcaton sha be carefuy prepared so
as to set forth fuy and ceary the data theren caed for. ccount numbers
w be assgned to empoyees n cue course upon the bass of nformaton
reported on appcatons requred under ths artce.
bt. 6. mpoyees requred to advse empoyers of account numbers. very
empoyee sha advse every empoyer for whom he performs servces what hs
account number s. Care must be e ercsed that the empoyer s advsed of
the correct number. Such advce sha be furnshed to the empoyer as soon
as the empoyee Is notfed of the assgnment of an account number and there-
after as soon as the empoyee enters the empoy of any empoyer. ny em-
poyee may have hs account number changed at any tme by appyng to the
Soca Securty oard and showng good reasons for a change. Wth that
e cepton, ony one account number w be assgned to an empoyee. The
number so assgned shn be used by hm even though he enters the empoy
of other empoyers.
Chas. T. usse,
ctng Commssoner of Interna Revenue.
pproved November 5, 193G.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 0, 1936, 12.51 p. m.)
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egs. 91, rt. 11.
Secton 807: Coecton and payment of ta es. -50-8438
Reguatons 91, rtce 406: Use of numbers T. D. 4720
assgned to empoyers and empoyees under
Tte III.
tenson of tme for the fng of appcatons for account num-
bers by ndvduas who were empoyees on November 24, 1936.
Identfcaton of ta payers under Tte III of the Soca Securty
ct. rtce 5(a) of Treasury Decson 4704, approved November
5, 1936 page 381, ths uetn , amended.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 5(a) of Treasury Decson 4704, approved November 5,
1936, reatng to the assgnment of account numbers to empoyees, s
amended to read as foows:
(a) Indvduas uho are empoyees on November 2 , 1936. very ndvdua
who Is an empoyee on November 24, 1936, sha fe an appcaton for an
account number on orm SS-5. The appcaton sha be fed, n accordance
wth nstructons on the form, wth any postmaster. The empoyee sha fe
the appcaton on or before December 15, 1936.
Ths Treasury decson s prescrbed pursuant to the provsons of
secton 1102(a) of the Revenue ct of 1926 and secton 808 of the
Soca Securty ct.
Guy T. everng,
Commssoner of Interna Revenue.
pproved December 11, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster December 11, 1936, 1.04 p. m.)
Secton 811: Defntons.
Reguatons 91, rtce 6: grcutura abor.
Servces rendered n rasng wd anmas for fur. (See S. S. T. 55,
page 412.)
Secton 811: Defntons.
Reguatons 91, rtce 10: Offcers and members of crews.
Crew members workng for a concesson operator as a sde ne.
(See S. S. T. 58, page 414.)
Secton 811: Defntons. -30-8199
Reguatons 91, rtce 11: Government S. S. T. 16
empoyees.
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
Natona banks are nstrumentates of the Unted States wthn
the meanng of sectons 811(b)6 and 907(c)5 of the Soca Securty
ct (49 Stat., 620), and nether the banks nor ther empoyees are
sub|ect to the tu es mposed under Ttes III and I of that ct,
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387
Regs. 91, rt. 11.
dvce s requested whether natona banks are nstrumentates
of the Unted States wthn the meanng of sectons 811(b) 6 and
907(c) 5 of the Soca Securty ct (49 Stat., 620), whch read as
foows:
The term empoyment means any servce, of whatever nature,
performed wthn the Unted States by au empoyee for Ms empoyer, e cept

Servce performed n the empoy of the Unted States Government
sr of an nstrumentaty of the Unted States
The above anguage of the statute appes to a empoyees of the
Unted States Government and the nstrumentates thereof. There
s nothng n the ct to ndcate an ntenton to mt ts appcaton
to empoyees engaged n actvtes of an essentay governmenta
nature.
In Davs v. tnra Savngs ank (161 U. S., 275, 283), t s stated,
foowng McCuoch v. Maryand (4 Wheat., 310), that:
Natona banks are nstrumentates of the edera Government, created
for a pubc purpose, and as such necessary sub|ect to the paramount authorty
of the Unted States.
(See aso rst Natona ank of Guthre Center v. nderson et a.,
209 U. S., 341, 347, and Iowa-Des Mones Natona ank v. ennett
et a., 284 U. S., 239 244.)
The concuson s based prmary on the fact that such banks are
requred for the fsca operatons of the Government. s ndcated
by Chef ustce Marsha n McCuoch v. Maryand, supra, the bank
s empoyed wth other means to carry nto e ecuton
the powers of the Government. It does not appear that Congress
ntended, n the Soca Securty ct, to use the term nstrumen-
taty of the Unted States n any dfferent sense than used by the
Unted States Supreme Court.
It s hed, therefore, that natona banks are nstrumentates of
the Unted States wthn the meanng of the above-quoted provsons
of the Soca Securty ct, and that nether the banks nor ther
empoyees are sub|ect to the ta es mposed under Ttes III and
I of that ct.
Secton 811: Defntons. -40-8337
Reguatons 91, rtce 11: Government S. S. T. 43
empoyees.
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
The M State ank, organzed under the genera bankng aws
of the State of Mchgan, s not an nstrumentaty of the State
wthn the meanng of sectons 811(b)7 and 907(c)6 of the Soca
Securty ct, and the bank and ts empoyees are sub|ect to the
ta es Imposed by that ct.
dvce s requested whether the M State ank, a corporaton or-
ganzed under the genera bankng aws of the State of Mchgan, s
an nstrumentaty of the State wthn the meanng of sectons
811(b)7 and 907(c) 6 of the Soca Securty ct.
Tte III of the Soca Securty ct provdes n secton 801 for
the evy of a ta upon the ncome of every ndvdua equa to a
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Regs. 91, rt. 11.
388
percentage of the wages receved by hm after December 31, 1936,
and n secton 804 requres every empoyer to pay an e cse ta wth
respect to havng ndvduas n hs empoy measured by the amount
of wages pad by hm wth respect to empoyment after that date.
Secton 811 (b)7 of the ct provdes:
(b) The term empoyment means any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer, e cept

(7) Servce performed n the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons
Secton 901, Tte I of the ct, mposes an e cse ta on and
after anuary 1, 1936, on empoyers of eght or more ndvduas
under the condtons specfed n the ct, and secton 907(c) 6 s
dentca wth the above-quoted provsons of secton 811(b)7.
Whether a State bank s an nstrumentaty of the State wthn
the meanng of sectons 811 (b)7 and 907(c)6 of the Soca Securty
ct depends upon the statutes of the partcuar State pursuant to
whch the bank s organzed. The test to be apped n determnng
whether an organzaton s an nstrumentaty of a State or potca
subdvson thereof s whether t was created for the purpose, n
part at east, of actng for such State as a means of carryng nto
e ecuton the powers of the State. n e amnaton of the genera
bankng aws of the State of Mchgan does not dscose that banks
organzed thereunder are created for the purpose of actng as State
agences or affordng the State a means of e ercsng ts functons.
Such banks, therefore, are not consdered to be nstrumentates of
the State. ccordngy, t s hed that the M State ank and ts
empoyees are sub|ect to the ta es mposed by Ttes III and I
of the Soca Securty ct.
Inasmuch as the M State ank s not a member of the edera
Reserve System, the queston as to whether t s an nstrumentaty of
the Unted States s not presented. (See S. S. T. 44, beow, reatve
to such banks.)
Secton 811: Defntons. -40-8338
Reguatons 91, rtce 11: Government S. S. T. 44
empoyees.
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
State banks whch are members of the edera Reserve System
are nstrumentates of the Unted States wthn the meanng
of sectons 811(b)6 and 0O7(c)5 of the Soca Securty ct, and
nether the banks nor ther empoyees are sub|ect to the ta es
Imposed under Ttes III and I of that ct.
dvce s requested whether State banks whch are members of the
edera Reserve System are e empt from the ta es mposed by Ttes
III and I of the Soca Securty ct, whch e empt Servce
performed n the cmpo of the Unted States Government or of an
nstrumentaty of the Unted States (sectons 811(b) 6 and 907(c) 5,
respectvey ).
In S. S. T. 1G page 386, ths uetn t was hed that a natona
bank s an nstrumentaty of the Unted States wthn the meanng
of that ct. That rung made reference to Davs v. mra Savngs
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389
Regs. 91, rt. II.
ank (1896) (161 U. S., 275), whch e pressy hed that Natona
banks are nstrumentates of the edera Government, basng such
concuson on the fact that such banks are requred for the fsca
operatons of the Government and are empoyed wth other means
to carry nto e ecuton the powers of the Government. (See aso
rst Natona ank of Guthre Center v. nderson et a., 269 U. S.,
341, and Iowa-Des Mones Natona ank v. ennett et a., 284 U. S.,
239.)
The ct of December 23, 1913 (38 Stat., 259), as amended by ct
of May 7, 1928 (45 Stat., 492), provdes:
banks or trust companes Incorporated by speca aw or organzed under
the genera aws of any State, whch are members of the edera Reserve
System, when desgnated for that purpose by the Secretary of the Treasury,
sha be depostares of pubc money, under such reguatons as may be pre-
scrbe by the Secretary, and they may aso be empoyed as fnanca agents
of the Government and they sha perform a such reasonabe dutes, as
depastares of pubc money and fnanca agents of the Government, as may be
requred of them. The Secretary of the Treasury sha requre of the banks
and trust companes thus desgnated satsfactory securty, by the depost of
Unted States bonds or otherwse, for the safe keepng and prompt payment
of the pubc money deposted wth them and for the fathfu performance of
ther dutes as fnancu agents of the Government.
It thus appears that such banks are nstrumentates of the Unted
States wthn the above-stated rue. It s hed, therefore, that State
banks whch are members of the edera Reserve System, and ther
empoyees, are e empt from the ta es mposed pursuant to Ttes
III and I of the Soca Securty ct.
Secton 811: Defntons. 4t-8372
Reguatons 91, rtce 11: Government S. S. T. 52
empoyees.
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
State banks organzed under the genera bankng aws of the
State of Iowa are not nstrumentates of the State wthn the
meanng of sectons 811(b)7 and 907(c)6 of the Soca Securty ct.
If, however, such banks are members of the edera Reserve Sys-
tem, they are Instrumentates of the Unted States wthn the
meanng of sectons 811(b) 6 and 907(c)5 of that ct.
dvce s requested whether State banks whch are organzed
under the genera bankng aws of the State of Iowa are nstrumen-
tates of the State wthn the meanng of sectons 811(b)7 and
907(c) 6 of the Soca Securty ct.
Tte III of the Soca Securty ct provdes n secton 801 for
the evy of a ta upon the ncome of every ndvdua equa to a
percentage of the wages receved by hm after December 31, 1936,
and n secton 804 requres every empoyer to pay an e cse ta wth
respect to havng ndvduas n hs empoy measured by the amount
of wages pad by hm wth respect to empoyment after that date.
Secton 811(b) of the ct provdes:
(b) The term empoyment means any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer, e cept

(7) Servce performed n the empoy of a State, a potca subdvson there-
of, or an nstrumentaty of one or more States or potca subdvsons.
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Regs. 91, rt. 11.
390
Secton 901, Tte I of the ct, mposes an e cse ta on and after
anuary 1, 1936, on empoyers of eght or more ndvduas under
the condtons specfed n the ct, and secton 907(c)6 s dentca
wth the above-quoted provsons of secton 811 (b)7.
Whether a State bank s an nstrumentaty of the State wthn the
meanng of sectons 811(b)7 and 907(c)6 of the Soca Securty ct
depends upon the statutes of the partcuar State pursuant to whch
the bank s organzed. The test to be apped n determnng whether
an organzaton s an nstrumentaty of a State or potca subdv-
son thereof s whether t was created for the purpose, n part at east,
of actng for such State as a means of carryng nto e ecuton the
powers of the State. n e amnaton of the bankng aws of the
State of Iowa does not dscose that banks organzed thereunder
are created for the purpose of actng as State agences or affordng
the State a means of e ercsng ts functons. Such banks are not,
therefore, consdered to be nstrumentates of the State. If, how-
ever, a State bank s a member of the edera Reserve System, t s
an nstrumentaty of the Unted States wthn the meanng of sec-
tons 811(b)6 and 907(c)5 of the Soca Securty ct, whch e empt
from the provsons of the ct Servce performed n the empoy of
the Unted States Government or of an nstrumentaty of the Unted
States. (S. S. T. 44, page 388, ths uetn.)
Secton 811: Defntons. -45-8380
Reguatons 91, rtce 11: Government S. S. T. 53
empoyees.
( so Secton 907 Reguatons 90, rtce 200 (5)-(6).)
State banks organzed under the genera bankng aws of the
State of Te as are not nstrumentates of the State wthn the
meanng of sectons 811(b)7 and 907(c)6 of the Soca Securty ct.
If, however, such banks are members of the edera Reserve
System, they are nstrumentates of the Unted States wthn the
meanng of sectons 811(b)6 and 907(e)5 of that ct.
dvce s requested whether State banks whch are organzed under
the genera bankng aws of the State of Te as are nstrumentates
of the State wthn the meanng of sectons 811(b)7 and 907(c)6
of the Soca Securty ct.
Tte III of the Soca Securty ct provdes n secton 801 for
the evy of a ta upon the ncome of every ndvdua equa to a
percentage of the wages receved by hm after December 31, 1936,
and n secton 804 requres every empoyer to pay an e cse ta wth
respect to havng ndvduas n hs empoy measured by the amount
of wages pad by hm wth respect to empoyment after that date.
Secton 811(b) of the ct provdes:
(b) The term empoyment means any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer, e cept

(7) Servce performed n the empoy of a State, a potca subdvson
(hereof, or an nstrumentaty of one or more States or potca subdvsons.
Secton 901, Tte I of the ct, mposes an e cse ta on and after
anuary 1,1936, on empoyers of eght or more ndvduas under the
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391
Regs. 91, rt. 11.
condtons specfed n the ct. and secton 907(c) 6 s dentca wth
the above-quoted provsons of secton 811 (b)7.
Whether a State bank s an nstrumentaty of the State wthn the
meanng of sectons 811(b)7 and 907(c)6 of the Soca Securty ct
depends upon the statutes of the partcuar State pursuant to whch
the bank s organzed. The test to be apped n determnng whether
an organzaton s an nstrumentaty of a State or potca sub-
dvson thereof s whether t was created for the purpose, n part
at east, of actng for such State as a means of carryng nto e ecu-
ton the powers of the State. n e amnaton of the bankng aws
of the State of Te as does not dscose that banks organzed there-
under are created for the purpose of actng as State agences or
affordng the State a means of e ercsng ts functons. Such banks
are not, therefore, consdered to be nstrumentates of the State. If,
however, a State bank s a member of the edera Reserve System,
t s an nstrumentaty of the Unted States wthn the meanng of
sectons 811(b)6 and 907(c) 5 of the Soca Securty ct, whch
e empt from the provsons of the ct Servce performed n the
empoy of the Unted States Government or of an nstrumentaty
of the Unted States. (S. S. T. 44, page 388, ths uetn.)
Secton 811: Defntons. -52-8458
Reguatons 91, rtce 11: Government S. S. T. 59
empoyees.
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
State banks organzed under the genera bankng aws of the
State of West rgna are not nstrumentates of the State
wthn the meanng of sectons S(b)7 and 907(c)6 of the Soca
Securty ct. If, however, such banks are members of the ed-
era Reserve System, they are nstrumentates of the Unted
States wthn the meanng of sectons 811(b)6 and 907(c)5 of the
ct.
dvce s requested whether State banks whch are organzed under
the genera bankng aws of the State of West rgna are nstru-
mentates of the State wthn the meanng of sectons 811(b) 7 and
907(c) 6 of the Soca Securty ct.
Secton 801, Tte III of the Soca Securty ct, mposes a ta
upon the ncome of every ndvdua equa to a percentage of the
wages receved by hm after December 31, 1936, and secton 804 m-
poses an e cse ta upon every empoyer (as defned n the ct)
measured by the amount of wages pad by hm wth respect to
empoyment after that date.
Secton 811(b) provdes:
(b) The term empoyment means any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer, e cept

(7) Servce performed n the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons.
Secton 901, Tte I of the ct, mposes an e cse ta on and
after anuary 1, 1936, upon empoyers of eght or more ndvduas
under the condtons prescrbed n the ct, and secton 907(c) 6 s
dentca wth the above-quoted provsons of secton 811(b) 7 e -
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Regs. 90, rt. 200.
392
emptng servces performed n the empoy of a State or nstrumen-
taty thereof.
Whether a State bank s an nstrumentaty of the State wthn
the meanng of sectons 811(b) 7 and 907(c) 6 of the Soca Securty
ct depends upon the statutes of the partcuar State pursuant to
whch the bank s organzed. n e amnaton of the bankng aws
of the State of West rgna does not dscose that banks organzed
thereunder are created for the purpose of actng as State agences
or nstrumentates. ccordngy, such banks are not to be con-
sdered as nstrumentates of the State for the purpose of the ta es
mposed by the Soca Securty ct. If, however, such banks are
members of the edera Reserve System, they are nstrumentates
of the Unted States under sectons 811(b)6 and 907(c)5 and such
banks and ther empoyees are not sub|ect to the ta es mposed under
Ttes III and I of the ct. (See S. S. T. 44, page 388.)
Secton 811: Defntons.
Reguatons 91, rtce 16: Items ncuded as wages.
ampes of what consttutes the payment of wages. (See S. S.
T. 54, page 421.)
TITL I . T ON MPLOY RS O IG T OR MOR .
Secton 901: Imposton of ta . -28-8175
Reguatons 90, rtce 200: Nature of ta . S. S. T. 11
Secton 901 of the Soca Securty ct (Pubc, No. 271, Seventy-
fourth Congress) mposes a ta upon a empoyers, as defned n
secton 907 of the ct, rrespectve of whether the State n whch
the empoyer s ocated has enacted an unempoyment compensa-
ton aw approved by the Soca Securty oard.
dvce s requested whether corporatons n the State of R w
be sub|ect to the ta mposed by Tte I of the Soca Securty ct
(Pubc, No. 271, Seventy-fourth Congress) f the Genera ssemby
of the State of R fas to enact n 1938 soca securty egsaton
whch meets the requrements of the edera ct.
Secton 901 of the Soca Securty ct mposes a ta upon a
empoyers, as defned n secton 907 of the ct, of eght or more n-
dvduas, rrespectve of whether the State n whch the empoyer
s ocated has enacted an unempoyment compensaton aw approved
by the Soca Securty oard. ccordngy, f the State of R does
not enact such egsaton n 1936, empoyers n that State w be
requred to pay to the coector of nterna revenue for that dstrct
the fu amount of the ta provded by Tte I of the ct for that
year. The credt for contrbutons made to an empoyment fund
under a State aw, provded by secton 902 of the ct, s dependent
upon the enactment of an approved State aw.
Secton 901: Imposton of ta .
Reguatons 90, rtce 200: Nature of ta .
Insovent banks whose assets are nsuffcent to pay ther depostors
n fu. (See S. S. T. 37, page 380.)
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393
Regs. 90, rt. 207.
Secton 901: Imposton of ta .
Reguatons 90, rtce 200: Nature of ta .
Prncpa provsons of Tte I of the Soca Securty ct affect-
ng persons sub|ect to ta mposed thereunder. (See Mn. 4498,
page 376.)
Secton 901: Imposton of ta . -33-8246
Reguatons 90, rtce 201: Measure of ta . S. S. T. 27
Where a cash bonus s pad to empoyees bnse on remunera-
ton for servces rendered durng the 10-year perod mmedatey
precedng the grantng of the bonus, ony that porton thereof
attrbutabe to servces rendered subsequent to anuary 1, 19:16,
consttutes wages for the purpose of the ta mposed by secton
901, Tte I of the Soca Securty ct.
dvce s requested as to what porton, f any, of a bonus pad by
an empoyer consttutes wages under Tte I of the Soca Secu-
rty ct where the empoyer, desrng to reward certan empoyees
who had competed 25 years servce, granted them a cash bonus based
upon the tota remuneraton receved by them for servces rendered
durng the 10-year perod mmedatey precedng the grantng of the
bonus.
Secton 901, Tte I of the ct, effectve anuary 1, 1936, m-
poses an e cse ta upon empoyers of eght or more, as defned n
secton 907 of the ct, wth respect to havng ndvduas n ther
empoy equa to certan percentages of the tota wages payabe by
them wth respect to empoyment durng the caendar year. rtce
201 of Reguatons 90 provdes that the measure of the ta s the
tota amount of wages payabe by an empoyer wth respect to em-
poyment durng the caendar year. The ta s based upon the re-
muneraton pad or payabe to empoyees durng the caendar year
1936 and subsequent caendar years wth respect to the servces per-
formed by empoyees for ther empoyers durng such caendar years.
ccordngy, ony that porton of the bonus attrbutabe to servces
rendered by empoyees subsequent to anuary 1, 1936, consttutes
wages for the purpose of the ta mposed by secton 901, Tte I
of the Soca Securty ct.
Secton 901: Imposton of ta . -51-8447
Reguatons 90, rtce 207: Wages. S. S. T. 56
Where servces are performed by caddes for members of the
M Cub orf they are compensated ether drecty or ndrecty for
such servces by the cub members, the cub w not bo requred to
pay the ta mposed by secton 901, Tte I of the Soca Securty
ct, wth respect to such payments to the caddes even though the
caddes may be ts empoyees. If, however, the caddes perform
any servces for the cub for whch the cub tsef compensates
them, the cub s sub|ect to the a mposed by secton 0 of the
ct wth respect to such empoyment.
dvce s requested by the M Cub as to ts abty for payment
of the ta mposed by secton 901, Tte I of the Soca Securty
ct, on the compensaton of caddes who serve members of the cub.
In submttng ts nqury, the cub states that the caddes receve no
compensaton uness they perform servces for some ndvdua mem-
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Regs. 90, rt. 211.
394
ber that the compensaton for caddy servce s pad to the caddy
ether drecty by the payng member n cash or by the cub for the
account of the member and that there s no obgaton on the part
of the cub tsef to compensate the caddes.
Secton 901 of the Soca Securty ct reads n-part as foows:
every empoyer sha pay an e cse ta ,
equa to the foowng percentages of the tota wages payabe by
hm . Itacs supped.
rtce 207 of Reguatons 90, ssued pursuant to Tte I of the
Soca Securty ct, reads n part as foows:
Thus, saares fees are wages wthn the mean-
ng of the ct f payabe by an empoyer to hs empoyee as compensaton for
servces not e cepted by the ct.
In ths case the M Cub does not pay the compensaton of the cad-
des, such compensaton beng receved ether drecty from the mem-
ber payers or ndrecty by the cub actng as the agent of the payers
n makng the payments and chargng the amounts thereof to the
payer s accounts. though the caddes may be empoyees of tho
cub, t w not be requred to pay the ta mposed by secton 901 of
the Soca Securty ct reatve to payments made to caddes for
servces performed by them for ts members where such payments
are made drecty by the member payers, or where the cub n makng
the payments s actng as the agent of the members and s n no way
obgated to make such payments. In such cases the compensaton
does not consttute wages payabe by the cub.
If the caddes perform servces for the cub for whch the cub
tsef compensates them, the cub w be sub|ect to the ta mposed
by secton 901 of the ct wth respect to such empoyment.
Secton 902: Credt aganst ta . -43-8363
Reguatons 90, rtce 211: Credt of contrbu- S. S. T. 50
tons aganst ta .
Contrbutons to more than one unempoyment fund n one State
may be credted aganst the ta mposed by secton 901, Tte I
of the Soca Securty ct, to the e tent of the credt prescrbed
by secton 902 of the ct.
dvce s requested whether contrbutons to more than one un-
empoyment fund n one State may be credted aganst the ta m-
posed by secton 901, Tte I of the Soca Securty ct.
Secton 902 of the Soca Securty ct reads as foows:
Seo. 902. The ta payer may credt aganst the ta mposed by secton 901 the
amount of contrbutons, wth respect to empoyment durng the ta abe year,
pad by hm (before the date of fng hs return for the ta abe year) nto an
unempoyment fund under a State aw. The tota credt aowed to a ta payer
under ths secton for a contrbutons pad nto unempoyment funds wth
respect to empoyment durng such ta abe year sha not e ceed 90 per centum
of the ta aganst whch t s credted, and credt sha be aowed ony for
contrbutons made under the aws of States certfed for the ta abe year as
provded n secton 903.
Secton 903(a) of the Soca Securty ct provdes n part as
foows:
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395
Regs. 90, rt. 311.
Seo. 903. (a) The Soca Securty oard sha approve any State aw sub-
mtted to t, wthn 30 days of such submsson, whch t fnds provdes that

(3) money receved n the unempoyment fund sha mmedatey upon
such recept be pad over to the Secretary of the Treasury to the credt of the
Unempoyment Trust und estabshed by secton 904.
Whe secton 903(a)3 of the Soca Securty ct apparenty con-
tempates ony one State fund, secton 902 of the ct provdes that
the ta payer may credt aganst the ta the amount of contrbu-
tons pad by hm nto an unempoyment fund
under a State aw, but mts the tota credt aowed for a con-
trbutons pad nto unempoyment funds tacs supped to 90 per
cent of the ta aganst whch t s credted. Thus, secton 902 appears
to contempate that there may be more than one fund n a State to
whch a ta payer may pay contrbutons pursuant to the aws of that
State.
It s accordngy hed that sectons 902 and 903 of the ct, when
consdered together n the ght of ther purposes, authorze the credt
of contrbutons, whch are pad pursuant to the requrements of a
State aw to more than one unempoyment fund n one State, aganst
the edera ta to the e tent that such contrbutons do not n any
case e ceed 90 per cent of the edera ta aganst whch such credt
s apped, provded the State aw authorzng separate funds s ap-
proved by the Soca Securty oard as conformng to the provsons
of secton 903(a) of the Soca Securty ct as to each separate fund,
and s thereafter duy certfed under the provsons of secton 903(b)
to the Secretary of the Treasury.
Secton 902: Credt aganst ta . -37-8300
Reguatons 90, rtce 211: Credt of contrbu- S. S. T. 34
tons aganst ta .
Where an empoyer operatng n severa States pays contrbu-
tons nto a State unempoyment fund ony on the wages payabe n
one State, whch contrbutons are ess than 90 per cent of the ed-
era ta mposed by secton 901 of the Soca Securty ct on the
tota wages payabe, the entre amount of the contrbutons may be
taken as a credt aganst the edera ta .
dvce s requested as to the amount of credt whch may be taken
under secton 902 of the Soca Securty ct under the foowng
facts:
The M Companv s engaged n operatons n the States of R, S,
and T and has a tota annua pay ro of 100,000. The M Com-
pany pays to the State of R, whch State has quafed under secton
903 of the Soca Securty ct, a ta of 800 on a pay ro wthn
the State of 80,000. The States of S and T have no State aws pro-
vdng for unempoyment funds and no contrbutons have been
made to them bv the companv. The tota edera ta due on the
tota pay ro of 100,000 woud be 1,000.
Secton 902, Tte I of the Soca Securty ct, reads as foows:
Sec. 902. The ta payer may credt aganst the ta mposed by secton 901 the
amount of contrbutons, wth respect to empoyment durng the ta abe year,
pad by hm (before the date of fng hs return for the ta abe year) Into an
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Regs. 90, rt. 304.
39(5
unempoyment fund under a State aw. The tota credt aowed to a ta payer
under ths secton for a contrbutons pad nto unempoyment funds wth
respect to empoyment durng such ta abe year sha not e ceed 90 per
centum of the ta aganst whch t s credted, and a credt sha be aowed ony
for contrbutons made under the aws of States certfed for the ta abe year as
provded n secton 903.
Snce the amount of the contrbuton to the State of R s ess than
90 per cent of the edera ta mposed under secton 901 of the ct,
the tota amount of such contrbuton s aowabe under secton 902
of the ct, provded such contrbuton s made wth respect to serv-
ces not e cepted by secton 907(c). (See e ampe (3), artce 211
of Reguatons 90.)
Secton 905: dmnstraton, refunds, and pen- -51-844S
ates. . S.S.T. 57
Reguatons 90, rtce 304: tensons of tme
for fng returns.
tensons of tme for fng returns under Tte I of the Soca
Securty ct need not be secured by empoyers pendng the recept
of orm 940- from the State authortes, whch form Is to be
forwarded drecty to the Commssoner of Interna Revenue by the
States to whch the empoyer has made contrbutons.
dvce s requested whether e tensons of tme for fng returns
under Tte I of the Soca Securty ct w be granted to em-
poyers who have not receved copes of orm 940- from a States
to whch they have pad contrbutons nto an unempoyment fund,
or whether the empoyers w be aowed to take credt on ther
returns for the amount of such payments even though they do not
have recepts from the States.
Credt aganst the ta for contrbutons pad nto State unempoy-
ment funds w be aowed ony upon recept of a certfcate of the
proper offcer of each State (the aw of whch requred contrbutons
to be made) on the form provded for that purpose. urthermore,
credt w be aowed ony for contrbutons made under the aws of
States certfed by the Soca Securty oard to the Secretary of the
Treasury. (Sectons 902 and 903, Tte I of the Soca Securty
ct.) orm 940- , whch has been provded for ths purpose, s to
be e ecuted by the proper State offcer after recept of the ast con-
trbuton from the ta payer (empoyer) for the year nvoved and
forwarded to the Commssoner of Interna Revenue, Income Ta
Unt, so as to be receved not ater than March 15 ne t foowng the
cose of the ta abe year. Such certfcate w be checked wth the
return of the empoyer n due course of tme.
Inasmuch as orm 940- s to be forwarded by the State to
the Commssoner of Interna Revenue, t w not be necessary for
the empoyer to secure e tensons of tme for fng returns pendng
the recept of orm 940- from the State authortes. In other
words, the requred returns shoud be fed by empoyers on or before
the due date prescrbed by the ct, whether or not orm 940- has
been forwarded by the proper State offcer.
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397
Regs. 90, rt. 807.
Sucton 905: dmnstraton, refunds, and -29-8188
penates. S. S. T. 13
Reguatons 90, rtce 307: Records.
Where a parent corporaton and ts subsdares nterchange
abor, the ta mposed by secton 901, Tte I of the Soca
Securty ct (49 Stat., 620), may be accrued by each of such
corporatons on the bass of the wages actuay payabe by t to
the empoyee.
The M Company and some of ts affated companes, for practca
purposes, nterchange abor that s, a man may be empoyed by the
parent company one week and transferred to the empoy of a sub-
sdary the foowng week. It s stated that the 1 per cent e cse ta
mposed upon empoyers by Tte I of the Soca Securty ct (49
Stat., 620), effectve anuary 1, 1936, s beng accrued by each cor-
poraton on the bass of the wages actuay payabe to empoyees by
such corporaton. dvce s requested whether ths method meets
wth the approva of the ureau, or whether the parent corporaton
must be treated as the empoyer.
It s hed that the method outned meets the requrements of Tte
I of the Soca Securty ct and eguatons 90 promugated
thereunder.
Secton 905: dmnstraton, refunds, and -33-8247
penates. S. S. T. 28
Reguatons 90: rtce 307: Records.
Where a saesman s pad a certan amount to cover hs saary
and e penses ncurred n hs empoyer s busness, the bass for com-
putng the ta mposed by secton 901, Tte I of the Soca
Securty ct, s the tota amount pad or payabe mnus e penses
actuay ncurred by the saesman and accounted for by hm. The
saesman must mantan such records as w enabe hm to account
to hs empoyer for the amount of e penses actuay Incurred, and
the empoyer must keep such records as w show the portons
of the amount pad the saesman whch represent e penses and
remuneraton for servces.
dvce s requested n behaf of whoesaers who empoy traveng
saesmen, the saesmen beng pad certan amounts to cover ther
saary and e penses, whether such amounts may be apportoned be-
tween e penses and saary, where the e penses are reasonabe, wthout
the necessty of keepng temzed e pense accounts.
rtce 307 of Reguatons 90, promugated under the ta ng pro-
vsons of Tte I of the Soca Securty ct, provdes n part as
foows:
(a) very person sub|ect to ta under the ct sha, durng the
caendar year 1936 or any caendar year thereafter, for each such caendar year,
keep such permanent records as are necessary to estabsh:
(1) The tota amount of remuneraton payabe to hs empoyees n cash
or n a medum other than cash, showng separatey, (a) tota remuneraton
payabe wth respect to servces e cepted by secton 907(c), (6) tota re-
muneraton payabe wth respect to servces performed outsde of the Unted
States, (c) tota remuneraton payabe wth respect to a other servces.
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Regs. 90, rt. 203.
398
rtce 209(c) of the reguatons, reatng to traveng and other
e penses, provdes as foows:
Traveng and other e pense . mounts pad to traveng saes-
men or other empoyees as aowance or rembursement for traveng or other
e penses ncurred In the busness of the empoyer consttute wages ony to
the e tent of the e cess of such amounts over such e penses actuay ncurred
and accounted for by the empoyee.
Where a saesman s pad a certan amount to cover hs saary and
e penses ncurred n the busness of hs empoyer, the bass for com-
putng the ta s the tota amount pad or payabe mnus the e penses
actuay ncurred by the saesman n hs empoyer s busness and ac-
counted for as such by the saesman. It s, therefore, necessary for
the saesman to mantan such records as w enabe hm to account
to hs empoyer for the amount of the e penses actuay ncurred by
hm, and for the empoyer to keep such records as w show the por-
tons of the tota amount pad to the saesman whch represent, re-
spectvey, e penses and remuneraton for servces.
Secton 907: Defntons. -29-S189
Reguatons 90, rtce 203: Persons abe for S. S. T. 14
the ta .
The M Company, whch operates under Pubc Works dmns-
traton and State hghway contracts fnanced n whoe or n part
from reef funds, s not an nstrumentaty of the edera Govern-
ment or of a State. It s sub|ect to the e cse ta mposed by sec-
ton 901 of the Soca Securty ct (49 Stat., 620), wth respect to
the wages pad to empoyees certfed, to t by the Natona Reem-
poyment Servce.
dvce s requested whether the M Company s sub|ect to the
ta mposed by Tte I of the Soca Securty ct (49 Stat., 620)
wth respect to wages pad to empoyees certfed to t by the Natona
Reempoyment Servce.
The M Company s engaged n pubc work under Pubc Works
dmnstraton and State hghway constructon contracts whch are
beng fnanced n whoe or n part from reef funds. It s stated
that the company s sub|ect to the supervson of the edera Govern-
ment n connecton wth the work contracted to be done that n the
performance of the contracts t s requred to use oca abor certfed
to t by the Natona Reempovment Servce and that the men em-
poyed through the Natona Reempoyment Servce, athough ben r
pad the prevang wage, are not reguar empoyees of the company
and are used ony for oca work.
The fact that the M Company s engaged on pro|ects under Pubc
Works dmnstraton and State hghway contracts fnanced n
M hoe or n part from reef funds does not consttute t an nstru-
mentaty of the Unted States or of a State wthn the meanng of
secton 907(c) (5) and (6), respectvey, of the Soca Securty ct,
whch e empts from the ta wages pad for servce performed n the
empoy of the Unted States or an nstrumentaty thereof, or n the
empoy of a State or potca subdvson or an nstrumentaty
thereof. Snce the M Company s not an nstrumentaty of the
Unted States or of a State or potca subdvson thereof and the
reatonshp of empoyer and empoyee e sts between the M Com-
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399
Regs. 90, rt. 203.
pany and those persons certfed to t by the Natona Reempoyment
Servce, t s sub|ect to the ta mposed by secton 901 of the Soca
Securty ct wth respect to wages pad to those ndvduas.
Secton 907: Defntons. -31-S216
Reguatons 90, rtce 203: Persons abe for S. S. T. 19
the ta .
Where three offcers of a parent corporaton serve as offcers of
a subsdary corporaton wthout compensaton and the subsdary
reguary empoys fve saared empoyees, t s sub|ect to the ta
mposed upon empoyers by secton 901 of the Soca Securty ct.
dvce s requested whether the M Company, a subsdary of the
N Company, s sub|ect to the empoyers e cse ta mposed by sec-
ton 901, Tte I of the Soca Securty ct (49 Stat., 620). The
M Company reguary empoys fve saared ndvduas and three
offcers of the N Company (the parent) serve as offcers of the M
Company wthout compensaton.
In determnng whether a person empoys a suffcent number of
ndvduas to be an empoyer under secton 907(a) of the Soca
Securty ct, a ndvduas are counted as empoyees who perform
servces for such person n the Unted States of a cass not e cepted
by secton 907(c), provded the reatonshp of empoyee and em-
poyer e sts between the ndvdua who performs the servces and
the person for whom such servces are performed. Secton 1101 (a) 6
of the ct defnes the term empoyee as ncudng an offcer of a
corporaton. Snce the reatonshp of empoyer and empoyee e sts
between a corporaton and ts offcers, each offcer s ncuded
for the purpose of determnng whether the corporaton empoys a
suffcent number of ndvduas to be an empoyer sub|ect to the
ta . The amount, measure, method, or desgnaton of the remunera-
ton payabe to any such offcer, or the fact that the offcer does not
receve any remuneraton, s mmatera.
It s hed, therefore, that as an empoyer of eght or more, ncud-
ng ts offcers, the M Company s sub|ect to the ta mposed upon
empoyers by secton 901 of the Soca Securty ct.
Secton 907: Defntons. -34-825G
Reguatons 90, rtce 203: Persons abe for S. S. T. 30
the ta .
Where a person Is an empoyer as defned n secton 907(a),
Tte I of the Soca Securty ct, he s requred to fe returns
and pay the ta mposed by secton 901 of that ct regardess of
an agreement whereby the ta s assumed by another. The ureau
does not ob|ect to such an agreement but t does not reeve the
empoyer from abty for the ta .
dvce s requested whether the edera Government w recog-
nze an agreement whereby one person contracts to pay the ta m-
posed by secton 901, Tte I of the Soca Securty ct, on behaf
of another who s an empoyer as defned n the ct.
Secton 901 of the Soca Securty ct mposes a ta upon every
empoyer as defned n the ct wth e ceptons on account of certan
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Regs. 90, rt. 203.
400
servces not here matera. Where a person quafes as an empoyer,
he s abe for the ta mposed by secton 901 regardess of any
agreement under whch another assumes such abty. The ureau
has no ob|ecton, however, to an agreement whereby the ta s as-
sumed by another, but such an agreement does not affect the abty
of the empoyer to fe returns and pay the ta to the edera Gov-
ernment.
Secton 907: Defntons. -34-8257
Reguatons 90, rtce 203: Persons abe for S. S. T. 31
the ta .
Operators of concessons In natona parks who are empoyers as
defned n secton 907(a) of the Soca Securty ct are sub|ect to
the ta Imposed by secton 901 of that ct.
dvce s requested whether empoyers, as defned n secton
907(a), Tte I of the Soca Securty ct, operatng concessons
n natona parks are e empt from payment of the e cse ta m-
posed by secton 901 of that ct. The nqury s based on the theory
that such empoyment s e cepted under secton 907(c)5 of the ct
as servce performed n the empoy of an nstrumentaty of the
Unted States.
The ta mposed by secton 901, Tte I of the Soca Securty
ct, effectve anuary 1, 1936, s upon every empoyer (as defned n
the ct) wth respect to havng ndvduas n hs empoy durng the
caendar | ear, and the measure of the ta s the tota wages pay-
abe by the empoyer wth respect to empoyment. Secton 907(c)
provdes that the term empoyment as used n Tte I means
any servce of whatever nature performed wthn the Unted States
by an empoyee for hs empoyer, e cept

(5) Servce performed n the empoy of the Unted States Government or of
an nstrumentaty of the Unted States.
Servce performed n the empoy of operators of concessons n
natona parks does not consttute servce performed n the empoy
of an nstrumentaty of the Unted States wthn the meanng of
secton 907(c) 5 of the ct. It s accordngy hed that the operators
of such concessons who are empoyers as defned n secton 907(a)
of the ct are sub|ect to the ta mposed by secton 901.
Secton 907: Defntons. -3 -8310
Reguatons 90, rtce 203: Persons abe for S. S. T. 38
the ta .
The M ssocaton, an empoyer as defned n secton 907(a) of
the Soca Securty ct, whch ns entered nto n contract wth the
edera Government to operate a edera recamaton pro|ect, s
not an nstrumentaty of the edera Government. ccordngy,
t s sub|ect to the e cse ta mposed by secton 901 of the Soca
Securty ct wth respect to wages pad to ts empoyees.
dvce s requested whether the M ssocaton s an nstrumen-
taty of the Unted States so that servces performed for t come
wthn the e cepted servces contaned n secton 907(c) 5, Tte I
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401
Regs. 90, rt. 204.
of the Soca Securty ct, whch e cudes from the term empoy-
ment servce performed n the empoy of the Unted States Govern-
ment or an nstrumentaty thereof.
The M ssocaton, a water users assocaton, s a nonproft cor-
poraton organzed under the genera corporaton aws of the State
of R and certan speca acts appcabe ony to such assocatons oper-
atng edera recamaton pro|ects. It entered nto a contract wth
the edera Government to operate one of such pro|ects and has
charge of the devery of water on that pro|ect.
The facts submtted show that the M ssocaton, whch operates
the edera recamaton pro|ect n queston, s not materay df-
ferent from other prvate corporatons organzed under the aws of
the varous States and operatng edera property under contract
wth the Government, and that t s not an agent or nstrumentaty
thereof. It s, therefore, hed that servces performed for the M
ssocaton do not come wthn the e cepton provded by secton
907(c)5, Tte I of the Soca Securty ct. ccordngy, the
assocaton s abe for the ta mposed by secton 901 of the ct.
reta department store whch hres and pays a demonstrator
of merchandse of a partcuar manufacturer, the demonstrator
beng sub|ect to the contro of the store as to the servces to be
performed and the manner of performance, and to dscharge by
the store wthout recourse to the manufacturer, s the empoyer of
the demonstrator wthn the meanng of that term as used n
Tte I of the Soca Securty ct (49 Stat., 620). Where, however,
the manufacturer hres the demonstrator, contros the actvtes,
and pays the remuneraton, the manufacturer s the empoyer.
dvce s requested whether a reta department store (an em-
poyer as defned n secton 907(c) of the Soca Securty ct, 49
Stat., 620) whch hres and pays a demonstrator of merchandse of a
partcuar manufacturer and contros the servces of the demon-
strator, who s sub|ect to dscharge by the store wthout recourse to
the manufacturer, shoud be consdered as the empoyer of the
demonstrator wthn the meanng of that term as used n Tte I
of the Soca Securty ct, or whether the manufacturer whose
products are demonstrated shoud be consdered as the empoyer.
Generay, the reatonshp of empoyer and empoyee e sts when
the person for whom servces are performed has the rght to contro
and drect the ndvdua who performs the servces, not ony as to
the resut to be accompshed but aso as to the detas and means
by whch the resut s accompshed. That s, an empoyee s sub-
|ect to the w and contro of the empoyer not ony as to what
sha be done but how t sha be done. It s not necessary that
the empoyer actuay drect or contro the manner n whch the
servces are performed, t beng suffcent f he has the rght so to
do. The rght to dscharge s an mportant factor, as t s ndcatve
of the fact that the person possessng that rght s the empoyer.
It s hed that a reta department store whch hres and pays a
demonstrator of merchandse of a partcuar manufacturer, the
demonstrator beng sub|ect to the contro of the store as to the
servces to be performed and the manner of performance and sub-
Secton 907: Defntons.
Reguatons 90, rtce 204: Who are empoyers.
-29-8190
S. S. T. 15
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Regs. 90, rt. 204.
402
|ect to dscharge by the store wthout recourse to the manufacturer,
s the empoyer of the demonstrator wthn the meanng of that term
as used n Tte I of the Soca Securty ct and s sub|ect to the
ta mposed by secton 901 of that ct. If, however, the manu-
facturer hres the demonstrator, contros the servces, and pays the
remuneraton, the manufacturer must be consdered as the empoyer
under the ct.
Secton 907: Defntons. -30-8200
Reguatons 90, rtce 204: Who are empoyers. S. S. T. 17
though an ndependent contractor s not an empoyee of the
person wth whom he contracts, he may be an empoyer sub|ect
to the ta mposed under secton 001, Tte I of the Soca
Securty ct (49 Stat., 620).
Inqury s made whether ndependent contractors such as phys-
cans, awyers, dentsts, veternarans, contractors, subcontractors,
pubc stenographers, and auctoneers are sub|ect to the ta on
empoyers mposed by Tte I of the Soca Securty ct (49 Stat.,
620). It appears that the nqurer s of the opnon that snce
he s an ndependent contractor he s not sub|ect to the ta ether
as an empoyee or an empoyer.
rtce 205 of Reguatons 90, promugated under the ta ng
provsons of Tte I of the ct, reads n part as foows:
Indvduas performng servces as ndependent contractors are not empoyees.
Generay, physcans, awyers, dentsts, veternarans, contractors, subcontrac-
tors, pubc stenographers, auctoneers, and others who foow an ndependent
trade, busness, or professon, n whch they offer ther servces to the pubc,
are ndependent contractors and not empoyees.
ven though under artce 205 of Reguatons 90 an ndependent
contractor s not an empoyee of the person wth whom he con-
tracts, t does not foow that an ndependent contractor s not an
empoyer sub|ect to the ta wth respect to the wages pad to hs
empoyees where he meets the defnton of empoyer contaned n
secton 907(a) of the ct. rtce 204 of Reguatons 90 provdes
n part as foows:
rt. 204. Who are empoyers. Commencng wth the caendar year 1936, any
person who empoys 8 or more ndvduas (In an empoyment as defned n
secton 907(c) of the ct) on a tota of 20 or more caendar cays durng a
caendar year, each such day beng n a dfferent caendar week, s an empoyer
sub|ect to the ta mposed wth respect to such year.
ccordngy, any such ndependent contractor empoyng eght
or more persons under the condtons set forth n secton 907(a)
of the Soca Securty ct (defnng the term empoyer ) and
artce 204 of Reguatons 90 s sub|ect to the ta mposed under
secton 901, Tte I of the ct.
Secton 907: Defntons. -31-8217
Reguatons 90, rtce 204: Who are empoyers. S. S. T. 20
The M Company, the essee of one of the departments n the
N Department Store, s the empoyer of the empoyees n such
department and s sub|ect to the tar Imposed by secton 901,
Tte I of the Soca Securty ct.
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403
Regs. 90, rt. 204.
dvce s requested whether the M Company, essee of a certan
department n the N Department Store, s to be consdered an
empoyer under the provsons of secton 907, Tte I of the
Soca Securty ct (49 Stat., 620).
Under the terms of an agreement between the M Company and the
N Department Store, the M Company eases space wthn the N
Department Store for the purpose of operatng a certan department.
In consderaton thereof the M Company pays a percentage of ts
saes to the N Department Store. Generay, the M Company hres
ts own saes peope and managera hep and pays ther remunera-
ton. Under the terms of the agreement, the empoyees of the M
Company must conform to the rues and reguatons of the N Depart-
ment Store. t a tmes the M Company has at east 10 persons
workng n the department operated by t. The queston presented
s whether the M Company or the N Department Store shoud be
treated as the empoyer of the partcuar empoyees.
Under the crcumstances set forth, t s hed that for the purpose
of the ta mposed by secton 901, Tte I of the Soca Securty
ct, the M Company s the empoyer, wthn the meanng of secton
907(a) of the ct, of the persons renderng servces n the depart-
ment operated by t, and s, therefore, abe for mantanng the nec-
essary records, nng proper returns, and payng the ta mposed by
secton 901 of the ct. (See generay artces 204 and 205, Regua-
tons 90.)
Secton 907: Defntons. -36-8293
Reguatons 90, rtce 204: Who are empoyers. S. S. T. 33
ampes of empoyers of eght or more wthn the meanng of
secton 907, Tte I . of the Soca Securty ct.
dvce s requested wth regard to the foowng questons reatng
to the empoyers e cse ta mposed by Tte I of the Soca
Securty ct:
1. and are partners n two stores n dfferent towns. ach
store empoys four or more persons besde the propretor. Woud
the empoyment of the eght persons n the two stores brng them
under the terms of the ct whch refers to havng eght empoyees
2. and are partners n the same store, ther wves and chdren
hepng on occasons. If the members of the famy were counted,
the owners woud have eght empoyees. ut f the members of
the famy, thus workng, were drawng no wages, woud and
have to pay the ta for havng eght empoyees, ncudng the
members of the famy
3. and conduct a store whch s ncorporated. Woud the
same rung appy that s mentoned n tem two (2) In other
words, woud a corporaton or partnershp store come under the
same rung
The questons submtted are answered n the order n whch they
are sted.
1. rtce 204 of Reguatons 90, promugated under secton 907(a)
of the ct, provdes n part as foows:
Commencng wth the caendar year 1936, any person who empoys 8 or
more Indvduas (n an empoyment as defned In secton 907(c) of the ct)
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Regs. 90, rt. 205.
404
on a tota of 20 or more caendar days durng a caendar year, each such day
beng In a dfferent caendar week, s au empoyer sub|ect to the ta mposed
wth respect to such year.
(See aso artce 205 of Reguatons 90, reatve to mpoyed
ndvduas. )
or the purpose of secton 907(a) of the ct and artces 204 and
205 of the reguatons, t s hed that a the empoyees of a partner-
shp havng two or more paces of busness n dfferent towns are to
be ncuded for the purpose of determnng whether the partnershp
s an empoyer of eght or more ndvduas. The empoyment of
eght or more ndvduas n both stores woud brng the partnershp
under the terms of the ct as an empoyer.
2 and 3. The term empoyment s defned by secton 907(c) of
the Soca Securty ct as meanng any servce performed wthn
the Unted States by an empoyee for hs empoyer, e cept
(4) Servce performed by an ndvdua n the empoy of ha son, daughter,
or spouse, and servce performed by a chd under the age of 21 n the empoy
of hs father or mother.
rtce 206(4) of Reguatons 90, however, specfcay provdes
that servces performed by an empoyee of a corporaton, partner-
shp, or other entty are not wthn the e cepton.
Whe the measure of the ta mposed by secton 901, Tte I of
the ct, s the tota wages pad by the empoyer wth respect to em-
poyment, there s no provson n the ct or the reguatons under
whch t s necessary that wages or other remuneraton be pad to an
ndvdua renderng servces for another n order for such nd-
vdua to be an empoyee wthn the meanng of the ct. s the
amount of wages or other remuneraton, f any, that s to be pad to
an ndvdua for servces rendered s a matter soey between the
ndvdua and the person for whom the servces are performed, the
fact that such ndvdua receves no saary or remuneraton s not
matera n determnng whether he s to be regarded as an empoyee
for the purpose of the ta ng provsons of the ct. ccordngy,
the members of the fames of the partners who perform servces
n the empoy of the partnershp are to be counted as empoyees n
determnng whether the partnershp s the empoyer of eght or more
ndvduas, whether or not such members of the partners fames
receve remuneraton for the servces rendered n such empoyment.
The foregong s equay appcabe wth respect to the members of
the fames of the offcers or stockhoders of a corporaton.
Secton 907: Defntons. -31-8218
Reguatons 90, rtce 205: mpoyed ndvduas. S. S. T. 21
Under Tte I of the Soca Securty ct, an empoyer must
report n one return the tota wages pad to hs empoyees, regard-
ess of where the servces are rendered wthn the Unted States.
In regard to the ta mposed by secton 901, Tte I of the
Soca Securty ct (49 Stat., G20), an empoyer requests advce
wth respect to the method of reportng saares of hs empoyees
renderng servces n States other than the State of R, n whch
the empoyer s factores and home offce are ocated.
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405
Regs. 90. rt. 205.
Under the ta ng provsons of Tte I of the Soca Securty
ct, an empoyer must report n one return, for the purposes of
the ta mposed under that tte, the tota of a wages pad to hs
empoyees, regardess of where the servces are rendered wthn
the Unted States.
Secton 907: Defntons. -32-8234
Reguatons 90, rtce 205: mpoyed ndvduas. S. S. T. 23
Saares receved by the members of a partnershp do not con-
sttute wages wth respect to empoyment under Tte I of the
Soca Securty ct, and the partners shoud not be counted n
determnng the tota number of ndvduas empoyed by the
partnershp.
dvce s requested whether saares pad by a partnershp to ts
members consttute wages whch shoud be ncuded n determnng
the amount of the ta mposed upon empoyers by secton 901, Tte
I of the Soca Securty ct, and whether, for the purpose of
determnng the number of ndvduas empoyed by the partner-
shp, the partners shoud be ncuded.
Secton 901, Tte I of the Soca Securty ct, effectve anu-
ary 1, 1936, mposes a ta upon every empoyer of eght or more
(as defned n secton 907) wth respect to havng ndvduas n
hs empoy equa to certan percentages of the tota wages (as de-
fned n secton 907) payabe by hm (regardess of the tme of
payment) wth respect to empoyment (as defned n secton 907).
Secton 907 (c), Tte I of the ct, defnes the term empoyment
as used n Tte I as meanng any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer,
wth certan e ceptons not here pertnent. The term empoyer
as defned n secton 907(a), Tte I , does not ncude any person
uness on each of some 20 days durng the ta abe year, each day
beng n a dfferent caendar week, the tota number of ndvduas
who were n hs empoy for some porton of the day (whether or not
at the same moment of tme) was eght or more. The term wages
when used n Tte I of the ct means a remuneraton for em-
poyment, ncudng the cash vaue of a remuneraton pad n any
medum other than cash.
n ndvdua s n the empoy of another wthn the meanng
of the ct f he performs servces n an empoyment as defned
n secton 907(c). The reatonshp between the ndvdua who
performs such servces and the person for whom such servces are
rendered must, as to those servces, be the ega reatonshp of em-
poyer and empoyee. ona fde members of a partnershp, that s,
ndvduas who are partners n fact, are not empoyees of the
partnershp wthn the meanng of the ta ng provsons of Tte
I of the Soca Securty ct and Reguatons 90 reatng thereto.
Therefore, the saares receved by them do not consttute wages wth
respect to empoyment for the purpose of the ta , and the partners
shoud not be counted n determnng the tota number of ndvduas
n the empoy of the partnershp.
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Regs. 90, t. 205.
406
Secton 907: Defntons. -32-8235
Reguatons 90, rtce 205: mpoyed ndvduas. S. S. T. 24
n ndvdua may be an empoyee of two or more persons wtbn
the contempaton of Tte I of the Soca Securty ct.
dvce s requested reatve to abty for payment of ta es under
the Soca Securty ct where s prmary actvtes are n an
empoyment for the N Company, an empoyer as defned n the
ct, and n con|uncton wth hs reguar dutes for that company
he devotes a sma part of hs tme to renderng servces for the
M Company (aso an empoyer as defned n the ct) wthout nter-
ferng wth hs reguar dutes for the N Company. e receves
compensaton from the M Company n the form of commssons on
the saes made by hm.
Secton 901 of the Soca Securty ct mposes an e cse ta ,
effectve anuary 1, 1936, upon every empoyer (as defned n the
ct) wth respect to havng ndvduas n hs empoy measured
by the wages payabe by hm wth respect to empoyment. rtce
205, Reguatons 90, reatng to the e cse ta on empoyers under
Tte I of the ct, provdes n part that an ndvdua s n the
empoy of another wthn the meanng of the ct f he performs
servces n an empoyment as defned n secton 907(c). That
secton defnes the term empoyment as any servce, of what-
ever nature, performed wthn the Unted States by an empoyee
for hs empoyer wth certan e ceptons not here ma-
tera. rtce 207 of Reguatons 90 provdes n part that the
term wages means a remuneraton for empoyment, as defned
n secton 907(c), payabe by an empoyer to hs empoyees as com-
pensaton for servces.
Under the provsons of the ct and the reguatons, t s hed
that s an empoyee of the N Company and aso an empoyee of
the M Company for the purpose of the ta mposed upon em-
poyers by Tte I of the Soca Securty ct.
Secton 907: Defntons. -32-8236
Reguatons 90, rtce 205: mpoyed ndvduas. S. S. T. 25
The M Company, whch empoys persons to se peanuts, popcorn,
etc.. In an athetc stadum owned by It, compensatng them on a
commsson bass, und aso empoys carpenters to perform repar
work n the stadum, payng them on a per dem bass, s sub|ect
to the e cse ta on empoyers (Imposed by Tte I of the Soca
Securty ct) wth respect to the servces performed by such nd-
vduas, the ta beng measured by the amount of remuneraton
pad or payabe to such empoyees.
dvce s requested by the M Company, owner of an athetc
stadum, whether t must pay the empoyers e cse ta (mposed
under Tte I of the Soca Securty ct) wth regard to remunera-
ton pad by t to vendors of peanuts, popcorn, etc., n the stadum,
such ndvduas beng compensated on the bass of a percentage
of saes, and to carpenters who are empoyed to do repar work and
are pad on a yer dem bass.
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407
Regs. 90, rt. 205.
ased on the facts submtted, t s hed that the remuneraton
pad by the M Company, whch quafes as an empoyer as denned
n secton 907(a) of the ct, to persons seng peanuts, popcorn,
etc., n the stadum, and to those empoyed by the day n makng
repars, must be ncuded n determnng tota wages for the
purpose of the ta mposed by secton 901, Tte I of the ct.
Secton 907: Defntons. -37-8301
Reguatons 90, rtce 205: mpoyed ndvduas. S. S. T. 35
Where , n conductng a busness, has severa branch estabsh-
ments, euch beng under the drecton and contro of a supervsor
who hres and dscharges the empoyees for that partcuar branch,
and who receves from a certan sum each week to cover hs
remuneraton and that of the empoyees, such supervsors and the
Indvduas workng n each estabshment are the empoyees of
, the owner of the busness, for the purpose of the ta mposed
by secton 901, Tte I of the Soca Securty ct.
dvce s requested whether, for the purpose of the ta mposed
by secton 901, Tte I of the Soca Securty ct, certan ndvd-
uas shoud be treated as the empoyees of under the crcumstances
stated heren.
has severa paces of busness n a of whch the same type of
busness s conducted. In charge of each pace of busness, the
ta payer has a supervsor who hres and dscharges empoyees for
that partcuar ocaton. of the equpment s owned by the
ta payer. To each supervsor the ta payer pays a certan sum
each week, whch ncudes the supervsor s remuneraton and that of
the empoyees hred by hm. Separate bookkeepng accounts as
to the pay ro are not kept for each estabshment.
It s hed that for the purposes of the ta mposed by secton 901,
Tte I of the Soca Securty ct, the supervsors and the ndvd-
uas workng n each estabshment are empoyees of , who owns
and conducts the busness.
Secton 907: Defntons. -38-8311
Reguatons 90, rtce 20. : mpoyed ndvduas. S. S. T. 39
Indvduas hred by the M Trust Co. as trustee of the N Trust
to perform servces n connecton wth the trust property, and who
are pad from the funds of the N Trust, ure empoyees of that trust
to whch they render servces.
dvce s requested whether under the provsons of Tte I of
the Soca Securty ct ndvduas hred by the M Trust Co., as
trustee, to render servces n behaf of the N Trust shoud be treated
as empoyees of the trust or of the trust company.
It s hed that ndvduas empoyed to perform servces n con-
necton wth the property of the Trust who are pad from the
funds of that trust are empoyees of the Trust to whch they
render servces and not of the M Trust Co. who hred them on behaf
of the trust.
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Regs. 90, rt. 205.
408
Secton 907: Defntons. -39-8322
Reguatons 90, rtce 205: mpoyed ndvduas. S. S. T. 40
Pn boys hred by the M Recreaton Center n connecton wth the
opernton of ts bowng aeys are empoyees thereof wthn the
meanng of the Soca Securty ct.
dvce s requested whether pn boys hred by the M Recreaton
Center, an empoyer as defned n the ct, n connecton wth the
operaton of ts bowng aeys are empoyees of the recreaton center
wthn the meanng of the Soca Securty ct.
The pn boys are hred and pad by the recreaton center, ther
compensaton beng based on the number of games n whch they set
up the pns. The recreaton center contros the manner n whch
the servces are performed and dscharges the pn boys whenever
ther servces are not requred.
The ta mposed by secton 901, Tte I of the Soca Securty
ct, effectve anuary 1, 1936, s upon every empoyer (as defned n
the ct) wth respect to havng ndvduas n hs empoy durng the
caendar year and the measure of the ta s the tota wages payabe
by the empoyer wth respect to empoyment. Secton 907(c) pro-
vdes that the term empoyment as used n Tte I means any
servce, of whatever nature, performed wthn the Unted States by
an empoyee for hs empoyer, wth certan e ceptons not here
matera.
rtce 205 of Reguatons 90, reatve to the terms empoyee
and empo3 er, reads n part as foows:
Generay the reatonshp e sts when the person for whom servces are per-
formed has the rght to contro and drect the ndvdua who performs the
servces, not ony as to the resut to be accompshed by the work but aso as
to the detas and means by whch that resut s accompshed. That s, an
empoyee Is sub|ect to the w and contro of the empoyer not ony as to
what sha be done but how It sha be done. In ths connecton, It s not neces-
sary that the empoyer actuay drect or contro the manner In whch the
servces are performed t s suffcent f he has the rght to do so. The rght
to dscharge s aso an mportant factor ndcatng that the person possessng
that rght s an empoyer. Other factors characterstc of an empoyer are the
furnshng of toos and the furnshng of a pace to work, to the Indvdua who
performs the servces. In genera, f an ndvdua s sub|ect to the contro or
drecton of another merey as to the resut to be accompshed by the work an
not as to the means and methods for accompshng the resut, he Is an Inde-
pendent contractor, not an empoyee.

The measurement, method, or desgnaton of compensaton Is aso Immate-
ra, f the reatonshp of empoyer and empoyee n fact e sts.
It s hed that the pn boys empoyed by the M Recreaton Center
are empoyees of the recreaton center wthn the meanng of the ct
and t w be requred to pay the ta mposed by secton 901 of the
ct wth respect to ther servces.
Secton 907: Defntons. -41-8345
Reguatons 90, rtce 205: mpoyed ndvduas. S. S. T. 45
Men hred by the M Company to unoad steamers as they arrve
at ts dock, who are pad and dscharged as soon as a steamer Is
unoaded and who are under the supervson of the M Company
when empoyed, shoud be ncuded n determnng whether the
company s an empoyer wthn the meanng of that term as used
n Tte I of the 8oca Securty ct.
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409
Regs. 90, rt. 205.
dvce s requested whether certan ndvduas hred by the M
Company shoud be ncuded n determnng whether the company s
an empoyer wthn the meanng of Tte-I of the Soca Securty
ct.
The M Company empoys men to unoad steamers as they arrve
at ts dock. They are under the supervson of the company when
empoyed and are pad and dscharged by the company as soon as
a steamer s unoaded. In vew of the short perods of tme for
whch the ndvduas are empoyed, the company has requested
advce as to ther status as empoyees under the ct.
Secton 901, Tte I of the Soca Securty ct, mposes a ta
upon every empoyer of eght or more (as defned n secton 907) wth
respect to havng ndvduas n hs empoy equa to certan per-
centages of the tota wages (as defned n secton 907) payabe by
hm regardess of the tme of payment wth respect to empoyment
(as defned n secton 907) effectve on and after anuary 1, 1936.
It s hed that the ndvduas n queston shoud be ncuded for the
purpose of determnng whether the M Company s an empoyer
wthn the meanng of that term as defned n secton 907 of the
Soca Securty ct. The fact that the empoyment s for ony a
short perod of tme and s termnated as soon as a shp s unoaded
does not |ustfy the e cuson of such persons n determnng whether
the company quafes as an empoyer under the ct. The reaton-
shp of empoyer and empoyee ceary e sts durng the perod when
the men are unoadng the snps for the company.
Secton 907: Defntons. -42-8353
Reguatons 90, rtce 205: mpoyed ndvduas. S. S. T. 47
Where the M Company, owner and operator of hotes, con-
tracts wth to furnsh musc for one of the hotes and devers
a weeky check In a ump sum to for the servces rendered
by hm and hs orchestra, havng the rght to hre, contro, and
dscharge the persons who work under hm, the reatonshp of
to the M Company s that of an ndependent contractor for
the purpose of Tte I of the Soca Securty ct Nether
nor the muscans empoyed by hm are empoyees of the M
Company for the purpose of that ct.
dvce s requested by the M Company, owner and operator of
hotes, as to the reatonshp, for the purpose of the ta mposed
by Tte I of the Soca Securty ct, whch e sts between t and
, conductor of an orchestra, and the muscans hred by .
The M Company contracted wth for the servces of the Or-
chestra, composed of 10 men who receve ther pay from . e
has the rght to hre, contro, and dscharge the ndvduas who
work under hm and receves from the M Company a weeky check
n a ump sum for the servces of the men and hmsef.
Under the crcumstances stated, t s hed that s an ndependent
contractor and nether he nor the muscans hred by hm for the
orchestra are empoyees of the M Company for the purpose of the ta
mposed by Tte I of the Soca Securty ct. ven though
s an ndependent contractor, he may, nevertheess, be an empoyer
f he meets the defnton of that term contaned n secton 907(a)
of the ct and artce 20-1 of Reguatons 90.
121397 37 14
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Regs. 90, rt. 206.
410
Secton 907: Defntons. -31-8219
Reguatons 90, rtce 206: cepted servces S. S. T. 22
generay.
The ta mposed upon empoyers by secton 901, Tte I of
the Soca Securty ct, s not appcabe wth respect to empoyed
ndvduas whose servces are performed entrey wthn the
Domnon of Canada. Wth respect to empoyees who perform
servces party wthn the Unted States and party wthn the
Domnon of Canada, ony wages payabe to empoyees on account
of servces performed wthn the Unted States shoud be ncuded
n the computaton of wages. Ctzenshp or resdence of the em-
poyees s mmatera.
dvce s requested by the M Company, an empoyer as de-
fned n secton 907(a) of the Soca Securty ct (49 Stat., G20),
wth respect to the status of ts empoyees under the ta ng prov-
sons of that ct.
The company operates a bus ne runnng between the Domnon
of Canada and the Unted States. y arrangement between the
Immgraton Departments, empoyees, regardess of ctzenshp, are
permtted to perform servces on ether sde of the border. The
company has submtted a statement showng the names of ts em-
poyees, ther ctzenshp, resdence, cass of empoyment, and assgn-
ment of dutes as between servces rendered n the Unted States
and n the Domnon of Canada.
Secton 901, Tte I of the Soca Securty ct, provdes that
On and after anuary 1, 1936, every empoyer (as defned n sec-
ton 907) sha pay for each caendar year an e cse ta
wth respect to empoyment (as defned n secton 907) durng such
caendar year: .
Secton 907 (c) of the ct defnes the term empoyment when
used n Tte I as meanng any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer,
wth certan servces specfcay e cepted.
To consttute empoyment wthn the meanng of the ct, the
servces performed by the empoyee must be performed wthn the
Unted States, that s, wthn any of the severa States, the Dstrct
of Coumba, or the Terrtores of aska and awa. To the
e tent that an empoyee performs servces outsde of the Unted
States for the person who empoys hm, he s not n an empoy-
ment wthn the meanng of the ct. ny servces performed by
the empoyee wthn the Unted States, uness specfcay e cepted
by secton 907(c) to 907(c)7, ncusve, consttute empoyment.
In such cases the wages payabe to the empoyee on account of such
servces must be ncuded n the computaton of wages for the pur-
pose of determnng the amount of the empoyer s ta . owever,
remuneraton payabe to the empoyee for servces whch he per-
forms outsde of the Unted States s e cuded from the computaton
of wages upon whch hs empoyer s ta s based. (See generay
artce 206, Reguatons 90.)
The pace where the contract for servces s entered nto and the
ctzenshp or resdence of the empoyee, or of the person who
empoys hm, are mmatera. Thus, the empoyee and the person
who empoys hm may be ctzens and resdents of a foregn country
and the contract for the servces may be entered nto n a foregn
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411
Regs. 90, rt. 206(1).
country, and yet, f the empoyee under such contract actuay per-
forms servces wthn the Unted States, there s to that e tent
empoyment wthn the meanng of the ct, and the person who
has empoyed such ndvdua may be an empoyer wthn the
meanng of the ct. ( rtce 206, Reguatons 90.)
In vew of the foregong, t s hed that the ta mposed upon
empoyers by secton 901, Tte I of the Soca Securty ct, s not
appcabe to the M Company wth respect to empoyed ndvduas
Whose servces are performed entrety wthn the Domnon of
Canada, regardess of ctzenshp or resdence of the empoyees.
The ta mposed s, however, appcabe wth respect to ndvduas
who perform servces entrey wthn the Unted States, regardess
of ctzenshp or resdence, and the tota wages payabe on account of
such servces shoud be ncuded n the computaton of wages for the
purpose of determnng the amount of the ta .
In the computaton of wages for the purpose of determnng the
amount of the ta wth respect to empoyees who perform servces
party wthn the Unted States and party wthn the Domnon of
Canada, ony the wages payabe to empoyees on account of servces
performed wthn the Unted States shoud be ncuded. The ctzen-
shp or resdence of the empoyees s aso mmatera n ths nstance.
Secton 907: Defntons. -27-8157
Reguatons 90, rtce 206(1): grcutura abor. S. S. T. 10
Where servces are performed by empoyees of an assocaton of
producers In connecton wth the processng, packng, packagng,
transportaton, or marketng of farm products, such servces do not
consttute agrcutura abor wthn the meanng of secton
907(c) of the Soca Securty ct even though the products In
connecton wth whch the servces are performed were produced
by the members of the assocaton.
rung s requested whether servces performed by ndvduas
engaged as empoyees n packng frut consttute agrcutura
abor wthn the meanng of secton 907(c), Tte I , of the Soca
Securty ct, whch defnes the term empoyment and e cudes
agrcutura abor therefrom.
rtce 206(1) of Reguatons 90, promugated under Tte I of
the Soca Securty ct, defnes agrcutura abor as used n sec-
ton 907(c) of the ct as foows:
grcutura abor. The term agrcutura abor ncudes a
servces performed
(a) y an empoyee, on a farm, n connecton wth the cutvaton of the
so, the harvestng of crops, or the rasng, feedng, or management of ve
stock, bees, and poutry or
(b) y an empoyee n connecton wth the processng of artces from
materas whch were produced on a farm aso the packng, packagng, trans-
portaton, or marketng of those materas or artces. Such servces do not
consttute agrcutura abor, however, uness they are performed by an
empoyee of the owner or tenant of the farm on whch the materas n ther
raw or natura state were produced, and uness such processng, packng, pack-
agng, transportaton, or marketng Is carred on as an ncdent to ordnary
farmng operatons as dstngushed from manufacturng or commerca opera-
tons.
s used heren the term farm embraces the farm n the ordnary accepted
sense, and ncudes stock, dary, poutry, frut, and truck farms, pantatons,
ranches, ranges, and orchards.
orestry and umberng are not ncuded wthn the e cepton.
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Regs. 90, rt. 206(1).
412
Wde varatons n the method of preparng farm products for
market and n the methods of marketng are foowed throughout the
varous States, and wde varatons e st n the methods of operaton
as between the producers of farm products and cooperatve organ-
zatons of farmers n some nstances and between ndvdua farmers
and commerca packers and processors n other nstances. grcu-
tura products are often devered by the actua producer drecty
to a commerca enterprse n whch the producer has no nterest other
than the fact that the enterprse s a purchaser of hs products. In
other nstances the products of the farm are devered by the pro-
ducer to a cooperatve organzaton of farmers, of whch such pro-
ducer s a member, and the products are prepared and/or processed
n wdey varyng degrees and marketed on a commerca bass by
the cooperatve organzaton, or returned to the producer to be
marketed by hm n hs own way.
The fact that an ndvdua s engaged n handng farm products
does not of tsef make the servces performed by hm 44 agrcu-
tura. Servces are often performed by empoyees n connecton
wth the packng, processng and other preparaton of farm products
for sae to consumers whch are not a part of ordnary farmng
operatons but a part of commerca or manufacturng operatons.
It s the opnon of the ureau that servces performed by an
empoyee n connecton wth the processng, packng, packagng,
transportaton, or marketng of farm products consttute 44 agrcu-
tura abor wthn the meanng of secton 907(c) of the Soca
Securty ct ony when those servces are performed by an empoyee
of the owner or tenant of the partcuar farm on whch the product
n ts raw or natura state was produced. Where such servces are
performed by ndvduas who are empoyed by an assocaton of pro-
ducers, even though the products n connecton wth whch the serv-
ces are performed were produced by the members of the assocaton,
the servces of such empoyees are not e cepted under secton 907(c)
of the Soca Securty ct as 44 agrcutura abor, snce the nd-
vduas are empoyees of the assocaton and not of a partcuar
producer.
Secton 907: Defntons. -49-8423
Reguatons 90, rtce 206(1): grcutura abor. S. S. T. 55
( so Secton 811 Reguatons 91, rtce 6.)
Servces rendered by empoyees n connecton wth the rasng
of wd anmas for furs do not consttute agrcutura abor
wthn the meanng of that term as used n secton 811(b), Tte
III, and secton 907(c) 1, Tte I , of the Soca Securty ct.
dvce s requested whether servces performed by empoyees n
connecton wth the rasng of wd anmas for furs may propery
be consdered as 44 agrcutura abor under the provsons of the
Soca Securty ct e cudng agrcutura abor from the term
44 empoyment. It s stated that n the State of R a arge number
of empoyers are engaged n varous types of so-caed fur farmng.
It s hed that empoyees who render servces for persons engaged
n rasng wd anmas for furs are not performng 44 agrcutura
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413
Regs. 90, rt. 206(3).
abor wthn the meanng of that term as used n sectons 811(b) 1,
Tte III, and 907(c) 1, Tte I , of the Soca Securty ct, and
artces 6 and 206-1 of Reguatons 91 and 90, respectvey. Such
servces are not, therefore, e empt from the provsons of the ct.
Secton 907: Defntons. -37-8302
Reguatons 90, rtce 206 (3) : Offcers and S. S. T. 36
members of crews.
Indvduas renderng servces to the M Company, whch con-
tracts to oad steamshps, are not offcers or members of the
crew of a vesse on the navgabe waters of the Unted States,
and the servces performed by them are not e cepted from em-
poyment under the provsons of secton 907(c)3 of the Soca
Securty ct
dvce s requested whether servces rendered by ndvduas to
the M Company, a stevedore company whch contracts to oad steam-
shps, consttute servces performed as an offcer or member of the
crew of a vesse on the navgabe waters of the Unted States
wthn the meanng of secton 907(c) 3 of the Soca Securty ct.
It s stated that the M Company, a stevedore company, hres the
aborers necessary to carry out ts contracts to oad the steamshps
of the N Company, a shppng concern that t compensates them
for the servces rendered that from 10 to 22 men are requred to
oad the varous shps, dependng upon the nature of the cargo and
that a of the empoyees n queston perform servces n accord-
ance wth the orders and at the drecton of the M Company.
Secton 901, Tte I of the Soca Securty ct, mposes an e cse
ta upon every empoyer (as defned n secton 907), effectve anu-
ary 1, 1936, wth respect to havng ndvduas n hs empoy, equa
to certan percentages of the tota wages (as defned n secton 907)
payabe by hm (regardess of the tme of the payment) wth respect
to empoyment (as defned n secton 907) durng such caendar year.
Secton 907(c) of the ct provdes n part that:
(c) The term empoyment means any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer, e cept

(3) Servce performed as an offcer or member of the crew of a vesse on the
navgabe waters of the Unted States
rtce 206(3) of Reguatons 90, reatng to subdvson (c) (3) of
secton 907, provdes n part:
The e presson offcers and members of the crew ncudes the master or
offcer In charge of the vesse, however desgnated, and every ndvdua, sub-
|ect to hs authorty, servng on board and contrbutng In any way to the
operaton and wefare of the vesse.
Under the facts set forth, t s hed that the ndvduas hred by
the M Company to oad the shps of the N Company are not offcers
or members of the crew of a vesse on the navgabe waters of the
Unted States wthn the meanng of the ct, and that, therefore, the
servces performed by them n connecton wth the oadng of steam-
shps are not e cepted from empoyment for the purpose of the
ta mposed upon empoyers by secton 901 of the ct.
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Regs. 90, rt. 200(5)-(6).
414
Secton 907: Defntons. -51-8149
Reguatons 90, rtce 206(3) : Offcers and S- S. T. 58
members of crews.
( so Secton 811 Reguatons 91, rtce 10.)
Where members of the crew of a vesse work as a sde ne for
an operator of concessons on such vesse, the servces so per-
formed by them whe the vesse s wthn the navgabe waters of
the Unted States are not e cepted from empoyment under sec-
ton 907(c)3, Tte I of the Soca Securty ct.
dvce s requested -whether certan servces performed for the
M Company by members of the crew of a vesse are e cepted from
the term empoyment by the provsons of secton 907(c)3, Tte
I of the Soca Securty ct, whch e cepts servce performed as
an offcer or member of the crew of a vesse on the navgabe waters
of the Unted States.
The M Company operates concessons on vesses pyng the hgh
seas and the waters of navgabe rvers. These concessons are open
for busness from shorty before sang tme, durng the voyage,
and unt the vesses have docked and dscharged ther passengers.
Some of the persons assstng n the operaton of the concessons of
the M Company are members of the crew who work as a sde ne
for that company. Such empoyees are compensated by the payment
of commssons on the saes made by them.
It s hed that the servces performed for the M Company by
members of the crew n connecton wth the concessons n queston
are not performed as offcers or members of the crew of a vesse on
the navgabe waters of the Unted States wthn the meanng of
secton 907(c)3 of the Soca Securty ct. ccordngy, such serv-
ces are not e cepted from empoyment for the purpose of the ta
mposed upon empoyers by secton 901 of the ct.
The above concuson s aso appcabe under secton 811(b) 5 of
the ct, whch e cepts
(5) Servce performed as an offcer or member of the crew of a vesse docu-
mented under the aws of the Unted States or of any foregn country.
Secton 907: Defntons. -32-8237
Reguatons 90, rtce 206(5)-(6): Government S. S. T.26
empoyees.
Whether the servces of Indvduas empoyed on edera reef
pro|ects are e cuded from the provsons of Tte I of the Soca
Securty ct depends upon whether the servces are performed In
the empoy of the edera Government, an nstrumentaty thereof,
a State, a potca subdvson thereof, or an Instrumentaty of a
State or potca subdvson, or n the empoy of a prvate contractor
who hres and pays the ndvduas workng on the pro|ects.
dvce s requested whether the servces performed by ndvduas
engaged on edera reef pro|ects are e cuded from the provsons
of Tte I of the Soca Securty ct.
Under secton 907(c) of the ct, servce performed n the empoy
of the Unted States Government or of an nstrumentaty of the
Unted States and servce performed n the empoy of a State, a
potca subdvson thereof, or an nstrumentaty of one or more
States or potca subdvsons are e cepted from the provsons of
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415
Regs. 90, rt. 206(5)-(6).
the ct. rtce 206(5)-(6) of Reguatons 90, promugated wth
respect to the ta ng provsons of Tte I of the ct, provdes that
servces performed by edera and State empoyees are e cepted from
the provsons of that tte and that such e cepton e tends to every
servce performed by an ndvdua n the empoy of the Unted
States, the severa States, the Dstrct of Coumba, or the Terrtory
of aska or awa, or any potca subdvson or nstrumentaty
thereof, ncudng every unt or agency of government, wthout ds-
tncton between those e ercsng functons of a governmenta nature
and those e ercsng functons of a propretary nature.
ccordngy, where such servces are performed n the empoy of
the edera Government, or an nstrumentaty thereof, or n the
empoy of a State, a potca subdvson thereof, or an nstrumenta-
ty of a State or potca subdvson, the servces of the ndvduas
empoyed on such work are e cepted from the provsons of Tte I
of the ct. If, however, the servces are rendered to a prvate con-
tractor who hres and pays the ndvduas workng on such pro|ects,
and f the reatonshp or empoyer and empoyee e sts as provded
n artce 205 of Reguatons 90, such ndvduas are the empoyees of
the prvate contractor, and the ta mposed by secton 901 of the ct
s appcabe wth respect to the wages or other remuneraton pad to
them. The fact that such a prvate contractor s engaged n the per-
formance of contracts n connecton wth edera reef actvtes does
not reeve hm from abty for the ta .
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
Natona banks and ther empoyees. (See S. S. T. 16, page 386.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6): Government empoyees.
State banks (Mchgan) and ther empoyees. (See S. S. T. 43,
page 387.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6): Government empoyees.
State banks members of edera Reserve System and ther em-
poyees. (See S. S. T. 44, page 388.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
State banks (Iowa) and ther empoyees. (See S. S. T. 52, page
889.)
Secton 907: Defntons.
Reguatons 90, rtce 206 (5)-(6) : Government empoyees.
State banks organzed under the aws of Te as. (See S. S. T. 53,
page 390.)
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Regs. 90, rt. 206(7)
416
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6): Government empoyees.
State banks organzed under the aws of West rgna. (See
S. S. T. 59, page 391.)
Secton 907: Defntons. -30-8201
Reguatons 90, rtce 206 (7): Regous, char- S. S. T. 13
tabe, scentfc, terary, and educatona organ-
zatons and communty chests.
The SI raternty, whch s an empoyer as defned n secton
807(a), Tte I of the Soca Securty ct (49 Stat, 620), s sub-
|ect to the ta mposed upon empoyers by secton 901 of that ct.
Te e empton provsons of secton 907(c)7 of the ct, reatng to
servce performed n the empoy of regous, chartabe, scentfc,
terary, educatona, etc., organzatons, do not appy.
dvce s requested whether the M raternty, whch quafes as
an empoyer as defned n secton 907(a) of the Soca Securty
ct 49 Stat., 620), s e empt under the provsons of secton
907(c) 7 of that ct from the ta mposed by secton 901.
The ta mposed by secton 901, Tte I of the Soca Securty
ct, effectve anuary 1, 1936 s upon every empoyer wth
respect to havng ndvduas n hs empoy durng the caendar
year, but the measure of the ta s the tota wages payabe by the
empoyer wth respect to empoyment. Secton 907(c) of the ct
provdes that
The term empoyment means any servce, of whatever nature, performed
wthn the Unted States by an empoyee for hs empoyer, e cept
-
(7) Servce performed n the empoy of a corporaton, communty chest, fund,
or foundaton, organzed and operated e cusvey for regous, chartabe,
scentfc, terary, or educatona purposes, or for the preventon of cruety to
chdren or anmas, no part of the net earnngs of whch nures to the bone-
ft of any prvate sharehoder or ndvdua.
In order for servces performed by an empoyee to come wthn
the e cepton provded by secton 907(c)7 of the ct, the empoyer
must be (1) organzed and operated e cusvey for one or more of
the purposes specfed n that secton, and (2) ts net ncome must
not mure n whoe or n part to the beneft of any prvate share-
hoder or ndvdua. The M raternty s not organzed and oper-
ated e cusvey for one or more of the purposes specfed n secton
907(c) 7, so that the e empton provded n that secton does not
appy to the servces performed n the empoy of the fraternty.
urth ermore, the servces performed for a fraternty by ts em-
poyees do not consttute domestc servces n a prvate home wthn
the meanng of secton 907(c) 2 of the ct whch e empts such serv-
ces. (See artce 206(2), Reguatons 90.)
It s hed, therefore, that the M raternty, whch s an em-
poyer as defned n secton 907(a) of the Soca Securty ct, s
sub|ect to the ta mposed by secton 901 of that ct wth respect to
the wages pad by the fraternty to ts empoyees.
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417
Regs. 90, rt. 207.
Secton 907: Defntons. -39-8323
Reguatons 90, rtce 206(7): Regous, char- S. S. T. 41
tabe, scentfc, terary, and educatona organ-
zatons and communty chests.
The M Company, whch s not e empt from Income ta aton
under secton 101(6) of the Revenue ct of 1934, s not e empt
from payment of the ta Imposed by secton 901 of the Soca
Securty ct, secton 907(c)7 of the atter ct readng substan-
tay the same as secton 101(6) of the Revenue ct of 1934.
dvce s requested whether the M Company s entted to e -
empton from payment of the e cse ta mposed by secton 901 of
the Soca Securty ct by vrtue of the provsons of secton 907(c)7
of that ct, whch e cepts from the term empoyment
(7) Servce performed In the empoy of a corporaton, communty chest,
fund, or foundaton, organzed and operated e cusvey for regous, chartabe,
scentfc, terary, or educatona purposes, or for the preventon of cruety to
chdren or anmas, no part of the net earnngs of whch nures to the beneft
of any prvate sharehoder or ndvdua.
The provsons of secton 907(c)7 of the Soca Securty ct are
substantay dentca wth those contaned n secton 101(6) of the
Revenue ct of 1934 e emptng certan casses of corporatons from
edera ncome ta . The ureau havng hed that the M Company
does not quafy for e empton from ncome ta aton under secton
101(6) of the Revenue ct of 1934 as a corporaton organzed and
operated e cusvey for regous, chartabe, scentfc, terary, etc.,
purposes, t foows that the servces performed for t by ts em-
poyees are not e cuded by secton 907(c)7 of Tte I of the Soca
Securty ct. In other words, the M Company, an empoyer as de-
fned n the ct, s sub|ect to the ta mposed by secton 901, Tte I
of the Soca Securty ct, wth respect to such servces.
Secton 907: Defntons. -28-8176
Reguatons 90, rtce 207: Wages. S. S. T. 12
Tps pad drecty to an empoyee by a customer of hs empoyer.
Tps pad drecty to an empoyee by a customer of hs empoyer,
and not n any way accounted for by the empoyee to the empoyer,
do not consttute wages wthn the meanng of secton 907(b),
Tte I of the Soca Securty ct, and need not be reported by
the empoyer for the purpose of determnng hs ta abty under
that tte.
Secton 907: Defntons. -33-8248
Reguatons 90, rtce 207: Wages. S. S. T. 29
Przes awarded to saesmen, wnners of contests conducted by
ther empoyer, consttute addtona compensaton or remunera-
ton whch shoud be Incuded n the tota amount of wages pad
n computng the ta mposed by secton 901, Tte I of the
Soca Securty ct
The M Company hods contests among ts saesmen for the pur-
pose of stmuatng the saes of certan products, the wnners recev-
ng przes ether n cash or property, such as automobes, rados, etc.
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Regs. 90, rt. 207.
418
dvce s requested whether the przes awarded are to be consdered
as remuneraton pad to the saesmen wthn the meanng of secton
907(b) of the Soca Securty ct. That secton provdes n part as
foows:
The term wages means a remuneraton for empoyment. In-
cudng the cash vaue of a remuneraton pad In any medum other than cash.
rtce 207 of Reguatons 90, reatng to the e cse ta on em-
poyers under Tte I of the ct, provdes:
Wages. The term wages means a remuneraton for empoy-
ment, whether payabe n money or somethng other than money. The name
by whch such remuneraton Is desgnated Is mmatera. Thus, saares, com-
mssons on saes or on nsurance premums, fees, and bonuses are wages wthn
the meanng of the ct f payabe by an empoyer to hs empoyee as com-
pensaton for servces not e cepted by the ct. The bass upon whch the re-
muneraton s payabe, the amount of remuneraton, and the tme of payment,
are Immatera In determnng whether the remuneraton consttutes wages.
Thus, t may be payabe on the bass of pecework, or a percentage of profts |
and t may be payabe houry, day, weeky, monthy, or annuay.
The medum n whch the remuneraton s payabe s aso mmatera. It
may be payabe n cash or n somethng other than cash, such as goods, odgng,
food, and cothng.
It s hed that the przes awarded to the saesmen consttute add-
tona compensaton or remuneraton wthn the meanng of the aw
and reguatons. The amount of such remuneraton shoud, there-
fore, be ncuded n the tota amount of wages pad by the empoyer
for the purpose of computng the ta mposed by secton 901, Tte
I of the Soca Securty ct.
Secton 907: Defntons. -39-8324
Reguatons 90, rtce 207: Wages. S. S. T. 42
onuses pad by a retaer to hs saespeope on saes of certan
merchandse consttute wages wthn the meanng of Tte I
of the Soca Securty ct. ven though the manufacturer rem-
burses the retaer for such bonuses, the atter Is abe for the
ta mposed by secton 001 of the ct, snce the saespeope are
hred and pad by hm and are under hs drecton and contro.
Durng a saes campagn, a manufacturer authorzed a retaer
to pay hs saespeope a bonus on saes of merchandse of the par-
tcuar manufacturer. The retaer kept a record of saes, pad the
saespeope, and n turn bed the manufacturer for the tota amount
of the bonuses, for whch he was subsequenty rembursed. dvce
s requested whether the amount consttutes wages under Tte I
of the Soca Securty ct, and, f so, whether the retaer or the
manufacturer s abe for the ta mposed by secton 901 of that
ct.
Secton 907(b) of Tte I of the ct defnes the term wages as
meanng a remuneraton for empoyment, ncudng the cash vaue
of a remuneraton pad n any medum other than cash. rtce
207 of Reguatons 90, reatng to secton 907(b) of the aw, provdes
n part as foows:
The name by whch such remuneraton s desgnated s mmatera.
Thus, saares, commssons on saes or on nsurance premums, fees, and bonuses
are wages wthn the meanng of the ct f payabe by an empoyer to h
empoyee as compensaton for servces not e cepted by the ct.
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419
Regs. 90, rt. 207.
rtce 205, Reguatons 90, reatng to the e cse ta mposed on
empoyers under Tte I of the Soca Securty ct, and dscussng
the meanng of the terms empoyer and empoyee. provdes n
part that an ndvdua s n the empoy of another wthn the mean-
ng of the ct f he performs servces n an empoyment as defned
n secton 907 (c). That artce aso provdes n part as foows:
The words empoy, empoyer, and empoyee, as used In ths artce,
are to be taken In ther ordnary meanng.

