SP CI L TT NTION erted cautonary notce on ths page that pub-

sfaed 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 1937-1
NU RY- UN , 1937
IN T IS ISSU
Introductory Notes . .
INDI N UNI RSITY m
Contents LI R RI S I1
Ua t zTS .... wmww. 1-54
Income Ta
Part 1 (1936, 1935, and 1934 cts) 55-161
Part n (1932 ct) 162-172
Part III (1928 ct) 173-234
Part I (1926 and Pror cts) 235-280
Msceaneous Ta es
state and Gft Ta es 281-307
Capta Stock and cess-Profts Ta es .... 308-310
Saes Ta es 311-354
Soca Securty Ta es 355-484
Msceaneous Rungs 485-553
Inde 555-570
The rungs reported n the Interna Revenue uetn are for the nformaton of ta payers and ther counse as
shewng 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 Uw and Treasury Decsons to the entre
stae 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
rungs pubshed from tme to tme may appear to reverse rungs prevousy pubshed.
0freer 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 bo used as
ads n studyng tbe aw and ts forma constructon as made n the reguatons and Treasury Decsons prevousy
tsaaerf.
n addton to pubshng a Interna Revenue Treasury Decsons, t s the pocy of the ureau of Interna Revenue
Chef C
a rungs and decsons, ncudng opnons of the Chef Counse for the nrcau of Interna
Revenue, whch, because they announce a rung 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 be of genera nterest. It s aso the pocy of the ureau to pubsh a rungs or decsons whch revoke, modfy,
amend, or afect n any manner whatever an pubshed rung or decson. In many nstances opnons of the
Chef Counse for the ureau of Interna Revenue are not ot genera nterest because they announce
no new rung or no pew constructon of the revenue aws but smpy appy rungs aready made pubc to certan
stuatons of fact whch are wthout speca sgnfcance. It s not the pocy of tbe ureau to pubsh such opnons.
Therefore, the numbers assgned to tbe pubshed opnons of the Chef 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 ss a precedent n the dsposton of other cases- Uness otherwse
specfcay ndcated, a pubshed rungs and decsons have receved the consderaton and approva of the
Chef Coun e for the ureau of Interna Revenue.
UNIT D ST T S GO RNM NT PRINTING O IC , W S INGTON : 1937
or sae b| the Superntendent of Documents, Washngton, D. C - See hack of tte for pr ea

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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:
Cumuatve uetn.
Year.
Prce
(cents).
rst 6
months.
Second 6
months.
1922
1-1
1-2
40, 30
1923
II-
II-2
30, 40
1924
III-
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
II-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
1936
-1
-2
55, 45
1937
1937-1
60
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
(1025), 20 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
Ofce, Washngton, D. C.

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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn 1937-1, n addton to
a decsons of the Treasury Department (caed Treasury decsons)
pertanng to Interna Revenue matters, contans opnons of the
Chef Counse, and rungs and decsons pertanng to ncome, estate,
gft, saes, capta stock, e cess profts, soca securty, and msce-
aneous ta es, as ndcated on the tte page of ths uetn, pub-
shed n the weeky uetns ( oume I, Nos. 1 to 26, ncusve)
for the perod anuary 1 to une 30, 1937. It aso contans a cumu-
atve 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 une 30, 1937.
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 are 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 1928 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 are pubshed
under artce headngs of Reguatons 91, rungs under Tte I of
the Soca Securty ct are pubshed under artce headngs of
Reguatons 90, and rungs under Tte III of the Revenue ct of
1936 Ta on un|ust enrchment are 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 I. 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 Dvson.
G. C. M. Genera Counse s, ssstant Genera Counse s, or Chef Counse s
memorandum.
I. R. . Interna Revenue uetn.
L T. Income Ta Unt.
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I
M, N, , T, 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.
O. 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. . Soctor s recommendaton.
S. S. T. Soca Securty ta and Carrers tar.
T. Tobacco Dvson.
T. . M. dvsory Ta oard memorandum.
T. . R. dvsory Ta ourd 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, wt. 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 Pr Lf D CISIONS.
Under the provsons of the recent Revenue cts, reatng to ap-
peas to the oard of Ta ppeas, the Commssoner may acquesce
n 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
States 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 Com-
mssoner to be due, announcement w be made n the weeky ue-
tn at the earest practcabe date. notce that the Commssoner
has acquesced or has nonacquesced n a oard decson reates, how-
ever, ony to the ssue or ssues decded n favor of the ta payer.
Decsons so acquesced n shoud be reed upon by offcers and em-
poyees of the ureau of Interna Revenue as precedents n the ds-
poston 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.
Rung No.
Page.
Treasury dersons:
4722
I-1-8418
503
4723
1-2-8180
519
4724
I-4-8508
58
4725
1-4-8510
516
4728
I-4-850U
458
4727
1-10-8590
518
4728
I-10-8591
510
4729
I-13-8614
284
4730
I-13-S621
349
4731
M4-SG33
617
4732
I-14-86 5
145
I-16-S65S
507
4734
I-16-865U
5U8
4735
I-17-8G 3
500
4738
I-17-8672
517
4737
I-21-8726
512
4738-
I-21-8718
508
4739
I-22-8742
300
4740
1-23-8752
319
4741
1-24-S765
531
4742
I-26-8791
343
Court decsons:
I-1-S403
173
I-1-8464
208
I-2-8473
199
I-2-8474
302
I-3-8485
139
I-3-8486
2(12
I-4-8499
298
1192
I-4-8501
332
1163
I-5-8515
256
1194
I-5-8516
262
1195
I-5-8517
266
1198
1-6-8535
353
1-6-8533
311
1198
1-7-8544
1M
1199
I-7-8545
334
I-8-8556
210
1201
I-S-8558
336
1202
I-9-8569
209
1203
I-9-8570
276
1204
I-10-8582
195
I-10-8581
175
1208
I-11-8595
178
1207
I-11-S 96
254
1208
I-12-8603
270
1209
I-12-8604
344
1210
I-13-8613
215
1211
I-13-8619
500
1212
I-14-S628
217
1213
I-14-3627
212
1214
1-15-8640
167
1215
I-15-8642
533
1218
I-16-S849
235
1217
I-16-8650
351
I-17-8684
267
I-17-8670
495
1220
I-18-8680
236
1221
I-18-S881
293
1222
I-19-8S07
182
I-19-8701
492
1224
I-20-8708
259
I-20-8707
273
1226
I -WO
3 0
1227
I-21-8720
317
1228
I-22-8734
187
1229
I-22-8736
TOO
I-23-8748
227
1231
I-23-8747
232
Court decsons Contnued.
Rung.
Rung No.
Page.
I-24-8759
224
1233
I-24-8760
278
1234
I-24-8761
485
1235
I-25-8775
380
I-25-8779
444
1237
I-26-8784
162
1238
1-26-8785
230
Opnon of the f torney Gen-
era:
10
I-15-8614
328
Genera Counse s or Chef
Counse
s memoranda:
16952
I-2-8472
133
17274
1-1-8402
159
I-5-8511
122
17570
I-4-8498
193
17577
1-3-8482
86
17741
1-6-8532
157
17700
I-15-8637
102
17817
I-10-85S3
281
17894
1-12-8601
GO
17895
1-10-8579
58
17920
I-13-8610
88
I-16-8648
123
18120
I-18-8679
151
18123
T-17-8671
128
I-19-8695
149
I-21-8717
147
v.
I-19-S691
57
18245
I-18-8677
70
18354
I-19-8692
79
18417
I-23-8745
142
1S430
I-22-8733
137
18416
1-25-8772
101
1R465
I-25-8770
83
18525
1-26-8782
80
18539
I-26-8783
118
18540
1-25-8773
140
18011
I-26-8786
235
oard of Ta ppeas:
18395
I-10-8578
13
35260
-6-8528
24
35017
I-S-8528
24
37883
1-8-8555
40
40304
1-13-8609
11
42570
I-13-8609
11
47319
I-13-8609
11
52274
I-12-8600
51
1-26-8781
36
53634
I-17-8660
13
C3637.
I-17-8660
3
54083
I-17-8660
18
54092
I-17-8660
17
66325
1-24-8753
13
67890.
I-17-8660
13
I-12-S6O0
21
62905
t-1-8460
42
64891
I-1-8460
30
M710
1-1-8-160
39
64711
1-1-8460
33
64712
I-1-8460
41
(17179
1-24-8753
63
67700
I-17-8660
39
GS704
I-22-S728
9
6 705
I-22-S728
9
5S700
I-22-872S
9
68707
1-22-8728
9
68811
I-18-R073
14
68846.
I-12-8600
21
( )
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t
t
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:
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d

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h
a
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d

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.
n
e
t
/
2
0
2
7
/

n
u
.
3
0
0
0
0
0
8
8
9
3
3
6
9
6
P
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/
/
w
w
w
.
h
a
t
h

t
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I
Rung.
eard of Ta ppeas Con.
6C068
69323
69019
69916
0340
70738
70739
70851
70951
70952.
70953
70954
71373
71374
71003
72057
72209
72404..
72414..
73423.
73955
74287
74298
74297
74298
74299
74383
74883
74813
74942
75223
75411
75685
76731
75740
75772
75773
75931
76130
76256
76367
76657
76658
76059
76660
76661
76703
76841
76845
76846
76894
77016
77165
77204
77307
77309
77387
77666
77674
77740
77865.
77871.
78023
78279
78525
78532
78617
78916
78930
79069
79126
79254
79298
79334
79632
79793
79980
80005
80025
80026
80345
80550.
81035.
Rung No.
I-17-S660
I-25-8768
I-11-8592
1-20-8702
I-22-8728
1-22-8728
I-22-8728
I-17-8660
I-1-8460
1-1-8460
I-1-8480
T-1-8460
I-22-8728
I-22-8728
I-14-8623
I-4-8495
I-24-8753
I-22-8728
I-S-8555
I-22-8728
I-24-853
I-15-8636
I-15-8636
I-15-8636
I-15-8636
I-15-8636
I-15-8638
I-21-8713
I-20-8702
I-14-8623
I-11-8592
I-3-8481
I-22-8728
I-21-8713
I-11-8592
I-14-8023
I-14-8623
I-14-8623
I-22-8728
I-17-8660
I-26-8781
I-16-8646
I-16-8646
I-16-8646
I-16-8646
I-16-8646
I-19-8690
I-11-8592
I-4-8195
I-4-S495
1-9-8567
I-9-S567
I-22-8728
I-17-8660
I-24-8753
I-24-8753
I-24-8753
I-12-8600
I-21-8713
I-22 8728
I-4-8495
I-13-8609
I-10-857S
I-22-8728
I-22-8728
1-5-8511
I-26-8781
I-25-8768
I-21-8713
I-1S-8673
M-8495
I-7-S539
I-13-8609
I-9-8567
I-2T.-8781
I-4-8495
I-17-8660
I-14-8623
I-22-S7-
I-22-8728
I-18-8673
I-21-8713
1-8-8555
I-21-8713
Page
f.2
14
37
12
4
9
9
62
30
42
83
39
13
13
43
9
10
23,49
63
23
63
15
24
24
24
24
18
10
12
21
23
4,31
18
13
6,10
62
62
34
1
26
63
17
12
22
17
27
40
6.10
41
41
26
17
9
26
.11
34
63
21
52
9 I
7
14.18
37
5
23.49
45,53
7
13
46
10
44
33
15
26
8
32
44
L

46
6
42
46
16.42
Rung.
oard of Ta ppeas Con
81213
81295
81484
81486
81519
81568
819C2
82177
82178
82545
82568
82569
82818
83278
83757
Offce decsons (I. T.):
3037
3038
3039
3040
3041
3042
3043
3044
3045
3046
3047
304S
3049
3050
3051
3052
3053
3054
3055
3056
3057
3058
3059
3060
3061
3062
3063
3064
3065
3066
3067
3068
3069
3070
3071
3072
3073
3074
3075
3076
3077
3078
3079
31)80
3081
3082
3083
3084
3085
3080
3087
3088
3089
3090
3091
Offce decson ( . T.):
Offce decsons (C. S. T.):
3.
Offco decsons (S. T.):
853
854
855
856
857
859.
Rung No.
I-15-8638
33
I-9-8567
17
I-13-8609
11
I-13-8609
11
I-13-8609
7
I-18-8673
46
I-20-8702
83
I-16-8646
10
I-16-8646
IS
I-17-8660
28
I-13-8609
12
I-13-8509
12
I-1-8460
30
I-25-8768
16
I-24-8753
17
I-1-8481
00
I-2-8470
119
I-2-8471
119
1-3-8483
109
I-3-84S4
148
-4-8196
65
I-4-84U7
166
I-5-8512
58
I-5-8513
119
1-5-8526
131
I-6-8529
66
1-6-8530
85
I-6-8531
139
1-7-8540
67
1-7-8541
88
1-7-8542
92
I-7-8543
110
I-7-8554
126
I-9-8. S
117
I-10-8580
101
I-11-8593
93
I-11-8599
126
I-12-8602
111
I-13-8811
113
I-13-8612
114
I-14-8624
61
I-14-8825
89
I-14-8826
04
I-15 8838
107
I-1 S619
113
I-16-8647
91
I-17-S861
70
I-18-8674
69
I-19-S694
123
I-19-8696
151
I-20-8703
84
I-20 8704
131
I-20-8705
153
I-21-8714
75
I-21-8715
116
I-21-8716
136
I-22-8729
65
I-22-8731
76
1-22-8732
96
1-22-8735
254
I-23-8743
77
I-23-8744
120
I-24-S754
64
1-24-8755
64
I-24-S756
77
I-24-8757
99
I-24-8758
108
I-24-8784

I-25-8769
78
I-25-8774
141
I-15-8643
300
-10-8584
308
I-26-S787
309
I-4-8500
S23
1-5-851S
824
1-6-8534
336
1-9-8571
340
I-I7-8665
338
I-19-8698
325
I-19-8699
334
G
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1
3
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2

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3
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v:
MI
Offce decsons (S. T.) C on
860
861
862
Offoc decsons (S. S. T.):
61
62
64..
50
71
n. . .
74.....
75
76
78
79
80
81
82
100..
101..
102..
103..
104..
105..
106.
107..
108..
109..
110..
111..
112..
113..
114..
115..
116..
117..
118..
119..
120..
121..
122..
123..
124..
125..
126..
127..
128..
129..
Rung o.
I-20-87O8
1-22-8737
I-28-87SS
1-1-S466
I-1-84G7
I-1-M65
I-2-8475
1-2-8476
I-2-8477
I-2-S478
1-3-8487
I-3-84S8
1-3-8489
I-3-W0O
1-3-8491
I-3-8492
I-3-8493
I-3-8494
1-4-8502
I-4-8503
I-4-8504
I-4-8505
1-4-8506
I-4-8507
1-5-8520
I-5-8521
I-5-8522
I-5-8523
I-5-8524
I-6-8525
I-6-8536
I-6-8537
I-7-8548
I-7-8547
I-7-8548
I-7-8549
I-7-8550
I-7-8551
I-7-8552
I-7- 553
I-8-8559
I-8-8560
1-8-8561
I-8-8562
I-8-S563
I-8-8564
1-8-8565
I-9-8572
1-9-8573
I-9-8574
1-9-8575
I-9-8576
I-9-8577
I-10-8585
I-10-8588
I-10-S587
I-11-8597
I-11-8598
I-12-8605
I-12-8S06
I-12-8607
I-12-80OS
I-13-8615
I-13-8616
I-13-8617
I-13-8618
I-14-8629
I-14-S630
I-14-8631
I-15-S641
I-15-8615
I-16-8651
Page
339
342
409
409
357
870
410
433
457
I

287
m
-ICS
171
475
482
360
371
40S
411
412
401
372
437
438
383
ta
480
413
476
358
M7
388
414
419
430
4: .
457
416
417
418
418
4.r S
471
481
373
394
418
430
421
440
422
468
473
428
124
374
395
7
434
375
406
429
483
389
397
425
428
356
376
ng.
Cmce decsons (S.S.T.)Con
13(1
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
164
15S
156
157
158
159
160
161
162
163
164
165
168
Offce decsons (MS.):
182
183
184
185
186
187
188
Offce decsons (T.):
30
31
32
33
34
35
Mmeoeraphs:
3537 (rev.)
4298 (rev.)
4555
4564
4576
4578
4580
4584
4587
4589
4591
4595
4597
Msceaneous _
Rung No.
Page.
I-16-8652
:-16-8653
394
400
I-16-8654
401
I-16-8G55
I-16-S656
I-17-8666
428
441
305
I-17-8667
377
I-17-8668
378
I-17-86 9
442
I-18-8682
402
I-18-8683
428
I-18-8684
408
I-19-8700
403
I-20-8709
381
I-20-8710
438
I-20-8711
443
I-20-8712
443
I-21-8721
379
I-21-8722
380
I-21-8723
380
I-21-8724
480
I-21-8725
464
I-22-8738
382
I-22-8739
390
I-22-8740
391
I-22-8741
429
I-23-8748
383
I-23-8749
384
I-23-8750
404
I-24-8762
430
I-24-8763
455
I-24-8766
388
I-25-8776
356
I-25-8777
409
I-25-8778
432
I-25-8780
456
I-26-8789
406
I-1-8468
641
I-5-8527
642
I-10-8588
643
I-13-8622
644
I-18-8688
646
I-22-8727
548
1-26-8792
647
I-2-S479
648
I-6-8538
648
I-10-8.589
618
I-14-8634
549
I-18-8687
649
I-23-8751
649
I-25-8771
100
I-8-8566
637
I-8-8557
244
I-11-8594
93
I-16-8657
639
I-17-8662
118
I-18-8 76
62
I-19-8693
97
I-18-8678
74
I-18-86S5
636
I-18-8686
459
I-22-8730
63
1-24-8767
368
f I-5-8519
328
I-13-8620
550
I-14-8S32
550
I-18-8675
651
I-18-R689
514
I-26-87U0
650
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CONT NTS O CUMUL TI ULL TINS (I. T.) 1 TO 5: S. T. OR 1920 ND 1921 INT RN L
R NU 1-1.1-2. II-. II-2. III-. III-2. I -1, I -2, -. -2. I-1, I-2. II-1. II-2. III-1. ITI-2,
I -1. I -2. -. -2. I-1. I-2. II-1, II-2. III-1, III-2. I -1. I -2. -1. -2, ND 1M7-1
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. 11-2)__.
anuary- une, 1924 (No. III-).-.
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)..
anuary- une, 1928 (No. II-1)-.
uy-December, 1928 (No. II-2)..
anuary- une, 1929 (No. III-1)..
uy-December, 1929 (No. III-2)
anuary- 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)...
uy-December, 1933 (No. II-2).
anuary- une, 1934 (No. III-1)..
uv-December, 1934 (No. III-2)
anuary- une, 1935 (No. I -1)..
uy-December, 1935 (No. I -2).
anuary- une, 1936 (No. -1)...
uy-December, 1936 (No. -2).
anuary- une, 1937 (1937-1)
( III)
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8
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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 UN 30, 1937,
INCLUSI .
nnouncements reatng to the acquescence or nonacquescence of the Commssoner In
decsons of the Unted States oard of Ta ppeas, as pubshed n the weeky Interna
Revenue uetns, 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
nents pubshed n the weeky uetns from anuary 1,1932, to une 30,1937, ncusve.
I-26-8781
The Commssoner acquesces n the foowng decsons of the Unted
States oard of Ta ppeas:
Ta payer.
.
bees, Chares T
bees, Cfford
bees, rancs, estate of
bees, ohn T
bees, atherne
bees, Wemcne
cme Manfodng Co., Inc
deade Park Land ct a., trustees
fremow, Davd, estate of
fremow, Sarah, e ecutr
abama Mnera Land Co
bers, Wam .1
bert Lea Packng Co., Inc.-
brecht et a., atherne ., e ecutrces 1
coma Corporaton
e ander, . ., estate of.
egheny Garbage Co
en, Irene C
ed mercan Corporaton
verson, L. T
mbassador Petroeum Co
mercan Centra Lfe Insurance Co.
cquescence reates to deducton for contrbutons.
state as decson acquescence reates to deducton of 133,000.
cquescence reates to ssue whether pettoner receved nterest on mortgages when t bd n property
upon forecosure.
Rung No. 8781 Incudes a acquescence and nonacquescenoe notces pubshed n the Interna Revenue
uetn servce from anuary 1, 1932, to une 30, 1937.
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

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
44860
30
636
25414
25
834
31704
25
1276
76130
35
482
40039
28
868
30133
31998
56024
30
1182
63436
(1)
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3
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2
cquesoences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
mercan Cgar Co
mercan eature m Co
mercan Gas 4 ectrc Co. and subsdary com-
panes.
mercan Prntng Co
mercan Securty 4 Trust Co. et a., e ecutors 1
mercan South frcan Lne, Inc -
nco Investment Co
nderson, C.
nderson, Gustave
nderson, .
nderson, Staney S
nn rbor R. R. Co
rgumbau, rank M
rmstrong, C. George
rmstrong, Wam
rnod 4 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
.
. T.
. T.
(Deaware)..
(New York).
abbtt, Inc.
abbtt, Inc.
aker, I. .
adwn, orence G.
afour, Sr Robert
a, Php D. C
atmore 4 Oho R. R. Co_
atmore 4 Oho R. R. Co.4
ankers Dary Credt Corporaton.
arber, rthur
arber, Php C
arber, St. George
arber Trusts, Sarah P
arcay, W. L
arker, red.
16229
27623
67368
67369
69800
39721
39167
62955
6S830
70701
58647
33242
36224
63827
42053
25869
73614
58400
58603
61553
47190
48009
49354
47190
48009
49354
38520
38519
58958
65310
65311
49066
49067
49065
56160
56162
56441
74047
74047
56348
32387
40230
36737
53702
37239
48329
20747
26755
26757
20747-
26757
8743
51102
21
24
33
27
24
30
30
27
26
30
33
29
31
31
32
29
26
26
28
28
31
34
34
34
32
32
32
32
32
32
23
25
27
29
30
26
25
25
25
25
26
28
1 state ta decson.
1 onacquesceDce pubshed n uetn II-1, wthdrawn.
1 cquescence wth respect to hodng that pettoner was not a transferee.
cquescence reates to Issue nvovng contrbutons by shppers for constructon of sde and spur tracks
and deducton for nterna-revenue stamps aff ed to bonds.
G
e
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2
0
1
3
-
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1
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2
2

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1
9

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3
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3
cqtr SC NC S Contnued.
Ta payer.
arnes, enry
asch, N.
Ice 4 Coa Co.
easey, W.
eaumont, Lous D...
ebb, Rchard ., estate of
eers, Cara O
eers, rank T
eggs, ohn I. (Trusts)
ehr, Chares
e, Ivor . .
eows as Power Co
enedum, M. L.
ent Co., R. G ---
erde, 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..
owdcn, Pau kers
owen, dwn L.4
raun, rthur ., trustee..
rnton, Lan McDonad-
rown, erence
rowne, Sopha Geason Perce-
ryan et u ., C.
ryan et u ., L.
uck, ohn ., estate of
56440
45928
67637
60061
31931
46569
49422
41295
67873
67874
65675
39534
22335
18592
29104
30990
57312
59796
70298
36729
36746
54917
51051
72389
46079
27616
35098
40147
69682
26750
39242
40939
45741
51507
64975
49891
39200
24223
34964
68382
54923
62985
54556
53715
24667
36637
53637
24036
24037
32584
44153
44684
oard of Ta ppeas.
oume.
32
30
27
31
25
27
84
34
30
30
27
25
2S
26
32
28
26
29
27
33
25
23
31
25
25
r,o
20
25
24
31
26
33
29
28
25
35
19
19
25
: state ta decson acquescence reates to deducton of 133,000.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton ssue.
cquescence reates to rght of overrdng royaty owners to beneft of secton 211(b), Revenue ct of
1918.
cquescence reates to Issue Invovng secton 115(g) of the Revenue ct of 1923.
f cquescence reates to ssue as to basc vaues of stock.
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.
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1
3
-
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2

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:
1
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8
8
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3
3
6
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cquebcences Contnued.
Ta payer.
Docket
o.
oard of Ta ppeas.
oume. Page.
uck et a., Mary M., e ecutors 1
uena sta Land fe Deveopment Co.
uffao Unon Iron urnace Co.
ungton, Orve
ungton, Mrs. Sade
us, een II
uock, Ofnrcp
trustee
, estate of.
rodck
urdck, oe W
urnham, Sas
urroughs, mbrose ., estate of.
urton, en|amn T
uter, U.
yers Trust, . T.
C.
Caforna Coast O Co
Cambra Deveopment Co.4
Camp Manufacturng Co
Campau Reaty Co., . M.
Canaday, Inc., Ward M
Canfed et a., rances Marsha, e ecutors.
Canfed, George ., estate of
Cannng, ohn
Capta Compress Co
Carm.n, .
Carne, Goude Manufacturng Co.
Caro, Sue (Mrs. Nck Stuart)
Carona, Cnchfed Oho Ry.
Carona Contractng Co
Carter Pubcatons, Inc
Caspar Lumber Co
Cathey, 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..
32584
44153
44684
2025
16075
16076
69384
69679
68164
73954
31209
46322
46322
61009
53795
59797
61055
46055
25018
75411
35955
70340
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
25
13
23
31
31
32
23
29
29
29
29
28
24
31 I
25
34
25
35
29
31
:n
29
31
25
24
30
31
32
28
30
24
24
25
25
25
29
25
24
29
1 state ta decson acquescence reates to vaue of certan rea estate n San rancsco and vaue of
stock of Langendorf akng Co. for estato 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.
1 cquescence reates to ssue 2 of decson.
4 cquescence reates to determnaton of far market vaue of obgatons receved from purchasers of rra 1
e ots.
1 oquescence reates to Issue regardng apportonment of ta es among affated corporatons.
G
e
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a
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e
d

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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
1
9

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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
9
6
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#
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cqu sc NC e Contnued.
Ta payer.
Century Crcut, Inc., of Deaware-
Champon, Davd .1
Champon, T. Perre 1
Chapman Dewey Land Co
Chapman Dewey Lumber Co.
Chcago Northwestern Ry. Co.
Chrstopher, Rache S.
Cty ank armers Trust Co., e ecutor
Cty ank armers Trust Co. et a., e ecutors 3
Cark et a., ames, e ecutors
Ceand state Co., Inc., enry .4.
Cements, W. L - -
Ceveand Trndad Pavng Co.8
Cnchfed Securtes Co.. --.
Cnton Cotton Ms, Inc
Cother et a., Morrs L
Coats, Inc. (R. I.), - P
Cogate, Mary
Coorado Utah Coa Co
Coumban Carbon Co.7
Coumbus rck Te Co.
Commerca Investment Trust Corporaton
Communty Mausoeum Co.10
Cone, mma S., e ecutr
Cone, Irvng ., estate of
Connay, Mary W. T
Connectcut ectrc Servce Co
Connectcut Rver Power Co
Conney, ames . .
Docket
oard of Ta ppeas.
No.
oume.
Tage.
69345
31
764
/ 55569
63818
27
1312
55568
27
1312
/ 37403
51059
25
1166
33466

37402
47130
25
1166
50196

51058
36343
22
1407
47704
26
292
59797
29
190
31869
23
663
34499
24
1235
f 33585
40890
29
436
51197

46058
24
506
/ 41962
46297
20
772
40554
25
446
54880
28
1311
/ 75740
76841

1063
38904
28
1127
61882
27
506
53799
26
588
42743
25
456
42707
26
794
/ 43495
50051
28
143
70384
33
19
68034
31
515
68034
31
515
60434
32
920
78279
35
444
/ 18591
29106
25
195
1 44081
45833
46267
51967
30
331
60566
I 66948
1 cquescence reates to bass upon whch gan or oss upon redempton of stock shoud be computed.
1 cquescence reates to foowng Issues: Matera and suppes ad|ustment amortzaton of bond
rremum assessment of ssocaton of Raway ecutves raroad Y. M. C. .
1 state ta decson.
cquescence does not reate to bass of property devsed sub|ect to a fe estate.
onac: uescence notce pubshed n Cumuatve uetn -2 revoked.
cquescence reates to contrbutons Issue and ssue resectng deducton of amount pad to treasurer
of Rhode Isand on account of ncreasng capta stock.
T onacquescence pubshed n Interna Revenue uetn I-14 revoked.
cquescence reates to Incuson In consodated nvested capta of capta stock ssued for a te and
brck p anufacturne pant, etc.
1 cquescence reates to the foowng Issues: Deducton of e penses n connecton wth ssuance of
preferred stock deducton for dvdends credted to accounts of empoyees for purchase of stock.
cquescence reates to Issue whether a sae of a cometery crypt Is a sae of reaty enttng the ta payer
to the nsu-nent bass when tota amounts receved fn basc year do not e ceed 40 per cent of gross prce.
u cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
G
e
n
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r
a
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e
d

f
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L

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Y
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U
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v
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
1
9

G
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/


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.
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2
0
2
7
/

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3
0
0
0
0
0
8
8
9
3
3
6
9
6
P
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_
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#
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6
cqt|escences- Contnued.
Ta payer.
oard of Ta ppeas
No.
oume.
Page.
44083
30
331
45834
44082
30
331
72391
30
552
44859
30
636
28427
34
29
41963
20
772
38579
25
1351
53044
27
33
54740
60228
32
100
26751
25
513
44768
25
1320
44769
25
1320
32610
40115

216
40926
27
388
29252
26
1359
30303
24
915
80345
35
706
44617
30
717
22640
27
377
59655
25
866
67729
70957
30
118
71755
33
1068
69698
31
819
69698
31
819
71718
30
29
71718
30
29
r 30
615
66766
31
187
I 33
441
66767
33
36
r 30
615
66701
31
187
I 33
441
f 30
615
66702
31
187
I 33
441
41121
27
588
42619
24
461
78185
33
668
43446
51419
26
477
35472
25
340
18987
24
925
37574
24
1013
Conney, L. .1 - --
Conney, Mary .1
Conservatve Gas Co
Contnenta Lega and Protectve ssocaton.
Contnenta O Co.
Contractors Constructon Suppy Co.s
Cook, zabeth .4
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 -
Corrgan, ames W., estate of
Cosmopotan ond Mortgage Co.1
Costeo, oseph 6
Cotton, G.
Couchman, Wam ennng
Coursey, Sarah . W.7
Co , tta
Co , Carre G
Crane, e ander ., estate of
Crane et 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 10
Crownnshed Shpbudng Co
Cuver, Wmer T
1 cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
ncome.
1 cquescence n oard s decson wth respect to computaton of ncome for perod anuary 1 to March
15, 1920.
1 Nonacquescence notce pubshed n Cumuatve uetn -2 revoked.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
1 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.
7 cquescence reates to the foowng ssue: Incuson n pettoner s ta abe net ncome for 1930, the
tota proft receved from sae of rea estate by the trust.
8 Nonacquescence pubshed n Cumuatve uetn UI-1 wthdrawn.
state ta decson nonacquescence pubshed n Cumuatve uetn -2 revoked.
state ta decson.
G
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a
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d

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1
3
-
0
1
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2
2

0
4
:
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9

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8
8
9
3
3
6
9
6
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cquesce ces Contnued.
Cunard Coa Co.1.
Curts, Laura M_.
Dah, ndrew ., estate of-..
Dah et a., ua, e ecutors..
Daey, ugene S., e ecutor...
Day , Margaret P.
Dana, Mver
Dancer, dth M., estate of.
Daro Tradng ccount
Davdson, dth L
Davdson, ames
Davs, ohn
Dav, Chares, estate of
De orest, ate R.4
Deaware udson Co.5.
Deone, Chares .
Dennett, Car P.4.
Dennett, Mare G.
Denns, rank ., estate of
Denns, Merry M., e ecutr 2
Denny, Regnad7
Detrot Trust Co. et a., e ecutors _
Dckey, Water S., estate of
Dcknson, bert G
Don, erbert L
Drksen, nna L., e ecutr
Drkseu, Theodore ., estate of
Dttmar, mmv
Dockweer et a., Isdore ., e ecutors and trustees ,
Doernbecher Manufacturng Co.
Dohme, fred R. L
Doese Shepherd Co., Syndcate No. 3.
Dombrowsk, Leesa
Dome Co
Domnon Natona ank
Donney, Catherne, estate of
Donney et a., Garrett ., e ecutors
Docket
No.
26874
26875
2S792
56314
44845
44845
26645
65213
50248
70456
81519
72905
/ 01741
72904
20703
75103
37284
50553
50629
77865
71858
72023
50263
50263
49516
35472
51643
35015
43176
58025
59280
17717
17717
03931
50828
34853
43527
46421
50607
63628
71534
68159
41136
78617
41887
52165
56443
56443
oard of Ta ppeas.
oume.
26
28
21
24
25
32
30
: n
34
34
34
24
34
27
20
34
30
30
26
26
33
25
32
23
32
24
24
32
30
30
31
30
35
2 8
20
31
31
cquescence reates to deductons for addtona royates and offcers saares and drectors fees.
state ta decson.
s 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.
Nonacquescence pubshed n Cumuatve uetn I-2, wthdrawn.
cquescence reates to deductbty of osses sustaned by pettoners upon aeged saes of stock to
each other durng the ta year.
7 cquescence reates to ssue nvovng deducton of operatng e penses of aeropane and de srocaton
thereon and whether amounts e pended for costumes, make-up, and wgs are deductbe as ordnary and
necessary e penses.
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3
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cquescences Contnued.
Ta payer.
Dorc partment Co.
Dougas Co., ohn
Drake, rancs
Dre e Packng Co..
Droge, Chrstan __
Duff, Robert C.1
Duncan, T. P
Duncan, Mrs. T. P-.
Dunhan, Water _.
Dunne, ney Peter,
du Pont, Perre S. _.
.
age Pass Pedras Negras rdge Co
asterwood, r., W.
_
asterwood, r., Mrs. .
sendrath, dwn W
sendrath et a., dwn W., e ecutors.
sendrath, Maron
sendrath et a., Rose L., trustees
sendrath, Wam
sendrath, Wam N., estate of
drdge, ce .3.
drdge, . S. .
gn Compress Co
ott-Grante Lnen Corporaton
more Mng Co
nameed Metas Co
nns Ice Co.
rb et a., Ray L., e ecutors
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.
armers Loan Trust Co., trustee.
armers Unon State change
Docket
No.
42460
40181
63416
40182
63417
36726
36724
36727
36728
36725
36724
64779
64778
49302
48212
46768
52972
19011
22021
22022
26259
42184
29260
64397
62664
43044
30726
20452
67636
20774
10596
18105
27194
31748
43317
29465
18105
oard of Ta ppeas
oume.
44655
32
1187
38726
23
1307
46804
30
475
20775
24
376
79632
35
829
37552
23
1342
65921
31
212
65924
31
212
66308
27
1068
54444
29
1109
26996
18
1028
28
28
28
28
28
28
28
28
30
30
31
26
27
25
24
29
30
29
29
25
26
27
24
27
26
30
1 cquescence reates to Issue 1 of decson.
1 Nonacquescence pubshed n Cumuatve uetn I -2, revoked.
cquescence reates to ssue whether dvdends decared In 1929 consttuted ncome to the pettoners
n 1929 or 1930.
cquescence reates to market vaue of o and gas eases on March 1,1913.
cquescence reates to ssue In connecton wth opton payment receved for purchase of and.
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9
cquescences Contnued.
Tanwyer
awsett, Chares
awsett, Chares .1
edera Street Peasant aey Passenger Ry.
erguson, arod G
Co-
dety Savngs and Loan ssocaton.
dety Unon Trust Co., e ecutor
fth venue ank of New York, e ecutor --
rst Ctzens ank Trust Co
rst Natona ank of oston, admnstrator.
rst Natona ank of ey West
rst Natona ank n Mobe
rst Natona ank of Skowhegan, Mane
sher, Chares D., estate of
tch, orence
emng, Lamar L.
orence Manufacturng Co
ok, .
ord, yn -
ord, Lna
ord, Robert
ord, Sara C
ordyce et a., Wam C, trustees.
orest Products Chemca Co
orres, Lord
orrester, W.
oster, L. .
oster, N. C, estate of
oster et a., Ward, e ecutor .
o , ontane 4
rancke, Chares
rank, m
rankn Teegraph Co
rankn Tte Trust Co. ..
rschkorn Deveopment Co_
uhage, fred .
oard of Ta| ppeas.
No.
oume.
Page.
64474
31
139
72057
30
908
20758
24
262
70463
34
522
14S62

31801
39406
23
1059
45215

69193
33
304
69166
32
208
71599
32
335
36438
46583

252
45186
26
370
63732
30
632
77165
35
876
68338
32
82
51670
29
1299
78362
34
384
15383
26079
25
676
28396
31018
25
599
68707
70738
33
1229
68706
70739
33
1229
68704
77740
33
1229
68705
33
1229
58647
30
988
46621
27
638
40229
43973
25
154
73591
32
745
43086
26
1328
32984
25
414
32984
25
414
71084
30
451
56438
32
613
50224
27
1158
29695
26
914
51947
1
60167
32
266
67805

30496

35170
30
8
42452

61754
32
222
1 Nonacquescence pubshed In Cumuatve uetn III-2, wthdrawn.
1 state ta decson.
1 cquesceDce reates to Issue Invovng Incuson In ncome Interest on the decedent s share of partner-
shp capta and ncuson n ncome the decedent s share of certan commssons earned by the partnershp.
1 cquescence reates to ssue regardng fng of separate return for 1925.
1 cquescence reates to deducton for deprecaton on premses and Incuson n year 1930 n pettoner
o s ncome, 7,400 representng renta vaue of premses occuped by hm.
t pad on sae of mortgage notes.
- statutory persona e empton as the
1 cquescence reates to ssue nvovng deducton of commssons
T cquescence reates to ssue whether ta payer s entted to the
head of a famy.
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10
cquescences Contnued.
Ta payer.
oard of Ta ppeas.
No.
oume.
Pago.
47902
26
995
60840
33
94
55595
32
892
60840
33
94
42707
26
794
38575
25
1351
47705
26
292
52163
62309

57
58787
31
580
58788
31
580
79069
35
615
66511
32
1011
45240
27
765
61218
26
594
31329
28
18
74683
35
205
43052
50073
3
483
27628
24
18
27629
24
18
75740
76841

1066
54556
29
1161
62062
31
236
43438
1
51694
25
146
53310

61568
70407

485
29470
26
914
27625
24
18
30302
24
915
59722
29
804
57483
29
275
22332
27
377
22333
27
377
3953S
30
1290
42528
28
418
16619
27
632
23085
22
1124
51794
30
1028
82177
35
239
56540
1
64064
33
512
71114

53647
24
719
43786
1
46373
) 26
1017
63487

G.
Gamb, . - -
Gambe, Cec ., e ecutor 1
Gambe, ames N., estate of
Gambe, Mary ., estate of 1
Gambe Stockton Co.
Gardner, Chares .
Garron et a., Isabe . ., e ecutors 1 --
Gaston, Wam
Gav, D. ---
Gay, . C - --- -
Genera Industres Corporaton
Genera Outdoor dvertsng Co., Inc.4
George, erome R
George Machnery Co., R.
Gbbs, G. Wdy... -- -
Gbbs udson, Inc --
Gette Rubber Co.-
Gnsberg, bert
Gnsberg, Nathan
Grard Trust Co., trustee
Gven, T. ., estate of
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 8
Gordon, Ma L.5
Gore ros., Inc
Gotteb Reaty Co
Gracpcr, W.
Grand Rver Grave Co --.
Grant, arry ohnston
Grant, osephne C, Trust..
Great Southern Lfe Insurance Co.
Green, Robert D.7
Green, W. S
1 stat ta desson.
cquescence reates to Incuson In consodated nvested capta of capta stock ssued for a to and
brck manufacturng pant, etc.
1 cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to ssue whether pettoner reazed gan on transferor certan of ts assets to I entra
Outdoor dvertsng Co. for stock of that company.
cquescence reates to that part of decson hodng that Water . Iettman Is not abe as a transferee
and to mtaton ssue.
cquescence n ssue nvovng deductbty of nterest pad on matured coupons surrendered.
T cquescence reates to transactons 1, 2, 3, and 4.
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1
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2

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:
1
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11
cqubscbnces Contnued.
Docket
No.
oard of Ta ppeas.
oume.
Greenwood, dna. M
Greenwood, . P
Grey u Corporaton
Grffs, Stanton 1
Grffths, va Lavno
Grffths, George
Grffths, ohn
Grswod Co
Guaranty udng Loan Co
Gudeon, Water T
Guf Coast Irrgaton Co.2_
Guett, C. .
Guett, W.
Gummey, rank .
Gurnee, ugustus Coe, estate of
.
aberand, Pau
afner, fred
aev-Oa Coa Co.
aaday, Sarah P..
amburg, r., Sam.
andy, rankn
anna, R. ., estate of
anna, rgna W., e ecutr
anscom, dward ., estate of 6
anscom et a., Meve, e ecutors 5.
arbeson Lumber Co., W.
dward S_
arkness, Mary S
arnschfeger, enry, estate of 5
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.
avana ectrc Raway, Lght Power Co.
81485
81484
47376
38577
63354
42498
43074
68628
55352
54739
60229
33694
40081
41343
52517
52518
61056
42619
29289
48389
57132
30962
26754
30304
66810
67671
74406
62718
62718
44992
44992
33076
51012
65169
71310
71311
69 36
69636
62784
25269
21643
50594
29958
41736
53600
63789
63790
38864
72788
40304
42570
47339
34
34
27
25
30
25
25
33
27
32
24
31
31
26
24
25
31
24
25
24
30
31
31
24
24
24
31
31
31
31
31
27
27
30
26
29
29
27
32
34
N
reates to ssues regardng aocaton of tota cost between common and preferred stocks
reates to a ssues e cept affaton ssue.
pubshed n Cumuatve uetn II-1. wthdrawn,
m nonacquescenco pubshed n Cumuatve uetn -2, revoked,
ta decson.
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2
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1
3
-
0
1
-
2
2

0
4
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1
9

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0
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8
8
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3
3
6
9
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12
cquescences Contnued.
Ta payer.
avard, Chares
awk, enry C, estate of
awk, Ida W., e ecutr
ay, W.
ayes, ohn ., estate of
ayman Co.,
azewood, N.
eca Mnng Co
eck, dwn
emph, Cfford
enke Trust, Mrs. Catherne
cnke, enry, estate of
enungsen, Water
erff Dttmar Land Co
ervev, W. R
ess, Nathane
ettman, Water .
ewtt, rskne
att, nna ee.
matt, P.
ckman, anne Snyder
Iman, . D., estate of
man et a., udson McCntock, admnstrators
mehoch ros. Co
res Co., Chares -
obbs, enry
obbs, Teck
offer, nta Owens
offer, T. -- -- --
oday, ohn
ongsworth, .
ostcr, George ue --
oy Deveopment Co
omby Corporaton
omes, George W
oughton, anson
oughton, r., mory, estate of
oughton, rthur
oughton, Chares ., estate of
ouston ros.3
ouston, George T.
ouston, orace .
ouston Land Trust Co., trustee
ouston, Php D.
oward et a., ohn
Docket
No.
32841
60690
60690
37499
76058
16552
G1334
69916
74813
56161
38573
63321
63321
56668
Iffo
60729
68821
46806
33279
22341
57032
63141
82569
82568
16253
62676
G2676
41728
42769
45663
47781
27352
27351
33374
33375
64127
54282
29461
42771
52661
51303
53797
29445
29444
29446
29465
12052
13104
22008
22009
63321
22007
52163
62309
oard of Ta ppeas.
oume.
25
1161
29
1061
29
1031
25
96
35
230
25
736
29
595
35
454
32
613
25
1351
33
73
33
73
30
301
32
349
25
1282
24
475
27
377
30
962
35
292
35
292
24
438
31
1126
31
1126
26
541
26
1351
26
241
26
241
24
22
24
22
29
1272
27
621
26
1359
33
774
28
1091
29
605
26
1359
26
1359
26
1359
26
1359
22
51
22
51
22
51
33
73
22
51
34
57
1 cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
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 ony to deducton for busness e penses n 1920 and to number of feet of tmber
cut durng 1919.
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2
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1
3
-
0
1
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2
2

0
4
:
1
9

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0
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0
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8
8
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3
3
6
9
6
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13
cquescences Contnued.
oard of Ta ppeas.
oume.
ubbard, dward, estate of. -
ubbard, Mdred M
ubbard, Mdred If., formery e ecutr .
ubbard, Mdred M., transferee.
ughes, .
unt, orence W
unter, C. W., e ecutor
unter, George ., estate of. --
unter, r., Thomas .
untngton, enry ., estate of1
untngton, Samue L
unttng, enrv R
urbut, . M -
urteta., Mrs. . ., e ecutors
urt, oe, estate of
utchns, Chares P.
utchns, Lena C.
uyer s, Inc..
Inos Centra R. R. Co.
Inos Power Lght Corporaton.
Independent Ice 5c Coa Co
Indana Lamp Corporaton
Ingas, Chares C, estate of 4
Ink, Mary
Insu, Margaret
Insu, Samue
Insu, r., Samue
Internatona Ocean Teegraph Co.
Interstate Reaty Co
IsenberR Trust, een L
Isenbcrg Trust, Pau Otto
Itcn scut Co
Iverson, I. C
Iverson, Rupbane
.
ames, rthur Curtss.
ames, Wam L
ohnson, orence D., estate of
ohnson, orence Lndsay, estate of.
ohnson, Wam Perce, estate of
63878
67569
63837
63878
67569
67335
56325
45417
45417
58490
45429
78916
75304
71788
28099
28099
49070
49069
28369
29154
39841
62023
62991
56299
596S7
67639
52761
57S35
75731
68002
68504
68003
68503
68001
6S505
29585
46272
50981
71373
71374
16429
20899
48838
48837
18395
70278
75969
57S90
53634
54083
30
30
30
30
32
35
26
26
33
28
35
32
33
31)
30
34
34
21
30
34
33
27
28
25
35
32
32
32
26
2. ,
35
35
25
29
29
31
30
33
35
35
1 cquescence n Issue as to whether pettoner receved a ta abe dstrbuton from Marsha
n anuary 5,1827, n the amount of 1,118.51.
1 cquescence reates to ssue regardng oss from operaton of a farm n 1926 and 1926 and
Increasng defcency for 1926 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 Co.
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14
cqubscences Contnued.
Ta payer.
ones, Chester ddson
ones, R. D
ones, Inc., T. R
.
ammerdner,
ansas Cty Leasehod Improvement Co.1
ansas Cty Memphs arms Co
ansas Cty Southern Raway Co. and affated
companes
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
e ecutors.
nney Co., Inc., G. R.
rchner, uus C
eberg et a., Robert .
eeman, rthur S
nght, . D
onnk|ke, N. ., oandsche Loyd (Roya
oand Loyd)
oppe, Morrs D
raener, Samue
uhn, Ida L
unau et a., Oscar . C, trustees.
L.
Lake Chares Nava Stores
Landers, Dougas ., estate of
Lang et a., orence O. R., e ecutors 5.
Lang, enry, estate of 5
Docket
No.
50206
69858
77871
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
68841
56865
78662
69323
37822
32609
40267
64815
34630
36940
35443
71117
71117
oard of Tar ppeas.
oume.
31
29
35
25
17
25
22
25
25
31
31
31
31
26
26
31
27
31
31
26
27
31
35
28
34
3.
25
24
27
25
21
32
32
cquescence as to ssue whether pettoner shoud be aowed to fe hs return on comrr,unty property
bass.
cquescence reates to March 1, 1913, vaue for purposes of cacuatng fan 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
t Improvement Co.
3 cquescence reates to the foowng ssues: Deducton of contrbutons to Y. M. C. ., Prests of Paace,
and ssocaton of away ecutves and amortzaton of commssons and e penses ncurred n sae
of bonds.
cquescence reates to that part of decson hodng that Water . ettman Is not abe as a transferee
and to mtaton ssue.
state ta decson.
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15
cque8cence8 Contnued.
Ta payer.
Lang, uus C, estate of 1
Langworthy, Mar|ore C.1
Lansk, Samue
Lawrence. Gadys G
Lav. son, ohn
Lea, een Sperry
Leamngton ote Co
Ledesdorf, Samue D
Leonard odng Corporaton, George D., estate of.
Letts, r., rthur
Lews, Sr., . S
Lev, George W.
Ley, Mary C. .
Lberty arms Co
Lberty osery Ms
Ldo udng Co., Inc
Lh enfed, uus
Lncon, Robert Todd, estate of
Lppncott et a., . ertram, e ecutors .
Lppncott, Water, estate of
Lttauer, ugene, estate of1
Lttauer et a., Lucus N., e ecutors 5
Ltte, C.
Lovd, S. Rose
Lovd, 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
M.
MacCaum Gauge Co
Magee, dth Grant, Trust
Mata Tempe ssocaton 7
Manhattan Lfe Insurance Co
Manstque Lake Superor R. R. Co
Markham Irrgaton Co.8
Marston, dgar L
Martn, C.
Martn ote Co. and affated corporatons,
Martn et a., . are, trustees
Martn, T. S., estate of
Docket
No.
68316
71961
49347
75494
40232
74287
48413
48305
48871
62106
56163
22336
22337
26717
29899
66546
53385
79298
39167
49233
49233
51858
51858
61821
75765
44089
34161
37762
40071
47117
56027
62410
36438
46583
51064
27630
40048
70437
82178
29476
32940
35337
41344
61961
61735
16275
44583
44583
oard of Ta ppeas.
oume.
34
30
34
33
25
35
26
26
26
30
32
27
27
22
31
31
35
24
27
27
25
25
27
32
30
26
24
28
25
29
24
26
32
35
16
32
2 )
24
29
34
24
24
24
1 state ta decson acquescence reates to deductbty of fu amount of 1,041.89 addtona ncome
ta es accrued on decedent s separate ncome ta return for 1927.
1 cquescence reates to reorganzaton ssue.
1 cquescence reates to that part of decson hodng that Water . ettmnn s not abe as a trans-
feree and to mtaton ssue.
4 state ta decson.
1 state ta decson: acquescence reates to ssues , 5, and 7 of decson.
cquescence reates to queston whether the vaue of rghts to subscrbo to certan bonds consttutes
ncome.
Nonacqueseence pubshed n Cumuatve uetn I1I-2 wthdrawn.
1 cquescence reates to a ssues e cept arhaton ssue.
G
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16
cgu SC NC a Contnued.
Tu payer.
Docket
No.
oard of Ta ppeas.
oume
Martns, ndy 1
Marvn, Water S. _
Mason , Pau
Matagarda Cana Co.
Matchette, rankn
Matthews, . P
Mauch, Russe C, and esse
Maudn, L M
Mc uffe, gnes
McCa, orence
McCarter, Uza
McConne, Stea
McCoo, ess --
McDonad, L. G-
Mc wan, nna
Mc wan et a., nna ., e ecutors
Mc wan, .
Mc wan, Lan G
Mc wan, W. II., estate of -
McGrew, zabeth W
Mcnerney, ohn ., estate of
McLaugh n, Thomas
McLennan, . R
McMan, Wam Northrup, estate of5.
McRae, Louse C, e ecutr 4
McRae, Php, estate of4
Mead Coa Co., C.
Mehcrn, P. W.
Memphs Memora Park.
Mente, ugene W
Mente, . G
Mente Co., Inc
Mercante-Commerce Natona ank n St. Lous
et a., e ecutors and trustees 4
Mercante Trust Co. of atmore et a
Merr, Isaac L
Messer, Rchard ., estate of4
Metropotan Propertes Corporaton
Mchgan Centra R. R. Co.7 ---
Mchgan Trust Co. et a., e ecutors 4
Mby Dow Coa Mnng Co.
Mgrm ros., Inc., . _
Mken, Sae Gbbs
22334
38578
58413
400S2
41345
40710
26250
72269
26239
49071
47702
69193
43478
46059
25427
25996
25997
25995
25994
25997
26753
83276
59788
26730
45966
32303
32303
42718
42719
54660
81035
/ 49259
53458
54701
54708
51305
35443
68338
61722
42513
45032
19930
42513
22021
22022
20259
42184
33177
31330
27
25
33
24
26
22
35
22
29
26
33
29
24
27
26
26
26
26
26
25
35
2 )
25
27
30
30
28
35
28
29
29
29
21
32
31
27
24
28
27
24
24
28
1 cquescence reates to that part of decson hodng that Water . Iettman s not abe as a transferee
and to mtaton Issue.
1 cquescence reatos to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to a Issues o copt affaton ssue.
1 state ta decson.
state ta decson acquescence, e cept n so far as concerns the queston of stus.
cquescence reates to dvdend ssue.
cquescence reates to the foowng ssues: Whether amomt pad by New York Centra R. R. Co. to
State of Inos n connecton wth Issuance of bonds was a ta or fee savage recovered from ore docks
credt representng deprecaton on property retred n 1018.
8 cquescence reates to ssue 1 of decson.
G
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1
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17
cquescences Contnued.
Ta payer.
Docket
No.
oard of Tan ppeas.
oume.
Page.
Mton, osephne ohnson
Mnneapos, St. Pau Saut Ste. Mare Ry. Co
Msssspp Packng Co., Inc
Mssour State Lfe Insurance Co.1
Mtche, L. C
Mtche, Oscar .
Mobe ar Pots ssocaton,
Mobe Lght Raroad Co.
Moore, dward W., estate of
Moore, Louse C, e ecutr
Mocrehead, Wam
Moorshead, O
Morgan, r., dwn D
Morgan, atherne untngton, estate of.
Mossman, . Pau
Mossman, Wam ., estate of 5
Mountan ew Cemetery ssocaton
Muchnc, . ., admnstrator
Munroe, Grace ohnson
Murchson, Mrs. .
Murphy, Mae . eey
Murray, dward
Murray, Rebecca
Murtha Schmoh Co
Musgrove, oyd L
Mutua ssurance Socety of rgna.
Mygatt, enry D
Na et a- R- ., e ecutors
Natona Capta Insurance Co.
Coumba
Natona Casket Co., Inc.
Natona Contractng Co.7
Natona M Suppy Co
of the Dstrct of
Natona Packng Corporaton.
Natona Te Co...
54092
74118
20772
58241
62386
41610
41680
41874
54673
77016
81295
41026
42062
58720
58720
25853
57045
76660
79652
59747
59747
83757
63789
76942
62838
38222
40176
58858
40174
58857
17911
42591
43911
76657
53044
56718
50320
24520
37001
31608
33971
64013
35
141
34
177
24
376
29
401
28
767
I 27
101
35
12
23
543
33
108
33
108
22
858
28
253
35
230
34
433
32
596
32
596
35
893
29
163
32
995
28
257
26
212
28
624
28
624
17
442
27
554
24
1102
35
230
27
28
29
25
23
24
30
33
107S
139
407
1302
952
32
1 cquescence does not reate to foowng ssues: Deducton for reserve set up to meet abty upon
matured coupons ad|ustment of ncomo for renta of space occuped n home offce budng and deprecaton
opon such budng.
1 cquescence reates to ssues regardng assgnment of earnngs of ron mnes n payment of ega servces
and deducton of amount pad to son for aeged servces rendered.
1 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
aaet. 2. Whether pettoner sustaned statutory net osses for 1924 and 1926 whch can be deducted from
Its ncome for 1925 and 1926, respectvey.
state ta decson acquescence In hodng that the commuted vaues of the nstament poces n
tae frst two groups shoud be ncuded n the gross estate.
state ta decson.
cquescence reates to deducton of corporaton e cse ta es.
cquescence In oard s decson that pettoner had the rght to aocate overhead e penses to each
on competed bass and that formua used by pettoner was permssbe and ssue reatve to
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18
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas
oume.
Neon ectrca Products Corporaton, Ltd., Caude
Neracher, George
Netcher, Chares, estate of
Netcher, Gadys Over, e ecutr
Netcher, Irvng
Netcher, Townscnd
Newaygo Portand Cement Co
Newbock O Co. of Te as 1
Newbury, Moe Netcher
Newbury, Moe Netcher, trustee
Newe et a., Sterng, e ecutors
New ngand Power Co
Newman et a., Rose, e ecutors s
Newman, Samue, estate of 2
New Market Investment Co.3
Newton, zabeth .
Newton, oseph R., estate of2
New York Centra R. R. Co.4
New York, Chcago St. Lous R. R. Co..
Nagara Share Corporaton of Maryand
Nbey-Mmnaugh Lumber Co
Ncodemus, r., . C.s
Nppert et a., fred ., e ecutors and trustees...
Noonan state Trust, . R
North Sde Lumber Tmber Co
Northern Coa Co.
Noyes, ansen 7
O.
Oakey, Rchard II
O Connor, Martn P
O Donohoe, ohn
O Donohoe, Mrs. ohn
Okahoma Contractng Corporaton
Ods, Margaret .8
Omsted, George W. --
75685
74411
38053
38053
38052
38050
30310
28045
38049
38052
57835
18593
29105
59598
59598
35719
47703
47705
19932
34437
62040
21047
70813
17527
52326
62569
55595
62664
34924
34945
3S574
45778
74383
69686
69680
77871
49068
44090
45745
48121
54714
60746
35
32
26
2.5
26
26
27
26
26
26
25
25
31
31
17
26
26
28
23
31
32
26
32
29
27
24
25
24
35
31
31
35
34
30
Nonacquescenee pubshed n Cumuatve uetn I-2 revoked.
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 ncreased for 1918: and the
March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod 4c
Improvement Co.
cquescence reates to the foowng ssues: Whether amount pad by New York Centra R. R. Co.
to State of Inos n connecton wth ssuance of bonds was a ta or fee savage recovered from ore docks
credt representng deprecaton onproperty retred In 1918.
Nonacquescenee pubshed n Cumuatve uetn I-2 wthdrawn.
6 cquescence reates to nventory 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.
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19
cquescences Contnued.
Omsted, Iva C - ---
Ovmpa arbor Lumber Co
Ontaro Reaty Co.2 - -
O Rear, . C.
Osborne, Owen, estate of
P.
Pacfc tantc Teegraph Co. of the Unted
States
Pacfc Coast scut Co. et a.
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, Cam ., e ecutr
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 8., estate of.w -
Peck et a., remont C, e ecutors
Pegg, bert O. --
Penn Mutua Lfe Insurance Co --
44089
45746
48143
54713
60745
64272
35721
32335
59957
295S6
71588
54334
78907
34113
34113
43850
62052
62717
58604
58604
67640
30989
76058
15824
16354
25984
15823
16355
25986
15822
16356
25985
61520
61521
61520
61521
22338
52577
59670
30
30
17
28
29
26
32
28
34
25
25
24
32
31
31
31
27
2n
33
25
25
31
31
27
32
331
114
213
698
374
914
39
980
590
764
704
536
550
427
644
644
1346
917
57
223
223
223
87
87
377
839
876
1 cquescence reates to queston whether the vaue of rghts to suhscrbe to certan bonds consttutes
booma.
cquescence reates to March 1.1913, vaue for purposes of cacuatng t n or oss upon sae of and at
ersaes, Mo. whether the Invested capta of the Smcoe eaty Co. shoud be ncreased for 1918 and the
March 1. 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
1 cquescence reates to Issue as to aowabe deducton of cost of operatng automobo party used n
ta payer s busness n 1924.
Noaacquescence pubshed n Cumuatve uetn III-1 wthdrawn.
1 cquescence wth respect to deducton of e pense ncdent to amendment of pettoner s charter.
cquescence reates to ssue whether stock rghts were capta assets where the stock n respect of
whch they were ssued had been hed for mon han two years pror to sae of the rghts.
1 cquescence reates to a questons wheren decson was not whoy n favor of Commssoner e cept
decson regardng e stence of partnershp of George D. Parker Co.
1 cquescence reates to rght of overrdng royaty owners to beneft of secton 211(b), Revonue ct of
1918.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a trans-
feree and to mtaton ssue.
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20
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Pennsyvana Indemnty Co.
Pennsyvana Investors Co..
Peopes Lfe Insurance Co.1..
Perata, ohn M
Perkns et a., acob
Perkns et a., Thomas N. .
Perry, owp.rd
Perry, Raymond ., estate of.
Pershouse, ce
Pershouse, Mabe
Peters, ndrew .3
Phps, C.
Phoen Insurance Co
Pctora Revew Co
Pggy Wggy Corporaton.
Ptkn, George P
Pttsburgh thetc Co.3
Pttsburgh Metng Co
Pttsburgh West rgna Ry. Co.
Pztz Dry Goods Co., Lous
P-M- Petroeum Co.
Poar Ice Coa Co
Pope, Ove R
Powe, T. I. are 5
Powe, en|amn I
Powe, oseph W
Prare O Gas Co
Prce, Laura M
Prce, W.
71992
20766
66969
71744
57923
28701
57848
58305
58306
58443
58475
58770
58772
58904
58905
58906
58907
58917
58918
58925
69855
63645
26749
26748
54050
47901
48867
43995
25126
43860
65173
60569
06964
67422
44858
72157
72158
46585
50576
54779
67638
29274
64464
50380
73763
57117
40659
41072
30
24
31
33
25
33
33
32
25
25
28
26
29
26
2S
31
27
30
32
22
24
27
25
27
26
34
29
24
24
1 cquescence reates ony to treatment of renta vaue.
3 cquescence reates to the foowng ssues:
Is any part of the defcency as to astern Carbon ack Co., Thompson O Co., G. . M. Co., and Davs
ros. Co. due to fraud wth ntent to evade ta
Dd the shares of Interstate Gas Co. stock receved by G. . M. Co. as a dvdend from astern Carbon
ack Co. consttute n part a qudatns dvdend
Nonac uescenee pubshed n Cumuatve uetn II-2 revoked.
cquescence reates to thrd Issue of decson.
Nonacquescence pubshed n Cumuatve uetn -1 wthdrawn.
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21
cquescences Contnued.
Prophyactc rush Co
Prosperty Co., Inc.1
Prosser, Constance
Provdent Trust Co. of Phadepha, e ecutor
Putnam Trust Co
Putty, Mrs. Macom
unn, van
unn, orence M.
unn, Martn M__
unn, Pau
Ramsh, doph
Ramsh, Inc., doph..
Randa, Mar|ore ( .
Rands, Inc
R.
Rands, Wam C-. -.
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 Corporaton
Reynods Catte Co.
Rhea, Isaac T
Rhea, Mrs. Isaac T.
Rhodes, erman M
Rato Mnng Corporaton
Rchards rschfed, Inc
Rchardson, my S., e ecutr
Rchardson, Chares W., estate of
Rchmond, redercksburg Potomac R. R. Co.7.
Rdgway, Robert
Rggs Natona ank
Docket
So.
329C6
47845
47846
45896
54968
267.52
59957
1147-13
69683
8544
80005
8598
8574
39568
39569
38971
74942
62066
68846
28618
32822
34332
20773
50962
62424
57728
41404
67386
70795
6 415
71463
64960
54959
54899
48692
56877
21715
64023
64023
68876
77666
30903
oard of Ta ppeas.
oume.
26
7
25
29
26
31
26
35
26
26
30
30
27
34
34
24
26
28
24
32
30
34
30
31
29
29
34
25
24
31
31
33
35
17
I cquescence reates to deducton of oss resutng from qudaton of one of ts subsdares.
Nonacr|uescance pubshed In Cumuatve uetn 11 wthdrawn.
1 cquescence In that part of decson reatng to deductbty of oss sustaned n 1924 from sae of
resdence.
cquescence reates to ssue whether pettoner was ta abe In 1923 as a trust or as an assocaton.
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.
state ta decson.
7 cquescence reates to ncreased deducton for oss on retrements of roadway property.
onacquescence pubshed n Cumuatve uetn -2 wthdrawn.
G
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2
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1
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22
cquesce ces Contnued.
Ta payer.
Rtter Lumber Co. ct a., W. M.
a.
Roach Studos, Inc.,
Robertson, Cae
Robertson, R. R
Robson, Lester L
Robson, Cara P., estate of.
Rodeo- ae|o erry Co.1 -
Rodewad, . ngsey
Rogers, rown Crocker ros., Inc.
Roande, Guano 1
Rosenberg, Lous.
Rosenboom nance Corporaton
Rosshem, Irvng D.4
Roth, Gorton
Roy Ttcomb, Inc
Ruz, M
Russe, bert W
Russe, C. C
Russe Mrs. C. C
8.
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
Schepp Co., L
Schermerhorn, arret Puman
Schumacher, . P
Docket
No.
42833
42834
42835
42836
43604
43605
43606
48749
57319
57320
57321
57322
61750
42496
42497
53878
26645
36411
48528
76659
675S1
57479
67286
27626
35778
40903
57503
22568
29138
67097
73423
46060
46061
50613
65675
45966
26651
49304
37447
43121
51944
59486
61156
63920
42908
43145
59612
oard of Ta ppeas.
oume.
30
33
31
28
28
33
25
24
35
32
33
24
24
31
26
24
30
35
24
24
30
30
27
25
31
25
25
32
32
25
26
32
1 cquescence reates to deducton of contrbuton to ctory ghway ssocaton.
1 cquescence reates to reducton of proft of members of syndcate by the per cent commsson due
syndcate manager and whether porton of the syndcate ncome consstng of dvdends shoud be ta ed to
the ndvduas ony at surta rates.
cquescence reates to hodng of oard that dstrbutons receved from oseph . nch Co. were
not parta qudatng dvdends.
cquescence reates to ssue whether pettoner reazed addtona compensaton on sae of stock of
Warner ros. Pctures, Inc., n 1928.
state ta decson acquescence, o cept n so far as concerns the queston of stus.
cquescence reates to ssue nvovng ncuson of far market vaue of rghts to buy bonds In pet-
toner s ncome.
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1
3
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2

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23
cqt|escences Contnued.
Ta payer.
Scov Manufacturng Co
Scruggs, Gross R
Scruggs, Maran P
Scruggs Investment Co
Seacounet Coa Co.1
Seares Rea state Trust
Second Natona ank of Phadepha
Securtes Co
Securty rst Natona ank of Los ngees et a.,
e ecutors 1
Sebert, Ltd
Sea Sportng Goods Co
Shaffer, C. .3. --
Shand, Gadsden
Shapro, Samue
Shaw, Davd, estate of .- - -
Shea, R. P
Sheets, Leveret T., estate of
Shepherd, Cette G., estate of4
Smcoe Reaty Co.
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, . .
Smms O Co.7
Smms Petroeum Co.7
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
Sack, . ., estate of -.- -
Soes, atte echt -
8mathers, . ., estate of10--.
Power Typewrter Co
Docket
No.
Smth et a, zabeth D., e ecutors.
29854
30238
33610
38711
46270
s s )
24489
76825
40553
45429
57059
20771
29259
26238
65158
34499
37835
40034
75223
69106
35720
47210
47211
47212
47212
47210
19175
19791
61497
61196
37703
29252
37520
37520
37864
37703
41070
72605
72404
78525
64835
29260
43968
39291
49608
oard of Th ppeas.
oume.
25
24
24
24
24
25
33
25
28
29
1
29
22
29
24
24
35
32
17
32
32
32
32
32
28
28
28
26
26
26
26
26
26
26
31
35
33
29
28
2S
Page.
265
1174
1174
1174
307
1115
750
446
289
319
376
1350
858
1012
1235
798
220
208
213
320
320
320
320
320
988
1106
1106
1359
1359
1359
1359
1359
1359
1324
709
271
830
1350
327
291
1 cquescence reates to nventory Issue.
cquescence reates to ssue regardng oss from operaton of a farm n 1025 and 1926 and ssue regard-
ng Increasng defcency for 1925 by amount of nterest accrued on bonds e changed for art ob|ects.
cquescence reates to market vaue of o and gas eases ou March 1,1913.
state ta decson.
1 cquescence reates to March 1, 1913, vaue for purposes of cacuatng gan or oss upon sae of and
t ersaes, Mo. whether the nvested capta of the Smcoe Reaty Co. shoud be ncreased 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 n syabus of pubshed decson.
7 enoescenoe reates to bass for computng deprecaton on assets acqured by Smms O Co. n 1925
from Cayton O Refnng Co.
cquescence n ssue nvovng deducton of attorney s fees pad by decedent.
cquescence reates to the foowng queston: Dd pettoner receve a dvdend from T echt road-
way Corporaton n 1929 n the amount of 1,503
cquescence reates to market vaue of o and gas eases on March 1,1913.
G
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1
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#
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24
cquesce.n ces Contnued.
Ta payer.
Smth, L 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
Sperry, dward G
Sperry, mer ., estate of
Sperry, r., mer
Sperry, Zua ., estate of
Spraguc-Ses Corporaton
Sprague Son Co., C. .4
Sprunt Son, Inc., e ander.
Standard eef Co
Standard Conveyor Co.
Standard Isand Creek Coa Co
Standfer Constructon Corporaton, G. M.
Starr, rank C --
Stauffen, Theodora
Stearns, Robert L
Steege, W.
Stegcman, .
Stegeman, r., bert
Stegcman, 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
Docket
No.
39291
49668
18876
22313
18876
32578
45694
44500
42592
29694
f 21481
I 29951
137887-
37898
56320
56321
74297
74296
74298
74299
42006
42434
34946
38408
20770
33159
36393
40873
35260
35617
51630
69259
26756
37573
67098
26643
26650
26644
26647
26646
26649
26648
62825
55758
29685
43416
63645
70297
oard of Ta ppeas.
oumo.
25
24
24
24
25
1 30
33
27
27
26
27
29
29
35
::.-
35
35
30
2 1
24
21
28
30
31
25
24
30
25
25
25
25
25
25
25
33
32
21
23
32
32
cquescence reates to oard s hodng that bonuses shoud be ta ed as separate or communty property
n accordance wth the cassfcaton of the propertes under the ease and ssue n connecton wth assess-
ment of defcency for 1923.
cquescence reates to Issue Invovng deducton for depeton from advanced royates or bonuses.
cquescence reates to foowng ssues: 1. Dd pettoner reaze ta abe ncome from unrefunded
ortons of amounts deposted by shppers for constructon of factes for use of such shppers 2. Where
onds were sod at a premum pror to March 1, 1913, s the amortzed porton of such premum ta abe
ncome 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 wore not used durng 1920
cquescence reates to nventory ssue.
8 cquescence reates to ssues regardng reducton of Income for fsca year endng November 30, 1924,
by oss sustaned for 11 months endng November 30. 1922. and ncuson n ncome for a years of 1 par
vaue of capta stock of Sunburst O as Co. receved by pettoner as a premum.
G
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1
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8
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3
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9
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25
cqctescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Stock Yards ank of Cncnnat
Stockham, |ah
Stone et a., Irvng ., e ecutors and trustees 1
Stone, Irvng Lee, estate of 1
Stoneman, Davd
Storev, . M
Straube, . L. G
Stromeyer, Irene
Stromever, Wam
Strong, arod C.1 -
Stuart, Chares
Stuart, r., Woughby -
Sugar Creek Coa Mnng Co
Suvan, ugene C
Summerfed Co
Sunburst O Refnng Co
Swenbart, ames
Tabot, . . -
Teague, .
Te as Irrgaton Co.4
Thee, Water
Thompson, dward W
Thompson, W. L
Three Rvers Securty Corporaton.
Thrft Reaty Co -
Tf t, Chares-
Tfft, Lews
Tmes-Pcayune Pubshng Co
Tobev, Maurce
Toerton Warfed Co. -
Torrens, ames .
Tracy, Davd ., estate of
Tracy ct a., Gertrude emer, trustee-
Tracy, W am R
Tresner, my
Trcou, Sae S.
41085
25
964
22569
26
631
43830
26
1
43830
26
1
27627
24
18
62813
31
1126
56867
29
516
55341
28
472
55342
28
472
38576
25
1351
53796
29
605
73869
32
573
73758
31
344
29389
26
1359
58711
29
77
45979
23
829
54784
29
1179
36191
73034
f 40CS3
41346
67506
51103
51104
/ 44857
44880
50653
f 31029
I 33404
1 42340
I 45957
f 31030
I 33465
) 42341
I 45958
/ 48892
49539
27024
45320
53778
/ 54828
I 62982
/ 54828
1 62982
45513
66703
/ 28093
1 40258
23
32
24
32
28
28
30
29
25
25
27
24
23
31
30
30
25
30
31
33
25
1 state ta decson acquescence reates to ssue nvovng deductons from gross estate.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
1 cquescence reates to oss ncurred n sae of a boat.
cquescence rpes to a ssues e cept afTton ssue.
cquescence reates to ssue regardng deducton of oss sustaned by pettoner durng nonaff ated
WW
cquescence n oard s decson n so far as t hods that pettoner was not ta abe on any part of the
Weeds of the 100 shares preferred stock gven by hm to hs four sons n 1928
7086 37 2
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1
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-
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1
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:
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0
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0
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8
8
9
3
3
6
9
6
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26
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Trnty Drng Co.1.
Tro, nne
Trosk George
Trost, dward
Trout, . W
True, dward C
Turbeve, e M.
Turner, atheen M. _-.
Turrsh, enrv
Twn e O Syndcate.
Twnng, dmund S
U.
Uster Deaware R. R. Co-
non Lard Corporaton
Unon Pacfc R. R. Co. .
Unon Pacfc R. R. Co. et a. ..
Unon Peopes Natona ank of ackson et a.,
admnstrators 5
Unon Trust Co. of Pttsburgh, trustee
Unted utographc Regster Co
Unted States Trust Co. of New York, trustee.
aant, the Netcher
an ken, nne Louse
an Sckcn, rederck W., estate of 5.
ermont ydro- ectrc Corporaton..
rgna Iron, Coa Coke Co
oge, R. red, estate of
W.
Waker, George PL, estate of
Waker Products Corporaton..
61498
61215
76256
77204
73848
39020
68501
43733
479(fo
55553
64334
64560
22340
44742
29518
70296
28927
20769
51530
70183
70219
35639
35049
35684
35685
40060
40061
40062
70456
61009
30384
26747
20757
38051
76894
79334
82545
59638
51576
56182
31869
44856
83
35
34
27
81
81
27
24
20
25
24
32
26
30
29
27
25
26
35
35
29
29
34
23
30
cquescence reates to bass for computng deprecaton on assets acqured by Smms O Co. In 1925
from Cayton O S e nng Co.
cquescence reates to that part of decson hodng that Water . e ttman Is 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
n Seatte n 1925: amount of oss sustaned by O. k W. Raroad Sc Navgaton Co. In 1925 on sae of and
n Mutnomah County, Oreg. contrbutons to hospta departments n 1924, 1925, and 1926 amortzaton
of dscount on bonds ssued pror to March 1, 1913, and commssons unrefundabe porton of depost made
wth pettoner n connecton wth constructon of branch ne.
1 cquescenco reates to donatons ssue amort aton of dscount on bonds Issued pror to 1913 com-
putaton of ta for 1920.
1 state ta decson.
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1
3
-
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1
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2
2

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:
2
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8
8
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3
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6
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27
cquescences Contnued.
Ta payer.
oard of Tu ppeas.
No.
oume.
Page.
76762
34
983
30992
24
989
53039
1
53040
26
1225
59190

62510
31
1126
43912
25
576
73381
33
208
73380
33
208
73383
33
208
73382
33
208
53414
27
463
49144
26
761
56442
32
613
63916
31
627
62126
30
478
37806
28
611
37805
28
611
18088
24
307
61552
29
670
76661
35
230
37927
26
212
40233
25
154
46371
27
580
66915
29
892
29273
25
1161
58789
31
580
46062
24
506
40231
43972
25
154
40229
43973
25
154
80545
34
668
f 30
615
66718
31
187
33
441
52894
33
649
20708
24
376
33826
25
840
20767
24
376
57058
29
319
50828
30
1136
34337
25
182
60900
27
369
76059
33
57
56439
32
613
38808
27
162
23605
24156
25
1013
71962
30
1216
54741
60227
32
100
Waker, R. D
Ward ros. Co
Co. .
Warner, Raph C
Washngton Market Co
Waterbury, Charotte M.
Wsterbury, Donad N. .
Waterburv, ugene W.
Waterburv, Whtford N.
WatsoD, r., ohn
Wayne Countv ome Savngs ank .
Weddng, G. G
Weeks, anson
Wcs, Samue W -
Wheeock, R. L
Wheeock, Mrs. R. L
Whte Oak Transportaton Co.
Whtman, Ward Lee Co
Whtney, Rchard
Whtney, Ward M
Whtson, Thomas
Wco , C.
Wams, r., ford ...
Wams, a
Wams, L. ._ -
Wams, W. W
Wamson, e ander
Wamson, rchbad (Lord orres).
Wamson, esse C.
Ws, Mary
Wson, enton
Wson Co., Inc., of Caforna-
Wson 4 Co., Lee
Wson Commsson Co
Wson ure, Inc
Wson, George S., estate of
Wson Shpbudng Co.7
Wnne, Water G
Wnsow, Mary N
Wof, . C
Wood, red T
Wood Lumber Co., .
, ohn S.
P...
1 N onsequesoenee pubshed In Cumuatve uetn II-1, wthdrawn.
1 cquescence reates to Issue as to basc vaues of stock.
ooacquescenoe pubshed n Cumuatve uetn I-2, revoked.
1 cquescence reates to nventory ssue.
1 cquescence reates to capta net tran ssue as to stock sod In 1933.
state ta decson.
cquescence does not reate to Issue 5 of decson.
cquescence reates to reorganzaton ssue.
G
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1
3
-
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1
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2
2

0
4
:
2
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2
7
/

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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
9
6
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28
cquescbnce8 Contnued.
Ta payer.
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
oard of Ta ppeas.
Docket
No.
oume.
Page.
81027
34
741
25S81
24
94
25854
22
858
45508
26
21
/ 62023
30
1107
62991
34
1
38868
24
815
34161
26
635
5242
21
152
The Commssoner has wthdrawn hs acquescence n the foowng
decsons of the Unted States oard of Ta ppeas:
oard of Ta ppeas.
Ta payer.
Docket
No.
oume.
Pago.
45008
22
1093
45008
22
1093
Wade, eptha ., estate of 1
43164
21
339
43164
21
339
1 state ta decson acquescence pubshed n Cumuatve uetn -2.
The Commssoner does NOT acquesce n the foowng decsons
of the Unted States oard of Ta ppeas:
Ta payer.
Docket
oard of Ta ppeas.
.
No.
oume.
Page.
53792
24
686
686
beson s, Inc
53793
30311
1
24
ckerman, Irvng C
31634
40948
40949
8355

24
512
ameda Park Co
25
850
373
1091
243
457
bers, Wam . ... _
74759
33
brecht et a., atherne ., e ecutrces
41295
86116
27
25
ed urrers Corporaton
60059
24
m
mercan rck Te Corporaton
29994
22
1 Nonacquescenoe reates to ssue concernng oss on sae of stock of . Nash Co.
1 state ta decson nonaoquescenoe reates to State nhertance ta Issue.
G
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a
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1
3
-
0
1
-
2
2

0
4
:
2
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2
7
/

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3
0
0
0
0
0
8
8
9
3
3
6
9
6
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29
Nonacc|cescences Contnued.
Ta payer.
mercan Centra Lfe Insurance Co.1.
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
shton, Ward II
tas Lfe Insurance Co
uto Strop Safety Razor Co., Inc
abson, red
abson, Gustavus
abson, enry
anger, esse M., e ecutr .
anger, Water ., estate of .
atmore 4 Oho R. R. Co.4...
ank of Caforna, Natona ssocaton.
ankers Trust Co., trustee
arradae, . Morgan
artett, . emp...
ashford, Raymond I
ass, rancs M
ateman, . L
ay, Robert P -
ebb, Rchard ., estate of
echte, enneth
echte, Stephen D
ebbe, unus, trustee
ebbe, Marcus, estate of
ehan, Thomas W
st Investment Co.e
Docket
No.
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
55537
60699
32459
77376
63632
71565
73626
47772
66014
41295
754 5
75486
52707
52707
7542S
19128
oard of Ta ppeas.
oume.
30
33
30
30
31
14
30
27
26
31
26
27
27
27
25
28
29
2 8
27
27
27
23
23
30
30
24
34
28
33
30
34
28
27
34
34
26
26
32
17
Page.
1182
245
529
939
465
328
516
624
849
533
1068
837
837
837
928
582
750
621
859
859
859
1311
1311
194
556
10
1229
285
10
4
351
1168
1091
824
824
190
190
1088
213
Nonacquescence reates to Issue whether certan funds denomnated Insured s persona beneft fund
emre-erve funds requred byaw and ssue whether the pettoner s abty on outstandng unsurrendered
unpad coupons consttutes a reserve fund requred by aw.
cquescence pubshed n Cumuatve uetn III a wthdrawn.
1 state ta decson.
onacquoscence reates to deductbty as e pense for year I02 of amount for mantenance of wuy
M ructures.
state ta decson nonacquescence reates to State nhertance ta ssue.
Monacquescence a ssue as to whether pettoner s entted to deducton for amortzaton of the Lea
n warehouse for 1918.
G
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e
r
a
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d

f
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(
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1
3
-
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2
2

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8
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3
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9
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30
Nonacquescences Contnued.
Docket
No.
oard of Ta ppeas.
oume.
e, rederc D., estate of.
e Sons, Samue
eresford, ven een de a Poer, estate of
erkeey a Schoo, Inc
ndey, Mary M., estate of
smarck Trbune Co
ar, Cec Chares
ar, dward T -
ss, Sydney R
ss, aentne
um, esse
um, Davd
umentha, arry S
oard of re Underwrters of the Cty of Duuth..
oca Cega Deveopment Co
oehrnger, Rudoph
onvvt, Pau
oo, S. -
oston Safe Depost Trust Co. et a., e ecutors
owen, dwn L.
owman- tmore otes Corporaton.
owman ote Corporaton.
rackman, . W
radbury, I. C - -
rskey Co
rtsh- mercan Tobacco Co., Ltd
roadway- rompton udngs Lqudaton Trust-
rookyn Cty R. R. Co
rookyn ueens Transt Corporaton
rookyn Rado Servce Corporaton
rooks, Regnad
rown, rank ., estate of
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
69534
38056
41647
45616
67259
47415
58871
59660
69803
42313
63741
55902
53422
52221
52220
75143
43150
40446
49891
53661
64091
70951
49272
62985
41472
43629
10651
24912
28971
38006
45714
45780
60899
41224
20353
20353
61229
68560
47677
33343
48136
47677
72713
72714
32584
44153
44684
32.584
44153
44684
76255
)
31
32
22
31
31
28
33
29
31
26
26
29
2 )
34
26
2/.
29
33
34
30
33
24
24
24
23
29
27
34
27
27
31
31
26
25
26
26
31
31
25
25
1 Nonacquescenee reates to ssue Invovng reorganzaton.
1 state ta decson.
Nonacquescence reates to ssue whether gans on sae o( stock of the Waterbury Chemca Co. were
ta abe to petoncrs or to trusts created by thetn.
state ta decson nonacquescence reates to deducton of amount of a cam fed aganst the estate
and aowed by probate court.
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31
Nonacqt|esce oes- Contnued.
Ta payer
Docket
No.
oard of Ta ppeas.
oume.
uffao Unon Iron urnace Co.1.
uock, George _
unge North mercan Gran Corporaton.
urdette, Cara
urey, anche ., e ecutr
urr, dward L
. C. .
usness Rea state Trust of oston.
uter- etch Co
C.
Cadwaader, Mary een
Cadwaader, r., Rchard M.
Cambra Deveopment Co.4..
Carey, Robert
Carey bre Products Co., merson.
Carey Sat Co
Carro, .
Carro, Lena Carter
Carson state Co
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.
Centra Unted Natona ank
Champon, Davd .
Champon, T. Perre
Chander, Constance
Chander, arrson Gray -
Chander, een
Chander, Maran Ots
Chander, Norman
Chander, Php -
1G073
16076
31209
47800
37321
44909
58795
9447
10202
10755
33469
42084
50305
45169
45170
46327
71800
75411
54033
60432
67415
36381
30382
51880
51881
47444
53489
45393
45392
51882
47669
51883
51884
51885
47669
51886
75816
58793
24837
31736
69212
71063
55569
63818
55568
67471
67470
67475
67468
67473
67476
23
23
27
25
26
26
10
25
23
27
32
34
31
26
26
27
27
31
28
28
27
27
27
27
27
27
27
34
26
25
25
33
27
27
32
32
32
32
32
32
1 Nonacquescence reates to Issue regardng deducton from gross Income of fsca year ended pr 30,
1 19. of reserve for renng bast furnaces.
N oaacuescencereates to ssue 1 of decson.
cquescence pubshed In Cumuatve uetn - wthdrawn.
Nonacquescence reates to Incuson n cost of rea estato ots the estmated cost of future e pendture
for contractua Improvements
Nonacquescence reates to ssuo regardng oard s ursdcton ofsubsdares.
Nonacquescence reates to Issue whether redempton of stock was equvaent to ta abe dvdend.
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1
3
-
0
1
-
2
2

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4
:
2
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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
9
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32
Nonacqtescences- Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Chapman, C.
Charavay, Marus
Chemca Natona ank of New York.
Chenowth, . C
Chcago Dock Cana Co
Chcago North Western Ry. Co.1
Chdaw, arrv
Chrstonson, Nes
Cark, Percy
Cark Thread Co.
Ceand state Co., Inc., enry . .
Covs, C. - -
Coastwse Transportaton Corporaton
Cobegh, Margaret dwards, estate of
Cochrane, Davd .
Coumba Pacfc Shppng Co
Coumbus rck Te Co.
Commerca Garage Co
Commerca Investment Trust Corporaton T__
Communty ond Mortgage Corporaton...
Communty Mausoeum Co. ,
Communty Teephone Co
Communty Water Servce Co
Cone, dward
Conney, ames .
Conney, L. .
Conncv, Mary . .-.
Cont, Lucana
Cook, abeth . ...
Cook, Sam
Cooper, . T.
5249G
70005
71592
45004
38349
48268
36343
69782
72424
65177
38903
47974
33585
40890
51197
68433
39916
40765
60428
50968
42707
41646
43495
50051
70384
77568
77560
58777
44081
45833
4 267
51967
60566
G694S
I 440S3
45S34
44082
79793
3S579
35014
3144
Ucdcnaa
Nonacqueseence reates to
amortzaton of bond dscount,
Nooa :teseenoe reates to ssue respectmr deprecaton.
Nonaouescence reates to bass for determnaton of pun or oss on the sue
ts fe nut .
state ta decson . . .
cu-scence put-: r d n Cumuatve PuLetc II-1 revoked.
28
29
30
26
32
22
29
33
31
28
29
32
28
24
26
29
26
22
28
27
33
: 2
32
26
30
M
30
35
25
25
7
p oSt and oss on
Non u esw reates to netoron n eensv|dated nvest- capta o Oftst seek baced tar
of market vaue over ae rrre of stack t
tssory notes.
Nranc|uesccsce reates to deduct on n 1W5 of
ocac ueseence reates to ssue whether the Cca nstament on the sae ppse of man -feum crypts
to be retaned bv e trustee as a perpetoa care ft . shot-Id be eo.u-ed rom U fu cvct ct prce n com-
pntnr pro .:, the ta payer reportng on the accrua rs a. nt bass.
Nouacuuaesceace reeue to ssue avevu ae amounts pad to stnrtneMec o| . U. Carts Leather
Co- upon canceaton of certan stock. . .
Nocacu-aeattt.ee re-ates to vaue of common stock of mercan Cram Co, Inc.. and tre r ss of ao-
caton of cos: betreea sa: 1 common stock and preferred stock of sad company acc.vLrm at tbe suae tme
and under se saue aereeoeat- . . .
u cquescence pubUsaed m Cumuatve uetn II wrtaataeu.
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U
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2
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1
3
-
0
1
-
2
2

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4
:
2
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8
8
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3
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6
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33
Nonacqt|escences Contnued.
Ta payer.
Dor ket
No.
oard of Ta ppeas.
oume.
Pace.
Cosmopotan ond 4 Mortgage Co.1..
Cougbn, R. Lawrence and veyn W.
Coursev, Sarah . W.
Cre, Grace Mc rde
Crspn, Mrs. gerton
Crosby, Oscar T
Cross, Maurce
Cunard Coa Co. .
Cuppa, erome C
Curee, Sheby ., trustee.
Curren, ector McGowan.
Cza|ke, I. T., transferee. ..
Dah, Chester T., estate of1
Daton, . G
Darng, rank W. and Mrs. rank W..
Davdson, Watson P
Davs, C. R. -
Davs, rederck
Davs, Thomas L
Day, Chares, estate of
Degener, ohn ., estate of
Degener, r., et a., ohn ., e ecutors 4.
De Lsser, orace, estate of7.
de Me, Cec . _.
de Me Productons, Inc., Cec . ..
de Me Productons, Inc., Wam C.
Dennett, Mare G.
Denny, Regnad 10
Depew, Ganson.
Derby Reaty Corp
des Cognets, stec
oraton.
44617
76106
71755
43136
45267
51317
32735
26874
26875
28792
58545
48833
NIN - t
64639
81962
64711
70953
79254
46480
10299
32960
37324
37395
75 :2
38500
38500
2459
52995
61291
05122
71951
52996
61290
65123
53108
61321
72023
49516
50860
81213
70892
70S89
30
32
33
26
28
27
24
26
26
28
34
33
35
34
34
27
10
211
24
24
34
20
26
2
31
30
30
33
27
35
34
34
717
1048
1068
1020
236
1234
1079
234
1401
773
946
564
282
1011
1062
158
1233
931
405
405
11
185
185
102
1161
1161
826
49
738
515
335
540
640
des Cognets, Lous, estate of
1 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, 1913.
1 N onacquescence reates to e pendtures for mne equpment.
state ta decson.
1 cquescence pubshed In Cumuatve uetn - wthdrawn.
1 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 acquescence pubshed n Cumuatve uetn -2 recaed.
1 Nonacquescence does not reate to the case of Constance . de Me. Docket 7T 52, whch was dsposed
of by stpuaton.
Nonacquescence reates to deductbty of 10,000 because of the fact that a bond n whch pettoner
had nvested became worthess n 1930, athough that fact was nut ascertaned unt 1931.
N onacquescence reates to deducton of amount e pended for denta brdge work and amount e pended
n keepng pettoner In frst-cass physca condton.
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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:
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8
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34
Nonacquescencb Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Dee Mones Improvement Co.1
Dohrmann, ndrew . C
Doomte, Inc
Douner, Carro
Donner et a., Carro ., e ecutors
Donner et a., Carro ., guardans
Donner, oseph W
Donner, r., oseph W
Dort, . Daas, estate of
Dougass, oward W., estate of1
Drawoh, Inc
Drunheer, George
Duff, Robert C. . -
Dunham et a., Lucy ee, e ecutors s.
Dunham, Mary rgna, estate of
Dye, Carke
.
ast Coast O Co., 8. .
ekhart, ernard ., estate ofs-
dson Securtes Corporaton.--
dward Securtes Corporaton.-
dwards Drng Co
fert, ar C
drdge, ce .4..
drdge, . S.4..
khom Coa Co.
kns, ae D.
kns, Wam L., estate of
s, R. R., estate of
y, zabeth Tayor --
merson, Sgurd
mery, Mary M., estate of
qutabe Lfe ssurance Socety of the Unted
States
qutabe Trust Co., of New York, ancary admn-
strator
rb et a., Ray L., e ecutors 7
the D. Co.
usts, ugustus .8
venng Star Newspaper Co
verhart, ames Wam
8573
20058
23969
60661
60237
60236
60235
60236
60235
44735
40031
45014
41515
45752
37552
40603
74911
58180
70443
52062
71208
75931
45781
64779
64778
49064
39255
56449
67967
76546
77307
77309
40899
31110
33241
57867
67259
29200
32032
71037
61870
60855
20675
7
19
19
28
32
32
32
32
32
26
30
28
27
23
26
33
31
33
29
30
35
23
30
30
34
24
28
34
33
35
25
33
31
29
27
30
28
26
1 cquescence pubshed n Cumuatve uetn II-1 wthdrawn.
state ta decson.
1 Nonacquescence reates to ssue 2 of decson.
Nonacquescence reates to deducton of oss n transfer of securtes to a corporaton n whch pettoner
owned a the stock e cept quafyng shares.
Nonacquescence wth respect to the hodng that there was a reorganzaton.
cquescence pubshed n Cumuatve uetn I-2 revoked.
1 Nonacquescence reates to the foowng ssues: Reducton of cost bass (March 1, 1913, vaue) of assets
sod by a partnershp n 1910 by deprecaton aowed n computng Income for perod March 1, 1913, to
December 1, 1916 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 by the vendee.
cquescence pubshed n Cumuatve uetn III-2 wthdrawn.
G
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2
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1
3
-
0
1
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2
2

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4
:
2
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0
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0
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8
8
9
3
3
6
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6
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35
Nonacqutescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
armount Cemetery ssocaton
ason, . M
armers Cotton O Co
armers Lfe Insurance Co.1
edman, enry O
erree, C. - -
dety Coumba Trust Co., trustee
dety Unon Trust Co. et a., e ecutors
ed, Marsha
ed,
fth venue ank of New York, e ecutor.
fth Street udng-
rst Natona ank n St. Lous -
rst Natona ank of oston, admnstrator
rst Peopes Trust
sher sher, Ino
sher, Irvng
tzgerad, Thomas
etmann, Wam M., estate of --
etmann, r., et a., Wam M., e ecutors
emng, Lamar L.
emng, Wam
emng, Mrs. Wam
etcher, Saathe R
ntermann, Car . L., estate of
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.1.
ranks, ack M
30925
42811
81324
42679
43317
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
430 6
62684
71084
20878
51947
60167
67805
53685
25
34
27
27
28
32
30
31
26
31
32
24
23
25
26
32
30
29
22
22
34
31
31
24
32
34
27
27
33
26
26
26
29
30
28
32
32
Nonacquescence does not reate to Issue In connecton wth opton payment receved for purchase
of bud
state ta decson.
cquescence notce pubshed n Cumuatve uetn -2 recaed.
1 Nonscquescence reates to ssue Invovng ncuson n ncome the decedent s share of profts of a part-
wrshp of whch he was a member up to the date of hs death.
1 Nouaequesceuce reates to deductons n 1924 and 1925 on account of osses resutng from aeged saes
of securtes.
onacquescence reates to Incuson In ncome of corporaton for years ended March 31, 1930, and
March 31, 1931. amounts representng renta of premses occuped by Its prosdent.
1 onacquescence reates to the queston whether rankn ond Mortgage Co. was entted to deduct
commssons pad on the sae of ts bonds Instead of proratng cost over the fe of the bonds.
G
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1
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36
Nonacq tescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
uhage, fred .
uer, van T
urnture Corporaton of merca, Ltd..
G.
Gae, my -
Gambe Stockton Co. .
Garcn, dward
Gardner, Chares .
Garre, Dane T., estate of
Garvan, ohn oseph, estate of 4
Gary, rgna ., e ecutr 4
Gassner, Lous 5
Genera Machnery Corporaton
Genera Motors Corporaton
Genera Outdoor dvertsng Co., Inc.8..
Genera Uttes Operatng Co
Gerard, re
Gerhardt, Php L
Gerach, Theodore R
Gerste et a., Mark L.7 -
Gessner, erman
Grard Trust Co. et a., admnstrators...
Gaddng, Mary D., estate of 4
G. M. S. Co -
Goet|en Metson Co
Goforth, Mary .
Goforth, R. S
Godberg, arry S.
Godschmdt, enry P., estate of
Godschmdt et a., Georgette, e ecutors
Goodae, Water S
Goodan, May Chander
Graham, M.
Grant, een
Great Southern Lfe Insurance Co.10
61754
73759
72800
72801
61672
42707
21657
38575
31736
44746
40031
4017
70449
52824
66511
52770
45221
77375
38042
41641
62854
77506
75624
31435
16383
17875
52316
52316
5389
16138
16138
78456
67472
38335
62029
65577
68324
56540
64064
71114
32
31
30
27
26
22
25
25
25
30
4
33
35
32
29
28
34
27
33
32
32
27
26
26
32
32
1
14
14
34
32
26
29
33
Nonacquescence reates to Issue whether redempton of shares of stock represents payment In parta
qudaton of a oorporatou or a ta abe dvdend.
Nonacquescence reates to ncuson n consodated nvested capta of capta stock ssued for promssory
notes.
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 tune and
under the same agreement.
state ta decson.
cquescence pubshed n Cumuatve uetn - wthdrawn.
Nonacquescence n ssue nvovng counse fees pad n connecton wth tgaton.
Nonacquescence reates to the foowng queston: re pettoners entted to deduct on ther Ind-
vdua returns the operatng and capta osses sustaned by rea estate syndcates of whch tbey were
members
1 nd 19 reated dockets.
state ta decson acquescence pubshed n Cumuatve uetn -2 recaed.
o Nonacquescence n foowng ssues:
Dd the ta payer reaze nterest accrued upon a oan where t forecosed ens on certan bonds podged
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 pad durng the ta abe year
Where ta payer acqured the assets and busness of three other Insurance companes durng the ta abe
year, was ncome reazed upon the coecton of nterest that was accrued but not pad as of date of pur-
chase
G
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2
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1
3
-
0
1
-
2
2

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8
8
9
3
3
6
9
6
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37
Nonacquescences Contnued.
Docket
No.
oard of Ta ppeas.
oume.
Tage.
Great Western Power Co. of Caforna.
Green, .
Green, Robert D.1 I
Greeneaf Te te Corporaton
Gregory, veyn
Grffs, Stanton
Grosvenor, Theodore P
Gutar Trust state
Guf Coast Irrgaton Co. .
Guf, Mobe Northern R. R. Co.
Gund, arone ., estate of
ackfed, ohann redrch, estate of .
agerman, Staney
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.
arbson, Wam bert7.
ardwck, Mar|ory Tayor.
aran, George II
arrs, en
arrs, Smon
arrson, ames M
arrson, .
art, ohn .
artey, Cavour, e ecutor..
artey, G. G., estate of...
, W.
awaan-Phppne Co.
awkns, . C
awkns, May me
awey Investment Co..
48617
74910
53647
46746
55299
38577
60381
35102
33694
40081
41343
24887
42150
70891
77997
78023
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
69619
81323
81325
45169
45170
30
33
24
26
27
25
31
25
24
22
34
33
34
33
32
32
29
31
34
25
23
26
26
33
30
10
24
30
28
L 7
27
27
26
35
34
34
23
503
824
719
737
223
1351
574
1213
958
233
540
1020
1158
604
356
356
1255
1013
575
607
590
896
896
249
804
1374
512
966
236
528
952
952
1178
173
918
918
953
1 onacquescence reates to transacton 5.
1 Nonaoquecence 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 tma
and under the same agreement.
1 ouacquesoence reates to affaton ssue.
1 Nonacquesoence reatos to Issues nvovng award of Interstate Commerce Commsson n 1920 for
transportaton of Unted States mas n 1916 and 1917 and deducton n 1926 for deprecaton on ways
and structures.
1 Noncquescance appes to the entre decson of the oard n so far as It Is adverse to the Commssoner.
Parta acquescence pubshed n uetn I-23 revoked.
state ta decson.
cquescence pubshed In Cumuatve uetn II-1 wthdrawn.
1 oquescence pubshed In Cumuatve uetn - I wthdrawn.
G
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-
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88
Nonacquesce.vces Contnued.
Ta payer.
azetne Corporaton
edrck, . T
effefnger, rank T
enz, oward
eer, . G
emph, Cfford 1 -
endrckson, oseph G., estate of
enn, . W -
enrtze, .
enrtze, Ne
enrtze, T. R
enrtze, T. W. -
ermann, ohn C
ertensten, reda M
ertensten, rederck
ckman, oward C
eronymus, Car Rchard, estate of
ghands, vanston-Lnconwood Subdvson,
rst ddton, Trust No. 1546, et a
ghands, vanston-Lnconwood Subdvson,
Trust No. 1521, et a
ghwav Traer Co
ghey Co., .
, D. ., estate of
et a., Pau ., e ecutors
nds, Water DeWtt, estate of
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, ames D. estate of
oge et a., the ., e ecutors.
odng Corporaton, 0. P. P
omes akery Confectonery
omes, Car - -
omes, . ., trustee
omes, Margaret
42277
47011
51931
60313
33533
41145
44852
53881
63407
69694
73479
79059
79450
40634
38573
73029
37102
60609
60607
60608
60606
51959
55938
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
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
1 Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and tbe bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at tbe same tme
and under tbe same agreement.
state ta decson.
G
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2
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1
3
-
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1
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2

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39
Nonacquescences Contnued.
ome Tte Insurance Co
onnod, W. L
ousehod Products, Ino
ousman, Carence
ousnan, rederck.- --
ouston aseba ssocaton.
ouston ros.1
ouston, George T.1
ouston, orace .1
ouston, Php D.1
oyt, 2d, ton -
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
unter, r., Thomas .
untngton, enry ., estate of
utchson Coa Co
yde, ames
L
Inos Lfe Insurance Co
Impera evator Co
Impera Investment Co
Independent O Co
Indanapos, Crawfordsve Danve ectrc
Ry. Co. --
Indanapos Northwestern Tracton Co
Ingram, Thomas
rvngton Investments Co
Iten 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
anotta, Stea S. ...
efferson Standard Lfe Insurance Co.
ohnson, . M
Docket
No.
63737
55211
44809
58798
58774
43985
45430
12052
13104
22008
22009
22007
64710
70954
22028
22028
59865
64376
33564
58490
45429
34939
65495
69952
67201
35688
29291
67700
33859
33861
56943
77557
/ 43667
1 45164
51527
39873
64653
38295
42149
74928
32307
31690
34088
51172
43149
oara of Ta ppeaU.
oume.
33
30
24
26
26
24
22
22
22
22
34
27
27
31
32
25
33
28
24
31
30
2.5
23
35
24
24
32
32
25
29
23
33
22
33
24
24
Page.
318
774
694
1401
1401
69
51
61
51
51
1011
1123
1123
451
2S0
1078
941
289
973
256
1160
234
1281
32
197
197
1063
1165
870
822
579
564
233
311
160
554
39
1335
156
1 N onacquescence 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.
state ta decson.
onacquescence In Issue Invovng queston of reazaton of ta abe proft on e change of cass
common stock for cass stock.
Nonacquesoence reates to Issue whether ta payer sustaned a net oss In any busness reguary carred
on o 1924 whch coud be carred forward and deducted from ta abe ncome In 1925.
N onacqu eseence reates to Issue nvovng deducton for deprecaton on ways and structures.
Gft ta decson.
G
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0
1
3
-
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1
-
2
2

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4
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40
Nonacquebcences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
ohnston, . arod, e ecutor
ohnston, . M., estate of
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
ey, Rose ., estate of
ensco Cemetery
erbaugh, enry S- - ---
errgan, rthur L
ng, ohn M
rkpatrck, ohn L
tseman C. M., estate of
napp, tte .4 ---
neeand, Yae, estate of
no , Seymour
och, arry
ountze, Chares T
ountze, Luther L., estate of
ountze et a., Chares T., e ecutors.
rause et a., rances ., e ecutors .
rug, George
ru, rancs
L.
La rum et a., Catherne, e ecutors.
Lafayette Lfe Insurance Co
Lang, uus C, estate of
Langford Investment Co., trustee
Langford, r., et a., Perce P
Langworthy, Mar|ore C
Lashar, Water .
Laube, ustus
Laun, fred
Laun, .
79029
79029
22028
68285
50206
64637
22668
35527
35528
35529
35530
35531
60789
45360
64609
64609
70899
70899
7(5703
68976
58794
41549
67474
77812
2775
79748
65203
55318
37323
37535
37535
49S60
46713
16985
67217
41721
42603
68316
57203
57203
71961
37883
70007
71595
45347
45348
33
27
27
31
33
22
32
28
34
34
31
31
35
29
26
26
32
33
7
34
33
2t|
24
24
24
32
30
10
34
26
34
28
28
30
34
29
26
26
1 Nonacquescence as to Issue regardng deducton for depeton.
1 Nonacquescence reates to the foowng ssues: Deducton of amounts e pended to restore pettoner s
property notwthstandng tho fact that the Drector Genera of Raroads made payment to pettoner for
hs faure to mantan the property e cuson from gross Income of ntercompany freght charges on matera
and suppes used n makng addtons and betterments to pettoner s property.
state ta decson.
1 cquescence pubshed n Cumunve uetn II-1 wthdrawn.
1 cquescence pubshed In Cumuatve uetn - wthdrawn.
state ta decson nonacquescence reates to deducton for funera e penses Incudng cost of crypt.
Nonacquescence reates to queston whether dstrbuton of stock had tho effect of dstrbuton of a
ta abe dvdend.
G
e
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r
a
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d

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)

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2
0
1
3
-
0
1
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2
2

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41
Nonacquescences Contnued.
Lazarus 4 Co., . R
Leary, Sr., . ..
Leary, Myra L
Leeper. rank ., estate of.--
Leeper, Pear
Leetona urnace Co
Lembcke, George
Leon 4 Son, Inc., bert
Levne, yman 1
Lews, Wadsworth R
Dberty Marne Insurance Co.
Lebcs Co.,
Lnderman, Wam S., e ecutor
Lqudatng Co
Lattaucr, ugene, estate of
Lttauer et e., Lucus N., e ecutors
Lvngood, Chares ., e ecutor
Loyd, . Darse
Iovd, Water .
Loffand, . M.
Loffand, T. S.
Lous, Cora
Lousve Trust Co. et a., trustees--.
Lucas, Mabee T
Lustg, Davd L., estate of
M.
Maernee, D.
Maory, L. W., estate of
Maoy Co
Manchester Coa Co
Manhattan Lfe Insurance Co.
Mann, George D
Mannng, Chares N
Manus-Muer Co., Inc
Margay O Corporaton
Markham Irrgaton Co.7
Marvn, Water S.
Marvn, Wam Genn, estate of
Matagarda Cana Co.
| Samue, estate of
on. ugh M
san ., e ecutr
., estate of
69481
69750
76845
76846
45266
45265
32272
75365
53440
743. )
75157
67263
28544
35038
58871
60850
51858
51858
40899
71445
48120
13425
13426
49179
65040
72933
70582
63553
33231
57906
33392
60827
54223
63370
70890
59778
44891
41344
38578
77017
400S2
41345
64712
71353
43208
43208
32
34
28
28
23
33
29
8
34
32
23
28
33
25
25
25
33
30
10
10
29
30
34
33
31
27
33
24
28
33
34
30
26
24
25
34
24
34
31
33
33
1 cquescence pubshed n Cumuatve uetn I wthdrawn.
1 state La decson nonacquescence n respect to that part of decson whch hods that accrued nter-
est pad on edera ncome ta es (or 1927 and 1928 from date of decedent s death to November 5, 1030, s
a proper aowabe admnstratve e pense.
cquescence pubshed n Cumuatve uetn I-2 revoked.
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 1013 acquescence pub-
shed n Cumuatve uetn -1 wthdrawn n so far as It appes to ths ssue.
state ta decson.
Nonacquescence reates to affaton Issue.
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
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42
Nonacquesoences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
McCabe, en C
McCabe, George ., estate of
McCabe, ames
McCabe, ames Roscoe
McCabe, Mton Mathew
McCabe, Wam ohn
McCabe, r., Wam ohn
McCarter, Uza ., estate of
McCormck et a., Cyrus ., trustees.
McCrory, Luke W., trustee
McCurdy, Wam ., estate of 1
McGrath, ames W. and ntonette...
McGrath, Mare Louse..-
McGrath, Robert
Mcvane et a., Wam ., trustees.
Mc nney, Ida I
McLauchan, Wam, estate of
McLster, rank
McMan, Wam Northrup, estate of .
Mehern, Dora M.3
Mehern, P. W. ___
Menzes, Chares M
Menzes, Inc., C. M
Merner, Deght Ward
Merre, Irvng S
Metropotan Ice Co.4
Meyer, George L., transferee.
Meyer, Robert R
Mchgan Centra R. R. Co.5.
Mgetta, Oga
Mes Reaty Co
Mer, bert
Ms, . . Goadby
Mnnesota Tea Co
Mssour State Lfe Insurance Co.t.
Mtche, Chares
Mtche, . .
Mtche, Oscar 7
Mtche, Wam
Mtten Management, Inc.
Mod|esk, Raph
Moore, ma
69783
69779
69778
69781
69777
69780
69784
69193
44139
32444
67681
65040
65042
65039
52931
57226
45823
62905
70952
48562
45966
80422
81035
76148
76147
73406
70103
53936
69525
64654
44032
19930
36379
51394
45368
58797
54227
58241
62386
74720
65834
41680
41874
54673
58799
42494
53990
61861
49517
64790
68219
29
29
29
29
29
29
29
34
26
25
31
30
30
30
29
32
34
27
27
35
35
34
34
32
33
32
33
27
28
25
31
28
26
34
29
32
33
27
26
29
28
30
1 state ta decson.
state ta decson nonacquescence as to queston of stus.
Nonacquescence n ssue wth respect to mmunty from edera Income ta of compensaton of offcers
and empoyees of the oard of State arbor Commssoners of Caforna.
cquescence pubshed n Cumuatve uetn I -2 wthdrawn.
Nonacquescence reates to foowng ssues: Whether ma pay receved n 1921 consttuted ncome n
1020 renta nterest receved on competed addton and betterments n fna settement wth the Drector
Genera.
Nonacquescence 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 deprecaton upon such budng.
Nonacquescenco reates to ssue regardng deducton from Income of sprnkng ta .
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43
Nonacquescences Contnued.
Docket
oard of Ta ppeas.
oume.
Moore read Co
Moore, dward W., estate of
Moore, G.
Moore, ohn R
Moore, Lopse C, e ecutr
Morgante rush Co., Inc
Moro Reaty odng Corporaton..
Morrs, rthur
Morrss et a., ua L
Morrss Reaty Co. Trust No. 1..
Morrss Reatv Co. Trust No. 2..
se, mma R., estate of
Caro vn L
Chares
Mott, Chares Stewart.
Mott, Dee urey
Mueer, ar W
Mucahy, ohn .
Murphy ct a., red T., trustees
Murphy Persona Property Trust .
Mutua Lfe Insurance Co. of New York.
Myrck, uan S
N.
Nashve, Chattanooga 4 St. Lous Ry..
Natona Casket Co., Inc.
Natona Contractng Co.4
Natona Grange Mutua Labty Co
Natona Land Constructon Co
Natona Outdoor dvertsng ureau, Inc.
Natona Ppe oundry Co.
Nea et a., . enry, trustees
Ne, ames
Nehns, rank aywood
Nems, Mrs. rank aywood
Netcher, Chares, estate of
Newberry Lumber Chemca Co
Newbury, Moe Netcher, trustee
Newport Co
41645
58720
38351
64791
68218
58720
26369
37406
44759
50490
64246
41023
41024
45S63
45S64
41023
45803
41024
45S64
44652
55937
65399
51585
57506
719(13
45362
80709
43795
43795
9704
51526
63376
33799
50320
24520
73099
40120
65252
70999
32997
45403
9290
51887
51888
42435
68511
42435 .
35431
22
33
26
30
33
24
25
33
23
23
23
27
29
27
30
35
28
34
25
2.-
23
29
24
29
25
31
25
32
19
20
8
27
27
31
33
31
24
1 state ta decson nonacquescence n the concusons on tbe thrd group of poces that the proceeds
thereof shoud be e cuded from tbe gross estate.
1 state ta decson.
1 Nonacquescence reates to the appcaton of a net amount of operatng osses after appyng the profts
of a subsdary durng the perod of affaton to reduce tbe oss sustaned by a parent company on tbe
qudaton of a subsdary company.
1 ttonacquescence reates to ssue 1 of decson and ssue regardng deductbty of overhead costs n 1026.
cquescence pubshed n Cumuatve uetn I -2 revoked. Revocaton of pror acquescence and
present nonacrmescence are due to the faure of the oard s decson to mt the word dstrbuted to
the cash dstrbutons made to tbe stockhoders.
pubshed n Cumuatve uetn - wthdrawn.
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44
Nonacqotescences Contnued.
Ta payer.
New York Centra R. R. Co.1.
New York Lfe Insurance Co
New York, Ontaro Western Ry.
Nbey-Mnnaugh Lumber Co
Nchos Co Lumber Co
Nchoson, ames
Ncoa, .
Nesen Co., . ._
North mercan Investment Co
Northrn Coa Co. ..
Northport Shores, Inc
Noyes, ansen 11
Nudeman, Chares W
Co.
Oakman ct a., Mame R
O Donne, dth M.
O Donnc, Thomas
Ogden, ugh W
Od Coonv Trust Co., trustee
Od Msson Portand Cement Co
Od Natona ank n vansve, e ecutor .
Onger Mortuary ssocaton
Over, Ove ume -
Omsted, George W.
Omsted, Iva C.5.
Ostad, Oscar
Omaha Coca-Coa ottng Co.
O Rear, . C. .
Oregon Termnas Co
Oswego as Corporaton.
Owens, . T
Owens, Mrs. . T.
Owens, O. O
Docket
No.
19932
34437
62040
38880
52693
17527
23601
66966
57417
8899
30183
34945
64500
38574
79126
42917
79980
529S7
62979
23943
74928
38853
67681
36502
65640
44090
45745
48121
54714
60746
44089
45746
48143
54713
60745
766 3
52641
32335
68893
28301
32673
34352
63149
63150
31986
oard of Ta ppea .
oume.
28
24
30
26
24
32
33
26
24
24
31
25
35
24
35
32
24
33
25
31
23
30
30
30
32
26
28
29
27
27
20
Nonacquescence reates to foowng Issues: Whether ma pay receved In 1921 consttuted ncome In
1920: renta nterest receved on competed addton and bettorments n fna settement wth the Drector
Genera.
1 Nonacqucscence reates to statute of mtatons Issue.
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.
state ta decson.
Nonacquescence reates to ssue Invovng the amounts pad to stockhoders by . . 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 Ore of hs resdence and furnture.
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1
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45
Nonacqttescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
P.
Pacfc Coast scut Co. et t1.-
Pacfc Nash Motor Co
Pacfc Rock Grave Co
Pamer, radey W.
Parker, Cara ., e ecutr
Parker, George D., estate of
Parker, erbert L., estate of4 --
Parker et a., my ng, trustees 4. --
Parrott, . .
Peabody, Cornea aven, estate of4
Peabody et a., Stephen, e ecutors 4
Pennsvhana Co. for Insurances on Lves and
Grantng nnutes, e ecutor and trustee.
Perkns, my S.4
Perkns et a., Thomas N.
Petauma Santa Rosa R. R. Co. ._
Pheps et a., Lus ames, e ecutors
Phps, Wam S
Perce, dward
Pttsburgh Lake re R. R. Co. ..
Pans Reaty Co
71588
45169
45170
28776
62652
58604
58604
53320
53320
30989
39647
39647
73029
78532
57848
58305
58306
58443
58475
58770
58772
58904
5S905
58906
58907
58917
58918
5S925
13830
50336
24440
31769
58796
42764
48977
65492
67197
32
23
26
32
31
31
30
30
28
24
24
32
35
33
11
27
24
26
28
31
39
953
296
550
644
644
342
342
917
787
787
449
100
606
511
1224
9S
1401
259
412
wth respect to deducton of amounts e pended n connecton wth dssouton and
qudaton of a corporaton.
1 onacquescence n oard s decson hodng that the Superpower rghts were not dvdends.
1 Nonacquescence reates to ssue regardng e stence of George D. Parker Co. partnershp.
state ta decson.
Nonacqeseeoee reates to nterpretaton of artce 1667, Reguatons 46, as apped to e change of stock
of Pttsburgh Te as O aa Co.
Nonacquescence 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
and Davs ros. Co., where the ncome ta returns were fed wth a deputy coector
Dd te 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
Commssoner ater rued aganst consodaton
Is . . M. Co. entted to a deducton greater than 14,17976 as an addtona bonus to ts genera
1 Nonacquescence reates to that part of decson concernng purchase of ta payer s own bonds at ess
than par whch were hed as an nvestment. 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.
1 Nonacquescence reates to renta nterest queston and oard s decson wth respect to porton of ma
G
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1
3
-
0
1
-
2
2

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0
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0
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8
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9
3
3
6
9
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46
Nonacqt|escences Contnued.
Ta payer.
Doctcet
No.
oard of Ta ppeas.
oume.
Pant, enry radey.
Patt, amma 1
Pestcheeff, Guendoen C.
Pestcheeff, Theodore
Pettner, Maude rown..
P-M- Petroeum Co. ...
Ponvert, Lusa Terry, estate of .
Porter, e ander ., estate of ..
Portand urnture Manufacturng Co.
Post Shedon Corporaton
Pressnger, Mabe L., estate of
Prce, arry
Prester, . C
Proctor Shop, Inc.
Prosperty Co., Inc.
Prouty, Ove
Prudenta Insurance Co. of merca.
Pryor Lockhart Deveopment Co.
Purse, ames N
unn, Porte .
R.
Ranbow Gasone Corporaton.
Randoph, ranke Carter
Randoph, R. D
Randoph, rg P., trust
Ray O Co. .
43R89
48984
52094
55659
G0923
78930
80026
S0025
33345
50576
54779
S1568
79322
61809
70367
56695
80550
70008
71596
55195
58909
66268
45896
59468
57829
56641
60884
67238
38872
45668
51326
63523
54124
67156
65152
72365
51890
51889
48833
43123
45219
48015
61554
58544
79130
27921
58800
70410
30
35
35
3o
25
24
35
34
30
28
34
29
33
30
27
30
33
26
34
27
31
31
27
27
28
28
26
34
17
26
30
Raymond, oward W
Raymond, Raph Lese
Reaty ssocates, as syndcate manager 7
Reed, Latham R
Reese, ugusta ss
Nonacquescence n Issue wth respect to Immunty from edera Income ta of compensaton of offcers
and empoyees of the oard of State arbor Commssoners of Caforna,
Nonacquescence reates to frst Issue of docson.
state ta decson.
cquescence pubshed n Cumuatve uetn III-2, revoked.
Nonacquescence reates to overstatement of oss sustaned as a resut of qudaton ofsubsdary.
Nonacquescence reates to ssue whether pettoner was ta abe for years 1920 to 1920, Incusve, bs a
trust or as an assocaton.
I cquescence pubshed n Cumuatve uetn -2 wthdrawn.
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47
Nonacquscences Contnued.
Ta payer.
Rehtam, Inc
Revbue, phcus, estate of
Reybne, Martha ., e ecutr 1
Reynard Corporaton
Rchardson et a., orrest, e ecutors 1
Rchfed O Co -----
Rchmond, redercksburg 4 Potomac R. R. Co. .
Rffe, enry - -
Rey, nna
Rey Stoker Corporaton
Rey, Thomas ., transferee
Ro Grande Land Cana Co
Ro Grande Reservor Dtch Co
Robbng, arwood
Roberts, G. P -
Roberts, Water
Robertson, . G
Rock wood, George 0
Rockwood, Wam M
Rodeo-Yac|o erry Co.5.
Rogers, May
Roande, Guano
Rons, arrv T._
Rons, Raph ..
Roosevet Son Investment und.
Rormer, Lous
Rosenboom nance Corporaton .
Ross, anche S. -
Ross, Water L...
Rosscr, . M., e ecutor 1
Roeshem, Irvng D. --
Roth, W. . .-
.
Docet
No.
45016
60660
60660
67386
70795
44652
42921
68876
3576
61066
36584
64638
71350
71351
67076
68434
37534
49552
52370
72711
72712
36411
48528
45051
57479
67286
63954
63958
76196
58850
35778
40903
51171
73282
40765
57503
45065
50134
13319
27768
33938
45966
oard of Ta ppeas.
oume.
28
666
31
314
31
314
30
451
27
1070
25
101
33
895
3
436
29
160
26
749
33
564
31
507
31
507
33
880
32
646
24
405
28
53
31
927
31
927
24
936
31
994
32
1176
33
843
34
319
34
319
34
38
27
871
24
763
28
39
30
562
24
176
31
857
22
687
32
705
24
917
27
318
Sabatna, Rafae
St. Lous Southwestern Ry. Co
St. Lous Unon Trust Co., e ecutor
state ta decson.
1 Nonacquescence reates to ncuson n ncome of corporaton for years ended March 31, 1630, and
March 31, 1931, amounts representng renta of premses occuped by ts presdent.
1 Nonacquescence reates to ssue Invovng the queston, re payments made to hoders of guaranteed
stock desgnated n certfcates as dvdends deductbe as nterest
1 state ta decson acquescence pubshed n Cumuatve uetn -2 recaed.
Nonacquescence reates to frst ssue of decson.
N onacquescence as to ssue regardng ta abty n 1929 of dvdends decared n stock n 192S, certf-
cates for whch were not devered unt 1929.
Nonacquescence does not reate to the oard s hodng that dstrbutons receved from oseph U.
fnch fc Co. were not parta qudatng dvdends.
Gft ta decson.
N onacquescence 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.
u state ta decson nonacquescence as to queston of stus.
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48
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta .
oume.
Saomon, Leon 1
San Caros Mng Co., Ltd.1
San acnto Lfe Insurance Co
Sand Sprngs Ry. Co
Sather Lease Thomas Sather Co
Sauk Investment Co
Scatena, vra
Schoen, Lous
Schumacher Wa oard Corporaton
Schwartz- asscr Improvement Co
Scott, Thomas ., estate of 4
Scott, Thomas S
Scove, Cnton L, estate of
Scrpps, Robert P
Scuy, nrqueta ngea
Seaconnet Coa Co.
Seatree, Wam rnest
Securty rst Natona ank of Los ngees et a.,
e ecutors
Securty Savngs Commerca ank
Sewvn ddy Co
Shaffer, C. . -
Shaffer, ohn C...
Sharp et a., dth uggard, e ecutors 1
Sharp, Water P., estate of .
Sheaffer Pen Co., W.
Shepherd Syndcate
Shenker, Smon
Sbey et a., ohn R., e ecutors
Sbey, Rufus ., estate of
Sberbatt, Soomon
Smms, . .10
Skewes-Co , dth Page
Skff, rank .
3725
12231
39525
75348
32438
32439
31979
74642
63920
50776
01G02
69719
30876
50336
70888
49272
77116
80244
18089
22094
33640
45429
59523
21612
29259
50086
59511
48317
48317
36604
4S332
51327
58801
24921
24921
46335
19175
19791
61669
68335
51173
4
1109
8
979
24
1132
34
186
21
1291
26
86
34
732
32
675
30
1075
33
1211
26
322
27
1224
34
540
30
679
33
963
34
218
24
307
25
396
28
289
29
176
25
1341
29
1315
28
1293
30
532
33
290
30
532
33
290
27
1050
26
1062
26
1401
16
915
16
915
28
73
28
988
29
167
28
39
1 cquescence pubshed In Cumuatve uetn - wthdrawn.
1 cquescence as to Issue 2 and nonacquescence as to ssue 1 pubshed n Cumuatve uetn I -
wthdrawn.
Nonacquescence reates to dvdend Issue.
state ta decson nonacquescenoe wth respect to the trusts for the son and daughter.
state ta decson.
Nonacquescence reates to statute of mtatons ssue.
T Nonacquescence reates to ssue whether ta payer sustaned a net oss In any busness reguary carred
on In 1024 whch coud be carred forward and deducted from ta abe ncome n 1925.
1 Nonacquescence 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 sa
prce, ta es of the partners pad n 1920 by the vendee.
cquescence pubshed n Cumuatve uetn III-2 wthdrawn.
10 Nonacquescence reates to ssues 1 and 4 set forth In syabus of pubshed decson.
Oft ta decson.
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8
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49
Nonacquescbnces Contnued.
Ta payer.
Sack, . ., estate of 1
Sma s, Inc
Smathers, . ., estate of .
Smey, bert
Smey, rancs G
, 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.1
Snyder, Inc., . S. M. W
Southern e Teephone Teegraph Co.
Southern Caforna Rock Grave Co
Southern Raway Co. et a.4
g, Chafant Co.
ncer, George rnck, estate of .
Spever, ames
Sprague, CO. M
Sprague 4 Son Co., C. .7
Sprng Cty oundry Co
Sredes, Inc
Stanev Co. of merca.
oard of Ta ppeas.
No.
oume.
Page.
/ 72404
78525
35
271
53791
24
686
29260
29
1315
74424
33
198
74425
33
198
77417
34
702
f 43300
1
43305
26
1178
43306

77414
34
702
52132
28
422
52132
28
422
77416
34
702
77415
34
702
56465
34
170
45694
30
1121
36686
26
692
70887
34
540
30898
26
2 6
f 21481
I
1 29951
137887-
27
673
37898

58790
31
721
72236
31
171
56435
30
517
65S33
33
806
34946
24
307
21169
25
822
45015
28
606
f 31516
1
33142
26
705
40023

71867
32
940
48930
24
269
73347
34
173
2459
2
102
41743
/ 26
27
390
173
/ 70006
71593
29
1255
/ 70009
71594
1 29
1255
610
Stayton, r., Wam
Stearns, Marsha, admnstrator
Steee, Wam, estate of
Stern et a., Samue . ., e ecutors 8
Stetson, Ioa Wse
Stevens, y am
Stevens, Wam D
Stevenson Consodated O Co.
1 onacqaesoence n ssue nvovng queston of ta abe gan by reason of acquston of possesson of
property eased by hm.
1 Nonacquescence 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
prce, ta es of the partners pad n 1920 by the vendee.
1 Nonacquescence 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.
1 Nooacquescence reates to ssnes nvovng addtona compensaton, renta nterest on addtons and
betterments, and back ma pay for use of propertes durng edera contro.
1 cquescence pubshed n Cumuatve uetn 1 -2 wthdrawn.
1 state ta decson.
Nonacquescence reates to statute of mtatons ssue.
1 state ta decson acquescence pubshed n Cumuatve uetn -2 recaed.
1 Nonacquescence reates to ssue regardng ncuson n ncome for 1920 of 180,823.35 receved upon
ocbange by pettoner of 250,000 shares of Sunburst O Gas Co. stock wth that corporaton.
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-
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50
Nonacquescences Contnued.
Ta payer.
Stewart, ohn
Stewart, Wam Rhneander, estate of 1 -
Stewart, r., et a., Wam Rhneander, e ecu-
tors 1 -
Stfe, rthur C-- -
Stfe, dward W
Stfe, enry G
Stne, Doe M.
Stne, M. osephne
Stockhoms nskda ank..,
Stone, . C, estate of
Stone, Mrs. . C, e ecutr .. -
Stone et a., Irvng ., e ecutors and trustees
Stone, Irvng Lee, estate of
Straub, Teca M
StrauR, aron
Strayer, Water
Streefkerk, Mrs. S
Strong, arod C.4
Sturgeon- ubbard Trust
Sturgeon et a., Ron S., trustees
Suvan, oseph
Suncrest Lumber Co
Swartz, Inc., dward G
Swft, Mary Dodson, estate of
Swsky, Toby W.
Swss O Corporaton.
T.
Taft, nna S., estate of -
Taft, Robert ., e ecutor
Taft, Robert ., trustee
Tabot, rederck C, estate of
Tabot, . .
Tabot et a., Susan D., e ecutors
Tabot, Wam ., estate of
Tayor, . Sedon, estate of
Tayor, r., et a., . Sedon, e ecutors .
Tayor, esse Carter
Tayor, udson L
Ten yck, Peter G --
Tennessee Consodated Coa Co
Termna Raroad ssocaton of St. Lous.
Docket
No.
57531
67776
67776
60738
60739
60740
62694
62695
55755
38336
38336
43830
43830
55935
65091
48564
45363
38576
37095
37095
56671
33244
36650
44909
42032
60177
61002
63088
70998
77923
77923
76813
20411
36191
20409
20409
64444
64444
51891
51892
68197
33383
49832
53429
63699
oard of Ta ppeas.
oume.
33
33
34
27
23
27
27
27
27
27
27
29
24
33
29
809
31
201
31
201
29
1145
29
1145
29
1145
32
482
32
482
25
1328
26
301
26
301
26
1
26
1
29
216
27
1116
27
155
28
236
25
1351
25
368
25
368
33
629
25
375
25
1065
26
615
25
259
32
777
906
state ta decson nonacquescence reates to far market vaue of an undvded or fractona nterest
n certan rea property.
state ta decson nonacquescence reates to far market vaue of 3,639 shares of stock of Rhneander
Rea state Co. as of September 4, 1929. cquescence as to ths Issue pubshed n uetn I -T wth-
drawn.
state ta decson nonacquescence reates to Issue Invovng property transferred by trust agreement.
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 some tme
and under the same agreement,
state ta decson.
Nonacquescence reates to depredaton aowance n computng oss n sae of a boat.
G
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51
Nonacquescbnces Contnued.
Ta payer.
Termna Reaty Corporaton..
Terre aute, Indanapos astern Tracton Co.
Terre aute Tracton 4 Lght Co
Terry, nna Davs
Terry, r., . T
Te as Irrgaton Co.1
Te as Ppe Lne Co
Thatcher 4 Son, ohn
The ub, Inc. ---
Theman, Mrs. Leo
Thra, dna May
353 Le ngton venue Corporaton...
Tde Water O Co
Totson Manufacturng Co
Tte 4 Trust Co..
Ttus, C. Dckson
Ttus, Inc., C. W -
Todd, Wa... - --
Toerton 4 Warfed Co.1-.
Torrens, ames .
Towers 4 Suvan Manufacturng Co.
Townsend, .
Townsend, W. S
Toy, arvey M
Transatantc Shppng Co., Inc
Traveers ank Trust Co. .
Traveers re Insurance Co.
Traveers Indemnty Co
Tro|an O Co -
Trustees of Lumber Investment ssocaton.
Turnev, W. W
Turney, Mrs. W. W
Tuth, r., orace S
Turte, Car -
Twn e O Syndcate --
Tyer et tL, Sdney ., trustees
U.
n, oseph
ana, manue Soomon.
Umann, r., oseph
51234
56470
56471
oard of Ta ppeas.
No.
oume.
Page.
43766

50762
60596
I 32
623
71157

33858
24
197
33860
24
197
45446
26
1418
65835
33
806
40083
41346
24
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
57916
1
62832
31
507
71347