Generay the reatonshp e sts when the person for whom servces are
performed has the rght to contro and drect the Indvdua who performs the
servces, not ony as to the resut to be accompshed by the work but aso
as to the detas and means by whch that resut s accompshed.
The rght to dscharge s aso an mportant factor ndcatng that the person
possessng that rght s an empoyer.
Secton 907(c) defnes the term empoyment as beng any serv-
ce, of whatever nature, performed wthn the Unted States by an
empoyee for hs empoyer, wth certan e ceptons not here
matera.
The bonuses n queston ceary consttute wages wthn the
meanng of the ct, and snce the saespeope are performng serv-
ces for the retaer, are hred and pad by hm, and are under hs
drecton and contro, they are empoyees of the retaer, and the
bonuses must be ncuded by hm n determnng hs ta abty
under Tte I of the ct even though rembursement s made by
the manufacturer.
Secton 907: Defntons. -41-8346
Reguatons 90, rtce 207: Wages. S. S. T. 46
Where the M Company guarantees to ts empoyees a mnmum
number of hours of empoyment per week and makes payments to
them for de tme when they do not render servces for tha
mnmum number of hours, the payments for de tme con-
sttute wages for the purpose of the ta mposed by secton 901,
Tte I of the Soca Securty ct.
dvce s requested by the M Company whether certan payments
to ts empoyees shoud be consdered as wages payabe wth respect
to empoyment durng the caendar year for the purpose of the ta
mposed by secton 901, Tte I of the Soca Securty ct.
The M Company states that t s unabe to operate ts pant durng
the entre year and that t pays ts empoyees durng certan months
for what t desgnates as de tme, the persons recevng such pay-
ments performng no servces therefor. It s aso stated that the
company has no wrtten agreement wth ts empoyees but vounta-
ry guarantees a mnmum of 30 hours work per week. If an em-
poyee works the fu tme of 40 hours per week, he s pad for 40
hours, but f he works ony 20 hours per week, he s pad for 30
hours. In the atter case the dfference of 10 hours s what the com-
pany desgnates as de tme.
Secton 901 of the Soca Securty ct provdes n part as foows:
On and after anuary 1, 1936, every empoyer (as denned n secton 907)
sha pay for each caendar year an e cse ta , wth respect to havng nd-
vduas In hs empoy, equa to the foowng percentages of the tota wages (as
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Reg . 90, rt. 209.
420
defned n secton 007) payabe by hm (regardess of the tme of payment)
wth respect to empoyment (as defned n secton 907) durng such caendar
year
Under the facts set forth, t s hed that the remuneraton payabe
to the empoyees of the M Company for such de tme consttutes
wages wth respect to empoyment wthn the meanng of the Soca
Securty ct, and the ta mposed by secton 901, Tte I of the
ct, s appcabe wth respect thereto. The tota remuneraton pay-
abe to the empoyees shoud be ncuded n the computaton of wages
for the purpose of determnng the amount of the ta .
Secton 907: Defntons. -42-8354
Reguatons 90, rtce 207: Wages. S. S. T. 48
n amount pad to the wdow of a deceased empoyee n e cess
of the compensaton earned by hm n the course of hs empoy-
ment and for whch the wdow renders no servces s not wages
wthn the meanng of secton 907(b), Tte I of the Soca Secu-
rty ct
dvce s requested whether an amount equvaent to the saary of a
deceased empoyee whch s pad to hs wdow for an undetermned
perod after the death of the empoyee consttutes wages under
Tte I of the Soca Securty ct.
Secton 907(b) of Tte I of the Soca Securty ct defnes wages
as a remuneraton for empoyment, wth certan e ceptons not here
matera. In paragraph (c) of that secton empoyment s defned,
wth certan e ceptons, as any servce, of whatever nature, performed
wthn the Unted States by an empoyee for hs empoyer.
The amount pad to the wdow of a deceased empoyee over and
above the compensaton earned by hm n the course of hs empoy-
ment and for whch the wdow renders no servces s not pad as re-
muneraton for empoyment and does not, therefore, consttute
wages wthn the meanng of secton 907 (b), Tte I of the ct.
Secton 907: Defntons. -42-8355
Reguatons 90, rtce 209: Items ncuded as S. S. T. 49
wages.
Payments made by the M Company equvaent to the dfference
between the norma wages of empoyees who are absent from work
whe servng n a State Natona Guard and the amounts receved
from the State for such servces consttute wages wthn the
meanng of secton 907(b), Tte I of the Soca Securty ct
dvce s requested whether payments made by the M Company to
ts empoyees tor the tme they are absent from work whe servng
n a State Natona Guard are to be treated as wages n determnng
the ta mposed by secton 901, Tte I of the Soca Securty ct.
It s stated that the corporaton vountary pays to ts empoyees the
dfference between ther norma earnngs and the amount actuay
receved by them from the State for the tme they serve as members of
the State Natona Guard.
or the purpose of the ta ng provsons of Tte I of the Soca
Securty ct, t s hed that payments made by the M Company
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421
Regs. 90, rt. 209
equvaent to the dfference between the norma wages of the empoyees
who are absent from work whe servng n a State Natona Guard
and the amount receved from the State for such servces consttute
wages wthn the meanng of secton 907(b) of Tte I of the
Soca Securty ct and artce 209 of Reguatons 90.
Secton 907: Defntons. -43-8364
Reguatons 90, rtce 209: Items ncuded as S. S. T. 51
wages.
actors determnng the vaue to be paced on meas furnshed
to empoyees as a part of ther compensaton n computng the ta
Imposed by secton 901, Tte I of the Soca Securty ct.
dvce s requested whether the ureau has paced a specfc vaue
on meas furnshed by empoyers to ther empoyees as a part of the
empoyees compensaton for the purpose of computng the ta m-
posed by secton 901, Tte I of the Soca Securty ct.
or the purpose of the ta mposed by secton 901 of the ct, the
ureau has paced no specfc vaue on such meas, but w take nto
consderaton the approved vauaton of meas by the severa Staten
where States have aws or reguatons reatve to such vauaton.
Where the States have no such aws or reguatons provdng for such
vauaton, the ureau w recognze that amount whch s the reason-
abe prevang vaue of such meas, takng nto consderaton a of
the surroundng crcumstances, such as the vaue whch the empoyer
charges on hs books of account, f such accounts are reguary kept,
any agreement whch may e st between the empoyer and the em-
poyee reatve to the vaue of such meas, the pace where such meas
are served, and the nature of the servce etc. provded, however,
that no one of the above-mentoned condtons s concusve but s
merey a factor n determnng the true vaue to be paced on the meas
so furnshed.
Secton 907: Defntons. -48-8410
Reguatons 90, rtce 209: Items ncuded as S. S. T. 54
wages.
( so Secton 811 Reguatons 91, rtce 1G.)
ampes of what consttutes the payment of wages wthn
the meanng of secton 907(b) of the Soca Securty ct.
The foowng questons have been presented wth respect to sec-
ton 907(b), Tte I of the Soca Securty ct:
1. (a) n empoyee, earnng 35 per week, s n|ured durng hs empoyment
at the pant. The Indana workmen s compensaton act provdes benefts of
55 per cent of the weeky wage, such benefts not to e ceed, however, 16.50
per week. These benefts do not start unt the eghth day after the n|ury.
In ths case we woud ke to know whether or not the workmen s compensaton
benefts, amountng to 10.50 per week, are consdered wages and sub|ect to the
edera ta .
rtce 207 of Reguatons 90, promugated under the ta ng pro-
vsons of Tte I of the Soca Securty ct, provdes that tho
term wages means a remuneraton for empoyment, payabe n
ether money or somethng other than money. The name by whch
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Regs. 90, rt. 209
422
such remuneraton s desgnated s mmatera. Thus, saares, com-
mssons on saes or on nsurance premums, fees, and bonuses are
wages wthn the meanng of the ct f payabe by an empoyer to
hs empoyee as compensaton for servces not e cepted by the ct.
The benefts pad to an empoyee under the provsons of the work-
men s compensaton act of the State of Indana are not remuneraton
for empoyment and, therefore, are not wages wthn the meanng
of secton 907(b) of the Soca Securty ct. Such benefts are not
sub|ect to the ta ng provsons of Tte I of that ct.
(6) If, In the above case, we vountary pad to such empoyee a fu week s
wage of 35 durng the watng perod (the frst week after the In|ury) and
durng the second and subsequent weeks we pad hm 18.50 n addton to the
amount pad hm by the nsurance company as a beneft under the workmen s
compensaton act, makng the tota amount receved by the empoyee 35 per
week, we woud ke to know whether such a payment of 18.50 per week
consttutes wages and s sub|ect to the edera ta .
Subdvson (b) of artce 209, Reguatons 90, provdes that pay-
ment to an empoyee of so-caed dsmssa wages, vacaton aow-
ances, or sck pay consttutes wages. or the purpose of the ta ng
Provsons of Tte I of the Soca Securty ct, t s hed that the
u week s wages of 35 pad by the empoyer to the empoyed
for the frst week after the n|ury and the amount of 18.50 per
week pad by the empoyer to the empoyee durng subsequent weeks
are wages wthn the meanng of the ct.
(o) Supposng, n the ustraton gven above, the weeky payments of 18.50
were made pursuant to a genera pocy of the rm, such pocy, however, not
beng known to the empoyees nor hed out to them as a part of ther contracts
of empoyment, woud ths change the resut
The fact that the amount of 18.50 per week pad by the empoyer
to the empoyee was pad pursuant to the genera pocy of the frm,
such pocy not beng known to the empoyee nor hed out as an
nducement or part or the contract of empoyment, woud not affect
the answer to the queston.
2. (a) n empoyee, through sckness unreated to hs empoyment, becomes
permanenty dsabed. If we contnue to pay hs saary for s months or a
year, woud such payment be consdered wages and sub|ect to the edera ta
If the empoyer contnues to pay the saary of an empoyee after
he becomes permanenty dsabed through sckness unreated to hs
empoyment, such payments consttute wages wthn the meanng of
secton 907(b) of the Soca Securty ct and artce 209 of Regua-
tons 90.
(6) If such payments are made pursuant to a genera pocy of the frn (aa
under 1(c)) and dependent upon the ength of servce of the partcuar em-
poyee, woud ths affect the resut
The fact that the payments are made by the empoyer to the em-
poyee pursuant to the genera pocy of the frm, such pocy not
beng known to the empoyee nor hed out as an nducement or part
of the contract of empoyment, does not affect the answer to the
queston.
8. Suppose, upon dschargng an empoyee, he s pad one, two, three, or
four months saary, dependng upon hs ength of servce, such payments beng
made under a genera pocy of the frm (as under 1(0)), whch pocy, however,
s unknown to the empoyee and s not hed out to hm as nducement to
empoyment. re these payments consdered wages and ta abe under the
edera aw
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423
Regs. 90, rt. 209.
Under artce 209(6) of Reguatons 90 t s hed that payments of
saary to an empoyee upon hs dscharge are wages sub|ect to the
ta mposed by Tte I of the Soca Securty ct.
4. If an empoyee des and f we shoud pay hs monthy saary to hs wdow
for a perod of s months or a year, woud these payments be consdered
wages and sub|ect to the edera ta
If an empoyee des and the empoyer pays hs monthy saary to
hs wdow for a perod after hs death, such payments are not wages
pad to an empoyee for servces rendered but are n the nature of a
gratuty, and, therefore, not sub|ect to the ta mposed by Tte I
of the Soca Securty ct.
The concusons reached heren reatve to the meanng of the term
wages are aso appcabe under secton 811(a), Tte III of the
ct.
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MISC LL N OUS RULINGS.
GRICULTUR L D USTM NT CT.
-31-8-2-25
T. D.4C71
Refunds under the provsons of sectons 15(a), 15(c), G(e),
16(e)3, and 17(a) of the grcutura d|ustment ct, as amended,
as reenacted by secton 601 of the Revenue ct of 1936, approved
une 22, 1036 (Pubc, No. 740, Seventy-fourth Congress).
rtce 2(a) of Treasury Decson 4486 0. . III-2, 485
(approved October 23, 1934) amended.
rtces 3 and 10 of Reguatons 83 (September, 1934, edton)
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 601 of the Revenue ct of 1936 provdes,
n part:
(a) The provsons of sectons 10(d), 15(a), 15(c), 16(e)(1), 16(e)(3),
and 17(a) of the grcutura d|ustment ct, as amended, are hereby re-
enacted but ony for the purpose of aowng refunds n accordance therewth
n cases where the devery for chartabe dstrbuton or use, or the e porta-
ton, or the manufacture of arge cotton bags, or the decrease n the rate of
the processng ta (or ts equvaent under secton 16(e) (3)), took pace pror
to anuary 6, 1936.
(b) cept for refunds under secton 15(a) of the grcutura d|ustment
ct, as reenacted heren, no refund under ths secton 6ha be made to the
processor or other person who pad or was abe for the ta wth respect to
the artces on whch the cam s based. No refund under ths secton sha
be aowabe to any person wth respect to any artces where such person
pror to anuary 6, 1936, pad an amount as ta under the grcutura d|ust-
ment ct, as amended, by takng as a credt aganst such amount an amount
otherwse aowabe as a refund wth respect to such artces under sectons
15(a), 15(c), 16(e) (1), 16(e) (3), or 17(a) of sad ct. No refund under ths
secton sha be aowed to any person e cept to the e tent that he estabshes
that he has not receved, and s not entted to receve, rembursement of such
amount from the processor or other vendor wth respect to the artces on
whch the cam s based. No cam under ths secton (e cept cams of
processors under secton 15(a)) sha be dsaowed on the ground that the
ta wth respect to the artce or the commodty from whch processed has not
been pad.
(c) No refund under ths secton sha be made uness the camant fes a
cam therefor pror to anuary 1, 1937, under rues and reguatons prescrbed
by the Commssoner of Interna Revenue wth the approva of the Secretary
of the Treasury, and no cam sha be aowed n an amount ess than
10.

(f) No nterest sha be aowed n connecton wth any refund made under
ths secton.
(424)
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(g) Secton 16(e)(1) of the grcutura d|ustment ct, as reenacted by
subsecton (a) of ths secton, s amended by strkng out subsequent to une
26, 1934 and by nsertng n eu thereof on or after une 1, 1934.
Par. . Secton 603 of the evenue ct of 1936 provdes:
The procamatons, certfcates, and reguatons prescrbed by the Secretary
of grcuture under the grcutura d|ustment ct, as amended, n effect
on anuary 5, 1936, nsofar as not nconsstent wth ths ct, are hereby made
appcabe for the purpose of determnng the amount of any refund or payment
authorzed under sectons 601 and 602.
Pah. C. Secton 10(d) of the grcutura d|ustment ct, as
reenacted by secton 601(a) of the evenue ct of 1936. provdes:
The Secretary of the Treasury s authorzed to make such refutatons as may
be necessary to carry out the powers vested n hm by ths tte.
Pursuant to the above quoted provsons of aw, the foowng regu-
atons are hereby prescrbed:
rtcu 1. Genera provsons appcabe to Cams. The foowng genera
provsons are appcabe wth respect to cams for refund under these
reguatons:
(a) Cams for refund w be aowed ony n cases where the devery for
chartabe dstrbuton or use, the e portaton, the manufacture of arge cotton
bags, or the decrease n the rate of the processng ta (or ts equvaent under
secton 16(e)3, took pace pror to anuary 6, 1986.
(6) No refund (e cept refunds under secton 15(a) of the grcutura
d|ustment ct) w be made to the processor or other person who pad or
was abe for the ta wth respect to the artces on whch the cam s based.
Processor or other person who pad or was abe for the ta means any
person, who, under the grcutura d|ustment ct, as amended, pad, or
ncurred abty for but dd not pay, processng ta wth res|ect to the com-
modty from whch the artce was made, or foor stocks ta or compensatng
ta wth respect to the artce or the matera from whch the artce was made.
(c) No refund w be made to any person wth respect to any artce ncuded
n a cam under these reguatons, f such person, pror to anuary 6, 1930
pad an amount as ta under the grcutura d|ustment ct. as amended, by
takng as a credt aganst such amount, an amount otherwse aowabe as a
refund wth respect to such artce. Credt ncudes any amount, otherwse
aowabe as a refund under sectons 15(a), 15(c), 10(e), 16(e)3, or 17(a)
of the grcutura d|ustment ct, as amended, whch was deducted from an
amount due as ta under that ct.
((/) very person who fes a cam under these reguatons sha submt wth
the cam, proof satsfactory to the Commssoner that wth respect to the
amount camed he has not receved, and s not entted to receve, remburse-
ment of such amount, or any part thereof, from the processor of the commodty
from whch the artces were derved, or other vendor wth respect to the
artces on whch the cam Is based.
If any camant has entered nto an agreement, whether ora or wrtten, wth
the processor or other vendor of such artces, under the provsons of whch the
camant has receved, or Is entted to receve rembursement of a or any
part of the ta wth respect to such artces, then the amount of refund aow-
abe s mted to the amount wth respect to whch he Is not so entted to
rembursement.
(e) (1) No cam (e cept cams of processors under secton 15(a) of the
grcutura d|ustment ct) w be dsaowed on the ground that the ta
wth respect to the artce on whch the cam s based (or the commodty from
whch such artce was processed) has not been pad.
(2) ach cam sha show, wth respect to the artces on whch the cam s
based, that the camant s not the processor or other person who pad or was
abe for the ta , e cept that In the case of cams of processors under secton
15(a) of the grcutura d|ustment ct, the cam sha show (1) the name
and address of the person who pad the ta , (2) the knd of ta pad, (3) f
processng ta was pad, the month and year of such processng, (4) the date
of payment, and (5) the nterna revenue dstrct n whch pad.
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426
(/) No cam for refund w be aowed uness such cam sha hare been
fed by the person entted thereto pror to anuary 1, 1937, and no refund w
be aowed n an amount ess than 10.
(g) No nterest w be aowed n connecton wth any refund aowed pur-
suant to secton C01 of the Revenue ct of 1930.
bt.2. Refunds under secton 15(a) of the grcutura d|ustment ct, at
amended, wth respect to arge cotton bags. (a) The provsons of Treasury
Decson 4480, approved October 23, 1934, n so fnr as not nconsstent wth
artce 1 of these reguatons, are hereby made appcabe n cases of cams for
refund, wth respect to arge cotton bags manufactured durng the perod uy 8,
1934, to anuary 5, 1930, both dates ncusve, and wth respect to the processng
of that amount of cotton, the product of whch was used n the manufacture of
arge cotton bags durng the perod une 13, 1934, to uy 7, 1934, both dates
ncusve.
(6) rtce 2(a) of Treasury Decson 4480 s hereby amended to read as
foows:
bt. 2. Cam to be fed by processor. (a) ach processor of cotton s
entted to refund of processng ta pad on the processng of that amount of
cotton, the product of whch was used n the manufacture of arge cotton bags
durng the perod begnnng at the frst moment of une 13, 1934, and endng at
the ast moment of uy 7, 1934.
The cam for refund of ta pad after une 12, 1934, sha be e ecuted on
P. T. orm 24- . The cam for refund of ta pad on or before une 12. 1934,
sha be e ecuted on P. T. orm 24- revsed. The cam for refund sha be
e ecuted, under oath, n accordance wth these reguatons, and fed wth the
coector of nterna revenue for the dstrct n whch the prncpa pace of
busness of the camant s ocated.
The grounds and facts aeged n support of the cam sha be competey
set forth n deta and show (1) the month n whch the processng of the cotton
occurred whch was used n the manufacture of the bags, (2) the date when the
ta on such processng was pad, (3) the perod durng whch the arge cotton
bags were manufactured, (4) the number, the tota weght, and the content
(. e., whether nt cotton, card strps, or comber waste) of bags of each sze
manufactured, and (5) wth respect to each sze of bag, the wdth of the fabrc
used, n nches, before cuttng, the number of yards per pound, the ength of the
cut of such fabrc, and whether the fabrc s unbeached not coored, or coored
or beached. The amount of refund camed sha aso be shown.
bt. 3. Refunds under secton 15(c) of the grcutura d|ustment ct, as
amended, wth respect to artces devered for chartabe dstrbuton or use.
The provsons of Treasury Decson 4454 C. . 1II-2, 479 , approved uy 26,
1934, n so far as not nconsstent wth artce 1 of these reguatons, are hereby
made appcabe In cases of cams for refund wth respect to products devered
for chartabe dstrbuton or use.
ut. 4. Refunds under secton G(e) of the grcutura d|ustment ct, as
amended, wth respect to certan artces processed from tobacco. (a) The
provsons of Treasury Decson 4494 C. . III-2, 500 , approved November 8,
1934, n so far as not nconsstent wth artce 1 of these reguatons, are hereby
made appcabe n cases of cams for refund wth respect to foor stocks of pug
chewng tobacco or twst tobacco processed whoy or n chef vaue from fue-
cured tobacco hed for sae or other dsposton at the frst moment of ugust 1,
1934.
(6) The provsons of Treasury Decson 4530 C. . I -1, 475 , approved
March 8. 1935, n so far as not nconsstent wth artce 1 of these reguatons,
are hereby made appcabe n cases of cams for refund wth respect to foor
stocks of chewng tobacco or scrap chewng tobacco or scrap smokng tobacco
processed whoy or n chef vaue from tobacco, other than arey tobacco, hed
for sae or other dsposton at the frst moment of ebruary 1, 1935.
(c) The provsons of Treasury Decson 4593 C. . I -2, 401 , approved
October 21, 1 )35, n so far as not nconsstent wth artce 1 of these reguatons,
are hereby made appcabe n cases of cams for refund wth respect to foor
stocks of chewng tobacco (e cept scrap) processed whoy or n chef vaue
from urey tobacco hed for sae or other dsposton at the frst moment of
ebruary 1, 1935.
(d) The provsons of Treasury Decson 4010 C. . I -2, 464 , approved
December 4, 1935, n so far as not nconsstent wth artce 1 of these reguatons,
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Ms a.
are hereby made appcabe n cases of cams for refund wth respect to foor
stocks of artces processed whoy or n chef vaue from fue-cured tobacco, or
artces other than chewng tobacco processed whoy or n chef vaue from
urey or fre-cured tobacco hed for ste or other dsposton at the frst moment
of October 1, 1935.
rt. 5. Refunds under sectons 16(e) and 16(e)S of the grcutura d|ust-
ment ct, as amended, th respect to certan artces processed from paper, |ute
fabrc, and cotton, The provsons of Treasury Decson 4474 C. . III-2, 489 ,
approved September 11, 1934, n so far as not nconsstent wth artce 1 of these
reguatons, are hereby made appcabe n cases of cams for refund wth
respect to mutwa paper bags weghng more than 200 pounds per 1,000 bags,
or coated paper bags, or open-mesh paper bags, or paper towes, or |ute bags hed
for sae or other dsposton at 12.01 a. m., eastern standard tme, une 12, 1934,
or arge cotton bags hed for sae or other dsposton at the frst moment of
une 13, 934.
bt. 6. Refunds under secton 11(a) of the grcutura d|ustment ct, as
amended, wth respect to artces e ported. (a) The provsons of Reguatons
83 (September, 1934, edton), n so far as not nconsstent wth artce 1 of these
reguatons, are hereby made appcabe n cases of cams for refund wth
respect to products e ported.
( ) rtce 3(a) of Reguatons 83 (September, 1934, edton), Is hereby
amended to read as foows:
rtce 3. Cam for refund. (a) (1) Who may fe cam.
. The consgnor named n the b of adng under whch the product s
e ported sha be entted to make cam for refund uness he sha have waved
such rght to the shpper. Consgnor named n the b of adng means the per-
son named n the b of adng as the person from whom the carrer receved the
product for shpment.
. The shpper, f other than the consgnor named n the b of adng, sha
be entted to make cam for the refund ony f the consgnor sha have waved
any cam to such refund to hm. In such case, the term shpper means the
person for whom the consgnor named n the b of adng s handng the
prod act for shpment.
C. Where the product was not e ported under a b of adng, the person
who owned the product at the tme of e portaton sha be entted to make cam
for refund, and a waver may not be used.
D. No refund w be made to the processor or other person who pad or was
abe for the ta wth respect to the products e ported.
(2) The cam for refund sha be e ecuted by the camant on the prescrbed
form, P. T. orm 27, revsed, n accordance wth the nstructons contaned
thereon, and n accordance wth these reguatons. The cam must be fed
wth the coector for the dstrct n whch s ocated the prncpa pace of bus-
ness of the camant. If the camant has no prncpa pace of busness n the
Unted States, the cam must be fed wth the coector at atmore, Md. One
cam may cover a number of e port shpments.
(o) rtce 10 of Reguatons 83 (September, 1934, edton), s hereby amended
to read as foows:
rt. 10. s of adng. (a) t the tme of fng, a cam for refund sha
be accompaned by a copy of the b of adng ssued by the proper representatve
of the carrer, coverng the merchandse descrbed n each appcaton for
Inspecton.
(6) Waver. If the cam s fed by the shpper there must be submtted
wth the cam a waver, attached to the b of adng, and e ecuted by the
consgnor named n the b of adng. The foowng form shoud be used:
, the consgnor named n the b of adng
dentfed as hereby waves any cam to
(Identfy fuy.)
refund under the provsons of secton 17(a) of the grcutura d|ustment
ct, as amended, wth respect to the products e ported as descrbed n such
b of adng, and states that s the shpper
and the person entted to such refund.
(Consgnor named In b of adng.)
If the consgnor s a corporaton, a proper corporate sgnature must bo
aff ed to the waver attested by the secretary of the corporaton.
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428
waver may be submtted coverng a part of a shpment, but such waver
must competey dentfy that part of the shpment to whch t reates and must
be accompaned by a copy of the b of adng.
(c) ach copy of the b of adng sha be ndorsed by the carrer as
foows: dupcate copy ssued for nterna revenue purposes.
Gut T. evernq,
Commssoner of Interna Revenue.
pproved uy 27, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 31, 1930, 12.37 p. m.)
-31-8226
T. D. 4672
Payment to certan persons, who, at the frst moment of an-
uary 0, 1930, hod for sae or other dsposton artces processed
from commodtes sub|ect to processng ta under the grcutura
d|ustment ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 602 of the Revenue ct of 1936 provdes, n
part:
(a) There sha be pad to any person who, at the frst moment of anuary
( , 1 3G, hed for sae or other dsposton (ncudng manufacturng or further
processng) any artce processed whoy or n chef vaue from a commodty
sub|ect to processng ta , an amount computed as provded n subsecton (b),
e cept that no such payment sha be made to the processor or other person
who pad or was abe for the ta wth respect to the artces on whch the
cam s based.
(b) The amount of the payment under subsecton (a) sha be equa to the
processng ta whch woud have been payabe wth respect to the commodty
from whch the artce was processed, f t had been processed on anuary 5,
1030, but not n e cess of (1) the amount of the burden of the ta wth re-
spect to the artce whch was shfted to the camant n the prce he pad for
the artce (to the e tent that the camant has not receved and s not entted
to receve rembursement for such burden from the processor or other vendor)
and not n e cess of (2) the amount of that part of the burden of the ta
appcabe to the artces hed on anuary 6, 1036, whch the camant has not
passed on to hs vendees and has not ncuded n the sae prce of such artces.
In eu of a detaed schedue of artces, purchases, sae prces, and saes under
causes (1) and (2) of ths subsecton, the camant may (sub|ect to the ap-
prova of the Commssoner and such nvestgatons as he may cause to be
made) submt, as a part of hs cam, an affdavt settng forth the tota amount
of ta burden passed on to hm on the artces wth respect to whch cam s
made the tota amount of such burden for whch he has receved or s entted
to receve rembursement from the processor or other vendor the tota amount
of such burden that he has passed on to hs vendees or has ncuded n the sae
prces ot such artces and the tota amount of such burden that he has
borne hmsef.
(c) s used n ths secton
(1) The term commodty sub|ect to a processng ta means a commodty
upon the processng of whch a ta was provded for under the grcutura
d|ustment ct, as amended, as of anuary 5, 1930.
(2) The term ta wth respect to the artce means any ta under the
grcutura d|ustment ct, as amended, wth respect to the artce (or wth
respect to any commodty or other artce from whch t was processed).
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(3) The tPrm sae prce ncudes the prce at whch the camant actuay
sod the artce or artces pror to the date of the fng of hs cam or, f the
artce or artces have not been sod, the prce at whch he s offerng the same
for sae on the date of the fng of hs cam.
(d) No payment sha be made under ths secton uness the camant fes
a cam therefor pror to anuary 1, 1937, n conformty wth reguatons pre-
scrbed by the Commssoner wth the approva of the Secretary, nor uness he
estabshes to the satsfacton of the Commssoner the facts on whch such
cam s based.
(e) No cam under ths secton sha be dsaowed on the ground that the
ta wth respect to the artce or the commodty from whch processed has not
been pad, but no cam sha be aowed n an amount ess than 10. No pay-
ment sha be made under ths secton n connecton wth any artce wth re-
spect to whch a refund has been aowed or credt has been taken under the
grcutura d|ustment ct, as amended, or a refund has been aowed or s
aowabe under secton 601 of ths tte.
(f) No payment sha be made under ths secton wth respect to artces
hed n reta foor stocks e cept (1) four, prepared four, cerea preparatons,
and guten, made chefy from wheat, as cassfed n Wheat Reguatons,
Seres 1, Suppement 1, promugated under the grcutura d|ustment ct
and the amendments thereto, (2) artces processed whoy or n chef vaue
from cotton, and (3) drect-consumpton sugar processed from sugar beets or
sugarcane. No payment under ths secton sha be made wth respect to
artces processed from wheat, sugar beets, or sugarcane hed n other than
reta stocks e cept (1) four, prepared four, cerea preparatons, and guten,
made chefy from wheat, as cassfed n Wheat Reguatons, Seres 1, Suppe-
ment 1, and (2) drect-consumpton sugar.
(g) In the case of artces whch were agreed to be sod under a contract
entered nto pror to anuary 6, 1936, whereby the vendee agreed to pay a
prce ncudng the amount of the ta wth respect to the artces, but whch
were not devered pror to such date, the vendee sha be consdered the
hoder of such artces.

( ) No Interest sha be aowed n connecton wth any payment made
under ths secton.
Pae. . Secton 603 of the Revenue ct of 1936 provdes:
The procamatons, certfcates, and reguatons prescrbed by the Secretary
of grcuture under the grcutura d|ustment ct, as amended, n effect
on anuary 5, 15)36, nsofar as not nconsstent wth ths ct, are hereby made
appcabe for the purpose of determnng the amount of any refund or pay-
ment authorzed under sectons 601 and 602.
Pursuant to the above-quoted provsons of aw, the foowng
reguatons are hereby prescrbed:
rtce 1. Defntons. The foowng defntons are hereby prescrbed:
(a) Person ncudes an ndvdua, a corporaton, a partnershp, a trust or
estate, a |ont stock company, an assocaton, or a syndcate, group, poo, |ont-
venture or other unncorporated organzaton or group, through or by means
of whch any busness, fnanca operaton, or venture s carred on. It n-
cudes a guardan, commttee, trustee, e ecutor, admnstrator, trustee n bank-
ruptcy, recever, assgnee for beneft of credtors, conservator, or any person
actng n a fducary capacty.
(6) Commodty means any of the foowng: wheat, cotton, fed corn, hogs,
peanuts, rce, rye, sugar beets and sugarcane, tobacco, paper when processed
nto certan artces (as defned n Treasury Decson 4495 C. . III-2, 515 ),
|ute yarn when processed nto |ute twne (as defned n Treasury Decson
44 . ), |ute fabrc when processed Into sma |ute bags (as defned n Treasury
Decson 4495), and renforced paper fabrc when processed Into renforced
paper fabrc tape (as defned n Treasury Decson 4611 C. . I -2, 433 ).
(c) Processor means the person who Incurred, under the grcutura d-
|ustment ct, as amended, abty for ta on the frst domestc processng of
a commodty, the products of whch may be made the bass of a cam for pay-
ment under secton 602 of the Revenue ct of 1936.
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430
( Z) urden of ta means that amount ncuded In the vaue or prce of an
artce whch s attrbutabe to processng ta , foor stocks ta or compensat-
ng ta , mposed under the grcutura d|ustment ct, as amended.
(e) Sae prce ncudes the prce at whch the camant actuay sod the
artce or artces pror to the date of the fng of hs cam or. If the artce
or artces have not been sod, the prce at whch he s offerng the same for
sae on the date of the fng of hs cam.
(/) Commodty sub|ect to a processng ta means a commodty upon the
processng of whch a ta was provded for, as of anuary 5, 1030, under the
grcutura d|ustment ct, as amended.
(g) Taw wth respect to the artce means any ta under the grcutura
d|ustment ct, as amended, wth respect to the artce (or wth respect to any
commodty or other artce from whch It was processed).
(h) Sae or other dsposton ncudng manufacturng or further process-
ng) ncudes the partng wth ownershp of the artce In queston, whether
done by sae, trade, barter, e change, gft, or other method of dsposton, and It
ncudes (as to artces hed by any person other than the utmate consumer
thereof) manufacturng, further processng, or use n producton. It ncudes a
ease wth an opton to purchase, a condtona sae, an nstament sae, or any
other contractua arrangement contempatng the utmate transfer of owner-
shp. n artce hed at the frst moment of anuary 6, 1936, for sae or other
dsposton (ncudng manufacturng or further processng) s, nevertheess,
so hed by the owner thereof, athough on such date the artce s
(1) n transt to or from the owner
(2) n a common or pubc warehouse
(3) n the custody of the aw, whether or not n the possesson of an offcer
of the court or any other pubc offcer
(4) n the possesson of any other person, whether or not an agent, empoyee,
factor, or commsson merchant.
( ) rtce processed whoy or n chef vaue from a commodty means an
artce made entrey from a commodty, or an artce made of two or more
components, the commodty consttutng a component havng a vaue greater
than that of any other component n artce Is made from a commodty when
the commodty or any of Its processed forms has been used n makng the
artce. In determnng the vaue of the commodty as a component, the com-
bned vaues of the commodty and of every processed form of t used n makng
the artce, sha be the vaue of the commodty as a component. In determn-
ng the component havng the greatest vaue, the vaue of each of the severa
components sha be the vaue at the moment mmedatey precedng the pro-
ducton of the artce n queston. The term vaue reates ony to the vaue
of the components of an artce and not to the vaue of the contaner n whch
such artce s hed for sae or other dsposton.
(/) Reta stock means ony a separate stock of artces whch are hed for
sae drecty to consumers n an estabshment or separate department where
artces are sod e cusvey at reta. In the case of a person engaged In both
reta and whoesae trade, the term ncudes ony a separate stock of artces
hed n a separate estabshment or department where saes are made e cu-
svey nt reta, and does not Incude a stock of artces from whch saes are
made ether at reta or whoesae. rtces In transt to the owner are to be
deemed a part of reta stocks ony f paced theren Immedatey upon arrva
(see aso artce 5(d)). Reta stocks do not ncude:
(1) rtces hed esewhere than n a separate reta stock, or for pacement
n stocks from whch saes may be made both at reta or whoesae.
(2) rtces hed at the frst moment of anuary 6, 1936, In a warehouse of
any knd, or n transt thereto.
(3) rtces wherever hed whch are not to be sod as such, but are to be
used n any way n the manufacture or producton of other artces.
(ft) Warehouse. The term warehouse s to be construed In accordance
wth Its broadest usage.
(I) Commssoner means the Commssoner of Interna Revenue,
(m) Coector means coector of nterna revenue.
(n) rst moment of anuary 6, 1936, means the begnnng of such day de-
termned n accordance wth the aw reguatng standard tme zones, that Is to
say, that such date wth respect to any partcuar pace sha be In accordance
wth the Unted States standard tme for the zone wthn whch such pace s
ocated.
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(o) Incude and ncudng when used n a defnton sha not be deemed to
e cude other thngs otherwse wthn the meanng of the term defned.
et. 2. Genera. Payment tcth respect to foor stocks. (a) Sub|ect to the
mtatons.and e ceptons set forth n ths artce, any person (not a processor
or other person who pad or was abe for the ta wth respect to the artce)
who, at the frst moment of anuary 6, 1036, hed for sae or other dsposton
(ncudng manufacturng or further processng) any artce processed whoy
or n chef vaue from a commodty sub|ect to a processng ta , Is entted to
a payment of an amount equvaent to such ta whch woud have been payabe
wth respect to the commodty from whch the artce was processed, If the
processng had occurred on anuary 5, 1936.
1. Lmtaton as to urden of ta . The amount of the payment wth respect
to an artce sha not be n e cess of ( ) the amount of the burden of the ta
wth respect to the artce whch was shfted to the camant n the prce he
pad for the artce, or the matera from whch t was made (to the e tent
that the camant has not receved and s not entted to receve rembursement
for such burden from the processor or other vendor) and not In e cess of ( )
the amount of that part of the burden of the ta appcabe to the artce, whch
the camant has not passed on to hs vendee and has not ncuded In the sae
prce of such artce. camant s entted to receve rembursement for the
ta burden from a processor or other vendor, f the camant has entered nto
an agreement, wrtten or ora, wth the processor or other vendor, provdng
for repayment to the camant of part or a of the burden of the ta passed
on to hm In the prce pad for the artce or the matera from whch t was
made.
2. Lmtaton as to dupcaton of payment. No payment sha be made as to
any artce wth respect to whch a refund has been aowed or credt taken
under the grcutura d|ustment ct, as amended or wth respect to whch
a refund has been aowed or s aowabe under secton 601 of the Revenue
ct of 1936.
3. cepton as to reta stocks. No payment Is aowabe wth respect to
artces hed n reta stocks e cept:
( ) our, prepared four, cerea preparatons, and guten (as defned In
Treasury Decson 4579 0. . I -2, 483 ) made chefy from wheat.
( ) rtces processed whoy or In chef vaue from cotton.
(C) Drect-consumpton sugar (as defned n Treasury Decson 4549 C. .
I -1, 462 ) processed from sugar beets or sugarcane.
4. cepton as to artces processed from wheat, sugar eets or sugarcane
hed n other than reta stocks. No payment s aowabe wth respect to
artces processed from wheat, sugar beets or sugarcane, hed n other than
reta stocks, e cept:
( ) our, prepared four, cerea preparatons, and guten (as defned In
Treasury Decson 4579) made chefy from wheat.
( ) Drect-consumpton sugar (as defned In Treasury Decson 4549).
(6) Person entted to payment. Payment may be aowed ony to the owner
of the artce hed for sae or other dsposton at the frst moment of anuary 6,
1936. Ownershp or tte s determned accordng to the aw of goods and other
persona property. In the case of artces whch were not devered at the frst
moment of anuary 6, 1936, but whch were agreed to be sod under a contract,
entered nto pror to anuary 6, 1936, under whch the vendee contracted to pay
a prce ncudng the amount of the ta wth respect to suc artces, the vendee
sha be consdered the hoder of such artces.
No payment wth respect to any artce may be made to the processor or
other person who pad or who was abe for the ta wth respect to such artce.
Ths Incudes any person who, under the grcutura d|ustment ct, as
amended, pad, or Incurred abty for but dd not pay, processng ta wth
respect to the commodty from whch the artce was made, or foor stocks ta
or compensatng ta wth respect to the artce or the matera from whch the
artce was made.
et. S. Cam for payment. (a) cam for payment sha be e ecuted on
the prescrbed form, under oath, n accordance wth the nstructons prnted on
such form, and In accordance wth these reguatons. P. T. orm 71 s pre-
scrbed as the form on whch sha be fed cam for payment wth respect to
artces hed esewhere than n separate reta stocks. 1 . T. orm 72 s pre-
scrbed as the form on whch sha be fed cam for payment wth respect to
artces hed n separate reta stocks. Copes of the prescrbed forms may be
obtaned from any coector of nterna revenue.
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432
(6) The cam sha be fed wth the coector of nterna revenue for the
dstrct n whch the prncpa pace of busness of the camant s ocated. If
the camant has no prncpa pace of busness n the Unted States, the cam
sha be fed wth the coector of Interna revenue at atmore, Md.
(c) The cam sha be sgned by the camant, and sha be sworn to (or
affrmed) by hm, f an ndvdua, or, f a corporaton or frm, by a duy author-
zed offcer or member thereof.
(d) No cam sha be dsaowed as to any artce on the ground that the ta
wth respect to such artce (or the commodty or matera from whch made)
has not been pad.
rt. 4. Deto-mnaton of amount of payment. The amount of payment wth
respect to each artce sha be determned n accordance wth the defntons
and cassfcatons of artces and the rates of refund contaned n the Treasury
Decsons heren sted, whch defntons, cassfcatons, and rates are hereby
made a part of these reguatons:
rtces processed from:
Cotton, Treasury Decson 4433 O. . III-1, 474 .
ed corn, Treasury Decson 4407 O. . II-2, 444 ,
ogs, Treasury Decson 4518 0. . I -1, 450 .
ute yarn, Treasury Decson 4495 O. . III-2, 515 .
ute fabrc, Treasury Decson 4495 C. . III-2, 515 .
Paper, Treasury Decson 4495 0. . III-2, 515 .
Peanuts, Treasury Decson 4489 C. . III-2, 493 .
Renforced paper fabrc, Treasury Decson 4611 O. . I -2, 433 .
Rce, Treasury Decson 4586 O. . I -2, 445 .
Rye, Treasury Decson 4601 O. . I -2, 453 .
Sugar beets and sugarcane, Treasury Decson 4549 O. . I -1, 402 .
Tobacco, Treasury Decson 4010 O. . I -2, 464 .
Wheat, Treasury Decson 4579 O. . I -2, 483 .
et. 5. Proof of cam (a) Genera. ach cam sha be supported by proof
satsfactory to the Commssoner (see paragraph (6) of ths artce), (1) that
the camant s not the processor or other person who pad or was abe for
the ta wth respect to the artces on whch the cam s based, (2) that the
amount of the payment camed Is not In e cess of that part of the burden
of the ta wth respect to such artces whch was shfted to the camant n
the prce he pad for the artces or the matera from whch they were made,
(3) that the amount camed does not ncude any part of such burden for
whch the camant has receved or s entted to receve rembursement from
the processor or other vendor, and (4) that the amount camed Is not n e -
cess of that part of the burden of the ta appcabe to the artces hed on
anuary 6, 1936, whch the camant has not passed on to hs vendees and
has not ncuded n the sae prce of such artces.
The grounds and facts aeged In support of the cam must be set forth n
deta, Incudng ( ) the name and address of the camant, ( ) a compete
descrpton of the artces formng the bass of the cam (cassfed In accord-
ance wth the appcabe Treasury decson (see artce 4)), (C) the amount
of payment camed wth respect to each artce, stated separatey as to each
commodty from whch such artce was processed, and (D) the tota amount
for whch payment s camed.
(b) ffdavt as to ta burden, The camant sha submt, as a part of hs
cam, an affdavt settng forth wth respect to each commodty from whch
were processed the artces on whch the cam Is based, (1) the tota amount
of the burden of the ta . passed on to hm, (2) the tota amount of such
burden for whch the camant has receved or s entted to receve remburse-
ment from the processor or other vendor, (3) the tota amount of such burden
that the camant has passed on to hs vendees or has ncuded In the sae
prce of such artces, and (4) the net amount of such burden that the cam-
ant has borne hmsef, whch net amount sha be the amount for whch cam
s made. The Commssoner, sub|ect to such nvestgatons as he may cause
to be made, may accept such affdavt as proof of cam wthout requrng the
camant to submt schedues of artces, purchases, sae prces and changes
theren, and saes, to estabsh separatey as to each artce the facts requred
to be estabshed by causes (1) and (2) of subsecton (b) of secton 602 of
the Revenue ct of 19.16. Submsson of such affdavt does not reeve the
camant of the necessty of submttng as part of hs cam schedues of
artces on hand at the frst moment of anuary 6, 1036, requred n paragraph
(o) of ths artce.
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(c) Speca schedues respectng ta burden. The Commssoner may requre
that the camant sha, n addton to the affdavt as to ta burden requred
n paragraph (6) of ths artce, submt n support of hs cam such speca
schedues and such other evdence as he may deem necessary to estabsh the
e tent to whch the camant has borne the burden of the ta . mong other
thngs, the camant sha, when requred by the Commssoner, submt wth
respect to any or a artces formng the bass of hs cam, a speca schedue
or schedues of such nformaton as may be necessary to meet such requre-
ments, Incudng (1) the name and address of the processor or other vendor,
(2) the purchase prce, (8) the amount of the ta burden Incuded In the
purchase prce, (4) the amount of the ta burden for whch the camant has
receved or Is entted to receve rembursement from the processor or other
vendor, (5) sae prces n effect on anuary 5, 1936, wth respect to the
artces, (6) the actua sae prce, and (7) the amount of the ta burden
passed on by the camant to hs vendees or ncuded by the camant n the
actua sae prces. ach such schedue sha Incude or be accompaned by
a statement, under oath, of the person makng t that t s true and correct
and that t s e ecuted and submtted for the purpose of obtanng a payment
under secton 602 of the Revenue ct of 1936.
(d) Inventory. The camant sha make or cause to be made an temzed
Inventory or nventores of a artces wth respect to whch payment s camed
whch were hed by the camant for sae or other dsposton (ncudng manu-
facturng or further processng) at the frst moment of anuary 6, 1936. Sepa-
rate Inventores sha be made wth respect to such artces as were hed (1) n
or on each pace of busness, store, shop, branch or estabshment n or on whch
the camant conducts hs busness (2) n or on each warehouse or pace of
storage of any knd (3) In transt (4) In separate reta stocks.
n agent or other person hodng artces on consgnment or other smar
arrangement for the camant sha make a separate nventory of the artces so
hed.
rtces whch were n transt at the frst moment of anuary 6, 1936, sha
not be ncuded n any cam on P. T. orm 71 or P. T. orm 72 uness the
camant submts therewth a statement from the other party nvoved n the
transacton, settng forth the dentty of each such shpment, a fu descrpton of
the artces contaned theren, and a statement that such artces have not been
and w not be ncuded n any cam fed by hm under secton 602 of the
Revenue ct of 1936.
separate nventory sha aso be made wth respect to artces not devered
at the frst moment of anuary 6, 1936, but whch were agreed to be sod under
a contract entered nto by the camant wth hs vendor pror to anuary 6, 1936,
under whch the camant agreed to pay to such vendor a prce ncudng the
amount of the ta wth respect to such artces.
ach nventory sha be made n dupcate. In the case of artces hed at
more than one ocaton (or by the vendor, or any person hodng artces for hm,
under the type of contract referred to above), the orgna of the nventory sha
be forwarded by the person makng t to the prncpa pace of busness of the
camant and the dupcate copy retaned on the premses where the artces were
hed, or, n the case of artces n transt, at the prncpa pace of busness of
the camant.
The varous nventores receved by the camant from the dfferent ocatons
sha be assembed, and the quantty of the artces wth respect to whch pay-
ment s camed, shown on the separate nventores, sha be consodated by the
camant to form a consodated nventory. The consodated nventory sha be
retaned at the prncpa pace of busness of the camant or at some other safe
and accessbe ocaton. The foregong nventory or nventores sha be pre-
served at the pace prescrbed for a perod of four years from the date of fng
the cam.
ach artce sted on the foregong nventory or nventores sha be cassfed
strcty n accordance wth the defnton and cassfcaton prescrbed therefor n
the appcabe Treasury decson.
rtces wth respect to whch a refund has been aowed or credt taken
under the grcutura d|ustment ct, as amended, or a refund has been
aowed or Is aowabe under secton 601 of the Revenue ct of 1936 (ncud-
ng credt or refund wth respect to arge cotton bags) sha not be nventored.
(e) Schedue. The camant sha enter, on the approprate schedue or sched-
ues whch consttute a part of the cam, a artces formng the bass of hs
cam. Such schedue or schedues sha be prepared by the camant from the
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434
nventory or Inventores referred to n paragraph (d) of ths artce. Such art-
ces sha be cassfed strcty n accordance wth the defnton and cassfcaton
prescrbed therefor n the appcabe Treasury decson (see artce 4). Such
artces sha be nventored on the partcuar schedue for the commodty from
whch the artces were processed, e. g., a cotton artces sha be sted ony on
the schedue prescrbed for stng artces processed from cotton, etc.
Cotton bags, and aundry nets and dye nets, other than arge cotton bags,
sha be sted on P. T. orm 74 suppement to Schedue . Ths suppementa
schedue sha be securey attached to, and made a part of Schedue n the
approprate cam on P. T. orm 71 or 72. Copes of P. T. orm 74 may be
obtaned from any coector of Interna revenue.
bt. 6. Lmtaton as to tme for fng cam. No payment sha be made
uness cam therefor s fed by the person entted thereto pror to anuary 1,
1937.
bt. 7. Lmtaton as to amount of cam. No cam sha be aowed for an
amount ess than 10.
bt. 8. Lmtaton as to payment of nterest. No nterest sha be aowed
n connecton wth any cam for payment.
rt. 9. Oath. ny oath requred sha be admnstered by an offcer au-
thorzed to admnster oaths generay and under sea, or by a deputy coector
of nterna revenue or revenue agent
bt. 10. Geographca scope. The provsons of these reguatons sha appy
to the Unted States, the Dstrct of Coumba, the Terrtores of awa and
aska, Puerto Rco, and wth respect to drect-consumpton sugar processed
from sugar beets and sugarcane, to the Phppne Isands.
rt. 11. Records. ny person who fes a cam for payment sha preserve,
for four years thereafter, a compete and detaed record of the facts upon
whch the cam was based. cept as otherwse provded n these reguatons,
the books, records, papers, documents, etc., upon whch the matter set forth
n such cam was based, sha be kept on fe at the prncpa pace of busness
of the camant, or at some other accessbe and safe ocaton, and sha be
open for nspecton at a tmes by any nterna revenue offcer. The records
sha be kept n such manner, and sha contan such nformaton, as w enabe
the Commssoner to determne the correct amount due the camant.
rt. 12. Penaty for fasfcaton or conceament. Secton 35, as amended.
Unted States Crmna Code, provdes for a fne of 10,000 or 10 years mprson-
ment, or both, for the fng of a fase cam, for makng a fase statement n
an affdavt, or for fasfyng, conceang, or coverng up by any trck, scheme, or
devce, a matera fact n connecton wth a cam.
Gt|t T. h vernq,
Commssoner of Interna Revenue.
pproved uy 27, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 31, 1936, 12.36 p. m.)
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435 Mso.
LI UOR T DMINISTR TION CT. (1936)
-27-8159
T. D.4650
Ta -payment, wthdrawa, and transfer of dsted sprts from
cstern room of regstered dstery.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
The frst paragraph of secton 602 of the Revenue ct of 1918, as
amended by secton 308 of the Lquor Ta dmnstraton ct, reads
as foows:
Sec. 602. Sub|ect to the provsons of e stng aw, sprts produced at reg-
stered dsteres and reduced In the recevng csterns n such dsteres
to not more than 159 degrees of proof and not ess than 100 degrees of proof,
may be transferred, by means of ppe nes, drect to storage tanks In the
nterna revenue bonded warehouse ocated on the bonded premses where
produced and be warehoused n such storage tanks, or they may be drawn
nto approved contaners and transferred to any nterna revenue bonded
warehouse for storage theren, or they may be ta -pad In such approved
contaners In such cstern rooms, wthout beng entered nto an nterna
revenue bonded warehouse. Such sprts may be drawn nto approved con-
taners from storage tanks n nterna revenue bonded warehouse ocated on
the bonded premses of the dstery ether for storage n bond or ta pay-
ment. Such sprts, upon ta payment, may be transported In approved con-
taners for use for beverage purposes ony. The Commssoner of Interna
Revenue, wth the approva of the Secretary of the Treasury, Is hereby em-
powered to prescrbe a necessary reguatons reatng to the drawng off,
transferrng, gaugng, storng, and transportaton of such sprts the records
to be kept and returns to be made the sze and knd of contaners to be used
the markng, brandng, numberng, and stampng of such contaners the knd
of stamps, If any, to be used and the knd of bond and the pena sum
thereof.
Secton 3287, R. S., as amended by secton 201 of the Lquor Ta
dmnstraton ct, reads as foows:
Sbo. 3287. (a) cept as provded n secton 602 of the Revenue ct of
1918, as amended, a dsted sprts sha be drawn from recevng csterns
nto casks or packages and thereupon sha be gauged, proved, and marked by
a storekeeper-gau er, and mmedatey removed nto an nterna revenue bonded
warehouse. The Commssoner of Interna Revenue, wth the approva of the
Secretary of the Treasury, s hereby empowered to prescrbe a necessary
reguatons reatng to the drawng off, gaugng, and packagng of dsted
sprts the markng, brandng, numberng, and stampng of such packages and
the transfer and transportaton to, and the storage of such sprts In, nterna
revenue bonded warehouses.
(b) Upon the appcaton of the dstor and under such reguatons as the
Commssoner of Interna Revenue, wth the approva of the Secretary of the
Treasury, may prescrbe, dsted sprts may be drawn nto wooden packages,
each contanng two or more metac cans, whch cans sha each have a
capacty of not ess than fve gaons, wne measure. Such packages sha
be fed and used ony for e portaton from the Unted States. nd there
sha be charged for each of sad packages or cases for the e pense of pro-
vdng and aff ng stamps, 5 cents.
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436
(c) The Commssoner of Interna Revenue, wth the approva of the Sec-
retary of the Treasury, may, by reguatons, prescrbe the standards of f
of casks or packages of dsted sprts at each dstery.
(d) The Commssoner of Interna Revenue, wth the approva of the Sec-
retary of the Treasury, may, by reguatons, from tme to tme, requre a ds-
ter, at hs e pense and under the mmedate persona supervson of a
storekeeper-gauger, to do such markng and brandng and such mechanca
abor pertanng to gaugng requred under ths secton as the Commssoner
deems proper and determnes may be done wthout danger to the revenue.
Subsecton (a) of secton 3293, R. S., as amended by secton 309
of the Lquor Ta dmnstraton ct, provdes as foows:
Sea 3293. (a) The dsters of a sprts removed to an Interna revenue
bonded warehouse sha enter the same for depost n such warehouse, under
such reguatons as the Commssoner of Interna Revenue may prescrbe. Sad
entry sha be n such form as the Commssoner sha prescrbe.
Pursuant to these provsons of aw, the foowng reguatons are
prescrbed :
Paragraph 1. Under secton C02, herenbefore quoted, dsted sprts pro-
duced at regstered dsteres and reduced n the recevng csterns thereof
to not more than 159 and not ess than 100 degrees of proof mny be:
(a) Transferred by means of ppe nes drect to storage tanks n an Interna
revenue bonded warehouse on the premses where produced, and warehoused
n such storage tanks
(6) Drawn Into approved contaners and transferred to any Interna revenue
bonded warehouse for storage theren
(c) Ta -pad n approved contaners n the dstery cstern room, wthout
beng entered nto an nterna revenue bonded warehouse
d) Drawn nto approved contaners from storage tanks n the Interna
revenue bonded warehouse ocated on the bonded premses of the dstery,
ether for storage In bond or mmedate ta -payment
(e) Transported, upon ta -payment, n approved contaners for use for bev-
erage purposes ony.
Par. 2. Under secton 3287, R. S., herenbefore quoted, dsted sprts whch,
before reducton n the recevng csterns, are of a composte proof of not
more than 159 degrees sha be drawn nto casks or packages and thereupon
sha be gauged, proofed, and marked, and mmedatey removed nto an
nterna revenue bonded warehouse.
Sze and nd of Contaners.
Par. 8. Under secton 602, dsted sprts reduced In the recevng csterns
to not more than 159 and not ess than 100 degrees of proof may be drawn from
such csterns, or from storage tanks In an Interna revenue bonded warehouse
ocated on the bonded premses where produced, nto casks, barres, or smar
wooden packages, or Into drums, or smar meta packages, havng a capacty
of not ess than 10 wne gaons each. Such sprts may aso be drawn Into
raroad tank cars, ether from the dstery recevng csterns or from storage
tanks n the bonded warehouse ocated on the premses where produced, and
ta -pad or transferred n bond, but ony n case the premses of the consgnee
of such tank car s equpped wth raroad sdng factes.
Par. 4. Transportaton of dsted sprts n tank wagons or tank trucks w
not be permtted.
Tar. 5. Under secton 3287, R. S., dsted sprts whch, before reducton
n the recevng csterns, are of a composte proof of not more than 159
degrees sha be drawn nto casks, barres, or smar wooden packages, or
nto drums, or smar meta packages, havng a capacty of not ess than 10
wne gaons each: Provded, That such sprts may, for the purpose of e porta-
ton ony, be so drawn nto wooden packages, each contanng two or more
metac cans havng a capacty of not ess than fve wne gaons each.
Weghng Tanks.
Par. a Where, under secton 602, dsted sprts reduced In the dstery
recevng csterns to not more than 159 and not ess than 100 degrees of proof
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re to be drawn therefrom for drect remova In raroad tank cars, or where
such sprts are to be transferred from such csterns by ppe ne drect to
storage tanks In an nterna revenue bonded warehouse on the dstery
premses, the dster sha provde a cosed statonary weghng tank n the
cstern room.
Par. 7. weghng tanks sha be of meta, of unform dmensons from top
to bottom, and each such tank sha be equpped wth a sutabe gass gauge
whereby the contents w be correcty ndcated. ach weghng tank sha
have pany and duraby marked thereon a sera number and ts capacty
n wne gaons. The scaes upon whch the tank Is mounted must be accurate.
The net and outet ppe connectons of each weghng tnnk must be ftted
wth vaves so constructed that they can be secured wth Government ocks,
and any other openng n such tank must aso be so arranged that t can be
cosed and ocked.
Ppe Lnes.
Par. 8. Under secton 002, ppe nes for conveyng sprts reduced to not more
than 159 and not ess than 100 degrees of proof, from the cstern room to storage
tanks In an nterna revenue bonded warehouse on the dstery premses, or
to raroad tank cars for shpment, sha be of a f ed and permanent character,
constructed of meta, and so arranged as to be e posed to vew throughout ther
entre ength. Such ppe nes sha be panted back. vaves, unons, and
other connectons n such ppe nes sha be rveted, seaed, or otherwse so
secured as to prevent ther dsconnecton wthout showng evdence of tamper-
ng. Ppe nes sha be so paced that they may be connected, by short, de-
tachabe connectons, wth weghng tanks and raroad tank ears. Where
sprts are conveyed by ppe ne from the dstery cstern room to storage
tanks n a bonded warehouse on the dstery premses, such f ed ppe ne
sha be drecty connected wth one or more of such storage tanks, and brazed
or otherwse secured to such tanks n su h manner that t may not be detached
or atered wthout showng evdence of tamperng.
Par. 9. ach ppe ne sha be ftted, at the end n the cstern room, wth
a vave so constructed that t may be secured wth a Government ock. The
vave w be kept cosed and ocked at a tmes, e cept when the ppe ne
s beng used for the transfer of sprts. Ppe nes sha be so secured at the
pont of passng from the cstern room and at the pont of enterng the ware-
house as to prevent any communcaton w-th ether the cstern room or the
warehouse at such ponts, e cept by transt through the ppe ne when the
vave s open.
Par. 10. The ppe connectons wth warehouse storage tanks sha be ftted,
at the net of each srach tank, wth a vave whch can be secured wth a Gov-
ernment ock, and such connectons must be so arranged as to contro the
fow of sprts separatey Into each tank. The vave must be kept cosed and
ocked, e cept when necessary to be open for the transfer of sprts.
Par. 11. The keys to a ocks on recevng csterns and weghng and storage
tanks and on ppe nes sha reman at a tmes n the custody of the store-
keeper-gauger at the dstery, e cept that f a storekeeper-gauger Is e cu-
svey assgned to the bonded warehouse, such offcer sha have custody of
the keys to such ocks wthn the warehouse.
Par. 12. No ppe ne may be used unt t has been Inspected and the ds-
trct supervsor has approved the same. Sprts may be transferred by ppe
ne ony under the Immedate supervson of the storekeeper-gauger.
Drawnq off ano Gauono of Sprts.
Par. 13. Dsted sprts must be drawn from the recevng csterns on or
before the thrd day foowng the depost of the same theren and the product
of each day s dstaton must be kept separate n such csterns, as provded
by e stng reguatons. Sprts drawn nto casks, barres, drums, or smar
packages sha be gauged by weght accordng to the rues prescrbed n the
Gangng Manua of 1934, as amended. Sprts removed by ppe ne, ether to
storage tanks n the bonded warehouse on the dstery premses or to raroad
tank cars for shpment, sha be gauged by means of weghng tanks.
Par. 14. Where sprts are drawn nto approved contaners pursuant to sec-
ton 602, for ta -payment wthout beng entered nto a warehouse, or where
sprts are drawn Into such contaners for depost In an Interna revenue
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438
bonded warehouse off the dstery premses, the same may reman n the
cstern room for such perod as may be reasonaby necessary to accompsh
ta -payment or remova for such depost, but not more than three days, e cept
n cases of emergency, and then ony wth the approva of the dstrct
supervsor. Where sprts drawn from recevng csterns for ta -payment, or
for entry nto bonded warehouse not on the dstery premses, are not removed
from the cstern room on the same day the packages are fed, a separate room
must be provded n the cstern room for the temporary depost thereof. Such
room must be but of sod, substanta matera meetng the requrements
prescrbed for cstern room constructon. Such room may have not more than
two doors, one of whch sha open Into the other part of the cstern room and
be so constructed that t may be securey ocked on the outsde wth a Gov-
ernment sea ock, the key to whch w reman at a tmes n the custody of
the storekeeper-gauger. The other door, whch may be used for the remova
of sprts deposted n such room, must be so constructed that It may be
securey barred and ocked on the nsde.
Markng, randng, Ndmberno, and Stampng or Packages.
Par. 15. Packages fed wth dsted sprts In the cstern rooms of regs-
tered dsteres sha be marked and branded In accordance wth the prov-
sons of the Gaugng Manua of 1934, as amended. Where such packages are
ta -pad, the ta -pad stamps sha aso be aff ed thereto and canceed In the
manner prescrbed In the sad Gaugng Manua.
Par. 16. Packages fed wth dsted sprts sha be seray numbered,
begnnng wth No. 1 for each dstery and contnung n reguar sequence:
Provded, That the seres In current use at e stng dsteres w be con-
tnued. Where packages are fed from bonded warehouse storage tanks, a
separate seres w be used, preceded by the etter T, as T-, T-2, etc.
Pab. 17. Prescrbed marks and brands, whether the same are requred to be
cut, burned, mprnted, or stenced, sha be paced upon the package by the
dster at hs e pense, under the supervson of the storekeeper-gauger.
Par. 18. The storekeeper-gauger sha verfy the gross weght, tare, net weght,
wne gaons, proof, and proof gaons marked on the packages, by comparson
wth hs gauge sheet, orm 1520, and sha satsfy hmsef of the accuracy and
correctness of the marks, brands, and stamps (f any).
Par. 19. mechanca abor pertanng to the weghng of packages sha
be performed by the dster. The storekeeper-gauger sha, however, test or
baance the scae before weghng ether empty or fed packages, and durng
the process of weghng he sha personay verfy the weght of each package
and record It In the proper coumn of orm 1520. The storekeeper-gauger sha
aso personay take the proof of the sprts and prepare hs report of gauge on
orm 1520.
Par. 20. When packages of dsted sprts are empted, a stamps, marks,
and brands requred to be paced thereon must be competey effaced and de-
stroyed. Ta -pad certfcates aff ed to raroad tanks cars must aso be de-
stroyed when such cars are empted.
Ta -Payment from Cstern Room.
Par. 21. Whenever the dster desres to wthdraw dsted sprts reduced
to not more than 159 and not ess than 100 degrees of proof, drect from recev-
ng csterns for mmedate ta -payment and remova, he sha e ecute appca-
ton therefor on orm 179, n quadrupcate, modfed to conform wth the facts.
copes of the appcaton sha be devered to the storekeeper-gauger,
whereupon such sprts w be drawn nto packages and gauged, and the pack-
ages marked, branded, and numbered as requred, or such sprts w be run Into
a weghng tank and gauged for remova n a raroad tank car, as the case may
be. If the sprts are to be removed n a raroad tank car, the sera num-
ber and capacty thereof sha be stated n the appcaton. The storekeeper-
ganger sha enter the detas of the gauge on orm 1520, n quadrupcate, e -
cept that f the sprts are to be removed n a raroad tank car the form sha
be made n quntupcate. The proof at whch the sprts were dsted (the
composte proof n recevng cstern pror to reducton) sha, In every nstance,
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439
Msc.
be noted by the storekeeper-gauger on orm 1520 and, -when remova s made
n a raroad tank car, the number of such tank car sha kewse be noted
on such form. ntry of the quantty ascertaned by the gauge sha be made
by the dster on orm 179, whereupon the storekeeper-gauger w e ecute
hs report on each copy of orm 179 and return a copes thereof wth three
copes of orm 1520 attached, to the dster, who w then forward them to-
the coector of nterna revenue-wth remttance for the ta .
Par. 22. If the sprts are to be wthdrawn n casks, barres, drums, or smar
contaners, the coector w ssue the requste stamps, enter the sera num-
bers n the approprate spaces on the forms, sgn the certfcate of ta -payment
on orm 179, retan one copy for hs fes, and return three copes of each
form to the dster wth the stamps. The dster sha mmedatey dever
the forms, wth the ta -pad stamps, to the storekeeper-gauger. fter the pack-
ages have been stamped and marked as requred, the storekeeper-gauger w
requre the dster mmedatey to remove the same. When the sprts have
been removed, the storekeeper-gauger w e ecute hs statement of the date of
wthdrawa on the three copes of orm 179 n hs possesson, retan one copy
of each form, dever one copy of each to the dster, and forward one copy of
each to the dstrct supervsor.
Pab. 23. If the sprts are to be removed In raroad tank cars, the coector
w ssue hs recept for the ta on orm 1, note the ta -payment In the coumns
on orm 179 and orm 1520 provded for enterng the sera numbers of stamps,
e ecute hs certfcate of ta -payment on orm 179, retan one copy for hs fes,
and return three copes of each form to the dster wth the ta recept. The
ta recept. orm 1, w show the date of ta -payment, the name of the ta payer,
the number of the tank car, the ta -gaon contents, and the amount of ta pad.
The dster sha Immedatey dever the forms and the ta recept to the
storekeeper-gauger, who w securey aff the ta recept to such tank car
and reease the same for shpment. The storekeeper-gauger w then e ecute
hs statement of the date of wthdrawa on orm 179, and dspose of the copes
of such form and orm 1520 n the same manner as those pertanng to the
ta -payment and remova of sprts n packages, e cept that the dster w
be gven two copes of orm 1520. The dster sha forward the e tra copy
of orm 1520 to the consgnee.
Use or Raroad Tank Cabs fob Shpment n ond.
Pab. 24. Raroad tank cars may be used, pursuant to secton 602, to transport
In bond, dsted sprts reduced n the dstery recevng csterns to not more
than 159 and not ess than 100 degrees of proof, to nterna revenue bonded
warehouses equpped wth raroad sdng factes. ach raroad tank car
to used must have permanenty and egby marked or panted thereon ts
number and capacty n wne gaons, and must be so constructed that a open-
ngs may be securey cosed and ocked. The shpper sha furnsh Saght ocks
for use n ockng the openngs, and such ocks w be seaed wth seas furnshed
by the Government. The key of each ock so used w be forwarded by the
storekeeper-gauger at the dstery to the storekeeper-gauger at the warehouse
on the date the tank car s shpped. The ocks and keys w be prompty
returned to the storekeeper-gauger at the dstery by the storekeeper-gauger
at the warehouse when the sprts have been ta -pad.
Pab. 25. Upon recevng an appcaton to gauge sprts to be shpped n a
raroad tank car to a bonded warehouse, the storekeeper-gauger w frst
Inspect the tank car to ascertan whether a openngs theren whch woud
afford access to the sprts may be cosed and ocked wth a Government sea
ock. If the tank car s not so constructed the offcer w not permt t to be
fed.
Pab. 28. tank car must be fed under the Immedate supervson of the
Government offcer. The ppe ne must not be connected or used, e cept In hs
presence. s soon as the sprts have been propery gauged and oaded, the
offcer w ock the car and sea the ock. The offcer w be carefu to record
n hs report of gauge, orm 1520, the number of the car and the sera number
of the ock sea.
Par. 27. efore the tank car s reeased, a certfcate, dated and sgned by the
storekeeper-gauger, showng that the shpment s n bond and gvng the name,
regstered number and ocaton of the dstery from whch shpped and the
bonded warehouse to whch shpped, sha be securey aff ed to some conspcu-
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440
ous and secure ace on the tank car where t may be ready e amned by
Government offcers. The certfcate w be n substantay the foowng
form:
Shpped n ond by
Y DISTILLING COMP NY
D. No. 2, atmore, Md.
To
N W YOR W R OUS COMP NY
I. R. . W. No. 1, rookyn, N. Y.
(Date.) (Storekeeper-Gauger.)
Pab. 28. Upon arrva of the tank car at the warehouse, the storekeeper-gauger
w carefuy e amne the same to ascertan whether the ock and sea are ntact
and whether there s any evdence of oss of sprts therefrom. If there shoud
be evdence of oss by casuaty or theft, the quantty thereof w be ascertaned
and reported, as herenafter provded. Sprts transferred n bond by means
of raroad tank cars sha reman on storage n the bonded warehouse n such
tank cars pendng ta -payment or further transfer n bond.
Transfer to and ntry fob Depost n Wabehousa,
(a) on dsteby premses.
Pab. 29. Dsted sprts whch are to be entered for depost n an nterna
revenue bonded warehouse on the bonded premses of the dstery sha be
drawn nto packages, and gauged, marked, and branded, and then mmedatey
deposted nto such warehouse, or sha be run nto a weghng tank, and
mmedatey gauged and transferred by ppe ne nto storage tanks n such
warehouse. The storekeeper-gauger w enter the detas of the gauge on
orm 1520, n quadrupcate. The storekeeper-gauger w aso note on each
copy of orm 1520, whenever sprts are drawn from recevng csterns and
gauged, the proof at whch such sprts were dsted (the composte proof n
recevng cstern pror to reducton). Upon competon of the form, the store-
keeper-gauger w dever three copes thereof to the dster for the e ecuton
of hs entry of the sprts for depost. The entry sha be e ecuted n the
foowng form, n the bank space on the outer page of the frst sheet coverng
each ot gauged:
(Da te7)
The dsted sprts descrbed heren are hereby entered for depost In
nterna revenue bonded warehouse No , State of
(Dster.)
Pab. 30. The entry sha be e ecuted on the same date that the sprts are
removed from the dstery. fter the e ecuton of the entry, the dster
sha return the three copes of orm 1520 to the storekeeper-gauger, who
w retan one copy as a permanent record, furnsh one copy to the store-
keeper-ganger at the warehouse, and forward one copy to the dstrct super-
vsor. The storekeeper-gauger w dever the fourth copy of the form to the
dster.
( ) O DISTILL RY PR MIS S, IN S M DIST ICT.
Par. 31. If the sprts are to be entered for depost n an Interna revenue
bonded warehouse ocated off the dstery premses, but n the same super-
vsory dstrct, the propretor of the recevng warehouse sha e ecute an
appcaton for the transfer of the sprts on part 1 of orm 230, n quad-
rupcate, modfed to conform wth the facts. The appcant sha specfy,
n addton to the other aDucabe data, the knd of sprts and the ma mum
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quantty n ta gaons to be transferred. copes of the form w be
forwarded by the appcant to the dstrct supervsor.
Pab. 82. If the appcant has on fe a good and suffcent bond, the dstrct
supervsor w e ecute part 2, certfyng to the suffcency of the bond, and
part 3, propery modfed, drectng the storekeeper-gauger to gauge the
sprts and reease the same for transportaton to the warehouse. The dstrct
supervsor w then forward a copes to the storekeeper-gauger at the ds-
tery. Upon recept of the form, the sprts w be drawn from the recevng
csterns nto casks or packages, gauged, marked, and branded, or nto a weghng
tank, gauged, and run by ppe ne nto a propery equpped raroad tank car.
The quantty gauged sha not e ceed the ma mum named n the appcaton.
The detas of the gauge w be recorded by the storekeeper-gauger on orm
1520, In quadrupcate.
Pab. 33. When the sprts have been packaged, or run nto a raroad tank
car and such tank car ocked and seaed, the storekeeper-gauger w dever
three copes of orm 1520 to the dster, who sha e ecute thereon hs entry
of the sprts for depost n the manner prescrbed n paragraph 29. The
dster s entry on the form sha be e ecuted on the same date that the
sprts are removed from the dstery. fter e ecutng the entry, the ds-
ter sha mmedatey return the three copes of the form to the storekeeper-
ganger, whereupon the sprts w be reeased for shpment.
Pab. 34. Upon remova of the sprts, the storekeeper-gauger w e ecute
a certfcate of hs gauge and reease thereof on part 4 of orm 236, propery
modfed, and attach to each of three copes thereof one of the copes of orm
1520 contanng the dster s entry for depost. The storekeeper-gauger w
retan one copy of orm 236, wth orm 1520 attached, forward two copes
thereof to the storekeeper-gauger at the recevng warehouse, and furnsh the
dster one copy of orm 236 wth the fourth copy of orm 1520.
Pab. 35. The storekeeper-gauger at the warehouse w e amne the shpment
upon ts arrva. e w regauge any packages whch appear to have been
tampered wth, or from whch sprts appear to have been abstracted or ost,
and w note n hs recept on part 5 of orm 236 any defcences ascer-
taned and attach to the form a statement settng forth fuy the apparent
cause of the defcency. If the e amnaton of a raroad tank car reveas
evdence of oss by casuaty or theft, the quantty w be ascertaned by re-
gangng the contents, and report w be made as n the case of packages re-
gauged. The sprts may be removed from the tank car for regaugng, but
upon competon of such regaugng, the same w be Immedatey run back
nto the tank car, and such tank car ocked and seaed, whereupon t may
be ta -pad or transferred to another bonded warehouse. The transfer of
sprts from a tank car for regaugng, and the return of the same, sha be
done under the mmedate supervson of the storekeeper-gauger. fter the
sprts have been deposted n the warehouse, the storekeeper-gauger w
e ecute hs recept on part 5, retan one copy of each form, and forward one
copy of each to the dstrct supervsor.
(C) O DISTILL Y P MIS S, IN DI R NT DIST IOT.
Pab. 36. If the sprts are to be entered for depost n an nterna revenue
bonded warehouse ocated In a dfferent supervsory dstrct than the dstery,
the propretor of the recevng warehouse sha fe wth the dstrct super-
vsor of hs dstrct an appcaton for the transfer of the sprts on part 1
of orm 236, n quntupcate, n the manner ndcated n paragraph 31.
Pab. 87. If the appcant has on fe a good and suffcent bond, the dstrct
supervsor w e ecute the certfcate to that effect on part 2, and transmt a
copes to the dstrct supervsor of the dstrct n whch the dstery s ocated.
The dstrct snpervsor of such dstrct w e ecute part 3, hs order to the
storekeeper-gauger to gauge and reease the sprts, and w then forward
a copes to the storekeeper-gauger at the dstery. Upon recept of the form,
the sprts w be drawn from the recevng csterns Into casks or packages,
gauged, marked, and branded, or nto a weghng tank, gauged, and run by
ppe ne nto a propery equpped raroad tank car. The quantty gauged
sha not e ceed the quantty named n the appcaton. The detas of the
gauge w be recorded by the storckepper-gr.uger on orm 1520, n quntup-
cate.
121397 37 15
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442
Par. 38. When the sprts have been packaged, or run nto a raroad tank
car and such tank car ocked and seaed, the storekeeper-gauger w dever
four copes of orm 1520 to the dster, who sha e ecute thereon hs entry
for depost In the manner prescrbed n paragraph 29. The dster s entry
sha be e ecuted on the same date that the sprts are removed from the
dstery. fter e ecutng the entry, the dster sha mmedatey return
the four copes of the form to the storekeeper-gauger, whereupon the sprts
w be reeased for shpment.
Pab. 80. Upon remova of the sprts, the storekeeper-gauger w e ecute
a certfcate of hs gauge and reease on part 4 of orm 23d, propery modfed,
and w attach to each of four copes one of the copes of orm 1520 contanng
the dster s entry for depost The storekeeper-gauger w retan one copy
of orm 236, wth orm 1620 attached, forward three copes to the store-
keeper-gauger at the recevng warehouse, and furnsh the dster one copy
of orm 236 wth the ffth copy of orm 1520.
Par. 40. fter the sprts have been receved and e amned, and any osses
or dscrepances noted, the storekeeper-gauger at the warehouse w e ecute
hs recept on part 6 of orm 236, retan one copy wth orm 1520 attached,
and forward the two remanng copes of each to the dstrct supervsor of
hs dstrct. The dstrct supervsor w retan one copy of each and forward
the other copes to the dstrct supervsor of the dstrct from whch the sprts
were transferred.
Dster s Records and Reports.
Par. 41. very dster sha keep at the dstery a record on orm 520 of
a sprts removed from the cstern room, and fe a monthy transcrpt thereof
on orm 870 wth the dstrct supervsor on or before the 10th day of the fo-
owng month. The requred entres must be made on orm 520 before the
sprts are removed from the dstery. sprts removed from the cstern
room sha aso be entered on orm 14, the dster s monthy account. Sprts
removed ta -pad from the cstern room sha be entered on such report n
the same coumns as sprts warehoused, but the entres sha be marked T. P.
to dstngush them from warehousng entres. Ta -pad removas sha aso
be entered n the summary on orm 14, mmedatey beow the ne Produced
ths month, warehoused subsequent month.
Storekeepeb-Gaugeb s Records and Reports.
Pab. 42. Dsted sprts removed for depost n Interna revenue bonded
warehouses sha be entered on Record 17 and reported on orm 88 by the
storekeeper-gauger. Sprts removed ta -pad from the dstery cstern room
sha be entered In such record and report, In the same coumns as sprts
warehoused, but the entres w be marked T. P. to dstngush them from
the warehousng entres. The ta -pad removas w be entered n the Sum-
mary of Sprts on orm 88, mmedatey under the ne, Warehoused ths
month.
Pab. 43. The storekeeper-gauger sha, n addton, render a monthy report on
orm 1518 Suppementa, of a dsted sprts removed from the cstern room
of the dstery. Ths report w be prepared In trpcate, and a the nforma-
ton Indcated by the headngs of the coumns and the nes of the form w be
furnshed. The storekeeper-gauger w retan one copy on fe In hs offce, and
forward two copes to the dstrct supervsor wthn fve days after the e pra-
ton of the month for whch rendered. The dstrct supervsor w retan one
copy of the report and forward the other copy to the Commssoner wth hs
monthy dstery cstern room account, orm 1514 Suppementa.
Supervsob s Cstern Room ccount.
Pab. 44. ach dstrct supervsor w render a monthy bonded sprts account
on orm 1514 Suppementa, of transactons at the cstern rooms of regstered
dsteres, for each State wthn hs supervsory dstrct The requred data
w be obtaned from the storekeeper-gaugers reports on orm 1513 Suppe-
menta. of the nformaton Indcated by the headngs of the coumns and
the nes of the form w be ncuded n the account. The account w be pre-
pared In dupcate and one copy thereof forwarded to the Commssoner on or
before the e praton of the month foowng the month for whch rendered.
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aurr bandt.
Par. 45. The remova of brandy from a frut dstery w contnue to be
governed by the provsons of Reguatons 7, concernng the producton, etc., of
wne and brandy, e cept that f brandy Is removed to an nterna revenue
bonded warehouse, the procedure heren prescrbed must be foowed.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved une 27, 1936.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster u|y 1, 1936, 12.50 p. m.)
-27-8160
T. D.4651
Interna revenue bonded warehouses.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Sectons 201, 202, 308, 309, 405, 406, 407, and 408, of the Lquor
Ta dmnstraton ct, secton 3447, of the Unted States Revsed
Statutes, and secton 1821 of the Unted States Code, 1934 edton,
Tte 26, read as foows:
Sec. 201. Secton 3287 of the Revsed Statutes, as amended (U. S. C, 1934
ed., Tte 26, secton 1231), s amended to read as foows:
Seo. 3287. (a) cept ns provded n secton C02 of the Revenue ct of
1918, as amended, a dsted sprts sha be drawn from recevng csterns
nto casks or packages and thereupon sha be gauged, proved, and marked by a
storekeeper-gauger, and mmedatey removed Into an nterna revenue bonded
warehouse. The Commssoner of Interna Revenue, wth the approva of the
Secretary of the Treasury, Is hereby empowered to prescrbe a necessary
reguatons reatng to the drawng off, gaugng, and packagng of dsted
sprts the markng, brandng, numberng, and stampng of such packages and
the transfer and transportaton to, and the storage of such sprts n, nterna
revenue bonded warehouses.
(b) Upon the appcaton of the dster and under such reguatons ns
the Commssoner of Interna Revenue, wth the approva of the Secretary
of the Treasury, may prescrbe, dsted sprts may be drawn nto wooden
packages, each contanng two or more metac cans, whch cans sha each
have a capacty of not ess than fve gaons, wne measure. Such packages
sha be fed and used ony for e portaton from the Unted States. nd
there sha be charged for each of sad packages or cases for the e pense of
provdng and aff ng stamps, 5 cents.
(c) The Commssoner of Interna Revenue, wth the approva of the
Secretary of the Treasury, may, by reguatons, prescrbe the standards of
f of casks or packages of dsted sprts at each dstery.
(d) The Commssoner of Interna Revenue, wth the approva of the
Secretary of the Treasury, may, by reguatons, from tme to tme requre
a dster, at hs e pense and under the mmedate persona supervson of a
storekeeper-gauger, to do such markng and brandng and such mechanca
abor pertanng to gaugng requred under ths secton as the Commssoner
deems proper and determnes may be done wthout danger to the revenue.
Seo. 202. Secton 3295 of the Revsed Statutes, as amended (U. S. O., 1934
ed., Tte 26, secton 1236), s further amended to read as foows:
Seo. 3295. (a) Whenever an appcaton s receved for the remova from
any Interna revenue bonded warehouse of any cask or package of dsted
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444
sprts on whch the ta has been pad, the storekeeper-ganger sha gans
and nspect the same, and sha, before such cask or package has eft the
warehouse, pace upon such package such marks, brands, and stamps as the
Commssoner of Interna Revenue, wth the approva of the Secretary of the
Treasury, sha by reguatons prescrbe, whch marks, brands and stamps
sha be erased when such cask or package s empted.
(b) The Commssoner of Interna Revenue, wth the approva of the Secre-
tary of the Treasury, may, by reguatons, from tme to tme, requre any ds-
ter, at hs e pense and under the Immedate persona supervson of a store-
keeper-gauger, to do such markng and brandng and such mechanca abor
pertanng to gaugng requred under ths secton as the Commssoner deems
proper and determnes may be done wthout danger to the revenue.
Sec. 308. The frst paragraph of secton 602 of the Revenue ct of 1918,
approved ebruary 24, 1919, s amended to read as foows:
Sec. 602. Sub|ect to the provsons of e stng aw, sprts produced at
regstered dsteres and reduced In the recevng csterns n such dsteres
to not more ttan 159 degrees of proof and not ess than 100 degrees of proof,
may be transferred, by means of ppe nes, drect to storage tanks In the
Interna revenue bonded warehouse ocated on the bonded premses where pro-
duced and be warehoused In such storage tanks, or they may be drawn Into
approved contaners and transferred to any Interna revenue bonded warehouse
for storage theren, or they may be ta -pad In such approved contaners n
such cstern rooms, wthout beng entered nto an nterna revenue bonded ware-
house. Such sprts may be drawn Into approved contaners from storage
tanks In nterna revenue bonded warehouse ocated on the bonded premses
of the dstery ether for storage n bond or ta payment Such sprts, upon
ta payment, may be transported n approved contaners for use for beverage
purposes ony. The Commssoner of Interna Revenue, wth the approva of
the Secretary of the Treasury, s hereby empowered to prescrbe a necessary
reguatons reatng to the drawng off, transferrng, gaugng, storng, and
transportaton of such sprts the records to be kept and returns to be made
the sze and knd of contaners to be used the markng, brandng, numberng,
and stampng of suc contaners the knd of stamps, f any, to be used and
the knd of bond and the pena sum thereof.
Sec. 309. Secton 3293 of the Revsed Statutes, as amended (U. S. C 1934 ed.
Tte 26, secton 1232), s amended to read as foows:
Sec. 3293. (a) The dsters of a sprts removed to an Interna revenue
bonded warehouse sha enter the same for depost n such warehouse, under
such reguatons as the Commssoner of Interna Revenue may prescrbe.
Sad entry sha be n such form as the Commssoner sha prescrbe.
(b) The ta on a dsted sprts hereafter entered for depost n Interna
revenue bonded warehouses sha be due and payabe before and at the tme
the same are wthdrawn therefrom and wthn eght years from the date of the
orgna entry for depost theren and warehousng bonds hereafter taken under
the provsons of the nterna revenue aws sha be condtoned for the pay-
ment of the ta on the sprts as specfed a the entry before wthdrawa from
te nterna revenue bonded warehouse, and wthn eght years from the date
of sad entry. The Commssoner sha prescrbe the form and pena sums of
bonds coverng dsted sprts n Interna revenue bonded warehouses and n
transt to and between such warehouses: Provded, That the pena sums of
such bonds coverng dsted sprts sha not e ceed In the aggregate of
200,000 for each such warehouse.
(c) new bond sha be requred n case of the death, Insovency, or re-
mova of the surety or suretes, and may be requred n any other contngency
affectng ts vadty or mparng ts effcency, at the dscreton of the Com-
mssoner of Interna Revenue. nd n ease the warehouseman fas or refuses
o gve the bond requred, or to renew the same, or negects to mmedatey
wthdraw the sprts and pay the ta thereon, or f he negects to wthdraw
any bonded sprts and pay the ta thereon before the e praton of the tme
mted n the bond, the coector sha proceed to coect the ta by dstrant,
ssung hs warrant of dstrant for the amount of ta found to be due, as
ascertaned by hm from the report of the storekeeper-gauger If no bond was
gven, or from the terms of the bond f a bond was gven. ut ths provson
sha not e cude any other remedy or proceedng provded by aw.
(d) If t sha appear at any tme that there has been a oss of dsted
sprts from any cask or other package deposted n an nterna revenue bonded
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warehouse, other than the oss provded for n secton 3221 of the Revsed
Statutes, as amended, whch, n the opnon of the Commssoner of Interna
Revenue, s e cessve, he may nstruct the dstrct supervsor of the dstrct
n whch the oss has occurred to requre the wthdrawa from warehouse of
such dsted sprts, and drect the coector of nterna revenue to coect the
ta accrued upon the orgna quantty of dsted sprts entered nto the
warehouse In such cask or package, notwthstandng that the tme specfed n
any bond gven for the wthdrawa of the sprts entered nto warehouse n such
cask or package has not e pred. If the sad ta s not pad on demand, the
coector sha report the amount due upon hs ne t monthy st, and t sha
be assessed and coected as other ta es are assessed and coected.
Sec. 405. Secton 51 of the ct Of ugust 27, 1894, as amended (U. S. C,
1934 ed., Tte 26, secton 1265 U. S. O., 1034 ed, Supp. I, Tte 26, secton
1265), s amended to read as foows:
Sec. 51. The Commssoner of Interna Revenue sha be, and s hereby
authorzed, n hs dscreton, and upon the e ecuton of such bonds as he may
prescrbe, to estabsh warehouses, to be known and desgnated as nterna
revenue bonded warehouses, to be used e cusvey for the storage of sprts
dsted at a regstered dstery, each of whch warehouses sha be n charge
of a storekeeper-gauger to be apponted, assgned, transferred, and pad n the
same manner as such offcers for dstery warehouses have been apponted,
assgned, transferred, and pad pror to the date of enactment of the Lquor
Ta dmnstraton ct very such warehouse sha be under the contro of
the dstrct supervsor of the coho Ta Unt dstrct n whch such ware-
house s ocated, and sha be n the |ont custody of the storekeeper-gauger
and propretor thereof, and kept securey ocked, and sha at no tme be un-
ocked or opened or reman open e cept n the presence of such storekeeper-
gauger or other person who may be desgnated to act for hm. No dweng
house sha be used for such a warehouse, and no door, wndow, or other open-
ng sha be made or permtted n the was of such warehouse eadng nto a
dstery. Such warehouses sha be under such further reguatons as the
Commssoner of Interna Revenue, wth the approva of the Secretary of the
Treasury, may prescrbe.
Sec. 406. (a) Secton 3271 of the Revsed Statutes (U. S. C, 1034 ed., Tte
26, secton 1225) s repeaed: Provded, however, That the repea of sad sec-
ton sha not reeve any dster of abty for any ta es or penates arsng
out of the use of, or storage of dsted sprts n, a dstery warehouse
authorzed, approved or mantaned under such secton 3271 of the Revsed
Statutes.
(b) dstery, genera, and speca bonded warehouses heretofore estab-
shed accordng to aw and on the date of the enactment of ths ct actuay
beng awfuy used for the storage of sprts dsted at a regstered dstery
on whch the ta has not been pad sha be desgnated as nterna revenue
bonded warehouses, and, upon the fng of such new bonds, or the consents of
suretes on such e stng bonds, coverng sprts In such dstery, genera, or
speca bonded warehouses, as the Commssoner sha consder adequate to
nsure the payment of ta es due to the Unted States, may be used under such
rues and reguatons as the Commssoner of Interna Revenue, wth the
approva of the Secretary of the Treasury, sha prescrbe, for the storage of
dsted sprts (other than acoho) heretofore or hereafter produced.
Seo. 407. The dstncton between dstery bonded warehouses, genera
bonded warehouses, and speca bonded warehouses s hereby removed, and any
warehouse for the storage of sprts dsted at a regstered dstery, pror
to ta -payment, sha be operated as an nterna revenue bonded warehouse.
The estabshment, constructon, mantenance, and supervson of nterna rev-
enue bonded warehouses sha be under such reguatons as the Commssoner
of Interna Revenue, wth the approva of the Secretary of the Treasury, sha
prescrbe.
Sec. 408. Interna revenue bonded warehouses estabshed under authorty of
aw sha be e empt from the provsons of those sectons of aw whch, pror
to the date of enactment of ths ct have made dstnctons between dstery
bonded warehouses, genera bonded warehouses, and speca bonded ware-
houses, as to (1) knd of sprts to be stored theren (2) ownershp or
producton of dsted sprts to be stored theren (3) ownershp or propretor-
shp of such warehouses (4) ocaton and constructon of such bonded ware-
houses (5) entry of dsted sprts theren (6) wthdrawa of dsted
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446
sprts therefrom (7) transfers of dsted sprts to or from one or more
of such casses of bonded warehouses or (8) any other matter t beng hereby
decared to be the purpose of the amendment to secton 51 of the ct of
ugust 27, 1894, made by secton 407 hereof, to estabsh the nterna revenue
bonded warehouse as the soe type and knd of bonded warehouse under the
Interna revenue aws for the storage of sprts dsted at a regstered ds-
tery on whch the ta has not been pad.
Sec. 3447. (It. S.) Whenever the mode or tme of assessng or coectng any
ta whch s mposed s not provded for, the Commssoner of Interna Revenue
may estabsh the same by reguaton. e may aso make a such reguatons,
not otherwse provded for, as may have become necessary by reason of any
ateraton of aw n reaton to nterna revenue. (U. S. O., 1934 ed., Tte
26, sectons 1534, 1542, and 169L)
Sec. 1821. (U. S. C, 1934 ed., Tte 26.) The Secretary sha prescrbe
forms of entres, oaths, bonds, and other papers, and rues and reguatons, not
nconsstent wth aw, to be used under and n the e ecuton and enforcement
of the varous provsons of the nterna revenue aws and he sha gve such
drectons to coectors and prescrbe such rues and forms to be observed by
them as may be necessary for the proper e ecuton of the aw. (R. S., secton
251.)
Pursuant to the above-quoted provsons of aw, the foowng
reguatons are prescrbed:
CoNSTRCcnow of Warehouse.
Paragraph 1. n nterna revenue bonded warehouse must be an entre
budng, sutabe for the purpose, or a separate and secure room n a sutabe
budng, but no dweng house sha be used for such purpose. The room
or budng to be used as an nterna revenue bonded warehouse sha be con-
structed of wood, brck, concrete, or other substanta matera, n such a
manner as to render t mpossbe to be entered n the absence of the store-
keeper-gauger wthout such voence as to make the entry easy of detecton.
Ironcad or wood warehouses must be sheathed sody to the ceng of the
frst foor. Where the warehouse conssts of a room or rooms, the was
separatng the warehouse from other parts of the budng, f constructed of
sheet meta or wood, must be apped over sod sheathng. Such a warehouse
must have a sutabe foor of wood, concrete, brck, or other substanta matera,
proper ghtng factes, and no more doors than are necessary n the proper
and convenent conduct of the busness. No door, wndow, or other openng
sha be made or permtted n the was of such bonded warehouse eadng
Into a dstery or nto any other room or budng. The doors and other
openngs must ead nto the pubc street or nto the yard connected wth the
bonded warehouse, or wth the dstery yard, n the event the warehouse
s to be estabshed on the dstery premses: Provded, however, That where
a room Is used, the door may open nto an eevator shaft or passageway eadng
ether drecty or through another eevator shaft or passageway to the street
or yard.
Par. 2. n nterna revenue bonded warehouse sha not be under the same
roof or In the same budng wth a rectfyng estabshment: Provded, however,
That where a genera or speca bonded warehouse desgnated an nterna
revenue bonded warehouse has heretofore been permtted under the same roof
or n the same budng wth a rectfyng estabshment It may contnue to
operate n such ocaton, f the revenue w not be eopardzed thereby.
Par. 3. Warehouses w not be approved uness erected upon foundatons
of stone, brck, concrete, or other equay substanta matera, e tendng nto
the ground: Provded, however, That n nstances where the warehouse conssts
of a room or rooms stuated above the frst foor of a budng, these pro-
vsons reatng to foundatons sha not be appcabe. Iron-grated or ron-
barred openngs for ventaton or heatng w be aowed n foundaton was,
foors and roofs.
Par. 4. doors must be of substanta constructon of heavy tmber or ron,
or other equay substanta matera. One door must be secured on the out-
sde wth a Government sea ock. The hasp and stape or bot to whch such
ock s aff ed must be securey fastened on the nsde. doors but the one
bearng the Government sea ock must be securey barred Insde, and for
ths purpose a crossbar must be provded, paced In the mdde of the door
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and so secured that t can not be turned from the outsde. Strong and sutabe
attachments must be provded nsde the warehouse for Government ocks (not
sea ocks) n addton to the cross bars. Such ocks sha be aff ed by the
Government offcer n charge and the keys thereto sha reman n hs possesson.
In addton, where there are doube doors, one of them, at east, must be
provded n the mdde wth substanta bots at both the top and the bottom.
These bots must be arranged so as to punge nto substanta fastenngs or
hoes n the frame of the door. The hnges to the doors and shutters must be
secured by roundhead or carrage bots, nutted and rveted or battered. nges
that can not be thus rveted must be naccessbe from the outsde, and so
attached that they can not be removed when the doors or wndows are cosed.
Par. 5. wndows ocated wthn 12 feet of the ground, ad|acent roof, or
fre escape, must be constructed and secured as foows:
(a) Wndows consstng of pan or wre gass panes set n wood sash must
be protected by ron bars, and shutters substantay constructed of ron
or wood.
( ) In eu of sod shutters the wndows may consst of wre gass panes
not arger than 6 by 10 nches, set In meta sash and protected by Iron bars.
(c) Wndows may be of detenton type, consstng of sod stee wndow
and 60d stee gr, combned n one unt and erected n one pece, equpped
wth wre gass panes not arger than 6 by 10 nches.
Par. C. wndows must be securey set nto the wndow casement n such
manner as to prevent ready access or remova.
Par. 7. The Commssoner or dstrct supervsor may n hs dscreton re-
qure a wndows to be protected by ron bars or shutters, or both.
Par. 8. Where ron bars are requred they must be paced perpendcuary n
the wndows, and the bars must be not ess than three-quarters of an Inch
n dameter and be paced not more than 5 nches apart, and be renforced
by crossbars not more than 36 nches apart bars must be so fastened
to the wndow frames or embedded n the was as to afford proper securty.
Par. 0. The shutters must be fastened nsde and be so secured that they
can not be opened from the outsde, and a wndow sashes must be provded
wth sash ocks or other sutabe fastenngs.
Par. 10. Skyghts wth openngs for ventaton w be regarded as wndows
and treated as such In the constructon of bonded warehouses, and must be
protected by sutabe ron bars.
Par. 11. Wndows openng onto a fre escape sha be protected by a sod
shutter, securey hnged and equpped wth factes for ockng. Doors openng
onto a fre escape sha kewse be equpped for ockng.
Par. 12. Dstery, genera, and speca bonded warehouses desgnated as
nterna revenue bonded warehouses pursuant to secton 408(b) of the Lquor
Ta dmnstraton ct, may, upon compance by the propretors thereof
wth the requrements of paragraphs 47 and 48 of these reguatons, be oper-
ated as such f they are so constructed as to afford securty and protecton to
the sprts deposted and to be deposted theren. The dstrct supervsor or
the Commssoner may at any tme requre the propretor of any such ware-
house to make changes theren conformng to the provsons of these regua-
tons, f deemed necessary to safeguard the revenue or to permt more eco-
nomca and effcent supervson by Government offcers. nterna revenue
bonded warehouses hereafter constructed must be n conformty wth these
reguatons.
Storage Tanks.
Par. 13. Storage tanks may be nstaed In any nterna revenue bonded ware-
house ocated on the bonded premses of a regstered dstery and, pursuant to
secton 002, Revenue ct of 1918, as amended, dsted sprts reduced n the
recevng csterns of such dstery to not more than 159 and not ess than
100 degrees of proof, may be stored theren. Such storage tanks sha be of
meta, of unform dmensons from top to bottom, and each such tank sha be
equpped wth a sutabe gass gauge whereby the contents n gaons w at
a tmes be correcty ndcated.
Par. 14. ach storage tank must be cosed, and any necessary openngs
theren affordng access to the contents must be provded wth a cover whch
can ba secured by a Government ock. aves must be provded and so
arranged as |ompetey to contro the fow of sprts both nto and out of
storage tanks, and so constructed that they may be ocked wth a Government
ock. The ppe connectons contanng such vaves must be brazed or otherwse
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448
secured to the tank n such manner that they may not he detached or atered
wthout showng evdence of tamperng.
Pah. 15. Storage tanks sha be numbered seray In each warehouse, and
each tank sha have pany and duraby marked thereon Its number and
capacty In wne gaons. When sprts are deposted n such tanks there
sha be marked thereon, wth chak or crayon, the knd of sprts, the date
of the entry for depost, and the proof at whch dsted ( Dsted 190 Proof
or over or Dsted between 160 and 190 Proof, as the case may be). Such
chak or crayon marks sha be erased each tme the tank Is empted.
Weghng Tanks.
Par 16. Sprts wthdrawn from warehouse storage tanks for shpment In
raroad tank cars sha be weghed and proofed In a weghng tank. Weghng
tanks sha be statonary, of unform dmensons from top to bottom, and
each such tank sha be equpped wth a sutabe gass gauge whereby the
contents w be correcty ndcated. ach weghng tank sha have pany
and duraby marked thereon a sera number and ts capacty In wne gaons.
The scaes upon whch the tank s mounted sha be accurate. The net and
outet ppe connectons of each weghng tank must be ftted wth vaves so
constructed that they can be secured wth Government ocks, and any other
openng n such tank must aso be so arranged that t can be cosed and
ocked.
Ppe Lnes.
Pah. 17. Ppe nes for the conveyance of sprts to and from storage tanks
n an nterna revenue bonded warehouse sha be of a f ed and permanent
character, constructed of meta, and so arranged as to be e posed to vew
throughout ther entre ength. vaves, unons, and other connectons n
such ppe nes sha be rveted, seaed, or otherwse so secured as to prevent
ther dsconnecton wthout showng evdence of tamperng. Ppe nes sha be
so paced that they may be connected by short detachabe connectons wth
storage tanks, weghng tanks, and raroad tank cars: Provded, however. That
where dsted sprts are conveyed by ppe ne from the cstern room of the
dstery to storage tanks n a bonded warehouse on the dstery premses,
such ppe ne sha be drecty connected wth such storage tanks, and brazed
or otherwse secured to such tanks n such manner that t may not be detached
or atered wthout showng evdence of tamperng.
Par. 18. Ppe nes sha be so secured at ponts of enterng or passng from
the warehouse as to prevent any communcaton wth the warehouse at such
ponts, e cept by transt through the ppe ne when the vave Is open. The
storage-tank connectons of the ppe ne from the dstery cstern room sha
be ftted at the net of each such tank, wth a vave whch can be secured wth
Government ock and such connectons must be so arranged as to contro the
fow of sprts separatey Into each tank. ach ppe ne not drecty con-
nected wth a storage tank sha be ftted, at the end nsde the warehouse,
wth a vave so constructed that t may be ocked. Such vaves n ppe nes
and n the ppe connectons of storage tanks sha be kept cosed and ocked
at a tmes, e cept when necessary to be open for the transfer of sprts.
aves n the outets of storage tanks need not be ocked when the tanks are
empty.
Par. 19. The keys to a ocks on weghng and storage tanks, and on ppe
nes wthn the warehouse sha be kept nt a tmes n the custody of the
storekeeper-gager at the warehouse.
Pab. 20. No ppe ne may be used unt t has been nspected and the dstrct
supervsor has approved the same.
Warehouse Offce.
Par. 21. The propretor of an nterna revenue bonded warehouse may pro-
vde an ofce theren for hs own accommodaton, but such offce must be
separated from the remander of the warehouse by a sod, unbroken partton
of substanta constructon. If such an offce s provded, the storekeeper-
guuger sha be aowed such use thereof as may be necessary for the per-
formance of hs offca dutes. In any event, sutabe accommodatons sha
be furnshed the storekeeper-gauger for the purpose ndcated.
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449
Msc.
Sgn.
Par. 22. The propretor sha pace over the front entrance or conspcuousy
upon the outer wa of each bonded warehouse, so that t can be pany seen
from the street or other pubc thoroughfare, a sgn bearng n pan, egbe
etters and fgures not ess than 8 nches n heght and of an approprate
wdth, panted n o coors, or gded, the words Interna Revenue onded
Warehouse, foowed by the warehouse number and the name of the propretor.
ences and Gates.
Par. 23. The propretor may erect around the premses of an nterna revenue
bonded warehouse a fence or wa, but a sutabe number of gates theren must
be provded. If such gates are ocked, the dstrct supervsor must be fur-
nshed wth dupcate keys n such number as may be requred by hm. If
such wa or fence s to be sod and over 5 feet n heght, speefc approva
therefor must be obtaned from the dstrct supervsor.
Numberng Warehouses.
Par. 24. Interna revenue bonded warehouses sha be numbered seray by
States n the order of ther estabshment: Provded, That any dstery, gen-
era, or speca bonded warehouse may, n the dscreton of the Commssoner,
upon beng desgnated an nterna revenue bonded warehouse, be gven the
same number theretofore assgned to t, f such reassgnment w not resut n a
dupcaton of numbers n the State. The numbers of a nterna revenue
bonded warehouses w be assgned by the Commssoner.
. . . Permt.
Par. 25. Under the edera coho dmnstraton ct and the reguatons
ssued pursuant thereto, any person (e ceptng any agency of a State or
potca subdvson thereof or any offcer or empoyee of any such agency)
ntendng to engage n the busness of warehousng and bottng dsted sprts,
s requred to procure a permt therefor from the edera coho dmnstra-
ton, Washngton, D. C.
Par. 26. ny person fng an appcaton, bond, and other papers, as heren-
after requred, wth the dstrct supervsor for the estabshment of an nterna
revenue bonded warehouse, and who ntends to botte dsted sprts at such
warehouse, sha e hbt the orgna of such permt to the dstrct supervsor
and fe two photostat copes thereof wth hm.
Par. 27. No appcaton, or supportng documents, submtted by a person
Intendng to warehouse and botte dsted sprts w be approved unt such
permt has been e hbted to the dstrct supervsor and two copes thereof fed
wth hm.
Par. 28. Upon recept of notce of the revocaton, suspenson, or annument
of the permt, the dstrct supervsor w see that no operatons are conducted
contrary to the orders of the edera coho dmnstraton.
ppcaton.
Par. 20. ny person desrng the estabshment of an Interna revenue bonded
warehouse sha fe an appcaton therefor on orm 27D n trpcate, wth
the dstrct supervsor of the dstrct n whch the warehouse s ocated. The
appcaton sha be e ecuted under oath and contan the foowng nformaton:
(a) The name and resdence of the appcant. If the appcant s a copartner-
shp, company, frm or assocaton or group other than a corporaton, the
appcaton sha contan a statement of the name and resdence of every member
thereof. If the appcant s a corporaton, the appcaton must show the name
of the State n whch Incorporated and the ocaton of ts prncpa offce or
pace of busness, and there must be fed wth each copy of the appcaton a
certfed copy of the corporate charter or certfcate of ncorporaton, an affdavt
gvng the name and busness address of each offcer and drector, and a certfed
copy of a resouton of the board of drectors or of an e tract from the by-aws
showng that the person sgnng for the corporaton Is authorzed so to sgn.
(6) statement of the precse ocaton of the warehouse. If the busness s
carred on n a cty, the pace of busness sha be ndcated by the name of the
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450
street, the number of the budng, and (11 ess than a whoe budng) the rooms
or foors of the budng. The statement sha aso show defntey whether or
not the warehouse s ocated (1) on the bonded premses of a regstered ds-
tery or (2) contguous to such a dstery.
(c) statement of the appcant s tte to the warehouse premses, ncudng
the amounts of a mortgages or other Incumbrances thereon and the names of
the hoders thereof. If the warehouse Is occuped under a ease, the name of
the essor, the ength of the term and date of Its e praton sha be stated.
(d) n accurate descrpton of the budng or room consttutng the ware-
house, ncudng the heght, wdth, and depth the materas of whch con-
structed f a whoe budng, the number of stores and heght of each story
If a room, an e act descrpton of the budng n whch It Is stuated and Its
precse ocaton theren and n every case, a the openngs, connectons, and
surroundngs, and how such openngs and connectons are secured.
(e) statement showng the number and capacty of weghng and storage
tanks Instaed (If any), and descrbng the ppe nes.
(f) statement showng the capacty of the warehouse, n barres, and the
system of storage to be used.
(g) descrpton of the bottng warehouse and equpment and a statement
of the day bottng capacty.
(ft) statement In deta respectng the necessty for the estabshment of
the warehouse and showng the transportaton factes avaabe.
Pab. 80. In addton to the foregong Informaton the appcant sha furnsh
any other data caed for by the Commssoner.
Pab. 81. When the appcaton s fed by an ndvdua, It must be sgned by
hm or In hs name by hs duy empowered attorney In fact,
Pab. 82. When the appcaton s fed by a copartnershp, company, frm, or
assocaton or group other than a corporaton, It must be sgned In the name
of the appcant, foowed by the sgnature of each member or by the sgnature
of one member or some other person duy authorzed by power of attorney so
to sgn.
Pab. 83. When the appcaton Is fed by a corporaton, It must be sgned In
the name and under the Impresson of the sea, f any, of the corporaton, fo-
owed by the sgnature and tte of the offcer thereof, or other person, duy
empowered to sgn for It.
Pab. 84. When the appcaton s sgned by an attorney n fact, It must be
accompaned by a propery e ecuted power of attorney, In dupcate.
Pab. 86. ach appcaton for the estabshment of an Interna revenue bonded
warehouse on premses not contguous to a regstered dstery must be
accompaned by a sworn statement of the appcant s ntenton wth respect to
the storage of dsted sprts n the proposed warehouse, showng the quantty
of the nta deposts and the estmated quantty and the frequency of subse-
quent deposts. If the appcant has secured condtona contracts for the
storage of sprts n the proposed warehouse he sha submt certfed copes
thereof wth hs appcaton. No appcaton for the estabshment of an
nterna revenue bonded warehouse on premses not contguous to a regstered
dstery w be approved uness the capacty of such warehouse s commensu-
rate wth the prospectve needs of the area n whch t s to be ocated, and n
any event, not ess than 10,000 barres, and uness the ocaton, capacty, trans-
portaton factes, and desgn and constructon of the warehouse are such as
to Insure economca supervson by Government offcers.
Pab. 86. The propretors of dstery, genera, and speca bonded warehouses
desgnated Interna revenue bonded warehouses pursuant to secton 408(b) of
the Lquor Ta dmnstraton ct w not be requred to fe appcaton as
prescrbed heren, n order for such warehouses to be so desgnated.
Pats and Pans.
Pab. 37. The appcant sha submt wth hs appcaton a pat, n trpcate,
of the warehouse premses on sheets of tracng nen, 15 by 20 Inches, outsde
measurement, wth a cear margn of at east 1 nch on each sde of the drawng,
etterng, and wrtng. The pat must contan an accurate descrpton of the
budng, or rooms, to comprse the bonded warehouse premses. If the ware-
house s to be a room or foor of a budng, an e act descrpton of the budng
and the precse ocaton of the room or foor must be gven. The dmensons
of the budngs or rooms w be stated. The number of stores and heght of
each story w be shown In the descrpton of budngs, and If two or more
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budngs are to be used they must be shown n ther reatve postons. The
surroundng budngs, drveways, streets, and sdngs, and the purposes for
whch such budngs are used, w aso be ndcated on the pat.
Pab. 38. The appcant sha aso te pans of the same sze as the pat, on
sheets of tracng nen. The pans w ncude a foor pan of each room, or
of each foor of each budng, to be used as the bonded warehouse, ndcatng
the dmensons of the room or foor, the ocaton of a doors, wndows, and other
openngs and ther dmensons, and how the same are secured. If the con-
structon of a foors n a snge budng s dentca, a typca foor pan may
be fed In eu of a separate pan for each foor. The pans w aso ncude
an eevatona vew of each e posure of each budng, or room, showng the
constructon of foundatons, foors, and was, and the type of securty afforded
the openngs. The poston of storage and weghng tanks, If any, wth a
ppe connectons thereto, the nets, outets, and other openngs thereof, and how
secured, and the ocatons for Government ocks and seas, w be shown.
The sera number and the capacty n wne gaons of each tank w aso be
Indcated. Ppe nes used for conveyance of sprts w be Indcated In
back, and steam, water, and ar nes ndcated In whte on the pans.
Pab. 39. Where the propretor of a bonded warehouse premses desres to
make a change theren, Invovng the Incuson or e cuson of a room or
budng, a new appcaton on orm 27D, accompaned by a suppementa pan,
or pat and pan, as the case may be, must be fed wth the dstrct supervsor,
as In the case of the estabshment of such a warehouse. Where t s desred
to Insta addtona storage tanks or ppe nes, or to make ateratons In such
equpment, report thereof, In trpcate, sha be made by the propretor to the
dstrct supervsor. The Commssoner or dstrct supervsor may requre the
fng of a new pan at any tme.
Pab. 40. very pat and pan sha be drawn to scae and each sheet thereof
sha bear a descrptve tte enabng ready Identfcaton of the same. Pats
and pans sha be drawn by competent draftsmen.
Pab. 41. ach sheet of every pat and pan, both orgna and suppementa,
sha aso bear a certfcate of accuracy, dated, and sgned by the draftsman,
propretor, and dstrct supervsor. The certfcate sha be In the foowng
form:
Dstrct, , 19__.
We hereby certfy that ths Is an accurate pan (pat or suppementa pan,
as the case may be) of the warehouse premses of
of ths dstrct
(Draftsman.)
(Propretor.)
(Date.) (Dstrct Supervsor.)
Pab. 42. In case of successon of propretorshp, the successor may, If no
change has been made n the premses and equpment, accept the pat and pan
on fe. Such acceptance sha Incude a certfcaton as to the accuracy of the
pat and pan. The acceptance must be e ecuted n trpcate, one copy thereof
attached to the pat and pan at the warehouse, and two copes submtted to
the dstrct supervsor wth the appcaton.
Pab. 43. The propretors of dstery, genera, and speca bonded warehouses
desgnated nterna revenue bonded warehouses pursuant to secton 403(b)
of the Lquor Ta dmnstraton ct w not be requred to fe new pats
and pans, f accurate and satsfactory pans of such warehouses are on fe,
and copes thereof are avaabe for nspecton at the warehouses.
onds.
Pab. 44. The propretor of each Interna revenue bonded warehouse sha
furnsh transportaton and warehousng bond on orm 1571 In a pena sum
suffcent to cover the ta at the rate Imposed by aw, now or hereafter In
force, on a dsted sprts to be stored a such warehouse and to be n
transt thereto at any one tme: Provded, That the ma mum pena sum of
such bond sha not e ceed 200,000 for each such warehouse: nd provded
further, That the propretor of any dstery, genera, or speca bonded ware-
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452
house estabshed accordng to aw and actuay beng used on the date of the
enactment of the Lquor Ta dmnstraton ct for the storage of dsted
sprts on whch the ta has not been pad, may furnsh, In eu of new bond
on orm 1571, a consent of surety on orm 1533 (suppemented, If necessary,
as provded n paragraph 45 hereof), e tendng the terms of hs e stng ware-
housng, or transportaton and warehousng, bond or bonds, as the case may be,
to cover the ta on dsted sprts stored n, and n transt to, the nterna
revenue bonded warehouse operated by hm.
Pab. 45. anket bonds w not be accepted as new bonds to cover the stor-
age of dsted sprts In nterna revenue bonded warehouses and n transt
thereto. Consents of surety e tendng the terms of banket transportaton
and warehousng bonds n force on the effectve date of the Lquor Ta dmn-
straton ct, to cover the ta on dsted sprts n nterna revenue bonded
warehouses sha specfy the amount of the pena sums of such banket bonds
to be aocated to each such warehouse and sha contan the undertakng
that
the obgors agree to reman bound by the terms of the sad bond, as orgnay
wrtten for the perod pror hereto, and hereafter as hereby changed, to a
Intents and purposes as f a new bond wth such terms were ths day e ecuted.
In a cases where the pena sums of warehousng bonds, and transportaton
and warehousng bonds (banket or separate) of any seres heretofore fed,
the terms of whch are e tended by consents of surety as heren provded, are
not suffcent to cover the ta on dsted sprts In nterna revenue bonded
warehouses and n transt thereto, the propretor of each such warehouse may
gve a strengthenng bond, on orm 1571, In suffcent pena sum to cover the
defcency (but not n e cess of 200,000), provded the surety or suretes
thereon are the same as on the bond or bonds of such propretor of any pror
seres aready on fe otherwse a new bond on orm 1571 coverng the entre
abty w be requred. New and addtona bonds on orm 1571, n such
cases, must contan an effectve date as of the date of approva of the Lquor
Ta dmnstraton ct, but the bonds must aso show the current date of ther
e ecuton n the bank spaces provded therefor.
Pab. 46. The purpose of requrng strengthenng bonds on orm 1571 Is to
secure the ta on any dsted sprts that may be on depost or In transt
to an Interna revenue bonded warehouse and not secured by the e stng bond,
and to cover the ta on such sprts that may thereafter be deposted n such
warehouse. eng gven for ths purpose, the same are In no sense substtute
bonds, and dstrct supervsors w refuse to approve any strengthenng bonds
where any notaton Is made thereon ntended, or whch may be construed, as a
reease of any former bond, or as mtng the amount of ether bond to ess
than ts fu pena sum.
Pab. 47. The use of the foowng bond forms, as new, supersedng, strengthen-
ng, or renewa bonds, Is dscontnued :
orm 78. Genera bonded warehouse bond.
orm 79. rut dster s annua warehousng bond.
orm 80. Dster s monthy warehousng bond.
orm 234. Speca bonded warehouse bond.
orm 235. Transportaton and warehousng bond (for speca bonded ware-
houses).
orm 851. Transportaton warehousng bond (for genera bonded ware-
houses).
orm 859. Dster s annua warehousng bond.
orm 1521. Concentraton warehouseman s bond.
orm 1522. Transportaton and warehousng bond (under the Concentraton
ct).
Pab. 48. The ma mum penn sum of bond requred of dsters s 100,000
for each dstery (secton 8260, R. S., as amended). In any case where a
dster operates an nterna revenue bonded warehouse on the dstery
premses, and such dster s bond, orm 80, s n the ma mum pena sum of
100,000, It may be accepted wthout surety f t s supported by the consent
of the surety on transportaton and warehousng bond, orm 1571, whch bond,
n such case, sha be In the ma mum pena sum of 200,000. The same rue
w appy to frut-dster s bond, orm 80 , and bond, orm 1571, as appes
to bonds, orms 80 and 1571, 1. e., orm 80 , gven wthout surety, n the
ma mum pena sum of 100,000, by any dster operatng an Interna revenue
bonded warehouse on the dstery premses may be supported by consent of
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453
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the surety on bond, orm 1571, n the ma mum pena sum of 200,000. If
bonds on orms 80, 80 , and 1571 In the ma mum pena sums stated are not
gven, separate bonds, on sad forms, each wth surety or securty, must be
gven n suffcent pena sums.
Pab. 40. onds requred to be gven under the provsons of these reguatons
sha be prepared and e ecuted n trpcate and devered to the dstrct super-
vsor of the dstrct where the premses covered by the bond are ocated. efore
the bond Is e ecuted the appcant w ascertan through the dstrct super-
vsor the number to be assgned to the warehouse, f estabshed, so that such
number may be nserted n the bond. The bond w be approved by the dstrct
supervsor f the prncpa has n a respects comped wth the aw and
reguatons. The orgna bond w be forwarded to the Commssoner, and
one copy to the prncpa: Provded, That n the case of the estabshment of a
new warehouse or the quafcaton of an e stng warehouse, or where a bond
or consent of surety Is fed In connecton wth an appcaton for approva of
changes n constructon of a warehouse, the prncpa w not be furnshed
a copy of the bond or consent of surety pror to approva by the Commssoner.
The thrd copy of the bond sha be retaned by the dstrct supervsor.
Par. 50. new bond may be requred at any tme, n the dscreton of the
dstrct supervsor, or under nstructons of the Commssoner. new bond
sha be requred mmedatey n case of the death, remova, or nsovency of
a persona surety, or Insovency of a corporate surety. ecutors, admns-
trators, assgnees, recevers, and trustees contnung the busness must e ecute
a new bond or obtan the consent of the surety or suretes on the e stng bond
or bonds. When, In the opnon of the dstrct supervsor, the nterests of the
Government demand It he sha requre the propretor of an nterna revenue
bonded warehouse to gve a new bond for an ncreased amount
Pab. 51. onds may be gven wth corporate surety authorzed to act as
urety by the Secretary of the Treasury, or by ndvdua suretes (of whch
there must be two), or by the depost of proper coatera.
Pab. 52. Corporate suretes must be duy authorzed by the Secretary of the
Treasury to become suretes on edera bonds. Treasury Department orm
858, Commssoner of ccounts and Deposts, Secton of Surety onds, pubshed
In pr and September of each year for the Informaton of edera bond-
approvng offcers and persons requred to gve bonds to the Unted States, sts
companes hodng certfcates from the Secretary of the Treasury under the
ct of Congress of ugust 13, 1894 (28 Stat, 279), amended by the ct of
March 23, 1910 (38 Stat, 241), as acceptabe suretes on edera bonds.
Copes of orm 858 w be furnshed twce yeary to dstrct supervsors for
ther gudance.
Pab. 53. Dstrct supervsors are reeved from the duty of requrng and
e amnng powers of attorney or other evdence of appontment of agents and
offcers e ecutng bonds on behaf of surety companes. vdence of such ap-
pontment s requred to be fed wth, and passed upon by, the Commssoner
of ccounts and Deposts, Secton of Surety onds, Treasury Department
Pab. 54. Persona suretes on bonds (of whch there must be two) must
quafy by e ecutng affdavt on orm 83, In trpcate. On approva by the
dstrct supervsor, a copy of orm 83 shoud be attached to each copy of the
bond to whch It reates. Dstrct supervsors shoud e ercse great care In
decdng as to the suffcency of the securty afforded by ndvdua suretes
and such suretes shoud not be accepted smpy because they attempt to quafy
by fng affdavt on orm 83. The prncpa ob|ect of affdavt, orm 33, s to
obtan statements whch the dstrct supervsor must Investgate n every case.
Persona suretes must resde wthn the State n whch the Interna revenue
bonded warehouse s ocated, and where rea property s offered as securty
the same must be wthn the State.
Pab. 55. Marred women w not be accepted as suretes. If a woman sgns
a bond, a statement of the offcer before whom she quafes that she s un-
marred, or her affdavt to that effect shoud accompany the bond.
Pab. 56. The surety or suretes on the bond must have no nterest whatever
n the busness.
Pab. 57. Dstrct supervsors on recevng bonds or notes of the Unted
States, or other obgatons whch are uncondtonay guaranteed as to both
Interest and prncpa by the Unted States, pedged and deposted by prncpas
as coatera securty, In eu of persona or corporate suretes, sha depost
same as requred by Department Crcuar No. 154, revsed.
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Pab. 58. onds not competey and propery fed In and e ecuted w be
returned for correcton. Proper record w be kept of bonds returned for
correcton, or for any other purpose.
Pab. 69. In the event any bond s not acceptabe, the dstrct supervsor w
be so notfed by the Commssoner and he sha n turn notfy the prncpa.
cept as otherwse provded heren, the prncpa on a bond approved by
the dstrct supervsor sha be aowed to operate unt, In the event the
bond s not accepted, the dstrct supervsor notfes hm of such fact, where-
upon a satsfactory bond sha be requred by the dstrct supervsor as
provded n these reguatons.
Pab. 60. dsapproved bonds sha be returned to the prncpa and the
surety or suretes notfed of such dsapprova.
Par. 61. Consents of surety to change n terms of bond, orm 1533, must be
e ecuted by the prncpa and a suretes wth the same formaty and proof
of authorty to e ecute as requred for the e ecuton of bonds, n as many
copes as are requred of the bond affected thereby. If the surety s a corpora-
ton, the consent must be e ecuted by the home offce offcas of such corporate
surety e cept that, n cases where the savng of tme s an eement, t may
be e ecuted by an agent or attorney n fact when the home offce offcas,
by specfc authorzaton by etter or teegram, drect and order ts e ecuton.
copy of such authorzaton shoud be attached to each copy of such consent.
The procedure governng the approva and dsposton of the orgna and copes
of bonds as provded n these reguatons sha appy to the approva and
dsposton of consents of surety.
Pab. 62. In Instances where t s desred to gve bonds wth corporate surety,
two or more corporate suretes may be accepted thereon, and such bond sha
he the |ont and severa abty of the prncpa and the suretes: Pwded,
That each corporate surety may mt ts abty, In terms, upon the face of
the bond, n a defnte specfed amount, whch amount sha not e ceed the
mtatons prescrbed for such corporate surety by the Secretary of the
Treasury, as set forth n orm 856, Commssonef of ccounts and Deposts,
Secton of Surety onds.
Pab. 63. surety on any bond may at any tme In wrtng notfy the prn-
cpa and the dstrct supervsor n whose offce the bond s on fe, that he
desres after a date named, whch sha be at east 60 days after the date of
the notfcaton, to be reeved of abty under sad bond. Sad notce sha
be e ecuted In trpcate by the surety, who sha dever one copy to the
prncpa and the other two to the dstrct supervsor, who w retan one
copy and transmt the remanng copy to the Commssoner. If such notce Is
not thereafter n wrtng wthdrawn, the rghts of the prncpa as supported
by sad bond sha be termnated on the date named n the notce and the
surety sha be reeved under sad bond for any acts done whoy subsequent
to sad date: Provded, That f the prncpa fus to e ecute a new and sats-
factory bond, sad bond sha reman effectve unt there sha have been
ta payment and proper accountng for a dsted sprts as of the date named
n such notce. Ths notce may not be gven by an agent of the surety uness
It s accompaned by a power of attorney duy e ecuted by the surety author-
sng hm to gve such notce or by a verfed statement that such power of
attorney s on fe wth the Department,
Pab. 64. The fu name of each person sgnng appcatons, notces, bonds,
powers of attorney, consents of surety, and other wrtten Instruments, or papers
requred of propretors of Interna revenue bonded warehouses sha be egby
wrtten (preferaby typed) In the headng or body of each such nstrument
or paper.
Pab. 65. In the case of a copartnershp, the trade name of the frm, foowed
by the names of a the members thereof, sha be shown. In the case of a cor-
poraton, there sha be shown the corporate name, the name of the State
under the aws of whch It s ncorporated, and the ocaton of the prncpa
offce or pace of busness.
Pab. 66. n ndvdua propretor of an nterna revenue bonded warehouse
e ecutng such nstruments sha sgn hs name thereto In hs usua sgnature,
or an attorney-n-fact, duy empowered by hm, may sgn In hs behaf. In
the case of a copartnershp, the frm name sha be typed or wrtten, foowed by
the word y and the usua sgnatures of a partners or the sgnature of
any partner or other person hodng a power of attorney authorsng hm to
e ecute bonds or other nstruments on behaf of the partnershp, a copy of
whch power of attorney must be attached to such bonds or other Instruments.
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455
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In the case of a corporaton, the corporate name sha be typed or wrtten,
foowed by the word y and the sgnature and tte of each offcer e ecut-
ng the document for the corporaton, who must be duy authorzed to act
for the corporaton. The nstrument sha show the mpresson of the cor-
porate sea and sha be supported by an authentcated copy of the document
conferrng authorty upon each offcer to e ecute the nstrument The sgna-
ture of each person e ecutng such nstrument sha be wtnessed by two
persons, who sha attach ther sgnatures as such, e cept where e ecuton
of the nstrument s acknowedged before an offcer duy authorzed to admn-
ster oaths, or n the case of a corporate Instrument, when the sea of the
corporaton Is aff ed and attested by ts proper offcer.
Pab. 67. On a bonds, or consents of surety, n whch ateratons, erasures,
or nterneatons occur there sha be ndorsed, opposte each such ateraton,
erasure, or Interneaton, the ntas of a persons sgnng the nstrument,
and there sha aso be attached thereto a statement, duy sgned by a persons
e ecutng such Instrument, that such ateratons, erasures, or nterneatons
were made wth ther fu knowedge and consent. smar verfcaton of
ateratons, erasures, or Interneatons appearng n any other wrtten Instru-
ment may be requred by dstrct supervsors.
Pab. 68. Where a new bond ( orm 1571) n a pena sum suffcent to secure
the ta on a dsted sprts n the Interna revenue bonded warehouse and In
transt thereto s fed to supersede a bond or bonds of the same or a pror
seres and there s no record of voaton of aw or reguaton by the prncpa,
the dstrct supervsor sha, after approva of the supersedng bond, prepare
orm 1490, Notce of ond Termnaton, n quadrupcate (In quntupcate If
there are two suretes), and forward the orgna to the Deputy Commssoner,
one copy to each obgor on the bond, and retan one copy to be fed wth the
bond to whch t reates. Where assessments have been made aganst the prn-
cpa, the dstrct supervsor w not ssue orm 1490 unt a statement has
been obtaned from the coector of nterna revenue that such assessments have
been pad.
Par. 69. The bonds, notes, or other obgatons of the Unted States deposted
as coatera securty wth an outstandng bond of the propretor of an Interna
revenue bonded warehouse, and wth respect to whch no voaton has been
charged, may be used to secure a new supersedng bond on orm 1571 by
approprate descrpton of such coatera In the new bond.
Pab. 70. Upon recept of an appcaton for the reease of a bond ( orm 1571),
or of a bond of a pror seres, the dstrct supervsor w e amne hs records
to ascertan whether there Is any outstandng abty aganst the bond. If and
when the dstrct supervsor s satsfed that there Is no outstandng abty
aganst a bond, the reease of whch has been apped for, he w prepare orm
1491, Notfcaton of Reease of ond, n quadrupcate (n quntupcate If
there are two suretes), and forward the orgna copy to the Deputy Comms-
soner, one copy to each obgor on the bond, and retan one copy to be fed
wth the bond to whch It reates. Where an offer n compromse of cv a-
bty or an appcaton for remsson, or cam for abatement of ta es, has been
sent to the Deputy Commssoner, and notce of fna acton has not been re-
ceved, the dstrct supervsor w not take any acton toward the reease of
the bond unt such notce has been receved, and a statement has been obtaned
from the coector of Interna revenue that the ta nvoved and a outstandng
assessments, f any, have been pad.
Pab. 71. The provsons of Treasury Department Crcuar No. 154, revsed,
and these reguatons sha appy to bonds to be superseded or reeased where
obgatons of the Unted States have been deposted wth the Government
by propretors of Interna revenue bonded warehouses as coatera securty
In eu of surety or suretes, and to the dsposton of such obgatons so
deposted.
Pab. 72. The terms, condtons, and nstructons contaned n forms of bonds,
consents of surety, notces, appcatons, powers of attorney, affdavts, and
a other Instruments or papers requred by aw or reguatons of persons
operatng Interna revenue bonded warehouses arc hereby made a part of
these reguatons as fuy and to the same e tent as If Incorporated heren
at ength.
uafcaton of stng Warehouses.
Pab. 73. dstery, genera, and speca bonded warehouses estabshed
accordng to aw and on the date of the enactment of the Lquor Ta d-
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456
mnstraton ct actuay beng awfuy used for the storage of dsted
sprts on whch the ta as not been pad, are, by vrtue of secton 408(b)
of the sad ct, hereby desgnated as nterna revenue bonded warehouses, and,
upon the fng of the necessary bonds and consents of suretes on e stng
bonds, as prescrbed n these reguatons, nay be used for the storage of ds-
ted sprts heretofore or hereafter produced but any such warehouse must
be so constructed as to afford securty and protecton to the sprts deposted
and to be deposted theren, as provded by paragraph 12..
Pah. 74. When a proper bond, or proper consent of surety on an e stng
bond, s receved from the propretor of such a dstery, genera, or speca
bonded warehouse, the dstrct supervsor w Indcate hs approva thereon
and prompty forward one copy to the Commssoner for fna approva. If
the bond or consent of surety s approved by the Commssoner, he w
assgn a number to the warehouse and notfy the dstrct supervsor of the
acton taken. The dstrct supervsor w then return one copy of the bond or