33757
26
659
52274
35
364
65258
31
308
65257
31
308
52448
f 31
32
994
1176
70558
31
782
45052
26
172
56449
28
367
30
30
30
Nonaa|ueseence reates to affaton Issue.
Noaacquesccnce reates to Issue regardng deducton of oss sustaned by two affated companes
urne fsca year ended anuary 31,1924, and the ta abe perod ebruary I to pr 25,1924, In computng
the consodated net ncome for ta abe perod pr 2 to December 31,1924, and tbe year 1925.
1 onacqueecence reates to the trust and dvdend ssues.
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52
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Umann, Samue, estate of
Umann 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.
.
an Camp Packng Co., Inc
ancoh Reaty Co
an Schack, George S., Superntendent of Insur-
ance of New York, qudator
an orst Co., C.
aughan, Wam W
oebe, acob, estate of 4
oebe, Water W., e ecutor 4
ounteer State Lfe Insurance Co.
on Gunten, Chrstan W.
onnegut ardware Co
W.
Waggoner, a
Waggoner, W. T
Wat, . Russe
Wat, atharvn
Waker, Tabot C.
Wa, rank . _.
Waters, enry, estate of
Waters, ohn W
56472
56472
75516
44735
51530
70183
70219
35639-
35049
35684
35685
40060
40061
40062
42917
67949
38082
42922
51622
46131
52310
67263
70366
67843
6009
6009
54176
69058
70851
61278
44940
33517
33516
75772
75773
20407
7359
77674
r 70010
I 71597
f62644-
02649
22348
34079
30
30
32
26
32
26
24
33
25
26
33
32
30
31
7
7
27
35
28
28
24
24
35
35
27
4
35
29
29
24
26
Ward et a., Dasy M
Wardman, arry
Warner Coeres Co. of Deaware
1 state ta decson.
1 Nonacquescence reates to the ssues regardrg cost of ntercompany transportaton of matera used
n constructon of capta assets sae n 1928 of bock M. Seatte Tde Lends sae of and to ansas Cty
Termna Raway Co. ad|ustment for deprecaton sustaned pror to anuary 1, ISO ), of equpment retred
n 1924.
1 Nonacquescence reates to ssue regardng renta nterest and ssue concernng net oss of Los ngees
Sat Lake R. R. Co. for perod anuary 1 to pr 30, 1U21.
state U ecson acquescence pubshed n Cumuatve uetn -2 recaed.
cquescence pubshed n Cumuatve uetn - wthdrawn.
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53
Nonacque3cences Contnued.
Ta payer.
Watab Paper Co.
Waterbury, Charotte M.
Waterbury, Donad N.1
Waterbury, ugene W.1
Waterbury, Whtford N.1 --
Watson-Moore Co
Wavburn, Ned
We argo ank Unon Trust Co., admnstrator.
Wes, ames
Wes, Thomas .1
West rgna-Pttsburgh Coa Co -
Western Power Corporaton
Wheeer, Dwght C. - -
Wheeer, P. L - --
Wheeng Mod oundry Co. (De.) -.
Whppe, rank
Whtcomb, N. ., Coca-Coa Syndcate
Whte, uet C
Whte Oak Transportaton Co.3
Whte, Rta M. oher -
Whte, Sdney -
Whtng, Dwght4. -
Whtng, George N.4 - -
Whtte 4 Co., Inc., George --
Wco 4 Sons, .
We, dwn
Wams et a., rank G., e ecutors
Wamson, esse C
Wamson, Ruth Chander
Wshre O Co., Inc
Wson, ngs
Wson, ohn P
Wson, Luke ., estate of..
Wson, Peter ., transferee.
Wson Shpbudng Co.7
Wnston ros. Co
Wobber ros
Wobbers, Inc
Wopert, Urban
Wood, en yer
Wood urnture Co., . _
Wood, r., . O
Docket
No.
24773
2S082
38685
41733
4C076
51387
73381
73380
73383
73382
62179
74348
20411
62948
78829
20337
25030
72943
71338
69028
23410
57532
76367
58775
18088
36112
58776
78532
72414
40619
54451
33564
80545
67468
67179
73955
77377
52931
57226
32444
64655
34337
59270
36875
77387
36874
48563
65211
40565
65832
oard of Ta p eas.
oume.
27
33
33
3:
33
30
32
27
29
34
24
34
32
32
27
12
35
20
24
25
6
35
34
28
31
25
34
32
35
34
29
25
33
25
29
26
35
26
27
29
21
33
1 Nonacquescence reates to Issue whether gans on e e of stock of tho Waterbury Chemca Co. were
ta abe to pettoner or to trusts created by them.
Gft ta decson.
1 Nonacquescence reates to statute of mtatons ssue.
state ta decson.
Nonacquescence reates to the trust and dvdend Issues.
Nonacquescence In Issue whether bass for gan or oss on subsequent sae wthn meanng of secton
113(a)5, Revenue ct of 1832, was tme of actua dstrbuton or date of court order of dstrbuton.
Nonacquescence reates to Issue 5 of decson.
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54
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Wood, eremah
Wood, Stuart, estate of.
Wood, Ws D.__
Woodard, ohn S.1
Woodward, George
Young, Du os
Youngstown Sheet Tube Co.
Zeger, bert W
Zeger, Cfford
Zmmerman and wfe, Cavn.
Zobeen, George
Zobeen, Mrs. dward
Zukor, doph
/ 74090
74688
75624
69844
71962
42279
78345
28149
35511
46291
46292
71145
45352
45353
76120
31
32
33
30
23
34
24
23
23
31
28
28
33
Nonacquesccnce reates to queston whether dstrbuton of stock had the efect of dstrbuton of
ta abe dvdend.
cquescence pubshed n Cumuatve uetn -2 wthdrawn.
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3
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6
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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 . INTRODUCTORY PRO ISIONS.
S CTION 1. PPLIC TION O TITL .
rtce 1-1: Scope of reguatons. I-22-8729
I. T. 3078
R NU CT O 1936.
Where a corporaton was organzed n 1936 and estabshed a
fsca year ended November 30, 1930, an ncome ta return fed for
the perod from the date of organzaton to the end of ts estab-
shed fsca year s a return for a ta abe year begnnng after
December 31, 1935, wthn the meanng of the provsons of secton
1 of the Revenue ct of 1C36. ccordngy, the provsons of that
ct appy n computng the corporaton s ncome ta abty for
such perod.
dvce s requested whether the Revenue ct of 1936 s appcabe
n computng the ncome ta abty of the M Corporaton, whch
was organzed durng the caendar year 1936 and estabshed a fsca
year ended November 30, 1936.
Secton 1 of the Revenue ct of 1936 provdes:
Sea 1. ppcaton of Tte.
The provsons of ths tte 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.
It s hed that a return for the perod from the date the M Cor-
poraton was organzed n 1936 to the end of ts estabshed fsca
year on November 30, 1936, s a return for a ta abe year begnnng
after December 31, 1935, wthn the meanng of the above-quoted
provsons of secton 1 of the Revenue ct of 1936, and that the pro-
vsons of that ct appy n computng ts ncome ta abty for
such perod.
(55)
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14, rt. 14-1. 56
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.
rtce 14-1: Surta on undstrbuted profts I-10-8579
of corporatons. G. C. M. 17895
R NU CT O 1036.
Patronage dvdends, rebates, or refunds due patrons of a true
cooperatve organzaton may be e cuded n determnng the
amount of the undstrbuted net ncome of the cooperatve organ-
zaton sub|ect to the surta mposed by secton 14 of the Revenue
ct of 1036, provded the abty therefor s set up on the books
pror to the cose of the partcuar accountng perod.
The queston s presented whether patronage dvdends due patrons
of a cooperatve organzaton whch are not dstrbuted unt after
the cose of the ta abe year are sub|ect to ta aton as undstrbuted
net ncome under secton 14 of the Revenue ct of 1936 whch m-
poses a surta at specfed rates upon the undstrbuted net ncome
of every corporaton not specfcay e empted from such surta .
So-caed patronage dvdends have ong been recognzed by the
ureau to be rebates on purchases made n the case of a cooperatve
purchasng organzaton, or an addtona cost of goods sod n the
case of a cooperatve marketng organzaton, when pad wth respect
to purchases made by, or saes made for the account of the ds-
trbutees. or the purposes of admnstraton of the edera ncome
ta aws, such dstrbutons have been treated as deductons n de-
termnng the ta abe net ncome of the dstrbutng cooperatve
organzaton. Such dstrbutons, however, when made pursuant to
a pror agreement between the cooperatve organzaton and ts
patrons are more propery to be treated as e cusons from the gross
ncome of the cooperatve organzaton. (I. T. 1499, C. . 1-2, 189
S. M. 2595, C. . III-2, 238 G. C. M. 12393, C. . II-2, 398.) It
foows, therefore, that such patronage dvdends, rebates, or refunds
due patrons of a cooperatve organzaton are not profts of the
cooperatve organzaton notwthstandng the amount due such pa-
trons can not be determned unt after the cosng of the books of
the cooperatve organzaton for a partcuar ta abe perod.
In vew of the foregong, t s the opnon of ths offce that such
patronage dvdends may be e cuded n determnng the amount
of the undstrbuted net ncome of the cooperatve organzaton
sub|ect to the surta mposed by secton 14 of the Revenue ct of
193C. provded the abty therefor s set up on the books of the
cooperatve organzaton pursuant to corporate acton taken wth
respect thereto pror to the cose of the partcuar accountng perod.
Ths memorandum s appcabe ony to true cooperatve organza-
tons. The burden of proof s upon an organzaton to substantate
by competent evdence any contenton t may make n that respect.
Morrson Safroth,
Chef Counse, ureau of Interna Revenue.
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57 522(a), rt. 22(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)-: What ncuded n gross ncome. I-7-8540
I. T. 3050
R NU CTS O 1932, 1034, ND 1938.
arnngs of a domestc budng and oan assocaton credted
to the account of a sharehoder pror to the converson of such an
assocaton nto a edera savngs and oan assocaton are sub|ect
to norma ta and surta , but earnngs credted subsequent to the
converson of such an assocaton are sub|ect ony to surta .
dvce s requested reatve to the ta abty of earnngs credted
to sharehoders on shares orgnay subscrbed for n domestc bud-
ng and oan assocatons whch were subsequenty reorganzed as
edera savngs and oan assocatons.
Secton 5(h) of the ome Owners Loan ct of 1933, as amended
(48 Stat., 128), reads as foows:
(h) Such assocatons, ncndug ther franchses, capta, reserves, and sur-
pus, and ther oans and ncome, sha be e empt from a ta aton now or
hereafter mposed by the Unted States, and a shares of such assocatons
sha be e empt both as to ther vaue and the ncome therefrom from a ta a-
ton e cept surta es, estate, nhertance, and gft ta es) nov or hereafter
mposed by the Unted States and no State, Terrtora, county, muncpa, or
oca ta ng authorty sha mpose any ta on such assocatons or ther fran-
chse, capta, reserves, surpus, oans, or ncome greater than that mposed by
such authorty on other smar oca mutua or cooperatve thrft and home
fnancng nsttutons. Itacs supped.
arnngs credted to the account of a sharehoder n a domestc
budng and oan assocaton pror to the converson of such an asso-
caton nto a edera savngs and oan assocaton are sub|ect to
norma ta and surta , but n vew of the provsons of secton 5(h)
of the ome Owners Loan ct of 1933, supra, earnngs credted
subsequent to the converson of such an assocaton are sub|ect ony
to surta . (Cf. I. T. 2873, C. . I -1, 51.)
rtce 22(a)-1: What ncuded n gross ncome.
R NU CT O 1936.
mount pad, credted, or accrued under contract assgned by
vendee to purchaser. (See G. C. M. 18123, page 128.)
rtce 22(a)-: What ncuded n gross ncome. I-19-8G91
G. CM. 18242
R NU CT O 1936 ND PRIOR R NU CTS.
Ta abty of ncome of restrcted members of the Osage Trbe
of Indans. G. C. M. 16100 (C. . -1, 80 (ft 56)) revoked n
part.
In G. C. M. 16100 (C. . -1, 80 (1936)) t was hed that the o
and gas royaty ncome of the restrcted members of the Osage
70S6 37 3
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22(b), rt. 22(b)(2)-2.
58
Trbe of Indans derved from the mnera eases of the Trbe and the
renvestment ncome of such Indans are sub|ect to edera ncome
ta .
Upon further consderaton of the ssues, t s the opnon of ths
offce that under e stng aw and court decsons the ureau s
precuded from assertng any ncome ta abty for any year
aganst restrcted members of the Osage Trbe of Indans wth re-
spect to dstrbutons made to them from o and gas royaty ncome
derved from mnera eases of the trbe. To that e tent G. C. M.
16100, supra, s revoked.
In so far as the renvestment ncome s concerned, the poston
adopted n G. C. M. 16100, supra, s affrmed.
Morrson Shafrot,
Chef Counse, ureau of Interna Revenue.
rtce 22(a)-3: Compensaton pad other than I-4-8508
n cash. T. D. 4724
INCOM T .
The ffth sentence of artce 22(a)-3 of Reguatons 04 and SO
and the ffth sentence of artce 53 of Reguatons 77, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
The ffth sentence of artce 22(a)-3 of Reguatons 94 and 86 and
the ffth sentence of artce 53 of Reguatons 77 are amended to
read:
The vaue of quarters furnshed to the commssoned offcers, chef warrant
offcers, warrant offcers, and ensted personne of the rmy, Navy, Coast Guard,
Coast and Geodetc Survey, and Pubc eat Servce, or amounts receved by
them as commutaton of quarters, are to be e cuded from gross ncome.
Ths Treasury decson s ssued under the authorty prescrbed by
secton 62 of the Revenue cts of 1936, 1934, and 1932.
Gut T. evernq,
Commssoner of Interna Revenue.
pproved anuary 18, 1937.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster anuary 21, 1937, 3.56 p. m.)
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 22(b) (2)-2: nnutes. I-5-8512
I. T. 3044
R NU act O 1930.
Ta aton of the retrement pay receved by an mercan foregn
servce offcer.
dvce s requested whether I. T. 2162 (C. . I -, 29), ssued
under the Revenue ct of 1924, hodng that the retrement pay
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59
22(b), rt. 22(b)(2)-2.
receved by Unted States foregn servce offcers s sub|ect to ncome
ta to the e tent that the aggregate amount of such payments e ceeds
the amount wthhed from the compensaton of the foregn servce
offcers, s appcabe under the Revenue ct of 1936.
Secton 22(b) of the Revenue ct of 1936 provdes n part:
cusons from gross ncome. The foowng tems sha not be ncuded n
gross ncome and sha be e empt from ta aton under ths tte:

(2) nnutes, etc. mounts receved (other than amounts pad by reason
of the death of the nsured and nterest payments on such amounts and other
than amounts receved as annutes) under a fe nsurance or endowment
contract, but f such amounts (when added to amounts receved before the
ta abe year under such contract) e ceed the aggregate premums or con-
sderaton pad (whether or not pad durng the ta abe year) then the e cess
sha be ncuded n gross ncome. mounts receved as an annuty under an
annuty or endowment contract sha be Incuded n gross ncome e cept that
there sha be e cuded from gross ncome the e cess of the amount receved
n the ta abe year over an amount equa to 8 per centum of the aggregate
premums or consderaton pad for such annuty (whether or not pad durng
such year), unt the aggregate amount e cuded from gross ncome under
ths tte or pror ncome ta aws n respect of such annuty equas the aggre-
gate premums or consderaton pad for such annuty.
In I. T. 2984 (C. . -1, 87) t was hed that annutes pad to
retred cv servce empoyees are sub|ect to ta under the prov-
sons of secton 22(b)2 of the Revenue ct of 1934, whch are den-
tca wth the provsons of secton 22(b)2 of the Revenue ct of 1936
quoted above. ppyng the prncpe underyng I. T. 2984, supra,
t s hed n the case of an mercan foregn servce offcer that the
porton of the retrement pay receved by hm durng the ta abe
year equa to 3 per cent of the amount wthhed from the compen-
saton of the offcer must be ncuded n gross ncome unt the ag-
gregate amount of the retrement pay e cuded from gross ncome
under the Revenue cts referred to and pror Revenue cts equas
the aggregate amounts wthhed from hs compensaton. When the
offcer has e cuded from gross ncome an amount equa to the aggre-
gate amounts wthhed from hs compensaton, the tota amount of
Ihe retrement pay receved thereafter must be ncuded n gross
ncome.
rtce 22(b) (2)-2: nnutes. 8-8674
I. T. 3069
R NU CT O 1936.
nnutes pad pursuant to the provsons of the Raroad Retre-
ment ct of f-35 (49 Stat., 907) are not sub|ect to edera ncome
ta n the hands of the recpents.
dvce s requested whether payments receved by retred em-
poyees of carrers under the Raroad Retrement ct of 1935 (49
Stat., 967) are sub|ect to edera ncome ta .
The Raroad Retrement ct of 1935 provdes for the payment of
annutes to carrers empoyees upon ther retrement. Secton 5 of
the ct provdes that f a person recevng or entted to receve an
annuty sha de, the Raroad Retrement oard sha, for one year
after the decedent s death, pay to the survvng spouse or dependent
ne t of kn one-haf of such annuty. ny empoyee may eect, on
makng appcaton for an annuty, to have the present vaue of the
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122(b), rt. 22(b)(4)-4.
60
annuty appy to the payment of a reduced annuty to hm for fe
and an annuty for fe to a survvng spouse. The term annuty
s defned n secton 1(f) of the ct as a f ed sum payabe at the
begnnng of each month durng retrement, ceasng at death, e cept
as otherwse provded n secton 5 of the ct, or at resumpton of
servces for whch an empoyee receves compensaton.
Secton 10 of the ct provdes that:
No annuty payment sha be assgnabe or be sub|ect to any ta or to garnsh-
ment, attachment, or other ega process under any crcumstances whatsoever,
nor sha the payment thereof be antcpated.
ccordngy, t s hed that annutes pad pursuant to the pro-
vsons of the Raroad Retrement ct of 1935 are not sub|ect to
edera ncome ta n the hands of the recpents.
rtce 22(b) (4)-4: Interest upon Unted States I-12-8601
obgatons. G. C. M. 17S94
R NU CT O 1936.
Ta abty of Interest on mortgages nsured under the provsons
of the Natona ousng ct and nterest on debentures ssued
pursuant to the provsons of secton 204 of that ct.
dvce s requested whether nterest on mortgages nsured under
the Natona ousng ct, and nterest on debentures ssued there-
under, s sub|ect to edera ncome ta .
Secton 1 of the Natona ousng ct, approved une 27, 1934
(48 Stat., 1246), authorzes the Presdent to create a edera ousng
dmnstraton, a the powers of whch sha be e ercsed by a ed-
era ousng dmnstrator. Sectons 201 to 209 provde for mutua
mortgage nsurance, defne the term mortgage, create a mutua
mortgage nsurance fund, and authorze the admnstrator to nsure
approved mortgages of certan types. Secton 204 provdes that on
conveyance to the admnstrator of tte to property upon whch an
nsured mortgage may have been forecosed the mortgagee sha
receve the tota face vaue of the mortgage by ssuance of mortgage
debentures that such debentures sha bear nterest at a rate not to
e ceed 3 per cent per annum and that a such debentures sha be
sub|ect ony to such edera, State, and oca ta es as the mortgages n
e change for whch they were ssued woud be sub|ect to n the hands
of the hoder of the debentures, and sha be a abty of the fund
ony, e cept that debentures ssued n e change for mortgages nsured
under the secton pror to uy 1, 1937, sha be fuy guaranteed
as to prncpa and nterest by the Unted States. Secton 207 pro-
vdes that the admnstrator may aso nsure frst mortgages, other
than mortgages defned n secton 201, coverng property hed by
edera or State nstrumentates, prvate mted dvdend corpora-
tons, or muncpa corporate nstrumentates of one or more States
formed for the purpose of provdng housng for persons of ow
ncome. The provsons of secton 204 are made appcabe to such
mortgages. Secton 208 reads as foows:
Nothng n ths tte sha be construed to e empt any rea prop-
erty acqured and hed by the admnstrator under ths tte from ta aton
by any State or potca subdvson thereof, to the same e tent, accordng
to ts vaue, as other rea property s ta ed.
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61
23(a), rt. 23(a)-.
Sectons 301-308 provde for the organzaton of natona mortgage
assocatons to nvest n nsured mortgages. Secton 307 provdes:
Natona mortgage assocatons sha be sub|ect to ta aton to the
same e tent as State chartered corporatons .
Secton 22(b) 4 of the evenue ct of 1936 provdes that among
the tems whch sha not be ncuded n gross ncome and sha be
e empt from ta aton are:
Interest upon ( ) obgatons of a corporaton organ-
zed under ct of Congress, f such corporaton Is an nstrumentaty of the
Cuted States or (C) the obgatons of the Unted States or Its possessons.
In the case of obgatons of the Unted States ssued after September
1, 1917 (other than posta savngs certfcates of depost), and In the case
of obgatons of a corporaton organzed under ct of Congress, the nterest
sha be e empt ony f and to the e tent provded n the respectve cts
authorzng the ssue thereof as amended and suppemented, and sha be
e cuded from gross ncome ony f and to the e tent It s whoy e empt
from the ta es Imposed by ths tte.
The Natona ousng ct makes no provson for the e empton
of nterest on the nsured mortgages n queston. On the contrary,
the provson n secton 204 that the debentures ssued n payment
for property acqured by the mortgagees through forecosure of such
mortgages sha be sub|ect ony to such edera, State, and oca
ta es as the mortgages n e change for whch they were ssued woud
be sub|ect ndcates that t was contempated that such mortgages
woud not be e empted from edera ta es merey by reason of beng
nsured pursuant to the ct.
It s, therefore, the opnon of ths offce that nterest on mortgages
nsured by the edera ousng dmnstraton s not, by reason
of such nsurance, e empt from edera ncome ta , and that nter-
est on the debentures ssued pursuant to secton 204 of the Natona
ousng ct s ta abe to the same e tent as the nterest on the
mortgages for whch they were e changed.
erman Ophant,
Genera Counse for the Department of the Treasury.
S CTION 23(a). D DUCTIONS ROM G OSS
INCOM : P NS S.
rtce 23 (a)-1: usness e penses. I-14-8624
I. T. 3062
R NU CT O 1936.
The amount pad by a m|rtgagor for mortgage Insurance pre-
mums on mortgages coverng property not used In trade or bus-
ness s not an aowabe deducton to the mortgagor for edera
Income ta purposes.
dvce s requested whether a mortgagor may deduct from hs
gross ncome for edera ncome ta purposes the amount pad to a
mortgagee for the purpose of payng a edera ousng dmnstra-
ton mortgage nsurance premum. It s stated that the mortgagor
s obgated to make such payment but that the edera ousng
dmnstraton hods the mortgagee responsbe for the mortgage
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528(a), rt. 23(a)- .
62
nsurance premums whether or not the money therefor has been re-
ceved by hm from the mortgagor.
It s hed that the amount pad by a mortgagor for mortgage n-
surance premums on mortgages coverng property not used n trade
or busness does not fa wthn any provson contaned n secton
23 of the Revenue ct of 1936 reatng to deductons from gross
ncome. Such e pendture s, therefore, not an aowabe deducton
to the mortgagor for edera ncome ta purposes.
rtce 23(a)-: usness e penses. I-18-8676
Mm.4580
Nondeductbty of nttorney s fees pad to secure appont meut
of guardan.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, pr 12, 1937.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Reference s made to I. T. 2124 (C. . I -1, 138 (1925)), n whch
t was hed that the fee pad to an attorney for servces rendered n
securng the appontment by order of court of a guardan capabe of
recevng the dstrbutve share of a mnor under a w represents an
ordnary and necessary e pense ncurred by the guardan n connec-
ton wth the ncome from the property of hs ward and s deductbe
n the return fed for the ward.
Subsequent to the pubcaton of I. T. 2124, the Unted States
Supreme Court hed, n an Wart v. Commssoner (295 U. S.. 112,
Ct. D. 903, C. . I -1, 292 (1935)), that an attorney s fee pad by
a guardan for conductng tgaton to secure trust ncome for hs
ward s not deductbe as a busness e pense wthn the meanng of
secton 214(a) 1 of the Revenue ct of 1924, snce the ward, not the
guardan, was the ta payer and the ward was not engaged n any
busness. I. T. 2124, beng n confct wth that decson of the
Unted States Supreme Court, s hereby revoked.
Inasmuch as I. T. 2124 has been reed upon by ta payers snce
the date of ts pubcaton n 1925, t s hed, under the authorty of
secton 1108(a) of the Revenue ct of 1920, as amended by secton
506 of the Revenue ct of 1934, that the revocaton of that rung w
be effectve ony as to such e penses pad or ncurred subsequent to
December 31, 1936.
Inqures and correspondence regardng ths mmeograph shoud
refer to the number thereof and the symbos IT: CTR.
Gut T. everno,
Commssoner.
pproved pr 12, 1937,
Roswe Mag,
ctng Secretary of the Treasury.
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63 23(a), rt. 23(a)-.
rtce 23 (a) 1: usness e penses.
ND CT O 1936.
Contrbutons to the Pubcty Commsson of the State of Connec-
tcut. (See L T. 3072, page S4.)
rtce 23(a)-: usness e penses. I-22-8730
( so Secton 23(c), rtce 23(c)-.) Mm. 4595
Contrbutons to State unempoyment nsurance funds Deduc-
tbty for edera ncome ta purposes.
Theasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, May U, 1937.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
mpoyer contrbutons under State unempoyment nsurance aws
approved by the Soca Securty oard, requred by the State to be
pad nto State unempoyment funds and not generay recoverabe
at the opton of the empoyer, are deductbe n the edera ncome
ta returns of the empoyer. Such contrbutons are deductbe as
busness e penses, e cept that f the State under whose aws such
contrbutons are eved cassfes them as ta es, they are deductbe
as ta es and not as busness e penses. urther, such contrbutons
pad or accrued to the State fund are n genera deductbe n the
empoyer s edera ncome ta return for the ta abe year n whch
they are pad or accrued, dependng upon the method of accountng
empoyed n keepng the books of the ta payer.
mpoyee contrbutons under State unempoyment nsurance aws
approved by the Soca Securty oard, requred by the State to be
pad nto State unempoyment funds and not generay recoverabe
at the opton of the empoyee, are deductbe n the edera ncomo
ta returns of the empoyee. Such contrbutons are deductbe as
busness e penses, e cept that f the State under whose aw such con-
trbutons are eved cassfes them as ta es, they are deductbe as
ta es and not as busness e penses. urther, such contrbutons pad
or accrued to the State fund are n genera deductbe n the em-
poyee s edera ncome ta return for the ta abe year n whch
they are pad or accrued, dependng upon the method of accountng
empoyed n keepng the books of the ta payer.
The above rungs supersede and are n modfcaton of a pror
rungs to the contrary.
Inqures and correspondence regardng ths mmeograph shoud
refer to ts number and the symbo IT: CTR.
Gut T. everng,
Commssoner.
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23(a), rt. 23(a)- .
64
rtce 23 (a)-1: usness e penses. T-24-8754
I. T. 30S4
R NU CT O 1930.
Contrbutons to the rzona unempoyment compensaton fund
requred to be made by an empoyer are deductbe for edera
ncome ta purposes as ordnary and necessary busness e penses
for the ta abe year n whch pad or accrued.
dvce s requested whether contrbutons requred under the r-
zona unempoyment compensaton aw of 1936 to be made by the M
Company to the State unempoyment compensaton fund wth respect
to wages payabe by t for empoyment durng the caendar year
1030 are deductbe n ts edera ncome ta return for that year.
The requrement to pay such contrbutons s contaned n a b
passed by the rzona Legsature November 25, 1936, and approved
by the governor December 2, 1936. owever, nasmuch as the b
was not passed by a two-thrds ma|orty of the egsature, t dd
not actuay become a aw unt ebruary 23, 1937. It s retroactve
n effect, however, to anuary 1, 1936. Secton 7(a) of the act, as
amended March 24, 1937, provdes as foows:
On and after anuary 1, 1936, contrbutons sha accrue and become
payabe by each empoyer for each caendar year n whch he s sub|ect to ths
act, wth respect to wages payabe for empoyment occurrng durng
such caendar year. Such contrbutons sha become due and be pad
n accordance wth such reguatons as the commsson may prescrbe, and
sha not be deducted n whoe or n part from the wages of ndvduas n
such empoyer s empoy.
Under the provsons of the rzona unempoyment compensaton
aw of 1936, no part of the contrbutons requred to be pad by an
empoyer to the State unempoyment compensaton fund s recover-
abe at the opton of the empoyer. urthermore, t does not appear
that there has been any court decson or offca rung of the State
of rzona to the effect that such contrbutons are ta es. It s
hed, therefore, that such contrbutons pad or accrued to the State
fund are deductbe as ordnary and necessary busness e penses
for edera ncome ta purposes n the ta abe year n whch pad
or accrued, dependng upon the method empoyed n keepng the ta -
payer s books. The M Company s abty for contrbutons to the
rzona unempoyment compensaton fund wth respect to wages
payabe by t for empoyment durng the caendar year 1936 accrued
durng that year. It s hed, therefore, that such contrbutons are
an aowabe deducton n ts edera ncome ta return for tho
caendar year 1936 as an ordnary and necessary busness e pense,
ts return for that year beng made on the accrua bass. (The
rzona aw was changed n some respects by an act approved March
24, 1937 ( . . 200), but the changes do not affect the concuson
reached heren.)
rtce 23(a)-: usness e penses. I-24-8755
I. T. 3085
R NU CT O 1930.
Contrbutons made by empoyees to the New ampshre unem-
poyment compensaton fund n accordance wth the provsons of
New ampshre aw consttute ordnary and necessary busness
e penses whch are deductbe as such In the empoyee s edera
ncome ta return.
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65
523(c), rt. 23(c)--
dvce s requested whether contrbutons made by empoyees
to the New ampshre unempoyment compensaton fund are de-
ductbe for edera ncome ta purposes.
The contrbutons n queston are requred to be made under the
provsons of chapter 179- of the Pubc Laws of New ampshre
(Laws of 1935, chapter 99), as amended by chapter 142, Laws of
1935, and chapter 3, Laws of 1936. The aw became effectve Novem-
ber 15. 1935, and was approved by the Soca Securty oard on
December 13, 1935. The appcabe provsons of the aw are con-
taned n secton 12, whch reads as foows:
Contrbutons by empoyees. egnnng on anuary 1, 1936, cac
empoyee sha contrbute to the fund one-haf of 1 per cent of hs wages
and begnnng on anuary 1, 1937, and thereafter he sha contrbute 1 per
cent, provded that the rate of contrbutons requred of empoyees sha n no
case e ceed 50 per cent of the genera rate requred of empoyers. ach
empoyer sha wthhod such contrbuton from the wages of hs empoyees,
sha show such deducton on hs pay-ro records, and sha transmt a such
contrbutons to the fund, pursuant to genera rues of the commssoner.
It s hed that such contrbutons consttute ordnary and necessary
busness e penses and are deductbe as such by the empoyee n hs
edera ncome ta return for the year n whch pad or accrued,
dependng upon the method of accountng empoyed n keepng hs
books, there beng no court decson or authortatve rung by the
State of New ampshre to the effect that the contrbutons n ques-
ton are ta es.
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM :T S G N R LLY.
rtce 23(c)-1: Ta es.
R NU CT- OP 1030.
Ta mposed under e portaton of captas ta aw of Me co.
(See I. T. 3040, page 109.)
rtce 23(c)-: Ta es. I-4-8496
I. T. 3042
R NU CT O 10S8.
The u ury or reta saes ta mposed under act No. 75, cts
of the State of Lousana, reguar sesson, 1936, effectve October
1, 1936, s deductbe as a ta , for edera ncome ta purposes,
by the consumer. If, however, the ta s added to or made a
part of hs busness e pense, t may not be deducted separatey
as a ta .
dvce s requested whether the consumer s entted to deduct, for
edera ncome ta purposes, the u ury or reta saes ta mposed
by the State of Lousana.
The ta s eved under act No. 75, cts of the State of Lousana,
reguar sesson, 1936, effectve October 1, 1936. The act s entted
n act to provde addtona revenue for the State of Lousana by
mposng a ta upon artces of tangbe persona property, whch are
u ures, as heren defned, sod, eased or rented n ths State, and
upon the furnshng, preparng or servng of artces of tangbe
persona property, whch are u ures, as heren defned evyng, and
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23(c), rt. 23(c)- .
66
provdng for the assessment, coecton, payment and dsposton of
such ta dedcatng ts proceeds, ess the cost of coectng as heren
provded . Provsons of the aw pertnent to the queston
read as foows:
Sec. 3. Upon each tem of tangbe persona property n ths State as s
actuay made the sub|ect of a sae at reta, and as of the moment of such sae,
there s hereby, and sha be, eved a ta of 2 per centum (2 ) of the gross
recepts of the reta sae thereof whch sha be pad at the tme and n the
manner herenafter provded.
Sec. 6.

(e) nd for the purpose of coectng and remttng to the State the ta
mposed by ths act, the vendor coectng such ta sha be, and s hereby
decared to be, the agent of the State, and the faure of any such vendor to
remt or pay such ta to the State sha consttute embezzement and sha be
punshabe, as provded by aw for the embezzement of pubc funds.

Sec. 8. The ta eved hereunder sha be pad by the consumer or user to the
vendor, and t sha be the duty of each and every vendor n ths State to
coect from the consumer or user, the fu amount of the ta mposed by ths
act
vendor, as defned n ths act, who wfuy or ntentonay fas, negects
or refuses to coect the fu amount of the ta mposed by ths act, or wfuy or
ntentonay fas, negects or refuses to compy wth the provsons of ths act,
or remts or rebates to a consumer or user, ether drecty or ndrecty, and by
whatsoever means, a or any part of the ta eved by ths act, or makes n
any form of advertsng, verbay or otherwse, any statement whch eads one
to nfer that he s absorbng the ta , or s payng the ta for the consumer or
user by an ad|ustment of prces or by seng at a prce ncudng the ta , or n
any manner whatsoever, sha be deemed guty of a msdemeanor, and
fned or be mprsoned .

Sec. 11. It s hereby decared to be the ntent of ths act to provde that con-
sumers or users payng the ta mposed under ths act sha not be requred to
pay more than the rate of ta eved hereunder .
Secton 23(c) of the Revenue ct of 1936 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad
or accrued wthn the ta abe year, wth e ceptons not here matera.
rtce 23(c)- of Reguatons 94, reatng to the Revenue ct of
1936, provdes that n genera ta es are deductbe ony by the person
upon whom they are mposed.
The State aw shows ceary that t was the egsatve ntent to
mpose the u ury or reta saes ta here n queston upon the con-
sumer and to make the retaer or vendor the coector on behaf of
the State. Snce the ta s mposed upon the consumer, he may de-
duct 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. I-6-8529
I. T. 3047
R NU CT O 1936.
Deductbty of Mchgan prvege ta for edera ncome ta
purposes.
The M Company states that ts books are kept on the bass of s
fsca year ended uy 31, and nqures reatve to the deductbty of
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67
523(c), rt. 23(c)-.
the Mchgan prvege ta n ts edera ncome ta return for the
fsca year ended uy 31, 1936.
Mason s 1935 Suppement to the Comped Laws of Mchgan, vo-
ume 5, reads n part as foows:
Seo. 1014O. nnua prvege fee. Sec. 4. very corporaton organzed or
dong busness under the aws of ths State sha, at the tme of fng
Its annua report wth the secretary of state of ths State for the
prvege of e ercsng ts franchse and of transactng ts busness wthn
ths State, pay to the secretary of state an annua fee of 2 ms upon each
doar of ts pad-up capta and surpus . ( s m. 1033 . Sess.,
ct 13, Imd. ft an. 2, 1934.)
Sec. 10135-82. proft corporatons contents. report accompaned
by a fng fee of 2 and the amount of the annua prvege fee as provded by
aw sha be fed wth the secretary of state by a proft corporatons .
The report sha be fed n dupcate n the month of uy or ugust of the
year 1932 and of each year thereafter. It sha contan the foowng:

(m) compete and detaed statement of the assets and outstandng a-
btes of the corporaton as shown by the books of such corporaton, at the
cose of busness on the 31st day of December or upon the date of the cose of
ts frst fsca year, ne t precedng whch sha be the same baance sheet state-
ment furnshed to sharehoders, as provded by aw: Provded, That every
corporaton organzed on or after anuary 1 and pror to ugust 31 of any one
year sha fe a report showng the condton of ts busness on the
date of ts ncorporaton or admttance, wth a fng fee of 2 and a prvege
fee of 10.
The aw does not more specfcay state the year for whch the
prvege ta s mposed but the summary of a decson of the Su-
preme Court of Mchgan n connecton wth a pror act s as foows:
Under Pubc cts 1923, No. 233, f ng the corporate prvege ta and re-
qurng the uy or ugust report of corporatons to show the amount of ther
capta stock and surpus on December 31, or on the date of ther fsca year
ne t precedng the fng of ther report, the ta year begns when a corporaton
may be compeed to re ts report and pay the fee or suffer the statutory
penaty, and not whenever payment s made. (In re ohnston-Netcton Co.
(1923), 225 Mch., S3, 195 N. W., 800.)
Upon rehearng, the Supreme Court of Mchgan, n affrmng ts
former decson, sad:
see no reason for changng our opnon. (225 Mch., 53, 105 N. W.,
00.) We there hed that the fees requred to be pad by proft corporatons
for the prvege of transactng ther busness wthn ths State are payabe
yeary n advance, that the yeary perod begns on the 31st day of u-
gust . (226 Mch., 40, 190 N. W., 940.)
In ts orgna decson the court ponted out that payment of the
ta coud not be demanded by the State and was not enforceabe be-
fore ugust 31. In referrng to that date, the court stated that Up
to that tme the corporaton may e ercse ts franchse wthout pay-
ng the ta and wthout nterference on the part of the State. The
attorney genera for the State of Mchgan hed, foowng the de-
cson of the supreme court of that State, that corporatons dssoved
Pror to ugust 31 are not sub|ect to the ta for the ensung year.
rom the foregong, t s apparent that the prvege fee or ta s
mposed by the State of Mchgan upon a proft corporaton for the
prvege of e ercsng ts corporate franchse and for transactng ts
busness wthn the State durng the perod ugust 31 to ugust 30.
The M Company does not state whether t keeps ts books of ac-
count and fes ts returns on the cash recepts and dsbursements
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23 (c), rt. 23(c)- .
68
bass or on the accrua bass. If t reports on the cash bass, the
amount of the prvege ta actuay pad by t durng ts fsca year
ugust 1, 1935, to uy 31, 1936, s deductbe n ts edera ncome
ta return for that year. If t keeps ts books on the accrua bass,
the prvege ta for the year ugust 31, 1935, to ugust 30, 1936,
accrued for edera ncome ta purposes on ugust 31, 1935, and s
an aowabe deducton n ts edera ncome ta return for the
fsca year ended uy 31, 1936.
rtce 23 (c)-: Ta es. I-13-8610
G. C. M. 17920
R NU CT O 1936.
The e cse ta es mposed upon empoyers by secton 804, Tte
III, and secton 901, Tte I , of the Soca Securty ct are
deductbe annuay n computng net ncome for edera ncome
tu purposes and may not be captazed at the opton of the
ta payer.
dvce s requested whether the e cse ta es mposed upon em-
poyers by secton 804, Tte III, and secton 901, Tte I , of the
Soca Securty ct may be captazed as part of the cost of a
budng rather than taken as a deducton n computng net ncome.
Secton 23(c)- of the Revenue ct of 1936 provdes that n
computng net ncome there sha be aowed as a deducton ta es
pad or accrued wthn the ta abe year wth certan e ceptons not
here matera. rtce 23(c)-2 of Reguatons 94, promugated under
the Revenue ct of 1936, provdes n part that e cse ta es pad to
an nterna revenue coector are deductbe as ta es mposed by the
authorty of the Unted States, provded they are not added to and
made a part of the e penses of the busness or the cost of artces
of merchandse wth respect to whch they are pad, n whch case
they are not deductbe separatey as ta es. That provson of the
reguatons contempates that under certan crcumstances, or n ac-
cordance wth the method of accountng empoyed, the ta payer may
add the amount of ta es pad n connecton wth the manufacture or
sae of merchandse to the cost of the merchandse rather than deduct
t separatey as a ta . The resut for ncome ta purposes s the
same, but, as ndcated n that artce, f the ta payer reduces net
ncome by addng the ta to the cost of the artces of merchandse
sod, he may not agan reduce net ncome by a deducton for ta es
pad. Ths e cepton n the reguatons s restrcted to ta es pad
n connecton wth merchandse and may not be e tended beyond ts
e press provson.
The genera scheme of ncome ta aton s that a ta payer sha
compute hs ncome annuay and certan specfed deductons are
aowed n determnng the ta abe net ncome. The takng of the
deductons s not optona wth the ta payer, that s, he may not
take a deducton n any year e cept the year n whch the partcuar
tem s pad or accrued, dependng on the method of accountng
empoyed, and he may not captaze such tems as ta es and nterest
e cept to the e tent that they represent carryng charges on unm-
proved and unproductve rea property, as provded n secton
113(b) 1( ) of the Revenue ct of 1936. Whether a ta payer may
captaze ta es n the absence of a specfc provson of aw has been
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23(c), rt. 23(o)-.
the sub|ect of decsons by the ureau, the oard of Ta ppeas,
and the courts. In Centra Rea state Co. v. Commssoner (17
. T. ., 776), whch arose under the Revenue ct of 1924, the
oard n denyng the ta payer the rght to add ta es and nterest
to the cost of rea estate n determnng gan or oss from the sae
thereof n 1925 stated n part as foows:
s far as we have been abe to determne, the Treasury Department,
unt the enactment of the 1024 ct, had consstenty hed that ta es and
nterest were not capta tems. (See I. T. 1188, C. . 1-1, 28 L T. 1338,
C . 1-1, 30 L T. 121S, C. . 1-1, 346 L T. 1517, C. . 1-2, 21 and L T. 1807,
C . II-2, 24.)
In that decson t s brought out that athough artce 1561 of
Reguatons 65, promugated under the Revenue ct. of 1924, per-
mtted a ta payer to captaze carryng charges such as ta es and
nterest the artce was not a correct nterpretaton of aw. In ths
connecton t shoud be noted that not unt the enactment, of the
Revenue ct of 1932 was there any provson n the ncome ta aw
whch permtted ta es to be captazed and such captazaton s
mted to ta es on unmproved and unproductve rea property.
(See secton 113(b) 1( ) of the Revenue ct of 1932, whch was
contnued n the Revenue cts of 1934 and 1936.) In Westerfed v.
Rafferty (4 ed. (2d), 590, T. D. 3667, C. . I -1, 96), arsng under
the Revenue ct of 1921, the court hed that ta es, theoretcay at
east, are pad for benefts receved and that ta es pad on property
bought can not be consdered a part of the capta nvestment n
determnng whether there was ta abe gan from the sae of rea
estate. ke concuson was reached wth respect to nterest pad
on a mortgage for the use of money. The court ponted out that
ta es represent revenue coected from the peope for ob|ects n
whch thev are nterested the contrbutons of the peope for thngs
usefu ana conducve to ther wefare. In raser v. Commssoner
(25 ed. (2d), 653), the court ponted out that annua ta es are
charges necessary to the en|oyment of property and are not a part
of the cost thereof. urthermore, n Centra Rea state Co. v.
Commssoner (47 ed. (2d), 1036, Ct. D. 362, C. . -2, 219), t
was agan hed under the Revenue cts of 1924 and 1926 that ta es
may not be added to the cost of property. The court stated n part
as foows:
the Revenue cts have specfcay provded for the deducton
of ta es and nterest from gross ncome annuay whe deang generay wth
other tems of e pense. If Congress had ntended to gve the ta payer the
prvege of addng ta es and Interest to cost, t woud have been very easy to
have sad so. s the ct does not so provde, the concuson s nescapabe
that Congress dd not so Intend.
though ta es pad on property are one of the factors whch may
be consdered n f ng the prce at whch the property s sod, the
ta es when propery defned do not represent anythng pad nto the
capta nvestment. ( . M. O. Lumber Co. v. Unted States, 59 ed.
(2d), 007.) The ta payer has no rght of eecton to treat tems
whch are proper e pense tems as capta e pendtures. (The
Rethen . Donneey Corporaton v. Commssoner, 26 . T. .. 107.)
The ta es mposed upon empoyers bv secton 804, Tte III, and
secton 901, Tte I , of the Soca Securty ct are e cse ta es
mposed wth respect to havng n Uvduas n the empoy of the ta -
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23(c), rt. 23(c)- .
70
payer. They are an nvountary contrbuton for pubc purposes,
a deducton for whch s aowed under the genera provsons of
secton 23(c) 1 of the Revenue ct of 1936. Inasmuch as Congress
has not seen ft, by specfc provson of aw to permt the e cse ta es
mposed by the Soca Securty ct to be captazed, such ta es
must be taken as a deducton annuay n computng net ncome
rather than captazed at the opton of the ta payer.
Mobrso Shafroth,
Chef Counse, ureau of Interna Revenue.
rtce 23(c)-: Ta es. I-17-8661
I. T. 3068
R NU CT O 1936.
Deductbty for edera ncome ta purposes of the e cess-
profts ta mposed by secton 106 of the Revenue ct of 1935, as
amended.
dvce s requested whether the e cess profts ta for the caendar
year 1936 mposed by secton 106 of the Revenue ct of 1935, as
amended by secton 402 of the Revenue ct of 1936, s deductbe for
edera ncome ta purposes.
It s hed that n computng net ncome for the caendar year 1936
for edera ncome ta purposes a corporaton whch keeps ts ac-
counts on the accrua bass may deduct the e cess-profts ta mposed
by secton 106 of the Revenue ct of 1935, as amended. corpora-
ton whch keeps ts accounts on the cash recepts and dsbursements
bass may deduct such ta for edera ncome ta purposes for the
ta abe year n whch the ta s pad. The e cess-profts ta m-
posed for the caendar year 1936 s not deductbe n computng net
ncome for e cess-profts ta purposes.
(See secton 23(c) of the Revenue ct of 1936 and secton 106 of
the Revenue ct of 1935, as amended by secton 402 of the Revenue
ct of 1936.)
rtce 23 (c)-: Ta es. I-18-8677
G. C. M. 18245
R NU CT O 1936.
Stock transfer ta es pad for a ta payer by hs broker on the
sae or transfer of stock owned by the ta payer, and for whch
the broker s rembursed, are deductbe by the ta payer as ta es
pad and may not be added to the cost of the stock or used to
reduce the seng prce thereof n determnng gan or oss.
n opnon s requested whether, for edera ncome ta purposes,
stamp ta es on transfers of stock pad on behaf of a ta payer by hs
broker, and for whch rembursement was made to the broker, are
deductbe as ta es by the vendor of the securtes.
Secton 23(c) of the Revenue ct of 1936 provdes that n com-
putng net ncome there sha be aowed as a deducton ta es pad
or accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)-2 of Reguatons 94 states n part that
stamp ta es pad to nterna revenue coectors are deductbe as
ta es mposed by the authorty of the Unted States, provded they
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71
23(o), rt. 23(o)-.
are not added to and made a part of the e penses of the busness or
the cost of the artces of merchandse wth, respect to whch they
are pad, n whch case they may not be separatey deducted.
The stamp ta es n the nstant case were pad durng the year
1936 n accordance wth the provsons of secton 800 of the Revenue
ct of 1926. The ta mposed by that secton s n respect of the
severa bonds, debentures, or certfcates of stock and of ndebtedness
and other documents mentoned and descrbed n Schedue of
Tte TII of that ct, and s coected by means of stamps. Sched-
ue -2 reates to orgna ssues of stock and Schedue -3 reates
to saes and transfers of stock such as are made n the ordnary case
of vendor and vendee or by a trader n securtes. The bass of the
ta n the atter schedue s the transfer of the stock ether before
or after ssuance of a certfcate, and the ta accrues at the tme of
makng the sae or agreement to se or memorandum of sae, or
devery or transfer of the ega tte to the stock. ( rtce 31, Regu-
atons 71.) Whenever adhesve stamps are used for denotng any
ta mposed of the type here under consderaton, the person usng
or aff ng the stamps s requred to wrte or stamp or cause to be
wrtten or stamped thereon hs ntas and the date upon whch the
stamp s attached. (Secton 804, Revenue ct of 1926.) Wth re-
spect to an agreement to se, stamps are requred to be aff ed to the
document and canceed by the seer or the transferor. ( rtce
133, Reguatons 71.) Tre aff ng and canceng of stamps by
cearng houses are hed to be the acts of the person makng the sae
or agreement to se, or memorandum of sae, or devery or transfer
of the stock. ( rtce 39( ), Reguatons 71.) The ta s not m-
posed drecty on the seer of stock but s a ta mposed upon the
transfer of stock, athough the reguatons contempate that the seer
of stock sha pay the ta . (See generay Raybestos-Manhattan,
Inc., v. Unted States, 296 U. S., 60, Ct. D. 1039, C. . I -2, 400
(1935).) ny party to a ta abe transacton s, however, respons-
be for aff ng and canceng stamps n the requred amount. ( rt-
ce 136, Reguatons 71.) The ureau has hed that for edera
ncome ta purposes the stamp ta es mposed under the Revenue
ct of 1926, as amended, consttute aowabe deductons from the
gross ncome of the purchaser of the stamps ony to the e tent of the
tota amount of stamps actuay aff ed to documents whch are sub-
|ect to ta and canceed durng the ta abe year. (Mm. 3988, C. .
I-2, 25 (1932).)
The queston nvoved n the nstant case s whether the amount
pad for the stamps whch were purchased and aff ed n behaf of
the ta payer by hs broker n connecton wth the sae or transfer
of stock owned by the ta payer, and for whch the broker was re-
mbursed, s deductbe by the ta payer separatey as a ta , or
whether such amount may be offset aganst the seng prce or added
to the cost of the stock sod. The queston arses by reason of the
provsons of secton 117(d) of the Revenue ct of 1936, whch pro-
vdes n part as foows:
(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.
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23(c), rt. 23(c)- .
72
To ustrate, f the stock cost 10,000 and s sod for 8,000, the
oss s 2,000, f the transfer ta s deductbe as a ta . If, however,
the transfer ta s added to the cost of the stock or subtracted from
the seng prce thereof, the effect s to ncrease the actua oss but
decrease the deductbe oss by the amount of transfer ta . In
other words the cost, of the stamps aff ed woud be absorbed n the
2,000 deductbe oss, the tota oss aowabe n vew of the prov-
sons of secton 117(d), supra, where there are no gans from such
saes, and the ta payer woud ose the beneft of a deducton for
such stamps as ta es.
The genera scheme of the ncome ta aw s that a ta payer sha
compute hs ncome annuay, and certan specfed deductons are
aowed n determnng the ta abe net ncome. The takng of the
deductons s not optona wth the ta payer, that s, he may not
take a deducton n any year e cept the year n whch the amount
of the deducton s pad or accrued, dependng on the method of
accountng empoyed and he may not captaze such tems as ta es
and nterest e cept to the e tent that they represent carryng charges
on unmproved and unproductve rea property as provded n
secton 113(b) 1 ( ) of the Revenue ct of 1930.
The queston whether the cost of revenue stamps n connecton
wth stock transfers s deductbe as ta es was consdered by the
oard of Ta ppeas n The org eck Co. v. Commssoner
(24 . T. ., 995). The oard aowed the deducton for ta es
pad on the orgna ssue of stock. Wth respect to other stamp
ta es pad, whch were evdenty upon transfers of stock by the
sharehoders, the oard commented as foows:
The amount of 12 e pended by the pettoner for revenue stamps for ms-
ceaneous stock transfers apparenty was e pended In connecton wth the
sae or transfer of stock by pettoner s stockhoders. t any rate the record
does not show that the stamps were used n connecton wth saes or trans-
fers by the pettoner. Under the above quoted provsons of the 1921 ct,
such stockhoders were abe for the payment of the ta and not the pet-
toner. Snce the abty for the payment of the ta was that of the stock-
hoders, the ta s not deductbe by the pettoner. ( . senberg, 11 . T. .,
574.)
The queston whether stamps purchased and attached to stock
upon ts ssuance by a corporaton shoud be captazed as organza-
ton e penses or deducted as ta es was consdered by the oard of
Ta ppeas n Stres Corporaton . Commssoner (28 . T. .,
1). In hodng that the amounts e pended were deductbe as ta es,
the oard stated n part as foows:
Under our decsons amounts pad for revenue stamps n connec-
ton wth the ssue of capta stock are deductbe as ta es pad (Unted
States Payng Card Co., 15 15. T. ., 075 org eck Co., 24 . T. ., 995),
and we bod that pettoner s entted to the deducton sought.
gan the oard hed n Commerca Investment Trust Corpora-
ton v. Commssoner (28 . T. ., 143) that the amount e pended
for stamps n connecton wth the ssuance of stock shoud be de-
ducted as ta es, statng as foows:
The tem of 23.10 was ncurred for revenue stamps ncdent to the ssu-
ance of preferred stock n 1925 and represents a ta , deductbe from gross
ncome of that year. (Unted States Payng Card Co., 15 . T. ., 975
org eck Co., 24 . T. ., 095.)
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73
123(c), rt. 23(0)-.
In connecton wth the genera queston whether ta es may be
captazed, t was stated n Centra Rea state Co. v. Commssoner
(47 ed. (2d), 1030) that:
the Revenue cts have specfcay provded for the deducton
of ta es and nterest from gross ncome annuay whe deang generay
wth other tems of e pense. If Congress had ntended to gve the ta payer
the prvege of addng ta es and nterest to cost, It woud have been
very easy to have sad so. s the ct does not so provde, the concuson s
nescapabe that Congress dd not so ntend.
To the same effect are Wester-fed v. Rafferty (4 ed. (2d), 590)
and raser v. Commssoner (25 ed. (2d), 653).
The foregong decsons estabsh the genera rue that ta es,
ncudng stamp ta es pad upon the ssuance or transfer of capta
stock, are deductbe as ta es and may not be captazed. It foows
that such ta es aso may not be used as an offset aganst the seng
prce of the stock. Ths concuson s not n confct wth that part
of artce 23(c)-2 of Reguatons 94 whch provdes that stamp ta es
pad to nterna revenue coectors are deductbe as ta es provded
they are not added to and made a part of e penses of the busness
or the cost of artces of merchandse wth respect to whch they are
pad. That artce contempates that a ta payer sha not bo
aowed a doube deducton for the same tem. Where a ta payer s
engaged n the sae of merchandse, t s mmatera, for the purpose
of computng net ncome, whether he adds the ta mposed upon
the merchandse to the cost of the merchandse or whether he deducts
t separatey as a ta , or whether n eu of ether he deducts t as a
busness e pense. The resut ordnary s the same. The prmary
purpose of that provson n the reguatons s to set forth a genera
rue wth respect to ta es whch are deducted as an e pense or added
to the cost of merchandse, dependng upon the method of accountng
empoyed by the ta payer. In those cases the ta es may not aso
be deducted as such. The reguatons do not gve the ta payer an
opton to treat ta es n any manner he desres, for n some nstances
the resut mght be n confct wth other provsons of the Revenue
cts. n e ampe of ths s brought out m the nstant case, where,
under the provsons of secton 117(d) of the Revenue ct of 1936, a
ta payer s osses n connecton wth the sae of capta assets are
aowed ony to the e tent of 2,000 pus the gans from such saes.
In the nstant case the ta payer sod stock through a broker, who
purchased and aff ed stamps to the stock, or memorandum of sae,
as requred by the aw and reguatons. The reatonshp of the
ta payer and hs broker was that of prncpa and agent. The act
of the agent n purchasng and aff ng the stamps to stock owned
and sod by the ta payer was n effect the act of the prncpa. It
s not necessary that the ta payer hmsef actuay purchase the
stamps and aff them to hs stock n order to be entted to the de-
ducton for such ta es under secton 23(c) of the Revenue ct of
1036. The purchase and aff ng of the stamps by hs broker were
|ust as much the acts of the ta payer as the seng of hs stock by
the broker. Inasmuch as the ta payer rembursed hs broker for
the purchase prce of the stamps, the ta es represented thereby must
be consdered as pad by the ta payer, and, therefore, deductbe
by hm.
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23 (c), rt. 23(c)- .
74
In vew of the foregong, ths offce s of the opnon that the trans-
fer ta es pad n behaf of the ta payer by hs broker may not be
added to the cost of the stock purchased or used as an offset aganst
the seng prce of such stock, but are aowabe as a deducton for
ta es pad under the provsons of secton 23(c) of the Revenue ct
of 1936.
Morrson Safrot,
Chef Counse, ureau of Interna Revenue.
rtce 23 (c)-: Ta es. I-18-8678
Mm. 4587
Deductons for sver buon ta n edera ncome ta returns.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, pr 20, 1937.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Reference s made to I. T. 3049 (page 139, ths uetn), rea-
tve to the deductbty for edera ncome ta purposes of the ta
on transfers of nterests n sver buon mposed by subdvson 10
of Schedue , Tte III, Revenue ct of 1926, whch subdvson
was added to Schedue of Tte III by secton 8 of the Sver
Purchase ct of 1934 (48 Stat, 1178).
In I. T. 2899 (C. . I -1, 67 (1935) ), t was hed that the ta
on transfers of nterests n sver buon mposed by the Sver Pur-
chase ct of 1934 consttutes a proper deducton for edera ncome
ta purposes. I. T. 2899 was revoked by I. T. 3049, supra. Ths
revocaton was ssued shorty after the decson of the Unted States
Supreme Court n Unted States v. Percy . Iudson, decded an-
uary 11, 1937 (57 S. Ct., 309, Ct. D. 1196, page 353, ths uetn),
wheren the Court stated that the ta n queston was a speca n-
come ta measured by the proft derved from transfers of nterests
n sver buon.
Upon further consderaton t s concuded that the revocaton
of I. T. 2899 was erroneous, on the ground that the udson case s
not controng as to the deductbty of the sver ta for edera
ncome ta purposes. Whe secton 23(c) of the Revenue cts of
1934 and 1936 e cepts edera ncome ta es from deductbe
tems, t does not foow from the fact that the sver ta was
caed an ncome ta n the udson case that such ta comes wthn
the e cepton. The probem nvoves a more fundamenta queston.
The Court denomnated the ta a speca ncome ta . The ques-
ton of whether a speca ncome ta . such as the sver ta , comes
wthn the e cepton n secton 23(c) of the Revenue cts of
1934 and 1936 was nether rased nor dscussed by the Court n
the udson case.
The Sver Purchase ct added a new subdvson to Schedue
of Tte III of the Revenue ct of 1926, whch tte reates to
stamp ta es. The stamp ta es mposed under that tte are deduct-
be for edera ncome ta purposes. (See artce 23(c)-2 of Regu-
atons 86 and artce 23(c)-2 of Reguatons 94.) In form and ad-
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75
523(c), rt. 23(o)-.
mnstraton the ta on sver profts s ke the stamp ta es n that
the ta s coected through the medum of stamps. Ths crcum-
stance s persuasve that n settng up the sver ta n that way the
Congress ntended that t shoud be deductbe the same as the nu-
merous stamp ta es mposed under that tte. To refuse to permt
the deducton of the sver ta from gross ncome woud make t
possbe to have a stuaton, n the case of a ta payer n the hgher
surta brackets who derves a or a arge part of hs ncome from
deangs n sver, n whch the ta assessed aganst the ta payer
woud be n e cess of hs tota ncome, a resut evdenty not n-
tended by the Congress. Notwthstandng the deducton of the s-
ver ta , the resutng ncome ta abty n such crcumstances s
consderaby hgher than under ordnary crcumstances, whch s n
accord wth the genera ntent of the Congress n enactng the ta
on profts from deangs n sver. It s the opnon of ths offce
that the words edera ncome ta es, as used n secton 23 (c) 1
of the Revenue cts of 1934 and 1936, must, n genera, be taken to
ncude ony ncome ta es of the same genera character as those
mposed by Tte I of the Revenue cts of 1934 and 1936. That the
sver ta s unke the ncome ta mposed by Tte I of those cts
can scarcey be dsputed. The Supreme Court caed t a speca
ncome ta . Snce the sver ta s not of the same genera charac-
ter as the edera ncome ta es e cepted as a deducton by sec-
ton 23(c) of the Revenue cts of 1934 and 1936, t does not fa
wthn that e cepton.
In vew of the foregong, I. T. 3049 s revoked, and the ureau
w adhere to the rung n I. T. 2899 that the ta on transfers of
nterests n sver buon mposed by Tte III, Schedue , subd-
vson 10, of the Revenue ct of 1926, as added by secton 8 of the
Sver Purchase ct of 1934, s deductbe for edera ncome ta
purposes.
Correspondence regardng ths mmeograph shoud refer to the
number thereof and to the symbos IT: CTR.
Guy T. everng,
C ommssoner.
otcf. 23(c)-: Ta es. I-21-8714
I. T. 3075
R NU CTS O 1934 ND 1936.
or edera Income ta purposes the motor vehce fue ta Im-
posed by the State of Caforna s deductbe as a ta by the
dstrbutor and not by the consumer.
dvce s requested whether the motor -chce fue ta mposed by
the State of Caforna s deductbe by the dstrbutor or consumer
for edera ncome ta purposes.
The ta n queston s mposed under chapter 267, Statutes of Ca
forna, 1923, as amended, the pertnent amendng statutes n so far
as the present ssue s concerned beng chapter 795, Statutes of Ca-
forna, 1927, chapter 631, Statutes of Caforna, 1933, and chapter
600, Statutes of Caforna, 1935.
In G. C. M. 7630 (C. . I -2, 107 (1930)) t was hed that the
Caforna motor vehce fue ta s deductbe by the dstrbutor.
Numerous changes have been made n the Caforna motor vehce
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23(c). rt. 23(c)- .
76
fue ta aw snce the promugaton of G. C. M. 7630, supra, n whch
s cted a decson of the Supreme Court of Caforna Peope v.
entura Refnng Co., 268 Pac, 347), statng that The cear ntent
of the aw was to evy an e cse or occupaton ta upon dstrbutors
of motor vehce fue . None of the changes, however,
ndcates an ntent on the part of the Caforna Legsature to m-
pose the ta upon the use or consumpton of motor vehce fue rather
than upon ts dstrbuton. The present aw states that cense
ta s hereby mposed for the prvege of dstrbutng any
motor vehce fue, whereas the former aw stated that very ds-
trbutor sha pay a cense ta of
for eac gaon of motor vehce fue sod and devered
or dstrbuted by hm . The ta m-
posed by the present aw s ceary eved upon the dstrbutor and
not upon the consumer. (See generay I. T. 2534, C. . I -1, 107
(1930) G. C. M. 15101, C. . I -2 65 (1935).)
In vew of the foregong, t s hed that the Caforna motor
vehce fue ta s not deductbe by the consumer but s deductbe
as a ta by the dstrbutor for edera ncome ta purposes. If,
however, the ta s added to or made a part of the busness e pense
of the dstrbutor, or s otherwse used to reduce hs net ncome, t s
not deductbe by hm separatey as a ta .
rtce 23(c)-1: Ta es.
R NU CT O 193C.
Contrbutons to State unempoyment nsurance funds. (See Mn.
4595, page 63.)
rtce 23(c)-1: Ta es. I-22-8731
I. T. 3079
R U CT OP 1936.
Deductbty for edera ncome ta purposes of the ta ou
acohoc beverages mposed by the State of Now York.
dvce s requested whether the ta on acohoc beverages mposed
by the State of New York s deductbe for edera ncome ta
purposes. The ta n queston s mposed under artce 18 of the
State ta aw (Ta es on acohoc beverages, book 59, Mc nney s
Consodated Laws of New York, nnotated), orgnay Laws of
1933, chapter 142, secton 1, effectve pr 6, 1933, as added to and
amended through 1936.
Under the provsons of the aw, t s cear that the ta on acohoc
beverages eved by the State of New York s mposed on the ds-
trbutor and he s abe for the payment thereof. ccordngy, the
ta s deductbe, for edera ncome ta purposes, as a ta ony by
the dstrbutor by whom t s requred to be pad and to whom t s
not refunded. (Secton 23(c), Revenue ct of 1936.) owever, the
ta may not be deducted separatey as a ta f t has been ncuded as
a part of the dstrbutor s busness e penses or otherwse used to
reduce hs net ncome. To the consumer, the amount of the ta s
merey addtona cost of the artce purchased.
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77
523(c), rt. 23(c)-.
rtce 23(c)-1: Ta es. I-23-8743
I. T. 3082
R NU CT O 1938.
mounts pad by empoyers nto the State unempoyment nsur-
ance fund pursuant to the aws of the State of New York are
deductbe as ta es for edera ncome ta purposes.
rung s requested reatve to the deductbty by the 11 Com-
pany of amounts pad nto the State unempoyment nsurance fund
pursuant to the aws of the State of New York. The queston s
aso presented as to the deductbty of such amounts pad by ,
an empoyer of domestc servants.
In vew of the decson of the Court of ppeas of the State of
New York n W. . . Chamberan, Inc., v. ndrews (2 . .
(d), 22, 271 N. Y., 1) and the rung of the New York State Ta
Commsson dated anuary 26, 1937, t s evdent that the State of
New York consders unempoyment nsurance contrbutons to be
ta es. It s, therefore, hed that amounts pad by empoyers nto
the State unempoyment nsurance fund pursuant to the aws of the
State of New York are deductbe under secton 23(c) of the Reve-
nue ct of 1936 as ta es for edera ncome ta purposes. Inasmuch
as the so-caed contrbutons are ta es, they are deductbe as such
under secton 23(c) of the Revenue ct of 1936, whether or not the
empoyer s engaged n trade or busness, as, for e ampe, n the case
of , an empoyer of domestc servants.
rtce 23(c)-: Ta es. I-24-8756
I. T. 3086
R NU CTS O 1032, 1934, ND 1936.
Procedure n e amnaton of edera ncome ta returns n
whch deductons have been taken for processng ta es mposed
by the grcutura d|ustment ct (48 Stat., 31).
Inqury s made wth respect to the procedure to be foowed n
the e amnaton of edera ncome ta returns n whch deductons
have been taken for processng ta es.
In Unted States v. uter et a., recevers of oomc Ms Corpo-
raton (297 U. S., 1, Ct. D. 1070, C. . -1, 421 (1936)), decded
wuary 6, 1936, the ta es mposed by the grcutura d|ustment
ct, approved May 12, 1933 (48 Stat., 31), on varous agrcutura
products and other commodtes, generay known as processng
ta es, compensatng ta es, and foor stocks ta es, were decared
unconsttutona. The practce of the ureau has been that n the
e amnaton of edera ncome ta returns n whch deductons were
camed for such ta es hed to be unconsttutona, where the ta es
have not been pad to the coector of nterna revenue, such deduc-
tons have been dsaowed, whe n cases where such ta es have been
Pad to the coector, the deductons taken n respect thereof have not
been questoned. Such practce w be contnued e cept for the
foowng:
(a) Regardess of whether the ta es have been pad to the co-
ector, the entre amount of the seng prce receved from the pur-
:hasers for the commodtes n respect of whch the ta es were m-
posed, ncudng any addton to the seng prce as the resut of
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523(c), rt. 23(c)- .
78
such ta es, must be ncuded n computng gross ncome, uness
durng the ta abe year the ta payer rebated, or was under a ega
contractua obgaton to rebate, to the purchasers the addton to
the seng prce on account of such ta es.
(b) If n any case the ta es have been added to or made a part of
the e penses of the busness, or the cost of the commodtes wth
respect to whch they were mposed, they are not deductbe sep-
aratey from gross ncome as ta es pad even though pad to the
coector.
(c) If the ta es have been treated as a part of the cost of com-
modtes n respect of whch they were mposed, the proper propor-
ton of such ta es must be ncuded n computng nventores on
hand at the cose of the ta abe year.
rtce 23 (c)-: Ta es. I-25-S769
I. T. 3090
R NU CTS O 1932, 1934, ND 1936.
Treatment for edera ncome ta purposes of amounts pad or
payabe by vendors to vendees as rembursements for processng
ta es.
In connecton wth I. T. 3086 (page 77, ths uetn), reatng
to the procedure to be foowed n the e amnaton of edera ncome
ta returns n whch deductons have been taken for processng ta es,
the queston s presented reatve to the treatment, for edera
ncome ta purposes, by vendors keepng ther books and renderng
ther returns on the accrua bass of amounts pad (or whch the
vendor was under a ega contractua obgaton to pay) to vendees
as rembursement for processng ta es, whch n computng gross
ncome were added to seng prces charged the vendees n 1935 and
pror ta abe years for commodtes wth respect to whch the proc-
essng ta es were mposed.
The foowng practce w be observed by the ureau:
(a) Cases n whch processng ta es have not been pad to the coector
and n whch the deductons n respect thereof are to be dsaowed as pro-
vded n I. T. 308C, supra.
(1) If at the cose of the ta abe year the vendor was under a
ega contractua obgaton to remburse the vendee for the process-
ng ta n the event the vendor was fnay reeved from payng such
ta to the coector, or upon the happenng of some other event, the
return of the vendor w be ad|usted by emnatng from gross saes
the amount of the rembursement for whch the vendor was so
obgated.
(2) If at the cose of the ta abe year the vendor was not under
a ega contractua obgaton to remburse the vendee for the proc-
essng ta as n (1), no part of the amount thereof w be emnated
from gross saes and a deducton for the rembursement w be
aowed to the vendor ony n hs return for the year n whch the
rembursement s made to the vendee.
( ) Cases n whch the processng ta es hare been pad to the coector.
(1) If at the cose of the ta abe year the vendor was under a
ega contractua obgaton to remburse the vendee for the process-
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79
23(k), rt. 23(k)-.
ng ta n the event the vendor receves a refund thereof, or upon
the happenng of some other event, no reducton w be made of
gross saes wth respect to such ta . In such cases, the amount of
the rembursement whch the vendor becomes egay obgated to
pay the vendee w be aowed as a deducton n the vendor s return
for the ta abe year n whch the event occurs whch f es such
obgaton.
(2) If at the cose of the ta abe year the vendor was under a
ega contractua obgaton to remburse the vendee for the process-
ng ta ony n the event the processng ta was decared unconsttu-
tona, no reducton w be made of gross saes wth respect to
such ta , and the amount thereof for whch the vendor became egay
obgated to remburse the vendee w be aowed as a deducton n
the vendor s return for the ta abe year 1936.
(3) If at the cose of the ta abe year the vendor was not under
a ega contractua obgaton to remburse the vendee for the process-
ng ta n the event such ta was decared unconsttutona or the
vendor receved a refund thereof, or upon the happenng of some
other event, no reducton w be made of gross saes wth respect
to such ta , and a deducton for the rembursement w be aowed
n the return of the vendor ony for the ta abe year n whch the
rembursement s made to the vendee.
S CTION 23(k). D DUCTIONS ROM GROSS
INCOM : D D TS.
rtce 23(k)-: ad debts. I-19-8692
G. C. M. 18354
R NU CT O 11)36.
Treasury Decsou 4633 (C. . -1, 118 (1038)), reatng to
debts charged oft by banks or other corporatons n obedence to
orders of edera or State supervsory authortes, s appcabe
to debts charged off by banks n accordance wth orders of e -
amners of the edera Depost Insurance Corporaton.
dvce s requested reatve to the appcabty of Treasury
Decson 4633 (C. . -1, 118 (1936)) to charge-offs of debts
ordered by edera Depost Insurance Corporaton e amners.
Treasury Decson 4633, as emboded n artce 23(k)-, Regua-
tons 94, provdes that:
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 pre-
sumed, 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
ehan e-off took pace wthn such ta abe year.
The ankng ct of 1935 (49 Stat., 684) authorzes the edera
Depost Insurance Corporaton and ts board of drectors:
(|) ghth. To make e amnatons of and to requre nformaton and reports
from banks, .
(k)(2) to appont e amners who sha have power, on behaf
of the corporaton, to e amne any nsured State nonmenber bank (e cept a
dstrct bank), any State nonmember bank makng appcaton to become an
nsured bank, and any cosed nsured bank, whenever n the |udgment of the
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2300, rt. 23(k)-.
80
board of drectors an e amnaton of the bank s necessary. Such e amners
sha have ke power to e amne, wth the wrtten consent of the Comp-
troer of the Currency, any natona bank or dstrct bank, and, wth the
wrtten consent of the oard of Governors of the edera Reserve System,
any State member bank. ach such e amner sha have power to make a
thorough e amnaton of a the affars of the bank and n dong so he sha
have power to admnster oaths and to e amne and take and preserve the
testmony of any of the offcers and agents thereof, and sha make a fu
and detaed report of the condton of the bank to the corporaton.
The edera Depost Insurance Corporaton beng an agency
of the edera Government, t s hed that ts offcers and e amners
n e ercsng ther authorty to e amne and requre nformaton
of banks pursuant to the foregong provsons of the ankng ct
come wthn the cassfcaton of edera supervsory offcers as
contempated by Treasury Decson 4633, supra. ccordngy, n
appyng that Treasury decson, charge-offs made n obedence to
orders of such offcers and e amners shoud be treated n the same
manner as smar charge-offs made at the drecton of other edera
authortes e ercsng supervson over banks or other corporatons.
Morrson Suafroth,
Chef Counse, ureau of Interna Revenue.
rtce 23(k)-: ad debts. I-2G-8782
G. C. M. 18525
R NU CTS O 19.T-, 1934, D 193G.
ppcaton of Treasury Decson 4G33 (C. I. -1, 118 (1936)),
amendng artce 191 of Reguatons 77 and artce 23(k)- of
Reguatons 86, and the ast paragraph of artce 23(k)- of Regu-
atons 94, reatng to bad debts n the case of banks or other cor-
poratons sub|ect to supervson of edera or State authortes.
n opnon s requested wth respect to the appcaton of Treasury
Decson 4633 (C. . -1, 118 (1936)), amendng the ast para-
graph of artce 191, Reguatons 77, appcabe to the Revenue ct
of 1932, and the ast paragraph of artce 23(k)-, Reguatons 86,
appcabe to the Revenue ct of 1934, to read 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 of 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
case 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.
The same provson s ncorporated n artce 23(k)-, Regua-
tons 94, reatng to the Revenue ct of 1936. The pertnent statutory
provsons are secton 23(|) of the Revenue. ct of 1932, secton 23(k)
of the Revenue ct of 1934, and secton 23 (k) of the Revenue ct
of 193G, whch provde for the aowance of
ad debts. Debts ascertaned to be worthess and charged off
wthn the ta abe year and when satsfed that a debt s recoverabe
ony n part, the Commssoner may aow such debt, n an amount not n
e cess of the part charged off wthn the ta abe year, as a deducton.
It s to be noted that the anguage of the statute reatng to par-
tay worthess debts does not requre the ta payer to cam such
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81
23(k), rt. 23(k)-.
parta worthessness as a deducton n any partcuar year. It s
smpy provded that the Commssoner may aow as a deducton
such parta wortdessness n an amount not n e cess of the part
charged off wthn the ta abe year. Treasury Decson 4633 must,
of course, be apped n the ght of such controng statutory pro-
vson. Moreover, that decson must be construed n connecton wth
the genera reguatons governng bad debts. ( rtce 191 et seq.
of Reguatons 77 and artce 23(k)- et seq. of Reguatons 86 and
94.)
Treasury Decson 4633 and reated reguatons under the Revenue
cts of 1932, 1934, and 1936 estabsh the foowng prncpes app-
cabe n bank cases for the years governed by those cts:
(a) The order of the bank e amner reatng to the charge-off
n whoe or n part of a debt owed to the bank s matera ony
as estabshng concusvey ether tota or parta worthessness of
such debt.
(6) Where tota worthessness of a debt has been so ascertaned n
any ta abe year and the debt charged off the books of the bank
n the same year, deducton on account of such ascertanment and
charge-off s aowabe ony for the ta abe year n whch such ascer-
tanment and charge-off are made. In other words, deducton for
tota worthessness so ascertaned may be taken ony n the ta abe
year n whch occur both ascertanment of tota worthessness and
the necessary charge-off.
(c) Where parta worthessness of a debt has been so ascer-
taned, such parta worthessness may be aowed as a deducton
n the year of such ascertanment, provded such parta worthess-
ness s charged off durng such year.
(d) Where parta worthessness of a debt has been so ascer-
taned but no charge-off made n the year of such ascertanment, no
deducton s aowabe n the ncome ta return of the bank for the
year of such ascertanment.
(e) Where parta worthessness of a debt has been so ascertaned
n a certan amount n one ta abe year but no charge-off made or
deducton aowed therefor n that ta abe year, and durng a sub-
sequent ta abe year the amount of such parta worthessness s
ascertaned n accordance wth Treasury Decson 4633 n a greater
amount than the amount of such parta worthessness ascertaned
durng the precedng ta abe year, such parta worthessness may
be aowed by the Commssoner n such subsequent ta abe year n
the greater amount ascertaned and charged off n such ater ta abe
year.
/) Where such parta worthessness has been so ascertaned n
a partcuar ta abe year but not charged off or aowed as a deduc-
ton for ncome ta purposes for that year, and tota worthessness
s ascertaned n accordance wth Treasury Decson 4633 n a ater
ta abe year and the necessary charge-off of such tota worthessness
s made n the ater ta abe year, deducton for such tota worth-
essness s aowabe for that year.
g) If a debt has been so ascertaned to be worthess ether n
whoe or n part n any partcuar ta abe year but has not been
aowed as a deducton or ncome ta purposes n whoe or n part
as the case may be, amounts subsequenty coected on account of such
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23(k), rt. 23(k)-.
82
debt are not requred to be ncuded n gross ncome for the ta abe
year of such recept (artce 191, Reguatons 77 artce 23(k)-,
Reguatons 86 and 94).
(h) If a debt has been so ascertaned to bo partay worthess n
a partcuar ta abe year but such parta worthessness has not been
aowed as a deducton for ncome ta purposes n such ta abe year,
and the debt s subsequenty sod, no ad|ustment of the bass of the
debt shoud be made n determnng gan or oss from such sae.
Ths rue s equay appcabe to cases where there has been ascer-
tanment of parta worthessness but no charge-off thereof, and to
cases where there have been both ascertanment of parta worth-
essness and a charge-off, provded no amount has been aowed as
a deducton for ncome ta purposes n ether stuaton.
() If a debt was so ascertaned to be totay worthess n 1932
or subsequent years, whch are governed by Treasury Decson 4633
or artce 23(k)-, Reguatons 94, but no amount has been aowed
as a deducton for ncome ta purposes for the year of such ascer-
tanment, and subsequenty the debt s sod, the bank may not deduct
any oss based upon the dfference between the orgna bass of such
debt and the sae prce. It s the opnon of ths offce that to aow
a oss based upon sae under such crcumstances n a year subse-
quent to the year of ascertanment of tota worthessness woud per-
mt by ndrecton the evason of the statutory provsons requrng
deductons based upon cams of tota worthessness of a debt to be
taken ony n the year of ascertanment of such tota wortessness
and charge-off. Ths rue s equay appcabe to cases where the
statute of mtatons on refunds for the year of ascertanment of
worthessness has run and to cases where such statutory perod has
not e pred. If, however, n any such case the debt s subsequenty
sod for an amount n e cess of the orgna bass of such debt, t s
hed that the bank s not ta abe on an amount greater than the
e cess of the proceeds of the sae over such orgna bass. ta
based upon the entre proceeds of the sae n such case woud be of
doubtfu vadty nasmuch as t woud be based n substanta part
upon an tem whch s not n reaty gan or ncome. (See Good-
rck v. dwards, 255 U. S., 527 oshand v. everng, 298 U. S.,
441.)
(/) Where, n cases governed by the Revenue cts of 1932 and
1934, a bad debt deducton based upon aeged tota worthessness
was dsaowed to a bank pror to the promugaton of Treasury
Decson 4633 under crcumstances whch woud have entted the
bank to such a deducton under the provsons of Treasury Decson
4633, and the statute has now barred a refund for the earer ta abe
perod, t s the opnon of ths offce that upon subsequent sae of
uch debt by the bank no ad|ustment shoud be made n the orgna
bass of the debt for the purpose of determnng gan or oss from
the sae.
It s beeved that some of the dffcuty n bank cases has arsen
from faure to recognze that Treasury Decson 4633 can ony
operate as a constructon or appcaton of a controng statute, and
that t must be read n the ght of the statutory provsons whch t
seeks to nterpret n the appcaton of the statute to these specfc
cases (bank cases). It can not, of course, be taken as settng out sub-
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83
23(m), rt. 23(m)-16
stantve rues of aw contrary to the pan provsons of the statute.
Read n ths ght, Treasury Decson 4633 can ony be taken as
settng up a practca rue for ascertanment of tota or parta
worthessness of debts n bank cases, and not as undertakng to gve
any effect to such ascertanment whch w contravene provsons
of the statute or reated reguatons.
The deductons for bad debts contempated by the cause aowed
as a deducton for ncome ta purposes (as used n (/), ( ), ( ),
and ( ) above) refer to deductons for bad debts whch accompshed
a reducton n ta abty and do not refer to deductons for bad
debts n cases n whch the ta payer, on account of other aowabe
deductons, had no net ncome rrespectve of the deducton for bad
debts.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
S CTION 23 (m). D DUCTIONS ROM GROSS
INCOM : D PL TION.
rtce 23(n)-16: Charges to capta and to I-25-8770
e pense n the case of o and gas wes. G. C. M. 18465
R NU CT O 1036.
Where a hodng corporaton owned a of the stock of an oper-
atng o company, and upon the qudaton of the o company
the hodng corporaton for the frst tme became an operatng
company, t s entted to e ercse the opton provded by artce
23(m)-16, Reguatons 04, wth respect to chargng ntangbe
drng costs to e pense.
dvce s requested whether the O Corporaton may eect to charge
ntangbe drng costs to e pense under the provsons of artce
23(m)-16 of Reguatons 94.
In the year 1928 there were formed two corporatons, the N O
Co., an operatng company, and the O Corporaton, a hodng cor-
poraton whch owned a of the stock of the N O Co. The oper-
atng company eected to captaze ntangbe drng costs. The
hodng corporaton made no eecton, as t was not engaged n
producng o. In the atter part of 1936 the N O Co. was qudated
and the O Corporaton, the hodng corporaton, for the frst tme
became an operatng company. The O Corporaton thereupon
eected to charge current ntangbe drng costs to e pense under
the opton provded by artce 23(m)-16 of Reguatons 94, whch
reads as foows:
Charges to capta and to e pense n the case of o and gas wes.
(o) Items chargeabe to capta or to e pense at ta payer s opton:
(1) Opton wth respect to ntangbe drng and deveopment costs n
genera. e pendtures for wages, fue, repars, haung, suppes, etc., Inc-
dent to and necessary for the drng of wes and the preparaton of wes for
the producton of o or gas, may, at the opton of the ta payer, be deducted
from gross ncome as an e pense or charged to capta account. Such e pend-
tures have for convenence been termed ntangbe drng and deveopment
osts. ampes of tems to whch ths opton appes are. a amounts pad
for abor, fue, repars, haung, and suppes, or any of them, whch are used
( ) n the drng, shootng, and ceanng of wes: ( ) n such cearng of
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23(o), rt. 23(o)-.
84
ground, dranng, road makng, surveyng, and geoogca work as are necessary
n preparaton for the drng of wes and (C) n the constructon of such
derrcks, tanks, ppe nes, and other physca structures as are necessary for
the drng of wes and the preparaton of wes for the producton of o or
gas. In genera, ths opton appes ony to e pendtures for those drng and
deveopng tems whch n themseves do not have a savage vaue. or the
purpose of ths opton abor, fue, repars, haung, suppes, etc., are not con-
sdered as havng a savage vaue, even though used n connecton wth the
nstaaton of physca property whch has a savage vaue. Drng and
deveopment costs sha not be e cepted from the opton merey because they
are ncurred under a contract provdng for the drng of a we to an agreed
depth, or depths, at an agreed prce per foot or other unt of measurement.
It s the opnon of ths offce that snce the O Corporaton s an
entty separate and dstnct from the N O Co., t s entted to e er-
cse the opton provded by artce 23(m)-16 of Reguatons 94 upon
ts becomng an operatng company. Ths rung s n accord wth
I. T. 1661 (C. . II-, 116 (1923)). In that case a new corporaton,
acqurng a the propertes and assumng a the abtes of an od
company as consderaton for ts entre outstandng capta stock,
was hed entted to e ercse the opton provded by artce 223 of
Reguatons 62 (reatng to the Revenue ct of 1921) of chargng
ntangbe drng costs to capta even though the od company had
prevousy eected to charge such costs to e pense.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
S CTION 23(o). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
rtce 23(o)-1 : Contrbutons or gfts by I-20-8703
ndvduas. L T. 3072
( so Secton 23(a), rtce 23(a)- Sec-
ton 23(o), rtce 23(o)-2 Secton 23(q),
rtce 23(q)-.)
R NU CTS O 1934 ND 103C.
Deductbty of contrbutons made to the Pubcty Commsson
of the State of Connectcut.
The amount of a contrbuton made by an ndvdua to the Pub-
cty Commsson of the State of Connectcut s deductbe for
edera ncome ta purposes as a contrbuton or gft to the State
for e cusvey pubc purposes under secton 23(o) of the Revenue
cts of 1934 and 1936, sub|ect to the mtaton mposed by that
secton.
Contrbutons made to the pubcty commsson by a corporaton
are not deductbe as such. If, however, a donaton to the comms-
son bears a drect reatonshp to the corporaton s busness and s
made wth a reasonabe e pectaton of a fnanca return commen-
surate wth the amount of the donaton, the amount thereof s de-
ductbe as an ordnary and necessary busness e pense. (See gen-
eray artce 23(o)-2, Reguatons 86, and artce 23(q)-, Regu-
atons 94.)
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85
23(q), rt. 23(q)-.
S CTION 23(q). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS
Y CORPOR TIONS.
rtce 23(q)-: Contrbutons or gfts by I-6-8530
corporatons. I. T. 3048
R NU CT O SO.
Contrbutons made by the M Company, a domestc corporaton,
to the O Corporaton, aso a domestc corporaton, the funds of
whch are used for chartabe purposes n a foregn country, are
aowabe as a deducton from gross ncome under secton 23(q)
of the Revenue ct of 193t , sub|ect to the 5 per cent of net ncome
mtaton contaned In that secton.
dvce s requested as to the deductbty for edera ncome ta
purposes of contrbutons made by the M Company, a domestc cor-
poraton, to the O Corporaton, aso a domestc corporaton, whose
funds are used for chartabe purposes n a foregn country.
Secton 23 of the Revenue ct of 1936 provdes n part as foows:
In computng net ncome there sha be aowed as deductons:

(q) Chartabe and other contrbuton by corporatons. In the case of a
corporaton, contrbutons or gfts made wthn the ta abe year to or for the
nse of a domestc corporaton, or domestc trust, or domestc communty chest,
fund, or foundaton, organzed and operated e cusvey for regous, chartabe,
scentfc, terary, or educatona purposes or the preventon of cruety to ch-
dren (but n the case of contrbutons or gfts to a trust, chest, fund, or founda-
ton, ony f such contrbutons or gfts are to be used wthn the Unted States
e cusvey for such purposes), no part of the net earnngs of whch nures to
the beneft of any prvate sharehoder or ndvdua, and no substanta part
of the actvtes of whch s carryng on propaganda, or otherwse attemptng,
to nfuence egsaton to an amount whch docs not e ceed 5 per centum of
the ta payer s net Income as computed wthout the beneft of ths subsecton.
Such contrbutons or gfts sha be aowabe as deductons ony f verfed
under rues and reguatons prescrbed by the Commssoner, w7th the approva
of the Secretary.
The parenthetca phrase contaned n secton 23(q), but n the
case of contrbutons or gfts to a trust, chest, fund, or foundaton,
ony f such contrbutons or gfts are to be used wthn the Unted
States e cusvey for such purposes, s specfc, and there s no
ndcaton that Congress ntended to ncude wthn the e ceptons
under the above quoted phrase domestc corporatons whose funds
are used e cusvey for chartabe purposes n a foregn country.
Therefore, contrbutons made by the M Company, a domestc cor-
poraton, to the O Corporaton, another domestc corporaton, whose
funds are used for chartabe purposes n a foregn country, are
aowabe as a deducton under secton 23 (q) of the Revenue ct of
1936. sub|ect to the 5 per cent of net ncome mtaton contaned n
the ct .
rtce 23(q)-: Contrbutons or gfts by corporatons.
R NU CT OP 1936.
Contrbutons to the Pubctv Commsson of the State of Con-
nectcut. (See I. T. 3072, page 84.)
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26, rt. 26-2.
86
S CTION 26. CR DITS O CORPOR TIONS.
rtce 26-2: Credt n connecton wth con- I-3-8482
tracts restrctng payment of dvdends. G. C. M. 17577
R NU CT O 1930.
The bond ndenture e ecuted by the M Corporaton and the N
ank, trustee, does not consttute a contract restrctng the pay-
ment of dvdends wthn the meanng of secton 20(c) of the
Revenue ct of 1936, as t does not restrct the payment of stock
dvdends.
dvce s requested whether, for the purpose of computng the
undstrbuted net ncome sub|ect to the surta mposed by secton 14
of the Revenue ct of 1936, a bond ndenture between the M Cor-
poraton and the N ank, trustee, dated n 1927, comes wthn the
purvew of secton 26(c) 1 of the ct, reatng to contracts restrct-
ng the payment of dvdends.
The ndenture n queston provdes n part as foows:
The company agrees that so ong aa any of the bonds are ssued and out-
standng t w not pay or decare dvdends on ts ssued and outstandng
capta stock, uness, after such dvdends are decared and pad, there sha
reman n ts treasury suffcent funds over and above a charges and ndebted-
ness of the company to enabe the company to pay a nstaments of nterest
and prncpa on the bonds hereby secured for the perod of 12 months after
the tme f ed for the payment of any such dvdend or dvdends. The ntent
hereof beng that, before the company sha dsburse any sum or sums by way
of dvdends on ts own capta stock, t sha reserve and have avaabe for
that purpose a sum suffcent to pay a nstaments of prncpa and nterest
on the bonds hereby secured, whch sha mature or become due wthn tweve
(12) months after the payment of any such dvdend or dvdends.

The bonds and coupons and the trustee s certfcate to be ndorsed upon the
bonds sha be substantay n the forms respectvey herenbefore rected, wth
approprate nsertons, omssons and varatons as may be requred. The
bonds sha be dated , 1927, sha be payabe a doars ,
1930, and doars every s months thereafter up to and ncudng ,
1939, and sha bear nterest from , 1927, at the rate of 6 per cent,
per annum, payabe semannuay n each year.
It s stated that n consderng whether a dvdend woud be de-
cared and pad on December 31, 1936, t was estmated (a) that the
corporaton s ta abe net earnngs for the year ended December 31,
1936, woud be appro matey doars ( ) that ts tota cash re-
qurements to cover prncpa and nterest nstaments due on ts
outstandng bonds durng the year 1937 w be appro matey 2.3a
doars (c) that as of December 31, 1936, the corporaton woud
have avaabe cash amountng to appro matey .G doars after
provdng for payment of a of ts outstandng charges and ndebted-
ness (e cudng accrued nterest charges on funded debt) and (d)
that as of December 31, 1936, the corporaton s current assets of
appro matey .19a doars woud e ceed current abtes (e cud-
ng accrued nterest charges on funded debt and appro matey .37a
doars n consumers securty deposts whch are not cassfed as
current abtes).
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87
26, rt. 26-2.
It s contended that for the purpose of secton 14 of the ct the
dvdend restrctons contaned n the bond ndenture quoted above
are such as to entte tho ta payer to the beneft of secton 26(c) 1
of the Revenue ct of 1936, whch secton aows a credt as foows:
(c) Contracts restrctng payment of dvdends.
(1) Prohbton on payment of dvdends. u 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.
The credt provded n secton 26(c) 1 s aowabe ony wth respect
to a wrtten contract e ecuted by a corporaton pror to May 1, 1936,
whch e pressy deas wth and prohbts or mts the payment of
dvdends n any form durng the ta abe year. ( rtce 26-2, Regu-
atons 94.) s stated n that artce, f an amount can be dstrbuted
wthn the ta abe year as a dvdend n one form (as, for e ampe,
n stock or bonds of the corporaton) wthout voatng the pro-
vsons 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) wth-
out voatng such provsons, then the corporaton s not entted
to the credt under secton 26(c) 1.
The term dvdends may ncude any dvdend dstrbuton
whether n cash, property, or stock of the corporaton, but n the
nstant case t appears that the partes to the agreement were con-
cerned ony wth dstrbutons whch woud have the effect of
dmnshng workng capta or ncreasng abtes. In other words,
t seems cear n the nstant case that the basc purpose of the dvdend
restrcton n the ndenture s to prevent any dstrbuton whch woud
depete the assets of the corporaton adversey affectng the bond-
hoders. Ths woud appy not ony to cash dvdends but aso to
dstrbutons made n property other than n the corporaton s own
capta stock. Unke dvdends n cash or other property, a stock
dvdend of the decarng corporaton takes nothng from the prop-
erty of the corporaton, and n no way depetes ts assets. ( etcher,
Cycopeda of Corporatons, secton 5362 ryan v. kn, 82 t.,
817 (De., 1912) Gbbons v. Mahon, 136 U. S., 549.) Therefore,
smch a dvdend n the nstant case woud not operate n|urousy to
the bondhoders. It s beeved, therefore, that the provsons of the
bond ndenture reatng to dvdends shoud be construed as pro-
hbtng payment of a dvdends e cept stock dvdends. Ths
nterpretaton of the ndenture s consstent wth the ntent of the
partes as evdenced n the frst quoted artce of the ndenture.
In vew of the foregong, t s the opnon of ths offce that the
bond ndenture here under consderaton does not consttute a con-
tract restrctng the payment of dvdends wthn the meanng of
secton 26(c) of the Revenue ct of 1936. ccordngy, the M
Corporaton s not entted to a credt under that secton.
Morrson Shafroth,
Chef Counse for the ureau of Interna Revenue.
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26, rt. 20-2.
88
utc|: 26-2: Credt n connecton wth con-
tracts restrctng payment of dvdends.
R NU CT O 1936.
I-7-8541
I. T. 3051
n agreement entered nto n March, 103G, between the M
Corporaton am the .Reconstructon nance Corporaton whch dd
not become bndng upon the partes thereto unt the frst ad-
vancement on a oan was made by the ender n uy, 1936, s not a
wrtten contract e ecuted pror to May 1, 1936, prohbtng the
payment of dvdends wthn the ceanng of secton 26(c) of the
Revenue ct of 1936.
dvce s requested whether, for the purpose of the surta m-
posed upon the undstrbuted profts of a corporaton by secton 14
of the Revenue ct of 193G, the M Corporaton s entted to the
dvdends credt provded by secton 26(c) 1 of that ct on account
of contracts prohbtng the payment of dvdends.
In 1935 the M Corporaton, the ta payer, made appcaton to
the Reconstructon nance Corporaton for a oan of doars. The
pertnent provsons of the appcaton are as foows:
(14) So ong as appcant sha he ndebted to R. . C, appcant w not,
wthout the pror wrtten consent of R. . C.: (a) f appcant s a corporaton,
|ont stock company, or Massachusetts trust, decare or pay any dvdend or
make any dstrbuton upon ts capta stock, or purchase or retre any of Its
capta stock, or authorze or ssue any addtona shares of stock, .

(16) Ths appcaton as hereafter amended or suppemented, together wth
a condtons mposed by and a agreements requred by or entered nto wth
or for the beneft of R. . C. n connecton wth the makng of the oan hereby
apped for and the note or notes of appcant evdencng such oan (a of
whch are ncorporated heren and made a part hereof), sha consttute a
contract between appcant and R. . C. Sad contract sha nure to the beneft
of the successors and assgns of R. . C. but sha not nure to the beneft of
the successors or assgns of appcant wthout the wrtten consent of R. . C.
Such contract sha become bndng upon the partes thereto ony when a or
any part of the oan apped for s pad to appcant by check or draft or s
uncondtonay credted to or for the account of appcant, and ony wth
respect to the amount so pad or credted. The vadty, nterpretaton, ega
effect, and performance of such contract sha be governed by the aw of the
pace of payment of tbe note.
In anuary, 1936, the board of drectors of the Reconstructon
nance Corporaton, after consderng the appcaton for a oan,
adopted a resouton whch reads n part as foows:
rst, That ths corporaton make a oan to borrower upon ts aforesad
appcaton n an amount not e ceedng doars, upon the terms of sad
appcaton, sub|ect, however, to the foowng condtons.
In accordance wth a request made by the M Corporaton n
ebruary, 1936, the condtons prescrbed n the resouton adopted
by the board of drectors of the Reconstructon nance Corporaton
n anuary, 1936, were modfed and an amended resouton was
adopted by the board of drectors of that corporaton n March, 1936,
(he terms and condtons of whch were accepted by the M Corpora-
ton. fter the terms and condtons prescrbed by the Reconstruc-
ton nance Corporaton were satsfed by the ta payer, the frst
dsbursement on the oan was made to the ta payer by that corpora-
ton n uy, 1936.
The Revenue ct of 1936 provdes n part as foows:
Sec. 14 Surta on Undstrbuted Profts.
(a) Defntons. s used n ths tte
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89
26, rt. 26-2.
(2) The term undstrbuted net ncome means the ad|usted net Income
mnus the sum of the dvdends pad credt provded n secton 27 and the credt
provded n secton 26(c), reatng to contracts restrctng dvdends.

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.
(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
dstrbuted wthn the ta ahe year as dvdends wthout voatng a provson
of a wrtten contract e ecuted by the corporaton pror to May 1, 1936, whch
provson e pressy deas nUh the payment of dvdends.
rtce 26-2 (b) of Reguatons 94, reatng to the Revenue ct of
1936, provdes n part as foows:
(b) Prohbton on payment of dvdends. The credt provded n secton
26(c) s aowabe ony wth respect to a wrtten contract e ecuted by
the corporaton pror to May 1, 1930, 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.
In Cycopeda of Law and Procedure, voume 9, pages 240 and
273, respectvey, the foowng statements appear:
contract map be defned as an agreement between competent
partes, supported by a ega consderaton, and n the form, f any, prescrbed
by aw, creatng an obgaton on the part of one or both to do or refran
from dong some awfu thng. To consttute a contract, the agreement must
create an obgaton f there s no obgaton there s no contract
at a.

The agreement must be of a nature to produce a bndng resut upon
the mutua reatons of the partes . nd the agreement must pur-
port to produce a egay bndng resut, or to put t n another form the n-
tenton of the partes must refer to ega reatons .
Under the provsons of paragraph (16) (quoted above) of the
oan appcaton fed by the M Corporaton wth the Reconstruc-
ton nance Corporaton, t s evdent that t was the ntenton of
the partes thereto that the oan appcaton and any agreement n
connecton therewth shoud not resut n a bndng contract unt
such tme as the frst dsbursement on the oan was made to the ta -
payer by the ender, whch dd not occur unt uy, 1936.
In vew of the foregong, t s hed that there was not a prohbton
on the payment of dvdends by a wrtten contract e ecuted pror to
May 1, 1936, wthn the meanng of secton 26(c) 1 of the Revenue
ct of 1936. ccordngy, the M Corporaton s not entted to the
restrcted dvdends credt provded for n that secton.
rtce 26-2: Credt n connecton wth con- I-14-8625
tracts restrctng payment of dvdends. I. T. 3063
R NU CT O 1936.
oan agreement dated May 23, 1936, between the M Company
and the Reconstructon nance Corporaton does not consttute
a renewa of a prevous oan agreement dated uy 18, 1934, and
does not entte the M Company to a credt under secton 26(c)
of the Revenue ct of 1936, reatng to contracts restrctng the
payment of dvdends.
7088 87
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27(e), rt. 27(e)- .
90
dvce s requested whether, under agreements dated uy 18,
1934, and May 23,1936, entered nto between the M Company and the
Reconstructon nance Corporaton, the M Company s entted to a
credt under secton 26(c) of the Revenue ct of 1936, reatng to
contracts restrctng payment of dvdends, n computng the surta
mposed by secton 14 of that ct.
The agreement dated uy 18, 1934, contans the foowng
provson:
So ong as appcant sha be ndebted to R. . C, appcant w not, wthout
the pror wrtten consent of It. . C.: (a) f appcant s a corporaton, ont
stock company, or Massachusetts trust, decare or pay any dvdend or make
any dstrbuton upon ts capta stock .
It s stated that the oan was renewed from tme to tme unt
the eary part of the year 1936, when the corporaton negotated an-
other oan from the Reconstructon nance Corporaton, the pro-
ceeds of whch were used n part to refund the prevous oan. The
agreement under whch the second oan was obtaned was dated
May 23, 1936, and contaned the above-quoted provson, but the
contract was entrey separate, from the orgna one. The queston
arses whether, n vew of the fact that the second agreement was n
part a refundng operaton to satsfy the prevous oan, t s a wrtten
contract enttng the corporaton to a credt under secton 26(c),
whch provdes n part that:
Sec. 26. Ceedts of Corporatons.
In the case of a corporaton the foowng credts sha be aowed to the
e tent provded n the varous sectons Imposng 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
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, 1936, whch
provson e pressy deas wth the payment of dvdends.
It s hed that the oan agreement dated May 23,1936, s not merey
a renewa of the prevous agreement but consttutes a new contract
e ecuted by the ta payer after May 1, 1936, and that under such
agreement the ta payer s not entted to a credt under secton
26(c) of the Revenue ct of 1936.
S CTION 27(e). CORPOR TION CR DIT OR DI ID NDS
P ID: T L STOC DI ID NDS.
rtce 27(e)-: Ta abe stock dvdends. I-1-8461
I. T. 3037
R NU CT OP 1936.
Statement of the genera pocy of the ureau as to the aowance
of dvdends pad credts wth respect to stock dvdends under
secton 27(e) of the Revenue ct of 1036.
In the audt of corporaton ncome ta returns under the Revenue
ct of 1936, dvdends pad credts to the e tent of the far market
vaue of any stock ssued as a stock dvdend w be aowed n those
cases n whch such stock dvdend dstrbutons are ceary ta abe
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91
27(f), rt. 27(f)-.
to the sharehoders under the provsons of the statute and
reguatons.
No dvdends pad credt wth respect to a stock dvdend dstrbu-
ton w be aowed f the recept of the stock s ceary nonta abe
to the sharehoder.
In any case n whch the ta abty of the dstrbuton n the hands
of the sharehoder s debatabe, t w be the genera pocy of the
ureau to aow tentatvey a dvdends pad credt n an amount
equa to the far market vaue of the stock dstrbuted, provded the
corporaton camng the credt, upon request by the ureau, fes
wth the Commssoner the proper wavers or agreements to protect
the nterests of the Government pendng the fna determnaton
of the ta abty to the sharehoders of the dstrbuton, ether by
cosng agreements, pursuant to the provsons of secton 606 of the
evenue ct of 1928, e ecuted by a the sharehoders of the cor-
poraton recevng such dstrbuton or by vrtue of a fna ad|udca-
ton n court. The credt tentatvey aowed w be fnay aowed
or dsaowed dependng upon the utmate determnaton of the
ta abty or nonta abhty of the dstrbuton n the hands of the
sharehoders.
In e traordnary casfes where such tentatve aowance of credt
woud endanger coecton of addtona ta es f the dvdends are
fnay hed nonta abe or f other ncome ad|ustments are necessary,
such departures from ths pocy may be made as the e gences of
a case requre.
S CTION 27(f). CORPOR TION CR DIT OR DI ID NDS
P ID: DISTRI UTIONS IN LI UID TION.
rtce 27(f )-: Dvdends pad credt for ds- I-16-8647
trbutons n qudaton. I. T. 3067
R NU CT OP 1936.
The M Corporaton, whch was competey qudated In 1936,
s entted to a dvdends pad credt under secton 27(f) of the
Revenue ct of 1936 to the fu e tent of the earnngs and profts
for that year whch were dstrbuted, regardess of the fact that
the corporaton had an operatng defct at the begnnng of the
ta abe year n e cess of the earnngs and profts for that year.
dvce s requested whether the M Corporaton upon ts quda-
ton n the year 1936 s entted to a dvdends pad credt under
secton 27(f) of the Revenue ct of 1936 where ts operatng defct
at the begnnng of the year 1936 e ceeded ts earnngs and profts
for that year to the date of qudaton. It s stated that n the
qudaton of the M Corporaton n the year 1936 a assets, ncud-
ng earnngs for that year, were dstrbuted to sharehoders, that
no part of the assets was transferred to another corporaton, and
that the M Corporaton dscontnued operatons n that year.
Secton 27(f) of the Revenue ct of 1936 provdes that:
(f) Dstrbuton 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.
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41, rt. 41-1.
92
Secton 14 of the ct mposes a surta on undstrbuted profts.
That surta s measured by the undstrbuted net ncome of the
corporaton. Congress contempated n the enactment of the statute
an accumuaton of current profts retaned n fact by the corpora-
ton, a current accumuaton wthhed by the corporaton from ds-
trbuton to sharehoders. It s obvous that n the case of a com-
pete qudaton of a corporaton no ncome remans undstrbuted
and, therefore, there s nothng to whch the undstrbuted profts
ta s appcabe. In ths stuaton t s mmatera whether the
prescrbed dstrbuton takes the form of an ordnary dvdend or a
dstrbuton n qudaton. .,, ,
In vew of the above, t s hed that n the case of the compete
qudaton of the M Corporaton the corporaton s entted to a
dvdends pad credt for the year 1936 to the fu e tent of the
earnngs and profts for that year whch were dstrbuted, regard-
ess of the fact that the corporaton had an operatng defct at the
begnnng of the ta abe year n e cess of the earnngs and profts
for that year.
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 1930.
I-7-8542
I. T. 3052
The foowng rates of e change are accepted by the ureau of
Interna Revenue as the current or market rates of e change pre-
vang as of December 31, 1936:
Country or cty.
rgentna
ustraa
ustra
egum
raz
ra.
rtsh Inda..
ugnra
Canada
Che.
Chna
Coomba
Cuba
Czechosovaka
Denmark
ngand
nand
rance -
Germany.. .....
Greece
ong ong
Monetary unt.
Peso (paper)
Pound
Schng
oga
Mres 1
Mres1
Rupee .
Lev
Doar
Peso
Yuan
Peso
Peso
oruna
rone
Pound (sterng)
Markka ...
ranc
echsmark
Drachma
Doar
aue In
terms of
Unted
States
money.
0.327433
3.913541
.186871
.168443
.087088
.069562
.371337
.012875
1.000364
.051725
.296041
.573900
. 988186
.035014
. 219191
4.911166
. 021637
.046705
.402307
.008987
.305760
Country or cty.
nungary
Itay
apan
Me co
Netherands
New Zeaand
Norway
Panama
Peru
Phppne Isands.
Poand
Portuga
Rumana
South frca
Span
Strats Settements
Sweden
Swtzerand
Uruguay
enezuea
Yugosava
Monetary unt.
Pengo
Lra
Yen
Peso
orn
Pound
rone
aboa
So
Peso --
Zoty
.scudo ...
Leu
Pound
Peseta
Doar
rona
ranc
Peso (god)..
ovar
Dnar
aue In
terms of
Unted
ates
money.
O. 197750
.052006
.282058
. 277500
. 647521
3. I 09S3
.346727
1.00011
.2525
.50
.189133
.044489
.007291
4 s.w:
.072857
. 675875
.253164
.229701
.man
.2544

Offca rate.
1 ree market rate.
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93
542, rt. 42-1.
S CTION 42. P RIOD IN W IC IT MS O
GROSS INCOM INCLUD D.
rtce 42-1: When ncuded n gross ncome. YI-11-8593
I. T. 3057
R NU CT O 1936.
Treatment of payments authorzed or receved wth respect to
foor stocks as of anuary 6, 1936, under the provsons of secton
602 of the Revenue ct of 1936.
dvce s requested as to the proper treatment, for edera ncome
ta purposes, of the amount of any payment whch may be authorzed
or receved wth respect to foor stocks as of anuary 6, 1936, under
the provsons of secton 602 of the Revenue ct of 1936.
It s hed that f the accounts of the ta payer are kept and ts
returns fed on the cash recepts and dsbursements bass, the amount
of the payment shoud be reported n ts return for the ta abe year
n whch t s receved and f ts returns are fed on the accrua
bass, such amount shoud not be accrued unt the cam s aowed.
etce 42-1: When ncuded n gross ncome. I-11-8594
Mm. 4564
Ta abe status of refunds of customs dutes and ta es.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ebruary 23, 1937.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Reference s made to Mmeograph 3958 (C. . I-2, 33), reatng
to the queston whether, n the case of customs dutes and ta es co-
ected over a number of years whch were deducted from gross n-
come for edera ncome ta purposes, refunds thereof shoud be
regarded as ncome for the year n whch they are receved or whether
the prncpa sum thereof shoud be aocated to the prevous years
n whch the deductons were taken and the ncome ta abty for
those years ad|usted accordngy. That mmeograph provdes that
f the customs dutes or ta es so deducted from gross ncome were
egay coected, refunds thereof shoud be treated as ncome for
the year n whch refunded and that f such dutes or ta es were
egay coected ad|ustment shoud be made n the returns of the
ta payers for the years n whch the deductons were taken.
In oubgant, Inc., v. Commssoner (31 . T. ., 954, affrmed
per curam C. C. . 2, 80 ed. (2d), 1012, certorar dened May 4,
1936, 298 U. S., 669), the ta payer receved a refund of customs
dutes whch were egay coected. Such dutes had been taken
as deductons as a part of the cost of goods sod n determnng the
ta payer s net ncome sub|ect to edera ncome ta n returns for
pror years. t the tme the Commssoner ssued the defcency
etter for the year the refund was receved, the perod of mtaton
for the makng of addtona assessments of ncome ta for the ta -
abe years n whch the deductons were taken had e pred and the
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42, rt. 42-1.
94
Commssoner ncuded the refund n the gross ncome of the ta abe
year n whch t was receved. The oard of Ta ppeas approved
the acton of the Commssoner and n the course of ts opnon sad:
The facta show that n the ncome ta returns fed by the pettoner
for the years 1024 to 1930, ncusve, the pettoner camed and was aowed the
deducton of the fu amounts of the customs dutes pad. avng
been deducted pror year returns, f they are not taken up In the gross
Income when recovered, the pettoner ceary, over a seres of years, escapes
ta upon gans and profts equang the amount of the customs dutes recovered.
It can not be presumed that such a resut was contempated by Congress.
The oard dd not refer to the case of Inand Products Go. v.
ar (31 ed. (2d), 867), and evdenty dd not consder that de-
cson as precudng the ta aton of a refund of egay coected
ta es n the ta abe year n whch t s receved where the perod of
mtaton on the deducton year has e pred. so n Chares W.
Nash v. Commssoner (34 . T. ., 675, affrmed ebruary, 1937,
C. C. . 7), the ta aton of the refund as ncome for the year n
whch receved under such crcumstances was approved, athough
not soey on the ground of the e praton of the perod of mtaton
for the deducton year.
In vew of the foregong, t s hed that n the case of a refund
n any year of customs dutes or ta es egay coected whch have
been taken as deductons n edera ncome ta returns for a pror
year, f the ta abe year n whch the deducton was taken s cosed
by the e praton of the perod of mtaton for the makng of an
addtona assessment of ncome ta , or by reason of the pror e ecu-
ton of a fna cosng or compromse agreement, or by a stpuaton
before the oard of Ta ppeas or the courts, the refund shoud be
treated as ncome for the ta abe year n whch t was made.
Refunds of customs dutes and ta es egay coected whch have
been taken as deductons n edera ncome ta returns for a pror
year shoud contnue to be treated n a cases as ncome for the
ta abe year n whch the refund s made.
Mmeograph 3958, supra, and a other rungs, memoranda and
nstructons by ths offce, n so far as nconsstent wth ths mmeo-
graph, are hereby modfed.
Correspondence regardng ths mmeograph shoud refer to the
number thereof and to the symbos IT: CTR.
Chas. T. Russe,
ctng Commssoner.
rtce 42-1: When ncuded n gross ncome. I-14-8626
( so Secton 501 Reguatons 95, rtce 8.) L T. 3064
R NU CT O 1936.
The amount due the ta payer as a rembursement of edera
processng ta es, ncuded n the prces pad to the M Company
for materas purchased by the ta payer, accrued as ncome n the
caendar year 1936, and shoud be ncuded n the ta payer s gross
ncome for that year.
dvce s requested whether certan rembursements to the ta payer,
as the resut of the grcutura d|ustment ct mposng processng
ta es beng hed unconsttutona, consttuted ncome for 1935 or
1936 under the crcumstances stated heren.
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95
842, rt. 42-1.
The ta payer keeps ts accounts on the accrua bass. It purchased
artces from the M Company for use n connecton wth the manu-
facture of certan products. It was the pocy of the M Company
to ncude n the prces pad by the ta payer for such artces the
edera processng ta mposed upon the company. In uy, 1935,
the M Company obtaned a restranng order aganst the further co-
ecton of the edera processng ta and thereafter pad the amount
of such ta to an escrow agent pursuant to an order ssued by the
court. fter the grcutura d|ustment ct was decared un-
consttutona, the amount of processng ta hed n escrow was
returned to the M Company, at whch tme that company credted
the ta payer s account wth the amount of such processng ta n-
cuded m prces pad by the ta payer to the M Company for the
perod after the ssuance of the restranng order. The ta payer
ncuded as accrued ncome n ts edera ncome ta return for the
caendar year 1935 the amount of doars, representng the amount
due the ta payer on account of edera processng ta ncuded n
prces pad by t to the M Company, athough rembursement was
not actuay made to the ta payer unt after anuary 6, 193C. The
ta payer has submtted the foowng questons:
(1) Whether the amount accrued by the ta payer as a remburse-
ment due t on account of edera processng ta was propery
ncuded as ncome n the ta payer s edera ncome ta return for
the caendar year 1935, or whether the amount of the rembursement
shoud be reported as ncome n ts return for the caendar year 1936.
(2) Whether the amount of the rembursement shoud be ncuded
n the ta payer s un|ust enrchment (wndfa) ta return for the
caendar year 1935 or 1936.
It was hed n L. O. 1086 (C. . 1-1, 87) that n order to be
accruabe n the ta abe year for whch a return s made, a vad
rght to ncome must have arsen or e sted n that year, whch s
enforceabe on the date the ncome s due. If, however, the rght to
an amount s contngent upon the happenng of some future event,
there s no certanty that t w be pad or w accrue. In ths
event no ncome accrues from a f ed and determnabe source, and
no rght to anythng arses or e sts n the ta abe year whch can
be accounted for as ncome under any system of accountng. (See
North mercan O Consodated v. urnet, 286 U. S., 417, Ct. D. 499,
C. . I-1, 293.)
It appears from the facts submtted that no vad rght to the
rembursement n queston e sted durng the caendar year 1935
whch was enforceabe durng that year, but that the ta payer s rght
to the rembursement was contngent upon the happenng of a future
event whch dd not occur unt anuary 6, 1936, when the Unted
States Supreme Court decared the grcutura d|ustment ct
unconsttutona. Unted States v. uter et a., Recevers of
oosac Ms Corporaton, 297 U. S., 1, Ct. D. 1070. C. . -1, 421.)
In vew of the foregong, t s hed that for edera ncome ta
urposes, and for the purpose of the un|ust enrchment ta mposed
y Tte III of the Revenue ct of 1936, the amount due the ta -
payer as a rembursement of edera processng ta es ncuded n the
cost of materas purchased by t accrued n, and consttutes ncome
for, the caendar year 1936.
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52, rt. 52-2.
96
P RT . R TURNS ND P YM NT O T .
S CTION 52. CORPOR TION R TURN
rtce 52-2: Returns by recevers. I-22-8732
I. T. 3080
R NU CT O 1936 ND PRIOR R NU CTS.
Recevers and conservators of natona banks are requred to fe
edera ncome ta returns on behaf of such banks. In eu of
reportng ncome and deductons, an affdavt may be attached to
the return statng that the assets of the bank, ncudng a
amounts e pected to be reazed from assessments aganst stock-
hoders, w be nsuffcent to pay depostors n fu.
If recevers or conservators of natona banks are unabe to
subscrbe to such a statement n affdavt form, they are requred
to fe returns contanng a compete statement of a ncome and
deductons appcabe to the ta abe year covered by the return.
dvce s requested reatve to the abty of a recever or con-
servator of an nsovent natona bank for fng a edera ncome
ta return on behaf of the bank and payng any ta shown to be
due.
The request pertans partcuary to those natona banks whch do
not fa wthn the purvew of secton 22 of the ct of March 1,
1879 (20 Stat., 327), n that they hod assets suffcent to pay the
depostors n fu. That secton provdes as foows:
Seo. 22. That whenever and after any bank has ceased to do busness by
reason 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 aU ts depos-
tors 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 nsovent State and savngs banks as sha
be found to affect the cams of ther depostors.
It s contended that a recever of an nsovent natona bank ap-
ponted for the purpose of qudatng the affars of the bank s not
operatng the property or busness of the bankng assocaton and
that, consequenty, the actvtes do not resut n ncome ta abe un-
der the revenue statutes.
The edera ncome ta reguatons promugated under the sev-
era Revenue cts have unformy provded that f a recever has
fu custody and contro over the busness or property of a cor-
poraton, he sha be deemed to be operatng such busness or prop-
erty, whether he s engaged n carryng on the busness for whch
the corporaton was organzed or ony n marshang, seng, and
dsposng of ts assets for purposes of qudaton, and he s requred
to perform a the dutes and assume a the abtes whch woud
devove upon the offcers of the corporaton were they n contro.
(Secton 52, Revenue ct of 1936, and correspondng sectons of
pror cts.)
Secton 203 of the ank Conservaton ct of March 9, 1933 (48
Stat., 1), grantng authorty to the Comptroer of the Currency to
appont conservators for natona banks, provdes n part:
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97
53, rt. 63-2.
Such conservator sha have a the rghts, powers, and prveges now pos-
sessed by or hereafter gven recevers of nsovent natona banks and sha be
sub|ect to the obgatons and penates, not nconsstent wth the provsons
of ths tte, to whch recevers are now or may hereafter become sub|ect.
Secton 203, supra, does not make nsovency the necessary cond-
ton precedent to the appontment of a conservator. Consequenty,
uness there be nsovency, secton 22 of the ct of March 1, 1879,
woud not appy. ny ta due from a natona bank operatng
under a conservator must be assessed and coected, uness evdence
s produced that the bank s nsovent and that ts assets, together
wth the coectbe abty of ts stockhoders, w be nsuffcent
to pay ts depostors n fu.
Iu vew of the foregong, t s hed that recevers and conservators
of natona banks are requred to fe returns on behaf of such banks,
whch returns may be bank e cept for an attached affdavt statng
that the assets of the bank, ncudng a amounts e pected to be
reazed from assessments aganst stockhoders, w be nsuffcent to
pay the depostors n fu. If recevers or conservators of natona
banks are unabe to subscrbe to such a statement n affdavt form,
they are requred to fe returns contanng a compete statement or
a ncome and deductons appcabe to the ta abe year covered by
the return.
(See O. D. 114, C. . 1 235 (1919) I. T. 2264, C. . -, 100
(1926) and L T. 2626, C. . I-1, 55 (1932), and cases cted
theren.)
S CTION 53. TIM ND PL C OR
ILING R TURNS.
rtce 53-2: tensons of tme for fng I-19-8693
returns. Mm. 4584
ppcatons for e tenson of tme for fng ncome and e cess-
profts ta returns.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, pr 16, 1987.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Reference s made to artce 53-2 of Reguatons 94, reatng to
e tensons of tme for fng returns of ncome. That artce pro-
vdes n part:
It Is mportant that the ta payer render on or before the due
date a return as neary compete and fna as t s possbe for hm to pre-
pare. owever, the Commssoner s authorzed to grant a reasonabe e ten-
son of tme for fng returns under such rues and reguatons as he sha
prescrbe wth the approva of the Secretary. ccordngy, authorty for grant-
ng e tensons of tme for fng Income ta returns s hereby deegated to the
varous coectors of Interna revenue. ppcaton for e tensons of tme for
fng ncome ta returns shoud be addressed to the coector of nterna
revenue for the dstrct n whch the ta payer fes hs returns and must
contan a fu recta of the causes for the deay. cept In the case of
ta payers who are abroad, no e tenson for fng ncome ta returns may
be granted for more than s months.
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53, rt. 63-2.
98
Reference s aso made to the ast paragraph of artce 5 of Treas-
ury Decson 4666 C. . -2,121 (1936) , reatng to e cess-profts
ta returns, whch provdes:
The e cess-profts ta return sha be made wthn the tme prescrbed for
makng the corporaton s edera ncome ta return for the ncome-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.
In order to promote unformty and ad coectors n ther man-
agement of the probem of grantng e tensons of tme, a new form
( orm 1134) has been prepared for the use of ta payers n makng
appcatons for e tensons of tme for fng ncome and e cess-
profts ta returns. ppcatons for e tensons of tme for fng
ncome and e cess-profts ta returns for ta abe years begnnng
after December 31, 1936, sha be made under oath on orm 1134.
Ta payers makng appcaton for e tensons of tme for fng
such returns sha f n the form accordng to the nstructons on
the form.
Correspondence regardng ths mmeograph shoud refer to the
number thereof and to the symbos IT: CTR.
Gt|t T. evernq,
Commssoner.
Reference Mm. 4584. orm 1134. Treasury Department. Interna Revenue Servce.)
ppcaton fob tenson of Tme foe ng Income and cess-Profts
Ta Returns.
(Date.)
Coector of Interna Revenue,
Sr : ppcaton s hereby made for an e tenson of tme to
193 , wthn whch to fe the ,
(Income or Income and e cess-profts.)
ta return ( orm ) of for
(Name or person requred to fe return.)
the ta abe year ended 193
Ths e tenson s necessary by reason of the foowng facts:
( ppcant.)
( ddress of appcant.
Subscrbed and sworn to before me ths day of
198
(Sgnature of offcer admns-
tarng oath.)
(Tte.)
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99
557, rt. 67-1.
INSTRUCTIONS.
ppcaton for an e tenson of tme for fng ncome and/or e cess-profts
ta returns shoud be made under oath on ths form and forwarded to the
coector of nterna revenue for the dstrct n whch the ta payer fes hs
returns. The appcaton must contan a fu recta of the causes for the
deay. cept n the case of ta payers who are abroad, no e tenson for
fng Income ta returns may be granted for more than s months.
n appcaton may be made by an agent f the person abe for the makng
of a return s unabe to make t by reason of (1) ness or (2) contnuous
absence from the Unted States for a perod of at east 60 days pror to
the date prescrbed by aw for makng the return. owever, an appcaton
made by an agent must be accompaned by a power of attorney specfcay
authorzng such acton.
If an appcaton s made wth respect to a ont return of a husband and
wfe, t must be sgned by both spouses uness one spouse, actng under a power
of attorney, sgns as agent for the other.
Where the ta payer s a corporaton, the appcaton must be sgned wth
the corporate name, foowed by the sgnature and tte of such offcer or
offcers of the corporaton as are empowered under the aws of the State n
whch the corporaton s ocated to sgn for the corporaton.
s a condton of grantng an e tenson of tme for fng a return, the
coector may requre the submsson of a tentatve return and the payment
of one-fourth of the estmated amount of ta shown to be due thereon. ny
tentatve return requred, as we as the competed return, shoud be accom-
paned by a copy of the coector s etter grantng the e tenson.
S CTION 55. PU LICITY O R TURNS.
rtce 55(b)-: Defntons.
R NU CT O 1936.
mendment of artce 55(b)-. (See T. D. 4732, page 145.)
S CTION 57. MIN TION O R TURN ND
D T RMIN TION O T .
rtce 57-1: amnaton of return and deter- I-24-8757
mnaton of ta by the Commssoner. I. T. 3087
R NU CT O 1936.
tenson of Ceveand dvson pan to Daas and San
rancsco dvsons.
ffectve uy 1, 1937, the pan whch has been n operaton n
the Ceveand dvson snce pr 1,1936 (see I. T. 2967, C. . -1,
127 (1936)), whereby fna notces of defcences (90-day etters) are
ssued by the nterna revenue agent n charge and the agent n
charge s authorzed to assume the responsbty and authorty of the
Income Ta Unt n Washngton n the conduct of negotatons for
settement n proposed ncreases n ta abty, w be e tended to
the Daas and San rancsco dvsons of the Income Ta Unt.
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101, rt. 101-1.
100
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 101-1: Proof of e empton. I-25-8771
Mm. 3537 (Rev.)
Procedure wth respect to appcatons for e empton under sec-
ton 101 of the Revenue ct of 1936 and smar provsons of
pror Revenue cts.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, une 4-, 1937.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
ttenton s nvted to artce 101-1 of Reguatons 94, whch con-
tans a statement of the nformaton requred by the ureau n deter-
mnng whether an organzaton s e empt from ta under secton
101 of the Revenue ct of 1936 and the correspondng provsons of
the pror Revenue cts. In order that a correct determnaton of the
status of the organzaton seekng e empton may be made, t s
essenta that the nformaton caed for n artce 101-1 be furnshed.
Where, upon consderaton of a the evdence presented coverng
the status of an organzaton under secton 101, the Income Ta
Unt has rendered an adverse rung, the case, when requested by the
appcant, w be referred to the Chef Counse for the ureau for
revew, f n the opnon of the Income Ta Unt the crcumstances
of the case |ustfy such acton. In any case whch s referred to the
Chef Counse for the ureau, an opportunty w be afforded the
appcant for a hearng before the Offce of the Chef Counse, f n
the opnon of that offce such a hearng s necessary to determne
the status of the organzaton. The request for such revew must be
accompaned by a the addtona statements of fact and arguments
reed upon n support of the organzaton s cam for e empton,
and addressed to the Commssoner of Interna Revenue, attenton of
Rues and Reguatons Dvson, Income Ta Unt. The statements
of fact must be sworn to by a prncpa offcer of the organzaton.
the evdence and arguments n substantaton of the appcant s
cam for e empton must be submtted to and consdered by the
Income Ta Unt before the case w be referred to the Chef Coun-
se for the ureau. fter a case has been referred to the Chef
Counse for the ureau for revew and has been returned to the
Income Ta Unt wth an opnon on the status of the organzaton
under secton 101, the case w not agan be referred to the Chef
Counse for the ureau n the absence of a cear showng of a sub-
stanta change n the form, purposes, or actvtes of the organza-
ton.
Correspondence n regard to ths mmeograph shoud refer to the
number thereof and to the symbos IT: C R.
Guy T. everno,
Commssoner.
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101
112(a), rt 112(a)- .
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112(a). R COGNITION O G IN OR LOSS:
G N R L RUL .
Where n accordance wth a converson prvege, bonds of the
M Corporaton were e changed for stock of the O Company, nether
corporaton beng a party to a reorganzaton, gan or oss s recog-
nzed for edera ncome ta purposes.
dvce s requested wth respect to the recognton of gan or
oss for edera ncome ta purposes n the e change of convertbe
bonds ssued by the M Corporaton for common stock of the O
Company.
The bonds ssued by the M Corporaton, organzed under the aws
of the State of R, were converted nto stock of the O Company,
organzed under the aws of the State of S, n accordance wth the
foowng provson contaned n the bonds:
In and by sad ndenture, the M Corporaton has conferred on the hoder
of ths bond the rght to convert the same nto shares of the common capta
stock of the O Company pedged under sad Indenture, or Into any substtuted
coatera securty, durng the perod and at the varyng converson prces
and n accordance wth the terms and condtons n sad ndenture provded
the converson perods and prces beng as set forth n the hereon-ndorsed
e tract from artce of sad Indenture.
Under the provsons of secton 112 of the Revenue ct of 1936,
any gan or oss resutng from an e change of property soey n
knd must be recognzed uness the transacton comes under one of
the e ceptons contaned n subdvson (b) of that secton. Snce
securtes were e changed n the present case and the securtes were
ssued by two separate and dstnct corporatons, nether corporaton
beng a party to a reorganzaton, the e ceptons contaned n sec-
ton 112(b) do not appy.
In vew of the foregong, t s hed that gan or oss s recognzed
for edera ncome ta purposes n the e change of bonds ssued
by the M Corporaton for common stock of the O Company to the
e tent of the dfference between the far market vaue of the common
stock receved and the cost or other bass of the bonds e changed.
(Cf. I. T. 2347, C. . I-1, 86, and Roue v. Trust Co. of Georga,
77 ed. (2d), 355, a. D. 1002, C. . I -2, 214.)
R NU CT OP 1036 ND PRIOR R NU CTS.
The rue stated n artce 1563 of Reguatons 45 (1920 edton)
under the Revenue ct of 1918 that where the owner of a bond
e ercses the rght provded In the bond of convertng the bond
nto stock of the obgor corporaton such transacton does not
resut n a reazaton of proft or oss s equay appcabe to
a subsequent Revenue cts.
dvce s requested whether the provsons of artce 1563 of Regu-
atons 45 (1920 edton), quoted heren, whch were promugated
etce 112(a) : Saes or e changes.
I-10-8580
I. T. 3056
R NU CT O 1036.
rtce 112 (a)-: Saes or e changes.
I-25-8772
G. C. M. 18436
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113(b), rt. 113(b)- .
102
under the Revenue ct of 1918, are appcabe to a subsequent Reve-
nue cts. Reference s made to Mmeograph 3156 (C. . II-2, 24
(1923)), I. T. 2216 (C. . I -2, 19 (1925)), and I. T. 2347 (C. .
I-1, 86 (1927)).
rtce 15G3 of Reguatons 45 (1920 edton) states the foowng
rue:
Where the owner of a bond e ercses the rght, provded for n the
bond, of convertng the bond nto stock n the obgor corporaton, such trans-
acton does not resut n a reazaton of proft or oss, the transacton not beng
cosed for purposes of ncome ta aton unt such stock s sod.
statement of the rue was omtted from reguatons promugated
under subsequent Revenue cts. In Mmeograph 3156, supra, t was
hed that the rue s correct and that t s appcabe under the Revenue
ct of 1921. In I. T. 2216, supra, t was hed that the rue appes
under the Revenue ct of 1924. In I. T. 2347, supra, the rue was
stated n connecton wth a case whch nvoved the Revenue ct of
1926.
In the opnon of ths offce, the rue stated n artce 1563, supra,
under the Revenue ct of 1918 s equay appcabe under a subse-
quent Revenue cts, ncudng the Revenue ct of 1936. It s to be
noted, however, that ths rue of nonrecognton of gan or oss upon
converson s strcty confned to the factua stuaton upon whch t
s premsed, namey, the e ercse by the owner of a bond of a rght
provded for n the bond of convertng the bond nto stock of the
obgor corporaton. (Cf. S. R. 2316, C. . I -1, 111 (1925) Rose v.
Trust Co. of Georga, 77 ed. (2d). 355, Ct. D. 1002, C. . I -2, 214
(1935) and I. T. 3056, page 101, ths uetn.)
Morrson Shafeot,
Chef Counse, ureau of Interna Revenue.
S CTION 112(g). R COGNITION O G IN OR LOSS:
D INITION O R ORG NIZ TION.
rtce 112(g)-2: Defnton of terms.
R NU CT O 1938.
changes n connecton wth corporate reorganzatons. (See
Mm. 4555, page 244.)
S CTION 113(b). D UST D SIS OR D T RMINING
G IN OR LOSS: D UST D SIS.
rtce 113(b)-: d|usted bass: Genera rue. I-15-8637
G. C. M. 17760
R NU CTS O 1932, 1934, ND 1936.
In computng gan or oss under the Revenue cts of 1032, 1934,
and 1936, the combned bass for depeton and deprecaton of m-
proved mnera property may not be reduced by settng off aganst
the bass of the deprecabe property the amount by whch the
aowed percentage depeton e ceeds the bass of the depetabe
property.
In computng the deprecaton aowance for physca equpment
for mnera property, wth respect to whch percentage depe-
ton has been aowed n an amount n e cess of the cost or other
bass, the e cess of percentage depeton aowed may not be
apped aganst the remanng cost of the deprecabe assets.
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103
113(b), rt. 113(b)- .
n opnon s requested as to the proper method of computng the
ad|usted bass for deprecaton n cases of mproved mnera prop-
ertes where the aowed percentage depeton e ceeds the cost or
other bass remanng to be recovered through the depeton aow-
ance.
It s stated to be the practce of the mnera ndustry to compute
depeton and deprecaton separatey n the case of mproved mnera
propertes, settng up the amounts thus determned n separate re-
serves for depeton and deprecaton. In many cases the percentage
depeton aowed or aowabe under the Revenue cts e ceeds the
depeton sustaned on the actua cost and may be more than suff-
cent to e tngush the remanng cost of the depetabe property.
Under such crcumstances the queston arses whether the e cess of
percentage depeton aowed over cost shoud be apped aganst the
remanng cost of the mprovements beng recovered through depre-
caton. Wth reference to ths genera queston an opnon a
requested on the foowng ssues:
(a) In computng gan or oss under the Revenue ct of 1936,
shoud the combned bass for depeton and deprecaton n the case
of mnera property sod be reduced by the tota amount of depeton
and deprecaton aowed under that ct
(6) In computng the deprecaton aowance for physca equp-
ment for mnera property, wth respect to whch percentage depe-
ton has been aowed n an amount n e cess of the cost or other
bass, shoud the e cess of percentage depeton aowed be apped
aganst the remanng cost of deprecabe assets
Secton 114(a) of the Revenue ct of 1936 provdes:
(a) ass for deprecaton. The bass upon whch e hauston, wear and
tear, and obsoescence are to be aowed n respect of any property sha be
the ad|usted bass provded n secton 113(b) for the purpose of determnng the
gan upon the sae or other dsposton of such property.
Secton 113(b) of the ct provdes:
d|usted bass. The ad|usted bass for determnng the gan or oss from the
sae or other dsposton of property, whenever acqured, sha be the bass deter-
mned under subsecton (a) that s, cost , ad|usted as herenafter provded.
The secton then states:
(1) Genera rue. Proper ad|ustment n respect of the property sha n
a cases be made ( ) n respect of any perod snce ebruary 28,
1913, for e hauston, wear and tear, obsoescence, amortzaton, and depeton,
to the e tent aowed (but not ess than the amount aowabe) under ths
ct or pror ncome ta aws. Where for any ta abe year pror to the ta -
abe year 1932 the depeton aowance was based on dscovery vaue or a
percentage of ncome, then the ad|ustment for depeton for such year sha be
based on the depeton whch woud have been aowabe for such year f
computed wthout reference to dscovery vaue or a percentage of ncome.
rtce 23(m)- of Reguatons 94 states that when used n the
artces coverng depeton and deprecaton the term mnera prop-
erty means the mnera depost, the deveopment and pant neces-
sary for ts e tracton, and so much of the surface of the and ony
as s necessary for purposes of mnera e tracton. It s stated
further n that artce that: The vaue of a mnera property s the
combned vaue of ts component parts. Thus, for some purposes,
the reguatons refer to mnera property as a unt ncudng both
depetabe and deprecabe tems. The queston presented n the
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113(b), rt. 113(b)- .
104
nstant case s whether, for the purpose of computng the ad|ustment
n bass provded n secton 113(b)( ) quoted above, the mnera
property shoud be regarded as a unt and ts bass reduced by the
tota amount of depeton and deprecaton aowed, or whether the
depetabe mnera and the deprecabe physca equpment shoud be
regarded as separate tems of property and the bass of each reduced
ony to the e tent of the aowance taken wth respect to that
partcuar tem.
The phraseoogy of secton 23 (m) of the Revenue ct of 1936
ends some weght to the argument that mnera property shoud
be regarded as a unt for the purposes of computng depeton and
deprecaton. That secton provdes n part that n computng net
ncome there sha be aowed as a deducton In the case of mnes,
o and gas wes, other natura deposts, and tmber, a reasonabe
aowance for depeton and for deprecaton of mprovements, ac-
cordng to the pecuar condtons n each case such reasonabe
aowance n a cases to be made under rues and reguatons to be
prescrbed by the Commssoner, wth the approva of the Secretary.
owever, t s the opnon of ths offce that athough depetabe
assets and deprecabe assets may consttute a snge mnera prop-
erty, as that term s defned n the reguatons, such depetabe and
deprecabe assets must be regarded as dstnct knds of property and
ther respectve bases ad|usted separatey under secton 113(b) 1( ).
The dstncton between the depeton and deprecaton aowances
and the fact that they reate to dfferent knds of property s un-
dsputed. (See on aumbach v. Sargent Land Co., 242 U. S., 503
Unted States v. Ludey, 274 U. S., 295 Unted States v. Dakota-
Montana O Co., 288 U. S., 459.) It s aso recognzed that an o
or gas we, or other mproved mnera property, ncudes both the
depetabe and deprecabe types of property wth reference to whch
above cases, see urnet v. Petroeum poraton (61 . (2d), 273,
affrmed 288 U. S., 467).
The ureau has consstenty requred the owners of mproved
mnera property to keep separate accounts for depetabe and de-
precabe property and thus to account separatey for the cost or
other bass of the two casses of property tems, ncudng the
ad|ustments of such bass by way of addtons thereto and deduc-
tons therefrom. The reguatons specfy wth consderabe par-
tcuarty the manner n whch ths s to be done. rtce 23()-4 of
Reguatons 94 provdes n part as foows:
rt. 23()-4. Capta sum recoverabe through deprecaton aowance .
The capta sum to be repaced by deprecaton aowances s the cost or
other bass of the property n respect of tchvh the aowance s made. (See
sectons 113(a) and 114.) To ths amount shoud be added from tme to tme
the cost of Improvements, addtons, and betterments, and from t shoud be
deducted from tme to tme the amount of any defnte oss or damage sus-
taned by the property through casuaty, as dstngushed from the gradua
e hauston of ts utty whch s the bass of the deprecaton aowance.
Itacs supped.
Ths provson of the reguatons ceary ndcates that the de-
precaton aowance s to be computed soey wth reference to the
bass of deprecabe property as dstngushed from depetabe or
other nondeprecabe assets. (See aso artce 28()-2, wnch states
the two dfferent aowances
In addton to the
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105 113(b), rt. 113(b)- .
that the deprecaton aowance does not appy to depetabe
property.)
rtce 23(m)- of Reguatons 94 requres the ta payer to keep
accurate and separate accounts for depeton and deprecaton. That
artce reads as foows:
Depeton and deprecaton accounts on ooks. very ta payer
camng and makng a deducton for depcton and deprecaton of mnera
property sha keep accurate accounts n whch sha be recorded the cost or
other bass provded by secton 113(a), as the case may be, of the mnera
depost and of the pant and equpment, together wth subsequent aowabe
capta addtons to each account and a of the other ad|ustments requred
by secton 113(b).
If the pan or method of depeton and deprecaton accountng adopted
by the ta payer has once been approved by the Commssoner, t can not be
changed by the ta payer wthout the consent of the Commssoner. These
accounts sha thereafter be credted annuay wth the amouuts of the
depeton and deprecaton computed n accordance wth artces 23(m)-2,
23(m)-3, 23(m)-4, or 23(m)-5 or the amounts of the depeton and depreca-
ton so computed sha be credted to depeton and deprecaton reserve ac-
counts, to the end that when the sum of the credts for depeton and depreca-
ton equas the cost or other bass of the property, pus subsequent aowabe
capta addtons, no further deductons for depeton and deprecaton wth
respect to the property sha be aowed, e cept such depeton deductons as
may thereafter be aowabe under secton 114(b) (2), (3), or (4) and
artces 23(m)-3, 23(m)-4, or 23(m)-5.
very ta payer to whom secton 114(b)2 and artce 23(m)-3 are app-
cabe sha keep smar accounts wth respect to dscovery vaue. Itacs
supped.
That artce does state that when the sum of the credts for
depeton and deprecaton equas the cost or other bass of the
property, pus subsequent aowabe capta addtons, no further
deductons for depeton and deprecaton wth respect to the prop-
erty sha be aowed, e cept such depeton deductons as may
thereafter be aowabe under secton 114(b) (2), (3), or (4) and
artces 23(m)-3, 23(m)-4, or 23(m)-5. It may be contended
that such statement means that no deprecaton sna be aowed
when the sum of the credts for depeton and deprecaton com-
bned equas the tota cost or other bass of the entre mnera
property, ncudng both the depetabe and deprecabe assets. It
s beeved, however, that ths provson was ntended to ay down
a rue more consstent wth the genera conte t of the artce, that
s, that no further deprecaton shoud be aowed when the sum
of the credts for deprecaton equas the cost or o.ther bass of the
deprecabe property, and, smary, that no further deductons for
depeton (e cept depeton based upon dscovery vaue or percent-
age of ncome) shoud be aowed when the sum of the credts
for depeton equas the cost or other bass of the depetabe prop-
erty. It s beeved that ths constructon of the reguatons s
more consstent wth the requrement that ta payers keep separate
accounts for depeton and deprecaton, whch requrement renders
t necessary that the bass of depetabe property be set up as an tem
separate from the bass of deprecabe property. In other words,
t s beeved that the term the property appearng n ths artce
of the reguatons refers to the two dfferent types of property con-
sdered separatey (as they must be for purposes of depeton and
deprecaton accountng) rather than to the entre mnera property
whch, consdered as a unt, ncudes both depetabe and deprecabe
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113(b), rt. 113(b)- .
106
assets. The necessty for dstngushng between depetabe and de-
precabe property and for consderng the two types of property
separatey s further set forth n artces 23(m)-15 to 23 (m) 19,
ncusve, of eguatons 94.
Notce shoud aso be taken of the fact that the statutory pro-
vson prescrbng the bass upon whch deprecaton s aowed
s contaned n a subsecton separate from that whch reates to the
bass upon whch depeton s aowed. (See subsectons (a) and
(b) of secton 114 of the Revenue ct of 1936.) Ths statutory
separaton of the respectve bases s taken to be ndcatve of a
egsatve ntent that the same are to be kept and accounted for
ndependenty of each other.
Secton 113(b)( ) of the Revenue ct of 1936 provdes that
roper ad|ustment n respect of the property sha n a cases
a made n respect of any perod snce ebruary 28, 1913, for e -
hauston, wear and tear, obsoescence, amortzaton, and depeton,
to the e tent aowed, but not ess than the amount aowabe. It
s aso provded n that secton as foows:
Where for any ta abe year pror to the ta abe year 1982 the
depeton aowance was based on dscovery vaue or a percentage of Income,
then the ad|ustment for depeton for such year sha be based on the
depeton whch woud have been aowabe for such year If computed wthout
reference to dscovery vaue or a percentage of ncome.
That provson ceary mpes that where for any ta abe year
subsequent to the year 1931 the depeton aowance was based on
dscovery vaue or a percentage of ncome| then the ad|ustment
for depeton for such year sha be made wthout reference to the
depeton whch woud have been aowabe f computed on the cost
bass. The provson requres that the bass of depetabe property
be reduced on account of the fu depeton aowed, whether com-
uted on the cost, dscovery vaue, or percentage of ncome bass,
ut t does not mpy that the bass of deprecabe property s to
be ad|usted on account of the depeton aowances.
In vew of the foregong, the questons submtted are answered
as foows:
In computng gan or oss under the Revenue ct of 1936, the
combned bass for depeton and deprecaton of mproved mnera
property may not be reduced by settng off aganst the bass of the
deprecabe property the amount by whch the aowed percentage
depeton e ceeds the bass of the depetabe property.
In computng the deprecaton aowance for physca equpment
for mnera property, wth respect to whch percentage depeton
has been aowed n an amount n e cess of the cost or other bass,
the e cess of percentage depeton aowed may not be apped
aganst the remanng cost of the deprecabe assets.
Snce the provsons of the Revenue cts of 1932 and 1934 are
practcay dentca wth those dscussed above, and the reguatons
promugated under those cts are substantay the same as the
reguatons promugated under the Revenue ct of 1936, referred
to and quoted above, ths memorandum s aso appcabe to those
cts.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
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107
116, rt. 116-2.
S CTION 116. CLUSIONS ROM GROSS INCOM .
rtce 116-2: Compensaton of State offcers I-15-8638
and empoyees. I. T. 3065
R NU CT O 1936.
Compensaton pad from funds granted to the State of Pennsy-
vana by the edera Government and receved by empoyees for
servces rendered n connecton wth the admnstraton of the
Pennsyvana unempoyment compensaton aw s sub|ect to edera
ncome ta .
dvce s requested reatve to the ta abe status, for edera
ncome ta purposes, of compensaton receved by the empoyees of
the State of Pennsyvana whose servces are rendered n connecton
wth the admnstraton of the Pennsyvana unempoyment com-
pensaton aw.
It s stated that the admnstraton of that aw s paced n the
department of abor and ndustry. unds are granted to the State
by the edera Government under Tte III of the Soca Securty
ct, from whch the admnstraton e penses of the Pennsyvana
unempoyment compensaton aw are pad.
In order for the compensaton receved by an ndvdua for
servces rendered to a State or potca subdvson thereof to be
e empt from edera ncome ta such compensaton must be receved
by hm from the State or potca subdvson as an offcer or em-
poyee thereof and hs servces must be rendered n connecton wth
the e ercse of an essenta governmenta functon. ( rtce 116-2,
Reguatons 94.) Such compensaton s sub|ect to edera ncome
ta uness ta aton woud so burden the State or potca subdv-
son as to resut n nterference by the edera Government wth
the dscharge by the State of such a functon.
The effect whch the source of the funds from whch the compen-
saton s pad has upon the e empt status of the compensaton of
State offcers and empoyees s shown by the foowng statement of
the court n Mer v. McCaughn (22 ed. (2d), 165, affrmed, 27 ed.
(2d), 128):
The compensaton must not merey come to a State offcer or em-
poyee, but t must come to hm from the State to be e empt Uness ths
second ne s drawn, and drawn where we have drawn t, It s dffcut to
determne where t shoud be drawn. moment s thought w brng to mnd
scores of nstances n whch the recpent mght we be hed to be such offcer
or empoyee, but n whch the compensaton does not come drecty or nd-
recty from the State, otherwse than n the sense that he woud not be n the
en|oyment of t, were t not for the reaton of offcer or empoyee of the State
whch he en|oys.
ere what the pantff receves comes whoy from the surety companes upon
whose fnanca resources he reports. It Is true the corporaton does not pay t
drecty to hm, but to the cerk of court, from whom he receves t.
Inasmuch as the e penses ncurred n the admnstraton of the
Pennsyvana unempoyment compensaton aw are pad from ed-
era funds granted to the State by the edera Government t s hed
that the compensaton of the empoyees whch s pad from such
funds must be ncuded n ther gross ncome, for edera ncome ta
purposes, as t mposes no burden upon the State to sub|ect such
compensaton to ta aton by the edera Government.
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116, rt. 116-2.
108
rtce 116-2: Compensaton of State offcers T-24-8758
and empoyees. I. T. 3088
R NU CT O 1936.
The compensaton receved by offcers and empoyees of the de-
partment of quor contro of the State of Oho s not e empt from
edera ncome ta .
dvce s requested whether the compensaton receved by offcers
and empoyees of the department of quor contro of the State of
Oho s sub|ect to edera ncome ta .
The department of quor contro was created by a statute of Oho,
effectve December 22,1933. y such statute that department s gven
power to put nto operaton, manage, and contro a system of State
quor stores for the sae of sprtuous quor at reta and to hoders
of permts authorzng the sae of such quor, and to estabsh and
mantan a State monopoy of the dstrbuton of such quor and the
sae thereof n packages or contaners. Such a system of quor
stores has been estabshed and s beng conducted by the State de-
partment of quor contro.
Compensaton receved for servces rendered to a State or a pot-
ca subdvson thereof must be ncuded n gross ncome uness (a)
the person receves such compensaton from the State or potca sub-
dvson as an offcer or empoyee thereof, and () the servces are
rendered n connecton wth the e ercse of an essenta governmenta
functon. ( rtce 116-2, Reguatons 94.)
In Oho v. everng (292 U. S., 360, Ct. D. 836, C. . LT-, 531
(1934)) the Unted States Supreme Court hed that where a State
pursuant to authorty granted by ts egsature engages n the manu-
facture, sae, and mportaton of, and traffc n, nto catng quor
through State quor stores under a department of quor contro t
s not e ercsng a governmenta functon but s conductng busness
of a prvate nature.
In everng v. Powers (293 U. S., 214, Ct. D. 900, C. . III-2,
213 (1934)) the Unted States Supreme Court n dscussng Oho v.
everng, supra, stated n part:
The method whch the State may adopt n organzng such an actvty can
not be regarded as determnatve. If the deaers n South Carona South
Carona v. Unted States, 199 U. S., 437 , or those empoyed to operate the
State stores n Oho, had been denomnated pubc offcers, and as such had
been assgned defnte tenure and dutes, the same resut woud have been
reached, as the prncpe nvoved woud be equay appcabe. Nor, n such a
case, woud the fact that the offcers were ntrusted wth the authorty to f
prces for the saes under ther charge n a manner appropratey to secure the
revenue needed for the enterprse, or were charged wth the duty of ascer-
tanng the osses whch, f they occurred, were to be borne by genera ta aton,
estabsh a matera dstncton. The nature of the enterprse, and not the par-
tcuar Incdents of Its management, woud contro.
In vew of the foregong, t s hed that the State of Oho n carry-
ng on the sae of sprtuous quor through the department of quor
contro s e ercsng a propretary functon as dstngushed from an
essenta governmenta functon, and that the compensaton of the
offcers and empoyees of such department s not e empt from edera
ncome ta . (See aso I. T. 2886, C. . I -1, 103 (1935).)
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109
131, rt. 131-1.
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 131-1: nayss of credt for ta es. I-3-8483
( so Secton 23 (c), rtce 23 (c) -1.) I. T. 3040
NT CT O 1936.
The ta mposed under the e portaton of captas ta aw of
Me co s not aowabe as a credt for edera Income ta purposes
under secton 131 (a) 1 of the Revenue ct of 1936, but s deductbe
from gross ncome under secton 23(c) of that ct.
dvce s requested whether the ta mposed by the e portaton
of captas ta aw, effectve ugust 31, 1936, under a decree of the
Presdent of Me co, may be taken as a credt under secton 131 of
the Revenue ct of 1936 n the edera ncome ta return for 1936
of the M Company, a domestc corporaton. It s stated that the
e portaton of captas ta aw superseded a former aw known as
the absenteesm ta aw whch ths offce hed to be an ncome ta aw.
(G. C. M. 14625, C. . I -1,114.)
The pertnent provsons of the Me can aw n queston are as
foows:
Law on Ta on portaton of Captas,
chapter .
rtce 1. There sha be a ta eved on the e portaton of captas, brought
about by remttances made to a foregn country of moneys, stocks and bonds
or merchandse.
rt. 2. The foowng are Incuded n the foregong artce:
1. amounts In natona currency changed nto bs or traveer checks
payabe n foregn countres.
2. amounts whch are to be converted nto drafts or other documents
payabe n a foregn country.
3. amounts In natona currency whch w be apped to openng or feed-
ng accounts n foregn countres.
4. amounts Invested n the purchase of ttes gvng the rght to par-
tcpate In the profts or producton of companes outsde of ths country, or n
busness carred on outsde of ths country.
ta sha be eved, when referrng to transactons mentoned n the fore-
gong artce, ony upon the frst purchase or Investment
rt. 3. persons who In ther own names or In the name of another carry
out transactons mentoned n artces 1 and 2 sha pay ta es.
rt. 4. The rate of ta aton sha be 4 per cent on the vaue of ta abe
goods.
rt. 5. The ta sha be pad:
1. t the tme remttances noted n artce 1 are made.
2. Upon the purchase of bs or traveers checks payabe n foregn countres.
3. t the tme n whch documents mentoned n sectons 2 and 4 of artce
2 are purchased.
4. When merchandse or products are to be e ported, at the moment the
e portaton s made.
5. t the tme amounts n natona currency are devered for purposes
mentoned In secton 3 of artce 2.
rt. 6. Those Income ta payers ncuded In Cedua I, whose reports are up
to date and who have a mnmum Investment of 50,000 may obtan from the
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143, rt. 143-1.
110
Treasury Department a voucher book whch w authorze them to make re-
mttances to a foregn country wthout havng to pay ta each tme a remt-
tance s made, f the transacton n queston s e empt accordng to artce 9
of ths aw. ta payers, upon makng the annua reports caed for by ths
aw, sha prove by ths aw that transactons referred to are e empt from
ta .

rt. 8. The ta sha be pad In stamps, e cept n cases where the ordnance
cas for payment n cash or n other forms.
or the purpose of secton 131, reatng to credts for ta es pad
or accrued to foregn countres or possessons of the Unted States,
t s necessary that the foregn ta for whch credt s sought be an
ncome, war-profts, or e cess-profts ta . rom an e amnaton of
the provsons of the Me can aw mposng a ta on e portaton
of captas, t s evdent that the ta s a duty based upon capta
nvested, f such nvested capta s e ported from Me co, the ta
beng eved upon the vaue of the money or merchandse e ported.
The fact that a remttance of money n some cases mght be ncome
to the recpent does not change the nature of the ta . That the aw
of ebruary 14, 1934, mposng a ta on absenteesm was annued
on the date on whch the ater aw became effectve has no bearng
on the determnaton of the character of the substtuted ta . s the
e portaton of captas ta s not an ncome, war-profts, or e cess-
profts ta , t may not be taken as a credt under secton 131 (a) 1
of the evenue ct of 1936, but s deductbe from gross ncome under
secton 23(c) of that ct.
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. I-7-8543
L T. 3053
R NU CT O 1936.
Where stock of a domestc corporaton s owned |onty by a non-
resdent aen and hs wfe, a ctzen of the Unted States resdent
n a foregn country, the dvdend payng corporaton w be re-
qured to wthhod the ta of 10 per cent ony from that porton
of the dvdend pad to the nonresdent aen husband.
The M Company has presented the foowng nqury:
It s our understandng that In accordance wth the new Revenue ct, we
are obged to deduct 10 per cent of our ne t dvdend payments to aens. Our
foregn manager, who Is a ctzen of a foregn country, hods stock |onty n
the name of hmsef am wfe. e advses us that hs wfe s a ctzen of
the Unted States, resdent n the foregn country. Under these crcumstances
shoud a deducton of 10 per cent be made on the entre amount
Under secton 143(b) of the Revenue ct of 1936, wthhodng of a
ta of 10 per cent s requred n the case of dvdends whch are
ncome from sources wthn the Unted States pad to a nonresdent
aen, but such wthhodng s not requred n the case of dvdends
pad to a ctzen of the Unted States. (See artces 143-1, 143-2,
143-3, and 144-2 of Reguatons 94, promugated under the Revenue
ct of 1936.) ccordngy, the M Company s requred to wthhod
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I
143. t. 143-1.
a ta of 10 per cent on that porton of the dvdend pad to the
husband who s a nonresdent aen, but the company s not requred
to wthhod any ta on that porton of the dvdend pad to the wfe
who s an mercan ctzen. etter from the foregn manager or
a copy thereof notfyng the company of the porton of the dvdend
whch beongs to hm and hs wfe, respectvey, shoud be attached
to the wthhodng return of the M Company n e panaton of the
acton of the company n wthhodng the ta from ony a porton of
the dvdend.
rtce 143-1: Wthhodng ta at source. I-12-8602
I. T. 3059
R NU CT O 1936 ND PRIOR R NU CTS.
Interest on bonds of a domestc corporaton pad to a foregn
corporaton not engaged In trade or busness n the Unted States
and not havng an offce or pace of busness theren s sub|ect to
wthhodng n accordance wth the provsons of sectons 143 and
144 of the Revenue ct of 1936 and the correspondng provsons of
pror Revenue cts, notwthstandng the fact that the prncpa and
nterest are guaranteed by a foregn corporaton and payment of
the nterest was made outsde the Unted States by the guarantor.
dvce s requested whether nterest upon bonds of the M Com-
pany, a domestc corporaton, pad abroad n ts behaf by the N
Company, a foregn corporaton, to the O Company t a foregn cor-
poraton not engaged n trade or busness n the Unted States and
havng no offce or pace of busness theren, s sub|ect to wthhodng.
The genera queston nvoved s whether nterest on bonds of a
domestc corporaton, the prncpa and nterest of whch are guar-
anteed by a foregn corporaton, consttutes ncome from sources
wthn the Unted States for the years 1933 and 1934 n vew of the
fact that the debtor corporaton (the obgor) was unabe to pay the
nterest and such nterest was n fact pad by a foregn corporaton
outsde the Unted States.
Secton 231 (a) of the Revenue ct of 1934 provdes that n the
case of a foregn corporaton gross ncome ncudes ony the gross
ncome from sources wthn the Unted States. Secton 119 (a) 1 of
that ct provdes n part that there sha be treated as ncome from
sources wthn the Unted States nterest on bonds, notes, or other
nterest-bearng obgatons of resdents, corporate or otherwse.
Secton 144 of the Revenue ct of 1934 provdes that n the case of
foregn corporatons not engaged n trade or busness wthn the
Unted States and not havng any offce or pace of busness theren
there sha be deducted and wthhed at the source n the same man-
ner and upon the same tems of ncome as s provded n secton
143 (reatng to ndvduas) a ta equa to 13 per cent. Secton
143(a) provdes for the deducton o ncome ta at the source n
connecton wth nterest upon certan ta -free covenant bonds and
secton 143(b) provdes for deducton of ncome ta at the source
upon other f ed or determnabe annua or perodca ncome, n-
cudng nterest, e cept nterest of the type referred to n secton
143(a). (Sectons 143 and 144 were amended by secton 102 of the
evenue ct of 1935, but the amendments do not affect the queston
here at ssue.)
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5143, rt. 143-1.
112
The provsons of secton 119(a)1 referred to above treat as n-
come from sources wthn the Unted States nterest on bonds, notes,
or other nterest-bearng obgatons of resdents, corporate or other-
wse. There s no mtaton contaned n that secton regardng the
method of payment or where the payment s made. The fact that
bod nterest of a resdent of the Unted States s guaranteed by a
foregn corporaton does not prevent the ncome from beng sub|ect
to the ta ng provsons referred to heren. In the nstant case the
obgaton s that of a domestc corporaton and the fact that the n-
come was pad on ts behaf by a foregn corporaton n a foregn
country s mmatera. The ncome fows from the debt. The debt
arses n the Unted States by reason of money oaned n the Unted
States upon property ocated n the Unted States. Payment of the
nterest by the guarantor corporaton does not change the source of
the ncome.
The scheme of ta aton for many years has been to requre the
deducton of ncome ta at the source n connecton wth nterest
upon bonds of domestc and resdent corporatons. (See artce 143-1
of Reguatons 86 and correspondng provsons of pror ncome ta
reguatons.) That the source of the ncome s the debtor or the
obgor seems cear by reference to the aw tsef. (Sectons 143(a)
and 119(a) 1 of the Revenue ct of 1934.) The duty to wthhod
ncome ta s prmary that of the obgor, athough under certan
crcumstances the Government may ook to the payor of the ncome
rather than the obgor. (See artce 143-1, Reguatons 86.) Nu-
merous precedents support the rue that the debtor s the source
of the ncome and that the pace of payment s mmatera. (See
O. 786, C. . 1, 99 O. D. 534, C. . 2, 103 I. T. 1642, C. . II-,
81 G. C. M. 9156, C. . -, 166 G. C. M. 13366, C. . III-2,
164 ppea of Standard Marne Insurance Co., Ltd., 4 . T. .,
853 Lord orres v. Commssoner, 25 . T. ., 154 Myra urst v.
Commssoner, 19 . T. ., 471 Southern Pacfc Co. v. Comms-
soner, 21 . T. ., 990, etc. See aso everng v. Stockhom
nskda ank, 293 U. S., 84 rtsh- mercan Tobacco Co., Ltd., v.
everng, 293 U. S., 95.) The Unted States Supreme Court has
hed that nterest upon bonds of domestc corporatons owned by
nonresdent aens may be ta ed as ncome from sources wthn the
Unted States. ( rushaer v. Unon Pacfc Raroad Co., 240 U. S.,
1 De Ganay v. Lederer, 250 U. S., 376.)
Whether the obgor s the source of the ncome rather than the
person who pays the nterest on the bond s a matter whch has aso
been consdered by ths offce n connecton wth the queston of
e empt ncome. It was hed n G. C. M. 12420 (C. . III-1, 109)
that where a muncpaty purchases property sub|ect to a mortgage
to secure an ssue of bonds there beng no provson n the bonds
whch reeases the orgna debtor corporaton from abty, nterest
pad by the muncpaty on such bonds s not e empt from edera
ncome ta . ( s to the converse stuaton, see S. M. 2670, C. .
III-2, 80.) In other words, the source of the ncome s not the
person who pays the nterest on the bonds but the debtor who s
obgated under the bond to pay such nterest. Nor s the source
of ncome affected by the pace where payment s made, snce the
pace of payment may be arbtrary seected. (O. D. 651, C. . 3,
265 cf. O. D. 239, C. . 1, 98 O. D. 35, C. . 1, 101.) The test s
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113
143, rt. 143-3.
whether the nterest s pad on bonds, notes, or other nterest-bearng
obgatons of resdents, corporate or otherwse. (See secton 205,
at page 399, omes edera Income Ta , 6th dton.)
In vew of the foregong, ths offce s of the opnon that nterest
on the bonds ssued by the M Company, a domestc corporaton, pad
to the O Company a foregn corporaton not engaged n trade or
busness n the Unted States and not havng an offce or pace of
busness theren, s sub|ect to wthhodng n accordance wth the
provsons of sectons 143 and 144 of the Revenue ct of 1934 and
correspondng provsons of pror Revenue cts, notwthstandng
the fact that the prncpa and nterest of the bonds are guaranteed
by a foregn corporaton and payment of the nterest was made out-
sde the Unted States by the guarantor.
Ths rung s aso appcabe under the Revenue ct of 1936.
rtce 143-1: Wthhodng ta at source. I-15-8639
I. T. 3066
R NU CT O 1936.
mounts pad as |ehnbursements of.ta wthhed under sectons
143 and 144 of the Revenue ct of 1936 from nterest on ta -free
covenant bonds do not consttute addtona nterest or ncome sub-
|ect to wthhodng under those sectons of the et, regardess of
whether the bonds were ssued before anuary 1, 1934, or on or
after that date.
dvce s requested whether the amounts pad by the M Company
as rembursements for the ta wthhed under sectons 143 and 144
of the Revenue ct of 1936 from nterest pad on ta -free covenant
bonds of that company ssued on ebruary 1, 1936, consttute ncome
sub|ect to wthhodng under those sectons.
It s hed that amounts pad as rembursements of ta wthhed
under sectons 143 and 144 of the Revenue ct of 1936 from nterest
on ta -free covenant bonds do not consttute addtona nterest or
ncome sub|ect to wthhodng under those sectons of the ct,
regardess of whether the bonds were ssued before anuary 1, 1934,
or on or after that date. (See secton 143(a)3 of the Revenue ct of
1936 artce 31 of Reguatons 45 (1920 edton), as amended by
T. D: 3685, approved pr 8, 1925 C. . I -1, 121 artce 31 of
Reguatons 62 (1922 edton), as amended by T. D. 3688, approved
pr 4, 1925 C. . I -1, 122 : and Duffy v. Ptney, 2 ed. (2d),
230, affrmng 291 ed., 621, certorar dened, 267 U. S., 595.)
rtce 143-3: empton from wthhodng. I-13-8611
I. T. 3060
ND CT OP 1936.
The dstrbutabe shares of the net ncome of an estate or trust
derved from sources wthn the Unted States whch are remtted
by the trustee to nonresdent aen benefcares who are ctzens
of rance resdng theren are sub|ect to wthhodng under the
provsons of secton 143 of the Revenue ct of 1936.
n ndvdua states that he s trustee of varous trusts of whch
ctzens of rance resdng n that country are the benefcares. e
further states that n two cases the rench ctzen receves durng
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144, rt. 144-1.
114
her fetme the annua net ncome of the trust, whe the thrd
receves a f ed amount annuay. The trustee assumes that under
the provsons of artce 143-3 of Reguatons 94 and the conventon
and protoco between the Unted States and rance, the provsons
of whch became effectve anuary 1, 1936, the ncome pad to each
of these ndvduas s a fe annuty whch s e empt from edera
ncome ta , and that he s not requred to wthhod ta on any part
of such ncome under the provsons of the Revenue ct of 1936.
rtce I of the conventon and protoco between the Unted
States and rance (C. . I -2, 535) provdes n part:
The foowng casses of Income pad In one of the contractng States to a
corporaton of the other State, or to a ctzen of the atter State resdng
there, are e empt from ta In the former State:

(c) prvate pensons and fe annutes.
The term fe annutes s not defned n the conventon and
frotoco, but the term annuty s defned n So. Op. 160 (C. .
II-2, 60) as a stated sum payabe perodcay at stated tmes
durng fe, or a specfed number of years, under an obgaton to
make the payments n consderaton of a gross sum pad for such
obgaton.
It s hed, therefore, that for the purposes of the conventon and
protoco the term fe annutes does not ncude the net ncome
receved by a benefcary of a trust. Consequenty, the trustee s
not reeved from abty to wthhod ta where he remts to non-
resdent aen ndvduas, who are ctzens of rance resdng
theren, ther dstrbutabe shares of the net ncome of an estate or
trust from sources wthn the Unted States. (See artce 143-2 of
Reguatons 94.)
S CTION 144. P YM NT O CORPOR TION INCOM
T T SOURC .
rtce 144-1: Wthhodng n the case of non- I-13-8612
resdent foregn corporatons. I. T. 3061
R NU CT OP 1930.
The M Company, -whch deas drecty wth a foregn nsurance
company, s not requred to wthhod ncome ta at the source
on nsurance premums forwarded to such company.
dvce s requested reatve to the abty of the M Company
under secton 143 of the Revenue ct of 1936 to wthhod at the
source 10 per cent ncome ta from premums pad to a foregn
nsurance company. Reference s made n ths connecton to I. T.
1359 (C. . 1-1, 292), hodng that mercan nsurance agents and
brokers who pace nsurance wth foregn nsurance companes
through foregn brokers are not requred to wthhod ncome ta on
premums forwarded to the foregn brokers n connecton wth n-
surance underwrtten by the foregn companes n the Unted States.
It s suggested that the rung may not be appcabe n the case
where one deas drecty wth a foregn nsurance company and not
through an nsurance broker.
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115
144, rt. 144-2.
In the ght of the nformaton presented, and under I. T. 1359,
supra, and the wthhodng provsons of the Revenue ct of 1936,
t s hed that the M Company s not requred to wthhod ncome ta
at the source on nsurance premums forwarded drecty to the for-
egn nsurance company.
rtce 144-2: ds to wthhodng agents n de- I-17-8662
termnng abty for wthhodng of ta . Mm. 4578
( so Secton 147, rtce 147-8.)
orm 1087 not to be used by foregn correspondents for ctzens
of the Unted States abroad.
Tkeast|by Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, pr 9,1937.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Sectons 143(b) and 144(a) of the Revenue ct of 1936 provde
wth e ceptons not matera for the purposes of ths mmeograph)
or wthhodng of 10 per cent ta from dvdends (consttutng
gross ncome from sources wthn the Unted States) pad to non-
resdent aen ndvduas, foregn partnershps, and nonresdent for-
egn corporatons.
Paragraph 2 of artce 144-2t Reguatons 94, reatng to ads to
wthhodng agents n determnng abty for wthhodng of ta ,
provdes n part:
When a payor corporaton, or any other person (Incudng a nomnee), hav-
ng the contro, recept, custody, dsposa, or payment of dvdends has no
defnte knowedge of the status of a sharehoder, the ta shoud be wthhed
f the sharehoder s address s outsde the Unted States. person s
wrtten statement that he Is a ctzen of the Unted States, may be
reed upon by the payor of ncome as proof that such person s a ctzen
of the Unted States.
rtce 147-8 of Reguatons 94, reatng to nformaton as to
actua owner, provdes n part:
When the person recevng a payment fang wthn the provsons
of the ct for Informaton at the source s not the actua owner of the ncome
receved, the name and address of the actua owner or payee sha be furnshed
upon demand of the ndvdua, corporaton, or partnershp payng the ncome,
and n defaut of a compance wth such demand the payee becomes abe for
the penates provded. Upon recept of dvdends by a record owner,
he shoud e ecute orm 1087 to dscose the name and address of the actua
owner or payee
It has come to the attenton of the ureau that the ownershp
certfcate on orm 1087 s beng e ecuted and sgned by foregn
correspondents and other record owners abroad havng the recept
or payment of dvdends on stock owned by ctzens of the Unted
States resdng n foregn countres n order to show that such
ctzens are the owners of the stock and entted to the dvdends
and that there a no requrement for wthhodng the ta on the
dvdends. orm 1087 s prescrbed for the use of record owners
of stock and provdes for tner sgnature, but t does not provde for
the sgnature of the actua owner. It s not ntended that that form
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147, rt. 147-1.
116
sha be used n the manner and for the purpose adopted by the
foregn correspondents and other record owners abroad. In accord-
ance wth artce 144 2 of Reguatons 94, a ctzen of the Unted
States resdng n a foregn country shoud furnsh a wrtten state-
ment of hs ctzenshp n order to be reeved from havng the ta
wthhed on dvdends on stock actuay owned by hm.
Inqures and correspondence regardng ths mmeograph shoud
refer to ts number and the symbos IT: CTR.
Gut T. everno,
Commssoner.
S CTION 147. IN ORM TION T SOURC .
rtce 147-1: Return of nformaton as to I-21-8715
payments of 1,000. I. T. 3076
R NU CT O 1936.
Mutua savngs banks e empt from edera Income ta under
secton 101(2) of the Revenue ct of 1936 and the correspondng
secton of pror Revenue cts are requred to fe nformaton
returns on the proper forms under secton 147 of the Revenue ct
of 1936.
dvce s requested whether mutua savngs banks e empt from
edera ncome ta under secton 101(2) of the Revenue ct of 1936
and the correspondng secton of pror Revenue cts are requred
to fe nformaton returns under secton 147 of the Revenue ct of
1936, reatng to nterest payments, or under secton 148 of the
Revenue ct of 1936, reatng to dvdend payments.
mutua savngs bank s descrbed n 7 Corpus urs, 851, as:
an nsttuton ony partay embodyng the features of a bank n
the fu sense of the term, the purpose of whch Is to promote the prosperty of
persons of sma means and mted opportuntes of Investng them by recevng
ther savngs In even trva sums, and endng them In arger amounts,
whereby Interest may be ganed, to be dvded among the depostors. In the
strct sense of the term, a savngs bank s an nsttuton, the ob|ect of whch
s, to quote the anguage of some of the eary charters, to receve and safey
Invest the savngs of mechancs, aborers, servants, mnors and others, thus
affordng to such persons the advantages of securty and Interest for ther
money, and n ths way ameoratng the condton of the poor and aborng
casses by engenderng habts of ndustry and frugaty. The deposts const-
tute the ony resources of the nsttuton no capta, as In the case of banks
of depost and dscount, stands between the depostor and oss.
The so-caed capta stock of a mutua savngs bank s substan-
tay dentca wth that concernng whch the ttorney Genera
stated (31 Op. tty. Gen., 176, 179):
t seems cear that the term capta stock as used n connecton
wth credt unons s n no sense smar to the accepted busness meanng of
that term, whch Congress doubtess had n mnd when the words wthout
capta stock were nserted In the fourth paragraph of secton 11 of the
Income-ta aw.
Whe In a credt unon dvdends are pad on shares of stock. It s In
reaty the same as payng Interest on deposts. Thus, sharehodng
Is ony a means of savng and Is one of the prveges of membershp In the
credt unon.
Congress has mted the e empton of mutua savngs banks to the
type of savngs bank not havng a capta stock represented by shares
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117
161, rt. 161-1.
fhch partcpate n the profts to the e cuson of the depostors, but
whose earnngs ess ony the e penses of operaton are dvded whoy
among the depostors. Snce a mutua savngs bank wthn the mean-
ng of secton 101(2) of the Revenue ct of 1936 and the correspond-
ng secton of pror Revenue cts has no capta stock or stockhoders,
dstrbutons made by such a bank on the bass of the amounts stand-
ng to the credt of depostors consttute nterest and not dvdends.
It s, therefore, hed that mutua savngs banks e empt as such
under secton 101(2) of the Revenue ct of 1936 and the correspond-
ng secton of pror Revenue cts are requred to fe nformaton
returns on the proper forms under secton 147 of the Revenue ct
of 1936, reatng to nterest payments.
rtce 147-8: Informaton as to actua owner.
R NU CT O 1936.
Lmtaton on use of orm 1087. (See Mm. 4578, page 115.)
SUPPL M NT . ST T S ND TRUSTS.
S CTION 161. IMPOSITION O T .
rtce 161-1: Imposton of the ta . I-9-8568
I. T. 3055
R NU CT O 1936.
Where a husband created a trust In favor of hs wfe who d-
vorced htm shorty thereafter, the Income of the trust payabe to
the wfe subsequent to the husband s death Is ta abe to her and
not to the estate of the husband.
dvce s requested as to the ta abty after the death of of
the ncome of a trust created by hm for hs wfe, .
The facts n the case are stated as foows:
on ebruary , 1906, created a trust for the beneft of hs wfe.
The trustee was to pay to the wfe of the grantor annuay from
the ncome coected from the trust the sum of as doars, and to
pay any remander of the ncome of the trust to the grantor. Under
the terms of the trust nstrument , hs wfe, was gven the rght
to dspose by w of trust property of the vaue of 6a doars and
the remander of the trust property was to revert to or hs estate
upon the termnaton of the trust. Shorty after the creaton of
the trust , obtaned a dvorce from . The ncome of the trust
has been ta ed to on the theory t was used to dscharge a ega
obgaton of . ded on December , 1935.
The queston presented s whether after s death the ncome of
the trust shoud be ta ed to hs estate or to , the benefcary.
Upon the death of hs ega obgaton to mantan and support
ceased. The estate s a separate ta abe entty and the decedent s
obgaton to was hs persona obgaton and dd not pass to hs
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203(a), rt. 203(a) U)-1
118
estate. fter the death of the tnst was not a trust the ncome
of whch was used to dscharge an obgaton of the grantor, but was
an ordnary trust of whch s the benefcary.
It s, therefore, hed that after the death of the ncome of the
trust whch s dstrbutabe to s ta abe to her as the benefcary
of the trust.
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 203(a). N T INCOM O LI INSUR NC
COMP NI S: G N R L RUL .
rtce 203(a) (4)-: Investment e penses. I-26-8783
G. C. M. 18539
R NU CT O 1938.
Ta es Imposed under Ttes III and I of the Soca Securty
ct pad by the M Lfe Insurance Co. wth respect to empoyees
of ts nvestment department are deductbe as nvestment e penses
under secton 203(a)4 of the Revenue ct of 1936.
dvce s requested reatve to the aowance as an nvestment
e pense to the M Lfe Insurance Co. of ta es pad by t as an em-
poyer pursuant to Ttes III and I of the Soca Securty ct
wth respect to saares of empoyees renderng servces e cusvey
n the nvestment department of that company.
Secton 203(a) of the Revenue ct of 1936 provdes n part as
foows:
(a) Genera eue. In the case of a fe nsurance company the term net
Income means the gross ncome ess

(4) Investment e penses. Investment e penses pad durng the ta abe year:
Prokded, That f any genera e penses are n part assgned to or ncuded
In the Investment e penses, the tota deducton under ths paragraph sha not
e ceed one-fourth of 1 per centum of the book vaue of the mean of the nvested
assets hed at the begnnng and end of the ta abe year. ,
It s stated that nvestment e penses of the M Lfe Insurance Co.
ncude saares of the offcas and empoyees engaged e cusvey n
the actvtes of that department. It s contended that to the e tent
that edera soca securty ta es pad by the company appy to
such saares they shoud be aowed as an nvestment e pense where
such saares are so aowabe.
The soca securty ta es n queston are e cse ta es mposed on
empoyers wth respect to havng ndvduas n ther empoy and the
measure of the ta es s the tota amount of wages pad or payabe
by an empoyer wth respect to empoyment. (Sectons 804 and
901 of the Soca Securty ct, 49 Stat., 620.) It s evdent that the
ta es n queston, to the e tent that they are pad wth respect to
empoyees of the nvestment department of an nsurance company,
are pad wth respect to empoyment n the producton of ncome
whch s sub|ect to ncome ta . Saares pad to empoyees engaged
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119
212, rt. 212-2.
e cusvey n the nvestment department of a fe nsurance com-
pany are admttedy chargeabe to nvestment ncome and deductbe
as nvestment e penses. urthermore, amounts pad by empoyers
for purposes substantay smar to those for whch the ta es n
queston are pad, that s, pensons, are deductbe by the empoyer
as compensaton for servces rendered. It s the opnon of ths
offce that the ta es n queston are fary chargeabe to the produc-
ton of nvestment ncome earned and returned for edera ncome
ta purposes. The decson of the oard of Ta ppeas n Great
Southern Lfe Insurance Co. v. Commssoner (83 . T. ., 512),
affrmed by the Unted States Crcut Court of ppeas, fth Cr-
cut (89 ed. (2d), 54), deang wth persona property ta es, s
not controng under the crcumstances of the present case.
It s, therefore, hed that the edera soca securty ta es pad by
the M Lfe Insurance Co. wth respect to empoyees engaged e cu-
svey n ts nvestment department are propery deductbe as nvest-
ment e penses under secton 203 (a)4 of the Revenue ct of 1936.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 212. GROSS INCOM .
rtce 212-2: cuson of earnngs of foregn I-2-8470
shps from gross ncome. I. T. 3038
R NU CT O 1936.
Canada satsfes the equvaent e empton requrements of sectons
212(b) and 231(e) of the Revenue ct of 1936.
rtce 212-2: cuson of earnngs of foregn I-2-8471
shps from gross ncome. I. T. 3039
R NU CT OP 1938.
Grenada does not satsfy the equvaent e empton requrements
of sectons 212(b) and 231(e) of the Revenue ct of 1936.
rtce 212-2: cuson of earnngs of foregn I-5-8518
shps from gross ncome. I. T. 3045
R NU CTS OP 1928, 1932, 1934, ND 1936.
The Netherands satsfes the equvaent e empton requrements
of sectons 212(b) and 231(e) of the Revenue ct of 1936 and the
correspondng provsons of pror Revenue cts.
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252, rt. 252-1. 120
rtce 212-2: cuson of earnngs of I-23-8744
foregn shps from gross ncome. I. T. 3083
R NU CT O 1936 ND PRIOR R NU CTS.
Sweden satsfes the equvaent e empton provsons of actons
212(b) and 231(e) of the Revenue ct of 1936 and the correspond-
ng sectons of pror Revenue cts.
I. T. 3024 (C. . -2, 117 (1936)) revoked.
SUPPL M NT . POSS SSIONS O T UNIT D ST T S.
S CTION 252. CITIZ NS O POSS SSIONS
O UNIT D ST T S.
rtce 252-1: Status of ctzens of Unted I-19-8694
States possesson. I. T. 3070
R NU CT O 1936 ND TRIOR NU CTS.
Labty of resdents of the Phpprae Isands to edera
ncome ta under the Revenue ct of 1936 and pror Revenue cts.
It has been brought to the attenton of the ureau of Interna
Revenue that resdents of the Phppne Isands (ncudng ctzens
of the Unted States) are unaware to a great e tent of ther abty
for the Unted States ncome ta under the Revenue ct of 1936
and pror Revenue cts.
The Phppne Isands dd not cease to be a possesson of the
Unted States for edera ncome ta purposes by the estabsh-
ment of the Commonweath of the Phppne Isands under the ct
of March 24, 1934. That ct provdes that unt the compete wth-
drawa of the soveregnty of the Unted States over the Phppnes,
whch w not occur unt the 4th day of uy mmedatey foow-
ng the e praton of a perod of 10 years from the date of naugura-
ton of the new Phppne Government, the Unted States retans
certan rghts of possesson, |ursdcton, and soveregnty over the
terrtory and peope of the Phppnes.
CITIZ NS O T P ILIPPIN ISL NDS.
ctzen of the Phppne Isands who s not otherwse a ctzen
or resdent of the Unted States s treated for the purpose of the
ta as f he were a nonresdent aen ndvdua and s ta abe ony
on ncome derved from sources wthn the Unted States. Non-
resdent aen ndvduas (ncudng ctzens of the Phppne
Isands) are dvded nto two casses under the Revenue ct of
193G (a) nonresdent aen ndvduas not engaged n trade or
busness wthn the Unted States and not havng an offce or pace
of busness theren at any tme wthn the ta abe year, and (o)
nonresdent aen ndvduas who at any tme wthn the ta abe
year are engaged n trade or busness n the Unted States or have
an offce or pace of busness theren.
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121
252, rt. 252-1.
nonresdent aen ndvdua not engaged n a trade or busness
wthn the Unted States and not havng an offce or pace of bus-
ness theren s ta abe under the Revenue ct of 193G at the fat
rate of 10 per cent ony on f ed or determnabe ncome from sources
wthn the Unted States, such as nterest, dvdends, rents, saares,
wages, premums, annutes, compensatons, remuneratons, emou-
ments, or other f ed or determnabe annua or perodca gans,
profts, and ncome (as, for nstance, royates). The ct provdes
for the coecton of the ta on such ncome at the source, the re-
qurement beng that on and after uy 2, 1936, a persons havng
the contro, recept, custody, dsposa, or payment of the foregong
tems sha deduct and wthhod a ta equa to 10 per cent thereof.
The ncome derved from the sae n the Unted States of property,
whether rea or persona, s not f ed or determnabe annua or
perodca ncome wthn the meanng of the ct.
If a nonresdent aen s engaged n trade or busness n the
Unted States, or has an offce or pace of busness theren, he s
sub|ect to the ta n the same manner as ndvdua ctzens or res-
dents of the Unted States but ths ta s mposed ony wth respect
to ncome from sources wthn the Unted States. Such a nonres-
dent aen ndvdua s entted to statutory deductons n computng
ta abe net ncome from sources wthn the Unted States. The
term offce or pace of busness mpes a pace for the reguar
transacton of busness and does not ncude a pace where casua or
ncdenta transactons mght be, or are, effected.
CITIZ NS OP T UNIT D ST T S.
s a genera rue ctzens of the Unted States are ta abe on ther
ncome from a sources wherever ther busness may be done or the
property ocated. There s, however, a statutory e cepton to ths
genera rue under whch ctzens of the Unted States are ta abe
ony on ther ncome from sources wthn the Unted States:
(1) If 80 per centum or more of the gross ncome of such ctzen
for the 3-year perod mmedatey precedng the cose of the ta abe year (or
for such part of such perod mmedatey precedng the cose of such ta abe
year as may be appcabe) was derved from sources wthn a possesson of
the Unted States and

(3) If, n case of such ctzen, 50 per centum or more of hs gross ncome
for such perod or such part thereof was derved from the actve
conduct of a trade or busness wthn a possesson of the Unted States ether
on hs own account or as an empoyee or agent of another.
Notwthstandng the above provsons, a amounts receved wthn
the Unted States by such ctzens whether derved from sources
wthn or wthout the Unted States sha be ncuded n gross
ncome.
Ctzens of the Unted States who are bona fde nonresdents of
the Unted States for more than s months durng the ta abe year
are e empt from ta aton on amounts receved from sources wthout
the Unted States (e cept amounts pad by the Unted States or an
R ency thereof) f such amounts woud consttute earned ncome.
Ctzens of the Phppne Isands and ctzens of the Unted States
7086 87 5
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291, rt. 291-1. 122
resdng n the Phppne Isands who are abe for Unted States
ncome ta for the caendar year 1936 shoud fe ther returns not
ater than une 15, 1937. If such persons were abe for the fng
of edera ncome ta returns for pror years and faed to do so,
they shoud fe returns at the earest possbe date accompaned by
an affdavt settng forth the reason for deay.
SUPPL M NT M. INT R ST ND DDITIONS TO T T .
S CTION 291. ILUR TO IL R TURN.
rtce 291-1: ddton to the ta n case of I-5-8514
faure to fe return. . G. C. M. 17478
R NU CT O 1936.
Where no return Is fed by the ta payer and a return Is made
for hm by the ureau under the provsons of secton 3176, . S.,
as amended, mposton of the penaty for denquency n fng
the return s mandatory.
dvce s requested whether there may be reasonabe cause for
faure to fe a return so that the penaty for denquency may be
omtted where a return s fed by the ureau on benaf of a ta -
payer under the provsons of secton 3176, R. S., as amended, whch
provdes n part as foows:
If any person, corporaton, company, or assocaton fas to make
nnd fe a return or st at the tme prescrbed by aw or by reguaton made
under authorty of aw, or makes, wfuy or otherwse, a fase or frauduent
return or st, the coector or deputy coector sha make the return or st
from hs own knowedge and from such nformaton as he can obtan through
testmony or otherwse.
Secton 291 of the Revenue ct of 1936 provdes n part that:
In case of any faure to make and fe return requred by ths tte, wthn
the tme prescrbed by aw or prescrbed by the Commssoner n pursuance
of aw, uness t s shown that such faure Is due to reasonabe cause and
not due to wfu negect, there sha be added to the ta : 5 per centum If the
faure s for not more than 30 days wth an addtona 5 per centum for each
addtona 30 days or fracton thereof durng whch such faure contnues, not
e ceedng 25 per centum n the aggregate. The amount added to the
tu under ths secton sha be n eu of the 25 per centum addton to the ta
provded n secton 3176 of the Revsed Statutes, as amended.
In the opnon of ths offce the queston presented must be an-
swered h the negatve. Under the provsons of secton 3176, R. S.,
as amended, and secton 291 of the Revenue et of 1936, as construed
and apped by the reguatons thereunder, the ta payer may not be
reeved of the penaty mposed for faure to fe a return wthn
the tme prescrbed by aw uness the return s ater fed and fa-
ure to fe the return wthn the prescrbed tme s shown to the sats-
facton of the Commssoner to be due to reasonabe cause and not to
wfu negect. ( rtce 291-1, Reguatons 94.) It s the opnon
of ths offce that the e cepton s appcabe ony where a denquent
return s fed by the ta payer ana that t s mmatera whether a
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123
5351, rt. 351-2.
u reasonabe cause for denquency e sts where no such return s
fed. Ths offce does not regard a return made under secton 3176,
R. S., by a coector, deputy coector, or the Commssoner from
hs own knowedge and from such nformaton as he can obtan
through testmony or otherwse as consttutng a return fed by the
ta payer wthn the meanng of the provsons of aw referred to
above.
It s hed, therefore, that where no return s fed by the ta payer
and a return s made for hm by the ureau under the provsons of
secton 3176, R. S., as amended, any e cuse whch he presents after
a return has been made for hm by the ureau under that secton does
not consttute reasonabe cause whch w remove the penaty for
denquency, even though such e cuse woud consttute reasonabe
cause for the fng of a denquent return by the ta payer. (See
generay Seares Rea state Trust v. Commssoner, 25 . T. .,
1115 Seranton, Lackawanna Trust Co., Trustee, v. Commssoner, 29
. T. ., 698 and Dougas L. dmonds, dmnstrator, v. Comms-
soner, 31 . T. ., 962, arsng under earer Revenue cts.)
erman Ophant,
Genera Counse for the Department of the Treasury.
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 I-16-8648
hodng company. G. C. M. 18077
R NU CT O 1036.
Where a nonresdent foregn corporaton Is sub|ect to the pro-
vsons of secton 351 of the Revenue ct of 1936, reatng to
persona hodng companes, gans from the sae n the Unted
States of capta assets must be ncuded n ts gross ncome.
dvce s requested whether gans derved by the M Corporaton
from the sae n the Unted States of securtes shoud be ncuded
n ts gross ncome for the purpose of the surta mposed by secton
351 of the Revenue ct of 1936.
The M Company has been cassfed as a persona hodng company,
as defned by secton 351 (b) of the Revenue ct of 1936. It s a
nonresdent foregn corporaton not engaged n trade or busness
wthn the Unted States and not havng an offce or pace of busness
theren. Its stock s owned by ess than fve nonresdent aen nd-
vduas not engaged n trada or busness wthn the Unted States
and not havng an offce or pace of busness theren. More than 50
per cent of ts gross ncome from a sources for the 3-year perod
ended December 31,1935, was derved from sources wthn the Unted
States, as determned under secton 119 of the Revenue ct of 1936.
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351, rt. 351-2.
124
The corporaton s gross ncome from sources wthn the Unted
States for the caendar year 1936 conssted of nterest, dvdends, and
gans from the sae of securtes. Such gans were from transactons
effected n the Unted States through a resdent broker or custodan.
The queston presented s whether the gans derved by the corpora-
ton from the sae n the Unted States of securtes are to be ncuded
n ts gross ncome for the purpose of the surta mposed by secton
351 of the Revenue ct of 1936.
rtce 351-2 of Reguatons 94, promugated under the Revenue
ct of 1936, provdes that gross ncome for purposes of secton
351 (b) means n the case of a foregn corporaton, whether resdent
or nonresdent, ts gross ncome from sources wthn the Unted
States as defned and descrbed n secton 119. rtce 119-8 of
Reguatons 94 provdes that ncome derved from the purchase and
sae of persona property sha be treated as derved entrey from
the country n whch sod, wth certan e ceptons not here matera.
The ta es mposed by secton 351 of the Revenue ct of 1936 are
mposed under Tte I of that ct and are desgnated as addtona
ncome ta es. Under that secton a surta s eved on the un-
dstrbuted ad|usted net ncome of every persona hodng company
(as defned n the ct) at graduated rates. foregn corporaton
whch comes wthn the meanng of the term persona hodng
company must frst compute ts net ncome from sources wthn
the Unted States n accordance wth the provsons of secton 119,
Tte I of the Revenue ct of 1936. Ths s necessary n order to
ascertan the corporaton s undstrbuted ad|usted net ncome from
sources wthn the Unted States whch n turn s based on ad|usted
net ncome from sources wthn the Unted States. Under the pro-
vsons of secton 351(b) 3(C) t s provded that the term ad|usted
net ncome means the net ncome mnus (among other tems)
Losses from saes or e changes of capta assets whch are dsaowed
as a deducton by secton 117(d). In the opnon of ths offce there
s no reason for aowng a deducton of osses sustaned from the
sae or e change of capta assets wthout takng nto ncome the
gans derved from the sae of capta assets, regardess of whether
the corporaton s sub|ect to ta under secton 351 as a domestc
corporaton or as a foregn corporaton.
rtce 351-3 of Reguatons 94 provdes that n the case of a
foregn corporaton, whether resdent or nonresdent, whch fes a
return the ad|usted net ncome means the net ncome from sources
wthn the Unted States (gross ncome from sources wthn the Unted
States as defned and descrbed n secton 119 ess statutory deductons)
mnus the amount of deductons enumerated n secton 351(b) 3. It s
further provded n that artce that n the case of a foregn corpora-
ton, whether resdent or nonresdent, whch fes no return the
ad|usted net ncome means the gross ncome from sources wthn
the Unted States (as defned and descrbed n secton 119) ess the
deductons enumerated n secton 351 (b)3 referred to above, but
wthout the beneft of any deductons under Tte I. n e amnaton
of the congressona reports shows that secton 351 must be hed to
appy equay to foregn corporatons, both resdent and nonresdent,
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125
351, rt. 351-2.
regardess of whether the sharehoders are nonresdent aens or
mercan ctzens, and even though the sharehoders are not sub|ect
to surta . The ta s automatcay eved upon the hodng com-
pany wthout any necessty for provng a purpose of avodng sur-
ta es. (See Senate nance Commttee Report No. 558 page 15.
Seventy-thrd Congress, second sesson, wth respect to tne ta on
persona hodng companes, whch was frst mposed by secton 351
of the Revenue ct of 1934.)
t the tme the reguatons were prepared ths queston was care-
fuy consdered and t was concuded that secton 351 Tte I of
the Revenue ct of 1936, must be hed to appy to foregn as we as
domestc corporatons, even though such concuson may seem con-
trary to the prncpe underyng secton 231(a), Tte I of the
Revenue ct of 1936, reatng to the ta aton of nonresdent foregn
corporatons. s ndcated n secton 351(d), the surta mposed
upon the corporaton sha not appy f (1) a the sharehoders of
the corporaton ncude (at the tme of fng ther returns) n ther
gross ncome ther entre pro rata shares, whether dstrbuted or not,
of the ad|usted net ncome of the corporaton for such year, and
(2) 90 per centum or more of such ad|usted net ncome s so ncuded
m the gross ncome of sharehoders other than corporatons. It s
further provded n that secton that any amount so ncuded n the
gross ncome of a sharehoder sha be treated as a dvdend receved.
In the nstant case the amounts so ncuded n the gross ncome of
the nonresdent aen sharehoders are sub|ect to ta at the rate of
10 per cent under secton 211(a) of the Revenue ct of 1936 to the
e tent that the dvdend represents ncome from sources wthn the
Unted States under secton 119 of the Revenue ct of 1936.
though secton 231(a) of the Revenue ct of 1936 mposes a ta
ony on certan tems of f ed or determnabe ncome receved by
nonresdent foregn corporaton (gans from the sae of capta assets
beng e cuded), t shoud be noted that the ta mposed by that sec-
ton s n eu of the ta es mposed generay on corporatons by
sectons 13 and 14. The ta mposed by secton 231 (a) s not, how-
ever, n eu of the ta es mposed by secton 351 of the ct. Ths
seems cear by reference to secton 351, Tte I of the ct, whch
specfcay states that the surta on persona hodng companes
provded theren sha be n addton to the ta es mposed by Tte
I, whch tte ncudes secton 231(a). In order, therefore, to gve
proper effect to secton 351 n the case of a nonresdent foregn cor-
poraton, ts ncome must be computed under secton 119 of the
Revenue ct of 1936 rather than under secton 231(a) of that ct.
In vew of the foregong, t s the opnon of ths offce that where
a nonresdent foregn corporaton s sub|ect to the provsons of sec-
ton 351 of the Revenue ct of 1936, reatng to persona hodng
companes, gans from the sae, n the Unted States of capta assets
must be ncuded n ts gross ncome.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
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501 Regs. 95, rt. 1. 126
TITL III. T ON UN UST NRIC M NT.
S CTION 501. T ON N T INCOM ROM C RT IN
SOURC S.
Reguatons 95, rtce 1: Defntons. I-7-8554
L T. 3054
R NU CT O 1936.
mounts of edera processng ta es contngenty credted pror
to une 1, 1936, by the M Company to ts customers are not de-
ductbe n determnng seng prce as defned In secton
501(f)3 of the Revenue ct of 1936.
The M Company requests to be advsed whether the amount of the
edera processng ta credted to ts customers pror to une 1, 1936,
may be taken by t as a deducton from the seng prce of the
artces under secton 501(f)8 of the Revenue ct of 1936.
Pror to une 1, 1936, the M Company credted on ts books to
the accounts of varous vendees the amount of edera processng
ta es mposed upon t but not pad whch were ncuded n the prces
pad by such vendee s for artces purchased from the M Company.
The actua payment of the amounts credted to the company s vendees
was wthhed pendng the outcome of certan egsaton, the passage
of whch woud be consdered |ustfcaton for refusng to make such
payments. The company does not propose to make payments of such
credts to ts vendees unt t s assured that t w be permtted to de-
duct such payments n determnng the seng prce under sec-
ton 501(f) 3 of the Revenue ct of 1936, whch reads n part as
foows:
The term seng prce means seng prce mnus ( ) amounts sab-
sequenty pad or credted to the purchaser on or before une 1, 1936, or
thereafter In the bona fde settement of a wrtten agreement entered nto on
or before March 3, 1936, as rembursement for the amount Incuded n such
prce on account of a edera e cse ta .
The term pad or credted as used n secton 501(f)3 of Tte III
of the Revenue ct of 1936 means an unquafed credt, whether made
on or before une 1, 1936, or whether made thereafter pursuant to a
wrtten agreement entered nto on or before March 3, 1936. The
facts presented to the ureau by the M Company dscose that, wth
certan e ceptons herenafter noted, the credts nvoved n the n-
qury were contngent and were not unquafedy made pror to une
1,1936. ccordngy, the credts referred to are not deductbe under
secton 501(f) 3, supra, as amounts credted to the purchasers on or
before une 1, 1936. owever, any amounts credted to a vendee
whch were arbtrary deducted by the vendee and unquafedy
aowed by the M Company pror to une 1. 1936, are aowabe as
deductons from the seng prce ,of artces sod to such vendee.
Reguatons 95, rtce 1: Defntons. T-11-8599
I. T. 3058
R NU CT O 1936.
Treatment of payments or credts made by the M Company to ts
vendees under the terms of certan agreements n the computaton
of the ta mposed under Tte III of the Revenue ct of 1936.
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127
601 Regs. 95, rt. 1.
dvce s requested reatve to the treatment whch w be accorded
n the computaton of the ta under Tte III of the Revenue ct of
1936 to payments or credts made by the M Company to ts vendees
under the terms of certan agreements referred to as contracts
and .
The ta cause contaned n contract reads n part as foows:
The prce named In ts contract Incudes a ta es as at the date hereof
procamed by the Secretary of grcuture by vrtue of the authorty vested n
hm by the grcutura d|ustment ct of the Unted States. It
s, therefore, agreed and understood that f, after the date of ths contract, the
commodtes sha become sub|ect to any ncrease In ta es or to any
new or addtona ta or ta es other than those Incuded In the prce hereof
(f the seer sha be requred by aw to coect such ncreases or addtona
ta es), then, n that event, sad ncreases or addtona ta es sha be added
to the prce hereof and correspondngy f any ta ncuded n the prce hereof
ha be decreased or abated, then, n that event, sad decrease or abatement
sha be deducted from the prce hereof.
The ta cause contaned n contract reads n part as foows:
The prces named n ths contract Incude the processng ta es as now mposed
by the Unted States on the processng of the commodtes but do not
Incude any ncrease n such ta es whch may become effectve after the date
of ths contract, and f any Increase n the processng ta es as now
mposed sha become effectve, or any other such ta sha be Imposed, whe
any porton of the commodtes covered by ths contract reman unshpped, the
amount thereof sha be pad by the buyer n addton to the contract prces
heren specfed, .

ny decrease n the processng ta es as now or hereafter mposed by any
egsatve or admnstratve branch of the Unted States sha Inure to the
beneft of the buyer, f as and when the beneft of such decrease has been actu-
ay reazed and secured by the seer, and sha be credted aganst the con-
tract prces named n ths contract to the e tent and ony to the e tent,
that the gran used In the manufacture of the product covered by ths contract
s med after the decrease and to the e tent that the seer Is
thereby defntey reeved from the processng ta .
In the case of agreements contanng any of the above-mentoned
ta provsons whch were made on or before March 3,1936, t s hed
that any payment or credt made bona fde to vendees thereunder s
pad or credted pursuant to a wrtten agreement wthn the mean-
ng 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 deducted 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 ques-
ton, ess the aocabe porton of the reasonabe professona fees
and other e penses pad or ncurred n connecton wth the nonpay-
ment or recovery of the amount of such ta , or n connecton wth the
makng of such repayment or credt.
In connecton wth a second nqury, the M Company states that
durng the n|unctve perod t made deveres of four to customers
n accordance wth the terms of contracts e ecuted pror to March 3,
1936 that such contracts contaned the ta cause found n contract
or , e tracts from whch are quoted above that the vendor s sg-
nature was attached to these contracts and that the sgnature of the
vendee was not so attached. dvce s requested as to the proper
treatment of payments or credts made under the terms of such con-
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501 Regs. 95, rt. 1
128
tracts. If the vendees on or before March 3, 1936, after havng
knowedge of the contents of these wrtten agreements, manfested
acceptance of the terms thereof, payments or credts made n accord-
ance wth the terms of such agreements w be treated by the
ureau n the same manner as payments or credts made under the
contracts heretofore dscussed.
The ta payer aso states that durng the n|unctve perod t de-
vered four n accordance wth wrtten contracts made pror to
March 3, 1936, contanng the ta provsons of contracts and
to |obbers and/or whoesaers and chan stores who presumaby passed
on the ta to ther vendees. The company nqures as to the treat-
ment whch w be accorded payments or credts made under such
crcumstances. Payments or credts made n accordance wth the
terms of such agreements under the above crcumstances w be
treated by the ureau n the same manner as payments or credts
made under the contracts heretofore dscussed.
The ta payer aso asserts that durng the n|unctve perod t made
a substanta number of saes of four wth respect to whch no form
of wrtten agreement was e ecuted but that prces charged ncuded
the processng ta . Some of such saes resuted from the fng of
ora or teegraphc orders and others were made by e change of et-
ters n whch there was no menton of ta es. Payments or credts
made upon such bases w not be consdered as made wthn the m-
tatons prescrbed by secton 501(f)3 and secton 501 (|)4 of the
Revenue ct of 1936, uness made on or before une 1,1936.
Reguatons 95, rtce 1: Defntons. I-17-8671
( so Secton 22(a) Reguatons 94, G. C. M. 18123
rtce 22(a)-.)
R NU CT O 1936.
ffect of assgnment of cam aganst a processor arsng under a
wrtten contract for rembursement on account of processng ta es.
dvce s requested reatve to an assgnment by the M Company,
a four |obber, to the O Company of a ts rght tte, and nterest
n a cam aganst the N Company, a processor, arsng under a wrt-
ten contract dated uy , 1935, for rembursement on account of
processng ta es mposed upon the processor but not pad wth respect
to artces purchased from the processor by the M Company. In-
qury s made reatve to the effect of the assgnment upon the ab-
ty for ncome and un|ust enrchment ta es of the M Company and
the O Company.
Secton 501(a) (1) and (2) of the Revenue ct of 1936 provdes
as foows:
(a) The foowng ta es sha be eved, coected, and pad for each ta abe
year (n addton to any other ta on net Income), upon the net Income of every
person whch arses from the sources specfed beow:
(1) ta equa to 80 per centum of that porton of the net ncome from the
sae of artces wth respect to whch a edera e cse ta was mposed on such
person but not pad whch s attrbutabe to shftng to others to any e tent
the burden of such edera e cse ta and whch does not e ceed such person s
net Income for the entre ta abe year from the sae of artces wth respect
to whch such edera e cse ta was Imposed.
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129
501 Regs. 95, rt. 1.
(2) ta equa to 80 per centum of the net ncome from rembursement
receved by such person from hs vendors of amounts representng edera
e cse-ta burdens ncuded n prces pad by such person to such vendors, to
the e tent that such net ncome does not e ceed the amount of such edera
e cse-ta burden whch such person n turn shfted to hs vendees.
Secton 501(b) provdes n part as foows:
(b) The net ncome (specfed n subsecton (a)(1)) from the sae of art-
ces wth respect to whch the edera e cse ta was not pad, and the net
ncome specfed n subsecton (a) (2) sha not ncude the net n-
come from the sae of any artce, (2) If the ta payer made a ta
ad|ustment wth respect to such artce (or the artces processed therefrom)
wth hs vendee .
It s provded n secton 601(f)3 as foows:
(3) The term seng prce means seng prce mnus ( ) amounts subse-
quenty pad or credted to the purchaser on or before une 1, 1936, or there-
after n 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 .
In secton 501 (|)4 a ta ad|ustment s defned as foows:
(4) 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 nonpayment or recovery by hm of
the amount of such ta and In 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 nto on
or before March 3, 1936.
It s consdered that the provsons of subdvsons (b), (f) (5
and (|)(4) quoted above are appcabe to every person sub|ect to
the ta mposed by subdvson (a), whether such person, beng a
processor, s abe for the ta mposed by subdvson (a)(1), or
whether such person, beng a vendee (ncudng |obber or baker), s
abe for the ta mposed Dy subdvson (a) (2). Therefore, n the
case of the ta mposed by subdvson (a) (2) on the net ncome
from rembursement receved by such person from hs vendors, t
s hed that any repayments or credts made by such person to hs
vendees wth respect to rembursements so receved are not aowabe
as a credt aganst seng prce wthn the meanng of subdvson
(f) (3), or as a ta ad|ustment wthn the meanng of subdvson
(|)(4), uness such repayments or credts were made on or before
une 1, 1930, or thereafter n the bona fde settement of a wrtten
agreement entered nto on or before March 3, 1936, as provded n
the quoted subsectons.
Where goods are sod to a vendee who n turn ses the goods to a
thrd party, there beng a wrtten agreement between the processor
or frst vendor and hs vendee to make rembursement on account of
edera e cse ta burdens, the vendee s not entted to a credt
aganst seng prce under secton 501(f)3 or an e cuson under
secton 501(b) by vrtue of an assgnment by hm of such agreement
to hs purchaser, uness such assgnment operates to gve to the pur-
chaser the vendee s rghts under the wrtten agreement and was made
n wrtng on or before March 3, 1936, n accordance wth the prov-
sons of secton 501(f)3 and secton 501 (|)4. To permt a credt
under secton 501(f)3 or a ta ad|ustment under secton 501 (|)4 on
account of a wrtten agreement, however vad, entered nto after
March 3, 1936, woud do voence to the e press anguage of the
statute.
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501 Regs. 95, rt. 8.
130
In the above stuaton, where there s a ega obgaton on the part
of the rendee to remburse hs purchaser n satsfacton of whch
obgaton the vendee assgns hs rghts to rembursement from the
processor, the vendee does not by such assgnment escape the wndfa
ta abty under secton 501 (a)2. In such a case shoud the proc-
essor make rembursement drecty to the purchaser, such remburse-
ment woud be on behaf of the vendee and woud thus be receved
wthn the meanng of secton 501 (a)2 even though the money was
never actuay pad nto the hands of the vendee. In Od Coony
Trust Co. v. Commssoner (279 U. S., 716), the court stated:
The dscharge by a thrd person of an obgaton to hm the ta -
payer s equvaent to recept by the person ta ed.
In Dougas v. Wcuts (296 U. S., 1) the court sad:
We have hed that ncome was receved by a ta payer, when, pur-
suant to a contract, a debt or other obgaton was dscharged by another for
hs beneft. The transacton was regarded as beng the same n substance as
If the money had been pad to the ta payer and he had transmtted t to hs
credtor.
Smary, where rembursement s made under a contract assgned
by a vendee to hs purchaser n consderaton of the former s obga-
ton to remburse the atter, the vendee w be treated as havng re-
ceved such rembursement wthn the meanng of secton 501 (a)2.
rtce 8 of Reguatons 95, reatng to the ta on un|ust enrch-
ment, provdes n part as foows:
kt. 8. Computaton of net ncome from rembursements. There
s frst computed the tota payment or accrua to the ta payer durng the
ta abe year of rembursement from vendors for amounts representng edera
e cse ta burdens ncuded In prces pad by the ta payer to hs vendors.
In makng such computaton, there sha be ncuded any amount pad or
accrued to the ta payer as rembursement from vendors wth respect to any
amount of edera e cse ta refected In prces pad by the ta payer to such
vendors.
(See aso secton 501(d).)
ccordngy, where there has been an accrua of rembursement
pror to assgnment wthn the meanng of that artce of the regua-
tons the amount of such rembursement woud be sub|ect to ta at
the tme of such accrua.
or the purpose of the ncome ta mposed by Tte I of the Rev-
enue ct of 1936, any amount pad, credted, or accrued (f te ta -
payer keeps hs accounts on the accrua bass) under such a contract
so assgned shoud be treated as an tem of gross ncome both to the
assgnor and assgnee.
Morrson Safroth,
Chef Counse, ureau of Interna Revenue.
Reguatons 95, rtce 8: Computaton of net ncome
from rembursements.
R NU CT O 1936.
ccrua of amount due as rembursement of edera processng
ta . (See I. T. 3064, page 94.)
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131
100.
Reguatons 95, btce 12: cusons from
net ncome.
R NU CT O 1936.
I-5-8526
I. T. 3046
Inventores of sugar for the purpose of computng net Income
under Tte III of the Revenue ct of 1936.
dvce s requested whether saes of sugar on anuary 6, 1936, are
to be ncuded n computng net ncome under Tte III of the Reve-
nue ct of 1936 (Ta on Un|ust nrchment n order that the M
Company may determne ts nventory as of anuary 6, 1936, or
anuary 6, 1936, as the case may be and whether artces processed
durng the entre day, anuary 6, 1936, are consdered artces wth
respect to whch the ta was mposed but not pad. (See secton
Secton 601(b) of the Revenue ct of 1936 provdes that net
ncome sha not ncude net ncome wth respect to any artce not
sod on or before the date of the termnaton of the e cse ta , whch
was anuary 6, 1936. Therefore, nventores shoud be as of the
cose of busness on anuary 6, 1936. rtces wth respect to whch
a edera e cse ta was mposed are a sugar artces processed dur-
ng the ta abe year, regardess of whether the artces were processed
be ore or after anuary 6, 1936. That quantty (a sugar artces
processed durng the ta abe year) ess the quantty of those artces
wth respect to whch the ta was actuay pad s the quantty of
artces wth respect to whch the ta was mposed but
not pad. In computng the net ncome on ths fna quantty under
secton 501(a) there s e cuded the net ncome on such of those
artces as were sod after the cose of anuary 6, 1936.
TITL I. INCOM ND C SS-PRO ITS T S.
S CTION 106. C SS-PRO ITS T .
or the purpose of computng the e cess-profts ta mposed by
secton 106 of the Revenue ct of 1935, as amended, a mutua
nvestment company, as denned n secton 48(e) of the Revenue
ct of 1936, s entted to the credt for dvdends receved as pro-
vded n secton 26(b) of the Revenue ct of 1936 but s not en-
tted to a credt for dvdeuds pad under secton 27 of that ct.
dvce s requested whether a mutua nvestment company, as de-
fned n the Revenue ct of 1936, s entted to take as a credt for
e cess-profts ta purposes the amount of dvdends pad durng the
ta abe year.
601(a).)
. R NU CT O 1935.
I-20-8704
I. T. 3073
R NU CT O 1935.
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106.
132
Secton 13 of the Revenue ct of 1936, reatng to the norma ta
on corporatons, provdes n part:
(a) Defnton. s used n ths tte the term norma-ta net Income
means the net ncome mnus the sum of

(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 defned n
secton 48.
(3) Dvdends pad. In the case of a mutua Investment company the credt
provded n secton 27, computed wthout the beneft of subsecton (b) thereof
(reatng to dvdend carry-over).
Secton 26 of the ct provdes that n 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.
Secton 27 of the ct, reatng to the corporaton credt for dv-
dends pad, provdes n part:
(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, If the dvdends pad durng the ta abe year are ess than the
ad|usted net Income, 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 Its
frst ta abe year under ths tte.
rtce 48(e)- of Reguatons 94 provdes n part as foows:
Ta aton of mutua nvestment companes. Genera. If a corpora-
ton, as defned n secton 1001, shows to the satsfacton of the Commssoner
that t s entted to the status of a mutua Investment company, as defned n
secton 48(e), t s aowed, under secton 13(a)3, a credt for dvdends pad,
as provded n secton 27, computed wthout the beneft of secton 27(b) reat-
ng to dvdend carry-over, but under secton 13(a)2 t s not aowed the credt
for dvdends receved provded n secton 26(b).
Secton 106 of the Revenue ct of 1935, as amended by secton 402
of the Revenue ct of 1936, provdes n part:
(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 In respect of
whch t s ta abe under secton 105, an e cess-profts ta .

(b) or the purposes of ths secton the net ncome sha be the
same as the net ncome for ncome ta purposes for the year n 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 In secton 26(b) of the Revenue
ct of 1936.
rtce 1 of Treasury Decson 4666. approved uy 16,1936 (pages
502 to 510, ncusve, Reguatons 94), reatng to the e cess-profts
ta mposed by the Revenue ct of 1935, as amended, provdes n
part as foows:
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133
22(a), rt. 22(a)-
(d) Wet ncome means (1) Net Income 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 con-
tempaton of secton 21 of the Revenue ct of 1030. In the case of n-
come-ta ta abe years, governed by the Revenue ct of 1936, nether the amount
of Income ta Imposed by the Revenue ct of 1936 nor the amount of the
e cess-profts ta Imposed by the Revenue ct of 1935, as amended, sha be
deducted from net Income In 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(6) of
the Revenue ct of 19S6. Itacs supped.
or the ta abe year 1936, the determnaton of ncome sub|ect to
ncome ta and the aowance of credts for the purpose of computng
ncome ta abty are governed by Tte I of the Revenue ct of
1936. The determnaton of ncome sub|ect to the e cess-profts ta
and the aowance of credts for the purpose of computng e cess-
profts ta abty are governed by secton 106 of the Revenue ct of
1935, as amended by secton 402, Tte II of the Revenue ct of 1936.
The ncome ta and e cess-profts ta are separate and dstnct ta es,
and the deductons and credts aowabe for the purpose of computng
ncome ta abty are not necessary aowabe for the purpose of
determnng e cess-profts ta abty.
ccordngy, n vew of the above-quoted provsons of the aw
and reguatons, t s hed that for the purpose of computng the
e cess-profts ta mposed by secton 106 of the Revenue ct of 1035,
as amended, a mutua nvestment company, as defned n secton 48(e)
of the Revenue ct of 1936, s entted to the credt for dvdends
receved as provded n secton 26(b) of the ct but s not entted
to a credt for dvdends pad as provded n secton 27 of the ct.
C R NU CT O 1934.
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.
btce 22 (a)-1: What ncuded n gross ncome. I-2-8472
G. C. M. 16952
R NU CTS O 1932 ND 1934.
Where a contract was entered Into on behaf of a group of ct-
zens wth a manufacturng company In order to nduce It to ocate
Its pant on certan property, and pursuant thereto such property
was conveyed to the company when ts pay ro reached a stpu-
ated amount, the grantee dd not derve ta abe Income from such
conveyance, nor was the transfer by the grantor sub|ect to the
gft ta -
dvce s requested whether the vaue of property conveyed to
the M Company by a group of ctzens to nduce the company to
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22(a), rt. 22(a)-
134
ocate ts busness on the property consttuted ta abe ncome, and
whether the transfer of the property was sub|ect to the edera
gft ta .
y vrtue of a proceedng hed n the chancery court of the cty
of , the O ank, as trustee, took over certan property n trust for
the beneft of the ctzens of the cty of R, who contrbuted the sum
of 6 doars for the purchase prce of the property, factory, machn-
ery, etc. In accordance wth the authorty conferred upon the O
ank as trustee, t entered nto a contract wth the M Company and
devered to that company possesson of the rea estate, factory,
machnery, and equpment. In consderaton of the surrender of the
possesson of the property by the trustee, the M Company agreed
to pay to the trustee a sum equa to 6 per cent of 6a doars per
annum, or .36a doars, for a perod of 10 years to pay a State,
county, and muncpa ta es upon the property to keep the bud-
ng, machnery, and equpment nsured aganst oss by fre and to
provde for and pay a tems of mantenance and upkeep upon the
premses. The M Company aso agreed that t woud operate the
manufacturng pant n the cty of R and woud not remove the
pant therefrom that the pant woud be operated for a perod
of 10 years and that f the company ceased operatons and the
pant was cosed for a perod of s months, the trustee had the
opton to termnate the contract and take possesson of the prem-
ses. The company agreed further that t woud operate the pant
for a practca purposes as f t were ts own, that t woud
manufacture and market certan artces theren, adequatey fnance
the same, and provde for the purchase of such materas and pay
for such abor as was necessary for ts operaton, the trustee re-
servng the rght to nspect the property and to have such contro
over the property as a essor under the aws of the State of S woud
have over property n the possesson of a essee. In consderaton
of the covenants and agreements rected n the contract to be per-
formed by the M Company, the trustee agreed that f and when
the aggregate annua pay ro of the company n the cty of R
shoud equa or e ceed the amount of 200a doars the trustee woud
deed the property to the M Company n fee smpe free and cear
of any further charges. When the pay ro of the M Company
reached the 200a doar annua requrement n 1935, the trustee by
proper deed transferred the premses n queston to that company.
The ssue presented s the proper treatment of the transacton for
edera ncome and gft ta purposes.
In dwards v. Cuba Raroad Oo. (268 U. S., 628, T. D. 8728, C. .
I -2,122), the Unted States Supreme Court hed that subsdy pay-
ments made by the Repubc of Cuba to a raroad company for the
constructon and mantenance of a raroad are rembursements for
capta e pendtures and are not ncome, gans, or profts wthn the
meanng of the s teenth amendment to the Consttuton. In severa
cases the oard of Ta ppeas has foowed what t deems to be
the prncpe of the Supreme Court s decsons reatve to contrbu-
tons to corporatons generay. In ppea of Lberty Lght dk
Power Go. (4 . T. ., 155, acquescence, C. . -1, 4), the oard
hed that rembursements for servce e tensons and connectons by
uttes dd not consttute ta abe ncome. In G. C. M. 1581 (C. .
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135
522(a), rt. 22(a)-.
I-1,197), t was hed, on authorty of the foregong decsons, that
a demonstraton pant erected by a foregn corporaton at ts e -
pense on the ta payer s premses and transferred to the ta payer
wthout cost dd not consttute ta abe ncome to the ta payer. In
rank oton Co. v. Commssoner (10 . T. ., 1317, acquescence,
C. . TI-2, 18), t was hed that the vaue of property conveyed to
a company by busness men or a chamber of commerce to nduce t
to ocate ts busness on the property dd not consttute ta abe n-
come. In a ong ne of cases from Great Northern Raway Co. v.
Commssoner (8 . T. ., 225, acquescence, C. . II-2, 16) to the
atmore Oho Raroad Go. v. Commssoner (30 . T. ., 194,
acquescence, C. . III-2, 2), the oard reached a smar concu-
son wth respect to contrbutons to raroad companes for construc-
ton of sde and spur tracks or for other constructon work.
Ths offce s of the opnon, n the ght of the decsons cted, that
the transfer n queston dd not resut n ta abe ncome to the
grantee.
The remanng queston s whether such transfer s sub|ect to the
gft ta mposed by the Revenue ct of 1932, as amended. That ct
provdes n part as foows:
8bc. 503. Transfer for ess than adequate and, fu consderaton.
Where property s transferred for ess than an adequate and fu consdera-
ton n money or money s worth, then the amount by whch the vaue of the
property e ceeded the vaue of the consderaton sha, for the purpose of the
ta mposed by ths tte, be deemed a gft, and sha be Incuded n computng
the amount of gfts made durng the caendar year.
Reguatons 79 (1936 edton), reatng to gft ta , provde n part
as foows:
rt. 8. Transfers for a consderaton n money or money s worth. Transfers
reached by the statute are not confned to those ony whch, beng wthout a
vauabe consderaton, accord wth the common aw concept of gfts, but em-
brace as we saes, e changes, and other dspostons of property for a con-
sderaton n money or money s worth to the e tent that the vaue of the
rroperty transferred by the donor e ceeds the vaue of the consderaton gven
therefor. owever, a sae, e change, or other transfer of property made n the
ordnary course of busness (a transacton whch s bona fde, at arm s ength,
and free from any donatve ntent), w be consdered as mnde for an ade-
quate and fu consderaton n money or money s worth.
The facts n the present case |ustfy the concuson that such
transfer was made n the ordnary course of busness (a transac-
ton whch s bona fde, at arm s ength, and free from any donatve
ntent). Therefore, n accordance wth artce 8 of Reguatons 79
(1936 edton), supra, the transfer must be consdered as havng
been made for an adequate and fu consderaton n money or
money s worth. It foows that the transfer s not sub|ect to the
edera gft ta mposed by the Revenue ct of 1932, as amended.
erman Ouphant,
Genera Counse for the Department of the Treasury.
rtce 22(a)-: What ncuded n gross ncome.
R NU CT O 1034.
Dstrbutons of domestc budng and oan assocaton reorganzed
as edera savngs and oan assocaton. See I. T. 3050, page 57.)
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22(b), rt. 22(b) (2)-2. 136
rtce 22(a)-: What ncuded n gross ncome.
R NU CT OP 1934.
Ta abty of ncome of restrcted members of the Osage Indan
Trbe. (See G. C. M. 18242, page 57.)
rtce 22 (a)-3: Compensaton pad other than n cash.
R NU CT O 1934.
mendment of artce 22(a)-3, eguatons 86. (See T. D. 4724,
page 58.)
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 22(b) (2)-2: nnutes. I-21-8716
L T. 3077
R NU CT O 1934.
In determnng the ta abe eement of an annuty receved by a
survvor annutant under a survvorshp annuty contract, the e -
empton provded by secton 22(b)2 of the Revenue ct of 1934
s measured by the aggregate premums or consderaton pad for
such annuty and not by the survvor annutant s proportonate
share of such consderaton.
rung s requested as to the ta abe eement of the annuty re-
ceved n 1934 by as survvor annutant under a survvorshp an-
nuty contract ssued to her husband, .
In December, 1932, purchased from the M Lfe Insurance Co. for
31.2oa doars a snge premum survvorshp annuty contract, whch
provded for the payment to hm of doars semannuay for the
duraton of hs te and thereafter to , hs wfe, for the remander
of her fe. e ded n December, 1933. In cacuatng the ta abe
ncome to be reported as pad to the annutant n 1934, the nsurance
company took nto consderaton the entre premum of 31.25a do-
ars, and requests advce whether the term aggregate premums or
consderaton pad for such annuty means the premum aocabe to
the nterest hed by the survvor or the entre premum pad.
Secton 22(b) 2 of the Revenue ct of 1934 provdes n part as
foows:
mounts receved as an annuty under an annuty or endowment
contract sha be ncuded n gross Income e cept that there sha be e cuded
from gross ncome the e cess of the amount receved n the ta abe year over
an amount equa to 3 per centum of the aggregate premums or consderaton
pad for such annuty (whether or not pad durng such year), unt the aggre-
gate amount e cuded from gross ncome equas the aggregate
premums or consderaton pad for such annuty.
The e empton provded by secton 22(b)2 s measured by the
aggregate premums or consderaton pad for such annuty and
not Dy the premums or consderaton pad for the proportonate
shares of the annutants. The statute makes no reference to such pro-
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137
523(a), rt. 23 (a)-2.
portonate shares. The annutant, , therefore, s requred to n-
cude as ta abe ncome n her ncome ta return for the year 1934
that porton of the annuty receved n an amount equa to 3 per cent
of the consderaton pad by her husband for the annuty.
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 23(a)-: usness e penses.
R NU CT OP 1934.
ttorney s fees pad to secure appontment of guardan. Revoca-
ton of I. T. 2124 (C. . I -1,138 (1925)). (See Mm. 4580, page 62.)
rtce 23(a)-: usness e penses.
R NU CT O 1934.
Contrbutons to the Pubcty Commsson of the State of Con-
nectcut. (See I. T. 3072, page 84.)
btce 23(a)-2: Traveng e penses. I-22-8733
G. C. M. 18430
R NU CTS O 1921 ND 1934.
Where an empoyee of the State Department Is transferred from
one foregn post to another for the convenence of the Government,
an amount receved by hm as rembursement of the cost of trans-
portaton for hmsef and famy shoud not be Incuded n hs gross
ncome.
ecommended that I. T. 1518 (O. . 1-2, 90 (1922)) be modfed.
dvce s requested as to the proper treatment for edera ncome
ta purposes of amounts e pended n 1935 by the ta payer for trans-
portaton of dependents and househod goods n connecton wth hs
transfer by the State Department from one foregn post to another.
In hs ncome ta return for the year 1935 the ta payer ncuded
n hs gross ncome the sum of 16 doars representng remburse-
ment receved from the Government for traveng e penses ncurred
by hmsef and famy n transferrng from one foregn post to
another pursuant to the order of the Secretary of State. Of ths
amount, 4 doars represents the amount of e penses ncurred for
transportaton of dependents and 10ar doars represents the amount
of e penses for transportaton of househod goods. These amounts,
aggregatng 14a doars, were dsaowed as deductons on the ground
that they are persona e penses, whe the remander, 2 doars,
representng the ta payer s own traveng e penses, was aowed as
a deducton. The ta payer s transfer was not made for hs con-
venence but was a transfer made n the ordnary routne of the
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23(a), rt. 23(a)-2.
138
State Department. That department advses that t s essenta to
the satsfactory performance of hs offca dutes, and therefore
essenta to the nterests of the Government, that a member of the
mercan oregn Servce sent abroad n a dpomatc or consuar
capacty be accompaned by hs famy and have a sutabe, furnshed
resdence
In G. C. M. 12300 (C. . II-2, 30 (1933)) ths offce hed that
aowances pad to offcers and empoyees of the State Department
n the foregn servce of the Unted States for vng quarters, n-
cudng heat, fue, and ght, are not sub|ect to edera ncome ta
because they are not compensatory n character but are prmary
for the purpose of nsurng more compete servce to the Unted
States and ts ctzens tradng and traveng abroad, such purpose
beng gathered from the authorzng statute, ct of pr 29, 1926
(44 Stat., 330). It s equay cear that the payment or remburse-
ment by the Government of the cost of transportng offcers, ther
fames, and ther househod effects to, from, or between foregn
posts of duty s prmary for the beneft or convenence of the Gov-
ernment and s not compensatory n character. There s no essenta
dfference between a payment of such costs drecty by the Govern-
ment and the payment by the offcer wth subsequent rembursement
by the Government. In the atter case the offcer has made an e -
pendture prmary for the beneft of the Government for whch
he s rembursed. In nether case does the offcer derve ta abe
ncome.
O. D. 1135 (C. . 5, 174 (1921)) and I. T. 3022 (C. . -2, 76
(1936)), n whch t was hed that amounts pad by the Government
for transportaton of dependents of rmy offcers and dependents of
offcers and men of the Coast Guard, respectvey, consttute ncome
to such offcers and men, are not governng n the present case. In
those cases t was not shown that t was essenta to the servce ren-
dered to the Government that such offcers and men mantan house-
hods and ther fames at ther posts of duty. The ppea of
a ter D. McCan (2 . T. ., 726) s aso dstngushabe. There
the oard of Ta ppeas hed that e penses ncurred by a ta payer
n changng the pace of resdence of hmsef and famy to another
cty and the e pense of transportng hs househod goods for the
purpose of enterng upon new empoyment n that cty are not de-
ductbe. Such e penses were pad by hs empoyer, an ndustra
corporaton, and were ncuded n hs return as ncome. In cases of
that type the payment by the empoyer s compensatory n character
and s not prmary for the purpose of nsurng more compete
servce to the empoyer.
In vew of the foregong, t s the opnon of ths offce that the
amount n queston, 14a doars, representng rembursement of the
cost of transportng the ta payers famy and househod goods
between the two foregn posts, shoud be e cuded from the ta -
payer s gross ncome for the year 1935. Therefore, the queston of
whether such amount s deductbe does not arse. The remburse-
ment to the ta payer of the amount e pended by hm for hs own
transportaton, 2 doars, has been ncuded n hs gross ncome
and has been aowed as a deducton. owever, n the opnon of
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139 23(c), rt. 23(c)-.
ths offce, such rembursement shoud not be consdered as a part of
the ta payer s gross ncome from whch t foows that no deducton
therefor s aowabe.
It s recommended that L T. 1518 (C. . 1-2, 90 (1922)) be mod-
fed n so far as nconsstent wth the vews heren e pressed.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
S CTION 23(c). D DUCTIONS ROM G OSS
INCOM : T S G N R LLY.
rtce 23 (c) -1: Ta es. I-6-8531
I. T. 3049
R NU CT O 1934.
The ta on transfers of Interests In sver buon mposed by
Tte III, Schedue , subdvson 10 of the Revenue ct of 1928,
as added by secton 8 of the Sver Purchase ct of 1034 (48
Stat, 1178), s not deductbe for edera Income ta purposes.
I. T. 2899 (a . I -1, 67) revoked.
In L T. 2899 (C. . I -1, 67) t was hed that the ta pad on
transfers of nterests n sver buon mposed by Tte TII,
Schedue , subdvson 10 of the Revenue ct of 1926, as added by
secton 8 of the Sver Purchase ct of 1934 (48 Stat., 1178), const-
tuted a proper deducton for edera ncome ta purposes.
In Unted States v. Percy . udson, decded anuary 11, 1937
(Ct D. 1196, page 353, ths uetn), the Supreme Court hed that
the ta n queston s a speca ncome ta measured by the profts
derved from transfers of nterests n sver buon. Snce edera
ncome ta es are not deductbe n computng net ncome (see secton
23(c) of the Revenue ct of 1934), the ta mposed on transfers of
nterests n sver buon s not deductbe for edera ncome ta
purposes.
In vew of the foregong, I. T. 2899, supra, s revoked.
rtce 23(c)-: Ta es.
NU CT O 1934.
Caforna motor vehce fue ta . See I. T. 3075, page 75.)
rtce 23(c)-: Ta es.
R NU CT O 1934.
Procedure n e amnaton of edera ncome ta returns n whch
deductons have been taken for processng ta es. (See I. T. 3086,
page 77.)
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523(c), rt. 23(c)- .
140
rtce 23(c)-1: Ta es. I-25-8773
G. C. M. 18540
R NU CT OP 1934.
The ta Imposed by the Iowa reta saes ta aw, Dvson I ,
Iowa property reef act, 1934, s an aowabe deducton to the
consumer for edera ncome ta purposes.
Recommended that I. T. 2S02 (C. . III-2, 50 (1934)) be
revoked.
Reconsderaton has been requested of I. T. 2802 (C. . III-2, 50
(1934)), n whch t was hed that the ta mposed by the Iowa reta
saes ta aw (1934) s deductbe by the retaer for edera ncome
ta purposes.
The matera provsons of the Iowa aw nvoved (Dvson I ,
property reef act, 1934) are as foows:
Sec. 38. Ta mposed. There s hereby mposed, begnnng the 1st day of
pr, 1934, and endng pr 1, 1937, a ta of 2 per cent upon the gross recepts
from a saes of tangbe persona property, consstng of goods, wares, or mer-
chandse, e cept as otherwse provded n ths dvson, sod at reta n the
State of Iowa to consumers or users a ke rate of ta upon the gross recepts
from the saes, furnshng or servce of gas, eectrcty, water and communca-
ton servce, ncudng the gross recepts from such saes by any muncpa
corporaton furnshng gas, eectrcty, water and communcaton servce to the
pubc n ts propretary capacty, e cept as otherwse provded n ths dvson,
when sod at reta n the State of Iowa to consumers or users and a ke rate
of ta upon the gross recepts from a saes of tckets or admssons to paces
of nmusement and athetc events, e cept as otherwse provded n ths dvson.
The ta heren eved sha be computed and coected as herenafter provded.
Sec. 39. emptons. There are hereby specfcay e empted from the pro-
vsons of ths dvson and from the computaton of the amount of ta mposed
by t, the foowng:
(a) The gross recepts from saes of tangbe persona property whch ths
State s prohbted from ta ng under the Consttuton or aws of the Unted
States or under the consttuton of ths State.
(b) The gross recepts from the saes, furnshng or servce of transportaton
servce.
(c) The gross recepts from saes of tangbe persona property used for the
performance of a contract on pubc works e ecuted pror to the effectve date
of ths dvson.
(d) The gross recepts from saes of tckets or admssons to State, county,
dstrct and oca fars, and the gross recepts from educatona, regous, or
chartabe actvtes, where the entre amount of such recepts f e pended for
educatona, regous or chartabe purposes.

Seo. 41-a. ddng to ta . Retaers sha, as far as practcabe, add the ta
mposed under ths dvson, or the average equvaent thereof, to the saes
prce or charge and when added such ta sha consttute a part of such prce
or charge, sha be a debt from consumer or user to retaer unt pad, and sha
be recoverabe at aw n the same manner as other debts.

Seo. 42. Unawfu acts. It sha be unawfu for any retaer to advertse or
hod out or state to the pubc or to any consumer, drecty or ndrecty, that
the ta or any part thereof mposed by ths dvson w be assumed or absorbed
by the retaer or that t w not be consdered as an eement n the prce to the
consumer, or f added, that It or any part thereof w be refunded.
amnaton of the Iowa property reef act, of whch the reta
6aes ta aw s a part, dscoses that the reta saes ta aw was
enacted as Dvson I of chapter 82 of the aws of the orty-ffth
Genera ssemby of the State of Iowa, e traordnary sesson, and
that the act had as ts decared purpose the reducton of ta es upon
rea and persona property by the e pedent of ta es eved n such
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141
523(c), rt. 28(c)-.
manner and upon such persons as to spread a substanta part of the
burden of ta aton theretofore borne by property owners over the
entre popuaton of the State upon other bases. (See sectons 2, 62,
ch. 82, aws, supra.) Secton 41-a of the act provdes for the estab-
shment of agreements between, and the adopton of rues by, retaers
and/or retaers assocatons to provde unform methods for addng
the ta to the saes prce.
Rue No. 62 of the reguatons promugated by the State board of
assessment and revew reads n part as foows:
In the event a retaer ses numerous artces to one purchaser, the
ta shoud be coected upon the tota purchase prce of a the artces sod. In
ach cases there may n no event be a ta coected upon each ndvdua artce,
snce ths procedure woud n most cases coect an e orbtant amount of ta
under the reta bracket and be consdered a voaton of the act Itacs
supped.
Rue No. 69 of those reguatons provdes that the ta sha appy
to e ecutory contracts of sae made pror to the effectve date or the
reta saes ta aw. In an opnon promugated by the State board
of assessment and revew, on uy 26, 1934, t was stated n part:
commerca teephone e changes whch operate a swtchboard w be re-
qured to have a permt and w be responsbe for the coecton and payment
of the reta saes ta under the provsons of the Iowa reta saes ta act
Itacs supped.
or edera ncome ta purposes secton 23(c) of the Revenue ct
of 1934 authorzes the deducton of a ta es pad or accrued wthn
the ta abe year, wth certan e ceptons not here matera. Consder-
ng the somewhat ambguous provsons of the State aw, together
wth the reguatons and opnons of the State board of assessment and
revew, reatng to the dentty of the ta payer, t appears that t was
the ntenton of the egsature of the State or Iowa n enactng the
reta saes ta aw n queston to mpose a ta upon each sae of prop-
erty at reta, as provded by the aw, and to mae the ta payabe by
the consumer wth the retaer as a computng and coectng agent for
the State. ccordngy, t s concuded that the ta mposed by the
Iowa reta saes ta aw (enacted as a part of the Iowa property
reef act, 1934) s an aowabe deducton to the consumer for ed-
era ncome ta purposes.
It s recommended that I. T. 2802, supra, whch s nconsstent wth
ths concuson, be revoked.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
rtce 23 (c) -1: Ta es. I-25-8774
I. T. 3091
R NU CT O 1934.
I. T. 2802 (C. . III-2, 50 (1934)) s revoked, n vew of G. C. M.
18540. (See page 140.)
btce 23(c) -1: Ta es.
R NU CT OP 1034.
mounts pad or payabe by vendors to vendees as rembursements
for processng ta es. (See I. T. 3090, page 78.)
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23(k), rt. 23(k)-.
142
S CTION 23
3 (k). D DUCTIONS ROM GROSS
INCOM : D D TS.
rtce 23(k)-: ad debts.
I-23-8745
G. C. M. 18417
R NU CT O 1934.
Where t s estabshed to the satsfacton of the Commssoner
that a debt s worthess n part, the retenton by the ta payer of
securtes hed as coatera to secure the debt does not precude
the aowance of the partay worthess debt as a deducton under
secton 23(k) of the Revenue ct of 1934.
dvce s requested whether the ta payer s entted to deduct as
a bad debt for the year 1934 the dfference between the amount of the
debt baance of certan margna accounts and the vaue of the co-
atera pedged to secure such accounts.
Co., a partnershp, conducted a commsson brokerage bus-
ness durng the year 1934. The partnershp was not a deaer n secur-
tes. t the cose of that year the partnershp had on ts books a
number of accounts recevabe representng amounts owed by certan
customers on margna transactons, whch accounts were mpared
by reason of the decne n vaue of the pedged coatera. Where
the partnershp consdered as uncoectbe the amount of the account
n e cess of the vaue of the coatera, the dfference between the
debt baance of the account at the end of the year and the market
vaue of the coatera was charged to proft and oss and credted to
a reserve for bad debts. It s stated that ths coatera was argey
bank stocks and that due to the cosng of banks n 1933 there was
practcay no market for ths stock durng that year and n 1934.
The partnershp n ts return for the year 1934 deducted as bad debts
the amount of doars representng that porton of these accounts
charged off n that year.
It s contended that the ta payer s entted to a deducton for
parta worthessness of debts under secton 23 (k) of the Revenue
ct of 1934 that the accounts were ascertaned n that year to be
uncoectbe n the amount charged off by the ta payer that there
was no market for the bank stock hed as coatera and that t was
not necessary that such securtes be sod by the ta payer n order to
be entted to a deducton for bad debts wth respect to the worthess
porton of the accounts.
Secton 23 (k) of the Revenue ct of 1934 provdes for the deduc-
ton of debts ascertaned to be worthess and charged off wthn the
ta abe year, and further provdes that the Commssoner may aow
a deducton when he s satsfed that a debt s recoverabe ony n
part n an amount not n e cess of the part charged off wthn the
ta abe year. rtce 23(k) of Reguatons 86 provdes n part as
foows:
If a the surroundng and attendng crcumstances ndcate that a debt s
worthess, ether whoy or n part, the amount whch s worthess and charged
off or wrtten down to a nomna amount on the books of the ta payer sha he
aowed as a deducton n computng net ncome. efore a ta payer
may charge off and deduct a debt n part, he must ascertan and be abe to
demonstrate, wth a reasonabe degree of certanty, the amount thereof whch
s uncoectbe. In determnng whether a debt s worthess n whoe
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143
23(k), rt. 23(k)-.
or n part the Commssoner w consder a pertnent evdence, ncudng the
vaue of the coatera, f any, securng the debt and the fnanca condton
of the debtor.
Where the surroundng crcumstances ndcate that a debt s worthess and
uncoectbe and that ega acton to enforce payment woud n a probabty
not resut n the satsfacton of e ecuton on a |udgment, a showng of these
facts w be suffcent evdence of the worthessness of the debt for the pur-
pose of deducton.
The statute deas wth two casses of debts, frst, those that have
become whoy worthess, and, second, those recoverabe ony n part.
s to the frst cass, the ta payer must ascertan the debts to be
worthess and charge them off. s to the second cass, the Comms-
soner must be satsfed that the debt s recoverabe ony n part, and
unt he s so satsfed to a reasonabe certanty no such deducton
s permtted. (Stranahan v. Commssoner, 42 ed. (2d), 729, Ct. D.
247, C. . I -2, 342 (1930) - Commssoner v. Lberty ank Trust
Co., 59 ed. (2d), 320.) It s, of course, the burden of the ta payer
to show wth reasonabe certanty that the debt was n fact worthess
n part.
In Ross v. Commssoner (72 ed. (2d), 122) the ta payer camed
as a deducton for bad debts under the Revenue ct of 1928 the
dfference between the amount of the debt and the vaue of certan
stock pus the cash surrender vaue of fe nsurance poces pedged
as coatera. The court aowed the deducton and stated that Co-
atera securty to a debt need not be qudated to estabsh the
worthess porton of the debt, ctng artce 191 of Reguatons 74.
In e M. Turbeve v. Commssoner (31 . T. ., 283, acquescence,
C. . I -1, 20 (1935)) the oard hed that the dfference between
the amount of pettoner s nterest n a depost n a bank whch
became hopeessy nsovent durng the ta abe year and the vaue
at the cose of the year of her nterest n coatera pedged to secure
the depost was deductbe as a porton of a debt determned to be
worthess, ctng Ross v. Commssoner, supra.
Ths offce s of the opnon that the foregong cases state the
correct rue of aw, namey, that qudaton of coatera hed to
secure a debt s not a ega prerequste to the aowance of a bad
debt deducton. In other words, the fact that the ta payer retans
securtes as coatera s not a barrer to the aowance of a deducton
for a partay worthess debt f the Commssoner s satsfed from
the evdence that such porton s worthess. The appcaton of ths
prncpe does not n effect permt the ta payer to nventory secur-
tes for the reason that the ta payer must prove wth reasonabe
defnteness and certanty that the debt s n fact partay worthess
and uncoectbe, and mere fuctuatons n vaue of the coatera
do not necessary estabsh that fact to the satsfacton of the
Commssoner.
In the present case the coatera conssted argey of bank stocks
for whch there s stated to have been no market durng the year
1934. The ta payer paced an estmated vaue, based upon substan-
ta and appcabe evdence, upon such coatera. Whether ths
estmated vaue represents the far vaue of the coatera s a ques-
ton of fact to be determned by the Commssoner. If from a
the pertnent evdence n the case the Commssoner s satsfed that
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42, rt. 42-1.
144
the dfference between the amount of the debt baance of the
margna accounts n queston and the far vaue of the coatera s
worthess and uncoectbe, then such porton s aowabe as a
partay worthess debt under secton 23(k) of the Revenue ct
of 1934 n an amount not n e cess of the part charged off wthn
the ta abe year.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
rtce 23(k)-: ad debts.
R NU CT O 1934.
ppcaton of Treasury Decson 4633 (C. . -1,118 (1936)).
(See G. C. M. 18525, page 80.)
S CTION 23(o). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
rtce 23(o)-1: Contrbutons or gfts by ndvduas.
R NU CT O 1934.
Contrbutons to the Pubcty Commsson of the State of Con-
nectcut. (See I. T. 3072, page 84.)
rtce 23 (o)-2: Donatons by corporatons.
R ND CT O 1934.
Contrbutons to the Pubcty Commsson of the State of Con-
nectcut. (See I. T. 3072, page 84.)
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 42. P RIOD IN W IC IT MS O
GROSS INCOM INCLUD D.
rtce 42-1: When ncuded n gross ncome.
R NU CT O 1934.
Ta abe status of refunds of customs dutes and ta es. (See Mm.
4564, page 93.)
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145 555, rt. 55(b)-5.
P RT . R TURNS ND P YM NT O T .
S CTION 52. CORPOR TION R TURNS.
btce 52-2: Returns by recevers.
R NU CT O 1934.
Returns by recevers and conservators of natona banks. (See
L T. 3080, page 96.)
S CTION 55. PU LICITY O R TURNS.
rtce 55(b)-: Defntons.
R NU CT O 1934.
mendment of artce 55(b)- . (See T. D. 4732, beow.)
btce 55(b) 5: Inspecton of orgna returns.
R NU CT O 1934.
ddton to Reguatons 86, as amended. (See T. D. 4732, beow.)
etce 55(b)-5: Inspecton of orgna returns. I-14-8635
T. D.4732
uthorzng nspecton by State offcas of orgna returns for
ta abe years begnnng on and after anuary 1, 1935.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 86, as amended by Treasury Decson 4626 (C. .
-1, page 61). approved ebruary 18, 1936, and Reguatons 94,
are amended as foows:
new artce s added after artce 55(b)-4, desgnated rtce
55(b)-5, as foows:
m. 55(b)-5. Inspecton of orgna returns. In addton to the nspecton
of copes of returns provded for n artce 55(b)-3, any propery authorzed
offca, body, or commsson, awfuy charged wth admnstraton of any State
ta aw, or propery desgnated representatves of such offca, body, or com-
msson, may, n the dscreton of the Commssoner, nspect orgna ncome
returns for any ta abe year begnnng after December 31, 1934, for the purpose
of guch admnstraton. or the purposes of ths artce the word returns
sha ncude nformaton returns, schedues, sts, and other wrtten statements
fed wth the Commssoner desgned to be suppementa to or to become a part
of ncome returns. When permsson to nspect orgna returns s requested,
the appcaton of the governor of the State sha conform to the requrements
specfed In artce 55(b)-4.
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112(g), rt. 112(g)-2.1 146
In any case where nspecton of the orgna returns s authorzed n accord-
ance wth the provsons of ths artce, the Commssoner may, n hs dscreton,
permt nspecton of other records and reports whch contan Informaton
Incuded or requred by statute to be ncuded n the return.
rtce 55(b)- s amended by strkng the fgure 4 n the
phrase artces 55(b)-2 to 55(b)-4 and substtutng therefor the
fgure 5.
Ths Treasury decson s ssued under the authorty prescrbed by
secton 55(b) of the Revenue ct of 1934 as amended by ct pr
19 1935, and by secton 55(b) of the Revenue ct of 1936.
Gt|t T. everno,
Commssoner of Interna Revenue.
pproved March 31, 1937.
RoSW LL MaGILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera egster pr 2, 1937, 3.44 p. m.)
SU TITL ( SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 101. MPTIONS ROM T
ON CORPOR TIONS.
rtce 101-1: Proof of e empton.
R ND CT O 1934.
Procedure wth respect to appcatons for e empton. (See Mm.
3537 (revsed), page 100.)
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112(a). R COGNITION O G IN OR
LOSS: G N R L RUL .
rtce 112(a)-: Saes or e changes.
R NU CT O 1934.
Converson of bond nto stock of obgor corporaton. (See G. C.
M. 18436, page 101.)
S CTION 112(g). R COGNITION O G IN OR LOSS:
D INITION O R ORG NIZ TION.
rtce 112 (g)-2: Defnton of terms.
R NU CT O 1934.
changes n connecton wth corporate reorganzatons. (See
Mm. 4555, page 244.)
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147 117, rt. 117-1.
S CTION 113(b). D UST D SIS O D T MINING
G IN OR LOSS: D UST D SIS.
rtce 113(b)-: d|usted bass: Genera rue.
R NU CT O 1934.
Method of computng ad|usted bass for deprecaton n cases of
mproved mnera propertes where aowed percentage depeton
e ceeds bass remanng to be recovered through depeton aowance.
(See G. C. M. 17760, page 102.)
S CTION 117. C PIT L G INS ND LOSS S.
btce 117-1: Meanng of capta assets. I-21-8717
G. C. M. 18233
R NU CT OP 1934.
Gan reazed from the surrender of a fe nsurance pocy may
not be treated as gan derved from the sae or e change of a cap-
ta asset under secton 117 of the Revenue ct of 1934 but must be
treated as ordnary ncome. I. T. 2661 (C. . I-2, 39 (1932)) s
appcabe under that ct.
dvce s requested whether the gan reazed upon the surrender
n 1934 of a fe nsurance pocy s ta abe as gan derved from the
sae or e change of a capta asset wthn the meanng of secton 117
of the Revenue ct of 1934.
L T. 2661 (C. . I-2, 39 (1932)), under the Revenue ct of 1932,
read3 as foows:
The gan reazed from the surrender of a combned annuty and fe n-
surance contract hed for more than two years may not be treated as capta
gan and ta ed under secton 101 of the Revenue ct of 1932, but must be
treated as ordnary ncome.
Secton 117(f) of the Revenue ct of 1934 provdes as foows
or the purposes of ths tte, amounts receved by the hoder upon
the retrement of bonds, debentures, notes, or certfcates or other evdences of
Indebtedness Issued by any corporaton (ncudng those Issued by a govern-
ment or potca subdvson thereof), wth nterest coupons or n regstered
form, sha be consdered as amounts receved n e change therefor.
In vew of the above-quoted anguage n the Revenue ct of 1934,
whch was not contaned n the correspondng secton of the Reve-
nue ct of 1932, t s contended that I. T. 2661, supra, and the dec-
son of the oard of Ta ppeas n George . eman v. Comms-
soner (33 . T. ., 901), under the Revenue ct of 1928, are not
appcabe under the Revenue ct of 1934.
The anguage of the oard of Ta ppeas n eman v. Comms-
soner, supra, so far as pertnent to the present dscusson, s as
foows:
We have heretofore decded that the payment of the amount specfed n a
bond, ether at maturty or pursuant to an authorzed ca pror to maturty, s
not a sae or e change of such a bond, but Is merey the payment of an
obgaton accordng to ts f ed terms. ( ohn . Watson, r., 27 . T. ., 463
rthur . raun, Trustee, 29 . T. ., 1161.) In our opnon the surrender of
the fe nsurance and annuty contracts n the nstant case, does not dffer n
any matera respect from the bond transactons n the cases above cted. s
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117. rt. 117-2.
148
we sad n ohn . Watson, r., supra, The words sae or e change are
ordnary words of we estabshed meanng. They do not ncude the surren-
der of a fe nsurance or annuty contract wheren the Insured receves a pay-
ment of an obgaton accordng to the terms of the nsurance pocy. We must
therefore hod that the gan reazed by the pettoner upon the surrender of the
poces here nvoved may not be treated as capta gan under the provsons
of secton 101 of the Revenue ct of 1928, but must be treated as ordnary n-
come.
It s true that n secton 117(f) of the Revenue ct of 1934, Con-
gress has by e press enactment ncuded wthn the operaton of that
secton certan amounts whch were hed by the oard of Ta ppeas
not to be wthn the scope of the correspondng secton of the Reve-
nue ct of 1928. owever, Congress has not e pressy ncuded
wthn the operaton of that secton of the Revenue ct of 1934 gan
reazed upon the surrender of a fe nsurance pocy. In the ab-
sence of anguage e pressy ncudng such gan wthn the scope of
secton 117 of the Revenue ct of 1934, ths offce s of the opnon
that I. T. 2661, supra, s appcabe under that ct and that gan
reazed upon the surrender of the fe nsurance pocy n queston
s not sub|ect to ta n the manner provded n that secton. (Ths
concuson s aso appcabe under the Revenue ct of 1936.)
MORRISON Sha OT ,
Chef Counse, ureau of Interna Revenue.
rtce 117-2: Lmtatons on capta gans and I-3-8484
capta osses. I. T. 3041
R NU CT O 1934.
or the purpose of determnng the percentage of oss to be
taken nto account under secton 117(a) of the Revenue ct of
1934, property acqured for a resdence n 1922 and so occuped
unt 1931 when t was rented unt sod n 1935 shoud be con-
sdered as havng been hed from the date of acquston to the
date of sae.
dvce s requested whether, for the purpose of determnng the
percentage of the oss on the sae of property to be taken nto
account under secton 117(a) of the Revenue ct of 1934 n comput-
ng the ta payer s net ncome, the property whch was acqured as a
resdence but ater converted nto renta property shoud be consd-
ered as havng been hed by the ta payer from the date he orgnav
acqured t or from the date t became renta property.
It s stated that the ta payer acqured a resdence n 1922 whch
he contnuousy occuped as such unt September, 1931, when t was
converted nto renta property and was rented at that tme. In uy,
1935, the property was sod and a oss was sustaned amountng to a
doars. The queston s presented as to the percentage of the oss
whch s deductbe.
Secton 117(a) of the Revenue ct of 1934 reads n part as foows:
Sec. 117. Capta Gans and Losses.
(a) Genera rue. In the case of a ta payer, other 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 In computng net
ncome:

30 per centum f the capta asset has been hed for more than 10 years.
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149
131, rt. 181-1.
It s hed that for the purpose of determnng the percentage of
the oss to be taken nto account under secton 117(a) of the Revenue
ct of 1934 n computng the net ncome of the ta payer the prop-
erty was hed by hm from the date of ts acquston n 1922 to the
date of ts sae n 1935. Snce the property was hed for more than
10 years, ony 30 per cent of the oss s deductbe (sub|ect to the
mtaton contaned n secton 117(d)).
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 131-1: nayss of credt for ta es. I-19-8695
G. C. M. 18182
R NU CT O 1934.
Ta es pad by subsdares of the M Company to the Provnce
of Ontaro on net revenue and ta es pad to the Provnce of
uebec on profts are Income ta es pad to foregn countres and
are aowabe as a credt under the condtons and to the e tent
provded by secton 131(f) of the Revenue ct of 1934.
dvce s requested whether the M Company s entted to credt
for foregn ta es under the provsons of secton 131 of the Revenue
ct of 1934.
In the year 1934 the ta payer receved dvdends from ts whoy
owned Canadan subsdares. These subsdares pad to the Prov-
nces of Ontaro and uebec corporaton ta es computed on capta
stock, on head offces and on net revenue and profts. In accord-
ance wth the provsons of secton 131(f) of the Revenue ct of
1934, the ta payer has camed as a credt aganst Unted States
ncome ta that porton of ts subsdares ta es whch was com-
puted on net revenue and profts, but no cam was made for credt
of the other ta es. The Ontaro ta camed as a credt aganst
Unted States ncome ta s mposed by secton 3a of the corpora-
tons ta act, wth amendments to end of the sesson (22 Geo. ,
1932), whch reads as foows:
T ON N T R NU .
3a. In addton to the ta es specfed n secton 3 every ncorporated com-
pany sha pay a ta of 1 per centum cacuated on the net revenue of the
company wthout deductng therefrom any charge or reserve for dvdends on
pad-np capta or any charge of a smar nature and aso wthout deductng
therefrom any reserve for capta account. Itacs supped.
The uebec ta camed as a credt s mposed by secton 5a of
Dvson Ia of the corporaton ta act and reads as foows:
5a. In addton to the ta es specfed n the above secton 5, there sha be
Imposed upon each corporaton, company, partnershp, frm, assocaton and
person mentoned n secton 3 of ths act, banks and raway companes e -
cepted, an annua ta equa to 1 4 per cent of the profts earned n the
Provnce by each such corporaton, company, partnershp, frm, assocaton or
person, wthout deductng therefrom any charge or reserve for dvdends on
pad-np capta or any other charge of a smar nature, and aso wthout
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131, rt. 131-1.
150
deductng therefrom any reserve for capta account Deprecaton however
Is deducted from such profts provded t be proper and for a reasonabe
amount. (22 Geo. , eh. 23, s. 2.)
In construng the provsons of the edera Revenue cts reatve
to credts for foregn ncome ta es, the ureau has hed that n
order for a ta to be aowabe as a credt under secton 131, the
ta mposed by the foregn country must be a ta on ncome wthn
the meanng of that term as used and understood for edera ncome
ta purposes. (I. T. 2620, C. . I-1, 44 (1932) G. C. M. 11039,
C. . I-2, 118 (1932).) Under the aw of Ontaro quoted above,
net revenue of an ncorporated company ncudes net profts drecty
or ndrecty from any busness whether derved from a source wth-
n Ontaro or esewhere, and nterest, dvdends, and profts from
any nvestment. Net revenue s sub|ect to the foowng e emptons
and deductons: (1) such reasonabe amount as the treasurer sha
aow for deprecaton (2) dvdends receved from Canadan cor-
poratons whch are ta abe under ths act or from Canadan cor-
poratons payng ta es under ncome ta acts of other Provnces
where such Provnces aow a smar e empton n respect of ta es
pad under the Ontaro act (3) nterest on funds borrowed by an
ncorporated company and (4) donatons to chartabe organza-
tons n Canada up to 10 per cent of the net revenue. (Comparatve
Law Seres, Department of Commerce, December, 1936.) Revenue
s defned by Webster as that whch returns or comes back, from
an nvestment ncome. The same authorty refers to
proft as the cess of ncome over e pendture, as n a busness
durng a gven perod of tme. Inasmuch as the ta m-
posed by secton 3a of the Ontaro corporatons ta act s a ta on
net revenue, ncudng net profts as we as f ed and determnabe
ncome, t s ceary a ta on ncome wthn the meanng of the edera
ncome ta aw.
Wth respect to a ta on profts, the bass of the uebec ta , the
ureau has hed that such a ta mposed by Me co s an ncome ta
whch s aowabe as a credt (I. T. 2188, C. . I -2, 82 (1925)).
Smary, the oard of Ta ppeas has hed that a ta on net
profts pad to abana, Cuba, s an ncome ta whch may be credted
aganst Unted States ncome ta . ( avana ectrc Raway, Lght
Power Co., 34 . T. ., 782, acquescence, page 11, ths ue-
tn.) The ta mposed by secton 5a, Dvson Ia of the uebec cor-
poraton ta act, beng a ta on profts/ a word specfcay used
n the Revenue cts to denote ncome, s aso a ta on ncome and
meets the Unted States concept of that term for edera ncome ta
purposes.
It s, therefore, the opnon of ths offce that the ta es pad to
Ontaro on net revenue and the ta es pad to uebec on profts are
ncome ta es pad to foregn countres and may be aowed as a
credt under tne condtons and to the e tent provded by secton
131(f) of the Revenue ct of 1934. ( urnet v. Chcago Portrat
Co., 285 U. S., 1.)
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
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151 143, rt. 143-10.
rnc 131-5: Countres whch do or do not I-19-8696
satsfy the smar credt requrement. I. T. 3071
R NU CT OP 1934.
Canada satsfes the smar credt requrement of secton 131 (a) 3
of the Revenue ct of 1934.
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 1934.
Interest on bonds of domestc corporaton guaranteed and pad by
a foregn corporaton, payment beng made outsde the Unted States.
(See L T. 3059, page 111.)
rtce 143-10: Return of ncome from whch ta I-18-8679
was wthhed. G. C. M. 18120
R NU CT O 1934.
The amount of ta wthhed at the source from Interest on ta -
free covenant bonds owned by a partnershp s aUowabe as a
credt to a member of the partnershp to the e tent of hs pro
rata share of the ta wthhed regardess of the fact that the
partnershp actvtes resuted n a oss whch was partay re-
fected n hs return.
dvce s requested whether under the facts stated heren any part
of the ncome ta wthhed at the source from nterest on ta -free
covenant bonds owned by the M Partnershp s aowabe as a credt
to , a member of the partnershp, for the year 1934.
or that year had an ncome from saares, commssons, etc.,
amountng to 3.53ar doars, ncome from dvdends of .52a doars,
and ncurred a oss n the M Partnershp of 2.75a doars. In
other words, the ta payer s share of the partnershp oss was 2.75a
doars and hs net ncome was 1.30a doars. Ta was wthhed
from nterest on ta -free covenant bonds owned by the partnershp
and the queston s presented whether credt for s pro rata sharo
of such ta shoud be dsaowed for the reason that no ncome from
the partnershp was reported n hs return. s authorty for such
dsaowance, artce 184-1 of Reguatons 86 s cted. The secton of
the aw on whch artce 184-1 s based and that artce read as
foows:
Sao. 184. Credt aganst net ncome.
The partner sha, for the purpose of the norma ta , be aowed as a credt
aganst hs net ncome, In addton to the credts aowed to hm under sec-
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143, rt. 143-10.
152
ton 25, hs proportonate share of such amounts (not In e cess of the net In-
come of the partnershp) of dvdends and nterest specfed In secton 25(a)
as are receved by the partnershp.
rt. 184-1. Credts aowed partners. The credts aganst net Income pro-
vded u secton 25 are not appcabe to partnershps as such. n Indvdua
partner, however, s entted for the purpose of the norma ta to a credt
aganst hs net ncome, n addton to the credts aowed to hm under secton
25, of hs proportonate share of such amounts (not n e cess of the net n-
come of the partnershp) of dvdends and nterest specfed In secton 25(a) as
are receved by the partnershp. There sha be ncuded In the return of the
partnershp a statement of the amounts of such dvdends and Interest and the
proportonate share thereof of each partner.
It s the opnon of ths offce that secton 184, supra, and artce
184-1 of eguatons 86 are not controng wth respect to the ques-
ton submtted. The provsons of aw and reguatons referred to
reate to a credt aganst net ncome and have no bearng on the
queston whether ta wthhed at the source shoud be aowed as a
credt aganst ncome ta . Secton 143 of the Revenue ct of 1934
prescrbes a method for coectng ncome ta at the source wth re-
spect to specfed tems of ncome. Secton 143(a) provdes for a
ta of 2 per cent to be wthhed from nterest upon certan ta -free
covenant bonds owned by mercan ctzens and domestc partner-
shps. very person requred to deduct and wthhod any ta under
that secton must make a return thereof on or before March 15 of
the succeedng year, and sha on or before une 15 pay the ta to
the offca of the Unted States Government authorzed to receve
t. In the nstant case the debtor corporaton comped wth the
duty mposed upon t by aw. Secton 143(d) of the Revenue ct
of 934 reads as foows:
(d) Income of recpent. Income upon whch any ta s requred to be
wthhod at the source under ths secton sha be ncuded n the return of the
recpent of such ncome, but any amount of ta so wthhed sha be credted
aganst the amount of ncome ta as computed n such return.
In the opnon of ths offce t s not necessary that the nterest on
ta -free covenant bonds from whch the ta s wthed be actuay
sub|ected to ta n computng the ta payer s abty to the Govern-
ment n order to obtan the prescrbed credt. If such nterest n-
come s offset by aowabe deductons, or when pad to a partnershp
s offset by a correspondng oss, there woud not be any ta actuay
computed on such ncome. Nevertheess, f the nterest s refected
n the ta payer s return, t s ncuded theren, and therefore meets
the requrement of secton 143(d). The facts show that the ta n
queston as been reported by the wthhodng agent and pad to the
Government. aure to aow credt for the ta w resut n a
doube coecton thereof, whch shoud be avoded f possbe. In
ths connecton attenton s nvted to secton 143(e) of the Revenue
ct of 1934, whch provdes that where any ta requred under
secton 143 to be deducted and wthhed at the source s pad by the
recpent of the ncome, t sha not be re-coected from the wth-
hodng agent. If, therefore, the Government dsaows as a credt
to hs share of the ncome ta pad at the source wth respect to
the nterest on ta -free convenant bonds receved by the M Partner-
shp, such acton woud resut, n effect, n coectng the ta both
from the ta payer and the wthhodng agent. The ureau has hed
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153
162, rt. 163-1.
that ncome ta pad at the source shoud be apped as a credt
aganst the tota ncome ta , both norma ta and surta , due from
the recpent of the ncome. (O. D. 423, C. . 2, 195 (1920) L T.
2454, C. . -, 102 (1929) .)
In vew of the foregong, t s hed that the amount of the ta
wthhed at the source from nterest on bonds owned by the M
Partnershp, of whch , the ta payer, s a member, shoud be pro-
rated to the respectve members of the partnershp and the ta payer
aowed a credt for hs pro rata share.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
SUPPL M NT . ST T S ND TRUSTS.
S CTION 162. N T INCOM .
rtce 162-1: Income of estates and trusts. I-20-8705
L T.3074
R NU CT O 1934.
n aowance pad to , the wdow of , durng the perod of
admnstraton of s estate does not consttute an aowabe deduc-
ton n computng the net ncome of the estate.
O. D. 829 (C. . 4, 224 (1921)) and I. T. 2561 (C. . -, 175
(1931)) revoked.
dvce s requested reatve to the deductbty for edera ncome
ta purposes of an aowance pad n 1935 by the e ecutors of the
estate of to , wdow of the testator, durng the perod of admn-
straton of the estate.
, who was a resdent of the State of Nebraska, ded n une,
1934. Under the terms of hs w, a the ncome of the estate was
bequeathed to hs wfe for her fetme. Durng the year 1935 the
estate was n process of admnstraton. The aowance pad to the
wdow n that year, amountng to 7 doars, was camed as a deduc-
ton n the ncome ta return of the estate but was dsaowed. The
ncome of the estate for that year was suffcent to make the payments
to the wdow. The court order coverng the aowance reads n part
as foows:
Now on ths day of , ths matter came on for hearng upon
the petton of , for a wdow s aowance, and upon consderaton whereof the
court fnds that the sad s the wdow of , deceased, and as such wdow, s
entted to an aowance of as doars per month pendng the settement of sad
state, and sad e ecutors are hereby ordered and drected to pay sad aowance
to sad wdow.
Chapter 30, artce 1, secton 30-103, of the Comped Statutes of
Nebraska, 1929, wth respect to a wdow s aowance, provdes n part
as foows:
. Second. The husband or wfe and chdren consttutng the famy
of the deceased sha have such reasonabe aowance out of the persona estate,
or out of the ncome of the rea estate, as the county court sha |udge necessary
(or ther mantenance durng the progress of the settement of the estate,
7086 37 6
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5162, rt. 162-1.
154
accordng to ther crcumstances, whch sha not be onger than one year after
grantng admnstraton, nor for any tme after the persona estate sha be
assgned to the survvng husband or wfe. nd when the persona estate and
the ncome from the rea estate sha be nsuffcent to meet the aowances
made as provded by aw, such an aowance sha be deemed a debt aganst
the estate, to be pad out of the proceeds of the sae of any rea estate, and
to take ts preference for payment ne t after debts due In ths State, and before
the cams of genera credtors. Itacs supped.
In adsa v. adsa (82 Neb., 587, 118 N. W., 331), t was hed
by the Supreme Court of Nebraska that the aowance made by the
probate court to the wdow of her deceased husband s a debt aganst
the estate whch must be pad from the assets thereof. That case
was decded under the aw of Nebraska n force n 1903, whch s
smar to the statutory provson governng the wdow s aowance
here nvoved. The aw of Nebraska upon ths sub|ect s not sub-
stantay dfferent, for present purposes, from the aw prevang n
the States generay. In 24 C. ., page 230, secton 758, t s stated:
most of the States n the Unon have provded by statute for the
temporary mantenance of the wdow and famy of a decedent, out of hs
estate, unt they receve ther dstrbutve shares, or unt some other provson
can be made for ther support. Itacs supped.
I 24 C. ., page 230, secton 759, t s stated:
Ths aowance s ntended as a provson ndependent of any dower
or other dstrbutve Interest n the estate, and s In the nature of a preferred
cam aganst the estate . Itacs supped.
In O. D. 829 (C. . 4, 224 (1921)) t was hed that the amount
of an aowance pad by an e ecutor of an estate n process of admn-
straton n accordance wth an order of the probate court to the
wdow of the testator s deductbe n computng the net ncome of
the estate under secton 219(c) of the Revenue ct of 1918, whch s
smar to secton 162(c) of the Revenue ct of 1934. There the
court order provded that the amount shoud be pad out of the
persona property and ncome from the rea estate. In that case the
ncome from the persona property was more than suffcent to pay
the aowance.
In I. T. 2561 (C. . -, 175 (1931)) t was hed that an aowance
pad to a wdow from an estate beng admnstered under the aws
of the State of Mchgan s deductbe under secton 162(c) of the
Revenue ct of 1928, whch s smar to secton 162(c) of the Rev-
enue ct of 1934. It was stated n that rung:
It Is noted aso n connecton wth the above-quoted provsons of
the Mchgan aw that the practce under Mchgan procedure s for the probate
|udge to ssue an order for the payment of the wdow s aowance wth no
provsons as to whether t s to be pad out of ncome or out of prncpa,
and that It s the practce of the audtor genera s department and of the
probate |udges to consder the wdow s aowance as beng pad out of ncome,
to the e tent there s ncome out of whch to pay t