consent of surety to the propretor of the warehouse wth advce as to the ware-
house number. The remanng copy of the bond or consent of surety w be
retaned on fe by the dstrct supervsor.
stabshment of New Wabehouses.
Pab. 75. When an appcaton and pat and pan for the estabshment of a
new nterna revenue bonded warehouse are receved, the dstrct super-
vsor w make an Inspecton of the premses. If the dstrct supervsor
fnds that the appcant has n a respects comped wth the aw and regu-
atons, and that the estabshment of the proposed warehouse woud be n
conformty wth the provsons of paragraph 35, he w approve the app-
caton, the pat and pan, and the bond, and prompty forward one copy of
ach to the Commssoner for fna approva, accompaned by a copy of the
Inspecton report, and a statement of the number of addtona Government
ofcers, If any, who woud be requred for the supervson of the proposed
warehouse.
Pab. 76. In the event the dstrct supervsor fnds, upon hs e amnaton
of an appcaton and supportng documents or upon hs nspecton of the
warehouse, that the appcant has not comped wth the requrements of the
aw and reguatons, and dsapproves the proposed estabshment of the ware-
house, he w forward one copy of the appcaton and supportng documents
to the Commssoner wth hs recommendaton and the reasons therefor.
Pab. 77. If the appcaton, the pat and pan, and the bond are approved
by the Commssoner, he w assgn the ndcated number to the warehouse,
and notfy the dstrct supervsor. The dstrct supervsor w note the ware-
house number on the copes of the appcaton n hs possesson, and return
one copy thereof wth one copy of the bond and the pat and pan to the app-
cant, who w keep the same at the warehouse avaabe for nspecton by
Government offcers. The remanng copy of the appcaton, the pat and
pan, and the bond w be retaned by the dstrct supervsor.
Par. 78. The dstrct supervsor w not aow the warehouse to be used
as an Interna revenue bonded warehouse unt recept of notce from the Com-
mssoner that the appcaton, pat and pan, and bond have been approved.
Pab. 79. If the appcaton s dsapproved by the Commssoner, he w gve
notce thereof to the dstrct supervsor wth advce as to the reasons for such
dsapprova. Upon recept of such notce, the dstrct supervsor w note the
dsapprova on the appcaton, pat and pan, and bond, and return one copy
of each to the appcant wth nformaton as to the reasons for such acton.
The remanng copy of each document w be retaned on fe by the dstrct
supervsor.
Change n Ownebshp ob Organzaton and Locaton.
Pab. 80. Whenever there s a change u the propretorshp of a bonded ware-
house, a new appcaton on orm 27D and a new bond on orm 1571 must be
prompty fed wth the dstrct supervsor. new pat and pan must aso be
fed, uness the new propretor adopts n wrtng the pats and pans on fe and
certfes to ther correctness. In the case of a copartnershp, the wthdrawa of
a partner or the takng n of a new partner, whether actve or passve, sha be
consdered a change of propretorshp.
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457
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Par. 81. In ease of a change n the ocaton of a bonded warehouse, a new
appcaton, new pats and pans, and a new bond or consent of surety on the
e stng bond must be fed.
Par, 82. When a change of offcers or drectors of a corporaton operatng
a bonded warehouse occurs, the dstrct supervsor sha be prompty furnshed
a certfed copy of the corporate mnutes coverng such changes or other duy
certfed notce, n dupcate. The dstrct supervsor w forward one copy
to the Commssoner.
Depost n Warehouse.
Par. 83. cept as provded n secton 602 of the Revenue ct of 1918,
as amended, a dsted sprts sha be drawn from recevng csterns nto
casks or packages and thereupon sha be gauged, proofed, and marked, and
Immedatey removed nto an nterna revenue bonded warehouse.
Par. 84. Under secton 602 of the Revenue ct of 1918, as amended, dsted
sprts reduced In the recevng csterns of a regstered dstery to not more
than 159 and not ess than 100 degrees of proof may be transferred from such
recevng csterns, by means of ppe nes, drect to storage tanks n an
nterna revenue bonded warehouse ocated on the dstery premses where
produced, and be warehoused n such storage tanks. Such sprts may aso be
drawn from such recevng csterns Into approved contaners and transferred
to any nterna- revenue bonded warehouse for storage theren.
Par 85. Dsted sprts deposted n bonded warehouse storage tanks pur-
suant to secton 602, Revenue ct of 1918, as amended, may be drawn nto
casks, barres, or smar wooden packages, or nto drums or smar meta
packages, havng a capacty of not ess than 10 wne gaons each, ether for
storage In bond or mmedate ta -payment. Such sprts may aso be drawn
from such storage tanks nto raroad tank cars, ether for mmedate ta -
payment or for transfer n bond, but ony n case the premses of the consgnee
of such tank ear s equpped wth raroad sdng factes.
Par. 86. When dsted sprts are removed nto an nterna revenue bonded
warehouse on the dstery premses where produced, the storekeeper-gauger
w be furnshed a copy of orm 1520, contanng the report of the orgna
gauge of the sprts and the dster s entry for depost. When dsted sprts
are removed to such a warehouse ocated off the dstery premses, the store-
keeper-gauger w, If the warehouse and the dstery are ocated n the same
supervsory dstrct, be furnshed two copes of such orm 1520, each accom-
paned by a copy of orm 236 wth parts 1, 2, 3, and 4 e ecuted, and, f the
warehouse and the dstery are ocated n dfferent supervsory dstrcts,
wth three copes of each form, smary e ecuted.
Par. 87. When sprts are receved at the bonded warehouse n casks or
other approved contaners for depost theren, the storekeeper-gauger w
e amne the shpment upon Its arrva. e w regauge any packages whch
appear to have been tampered wth or from whch sprts appear to have been
abstracted or ost, and w note on part 5 of orm 236 any defcences ascer-
taned and attach to the form a statement settng forth fuy the apparent
cause of the defcency. If the e amnaton of the raroad tank car reveas
evdence of oss by casuaty or theft, the quantty w be ascertaned by
regaugng the contents, and report w be made as n the case of packages
regauged. The sprts may be removed from the tank car for regaugng, but
upon competon of such regaugng, the same w be Immedatey transferred
back nto the tank car, and such tank car w be ocked and seaed pendng
ta -payment or further transfer n bond. The transfer of sprts from a tank
car for regaugng, and the return of the same, sha be done under the m-
medate supervson of the storekeeper-gauger. Upon ta -payment, the store-
keeper-gauger w remove the Saght ocks from the tank car and return the
same, together wth the keys therefor, to the storekeeper-gauger at the orgna
pont of shpment.
Par. 88. The transfer of sprts by ppe ne from the dstery cstern
room to storage tanks n a bonded warehouse on the dstery premses, w
be under the mmedate supervson of the storekeeper-gauger. The storekeeper-
gauger w see that the outet and a other openngs of the storage tank
affordng access to the sprts are cosed and ocked, and that vaves n the
ppe ne are so ad|usted as to contro the fow of sprts nto the tank. When
the sprts have been deposted n the tank, the net w be mmedatey cosed
and ocked.
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458
Pab. 89. The product of two or more dsters sha not be mnged n a
storage tank nor sha sprts whch dffer n knd accordng to the standards
of dentty estabshed by the edera coho dmnstraton, or whch dffer
more than 10 degrees n proof, be so mnged. When sprts are deposted n a
storage tank, the storekeeper-gauger w note the number of the tank on the
orm 1520 coverng the orgna gauge. e w aso mark on the storage
tank, wth chak or crayon, the date of the entry for depost, and the proof
at whch the sprts were dsted (as, Dsted between 160 and 190 Proof
or Dsted 190 Proof or over ).
Pab. 90. Dsted sprts drawn Into casks or packages from storage tanks
for storage n the warehouse where packaged, sha be gauged, marked, and
branded n accordance wth the provsons of the Gaugng Manua of 1934,
as amended. The detas of the gauge w be entered by the storekeeper-
gauger on orm 1520, n trpcate, ncudng a notaton of the date of the
orgna entry for depost and the proof at whch dsted, as ndcated n
paragraph 89. The storekeeper-gauger w forward one copy of the form to
the dstrct supervsor, dever one copy to the warehouseman, and retan the
remanng copy on fe.
Pab. 91. packages fed from bonded warehouse storage tanks, whether
for storage n bond or mmedate remova, sha be seray numbered, separatey
from packages fed n the dstery cstern room, begnnng wth No. 1,
preceded by the etter T, as T-, T-2, etc.
Pab. 92. Upon te depost of sprts In a bonded warehouse off the dstery
premses where produced, the storekeeper-gauger w e ecute hs report on
part 5 of orm 230, retan one copy of such form wth orm 1520 attached, and
forward the remanng copes of each form to the dstrct supervsor of hs ds-
trct. The dstrct supervsor w, n cases where the dstery s ocated In
another dstrct, transmt one copy of each form to the supervsor of such dstrct.
Pab. 93. copes of orm 1520, or orm 230 wth orm 1520 attached,
reatng to sprts produced at the same dstery by the same dster, w
be fed together, n the order that the sprts were receved, so that monthy
return, orm 1513, may be prompty prepared at the end of the month. Upon
wthdrawa of any sprts receved n packages the date and purpose for
whch wthdrawn w be noted In the unused space, coumns 13 to 19, of tho
orm 1520, coverng the orgna gauge. When sprts are drawn from storage
tanks nto packages for storage In bond, or nto packages or raroad tank
cars for Immedate remova, a smar record w be made on the orm 1620
coverng the orgna gauge.
Pab. 94. If the sprts deposted n a storage tank are covered by two or
more orms 1520, the storekeeper-gauger w keep such forms together and
make an dentfyng notaton on each showng that they, coectvey, represent
the sprts deposted In the tank. The severa forms w then be treated
as a snge form for the purpose of recordng wthdrawas. When the drawng
of sprts from a storage tank has begun, no further depost of sprts theren
w be permtted unt the tank has been competey empted and the oss, If
any, ascertaned. The oss w be reported as provded n paragraph 130.
Wthdrawa bom Warehouse.
Pab. 95. Dsted sprts deposted In an nterna revenue bonded warehouse
may be transferred In bond to another such warehouse, or wthdrawn upon
ta -payment, or wthdrawn In bond free of ta for e portaton or other awfu
purposes.
Pab. 96. Dsted sprts wthdrawn from a bonded warehouse n dster s
orgna packages, or n packages to whch the contents of such orgna pack-
ages were transferred n accordance wth aw and reguatons, sha be re-
gauged (uness, n the case of orgna packages, wthdrawa Is made on
orgna gauge, as provded by aw), stamped, marked, and branded n accord-
ance wth the provsons of the Gaugng Manua of 1934, as amended.
Pab. 97. Casks or packages fed from bonded warehouse storage tanks sha,
upon wthdrawa, be gauged, marked, branded, and (f ta -pad) stamped In
accordance wth the provsons of the Gaugng Manua of 1934, as amended.
Par. 98. The prescrbed marks and brands, whether the same are requred
to be cut, burned, mprnted, or stenced, sha be paced upon the package by
the dster or the warehouseman at hs e pense, under tho supervson of tho
storekeeper-gauger.
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459
Msc.
Par. 90. The storekeeper-gauger sha verfy the gross weght, tare, net
weght, wne gaons, proof, and proof gaons marked on the packages, by
comparson wth hs gauge sheet. orm 1520, and sha satsfy hmsef as to
the accuracy and correctness of the marks, brands, and stamps (If any).
Pa . 100. mechanca abor pertanng to the weghng of packages sha
be performed by the dster or the warehouseman. The storekeeper-gauger
sha, however, test or baance the scae before weghng ether empty or fed
packages, and durng the process of weghng he sha personay verfy the
weght of each package and record It n the proper coumn of orm 1520. The
storekeeper-gauger sha aso personay take the proof of the sprts and pre-
pare hs report of gauge on orm 1520.
Par. 101. When packages of dsted sprts are empted, a stamps, marks,
and brands requred to be paced thereon must be competey effaced and de-
stroyed. Ta -pad and other certfcates aff ed to raroad tank cars must aso
be destroyed when such cars are empted.
Transfers n ond.
Par. 102. Dsted sprts deposted n an nterna revenue bonded warehouse
n orgna packages may be transferred to another such warehouse for storage
theren. Sprts deposted n storage tanks may aso be so transferred n
approved contaners.
( ) TW N W R OUS S IN S M DISTRICT.
Par. 103. Where the transfer s to be made between bonded warehouses n
the same supervsory dstrct, the propretor of the recevng warehouse sha
e ecute an appcaton for the transfer of the sprts on part 1 of orm 236, n
quadrupcate. If the sprts are to be drawn from storage tanks, the appca-
ton w show, In addton to the other appcabe data, the knd of sprts and
the ma mum quantty In ta -gaons to be transferred. copes of the form
w be forwarded by the appcant to the dstrct supervsor. If the app-
cant has on fe a good and suffcent bond, the dstrct supervsor w e ecute
part 2 and part 3 of the form and forward a copes to the storekeeper-gauger
at the transferrng warehouse.
Par. 104. If the sprts to be transferred are n packages, the storekeeper-
gauger w Inspect the same and e ecute part 6. If In storage tanks, the same
w be drawn Into packages, gauged, marked, and branded, or run nto a
weghng tank, gauged, and run by ppe ne Into a raroad tank car, con-
structed and marked as prescrbed In paragraph 105. Sprts whch dffer n
knd, accordng to the standards of dentty estabshed by the edera coho
dmnstraton, or whch dffer more than 10 degrees n proof, may not be
mnged n fng packages and raroad tank cars from storage tanks. The
storekeeper-gauger w prepare report of gauge. orm 1520, n quadrupcate,
and attach one copy thereof to each copy of orm 236. In the case of tank
car shpments, the storekeeper-gauger w note on orm 1520 the date of
orgna entry for depost, the proof at whch dsted (In the manner pre-
scrbed by paragraph 89), the number of the tank car, and the sera number
of the ock sea. In the case of packages fed from storage tanks, the date
of the orgna entry for depost and the proof at whch dsted w be noted
by the storekeeper-gauger on orm 1520.
Par, 105. ach raroad tank car used to transport dsted sprts n bond
must be so constructed that a openngs may be securey cosed and ocked,
and the number and capacty In wne gaons, of the tank car must be per-
manenty and egby marked or panted thereon. The shpper sha furnsh
Saght ocks for use n ockng the openngs, and such ocks w be seaed wth
seas furnshed by the Government. The key for each ock so used w be
forwarded by the storekeeper-gauger at the transferrng warehouse to the
storekeeper-gauger at the recevng warehouse on the date the tank car Is
shpped. The ocks and keys w be prompty returned to the storekeeper-
gauger at the transferrng warehouse by the storekeeper-gauger at the recev-
ng warehouse when the sprts have been ta -pad.
Par. 106. Upon recevng an appcaton to gauge sprts to be transferred
n bond In a raroad tank car, the storekeeper-gauger w frst nspect the
tank ear to ascertan whether a openngs theren whch woud afford access
to the sprts may be cosed and ocked wth a Government sea ock. If the
tank car s not so constructed, the offcer w not permt It to be fed.
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460
Par 107. tank car must be fed under the Immedate supervson of the
Government offcer. The ppe ne must not be connected or used, e cept n
hs presence. s soon as the sprts have been propery gauged and oaded,
the offcer w ock the car and sea the ock.
Par, 108. efore the tank car Is reeased, a certfcate, dated and sgned by
the storekeeper-gauger, showng the shpment s In bond and gvng the name,
number, and ocaton of both the transferrng and recevng warehouses, sha
be securey aff ed to some conspcuous and secure pace on the tank car where
It may be ready e amned by Government offcers. The certfcate w be
n substantay te foowng form:
Shpped n ond by
O N DO COMP NY
L R. . W. No. 5, oston, Mass.,
To
N 3W YOR W R OUS COMP NY
L R . W. No. 1, rookyn, N. Y.
(Date.) (Storckecper-Gauger.)
Par. 109. Upon remova of the packages or raroad tank car, the storekeeper-
gauger w e ecute part 4 of orm 238, retan one copy, wth orm 1520 (If
any) attached, dever one copy of each to the propretor of the transferrng
warehouse, and forward two copes of each to the propretor of the recevng
warehouse.
Par 110. The storekeeper-gauger at the recevng warehouse w e amne
the shpment upon ts arrva. e w regauge any packages whch appear
to have been tampered wth, or from whch sprts appear to have been ab-
stracted or ost, and w note n hs recept on part 5 of orm 236 any de-
fcences ascertaned and attach to the form a statement settng forth fuy
the apparent cause of such defcency.
Par. 111. If the e amnaton of a raroad tank car shpment reveas ev-
dence of oss by casuaty or theft, the quantty ost w be ascertaned by
regaugng the contents, and report w be made as n the case of packages
regauged. The sprts may be removed from the tank car for regaugng,
but upon competon of such regaugng the same w be mmedatey trans-
ferred back Into the tank car, and such tank car w be ocked and seaed
pendng ta -payment or further transfer In bond. The sprts must be drawn
from and returned to the tank car under the Immedate supervson of the
storekeeper-gauger.
Pab. 112. When the packages or raroad tank cars have been devered Into
the warehouse, the storekeeper-gauger w e ecute hs recept on part 5
of orm 236, retan one copy, wth orm 1520 (f any) attached, and forward
one copy of each to the dstrct supervsor.
( ) TW N W R OUS S IN DI R NT DISTRICTS.
Par. 113. Where the transfer Is to be made between warehouses n dfferent
dstrcts, the propretor of the recevng warehouse sha fe wth the dstrct
supervsor of hs dstrct an appcaton for the transfer of the sprts on part 1
of orm 236, n quntupcate. In the manner ndcated n paragraph 103.
If the appcant has on fe a good and suffcent bond, the dstrct super-
vsor w e ecute the certfcate to that effect on part 2, and transmt a
copes to the dstrct supervsor of the dstrct n whch the transferrng ware-
house s ocated. The dstrct supervsor of such dstrct w e ecute part 3,
hs order to the storekeeper-gauger to gauge and reease the sprts, and w
then forward a copes to the storekeeper-gauger at the transferrng ware-
house, who w proceed as n the case of the transfer of sprts between
warehouses In the same dstrct.
Par 114. Upon remova of the packages or raroad tank car, the store-
keeper-gauger w e ecute part 4 of orm 236, retan one copy, wth orm
1520 (If any) attached, dever one copy of each form to the propretor of the
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transferrng warehouse, and forward three copes of each to the storekeeper-
ganger at the recevng warehouse.
Pab. 115. fter the shpment has been receved and e amned, and any
osses or dscrepances noted and reported, the storekeeper-gauger at the re-
cevng warehouse w e ecute hs recept on part 6 of orm 236, retan one
copy, wth orm 1520 (If any) attached, and forward the two remanng
copes of each to the dstrct supervsor of hs dstrct. The dstrct super-
vsor w retan one copy of each, and forward the other copes to the ds-
trct supervsor of the dstrct from whch the transfer was made.
Pebod of Storage n ond.
Pab. 116. Dsted sprts entered for depost n a dstery, genera, or
speca bonded warehouse pror to the date of the enactment of the Lquor
Ta dmnstraton ct, or entered for depost on or after such date In an
Interna revenue bonded warehouse, sha be wthdrawn therefrom wthn
eght years from the date of orgna entry, e cept that dsted sprts whch
on the effectve date of secton 807 of the sad ct ( uy 26, 1936) are 8
years of age, or oder, and whch are In bonded warehouses, may reman
theren after such date but no aowance for oss by eakage or evaporaton
may be made In the case of such sprts wth respect to any perod after such
date.
Par. 117. The ta on dsted sprts sha be due and payabe before and
at the tme of wthdrawa from the bonded warehouse and wthn eght years
from the date of orgna entry, e cept that such 8-year mtaton sha not be
appcabe In the case of sprts whch on the effectve date of secton 807
of the Lquor Ta dmnstraton ct are 8 years of age, or oder, and whch
are n bonded warehouses.
Pab. 118. In case the propretor of a bonded warehouse fas or refuses to
gve bond as requred, or to renew the same, or negects mnedutey to wth-
draw the sprts and pay the ta thereon, or If he negects to wthdraw any
bonded sprts and pay the ta thereon before the e praton of the tme
mted n the bond, the coector sha proceed to coect the ta by dstrant,
ssung hs warrant of dstrant for the amount of ta found to be due, as
ascertaned by hm from the report of the storekeeper-gauger f no bond was
gven, or from the terms of the bond f a bond was gven.
Pab. 119. If t sha appear at any tme that there has been a ass of ds-
ted sprts from any cask or other package deposted n an nterna revenue
bonded warehouse, other than the oss provded for In secton 3221, R. S., as
amended, whch, n the opnon of the Commssoner s e cessve, he may
nstruct the dstrct supervsor of the dstrct n whch the 106s has occurred
to requre the wthdrawa from warehouse of such dsted sprts, and drect
the coector to coect the ta accrued upon the orgna quantty entered nto
the warehouse In such cask or package, notwthstandng that the tme specfed
n any bond gven for the wthdrawa of the sprts entered Into warehouse
n such cask or package has not e pred.
Pab. 120. Whenever the owner of dsted sprts stored n any nterna
revenue bonded warehouse fas, upon the dscontnuance of such warehouse,
to transfer such sprts to such other warehouse as the Commssoner may
desgnate, and wthn the tme prescrbed by hm, or to pay the ust and
proper e pense of such transfer, as ascertaned ana determned by the Com-
mssoner, such sprts may be sezed and sod by the coector n the same
manner as goods are sod upon dstrant for ta es.
Ta -Payment n Packages.
Pab. 121. ppcaton for ta -payment and wthdrawa of dsted sprts n
packages from a bonded warehouse sha be made by the dster or propretor
of the warehouse on orm 179, n quadrupcate. If the sprts are to be
drawn from a storage tank, the appcant sha Indcate, n addton to other
appcabe data on the form, the ma mum quantty to be wthdrawn, and
the knd of packages to be used. Separate appcatons sha be fed for the
wthdrawa of sprts from storage tanks. copes of the appcaton w
be devered to the storekeeper-gauger at the warehouse, f one s reguary
assgned thereto otherwse, to the dstrct supervsor, who w assgn an
offcer to supervse the wthdrawa.
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Par. 122. If the sprts to be wthdrawn are n dsters orgna packages,
the storekeeper-gauger w, upon recept of the appcaton, regauge the sprts,
uness they are to be wthdrawn on the orgna gauge. If the sprts are
contaned n storage tanks, they w be drawn nto the desgnated packages
and gauged, and such packages marked, branded, and seray numbered as
prescrbed heren. The detas of the gauge or regauge, as the case may be,
w be entered by the storekeeper-gauger on orm 1520, In quadrupcate. In
the case of packages fed from storage tanks, the storekeeper-gauger w note
on orm 1520 the date of the orgna entry for depost, and the proof at whch
the sprts were dsted, n the manner prescrbed n paragraph 89. Three
copes of orm 1520, accompaned by a copes of orm 179 wth the store-
keeper-gauger s report thereon duy e ecuted, w be devered by the store-
keeper-gauger to the propretor of the warehouse, who w enter the packages
n the space provded therefor on orm 179, and then forward a copes of
both forms to the coector of Interna revenue wth remttance for the ta .
Par. 123. The coector w, upon ssuance of the ta -pad stamps, enter
the sera numbers thereof n the approprate spaces on the forms, sgn the
certfcate of ta -payment on orm 179, retan one copy of such form for hs
fes, and return three copes of each form to the warehouseman wth the stamps.
The warehouseman w dever the forms and stamps to the storekeeper-
gauger, whereupon the packages w be duy stamped and marked, and removed
from the warehouse. The storekeeper-gauger w then e ecute hs statement
of the date of wthdrawa on the three copes of orm 179, retan one copy
of each form, dever one copy of each to the warehouseman, and forward
one copy of each to the dstrct supervsor.
Ta -Pad Wthdrawas n Tank Cars.
Par. 124. ppcaton to wthdraw sprts from storage tanks and ta -pay
the same for remova n raroad tank cars sha be made by the dster or
warehouseman on orm 179, n quadrupcate, as n the case of wthdrawas
from such tanks for ta -payment n packages, e cept that the sera number
and capacty of the tank car w be stated n the appcaton. The storekeeper-
gauger w, upon recept of the appcaton, proof and wegh, n a ocked
weghng tank, the sprts to be wthdrawn. The storekeeper-gauger w enter
the detas of the gauge on orm 1520, n quntupcate. The storekeeper-
gauger w aso note on each copy of orm 1520, the date of orgna entry
for depost, the proof at whch dsted (n the manner prescrbed by para-
graph 89), and the number of the tank car. Three copes of orm 1520, accom-
paned by a copes of orm 179 wth the storekeeper-gauger s report thereon
duy e ecuted, w be devered to the warehouseman, who w forward the
same to the coector wth remttance for the ta .
Par. 125. The coector w ssue a recept for the ta on orm 1, note
the ta -payment on each copy of the forms, e ecute hs certfcate of ta -pay-
ment on orm 179, retan one copy of such form for hs fes, and return three
copes of each form to the warehouseman wth the ta recept, orm 1. The
recept on orm 1 w show the date of ta -payment, amount, name of ta -
payer, number of tank car, and ta -gaon contents.
Par. 126. The warehouseman w dever a forms, Incudng the ta recept,
to the storekeeper-gauger, who w securey aff the ta recept to the tank
car before t s reeased. The storekeeper-gauger w, upon reease of the
tank car, e ecute hs statement of wthdrawa on orm 179 and dspose of the
copes of such form and orm 1520 n the same manner as those pertanng to
ta -pad wthdrawas In packages, e cept that the warehouseman w e
furnshed wth two copes of orm 1520. The warehouseman w, n every
Instance, where sprts are ta -pad n a raroad tank car, furnsh the consgnee
a copy of orm 1520 descrbng the sprts theren.
Par. 127. copes of orm 179 reatng to sprts produced at the same
dstery by the same dster w be fed together, In the order the sprts
were wthdrawn, so that monthy return, orm 1513, may be prompty prepared
at the cose of the month.
Losses or Sprts.
Par. 128. The aowances provded by the ct of ebruary 6, 1925 ( 43 Stat.,
808), for osses of sprts In warehouse by eakage or evaporaton, w be
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appcabe for the perod up to and ncudng the effectve date of secton 807
of the Lquor Ta dmnstraton ct ( uy 26, 193U), n the case of packages
of sprts whch on the effectve date of the sad secton are 8 years of age,
or oder, and whch, are n bonded warehouses but a regauge to determne the
osses to be aowed sha be made pror to the effectve date of sad secton
807. Such packages of sprts may reman In bond after the effectve date of
sad secton 307, but no aowance for oss therefrom by eakage or evaporaton
may be made for any perod after such date.
Par, 129. The aowances provded by secton 307 of the Lquor Ta dmn-
straton ct for osses n warehouse by eakage or evaporaton w be appca-
be n the case of packages of sprts entered for depost n a bonded warehouse
ether before or after the effectve date of the sad secton, e cept as ndcated
n the precedng paragraph.
Pas. 130. No aowance can be made under secton 307 of the Lquor Ta
dmnstraton ct, or any other statute, for osses of dsted sprts by eakage
or evaporaton from raroad tank cars, or from storage tanks n a bonded
warehouse, or from packages fed from such storage tanks. When a storage
tank s empted, the oss w be ascertaned by the storekeeper-gauger and
reported by the dstrct supervsor. Ta w be assessed and coected on such
oss, uness the same s due to destructon by accdenta fre or other casuaty
or to theft, and the ta remtted under sectons 3221 and 3223, R S., or under
secton 16 of the Lquor Law Repea and nforcement ct, respectvey. When
a package fed from a warehouse storage tank s wthdrawn, ta w be
coected on the orgna contents of such package uness wthdrawn ta -free.
If wthdrawn ta -free, ta w be coected on the dfference, f any, between
the orgna gauge and the wthdrawa gauge.
Warehouse Monthy Report.
Par. 131. The storekeeper-gauger In charge of an Interna revenue bonded
warehouse w render a monthy report on orm 1513, n trpcate, of a ds-
ted sprts deposted n, wthdrawn from, and remanng n warehouse at the
cose of the month. Sprts receved n a bonded warehouse from a dstery
cstern room on the same bonded premses w be entered separatey from
sprts receved drect from csterns of dsteres on other bonded premses.
Separate entres of sprts deposted In and removed from warehouse storage
tanks w be made on an e tenson of the ast page of orm 1513, a specmen of
whch e tenson w be furnshed by the ureau. The foowng four nes
w be added to the summary on the ast page of orm 1513 for the purpose
ndcated:
1. (o) Packages fed from storage tanks
2. (a) Receved from csterns of dstery on same bonded premses
3. (a) Receved from csterns of dsteres on other bonded premses
18. (a) Packages fed from storage tanks.
Par. 132. Sprts drawn nto packages from storage tanks durng the month
w be entered separatey on the frst page of the form n the same manner as
sprts orgnay deposted n packages, but wth an dentfyng notaton. Wth-
drawas of packages fed from storage tanks w be entered n the same
manner as wthdrawas of other packages. Removas of sprts ta -pad n
tank cars w be entered on ne 7 on the e tenson sheet, the sera number
of each tank car and the quantty removed theren beng stated.
Par. 133. The storekeeper-gauger w forward two copes of the report to
the dstrct supervsor wthn fve days after the e praton of the month for
whch rendered, and w retan one copy on fe n hs offce.
Supervsor s Warehouse ccount.
Pah. 134. ach dstrct supervsor w prepare a monthy bonded sprts ware-
house account on orm 1514, n dupcate, for each State wthn hs supervsory
dstrct. Sprts receved n bonded warehouses from csterns of dsteres on
the same bonded premses w be entered separatey from sprts receved drect
from csterns of dsteres on other bonded premses. Separate entres of
sprts deposted In and removed from warehouse storage tanks w aso be
made on an e tenson of the ast page of orm 1514, a specmen of whch e -
tenson w be furnshed by the ureau. Sprts wthdrawn from warehouses,
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ta -pad, for remova In raroad tank cars w kewse be entered separatey.
The foowng fve nes w be added on page 1 of the account for the purpose
ndcated:
9. Receved from csterns of dstery on same bonded premses
10. Receved from csterns of dsteres on other bonded premses
11. Packages ted from storage tanks
13. (a) Wthdrawn from warehouses ta -pad In raroad tank cars
18. (a) Packages fed from storage tanks.
Necessary addtona nes, numbered as ndcated, w be added to the re-
statement on the fourth page of the form for the requred entres. Sprts
ost from storage tanks by casuaty or theft w be entered on the second page
of the form wth approprate notaton. Sprts removed, ta -pad, In tank car
w be entered on the thrd page In the same coumn as packages ta -pad,
but on a separate ne wth an approprate dentfyng notaton.
Par. 136. The data for the account w be obtaned from the reports of
storekeeper-gaugers on orm 1513. One copy of each account, orm 1514, w
be forwarded to the Commssoner on or before the e praton of the month
foowng the month for whch rendered, together wth one copy of each report.
orm 1513, upon whch the account s based. The remanng copy of orm
1514 w be retaned by the dstrct supervsor.
Warehouseman s Records.
Par. 130. The propretor of a bonded warehouse w keep a record. orm
52, for the bonded warehouse, and a separate record, orm 52, for the free or
ta -pad warehouse. The record, orm 52, for the bonded warehouse must
show a sprts removed from bond, entres to be made on the rght-hand
page ony. The record, orm 52, for the ta -pad or free warehouse must
show a sprts entered nto and a sprts removed from the warehouse.
Monthy transcrpts of record, orm 52, on orm 52 for the bonded ware-
house, and on orms 52 and 52 for the ta -pad or free warehouse, w
be made and fed by the warehouseman wth the dstrct supervsor on or
before the 10th day of the month foowng the month for whch rendered.
Pror Reguatons tended.
Par. 137. The provsons of reguatons heretofore ssued reatng to dstery,
genera, and speca bonded warehouses, and whch were n effect at the tme or
the enactment of the Lquor Ta dmnstraton ct, so far as they are not n
confct wth the provsons hereof, are hereby e tended to nterna revenue
bonded warehouses.
Par. 138. The provsons of Reguatons 7, effectve May 1, 1930, respectng
the depost of brandy n a bonded warehouse on the premses of the dstery
where produced, and the remova of such brandy from such warehouse to
bonded wneres for use n the fortfcaton of wne, are hereby e tended pur-
suant to secton 3255, R. S., as amended, to the depost of brandy n an
nterna revenue bonded warehouse ocated on the dstery premses where
produced, and to the remova of such brandy from such warehouse to bonded
wneres for use n fortfyng wnes: Provded, That the depost of brandy
n any nterna revenue bonded warehouse, the transfer In bond thereof, and
the wthdrawa of the same sha be n accordance wth the procedure pre-
scrbed n ths Treasury decson.
Chas. T. usse,
ctng Commssoner of Interna Revenue.
pproved une 27, 1936.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 1, 1936, 12.51 p. m.)
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-47-8397
T. D.4707
Openngs for ventaton or beatng n nterna revenue bonded
warehouses.
Treasury Department,
Offce of Commssoner of Interna Revenue,
- Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Paragraph 3 of Treasury Decson 4651 page 443, ths uetn s
amended to read as foows:
Warehouses w not be approved uness erected upon foundatons of stone,
brck, concrete, or other equay substanta matera, e tendng nto the
ground: Provded, however, That n nstances where the warehouse conssts
of a room or rooms stuated above the frst foor of a budng, these provsons
reatng to foundatons sha not be appcabe. Openngs n warehouse was,
foors and roofs w be permtted for ventaton or heatng purposes, provded
that such openngs are protected by Iron or stee gratngs consstng of a frame
and horzonta and perpendcuar bars, havng a dameter of not ess than one-
fourth Inch and spaced not more than one-haf nch apart or other gratngs
of smar constructon and equa strength. Gratngs sha be securey attached
to or embedded n the warehouse foor, wa or roof, and such openngs sha be
further protected by reguaton ron bars uness ocated n the warehouse foors.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved November 16, 1936.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 20, 1930, 12.59 p. m.)
-27-8161
T. D.4652
Markng packages of dsted sprts Gaugng Manua amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Subsectons (a) and (b) of secton 3287, R. S., as amended by
secton 201 of the Lquor Ta dmnstraton ct, provde as foows:
Sua 8287. (a) cept as provded In secton 002 of the Revenue ct of 1918,
as amended, a dsted sprts sha be drawn from recevng csterns nto
casks or packages and thereupon sha be gauged, proved, and marked by a
storekeeper-gauger, and mmedatey removed nto an Interna revenue bonded
warehouse. The Commssoner of Interna Revenue, wth the approva of the
Secretary of the Treasury, s hereby empowered to prescrbe a necessary regu-
atons reatng to the drawng off, gaugng and packagng of dsted sprts
the markng, brandng, numberng, and stampng of such packages and the
transfer and transportaton to, and the storage of such sprts n, nterna
revenue bonded warehouses.
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466
(b) Upon the appcaton of the dster and under such reguatons as the
Commssoner of Interna Revenue, wth the approva of the Secretary of the
Treasury, may prescrbe, dsted sprts may be drawn Into wooden packages,
each contanng two or more metac cans, whch cans sha each have a capacty
of not ess than fve gaons, wne measure. Such packages sha be fed and
used ony for e portaton from the Unted States. nd there sha be charged
for each of sad packages or cases for the e pense of provdng and aff ng
stamps, 5 cents.
The frst paragraph of secton 602 of the Revenue ct of 1918, as
amended by secton 308 of the Lquor Ta dmnstraton ct, pro-
Sec. 602. Sub|ect to the provsons of e stng aw, sprts produced at
regstered dsteres and reduced n the recevng csterns n such dsteres
to not more than 159 degrees of proof and not ess than 100 degrees of proof,
may be transferred, by means of ppe nes, drect to storage tanks In the
nterna revenue bonded warehouse ocated on the bonded premses where
produced and be warehoused n such storage tanks, or they may be drawn Into
approved contaners and transferred to any nterna revenue bonded warehouse
for storage theren, or they may be ta -pad In such approved contaners n such
cstern rooms, wthout beng entered nto an Interna revenue bonded warehouse.
Such sprts may be drawn nto approved contaners from storage tanks In
nterna revenue bonded warehouse ocated on the bonded premses of the
dstery ether for storage n bond or ta -payment. Such sprts, upon ta -
payment, may be transported n approved contaners for use for beverage
purposes ony. The Commssoner of Interna Revenue, wth the approva of
the Secretary of the Treasury, Is hereby empowered to prescrbe a necessary
reguatons reatng to the drawng off, transferrng, gaugng, storng, and
transportaton of such sprts the records to be kept and returns to be made
the sze and knd of contaners to be used the markng, brandng, numberng,
and stampng of such contaners the knd of stamps, f any, to be used and
the knd of bond and the pena sum thereof.
Subsecton (a) of secton 3295, R. S., as amended by secton 202
of the Lquor Ta dmnstraton ct, provdes as foows:
Sec. 3295. (a) Whenever an appcaton Is receved for the remova from any
nterna revenue bonded warehouse of any cask or package of dsted sprts
on whch the ta has been pad, the storekeeper-gauger sha gauge and Inspect
the same, and sha, before such cask or package has eft the warehouse, pace
upon such package such marks, brands, and stamps as the Commssoner of
Interna Revenue, wth the approva of the Secretary of the Treasury, sha by
reguatons prescrbe, whch marks, brands, and stamps sha be erased when
such cask or package Is empted.
Pursuant to the foregong provsons of aw, the ttes of rtces
I and of the Gaugng Manua of 1934, and paragraphs 67, 68,
69, 70, 72, 84, 86, 89, 90, 92, and 93 of the sad Manua are amended
to read as foows:
Pab. 67. (a) Secton 32S7, R. S., as amended, and the reguatons ssued
pursuant thereto, requre that a sprts (other than hgh proof rum and
brandy) dsted at a regstered dstery sha, e cept as otherwse provded
by secton (502 of the Revenue ct of 1918, ns amended, be drawn from the
recevng csterns nto casks or packages, each of not ess capacty than 10
gaons, wne measure, and sha thereupon be gauged, proofed, and marked,
and mmedatey removed nto an nterna revenue bonded warehouse: Provded,
That under secton 3287, R. S., as amended, dsted sprts may, for the
purpose of e portaton ony, be drawn nto wooden packages, each contanng
two or more metac cans, whch cans sha each have a capacty of not ess
than 5 gaons, wne measure.
(6) Secton 602, Revenue ct of 1918, as amended, and the reguatons
Issued pursuant thereto, authorze the drawng nto such casks or packages, of
dsted sprts reduced n the recevng csterns of regstered dsteres to
not more than 159 and not ess than 100 degrees of proof, and requre that any
casks or packages so fed sha be gauged, proofed, and marked. ( or
removas by ppe ne or raroad tank car authorzed by secton 602, see T. D.
4C 0 page 435, ths uetn .)
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467
Msc.
rcu I. Markng and randng Cases oh Packages of Sprts Dsted
at a Regstered Dstery When Drawn ou Recevng Csterns and
Warehouse Storage Tanks.
Par. 68. When sprts dsted at a regstered dstery are drawn from the
recevng csterns thereof or from storage tanks In a bonded warehouse, Into
packages, ether for storage In a bonded warehouse or for mmedate wth-
drawa, each package w be weghed and proofed.
Par 69. (a) The name of the dster or the person In whose name the
sprts were produced, the regstered number of the dstery, the cty or town
and State n whch the dstery Is ocated, and te knd of sprts w be
pany burned or Imprnted n back etters and fgures sunk nto the wood
upon the head of each package. The sera number of the package, the knd
of cooperage, as charred, recharred, pan, paraffned, gued, or reused (not
recharred), and the date of fng w aso be burned or cut upon the head
of the package. The knd of cooperage may be abbrevated as C for
charred, R C for recharred, P for pan, P R for paraffned, O
for gued, and R for reused (not recharred). Such marks and brands sha
be paced upon the packages n etters and fgures not ess than three-fourths
Inch n heght. The proof at whch the sprts were dsted sha be pany
and duraby stenced upon the head of the package In etters and fgures not
ess than one-haf Inch In heght. Where meta packages are used, these marks
and brands (other than knd of cooperage) w be pany and duraby stenced,
Imprnted, or embossed upon the head of each such papkage. The head of the
package bearng these marks w be known as the Government head. No
marks other than those requred by these reguatons sha be paced upon the
Government head of the package.
(6) In addton to the foregong marks and brands, there sha be pany
burned or cut Into the Government head of wooden packages or pany and
duraby stenced, mprnted, or embossed upon such head of meta packages
fed from a bonded warehouse storage tank, the date of the orgna entry
of the sprts for depost, the warehouse number, and the State n whch
ocated. Ths addtona data may aso be abbrevated, as Org. nt. 5-19-36
for the date of the orgna entry for depost, and I. R. . W. 4 N. Y. for
warehouse number and State.
(o) The date of ta -payment, the proof-gaon contents, and the sera
number of the ta -pad stamp sha, upon ta -payment of wooden packages n
the dstery cstern room, be cut nto the Government head of each package n
the manner prescrbed by paragraph 86 n the case of ta -payment from
bonded warehouses. Such marks sha, upon the ta -payment of meta pack-
ages, be pany and duraby stenced upon the Government head of each
package.
Par. 70. The gross weght, tare, net weght, wne gaons, proof, and proof ga-
ons w be cut upon the stave ne t to the bung stave of each wooden package n
the order named, begnnng n the mdde of such stave and e tendng toward the
Government head. On meta packages these marks w be pany and duraby
stenced upon the Government head. Where the sprts so packaged are 100
proof, the number of proof gaons need not be paced upon the package.
Par. 71. (a) The knd of sprts and the proof at whch dsted w be
branded on the package as herenafter provded.
(6) The proof at whch the sprts were dsted sha be shown by the
egend Dsted 190 Proof or over, Dsted between 160 and 190 Proof,
or Dsted not over 160 Proof, as the case may be, n etters and fgures
not ess than one-haf nch n heght. The foowng symbos may be used as the
equvaent of the specfed markngs: D 190 P for Dsted 190 Proof or
over, D 160-190 P for Dsted between 160 and 190 Proof, and D 160
P for Dsted not over 160 Proof.
(c) sprts dsted at or above 190 degrees of proof sha be branded
Sprts, foowed by a word or phrase descrptve of the matera from whch
dsted. Such brandng sha be In the foowng form: Sprts Gran,
Sprts Cane, or Sprts rut.
(d) Sprts dsted from a fermented mash of gran at more than 160
degrees and ess than 190 degrees of proof n such manner that the dstate
possesses the taste, aroma, and characterstcs generay attrbuted to whsky,
sha be branded Whsky.
(e) Sprts dsted at not e ceedng 160 degrees of proof from a fermented
mash of not ess than 51 per cent rye gran, corn gran, wheat gran, mated
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468
barey gran, or mated rye gran sha be branded Rye Whsky, ourbon
Whsky ( Corn Whsky, f packaged n uncharred contaners), Wheat
Whsky, Mat Whsky, or Rye Mat Whsky, respectvey.
(f) Sprts obtaned by orgna dstaton over or wth |unper berres
and other aronatcs customary used n the producton of gn, and dervng
ther man characterstc favor from |unper berres, sha be branded Gn,
and to show the matera from whch produced, as Dsted from gran, or
Dsted from cane products, or Dsted from frut.
(g) Sprts obtaned soey from the fermented uce or mash of frut ds-
ted at ess than 190 degrees of proof n such manner that the sprts possess
the taste, aroma, and characterstcs generay attrbuted to brandy sha be
branded randy, preceded by the name of the frut used, as ppe randy,
Grape randy, Peach randy, Cherry randy, prcot randy,
Orange randy, and Rasn randy, and f other than whoe fresh frut
s used, the word Dred or such other terms as may be approprate: Pro-
vded, That (1) brandy derved from rasns w be desgnated as Rasn
randy, and (2) the word randy aone may be used to desgnate Grape
randy.
(h) Sprts dsted from the fermented |uce of sugarcane, sugarcane srup,
sugarcane moasses, or other sugarcane products, at ess than 190 degrees
proof In such manner that the sprts possess the taste, aroma and character-
stcs generay attrbuted to rum, sha be branded Rum.
Pab. 72. fter the package has been proofed, weghed, and marked as pro-
vded above, and the storekeeper-gauger has satsfed hmsef as to the accuracy
of the marks, the word Inspected, foowed by the name and tte of the
storekeeper-gauger, w be stenced upon the head of the package.
rtce . Gaugng, Markng, and Stampng Packages of Dsted Sprts
on Wthdrawa rom Interna Revenue onded Warehouse.
Pab. 84. Upon the wthdrawa of dsted sprts n packages for transfer
to another bonded warehouse, the word Transferred, foowed by the date
of transfer, the word To, the number of the recevng warehouse, and the
State n whch such warehouse s ocated, w be pany and duraby stenced
upon the Government head of the package n etters and fgures not ess than
one-haf nch In heght These marks may be abbrevated as foows:
Transferred ugust 1, 1936
To I. R. . W. 4 N. Y.
Pab. 86. Upon the ta -payment of dsted sprts n packages fed from
storage tanks, or n dster s orgna packages Intended for shpment or for
depost n the ta -pad or free warehouse, the dster w, under the super-
vson of the storekeeper-gauger, cut on the stave ne t to the bung stave of each
package wthdrawn, begnnng n the mdde and e tendng toward the head
opposte the Government head, n the order named, the gross weght, tare
(ascertaned as heren provded), net weght, wne gaons, proof, and proof
gaons determned at the tme of wthdrawa, e cept when wthdrawn on the
orgna gauge as provded n paragraph 80. In the case of meta packages,
such marks w be pany and duraby stenced n the correspondng space
on the sde of the package. The ta -pad stamp must be aff ed to the Govern-
ment head of the package and canceed, as heren provded, and the date of
ta -payment, the proof-gaon contents, and the sera number of the ta -pad
stamp sha be cut upon such head of each wooden package or pany and
duraby stenced upon such head of each meta package.
Par. 89. There w aso be cut or burned nto the Government head of the
package, n etters and fgures not ess than one-haf nch n heght, the date
of wthdrawa, the number of the e port stamp, and the proof-gaon contents
as then ascertaned. The number of the warehouse from whch the sprts are
wthdrawn, f from a warehouse other than that In whch orgnay deposted,
the State n whch ocated, and the name of the ports from and to whch the
sprts are to be e ported, w be cut or burned nto the head of the package
n addton to the orgna marks paced on the package. Where meta pack-
ages are used, a of the foregong marks w be pany and duraby stenced
on the Government head.
Pab. 90. There w be cut on the stave ne t to the bung stave, begnnng at
the mdde and e tendng toward the head opposte the Government head of
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469
Msc.
the package, n the order named, the gross weght, tare (ascertaned as pro-
Tded heren), net weght, wne gaons, proof, and proof gaons. Where meta
packages arc used, these marks w be pany and duraby stenced In the
correspondng space on the sde of the package.
Pab. 92. When dsted sprts are wthdrawn from bonded warehouse for
transfer to manufacturng warehouse n bond under the provsons of secton
20, ct of March 1, 1879, as amended by ct of May 28, 1880, the storekeepcr-
gauger w aff and cance the e port stamp as heren provded. There w
be cut or burned upon the Government head of each package, n etters and
fgures not ess than one-haf an Inch n heght, the date of wthdrawa, the
number of the e port stamp, and the number of proof-gaon contents as then
ascertaned. The name of the port to whch the sprts are consgned for
depost n manufacturng warehouse w be pany and duraby stenced upon
the head of the package. There w aso be cut on the stave ne t to the bung
stave, begnnng n the mdde and e tendng toward the head opposte the
Government head, n the order named, the gross weght, tare (ascertaned as
provded heren), net weght, wne-gaons, proof, and proof-gaons. Where
meta packages are used, these marks w be pany and duraby stenced
upon the Government head of the package, e cept that the gross weght, tare,
net weght, wne-gaons, proof, and proof-gaons w be so stenced n the
space on the sde of the package correspondng to that prescrbed n the case of
wooden packages.
Par. 93. When dsted sprts are wthdrawn from a bonded warehouse for
the use of Unted States under secton 3464, Revsed Statutes, there w be cut
on the stave ne t to the bung stave of each package wthdrawn, begnnng n
the mdde and e tendng toward the head opposte the Government head, In
the order named, the gross weght, tare (ascertaned as heren provded), net
weght, wne-gaons, proof, and proof-gaons, determned at the tme of wth-
drawa. In the ease of meta packages, these marks w be pany and dur-
aby stenced In the space on the sde of the package correspondng to that
prescrbed n the case of wooden packages.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved une 27, 1936.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 1, 1936, 11.56 a. m.)
-27-8162
T. D.4653
Losses of sprts by eakage and evaporaton In nterna revenue
bonded warehouses.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Secton 307 of the Lquor Ta dmnstraton ct provdes as
foows:
Sec. 307. (a) dsted sprts heretofore entered for depost n a dstery,
genera, or speca bonded warehouse or hereafter entered for depost n an n-
terna revenue bonded warehouse, sha be wthdrawn therefrom wthn eght
years from the date of orgna entry theren, e cept as provded n subsecton
(c) of ths secton.
(b) ny dsted sprts heretofore deposted n any dstery, genera, or
speca bonded warehouse or hereafter deposted n any Interna revenue bonded
warehouse may, at the tme of wthdrawa of the sprts from su h warehouse,
upon the fng of an appcaton for the regaugc of such sprts, gvng a
descrpton of the package contanng the sprts, be regauged by a store-
keeper-gauger who sha pace upon each such package such marks and
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Msc.
470
brands as the Commssoner of Interna Revenue, wth the approva of the
Secretary of the Treasury, sha by reguatons prescrbe. If upon such re-
gaugng It sha appear that there has been a oss by eakage or evaporaton
of dsted sprts from any cask or package, wthout the faut or neggence
of the dster or warehouseman, ta es sha be coected ony on the quantty
of dsted sprts contaned n such cask or package at the tme of such
wthdrawa. The aowance whch sha be made for such oss of sprts sha
not e ceed
One proof-gaon for two months or part thereof
One and oue-haf gaons for more than two months and not more than
four months
Two gaons for more than four months and not more than s months
Two and one-haf gaons for more than s months and not more than
eght mouths
Three gaons for more than eght months and not more than ten months:
Three and one-haf gaons for more than ten months and not more than
tweve months
our gaons for more than tweve months and not more than ffteen months
our and one-haf gaons for more than ffteen months and not more than
eghteen months
ve gaons for more than eghteen months and not more than twenty-one
months
ve and one-haf gaons for more than twenty-one months and not more
than twenty-four months
S gaons for more than twenty-four months and not more than twenty-
seven months
S and one-haf gaons for more than twenty-seven months and not more
than thrty months
Seven gaons for more than thrty months and not more than thrty-three
months
Seven and one-haf gaons for more than thrty-three months and not more
than thrty-s months
ght gaons for more than thrty-s months and not more than forty
months
ght and one-haf gaons for more than forty months and not more than
forty-four months
Nne gaons for more than forty-four months and not more than forty-
eght months
Nne and one-haf gaons for more than forty-eght months and not more
than ffty-two months
Ten gaons for more than ffty-two months and not more than ffty-s
months
Ten and one-haf gaons for more than ffty-s months and not more than
s ty months
even gaons for more mn s ty months and not more than s ty-four
months
even and one-haf gaons for more than s ty-four months and not more
that s ty-eght months
Tweve gaons for more than s ty-eght months and not more than seventy-
two months
Tweve and one-haf gaons for more than seventy-two months and not more
than seventy-s months
Thrteen gaons for more than seventy-s months and not more than eghty
months
Thrteen and one-haf gaons for more than eghty months from the date of
orgna gauge as to frut brandy, or orgna entry as to a other sprts and
no further aowances sha be made for oss by eakage or evaporaton.
The foregong aowance for oss sha appy ony to casks or packages of a
capacty of 40 or more wne-gaons, and the aowance for oss on casks or
packages of ess capacty than 40 gaons sha not e ceed one-haf the amount
aowed on sad 40-gaon cask or package but no aowance sha be made on
casks or packages of ess capacty than 20 gaons. The proof of such dsted
sprts sha not n nny case be computed at the tme of wthdrawa at ess
than 100 per centum.
(c) Dsted sprts whch on the effectve date of ths secton are 8 years
of age, or oder, and whch are n bonded warehouses, may reman theren
after such date but no aowance for oss by eakage or evaporaton sha be
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471
Msc.
made In the case of such sprts wth respect to any perod after such date:
Provded, That oss aowances for such sprts for the perod pror to the effec-
tve date of ths secton sha be made pursuant to the provsons of the ct of
ebruary 6, 1925 (43 Stat, 806).
(d) Ths secton sha take effect 30 days after the date of the enactment of
ths ct: Provded, That a regauge to determne the osses to be aowed under
subsecton (c) sha be made pror to the effectve date of ths secton.
In accordance wth secton 307 of the Lquor Ta dmnstraton
ct, above quoted, paragraph 114 of the Gaugng Manua s amended
to read as foows:
Pab. 114. (a) Whenever packages of sprts are regauged for wthdrawa
from Interna revenue bonded warehouse, and t sha appear that there
has been a oss of sprts by eakage or evaporaton from any package, wth-
out the faut or neggence of the dster or propretor of the warehouse,
aowance for the oss actuay sustaned w be made to the e tent authorzed
by secton 307 of the Lquor Ta dmnstraton ct, as set forth n the foow-
ng schedue, for the perod the sprts have been In warehouse. Losses n
e cess of such quantty must be ta -pad. The perod for whch aowance of
osses w be made begns to run from the date of orgna gauge as to frut
brnndy, and the date of orgna entry nto warehouse as to other sprts.
Schedue of aocanccs for oss by eakage and evaporaton.
Perod of storage Is
Ma mum
aowance
casks of 40
wne-
gaons
capacty
or more.
Perod of storage n
warehouse.
Ma mum
aowance
casks of 40
wne-
gaons
capacty
or more.
warehouse.
More
than-
Not more
than
Proof
More
than
Not more
than
Proof
Mons.
Month .
otons.
Months.
Months.
gaons.
2
1.0
33
36
7.5
2
4
1.S
36
40
8
4
6
2
40
44
8.6
0
8
2.5
44
48
0
8
10
8
48
52
9.5
10
12
8.5
62
56
10
12
U
4
58
60
10.5
15
18
4.5
60
64
11
18
21
8
64
68
11.6
21
24
(.8
68
72
12.0
24
27
6
72
76
12.6
57
30
8.8
76
80
13.0
80
83
7
80
13.5
(6) Dsted sprts may not reman n nterna revenue bonded warehouses
more than eght years from the date of orgna entry theren, e cept as
provded In paragraph (c).
(o) Sprts whch are 8 years od or more on uy 26, 1936, may reman In
such warehouse unt awfuy removed, but no aowance for oss by eakage or
evaporaton w be made as to packages of such sprts for any perod subse-
quent to uy 26, 1936. In order to f the aowance for osses under ths
paragraph, a packages of sprts whch are 8 years od or more on uy 26,
1936, must be regauged on or before that date.
( T) No aowance can be made under secton 307 of the Lquor Ta dmns-
traton ct, or any other statute, for osses of dsted sprts by eakage or
evaporaton from tank cars or from storage tanks n a bonded warehouse, nor
from packages fed from such storage tanks.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved une 27, 1936.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 1, 1836, 11.56 a. m.)
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472
-27-8163
T. D.4654
Records and transcrpts of whoesae quor deaers.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Dstrct Supewsors, Coectors of Interna Revenue, and Others
Concerned:
Secton 3318 of the Revsed Statutes, as amended by secton 411
of the Lquor Ta dmnstraton ct, reads as foows:
Seo. 3318. very rectfer and whoesae quor deaer sha keep day, at
hs pace of busness covered by hs speca ta stamp, a record of dsted
sprts receved and dsposed of by hm, and sha render under oath correct
transcrpts and summares of such records: Provded, That the Commssoner
may n hs dscreton requre such record to be kept at the pace where the
sprts are actuay receved and sent out The records sha be kept and
the transcrpts sha be rendered n such form, and under such rues and
reguatons as the Commssoner of Interna Revenue, wth the approva of
tho Secretary of the Treasury, may prescrbe.
The records requred to be kept under the provsons of ths secton and
reguatons ssued pursuant thereto, sha be preserved for a perod of four
years, and durng such perod sha be avaabe durng busness hours for
nspecton and the takng of abstracts therefrom by the Commssoner or any
nterna revenue offcer.
very rectfer and whoesae quor deaer who refuses or negects to keep
such records n the form prescrbed by the Commssoner of Interna Revenue,
wth the approva of the Secretary of the Treasury, or to make entres theren,
or cances, aters, or obterates any entry theren (e cept for the purpose of
correctng errors) or destroys any part of such records, or any entry theren, or
makes any fase entry theren, or hnders or obstructs any nterna revenue
offcer from nspectng such records or takng any abstracts therefrom, or
negects or refuses to preserve or produce such records as requred by ths ct
or by reguatons Issued pursuant thereto, sha pay a penaty of 100 and, on
convcton, sha be fned not ess than 100 nor more than 5,000, and be
mprsoned not ess than three months nor more than three years.
very rectfer and whoesae quor deaer who refuses or negects to render
transcrpts or summares n the form requred by the Commssoner, wth the
approva of the Secretary, sha, upon convcton, be fned not more than 100
for each such negect or refusa.
Pursuant to such authorty, the foowng reguatons are pre-
scrbed :
1. Whoesae quor deaers sha keep a record, orm 52, and render tran-
scrpts thereof on orms 52 and to the dstrct supervsor.
2. Record orm 52 w be kept by a whoesae quor deaer at the pace of
busness covered by hs speca ta stamp If the sprts are receved and sent
out from such premses.
8. If the pace of busness covered by the whoesae quor deaer speca ta
stamp s not the same premses where sprts are receved and sent out, the
whoesae quor deaer w keep hs record orm 52 at the atter pace and
render transcrpts from such pace on orms 52 and : Provded, That, f
approved by the dstrct supervsor, a whoesae quor deaer who so desres
may keep hs record, orm 52, at the pace of busness covered by the speca
ta stamp and render transcrpts on orms 52 and from such pace. If,
however, the pace of busness covered by the speca ta stamp s not n the
same supervsory dstrct as the pace where the sprts are receved and sent
out, the record, orm 52, must be kept at the atter pace and transcrpts on
orms 52 and rendered to the dstrct supervsor of that dstrct.
4. The whoesae quor deaer sha make entry n record, orm 52, of sprts
on the day receved and before sprts are removed from hs premses, sha
make entry of the dsposton of the same n record, orm 52. fu and com-
pete transcrpt of orm 52 w be prepared on orms 52 and , and one
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copy forwarded to the dstrct supervsor, coho Ta Unt, on or before the
10th day of the succeedng month.
5. Pendng the revson of record orm 52, transcrpts orms 52 and ,
and summary report, orm 338, whoesae quor deaers w use the present
forms, now prescrbed by reguatons.
Chas. T. Russe.
ctng Commssoner of Interna Revenue.
pproved une 27, 1936.
Stephen . Gbbons.
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 1, 1936, 11.57 a. m.)
-27-8164
T. D. 4655
Records and transcrpts of sprts dsposed of by dsters and
propretors of nterna revenue bonded warehouses.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Secton 62 of the ct of ugust 27, 1894, as amended by secton
412 of the Lquor Ta dmnstraton ct, s as foows:
Sec. 62. No dster who has gven the requred bond and who ses ony ds-
ted sprts of hs own producton at the pace of manufacture, or at the pace
of storage n bond, n the orgna packages to whch the ta -pad stamps are
aff ed, sha be requred to pay the speca ta of a whoesae quor deaer on
account of such saes: Provded, That every dster sha keep day a record
of such dsted sprts dsposed of by hm, and sha render under oath correct
transcrpts and summares of such records. The records sha be kept and the
transcrpts sha be rendered n such form, and under such rues and regua-
tons as the Commssoner of Interna Revenue, wth the approva of the
Secretary of the Treasury, may prescrbe.
The records requred to be kept under the provsons of ths secton and
reguatons ssued pursuant thereto, sha be preserved for a perod of four
years, and durng such perod sha at a tmes be avaabe, durng busness
hours, for nspecton and the takng of abstracts therefrom by the Commssoner
or any nterna revenue offcer.
very dster who refuses or negects to keep such records n the form pre-
scrbed by the Commssoner of Interna Revenue, wth the approva of the
Secretary of the Treasury, or to make entres theren, or cances, aters, or
obterates any entry theren (e cept for the purpose of correctng errors) or
destroys any part of such records, or any entry theren, or makes any fase
entry theren, or hnders or obstructs any nterna revenue offcer from n-
spectng such records or takng any abstracts therefrom, or negects or refuses
to preserve or produce such records as requred by ths ct or by reguatons
Issued pursuant thereto, sha pay a penaty of 100 and, on convcton, sha
be fned not ess than 100 nor more than 5,000, and be mprsoned not ess
than three months nor more than three years.
very dster who refuses or negects to render the transcrpts or sum-
mares n the form as requred by the Commssoner of Interna Revenue, wth
the approva of the Secretary of the Treasury, sha, upon convcton, be fned
not more than 100 for each such negect or refusa.
Secton 3303 of the Revsed Statutes, as amended by secton 311
of the Lquor Ta dmnstraton ct, s as foows:
Sec. 3303. very person who makes or dsts sprts, or owns any st,
boer, or other vesse used for the purpose of dstng sprts, or who has
121397 87 16
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474
ue st, boer, or other vesse so used under hs superntendence, ether as
agent or owner, or who uses any such st, boer, or other vesse, sha keep a
record, n the form and manner prescrbed by the Commssoner of Interna
Revenue, of the recept on the dstery premses, and the use thereon, of
materas ntended for use n the dstaton of sprts, and of the number of
gaons of sprts dsted, the number of gaons paced n the warehouse, nnd
the proof thereof, the number of gaons sod or removed, wth the proof
thereof, and the name, pace of busness, and resdence of the person to whom
sod.
Pursuant to such authorty conferred by the Lquor Ta dmns-
traton ct, the foowng reguatons are prescrbed:
1. very dster sha keep at the dstery premses a record on orm 520
o a sprts removed from the cstern room of such dstery, and render a
transcrpt thereof monthy on orm 370.
2. very propretor of an nterna revenue bonded warehouse sha keep at the
warehouse a record on orm 52 of a sprts removed therefrom, and render a
transcrpt thereof monthy on orm 52 .
3. ntres of a sprts removed from cstern rooms and warehouses must be
made on orm 52C and orm 52, pror to remova of the sprts from the
promses.
4. One copy of orm 370 or orm 52 sha be forwarded to the supervsor of
the dstrct n whch the record orm 52C, or 52 Is kept, on or before the 10th
day of the succeedng month.
5. Pendng the revson of orms 52, 52 , 52C, and 370, dsters and ware-
housemen w use the present forms now prescrbed by reguatons.
Chas. T. usse ,
ctng Commssoner of Interna Revenue.
pproved une 27, 1936.
Stephen . Gbbons,
ctng Secretary of the Treasu-y.
( ed wth the Dvson of the edera Regster uy 1, 1936, 11.58 a. m.)
-27-8165
T. D. 4G56
Rectfers premses Reguatons 15 amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngto-n, D. C.
To Dstrct /Supervsors, Coectors of Interna Revenue, and Othert
Concerned:
Subsecton (a) of secton 319 of the Lquor Ta dmnstraton
ct reads as foows:
Seo. 319. (a) Secton 605 of the Revenue ct of 1918, as amended (U. S. C,
1934 ed., Tte 26, secton 1151), Is amended by nsertng, precedng the penaty
paragraph the foowng new paragraph:
The premses of a rectfer sha be as descrbed n hs notce and, whether
they consst of an entre budng or of rooms In a budng, sha have means
of ngress from and egress nto a pubc street or yard, or nto a pubc ha or
eevntor shaft eadng nto a pubc street or yard, and sha be used e cusvey
for the busness of rectfcaton and the bottng of quors rectfed by htm
thereon, and the bottng of wnes and sprts wthout rectfcaton. Notwth-
standng the foregong provsons, where any such premses are, on the date of
the enactment of the Lquor Ta dmnstraton ct, beng used for purposes
other than those heren descrbed, such use may be contnued for not more than
60 days after such date. ny rectfer who uses bs rectfyng premses con-
trary to the provsons of ths paragraph sha be fned not more than 50 wth
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475
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respect to each day upon whch any such use occurs, but sha not, on account
of such use, be sub|ect to the penates otherwse prescrbed In ths secton.
In vew of ths amendment of secton 605 of the Revenue ct
of 1918, paragraph 22 of Reguatons 15 s hereby rescnded and
paragraphs 21, 23, 49(b), and 61 of the sad reguatons are amended
to read as foows:
Par. 21. Rectfyng pants whch, on the date of the enactment of the Lquor
Ta dmnstraton ct were beng used for purposes other than e cusvey
the busness of rectfcaton as descrbed n paragraph 10 hereof, and the
bottng of sprts and wnes wthout rectfcaton, may contnue to be so
used up to and ncudng ugust 25, 1936. ny rectfer who uses hs premses
for such other purposes at any tme after such date w be sub|ect to a fne
of not more than 50 for each day upon whc any such use occurs. The
contnued use of the rectfyng pant for such other purposes durng the
perod heren authorzed w be under such safeguards as the dstrct super-
vsor may prescrbe. Where a soft drnk or other smar busness Is thus
temporary contnued, however, the bottng of soft drnks or other smar
quds and the bottng of rectfed products may not be done at the same
tme uness two or more compete and separate bottng unts arc provded and
one or more such unts are used e cusvey for each type of bottng and the
products are kept competey separate and apart.
Par. 23. (a) The premses of a rectfer sha be as descrbed n hs notce
( orm 27 ). The premses, whether they consst of an entre budng or of
rooms n a budng, must have means of Ingress from and caress nto a pubc-
street or yard, or nto a pubc ha or eevator shaft eadng nto a pubc
street or yard.
(6) Rectfyng pants must be so constructed and equpped as to be sutabe
for the rectfcaton of sprts and wnes by the process or processes of
rectfcaton whch the rectfer proposes to use. The room or rooms n whch
the process of rectfcaton s performed must be securey constructed of
substanta matera and a doors, wndows, or other openngs n such room
or rooms must be so arranged and constructed that they may be securey
ocked or fastened, uness the entre rectfyng pant s so constructed.
Par. 49. (6) n accurate descrpton of the premses where the busness of
rectfyng s to be conducted, ncudng the ocaton, constructon, and sze
of each budng or room, and the purpose for whch used, and whether such
premses have ngress from and egress nto a pubc street or yard, or nto
a pubc ha or eevator shaft eadng nto a pubc street or yard. If the
busness s to be carred on n a cty, the pace of busness sha be ndcated
by the name of the street or avenue, the number of the budng, and the
rooms or foors thereof.
Par. 61. There must be submtted wth the notce ( orm 27 ) a foor pan
of the rooms comprsng the rectfyng pant, on one or more sheets of sub-
stanta whte paper, or tracng nen, not arger than 15 by 20 Inches outsde
measurement, n trpcate, showng the ocaton of the doors, wndows, and
other openngs the means of Ingress to and egress from the pant, partcuary
whether there are ngress from and egress nto a pubc street or yard, or nto
a pubc ha or eevator shaft eadng nto a pubc street or yard the
ocaton of the pant equpment, such as sts and condensers recevng,
storage, and processng tanks scaes dump troughs bottng tanks and
apparatus and any connectng ppe or hose connectons therewth. The
sera numbers and capactes of a sts and tanks must be shown. The
vertca arrangement of storage and bottng tanks, wth the gauge gasses
or scaes on whch they are mounted, must be shown on one or more sheets
of the pan. The nature and use of the rooms and equpment must be ndcated
on the pan or by an nde on the margns of the sheets. Stopcocks or vaves,
onts, and connectons must be ceary marked on the pan or Identfed by
ndces on the margns of the sheets.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved une 27, 1936.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 1, 1936, 11.58 a. m.)
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Msc.
476
-27-8166
T. D. 4657
pprova of a permanent tank or tanks, ocated on Industra
acoho pant premses, as warehouses for the storage of acoho.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Dstrct Supervsors and Others Concerned:
Secton 329(a) of the Lquor Ta dmnstraton ct reads as
foows:
Sec. 329. (a) Secton 3 of Tte III of the Natona Prohbton ct, as
amended (U. S. C, 1934 ed., Tte 27, secton 73 U. S. C, 1934, ed., Supp. I.
Tte 27, secton 73), Is amended by addng at the end thereof the foowng
new sentence: Permanent tanks and other structures ocated on the ndustra
acoho pant premses and approved by the Commssoner, sha be deemed
to be warehouses wthn the meanng of ths secton.
Pursuant to the authorty thus conferred, Reguatons 3, entted
Reguatons No. 3, Reatve to the Producton, Ta -Pa3rment, etc.,
of Industra coho and the Manufacture, Sae, and Use of Dena-
tured coho, effectve pr 1, 1931, s hereby amended by addng
to artce 3G thereof the foowng:
The Commssoner may approve, as a warehouse for the storage of acoho,
a tank or tanks ocated on the premses of an ndustra acoho pant, f
they are constructed, equpped, and ncosed n conformty wth the foowng
requrements:
1. The tank or tanks sha be of substanta stee constructon sha be
erected on concrete base or foundaton and each tank sha have the sera
number and ts capacty pany and duraby marked thereon.
2. The tank or tanks sha be competey Incosed by a brck, concrete, or stone
wa at east 12 Indes thck, and appro matey 6 feet hgh, 3 feet of the
wa to e tend above the ground.
3. fence at east 12 feet In heght, consstng of not ess than 6-gauge nor
more than 2-nch mesh woven wre, wth at east 3 rows of barbed wre on top,
sha be permanenty aff ed on the wa. The fence posts sha be sody
embedded n the wa.
4. sutabe gate In such fence sha be provded, whch gate sha be of
the same constructon as the fence and equpped for appyng a Government
sea ock.
u. The tank or tanks sha be connected wth approved weghng tanks by
permanent contnuous meta ppe nes whch sha be e posed to vew through-
out ther entre ength.
0. unons, |onts, and vaves n the ppe nes, and openngs n the tanks,
sha be secured by brazng, wedng, or by aff ng Government cap seas or
ocks so as to prevent dsconnecton wthout ready detecton.
The Commssoner may requre, n any case n whch he deems t necessary,
ether the Instaaton of eectrc foodghts for ghtng the tank encosure,
or the mantenance of watchman servces, or both, or other protectve measures
or devces.
The entry, storage n, and wthdrawa of acoho from permanent tanks ap-
proved as warehouses sha be In accordance wth the provsons of Regua-
tons No. 3.
Chas. T. Russe,
ctng Commssoner of Interna- Revenue.
pproved une. 27, 1936.
Stephen . Gbrons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 1, 1936, 11.59 a. m.)
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477
Msc.
-27-8167
T. D. 4658
efund of ta on beer spoed In brewery bottng bouse.
Treasuhy Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Secton 327, paragraphs (a), (b), and (d), of the Lquor Ta
dmnstraton ct, provdes as foows:
Sec. 327. (a) The Commssoner of Interna Revenue sha make refund, or
In eu thereof, f he so eects, aow credt to a brewer n the amount of ta
pad by such brewer on any beer, ager beer, ae, porter, or other smar fer-
mented mat quor manufactured by such brewer whch has become unsaabe
by reason of ts condton, upon the fng of a cam therefor by the brewer and
proof by hm to the satsfacton of the Commssoner that such beer, ager beer,
ae, porter, or other smar fermented mat quor (1) was fuy ta -pad, (2)
was awfuy removed from hs brewery to hs bottng house on or after March
22, 1933, (3) never was removed from such bottng house, e cept n the process
of destructon or for return to the brewery, (4) had become unsaabe wthout
fraud, connvance, or couson on hs part, and (5) was destroyed by hm In
such bottng house n the presence of a representatve of the ureau of Interna
Revenue, or was returned from such bottng house to the brewery n whch
made for use theren as brewng matera.
(b) No such cam sha be aowed uness fed wthn 90 days after such
destructon or return to the brewery for use as brewng matera, or, In the
ease of any beer, ager beer, ae, porter, or other smar fermented mat quor
so destroyed or returned before the date of the enactment of ths ct, wthn 90
days after such date.
(d) The Commssoner of Interna Revenue, wth the approva of the Secre-
tary of the Treasury, Is authorzed to make such rues and reguatons as may
be necessary to carry out the provsons of ths secton.
1. Cams for refund of ta under ths secton w be fed by the
brewer wth the coector of nterna revenue for the dstrct n whch
the ta was pad.
2. The brewer must submt the foowng evdence n affdavt form
for consderaton n connecton wth a cam under ths secton:
(a) Ta payment of the beer
(b) Remova of the beer from the brewery to the bottng house on
or after March 22, 1933
(c) That the beer was spoed and became unsaabe wthout fraud,
connvance, or couson on the part of the brewer
(d) That the beer was never removed from the bottng house,
e cept after destructon n the bottng house n the presence of a
representatve of the ureau of Interna Revenue, or return of the
beer from the bottng house to the brewery n whch made for use
as brewng matera.
3. (a) Cams under ths secton must be fed wthn 90 days
after destructon of the beer or return thereof to the brewery for
use as brewng matera.
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478
(6) If the beer was destroyed or returned to the brewery before
the effectve date of the Lquor Ta dmnstraton ct, cams under
secton 327 must be fed wthn 90 days after such date.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved une 27, 1936.
Stephe . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 1, 1036, 12.01 p. m.)
-27-8163
T. D. 4 359
Toerauces permtted n szes of beer barres.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Secton 313(a) of the Lquor Ta dmnstraton ct provdes
as foows:
Sec. 313. (a) Secton 3339 of the Revsed Statutes, as amended (U. S. O..
1934 cd., Tte 20, secton 1330 (a) and (b)), s further amended by addng
a new paragraph at the end thereof readng as foows:
The provsons of ths secton requrng the accountng of hogsheads,
barres, and fractona parts of barres at the ne t hgher quantty sha
not appy where the contents of such hogsheads, barres, or fractona parts
of barres are wthn the mts of toerance estabshed by the Commssoner
of Interna Revenue by reguatons whch he s hereby authorzed to pre-
scrbe wth the approva of the Secretary of the Treasury and no assessment
sha be made and no ta sha be coected for any e cess n any case where
the contents of the hogsheads, barres, or fractona parts of barres heretofore
or hereafter used are wthn the mts of the toerance so prescrbed.
In accordance wth the provsons of secton 313(a) of the Lquor
Ta dmnstraton ct, secton 17(b) of Reguatons 18 a
amended to read as foows:
Pab. 17. (6) In computng such ta a barre s reckoned as contanng
not more than 31 gaons, and the fractona parts of a barre are haves,
thrds, quarters, s ths, and eghths and any fractona part of a barre
contanng ess than one-eghth w be accounted one-eght more than one-
eghth, and not more than one-s th, w be accounted one-s th more than one-
s th, and not more than one-fourth, w be accounted one-fourth more than
one-fourth, and not more than one-thrd, w bo accounted one-thrd more than
one-thrd, and not more than one-haf, w be accounted one-haf more than
one-haf, and not more than 1 barre, w be accounted 1 barre and more than
1 barre, and not more than 63 gaons, w be accounted 2 barres, or a hogs-
head : Provded, That f the quantty of fermented quor e ceeds the quantty
covered by the ta stamp paced on the barre, such e cess w be dsregarded
and no ta coected thereon f not more than the foowng amounts: one-haf
gaon as to wooden barres of 31 gaons, and a proportonate quantty as to
fractona wooden contaners and one-quarter gaon as to meta barres of 31
gaons, and a proportonate quantty as to fractona meta contaners.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved une 27, 1936.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 1, 1930, 12,01 p. m.)
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479
Msc.
-48-8412
T. D. 4715
Toerances permtted n szes of beer barres. Treasury Decson
4659 page 478, ths uetn amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Secton 313(a) of the Lquor Ta dmnstraton ct provdes as
foows:
Sec. 313. (a) Secton 3339 of the Revsed Statutes, as amended (U. S. C,
1934 ed., Tte 20, secton 1330 (a) and (b)), s further amended by addng
a new paragraph at the end thereof rendng as foows:
The provsons of ths secton requrng the accountng of hogsheads, bar-
res, and fractona parts of barres at the ne t hgher quantty sha not appy
where the contents of such hogsheads, barres, or fractona parts of barres
are wthn the mts of toerance estabshed by the Commssoner of Interna
Revenue by reguatons whch he s hereby authorzed to prescrbe wth the
approva of the Secretary of the Treasury and no assessment sha be made
and no ta sha be coected for any e cess n any case where the contents of
the hogsheads, barres, or fractona parts of barres heretofore or hereafter
used are wthn the mts of the toerance so prescrbed.
In accordance wth the provsons of secton 313(a) of the Lquor
Ta dmnstraton ct, secton 17(b) of Reguatons 18, as amended
by Treasury Decson 4659, s hereby further amended to read as
foows:
Par. 17. (S) In computng such ta a barre s reckoned as contanng not
more than 31 gaons, and the fractona parts of a barre are haves, thrds,
quarters, s ths, and eghths and any fractona part of a barre contanng
ess than one-eghth w be accounted one-eghth more than one-eghth, and
not more than one-s th, w be accounted one-s th more than one-s th, and
not more than one-fourth, w be accounted one-fourth more than one-fourth,
and not more than one-thrd, w be accounted one-thrd more than one-thrd,
and not more than one-haf, w be accounted one-haf more than one-haf,
and not more than 1 barre, w be accounted 1 barre and more than 1
barre, and not more than 63 gaons, w be accounted 2 barres, or a hogs-
head : Provded, That f the quantty of fermented quor e ceeds the quantty
covered by the ta stamp paced on the barre, such e cess w be dsregarded
and no ta coected thereon f not more than the foowng amounts: one-haf
gaon as to wooden barres of 31 gaons, and a proportonate quantty as to
fractona wooden contaners and one-quarter gaon as to meta barres
of 31 gaons, and a proportonate quantty as to fractona meta contaners,
e cept that n the case of meta haf barres paced n use by brewers pror
to November 1, 1936, an e cess of not more than one-quarter gaon w be
dsregarded and no ta coected thereon.
Gut T. everno,
Commssoner of I tcrna Revenue.
pproved November 20, 193G.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 2S, 103f, 3.50 p. m.)
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Msc.
480
-48-841S
T. D.4716
Ta on wnes, queurs, cordas, and smar compounds. Regu-
atons 15 amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Other
Concerned:
Pursuant to secton 605 of the Revenue ct of 1918 (U. S. C, 1934
ed., Tte 26, secton 1151), as amended by secton 319(b) of the
Lquor Ta dmnstraton ct (Pubc, No. 815, Seventy-fourth
Congress), provdng for the manufacture of vermouth wth fortfed
sweet wne on bonded wnery premses, and to sectons 611 and 613
of the Revenue ct of 1918, as amended by sectons 6 and 7 of tha
Lquor Ta ng ct of 1934 (U. S. C, 1934 ed., Tte 26, sectons
13( a (1) and (2) U. S. C., 1934 ed., Supp. 1 Tte 26, secton
1300(a)2), as amended by secton 319 (c) and (d), respectvey, of
the Lquor Ta dmnstraton ct, reatng to the ta on wnes,
queurs, cordas, and smar compounds, paragraphs 169, 170, 17L.
172, 174, and 175 of Reguatons 15 are amended to read as foows:
Par. 169. ermouth. ermouth made at a rectfyng pant Is sub|ect to the
rectfyng ta of 30 cents per proof gaon mposed by secton 605 of the Reve-
nue ct of 1918, as amended.
Par. 170. In addton thereto, secton 611 of the Revenue ct of 1913, as
amended by secton 319(c) of the Lquor Ta dmnstraton ct, mposes a
further ta upon vermouth as foows:
On vermouth contanng not more than 14 per centum of absoute acoho,
5 cents per wne gaon, the per centum of acoho to be reckoned by voume
and not by weght
On vermouth contanng more than 14 per centum and not e ceedng 21
per centum of absoute acoho, 10 cents per wne gaon
On vermouth contanng more than 21 per centum and not e ceedng 24
per centum of absoute acoho, 20 cents per wne gaon.
Par. 171. Lqueurs, cordas, and smar compounds. Secton 613 of the Rev-
enue ct of 1918, as amended by secton 319(d) of the Lquor Ta dmnstra-
ton ct, mposes a ta on certan products of rectfcaton as foows:
On each botte or other contaner of queurs, cordas, or smar com-
pounds, by whatever name sod or offered for sae, contanng sweet wne,
ctrus-frut wne, peach wne, cherry wne, berry wne, aprcot wne, or appe
wne, fortfed, respectvey, wth grape brandy, ctrus-frut brandy, peach
brandy, cherry brandy, berry brandy, aprcot brandy, or appe brandy, 1 cents
on each one-haf pnt or fracton thereof.
Par. 172. Carbonated and sparkng wnes.- The carbonatng of ta -pad
wnes, ether by secondary fermentaton of the wne or by chargng the wne
artfcay wth carbon do de, must be done at a rectfyng pant The car-
bonated wne s sub|ect to the rectfcaton ta of 30 cents per proof gaon
and, n addton thereto, the ta mposed by secton 613 of the Revenue ct
of 1918, as amended, upon sparkng wne, or artfcay carbonated wne, as
the case may be, must be pad. Ths ta s as foows:
On each botte or other contaner of champagne or sparkng wne, 2
cents on each one-haf pnt or fracton thereof
On each botte or other contaner of artfcay carbonated wne, 1 4 cents
on each one-pnt or fracton thereof
ny of the foregong artces contanng more thnn 24 per centum of absoute
acoho by voume sha be cassed as dsted sprts and sha be ta ed
accordngy.
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481
Msc.
Par. 174. Cordas or queurs on whch a ta s mposed and pad under sec-
ton 613 of the Revenue ct of 1918, as amended, are e empt from the 30-cent
rectfcaton ta mposed by secton 605 of the Revenue ct of 1918, as amended.
Par. 175. Lqueurs, cordas, and smar compounds prepared wth dsted
sprts or wth wnes whch are not fortfed wth grape brandy, ctrus-frut
brandy, peach brandy, cherry brandy, berry brandy, aprcot brandy, or appe
brandy, or wth such wnes and dsted sprts, are sub|ect to the rectfcaton
ta of 30 cents per proof gaon mposed by secton 605, Revenue ct of 1918,
as amended.
Gut T. everng,
Commssoner of Interna Revenue.
pproved November 23, 193G.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 28, 1936, 11.02 a. m.)
- 7-8398
T. D.4710
rewer s notce, orm 270.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Secton 3335 of the Revsed Statutes (U. S. C, 1934 ed., tte 26.
secton 1334(a)), as amended by secton 315 of the Lquor Ta
dmnstraton ct (Pubc, No. 815, Seventy-fourth Congress),
approved une 26, 1936, provdes as foows:
Sbc. 3335. very brewer sha, before commencng or contnung busness,
fe wth the offcer desgnated for that purpose by the Commssoner of Interna
Revenue a notce n wrtng and n the form prescrbed by the Commssoner,
wth the approva of the Secretary of the Treasury. Such notce sha set
forth (a) the name and resdence of the brewer, and the names and resdences
of a such persons nterested or to be nterested n the busness, drecty or
ndrecty, as the Commssoner sha prescrbe, (6) the precse pace where
the busness s to be carred on, ncudng a descrpton of the premses on
whch the brewery s stuated, the tte of the brewer to the premses, and the
name of the owner thereof, and (c) such addtona partcuars as the Comms-
soner sha prescrbe as necessary for the protecton of the revenue.
Pursuant to ths amendment of secton 3335, R. S., subparagraphs
(a) and (b) of paragraph 8 of Reguatons 18 are amended to read
as foows:
Par. 8. (a) very brewer sha, before commencng busness, fe wth the
supervsor a notce on orm 27C n trpcate. If the brewery s to be operated
by an ndvdua, the fu name and resdence of such ndvdua, and the trade
name, f any, under whch he proposes to operate must be gven. If the brewery
Is to be operated by a copartnershp, the frm name, If any, and the name and
resdence of each person Interested In the operaton must be gven. If the
brewery Is to be operated by a corporaton, the name of the corporaton, the
State under the aws of whch t was ncorporated, and the address of the
prncpa offce must be gven. There must be attached to such notce an
affdavt gvng the name and address of every person nterested or to be nter-
ested n the busness, and the amount and nature of such nterest, ncudng
the name and address of every member of a frm or stockhoder of a corpora-
ton, operatng, ownng or nterested n the brewery, drecty or ndrecty,
whether such nterest appears n the name of the Interested party or In the
name of another for hm. In the case of corporatons and smar ega enttes
there sha be fed, on separate sheets, at the commencement of busness and
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482
annuay thereafter as of Say 1, or the nearest dvdend date wthn 60 days
thereof, a st of the true and benefca owners of the stock outstandng, and
a statement under the sea, f any, of the corporaton or other egn entty,
showng the number of shares of each cass of stock or other evdence of
ownershp n the corporaton, such as votng trust certfcates, authorzed and
outstandng, the par vaue, f any, thereof, and the votng rghts of the respec-
tve owners or hoders thereof, accompaned by an affdavt as to the correct-
ness of such st and statement, whch affdavt sha be e ecuted by an offcer
of the corporaton or other ega entty havng most knowedge as to the cor-
rectness thereof and duy authorzed to e ecute the same: Provded, That
where more than 100 persons are nterested n a corporaton or other ega
entty as stockhoders or otherwse, there need be furnshed hereunder ony the
names, addresses and amounts and nature of stock hodng or other nterest of
the 100 persons havng the argest ownershp or other nterest In each of the
respectve casses of stock or other Interest, e cept where more compete
nformaton sha be specay requred by the Commssoner of Interna
Revenue.
(6) The notce must accuratey descrbe the brewery and the bottng house
premses by metes and bounds or courses and dstances, a budngs on such
premses and the purposes for whch used, such brewery apparatus as s re-
qured to be shown on the pans prescrbed n rtce I, the storage factes,
and the apparatus to be used n the bottng house, and must show the ocaton
of the premses by name of State and cty or town and street and number.
The notce must aso contan a statement showng the tte of the brewer to
(e premses on whch the brewery s stuated, and the name of the owner
thereof.
Gut T. everng,
Commssoner of Interna Revenue.
pproved November 17, 1936.
. MoRG NT U, r.,
Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 20, 1938, 1 p. m.)
-47-8399
T.D.4711
Rectfcaton. Reguatons 15 amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Secton 335 of the Lquor Ta dmnstraton ct (Pubc, No.
815, Seventy-fourth Congress), approved une 26, 1936, provdes aa
foows:
Secton 620 of the Revenue ct of 1918 (U. S. C, 1934 ed., tte 26, secton
1309) s amended by strkng out the foowng: or whoever rectfes, m es,
or compounds wth dsted sprts any domestc wnes, other than In the manu-
facture of queurs, cordas, or smar compounds.
Pursuant to ths amendment of secton 620 of the Revenue ct of
1918, paragraph 176 of Reguatons 15 s amended to read as foows:
Par. 176. Domestc ta -pad wnes may aso be rectfed, m ed, or com-
pounded wth ta -pad dsted sprts for other purposes than the manufacture
of queurs, cordas, or smar compounds. The resutant product s sub|ect
to the 30-cent rectfcaton ta . Where the ta abe cass of wne s chauged
by the addton of dsted sprts thereto, addtona wne ta due ou the
wne must be pad as we as the 30-cent rectfcaton ta . Such addtona
ta represents the dfference between the wne ta due on the fnshed wne
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483
Msc.
under Its new cassfcaton and the ta prevousy pad thereon. The same
rue appes where the ta abe cass of wne Is ncreased by bendng wnes
wth each other, regardess of whether or not the 30-cent rectfcaton ta s
ncurred by such bendng. Where, however, the rectfcaton, m ng, com-
poundng, or bendng resuts In the manufacture of a dstnct product, such as
vermouth or sparkng wne, the ta mposed upon such product must, as pro-
vded In paragraph 132, be pad n addton to any rectfcaton ta .
Gut T. everng,
Commssoner of Interna Revenue.
pproved November 17, 1936.
. MoRG NT U, r.,
Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 20, 1036, 1 p. m.)
-47-8400
T. D. 4712
terng, carfyng, or purfyng wnes on bonded wnery or
bonded storeroom premses.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Secton 605 of the Revenue ct of 1918 (U. S. C, 1934 ed., tte 26,
secton 1151), as amended by secton 319(b) of the Lquor Ta
dmnstraton ct (Pubc, No. 815, Seventy-fourth Congress), ap-
proved une 26, 1936, provdes n part as foows:
The fterng, carfyng, or purfyng of wnes on bonded wnery premses or
bonded storeroom premses, sha not be deemed to be rectfcaton wthn the
meanng of paragraph Thrd of secton 3244 of the Revsed Statutes (U. S. C.,
1034 ed., tte 20, secton 1308(f)). The Commssoner of Interna Revenue,
wth the approva of the Secretary of the Treasury, sha prescrbe such regua-
tons under ths secton as he deems necessary-
Pursuant to ths amendment of secton 605 of the Revenue ct of
1918, the foowng reguatons are prescrbed:
1. The fterng, carfyng, or purfyng of wnes on bonded wnery or bonded
storeroom premses sha not be deemed to be rectfcaton wthn the meanng
of paragraph Thrd of secton 3244 of the Revsed Statutes.
2. In the process of fterng, carfyng, and purfyng wne on bonded wnery
and bonded storeroom premses, materas, methods and equpment may be
used to remove coudness, precptaton, and undesrabe odors and favors, but
the addton of any substance foregn to wne whch remans a part thereof, or
the abstracton of ngredents to an e tent or manner whch w affect the
basc composton of the wne by emnatng the characterstc eements or
change Its type, s not wthn the statute, and w not, therefore, be permtted
on bonded wnery or bonded storeroom premses.
3. The m ng of any materas wth wne whch w resut n the producton
of a compound, mtaton or spurous wne w consttute rectfcaton.
Gut T. everng,
Commssoner of Interna Reve ue.
pproved November 17, 193G.
. Morcenthau, r.,
Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 20, 1030, 1 p. m.)
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484
-47-8401
T. D. 4709
Remova of beer from brewery to warehouse. Reguatons IS
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Secton 313(c) of the Lquor Ta dmnstraton ct (Pubc,
No. 815, Seventy-fourth Congress), approved une 26, 1936, provdes
as foows:
(c) Secton 33-15 of the Revsed Statutes (U. S. C, 1934 ed., tte 26, secton
1333(a)) s amended by strkng out the phrase In one vesse where It ap-
Itears after the phrase of not ess than s barres.
Pursuant to ths amendment of secton 3345 of the Revsed Stat-
utes, paragraph 26(a) of Reguatons 18 s amended to read as foows:
Par. 26. (a) Upon the fng wth the dstrct supervsor of an appcaton
therefor by a brewer, a permt may be granted under secton 3345, Revsed
Statutes, as amended, to remove or transport from hs brewery to a depot-
warehouse, or other pace used e cusvey for storage or sae n buk, and
occuped by hm, mat quor of hs own manufacture, known as ager-beer, n
quanttes of not ess than 6 barres and any other mat quor of hs own
manufacture, n quanttes of not ess than 50 barres at a tme, wthout aff ng
the proper stamps on the contaners of such mat quors at the brewery.
pproved November 17, 1936.
. MORG NT U, r.,
Secretary of the Treasury.
(Ted wth the Dvson of the edera Regster November 20, 1936, 12.59 p. m.)
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Paragraph 29(a) of Reguatons 18, reatng to the manufacture
and ta -payment of fermented mat quors, s hereby amended to
Par. 29. (a) undevered beer returned to a brewery may be hed In tem-
porary storage. Returned beer hed n temporary storage must be kept com-
petey segregated from a other beer, dentfed as returned beer, and stored In
such manner as to be mmedatey accessbe to Government offcers. The
stamps on barres of returned beer must reman ntact whe n temporary
storage. Such beer must be removed from the brewery pror to the remova
of other beer of the same knd or type, e cept that for the purpose of refrgera-
ton the remova of such returned beer may be postponed for a perod not
e ceedng 36 hours. Uness so removed, the beer w no onger be consdered
Guy T. everno,
Commssoner of Interna Revenue.
-47-8402
T. D.4708
Reguatons 18 amended.
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485
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as beng n temporary storage aud must be returned to genera brewery stock,
In whch event the stamps on the barres must be destroyed and new stamps
aff ed when the beer s agan removed from the brewery. Refund or credt
for such stamps destroyed can not be aowed.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved November 17, 1936.
. MORG NT T , r.,
Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 20, 1936, 12.59 p. m.)
-47-8403
T. D.4713
Dsted sprts and wnes rectfed In bonded manufacturng
warehouses, cass 6.
Treasury Department,
Offce of the Secretary of the Treasury,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Customs, and Others Con-
cerned:
Secton 404 of the Lquor Ta dmnstraton ct (Pubc, No.
815, Seventy-fourth Congress) provdes as foows:
Sec. 404. Secton 311 of the Tarff ct of 1930 (U. S. C, 1934 ed., tte 19,
secton 1311) s amended by addng a paragraph at the end thereof, readng
as foows:
Dsted sprts and wnes whch are rectfed n bonded manufacturng
warehouses, cass 6, and dsted sprts whch are reduced n proof and
botted n such warehouses, sha be deemed to have been manufactured wthn
the meanng of ths secton, and may be wthdrawn as herenbefore provded,
and kewse for shpment n bond to Puerto Rco, sub|ect to the provsons
of ths secton, and under such reguatons as the Secretary of the Treasury
may prescrbe, there to be wthdrawn for consumpton or be rewarehoused and
subsequenty wthdrawn for consumpton: Provded, That upon wthdrawa n
Puerto Rco for consumpton, the dutes Imposed by the customs aws of the
Unted States sha be coected on a mported merchandse (n ts condton
as mported) and mported contaners used n the manufacture and puttng
up of such sprts and wnes n such warehouses: Provded further, That no
Interna-revenue ta sha be mposed on dsted sprts and wnes rectfed
n cass 6 warehouses f such dsted sprts and wnes are e ported or shpped
In accordance wth the provsons of ths secton, and that no person rectfyng
dsted sprts or wnes n such warehouses sha be sub|ect by reason of such
rectfcaton to the payment of speca ta as a rectfer.
1. In accordance wth secton 311 of the Tarff ct of 1930, as
amended by secton 404 of the Lquor Ta dmnstraton ct, ds-
ted sprts may be removed from nterna revenue bonded ware-
houses wthout payment of ta and transported to bonded manu-
facturng warehouses, cass 6, to be rectfed, or reduced n proof and
botted, and e ported or shpped to Puerto Rco. Wnes may be
removed from bonded wneres or bonded wne storerooms wthout
ayment of ta and transported to bonded manufacturng ware-
ouses, cass 6, to be rectfed and e ported or shpped to Puerto
Rco.
2. Wthdrawa of dsted sprts from nterna revenue bonded
warehouses and transportaton to bonded manufacturng warehouses,
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486
cass 6, w be n accordance wth the procedure set out n Regua-
tons 29, Unted States nterna revenue.
3. Remova of wne from a bonded wnery or bonded storeroom,
free of ta , for transportaton to a bonded manufacturng warehouse,
cass 6. sha be as foows:
(a) The propretor of a bonded manufacturng warehouse, cass
6, desrng to remove wne to such warehouse from a bonded wnery
or bonded storeroom, free of ta , for rectfcaton, and e portaton or
shpment to Puerto Rco, w fe wth the supervsor of the dstrct
n whch the wnery or bonded storeroom s ocated, a bond on
orm 1580, e ecuted n trpcate, n a pena sum equa to the amount
of the ta on the quantty of wne to be wthdrawn, as specfed n
the entry. orm 711, and n no case ess than 1,000. ond orm
1580, so hed, sha be approved by the supervsor f the propretor
of the bonded manufacturng warehouse has n a respects comped
wth the aw and reguatons. The orgna of the bond w be for-
warded to the Deputy Commssoner, coho Ta Unt. One copy
w be forwarded to the prncpa, and the other copy w be re-
taned by the supervsor. Wthdrawas may be made from tme to
tme under the bond as ong as t remans good and suffcent, or
unt t sha have been reeased or termnated by the order of the
Commssoner or supervsor.
(6) The supervsor w keep an account wth the bond, n whch
account the prncpa w be charged wth the ta on each ot of wne
removed for transportaton to a bonded manufacturng warehouse,
cass 6, and w receve credt for the ta on each ot concernng whch
satsfactory proof of depost n such warehouse s receved. Wne
shpped for transportaton to a bonded manufacturng warehouse w
be carred as unaccounted for unt proof satsfactory to the super-
vsor s receved showng the depost of the wne n such warehouse.
No aowance of ta w be made on account of any oss of wnes n
transt to a bonded manufacturng warehouse, cass 6.
(c) fter havng gven the requred bond, the propretor of the
bonded manufacturng warehouse, cass 6, w e ecute and fe wth
the supervsor an entry, orm 711, n quntupcate, modfed for the
purpose. Parts 1 and 2 of each copy w be fuy e ecuted. If the
appcant has comped n a respects wth the aw and reguatons,
the supervsor w note hs approva on each copy of the entry, retan
one copy thereof for hs offca fes, return three copes to the app-
cant, and w forward the fourth copy to the propretor of the bonded
wnery or bonded storeroom, as hs authorty to shp wthout payment
of ta the wne descrbed theren to the bonded manufacturng ware-
house. Upon recept of the approved copes of the entry, the pro-
pretor of the bonded manufacturng warehouse, cass 6, may wth-
draw the wnes theren descrbed for transportaton to such ware-
house wthout payment of ta . The packages contanng such wnes
must be pany marked or depost n bonded manufacturng ware-
house, cass 6, n etters not ess than 1 nch n heght, n addton to
bearng the other marks and brands requred by reguatons. The
wne must be consgned to the bonded manufacturng warehouse,
cass 6, n care of the coector of customs of the dstrct n whch the
warehouse s ocated. Upon shpment of the wne from the wnery,
or bonded storeroom, the propretor of the bonded manufacturng
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487
Msc.
warehouse, cass 6, w forward two copes of the entry, orm 711,
to the coector of customs of the dstrct n whch the bonded manu-
facturng warehouse, cass 6, s ocated. The other copy of the entry
w be retaned by the propretor of the warehouse.
(d) Upon arrva of the wne at the warehouse, the coector of cus-
toms w drect the proper offcer to nspect the wne and ascertan
whether t s n a respects as descrbed n the entry and w cause
the wne to be deposted n the bonded manufacturng warehouse, cass
6, named n the entry. Such offcer w note any shortages on both
copes of the entry. When the wne s deposted n the warehouse the
coector w f out and e ecute the certfcate on part 3 of each copy
of the entry, forward one copy to the supervsor who approved t, and
retan the remanng copy for hs offca fes. The b of adng or
other document, f any, coverng shpment of the wne must show the
propretor of the bonded manufacturng warehouse, cass 6, as the
shpper, the sera numbers of the packages, and the quantty of wne.
s soon as the wne s shpped, the propretor of the bonded manu-
facturng warehouse, cass 6, w forward a copy of the b of adng
or other shppng document, f any, to the supervsor of the dstrct
where the wnery or bonded wne storeroom s ocated. If the wne s
transported on trucks beongng to the propretor of the bonded manu-
facturng warehouse, notaton to that effect w be made on the entry
orm 711. Upon recept of the copy of the b of adng or other shp-
png document, f any, and copy of the entry, bearng the certfcate
of depost of the coector, and after ta has been pad on any wne
ost n transt, the supervsor w make proper entres n hs bonded
account, orm 733, and credt the account kept wth the bond orm
1580.
pproved November 18, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 21, 1930, 10.33 a. m.)
-47-8404
T. D.4714
Remsson and refundng of ta es on queurs, cordas, and sm-
nr compounds pad by or assessed aganst rectfers at the dsted
sprts rate.
Tbeasuby Department,
Offce of the Secretary of the Treasury,
Washngton, D. C.
To the Commssoner of Interna Revenue, Coectors of Interna
Revenue, Dstrct Supervsors, and Others Concerned
Secton 613 of the Revenue ct of 1918, as amended by secton 7 of
the Lquor Ta ng ct of 1934 (U. S. C., 1934 ed., tte 26, secton
1300(a)2 U. S. C, 1934 ed., Supp. 1, tte 26, secton 1300 (a)2), and
as further amended by secton 319(d) of the Lquor Ta dmnstra-
ton ct (Pubc, No. 815, Seventy-fourth Congress), reads n part as
foows:
Sec. 613. (a) Upon the foowng artces whch are produced n or mported
nto the Unted States, after the date of the enactment of the Lquor Ta d-
mnstraton ct, or whch on the day after such date are on any wnery premses
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Msc.
488
or other bonded premses or In transt thereto or at any customhouse, there sha
be eved, coected, and pad, In eu of the nterna-revenue ta es mposed thereon
by aw pror to such date, ta es at rates as foows, when sod, or removed for
consumpton or sae:

On each botte or other contaner of queurs, cordas, or smar compounds,
by whatever name sod or offered for sae, contanng sweet wne, ctrus-frut
wne, peach wne, cherry wne, berry wne, aprcot wne, or appe wne, fortfed,
respectvey, wth grape brandy, ctrus-frut brandy, peach brandy, cherr|
brandy, berry brandy, aprcot brandy, or appe brandy, 1 4 cents on each one-
haf pnt or fracton thereof
ny of the foregong artces contanng more than 24 per centum of absoute
acoho by voume (e cept vermouth, queurs, cordas, and smar compounds
made n rectfyng pants and contanng ta -pad sweet wne, ctrus-frut wne,
peach wne, cherry wne, berry wne, aprcot wne, or appe wne, fortfed,
respectvey, wth grape brandy, ctrus-frut brandy, peach brandy, cherry
brandy, berry brandy, aprcot brandy, or appe brandy) sha be cassed as
dsted sprts and sha be ta ed accordngy.
The Commssoner of Interna Revenue, sub|ect to reguatons prescrbed by
the Secretary of the Treasury, s authorzed to remt, refund, and pay back
the amount of a ta es on such queurs, cordas, and smar compounds pad
by or assessed aganst rectfers at the dsted sprts rate pror to the date of
the enactment of the Lquor Ta dmnstraton ct.
Pursuant to the above-quoted authorty of aw, the foowng regu-
atons are prescrbed:
1. ny rectfer who, pror to the enactment of the Lquor Ta dmnstraton
ct ( une 2G, 1936), pad ta at the dsted sprts rate on queurs, cordas,
and smar compounds contanng sweet wne or ctrus-frut wne, fortfed,
respectvey, wth grape brandy or ctrus-frut brandy (the ony wnes among
those named above authorzed to be fortfed n the manner Indcated, pror to
enactment of the Lquor Ta dmnstraton ct), may have such ta refunded
to hm: and any rectfer aganst whom any such ta on such queurs, cordas,
or smar compounds was assessed pror to the enactment of the Lquor Ta
dmnstraton ct may have such ta remtted and abated.
2. The phrase at the dsted sprts rate means the ta of 2 on each
proof gaon or wne gaon when beow proof, mposed on dsted sprts by
secton 600(a) of the Revenue ct of 1018, as amended (U. S. C, 1934 ed., tte
26, secton 1150(a)).
3. Cams for refund or abatement under these reguatons sha be prepared
on orm 843 and fed n dupcate wth the coector of nterna revenue of the
dstrct n whch the ta was pad or assessed. The form sha be fuy and
accuratey fed out and e ecuted n accordance wth the nstructons prnted
thereon and n conformty wth these reguatons. Copes of orm 843 may be
obtaned from any coector of nterna revenue.
4. The cam sha show, n addton to the pertnent tems sted n the form,
(a) the date of the return ( orm 237), f any, pursuant to whch the ta was
pad or assessed and the quors removed from rectfcaton and (6) a descrp-
ton of the quors and the number of proof gaons nvoved. If ta was pad
or assessed on such quors at the dsted sprts rate on more than one occa-
son, the camant sha st the tems n chronoogca order. The camant
sha attach a copy of each of the returns ( orm 237) to the cam.
5. ach cam for refund sha be supported by evdence satsfactory to the
Commssoner of Interna Revenue that the ta was actuay pad to a coector
of Interna revenue.
6. The provsons of e stng reguatons respectng the recordng, schedung,
and dsposton of cams for the abatement or refundng of ta es erroneousy
or egay assessed or coected on quors are hereby e tended and made ap-
pcabe to cams fed under these reguatons.
pproved November 18, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 21, 1936, 10.33 a. m.)
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Msc.
Secton 301. -35-8271
T. D.4G80
ond In eu of consent of owner or enor respectng use of ds-
tery premses.
Treast|hy Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Pursuant to secton 3262 of the Revsed Statutes, as amended by
secton 2, ct of May 28, 1880 (U. S. C, 1934 ed., tte 26, sectons
1166(b) and 1353), and as further amended by secton 301 of the
Lquor Ta dmnstraton ct (Pubc, No. 815, Seventy-fourth
Congress), approved une 26, 1936, the foowng reguatons are
prescrbed to govern the fng of bond by a dster n eu of the
wrtten consent of the owner of the fee, and of any mortgagee,
|udgment-credtor, or other enor as to the use of the premses and
apparatus for dstng and as to the prorty of the ta en and
other nterests of the Unted States, n cases where the dster
can not obtan such wrtten consent:
1. ny dster who can not obtan the wrtten consent of the owner of the
fee of the dstery premses, and of any mortgagee, |udgment-credtor, or
other person havng a en thereon, duy acknowedged, that the premses may
be used for the purpose of dstng sprts, sub|ect to the provsons of aw,
and e pressy stpuatng that the en of the Unted States for ta es and
penates sha have prorty of such mortgage, |udgment, or other encum-
brance, and that n ease of the forfeture of the dstery premses, or any
part thereof, the tte to the same sha vest n the Unted States dscharged
from such mortgage, |udgment, or other encumbrance, may fe an appcaton,
n trpcate, wth the Commssoner of Interna Revenue, through the dstrct
supervsor, for permsson to fe a bond In eu of such wrtten consent.
2. The appcaton must contan (a) an accurate descrpton of the ot or
tract of and on whch the dstery s stuated, and of the dstery, the
budngs, and the dstng apparatus thereon (b) a fu and cear state-
ment of the condton of the tte to the dstery premses and apparatus,
ncudng the name and address of the owner of the fee, and of a mortgagees,
|udgment-credtors, and other persons havng ens thereon, together wth the
amount of each encumbrance and (c) a fu and cear statement of the
reasons why the appcant can not obtan the prescrbed wrtten consent.
3. Upon recept of the appcaton, the dstrct supervsor w cause the
vaue of the ot or tract of and on whch the dstery s stuated, the ds-
tery, the budngs, and the dstng apparatus to be apprased by two or
more competent persons desgnated by hm for the purpose. The apprasers
w render a report showng separatey the vaue of the and and budngs
and the dstng apparatus, and contanng a fu and cear statement of the
processes empoyed by them n determnng ther vauatons. The dstrct
supervsor may cause a reapprasa to be made, f, n hs |udgment, the vaua-
ton paced on the property by the apprasers Is ess than the far vaue.
The dstrct supervsor w aso cause an nvestgaton to be made of the facts
upon whch the appcaton s based.
4. The dstrct supervsor w, upon recept and e amnaton of the ap-
prasa and Investgaton report or reports, forward a copy of the appcaton
and of each report to the Commssoner, wth hs recommendaton and the
reasons therefor. The Commssoner w notfy the dstrct supervsor of hs
approva or dsapprova of the appcaton. If the Commssoner dsapproves
the appcaton, a statement of the reasons for such dsapprova w accompany
the notce.
5. Where the gvng of bond In eu of the prescrbed wrtten consent has
been approved by the Commssoner under these reguatons, such bond sha
be fed wth the dstrct supervsor on orm 3- , n trpcate. The pena
um of the bond must be equa to the apprased vaue of the ot or tract of
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490
and on whch the dstery Is stuated, the dstery, the budngs, and the
dstng apparatus.
6. ond on orm 3- may be gven wth corporate surety authorzed to
act as surety by the Secretary of the Treasury, or wth ndvdua suretes
(of whch there must be two), or supported by the depost of proper coatera.
7. The dstrct supervsor w forward a copes of bond on orm 3-
to the Commssoner wth hs recommendaton. If the bond Is approved by
the Commssoner, two copes w be returned to the dstrct supervsor, who
w send one copy to the prncpa and retan the other copy. If the bond
s not approved, t w be returned, n trpcate, to the dstrct supervsor.
The dstrct supervsor w forward a copes of dsapproved bonds to the
prncpa and w notfy the surety or suretes.
8. The terms, condtons, and Instructons contaned In bond orm 3- are
hereby made a part of these reguatons as fuy and to the same e tent as If
Incorporated heren at ength.
9. The provsons of Treasury Decson 4651 page 443, ths uetn para-
graphs 50 to 71, ncusve, reatng to nterna revenue bonded warehouses,
approved une 27, 1936, so far as appcabe, are hereby e tended to bonds fur-
nshed by dsters on orm 3- .
10. Where the dster has fed bond on orm 3- In eu of the prescrbed
wrtten consent of the owner of the fee, and of any mortgagee, |udgment-
credtor, or other enor, pursuant to approva of the Commssoner, such fact
must be shown on the dster s notce, orm 27- , under the headng State-
ment of present condton of tte.
11. No en sha attach to any ot or tract of and, dstery, budng, or
dstng apparatus, under the provsons of secton 3251 of the Revsed Statutes,
as amended (U. S. C, 1934 ed., tte 26, secton 1150(e)), by reason of
dstng cone durng any perod Incuded wthn the term of any bond taken
on orm 3- under these reguatons.
Gut T. everng,
Commssoner of Interna Revenue.
pproved ugust 21, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 25, 1936, 12.39 p. m.)
Sectons 310 and 311. -35-8273
T. D. 4682
Dstng operaton records.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Sectons 310 and 311 of the Lquor Ta dmnstraton ct (Pub-
c, No. 815, Seventy-fourth Congress) provde as foows:
Sec. 310. Secton 3302 of the Revsed Statutes (U. S. C, 1934 ed., tte
26, secton 1229) s amended to read as foows:
Sec. 3302. The storekeeper-gauger assgned to any dstery sha, n add-
ton to a other dutes requred to be performed by hm, keep records of the
recept and use of substances brought nto sad dstery, or on sad premses,
to be used for the purpose of producng sprts, and of a sprts drawn off from
the recevng cstern, and the tme when the same were drawn off, In such form
as the Commssoner of Interna Revenue, wth the approva of the Secretary
of the Treasury, sha, by reguatons, prescrbe.
Sec. 311. Secton 3303 of the Revsed Statutes (U. S. C, 1934 ed., tte 28,
secton 2(a)) Is amended to read as foows:
Sec. 3303. very person who makes or dsts sprts, or owns any st,
boer, or other vesse used for the purpose of dstng sprts, or who has
such st, boer, or other vesse so used under hs superntendence, ether as
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491
IMsc.
agent or owner, or who uses any such st, boer, or other vesse, sha keep a
record, n the form and manner prescrbed by the Commssoner of Interna
Revenue, of the recept on the dstery premses, and the use thereon, of
materas ntended for use n the dstaton of sprts, and of the number of
gaons of sprts dsted, the number of gaons paced n the warehouse, and
the proof thereof, the number of gaons sod or removed, wth the proof
thereof, and the name, pace of busness, and resdence of the person to whom
sod.
Pursuant to the above-quoted sectons of the statutes, the foow-
1. Dsters w wegh, or measure (n the case of quds), a materas
receved on the dstery premses ntended for use n the producton of ds-
tUed sprts, and a such materas used on the dstery premses, whether
for the producton of dsted sprts or for other purposes, recordng such
data ou orms 12 and 13. They w prepare weght or quantty sps for a
materas receved and used at the tme of weghng or measurng, and fur-
nsh sgned copes to the storekeeper-ganger. Dsters w be requred to
keep book orm 2T , Dsters yeastng book, recordng theren the data
ndcated n the coumn headngs.
2. cept n the case of frut dsteres, no materas sha be receved on
the premses of any regstered dstery, or used for the producton of dsted
sprts, or for any other purpose, e cept when the storekeeper-gauger s pres-
ent on the dstery premses. Storekeeper-gaugers assgned to such dst-
eres, however, w not be requred personay to wegh or measure materas
receved upon such premses or materas used for the producton of dsted
sprts. The storekeeper-gauger In charge w unock the matera room and
hoppers at the commencement of each day s operatons, and ock them at the
cose of busness each day, gvng empoyees of the dstery access to materas
durng the day under hs genera supervson.
3. Smary, storekeeper-gangers assgned to such dsteres w not be re-
qured to determne the temperature and gravty of the mash or beer n fer-
mentng tubs, or ascertan the number of dry nches, or to record such tems n
book orm 17, Record of storekeeper-gaugers at regstered dsteres, or
orm 88, Storekeeper-ganger s monthy abstract. They w, however, make
such spot tests of materas n fermentng tubs as may be necessary to determne
the accuracy of the dster s entres In book orm 25.
4. The storekeeper-gauger In charge w see that dsters mantan and keep
current the records referred to n paragraph 1. e w make such nspectons
and tests of the dster s records and operatons as may be necessary to nsure
that they are compete and accurate. e w e ercse genera supervson over
a operatons and transactons conducted by the dster and hs empoyees.
5. Storekeeper-gaugers w record n part 1 of book orm 17 a materas
receved on the dstery premses ntended for use n the producton of dsted
sprts, e cept data as to the conveyances by whch such materas are dev-
ered, and a such materas used on the dstery premses, whether for the
producton of dsted sprts or for other purposes. Informaton as to mate-
ras receved w be obtaned from the weght or quantty sps and compared
wth the dster s commerca records and book orm 12. Informaton as to
materas used w be obtaned from the weght or quantty sps and compared
wth the dster s record, book orm 13.
6. Storekeeper-gaugers w record n part 2 of book orm 17, Record of
yeastng, gravty, temperature, dry nches and the quantty of mash or beer In
fermentng tubs n dstery, the tme when any fermentng tub Is empted of
rpe mash or beer, and the number of each tub. These Items w be entered n
the coumns desgnated Number of tub, t tme tubs are empted, Date,
and our. No other entres n part 2 w be requred.
7. In monthy report on orm 88, storekeeper-gaugers w make the entres
requred on page 1, e cept the coumns under the headng. Sop or spent
beer. No entres w be made on page 2 of ths form. On page 3 of the
form, entres w be made of a data, e cept the summary statement of the
eer account. the data requred on the ast page of the form w be
stated.
8. The foowng forms and records, and parts of forms and records, are
hereby dscontnued:
(a) orm 28. orm of dster s record of workmen
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492
(6) Coumns headed ue purchased.for dstery, Pad for ce and
for water, and Repars on dstery and apparatus, n orm 12, orm of
dster s purchase and repar hook
( ) The coumns under the headng ue used, of part 1, and a of
part 2, record No. 16, Record of storekeeper at regstered rum dstery and
( Z) Part 3 of record 17, Record of storekeeper-ganger at regstered dstery.
Gut T. everng,
Commssoner of Interna Revenue.
pproved ugust 21, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 26, 1936, 11.20 a. m.)
Secton 317. -35-8279
T. D. 4668
Use of brewery and brewery bottng house. Reguatons 18
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Secton 3340 of the Revsed Statutes, as amended bv secton 10 of
the ct of March 1,1879 (U. S. C., 1934 ed., tte 26, secton 1337(a)),
and as further amended by secton 317 of the Lquor Ta dmns-
traton ct (Pubc, No. 815, Seventy-fourth Congress), reads n
part as foows:
(d) The brewery premses sha consst of the and and budngs descrbed
n the brewer s notce and sha be used soey for the purposes of manufac-
turng beer, ager beer, ae, porter, and smar fermented mat quors, cerea
beverages contanng ess than one-haf of 1 per centum of acoho by voume,
vtamns, Ice, mat, and mat syrup of dryng spent gran from the brewery
of recoverng carbon do de and yeast and of storng bottes, packages, and
suppes necessary or ncdenta to a such manufacture. The brewery bot-
tng house sha be used soey for the purposes of bottng beer, ager beer, ae,
porter, and smar fermented mat quors, and cerea beverages contanng
ess than one-haf of 1 per centum of acoho by voume. Notwthstandng
te foregong provsons, where any such brewery premses or brewery bot-
tng house s, on the date of the enactment of the Lquor Ta dmnstraton
ct, beng used by any brewer for purposes other than those heren descrbed,
or the brewery bottng house s, on such date, beng used for the bottng of
soft drnks, the use of the brewery and bottng bouse premses for such pur-
poses may be contnued by such brewer. The brewery bottng house of any
brewery sha not be used for the bottng of the product of any other brewery.
ny brewer who uses hs brewery or bottng house contrary to the provsons
of ths subsecton sha be fned not more than 50 wth respect to each day
upon whch any such use occurs.
Pursuant to ths amendment of secton 3340, R. S., paragraph 10 of
Reguatons 18, reatng to the manufacture and ta -payment of
fermented mat quors s amended by addng at the end thereof a
new subparagraph desgnated (/), and paragraph 13 of the sad
reguatons s amended by addng at the end thereof a new subpara-
graph desgnated (e), as foows:
Par. 10. (f) The brewery premses sha consst of the and and budngs
descrbed n the brewer s notce, orm 27C, and sha be used soey for the
purposes of manufacturng beer, ager beer, ae, porter, and smar fermented
mat quors, cerea beverages contanng ess than one-haf of 1 per cent
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Mso.
of acoho by voume, vtamns, Ice, mat, and mat srup of dryng spent gran
from the brewery of recoverng carbon do de and yeast and of storng
bottes, packages, and suppes necessary or ncdenta to a such manufacture:
Provded. That where any brewery premses was. on the date of the enactment
of the Lquor Ta dmnstraton ct ( une 26, 1930), beng used by the brewer
for purposes other than those heren descrbed, the use of such premses for
such purposes may be contnued by such brewer. ny brewer who uses hs
brewery contrary to the provsons of ths subparagraph w render hmsef
abe, under secton 3340, R. S., as amended, to a fne of not more than 50
wth respect to each day upon whch any such use occurs.
Par. 13. (e) The brewery bottng house sha be used soey for the pur-
pose of bottng beer, ager beer, ae, porter, and smar fermented mat quors,
and cerea beverages contanng ess than one-haf of 1 per cent of acoho
by voume: Provded, That where any brewery bottng house was, on the data
of the enactment of the Lquor Ta dmnstraton ct ( une 26, 1936), beng
used by the brewer for purposes other than those descrbed heren, ncudng
the bottng of soft drnks, the use of such bottng house for such purposes
may be contnued by such brewer. The brewery bottng house of any brewery
sha not, however, be used for bottng the product of any other brewery.
ny brewer who uses hs brewery bottng house contrary to the provsons
of ths subparagraph w render hmsef abe, under secton 3340, R. S.,
as amended, to a tne of not more than 50 wth respect to each day upon
whch any such use occurs.
Guy T. everno,
Commssoner of Interna Revenue.
pproved ugust 21,1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 27, 1936, 11.23 a. m.)
Secton 318. -35-8278
T. D.4687
meoraton of wne at bonded wneres.
Treasury Department,
Offce of the Secretary of the Treasury,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Secton 318 of the Lquor Ta dmnstraton ct (Pubc, No.
815, Seventy-fourth Congress), approved une 26, 1936, provdes
as foows:
Sec. 318. The Secretary of the Treasury may, by reguatons, authorze the
ameoraton of wne by the wnemaker and the fortfcaton of wne, wthout
supervson by any offcer of the Unted States, whenever he determnes that
such authorzaton may be made w-thout danger to the revenue.
Paragraph 1. Pursuant to ths provson of aw, propretors of
bonded wneres are hereby authorzed to ameorate wne wthout
supervson by Government offcers.
Par. 2. Propretors of bonded wneres must observe the mta-
tons mposed n secton 610 of the evenue ct of 1918 (U. S. C,
1934 ed., Supp. I, tte 26, secton 1310(d)), as amended by secton
330 of the Lquor Ta dmnstraton ct, and secton 617 (sub-
secton 43) of the Revenue ct of 1918 (U. S. C, 1934 ed., Supp. I,
tte 26, secton 1302(d)), reatve to the ameoraton of wne.
Par. 3. The storage of sugar, sugar souton and condensed must
n fortfyng rooms or speca sweetenng agents rooms under Gov-
ernment ock s not requred. Government offcers w permt the
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494
remova of sugar, sugar souton and condensed must from fortfyng
rooms and w remove Government ocks from doors of speca
sweetenng agents rooms n order that such materas may be ava-
abe for ameoratng wne wthout supervson.
Par. 4. The ameoraton of |uce (must) or wne pror to or dur-
ng the process of fermentaton w be shown on the wnemaker s
producton report ( orm 701). The ameoraton or sweetenng of
wne, after the same has been taken nto account ( orm 702) as
wne produced, w be shown n the proper detaed statement and
n the summary of that account. Where wne s produced for prob-
abe fortfcaton, the wnemaker w attach a abe ( orm 546)
to the tank contanng such wne, showng a nformaton requred
by such abe reatve to ameoraton and sweetenng.
Par. 5. The fortfcaton of wne wth brandy and ta -pad gran
or other ethy acoho w be done under the supervson of Govern-
ment offcers. Government offcers w not aow the fortfcaton
of wne uness they are satsfed after e amnaton of the abe ( orm
546) and testng of the wne, that the mtatons n the aw reatve
to the ameoraton of wne have been observed. If the Government
offcer s doubtfu whether the wne s egbe for fortfcaton, he
w submt the matter to the dstrct supervsor for decson. Where
the fortfcaton of wne s aowed, the resuts of the test of the
wne w be shown n the Government offcer s report ( orm 275).
Detaed nformaton reatve to ameoraton need not be entered
n such report.
Par. 6. Treasury Department, ureau of Prohbton, Reguatons
No. 7 (edton of May, 1930) are amended accordngy.
pproved ugust 21, 1936. Wayne C. Tator,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 27, 1936, 11.23 a. m.)
Sectons 319 and 338. -36-8291
T. D. 4694
Manufacture of vermouth on bonded wnery premses.
Treasury Department,
Offce of Commssoner of Interna Revenue,
W ashng tan, D. G.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Pursuant to sectons 605, 611, and 616 of the Revenue ct of 1918
(U. S. C, 1934 ed., tte 26, sectons 1151, 1300(a) 1, and 1306), as
amended by sectons 319(b), 319(c), and 338, respectvey, of the
Lquor Ta dmnstraton ct (Pubc, No. 815, Seventy-fourth
Congress), sectons 618(a). 619, 622. 1305, and 1309 of the Revenue
ct of 1918 (U. S. C, 1934 ed., tte 26, sectons 1303, 1300(b)2,
1305, 1345, and 1350, respectvey), and secton 3246 of the Revsed
Statutes (U. S. C, 1934 ed., tte 26, secton 1394(g)) as amended
by secton 328 of the Lquor Ta dmnstraton ct, the foowng
reguatons governng the manufacture of vermouth on bonded
wnery premses, and the ta -payment, wthdrawa, transfer, and
shpment of such vermouth, are prescrbed:
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495
Msc.
CONSTRUCTION ND UIPM NT.
Paragraph 1. separate department, to be known as the vermouth depart-
ment, may be estabshed on a bonded wnery premses for the manufacture
of vermouth. The budngs or rooms consttutng the vermouth department
must be sutabe for the purpose and so arranged that the revenue w be
protected. Such budngs or rooms must be securey constructed of substan-
ta matera and separated from any other department of the bonded wnery
by a sod and unbroken partton of substanta constructon. There must be
no nteror communcaton between the vermouth department and any other
department or part of the wnery premses. wndows and e teror doors
or other openngs must be so constructed that they may be securey ocked or
fastened from the nsde, e cept the entrance door, whch must be so con-
structed that t may be securey ocked and fastened from the outsde. The
entrance door sha ead drecty nto a pubc street or yard or Into tbo yard
of the bonded wnery or nto a common passageway eadng drecty to the
bonded wnery yard or to a pubc street or yard. The ocks necessary for
securng doors, wndows, or other openngs sha be furnshed by the propretor
of the bonded wnery.
Par. 2. The vermouth department must be provded wth sutabe factes
for te manufacture of vermouth. There must be nstaed n such department
one or more sutabe tanks, wthn whch a the vermouth produced must be
manufactured. ach tank n the vermouth department must have panted
thereon a permanent sera number and ts capacty u wne gaons. Sera
numbers on processng tanks w be preceded by the etter P and storage
tanks by the etter S. The sera number on bottng tanks w be pre-
ceded by the words ottng tank. ach tank sha be of unform dmensons
from top to bottom, sha stand on end, and sha be equpped wth a gass
gauge whereby the contents w be correcty ndcated. Where barres are
used as processng receptaces, they sha be marked n the same manner as
processng tanks, but need not be equpped wth gass gauges. Where barres
are used n storage contaners and w be used as shppng contaners upon
remova of the vermouth, they need not be equpped wth gass gauges or have
panted on them a permanent sera number, but the capacty n wne gaons
must be pany marked on each barre.
Par. 3. Propretors w be hed responsbe for the correctness of the mark-
ngs ndcatng the contents of a tanks. Where wooden tanks are used, they
must be remeasured from tme to tme and new markngs made thereon.
owance w not be made for defcences of vermouth camed to be due
to ncorrect gauge of tanks.
Par. 4. tanks and other contaners In the vermouth department must be
so arranged and ocated as to permt ther ready and compete e amnaton,
and determnaton of ther contents, by nspectng offcers. ppes, hose, or
other conveyors eadng to or from the tanks must be so connected and arranged
as to be pany vsbe to e amnng offcers.
SI N.
Par. 5. There must be paced over the entrance door to the vermouth de-
partment a sgn bearng the words ermouth Dept., In pan, egbe etters,
not ess than 3 nches n heght
D SCRIPTION ON PPLIC TION, ORM C98, ND PL N.
Par. 6. The vermouth department and equpment thereof must be accuratey
descrbed n the wnery appcaton, orm 698, and depcted on the wnery
pan. The descrpton must Incude the ocaton and sze of the budngs and
rooms, the materas of whch constructed, the ocaton of a wndows, doors,
or other openngs and the manner of securng the same, and the sera number
and capacty of each tank, or other receptace of a permanent nature, and the
purpose for whch used. arres and smar contaners used temporary as
processng receptaces or storage contaners need not be descrbed on orm
698 or the wnery pan, but wrtten report thereof, n trpcate, w be made
to the dstrct supervsor. Where matera changes are made n the processng
or storage factes, such as the remova or addton of tanks, report thereof
w be made to the dstrct supervsor, n trpcate, as In the ease of such
changes n wne manufacturng equpment.
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496
US O RMOUT D P RTM NT.
Par. 7. The vermouth department must be used e cusvey for the manufac-
ture and storage of vermouth and for the storage of bottes, packages, nd
suppes necessary or Incdenta to the manufacture of vermouth. herbs
and roots used n the manufacture of vermouth must be stored n the vermouth
department. The vermouth department may not be used for the storage of
wne. fortfed sweet wne transferred to that department must be mmed-
atey used n the manufacture of vermouth.
ORMUL S ND PROC SS S.
Par. 8. very wnemaker desrng to estabsh a vermouth department n
connecton wth hs wnery sha fe wth the dstrct supervsor a statement
In deta of each process by whch he ntends to manufacture vermouth, n-
cudng the formuas. The formuas must show a the ngredents composng
the same, but the quantty or percentage of each ngredent used need not be
gven. It w not be necessary to submt a new formua where the quantty
or percentage of each ngredent s vared from tme to tme. Where the n-
gredents composng the formua are changed, however, a new formua must be
submtted. ach formua w show the percentage of acoho by voume n the
fnshed product ormuas w be numbered seray, and prepared n trp-
cate. The wnemaker w retan one copy of each statement of process and
formua accessbe for nspecton by Government offcers, and forward two copes
to the dstrct supervsor. The dstrct supervsor w retan one copy and
forward the other to the Commssoner. No wnemaker may manufacture
any vermouth not covered by a formua fed by hm wth the dstrct supervsor.
Par. 9. No wne other than fortfed sweet wne may be used n the manu-
facture of vermout on a bonded wnery premses. No dsted sprts may bo
added to the fortfed sweet wne used n the manufacture of vermouth on
such premses or to the vermouth durng or after ts manufacture. No aco-
hoc e tract, e ceptng such as may be made by maceratng herbs and other
nonacohoc favorng materas wth fortfed sweet wne n the vermouth
department, may be used In the manufacture of vermouth In such department
Such vermout may, however, In accordance wth aw, after ta -payment and
remova from the wnery, be used wth dsted sprts n the manufacture of
other compound quors, such as queurs, cordas, and smar compounds.
DDITION O RMOUT D P RTM NT TO ISTING WIN RY.
Par. 10. The propretor of an e stng wnery desrng to add a vermouth de-
partment to hs bonded premses sha fe appcaton therefor on orm 698 wth
the dstrct supervsor. The appcaton must be accompaned by a new pan
or suppementa pan, showng the addton of the vermouth department and
equpment as ndcated n paragraph 6, and a new bond on orm 700- or
proper consent of surety ( orm 1533) e tendng the terms of e stng bond
or bonds of the pror seres ( orm 699 or 700) prescrbed for use by wne-
makers. The bond must bo In a suffcent pena sum, computed as requred by
Treasury Decson 4693 page 506, ths uetn , reatng to wnery bonds,
and must otherwse compy wth the requrements of the sad Treasury dec-
son. The appcaton. orm 698, the pan or suppementa pan, and the bond
or consent of surety must be furnshed n trpcate.
Par. 11. Upon recept of the appcaton and supportng documents, the
dstrct supervsor w make a thorough nspecton of the premses to deter-
mne whether the constructon and equpment meet the requrements of the
reguatons, and whether the premses and equpment are correcty descrbed
and depcted n the appcaton and pan. If the appcaton and pan, and the
premses and equpment are found to be n proper order, and f a proper bond
or consent of surety has been fed, the dstrct supervsor w approve the
appcaton, bond, or consent of surety, and the pan, retan one copy of each,
forward one copy of each to the Commssoner, and return the remanng copy
of each to the propretor to be kept at the wnery ready accessbe to Gov-
ernment offcers.
Par. 12. No wne may be transferred to the vermouth department, and no
vermouth may be manufactured, unt the appcaton, orm 60S, and support-
ng documents have been approved by the dstrct supervsor.
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497
Mso.
R MO L O RMOUT .
Par. 13. Upon remova from the vermouth department, the vermouth must
be ta -pad at the rates provded by aw, uness t s transferred to another
department of the bonded wnery where produced, or uness t s wthdrawn
for shpment n bond to other bonded wneres or bonded storerooms or for
ta -free purposes.
Par. 14. The provsons of reguatons now n force and effect, or hereafter
promugated, respectng -
(a) The sze and knd of contaners n whch wnes may be removed from
a bonded wnery or storeroom
(6) The markngs to be paced upon contaners of wnes upon remova from
a bonded wnery or storeroom
(c) The determnaton of the acohoc content of wnes upon remova from
a bonded wnery or storeroom
(tf) The aff ng of wne stamps to contaners of wnes, and the canceaton
of such stamps
(e) The ta -payment of wnes shpped n tanks and tank cars
(f) The destructon of the stamps, certfcates of ta -payment, and marks
and brands upon emptyng contaners of wnes
(g) The destructon of spoed wnes wthout payment of ta
(ft) The storage of ta -pad wnes and
() The return of ta -pad wnes n stamped contaners to the bonded
premses for fterng, carfyng, or purfyng
sha, uness otherwse e pressy provded, appy wth ke force and effect to
vermouth manufactured wth fortfed sweet wne n the vermouth department
of a bonded wnery.
Par. 15. Packages and cases of vermouth sha be seray numbered n the
same seres used n numberng packages and cases of wne. The packages
and cases sha be numbered n sequence upon remova, e cept that where
packages or cases are fed for shpment n advance of orders, they may be
numbered at the tme of fng and need not be removed n sera order.
R T O T ON RMOUT .
Par. 10. Secton 611 of the Revenue ct of 1918, as amended by secton
819(c) of the Lquor Ta dmnstraton ct, provdes that there sha be
eved, coected, and pad, ta at the foowng rates on vermouth, when sod
or removed for consumpton or sae:
On vermouth contanng not more than 14 per cent of absoute acoho, 5 cents
per wne gaon, the per centum of acoho under ths secton to be reckoned
by voume and not by weght
On vermouth contanng more than 14 per cent and not e ceedng 21 per cent
of absoute acoho, 10 cents per wne gaon
On vermouth contanng more than 21 per cent and not e ceedng 24 per
cent of absoute acoho, 20 cents per wne gaon
vermouth contanng more than 24 per cent of absoute acoho by voume
sha be cassed as dsted sprts and sha be ta ed accordngy.
TR NS R TO OT R D P RTM NT O S M WIN RY.
Par. 17. When the manufacture of vermouth has been competed In the
vermouth department, the fnshed product may be transferred to another
department of the same bonded wnery premses for storage theren. er-
mouth so transferred may be botted wth the equpment used for the bottng
of wnes, but the bottng of vermouth must be conducted separatey from
the bottng of wnes. ermouth transferred from the vermouth department
to another department of the wnery must, at a tmes, be kept separate and
apart from wnes stored n such other department. When vermouth s so trans-
ferred, no entry thereof w be made n orm 702- , provded for n paragraph
23, for such record w cover a vermouth possessed on the bonded premses.
S IPM NT O RMOUT IN OND TO OT R OND D PR MIS S.
Par. 18. The provsons of reguatons now n force and effect, or hereafter
promugated, respectng the transfer and shpment of st wne n bond from
the bonded wnery where produced to other bonded wneres and storcroona
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498
sha, uness otherwse e pressy provded, appy wth ke force and effect
to ssue transfer and shpment of vermouth, e cept that entry of the shpment
and recept of vermouth sha be made by the wnemaker on orm 702-
Instead of orm 702, and that orm 703 sha be checked by the dstrct
supervsor wth orm 702- nstead of orm 702. ermouth so transferred
to other bonded premses must, at a tmes, be kept separate and apart from
wnes stored on such bonded premses.
PORT TION O RMOUT R O T .
Par. 19. ermouth produced In the vermouth department of a bonded wnery
may be e ported free of ta . Such vermouth may be so e ported, pursuant
to appcaton and entry on orm 711 and bond on orm 186, n accordance
wt hthc procedure prescrbed by Treasury Decson 4670 page 524, ths ue-
tn , respectng the e portaton of domestc wnes free of ta , the provsons of
whch Treasury decson are hereby e tended and made appcabe to the
e portaton of vermouth free of ta : Provded, That pendng the revson of
orm 180, the terms of any bond furnshed on such form sha be e tended
by consent of surety ( orm 1633) to cover the e portaton of vermouth, free
of ta , from a bonded wnery or bonded storeroom, before t may be accepted
for that purpose.
LOSS S.
Par. 20. The provsons of paragraphs 131 to 144, Incusve, of Reguatons
7, respectng osses of wnes at bonded wneres and bonded storerooms, are
hereby e tended and made appcabe to osses of vermouth at bonded wneres
and bonded storerooms, provded that
(a) Losses of vermouth sha be determned separatey from osses of wnes
(b) Where the osses at a bonded wnery durng any fsca year e ceed 3
per cent of the aggregate quantty of vermouth on hand at the begnnng of
the fsca year and receved n bond durng the fsca year, and 6 per cent of the
quantty of vermouth produced durng the fsca year, t sha be necessary for
the wnemaker to fe an appcaton for remsson of the ta on the entre oss
(c) Credt for osses of vermouth sha be camed In the vermouth record
and report, orm 702-
(d) Items of osses of vermouth sha be carred by dstrct supervsors In
bonded account, orm 733, prepared as requred In paragraph 29.
(e) Where osses of wne transferred to the vermouth department appear
to be e cessve and where the oss of wne In process of manufacture of
vermouth appears to be e cessve, dstrct supervsors w make such In-
vestgaton or requre such evdence to be submtted as may be deemed neces-
sary and w advse the Commssoner of ther fndngs and recommendatons
reatve to aowance or dsaowance of the oss.
SP CI L T S.
Par. 21. Secton 605 of the Revenue ct of 1918, as amended, provdes that
the manufacture of vermouth wth fortfed sweet wne on bonded wnery
premses sha not be deemed to be rectfcaton wthn the meanng of secton
8244, R. S., If dsted sprts are not added to the fortfed sweet wne nsed
In the manufacture thereof or to such vermouth durng or after Its manufac-
ture. No speca ta as a rectfer s, therefore, requred to be pad on account
of such manufacture of vermouth on bonded wnery premses.
Par. 22. Under secton 3246, R. S., as amended, wncmakers who have qua-
fed as such under the nterna revenue aws and reguatons, and who se
wnes of ther own producton where the same are made or at the genera
busness offce of such wnemaker, are e empt from the speca ta es mposed
upon whoesae and reta deaers n quors or wnes. Ths e empton from
speca ta es s appcabe to wnemakers who se vermouth of ther own
producton to the same e tent that t s appcabe to wnemakers who se
wne of ther own producton.
records and reports.
Par. 23. The propretor of every bonded wnery manufacturng vermouth,
and the propretor of every bonded wnery or bonded storeroom recevng,
storng, or dsposng of vermouth, sha keep a record n trpcate on orm
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499
Msc.
702 of transactons n vermouth. Propretors of wneres manufacturng
vermouth sha aso keep on such form a record of a wnes and other materas
receved and used n the manufacture of vermouth. of the nformaton
appcabe n the partcuar case, caed for n orm 702- , as ndcated by
the headngs of the coumns and nes of the form and the nstructons prnted
thereon, w be reported. The requrements of the form are hereby made a
part of these reguatons. The entres n such record must be made durng the
day on whch the transactons occur, a entres to be competed not ater than
the cose of busness each day.
Pab. 24. fractona parts of a gaon sha be stated on orm 702- n
decmas. or e ampe, one-haf gaon sha be stated as .50 gaon and not
gaon. ractona parts of a gaon ess than one-hundredth w be
e cuded. Thus, 40.079 gaons w be stated 40.07 gaons.
Pab. 25. orm 702- must be subscrbed and sworn to by the propretor or
hs duy authorzed agent at the wnery or storeroom. Where the report s
sgned by an agent, the agent must have persona knowedge of the wnery or
storeroom operatons, and proper power of attorney authorzng the agent to
e ecute the report must be fed n dupcate wth the dstrct supervsor, who
w forward one copy to the Commssoner. Ieports sgned by agents wth-
out persona knowedge of the operatons reported or by unauthorzed partes
can not be accepted.
Pah. 26. One copy of orm 702- w be retaned at the wnery by the
propretor as a permanent record, sub|ect to nspecton by Government offcers
at any reasonabe hour. On or before the 5th day of the month foowng
that to whch the report reates, the propretor w forward two copes of the
form to the dstrct supervsor, together wth hs reports coverng transactons
In wnes. The dstrct supervsor w retan one copy of orm 702- and
forward the other to the Commssoner at the tme hs monthy wnery accounts
are forwarded.
Par. 27. Report on orm 702- w be rendered for each month or part of
month durng whch the wnemaker s quafed to operate the vermouth
department. Reports for months durng whch there are no transactons w
be marked No transactons. Upon dscontnuance of the vermouth depart-
ment the ast report w be marked na. Propretors of bonded wneres
not quafed to manufacture vermouth and propretors of bonded storerooms
w render report on orm 702- ony for months durng whch vermouth
s receved or dsposed of or s on hand at any tme durng the month.
Pab. 28. shpments of fortfed sweet wne receved n bond, whether
or not ntended for mmedate use n the manufacture of vermouth, must be
entered on orm 702. Pendng the revson of orm 702 the quantty of
fortfed sweet wne transferred- to the vermouth department of a wnery
w be reported as a speca credt entry In the summary of orm 702, as
Transferred to vermouth department. Stamps purchased and used for
ta -payng vermout sha be accounted for on orm 702 n the same manner
as stamps purchased and used for ta -payng wnes.
DISTRICT SUP R ISOR S CCOUNTS.
Par. 29. Pendng the prntng of a separate form for the purpose, dstrct
pupervsors w render monthy accounts of transactons n vermouth at:
bonded wneres and bonded storerooms on orm 733, dentfed by notng at
the top of the frst page the words, ermouth account, n whch they w
make necessary changes n headngs of coumns of the form and statements
n the summary. ermouth accounts w be prepared In dupcate for each
State wthn the supervsory dstrct. One copy w be retaned by the
dstrct supervsor and the other w be forwarded to the Commssoner wth
the other monthy accounts requred for bonded wneres and storerooms.
Gut T. f.ver g,
Commssoner of Interna Revenue.
pproved ugust 21, 1936.
Watne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 1, 1936, 10 a. n.)
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Mso.
500
-49-8424
w . , T.D. 4717
Markng of vermouth tanks.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton,, D. C.
To Dstrct Supervsors and Others Concerned:
Paragraph 2 of Treasury Decson 4694 page 494, ths uetn s
amended to read as foows:
The vermouth department must be provded wth sutabe factes for the
manufacture of vermouth. There must be Instaed In such department one or
more sutabe tanks, wthn whch a the vermouth produced must be manu-
factured. ach tank n the vermouth department must have panted thereon
a permanent sera number and ts capacty In wne gaons, and each process-
ng tank must aso have panted thereon or securey attached thereto a tabe
showng the capacty of the tank for each nch of depth. There must aso be
attached to each copy of orm 698 a tabe for each processng tank, showng
sera number thereof, and where practcabe the Insde measurements of the
tank, together wth the capacty for each nch of depth. Sera numbers on
storage tanks w be preceded by the etter S. The sera numbers on proc-
essng tanks and bottng tanks w be preceded by the words Processng
Tank and ottng Tank, respectvey. Where barres are used as process-
ng receptaces they sha have panted thereon the capacty In wne gaons,
and a permanent sera number preceded by the words, Processng Receptace.
Where barres are used as storage contaners and w be used as shppng
contaners upon remova of the vermouth, they need not have panted on them
a permanent sera number but the capacty In wne gaons must be pany
marked on each barre.
Gut T. everng,
Commssoner of Interna Revenue.
pproved November 25, 1936.
Wayne C. Tatob,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 30, 1936, 2.45 p. m.)
Sectons 323 and 324. -35-8272
T. D.4681
Lquor deaers Speca ta es.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Sectons 323 and 324 of the Lquor Ta dmnstraton ct (Pub-
c, No. 815, Seventy-fourth Congress) provde as foows:
Skc. 323. Paragraph ourth of secton 3244 of the Revsed Statutes, as
amended (U. S. C, 1934 ed., tte 26, secton 1394 (a) and (b)(1), and secton
1398 (a) and (b)), Is amended to read as foows:
ourth, (a) Reta deaers n quors sha pay a speca ta of 25.
very person who ses, or offers for sae, foregn or domestc dsted sprts,
wnes, or mat quors, otherwse than as herenafter provded, n ess quant-
tes than fve wne-gaons to the same person at the same tme, sha be re-
garded as a reta deaer In quors: Provded, That the Commssoner of In-
terna Revenue may, by reguatons, wth the approva of the Secretary of the
Treasury, provde for the ssuance of a stamp denotng payment of such speca
ta as a reta deaer In wnes or a reta deaer n wnes and mat quors
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501
Msc.
f, as the case may be, wnes ony, or wnes and mat quors ony, are sod by
a reta deaer n quors: nd provded further, That the ta requred to be
pad by ths paragraph sha, In case of a reta drug store or pharmacy makng
saes of quors through a duy censed pharmacst, be desgnated as a medc-
na sprts stamp ta : nd provded further, That any reta deaer n quors
or reta deaer In mat quors whose busness s such as to requre hm to
trave from pace to pace In dfferent States of the Unted States may, under
reguatons prescrbed by the Commssoner of Interna Revenue, wth the ap-
prova of the Secretary of the Treasury, procure a speca-ta stamp t Large
coverng hs actvtes throughout the Unted States wth the payment of but
one speca ta as a reta deaer n quors or as a reta deaer n mat quors,
as the case may be.
(b) Whoesae deaers n quors sha pay a speca ta of 100. very
person who ses, or offers for sae, foregn or domestc dsted sprts, wnes,
or mat quors, otherwse than as herenafter provded, n quanttes of fve
wne-gaons or more to the same person at the same tme, sha be regarded
as a whoesae deaer n quors: Provded, That the Commssoner of Interna
Revenue may, by reguatons, wth the approva of the Secretary of the Treas-
ury, provde for the Issuance of a stamp denotng payment of such speca ta
as a whoesae deaer n wnes or a whoesae deaer In wnes and mat
quors If, as the case may be, wnes ony, o- wnes and mat quors ony, are
sod by a whoesae deaer In quors. quafed whoesae deaer n quors
may not se dsted sprts, wnes, or mat quors n quanttes of ess than
fve wne-gaons wthout ncurrng abty to speca ta as a reta deaer In
quors. quafed reta deaer In quors may not se such quors In quan-
ttes of fve wne-gaons or more to the same person at the same tme wthout
ncurrng abty to speca ta as a whoesae deaer In quors. ut no ds-
ter who has gven the requred bond and who ses ony dsted sprts of hs
own producton at the pace of manufacture, or at the pace of storage n bond,
In the orgna packages to whch the ta -pad stamps are aff ed, sha be re-
qured to pay the speca ta of a whoesae deaer In quors on account of
uch saes.
(c) No reta deaer In quors sha be hed to be a whoesae deaer n
quors soey by reason of saes of fve wne-gaons or more to the same
person at the same tme f such saes are for mmedate consumpton on the
premses where sod.
(d) No whoesae or reta deaer In quors who has pad the speca ta
as such a deaer sha agan be requred to pay speca ta as such deaer on
account of saes of beer, ager beer, ae, portet, or other smar fermented
mat quor to whoesae or reta deaers n quors or whoesae or reta
deaers n mat quors consummated at the purchaser s pace of busness
covered by the stamp Issued to hm to denote the payment of the speca ta
mposed upon such deaers.
Sua 324. Paragraph fth of secton 3244 of the Revsed Statutes, as
amended (U. S. C, 1834 ed., tte 26, sectons 1394(d), 1934 (e) (1) and (2).
135)6, and 1398 (d) and (e)), s amended to read as foows:
fth, (a) Reta deaers In mat quors sha pay a speca ta of 20.
very person who ses, or offers for sae, mat quors n ess quanttes than
fve gaons to the same person at the same tme, and does not dea In dsted
sprts or wnes, sha be regarded as a reta deaer n mat quors.
(b) Whoesae deaers n mat quors sha pay a speca ta of 50. very
person who ses, or offers for sae, mat quors n quanttes of fve gaons
or more, to the same person at the same tme, and who does not dea n dsted
sprts or wnes at whoesae, sha be regarded as a whoesae deaer n mat
quors. quafed whoesae deaer In mat quors may not se such quors
n quanttes of ess than fve gaons wthout ncurrng abty to speca ta
as a reta deaer n mat quors. quafed reta deaer n mat quors
may not se such quors In quanttes of fve gaons or more to the same person
at the same tme wthout ncurrng abty to speca ta as a whoesae
deaer n mat quors: Provded, That no brewer sha be obged to pay speca
ta as a deaer by reason of seng In the orgna stamped hogsheads, barres,
or kegs, whether at the pace of manufacture or esewhere, mat quors manu-
factured by hm or purchased and procured by hm n hs own hogsheads,
barres, or kegs, under the provsons of secton 3349 of the Revsed Statutes,
as amended, but the quantty of mat quors so purchased sha be Incuded
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Msc.
502
In cacuatng the abty to brewers speca ta of both the brewer who
manufactures and ses the same and the brewer who purchases the same.
(c) No coecton of speca ta as a reta deaer n mat quors sha be
made from brewers for seng mat quors of ther own manufacture n the
orgna stamped eghth-barre packages.
(d) No speca ta sha be hed to accrue on a sae of dsted sprts,
wnes, or mat quors made by a person who Is not otherwse a deaer n
quors, where such sprts, wnes, or quors have been receved by the person
so seng as securty for or In payment of a debt, or as e ecutor, admnstrator,
or other fducary, or have been eved on by any offcer, under order or process
of any court or magstrate, and where such sprts are sod by such person In
one parce ony, or at pubc aucton n parces not ess than 20 wne-gaons,
nor sha such ta be hed to accrue on a sae made by a retrng partner, or
the representatves of a deceased partner to the ncomng, remanng, or survv-
ng partner or partners of a frm. Nor sha the speca ta of a whoesae
deaer In quors or whoesae deaer n mat quors be hed to appy to a
reta deaer In quors or a reta deaer In mat quors, because of such reta
deaer seng out hs entre stock of quors In one parce, or n parces embrac-
ng not ess than hs entre stock of dsted sprts, of wnes, or of mat quors.
Secton 3319 of the Revsed Statutes sha not be hed to prohbt a rectfer
or quor deaer from purchasng, n quanttes greater than 20 wne-gaons, the
dsted sprts sod n one parce as aforesad.
(e) No reta deaer n mat quors sha be hed to be a whoesae deaer
In mat quors soey by reason of saes of fve gaons or more to the same
person at the same tme f such saes are for mmedate consumpton on the
premses where sod.
(f) No whoesae or reta deaer In mat quors who has pad the speca
ta as such a deaer sha agan be requred to pay speca ta as such deaer
on account of saes of beer, ager beer, ae, porter, or other smar fermented
mat quor to whoesae or reta deaers n quors or whoesae or reta
deaers In mat quors consummated at the purchaser s pace of busness covered
by the stamp Issued to hm to denote the payment of the speca ta Imposed
upon such deaers.
(g) Notwthstandng the foregong provsons of ths secton, each person
makng saes of fermented mat quor to the members, guests, or patrons of
bonn-fde fars, reunons, pcncs, carnvas, or other smar outngs, and each
fraterna, cvc, church, abor, chartabe, benevoent, or e -servce men s organ-
saton makng saes of fermented mat quor on the occason of any knd of
entertanment, dance, pcnc, bazaar, or festva, hed by t, If 6uch psrson or
organzaton Is not otherwse engaged In busness as a deaer n mat quors,
Sha pay, before any such saes are made and n eu of the speca ta mposed
by subdvson (a) of ths paragraph, a speca ta of 2 as a reta deaer n
mat quors, for each caendar month n whch any such saes are made.
In accordance wth the provsons of sectons 323 and 324 of the
Lquor Ta dmnstraton ct, the foowng reguatons are pre-
scrbed :
1. Persons who dea In whoesae or reta quanttes, as defned by the
statute, of wnes ony, or wnes and mat quors ony, may procure speca-
ta stamps as whoesae or reta deaer In wnes, or whoesae or reta deaer
In wnes and mat quors, as the case may be.
2. reta drug store or pharmacy makng saes of quors through a duy
censed pharmacst, sha procure a speca-ta stamp desgnated, Medcna
sprts stamp ta , or a speca-ta stamp as reta quor deaer.
8. (a) reta quor deaer or reta deaer n mat quors whose busness
Is transent and s such as to requre hm to move hs pace of busness from
pace to pace n dfferent States of the Unted States may procure a speca-
ta stamp t Large coverng hs actvtes throughout the Unted States
wth the payment of but one speca ta as a reta quor deaer or as a reta
deaer n mat quors, as the case may be.
(6) reta quor deaer or reta deaer In mat quors who desres a
speca-ta stamp t Large w so note on orm 11 fed wth the coector
of Interna revenue to whom the speca ta Is pad, and w state thereon
the nature of hs busness. efore ssung a speca-ta stamp t Large, the
coector w satsfy hmsef that the appcant Is entted to obtan a stamp
so desgnated.
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503
Mso.
(c) ny person hodng a speca-ta stamp as a reta quor deaer or a
reta deaer In mat quors t Large, must pace and keep te stamp con-
spcuousy posted at the pace where he s conductng such busness, or, f
he s conductng such busness at more than one pace on the same premses,
such as at stands wthn a baseba park or race track, then the speca-ta
stamp must be posted at one of such paces.
(d) reta quor deaer or reta deaer In mat quor, hodng a speca-
ta stamp marked t Large by a coector, s not requred to regster wth
any coector a change of ocaton of hs pace of busness.
4. reta quor deaer sha not be requred to pay speca ta as whoe-
sae quor deaer by reason of makng saes of quors u quanttes of ve
wne gaons or more to the same person at the same tme f such saes are
for mmedate consumpton on the premses where sod.
5. reta deaer n mat quors sha not be requred to pay speca ta
as whoesae deaer In mat quors by reason of makng saes of mat quors
In quanttes of fve gaons or more to the same person at the same tme
f such saes are for mmedate consumpton on the premses where sod.
6. Whoesae and reta deaers n quors, and whoesae and reta deaers
n mat quors, who have pad speca ta as such, may, wthout Incurrng
abty for addtona speca ta , se beer, ae, porter, or other smar
fermented mat quors, to whoesae and reta deaers n q ors and whoe-
sae and reta deaers n mat quors, at the purchaser s pace of busness
covered by approprate speca-ta stamp.
7. (a) Persons desrng to se fermented mat quors at reta to members,
guests, or patrons of bona fde fars, reunons, pcncs, carnvas, or other
smar outngs, and each fraterna, cvc, church, abor, chartabe, benevoent,
or e -servce men s organzaton makng saes of fermented mat quor on
the occason of any knd of entertanment, dance, pcnc, bazaar, or festva,
hed by t, may obtan a reta deaer n mat quor mted speca-ta stamp
from the coector of nterna revenue for each caendar month n whch any
such saes are made.
(6) ppcaton sha be made on orm 11 and payment of 2 made to the
coector before any such saes are made.
(c) No person or organzaton otherwse engaged In busness as a deaer n
mat quors w be permtted to procure a mted speca-ta stamp as reta
deaer In mat quor.
Guy T. evernq,
Commssoner of Interna Revenue.
pproved ugust 21, 193G.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 25, 1938, 12.39 p. m.)
Secton 326. -35-8277
T. D. 4686
Cams on account of spoed and useess quor botte strp stamps.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Secton 326 of the Lquor Ta dmnstraton ct (Pubc, No.
815, Seventy-fourth Congress) provdes as foows:
Sec. 326. Secton 203 of the Lquor Ta ng ct of 1934 s amended by addng
a new paragraph at the end thereof, as foows:
The Commssoner of Interna Revenue, under reguatons approved by the
Secretary of the Treasury, may Issue new stamps n e change for any unused
stamps ssued under ths ct that have been spoed by fre or water, or ren-
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504
dered useess by erroneous overprntng or cuttng or may refund the vane
of any unused stamps for whch the awfu owner has no use due to the
dscontnuance or transfer of hs busness: Provded, That stamps may be
e changed, or the vaue thereof refunded, ony n quanttes of the vaue of
5 or more: nd provded further. That no cam for the e change of such
stamps or refund therefor sha be aowed uness presented wthn one year
after the date on whch such stumps were purchased, or, n the case of any
such stamps so spoed or rendered useess or for whch the awfu owner had
no use due to the dscontnuance or transfer of hs busness pror to the date
of the enactment of the Lquor Ta dmnstraton ct, wthn one year after
such date. There are hereby authorzed to be approprated annuay, out of
any money n the Treasury not otherwse approprated, such sums as may be
necessary to carry out the provsons of ths paragraph.
Pursuant to ths provson of the statute, the foowng reguatons
are prescrbed:
1. When stamps ssued under Tte II of the Lquor Ta ng ct of 1934
have been spoed by tre or water, or rendered useess by erroneous over-
prntng or cuttng, the awfu owner may obtan new stamps n e change
therefor, but may not obtan a refund of the purchase prce. The awfu
owner of stamps, who has no use therefor due to the dscontnuance or trans-
fer of hs busness, may obtan a refund of the vaue of such unused stamps.
2. Cam under secton 326 of the Lquor Ta dmnstraton ct for e -
change of stamps, or for refund for unused stamps, must be fed by the pur-
chaser of the stamps wth the coector of nterna revenue of the dstrct
where the stamps were purchased.
3. Statements n support of the cam must be n affdavt form. Uness
aready submtted to the coector or supervsor, the stamps on account of
whch cam s made must accompany the cam.
4. If the stamps are spoed by fre or water, or rendered useess by erroneous
overprntng or cuttng, evdence to that effect must be submtted wth the
cam for e change for new stamps.
5. When refund s camed for the reason that the awfu owner has no use
for the stamps due to the dscontnuance or transfer of hs busness, the
camant must submt evdence of that fact wth hs cam.
6. No cam w be aowed for stamps n quanttes of the vaue of ess
than 5.
7. Cams must be fed wthn one year after the date on whch the stamps
were purchased: Provded, That f, pror to the date of enactment of the Lquor
Ta dmnstraton ct, the stamps were spoed by fre or water, or were
rendered useess by erroneous overprntng or cuttng, or were of no further
use to the awfu owner due to the dscontnuance or transfer of hs busness,
cams must be fed wthn one year after such date.
Guy T. everng.
Commssoner of Interna Revenue.
pproved ugust 21, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 27, 1936, 11.23 a. m.)
Secton 329. -35-S275
T. D. 4684
Use of ta -free acoho by cncs.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
The thrd and fourth paragraphs of secton 11 of Tte III of the
Natona Prohbton ct (U. S. C, 1934 ed., tte 27, secton 81), as
amended by secton 18 of the Lquor Law Repea and nforcement
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505
Msc.
ct (Pubc, No. 347, Seventy-fourth Congress), approved ugust
27, 1935, read as foows:
coho may be wthdrawn, under reguatons, from any ndustra pant
or bonded warehouse ta free by the Unted States or any governmenta agency
thereof, or by the severa States and Terrtores or any muncpa subdvson
thereof or by the Dstrct of Coumba, or for the use of any scentfc unver-
sty or coege of earnng, any aboratory for use e cusvey n scentfc
research, or for use In any hospta or santarum.
ut any person permtted to obtan acoho ta free, e cept the Unted
States and the severa States and Terrtores and subdvsons thereof, and the
Dstrct of Coumba, sha frst appy for and secure a permt to purchase
the same and gve the bonds prescrbed under secton 6 of the Lquor Law
Repea and nforcement ct, but acoho wthdrawn for nonbeverage purposes
for use of the Unted States and the severa States, Terrtores and sub-
dvsons thereof, and the Dstrct of Coumba may be purchased and wth-
drawn sub|ect ony to such reguatons as may be prescrbed.
Secton 329(b) of the Lquor Ta dmnstraton ct (Pubc,
No. 815, Seventy-fourth Congress), approved une 26, 1936, reads as
foows:
(b) The thrd paragraph of secton 11 of Tte III of the Natona Prohbton
ct, as amended and suppemented, s amended by nsertng after the word
sanatorum a comma and the foowng: or for the use of any cnc op-
erated for charty and not for proft, ncudng use In the compoundng of
bona fde medcnes for treatment outsde of such cncs of patents thereof,
but not for sae.
In vew of such amendment of the thrd and fourth paragraphs
of secton 11 of Tte III of the Natona Prohbton ct, the pro-
vsons of artce 79, artce 80 as amended by Treasury Decson
27 Prohbton | artces 81, 82, and 83, and artce 87 as amended
by Treasury Decson 24 Prohbton , of Reguatons 3, are hereby
made appcabe to cncs operated for charty and hot for proft,
to the same e tent that they are appcabe to hosptas or sana-
torums, and artces 77, 78, and 86 are amended to read as foows:
et. 77. Secton 11 of Tte III of the Natona Prohbton ct, as amended,
provdes as foows:
coho may be wthdrawn, under reguatons, from any ndustra pant
or bonded warehouse ta free by the Unted States or any governmenta
agency thereof, or by the severa States and Terrtores, or any muncpa
subdvson thereof, or by the Dstrct of Coumba, or for the use of any
scentfc unversty or coege of earnng, any aboratory for use e cusvey
n scentfc research, or for use n any hospta or sanatorum, or for the use
of any cnc operated for charty and not for proft, ncudng use In the com-
poundng of bona fde medcnes for treatment outsde of such cncs of
patents thereof, but not for sae.
ut any person permtted to obtan acoho ta free, e cept the Unted
States and the severa States and Terrtores and subdvsons thereof, and
the Dstrct of Coumba, sha frst appy for and secure a permt to purchase
the same and gve the bonds prescrbed under secton 6 of the Lquor Law
Repea and nforcement ct, but acoho wthdrawn for nonbeverage purposes
for use of the Unted States and the severa States, Terrtores, and subdvsons
thereof, and the Dstrct of Coumba, may be purchased and wthdrawn sub|ect
ony to such reguatons as may be prescrbed.
et. 78. Under the provsons of aw above referred to, the prvege of wth-
drawng acoho n bond, free of ta , s hed to appy to a scentfc unverstes
ncorporated or organzed under any ederaM, State, or Terrtora aw, or
any coeges of earnng whch have a recognzed currcuum and confer degrees
after specfed perods of attendance at casses or research work, upon proper
showng of the facts, any aboratory for use e cusvey n scentfc research,
or to any permanenty estabshed hospta or sanatorum n good standng,
121397 37 -17
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Msc.
506
whether operated for proft or not, or any bona fde cnc n good standng,
operated for charty and not for proft.
ny other coeges of earnng than those above referred to desrng to wth-
draw acoho free of ta sha be permtted to do so ony after the Commssoner
s satsfed from evdence submtted to hm that such nsttutons are entted
to the prvege under the aw governng free wthdrawas.
bt. 86. Ta -free acoho wthdrawn under the foregong provsons of aw
and reguatons for use of the Unted States must be used soey for non-
beverage purposes. Such acoho, when wthdrawn by States and Terrtores,
or any muncpa subdvson thereof, or the Dstrct of Coumba, must be used
soey for mechanca and scentfc purposes, or for hosptas or cncs as
hereafter specfed, and such use, or the use of any resutng product, must
be confned to premses under the contro of the State or Terrtory, or muncpa
subdvson thereof, or the Dstrct of Coumba, e cept that bona fde medcnes
compounded wth such acoho wthdrawn for the use of cncs operated for
charty and not for proft, may be used outsde of such cncs for treatment of
the patents thereof, but such medcnes may not be sod.
Ta -free acoho wthdrawn by hosptas or sanatorums, or by cncs operated
for charty and not for proft, may be used ony for medcna, mechanca,
and scentfc purposes and n the treatment of patents. Scentfc unverstes
or coeges of earnng sha use such acoho ony for scentfc, mechanca,
and medcna purposes, and any aboratory wthdrawng acoho free of ta
must use the same e cusvey In scentfc research. The nse of the acoho
and resutng products sha be confned strcty to the premses of the
nsttuton wthdrawng the acoho, e cept that bona fde medcnes com-
pounded wth acoho wthdrawn by cncs operated for charty and not for
proft, may be used outsde of such cncs for treatment of the patents thereof,
but such medcnes may not be sod.
In no case sha acoho wthdrawn ta -free be used n the preparaton of
food products for use n any manner, and under no crcumstances sha such
acoho be used for beverage purposes or In any product whch may be so used.
Gut T. everng,
Commssoner of Interna Revenue.
pproved ugust 21, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 26, 1936, 11.21 a. m.)
Sectons 330, 331, 332, 333, 334. -36-8290
T. D. 4693
Wnemaker s bond, orm 700- , and reguatons reatng to
wnes and brandes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Sectons 330, 331, 332, 333, and 334 of the Lquor Ta dmns-
traton ct (Pubc, No. 815, Seventy-fourth Congress) provde
as foows:
Sec. 330. The ast paragraph of secton 610 of the Revenue ct of 1918,
as amended (U. S. C, 1934 ed., Supp. I, tte 26, secton 1310(d)), s amended
to read as foows:
The provsons of the nterna-revenue aws appcabe to natura wne
sha appy In the same manner and to the same e tent to ctrus-frut wnes,
peach wnes, cherry wnes, berry wnes, aprcot wnes, and appe wnes, whch
are the products, respectvey, of norma acohoc fermentaton of the |uce
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of sound rpe (1) ctrus-frut (e cept emons and mes), (2) peaches, (3)
cherres, (4) berres, (5) aprcots, or (0) appes, wth or wthout the add-
ton of dry cane, beet, or de trose sugar (contanng, respectvey, not ess than
95 per centum of actua sugar, cacuated on a dry bass) for the purpose
of perfectng the product accordng to standards, but wthout the addton
or abstracton of other substances, e cept as may occur n the usua cear
treatment of carfyng or agng.
Sec. 331. Secton 612 of the Revenue ct of 1918, as amended (U. S. C,
1934 ed., Supp. I, tte 20, secton 1301) Is amended to read as foows:
Se . 612. (a) Under such reguatons and offca supervson and upon
the gvng of such notces and entres as the Commssoner, wth the approva
of the Secretary, may prescrbe, any producer of wnes defned under the
provsons of ths tte may wthdraw from any frut dstery or Interna
revenue bonded warehouse grape brandy, or wne sprts, for the fortfcaton
of such wnes on the premses where actuay made, and any producer of
ctrus-frut wnes, peach wnes, cherry wnes, berry wnes, aprcot wnes, or
appe wnes may smary wthdraw ctrus-frut brandy, peach brandy, cherry
brandy, berry brandy, aprcot brandy, or appe brandy for the fortfcaton,
respectvey, of ctrus-frut wnes, peach wnes, cherry wnes, berry wnes,
aprcot wnes, or appe wnes, on the premses where actuay made: Provded,
That after the date of the enactment of the Lquor Ta dmnstraton ct
there sha be eved and assessed aganst the producer of such wnes or
ctrus-frut wnes, peach wnes, cherry wnes, berry wnes, aprcot wnes, or
appe wnes (In eu of the nterna-revenue ta now mposed thereon by
aw) a ta of 10 cents per proof gaon of grape brandy, ctrus-frut brandy,
peach brandy, cherry brandy, berry brandy, aprcot brandy, appe brandy, or
wne sprts, whenever wthdrawn and so used by hm after such date n the
fortfcaton of such wnes or ctrus-frut wnes or peach wnes, cherry wnes,
berry wnes, aprcot wnes, or appe wnes durng the precedng month, whch
assessment sha be pad by hm wthn 18 months from the date of notce
thereof: Provded, That every producer of wne who wthdraws such brandy,
ctrus-frut brandy, peach brandy, cherry brandy, berry brandy, aprcot
brandy, appe brandy, or wne sprts sha gve bond to fuy cover at a
tmes pror to payment of the assessment the amount of ta due on such
brandy, ctrus-frut brandy, peach brandy, cherry brandy, berry brandy, apr-
cot brandy, appe brandy, or wne sprts, whch bond sha be n such form
as the Commssoner of Interna Revenue, wth the approva of the Secretary
of the Treasury, sha, by reguatons, prescrbe. When such wnes are de-
stroyed or sod or removed for the manufacture of vnegar, or the producton
of deacohozed wnes contanng ess than one-haf of 1 per centum of acoho
by voume, the ta under ths secton on such grape brandy, ctrus-frut brandy,
peach brandy, cherry brandy, berry brandy, aprcot brandy, appe brandy, or
wne sprts sha, under such reguatons as the Secretary may prescrbe, be
abated .or refunded.
(b) Nothng contaned In ths secton sha be construed as e emptng any
wnes, ctrus-frut wnes, peach wnes, cherry wnes, berry wnes, aprcot
wnes, appe wnes, cordas, queurs, or smar compounds from the payment
of any ta provded for n ths tte.
(c) ny such wnes, or ctrus-frut wnes, or peach wnes, cherry wnes,
berry wnes, aprcot wnes, appe wnes, may, under such reguatons as the
Secretary may prescrbe, be sod or removed ta free for the manufacture of
vnegar, or for the producton of deacohozed wnes contanng ess than
one-haf of 1 per centum of acoho by voume.
(d) The ta es Imposed by ths secton sha not appy to deacohozed
wnes contanng ess than one-haf of 1 per centum of acoho by voume.
Sec. 332. Secton 42 of the ct entted n ct to reduce the revenue and
equaze dutes on mports, and for other purposes, approved October 1, 1890,
as amended (U. S. C, 1934 ed., Supp. I, tte 26, secton 1302), Is amended by
nsertng at the end thereof the foowng new paragraph:
The provsons of ths secton and secton 43 sha appy to the use of
peach brandy, cherry brandy, berry brandy, aprcot brandy, and appe brandy,
n the preparaton, respectvey, of fortfed peach wnes, cherry wnes, berry
wnes, aprcot wnes, and appe wnes, n the same manner and to the same
e tent as such provsons appy to the use of wne sprts n the fortfcaton
of sweet wnes e cept that (1) no brandy other than peach brandy may be
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508
used n the fortfcaton of peach wne and peneh brandy may not be used
for the fortfcaton of any wne other than peach wne, (2) no brandy other
than cherry brandy may be used n the fortfcaton of cherry wne and
cherry brandy may not be used for the fortfcaton of any wne other than
cherry wne, (3) no brandy other than berry brandy may be used n the fortf-
caton of berry wne and a berry brandy prepared from one knd of berry
may not be used for the fortfcaton of a berry wne prepared from another
knd of berry or for the fortfcaton of any wne other than berry wne,
(4) no brandy other than aprcot brandy may be used n the fortfcaton of
aprcot wne and aprcot brandy may not be used for the fortfcaton of any
wne other than aprcot wne, and (5) no brandy other than appe brandy
may be used n the fortfcaton of appe wne and appe brandy may not be
used for the fortfcaton of any wne other than appe wne.
Sec. 333. The frst provso of secton 3255 of the Revsed Statutes, as amended
(U. S. C, 1934 ed., Supp. I, tte 2G, secton 1176), s amended by Insertng after
ctrus-frut wne, wherever t appears, the words peach wne, cherry wne,
berry wne, aprcot wne, or appe wne and by nsertng after ctrus-frut
brandy the words , peach brandy, cherry brandy, berry brandy, aprcot
brandy, or appe brandy.
Sec. 334. Secton 618(b) of the Revenue ct of 1918 (U. S. C, 1934 ed., tte
26, secton 1304) s amended to read as foows:
(b) Under reguatons prescrbed by the Commssoner wth the approva
of the Secretary, t sha be awfu to produce grape wnes, ctrus-frut wnes,
peach wnes, cherry wnes, berry wnes, aprcot wnes, and appe wnes on
bonded wnery premses by the usua method, and to transport and use the same,
and ke wnes heretofore produced and now stored on bonded wnery premses,
as dstng matera In any frut-brandy dstery or ndustra-acoho pant.
Pursuant to such authorty conferred by the Lquor Ta d-
mnstraton ct, a new wnemaker s bond, orm 700- | and the
foowng reguatons reatve to wnes and brandes, ncudng
amendments of Reguatons No. 7, of May, 1930, reatve to the pro-
ducton, fortfcaton, ta payment, etc., of wne, are hereby pre-
scrbed :
Wne made from ctrus frut (e cept emons and mes), peaches, cherres,
berres, aprcots, or appes, wth or wthout the addton of dry cane, beet, or
de trose sugar (contanng, respectvey, not ess than 95 per cent of actua
sugar, cacuated on a dry bass) for the purpose of perfectng the product
accordng to standards, but wthout the addton or abstracton of other sub-
stances, e cept as may occur n the usua cear treatment of carfyng or
agng, may be produced under the reguatons appyng to grape wne. In the
fortfcaton of any of these frut or berry wnes, ony brandy produced from the
same knd of frut or berres from whch the wne s made may be used, e cept
that ta -pad gran or other ethy acoho may be used n the fortfcaton of
these wnes. Wnes produced from any of these fruts or berres may be
removed ta -free to a frut brandy dstery or ndustra acoho pant as ds-
tng matera n accordance wth the procedure prescrbed n Reguatons
No. 7.
Paragraphs 4, 297, and 298, of Reguatons No. 7, are amended to read as
foows:
Pab. 4. (a) cept as otherwse provded heren, propretors of bonded
wneres and bonded storerooms sha furnsh, n trpcate, a separate bond
( orm 700- ) wth surety or securty to cover each wnery or storeroom.
No wne may be produced or receved, and no brandy may be wthdrawn for
fortfcaton, unt proper bond s fed and the premses are approved by the
dstrct su |rvsor. onds on orm 700- w be n a pena sum suffcent:
rst. To cover the amount of the ta on a wne, ncudng vermouth,
champagne, sparkng wne and artfcay carbonated wne to be produced,
receved and possessed at the bonded wnery, receved and possessed at the
bonded storeroom, and n transt from such premses to other bonded premses
at any one tme
Second. To cover the amount of the ta at the dsted sprts rate on a
brandy to be wthdrawn for use In the fortfcaton of wne, In transt to,
and possessed at, the bonded wnery at any one tme and
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509
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Thrd. To fuy cover at a tmes pror to payment of the assessment the
amount of the fortfyng ta on a brandy so wthdrawn and used In the fort-
fcaton of wne:
Provded, That the pena sum of the bond sha not be ess than 500, nor
more than 50,000 for a snge wnery or storeroom: nd provded further, That
where the aggregate amount of the outstandng (unpad) assessments of the
fortfyng ta on brandy used n the fortfcaton of wne, e ceeds the pena sum
of the bond, the wnemaker sha fe an addtona bond wth surety or securty
n an amount suffcent to cover such e cess. Shoud the wnemaker negect
to fe the requste bond, the dstrct su ervsor w refuse to aow hm to
produce or receve wne or wthdraw brandy for fortfcaton unt the charges
aganst the outstandng bond are reduced suffcenty to permt such further
operatons. The fng of banket bonds by wnemakers s no onger permssbe.
(6) The dsted sprts ta , mposed by aw, on brandy wthdrawn for the
fortfcaton of wne sha not contnue to consttute a charge aganst the bond
after the use of such brandy n the fortfcaton of wne. owever, the bond
w reman abe for payment of the fortfyng ta , mposed by aw, on a
brandy used In the fortfcaton of wne. The coector of Interna revenue w
advse the dstrct supervsor when payment s made of assessments, both for
brandy fortfcaton ta and ta on brandy defcences n order that the dstrct
supervsor may have current nformaton concernng outstandng abty
aganst the wnemaker s bond.
(c) Wnemakers operatng bonded wneres under bonds, orm 700, e ecuted
wthout snrety and supported by consent of the surety on frut dster s annua
bond, orm 30 , must repace such bonds ( orm 700) by new bonds on orm
700- e ecuted wth surety or securty. Such new bonds must contan an effec-
tve date correspondng wth the date of approva of the Lquor Ta dmnstra-
ton ct, namey, une 26, 1936, but the bonds must aso show the current date
of ther e ecuton n the bank spaces provded therefor.
(d) The terms of a wnemakers effectve bonds, orm 699, must be e -
tended by consent of surety, orm 1533, to appy to, and be responsbe for, the
requrements of the Lquor Ta dmnstraton ct of une 26, 1936 (Pubc,
No. 815, Seventy-fourth Congress), reatng to wne, Incudng vermouth, cham-
pagne, sparkng wne and artfcay carbonated wne. Smary, the terms of
wnemakers bonds, orm 700, must be e tended by consents of surety, and,
where fortfed wne s produced under such bonds, the consent must contan
a statement that the bond ( orm 700) sha cover the wthdrawa, transporta-
ton, and storage of brandy, and the payment of ta thereon when used n the
fortfcaton of wnes. Such consents sha aso contan the undertakng that
the obgors agree to reman bound by the terms of the sad bond, as org-
nay wrtten for the perod pror hereto, and hereafter as hereby changed, to a
ntents and purposes as f a new bond wth such terms were ths day e ecuted.
(e) New bond on orm 700- need not be fed by wnemakers f satsfactory
bond n suffcent pena sum on orm 699 or 700 has aready been fed and
approved: Provded, The terms of such bonds are e tended by consent of surety,
orm 1533, as requred by these reguatons. If, however, a new bond on orm
700- s fed In eu of bond on orm 699 or 700 prevousy fed and approved,
such new bond may be accepted.
(f) In a cases where a wnemaker gves a strengthenng bond on orm
700- , the surety or suretes thereon must be the same as the surety or suretes
on the bond, or bonds, of that or any pror seres of bonds of the wnemaker
aready on fe otherwse a new bond ( orm 700- ) coverng the entre abty
w be requred. The fng of new or addtona bonds on orm 700 s
dscontnued.
(g) The provsons of Treasury Decson 4651 page 443, ths uetn (para-
graphs 49 to 72, Incusve), reatng to nterna revenue bonded warehouses,
approved une 27, 1936, so far as appcabe, are hereby e tended to the e ecu-
ton (ncudng the e ecuton by two or more corporate suretes), approva,
dsposton of bonds and consents of surety, reef of suretes, and reease as to
future abty of wnemakers bonds on orm 700- and to wnemakers bonds
of any pror seres.
Pab. 297 (a) Secton 612 of the Revenue ct of 1918, as amended, pro-
vdes that there sha be eved and assessed aganst the wnemaker a ta of
10 cents per proof gaon on brandy used n the fortfcaton of wne, and
such ta sha be pad wthn 18 months from the date of notce of the assess-
ment.
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510
(6) In order that deay In assessng the brandy fortfcaton ta may be
avoded, coectors of nterna revenue w advse dstrct supervsors of the
st, page, and ne mmedatey after an tem of brandy fortfcaton ta s
entered on the assessment st. Dstrct supervsors w note such st, page,
and ne on ther copy, and on the Commssoner s copy of Suppementa orm
257. If the dstrct supervsor has not receved such advce from the co-
ector of nterna revenue before the ast day of the month succeedng that
durng whch brandy was reported on orm 257 (Suppementa) as used n
fortfcaton, he w prompty make nqury of the coector of nterna revenue
n regard to the matter, and, f necessary, w suppy the coector of nterna
revenue wth copy of orm 257 (Suppementa) for use as the bass for enter-
ng ta for assessment. Where the coector of nterna revenue has not
advsed the dstrct supervsor of the st, page, and ne on whch the assess-
ment has been entered, when copes of the reports and accounts are ready
for forwardng to the Commssoner, the dstrct supervsor w note on the
orm 257 (Suppementa) Notce of entry of assessment not receved.
Pab. 208. Upon recept of copy of Suppementa orm 207 from the store-
keeper-gauger at the cose of the month, coectors of Interna revenue w enter
on the dsted sprts st the brandy fortfcaton ta shown due by such
form. Immedatey upon recept from the Commssoner of Interna Revenue
of the assessment st contanng the tem, the coector w make demand
upon the wnemaker for the amount of the ta , specfyng n the notce, orm
17, that the ta s payabe wthn 18 months from the date of the notce.
Guy T. everng,
Commssoner of Interna Revenue.
pproved ugust 23, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 1, 1936, 10 a. m.)
Secton 338. -35 8276
T. D.4685
ff ng wne stamps and destroyng stamps, marks, and brands.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Pursuant to secton 616 of the Revenue ct of 1918 (U. S. ., 1934
ed., tte 26, secton 1306), as amended by secton 338 of the Lquor
Ta dmnstraton ct (Pubc, No. 815, Seventy-fourth Congress),
and pursuant to sectons 620, 1305, and 1309 of the Revenue ct of
1918 (U. S. C, 1934 ed., tte 26, sectons 1309,1345, and 1350, respec-
tvey), the foowng reguatons are hereby prescrbed:
1. Wnemakers and propretors of bonded storerooms sha, pror to the re-
mova for sae or consumpton from ther bonded premses, attach to each cask,
barre, botte or other mmedate contaner, or to each case or other shppng
contaner (e cept tanks and tank cars) of wne, a stamp denotng the payment
of nterna revenue ta thereon. Where wne s shpped n tanks or tank cars,
the wnemaker or propretor of the bonded storeroom sha attach to a copy of
the b of adng wne stamps n a vaue equa to the ta on the wne so shpped
sha cance the stamps by ndeby wrtng or stampng thereon, or perforatng,
hs name or ntas and the date of canceaton and sha send the copy of
the b of adng to whch the canceed wne stamps are attached to the dstrct
supervsor. e sha aso aff to each tank or tank car a certfcate of ta -
payment, showng the name, regstry number, and ocaton (cty or town and
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State) of the bonded premses from whch shpped, the contents In wne ga-
ons, the knd and acohoc strengt of the wnes, and the date of ta -payment.
2. If the ta stamp s aff ed to bottes of st wne, champagne, or other
sparkng wnes and artfcay carbonated wnes, the wnemaker or propretor
of the bonded storeroom sha stenc or mark on the case the foowng
statement:
Ta pad by stamps aff ed to bottes.
If the stamps are aff ed to the case, he sha aff to each botte a abe contan-
ng the foowng statement:
Ta pad by stamps aff ed to case.
3. Stamps sha be canceed by the wnemaker or propretor of the bonded
storerooms by Indeby wrtng or stampng thereon, or perforatng, hs name
or ntas and the date of canceaton.
4. The wnemaker or propretor of the bonded storeroom sha mark or brand
each cask, barre, keg, and case as prescrbed by Reguatons 7 (Wne) May 1,
1930.
5. deaer who emptes any receptace to whch wne stamps are attached
ha destroy such stamps and f the receptace s a cask, barre, keg, tank, or
a tank car, he sha scrape or obterate the marks, brands, and certfcates
of ta -payment thereon. Wne stamps sha be destroyed by scrapng or obt-
eratng, mmedatey the receptaces to whch they are attached are empted.
Marks and brands on a casks, barres, and kegs, and certfcates of ta -
payment on tanks, and tank cars, contanng wne, sha aso be scraped or
obterated mmedatey upon emptyng.
Gut T. everng,
Commssoner of Interna Revenue.
pproved ugust 21, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 27, 1936, 11.24 a. m.)
Secton 410. -35-8274
T. D.4683
Coecton, and destructon or remova for denaturaton, of cer-
tan dstates separated n course of dstaton.
Treasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Secton 410 of the Lquor Ta dmnstraton ct (Pubc, No.
815, Seventy-fourth Congress), approved une 26,1936, s as foows:
Sec. 410. Under rues and reguatons to be prescrbed by the Commssoner
of Interna Revenue, wth the approva of the Secretary of the Treasury, ds-
ters may coect n ocked tanks dstates contanng one-haf of 1 per centum
or more of adehydes or 1 per centum or more of fuse o (heads and tas)
removed n the course of dstaton. Such dstates contanng one-haf of 1
per centum or more of adehydes or more than 1 per centum of fuse o so
coected may be removed for denaturaton, under reguatons prescrbed by the
Commssoner of Interna Revenue wth the approva of the Secretary of the
Treasury, or destroyed n the manner prescrbed by the Commssoner of Inter-
na Revenue, under the supervson of an nterna revenue offcer to be desg-
nated by the Commssoner, and when so denatured or destroyed sha not be
sub|ect to the ta mposed by aw upon dsted sprts.
Pursuant to the above-quoted provson of aw, the foowng regu-
atons are prescrbed:
Paragraph 1. Dstates contanng one-haf of 1 per cent or more of ade-
hydes or more than 1 per cent of fuse o, commony known as heads and
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512
tas, coected In ocked tanks by any regstered dster n the course of
dstaton may, as herenafter provded, be removed for denaturaton to any-
quafed denaturng pant, or destroyed on the dstery premses under the
mmedate supervson of the storekeeper-gauger assgned to the dstery.
When so denatured or destroyed, such dstates sha not be sub|ect to the
ta mposed upon dsted sprts.
DS ND T ILS T N S.
Pah. 2. very dster desrng to coect such dstates, separated n the
course of dstaton, now on hand or hereafter produced, must provde wthn
the dstery one or more ocked tanks for the purpose. Such tanks sha be
constructed of substanta matera, such as meta or wood, and be of unform
dmensons from top to bottom, and each such tank sha be equpped wth a
sutabe gass gauge whereby the contents w at a tmes be correcty nd-
cated n wne gaons. ach such tank sha be pany and duraby marked
eads and tas tank, foowed by a sera number and the capacty of the
tank In wne gaons.
Pab. 3. very heads and tas tank must be cosed, any necessary openngs
theren beng so constructed that they can be secured wth Government ocks.
very such tank must be so arranged that the dstate to be coected theren
w pass from the frst st n whch the vapors rse, nto the tank through
contnuous and securey cosed ppes and vesses. necessary openngs n
such ppes and vesses must be provded wth attachments for Government
ocks. aves must be provded and so arranged as to contro the fow of
dstate both nto and out of each tank. The constructon of vaves must be
such that they can be secured wth Government ocks.
Pab. 4. Ppes connectng heads and tas tanks wth sts, vesses, or other
apparatus sha be constructed of meta and so arranged as to be e posed to
the vew of Government offcers. Ppe connectons and vaves mnst be so se-
cured as to prevent dsconnecton wthout showng evdence of tamperng.
Pab. 5. The keys to Government ocks sha be at a tmes n the custody of
the Government offcer.
W IG ING T N .
Pab. 6. Where t Is proposed to remove such dstates n raroad tank cars
for denaturaton, or to destroy such dstates on the dstery premses wth-
out drawng the same nto packages, the dster must provde a sutabe
weghng tank, n whch a such dstates to be so removed or destroyed must
be proofed and weghed, uness the heads and tas tank s tsef mounted on
accurate scaes.
D T MINING C CT ND U NTITY O DISTILL T .
Pab. 7. Whenever the dster desres to remove any such dstate to a
denaturng pant for denaturaton, or to destroy the same, he sha fe app-
caton n trpcate wth the dstrct supervsor for permsson so to do. The
appcaton sha be fed on orm 1578, f the dstate s to be removed for
denaturaton, or on orm 1577, f the dstate s to be destroyed. The app-
caton w n every case be fed through the Government offcer assgned to
the dstery, who w take a pnt sampe from each desgnated tank and,
after assgnng a sera number to each sampe and propery abeng each
sampe for dentfcaton, forward the same to the Government chemst for
anayss, accompaned by a transmtta etter n dupcate. The contents of
each tank must be thoroughy agtated before a sampe thereof s taken. fter
forwardng the sampes, the offcer w note on each copy of the appcaton
the number of each sampe, the number of the tank from whch taken, and
the date each was taken, and w then transmt a copes to the dstrct
supervsor. The Government chemst w furnsh the dstrct supervsor a
report of hs anayss n dupcate.
Pab. 8. If the report of the chemst shows that the dstate contans one-
haf of 1 per cent or more of adehydes or more than 1 per cent of fuse o,
the dstrct supervsor w, If the dstate s to be removed for denaturaton,
e ecute part 2 of orm 1578, drectng the Government offcer to gauge the
dstate and supervse the remova thereof for shpment to the desgnated
denaturng pant upon presentaton of proper permt If the dstate s to
be destroyed, the dstrct supervsor w e ecute part 2 of orm 1377, drectng
the Government offcer to gauge the dstate and supervse destructon thereof.
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513
Msc.
fter e ecutng part 2 of ether form, the dstrct supervsor w forward two
copes thereof to the storekeeper-gauger, together wth a copy of the chemst s
report.
Pab. 9. If the report of the Government chemst shows thnt the dstate
contans ess than the requred percentage of adehydes or fuse o, the ds-
trct supervsor w dsapprove the appcaton and return one copy to the
dster and one copy to the Government offcer at the dstery, accompaned
by a statement of the reasons for dsapprova. The dstate may, for the pur-
pose of further dstaton, be returned from the heads and tas tank to the
st through contnuous, cosed meta ppes, constructed as prescrbed n para-
graph 4, and equpped wth vaves provded wth attachments for Government
ocks.
Pab. 10. ny dstates contanng one-haf of 1 per cent or more of ade-
hydes or more than 1 per cent of fuse o heretofore coected n the course of
dstaton and now on hand, may be transferred to heads and tas tanks
under the mmedate supervson of the Government offcer assgned to the
dstery, or destroyed or removed for denaturaton, under the procedure pre-
scrbed heren, drecty from the ocked receptaces n whch such dstates
are now stored.
Pab. 11. The dstate to be destroyed or removed for denaturaton sha be
proofed and weghed. The detas of the gauge w be entered by the Govern-
ment offcer on orm 1520, f remova s to be made from a dstery produc-
ng sprts from materas other than fruts, or on orm 59 , f remova s to be
made from a frut dstery. The form w be prepared n trpcate f the
dstate s to be destroyed otherwse, n quntupcate.
D STRUCTION O DISTILL T .
Pab. 12. The dstate may be destroyed by runnng the same nto the sewer
or by other sutabe means. The destructon must be carred out under the
mmedate supervson of the desgnated Government offcer, who w render
report thereof to the dstrct supervsor on part 3 of orm 1577. The report
w be accompaned by a copy of the gauge sheet, orm 1520, or orm 59 ,
as the case may be. The offcer w retan one copy of the gauge sheet and
orm 1577, and w dever the remanng copy of the gauge sheet to the
dster.
R MO L TO D N TURING PL NT.
Pab. 13. The propretor of a denaturng pant desrng to procure from a ds-
ter such dstates as are authorzed hereunder to be removed free of ta
for denaturaton sha fe appcaton wth the dstrct supervsor on orm
1403, n dupcate, propery modfed, for a speca permt to obtan, possess,
and use the same for such purpose. separate appcaton sha be fed for
each ot. The appcant sha aso fe wth the dstrct supervsor a consent of
surety ( orm 1533), n trpcate, e tendng the terms of hs permt bond to
cover the recept, possesson, and denaturaton of any such dstates trans-
ferred to hs denaturng pant, and the dsposton of the denatured product
The consent of surety sha be gven n banket form to cover a such transfers.
The dstrct supervsor w, upon approva of the appcaton, ssue a speca
permt on orm 1464, propery modfed, provded that a proper consent of
surety has been fed. The abty of the dster to ta on such dstates
removed for denaturaton sha contnue unt the dstates have been
deposted n the denaturng pant.
Pab. 14. Packages n whch such dstates are removed from the dstery
sha be marked and branded n the same manner as packages of other sprts
are marked and branded upon remova, e cept that
(a) The knd of sprts sha be desgnated by the words Impure sprts
or denaturaton, whch sha be pany and duraby stenced or marked on
the head of the package n etters not ess than three-fourths nch n heght.
(6) The phrase Contans adehydes or Contans
fuse o, or Contans adehydes and fuse o sha be
pany and duraby stenced or marked on the head of the package foowng
the name of the sprts
(c) The proof at whch the sprts were dsted need not be paced upon the
package.
Pab. 15. Such dstates may be removed from the dstery In raroad tank
cars to denaturng pants for denaturaton n accordance wth the procedure
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514
(In so far as appcabe) and under the condtons governng the remova and
transfer of other sprts n bond n such tank care. (See Reguatons 7, the
Gaugng Manua of 1934, and T. D. 4650 page 435, ths uetn . The markngs
prescrbed n paragraph 12 (a) and (6) sha be added to the certfcate the
storekeeper-gauger s requred to aff to such tank cars of sprts before they
are reeased.
Par. 16. When such dstates are reeased from the dstery for transpor-
taton to the denaturng pant, the Government offcer w forward two copes
of the gauge sheet, orm 1520, or orm 59 , to the Government offcer at the
denaturng pant, dever one copy to the dster, transmt one copy to the
dstrct supervsor wth a copy of report on orm 1578 attached, and w retan
one copy of the gauge sheet and orm 1578 on fe.
Pab. 17. The Government offcer w not reease the dstate unt the ds-
ter has e hbted to hm a speca permt ssued on orm 1464, authorzng
the denaturer to procure the same. The dstate must be transferred nto
shppng contaners and removed from the dstery under the mmedate super-
vson of the Government offcer. The contaners of such dstates sha be
mmedatey removed from the dstery premses.
Par. 18. Upon recept of the dstate at the denaturng pant t sha be
regauged by the propretor under the supervson of the Government offcer.
The Government offcer w dever one copy of the gauge sheet, orm 1520, or
orm 59 , to the propretor, and w see that any dfference s noted by
hm on such gauge sheet and aso on the denaturer s monthy record. orm
1468 . The Government offcer w note on the other copy of the gauge sheet
the resut of the regauge made by the propretor of the denaturng pant, and
w forward such gauge sheet to the dstrct supervsor. If the dstery and
the denaturng pant are n dfferent supervsory dstrcts, the gauge sheet
w be forwarded to the dstrct supervsor of the dstrct n whch the dst-
ery s ocated, through the dstrct supervsor of the dstrct n whch the
denaturng pant s ocated.
Par. 19. No aowance can be made under secton 307 of the Lquor Ta
dmnstraton ct, or any other statute, for osses of such dstates by
eakage or evaporaton occurrng durng transportaton to the denaturng pant
or whe stored n such pant pror to denaturaton. Ta w be coected
on a osses, uness the same are due to destructon by accdenta fre or other
casuaty or to theft, and the ta s remtted under secton 3221, R. S. (U. S. C,
1934 ed., tte 26, secton 1275(b)), or under secton 16 of the Lquor Law
Repea and nforcement ct (Pubc, No. 347, Seventy-fourth Congress), respec-
tvey.
dster s records.
Par. 20. Whenever such dstates separated n the course of dstaton
at a dstery usng materas other than fruts are destroyed or removed
for denaturaton, as heren provded, the dster sha make approprate
entres n hs dstaton book, orm 13, and n hs monthy account, orm 14.
If the dstate s removed for denaturaton, the dster sha aso make
approprate entres n orm 52C, and n the monthy transcrpt of such form.
Par. 21. Whenever such dstates separated at a frut dstery are destroyed
or removed for denaturaton, the dster sha make approprate entry thereof
n hs monthy return, orm 15.
Par. 22. The requred entres sha be made n orm 13, orm 15, and orm
52C on the dates the transactons occur.
denaturer s records.
Par. 23. The propretor of each denaturng pant procurng such dstates
from regstered dsters, sha enter the recept and use of the dstates and
the producton and dsposton of the denatured product manufactured there-
from, In orms 1466, 1467, 1468 , 1408D, and 1468 n the same manner as the
recept and use of acoho and the producton and dsposton of denatured
acoho are entered n such records.
btorekeeper-oauger s records.
Par. 24. The storekeeper-gauger at each dstery other than a frut ds-
tery w make approprate entres n Record 17 (or Record 16, f a rum
dstery) and n monthy report, orm 88, coverng the coecton and dspos-
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Msc.
ton of such dstates. The storekeeper-gauger at each dstery other than
a frut dstery w aso make approprate entres n hs monthy cstern
room return, orm 1513 Suppementa, coverng the dsposton of such ds-
tates.
SUP ISO S CCOUNTS.
Par. 25. Dstrct supervsors w make approprate entres n the dstery
cstern room bonded account, orm 1514 Suppementa, coverng the dsposton
of such dstates coected at dsteres producng sprts from materas other
than fruts and n the schedue of returns, orm 412, coverng the dsposton
of such dstates coected at frut dsteres.
P IO UT ORIZ TIONS R O D
Par. 26. pror authorzatons for the remova for denaturaton of heads
and tas separated at regstered dsteres In the course of dstaton are
hereby revoked.
Guy T. everng,
Commssoner of Interna Revenue.
pproved ugust 21, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 26, 1936, 11.20 a. m.)
Secton 411. -35-8270
T. D.4679
Records and transcrpts of sprts receved and dsposed of by
rectfers.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Pursuant to the authorty conferred by secton 3318, R. S., as
amended by secton 411 of the Lquor Ta dmnstraton ct (Pub-
c, No. 815, Seventy-fourth Congress), the foowng reguatons are
prescrbed, effectve September 1, 1936:
UL SPIRITS.
1. uk sprts receved by rectfers, whether for rectfcaton or for bottng
wthout rectfcaton, sha be receved and stored n the recevng room on the
rectfyng premses. Such recepts sha be entered on orm 45, Rectfer s
monthy record and return of dsted sprts, wnes, and other quors receved
and dumped for rectfcaton.
2. nshed, rectfed, buk sprts sha be stored n and shpped from the
fnshed products room on the rectfyng premses. Unrectfed buk sprts
dsposed of n the dster s orgna packages sha be shpped or removed from
the recevng room or fnshed products room.
3. The rectfer sha keep a record on orm 52C, Monthy report of buk
sprts. ntres must be made theren of sprts dsposed of n buk before
remova from the premses. compete transcrpt of orm 520 must be made
by the rectfer and forwarded to the dstrct supervsor on or before the 10th
day of the month foowng that to whch the record reates.
4. The term buk sprts as used n these reguatons, means sprts In
contaners havng a capacty n e cess of 1 wne gaon.
OTTL D SPIRITS.
5. otted sprts and wnes, whether rectfed or unrectfed, may be stored
n and shpped from ether the fnshed products room on the rectfyng premses
or the whoesae quor deaer premses.
6. rectfer who carres on the busness of a whoesae quor deaer on
premses ad|acent or contguous to hs rectfyng pant, sha keep record
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516
orm 52 on the whoesae quor deaer premses covered by the speca ta
stamp, of (a) a botted sprts deposted In the fnshed products room on
the rectfyng premses and not removed to hs whoesae quor deaer premses
6) of a botted sprts receved on hs whoesae quor deaer premses and
c) a saes of botted sprts shpped ether from the fnshed products room
of the rectfyng premses or from the whoesae quor deaer premses. ntres
must be made n record orm 52 on the same day botted sprts are deposted
n the fnshed products room or receved n the whoesae quor deaer
premses, and before any botted sprts are removed from ether premses for
shpment. The rectfer sha prepare a fu and compete transcrpt of record
orm 52 on orms 52 and 52 , and forward one copy to the dstrct super-
vsor on or before the 10th day of the succeedng month.
7. Record orm 52G must aso be kept by rectfers who are not whoesae
quor deaers, entres beng made theren of a sprts receved and dsposed
of n buk. Such rectfers w aso be requred to keep record orm 52 of
a sprts n bottes dsposed of by them. transcrpt of each of these forma
must be forwarded to the dstrct supervsor on or before the 10th day of the
succeedng month.
8. The present orm 45 and orm 52 scres w be used pendng ther
revson.
9. ffectve October 1, 1936, orm 370, orm of transcrpt from book ( orm
52C, revsed) kept by dsters as whoesae quor deaers, s aboshed.
Thereafter dsters and propretors of nterna revenue bonded warehouses
and ta-pad warehouses sha keep the record and prepare monthy transcrpts
thereof, of sprts removed from dsteres and warehouses, on orm 52C,
Monthy report of buk sprts. Treasury Decson 4655 s amended
accordngy.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved ugust 21, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 24, 1936, 1.01 p. m.)
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517
Msc.
LI UOR T ING CT O 1934.
-27-8169
T.D. 4660
Red strp stamps Lquor Ta ng ct of 1934.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
Coectors of Interna Revenue, Coectors of Customs, Dstrct
Supervsors, and Others Concerned:
Pursuant to the authorty conferred by secton 205 of Tte II
of the Lquor Ta ng ct of 1934, the foowng reguatons are
prescrbed:
ORM 428 ORD R OR R D STRIP ST MPS.
1. ffectve uy 1, 1936, a appcatons for the purchase of red
strp stamps, orm 428, Order for stamps Dsted sprts botte
strps, -w be fed n trpcate. The coector of customs, or the
dstrct supervsor, who approves the orm 428 w, after approva,
retan one copy and return the orgna and one copy to the appcant
for submsson to the approprate coector of nterna revenue.
2. The coector of nterna revenue w enter the sera numbers
of the stamps ssued, and stamp the date of sae, on both copes of
orm 428. e w retan the orgna copy and send the remanng
copy to the approprate dstrct supervsor.
R L S O IMPORT D SrRITS ROM CUSTOMS OND.
3. On and after uy 1,1936, no dsted sprts mported n bottes
may be reeased from customs bond wthout red strp stamps attached
thereto provded, however, that (a) dsted sprts n customs bond
on uy 1, 1936, and (6) dsted sprts n bottes wthout strp
stamps attached, arrvng n the Unted States subsequent to uy 1,
f, pror to ugust 1,1936, they have been consuated for shpment to
the Unted States, or certfed for such shpment by a coector or
deputy coector of customs n any of the possessons of the Unted
States to whch the nterna revenue aws do not appy, may be
wthdrawn from customs bond and strp stamps sent by the mporter
or subsequent vendor to the vendee by regstered ma, as prescrbed
by Treasury Decson 4473 C. . III-2, 426 .
4. cept as provded n paragraph 3, from and after uy 1,1936,
strp stamps w be attached to bottes of dsted sprts for mporta-
ton, ony as foows: (a) by the producer or e porter n the foregn
country as prescrbed by Treasury Decson 4526 C. . I -1, 500
(6) under the supervson of an offcer abroad, assgned bv the coector
of customs, as prescrbed by Treasury Decson 4496 C. . III-2,
423 or (c) under supervson of a customs offcer n the bonded
warehouse as prescrbed by Treasury Decson 4464 C. . III-2,
425 .
5. ffectve uy 1, 1936, mporters, and propretors of pants at
whch no storekeeper-ganger s assgned custody of strp stamps, w
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518
prepare orm 96, Monthy report of strp stamps purchased and
used under the Lquor Ta ng ct of 1934, as revsed, n trpcate.
The orgna and one copy w be submtted to the approprate ds-
trct supervsor and the remanng copy retaned for fe, avaabe
to Government offcers. The copy of orm 96 now requred by Treas-
ury Decson 4516 C. . I -1, 499 to be furnshed to the coector
of nterna revenue w be dscontnued.
6. Treasury Decsons 4429 C. . III-1,527 ,4473 C. . III-2,
426 , 4516 C. . I -1, 499 , and 4561 C. . T -2, 512 are
amended accordngy.
Guy T. everng,
Commssoner of Interna e venue.
Wam R. ohnson,
ctng Commssoner of Customs.
pproved uy 1, 1936.
Wayne C. Tatoh,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 3, 1936, 2.44 p. m.)
-28-8178
T. D.4661
Stamps ndcatng ta -payment of dsted sprts In bottes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue, Dstrct Supervsors, and Others
Concerned:
The effectve date of Treasury Decson 4642 C. . -1, 485 ,
as amended by Treasury Decson 4647 C. . -1, 485 , pro-
hbtng the overprntng of red strp stamps for domestc sprts, s
hereby e tended from uy 1, 1936, to ugust 1, 1936.
Guy T. everng,
Commssoner of Interna Revenue.
pproved uy 3, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 8, 1936, 12.51 p. m.)
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N TION L PRO I ITION CT.
-48-8411
Ct. D. 1176
D R L T S N TION L TROn ITION CT WILLIS-C Mr LL CT-
D CISION O SUPR M COURT.
1. Speca Ta es Occupatona Ta Whoesae Lquor Deaer
Reenactment of Ta .no Statutes by Ws-Campbe ct.
The statutes ta ng the busness of conductng a whoesae quor
busness and Imposng penates for so dong wthout the payment
of the ta were not n drect confct wth the Natona Prohbton
ct and were, therefore, reenacted by secton 5 of the Ws-
Campbe ct,
2. Same: Ta Stamp Not a Lcense.
y ssung a whoesae quor deaer s ta stamp, the Unted
States does not cense the quor busness, but ays an e cse upon
the dong of the busness, whether awfuy or unawfuy con-
ducted.
SUP M COU T O T UNIT D ST T S.
II y man Wancr ct oL, pettoners, v. The Unted States of merca.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh
CrcuL
November 9, 1020.
OPINION.
Mr. ustce Roberts devered the opnon of the Court.
The pettoners were convcted and sentenced n the dstrct court under an
Indctment, the second count of whch charged them wth conductng the bus-
ness of whoesae quor deaers wthout havng pad the speca ta mposed
by the edera revenue aws. The |udgment was affrmed by the crcut court
of appeas.1 Certorar was granted mted to the queston whether the
statute upon whch the second count of the ndctment was based was repeaed
by the Natona Prohbton ct and has not been reenacted.
Many of the e stng Revenue cts mposng ta es n respect of manufacture
and sae of nto catng quors were superseded by the Natona Prohbton
ct. The effect of secton 5 of the Ws-Campbe ct was to reenact a
such aws n e stence when natona prohbton became effectve, save such as
were n drect confct wth any provson of the Natona Prohbton ct or the
Ws-Campbe ct. The statutes ta ng the busness of conductng a whoe-
sae quor busness and Imposng the penates for so dong wthout the pay-
ment of the ta were not n drect confct wth the Prohbton ct and were,
therefore, reenacted. The dffcuty of payng the e cse upon the prvege
of carryng on a busness whch s prohbted does not precude the prescrpton
of sanctons for nonpayment. Pettoners nsst t Is a contradcton n terms
to say the aws of the Unted States at the same tme prohbt and cense an
occupaton. The contenton s based on msconcepton of the nature of the
e acton. The Unted States has not censed the quor busness but, as Is
ceary wthn ts power, has ad an e cse upon the dong of the busness
whether awfuy or unawfuy conducted.
The udgment Is affrmed.
1 82 . (2d), 305.
ct of October 28, 1019 (ch. 85, 41 Stat., 305, U. S. C, Tte 28, passm).
Unted States . Yunnorch. (256 U. S.. 450).
November 23, 1021 (ch. 134, 42 Stat., 222, U. S. C, Tte 27, secton 3).
Unted States v. Stafuff ct a. (200 U. S.. 477).
R. S.. 3242 U. S. C. Tte 20. secton 1307.
1 Unted States v. emus (200 U. S., 477, 479, 480). The decson to the contrary by
the Crcut Court of ppeas for the fth Crcut n aru v. Unted States (5 . (2d).
437) was not foowed by the same court n the ater case of nderson v. Unted States
(30 . (2d), 485).
Unted States v. One ord Coupe (272 U. S.. 321, 327).
Unted States . Constantne (200 U. S., 2S7, 203 Ct. D. 1053, C. . I -2, 403 ).
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520
DISTILL D SPIRITS.
Reguatons 15 ( coho), Paragraphs 42 -36-8292
and 43. T. D. 4692
Determnng proof of Wended whskes.
Treasury Department,
Offce of the Secretary of the Treasury,
Washngton, D. O.
To Dstrct Supervsors and Others Concerned:
Secton 605 of the Revenue ct of 1918 provdes:
The busness of a rectfer of sprts sha be carred on, and te
ta on rectfed sprts sha be pad, under such rues, reguatons, and bonds
as may be prescrbed by the Commssoner, wth the approva of the Secre-
tary.
Pursuant to ths authorty of the statute, paragraphs 42 and 43
of Reguatons 15 are hereby amended as foows:
Par. 42. In determnng the proof of dsted sprts and rectfed sprts to
whch saccharne or other sod matter has not been added, the standard
hydrometer set, consstng of cup wth thermometer and the necessary stems,
w be used. In connecton wth the use of such nstruments, rectfers must
provde themseves wth the Gaugng Manua of anuary, 1934, and foow cosey
the nstructons theren reatve to the gaugng of sprts.
Pab. 43. In determnng the acohoc content of bended whskes contanng
sherry wne, prune |uce, carame, gycerne, etc., and of wnes, cordas, queurs,
end other rectfed products contanng saccharne or other sod matter, the
uerst ebuometer, or the Saeron-Du|ardn ebuoscope, or a sma st, w
be used. In connecton wth the use of such nstruments, rectfers must provde
themseves wth a copy of the Wne Reguatons No. 7, of May, 1930, and foow
cosey the Instructons In Part I thereof reatve to the use of such Instru-
ments. The tabes n the append of such reguatons w be used to ascertan
the acohoc content of the wnes or other quor. The acohoc content shown
n such tabes s the per cent of acoho by voume and shoud be mutped by
2 to ascertan the proof of the wnes or rectfed products.
Guy T. everng,
Commssoner of Interna Revenue.
pproved ugust 27, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 29, 1936,11.56 a. m.)
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INDUSTRI L LCO OL.
-51-8450
T. D.4721
Record 130, Offcer s day record of transactons at denatur-
ng warehouse, dscontnued.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Other Offcers and mpoyees of the
ureau of Interna Revenue Concerned:
1. ffectve December 1, 1936, record 130, Offcer s day record
of transactons at denaturng warehouse, s aboshed. Thereafter,
storekeeper-gaugers sha keep the day record of transactons per-
tanng to denaturaton of rum at the denaturng bonded warehouse
on orm 575, Report for denaturng bonded warehouse, and ren-
der monthy reports thereon, to the dstrct supervsor.
2. Reguatons 30, Reguatons and Instructons Reatng to the
Manufacture, Sae, and Use of Denatured coho, are amended
accordngy.
Gut T. everno,
Commssoner of Interna Revenue.
pproved December 14, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster December 17, 1936, 10.46 a. m.)
Reguatons 3, rtce 52: Report of acoho -50-8437
gauged. T.D.4719
mendng artce 52, of Reguatons No. 3.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
In accordance wth secton 13, Tte III, of the Natona Prohb-
ton ct, the foowng amendment to artce 52, of Reguatons No.
3, s prescrbed:
When acoho s gauged for transfer n bond the propretor of the shppng
warehouse w make a copy of orm 1440 n addton to those requred by
artce 52 of Reguatons 3. The addtona copy of orm 1440 w be turned
over to the offcer In charge, who w forward It, wth orm 1439, to the offcer
n charge of the recevng warehouse.
Guy T. everng,
Commssoner of Interna Revenue.
pproved December 9, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster December 11, 1936, 1.04 p. m.)
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522
Reguatons 3 btce 56: Transfers of
acoho m bond.
ktce 107: Transfers of acoho to pant.
-32-S239
T. D. 4675
Locks on tank cars of acoho shpped n bond.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Sectons 4 and 13, Tte III, of the Natona Prohbton ct, read
as foows:
Sec. 4. coho produced at any regstered ndustra acoho pant or stored
n any bonded warehouse may be transferred under reguatons to any other
regstered ndustra-acoho pant or bonded warehouse for any awfu purpose,
Seo. 13. The Commssoner sha from tme to tme ssue reguatons respectng
the estabshment, bondng, and operaton of ndustra-acoho pants, denaturng
pants, and bonded warehouses authorzed heren, and the dstrbuton, sae,
e port, and use of acoho whch may be necessary, advsabe, or proper, to secure
the revenue, to prevent dverson of the acoho to ega uses, and to pace the
nonbeverage acoho ndustry and other ndustres usng such acoho as a
chemca rnw matera or for other awfu purpose upon the hghest possbe
pane of scentfc and commerca effcency consstent wth the Interests of the
Government, and whch sha nsure an ampe suppy of such acoho and promote
ts use n scentfc research and the deveopment of fues, dyes, and other awfu
products.
Under authorty of the provsons of aw above quoted, the second
paragraph of artce 56, Reguatons 3, s hereby amended by addng
thereto the foowng sentence:
Manhoe covers of a tank cars used for acoho shpped n bond sha be
equpped wt factes for ockng wth a Saght ock, so that the contents can
not be removed wthout evdence of tamperng.
The thrd paragraph of artce 56, Reguatons 3, s hereby amended
Saght ocks, to be furnshed by the shpper, and seas for the same, by the
Government, sha be used for ths purpose and sha be attached by the Govern-
ment offcer as soon as the tank car s fed. The key of each Saght ock so
used sha be forwarded on the day of shpment by the Government offcer to the
offcer n charge of the bonded warehouse to whch the acoho s consgned.
Upon arrva at ts destnaton of a tank car contanng acoho shpped n bond,
the sea must not be broken nor any acoho removed e cept n the preserfce of
the Government offcer n charge of the warehouse or denaturng pant
ocks and keys n such cases sha be returned by such offcer to the offcer n
charge of the bonded warehouse from whch the shpment was made.
The fourth paragraph of artce 107, Reguatons 3, s hereby
amended by addng thereto the foowng sentence:
Manhoe covers of a tank cars used for acoho shpped n bond sha be
equpped wth factes for ockng wth a Saght ock, so that the contents can
not be removed wthout evdence of tamperng.
The ffth paragraph of artce 107, Reguatons 3, s hereby amended
to read as foows:
Saght ocks, to be furnshed by the shpper, and seas for the same, by the
Government, sha be used for ths purpose and sha be attached by the Gov-
ernment offcer as soon as the tank car s fed. The key of each Saght ock
so used sha be forwarded on the day of shpment by the Government offcer
to the offcer n charge of the denaturng pant to whch the acoho s consgned.
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Mso.
Upon arrva at ts destnaton of a tank car contanng acoho shpped n
bond, the sea must not be broken nor any acoho removed e cept n the
presence of the Government offcer n charge of the denaturng pant ocks
and keys u such cases sha be returned by such offcer to the offcer n charge
of the bonded warehouse or denaturng pant from whch the shpment was
made.
Ths reguaton sha become effectve on ugust 1,1936.
Guy T. eveeno,
Commssoner of Interna Revenue.
pproved ugust 6, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ugust 8,1936,12.36 p. m.)
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524
MISC LL N OUS.
Reguatons 7(Pro.), Paragraphs 389, 445, 447. -44-8371
T. D. 4702
Procedure for the dsposton of sngngs and the reportng of
brandy produced fnd gauged at frut dsteres.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Pursuant to the authorty conferred by the ct of March 3, 1877
(U. S. C, 1934 ed., tte 26, secton 1259), paragraphs 389, 445, and
447 of Reguatons 7 (ssued May, 1930), Part 3, reatve to the
producton of brandy, are hereby amended as foows:
Paragraph 389 s amended by addng the foowng subparagraph:
sngngs shoud, whenever practcabe, be doubed and ready for gaugng
by or before the end of the month. ny sngngs carred forward to the suc-
ceedng month shoud be doubed and ready for gaugng and remova on or before
the 10th of the month, otherwse sngngs w be abe to ta as brandy.
Paragraph 445 s amended to read as foows:
Par. 445. orm 15 w be kept by every frut dster for each month or
porton of a month hs st s regstered as n use, or brandy or dstng ma-
tera remans on the premses. t the cose of the month and mmedatey after
a brandy produced durng the month has been gauged, but n no case ater than
the 10th of the succeedng month, the dster w render copes n dupcate
of such form to the dstrct supervsor. The orm 15 kept by the dster
w be retaned at hs dstery as a permanent record, n bound form, sub|ect
to nspecton by Government offcers at any reasonabe hour.
Paragraph 447 s amended to read as foows:
Par. 447. The quantty of brandy reported produced n a cases shoud be
taken from the gauger s reports on orm 59 . The quantty of sngngs pro-
duced w be determned by the gauger and reported In accordance wth para-
graph 333 of these reguatons.
Chas. T. RuS8 LL,
ctng Commssoner of Interna Revenue.
pproved October 22, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster October 26, 1936, 3.15 p. m.)
-31-S224
T. D. 4670
Wne e porter s bond, orm 186, prescrbed. portaton of
domestc wnes free of ta .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Customs, and Others Con-
cerned:
Pursuant to authorty conferred by secton 618(a) of the Revenue
ct of 1918, approved ebruary 24, 1919 (40 Stat, 1057), the fo-
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525
Msc.
owng reguatons governng the e portaton of domestc wnes, free
of ta , are hereby prescrbed. These reguatons sha supersede a
reguatons heretofore ssued on the sub|ect of e portaton of do-
mestc wnes, free of ta .
RTICL I. D INITION
When used In these reguatons
(o) The word supervsor sha mean the dstrct supervsor, coho Ta
Unt, ureau of Interna Revenue.
(6) The word coector sha mean coector of customs.
(c) The word person or e porter sha mean and ncude natura per-
sons, assocatons, copartnershps, corporatons, and smar ega enttes.
(d) The term entry sha mean the appcaton and entry for wthdrawa
of wne ta free for e portaton, orm 711.
(e) The term port of e port sha mean the port at whch the wnes are
aden for drect e portaton by vesse or arcraft or transshpped for
e portaton.
rtce II. ond.
Paragraph 1. Where domestc wnes, ncudng champagne, sparkng wne,
and artfcay carbonated wne, are to be removed from bonded wneres, or
other pace of storage, free of ta , for e portaton, the person ntendng to e port
the same w fe wth the supervsor of the dstrct n whch such premses are
ocated, a bond on orm 186, prepared and e ecuted n trpcate, In a pena
sum equa to the amount of the ta on the quantty of wne to be wthdrawn,
as specfed n the entry, and n no case ess than 500. If addtona wth-
drawas are to be covered by the bond, the pena sum must be n an amount
suffcent to equa the ta thereon, pus the ta on any quantty of wnes pre-
vousy wthdrawn thereunder and unaccounted for. ond ( orm 186) so fed
sha be approved by the supervsor If the e porter has n a respects comped
wth the aw and reguatons. The orgna w be forwarded to the Deputy
Commssoner, coho Ta Unt, and one copy to the prncpa. The other
copy w be retaned by the supervsor. Wthdrawas may be made from tme
to tme under sad bond as ong as t remans good and suffcent, or unt the
same sha have been reeased or termnated by the order of the Commssoner
or supervsor.
rtce III. ccount.
Par. 2. The supervsor w keep an account wth the bond, n whch account
the prncpa w be charged wth the ta on each ot of wne removed for
e portaton and w receve credt for the ta on each ot concernng whch
satsfactory proof of e portaton s receved. Wne shpped for e port w be
carred as unaccounted for unt proof satsfactory to the supervsor s receved
showng the e portaton of the wne. No provson has been made n the aw
for aowance of ta on any oss of wnes n transt.
rtce I . portaton by esse or rcraft.
Par. 8. fter havng gven the requred bond, the e porter w e ecute and
fe wth the supervsor an entry In quadrupcate. Parts 1 and 2 of each copy
w be fuy e ecuted. If the e porter has comped In a respects wth the
aw and reguatons, the supervsor w note hs approva on each copy of the
entry, retan one copy thereof for hs offca fes, and return three copes to
the e porter. Upon recept of the approved copes of the entry the e porter may
wthdraw the wnes theren descrbed for e port free of ta . The packages or
cases contanng such wnes must be pany marked or port n etters
not ess than 1 nch n heght, In addton to bearng the other marks and brands
requred by Reguatons No. 7 (edton of May, 1930). The wne must be con-
sgned to the coector at the port of e port for e amnaton, nspecton, super-
vson of adng, and report, as provded n paragraph (4) of ths artce. Upon
shpment from the wnery, or other pace of storage, the e porter w forward
two copes of the entry to the coector at the port of e port The other copy
of the entry w be retaned by the e porter.
Par. 4. Upon arrva of the wne at the port of e port the coector w drect
the proper offcer to e amne and nspect the wnes and ascertan whether the
same agree n a respects wth the descrpton thereof n the entry and to
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526
superntend ther adng for e portaton. Such offcer w note on both copes
of the entry any shortage and the apparent cause thereof. When the wne s
e ported the coector w certfy to the cearance of the wne on part 3 of
each copy of the entry, forward one copy to the supervsor who approved t,
and retan the remanng copy for hs offca fes. The b of adng coverng
shpment of the wne must show the e porter as the shpper, the sera numbers
of the packages, and the quantty of wne. Upon cearance, the e porter w
forward a copy of the b of adng to the supervsor. Upon recept of the copy
of the b of adng and copy of the entry, bearng the certfcate of cearance
of the coector, the supervsor w make proper entres n hs bonded account.
orm 733, and credt the account kept wth the e port bond ( orm 186), as
provded n rtce III above.
mcL . portaton by Raroad Cab, Motor Truck, or Other Conveyance.
Par. 5. Where the wnes are to be shpped by raroad car, motor truck, or
other conveyance, through a fronter customs port, the coector at such fronter
customs port, on recept of two copes of the entry from the e porter, w drect
that the wnes be e amned, nspected, and report made as provded n rtce
I above. If the Inspector fnds that the wnes have not been tampered wth,
the coector w aow the raroad car, motor truck, or other conveyance, as
the case may be, to proceed to ts destnaton, and w so certfy by e ecutng
the Certfcate of portaton by Seaed Cars on each copy of the entry wth
proper modfcatons, forward one copy to the supervsor who approved t, and
retan the remanng copy for hs offca fes. The provsons of rtces III
and I of these reguatons, deang wth bs of adng, the makng of entres
n bonded accounts, and the credtng of accounts kept wth e port bonds, so
far as appcabe, are hereby e tended to and appy to the wthdrawa and
e portaton of domestc wnes, free of ta , under ths artce.
rtce I. Procedure Where Inspectors ave Reason to eeve That Wnes
ave een Tampered Wth.
Par. 9. If the nspectng customs offcer has reason to beeve that the wnes
have been tampered wth, the coector w take the wnes nto hs custody
and report the facts forthwth to the supervsor who approved the entry, for
6uch acton as the supervsor may deem necessary.
rtce II. Shpments to the Phppne Isands, Puerto Rco, rgn
Isands, Panama Cana Zone, awa, and aska.
Par. 10. Shpments of domestc wnes to the Panama Cana Zone have the
same status as e portatons to foregn countres. The aw provdes for shp-
ment of domestc wnes, wthout payment of ta , to the Phppne Isands,
Puerto Rco, and the rgn Isands. The provsons of these reguatons, and
the forms prescrbed, n respect to the remova of domestc wnes, free of ta
for e portaton to foregn countres, appy to ke removas and shpments to the
Phppne Isands, Puerto Rco, the rgn Isands, and the Panama Cana
Zone. awa and aska are Terrtores of the Unted States, and a shp-
ments of domestc wnes thereto must be ta -pad before wthdrawa from
bonded wneres or other bonded premses.
Gut T. evebng,
Commssoner of Interna Revenue.
pproved uy 27,1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 29, 1936, 10.47 a. m.)
-28-S181
T. D. 4664
mendng paragraph 5 of Treasury Decson 4559 O. . I -1,
542 so as to provde that the nformaton specfed theren sha
not be requred to be furnshed n certan nstances uness re-
quested by the Commssoner.
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Msc.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Dstrct Supervsors and Others Concerned:
Pursuant to authorty conferred by secton 3259, Revsed Statutes
(Tte 26, U. S. C, secton 1163), paragraph 5 of Treasury Decson
4559, approved une 13,1935, s hereby amended to read as foows:
5. There must be attached to or ncuded n orm 27- (Notce by Dsters),
orm 27 (Notce by rut Dsters), orm 27- (Notce by Rectfers),
orm 27-C (Notce by rewers), and orm 1431 ( ppcaton for permt to
operate ndustra acoho pant, bonded warehouse and denaturng pant) an
affdavt gvng the name of every person nterested or to be nterested n the
busness, and the amount and nature of such nterest, ncudng the name and
address of every member of a frm or stockhoder of a corporaton, operatng,
ownng or Interested n a dstery, drecty or ndrecty, whether such Interest
appears n the name of the nterested party or n the name of another for hm.
In the case of corporatons and smar ega enttes there sha be fed, on
separate sheets, at the commencement of busness and annuay thereafter as
of May 1, or the nearest dvdend date wthn 60 days thereof, a st of the
true and benefca owners of the stock outstandng, and a statement under
the sea, f any, of the corporaton or other ega entty, showng the number
of shares of each cass of stock or other evdence of ownershp n the corpora-
ton, such as votng trust certfcates, authorzed and outstandng, the par vaue,
If any, thereof, and the votng rghts of the respectve owners or hoders
thereof, accompaned by an affdavt as to the correctness of such st and
statement, whch affdavt sha be e ecuted by an offcer of the corporaton
or other ega entty havng most knowedge as to the correctness thereof and
duy authorzed to e ecute the same. Provded, That where more than 100
persons are Interested In a corporaton or other ega entty as stockhoders
or otherwse, there need be furnshed hereunder ony the names, addresses
and amounts and nature of stock hodng or other nterest of the 100 persons
havng the argest ownershp or other nterest n each of the respectve casses
of stock or other nterest, e cept where more compete nformaton sha be
specay requred by the Commssoner of Interna Revenue.
Gut T. everno,
Commssoner of Interna Revenue.
pproved uy 8, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 10, 1936, 11.02 a. m.)
-28-8179
T. D. 4662
Dutes to be performed by the coho Ta Unt, ureau of.
Interna Revenue.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Offcers and mpoyees of the ureau of Interna Revenue, Co-
ectors of Interna Revenue, and Others Concerned:
1. Pursuant to secton 161, R. S. (U. S. C. 1934 ed., Tte 5, secton
22), the coho Ta Unt s charged wth the admnstraton, under
the drecton of the Commssoner of Interna Revenue, of the aws
and reguatons concernng the foowng sub|ects:
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528
(a) The producton, custody, and supervson of dsted sprts,
acoho, wnes, fermented quors, cerea beverages, denatured acoho,
and other such quors and quds
(b) The estabshment, constructon, operaton, custody, and super-
vson of dsteres, ndustra-acoho pants, bonded warehouses,
denaturng pants, wneres, bonded wne storerooms, breweres, rect-
fyng houses, deacohozng pants, cerea beverage pants, and other
paces at whch such sprts, quors, or quds are produced or
stored
(c) The determnaton, asserton, and assessment of a nterna
revenue ta es and penates pertanng to dsted sprts, acoho,
wnes, fermented quors, cerea beverages, denatured acoho, de-
natured rum, and artces contanng denatured acoho or denatured
rum, and other such quors and quds, and the compromse thereof,
e cept that a moneys sha be receved and accounted for by the
coectors of nterna revenue under the drect on of the Commssoner
of Interna Revenue
(d) Inqures and nvestgatons reatng to the fng of returns
for occupatona and commodty ta es and penates n respect to
dsted sprts, acoho, wnes, fermented quors, cerea beverages,
denatured acoho, denatured rum, and artces contanng dena-
tured acoho or denatured rum, and other such quors and quds
(e) The nvestgaton, preventon and detecton of voatons of
the aws pertanng to dsted sprts, acoho, wnes, fermented
quors, cerea beverages, denatured acoho, denatured rum, or art-
ces contanng denatured acoho or denatured rum, and other such
quors and quds, or any reguatons ssued thereunder, and the
apprehenson of offenders aganst such aws
(f) The detenton and sezure, for voaton of aws reatng to
dsted sprts, acoho, wnes, fermented quors, cerea beverages,
denatured acoho, denatured rum, and artces contanng denatured
acoho or denatured rum, and other such quors and quds, of
property, whether rea or persona (e cept sezure under dstrant
warrant), and the custody, contro, sae and dsposton of property
so sezed
(g) The dscharge of ens under secton 902 of the Revenue ct
of 1926
(h) The reguaton of the sze, brandng, markng, sae, resae,
possesson, use, and reuse of contaners (of a capacty of ess than
fve wne-gaons) desgned or ntended for use for the sae at reta
of dsted sprts the ssuance, suspenson, and revocaton of per-
mts for the manufacture, storage, procurement, and transportaton
of such contaners and the nvestgaton, preventon, and detecton
of voatons of the aws or reguatons pertanng to such contaners:
() The fng of correct returns by every person dsposng ot
any substance of the character used n the manufacture of dsted
sprts the fng of correct returns by every person dsposng of
any denatured acoho, denatured rum, or artces contanng dena-
tured acoho or denatured rum and the keepng of records of the
dsposton of such substances, denatured acoho, denatured rum,
and artces contanng denatured acoho or denatured rum.
2. Pursuant to secton 5 of the Lquor nforcement ct of 1936,
there are hereby conferred and mposed upon the Deputy Comms-
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529
Msc.
soner of Interna Revenue n charge of the coho Ta.t Unt, and
the assstants, nspectors, and agents under hs supervson, sub|ect
to the drecton of the Commssoner of Interna Revenue and sub|ect
to reguatons prescrbed by hm wth the approva of the Secretary
of the Treasury, a the rghts, prveges, powers, dutes, and pro-
tecton conferred and mposed upon the Secretary of the Treasury,
the Commssoner of Interna Revenue, or any other offcer or em-
poyee of the Treasury Department by any aw now or hereafter n
force reatng to the ta aton, transportaton, manufacture, posses-
son, or use of, or traffc n dsted sprts, wnes, fermented quors,
or denatured acoho, n so far as they reate to the dutes to be
performed by the coho Ta Unt as enumerated n paragraph 1
hereof.
3. cept as has been, or mav hereafter be, otherwse provded,
a reguatons prescrbed, a orders and nstructons ssued, and a
forms adopted for the enforcement of the aws heretofore admns-
tered by the Commssoner of Industra coho or the ureau of
Industra coho, and assstants, nspectors, and agents thereunder,
and remanng n effect after the repea of the eghteenth amend-
ment, w contnue n effect as reguatons, orders, nstructons, and
forms of the ureau of Interna Revenue: Provded, That the term
Commssoner or Commssoner of Industra coho and the
term Supervsor or Supervsor of permts, wherever used n
such reguatons, orders, nstructons, and forms, sha be hed to
mean, respectvey, Deputy Commssoner of Interna Revenue
and Dstrct supervsor.
Gut T. everng,
Commssoner of Interna Revenue.
pproved uy 3, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 8, 1936, 12.51 p. m.)
-28-8180
T. D.4663
Rewards for nformaton eadng to the detecton and punshment
of persons voatng Interna revenue aws.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
Under and by vrtue of the provsons of secton 3463 of the
Revsed Statutes of the Unted States, whch authorze the Com-
mssoner of Interna Revenue, wth the approva of the Secretary
of the Treasury, to pay such sums as he may deem necessary, not
e ceedng n the aggregate the sum approprated therefor, for de-
tectng and brngng to tra and punshment persons guty of
voatng the nterna revenue aws, or connvng at voatons of
the same, n cases where such e penses are not otherwse provded for
by aw, the Commssoner of Interna Revenue, wth the approva of
the Secretary of the Treasury, does hereby offer for nformaton
gven by persons other than offcers of nterna revenue, or persons
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Msc.
530
apponted or empoyed n, or actng n connecton wth, the Interna
Revenue Servce, that sha ead to the detecton and punshment of
persons guty of voatng the nterna revenue aws, or connvng
at the same, such reward as the Commssoner of Interna Revenue,
wth the approva of the Secretary of the Treasury, sha deem sut-
abe, but n no case e ceedng 10 per cent of the net amount of ta es,
penates, fnes, and forfetures whch, by reason of sad nformaton,
sha be pad rrecoveraby to the Unted States through sut or
otherwse.
The rewards hereby offered are mted n ther aggregate to the
sum approprated therefor and sha be pad ony n cases not other-
wse provded for by aw.
Cams for reward under the provsons hereof sha be made on
orm No. 211, whch may be obtaned from coectors of nterna
revenue or from the ureau at Washngton, D. C.
Treasury Decson No. 21856, dated December 18, 1899, and In-
terna Revenue Crcuar No. 99 5th revson, dated pr 22, 1926
(Department Crcuar No. 147 of 1899), are hereby revoked.
Gut T. everno,
Commssoner of Interna Revenue.
pproved uy 6, 1936.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 9, 1036, 11.51 a. m.)
-39-8326
Mm. 4496
Interest and penates Coecton n bankruptcy, Incudng pro-
ceedngs nsttuted under secton 77 of the ankruptcy ct,
recevershp proceedngs, and cases nvovng assgnments for the
beneft of credtors.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ugust 27,1936.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Other Offcers and mpoyees of the ureau of Interna
Revenue:
The foowng nstructons are to be observed n matters reatng
to the coecton of penates and nterest n certan types of nso-
vency cases and other court proceedngs, ncudng those nsttuted
under the provsons of secton 77 of the ankruptcy ct (48 Stat.,
911) :
P N LTI S.
Wth respect to the coecton of penates n ordnary bankruptcy
cases, reorganzaton proceedngs nsttuted under the provsons of
secton 77 of the ankruptcy ct, recevershp proceedngs, and
cases nvovng assgnments for the beneft of credtors, the foowng
s to be noted:
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531
Msc.
1. ankruptcy cases. The coecton of penates n bankruptcy
cases, e cept to the e tent of pecunary oss sustaned, s specfcay
prohbted by secton 57() of the ankruptcy ct.
2. Reorganzatons under secton 77 of the ankruptcy ct.
Wth reference to the coecton of penates n proceedngs nsttuted
under secton 77 of the ankruptcy ct, subdvson (k) of secton
77 provdes n part as foows:
None of the sectons enumerated In ths subdvson (k), e cept
subdvsons (g), (), ( ), and (m) of secton 57, sha appy to pro-
ceedngs nsttuted under ths secton 77 uness and unt an order has been
entered drectng the trustee or trustees to qudate the estate.
Snce subdvson (|) of secton 57 of the ankruptcy ct prevents
the aowance of penates n proceedngs nsttuted under secton
77 , whether or not an order to qudate the estate has been entered,
penates shoud not be asserted or ncuded n proofs of cams fed
n 77 proceedngs.
3. Recevershp proceedngs and cases nvovng assgnments for the
beneft of credtors. There s no prohbton aganst the coecton of
penates n recevershp proceedngs or n cases nvovng assgn-
ments for the beneft of credtors.
INT R ST.
I. The fng of a petton n bankruptcy does not affect the nterest
on unpad ta es e cept as the statutes so provde. In Unted States
v. Chds (266 U. S., 304 (1924), T. D. 3671, C. . I -1, 241), the
Supreme Court hed that nterest at the rate of 1 per cent per
month s not a penaty, and s coectbe as nterest from the estate
of the bankrupt. Ths case deat wth a ta assessed under the Rev-
enue ct of 1917. In the Revenue ct of 1924, secton 276(c)
provded that n the case of estates of ncompetent, deceased, or nso-
vent persons, nterest shoud be coected at the rate of 6 per cent
per annum. Subsequenty, Congress provded n secton 276(c) of
the Revenue ct of 1926 and n secton 294(c) of the Revenue cts
of 1928, 1932, 1934, and 1936 that:
or any perod an estate s hed by a fducary apponted by order
of any court of competent |ursdcton or by w, there sha be coected
nterest at the sate of 6 per centum per annum n eu of the nterest provded
n subsectons (a) and (b) of ths secton.
These provsons mtng the rate of nterest are appcabe ony
to ncome ta es mposed by the Revenue ct of 1924 and subsequent
Revenue cts. ccordngy, where an estate s under the custody
of a trustee n bankruptcy, nterest on ncome ta es at the rate of
ony 6 per cent per annum may be recovered for the perod the estate
s so hed. The same rue w appy where an estate s n the custody
of any other trustee or of a receve guardan, or other fducary,
apponted by a court of competent |ursdcton or by w. In assgn-
ments for the beneft of credtors where no fducary has been ap-
ponted by court order, nterest at the rate of 1 per cent per month
sha be coected. owever, n a cases for any perod subsequent
to ugust 30, 1935, nterest at the rate of 6 per cent per annum ony
may be coected, as provded by secton 404 of the Revenue ct of
1935.
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Msc. 532
II. There s no provson correspondng to secton 294(c) afore-
sad mtng the rate of nterest n respect of msceaneous e cse
ta es. ccordngy, where the ta ng statute provdes for nterest
at the rate of 1 per cent per month on msceaneous e cse ta es a
proofs of cam coverng such ta es fed n any bankruptcy case,
ncudng proceedngs nsttuted under secton 77 of the ank-
ruptcy ct, as we as n recevershp proceedngs and cases pendng
n court nvovng assgnments for the beneft of credtors, shoud
ncude nterest at that rate to ugust 30, 1935, ncusve, and there-
after at the rate of 6 per cent per annum as provded by secton 404
of the Revenue ct of 1935.
Correspondence from coectors n regard to the procedure outned
heren shoud refer to the number of ths mmeograph and to the
symbos C: Co. Correspondence from nterna revenue agents
n charge regardng the procedure outned heren shoud refer to
the number of ths mmeograph and to the symbos IT: : CTR.
Guy T. ever g,
Commssoner.
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533 Msc.
OL OM RG RIN .
-31-8214
MS. 177
Schedue of oeomargarne produced and matera used durng the month of
une, 1936, as compared wth une, 19S5.
une, 1936.
une, 1935.
Pounds.
125,645,822
Pounds
25,016,509
Tota wthdrawn ta -pad
26,037.562
25,206,777
Ingredent schedue of uncoored oeomargarne:
1,180,918
utter
50
Corn o
9,639, 579
177,486
6,631, 710
72,116
1,139
6,476, 586
138,038
1, 424, 762
286,832
118,581
223,781
307,724
215,600
1, 293,395
4,637
10, 574
953,278
11,400,993
Cottonseed o._
6,396,358
83,777
2,630
6,926, 754
205,602
1,138,905
173,895
199,686
Dervatve of gycerne-..
Lecthn.
Mk
Neutra ard
Oeoo)
Oeo stearns
Oeo stock
Pam o . . . .. -
Pam kerne o
Peanut o
271,126
1, 387,308
3,387
13,527
69,460
Sat
Soda (bentoate of)--
Soya bean o
Tota-
28, 150, 725
27,283,417
Tota producton of coored oeomargarne
188, SL .
246, 245
Ingredent schedue of coored oeomargarne:
at, w
34.342
Coconut o
765
96,080
151
3
71, 196
247
Coor
17, 788
379
44,020
4,172
26,350
3,476
2,453
375
4,693
14,256
31
1,766
28,365
289
Mk
70,816
3,334
Oeo o
80,589
6,250
1,570
Oeo stearne ... . .
599
17,062
17
Sat
Soya bean o
Sunfower seed o
14,500
Tota
216,657
294,833
Of the amount produced, 28,661 pounds were reworked.
Of the amount produced, 30,570 pounds were reworked.
Of the amount produced, 256 pounds were reworked.
Of the amount produced, 384 pounds wore reworked
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Msc.
534
-35-8280
MS. 178
Schedue of oeomargarne produced and materas used durng the month of
uy, 1936, as compared cth uy, 1935.
uy, 1936.
uy. 1935
POU Tff .
1 27. 543,360
Pound .
21,278,823
Tota wthdrawn ta -pad - -
27,182,887
21,588.521
Ingredent schedue of uncoored ooomargarna:
1,288,728
9,478.176
203, 105
7, 595,521
82,274
1.476
5,220,081
134,110
1, 574, 734
253,075
119,132
125,026
269.279
322,412
1.423.442
3,570
11.363
1,277,318
Coconut o
10,267,774
Corn o -
5,793,018
57,523
1.497
4,437,257
135,041
834.901
217.411
132,836
Oeo stearne -
183.118
1.137.339
2,683
12.973
121,725
Sat
Tota
29,382,822
23, 335.14
151, 389
TO 251
Ir|gredent schedue of coored oeomargarne:
40,818
24,492
abassue o
192
75,401
119
16,231
252
37,831
3.C21
26, 551
950
1,174
200
1,981
10,534
30
1,040
( oconut o .
58,250
210
26,429
294
51. 772
3,084
56,913
2,100
7,825
Coor
Dervatve of gycerne
Mk
Oeo o...
Oco stearne
Oeo stock
Pam o
Peanut o
145
13,238
18
Sat
Soda (beuzoate of)
9, 920
Tota
175,567
23a 193
1 Of the amount produced, 28.457 pounds were reworked.
Of the amount produced, 6G,837 pounds were reworked.
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535
Msc.
-39-8327
MS. 179
Schedue of oeomargarne produced and materas used durng the month of
ugust, 1936, as compared unth ugust, 1935.
Tota productoD of uncoored oeomargarne-
Tota wthdrawn ta-pad--
Ingredent schedue ot uncoored oeomargarne:
abassue o
Coconut o
Corn o
Cottonseed o
Dervatve of gycerne
Lecthn.,.-
Mk u
ugust, 1930.
Pounds.
30,096,123
Neutra ard
Oeo o
Oeo s
Oeo stock
Pam o
Pam kerne o-
Peanut o
Sat..
Sesame o _
Soda (benzoate of)---
Soya bean o
Tota.
Tota producton of coored oeomargarne..
Tota wthdrawn ta -pad
Ingredent schedue of coored oeomargarne:
abassue o
utter
Coconut o -
Coor
Corn o -
Cottonseed o
Dervatve of gycerne
Mk
Neutra ard
Oeo o_
Oeo stearne..
Oeo stock
Peanut o.
Sat-
Soda (benzoate of) _
Soya bean o
Sunfower seed o..
Tota
982, 381
610, 249
178, 568
587, 542
US, 938
1,617
782,316
148. 379
551,864
292,301
142,168
61,464
274, 748
316,906
481,601
3,528
12,550
760.600
ugust, 1935.
Pounn.
25, 473, 757
32, 293, 740
254,990
44,792
2,743
139,125
243
16
20, 817
280
65,155
4,134
31,304
4,375
1, 818
85
5,297
18,358
37
764
294,551
25, 200,061
12, 984,632
6, 300, 034
72, 391
1,918
5,281,504
112, 753
822, 141
232.739
166, 757
218, 374
1,356, 199
4,990
16,509
73,973
27,704,514
319,120
27. 444
37
71, 402
336
42,235
392
89, 652
1,993
131,056
2,765
4,990
379
16, 740
25
, 750
382, 752
Of the amount produced, 19,983 pounds were reworked.
Of the amount produced, 50,282 pounds were reworked.
Of the amount produced, 512 pounds were reworked.
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536
-44 8374
MS. 180
Schedue of oeomargarne produced and materas used durng the month of
September, 193G, as compared wth September, 1935.
September,
1936.
September,
1935.
Pound .
1 33, 508.807
Pounfa.
31,692, 571
Tota producton of uncoored oeomargarne ...........
31,126,581
Ingredent schedue of uncoored oeomargarne:
L 106, 155
13,862,608
16.604
0,056,016
103.776
1,838
6.308.397
166,844
1,404.982
309,302
148,498
16,692, 150
420
6,605,288
89,704
2.123
6,465,826
134,153
1,214,369
24tt 770
166,341
Mk
136.825
147,976
390.268
1,661,762
3,400
14,082
775,065
33a 527
343,452
1,64a 870
24,587
18,629
188,328
Sat
Soda (benzoato of) _. .
Soya bean o
35, 710. 350
34,247,537
202.620
162,620
Ingredent schedue of coored oeomargarne:
57.811
33,018
Coor
700
101,046
162
24,505
237
79,270
127
18.912
111
1
Mk
48,584
4.727
29,811
2,600
2,397
561
268
48,948