It s cear from the foregong that n the case of an estate n the process of
admnstraton, where there s a testamentary provson or court order drect-
ng that the wdow s aowance be pad by the e ecutor or admnstrator from
Income, the aowance pad pursuant thereto Is to be consdered as havng been
pad from ncome and may be taken as a deducton from the gross ncome
of the estate, to the e tent that there s ncome from whch to make such
payment. Where the court has approved the payment of an aowance to the
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155
5162, rt. 162-1.
wdow by an e ecutor or admnstrator, t woud seem that the aowance, for
edera ncome ta purposes, shoud be consdered as havng been pad from
ncome to the e tent there s ncome of the estate from whch to pay the
aowance, even though the order of the court provdng for the aowance does
not e pressy drect that the aowance s to be pad from ncome.
On the other hand, the oard of Ta ppeas has consstenty hed
that wdows aowances pad durng the process of admnstraton
of estates are not deductbe n computng net ncome of the estates.
(Chares Lesey mes v. Commssoner, 14 . T. ., 1067, nvovng
Mnnesota aw, under whch the aowance s made out of the persona
estate Mary M. uck et a. v. Commssoner, 25 . T. ., 780, nvov-
ng Caforna aw, under whch the aowance s a charge aganst a
the property of the decedent and Tte Insurance Trust Co. v.
Commssoner, 25 . T. ., 805, nvovng Caforna aw.) In the
ast cted case the oard stated:
we are of the opnon that the wdow s aowance s propery a
charge aganst the corpus of the estate and not egay deductbe from ncome
of the estate.
In that case the aowance was actuay pad out of ncome of the
estate.
In uck v. McLaughn (48 ed. (2d), 135), t was hed that an
aowance pad to a wdow for support durng admnstraton of the
deceased husband s estate s not ta abe ncome to her. There the
aowance was actuay pad from ncome of the estate. The court
stated that t was unabe to dstngush that case from Goud v. Goud
(245 U. S., 151), wheren t was hed that amony pad to a dvorced
wfe under a decree of court was not ncome wthn the meanng of
the Revenue ct. The court n uck v. McLaughn stated n part:
The money pad by the estate to the wdow as a famy aowance
s qute dstnct from her rghts, f any, n and to the corpus or ncome of
the estate. It s awarded to her by reason of her wdowhood for her support
darng the admnstraton of the estate and she s entted to the same regard-
ess of whether or not she has any rght n and to the corpus of the estate or
ts ncome. er rght to the famy aowance s purey statutory.
Under the aw of Caforna a the property of the decedent, whether ncome
or corpus of the estate, s abe for the payment of famy aowance.
The Revenue cts, n so far as they dea wth the ta abty of
ncome of estates and trusts, contempate that a ncome from the
corpus sha be ta abe ether to the trust or estate on the one hand
or to the hers, egatees, or benefcares on the other hand. ( e-
verng v. Pardee, 290 U. S., 365, Ct. D. 769, C. . III-1, 151
(1934).) If the amount n queston s not ta abe to the wdow t
foows that t shoud be ta ed to the estate. To permt the deducton
by the estate woud be to permt the ncome to escape ta aton.
The cases of urnet v. Whtehouse (283 U. S., 148, Ct. D. 327, C.
. -, 366 (1931)) and everng v. Pardee, supra, whe not n-
vovng the same queston here presented, tend to sustan the decson
of the Unted States Crcut Court of ppeas for the Nnth Crcut
n uck v. McLaughn, supra, and the decsons of the oard of Ta
ppeas cted heren. In urnet v. Whtehouse, supra, an annuty
was bequeathed whch was payabe at a events. The court hed
that snce payment was not dependent upon ncome, t was a bequest
or egacy and was not ta abe ncome to the benefcary. There the
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162, rt. 162-1.
156
amounts were actuay pad from ncome of the estate. The court
stated n part:
It woud be an anomay to ta the recepts for one year and e empt
them for another smpy because e ecutors pad the frst from Income receved
and the second out of the corpus. The w drected payment wthout reference
to the e stence or absence of ncome.
n attempt s made to strengthen the poston of the Commssoner by ref-
erence to secton 219, ct of 1921, whch decares that the ta mposed by
sectons 210 and 211 sha appy to the ncome of estates, ncudng Income
whch s to be dstrbuted to the benefcares perodcay, . ut
ceary enough, we thnk, ths secton appes ony to ncome pad at such
to a benefcary. Itacs supped.
In everng v. Pardee, supra, the testator gave to hs wfe an
annuty payabe at a events and so not dependent upon ncome of
the trust estate. The court uphed the refusa of the Commssoner
to aow as a deducton n computng the ta abe ncome of the
estate the annuty payments made to the wfe, statng n part:
Payments to Mrs. Pardee by the fducary were not necessary made
from ncome. The charge was upon the estate as a whoe her cam was pay-
abe wthout regard to ncome receved by the fducary. Payments to her were
not dstrbuton of ncome but n dscharge of a gft or egacy.
The deductbty of a wdow s aowance n determnng the net
ncome of an estate for edera ncome ta purposes does not de-
pend upon whether there s suffcent ncome of the estate out of
whch to pay t. If by State aw the aowance s a charge aganst
the corpus of the estate, and ths appears to be true generay, the
payment can not be consdered as a payment of ncome as such,
even though t s actuay pad out of ncome of the estate.
It s worthy of notce that amounts reasonaby requred and ac-
tuay e pended for the support durng the settement of the estate
of those dependent upon the decedent under the aws of the |ursdc-
ton under whch the estate s beng admnstered are deductbe n
computng the vaue of the net estate for purposes of the estate ta .
(Secton 303(a) 1 of the Revenue ct of 1926.) Whe the ncome
ta and the estate ta are entrey separate and ths provson may
not necessary determne whether a wdow s aowance s deductbe
for edera ncome ta purposes, t s ndcatve of the ntent of
Congress, snce t s unkey that Congress woud have provded for
the deducton of the aowance for both estate ta and ncome ta
purposes.
In the nstant case, whe the ncome of the estate was suffcent
from whch to make the payments to the wdow, the payments were
not payments of ncome as such. They were n dscharge of a statu-
tory aowance whch s a charge upon both the corpus and the n-
come of the estate. There s nothng to the contrary n the order
of the probate court.
In vew of the foregong, t s hed that the aowance pad to
n 1935 by the estate of durng the perod of admnstraton of the
estate does not consttute an aowabe deducton n computng the
net ncome of the estate.
O. D. 829 and I. T. 2561, supra, whch are n confct wth the
concuson reached heren, are revoked.
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157
5167, rt. 167-1.
S CTION 167. INCOM OR N IT O GR NTOR.
rtce 167-1: Trusts n the ncome of whch I-6-8532
the grantor retans an nterest. G- C. M. 17741
R NU CT OP 1934.
Where by the terms of a trust the grantor dvests hmsef of the
substanta ncdents and attrbutes of ownershp n the corpus of
the trust and the ony nterest n the ncome reserved to hm s
that t sha be pad to hm f he survves the benefcares of the
trust, and where no part of the ncome currenty dstrbutabe to
the benefcares may be accumuated for future dstrbuton to the
grantor, the trust ncome s not ta abe to the grantor under secton
166 of the Revenue ct of 1934, and no part of the ncome of the
trust s ta abe to the grantor under secton 107 so ong as a
benefcary s vng.
dvce s requested whether the ncome of the trust created by
under a trust agreement dated n 1934 s ta abe to the grantor under
the provsons of secton 166 or secton 167 of the Revenue ct of
1934, whch read n part as foows:
Sec. 166. Revocabe Trusts.
Where at any tme the power to revest n the grantor tte to any part of
the corpus of the trust s vested
(1) n the grantor, ether aone or n con|uncton wth any person not
havng a substanta adverse Interest n the dsposton of such part of the
corpus or the ncome therefrom, or
(2) n any person not havng a substanta adverse nterest n the dspo-
ston of such part of the corpus or the ncome therefrom, then the ncome
of such part of the trust sha be ncuded n computng the net ncome of the
grantor.
Sec. 1G7. Income fob eneft of Grantor.
(a) Where any part of the ncome of a trust
(1) s, or n the dscreton of the grantor or of any person not havng a
substanta adverse nterest n the dsposton of such part of the ncome may
be, hed or accumuated for future dstrbuton to the grantor or
(2) may, n the dscreton of the grantor or of any person not havng a
substanta adverse nterest In the dsposton of such part of the ncome,
be dstrbuted to the grantor

then such part of the ncome of the trust sha be ncuded n computng the
net ncome of the grantor.
(b) s used n ths secton, the term n the dscreton of the grantor means
In the dscreton of the grantor, ether aone or n con|uncton wth any per-
son not havng a substanta adverse Interest n the dsposton of the part of
the ncome In queston.
The trust under consderaton s by ts terms rrevocabe, and the
dsposton of the ncome and corpus s governed by the foowng
provsons of the trust agreement:
(a) The entre net ncome receved or derved from the trust estate and
avaabe for dstrbuton sha be pad by the trustees n quartery, or other
convenent nstaments, to , son of the trustor heren, unt the death of the
survvor of the trustor heren and hs wfe, C, or unt sad attans the age
of thrty-fve (35) years, n the event the death of the survvor of the trustor
heren and ha wfe, C, occurs pror to sad attanng sad age of thrty-fve
(35) years.
(b) In the event sad , son of trustor heren, des pror to the death of C,
wfe of trustor heren, then upon the death of sad the entre net ncome
receved or derved from the trust estate and avaabe for dstrbuton sha
be pad by the trustees n quartery, or other convenent nstaments, to sad C
durng the remander of her fetme.
(c) In the event sad and sad C both de pror to the death of the trustor
heren, then upon the death of the survvor of sad and C, the entre net
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5211, rt. 211-7.
158
ncome receved or derved from the trust estate and avaabe for dstrbuton
sha be pad by the trustees n quartery or other convenent nstaments to
, trustor heren.
(d) Upon the death of the survvor of the trustor and hs wfe, C, or upon
attanng the age of thrty-fve (35) years, n the event of the death of the sur-
vvor of trustor heren and C, hs wfe, occurs pror thereto, the trustees sha
transfer and dever the prncpa of ths trust estate, and a accumuatons
theren, to , son of trustor, ths trust thereupon ceasng. In the event sad
des pror to recevng fna dstrbuton as herenbefore provded, then upon
the death of the survvor of trustor, C, hs wfe, and , hs son, the prncpa
of the trust estate and a accumuatons theren sha, at such tme, be trans-
ferred and devered by the trustees to such person or persons as are authorzed
and desgnated to receve the same by the terms of the ast w and testament
of sad , fu power of such appontment, beng hereby granted to hm, and
n defaut of such appontment, sad trustees sha transfer and dever the
prncpa of ths trust estate to the hers at aw of trustor, determned accord-
ng to the aws of descent of the State of R, then n force.
It appears from the foregong that the grantor has dvested hmsef
of the substanta ncdents or attrbutes of ownershp n the corpus
of the trust so that he s not n substance the owner thereof. The
ncome of the trust s, therefore, not ta abe to the grantor under the
provsons of secton 166 of the Revenue ct of 1934 and artce 166-1
of Reguatons 86, as amended by Treasury Decson 4629 (C. .
-1 140).
Wth reference to any nterest the grantor may have reserved n
the ncome of the trust, t appears that such ncome s to be pad to
hm ony n the event that he survves hs son, , and hs wfe, C.
Ony n such event may any porton of the trust ncome be dstrbuted
to hm. Durng the perod of the trust, the entre trust ncome s
to be pad to or, n the event of hs death, to C, and no part of the
trust ncome may be accumuated for future dstrbuton to the
grantor. Therefore, the grantor has reserved no rght whch may, by
any possbty, enabe hm to en|oy the ncome whch s currenty ds-
trbutabe to hs son or, n the event of the son s death, to hs wfe.
(See generay artce 167-1, Reguatons 86.)
In vew of the foregong, t s the opnon of ths offce that no part
of the trust ncome s ta abe to the grantor under secton 167 so ong
as or C s ave.
Snce t appears that s 28 years of age, no queston s presented
of a mantenance trust, the ncome of whch s used to support the
mnor chd of the grantor, and the opnon e pressed heren does not
appy to such a trust.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 211. GROSS INCOM .
rtce 211-7: cuson of earnngs of foregn shps from
gross ncome.
R NU CT O 1934.
empton from ta aton of earnngs of shps documented under
the aws of The Netherands. (See I. T. 3045, page 119.)
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159 294.
rtce 211-7: cuson of earnngs of foregn shps from
gross ncome.
R NU CT O 1934.
Sweden, equvaent e empton. (See I. T. 3083, page 120.)
SUPPL M NT . POSS SSIONS O T UNIT D ST T S.
S CTION 252. CITIZ NS O POSS SSIONS
O UNIT D ST T S.
btce 252-1: Status of ctzens of Unted States possesson.
R NU CT O 1934.
Resdents of Phppne Isands (ncudng ctzens of Unted
States). (See I. T. 3070, page 120.)
SUPPL M NT M. INT R ST ND DDITIONS TO T T .
S CTION 294. DDITIONS TO T T IN
C S O NONP YM NT.
I-1-8462
G. C. M. 17274
R NU CT O 1934 ND PRIOR R NU CTS.
Wthhodng agents are abe for Interest on account of the non-
payment on or before the due date of ta es requred to be wthhed
at the source whether the abty arses under the Revenue ct of
1934 or pror Revenue cts.
n opnon s requested whether a wthhodng agent, who s re-
qured to wthhod ncome ta at the source, s abe for the payment
of nterest under the provsons of secton 294(a) 1 of the Revenue
ct of 1934 and the correspondng provsons of pror Revenue cts,
as amended by secton 404 of the Revenue ct of 1935 for faure
to pay ncome ta on or before the date prescrbed for ts payment.
Under the provsons of secton 143(c) of the Revenue ct of
1934, every person requred to deduct and wthhod any ncome ta
at the source sha make return thereof on or before March 15 of
each year and sha on or before une 15 pay the ta to the offca
of the Unted States Government authorzed to receve t. That
secton aso provdes that every such person s hereby made abe
for such ta . Secton 294(a) 1 of the Revenue ct of 1934, reatng
to addtons to the ta n case of nonpayment, provdes that where
the amount of ta determned by the ta payer s not pad on or
before the date prescrbed for ts payment there sha be coected as
a part of the ta nterest upon such unpad amount at the rate of 1
per eent per month from the date prescrbed for ts payment unt t
s pad. Secton 404 of the Revenue ct of 1935, reatng to nterest
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294.)
160
on denquent ta es, provdes that notwthstandng any other prov-
son of aw to the contrary, nterest accrung durng any perod of
tme after the date of the enactment of the Revenue ct of 1935 upon
any nterna revenue ta (ncudng amounts assessed or coected as
a part thereof) not pad when due sha be at the rate of 6 per cent
per annum. In vew of the provsons referred to above, advce s
requested whether, n the case of nonpayment on or before the due
date of the amounts shown on the wthhodng return, tho Govern-
ment s entted to nterest as compensaton for the use of money
wrongfuy wthhed from the Government, and f so, whether such
ta may be assessed and coected as a part of the ta . Inqury s
aso made whether n vew of the fact that secton 607 of the Revenue
ct of 1934 s sted under Tte I of that ct, reatng to e cse
ta es, such secton s appcabe to Tte I, reatng to ncome ta .
That secton reads as foows:
Sec. 607. nforcement op Labty fob. Ta es Coected.
Whenever any person s requred to coect or wthhod any Interna-revenue
ta from any other person and to pay such ta over to the Unted States, the
amount of ta so coected or wthhed sha be hed to be a speca fund u
trust for the Unted States. The amount of such fund sha be assessed, co-
ected, and pad n the same manner and sub|ect to the same provsons and
mtatons (ncudng penates) as are appcabe wth respect to the ta es
from whch such fund arose. Itacs supped.
In regard to the provsons of secton 607 of the Revenue ct of
1934, the oard of Ta ppeas has consdered the queston of the ap-
pcabty of that secton to cases nvovng the deducton of ncome
ta at the source. In the Ssters of the Thrd Order of St. rancs
of the Docese of Pttsburgh, Pa., Docket No. 82357, the oard n a
memorandum opnon dated March 11, 1936, hed that athough sec-
ton 607 s not symmetrcay paced n the ct snce t appears under
Tte I , reatng to e cse ta es, rather than under Tte I, reatng
to ncome ta es, nevertheess by reason of that provson the oard
has |ursdcton wth respect to a defcency n ta proposed aganst
a wthhodng agent for the year 1934. Thus, the oard has n effect
construed the phrase (contaned n secton 607, supra) The amount
of such fund sha be assessed, coected, and pad n the same manner
and sub|ect to the same provsons and mtatons (ncudng pena-
tes) as are appcabe wth respect to the ta es from whch such
fund arose to mean that ncome ta es wthhed or requred to be
wthhed at the source are sub|ect to the same admnstratve pro-
vsons of the statute as ncome ta es assessed drecty aganst an
ndvdua ta payer. In vew of that decson, the ureau hed n
I. T. 2979 (C. . -1, 146) that where a defcency s determned
n ncome, ta requred to be wthhed at the source under the Revenue
ct of 1934, a defcency notce w be sent to the wthhodng agent
under the provsons of secton 272(a) of that ct.
It s recognzed that some confuson has e sted n the past wth
respect to whether the admnstratve provsons of the ncome ta
aws reatng to penates, defcences n ta , nterest, and |ursdc-
ton of the oard are appcabe to the ta es requred to be wthhed
at the source for whch the wthhodng agent s especay made
abe under the ncome ta aws. (Southern Pacfc Co. v. Comms-
soner, 17 . T. ., 410 Myra urst v. Commssoner, 19 . T. .,
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161
I 294.
471 Southern Pacfc Co. v. Commssoner, 21 . T. ., 990 mer-
can Mortgage Co. v. Commssoner, uy 10, 1935, Docket No. 72325
ouston Street Corporaton v. Commssoner, September 19, 1935,
Docket No. 78528.) In the ast cted case the oard, foowng pre-
vous nterpretatons of the word ta payer, hed that t dd not
have |ursdcton of a proposed defcency n ta aganst the ouston
Street Corporaton. Upon appea by the pettoner to the Crcut
Court of ppeas for the fth Crcut, the court reversed the acton
of the oard ( ouston Street Corporaton v. Commssoner, 84 ed.
(2d), 821), statng n part as foows:
The 1926 Revenue ct (secton 2 26 U. S. C. ., secton 1696 ) and a sub-
sequent cts have ths defnton of ta payer: The term 4 ta payer means
any person sub|ect to a ta mposed by ths ct tte . y the provsons of
the Revenue cts pettoner was made abe for the ta mposed upon the
nonresdent aens. We see no dstncton between the phrases abe for such
ta and sub|ect to a ta . oth connote payment of the ta . We consder
the terms nterchangeabe. See Webster s Dctonary, Standard Dctonary and
Centnry Dctonary abe, sub|ect

person abe for a ta s a person sub|ect to a ta and comes squarey wth-
n the defnton of a ta payer n the statute. The concuson we reach s that
the oard of Ta ppeas had |ursdcton to entertan the petton n ths cas
and the reasons gven for denyng ursdcton are whoy wthout substanta
foundaton. The foowng authortes tend to support ths concuson: Unted
States v. Updke (281 T . S., 489) Commssoner v. New York Trust
Co, (54 . (2d), 463) Whte v. opkns (51 . (2d), 159).
though the anguage of the court n the ouston Street Corpo-
raton case s nconsstent to some e tent wth certan anguage con-
taned n Unon Pac. y. Co. v. owers (33 ed. (2d), 102), the
atter case dd not nvove the queston of the |ursdcton of the
oard or any other admnstratve queston such as the one here at
ssue. The Government has decded not to appea the ouston Street
Corporaton case and has accepted the decson of the court as fna.
It foows, therefore, that regardess of the nterpretaton paced by
the oard of Ta ppeas on secton 607 of the Revenue ct of 1934
n the Ssters of the Thrd Order of St. rancs of the Docese of
Pttsburgh, Pa., supra (whch woud be effectve ony for 1934 and
subsequent years), the queston at the present tme s controed by
the decson of the Crcut Court of ppeas for the fth Crcut n
ouston Street Corporaton v. Commssoner, supra, wheren the
court stated that there s no dstncton between the phrase abe
for such ta and the phrase sub|ect to ta and that a person a-
be for the ta s a ta payer wthn the meanng of the statute.
Ths offce s of the opnon, therefore, that nterest may be coected
from wthhodng agents for the nonpayment of the ta requred to
be wthhed at the source the same as n the case of an ndvdua ta -
payer, whether the abty arses under the Revenue ct of 1934 or
pror Revenue cts. In vew of the specfc wordng of secton 294
of the Revenue ct of 1934, as amended, such nterest may be co-
ected as a part of the ta assessed aganst the wthhodng agent.
(See aso secton 294 of the Revenue ct of 1936.)
erman Ofhant,
Genera Counse for the Department of the Treasury.
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522(a), rt. 51. 162
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(a). GROSS INCOM : G N R L
D INITION.
rtce 51: What ncuded n gross ncome.
R NU CT O 1932.
Dstrbutons of domestc budng and oan assocaton reorganzed
as edera savngs and oan assocaton. (See I. T. 3050, page 57.)
rtce 51: What ncuded n gross ncome.
R NU CT O 1932.
Ta abty of ncome of restrcted members of the Osage Indan
Trbe. (See G. C. M. 18242, page 57.)
rtce 51: What ncuded n gross ncome. I-26-8784
Ct. D. 1237
INCOM T R NU CT O 1932 D CISION O SUPR M COURT.
Income On, and Gas Leases ssgnment.
Under an assgnment of o and gas eases made n consderaton
of a specfed 6um to be pad out of the o produced to the e tent
of oue-fourth of a o produced unt the fu sum was pad, pay-
meuts made by purchasers to the assgnors for ther share of the
o are not ta abe as ncome to the assgnee, where the payments
were not to be a persona obgaton of the assgnee, the assgnors
took no securty by way of en or otherwse, the purchasers were
to make payments drecty and proportonatey to the owner of the
royaty reserved n the ease, to the assgnors, and to the assgnee,
and the assgnee coud not coect for any porton of the o app-
cabe to the o payment to be made to the assgnors.
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163
22(a), rt. 51.
Supreme Couet of the Unted States.
W. . Thomas, Coector of Interna Revenue, pettoner, v. . . Perkns et a.
67 S. Ct., 911.
On wrt of certorar to tre Unted States Crcut Court of ppeas for the fth Crcut
une 1, 1937.
OPINION.
Mr. ustce t|ter devered the opnon of the Court.
Respondents, husband and wfe, sued n the Dstrct Court for Northern
Te as to recover a porton of the ta they pad for 1933 on ther communty
ncome. In respect of the amount now n controversy, that court gave |udg-
ment for the defendant (15 . Supp., 356) the crcut court of appeas
reversed (86 . (2d), 954) and, ts decson beng n apparent confct wth
that of the Crcut Court of ppeas for the ghth Crcut n Cotnar O Co. v.
urnet (64 . (2d), 965), ths Court granted the coector s petton for a wrt
of certorar. ( T . S., .)
ammonds and ranson owned o and gas eases on undeveoped ands
n Te as whch provded for a royaty of one-eghth. They assgned to the
ath O Co. whch was prncpay owned by Green and Perkns. In takng
the assgnment the company acted for tsef to the e tent of one-fourth and
for Green and Perkns to the e tent of three-eghths each. Later t trans-
ferred Its nterest to Perkns. So far as concerns the queston here presented,
Perkns may be treated as soe assgnee of ammonds and ranson. The
assgnment rectes that they are owners of a rghts under or ncdent to the
eases and decares that n consderaton of the sum of ten doars ( 10)
cash1 and of the further sum of three hundred nnety-fve thousand
doars ( 395,000) to be pad out of the o produced and saved from
the ands, and to be one-fourth of a the o produced and
saved unt the fu sum s pad, we do hereby
bargan, se, transfer, assgn, and convey a our rghts, tte, and nterest n
and to sad eases and rghts thereunder.
fter descrpton of the ands and easehods, the assgnment provdes that
the o payment sha be made to the assgnors, ammonds and ranson, each
to receve one-haf thereof, out of the o produced and saved from the
eased premses, whch payments sha be made by the ppe ne company
or other purchaser of sad o, and sha be one-fourth ( ) of a the o
produced and saved from the above descrbed and, unt the fu sum
Is fuy pad. It s understood and agreed that the 395,000 Is payabe
out of o ony, f, as and when produced from sad ands above descrbed, and
sad o payment does not consttute and sha not be a persona obgaton
of the assgnee, ts successors or assgns. The o payment
sha bear none of the e penses of the deveopment of sad eases or any other
burden. The nstrument does not purport to reserve a en.
Perkns dred wes on the eased ands and In 1933 produced o the
assgnors receved substanta amounts to appy on the payment to be made
them the o was run from the wes nto tanks on the eased premses from
whch t was taken by ppe-ne companes, purchasng the o. ach pur-
chaser requred and was furnshed a dvson order e ecuted by a the Inter-
ested partes. y such orders assgnors authorzed purchasers to receve from
the wes one-fourth of the o and decared that the o run shoud become
the property of the purchasers as soon ns receved by them. In accordance
wth the orders, purchasers made payments drecty and proportonatey to
the owner of the royaty reserved n the ease, to assgnors, and to assgnee.
The ast coud not coect for any porton of the o appcabe to the o
payment to be made assgnors.
Contemporaneousy wth the assgnment there was pad 105,000 In cash and 50,000
In notes.
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522(a), rt. 51.
164
In ther ta return for 1933 respondents, Perkns and wfe, dd not ncude
n ncome any part of the proceeds that went to assgnors. ut the Com-
mssoner charged the amounts receved by the assgnors to the respondents
and aowed the atter depeton n respect of the same. t the tra t was
proved that the ong-estabshed practce of the ureau was not to requre
the operator of an o and gas ease to ncude as a part of hs Income the
royates payabe n knd to the essors. ut where they were payabe n cash
the operator ncuded the proceeds of a the o and took as an offsettng
deducton the amount of royates pad. It was admtted that, f the assgnors
payments are e cuded, the depeton aowed respondents shoud be
correspondngy reduced.
The queston s whether respondents gross ncome shoud ncude moneys
pad to assgnors by purchasers of the o.
We need not decde whether technca tte to the o whe n the ground was
n assgnors, or n assgnee. The edera ncome ta ct s to be gven a
unform constructon of Naton-wde appcaton e cept n so far as Congress
has made t dependent on State aw The grantng cause n the assgn-
ment woud be suffcent, f standng aone, to transfer a the o to the
assgnee. It does not specfcay e cept or e cude any part of the o-
ut t s quafed by other parts of the nstrument. The provsons for pay-
ment to assgnors n o ony, the absence of any obgaton of the assgnee
to pay n o or n money, and the faure of assgnors to take any securty
by way of en or otherwse unmstakaby show that they ntended to wthhod
from the operaton of the grant one-fourth of the o to be produced and
saved up to an amount suffcent when sod to yed 395,000.
The constructon that the partes put upon the assgnment makes for the
same concuson. There s no suggeston that, havng taken tte, the assgnee
transferred any of the o back to assgnors. The dvson orders desgnated,
and so served to Indcate ownershp of, the quanttes beongng to each of the
nterested partes. nd, n the crcumstances, the orders gven and proceeds
receved by assgnors necessary covered and were derved from o not
transferred by the assgnment.
Our decson n Pamer v. ender (287 U. S., 551) supports the vew that
the assgnment dd not transfer the o n queston. We there construed sec-
ton 214(a)10, Revenue ct of 1921 (42 Stat., 241), whch drected a reasonabe
aowance for depeton n the case of o and gas wes accordng to the
pecuar condtons n each case and that such depeton aowance based
on dscovery vaue sha not e ceed the net ncome, computed wthout aow-
ance for depeton, from the property upon whch the dscovery s made .
In the case of eases the deductons aowed sha be equtaby
apportoned between the essor and the essee.
The ta payer, Pamer, was a member of a partnershp that acqured o
and gas eases, dscovered o, e ecuted a wrtng conferrng on a company the
rght to take over a part of the eased property n consderaton of a present
payment of a cash bonus, and future payments to be made out of one-haf
of the frst o produced and saved to the e tent of 1,000,000, and an add-
tona e cess royaty of one-eghth of a the o produced and saved. The
wrtng decared that the partnershp does se, assgn, set over, transfer and
dever unto the o company the descrbed eased premses.
In hs ta return, Pamer reported hs share of the ncome derved by the
partnershp from the bonus payment and o receved under ts contract wth
the o company and, reyng on secton 214(a) 10, made a deducton for
depeton based on vaue of o n pace on the date of dscovery. The Com-
mssoner refused to aow the deducton on the theory that the transacton
was a sae of the eases by the partnershp, and that the ony aowabe deduc-
ton was one based upon the cost of the property. s cost was ess than the
Lunch v. worth-Stephens Co. (207 D. S., 364, 370 T. D. 3690, C. . I -1 162
(1925) ) LCortss v. owers (281 D. S., 376. 378 Ct. D. 188, C. . I -1, 254 (1930)1)
Tyer . Unted States (281 T . S., 497, 503 Ct. D. 190, C. . I -1, 383 (1930)1) :
urnet arme (287 U. S.. 103, 110 Ct. D. 611. C. . I-2, 210 (1932))) Pamer v
ender (287 T . S.. 551, 556 Ct. D. 641, C. . II-1, 235 (1933)1) urnet v. Ougnen-
hem (288 . S.. 280, 284 Ct. D. 636. C. . II-1, 374 (1933) ) cverng v ok
(291 T . S.. 182, 188 Ct. D. 784, C. . III-1. 247 (1934) ).
Sheffed v. ogg (124 Te ., 290). See Waggoner state v. Sacr O Co., (118 Te
517) ager . Stakes (116 Te ., 453) Stephens County v. Md- ansas O d Oat Co
(113 Te ., 100) : Te as Co. v. Dougherty (107 Te ., 227).
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165
522(a), rt. 61.
dscovery vaue, the Commssoner s aowance of depeton was ess than that
camed by Pamer and the ta was correspondngy greater. e pad t,
and sued the coector to recover the amount by whch the Commssoner s
rung operated to ncrease hs burden.
The dstrct court uphed the Commssoner s rung, the crcut court of
appeas affrmed, ths Court reversed. We sad (pages 557-558): The an-
guage of the statute s broad enough to provde, at east, for every case n
whch the ta payer has acqured, by nvestment, any nterest n the o In pace,
and secures, by any form of ega reatonshp, ncome derved from the e -
acton e tracton of the o, to whch he must ook for a return of hs
capta . Smary, the essor s rght to a depeton aowance does
not depend upon hs retenton of ownershp or any other partcuar form of
ega nterest In the mnera content of the and. It s enough f, by vrtue of
the easng transacton, he has retaned a rght to share n the o produced. If
so he has an economc nterest n the o, n pace, whch s depeted by pro-
ducton. Thus, we have recenty hed that the essor s entted to a depeton
aowance on bonus and royates, athough by the oca aw ownershp of the
mneras, n pace, passed from the essor upon the e ecuton of the
ease . Thus, throughout ther changng reatonshps wth respect
to the propertes, the o n the ground was a reservor of capta nvestment
of the severa partes, a of whom were entted to share n the o
produced.
Thus n that case we hed assgnors mere stpuaton for royaty out of
o operated to save to them an economc nterest n the o suffcent to entte
them to deduct from ther ncome derved from the o an aowance for
depeton. If Pamer had retaned no nterest n the o he woud have been
entted to no deducton on account of depeton. Ownershp was essenta.
The assgnee was not entted to ncome from Pamer s share of the o nor
to deduct from the ncome t receved from ts own nterest any part of the
depeton aowance that was attrbutabe to Pamer s nterest.
everng v. Twn e Syndcate (293 U. S., 312 Ct. D. 905, C. . I -1,
253 (1935) ) construed depeton provsons n the Revenue ct of 1926 whch
so far as concerns ownershp are not to be dstngushed from correspondng
provsons consdered n Pamer v. ender, supra. Secton 204(c)2 decared
that n the case of o and gas wes the aowance for depeton sha be
27 per cent of the gross ncome from the property durng the ta abe year.
Secton 234(a)8 requred the deductons aowed to be equtaby apportoned
between the essor and essee. The ta payer, assgnee of the ease, e tracted
substanta quanttes of o. y the terms of the ease and assgnment he was
obgated to pay royates n cash or knd totang one-fourth of the o. e
camed that gross proceeds of the o shoud form the bass for computaton
of the aowance for depeton. The Commssoner rued that the deducton
shoud be mted to 27 per cent of the gross producton ess royates. The
oard of Ta ppeas uphed that rung the crcut court of appeas re-
versed the oard we sustaned the Commssoner. Our opnon shows that
the phrase, Income from the property, means ncome from o and gas ony
that, where the essee turns over royaty o n knd to the essor, the amount
retaned by essee s the bass for hs computaton of depeton and the royaty
o Is the bass for that aowabe to essor. In that connecton we suggested
that Congress dd not ntend a dfferent resut where the essee ses a the
o and pays over the royaty n the form of cash. nd n approva of the
Commssoner s rung we sad (page 321) : The apportonment gves respond-
ent 27 per cent of the gross ncome from producton whch t had the rght
to retan and the assgnor and essor respectvey 27 per cent of the royates
they receve. Such an apportonment has regard to the economc nterest o
each of the partes entted to partcpate n the depeton aowance. (Com-
pare Pamer v. ender, 287 U. 8., 551, 558.)
s In the earer of these cases the assgnor was entted to deduct depeton
from ncome he receved from hs nterest n the o, so n the ater one the
assgnee w g not entted to deduct from ncome receved from Its share an
aowance for depeton attrbutabe to the assgnor s nterest. The owner
of an nterest In the depost s entted to deduct for depeton of the part
producng hs Income but may not deduct for depeton of a share beongng
to another.
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23(c), rt. 151.)
166
s ammonds and ranson, the assgnors In ths case, woud be entted to
an aowance for depeton n respect of the o sod out of ther share, the
ncome from that nterest s not chargeabe to respondents, Perkns and wfe.
It foows that the Commssoner erred n ncudng n ther Income the pay-
ments made by purchasers to assgnors for ther share of the o.
ffrmed.
rtce 53: Compensaton pad other than n cash.
R NU CT O 1932.
mendment of artce 53, Reguatons 77. (See T. D. 4724, page
58.)
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 121: usness e penses.
R NU CT O 1932.
ttorney s fees pad to secure appontment of guardan. Revoca-
ton of I. T. 2124 (C. . I -1, 138 (1925)). (See Mm. 4580, page
62.)
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 151: Ta es.
R NU CT O 1932.
Procedure n e amnaton of edera ncome ta returns n whch
deductons have been taken for processng ta es. (See I. T. 3086,
page 77.)
rtce 151: Ta es.
R NU CT O 1932.
mounts pad or payabe by vendors to vendees as remburse-
ments for processng ta es. (See I. T. 3090, page 78.)
rtce 151: Ta es. I- -8497
I. T. 3043
R NU CTS O 1928 ND 1932.
I. T. 2741 (C. . II-2, 48) s modfed to accord wth G. C. M.
17570. (See page 193.)
Revenue ct of 10.12, sectons 23(1), 114(b)3 (47 Stat., 181, 202) Pamer v. ender
(287 U. S., 551) ccerng v. Turn e Syndcate (293 U. S., 312).
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167
23(n). rt. 261.
S CTION 23 (|). D DUCTIONS ROM GROSS
INCOM : D D TS.
rtce 191: ad debts.
ppcaton of Treasury Decson 4633 (C. . -1, 118 (1936)).
(See G. C. M. 18525, page 80.)
S CTION 23(n). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
ncome ta revenue acts of 1928 and 1932 decson of court.
1. Deductons Chartabe Contrbuton ase fob Computa-
ton Capta Net Losses.
Capta net osses are to be taken nto account In computng
net ncome for the purpose of determnng the deductons aow-
abe for chartabe contrbutons under the 15 per cent mtaton
prescrbed by secton 23(n) of the Revenue cts of 1928 and 1932.
2. Case oowed.
Prncpe n Ueverng v. ss (293 U. S., 144, Ct. D. 884, C. .
III-2, 191), nvovng capta net gan, foowed.
8. Consttutonaty.
The appcabe statutes are not Invad n requrng the deduc-
ton of capta net osses from gross ncome for the purpose of
determnng chartabe deductons under secton 23(n), whe the
fu amount of such osses may not be deducted n determnng
ta abe net ncome under secton 101(b). Under the s teenth
amendment a ncome, whether net or gross, may be ta ed by
Congress, and the deductons aowed from gross ncome are gven
as a matter of grace.
4. Decson ffrmed.
Decson of oard of Ta ppeas (32 . T. ., 948) affrmed.
6. Certorar Dened.
Petton for certorar dened December 7, 1936. (299 U. 8., 604.)
Unted States Crcut Court of ppeas for the Seventh Crcut.
Nos. 5728-5729. Sewe L. very, pettoner, v. Commssoner of Interna
Revenue, respondent.
T84 . (2d), 900.1
Pettons for revew of decsons of the Unted States oard of Ta ppeas.
efore vans and Sparks, Crcut udges, and Lndey, Dstrct udge.
Sparks, Crcut udge: These appeas are from orders of the Unted States
oard of Ta ppeas, confrmng defcences nvovng ncome ta es for the
years 1980, 1931, and 1982. Cause No. 5728 reates to the ta es for the frst
two years, whch are governed by the Revenue ct of 1928, and cause No. 5729
reates to the ta es for 1932 and nvoves the Revenue ct of 1932.
R NU CT O 1932.
rtce 261: Contrbutons or gfts by nd-
vduas.
I-15-8640
Ct. D. 1214
une 30, 1936.
opnon.
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523 (n), rt. 261.
168
ppeant Is an Indvdua and a resdent of Inos. Durng the years In
queston hs uet ncome e cusve of capta net osses, hs capta net osses,
and hs chartabe contrbutons were as foows:
Year.
Net ncome
e cusve of
capta net
osses..
Capta
net osses.
Chartabe
contrbu-
tons.
1930...
1. , 812.40
393,194.85
377,799.79
128,299.75
199,059.58
797,717.89
86,937.79
105. 238. 35
54,921.34
1931
1932
The questons here presented arse over the amounts of deductons to be
aowed for pettoner s chartabe contrbutons. In computng the defcences,
the Commssoner aowed a deducton of IS per cent of the dfference on account
of the chartabe contrbutons for each year when the pettoner s net ncome,
e cusve of capta net oss, e ceeded hs capta net oss. or the year 1932,
when the capta net oss e ceeded the net ncome, e cusve of capta net
oss, no deducton for chartabe contrbutons was aowed. Upon pettons
for revew, the oard sustaned the rungs of the Commssoner.
It s contended by pettoner that In determnng the deductons for chartabe
contrbutons, hs capta net osses shoud be dsregarded n computng hs
net ncome. The provsons of the appcabe sectons of both cts nvoved
are dentca, and for brevty we sha refer ony to the ct of 1928 (45 Stat.,
791)
1 Revenue ct of 1028 :
Sec. 23. Deductons from gross ncome. In computng net Income there sha be aowed
as deductons:
(n) Chartahe and other contrbutons. In the case of an ndvdua, contrbutons or
gfts made wthn the ta abe year to or for the use of:

(2) any corporaton, or trust, or 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 tho net earnngs of
whch nures to the beneft of any prvate sharehoder or ndvdua
to an amount whch n a the above cases combned does not e ceed 15 per centum of the
ta payer s net Income as computed wthout the beneft of ths subsecton.
Sec. 101. Capta net gans and osses.
(a) Ta n case of capta net gan. In the case of any ta payer, other than a corpo-
raton, who for any ta abe year derves a capta net gan (as erenafter defned n ths
secton), there sha, at the eecton of the ta payer, be eved, coected, and pad, n eu
of a other ta es mposed by ths tte, a ta determned as foows: a parta ta sha
frst be computed upon the bass of the ordnary net ncome at the rates and In the manner
as f ths secton had not been enacted and the tota ta sha be ths amount pus 12 per
centum of the capta net gan.
(b) Ta n case of capta net oss. In the case of any ta payer, other than a corpo-
raton, who for any ta abe year sustans a capta net oss (as herenafter defned n ths
secton), thee sha be eved, coected, and pad, n eu of a other ta es mposed by
ths tte, a ta determned as foows: a parta ta sha frst be computed upon the bass
of the ordnary net ncome at the rates and n the manner as f ths secton had not been
enacted, and the tota ta sha be ths amount mnus 12 per centum of the capta net
oss but n no case sha the ta of a ta payer who has sustaned a capta net oss be ess
than the ta computed wthout regard to the provsons of ths secton.
(c) Defntons.
(1) Capta gan means ta abe gan from the sae or e change of capta assets
consummated after December 31 1921.
(2) Capta oss means deductbe oss resutng from the sae or e change of capta
assets.
(3) Capta deductons means such deductons as are aowed by secton 23 for the
purpose of computng net ncome, and are propery aocabe to or chargeabe aganst
capta assets sod or e changed durng the ta abe year.
(4) Ordnary deductons means the deductons aowed by secton 23 other than
capta osses and capta deductons.
(5) Capta net gan means the e cess of the tota amount of capta gan over the
sum of ( ) the capta deductons and capta osses, pus ( ) the amount, f any by
whch the ordnary deductons e ceed the gross ncome computed wthout Incudng capta
gans.
(0) Capta net oss means the e cess of the sum of the capta osses pus the capta
deductons over the tota amount of capta gan.
(7) Ordnary net ncome means the net ncome, computed n accordance wth the
provsons of ths tte, after e cudng a tems of capta gan, capta oss, and capta
deductons.
(8) Capta assets means property hed by the ta payer for more than two years
(whether or not connected wth hs trade or busness), .
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169
23(n), rt. 261.
In everng t. ss (293 U. S., 144) the queston was presented whether
deductons on account of chartabe contrbutons shoud be taken from net
ncome as defned by secton 21, or from ordnary net ncome as defned by
secton 101(c)7 of ths ct. Secton 21 defnes net ncome as gross ncome
computed under secton 22, ess the deductons aowed by secton 23. The
computaton under secton 22 ncudes capta gans and osses. The Court
there hed that the base for computng the 15 per cent deducton for chartabe
contrbutons under secton 23(n) was the net ncome defned by secton 21,
and ncuded capta net gan, even though the ta payer eected to be ta ed
on capta net gan at the reduced rate prescrbed by secton 101(a). It sad,
or net ncome, the base specfed n secton 23(n) the pettoner
woud substtute ordnary net ncome as defned n secton 101. So to read
the ct woud voate ts pan terms and run counter to the hstory of the
egsaton. y the e press words of secton 23(n) chartabe con-
trbutons are to be deducted to ascertan net ncome as defned n secton 21
and nothng n secton 101, whch prescrbes merey a method for segregatng
a porton of that net ncome for ta aton at a speca rate, n any wse aters
the rght of the ta payer to take the deducton n accordance wth secton
23(n).
It s true that n that case capta net gan was nvoved under secton
101(a), whe n the case at bar, capta net oss s nvoved under secton
101(b), and for ths reason the pettoner contends that the case s not app-
cabe here. It w be noted, however, that the Court stated that nothng n sec-
ton 101 n any wse atered the rght of the ta payer to take the deducton
n accordance wth secton 23(n). Of course, secton 101(b) was not drecty
nvoved n that controversy, but the anguage empoyed ncudes both sub-
sectons (a) and (b). If, however, we consder the statement as dctum
wth respect to secton 101(b), yet we thnk ts appcaton to that subsecton
s ogcay sound, and we perceve no reason why the computaton base n one
secton shoud be dfferent from that n the other. When the ta payer
chooses to accept the beneft of hs chartabe contrbutons, he must accept
the computaton base provded by statute, regardess of the appcaton of any
other statute whch merey segregates a porton of hs net ncome for ta aton
at a speca rate, or mts hs osses n the computaton of hs ta . We
thnk the ss case s controng here and that the oard correcty hed that
pettoner s capta net osses shoud be taken nto account n computng hs
net ncome.
It s further contended by pettoner that both cts are nvad, as we have
construed them, because they requre the deducton of capta net osses from
gross ncome n determnng the deducton under secton 23(n), whe a such
osses may not be deducted n determnng the ta abe net ncome under
sectons 22 and 23. e further contends that secton 101(b) s nvad n so
far as t denes a ta payer the rght to deduct hs capta net osses In fu
In determnng ta abe net ncome. The frst pont deas prmary wth the
queston whether the statute as we have construed t s fatay arbtrary and
dscrmnatory. The second pont nvoves the queston whether Congress,
n evyng a genera ncome ta , can whoy deny any deducton on account
of osses resutng from the sae or converson of capta assets. The respond-
ent suggests that the pettoner n hs petton before the oard at no tme
questoned the consttutonaty of the cts, and for that reason he urges
that that queston can not be presented here. The pettoner, however,
counters wth the statement that, athough hs petton dd not specfcay
aege that fact, yet t was oray argued wthout ob|ecton from ether
respondent or the oard, but t was not dscussed In the opnon. Under
these crcumstances, we fee that the matter s propery presented here.
We are convnced, however, that nether contenton s tenabe. Secton
208(c) of the ct of 1924 was hed to be consttutona n eusch v. Comms-
soner (23 . T. ., 216). That secton s substantay dentca wth secton
101(b) now under consderaton. The rung was affrmed by the Thrd
Crcut Court of ppeas n a per curam decson (60 . (2d), 481), and cer-
torar was dened (287 U. S., 641). The per curam decson does not ds-
cose that the consttutona queston was presented or passed upon. The
brefs here, however, dscose wthout dena that that queston was rased
In the crcut court of appeas and was rased and dscussed n the brefs
upon petton for certorar. e that as t may, we are n accord wth the
opnon of the oard n ths respect. Under th s teenth amendment a n-
come, whether net or gross, may be ta ed by Congress, and the deductons
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103, rt. 521.
170
aowed from gross ncome are gven as a matter of grace. Wcw Coona Co.
v. everng, 292 U. S., 435 Ct. D. 841, C. . III-1, 104 evertng v.
Independent Lfe Insurance Co., 202 U. S., 371 Ct D. 830, C. . III-1, 302 .)
The mted e ercse of a awfu authorty s not ob|ectonabe. (Denman T.
Sayton, 282 U. S., 514 Ct. D. 318, C. . -, 380 nshaber v. Unon
Pacfc, 240 U. S., 1.) The rue wth respect to osses s not dfferent from
that of other deductons, and they may not be refected n an ncome ta return
uness authorzed by statute. (Cark v. abere rewng Co., 280 U. S., 384
T. D. 4067, C. . I-2, 213 Rensehausen v. Lucas, 280 U. S., 387 Mente v.
sner, 26(5 ed., 161 T. D. 3029, C. . 2, 131 Seberng v. Commssoner, 38
. (2d), 810 Stranahan v. Commssoner, 42 . (2d), 729 Ct D. 247, C. .
I -2, 342 .)
Orders affrmed.
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 42. P RIOD IN W IC IT MS O
GROSS INCOM INCLUD D.
rtce 331: When ncuded n gross ncome.
R NU CT O 1932.
Ta abe status of refunds of customs dutes and ta es. (See Mm.
4564, page 93.)
P RT . R TURNS ND P YM NT O T .
S CTION 52. CORPOR TION R TURNS.

rtce 392: Returns by recevers.
R NU CT OP 1932.
Returns by recevers and conservators of natona banks. (See
I. T. 3080, page 96.)
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 521: Proof of e empton.
R NU CT O 1932.
Procedure wth respect to appcatons for e empton. (See Mm.
8537 (revsed), page 100.)
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171 212, rt, 1042.
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112. R COGNITION O G IN OR LOSS.
rtce 571: Recognton of gan or oss.
R NU CT O 1832.
Converson of bond nto stock of obgor corporaton. (See G. C.
M. 18436, page 101.)
rtce 577: Defntons.
R NU CT O 1932.
changes n connecton wth corporate reorganzatons. (See
Mm. 4555, page 244.)
S CTION 113. D UST D SIS OR D T RMINING
G IN OR LOSS.
rtce 605: d|usted bass for determnng gan or oss.
R NU CT O 1932.
Method of computng ad|usted bass for deprecaton n cases of
mproved mnera propertes where aowed percentage depeton
e ceeds bass remanng to be recovered through depeton aow-
ance. (See G. C. M. 17760, page 102.)
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 143. WIT OLDING O T
T SOURC .
rtce 761: Wthhodng ta at source.
R NU CT O 1932.
Interest on bonds of domestc corporaton guaranteed and pad by
a foregn corporaton, payment beng made outsde the Unted States.
(See I. T. 3059, page 111.)
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 212. GROSS INCOM .
rtce 1042: cuson of earnngs of foregn shps from
gross ncome.
R NU CT O 1932.
empton from ta aton of earnngs of shps documented under
the aws of The Netherands. (See I. T. 3045, page 119.)
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294.1 172
rtce 1042: cuson of earnngs of foregn shps from
gross ncome.
R NU CT O 1932.
Sweden, equvaent e empton. (See I. T. 3083, page 120.)
SUPPL M NT . POSS SSIONS O T UNIT D ST T S.
S CTION 252. CITIZ NS O POSS SSIONS
O UNIT D ST T S.
rtce 1141: Status of ctzens of Unted States possesson.
R NU CT O 1932.
Resdents of Phppne Isands (ncudng ctzens of Unted
States). (See I. T. 3070, page 120.)
SUPPL M NT M. INT R ST ND DDITIONS TO T T .
S CTION 294. DDITIONS TO T T IN
C S O NONP YM NT.
Secton 294.
revenue act of 1932.
Interest on ta assessed aganst wthhodng agent. (See G. C. M.
17274, page 159.)
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173 22(a), rt. 61.
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. I-1-8463
( so Secton 104, rtce 541.) Ct D. 1185
INCOM T R NU CT O 1928 D CISION OP COURT.
1. Income Commssons Whetheb Ta abe to Indvdua ob to
Corporaton .
Where an ndvdua who had contracted wth a corporaton for
the sae and bookng of ts moton pctures formed a corporaton to
whch he transferred neary a hs property, ncudng the fm e -
change and bookng busnesses, n e change for stock of the new cor-
poraton, and thereafter ndorsed over to the atter the commsson
checks receved from the fm corporaton, the commssons const-
tuted ta abe ncome to the new corporaton as compensaton for
servces, wthn the meanng of secton 22 of the Revenue ct of
192S.
2. vason of Surta es bt Incorporaton vdence.
Where a famy corporaton was formed In 1927 to take over the
property and busness of an ndvdua, and the ma|or porton of
ts ncome conssted of commssons on contracts so transferred to
t, the earnng of whch commssons requred no capta e cept the
saary of one empoyee, and where no dvdends were pad n 1927,
1928, or 1929, athough a arge surpus was accumuated, the ev-
dence s suffcent to warrant the fndng that the corporaton was
avaed of for the purpose of escapng surta es upon ts stockhoders,
and the corporaton Is sub|ect to the ta Imposed by secton 104 of
the Revenue ct of 1928.
8. Decson ffrmed.
Decson of the oard of Ta ppeas (33 . T. ., 857) affrmed.
4. Certorar Dened.
Petton for certorar dened November 9, 1936. (299 U. S., 588.)
Unted States Crcut Court of ppeas fob the fth Crcut.
R. t L., Inc., pettoner, v. Commssoner of Interna Revenue, respondent.
84 . (2d), 721.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of
Lousana).
efore oster, Sbey, and omes, Crcut udges.
une 24, 1936.
opnon.
Sbey, Crcut udge: The ta payer R. L., Inc., was by the Comms-
soner and the oard of Ta ppeas hed abe to pay the speca ta of
00 per cent of ts net Income for the year 1929 mposed by secton 104 of the
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22(a), rt. 51.
174
Revenue ct of 1928, as beng a corporaton formed or avaed of that year
for the purpose of preventng the mposton of surta upon ts sharehoders.
It contends that t s not abe to the ta and that an tem of 61,8-17 returned
by t as ncome was reay not such.
The dsputed tem s commssons mosty pad by Metro-Godwyn Corpora-
ton for the sae and bookng of ts moton pctures. The contract therefor
was made wth . . Rchards. t the tme of hs formng the R. L. Cor-
poraton n 1927 he transferred neary a hs property to t for Its stock.
Touchng ths contract he testfes: I turned over some rea estate and stocks
n the Saenger company and stock n suburban theaters and propertes that
I owned In New Oreans, the fm e change busness and the bookng agency.
The fm e change busness dstrbutes moton pctures. The bookng agency
engages n the bookng of pctures, road shows and attractons generay. The
commssons from those two busnesses amounted to much n some years.
The ncome ta return for 1929 showng commssons earned by R. L., Inc.,
61,S47, must have been the Metro commssons earned on the sae and bookng
of pctures. My corporaton was n that busness. The secretary-treasurer
testfed that the ma|or porton of the ncome of R L., Inc., has been through
the earnng of commssons through the bookng of fms, and that an empoyee
named ryan was n charge of ths busness. The checks for the comms-
sons woud come to . . Rchards, and he woud ndorse them over to
R. L., Inc., and they woud go nto the treasury of the company. The
organzaton mnutes of R. L., Inc., say on the pont: On moton to . .
Rchards, r., duy seconded, a resouton was unanmousy carred to the
effect that the charter so prepared was satsfactory and that same be adopted
and sgned as the charter of R. L., Inc. and that the sad . . Rchards,
r., was to turn over the earnngs and commssons of the Metro-Godwyn
Corporaton to R. L., Inc., for servces rendered to them for a perod of fve
years. The commssons were, as has been seen, returned as ncome of the
ta payer n 1929, both Rchards and the secretary-treasurer sgnng the
return. Whe there s not shown any assgnment of the contract wth Metro-
Godwyn or novaton of t, t s pan that the servces were rendered by the
ta payer through ts empoyee ryan and that ths money was earned by t
It may be that Rchards n strctness ought aso to have returned t as hs
Income, offsettng It by the payment to the corporaton for ts servces to hm
as an e pense. (Compare Lucas v. ar, 281 U. S., 111.) ut that woud
eave the ta payer st earnng ths money, Rchards beng then regarded
as ts paymaster nstead of Metro-Godwyn. The money was n any case a
compensaton for ts servces wthn the defnton of Income n secton 22
of the ct.
R. L., Inc., was formed by Rchards on the advce of counse to take over
and hod hs property, probaby owned n communty wth hs wfe, to avod
compcatons that mght arse on hs death out of the mnorty of hs seven
chdren. or Its entre capta stock he transferred to t some 82,000 of
reaty, 112,000 n money, notes and bonds, and 361,300 n varous stocks. One
quafyng share of stock was Issued to the secretary-treasurer, and the rest
was dvded between Rchards and hs wfe, the three beng the board of
drectors. Rchards had an outsde saary of 66,000 per annum upon whch
he ved and supported hs famy. The corporaton besdes the commssons
dscussed above receved rents, Interest and dvdends whch In 1929 came to
about 76,000. Its e penses were sght. The net earnngs were about 64,000
In 1927, 89,000 n 1928, and 120,000 n 1929. No dvdends were pad In
ether year, and the baance sheet for 1929 showed a surpus of 942,000. There
Is no e panaton as to how t arose. We surmse It was argey estmated on
market vaues of stocks. On these facts, ayng to one sde the queston of
whether a purpose n formng the corporaton was to escape surta es on
ncome on the part of Rchards, we are of opnon that t coud be concuded
that the corporaton was avaed of for that purpose. The ony actve bus-
ness that the corporaton engaged n was that n whch t earned the comms-
sons. That requred no capta e cept the saary of the empoyee ryan.
There was no need of more capta to carry on busness whch prevented pay-
ng out ts net profts n dvdends. In 1927 and 1928 no reason s suggested
for not decarng dvdends e cept that the cash money receved as ncome
was put nto addtona stocks and rea estate. Ths s |ust the accumuaton
whch the ta s ntended to dscourage. In 1929 t s argued that there was
a oss n market vaue of the stocks, but It was much ess than the surpus
vaue referred to above. No osses were reazed by sae. The corporaton
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175
22(a), rt. 51.
had a Its Investments unmpared e cept that at the moment It coud not se
them for so much as before. Ths does not seem to |ustfy payng no dvdend
at a from a cash net ncome of some 130,000. We thnk the evdence s
suffcent to support the fact fndng that the corporaton was avaed of for
the purpose of escapng surta es to the stockhoders by accumuatng ts
profts. The decson of the oard of Ta ppeas s affrmed.
rtce 51: What ncuded n gross ncome. I-10-8581
Ct. D. 1205
ncome ta revenue acts of 1921, 1924, 1926, and 1928 decson op
supreme court.
Income Testamentaby Trust ssgnment Res udcata
Loca Law.
Where the fe benefcary of the ncome of a testamentary trust
n 1923 and ater years assgned to certan of hs chdren specfed
amounts of the ncome whch he was then or mght thereafter be
entted to receve durng hs fe, and the ncome was dstrbuted
by the trustees drecty to the assgnees, and where the assgn-
ments were ad|udged by the State court to be vad assgnments of
nterests of the assgnor n the trust estate, the portons of the
trust ncome so receved by the assgnees were ta abe to them
and not to the assgnor. decson of the crcut court of appeas,
hodng the assgnments n 1923 to be Invad, was not res |udcata
n subsequent proceedngs nvovng ta abtes for ater years,
snce the queston of the vadty of the assgnments was one of
oca aw.
Supreme Coubt op the Unted States.
dward T. ar, pettoner, v. Commssoner of Interna Revenue.
300 U. S., 5.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh Crcut
ebruary 1, 1937.
OPINION.
Mr. Chef ustce ughes devered the opnon of the Court
Ths case presents the queston of the abty of a benefcary of a testa-
mentary trust for a ta upon the ncome whch he had assgned to hs ch-
dren pror to the ta years and whch the trustees had pad to them accordngy.
The trust was created by the w of Wam ar, a resdent of Inos
who ded n 1899, and was of property ocated n that State. One-haf of the
net ncome was to be pad to the donor s wdow durng her fe. s son,
the pettoner dward Tyer ar, was to receve the other one-haf and,
after the death of the wdow, the whoe of the net ncome durng hs fe. In
1923, after the wdow s death, pettoner assgned to hs daughter, Lucy ar
Lnn, an nterest amountng to 6,000 for the remander of that caendar
year, and to 9,000 n each caendar year thereafter, In the net Income whch
the pettoner was then or mght thereafter be entted to receve durng hs
fe. t about the same tme, he made ke assgnments of nterests, amount-
ng to 9,000 n each caendar year, n the net ncome of the trust to hs
daughter dth ar and to hs son, dward Seymour ar, respectvey.
In ater years, by smar nstruments, he assgned to these chdren addtona
Interests, and to hs son Wam MeCormek ar other specfed nterests,
In the net ncome. The trustees accepted the assgnments and dstrbuted
the Income drecty to the assgnees.
The queston frst arose wth respect to the ta year 1923 and the Com-
mssoner of Interna Revenue rued that the ncome was ta abe to the pet-
toner. The oard of Ta ppeas hed the contrary. (18 . T. ., 69.) The
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176
crcut court of appeas reversed the oard, hodng that under the aw of
Inos the trust was a spendthrft trust and the assgnments were nvad.
(Commssoner v. ar, 60 . (2d), 340.) We dened certorar. (288
U. S., 602.)
Thereupon the trustees brought sut n the Superor Court of Cook County,
111., to obtan a constructon of the w wth respect to the power of the
benefcary of the trust to assgn a part of hs equtabe nterest and to deter-
mne the vadty of the assgnments he had made. The pettoner and the
assgnees were made defendants. The ppeate Court of Inos, frst dstrct,
after a revew of the Inos decsons, decded that the trust was not a
spendthrft trust and uphed the assgnments. ( ar v. Lnn, 274 III. pp., 23.)
Under the mandate of the appeate court, the Superor Court of Cook County
entered ts decree whch found the assgnments to be vountary assgnments
of a part of the nterest of sad dward Tyer ar n sad trust estate
and as such ad|udged them to be vad.
t that tme there were pendng before the oard of Ta ppeas proceedngs
nvovng the ncome of the trust for the years 1924, 1925, 1926, and 1929.
The oard receved In evdence the record n the sut In the State court and,
appyng the decson of that court, the oard overrued the Commssoner s
determnaton as to the pettoner s abty. (31 . T. ., 1192.) The crcut
court of appeas agan reversed the oard. That court recognzed the bndng
effect of the decson of the State court as to the vadty of the assgnments
but decded that the Income was st ta abe to the pettoner upon the ground
that hs Interest was not attached to the corpus of the estate and that the
Income was not sub|ect to hs dsposton unt he receved It (Commssoner
v. ar, 83 P. (2d), 655, 662.)
ecause of an asserted confct wth the decson of the State court, and
aso wth decsons of crcut courts of appeas, we granted certorar. (Octo-
ber 12, 1936.)
rst. The Government contends that the |udgment reatng to the Income
for 1923 Is concusve n ths proceedng as res |udcata. (Tat v. Western
Maryand Rwy. Co., 289 U. S., 620 Ct. D. 683, C. . II-1, 357 .) Pettoner
Inssts that ths queston was not rased before the oard of Ta ppeas nnd
hence was not avaabe before the crcut court of appeas. (Genera Uttes
Co. v. everng, 296 U. S., 200, 206 Ct. D. 1055, C. . -1, 214 everng
v. Savage, 297 U. S., 106, 109 Ct. D. 1075, C. . -1, 207 .) The Govern-
ment responds that the answers before the oard of Ta ppeas n the nstant
case had been fed before the frst decson of the crcut court of appeas
was entered, and that, whe the case was heard before the oard wthout
amended peadngs, the whoe matter was actuay before the oard and
the queston of res |udcata was rased by an assgnment of error on the pet-
ton for revew before the crcut court of appeas.
It s not necessary to revew the respectve contentons upon ths pont, as
we thnk that the rung n the Tat case s not appcabe. That rung and
the reasonng whch underes t appy where n the subsequent proceedng,
athough reatng to a dfferent ta year, the questons presented upon the
facts and the aw are essentay the same. (Tat v. Western Maryand Rury.
Co., supra, 624, 626.) ere, after the decson n the frst proceedng, the
opnon and decree of the State court crented a new stuaton. The deter-
mnaton of pettoner s abty for the year 1923 had been rested entrey
upon the oca aw. (Commssoner v. ar, 60 . (2d), 340, 342, 344.) The
supervenng decson of the State court Interpretng that aw n drect rea-
ton to ths trust can not |usty be gnored In the present proceedng so far
as t Is found that the oca aw s determnatve of any matera pont n
controversy. (Compare reuer v. everng, 291 U. S., 85 Ct D. 782, C. .
II1-1, 2-12 Uubbe v. everng, 70 . (2d), 668.)
Second. The queston of the vadty of the assgnments s a queston of
oca aw. The donor was a resdent of Inos and hs dsposton of the
property n that State was sub|ect to ts aw. y that aw the character of
the trust, the nature and e tent of the nterests of the benefcary, and the
power of the benefcary to assgn that Interest n whoe or n part, are to be
determned. The decson of the State court upon these questons s fna.
(Spnde v. Shreve, 111 U. S., 542, 547, 548 Uterhart v. Unted States, 240
U. S., 598, 603 Poe v. Seaborn, 282 U. S., 101, 110 Ct. D. 259, C. . I -2, 202 |
reuer v. everng, supra, 45.) It matters not that the decson was by an
ntermedate appeate court. (Compare Graham v. Whte-Ph ps Co., 296
U. S., 27.) In ths nstance, t s not necessary to go beyond the obvous pont
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177
22(a), rt. 61.
that the decson was In a sut between the trustees and the benefcary and
Ms assgnees, and the decree whch was entered n pursuance of the decson
determned as between these partes the vadty of the partcuar assgn-
ments. Nor s there any bass for a charge that the sut was cousve and
the decree noperatve. ( reuer v. everng, supra.) The trustees were
entted to seek the nstructons of the court havng supervson of the trust.
That court entertaned the sut and the appeate court, wth the frst decson
of the crcut court of appeas before t, revewed the decsons of the supreme
court of the State and reached a deberate concuson. To derogate from the
authorty of that concuson and of the decree t commanded, so far as the
queston Is one of State aw, woud be whoy unwarranted In the e ercse of
edera ursdcton.
In the face of ths rung of the State court t s not open to the Govern-
ment to argue that the trust was, under the Inos aw, a spendthrft trust.
The pont of the argument s that, the trust beng of that character, the State
aw barred the vountary aenaton by the benefcary of hs nterest. The
State court hed precsey the contrary. The rung aso determnes the
vadty of the assgnment by the benefcary of parts of hs nterest. That
queston was necessary presented and e pressy decded.
Thrd. The queston remans whether, treatng the assgnments as vad,
the assgnor was st ta abe upon the ncome under the edera ncome ta
ct That Is a edera queston.
Our decsons n Lucas v. ar (281 T . S., I) and urnet v. Lcnnarr
(2S5 T . S., 136) are cted. In the Lucas case the queston was whether an
attorney was ta abe for the whoe of hs saary and fees earned by hm n
the ta years or ony upon one-haf by reason of an agreement wth Is wfe
by whch hs earnngs were to be receved and owned by them |onty. We
were of the opnon that the case turned upon the constructon of the ta ng
ct Wo sad that the statute coud ta saares to those who earned them
and provde that the ta coud not be escaped by antcpatory arrangements
and contracts however skfuy devsed to prevent the same when pad from
vestng even for a second n the man who earned t. That was deemed to be
the meanng of the statute as to compensaton for persona servce and the one
who earned the ncome was hed to be sub|ect to the tu . In urnet v.
Lennger, supra, a husband, a member of a frm, assgned future partnershp
ncome to hs wfe. We found that the Revenue ct deat e pcty wth the
abty of partners as such. The wfe dd not become a member of the
frm the ct specfcay ta ed the dstrbutve share of each partner n the
net ncome of the frm and the husband by the far mport of the ct re-
maned ta abe upon hs dstrbutve share. These cases are not In pont.
The ta here s not upon earnngs whch are ta ed to the one who earns them.
Nor s t a case of ncome attrbutabe to a ta payer by reason of the appca-
ton of the ncome to the dscharge of hs obgaton. (Od Coony Trust Co. v.
Commssoner, 279 T . S., 716 Ct. D. 80, C. . III-2, 222 Dougas v. Ycuts,
296 T . S., 1, 9 Ct D. 1041, C. . I -2. 250) everng v. Stokes, 296 U. S.,
551 everng v. Schwetzer. 296 U. S., 551 everng v. Co ey, 297 U. S.. 694.
See, aso, urnet v. Wes, 289 U. S., 070, 677 Ct. D. 688, C. . II-1, 201 .)
There Is here no queston of evason or of gvng effect to statutory provsons
desgned to foresta evason or of the ta paver s retenton of contro. (Corss
v. owers, 281 U. S.. 376 Ct D. 188, C. . I -2, 254 urnet v. Guggenhem, 288
U. S., 2.80 Ct D. 636, C. . II-1, 3741.)
In the Instant case, the ta s upon ncome as to whch, In the genera app-
caton of the Revenue cts, the ta abty attaches to ownershp. (See Poe
v. Seaborn, supra oeper v. Ta Commsson, 284 U. S., 206.)
The Government ponts to the provsons of the Revenue cts mposng upon
the benefcary of a trust the abty for the ta upon the ncome dstrbutabe to
the benefcary.1 ut the term s merey descrptve of the one entted to the
benefca nterest. These provsons can not be taken to precude vad assgn-
ments of the benefca nterest, or to affect the duty of the trustee to dstrbute
ncome to the owner of the benefca nterest, whether he was such ntay or
becomes such by vad assgnment The one who s to receve the ncome as the
owner of the benefca Interest s to pay the ta . If under the aw governng
the trust the benefca nterest Is assgnabe, and f t has been assgned wthout
Revenue cts of 1921, secton 219 (a) (d) 1924 and 1926, secton 219 (a) (b) : 192S,
secton 162 (a) (b).
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178
reservaton, the assgnee thus becomes the benefcary and s entted to rghts
and remedes accordngy. We fnd nothng n the Revenue cts whch denes
hm that status.
The decson of the crcut court of appeas turned upon the effect to be
ascrbed to the assgnments. The court hed that the pettoner had no nterest
n the corpus of the estate and coud not dspose of the ncome unt he receved
It ence t was sad that the ncome was hs and hs assgnment was
merey a drecton to pay over to others what was due to hmsef. The ques-
ton was consdered to nvove the date when the ncome became transferabe.
(83 . (2d), G62.) The Government refers to the terms of the assgnment
that t was of the nterest n the ncome whch the sad party of the frst part
now s, or may hereafter be, entted to receve durng hs fe from the trustees.
rom ths t s urged that the assgnments deat ony wth a rght to receve the
ncome and that no attempt was made to assgn any equtabe rght, tte or
nterest n the trust tsef. Ths constructon seems to us to be a straned one.
We thnk t apparent that the conveyancer was not seekng to mt the assgn-
ment so as to make t anythng ess than a compete transfer of the specfed
nterest of the pettoner as the fe benefcary of the trust, but that wth ampe
cauton he was usng words to effect such a transfer. That the State court so
construed the assgnments appears from the fna decree whch descrbed them as
vountary assgnments of nterests of the pettoner n sad trust estate, and
t was n that aspect that pettoner s rght to make the assgnments was
sustaned.
The w creatng the trust entted the pettoner durng hs fe to the net
ncome of the property hed n trust e thus became the owner of an equtabe
nterest n the corpus of the property. ( rown v. etcher, 235 U. S., 589, 508,
599 Irwn v. Oavt, 268 U. S., 161, 167, 168 T. D. 3710, C. . I -1, 123 Senor
v. dden, 295 U. S., 422, 432, 433 Merchants Loan d Trust Co. v. Paterson, 308
111., 519, 530.) y vrtue of that nterest he was entted to enforce the trust,
to have a breach of trust en|oned and to obtan redress n case of breach. The
nterest was present property aenabe ke any other, n the absence of a vad
restrant upon aenaton. (Commssoner of Interna Revenue v. ed, 42 .
(2d), 820, 822 Shaney v. owers, 81 . (2d), 13,15.) The benefcary may thus
transfer a part of hs nterest as we as the whoe. (See Restatement of the
Law of Trusts, sectons 130,132 et seq.) The assgnment of the benefca nterest
s not the assgnment of a chose In acton but of the rght, tte and estate n
and to property. ( rown v. etcher, supra Senor v. raden, supra. See
ogert, Trusts and Trustees, voume 1, secton 183, pages 516, 517 17 Coum-
ba Lnw Revew, 269, 273, 289, 290.)
We concude that the assgnments were vad, that the assgnees thereby be-
came the owners of the specfed benefca nterests n the ncome, and that
as to these nterests they and not the pettoner were ta abe for the ta years
n queston. The udgment of the crcut court of appeas s reversed and the
cause s remanded wth drecton to affrm the decson of the oard of Ta
ppens.
It s so ordered.
rtce 51: What ncuded n gross ncome. T-11-8595
Ct D. 1206
ncome ta revenue act of 1928 decson of supreme court.
Gross Income cceded Interest on Loans orecosure Sae by
Mortgagee.
Where a mortgagee company acqured tte to mortgaged proper-
tes upon forecosure saes by bddng them n for amounts whch
ncuded nterest as we as the prncpa of the oans, the accrued
nterest consttuted ta abe Income to the mortgagee, athough the
far market vaue of the propertes, at the date of forecosure, was
ess than the prncpa of the oans, and athough the company dd
not, on ts books, treat the nterest as Income, or as part of the cost
of the propertes, or as an asset. recept of nterest s ta abe
as ncome whether pad n cash or by a credt.
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179
22(a)( rt. 51.
SUPR M CoTTRT O T UwU ST T S.
Gay T. everng, Commssoner of Interna Revenue, pettoner, v. The Mdand
Mutua Lfe Insurance Co.
300 U. S., 216.
On certorar to the Unted States Crcut Court of ppeas for the S th Crcut.
ebruary 15, 1937.
OPINION.
Mr. ustce randos devered the opnon of the Court.
Snce 1921, the Revenue cts have made ths provson for ta ng the ncome
of fe nsurance companes.1 The gross ncome s mted to that receved
durng the ta abe year from nterest, dvdends, and rents. Upon the net
ncome, ascertaned by makng prescrbed deductons, the ta under the ct
here appcabe s 12 per cent. The genera provsons of the Revenue cts
concernng capta gans and osses and bad debts are not appcabe to
fe nsurance companes.1
In 1930, the Mdand Mutua Lte Insurance Co. of Oho caused to be fore-
cosed severa mortgages on rea estate gven to secure oans whch were In
defaut. It was the ony bdder ts bd was accepted the property was
conveyed to t and n no case was there redempton. t each forecosure
sae the company had bd an amount whch ncuded nterest as we as the
prncpa. The nterest so bd, aggregatng on the forecosed mortgages
5,456.99, was not ncuded n the company s Income ta return. The Comms-
soner of Interna Revenue decded that ths Interest was ta abe and, accord-
ngy, determned a defcency n the company s ncome ta for 1930. s
determnaton was approved by the oard of Ta ppeas. The crcut court
of appeas reversed the decson of the oard (83 . (2d), 629). We granted
certorar because of confct wth everng v. Mssour State Lfe Ins. Co.
(78 . (2d). 778) and Natona Lfe Ins. Co. v. Unted States (4 . Supp.,
1000 Ct. D. 810, O. . III-1, 290 ).
The foowng addtona facts stpuated were adopted by the oard of Ta
ppeas as ts fndngs: The company kept ts books on a caendar year
14 cash recepts and dsbursements bass, enterng ony payments of nterest
actuay made to t durng the year. Upon ts acqurng tte to the forecosed
propertes, the nvestments were transferred on Its books from the mortgage
oan account to the rea estate account and were carred thereon as assets
at amounts whch were equa to the prncpa of the oans secured by the
mortgages pus any dsbursements made for ta es, court costs, attorneys fees,
or nsurance premums. The amount of nterest ncuded In the bds on
forecosure was not carred on the books as part of the cost of the propertes
or as an asset. Nor was t entered on the books or kewse treated as n-
come. of the propertes here nvoved were ocated n States where a
perod of redempton from forecosure s aowed. The company ssued to ts
representatves havng charge of forecosures n those States genera nstruc-
tons to bd on ts behaf such sums rs woud enabe the company to reaze
no oss on account of ts nvestment n case of redempton. The bds here
Invoved were made pursuant to those nstructons, wthout regard to the then
actua vane of the mortgage property.4
1 See Natona Lfe Insurance Co. v. Unted States (277 U. 8., 508, 522 T. D. 4208.
C. . TT-2. 200 ).
Revenue ct of 1928. secton 201(b) (45 Stat., 791. 842).
Compare sectons 244(a). 245(a) of the Revenue cta of 1921 (42 Stat., 227, 261),
1924 (43 Stnt., 253. 289), 1926 (44 Stat.. 9, 47) sectons 202(a), 203(a) of the Revenue
cts of 1928 ( 45 Stat, 791. 842), 1932 (47 Stat., 169. 224), 1934 (48 Stat., 680, 731,
732), 1936 (40 Stat., , 1017). See everng v. Independent Lfe Inmtrance Co. (292
T . 8., 371, 377, 379) Unted States Treasury Reguatons 74, artce 951.
arge ma|orty of the propertes were ocated n Mchgan. y Mchgan aw. It s
sad, the mortgagor Is aowed one year from the date of the forecosure sae wthn
whch be may redeem the property by payng to the purchaser the amount bd for the
property pus Interest from the tme of the sae at the rate borne by the mortgage, even
though the amount of such bd be ess than the tota amount of the mortgagee s nvestment
s the property. (See Comp. Laws 1929. ch. 266, sectons 14435, 14436 compare Yos-
turgh v. Lay, 45 Mch., 455.) The purchaser can not, nnder the oca aw. acqure tte
unt after the e praton or the redempton perod. (See Comp. Laws 1929, ch. 266,
secton 14434.) The mortgagee may. fary and n good fath, bd the property n
d., secton 14432), and he en|oys the same rghts as purchaser as woud a thrd party.
See Ledyard v. Phps, 47 Mch., 305. 30
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22(a), rt. 51.
180
The company Introduced evdence tbat the far market vaue of the prop-
ertes was, at the dates of forecosure and of acqurng tte, ess than the
amount of the prncpa due on the mortgages. Ths evdence was deemed
by the oard mmatera and t accordngy made no fndng as to far
market vaue.
rst. The company contends that It dd not receve the 5,456.99 (or any
part thereof) ether In cash or n property and, hence, that t was not gross
ncome. Confessedy no Interest was receved n cash. The company nssts
that none was receved n property. It argues that ts bd may not be taken
as concusve evdence of the vaue of the property, nvokng aenyne v.
Smth ( 205 U. S., 285) that the oard s refusa to consder the evdence as to
vaue requres us to hod that the rea estate acqured on forecosure was of a
far vaue ess than the amount of the prncpa of the mortgage debt that the
proceeds of a mortgage sae must be apped frst to the satsfacton of the
prncpa before ncome may be hed receved, ctng Doye v. Mtche ras. Co.
(247 U. S., 179, 185 T. D. 2723 ) and that snce the vaue dd not equa the
prncpa, there were no proceeds of the saes appcabe to the Interest, hence,
no ta abe ncome. In support of ths argument, the company ponts to the
fact that It dd not, on ts books, treat the denquent Interest as ncome dd
not, drecty or ndrecty, carry the nterest as part of the cost of the propertes
or as an asset and dd not ncude the nterest as an asset In ts annua state-
ment or n ts reports to nsurance departments.
The arguments rest upon a msconcepton. The terms nterest, dv-
dends, and rents empoyed n the statute smpy and wthout quafcaton
or eaboraton, were pany used by Congress n ther generc meanngs, as
broady descrptve of certan knds of Income. (Compare Lynch v. ornby,
247 U. S., 339, 344 T. D. 2731 everng v. Stockhom nskda ank, 298
U. S., 84, 86 Ct. D. 887, C. . III-2, 299 .) We can not say that Congress
dd not ntend to Incude n ts defnton a case ke the present merey because
the ta payer receved a credt rather than money or other tangbe property.
(Compare Raybestos-Manhattan, Inc., v. Unted States, 296 U. S., 60, 62, 64
Ct. D. 1039, C. . 1 -2, 400 .) recept of Interest s ta abe as Income
whether pad In cash or by a credt. (Compare Od Coony Trust Co. v. Com-
mssoner, 279 U. S., 716 Ct. D. 80, C. . III-2, 222 Unted States v. oston
Mane R. R., d., 732 Ct. D. 73, C. . III-2, 315 .) Ths credt, t s true,
was not entered on the ta payer s books as nterest or as an asset. ut book-
keepng entres, though In some crcumstances of evdenta vaue, are not
determnatve of ta abty. (Compare Doye v. Mtche ros. Co., 247 U. S.,
179, 187.) The ntent to use the fu e tent of power beng ceary evdent, we
must not confne the egsaton wthn narrower forms than the statutory
anguage woud ndcate. (Compare Irwn v. Gavt, 268 U. S., 161, 166 T. D.
3710, C. . I -1, 123 everng v. Stockhoms nskda ank, supra, 89.)
Second. The company argues that uncontradcted evdence shows the far
market vaue of the mortgaged propertes to have been ess than the prncpa
of the debts and that therefore the Interest pad was not Income wthn the
meanng of the ct. mortgagee who, at forecosure sae, acqures the property
pursuant to a bd of the prncpa and accrued nterest s, as purchaser and
grantee, n a poston no dfferent from that of a stranger who acqures the
property on a bd of ke amount. It Is true that the atter woud be obged
to pay In cash the amount of hs bd, whe the formaty of payment In cash
s ordnary dspensed wth when the mortgagee acqures the property on hs
own bd. ut the rghts acqured qua purchaser are the same n ether case
and, kewse, the ega effect upon the mortgage debt s the same. In each case
the debt, ncudng the nterest accrued, s pad. Where the stranger makes
the purchase, the debt Is dscharged by a payment n cash where the mortgagee
purchases the property, the debt s dscharged by means of a credt The
amount so credted to the mortgagor as nterest pad woud be avaabe to
hm as a deducton n makng hs own ncome ta returns. It woud be strange
f the sum deductbe by the mortgagor debtor were not chargeabe to the
mortgage credtor as ncome receved. Where the ega effect of a transacton
The order of the court of appea ,wheh reversed the decson of the oard, remanded
the cause for further proceedngs. We are tod by counse for the company that there-
after the oard found, on the evdence above referred to, that the vaues of the severa
propertes were ess than the prncpa of the oans. Ths fndng, made after the fung
of the petton for certorar, though apparenty before Its aowance, was not made part
of the record. It Is, therefore, dsregarded.
See Revenue ct of 1928, secton 23(b) (45 Stat, 791, 709).
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181
22(a), rt. 51.
fts the pan etter of the statute, the ta Is hed payabe, uness there s
deary reveaed n the ct tsef or n ts hstory a defnte ntenton to e cude
such transactons from the operaton of ts appcabe anguage. (See Centra
Natona ank v. Unted States, 137 U. S., 355, 364 Treat v. Whte, 181 U. S.,
264, 288: Provost v. Unted States, 269 U. S., 443, 456, 457, 458 T. D. 3811, O. .
-, 417 Od Coony R. R. Co. v. Commssoner, 284 U. S., 552, 560, 561 Ct. D.
458, C. . I-1, 274 .) Respondent here makes no such showng.
Thrd. The company argues that ta aton Is a practca matter that we
shoud be governed by reates that the reaty s, that a the company got
was the property and that the property was worth ess than the prncpa
of the debt The reaty of the dea here nvoved woud seem to be that
respondent vaued the protecton of the hgher redempton prce as worth
the dscharge of the nterest debt for whch t mght have obtaned a udgment.
Moreover, the company s argument gnores the needs of an effcent system
of ta aton. The admnstraton of the Income ta aw woud be serousy
burdened f t were hed that when a mortgagee bds n the property for a
sum ncudng unpad nterest, he may not be ta ed on the nterest receved
e cept upon an Inqury nto the probabe far market vaue of the property.
t best, evdence of vaue s argey a matter of opnon, especay as to
rea estate (Montana Raway Co. v. Warren, 137 U. S., 348, 353.) There
s nothng unfamar n ta ng on the bass of the ega effect of a transac-
ton. Income may be reazed upon a change n the nature of ega rghts hed,
though the partcuar ta payer has en|oyed no addton to hs economc worth.
(Compare Lynch v. ornby, 247 U. S., 339, 344, 346 Unted States v. Phes,
257 U. S., 156, 170, 171 T. D. 3270, C. . 5, 37 Marr v. Unted States, 208
. S., 536, 540 T. D. 3755, C. . I -2, 116 urnet v. Commonweath Improve-
ment Co., 287 U. S., 415, 419, 420 Ct. D. 622, C. . II-1, 277 .) The
Income ta aws do not profess to embody perfect economc theory. They
gnore some thngs that ether a theorst or a busness man woud take Into
account n determnng the pecunary condton of the ta payer. (Wess v.
Wener, 279 U. S., 333, 335 Ct. D. 60, C. . III-1, 257 . Compare Nco v.
mes. 173 U. S., 509, 516 Tyer v. Unted States, 281 U. S., 497, 503 Ct. D.
190. C. . r -, 383 .)
ourth. The company contends that to ta the mortgagee as upon nterest
receved s Inconsstent wth the rue decared n Lousve ont Stock Land
ank v. Radford (295 T . S., 555, 594), that the mortgagee s entted to have
the mortgaged property devoted prmary to the satsfacton of the debt,
ether through recept of the proceeds of a far compettve sae or by takng
the property Itsef. The charge of nconsstency s unfounded. The com-
pany e ercsed Its rght to have a sae. t the sae, t was free ether to bd
or to refran from bddng. If It bd, It was free to bd such sum as t peased.
It chose to bd the fu amount of prncpa and nterest. Thus t obtaned,
n ega contempaton, fu payment of the Interest as we as the prncpa.
To ta the company upon the fu amount of nterest receved as a resut
of ts own bd In no way Impars ts rghts as mortgagee. (Compare Te as d
Pacfc Ry. Co. v. Unted States, 286 T . S., 2S5, 289 Ct. D. 495, O. . I-1,
263 .) If the bd had been nsuffcent to yed fu payment of the mortgage
debt, prncpa and nterest, the company woud have been entted to a |udg-
ment for the defcency. If the company had refraned from bddng, and
a stranger had bd more than the prncpa, the company woud obvousy
have been ta abe upon the e cess up to the amount of the Interest cue.
Perhaps It was the company s custom of bddng the fu amount of prncpa
and nterest whch deterred bddng by others.
Reversed.
See aso entucky Improvement Co. v. Sack (100 T . S 648, 658, 659) aey v.
a /ro d Co. (106 U. S., 109, 115, 116) compare Cary v. The Savngs Unon, 22 Wa.,
Compare e s Gap . . Co. v. Pennsyvana (134 T . S., 232, 236) | ew York
a re. at h v. eardon (204 U. 8., 152, 159) Padde v. Cty of New York (211 U. S.,
6. 449, 450) New York v. Latrobe (279 U. S., 421, 427).
Ta abty has frequenty been determned wthout reference to factors whch the
accountant, economst or busness man mght deem reevant to the computaton of not
gan. (Compare rushaber v. Unon Pacfc . . Co., 240 U. S., 1 Tue Reaty Co.
. nderson, d., 115 Wess v. Wener. 279 U. S., 333 cvcrng v. Independent Lfe
Inturance Co., 292 T . 8. 371 (Ct. D. 839 C. . III-1, 302 .) The e gences of n tu
determned on an annua bass may ead to the ncuson as ncome of tems whch mght
be shown to nvove no gan f the transactons were vewed as a whoe over severa years.
Compare urnet v. Sanford rooks Co., 282 T . S., 359. 364, 365 Ct. D. 277, C. .
-, 3631 rown . everng, 291 D. S., 193, 199 Ct. D. 786, C. . III-1, 2231
Sprng Cty oundry Co. v. Commssoner, 292 T . 8., 182, 189, 190 Ct. D. 829, C. .
n-, 281 .)
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522(a), rt. 63.
182
M . USTIC m beynods dssentno.
The |udgment beow, I thnk, s correct and shoud be affrmed. we-con-
sdered opnon supports t.
The noton that Congress ntended to ta the mere hope of recoupng a
oss some tme n the future shoud be defntey re|ected.
To support the asserton that here the company coected nterest, when
n fact everythng receved was worth ess than the sum oaned, requres
resort to theory at war wth patent facts. The company got nothng out of
whch to pay the e actment ts assets were not augmented. Lke magnary
recepts of nterest often repeated and smary burdened woud hasten
bankruptcy.
Dvorced from reaty ta aton becomes sheer oppresson.
rtce 51: What ncuded n gross ncome.
Ta abty of ncome of restrcted members of the Osage Indan
Trbe. (See G. C. M. 18242, page 57.)
ncome ta revenue acts of 1926 and 1928 decson of codrt.
Income Lfe Insurance Premums Payment by Corporaton
Trust greement Compensaton.
Premums on nsurance poces upon the fe of the ta payer
were pad by a corporaton of whch he was the presdent and a
arge stockhoder, the poces were paced n trust, and under the
terms of the trust agreement a porton of the proceeds was to be
pad to another corporaton n whch the ta payer was a stock-
hoder, the remanng proceeds to be hed for the use and beneft of
members of the ta payer s famy, and wth the provson that
under certan remote contngences the trust was to be admns-
tered for educatona purposes. The ta payer reserved to hmsef
the rght to change the benefcares and to termnate the agree-
ment and abosh the trust at hs peasure. Under these facts, the
payments by the corporaton were n the nature of compensaton
for servces and consttuted ncome to the ta payer.
Unted States Crcut Court of ppea fob the S th Crcut.
Ward M. Canaday, appeant, v. Wam . Chtteau, as Coector of Interna
Revenue of the Unted tates for the Tenth Dstrct of Oho, appeee.
86 P. (2d), 303.
ppea from the Dstrct Court of the Unted States for the Northern Dstrct of Oho,
Western Dvson.
efore cks and Smons, Crcut udges, and obd, Dstrct udge.
ord, Dstrct udge: Ths appea s from a udgment dsmssng appeant s
petton by whch he sought to recover certan edera ncome ta es pad for
the years 1927, 1928, and 1929, on account of defcency assessments by whch
certan premums on appeant s fe nsurance poces pad durng those years
by the Unted States dvertsng Corporaton, of whch he was presdent and
a arge stockhoder, were treated as Income to hm and so ta ed.
R NU CT O 1928.
rtce 53: Compensaton pad other than
n cash.
I-19-8C97
Ct. D. 1222
November 13, 1936.
OPINION.
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183
22(a), rt. 53.
Pror to uy 11, 1927, upon hs own appcaton, appeant procured to be
ssued certan nsurance poces upon hs fe, upon whch the corporaton
pad the premums from the begnnng.
On uy 11, 1927, the appeant and the corporaton entered nto a wrtten
agreement wth desgnated trustees, under the terms of whch a of the poces
upon the fe of appeant were paced n trust, and the corporaton agreed and
obgated tsef to pay the annua premums on some of them. y the terms
of the trust thereby created, the proceeds, to be derved from the appeant s
fe nsurance poces, are frst to be pad to Ward M. Cunaday, Inc. (a corpora-
ton whch hods a the common stock of Unted States dvertsng Corpora-
ton and n whch the appeant s argey nterested through stock ownershp),
accordng to a schedue provdng ncreasng amounts, apparenty correspondng
to the ncrease of premum payments, as the years pass. The remanng pro-
ceeds are to be hed for the use and beneft of the appeant s wfe and daughter
darng ther respectve ves then to the ssue of the daughter, f any, and, f
none, to the brothers of the appeant, wth the provson that under certan
remote contngences, the trust s to be admnstered for certan educatona
purposes.
owever, the absoute power and rght of the appeant to mpose hs w
upon the use of the trust property s preserved by an e press provson of the
agreement reservng to hm the rght to change the benefcares at hs peasure
and the unmted rght to termnate the agreement and abosh the trust,
thereby created, at any tme he may choose to do so.
None of the reserved rghts were e ercsed by the appeant durng the years
here n queston.
The Unted States dvertsng Corporaton pad the premums, as agreed,
durng the years 1927, 1928, and 1929, and n fng ts Income ta returns for
those years t camed and was aowed to deduct ts payments as ordnary
and necessary busness e penses. These premum payments are the sub|ect
of ths tgaton.
It s the contenton of appeant that, under the facts above set out he had
no property rghts n the poces referred to durng the years n queston and
that snce he faed to e ercse any of the rghts reserved to hm thereunder,
he receved nothng of vaue as the resut of the nvestment of capta, abor
or a combnaton of both that he receved no beneft under the nsurance
poces that there was no gan or proft to hm, and, hence, the premums are
not ta abe to hm as ncome wthn the meanng of the Revenue cts of 1926
and 1928 whch governed the mposton of edera ta es upon the ncome of
ndvduas durng those years.
In the case of urnet v. Wes (289 U. S., 670, 679, 680 Ct. D. 688, C. . II-1,
261 (1933) ) t s sad:
pocy of fe nsurance s a contract susceptbe of ownershp ke any
other chose n acton One who takes out a pocy on hs own fe,
after appcaton n hs own name accepted by the company, becomes n so
dong a party to a contract, though the benefts of the nsurance are to accrue
to some one ese. The rghts and nterests thereby generated do not
nhere soey n those who are to receve the proceeds. They nhere aso n
the nsured who n cooperaton wth the nsurer has brought the contract nto
beng. The contracts reman hs, or hs at east n part, though the
fruts when they are gathered are to go to some one ese.
In the case of Dougas v. Wcuts (296 U. S., 1, 9 Ct. D. 1041, C. . I -2,
250 (1935) ) the Court sad:
We have hed that ncome was receved by a ta payer, when, pursuant to a
contract, a debt or other obgaton was dscharged by another for hs beneft.
The transacton was regarded as beng the same n substance as f the money
had been pad to the ta payer and he had transmtted t to hs credtor. (Od
Coony Tn-st Co. v. Commssoner, 279 U. S., 716 Ct. D. 80, C. . III-2, 222
(1929) Unted States v. oston Mane Raroad, 279 U. S., 732 Ct. D. 73,
C. . III-2, 315 (1929) . See, aso. Unted States v. Mahonng Coa R. Co.,
51 . (2d), 208 Ct. D. 398, C. . -2, 397 (1931) .) The creaton of a trust
by the ta payer as the channe for the appcaton of the ncome to the ds-
charge of hs obgaton eaves the nature of the transacton unatered.
Nothng appears n the record to show that the Unted States dvertsng
Corporaton receved or e pected to receve any benefts from the nsurance
poces whch ts payments preserved and kept ave. In makng the payments
for the years n queston, the corporaton smpy fufed ts contractua obga-
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22(a), rt. 58.
184
ton entered nto on uy , 1927. It charged the e pendtures. so made to
ordnary busness e penses. Ceary, the fufment of ts contractua obga-
ton was not a gft. Nor do the crcumstances here dscosed bear any anaogy
to those cases n whch the empoyer takes out group nsurance for the beneft
of hs empoyees, regardng such an nvestment as benefca to hmsef n the
way of ncreased effcency arsng from the conscousness of securty and
contentment thereby created n the mnds of hs empoyees.
The udgment of the dstrct court, hodng that the premums pad were
n the nature of compensaton to the appeant for hs servces and consttuted
ncome propery ta abe to hm, s fuy supported by the facta dscosed n
the record. (Yuengng v. Commssoner, 69 . (2d), 971.)
udgment affrmed.
INCOM T R NU CT O 1928 D CISION O COU T.
1. Gan ob Loss ass Sae op Stock Identfcaton of
Stock bst In, bst Out Rue Intenton.
The ta payer n 1929 purchased for specuaton 100 shares of
stock and kept the certfcate therefor separate from hs earer
nvestments n stock of the same company. Later n the year he
receved stock dvdends on the entre amount of stock hed, the
dvdend certfcates not beng Identfabe as havng orgnated
from any partcuar certfcates prevousy owned, and substtuted
5 of such certfcates, seected at random, for the certfcate pre-
vousy segregated. Upon sae of 500 shares n 1930, he devered
to the purchaser the 5 dvdend certfcates. Under the provsons
of sectons 111 and 113 of the Revenue ct of 1928 and artces
58, 600, and 628 of Reguatons 74, the so-caed frst n, frst out
rue s appcabe n determnng the gan or oss upon such sae,
despte the admtted ntenton of the ta payer to se the shares
acqured n 1929.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (31 . T. ., 884) affrmed.
8. Certobab Dened.
Petton for certorar dened October 12, 1936. (299 U. S., 578.)
Unted States Crcut Coubt or ppeas fob the Tenth Crcut.
eorge awter, pettoner, v. Commssoner of Interna Revenue, respondent.
83 . (2d), 11.
On petton to revew the decson of the Unted States oard of Ta ppeas.
efore Lews and batton, Crcut udges, and ennedy, Dstrct udge.
ratton, Crcut udge, devered the opnon of the court.
Ths petton presents for decson a defcency assessment of ncome ta
ad aganst pettoner for the year 1930. Pettoner was an empoyee of ur-
roughs ddng Machne Co. e began purchasng capta stock of the company
n 1917 and at the begnnng of the year 1929 he owned 500 ehares whch
were acqured at dfferent tmes and prces for nvestment. In May, 1929, he
attended a conventon of agents of the company hed at Detrot and earned
whe there that a stock dvdend of four shares for one was contempated.
Induced by that nformaton, he purchased 100 shares of stock for specuaton
at a cost of 30,540 and he ntended to keep that stock separate from hs earer
rtce 58: Sae of stock and rghts.
( so Secton 113, rtce 600.)
I-7-8544
Ct. D. 1198
pr 9, 1930.
OPINION.
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185
22(a), rt. 68.
nvestments and to make a quck sae of t at a proft. e borrowed 29,724.10
from a bank wth whch to make the purchase and pedged 200 shares of hs
od stock as coatera for the oan. On une 13 he receved certfcate No.
-5720 for 100 shares whch represented bs new purchase. e paced the
certfcate n a separate enveope where t remaned pendng recept of the
e pected stock dvdend. On ugust 1, thereafter, he receved 24 certfcates
for 100 shares each, numbered consecutvey -14G37 to -14660, Incusve,
whch represented the dvdends. These shares were ake e cept n number
and they coud not be dentfed n any way as havng orgnated from any
partcuar certfcates prevousy owned by pettoner. Immedatey upon recept
of the dvdend certfcates, pettoner removed certfcate No. -6720 from tho
enveope n whch he had kept t apart from other stocks and paced theren
fve of the dvdend certfcates numbered -14638 to -14642, ncusve. They
were seected at random from the entre ot, e cept wth reference to ther
consecutve numbers. Pror to makng that change pettoner had wrtten on
the outsde of the enveope, ot Cark Cds Co. Detrot at a star conven-
ton for specuaton 100 shares of urroughs May 1029. and Immedatey after
makng the substtuton he wrote on the enveope ust beow the former
ndorsement,
Contents: 5C0 shares urroughs stock dvdend for quck proft
out of above purchase
Nos. 14038
14039 cost
ug. 31, 1029 14640 30,540.00
14041
14642
Durng the year 1930. pettoner sod 500 shares of hs stock for 25,042.80
and devered to the purchaser tho 5 dvdend certfcates whch had remaned
a the enveope ever snce the descrbed substtuton was made. t the tme
of makng the sae, he added a further ndorsement on the enveope ust beow
the pace at whch he had ndcated the cost of the stock to be 30,540, as foows:
Sod May, 1930 25, 042. 50
Loss 4,897. 50
In hs return for the year 1930, pettoner camed a deducton for a oss of
4,897.50, representng tbe dfference between the cost of the 100 shares pur-
chased In 1929 and the sae prce of the 500 shares sod n 1930. The Comms-
soner dsaowed the deducton, apped the frst n, frst out rue, computed
the proft on the bass of the cost of the od stock and mposed a defcency assess-
ment of 2,875.58. The oard of Ta ppeas sustaned that acton and the
proceedng s here on revew.
The queston presented s whether the so-caed frst n, frst out rue appes,
t beng stpuated that f It has appcaton the computaton was correct and
the ta s due. Sectons 111 and 113 of the Revenue ct of 1928 (45 Stat., 791)
provde that n computng ncome from saes of property purchased after
ebruary 28, 1918, e cess of the amount reazed above cost sha be gan and
e cess of cost over the amount reazed sha be oss. rtces 58, 600, and
628, Treasury Reguatons No. 74, promugated under the ct, provde:
bt. 58. ae of stock and rghts. When shares of stock n a corporaton are
sod from ots purchased at dfferent dates and at dfferent prces and the den-
tty of the ots can not be determned, the stock sod sha be charged aganst
the earest purchases of such stock. The e cess of the amount reazed on the
ae over the cost or other bass of the stock w consttute |ran. In the case
of stock n respect of whch any stock dvdend was pad, the bass for deter-
mnng gan or oss from a sae of a share of such stock sha be ascertaned n
accordance wth the prncpes ad down n artce 600.
bt. 600. Stock or securtes dstrbuted n reorganzaton.
(4) Where the stock n respect of whch a dstrbuton n reorganzaton s
made was purchased at dfferent tmes and at dfferent prces, and the stock
dstrbuted n reorganzaton can not be dentfed as havng been dstrbuted n
respect of any partcuar ot of such stock, then any sae of the stock dstrbuted
In reorganzaton w be presumed to have been made from the stock ds-
trbuted In respect of the earest purchased stock.
TOSS ST T
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22(a), rt. 58.
186
rt. 628. Stock dvdends. The ssuance of Its own stock by a corporaton
as a dvdend to ts sharehoders does not resut n ta abe ncome to such share-
hoders, but gan may be derved or oss sustaned by the sharehoders from the
sae of such stock. The amount of gan derved or oss sustaned from the sae
of such stock, or from the sae of the stock In respect of whch t s ssued, sha
be determned as provded n artces 561 and 600.
Construed together the reguatons create a presumpton that shares of
stock sod from an undentfabe ot were the frst acqured and that such
presumpton appes to shares acqured as a dvdend. The rue s an arb-
trary one and t may effect hardshps, but ts vadty has been recognzed
and Is not open to queston. ( everng v. Rankn, 295 U. S., 123 Ct D. 966,
C. . I -1, 160 Snyder v. Commssoner, 295 U. S., 134 Ct. D. 967, C. .
I -1, 164 owbert v. Penrose, 38 . (2d), 577.)
The burden rested upon pettoner to show that the stock sod n 1930 was
that purchased n 1929. (Sknner v. aton, 45 . (2d), 568, certorar dened
283 U. S., 837.) It s argued that stock certfcates are not the ony means
by whch shares of stock may be dentfed that the admtted ntenton of
pettoner to se the shares acqured durng the precedng year and the
memoranda on the enveope were suffcent to dscharge the burden. It Is
setted aw that shares of stock can be dentfed otherwse than through
stock certfcates, but ntenton aone s not enough to do so. There must
be a further desgnaton n order to estabsh the requste dentty. ( ever-
ng v. Rankn, supra Snyder v. Commssoner, supra Mer v. Commssoner,
80 . (2d), 219 uer v. Commssoner, 81 . (2d), 176 Sknner v. aton,
supra.) The wrtng on the enveope does tend to corroborate the ntenton and
t may be conceded that the two combned and consdered apart from other
facts ndcate a sae of the nterest n the corporaton whch was purchased
durng the prevous year but arrayed n bod contradcton s the fact that
upon recept of the certfcates representng dvdends, pettoner removed
certfcate No. -5720 from the enveope and paced fve of the dvdend cer-
tfcates n t and n consummaton of the sae, he devered the fve cer-
tfcates to the purchaser and retaned the certfcate whch represented the
purchase. s ony e panaton Is that mantenance of sequence n numbers
prompted hm to make that substtuton and devery. Sequence n numbers
coud have been preserved wthout dong that The obvousy natura way
n whch to effect the now asserted ntenton of the ta payer and at the
same tme mantan sequence n numbers was to aow certfcate -5720
to reman n the enveope, pace the frst four or the ast four of the dvdend
certfcates wth t and then dever these fve certfcates to the purchaser
but sgnfcanty that was not done. It s we setted that where a ta payer
has stock In hs possesson and deberatey devers certan shares n con-
summaton of a sae, he can not afterwards say n computng ncome ta
ahty that he ntended to se other shares. s deberate act contros not
what he ntended to do. ( omer v. Commssoner, 72 . (2d), 407 Ct D.
916, C. . I -1, 171 Commssoner v. Merchants d Manufarturer re Ins.
Co., 72 . (2d), 408 orner v. Commssoner, 78 . (2.1), 813.) That s the
factua stuaton here. We do not dea wth a case n whch the ta payer
drected a broker or oter agent or custodan to se and make devery of
dentfed shores and through negect or mstake, dfferent shares were de-
vered In voaton of hs ntenton and drecton.
We are to d n the aternatve that pettoner attempted to aocate the
dvdend certfcates and that the effect of the sae was to make dsposton of
four-ffths of the stock Interest purchased n 1929. The dvdend shares were
not aocated by anguage, record, number or otherwse to any partcuar
shares. They were Issued on the bass of the entre amount of stock hed.
Pettoner coud not make an arbtrary aocaton of them. The reguatons
prevented that they Intervened and apped the presumpton that the shares
sod were chargeabe aganst the earest purchases of stock. Reance s
paced upon O. D. 735 (C. . 3, 40), to sustan the contenton. It does not
govern because the reguatons under the Revenue ct of 1928, to whch ref-
erence has been mnde, were promugated Inter and under fnmnr rues of
constructon they superseded the earer reguatons n respect of any confct
between them.
The order of the oard of Ta ppeas s affrmed.
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187
23(b)t rt. 141.
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 121: usness e penses.
R NU CT O 1028.
ttorney s fees pad to secure appontment of guardan. Revoca-
ton of L T. 2124 (C. . I -1,138 (1925)). See Mm. 4580, page 62.)
rtce 126: Compensaton for persona servces.
R NU CT O 1028.
ndng of oard of Ta ppeas as to reasonabeness of saares.
(See a. D. 1190, page 202.)
S CTION 23(b). D DUCTIONS ROM GROSS
INCOM : INT R ST.
btce 141: Interest. I-22-8734
Ct. D. 1228
INCOM T R NU CT O 1928 D CISION O COURT.
. Gross Income Deducton Intebebt Pad on Indebtedness
Trust und fob Payment of Insurance Premums.
The ta payer provded hs wfe wth funds for the estabsh-
ment of a trust, the net ncome from whch was to be used for the
payment of premums upon hs fe Insurance poces, of whch she
was the benefcary, and the poces were assgned to the trustee
under another trust for her beneft. s authorzed by the frst
trust, the tarpayer Immedatey thereafter borrowed the fu
amount of the trust fund and devered to the trustee hs demand
note, the nterest payments upon whch were used by the trustee
to pay the nsurance premums, ta es, etc. Under these facts, the
practca and ega effect of what was done was to set up a trust
composed soey of the note gven wthout consderaton. Con-
sequenty, the quartery payments made to the trustee, and denom-
nated nterest, were actuay gratutous payments and not
aowabe as a deducton under secton 23(b) of the Revenue ct
of 1828.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (33 . T. ., 1003) affrmed.
Unted States Crcut Court of ppeas for the Second Crcut.
P. Cot ohnson, pettoner, v. Commssoner of Interna Revenue, respondent.
86 . (2d), 710.
Petton to revew an order of the Unted States oard of Ta ppeas.
efore L. and, Swan, and Chase, Crcut udges.
December 14, 1936.
opnon.
The ta payer seeks to revew an order of the oard redetermnng a de-
fcency n hs ncome ta for the year 1931. ffrmed.
Swan, Crcut udge: The defcency n dspute resuts from the dsaowance
f a deducton of 24,000 camed by the pettoner to have been pad as
nterest on hs promssory note, and to be an aowabe deducton from gross
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523(b), rt. 141.
ncome under secton 23(b) of the Revenue ct of 1028 (45 Stat, 799). The
facts revea an ngenous attempt to reduce ta es by moans of a pan whch
was ntended to gve the character of nterest payments to money used to pay-
nsurance premums on poces upon the fe of the pettoner. There were
15 such poces, a of them payabe to hs wfe. The tota annua premums
amounted to about 21,000, and pror to the year 1931 Mr. ohnson had pad
them. In that year money for the premums was provded pursuant to the
transactons whch are now to be descrbed.
On uy 3, 1930, Mr. and Mrs. ohnson proceeded to put nto effect a pan,
suggested to them by an nsurance broker and hs attorney, whch had the
threefod ob|ectve of reducng Mr. ohnson s annua ncome ta es, reducng
estate ta es n the event of hs death, and puttng the aforesad nsurance
poces n trust for the protecton of Mrs. ohnson and the chdren. It was
carred out as foows: Mr. ohnson borrowed 400,000 from the Natona
Cty ank upon hs unsecured demand note. e then devered to Mrs. ohn-
son hs check for a ke amount, whch she forthwth deposted n her account
n the same bank. She then e ecuted two trust deeds whch Mr. ohnson had
had prepared, to Cty ank armers Trust Co. as trustee, one caed the
funded trust, and the other caed the nsurance trust, and assgned the
aforesad nsurance poces to the trustee under the nsurance trust to be
hed for the beneft of Mrs. ohnson for fe and thereafter for her survvng
chdren. She aso devered to the trustee under the funded trust her check
for 400,000 whch was to consttute the corpus of ths trust. The funded
trust provded that the trustee was to manage the fund, and to appy the net
Income thereof n payment of premums on the sad nsurance poces, the
baance of net ncome n any year to be pad to Mrs. ohnson. The funded
trust aso provded, among other thngs, that t sha be the duty of the
trustee to oan to Mr. ohnson at any tme on hs wrtten request the whoe
or any part of the prncpa of the trust estate to be secured soey by hs
demand note or notes bearng C per cent nterest The trustee was e pressy
forbdden to assgn any note receved from ohnson or to take any acton to
coect the prncpa or nterest thereof e cept as drected n wrtng by Mrs.
ohnson or her e ecutor or admnstrator. Upon Mr. ohnson s death the
trustee was to present a notes for payment and to turn over the proceeds
coected, or the notes themseves f payment was refused, to Mrs. ohnson, or
to her estate. The funded trust was to termnate upon the death of Mr.
ohnson. oth trusts were decared to be rrevocabe and to be governed by
the aws of New York. On uy 8, 1930, Mr. ohnson requested that the trustee
make a oan to hm of 400,000, pursuant to the terms of the trust deed.
e devered to the trustee hs demand note for ths amount bearng t per cent
nterest, and used the money receved to pay off hs oan at the Natona Cty
ank, addng 250 to cover fve days nterest thereon. Upon ns note hed
by the trustee he has pad nterest quartery. Out of the 24,000 pad by hm
to the trustee n 1931, the trustee pad the nsurance premums, ta es, etc.,
and reported 21,035.29 as ncome ta abe to t. The baance (ess comms-
sons and e penses) of 2,712.57 was pad by the trustee to Mrs. ohnson and
was ncuded n her ncome ta return. In Mr. ohnson s return for 1931 he
camed as a deducton for nterest the 24,000 pad to the trustee. Ths the
oard dsaowed on the ground that there was no bona fde gft made by
ohnson to hs wfe or oan secured by ohnson from the trustee.
Counse for the pettoner asserts that the transactons above descrbed
resuted n the foowng ega reatons: Mr. ohnson made an absoute and
uncondtona gft of 400,000 to hs wfe wth her own property she set up
a trust havng a capta of 400,000 the trustee oaned ths sum to Mr.
ohnson upon hs demand note bearng nterest, and he pad such nterest
to the trustee In 1931. If such were ndeed the ega reatons of the partes,
t woud foow as of course that the ta payer shoud be aowed the camed
deducton, for t s too we setted to requre dscusson that ega trans-
actons can not be upset merey because the partes have entered nto them
for the purpose of mnmzng or avodng ta es whch mght otherwse accrue.
(Grepory v. evcrng, 293 U. S., 465, 469 Ct. D. 9, C. . I -1, 193
(1935) Chshom v. Commssoner, 79 . (2d), 14, 15 (C. C. . 2) Sawte
v. Commssoner, 82 . (2d), 221, 222 (C. C. . 1) Commssoner v. ewer,
75 . (2d), 956, 958 (C. O. . 6).) Despte such purpose, the queston Is
aways whether the transacton under scrutny s In reaty what t appears
to be n form. Nor coud we hod, f n reaty there was a oan by the
trustee to Mr. ohnson, that t woud be nvadated by the restrcton n the
trust deed forbddng the trustee to assgn the note, or to enforce payment
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189
23(c), rt. 161.
wthout the drecton of the settor. It s nherent n a demand note that
the payee has the power to decde when to ca the oan, or to determne
not to enforce hs rghts at a. If the payee s a trustee, no reason s ap-
parent why such decsons may not be reserved to the settor of the trust.
So ong as any one has the rght to compe the borrower to pay upon demand,
the debt remans and the oard made no fndng that there was any agree-
ment that Mrs. ohnson shoud never drect the trustee to enforce payment.
though Mr. ohnson may have had such confdence n hs wfe s forbearance
that he knew the note woud not be coected durng hs fe, nevertheess she
was eft egay free to drect the trustee to coect t The dstncton, though
often hard to detect n fact, s perfecty cear n prncpe between creatng
rghts whch you trust w not be e ercsed and creatng no ega rghts at
n a transacton of the frst knd changes e stng ega reatons between
the partes, the other does not. On the assumpton that Mrs. ohnson s money
went nto the trust, the trustee s oan to Mr. ohnson created a debt upon
whch he pad Interest,
ut there Is a faacy n the pettoner s contenton, and t es n the
premse that he made an absoute and uncondtona gft of 400,000 to hs
wfe, and that her money set up the funded trust. There was an agreement
between them that the money he made avaabe to her was to be used n ony
one way she was to pass t to the trustee upon terms whch bound the trustee
to return t to hm upon request. verythng was done at the same tme
and as part of one transacton. Nor for an nstant dd Mr. ohnson ose
contro of hs gft, nor dd Mrs. ohnson or the trustee have possesson of
t free from a duty to return t to hm. (See Matter of Schmdapp, 236
. Y., 278, 280.) To consttute a vad gft nter vvos the donor must have
a cear and unequvoca ntenton to part wth hs property presenty and
forever. (Snare/)/ v. enderson, 204 ., 078, 079 (C. C. . 8) Cannon v.
UcGurc, 160 N. Y., 476, 481.) If the donor dd not have the ntenton to
part wth present nterest and contro, the gft fas. (Matter of Mer, 230
. Y., 200.) The transacton at bar was no dfferent ttan f ohnson hmsef
had devered money to the Trust company to hod unt he shoud request
ts return as a oan. The payment to ohnson of money whch he hmsef
supped to the trustee for the very purpose can not be a oan to hm or fur-
nsh consderaton for hs note. ence the practca and the ega effect of
what was done was to set up a trust composed soey of ohnson s note gven
wthout consderaton. Such a gratutous promse s unenforceabe ether by
the trustee or by the benefcary. ( m. L . Inst. estatement, Trusts, secton
20 see Merr v. Peaseee, 146 Mass., 460.) It s no more than a promse to
make a gft In the future. (See omes v. Roper, 141 N. Y., 64.) Conse-
quenty the quartery payments made to the trustee and denomnated n-
terest were reay gratutous payments, and the deducton of them from gross
ncome was propery dsaowed. (See Oman v. Commssoner, 53 . (2d),
47 (C. C. . 8).)
Order affrmed.
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 151: Ta es. I-S-8485
( so Secton 24, rtce 282.) Ct. D. 1189
INCOM T R NU CT O 1928 D CISION O COURT.
L Deducton Ta es fob Peob Yeab Pad upon cquston of
Pbopebty.
Where a corporaton was organzed n 1929 to take over, n
e change for ts capta stock, certan rea estate owned by a
bank whch was consodatng wth another, and In that year pad
ta es for 1928 whch were a en upon the property at the tme of
the transfer, the amount thereof was a part of the cost of the
property and was not deductbe under secton 23(c) of the
Revenue ct of 1928.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (32 . T. ., 1072) affrmed.
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23(c), rt. 151.
190
Unted States Crcut Court op ppeas fob the ghth Cntctrrr.
Merchants ank udng Co., pettoner, v. Ouy T. everng, Commssoner cf
Interna Revenue, respondent.
84 P. (2d), 478.
On petton to revew decson of Unted States oard of Ta ppeas.
efore Gardner, Sanborn, and ooth, Crcut udges.
une 16, 1030.
OPINION.
Gardner, Crcut udge, devered the opnon of the court.
Ths s a petton to revew a decson of the oard of Ta ppeas whch
determned and ad|udged a defcency of 7,937.12 n pettoner s ncome ta es
for 1929. t the hearng before the oard of Ta ppeas the facts were
stpuated, and, so far as here matera, they are substantay as foows:
Pettoner, a Deaware corporaton, was organzed n March, 1929. Its crea-
ton arose from the foowng crcumstances: In that month, the Merchants
Natona ank and the rst Natona ank, two separate and dstnct natona
bankng nsttutons, whch had been n e stence for a number of years n St.
Pau, Mnn., consodated pursuant to provsons of the edera statutes, and
under the charter and name of the rst Natona ank. The rea estate owned
by each bank was emnated from the assets of the consodated bank, and
pettoner was ncorporated to take over the rea estate of the Merchants Na-
tona ank. In March, 1929, the Merchants Natona ank transferred ts
rea estate, whch was ocated n Mnnesota, to pettoner, recevng n e change
therefor a of the capta stock of the pettoner. The transacton was banded
In strct accordance wth the provsons of the ncome ta aws concernng reor-
ganzaton, and, so far as the transfer was concerned, was a nonta abe trans-
acton. The property was taken over by the pettoner and paced on ts books
as of the same vaue and on the same bass as t stood on the books of the
Merchants Natona ank. The capta stock of pettoner was sod for cash
to the stockhoders of the Merchants Natona ank who desred to purchase t.
t the tme of the transfer there were assessed and unpad ta es aganst
the property for the year 1928. Pettoner pad these ta es n 1929 and de-
ducted the amount pad from ts gross ncome for that year, but the Comms-
soner dsaowed the deducton on the ground that the Merchants Natona
ank shoud have accrued the amount and taken t as a deducton on ts ncome
ta return for the year 1928. The books and records of the Merchants Natona
ank were kept on an accrua bass, e cept as to ts ta es, and nterest on
mortgage ndebtedness, whch were treated ns f on a cash bass. ecause of
ths arrangement, the bank receved a deducton n 1928 for the ta es t pad n
that year. The system so foowed by the bank, whch formed the bass for
s ncome ta returns, had been approved by the Treasury Department for
many years. Pettoner kept ts books and records on a cash recepts and ds-
bursements bass. The oard of Ta ppeas hed that the ta es pad by
pettoner n 1929 were a part of the cost of the property and were not
deductbe.
The pettoner contends that the transfer to t beng made n a nonta abe
reorganzaton transacton, the rea estate took the same base vaue for ncome
ta purposes n the hands of pettoner that t had n the hands of ts prede-
cessor transfer company that the transacton was not a sae, and that t shoud
be aowed to deduct the ta es pad from ts gross ncome under the provsons
of secton 23(c) of the Revenue rt of 1928.
The Revenue ct of 1928 (4.1 Stat., 791) appes. The pertnent parts are:
(1) Secton 23 (n part) as foows:
In computng net Income there sha be aowed as deductons:

(c) Ta es generay. Ta es pad or accrued wthn the ta abe yenr,
(2) Secton 112 (n part) as foows:
(a) Genera rue. Upon the sae or e change of property the entre amount
of the gan or oss, determned under secton 111, sha be recognzed, e cept
as herenafter provded n ths secton.
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191
23(c), rt. 151.
(b) changes soey n knd.
(4) Same Gan of corporaton. No gan or oss sha be recognzed If a
corporaton a party to a reorganzaton e changes property, In pursuance of the
pan of reorganzaton, soey for stock or securtes n another corporaton a
party to the reorganzaton.
(5) Transfer to corporaton controed by transferor. No gan or oss sha
be recognzed f property s transferred to a corporaton by one or more persons
soey n e change for stock or securtes n such corporaton, and mmedatey
after the e change such person or persons are n contro of the corporaton
but In the case of an e change by two or more persons ths paragraph sha
appy ony f the amount of the stock and securtes receved by each s
substantay n proporton to hs nterest In the property pror to the
e change. .
(3) Secton 113 (n part) as foows:
(a) Property acqured after ebruary 28, 1913. The bass for determnng
the gan or oss from the sae or other dsposton of property acqured after
ebruary 28, 1913, sha be the cost of such property e cept that .
(6) If the property was acqured upon an e change descrbed In secton 112
(b) to (e), ncusve, the bass sha be the same as n the case of the property
e changed . Ths paragraph sha not appy to property acqured by a
corporaton by the ssuance of ts stock or securtes as the consderaton n
whoe or n part for the transfer of property to t
(7) Transfers to corporaton where contro of property remans n same
person. If the property was acqured after December 31, 1917, by a corpora-
ton n connecton wth a reorganzaton, and mmedatey after the transfer
an nterest or contro n such property of 80 per centum or more remaned In
the same persons or any of them, then the bass sha be the same as t woud
be n the hands of the transferor . Ths paragraph sha not appy f
the property acqured conssts of stock or securtes n a corporaton a party
to the reorganzaton, uness acqured by the ssuance of stock or securtes of
the transferee as the consderaton n whoe or n part for the transfer
(8) Same Corporaton controed by transferor. If the property was ac-
qured after December 31, 1920, by a corporaton by the ssuance of ts stock or
securtes n connecton wth a transacton descrbed n secton 112(b)(5) (n-
cudng, aso, cases where a part of the consderaton for the transfer of such
property to the corporaton was property or money, n addton to such stock or
securtes), then the bass sha be the same as t woud be n the hands of the
transferor, ncreased n the amount of gan or decreased n the amount of oss
recognzed to the transferor upon such transfer under the aw appcabe to
the year In whch the transfer was made.
Defntons appcabe are:
Secton 48(c): The terms pad or ncurred and pad or accrued sha
be construed n accordance to the method of accountng upon the bass of whch
the net ncome s computed under ths Part
Secton 701(a): When used In ths ct
(1) the term person means an ndvdua, a trust or estate, a partner-
shp, or a corporaton.
Under the aws of Mnnesota, these ta es became a en aganst the property
on May 1, 1928. (Mason s Mnn. Stat, secton 2191 Martn County v. Drake
(Mnn.), 41 N. W., 942 Thompson v. Unted States (D. C), 8 ed. (2d), 175.)
Pettoner bases ts rght to deduct the ta es on ths rea estate upon the
fact that t took the property n a nonta abe reorganzaton proceedng, and
that t kept ts books of account on a cash bass. It s ngenousy argued that
there was nether gan nor oss recognzed In the transacton, and that In
pettoner s hands the property took, for Income ta purposes, the same vaue t
had n the hands of the transferor. The ta es when pad, t argues, must be
deemed an e pense of pettoner, as otherwse the property woud not have the
Rme capta vaue after the transfer ns It had before, and that the bank
coud have pad the ta es whe It owned the property and such payment woud
be deductbe as e pense. It Is urged that one rue can not be apped n
determnng the cost of property as a bass for gan or oss, and a dfferent
rue when deang wth the same tem as an e pense.
It s true that the ncome ta aw, for certan purposes, recognzes that a
transfer upon what Is ncuded n the broad term reorganzaton, Is not a
sae or other dsposton of property. Reorganzaton ncudes, by e press
statutory defnton, merger, consodaton, and a transfer of a or a part of
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23(c), rt. 151.
192
assets. ( everng v. Wnston ros. Co. (C. C. . 8), 76 ed. (2d), 88L) It
s mportant to observe, however, that n the ct such transfers have recogn-
ton as beng saes or e changes of property. Secton 101 s the secton deang
wth capta net gans or ooses whch resut, as the defntons n subdvson
(c) show, from the sae or e change of capta assets. Secton 111(a) provdes
the bass for determnng the gan from the sae or other dsposton of prop-
erty, or the oss. Secton 112(a) provdes that: Upon the sae or e change
of property the entre amount of the gan or oss, determned under secton 111,
sha be recognsed, e cept as herenafter provded n ths secton. mong the
e ceptons are (b)(3), the e change of stock or securtes n a corporaton a
party to a reorganzaton, n pursuance of the pan of reorganzaton, soey for
stock or securtes n such corporaton or n another corporaton a party to the
reorganzaton (b) (4), the e change of property by a corporaton a party to
a reorganzaton, soey for stock or securtes n another corporaton a party
to the reorganzaton and (b) (5), quoted supra. Secton 113(2) provdes that
the bass for determnng the gan or oss from the sae or other dsposton of
property acqured after ebruury 28, 1913, sha be the cost of such property,
wth e ceptons, among whch are (a)(6) supra, reatng to e changes of
property, but not appyng to property acqured by a corporaton by the Issuance
of ts stock or securtes as the consderaton n whoe or n part for the trans-
fer of the property to t, and (a) (7), appyng to the transfer of property other
than stock, to a corporaton n connecton wth a reorganzaton(a) (8), appy-
ng to the transfer of property to a corporaton n e change for ts stock, n
connecton wth a transacton descrbed n secton 112 (b) (5), supra.
These are the e ceptons to the genera rue that on the sae or other dspo-
ston of capta assets, there may be a ta abe gan or oss. ceptons to a
genera rue or pocy must be strcty construed. Spokane Inand R. R.
Co. v. Unted States, 241 U. S., 344.) To adopt pettoner s contenton woud
necesstate carryng these e ceptons, wth ther pan and specfc appcaton
to capta gan and osses to whch they are manfesty mted, over nto the
separatey treated sub|ect of deductbe e enses. The argument, though n-
genous, s not convncng. There are equtes, too, n pettoner s favor, but
the ony deductons aowabe from gross ncome are those specfeav author-
zed by statute. rocn v. everng, 291 U. S., 193 Ct. D. 786, C. . 1U-1,
223 New Coona Co. v. everno. 2)2 U. S.. 43.1 fCt. L . 841, O. . III-1,
194 Wooford Reaty Co. v. Rose, 286 U. 8., 319 Ct D. 493, C. . I-1. 154
everng v. Independent Lfe Ins. Co., 292 U. S., 371 ICt. D. 839, C. . 1II-1,
302 .) Generay speakng, a deducton may ony be taken by that ta payer
whose property gves rse to the deducton. Panters O Co. v. opkns, 286
U. S., 332 tCt. D. 492, C. . I-1, 153 Wech v. everng, 290 U. S., I Ct
D. 755, C. . 1I-2, 112 .) We thnk the e ceptons whch have specfc app-
caton to capta gans and osses can not be transpanted and made appcabe
to the sub|ect of deductbe e penses. Mc eeu v. Commssoner, 296 U. S..
102.) Secton 101(c) denes such terms as capta gan, capta oss,
capta deductons, capta net gan, capta net oss, capta assets,
and, as dstngushed from these terms, defnes ordnary deductons as the
deductons aowed by secton 23 other than capta osses and capta deduc-
tons, and ordnary net Income as net ncome computed n accordance
wth the provsons of ths tte, after e cudng a tems of capta gan, cap-
ta oss, and capta deductons.
The transacton between the two corporatons was a sae or e change of prop-
erty. In a mted sense ony can t be sad that pettoner succeeded the bank.
It was a vendee or grantee, and n that sense succeeded ts vendor n the own-
ershp of the partcuar property transferred. Whether the transacton be
caed a sae, e change, barter, or be gven some other name, s not a matter of
prmary Importance. Manfesty, the ct dd not have the effect of changng
the nherent nature of the transacton. ewng the transacton as a sae or
e change of property, the queston n the fna anayss Is as to the rght of a
grantee to deduct as e pense, ta es whch he pays, but whch were ens upon
the property at the tme of the transfer. Ths queston was consdered by us
n everng v. Mssour State Lfe Ins. Co. (C. C. . 8) (78 ed. (2d), 778).
We there sad:
These ta es were assessed and had become ens upon the ands whe In
other ownershp. The ta payer took them sub|ect to the en of the ta es.
The ens were n a sense a part of the capta e pendtures for the acquston
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193
23(o), rt 161.
of the ands, and hence they dd not, n a proper sense, pertan to the Invest-
ment e pendtures of the company to be used In determnng net ncome. These
ta es stand on an entrey dfferent bass than ta es on rea estate accrung
after acquston.
In ak Corporaton v. Commssoner (O. O. . 7) (CO ed. (2d), 204) the
game rue Is announced. The court sad:
We do not regard our hodng as n any way mtng the pan words of
the statute but, on the other hand, we say that pettoner has not brought
Itsef wthn the statutes because n reaty t has pad no ta n the true sense
of that word.
Ths rue has consstenty been foowed by the oard of Ta ppeas. ohn
ancock Mutua Lfe Ins. Co. v. Commssoner, 10 . T. ., 736 senbcrg v.
Commssoner, 11 . T. ., 574 sse v. Commssoner, 15 . T. ., 1270
Grand ote Co. v. Commssoner, 21 . T. ., 890 Leamngton ote Co. v.
Commssoner, 26 . T. ., 1004 rst ond d Mortgage Co. v. Commssoner,
27 . T. ., 430 oden v. Commssoner, 27 . T. ., 530 nderson v. Com-
mssoner, 27 . T. ., 980 Sma v. Commssoner, 27 . T. ., 1219 Te as
Coca-Coa ottng Co. v. Commssoner, 30 . T. ., 736 Caforna Santary
Co. v. Commssoner, 32 . T. ., 122.)
Whe the anguage of secton 23, Tte 26, U. S. O. ., has not remaned
e acty the same, there has been no such change n the statute as to ndcate
that ths rue has not congressona approva. The reenactnent by Congress
wthout change of a statute whch has prevousy receved ong contnued
admnstratve constructon s an adopton by Congress of such constructon.
(Mnnesota Tea Co. v. Commssoner (C. C. . 8) (76 ed. (2d), 797 affrmed,
nch-erng v. Mnnesota Tea Co., 296 U. S., 378 Ct. D. 1000, C. . -1, 189
Uc eey v. Commssoner, 296 U. S., 102.)
We concude that the decson of the oard of Ta ppeas was correct, and t
s therefore affrmed.
etce 151: Ta es. I-4-8498
G. C. M. 17570
R NU CT O 1028.
Where a |ont State ncome ta return s fed by a husband and
wfe and there s a |ont and severa abty to pay the ta , the
spouse payng the entre ta may deduct the amount so pad n hs
or her separate edera ncome ta return.
Recommended that I. T. 2741 (C. . II-2, 48) be modfed.
n opnon s requested whether , a resdent of the State of
Deaware, s entted to deduct n hs separate edera ncome ta
return for 1930 the fu amount of Deaware State ncome ta
whch he pad n that year on the ncome of hmsef and wfe re-
ported n a |ont return.
In I. T. 2741 (C. . II-2, 48) t was hed n part as foows
(syabus):
Where a |ont State return and separate edera returns are fed,
each spouse shoud be permtted to deduct that porton of the State ncome
ta pad whch the average Income of each bears to the combned average
ncome.
The concuson reached n I. T. 2741 was n effect dsaffrmed by the
oard of Ta ppeas n Chares . awsett v. Commssoner (30
. T. ., 908), wheren t was hed that the pettoner was entted
to deduct n hs separate edera ncome ta return for 1930 the fu
amount of the State ncome ta (n whch was ncuded ta on the
ncome of hs wfe) whch he pad to the State n that year. The
Commssoner nonacquesced n that decson (C. . III-2, 25).
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23(c), rt. 151.
194
In . C. Ntcodemms, r., v. Commssoner (26 . T. . 125, non-
acquoscence, C. . I-2, 15), the syabus of the decson of the
oard of Ta ppeas s as foows:
Pettoner and hs wfe hed tte to rea estate as tenants by the entrety.
The property was mortgaged and pettoner and hs wfe were |onty and sev-
eray abe on the mortgage notes. Pettoner pad ta es on the property
and mortgage nterest out of hs separate ncome. ed, pettoner s entted
to deduct the fu amounts so pad.
In G. C. M. 15530 (C. . I -2, 107) t was recommended that
nonacquescence n the Ncodemus case be wthdrawn. (See C. .
I -2, 16, for wthdrawa)
In G. C. M. 15530, supra, t was hed that ether spouse may deduct
n hs or her separate edera ncome ta return the fu amount
of ta es and nterest pad by hm or her on property hed as tenants
by the entretes f no part of such ta es or nterest s deducted as
an accrued tem by ether n any ta abe vear. G. C. M. 9234 (C. .
-, 117) and G. C. M. 14128 (C. . -1, 142) were revoked by
G. C. M. 15530.
Under secton 23(c), Revenue ct of 1928, ta es (wth certan e -
ceptons) are aowabe as deductons from gross ncome f pad or
accrued wthn the ta abe year. Under artce 151, Reguatons
74, reatng to the Revenue ct of 1928, ta es are deductbe ony by
the person upon whom they are mposed. The tests as to deductbty
are, therefore, abty for the ta mposed and payment or accrua
thereof.
Deaware mposed a State ncome ta under the provsons of chap-
ter 8, voume 36, Laws of Deaware, 1920, begnnng wth 1930, whch
s assessed on net ncome of the precedng year. rtce 1, secton
3(10)b, paragraph 4 of the act reads as foows:
In the case of a husband and wfe vng together, the ncome of both may
be ncuded n a snge |ont return, n whch case the ta sha be computed on
the aggregate ncome.
The ta payer states that he has been advsed by the Deaware ta
department that abty under a Deaware |ont State ncome ta
return s |ont and severa and that f the ta under such return s
unpad, t becomes the duty of the proper offcer, after certfcaton of
assessment, to enter up |udgment n favor of the State of Deaware,
and thereupon e ecuton may ssue aganst the property of ether
party to the return for the fu amount of the obgaton. It thus
appears, under Deaware aw, that a husband and wfe vng together
mav at ther eecton fe a |ont return of ncome as a snge unt
under whch each spouse becomes abe for the entre ta due. In
the present case the ta payer (husband) was abe for the ta m-
posed and he pad the entre ta . The ta payer (husband) s, there-
fore, entted to deduct the fu amount of the Deaware State ncome
ta whch he pad. ( or cases hodng that deductons are aowabe
to the one makng payment under a |ont abty, see Georqe .
Neracher v. Commssoner, 32 . T. ., 236, acquescence, C. . -1,
16 Tracy v. Commssoner, 70 ed. (2d), 93 . C. Ncodemus, r., v.
Commssoner, 26 . T. .. 125, acquescence, C. . I -2, 16: cf.
G.C.M. 13704. C. . III-2,141.)
In vew of the foregong, t s hed that where a |ont State ncome
ta return s fed by husband and wfe and there s a |ont and sev-
era abty to pay the State ncome ta , the spouse payng the ta
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195
23(e), rt. 171.
s entted to deduct the fu amount so pad for edera ncome ta
purposes.
It s recommended that I. T. 2741, supra, be modfed to accord wth
the concuson reached n ths memorandum, and that the nonacques-
cence n Chares . awsett v. Commssoner, supra, be wthdrawn.
erman Ouphant,
Genera Counse for the Department of the Treasury.
rtce 151: Ta es.
ND CT O 1928.
Modfcaton of I. T. 2741 (C . II-2, 48). (See I. T. 3043,
page 166.)
S CTION 23(e). D DUCTIONS ROM GROSS INCOM :
LOSS S Y INDI IDU LS.
btce 171: Losses. I-10-8582
Ct D. 1204
INCOM T R NU CT O 1928 D CISION O CODRT.
1. Deducton Loss Rembursement to Trust fob Imfbofeb IN-
STM NT Y TRUST ID NC .
ta payer trustee who made an mproper nvestment of trust
funds and ater partay rembursed the trust for the oss s not en-
tted, under the provsons of secton 23(e) of the Revenue ct
of 1928, to a deducton for the oss sustaned, the evdence beng
suffcent to support the fndngs of the oard of Ta ppeas that
the actvtes of the ta payer as trustee dd not consttute a trade
or busness, that the ta payer was not engaged n trade or bus-
ness as an ndvdua, and that the oss was not ncurred n a
transacton entered nto for proft.
2. Deducton Obdnakt and Necessaey pense ttorneys
and ccountants ees.
ttorneys and accountants fees pad by a trustee n connec-
ton wth the settement of a oss sustaned on account of an m-
proper nvestment of trust funds are not deductbe as an ordnary
and necessary e pense ncurred n carryng on a trade or busness
wthn the meanng of secton 23(a) of the Revenue ct of 3928.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (32 . T. ., 574) affrmed.
1 Certorar Dened.
Petton for certorar dened October 12,1930. (299 U. S., 574.)
Unted States Crcut Court of ppeas for the rst Crcut.
Wottghby . Stuart, r., pettoner for revew, v. Commssoner of
Interna Revenue.
84 . (2d), 368.
ppea from oard of Tu ppeas.
efore ngham, Wson, and Morton, .
une 3, 1930.
OPINION.
Wson, |. The pettoner seeks to revew a decson of the oard of Ta
ppeas refusng to aow the pettoner to deduct from hs gross Income for
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23(e), rt. 171.
196
the caendar year 1930 the sum of 35,633.55, pad by hm to a trust of whch be
was trustee, to remburse the trust for a oss of an mproper nvestment n
whch he had partcpated, and, further, to deduct 7,411.26 pad by hm as an
ndvdua to attorneys and accountauts n connecton wth the same oss.
The ssues arse under secton 23 of the Revenue ct of 1928, whch secton
provdes that In computng net ncome there sha be aowed as deductons
(a) a the ordnary and necessary e penses pad or ncurred durng the ta -
abe year n carryng on any trade or busness,
(e) In case of an ndvdua, osses sustaned durng the ta abe
year () f ncurred n trade or busness, or (2) If ncurred In any
transacton entered nto for proft, though not connected wth a trade or
busness
The questons to be determned are, whether the fndngs of the oard are
supported by any substanta evdence, and whether upon ther fndngs, f so
supported, the pettoner as a matter of faw was engaged n a reguar busness
n whch the osses and e penses occurred.
The oard of Ta ppeas found the foowng facts: Snce 1904 the pet-
toner has been trustee under a trust created by the w of hs grandfather,
who ded n 1904, sad trust estate consstng of property of the vaue of
500,000. The other trustees orgnay were the pettoner s haf brother,
roch rckson, and hs mother, Susan M. Stuart. The atter was never actve
n the affars of the trust, the detas of whch were attended to by the pet-
toner and rckson. The mother ded n 1926, snce whch tme the pettoner
and rckson have been soe trustees of ths trust.
Snce 1915 the pettoner has aso been trustee under a trust for the beneft of
hs father, nvovng property worth 500,000, and suce 1926 he has been
trustee of a trust nvovng hs mother s estate.
Durng the ta abe year 1930 and for many years pror thereto the ony
actvtes of the pettoner have conssted of actng as trustee under the above
mentoned trusts and attendng to hs own nvestments. In hs ncome ta
return for 1930, and whenever he fed papers statng hs busness, he desg-
nated hs occupaton as that of trustee.
Suce 1904 the trustees made arrangements wth a aw frm n oston by
whch the pettoner and rckson shoud each have a room n the offces of the
aw frm, and have the use of ts stenographers, bookkeepers and ega advce,
n return for the frm recevng the commssons due from the trust. The pet-
toner was at hs offce day after day, but a of the cerca work connected
wth the management of the trust was done by the empoyees of the aw frm
above mentoned.
The pettoner n hs ncome ta return never returned as Income any
commssons to whch he was entted as trustee, for the reason that under
the arrangement wth the aw frm a such commssons were pad to the
aw frm, though undoubtedy they shoud have been returned by hm as
ncome.
In 1914, at the suggeston of rckson, a oan of 75,000 was made from the
funds of the trust created by the grandfather of the pettoner, to a company
known as the ugey urnace oundry Co., n whch rckson was fnan-
cay nterested. The ugey company, as t w he herenafter referred to,
was a corporaton whch had been formed n 1912 and whch had not prospered,
and n 1914 t ncurred a oss of 84,000. The pettoner knew the condton
of the company and of rckson s nterest n t, but he consented to the oan
beng made on rckson s assurance that f anythng went wrong wth the
oan, he, rcksou, woud stand the oss.
The ugey company became bankrupt, wth the resut that out of the
orgna oan of 75,000 there was a oss of trust funds to the amount of
71.2G7.10, for whch the trustees were onty and severay abe.
s bearng on the aowance of counse and accountants fees, the oard
found that n connecton wth the fng of an account n the estate of the
mother, Susan M. Stuart, the queston arose: from what source were the funds
for the oan to the ugey company advanced, whether from the trust created
by the grandfather, or from the mother s property
Investgaton of the facts n that connecton by an attorney and by a frm
of certfed pubc accountants empoyed by the pettoner, dscosed as a resut
of ther nvestgatons that the oan of 75,000 to the ugey company was
advanced from the trust created under the w of the grandfather, and
counse advsed the pettoner and rckson that as such a oan was an mproper
Investment of the trust funds, they were |onty and severay abe, and there-
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197
23(e), rt. 171.
fore the pettoner was abe for the whoe amount f t coud not be obtaned
from rckson.
Pettoner brought a b n equty to compe rckson to make good the oss.
Counse advsed the pettoner that rekson s verba agreement as to beng
responsbe hmsef for the entre oss to the trust woud be unenforceabe n
the Massachusetts courts and after e tended tgaton, and the empoyment
of addtona counse, the case was setted before t came to tra, and the
pettoner and rckson, n May, 1930, each pad Into the trust the sum of
35,633.55, representng one-haf of the oss to the trust. or the servces
performed by counse and accountants, the pettoner n 1930 pad 7,411.20,
for whch he cams a refund based upon the contenton that these e penses
were ncurred n hs busness and shoud have been aowed ns a deducton
from the pettoner s gross ncome n hs ncome ta return for 1930.
The oard further found that the pettoner s actvtes as trustee were
not for the purpose of obtanng a vehood, or proft ( ouver s Law
Dctonary, oume I, Tte, usness, page 406) and hed that the term
trade or busness refers to an estabshed trade or busness and, therefore,
n order to deduct a oss under secton 23(e) of the Revenue ct of 1928,
t must be shown that the oss was sustaned n the reguar and estabshed
busness of the ta payer as dstngushed from soated transactons that the
sum of 35,633.55 pad to remburse the trust was not a oss ncurred n hs
reguar trade or busness and that the sum pad to attorneys and accountants
as fees durng the year 1930, therefore, was not ordnary and necessary
e penses ncurred n carryng on a trade or busness, and the ta payer was
not entted to a refund.
The ta payer aso cams that he s entted to a deducton of 35,633.55
as hs share of the oss ncurred by the oan to the ugey company on the
ground that t was a transacton entered nto for proft but any profts arsng
from the oan, f a proper oan of trust funds, woud have beonged to the
trust, and the pettoner testfed ho never e pected personay to proft there-
from. In any event hs nterest n any profts as benefcary under the trust
woud not have been suffcent to compy wth subparagraph (e) (2) of secton
23 of the 1928 ct. It foows, therefore, as the oard hed, that f the amount
was a ega deducton from the ta payer s gross ncome for the year 1930, t
must be by reason of havng been Incurred n a trade or busness In whch
he was engaged as an ndvdua.
The oard aso hed that snce the trustees restored to the trust the amount
of the oss and under the w were entted to receve one-haf of the Income
durng ther ves, and upon ther death the ncome was to be dstrbuted
among ther chdren, there was no oss to them. We thnk the oard coud
not be sustaned on ths rung. efore restorng the oss to the trust, the
pettoner had 35,633.55 whch he coud use as he peased. fter he had pad
t nto the trust, t went from bs contro and he had ony the Income, what-
ever that mght be, as a benefcary under the trust and durng hs fe.
Whe we do not agree wth a the reasons assgned for the oard s con-
cusons, we thnk ther fua concuson upon ther fndngs shoud be affrmed.
The pettoner s actvtes n the management of the trust estates were n hs
capacty as trustee and not as an ndvdua. It does not appear from the
record that he was engaged n any reguar busness as an ndvdua, uness
n the management of hs own property, In whch the oss dd not occur.
The resttuton by the pettoner of the oss to the trust estate was an soated
ease, and the payment of the e penses ncurred for counse and accountants
fees, for whch he cams deductons, were n dscharge of a abty ncurred
n hs Indvdua capacty and not as trustee, and therefore were not deductbe
as havng been ncurred n any trade or busness.
Ths case s not governed by that of oss v. Commssoner (75 ed. (2d),
326) or by that of Washburn v. Commssoner (51 ed. (2d), 949).
In each of those cases the ta payer was personay carng for, managng or
assstng n managng, arge Interests of varous knds, but not as a trustee,
and by the dversty and sze of such nterests each coud be fary sad to be
conductng a reguar busness. s a resut t was hed that the e penses pad
n the oss case and the osses suffered by the ta payer n the Washburn case
were ndvdua e penses and osses n the course of a reguar busness, and
were aowed. In ths case the reguar busness actvtes of the pettoner,
If he had such, were n the management of trust estates n hs capacty as
trustee. s such trustee he mght be sad to have been engaged n a trade
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542, rt. 331.
198
or busness wthn, the meanng of the statute but when he made the un-
authorzed oan the abtes he ncurred were those of an ndvdua. e
can not be sad to have acted n hs capacty as a trustee. trustee and on
ndvdua are, n aw, separate enttes, wth dfferent rghts, obgatons and
dutes, and are treated as such for ta aton purposes. (Subtte , secton 143
of Suppement D of Subtte C, and Suppement of Subtte C of the Revenue
ct of 1028.) So far as the record shows, the pettoner personay had no
busness outsde of hs dutes as trustee, e cept that of recevng ncome from
the trusts taud carng for hs own nvestments, the e tent of whch we can not
determne from the record. It does not appear, therefore, as a matter of
aw, that as an ndvdua he conducted any reguar busness, at east, any
busness n whch the aeged oss or the e penses of counse and accountants
were ncurred.
We thnk the oard s fndng n ths case, that the pettoner was not engaged
n a reguar trade or busness, fnds support n the record and must stand.
t east, from the fndtng of the oard, t can not be sad, as a matter of
aw, that he was engaged n a trade or busness wthn the meanng of secton
23(e) 1.
The order of the oard of Ta ppeas s affrmed.
S CTION 23(n). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
rtce 261: Contrbutons or gfts by ndvduas.
R NU CT O 1928.
Capta net osses n computng mtaton on chartabe contrbu-
tons. (See Ct. D. 1214, page 167.)
rtce 262: Donatons by corporatons.
R NU CT O 102S.
pendtures to avert enactment of egsaton. (See Ct. D. 1190,
page 202.)
S CTION 24. IT MS NOT D DUCTI L .
rtce 282: Capta e pendtures.
R NU CT O 1028.
Ta es on property for pror years pad by purchaser. (See Ct. D.
1189, page 189.)
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 42. P RIOD IN W IC IT MS O
GROSS INCOM INCLUD D.
rtce 331: When ncuded n gross ncome.
R NU CT O 1928.
Ta abe status of refunds of customs dutes and ta es. (See Mn.
4564, page 93.)
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199 51, rt. 881.
rtce 333: ampes of constructve recept.
R NU CT OP 1928.
Dvdend pad party n cash and, n part, credted on books of
corporaton. (See Ct. D. 1186, page 206.)
P RT . R TURNS ND P YM NT O T .
S CTION 51. INDI IDU L R TURNS.
rtcms 381: Indvdua returns. I-2-8473
Ct. D. 1187
INCOM T R NU CTS O 1928 ND 1928 D CISION O COURT.
. Income onuses and Royates On. and Gas Leases Sepa-
rate ob Communty Property.
onuses and royates receved from o and gas eases upon the
pettoner s separate property are ta abe n ther entrety to the
pettoner, notwthstandng an agreement made between her and
her husband that, n consderaton of hs management of the
property, a royates, revenues, and bonuses shoud beong equay
to her and her husband and shoud be consdered as communty
property. The recepts were not the resut of the husband s abor
on the property.
2. Decson ff : med.
Decson of the oard of Ta ppeas (31 . T. ., 283) affrmed.
8. Cektorae Dened.
Petton for certorar dened October 19, 1033. (299 U. S., 581.)
Unted States Crcut Court of ppeas fob the fth Crcut.
Ue M. Turbeve, pettoner, . Commssoner of Interna Revenue, respondent.
84 . (2d), 307.
PeUton for revew of decson of the L uted States oard of Ta ppeas (dstrct of
Te as).
efore oster, utcheson, and omes, Crcut udges.
une 10, 193a
OPINION.
utcheson, Crcut udge: In an opnon reported In SI . T. ., 283, the
oard of Ta ppeas consdered and dsposed of a seres of questons rased on
Mrs. Turbeve s appea from the fndngs of the Commssoner. The ony com-
pant made here s of ts rung n affrmance of the Commssoner s determna-
ton that bonuses and royates receved from pantffs separate property were
n ther entrety her ncome and ta abe to her. Pettoner n her bref thus
states the matter for decson:
The case presents the foowng questons:
rst, whether by vrtue of the contract (between her and her husband) one
haf of the profts derved from the sae of eases and royates receved there-
under vested n pettoner, and the other haf of such profts vested n her hus-
band and shoud be so ta ed or whether these profts n ther entrety were the
ncome of and ta abe to pettoner.
Second, whether the bonuses and royates were fructus ndustras and
therefore communty property.
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51, rt. 381.
The facts were stpuated. Ther substance s set out In the opnon of the
oard. s they bear upon the queston for determnaton here they end them-
seves to the brefest statement.
The bonuses and royates n queston were bonuses and royates receved from
o and gas eases, some 64 n number, negotated by pettoner s husband on
her Coppermne Rauch. Ths ranch, the communty property of pettoner and
her former husband, S. M. Cowan, s pettoner s separate property. t the
tme of her marrage to Mr. Turbeve on pr 19, 1919, and at her nstance
and request, because of her ack of busness e perence, she and Turbeve agreed
that he woud manage and contro the propertes beongng to pettoner and her
chdren, ncudng ranches and catte, aong wth and as f they were hs own,
he havng severa arge tracts of and and beng actvey engaged n the catte
and ranchng busness. In consderaton of hs dong so t was agreed that the
revenues derved from the operaton of the |ont propertes shoud beong one-
haf to her and one-haf to her husband.
In October, 1921, pettoner, her husband and her sons formed a partnershp
for the purpose of engagng n the ranchng and catte busness. Pettoner and
her husband Turbeve owned one haf and her eons the other haf. Under ths
agreement a ranch was purchased for a down payment and arge deferred pay-
ments. fter the purchase of the ranch a severe decne n the prces of catte
and and set n, contnung unt 1925, makng t very dffcut for Mr. Turbeve
to hande the stuaton. The entre burden of managng the property of pet-
toner and her chdren and the affars of ths partnershp restng upon hm, t
was agreed between pettoner and her husband as a means to save her prop-
erty, and n consderaton of hs abor and efforts, that a ncome and revenue
from whatever source shoud be and t was consdered communty Income and
used by hm n dschargng communty obgatons, and carryng on the bus-
nesses n whch the two were engaged. egnnng n 1925 and runnng through
1929, Turbeve undertook to and dd secure the deveopment of the Coppermne
Ranch for o and under hs drecton pettoner made the eases In queston.
The moneys receved from bonuses and royates were receved by the husband
and paced to hs credt n banks under the pree stng agreement that n con-
sderaton of the servces of Turbeve to manage, ook after, and contro the
propertes of both and to secure o deveopment on them, a royates, revenues
and bonuses shoud beong equay to pettoner and her husband.
The oard, ctng Stephens v. Stephens (292 S. W., 2 ) vans v. Purnton
(34 S. W., 350) ergusm v. Commssoner (45 ed. (2d), 573), and takng a
poston |ust the opposte of that t had taken n Iaucum v. Commssoner (17
. T. ., 1312), reversed Lucas v. aucum (50 ed. (2d), 806), found and hed
that there was no mert n pettoner s pont that bonuses and royates from the
eases she sgned were fructus ndustras, that s, rents and revenues created
by the workng of her husband on her property and therefore communty n
nature. It found and hed, too, that the agreement the two had made amounted
to no more than an effort by agreement to convert nto communty property
recepts whch n aw were separate, and that under the aw of Te as ths coud
not be done. It found, therefore, that the effect of the agreement was at most,
to assgn future ncome, and that ths woud be neffectve to reeve pettoner
as the recpent of the bonuses and royates, from the ta es due on ther account.
(Lucas v. are, 281 U. S., I Sacnyer v. Commssoner, 69 ed. (2d), 631.)
Pettoner nssts that the oard was wrong n both respects. She argues that
In the ght of her agreement and of the facts to whch t reates, what was
receved from the easng of her property as bonuses and royates was not merey
the proceeds of ts sae and converson, but the resut aso of the efforts and
contrbuton of her husband n such sense as that these fruts are to be regarded
not as her separate, but as ther communty, property. She argues too, that the
are and Saenger cases the oard rees on do r-.ot ft ths case, for the effect of
the agreement here was not merey to assgn future earnngs from her property,
but to apporton between the eements earnng the part to whch each eement
was entted. That n short, the arrangement must be ooked at as what the
partes ntended t to be, a partnershp as the resut of the actvtes of whch
one haf of the amounts receved were receved from her property, the other haf
from her husband s efforts, ctng ordyoe v. everng (78 ed. (2d), 525).
We thnk the vew the oard took of ther arrangement was the corrert
one and entrey n accord wth the rea facts. oed down, what tho partes
were tryng to do was to change the rue of property In Te as that bonuses
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201
103, rt. 621.
and royates from eases on the wfe s separate property are her separate
property, by an agreement that because of Turbeve s actng for her n nego-
tatng the eases these recepts when obtaned shoud be regarded as communty
property, one-haf attrbutabe to hs management, one-haf to her ownershp.
Ts w not do. ( eett v. Trce, 05 Te ., 160 ar v. Stewart, 49 ed.
(2d), 257.) narged as the power of a marred woman over her separate
property has been by statute snce 1913 (Ladona Denns ones v. ope, 40
S. W. (2d), 056), t has not been enarged to the pont where by a mere agree-
ment wth her husband, she can change the character or nature of her rghts and
nterest n her property from that prescrbed by aw. (Caube v. eaver,
115 Te ., 1.)
Whatever the stuaton as to other matters whch were brought under the
management contract, as to bonuses and eases the ony substanta eement
of vaue whch entered nto them was the vaue of the property as o and. Pe-
ttoner had a rght to pay her husband for ookng after the saes any knd or
amount of compensaton she wshed to, but she woud be payng t to hm not
out of what they both, but out of what she, receved. e had created no part
of the proceeds whch came n. They came n and were depetabe n pet-
toner s favor as the owner of an nterest n the o. They dd not come n
as one-haf hers, and depetabe as to that haf because .of her nterest n the
o, one-haf the husband s and undepetahe as to that haf because attrbut-
abe not to an nterest n o property, but to the husband s servces n nego-
tatng the eases. They came n as a hers, her separate property, because the
proceeds of the sae and converson of her separate property. (Lucas v.
aucum, supra.)
or the same reason there s nothng n the pont that these recepts were
fmctus ndustras, the resut of the husband s abor on the wfe s property.
There was no workng of the and, no producton from t by the husband.
The ony thng he dd was to se the property and receve the proceeds. It
woud be a stranng after an unreaty havng no counterpart n the facts to
hod that anythng occurred here but a easng of pettoner s property under an
agreement between pettoner and her husband, that he shoud have one-haf
of the proceeds when and as receved.
The order of the oard s affrmed.
S CTION 52. CORPOR TION R TURNS.
rtce 392: Returns by recevers.
R NU CT O 1928.
Returns by recevers and conservators of natona banks. (See
I. T. 3080, page 96.)
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 521: Proof of e empton.
R NU CT O 1928.
Procedure wth respect to appcatons for e empton. (See Mm.
3537 (revsed), page 100.)
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103, rt. 532.
202
rtce 532: armers cooperatve marketng I-3-8486
and purchasng assocatons, and corporatons Ct. D. 1190
organzed to fnance crop operatons.
( so Secton 23(a), rtce 126 and Secton
23 (n), rtce 262.)
INCOM T R NU CTS O 1926 ND 1928 D CISION O COUR .
1. empton Scavenges See vce Corporaton.
corporaton engaged n furnshng scavenger servce and or-
ganzed to avod competton among ndvduas and overappng of
terrtory s not e empt from ta aton under secton 231(12) of
the Itevenue ct of 1926 and secton 103(12) of the Revenue ct of
1928 as a farmers , frut growers , or ke assocaton.
2. Deducton- owance fob Saadks vdence.
Where the fndng of the oard of Ta ppeas that a reasonabe
aowance had been made for saares s supported by substanta
evdence, such fndng s concusve.
3. Deducton Ordnary and Necessary penses pendtures
to vert nactment of Legsaton.
pendtures made for prntng and dstrbutng terature, for
advertsng, and for the hre of speakers, for the purpose of avert-
ng the enactment of egsaton unfavorabe to the pettoner, are
not deductbe as ordnary and necessary e penses, under the pro-
vsons of artce 502 of Reguatons 69 and artce 262 of Regua-
tons 74.
4. Decson ffrmed n Part and Reversed n Part.
Decson of the oard of Ta ppeas (31 . T. ., 758) affrmed
n part and reversed n part.
Unted States Crcut Court of ppeas for the Nnth Crcut.
Sunset Scavenger Co., Inc., pettoner, v. Commssoner of Interna Revenue,
respondent.
Commssoner of Interna Revenue, pettoner, v. Sunset Scavenger Co., Inc.,
respondent.
L84 . (2d), 453.
Upon pettons to revew an order of the Unted States oard of Ta ppeas.
efore Wrur, Mathews, and aney, Crcut udges.
uno 8, 1936.
OPINION.
aney, Crcut udge: Pettons for revew of the decsons of the oard of
Ta ppeas n three proceedngs, whch were consodated before the oard,
have been fed by the Commssoner and Sunset Scavenger Co., Inc., heren-
after referred to as pettoner.
Pettoner s a corporaton and camed e empton from ta aton for the years
1927, 1928, and 1929, under Revenue ct of 1926 (ch. 27, secton 231(12)). The
Commssoner determned that pettoner was not e empt from ta aton and
hs determnaton was uphed by the oard. Pettoner asks revew of ths
determnaton. In the returns fed by pettoner, t camed as deductons pay-
ments for saares made, and aso camed as deductons amounts e pended to
avert egsaton unfavorabe to pettoner. Wth respect to the deducton for
saares, the oard reduced the amount camed by the pettoner, and pet-
toner asks revew of such acton. Wth respect to the reducton camed for
the e pendtures made to avert passage of the egsaton, such deducton was
aowed by the oard, and the Commssoner asks revew of that acton. The
returns for the years 1927, 1928, and 1929 are n ssue.
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203
15103, rt. 532.
rom the facta found by the oard, t appears that pror to 1919, garbage
coecton n the San rancsco ay regon was beng made by ndvduas, wth
hepers, who had a partcuar route on whch the cas were made. Under ths
system there was competton, and ndvdua routes and dstrcts overapped.
To avod ths there was organzed by the ndvduas n 1919 an assocaton or
partnershp, whch f ed the routes. s a resut, costs were reduced and the
profts ncreased. The profts were dvded between the members upon some
equtabe bass.
The ne t deveopment s e paned by Ue oard as foows:
Soon, however, dssenson arose. Certan of the members taken nto the
assocaton were ndfferent scavengers, wth tte natura apttude for garbage
coecton. They were the type whch merey dumps the can and drves on
gnorant of the fact that a tte tme spent showng courteses to the housewfe
creates for the garbage man a personaty or good w whch s refected n
added busness. Through the operaton of the assocaton these ess capabe
scavengers were brought nto contact wth the reay e pert type and through
these contacts were nstructed In the fner technque of the work. Some of
these men, however, after thus acqurng profcency, began wthdrawng from
the assocaton, takng ther equpment, newy acqured tranng and good w,
and began operatng as ndependents, abe to offer much more serous competton
than before.
s a resut, pettoner corporaton was formed under the aws of Caforna.
The ndvdua members of the assocaton transferred ther equpment to pet-
toner, and receved therefor shares of stock n the corporaton.
The other matera facts were stated by the oard as foows:
ddtona equpment was purchased by the corporaton and suffcent
assgned to each route or dstrct to serve ts needs. of the members ren-
dered servce as n the past. One member was empoyed as foreman n charge
of each route. Other members mght work wth hm on the truck and n add-
ton nonmember hepers were empoyed at 5.50 per day. The actua work
of garage coecton began at 4.30 a. m. and ceased about 4.30 p. m. at whch
tme the he er s work was over. The members, however, athough dong
smar work to the hepers durng the day, had the addtona work of keepng
the route book of customers and makng coectons of the charges for servce.
Ths was done n the ate afternoon and eary evenng, usuay beng com-
peted about 8 p. m. The members aso took care of the horses, wagons and
trucks they used.
rom ts organzaton and durng the years here nvoved the corporaton
kept few records and ts methods of payng ts e penses and dstrbutng the
proceeds of ts busness were qute smpe. meetng of a members or
stockhoders was hed twce a month. To ths meetng each member brousht
hs route book showng a coectons made for servce or for nae of unk,
paper, bottes, etc. ganst hs tota he had taken credt for payments made
by hm to hs hepers and for feed, gasone, o, etc. ach member passed
hs book to hs neghbor for check and audt and when each account was
approved the ndvdua member pad onto the tabe the amount shown to be
due from hm. The presdent of the corporaton then took from the aggregate
the sum estmated to be necessary for genera corporate e penses tor the ne t
two weeks and the baance was dvded equay among a the members. The
offcers of the corporaton had few dutes and receved as such no addtona
y. They worked n coectng garbage as other members.
The statute (Revenue ct of 1926, ch. 27, secton 281) under whch pettoner
cams e empton, provdes as foows:
8ec. 231. The foowng organzatons sha be e empt from ta aton under
ths tte