26,511
Oeo stearne ...
Oeo stock .
8
2,930
1,868
2.7M
Tota
232,857
197,078
Of the amount produced, 25,084 pounds were reworked.
Of the amount produced, 14,219 pounds were reworked.
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537
Msc.
-49-8426
MS. 181
Schedue of oeomargarne produced and materas used durng the month of
October, 1936, as compared wth October, 1935.
October,
1936.
October,
1935.
Pound .
35.454,179
Pounds.
32,080,195
Tota wthdrawn ta -pad
35, 541, 820
31,463, 529
Ingredent schedue of uncoored oeonargnrne:
abassueo
672,100
13, 675, 697
5,936
10,013,516
105,169
2,448
6, 698, 768
196,635
L 712, 506
293,873
171,418
199, 485
28,566
624.5G9
389.260
1,802,901
6,000
15.625
1,556,602
309,214
16,285,992
784
6,586.989
87,815
1,243
6,461.492
149,280
1,254,801
238,338
190,748
Coconut o
Cottonseed o
Mk
Oeoo
Oeo stearne -
Oeo stock -
Pam o -
Pam kerne o
Peanut o
421,021
1,667, 774
7,865
16.699
334,828
Soya bean o .
37,971,073
34.014,801
Tota producton ot coored oeomargarne
131,622
181, 259
Ingredent schedue of coored oeomargarne:
60,076
35,502
Dervatve of gycerne ......... ............... . -
425
43,343
164
28,911
234
33,198
6,016
28.158
326
2,623
1,815
260
330
8,770
29
1,978
85,827
141
22,951
Mk
44,468
Ourcury ... --
6,239
31,639
713
2,430
Pam o ......... ..........
8, 214
13, 715
31
4
oya bean o
155, 579
210, 611
Of the amount produced, 23.SR1 pounds were reworked.
Of the amount produced, 52,033 pounds were reworked.
Of the amount produced, 1.048 pounds were reworked.
121397 37 18
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538
TO CCO.
-27-8158
T. 24
Statement of manufactured tobacco produced, by casses, durng the month of
pr, 1936, as compared wth pr, 1935.
pr, 1936.
pr, 1935.
pr, 1936.
pr, 1333.
Pounds.
Pounds.
Pounds.
16,437,097
Pounds.
15.443,238
Pug
5,047, 869
530,407
402, 110
5,141,685
398,455
400,383
Smokng
Twst
ne-cut chewng
Tota
26,361,555
24,684,614
cmp chewng
3,944,072
3,600,853
ot . These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
-31-8222
T. 25
(Statement of manufactured tobacco produced, by casses, durng the month of
May, 1936, as compared wth May, 1935.
May, 1936.
May, 1935.
May. 1936.
May, 1935.
Pounds.
Pounds.
Pounds.
15,825,489
Pounds.
17,211,919
PUR....
4,907,460
434,564
560,492
5,229,941
483,194
419,359
Smokng
Twst
ne-cut chewng
Tota
25,261,408
27,351,804
Scrap chewng
3, 483,403
4,007,391
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
-36-8295
T. 26
Statement of nwnufaoturcd tobacco produced, by casses, durng the month of
une, 1936, as compared wth ane, 1935.
une, 1936.
une, 1935.
une, 1936.
une, 1935.
Pounds.
Pound .
Pounds.
16, 412. 782
Pound .
Pug
4,733, 168
557, 372
446.320
4,999,850
499,735
415,214
Smokng _
15,558.446
Twst
ne-cut chewng
Tota
26,291,004
25, 431, 766
Scrap chewng
4, 141, 362
008, 515
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
-40-8339
T. 27
Statement of manufactured tobacco produced, by casses, durng the month of
uy, 1936, as compared wth uy, 1935.
uy, 1936.
uy, 1935.
uy, 1936.
uy. 1935.
Pounds.
Pounds.
Pounds.
17,290,822
Pound).
16,489.045
Twst
5, 253, 357
547,446
612,068
5,385, 519
465.952
462, 485
ne-cut chewng
Tota
27.887.126
26,437.238
Scrap chew ng..
4, 183,433
3, 634, 237
Note. These fgures are sub|ect to revson unt pubshed In the Com
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539
Msc.
-44-8373
T. 28
Statement of manufactured tobacco produced, by casses, durng the month of
ugust, 1936, as compared wth ugust, 1935.
ugust,
1936.
ugust,
1935.
ugust,
1936.
ugust,
1935.
Pounds.
Pounds.
Pounds.
14,423,443
Pounds.
17,157,344
Pug
6,013.160
638,161
403,056
5,323,258
481, 760
465, 195
Twst
ne-cut chewng.
Tota
24,329,208
27,498,577
Scrap chewng
3,951,388
4,071,020
ot. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
-49-8425
T. 29
Statement of manufactured tobacco produced, by casses, durng the month of
September, 1936, as compared wth September, 1935.
September,
1936.
September,
1935.
Sentember,
1936.
September,
1935.
Pounds.
Pounds.
Pounds.
16,639,172
Pounds.
16,402,951
Pug
6,638, 713
535, 768
662,118
6,116.655
472.713
433, 741
Smokng
Twst
ne-cut chewng
Tota
27,024,816
26,098,961
Scrap chewng
3,749,045
3,672,901
Note. These fgures ore sub|ect to revson unt pubshed n the Commssoner s annua report.
MISC LL N OUS.
-31-8215
Mm. 4479
ttorneys or agents enroed to practce before the Treasury De-
partment to tender resgnatons upon acceptng empoyment n the
Interna Revenue Servce.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, uy U, 1936.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Dstrct Supervsors, and Others Concerned:
The Commttee on nroment and Dsbarment, Treasury Depart-
ment, has requested that nstructons be ssued requrng each person
enroed to practce before the Treasury Department to tender to the
commttee hs resgnaton as an enroed agent or attorney and to sur-
render hs enroment card mmedatey upon acceptng empoyment
n the Interna Revenue Servce.
Personne offcers of the ureau, or empoyees desgnated by them,
w accordngy nform each person enroed to practce before the
Treasury Department who accepts empoyment n the Interna Reve-
nue Servce, temporary or otherwse, to submt mmedatey hs
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Mso.
540
resgnaton wth respect to such enroment, together wth hs enro-
ment card, to the Commttee on nroment and Dsbarment.
Inqures and correspondence regardng ths mmeograph shoud
refer to ts number and the symbos IT: : RR.
Guy T. evebnq,
Commssoner.
-42-8356
Mm. 4507
Statement reatve to fee arrangements wth cents to be
secured from agents and attorneys and attached to power of
attorney. Department Crcuar No. 230 (revsed) (effectve
October 1, 1936 page 541, ths uetn ).
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, October 1, 1936.
Coectors of Interna Revenue, Interna Revenue gents n Charge.
Dstrct Supervsors, Offcers and mpoyees of the ureau of
Interna Revenue, and Others Concerned:
Department Crcuar No. 230 (revsed) effectve October 1, 1936,
rovdes that when a power of attorney s fed wth the Treasury
epartment t sha be the duty of the attorney or agent fng the
same to fe therewth a statement concernng the fee arrangement
wth the ta payer grantng such power of attorney. copy of the
statement requred to be fed s attached hereto.
If n any case the requred statement s not submtted wth the
power of attorney, t sha be the duty of the offca or empoyee
of the ureau recevng the power of attorney to obtan such state-
ment from each and every attorney or agent named n the power of
attorney, and to attach the statement or statements securey to the
power or attorney.
Inqures regardng the foregong and requests for mmeograph
copes of the statement shoud be addressed to the Commssoner of
Interna Revenue, attenton Pub. Re.
Guy T. everng,
Commssoner.
ST T M NT R L TI TO S TO IL D WIT POW R O TTORN T.
(Pace.)
(Date.)
Ths Is to certfy that I (have) (have not) entered Into a contngent or
partay contngent fee agreement for the representaton before the Depart-
ment of n the matter of under
the terms of a power of attorney fed wth the Treasury Department
on and (n case a contngent or partay contngent
fee agreement has been made) that a report of such fee agreement (has) (has
not) been made to the Commttee on nroment and Dsbarment
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541
Msc.
-41-8348
D. C. 230 (Rev.)
Laws and Reguatons Governng toe Recognton or gents, ttorneys, and
Other Persons Representng Camants efore the Treasury Department
and Offces Thereof.
1836. Department Crcuar No. 230 (Revsed).1 Commttee on nroment and
Dsbarment.
Treasury Department,
Offce of the Secretary,
Washngton, September 15,1936.
y vrtue of and pursuant to the authorty vested n me, ncudng
the authorty conferred by ct of uy 7, 1884 (23 Stat., 258), the
foowng rues and reguatons governng the recognton of agents,
attorneys, and other persons representng camants t efore the Treas-
ury Department and offces thereof, are hereby prescrbed:
Secton 1. Commttee on nroment and Dsbarment. commttee on en-
roment and dsbarment Is hereby created consstng ot three members who
sha be apponted by the Secretary of the Treasury. The Secretary of the
Treasury sha desgnate a charman and vce charman of the Commttee.
The Secretary n hs dscreton may appont a part-tme member or members
of the Commttee, and, whenever n hs |udgment such acton Is necessary, the
Secretary may appont some person to servo temporary as a substtute for
a reguar member of the Commttee. The Commttee sha have such powers to
prescrbe rues for Its own government and procedure as are set forth ese-
where n these reguatons. The Commttee sha meet at such tmes as t
may desgnate or at the ca of the charman. Two members of the Commttee
sha consttute a quorum. earngs for the purpose of takng testmony In
proceedngs for suspenson or dsbarment may be hed by a snge member
of the Commttee at such paces as the Commttee may desgnate, but a fnd-
ngs of fact and recommendatons thereon sha be made by the Commttee.
The Commttee sha receve and act upon appcatons to be recognzed as
attorneys or agents before the Treasury Department receve and act upon
appcatons for reenroment from attorneys or agents who have been ds-
barred receve appcatons for vacaton or modfcaton of orders of suspen-
son or dsbarment receve compants aganst persons enroed conduct hear-
ngs make nqures perform other dutes as prescrbed heren do a thngs
necessary In the matter of proceedngs for enroment, suspenson, dsbarment,
or renstatement of such attorneys or agents, pursuant to these reguatons and
rues of procedure prescrbed thereunder and submt ts fndngs of fact and
recommendatons n suspenson and dsbarment cases and n cases for the vaca-
ton or modfcaton of orders of suspenson and dsbarment to the Secretary
of the Treasury for approva or dsapprova.
The Secretary of the Treasury may appont a person to act as secretary of
the Commttee or desgnate a member of the Commttee to act as secretary.
The secetary of the Commttee sha keep and mantan ts records, sha have
custody of a ts papers, records, ros, and fes, and sha perform such other
dutes reasonaby ncdent to hs offce as the Commttee sha drect. If no
secretary s apponted or desgnated, the dutes heren enumerated sha devove
upon the charman of the Commttee, or upon such person or persons as he
may desgnate.
The Secretary of the Treasury sha appont an attorney not a member of
the Commttee as attorney for the Government to prepare and present a
forma statements of charges aganst enroed attorneys or agents, to super-
vse the gatherng of evdence n support of such charges, ncudng the takng
of depostons, to represent the Government In a proceedngs before the Com-
mttee, and to perform such other dutes reasonaby Incdent to hs poston as
the Commttee sha drect
1 ffectve Oct. 1, 1036. Ths crcuar supersedes Treasury Department Crcuar No. 230,
dated Oct. 1, 1934, and the amendments thereof and suppements thereto.
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Msc.
542
Sec. 2. Pues and reguatons reatng to practce. (a) No attorney or agent
sha be egbe to practce before the Treasury Department uness such at-
torney or agent s enroed n accordance wth these or pror reguatons, e cept
that any ndvdua may appear, wthout enroment, on hs own behaf or n
behaf of a member of hs mmedate famy f such appearance s wthout
compensaton and a member of a partnershp, an offcer of a corporaton, or
an authorzed reguar empoyee of an ndvdua, partnershp, corporaton, or
estate, may kewse appear, wthout enroment, n any matter reatng to
such ndvdua, partnershp, corporaton, or estate pendng before the Treasury
Department f he presents adequate dentfcaton to the offcas of the Depart-
ment. nroment s not requred for appearances by trustees, recevers,
guardans, admnstrators, and e ecutors on behaf of trusts, recevershps,
guardanshps, or estates of whch such persons are the trustees, recevers,
guardans, admnstrators, or e ecutors, f adequate dentfcaton s presented
to the offcas of the Department Ths rue aso appes to an ndvdua,
a partnershp, an estate or trust, or a corporaton wth respect to the abty
of the ndvdua, partnershp, estate or trust, or corporaton as a transferee
of property of a ta payer and to a fducary wth respect to the abty of
the fducary under secton 3467 of the Revsed Statutes. No enroed person
or other person authorzed to appear before the Treasury Department wthout
enroment sha represent a camant before the Treasury Department n any
matter to whch the enroee, as offcer or empoyee of the Unted States, gave
persona consderaton or as to the facts of whch he ganed knowedge whe
n the Government servce.
No former offcer, cerk, or empoyee of the Treasury Department sha act
as attorney or agent, or as the empoyee of an attorney or agent, wthn two
years after the termnaton of such Treasury empoyment, In any matter
pendng n such Department durng the perod of hs empoyment theren, un-
ess he sha frst obtan the wrtten consent thereto of the Secretary of the
Treasury or hs duy authorzed representatve. Ths consent w not be
granted uness t appears (1) that the appcant was not, durng the perod of
two years mmedatey precedng the date of appcaton, empoyed n the
partcuar departmenta or fed secton n whch was pendng the matter, to
hande whch consent s sought, provded that ths requrement sha not appy
to persons empoyed In an admnstratve capacty such as head of a unt,
dvson, or secton, or empoyed as a revewer or conferee or n an advsory
capacty and (2) that empoyment as an agent or attorney s not prohbted
by Tte 5, secton 99, Unted States Code, or other aw, or by the reguatons of
the Treasury Department Such appcant sha be requred to fe an affdavt
to the effect that he gave no persona consderaton to such matter and had no
knowedge of the facts Invoved n such matter whe he was empoyed n the
Department, and that he s not now assocated wth, and w not be asso-
cated wth, any former empoyee who has ganed knowedge of the case whe
empoyed by the Treasury Department, and that hs empoyment s not pro-
hbted by Tte 5, secton 99, Unted States Code, or other aw, or by the
reguatons of the Treasury Department The statements contaned n such
affdavt sha not be suffcent f dsproved by an e amnaton of the fes and
records pertanng to the case. ppcatons for consent shoud be drected to
the Commttee on nroment and Dsbarment on orm 901 and shoud state
the former connecton wth the Department of the appcant and Identfy
the matter n whch the appcant desres to appear. The appcant sha
be prompty advsed as to hs prvege to appear n the partcuar matter, and
ths notce sha be fed by hm n the record of the case.
Nor sha any enroed person knowngy (1) assst a person who has been
empoyed by a cent to represent hm before the Treasury Department n
connecton wth any matter to whch such person gave persona consderaton
or as to the facts of whch such person ganed persona knowedge whe n
the Government servce, or (2) accept assstance from any such person n
connecton wth any such matter, or (3) share fees wth any such person In
connecton wth any such matter.
It Is unawfu for any former offcer, cerk, or empoyee In any of the e ecutve depart-
ments to act as counse, attorney, or agent for prosecutng, wthn two years ne t fter
hp shn have ceased to be such offcer, cerk, or empoyee, any cam nvovng a demand
for money from the Unted States whch was pendng In an e eoutve department whe
be was empoyed as an offcer, cerk, or empoyee n such e ecutve department or n any
other e ecutve department. (Sea aso 20 Op. tty. Gen., 698.)
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543
Msc.
(6) Practce before the Treasury Department sha be deemed to comprehend
a matters connected wth the presentaton of a cent s Interests to the Treas-
ury Department, ncudng the preparaton and fng of necessary wrtten
documents, and correspondence wth the Treasury Department reatve to such
Interests. Uness otherwse stated the term Treasury Department as used
In ths paragraph and esewhere In these reguatons ncudes any dvson,
branch, bureau, offce, or unt of the Treasury Department, whether In Wash-
ngton or In the fed, and any offcer or empoyee of any such dvson, branch,
bureau, offce, or unt.
(c) ach enroed attorney or agent who knows that a cent has not com-
ped wth the aw or has made an error n, or an omsson from, any return,
document, affdavt, or other paper, whch the aw requres such cent to
e ecute, sha advse hs cent prompty of the fact of such noncompance,
error, or omsson.
(d) It sha be the duty of an enroed attorney or agent, when requested
by the Commttee or the attorney for the Government, to gve the Commttee
or the sad attorney any nformaton whch he may have concernng voatons
of these reguatons or of the occurrence of any acts or omssons whch woud
be grounds for suspenson or dsbarment, uness sad Informaton Is prveged.
(e) very enroed attorney or agent practcng as an ndvdua sha use hs
ega name In the conduct of hs ega, accountng, or other professona practce.
The term company, assocates, accountants, audtors, engneers, or
other pura forms suggestng a partnershp, or anguage of smar mport,
used In connecton wth a name or tte, or any fcttous tte, or trade name,
sha be used ony by a bona fde partnershp consstng of two or more mem-
bers, and a statonery, stngs, advertsements, and announcements of enroed
persons sha conform to the prncpes heren stated.
(/) n agent enroed before the Treasury Department sha have the same
rghts, powers, and prveges and be sub|ect to the same dutes as an enroed
attorney, provded that an enroed agent sha not have the prvege of draft-
ng or preparng any wrtten Instrument by whch tte to rea or persona
property may be conveyed or transferred for the purpose of affectng edera
ta es, nor sha such enroed agent advse a cent as to the ega suffcency
of such an nstrument or ts ega effect upon the edera ta es of such cent,
and provded further that nothng n these reguatons sha be construed as
authorzng persons not members of the bar to practce aw.
(g) very cam, affdavt, wrtten argument, bref, or statement of fact, pre-
pared or fed by an enroed attorney or agent n any matter pendng before
the Treasury Department, sha have aff ed thereto a statement sgned by
such attorney or agent showng whether he prepared such document and
whether or not he knows of hs own knowedge that the statements of fact
contaned theren are true.
(ft) It sha be the duty of any enroed attorney or agent who prepares a
return for a ta payer to sgn and e ecute before a notary pubc or other
offca authorzed to admnster an oath a statement showng that he prepared
the return, that the nformaton set out n the return and the accompanyng
schedues, f any, correcty and truy represents the nformaton furnshed to
or dscovered by hm durng the course of preparaton of the return, and that
such nformaton Is true accordng to the best of hs nformaton and beef
(T. D. 4416 C. . III-1, 68 ), or such modfed form of statement of smar
character as may hereafter be prescrbed by Treasury reguatons.
(1) No enroed attorney or agent as notary pubc sha take acknowedg-
ments, admnster oaths, certfy papers, or perform any offca act In connec-
ton wth matters n whch he Is empoyed as counse, attorney, or agent, or
n whch he may be n any way Interested before the Treasury Department
( ct of une 29, 1006, 34 Stat., 622.) Under the provsons of ths paragraph
an enroed person who s a notary pubc s prohbted from takng any
acknowedgment, oath, or certfcaton as a notary pubc n connecton wth
any ta return, protest, or other document whch he has prepared or n the
preparaton of whch he has asssted.
()) It sha be Incumbent upon each enroed person (1) who s authorzed
to practce as a certfed pubc accountant or as a pubc accountant to man-
tan unmpared hs rght to practce as a certfed pubc accountant or pubc
accountant (2) who s admtted to practce before any court to mantan
unmpared hs rght to practce before such court and (3) who s enroed
or admtted to practce before another department or agency of the Government
to mantan unmpared hs standng before such department or agency.
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544
(fc) No enroed person sha mantan a partnershp for the practce of aw,
accountancy, or other reated professona servce wth a person who s under
dsbarment from practcng before the Treasury Department or any other
Government department or agency, or wth an unenroed person who s nether
an attorney egay practcng aw nor a certfed pubc accountant or a
pubc accountant egay practcng accountancy.
( ) No enroed person sha be connected wth an accountng corporaton
ether as offcer, empoyee, or stockhoder nor sha any enroed person, whe
empoyed as an offcer, empoyee, attorney, or agent of any corporaton, practce
before the Treasury Department on behaf of such corporaton as the repre-
sentatve of the offcers, empoyees, drectors, stockhoders or members, cus-
tomers or cents, of such corporaton, e cept as permtted by secton 6 of
these reguatons. The term corporaton as used n ths paragraph and
esewhere n these reguatons sha be deemed to ncude assocatons, ont
stock companes, and nsurance companes. Nothng contaned heren sha
prevent an enroed person from beng empoyed by agrcutura cooperatve
assocatons, on a nonproft bass and not sub|ect to edera Income ta es, to
represent before the Treasury Department the groups or unts consttutng
membershp of such assocatons, provded that Indvduas may not be so
represented.
(m) No enroed person sha represent before the Treasury Department
cents of an unenroed person who s nether an attorney nor an accountant
reguary engaged n the practce of accountancy nor a customhouse broker, or
who to the knowedge of the enroed person socts busness, obtans cents,
or otherwse conducts hs practce n a manner forbdden under these regua-
tons to enroed persons.
(n) No enroed person sha In any Treasury Department matter knowngy
and drecty or ndrecty:
1. mpoy or accept assstance from any unenroed person whose appca-
ton for enroment sha at any tme have been dened for a cause nvovng
mora turptude, or from a person who has been dsbarred from practce before
any department or agency of the Government or before any court of record, or
who s under suspenson from practce before any such department, agency, or
court, or who has been deprved of hs certfcate as a certfed pubc accountant
or pubc accountant, or whose name after the effectve date hereof has been
strcken from the ro of attorneys and agents authorzed to represent camants
before the Treasury Department In the course of dsbarment proceedngs aganst
hm, or
2. ccept empoyment as assocate, correspondent, or subagent, from, or share
fees wth, any such person, or any person who s not an attorney or a pubc
accountant reguary engaged n the practce of accountancy, or who s not a
censed customhouse broker.
(o) ach enroed person sha e ercse due dgence n preparng fnanca
statements for cents and n certfyng to the correctness of the same.
(p) ach enroed person sha e ercse due dgence to ascertan the correct-
ness of any nformaton whch he mparts to a cent wth reference to any
Treasury Department matter, and no enroed person sha wthhod nformaton
reatve to any such matter from a cent who s entted to the nformaton.
(q) ach enroed person sha prompty pay over to the Government when due
a sums receved for the payment of any duty, ta , or other debt or obgaton
owng to the Government, and sha prompty account to cents for funds receved
for them from the Government, or receved from a cent In e cess of the charges
propery payabe In respect of the cent s busness.
(r) No enroed person sha wthout authorty of hs cent Indorse or accept
any Government draft, check, or warrant drawn to the order of such cent.
( ) No enroed person sha attempt to nfuence the acton of any offca or
empoyee of the Treasury Department n any Treasury Department matter by
the use of threats, fase accusatons, duress, or by the offer of any speca
Inducement or promse of advantage, or by the bestowng of any gft or favor
or other thng of vaue.
(t) No enroed person sha negect or refuse to produce records or evdence
In any matter before the Treasury Department upon proper and awfu demand
by a duy authorzed agent of the Department, uness the attorney or agent has
reasonabe grounds to beeve and does beeve that the sad demand Is of
doubtfu egaty or sha otherwse Interfere, or attempt to Interfere, wth any
proper and awfu efforts by such Department or agent to procure such
nformaton.
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545
Mso.
(t) No enroed person sha procure, or attempt to procure, drecty or
Indrecty, from Government records or other Government sources nformaton
of any knd whch s not made avaabe by proper authorty.
(v) No enroed attorney or agent sha n any manner whatsoever soct,
drecty or ndrecty, or by mpcaton, empoyment from persons not cents or
frends n matters before the Treasury Department, or n matters reated
thereto. mong other thngs the foowng sha be deemed to be prohbted by
ths paragraph:
1. The pubcaton of artces or the devery of addresses on edera ta
questons by an enroed person over the rado or esewhere n connecton wth
whch the name of the frm of whch he Is a member, assocate, or empoyee, or
the address of the wrter or speaker Is gven ether by the wrter, speaker, an-
nouncer, or pubsher, provded that nothng heren sha be construed to prohbt
the pubcaton, by perodcas admtted to second-cass mang prveges, of
such nformaton concernng contrbutors of artces as s usuay pubshed n
such perodcas.
2. The mang of crcuars, etters, pamphets, or other prnted or wrtten
matter to persons not cents or frends of such enroed person whch contan
no drect soctaton of empoyment but whch do ncude the name and a
descrpton of the practce and address of such enroed person.
3. dvertsng In one or more of the foowng forms: (a) Sgns, prntng,
or other advertsng matter, ndcatng prevous connecton wth the Treasury
Department (6) representaton, oray, In wrtng, or n any other manner,
of speca Infuence wth the offcas or empoyees of the Treasury Department
through acquantance or otherwse (c) the use of any tte or other descrpton
of the attorney or agent or hs practce whch tends to suggest some connecton
wth the Treasury Department of the Unted States, and any tte or descrpton
contanng the words Unted States sha be presumed to carry such sugges-
ton, e cept that there Is no ob|ecton to the use of the words nroed to prac-
tce before the Unted States Treasury Department d) dstrbuton of bue-
tns, crcuars, pamphets, or so-caed ta servces, to persons who are not
cents or frends of the attorney or agent contanng decsons or rungs of the
Treasury Deartment, Unted States oard of Ta ppeas, or courts on ed-
era ta mat-rs, or comment thereon by the attorney or agent (e) dstrbuton
to persons not cents or frends of the practtoner of crcuars or pamphets
advertsng any busness, educatona, or soca Insttuton, or organzaton,
whch crcuar or pamphet contans a card or advertsement of the practce of
such attorney or agent.
The foowng knds of advertsng w not be deemed to consttute a voaton
of paragraph ( ):
(1) Letterheads, professona cards, and the customary professona nser-
tons In professona, teephone, and cty drectores, or In newspapers, trade or
professona ournas, or other pubcatons admtted to second-cass mang
prveges, provded they set forth ony the name and address of the attorney or
agent or the name of the frm of whch he s a member or wth whch he s
assocated, a bref descrpton of the nature of hs practce, to wt, whether he
practces as an attorney or accountant, and, If desred, any fed of practce or
servce In whch such attorney or agent may specaze
(2) The dstrbuton by former offcers or empoyees of the Government of
cards brefy statng the fact of ther former offca status and announcng ther
new assocaton: Provded, The cards are addressed ony to persona or busness
acquantances: nd provded further. That such cards are dstrbuted ony once
and wthn a reasonabe tme after severance of offca connecton wth the Gov-
ernment and wthn 30 days after the formaton of a new assocaton.
(t) ach enroed person sha e ercse due dgence In preparng or assstng
n the preparaton of, approvng, and fng returns, documents, affdavts, and
other papers reatng to Treasury Department matters, and n otherwse repre-
sentng cents before the Treasury Department and no enroed person sha
unreasonaby deay the prompt dsposton of matters before the Treasury De-
partment by negectng to answer correspondence, by unreasonaby deayng the
fng of cosng agreements, by fng frvoous cams for refunds, or otherwse.
a) It sha be the duty of every enroed person who becomes an offcer or
empoyee of the Treasury Department to request that hs name be strcken from
the ro and to surrender to the Commttee hs enroment card for canceaton
and It sha be the duty of every other enroed person who becomes a |udge of
any court of record or an offcer or empoyee (1) of the Unted States, (2) of any
corporaton owned whoy by the Unted States, (3) of the Dstrct of Coumba,
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Msc.
546
or (4) of any State or subdvson thereof whose dutes dscose facts or nfor-
maton appcabe to edera ta matters, to request the Commttee on nro-
ment and Dsbarment to pace hs name on the nactve st of Treasury Depart-
ment practtoners durng the perod of such ncumbency.
(y) No enroed person sha e act from hs cent a manfesty unreasonabe
fee, whether contngent or otherwse, n any matter before the Treasury Depart-
ment. The reasonabeness of a fee n any case s wthn mts a matter of udg-
ment and depends upon a the facts and crcumstances thereof, ncudng the
compe ty and dffcuty of the case, the amount of tme and abor requred for
ts proper preparaton and presentaton, the amount nvoved, and the profes-
sona standng and e perence of the attorney or agent.
whoy contngent fee agreement sha not be entered Into wth a cent by an
enroed person uness the fnanca status of the cent s such that he woud
otherwse be unabe to obtan the servces of an attorney or agent. Partay
contngent fee agreements are permssbe where provson s made for the pay-
ment of a mnmum fee, substanta n reaton to the possbe ma mum fee,
whch mnmum fee s to be pad and retaned rrespectve of the outcome of the
proceedng. Such mnmum fee need not be pad n advance, f provson for Its
payment Is made rrespectve of the outcome of the case. The payment of or
agreement to pay a nomna mnmum fee w not satsfy the requrements of
ths subsecton.
Whenever an enroed attorney or agent sha enter nto a contract to represent
a cent before the Treasury Department on a whoy or partay contngent bass,
he sha fe wth the Commttee a sgned statement to that effect, contanng
the terms of the contract as they reate to compensaton.
When a power of attorney s fed wth the Treasury Department t sha be
the duty of the attorney or agent fng the same to fe therewth a statement as
foows:
(Pace)
(Date)
Ths s to certfy that || yg not entere nt0 a contmSent or partay con-
tngent fee agreement for the representaton before the Department of
n the matter of under the terms of a power of
attorney fed wth the Treasury Department on , and (n
case a contngent or partay contngent fee agreement has been made) that a
report of such fee agreement a not 06611 made to the Commttee on nroment
and Dsbarment.
(z) ach enroed person sha conduct hs practce n an ethca and pro-
fessona manner and t sha be the duty of each enroed attorney to observe
the canons of ethcs as adopted by the mercan ar ssocaton and of each
enroed agent to observe the ethca standards of the accountng professon.
mong other forms of unethca and unprofessona conduct the foowng w
be deemed to consttute such conduct: The use of ntemperate and abusve
anguage, the makng of fase accusatons or statements knowng them to be
fase, or the crcuaton of macous and beous matter n connecton wth
Treasury practce.
Seo. 3. Necessary quafcatons for enroment. (o) ppcants for enroment
to practce before the Treasury Department are repured by statute to show
that they are of good character and n good repute, possessed of the necessary
quafcatons to enabe them to render such camants vauabe servce, and
otherwse competent to advse and assst such camants n the presentaton
Of ther cases. (Tte 5, secton 261, Unted States Code.) The burden s upon
appcants to estabsh ceary ther rght to enroment by showng that they
possess (1) a good character and reputaton, (2) an adequate educaton, and
(3) a knowedge of the aws and reguatons reatng to ta matters and other
sub|ects whch they e pect to hande before the Department and of the rues
and reguatons governng practce before the Department ccountants, not
certfed or certfed through waver, w not be enroed uness they are abe
to present to the Commttee on nroment and Dsbarment convncng evdence,
by passng a prescrbed e amnaton, that they possess the educatona back-
ground, technca knowedge, and abty essenta to the proper understandng
of edera ta matters and the presentaton of the same before the Treasury
Department No attorney or accountant w be enroed uness he shows that
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547
Msc.
be Is authorzed to practce hs professon n the State or States, Terrtory, or
Dstrct (of Coumba) where he e pects to conduct such practce.
Good character and good reputaton are not Identca requrements. The
former s determned by the appcant s actua quates the atter depends
upon the opnon entertaned of the appcant by those who have had the
opportunty of knowng hm n the communty n whch he resdes or n whch
he practces hs professon. It foows that evdence of any act or omsson
whch tends to estabsh ack of ntegrty or untrustworthness or other quates
reprehensbe n a professona man, s matera as bearng upon the character
of the appcant, notwthstandng there s cear proof that hs reputaton s
good. n appcant must furnsh as references the names and addresses of at
east s persons who are acquanted wth hs reputaton and wth whom the
appcant has come n contact n hs professon or busness.
(b) mong the causes suffcent to |ustfy dena of an appcaton for enro-
ment are: ny conduct, or practces, or proposed practces, whch woud con-
sttute a voaton of any of the provsons of these reguatons f the appcant
were enroed or any other conduct whch woud be a ground for suspenson
or dsbarment under the appcabe aw or aws any conduct whch woud be
deemed grossy unfar n commerca transactons by accepted standards or
a bad reputaton mputng to an appcant conduct of a crmna, dshonest,
or unethca knd.
The Commttee on nroment and Dsbarment w endeavor to ascertan
a the facts deemed necessary by t to pass upon any appcaton wthout
e pense or undue Inconvenence to the appcant. In the event, however, that
the Commttee s not satsfed wth the nformaton receved, t may requre
the appcant to appear In person before the Commttee or before some person
or persons desgnated by t for the purpose of undergong addtona wrtten
or ora e amnaton as to hs ftness for enroment. The Commttee may grant
a hearng on an appcaton at the appcant s request.
(c) ppcaton for enroment may be dened n any case n whch t appears
that the appcant has termnated hs empoyment wth the Treasury Department
In voaton of an obgaton assumed as a condton of such empoyment to
reman n the servce of the Department for a specfed perod or for a
reasonabe tme.
( /) Ony ctzens of the Unted States over the age of 21 years are egbe for
enroment. person who s unabe for any reason to take the oath of ae-
gance, and to support the Consttuton of the Unted States, as requred of
persons prosecutng cams aganst the Unted States by Tte 31, secton 204,
Unted States Code, can not be enroed.
(e) Corporatons and partnershps are negbe for enroment.
(f) Offcers and empoyees of any State, or subdvson thereof, whose dutes
requre them to pass upon, nvestgate, or dea wth ta matters of such State
or subdvson, sha be Inegbe for enroment, provded such empoyment
may dscose facts or nformaton appcabe to edera ta matters.
(g) udges of courts of record sha be Inegbe for enroment
(ft) persons to whom secton 198 or secton 203 of Tte 18 of the Unted
States Code appes, a persons prohbted by other aw from representng
camants aganst the Unted States, a persons reguary empoyed by cor-
poratons owned whoy by the Unted States, and a persons reguary em-
poyed by the Dstrct of Coumba sha be negbe for enroment.
Sec. 4 ppcaton for enroment. ppcants for enroment sha submt
to the Commttee an appcaton In dupcate, propery e ecuted on orm 23,
whch forms a part of these reguatons. ppcatons n any other form may
not be consdered. Members of the bar of an mercan court of record w appy
for enroment as attorneys a other appcants w appy for enroment as
agents. appcatons for enroment must be ndvdua. Whe members
of a partnershp shoud appy as ndvduas and not n the partnershp name,
an enroed attorney or agent may represent cents before the Treasury De-
partment n the name of the partnershp of whch he s a member or wth
whch he s otherwse reguary connected. In case a of the members of a
partnershp are not enroed, then the enroed attorney or agent sha be respon-
sbe for any acts or omssons of the unenroed partner or partners whch
are n voaton of aw or of the provsons of these reguatons, to the same
e tent as though the offendng partner hmsef were enroed.
Sec. 5. Cmtomhouge brokers. Secton 641 of the Tarff ct of 1930, as
amended, provdes n part that the Secretary of the Treasury may prescrbe
rues and reguatons governng the censng as customhouse brokers of ctzens
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Msc.
548
of the Unted States of good mora character, and of corporatons, assocatons,
and partnershps. The Department s reguatons pursuant thereto are pubshed
In Department Crcuar 559. customhouse broker so censed requres no
further enroment under these reguatons for the transacton, wthn the
customs dstrcts In whch he s censed, of any busness reatng specfcay
to the Importaton or e portaton of merchandse under customs or Interna-
revenue aws. e s aso entted, wthout further cense or enroment, to
represent camants or other persons before the Treasury Department n Wash-
ngton In any matter In whch he acted as a customhouse broker In any dstrct
n whch he s censed. When servng n such capacty, a censed customhouse
broker sha, n addton to beng sub|ect to the provsons of secton 641
of the Tarff ct of 1930, as amended, and the rues and reguatons thereunder,
be sub|ect aso to a the provsons of the aws and reguatons set forth n
Treasury Department Crcuar No. 2. 0, as revsed from tme to tme, and sha
be responsbe as specfed n secton 7(d) of Department Crcuar 559 for vo-
aton of any such aws or reguatons commtted by hs or Its offcers, empoyees,
or authorzed attorneys or agents, n connecton wth the prosecuton on be-
haf of the prncpa of any busness before the Treasury Department In
Washngton.
Sec. 6. Roster of attorneys and agents, and enroment cards. (a) roster
of a attorneys and agents who make appcaton for enroment or who are
enroed, or whose appcatons have been dened, or who have been suspended
or dsbarred, w be kept n the offce of the Commttee on nroment and
Dsbarment. bureaus, offces, and dvsons of the Treasury Department
sub|ect to the e ceptons n secton 5 n the case of the ureau of Customs, are
prohbted from recognzng or deang wth any unenroed attorney or agent
as the representatve of any person havng a cam pendng before the Depart-
ment : Provded, That the Commttee on nroment and Dsbarment may grant,
pendng acton upon an appcaton, temporary recognton to an appcant not re-
qured to take an e amnaton n connecton wth hs appcaton: nd provded
further, That an unenroed person who has not been dsbarred or suspended
from practce before the Treasury Department may be permtted to make nta
appearance n a partcuar case. Such permsson sha n no case authorze
an unenroed person to appear before the Treasury Department n Washngton,
D. C, or to represent a camant n any forma hearng. It sha be the duty
of the Government offca before whom such person appears to notfy hm that
f he wshes to appear further In the case, or n any forma hearng, or before
the Treasury Department n Washngton, It w be necessary to fe an
appcaton for enroment.
(ft) The Commttee w furnsh upon request Informaton as to whether any
ndvdua s enroed. Other Informaton w be made avaabe to the varous
departments and agences of the Government and to any person entted to
receve the same n accordance wth the rues and reguatons of the Treasury
Department, and, e cept as prohbted by aw, access to the fes and records
of the Commttee w be granted to the Unted States oard of Ta ppeas
and ts representatves.
(c) The Commttee on nroment and Dsbarment sha ssue an enroment
card to every attorney or agent upon hs enroment. Uness advsed to the
contrary by the Commttee on nroment and Dsbarment, any offcer of the
Treasury Department may consder the hoder of such an enroment card as
duy authorzed to practce before the Department.
Skc. 7. Proceedngs for suspenson, dsbarment, and renstatement. (a) If an
offcer or empoyee of the Treasury Department has reason to beeve that an
enroed attorney or agent has voated any provson of the aws or reguatons
governng practce before the Treasury Department, or f a compant concern-
ng any enroed attorney or agent s made to any such offcer or empoyee, he
sha prompty make a wrtten report thereof to the attorney for the Govern-
ment. If any other person has nformaton of such voatons, he may aso
make wrtten report thereof to the sad attorney. The attorney and the
Commttee w treat as strcty confdenta the dentty of the nformant n any
case n whch the Informant s other than an offcer or empoyee of the Treasury
Department, uness the nformant n gvng hs nformaton states that hs
dentty and connecton therewth are not confdenta.
(6) The attorney for the Government may, ether on the bass of such In-
formaton or upon hs own moton where he has cause to beeve that any
enroed attorney or agent has voated any provson of the aws or reguatons
governng practce before the Treasury Department, nsttute proceedngs before
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549
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the Commttee for suspenson or dsbarment aganst any enroed attorney or
agent. Notce thereof, sgned by the secretary or a member of the Commttee,
sha be served upon such attorney or agent, herenafter caed the respondent,
n the foowng manner:
(1) y devery to the respondent personay, or
(2) y regstered ma, wth demand for a return card sgned by the
respondent: Provded, That, If an enroed attorney or agent sha have sgned
aud fed wth the Commttee on nroment and Dsbarment hs wrtten
consent to be served n some other manner t sha be suffcent f servce s made
In that manner. Where the servce s by regstered ma, the recept of the
return card duy sgned sha be satsfactory evdence of servce.
The notce sha gve the pace and tme wthn whch the respondent sha
fe hs answer, whch tme sha be not ess than 20 days from the date of
servce of the notce, and sha contan or be accompaned by a statement of
charges, whch statement sha be sgned by the attorney for the Government,
gvng a pan and concse descrpton of the facts whch t a camed consttute
grounds for suspenson or dsbarment, wthout a detaed descrpton of such
facts. statement of charges whch fary Informs the respondent of the
charges aganst hm so that he s abe to prepare hs defense sha be deemed
suffcent. Dfferent means by whch a purpose may have been accompshed or
dfferent ntents wth whch acts may have been commtted may be aeged n
the statement of charges In a snge count n the aternatve. If, n order to
prepare hs defense, the respondent desres addtona nformaton as to the
tme and pace of the aeged msconduct, or the means by whch t was com-
mtted, or any other more specfc nformaton concernng the aeged mscon-
duct, he may present a moton In wrtng to the Commttee askng that the
statement of charges be made more specfc, settng forth n such moton n
specfc manner n what respect the statement of charges eaves hm n doubt
and descrbng the partcuar anguage of the statement of charges as to whch
addtona nformaton s needed. If n the opnon of the Commttee such
Informaton s reasonaby necessary to enabe the respondent to prepare hs
defense, the Commttee sha drect the attorney for the Government to
furnsh the respondent wth an amended statement of charges gvng the needed
nformaton.
The procedure In suspenson and dsbarment proceedngs sha be governed
by the foowng rues:
1. Servce of papers other than the orgna notce and statement of charges.
Papers other than the orgna notce and statement of charges sha be served
on the respondent as foows:
(a) y deverng the same to the respondent personay, or by regstered
ma or
(6) y eavng them at hs offce wth hs cerk or wth a person n charge
thereof or
(o) y depostng them n a Unted States post offce or post offce bo ,
ncosed n a seaed enveope, pany addressed to such respondent at the ad-
dress under whch he s enroed or at hs ast address known to the Commttee.
(d) When the respondent s represented by attorney, by servce upon the
attorney n the same manner as provded n paragraphs (a), (6), and (o) for
servce on the respondent.
2. The respondent s answer. The respondent s answer sha be fed wthn
the tme specfed n the orgna notce uness on appcaton the tme s
e tended by the Commttee.
The Commttee may n ts dscreton furnsh a companng wtness wth a
copy of the answer f n ts opnon such acton w ad n ascertanng the
truth or fasty of the charges. The term companng wtness for the
purposes of ths provson sha ncude any offcer or empoyee of the Treasury
Department or any enroed attorney or agent who may have reported the
aeged msconduct to the attorney for the Government, or any other person
upon whose nformaton the attorney for the Government has nsttuted the
proceedng.
In hs answer the respondent shoud specfcay admt or deny every mate-
ra aegaton of fact In the statement of charges. very aegaton n the
statement of charges not dened sha be deemed admtted, uness the respond-
ent sha state n hs answer that he has no knowedge thereof suffcent to
form a beef, whch statement sha be consdered a dena. In answer to a
statement of charges, no enroed person sha deny a matera aegaton of
fact whch he knows to be true, or state n such answer that he s wthout
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Msc.
550
suffcent nformaton to form a beef wen In fact he possesses such nfor-
maton.
In hs answer the respondent may aso state affrmatvey speca matters of
defense, and sha not gve n evdence any matters n avodance or of defense,
consstent wth the truth of the aegatons of the statement of charges, uness
n hs answer he states such matters specfcay.
answers sha be sworn to before a notary pubc or other offcer author-
zed to admnster an oath and sha he fed n dupcate.
If t appears that a dena of a matera aegaton of fact In the statement of
charges, or a statement that the respondent has no knowedge suffcent to form
a beef, was made n bad fath n the answer or that the respondent has know-
ngy ntroduced fase testmony durng proceedngs aganst hm for suspenson
or dsbarment, the attorney for the Government may thereupon fe suppementa
charges, whch charges may be tred wth the other charges n the case, provded
the respondent sha be gven due notce thereof and afforded an opportunty for
preparng a defense thereto.
3. Repy to answer. If the answer contans affrmatve matter n avodance,
consstent wth the truth of the matera aegatons n the statement of charges,
a repy by the attorney for the Government admttng or denyng the new matter
set forth n the answer sha be fed wth the Commttee and served upon the
respondent n the manner provded for by the rues of the Commttee for the
servce of a papers other than the orgna notce and statement of charges.
4. aure of respondent to answer. If the respondent fas to fe hs answer
In the form requred by these rues and wthn the tme specfed n the notce,
or that specfed by the Commttee where the tme has been e tended, the Com-
mttee may, upon wrtten appcaton, accompaned by a copy of the answer
desred to be fed, aow the respondent to answer whenever n such appcaton
the respondent sets forth facts whch n the opnon of the Commttee const-
tute a suffcent e cuse for the faure to answer wthn the tme specfed.
such wrtten appcatons sha be fed In dupcate and under oath.
5. Notce of tme and pace of hearng. Wrtten notce of the tme and pace
of a hearngs sha be gven the respondent n the manner provded n these
rues for the servce of papers. No hearng sha be hed n ess than 10 days
from the date of servce on the respondent of the notce of such hearng, e cept
that the Commttee may postpone or ad|ourn hearngs when necessary or desr-
abe, on notce to the respondent.
6. Testmony. Testmony sha be taken as foows:
(a) Uness the Commttee sha otherwse drect, the testmony of wtnesses
at a hearngs w be taken under oath and stenographcay recorded and
transcrbed.
(6) Depostons for use at a hearng may, wth the wrtten approva of the
Commttee, be taken by ether the attorney for the Government or the respond-
ent, or ther duy authorzed representatves, upon ora or wrtten Interroga-
tores, before a member of the Commttee, any offcer duy authorzed to admn-
ster an oath for genera purposes, or an offcer of the Interna Revenue urean
authorzed to admnster an oath n nterna revenue matters, upon not ess than
10 days wrtten notce to the other party. Such notce sha state the names of
the wtnesses, and the tme and pace where such depostons are to be taken:
Provded, That when depostons are taken as aforesad, f both partes are pres-
ent or represented at the tme and pace specfed for the takng of the depos-
tons, cther party may, after the e amnaton of the wtnesses produced under
the order of the Commttee, be entted to produce and e amne other wtnesses
but n such case one day s notce must be gven to the other party or hs duy
authorzed representatve there present, uness such notce Is waved: nd pro-
vded further, That the partes or ther duy authorzed representatves may
agree n wrtng upon a tme when and pace at whch such depostons are to
be taken, wthout forma notce. When a deposton Is taken upon wrtten Inter-
rogatores, any cross-e amnaton sha be upon wrtten nterrogatores. Copes
of such wrtten nterrogatores sha be served wth the notce, and copes of any
wrtten cross-nterrogatores sha be maed or devered to the opposng party
or hs duy authorzed representatve at east fve days before the tme of takng
the depostons.
Whenever any book, document, or paper beongng to any ndvdua, partner-
shp, or corporaton s ntroduced as an e hbt n a dsbarment or suspenson
proceedng, the Commttee may authorze, upon such condtons as It may deem
proper, the wthdrawa of such book, document, or paper upon the wrtten request
of the attorney for the Government, or of the respondent or hs attorney.
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In the case of a varance between the aegatons n the statement of charges
and the evdence, the Commttee sha have power to base ts fndngs on any
facts estabshed by the evdence whch are grounds for suspenson or dsbar-
ment, and to order the amendment of the statement of charges to conform to
the evdence: Provded, That the respondent has had or s gven reasonabe
opportunty to present hs defense to such amended charges, wth such
postponements of the hearng as may be reasonaby necessary to permt the
respondent to present such defense.
If the Commttee or a ma|orty thereof fnds that a part of the charges n
the statement of charges s not suffcenty proved but that the resdue thereof
Is so proved, t may base Its fndngs on any facts estabshed by the evdence
whch are grounds for suspenson or dsbarment and whch are substantay
charged by the sad resdue of the statement of charges.
The Commttee sha dsregard an mmatera msnomer of a thrd person,
an mmatera mstake n the descrpton of any person, thng, or pace or
the ownershp of any property, a faure to prove mmatera aegatons n
the descrpton of the respondent s conduct, or any other mmatera mstake
In the statement of charges.
Sub|ect to these reguatons, the Commttee may determne the tme, pace,
and manner n whch hearngs sha be conducted the form n whch evdence
sha be receved and may adopt rues of procedure and modfy the same
from tme to tme as occason requres for the ordery dsposton of suspenson,
dsbarment, and renstatement cases.
The Commttee sha pass upon the suffcency of the answer and a other
reevant papers fed by the respondent, and upon a ssues of fact that may
be rased. The respondent or hs attorney may be heard upon the suffcency
of the answer fed by hm whenever n the opnon of the Commttee such a
hearng s necessary or desrabe.
hearngs sha be hed at tmes and paces f ed by the Commttee, of
whch due notce sha be gven the respondent n accordance wth these regua-
tons and the rues adopted by the Commttee.
In makng ts fndngs of fact as to the truth of any charges whch are
duy put n Issue by the papers n any case and upon whch a hearng s had,
the Commttee sha be guded by a preponderance of the evdence. If at
any hearng upon ssues of fact rased by the papers n the case the respondent
fas to put n any evdence, the Commttee may base ts fndngs upon the
evdence submtted by the attorney for the Government.
(c) In the event that depostons are ntroduced on behaf of the Government
at the hearng or n the event that ora testmony n support of the charges
Is produced by the Government at the hearng, the attorney for the Govern-
ment, as soon as possbe after the hearng, sha prepare and fe wth the
Commttee proposed fndngs of fact based upon a the evdence n the case.
Upon recept of such proposed fndngs of fact, the Commttee sha forward
to the respondent or hs attorney a copy thereof together wth a copy of the
transcrpt of such ora testmony and depostons as may have been ntroduced.
The respondent sha have not ess than 10 days after recept of such papers
In whch to submt n wrtng to the Commttee hs ob|ectons, f any, to such
proposed fndngs of fact. Nether the respondent nor hs attorney sha have
the rght to receve any copes of e hbts ntroduced at the hearng or at
the takng of the depostons. The respondent or hs attorney, however, sha
have the rght to e amne a e hbts. Upon recept of such ob|ectons, or
after the tme for fng such ob|ectons has e pred f no such ob|ectons are
fed, or after the hearng f no proposed fndngs of fact are requred, the
Commttee sha make Its fndngs of fact. The Commttee sha have power
to dsmss the charges when n ts opnon such charges have not been proved.
If, n the opnon of the Commttee, suspenson or dsbarment shoud be
recommended, It sha so report to the Secretary of the Treasury. Such
report sha be sgned by a members of the Commttee agreeng thereto,
and nny member of the Commttee dssentng therefrom sha submt a state-
ment of hs reasons for such dssent.
(d) Upon the approva of such recommendaton by the Secretary of the
Treasury and the ssuance of hs order of suspenson or dsbarment of an
attorney or agent, notce thereof sha be gven by the Commttee to the heads
of a nterested bureaus, offces, and dvsons of the Treasury Department
and to other nterested departments and agences of the Government n such
manner as the Commttee may determne. Such person w not thereafter be
recognzed durng the perod of suspenson or dsbarment as an attorney or
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552
agent n any matter before the Treasury Department. Notce n each manner
as the Commttee may determne may be gven 4o the proper authortes In
the State from whch an enroed attorney, certfed pubc accountant or
pubc accountant derves hs cense to practce n the event that such attorney,
certfed pubc accountant, or pubc accountant Is suspended or dsbarred.
(e) ny attorney or agent who has been suspended or dsbarred may make
wrtten appcaton to the Commttee to have the order of suspenson or ds-
barment vacated or modfed upon the ground (1) of newy dscovered ev-
dence, or (2) that Important evdence Is now avaabe whch the appcant
was unabe to produce at the orgna hearng by the e ercse of due dgence.
very appcaton for renstatement sha be fed wth the Commttee n trp-
cate. Such appcaton must set forth specfcay the precse character of
the evdence to be reed upon In Its support and sha state the reasons why
the appcant was unabe to produce It when the orgna charges were heard.
If the Commttee after due consderaton of the appcaton sha deem It suff-
centy mertorous to warrant a hearng, It sha set a tme and pace for
such hearng and gve due notce thereof to the appcant. Upon the concuson
of the hearng the Commttee sha submt ts recommendaton to the Secretary
of the Treasury for hs approva or dsapprova.
In the event that the Secretary sha ssue an order vacatng or modfyng
the pror order of suspenson or dsbarment, notce thereof sha be gven by
the Commttee to a those to whom notce of the orgna order of suspenson or
dsbarment was sent.
In a cases not covered by the foregong provsons, a dsbarred attorney or
agent who desres to be restored to the ro must fe a new appcaton for
enroment and otherwse compy wth the requrements of secton 3 of these
reguatons.
Sec. 8. uthorty to prosecute cams. power of attorney from the prn-
cpa In proper form may be requred of enroed attorneys or agents n any
case by heads of bureaus, offces, and dvsons. In the prosecuton of catns
before the ureau of Interna Revenue, nvovng the asserton of demands
for payment of money by the Unted States, proper powers of attorney sha
aways be fed before an attorney or agent s recognsed.
Seo. 9. Substtuton of attorneys or agents and revocaton of authorty. (a)
Where the power of attorney under whch an enroed attorney or agent a
actng e pressy confers the power of substtuton, such attorney or agent may,
by a duy e ecuted nstrument, substtute another enroed attorney or agent
n hs stead: Provded, That such other attorney or agent w be recognzed
as such ony after due notce In wrtng has been gven the head of the bureau,
offce, unt, or dvson before whch the matter Is pendng: nd provded fur-
ther, That where the enroed attorney or agent desgnated In the power of
attorney, wth power of substtuton, has hmsef by reason of hs suspenson
or dsbarment or hs subsequent entry nto Government servce (Tte 18, sec-
tons 198 and 203, Unted States Code) become negbe further to represent
before the Treasury Department the cent who e ecuted the power, the Treas-
ury Department sha be under no obgaton to recognze any substtute power
of attorney e ecuted at any tme by such attorney or agent, authorzng some
other enroed attorney or agent to appear before the Department upon behaf
of such cent, and t w be necessary for such cent to retan a new attorney
or agent.
(6) Where there s a contest between members of a dssoved frm or between
two or more attorneys or agents, actng under the same power of attorney,
as to whch one s entted to prosecute a matter pendng before the Treasury
Department or to receve a draft, warrant, or check, the cent ony sha there-
after be recognzed, uness the members or survvors of the dssoved frm, or
the contestng attorneys or agents, fe an agreement sgned by a desgnatng
whch of them sha be entted to prosecute such matter or to receve the sad
draft, warrant, or check. In no case sha the devery of a fna draft, war-
rant, or check to the cent be deayed more than 60 days by reason of faure
to fe such agreement
(o) The revocaton of an authorty to represent a camant before the Treas-
ury Department sha n no ense become effectve, so far as the Department s
concerned, unt due notce In wrtng has been gven the head of the bureau,
offce, or dvson before whch such matter s pendng, and the fng of ev-
dence of notfcaton of the revocaton to the attorney whose power has been
revoked.
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Seo. 10. Dsreputabe conduct. Under the provsons of the ct of uy 7, 1884
(23 Stat., 258 Tte 5, secton 261, Unted States Code), the Secretary of the
Treasury may after due notce and opportunty for hearng suspend and dsbar
from further practce before the Treasury Department any attorney or agent
shown to be Incompetent, dsreputabe, or who refuses to compy wth these
rues and reguatons, or who sha wth Intent to defraud, n any manner
wfuy and knowngy deceve, msead, or threaten any camant or pros-
pectve camant, by word, crcuar, eter, or by advertsement.
mong other forms of dsreputabe conduct the foowng are deemed to
consttute such conduct:
1. Convcton of a crme Invovng mora turptude.
2. Makng fase answers In the appcaton for enroment wth knowedge
that such answers are fase.
8. Preparng or fng for hmsef or another a fase edera ncome ta
return or other statement on whch edera ta es may be based, knowng the
same to be fase.
4. Suggestng to a cent or a prospectve cent an Iega pan for evadng
payment of edera ta es, knowng the same to be ega.
5. Gvng fase testmony In any proceedng before the Commttee on n-
roment and Dsbarment, or In any other proceedng before the Treasury De-
partment, or before any trbuna authorzed to pass upon edera ta matters,
kndwng the same to be fase.
6. ng any fase or frauduenty atered document or affdavt In any case
or other proceedng before the Treasury Department, or procurng the fng
thereof, knowng the same to be fase or frauduenty atered.
7. Usng, v th ntent to deceve, fase or mseadng representatons to pro-
cure empoyment n any case or proceedng before the Treasury Department
8. Gvng, wth ntent to deceve, fase or mseadng nformaton reatve to
n matter pendng before the Treasury Department to any offcer or agent of
the Department
9. Preparng a fase fnanca statement for a corporaton, partnershp, asso-
caton, or Indvdua, or certfyng the correctness of such fase statement,
knowng the same to be fase.
10. Impartng to a cent fase nformaton reatve to the progress of a case
or other proceedng before the Treasury Department, knowng the same to be
fase.
11. ase representatons by an enroed agent that he Is an attorney or a
certfed pubc accountant.
12. Preparng or assstng n the preparaton of, or fng, a fase cam aganst
the Unted States, knowng the same to be fase.
13. pprovng, for fng, a fase Income ta return prepared by some other
person, knowng the same to be fase.
14. Msappropraton of sums receved from cents for the purpose of pay-
ment of ta es or other obgatons due the Government, or of funds or other
property beongng to a cent
15. Improper retenton of a fee for whch no servces have been rendered.
16. Obtanng or attemptng to obtan money or other thng of vaue from a
camant by fase representatons, knowng the same to be fase.
17. Obtanng or attemptng to obtan money or other thng of vaue from a
camant by duress or undue nfuence.
18. Conceang or attemptng to concea assets n order to evade the payment
of edera ta es.
10. Representng to a cent or prospectve cent that the attorney or agent
can obtan e traordnary favors from the Treasury Department or an offcer
or empoyee thereof or has access to unusua sources of Informaton wthn
the Department.
20. Soctng or procurng the gvng of fase testmony n any proceedng
before the Commttee on nroment and Dsbarment or n any other proceed-
ng before the Treasury Department.
Seo. 11. Strkng names from ro. On request of an attorney or agent, the
Commttee may strke hs name from the ro, but before grantng the request
the Commttee sha make nqures to ascertan whether the request has been
made n order to evade proceedngs for suspenson or dsbarment n whch
event the request sha be dened uness the Commttee sha deem It to the
best Interest of a partes concerned to grant such requests.
The Commttee may upon moton of the attorney for the Government or upon
ts own moton strke from the ro the name of any person who has faed to
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554
suppy the Informaton requred by secton 15 of Department Crcuar 230,
revsed October 1, 1934, provded tbat any attorney or agent whose name has
been so strcken from the ro may have hs name restored thereto by fng
wth the Commttee such nformaton and a statement showng that hs faure
to suppy t wthn the tme specfed In such crcuar was not due to any faut
on hs part. Upon the recept of such nformaton and statement, the name
of such attorney or agent sha be restored to the ro uness t sha appear
that he Is Inegbe for enroment, n whch event he sha be advsed of the
fact and gven 60 days wthn whch to present to the Commttee satsfactory
evdence that e s egbe for enroment
Sbo. 12. ppcaton and effectve date of crcuar. Ths crcuar supersedes
the reguatons promugated by Treasury Department Crcuar No. 230 of
October 1, 1934, reatng to the recognton of attorneys, agents, and others, as
heretofore amended and suppemented. The reguatons contaned n ths cr-
cuar sha appy to attorneys, agents, and censed customhouse brokers repre-
sentng camants before any offce of the Treasury Department, wth such
e ceptons as to customhouse brokers as are set forth n secton 5, and sha
be effectve from and after October 1, 193G. Ths crcuar sha appy to a
unsetted matters then pendng In ths Department or whch may hereafter be
presented or referred to the Department or offces thereof for ad|udcaton, and
sha be appcabe to a those now enroed to practce before the Treasury
Department as attorney or agent, and a proceedngs before the Commttee
after October 1, 1930, sha n a procedura matters be governed by the pro-
vsons of these reguatons and such suppementary reguatons as may from
tme to tme be adopted by the Commttee n pursuance of the power granted
t n secton 7 of these reguatons: Provded, That voatons of the regua-
tons commtted pror to October 1, 1930, sha n a substantve matters be
deat wth accordng to the provsons of the reguatons n force at the tme
when the act or acts aeged to consttute such voatons occurred.
Sec 13. Wthdrawa or amendment of crcuar. The Secretary of the Treas-
ury reserves the power to wthdraw or amend or suppement at any tme or
from tme to tme a or any of the foregong reguatons, wth or wthout
prevous notce, and may make such speca orders as he may deem proper n
any case.
. MORG NT U, r.,
Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 19,1936, 11.57 a. m.)
ST TUT S.
The foowng statutes reate to the recognton of agents, attor-
neys, and other persons representng camants and others before the
Treasury Department and offces thereof:
That the Secretary of the Treasury may prescrbe rues and reguatons
governng the recognton of ngents, attorneys, or other persons representng
camants before hs Department, and may requre of such persons, agents,
and attorneys, before beng recognzed as representatves of camants, that
they sha show that they are of good character and n good repute, possessed
of the necessary quafcatons to enabe them to render such camants vauabe
servce, and otherwse competent to advse and assst such camants In the
presentaton of ther cases. nd such Secretary may after due notce and
opportunty for hearng suspend, and dsbar from further practce before hs
Department any such person, agent, or attorney shown to be ncompetent, ds-
reputabe, or who refuses to compy wth the sad rues and reguatons, or who
sha wth ntent to defraud, In any manner wfuy and knowngy deceve,
msead, or threaten any camant or prospectve camant, by word, crcuar,
etter, or by advertsement. ( ct of uy 7, 18S4, 23 Stat, 258 Tte 5, sec-
ton 261, Unted States Code.)
Whoever, beng an offcer of the Unted States, or a person hodng any pace
of trust or proft, or dschargng any offca functon under, or n connecton
wth, any e ecutve department of the Government of the Unted States, or
under the Senate or ouse of Representatves of the Unted States, sha act
as au agent or attorney for prosecutng any cam aganst the Unted States,
or In any manner, or by any means, otherwse than In dscharge of hs proper
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555
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offca dutes, ha ad or assst n the prosecuton or support of any such
cam, or receve any gratuty, or any share of or Interest In any cam from
any camant aganst the Unted States, wth Intent to ad or assst, 01 u
consderaton of havng aded or asssted. In the prosecuton of such cam,
ha be fned not more than fve thousand doars, or mprsoned not more than
one year, or both. ( ct of March 4, 1909, secton 109, 35 Stat., 1107 Tte 18,
secton 198, Unted States Code.)
Whoever, beng eected or apponted a Senator, Member of or Deegate to
Congress, or a Resdent Commssoner, sha, after hs eecton or appontment
and ether before or after he has quafed, and durng hs contnuance n offce,
or beng the head of a department, or other offcer or cerk n the empoy of the
Unted States, sha, drecty or ndrecty, receve, or agree to receve, any
compensaton whatever for any servces rendered or to be rendered to any
person, ether by hmsef or another, n reaton to any proceedng, contract,
cam, controversy, charge, accusaton, arrest, or other matter or thng n whch
the Unted States s a party or drecty or ndrecty nterested, before any
department, court marta, bureau, offcer, or any cv, mtary, or nava com-
msson whatever, sha be fned not more than 10,000 and mprsoned not more
than two years and sha moreover thereafter be ncapabe of hodng any offce
of honor, trust, or proft under the Government of the Unted States. ( ct of
March 4, 1909, secton 113, 35 Stat, 1107 Tte 18, secton 203, Unted States
Code.)
It sha not be awfu for any person apponted after the frst day of une,
one thousand eght hundred and seventy-two, as an offcer, cerk, or empoyee
In any of the departments, to act as counse, attorney, or agent for prosecutng
any cam aganst the Unted States whch was pendng In ether of sad depart-
ments whe he was such offcer, cerk, or empoyee, nor n any manner, nor by
any means, to ad n the prosecuton of uny such cam, wthn two years ne t
after he sha have ceased to be such offcer, cerk, or empoyee. (Secton 190,
Revsed Statutes Tte 5, secton 99, Unted States Code.)
ny person who wfuy ads or asssts n, or procures, counses, or advses
the preparaton or presentaton under, or n connecton wth any matter arsng
under, the Interna revenue aws, of a fase or frauduent return, affdavt, cam,
or document, sha (whether or not such fasty or fraud s wth the knowedge
or consent of the person authorzed or requred to present such return, affdavt,
cam, or document) be guty of a feony, and, upon convcton thereof, be
fned not more than 10,000, or Imprsoned for not more than fve years, or
both, together wth the costs of prosecuton. (44 Stat., 110 Tte 26, secton
1693(b), Unted States Code.)
It sha be unawfu for any person, frm, or corporaton practcng before any
department or offce of the Government to use the name of any Member of ether
ouse of Congress or of any offcer of the Government In advertsng the sad
busness. ( ct of pr 27, 1916, secton 1, 39 Stat., 54 Tte 5, secton 101,
Unted States Code.)
ny person prosecutng cams, ether as attorney or on hs own account,
before any of the departments or bureaus of the Unted States, sha be requred
to take the oath of aegance, and to support the Consttuton of the Unted
States, as requred of persons n the cv servce. ( ct of uy 17, 1862, sec-
ton 1, 12 Stat., 010 Tte 31, secton 204, Unted States Code.)
That secton fve hundred and ffty-eght of the Code of Law for the Dstrct
of Coumba, reatng to notares pubc, be amended by addng at the end of
sad secton the foowng: Provded, That the appontment of any person as
guch notary pubc, or the acceptance of hs commsson as such, or the per-
formance of the dutes thereunder, sha not dsquafy or prevent such person
from representng cents before any of the departments of the Unted States
Government n the Dstrct of Coumba or esewhere, provded such person so
apponted as a notary pubc who appears to practce or represent cents be-
fore any such department s not otherwse engaged In Government empoy, and
sha be admtted by the heads of such departments to practce theren In ac-
cordance wth the rues and reguatons prescrbed for other persons or at-
torneys who are admtted to practce theren: nd provded further, That no
notary pubc sha be authorzed to take acknowedgments, admnster oaths,
certfy papers, or perform any offca acts n connecton wth matters n whch
he Is empoyed as counse, attorney, or agent or In whch he may be n any way
Interested before any of the departments aforesad. ( ct of une 29, 1906, 34
Stat., 622. ed by 26 Opnons of ttorney Genera, 236, to appy to a no-
tares who may practce before the departments.)
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The head of each department Is authorzed to prescrbe reguatons, not In-
consstent wth aw, for the government of hs department, the conduct of ts
offcers and cerks, the dstrbuton and performance of ts busness, and the
custody, use, and preservaton of the records, papers, and property appertanng
to t (Secton 161, Revsed Statutes Tte 5, secton 22, Unted States Code.)
(In dupcate.1)
Treasury Department,
commttee on enroment and dsbarment.
orm 23. (Rev. October 1, 1036.)
PPLIC TION OR DMISSION TO PR CTIC OR T
TR SURY D P RTM NT.
I, resdng at Street
address Cty
State , wth offce at Street address ,
Cty , State , hereby appy
for admsson to practce as to represent others before the
( ttorney or agent )
Treasury Department, and submt the foowng Informaton for consdera-
ton n determnng my egbty and ftness for such practce, n compance
wth Treasury reguatons as set forth n Department Crcuar No. 230, revsed
October 1, 1936:
1. (a) re you a ctzen of the Unted States (6) Natura born
(c) Naturazed (d) Where and when were you natu-
razed (e) Date of brth
Tce of brth
2. (a) re you a member of the bar (6) If so, of what court
(c) re you now n actve practce and n good standng
at snd bar
3. (a) Do you hod a certfcate as a certfed pubc accountant
(6) If so, from what State (c) re you now n actve
practce and n good standng under snd certfcate
4. What s your present occupaton
5. re you censed or otherwse authorzed to practce aw or accountancy
n the State or States (or Dstrct of Coumba) n whch you pan to prac-
tce
6. re you engaged In your busness or professon on your ndvdua ac-
count or as a member of a partnershp or as an em-
poyee .
(o) Under what name or stye do you practce
(b) If a member of a partnershp, s any member of the partnershp an un-
enroed person who s nether an attorney, a certfed pubc accountant, nor a
pubc accountant .
(c) If an empoyee, gve name and address of your empoyer, and the nature
of your empoyment
7. If enroed, w t be your purpose, as an offcer or empoyee of a corpora-
ton or assocaton, to represent the offcers, empoyees, stockhoders, or mem-
bers, cents, or customers of such cor,poraton or assocaton n
unquafed negatve answer s requred. See secton 2(1). Department Crcu-
ar 230. Representaton of offcers, empoyees, etc., of corporatons as ndvd-
uas f retaned and pad by them, or the representaton of agrcutura coopera-
tve assocatons as permtted under secton 2(1), Department Crcuar 230, s
not Inconsstent wth a negatve answer to the above.
8. Do you own stock n, or are you an offcer or empoyee of, any accountng
or audtng corporaton .
1 appcatons must be submtted In dupcate on these forms. Typewrter and
carbon paper shoud be used.
- Members of the bar of an mercan court of record w appy as attorneys a otbers
as neents.
1 Name of State court preferred.
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9. re you famar wth the contents of Department Crcuar No. 230, revsed
October 1, 1936
10. If you are not a member of an mercan bar or a certfed pubc account-
ant, outne the e tent and nature of your educaton your persona or bus-
ness e perence, wth names of your empoyers and the partcuar quafca-
tons you possess whch you beeve render you competent to represent other
persons before the Treasury Department Use paper the sze of ths form and
submt dupcate copes.
11. Submt names and addresses of s busness or professona references
who are famar wth your professona work.
12. as any compant ever been fed or charge made aganst you before
any person or trbuna havng authorty to nsttute or try proceedngs for
suspenson or dsbarment from practce or for the revocaton of a cense or
certfcate to practce or for e puson from membershp n a professona
socety If so, state partcuars
13. ave you ever been defendant n a crmna prosecuton
If so, state the crcumstances and resut
14. re you an offcer or empoyee of the Unted States, of any corporaton
whoy owned by the Unted States, or of the Dstrct of Coumba
(a) If you have ever been so empoyed, state empoyment and date of separa-
ton therefrom
15. Do you agree, f you are admtted to practce before the Treasury
Department, to gve the Commttee on nroment and Dsbarment wrtten
notce of any change In your mang address, and any change n your profes-
sona connecton, or the name and stye under whch you practce, and agree
further that, n the event any proceedngs sha be nsttuted aganst you at
any tme before the Commttee on nroment and Dsbarment, a wrtten
notce thereof, together wth a statement of the charges aganst you, sent to
you by regstered ma to the ast address fed by you wth the Commttee,
sha consttute due and suffcent notce
I, , do soemny swear (or affrm)
that the statements contaned In the foregong appcaton are true and cor-
rect that I w support and defend the Consttuton of the Unted States
aganst a enemes, foregn and domestc that I w bear true fath and
aegance to the same that I take ths obgaton freey wthout any menta
reservaton or purpose of evason that, f authorzed to represent others before
the Treasury Department, I w at a tmes conduct mysef strcty n com-
pance wth the aws, reguatons, and rues governng practce before the
Treasury Department, as now consttuted or as they may hereafter be awfuy
atered or amended and that I w empoy for the purpose of mantanng the
causes confded to me such means ony as are consstent wth truth and honor
so hep me God.4
(Sgnature)
( ddress)
Subscrbed and sworn to before me ths day of ,
19
(Sgnature of offcer)
(Offca tte)
Impress sea here.
( ed wth the Dvson of the edera Regster, September 19,1936,11.57 a. m.)
n oath as Incuded heren Is requred of persons prosecutns cams atranst the
Unted tates (Tte 31, secton 204, Unted States Code and may be taken before any
notary pubc. ustce of the peace, or other person egay authorzed to admnster an
oath In the State, Terrtory, or Dstrct where the appcaton Is e ecuted.
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558
-45-S381
Rues or Practce and Procedure efore the Unted States Processng Ta
oard of Revew.
These rues are prescrbed pursuant to the authorty of secton
906(d) of the Revenue ct of 1936 (49 Stat., 1648).
Rue 1. Defned Terms.
When used In these rues, the term
(0) ct means the Revenue ct of 1936 (49 Stat., 1648).
(6) oard means the oard of Revew estabshed by Tte II of the ct
(c) Charman means the charman of the oard.
(d) Dvson means a unt composed of one or more members of the oard
assgned by the charman.
(e) Presdng offcer means a person desgnated and assgned to presde at
a hearng pursuant to the provsons of the ct
(f) Cerk means the cerk of the oard.
(g) Person means: (1) an ndvdua (2) a trust or estate (3) a partner-
shp, ncudng a syndcate, group, poo, ont venture, or other unncorporated
organzaton, through or by means of whch any busness, fnanca operaton,
or venture s carred on, and whch s not, wthn the meanng of the ct a
trust or estate or a corporaton (4) or a corporaton, Incudng assocatons,
|ont-stock companes, and nsurance companes.
(ft) ducary means a guardan, trustee, e ecutor, admnstrator, recever,
conservator, or any person actng n any fducary capacty for any person.
(1) Commssoner means the Commssoner of Interna Revenue.
(/) Pettoner means a ta payer whose cam for refund of processng ta
has been dsaowed. In whoe or n part by the Commssoner, and who has
fed a petton wth the oard.
Rue 2. usness ours.
The offce of the oard at Washngton, D. C, w be open each busness day
from 9 o cock a. m. to 4.30 o cock p. m.
Rue 3. dmsson to Practce.
regster w be mantaned by the oard, In whch w be entered the
names of a who have been admtted to practce before t
The foowng casses of ndvduas whom the oard fnds, upon consdera-
ton of ther appcatons, to be ctzens of the Unted States, of good mora
character, and to possess the requste quafcatons, may be admtted to
practce before t:
(a) ttorneys at aw who are admtted to practce before the Supreme Court
of the Unted States, or the hghest court of any State, Terrtory, or the Dstrct
of Coumba.
(6) Certfed, censed, or regstered pubc accountants duy quafed under
the aw of any State, Terrtory, or the Dstrct of Coumba.
Corporatons and frms w not be admtted or recognzed.
n appcaton under oath for admsson to practce sha be addressed to
the Unted States Processng Ta oard of Revew, Washngton, D. C, and
must state the name, resdence address, and offce address of the appcant, the
appcant s connecton as a member or assocate of any frm of attorneys or
accountants, the names of any professona socetes of whch the appcant s
a member, and the tme and pace of hs admsson to the bar, or quafcaton
as such pubc accountant. Such appcaton sha be accompaned by a certf-
cate of the cerk of the court In whch the appcant s admtted to practce to
the effect that he has been so admtted and s n good standng or a certfcate
by the proper State, Terrtora, or Dstrct authorty to the effect that the
appcant s a pubc accountant n good standng, duy quafed, and entted
to practce n such State, Terrtory, or the Dstrct of Coumba. ach app-
cant sha take an oath n the form prescrbed by the oard.
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The oard may, In Us dscreton, but ony after affordng an opportunty to
be heard, deny admsson to, suspend, or dsbar any ndvdua who, t fnds,
does not possess the requste quafcatons, or s ackng n character, ntegrty,
or proper professona conduct.
The oard sha have the rght at any tme to requre a statement, under
oath, of the terms of any contract of empoyment of an attorney or pubc
accountant wth the pettoner he represents, and of the crcumstances under
whch such contract was entered nto.
ny ndvdua pettoner, or a member of a pettoner partnershp, or offcer
of a corporate pettoner, may, upon adequate dentfcaton, appear for hmsef,
or such partnershp, or such corporaton.
orms for use n makng appcaton for admsson to practce w be
furnshed upon request.
Rue 4. orm and Stye of Papers.
papers fed wth the oard sha be ether prnted or typewrtten on
pan whte paper. If typewrtten they sha be on one sde of the paper, whch
Sha be 8 nches wde and 11 nches ong, and fastened on the eft sde
orgnas sha be on paper weghng not ess than 16 pounds to the ream copes
sha be egbe, but may be on any weght paper ctatons sha be underscored.
If prnted, they sha be n 10 or 12 pont type, on good ungazed paper, 5
Inches wde by 9 nches ong wth nsde margn.not ess than 1 nch wde, and
wth doube-eaded te t and snge-eaded quotatons ctatons sha be n
Itacs.
cept when otherwse provded n these rues, a sgned orgna and four
cear, conformed copes of a papers sha be fed. Whenever any paper s
fed n more than one proceedng, as a moton to consodate proceedngs or n
proceedngs aready consodated, one addtona copy sha be fed for each
addtona proceedng.
Rue 5. Intaton of a Proceedng Petton.
proceedng sha be ntated by the fng of a petton wth the board at
Washngton, D. C. The petton sha be compete n tsef so as fuy to In-
form the oard of the Issues to be presented. It sha contan:
(a) capton n the foowng form:
Unted States Processng Ta oard of Revew,
Pettoner,
v.
Commssoner of Interna Revenue,
Respondent.
Docket No.
(The respondent sha be the Commssoner of Interna Revenue, and the
name of the ncumbent of that offce sha not appear n the capton of the
petton.)
P TITION.
(6) Proper aegatons showng ursdcton n the oard.
(c) statement of the amount of the refund dsaowed by the Comms-
soner, a descrpton of the processng ta or ta es Invoved, and, as neary as
may be computed, the amount thereof n controversy.
(d) Cear and concse assgnments, ndvduay numbered, of each and every
error whch the pettoner aeges to have been commtted by the Commssoner
n the dsaowance, n whoe or n part, of the cam for refund.
(e) Cear and concse statements, ndvduay numbered, of the facts upon
Whch the pettoner rees as sustanng the assgnments of error.
(f) desgnaton of the pace where the pettoner desres a hearng, whch
pace may be ether n (1) Washngton, D. C, (2) the coecton dstrct In
Whch s ocated the pettoner s prncpa pace of busness, or (3) any pace
Whch may have been desgnated by the Commssoner and the pettoner by
wrtten stpuaton. ( copy of such stpuaton must be attached.)
(ff) prayer, settng forth the reef sought by the pettoner.
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( ) The sgnature of the pettoner or that of hs counse. The sgnature
of counse sha be n ndvdua and not n frm name. The name and ma-
ng address of the pettoner or of counse sha be typed or prnted mmed-
atey foowng the sgnature.
() verfcaton by the pettoner, or, f the pettoner Is outsde the
Unted States, by a duy apponted attorney n fact, who sha attach to the
petton a true copy of the power of attorney under whch he acta and who
sha state n hs verfcaton that he acts pursuant to such power, that such
power has not been revoked, that pettoner s outsde the Unted States, and
the sources of hs nformaton and the grounds of hs beef of the facts
aeged n the petton. s used heren the term Unted States ncudes
ony the States and the Dstrct of Coumba.
The petton of a fducary sha be sgned by counse or by a ma|orty of the
fducares, and sha be verfed by a ma|orty of the fducares.
The sgnature and the verfcaton to the petton sha be consdered the
certfcate of those performng these acts that there s good ground for the
petton, that the proceedng has not been nsttuted merey for deay, and s
not frvoous.
There sha be appended to the petton: (1) a copy of the cam for refund
fed wth the Commssoner and of a papers submtted as a part thereof, and
(2) a copy of the notce of dsaowance of the cam for refund, n whoe
or n part, together wth statements accompanyng the same.
See ppend orm No. L .
Rue 6. eb fob ung Petton.
fee of 10, whch sha accompany the petton, s hereby Imposed for the
fng of an orgna petton. Ths fee sha not be refunded, uness the hearng
resuts n a modfcaton of the Commssoner s aowance or dsaowance of
the refund cam.
Ruua 7. Desgnaton of Partes.
The proceedng sha be brought by and n the name of the person whose
cam for refund was dsaowed by the Commssoner, n whoe or In part,
or by and n the fu descrptve name of the fducary egay entted to n-
sttute a precedng on behaf of such person. If an ndvdua, the fu gven
name and surname sha be set forth n the capton. If a fducary, both the
name of the fducary and of the estate, trust, or other person for whom he
acts sha be set forth. In the event of a varance between the name set forth
n the dsaowance notce and the correct name, a statement of the reasons for
such varance sha be set forth n the petton.
The proper capton sha be paced on a papers fed.
Rue 8. Docket.
Upon recept of the petton the proceedng w be docketed and assgned a
number and the partes notfed thereof. Ths number sha be paced by the
partes on a papers thereafter fed n the proceedng.
Rue 0. Servce of Papers.
(a) Upon the Commssoner. cept when otherwse provded n these
rues, a copy of the petton and every other paper fed by a pettoner n a
proceedng w be prompty served by the cerk upon the Commssoner or a
person desgnated by hm.
(6) Upon the pettoner. cept when otherwse provded n these rues,
a copy of the answer and of every other paper fed by the Commssoner n a
proceedng w be prompty served by the cerk, by regstered ma, upon the
pettoner s counse of record. The date of mang sha be deemed to be the
date of servce. In case there s no counse of record for a pettoner, servce
sha be made upon the pettoner. If at any tme there are two or more
counse of record for a pettoner, servce sha be made upon the one whose
appearance was frst entered of record, uness he or the pettoner has other-
wse requested by wrtng fed wth the oard, n whch event servce sha be
upon such other counse of record as may be desgnated.
(c) Servce of oard papers. Servce of a papers Issued by the oard
ha be made upon the respectve partes In the same manner as above provded.
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561
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Rue 10. n s web.
fter servce upon hm of a copy of the petton or amended petton, the
Commssoner sha have 60 days wthn whch to fe an answer or 45 days
wthn whch to move In respect of the petton.
Rue 11. ondeb or Issue.
proceedng sha be deemed at ssue upon the fng of the answer.
Rue 12. mended and Suppementa Peadngs.
The pettoner may, as of course, amend hs petton at any tme before an-
swer s fed. fter answer s fed, a petton may be amended ony by con-
sent of the Commssoner, or on eave of the oard.
Upon moton made, the presdng offcer may, In hs dscreton, at any tme
before the concuson of a hearng, permt a party to a proceedng to amend
the peadngs to conform to the proof.
motons to amend, made pror to the hearng, must be accompaned by the
proposed amendments or amended peadng. When a moton to amend Is
granted at the hearng, the amendment or amended peadng sha be fed at
such pace and wthu such tme as may be f ed by the presdng offcer.
Rue 13. Peadngs Geneea.
further and better statement of the nature of the cam or defense, or of
any matter stated In any peadng, may be ordered n any proceedng.
ach and every matera aegaton of fact set forth n the petton and not
dened n the answer sha be deemed to be admtted.
ny new or affrmatve matter contaned n the answer sha be deemed to be
dened.
Rue 14. tensons op Tme.
Contnuances, e tensons of tme (e cept for the fng of the petton), and
ad|ournments may be ordered by the oard on ts own moton or may be
granted by t In ts dscreton on tmey moton of ether party fed n wrtng
and showng good and suffcent cause therefor. The dgence of the appcant
In notfyng the other party of hs Intenton so to appy, and the convenence of
the partes, counse, and wtnesses, w be consdered In passng upon such
appcaton.
Rue 15. Substtuton ob Wthdrawa of Counse Notce op ppearance.
pettoner may change hs counse at any tme. moton to substtute
counse sha be sgned by the pettoner n person. If the consent of such
counse s anne ed to or ndorsed on the moton, the moton sha be aowed
as of course. When the moton s not thus shown to have the consent of such
counse, the cerk w notfy such counse, by regstered ma, of the fng of
the moton, and such counse sha be aowed 10 days from the date of the
mang of the notce wthn whch to fe ob|ectons to the grantng of the
moton.
If the counse of record des, a suggeston of hs death sha be made and a
moton to substtute other counse sha be made by the pettoner.
No wthdrawa of counse of record n any proceedng sha be permtted
uness he gves prompt and tmey notce of such wthdrawa to the oard and
to hs cent: Provded, That n any event, the oard may, In ts dscreton,
wthhod permsson.
If the petton s not subscrbed by counse, or counse has wthdrawn, counse
subsequenty appearng for the pettoner sha mmedatey fe a notce of
appearance, whch sha ncude statements of hs admsson to practce before
the oard and of hs mang address.
Notce of a change n the mang address of counse or pettoner sha be
prompty fed wth the oard n each pendng proceedng affected thereby.
Rue 16. Notce op earno.
. The cerk w, wthn 3 months after the dnte of fng the petton, notfy the
partes by regstered ma of the pace and the date on whch the proceedng
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562
w be caed upon the day caendar, whch date sha be: (1) not more than
2 years from the date of the fng of the petton, and (2) not ess than 15 day
from the date of the notce of hearng.
Rue 17. Caendars.
(a) Washngton caendar. cept as provded In subsecton (6), a pro-
ceedngs w, as of course, be paced upon the Washngton caendar for hearng
when at ssue and, n any event, wthn three months after the date on whch
the petton s fed.
(6) Crcut caendar. Proceedngs n whch the pettoner has desgnated n
hs petton that a hearng s desred n the coecton dstrct n whch s ocated
hs prncpa pace of busness, or n whch the Commssoner and the pettoner
have entered nto a wrtten stpuaton for a hearng at some other pace, w,
when at Issue, and, n any event, wthn three months after the date on whch
the petton s fed, be paced on the crcut caendar for hearng outdde Wash-
ngton, D. C.
(c) Day caendars. The cerk w, from tme to tme as drected by the
charman, prepare day caendars of the proceedngs to be heard n Washngton,
D. C, and esewhere.
(d) Reserve caendar. proceedng whch s at ssue may be paced on the
reserve caendar for good cause shown, as, for e ampe, to awat the decson
of the Supreme Court n a case pendng.
(e) The day caendar of proceedngs to be heard at Washngton, D. C, w
be caed at 9.30 a. m. ach party w be advsed of the tme when and the
pace where hs proceedng w be caed on the day caendar of proceedngs
to be heard outsde Washngton, D. C. Proceedngs w be assgned from the
day caendars for hearng In due course.
Rue 18. Submsson Wthout Persona ppearance.
proceedng or moton In whch ether party s not present In person or by
counse at the tme of hearng w be regarded as submtted on the part of the
absent party or partes. refs may be fed n eu of persona appearance, but
the oard may, n ts dscreton, requre appearance for argument.
The provsons of ths rue reatve to submsson wthout persona appearance
sha not reeve the party upon whom rests the burden of proof from adducng
at the hearng proper evdence n support of the ssues. Statements n the
petton, affdavts, brefs, and depostons whch have not been offered at a
hearng and receved In evdence do not consttute evdence. aure to
adduce evdence In support of the matera facts aeged In the petton and
dened by the Commssoner n hs answer w be ground for dsmssa.
mong the types of cases whch may be submtted under ths rue are cases
(a) n whch the facts have been agreed upon, or (o) In whch no queston of
fact Is rased by the peadngs.
Rue 19. urden or Proof.
The burden of proof sha be upon the pettoner, e cept that In respect of
any new matter peaded n the answer, t sha be upon the respondent.
Rue 20. Dsmssa.
proceedng may be dsmssed for cause upon moton of ether party or upon
the oard s moton. aure to compy wth rue 4, 5, 6, or 7 may be ground
for the dsmssa of a proceedng.
Rue 21. Motons.
Motons must be tmey.
If a moton, other than one reatng to the recept of evdence durng a hear-
ng, s made oray at the hearng, the maker thereof sha prompty reduce
t to wrtng and, uness the presdng offcer drects otherwse, fe t wth the
oard at Washngton, D. 0.
In the dscreton of the oard, motons may be paced upon a day caendar
for argument.
The fng of a moton sha not consttute cause for postponement of a
hearng.
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Rue 22. Motons for Rebabno.
If ether party desres to queston before the oard the correctness or
suffcency of ts fndngs of fact or decson, the procedure sha be to fe a
moton, whch sha be known as a moton for rehearng. The moton sha
contan a grounds reed upon for each ob|ecton. Such moton w not be
entertaned uness fed wthn 45 days after the mang of the oard s fndngs
of fact and decson.
moton for rehearng sha be based upon one or more of the foowng
grounds: (1) error of fact (2) error of aw and (3) addtona evdence.
moton based upon error of fact sha specfy n deta the fact or facts
whch are regarded as erroneousy found or erroneousy omtted to bo found
by the oard, wth compete references to the evdence whch s reed upon
to support the moton.
moton founded upon error of aw sha specfy n ke deta the ponts
upon whch the oard s aeged to have erred, wth references to a authortes
reed upon to support the moton.
moton upon the ground of addtona evdence sha show to the satsfac-
ton of the oard that such addtona evdence s matera and that there
were reasonabe grounds for faure to adduce such evdence n the bearng
before the presdng offcer and such moton sha be accompaned by the aff-
davt of the party or the counse of record, settng forth
(1) The facts n deta whch the party e pects to be abe to prove, and
whether the same are to be proved by wtnesses or by documentary evdence.
(2) The name, occupaton, and resdence of each and every wtness whom It
s proposed to ca to prove sad facts.
(3) The reasons for the faure of the party or hs counse of record to
adduce such evdence at Ue hearng before the presdng offcer.
moton for rehearng may aso be accompaned by the bref of the movng
party.
Rue 23. refs.
The presdng offcer conductng a hearng may, n hs dscreton, afford the
partes an opportunty for ora argument before hm and for the submsson
to hm of proposed fndngs of fact and decson and of wrtten brefs. The
presdng offcer sha, upon competng the takng of testmony, set the tme
wthn whch such ora argument and submsson must be made, but such tme
sha not e ceed 45 days. The presdng offcer sha make provson for the
e change of brefs by the partes, but answerng brefs sha not be fed uness
the presdng offcer sha so drect. n orgna and one copy of each of these
brefs sha be fed wth the oard at Washngton, D. O.
The cerk sha send by regstered ma to each party to the proceedng a
copy of the recommended fndngs of fact and decson of the presdng offcer,
and wthn 30 days after the mang of such recommended fndngs of fact and
decson, ether party may submt to the oard a -bref wth respect to such
rpcommendatons.
brefs sha contan on ther front fyeaves a tabe of contents, wth page
references, suppemented by a st of a authortes cted, aphabetcay
arranged, together wth references to pages. The form of a brefs sha be as
foows:
(a) statement of the artce or commodty to whch the ta apped and
the perod or perods durng whch the ta was n effect
(6) statement showng how the proceedng comes before the oard, Incud-
ng the date upon whch the Commssoner s notce of dsaowance was maed
to the pettoner, the date upon whch the petton for a hearng was fed wth
the oard, the pace of hearng, and the date or dates of the hearng.
(o) concse statement of the facts upon whch the party rees, wth refer-
ences to the pages of the transcrpt or to the e hbts reed upon In support of
each statement of fact If the other party dsagrees wth the statement of facts,
he must state n a smar part of hs bref each correcton whch he consders to
be necessary n the opposte party s statement, wth references to the pages of
the transcrpt or to the e hbts reed upon n support of each proposed
correcton.
(d) concse statement of the ponts upon whch the party rees,
(c) The argument
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564
Rue 24. Substtuton of Pabtes.
In the event of the death of a pettoner or for other proper cause, the oard
may order a substtuton of partes. In the event of a mstake n the name or
tte of a party the oard may drect such correcton as may be approprate.
moton for substtuton sha n a proper case be accompaned by a certfcate
of the court or offca havng custody of the record showng the nterest of
the party substtuted. moton to amend so as to show a change n the name
of a corporaton or other party pettoner sha be accompaned by a copy of
the certfcate, decree, or other document by whch such change was effected and
certfed by the offca havng custody of such document.
Rue 25. Stpuatons.
The partes may, by stpuaton n wrtng, fed n dupcate wth the oard
at Washngton, D. C, or presented at a hearng, agree upon any facts nvoved
In the proceedng.
Rue 26. vdence.
The rues of evdence appcabe n courts of equty of the Dstrct of Coumba
sha govern the admsson or e cuson of evdence before the presdng offcer.
Rue 27. T NsasPTS of Proceedngs.
earngs sha .be stenographcay reported and a transcrpt thereof sha
be made f, n the opnon of the presdng offcer hodng the hearng, a per-
manent record of the hearng s deemed necessary. Transcrpts sha be
supped to the partes and to the pubc by the offca reporter at such rates
as may be f ed by contract between the oard and the reporter.
Rue 28. Documentary vdence.
(a) When a book, record, paper, or other document has been receved In
evdence, a true copy thereof or a true copy of so much thereof as may be
matera and reevant may, n the dscreton of the presdng offcer, be
Substtuted for the orgna.
(6) fter the decson of the oard n any proceedng has become fna
the oard may, upon moton of ether party, permt the wthdrawa by the
party entted thereto of orgnas of books, documents, and records, and of
modes, dagrams, and other e hbts, ntroduced In evdence before the pre-
sdng offcer or the oard may, on ts own moton, make such other dsposton
thereof as t deems advsabe.
Rue 29. Subpenas.
(a) ppcaton. The party desrng a subpena must make a tmey app-
caton therefor. In wrtng. The appcaton sha state the name and address
of each wtness requred, the tme and pace at whch, and the person before
whom, he s to appear, and whether he may desgnate some one to appear
n hs pace. n orgna and two conformed copes sha be fed.
See ppend orm No. 2.
(6) or producton of document . If evdence other than ora testmony
Is requred, such as documents or wrtten data, the appcaton sha set forth
the specfc matter to be produced and suffcent facts to ndcate that such
matter s reasonaby necessary to estabsh the cause of acton or defense of
the appcant.
See ppend orm No. 3.
(c) Servce and proof. The oard w not serve subpenas, but w eave
servce to be procured by the party makng the appcaton. Servce may be
made by any ctzen of the Unted States over the age of 21 years and com-
petent to be a wtness, and not a party to or In any way Interested n the
proceedng. Proof of servce may be made by affdavt.
Rue 30. Depostons.
Depostons may be taken In accordance wth the foowng rues:
(a) ppcaton to take. When ether party proposes to take a deposton,
verfed appcaton, wth two conformed copes, sha be fed wth the oard
settng forth the foowng:
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(1) The name and post-offce address of the wtness whose deposton Is pro-
posed to be taken.
(2) The sub|ect matter or matters concernng whch the wtness s to testfy,
together wth a statement of the reasons why t Is desred to take the deposton
and why the wtness shoud not be requred to appear personay and testfy at
the hearng.
(3) The tme and pace of takng the deposton and the name, post-offce ad-
dress, and offca desgnaton of an ndvdua competent to admnster oaths
before whom t s proposed that the deposton sa be taken.
See ppend orm No. 4.
(6) Order for. Upon recept of such appcaton, the cerk w serve a copy
thereof on the opposte party, and aow a reasonabe tme for ob|ecton thereto.
Thereafter, the oard w, n ts dscreton, make an order, copy of whch w
be maed or devered to the partes or ther counse, wheren the oard w
name the wtness whose deposton Is to be taken and specfy the tme when, the
pace where, and the offcer before whom the wtness s to testfy, but such tme
and pnce and the offcer before whom the deposton s to be taken, so specfed
n the oard s order, may or may not be the same as those named n the appca-
ton to the oard. The appcant sha thereupon make a necessary arrange-
ments for the takng of the deposton and sha furnsh the offcer before whom
t s to be taken wth a copy of the order above mentoned.
(c) y stpuaton. t any tme after ssue s oned the partes or ther
counse may, by stpuaton duy sgned and fed, take depostons. In such
cases the stpuaton sha state the name and address of each wtness, the tme
when and the pace where such deposton w be taken, and the name, address,
and offca tte of the offcer before whom t Is proposed to take the deposton.
In such cases no order to take such deposton w be ssued, but such deposton
sha be taken and returned by the offcer n accordance wth the rues of the
oard.
(d) Manner of takng. ach queston propounded to the wtness must be
recorded and hs answers must be taken down n hs own words.
Ob|ectons to questons or answers sha be e pcty but brefy and con-
csey stated, but no comment, e panaton, or argument of any knd sha be
recorded nether sha there be recorded any comment, e panaton, or argu-
ment by e amnng counse. ny matter reported n voaton of ths rue may
be suffcent cause for the suppresson of the deposton.
Rue 31. Genera Provsons as to Depostons.
(a) Other tctnesses to be e cuded. t the request of ether party a person
whom ether e pects or ntends to ca as a wtness n the same case or n any
kndred case sha be e cuded from the room where the testmony of a wt-
ness s beng taken. If such person remans n the room or wthn hearng of
the e amnaton after such request has been made, he sha not thereafter be
admtted to testfy In the case or any kndred case e cept by the consent of the
party who requested hs e cuson.
(6) Oath. Wtnesses must be. sworn or affrmed before any questons are
put to them.
(c) Depostons to be sgned. The testmony of the wtness when transcrbed
ha be read over to or by hm and be sgned by hm.
(d) What return must show. In hs return the offcer must show that the
wtness was propery sworn or affrmed and that the questons and answers
were taken down In hs presence.
See ppend orm No. 5.
(e) Sheets to be attached. The offcer must so fasten the sheets of the depo-
ston that they can not be tampered wth. e must spare no pans to return
to the oard the e act testmony he has taken. e hbts must be carefuy
marked so as to be capabe of dentfcaton and when practcabe must be
attached to the deposton.
(/) Capton. The offcer must state n the capton of the deposton the cause
n whch t was taken, the pace and date of takng, the name of the wtness,
the party by whom caed, and the names of partes and counse present, and
n the body of the deposton must show by whom the wtness was e amned
and cross-e amned.
(p) uafcaton of offcer In no case sha a deposton be taken before any
person who has any offce connecton or busness empoyment wth the pettoner
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Msc.
566
or hs counse e cept by consent of partes and when no other offcer Is ava-
abe, and In hs certfcate to such deposton such offcer sha so certfy.
(ft) Return of. The offcer must ncose the orgna depostons and e hbts,
together wth two copes of the depostons, n a seaed packet, wth postage or
charges prepad, and drect and ma or e press the same to the Unted States
Processng Ta oard of Revew, Washngton, D. C. In each case the orgna
of the depostons must be drected and maed or e pressed to the oard. The
offcer may, upon wrtten request, dever a copy of the depostons to ether or
to both of the partes, or to ther representatves, n eu of sendng such copes
to the oard as above provded. If one or both of the requred copes are
devered by the offcer takng the depostons, he sha attach to hs return the
wrtten request of the party or partes, or of ther counse to whom such copy
or copes were devered, and sha state n hs certfcate of return the fact
of devery by hm of such copy or copes. If copes of the depostons are
devered by the offcer takng the same, no servce of copes of such depostons
upon the party or hs counse of record w be made by the oard.
(t) Lmtaton on tme for appcaton to take. ppcatons to take depos-
tons must be fed at east 30 days pror to the date set for the hearng of the
proceedng, and such depostons must be competed and fed wth the oard
at east 10 days pror to the hearng: Provded, Such appcatons w not be
regarded as suffcent ground for the grantng of a contnuance from the date
or pace of the hearng tWeretofore set, uness the proceedng sha have been
at Issue ess than 60 days and the moton for contnuance sha have been fed
not ess than 20 days pror to sad date of hearng: Provded further, That
under speca crcumstances, and for good cause shown, the oard may other-
wse order.
() The deposton of any wtness sha not consttute a part of the record
unt receved In evdence.
Rue 32. Settement.
When the oard determnes the Issues In any proceedng and wthhods, for
ater computaton, decson of the amount of refund due the pettoner, the par-
tes sha, f they are n agreement as to the amount of the refund, n accordance
wth the fndngs of fact and decson of the oard, fe wth the oard an
orgna and two copes of a computaton showng the amount so agreed upon.
The oard may forthwth enter ts decson n accordance therewth. If the
partes are not In agreement as to the amount to be entered n the decson,
ether of them may fe wth the oard an orgna and two copes of a com-
putaton of the amount of refund beeved by hm to be n accordance wth the
fndngs of fact and decson of the oard. The cerk w serve a copy thereof
upon the opposte party and w thereupon pace the matter upon the day
caendar for hearng n due course and gve the usua notce. If the opposte
party fas to fe ob|ecton, accompaned by an aternatve computaton, wthn
fve days pror to the date of such hearng, or any contnuance thereof, the
amount of the refund shown In the computaton aready submtted sha be
consdered as admtted by the opposte party to be correct and decson thereon
may be entered. If the partes submt dfferent computatons and amounts,
they w be afforded an opportunty to be heard thereon on the date f ed, and
the oard w determne the correct amount of refund and enter ts decson.
ny hearng under ths rue w be confned strcty to the consderaton of
the correct computaton of the amount of refund resutng from the fndngs
of fact and decson aready made, and no argument w be heard upon or
consderaton gven to the Issues or matters aready dsposed of by such fnd-
ngs of fact and decson or of any new ssues. Ths rue s not to be regarded
as affordng an opportunty for rehearng or reconsderaton.
Rue 33. ees and Meage.
No wtness, other than one for the Commssoner, sha be requred to testfy
In any proceedng before ths oard unt he sha have been tendered the
fees and meage to whch he s entted n accordance wth the provson of
aw quoted beow. Such fees and meage sha be pad by the party at whose
nstance the wtnesses appear.
The foowng s from the ct:
Sec. 006. (d) ny wtness summoned or whose deposton Is taken pursuant
to ths secton sha receve the same fees and meage as wtnesses n the
courts of the Unted States.
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567
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Reus 34. Computaton of Tme Sundays and odays.
Whenever these rues prescrbe a tme for the performance of any act,
Sundays and ega hodays n the Dstrct of Coumba sha count |ust as any
other days: Provded, That when the tme for performng any act s prescrbed
by statute nothng n these rues sha be deemed to be a mtaton or e tenson
of the statutory tme f ed.
The foowng-named days are. as of the effectve date of these rues, ega
hodays wthn the Dstrct of Coumba:
New Year s Day, anuary 1.
Day of the Inauguraton of the Presdent n every fourth year, anuary 20.
Washngton s rthday, ebruary 22.
Decoraton Day, May 30.
ourth of uy.
Labor s oday, frst Monday n September.
Thanksgvng Day, day procamed by the Presdent.
Chrstmas Day, December 25.
When ega hodays fa on Sunday, the ne t day sha be a hoday.
y drecton of the oard:
L. S. Cannon, Charman.
pproved September 25, 1936.
Wayne C Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster October 27, 1936, 12.23 p. m.)
PP NDI .
O MS.
These forms are sub|ect to amendment as crcumstances may render
necessary.
No. 1. Petton.
No. 2. ppcaton for subpena.
No. 3. ppcaton for subpena duces tecum.
No. 4. ppcaton for order to take depostons.
No. 5. Certfcate on return of depostons.
(Note. Read rue 4 of the Rues of Practce and Procedure of the oard
and carefuy observe the requrements thereof as to form, sze, and stye of
papers.)
No. 1. Petton.
(See rues 4, 5, 6, and 7.)
Unted States Processng Ta oahd of Revew.
Docket No.
Pettoner,
.
Commssoner of Interna Revenue,
Respondent.
petton.
The above-named pettoner hereby requests a hearng on the merts of hs
cam for refund, whch was dsaowed, n whoe or n part, by notce of the
Commssoner of Interna Revenue, dated , 19 , bear-
ng symbos , and as a bass of hs proceedng aeges as foows:
1. The pettoner s (set forth whether ndvdua, corporaton, fducary, etc.,
as provded n rue 5) wth prncpa pace of busness at ,
(Street.)
(Cty 7) (Sta7e7f
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568
2. The notce of dsaowance (n copy of whch Is attached and marked
hbt ) was maed to the pettoner on , 19
3. copy of the cam for refund fed and of a papers submtted as a part
thereof are attached and marked hbt . Sad cam for refund nvoves
processng ta es for the perod or perods commencng
and endng (state day, month, and year) and n the
amount of doars.
4. The dsaowance of the cam for refund In whoe or n part, set forth n
the sad notce of dsaowance s based upon the foowng errors: ( nu-
merate specfcay the assgnments of error n a concse manner.)
5. The facts upon whch the pettoner recs as the bass of the proceedng
are as foows: ( ere set forth aegatons of the facts reed upon but not
the evdence n ordery and ogca sequence, wth subparagraphs ettered so
as fuy to Inform the oard of the ssues to be presented.)
Wherefore, the pettoner prays that ths oard may hear the proceedng
and (here state the reef desred).
(Sgned)
(Pettoner or counse.)
(Post-offce address.)
State of 1
County of
, beng duy sworn, says that he s the pet-
toner (f a corporaton, or fducary, state tte of offce or trust of person
verfyng and that he s duy authorzed to verfy the foregong petton)
above named that he as read the foregong petton, or had the same read to
hm, and s famar wth the statements contaned theren, and that the facts
stated are true, e cept as to those facts stated to be upon nformaton and beef,
and those facts he beeves to be true.
(Sgned)
Subscrbed and sworn to before me ths day of ,
10
(Sgned)
(Offca tte.)
No. 2. ppcaton fob Subpena.
Docket No.
Pettoner,
v.
Commssoner of Interna Revenue,
Respondent.
To the Unted States Processng Tan oard of Revew:
ppcaton s hereby made for the ssuance of a subpena for the attendance
(The Unted States Processng Ta oard of
Revew or the name and the offca tte of
the person authorzed to take depostons.)
on at o cock m. of the foowng persons
whose ora testmony s desred on behaf of the
(Pettoner or respondent.)
n the above-entted proceedng:
N M .
Dated
(Post-offce address.)
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569
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No. 3. ppcaton foe Subpena Duces Tecum.
Docket No.
Pettoner,
v.
Commssoner of Interna Revenue,
Respondent.
To the Unted States Processng Ta oard of Revew:
ppcaton Is hereby made for the Issuance of a subpena duces tecum for the
attendance and the producton before
(The Unted States Processng Ta oard of
Revew or the name and the offca tte of
the person authorzed to take depostons.)
at on , at
o cock- m. of the foowng persons whose ora testmony s desred on behaf
of the and of the foowng descrbed documen-
(Pettoner or respondent.)
tary evdence n the above entted proceedng:
N M . DDR SS.
D SCRIPTION OP DOCUM NT RY ID NC .
Dated , 19
(Sgned)
(Post-offce address.)
No. 4. ppcaton for Order to Take Depostons.
(See rues 30 and 31.)
Unted States Processng Ta oard of Revew.
Pettoner,
v. Docket No.
Commssoner of Interna Revenue,
Respondent.
PPLIC TION OR ORD R TO T D POSITIONS.
To the Unted States Processng Ta oard of Revew:
1. ppcaton s hereby made by the above-named
(Pettoner or respondent.)
or an order to take the depostons of the foowng named persons:
N M O WITN SS. POST-O IC DDR SS.
(a)
(b)
(c)
(d)
2. It s desred to take the depostons of the persons above named and
each of them for the foowng reasons:
(a) w testfy to the foowng matera
matters: ,
(Set forth brefy the matter upon whch sad wtness w be caed to testfy.)
121397 37 19
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(6) w testfy to the foowng matera
matters:
(c) . w testfy to the foowng matera
matters:
(d) w testfy to the foowng matera
matters:
3. The reasons why desres to take the
(Pettoner or respondent.)
testmony of the above-named persons rather than have them appear per-
sonay and testfy before the oard are as foows:
(State specfcay reasons for each wtness.)
4. It Is desred to take the testmony of
(Names of wtnesses.)
on the day of , 19 , at the hour of o cock
m. (a date suffcenty n advance of the day set for hearng of the proceedngs
to enabe the deposton to be competed and fed wth the oard at east 10
days pror to the hearng) before
(State name and tte of offca.)
n the cty of , State of , at room
(Gve number of room, street number, and name of budng.)
5. That
(Name of offca before whom depostons are to be taken.)
who has no offce connecton
(Gve offca tte.)
or busness empoyment wth the camant or hs counse.
Dated , 19
(Sgned)
(Pettoner, or respondent, or counse.)
(Post-offce address.)
State of .
County of ss-
beng duy sworn, says that the foregong
appcaton for order to take depostons s made In good fath and for the
reasons theren stated and that the same s not made for purposes of deay.
(Sgned)
(Pettoner, or respondent, or counse.)
(Post-offce address.)
Subscrbed and sworn to before me ths day of
19
(Sgned)
(Offca tte.)
No. 5. Certfcate on Return.
To the Unted States Processng Ta oard of Revew:
1, , the person named n the foregong order
to take depostons, hereby certfy:
1. That I proceeded, on the day of , . D.
19 , at the offce of , n the cty of ,
State of , at o cock, m. under the sad order
and In the presence of and
the counse of the respectve partes, to take the foowng
depostons, vz:
, a wtness produced on behaf of the
(Pettoner or respondent.)
(Pettoner or respondent.)
, a wtness produced on behaf of the
, a wtness produced on behaf of the
(Pettoner or respondent.)
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2. That each wtness was e amned under oath at such tmes and paces
as condtons of ad|ournment requred, and that the testmony of each wtness
was taken stenographcay and reduced to typewrtng by me or under my
drecton.
3. That after the testmony of each wtness had been reduced to wrtng the
transcrpt of that testmony was read and sgned by the wtness In my presence,
and that each wtness acknowedged before me that hs testmony was n a
respects truy and correcty transcrbed.
4. That, after the sgnng of the deposton n my presence, no ateratons
or changes were made theren.
5. That I have no offce connecton or busness empoyment wth the pettoner
or hs attorney e cept that of , ob|ecton to
(State connecton.)
whch was waved by both partes to the proceedng.
(Sgnature of person takng deposton.)
(Offca tte.)
(Post-offce address.)
Note. Ths form when propery e ecuted shoud be attached to and bound wth the
transcrpt precedng the frst page thereof. It shoud then be encosed n a seaed enveope
and addressed to the Unted States Processng Ta oard of Revew, Washngton, D. C.
R NU CT OP 1036.
Tte II. Refunds or mounts Coected Under the qrcutuba
d|ustment ct.
Sec 901. Repeas. Sectons 21(d), 21(e), and 21(g) of the grcutura
d|ustment ct, as amended, are hereby repeaed.
Sec 902. Condtons on owance of Refunds. No refund sha be made
or aowed, n pursuance of court decsons or otherwse, of any amount pad
by or coected from any camant as ta under the grcutura d|ustment
ct, uness the camant estabshes to the satsfacton of the Commssoner n
accordance wth reguatons prescrbed by hm, wth the approva of the
Secretary, or to the satsfacton of the tra court, or the oard of Revew
n cases provded for under secton 906, as the case may be
(a) That he bore the burden of such amount and has not been reeved
thereof nor rembursed therefor nor shfted such burden, drecty or Indrecty,
(1) through ncuson of such amount by the camant, or by any person drecty
or ndrecty under hs contro, or havng contro over hm, or sub|ect to the
same common contro, In the prce of any artce wth respect to whch a ta
was mposed under the provsons of such ct, or In the prce of any artce
processed from any commodty wth respect to whch a ta was Imposed under
such ct, or In any charge or fee for servces or processng (2) through re-
ducton of the prce pad for any such commodty or (3) n any manner
whatsoever and that no understandng or agreement, wrtten or ora, e sts
whereby he may be reeved of the burden of such amount, be rembursed
therefor or may shft the burden thereof or
(b) That he has repad uncondtonay such amount to hs vendee (1) who
bore the burden thereof, (2) who has not been reeved thereof nor rembursed
therefor, nor shfted such burden, drecty or ndrecty, and (3) who Is not
entted to receve any rembursement therefor from any other source, or to
be reeved of such burden n any manner whatsoever.
Seo. 003. ng or Cams. No refund sha be made or aowed of any
nmount pad by or coected from any person as ta under the grcutura
d|ustment ct uness, after the enactment of ths ct, and pror to uy 1,
1937, a cam for refund has been fed by such person n accordance wth regu-
atons prescrbed by the Commssoner wth the approva of the Secretary.
evdence reed upon n support of such cam sha be ceary set forth under
oath. The Commssoner s authorzed to prescrbe by reguatons, wth the
approva of the Secretary, the number of cams whch may be fed by any
person wth respect to the tota amount pad by or coected from such person
as ta under the grcutura d|ustment ct, and such reguatons may requre
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572
that cams for refund of processng ta es wth respect to any commodty or
group of commodtes sha cover the entre perod durng whch such person
pad such processng ta es.
Seo. 901. Statute of Lmtatons. Notwthstandng any other provson of
aw, no sut or proceedng, whether brought before or after the date of enact-
ment of ths ct, sha be brought or mantaned In any court for the recovery,
recoupment, set-off, refund, or credt of, or countercam for, any amount pad
by or coected from any person as ta (e cept processng ta , as defned heren)
under the grcutura d|ustment ct (a) before the e praton of eghteen
months from the date of fng a cam therefor under ths tte, uness the Com-
mssoner renders a decson thereon wthn that tme, or (b) after the e -
praton of two years from the date of mang by regstered ma by the Com-
mssoner to the camant a notce of dsaowance of that part of the cam to
whch such sut or proceedng reates. ny consderaton or any acton by the
Commssoner wth respect to such cam foowng the mang of notce of
dsaowance sha not operate to e tend the perod wthn whch any sut or
proceedng may be brought.
Sec. 905. ursdcton or Courts. Concurrent wth the Court of Cams, the
Dstrct Courts of the Unted States (e cept as provded n secton 906 of ths
tte) sha have |ursdcton of cases to whch ths tte appes, regardess of
the amount n controversy, f such dstrct courts woud have had |ursdcton
of such cases but for mtatons under the udca Code, as amended, on |urs-
rcton of such courts based upon the amount n controversy. The Unted
States Customs Court sha not have |ursdcton of any such cases.
Sec. 906. Procedure on Cams for Refunds of Processng Ta es. (a) Not-
wthstandng any other provson of aw, no sut or proceedng, whether brought
before or after the date of the enactment of ths ct, sha be brought or man-
taned n any court for the refund of any amount pad or coected as processng
ta , as defned heren, under the grcutura d|ustment ct, e cept as pro-
vded n ths secton. The Commssoner sha aow or dsaow, n whoe or
n part, any cam for refund of any such amount wthn three years after such
cam was fed, uness such tme has been e tended by wrtten consent of the
camant.
(b) There s hereby estabshed n the Treasury Department a oard of
Revew (herenafter referred to as the oard ). The oard sha be com-
posed of nne members who sha be offcers or empoyees of the Treasury De-
partment desgnated by the Secretary of the Treasury. One of such membe-s
sha be desgnated by the Secretary to act as charman of the oard. The
charman may from tme to tme dvde the oard nto dvsons of one or
more members, assgn the members of the oard thereto, and n case of a d-
vson of more than one member desgnate the chef thereof. ma|orty of
the members of the oard or of any dvson thereof sha consttute a quorum
for the transacton of the busness of the oard or of the dvson respectvey.
vacancy n the oard or In any dvson thereof sha not mpar the powers
nor affect the dutes of the oard or dvson nor of the remanng members
of the oard or dvson respectvey. The Secretary of the Treasury sha
assgn to the oard such personne n the Treasury Department as may bo
necessary to perform ts functons. The oard sha have ursdcton n pro-
ceedngs under ths secton to revew the aowance or dsaowance of the
Commssoner of a cam for refund, and to determne the amount of refund
due any camant wth respect to such cam. The Commssoner sha make
refund of any such amount determned by a decson of the oard whch has
become fna. The proceedngs of the oard and ts dvsons sha be con-
ducted n accordance wth such rues and reguatons as the oard may pre-
scrbe, wth the approva of the Secretary.
(c) The aowance or dsaowance of the Commssoner of a cam for refund
under ths secton sha be fna, uness wthn three months after the date of
mang by regstered ma by the Commssoner of notce that a cam for
refund of any such amount has been dsaowed, n whoe or n part, the
camant fes a petton wth the oard requestng a hearng on the merts of
hs cam, n whoe or n part. Upon the fng of any such petton, the
camant sha be entted to a hearng as provded heren, and wthn three
months after the date of such fng the oard sha set a date for such hear-
ng whch sha be not more than two years from the date of fng of the
petton. Such hearng sha be hed n Washngton, Dstrct of Coumba, or
n the coecton dstrct n whch s ocated the prncpa pace of busness ot
the camant, as the camant may desgnate n hs petton, or n any pace
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573
Msc.
whch may be desgnated by the Commssoner and the camant by stpuaton
In wrtng, and may be contnued from day to day. The oard sha notfy
the camant and the Commssoner of the tme and pace set for such hearng
by regstered ma.
(d) ach such hearng sha be conducted by a presdng offcer who sha
be a member of the oard or an offcer or empoyee of the Treasury Depart-
ment desgnated a presdng offcer by the Secretary of the Treasury, and
assgned by the oard to presde at such hearng, and sha be open to the
pubc. The proceedngs n such hearngs sha be conducted n accordance
wth such rues of practce and procedure (other than rues of evdence) as
the oard may prescrbe wth the approva of the Secretary of the Treasury,
and n accordance wth the rues of evdence appcabe n courts of equty of
the Dstrct of Coumba. The camant and the Commssoner sha be entted
to be represented by counse, to have wtnesses subpenaed, and to e amne and
cross-e amne wtnesses. The presdng offcer sha have authorty to admn-
ster oaths, e amne wtnesses, rue on questons of procedure and the admss-
bty of evdence, and to requre by subpena, sgned by any member of the
oard, the attendance and testmony of wtnesses, and the producton of a
necessary returns, books, papers, records, correspondence, memoranda, and
other evdence, from any pace n the Unted States at any desgnated pace
of hearng, and to requre the takng of a deposton by any desgnated ndvdua
competent to admnster oaths. ny wtness summoned or whose deposton Is
taken pursuant to ths secton sha receve the same fees and meage as
wtnesses n the courts of the Unted States.
(e) The presdng offcers sha recommend fndngs of fact and a decson
to the oard or the proper dvson thereof wthn s months after the con-
cuson of the hearng. refs wth respect to such recommendatons may
be submtted to the oard or such dvson on behaf of the Commssoner and
the camant wthn 30 days after such recommendatons have been made,
uness such tme s e tended by the oard or such dvson. cept upon
specfc order of the charman of the oard, no ora argument may be presented
to the oard or such dvson after the concuson of the hearng. The oard
or a dvson sha make ts fndngs of fact and decson In wrtng as qucky
as practcabe. The fndngs of fact and the decson of a dvson sha become
the fndngs of fact and decson of the oard wthn 30 days after they have
been made by the dvson, uness wthn such perod, the charman has drected
that such fndngs and decson sha be revewed by the oard. The fndngs
and decson of a dvson sha not be a part of the record n any case n
whch the charman drects that such fndngs and decson sha be revewed
by the oard. Copes of the fndngs of fact and decson of the oard sha
be maed to the camant and the Commssoner by regstered ma.
(f) The oard, wth the approva of the Secretary of the Treasury, Is
authorzed to draw up a tabe of costs and fees reatng to such hearngs, and
the preparaton of transcrpts of record thereof, not to e ceed wth respect
to any one Item those charged n the Supreme Court of the Unted States.
Such costs and fees sha be pad by the camant and be coected n accordance
wth such rues and reguatons as may be prescrbed by the oard, wth the
approva of the Secretary. If the hearng provded heren resuts n a modfca-
ton of the aowance or dsaowance of the Commssoner, such costs sha be
returned to the camant
(g) revew of the decson of the oard, made after the hearng provded
In ths secton, may be obtaned by the camant or Commssoner by fng
a petton for revew n the Crcut Court of ppeas of the Unted States
wthn any crcut wheren such camant resdes, or has hs prncpa pace
of busness, or, f none, n the Unted States Court of ppeas for the Dstrct
of Coumba, or any such court whch may be desgnated by the Commssoner
and the camant by stpuaton In wrtng, wthn three months after the date
of the mang to the camant nnd the Commssoner of the copy of the fnd-
ngs and decson of the oard. copy of such petton sha forthwth be
served upon the Commssoner or upon any offcer desgnated by hm for that
purpose, or upon the camant, accordng to whch party fes such petton, and
upon the oard. Thereupon the oard sha certfy and fe n the court, n
whch such petton has been fed, a transcrpt of the record upon whch
the fndngs and decson companed of were based. Upon the fng of such
transcrpt such court sha have e cusve |ursdcton to affrm the decson
of the oard, or to modfy or reverse such decson, f t s not n accordance
wth aw, wth or wthout remandng the cause for a rehearng, as |ustce
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574
may requre. No ob|ecton sha be consdered by the court uness such ob|ec-
ton sha have been urged before the oard or dvson and the presdng
offcer, or uness there were reasonabe grounds for faure so to do. If the
camant or the Commssoner sha appy to the court for eave to adduce
addtona evdence and sha show to the satsfacton of the court that such
addtona evdence s matera, and that there were reasonabe grounds for
faure to adduce such evdence n the hearng before the presdng offcer, the
court may order such addtona evdence to be taken before such offcer, and
to be adduced upon the hearng n such manner and upon such terms and
condtons as to the court may seem proper. The oard may modfy ts fnd-
ngs of fact and decson by reason of the addtona evdence so taken and
t sha fe wth the court such modfed or new fndngs and decson. The
udgment of the court sha be fna, sub|ect to revew by the Supreme Court
of the Unted States, upon certfcaton or certorar as provded n sectons
239 and 240 of the udca Code, ns amended. Such courts are authorzed to
adopt rues for the fng of pettons for revew, the preparaton of the record
for revew, and the conduct of the proceedngs on revew. If the decson of
the oard s affrmed, costs sha be awarded aganst the camant, and f such
decson s reversed, the udgment sha provde for a refund of any costs pad
by the camant. In case of modfcaton of such decson costs sha be awarded
or refused as ustce may requre. The decson of the oard made after
the hearng provded heren sha become fna n the same manner that decsons
of the oard of Ta ppeas become fna under secton 1005 of the Revenue
ct of 1926, as amended.
Sec. 907. vdence and Presumptons. (a) Where the refund camed s
for an amount pad or coected as processng ta , as defned heren, t sha
be prma-face evdence that the burden of such amount was borne by the
camant to the e tent (not to e ceed the amount of the ta ) that the
average margn per unt of the commodty processed was ower durng the
ta perod than the average margn was durng the perod before and after
the ta . If the average margn durng the ta perod was not ower, t sha
be prma-face evdence that none of the burden of such amount was borne
by the camant but that t was shfted to others.
(b) The average margn for the ta perod and the average margn for
the perod before and after the ta sha each be determned as foows:
(1) Ta perod. The average margn for the ta perod sha be the
average of the margns for a months (or portons of months) wthh the
ta perod. The margn for each such month sha be computed as foows:
rom the gross saes vaue of a artces processed by the camant from
the commodty durng such month, deduct the cost of the commodty proc-
essed durng the month and deduct the processng ta pad wth respect thereto.
The sum so ascertaned sha be dvded by the tota number of unts of the
commodty processed durng such month, and the resutng fgure sha be the
margn for the month.
(2) Perod oefore and after the ta . The average margn for the perod
before and after the ta sha be the average of the margns for a months
(or portons.of months) wthn the perod before and after the ta . The margn
for each such month sha be computed as foows: rom the gross saes vaue of
a artces processed by the camant from the commodty durng such month,
deduct the cost of the commodty processed durng the month. The sum so as-
certaned sha be dvded by the number of unts of the commodty processed
durng such month, and the resutng fgure sha be the margn for the month.
(3) verage margn, The average margn for each perod sha be ascer-
taned In the same manner as monthy margns under subdvsons (1) and
(2), usng tota gross saes vaue, tota cost of commodty processed, tota
processng ta pad, and tota unts of commodty processed, durng such
perod.
(4) Combnaton of commodtes. Where, as, for e ampe, In the case of
certan types of tobacco, the artces produced and sod by the camant
are the product of severa commodtes combned by hm durng processng,
the average margns sha be estabshed wth respect to such commodtes
as a group, and not ndvduay, In accordance wth rues and reguaton
prescrbed by the Commssoner, wth the approva of the Secretary of the
Treasury.
(5) Cost of commodty. The cost of commodty processed durng each
month sha be (a) the actua cost of the commodty processed f the account-
ng procedure of the camant s based thereon, or (b) the product computed
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Msc.
by mutpyng the quantty of the commodty processed by the current prces
at the tme of processng for commodtes of ke quaty and grade n the
markets where the camant customary makes hs purchases.
(6) Gross saes vaue of artces. The gross saes vaue of artces sha
mean (a) the tota of the quantty of each artce derved from the commodty
processed by the camant durng each month mutped by (b) the camant s
sae prces current at the tme of processng for artces of smar grade and
quaty.
(7) The quantty of each artce derved from the commodty processed
may be ether (a) the actua quantty obtaned, as shown by the records of
the camant, or (b) an estmated quantty computed by mutpyng the
quantty of commodty processed by approprate converson factors gvng the
quantty of artces customary obtaned from the processng of each unt of
the commodty.
(c) The ta perod sha mean the perod wth respect to whch the cam-
ant actuay pad the processng ta to a coector of nterna revenue and
sha end on the date wth respect to whch the ast payment was made. The
perod before and after the ta sha mean the 24 months (e cept that n
the case of tobacco t sha be the 12 months) Immedatey precedng the
effectve date of the processng ta , and the 6 months, ebruary to uy, 1036,
ncusve. If durng any part of such perod the camant was not n busness,
or f hs records for any part of such perod are so Inadequate as not to
provde satsfactory data on prces pad for commodtes purchased or prces
receved for artces sod, the average prces pad or receved by representatve
concerns engaged In a smar busness and smary crcumstanced may wth
the approva of the Commssoner, where necessary for a far comparson, be
substtuted n makng the necessary computatons. If the camant was not n
busness durng the entre perod before and after the ta , the average margn,
durng such perod, of representatve concerns engaged n a smar busness
and smary crcumstanced, as determned by the Commssoner, sha be used
as hs average margn for such perod.
(d) If the camant made any purchase or sae otherwse than through an
arm s-ength transacton, and at a prce other than the far market prce, the
Commssoner may determne the purchase or sae prce to be that for whch
such purchases or saes were at that tme made n the ordnary course of trade.
(e) ther the camant or the Commssoner may rebut the presumpton
estabshed by subsecton (a) of ths secton by proof of the actua e tent to
whch the camant shfted to others the burden of the processng ta . Such
proof may Incude, but sha not be mted to
(1) Proof that the dfference or ack of dfference between the average margn
for the ta perod and the average margn for the perod before and after the
ta was due to changes n factors other than the ta . Such factors sha ncude
any ceary shown change ( ) n the type or grade of artce or commodty,
or ( ) n costs of producton. If the camant asserts that the burden of the
ta was borne by hm and the burden of any other ncreased costs was shfted
to others, the Commssoner sha determne from the effectve dates of the
mposton or termnaton of the ta and the effectve date of other changes
n costs as compared wth the date of the changes n margn (when margns are
computed for weeks, months, or other ntervas between uy 1, 1931, and
ugust, 1930, n the manner specfed n subsecton (b)), and from the genera
e perence of the ndustry, whether the ta or the ncrease n other costs
was shfted to others. If the Commssoner determnes that the dfference n
average margn was due n part to the ta and n part to the ncrease n other
costs, he sha apporton the change n margn between them
(2) Proof that the camant modfed e stng contracts of sae, or adopted
a new form of contract of sae, to refect the ntaton, termnaton, or change
n amount of the processng ta , or at any such tme changed the sae prce
of the artce (ncudng the effect of a change n sze, package, dscount terms,
or any other merchandsng practce) by substantay the amount of the ta
or change theren, or at any tme bed the ta as a separate tem to any vendee,
or ndcated by any wrtng that the sae prce Incuded the amount of the
ta , or contracted to refund any part of the sae prce n the event of recovery
of the ta or decson of Its nvadty but the camant may estabsh that
such acts were caused by factors other than the processng ta , or that they
do not represent hs practce at other tmes. If the camant processed any
product n addton to the commodty wth respect to the processng of whch
there was pad or coected an amount as ta for whch he cams a refund,
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576
and If the Commssoner Las reason to beeve that the burden of such amount
was shfted n whoe or In part by means of the transactons reatng to such
product, the average margn wth respect to such product, and artces processed
therefrom, sha aso be consdered, and sha be determned for the ta perod
appcabe to the commodty and for the perod before and after the ta n
the manner prescrbed In subsecton (b) of ths secton. To the e tent the
Commssoner determnes that the average margn wth respect to such product
was hgher durng the ta perod than It was durng the perod before and
after the ta , t sha be prtma-face evdence that such amount was not borne
by the camant but that t was shfted to others.
Sbo. 908. Lmtatons on owance of Cams and Interest. (a) No cam
sha be aowed under ths tte In an amount ess than 10.
(b) No Interest sha be aowed by the Commssoner or by any court wth
respect to any amount pad or coected as ta under the grcutura d|ust-
ment ct, e cept wth respect to amounts, refund of whch s made or aowed
under ths tte.
Sec. 909. Lmtatons on Revew. In the absence of fraud or mstake n
mathematca cacuaton, the fndngs of fact and concusons of aw of the
Commssoner upon the merts of any cam presented under ths tte sha not
be sub|ect to revew by any other admnstratve or accountng offcer, empoyee,
or agent of the Unted States.
Sec. 910. Labty or Coectors. No coector of nterna revenue or cus-
toms, or Interna revenue or customs offcer or empoyee, sha be n any way
abe to any person for any act done by hm n the assessment or coecton of
any amount as ta under the grcutura d|ustment ct, or for the recovery
of any money e acted by or pad to hm and pad nto the Treasury, n perform-
ance of hs offca dutes under the provsons of such ct, or f such coector
or offcer acted under the drecton of the Secretary or other proper offcer of the
Government.
Seo. 911. Inappcabty to Certan Refunds.- The provsons of ths tte
sha not appy to any refund authorzed under the provsons of sectons 15,
16, or 17 of the grcutura d|ustment ct, as amended and reenacted, or
wth respect to any artces e ported under the provsons of secton 317 of the
Tarff ct of 1930. No refund sha be made or aowed of any amount pad
or coected as ta uuder the grcutura d|ustment ct, as amended and
reenacted, to the e tent that refund or credt wth respect to such amount has
been made to any person.
Sec. 912. Perod not tended. ny sut or proceedng wth respect to any
amount pad or coected as ta under the grcutura d|ustment ct whch s
barred on the date of enactment of ths ct sha reman barred. No cam wth
respect to any such amount whch s barred from aowance at the tme of the
enactment of ths ct sha hereafter be aowed n any amount.
Seo. 913. Defntons. When used In ths tte
(a) The term ta means a ta or e acton denomnated a ta under the
grcutura d|ustment ct, and sha ncude any penaty, addton to ta ,
addtona ta , or nterest appcabe to such ta .
(b) The term processng ta means any ta or e acton denomnated a
processng ta under the grcutura d|ustment ct, but sha not Incude
any amount pad or coected as ta wth respect to the processng of a com-
modty for a customer for a charge or fee.
(c) The term commodty means any commodty, pror to processng, of a
type wth respect to the processng of whch a processng ta was mposed
under the grcutura d|ustment ct.
(d) The term artce means the product whch s obtaned by processng a
commodty, and Incudes the product obtaned by further manufacture or by
combnaton wth other materas.
(e) The term refund ncudes any recovery, recoupment, set-off, credt, or
countercam.
(f) The term grcutura d|ustment ct means the grcutura d|ust-
ment ct as orgnay enacted and the amendments thereto adopted pror to
anuary 6, 1936.
Seo. 914. uthorty of Commssoner. In connecton wth the estabshment
of the facts requred to be estabshed under ths tte, the Commssoner of
Interna Revenue Is hereby authorzed, by any offcer or empoyee of the Treas-
ury Department and of the ureau of Interna Revenue, Incudng the fed
servce, desgnated by hm for that purpose, to e amne any. books, papers,
records, or memoranda whch are reevant and matera In connecton wth any
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Msc.
cam made pursuant to ths tte, to requre the attendance of the camant or of
any offcer or empoyee of the camant, or the attendance of any other person
havng knowedge n the premses, and to take, or cause to be taken, hs test-
mony wth reference to any such matter, wth power to admnster oaths to such
person or persons. It sha be awfu for the Commssoner, or any person
desgnated by hm, to summon wtnesses to appear before the Commssoner, or
before any person desgnated by hm, at a tme and pace named n the summons,
and to produce such books, papers, correspondence, memoranda, or other records
as the Commssoner may deem reevant or matera, and to gve testmony or
answer nterrogatores, under oath, reatng to any cam made pursuant to ths
tte. The provsons of 3174 and 3175 of the Revsed Statutes, as amended, sha
be appcabe wth respect to any summons ssued pursuant to the provsons of
ths tte. ny wtness summoned under ths tte sha be pad the same fees
and meage as are pad wtnesses n the courts of the Unted States.
nformaton obtaned by the Commssoner pursuant to ths secton sha be
avaabe to the Secretary of grcuture upon wrtten request therefor. Such
nformaton sha be kept confdenta by a offcers and empoyees of the
Department of grcuture, and any such offcer or empoyee who voates ths
requrement sha, upon convcton, be sub|ect to a fne of not more than 1,000
or to mprsonment for not more than one year, or both, and sha be removed
from offce.
Sec. 015. Saares and dmnstratve penses. unds made avaabe to
the Secretary of grcuture by the appropraton for the fsca year 1936 n sec-
ton 32 of Pubc Numbered 320, Seventy-fourth Congress, approved ugust 24,
1935, to the e tent of the unobgated baance thereof and by the appropraton
n secton 12(a) of the grcutura d|ustment ct, n an amount not n e cess
of 15,000,000 sha be avaabe unt une 30, 1937, for transfer to the Treas-
ury Department for saares and admnstratve e penses In carryng out the
provsons of ths tte and of Tte I , Incudng necessary nvestgatve work,
and for refunds and payments under Tte I . Such funds sha be avaabe
for e pendture by the Secretary of the Treasury for persona servces and rent
n the Dstrct of Coumba and esewhere, for aw books, books of reference,
press reeases, trade |ournas, perodcas, and newspapers, for contractng
reportng servces, prntng and paper n addton to aotments under the e st-
ng aw, trave e penses, for meage and per dem of wtnesses, In eu of
subsstence, payment of whch meage and per dem may be made n advance
upon certfcaton of such offcer as the Commssoner or the Secretary may
desgnate, and such certfcaton sha be concusve. In addton to the fore-
gong, the admnstratve e penses provded for In ths secton sha ncude
such msceaneous e penses as may be authorzed or approved by the Comms-
soner or the Secretary for carryng out the provsons of ths tte, ncudng
wtness fees and meage for e perts, notara fees, or ke servces, and
stenographc work for takng depostons.
Seo. 916. Rues and Reguatons. The Commssoner sha, wth the ap-
prova of the Secretary, prescrbe such rues and reguatons as may be deemed
necessary to carry out the provsons of ths tte.
Seo. 917. Personne. (a) The Secretary may appont such offcers, attorneys,
economsts, and other e perts wthout regard to the Cassfcaton ct of 1923,
as amended, and wthout regard to the cv-servce aws or reguatons, as are
necessary to e ecute the functons vested n hm and the Commssoner by ths
tte. No compensaton at a rate n e cess of 8,500 per annum sha be pad
to any such appontee.
(b) Offcers and empoyees of the other e ecutve departments and estabsh-
ments of the Government may, at the request of the Secretary of the Treasury,
and wth the approva of the head of any such department or estabshment, be
detaed to the Treasury Department from tme to tme for such temporary
dutes as may be necessary n carryng out the provsons of ths tte. The
proper appropraton of such e ecutve department or estabshment from whch
such offcers or empoyees are so detaed sha be rembursed by the Treasury
Department to the e tent of saares and other compensaton pad to such
offcers and empoyees durng the tme they sha be so detaed.
Tte III. Genera Provsons.
Seo. 1001. Defntons. (a) When used In ths ct
(1) The term person means an ndvdua, a trust or estate, a partnershp,
or a corporaton.
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578
(2) The term corporaton ncudes assocatons, |ont-stock companes, and
nsurance companes.
(3) The term partnershp ncudes a syndcate, group, poo, ont venture,
or other unncorporated organzaton, through or by means of whch any bus-
ness, fnanca operaton, or venture s carred on, and whch s not, wthn
the meanng of ths ct, a trust or estate or a corporaton and the term part-
ner ncudes a member n such a syndcate, group, poo, |ont venture, or
organzaton.
(4) The term domestc when apped to a corporaton or partnershp
means created or organzed n the Unted States or under the aw of the Unted
States or of any State or Terrtory.
(5) The term foregn when apped to a corporaton or partnershp means
a corporaton or partnershp whch s not domestc.
(6) The term fducary means a guardan, trustee, e ecutor, admnstra-
tor, recever, conservator, or any person actng n any fducary capacty fo
any person.
(7) The term wthhodng agent means any person requred to deduct and
wthhod any ta under the provsons of secton 143 or 144.
(8) The term stock ncudes the share n an assocaton, ont-stock com-
pany, or Insurance company.
(9) The term sharehoder Incudes a member n an assocaton, ont-stock
company, or nsurance company.
(10) The term Unted States when used n a geographca sense Incudes
ony the States, the Terrtores of aska and awa, and the Dstrct of
Coumba.
(11) The term Secretary means the Secretary of the Treasury.
(12) The term Commssoner means the Commssoner of Interna Rev-
enue.
(13) The term coector means coector of Interna revenue.
(14) The term ta payer means any person sub|ect to a ta mposed by ths
ct.
(b) The terms Incudes and Incudng when used n a defnton con-
taned n ths ct sha not be deemed to e cude other thngs otherwse wthn
the meanng of the term defned.
Seo. 1002. Separabty Cause. If any provson of ths ct, or the app-
caton thereof to any person or crcumstances, s hed nvad, the remander
of the ct, and the appcaton of such provsons to other persons or crcum-
stances, sha not be affected thereby.
Seo. 1003. ffectve Date of ct. cept as otherwse provded, ths ct
sha take effect upon ts enactment.
pproved une 22, 1936, 9 p. m.
L GISL TION.
-34-8258
S. 2912. PU LIC, NO. 793, S NTY- OURT CONGR SS.
n ct To repatrate natve-born women who have heretofore ost
ther ctzenshp by marrage to an aen, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That hereafter a
woman, beng a natve-born ctzen, who has or s beeved to have
ost her Unted States ctzenshp soey by reason of her marrage
pror to September 22, 1922, to an aen, and whose marta status
wth such aen has or sha have termnated, sha be deemed to be
a ctzen of the Unted States to the same e tent as though her mar-
rage to sad aen had taken pace on or after September 22, 1922:
Provded, however, That no such woman sha have or cam any
rghts as a ctzen of the Unted States unt she sha have duy
taken the oath of aegance as prescrbed n secton 4 of the ct
approved une 29, 1906 (34 Stat. 596 U. S. C, tte 8, secton 381),
at any pace wthn or under the |ursdcton of the Unted States
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before a court e ercsng naturazaton |ursdcton thereunder or,
outsde of the |ursdcton of the Unted States, before a secretary
of embassy or egaton or a consuar offcer as prescrbed n secton
1750 of the Revsed Statutes of the Unted States (U. S. C, tte 22,
secton 131) and such offcer before whom such oath of aegance
sha be taken sha make entry thereof n the records of hs offce or
n the naturazaton records of the court, as the case may be, and
sha dever to such person takng such oath, upon demand, a cert-
fed copy of the proceedngs had, ncudng a copy of the oath
admnstered, under the sea of hs offce or of such court, at a cost
not e ceedng 1, whch sha be evdence of the facts stated theren
before any court of record or |udca trbuna and n any depart-
ment of the Unted States.
pproved, une 25, 1936.
-33-S249
S. 3841. PU LIC, NO. 818, S NTY- OURT CONGR SS.
n ct To amend an ct entted n ct to estabsh a unform
system of bankruptcy throughout the Unted States, approved
uy 1, 1808, and cts amendatory thereof and suppementary
thereto.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That subsecton
(e) of secton 77 of the ct of uy 1, 1898, entted n ct to es-
tabsh a unform system of bankruptcy throughout the Unted
States, as amended, be, and s hereby, amended to read as foows:
(e) Upon the certfcaton of a pan by the Commsson to the court, the
court sha gve due notce to a partes In Interest of the tme wthn whch
such partes may fe wth the court ther ob|ectons to such pan, and such
partes sha fe, wthn such tme as may be f ed n sad notce, detaed and
specfc ob|ectons n wrtng to the pan and ther cams for equtabe treat-
ment. The |udge sha, after notce n such manner as he may determne to
the debtor, ts trustee or trustees, stockhoders, credtors, and the Comms-
son, hear a partes n nterest n support of, and In opposton to, such ob|ec-
tons to the pan and such cams for equtabe treatment fter such hearng,
and wthout any hearng If no ob|ectons are fed, the |udge sha approve the
pan If satsfed that: (1) It compes wth the provsons of subsecton (b) of
ths secton, s far and equtabe, affords due recognton to the rghts of each
cass of credtors and stockhoders, does not dscrmnate unfary n favor of
any cass of credtors or stockhoders, and w conform to the requrements of
the aw of the and regardng the partcpaton of the varous casses of
credtors and stockhoders (2) the appro mate amounts to be pad by the
debtor, or by any corporaton or corporatons acqurng the debtor s assets,
for e penses and fees ncdent to the reorganzaton, have been fuy dscosed
so far as they can be ascertaned at the date of such hearng, are reasonabe, are
wthn such ma mum mts as are f ed by the Commsson, and are wthn
such ma mum mts to be sub|ect to the approva of the |udge (3) the pan
provdes for the payment of a costs of admnstraton and a other aow-
ances made or to be made by the |udge, e cept that aowances provded for
n subsecton (c), paragraph (12) of ths secton, may be pad In securtes
provded for n the pan f those entted thereto w accept such payment, and
the |udge s hereby gven power to approve the same.
If the |udge sha not approve the pan, he sha fe an opnon, statng hs
concusons and the reason therefor, and he sha enter an order n whch he
may ether dsmss the proceedngs, or n hs dscreton and on moton of any
party n Interest refer the proceedngs back to the Commsson for further
acton, In whch event he sha transmt to the Commsson a copy of any
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580
evdence receved. If the proceedngs are referred back to the Commsson,
t sha proceed to a reconsderaton of the proceedngs under the provsons
of subsecton (d) hereof. If the udge sha approve the pan, he sha fe an
opnon, statng hs concusons and the reasons therefor, and enter an order
to that effect, and sha send a certfed copy of such opnon and order to the
Commsson. The pan sha then be submtted by the Commsson to the cred-
tors of each cass whose cams have been fed and aowed n accordance
wth the requrements of subsecton (c) hereof, and to the stockhoders of
each cass, and/or to the commttees or other representatves thereof, for ac-
ceptance or re|ecton, wthn such tme as the Commsson sha pecfy, to-
gether wth the report or reports of the Commsson thereon or such a sum-
marzaton thereof as the Commsson may approve, and the opnon and order
of the udge: Provded, That submsson to any cass of stockhoders sha not
be necessary f the Commsson sha have found, and the |udge sha have
affrmed the fndng, (a) that at the tme of the fndng the corporaton s n-
sovent, or that at the tme of the fndng the equty of such cass of stockhoders
has no vaue, or that the pan provdes for the payment In cash to such cass
of stockhoders of an amount not ess than the vaue of ther equty, If any,
or (b) that the nterests of such cass of stockhoders w not be adversey
and materay affected by the pan, or (c) that the debtor has pursuant to
authorzed corporate acton accepted the pan and Its stockhoders are bound
by such acceptance: Provded further, That submsson to any cass of credtors
sha not be necessary If the Commsson sha have found, and the |udge sha
have affrmed the fndng, that the Interests of such cass of credtors w not
be adversey and materay affected by the pan, or that at the tme of the
fndng the Interests of such cass of credtors have no vaue, or that the pan
provdes for the payment n cash to such cass of credtors of an amount not
ess than the vaue of ther nterests. or the purpose of ths secton the
acceptance or re|ecton by any credtor or stockhoder sha be In wrtng,
e ecuted by hm or by hs duy authorzed attorney, commttee, or representa-
tve. If the Unted States of merca, or any agency thereof, or any corpora-
ton (other than the Iteconstructon nance Corporaton) the ma|orty of the
stock of whch s owned by the Unted States of merca, Is a credtor or
stockhoder, the Interests or cams thereof sha be deemed to be affected by
the pan, and the Presdent of the Unted States, or any offcer or agency he
may desgnate, s hereby authorzed to act n respect of the nterests or cams
of the Unted States or of such agency or other corporaton. The e pense of
such submsson sha be certfed by the Commsson and sha be borne by
the debtor s estate. The Commsson sha certfy to the |udge the resuts
of such submsson.
Upon recept of such certfcaton, the |udge sha confrm the pan f sats-
fed that t has been accepted by or on behaf of credtors of each cass to whch
submsson s requred under ths subsecton hodng more than two-thrds
n amount of the tota of the aowed cams of such cass whch have been
reported n sad submsson as votng on sad pan, and by or on behaf of
stockhoders of each cass to whch submsson s requred under ths subsec-
ton hodng more than two-thrds of the stock of such cass whch has been
reported n sad submsson as votng on sad pan and that such acceptances
have not been made or procured by any means forbdden by aw: Provded,
That, f the pan has not been so accepted by the credtors and stockhoders,
the |udge may nevertheess confrm the pan f he Is satsfed and fnds, after
hearng, that It makes adequate provson for far and equtabe treatment for
the nterests or cams of those re|ectng It that such re|ecton s not reason-
aby |ustfed In the ght of the respectve rghts and Interests of those
re|ectng t and a the reevant facts and that the pan conforms to the
requrements of causes (1) to (3), Incusve, of the frst paragraph of ths
subsecton (e) : Provded further, That f, n any reorganzaton proceedng
under ths secton, the Unted States s a credtor on cams for ta es or cus-
toms dutes (whether or not the Unted States has any other Interest n, or
cam aganst, the debtor, as credtor or stockhoder), no pan whch does not
provde for the payment thereof sha be confrmed by the udge e cept upon
the acceptance, certfed to the court, of a esser amount by the Presdent of
the Unted States or the offcer or agency desgnated by hm pursuant to the
provsons of the precedng paragraph hereof: Provded further, That f the
Presdent of the Unted States or such offcer or agency sha fa to accept or
re|ect such esser amount for more than 90 days after recept of wrtten
notce so to do from the court, accompaned by a certfed copy of the pan,
G
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581
Msc.
the consent of the Unted States Insofar as Its cams for ta es or customs
dutes are concerned sha be concusvey presumed. If the |udge sha
confrm the pan, he sha enter an order and fe an opnon wth a statement
of hs concusons and hs reasons therefor. If the |udge sha not confrm
the pan, he sha fe an opnon, wth a statement of hs concusons and hs
reasons therefor, and enter an order n whch he sha ether dsmss the pro-
ceedngs, or, n hs dscreton and on the moton of any party n nterest, refer
the case back to the Commsson for further proceedngs, ncudng the con-
sderaton of modfcatons of the pan or the proposa of new pans. In the
event of such a reference back to the Commsson, the proceedngs wth respect
to any modfed or new pan sha be governed by the provsons of ths secton
n ke manner as n an orgna proceedng hereunder.
If t sha be necessary to determne the vaue of any property for any pur-
pose under ths secton, the Commsson sha determne such vaue and certfy
the same to the court n ts report on the pan. The vaue of any property
used n raroad operaton sha be determned on a bass whch w gve
due consderaton to the earnng power of the property, past, present, and
prospectve, and a other reevant facta In determnng such vaue ony such
effect sha be gven to the present cost of reproducton new and ess depre-
caton and orgna cost of the property, and the actua nvestment theren,
as may be requred under the aw of the and, n ght of ts earnng power and
a other reevant facts.
pproved une 26, 1936.
-31-8220
. R. 5730. PU LIC, NO. 804, S NTY- OURT CONGR SS.
n ct To amend secton 3(b) of an ct entted n ct to
estabsh the composton of the Unted States Navy wth respect
to the categores of vesses mted by the treates sgned at Wash-
ngton, ebruary 6,1922, and at London, pr 22, 1030, at the mts
prescrbed by those treates to authorze the constructon of
certan nava vesses and for other purposes, approved March.
27, 1034.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 3(b)
of an ct entted n ct to estabsh the composton of the
Unted States Navy wth respect to the categores of vesses mted
by the treates sgned at Washngton, ebruary 6, 1922, and at
London, pr 22, 1930, at the mts prescrbed by those treates
to authorze the constructon of certan nava vesses and for other
purposes, approved March 27, 1934 (48 Stat. 505), s hereby
amended by strkng out the word prce and nsertng the words
prces, of such contracts wthn the scope of ths secton as are
competed by the partcuar contractng party wthn the ncome
ta ade year, after the words of the tota contract by nsertng
the words but the surety under such contracts sha not be abe
for the payment of such e cess proft: Provded, That f there s a
net oss on a such contracts or subcontracts competed by the
partcuar contractor or subcontractor wthn any ncome ta abe
year, such net oss sha be aowed as a credt n determnng the
e cess proft, f any, for the ne t succeedng ncome ta abe year:
after the words property of the Unted States by nsertng the
word further after the word Provded by deetng the word
may after the words the Secretary of the Treasury and sub-
sttutng therefor the word sha and by addng at the end of
the secton the foowng provso: Provded further, That a pro-
vsons of aw (ncudng penates) appcabe wth respect to the
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Msc.
582
ta es mposed by Tte I of the Revenue ct of 1934, and not
nconsstent wth ths secton, sha be appcabe wth respect to
the assessment, coecton, or payment of e cess profts to the Treas-
ury as provded by ths secton, and to refunds by the Treasury
of overpayments of e cess profts nto the Treasury: nd provded
further, That ths secton sha not appy to contracts or subcon-
tracts for scentfc equpment used for communcaton, target detec-
ton, navgaton, and fre contro as may be so desgnated by the
Secretary of the Navy, and the Secretary of the Navy sha report
annuay to the Congress the names of such contractors and sub-
contractors affected by ths provson, together wth the appcabe
contracts and the amounts thereof. so that as amended sad secton
3(b) w read as foows:
Sec. 3. (b) To pay nto the Treasury proft, as herenafter provded sha
be determned by the Treasury Department, In e cess of 10 per centum of the
tota contract prces, of such contracts wthn the scope of ths secton as are
competed by the partcuar contractng party wthn the Income ta abe year,
such amount to become the property of the Unted States, but the surety under
uch contracts sha not be abe for the payment of such e cess proft: Pro-
vded, That If there s a net oss on a such contracts or subcontracts com-
peted by the partcuar contractor or subcontractor wthn any ncome ta abe
year, such net oss sha be aowed as a credt n determnng the e cess
proft, f any, for the ne t succeedng ncome ta abe year: Provded further,
That f such amount s not vountary pad the Secretary of the Treasury
sha coect the same under the usua methods empoyed under the Interna-
revenue aws to coect edera Income ta es: Provded further. That a pro-
vsons of aw (ncudng penates) appcabe wth respect to the ta es m-
posed by Tte I of the Revenue ct of 1934, and not nconsstent wth ths
secton, sha be appcabe wth respect to the assessment, coecton, or pay-
ment of e cess profts to the Treasury as provded by ths secton, and to
refunds by the Treasury of overpayments of e cess profts nto the Treasury:
nd provded further, That ths secton sha not appy to contracts or sub-
contracts for scentfc equpment used for communcaton, target detecton,
navgaton, and fre contro as may be so desgnated by the Secretary of the
Navy, and the Secretary of the Navy sha report annuay to the Congress the
names of such contractors and subcontractors affected by ths provson, to-
gether wth the appcabe contracts and the amounts thereof: nd provded
further, That the Income-ta abe years sha be such ta abe years begnnng
after December 31, 1935, e cept that the above provsos reatng to the assess-
ment, coecton, payment, or refundng of e cess proft to or by the Treas-
ury sha be retroactve to March 27, 1934.
pproved une 25, 1936.
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IND .
dmssons. (See Msceaneous ta es: dmssons.)
ffated corporatons, returns. (See Returns.)
grcutura d|ustment ct:
Payments to certan persons hodng for sae, anuary C,
1936, artces processed from commodtes sub|ect to
processng ta
Refunds under sectons 15(a), 15(c), 16(e), 16(e)3, and
17(a) -
coho, ndustra:
pprova of permanent tanks, ocated on ndustra pant
premses, as warehouses for storage of, reguatons amended
orm 1440, acoho gauged for transfer, reguatons amended.
Locks on tank cars shpped n bond, reguatons amended...
Record 130, dscontnued
Ta -free, for use by cncs
coho Ta Unt, dutes to be performed by
ens, nonresdent, ta aton of, 1936 ct
teratons, busness property, e pense deducton
mendments:
Gaugng Manua (1934)
rtces I and
Paragraphs 67, 68, 69, 70, 72, 84, 86, 89, 90, 92, 93....
Paragraph 114
Reguatons 3
rtce 52
rtce 56
rtces 77, 78, and 86
rtce 107
Reguatons 7 (Pro.)
Paragraphs 389, 445, 447
Reguatons 8, artce 76
Reguatons 9 ( coho)
Reguatons 15 ( coho)
Paragraphs 21, 23, 49(6), 61
Paragraph 22, rescnded
Paragraphs 169, 170, 171, 172, 174, and 175
Paragraph 176
Reguatons 18 ( coho)
Paragraph 8
Paragraph 10
Paragraph 26(a)
Paragraph 29(a)
Secton 17(6)
Reguatons 30
Reguatons-43 (revsed une, 1932)
rtce 12
rtce 26 (added)
rtces 44 and 45
Reguatons 46, Chapter I
Reguatons 48
rtces 2 to 6, ncusve
Chapters I and II
8226
8225
8166
8437
8239
8450
8275
8179
8150
8266
8161
8161
8162
8437
8239
8275
8239
8278
8371
8205
8166
8165
8165
8413
8399
8398
8279
8401
8402
8168
8450
8240
8240
8391
8204
8312
8312
(583)
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584
mendments Contnued.
Reguatons 64 (1936)-- -
rtces 34 and 62
Reguatons 69, artces 1391 and 1392, revoked
Reguatons 71 (1932), artces 35 (m), (n), (o) and 126
Reguatons 80, artce 13#, added
Reguatons 83 (September, 1934, edton), artces 3 and 10-
Reguatons 86
rtces 112(f)- and 113(a)(9)-
rtce 117-3
rtce 207-1
Revenue ct of 1918, secton 605
Revenue ct of 1935, secton 106
Treasury Decsons
4429 -
4473 -
4486, artce 2(a)
4516 -
4559, paragraph 5
4561
4651, paragraph 3
4655
4659 -
4666, artces 3(6) and 5 -.-
4689
4694, paragraph 2
4704, artce 5(a)
nnutes, settement under endowment nsurance pocy, ta
treatment
rkansas, motor vehce fue ta
ssgnments:
O and gas nterests, ncome
Trust ncome
ssocaton, trusts dstngushed
ttorney s fees, deducton
ttorneys and agents:
Practcng before Treasury Department, accept
poyment n Interna Revenue Servce,
nstructons
Reguatons governng recognton by Treasury Depart-
ment
Statement re fees to be fed wth power of attorney
utomobes, abty nsurance, deducton of premums
wards, condemnaton, nvountary converson, gan or oss
.
ad debts:
anks, charge-off deducton
Charge-off n year foowng ascertanment of worthessness-.
anks:
ad debts, charge-off deducton
onds, etc., ssued by State bank to Reconstructon nance
Corporaton, stamp ta abty
Cooperatve, accumuated credts to sharehoders
Insovent, soca securty ta
Natona, soca securty ta abty
Stock, coatera for Reconstructon nance Corporaton
oan, dvdends on, deducton
eer:
arres, toerances permtted n szes of, reguatons amended
Rung
No.
8202
8282
8382
8365
8340
8225
8329
8341
8328
8400
8192
8169
8169
8225
8109
8181
8169
8397
8270
8412
8281
8313
8424
8438
8442
8243
/8288
8289
8360
/8186
8230
8343
8215
8348
8356
8386
8329
8196
8298
8196
8213
(8265
8267
8309
8199
8172
8412
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585
eer Contnued.
Remova from brewery to warehouse, reguatons amended.
Undevered, temporary storage of, reguatons amended
onds:
ad debts, charge-off deducton
Dster s, n eu of owner s or enor s consent respectng use
of premses
Issuance of. (See Msceaneous ta es: Stamp ta es.)
Wne e porter s ( orm 186), prescrbed
Wnemaker s
randy, produced and gauged at frut dsteres, reguatons
amended
rewer s notce ( orm 27C), reguatons amended
rewery and brewery bottng house, use of, reguatons amended
udng and oan assocatons:
ccumuated credts to stockhoders
empton of. (See empt corporatons.)
usness e penses:
teraton of busness property
ttorney s fees
Contrbutons to Indana unempoyment compensaton fund
mpoyers, contrbuton under Wsconsn unempoyment
reserves and compensaton act, deducton
edgng transactons
untng stamp ta and huntng censes
Insurance premums, automobe abty
Lega fees and merger e penses
Nonresdent aen, meas and odgng on concert tour
Partnershp nterest, purchase prce
Payments to wdow under reease of dower agreement
C.
Caforna:
Communty property. ( See Communty property.)
ranchse ta es
Use ta
Capta e pendtures:
teraton of busness property
Payments to wdow under reease of dower agreement
Purchase prce of nterest n partnershp
Regstraton fees pad Securtes and change Commsson.
Capta gans and osses:
Determnaton of perod for whch capta assets hed
edgng transactons, oss mtatons
Resdenta property, sae of
Capta stock ta :
ccrua date
oregn corporatons
No offce or pace of busness n Unted States, trans-
actons through resdent broker, etc
Reguatons amended
Transactons n securtes through ts correspondent n
the Unted States
Lqudaton of subsdary, effect on decared vaue of parent s
capta stock where no gan recognzed
Reguatons 64 (1936) amended
Returns, nspecton of, reguatons
Carrers Ta ng ct:
Cerca empoyees of an empoyees representatve or em-
poyee organzaton
mpoyees representatve, dues of, pad n form of servces..
Rung
No.
8401
8402
8196
8271
8224
8290
8371
8398
8279
(8265
8267
8266
8343
8384
8297
8387
8251
8386
8185
8443
8305
8419
8153
8286
8266
8419
8305
8430
8341
8387
8287
8417
8283
8282
8457
8336
8202
8282
8390
8156
8156
G
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2

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8
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s
_
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#
p
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e
586
Carrers Ta ng ct Contnued.
Indvdua an empoyee of a carrer and representatve of an
empoyee organzaton
Labty of carrers, empoyees of carrers, etc., for ta es
under Soca Securty ct
Cgarette stamp ta , North Dakota
Cgars, cgarettes, etc. (See Msceaneous ta es: Stamp ta es.)
Cubs, membershp certfcates, ta abty of
Coast Guard, aowance of cost of dependents transportaton,
ncome
Coconut o, etc. (See Processng ta .)
Coorado, property ta es, accrua date
Communty property and ncome:
Caforna
Returns, |ont or separate, eecton to fe
Wfe s earnngs after separaton
Partnershp profts
Compensaton:
ddtona
Coast Guard personne, cost of dependents transportaton.
Servces n pror years
Consuar agents, secton 8, ct of pr 5, 1906
Muncpa engneer. ( See State: Offcers and empoyees.)
Compromse of nterest and penaty, bar to recovery of ta
Comptroer Genera of the Unted States, reguatons reatve to
use of standard form of e empton certfcate n purchase of
artces for e cusve use of Unted States
Condemnaton awards, nvountary conversons, gan or oss
Constructve recept:
udng and oan assocaton credts to stockhoders
Corporaton organzed to effect corporate sae, nstament
bass
Contracts:
Paseba-payer, deprecaton
Navy, constructon of vesses, treaty mtatons
Contrbutons:
Indana unempoyment compensaton fund
Wsconsn unempoyment reserves and compensaton act,
empoyers deducton
Conveyances. (See Msceaneous ta es: Stamp ta es.)
Cordas, ta on, reguatons amended
Corporatons:
, Credts, contracts restrctng payment of dvdends
Dstrbutons n qudaton, gan or oss, 1930 ct, reguatons.
Dvdends pad credt.
empton. (Sec empt corporatons.)
oregn-
Capta stock ta , 1936 ct
Ta aton of, 1936 ct
Sae of own stock to empoyees, gan or o3S
Whoy or party owned by Unted States, saes to.
Court decsons:
yne-Zerk Co. v. Commssoner
rt Mea Constructon Co. v. Unted Sates
aker v. Commssoner
eats e a. v. Commssoner
g our O tfc Gas Co. v. Commssoner
ue Rdge O Co. Rogan v
Rung
No.
8269
8156
8263
825o
84U
8408
S154
8393
S253
8415
8209
8304
83S9
8221
8329
18265
8267
8306
8195
8220
8384
8297
8413
8431
8432
8433
8261
(8377
4 8434
1.8452
8282
8150
8171
8223
8335
8232
8174
8198
G
e
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a
t
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d