(12) armers , frut growers , or ke assocatons organzed and operated
on a cooperatve bass (a) for the purpose of marketng the products of mem-
bers or other producers, and turnng back to them the proceeds of saes, ess
the necessary marketng e penses, on the bass of cther the quantty or the
vaue of the products furnshed by them, or (b) for the purpose of purchasng
suppes and equpment for the use of members or other persons, and turnng
over such suppes and equpment to them at actua cost, pus necessary
e penses. empton sha not be dened any such assocaton because t has
capta stock,
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103, rt. 632.
204
Under ths statute, e empton s granted to fanners , frut growers , or ke
assocatons. Pettoner contends that the character of an organzaton s to
be determned by ts acts rather than by ts form,1 and that the pettoner
corporaton was formed for the purpose of mutua cooperaton to enabe the
assocaton to operate as a unt, rather than as ndependent scavengers, as was
the case pror to organzaton.
Pettoner aso says:
ssumng, for the purpose of argument, that ke assocatons refers ony
to farmers cooperatve (whch of course pettoner does not concede), and that
product means a farm product of some knd, then the word produce mght
be narrowy construed to refer back to farmers and farm products, and have
reference ony to provsons or farm products coectvey.
We beeve, as the Commssoner contends, that under the prncpe of
e|usdem geners, the words ke assocatons are mted by the words
farmers and frut growers , and as thus mted mean ony such asso-
catons as market agrcutura products, or purchase suppes and equpment
for those who are engaged n producng agrcutura products. (See Garden
omes Co. v. Commssoner (C. C. . 7), 04 . (2d), 593.) Under such
constructon, pettoner Is not one of the assocatons e empt from ta aton.
Pettoner aso says To hod that pettoner s not a cooperatve assocaton
s to decare the Revenue cts of 1926 and 1928 unconsttutona. We do not
e press an opnon as to whether or not pettoner s a cooperatve assocaton.
We are hodng that pettoner s not e empt from ta aton as one of those
assocatons whch under the terms of the ct are e empt.
Pettoner aso contends that there was a mutua agreement contract (mped
perhaps) between the members and pettoner whereby the members were to
receve a the net profts that because of such agreement there coud be no
moneys beongng to pettoner, and therefore pettoner woud have no profts.
owever nove ths argument may be the opnon of the oard does not dscose
that the argument was ever presented to t. urther, there Is no fndng that
fny such agreement was made. Under such crcumstances we can not consder
the pont. (See Genera Uttes Co. v. everng, 296 U. S., 200 Ct D. 1055,
C. . -1, 214 everng v. Savage, 297 U. S., 100 Ct. D. 1075, C. . -1,
207 .)
The facts found by the oard reatng to saares pad are as foows:
In makng ts returns for the years n queston pettoner took deducton, as
saares and bonuses, of the amounts dstrbuted as above descrbed to the
members. In determnng the defcences respondent has determned that a
reasonabe saary for each of the appro matey 175 members, for servces per-
formed, was 3,000 per year, and has ncreased net ncome reported for each
year by the amount dstrbuted n such year, as above set out, n e cess of
aggregate saares n ths amount.
Secton 234 of the Revenue ct of 1920 provdes:
Sec. 234. (a) In computng the net Income of a corporaton sub|ect to the
ta mposed by secton 230 there sha be aowed as deductons:
(1) the ordnary and necessary e penses pad or ncurred durng the
ta abe year n carryng on any trade or busness, ncudng a reasonabe aow-
ance for saares or other compensaton for persona servces actuay
rendered, .
Whether or not the saares are reasonabe, Is a queston of fact, nnd the
fndng of the oard s concusve If supported by any substanta evdence.
(Genera Water eater Corporaton v. Commssoner (C. O. . 9), 42 . (2d),
419.) The oard found that the fat amount of 3,600 for each member was
not nadequate, even upon the day wage-bass contended for by pettoner.
Pettoner ntroduced evdence of members that a reasonabe rate was 16 or
17 a day, and aso ntroduced evdence that street sweepers of the cty and
county of San rancsco were pad durng the years In ssue 5.50 for an
8-hour day (e cept Saturday), and were pad doube tme for overtme work.
Pettoner has presented an eaborate tabe showng that f street sweepers
Ctng among others : Wess v. Stcarn (265 U. S., 242 T. D. 3009, C. . III-2, 61 )
Untod States v. Phes (257 O. S., 150 Ct. D. 19. C. . 5. 37 ) : McCoach v. MnnekU
t 8. . R. It. (228 U. S., 294) Zonne v. Mnneapos Syndcate (220 U. 8.. 187) : cf.
Ie erno . Cneman-Obert (200 . S.. 300. 373 Ct. D. 1004, C. . -1, 2611).
or the prncpe of e|usdem geners, see Unted States v. Stever (222 D. 8., 16T,
174) Unted States v. Srtcn (235 U. 3., 237, 294).
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205
103, rt. 32.
worked as many hours as the members, they wond be entted to receve 6,090
a year at ther rate of pay. On the bass of the amount pad such street sweep-
ers, pettoner contends that each member of pettoner company was entted
to receve not ess than 6,120 per year.
The oard was not mpressed wth ths argument, evdenty because t s n-
credbe that a garbage coector s entted to neary 20 a day for garbage
coecton. The evdence showed that the heper receved 5.50 for workng from
4.3o a. m. to 4.30 p. m. The member worked, then, n makng coectons unt
8 p. m., or about three and one-haf hours more. Computng ths three and
one-haf hours at doube rate ( 1.10 per hour), we fnd that the member woud
be entted to 3.85 for the e tra work, makng a tota of 9.35 per day. The
oard aowed appro matey that sum ( 3,600 per year), and therefore we
beeve the fndng to be supported by substanta evdence. The fndngs ds-
ease no dstncton n the character of the work performed by the heper and
the member, e cept the e tra work performed by the member, for whch, under
our vew, the member receved doube rate of pay.
Wth respect to the remanng ssue, arsng under the Commssoner s petton
for revew, pettoner e pended a sum of money In 1927 and a further sum n
1929, under crcumstances substantay the same. The oard sad:
In each of those years ordnances were proposed for enactment
whch mght reasonaby be e pected to n|ure greaty pettoner s busness.
Tbe e pendtures n queston were for prntng and dstrbutng pamphets,
newspaper advertsng, and the hre of speakers to argue advsabty of the
proposed changes n the aw . It s true tat the purpose of the
e pendtures was to avert the enactment of egsaton unfavorabe to pet-
toner and cacuated to damage ts busness, but the means used, argument
addressed to the pubc, were egtmate . We can see n these e pend-
tures by pettoner merey the cost of egtmate efforts made to protect ts
property and busness. Such cost s an ordnary and necessary e pense of
busness.
Under the statute above quoted pettoner s entted to make deductons of
a the ordnary and necessary e penses pad or Incurred durng the ta abe
year n carryng on any trade or busness. rtce 562 of Reguatons 69,
promugated under the Revenue ct of 1826, and artce 262 of Reguatons 74,
promugated under the Revenue ct of 1928, provde:
Sums of money e pended for obbyng purposes, the promoton or defeat of
egsaton, the e potaton of propaganda, ncudng advertsng other than
trade advertsng, and contrbutons for campagn e penses, are not deductbe
from gross Income.
rtce 562 of Reguatons 65, promugated under the Revenue ct of 1924,
of Reguatons 62, promugated under the Revenue rt of 1921, and of Regua-
tons 45, promugated under the Revenue ct of 1918, have the same provson
quoted.
The statute makes ony two requrements to be met before e penses pad or
ncurred durng the ta abe year n carryng on any trade or busness, may be
deducted. Such e penses must be (1) ordnary, and (2) necessary. (Wech v.
everng, 290 D. S., I, 78 L. d., 212, 54 S. Ct., 8 Ct. D. 755, C. . II-2,
112 .) In so far as the statute s concerned, the e penses under dscusson
coud be deducted f they met the two requrements mentoned. owever, the
reguatons mt the sweepng terms of the statute by prohbtng the deduc-
ton of (1) sums of money e pended for (a) obbyng purposes, (6) or for the
promoton or defeat of egsaton, (o) or for the e potaton of propaganda,
ncudng advertsng other than trade advertsng (2) contrbutons for cam-
pagn e penses. Snce the oard specfcay found that the purpose of the
e pendtures was to avert the enactment of egsaton unfavorabe to pet-
toner, t s cear that the e pendtures fa wthn (1)(6) specfed above,
and possby ()(c) supra, and therefore such e pendtures are not deductbe
under the reguaton.
The statute does not attempt to determne what are ordnary and neces-
sary e penses. The reguaton quoted above has determned, we thnk, that
e pendtures n the frst cass, and contrbutons n the second cass, specfed
above, are not ordnary and necessary e penses. The rt of ebruary 24,
1919 (40 Stat, 1057), Revenue ct of 1921 (42 Stat., 227, 254) and the Revenue
ct of 1924 (43 Stat., 253, 283) each contaned the provson quoted from the
Revenue ct of 1926 n Identca anguage. The reguaton under each of the
cts was Identca. Under such crcumstances the foowng, from Massa-
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104, rt. 641.
206
chusetts Mutua Lfe Ins. Co. v. Unted Sates (2S8 U. S., 269, 273, 77 L. d.,
739, 53 S. Ct., 337 Ct D. 638, C. . II-1, 286 ), s appcabe:
Ths acton (of Congress n reenactng a statute) was taken wth
knowedge of the constructon paced upon the secton by the offca charged
wth ts admnstraton. If the egsatve body had consdered the Treasury
nterpretaton erroneous t woud have amended the secton. Its faure so
to do requres the concuson that the reguaton was not Inconsstent wth
the ntent of the statute Natona Lead Oo. v. Unted States, 252 U. S., 140,
146 Poe v. Seaborn, 282 U. S., 101, 116 Ct D. 259, O. . I -2. 202 Mo-
Caughn v. ershcy Chocoate Co., 283 U. S., 488, 492 Ct D. 345, C. . -,
444 Costanzo v. TUnghast, 287 U. S., 341). Uness, perhaps, the anguage
of the ct s unambguous and the reguaton ceary Inconsstent wth
t .
(See aso Wams v. urnet ( pp. D. C), 59 . (2d), 357 Ct D. 578, a .
I-2, 242 Smmons Co. v. Commssoner (C. C. . 1), 33 . (2d), 75 Ct D.
06, C. . III-2, 317 .)
In the nstant case, the statute s ambguous because t makes no determna-
ton of what Is or s not an ordnary and necessary e pense. We beeve the
reguaton to be controng, and n the manner outned.
Ths concuson s n accord wth Od Msson Portand Cement Co. v. Com-
mssoner (C. C. . 9) (69 . (2d), 670 affrmed on other ssues, 293 U. S.,
289, 79 L. d., 3C7, 55 S. Ct, 158 Ct D. 903, C. . I -1, 332 ).
ornhauser v. Unted States (276 U. S., 145, 72 L. d., 505, 48 S. Ct, 219
T. D. 4222, C. . II-2, 207 ), cted by pettoner, does not dea wth e pend-
tures made to avert the passage of egsaton, and therefore s not n pont
Lkewse, Lucas v. Wofford (C. O. . 5) (49 . (2d), 1027) Is not appcabe
because the e pendture was not made to secure the passage or defeat of any
egsaton. (Page 1028.) In O. T. Wofford (15 . T. ., 1225) and Los
ngees d Sat Lake Raroad Co. (18 . T. ., 168), reed on by pettoner,
the oard took the vew, as t dd n ths case, that the e pendture must
have been for some ega purpose. In none of these cases s there anythng
to ndcate that the oard consdered the effect of the reguatons quoted. To
uphod the oard s decson woud be equvaent to readng somethng nto
the reguaton whch can not there be found.
We hod that pettoner s not e empt from ta aton under the statute
quoted that there s substanta evdence to support the oard s fndng that
53.000 s a reasonabe sum to be aowed the members for saares and that
the e pendtures made by pettoner to avert the passage of unfavorabe egs-
aton may not be deducted.
ffrmed n part and reversed n part
S CTION 104. CCUMUL TION O SURPLUS
TO D SURT S.
rtce 541: Ta aton of corporaton utzed T-1-8464
for evason of surta . Ct. D. 1186
( so Secton 42, rtce 333.)
1. vason of Surta es by Incorporaton vdence.
Two brothers sod a ther assets and busness n 1027 to Cor-
poraton for equa parts of ts capta stock, and n 1020 each of
the brothers created a corporaton, and C, respectvey, owned
whoy by hmsef to take over and hod hs haf of the stock of
Corporaton. Shorty thereafter Corporaton decared a substan-
ta dvdend and drected that t be paced to the credt of ts
stockhoders, and C Corporatons. The Corporaton decared
no dvdends tsef, but passed to ts soe stockhoder as oans the
cash receved from the dvdends of Corporaton. Under these
facts, the fndng of the oard of Ta ppeas that Corporaton
was both formed and avaed of for the purpose of preventng the
mposton of surta es upon ts soe stockhoder s supported by the
evdence, and the corporaton s sub|ect to the ta mposed by
secton 104 of the Revenue ct of 1928.
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207
104, rt. 641
2. Dvdends OoN strcnvu Recept.
Where ony a porton of a dvdend decared n 1929 was pad In
cash to the ta payer, whch was on a cash recepts bass, and the
baance was paced to ts credt on the books of the corporaton,
the entre amount of the dvdend consttuted ncome for 1929.
Dvdends are to be consdered receved by a stockhoder, though
he be on a bass of cash recepts, when they are unquafedy made
sub|ect to hs demand.
8. Decson |fbmh .
Decson of the oard of Ta ppeas (33 . T. ., 135) affrmed.
4. Czetorae Dened.
Petton for certorar dened October 12, 1936. (299 U. S., 577.)
Unted States Crcut Coubt of ppeas fob the fth Crcut.
. D. aengcr, Inc., pettoner, v. Commssoner of Interna Revenue, respondent.
84 . (2d), 23.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of
Lousana).
efore Sbey, utcheso , and omes, Crcut udges.
uue 8, 1936.
OPINION.
Stbet, Crcut udge: The Commssoner, affrmed by the oard of Ta
ppeas, assessed on the 1920 ncome of the ta payer . D. Saenger, Inc., the
50 per cent e tra ta Imposed by secton 104 of the evenue ct of 1 28 on
corporatons formed or avaed of for the purpose of preventng the mposton
of surta on ther sharehoders. . D. Saenger and . . Saenger were
brothers who on March 1, 1927, sod a ther assets and busness to a corpora-
ton. . .. Inc.. for equa parts of ts capta stock of 1,500,000. In
ebruary, 1929, that corporaton decared a dvdend of 150,000, and pad
It. On ugust 7, 1929, each of the brothers created a corporaton owned
whoy by hmsef to take over and hod hs haf of the stock of . ., Inc.
The ta payer corporaton s that owned by . D. Saenger. On October 31,
1929, . ., Inc., decared another dvdend of 262,500, and approprated
that sum to pay t, and drected notces to stockhoders of t and that t be
put to ther severa credts to be drawn out as the stockhoders desred. c-
cordngy 131,250 was put to the credt of ta payer on the books of . .,
Inc., and was charged to that company on the hooks of ta payer. Thus by
mutua consent t became a debt owng to ta payer. Ony 22,204 of t was
pad over n cash durng 1929. . D. Saenger got appro matey that sum
from ta payer, gvng hs note for t. Ta payer, though on a cash recepts
bass, returned as ncome for 1029 the whoe 1 1.250 and showed a net ncome
of 131,616. Ta payer contnued to functon durng 1930 and 1031, but never
decared a dvdend though . D. Saenger took from t as oans sums that
fnay came to about 378,000. The three famy corporatons were merged
nto one n 1933. The market crash n October and November, 1929, greaty
reduced the market vaue of stocks hed by . ., Inc., and mpared the
Taue of the stock of . ., Inc., hed by ta payer . D. Saenger, Inc., but
no osses appear to have been reazed by saes. Nether company had much
cash on hand, but the stocks hed by . ., Inc., even at ther reduced vaues
coud have been easy sod for enough to pay a abtes, Incudng the
decared dvdend, wthout greaty mparng the capta stock. . D. Saenger,
Inc., appears to have borrowed some 90,000 durng the fa of 1920, and
Invested t n stocks.
The oard s fndng of fact that . D. Sneuger, Inc., was both formed and
avaed of by . D. Saenger for the purpose of preventng the mposton of
surta es upon hm s supported by evdence. ad he not formed t, but hm-
sef receved the second dvdend of . ., Inc., hs surta es on t woud,
as stated by the oard, have been 3430. s thngs were managed ths cor-
poraton whoy owned by hm decared no dvdends tsef, but passed to hm
n the shape of oans the cash comng from the dvdends of . ., Inc. The
reason for ts organzaton put forward by hm that he had a mnor daughter
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5112, rt. 577.
208
whose nterest n hs estate n case of hs death mght derange the operatons
of . ., Inc., seems to us, as It dd to the oard, rather fmsy. It f
rgued that the ta payer corporaton shoud not have decared any dvdend
n 1929 because the shrnkage n vaue of ts capta assets prevented Its
havng any gans and profts wthn the meanng of secton 104 of the
Revenue ct of 1928. ut the ct does not mpose the 50 per cent addtona
Income ta on corporatons whch In fact have gans and profts n the ta
year and do not dstrbute them, but upon any corporaton formed or avaed
of for the purpose of preventng the mposton of surta upon ts stockhoders
through the medum of permttng Its gans and profts to accumuate nstead
of beng dvded or dstrbuted. corporaton formed for the stated purpose
or avaed of n any ta year for that purpose s sub|ect to the pecuar ta
whether or not the purpose be successfuy e ecuted. The egsatve am no
doubt was to dscourage the attempt thus to msuse a corporaton as we as
to neutraze success. Of course f the corporaton fas to have gans and
profts to the e tent that there s no net ncome, the ta fas. ut the pur-
pose wth whch the corporaton s formed or used determnes whether t s
wthn the cass thus pecuary ta ed. eng n poston to decare dvdends
and not decarng them Is ony evdentary. The evdence here supports the
fndng that . D. Saenger, Inc., was n the specay ta ed cass. (See Unted
usness Corporaton v. Commssoner, 62 ed. (2d), 754 Ct. D. 772, C. .
III-1, 257 .)
Snce ta payer was upon a cash recepts bass t s sad that the dvdend
of 131,250 was not ncome for 1929 e cept as to the 224204 cash pad that
year, and that the oard erred n hodng that the whoe was constructvey
receved. y Treasury reguatons gong back to 1918 dvdends are to bo
consdered receved by a stockhoder though he be on a bass of cash recepts
when they are unquafedy made sub|ect to hs demand. ( very v. Com-
mssoner, 292 U. S., 210 Ct. D. 828, C. . III-1, 131 Loose v. Unted States,
74 ed. (2d), 147 Ct. D. 944, C. . I -1, 269 .) If the stockhoder does not
draw them t s as though he had money on depost n a bank. e can not
postpone hs ncome ta es by eavng hs dvdend wth hs corporaton. That
. ., Inc., dd not carry cash on hand suffcent to pay what t had un-
reservedy put to the credt of . D. Saenger, Inc., s unmportant. It coud
on demand have borrowed t or rased t by sae of some of ts nvestments.
No case of refusa to pay appears. Indeed, snce the ta payer returned the
whoe 131,250 as ncome receved n 1929, and presumaby dd not return t
n 1930, t s not n good poston now to deny ts recept n 1929. (Compare
der v. Commssoner, 77 ed. (2d), 733.) The decson of the oard of Ta
ppeas s affrmed.
rtce 541: Ta aton of corporaton utzed for
evason of surta .
R NU CT O 1028.
amy corporaton. (See Ct. D. 11S5, page 173.)
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112. R COGNITION O G IN OR LOSS.
rtce 571: Recognton of gan or oss.
R NU CT O 1928.
Converson of bond nto stock of obgor corporaton. (See G.
C. M. 18436, page 101.)
rtce 577: Defntons.
R NU CT O 1928.
changes n connecton wth corporate reorganzatons. (See
Mm. 4555, page 244.)
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209
113, rt. 591.
S CTION 113. SIS OR D T RMINING
G IN OR LOSS.
ktce 591: ass for determnng gan or
oss from sae.
I-9-8569
Ct. D. 1202
INCOM T R NU CTS OP 1926 ND 1828 D CISION O SL I M
COU T.
Gan oe Loss ass Maech 1, 1913, aue uthorty or
Crcut Court or ppeas to Reverse Decson op oard of
Ta ppeas as to aue.
Where n determnng the gan derved n 1926, 1927, and 1928
from saes of property purchased n 1909 for cemetery purposes,
the evdence before the oard of Ta ppeas conssted of a
stpuaton concernng saes from 1909 to 1913 and testmony as
to the orgna cost, e pense of deveopment, area sod durng the
ta abe years and prces obtaned, prces prevang on March 1,
1913, and the method of estabshng the purchase prce, there was
substanta evdence to support the concuson of the oard as to
March 1, 1913, vaue, and the reversa of the oard s decson
by the Crcut Court of ppeas was an unwarranted substtuton
of ts |udgment concernng facts for that of the oard.
The mhurst Cemetery Co. of oet, pettoner, v. Commssoner of Interna
Revenue.
300 U. S. 37.
On wrt of certorar to the Unted States Crcut Coort of ppeas for the Seventh Crcut.
Mr. ustce McReynods devered the opnon of the Court.
Pettoner, n 1009, purchased 137 acres of and near oet, 111., for 60,000.
Thrty-seven acres were dvded nto pots and deveoped for cemetery purposes
by gradng, constructng drves, pantng shrubbery, etc., at a cost of 35,000.
Grave pots, varyng n area from 150 to 1,500 square feet, were sod from tme
to tme under contracts for perpetua care.
Some 30,000 square feet were dsposed of durng the years 1909 to 1913
at prces rangng from 70.2 cents to 79.5 cents. The average between March 1,
1912. and March 1, 1913, was 76.6 cents. In the three years 192G, 1927, and
1928, 42,000 square feet were sod for 91.55 to 1.77. To determne the ta abe
gans reazed from the atter saes t became necessary to ascertan the vaue
of the ots as of March 1, 1913. The pettoner s return estmated ths at 76.6
cents. The Commssoner adopted 23.96 cents and assessed defcences
accordngy.
Upon petton for redetermnaton the oard of Ta ppeas, after consder-
ng the evdence, approved the 76.6 cents vauaton and found no defcences.
The evdence conssted of a stpuaton by counse concernng saes n 1909 to
1913 as detaed above, and the testmony of the cemetery superntendent.
e stated the orgna cost of the 137 acres, e pense of deveopment, area sod
n 1926, 1927, 1928, and prces obtaned. e affrmed famarty wth the
Property on March 1, 1913, prces then prevang, and stated that the saes of
1912 and 1913 were n norma course wthout e tra effort so that the
purchase prce was estabshed by my vstng a good many cemeteres that I
fgured were practcay of the same cass as that cemetery and stuated near
ctes of about the same popuaton, and I estabshed a prce from the prce
they were seng at urther that every grave and ot n the cemetery sod
snce ts organzaton s under perpetua care, and when perpetua care s
provded, t means keepng the roads and drves n proper repar, keepng the
dranage system In proper repar, keepng the fences n repar, cuttng the
Supreme Court of the Unted States.
ebruary 1, 1937.
OPINION.
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210
grass, prunng the trees, shrubs, and keepng t n good condton. We hoped
for a gradua ncrease In saes every year because as a genera rue, for every
head of a famy that s bured you secure four new fames. That s the
rue cemetery companes have adopted. e thought It mght take 75 years to
dspose of a ots.
The oard decared the partes are now concerned ony wth the vaue as
of March 1, 1913, of that 37 acres of pettoner s ands whch have been m-
proved and from whch saes have been made. eyond statements of counse
to the effect that respondent Commssoner has attempted by formua to
reduce the vaue of the mproved and as of March 1, 1913, to present vaue,
we are unnformed as to the method by whch he chose the fgures at whch
he f es the bass for determnng gan. Pettoner, however, has chosen as
Ihe footage vauaton as of March 1, 1913, the seng prce of ts grave ots
durng the year |ust precedng that date 76.8 cents whch Is ess than the
average saes prce durng the month of March, 1913. We are of opnon that
the vauaton for whch pettoner contends s reasonabe and shoud be a-
owed. It s based upon actua saes, and consequenty comes as cosey as may
be to that far market vaue, so often |udcay defned as the prce whch
property w brng when offered by a wng seer to a wng buyer, nether
beng obgated to buy or se.
Lots dsposed of n 1912 and 1913 went wth agreements for perpetua care
so dd those sod In 1920, 1927, and 1928 prces obtaned n the atter years
may be compared wth thoso receved n tho earer ones they were for ke
thngs.
The Commssoner asked revew by the crcut court of appeas. e there
urged that March 1, 1913, vaues shoud be ascertaned by dscountng sae
prces durng the precedng 12 months because of the tme whch woud be
requred n order to dspose of the whoe. The court sad: The facts n ths
case necesstate the re|ecton of the seng prce as the soe determnator of
vaue. ar more equtabe s the seng prce ess dscount for years requred
to reaze sad seng prce. The Commssoner was bera wth the ta -
payer. ccordngy It reversed the oard and drected affrmance of the
Commssoner s assessment.
Ths acton, we thnk, amounted to an unwarranted substtuton of the court s
|udgment concernng facts for that of the oard. There was substanta ev-
dence, as appears above, to support the atter s concuson, and n such crcuu-
ptances ths must be accepted. It s the functon of the oard to wegh the
evdence and decare the resut We undertook to state the appcabe rue u
everng v. Rankn (295 U. S., 123, 131 Ct. D. 960, C. . I -1, 160 ) and
Genera Uttes C- Operatng Co. v. everng (290 U. S., 200, 206 Ct. D. 1055,
C. . -1, 214 ).
The |udgment here companed of must bo reversed. The acton of the
oard of Ta ppeas s affrmed.
So ordered.
rtce 596: Property transmtted at death. I-8-8556
Ct. D. 1200
INCOM T R NU CT OP 1928 D CISION O COURT.
1. Gan oe Loss ass Property Transmtted at Death Sab
by Devsee.
Where the ta payer n 1930 sod hs Interest n certan rea
estate acqured under the resduary cause of hs father s w,
and by the terms of such w the resdue of the estate was eft
to trustees to pay the ncome to the wdow for fe, and upon her
death the property was devsed one-haf to the ta payer wth m-
tatons over f he shoud not then be vng, the bass for deter-
mnng the gan from the sae, under the provsons of secton
113(a)5 of the Revenue ct of 1928, Is the vaue of the rea estate
at the date of the father s death rather than ts vaue nt the death
of the fe benefcary, the ta payer s remander nterest havng
vested at hs father s death, and havng been acqured by genera
devse.
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211
113, rt. 696
2. Decson ffrmed.
Decson of the oard of Ta ppeas (32 . T. ., 600) affrmed.
8. Certorar Dened.
Petton for certorar dened October 12, 1936. (299 U. S., 578.)
Unted States Gbcdt Court or ppeas fob the Second Crcut.
dmund S. Twnng, pettoner, v. Commssoner of Interna Revenue,
respondent.
83 . (2d), 904.
Petton to revew decson of the Unted States oard of Ta ppeas.
efore Manton, Swan, and Chase, Crcut udges.
une 1, 1936.
OPINION.
tte ta payer, dmund S. Twnng, seeks revew of an order determnng a
defcency n ncome ta for the year 1930. ffrmed.
Swan, Crcut udge: Ths proceedng reates to the pettoner s ncome ta
for the year 1930. The dspute nvoves the amount of gan reazed on a sae
of rea estate acqured by the ta payer under the w of hs father who ded
n 1923, survved by hs wdow and two sous. y hs w the father eft the
resdue of hs estate, whch ncuded rea estate on Long Isand, to trustees, to
pay the ncome thereof to hs wdow durng her fe, and upon her death the
resdue was devsed one-haf to the pettoner, wth mtatons over f he shoud
not then be vng, and one-haf to trustees for the other son. The wdow ded
n 19 . survved by the two sons. In 1930 the pettoner sod hs haf nterest
n the Long Isand rea estate. The soe ssue n dspute s whether the proper
cost bass for computng hs gan s the vaue of the rea estate at the date of
hs father s death or ts vaue at the date of hs mother s death. The Com-
mssoner and the oard took the former date the pettoner contends t shoud
be the atter.
Secton 113(a)5 of the Revenue ct of 1923 (45 Stat., 819) reads n part as
foows:
(5) Property transmtted at death. If persona property was acqured by
specfc bequest, or f rea property was acqured by genera or specfc devse
or by ntestacy, the bass sha be the far market vaue of the property at the
tme of the death of the decedent. If the property was acqured by the de-
cedent s estate from the decedent, the bass n the hands of the estate sha be
the far market vaue of the property at the tme of the death of the decedent
In a other cases f the property was acqured ether by w or by ntestacy,
the bass sha be the far market vaue of the property at the tme of the ds-
trbuton to the ta payer.
The queston at ssue turns upon whether the frst sentence or the ast sentence
of the above quoted porton of the secton appes to the facts at bar.
y the aw of New York, where the and was ocated, the pettoner took
under the w of hs father a vested remander even though en|oyment and
possesson were postponed unt the termnaton of hs mother s equtabe fe
estate and hs nterest was sub|ect to beng dvested f he shoud de before her.
(New York ea Property Law, secton 40 Moore v. Ltte, 41 N. Y., 66. 80.)
Indeed, ft s not dsputed that the pettoner took a vested remander under the
w of hs father.
In Warner v. Commssoner (72 . (2d), 225) ths court hed that the test for
determnng when a remander was acqured wthn the meanng of the
evenue ct s whether t s vested or contngent. It s true that the Revenue
ct there under consderaton was the 1920 ct but the probem of what was
meant by the word acqured was not dfferent from what t s under the
1928 ct. Lteray, therefore, the frst sentence of the above quoted secton
113(a)5 appes the property was acqured by genera devse. ad the
remander been contngent, then the ast sentence of the secton woud have been
appcabe. Such was the case of Lane v. Corwn (63 . (2d), 767 (C. C. . 2)).
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113. rt. 50S.
212
The pettoner asks us to repudate the dstncton between vested and con-
tngent Interests as the test for when property s acqured by devse and to
substtute the substanta ownershp test e pounded In the Genera Counse s
Memorandum 10260 (C. . I-1, 79), athough the atter test was subsequenty
abandoned In O. O. M. 14893 (O. . I -1, 202). In Warner v. Commssoner
(72 . (2d,), 225) we refused to accept the substanta ownershp test, e press-
ng the vew that It was so vague as to be even ess satsfactory than to
dfferentate between vested and contngent remanders In spte of the casustry
nvoved n such dfferentaton. We are st of that opnon. Nor do we
thnk we are constraned to appy the other test In construng the 1928 ct
merey because Congress reenacted the secton two months after the substanta
ownershp rue of Interpretaton was e pounded n G. O. M. 10260. Ths Is
not a case of ong-contnued admnstratve Interpretaton and appcaton such
as was deemed persuasve of egsatve adopton by reenactment of the statute
In rewster v. Gage (280 U. S., 327, 326 Ct. D. 148, C. . I -1, 274 ) and In
ss v. Commssoner (68 . (2d), 890, 892 (O. C. . 2), affrmed 293 U. 8., 144,
151 Ct. D. 884, O. . III-2, 191 ).
Order affrmed.
rtce 598: Property acqured n rcorgan- I-14-8627
zaton after December 31, 1917. Ct. D. 1213
INCOM T R NU CTS O 1924, 1026, ND 1028 D CISION O 1 COURT.
1. Gan or Loss ass Cost to Transferor Reorganzaton.
Three separate and dstnct corporatons were consodated nto
a new corporaton whch Issued ts entre capta stock to the
stockhoders of the three corporatons, n consderaton for ther
propertes, In such proportons that the aggregate stock hed n the
new corporaton by a the former stockhoders of any one of the
0 three od corporatons was ess than 80 per cent of the outstandng
stock of the new corporaton. Pror to the consodaton, no stock-
hoder of any of the orgna corporatons hed any stock or other
Interest In ether of the other corporatons. Under these facts, the
ownershp of the aggregate consodated propertes remaned n
the same persons coectvey as before, and the bass for comput-
ng gan or oss on subsequent saes s the cost of each separate
property to the partcuar transferor, under the provsons of
secton 204(a)7 of the Revenue cts of 1924 and 1926 and secton
113(a)7 of the Revenue ct of 1928.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (30 . T. ., 769) affrmed.
3. Certorar Dened.
Petton for certorar dened October 19, 1936. (299 U. 3., 582.)
Unted States Crcut Court of ppeas for thh Seventh Crcut.
arbanks Court Whoesae Grocery Co., pettoner, v. Commssoner of Interna
Revenue, respondent.
84 . (2d), 18.
Petton for revew of decson of the Unted States oard of Ta ppea .
efore vans and Sparks, Crcut udges, and booe, Dstrct udge.
une 4, 1936.

OPINION.
rgge, Dstrct udge: The queston for decson s: Where three separate
and dstnct corporatons are consodated Into a new corporaton whch ssued
ts entre capta stock for the propertes of the former corporatons n such
proportons that the aggregate stock hed In the now corporaton by a the
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213
I 113, rt. 698.
former stockhoders of any one of the three former corporatons was ess than
60 per cent of the outstandng stock of the new corporaton, sha the new cor-
poraton compute deprecaton, easehod amortzaton and gan or oss from the
subsequent sae of sad property on the bass of the cost of sad propertes to
t wthout regard to the respectve costs to each of the three former corpora-
tons The Commssoner answered No and hed that the costs to the three
former corporatons consttuted the proper bascs The oard of Ta ppeas
has affrmed and ths appea foows.
The agreed facts are, as foows: McNe ggns Co., Durnnr asper
Co., and enry orner Co. were consodated as of uy 1, 1921, under (e
same of Whoesae Groceres Corporaton, ater changed to Durand-McNe-
orner Co., and st ater to arbanks Court Whoesae Grocery Co., pet-
toner heren. s consderaton for the property transferred to It by the three
od corporatons, the new corporaton ssued 42.25 per cent of ts entre Issued
capta stock to the stockhoders of McNe ggns Co., 39.47 per cent to the
stockhoders of Durand asper Co., and 18.28 per cent to the stockhoders of
enry orner Co. Pror to the consodaton, no stockhoder of any of the
three former companes hed any stock or other nterest n any of the other
corporatons.
The new corporaton n reportng ts ta abe ncome for the years 1924, 1925,
and 1928, computed Its gan or oss, so far as the acqured property was con-
cerned on the bass of the vaue of such property on uy 1, 1921, the effectve
date of consodaton. The respondent thought that pettoner shoud have
computed such gan or oss on the cost of each separate property to the par-
tcuar corporaton from whom sad property was transferred and has been
sustaned n hs concusons by the oard of Ta ppeas.
The pertnent sectons of the Revenue ct of 1924 are 204(a) and 204(a)7,
and are as foows:
Sec. 204. (a) The bass for determnng the gan or oss from the sae or
other dsposton of property acqured after ebruary 28, 1913, sha be the
cost of such property e cept that
Sec. 204. (a) (7) If the property (other than stock or securtes n a
corporaton a party to the reorganzaton) was acqured after December 31,
1917, by a corporaton n connecton wth a reorganzaton, and mmedatey
after the transfer an nterest or contro In such property of 80 per centum or
more remaned n the same persons or any of them, then the bass sha be the
same as t woud be n the bands of the transferor, ncreased n the amount of
gan or decreased n the amount of oss recognzed to the transferor upon such
transfer under the aw appcabe to the year n whch the transfer was made
The pertnent sectons of the 1920 and 1928 Revenue cts are smar.
It s conceded that the gan or oss to the pettoner from the sae of ts
assets must be computed upon the cost of such assets to t uness the e cepton
above quoted s appcabe. In other words, f after the reorganzaton an
nterest or contro n such property of 80 per cent or more remaned n the same
persons or any of them, then, nstead of usng the cost to pettoner the bass
woud be the same as n the hands of the transferors. The decson turns
npon the proper constructon to be accorded the anguage of secton 204(a)7,
repra.
We had before us for consderaton a somewhat smar provson of the
Revenue ct of 1918 n the case of Monarch ectrc d Wre Co. v. Com-
muoner (38 ed. (2d), 417 ret. D. 257, C. . I -2, 404 ) and f the fact bass
of that decson Is comparabe wth the fact bass here presented, our decson
there, n the absence of any rung by the Supreme Court, w contro our
decson here.
In that case we consdered secton 331 of the 1918 ct (40 T . S. Stat.,
1065) whch provded that n case of a reorganzaton of a busness f an nter-
est or contro n such busness of 50 per cent or more remaned n the same
persons, or any of them, then the bass for determnng nvested capta
shoud be the same as If such property had not been transferred. The
anguage used n that secton was somewhat dfferent from that of the secton
now under consderaton and the per centum used was 50 nstead of 80, but
for a practca purposes the effect s the same. The facts of that case are
dssmar n that we were there deang wth but one corporate property or
busness and n the transfer to the new corporaton we were consderng a
shftng of the Indvdua ownershp of the stock n the od company and the
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113, rt. 598.
214
new. We there hed that whe no snge ndvdua stockhoder of the od
corporaton hed 50 per ceut or more of the stock of the new corporaton,
yet the combnaton of the stockhoders of the new corporaton remaned the
same as the od, and they coectvey owned more than 60 per cent of the stock
of the new corporaton, whch brought them wthn the statute.
In the nstant case, the stockhoders of no one of the three orgna corpo-
ratons owned any nterest n the property of ether of the other corporatons
pror to consodaton, but after consodaton the stockhoders of the separate
transferor corporatons owned stock n the new corporaton e acty n the
same proporton that the property transferred by that corporaton bore to the
aggregate of the property transferred to the new corporaton. We thus fnd
that whe we are here deang wth three separate corporate propertes pror
to consodaton, yet the ownershp of the aggregate consodated propertes
remans n the same persons coectvey as before, and n ths respect
assumes a ke character to that n the Monarch case. The partes coectvey
now ownng the consodated propertes are the dentca partes who owned
100 per cent of that property before consodaton. We must ook to the prop-
erty or busness beng reorganzed or consodated and must consder ts
status after consodaton and after ts tte vests n the new corporaton n
order to gve the ntended effect to the egsaton n queston. Under the
appcabe secton of the statute now under consderaton, f the owners of 80
per cent or more of the property of the new corporaton match wth one or
more of the former owners of the property or busness, then the e cepton
provded by the statute comes nto operaton.
fter a carefu consderaton, we thnk the facts of the nstant case entrey
comparabe wth those under consderaton n the Monarch case. The ev to
be reached n the one case s as apparent as n the other, and whe the trans-
acton n the nstant case was concededy a bona tde one and wthout purpose
of evadng the ct, yet a dfferent appcaton of the statute than that gven
n the Monarch case, woud n effect amount to an evason of the statute.
Pettoner stresses the meanng to be gven the word remaned and Its
argument n ths respect s forcefu, yet f we treat the words such property,
as referrng to the aggregate property after consodaton, and the words n
the same persons or any of them to mean the persons who sngy or coec-
tvey owned the aggregate property before consodaton, as we dd n the
Monarch case, then we may ready gve to the word remaned the sgnf-
cance contended for by pettoner.
Pettoner, however, contends that the anguage such propery means the
property of the corporate transferors before conveyance and not the conso-
dated property. It aso contends that the anguage n the same persons or
any of them means n the same ndvdua stockhoders or any of them, as
prevousy e stng but not beyond the casses or groups of the separate
corporatons before consodaton. We thnk, however, that ths constructon
woud do voence to the congressona ntenton and for that reason can not
adopt t.
Wo adhere to the concuson reached n the Monarch case, and beeve the
changed factua bass does not warrant a dfferent concuson here. Ths nter-
pretaton of the statute prevents any reorganzed or consodated company
from usng a dfferent bass of vauaton of ts acqured assets (other than
stock or securtes n a corporaton a party to the reorganzaton) from that
appcabe to ts predecessor owners whether the reorganzed or consodated
company s made up of the stockhoders of one or many corporatons, where n
fact ess than 20 per cent of new capta s brought nto the new company. We
thnk t was the purpose of the secton n queston to prevent any so-caed
stepped-up bass of vauaton where no substanta amount of new capta
was ntroduced.
We are wthout the ad of any e presson of the Supreme Court drecty n
pont, but beeve that ths constructon gves effect to the congressona pur-
pose and t fnds some support In the cases of mercan Compress d Warehouse
Co. v. ender (70 ed. (2d), 055 Ct. D. 809, C. . III-2, 261 ), Snead v. ack-
son Securtes rf Investment Co. (77 ed. (2d), 19), Phps v. Commssoner
(0:1 ed. (2d), 101).
The order of the oard of Ta ppeas s affrmed.
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215 ( 115, rt. 629.
m cue 600: Stock or securtes dstrbuted n
reorganzaton.
R NU CT O 1928.
ppcaton of frst n, frst out rue wth respect to sae of
tock receved as dvdend. (See Ct. D. 1198, page 184.)
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
btce 629: Dstrbuton n redempton or can- I-13-8613
ceaton of stock ta abe as a dvdend. Ct. D. 1210
INCOM T R NU CT OP 1928 D CISION OP COTTtT.
1. Dvdend Redempton of Stock When .trrv . NT to Dstr-
buton op Ta abe Dvdend.
Where the earnngs of a cosey hed corporaton were conserved
pror to 1030 for the purpose of busness e panson, whch punose
was subsequenty abandoned because of the depresson, the retre-
ment of appro matey 50 per cent of the outstandng stock from
such accumuated earnngs was essentay equvaent to the ds-
trbuton of a ta abe dvdend wthn the meanng of secton
115(g) of the Revenue ct of 1928. Nether artfce, subterfuge,
or bad fath need be present to brng the transacton wthn the
meanng of the statute.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (32 . T. ., 1075) affrmed.
8. Certorar Dened.
Petton for certorar dened November 9. 1936. (299 U. S., 590.)
Unted States Crcut Couht of ppeas fob the Seventh Crcut.
Chares . McOurc, pettoner, v. Commssoner of Interna Revenue,
respondent.
84 . (2d), 431.1
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore vans, Crcut udge, and Lndey and rggs, Dstrct udges.
une 4, 1936.
opnon.
wgoe, Dstrct udge: The Commssoner of Interna Revenue has found
that Chares . McGnre, the pettoner heren, owes a ta defcency for the
year 1930 of 51,428.31 the oard of Ta ppeas as affrmed and the ta -
payer appeas. The assessment was made under authorty of secton 110(g)
of the Revenue ct of 1928 (45 Stat, 822), whch reads as foows:
(g) Redempton of stork. If a corporaton cances or redeems ts stock
(whether or not such stock was ssued as a stock dvdend) at such tme and
to 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 accumu-
ated after ebruary 28, 1913, sha be treated as a ta abe dvdend. In the
rase of the canceaton or redempton of stock not ssued as a stock dvdend
ths subsecton sha appy ony f the canceaton or redempton s made after
anuary 1, 1926.
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115, rt. 629.
216
The pettoner has hs prncpa offce, resdence and pace of busness at
Rchmond, Ind. In 1930 he owned 83 shares, hs father wood W. McGure
1)4 shares, and hs mother sther McGure 1 share, whch was a of the cap-
ta stock of the De McGure Manufacturng Co., a corporaton engaged n
the manufacture of awn mowers. The company was nco-porated December
11, 1880, wth a capta stock of 9,000, dvded nto 180 shares of the par
vaue of 50 per share. Its corporate fe beng for 00 years woud have
e pred December 11, 1930.
The corporaton eary In Its e stence dscovered t was undercaptazed,
but ts stock beng cosey hed, the stockhoders ether furnshed the necessary
capta for ts operaton or permtted the profts to accumuate and to be used
as a workng capta. The busness of the company fuctuated wth the bus-
ness cyce, but durng the entre perod from 1902 to 1930, wth the e cepton
of the years 1919 to 1922, pad annua dvdends at tmes reachng a fgure n
e cess of 200,000 per annum.
bout 1925 the company was consderng ether the purchase or erecton of
a pant In New ngand n order to meet eastern competton, and antcpatng
the cost of carryng out such e panson, the corporaton had accumuated arge
sums of money from the profts of the busness. Wth the advent of the
depresson n 1929, however, the pro|ect was abandoned as unfeasbe.
On October 2, 1929, at a meetng of the board of drectors, composed of the
three stockhoders, a dvdend of 200,000 was decared to be pad anuary 2,
1930. t another meetng of the board on anuary 11, 1930, t was voted to
retre 80 of the 180 shares of the company by the purchase of 40 shares from
the pettoner and 40 shares from hs father, wood W. McGure, and to ren-
corporate wth a capta of 5,000, dvded nto 100 shares of the par vaue
of 50 per share. The prce to be pad for the stock was f ed by the pettoner
and the other drectors by computng the amount of accrued profts and ao-
catng that amount to the purchase of the 80 shares. The resutant vauaton
was 12,000 per share, whch was ater pad, Chares . McGure recevng
appro matey 480,000.
It s the contenton of the pettoner that the Commssoner and the oard
orred n fang to fnd that the 480,000 pad for the stock was accumuated
wth the ntenton that t be used for capta, and that snce 1913 t had, In
truth, been used to suppement the authorzed capta of 9,000, and, perforce,
shoud not be treated as the dstrbuton of a ta abe dvdend.
Ths aocaton of profts was n substantay the amount that had been con-
served for the purpose of the eastern e panson program, and the reducton In
the authorzed capta of the concern from 9,000 to 5,000 bore no marked
reaton to the company s pan of operaton e cept as t provded a means of
pacng ths accumuaton n the hands of the stockhoders. Ths Is borne
out by the pettoner, who, In response to a queston as to why captazaton
was reduced, sad that was the manner n whch we coud dspose
of the capta whch we were not gong to use for the e tenson as Indcated
t seemed to me the accurate way to dspose of t we had
ths for capta purposes and the recesson that started ate n 1929 ndcated
to us that t woud be a mstake to make the e tenson that we had saved
ths money for. There was no thought at any tme on the part of the stock-
hoders and drectors of a wndng up and cosng of the busness. The con-
ceded purpose was ony a read|ustment of the corporate set-up and a dsposton
of accumuated profts.
The oard n ts opnon says:
n the ght of the record we thnk the company dd conserve
ts earnngs wth the ntent and purpose to estabsh a manufactur-
ng pant n the astern States, and abandoned the dea ony after the depres-
son struck n 1929 and t appeared unwse and nadvsabe to do so. Not-
wthstandng such fact, t does not necessary foow that
the transactons n queston fa to make the dstrbuton to the pettoner
essentay equvaent to the dstrbuton of a ta abe dvdend .
We thnk ths e presson sound and the mere fact that profts have been
permtted to accumuate for a defnte purpose, whch purpose has subsequenty
been abandoned and dstrbuton made does not brand the transacton any the
ess a dstrbuton of a ta abe dvdend. Nether artfce, subterfuge or bad
fath need be present to brng a transacton wthn the meanng of the statute
here Invoved for as we read the aw a ta payer may we act wth the utmost
good purpose and wthout ev ntent and yet hs transactons may n effect
be the equvaent of the dstrbuton of a ta abe dvdend.
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217
116, rt. 643.
It Is, of course, not every canceaton or redempton of corporate stock by
the nse of earnngs that s ta abe but ony f made at such tme and n such
manner as to be essentay equvaent to the dstrbuton of a ta abe dv-
dend. The tme and manner of ths dstrbuton were dstnct eements
pontng to the concuson reached by the oard.
Our attenton s caed to many hodngs of the oard and the courts wheren
dstrbuton has been hed not to be ta abe under the provsons of secton
115(g), supra, and to many other hodngs where they have been hed to be
ta abe. Most of these cases are of tte vaue n the determnaton of the
queston nstanty presented, for the reason that each depends for ts souton
upon ts own pecuar facts. No rue of constructon appcabe ake n a
cases can be accepted, but each case presents questons of fact to be determned
n the ght of a the surroundng crcumstances, and whether a gven case
fas wthn or wthout the provsons of secton 115(g) s often a dffcut
queston and one nvtng the cosest scrutny of the trer of the facts.
Some pont s aso made by pettoner that the mother who owned one share
of stock dd not partcpate n the dstrbuton and for that reason such ds-
trbuton was not the equvaent of a dvdend. We thnk ths fact unm-
portant and n no event controng.
We have carefuy revewed the record before us and we fnd In t ampe
facts and crcumstances pontng ogcay to the concuson reached by the
oard. Under such crcumstances we are not at berty to ater ther udgment.
(Commssoner v. rown, 69 ed. (2d), 602, certorar dened, 293 U. S., 570
Commssoner v. ahson, 70 ed. (2d), 304, certorar dened, 293 U. S., 571
see aso yman v. everng, 71 ed. (2d), 342 Ct. D. 920, C. . I -1, 213 ,
certorar dened, 293 U. S., 570.)
The order of the oard s affrmed.
S CTION 116. CLUSIONS ROM GROSS
INCOM .
rtce 643: Compensaton of State offcers I-14-8628
and empoyees. Ct. D. 1212
INCOM T R NU CT O 1928 D CISION OP SUPR M COURT.
Gboss Income empton Saary or Offcer of Wateb System
of a Muncpaty.
The saary of the chef engneer of the bureau of water suppy
of the cty of New York s not a part of hs ta abe ncome. The
water system of the cty was created and s conducted n the
e ercse of an essenta governmenta functon, and the f ed
saares and compensatons pad to ts offcers and empoyees In
ther capacty as such are mmune from edera ta aton.
Supreme Court of the Unted States.
Wam Whtock rush, pettoner, v. Commssoner of Interna Revenue.
300 U. S, 352.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
March 15, 1937.
opnon.
Mr. ustce Sutherand devered the opnon of the Court.
The queston brought here for determnaton s whether the saary of pet-
toner as chef engneer of the bureau of water suppy of the cty of New York
a a part of hs ta abe ncome for the purposes of the edera ncome ta aw.
7086 87 8
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5116, rt. 643.
218
The answer depends upon whether the water system of the cty was created
and s conducted n the e ercse of the cty s governmenta functons. If so, ts
operatons are mmune from edera ta aton and, as a necessary coroary,
f ed saares and compensaton pad to ts offcers and empoyees n ther
capacty as such are kewse mmune. (New York e re. Rogers v. Graves,
U. 8., ( anuary 4, 1937).)
Pettoner hods hs offce as chef engneer by statutory authorty, wth a
f ed annua saary of 14,000. e e ercses supervson over the engneerng
detas connected wth the suppyng of water for pubc purposes and for
consumpton by the nhabtants of the cty supervses the protecton of the
water suppy from pouton and generay e ercses contro over the opera-
ton of the water system, ts personne, e pendture of money and other matters
reatng thereto.
Id the eary hstory of the cty, water was furnshed by prvate companes
but a century or more ago, the cty tsef began to take over the deveopment
and dstrbuton. In 1831, the board of adermen decared ts dssatsfacton
wth the prvate contro, and resoved that the powers then vested n prvate
hands shoud be repeaed by the egsature and vested e cusvey n the
corporaton of the cty of New York. Ths, In effect, was ntated n 1833
(L, 1833, ch. 36) and, soon thereafter, the cty constructed muncpa water-
works, and, wth sght e ceptons, prvate contro and operaton ceased. The
sources of water suppy furnshed by such companes as reman s approachng
e hauston, and the water furnshed s of a quaty nferor to that supped
by the muncpaty. rom 1833 to the present tme, addtons to the water
suppy and system have been steady made unt the cost has mounted to
more than 500,000,000 and t s estmated that addtona e pendtures of a
quarter of a bon doars w be necessary. The cost of brngng water from
the Catsks aone amounted to appro matey 200,000,000. The muncpa
outstandng bonded ndebtedness ncurred for suppyng the cty wth water
amounts to an enormous sum. More than haf the entre popuaton of the
State s found wthn the muncpa boundares. The acton of the cty from
the begnnng has been taken under egsatve authorty.
The Commssoner of Interna Revenue havng assessed a defcency ta
aganst pettoner n respect of hs saary, pettoner sought a redetermnaton
at the hands of the oard of Ta ppeas. That oard sustaned the Com-
mssoner and decreed a defcency aganst pettoner of 25627 for the year
1931. Upon revew, the court beow affrmed the decree of the oard. (85 .
(2d), 32.) Whe the sum nvoved s sma, we granted the wrt of certorar
because of the obvous mportance of the queston nvoved.
The phrase governmenta functons, as t here s used, has been quafed
by ths Court n a varety of ways. Thus, n South Carona v. Unted State
(199 U. S., 4o7, 461), t was suggested that the e empton of State agences
and nstrumentates from edera ta aton was mted to those whch were
of a strcty governmenta character, and dd not e tend to those used by the
State n carryng on an ordnary prvate busness. In nt v. Stone Tracy
Co. (220 U. S., 107, 172), the mmunty from ta aton was reated to the
essenta governmenta functons of the State. In everng v. Powers (293
U. S., 214, 225 Ct. D. 900, C. . III-2, 213 ), we sad that the State can not
wthdraw sources of revenue from the edera ta ng power by engagng n
busnesses whch consttute a departure from usua governmenta functons
and to whch, by reason of ther nature, the edera ta ng power woud nor-
may e tend. nd mmunty s not estabshed because the State has the
power to engage n the busness for what the State conceves to be the pubc
beneft. (Idem.) In Unted States v. Caforna (297 U. S., 175, 185), the
suggested mt of the edera ta ng power was n respect of actvtes n
whch the States have tradtonay engaged.
In the present case, upon the one sde, stress s put upon the ad|ectve
essenta, as used n the nt v. Stone Tracy case, whe, on the other
sde, t s contended that ths quafyng ad|ectve must be put asde n favor
of what s thought to be the greater reach of the word usua, as empoyed
n the Powers case. ut these dfferences n phraseoogy, and the others ust
referred to, must not be too teray contradstngushed. In nether of the
cases cted, was the ad|ectve used as an e cusve or rgd demtaton. or
present purposes, however, we sha nqure whether the actvty here n ques-
ton consttutes an essenta governmenta functon wthn the proper meanng
of that term and n that vew decde the case.
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219
116, rt. 643.
There probaby Is no topc of the aw In respect of whch the decsons of
the State courts are n greater confct and confuson than that whch deas
wth the dfferentaton between the governmenta and corporate powers of
muncpa corporatons. Ths condton of confct and confuson s confned n
the man to decsons reatng to abty n tort for the neggence of offcers
and agents of the muncpaty. In that fed, no defnte rue can be e tracted
from the decsons.1 It s true that n most of the State courts, ncudng those
n the State of New York, t s hed that the operaton of waterworks fas
wthn the category of corporate actvtes and the cty s abty s affrmed
n tort actons arsng from neggence n such operaton. ut the rue n
respect of such cases, as we ponted out n Trenton v. New ersey (262 U. S.,
1S2, 192), has been apped to escape dffcutes, n order that n|ustce may
not resut from the recognton of technca defenses based upon the govern-
menta character of such corporatons and the rue s hopeessy ndefnte,
probaby for that very reason.
Ths s not, however, an acton for persona n|ures soundng n tort, but
a proceedng whch seeks n effect to determne whether mmunty from edera
ta aton, n respect of the actvty n queston, attaches n favor of a State-
created muncpaty an ob|ectve so dfferent n character from that sought n
a tort acton as to suggest cauton n appyng as the gude to a decson of the
former a oca rue of aw |udcay adopted n order to avod supposed n-
|ustces whch woud otherwse resut In the atter. We have hed, for e ampe,
that the sae of motorcyces to a muncpa corporaton for use n ts poce
servce s not sub|ect to edera ta aton, because the mantenance of such
a servce s a governmenta functon. (Indan Motocyce Co. v. Unted States,
283 U. S., 570, 579 Ct. D. 354, C. . -, 439 .) nd whe t s true that
the weght of authorty n tort actons accords wth that vew, there are
State decsons whch affrm the abty of a muncpaty for persona n|ury
resutng from the neggence of ts poce offcas under the crcumstances pre-
sented n the respectve cases deat wth.3 Nevertheess, our decson n the
Indan Motocyce case dd not rest n the sghtest degree upon a consderaton
of the State rue n respect of tort actons, but upon a broad consderaton
of the mped consttutona mmunty arsng from the dua character of our
Natona and State Governments.
The rue In respect of muncpa abty n tort s a oca matter and
whether t sha be strct or bera or dened atogether s for the State whch
created the muncpaty aone to decde (Detrot v. Osborne, 135 U. S., 402,
497-496) provded, of course, the edera Consttuton be not nfrnged. ut
a edera ta n respect of the actvtes of a State or a State agency s an
mposton by one government upon the actvtes of another, and must accord
wth the mped edera requrement that State and oca governmenta func-
tons be not burdened thereby. So ong as our present dua form of govern-
ment endures, the States, t must never be forgotten, are as ndependent of
the Genera Government as that Government wthn ts sphere s ndependent
of the States. (The Coector v. Day, 11 Wa., 113, 124.) nd, as t was sad
n Te as v. Whte (7 Wa., 700, 725), and often has been repeated the preser-
vaton of the States, and the mantenance of ther governments, are as much
wthn the desgn and care of the Consttuton as the preservaton of the
Unon and the mantenance of the Natona Government. The unmpared
e stence of both governments s equay essenta. It s to that hgh end that
ths Court has recognzed the rue, whch rests upon necessary mpcaton,
that nether may ta the governmenta means and Instrumentates of the
other. (The Coector v. Day, supra, 127.) In the ght of these consdera-
tons, t foows that the queston here presented s not controed by oca aw
but s a queston of natona scope to be resoved n harmony wth mped
Ths Is brought out n a carefu and detaed revew by Prof. orchard n that porton
of ns genera dscusson of Government Lnbty n Tort deanc wth muncpa
corporatons, to be found n (1924-25) 34 Yae L. ., 129-143, 229-258, n the course
of whch he says (page 129): Dsagreement among the courts as to many customary
muncpa acts and functons may amost be sad to be more common than |Rreement and
the eaboraton of the varyng ustfcatons for ther cassfcaton s even ess satsfyng
to any demand for prncpe n the aw. Indeed, so hopeess dd the effort of the courts
to make an approprate cassfcaton of functons appear to the Supremo Court of South
Carona that they determned to abandon the dstncton bewoen governmenta and
S erron r. Ptt ourgh (204 Pa. St., 509, 513) : onc v. Cty of Sou Cty (185
1178 1185) : Ttcsf v. Cty of Rochester (55 N. Y. Supp.. 8.10). Compare ms
Cty Of Troy (10-1 N. Y., 344, 348) wth tvater v. Mayor dc. of Iato. (31 Md 462).
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116, rt. 643.
220
consttutona prncpes of genera appcaton. (Compare Wrkman t. New
York Cty, Mayor c, 179 U. S., 552, 557.) Ths ndcated dssmarty con-
sttutes a dstncton whch s fundamenta and we put asde the State dec-
sons n tort actons as napposte (Compare tantc Ceaners Dyers v.
Unted States, 286 U. S., 427, 433 et seq.)
We thus come to a stuaton, whch the courts have frequenty been caed
upon to meet, where the ssue can not be decded n accordance wth an
estabshed formua, but where ponts aong the ne are f ed by decsons that
ths or that concrete case fas on the nearer or farther sde. ( udson Water
Co. v. McCarter, 209 U. S., 349, 355.) We are, of course, qute abe to say
that certan functons e ercsed by a cty are ceary governmenta that s,
e upon the nearer sde of the ne whe others are |ust as ceary prvate
or corporate n character, and e upon the farther sde. ut between these
two opposte casses, there Is a zone of debatabe ground wthn whch the
cases must be put upon one sde or the other of the ne by what ths Court
has caed the gradua process of hstorca and |udca ncuson and e cu-
son. (Contnenta ank v. Rock Isand Ry., 294 U. S., 648, 670, and cases
cted.)
We thnk, therefore, that t w be wse to confne, as strcty as possbe,
the present nqury to the necesstes of the mmedate Issue here nvoved,
and not, by an attempt to formuate any genera test, rsk embarrassng the
decson of cases n respect of muncpa actvtes of a dfferent knd whch
may arse n the future. (Cf. ucd v. mber Co., 272 U. S., 385, 397 Met-
caf ddy v. Mtche, 269 C. S., 614, 523 T. D. 3824, C. . -, 218 .)
In the case ast named we had occason to pont out the dffcuty, abet the
necessty, as cases arse wthn the doubtfu zone, of drawng the ne whch
separates those actvtes whch have some reaton to government but are
sub|ect to ta aton from those whch are mmune. perence has shown,
we sad, that there s no formua by whch that ne may be potted wth
precson n advanee. ut recourse may be had to the reason upon whch the
rue rests, and whch must be the gudng prncpe to contro ts operaton.
Its orgn was due to the essenta requrement of our consttutona system
that the edera Government must e ercse ts authorty wthn the terr-
tora mts of the States and t rests on the convcton that each government,
n order that t may admnster ts affars wthn ts own sphere must be
eft free from undue nterference by the other.
The pubc nterest n the conservaton and dstrbuton of water for a great
varety of purposes rangng from ordnary agrcutura, domestc and san-
tary uses, to the preservaton of heath and of fe tsef s obvous and we
setted. or the modern cty, such conservaton and dstrbuton of water
n suffcent quantty and n a state of purty s as vta as ar. nd ths
vta necessty becomes more and more apparent and pressng as ctes n-
crease n popuaton and densty of popuaton. It has found, so fa , ts
cumnatng pont n the vast and supreme needs of the cty of New York.
One of the most strkng ustratons of the pubc nterest n the use of
water and the governmenta power to dea wth t s shown n egsaton and
|udca pronouncement wth respect to the ard-and States of the far West.
In some of them, the State consttuton asserts pubc ownershp of a unap-
proprated nonnavgabe waters. In Utah, whe t was st a Terrtory, a
statute conferred the rght upon ndvdua andowners to condemn rghts-
of-way across the ands of others In order to convey water to the former
for rrgaton purposes, and decared that such condemnaton was for a pubc
use. Ths Court uphed the statute. (Cark v. Nash, 198 U. 8., 361.) Wc
sad that what s a pubc use may depend upon the facts surroundng the
sub|ect ponted out the vta need of water for rrgaton n the ard-and
States, a need whch dd not e st n the States of the ast and where, con-
sequenty, a dfferent rue obtaned and hed that the court must recognze
the dfference of cmate and so whch rendered necessary dfferng aws
n the two groups of States.
Many years ago, Congress, recognzng ths dfference, passed the Desert Land
ct (ch. 107, 19 Stat, 377), by whch, among other thngs, the waters upon
the pubc doman n the ard-and States and Terrtores were dedcated to the
use of the pubc for rrgaton and other purposes. oowng ths ct, f
not before, a nonnavgabe waters then on and beongng to that part of the
natona doman became pubc |urs, sub|ect to the penary contro of the
ard-and States and Terrtores wth the rght to determne to what e tent
the rue of appropraton or the common-aw rue n respect of rparan rghts
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221
116, rt. 643.
shoud obtan. (Power Co. v. Cement Co., 295 U. S., 142, 165 et tcq.) nd In
|sa v. Coorado (206 U. S., 46, 94), ths Court entertaned and decded a
controversy between two States. Invovng the rght of prvate approprators
n Coorado to dvert waters for the rrgaton of ands n that State from a
rver naturay and customary fowng nto the State of ansas. It was
hed (page 99) that such a controversy rses above a mere queston of oca
prvate rght and nvoves a matter of State Interest, and must be consdered
from that standpont (Cf. udson Water Co. v. McCarter, 209 U. S., 849,
3S5 ew Oreans Gas Co. v. Dranage Comm., 197 U. S., 453, 460 ouck v.
Ltte Rver Dstrct, 239 U. S., 254, 261.)
In - eo Oreans v. Morrs (105 U. S., 600, 602), the cty had conveyed Its
waterworks to a corporaton formed for the purpose of mantanng and en-
argng them. The cty receved as consderaton shares of stock, whch a
State statute decared shoud not be abe to sezure for the debts of the cty.
It was hed the statute dd not mpar the obgaton of any contract, snce
the shares represented the cty s ownershp n the waterworks whch had, before
the enactment of the statute, been e empted from sezure and sae. Ths rung
was put upon the ground that the waterworks were of such pubc utty and
necessty that they were hed n trust for the use of the ctzens the same as
pubc parks and pubc budngs.
Whe these cases do not decde, they pany suggest, that muncpa water-
works created and operated n order to suppy the needs of a cty and ts
Inhabtants are pubc works and ther operaton essentay governmenta n
character. Other decsons of ths Court, however, more drecty support that
concuson.
We recenty have hed that the bankruptcy statutes coud not be e tended
to muncpates or other potca subdvsons of a State. ( shton v. Cameron
County Dst., 298 T . S., 513.) The respondent there was a water-mprovement
dstrct organzed by aw to furnsh water for Irrgaton and domestc uses.
We sad (pages 527-528) that respondent was a potca subdvson of the State
created for the oca e ercse of her soveregn powers, . Its fsca
affars are those of the State, not sub|ect to contro or nterference by the
Natona Government, uness the rght so to do Is defntey accorded by the
edera Consttuton. In support of that hodng, former decsons of ths
Court wth respect to the mmunty of States and muncpates from edera
ta aton were reed upon as apposte. The queston whether the dstrct
e ercsed governmenta or merey corporate functons was dstncty n Issue.
The petton n bankruptcy aeged that the dstrct was created wth power to
perform the propretary and/or corporate functon of furnshng water for
rrgaton and domestc uses . The dstrct |udge hed that the ds-
trct was created for the oca e ercse of State soveregn powers that t was
e ercsng a governmenta functon that ts property was pubc property
that t was not carryng on prvate busness, but pubc busness. That court,
havng dened the petton for want of |ursdcton, the dstrct submtted a
moton for a new tra In whch t assgned, among other thngs, that the
conrt erred n hodng that pettoner was created for the purpose of performng
governmenta functons, for the reason that the courts of Te as, as we as
the other courts n the Naton, have unformy hed that the furnshng of
water for Irrgaton was purey a propretary functon . Substantay
the same thng was repeated In other assgnments of error. In the petton for
rehearng In ths Court, the dstrct chaenged our determnaton that respond-
ent was a potca subdvson of the State created for the oca e ercse
of her soveregn powers, and asserted to the contrary that the facts woud
demonstrate that respondent Is a corporaton organzed for essentay pro-
pretary purposes. It s not open to dspute that the statements quoted from
our opnon n the shton case were made after due consderaton, and the case
tsef decded and the rehearng dened n the ght of the ssue thus defntey
presented. (Compare ngham v. Unted States, 296 U. S., 211, 218-219 Ct.
D. 1058, C. . -1, 367 .)
No hgher poce duty rests upon muncpa authorty, ths Court sad
n Coumbus v. Mercante Trust Co. (218 U. S., 645, 658), than that of fur-
nshng an ampe suppy of pure and whoesome water for pubc and domestc
oseg. The preservaton of the heath of the communty s best obtaned by the
dscharge of ths duty, to say nothng of the preservaton of property from fre,
constant an attendant upon crowded condtons of muncpa fe.
In Dunbar v. Cty of New York (251 U. S., 516), we sustaned a charter
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116, rt. 643.
222
provson gvng a en for water charges upon a budng n whch the water
had been used, athough the charges had been ncurred by tenants and not by
the owner, sayng nd as a suppy of water s necessary t s ony an ord-
nary and ega e erton of government to provde means for ts compusory
compensaton.
In German ance Ins. Co. v. Some Water Co. (226 U. S., 220), the cty of
Spartanburg had entered nto a contract wth the respondent by whch the
atter was empowered to suppy the cty and ts nhabtants wth water sutabe
for re, santary and domestc purposes. The pettoner had ssued a pocy of
re nsurance upon certan property, whch was destroyed by re. It pad
the amount of the oss, and took an assgnment from the nsured of a cams
and demands aganst any person arsng from or connected wth the oss. It
brought sut aganst the respondent on the ground that the fre coud easy
have been e tngushed f respondent had comped wth Its contract. Ths
Court hed that the acton was not mantanabe for reasons whch appear n
the opnon. The cty, t was sad, was under no ega obgaton to furnsh
water and t dd not sub|ect Itsef to a new or greater abty because t
vountary undertook to do so (pages 227-228). It acted n a governmenta
capacty, and was no more responsbe for faure n that respect than It woud
have been for faure to furnsh adequate poce protecton.
We concude that the acquston and dstrbuton of a suppy of water for
the needs of the modern cty nvove the e ercse of essenta governmenta
functons, and ths concuson s fortfed by a consderaton of the pubc
uses to whch the water Is put Wthout such a suppy, pubc schoos, pubc
sewers so necessary to preserve heath, fre departments, street sprnkng and
ceanng, pubc budngs, parks, paygrounds, and pubc baths, coud not
e st nd ths s equvaent, n a very rea sense, to sayng that the cty
tsef woud then dsappear. More than one-fourth of the water furnshed
by the cty of New York, we are tod by the record, s utzed for these pubc
purposes. Certany, the mantenance of pubc schoos, a fre department, a
system of sewers, parks and pubc budngs, to say nothng of other pubc
factes and uses, cas for the e ercse of governmenta functons. nd so
far as these are concerned, the water suppy s a necessary au ary, and
therefore, partakes of ther nature. (New York e re. Rogers v. Graves,
U. S., , ( anuary 4, 1937).) Moreover, the heath and comfort of the
cty s popuaton of 7,000,000 sous, and n some degree ther very e stence,
are dependent upon an adequate suppy of pure and whoesome water. It may
be, as t s suggested, that prvate corporatons woud be abe and wng to
undertake to provde a suppy of water for a purposes but f the State and
cty of New Tork be of opnon, as they evdenty are, that the servce shoud
not be entrusted to prvate hands but shoud be rendered by the cty Itsef
as an approprate means of dschargng ts duty to protect the heath, safety
and ves of ts nhabtants, we do not doubt that t may do so In the e ercse
of ts essenta governmenta functons.
We fnd nothng that detracts from ths vew n the fact that In former
tmes the busness of furnshng water to urban communtes, Incudng New
Tork, n fact was eft argey, or even entrey, to prvate enterprse. The
tendency for many years has been n the opposte drecton, unt now n neary
a the arger ctes of the country the duty has been assumed by the muncpa
authortes. Governmenta functons are not to be regarded as none stent
because they are hed n abeyance, or because they e dormant, for a tme
If they be by ther nature governmenta, they are none the ess so because the
use of them has had a recent begnnng.
The prncpe fnds ustraton n our decson n Shoemaker v. Unted States
(147 U. 8., 282, 297), where t was hed that and taken by an e ercse of the
power of emnent doman for the estabshment of Rock Creek Park In the
Dstrct of Coumba was taken for a pubc use, and that the amount requred
to be pad was vady assessed upon ands n the dstrct specay benefted
thereby. t the begnnng of the opnon n that case, ths Court sad: In
the memory of men now vng, a proposton to take prvate property, wthout
the consent of ts owner, for a pubc park, and to assess a proportonate part
of the cost upon rea estate benefted thereby, woud have been regarded as
a nove e ercse of egsatve power. It was ponted out that Centra Park
In New Tork was the frst pace provded for the nhabtants of any cty
or town n the Unted States as a peasure ground for rest and e ercse n
the open ar, but that n 1892, when the opnon was wrtten, there was scarcey
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223
I 144, rt. 761.
a cty of any consderabe sze n the country that dd not have, or had not
pro|ected, such parks.
Respondent contends that the muncpaty, n suppyng water to Its nhab-
tants, s engaged n seng water for proft aud seems to thnk that ths, f
true, stamps the operaton as prvate and not governmenta n character. We
frst pause to observe that the overhead due to the enormous cost of the system,
and the fact that so arge a proporton of the water s dverted for pubc
use, rather pany suggests that no rea proft s key to resut nd to
say that, because the cty makes a charge for furnshng water to prvate
consumers, t foows that the operaton of the waterworks s corporate and
not governmenta, s to beg the queston. What the cty s engaged n dong
n that respect s rather renderng a servce than seng a commodty. If
that servce be governmenta t does not become prvate because a charge s
made for t, or a proft reazed. State, for e ampe, constructs and operates
a hghway. It may, f t choose, e act compensaton for ts use from those
who trave over t (see ngaman v. Goden age Lnes, 297 U. S., 626, 023)
but ths does not destroy the cam that the mantenance of the hghway s a
pubc and governmenta functon. The State or the cty may e act a tuton
charge for nstructon n the pubc schoos but thereby the mantenance of
the pubc schoos does not cease to be a functon of the government. The
State e acts a fee for ssung a cense or grantng a permt for recordng a
deed for renderng a varety of servces In the |udca department Do these
varous servces thereby ose ther character as governmenta functons
The edera Post Offce Department charges for ts servces but no one woud
queston the fact that ts operaton cas nto e ercse a governmenta functon.
The contenton s made that our decsons n South Carona v. Unted
State (199 U. S., 437, 461, 462) and nt v. Stone Tracy Co. (220 U. S., 107,
172) are to the effect that the suppyng of water s not a governmenta func-
ton but In nether case was that queston n ssue, and what was sad by the
Court was whoy unnecessary to the dsposton of the cases and merey by
way of ustraton. pressons of that knd may be respected, but do not
contro n a subsequent case when the precse pont s presented for decson.
Osaka Shosen asha Lne v. Unted States, 299 U. S., , ( ebruary 1,
1937), and authortes cted.) The precse pont s presented here, has been
fuy consdered, and s decded otherwse. Nether Oho v. everng (292
U. S., 360 Ct. D. 836, C. . III-1, 531 ) nor cverng v. Powers (293 U. S.,
24 Ct. D. 900, C . III-2, 213 ), reed upon by respondent, s n pont.
What has aready been sad dstngushes these cases from the one now under
consderaton.
We have not faed to gve carefu consderaton to ar v. yers (35 .
(2d), 326 Ct. D. 146, C. . I -1, 247 ), and Denman v. Commssoner of
Interna Revenue (73 . (2d), 193 Ct. D. 941, C. . I -1, 289 ), both of whch
take a vew contrary to that whch we have e pressed. To the e tent of ths
confct, those cases are dsapproved. oth rey on South Carona v. Unted
States and nt v. Stone Tracy Co., supra, whch we have aready dstngushed.
Reversed.
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 144. WIT OLDING O T
T SOURC .
rtce 761: Wthhodng ta at source.
R NU CT O 1928.
Interest on bonds of domestc corporaton guaranteed and pad by
a foregn corporaton, payment beng made outsde the Unted States.
(See I. T. 3059, page 111.)
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162, rt. 861.
224
UPPL M NT . ST T S ND TRUSTS.
S CTION 162. N T INCOM .
rtce 861: states and trusts. I-24-8759
Ct.D. 1232
INCOM T R NU CT O 1928 D CISION O SUPR M COURT.
1. Sut Recovery of Ta Pad by Trustee on Income Ta abe to
enefcary Statute of Lmtaton qutabe Defense.
Testamentary trustees who have pad a ta on the Income of the
trust whch shoud have been pad by the benefcary are not en-
tted to recover the payment, athough the Government s cam
aganst the benefcary s barred by the statute of mtaton, snce
any recovery woud be ncome to the benefcary, and woud deprve
the Government of a ta to whch t Is usty entted and enabe
the benefcary to escape a ta whch she shoud have pad. The
provsons of sectons 275(a), 607, and 609 of the Revenue ct of
1928 do not deprve the Government of a defense, based on speca
equtes, estabshng Its rght to wthhod a refund from the
demandng ta payer.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, rst Crcut (78 ed.
(2d), 136, Ct. D. 1013, C. . I -2, 244 (1935)), affrmed.
Supreme Court of the Unted States.
Robert O. Stone and Carre M. Stone, Trustees Under W of Gaen L. Stone,
pettoners, v. Thomas W. Whte, ormer Coector of Interna Revenue at
oston, Mass.
57 S. Ct., 851.
On wrt of certorar to the Unted States Crcut Court of ppeas for the rst Crcut.
May 24, 1937.
opnon.
Mr. ustce Stone devered the opnon of the Court.
The queston for decson Is whether the pettoners, testamentary trustees,
who have pad a ta on the ncome of the trust estate, whch shoud have been
pad by the benefcary, are entted to recover the ta , athough the Govern-
ment s cam aganst the benefcary has been barred by the statute of mta-
tons. The present sut to recover the ta , brought by pettoners aganst re-
spondent, the coector, n the Dstrct Court for Massachusetts, resuted n a
|udgment for pettoners (8 . Supp., 354), whch was reversed by the Court of
ppeas for the rst Crcut (78 . (2d), 136). We granted certorar
( U. S., ), because of the confct of the decson beow wth that of the
Court of ppeas for the Thrd Crcut (Unted States v. rnod, . (2d), ).
Testator, by hs w, eft property n trust, to pay over the net Income to hs
wfe as soe benefcary, at such tmes and In such amounts as she shoud deem
best, durng her natura fe. She eected to take the bequest under the w
n eu of her dower or statutory nterest. t that tme severa crcut courts
of appeas had hed that n these crcumstances, the ncome payments to the
wdow are annutes purchased by surrender of the dower nterest and not
ta abe as ncome to her, unt they equa the vaue of the dower nterest
(Warner v. Wash, 15 . (2d), 367 T. D. 4257, C. . III-1, 245 (1929)1:
Unted States v. oster, 20 . (2d), 760 en v. randes, 29 . (2d), SG3
T. D. 4256, C. . III-1, 243 (1929) .) In conformty to the rung of these
decsons, the benefcary dd not ncude, n her 1928 ta return, any porton
of the ncome receved by her from the trust. The Commssoner assessed a
defcency aganst the trustees, whch they pad, under protest, from the ncome
of the trust, before coecton of the ta from the benefcary had been barred
by the statute of mtatons. fter the statute had run, ths Court hed n
evcrna v. ute worth (290 U. S., 365 Ct D. 769, C. . III-1, 151 (1934) )
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225
162, rt. 861.
(Interpretng secton 219, Revenue ct of 1924, ch. 234, 43 Stat., 253, 275, corre-
spondng to sectons 161, 162 of the Revenue ct of 1928, ch. 852, 45 Stat, 791,
838, under whch the present ta was assessed) that the ncome was ta abe to
the benefcary and not to the trustees.
In the present sut, brought by the trustees to recover the ta as erroneousy
coected, the coector nterposed the defense, sustaned by the court beow,
that the ta whch shoud have been pad by the benefcary e ceeded that pad
by pettoners, and that, as any recovery woud nure to the advantage of the
benefcary, the defendant coud set oft the ta debt due from her. One |udge
concurred, denyng the rght of set off n vew of the bar of the statute, but
hodng the pettoners not entted, n equty and good conscence, to recover.
The acton, brought to recover a ta erroneousy pad, athough an acton at
aw, s equtabe n ts functon. It s the nea successor of the common count
In ndebtatus assumpst for money had and receved. Orgnay an acton
for the recovery of debt, favored because more convenent and fe be than
the common aw acton of debt, t has been graduay e panded as a medum
for recovery upon every form of quas contractua obgaton n whch the duty
to pay money s mposed by aw, ndependenty of contract, e press or mped
n fact ( mes, The story of ssumpst, 2 arv. L. Rev., 53 Woodward,
Law of uas-Contract secton 2.)
Its use to recover upon rghts equtabe n nature to avod un|ust enrchment
by the defendant at the e pense of the pantff, and ts contro n every case
by equtabe prncpes, estabshed by Lord Mansfed In Moses v. Macferan (2
nrr., 1005 ( . . 1750)), have ong been recognzed n ths Court. (See Nash
v. Towne, 5 Wa., 689, 702 Ganes v. Mer, 111 U. S., 395, 397 tantc Coast
Lne R. Co. v. orda, 295 U. 8., 301, 309.) It s an approprate remedy for
the recovery of ta es erroneousy coected. ( ott v. wartwout, 10 Pet., 137,
156 Cary v. Curts, 3 ow., 236, 246-250.) The statutes authorzng ta re-
funds and suts for ther recovery are predcated upon the same equtabe prn-
cpes that undere an acton n assumpst for money had and receved. (Unted
States v. efferson ectrc Co., 291 U. S., 386, 402 Ct. D. 803, C. . III-1,
393 (1934) .) Snce, n ths type of acton, the pantff must recover by vrtue
of a rght measured by equtabe standards, It foows that t Is open to the
defendant to show any state of facts whch, accordng to those standards,
woud deny the rght (Moses v. Macferan, supra, at 1010 Myers v. urey
Motor Co., 273 U. S., 18, 24 cf. Wnchester v. ackey, 2 Cranch, 342), even
wthout resort to the modern statutory authorty for peadng equtabe defenses
h actons whch are more strcty ega. ( ud. Code, secton 274b 28 U. S. C,
secton 398.)
In the present case t s evdent that but a snge ta was due upon the
partcuar ncome assessed and that pettoners demand arses from the cr-
cumstance that the ta was pad from the Income by the trustees when It
shoud have been pad by the benefcary. If the court may have regard to the
fact that so far as the equtabe rghts of the partes are concerned pettoners,
n seekng recovery of the ta , are actng for the account of the benefcary,
t woud seem cear that the case s not one In whch the pettoners are entted
to recover e equo et bono for under the constructon of the w by the court
beow, whch we adopt, any recovery In ths acton w be ncome to the bene-
fcary, and w deprve the Government of a ta to whch t s |usty entted
and enabe the benefcary to escape a ta whch she shoud have pad.
It s sad that as the revenue aws treat the trustee and the benefcary as
dstnct ta payng enttes, a court of equty must shut ts eyes to the fact that
n the ream of reaty t was the benefcary s money whch pad the ta and
t s her money whch the pettoners ask the Government to return. ormery,
trustee and cestu que trust were kewse dstnct n the eyes of the aw, as tey
are to-day for many purposes. ut whenever the trustee brngs sut n a court
whch s free to consder equtabe rghts and dutes, hs rght to mantan the
sut may be enarged or dmnshed by reference to the fact that to sut, though
mantaned n the name of the trustee aone, s for the beneft and n the
equtabe nterest of the cestu.
e can sue to set asde hs own vountary conveyance and mpeach t as
a breach of trust known to the transferee, because the acton, brought to
recover property for the trust estate, w nure to the advantage of the nno-
cent benefcary. (Wetmore v. Porter, 92 N. T., 76 Zmmerman v. nce,
108 N. Y., 282 twood v. Lester, 20 R. I., 660, 665, partcuary at 609
ranco v. ranco, 3 es. r., 75 mercan Law Insttute, Restatement of the
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162, rt. 861.
226
Law of Trusts, secton 294. ) s sut to recover a debt due hm as trustee,
and payabe by hm over to the cestu, s sub|ect to the equtabe defense that
the cestu has dscharged the cam. (Mc rde v. Wrght, 4 Mch., 285
(Cooey, .) Smth v. rown, 5 Rch. q. (S. C), 291 mercan Law Inst-
tute, Restatement of the Law of Trusts, secton 328.) That the cestu owes
a ke amount can be shown by way of equtabe pea n set-off. (Campbe v.
amton, ed. Cas. No. 2,359 Wadde v. arbeck, 33 Ind., 231, 234 Ward v.
Martn, 3 Mon. (19 y.), 18 Drugs v. Rockwe, 11 Wend. (N. Y.), 504, 508
Wof v. eaes, 6 Serg. R. (Pa.), 241, 243 gra t Masterman s ank, Ltd.,
v. Leghton, L. R. 2 . 50, 65 mercan Law Insttute, Restatement of the
Law of Trusts, secton 329.) In an acton n genera assumpst, ths defense
may be shown under the pea of nonassumpst (compare Wnchester v. ack-
ev, supra).
In such cases equty does not countenance the de ceremony of aowng
recovery by the trustee ony to compe hm to account to the benefcary
who woud then have to pay the proceeds to the orgna defendant. To
avod ths crcuty of acton a court of equty takes cognzance of the dentty
n nterest of trustee and cestu que trust. Lkewse here, the fact that the
pettoners and ther benefcary must be regarded as dstnct ega enttes
for purposes of the assessment and coecton of ta es does not deprve the
court of ts equty powers or ater the equtabe prncpes whch govern
the type of acton whch pettoners have chosen for the asserton of ther
cam.
qutabe conceptons of |ustce compe the concuson that the retenton
of the ta money woud not resut n any un|ust enrchment of the Govern-
ment. agree that a ta on the ncome shoud be pad, and that f the
trustees are permtted to recover no one w pay t. It Is n the pubc nter-
est that no one shoud be permtted to avod hs |ust share of the ta burden
e cept by postve command of aw, whch s ackng here. No n|ustce s
done to the trustees or the benefcary by wthhodng from the trustees money
whch n equty s the benefcary s, and whch the Government receved In
payment of a ta whch was hers to pay. snge error on the part of the
ta ng authortes, e cusabe n vew of persstent |udca decaratons, has
caused both the underassessment of one ta payer and the overassessment of
the other. ut the error has not ncreased the ta burden of ether, for
whether the ta s pad by one or the other, ts source s the fund whch
shoud pay the ta , and ony the equtabe owner of the fund s utmatey
burdened. (Cf. Unted States Paper ssn. v. owers, 80 P. (2d), 82.) Snce
In equty the one ta payer represents and acts for the other, t s not for
ether to compan that the Government has taken from one wth ts rght
hand, when t has, because of the same error, gven to the other wth ts eft
Pettoners contend that recovery s precuded by secton 275(a) of the
Revenue ct of 1928, whch bars a proceedng n court for the
coecton of a ta after the prescrbed perod, and by sectons 607, 609,
whch are sad to prohbt credt of an overpayment aganst a barred de-
fcency. Secton 607 provdes that any ta assessed or pad after the e -
praton of the perod of mtaton sha be consdered an overpayment, and
secton 609 decares that a credt aganst a abty, In respect of any ta abe
year, sha be vod f any payment n respect of such abty woud be
consdered an overpayment under secton 607.
These provsons mt the coecton of a ta , and prevent the retenton of
one pad after t Is barred by the statute. They precude, In a sut by the
ta payer aganst the coector or the Government, reance on a cam aganst
the ta payer, barred by statute, as a set-off, or countercam. ut t woud
be an unreasonabe constructon of the statute, not caed for by ts words, to
hod that t s ntended to deprve the Government of defenses based on
speca equtes estabshng ts rght to wthhod a refund from the demand-
ng ta payer. The statute does not overrde a defense based on the estoppe
of the ta payer. (R. . Stearns Co. v. Unted States, 291 U. S., 54, 61, 62
Ct. D. 780, C. . III-1, 321 .) The statutory bar to the rght of acton for
the coecton of the ta does not prevent reance upon a defense whch s not
a set-on or a countercam, but s an equtabe reason, growng out of the
crcumstances of the erroneous payment, why pettoners ought not to recover.
1 It hns been hod that In such a sut equty w not permt the grantee to set up the
statute of mtatons ordnary appcabe to a sut by the trustee f the trustee can show
that the benefcary, because of Ignorance of the breach of trust or because of dsabty,
woud not have been barred by aches had he brought sut drecty. (Drdgman v. G
24 eav., 302 Duckett v. Mechancs ank, 86 Md., 400, 411.)
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227
162, rt. 862.
ere the defense Is not a counter demand on pettoners, but a dena of
ther equtabe rght to undo a payment whch, though effected by an erroneous
procedure, has resuted n no un|ust enrchment to the Government, and n
no n|ury to pettoners or ther benefcary. The Government, by retanng
the ta pad by the trustees, s not revvng a stae cam. Its defense, whch
nheres n the cause of acton, s comparabe to an equtabe recoupment or
dmnuton of pettoners rght to recover. Such a defense s never barred
by the statute of mtatons so ong as the man acton tsef s tmey.
( u v. Unted States, 295 U. S., 247, 262 Ct. D. 969, C. . I -1, 310
(1935) Wams v. eey, 134 ed., 1, 13. ) Compare Unted States v.
Macdane (7 Pet, 1, 16, 17) Unted States v. Rnggod (8 Pet, 150, 163,
164), where equtabe recoupment aganst a cam by the Government was
aowed notwthstandng the mmunty of the Government from sut.
ffrmed.
rtce 862: Method of computaton of net I-23-8746
ncome and ta . Ct. D. 1230
ncome ta revenue act of 1928 decson of supreme court.
1. Trust Income Deductons Contrbutons to Charty Con-
structon or Statute.
Trustees were authorzed by the deed of trust to pay to chartes
such sums from trust ncome as n ther udgment woud not
|eopardze the annutes provded for by the nstrument, and, upon
the death of the annutants, to dstrbute the resdue among char-
tes n trust. The annua ncome of the estate was more than twce
the amount necessary for the payment of the annutes, and n 1931
the trustees pad to chartes an amount n e cess of the Income
receved durng that year and camed deducton therefor up to
the amount of the year s ncome. Such contrbutons were de-
ductbe under the provsons of secton 162(a) of the Revenue ct
of 1928, snce there s nothng n the Treasury reguatons or
practce or n the genera purpose of the statute whch requres
that the words pursuant to, as used n that secton, be con-
strued to mean defntey and mperatvey drected by the w
or deed creatng the trust.
2. Trubt Income - Deductons Contrbutons to Charty
Proof.
In order that contrbutons to charty may be aowed as de-
ductons under secton 162(a) of the Revenue ct of 1928 t s not
necessary affrmatvey to show that they were actuay pad out
of Income receved durng the year In whch they were made.
Supreme Court of the Unted States.
Od Coony Trust Co., Trustee, pettoner, v. Commssoner of Interna Revenue.
T57 S. Ct, 813.
On wrt of certorar to the Unted States Crcut Court of ppeas for the rst Crcut.
May 17, 1937.
OPINION.
Mr. ustce McReynods devered the opnon of the Court.
Under trust deed of uy 19, 1922, the Od Coony Trust Co. came nto posses-
son of vauabe ncome producng property from whch to pay certan sums
and satsfy specfed annutes. The deed contnues:
13. I authorze my sad trustees to pay to chartes as herenafter descrbed
such sums as n ther udgment may be pad wthout |eopardzng the annutes
admttng that the statute appes strcty to matters of set-off and counter-
cam st, as Is we known. It does not affect the merts of the controversy.
utman rf Tayor Co. v. Meade, 121 v., 241, 247. ccord: art v. Church, 120 Cn.,
471, 479 Whte v. amrck, 92 Ind., 594, 590 uter v. Carpenter, 16.1 Mo., 597, 604
ean v. ongue, 8 Rch. Law (S. C), 113 State v. Tanker, 45 Wash., 348.)
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162, rt. 862.
228
heren provded for, whenever for a perod of one year the trust fund hed
by them as then nvested sha have yeded a net Income equa to twce the
amount of the annutes whch they are then requred to pay, and upon the
death of the survvor of those persons, who under the terms of ths nstrument
are to receve annua ncomes under the trust thereby created, I drect my
sad trustees to dstrbute the rest and resdue remanng n ther hands
among corporatons and trustees organzed, operatng and hodng e cusvey
for regous, chartabe, scentfc, terary or educatona purposes, ncudng
the encouragement of art and the preventon of cruety to chdren or anmas,
the sum pad over by sad trustees to such corporatons or boards of trustees
to be hed by such corporatons and boards of trustees In trust, and the ncome
thereof to be e pended for the genera purposes for whch such corporatons
and boards of trustees are organzed, and I request that sad funds be desg-
nated by each corporaton or board of trustees as the enry Cay ackson
und.
ach year after 1923 the estate s Income was more than twce the amount
necessary for the annutes. The trustee has kept separate prncpa and n-
come accounts. rom 1925 to 1933 a annutes were duy pad and consder-
abe sums went to chartes none of these payments was charged to the prn-
cpa account Ta returns have been based upon actua recepts and
dsbursements.
anuary 1, 1931, the Income account showed une pended baance of 187,-
999.43. Durng that year the ncome receved amounted to 164,339.39 the
trustee e pended and charged aganst ncome account of 212,862.80, of whch
190,000 went to chartes. The 1931 ta return camed deductons for charty
payments up to the amount of the year s ncome. The Commssoner dsaowed
ths because t Is not dscosed that payments were made out of ncome of the
ta abe year to the chartes nor that any porton of the ncome was credted
to any charty.
The oard of Ta ppeas hed the trustee must affrmatvey prove the pay-
ments In queston were from Income receved durng 1931 aso, that e cept
as to a sma sum, t had not sustaned the necessary burden of proof.
The crcut court of appeas rued that none of the contrbutons was deduc-
tbe because not mperatvey drected by the trust deed. It took the vew that
as the trustee e ercsed dscreton as to payment they were not made pursuant
to the terms of the deed creatng the trust. ccordngy, t approved
the Commssoner s assessment and remanded the cause to the oard.
The matter s here by certorar. nnuty payments are not now n contro-
versy. Two questons are presented and both must be answered n the negatve.
I. Under secton 162, Revenue ct, 1928 (45 Stat., 838), coped n the mar-
gn,1 s t necessary that the w or deed creatng a trust defntey drect the
chartabe contrbutons whch are camed as deductons
Secton 23 (n) of the 1928 ct whch authorzes certan deductons for char-
tabe contrbutons by ndvduas does not confne them to payments actuay
made from ncome, but does mt ther amount to 15 per cent of the net re-
ceved durng the year. In eu of these deductons, secton 162(a) permts
trust estates to deduct chartabe contrbutons to the fu e tent of gross
Income when made pursuant to the trust deed.
We are asked to hod that the words pursuant to mean drected or
defntey en|oned. nd ths notwthstandng the admsson that Congress n-
1 Revenue ct, 1928, secton 162 (45 Stat., 838) :
Rbc. 162. Net ncome.
The net ncome of the estate or trust sha he computed In the same manner and on the
same bass as In the case of an Indvdua, e cept that
(a) There sha be aowed as a deducton (In eu of the deducton for chartabe, etc.,
contrbutons authorzed by secton 23(n)) any part of the gross Income, wthout mta-
ton, whch pursuant to the terms of the w or deed creatng the trust, s durng the
ta abe year pad or permanenty set asde for the purposes and In the manner specfed
In secton 23(n), or s to be used e cusvey for regous, chartabe, scentfc terary,
or educatona purposes, or for the preventon of cruety to chdren or anmas, or for
the estabshment, acquston, mantenance or operaton of a pubc cemetery not operated
for proft (b) and (c).
Revenue ct, 1928, secton 23 (45 Stat., 799) :
Sec. 23. Deductons from gross ncome.
In computng net ncome there sha be aowed as deductons: (a), (b). etc
(n) Chartabe and other contrbutons. In the case of an ndvdua, contrbutons or
gfts made wthn the ta abe year to or for the use of:
(1) the Unted States, any State, Terrtory, or any potca subdvson thereof, or
the Dstrct of Coumba, for e cusvey pubc purposes
(2) any corporaton, or trust, or communty chest, fund, or foundaton, organsed and
operated e cusvey for regous, chartabe, scentfc, terary, or educatona purposes.
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229
212, rt. 1042.
tended to encourage chartabe contrbutons by reevng them from ta aton.
Ledercr, Coector, v. Stockton, 260 U. S.. 3 Ct. D. 30, C. . 1-2, 156 (1922)
Unted States v. Provdent Trust Co., dmnstrator, 291 U. S., 272, 285 Ct.
D. 797, O. . III-1, 305 (1934) .)
Pursuant to s defned as actng or done n consequence or n prosecu-
ton (of anythng) hence, agreeabe conformabe foowng accordng.
The words of the statute are pan and shoud be accorded ther usua sg-
nfcance In the absence of some domnant reason to the contrary. We fnd
nothng In the reguatons or practce of the Treasury Department or n the
genera purpose of the statute whch requred the narrow meanng advocated
by respondent. Nether the Commssoner nor the oard of Ta ppeas ac-
cepted or mentoned wth favor the nterpretaton whch hs counse now
advance and ths s hardy compatbe wth the theory of controng rungs
or practce by the ureau.
The questoned donatons were made by the pettoners n pursuance of the
trust deed.
II. In order that they may be aowed as deductons s t necessary affrma-
tvey to show that chartabe contrbutons by a trust estate were actuay
pad out of ncome receved durng the year n whch they were made
Secton 23(n) mts deductbe contrbutons to 15 per cent of net ncome.
Secton 162(a) permts them to the fu e tent of gross ncome. Ths anguage
shoud be construed wth the vew of carryng out the purpose of Congress
evdenty the encouragement of donatons by trust estates. There are no words
mtng these to somethng actuay pad from the year s ncome. nd so to
nterpret the ct coud serousy nterfere wth the benefcent purpose. One
creatng a trust mght be unwng to bnd t absoutey to pay somethng to
charty but woud authorse hs trustee so to do after consderng then e stng
crcumstances.
Capta and ncome accounts n the conduct of the busness of estates are
we understood. Congress sought to encourage donatons out of gross ncome,
and we fnd no reason for sayng that t ntended to mt the e empton to sums
whch the trust coud show were actuay pad out of recepts durng a par-
tcuar ta year. The desgn was to forego some possbe revenue n order
to promote ad to charty. ere the trustee responded to an mped nvta-
ton and the estate ought not to be burdened n consequence.
The |udgment of the court beow must be reversed and the cause returned
there for further proceedngs n harmony wth ths opnon.
Reversed.
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 212. GROSS INCOM .
rtce 1042: cuson of earnngs of foregn shps from
gross ncome.
R NU CT OP 1928.
empton from ta aton of earnngs of shps documented under
the aws of The Netherands. (See I. T. 3045, page 119.)
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 Indvdua
(3) the speca fund for vocatona rehabtaton authorzed by secton 7 of the oca-
tona Rehabtaton ct
(4) posts or organzatons of war veterans, or au ary unts or socetes of any such
posts or organzatons, If such posts, organzatons, unts, or socetes are organzed In
the Unted States or any of Its possessons, and If no part of ther net earnngs nures
to the beneft of any prvate sharehoder or Indvdua or
(5) a fraterna socety, order, or assocaton, operatng under the odge system, but
ony If such contrbutons or gfts are to be used e cusvey for regous, chartabe,
dentfc terary, or educatona purposes, or for the preventon of cruety to chdren
or anmas
to an amount whch In a the above cases combned does not e ceed 15 per centum of the
ta payer s net Income as computed wthout the beneft of ths subsecton. Such contrbu-
tons or gfts sha be aowabe as deductons ony f verfed under rues and reguatons
Prescrbed by the Commssoner, wth the approva of the Secretary. ( or unmted
deducton f contrbutons and gfts e ceed 00 per centum of the net Income, see secton
120.)
1 Webster s New Internatona Dctonary, Unabrdged, second edton, 1935.
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618.) 230
rtce 1042: cuson of earnngs of foregn shps from
gross ncome.
R NU CT O 1928.
Sweden, equvaent e empton. (See I. T. 3083, page 120.)
SUPPL M NT . POSS SSIONS O T UNIT D ST T S.
S CTION 252. CITIZ NS O POSS SSIONS
O UNIT D ST T S.
rtce 1141: Status of ctzens of Unted States possessons.
R NU CT O 1928.
Resdents of Phppne Isands (ncudng ctzens of Unted
States). (See I. T. 3070, page 120.)
SUPPL M NT M. INT R ST ND DDITIONS TO T T .
S CTION 294. DDITIONS TO T T IN
C S O NONP YM NT.
R NU CT O 1928.
Interest on ta assessed aganst wthhodng agent. (See G. C. M.
17274, page 159.)
TITL I . DMINISTR TI PRO ISIONS.
S CTION 618. MIN TION O OO S
ND WITN SS S.
I-26-8785
Ct.D. 1238
ncome ta revenue act of 1928 decson of court.
amnaton of Wtnesses Rght of Revenue gent to Requre
Testmony Undeb Summons.
revenue agent has the rght, under secton CIS of the Revenue
ct of 1928, to requre testmony under summons of a member of a
frm wth whch a ta payer has ha fnanca deangs, n connec-
ton wth the nvestgaton of suspected fraud by the ta payer n
fng ncome ta returns.
Unted States Dstrct Court for the Southern Dstrct of New York.
In the Matter of the amnaton of Wam . cegan, Respectng the Ta
Labty of Compana Navra Nacona. S. ., Interocean O Co., Ns .
ersoff, Orray Thurbcr, Rafae Oovn, R. R. pham and R. Whtney, for the
Years 1916 to 193S, ncusve.
18 . Supp., 746.
March 5, 1937.
opnon.
Patterson, D. .: summons was served on eegan, requrng hm to
appear before one unke, an nterna revenue agent, and testfy as to the
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231
618.
matter of the ta abty of a company by the name of Compana Navra
Natona. In Issung the summons the revenue offcers assumed to be actng
under authorty of secton 618 of the Revenue ct of 1928 (26 U. S. O. .,
secton 1514), to the effect that the Commssoner of Interna Revenue, n order
to ascertan the correctness of any return or to make a return when none
has been made, may by any offcer or empoyee desgnated e amne records and
requre attendance and take testmony of any person wth knowedge n the
premses. eegan appeared n response to the summons and was sworn. f|er
a few premnary questons he was asked what records of customers
accounts were kept by a frm of bond deaers of whch he was a partner.
e decned to answer, statng that be had been harassed enough by agents
comng repeatedy to hs offce and askng the same questons over and over.
So the e amnaton ended.
unke then came here and asked for an order to compe eegan to testfy.
y secton 617 of the 1928 ct (26 U. S. C. ., secton 1523), the dstrct court
may compe a person to attend and testfy n obedence to such a summons.
unke s petton showed the matters aready stated. It aso aeged that the
nqury concerned the ta abty of severa others, n addton to Compana
Navra Nacona, from 1916 to 1933, and that eegan s frm had had fnanca
deangs wth severa of the ta payers under Investgaton. On the petton
the court on anuary 20, 1937, Issued an e parte order drectng eegan to
appear and gve testmony n the matter of the ta abty of the named
ta payers. eegan then made a moton to vacate the order. The movng
papers state hs beef that a the ta payers concerned have pad a ta es
truy owed by them, that the tme for assessng ta es aganst them has e -
pred, and that the order requrng hm to testfy Is contrary to the fourth
amendment eegan aso stated n an affdavt n support of hs moton that
pror to the servce of the summons three nterna revenue agents had vsted
hm frequenty at hs offce, had asked hm numerous questons whch he had
answered, and had asked for frm records whch he had produced. It s
further shown that a matter of assessment of ta aganst one of the ta -
payers, Interocean O Co., for 1917-1921 s now pendng before the oard of
Ta ppeas.
The papers submtted In opposton ndcate that the nqury as to ta a-
bty s to ascertan whether fraud was commtted that the nterna revenue
agents n charge e pect that eegan s testmony w be of vaue n the nqury
that whe agents have vsted hs offce on nne or ten occasons, have asked
hm questons and have e amned records, he has never before been asked to
gve testmony under oath.
On the surface the summons served on eegan was a proper one and the
order of the court drectng obedence to the summons was kewse proper.
It s shown that an nqury s under way as to whether certan ta payers
commtted fraud n fng ta returns. If they dd, there s no mtaton as
to the tme when the revenue offcers may take steps to coect the ta es
actuay owng. oth the summons and the order seem to be wthn the
authorty gven by the Revenue ct now n force. The ony matters for
consderaton therefore are those whch eegan rees on as ndcatng an
abuse of power by the revenue agents.
There s no substance n the pont that the pendency of a proceedng n
the oard of Ta ppeas suspends the power of nqury. That proceedng
nvoves a matter much more mted n scope than the present nqury. ut
even f the proceedng before the oard covered the same ta payers and the
same perods, the rght of nqury woud not be affected. ( och v. Rube,
7 ed. (2d), 894 (C. C. . 2).)
The fourth amendment s nvoked. There are severa reasons why obedence
to the summons w not resut n an unreasonabe search and sezure of
eegan s books and papers. s good a one as any s that the summons does
not requre producton of any books or papers. It cas smpy for hs
appearance and testmony.
The e amnaton sought s caed a fshng e pedton. Of course t s a
fshng e pedton, but s none the ess an e amnaton whch the revenue
offcers are entted to make. I take t that whenever the offcers charged wth
gatherng n ncome ta decde to make a check to see whether a ta payer
has pad the fu amounts due, they are dong no more than ther duty when
they summon persons wth whom the ta payer may have had deangs of a
fnanca nature to revea those deangs and when they appea to the courts
to enforce the summons n case of dsobedence.
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701, rt. 1314.
232
The ony pont that has any mert s the one made by eegan when he
appeared for e amnaton that he had aready been pestered enough n a
matter that was no concern of hs. The rght of e amnaton may be abased,
and persons n eegan s poston may we fee annoyance at Interruptons
that seem to be frequent and fute. The court w not gve assstance to
a summons f abuse s pany proved. Yet I can not say at ths pont that
there has been abuse here, n vew of the fact that ths s the frst e amnaton
under oath.
The moton to vacate the order requrng obedence to the summons w be
dened.
TITL v G N R L PRO ISIONS.
S CTION 701. D INITIONS.
rtce 1314: ssocaton dstngushed from T-23-8747
trust. Ct. D. 1231
ncome ta revenue act of 1928 decson of supreme court.
1. Trust Whether Ta abe as ssocaton.
trust created n vrtue of a decaraton by whch certan rea
estate was conveyed to a trustee for the beneft of the grantor
and her agent for the soe purpose of subdvdng and seng the
and, the powers of the agent beng defntey f ed n advance of
ther e ercse, and the dutes of the trustee beng purey mns-
tera wth no power to contro, drect, or partcpate n the con-
duct of the seng enterprse, does not consttute nn assocaton
wthn the meanng of secton 701 (a)2 of the Revenue ct of 1928,
snce there are no assocates and no feature makng the trust ana-
ogous to a corporate organzaton.
2. Decson Dstngushed.
Morrssey v. Commssoner (296 U. S., 344 Ct. D. 1064, O. .
-1, 264 (1930) ) dstngushed.
Supreme Court of the Unted States.
. . Lews d Co., Man and Lncon venue Subdvson, Trust No. 1523, et a.,
pettoners, v. Commssoner of Interna Revenue.
T57 S. Ct. 7C9.
On wrt of certorar to tno Unted States Crcut Court of ppeas for the Seventh Crcut
May 17, 1937.
opnon.
Mr. ustce Sutherand devered the opnon of the Court.
On anuary 3, 1934, the Commssoner of Interna Revenue assessed a
defcency of ncome ta es for the year 1931 aganst pettoners n the sum
of 512.30. The oard of Ta ppeas, upon petton and after hearng, de-
termned that there was no defcency. Upon revew, the court beow, wthout
opnon, reversed the decson of the oard of Ta ppeas.
The case nvoves the reatons of pettoners under a decaraton of trust
and an agreement attached thereto. nd the queston for decson s whether
the trust consttutes an assocaton, to be ta ed as a corporaton, wthn the
meanng of secton 701(a)2 of the Revenue ct of 1928, whch provdes that,
when used n the ct, The term corporaton ncudes assocatons, ont-
stock companes, and nsurance companes. The Commssoner, whose acton
was affrmed by the ower court, rued that upon the facts stated beow there
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233
701, rt. 1314.
vu a ta abe assocaton wthn the reach of ths statutory provson.
The oard of Ta ppeas hed to the contrary.
Mnerva S. Medones, hereafter caed the grantor, n 1925, n order to
subdvde and se a tract of and whch she owned, made the decaraton of
trust here n queston, pacng the tte In the predecessor of the Centra
Repubc Trust Co., as trustee for the use and beneft of hersef and . .
Lews, both of whom sgned the nstrument as benefcares. The trustee was
gven power to dea wth the rea estate so far as the pubc was concerned,
but was to do so ony n accordance wth the agreement attached to the trust
Instrument. That agreement, bearng the same date as the decaraton of
trust, was e ecuted by the grantor, Lews and the trustee. The grantor, by
the agreement, apponted Lews, an e perenced rea estate operator, as e cu-
sve seng agent and as manager of the trust created by sad deed n trust
and trust agreement aforesad and was gven such powers and dutes In
connecton wth the admnstraton of the trust as may be necessary to factate
the sae of the sad and. e was authorzed to e ercse management and
contro of the property for the purposes of sae at hs own e pense to empoy
a saes organzaton to enter nto contracts wth purchasers as manager of
the trust and to request the trustee to e ecute deeds and other necessary
nstruments. Contracts were to be made, and tte was to be conveyed by the
trustee to purchasers, upon Lews wrtten drectons. e was to receve as
soe compensaton for hs servces commssons based upon the prce for whch
the ots n the subdvson were sod. The trustee was to coect and dstrbute
payments after the nta payment but was to have nothng to do wth the
taes of ots or negotatons reatng thereto.
The grantor subsequenty assgned her benefca nterest n the trust to
en|amn Schwartz, to whch hs estate has succeeded as soe benefcary. The
trust nstrument provdes that transferabe certfcates may be ssued by the
trustee but none was ever ssued.
If t were not for the decaraton of trust, we shoud have here the smpe
case of an appontment by a andowner of an agent to subdvde the and and
se t, recevng as compensaton for hs servces a f ed percentage of the
payments made by the purchasers. It s qute evdent that such an arrange-
ment has no eement of substance or method whch woud warrant ts desg-
naton as an assocaton under the statutory provson In queston. Nor can
we see that the nterventon of a trustee to hod tte, e ecute contracts
and conveyances at the drecton of the rea estate agent and make coectons
aters the stuaton.
The queston recenty has receved fu consderaton n Morrssey v. Com-
mssoner (296 U. S., 344) and three other cases whch Immedatey foow n
the same voume.1 The trust revewed n the Morrssey case was essentay
unke that now under consderaton. There, the trust was a medum for the
carryng on of a busness enterprse by the trustees and partcpaton n the
profts by numerous benefcares whose nterests were represented by trans-
ferabe share certfcates, thus permttng the ntroducton of new partcpants
wthout affectng the contnuty of the pan. The certfcates represented both
preferred and common shares. We ponted out that the corporate anaogy was
evdenced by centrazed contro, contnuty and mted abty, as we as
by the ssue of transferabe certfcates and we sad (page 356) that the word
assocaton mpes assocates. It mpes the enterng nto a |ont enter-
prse, and, as the appcabe departmenta 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 prop-
erty 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 trvstent, pan a common effort or enter
nto a combnaton for the conduct of a busness enterprse.
The arrangement here answers the foregong descrpton of an ordnary
trust that s, t was created n vrtue of a decaraton by whch a desgnated
pece of rea property was conveyed to the trustee on specfed trusts, for the
beneft of defntey named persons, one of whom was the grantor of the and
and the other an agent of the grantor for the soe purpose of subdvdng and
1 canson v. Commssoner (296 D. S., 362 Ct. D. 1065, C. . -1, 270 (193G) )
everng v. Combs (296 U. S.. 366 Ct. t . 1066. C. . -1, 272 (1936) averng v.
Coeman-Otoert (296 U. 8.. 369 Ct. D. 1067, C. . -1. 261 (1936) ).
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701, rt. 1314.
234
seng the and. The agent was desgnated by name, and hs powers defntey
f ed In advance of ther e ercse. e possessed no authorty beyond that
e pressy deegated by hs prncpa. The trust was adopted merey as a
convenent means of makng effectve the saes of the agent under the contract.
The dutes of the trustee were purey mnstera, wth no power to contro,
drect, or partcpate n, the conduct of the seng enterprse contempated
by the contract. There s to be found n the operaton of the busness no
essenta characterstc of corporate contro nothng anaogous to a board
of drectors or sharehoders, no e empton from persona abty, no ssue
of transferabe certfcates of Interest. There s smpy the common reaton
of prncpa and agent, couped wth the coatera ncdents of an ordnary
trust. We are not abe to fnd n the stuaton an assocaton wthn the
meanng of the statute under consderaton, because there are no assocates
and no feature makng the trust anaogous to a corporate organzaton.
(296 U. S., at page 359.)
udgment reversed.
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235 202, rt. 1561.
INCOM T RULINGS. P RT I .
R NU CT O 1926 ND PRIOR CTS.
TITL II. INCOM T .
P RT L-G N R L PRO ISIONS.
S CTION 202. D T RMIN TION O MOUNT
O G IN OR LOSS.
btce 1561: Determnaton of the amount of T-26-8786
gan or oss. G. C. M. 18611
R NU CT O 1924.
In computng the amount of gan or oss under secton 202(a)
of the Revenue ct of 1924 on the sae or other dsposton of
property, the ad|ustment to the bass requred by secton 202(b)
of that ct on account of any tem of oss, e hauston, wear
and tear, obsoescence, amortzaton, or depeton, prevousy
aowed wth respect to such property Itacs supped does not
ncude a reducton of cost on account of deprecaton sustaned
pror to 1909.
G. C. M. 10754 (0. . I-2, 177 (1932)) revoked, and that porton
of G. C. M. 8573 (C. . I -2, 168 (1930)) modfed by G. C. M.
10754 renstated.
Reference s made to G. C. M. 10754 C. . I-2, 177 (1932)),
whch modfed G. C. M. 8573 (C. . I -2, 168 (1930)) to accord
wth the decson of the oard of Ta ppeas n nn rbor Ra-
road Go. v. Commssoner (docket No. 34918), memorandum opnon,
wheren t was hed that secton 202(b) of the Revenue ct of 1924
was not ntended to prohbt the reducton of the bass for deter-
mnng the oss on the sae or other dsposton of property by the
amount of deprecaton actuay sustaned pror to the ncepton of
the e cse ta ct of 1909.
In G. C. M. 8573, supra, t was hed that n computng the amount
of gan or oss under secton 202(a) of the Revenue ct of 1924
on the sae or other dsposton of property, the ad|ustment to the
bass requred by secton 202(b) of that ct on account of any tem
of oss, e hauston, wear and tear, obsoescence, amortzaton, or
depeton, prevousy aowed wth respect to such property does
not ncude a reducton of cost on account of deprecaton sustaned
pror to 1909, for the reason that the edera revenue aws n effect
pror to that year contaned no provsons under whch the Com-
mssoner was requred to consder deprecaton deductons.
Subsequent to the promugaton of G. C. M. 10754, the queston
presented theren was agan consdered by the oard of Ta p-
peas and by two crcut courts of appeas wth decsons adverse to
the concuson reached n that memorandum. In Unon Pacfo
Raroad Co. v. Commssoner (32 . T. ., 383 (1935)) the oard
of Ta ppeas hed that the computaton of gan or oss upon re-
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5203. rt. 1574.1 236
trement of equpment n 1924 requres no ad|ustment for depre-
caton sustaned n years pror to 1909 when there was no edera
ta n the measure of whch deprecaton was a factor, snce such
deprecaton was not prevousy aowed wthn the meanng of
secton 202(b) of the Revenue ct of 1924. The oard stated that
ts hodng accords wth the estabshed practce of the Comms-
soner set forth n S. M. 4249 (C. . I -2, 15 (1925)) and G. C. M.
8573 (C. . I -2, 168 (1930)), and that ts memorandum opnon
n nn rbor Raroad Co. v. Commssoner, supra, was ncorrect
The oard dd not regard G. C. M. 10754 as we supported. The
decson of the oard was affrmed by the Crcut Court of ppeas
for the Second Crcut. (86 . (2d), 637 (1936).) smar con-
cuson was reached by the Crcut Court of ppeas for the ghth
Crcut n evernc| v. St. Lous Southwestern Ry. Co. (84 . (2d),
857 (1936)), affrmng memorandum decson of the oard.
In vew of the foregong, G. C. M. 10754, supra, s revoked, and
that porton of G. C. M. 8573, supra, whch was modfed by G. C. M.
10754 s renstated.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
S CTION 203. R COGNITION O G IN OR LOSS
ROM S L S ND C NG S.
rtce 1571: Recognton of gan or oss.
R NU CT O 1926 ND PRIOR R NU CTS.
Converson of bond nto stock of obgor corporaton. (See G. C.
M. 18436, page 101.)
rtce 1574: changes n connecton wth I-18-8680
corporate reorganzatons. Ct. D. 1220
ncome ta revenue act of 1918 decson of supreme court.
1. Gan or Loss ass Reorganzaton Consderaton ud-
ca Revew of Utmate ndng of oard of Ta
ppeas.
Where, upon the bass of crcumstanta facts whch were sup-
ported by substanta evdence, the oard of Ta ppeas made
on utmate fndng that, upon reorganzaton, the consderaton
receved by the ta payer corporaton n e change for ts assets
conssted of cash and shares of stock of a new corporaton, such
fndng s a concuson of aw, or at east a determnaton of a
m ed queston of aw and fact, whch s sub|ect to udca
revew. Upon such revew, the crcut court of appeas propery
hed that stock was the soe consderaton for the transfer of
the ta payer s assets, that the cash was furnshed by certan
ndvdua stockhoders of tte. ta payer corporaton to pay ts
debts, and that no ta abe gan resuted from the transacton
under the provsons of secton 202(b) of the Revenue ct of
1018.
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237
203, rt. 1574.
2. Reorganzaton Transfers or Stock, ssets, and Lease In-
terests Consderaton Separate Transactons.
n utmate fndng made by the oard of Ta ppeas, that
cash receved by certan stockhoders of the ta payer from a new
corporaton to whch the assets of the ta payer were transferred
was consderaton for both ther stock n the corporaton and ther
Interests n certan eases, was not supported by the crcum-
stanta facts found, where the evdence showed that they sod
ther stock to other Indvdua stockhoders and ther ease nter-
ests to the new corporaton the stock transfer havng occurred
before the assgnment of the ease nterests. The sae of stock,
the transfer of the ta payer corporaton s assets, and the sae of
the ndvdua nterests n the eases dd not consttute a sng
ndvsbe transacton.
8. ursdcton of Court.
The Court can not consder the contenton, made by the Comms-
soner, that the transacton was not a ta -e empt reorganzaton
on the ground that the ta payer sought to reaze a proft therefrom
rather than merey to change the form of ts ownershp, where
the queston was not presented to the oard or the ower court or
n the petton for wrt of certorar.
4. aue of Stock.
In the pecuar crcumstances of the case, the shares of stock of
the new company dd not have an ascertanabe far market vaue
when acqured by the ta payer corporaton and ts stockhoders, n
vew of the hghy specuatve quaty of the stock and the terms
of a restrctve agreement whch made a sae thereof mpossbe,
and, In the absence of such vaue, the ownershp of the shares
dd not ay the bass for the computaton of a gan at the tme
they were receved or for a ta as of that date, under secton
202(b) of the evenue ct of 1918.
Supreme Court of the Unted States.
ty T. everng, Commssoner of Interna Revenue, pettoner, v. Te -Penn
O Co.
Guy T. everng, Oomms oner of Interna Revenue, pettoner, v.
M. L. enedum.
vy T. everng, Commssoner of Interna Revenue, pettoner, v.
. . arrott.
800 U. S., 481.
On wrts of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut
March 29, 1937.
OPINION.
Mr. ustce uter devered the opnon of the Court.
In each of these cases there s nvoved an tem camed by pettoner to be
ta abe ncome of respondent for 1919. In 1925 the Commssoner gave notce
of defcences. These cams were based on a transacton n 1919 whch ncuded
transfer by Te -Penn O Co. of a ts assets to Transcontnenta O Co., the
ssue and devery by the atter of 1,007,834 shares to enedum and Parrott,
the stockhoders of Te -Penn, and the dssouton of that company. The Com-
mssoner cams that the consderaton for the transfer ncuded not ony the
stock but aso 350,000 n cash pad by Transcontnenta to Te -Penn. Re-
spondents pettoned the oard of Ta ppeas for redetermnatons. The cases
were consodated for hearng the oard made fndngs of crcumstanta facts
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203, rt. 1574.
238
on the bass of whch It concuded In an utmate fndng that the consdera-
ton for the transfer by Te -Penn to Transcontnenta Incuded cash, and that
therefore the transacton was not one In whch, under Revenue ct of 1918,
secton 202(b) (40 Stat., 1060), no gan or oss sha be deemed to occur.
It redetermned defcences of 2,871,085, 1,925,460, and 908,470, respectvey.
(28 . T. ., 917.) Respondents pettoned the crcut court of appeas for
revew. It reversed the orders wth drectons that the oard enter udgments
of no defcences. (83 . (2d), 518.)
L The frst utmate fndng s (page 950) : The consderaton receved by
Te -Penn on or about ugust 1, 1919, n e change for Its assets conssted of
350,000 n cash and 1,007,834 shares of Transcontnenta stock of no par vaue
The frst queston for decson s whether that concuson Is supported by
evdence. If we grounded, the transacton Is not wthn the nonrecognton
of gan provson of secton 202(b). That secton decares that when n con-
necton wth the reorganzaton, merger, or consodaton of a corporaton a
person receves n pace of stock or securtes owned by hm new stock or secur-
tes of no greater aggregate par or face vaue, no gan or oss sha be deemed
to occur from the e change, and the new stock or securtes receved sha be
treated as takng the pace of the stock, securtes, or property e changed.
Treasury Reguatons 45, artce 1567,1 contans an Interpretaton of that
provson: In genera, where two (or more) corporatons unte ther propertes
by the sae of ts property by to and the dssouton of
no ta abe Income Is receved from the transacton pro-
vded the soe consderaton receved by and Its stockhoders s
stock of .
The pertnent substance of the crcumstanta facts found foows:
In 1917 and eary 1918, respondents enedum and Parrott and three others,
rkand, Lantz and Wrather, acqured 31 Te as o and gas eases caed the
Duke- noes group. The eases reserved to essors a one-eghth royaty.
The nterests of the fve n what the fndngs refer to as the remanng seven-
eghths nterest were enedum s -s teenths, Parrott and rkand three-
s teenths each, Lantz and Wrather two-s teenths each.
In October, 1918, they caused Te -Penn to be ncorporated. Its authorzed
capta stock was 2,000,000, dvded nto 80,000 shares of 25 each. It ssued
4,000 shares for par to the fve ease owners rataby accordng to ther nter-
ests they transferred a fourth nterest n the eases to the company. It agreed
to deveop the propertes at ts own e pense they agreed that one-haf of
ther shares of the proceeds mght be used to make up defcts n the company s
operatng e penses.
They authorzed Parrott to receve ther shares of the proceeds, to carry
out the agreement wth the company, and to nvest the remanng haf of the
proceeds n the company s stock. ccounts of transactons between the com-
pany and hm, as agent, were kept under the name of Parrott ttorney.
Pursuant to the agreement, he from tme to tme purchased at par stock of
the company amountng to 9,120 shares t used the money In deveopng the
eased propertes.
enedum and Parrott were aso Interested as owners In the Rversde
astern O Co., the Rversde Western O Co., and the Pttsburgh-Te as O
Gas Co. In eary 1919, they decded to cause to be organzed the Transcont-
nenta O Co. to acqure and operate the propertes of these companes and
of Te -Penn together wth the ndvduay owned nterests In the eases.
enedum s four assocates, by wrtng dated une 2, 1919, gave hm authorty
to se the assets of Te -Penn and a ndvdua nterests In the eases for
12,000,000 and agreed to accept ther pro rata share of the net proceeds of the
sae for ther hodngs In Te -Penn and ther ndvdua nterests n the eases.
To arrange for money wth whch to carry out the pro|ect, enedum nego-
tated wth hankers. Under the frst pan, the bankers were to pay Transcon-
tnenta 23,000,000 for a part of Its stock, and that amount was to be used
In genera, where two (or more) corporatons unte ther propertes, by ether (a) the
dssouton of corporaton and the sae of ts assets to corporaton , or (6) the sae
of ts property by to and the dssouton of . or (c) the sae of the stock of to
and the dssouton of , or (d) the merger of nto , or (c) the consodaton of the
corporatons, no ta abe ncome s receved from the transacton by or or the
stockhoders of ether, provded the soe consderaton receved by and ts stockhoders
In (a), (b), (c), and Id) s stock or securtes of , and by and and ther stock-
hoders n (c) s stock or securtes of the consodated corporaton, n any case of no
greater agcregate par or face vaue than the od stock and securtes surrendered.
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239
203, rt. 1574.
to pa the 12,000,000, and 2,500,000 n equa parts to Rversde astern and
versde Western to retre preferred stock. The baance, 8,500,000, was to
be retaned by Transcontnenta for workng capta. y a ater arrangement
the amount to be pad by the bankers was reduced to 20,000,000 and that to
be receved by the fve ndvduas to 9,000,000. enedum s assocates decned
to accept ess than ther proportouate share of 12,000,000 as orgnay
panned. In order that the undertakng shoud not fa, enedum agreed to
dmnsh by 3,000,000 the amount he was to have and so bore the entre re-
ducton. On that bass, dstrbuton of the 9,000,000 woud be 1,500,000 each
to enedmn, Lantz and Wrather and 2,250,000 each to Parrott and rkand.
Transcontnenta was organzed and authorzed to ssue 2,000,000 no-par-vaue
shares, of whch the bankers agreed to buy 500,000 at 40 per share. They
e ercsed an opton to buy 225,000 addtona shares at 1 per share. Te -
Penn s assets were to pass to Transcontnenta free and cear of a abtes.
uy 12, rkand, Lantz and Wrather assgned and devered ther Te -Penn
shares to enedum and Parrott for 30. uy 15, the stock was transferred
on the Te -Penn stock book. uy 22, new drectors were eected to take the
paces of the assgnors who, as stated n the mnutes, had ceased to be
stockhoders.
uy 14, the ndvdua owners and Te -Penn e ecuted an assgnment to Trans-
contnenta of a ther nterest n the eases and gave t to Parrott n
escrow for devery upon payment of 5,250,000 to rkand, Lantz and Wrather,
or to Parrott for ther account. They stpuated that f payment was not
made by ugust 1, the assgnment and stock woud be returned to them.
nd, n order that Te -Penn assets mght be free from abty, they author-
zed Parrott to deduct from ther shares seven-s teenths of not e ceedng
500,000 to pay debts and obgatons of the company. enedum and Parrott
were to bear nne-s teenths. The audtor of Te -Penn reported that appro -
matey 350,000 woud be requred.
uy 24, enedum and Parrott made a contract wth . M. oday, actng
for the bankers and Transcontnenta, n whch they agreed to transfer to
Transcontnenta ther nterests n the eases for 3,400,000 n cash, to cause
Te -Penn to transfer to Transcontnenta a ts assets for and n consderaton
of 350,000 n cash and 1,007,834 shares of the capta
stock of Transcontnenta, and to cause rkand, Lantz and
Wrather to transfer to Transcontnenta ther seven-s teenths of the fve-
eghths nterest n the eases for 5,250,000 n cash.
The same day, oday addressed an offer to Te -Penn to purchase a ts
assets for 350,000 n cash and 1,007,834 shares of
Transcontnenta. y resouton of ts drectors, Te -Penn accepted the offer,
referrng to the consderaton as 350,000 cash and 1,007,834 shares
of Transcontnenta. It was further resoved that, after the transfer of ts
property, the coecton of debts due, and payment of those owed by, Te -Penn,
t woud be dssoved and ts assets dstrbuted to ts stockhoders and that
to factate ths, the offcers drect Mr. oday that
350,000 sha be pad to the treasury of ths company, and
that the shares be ssued and devered to enedum
and Parrott |onty.
uy 30, Te -Penn conveyed ts assets to Transcontnenta. oday d-
rected the atter to dever to enedum and Parrott |onty certfcates for
1,007.834 shares, to dever 5,250,000 to Parrott ttorney, 3,400,000 to enedum
and Parrott and 350,000 to Te -Penn. The ne t day, these drectons were
carred out by Transcontnenta.
The terms of the transfers were evdenced by two etters to Parrott accompanyng
devery of the assgnments. Words wthn brackets were n the frst etter but not In
the second words In tacs were In the second etter but not n the frst.
In connecton wth the assgnment we have e ecuted to-day, transferrng to
Transcontnenta a of our rght, tte and Interest In the o and gas enses.
we are assgnng and hand you erewth our shares of stock In Te -
Penn whch we hereby agree to se to you and . L. enedum |onty for a
consderaton of tS payabe to each of us. If for any reason the proposed organzaton of
Transcontnenta shoud not go through, ths stock s to be returned
to us.
We understand that you and Mr. enedum are transferrng to Transcon-
tnenta a consderabe amount of property that you and he own
Incudng your nterests In the Te -Penn eases, and that you and he are to be pad for
11 these propertes party n cash and party n stock of Transcontnenta
. Our entre nterests n the stock of the Te -Penn Co. nnd In the eases covered
y the assgnment above referred to are pad for In fu by the 5,250,000 that Is to be
ptM at In ths transacton. consderaton agreed upon between us.
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203, rt. 1574.
240
There was avaabe for use by Te -Penn In payment of ts e penses 2S6,-
891.29, derved from one-haf of the proceeds from the ndvduay owned
fve-eghths nterest n the eases. It aso had recevabes and o and the
350,000 wth whch to dscharge ts abtes. The 350,000 was deducted by
Transcontnenta from the amount to be pad enedum and Parrott for ther
nterest n the eases. ut that deducton was n fact borne not by them
aone but rataby by the fve owners. Payment of Te -Penn s abtes dd
not requre use of a the 350,000. There remaned 55,255.24. nd that
sum was dstrbuted to the fve ndvduas accordng to ther nterests n the
eases.
Detas are refected n the accounts of Parrott ttorney. rkand was
gven credt for 2,250,000 and Lantz and Wrather for 1,500,000 each as
purchase prces of ther shares of the fve-eghths nterest n the eases. ach
of the fve, accordng to hs nterest n the eases, was charged wth hs share
of the 350,000 wth the e panaton that ths amount was to be apportoned
aganst the sae prce receved by a the ndvdua nterests.
In respect of the transfer of the Te -Penn stock by rkand, Lantz and
Wrather to enedum and Parrott, the atter were charged 15 each and corre-
spondngy each of the former was credted wth 10. t the end of the
year, Parrott furnshed annua statements to rkand, Lantz and Wrather,
showng the sae prces of ther nterests n the eases reduced by ther con-
trbutons to the 350,000. The saes prce of the stock sod by them was
shown at 30.
On parta dstrbutons by Parrott before fna settement, rkand, Lantz
and Wrather gave recepts smar n form. That of rkand rected that
the payment was on account of the purchase prce of hs nterest n and to
the eases and to the stock of the Te -Penn.
The baance s to be retaned unt the fna ad|ustment of the ta es
and the affars of Te -Penn at the concuson of whch
the sad baance s to be pad to me, ess my proportonate share of sad e -
penses. rkand and Lantz ded before the hearng. Wrather testfed that
he attached no great mportance to the form of the recept that he knew
there had been n form separate transfers of the ease nterests and the
Te -Penn stock but that he and hs assocates consdered ony the utmate
ob|ectve.
enedum and Parrott n ther 1919 ncome ta returns reported ther own
profts from the sae of ther ease nterests upon the bass of the tota prce
of 8,650,000. Te -Penn s return stated that t had sod ts assets for 350,000
cash and shares of stock. It aso stated that the cost of the assets sod was
2,359,205.69, from whch t deducted 350,000, eavng 2,009,205.69, and that
amount was desgnated vaue of stock. Nether the 350,000 nor the stated
vaue of stock receved was ncuded n gross ncome. schedue attached
to the return stated that the cash consderaton was accounted for n the
return, and that the no par vaue stock receved was not ta abe ncome
under secton 202(b) and Treasury Decson 2924 C. . 1, 44 (1919) .
The foregong ncudes the substance of a the fndngs of crcumstanta
facts matera to the queston under consderaton. They must be taken as
Ths corrected an entry of ugust 1 whch charged Te -Penn wth the 350,000 and
credted 140,000 to enedum and 210,000 to Parrott wth the e panaton that th
350,000 had been taken out of ther share of the purchase prce of the Duke- noes
propertes. The correctng entry (December 31, 1919) Is as foows:
W. . Wrather 43, 750
. . Lantz 43, 750
. L. rkand 65, 625
. . Parrott 65, 625
To correct entry dstrbutng amount pad by (sc) Te -Penn by
Transcontnenta and deducted from M. L. . ( enedum) and . . P. (Par-
rott) cash proceeds of sae of Duke- noes property to Transcontnenta as
ths amount was to be apportoned aganst the sae prce receved by a the Indvdua
Interests reducng such sae prce of nt. per agreement to foowng:
W. . Wrather 1, 456, 250
. . Lantz 1. 456, 250
. L. rkand 2, 184, 375
. . Parrott 2, 184, 375
M. L. enedum 1, 308, 750
M. L. enedum
131, 250
Te -renn O Co
350, 000
Tota
8, 650. 000
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241
203, rt. 1574.
estabshed If supported by substanta evdence. ( everng v. Rankn, 295
T . S., 123, 131 Ct D. 966, O. . I -1, 160 (1935) Od Msson Co. v.
everng, 293 U. S., 289, 294 Ct. D. 903, O. . I -1, 332 (1934) urnet
y. L nnger, 285 U. 8., 136, 138-139 Phps v. Commssoner, 283 T . 8., 589,
600 Od Coony Tr. Co. v. Commssoner, 279 U. S., 716 Ct. D. 80, C. . III-2,
222 (1929) .) There Is no suggeston that they are not ampy sustaned. In
addton to and presumaby upon the bass of these fndngs, the oard made
ts utmate fndng. nd upon that determnaton t rued that the transac-
ton was not wthn the nonrecognton provsons of secton 202(b). The ut-
mate fndng s a concuson of aw or at east a determnaton of a m ed
queston of aw and fact It s to be dstngushed from the fndngs of prmary,
evdentary or crcumstanta facts. It s sub|ect to |udca revew and, on
such revew, the court may substtute ts udgment for that of the oard.
( everng v. Rankn, ub supra.)
Treatng the transacton as a part of reorganzaton, merger or consoda-
ton, the oard concuded that cash consttuted a part of the consderaton.
The opnon refers to wrtngs above mentoned and emphaszes ther pro-
vsons that state or ndcate that the consderaton was to or dd ncude
cash and stock. The documents cted are the agreement for the transfer of
Te -Penn s assets to Transcontnenta, the offer to Te -Penn, the resouton
of ts drectors acceptng the offer and drectng payment of the 350,000 to
ts treasury, oday s etter drectng Transcontnenta so to pay, Transcon-
ttoenta s check for that amount to Te -Penn and the atter s ta return.
ut the oard s fndngs of what was actuay done show that, pursuant
to drecton of the ndvduas seng ease nterests, Transcontnenta advanced
to Te -Penn 350,000 and deducted that amount from the prce of the ease
nterests. The fndngs aso show that, for the part of that amount remanng
after payment of ts debts, Te -Penn accounted to the Indvduas.
s ndrecty showng that the 350,000 consttuted part of the consdera-
ton for transfer of Te -Penn assets, the opnon ctes the entry n the Par-
rott ttorney accounts showng that the effect of the payment of that sum
to Te -Penn was to reduce the sae prce of the nterest n the eases from
9,000,000 to 8,650,000, the entres dstrbutng that amount to the fve ndvd-
uas, and the ta returns of enedum, Parrott and Te -Penn.
Pettoner does not brng forward these entres or the ta returns of ene-
dum and Parrott to support the oard s utmate fndng now under consd-
eraton. Manfesty, the entres referred to n the oard s opnon are opposed
to Its concuson. s w more fuy appear, upon an e amnaton of them ater
to be made, the fndngs of detas make t pan that the 350,000 was a part
of the consderaton pad for the ndvduay owned ease nterests and
eave no ground for any other Inference.
The oard s opnon shows that both partes reed on artce 1567 as a
correct Interpretaton of the statute. The oard hed (page 959) that t
requres, as a condton of nonrecognton of gan, that the soe consdera-
ton be stock or securtes . The wrtten agreements heren ndcate
ceary that there was a cash consderaton to Te -Penn of 350,000. We are
not convnced by the ora evdence that that was not a fact. ccordngy,
we hod that the pettoners have not brought themseves wthn secton 202(b)
and artce 1567 so as to escape recognton of gan.
The opnon of the crcut court of appeas, after dscusson of prmary or
evdentary facts found by the oard, states (83 P. (2d), at page 522) :
consderaton of a the documentary evdence drves us to the concuson that
the 350,000 was not consderaton passng from Transcontnenta to Te -Penn,
but was money furnshed by the essees as ndvduas to pay the debts of
Te -Penn so that the transacton mght be made accordng to agreement
. In form the documents upon whch the oard of Ta ppeas
reed stated that the 350,000 was corporate consderaton passng from Trans-
contnenta, but n fact, t was not, and the rue Is we setted that n deter-
mnng ta abty, ta ng authortes must ook through form to fact and
substance. It has been a ong tme snce these transactons took pace and
most of the partes who were nterested n them are dead, but every vng
person who was n any way connected wth them testfed wthout contradc-
ton that the 350,000 was pad by the fve essees and not by Transcontnenta.
The vadty of the utmate fndng above quoted s to be tested by what
n fact was done rather than by the mere form of words used n the wrtngs
empoyed. (Unted States v. Phew, 257 U. S., 156, 168 T. P. 3270, C. . 5,
37 (1921) Curran v. Commssoner, 49 . (2d), 129, 131.) The oard s
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203, rt. 1574.
242
fndngs of crcumstanta facts defntey show the substance of the transac-
ton as actuay consummated. Summary stated, the detas of controng
sgnfcance are these:
The bankers bought from Transcontnenta 725,000 shares of Its stock for
20,225,000. Transcontnenta pad and Issued ts stock:
Cash.
Shares.
1, 230,000
1,250,000
41, OSS
3,400,000
6,250,000
350.000
41,067
158,833
1,007,834
11,600.000
1,250,000
Incuded In the tota was 9,000,000 to pay for the Indvduay owned fve-
eghths nterest n the eases and 2,500,000 to retre preferred stock of Rver-
sde astern and Rversde Western, and 5,250,000 to pay for seven-s teenths
of the fve-eghths nterest: 2,250,000 to rkand and 1,500,000 each to Lantz
and Wrather. The remanng 3,750,000 was to pay enedum and Parrott for
ther nne-s teenths: 1,500,000 to enedum for hs s -s teenths and 2,250,-
000 to Parrott for hs three-s teenths.
The 350,0C0 receved by Te -Penn from Transcontnenta was to be used to
the e tent needed to pay Te -Penn s debts n order that ts assets shoud be
free and cear of abtes. ut no part of that amount was borne by Trans-
contnenta. Upon authorzaton of enedum and Parrott, t deducted that
amount from the 3,750,000 payabe by t to them. nd, by arrangement
among themseves, the fve ndvduas were chargeabe wth the 350,000
accordng to ther nterests n the eases:
enedum , 131,250
Parrott 65,625
rkand 65,625
Lantz 43, 750
Wrather 43, 750
350,000
The amount so advanced e ceeded what was requred to pay Te -Penn s
debts by 55,255.24. nd to the fve ndvduas that amount was accounted
for:
enedum
Parrott
rkand
Lantz
Wrather
20, 720. 73
10,360. 35
10, 360. 35
, 6, 906. 0
6.906.90
55,255.23
The statement beow shows n coumn (1) the amounts that, but for the
advance of 350,000 to Te -Penn, each of the ndvduas woud have receved
drecty from Transcontnenta n cash for hs nterest n the eases t shows
n coumn (2) the amount that was receved by each after deductng hs
share of the amount actuay used to dscharge abtes of Te -Penn.
(1)
(3)
1,500,000.00
2. 250,000.00
2. 250,000. 00
1,500,000.00
1,500.000.00
1.389,47a 73
2,194,736.35
2.194,735. 35
1,463.158.90
1.463. 15t. 90
9,000.000.00
8,705. 25o. 23
The oard s fndngs of evdentary detas not ony fa to support, but
defntey negatve, ts concuson thnt the consderaton receved by Te -Penn
n e change for ts assets ncuded 350,000 n cash.
ssenta to the pro|ect was the transfer to Transcontnenta of Te -Penn
assets free from cams and equay ndspensabe was the transfer of the
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243
5203, rt. 1574.
ndvduay owned ease nterests. Te -Penn needed money to satsfy de-
mands of ts credtors. Shoud t be unabe to free ts property from abty,
the entre enterprse mght fa. In that event, the ndvduas woud ose
the sae of ther ease nterests. nd so, they decded to provde the cash
needed by Te -Penn to cear ts assets and for that purpose they caused Trans-
contnenta to advance Te -Penn the 350,000 and deduct t from 9,000,000, the
prce t was to pay them for ther ease nterests. The e cess, 55,255.24,
was rataby dstrbuted as shown above. No part of the 350,000 was ncuded
n or had any reaton to the consderaton for the transfer of the Te -Penn
assets. In ega effect, the detas found by the oard to have been carred
out are not to be dstngushed from a drect advance by the ve ndvduas
to Te -Penn of the money requred to pay ts debts. Unquestonaby, such an
advance woud not consttute consderaton receved by Te -Penn. s aganst
the oard s fndngs showng what was actuay done n consummaton of the
transacton, no weght as evdence can be gven to mere rectas, drectons,
engagements and admssons of respondents contaned n the documents reed
on by the oard. It shoud have hed that the Transcontnenta stock was
the soe consderaton for the transfer of the Te -Penn assets. The crcut
court of appeas rghty hed that the rung to the contrary was erroneous.
2. The oard s second utmate fndng s (page 950) : The cash receved
by Wrather, Lantz and rkand from Transcontnenta was consderaton for
both ther stock n Te -Penn and ther nterests n the Duke- noes eases.
The oard (page 959) deemed that concuson an addtona ground for ts
rung that the transacton s not wthn the nonrecognton provsons of sec-
ton 202(b). In support of that vew the Commssoner mantans that the
nomna sae of stock, the transfer of the assets of Te -Penn, and the sae of
the ndvdua nterests n the eases, consttuted a snge ndvsbe trans-
acton.
ut the crcumstanta facts ceary negatve ths utmate fndng. rk-
and, Lantz and Wrather sod ther Te -Penn stock to enedum and Parrott
and ther ease nterests to Transcontnenta. The stock was sod and devered
before the assgnment of the ease nterests was made. The transfer on the
company s stock book was effected, and ther connecton as stockhoders and
drectors was termnated, whe the ease nterests were beng hed unt pad
for by Transcontnenta. The stpuaton that, f payment for ther ease n-
terests was not made by ugust 1, the assgnment of ther shares of stock
woud be returned, dd not make the two saes a snge or ndvsbe transac-
ton. ssumng that rkand, Lantz and Wrather woud not have sod ther
Te -Penn stock wthout aso seng ther ease nterests, that fact woud
not convert the two saes nto one. The purpose of the stpuaton s pan.
If Transcontnenta dd not pay for and take the ease nterests and Te -Penn
contnued to operate the propertes, they woud agan become stockhoders
and have a voce n the operaton.
On the pont under consderaton, the Commssoner s poston before the
oard s not n harmony wth hs contenton here. There he made four com-
putatons: two were of Te -Penn ta es, the other two were respectvey those
of the other respondents. In a hs cacuatons, he attrbuted to the con-
sderaton for Te -Penn assets the 1,007,834 shares of Transcontnenta and to
the enedum and Parrott ease Interests ther shares of the cash, 9,000,000,
ess the amount thereof used to pay Te -Penn debts. these shares went
to enedum and Parrott who owned a the Te -Penn stock. The defcences
camed by the Commssoner and the amounts determned by the oard rest
upon the fact that enedum and Parrott as the ony stockhoders of Te -Penn
became the owners of the 1,007,834 Transcontnenta shares. nd, as shown
by the oard s fndngs, the baance of the cash wthout more went to rkand,
Lantz and Wrather for ther ease nterests.
It s mmatera whether 30 was suffcent fuy to compensate them for
ther Te -Penn stock. The fndngs show the transfer was vad. Invadatng
dsparty between worth and consderaton s not dscosed, and may not be
assumed. Indeed, the Commssoner s bref states that Te -Penn was organ-
zed to deveop the eases whch were the persona property of Its fve stock-
hoders t was not e pected to operate at a proft and actuay
t coud not operate at a proft . It was usefu chefy n connecton
wth the fve-eghths royates n the Duke- noes fed hed Indvduay by Its
stockhoders. nd respondents ca attenton to fndngs dscosng operatng
resuts that pont n the same drecton.
We fnd nothng n the crcumstanta facts found or n the evdence to
support the oard s concuson that rkand, Lantz and Wrather receved
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203, rt. 1577.
244
from Transcontnenta any cash for ther stock In Te -Penn. It can not be
sustaned.
3. The Commssoner seeks reversa upon the grounds that the transacton
was not a ta -e empt reorganzaton because Te -Penn sought to reaze a
proft rather than merey to change the form of ts ownershp and that secton
202(b) does not e empt from ta aton e changes of property for stock.
Specfcay he argues that, assumng that the Transcontnenta stock was the
soe property e changed for Te -Penn assets, the transacton was not wthn
the nonrecognton of gans provson. Concededy, ths contenton s contrary
to the nterpretaton put upon secton 202(b) by artce 1507 whch was pro-
mugated September 26, 1919, by the Commssoner wth the approva of tbe
Secretary of the Treasury and has snce been foowed.4 The partes presented
ther respectve cams to the oard and to the ower court on the theory that,
f nether Te -Penn nor ts stockhoders as such receved any cash from Trans-
contnenta, the transacton woud be wthn secton 202(b). Tbe Comms-
soner s notces of defcency do not suggest the constructon for whch he now
contends. e sought no rung upon the queston from the oard or the ower
court and s therefore not entted to have t decded here. ( everng v. Mn-
nesota Tea Co., 296 U. S., 378, 380 Ct. D. 1060, C. . -1, 189 (1935) .) The
ta payers were entted to know the bass of aw and fact on whch the Com-
mssoner sought to sustan the defcences. s faure earer to present the
queston eaves ths Court wthout the assstance of decson beow. s pet-
tons for these wrts dd not present the queston to ths Court. We are not
caed on to consder the constructon of secton 202(b) now proposed.
4. s the soe consderaton to Te -Penn was Transcontnenta shares and as
rkand, Lantz and Wrather receved from Transcontnenta no cash for ther
Te -Penn stock, the transacton s wthn the nonrecognton of gans provsons.
The udgments must therefore be affrmed.
5. The Court s aso of opnon that the |udgments must be affrmed upon
the ground that n the pecuar crcumstances of ths case, the shares of Trans-
contnenta stock, regard beng had to ther hghy specuatve quaty and to
the terms of a restrctve agreement makng a sae thereof mpossbe, dd not
have a far market vaue, capabe of beng ascertaned wth reasonabe certanty,
when they were acqured by the ta payers.
In the absence of such vaue, the ownershp of the shares dd not ay the
bass for the computaton of a gan at the tme they were receved, or for a ta
as of that date under the appcabe statute. (Secton 202(b). Treasury
Reguatons 45, artce 1563.)
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ebruary 1, 1937.
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 everng v. Mnnesota Tea
ffrmed.
rtce 1577: Defntons.
I-8-8557
Mm.4555
changes n connecton wth corporate reorganzatons.
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245
203, rt. 1677.
Co. et a. (296 U. S., 378 Ct. D. 1060, C. . -1, 189) G. ds .
Manufacturng Co. v. everng (296 U. S., 389, Ct. D. 1059, C. .
-1, 188): ohn . Neson Co. v. everng (296 U. S., 974, Ct. D.
1062, C. . -1. 274) everng v. Watts et a. (296 U. S., 387,
Ct. D. 1063, C. . -1, 276) and us Transport Securtes Cor-
Soraton v. everng (296 U. S., 391, Ct. D. 1061, C. . -1, 192).
eference s aso made to the decsons of that Court rendered anu-
ary 9, 1933, n Pneas Ice Cod Storage Co. v. Commssoner
(287 U. S., 462,Ct. D. 630, C. . II-1, 161), and anuary 7, 1935,
n Gregory v. everng (293 U. S., 465, Ct. D. 911, C. . I -1,
193), and the decson of the Crcut Court of ppeas, Second Cr-
cut, n Worcester Sat Co. v. Commssoner (75 ed. (2d), 251),
rendered ebruary 18,1935.
The above-mentoned cases arose under the provsons of the Reve-
nue cts of 1924, 1926, and 1928 reatng to e changes n connecton
wth corporate reorganzatons.
Secton 203 of the Revenue ct of 1924 provdes n part:
Sec. 203. (a) Upon the sae or e change of property the entre amount of
the gan or oss, determned under secton 202, sha be recognzed, e cept as
herenafter provded In ths secton.

(b) (2) No gan or oss sha be recognzed f stock or securtes n a cor-
poraton a party to a reorganzaton are, In pursuance of the pan of reorganza-
ton, e changed soey for stock or securtes n such corporaton or n another
corporaton a party to the reorganzaton.
(3) No gan or oss sha be recognzed f a corporaton a party to a re-
organzaton e changes property, n pursuance of the pan of reorganzaton,
soey for stock or securtes In another corporaton a party to the reorganzaton.
(4) No gan or oss sha be recognzed If property s transferred to a cor-
poraton by one or more persons soey n e change for stock or securtes
n such corporaton, and mmedatey after the e change such person or persons
are n contro of the corporaton but n the case of an e change by two or
more persons ths paragraph sha appy ony f the amount of the stock and
securtes receved by each s substantay n proporton to hs nterest n the
property pror to the e change.

(e) If an e change woud be wthn the provsons of paragraph (3) of sub
dvson (b) f t were not for the fact that the property receved n e change
conssts not ony of stock or securtes permtted by such paragraph to be
receved wthout the recognton of gan, but aso of other property or money,
then
(1) If the corporaton recevng such other property or money dstrbutes
t n pursuance of the pan of reorganzaton, no gan to the corporaton sha
be recognzed from the e change, but
(2) If the corporaton recevng such other property or money does not
dstrbute t n pursuance of the pan of reorganzaton, the gan, f any, to
the corporaton sha be recognzed, but n an amount not n e cess of the sum
of such money and the far market vaue of such other property so receved,
whch s not so dstrbuted.

(h) s used n ths secton and sectons 201 and 204
(1) The term reorganzaton means ( ) a merger or consodaton (ncud-
ng the acquston by one corporaton of at east a ma|orty of the votng stock
and 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), or ( ) a transfer by a corporaton of a or a part of ts assets
to another corporaton f mmedatey after the transfer the transferor or ts
stockhoders or both are n contro of the corporaton to whch the assets are
transferred, or (C) a recaptazaton, or (D) a mere change n dentty, form,
or pace of organzaton, however effected.
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5203, rt. 1577.
246
(2) The term a party to a reorganzaton Incudes a corporaton resutng
from a reorganzaton and ncudes both corporatons n the case of an acqu-
ston by one corporaton of at east a ma|orty of the votng stock and at east
a ma|orty of the tota number of shares of a other casses of stock of another
corporaton.
Substantay the same provsons are contaned n secton 203 of
the Revenue ct of 1926 and secton 112 of the Revenue cts of
1928 and 1932.
In everng v. Mnnesota Tea Co. et a., supra, the company
transferred a ts assets to the Grand Unon Co. n e change for
votng trust certfcates representng 1,800 shares of common stock
of such company and cash n the amount of 426,842.52. The Mnne-
sota Tea Co. dstrbuted the cash to ts sharehoders who agreed to
pay 106,471.73 of the company s debts, but retaned the votng trust
certfcates of the Grand Unon Co., whch represented 7y2 per cent
of the tota shares of such company. The Supreme Court affrmed
the decson of the Crcut Court of ppeas whch hed that the
provsons of secton 112 () 1( ) of the Revenue ct of 1928 (secton
112() 1( ) of the Revenue ct of 1928 correspondng to secton
203(h) 1( ) of the Revenue ct of 1924) pany ncude the trans-
acton under consderaton. The Supreme Court stated that t found
nothng n causes ( ) and ( ) of secton 112() 1 of the Revenue
ct of 1928 whch ndcates an ntenton to modfy the evdent
meanng of ( ) by what appears n ( ). oth can have effect, and
f one does somewhat overap the other, the ta payer shoud not be
dened, for that reason, what one paragraph ceary grants hm. The
Court cted Pneas Ice Cod Storage Co. v. Commssoner, supra,
n whch t was hed that a sae for money or short-term notes was
not wthn the ntendment of secton 203 (h ( ) of the Revenue
ct of 1926, whch became secton 112()( ) of the Revenue ct
of 1928. The Court stated that t had approved n such decson the
concuson of the Crcut Court of ppeas that the transacton there
nvoved was n reaty a sae for the equvaent of money not an
e change for securtes. The Court stated aso:
ut we dsapproved the foowng assumpton and observatons of
the court (court of appeas) That n adoptng paragraph (h) Congress n-
tended to use the words merger and consodaton n ther ordnary and
accepted meanngs. Gvng the matter n parenthess the most bera construc-
ton, t s ony when there s an acquston of substantay a the property
of another corporaton n connecton wth a merger or consodaton that a
reorganzaton takes pace. Cause ( ) of the paragraph removes any doubt
as to the ntenton of Congress on ths pont.
The Court then quoted from ts decson n Pneas Ice Cod
Storage Co. v. Commssoner as foows:
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 embrace
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 ncdent to ownershp of
ts short-term purchase-money notes.
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203, rt. 1577.
The Court then stated:
nd we now add that ths Interest must be defnte and matera
It must represent a substanta part of the vaue of the thng transferred.
Ths much s necessary n order that the resut accompshed may genuney
partake of the nature of merger or consodaton.
The Supreme Court hed that the transacton was a bona fde bus-
ness move that the transacton was not a sae but partook of the
nature of a reorganzaton n that the seer acqured a defnte and
substanta nterest n the purchaser that the reaton of the ta payer
to the assets conveyed was substantay changed but ths was not
nhbted by the statute that t was permssbe for a arge part of the
consderaton to be receved n cash as ong as the ta payer acqured
an nterest n the affars of the transferee whch represents a matera
part of the vaue of the assets transferred and that dssouton of the
transferor was not essenta n a statutory reorganzaton.
In G. cfe . Manufacturng Co. v. everng, supra, the company
n 1929 sod ts busness and part of ts assets to the raft Phen
Cheese Corporaton for 200,000 cash and 17,250 shares of common
stock of the purchasng corporaton. The G. . Manufacturng
Co. retaned the shares of ts subsdary corporatons and some other
property. fter the transfer the G. . Manufacturng Co. con-
tnued to do busness. The ower court hed that the transacton
amounted to a sae. The Supreme Court reversed the ower court
and hed that f substantay a of the property of the G. .
Manufacturng Co. was transferred, the transacton amounted to a
reorganzaton wthn the meanng of the statute that the fact that
the G. . Manufacturng Co. and ts subsdares contnued actvey
n busness woud not defeat the cam of reorganzaton and that
ownershp of 17,250 shares of common stock n the raft Phen
Cheese Corporaton gave the ta payer a substanta and contnung
nterest n the affars of that corporaton. The case was remanded
to the oard of Ta ppeas to determne whether substantay a
of the property of the G. . Manufacturng Co. was transferred.
In ohn . Neson Co. v. everng, supra, the ott- sher Cor-
poraton pursuant to an agreement organzed a new corporaton wth
12,500 shares of nonvotng preferred stock and 30,000 shares of
common stock. ott- sher Corporaton acqured a of the 30,000
shares of common stock n the new corporaton for 2,000,000 cash.
The new corporaton then acqured substantay a of the property
of the ohn . Neson Co. e cept 100,000 cash, payng therefor
2,000,000 cash and the entre ssue of ts preferred stock of 12,500
shares. The ohn . Neson Co. used part of the cash to redeem
ts own preferred stock and dstrbuted the baance of the cash, to-
gether wth the 12,500 shares of preferred stock of the new corpora-
ton, to ts stockhoders. The ohn . Neson Co. dd not dssove.
The ower court hed the transacton consttuted essentay a sae,
eavng the ott- sher Corporaton n contro of the new corpo-
raton by vrtue of ts ownershp of the common stock of that
company. The Supreme Court n reversng the |udgment of the
ower court hed that the ohn . Neson Co. acqured a defnte
and substanta nterest n the affars of the new corporaton that
the owner of preferred stock s not wthout substanta nterest n
the affars of the ssung corporaton, athough dened votng rghts
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248
that the statute does not requre partcpaton n the management
of the purchasng corporaton and that a controng nterest n the
transferee corporaton s not made a requste by secton 203(h) 1( )
of the Revenue ct of 1926.
In everng v. Watts et a., supra, three ndvduas owned a the
stock of Unted States erro oys Corporaton (herenafter caed
erro oys). One of such stockhoders on behaf of a of them
entered nto a wrtten agreement wth anadum Corporaton of
merca (herenafter caed anadum) n whch he agreed to de-
ver to anadum a the 30,000 shares of erro oys for 66,666
shares of stock n anadum and bonds of erro oys n the
amount of 1,161,194.54 hed by anadum whch bonds were
secured by a mortgage or deed of trust on the erro oys pant
property and equpment at Nagara, N. Y., to whch property
corporaton guaranteed payment of the above-mentoned bonds. s
a resut of the demonstrated earnng power of erro oys n 1925
ony 32,103 shares of stock of anadum were devered to Watts
et a. oth corporatons contnued to operate. erro oys, how-
ever, was dssoved n 1928. The Government contended anadum
merey made an nvestment n erro oys and had ony the rghts
of a stockhoder that the e change of stock for bonds resuted n a
substanta change of poston by the stockhoders of erro oys
and that the bonds receved were other property wthn the mean-
ng of the statute and sub|ect to ta . The Supreme Court hed that
the transacton was a reorganzaton under secton 203(h) 1( ) of
the Revenue ct of 1924 and that the bonds were securtes under
the statute and coud not be regarded as cash, as were the short-
term notes n Pneas Ice od Storage Go. v. Commssoner,
supra.
In us Transport Securtes Corporaton v. everng, supra,
one C. asman acobus pror to 1929 owned practcay a the shares
of corporatons heren desgnated as Corporaton and Corporaton
, whch were operatng bus nes. The Pubc Servce Corporaton
of New ersey, the pro|ector, desred to contro such bus nes and
to that end engneered the foowng pan:
Pubc Servce Coordnated Transport Co., affated wth the pro-
|ector, caused C. asman acobus, Inc., to be organzed, to whch t
transferred 2,500 shares of the Pubc Servce Corporaton of New
ersey for a the stock of the new corporaton.
C. asman acobus caused the us Transport Securtes Corpo-
raton to be organzed and acqured a of ts stock n e change for
shares of stock n Corporatons and . Thereafter the us
Transport Securtes Corporaton transferred to Pubc Servce Co-
ordnated Transport Co. the shares of stock n Corporatons and
, and receved a of the shares of stock n C. asman acobus, Inc.
The us Transport Securtes Corporaton through C. asman
acobus, Inc., acqured contro of 2,500 shares of Pubc Servce Cor-
poraton of New ersey, and the atter obtaned ndrect contro of
Corporatons and and the bus nes whch such corporatons
operated through ts affate, the Pubc Servce Coordnated Trans-
port Co., whch owned the stock of Corporatons and .
The Supreme Court hed that no reorganzaton occurred, as
nether the us Transport Securtes Corporaton nor the Pubc
anadum became entted under
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203, rt. 1577.
Servce Coordnated Transport Co. acqured any defnte mmedate
nterest n each other snce the us Transport Securtes Corpo-
raton transferred to Pubc Servce Coordnated Transport Co.
shares of stock n Corporatons and and receved from that
company shares of stock n C. asman acobus, Inc.
In Pneas Ice God Storage Co. v. Commssoner, supra, the
genera manager of the pettoner and the Ctzens Ice Cod
Storage Co. began negotatons for the sae of the propertes of such
companes to the Natona Pubc Servce Corporaton. In Novem-
ber, 1926, a forma wrtten contract was entered nto between pet-
toner and the Natona Corporaton n whch the pettoner agreed
to se ts physca propertes, pants, etc., for 1,400,000, payabe
400,000 n cash, the baance ( 1,000,000) beng evdenced by proms-
sory 6 per cent notes secured by mortgage bonds of the orda West
Coast Ice Co., thereafter to be organzed to take tte to the property.
The deferred nstaments were payabe 500,000 on or before an-
uary 31, 1927, 250,000 on or before March 1, 1927, and 250,000 on
or before pr 1, 1927. The Supreme Court hed that the transac-
ton was not a reorganzaton. Secton 203(b) of the Revenue ct
of 1926 was quoted n part n the margn of the decson. That
secton provdes among other thngs that no gan or oss sha be
recognzed n the e change of stock or securtes of a corporaton
a party to a reorganzaton n pursuance of a pan of reorganzaton,
for stock or securtes n such corporaton or n another corporaton
a party to the reorganzaton, or the e change of property by a
corporaton a party to a reorganzaton for stock or securtes n
another corporaton a party to the reorganzaton. The Supreme
Court hed the notes receved by the transferor corporaton n such
transacton were propery regarded as the equvaent of cash that
the notes were not securtes wthn the ntendment of the ct and
that to come wthn the e empton the seer must acqure an nter-
est n the affars of the purchasng company more defnte than that
ncdent to ownershp of ts short-term purchase money notes. The
Supreme Court stated In substance the pettoner sod for the
equvaent of cash the gan must be recognzed.
In Gregory v. everng, supra, the ta payer owned a the stock
of the Unted Mortgage Corporaton, whch hed among ts assets
1,000 shares of the Montor Securtes Corporaton. or the ta -
payer to obtan possesson of the Montor shares and at the same
tme dmnsh ta abe gan on the sae thereof, she organzed on
September 18, 1928, the ver Corporaton, to whch the Unted
Mortgage Corporaton transferred the Montor shares and for whch
a of the shares of the ver Corporaton were ssued to the ta -
payer. On September 24, 1928, the ver Corporaton was ds-
soved and the Montor shares were dstrbuted to the ta payer. The
Supreme Court hed that no reorganzaton was made and that the
transfer of assets under secton 112()( ) of the Revenue ct of
1928 (secton 112()( ) of the Revenue ct of 1928 correspondng
to secton 203(h) 1( ) of the Revenue ct of 1924) means a transfer
of assets n pursuance of a pan of reorganzaton of a corporate
busness and not an operaton havng no busness or corporate pur-
70SG 37 9
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203, rt. 1577
250
pose such as a transfer of assets by one corporaton to another cor-
poraton havng no reaton to the busness of ether corporaton.
In Worcester Sat Co. v. Commssoner, supra, the err-Remng-
ton Sat Co., a subsdary of the ta payer corporaton, transferred
a ts assets to the ta payer corporaton for bonds of such corpora-
ton. The Court hed that the transfer of the subsdary s assets
to the ta payer corporaton for the atter s bonds dd not consttute
a reorganzaton under secton 112()( ) of the Revenue ct of
1928, as the bonds gave the subsdary no nterest n the ta payer
corporaton and dd not meet the requrement that a contnuty of
nterest was a requste for a reorganzaton, such bonds merey ev-
dencng an ndebtedness.
The above-mentoned decsons estabsh the foowng propostons
of aw:
1. Cause ( ) of secton 203(h) of the Revenue ct of 1924 and
the correspondng sectons of the Revenue cts of 1926 and 1928
are not to be restrcted by the provsons of cause ( ) of those
sectons. ( everng v. Mnnesota Tea Co. et a.)
2. In order for a transacton to be a reorganzaton under the
rovsons of cause ( ) referred to above, reatng to the acquston
y one corporaton of substantay a the propertes of another
corporaton
(a) The seng corporaton must acqure a defnte and substanta
nterest n the affars of the purchasng corporaton. ( everng v.
Mnnesota Tea Co. et a. us cfc Transport Securtes Corporaton v.
everng and G. . Manufacturng Co. v. everng.) The
owner of the preferred stock s not wthout substanta nterest n the
affars of the ssung company, athough dened votng rghts ( ohn
. Neson v. everng). The owner of bonds has no nterest n the
ssung corporaton (Worcester Sat Co. v. Commssoner, C. C. . 2)
and must accordngy be regarded as havng no nterest n the affars
of such corporaton.
(h) It s permssbe for a arge part of the consderaton to be
receved n cash and/or bonds so ong as the seng corporaton
acqures an nterest n the affars of the purchasng corporaton
whch represents a substanta part of the vaue of the thns trans-
ferred. ( cheerng v. Mnnesota Tea Co. et a. compare everng
v. Watts et a.)
(c) Partcpaton n the management of, and the acquston of,
a controng nterest n the purchasng corporaton s not a requste.
( ohn . Neson Co. v. everng.)
(d) The crcumstance that the reaton of the ta payer to the
assets conveyed s substantay changed s not matera snce ths s
not nhbted by the statute. ( everng v. Mnnesota Tea Co. et a.
and G. f- . Manufacturng Co. v. everng.)
(e) The dssouton of the seng corporaton s not essenta.
( everng v. Mnnesota Tea Co. et a.)
3. If the prmary test of a reorganzaton s met, vz the retenton
by the seng company of the requste contnuty of nterest, then
under secton 203(b)2 and secton 203(b)3 of the Revenue ct of
1924, and the correspondng sectons of the Revenue cts of 1926
and 1928, a substanta chanpe n the poston of the seng company
or ts sharehoders, as, for e ampe, the poston resutng from the
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251
203, rt. 1577.
e change of stocks for a consderaton consstng n arge part of
bonds, does not prevent the treatment of the bonds receved from
the e change as property whch may be receved wthout recognton
of gan or oss n connecton wth a reorganzaton under the prov-
sons of cause ( ). ( everng v. Watts et a.)
4. transacton s not a reorganzaton under the provsons of
cause ( ) referred to above, reatng to the acquston by one
corporaton of substantay a the propertes of another corpora-
ton
(a) If the seng corporaton does not acqure an mmedate
capta stock nterest n the purchasng corporaton, that s, an n-
terest represented by shares of capta stock of the purchasng com-
pany s own ssue. ( us Trans-port Securtes Corporaton v. e-
ve-rng Pneas Ice Cod Storage Co. v. Commssoner and
Worcester Sat Co. v. Commssoner.)
5. In order that a transfer by a corporaton of a or a part of
t3 assets to another corporaton n a transacton n whch mme-
datey after the transfer the transferor or ts sharehoders or both
are n contro of the corporaton to whch the assets are transferred
may be a reorganzaton under cause ( ) of secton 203(h) 1 of the
Revenue ct of 1924 and the correspondng sectons of the Revenue
cts of 1926 and 1928, the transfer of the assets must be n pursuance
of a pan of reorganzaton of a corporate busness and not an opera-
ton havng no busness or corporate purpose such as a transfer of
assets by one corporaton to another corporaton havng no reaton
to the busness of ether corporaton. (Gregory v. everng.)
Snce the provsons of the Revenue cts of 1924, 1926, and 1928
under whch the above-mentoned decsons of the Supreme Court
were rendered are substantay the same as the correspondng pro-
vsons of the Revenue ct of 1932, such decsons are equay appca-
be under that ct. owever, the decsons of the Court n ever-
ng v. Mnnesota Tea Co. et a., O. . Manufacturng Co. v. e-
verng, ohn . Neson Co. v. everng, and everng v. Watts et
a. are not appcabe under the Revenue cta of 1934 and 1936 be-
cause the correspondng provsons of the atter cts (secton
112(g)) are substantay dfferent from those of the pror cts.
Secton 112 of the Revenue ct of 1934 and secton 112 of the Reve-
nue ct of 1936 provde n part:
(g) Defnton of reorganzaton. s used n ths secton and secton 113
(1) The term reorganzaton means ( ) a statutory merger or consoda-
ton, or ( ) the acquston by one corporaton n e change soey for a or
a part of ts votng stock: of at east 80 per centum of the votng stock and
at east 80 per centum of the tota number of shares of a other casses of
stock of another corporaton or of substantay a the propertes of another
corporaton, or (C) a transfer by a corporaton of n or a part of ts assets
to another corporaton f mmedatey after the transfer the transferor or ts
stockhoders or both are n contro of the corporaton to whch the assets are
transferred, or (D) a recaptazaton, or ( ) a mere change n dentty, form,
or pace of organzaton, however effected.
In two of the above-mentoned cases ( everng v. Mnnesota Tea
Co. et a. and O. . Manufacturng Co. v. everng) cash con-
sttuted a part of the consderaton n the e change. In ohn .
chon Co. v. everng both cash and nonvotng preferred stock
consttuted the consderaton, whe n everng v. Watts et a.
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204, rt. 1591.
252
stock (of the acqurng corporaton) and bonds (hed by the acqur-
ng corporaton n the other corporaton, party to the reorganzaton)
consttuted the consderaton. None of these cases s appcabe to
cause ( ) of the above-quoted provsons of the Revenue cts of
1934 and 1936, because none of them nvoved a statutory merger
or consodaton. Nether are they appcabe to cause ( ) of sad
provsons because the acqustons by the purchasng companes
theren were not soey n e change for votng stock n sad purchas-
ng companes. The transactons descrbed theren woud not come
wthn any of the other defntons of a reorganzaton under sectons
112(g) of the Revenue cts of 1934 and 1936.
The reasons advanced by the Court n us Transport Securtes
Corporaton v. everng, Pneas Ice Cod Storage Co. v. Com-
mssoner, and Gregory v. everng n hodng that no reorganza
ton occurred n such cases are equay appcabe under the Revenue
cts of 1934 and 1936.
In computng deprecaton, or gan or oss, under the Revenue
cts of 1934 and 1936, from the sae or other dsposton of assets
acqured under pror cts, the cost or other bass of such assets must
be ad|usted as to any gan or oss recognzed under such pror cts.
Secton 113(a) 12 of the Revenue ct of 1934 provdes that f prop-
erty was acqured after ebruary 28, 1913, n any ta abe year be-
gnnng pror to anuary 1. 1934, and the bass thereof for the pur-
poses of the Revenue ct of 1932 was prescrbed by secton 113 (a) (6),
(7), or (9) of the Revenue ct of 1932, then such bass sha be used
n a cases governed by the Revenue ct of 1934. Secton 113(a) 16
of the Revenue ct of 1936 provdes that f the property was acqured
after ebruary 28, 1913, n any ta abe year begnnng pror to an-
uary 1, 1936, and the bass thereof for the purposes of the Revenue
ct of 1934 was prescrbed by secton 113(a) (6), (7), or (8) of the
Revenue ct of 1934, then such bass sha be used n a cases gov-
erned by the Revenue ct of 1936.
Care shoud be taken n the e amnaton of returns nvovng the
queston of e changes n connecton wth corporate reorganzatons
n order that fu effect may be gven to the above-mentoned dec-
sons of the Supreme Court and the appcabe provsons of the
Revenue cts of 1934 and 1936.
Correspondence and nqures regardng ths mmeograph shoud
refer to the number thereof and the symbos IT: CTR.
Guy T. everng,
Commssoner.
S CTION 204. SIS OR D T RMINING G IN OR
LOSS, D PL TION, ND D PR CI TION.
rtce 1591: ass for determnng gan or oss from
sae.
R NU CT O 1928.
Determnaton of March 1,1913, vaue. (See Ct. D. 1202, page 209.)
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253 213(b), rt. 89.
rtce 1597: Property acqured n reorganzaton after
December 31, 1917.
R NU CTS O 1024 ND 192G.
Ownershp of aggregate consodated propertes remanng n the
same persons coectvey as before consodaton. (See Ct. D. 1213,
page 212.)
P RT II. INDI IDU LS.
S CTION 213(a). GROSS INCOM D IN D:
INCLUSIONS.
rtce 31: What ncuded n gross ncome.
R NU CTS O 1921, 1924, ND 1926.
ssgnments of nterests n a trust yedng ncome. (See Ct. D.
1205, page 175.)
rtce 31: What ncuded n gross ncome.
R NU CT O 1926 ND rRIOR R NU CTS.
Ta abty of ncome of restrcted members of the Osage Indan
Trbe. (See G. C. M. 18242, page 57.)
rtce 33: Compensaton pad other than n cash.
R NU CT O 1920.
Payment by corporaton of premums on fe nsurance of ts
presdent. (See Ct. D. 1222, page 182.)
rtce 50: When ncuded n gross ncome.
R NU CT O 1920 ND PRIOR R NU CTS.
Ta abe status of refunds of customs dutes and ta es. (See Mn.
4564, page 93.)
S CTION 213(b). GROSS INCOM D IN D:
CLUSIONS.
rtce 89: ddtona e cusons from gross ncome.
R NU CT O 1020 ND TRIOR R NU CTS.
Sweden, equvaent e empton. (See I. T. 3083, page 120.)
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254
S CTION 214(a) 1. D DUCTIONS LLOW D INDI-
IDU LS: USIN SS P NS S.
rtce 101: usness e penses.
R NU CT O 1926 ND PRIOR R NU CT3.
ttorney s fees pad to secure appontment of guardan. Revoca-
ton of I. T. 2124 (C . I -1,138 (1925)). (See Mn. 4580, page 62.)
rtce 102: Traveng e penses. I-22-8735
I. T. 3081
R NU CT OP 1021.
I. T. 1518 (C. . 1-2, 90 (1922)) s modfed n so fr r as ncon-
sstent wth the vews e pressed n G. C. M. 18430. (See page 137.)
rtce 10G: Compensaton for persona servces.
R NU CT O 1926.
ndng of oard of Ta ppeas as to reasonabeness of saares.
(See Ct. D. 1190, page 202.)
S CTION 219. ST T S ND TRUSTS.
rtce 342: Method of computaton of net I-11-8596
ncome and ta . Ct. D. 1207
INCOM T R NU CTS O 1916, 1917, 1918, ND 1921 D CISION O
COURT.
Deducton Income Permanenty Set sde fob Chartabe
Purposes None stence of Chartabe Organzaton Durng
Ta abe Years.
Where the decedent, who ded n 1908, bequeathed to named
trustees a sura of money to be used for the ncorporaton and man-
tenance of a chartabe nsttuton, and te certfcate of ncor-
poraton was not fed unt 1924 nor the budng formay opened
unt 1929, the ncome from the fund was not deductbe In deter-
mnng the net ncome of the estate for the years 1917-1921 and
1923. though such ncome was permanenty set asde for a
chartabe purpose wthn the meanng of the appcabe statutes,
the anguage of the e empton provsons can not be construed to
cover a corporaton to be organzed and operated.
Unted States Dstrct Court for the Southern Dstrct of New York.
ugene Cfford Potter, as ecutor of the Last W and Testament of enry
. raker, Deceased, pantff, v. rank Cos owers, as ecutor of the
Last W, etc., of rank . owers. ormery Unted States Co-
ector of Interna Revenue for the Second Dstrct of New York, defendant.
15 . Supp., 724.
uy 8, 1930.
OPINION.
Co e, D. .: Ths s a sut to recover addtona ncome ta es of 03,760.81
coected from the estnte of enry . raker, deceased, for the years 1917, 1918,
1919, 1920, 1921. and 1923.
The ta es were assessed as a resut of the dsaowance as deductons of
certnn ncome camed to have been permanenty set asde for the raker
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255
219, rt. 342.
Memora ome, a chartabe corporaton, organzed pursuant to drectons con-
taned n the w of enry . t raker, deceased.
The case was tred before a |ury of one, on an agreed statement of facts, and
at de concuson of the tra both des moved for u drected verdct.
enry . raker ded on September 1, 1908, a resdent of New York State.
e eft a w whch was admtted to probate n New York County, and, on
September 22, 190S, etters testamentary were ssued to ustn . etcher and
atharne T. raker, the testator s wdow. ustn . etcher ded on uy 5,
1923, and atharne T. raker ded on ugust 2, 1923. On uy 21, 1923, the
pantff was apponted successor e ecutor, and s stU actng n that capacty.
y paragraph Thrty-eghth of the w, as modfed by paragraph Seventh
of the codc, the sum of 1,000,000 was bequeathed to the pantff, ustn .
etcher, and ohn nderson, as trustees, wth a drecton that they ncorporate
an Insttuton to be known as The raker Memora ome for the mante-
nance of needy men and women over 50 years of age, and transfer to t the
egacy of 1,000,000 eft to them by the w. The w drected aso that the
home be ncorporated as soon as t coud convenenty be done.
Durng the year 1911, ustn . etcher prepared a certfcate of ncorpora-
ton of the raker Memora ome, whch the secretary of state of New York
refused to fe because of a purey technca defect n ts preparaton. Nothng
farther was done wth the ncorporaton unt after the pantff s appontment
as e ecutor n 1923, when an entrey new certfcate was prepared. Ths certf-
cate was fed wth the secretary of state of New York on pr 7, 1924, and
thereafter the raker Memora ome constructed a budng n the orough
of the ron , New York Cty, whch was formay opened on anuary 14, 1929.
fter the pantff s appontment as e ecutor, t was found that no ncome
ta returns had been fed by the estate. It apparenty was assumed that the
entre ncome of the estate was e empt, for by anuary 1, 1917, a of the
genera egaces had been pad, e cept the egacy of 1,000,000 for the home, and
a sma egacy of 10,000 to a chartabe nsttuton, whch was subsequenty pad
wthout nterest, and there was no possbty of there beng any resduary
estate.
fter the death of the testator s wdow, atharne T. raker, three of her
chdren by a former marrage, who woud have been entted to the resduary
estate, f there had been any, threatened to contest the vadty of the bequest
for the home, on the ground that t voated the rue aganst perpetutes, and,
athough pany the contenton was wthout mert ( en v. Stevens, 161 N. Y.,
122 hotter of Potts, 205 . D., 147, affrmed 236 N. Y., 658) t was decded to
negotate an amcabe settement. The controversy was fnay dsposed of by
agreement, dated ebruary 11, 1925, between the home and the chdren, pur-
suant to whch the raker Memora ome receved ts egacy of 1,000,000,
wth nterest at about 4 per cent, and the baance of the estate was dstrbuted
to the three chdren of atharne T. raker. The resut of ths settement
was that the home receved about 85 per cent of the funds n the hands of
the pantff, as e ecutor. Incudng about 65 per cent of the net ncome earned
(urng the ta abe years 1917 to 1923, Incusve, the baance of 14 per cent
beng pad to the three chdren of atharne T. raker.
On une 15, 1925, the pantff fed wth the coector ncome ta returns
for the ta abe years n queston, namey, 1917, 1918, 1919, 1920, 1921, and
1923, n each of whch 85 per cent of the net ncome receved by the estate
was camed as a deducton on the ground that t had been defntey and
permanenty set asde for the raker Memora ome, a chartabe corpora-
ton, and was, therefore, e empt from ta aton. The Commssoner dsa-
owed the deductons camed, hodng that the statutory e empton apped
ony to amounts pad or permanenty set asde for corporatons presenty
organzed and operated for chartabe purposes, and not for corporatons
to be organzed and operated for such purposes. The pantff thereupon
pad under protest the addtona u es, wth nterest and penates, aggregat-
ng 65.760.81, on anuary 15, 1927, fed cams for refund, and, on ther
dsaowance, commenced the present sut for recovery.
Secton 11(a) of the Revenue ct of 1916-17 provdes that estates of deceased
persons sha not be ta ed for ncome receved by any corporaton
or assocaton organzed and operated e cusvey for chartabe purposes.
Secton 219(b) of the Revenue ct of 1918 smary e empts the ncome of
an estate whch s durng the ta abe year pad to or permanenty set asde
for any corporaton organzed and operated e cusvey for char-
tabe purposes. The same e empton, n practcay dentca anguage, s to
be found In sectons 214(a) and 219(b) of the Revenue ct of 1921.
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220, rt. 852.
256
It Is we setted that these e emptons are not dependent on actua payment
of the Income to a chartabe corporaton dnrng the ta abe year. (Lederer
. Stockton, 260 U. S., 3.) Nor are they affected by the manner n whch the
books of the estate are kept. ( owers v. Socm, 20 ed. (2d), 350 T. D. 4122,
C. . II-1, 247 .) It Is suffcent f, by the terms of the w, the ncome s
permanenty set asde for a corporaton organzed and operated e cusvey
for chartabe purposes. (Lederer v. Stockton (supra) owers v. Socm
(supra).)
It s nssted by the defendant that the bequest for the raker Memora
ome was condtona, and that, therefore, there was no |Mrmanent settng
asde of the ncome for chartabe purposes, as requred by the statutes. The
w, however, contaned a frm drecton that the home be ncorporated, and
nether the nacton of the trustees nor ther refusa to proceed coud work
an abandonment. Indeed t s e pressy provded n the Seventh paragraph
of the codc that f the trustees shoud for any reason fa to act, the trust
woud be vested n and fuy e ecuted by the Supreme Court of the State
of New York. Moreover, the gft to the trustees was n no way condtona
and on anuary 1, 1917, t was apparent that the entre fund n the hands of
the e ecutors, wth the e cepton of the sma egacy of 10,000, whch had
been refused, woud go to the home on ts ncorporaton. The settement
effected wth the three chdren of atharne T. raker dd not change the
stuaton, for ths settement was not made wth the estate but drecty wth the
home and the chdren took by contract and not under the w. Matter of
Cook, 187 N. Y., 263.) I have no dffcuty n hodng, therefore, that the ncome
was permanenty set asde for the home.
ut was t necessary for the home to be n e stence durng the ta abe
years In queston n order that the ncome mght be e empt from ta aton
The varous statutes Invoved use the words organzed and operated e cu-
svey for chartabe purposes. nd n Sun- erad v Duggan (73 ed. (2d),
298 Ot. D. 53, C. . I -1, 190 ) the crcut court of appeas for ths
crcut construed the word organzed of a somewhat smar statute to
mean ncorporated. It was aso stated n the opnon n that case that
In cases of doubt, an e empton provson n a genera ta aw s to be
construed strcty and to be resoved n favor of the ta ng power. In the
face of ths decson, t Is not possbe to construe the anguage of the present
e empton so as to cover a corporaton to be organzed and operated.
The pantff argues that the New York courts have e empted from the
payment of transfer tn es property passng by w to a chartabe corpora-
ton to be organzed, even though the statutes nvoved referred ony to a
corporaton organzed (Matter of Graves, 171 N. Y., 40) or a
chartabe corporaton, wherever ncorporated (Matter of Le evre, 233
N. Y., 138) and t Is Inssted that ths bera atttude wth respect to ta
e emptons of chartabe trusts shoud c foowed n the present case. There
s, however, a cear dstncton between transfer ta e emptons and e emp-
tons from the payment of ncome ta es and no such bera atttude prevas
n the edera courts n the constructon of an e empton provson of a genera
ncome ta aw as appears to have been apped by the State courts n the
above cases. (Sun-Terad v. Duggan, supra.)
There may accordngy be a verdct for the defendant dsmssng the compant
wth costs.
S CTION 220. SION O SURT S
Y INCORPOR TION.
ktce 352: Purpose to escape surta . I-5-8515
CtD. 1193
INCOM T R NU CT O 1926 D CISION O CODRT.
vason or Surta es by Incorporaton ecton by Stockhod-
ers to Pay Ta es on Dstrbutve Shares of Profts v-
dence.
hodng and nvestment company, whch was organzed n 1916
for the purpose of Investng funds beongng to the members of a
famy, pad dvdends to ts four stockhoders from 1916 to 1934, n-
cusve, out of accumuated net earnngs, the tota amount of dv-
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257
220. rt. 852.
(ends pad n each year beng ess than the tota amount of net earn-
ngs, e cept that n 1919, 1933, and 1934 dvdends were pad n
e cess of earnngs and In 1932 dvdends were pad athough a net
oss was sustaned. Loans and advances were made to the stock-
hoders durng the perod, whch were partay repad n cash and
ong-term notes. the stockhoders reported and pad ta es for
1926 upon ther entre dstrbutve shares of the corporate earnngs
for that year. Under the facts, the evdence warrants the fnd-
ngs that the stockhoders eected to pay the ta es In order to re-
eve the corporaton from the addtona ta Imposed by secton
220(a) of the Revenue ct of 1926 and that, e cept as reeved by
such eecton, the corporaton was avaed of for the purpose of
preventng the mposton of surta es upon ts stockhoders and
they are not entted to a refund of the ta es pad pursuant to such
eecton and after acceptng the prveges granted by secton 220(e)
of the ct
Unte) States Dstrct Court fob the Southern Dstrct of Caforna,
Centra Dvson.
No. 5330- . the W.Gardner, pantff, Y.Gaen . Wech, defendant.
No. 5331- . M. dth Gardner, pantff, v. Oaen . Wech, defendant.
No. 5332- . arry . auer, pantff, v. Gaen . Wech, defendant.
No. 5333- . verett . Gardner, pantff, v. Gaen . Wech, defendant.
ebruary 13, 1936.
M MOR NDUM O CONCLUSIONS.
udge ozer: It appearng that the aegatons n paragraphs I to I, Incu-
sve, of the frst cause of acton are not dsputed aso that at a tmes mentoned
n the compant the Garbar company, to-wt, the corporaton whose earnngs
have gven rse to ths tgaton, was engaged In busness prmary as a hodng
or nvestment company, that s to say, at the tme sad corporaton was organzed
t acqured one parce of unmproved rea property and aso certan shares of
stock n other corporatons engaged n the manufacture and sae of gasone, that
thereafter and pror to 1926 the Garbar company Increased Its hodngs consst-
ng of stock n such other corporatons unt by the year 1926 t had become the
owner of 6,354 shares of stock of Pacfc Gasone Co., that on or about une 24,
1826, the Garbar company sod a of Its Pacfc Gasone stock for the sum of
940,392, thereby reazng a proft of 897,869.78, that the money reazed from
the sae of sad stock was nvested n securtes Issued by pubc utty corpora-
tons and by other ndustra and mercante corporatons, that the ony other
property acqured by the Garbar company conssted of a pece of mproved rea
property whch t purchased upon forecosng the encumbrance whch the com-
pany hed aganst sad property, aso that t has been engaged n no other
busness, has had no empoyees e cept a |antor empoyed to take care of sad
snge pece of Improved rea estate, and has pad no saares e cept to sad
|antor and ts presdent, Mr. auer and
It further appearng that, by stpuaton of counse, the aegatons 6et forth
n paragraph III of the frst count are to be deemed as not matera to any
ssne In ths case and
It further appearng that, assumng the rectas contaned n the Income
ta return fed by the Garbar company for the year 1926 to be true, then sad
company dd fe ts edera ncome ta return as requred by aw and dd pay
ts ta n accordance therewth and
It further appearng that, e cept as heren otherwse stated, the aega-
tons of paragraphs and I of sad frst count are true and
It further appearng that the ony persons who have been stockhoders n
sad Garbar company have been the four pantffs separatey named n those
certan actons at aw pendng In ths court and desgnated upon the records
thereof as numbers 5330- , and 5331- , 5332- , and 5333- and
It further appearng that the ony occasons when the Garbar company
oaned any money were those heren mentoned and
It further appearng that, e cept as heren otherwse stated, such gans and
profts as the Garbar company accumuated durng the year 1926 were used
6oey and e cusvey for the purposes and needs of ts busness ns an nvest-
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220, rt. 352.
258
mert or hodng company, as heren descrbed, and that It made no dstrbuton
ether shorty after the cose of the ta year 1926 or at any tme In reducton
of the amount of capta devoted to Its busness, aso that Its undstrbuted
Income for the year 1926 was Invested In the purchase of addtona securtes
and was so used and, snce the commencement of the year 1927, has remaned
so Invested and has been contnuousy so used, aso that sad ncreased n-
ventores consttuted an Integra part of the capta assets of sad Garbar
company, aso that the aegatons of paragraphs I , , I, II, I ,
and are admtted, e cept that It Is not admtted that any sum Is due to
the pantff and
It further appearng that at a tmes snce ts Incorporaton In 1916 and
down to and Incudng the year 1934, sad Garbar company has pad dvdends
to ts stockhoders out of ts accumuated net earnngs, aso that n each of
the years wthn sad ast mentoned perod the tota amount of a dvdends
pad to the stockhoders n any partcuar year was ess than the tota amount
of net earnngs of sad Garbar company for such year, e cept that n the year
1919 the tota of a dvdends pad amounted to the sum of 3,000, whereas
the tota net earnngs for that year amounted to the sum of 927.30. aso e cept
that In the year 1932 the tota dvdends pad amounted to the sum of 35,550,
whereas the Garbar company sustaned a net oss for that year amountng to
the sum of 27,451.33, aso e cept that n the year 1933 the tota dvdends
pad amounted to the sum of 19,908 whereas the tota net earnngs for that
year amounted to the sum of 4,505.66, and aso e cept that n the year 1934
the tota dvdends pad amounted to the sum of 18.0T0 whereas the tota net
earnngs for that year amounted to the sum of 12,396.15 and
It further appearng that between une 13. 1927, and December 10, 1927,
accordng to the entres n Its records, sad Garbar company oaned to one of
ts four stockhoders, to-wt, M. dth Gardner, varous sums of money tota-
ng 22,494.64, of whch amount she repad, on une 27, 1929. the sum of 3,400,
and thereafter and on uy 1, 1929, she e ecuted and devered to sad Garbar
company an unsecured note In an amount representng the baance of the
prncpa of sad purported oan, sad note beng payabe on or before 10 years
wthout Interest: and
It further appearng that n the year 1927, accordng to the entres In Its
records, sad Garbar company oaned to each of two other stockhoders, to-wt,
verett S. Gardner and the G. Imer varous sums totang as to each In
e cess of 13,700, of whch purported oans each of them repad, on une 27,
1929, the sum of 3,500 and thereafter and on uy 1, 1929. each of them
e ecuted and devered to sad Garbar company an unsecured note n an
amount representng the baance of the prncpa of sad purported oan, sad
note beng payabe on or before 10 years wthout Interest and
It further appearng that on or about September 26. 1930, sad Garbar com-
pany oaned to a Mr. rck the sum of 200,000 and In consderaton thereof
receved from hm a note payabe n that amount, secured by certan coatera,
that In order to make sad oan sad Garbar company borrowed the amount
thereof from a bank, aso that sad oan to Prck was made at a rate of In-
terest whch was substantay hgher than the rate of nterest whch the
Garbar company was requred to pay to the bank for borrowng the money,
aso that sad oan to rck was made upon the recommendaton of . .
auer, one of the stockhoders of the Garbar company who then owned and
st owns sghty In e cess of 50 per cent of Its ssued capta stock, that
thereafter and on or about September 8, 1931, sad rck havng defauted tn
the payment of sad oan and the coatera gven to secure the same havng
proved to be substantay ess than the amount of the oan. Mr. Rnner ad-
vanced to the Garbar company 200,000 at 6 per cent on an o en account and
on the same day that the Garbar company pad to the bank the sum of
202,406.07 n payment of the prncpa and accrued Interest on ts ndebted-
ness to the bank, that thereafter and on or about Septemher 16, 1931, the
Garbar company repad Mr. auer 60,000 and on or about October 20, 1931,
repad Mr. auer the addtona sum of 100,000, these sums havng been ac-
qured by the Garbar company through the sae of some of ts securtes, that
thereafter and on or about December 30, 1931, Mr. auer purchased sad rck
note from the Garbar company for the face amount thereof and at the same
tme was credted wth the sum of 66,418.25 aganst the purchase prce of
sad note, sad credt consstng party of cash advanced by hm n part con-
sstng of the canceaton of certan Indebtedness owng to hm by the Garbar
company, and that on anuary 1, 1932, accordng to the records of the arbar
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259
222, rt. 383.
company, Mr. auer was ndebted to the Garbar company n the prncpa
sum of 135,000, sad ndebtedness bearng nterest at the rate of 4 per cent
per annum, and that the reason Mr. auer purchased sad rck note from
the Uarbar company was because he fet that he had not e ercsed adequate
care n the matter of nvestgatng the vaue of the coatera whch Mr. rck
had gven as securty for sad note and
It further appearng that nothng has been pad to the Garbar company on
account of the moneys advanced by t to ts varous stockhoders, e cept as
herenbefore mentoned, and
It further appearng that the purpose of organzng the Garbar company
was to put the money beongng to the members of the Gardner famy In
a cass of Investments whch woud pay a return that woud support the mem-
bers of the famy and aso n order that after they had been pad 6 per cent
on ther nvestment, Mr. auer shoud receve 7 per cent on appro matey
one-haf of the stock of sad company, and that the baance of any money
earned was to be dvded practcay equay between Mr. auer, on the one
hand, and the members of the Gardner famy, on the other and
It further appearng that the ony reason each of the four stockhoders of
the Garbar company reported and pad ta es upon hs or her dstrbutve
share of the corporate ncome for the year 192G was the fear that secton
220(a) of the Revenue ct of 1928 woud be apped aganst sad company,
wth a resutant ta much arger than they pad upon ther respectve ds-
trbutve shares:
The court concudes that a of the stockhoders of the Garbar company
eected to ava themseves of the benefts of the Revenue ct of 1926 n
order to save the Garbar company from beng sub|ected to the addtona ta
specfed n secton 220(a) of sad ct, and n order to secure to sad company
the benefts of such eecton by them, and that such stockhoders are not en-
tted to a refund of ta es pad by them pursuant to such eecton and after
acceptng the prvege granted by secton 220(e) of sad ct
The court further concudes that the evdence s suffcent to warrant a
fndng to the effect that, e cept to the e tent that such eecton on the part
of the stockhoders has reeved the sad company from beng assessed wth
the addtona ta specfed n secton 220(a) of sad ct, the Garbar company
was avaed of for the purpose of preventng the mposton of a surta upon
ts sharehoders through the medum of permttng ts gans and profts to
accumuate nterest nstead of beng dvded or dstrbuted
The court further concudes that the contentons advanced by the aegatons
t forth n the second count of the compant are wthout mert.
S CTION 221. P YM NT O INDI IDU L S
T T SOURC .
ktce 361: Wthhodng ta at source.
R NU CT O 1926 ND PRIOR R NU CTS.
Interest on bonds of domestc corporaton guaranteed and pad by
a foregn corporaton, pavment beng made outsde the Unted States.
(See. T. 3059, page 111.)
S CTION 222. CR DIT OR T S IN C S
O INDI IDU LS.
rtce 383: Condtons of aowance of I-20-8706
credt. Ct. D. 1224
INCOM T R NU CT OP 1920 D CISION OP COURT.
L Gross Income Credt fob obeon Ta es Saary arned n
orhon Country Doube Ta aton.
n mercan ctzen temporary resdng n London, and whose
ncome was derved from sources both wthn and wthout the
Unted States, Is not entted to a credt, under secton 222(a)
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222, rt. 333.
260
(1)(5) of the Revenue ct of 1926, for foregn ta es pad on
saary for persona servces performed abroad, whch saary a
e empt from u aton under secton 213(b) 14 of that ct, nor s
he entted to a deducton, under secton 214(a)3 of the ct, for
other foregn ta es pad, where credt has been gven for the fu
amount of the foregn ta accrung to Great rtan on ncome
arsng n that country. Doube ta aton, the preventon of whch
was the prmary desgn of the provsons aowng credt for for-
egn ta es, does not e st under the facts of the case, Inasmuch as
ta es upon the saary were pad n Great rtan aone.
2. Certorar Dened.
Petton for certorar dened March 1, 1937. (300 U. S., 66a)
Unted States Court of Cams.
Chares . ubbard v. Unted States.
17 . Supp., 93.
December 7, 1936.
OPINION.
Wams, udge, devered the opnon of the court.
The pantff, a ctzen of the Unted States, was a temporary resdent of
the cty of London, ngand, durng the ta abe year 1927. The pantff s
edera ncome ta return for the year, fed on uy 20, 1928, dscosed a net
Income of 153,284.65, arsng from sources both wthn and wthout the Unted
States. Cam for credt of 43,047.85 ta es accrued to Great rtan on the
ncome arsng n that country accompaned the return, of whch amount
17,429.16 was camed as a credt aganst the ta es shown to be due on the
return, and the baance of 20,618.69 was taken as a deducton from ncome,
eavng a ta abty of 12,099.98, whch was pad by the pantff.
Subsequenty, an addtona assessment of 1,617.11 was made aganst pan-
tff on the return, wth nterest thereon, amountng n a to 1,930.21, whch
was aso pad.
The pantffs net ta abe ncome for 1927, before deducton of foregn ta es,
was determned by the Commssoner of Interna Revenue to be the sum of
181,114.22, of whch 0.540799, or 97,946.54, was derved from sources wthout
the Unted States and 83,167.68 was derved from sources wthn the Unted
States. In computng the ta abty the Commssoner gave the pantff
credt for the fu amount of the foregn ta accrung to Great rtan on
ncome arsng n that country, 43,391.76. by the deducton of 24,707.11 from
net Income, and a credt of 18,6S4.6 ) aganst the ta tsef
In addton to the ncome reported by pantff n hs ta return for 1927, he
receved a saary for persona servces performed n Great rtan durng the
year amountng to 163,004.20, upon whch a ta accrued to Great rtan In the
amount of 71,400.06. Under secton 213(b) 14 of the Revenue ct of 1926
the amount of ths saary was e empt from ta aton and for that reason was
not ncuded by hm In the gross ncome reported, nor was any cam made
by hm at the tme for credt n respect to the foregn ta es pad on such saary.
1 Sec. 213. or the purposes of ths tte, e cept as otherwse provded In secton 233

(b) The term gross ncome docs not ncude the foowng Items, whch sha be
e empt from ta aton under ths tte.

(14) In the case of an Indvdua 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 If such amounts consttute earned Income as
defned n secton 200 but such ndvdua sha not be aowed as a deducton from hs
ross ncome any deductons propery aocabe to or chargeabe aganst amounts e cuded
rom gross ncome under ts paragraph.
Sec. 201). (a) or the purposes of ths secton
(1) The term earned Income means war-profts, and e cess-profts ta es pad for
persona servces actuay rendered .
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261
222, rt. 383.
Subsequenty, however, n a cam for refund, as amended, pantff sought
to obtan a beneft of such ta es n the computaton of the foregn ta credt
to whch he was entted. It was urged that the foregn ta es on the pantff s
saary shoud be frst apped to the credt provded n secton 222(a) (1)(5)
of the Revenue ct of 1926. and that the other foregn ta es pad by pan-
tff shoud be deducted from hs gross Income under secton 214(a)3 of the
same ct. The Commssoner of Interna Revenue dsaowed ths part of the
pantff s cam for refund and rued that the ta es pad to a foregn country
by a ctzen of the Unted States upon ncome e cuded from gross ncome
nnder secton 213(b)14, mght not be camed as a credt under secton 222,
nor as deducton under secton 214 of the Revenue ct of 1926.
The pantff n ths sut renews the contentons made by hm before the
Commssoner n the dsaowed cam for refund, and says that the questons
Invoved are:
(1) Is an mercan ctzen resdng abroad, whose ncome ncudes saary
earned abroad whch s e empt from the Unted States ta , entted to credt
for the foregn ta es on the e empt saary f he has other ta abe foregn
ncome whch may be used as a bass for the computaton of the credt
(2) If so, may he requre that the foregn ncome ta es on the e empt saary,
whch are not aowabe deductons, be apped to the credt and that the
foregn ncome ta es on the foregn ta abe ncome be deducted from hs
gross ncome
The provsons of the Revenue ct of 1926 reed upon by pantff are:
Sec. 214. (a) In computng net ncome there sha be aowed as deductons:

(3) Ta es pad or accrued wthn the ta abe year e cept . ( )
so much of the ncome, war-profts, and e cess-profts ta es, mposed by the
authorty of any foregn country as s aowed as a credt under
secton 222 .
Sec. 222, (a) The ta computed under Parts I and II of ths tte sha bo
credted wth:
(1) In the case of a ctzen of the Unted States the amount of any
Income, war-profts, and e cess-profts ta es pad or accrued durng the ta abe
year to any foregn country .