f
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(
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U
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t
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2
0
1
3
-
0
1
-
2
2

0
4
:
4
1

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3
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0
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0
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8
8
9
3
3
6
8
8
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#
p
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e
587
Court decsons Contnued.
otckford v. Commssoner
rookyn Trust Co. v. Commssoner
rooks everng v
Chcago Gof Cub Unted Staes v
Ctzens Southern Natona ank et a. v. Unted States
Coeman v. Commssoner
Coumban Natona Lfe Insurance Co. v. Wech
yne-erk Co. v
aker v
eats et a. v
g our O Gas Co. v
otckford v
rookyn Trust Co. v
Coeman v
Connoy Reaty Co. v
Davson v
Dohme v
v. hrhart
Gref Cooperage Corporaton v
omby Corporaton v
v. yde
Investors quty Co. v
Lyman et a. v
Martz v
Mcnerney v
Moton Pcture Capta Corporaton v
Peak v
Pease v
Poynor v
Resten v
Robert oe state Co., Inc., v
Shea v
Starr v
True v
Watson v
o / v - -
ConnaUy Reaty Co. v. Commssoner
Davson v. Commssoner
Dohme v. Commssoner
hrhart Commssoner v
nhorn everng v
oundaton Co. v. Unted States
ourth Natona ank n Wchta, Wchta, ane. Unted States v.
red everng v
Gref Cooperage Corporaton v. Commssoner
everng v. rooks
everng v. nhorn
everng v. red
everng v. Inos Lfe Insurance Co
everng Morse (nee rown) v
everng Schafer v
everng Unted States e re. Grard Trust Co. v
offman, In the matter of
omby Corporaton v. Commssoner
unter v. Unted States
yde Commssoner v
Inos Lfe Insurance Co. everng v
Investors quty Co. v. Commssoner
udson v. Unted States
erckhoff, Wech v
ng v. Unted States
no -Powe Stockton Co. Unted States v
Commssoner
Commssoner
Commssoner
Commssoner.
Commssoner,
Commssoner,
Commssoner.
Commssoner.
Commssoner.
Commssoner,
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner.
Commssoner,
Commssoner,
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
Commssoner
8209
8186
8317
8396
8378
8197
8344
8335
8174
8198
8316
8209
8186
8197
8266
8155
8254
8299
8395
8361
8231
8185
8352
8245
8306
8185
8173
8444
8244
8334
8419
8253
8254
8254
8305
8351
8266
8155
8254
8299
8454
8370
8420
8454
8395
8317
8454
8454
8409
8343
8453
8268
8298
8361
8388
8231
8409
8185
8369
8436
8360
8289
G
e
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a
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(
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2
0
1
3
-
0
1
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2
2

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4
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3
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8
8
9
3
3
6
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#
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588
Court decsons Contnued.
ye v. McGurk
Lyman et a. v. Commssoner
Martz v. Commssoner
McGurk ye v
Mcncrney v. Commssoner
Morse (nee rown) v. everng
Moton Pcture Capta Corporaton v. Commssoner
Neson-Wggn Pano Co. v. Unted States
Peak v. Commssoner
Pease v. Commssoner
Petgrew Unted States v
Poynor v. Commssoner
Reeves ros. Co. Unted Sates v
Resten v. Commssoner
Robert oe state Co., Inc., v. Commssoner
Rogan v. ue Rdge O Co
Schafer v. everng
Shea v. Commssoner
Starr v. Commssoner
Stutz Motor Car Co. of merca, Inc., v. Unted States
True v. Commssoner
Unted States rt Meta Constructon Co. v
Unted States v. Chcago Gof Cub
Unted States Ctzens Southern Natona ank et a. v
Unted Staes oundaton Co. v
Unted States v. ourth Natona ank n Wchta Wchta ,
ans.
Unted States e re. Grard Trust Co. v. everng
Unted States unter v
Unted States udson v
Unted States ng v
Unted States v. no -Powe Stockton Co
Unted States Neson-Wggn Pano Co. v -
Unted States v. Pettgrew
Unted States v. Reeves ros. Co
Unted States Stutz Motor Car Co. of merca, Inc., v.
Unted States Waner et a. v
Unted Staes Whtney et a. v
Waner et a. v. Unted States
Watson v. Commssoner
Wech Coumban Natona Lfe Insurance Co. v
Wech v. erckhoff
Whtney e a. v. Unted States
Wof v. Commssoner
Credt or refund, cams:
ass, consodated or separate return of affated corpora-
ton, estoppe
Sectons 3226 and 3228, Revsed Statutes a ame nded, are
|ursdctona
Credts:
Corporatons
Contracts restrctng payment of dvdends...
8210
8352
8245
8210
8306
8343
8185
8389
8173
8444
8154
8244
8435
8334
8419
8288
8453
8253
8254
8379
8254
8232
8396
8378
8370
8420
8268
8388
8369
8360
8289
8380
8154
8435
8379
8411
8445
8411
8305
8344
8436
8445
8351
8379
8396
Dvdends pad.
oregn ta es. (See Credts: Ta es.)
Ta es, foregn
Canadan subsdary, accrued but not pad unt subse-
quent year.
Teth
Netherands Indes, smar credt requrement
Sweden, smar credt requrement..
8431
8432
8433
8377
8434
18452
8370
8385 I
8418 I
270
302
202
270
218
200
212
348
194
233
222
172
286
205
217
186
197
224
229
259
229
290
368
207
274
307
282
300
237
235
188
390
222
286
259
519
256
619
215
271
355
256
196
259
363
83
85
86
90
89
92
274
105
117
G
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#
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e
589
D.
Depeton, o reserves, authorty of Commssoner to reestmate.
Deprecaton:
aseba-payer contracts
Informaton necessary n support of deductons
Dsted sprts:
orms 27- and 27 reguatons amended
In bottes, stamps ndcatng ta payment
Interna revenue bonded warehouses
Reguatons
entaton and heatng requrements, reguatons
amended
Losses, eakage and evaporaton n nterna revenue bonded
warehouses, reguatons
Markng packages of, Gaugng Manua amended
Proof of bended whskes determned
Records and transcrpts of
Dsposton, by dsters and propretors of nterna rev-
enue bonded warehouses, reguatons
Whoesae quor deaers, reguatons
Rectfed n bonded warehouses, cass 6, reguatons
Rectfers premses, reguatons amended
Ta -payment, wthdrawa, and transfer, from cstern room
of regstered dstery, reguatons
Dsters:
ond n eu of owner s or enor s consent respectng use of
premses
Coecton, destructon, or remova for denaturaton dst-
ates separated n dstaton
Operaton records
Sngngs, procedure for dsposton of, reguatons amended.
Dstrant, fe nsurance poces
Dvdends:
ank stock, coatera for Reconstructon nance Corpora-
ton oan, deducton
Credt re contracts restrctng payment of
Lqudaton, ordnary dvdends dstngushed.
Pad, credt for
Source of dstrbuton
Ta . Wsconsn
Wthhodng ta at source .
Domestc otment ct, payments under, ncome
.
ectrca energy. (Se Manufacturers e cse ta es.)
mpoyees trust, return requrements
state ta :
Chartabe bequests, uncertan and contngent, deducton
Deductons
bandonment of god standard by Great rtan Dot
other casuaty
Condtona gft
Gross estate-
Mortgages and mortgage partcpaton certfcates, va-
uaton of --
Optona date of vauaton, reguatons amended
Ta abty of proceeds of fe nsurance poces
Transfers In contempaton of death
8316
8195
8208
8181
8178
8160
8397
8162
8161
8292
8164
8163
8403
8165
8159
8271
8274
8273
8371
/8210
18344
8172
f8431
832
8433
8361
8377
8434
8452
8174
8264
8242
8194
8229
8155
8352
8420
8362
8340
8307
8388
G
e
n
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r
a
t
e
d

f
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L

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(
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0
1
3
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0
1
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2
2

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4
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8
8
9
3
3
6
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#
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590
cess profts, nava contracts, nson ct amended
cess-profts ta :
Rate where no decared vaue of capta stock
Reguatons reatng to, 1935 ct, amended
Returns, corporaton fsca years endng une 30, 1936, to
November 30, 193G --
changes, gan or oss. (See Gan or Iosb.)
empt corporatons:
Organzed to qudate assets of a budng and oan assoca-
ton
Tenns cub, renta ncome
empt ncome:
Compensaton, State offcers and empoyees
Interest, bond, accrua pror to donaton to trust
Interest on pecunary egacy
Payments of ncome from nherted property
empton certfcates, standard form for use of Unted States
Government departments, etc
tenson of tme:
ng appcatons for account numbers, Soca Securty ta es.
ng of returns
Mutua Insurance companes, caendar year 1935
Soca securty, pendng recept of orm 940- from
States
Un|ust enrchment (wndfa ta )
.
armers, payments under So Conservaton ct and Domestc
otment ct
ees:
ttorney s, busness e pense deducton
Consuar agents, secton 8, ct of pr 5, 1906
Lega, corporate merger, deducton _
Regstraton wth Securtes and change Commsson,
deducton
Stock stng on e change, oss deducton
oregn corporatons:
Capta stock ta abty. (See Capta stock ta .)
Ta aton of, 1936 ct -
orms:
27- , 27 27- , 27-C, 1431, reguatons amended..
27C, brewer s notce, reguatons amended
186, Wne e porter s bond, prescrbed
700- , wuemaker s bond .
ranchse ta es, Caforna, deducton
urs. (See Manufacturers e cse ta es.)
Gan or oss:
ass, ad|usted, property acqured as a resut of nvountary
converson
Dstrbutons n qudaton, 1936 ct, reguatons
change of, stock for stock, reorganzaton
Invountary converson of property
Saes
ass, property acqured n ta -free e change
Corporate assets, recept of own stock parta consder-
aton
Gambng transactons, oss deducton
Gasone ta . (See Ta es: Motor vehce fue see aso Man-
ufacturers e cse ta es.)
Rung
No.
8220
8441
/8192
8281
8331
8332
8342
8444
8350
8351
8173
8221
8438
8227
8448
8284
8313
8194
75
8343
200
8304
100
8185
212
8430
83
8185
212
8150
112
8181
526
8398
481
8224
524
8290
506
8153
179
8329
159
8261
100
8197
209
8198
227
8254
229
8329
159
8445
256
8335
255
8378
207
G
e
n
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f
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Z
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(
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U
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
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1

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/


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2
7
/

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3
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0
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0
0
8
8
9
3
3
6
8
8
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#
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e
591
Rung
No.
Gfts:
Compensaton for past servces, ncome
Payments of ncome from, ta abty
Grape concentrate, evaporated grape |uce, grape srup. ( See
Manufacturers e cse ta es.)
.
edgng transactons, capta osses, mtaton
untng censes, ta deducton
usband and wfe, earnngs of wfe after separaton, Caforna...
Idaho saes ta
Income:
ssgnment of nterests, o and gas eases
rom sources wthn Unted States possessons, Phppne
Isands, status of
Indana, unempoyment compensaton fund, contrbutons
Informaton at source, returns, empoyees trust
Informers. (See Rewards.)
Inhertance:
Payments of ncome from, ta abty
Ta es, State. (See Ta es: State Inhertance.)
Inspecton of returns, reguatons governng
Insurance:
Poces, dstrant
Proceeds, endowment pocy, acquston of annuty contract,
ta treatment
Ta abty of, estate ta
Insurance companes:
Lfe, reserves, survvorshp nvestment funds, deducton
Mutua (other than fe)
Deductons
tenson of tme for fng returns, caendar year 1935..
Interest:
ankruptcy, recevershp proceedngs, etc., coecton of
ond, accrua pror to donaton to trust
Compromse of, bar to recovery of ta pad
Legacy, ta abty of
Overpayments. (See Interest: Refunds.)
Refunds, overpayment, credted aganst pror year ta es
State obgatons, bs n payment of street mprovements
Inventores, deaers n securtes
Invested capta:
cquston of stock of another corporaton
Recovery of overpayment resutng from correcton of error _
Invountary converson of property, condemnaton award, gan or
oss.
Iowa, State banks, soca securty ta es
.
eopardy assessment, vadty, revew of ourt
ewery, etc. (See Manufacturers e cse ta es.)
ursdcton:
oard of Ta ppeas, petton fed after 90-day perod
8209
8173
8387
8251
8393
8358
8288
8289
8183
8384
8173
8191
8390
/8210
8344
8442
8307
8409
8328
8227
8326
8350
8389
8351
8370
(8184
8187
/8453
8454
8370
8370
8329
8372
8370
8244
Page.
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592
ursdcton Contnued.
Courts
ueston not assgned as error n petton for revew
Recovery of barred defcency coected by credt
L.
Leases, o and gas:
Stamp ta
Caforna
Pennsyvana
Legsaton:
ankruptcy ct, amendment of
Marred women, repatraton
Nava constructon, e cess profts
Lcenses, huntng, ta deducton
Lmtatons statutes, provsons of sectons 3226 and 3228,
Revsed Statutes, as amended, are |ursdctona
Lqueurs, ta on, reguatons amended
Lquor deaers:
Rcenactment of ta ng statutes by Ws-Campbe ct
Speca ta es....
Ta . (See Ta es.)
Ta stamp not a cense
Lquor Ta dmnstraton ct (1936):
Reguatons
pprova of permanent tanks, ocated on ndustra pant
premses, as warehouses for storage of acoho
rewer s notce ( orm 27C), amended
Dsted sprts and wnes rectfed n bonded ware-
houses, cass 6
terng, carfyng, or purfyng wnes, amended
Interna revenue bonded warehouses
entaton and heatng requrements, amended
Losses of sprts by eakage and evaporaton n nterna
revenue bonded warehouses
Markng of vermouth tanks, amended
Markng packages of dsted sprts
Records and transcrpts of
Sprts dsposed of by dsters and propretors of
nterna revenue bonded warehouses
Sprts receved and dsposed of by rectfers
Whoesae quor deaers
Rectfcaton, amended
Rectfers premses
Refund of ta on beer spoed n brewery bottng houses.
Remova of beer from brewery to warehouse, amended..
Ta on wnes, queurs, cordas, and smar compounds,
amended
Ta es at dsted sprts rate on queurs, cordas, etc.,
refund and remsson of
Ta -payment, wthdrawa, and transfer of dsted
sprts from cstern room of regstered dstery
Toerances permtted n szes of beer barres
Undevered beer, temporary storage of, amended
Lquor Ta ng ct of 1934:
Lquor botte strp stamps, reguatons amended
Red strp stamps, reguatons amended
ffated corporatons, qudatng and operatng, deducton.
Corporate organzaton and stock ncrease e penses, fees
Gambng, deducton
Saes, resdenta property
8254
8435
8185
Pagfc
8233
364
8294
366
8249
579
8258
578
8220
581
8251
139
8396
368
8413
480
8411
519
8272
600
8411
519
8166
476
8398
481
8403
485
8400
483
8160
443
8397
465
8162
469
8424
500
8161
465
8164
473
8270
515
8163
472
8399
482
8165
474
8167
477
8401
4S4
8413
480
8404
487
8159
435
8168
478
8412
479
8402
4S4
8277
503
8169
517
8395
265
G
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#
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593
Losses Contnued.
Stock-
ank, nsovency estabshed n year foowng cosng,
when deductbe
Transfer to son for nomna consderaton
Worthess, proof of vaue
Lubrcatng o. (See Manufacturers e cse ta es.)
M.
Manufacturers e cse ta es:
Compromse of nterest and penaty, effect upon recovery of
ta pad
ectrca energy, saes for use n operaton of an ar-cond-
tonng system
urs-
Chapter I , Reguatons 46, amended
Method for determnng ta abty of fur-trmmed gar-
ments
Gasone and/or ubrcatng o, saes for use on Unted States
vesses operated under managng agency agreement, e -
empton
Grape concentrate, evaporated grape |uce, and grape srup,
saes after une 26, 1936, not ta abe
ousehod type refrgerators, meanng of term
ewery, etc., saes after une 23, 1936, not ta abe
Lubrcatng o
Ta -free saes n contaners of 1 gaon or ess
Whte o, sae for nonubrcatng purposes free from ta
wthout e empton certfcates
Naphtha, ta -free saes n seaed contaners of 5 gaons or
ess wthout e empton certfcates
Permanent wave soutons S. T. 818 (C. . I -2, 366) not
retroactve
Rado chasss and ta -pad cabnet, bass for computng ta .
Saes-
cusve use of Unted States, standard form of e emp-
ton certfcate, etc., approved by Comptroer Gen-
era
To corporatons whoy or party owned by Unted States.
Sportng goods, scope of the term unforms
Maryand, ta on beer, dsted sprts, admssons, toet artces
and cosmetcs
Massachusetts corporate e cse ta , accrua date
Mchgan
Property ta es, accrua date
State banks, soca securty ta es
Msceaneous ta es:
dmssons
Concerts by cvc or communty membershp assocaton,
reguatons amended
Membershp fees, sut, mtatons and |ursdcton ds-
4706).
tons amended (T. D.
Stamp ta es
onds, etc., ssued by State bank to Reconstructon
nance Corporaton
Cgars, cgarettes, tobacco, snuff, etc., subdvson pack-
ages, reguatons amended
Cub membershp certfcates
Conveyances, o and gas ease
Caforna
Pennsyvana
Rung
No.
8298
182
8299
205
8197
209
8389
348
8347
342
8204
337
8259
333
8321
347
8211
332
8319
340
8212
339
8421
331
8318
330
8320
342
8177
332
8446
339
8221
343
8223
346
8456
341
8406
80
8252
140
8207
137
8337
387
8240
352
Gft
ooyu
368
8391
351
8213
359
8205
350
8255
360
8233
364
8294
366
G
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594
Msceaneous ta es Contnued.
Stamp ta es Contnued.
Saes or transfers of stock, reguatons amended
Stock dvdend, transfer from name of broker to name
of customer
Transactons nvovng e empt edera agences
Transfer of stock by e ecutors to egatees, Caforna aw
not controng
Motor vehce fue ta :
rkansas
New ersey
Muncpa obgatons, nterest e empton. (See Interest: State
obgatons.)
N.
Naphtha. (.See Manufacturers e cse ta es.)
Nava contracts, e cess profts on, nson ct amended
Netherands Indes, ta es, smar credt requrement
New ersey, motor vehce fue ta
New York huntng censes and stamp ta deducton
Nonresdent aens:
Dvdend payments, domestc partnershp nomnee, wth-
hodng
Partnershp member, saary, payments, ta abty
Returns fed by agents, power of attorney
Ta abe year cosed by Commssoner, severa Unted States
vsts durng year
Ta aton of, 1930 ct
Traveng e penses, concert tour, deducton
North Carona, huntng censes and stamp ta deducton
North Dakota, cgarette stamp ta
O.
O reserves, depeton. (See Depeton.)
Oeomargarne:
Schedue of producton and materas used
une, 1936 and 1935
uy, 1936 and 1935.. --
ugust, 1936 and 1935
September, 1936 and 1935
October, 1930 and 1935. -
P.
Pam o, pam kerne o, etc. (See Processng ta .)
Partnershps:
Dstrbutve shares, saary payments to nonresdent aen
member, ta abty
Purchase prce of nterest n, busness e penses deducton..
Penates:
ankruptcy, recevershp proceedngs, etc., coecton of.
Compromse of, bar to recovery of ta pad
Pennsyvana:
untng censes and stamp ta deducton
Lquor ta
Permt appcaton ( orm 1431) for operatng ndustra acoho,
bonded warehouse and denaturng pant
Persona hodng companes:
Cassfcaton
Surta on undstrbuted profts
Dvdends pad credt . .
Phppne Isands, possesson of Unted States, cassfcaton I
8365
8422
8325
8436
8243
8416
8220
8385
8416
8251
8242
8455
8152
8368
8150
8443
8251
8263
8214
8280
8327
8374
8426
8455
8305
8326
8389
8251
8315
8181
8333
8376
8452
8183
G
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595
Powers of attorney
gents fng returns of nonresdent aens
Statement re fees to be fed wth
Processng ta :
Cams under secton 602, Revenue ct of 1936, reguatons.
Refunds under grcutura d|ustment ct, as amended...
Reguatons reatng to coconut o, pam o, pam kerne o,
sunfower o, etc., amended
Property ta es. (See Ta es.)
R.
Rado cabnets and chasss. (See Manufacturers e cse ta es.)
Raroads, consodated returns, norma ta and surta , 1936 ct
Reconstructon nance Corporaton, bonds, etc., ssued by State
bank, stamp ta abty
Rectfers:
orms 27- and 27-C, reguatons amended
Refunds under grcutura d|ustment ct, as amended
Refrgerators, househod type. (See Manufacturers e cse ta es.)
Refunds. (See Credt or refund.)
Reguatons:
mendments. (See mendments: Reguatons.)
Governng recognton of attorneys, agents, and others by
Treasury Department
Reorganzaton:
Cams under secton 602, Revenue ct of 1936, reguatons.
Gan or oss, e change of stock for stock
Reserves, fe nsurance company
Resdenta property, sae of, oss deducton
Res |udcata, pror |udgment upon merts
Returns:
ffated corporatons, consodated or separate
ass of refund cam, estoppe
nd of affated status durng caendar year
Communty ncome. (See Communty property and n-
come.)
Consodated
Lqudatng and operatng osses, deducton
Raroad corporatons, norma ta and surta , 1936 ct
Corporatons, fsca years endng une 30, 1936, to November
30, 1936
tenson of tme for fng
Mutua nsurance companes, caendar year 1935
Soca securty, pendng recept of orm 940- from
States
Un|ust enrchment (wndfa ta )
usband and wfe, eecton to fe |ont or separate
Informaton at source. (See Informaton at source.)
Inspecton of, reguatons governng
Nonresdent aens, power of attorney
Revenue ct of 1936
Ttes I and I , caendar year 1936
Tte III, caendar year 1935 and subsequent years
Wthhodng. (See Wthhodng ta at source.)
Rewards, nformaton eadng to detecton and punshment of
persons voatng nterna revenue aws -
Rues of practce and procedure, Processng Ta oard of Revew.
Rum, denaturaton, records
8152
8356
8226
8225
8312
8394
8213
8181
8225
8348
8226
/8197
8254
8409
8287
8232
8379
8379
8395
8394
8331
8227
8448
/8284
8313
8154
/8191
8390
8152
8427
8427
8180
8381
8450
G
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596
s.
Saks:
Gan or oss
Corporate assets, recept of own stock parta consdera-
ton
Property acqured n ta -free e change, bass
Property, part nterest transferred to wfe after contract to
se
Resdenta property, oss deducton
Stock. (See Stock: Saes.)
Ta , Idaho
Soca securty ta es:
ssocaton of producers of farm products, empoyees of
thetc stadum
onuses pad to saespeope
owng aey pn boys
ranch estabshments under contro of supervsors
Cash bonus for pror years servces
Credt of contrbutons aganst ta
Demonstrators n reta department stores, status
mpoyees
Dstngushed from ndependent contractor
Of two or more persons
Offcers servng subsdary company wthout compensa-
ton
Performng servces n Canada
Servces n varous States, snge return
mpoyees ta , payment by the empoyer
mpoyer of eght or more, e ampes of
tenson of tme
ng appcatons for account numbers
ng returns, pendng recept of orm 940- from
States
edera reef pro|ects
raternty
ur farms, empoyees of
Gof cub caddes
Identfcaton numbers to empoyers and account numbers
to empoyees
Imposton of ta , faure of State to enact soca securty
egsaton
Insovent banks
Lessee of certan department n department store
Labty of carrers and persons sub|ect to ta es mposed
by Carrers Ta ng ct for soca securty ta es
Members of crew, sde ne servces for vesse concessonare..
Natona banks
Natona parks concessonares
Orchestra members, hote
Organzaton not e empt from ncome ta
Parent corporaton and subsdares, nterchange of abor,
ta accrua bass
Partnershp members
Pro|ects fnanced from reef funds
Returns and ta abty, empoyer s ta assumed by another
Saes contest prze awards
Saesmen, certan amount coverng saary and e penses, com-
putaton bass
Rung
No.
8335
8445
8306
8287
8358
8157
8236
8324
8322
8301
8246
/8300
8363
8190
8200
8235
8218
8219
8216
8459
8293
8438
8448
8237
8201
8423
8447
8383
8175
8309
8217
8156
8449
8199
8257
8353
8323
8188
8234
8189
8256
8248
8247
G
e
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1
3
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2

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_
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#
p
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e
597
Soca securty ta es Contnued.
State banks 1
Stevedore company
Tps - -
Ttes III and I , prncpa provsons of
Trust, empoyees of
Wages
mpoyees servng n Natona Guard
ampes of
Ide tme payments under mnmum number of hours
guarantee
Meas furnshed empoyees, vauaton
Wdow of deceased empoyee, payments to
Water users assocaton operatng edera recamaton
pro|ect
So Conservaton ct, payments under, Income
Speca ta es, quor deaers
Sportng goods. (See Manufacturers e cse ta es.)
Stamps:
Strp, ndcatng ta -payment of dsted sprts n bottes...
Wne, aff ng and destroyng stamps, marks, and brands
Stamp ta . (See Msceaneous ta es.)
State obgatons, nterest on. (See Interest: State obgatons.)
States:
Offcers and empoyees, compensaton, engneerng servces
rendered certan muncpates
Ta es. (See Ta es.)
Stock:
change of, reorganzaton, gan or oss
Losses. (See Losses: Stock.)
Saes
Corporaton s own stock to empoyees, gan or oss
Ta -free e change, gan or oss bass
Worthess, oss deducton
Suts:
Recovery of ta es
Cam for refund, account stated, overassessment can-
ceed
Coecton by credt of barred defcency, court s |urs-
dcton
Insuffcent cam, res |udcata, pror |udgment upon
merts
Mandamus, trustee s overpayment, coecton from bene-
fcares barred
Sunfower o, etc. (See Processng ta .)
Surta . (See Ta es.)
Sweden, ta es, smar credt requrement
T.
Ta abe perod, cosng by Commssoner, aen vstng Unted
States severa tmes durng year
Ta es:
ssessment, |eopardy, vadty, revew of court
Caforna
ranchse ta
Use ta
Rung
No.
(8337
8338
8372
8380
18458
/8302
8345
8176
8308
8311
8355
8410
8346
8364
8354
8310
8194
8272
8178
8276
8444
/8197
8198
8171
8445
8197
8369
8435
8232
8268
8418
8368
8370
8153
8286
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598
Ta es Contnued.
Capta stock ta , accrua date
Cgarette stamp, North Dakota
Coecton, dstrant, fe nsurance poces
Credt for. (See Credts.)
Dvdend, Wsconsn
oregn, credt for. (See Credts.)
untng stamp ta and huntng censes
Idaho saes ta
Lquor, Pennsyvana
Maryand, ta on beer, dsted sprts, admssons, toet
artces and cosmetcs
Massachusetts corporate e cse ta , accrua date
Motor vehce fue
rkansas
New ersey
Payment, Treasury bs, certfcates of ndebtedness, and
notes, reguatons
Pennsyvana quor ta
Property
Coorado
Mchgan
Saes, Idaho
Speca, quor deaers
Stamp. (See Msceaneous ta es.)
State nhertance, deducton
y trust benefcary
Under 1928 ct, retroactvty -
Surta on undstrbuted profts
Dvdends pad credt
Persona hodng company . ...
Net ncome computaton, accounts on nstament bass.
Persona hodng companes
Returns, nformaton requred for preparaton of,
1936 ct
Raroad corporatons, consodated returns
Reguatons r---
State aw restrctng payment of dvdends whe capta
mpared, abty
Un|ust enrchment ( wndfa )
tenson of tme for fng returns
Income ta deducton
Instructons
Payments or credts under agreements wth vendees,
treatment .
Returns, nformaton requred for preparaton of, 1936
ct- - -
Use, Caforna
Tenns cub, e empton. (See empt corporatons.)
Te as, State banks, soca securty ta es
Tobacco:
Statement of manufactured, produced, by casses
pr, 1936 and 1935..
May, 1936 and 1935
une, 1936 and 1935
uy, 1936 and 1935 -
ugust, 1936 and 1935.. -
September, 1936 and 1935
Toet preparatons. (See Manufacturers e cse ta es.)
Traveng e penses, nonresdent aen on concert tour
Rung
No.
8417
8263
/8210
8344
8264
8251
8358
8315
8406
8252
8243
8416
8382
8315
8408
8207
8358
8272
8334
8245
8377
8452
8440
8376
8427
8394
8238
8392
f8284
8313
8429
8203
8366
8427
8286
83S0
8158
8222
8295
8339
8373
8425
8443
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599
Rung
No.
Page.
Treasury bs, certfcates of ndebtedness, and notes, acceptance
for ta payment, reguatons
Trusts:
ssocatons dstngushed
mpoyees , return requrements
Income
ssgnment n antcpaton of accrua, assgnor s ncome
Payments
In eu of amony, etc., grantor s ta abty
To dvorced wfe, settor s ta abty
Profts from sae of trust corpus
Dstrbuton, benefcares ncome
Ta abe as assocatons
U.
Unted States oard of Ta ppeas:
Decsons of, st of acquescences and nonacquescences
ursdcton, petton ted after 90-day perod
Unted States Navy, vesses, constructon of, treaty mtatons..
Unted States Processng Ta oard of Revew, rues of practce
and procedure
Un|ust enrchment ( wndfa ) ta . (See Ta es.)
Use ta , Caforna, deducton
.
ermouth:
Manufacture on bonded wnery premses, reguatons
Markng of tanks, reguatons amended
esses, Unted States, saes of gasone and/or ubrcatng o used
on, operated under managng agency agreements, e empton..
W.
West rgna, State banks, soca securty ta es
Wndfa ta . (See Ta es: Un|ust enrchment.)
Wne:
meoraton at bonded wneres
porter s bond ( orm 180), prescrbed
terng, carfyng, or purfyng, reguatons amended
Rectfcaton reguatons amended
Rectfed n bonded warehouses, cass 6, reguatons
Ta on, reguatons amended
Wnes and brandes, reguatons
Wsconsn:
Prvege dvdend ta
Unempoyment reserves and compensaton act, empoyers
contrbutons
Wthhodng ta at source:
Dvdends, stock owned by nonresdent aens, domestc part-
nershp nomnee
Probems arsng under 1936 ct
Returns, empoyees trust
8382
/8186
8230
8229
8360
8231
8317
8369
8359
8230
8451
8244
8220
8381
8286
8291
8424
8321
8458
8278
8224
8400
8399
8403
8413
8290
8264
8297
8242
8407
8229
288
246
175
166
235
239
242
237
111
175
1-51
172
581
558
143
494
500
347
391
493
524
483
482
485
480
506
142
134
106
106
166
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