(5) The above credts sha not be aowed n the case of a ctzen entted
to the benefts of secton 262 and n no other case sha the amount of credt
taken under ths subdvson e ceed the same proporton of the ta (computed
on the bass of the ta payer s net ncome wthout the deducton of any ncome,
war-profts, or e cess-profts ta any part of whch may be aowed to hm
as a credt by ths secton), aganst whch such credt s taken, whch the
ta payer s net ncome (computed wthout the deducton of any such ncome,
war-profts, or e cess-profts ta ) from sources wthout the Unted States bears
to hs entre net ncome (computed wthout such deducton) for the same
ta abe year.
The prmary desgn of the provsons carred In the varous Revenue cts
permttng ta payers to credt ta es pad or accrued to foregn countres durng
the ta abe year aganst ther domestc ta es was to mtgate the evs of
doube ta aton. ( urnet v. Chcago Portrat Co., 285 U. S., 1 Ct. D. 403,
C. . I-1, 286 (1932) .) Doube ta aton e sts ony when the same ncome
s ta ed both n the foregn country and n the Unted States. Pantff s saary
In Great rtan on whch a ta of 71,460.06 accrued to that country was
e empt from ta aton n the Unted States and consttuted no part of the net
ncome upon whch hs ta es n ths country were computed. e pad ta es
npon the saary In Great rtan aone, hence there s no case of doube ta -
aton presented. The pantff, as we have seen, has aready been gven the
fu credt he s entted to receve n the way of credt aganst hs domestc
ta es of foregn ta es pad or accrued to Great rtan on a ncome arsng
n that country upon whch ta es were aso mposed n ths country.
The acton of the Commssoner of Interna Revenue In dsaowng pantff s
cam for refund was correct. The pantff s not entted to recover and the
wtton w be dsmssed. It s so ordered.
Wha t, udge Ltteton, udge Green, udge, and ooth, Chef ustce,
concur.
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233, rt. 647. 262
S CTION 223. INDI IDU L R TURNS.
rtce 401: Indvdua returns.
R NU CT OP 1920.
onuses and royates receved from wfe s separate property under
the management of her husband. (See Ct. D. 1187, page 199.)
P RT III. CORPOR TIONS.
S CTTON 231. CONDITION L ND OT R
MPTIONS O CORPOR TIONS.
rtce 511: Proof of e empton.
R NU CT OP 1926 ND TRIOR R NU CTS.
Procedure wth respect to appcatons for e empton. (See Mm.
3537 (revsed), page 100.)
rtce 523: armers cooperatve marketng and purchasng
assocatons.
R NU CT O 192C.
Scavenger servce corporaton. (See Ct. D. 1190, page 202.)
S CTION 233. GROSS INCOM O CORPOR -
TIONS D IN D.
rtce 547: Income from eased property. I-5-8516
Ct. D. 1194
ncome ta revenue acts of 1918 and 1921 decson of court.
1. Income Lessors Rentas Pad by Lessee Dwccty to Lbs-
sobs Stock hoders.
Where the ta payer corporatons eased ther propertes for a
term of years and drected that the essee, whch hed a ma|orty
of the stock of the essors, shoud pay the yeary rentas by pro
rata dstrbutons drecty to the ta payers stockhoders, the
amount of rents so pad or payabe consttuted Income to the es-
sors, under the provsons of sectons 213(a) and 233(a) of the
Revenue cts of 1918 and 1921 and the appcabe Treasury
reguatons (artce 546, Reguatons 45, and artce 547, Regu-
atons 02).
2. Decson tkmed.
Decson of the oard of Ta ppeas (26 . T. ., 914) affrmed.
8. Cektorar Dened.
Petton for certorar dened October 12, 1936. (299 U. S., 564.)
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263
I 233, rt. 647.
Unted States Crcut Covet of ppeas for the Second Crcut.
God tock Teegraph Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
83 . (2d), 465.
ppea from Unted States oard of Ta ppeas.
efore SIanton, ugustus N. and, and Chase, Crcut udges.
May 11, 1936.
OPINION.
rom an order of the oard of Ta ppeas determnng defcences for the
years 1920 and 1921 n the amounts of 29,800 and 30,000 respectvey n the
ncome taes of the pettoner God Stock Teegraph Co., the atter appeas.
ffrmed.
ugustus N. and, Crcut udge: The ta payer, God Stock Teegraph
Co., on anuary 1, 1882, eased ts entre property to the Western Unon
Teegraph Co. Western Unon agreed to pay an unnua renta of 300,000 pay-
abe quartery, beng a sum equa to 6 per cent per annum on the ta payer s
capta stock. The ta payer authorzed and requested Western Unon to pay
the renta by pro rata dstrbutons to the severa stockhoders of the ta payer
as they appeared on the books at the tme of payment and agreed to accept
such dstrbutons n fu satsfacton of the renta. There was aso an add-
tona renta of 2,500 per annum, to be used by the offcers of the corporaton
whch was to be mantaned. In case of defaut n payment the ta payer had
the opton to termnate the agreement and resume possesson of ts property.
The property was to be surrendered n good condton upon termnaton of the
agreement. Western Unon agreed to pay any ta es awfuy Imposed upon
the property and to keep the same cear from a Incumbrances arsng from
ta , assessment or udgment ens, or from any act of Western Unon durng
the term of the agreement. It was aso to assume and pay the prncpa and
nterest of certan bonds of the ta payer and coud requre the ssuance of
other bonds under the same arrangement.
Pursuant to the ease Western Unon took possesson of the ta payer s tee-
graph systems and a ts property and assets as essee and has contnued to
operate and mantan the same for ts own proft and at ts own cost. It has
pad the amounts provded n the ease to defray admnstraton e penses of the
ta payer and has pad the remanng rentas drect to the stockhoders other
than tsef but has made no payments to anyone n respect of the stock whch
t personay hed, whch was a ma|orty of the ta payer s stock durng the
years 1920 and 1921. Shorty after anuary 4, 1882, Western Unon caused
to be ndorsed on each certfcate of stock of the ta payer a guarantee that t
woud pay the quartery dvdend aggregatng 6 per cent per annum. Durng
the ta abe years n queston the ta payer had no fnanca transactons e -
cept the recept of the cost of mantanng ts corporate organzaton from
Western Unon and had no debts other than the cams of the Unted States
for ncome and e cess profts.
The queston on ths appea s whether the rent pad drecty to the stock-
hoders by the Western Unon consttuted ncome to the ta payer under sec-
tons 213(a) and 233(a) of the Revenue cts of 1918 and 1921 and the app-
cabe Treasury reguatons. The oard of Ta ppeas hed that t was such
ncome and determned the defcences accordngy.
In Unted States v. Western Unon Teegraph Co. (50 ed. (2d), 102),
where the Western Unon had eased the property of the Northwestern Tee-
graph Co., we hed that the Commssoner coud not enforce a en for ncome
ta es upon rents due from the Western Unon to the stockhoders. In Western
Unon Teegraph Co. v. Commssoner (68 ed. (2d), 16), we hed that the
Commssoner coud not mpose a abty aganst the Western Unon as
transferee for Income ta es on the rentas under the ease of the God
Stock Teegraph Co. whch s before us n the present case. In arwood v.
aton (68 ed. (2d), 12), we hed n regard to a smar ease that the stock-
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233, rt. 547.
264
hoders were not abe for ta es as mere transferees under the statute Im-
posng ta es In ease of certan transfers. Under the foregong decsons the
queston whether rentas payabe by the essee drecty to the stockhoders
of the essor were ta abe aganst the essor as ts ncome was eft open and
must now be answered.
In Rensseaer t S. Ry. Co. v. Irvn (249 ed., 726) the ta payer corpora-
ton had eased ts property for 500 years to a essee whch had agreed to pay
as rent the amount of 8 per cent upon the par vaue of ts stock drecty to
the hoders thereof, and n addton nterest on the bonds of the essor and
1,000 per year for corporate mantenance. We hed that the essor was
abe for ta es on the payments by the essee to the stockhoders as we as
on the payments for nterest. udge ough dssented on the ground that
the stockhoders acqured separate rghts to recover and sue for the payments
to be made to them whch woud not be dscharged by payment to the essor.
The Supreme Court dened a wrt of certorar. We foowed the foregong
decson n Northern R. Co. of New ersey v. Lowe (250 ed., 856), and the
Court of ppeas of the rst Crcut reached a ke resut by a dvded court
n West nd 8t. Ry. Co. v. Maey (246 ed., 625 certorar dened, 246 U. S.,
671). mercan Teegraph d Cabe Co. v. Unted States (61 Ct, CI., 326
certorar dened, 271 U. S., 6C0 T. D. 8799, C. . -, 295 ) was another
decson to the same effect.
n nterestng dscusson of a stuaton cosey resembng that before us
may be found n aock v. Georga Ry. f ectrc Co. (246 ed., 387). There
the appcabty of the Corporaton Ta ct of ugust 5, 1909, to the ncome
of a essor under a ease whereby the essee was to pay quartery sums or
dvdends of a named per cent of the essor s capta stock to the persons)
regstered as hoders of the shares on the tenth day ne t precedng
each day for such payment was consdered. udge Waker, wrtng for the
Court of ppeas of the fth Crcut, sad:
We do not thnk that what wns done amounted to an assgnment by the
essor to those who were Its stockhoders when the ease was made of pro-
portonate shares of the net rent to accrue n the future. If there had been
such an assgnment, any assgnee woud have had the power of dsposng of
hs share of the rent wthout dsposng of hs share as a stockhoder n the
rented property. It pany appears that ths was not contempated. y the
e pct terms of the ease the nstaments of rent were made payabe to
the persons regstered as hoders of sad shares on the tenth day ne t preced-
ng each day for such payment. There was no assgnment havng the effect
of a severance or separaton of the benefca ownershp of the rented property.
The benefca ownershp of both contnued n those who at any gven tme
were the stockhoders of the essor corporaton.
The aw, by permttng the assocaton to be made a corporaton,
enabes the assocated members to secure for themseves the benefts of defned
and mted responsbty, and at the same tme the e ecuton of the purposes
for whch they are assocated by means of an artfca beng, changes n the
membershp of whch cause no break n the contnuty of ts e stence and
are wthout effect upon Its capacty to act, wthn the scope of the powers
conferred by ts charter, as a natura person.
Is net rent pad for the use of corporate property made any the ess cor-
porate ncome receved by the corporaton, wthn the meanng of the pro-
vson , by the crcumstance that, pursuant to a provson of the
corporaton s ease under whch the rent s payabe, It Is pad to the corpora-
ton s then regstered stockhoders In amounts proportonate to ther respectve
hodngs of stock, nstead of n a ump sum to the corporaton tsef We
thnk not.
udge Learned and adopted much the same ne of reasonng In hs con-
currng opnon n ancood v. aton (68 ed. (2d), 12 (C. C. . 2)). In
that case the ma|orty of the court dd not dea wth the abty of the essor
for Income ta es but mted the opnon to the queston whether the statute
reatng to transferees covered the cam asserted, n order not to pass upon
the dffcut matters now before us whch were not at that tme necessary
nvoved.
Not ony has the Supreme Court on three occasons decned to revew
the decsons we have referred to, hodng the essor sub|ect to ta es upon In-
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265
238, rt. 547.
come derved from Its property though drecty payabe by the essee to the
essor s stockhoders, but a fve decsons were cted by the Supreme Court
wth approva n Od Coony Trust Co. v. Commssoner (279 U. S., 715, 729 Ct.
D. 80, C. . III-2, 222 ). (See aso Unted States v. oston 11. R. Co.,
279 U. S., 732, 736 Ct. D. 73, C. . III-2, 315 . Cf. nderson v. Morrs
. R. Co., 216 ed., 83, 90 (C. C. . 2).)
In our opnon a essor and Its stockhoders can not retan a corporate form
of assocaton wthout beng sub|ect to the ta es whch are naturay nvoved
n such an arrangement. ad a future rentns been assgned by the essor
to the stockhoders the case woud have been dfferent from that before us.
ere the retenton of the status of stockhoder benefcares wth a the rghts
ncdent to that status of sharng, n proporton to ther hodngs of stock, n
the rentas whch the property of ther corporaton yeded sub|ected them
to the ordnary Incdents of stockhoders recevng payments from the earnngs
of ther corporaton and sub|ected the essor corporaton to ta es upon the
ncome of the property of the group as a corporaton.
In Northwestern Teegraph Co. v. Wsconsn Ta Commsson (212 Ws., 219),
the Supreme Court of Wsconsn reached a dfferent concuson from the one
we have come to here. Its decson was paced upon the ground that the
rghts of the stockhoders n the rentas were f ed by agreement of the
partes and beyond the contro of the essor corporaton. Whe that s true,
the stockhoders remaned n recept of ncome whch came to them though
under the agreement, because they were not merey promsees or assgnees
but stockhoders st avang themseves of the corporaton to hod tte on
ther behaf. Shoud they se ther stock they woud ose ther rght to
share n the rentas. s the essor corporaton st e sts to serve ts stock-
hoders for some purposes we thnk t reasonabe to treat t as a nk n the
ncome recevng chan whch shoud not be dsregarded as a ta payer. There
s no suffcent ground for abatng ta es upon such groups because of the agree-
ment that the rentas sha be pad drecty to the stockhoders when derved
from the use of the corporate property, and a the authortes n the Unted
States courts have sustaned a ta aganst the essor.
further reason for reachng the above concuson s that the reguatons
(artce 102, Treasury Reguatons 33 artce 540 of Treasury Reguatons 45,
page 12 artce 547 of Treasury Reguatons 62, page 13) have for some years
hed that rent pad by a essee drecty to the stockhoders essor consttuted
ta abe Income to the atter. The frst of these reguatons s cted wth ap-
prova n connecton wth a reference to the decson n West nd Raway
Co. v. Maey (246 ed., 625), n Unted States v. oston t t. Ry. Co. (279
U. S., 732, 735).
The provsons of secton 233(a) and secton 213(a) of the Revenue ct of
1918. to whch artce 546 of Treasury Reguatons 45 refers, have been re-
enacted In the ater Revenue cts. See secton 233(a) and secton 213(a)
of the Revenue cts of 1921, 1924, and 1926, and secton 22(a) of the Revenue
cts of 1928, 1932, and 1934. These subsequent reenactments ndcate that
the reguatons have receved egsatve sancton. rewster v. age, 280 U. S.,
827, 337 Ct. D. 148, C. . I -1, 274 .) They pany are vad. ( urnet v.
WeU, 289 U. 8., 670 Ct. D. 688, C. . II-1, 261 Dougas v. Weuts, 296
D. 8., 1 Ct. D. 1041, a . I -2, 250 .)
It Is argued that the rentas payabe upon the arge stock hodngs of the
Western Unon Itsef shoud not be ta ed as Income of the essor because
the rentas to that e tent were not pad out, but we can see no mert In the
contenton. The Western Unon ke every other stockhoder of the essor chose
to acqure an nterest n the corporate assocaton. Rent accrued to t as a
stockhoder of the corporaton and, whether t chose to pay t to tsef or not,
ts rghts were as truy worked out through the corporaton as those of the
other stockhoders. The property of the corporaton of whch It was a benef-
cary yeded a return and that corporaton can not avod ta es because the
guaranty coud not be enforced by the Western Unon aganst tsef. Our re-
marks In Western Unon v. Commssoner (68 ed. (2d), 16. 18) reated to the
abty of the Western Unon as transferee upon rents due upon stock whch
t had acqured n the essor corporaton, but dd not reate to the mposton
of ta es aganst the essor corporaton.
The order of the oard of Ta ppeas s affrmed.
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233, rt. 547.
266
rtce 547: Income from eased property. I-5-8517
Ct. D. 1195
INCOM T R NU CTS O 1918 ND 1921 D CISION O COU T.
1. Income Lessor Rentas Pad by Lessee Drecty to Les-
sor Stockhoders.
Where the ta payer corporaton eased ts propertes for a term
of years and drected that the essee, whch hed a ma|orty of the
stock of the essor, shoud pay the yeary rentas by pro rata ds-
trbutons drecty to the ta payer s stockhoders, the amount of
rents so pad or payabe consttuted ncome to the essor, under the
provsons of sectons 213(a) and 233(a) of the Revenue cts of
1018 and 1921 and the appcabe Treasury reguatons (artce 546,
Reguatons 45, and artce 547, Reguatons 62).
2. Decson ffrmed.
Decson of the oard of Ta ppeas (26 . T. ., 914) affrmed.
8. Certorar Dened.
Petton for certorar dened October 12, 1936. (299 U. S., 564.)
Unted States Crcut Court of ppeas for the Second Crcut.
Pacfc d tanto Teegraph Co. of the Unted States, pettoner, v. Commsson
of Interna Revenue, respondent.
T83 . (2d), 469.1
ppea from Unted States oard of Ta ppeas.
efore Manton, ugustus N. and, and Chasb, Crcut udges.
83 . (2d), 469.
opnon.
rom an order of the oard of Ta ppeas determnng defcences for the
years 1920 and 1921 n the amounts of 10,537.35 and 10,633.40 respectvey
n the ncome ta es of the pettoner Pacc tantc Teegraph Co. of the
Unted States the atter appeas. ffrmed.
ugustus N. and, Crcut udge: The ta payer, Pacfc tantc Tee-
graph Co., on December 16, 1873, eased ts entre property to the Western
Unon Teegraph Co. for 999 years for a renta payabe drect to the stock-
hoders of the essor company. The ease s the same one consdered by ths
court n one of the two cases reported n Western Unon v. Commssoner (88
ed. (2d), 16). In a matera respects so far as any ta queston s con-
cerned the ease presents the same ssues nvoved n God d Stock Teegraph
Co. v. Commssoner, n whch the opnon s to be fed herewth Ct. D. 1194,
page 262. ths uetn . In the present case t does not appear that Western
Unon made ndorsements on the stock of Its essor Pacfc tantc Teegraph
Co., but t was agreed that the essee, nstead of makng payment of rent to
the essor, shoud pay the renta reserved to the severa stockhoders of the
essor rataby and n proporton to the number of shares of stock hed by each
stockhoder. The annua renta payabe to the essor s stockhoders rataby
was at 80,000 per annum and the Western Unon was to pay to the essor
n addton such sum or sums as mght be requste for mantenance of the
organzaton not e ceedng n the aggregate 2,500 per year. Durng the whoe
perod wth whch we are concerned a ma|orty of the stock was hed by the
Western Unon. The oard of Ta ppeas hed that the rent reserved whch
under the agreement was payabe drecty by the essee to the stockhoders n
proporton to ther hodngs was ncome ta abe aganst the essor, not ony
so far as t was appcabe to stock hed by thrd partes but aso to stock
hed by the Western Unon.
or the reasons stated n God Stork Teegraph Co. v. Commssoner, the
order of the oard of Ta ppeas s affrmed.
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267 273 and 274. rt. 1235.
S CTION 234. D DUCTIONS LLOW D
CORPOR TIONS.
rtce 562: Donatons.
R NU CT O 1026.
pendtures to avert enactment of egsaton. (See Ct. D. 1190,
page 202.)
S CTION 239. CORPOR TION R TURNS.
rtce 622: Returns by recevers.
R NU CT O 1926 ND PRIOR R NU CTS.
Returns by recevers and conservators of natona banks. (See
I. T. 3080, page 96.)
P RT rW- DMINISTR TI PRO ISIONS.
S CTION 260. CITIZ NS O POSS SSIONS O
T UNIT D ST T S.
rtce 1121: Status of ctzen of Unted States possesson.
R NU CT O 1926 ND PRIOR R NU CTS.
Resdents of Phppne Isands (ncudng ctzens of Unted
States). (See I. T. 3070, page 120.)
P RT , P YM NT, COLL CTION, ND R UND O T
ND P N LTI S.
S CTIONS 273 ND 274. D ICI NCY IN T .
rtce 1235: Interest on a defcency. I-17-8664
Ct. D. 1218
INCOM ND C SS PRO ITS T S R NU CT O 1918 D CISION O
SUPR M COURT.
Sut Counteboam owance or Intebest Notce and
Demand.
Where the pettoner brought sut In 1922 to recover an amount
aeged to be due from the Unted States ugon certan contracts,
and the Unted States In 1026 and 1927 fed a countercam and an
amendment thereto, aegng a defeency n Income and e cess
profts ta es for the year 191S, the Unted States was not entted
to an aowance of Interest upon ts countercam, n the absence
of any showng that notce and demand had been made by the
coector, as requred by secton 250(e) of the Revenue ct of
1918.
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273 and 274, rt. 1235.
268
SUPR M COU T O T UNIT D ST T S.
mercan Propeer Manufacturng Co., pettoner, v. The Unted States.
300 D. S., 475.
On wrt of certorar to the Court of Cams,
March 29, 1937.
OPINION.
Mr. ustce Sutherand devered the opnon of the Court.
Ths Is a proceedng brought In the Court of Cams by pettoner to recover
a baance of 144,238.03 aeged to be due from the Government under certan
desgnated contracts. The Government fed a genera traverse, and a counter-
cam for a defcency ncome and e cess-profts ta assessment n te sum
of 191,403.77. The ta es were for the year 1918, and were assessed on the
14th day of une, 1924. The court beow found that the Government was
ndebted to pettoner upon the contracts n the sum of 119,413.04. Upon the
countercam the court found that the ta abty of pettoner was S2,701.29.
Upon ths atter sum, t aowed nterest, at the rate of 6 per cent per annum
from the date of assessment, n the sum of 58,607.64, brngng the tota aow-
ance upon the countercam to the sum of 141,308.93. udgment was gven
aganst pettoner for the dfference between that sum and the sum due under
the contracts, namey 21,895.89. The opnon of the court w be found In
14 . Supp., 168 and a suppementa opnon n the form of a memorandum
was fed on October 5, 1936. We granted certorar, mted to the queston
of the aowance of nterest to the Government upon Its countercam.
In the argument here, both partes proceed upon the theory that nterest
was aowed under the Revenue ct of 1918 (ch. 18, 40 Stat., 1057, 10S3, sec-
ton 250(e)).1 The Government contended beow that under that secton t
was entted to nterest at the rate of 1 per centum per month nstead of 6
per centum per annum. It abandons that contenton here, but nssts that t
s entted to at east the nterest aowed by the court beow.
It w be seen that under the fndngs, the Government was ndebted n 1924
to pettoner n the sum of 119,413.04, aganst whch there was at the same
tme a |ust countercam of 82,701.29 so that f the account had been ad|usted
at that tme Instead of 12 years ater, the Government woud have been obged
to pay pettoner the dfference between these two sums, or 36,711.75. The
nequty of aowng the Government nterest for 12 years under these cr-
cumstances, so as to brng the pettoner n debt to the Government In the
sum of over 21,000, s so gross as to be shockng.
We have sad (Unted States v. The Theka, 266 U. S., 328, 339-340, 341)
When the Unted States comes nto court to assert a cam t so far takes
the poston of a prvate sutor as to agree by mpcaton that |ustce may be
done wth regard to the sub|ect matter. The absence of ega abty n a
case where but for ts soveregnty t woud be abe does not destroy the
ustce of the cam aganst t the reasons are strong for not
obstructng the appcaton of natura |ustce aganst the Government by tech-
nca formuas when |ustce can bo done wthout endangerng any pubc
nterest. If the prncpe thus stated s not strcty appcabe, t at east
uggests that the court shoud not affrm what s ceary an un|ust and
nequtabe resut uness under pan compuson of aw.
Secton 250(e), supra, provdes for the aowance of nterest where te ta
remans unpad after the date when t s due and for 10 days after notce
and demand by the coector. The court beow found that on une 14, 1924,
1 Sec. 250. (e) If any ta remans unpad after the date when t s due, and for 10
days after notce and demand by the coector, then, e cept n the case of estates of nsane
deceased, or nsovent persons, there sha be added as part of the ta the sum of 5 per
centum on the amount due but unpad, pus nterest at the rate of 1 per centum per month
upon such amount from the tme It became due: Provded. That as to any such amount
whch Is the sub|ect of a bona tde cam for abatement such sum of 5 per centum sha
not bo aked and the nterest from the tme the amount was due unt the cam s
decded sha be at the rate of of 1 per centum per month.
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269
276, rt. 1261.
the Commssoner made the assessment and duy notfed pantff wth regard
thereto. It made no other fndng n respect of that matter. The Government
contends that the fndng whch was made means that the Commssoner set
n moton the norma admnstratve machnery whch resuted In a notce
demandng payment, and rees upon the presumpton of offca reguarty as
beng suffcent to make ths fndng the equvaent of a fndng of notce and
demand by the coector. (Pacfc States Co. v. Whte, 296 U. S., 176, 186.)
ut we are deang here not wth a presumpton, but wth a specfc fndng
and that fndng shoud be e amned n the ght of the peadngs. (Luckenbach
S. 8. Co. v. Unted Staes, 272 U. S., 533, 539.) The amended countercam of
the Government, fed n 1927, among other thngs, aeges that the Comms-
soner of Interna Revenue made an addtona assessment of whch the
pantff pettoner was duy notfed. The coector Is not mentoned and
no demand s aeged. Consderng the fndng n connecton wth the aega-
ton, the former fary may be construed as comprehendng a that was done
In attempted compance wth the condton mposed by secton 250(e) as a
prerequste to the aowance of nterest. ut ths s not a that appears.
In the memorandum suppementng the orgna opnon, the court beow
sad: The record fas to show that any demand was made and we can not
presume that t was. On the contrary, In vew of the fact that pantff at
the tme was camng that the defendant was ndebted to t In a snm arger
than the amount of the ta , t s more probabe that no such demand was
made. Whe t Is true that ths Court s not at berty to refer to the
opnon for the purpose of ekng out, controng or modfyng the scope of
the fndngs, the rue s not absoute and does not precude reference to the
opnon for a purposes whatsoever. It Is we estabshed that n case of
ambguty, e trnsc ad may be sought n order to sette the meanng of a
statute or a contract. We see no reason why the prncpe of that rue does
not permt reference to the opnon of the court In order to carfy the mean-
ng of a fndng otherwse n doubt. The Government suggests that n such
case the proper course s to remand the case to the Court of Cams n order
that that court may suppement and cnrfy the fndng and, f necessary,
take addtona evdence to that end. Of course, that sometmes has been
done but where, as here, the fndng, the peadngs and the opnon of the
court, taken together, ceary show that secton 2T 0(e) n the partcuar under
consderaton was not comped wth, It s unnecessary to foow that procedure.
Ths proceedng was orgnay brought n 1922. The defcency assessment
was made whe the case was pendng. The countercam of the Government
was frst fed n 1926, and an amended countercam n 1927. Under these
crcumstances we see no reason for remandng the case upon the mere chance
that the Government may be abe to furnsh evdence whch t has faed to
furnsh durng more than a decade of tgaton, and especay n respect
of a cam whch at the bar the Government f ranky conceded to be nequtabe.
The |udgment shoud be reversed wth drectons to enter |udgment for
pettoner, wthout an aowance of nterest upon the countercam, n
accordance wth the foregong opnon.
So ordered.
S CTION 276 DDITIONS TO T T IN
C S O D LIN U NCY.
rtce 1261: ddtons to ta n case of denquency
n payment of ta .
R NU CT O 1920 ND PRIOR R NU CTS.
Interest on ta assessed aganst wthhodng agent. (See G. C. M.
17274, page 159.)
Stone r. Unted States (164 . S., 380, 383) Unted States v. Wee (283 U. S., 102,
120 Ct. D. 840, C. . -, 475 (1931)1) Crocker . Unted States (240 U. S., 74. 78)
Unted States v. snaut-Petere (299 U. 8., 201, 206).
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280, rt. 1291.
270
S CTION 280. CL IMS G INST TR NS-
RR D SS TS.
rtce 1291: Cams n cases of transferred
assets.
I-12-8603
Ct. D. 1208
ncome ta revenue act op 1926 decson of court.
1. Transferee Labty Statute of Lmtaton Res udcata.
corporaton whch receved a the property and assets and
assumed a the debts of another company (whch thereafter
ceased to e st), and whch Issued ts stock drecty to the
stockhoders of the od company n the same proporton n whch
they hed the orgna stock, was a transferee of the former com-
pany and abe, as such, under the provsons of secton 280 of
the Revenue ct of 1926, for ncome ta es asserted aganst the
transferor for the ta abe years 1918, 1919, and 1920. The run-
nng of the statute of mtaton havng been suspended by the
fng of a petton before the oard of Ta ppeas by the trans-
feror company, and the defcency notces to the transferee havng
been gven before the e praton of a year after the decson of
the oard became fna, the assessment made aganst the trans-
feree was not barred. The order f ng the ta aganst the
transferor company was not res udcata as to the proceedng
aganst the transferee.
2. Certorar Dened.
Petton for certorar dened October 12, 1930. (299 U. S., 552.)
Unted States Cecut Court of ppeas fob the Nnth Crcut.
Caforna Iron Yards Corporaton, pettoner, v. Commssoner of Interna
Revaue, respondent.
82 . (2d), 776.
Upon petton to revew an order of the Unted States oard of Tu ppeas.
Wbur, Crcut udge: Ths s an appea from the decson of the oard
of Tu ppeas. The Commssoner hed that the Caforna Iron Yards Corpo-
raton, pettoner, was a transferee of the Caforna Iron Yards Co. and thus
abe us a transferee under secton 280 of the Revenue ct of 1926 (26
U. S. C. ., secton 311). Upon appea ths determnaton wns sustaned by the
oard of Ta ppeas and the pettoner seeks to revew that decson.
The ta nvoved s for the years endng anuury 31, 1918, anuary 31. 1919,
and anuary 31, 1920, In the respectve amounts of 544.66, 22,060.35. and
11,440.60. The same ta for the same years was Invoved n our decson n
Caforna Iron Yards Co. v. Commssoner of Interna Revenue (47 . (2d),
514). The prncpa queston nvoved n our prevous decson was whether
or not the statute of mtatons had run aganst the assessment. The appe-
ant In that case was Caforna Iron Yards Co., whch had forfeted ts
charter by reason of nonpayment of State cense ta es. The contenton was
made n that case that the Caforna Iron Yards Co., havng ceased to e st
as a corporaton, ts offcers had no authorty to sgn a waver on behaf of
the corporaton. We hed that the waver was effectve so far as the edera
Government was concerned, and sustaned the oard of Ta ppeas whch
uphed the Commssoner n hs determnaton of the ta . That decson was
rendered ebruary 9, 1931, and became effectve uy 8, 1931. Ths ta has
not been pad. Whe proceedngs were pendng before the oard of Ta
ppeas upon the defcency notce aganst the Caforna Iron Yards Co., the)
efore Wbur, Denman, and anet, Crcut udges.
March 20, 1036.
OPINION.
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271
2S0, rt. 1291.
proceedngs n ths case were commenced by the Commssoner for the assess-
ment of the ta aganst the Caforna Iron Yards Corporaton as transferee
of the assets of the Caforna Iron Yards Co. These proceedngs were ntated
by defcency notces maed on une 28, 1926, for the years endng anuary 81,
1018, and anuary 31, 1919, under the then recenty enacted provsons of the
Revenue ct of 1926 (44 St., 61, 280(a)(d) 26 D. S. C. ., secton 311 (a) 1(d)).
s to the year endng anuary 31, 1920, the proceedngs were ntated by a
defcency notce dated pr 7, 1931. rom the defcency notces the pettoner
sought a revew before the oard of Ta ppeas, and the proceedngs before It
were evdenty stayed pendng the decson by ths court n the proceedngs
ntated aganst the Caforna Iron Yards Co.
On pr 23, 1934, the oard fed ts memorandum opnon and on pr 26,
1034. affrmed the ta aganst the pettoner n accordance wth the defcency
notces theretofore maed.
In the petton to ths court for revew of the decson of the oard of Ta
ppeas t s aeged that the pettoner, whch we w herenafter ca the
corporaton, was organzed to take over the busness of the Caforna Iron
Yards Co., whch we w herenafter ca the company. It s aeged that on
December 8, 1920, the corporaton succeeded to the busness of the company by
the recept of a the property nnd assets of the company and the assumpton
of the payment of a Its debts: that the stockhoders of the company became
the soe stockhoders of the pettoner by Issuance of pettoner s stock drect
to them. It s aeged that the transacton was n effect a consodaton of the
two corporatons.
The pettoner contends that nasmuch as the oard of Ta ppeas found
that the pettoner s the same corporate entty as the company, that there-
fore the entre proceedngs for the assessment of ta aganst the pettoner as
a transferee s useess. Thus pettoner contends th t t Is not n transferee of
the company, but Is the company, and consequenty the defcency notces now
reed npon by respondent are second defcency notces whch the aw pro-
hbts. that Is the defcency notce that may be sent must
be wthn the perod of fve years after the return s ted or such perod as
e tended by waver. In ths case the perod of mtaton e pred December
31. 1925. Upon the same premse, pettoner contends that the pror pro-
ceedng nganst the company Is res udcata on the ssue of aeged transferee
abty.
If we regard the two corporatons as dentca there whs. of course, no
transfer and eond be none, and by the same token the corporaton woud
be abe for the ta assessed aganst the company wthout the necessty of
ny of the proceedngs aganst t as transferee. The ogca resut of ths
stuaton woud be that the corporaton shoud ether ph|1 the ta or submt
to the dstrant of Its property wthout contest. The pettoner has never ac-
knowedged that t was abe for the ta es assessed gnst the company.
Through the same offcers It vgorousy contested the obgaton of the com-
pany and. when t was fnay determned that the compuny was abe for a
ta . It now vgorousy contends that t s not abe for the debts of the com-
pany because It Is In fact the company a manfest absurdty.
The stuaton Is not as smpe as the pettoner contends. There s no
doubt that for certan purposes the aw woud regard the two corporatons
as Identca, the assets of the company havng been transferred to the corpora-
ton and the stock havng been ssued to the stockhoders of the corporaton
In the same proporton In whch they hed the stock of the compnny. The
prnct en resut of the change was that the capta of the od company was
Increased. ut the oard was not n error n hodng that for the purpose
of assessng a transferee ta the new corporaton was dstuct from the od
and had acqured a the assets of the od corporaton wthout any con-
sderaton movng from the corporaton to the company. The oard of Ta
ppeas dd state arguendo n Its memorandum opnon that In substance the
pettoner s nothng more than a rencorporaton of the company. ut t
aso hed that The transacton between the company and the pettoner d-
vested the transferor of a assets, and thereafter n of the nettoner s out-
standng stock, e cept a few shares, was owned by stockhoders of the com-
pany. The company carred on no busness after the transfer and ost ts
corporate rghts and powers March 5. 1921. for faure to pay the State
cense ta , due anuary 1, 1921. The suspended rghts have never been
restored. The pettoner carred on ts actvtes n the same pace and man-
ner as the company. The oard of Ta ppeas aso sad: The evdence, n
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280, rt. 1291.
272
our opnon, estabshes that the pettoner receved assets of the company
of a net vaue consderaby n e cess of the cam beng asserted here. Orders
w be entered heren fndng the transferee abty of the pettoner to be
the amount of the unpad ta es pus nterest thereon from ebruary 26, 1926,
at the rate of 6 per cent per annum.
Ths fndng, nstead of hodng that the two corporatons are dentca e -
pressy hods that the company transferred ts assets and ceased thereafter to
e st, and that the pettoner receved these assets n pursuance of such trans-
fer. The oard aso hed that the pettoner bad assumed and agreed to pay the
abtes of the company and that ncuded theren was the abty of the
company to pay the ta es n queston. It matters not that the oard of Ta
ppeas referred to the ncorporaton of the pettoner, the transfer of the assets
of the company to t, and the subsequent demse of the company, as n sub-
stance a rencorporaton of the company. The fact s that we are deang wth
two corporate enttes and that the Commssoner s seekng by ths proceed-
ng, authorzed by statute, to coect the ta due from the company as aganst
the property of the company acqured by the pettoner by means of an assess-
ment of the ta aganst the transferee. Ths statutory proceedng s In eu
of an acton at aw or n equty to enforce the ta by |udca proceedngs.
(Revenue ct 1926, secton 280(a) 1, supra Phps v. Commssoner, 283 U. S.,
589 Ct. D. 350, C. . -, 264 .)
Our decson that the two corporate enttes are dstnct for the purpose of
assessng a transferee ta dsposes of the pettoner s contenton that the
assessment of the ta aganst t s barred by the statute of mtatons.
petton fed wth the oard of Ta ppeas by the Caforna Iron Yards
Co. suspended the runnng of the statute of mtatons for the makng of an
assessment aganst that company unt 60 days after the decson of the
oard became fna. (Secton 277(b), Revenue ct 1926, as amended by
secton 504, Revenue ct 1928.) The decson of the oard dd not become
fna unt uy 8, 1931. Consequenty, the notces to the pettoner as trans-
feree havng been gven before the e praton of the perod of a year after
the fna decson of the oard was wthn the statutory perod. (Sectons
280-281, Revenue ct 1926 uzard v. evcrng, 77 ed. (2d), 391 Ct. D.
1068, C. . -1, 326 .)
What we have sad aso dsposes of pettoner s contenton that the order
f ng hs ta as aganst the company Is res udcata as to the present pro-
ceedng. s we have aready ponted out, the two proceedngs are dstnct
and the two corporate enttes can not be dsregarded or f they can, t s not
ncumbent upon the Commssoner to attempt the coecton of a ta by the
sezng of the property of the corporaton wthout a determnaton by the
oard of Ta ppeas or by the court that the property n the hands of the
corporaton Is abe for the ta . (See urnet v. Improvement Co., 2S7 O. S.,
415 Ct. D. 622, C. . II-1, 277 .)
The pettoner contends that the proceedng n ths matter was vod because
of the fact that the pettoner s a ta payer wthn the meanng of the Rev-
enue ct, and that there was pendng before the oard of Ta ppeas a
proceedng for the f ng of the ta of the ta payer, and that ths second
proceedng for the f ng of a ta aganst the corporaton as ta payer s
unnecessary and nvad. Ths contenton, however, overooks the fact that
the word ta payer throughout the Revenue ct refers to the one abe n
the frst Instance for the payment of the ta as dstngushed from one who
becomes abe by reason of beng a transferee. Ths dstncton s ponted
out In the Crcut Court of ppeas for the Second Crcut In Mchae v. Com-
mssoner (75 ed. (2d), 966). The proceedng n the present case s not
aganst the ta payer as such, but one to enforce the obgaton of a thrd
party by a proceedng n the nature of a suppementary proceedng, or of an
ndependent acton at aw or n equty to sub|ect the property transferred, or
rather Its owner, to the abty under whch t rested whe In the hands of
the transferor. Inasmuch as the Government coud have gone forward In
the frst nstance aganst the transferee there s no ncongruty n carryng
on the two proceedngs at the same tme, partcuary where t s manfest that
the transferor has dsposed of a ts property and proceedngs aganst the
transferor woud be unavang. (See rverng v. Wheeng Mod t oundry
Co., 71 ed. (2d), 749 Ct. D. 928, C. . I -1, 3521 Unted States v. ara ,
16 ed. (2d), 328 T. D. 4008, C. . I-1, 267 Unted States v. Oarfvnke, 52
ed. (2d). 727 Ct. D. 405, C. . -2, 384 atch v. Morosco odng Co..
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273
328 (1918), rt. 911.
50 ed. (2d), 138.) The queston Is one whoy of procedure and there s no
requrement n the statute makng the transferee s abty to an assessment
dependent upon the makng of an assessment aganst the transferor. ( ynn
v. Commssoner, 77 ed. (2d), 180 Ct. D. 1023, C. . I -2, 186 .)
Pettoner contends that t pad a bona fde and adequate consderaton for
the propertes and there s no transferee abty. Secton 280 of the revenue
aws of 1926 does not by ts terms e cude transferees who have pad fu
consderaton for the property transferred. owever, t s not necessary to
decde the queston of whether the terms of the statute were ntended to be
appcabe to transferees of the property for an adequate consderaton, for the
pettoner n ths case s not a transferee for consderaton as regards to cred-
tors of the company. The stock of the corporaton, transferred as the aeged
consderaton, was not pad to the company for ts assets, but was ssued d-
recty to the sharehoders of the company n proporton to ther stock hodngs
n the company. Consequenty the company as an entty, receved nothng
for the transfer of ts assets and the corporaton as the transferee was equtaby
abe to the credtors of the od corporaton to the e tent of the vaue of
the property conveyed. anc v. Pnynnster Mnng Co.. 05 Pa.. 524: g-
gns v. Caforna Petroeum f sphat Co., 122 Ca., 373 Stanford ote
Co. t. If. Schcnd Co.. 181 Pac. 780 hcma Ins. Co. v. St. Lous t New
Oreans Transp. Co., 13 ed., 516 Oren v. Detrot Oas Co., 112 Mch., 70
Shamrock O Co. v. Commssoner (C. C. . 5), decded May 14. 1035 Ct. D.
11 7. C. . -1, 3.52 .) urthermore, the trnnsferee was abe by reason
of Its agreement to pay the debts of the transferor, the company. It has been
hed by the Crcut Court of ppeas for the ourth Crcut that the agreement
of the corporaton to pay the debts of the company can he enforced by the
Government by proceedng for the assessment of the tar ganst the transferee
( cverng v. Wheeng Mod d oundry Co., 71 ed. (2d), 740), and we are
n accord wth that decson. The pettoner contends that Inasmuch as the
amount of the tu was not ascertaned at the tme of the transfer, the agree-
ment to pay the debts of the corporaton shoud not be construed to cover such
a ta but the decsons upon that sub|ect are to the contrary. (Contnenta
akng Co. v. ffeverng, 75 ed. (2d), 243: natch v. Morosco odng Co.,
60 ed. (2d), 138: m. rf rk. y. Co. v. everng, 70 ed. (2d), 286 TCt. D.
858. C. . ITI-2. 353 .)
Pettoner cams that the transferee abty does not e st n the case at
bar becanse the transacton between the two companes was a ta abe transfer
of assets under secton 202(b) of the Revenue ct of 1918. Ths proposton s
not rased by the assgnment of errors, but In any event t Is cear that the
ta abty of the transfer between the two corporatons s entrey Irreevant.
Ths Is not a proceedng to enforce a transfer ta , hot to enforce a ta whch
arose durnsr the ownershp of the property by the orgna ta payer aganst
Its assets whch have been transferred to the pettoner.
Order affrmed.
S CTION 828 (R NU CT O 1918 COMPUT TION
O T IN SP CI L C S S.
ncome and e cess profts ta revenue act of 1918 decson of
supreme court.
Sut Cam fob Refund Speca ssessment ubsdcton of
edera dstrct court has no ursdcton of an acton for
refund of ncome ta es because of an aeged error n computa-
ton of the net ncome, where the Commssoner has made a
peca assessment of the profts ta es as provded by sectons 327
and 828 of the Revenue ct of 1918. The ta payer s true net
Income s an essenta factor n the determnaton of hs abty
under those sectons, and the makng of the speca assessment
precudes revew by a court of the ncome ta determned.
rtce 911 (Reguatons 45) : Computaton of
ta n speca cases.
I-20-8707
Ct. D. 1225
COU T.
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328 (1918), rt. 911.
274
SUP M COU T O T UNIT D ST T S.
Oaen . Wech, ormer Coector of Interna Revenue, etc., pettoner,
v. Obspo O Co.
57 S. Ct., 684.
On certorar to the Unted Sates Crcut Court of ppeas for the Nnth Crcut.
pr 20, 1037.
OPINION.
Mr. ustce bandes devered the opnon of the Court.
The tevenue ct of 11)18 (ch. 18, 40 Stat., 1057) ad upon corporatons, n
addton to the ncome ta , a war profts and e cess prons ta at very hgh
rates. ecause the profts ta mght prove unduy burdensome, Congress
provded by sectons 327 and 328 for a speca assessment of tue prohs La
by the Commssoner of Interna evenue under certan crcumstances. The
queston for decson n ths case s whether, when a speca assessment has
been made of the prots ta , a court may entertan an acton for refund of an
amount pad on the accompanyng ncome ta on the ground that the ncome
was erroneousy determned.
Obspo O Co. brought, n the edera Court for Southern Caforna, ths
acton to recover an amount aeged to have been egay e acted as ncome
ta for the year 1920. Upon fna assessment, the Commssoner had assessed
ts net ncome for that year at 1,476,330.52. Under secton 236(b), t was
necessary to deduct the prots ta and other amounts from the net Income
n order to determne the amount of the ta abe net ncome. ecause the
net ncome of that year ncuded arge funds theretofore ong n tgaton,
the Commssoner made a speca assessment under secton 327(d) to determne
the prots ta .1 Where a speca assessment s made, secton 323 commands
that the ta sha be the amount whch bears the same rato to the net
Income of the ta payer for the ta abe year, as the average ta
of representatve corporatons engaged n a ke or smar trade or busness,
bears to ther average net ncome for such year. The Comms-
soner ed that rato as 0.67 per cent and, appyng t to the Obspo company s
net ncome of 1,476,330.52, computed the profts ta at 142,765.73. When
ths and other aowabe sums were deducted, the ta abe net ncome was found
to be 1,245,430.03.
The statutory ta rate on net ncome beng 10 per cent, the Income ta
was determned to be 124,543.00. The company pad the ncome ta so
assessed fed then a cam for refund thereof, settng up severa grounds
of recovery and, the refund beng refused, brought ths sut aganst the
coector of nterna revenue for the s th coecton dstrct of Caforna
for aeged overpayment. The amended compant aeged that the sum had
been egay e acted from the pantff on account of addtona ncome
and profts ta es for the year 1020. In a tra hed n 1031, the dstrct
court hed that the company was entted to recover the fu amount camed.
(48 . (2d), 872.) The coector appeaed to the Unted States Crcut
Court of ppeas but before the appea was determned there, the case was,
upon agreement of the partes, referred back to the dstrct court for correc-
ton, to accord wth our decson n North mercan O Consodated v. urnet
(286 U. S., 417 Ct. D. 490, C. . I-1, 203 (1032) ), whch had meanwhe been
rendered. Then the coector moved n the dstrct court for |udgment, cam-
ng that the company was not entted to recover any part of the sum sued for
and, specfcay, that the court had no |ursdcton of the sub|ect matter of
ths acton, the ta sought to be recovered havng been assessed under the
speca assessment provsons of sectons 327 and 328 of the Ievenue cts of
3918 ad 1921.
The dstrct court overrued the coector s moton to dsmss rued that
the net ncome as determned by the Commssoner was e cessve n the net
amount of 40,102.44 and entered |udgment for the company In the sum of
4,010.24 wth nterest and costs. The company appeaed to the crcut court
1 The amended compant aeged that sectons 327 and 328 were apped due to the
abnormaty resutng from the Incuson In pantff s Income for that year 19201 of sad
mpounded funds.
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275
32S (1918), rt. 911.
of appeas, camng chefy that the 1920 net ncome shoud have been reduced
by an addtona depeton aowance of 516,598.10. The coector fed a
cross-appea, camng, among other thngs, that the dstrct court was wthout
ursdcton over the sub|ect matter of the ucton, the ta sought to be
recovered havng been determned and assessed by the Commssoner
under the speca assessment provsons of sectons 327 and 328 of the Revenue
cts of 1918 and 1921. The crcut court of appeas affrmed the dstrct
court n hodng that t had |ursdcton of the sub|ect matter but reversed
the |udgment on the ground that the assessment had overstated the net
ncome by the net amount of 556,700.54, so that there shoud have been
deducted the sum of 516,598.10 for depeton, n addton to the sum found
by te dstrct court. (85 . (2d), 860.) Certorar was granted upon petton
of the coector (299 U. S., ) because of the practca mportance of the
queston of |ursdcton presented.1
The Commssoner s acton n appyng or re|ectng the procedure of sec-
tons 327 and 328, and hs computaton of the pruts ta thereunder and of
the reguar ncome ta are revewabe by the oard of Ta ppeas. When no
speca assessment has been made of the profts ta , au acton w e to
recover au amount erroneousy e acted ether for ncome or for profts ta es.
ut no court has power to revew the grant or dena of a speca assessment
or the correctness of the computaton made thereon. (Wnmgport Wre Rope
Co. v. Unted States, 277 D. S., 551 T. D. 4172, C. . II-2, 323 (1928)
ener v. amond ka Co., 288 U. 8., 502 LCL D. 652, C. . II-1, 333
(1833) .) The company concedes that the amount of the profts ta es, beng
the sub|ect of a speca assessment under sectons 327 and 328, coud not be
revewed by the court but t nssts that recovery may be had of the sum
aeged to have been erroneousy e acted for ncome a .
In ener v. Damond ka Co. (288 U. S., 502, 503), where a speca
assessment had been made of profts ta es under sectons 327 and I 28, the
ta payer sued to recover a part of the profts ta , aegng error n the
determnaton of the net ncome on whch t was based. The crcut court
of appeas aowed recovery. (60 . (2d), 505, 513, 514.) We reversed ts
|udgment, hodng that the court may not, n an acton for a refund of profts
ta . recacuate the ta payer s net ncome and recompute the profts ta by
appyng to the corrected net ncome the rato f ed by the Commssoner for
the computaton of the ta . We dd not pass upon the queston whether the
same rue shoud be apped f the ta payer seeks a refund of the ncome
ta because of an aeged error n the computaton of the net ncome. ut
the reasonng of the opnon eads to that concuson.
The company nssts that, as t woud, n vew of the arge deductons
aowed by the court of appeas, be entted to a substanta refund even f
t were dened the deducton of the whoe of the prcfts ta from the not
Income. Congress coud not have ntended that the deducton provson shoud
deprve the courts of |ursdcton to correct errors In determnng the amount
of the ncome from whch the ncome ta s computed : that Congress ntended
to beneft the ta payer when t drected that before computng the 10 per cent
Income ta the net ncome found shoud be reduced by deductng the profts
ta therefrom: and that, therefore, t s unreasonabe to adopt a constructon
of the aw under whch the aowance of the profts ta credt woud be
consdered as so essenta an eement In the computaton of the ta that
the tn payer woud be deprved of a other ad|ustments n the event there Is
uncertanty as to the partcuar tems.
y the statute the amount of the ncome ta payabe s dependent upon
the amount of the profts ta and the amount of the profts ta s dependent
upon the amount of the ncome. In order to determne the corporate ncome
ta payabe at the statutory rate of 10 per cent, of the ta abe net ncome,
there must frst be deducted from the net ncome the amount of the profts ta .
(Secton 236(b).) Thus, to compute the ncome ta n the case at ar. It was
necessary frst to deduct from the net Income ascertaned as beng 1,476.330 52,
the profts ta whch by appyng, under secton 328(a). the rato of 9.67
per cent to the net Income, was determned to be 142,765.73.
change n the amount of net Income to whch the rate was apped
woud, of course, produce a change In the amount of the profts ta . Indeed,
Tfp qupst on wag present In Unted States v. uppcr dde Rnrdvmre Co. (2(15 U. S.,
189 T r . soot. C. . II-1, 112 (1024)1) nnd In ener v. Damond Ua Co. (288
0. 8.. 502 Ct. D. 652, C. . II-1, 333 (1933) ), but was not ubmtted to the court
for decson.
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1001.
276
a dfferent computaton of net Income mgt hare made t proper to compare
the ta payer wth a whoy dfferent group of representatve corporatons,
and hence mght have resuted n the determnaton of a dfferent rate for
the profts ta . nd moreover, the Commssoner, havng authorty, In hs
dscreton, to determne whether there shoud be a speca assessment, mght
have refused to make one. It s no ess true n the present stuaton than n
Rener v. Damond ka Co., supra, C506, that the ta payer s true net ncome
s an essenta factor n the determnaton of hs abty under sectons 327
and 328 and t foows that the makng of the speca assessment precudes
revew by a court of the ncome ta determned.
Reversed.
TITL . O RD O T PP LS.
S CTION 1001. COURT R I W O O RD S D CISION.
I-9-8570
Ct. D. 1203
federa ta es |udca code decson of supreme court.
quty Rues Dscreton of Crcut Court of ppeas to Dent
Pettoner s Request for Return of Record to Lower Court
for Proper uthentcaton.
dena by the crcut court of appeas of a request for rehearng
and for the return of the record to the dstrct court for settement
and proper authentcaton Is an abuse of dscreton, where upon
ts own moton the court rased the pont that equty rues o. 75(b)
and 77, requrng that approved statements of the evdence and of
the case be fed wth Ue court, had not been comped wth.
When there s mere omsson of some step whch has escaped the
attenton of both partes and rgorous enforcement wthout far
opportunty to correct the error woud defeat hearng on the
merts and enta unnecessary hardshp, approprate reef prompty
asked for shoud be afforded.
Supreme Court of the Unted States.
S. P. ey, Trustee n ankruptcy for the Carse Packng Co., a Corporaton,
ankrupt, pettoner, v. The Unted States of merca and thv Coector of
Interna Revenue for the Unted States of merca et at.
300 U. S., 50.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
ebruary 1, 1937.
OPINION.
Mr. ustce McReynods devered the opnon of the Court.
In a proceedng begun anuary 0. 1934, the Dstrct Court, Western Dstrct
of Washngton, ad|udged the Carse Packng Co. bankrupt, ebruary 9, 1934.
The Unted States presented ther cam for ncome ta es for 1927, 1928, and
1929, and the trustee fed ob|ectons, une IS, 1934. e asserted that the com-
pany receved no ta abe ncome durng 1927 but suffered oss suffcent to
offset any gans for 1928 and 1929. The referee receved copy of the duy
authentcated udgment by the oard of Ta ppeas, whch sustaned the
ta n queston, took other evdence, and upon the whoe record concuded that
the company ost as averred durng 1927. e dsaowed the cam and
e paned ths acton by an opnon.
ceptons chaenged the referee s refusa to treat the decson of the Ta
oard as concusve and hod the bankruptcy court acked power to consder the
merts of the assessments. petton for revew by the dstrct court aeged
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277
51001.
fnaty of the oard s udgment, ack of power n the bankruptcy court, and
asked dsaowance of the cam.
rom an abstract of the proceedngs returned by the referee t appears
That the Unted States had unsuccessfuy ob|ected to the ntroducton of
any testmony concernng the merts of the questoned ta upon the ground that
the oard s |udgment n respect of the same matter had become fna and
concusve.
That the bankrupt had borrowed arge sums from the ank of Caforna, and
n 1927 when unabe otherwse to meet ts obgatons had transferred to the
bank much property and receved therefor ts own canceed notes for 650,000.
the company camed no proft arose from ths transacton and that t sus-
taned arge oss durng 1927. The coector rued to the contrary and assessed
denquences for three years. The oard of Ta ppeas sustaned hm, ap-
proved the assessments, and ad|udged accordngy, anuary 4, 1934. On anu-
ary 12, 1934, he made summary assessments. The tme for contestng the
oard s |udgment had not e pred when pettoner was ad|udged bankrupt.
Upon moton of the Unted States the dstrct court drected that the bank-
rupt s ta returns be made parts of the record. It then heard the cause, con-
sdered whether the decson of the oard was concusve, and hed: To
reach the concuson that a defcency determned by the oard of Ta p-
peas may be ree amned and redecded by the |udge of a dstrct court or a
referee n bankruptcy s, on ts face, nconsstent wth the ntent and purpose
on the part of Congress shown that a revew of the oard s decson shoud
be by such an apeate court. ccordngy t rendered an opnon, ds-
affrmed the referee s acton, and aowed the cam.
Thereupon the trustee appeaed to the crcut court of appeas. mong
other thngs he assgned as error the rung that the bankruptcy court acked
power to determne anew questons whch the oard of Ta ppeas had ad-
|udcated. Portons of the record n the dstrct court, certfed as correct
by the cerk, were fed. Counse for the Unted States obtaned eave to
make part of the transcrpt the dstrct court s opnon. Ths was omtted, he
sad, through nadvertence ony recenty dscovered.
It s asserted and not dened that the cause was heard by the court wthout
ob|ecton to the record, and that both sdes treated the statement of the ev-
dence as correct. Undoubtedy, the record was not propery authentcated
wthn the requrements of equty rues No. 75(b) and 77.
Upon ts own moton the crcut court of appeas rased the pont and de-
cded appeant has not comped wth ether of these rues, but has dsre-
garded them both. There s no statement of the evdence, nor s there any
agreed statement of the case. In the absence of any such statement, we
nduge the presumpton that the evdence supports the udgment and warrants
ts affrmance.
quty rue 73(b), as amended (286 . .. 870. 28 . S. C. ., secton 728) :
The evdence to be Incuded In the record, e nept e pert testmony, sha not be set
forth In fa, bat sha be stated In smpe and condensed form, a parts not essenta to
the decson of the questons presented bv the appea beng omtted and the testmony of
uttnesses beng stated ony In narratve form, save that If ether party desres It. and the
court or |udge so drects, any part of the testmony sha be reproduced In the e act words
of the wtness. The duty of so condensng and statng the evdence sha rest prmary
on the appeant, who sha prepare hs statement thereof and odge the same In the cerk s
offce for the e amnaton or the other partc at or before the tme of fng hs praecpe
under paragraph (a) of ths rue, re sha aso notfy the other partes or ther soc-
tors of snch odgment and sha name a tme and pace when he w ask the court or
|dge to approve the statement, the tme so named to be at east 10 days after such notce.
t the e praton of the tme named or such further tme as the court or |udge may aow,
the statement, together wth any ob|ectons made or amendments proposed by any party,
ha be presented to the court or the udge, and If the statements be true, compete ard
propery prepared. It sha be approved by the court or udee. and If It he not true, com-
pete, or propery prepared. It sha be made so under the drectons of the court or ud_-e
and sha then be approved. When approved. It sha be fed In the cerk s offce and be-
come a part of the record for the purposes of the appea.
quty roe 77 (226 U. 8., 672, 28 D. 8. C. ., secton 723) :
When the questons presented by an appea can bn determned hy the appeate court
wthout an e amnaton of a the peadngs and evdence, the partes, wth the approva
of the dstrct court or the udge thereof, may prepare and sgn a statement of the case
howne how the questons arose and were decded n the dstrct court and settng forth
o much ony of the facts aeged and proved, or sought to be proved, as s essenta to a
decson of snch questons by the appeate court. Such statement when fed In the offce
of the cerk of the dstrct court, sha be treated as supersedng, for the purposes of the
appea, a parts of the record other than the decree from whch the appea Is taken, and,
together wth such decree, sha be coped and certfed to the appeate court as the record
on appea.
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1113, rt. 1351.
278
The trustee asked for n rehearng, aso that the record be returned to the
dstrct court for settement and proper authentcaton. oth thngs were
dened. One of the |udges dssented, and from bs unquestoned statement
t appears: Nether purty rased the pont on whch the opnon was based.
The pont took ts orgn from the bench wthout suggeston from or reference
to ether party and n the face of e tended argument and voumnous brefs
based upon the statement of evdence contaned n the abstract. e thought
the petton for rehearng shoud have been granted and opportunty afforded
to secure proper authentcaton of the record.
Manfesty the equty rues shoud be enforced wth the strctness necessary
to effectuate ther essenta purpose ordery procedure so demands. ut
when, as here, there s mere omsson of some step whch has escaped the
attenton of both partes, and when rgorous enforcement wthout far oppor-
tunty to correct the error woud defeat hearng on the merts and enta
unnecessary hardshp, we thnk approprate reef prompty asked for shoud
be afforded. Permsson to suppy authentcaton of the record woud have
occasoned no matera In|ury to any party, nor Interfered serousy wth the
busness of the court. In the crcumstances we must regard the dena of an
opportunty to amend as an abuse of dscreton a voaton of the sprt f
not the etter of the rues.
The udgment of the crcut court of appeas must be reversed. The cause
w be remanded there for further proceedngs n harmony wth ths opnon.
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 I-24-8760
erroneousy coected. Ct. D. 1233
INCOM T R NU CTS O 1926 ND 1928 D CISION OP SUPR M
COURT.
1. Sut Mandamus Recovery of Ta Pad by Trustee on
Income Ta abe to enefcary Statute or Lmtaton.
Mandamus s not the proper remedy to compe the Commssoner
of Interna Revenue to refund ta es pad by a testamentary
trustee on ncome of the trust, when the amount refunded woud
nure to the beneft of the cestu que trust who shoud have pad
the ta , now barred by the statute of mtaton. The wrt may
not be empoyed to secure the ad|udcaton of a dsputed rght for
whch an ordnary sut affords a remedy equay adequate and
compete.
2. Decson ffrmed.
Decson of the Unted States Court of ppeas for the Dstrct
of Coumba (85 ed. (2d), 230, Ct. D. 1150, C. . -2, 282
(1936)) affrmed.
Supreme Court of the Unted States.
Unted States e reatone Orard Trust Co., Trustee Under the W of ohn .
rown, r., Deceased, pettoner, v. Chy T. everng, Commssoner of Inter-
va Revenue.
57 S. Ct, 855.
On wrt of certorar to tho Unted States Court of ppeas for the Dstrct of Coumba.
May 24, 1037.
opnon.
Mr. ustce Stone devered the opnon of the Court.
In ths case we are asked to determne whether mandamus Is the proper
rcnedr to compe the Commssoner of Interna Revenue to refund ta es, pad
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279
1113, rt. 1351.
by a testamentary trustee on Income of the trust, when the amount refunded
woud Inure to the beneft of the cestu que trust, who shoud have pad the
ta , now barred by the statute of mtatons.
The testator by hs w created a trust to pay over net ncome to hs wdow
darng her fe. She eected to take under the w n eu of the nterest
otherwse aowed by Pennsyvana aw. The refund demanded s for ta es
assessed aganst pettoner, the trustee, and pad by t upon the net ncome
pad over to the benefcary for the years 1924 to 1926, Incusve, and for the
year 1928.
s a resut of defcency proceedngs the oard of Ta ppeas has entered
fna orders determnng that the amounts pad by the trustee as ta es for
those years are overpayments. The benefcary pad ta es on the ncome pad
orer to her by the trustee for the years 1924 to 1927. Incusve, but these were
afterward refunded to her n recognton of the rue then foowed by severa
courts of appeas that n these crcumstances the ncome payments to the
wdow are annutes purchased by her surrender of her dower nterest whch
are not ta abe ss ncome to her, unt they equa the vaue of the dower
nterest. (Warner v. Wash. 15 . (2d), 367 T. D. 4257, C. . III-1, 245
(tt M Unted States v. oster, 26 P. (2d), 760 T. D. 4258, C. . III-1,
247 (1929) : en v. randea, 29 . (2d). 363 T. D. 4256, C. . III-1, 243
1929 . gee No. 202, October term, 1935, Stone v. Whte, decded ths day
Ct. D. 1232, page 224, ths uetn .) She pad no ta on the Income for the
year 1928.
y our decson n everng v. utterworth (290 U. S., 365 Ct. D. 769,
C. . III-1, 151 (1934) ), It was estabshed that the ncome pad over to
the wdow s ta abe to her and not to the trustee, and n consequence that
the tu . whch n ths case shoud have been pad by the benefcary, hnd been
erroneousy coected from the trustee. It appears that the tota amount of
the ta es whch the benefcary shoud have pad e ceeds the amount of the
refund demanded of the Commssoner, and that the refund, f aowed, w
become a part of the ncome of the benefcary.
The present petton for mandamus to compe respondent, the Commssoner
of Interna Revenue, to refund to pettoner the ta es erroneousy coected,
was dsmssed by the Supreme Court of the Dstrct. The court of appeas
affrmed, hodng that the pettoner was not equtaby entted to the refund
whch. If aowed, woud nure to the beneft of the wdow, whose abty for
the ta s barred by the statute of mtatons. (8T P. (2d). 230.) We granted
certorar ( U. 8., ), the questons decded by the court of appeas beng
cognate to those consdered n Stone v. Whe, supra.
The Government, whe supportng the decson of the court beow on the
merts, nssts that the case s not a proper one for the use of the e traor-
dnary wrt of mandamus, and that the sut shoud have been dsmssed on that
ground. The petton for mandamus Is predcated upon the determnaton of
the oard of Ta ppeas that pettoner has made overpayments of ta es for
the specfed years. The oard has not ordered a refund. It coud not rghty
do so. for ts ursdcton Is mted to the determnaton of the amount of
defcency or overpayment (Revenue ct of 192S. sectons 272. 322(d), 507),
upon the petton of the ta payer to revew a defcency assessment by the
Commssoner. The oard s wthout authorty to order a refund or a credt,
athough ts decson s res ad|vdcata as to the questons nvoved n the
computaton and assessment of ta es for whch a defcency s camed. (Cf.
Od Coony Trust Co. v. Commssoner, 279 U. S., 716. 720-727 Ct. D. 80,
C. . III-2, 222 (1929) .) When the determnaton of overpayment by the
oard becomes fna, the statute provdes that such amounts sha be refunded
or credted (secton 322(d)), and upon the Commssoner s faure to compy
wth the statute, a penary sut w e In the dstrct court or the Court of
Cams, for the recovery of any refund to whch he s entted. (See Natona
re Insurance Co. v. Unted States. 52 . (2d), 1011. 1013-1014 Ct. D. 461,
C. . I-1, 196 (1932)1: ames v. Unted Statc , 3S . (2d), 140, 143: Oho
tee oundry Co. v. Unted State , 3S . (2d). 144. 148-140.) nd n such a
sut the Commssoner may secure a fna ad|udcaton of hs rght to wthhod
the overpayment determned by the oard, on the ground that other ta es are
due from the ta payer, or that upon other grounds he s not equtaby entted
to the refund. See Stone v. Whte, supra: No. 602, Wesh v. Obspo O Co.,
decded pr 26 1937 Ct. D. 122. ., page 273. ths uetn Lews v. Retnods,
284 D. S.. 281 Ct. D. 443. C. . I-1, 130 (1932) Crocker v. Uaey, 249
U. S., 225.)
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1113, rt. 1351.
2S0
In vew of what we have |ust decded n Stone v. Whte, supra. It s evdent
that n the crcutnstances of ths case there Is no cear duty of the Comms-
soner to refund the ta wthout securng a fna ad|udcaton of the Govern-
ment s rght to retan t, as he may do by nterposng an approprate defense
n a sut for the refund. Where the rght of the pettoner s not cear, and
the duty of the offcer, performance of whch s to be commanded, s not
pany defned and peremptory, mandamus s not an approprate remedy.
(Unted States v. Interstate Commerce Commsson, 204 U. S., 50, 61 Unted
States v. Wbur, 283 U. S., 414, 419- 20 Wbur v. Unted Staes, 281 U. 8.,
206, 218-210 Interstate Commerce Commsson v. New York, N. . f artford
R. Co., 287 . S., 178, 203 Unted States v. Wndom, 137 U. S., 636, 644.) The
offcer must be eft free, n the performance of offca duty, to decde whether
he w perform the act demanded or secure by approprate procedure a |udca
determnaton of the e tent of hs duty. s decson s regarded as nvov-
ng the character of |udgment or dscreton, the e ercse of whch w not
be compeed by mandamus. (Wbur v. Unted States, supra, 219 Sa v.
Payne, 254 U. S., 343, 347 Unted States e re. Rversde O Co. v. tchcock,
100 U. S., 316, 324, 325 Interstate Commerce Commsson v. New York, N. .
artford R. Co., supra.)
It a true that the rght to a wrt of mandamus may turn on an equtabe
consderaton, as the court beow hed. (Unted States v. Dcrn, 280 U. S., 352.)
ut to try pettoner s equtabe rght to the refund here s to make the wrt
of mandamus serve the purpose of an ordnary sut nnd to depart from the
setted rue that the wrt of mandamus may not be empoyed to secure the
ad|udcaton of a dsputed rght for whch an ordnary sut affords a remedy
equay adequate, and compete. (See Parte adwn, 291 U. S., 610, 619
Reesde v. Waker, 11 ow., 272, 202 Unted States v. Duc, 172 U. S., 576,
582.)
s we concude that the ssue s not one whch shoud be ad|udcated n a
proceedng for mandamus t s unnecessary to consder the merts and the
|udgment w be affrmed wthout pre|udce to any other approprate proceed-
ng for the refund of the ta .
ffrmed.
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MISC LL N OUS T RULINGS.
TITL III. 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 (1934), ktce 10: Character of I-10-8583
nterests ncuded. G. C. M. 17817
( so Secton 302(g), as amended, and rtce 25.)
The sum pad by the M Company under ts death beneft pan to
the benefcary desgnated by a deceased empoyee of the company
s not ncudbe n the gross estate of the decedent for edera
estate ta purposes.
n opnon s requested whether the sum pad by the M Company
n October, 1934, under ts death beneft pan to the benefcary desg-
nated by a deceased empoyee of the company s ncudbe n the
gross estate of the decedent for edera estate ta purposes.
If the sum (death beneft) s ncudbe n the gross estate of
the decedent, t must be ncuded (a) as an nterest n property owned
by the decedent at the tme of hs death, as provded n secton
302(a) of the Revenue ct of 1926, as amended by secton 404 of
the evenue ct of 1934, or (b) as fe nsurance taken out by tho
decedent upon hs own fe, as provded n secton 302(g) of the
Revenue ct of 1920, as amended by secton 404 of the Revenue ct
of 1934.
The decedent, a resdent of New York, was an empoyee of tho
M Company at tho tme of hs death n 1934. In October, 1934,
the M Company, pursuant to a death beneft pan estabshed by t,
pad to the benefcary desgnated by the decedent the sum of
doars as a death beneft. The pan provdes for the payment of
prescrbed death benefts upon the death of empoyees who at tho
date of death, or at the begnnng of ther ast ness, had been n
the empoy or the M Company for one year or more. The benefts
are based upon the amount of pay and the ength of servce of the
empoyee wth certan ad|ustments not here matera. n empoyee
has the rght to desgnate the benefcary to whom the death beneft
sha be pad. The M Company reserves the rght to wthdraw or
modfy the pan at any tme n any respect n reference to benefts,
but guarantees that death benefts w be pad n accordance wth
the pan as t may be n effect at the date of death of an empoyee.
The pan provdes that the decson of the board of drectors of tho
M Company sha be fna and concusve n respect of every queston
whch may arse n the nterpretaton or admnstraton or the pan.
7080 37 10 (281)
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Regs. 80(1934), rt. 10.
282
In order to bo ncudbe n the decedent s gross estate under secton
302(a) of the Revenue ct of 1926, as amended, the decedent at the
tme of hs death must have had a property rght n the death bene-
ft. In vew of the M Company s rght to wthdraw or modfy the
pan at any tme, provded death benefts sha be pad n accord-
ance wth the pan as t may be n effect at the tme the death of an
empoyee occurs, t s cear that the decedent s nterest n the death
beneft pror to hs death was nothng more than an e pectancy,
whch s not a property rght and, therefore, not ncudbe n hs
gross estate under secton 302(a) as amended. Ths concuson s
supported by the foowng decsons of the courts of the State of
New York, the domce of the decedent:
In McNevn v. Sovay Process Co. (53 N. Y. S., 98) the companv
had a penson pan whereby a certan porton of the company s
profts woud be credted n an empoyee s passbook from tme to
tme. It was e pressy provded n the penson pan, however, that
the amount so credted was to be regarded as a gft and that the
empoyee shoud have no rght theren unt the amount had actuay
been pad to hm. The amount so credted was to reman the prop-
erty of the company unt actuay pad, and the fund was to reman
under the soe contro of the company s trustees, who were authorzed
to decde a questons concernng t wthout appea. McNevn was
dscharged and he sued for the amount whch had been credted to
hs account n hs passbook. The court hed that the credtng of
the amounts n hs book was a mere nchoate gft whch had not
been competed by actua payment and that he coud not recover.
The opnon of the ppeate Dvson of the Supreme Court of New
York was affrmed wthout opnon by the court of appeas (60
N. ., 1115).
In Doge v. Doge (75 N. Y. S., 386), a smar scheme was adopted
by the empoyers and certan amounts were entered n passbooks of
empoyees. When the partnershp went nto the hands of a recever,
the empoyees sought to secure prorty of payment for the amounts
shown n ther books under the argument that these amounts were
wages and hence entted to prorty under the statute. The court
hed that the amounts were not wages, and further hed, reyng on
the McNevn case, that the empoyees had no ega rght to any of
the partnershp funds whch passed nto the hands of the recever.
In urgess v. rst Natona ank (220 N. Y. S., 134), the bank
estabshed a proft-sharng pan and an endowment fund for ts
empoyees. Such amounts of the bank s profts set asde for that
purpose were to be credted to an empoyee as the admnstratve
commttee of the fund shoud determne. The empoyee was per-
mtted to wthdraw the nterest on the fund credted to hm but t
was e pressy provded that the prncpa mght be wthdrawn ony
upon termnaton of the empoyment. The pan aso provded that
f the empoyee shoud resgn wthout the wrtten consent of the
charman and the presdent of the bank or shoud be dscharged for
|ust cause the admnstratve commttee mght decare that a
amounts credted to hm were forfeted. n empoyee became ds-
satsfed because of a fne mposed upon hm by the bank as a resut
of an error whch he commtted and resgned wthout securng the
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2S3
Regs. 80(1934), rt. 10.
wrtten consent of te charman and the presdent of the bank.
The admnstratve commttee of the fund decared the empoyee s
nterest forfeted to the fund and the empoyee sued to recover the
amounts whch had been credted to hm. The court sad (page
139):
t bar we nd the admnstratve commttee to be a court of ast
resort upon a questons of nterpretaton and appcaton of the pan as we
as the desgnaton of empoyees entted to partcpaton n the benefts and
the forfeture of such benefts that benefcares are to be determned by
the admnstratve commttee accordng to the determnaton of the vaue and
the mportance of the servce rendered by such empoyee that the prncpa
of the fund may ony be wthdrawn upon the termnaton of the empoyment
that as the bank s payng a far gong compensaton to a empoyees, and as
the pan tsef provdes for generous cash addtons to the saary (whch a pan
a mts he receved), the pan then says that there must be a cear under-
standng that further addtona amounts tentatvey credted to the par-
tcpants are not sub|ect to wthdrawa durng empoyment, but are n the
nature of a gratuty desgned, frst, for the protecton of the empoyees and
ther fames when ther perod of empoyment s termnated and, second,
fctcb beneft as the admnstratve commttee may accord any partcpant
who resgns wth the wrtten consent and approva of the charman and the
presdent. Then foows what seems to me to be the absoute rght of ths
bank to pace ther own constructon upon ths pan, the ntent of whch
they say h that no empoyee sha gan In any annua endowment fund an
nterest so permanenty vested that he can not ater ose It by hs neff-
cency, ack of ndustry or dsoyaty as determned by the admnstratve com-
mttee. Then s the further decaraton that notwthstandng any annua
aotment to an empoyee: e sha forfet any rpht to receve such benefts
n the event that he sha vountary eave the servce of the bank wthout
he wrtten consent of the charman and the presdent of the bank, or sha
be dscharged for |ust cause.
fter dscussng the McNevn and Doge cases, supra, the court
sad (page 140):
In the case now before us t Is not pretended that there coud be
a wthdrawa of ths fund unt the empoyment had termnated, and then
ony upon a termnaton n the manner stpuated n the wrtten pan.
The court affrmed the |udgment for defendant whch the ower
court had entered.
Wth respect to whether the death beneft s ncudbe n the de-
cedent s gross estate under secton 302(g) of the Revenue ct of
1926, as amended, as nsurance under poces taken out by the
decedent upon hs own fe, t s the opnon of ths offce that the
death beneft does not consttute nsurance. There was no contract
between the decedent and the M Company wth respect to such
beneft durng the fetme of the decedent. The abty of the M
Company for the pavment of the death beneft to the benefcary des-
gnated by the decedent dd not arse unt the death of the decedent.
Consequenty, the decedent had no contractua or vested rght n
the death bDneft durng hs fetme.
In vew of the foregong, t s the opnon of ths offce that the
death beneft pad by the M Company to the benefcary desgnated
by the decedent s not ncudbe n the gross estate of the decedent,
and s not, therefore, sub|ect to edera estate ta .
Morrson Safroth,
Chef Counse for the ureau of Interna Revenue.
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Regs. 80(1934), rts. 15, etc.
284
Reguatons 80(1934), rtces 15, 17, 18, 19, I-13-8614
20, 21, 25, 36, 38. 67, 72, 73. T. D. 4729
state ta . Reguatons 80 amended.
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 amended as set forth heren.
There s nserted mmedatey precedng artce 15 the foowng
statutory provson:
Sec. 805. (Revenue ct of 1036.) Revocabe transfers.
(a) Secton 302(d)(1) of the Revenue ct of 1926, as amended, Is
amended to read as foows:
(d) (1) To the e tent of any nterest theren of whch the decedent
has at any tme made a transfer (e cept n case of a bona-fde sae for
an adequate and fu consderaton n money or money s worth), by
trust or otherwse, where the en|oyment thereof was sub|ect at the
date of hs death to any change through the e ercse of a power (n
whatever capacty e ercsabe) by the decedent aone or by the dece-
dent n con|uncton wth any other person (wthout regard to when
or from what source the decedent acqured such power), to ater,
amend, revoke, or termnate, or where any such power s renqushed
n contempaton of decedent s death.
(b) cept n the case of transfers made after the date of the en-
actment of ths ct, no nterest of the decedent of whch he has made a
transfer sha be ncuded n the gross estate under such secton
802(d)(1) uness t was ncudbe under such secton before ts
amendment by ths secton.
The frst, second, and thrd paragraphs of artce 15 are amended
to read as foows:
rt. 15. Transfers durng fe. The foowng casses of transfers made by
the decedent pror to hs death, whether n trust or otherwse, f not const-
tutng bona fde saes for an adequate and fu consderaton n money or
money s worth, are sub|ect to the ta : (1) transfers n contempaton of
death (see artce 16) (2) transfers to the e tent that tte remaned n the
decedent at the tme of hs death and the passng thereof was condtoned
upon hs deat (see artce 17) (3) transfers under whch the decedent re-
served or retaned (n whoe or n part) the use, possesson, rents, or other
ncome or en|oyment of the transferred property, for hs fe, or for a perod
not ascertanabe wthout reference to hs death, or for a perod of such dura-
ton as to evdence an ntenton that t shoud e tend to hs death ncudng
aso the reservaton or retenton of the use, possesson, rents, or other ncome,
the actua en|oyment of whch was to awat the termnaton of a transferred
precedent nterest or estate (see artce 18) (4) transfers under whch the
decedent retaned the rght, ether aone or n con|uncton wth another person
or persons, to desgnate who shoud possess or en|oy the property or the ncome
therefrom (see artce 19) and (5) transfers under whch the en|oyment of
the transferred property was sub|ect at decedent s death to a change through
the e ercse, ether by the decedent aone or n con|uncton wth another
person or persons, of a power to ater, amend, revoke, or termnate, or such a
power was renqushed n contempaton of decedent s death (see artces 20
and 21).
The vaue of transferred property ncudbe n the gross estate s the vaue
thereof at the date of decedent s death, or f the e ecutor has duy eected
pursuant to the provsons of secton 202 of the Revenue ct of 1935 (by whch
secton subdvson (|) was added to secton 302 of the Revenue ct of 1026,
as amended) to have the vaue of the gross estate determned as of the
dates theren prescrbed, then the vaue w be that as of the appcabe
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285
Regs. 80(1934), rts. 15, etc.
date or dates so prescrbed (see artce 13 added to Reguatons 80 by Treas-
ury Decson 4699, approTed September 25, 1936, O. . -2-8340 at page
296 ). If a porton ony of the property was so transferred as to come
wthn the terms of the statute, ony a correspondng proporton of the vaue of
the property shoud be Incuded n ascertanng the vaue of the gross estate.
If the transferee has made addtons to the property, or betterments, the en-
Lanced vaue of the property due thereto shoud not be Incuded.
To consttute a bona fde sae for an adequate and fu consderaton In
money or money s worth the transfer must have been made In good fath, and
the prce must have been an adequate and fu equvaent reducbe to a money
vaue. If the prce was ess than such a consderaton, ony the e cess of the
far market vaue of the property (as of the date of decedent s death, or as
of the appcabe date under such an eecton as s mentoned In the ast pre-
cedng paragraph) over the prce receved by the decedent shoud be ncuded
n ascertanng the vaue of the gross estate. or the purposes of the ta
a renqushment or promsed renqushment of dower, curtesy, or of a statu-
tory estate created n eu of dower or curtesy, or of other marta rghts In
decedent s property or estate, Is not to any e tent a consderaton n money
or money s worth.
rtce 17 s amended to read as foows:
rt. 17. Transfers condtoned upon survvorshp. Tho statutory phrase,
a transfer ntended to take effect In possesson or en|oyment at
or after hs death, ncudes a transfer by the decedent (other than a bona
tde sae for an adequate and fu consderaton In money or money s worth)
whereby and to the e tent that the benefca tte to the property (f the trans-
fer was n trust), or the ega tte thereto (f the transfer was otherwse than
n trust), remaned In the decedent at the tme of hs death and the passng
thereof was sub|ect to the condton precedent of hs denth. If the ta appes,
t does so wthout regard to the tme of the transfer, whether before or after
the enactment of the Revenue ct of 1910.
On the other hand, f, as a resut of the transfer, there remaned n the
decedent at tho tme of hs death no tte or Interest n the transferred
property, then no part of the property s to be Incuded In the gross estate
merey by reason of a provson In the nstrument of transfer to the effect
that the property was to revert to the decedent upon the predecease of some
other person or persons or the happenng of some other event.
Subdvson (a) of artce 18 s amended to read as foows:
rt. 18. Transfers wth possesson or en|oyment retaned. (a) Transfers
ncuded. The statutory phrase, a transfer ntended to take effect
n |wssessou or en|oyment at or after hs death, Incudes a transfer, whether
n trust or otherwse, made sub|ect to the reservaton or retenton by the de-
cedent of the use, or the possesson, or the rents or other ncome or en|oyment
of the transferred property, or any part thereof, for hs fe, or for a perod
not ascertanabe wthout reference to hs death, or for such a perod as to
evdence hs Intenton that t shoud e tend at east for the duraton of hs
fe ncudng aso the reservaton or retenton of the use, possesson, rents,
or other ncome the actua en|oyment of whch, by the decedent, was to be
postponed unt the termnaton of a transferred precedent nterest or estate.
(See artce 15.)
If for any such perod the use, possesson, rents or other ncome (n whoe
or n part) were to be dsposed of n dscharge of a ega obgaton of the
decedent or otherwse for hs pecunary beneft, then to that e tent the use,
possesson, rents or other Income w be treated as havng been reserved
to or retaned by the decedent.
rtce 19 s amended to read as foows:
bt. 19. Transfers c/ft rght retaned to desgnate who sha possess or
rn|oy. (o) Transfers ncuded. The statutory phrase, a transfer
utended to take effect n possesson or en|oyment nt or after hs death, In-
cudes a transfer, by trust or otherwse, n connecton wth whch the
decedent reserved or retaned, ether to hmsef aone or In con|uncton wth
any other person or persons, the rght durng s fe, or for a perod not
ascertanabe wthout reference to hs death, or for such a perod as to ev-
dence an ntenton that the rght shoud contnue for at east the duraton of
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Regs. 80(1934), rts. 15, etc.
286
hs fe, to desgnate the person or persons who shoud possess or en|oy the
transferred property (n whoe or In part), or any of the ncome thereof. (See
artce 15.)
(6) Ta abty. If the transfer was not a bona fde sae for an adequate
and fu consderaton n money or money s worth, the property or the Interest
or Interests theren so transferred sha be ncuded In the gross estate f fa-
ng wthn any one of the foowng paragraphs:
(1) Regardess of when the transfer was made, f decedent ded after the
enactment of the Revenue ct of 1016 (September 8, 1916), and the rght
to so desgnate was reserved at the tme of the transfer and was sub|ect
to such an e ercse as woud determne the utmate dsposton of the
property or of an nterest or Interests theren, and such rght was e ercsabe
by the decedent aone or n con|uncton wth a person or persons havng no
substanta adverse nterest or nterests n the property, or f e ercsabe n
con|uncton wth a person havng a substanta adverse nterest or wth sev-
era persons some or a of whom hed such an adverse Interest, then to the
e tent of any nterest or nterests hed by a person or persons not requred to
on n the e ercse of the rght and any adverse nterest whch was not
substanta.
(2) When the transfer was made after the enactment of the Revenue ct
of 1016 (September 8, 1916) and the decedent ded after the enactment of the
Revenue ct of 1932 ( 5 p. n., eastern standard tme, une 6, 1932), or the
transfer was made and the decedent ded after 10.30 p. m., eastern standard
tme, March 3, 1931, and the rght to so desgnate was reserved at the tme of
the transfer and was not sub|ect to such an e ercse as woud determne the
utmate dsposton of the property or of an Interest or nterests theren,
but was mted to a desgnaton of the person or persons who shoud possess
or en|oy the property or the ncome therefrom (n whoe or In part) for the
perod of decedent s fe, or for a perod not ascertanabe wthout reference
to hs death, or for a perod of such duraton as to evdence an ntent that
It shoud e tend for the remander of decedent s fe, and such rght was e er-
csabe by the decedent aone or n con|uncton wth a person or persons havng
no substanta adverse nterest or Interests n the transferred property, or f
e ercsabe n con|uncton wth a person havng a substanta adverse nterest
or wth severa persons some or a of whom hed such on adverse Interest, then
to the e tent of any nterest or Interests hed by a person or persons not
requred to on n the e ercse of tte rght and of any adverse nterest whch
was not substanta.
(3) When the transfer was made and decedent ded after the enactment of
the Revenue ct of 1932 (5 p. m., eastern standard tme. une 6. 1932) and
the rf ht to so desgnate was reserved at the tme of the transfer, whether
e ercsabe by decedent aone or In con|uncton wth a person or persons havng
or not havng a substanta adverse Interest or nterests In the transferred
property, or n con|uncton wth persons one or more of whom had and one
or more of whom had not such an adverse Interest.
s used n ths artce, the e presson, reserved at the tme of the trans-
fer, Incudes any understandng, e pressed or Imped, had n connecton wth
the makng of the transfer that the rght to desgnate the person or persons who
shoud possess or en|oy the property or the ncome therefrom shoud ater be
created or conferred.
rtce 20 s amended to read as foows:
rt. 20. Transfers wth power to change the en|oyment. (o) Transfers
ncuded. Subdvson (d) of secton 302 of the Revenue ct of 1920, as
amended, embraces a transfer by trust or otherwse (f not amountng to a bona
fde sae for an adequate and fu consderaton n money or money s worth)
when at the tme of decedent s death the en|oyment of the transferred property,
or some part thereof or nterest theren, was sub|ect to any change through
a power e ercsabe ether by the decedent aone, or by hm n con|uncton wth
some other person or persons, to ater, or amend, or revoke, or termnate.
(See artce 15.)
The addton to the subdvson, by secton 805 of the Revenue ct of 1936,
of the phrase to the effect that t s not matera n what capacty the power
was sub|ect to e ercse by the decedent or by the other person or persons n
con|uncton wth the decedent, s consdered as merey decaratory of the mean-
ng of the subdvson pror to the addton of the phrase.
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287
Regs. 80(1934), rts. 15, etc.
The second phrase added by amendment In 1936 (namey, wthout regard
to when or from whut source te decedeut acqured such power ) s not
consdered decaratory of te meanng ot the subdvson pror to the ntend-
ment n a case n whch no one of the powers enumerated n the subdvson was
reserved at the tme of the makng o the trunser, but one or more thereof
was conferred subsequent thereto (whatever the source from whch conferred)
wthout any understandng, e pressed or mped, had n connecton wth the
makng of the transfer that such power or powers shoud e ater conferred.
The thrd change made n the subdvson by the Revenue ct of 1U30 con-
ssted of the addton of the words or termnate foowng the words to
ater, amend, revoke. Such addton s consdered but decaratory of the mean-
ng of the subdvson pror to the amendment. power to termnate capabe
of beng so e ercsed as to revest n the decedent the ownershp of the trans-
ferred property or an nterest theren, or as otherwse to nure to hs beneft
or the beneft of hs estute, s, to that e tent, the equvaent of a power to
revoke, and when otherwse so e ercsabe as to effect a change n the
en|oyment, s the equvaent of a power to ater.
(6) Ta abty. The property or the nterest or nterests theren so trans-
ferred sha be ncuded n the gross estate f comng wthn any one of the
foowng paragraphs:
11) egurdess of when the transfer was made, f the decedent ded after the
enactment of the evenue ct of 1916 (September 8, 1916), and the power was
reserved at the tme of the transfer and was e ercsabe by the decedent aone
or n con|uncton wth a person or persons havng no substanta adverse nter-
est or nterests n the transferred property, or f e ercsabe n con|uncton wth
a person havng a substanta adverse nterest or wth severa persons some or
a of whom hed such an adverse nterest, then to the e tent of any nterest or
nterests hed by a person or persons not requred to |on n the e ercse of
the puwer and any adverse nterest whch was not substanta.
(2) When the transfer was made after the enactment of the evenue ct of
1924 (4.01 p. n., eastern standard tme, une 2, 1924) and before the amend-
ment of the subdvson by the evenue ct of 1936 became effectve ( une 23,
1U30), and the decedent s death occurred at any tme subsequent to the trunser,
and the power was reserved at the tme of the transfer and was e ercsabe
by the decedent aone or n con|uncton wth a person or persons ether havng or
not havng a substanta adverse nterest or nterests n the transferred property,
or n con|uncton wth persons one or more of whom had and one or more of
whom had not such an adverse Interest.
(3) When the transfer was made and the decedent ded after une 22,
)3o (the date of the enactment of the evenue ct of 1936), and the power
was ether reserved at the tme of the transfer or ater created or conferred,
wthout regard to the source from whch the power was acqured, aud whether
e ercsabe by the decedent aone or n con|uncton wth a person or persons
ether havng or not havng a substanta adverse nterest or nterests n the
transferred property, or n con|uncton wth persons one or more of whom
had and one or more of whom had not such an adverse nterest.
s used n ths and In the ne t succeedng artce, the e presson reserved
at the tme of the transfer, refers to a power whch, havng been reserved
when the transfer was made, contnued to the date of decedent s death (see
the paragraph ne t foowng as to the condtons under whch the power
w be consdered as e stent at decedent s death) to be e ercsabe by
decedent aone or by bm In con|uncton wth some other person or persons,
aud ncudes any understandng, e pressed or mped, had n connecton wth
the makng of the transfer that the power shoud ater be created or conferred.
The power to ater, amend, revoke, or termnate w be consdered to
have e sted on the date of the decedent s death though the e ercse of the
power was sub|ect to a precedent gvng of notce, or though the ateraton,
amendment, revocaton, or termnaton woud take effect ony on the e praton
of a stated perod after the e ercse of the power, whether or not on or before
the date of the decedent s death notce had been gven or the power had been
e ercsed, or though the e ercse of the power was restrcted to a partcuar
tme or te happenng of a partcuar event whch had not arrved or occurred
at decedent s death. When determnng the vaue of the gross estate n such
rases the fu vaue of the property transferred sub|ect to the power shoud
be dscounted for the perod requred to eapse between the date of decedent s
death and the date upon whch the ateraton, amendment, revocaton, or
termnaton coud take effect. (See artce 13(10).)
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Regs. 80(1934), rts. 15, etc.
288
The provsons, of ths artce do not appy to a transfer when the power
may be e ercsed ony wth the consent of a partes havng an nterest,
vested or contngent, n the transferred proerty, and the power adds nothng
to the rghts of the partes as conferred by the appcabe oca aw.
rtce 21 s amended to read as foows:
bt. 21. Power renqushed n contempaton of death. If the decedent had
prevousy hed, ether aone or n con|uncton wth another person or persons,
a power to ater, or amend, or revoke, or termnate a transfer made by hm,
and the power was subsequenty renqushed n contempaton of the decedent s
death (the renqushment not amountng to a bona tde sae for an adequate
and fu consderaton n money or money s worth), then to the e tent that
the transferred property or any nterest theren had been sub|ect to such
renqushed power t s to be ncuded n the gross estate f comng wthn
any one of the foowng paragraphs:
(1) egardess of when the transfer was made, f the power was reserved
at the tme of the transfer and was renqushed and the decedent ded after
the enactment of the Revenue ct of 1910 (September 8, 1010), and the power
was e ercsabe by the decedent aone or n con|uncton wth a person or
persons havng no substanta adverse nterest or nterests n the transferred
property, or f e ercsabe n con|uncton wth a person havng a substanta
adverse nterest or wth severa persons some or a of whom hed such an
adverse Interest, then to the e tent of any nterest or nterests hed by a
person or persons not requred to |on n the e ercse of the power and any
adverse nterest whch was not substanta.
(2) When the transfer was made after the enactment of the Revenue
ct of 1924 (4.01 p. m., eastern standard tme, une 2, 1924) and before the
amendment of the subdvson by the Revenue ct of 19 6 became effectve
( une 23, 1930), and the power was reserved at the tme of the transfer and
Its renqushment and the decedent s death subsequenty occurred, and the
power was e ercsabe by the decedent aone or In con|uncton wth a person
or persons ether havng or not havng a substanta adverse nterest or
nterests n the transferred property, or n con|uncton wth persons one or
more of whom had and one or more of whom had not such an adverse nterest.
(3) When the transfer was made after une 22, 1930 (the date of the
enactment of the Revenue ct of 1930), and the renqushment of the power
and the decedent s death subsequenty occurred, and the power was ether
reserved at the tme of the transfer or ater created or conferred, wthout
regard to the source from whch the power was acqured, and whether e er-
csabe by the decedent aone or In con|uncton wth a person or persons ether
havng or not havng a substanta adverse nterest or nterests n the trans-
ferred property, or In con|uncton wth persons one or more of whom had and
one or more of whom had not such an adverse nterest.
Wthn the meanng of ts artce, t s essenta to a renqushment of a
power whch s e ercsabe by the decedent n con|uncton wth another person
or persons that the renqushment by such other person or persons operates
as a compete renqushment of the power.
If the renqushment be not admtted or shown to have been n contempaton
of decedent s death, but occurred wthn two years pror to such death, and
affected the Interest or nterests (whether arsng from one or more transfers
or the creaton of one or more trusts) of any one benefcary of a vaue or
aggregate vaue n e cess of 5,000 (as of the date of decedent s death, or as of
the appcabe date under such an eecton as s referred to n the second
paragraph of artce 15) then, to the e tent of such e cess, the renqush-
ment w be deemed, uness shown to the contrary, to have been n contem-
paton of decedent s death. (See artce 15.)
rtce 25 s amended by strkng out the second sentence of.the
second paragraph, and nsertng n eu thereof the foowng:
Insurance s consdered to have been taken out by the decedent, whether or
not he made the appcaton, f he acqured the ownershp of, or any ega
ncdent thereof In, the pocy but n the case of a decedent dyng before
November 7, 1934 (the date of the approva of Reguatons 80), the provsons
of the second paragraph of artce 25 of Reguatons 70 (1929 edton) w
contnue to appy.
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2S9
Regs. 80(1934), rts. 15, etc.
rtce 25 s further amended by strkng out the ast sentence
thereof.
rtce 36 s amended to read as foows:
rr. 36. Cams aganst the estate. The amounts that may be deducted
under ths headng are such ony as represent persona obgatons of the
decedent e stng at the tme of hs death, whether or not then matured, and
nterest thereon whch had accrued at the tme of death. If, as authorzed
by subdvson ( ) of secton 302 of the Revenue ct of 1926, as amended
(such subdvson havng been added by secton 202 of the Revenue ct of
1935), the e ecutor has duy eected to have the vaue of the gross estate
determned as of a date or dates prescrbed n such subdvson, then the deduc-
ton on account of nterest w be mted to the amount thereof accrued and
unpad at decedent s death, pus the nterest earned between death and a
date one year thereafter, uness the cam s sooner pad, u whch case the
amount of nterest deductbe wU be the amount accrued to date of such
payment. The deducton w ncude payments made of any nterest accrued
at decedent s death and payments of nterest earned between death and one
year thereafter, or between death and the date on whch the cam was pad.
Ony cams enforceabe aganst the decedent s estate may be deducted. If
the cam s founded upon a promse or agreement, the deducton therefor Is
mted to the e tent that the abty was contracted bona fde and for an
adequate and fuU consderaton In money or money s worth. Thus, a pedge
or a subscrpton, evdenced by a promssory note or otherwse, even though
enforceabe aganst the estate, s deductbe ony to the e tent that abty
therefor was contracted bona fde and for an adequate and fu consderaton
n cash or ts equvaent. Labtes mposed by aw or arsng out of torts
are deductbe. See artce 29 as to the renqushment or promsed renqush-
ment of dower and other marta Interests.
rtce 38 s amended to read as foows:
bt. 38. Unpad mortgages. Deducton s aowed of the fu unpad amount
of a mortgage upon, or of an ndebtedness n respect to, any property of the
gross estate, ncudng nterest whch had accrued thereon at the tme of death,
provded the vaue of the property, undmnshed by the amount of the mort-
gage or ndebtedness, s returned as part of tho vaue of the gross estate.
If decedent s estate Is abe for the amount of the mortgage or Indebtedness,
the fu vaue of the property sub|ect to the mortgage or ndebtedness must
be ncuded as part of the vaue of the gross estate the amount of the mort-
gage or ndebtedness beng n such case aowed as a deducton. ut If
decedent s estate s not so abe, ony the vaue of the equty of redempton
(or vaue of the property, ess the ndebtedness) need be returned as part
of the vaue of the gross estate. In no case may the deducton on account of
the mortgage or ndebtedness e ceed the abty therefor contracted bona
fde and for an adequate and fu consderaton In money or money s worth.
If the e ecutor has made the eecton referred to In the second sentence of
artce 36, the deducton on account of Interest upon the mortgage or Indebted-
ness w be mted to the amount thereof accrued and unpad at decedent s
death, pus the nterest earned between death and a date one year thereafter,
uness the mortgage or ndebtedness Is sooner pad or the property sub|ect to
the mortgage or ndebtedness Is sooner dstrbuted, sod, e changed or otherwse
dsposed of, the deducton In any such case beng mted to the amount of
Interest accrued to the date of such payment, dstrbuton, sae, e change or
other dsposton. The deducton w ncude payments made of any nterest
accrued at decedent s death and payments of nterest earned between death
and one year thereafter, or between death and the date of payment of tho
mortgage or ndebtedness, or the date on whch the property sub|ect thereto
ws dstrbuted, sod, e changed or otherwse dsposed of. Rea property
stuated outsde of the Unted States does not form a part of the gross estate,
nnd no deducton may be taken of any mortgage thereon or nny ndebtedness
n respect thereto.
rtce C7 s amended to read as foows:
rt. 67. amnaton of return an determnaton of ta bu the Comms-
foncr. s soon as practcabe after returns are fed, they w be e amned
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Regs. 70(1929), rt. 2.
290
and the amount of the ta determned by the Commssoner tnder such pro-
cedure as he may from tme to tme prescrbe.
If the e ecutor makes wrtten appcaton to the Commssoner for a deter-
mnaton of the ta and dscharge from persona abty therefor, the Com-
mssoner w, wthn one year after recept of such appcaton, or If the
appcaton Is made before the return s fed then wthn one year after the
return s fed, notfy the e ecutor of the amount of the ta , and upon pay-
ment thereof, the e ecutor w be dscharged from persona abty for any
defcency In the ta thereafter found to be due. (See secton 313 (b)
and (c).)
rtce 72 s amended to read as foows:
rt. 72. Returns confdenta. estate ta returns and notces are treated
as prveged communcatons and may not be e hbted, or the contents thereof
dvuged, to any person other than the e ecutor or hs duy authorzed attorney
or agent, e cept as prescrbed n rues and reguatons whch may be separatey
Issued upon the sub|ect Ths confdenta treatment e tends to records n
possesson of the ureau of Interna Revenue, whether on fe wth the Com-
mssoner, coector, or revenue agent, ncudng nformaton submtted or
obtaned n connecton wth a return. Interna revenue offcers are not pro-
hbted from dscosng the returned vaue of any tem or the amount of any
deducton, f such dscosure s necessary n order to arrve at the correct
determnaton of the ta , but such rght of dscosure does not e tend to gueh
Informaton as the amount of the estate, the amount of ta , or other genera
data. If a copy of the return Is desred because no copy was retaned by the
e ecutor, or the retaned copy has been ost or destroyed, or for other sats-
factory reason, a copy may be furnshed by the Commssoner to the e ecutor,
or to hs authorzed attorney or agent, upon payment of the fee prescrbed.
rtce 73 s amended by strkng out the frst and second
paragraphs thereof.
Ths Treasury decson s prescrbed pursuant to the authorty
contaned n secton 1101 of the Revenue ct of 1926 (44 Stat, 111).
Gut T. evernq,
Commssoner of Interna Revenue.
pproved March 18, 1937.
Roswe Mao,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster March 22, 1937, 3.29 p. m.)
S CTION 301.
Reguatons 70(1929), rtce 2: Transfers I-22-8736
and nterests reached. Ct. D. 1229
estate ta revenue act of 1926 decson of court.
1. Gkoss state Nonresdent Decedent Whether Property
Passed Under W ok Under Muuuaub Sett.ment.
nonresdent decedent before hs marrage made a marrage set-
tement, puttng a hs property nto a communty under the for-
egn aw, and provdng that the wfe wus to succeed hm as
manager of the communty and of her separate property, upon hs
death. Shorty before hs death the decedent e ecuted a w at
varance wth such settement, appontng e ecutors to admnster
the whoe property durng the ves of hs wfe and two daughters,
and, upon the death of ether daughter, to contnue to admnster
unt ter ssue became 2.r years of age. wth power n the e ecutors
dscreton to convey to any her hs or her share of the prncpa.
The wfe and (aughters eected to take under the w. Under these
facts, the property passed under the w rather than under the mar-
rage settement, and was ncudbe n the gross estate.
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291
Regs. 70(1929), rt. 2.
2. Gross state Pedged Securtes.
Securtes oaned by the decedent to another, who used them as
coatera for a oan, are ncudbe n the gross estate at ther fu
vaue, under the provsons of secton 303 of the Revenue ct of
1926.
8. Decson ffrmed.
Decson of the oard of Ta ppeas (33 . T. ., 1020) affrmed.
Unted States Crcut Court of ppeas for the Second Crcut.
rederck Rodek, as ncary ecutor of ohann redrch ackfcd, pet-
toner, v. Ouy T. everng, Commssoner of Interna Revenue, respondent.
87 . (2d), 828.1
Petton to revew an order of the oard of Ta ppeas, decarng a defcency In estate
ta es aganst an e ecutor.
efore Manton, L. and, and Chase, Crcut udges.
anuary 4, 1937.
OPINION.
L and, Crcut udge: Ths cause arses on an appea (petton to revew)
of an e ecutor from an order of the oard of Ta ppeas whch decared a
defcency n an estate ta , eved under secton 301(a) of the Revenue ct of
102U. The appeant s the ancary e ecutor of one ackfed, who ded n
Germany on ugust 27, 1932, a resdent of that country, but a ctzen of the
. ned States. Many years before, on March 19, 18 8, the eve of hs marrage,
ackfcd had made n remen what we shoud ca n marrage settement, put-
tng a hs own property of every knd, present and future, nto a communty
under the German aw. ccordng to the fndngs of the oard, whch s a the
record contans, ths settement gave to ackfed the management not ony of
the communty property, but of hs wfe s separate property (whch was
otherwse e pressy e cepted from the settement) and she was to succeed hm
as manager of both estates upon hs death. e reserved power to dspose by
w of a haf of the communty estate, f there were no ssue of the mar-
rage, and the aw gave hm ndependenty an uncondtona testamentary power
over hs per capta share. Such a communty gves to each spouse and to
each chd a partcpatng undvded share t endures unt the death of the
onger ver of the spouses, or the remarrage of the wdow, when t s dssoved
and the property s qudated, by whch we understand that t s dstrbuted
anons the survvng chdren and any ssue of those who have ded. Nether
spouse may dspose of hs or her share durng fe, but ether may e cude a
descendant from the communty, save that n that case the e cuded
person may cam haf of hs ntestate share from those who reman.
ackfed eft a w, made a few days before hs death, whch assumed to
affect the communty property, hs chef purpose, as he decared, beng to
reeve hs wfe who was an nvad of the cares of management whch woud
otherwse devove upon her. e apponted e ecutors whom he charged wth
admnsterng the property, not ony durng her fe, but durng that of hs
two daughters, both of whom had marred and he provded that f cther ded,
the share of each of her descendants (abkonmngen) shoud contnue to be
admnstered unt he or she became 25 years od. Then foowed two sentences,
the transaton of whch s as foows: The respectve hers sha get the n-
come of the estate as whch I consder the e stng |ont property. Thereby my
wfe sha be reeved from the necessty of makng contrbutons from her own
ncome. The word, hers (erben), s here contrasted wth descendants
(abkommngen), |ust used, and must ncude the daughters as we as ther
ssue. The proper meanng of the two sentences Is that the daughters or ther
ssue sha have the whoe Income of the estate, by whch I mean the com-
munty property (samtgut), durng the wdow s fe. The oard made no
fndng to the contrary but seems to have assumed n ts opnon that the wdow
was st to en|oy her thrd of the ncome. It s mpossbe so to read the
words, for the frst sentence woud then effect no change n the mtatons unt
a daughter ded, eavng the wdow, an mprobabe event. The decedent coud
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Regs. 70(1929), rt. 2.
292
reeve hs wfe of contrbutng to the support of erben ony by gvng them
her share of the communty property he was certany not thnkng of hs
daughters ssue aone. The pont s not Indeed of capta Importance, but It
serves to confrm our concuson, as w appear. The upshot of the whoe w
was that the e ecutors shoud manage the whoe property durng the fe of the
wdow, and of the |ont ves of the daughters thereafter and that they shoud
contnue to do the same as to the separate nterest of any survvng daughter
throughout her fe, and the ves of her ssue unt they reached 25. To these
provsons was added a power n the e ecutors dscreton to convey the prncpa
of hs or her share to any her (erb). The share of one daughter was re-
duced because of an advancement, and the w concuded wth some bequests,
and a cause In terrorem, desgned to compe the daughters assent.
y the German aw the wdow had three courses at her eecton to take
under statute (by whch we shoud understand the statute governng Intesta-
ces), under the settement, or under the w. She acquesced In the w
and so dd the daughters. The Commssoner rued that a the property passed
under the w, and was therefore sub|ect to the estate ta . That s the chef
controversy. subsdary queston reates to a consderabe amount of stocks
and bonds whch ackfed had ent to a cousn to pedge upon a oan. The
cousn was nsovent when ackfed ded, and the e ecutors pad the note by
dscountng a note of ther own, whch they ater pad out of the proceeds of
the orgna coatera. The pettoner asserts that these securtes shoud not
be ncuded n the estate, and the Commssoner rued aganst hm. The oard
sustaned both rungs.
s the oard we observed, the chef dffcuty Is In transatng Into mercan
equvaents the concepts of another ega system a dffcuty not made ess
troubesome by the obscure transatons. The word, transfer, n secton
801(a) of the ct of 1926 need not ncude every ega change In the ncdents
of ownershp for e ampe, had ackfed merey dspaced hs wfe as manager
of the communty property and substtuted hs e ecutors, we may assume
that t woud not have been a ta abe event, though perhaps t mght const-
tutonay have been made so. We are ndeed accustomed to trusts In whch
management s |oned wth tte, under whch we conceve of the property
as transferred but the same need not be true of a bare power to manage,
even though Irrevocabe and authorzng purchases and saes. (Cf. cverng
v. St. Lous Unon Trust Co., 296 U. S., 39.) ackfed undertook to nterfere
much more than that wth the rghts and dutes created by the marrage sette-
ment e e tended the perod of the daughters tuteage beyond the death of
ther mother, when t woud otherwse have ended, and put ther ssue under
a smar dsabty. gan, he assumed mmedatey to dvde the ncome
among the daughters at the e pense of hs wfe and to create powers whch
woud aow the prncpa to be taken out of the communty at the e ecutors
peasure. If we were to try to fnd an mercan pattern for the mtatons
created by the settement as they had stood at hs death, t woud be an estate
In common of the wfe and daughters durng the wfe s fe, wth vested
remanders n the daughters, sub|ect to a power n the wfe to bequeath or
devse her own per capta share. The w dsturbed a these nterests so
substantay as to amount to a transfer of them, e cept the daughters
shares of the estate n common pur autre ve. Perhaps It woud be theoret-
cay proper to e empt these nterests from the ta ther present vanes coud
be computed, and It s common practce to treat them as separate property.
ut the pettoner dd not sugeest anythng of the knd before the oard
or before us and the record does not contan the facts necessary for the
cacuaton. We dspose of the case as It was submtted wthout consderng
how far that course mght have been necessary had the queston been rased.
We agree that the w was a egay operatve factor n the transfer,
even though It requred the acquescence of the wdow and the daughters
to be effectve. That mght not have been true, had they had the power to
change the mtatons of the settement at ther peasure. In that event It
woud have been possbe to vew the w as urny neutra, as merey furnsh-
ng a content for the assents whch they coud ncorporate by reference ts
vadty as a testamentary nstrument woud have been Immatera the agree-
ment woud then have been the ony operatve ega transacton. The oard
has Indeed found that the aw of the communty property was sub|ect to
modfcaton by contract of the partcpants before or after marrage but
athough ths anguage s not atogether pan to us, we do not read t as mean-
ng that nt any tme the partcpatng members of the communty, as they
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293
Regs. 70(1929), rt. 15.
are esewhere descrbed, mght revoke the settement and f such new rghts
and dutes as they chose. Certany the power as descrbed may fary be
mted to the two spouses before the brth of Issue. Snce the ta payer must
bear the rsk of any ambgutes In the fndngs, It foows, In the words of the
opnon beow, that the w was not wthout ega sancton. Wth the
oard we treat t as a vad e ercse by ackfed of the power of testa-
mentary dsposton. It can be as much a generatng source of the
transfer, as though t had not requred the assents for ts vadty perhaps
they were aso generatng sources we know of no prncpe whch demands
but one. In any case t s enough that uness t had been a vad w, the
assents woud not have created the new mtatons.
The second queston s whether the securtes ent to the decedent s cousn
and pedged by hm were part of hs gross estate so the oard hed,
reyng upon our decson n Cty ank armers Trust Co. v. ocers (OS .
(2d), 909). That case deat wth the ct of 1918 whch provded secton
402(a) that unpad mortgages mght be deducted from the gross estate
a pan ndcaton, we thought, that the mortgaged property tsef was to be
Incuded. That nference was strengthened by secton 403(a)1 of the ct
of 1921, whch e pressy e cuded mortgages on property stuated wthout the
Unted States. y secton 805 of the ct of 1932 ths anguage was agan
changed, so that now the deducton s aowed ony n case the mortgaged
property was ncuded n the gross estate (apparenty Congress thought that
there mght be property wthn the Unted States whch woud not bo so
ncuded). Yet ths ast change coud not have meant to decare that mortgaged
property shoud normay be e empt but e acty the opposte, though a frnge
of uncertan e ceptons was added, certany not reevant here. The ony
dfference between the case at bar and our earer decson s therefore that
here the decedent had not been the debtor. The secton has aways dvded
deductons nto severa casses, of whch one s cams aganst the estate,
and the ne t unpad mortgages upon, or any ndebtedness n respect to,
the decedent s property. Debts of the decedent are cams aganst hs estate,
whether secured or not, and we must suppose that the second cass covered
somethng ese Its most obvous appcaton s to property whch, when
acqured by the decedent, s aready burdened wth another s debts for
e ampe, equtes bought wthout assumng the grantor s obgaton. Ordnary
It w not ndeed make any dfference whether the fu vaue of such property
be charged aganst the e ecutor, and the ndebtedness credted but n the caso
of a nonresdent the dstncton was mportant n 1932, as t st s n the case
of a nonresdent aen, because such a ta payer s not aowed the fu deduc-
tons of a resdent, but ony that proporton of them whch hs oca assets
bear to hs whoe estate. (Secton 303(b) of the ct of 1920, as amended by
secton 401 of the ct of 1928.) We may assume arguendo that the pettoner
mght have deducted that proporton of what was due upon the securtes, had
he comped wth secton 303(c) of the ct of 1920 but e dd not, and the
oard was rght.
Order affrmed.
ST T T NL CT O- 1926 D CISION O COURT.
Gkoss state TR s srens n Co temp-aton of Death vdence.
Transfers of property made by the decedent wthn two years of
hs death, whch occurred n 1929 at the age of 84 years, were made
n contempaton of death wthn the meanng of secton 302(e)
of the Revenue ct of 1920, n vew of the decedent s ago and the
state of hs heath at the tme the transfers were made. The un-
remtted testmony of the Government s wtness showed that the
decedent s physca condton had been very poor for some tme
pror to the makng of the gfts, that he requred the servces of a
nurse contnuay from 1923, and that from 1927 on hs condton
became progressvey worse.
S CTION 302.
eguatons 70(1929), rtce 15: Transfers
durng fe.
I-18-8G81
Ct. D. 1221
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Regs. 70(1929), rt. f. 294
Unted States Dstrct Court, Soutebn Dstrct of New York.
Margaret . Lawrence, Chares W. Ogden, and Lucus . eers, s ecutors
of the Last W and Testament of ohn urMg Lawrence, Deceased, pan-
tffs, v. Chares W. nderson, Indvduay and as Coector ot Interna
Revenue for the Thrd Dstrct of New York, defendant.
17 . Supp., 357.
November 18, 1936.
OPINION.
bruzzo, D. .: Ths acton was brought by the e ecutors of the estate of
ohn urng Lawrence, deceased, who ded March 4, 1929, to recover the sum
of S3.248.64 wth nterest from ebruary 28, 1930, on the ground that sad sum
was erroneousy coected as an estate ta .
The securtes transferred by the decedent and whch the Commssoner of
Interna Revenue found consttuted part of hs gross estate were as foows:
On March 12, 1927, to hs wfe Margaret . Lawrence 133,711.88
On pr 6, 1927, to hs wfe s granddaughter, nne Lawrence
Wsuer 5,979.53
On pr 6, 1927, to hs wfe s daughter, Ruth Wsuer 82, 763. 75
On pr 6, 1927, to Ruth Wsner s husband, Roger Wsner 10, 800.00
183.305.14
The aw appcabe s secton 302(c) of the Revenue ct of 1920. The
decedent at the tme of the transfers was eghty-two (82) years of age. Sec-
ton 30-(c) of the Revenue ct of 19:20 contaned a provson whch created
an rrebuttabe presumpton that transfers ke the one before the court were
made In contempaton of death. The case of ener v. Donnan (285 U. S.,
312 Ct. D. 473, C. . I-1, 324 (1932) ) s authorty for the fact that ths
Irrebuttabe presumpton s unconsttutona. In vew of that case, t becomes
necessary to determne what proof there s wth respect to whether or not these
transfers were made by the deceased n contempaton of death.
The pantff cams the defendant has the burden of proof. The defendant
cams that athough secton 302(c) of the Revenue ct of 1926 was hed to be
unconsttutona because of the rrebuttabe presumpton n that secton, never-
theess the burden of proof dd not shft and st remaned wth the pantff.
The pantff caed as ts man wtness an attorney Lucus . eers, who
testfed that he knew the deceased for many years, that hs frst wfe ded
and he marred hs second wfe, he thought. In 1925 but the actua fact was
they were marred on anuary 6. 1923. Ths attorney was counse for the
e ecutors of the estate of the frst wfe. The deceased aso had a brother,
men Newbod Lawrence, who ded n ugust, 1925, and ths attorney was on
of the e ecutors of that estate. Mr. eers came n cose contact wth the
deceased durng the wndng up of these estates, taked wth hm many tmes
about the matters connected wth the propertes and apprsed the deceased
durng hs fetme upon questons of ta es reatng to these two estates.
Ths attorney testfed that the deceased receved from hs brother s estate
appro matey 4 0.0O0. The propertes n queston were transferred from the
deceased s persona estate, and not from the propertes receved from hs
brother s estate.
If the deceased had transferred any porton of the estate he nherted from
hs brother, men Newbod Lawrence, It s conceded that none of t coud
be ta ed at the tme of the death of the deceased. The attorney was not
present when the deceased made the transfers n queston and coud not
reca whether he was consuted by the deceased wth respect to these transfers.
The Government on the other hand caed as Its ony wtness, Orace .
Rchardson, a graduate regstered nurse for twenty-eght (28) years, who was
empoyed by the deceased n ebruary, 1923, as hs nurse and whose term of
empoyment e pred March 4, 1929. the date of hs death.
The deceased, she states, was an Invad and she was wth hm constanty
from 1923 unt he ded. She commenced her empoyment wth hm because
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293
Regs. 70(1929), rt. 19.
of an attack the deceased had at that tme. It deveoped ater n the nurse s
testmony that the deceased hud frequent attacks of angna pectors whch
woud stmuate to c posonng. e aso had hgh bood pressure, ntestna
and ver troube whch aggravated the heart condton.
These were the ony wtnesses at the tra. None of the persons recevng
the gfts testfed. There s some proof that the deceased made other transfers
or gfts on December 25, 1927.
The court has carefuy read the very umnatng decson n the eadng
case of Unted States v. Wes (283 U. S., 102 (Ct. D. 340, C. . -, 475
(1931) ), but the case at bar Is ceary dstngushabe from that one.
In Unted States v. We there was proof that the donor beeved that,
athough he had been 111, he was entrey cured. Durng the course of hs fe-
tme he had set up a system of dsposng of hs property to hs famy for
upwards of twenty (20) years because he beeved that n makng dsposton
of property from tme to tme he woud be abe to see durng hs fetme what
hs chdren accompshed wth the gfts and then he woud know when hs
tme was up what he ought to do wth the baance.
What s meant by the words n contempaton of death Is determned by
the state of mnd of the donor at the tme they were made. If hs purpose s
to obtan some ob|ect desrabe to hm, as dstngushed from the dsposton of
hs property at the tme of hs death, the gft s not of the character to be
ta abe.
In determnng whether or not the deceased made the transfers of hs property
n contempaton of death wthn the meanng of secton 302(c) of the Uevenue
ct of 1926, the physca condton of the decedent at the tme of the transfers
s very mportant The ony evdence adduced at the tra ndcated from the
nurse s testmony was that the deceased s physca condton was very poor and
had been for qute some tme, the deceased havng had frequent heart attacks,
hgh bood pressure, ver and Intestna troube and requrng the servces of a
nurse contnuay. The nurse stated that the deceased moved around ke an
nvad and she had to be wth hm constanty beng compeed to take care of
Mm durng the mdde of the nght. There s no proof by the pantff to rebut
ths nurse s testmony.
What actuay motvated the decedent n makng these transfers s not found
n any drect testmony and there s no proof by the pantff to rebut the
testmony of the nurse that from 1927 on the decedent s condton became
progressvey worse. The deceased s age and the state of hs heath must be
consdered as vtay mportant n attemptng to read the donor s mnd at the
tme he made the transfers n queston.
In vew of the proof adduced before the court, t s nescapaby concuded
that the decedent made these transfers n contempaton of death. ccordngy,
et udgment be entered for the defendant.
Reguatons 70(1929), rtce 19: Power to I-16-8649
change en|oyment. Ct.D. 121C
estate ta revenue act of 1026 decson of court.
1. Gross state Transfer n Trust Power to ter, mend,
ob O .
The decedent created an Irrevocabe trust to contnue unt the
death of the survvor of the then vng chdren of her sster, the
ncome to bo pad to hersef for fe or to other specfed persons as
she mght drect, reservng te rght to change the proportons of
trust corpus and ncome to be pad to any of the benefcares
named. The trust nstrument provded for the dstrbuton of the
ncome n the event of the decedent s death pror to the termna-
ton of the trust and for the dstrbuton of the corpus upon such
termnaton. Under these facts, the vaue of the trust estate s
ncudbe In the decedent s gross estate, under the provsons of
secton 302(d) of the Revenue ct of 1926.
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Regs. 70(1929), rt. 19.
296
2. oabd op Ta ppeas Moton to mend Petton Dscreton
of oard.
The refusa of the oard of Ta ppeas to aow the admnstra-
tor of the decedent s estate to amend hs petton n order to ncude
as deductons certan ncome ta es and admnstraton e penses
pad was not an abuse of ts power, where the moton to amend
was not made unt after the oard had fed ts opnon wth
decson to be entered under rue 50 of ts code of procedure and
practce.
8. Decson ffrmed.
Decson of the oard of Ta ppeas (83 . T. ., 155) affrmed.
Unted States Crcut Court of ppeas for the ourth Crcut.
W. . oderness, dmnstrator of state of mea S. Stcrnberger, Successor
to Lucan I. Strauss, pettoner, v. Commssoner of Interna Revenue,
respondent.
86 . (2d), 137.
On petton to revew the decson of the Unted States oard of Ta ppea .
efore Parker, Northcott, and Soper, Crcut udges.
November 9, 1936.
OPINION.
Soper, Crcut udge: The Unted States oard of Ta ppeas hed n ths
case that the entre corpus of a trust estate created by the decedent n her
fetme shoud be ncuded n her gross estate, sub|ect to the estate ta under
sectons 301(a) and 302 of the Itevenue ct of 1926 (ch. 27, 44 Stat., 69, 28
U. S. C. ., sectons 410 and 411). Specfcay t was hed that the vaue
of the corpus of the trust estate was ncudbe n the vaue of the gross estate
under secton 302(d) whch requres such ncuson
(d) To the e tent of any nterest theren of whch the decedent has at any
tme made a transfer, by trust or otherwse, where the en|oyment thereof was
sub|ect at the date of hs death to any change through the e ercse of a power,
ether by the decedent aone or n con|uncton wth any person, to ater,
amend, or revoke, or where the decedent renqushed any such power n con-
tempaton of hs death, e cept n case of a bona fde sae for an adequate and
fu consderaton n money or money s worth.
The case s before us on the petton of the admnstrator of the estate for
revew.
mea S. Sternberger ded on anuary 8, 1029, as the resut of an accdent.
She was then 21 years of age. On December 4. 1926. she had devered and
deposted wth the Centra Unon Trust Co., a New York corporaton, the sum
of 1,364,000 under an rrevocabe contract and agreement of trust, wth the
drecton to nvest the money n ncome producng securtes. The trust was
to contnue unt the death of the survvor of the then vng chdren of her
sster. Durng the fe of the grantor, the ncome from the property was to
be pad to her or to other specfed persons as she mght drect. Provson
was aso made for the dstrbuton of the ncome n the event of her death
pror to the termnaton of the trust and the rght was reserved to her to
change the proportons and amounts of the ncome to be pad to any of the
specfed benefcares.
The grantor reserved the rght to wthdraw from the trust at any tme after
one year from the date of ts creaton, securtes of a market vaue of 400,000
at the tme of the wthdrawa. She aso reserved the rght to dspose of 25
per cent of the corpus by her ast w and testament. She e ercsed nether
of these rghts.
The trust agreement mare the foowng provsons n substance for the
dstrbuton of the corpus of the estate upon the termnaton of the trust:
(a) One-thrd to any survvng husband of the grantor
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297
Regs. 70(1929), rt. 19.
(b) Two-thrds equay between any then survvng chdren of the grantor
nd the representatves of any deceased chd
(c) In the event the grantor des eavng no survvng husband, but eavng
chd, chdren or representatves thereof, the whoe of the estate sha be
dvded among such chdren and ther representatves
(d) In case the grantor des wthout eavng survvng her a husband,
chd, or chdren or representatves of any deceased chd, the entre estate
sha go to the grantor s sster
e) In case the grantor des eavng a survvng husband, but no chd,
chdren, or representatves of any deceased chd, one-thrd of the estate s
to go to the survvng husband and the remander to the grantor s sster f
vng at that tme
(f) If, upon the termnaton of the trust, the sster shoud be dead, eavng
survvng chdren or representatves of deceased chdren, the porton of the
estate she woud have taken f vng upon the termnaton of the trust sha
be dvded equay among her chdren and representatves of deceased chdren
(g) If, upon the termnaton of the trust the grantor shoud be vng,
the whoe of the trust estate sha be dstrbuted to the grantor.
The trust nstrument further provded:
It s dstncty understood and agreed that the party of the frst part
(grantor) reserves the rght to change by a wrtng duy e ecuted and devered
to the party of the second part (trustee) the proportons of such estate that
sha go to any of the partes named or specfed heren.
The vaue of the corpus at the date of death was 2,301,070.04, a of whch
was hed by the oard to enter nto the gross estate of the decedent. The
admnstrator concedes that 400,000 thereof was sub|ect to the estate ta
because the rght to wthdraw that sum from the trust was reserved to the
grantor and aso concedes that 25 per cent of the baance of the estate was
ta abe, because of the reserved power to dspose of that amount by w.
nt the ta abty of the remander of the estate s contested on the ground
that the grantor dd not reserve the power to ater, amend or revoke the trust
nstrument tsef or any of the contngences upon whch any nterest n the
estate was to vest n any person or cass of persons named theren. It s
ponted out that whe the grantor reserved the rght to change the propor-
ton and amounts of ncome payabe to any of the benefcares, she merey
reserved as to the corpus the rght to change the proportons of
such estate that sha go to any of the partes named or specfed heren. So
t s sad that the reserved power as to the corpus fas far short of the power
to reca the dsposton of the property t does not authorze the e cuson
of the desgnated persons from partcpaton n the estate or the reducton of
the share of any one to a nomna amount but t amounts to nothng more than
the power to rearrange the mathematca proportons of the estate among the
persons desgnated to take upon certan contngences. ence t s contended
that the terms of secton 302(d) of the Revenue ct of 1926 are not appcabe
snce the en|oyment of the nterests of the desgnated persons n the trust
was not sub|ect at the date of the decedent s death to any change through
the e ercse of a power, ether by the decedent aone or n con|uncton wth any
person, to ater, amend or revoke.
The argument s not convncng. It was hed n Porter v. Commssoner (288
. S.. 436 Ct. D. 647, C. . II-1, 354 (1933) ) that Congress had the power
to Incude n the ta abe gross estate of a decedent a property prevousy
transferred In trust by the decedent, the en|oyment of whch remans at the
tme of hs death sub|ect to change by the e ercse of a power by hmsef aone
or In con|uncton wth another, even though e then had no nterest n the
property or power of en|oyment theren and that Congress manfested an
ntenton to mpose the estate ta upon such a dsposton n secton 302(d)
of the statute. In that case, the creator of the trust reserved the brond power
at any tme to ater or modfy the trusts In any manner, e ceptng any change
n favor of hmsef or hs estate. The court ponted out that the reservaton
made the settor domnant n respect of other dspostons of the property and
pave hm such a contro durng hs fetme that hs death, ke a testamentary
dsposton, was the source of vauabe assurance passng from the dead to the
vng.
The admnstrator urges that ths case s dstngushabe because the settor
theren reserved the power to make a compete revson of a that he had
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Regs. 70(1C29), rt. 19.
298
done, e cudng ony hmsef as a possbe benefcary, whe here the
power was reserved ony to change the proportonate shares of certan benef-
cares that coud not themseves be changed. ut the dfference s not matera.
oth dspostons are wthn the terms of the statute. or e ampe, the
statute has been hed appcabe to the corpus of a trust estate created by deed
wheren the grantor created an rrevocabe trust coverng certan property,
and provded that the ncome therefrom shoud be pad to hor durng her fe
and that thereafter, the corpus shoud be pad to her awfu descendants n
such proportons as she shoud n her aRt w drect. (Comms oner v. Chase
Natona ank. 82 . (2d), 157 certorar dened October 13, 1938 4 L. W.,
25.) The ncuson of the corpus of the trust n the decedent s gross estate
was uphed snce t was cear that up to the tme of her death, she coud have
mted any or a to one of her descendants to a nomna Interest n the prop-
erty, and that ony her death, wthout the e ercse of the power, made t cer-
tan that her descendants woud take In equa shares per strpes. The reserved
power to change the proportons of the corpus to go to the severa benefcares,
contaned n the deed under consderaton n the pendng case, s of equa
substance and materaty and entas a ke resut wth respect to the mpos-
ton of the edera estate ta .
n addtona compant s odged aganst the refusa of the oard to
aow the admnstrator to amend hs petton on appea from the Comms-
soner s determnaton n order to ncude as deductons from the gross estate
certan ncome ta es and admnstratve e penses whch the admnstrator had
pad. If these payments were actuay made, they mght we have been aowed
by the oard but the moton to amend was not made unt after the oard
had ted ts opnon wth decson to be entered under rue 50 of ts code
of procedure and practce. Under that rue, the partes to a controversy before
the oard may submt computatons of defcency or overpayment, n accordance
wth an opnon prevousy rendered but any hearng thereon s to be confned
soey to the consderaton of the correct computaton of the defcency or
overpayment resutng from the decson aready made, and no argument w
be heard upon or consderaton gven to ssues aready dsposed of or of any
new ssues. We do not fnd n the record any crcumstances ndcatng that
the oard abused the power necessary entrusted to t under 26 U. S. C. .,
611, to make rues of practce and procedure, to e pedte the settement of
controverses submtted to ts determnaton.
ST T T R NU CT O 1920 D CISION O COURT.
1. Gnoss state Transfer by Trust Power to ter, mend,
or Revoke.
Where the decedent created an rrevocabe trust coverng her
Interest n certan property, the trust nstrument provdng that,
after the payment of certan ndebtedness, she shoud receve the
trust ncome durng her fe and thereafter the corpus shoud e
pad to her descendants n such proporton as she shoud by w
appont, or, fang such appontment, the corpus shoud be ds-
trbuted among such descendants In equa shares per strpes, wth
aternatve provsons for dstrbuton n the event she shoud de
eavng no descendants, the vaue of the corpus of the trust Is
ncudbe n the gross estate under the provsons of secton 302(d)
of the Revenue ct of 1926.
2. Decson Reversed.
Decson of the oard of Ta ppeas (31 . T. ., 329) reversed.
8. Certorar Dened.
Petton for certorar dened October 12, 1936. (299 U. S., 552.)
ffrmed.
Reguatons 70(1929), rtce 19: Power to
change en|o3 ment.
I-4-8499
Ct. D.1191
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299
Regs. 70(1929), rt. I .
Unted States Crcut Court of ppeas for the Second Crcut.
Commssoner of Interna Revenue, pettoner, v. The Chase Natona ank of
Sew York, ncary dmnstrator of the Goods, Chattes and Credts of
ven een de a Poer eresford, Deceased, respondent.
82 . (2d), 157.
Petton to revew a decson of the oard of Ta ppeas reatng to estate ta es assessed
under the Revenue ct of 1U-6. Reversed.
efore L. and, Swan, and Chase, Crcut udges.
March 2, 1936.
OPINION.
Chase, Crcut udge: The respondent s the ancary admnstrator of the
estate of ven een de a Poer eresford, a resdent of ngand, who ded
ntestate on ebruary 3, 1931, eavng three survvng chdren.
On December 14, 1920, the decedent created an Irrevocabe trust, of whch
the respondent s the successor trustee, coverng her entre nterest n the esate
of her grandfather. The trust deed provded that after a oan made to her
husband by her father had been pad, the decedent shoud receve the Income
durng her fe and thereafter the corpus, together wth any undstrbuted ncome
then remanng, shoud be pad to her awfu descendants In such prowrtnns
as she shoud In her ast w appont. It was aso provded that f she made
no appontment the trust property shoud be dstrbuted among such descendants
In equa shares per strpes wth aternatve provsons for dstrbuton n the
event that she shoud de eavng no such descendants.
The Commssoner s acton In ncudng the vaue of the corpus of the trust
n the gross estate of the decedent was revewed by the oard of Ta ppeas.
ma|orty of the oard havng decded adversey to the Commssoner on ths
pont, he has brought ths petton for revew.
The pettoner rees n support of hs acton upon subdvsons (c) and (d)
of secton 302 of the Revenue ct of 1926. They foow:
Revenue ct of 1920 (ch. 27, 44 Stat., 9) :
Sec 302. 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 or persona,
tangbe or ntangbe, wherever stuated

(c) To the e tent of any nterest theren of whch the decedent has at any
tme made a transfer, by trust or otherwse, n contempaton of or ntended to
take effect n possesson or en|oyment at or after hs death, e cept n case of a
bona tde sae for an adequate and fu consderaton n money or money s
worth.
(d) To the e tent of any nterest theren of whch the decedent has at any
tme made a transfer, by trust or otherwse, where the en|oyment thereof was
sub|ect at the date of hs death to any change through the e ercse of a power,
ether by the decedent aone or n con|uncton wth any person, to ater, amend,
or revoke, or where the decedent renqushed any such power In contempaton
of hs death, e cept Id case of a bona Ode sae for an adequate and fu consd-
eraton In money or money s worth.
We thnk subdvson (d) authorty for the ncuson of the trust corpus In
the decedent s gross estate. Up to the tme she ded she had te power to
ater the proportons n whch her descendants shoud take the property n
accordance wth the orgna terms of the trust nstrument. She coud have
mted any, or a but one, of them to a nomna amount and gven a of rea
vaue to one or to such of them as she peased. er death emnated the poss-
bty of any such change n the provsons of the deed of trust und made t
certan that her awfu descendants woud take the property n equa shares per
strpes. The power she reserved was not to change the trust provsons n a
trva way but went rght to the heart of them and gave the decedent a sub-
stanta though quafed contro over the trust property unt her death. Such a
power to ater or amend the substance of the transfer by trust brought It wthn
the scope of the decson n Porter v. Commssoner (288 U. S., 4. 6 Ct. D. 647,
C. . II-1, 354 ) and ustfed the ncuson of the property n the gross estate
of the decedent. (See Dart v. everng, 68 ed. (2d), 636 ft. D. 859, C. .
III-2. 878 Cook v. Commssoner, 66 ed. (2d), 995: obtzee v. Unted
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Regs. C8, rt. 36.
300
States, 3 . Supp. (Ct Cs.), 331 Ct. D. 711, O. . II-2, 268 .) The decedent
havng the rght to change the economc beneft, had the power to ater wthn
secton 302(d) of the 1926 ct even though she coud not beneft hersef n a
pecunary way by the change. (I therbee v. Commssoner, 70 ed. (2d), 696.)
She ved severa years after the ct took effect and she was on notce of ts
provsons, retanng the reserved powers when she mght have gven them up
to rd her estate of ths ta abty. So there has been no dena of rghts under
the ffth amendment. (Porter v. Commssoner, 60 ed. (2d), 673 Wtherbce v.
Commssoner, supra. Compare everng v. Cty ank Co., 290 U. S., 85 Ct. D.
1042, C. . I -2, 329 .) The dstncton between ths case and everng y.
cmhoz (296 U. S., 93 Ct. D. 1043, C. . I -2, 332 ) and Whte v. Poor (292
U. S., 98 Ct. D. 1044, C. . I -2, 335 ) es n the fact that n nether of them
was there any power to ater, amend or revoke wthn the meanng of secton
302(d).
s we fnd t necessary to hod that secton 302(d) of the 1926 ct appes, t
s unnecessary to consder the effect of secton 302(c).
Reversed.
TITL I O T R NU CT O 1926, S M ND D ND SUPPL -
M NT D Y T R NU CTS O 1928, 1932, 1934, 1935, ND 1936.
ST T T .
Reguatons 80(1934).
( so Tte III of the Revenue ct of 1932 as
amended and suppemented by tho Revenue cts
of 1934 and 1935 and Reguatons 79(1936) Gft
ta .)
Ta abty of transfers of Unted States savngs bonds for
edera estate and gft ta purposes.
dvce s requested whether transfers of Unted States savngs
bonds are e empt from edera estate and gft ta es.
Under e stng aw transfers of the property n Unted States
savngs bonds are not e empt from edera estate and gft ta es
(e cept n respect of such bonds whe benefcay owned by a non-
resdent aen who s not engaged n busness n the Unted States).
Whether a partcuar transfer of the property n such bonds entas
abty for edera estate or gft ta , and, f so, the amount thereof,
depends upon the vaue of the property transferred, the specfc
e empton, etc., aowabe under the aw, and the appcabe ta rates
n effect at the tme of the transfer.
TITL III. P RT I. ST T T . (1924)
I-15-8643
. T.9
S CTION 303(a) 1.
Reguatons 08, rtce 36: Cams aganst I-21-8719
the estate. Ct. D. 1220
( so Secton 302(a), rtce 10 Secton
303(a)3, rtce 44.)
ST T T R NU CT O 3024 D CISION O COURT.
1. Gnoss state Deductons--Satsfacton of Pedges Cams
ganst state Contrbutons to Chartabe Corporatons.
mounts pad by the e ecutors of decedent s w n satsfacton
of pedges made by the decedent to an orphan asyum and to a
maternty hospta are not deductbe (1) as cams aganst the
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301
Regs. 68, rt. 36.
estate under secton 303(a)1 of the Revenue ct of 1924, snce
not supported by the requste consderaton, or (2) as contrbu-
tons to chartabe corporatons under secton 303(a)3 of the ct,
snce there s no proof that ether organzaton comes wthn the
statutory defnton.
2. Gboss state Rea Property Loca Law.
Where, under the oca aw, rea property stuated n New York
may be sod for the payment of debts and reasonabe e penses of
admnstraton as aowed by the surrogate, the vaue of such prop-
erty s Incudbe n the decedent s gross estate as defned n
secton 302(a) of the Revenue ct of 1924, even though the per-
sonaty s suffcent to pay such charges and e penses.
8. Gboss state Deducton Trustees Commssons penses
of dmnstraton.
Putatve commssons camed by the pettoners as trustees
of the decedent s rea estate are not deductbe as e penses of ad-
mnstraton, under the rue announced n artce 33 of Reguatons
68, n the absence of peadngs or proof to show that the pettoners
are trustees of the rea estate, that the rea estate was devsed
upon trust, or the terms of the trust, f t was so devsed.
4. Decson ffrmed.
Decson of the oard of Ta ppeas (32 . T. ., 146) affrmed.
Unted States Crcut Court of ppeas for the Second Crcut.
Chares . retzfeder and Leon Tuchmann, as ecutors of the state of Mor-
rs Wensten, Deceased, pettoners, v. Commssoner of Interna Revenue,
respondent.
86 . (2d), 713.
Petton to revew a decson of the Unted States oard of Ta ppeas.
efore Manton, L. and, and Swan, Crcut udges.
December 7, 1936.
OPINION.
The pettoners, as e ecutors of a decedent s estate, seek revew of an order
Invovng estate ta es under the Revenue ct of 1924. Order affrmed.
Swan, Crcut udge: The pettoners are e ecutors of the estate of Morrs
Wensten who ded on une 4, 1925, eavng an estate sub|ect to ta aton under
Tte III of the Revenue ct of 1924 ( 43 Stat., 303). The present controversy
rases three dstnct ssues as to the ta upon the estate.
The frst s whether there may be deducted from the gross estate sums of
750 and 1,000 pad by the e ecutors to Paestne Orphan syum and ewsh
Maternty ospta, respectvey, n satsfacton of pedges made by the decedent
whch are assumed arguendo to have been egay enforceabe aganst hs
estate. Secton 303(a) 1 of the appcabe Revenue ct permts the deducton
of cams aganst the estate to the e tent that such cams
were ncurred or contracted bona fde and for a far consderaton n money
or money s worth . (43 Stat., 305.) That a promse to gve money
to a hospta, though t may be egay bndng, s not supported by the knd
of consderaton requste to permt the debt to be deducted was hed by ths
court n Porter v. Commssoner (60 . (2d), 673. ccord, Laty v. Comms-
soner, 62 . (2d), 952 (C. C. . 6) Ct. D. 718, 0. . II-2, 293 (1933)
Gaser v. Commssoner, 69 . (2d), 254 ( 0. C. . 8) compare, Turner v.
Commssoner, . (2d), (C. C. . 3, September 24, 1930)). Nor are the
pettoners entted to the camed deductons under secton 303(a)3, snce
there s no proof that ether the orphan asyum or the hospta s a chartabe
corporaton wthn the statutory defnton. Ths pont aso s rued by the
Porter case.
The ne t queston Is whether the vaue of the decedent s New York rea
estate Rhoud be ncuded n the gross estate, as defned In secton 302(a) (43
Stat.. 304). Ths turns on whether the rea estate s sub|ect to the payment
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302
of the charges aganst hs estate and the e penses of ts admnstraton. It Is
conceded that the rea property may be sod for the payment of debts and the
reasonabe e penses of admnstraton as aowed by the surrogate (secton
234, New York surrogate s court act) but the argument s advanced that, as
the personaty must frst be e hausted, the and s not sub|ect to such
charges and e penses uness the personaty s nsuffcent to pay them, whch
s not the case n Wensteu s estate. The constructon contended for s
wthout mert smar contenton was re|ected n rst Trust Co. of Omaha
v. en (60 P. (2d), 812, 817 (O. 0. . 8)) and In re Marbe s state (64 .
(2d), 745, 747 (C. C. . 7)). The defnton of secton 302(a) refers to a
genera cassfcaton rather than to the partcuar ncdence of ts appcaton
In a specfc case. We have no doubt that sub|ect to as used n the statute
s the equvaent of avaabe for.
The fna ssue s whether there shoud be deducted from the gross estate
as e penses of admnstraton aowed by the aws of the |urs-
dcton putatve commssons of the pettons as trustees of the decedent s
New York rea estate. In ther accountng n the surrogate s court the e ecu-
tors were aowed 56,607.98 as commssons, computed upon the vaue of the
estate e cusve of the reaty, aud the deducton of these commssons was
aowed to the pettoners. They now seek the aowance of a further deducton
on account of trustees commssons whch they say w hereafter be aowed
them under secton 285 of the New York surrogate s court act. The respondent
contends that ths ssue s not propery before ths court, snce t was not
peaded or proved before the oard (see everng v. Savage, 297 U. S., 106,
109 Ct. D. 1075, C. . -1, 207 (1936) ) but that n any event the pet-
toners can not preva, because trustees commssons are not deductbe from
the gross estate. Such s the rue announced n artce 33 of Reguatons 08,
promugated under the Revenue ct of 1924. We thnk t s a correct con-
structon of the statute. It seems reasonabe to confne e penses of admns-
traton to such as are necessary to wnd up admnstraton of the estate and
affect the estate as a whoe. (See Ne o York Trust Co. v. sner, 256 U. S., 345,
350.) ut even f t be assumed that trustees commssons on New York rea
estate may under some crcumstance be deducted from the gross estate, ths
record contans nothng to present any such queston for decson. Nether
the peadngs before the oard, nor the petton for revew, nor the stpuated
facts contan a word to show that the pettoners are trustees of the rea
estate, or that the rea estate was devsed upon trust, or the terms of the
trust, f t was so devsed. y the aw of New York the tte to rea estate does
not pass to e ecutors, and the pettoners have faed to show that they are
entted to a deducton for commssons n e cess of what has been aowed
them.
The order of the oard s affrmed.
TITL II ST T T . (1916)
I-2-8474
Ct. D. 1188
estate ta revenue act of 1010, as amended tradng wt the
enemy act, a3 amended decson of court.
ssessment and Coecton Property Skzed by en Property
Custodan Statute of I|mtaton Cam for Refund.
Where the en Property Custodan, pursuant to the Tradng
wth the ueruy ct as amended, sezed and admnstered se-
curtes beongng to the estate of an aen who ded n 1917,
n 1929 pad the edera estate ta es assessed n that year, and
n 1932 fed a cam for refund of such ta es, the genera prov-
sons of the revenue aws wth reference to assessment and co-
ecton of ta es and wth reference to refunds of ta es egay
or erroneousy coected were not appcabe. The War Cams
Settement ct of 1928, amendng the Tradng wth the nemy
ct, provded specay that ta es due from aens shoud b
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303
computed as If the property had not been sezed and then pad
wthout regard to the statute of mtaton. The egatees can
not ava themseves of the cam for refund fed by the en
Property Custodan, snce he was not ther agent, but the agent
of the Government
Court or Cams of the Unted States.
Maranne rausz and Pau ohenau, as Soe Leaatees, ers at Law and
Ne t of n of Soo Oohn, Deceased, v. The Unted States.
14 . Supp., 291.
pr 6, 1936.
OPINION.
Green, udge, devered the opnon of the court
Sao Con, a ctzen of ustra, ded on pr 25, 1917. t the tme of hs
death he was n possesson of securtes kept In the Unted States te vaue
of whch was 974,506.21. fter hs death these securtes were sezed and
admnstered by the en Property Custodan under the Tradng wth the
nemy ct, as amended.
In the years 1028 and 1929, the Commssoner of Interna Revenue notfed
the en Property Custodan of edera estate ta es due on the estate of
Sao Cohn In the tota amount of 59,587.97. and n 1929 entered two assess-
ments coverng these ta es. The en Property Custodan n 1929, pad the
tota amount of these ta es n accordance wth the notces receved from the
Commssoner. No return was ever fed for the edera ta es on the estate
of Sao Cohn e cept one fed on ebruary 4, 1929, e ecuted by one of the
e emtors of the estate at the request of the en Property Custodan and
fed In the offce of the Custodan. On ugust 6, 1932. the en Property
Custodan fed a cam for refund of the estate ta es pad by hm on behaf
of the estate In the amount of 59,587.97. The cam for refund havng been
re|ected by the Commssoner, ths sut s now brought to recover the amount
thereof.
Pantffs sut Is based upon the cam that a of the provsons of the
revenue aws wth reference to assessment and coecton of edera ta es
together wth a of the provsons wth reference to refunds of ta es egay
or erroneousy coected are appcabe to ther cause of acton. We thnk
ths theory can not be sustaned when the pecuar facts of the stuaton are
consdered In connecton wth the speca statutes appcabe.
In order to ceary set forth the e traordnary condtons whch prevaed
durng the perod Invoved In the case and the speca statutes whch were
enacted to meet these condtons, It s necessary to make a bref hstorca
revew.
t the tme the Unted States became a partcpant n tht Word War,
German natonas owned property stuated or kept wthn the Unted States
to the vaue of about 245,000,000. Ths property was of amost every descrp-
ton Incudng money, securtes, patents, shps, rado statons, etc. esdes ths,
there was a very arge amount of property beongnz to ustrans and un-
garans. Congress passed what s known as the Tradng wth the nemy ct
whch, among other thngs, authorzed the sezure of ths property and paced
t In charge of an offcer caed the en Property Custodan. fter the war
ended the queston arose as to what dsposton shoud be made of the prop-
ertes so hed. There had been an od treaty wth Prussa ong before t
became a part of the German mpre whch provded that n case of war
between the two countres the prvate property of the warrng natonas shoud
not be confscated. though ths treaty no onger controed, the rue e pressed
n t came to be regarded n the Unted States at east as a sound prncpe
of nternatona aw and consequenty the German owners of ths property were
knockng persstenty at the doors of Congress askng that ther property be
returned to them. It was fet that there was much equty n ther cam and
the Tradng wth the nemy ct was amended to provde for the payment of
certan sma cams. On the other hand about 1S( .( 00,000 had been found
due from Germany to mercan camants and estabshed by awards deter-
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304
mned by the m ed cams commsson whch had been created under th
treaty of peace wth Germany. Germany was a bankrupt naton unabe to
pay these awards and oud protests came from the mercan camants aganst
payng the German camants wthout any provson for the payment of |ust
mercan cams. The probem before Congress was an e tremey dffcut one
and athough many efforts were made to dspose of t there were so many
dfferent knds of cams and so many confctng nterests that year after year
went by wthout the egsators beng abe to agree upon a b. One of the
many serous probems n the case arose from the fact that Germany was
unabe to make any payment and there were not suffcent funds n the hands
of the en Property Custodan, even when there was added thereto a arge
sum whch t was e pected woud be pad for the German shps and rado sta-
tons, to pay both the German camants and the mercan camants at once.
nay the matter was referred to the Ways and Means Commttee, whch
prepared a b, and a statute was enacted more than 23 pages n ength whch
contaned provsons for the dsposton of the property whch was hed by
the en Property Custodan and created a fund out of whch the mercan
camants coud be pad. Ths statute was caed the War Cams Settement
ct and was approved March 10, 1928 (45 Stat, 254).
consderaton of the facts above stated makes t pan that unt the aw
made provson for return of the property none of the aen partes whose
property had been sezed had any enforceabe rghts or nterest ether In the
property or aganst the Government by reason of ts beng so hed and when-
ever ths matter has been presented to the courts they have so decded. What-
ever rghts the former owners subsequenty obtaned were through and under
the War Cams statute whch was purey an act of grace on the part of our
Government. The Unted States coud have retaned the property sezed, and
dsposed of t as t saw ft, apped t on ta es, or approprated t entrey
and had t covered nto the msceaneous recepts of the Treasury, regardess
of the statutes mtng the coecton of ta es. Whatever t dd wth the
money, the former owners woud have had no cause of acton aganst the
Government unt some statute was enacted makng speca provson for the
return of the property or a porton of t and then ony upon the condtons
e pressed n such statute.
It Is argued on behaf of the pantffs that the War Cams ct dd not
repea the provsons of the statutes wth reference to the assessment and co-
ecton of ta es and that as these statutes were not repeaed, they were not
ony n force at the tme when the en Property Custodan turned the money
nvoved over to the Commssoner but apped drecty to the funds n the
hands of the en Property Custodan, and consequenty the dsposton of
these funds was controed by the genera statutory provsons wth reference
to ta es. Ths s ceary an erroneous concuson. We have aready shown
that unt the War Cams ct became a aw the former owners of the property
sezed had no enforceabe rghts whatever theren and when ths ct was
passed they acqured no rghts e cept those granted thereby. The War Cams
ct made provson for the payment of ta es and the Government havng
compete rght to retan the property, none of the ta ng statutes had any
appcaton e cept as specay stated n the ct Itsef.
t ths pont t shoud be noted that the pantffs dd not fe the ony cam
for refund made n ths case. It was fed by the en Property Custodan.
Why, we do not know. It woud seem sef-evdent that the en Property
Custodan was not the agent for the former owner of the property. e was
the agent of the Government Itsef and dd not act for the pantffs n fng
the cam for refund. See Opnon of ttorney Genera, voume 32, pages 249,
203. The Incongruous stuaton s presented where an agent of the Govern-
ment fes a cam aganst the Government. If anyone was authorzed to fe
a cam for refund, t woud seem to be the pantffs yet the pantffs had
not pad the ta , t was pad by the en Property Custodan out of money
over whch the Government had compete contro and the rght to approprate
ns It saw ft. These features of the case show how dffcut f not mpossbe
t s to appy the genera provsons of the ta ng statutes to the case now
before us. The attempt to do so eads nto a sorts of nconsstences and
presents one of the many reasons why we thnk Congress had no ntenton
of restrctng the rght of the Government to retan money or property whch
had been sezed by the en Custodan by appyng the genera statutes wth
reference to the nssessment anr coecton of ta es.
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305
What has been sad above, vre thnk shows pany that pantffs case de-
pends not upon whether the provsons of the revenue aws wth reference
to the assessment and coecton of ta es were repeaed by the War Cams
Settement ct but upon whether that statute made these provsons appcabe
n determnng the amount whch the camants shoud receve. The ta es
nvoved were not assessed and coected wthn the perod prescrbed by the
genera provsons of the revenue aws and f they are appcabe n determn-
ng whether the money nvoved n the sut can be retaned by the Government
t s obvous that pantffs are entted to recover. On the other hand,
f the War Cams Settement ct, as we thnk, provded that the ta es shoud
be computed, as If the property had not been sezed by the en Custodan,
and then pad wthout any further restrctons, the pantffs have no founda-
ton for ther sut
Pantffs rey argey on secton 24 of the Tradng wth the nemy ct whch
was amended by the War Cams Settement ct n secton 18 thereof whch
was headed Ta es. Secton 24 of the Tradng wth the nemy ct was
made subdvson (a) by the amendment and subdvsons (b) to (f) ncusve
were added. Secton 24 (now subdvson (a)), among other thngs, provded:
The en Property Custodan s authorzed to pay a ta es here-
tofore or hereafter awfuy assessed aganst any money or other
property hed by hm .
It dd not drect the en Property Custodan to pay or turn over anythng
to the former owners of the property but merey authorzed the payment of
certan ta es. Subdvson (b) of the amendment reads as foows:
(b) In the case of ncome, war-profts, e cess-profts, or estate ta es
Imposed by any ct of Congress, the amount thereof sha, under reguatons
prescrbed by the Commssoner of Interna Revenue wth the approva of the
Secretary of the Treasury, be computed n the same manner (e cept as here-
nafter n ths secton provded) as though the money or other property had
not been sezed by or pad to the en Property Custodan, and sha be pad,
as far as practcabe. In accordance wth subsecton (a) of ths secton.
Pendng fna determnaton of the ta abty the en Property Custodan
s authorzed to return, In accordance wth the provsons of ths ct, money
or other property n any trust In such amounts as may be determned, under
reguatons prescrbed by the Commssoner of Interna Revenue wth the
approva of the Secretary of the Treasury, to be consstent wth the prompt
payment of the fu amount of the nterna-revenue ta es.
It s assumed by pantffs that by amendng secton 24 of the Tradng wth
the nemy ct In ths manner a mtatou was paced upon the amount whch
the Government woud wthhod for ta es and that the money or property
whch had been sezed woud be returned n Its entrety wthout any deducton
on account of ta es not awfuy assessed. We do not thnk ths constructon
accords wth the anguage of the amendment and are cear that t s not n
harmony wth the Intenton of Congress. The amendment (b) quoted above
does not pertan to the assessment of ta es n any way. On the contrary t
so carefuy avods the use of the word assessment that we thnk t evdent
Congress took nto consderaton the fact that there woud be ta es due and
unpad but never assessed. Instead of sayng that ta es sha not be pad
uness awfuy assessed, t states they sha be computet In the same manner
(e cept as herenafter In ths secton provded) as though the money or other
property had not been sezed by or pad to the en Property Custodan, and
sha be pad, as far as practcabe, In accordance wth subsecton (a) of
ths secton. Itacs supped. It Is e pressy provded that the ta es
sha be pad, and the words as far as practcabe dd not make the pay-
ment depend upon the tme when an assessment had been made for ths was
not a matter of practcabty. These words evdenty appy to the further
provson contaned n subdvson (a) that such ta es sha be
Pad out of the money or other property aganst whch such ta es are assessed
, or (If such money or othPr property s nsuffcent) out of any other
money or property hed for the same person. Subdvson (b) recognzes
that at the tme of ts enactment the ta es may not have been computed or
assessed and made the further provson that pendng fna determnaton
of the ta abty the en Property Custodan s authorzed to return, In
accordance wth the provsons of ths ct, money or other property n any
trust In such amounts as may be determned, to be consstent wth
the prompt payment of the fu amount of the Interna-revenue ta es Ths
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provson evdenty contempates the payment of the fu amount of the
ta es wthout any restrcton or mtaton and the return of the property to
the camant ess ta es and other charges the deducton of whch was
authorzed.
In addton to what Is stated above, It woud seem that there Is no reason
at a for the enactment of subdvson (b) f ony ta es awfuy assessed
that Is, assessed In accordance wth the genera provsons of the ta ng cts
were to be pad. n assessment must aways be preceded by a computaton
of the ta , and where the ta had aready been assessed In accordance wth
aw no further computaton was necessary. s to the ta es that had not been
so assessed, there woud be no use n makng the computaton If the constructon
for whch pantffs contend Is correct and the subsecton coud ust as we
have been entrey omtted. In ths connecton It shoud be kept In mnd
that ta es become due wthout beng assessed.
We thnk the wordng of subdvson (b) requres that where ta es were
due from the aens whose property had been sezed they shoud be computed
and wthhed wthout regard to the statute of mtatons. If It shoud be
conceded for the sake of the argument that the statute was ambguous, the
surroundng crcumstances ceary show that such must have been the ntent
of Congress. Ths money or property was turned over purey as an act of
grace. In so dong, the Unted States was not standng upon Its war-tme
rghts but paced the matter on a mora and equtabe pane hghy favorabe
to the camants. avng done ths, It seems hardy concevabe that It was
ntended to turn ths property back to the former owners wthout coectng
ta es usty due from them. Our Government was ntendng to do e act
ustce to the aen camants and t woud e act no more than ustce In
requrng these ta es to be pad. Where the ntent Is manfest and the
anguage ambguous the ntent must contro.
We fnd no decsons that have been made on precsey smar cases. In
the case of Chemsche abrk Ton ryden ktenpeseschaft v. Ta (58
ed. (2d), 815), the Dstrct Court of Maryand hed that
the Settement of War Cams ct was an act of grace of the soveregn
Unted States, and In returnng the property ths Government undoubtedy
had the cear rght to Impose such terms and condtons as It peased Congress
to enact The property coud have been wthhed entrey or confscated beyond
any ega rght or remedy of the pantff.
The court went on to hod that subdvson (b) and other subdvsons of
secton 24 of the Tradng wth the nemy ct as amended specfed the terms
and condtons on whch the property shoud be returned to ts former owner
and t was sad that
Secton 24(b-f) shows beyond nny reasonabe doubt that the ntenton of
Congress was to return ony the corpus of the property remanng after the
payment of ta es and other e penses thereout . Obvousy the nten-
ton was to make the property sub|ect retroactvey to ta es for the desgnated
years. If, therefore, the ta had not prevousy been pad by the en Prop-
erty Custodan, t was the ntenton of ths egsaton to requre the deter-
mnaton and payment of the ta before tho return of the property to the
former aen enemy.
The case ast cted dffered from the case at bar n that It nppeared that
the deputy coector had made a return of the ta es whch were assessed
wthn the statutory perod, but we do not thnk ths makes any dfference
wth the prncpe announced by the dstrct court, whch aso observed that
It seemed hghy doubtfu If the pantff n ts own name has any standng
whatever n court to recover a ta pad by the Custodan to the coector of
nterna revenue. ut the court dd not fnd t necessary to rue on ths
queston, or upon whether the pantff n that case coud ava Itsef of the
cam of refund fed by the Custodan. We thnk t coud not, for, as above
stated, the Custodan was not the agent of pantffs. On the other hand,
we do not thnk there was any necessty for the fng of a cam for refund
n the case now under consderaton. If pantffs are entted to have the
money for whch they sue pad over to them, t Is because the War Cams
Settement ct (contrary to our constructon) provded that ths shoud be
done and they needed no cam for refund.
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307
Counse for pantffs ca attenton to a rung of the Genera Counse of
the ureau of Interna Revenue n whch t was hed that the Settement of
War Cams ct dd not abrogate the genera statute of mtatons appcabe
to the assessment and coecton of an nterna revenue ta , but f we are
correct n what has been stated above, an erroneous bass was taken for the
rung. We have aready shown that the omsson from the War Cams
Settement ct of any provson repeang the genera provsons reatng to
the assessment and coecton of ta es dd not make them appcabe to the
money n the hands of the Custodan. It requred a speca provson In the
War Cams Settement ct to make them appcabe. Ths rung, however, s
not very matera, as the ureau dd not adhere to t, and t seems to have been
wthdrawn.
Under our vew of the aw appcabe to the case the pantffs petton
must be dsmssed and t s so ordered.
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Regs. 64(1936), rt. 42. 308
TITL I. 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 CTION
401 O T R NU CT O 1936. C PIT L STOC T .
Reguatons 64 (1936), rtce 42: Dong busness. I-10-8584
( so rtce 43.) C. S. T. 2
The actvtes of the M Corporaton pror to uy 1, 1036, eadng
np to takng over the assets of the N Corporaton and the O Cor-
poraton on that date consttuted carryng on or dong busness
wthn the meanng of secton 105 of the Revenue ct of 1035,
as amended.
dvce s requested whether the actvtes of the M Corporaton
pror to uy 1, 1936. herenafter enumerated, consttuted carryng
on or dong busness wthn the meanng of secton 105 of the Reve-
nue ct of 1935, as amended by secton 401 of the Revenue ct of
1936.
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 domes-
tc corporaton wth respect to carryng on or dong busness for
each ta abe year endng une 30, or any fractona part thereof,
begnnng wth the ta abe year ended une 30, 1936. The term
busness s very comprehensve and embraces whatever occupes
the tme, attenton, or aoor of men for proft. ( rtce 42, Regua-
tons 64(1936).) corporaton s dong busness f, n addton to
the ssuance and sae of ts stock for cash, t engages n any other
actvty, such as the makng of contracts, the buyng of materas or
machnery, the constructon of budngs, or the empoyng or ds-
chargng of ndvduas. ( rtce 43, dem.)
The M Corporaton was ncorporated n pr, 1936. The frst
meetng of ts board of drectors was hed n May, 1936. t ths
meetng resoutons were adopted (a) authorzng the M Corpora-
ton to accept the assets of the N and O Corporatons to bo trans-
ferred to the M Corporaton pursuant to the pan of reorganzaton
and the order of the court wth respect thereto dated une 20, 1936:
(b) approvng the form of an ndenture and b of sae dated as of
uy 1, 1936, from the N and O Corporatons and the trustees under
a mortgage of the O Corporaton to the M Corporaton, and author-
zng the proper offcers of the M Corporaton to e ecute such nstru-
ment and thereby assume certan dutes and obgatons whch were
to be assumed by the M Corporaton pursuant to the pan of re-
organzaton (c) approvng the form of the ncome mortgage secur-
ng the ncome bonds of the M Corporaton and the ssuance and
devery of such bonds: (d) authorzng the ssuance of stock of the
M Corporaton for devery and e change n accordance wth the
pan or reorganzaton (e) approvng the form of warrant agree-
ment and authorzng the e ecuton of such agreement (/) drectng
that shares of stock of the M Corporaton bo ssued upon the pres-
entaton of warrants (g) authorzng the canceaton of the bonds
of the O Corporaton hed n the treasury of the N Corporaton (h)
approvng, sub|ect to stockhoders noton, the assumpton by the
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309
Regs. 64(1934). rt. 43.
M Corporaton of certan outstandng bonds of the N Corporaton
( ) authorzng the cang of a meetng of the stockhoders for the
purpose of authorzng the e ecuton of the ncome mortgage, the
assumpton of the bonds of the N Corporaton, approva of the by-
aws and other pertnent matters ( ) authorzng the e ecuton of
an agreement ndemnfyng the trustee under the mortgage of the O
Corporaton, above mentoned, on account of the proposed transfer
of assets to the M Corporaton (k) authorzng agreements to be
made wth the Industra Commsson of the State of Y reatve to
workman s compensaton nsurance n behaf of the M Corporaton,
effectve uy 1, 1936 (I) authorzng future e pendtures for re-
newas, repars, etc. and (m) authorzng the contnuaton of certan
pensons granted to empoyees of the N Corporaton.
The M Corporaton contends that snce under the pan of reorgan-
zaton approved by the court t coud not and dd not acqure the
assets and busness of the N and O Corporatons unt uy 1, 1936,
t was not carryng on a busness pror to that date wthn the mean-
ng of the aw and reguatons.
In ssocated urnture Corporaton v. Unted States (44 ed.
(2d), 78), the Court of Cams consdered the queston whether cer-
tan actvtes of a newy organzed corporaton between the date of
ts ncorporaton, une 2, 1925. and uy 1, 1925, consttuted carry-
ng on or dong busness wthn the meanng of secton 700 of the
Revenue ct of 1924. The court quoted wth approva artce 12 of
Reguatons 64 (1924) and sad:
The pantff performed a necessary acts to compete ts corporate organ-
zaton, and dd compete such organzaton pror to uy 1, 1925. We thnk the
pantff, aso, between the date of ts Incorporaton and uy 1, 1925, engaged
n other actvtes than such as were necessary to compete ts organzaton,
and that those actvtes consttute dong busness wthn the meanng of the
statute.
It s hed that the actvtes engaged n by the M Corporaton pror
to uy 1, 1936, consttuted carryng on or dong busness pror
to that date wthn the meanng of the aw and reguatons. ccord-
ngy, t s sub|ect to capta stock ta for the year ended une 30,
1936.
TITL . C PIT L STOC ND C SS PRO ITS
T S. (1934)
S CTION 701. C PIT L STOC T .
Reguatons 64(1934), rtce 43: d|usted I-26-8787
decared vaue. C. S. T. 3
dstrbuton out of pad-n surpus made by the M Corporaton
durng ts ncome-ta ta abe year ended December 31, 1934, does
not consttute a dstrbuton n qudaton under secton 701(f) ( )
of the Revenue ct of 1934, and s not deductbe n determnng
the ad|usted decared vaue of the corporaton s capta stock for
ts capta stock ta ta abe year ended une 30, 1935.
dvce s requested whether a dstrbuton out of pad-n surpus
made by the M Corporaton durng ts ncome-ta ta abe year ended
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Regs. 64(1934), rt. 43.
310
December 31, 1931, consttutes a dstrbuton n qudaton wthn
the meanng of secton 701(f) ( ) of the Revenue ct of 1934 and s
aowabe as a deducton n determnng the ad|usted decared vaue
of the corporaton s capta stock for ts capta stock ta ta abe year
ended une 30. 1935.
Secton 701(f) of the Revenue ct of 1934 provdes n part as
foows:
(f) or any subsequent year endng une 30, the ad|usted decared
vaue In the ease of a domestc corporaton sha be the orgna decared
vaue pus and mnus ( ) the vaue of property dstrbuted n quda-
ton to sharehoders ad|ustment beng made for each ncome-ta
ta abe year ncuded n the perod from the date as of whch the orgna
decared vaue was decared to the cose of ts ast Income-ta ta abe year
endng at or pror to the cose of the year for whch the ta Is mposed by
ths secton.
rtce 43(b)5( ) of Reguatons 64(1934) provdes n part as fo-
ows wth respect to the determnaton of the ad|usted decared vaue
of the capta stock of a corporaton:

rom the foregong sha be deducted the sum of the foowng:
( ) The vaue of any property dstrbuted to sharehoders n qudaton
or parta qudaton. The term qudaton or parta quda-
ton sha have the same meanng as n the provsons of the appcabe ncome
ta aw respectng dstrbutons by corporatons.
The appcabe provsons of the ncome ta aw referred to are
subdvsons (c), (d), and () of secton 115 of the Revenue ct of
1934, whch provde as foows:
(c) Dstrbutons n qudaton. mounts dstrbuted n compete quda-
ton 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 n part or fu payment n e change for the stock.
(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 out
of earnngs or profts, 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.

() Defnton of parta qudaton. s used n ths secton the term
amounts dstrbuted n parta qudaton means a dstrbuton by a corpora-
ton 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.
Under the foregong provsons of the Revenue ct of 1934 and
Reguatons 64(1934) promugated thereunder, dstrbutons made
by a corporaton out of capta, other than dstrbutons whch fa
wthn secton 115 (c) or () (dstrbutons n parta or compete
qudaton), are not deductbe n determnng the ad|usted decared
vaue of the capta stock of a corporaton as provded n secton
701(f) ( ). It s hed that the dstrbuton made by the M Corpora-
ton out of pad-n surpus durng ts ncome-ta ta abe year ended
December 31, 1934, was not made n parta or compete qudaton
wthn the meanng of secton 115 (c) or () of the Revenue ct of
1934, and s not, therefore, aowabe as a deducton under secton
701(f) ( ) of that ct n determnng the ad|usted decared vaue of
the capta stock of the corporaton for ts capta stock ta ta abe
year ended une 30, 1935.
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311 Regs. 48, rt. 2.
TITL I . CIS T S. (1934)
S CTION 602 . PROC SSING T ON C RT IN OILS.
Reguatons 48, rtce 2: Nature of the ta . T-6-8533
Ct. D. 1197
PROC SSING T R NU CT O 1934 R IS D ST TUT S D CISION O
COURT.
L In|uncton Restrant upon Cokcton of Ta ursdcton
O COURT.
court of equty Is wthout |ursdcton to grant an n|uncton
to restran coecton of the processng ta mposed by secton
602 (a) of the Revenue ct of 1934 where the facts aeged n
the b of compant are nsuffcent to show (1) that such speca
and e traordnary crcumstances e st as to render nappcabe
secton 3224 of the Revsed Statutes, and (2) that pantff has no
adequate remedy at aw.
2. Cebtorab Dened.
Petton for certorar dened November 9,1936. (299 U. S., 594.)
Uhted States Crcut Coubt of ppeas fob the ghth Cbcut.
Chares D. uston, Indvduay and as Coector of Interna Revenue for the
Dstrct of Iowa, appeant, r. Iowa Soap Co., a Corporaton, appeee.
85 . (2d), 649.
ppea from the Dstrct Court of the Unted States for the Northern Dstrct of Iowa.
September 8, 1936.
OPINION.
Thomas, Crcut udge, devered the opnon of the court.
The appeee, Iowa Soap Co., an Iowa corporaton, brought ths sut n the
dstrct court aganst the appeant, uston, as coector of nterna revenue
for the dstrct of Iowa, for an n|uncton to restran the coecton of proc-
essng ta es under secton 602 (a) of the Revenue ct ot 1934. premnary
n|uncton was requested. The defendant moved to dsmss the b of com-
pant on the grounds (1) that the court s wthout |ursdcton to restran
or en|on the coecton of the ta es or to hear and determne the ssues
because:
1. Secton 3224 of the Revsed Statutes of the Unted States prohbts the
mantanng n any court of a sut for the purpose of restranng the assessment
and/or coecton of a edera ta .
2. The b of compant sets forth no facts, whch, f true, woud entte
companant to the reef prayed for n a court of equty, or to any n|unctve
reef pendente te In ths cause.
3. Companant has a pan, adequate, and compete remedy at aw.
and (2) that upon the whoe record the pantff s not entted to n|unctve
reef pendente te.
fter hearng upon pantffs appcaton for a premnary In|uncton and
defendant s moton to dsmss the b an order was entered denyng the
moton to dsmss and grantng a premnary In|uncton. The appea s from
that order.
The pantff s engaged n the manufacture of soaps and aed products,
wth pants at urngton, Iowa, and at Camden, N. . Its products are sod
n ntrastate, nterstate and foregn commerce. mong the ngredents used
Id the makng of ts products are coconut o and pam o. Coconut o has
been obtaned for the most part from the Phppne Isands and pam o
from frca.
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Regs. 48, rt. 2.
312
Secton 602/ (a) of the Revenue ct of 1934 (ch. 277, 48 Stat, 80) mposed
a processng ta upon these and other os, and ths Is the reason for the com-
pant. Sad secton provdes:
(a) There s hereby mposed upon the frst domestc processng of coconut
o, sesame o, pam o, pam kerne o, or sunfower o, or of any combna-
ton or m ture contanng a substanta quantty of any one or mere of such
os wth respect to any of whch os there has been no prevous frst domestc
processng, a ta of 8 cents per pound, to be pad by the processor. There a
hereby mposed (n addton to the ta mposed by the precedng sentence) a
ta of 2 cents per pound, to be pad by the processor, upon the frst domestc
processng of coconut o or of any combnaton or m ture contanng a sub-
stanta quantty of coconut o wth respect to whch o there has been no pre-
vous rst domestc processng, e cept that the ta Imposed by ths sentence
sha not appy when t a estabshed that such coconut o
s whoy the producton of the Phppne Isands, or any other possesson of
the Unted States, ta es coected under ths secton wth respect
to coconut o whoy of Phppne producton or produced from materas
whoy of Phppne growth or producton, sha be hed as a separate fund
and pad to the Treasury of the Phppne Isands, but If at any tme the Php-
pne Government provdes by any aw for any subsdy to be pad to the pro-
ducers of copra, coconut o, or aed products, no further payments to the
Phppne Treasury sha be made under ths subsecton. or the purposes of
ths secton the term frst domestc processng means the frst use In the
Unted States, n the manufacture or producton of nn artce ntended for sae,
of the artce wth respect to whch the ta s mposed, but does not ncude
the use of pam o n the manufacture of tn pate.

(f) provsons of aw (ncudng penates) appcabe In respect of
ta es Imposed by secton 600 of the Revenue ct of 1926, sha, nsofar as
appcabe and not nconsstent wth ths secton, be appcabe In respect of
the ta es mposed by ths secton.
The b aeges that the Phppne government has not provded by aw for
any subsdy to be pad to the producers of copra, coconut o, or aed prod-
ucts that durng the month of October, 1985, pantff used 230,284 pounds of
Phppne coconut o on whch there s a processng ta abty under sad
Revenue ct of 7,178.52, whch woud be due November 30, 1935, and 12,803
pounds of pam o on whch the ta woud be 384.00 that from May 10, 1934,
when the ct went nto effect, up to September 30, 1935, t had pad a tota
processng ta In the sum of 144,520.29 on coconut o and of 0,654.70 on pum
o and that In addton to sad sums pantff durng the same perod pad
to refneres n Increased prces due to the ta the further sum of 42,375 that
ese os are essenta Ingredents of the products of pantff and that they w
he requred for use n substantay the s:sme or arger quanttes In the future,
and that no substtutes for them can be used.
It s further aeged that pantff can not recover any of the ta es by passng
them on to ts customers because ts products are sod n hghy compettve
markets that by reason of ts nabty to pass on the ta es t has sustaned
substanta operatng oss In the conduct of ts busness durng the ast 6 months
of the year 1934 and the frst 10 months of 1935 and that It has had to borrow
money to pay such ta es. It Is shown by the affdavt of the presdent of the
pantff company that t Is ndebted In the sum of 600,000, 350,000 of whch
s represented by current bank oans and 250,000 of whch s In sera notes
maturng n ebruary, 1937, and ebruary, 1938 that It has cash on hand In
the sum of 60,553.30 and unencumbered f ed assets n the cty of urngton
havng a net deprecated vaue of 126,300.02, and aso f ed assets In Camden
havng a substanta vaue.
Ry reason of the stuaton thus aeged It s camed that pantff, notwth-
standng the prudent, economc and effcent management of ts busness, w
be compeed to borrow money wth whch to pay the t/ that t w be com-
peed to fnance such payments n the future wth borrowed money, wth the
resut that the busness, propertes and good w of the pantff w be sub-
stantay destroyed.
It s aeged that secton 60214(a) of the Revenue ct of 1934 Is unconst-
tutona and vod n so far as It authorzes a processng ta of 3 cents per
pound upon coconut o for the reason that t Is repugnant to secton 8 of
rtce I and cause 7, secton 9 of rtce I of the Consttuton and that the
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313
Regs. 48, rt. 2.
ta on pam o, n addton to ts beng In voaton of secton 8, rtce I
of the Consttuton s, aso, voatve of the ffth amendment
The pantff sought admnstratve reef by fng cams for refunds of ta es
pad on both Phppne coconut o and pam o, but no refunds have been
made. In the absence of an n|uncton pantff says t can not ncur the rsk
nvoved n refusng to pay the ta because of the heavy penates and nterest
Imposed by the revenue aws. It s averred further that the appcabe aws
afford no pan, speedy and adequate remedy.
Pantff s appcaton for a temporary n|uncton and defendant s moton
to dsmss present two questons for determnaton:
1. Whether the pantff, under the crcumstances dscosed by the b and
supportng affdavts, s entted to a premnary In|uncton aganst the co-
ecton of ta es Imposed by secton 602 (a) of the Revenue ct of 1034,
notwthstandng the provsons of secton 3224 of the Revsed Statutes and
2. Whether secton 602 (a) of sad Revenue ct s a vad e ercse under
the Consttuton of the ta ng power of Congress.
These questons have been argued wth great sk and abty by counse for
both partes, and we have gven the case carefu consderaton. Snce the
pantff s seekng n|unctve reef n a court of equty and the ssue of |urs-
dcton s rased, t s apparent that a determnaton of but one of these
questons s requred to sette ths appea, uness It appears that pantff has
no adequate remedy at aw. or, f t Is found that the pantff has an adequate
remedy at aw, the aeged unconsttutonaty of the ta ng statute s mma-
tera. On the other hand, f t s found that the ta s vad and the statute
under whch t Is eved consttutona, pantff Is entted to no reef n equty.
When ssues of ths character are presented It s approprate for the nferor
edera courts to consder frst the queston of equtabe |ursdcton. c-
cordngy we sha proceed to consder the queston of the adequacy of pan-
tffs remedy at aw and the effect of secton 3224 of the Revsed Statutes upon
the |ursdcton of the court Secton 3224 provdes that:
No sut for the purpose of restranng the assessment or coecton of any
ta may be mantaned In any court
That secton 3224 s not as Incusve as t appears, and that t s not an
absoute bar n every case to n|unctve reef, has been hed n v. Waace
(259 D. S., 44, 62) and, n MUer v. Nut Margarne Co. (284 U. S., 498, 509
Ct D. 457, C. . I-1, 870 ), the Supreme Court, audng to ths secton of
the Revsed Statutes, says:
ths Court recognzes the rue that, In cases where com-
panant shows that n addton to the egaty of an e acton n the guse of
a ta there e st speca and e traordnary crcumstances suffcent to brng the
case wthn some acknowedged head of equty ursprudence, a st may be
mantaned to en|on the coector.
The contenton of pantff s that the crcumstances aeged n the b are
suffcenty speca and e traordnary to brng ths case wthn some of the
acknowedged heads of equty |ursprudence. If ths be true, then to warrant
an In|uncton there must be n addton to such speca and e traordnary
crcumstances an Iega e acton n the guse of a ta . In other words, a
court of equty w not grant an n|uncton n the face of the statute uness
there e sts smutaneousy an ega ta and some such speca and e -
traordnary crcumstances. If ether eement s ackng n|unctve reef w
be dened.
We ne t consder, therefore, the aeged crcumstances camed by the pan-
tff to be suffcent to gve a court of equty |ursdcton to grant an n|unc-
ton restranng the coecton of the ta notwthstandng the provsons of sec-
ton 3224 of the Revsed Statutes. They are: (1) Utmate fnanca run resut-
ng from the contnued payment of the ta (2) avodance of a mutpcty of
actons (3) uncertanty of the abty of the ta payer to secure a refund of
the ta es (4) the ct does not evy a true ta and (5) the ta s not
eved for the support of the Government. To sustan the frst of the above
enumerated propostons t s aeged that from the tme the ct went nto
effect unt te end of the frst 10 months of 1935 the company s busness was
operated at a oss, whe pror to that perod the busness was operated at
a proft that t has borrowed the money wth whch to pay the ta and that
It w be compeed to contnue the same pocy because, not beng abe
to pass the ta on to ts customers on account of compettve condtons,
7086 37 11
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Regs. 48, rt. 2.
314
It must contnue to operate at a oss and that ts constanty growng ndebted-
ness s so great now that It w n the near future be unabe to borrow more.
Mere apprehenson of utmate run to pantff s busness on account of u
ta s not suffcent to entte one to n|unctve reef n equty. It must appear
that such run s so mmnent that the remedy provded by aw s not ade-
quate. egatons of the mere hardshp or n|ustce of the ta are not a
recognzed foundaton of equtabe |ursdcton. (State Raroad Ta Case ,
92 U. S., 575, 614 Stafford Ms v. Whte (D. O. Mass.), 41 . (2d), 58, 59.)
The facts dscosed n the petton and affdavts do not sustan the charge
that the ega remedy Is nadequate. It s shown that the company has an
ndebtedness of 600,000, but the amount of ts assets do not appear n fo.
It s aeged that the company owns unencumbered f ed assets n the cty
of urngton of the deprecated vaue of 426,360.02 and n Camden of a sub-
stanta amount. The amount of ts current assets, however, are not reveaed,
other than cash n the amount of 60,553.30. The company has a capta n-
vestment of 715,700, but t s not shown whether the capta has been Impared
or whether there s a surpus. It can not be nferred that a or any gven
part of the company s ndebtedness s due to borrowng money to pay the ta
n queston. It s apparent that money s borrowed for other purposes. It
appears that between November 11, 1035, the date the b was verfed and
November 27, 1035, the date of the affdavt of the company s presdent, the
borrowed ndebtedness of the company ncreased n the amount of 25,000.
Durng that perod no ta es were pad, and the amount fang due November
30, 1935, was appro matey ony 7,500.
urther, t s shown n the b that pantff had aready fed a cam for
refund before the nsttuton of ths sut and t s averred that the company
s abe to gve any reasonabe securty that may be requred to the
end that f eventuay the company s requred to pay the processng ta es pay-
ment thereof can be enforced. These facts consdered n connecton wth the
amount of unencumbered assets shown, a demonstrate that such deay as may
be necessary ncdent to the remedes provded by aw w not work an rrep-
arabe n|ury to the pantff. (Phps v. Commssoner, 283 U. S., 589, 593f
Ct. D. 350, C . -, 264 State Raroad Taw Cases, supra Renecke v.
Peacock (C. 0. . 7), 3 . (2d), 583, 587 T. D. 3672, O. . I -1, 285 .)
The decson of the Supreme Court n Mer v. Nut Margarne Co., supra, does
not ad the pantff on ths pont. In that case t appeared that the Comms-
soner was not ony attemptng to coect an ega ta on a nonta abe artce,
but aso n an amount greater than the pantff coud possby pay. The facts
In ggns Mfg. Co. v. Page (D. C. R. I.) (20 . (2d), 948), reed upon by
pantff, were dentca wth those n the Mer case. These were not cases
of mere hardshp or Inconvenence, but cases n whch the payment of the
ega ta presenty demanded woud competey and at once destroy the ta -
payer s busness. ere the court s asked to grant an n|uncton on the con-
|ecture of the pantff that the contnued payment of the ta w utmatey
resut n run. The crcumstances dscosed fa short of that speca and
e traordnary character requred by aw to take the case out of the prohbton
of secton 3224.
The pantff s ne t aeged ground for an n|uncton s the avodance of a
mutpcty of actons. Ths s based upon the statement that each month the
pantff s processng a arge amount of coconut and pam o and each month
the ta thereon Is payabe. In order to protect ts rghts and to recover the ta ,
f found ega, t s asserted that t must monthy fe a cam for refund. Thus
dstnct actons must be started each month unt the frst acton so begun has
been decded.
The appeant urges that ths procedure s not necessary, because under the
appcabe aw the ta payer has four years n whch to fe ts cams for re-
funds and two years from the date of re|ecton n whch to brng sut. (Re-
vsed Statutes, sectons 3220, 3228 (U. S. C. Tte 26, sectons 1670, 1433).) or
ths reason one sut at aw s a that s necessary to determne pantff s rghts.
Whether or not more than one sut s brought s under the compete contro of
the pantff. It s not a case of threatened contnuous and ve atous tgaton.
The appeant s contenton upon ths pont has been sustaned by the decson
of the Court of ppeas of the Dstrct of Coumba n askns ros, d Co. v.
enry Morgenthau, r., Secretary of the Treasury (not yet reported), decded
une 30. 1936. See. aso, Los ngees Soap Co. v. Rogan (D. C. Ca.) (14 .
Supp., 112. 118 Ct. D. 1122, C. . -1, 373 ). In Matthews v. Rodgers (284
U. S., 521, 529), the Supreme Court dened equtabe reef, sayng: s to each
appeee a snge sut at aw brought to recover the ta w determne ts con-
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315
egs. 48, rt. 2.
sttutonaty and no facts are aeged showng that more than one sut w be
necessary for that purpose. In the case of ose rtesan Water Co. v. ose
Cty (213 U. S., 276, 280), a stuaton amost dentca wth the facts n ths case
s presented. In that case the pantff supped water to the cty. The cty
enacted an ordnance requrng the company to pay on the 1st day of every
month a cense fee of 300. Sut was brought to en|on ts coecton and
equtabe |ursdcton was nvoked on the ground of avodance of a mutpcty
of suts to recover the fee and the unconsttutonaty of the ordnance. Reef
n equty was dened, the court sayng:
Nor do we thnk that there s any danger of a mutpcty of suts n the
sense that woud authorze the ssuance of an n|uncton. One sut ony has
been brought and that by drecton of the cty counc. It remans pendng,
and when t reaches |udgment t w determne fnay every queston n dspute
between the partes. There s no need of any other sut e cept to prevent the
runnng of the statute of mtatons and nothng to ndcate that any w be
brought. Where the mutpcty of suts to be feared conssts n repettons
of suts by the same person aganst the pantff for causes of acton arsng out
of the same facts and ega prncpes, a court of equty ought not to nterfere
upon that ground uness t s ceary necessary to protect the pantff from
contnued and ve atous tgaton. Somethng more s requred than the
begnnng of a snge acton wth an honest purpose to sette the rghts of the
partes. (1 Pomeroy s q. urs., 3d ed., secton 254.) Perhaps t mght be
necessary to awat the fna decson of one acton at aw (see for anaoges
Sharon v. Tucker, 144 U. S., 533 oston do. Mnng Co. v. Montana Ore Co.,
188 U. S., 632), but that we need not decde.
The rue apped n the ast cted case was dscussed and apped to smar
crcumstances n Standard O Co. v. tantc Coast Lne R. Co. (D. C. y.)
(13 . (2d), 633, 635) and n foor v. Te as f N. 0. R. Co. (C. C. . 5) (75 .
(2d), 386, 388).
The pantff n support of ts contenton rees upon v. Waace (259
U. 8., 44) Lee v. cke (292 U. S., 415) and Wson v. III. So. Ry. (263 U. S.,
574), and cases of smar mport. These authortes, however, are dstngush-
abe from the present case. It s true that n|unctons aganst the coecton
of a ta were granted n a of the cted cases because there e sted n each of
them e ceptona and e traordnary crcumstances. In v. Waace the
b was brought by members of the Chcago oard of Trade on behaf of
themseves and others aganst the board and the revenue offcers to restran
compance wth the uture Tradng ct and the coecton of a ta of 20 cents
a bushe on contracts for sae of gran for future devery. Wth respect to
the statute n queston, the court sad:
Does secton 3224, Revsed Statutes, prevent the appcaton of smar
prncpes to a edera ta ng ct It has been hed by ths court, n Dodge v.
rady (240 U. S., 122, 126), that secton 3224 of the Revsed Statutes does not
prevent an In|uncton n a case apparenty wthn ts terms n whch some
e traordnary and entrey e ceptona crcumstances make ts provsons
nappcabe. (See aso Dodge v. Osborn, 240 U. S., 118, 122.) In the case
before us, a sae of gran for future devery wthout payng the ta w sub|ect
one to heavy crmna penates. To pay the heavy ta on each of many day
transactons whch occur n the ordnary busness of a member of the e change,
and then sue to recover t back woud necesstate a mutpcty of suts and,
ndeed woud be mpractcabe. or the board of trade to refuse to appy for
desgnaton as a contract market n order to test the vadty of the ct woud
stop ts 1,600 members n a branch of ther busness most mportant to them-
seves and to the country. We thnk these e ceptona and e traordnary
crcumstances wth respect to the operaton of ths ct make secton 3224
nappcabe. The rght to sue for an n|uncton aganst the ta ng offcas s
not, however, necessary to gve us |ursdcton. If they were to be dsmssed
under secton 3224, the b woud st rase the queston here mooted aganst
the board of trade and ts drectors.
See the ucd nterpretaton of v. Waace bv Chef ustce Taft n
Graham v. Du Pont (262 U. 8., 234, 257 T. D. 34S6, C. . II-, 226 ).
In Lee v. cke, stockhoders n New York sought an n|uncton to restran
the enforcement of a orda statute for the coecton of stamp ta es on
memoranda of saes of stock n the State of orda, each voaton of whch
act was a crmna offense. cke, the orda commssoner, was attemptng
to enforce the aw. It was camed that the statute dd not appy, and, f so
apped, was n confct wth the Consttuton. Severa hundred transactons
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Regs. 48, rt. 2.
316
were affected every day. Under these e ceptona crcumstances |ursdcton
was assumed, and t was hed that the statute was not appcabe to the trans-
actons nvoved.
In Wson v. III. So. Ry. the raroad company, aegng that Its property had
been erroneousy and frauduenty overvaued by the State board of equaza-
ton, sought by suts n fve dfferent countes among whch the assessment
had been apportoned, to restran the coectors from proceedng n ther
respectve county courts to coect the ta . Respectng the e ceptona cr-
cumstances and the mutpcty of suts nvoved, gvng equty |ursdcton,
the Supreme Court sad:
ssumng that n each of the countes before the ta coud be coected
a |udgment must be obtaned n the county court n a cv sut and that
n such suts the defendants, the present pantffs, coud set up the facts
here reed upon, not ony woud those suts be many, but there
woud be nsuperabe dffcuty n determnng what the proper assessment
aganst the whoe road shoud be and n apportonng the due share to the
county concerned. Ths dffcuty woud recur In each of the fve countes
wth not mprobaby dfferent resuts n each. It seems to us that the rght
of fu defense n those suts, If t e sts, s not an adequate remedy at aw.
Mere reference to the cases reed upon by pantff s suffcent to show that
they do not support ts contentons In ths case.
The thrd contenton of the pantff s that the uncertanty of the abty
of the ta payer to secure refund of the ta es pad n an acton at aw s suffcent
ground for equtabe reef. The argument s that a |udgment obtaned for
the recovery of the ta must wat an appropraton by ct of Congress, and
t s possbe that a recactrant Congress wn refuse to make the specfc
appropraton. Ths contenton s untenabe n a court of the Unted States In
an attack upon a edera ta . Defaut can not be attrbuted to the Govern-
ment. It s presumed to be aways ready to pay what t owes. (Unted
States v. Sherman, 97 U. 8., 565, 568.) smar contenton was urged n the
case of sher ourng Ms Co. v. erhus (78 . (2d), 889, 892 Ct D. 1033,
C. . I -2, 429 ), and the Crcut Court of ppeas of the Nnth Crcut
answered the contenton n ths apt anguage:
It woud be a strange procedure for a court of chancery to measure the
adequacy of a remedy at aw, not by what the aw s at the tme the equty
sut s fed, but by certan nebuous con|ectures of what the aw may be at
some future tme. ursdcton s determned as of the tme the sut was
commenced. (Pacfc Teephone d Teegraph Co. v. Cty of Seatte (D. C), 14
. (2d), 877, 879.) quty acts n the present tense. (Contnenta Securtes
Co. v. Inter oorough R. T. Co. (D. O.), 207 ., 467, 471, affrmed 221 ., 44
(C. C. . 2).) The appeants had at the tme of the commencement of these
suts, and st have, a pan, adequate, and compete remedy at aw. They can
pay the ta and sue to recover at aw. quty Is not to be frghtened nto
assumng |ursdcton by the bugaboo of dre propheces of what the aw may
be n the future. To grant an In|uncton n antcpaton of a possbe n|ury
to arse under a aw that may never be passed, Is, to say the east, unusua
What the companant s rghts may be, and what reef shoud be afforded
hm n the event of the passage of such a aw as he contempates, can not now
be antcpated. (Ryan v. Wams (O. 0.), 100 ., 172, 175.) It woud
be an unwarranted encroachment by the |udcary upon the egsatve branch
of the Government shoud the court attempt a race of dgence wth Congress
to defeat the appcabty of an ct to a pendng case. (La Cro v. Unted
States (D. O. W. D. Tenn.), decded uy 27, 1935, reported n 11 . Supp., 817.)
We are unanmousy of the opnon that ths court shoud not be governed or
Infuenced n ts acton by specuatons or predctons regardng future con-
gressona enactments.
Pantff ne t argues most earnesty that even though there e st no speca
and e traordnary crcumstances (whch Is not conceded) st a court of
equty has |ursdcton to grant an n|uncton, because secton 602 (a) does
not evy a true ta , and therefore, secton 3224 s not appcabe. The cam
that the ta mposed Is not a true ta assumes the ssue noon the queston
of consttutonaty but grantng the assumpton arguendo we are not Incned
to hod that mere Iegaty of a ta unaded by any speca and e traordnary
crcumstances suffcent to brng the case wthn some acknowedged head of
equty |ursprudence gves the court |ursdcton to restran the coecton of
a ta In the teeth of secton 3224. To so hod requres the overrung of a
ong ne of decsons of the Supreme Court. ( ay v. George, 259 U. S., 16,
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317
Regs. 48, rt. 8.
20 T. D. 3347, C. . 1-2, 342 Dodge v. Oaoorn, 240 U. S., 118, 120 Mer v.
Sut Margarne Co., 284 D. S., 408, 509 Pacfc Whang Co. v. Unted States,
187 U. S., 447, 451 Pttsburgh c. Ry. v. oard of Pubc Works, 172 U. S., 32,
37 Shedon v. Patt, 139 U. S., 591, 594 Dows v. Chcago, 11 Wa., 78 U. S..
108,112 State Raroad Ta Cases, 92 U. S., 575, 613 annecnke v. eorge-
tocn, 15 Wa., 82 U. S., 547, 548 Graham v. Dn Pont, 2G2 U. S., 234.) Coun-
se mantan that the rue adhered to In a these cases has heen modfed
or overrued by the Supreme Court In Rckert Rce Ms v. ontenot (297 U. S.,
110, 80 L. d., 355 Ct. D. 1080, C. . -1, 436 ).
We are of opnon that there Is nothng n the Rckert Rce Ms v. on-
tenot case to ustfy the nterpretaton paced upon t by counse for pantfT,
nor to essen the bndng force of the decson of the Supreme Court n ay
v. George, supra, and n other cases cted above. that the Supreme Court
hed n the Rckert Rce Ms case was that the funds mpounded pendente te
shoud be pad back to the pettoner. (See Los ngees Soap Co. v. Rogan
(D. C. Ca.), 14 ed. Supp., 112, 117.) It s true that an n|uncton had pre-
vousy been granted n the Rckert case (296 U. S., 569), pendng the deter-
mnaton of the cause on certorar n the Supreme Court and requrng
the ta pendente te to be mpounded n a depostory. No reason, however. Is
assgned for the acton taken, and t may have resuted from a showng of
e ceptona crcumstances not present n ths case. Presumaby the n|uncton
was granted because a ma|orty of the Supreme Court were of opnon that the
remedy provded for recovery of the ta n the grcutura d|ustment ct as
amended by the ct of ugust 24, 1935, was nadequate. ut we are not
authorzed to depart from the rue ad down n ay v. George, supra, upon
a mere con|ecture as to what the Supreme Court may have had n mnd n
the absence of some e presson upon that pont
nay, the pantff contends that secton 3224 s not appcabe, because
ta es eved under secton 002 (a) are not for the support of the Government
but are segregated and pad over to the Phppne Government. Ths s sayng
over agan by way of argument that secton 602 (a) s unconsttutona and
that for such reason secton 3224 s not appcabe. Ths proposton has been
dsposed of n our dscusson of the cam that the ta s not a true ta and
what we there sad s appcabe here.
It s not contended that the pantff has no remedy at aw. Subsecton (f)
of secton 602 makes avaabe a the ega remedes open to any ta payer
to recover ta es erroneousy or egay assessed or coected, a penates
coected wthout authorty, and a ta es that appear to be un|usty assessed
or e cessve n amount, or n any manner wrongfuy coected (It. S. sectons
3220, 3226, 3228) by proceedngs at aw. charges that these remedes are
not adequate have been dscussed above and they requre no further comment.
We concude, therefore, that the dstrct court was wthout |ursdcton n
equty to en|on the defendant, because the b dd not dscose any speca or
e traordnary crcumstances suffcent to brng the case wthn any acknow-
edged head of equty |ursprudence and to overcome the prohbton of secton
3224, and because pantff has an adequate remedy at aw. Ths beng true t
s nether necessary nor approprate on ths appea to dscuss the consttu-
tonaty of the ta ng stntute. urton v. Unted States, 190 U. S., 283, 295.)
or the foregong reasons the |udgment and decree grantng a premnary
n|uncton and overrung the moton to dsmss s reversed, and the case s
remanded to the dstrct court wth Instructons to dssove the n|uncton and
to dsmss the b.
CIS T S R NU CT O 1934 D CISION O SUPR M COURT.
Processng Ta on Coconut O Consttutonaty.
Secton C02 4 of the Revenue ct of 1934, whch mposes a ta
upon the frst domestc processng of coconut o and other prod-
ucts, and provdes that a such ta es coected wth respect to
coconut o whoy of Phppne producton sha be hed as a sepa-
rate fund and pad to the treasury of the Phppne Isands sub|ect
to the condton that the Phppne Government sha not provde
Reversed.
Reouatons 48, rtce 3: Imposton of
the ta .
I-21-8720
Ct. D. 1227
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Regs. 48, rt. 3.
318
by aw for any subsdy to be pad to producers of the products
named, s not unconsttutona. The statute does not voate the
tenth amendment or the ffth amendment It e acts a true ta and
s not a purey reguatory measure t s sustanabe as an act n
dscharge of a hgh mora obgaton toward a dependency amount-
ng to a debt wthn the meanng of the Consttuton as prac-
tcay construed and the appropraton of an amount equvaent
to the ta n order to offset the antcpated burden to the depend -
ency, wth the specfed condton under whch the funds may be so
approprated, s not an unawfu deegaton of egsatve power.
Supreme Court op the Unted States.
The Cncnnat Soap Co., pettoner, v. The Unted States of merca.
57 S. Ct, 764.
On wrt of certorar to the Unted States Crcut Court of ppeas for the S th Crcut.
askng ros. Co., pettoner, v. George W. O Maey, Indvduay and at
Coector of Interna Revenue for the Dstrct of Nebraska.
57 S. Ct., 764.
On wrt of certorar to the Unted States Crcut Court of ppeas for the ghth Crcut.
May 3, 1937.
OPINION.
Mr. ustce Sutherand devered the opnon of the Court
Secton 6O2 2 of the Revenue ct of 1934 (ch. 277, 48 Stat., 680, 763) mposes
a ta of 3 cents per pound upon the frst domestc processng of coconut o,
and provdes that a such ta es coected wth respect to coconut o whoy of
Phppne producton, etc., sha be hed as a separate fund and pad to the
treasury of the Phppne Isands, but f at any tme the Phppne Government
provdes by any aw for any subsdy to be pad to the producers of copra,
coconut o, or aed products, no further payments to the Phppne treasury
sha be made under ths subsecton.
oth pettoners are engaged n manufacturng soap and, at tmes stated n
ther pettons, used n ts manufacture argo quanttes of coconut o whoy
the product of the Phppne Isands. In pursuance of secton 60214, they
made returns and pad the amount of the ta as requred by that secton. Sub-
sequenty, each of them fed wth the ureau of Interna Revenue a cam for
the refund of the ta , on the ground that the mposton was not wthn the
consttutona power of Congress. oth cams were dened, and pettons at
aw were fed n edera dstrct courts to recover the sums pad. Demurrers
were nterposed attackng the suffcency of the pettons, and these demurrers
were sustaned by the tra courts. ppeas were taken to the respectve cr-
cut courts of appea named In the tte and we granted wrts of certorar
before a hearng or submsson n those courts, because of the mportance to
the Phppne Isands of an eary fna decson of the queston.
The vadty of the ta s assaed by pettoners upon a varety of grounds,
deveoped at ength In ther respectve brefs and by the ora arguments at the
bar. So far as we fnd t necessary to consder the varous contentons, they
may be stated n genera terms as foows: that the ta s not mposed for any
purpose contempated by the ta ng cause of secton 8, rtce I, of the ed-
era Consttuton that s to say, t s not mposed to pay the debts or provde
for the common defense or genera wefare of the Unted States that, on the
contrary, It s mposed for a purey oca purpose, n voaton of the tenth
amendment that the e acton voates the due process cause of the ffth amend-
ment, because t s an arbtrary e acton from one group of persons for the
e cusve beneft of another that the ct does not Impose a true ta , but s
a reguatory measure outsde the fed of edera power that t voates cause
7, secton 9, rtce I of the Consttuton, whch provdes that No Money sha
be drawn from the Treasury, but In Consequence of ppropratons made by
Law that the payment n buk of the entre proceeds of the ta to the Php-
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319
Regs. 48, rt. 3.
pnes, wth no drecton as to the e pendture thereof, consttutes an unawfu
deegaton of egsatve power. In deang wth these contentons, we fnd t
convenent to do so wthout foowng the precse order n whch they have
|ust been stated. nd certan of them are so nterreated that they may be
|oned for consderaton n the same subdvson of the opnon whch foows.
rst. Pany, the mposton of the ta n tsef s a vad e ercse of the
ta ng power of the edera Government. It s purey an e cse ta upon a
manufacturng process for revenue purposes, and n no sense a reguaton of
the process tsef. The tenth amendment s wthout appcaton, snce the
powers of the severa States over oca affars are not nvaded or nvoved.
Ths s dscosed upon the face of the ct so ceary that dscusson coud not
make t paner. Unted States v. uter (297 U. S., 1 Ot D. 1070, C. . -1,
421 (1936) ), reed upon by pettoner, s not n pont. There, we hed that
the soe am of the statute, as shown by ts terms, was to reguate a oca stua-
ton, a matter whoy wthn the reserved powers of the States and moreover
that t amounted to a naked takng of the property of one group of persons
for bestowa upon another group. The Chd Labor Ta Case (259 U. S., 20
T. D. 3346, C. . 1-2, 337 (1922) ) and other cases cted, bear st more re-
motey upon the contenton. It Is enough to say that the feature of the present
case whch dfferentates t from a those cted s that the e acton here, both n
form and substance, s a true ta , mposed, as we presenty sha show, for a
edera consttutona purpose. In that vew the due process cause of the ffth
amendment s not nvoved.
Second. Standng apart, therefore, the ta s unassaabe. It s sad to be
bad because t s earmarked and devoted from ts Incepton to a specfc pur-
pose. ut f the ta , qua ta , be good, as we hod t s, and the purpose spec-
fed be one whch woud sustan a subsequent and separate appropraton made
out of the genera funds of the Treasury, nether s made nvad by beng
bound to the other n the same act of egsaton. The ony concern whch
we have n that aspect of the matter s to determne whether the purpose
specfed s one for whch Congress can make an appropraton wthout voatng
the fundamenta aw. If Congress, for reasons deemed by t to be satsfactory,
chose to adopt the quantum of recepts from ths partcuar ta as the measure
of the appropraton, we perceve no vad bass for chaengng ts power to
do so.
We nqure frst Is the proposed appropraton to the Phppne treasury
for a consttutona purpose snce an affrmatve answer to that queston w
estabsh the consttutona purpose of the ta . The pertnent ta ng cause
provdes n genera terms ( rtce I, secton 8, cause 1) that ta es may be ad
to pay the Debts and provde for the common Defence and genera Wefare
of the Unted States. Prmary, and n a very hgh degree, whether a ta
serves any of these purposes s a practca queston addressed to the awmakng
department. nd t w requre a very pan case to warrant the courts n
settng asde the concuson of Congress n that regard. (Compare Nco v.
mes, 173 U. S., 509, 514-516.) Nevertheess, such pan cases may e st and
the queston s whether ths s one of them.
The Phppne Isands and ther nhabtants, from the begnnng of our occu-
paton, have borne a pecuar reaton to the Unted States. The sands con-
sttute a dependency over whch the Unted States, for more than a generaton,
has had and e ercsed supreme power of egsaton and admnstraton Posa-
das v. Natona Cty ank, 296 U. S., 497, 502), a power mted ony by the
terms of the treaty of cesson and those prncpes of the Consttuton whch
by ther nature are nherenty nvoabe. The possesson of ths we-ngh
absoute power over a dependent peope carres wth It great obgatons, as
was ponted out by Mr. Root as Secretary of War In 1899. fter referrng to
the practcay unmted power whch we had over the Phppnes, he sad:
I assume, aso, that the obgatons correatve to ths great power are of the
hghest character, and that t Is our unquestoned duty to make the nterests
of the peope over whom we assert soveregnty the frst and controng consd-
eraton n a egsaton and admnstraton whch concerns them, and to gve
them, to the greatest possbe e tent, ndvdua freedom, sef-government n
accordance wth ther capacty, |ust and equa aws, and opportunty for edu-
caton, for proftabe ndustry, and for deveopment n cvzaton. (Mtary
and Coona Pocy of the Unted States, 1G1-162.)
mong these correatve dutes s the mora obgaton to protect, defend, and
provde for the genera wefare of, the nhabtants. nd such an obgaton
we may reaure the appropraton and e pendture of money from the natona
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Regs. 48, rt. 3.
320
purse In whch ease the obgaton fary comes wthn the term debts as
used n the ta ng cause. (Unted States v. Reaty Co., 163 U. S., 427, 440-
441.) Congress, from the begnnng of ts e stence, has accepted and egs-
ated upon that vew of the broad meanng of the term. In nnumerabe n-
stances, t has made appropratons to reeve needs caused by earthquakes,
re, and other events, not ony n ocates wthn or possessed by the Unted
States, but n foregn countres as we. Government counse has furnshed
us an mpressve st of appropratons of ths character and n addton has
caed attenton to the many nstances of appropratons for the support and
wefare of the Indans, and for the uses of the Terrtores. Legsaton of ths
character has been so ong contnued and ts vadty so ong unquestoned that,
as we sad n Unted States v. Curtss-W rght Corporaton (299 T . S., 804, 323,
327-328), egsatve practce such as we have here, evdenced not by ony
occasona nstances, but marked by the movement of a steady stream for a
century and a haf of tme, goes a ong way In the drecton of provng the
presence of unassaabe ground for the consttutonaty of the practce, to be
found In the orgn and hstory of the power nvoved, or In Its nature, or n
both combned.
It may be that the ta and the appropraton of the proceeds therefrom In
the present nstance coud be |ustfed as an e ercse of the ta ng power to
provde, n a broad sense, for the pubc defense or the genera wefare of the
Unted States. We do not pause to consder that vew for pany, we thnk,
the aw may be sustaned as an act In dscharge of a hgh mora obgaton,
amountng to a debt wthn the meanng of the Consttuton as t aways
has been practcay construed. The ustfcaton for that concuson has been
so fuy stated by ths Court n the case of Unted States v. Reaty Co., supra,
that further ctaton becomes unnecessary. Under the provsons of the Con-
sttuton ( rtce I, secton 8), we there sad, Congress has power to ay and
coect ta es, etc., to pay the debts of the Unted States. avng power to
rase money for that purpose, It of course foows that t has power when the
money s rased to approprate t to the same ob|ect. What are the debts of
the Unted Stntes wthn the meanng of ths consttutona provson It s
conceded and ndeed t can not be questoned that the debts are not mted to
those whch are evdenced by some wrtten obgaton or to those whch are
otherwse of a strcty ega character. The term debts ncudes those debts
or cams whch rest upon a merey equtabe or honorary obgaton, and whch
woud not be recoverabe n a court of aw If e stng aganst an ndvdua.
The Naton, speakng broady, owes a debt to an Indvdua when hs cam
grows out of genera prncpes of rght and |ustce when, n other words, t
s based upon consderaton of a mora or merey honorary nature, such as are
bndng on the conscence or the honor of an ndvdua, athough the debt
coud obtan no recognton n a court of aw. The power of Congress e tends
at east as far as the recognton and payment of cams aganst the Govern-
ment whch are thus founded. To no other branch of the Government than
Congress coud any appcaton be successfuy made on the part of the owners
of such cams or debts for the payment thereof. Ther recognton depends
soey upon Congress, and whether t w recognze cams thus founded must
be eft to the dscreton of that body. Payments to ndvduas, not of rght
or of a merey ega cam, but payments n the nature of a gratuty, yet hav-
ng some feature of mora obgaton to support them, have been made by the
Government by vrtue of cts of Congress, appropratng the pubc money, ever
snce ts foundaton. Some of the cts were based upon consderatons of pure
charty. ong st of cts drectng payments of the above genera character
s appended to the bref of one of the counse for the defendants n error. The
cts are referred to not for the purpose of assertng ther vadty n a cases,
but as evdence of what has been the practce of Congress snce the adopton of
the Consttuton. See, aso, among other cases In ths Court, merson v. a
(13 Pet.. 409) Unted States v. Prce (116 U. S., 43) Wam v. eard (140
U. S.. 529). The ast cted case arose under an ct of Congress n reaton to
the abama cams.
Later decsons of ths Court have foowed that vew. (Unted States v.
Cook, 257 U. S., 523 Maron d R. . Ry. Co. v. Unted States, 270 U. S., 280,
284.) The determnaton of Congress to recognze the mora obgaton of the
Naton to make an appropraton as a requrement of |ustce and honor, s obv-
ousy a matter of pocy and dscreton not open to |udca revew uness n
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321
Regs. 48, rt. 3.
crcumstances whch here we are not abe to fnd. (Unted States v. Reaty
Co., supra, 444.)
It does not foow that because a edera ta eved for the e press purpose
of payng the debts or provdng for the wefare of a State mght be nvad
The Passenger Cases, 7 ow., 283, 446) that such a ta for the uses of a
Terrtory or dependency woud kewse be nvad. State, e cept as the
edera Consttuton otherwse requres, s supreme and Independent. It has
ts own government, wth fu powers of ta aton and fu power to approprate
the revenues derved therefrom. dependency has no government but that of
the Unted States, e cept n so far as the Unted States may permt. The
Natona Government may do for one of ts dependences whatever a State
mght do for tsef or one of ts potca subdvsons, snce over such a depend-
ency the Naton possesses the soveregn powers of the Genera Government pus
the powers of a oca or a State government n a cases where egsaton s
possbe. (Compare Stoutenburgh v. ennck, 129 U. S., 141, 147 Natona
ank v. County of Yankton, 101 U. S., 129, 133 Mormon Church v. Unted
States, 136 U. S., 1, 42 Utter v. rankn, 172 U. S., 416, 423.) To say that
the edera Government, wth such practcay unmted powers of egsaton
n respect of a dependency, s yet poweress to approprate money for ts needs,
s to deny what the foregong consderatons forbd us to deny that the
Unted States has, n that regard, the equvaent power of a State In com-
parabe crcumstances.
Thrd. In the e ercse of ts penary powers, the Unted States began by
governng the Phppne Isands under the war power. oowng the Treaty
of Pars, a condton of armed nsurrecton perssted for some tme. In 1900,
mtary government was succeeded by a speces of e ecutve government. The
Spooner amendment to the rmy appropraton b of March 2, 1901 (ch. 803,
81 Stat, 895, 910), provded that mtary, cv, and |udca powers neces-
sary to govern the Phppne Isands sha, unt otherwse pro-
vded by Congress, be vested n such person and persons and sha be e er-
csed n such manner as the Presdent of the Unted States sha drect, for
the estabshment of cv government and for mantanng and protectng the
nhabtants of sad sands n the free en|oyment of ther berty, property, and
regon.
Ths was foowed, March 5, 1901, by a cabe from the Secretary of War to
the Phppne Commsson contanng the foowng aconc order, Unt
further orders government w contnue under e stng nstructons and orders.
(Report, Secretary of War, 1901, 54.) The comprehensve Spooner amend-
ment, and these nstructons and orders, vrtuay consttuted for many months
the charter of government for the Phppne Isands. In 1902, Congress pro-
vded for a compete system of cv government under the orgna Phppne
Organc ct. y degrees, the actve powers of the dependency have been
enarged, and those of the edera Government decreased. ut the authorty
whch conferred addtona power mght at any tme have wthdrawn t. Ths
bref resume demonstrates both the competeness and fe bty of the natona
power over the Phppnes, and the hgh character of the mora obgatons
whch the possesson of such power correatvey mposes. Wth the e tenson
of power to the sands, our mora obgatons may have grown ess but
whether, or to what e tent, ths has been the ease Is a queston for the deter-
mnaton of the potca departments of the Government.
ut t s contended that the passage of the Phppne Independence ct of
March 24, 1984 (ch. 84, 48 Stat., 456), and the adopton and approva of a
consttuton for the Commonweath of the Phppne Isands have created a df-
ferent stuaton and that snce then, whatever may have been the case before,
the Unted States has been under no duty to make any fnanca contrbuton
to the sands. Undoubtedy, these cts have brought about a profound change
n the status of the sands and n ther reatons to the Unted States but the
soveregnty of the Unted States has not been, and, for a ong tme, may not
be, fnay wthdrawn. So far as the Unted States s concerned, the Phppne
Isands are not yet foregn terrtory. y e press provson of the ndependence
ct, we st retan powers wth respect to our trade reatons wth the sands,
wth certan e ceptons set forth partcuary In the ct. We retan powers
wth respect to ther fnanca operatons and ther currency and we contnue
to contro ther foregn reatons. The power of revew by ths Court over
Phppne cases, as now provded by aw, s not ony contnued, but s e tended
to a cases nvovng the consttuton of the Commonweath of the Phppne
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Regs. 48, rt. 3.
322
Thus, whe the power of the Unted States has been modfed, It has not been
aboshed. Mora responsbtes we may accompany the process of separaton
from ths country and, ndeed, they may have been ntensfed by the new and
perpe ng probems whch the Phppne peope now w be caed upon to
meet as one of ts resuts. The e stence and character of the consequent
obgatons and the e tent of the reef, f any, whch shoud be afforded by
the Unted States n respect of them, are matters, not for |udca but for con-
gressona consderaton and determnaton.
It s not mprobabe that a faure to e ercse contro over mports from the
Phppnes woud n|urousy affect the ndustres of ths country and, on
the other hand, an e ercse of the power to ta mports mght prove n|urous
to the peope of the sands. Congress, n passng the egsaton here under
consderaton, s not forbdden to baance these respectve probabtes. The
ta tsef, t Is sad, was mposed for the purpose of protectng certan ndus-
tres n ths country and t s chaenged on that ground. That Congress has
power to evy a ta wth the coatera pnrpose of thereby protectng the ndus-
tres of the Unted States s no onger open to doubt. ( ampton Co. v.
Unted States, 276 U. S., 394, 411.) ut, n e ercsng the power here wth
that purpose, Congress may have concuded that t woud thereby Impose a
hardshp upon the Phppnes whch t was the mora duty of Congress to
redress so far as possbe. In that stuaton, we see no consttutona ob|ecton
to a dscharge of the duty by the appropraton of an amount equvaent to
the ta n order to offset the antcpated burden. Certany, ths Court can
not |udcay decare that |ustce and far deang n respect of a peope, not
yet competey ndependent of our authorty, does not warrant such acton.
Nor do we see any ob|ecton to the pan because the payment of the funds
s sub|ect to the condton that the Phppne Government sha not provde
for any subsdy to be pad to the Phppne producers of coconut o and the
other products named n secton 602 of the ct. It s perfecty pan that
snce Congress may evy the ta wth the coatera purpose of protectng the
Industres of ths country, t may n appropratng the proceeds put such restrc-
ton upon ther use as w prevent the purpose from beng nufed. Ths, we
thnk, s the am and the effect of the provso.
ourth. The contenton that there has been no consttutona appropraton,
or that any attempted appropraton s bad, because the partcuar uses to
whch the approprated money are to be put have not been specfed, s wthout
mert. The provson of the Consttuton (cause 7, secton 9, rtce I) that
No Money sha be drawn from the Treasury, but n Consequence of ppro-
pratons made by Law was ntended as a restrcton upon the dsbursng
authorty of the e ecutve department, and s wthout sgnfcance here. It
means smpy that no money can be pad out of the Treasury uness t has been
approprated by an ct of Congress. (Reesde v. Waker, 11 ow., 272, 291
2 Story on the Consttuton (4th ed.), sectons 1348, 1349 1 Woughby on the
Consttuton, secton 63, page 105.) We deem t unnecessary to eaborate the
pont. The pettons for certorar, fed n anuary of the present year, Inform
us that none of the proceeds of the ta n queston has been transmtted to the
Phppne treasury. vdenty the moneys n the form of a trust fund, as the
Government asserts, are st n the Treasury of the Unted States. If Congress
has not made an appropraton, t may st do so ( ead Money Cases, 112
U. S., 580. 599-600) and, a other consderatons asde, the nter|ecton of the
queston nto the present cases s premature.
The vadty of the ct dsposng of the ta s aso attacked as consttutng
an unawfu deegaton of egsatve power. That Congress has wde dscreton
n the matter of prescrbng detas of e pendtures for whch t approprates
must, of course, be pan. ppropraton and other cts of Congress are repete
wth nstances of genera appropratons of arge amounts, to be aotted and
e pended as drected by desgnated Government agences. strkng and per-
tnent e ampe s afforded by the ct of une 17, 1902 (ch. 1093, 32 Stat, 388),
where a moneys receved from the sae and dsposa of pubc ands n a arge
number of States and Terrtores are set asde as a speca fund to be e pended
for the recamaton of ard and semard ands wthn those States and Terr-
tores. The e pendtures are to be made under the drecton of the Secretary
of the Interor upon such pro|ects as he may determne to be practcabe and
advsabe. The consttutonaty of ths deegaton of authorty has never been
serousy questoned. (Sec Unted States v. anson, 167 ed., 881, 884-885.)
In the present case, the dsposton of the proceeds of the ta fnds precedent
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323
Regs. 44(1934), rt. 40.
In many prevous cts of Congress provdng for payment nto the Phppne
treasury.
ut a ths asde, the mportant pont s that Congress was here deang wth
a dependency for whch t had provded a compete system of government to
admnster the affars of a popuaton for whose wefare the Unted States
was under a hgh degree of mora responsbty, as we aready have seen. The
proceeds of the ta under consderaton are to be pad nto the treasury of a
government whch Congress tsef thus created, to be e pended by that govern-
ment, e cept as the ct otherwse drects, n accordance wth ts |udgment as
to specfc necesstes. The congressona power of deegaton to such a oca
government s and must be as comprehensve as the needs. (Compare Unted
State v. enszen d Co., 206 U S., 370, 384-385.) In deang wth the Terr-
tores, possessons and dependences of the Unted States, ths Naton has a the
powers of other soveregn natons, and Congress n egsatng s not sub|ect
to the same restrctons whch are mposed n respect of aws for the Unted
States consdered as a potca body of States n unon. (Dot v. Unted States,
1S6 U. S., 138, 140, 142.)
Congress has power to create a oca egsature for the Phppnes and t
has done so. Congress has power to authorze the egsature to mpose ta es
for a the awfu needs of the Isands, and to approprate the proceeds for such
uses and n such amounts as the egsature may determne (compare Letens-
orfert. Webb, 20 ow., 176, 182) and ths t has done. Congress has power
to approprate the moneys here n queston, and cause them to be pad from
the Natona Treasury nto the treasury of the Phppne Isands and for ths
t has provded. It woud resut n a strange anomay now to hod that Con-
gress had power to devove upon the Phppne Government the authorty to
approprate revenue derved from oca ta aton as the government saw ft,
but that Congress was wthout power to confer smar authorty n respect of
moneys whch awfuy w come nto the Phppne treasury from the Treas-
ury of the Unted States or from other sources apart from ta aton. It s
true, as aready appears, that the uses to whch the money s to be put are not
specfed. ut n a nstances where funds sha come nto the Phppne treas-
ury, we may nduge the presumpton, n favor of a responsbe and duy con-
sttuted egsatve body, that the funds w be approprated for pubc purposes
and not for prvate uses.
Whether the payment to the Phppnes of the arge sums of money whch
w fow from ths ta s unwarranted n fact whether the present or prospec-
tve needs of the sands requre t and other queres drecty or ndrecty
chaengng the wsdom or necessty of the congressona acton, are a matters,
as we repeatedy have ponted out, wth whch the courts have nothng to do.
We fnd the egsaton to be free from consttutona nfrmty and there both
our power and responsbty end.
udgments afrmed.
TITL T , 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.
Reguatons 44 (1934), btce 40: Use of terms. I-4-8500
S. T. 853
Ta abty of the sae or use of certan os dsted or refned
from used or waste ubrcatng os.
dvce s requested whether a dstng or refnng process whch
separates from used or waste ubrcatng os sembrght stocks and
neutras, or other fractonated products, consttutes the producton
of ubrcatng os sub|ect to ta under secton 001 (c) of the Revenue
ct of March 8, 1902 (ch. 140. 32 Stat.. 54) ct of ugust 5. 1000 (ch. 6, 36 Stat.,
U. 84-S5) ct of October 3, 1013 (ch. 16, 38 Stat.. 114, 193) ct of September 21,
1922 (ch. 350. 42 Stat., 858, 935) ct of une 17, 1930 (ch. 497, 46 Stat., COO, 686).
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Regs. 46, rt. 22.
324
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, upon the sae or use thereof by the manufacturer or producer.
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. Under the provsons of secton 622 of the
Revenue ct of 1932 and artce 6 of Reguatons 44(1934), any per-
son who manufactures or produces ubrcatng o and uses t n the
operaton of any busness n whch he s engaged (otherwse than as
matera n the manufacture or producton of, or as a component part
of, another artce to be manufactured or produced by hm whch w
be ta abe under Tte I of the Revenue ct of 1932 or sod free of
ta by vrtue of secton 620, as amended, reatng to sae of artces for
further manufacture) s abe for the ta mposed by secton 601 (c),
as amended, n the same manner as f the product was sod by hm.
rtce 40 of Reguatons 44(1934) reads n part as foows:
The term ubrcatng o as used In these reguatons Incudes a
os, regardess of ther orgn, whch are sod as ubrcatng os and a os
whch are sod or used for ubrcaton. ,

The term manufacturer ncudes (3) any person who ceans,
renovates, or refnes used or waste ubrcatng o by any method or process
whch produces an o substantay equvaent to new ubrcatng o.
It s hed that a dstng or refnng process whch separates from
used or waste ubrcatng os sembrght stocks or neutras, or other
fractonated products, consttutes the producton of ubrcatng os
wthn the meanng of artce 40 of Reguatons 44(1934), and that the
ta mposed by secton 601 (c) of the Revenue ct of 1932, as
amended, attaches to the sae or use of such products for ubrcatng
purposes by the manufacturer or producer thereof. ny person who
produces ubrcatng os from used or waste os by such a process s
requred to regster and fe bond as a manufacturer or producer of
ubrcatng os, as provded n artces 8 and 9 of Reguatons
44(1934).
S CTION 60S. TOIL T PR P R TIONS, TG
Reguatons 46, rtce 22: Scope of ta . I-5-8518
S. T. 854
Ta abty of the sae of tncture of green oap, U. S. P., or
nment of soft soap, U. S. P.
dvce s requested whether saes of tncture of green soap, U. S.
P., or nment of soft soap, U. S. P., by the manufacturer, producer,
or mporter thereof are sub|ect to ta under secton 603 of the Reve-
nue ct of 1932, whch mposes a ta equvaent to 5 per cent of the
prce for whch toet soaps and other enumerated artces are sod
by the manufacturer, producer, or mporter where such artces are
used or apped, or ntended to be used or apped, for toet purposes.
Tncture of green soap, U. S. P., s used for ceansng the area
of a surgca operaton. The soft soap from whch t s made s re-
qured by offca test to contan a sma but restrcted percentage of
free aka. Ths aka, a combnaton of sodum and potassum
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325
Rets. 46, rt. 51.
hydro des, adds materay to the antseptc vaue of ths tncture
or other souton to whch t s added and ads n removng the oy
or fatty secretons on the skn and n the har foces whch nor-
may become nfected. The secretons must be removed f the op-
eratng area s to be aseptc. The soap content of nment of
soft soap, U. S. P., materay asssts as a ceanser or detergent.
Ths nment s aso used as an ad n ceansng the surgeon s hands
and n ceansng scap and skn areas n the treatment of skn nfec-
tons. It s contended that snce the sad tncture s a therapeutc
agent used as an ad n surgca operatons and n the treatment of
scap and skn dseases and s not used or ntended to be used for
any toet purpose, t s not sub|ect to ta .
It s hed that tncture of green soap, U. S. P., or nment of soft
soap, U. S. P., abeed and sod as such by the manufacturer, pro-
ducer, or mporter wth no recommendaton for use for any toet
purpose, s not sub|ect to the ta mposed by secton 603 of the Reve-
nue ct of 1932.
S CTION 608. M C NIC L R RIG R TORS.
Reguatons 46, rtce 51: ppcaton I-19-8698
of ta . S. T. 858
unform charge made by the M Company to cover repars and
repacements wth respect to a househod type refrgerators sod
tnder warranty e tenson or repacement contracts consttutes a
part of the prce for whch the artces are sod.
dvce s requested whether a unform charge made by the M
Company to cover repars and repacements wth respect to a
househod type refrgerators sod under warranty e tenson or re-
pacement contracts s ncudbe n the sae prce for the purpose
of determnng ta abty under secton 608 of the Revenue ct
of 1932.
Secton 608 of that ct mposes a ta of 5 per cent of the sae
prce of househod type refrgerators and refrgerator components
sutabe for use as a part of or wth such refrgerators sod by the
manufacturer, producer, or mporter. Where a househod type re-
frgerator s sod by the manufacturer, producer, or mporter, the
ta s based upon the sae prce of the assemby, whch ncudes a
refrgerator components, and a parts and accessores therefor, sod
on or n connecton wth, or wth the sae of, the refrgerator.
The M Company, a manufacturer of househod type refrgerators,
makes a unform charge wth respect to a such refrgerators sod
under warranty e tenson or repacement contracts provdng for the
repar or repacement of noperatve or defectve components by the
manufacturer durng a specfed perod. The charge s not ntended
to cover the cost of repars and repacements to any partcuar re-
frgerator but s made as a means of spreadng the aggregate cost of
repars and repacements over a saes of refrgerators under such
contracts. It s contended that the charge s not ncudbe as a part
of the saes prce, S. T. 523 (C. . I-2, 477(1932)) beng cted as
authorty.
It was hed n S. T. 523, supra, that a specfc charge by a refrg-
erator manufacturer for a servce guarantee coud be e cuded from
the seng prce n computng the ta under secton 608 of the
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Regs. 44(1934), rt. 24. 326
Revenue ct of 1932 f t coud be estabshed that the vaue of the
servces equaed or e ceeded the amount of the specfc charge co-
ected from de dstrbutor or deaer and that the charge was bed
as a separate tem. S. T. 523 apped to a specfc charge made to
cover necessary ad|ustments to the partcuar refrgerator wth re-
spect to whch the charge was made, and dd not cover a contract for
the repacement of an noperatve component wth another component
of the same or dfferent specfcatons carryng the same warranty.
The unform charge here n queston s not made upon request of
the customer wth respect to one or more refrgerators but s a gen-
era charge whch s added to the prce of a refrgerators. No one
can purchase the artce wthout payng ths charge. It s, there-
fore, hed that S. T. 523 s not appcabe n ths case, and that the
genera and unform charge made by the M Company consttutes a
part of the sae prce of the refrgerators sod under the warranty
e tenson or repacement contracts, and may not, therefore, be e -
cuded n computng the ta under secton 608 of the Revenue ct
of 1932.
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.
Reguatons 44(1934), rtce 24: Saes to I-5-8519
States or potca subdvsons thereof and
to the Unted States.
( so Reguatons 46, rtce 17.)
cerpts from a decson by the ctng Comptroer Genera of
the Unted States ( -81763) on the queston whether e empton
certfcates coverng saes of ta abe artces for the e cusve
use of the Unted States may propery be furnshed to the deaers
makng such saes.
The Secretary of grcuture requested the ctng Comptroer
Genera of the Unted States to render a decson on the queston
whether e empton certfcates coverng saes of ta abe artces for
the e cusve use of the Unted States may propery be furnshed to
the deaers makng such saes rather than to the manufacturers,
producers, or mporters of such artces.
Certan bds were receved by the Department of grcuture n
connecton wth proposed purchases by t of motor vehces for the
use of the department. Some of the bds were made by deaers
and others by the manufacturers. The proposas submtted by the
deaers rected that ther bds dd not ncude the edera e cse
ta and were predcated upon ta e empton certfcates beng sup-
ped. Three sets of proposas were submtted to the ctng Comp-
troer Genera for a decson on the queston rased concernng the
furnshng of e empton certfcates. Pertnent e tracts from the
etter addressed to the ctng Comptroer Genera by the Secretary
of grcuture and from the decson of the former, dated December
15, 1936, are as foows:

efore the department anayzes the three sets of proposas, your decson U
respectfuy requested on severa questons arsng under the responses
receved.
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327
Regs. 44(1934), rt. 24.
L In the event that the ta -e cuded prces of the Northwest Motor Co.
or the prces of the Oursmnn Chevroet Saes Co., Inc., are ow on any tems
of these bds, and awards are made to them, may the department propery
turn over to them, as reguar deaers of the ord Motor Co. and the Chevroet
Motor Co., respectvey, the ta -e empton certfcates demanded by them In
ths connecton t may be stated that contractng and purchasng offcers, both
wthn ths department and n other departments and agences of the Govern-
ment, have not been foowng a unform practce wth respect to the matter
of ssung ta -e empton certfcates to deaers who are not manufacturers,
producers, or mporters, n connecton wth suppes sod by sad deaers, the
purchase prce of whch does not ncude a edera ta , for the e cusve use
of the Government under the provsons of the Revenue ct of 1932 (47 Stat.,
169-289), as amended by the Revenue ct of ugust 30, 1935.
The deaers contend that the ta -e empton certfcates ssued to them are
merey evdence that the purchase prce to the Government ncuded no ed-
era ta , and that the manner n whch a ta -e empton certfcate reaches the
manufacturer, whether t be by drect devery to m upon hs request there-
for, or by devery through a deaer, s mmatera that s to say, that the
ssung of the ta -e empton certfcates to deaers under the crcumstances
outned above, can not possby operate aganst the nterest of the Govern-
ment for the reason that were the deaers to present such ta -e empton
certfcates to the ureau of Interna Revenue, tey woud not be honored as
not beng presented by the proper camant. In order to show ther good
fath n the matter, certan deaers have gone so far as to say that they woud
have no ob|ecton, even though purchases were made from the deaers drect
of manufactured goods under certfcates to the effect that edera ta es were
not ncuded as part of the purchase prce, to the contractng offcer ssung
the ta -e empton certfcate coverng the goods drect to the manufacturer
upon request by hm but that ths woud mean that the deaers n queston
woud have to conduct negotatons wth the manufacturer n order to acquant
hm wth the nature of the goods sod and that such procedure woud make
seemngy unnecessary work for the deaers.
The department s not oath to recognze the reasonabeness of ths argu-
ment and the wngness upon the part of the deaers to cooperate for the
sake of reguar procedure, but t Is fet that n vew of certan reguatons
ssued by the Interna Revenue ureau of the Treasury Department, referred
to herenafter, and the mpcatons of certan decsons n pont emanatng
from your offce, that the ssuance of ta -e empton certfcates to deaers s
not |ustfed under any crcumstances. The Commssoner of Interna Revenue
has ssued reguatons and amendments to e stng reguatons to meet the
condtons of the Revenue ct of 1935. These reguatons have been approved
by the ctng Secretary of Treasury on November 12, 1935, and are desgnated
as Treasury Decsons 4C04 C. . I -2, 373 and 4605 C. . I -2. 383 .
It s to be gathered from artce 17 of Treasury Decson 4005 and artce 24 of
Treasury Decson 4604 that the responsbty for the ssuance of the e emp-
ton certfcates runs soey and entrey to manufacturers, producers, or m-
porters. There Is nothng theren whch woud appear specfcy, or by
Impcaton, to authorze the ssuance of such e empton certfcates to deaers.
The same a true wth respect to the foowng paragraphs quoted from
15 C. G., 591:
These reguatons and the reguatons whch they amend prescrbe n
deta the procedure to be foowed by the manufacturer, producer, or m-
porter to obtan a credt aganst the ta or a refund thereof, both where a
sae s made by the manufacturer, producer, or mporter, drect to the Unted
States, or to others who rese to the Unted States. The whoe procedure s
dependent upon the producton by the manufacturer, producer, or mporter of
evdence satsfactory to the Commssoner of Interna Revenue that the artces
nvoved have n fact been sod ether drecty or through other purchasers, for
the e cusve use of the Unted States and that the Unted States has not pad
the amount of the ta as a part of the purchase prce or otherwse.

In vew of the terms of the aw and the reguatons of the Commssoner
of Interna Revenue, t appears desrabe In future specfcatons to requre
ony that where the bdder Is manufacturer, producer, or mporter of any
artce sub|ect to e cse ta under Tte I of the Revenue ct of 1932, as
amended, the bdder state whether the amount of such tu as been consdered
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Regs. 46, rt. 17.
328
n f ng the amount of hs bd and whether he has camed or w cam e -
empton from, credt for, or refund of such ta wth respect to the sae of sad
artces.
In other decsons you have practcay reterated the foregong statements.

Repyng to your frst query as to whether ta -e empton certfcates, that
s, certfcates to the effect that the vehces nvoved have been sod to the
Government at a prce e cusve of any e cse ta Imposed by the Revenue ct
of 1032, as amended, propery may be furnshed the Northwest Motor Co. or
the Oursman Chevroet Co. n the event that ether s bds are accepted, t baa
been the vew of ths offce that when the bdder s a deaer and not a manu-
facturer the preferabe course Is for sad deaer to submt prces wthout
reference to the e cuson of the e cse ta , and that no ta e empton certf-
cate be gven the deaer contractor, by the purchasng agency. It woud appear
doubtfu f an admnstratve offcer coud certfy wth any degree of assurance
that the prce offered by a deaer s e cusve of a ta mposed upon a manu-
facturer, or that such deaer has not added somethng to hs prce because of
the ta , and t does not appear that the unsupported statement of a deaer that
the bd prce Is ta -e cusve shoud be accepted as concusve when the soe
purpose of such statement s to obtan an e empton, rebate, or refund from the
Government. The certfcate reatve to the e cuson of the e cse ta whch
was suggested n decson of anuary 7, 1936 (15 Comp. Gen., 588-592), for
ncuson In nvtatons for bds provdes that t s to be e ecuted ony when
the bdder s manufacturer, producer, or Importer of any artce bd on, eta
Ths provson ndcates to bdders that the ta e cuson or ncuson certfcate
has appcaton ony to manufacturers, producers and mporters and that other
bdders shoud submt bds wthout e cuson of any amount for the e cse ta .
owever, where the thng to be purchased s such that bds may be e pected
from manufacturers and, aso, from deaers who are not manufacturers, t s
suggested that future nvtatons request a bdders manufacturers and dea-
ers to submt bds on the bass that no e cse ta e empton certfcates w
be furnshed, and aso, n the aternate, on the bass that the ta s e cuded
and, therefore, that a certfcate to that effect w be furnshed. When bds
are so submtted, the bd most advantageous to the Government woud be for
acceptance, and the e empton certfcate shoud be ssued or wthhed, de-
pendent on the bass of the accepted bd regardess of whether the contractor s
manufacturer or deaer.
In the present nstance, f the bds of ether the Northwest Motor Co. or the
Oursman Chevroet Co. are otherwse for acceptance, the ta e empton certf-
cates may be furnshed upon a cear showng that the prces bd are n fact
ta -e cusve.

Respectfuy,
R. N. ott,
ctng Comptroer Genera of the Unted States.
S CTION 620 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 401(a) O T R NU CT O 1935. T - R
S L S.
Reguatons 46, rtce 17: Saes to States I-15-8644
or potca subdvsons thereof and to the Op. . G. 10
Unted States.
( so Reguatons 44, rtce 24.)
Opnon of the ttorney Genera of the Unted States.
Potca character of rrgaton dstrcts n reaton to Revenne
cts Reconsderaton of pror opnon.
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329
Regs. 46, rt. 17.
ebruary 4, 1937.
The Secretary of the Treasury.
My Deab Mr. Secretary : I have your etter of December 5, 1936,
n whch you request reconsderaton of the opnon of the ttorney
Genera to the Secretary of the Treasury, dated anuary 30, 1914
(30 Op. . G., 252). That opnon hods that speca assessment
dstrcts, awfuy created for pubc purposes under the authorty of
the severa States and authorzed to e ercse a porton of ther re-
spectve soveregn powers, are State potca subdvsons wthn
the meanng of the Revenue ct of 1913.
It appears from your etter that there s now pendng n the
ureau of Interna Revenue the queston whether the sae of gasone
by a producer to an rrgaton dstrct n the State of Caforna s
sub|ect to the e cse ta mposed by secton 617(a), Tte I , of the
Revenue ct of 1932, as amended and that the answer apparenty
turns upon whether the rrgaton dstrct s a potca subdvson
of the State wthn the meanng of secton 620(3), Tte I , of the
Revenue ct of 1932, as amended (49 Stat, 1025 U. S. C, Tte 26,
ch. 20), whch provdes:
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. Itacs supped.
The opnon whch you request me to reconsder was rendered n
the nterpretaton of paragraph of Secton II of the Revenue ct
of 1913 (38 Stat., 114, 168), the pertnent provsons of whch are as
foows:
That n computng net ncome there sha be e cuded the nterest
upon the obgatons of a State or any potca subdvson thereof.
It s to be noted that the term potca subdvson seems to be
used n the quoted sectons of the Revenue cts of 1932 and 1913 n
the same genera sense.
It appears that the Treasury Department has foowed the t-
torney Genera s opnon n the admnstraton of the ncome ta
aws snce 1914, but you state that snce t was rendered the supreme
and appeate courts of certan Western States, ncudng Caforna
Wood v. Impera Irrgaton Dtch, 17 Pac. (2d), 128) have
hed assessment dstrcts such as rrgaton and recamaton dstrcts
not to be potca subdvsons wthn the meanng of certan
State statutes and consttutona provsons. Your request s that
the opnon of anuary 80, 1914, be reconsdered n the ght of
those subsequent decsons.
It must be observed at the outset that nstrumentates of a State
egay empoyed as a means of e ecutng ts soveregn powers are
mmune from edera ta aton under the consttutona prncpe
recognzed snce the decson of the Unted States Supreme Court
n McCvoch v. Maryand (4 Wheat., 316). It may be questoned,
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Regs. 46, rt. 17.
330
therefore, whether an assessment dstrct such as the rrgaton ds-
trct to whch you refer s not a State nstrumentaty whch, wthout
regard to statutory e empton, woud be e empt from the ta . ow-
ever, I do not deem t necessary to consder ths queston a de-
termnaton of whch woud not be controng here, snce the Con-
gress as the power and may have ntended to e empt agences of
the States other than those whch woud fa wthn the protecton
of the consttutona prncpe. The nqury whch you present s
whether the partcuar rrgaton dstrct ndcated s a potca
subdvson wthn the meanng of secton 620(3), Tte Iv, of the
Revenue ct of 1932, as amended. The answer can not be pred-
cated upon decsons of State courts nterpretng the meanng of
the term as used n State consttutons or statutes, but must be con-
troed by the ntenton of the Congress as e pressed n the ct tsef
( urnet v. arme, 287 U. S., 103, 110).
The term potca subdvson may be used n statutes n more
than one sense. It may desgnate a true governmenta subdvson
such as a county, townshp, etc., or, as hed n the ttorney Genera s
opnon under consderaton, t may have a broader meanng, de-
notng any subdvson of the State created for a pubc purpose
athough authorzed to e ercse a porton of the soveregn power of
the State ony to a mted degree.
In Goshen Irrgaton Dstrct v. unt (57 Pac. (2d), 793), the
Supreme Court of Wyomng, n determnng whether an rrgaton
dstrct was a ega subdvson of the State wthn the meanng of
the Wyomng Revsed Statutes e emptng from State ta motor
vehces owned by the Unted States, State of Wyomng, or any
county, cty, town, or other ega subdvson of the State, sad:
So far as mere verbage goes, t may be conceded that n the sense
of havng f ed boundares wthn ths State and havng been created by aw
for the e ercse of certan powers, the reator s a ega subdvson. ut the
rea queston s whether t was the ntenton of the egsature n empoyng
the anguage t dd n sad secton to e empt sad reator and other rrgaton
dstrcts n ths State from the payment of the fees descrbed n the artce
of whch the secton aforesad s a part. That ntenton must be ascertaned
by an e amnaton of the aw n the ght of the f ed rues of |udca nter-
pretaton of statutes, of Its sub|ect-matter as an entrety and the pecuar
nature of reator as a corporate entty estabshed by aw. It s obvous, aso,
that the same word or phrase may have dfferent meanngs as t s controed
by the connecton n whch t s empoyed, the evdent purpose of the statute
whore t s used or the sub|ect-matter to whch It reates.

There s aso pertnent here the ma m frequenty empoyed n statutory
constructon known as e|usdem geners, whch s to the effect that where
genera words are added to an enumeraton or desgnaton of partcuar sub-
|ects or casses, the genera words do not e pan or ampfy those precedng
them, but are themseves mted and e paned by the terms used n the ante-
cedent st. (57 C. ., 981, and cases cted 25 R. O. L., 990, secton 240.)
In secton 620(3) the term potca subdvson does not foow
the words county, cty, town, etc., but the words Unted States,
any State, Terrtory of the Unted States. s thus empoyed the
term does not requre the restrcted nterpretaton paced upon t n
the Goshen case. To attrbute at ths tme to the term potca
subdvson, as used n the Revenue ct of 1913 and n secton
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331
Regs. 46, rt. 17.
620(3), a meanng dfferent from that stated n the former opnon of
the ttorney Genera woud dsturb the above-mentoned practce
n the admnstraton of the ncome ta aw foowed for over 22
presumed to have had knowedge of ths admnstratve practce
under the former ct, ntended that the term as used n secton
620(3) shoud receve a smar constructon.
I do not fee, therefore, that the ttorney Genera s former opnon
shoud be dsturbed upon the authorty of the State decsons to
whch you refer, and I suggest that any change n pocy shoud
be made ony n accordance wth egsatve drecton or |udca
decson.
Respectfuy,
years. The reasonabe
must be
omer Cummngs,
ttorney Genera.
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Regs. 8(1928), rt. 43.
332
TITL I T ON CIG RS, TO CCO, ND M NU-
CTUR S T R O . (1926)
S CTION 401.
Reguatons 8(1928), btce 43: Rates of ta I-4-8501
on tobacco and snuff Date effectve When Ct. D. 1192
ta accrues.
ta on tobacco revenue act of 1926 decson of supreme court.
Manufactured Tobacco Sae to a State foe ree Dstrbuton
n State ospta Nature of Ta .
Tobacco sod by a manufacturer to a State for free dstrbuton
to patents n a State hospta s sub|ect to the ta mposed by
secton 401(a) of the Revenue ct of 1026. The ta s upon the
manufacture of the tobacco wth duty of payment postponed unt
remova or sae, and the effect upon the purchaser s ndrect and
mposes no prohbted burden.
Supreme Court of the Unted States.
Lggett Myers Tobacco Co., pettoner, v. The Unted States.
The Commonweath of Massachusetts, pettoner, v. The Unted States.
Lggett Myers Tobacco Co., on ehaf of the Common oeath of Massachusetts,
pettoner, v. The Unted Sates.
299 U. S., 3S3.
On wrts of certorar to the Court of Cams.
anuary 4, 1937.
opnon.
Mr. ustce McReynods devered the opnon of the Court.
These test suts, brought n the Court of Cams and based upon the same
facts, seek to estabsh the rght of some pettoner to recover the vaue of n-
terna revenue stamps 17.28 aff ed by Lggett Myers Tobacco Co. to 4
bo es contanng 96 pounds of tobacco, whch t manufactured and sod to
Massachusetts for free dstrbuton to patents n oston State ospta, an
nsttuton mantaned by the Commonweath and aeged to be a government
nstrumentaty mmune from edera ta aton.
Durng anuary, 1932, edera statutes drected
Upon a tobacco and snuff manufactured n or Imported Into the Unted
States, and hereafter sod by the manufacturer or mporter, or removed for
consumpton or sae, there sha be eved, coected, and pad a ta
of 18 cents per pound, to be pad by the manufacturer or mporter thereof.
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct.
(Revenue ct of 1926, 44 Stat., 9, ch. 27, sectons 401(a), 1101 U. S. C, Tte
20, sectons 700, 701, 1049, 1350, 1691.)
Treasury Reguatons No. 8 (1928 edton) n force at the same tme provded:
rtce 43: The rate of ta on tobacco and snuff now n force s 18 cents
per pound. Such ta s mposed on a chewng and smokng to-
bacco. The ta accrues on such manufactures upon remova from
the factory or pace where they were made, or upon sae pror to such re-
mova, and Is to be pad by the manufacturer thereof by the aff ng of stamps
before remova. rtce 52: ach package contanng a stat-
uory quantty of tobacco or snuff (see artce 45) sha, before remova from
the bonded factory premses where made, have aff ed thereto the proper
Interna-revenue stamps or stamps of such denomnaton as w cover fuy
the ta on the net weght of the contents. rtce 94: No manu-
facturer of tobacco, snuff, cgars, or cgarettes w be permtted to cose hs
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333
Regs. 8(1928), rt. 43.
factory wth matera or fnshed product unstamped on hand. rt-
ce 152: very person who removes from any manufactory, or from any
pace where tobacco or snuff Is made, any manufactured tobacco or snuff wth-
out the same beng put up n proper packages, or wthout the proper stamp for
the amount of ta thereon beng aff ed and canceed as requred by aw
or If the same be ntended for e port, wthout the proper e port stamp beng
aff ed sha for each such offense, respectvey, be fned not ess than 1,000
nor more than 5,000, and be mprsoned not ess than s months nor more
than two years.
The Court of Cams found
Lggett Myers Tobacco Co. s engaged n the busness of manufacturng
end deang n tobacco. It mantans a bonded warehouse for storng such
products. The estabshed Interna Revenue procedure was to aff the re-
qured stamps upon manufactured tobacco before remova from the factory.
In anuary, 1932, the company receved from Massachusetts an order to de-
ver 96 pounds of tobacco to the oston State ospta, an nsttuton owned
and mantaned by the Commonweath. The company comped by shppng
from Its bonded warehouse four packages to whch revenue stamps amountng
to 17.28 had theretofore been aff ed. Ths was dstrbuted to patents wthout
charge. ospta patents, when abe, pay for treatment. The hospta per-
orms usefu pubc servce. b for 30.62 prce of the tobacco Incudng
ta was pad by the Commonweath.
nd the court hed that operaton of the hospta by the Commonweath s
Dot the performance of an essenta governmenta functon that such oper-
aton s not of a strcty governmenta character snce t does not embody
some knd of contro over persons or thngs whch can be e ercsed ony by a
soveregn power. nd for that reason the concuson was that no mmunty
from edera ta aton had been shown. of the pettons were dsmssed.
ere counse for the Commonweath submt that the mantenance of the
hospta s a true governmenta functon entted to mmunty aso that the
ta n queston was ad upon the sae of the tobacco and amounted to an
mposton upon the Commonweath. They rey upon the prncpe approved
n Panhande O Co. v. Msssspp e re. no (277 . S., 218, 222) Indan
otocyce Co. v. Unted States (283 U. S., 570, 578 Ct D. 354, C. . -, 439 )
and Graves v. Te as Co. (298 U. S.. 393).
or the Unted States It s sad the ta was upon the manufacture of the
tobacco wth duty of payment postponed unt remova or sae, whchever frst
occurred consequenty, there was no drect burden Imposed upon the State
the effect was ncdenta, ndrect, and permssbe wthn the doctrne approved
by Corne v. Coyne (192 U. S., 418) and Wheeer Lumber . d S. Co. v. Unted
States (281 U. S., 572, 579 Ct. D. 196, C. . I -2, 417 ).
If, n reaty, the ta was upon the manufacture of tobacco then, as ade-
quatey ponted out by Corne v. Coyne, supra, the effect upon the purchaser
was ndrect and mposed no prohbted burden. (See Wcuts v. unn, 282
U. 8., 216, 230, 234 Ct D. 280, O. . -, 309 .) We thnk that was the true
nature of the e acton, and ths renders unnecessary any consderaton of the
theory accepted by the court beow.
The ta s ad upon each pound of manufactured tobacco rrespectve of
ntrnsc vaue or prce obtaned upon sae. The goods may be dsposed of at
any prce wthout affectng the amount of the ta that does not vary. ways
the manufacturer must pay 18 cents upon each pound no more, no ess. True
the mt of tme for makng payment s when the product s sod or removed,
but ths s a prvege desgned to mtgate the burden It ndcates no pur-
pose to mpose the ta upon ether sae or remova. pparenty the practce
s to aff the requred stamps wthout regard to sae or remova. (See Cor-
ne v. Coyne, supra mercan Mfg. Co. v. St. Lous, 250 U. S., 459 Wheeer
Lumber . t S. Co. v. Unted States, supra.)
Indan Motocyce Co. v. Unted States, supra, much reed upon by pettoner,
consdered a ta of 5 per cent of the prce obtaned upon sae of the artce
It rose or fe accordng to the amount receved by the seer. rom the outset
the e cse there under scrutny had been consdered by congressona com-
mttees and the admnstratve bureau as a saes ta . ere the admnstratve
provsons of the ta ng ct ndcate that Congress regarded t as an e cse
on manufacture. nd ths vew s strengthened by provsons of the Treasury
reguatons desgned to carry the statute nto effect
or the reasons ndcated, the udgment beow mnst be affrmed.
ffrmed.
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Regs. 43, rt. 30. 334
TITL DMISSIONS ND DU S. (1926)
S CTION 500(a) O T R NU CT O 1926, S M ND D Y
S CTION 411(a) O T R NU CT O 1928 ND Y S CTION
711(a) O T R NU CT O 1932.
eguatons 43 (1932), rtce 3: Meanng of I-19-8699
admsson. S. T. 859
Payments made for admsson to the M Cub s swmmng poo are
sub|ect to the ta on admssons.
dvce s requested whether payments for admsson to the swm-
mng poo mantaned by the M Cub are sub|ect to the ta on adms-
sons mposed by secton 500(a) 1 of the Revenue ct of 1926, as
amended by secton 411(a) of the Revenue ct of 1928 and secton
711 (a) of the Revenue ct of 1932.
Secton 500(a) 1 of the Revenue ct of 1926, as amended, mposes
a ta of 1 cent for each 10 cents or fracton thereof pad for adms-
son to any pace, ncudng amounts pad for admsson by season
tcket, wth certan e ceptons not here appcabe, f the amount
pad s 41 cents or more. The ta s payabe by the person payng
for the admsson and must be coected by the person to whom tho
admsson charge s pad.
The M Cub mantans a swmmng poo as one of ts cub fac-
tes. cub member pays one sum for the en|oyment of certan cub
prveges and another sum for the rght of admsson to the swm-
mng poo f ho desres to use that facty. Specfed charges aro
made by the cub for day, monthy, or season admssons to tho
poo. Snce the amount pad for admsson to the swmmng poo by
a member of the cub s separate and dstnct from the cub dues and
fees pad for the en|oyment of the other cub factes, the fact that
the swmmng poo s a facty of the cub s mmatera for adms-
son ta purposes. It s cear that the charge s pad for admsson to
tho swmmng poo and that the swmmng poo s a pace wthn
the meanng of the aw. Consequenty, such charge s an amount
pad for admsson to a pace wthn the meanng of the aw.
In vew of the foregong, t s hed that the charges pad by mem-
bers of the M Cub for day, monthy, or season admssons to the
cub s swmmng poo are sub|ect to the admsson ta mposed by
secton 500(a) of the Revenue ct of 1926, as amended.
S CTION 501, R NU CT O 1926. S M ND D Y S CTION 41S,
R NU CT O 1928.
Reguatons 43, rtce 36: Soca cubs. I-7-8545
Ct. D. 1199
T ON DU S R NU CTS O 1920 ND 1028 D CISION O COURT.
1. Soca Cub Character op Organzaton.
cub whch was chartered for the mantenance of a cub for
soca en|oyments, n partcuar, encouragng soca ntercourse
among ts members by provdng dnng-room factes, a readng
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Regs. 43, rt. 36.
room and pace where ts members may meet for the dscusson of
ther soca and busness affars, Is sub|ect to the ta mposed by
secton 501 of the Revenue ct of 1928 and by that ct as amended
by secton 413 of the Revenue ct of 1928, where the evdence
ceary estabshes the fact that ts soca features were the prmary
purpose of the organzaton.
2. stoppe.
ta payer whch camed and was aowed e empton from n-
come ta es on the ground that t was a soca cub Is estopped to
cam e empton from ta on dues as a nonsoca cub.
Dstrct Court o|t the Unted States fob h Western Dstrct of
Pennsyvana.
The Unon Cub of Pttsburgh, a Corporaton, v. D. . ener, Coector of
Interna Revenue.
May 14, 1936.
OPINION.
Schoonmaker, udge: Ths s a sut to recover ta es n the amount of
19,879.40 pad by pantff from pr 1, 1927, to March 31, 1931, under Reve-
nue ct of 1926 (ch. 27, 44 Stat, 9) and Revenue ct of 1928 (ch. 852, 45 Stat.,
791), upon dues and ntaton fees coected by pantff from ts members.
The questons rased are: (1) Is the pantff a soca cub sub|ect to ta
under these cts (2) If not s the pantff now estopped from recovery of
these ta es pad on ts dues and ntaton fees by vrtue of the fact that
pantff camed and was aowed an e empton from ncome ta es on ts
cam that It was e empt as a soca cub from such ncome ta es.
The facts ceary estabsh that the pantff was a soca cub. It was
chartered for the mantenance of a cub for soca en|oyments, n partcuar,
encouragng soca ntercourse among ts members by provdng dnng-room
factes, a readng room and pace where ts members may meet for the ds-
cusson of ther soca and busness affars.
The agreed statement of facts and the evdence ceary estabsh the fact that
ths cub was prmary a soca cub. That busness consderatons may have
nduced certan busness corporatons to take out membershp for empoyees,
does not change ths prmary character of the cub. It can not fa wthn
the cass of cubs that are hed e empt where It Is found that ts soca features
are not a matera purpose of the organzaton, but are subordnate and merey
Incdenta to the actve furtherance of a dfferent and predomnant purpose,
such as regon, the arts, or busness.
The foowng cases support our concuson: ock a v. Unted Staes
(57 ed. (2d), 918 (924)) emng v. Renecke (52 ed. (2d), 449 (550) Ct. D.
360. C. . -2, 410 ) rmy d Navy Cub v. Unted States (53 ed. (2d), 277
(282) Ct D. 421, O. . -2, 401 ) The Lambs Cub of New York v. Unted
States (8 ed. Supp., 737 (C. Cs.)).
We are further of the opnon that the pantff has waved any rght to be
consdered a nonsoca cub by ts camng tsef e empton from Income
ta es because of the fact that It s a soca cub. It can not be a soca cub
to e empt It from one ta and a nonsoca cub to e empt t from another tf .
If any authorty s needed for so pan a proposton, It may be found n
R. . Stearns Co. v. Unted States (291 U. S., 54, 61 Ct. D. 780, C. . III-1,
821 ).
n order for |udgment for the defendant may be submtted.
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Regs. 71(1932), rt. 43. 336
TITL III. ST MP T S. (1926)
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 35: Saes or transfers I-6-8534
not sub|ect to ta . S. T. 855
Transfers of corporate stock from the name of a guardan to
the name of a ward n the States of abama, Caforna, Inos,
Mchgan, and Washngton are not sub|ect to stamp ta .
dvce s requested whether transfers of corporate stock from the
name of a guardan to the name of a ward n the States of abama,
Caforna, Inos, Mchgan, and Washngton are sub|ect to stamp
ta under Schedue -3 of Tte III of the Revenue ct of 1926,
as amended by secton 723(a) of the Revenue ct of 1932.
The ct mposes a stamp ta on a saes or transfers of ega tte
to any shares or certfcates of corporate stock wth certan e cep-
tons not here appcabe. Where corporate stock s transferred from
the name of a guardan to the name of a ward, the transfer s sub-
ect to stamp ta uness t s shown that under oca aw transfer of
ega tte to such stock does not occur. (MS. 42, C. . I -1, 338.)
There s no provson of aw or decson by the courts of any of
the above-named States whch ndcates that a guardan n any of
such States acqures ega tte to the persona property of hs ward.
It foows that transfer of ega tte does not occur when corporate
stock s transferred from the name of a guardan to the name of a
ward n the States of abama, Caforna, Inos, Mchgan, and
Washngton. Consequenty, the foregong transfers of corporate
stock are not sub|ect to stamp ta under Schedue -3 of Tte III
of the Revenue ct of 1926, as amended.
SC DUL -4, TITL III, R NU CT O 1926. PRODUC , S L S
O , ON C NG .
Reguatons 71 (1932), rtce 43: Transactons I-8-8558
sub|ect to ta . Ct. D. 1201
ST MP T R NU CT OP 1926 D CISION O SUPR M COURT.
ae for uture Devery Transfer of Customer s ccount n
Cotton utures from One roker to nother Nature of
Ta .
broker s transfer of a customer s account In cotton futures to
another broker, effected through the Cotton change and accord-
ng to ts rues and practce, s sub|ect to the ta Imposed by
secton 800, Schedue -4 of the Revenue ct of 1926. Such a
transacton s not a so-caed transferred or scratch sae wthn the
e empton provson of the secton, but s an actua sae. The ta
s not upon the busness transacted but s an e cse upon the prv-
ege, opportunty, or facty offered at e changes for the transac-
ton of the busness.
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337
Regs. 71(1932), rt. 43.
Supreme Cor T op the Unted States.
rancs I. Dupont et a., pettoners, v. The Unted States of merca.
SOT U. 8., 150.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Second Crcut
ebruary 1, 1937.
OPINION.
Mr. ustce Robbets devered the opnon of the Court.
Secton 800, Schedue -4 of the Revenue ct, 1926,1 mposes a stamp ta
upon each sae, agreement of sae, or agreement to se (not ncudng so-
caed transferred or scratch saes) at, or under the rues or usages
of, any e change for future devery. Whether the ta s payabe
upon a broker s transfer of a customer s account n cotton futures to another
broker through the Cotton change s the matter n controversy. The Crcut
Court of ppeas has hed the transacton ta abe. confct of decson moved
us to grant certorar.
Pettoners are members of a partnershp tradng on the New York Cotton
change. On behaf of a customer they purchased cotton for future devery.
They were nstructed by the customer to transfer the account to other brokers.
To accompsh ths pettoners devered a sod memorandum to the trans-
feree of the account, who, In turn, devered a bought memorandum to the
pettoners. No commsson was charged because the nstructons to transfer
bad been gven at pettoners request, as they desred to be reeved of the
account. In order to record such a transfer wth the e change the custom was
to use bought and sod memoranda n the form Invaraby empoyed by members
of the e change n purchase and sae of cotton for future devery. The pet-
toners aff ed to the sod memorandum stamps n the proper amount and after
dena of a refund, brought acton for the amount of the ta .
The pettoners contend that no sae, agreement of sae or agreement to se
was n fact made, though for convenence, and because of ack of other medum
to evdence the transfer, papers n form agreements of sae were empoyed. The
Government Inssts that the ta Is essentay upon the prvege of usng the
factes of an e change and pettoners here e ercsed ths prvege and a sae
was n fact made. We hod the ta was awfuy mposed and the pettoners
are not entted to recover the vaue of the stamps.
1. The transacton was not a scratch or transferred sae wthn the
meanng of the e empton found n the secton. scratch or transferred sae
s one n whch there s an offsettng purchase and sae at the same prce on
the same day. Where a broker, n order to f a customer s order, buys a arger
amount and ses the e cess to a thrd broker, drectng the seng broker to
dever the e cess to the broker who has purchased t, and drectng the broker
who purchases the e cess to take devery from the seng broker, the name
of the ntermedate broker Is erased from the records of the e change so that
the sae of the e cess appears as a sae drect from the one to the other of the
two remanng brokers. The e empton aso covers tradng by a scapng broker
who makes hs proft n fractona movements on the e change, buyng and
seng wth great rapdty, thus often purchasng and seng the same amount
of the commodty at the same prce wthn a few moments or hours. y agree-
ment amongst the members hs name s scratched out of the records of the
e change and hs temporary rghts and abtes do not appear upon ts records.
ccordngy, the Treasury reguatons n force snce 1918 requre that purchase
and sae be consummated on the same day f the e empton s to appy and
that the ntermedate broker nstruct the broker who sod to hm to dever
to the other who bought from hm.
2. The ta s not upon the busness transacted but s an e cse upon the
prvege, opportunty, or facty offered at e changes for the transacton of
the busness. It Is an e cse upon the factes used n the transacton of the
busness separate and apart from the busness tsef. In ths vew t s mma-
126 D. S. C. 803.
83 . (2d), 951.
Unted States v. UMmann Gran Ce. (84 P. (2d), 901).
Treasury Reguatons 40 under . . 1918, artces 23(a) and 33(3) (c). Treasury
eguatons 71, artces 44(a) and 125(3) (c).
co v. men (173 U. S., 509, 519. 523).
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Regs. 71. rt. 53.
338
tera whether the trnnsfer of the account consttuted a sae. Unquestonaby
the pettoners used the factes of the e change for offsettng ther obgaton
as a purchasng broker by arrangng that another broker shoud take over
that obgaton under the rues of the e change. Such a transacton comes
wthn the ntent of the statute and renders pettoners abe for the ta .
3. Under the rues and practce of the Cotton change the transacton
ta ed was an actua sae. The fact that the sae was made for the purpose of
transferrng a brokerage account s rreevant. When the pettoners pur-
chased on the e change the future contracts for ther customer the seng broker
handed the pettoners a memorandum agreeng to dever at the date and prce
theren specfed and the pettoners gave the seng broker a smar purchase
memorandum. Ths each was requred to do by the by-aws of the e change.
s a resut of the operatons of the cearng house the pettoners woud, at
the cose of the day s busness, be under obgaton to pay the cearng house
upon devery beng made at the future date and they woud have a correatve
rght to receve from the cearng house the cotton purchased. though the
broker who made the sae to the pettoners woud have a rght to receve
from hs prncpa the necessary cotton to make devery accordng to the
sae, and athough the pettoners who had bought the cotton woud be under
an obgaton to ther customer to dever to hm, both brokers were, under
the by-aws of the e change, prncpas n the transacton. When, therefore,
the customer ordered the transfer of the account the pettoners coud ony
effect ths by seng the futures to the substtuted broker who, n turn, became
obgated, so far as the e change was concerned, as prncpa, to accept de-
very of the cottou accordng to hs purchase from the pettoners. The obga-
ton assumed by the pettoners when they entered nto purchase contracts
coud be satsfed by makng payment to the cearng house or offset by seng
to another broker and so obtanng that broker s contract to take devery of
the cotton from the cearng house. In no other way coud the pettoners
reeve themseves of that obgaton.
The |udgment s affrmed.
SC DUL -5 O TITL III O T R NU CT O 1926. S
M ND D Y S CTION 442 O T R NU CT O 1928.-
P SS G TIC TS.
Reguatons 71, rtce 53: Passage tckets I-17-8665
ssued to certan foregn repre- S. T. 857
sentatves.
Consuar offcers of Savador are e empt from the stamp ta
on passage tckets.
dvce s requested whether consuar offcers of Savador are
e empt from the stamp ta mposed on passage tckets by Schedue
-5 of Tte III of the Revenue ct of 1926, as amended by secton
442 of the Revenue ct of 1928.
In vew of the provsons of rtce of the treaty of frend-
shp, commerce, and consuar rghts of ebruary 22, 1926, between
the Unted States and Savador, effectve September 5, 1930, con-
suar offcers of Savador and the members of ther fames are
entted to e empton from the stamp ta on passage tckets pur-
chased on or after September 5, 1930, the effectve date of the treatv,
sub|ect to the condtons outned n S. T. 681 (C. . II-1, 455
(1933)).
The consuar offcers of Savador are added to the st of con-
suar offcers pubshed n S. T. 681, supra, as suppemented by S. T.
720 (C. . III-1, 437 (1934)) and S. T. 829 (C. . -1. 41G
(1936)), who have been hed to be e empt from the ta on passage
tckets.
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339
Regs. 71, rt. 53.
Reguatons 71, rtce 53: Passage tckets ssued I-22-8737
to certan foregn representatves. S. T. 861
Consus genera of Swtzerand are e empt from the stamp ta
on passage tckets.
8. T. 681 (C. . II-1, 455 (1933)) modfed.
dvce s requested whether consus genera of Swtzerand are
e empt from the stamp ta mposed on passage tckets by Schedue
-5 of Tte III of the Revenue ct of 1926, as amended by secton
442 of the Revenue ct of 1928.
In vew of the provsons of rtce II of the Conventon of
rendshp, Commerce and tradton of November 25, 1850, be-
tween the Unted States and Swtzerand, consus genera of Swtzer-
and are e empt from the stamp ta on passage tckets mposed by
Schedue -5 of Tte TII of the Revenue ct of 1926, as amended
by secton 442 of the Revenue ct of 1928. Under the specfc prov-
sons of rtce II of such conventon the e empton to whch con-
sus genera, consus, and vce consus of Swtzerand are entted
appes ony to acts performed by them n the dscharge of ther
offca dutes and s wthout appcaton to ther prvate or busness
transactons.
S. T. 681 (C. . II-1 455 (1933)) s modfed to ncude consus
genera n the offcers of Swtzerand entted to e empton from the
ta on passage tckets.
I-23-8752
T. D.4740
uthorzng e empton from stamp ta on passage tckets to
certfed persons attendng the oy Scout Word amboree n the
Netherands.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The ct of pr 17, 1937 (Pubc, No. 40, Seventy-ffth Congress,
frst sesson), provdes, n part, as foows:
That the Commssoner of Interna Revenue be, and he s hereby,
authorzed under such rues and reguatons as he sha promugate to remt
the ta on steamshp tckets to bona-fde Scouts and Scouters certfed by the
Natona Counc, oy Scouts of merca, attendng ths amboree.
In pursuance of these provsons the foowng reguatons are
promugated:
The stamp ta mposed by Schedue -5. Tte III of the Revenue
ct of 1926, as amended by secton 442 of the Revenue ct of 1928,
sha not appy to any passage tcket ssued to any person who has
been certfed by the Natona Counc, oy Scouts of merca, as
beng a bona fde Scout or Scouter attendng the Word amboree to
be hed n the Netherands durng the months of uy and ugust,
1937.
The certfcaton sha be n the form of an offca certfcate of
dentfcaton, n dupcate, bearng the sea of the oy Scouts of
merca and the facsme sgnature of the presdent of that organ-
zaton, certfyng that such Scout or Scouter named n the certfcate
s a member of the Word amboree contngent.
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Regs. 71, rt. 84.
340
Upon presentaton of the dentfcaton certfcate to the steamshp
company, the passage tcket may be ssued free of ta , the dupcate
certfcate of dentfcaton beng retaned by the steamshp company.
In a such cases a notaton sha be made on the passenger manfest
ndcatng why no ta was pad.
Ths Treasury decson s ssued under the authorty contaned n
secton 1101 of the evenue ct of 1926, and pursuant to the prov-
sons of the ct of pr 17, 1937 (Pubc, No. 40, Seventy-ffth
Congress, frst sesson).
, Gut T. evernq,
Commssoner of Interna Revenue.
pproved une 3, 1937.
OS W LL M GILL,
ctng Secretary of the Treasury.
(Ped wth the Dvson of the edera Regster une 5, 1937, 10.07 a. 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 I-9-8571
rea property determnabe by aw of State S. T. 856
where ocated.
Stamp ta abty wth respect to a contract for the sae of
reaty n the State of Mchgan.
dvce s requested whether a certan contract for the sae of reaty
n the State of Mchgan 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 when the consderaton 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 stu-
ated. ( rtce 84, Reguatons 71.) Contracts for the sae of rea
property are not ta abe uness they vest tte. ( rtce 106, Regua-
tons 71.)
The contract n queston provdes for the sae of rea estate n
Mchgan on the nstament bass. Under the contract the vendor
retans ega tte to the reaty unt the vendee has made a of the
requred payments, at whch tme a warranty deed s devered to the
vendee by the vendor. It s provded that the vendee sha take
possesson of the property upon the e ecuton of the contract, pay a
ta es and assessments, and keep the property nsured n the ven-
dor s name. Upon defaut n hs contractua obgatons, the vendee
forfets a of hs rghts under the contract.
ecutory contracts for the sae or purchase of ands are e -
pressy e cuded from the term conveyance as defned n secton
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Regs. 71, rt. 84.
13309 of the Comped Laws of Mchgan, 1929. The courts of
Mchgan have hed that the substance of the vendor s rghts under a
and contract s to receve the money due under the contract and that
he hods tte as securty for the money. In Cty of Marquette v.
Mchgan Iron Land Co. (132 Mch., 130, 92 N. W., 934), the de-
fendant had contracted to se and. aances due the defendant
under the contract were hed ta abe as credts. The court sad
n part:
rom the tme these contracts are made, the vendor hods the ega
tte ony as trustee for the vendee. The vendor has, In effect, e -
changed hs property for the uncondtona obgatons of the vendee, the per-
formance of whch Is secured by the retenton of the ega tte.
The court kened the stuaton to that created by a mortgage. See
aso Detrot Securty Trust Co. v. ramer (247 Mch., 4C8, 226 N.
W., 234) and In re Mctrde s state (253 Mch., 305, 235 N. W., 166).
It s cear that the contract n queston dd not vest tte to the
reaty n the vendee snce ega tte was retaned by the vendor. Con-
sequenty, the contract s not a conveyance of reaty sod wthn the
meanng of the aw and reguatons, and s not, therefore, sub|ect to
stamp ta . owever, notwthstandng that the vendee has a substan-
ta nterest n the reaty and that the vendor retans ega tte
merey as securty for the payment of the purchase prce, f the
vendor actuay transfers ega tte the transacton woud be sub|ect
to stamp ta as a conveyance of reaty. qutcam deed by the
vendee renqushng hs nterest n the reaty to the vendor s not
sub|ect to stamp ta snce no conveyance of ega tte s nvoved.
Reguatons 71, rtce 84: What consttutes I-20-8708
rea property determnabe by aw of State S. T. 860
where ocated.
conveyance of water rghts n Caforna Is sub|ect to stamp
ta as a conveyance of reaty.
dvce s requested whether a conveyance of water rghts n Ca-
forna (herenafter descrbed) s sub|ect to the stamp ta on convey-
ances 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 con-
sderaton 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, ten-
ements, or other reaty s determnabe by the aw of the State n
whch the property s stuated. ( rtce 84, Reguatons 71.)
The nstrument here n queston, desgnated a grant deed, re-
ctes that , , and C n consderaton of the payment of doars
grant to D a of the rght, tte and nterest of the grantors n
and to a water, and water rghts n a desgnated ocaty n the
State of Caforna, together wth certan equpment, and factes
connected therewth, and rghts of way wth respect to certan ands.
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Regs. 71, rt. 84.
342
Secton 661, Tte 43, Unted States Code (sectons 2339, 2340,
R. S.), provdes:
Whenever, by prorty of possesson, rghts to the use of water
for mnng, agrcutura, manufacturng, or other purposes, have vested and
accrued, and the same are recognzed and acknowedged by the oca customs,
aws, and the decsons of courts, the possessors and owners of such vested
rghts sha be mantaned and protected n the same and the rght of way
for the constructon of dtches and canas for the purposes heren specfed Is
acknowedged and confrmed but whenever any person, n the constructon
of any dtch or cana, n|ures or damages the possesson of ahy setter on the
pubc doman, the party commttng such n|ury or damage sha be abe
to the party n|ured for such n|ury or damage.
patents granted, or preempton or homesteads aowed, sha be sub|ect
to any vested and accrued water rghts, or rght to dtches and reservors used
n connecton wth such water rghts, as may have been acqured under or
recognzed by ths secton.
It s we estabshed that n Caforna a water rght s reaty.
The Supreme Court of Caforna n Stansaus Water Co. v. ach-
man (152 Ca., 716, 93 Pac, 858) stated n part:
The rght to water must be treated n ths State as t has aways
been treated, as a rght runnng wth the and and as a corporea prvege be-
stowed upon the occuper or approprator of the so and as such, has none of
the characterstcs of mere personaty. ( v. Ne ctnan, 5 Ca., 446, 63 m.
Dec., 140.) The rght to have water fow from a rver nto a dtch s rea
property and so aso s the water whe fowng n the dtch. Lower . R.
W. D. Co. v. . R. d . C. Co., 60 Ca., 410.) wrongfu dverson of water
fowng n a dtch s an n|ury to rea property. (Last Chance, etc., Co. v.
mgrant D. Co., 129 Ca., 278, 61 Pac, 960.) The rght to take water from a
rver and conduct t to a tract of and s reaty. (South Tue, etc., Co. v. ng,
144 Ca., 454, 77 Pac, 1032.) The rght to have water fow through a ppe from
a reservor to and upon a tract of and Is an appurtenance to the and.
( tandart v. Round aey Co., 77 Ca., 403, 10 Pac, 689.) n undvded n-
terest n a dtch and n the water fowng theren s rea property. ( ayes v.
ne, 91 Ca.. 398, 27 Pac, 772.) dtch for carryng water s rea estate,
(Smth v. O ara, 43 Ca., 376 radey v. arknes , 26 Ca., 77.) nd, where
one person has water fowng n a dtch and another has the rght to have a
part of such water fow from the dtch to hs and for ts rrgaton, the rght
of the atter s a servtude upon the dtch, and s rea property. (DorrU v.
Suvan, 90 Ca., 286, 27 Pac, 216.)
In vew of the foregong, t s hed that the water rghts conveyed
by the grant deed n queston consttute reaty, and that such
deed s sub|ect to the stamp ta mposed by Schedue -8 of Tte
TII of the Revenue ct of 1926, as added by secton 725 of the
Revenue ct of 1932.
Reguatons 71, rtce 84: What consttutes I-26-8788
rea property determnabe by aw of State S. T. 862
where ocated.
( so rtce 106.)
Contracts entered nto between , the vendor, and , the vendee,
for the sae of reaty In the State of Nebraska, and qutcam
deeds whereby the vendee reeased to the vendor the nterests
acqured under such contracts arc not conveyances of reaty sod
and are not sub|ect to stamp ta .
dvce s requested whether contracts for the sae of reaty n the
State of Nebraska entered nto between , the vendor, and , the
vendee, and qutcam deeds whereby reeased to the nterests
acqured under such contracts, are sub|ect to stamp ta under Sched-
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343
Regs. 71. rt. 84.
ue -8 of Tte III of the Revenue ct of 1926, as added by secton
T25 of the Revenue ct of 1932.
The aw mposes a stamp ta on any Deed, nstru-
ment, or wrtng whereby any ands, tenements, or other
reaty sod sha be granted, assgned, transferred, or otherwse con-
veyed to, or vested n, the purchaser when the consdera-
ton 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 84, Reguatons 71.) Contracts
for the sae of rea property are not ta abe uness they vest tte.
( rtce 106, Reguatons 71.)
Two contracts for the sae of rea estate n Nebraska are nvoved,
one of whch provdes that the vendor sha dever to the vendee a
deed for the property when the aggregate payments amount to a
specfed sum, a mortgage beng gven by the vendee for the remander
of the purchase prce. The other contract provdes that upon the
faure of the vendee to make payment of a desgnated sum on or
before a specfed date the agreement sha, at the opton of the
vendor, be nu and vod| and the vendor sha retan the amount pad
under the contract as qudated damages, or the vendor may take
proper acton for the recovery of the baance of the purchase prce
or possesson of the property, or may nsttute forecosure proceed-
ngs. Under each of the contracts the vendee dd not compete hs
payments and thereupon e ecuted a qutcam deed whereby he
reeased and conveyed to the vendor a of hs rght, tte, and nterest
n the property.
The genera rue s stated n 66 C. ., page 702, endor and
Purchaser, secton 276, Rghts and Tte of Partes, as foows:
If the contract s suffcent n form and t appears that t was the
ntenton of the partes for t to operate as an absoute conveyance, t w pass
the tte to the ands to the purchaser. mere contract for the sae of reaty
does not, however, affect the ega tte thereto, whch remans n the vendor unt
he has e ecuted a conveyance suffcent by the aw of that |ursdcton to pass the
ega tte. Whe n some |ursdctons the purchaser under an e ecutory
contract of sae s, wth varyng mtatons and e ceptons, regarded, unt
performance, as havng nether the ega nor the equtabe tte to the property
covered by the contract, the rue ordnary announced s that a bndng contract
for the sae and purchase of ands vests an equtabe tte thereto n the
purchaser from the tme of the e ecuton of the contract. It does not depend on
a conveyance, and. n order that equtabe tte may vest, t s not necessary
that the prce be pad or that possesson be gven. The vendor retans the ega
tte but ony as securty for the purchase money, and the purchaser s regarded
generay n equty as the owner, and s vested wth practcay a the rghts
and obgatons of an owner of and.
In ewett et a. v. ack et a. (60 Neb., 173, 82 N. W., 375) the
Supreme Court of Nebraska hed as foows wth respect to the status
of e ecutory contracts for the sae of rea estate n Nebraska:
n e ecutory contract for the sae of and vests the equtabe owner-
shp of the property n the purchaser. The seer n such case retans the ega
tte as securty for the deferred nstaments of the purchase prce. ( endr
v. aker, 49 Nebr., 369, 68 N. W., 531. )
Upon defaut by the vendee under such a contract, the vendor
may treat the contract as a mortgage and forecose t as such. rst
Nat. ank of as Cty v. dgar et a., 65 Neb., 340, 91 N. W., 404.)
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Regs. 71(1929), rt. 34.
344
It s cear that under each of the contracts n queston the vendor
retaned ega tte to the reaty nvoved. Consequenty, nether of
such contracts consttutes a conveyance of reaty sod wthn the
meanng of the aw and reguatons, and s not, therefore, sub|ect to
stamp ta . The qutcam deed gven by the vendee to the vendor
under each contract whereby he renqushed hs nterest n the reaty
to the vendor s kewse not sub|ect to stamp ta snce there was no
conveyance of ega tte.
SC DUL -3 O TITL III O T R NU CT O 1926.
Reguatons 71(1929), rtce 34: Saes and I-12-8604
transfers sub|ect to ta . Ct. D. 1209
ST MP T R NU CT O 1920 D CISION O SUPR M COURT.
Transfer of Rght to Receve Stock Nomnees.
When, at the nstance of one entted to receve stock, the
certfcates terefor are, at hs request and for hs convenence,
Issued u te name of a nomnee who receves no benefca nterest
theren, the transacton Invoves a transfer by the benefca owner
of hs rght to receve stock, whch s sub|ect to the stamp ta
mposed by secton SOO, Schedue -3, of the Revenue ct of 1926.
It s mmatera that the nomnee may be an empoyee of the trans-
feror that he may have no part n the management or dsposa of
the securtes or no rght, as aganst the transferor, to compe
Issuance of the stock n hs own name or that the transacton
mght have been effected n some aternatve form not reached
by the statute.
Supreme Court of the Unted States.
898. ounders Genera Corporaton, pettoner, v. ames . oey, Coector, etc.
300 U. S., 268.
On certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
331. Unted States, pettoner, v. . . Leach f Co., Inc.
300 U. S., 208.
On certorar to the Unted States Crcut Court of ppeas for the Seventh Crcut
830. Unted States, pettoner, v. utomatc Washer Co.
300 U. S., 208.
On certorar to the Court of Cams.
March 1, 1937.
OPINION.
Mr. ustce randes devered the opnon of the Court.
These three cases present, n the man, the same queston: When, at the
nstance of one entted to receve stock, the certfcates therefor are, at hs
request and for hs convenence, ssued by the corporaton n the name of a
nomnee who receves no benefca nterest theren, does the transacton
nvove a transfer by the benefca owner requrng a documentary stamp
pursuant to secton 800, Schedue -3, of the Revenue ct of 1928 ( ebruary
26, 1920, eh. 27, Tte III, 44 Stat., 99, 101)
The ta payers seek to recover the amounts aeged to have been wrongfuy
e acted for the ta , wth nterest and penates. In No. 398, the cam of
ounders Genera Corporaton for 4,733.33, was dened by the Crcut Court
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345
Regs. 71(1929), rt. 34.
of ppeas for the Second Crcut. (12 . Supp., 290 84 . (2d), 976.) In
No. 331, the cam of . . Leach Co., Inc., for 10,520.40 was aowed by
the Crcut Court of ppeas for the Seventh Crcut. (84 . (2d), 908.) In
No. 330, the cam of utomatc Washer Co. for 1,593.03 was aowed by
the Court of Cams. (15 . Supp., 70.) ecause of the confct, we granted
certorar. (299 U. S., .)
1. In the sut brought by the ounders Corporaton, the compant, settng
forth the foowng facts, was dsmssed: On September 10, 11)29, that cor-
poraton agreed wth the Unted States ectrc Power Corporaton to sub-
scrbe for 100,000 shares of ts common stock, to be devered on September
17, each share to be accompaned by a warrant enttng the hoder to sub-
scrbe before anuary 2, 1940, for an addtona share. fter makng the
agreement and before devery of the shares, the ounders Corporaton
drected that the securtes be ssued n the name of enton Co., as ts nom-
nee. enton Co. was a partnershp, organzed n 1928 soey to hod n ts
name securtes beongng to the pantff, and to transfer them at pantff s
request. or actng as nomnee, the partnershp receved from pantff an
annua fee of 1,500. y contract between enton Co. and pantff, nether
the partnershp nor any member thereof coud cam any benefca nterest n
any securtes hed by the frm, and pantff was apponted agent of enton
4 Co. for the sae and transfer of securtes regstered n the partnershp
name. The stock ssued by the ectrc Power Corporaton n the name of
enton Co. was devered to the ounders Corporaton.
Stamp ta es were confessedy payabe on the orgna ssue, and on the
transfer of any securtes from enton Co. to the pubc. The ony ta cha-
enged s that upon the aeged transfer by pantff to enton Co. of the
rght to receve the stock of the ectrc Power Corporaton.
2. In the sut brought by . . Leach Co., Inc., the decaraton upon
demurrer to whch the recovery was had, set forth the foowng facts: That
concern, beng engaged n the busness of seng securtes to the pubc,
organzed fve corporatons subscrbed for a ther stock and drected that
the stock be ssued n the name of ercouter, an empoyee. It s conceded
that he had no benefca nterest n the stock had no authorty to act e cept
as drected by . . Leach Co., Inc. and receved the certfcates soey for
ts beneft and convenence n connecton wth future saes to the pubc.
Stamp ta es were confessedy payabe on the orgna Issue, by the fve cor-
poratons. The ony ta chaenged s that upon the aeged transfer by the ta -
payer to ercouter of the rght to receve the stock of the fve corporatons.
3. In the sut brought by utomatc Washer Co., the facts found on whch
recovery was aowed are these: n agreement, dated une 22, 1928, between
ods, uck Co., bankers, and Neson, a stockhoder and ofcer of the
Washer company s corporate predecessor, provded that Neson proposed to
cause the atter concern to be reorganzed as a Deaware corporaton whch
houd acqure the assets and assume the abtes of the od company that
the new company shoud ssue therefor 140,000 shares of common and 40,000
shares of preferred and that the bankers shoud have the opton of acqurng
for 1,000,000 40,000 shares of the common and 40,000 shares of the preferred.
On September 17, 1928, the stockhoders of the od company agreed wth
Neson to contrbute rataby the shares n the new whch were to be sod
to the bankers. To ths end, each rrevocaby apponted Neson and one
Gaagher attorneys n fact to receve the stock of the new company and to
make sae thereof to the bankers. The new company, the ta payer, was or-
ganzed. On September 27, 1928, the two companes agreed that the assets
shoud be transferred to the new n consderaton of ts ssung ts common
and preferred stock to the stockhoders of the od. The agreement rected the
arrangement wth the bankers and that:
In order to carry out ths pan each of the stockhoders of the
od company has rrevocaby consttuted and apponted . . Neson and W. N.
Gaagher hs attorneys n fact to receve the respectve securtes of the new
company to whch such stockhoder may be entted and to make sae of that
porton thereof to be contrbuted by such stockhoder for the purpose of
carryng out sad agreement of sae wth the bankers. ccordngy,
the new company sha ssue such certfcates n such names and
for such amounts as sha be specfed n the |ont order of the sad . .
Neson and W. N. Gaagher, the attorneys n fact , and dever the
same to sad attorneys n fact.
7080 37 12
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Regs. 71(1929), rt. 34.
346
Tbe 74,53S shares desgned to be sod to the bankers were ssued to Neson.1
Of these, 13,173 were the pro rata contrbuton of Neson.
The ta payer concedes now that stamp ta es were payabe on the orgna
Issue of a the stock by the new company on the od company s transfer
to ts stockhoders (ncudng Neson) of ts rght to receve the new company s
stock on Neson s transfer to the bankers and on the bankers saes to the
pubc. The Government concedes now that ta es are not payabe on Neson s
aeged transfer to hmsef of hs 13,173 shares whch were to go to the bankers.
The ta chaenged s that on the aeged transfer to Neson of the rght
to receve the 61,365 shares whch the other stockhoders contrbuted.
The appcabe part of secton 800, Schedue Stamp ta es, s as foows:
3. Capta stock, saes or transfers: On a saes, or agreements to se, or
memoranda of saes or deveres of, or transfers of ega tte to shares or
certfcates of stock or of profts or of nterest n property or accumuatons
n any corporaton, 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 by any assgnment In bank, or by any devery, or by any paper or agree-
ment 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, on each 100 of face vaue or fracton thereof, 2 cents, and where such
shares are wthout par or face vaue, the ta sha be 2 cents on the transfer
or sae or agreement to se on each share: Provded, That t s 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 cer-
tfcates so deposted, nor upon mere oans of stock nor upon the return of
stock so oaned: Provded further. That the ta sha not be mposed upon
deveres or transfers to a broker for sae, nor upon deveres or transfers
by a broker to a customer for whom and upon whose order he has purchased
same, but such deveres or transfers sha be accompaned by a certfcate
settng forth the facts: .
rst. In each case, the person orgnay entted to receve the certfcate
drected, for hs own convenence and purposes, that It be ssued n the name
of a nomnee. It s argued n the utomatc Washer Co. case, that the stock-
hoders of the od company never acqured the rght to receve that por-
ton of ther stock whch was desgned for transfer to the bankers that
they dd not become entted to receve shares n the new company unt the
contract wth t was made on September 27 that pror thereto, they had
Irrevocaby agreed that Neson shoud receve and se the shares whch
were to go to the bankers and that, thus, the stockhoders of the od com-
pany had, pror to the orgna ssue of the stock n the new, renqushed
the power to command the dsposton of the shares and, therefore, never
e ercsed that power, hed ta abe n Rayhcstos-Manhatan, Inc., v. Unted-
States (296 U. S., 60 Ct. D. 1039, C. . I -2, 400 ). ut essentay the
same argument was made and re|ected n the Raybestos case (page 62). There
the transacton was hed to have nvoved a ta abe transfer of rghts to
stock, though the od companes had no rght to the stock n the consodated
company pror to the e ecuton of the contract whereby the ssue to ther
stockhoders was drected. The reach of a ta ng ct whose purpose s as
obvous as the present s not to be restrcted by technca refnements. (Id.,
63. Compare everng v. Mdand Mutua Lfe Insurance Co., U. S.,
Ct. D. 1206, page 178, ths uetn .) The stuaton here s n substance the
same as n the Raybestos case. When the powers of attorney were e ecuted,
there was nothng upon whch they coud operate. The rghts to receve the
stock n the new company, and the transfer thereof, were effected at one
tme by the same document
Second. It s true that n none of the three cases dd the transacton Invove
the transfer of a benefca nterest ut that fact s, n vew of the anguage
of the ct, wthout ega sgnfcance. The ta s e acted because the ta payer
transferred the rght to receve the certfcate. Lkewse t s wthout
ega sgnfcance that, under power of attorney from nomnee to benefca
owner, the former may have no part In the management or dsposa of tbe
securtes. Nor s t matera that n no case dd the nomnee have a rght.
1 In the eventua determnaton of the pro rata contrbuton by the od company s stock-
hoders to the stock to be sod to the bankers, the amount of preferred to be od was
reduced to 34.538 shares. (See 15 . Supp., 70, 74.)
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347
(Regs. 71(1929), rt. 34.
at east as aganst the ta payer, to compe ssuance of the stock to hmsef.
The ega tte to the shares was receved by the nomnee from the newy
formed corporaton but the authorzaton renderng hs hodng awfu was
receved from the ta payer. The egaty of the ssuance of the stock In the
names of the nomnees rests on the fact that the ta payers authorzed such
ssuance and granted ther nomnees the rght to receve the stocks entered
In ther names. The grant of that authorty s a transfer of the rght to
receve wthn the meanng of the ct and we are not to ook beyond the
ct for further crtera of ta abty. (See urnet v. arme, 287 U. S., 103,
110 Ct D. 611, C. . I-2, 210 .)
The statute defnes the scope of the ta n terms whose breadth s empha-
szed by the carefu partcuarty of Its provsos. specay ndcatve of
congressona ntenton that nomnee transactons generay shoud be sub|ect
to the ta are the provsos added by the Revenue ct of 1932, une 6, 1932
(eh. 209, secton 723, 47 Stat, 273), and the ct of une 29, 1936 (ch. 865, 49
Stat., 2029), whch e cept certan specfcay descrbed transfers to nomnees.
Thrd. It s suggested that n each case the ta payer mght have attaned
hs utmate purpose by a form of transacton whch woud not have sub-
|ected hm to the ta . The suggeston, f true, furnshes no reason for reevng
hm of ta when, for whatever reason, he chooses a mode of deang wthn the
terms of the ct (Compare Unted States v. Iswm, 17 Wa., 496, 506 Pro-
vost v. Unted States, 269 T . S., 443, 457, 458 T. D. 3811, C. . -, 417 .) To
make the ta abty of the transacton depend upon the determnaton whether
there e sted an aternatve form whch the statute dd not ta woud create
burden and uncertanty. There must be a f ed and ndsputabe mode of
ascertanng a stamp ta . (New York e te. atch v. vardon, 204 U. S.,
152. 159.)
In No. 398, |udgment affrmed.
In No. 331, |udgment reversed.
In No. 330, |udgment reversed.
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Regs. 98, rt. 11. 348
ITUMINOUS CO L CT O 1937.
Reguatons 98, rtce 11: ffectve date. I-26-8791
T. D. 4742
mendng artce 11 of Reguatons 98, reatng to the ta es on the
sae or other dsposa of btumnous coa mposed under the tum-
nous Coa ct of 1937, approved pr 26, 1937.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
The Presdent of the Unted States, on une 21,1937, ssued the fo-
owng ecutve order:
Whereas the Natona tumnous Coa Commsson created under the -
tumnous Coa ct of 1937 (Pubc, No. 48, Seventy-ffth Congress, frst sesson),
actng pursuant to secton 5(a) of the sad ct, promugated the tumnous
Coa Code on une 21, 1937, and forms of acceptance for membershp theren
on May 24, 937:
Now, therefore, by vrtue of and pursuant to the authorty vested n me by
secton 18 of the sad ct, I hereby announce une 21, 1937, the effectve date of
the sad tumnous Coa Code and of secton 3 of the sad tumnous Coa ct
of 1937.
In pursuance of the provsons contaned n secton 3(c) of the
tumnous Coa ct of 1937, and of secton 628 of the Revenue ct of
1932, made appcabe by secton 7 of the tumnous Coa ct of
1937, artce 11 of Reguatons 98 s hereby amended to read as
foows:
rt. 11. ffectve date. The ta es attach to saes or other dsposas of coa
made by the producer thereof on and after une 21, 1937, but do not attach to
saes or other dsposas made on and after four years from the date of the
approva of the ct, pr 2G, 1937.
Gut T. evernq,
Commssoner of Interna Revenue.
pproved une 22, 1937.
Watne C. Tator,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 22, 1937, 1.22 p. m.)
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349
Regs. 93, rts. 1, etc.
C RRI RS T ING CT.
Reguatons 93, rtces 1, 201, 301, 401, 402,
501, 504, and 609.
I-13-8621
T. D. 4730
CTI P RIOD O C RRI RS T ING CT T ND D.
Secton 12 of the ct entted n ct to evy an e cse ta
upon carrers and an ncome ta upon ther empoyees, and for
other purposes, approved ugust 29, 1935 (Pubc, No. 400,
Seventy-fourth Congress 49 Stat., 974), as amended by Pubc
Resouton No. 9, Seventy-ffth Congress, approved ebruary
27, 1937.
Reguatons 93, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Pubc Resouton No. 9, Seventy-ffth Congress, approved ebru-
ary 27, 1937, entted ont resouton to amend the ct entted
n ct to evy an e cse ta upon carrers and an ncome ta upon
ther empoyees, and for other purposes, approved ugust 29, 1935,
provdes as foows:
That secton 12 of the ct entted n ct to evy an e cse ta upon
carrers and an ncome ta upon ther empoyees, and for other purposes,
approved ugust 29, 1935, s amended by strkng out ebruary 28, 1937, and
nsertng n eu thereof une 30, 1938.
To gve effect to the foregong provson of aw, Reguatons 93,
approved March 11, 1936, are amended as foows:
(1) rtce 1(a) s amended by nsertng after the parenthetca
phrase theren, the words as amended by Pubc Resouton No. 9,
Seventy-ffth Congress, approved ebruary 27, 1937.
(2) rtces 201, 301, 402, 501, and 609 are amended by strkng
out ebruary 28, 1937, wherever appearng theren and by nsert-
ng n eu thereof une 30, 1938.
(3) rtce 401 s amended to read as foows:
kt. 401. uartery returns of empoyees ta and carrers ta . or the
perod be nnng March 2, 1936, and endng May 31, 1936, and for each subse-
quent perud of three caendar months endng on ugust 31, November 30, the
ast day of ebruary, and May 31, each carrer sha prepare a return, In
quadrupcate, on the prescrbed form.
(4) The frst sentence of the frst paragraph of artce 504 s
amended to read as foows:
or the perod begnnng March 2, 1936, and endng May 31, 1936, and for
each subsequent perod of three caendar months endng on ugust 31, Novem-
ber 30, the ast day of ebruary, and May 31, each representatve sha prepare
a return, n quadrupcate, on the prescrbed form.
(5) The foowng s nserted mmedatey precedng artce 609:
Pubc Resouton No. 9, Seventy-ffth Congress, approved ebruary 27, 1937.
That secton 12 of the ct entted n ct to evy an e cse ta
upon carrers and an Income ta upon ther empoyees, and for other
purposes, approved ugust 29, 1935, s amended by strkng out eb-
ruary 28, 1937, and nsertng n eu thereof une 30, 1938.
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Regs. 93, rts. 1, etc.
350
Ths Treasury decson s prescrbed under the authorty contaned
n secton 1101 of the Revenue ct of 1926, made appcabe by sec-
ton 8(c) of the ct entted n ct to evy an e cse ta upon
carrers and an ncome ta upon ther empoyees, and for other
purposes, as amended.
Gut T. everng,
Commssoner of Interna Revenue.
pproved March 22, 1937.
Roswe Mag,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster March 24, 1937, 2.33 p. m.)
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351
Regs. 88, rt. 30.
N TION L IR RMS CT. (1934)
S CTION 2.
Reguatons 88, rtce 30: ffectve date. I-16-8650
Ct. D. 1217
SP CI L CIS T N TION L IR RMS CT D CISION O SUPR M
COURT.
Deaer n rearms Consttuton aty of Statute.
Secton 2 of the Natona rearms ct of une 26, 1934, whch
Imposes an annua cense ta upon deaers In frearms, s a const-
tutona e ercse of the egsatve power of Congress.
Supreme Coott or the Unted States.
Ma Somnsky, pettoner, v. The Unted States of merca.
300 U. S., 506.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh
Crcut.
March 29, 1937.
OPINION.
Mr. ustce Stone devered the opnon of the Court
The queston for decson s whether secton 2 of the Natona rearms ct
of une 26, 1934 (ch. 757, 48 Stat., 1236, 26 U. S. C, sectons 1132-1132q),
whch Imposes a 200 annua cense ta on deaers n frearms, s a consttu-
tona e ercse of the egsatve power of Congress.
Pettoner was convcted by the Dstrct Court for astern Inos on two
counts of an ndctment, the frst chargng hm wth voaton of secton 2, by
deang n frearms wthout payment of the ta . On appea the court of appeas
set asde the convcton on the second count and affrmed on the frst. (86 .
(2d), 486.) On petton of the accused we granted certorar, mted to the
queston of the consttutona vadty of the statute n ts appcaton under
the frst count n the ndctment. ( U. S., .)
Secton 2 of the Natona rearms ct requres every deaer n frearms to
regster wth the coector of nterna revenue n the dstrct where he carres
on busness, and to pay a speca e cse ta of 200 a year. Importers or manu-
facturers are ta ed 500 a year. Secton 3 Imposes a ta of 200 on each trans-
fer of a frearm, payabe by the transferor, and secton 4 prescrbes reguatons
for the Identfcaton of purchasers. The term frearm s defned by secton 1
as meanng a shotgun or a rfe havng a barre ess than 18 nches n ength,
or any other weapon, e cept a psto or revover, from whch a shot s ds-
charged by an e posve, f capabe of beng conceaed on the person, or a
machne gun, and ncudes a muffer or sencer for any frearm. s the convc-
ton for nonpayment of the ta e acted by secton 2 has aone been sustaned,
t Is unnecessary to nqure whether the dfferent ta eved by secton 3 and
the reguatons pertanng to t are vad. Secton 16 decares that the prov-
sons of the ct are separabe. ach ta s on a dfferent actvty and s
coectbe Independenty of the other. u effect may be gven to the cense
ta standng aone, even though a other provsons are nvad. (Wecr v.
ew York, 268 U. S., 319 ed v. Cark, 143 U. S., 649, 697 cf. Champn
Refnng Co. v. Commsson, 286 U. S., 210, 234.)
In the e ercse of ts consttutona power to ay ta es, Congress may seect
the sub|ects of ta aton, choosng some and omttng others. (See nt v.
Stone Tracy Co., 220 U. S., 107, 158 Nco v. mes, 173 U. S., 509, 516 romey
v. UrCaughn, 280 T . S., 124 Ct. D. 140, C. . III-2, 39 (1929) .) Its power
e tends to the mposton of e cse ta es upon the dong of busness. (See
Lcense Ta Cases, 5 Wa., 462 Spreckes Sugar Refnng Co. v. McCan, 192
U. S., 397, 412 Unted States v. Doremus, 249 U. S., 86, 94.) Pettoner does not
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Regs. 88, rt. 30.
352
deny that Congress may ta hs busness as a deaer n frearms. e nssts that
the present evy s not a true ta , but a penaty mposed for the purpose of
suppressng traffc n a certan no ous type of frearms, the oca reguaton of
whch s reserved to the States because not granted to the Natona Government.
To estabsh ts pena and prohbtve character, he rees on the amounts of
the ta Imposed by secton 2 on deaers, manufacturers and mporters, and of
the ta Imposed by secton 3 on each transfer of a frearm, payabe by the
transferor. The cumuatve effect on the dstrbuton of a mted cass of
frearms, of reatvey sma vaue, by the successve mposton of dfferent
ta es, one on the busness of the Importer or manufacturer, another on that
of the deaer, and a thrd on the transfer to a buyer, s sad to be prohbtve
n effect and to dscose unmstakaby the egsatve purpose to reguate rather
than to ta .
The case Is not one where the statute contans reguatory provsons reated
to a purported ta In such a way as has enabed ths Court to say In other
cases that the atter s a penaty resorted to as a means of enforcng the
reguatons. (See Chd Labor Ta Cases, 259 U. S., 20, 35 T. D. 3346, C. .
1-2, 337 (1022) U v. Waace, 259 D. S., 44 Carter v. Carter Coa Co., 208
U. S., 238.) Nor Is the sub|ect of the ta descrbed or treated as crmna by
the ta ng statute. (Compare Unted States v. Constantne, 296 U. S., 287 Ct-
D. 1053, C. . I -2, 403 (1035) .) ere secton 2 contans no reguaton other
than the mere regstraton provsons, whch are obvousy supportabe as n ad
of a revenue purpose. On ts face t s ony a ta ng measure, and we are asked
to say that the ta , by vrtue of ts deterrent effect on the actvtes ta ed,
operates as a reguaton whch s beyond the congressona power.
very ta s n some measure reguatory. To some e tent t nterposes an
economc mpedment to the actvty ta ed as compared wth others not ta ed.
ut a ta s not any the ess a ta because t has a reguatory effect (Unted
States v. Doremus, supra, 93, 94 Ngro v. Unted States, 276 U. S., 332, 353, 354
I ccnse Ta Cases, supra see Chd Labor Ta Cases, supra, 38) and t has
ong been estabshed that an ct of Congress whch on ts face purports to be
an e ercse of the ta ng power s not any the ess so because the ta s
burdensome or tends to restrct or suppress the thng ta ed. ( cazc ank v.
cnno, 8 Wa., 533, 548 McCray v. Unted States, 105 U. S., 27, 60-S1 cf.
aska sh Co. v. Smth, 255 U. S., 44, 48.)
Inqury nto the hdden motves whch may move Congress to e ercse a power
consttutonay conferred upon It s beyond the competency of courts. ( easte
ank v. cnno, supra McCray v. Unted States, supra, 56-50 Unted States v.
Doremus, supra, 03-94 see Magnano Co. v. amton, 292 U. S., 40, 44, 45
cf. rzona v. Caforna, 283 U. S., 423, 455 Smth v. ansas Cty Tte Co.,
255 U. S., 180, 210 Weber v. reed, 230 U. S., 325, 320-330 etcher v. Peck,
6 Cranch, 87, 130.) They w not undertake, by coatera Inqury as to the
measure of the reguatory effect of a ta , to ascrbe to Congress an attempt,
under the guse of ta aton, to e ercse another power dened by the edera
Consttuton. (McCray v. Unted States, supra cf. Magnano Co. v. Ianton,
supra, 45.)
ere the annua ta of . 200 s productve of some revenue. We are not free
to specuate as to the motves whch moved Congress to mpose It, or as to the
e tent to whch t may operate to restrct the actvtes ta ed. s t s not
attended by an offensve reguaton, and snce t operates as a ta , t Is wthn
the natona ta ng power. ( ston v. Unted States, 274 T . S., 289, 294 Ngro
v. Unted States, supra, 352, 353 ampton Co. v. Unted States, 276 U. S.,
304, 411, 413.)
We do not dscuss pettoner s contentons whch he faed to assgn as error
beow.
ffrmed.
1The 200 ta was pad by 27 deaers In 1934. and by 22 deaers In 1 )35. ( nnua
report of the Commssoner of Interna Revenue, fsca year ended une 30. 1935, paces
129-131 d., fsca year ended une 30, 1936, pages 130-141.)
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353 Regs. 86, rt. 81.
SIL R PURC S CT.
SC DUL -10 O TITL III O T R NU CT O 1926, S
DD D Y S CTION 8 O T SIL R PURC S CT O 1934
SIL R, ND SO ORT , S L S ND TR NS RS.
Reguatons 85, rtce 31: Scope. I-6-8535
Ct. D. 1196
ST MP T SP CI L INCOM T R NU CT O 1926, S M ND D
SIL R PURC S CT O 1934 D CISION O SUrR M COURT.
Ta ok Transfers or Sver uon Nature of Ta Retroac-
tve Operaton op Statute Consttutonaty.
The ta mposed by the Sver Purchase ct of une 19, 1934,
upon a transfers made on or after May 15, 1934, of any nterest
In sver buon where the transfer yeds a proft over cost and
aowed e penses s a speca ncome ta . The perod of retro-
actvty prescrbed n the ct s reasonabe and does not voaU
the due process cause of the Consttuton.
Supbemb Court of the Unted States.
Unted States v. Percy . udson.
299 D. S., 498.
anuary 11, 1937.
opnon.
Mr. ustce an Devanter devered the opnon of the Court.
Respondent bought on May 3 and sod on May 23 and 29, a n 1934, certan
futures contracts for the devery of 500,000 ounces of sver, and reazed
therefrom, after deductng aowed e penses, a proft of 8,621.96. e pad
a ta of 50 per cent of ths proft In obedence to the ta ng provson of the
Sver Purchase ct of une 19, 1934,1 duy but unsuccessfuy sought to have
the amount of the ta refunded, and then brought sut n the Court of Cams
to recover the same. The court hed the ta nvad, as retroactvey apped
to respondent s saes, and gave |udgment accordngy. (12 . Supp., G20
13 . Supp., 640.) The case s here on certorar.
The Sver Purchase ct, n secton 8, mposes on a transfers of any nter-
est n sver buon, where the prce for whch such Interest s transferred
e ceeds the tota cost and aowed e penses, a ta of 50 per centum of such
e cess, and requres that the ta be pad by aff ng to a memorandum of the
sae awfu stamps n the amount of the ta . The secton further provdes
that the ta , besdes reachng transfers thereafter made, sha be appcabe
to transfers made on or after May 15, 1934, and pror to the date of the ct,
wth the quafcaton that as to such pror transfers the ta sha be pad n
uch manner and at such tme as the Commssoner, wth the approva of tke
Secretary of the Treasury, may by reguaton prescrbe.
The queston presented for decson Is whether n vew of the restrant of
the due process of aw cause of the Consttuton, the retroactve provson
under whch the ta was e acted from the respondent s an admssbe e erton
of the power to ta .
amnaton of the ta ng provsons and of pertnent decsons shows, as we
thnk, that the answer must be n the affrmatve.
The ta ng provson does not Impose a ta n respect of a transfers, but
ony n respect of such as yed a proft over cost and aowed e penses. If
there be no proft there s to be no ta . If there be a proft the ta s to be
Ch. 674, secton 8, 48 Stat., 1178.
The ffth amendment contans the due process of aw cause appcabe to the Unte.
States.
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Regs. 85, rt. 31.
354
50 per cent of It. Thus a proft Is made the occason for the tar and aso
the measure of It. ecause of ths counse for the Government contend that
the ta Is a speca ncome ta and we thnk the contenton s sound.
It Is not matera that such proft s ta ed, aong wth other gans, under the
genera ncome ta aw, for Congress has power to mpose an Increased or
addtona ta f satsfed there s need therefor. (Patton v. rady, 184 U. S.,
COS, C20-622.)
s respects ncome ta statutes t ong has been the practce of Congress
to make them retroactve for reatvey short perods so as to ncude profts
from transactons consummated whe the statute was In process of enact-
ment, or wthn so much of the caendar year as preceded the enactment and
repeated decsons of ths Court have recognzed ths practce and sustaned
t as consstent wth the due process of aw cause of the Consttuton. (Stock-
dae v. Insurance Company, 20 Wa., 323, 331, 332, 341 rushaber v. Unon
Pacfc R. R. Co., 240 U. S., 1, 20 Lynch v. ornby, 217 T . S., 339, 343
Cooper v. Unted States, 280 U. S., 409, 411 Ct. D. 163, C. . I -1, 272 .
nd see Mken v. Unted States, 283 U. S., 15, 21 Ct. D. 320, C. . -, 472 .)
The cases on whch the Court of Cams party rested ts decson were both
e amned and dstngushed n Cooper . Unted Staes and Mken v. Unted
States.
The perod of retroactvty prescrbed for ths ta ng provson reaches back-
ward from une 19, 1934, the date of the ct, to and ncudng May 15, 1934
35 days. or some months pror to ths perod there was strong pressure
for egsaton requrng ncreased acquston and use of sver by the Govern-
ment, and severa bs provdng therefor were presented n the Senate and
ouse of Representatves. On May 22 the Presdent sent to Congress a mes-
sage recommendng egsaton for ncreasng the amount of sver n our
monetary stocks and further recommendng the mposton of a ta of at east
50 per cent on profts accrung from prvate deang n sver. The b whch
became the Sver Purchase ct was ntroduced May 23 n response to ths
message. In these crcumstances we thnk the perod of retroactvty f ed n
the ct s not unreasonabe, but consstent wth the practce sustaned by ths
Court n the cases aready cted.
It resuts that the Court of Cams erred n hodng the retroactve provson
Invad as apped to respondent s saes.
udgment reversed.
earngs on . R. 9745. Sver Purchase ct of 1934, pages 1 and 2.
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355 Regs. 91, rt. 301.
SOCI L S CURITY CT.
TITL III. T S WIT R SP CT TO MPLOYM NT.
Secton 801: Income ta on empoyees. T-3-8487
Reguatons 91, rtce 201: Measure of em- S. S. T. 68
poyees ta .
( so Secton 804, rtce 301.)
dvance payments made after December 31, 1936, to saesmen
of the M Company who have drawng accounts aganst unearned
saary, commssons, or other remuneraton consttute wages at
the tme of payment for the purpose of the ta es mposed by Tte
III of the Soca Securty ct
dvce s requested reatve to the ta abty under Tte III
of the Soca Securty ct of advance payments to saesmen of the
M Company who have drawng accounts.
Secton 801 of the ct mposes an ncome ta on empoyees. Sec-
ton 804 mposes an e cse ta on empoyers. oth ta es are meas-
ured by the wages, as defned n secton 811(a), actuay or con-
structvey receved or pad on and after anuary 1, 1937, wth
respect to empoyment, as defned n secton 811(b), on and after
that date. Secton 802(a) provdes that the ta mposed 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.
The M Company s saesmen are pad specfed amounts each week,
whch are charged to ther drawng accounts. Where the advance
payments are n e cess of the saesman s earned commssons, the
e cess s carred as an account due from the saesman. In the event
the saesman s servces are termnated, the e cess s charged to proft
and oss.
dvance payments to an empoyee for servces to be performed n
empoyment consttute wages wthn the meanng of Tte
III of the Soca Securty ct at the tme of payment. ccord-
ngy, amounts advanced by the M Company to a saesman after
December 31, 1936, aganst unearned saary, commssons, or other
remuneraton consttute wages sub|ect to the ta es mposed by sec-
tons 801 and 804 of the ct where the saesman s obgaton n return
s to perform servces n empoyment, as defned n secton 811(b).
The M Company s requred to deduct the amount of the empoyees
ta mposed by secton 801 of the ct and pay the amount of the
empoyers ta mposed by secton 804 on the amounts advanced to
ts saesman n the manner ndcated.
Secton 801: Income ta on empoyees.
Reguatons 91, rtce 201: Measure of empoyees ta .
Return of wages earned n one month but actuay or construc-
tvey pad n a ater month. (See S. S. T. 91, page 367.)
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Regs. 91, rt. 202.
356
Secton 801: Income ta on empoyees. I-25-8776
Reguatons 91, rtce 201: Measure of em- S. S. T. 162
poyees ta .
( so Secton 804 and rtce 301.)
Labty ncurred for the ta es Imposed by Tte III of the
Soca Securty ct s not affected by the dscharge or resgna-
ton of the empoyee, nor does a rght to refund or credt accrue.
dvce s requested whether abty ncurred for the ta es m-
posed by Tte III of the Soca Securty ct wth respect to
wages for servces performed by an empoyee n empoyment, as
those terms are denned n secton 811 of the ct, s affected by the
empoyee s dscharge or resgnaton, and whether under such crcum-
stances a rght to refund or credt accrues.
Secton 801, Tte III of the Soca Securty ct, mposes a ta
upon the ncome of every ndvdua equa to specfed percentages
of the wages actuay or constructvey receved by hm after De-
cember 31,1936, wth respect to empoyment after that date. Secton
804 mposes upon every empoyer an e cse ta wth respect to hav-
ng ndvduas n hs empoy (rrespectve of the number of nd-
vduas empoyed) measured by the amount of wages actuay or
constructvey pad by hm after December 31, 1936, wth respect to
empoyment after that date. ( rtces 201, 203, 301, and 303, Regu-
atons 91.)
Under the provsons of Tte III of the Soca Securty ct, t
s hed that abty ncurred for the ta es mposed by that tte
s not affected, nor does a rght to refund or credt accrue, by reason
of the empoyee s dscharge or resgnaton.
Secton 801: Income ta on empoyees. I-15-8645
Reguatons 91, rtce 202: Rates and compute- S. S. T. 128
ton of empoyees ta .
( so Sectons 802 and 804 rtces 204 and 302.)
Method of computng ta es under Tte III of the Soca Se-
curty ct where more than one payment of wages s made durng
a day for servces performed on that day.
dvce s requested reatve to the proper method of computng
the empoyees ta and empoyers ta mposed by Tte III of the
Soca Securty ct under the foowng crcumstances:
The M Company operates a cannery. Certan of ts empoyees
prepare beans for cannng. These empoyees are pad for each basket
of beans at the rate of 25 cents per basket, the payment beng made
mmedatey after nspecton of the basket. The number of baskets
prepared by each empoyee durng a day vares. or e ampe, dur-
ng a partcuar day one empoyee prepared ony one basket of beans
and receved ony one wage payment n the amount of 25 cents,
whe another empoyee prepared four baskets and receved four
wage payments of 25 cents each or a tota of 1.
It s hed that where more than one payment of wages s made to
an empoyee durng a partcuar day for servces performed that
day the empoyees ta mposed under Tte III of the ct must
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357
Regs. 91, rt. 206.
be computed on the tota wages pad to the empoyee durng such
day. The empoyers ta under Tte III, however, must be com-
puted on the bass of the tota wages pad durng the month to a
empoyees. ccordngy, n the case of the empoyee referred to
above who prepared four baskets, the M Company s requred to
deduct the empoyees ta from the amount of 1 pad to such em-
poyee. The empoyer s abe for such ta whether or not coected
from the empoyee. In the case of the empoyee who prepared ony
one basket, however, snce the amount of empoyees ta whch at-
tached to the 25 cents pad to that empoyee s ess than one-haf
cent, no deducton from such wage payment s requred to be made,
and nether the empoyee nor the empoyer s requred to pay em-
poyees ta wth respect thereto. In computng the amount of em-
poyers ta under Tte III, the tota amount of wages, . e., 1.25,
pad to the two empoyees, as we as a ke payments shoud be
ncuded n the tota amount of ta abe wages reported by the em-
poyer n tem 2 of orm SS-1 as havng been pad to hs empoyees
durng the month.
Secton 802: Deducton of ta from wages.
Reguatons 91, rtce 204: Coecton of, and abty
for, empoyees ta .
Dfference between amount of empoyers e cse ta and empoyees
Income ta , the atter nvovng fractona parts of a cent. (See
S. S. T. 90, page 358.)
Secton 802: Deducton of ta from wages.
Reguatons 91, rtce 204: Coecton of, and abty for,
empoyees ta .
mpoyees pad on pecework bass. (See S. S. T. 128, page 356.)
Secton 802: Deducton of ta from wages, I-1-8465
Reguatons 91, rtce 206: Statements of ta S. S. T. 63
deductons to be furnshed to empoyees.
cceptabe statements showng empoyees ta deducton from
empoyees wages.
dvce s requested whether a notaton on a check ssued to an
empoyee n payment of wages showng the amount of the empoyees
ta deducted consttutes compance wth the provsons of artce
206 of Reguatons 91. Inqury s aso made whether entres on a
pay ro or pay voucher showng the tota amount of wages pad
to an empoyee and the amount of the empoyees ta deducted
therefrom, the ro or voucher beng sgned by the empoyee upon
recept of hs wages and retaned by the empoyer, consttute com-
pance wth that artce.
rtce 206 of Reguatons 91 reads as foows:
Statements of ta deductons to be furnshed to empoyees. t the
tme each payment of wages s made to an empoyee hs empoyer sa fur-
nsh a wrtten statement to the empoyee showng the amount of empoyees
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Regs. 91, rt. 301.
358
ta deducted from such wages. No form Is prescrbed for such statement.
The empoyer may use any means sutabe for the purpose whch provdes
the empoyee at the tme of payment wth nformaton In wrtng of the
amount whch consttutes the deducton on account of the ta Imposed by
secton 801 of the Soca Securty ct, as dstngushed from any other
deductons.
rtce 206 contempates the devery nto the possesson of the
empoyee at the tme of wage payment of a wrtten statement to be
retaned by the empoyee at east for such reasonabe perod as may
be necessary to enabe hm to determne whether the empoyees ta
mposed by secton 801 of the ct has been correcty computed and
deducted. The ob|ects of these provsons are to nsure the prepa-
raton of a defnte record of the ta deducton and to enabe the
empoyee to be fuy advsed concernng the e act amount and
purpose thereof.
It s hed that a notaton on a check ssued to an empoyee n pay-
ment of wages showng the amount of the deducton on account of
the ta mposed by secton 801 of the ct, as dstngushed from
any other deductons, consttutes compance wth the provsons of
artce 206 of Reguatons 91. Smary, such an entry on a cock
card, pay enveope, or pay voucher consttutes compance wth that
artce of the reguatons, provded the condtons set forth n the
precedng paragraph arc fuy satsfed. owever, a wrtten state-
ment whch s merey sgned by the empoyee wthout opportunty
for hm to determne the e act amount and purpose of the deducton
and whch s retaned by the empoyer, even though t shows the
purpose and amount of the deducton, does not meet the requrements
of artce 206.
Secton 804: cse ta on empoyers.
Reguatons 91, rtce 301: Measure of empoyers ta .
Return of wages earned n one month but actuay or construc-
tvey pad n a ater month. (See S. S. T. 91, page 367.)
Secton 804: cse ta on empoyers. I-7-8546
Reguatons 91, rtce 301: Measure of em- S. S. T. 90
poyers ta .
( so Secton 802, rtce 204.)
Computaton of the empoyers e cse ta and the empoyees
ncome ta under Tte III of the Soca Securty ct.
dvce s requested whether the empoyers e cse ta mposed by
secton 804 of the Soca Securty ct, and requred to be reported
n tem 3 on the monthy ta return, orm SS-1, shoud be based
upon the tota amount of wages pad to empoyees durng the month,
or whether an amount equa to the tota amount of empoyees ta
deducted from the empoyees wages actuay or constructvey pad
durng the month may be reported as the amount of the empoyers
ta for that month.
The empoyers ta under secton 804 s measured by the amount of
wages (as defned n secton 811) actuay or constructvey pad dur-
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359
Regs. 91, rt. 801.
ng the month for whch the return on orm SS-1 s fed, and s
computed by appyng to the tota amount of such wages the rate n
effect at the tme of the performance of the servces for whch such
wages are pad. ( rtces 301 and 302, Reguatons 91.)
It s recognzed that the amount of empoyers ta thus found to
be due for a partcuar month may be sghty dfferent from the
amount of empoyees ta deducted by the empoyer from the wages
actuay or constructvey pad to empoyees durng the month. Ths
w undoubtedy be the case n a great many nstances due to com-
pance wth artce 204 of Reguatons 91 whch provdes that the
empoyer sha, n coectng the empoyees ta , dsregard any frac-
tona part of a cent uness t amounts to one-haf cent or more, n
whch case t sha be ncreased to 1 cent.
In preparng orm SS-1, the amount of empoyers ta to be
reported n tem 3, and the amount of empoyees ta to be reported
n tem 6, sha each be the proper percentage (1 per cent for the
caendar years 1937, 1938, and 1939) of the tota amount reported n
tem 2 as ta abe wages. If any dfference e sts between the amount
thus determned ana reported as empoyees ta and the actua de-
ductons of empoyees ta made by the empoyer n accordance wth
the provsons of artce 204 due n the atter case to dsregardng the
fractona part of a cent or ncreasng t to 1 cent, the amount of such
dfference must be shown n tem 7 of the return as a deducton or
addton. (Paragraph D of nstructons on the reverse sde of the
dupcate and trpcate copes of orm SS-1.) The foowng e -
ampes w serve as ustratons:
1. mpoyer M has ony one empoyee, , who s pad a weeky
wage of 12.50 on the ast cay of each week. In preparng hs return
for the month of ebruary, 1937: M reports 50 n tem 2 of orm
SS-1 as ta abe wages pad durng the month. In tem 3, as em-
poyers ta , he reports a ta of 50 cents (1 per cent of tem 2). In
tem 6 the same amount s reported. owever, he has deducted from
s wages when pad at the end of each week an amount equvaent to
1 per cent of 12.50, or 13 cents. The tota amount deducted from
s wages for the month s 52 cents. Therefore, n tem 7 of the
return M reports the dfference of 2 cents, whch makes the tota
empovees ta to be reported n tem 8 amount to 52 cents.
2. mpoyer N has ony one empoyee, D, who s pad a weeky
wage of 12.25 on the ast day of each week. In preparng hs return
for the month of ebruary, 1937, N reports 49 n tem 2 of orm
SS-1 as ta abe wages pad durng the month. In tem 3, as em-
poyers ta , he reports a ta of 49 cents (1 per cent of tem 2). In
tem 6, as empoyees ta , he reports the same amount. owever,
he has deducted from D s wages pad on the ast day of each week an
amount equvaent to 1 per cent of 12.25, or 12 cents. The tota
amount deducted from D s wages for the month s 48 cents. There-
fore, n tem 7 of the return N reports the dfference of 1 cent, whch
resuts n 48 cents, beng the net amount of empoyees ta due to be
reported n tem 8.
It w thus be seen that the amount of the empoyers ta may
propery dffer from the amount of empoyees ta under Tte III
of the ct.
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Regs. 91, rt. 301.
360
Secton 804: cse ta on empoyers. T-25-8776
Reguatons 91, btce 301: Measure of em- Ct. D. 1235
poyers ta .
e cse and speca ncome ta es soca securty act decson of
supreme court.
Consttutonaty.
Ttes III and II of the Soca Securty ct are not unconsttu-
tona. (1) The scheme of od age benefts created by the provs-
ons of Tte II of the ct s not n contraventon of the mtatons
of the tenth amendment. The tte s vad as a proper e ercse of
the power of Congress to spend money n ad of the genera wefare.
(2) The ta upon empoyers, mposed by Tte III, Is a vad
e cse or duty upon the reaton of empoyment. (3) The ta s
not nvad as the resut of ts e emptons.
Supreme Court op the Unted States.
Guy T. everng, Commssoner of Interna Revenue, and Wam M. Wech,
Coector of Interna Revenue for the Dstrct of Massachusetts, and the
dUon ectro Iumnatng Co. of oston, pettoners, v. George P. Davt,
respondent.
57 S. Ct, 004.
On wrt of certorar to the Unted States Crcut Court of ppeas for the rst Crcut.
May 24, 1937.
opnon.
Mr. ustce Cardozo devered the opnon of the Court.
The Soca Securty ct ( ct of ugust 14, 1933, ch. 531, 49 Stat, 620, 42
T . S. C, ch. 7 (Supp.)), s chaenged once agan.
In No. 837, Steward Machne Co. v. Davs ( U. S.. , decded ths day
Ct. D. 1236, page 444, ths uetn ), we have uphed the vadty of Tte I
of the ct, mposng an e cse upon empoyers of eght or more. In ths case
Ttes III and II are the sub|ect of attack. Tte III ays another e cse
upon empoyers n addton to the one mposed by Tte I (though wth
dfferent e emptons). It ays a speca ncome ta upon empoyees to be
deducted from ther wages and pad by the empoyers. Tte II provdes for
the payment of od age benefts, and suppes the motve and occason, n the
vew of the assaants of the statute, for the evy of the ta es mposed by Tte
III. The pan of the two ttes w now be summarzed more fuy.
Tte III, as we have sad, ays two dfferent types of ta , an ncome ta
on empoyees, and an e cse ta on empoyers. The ncome ta on
empoyees s measured by wages pad durng the caendar year. (Secton 801.)
The e cse ta on the empoyer s to be pad wth respect to havng nd-
vduas n hs empoy, and, ke the ta on empoyees, s measured by wages.
(Secton 804.) Nether ta s appcabe to certan types of empoyment,
such as agrcutura abor, domestc servce, servce for the Natona or State
Governments, and servce performed by persons who have attaned the age
of 65 years. (Secton 811(b).) The two ta es are at the same rate. (Sec-
tons 801, 804.) or the years 1937 to 1939, ncusve, the rate for each ta
s f ed at 1 per cent Thereafter the rate ncreases one-haf of 1 per cent
every three years, unt after December 31, 1948, the rate for each ta reaches
3 per cent. (Ibd.) In the computaton of wages n remuneraton s to be
ncuded e cept so much as s n e cess of 3,000 durng the caendar year
affected. (Secton 811(a).) The ncome ta on empoyees s to be coected
by the empoyer, who s to deduct the amount from the wages as and when
pad. (Secton 802(a).) e s ndemnfed aganst cams and demands of
any person by reason of such payment. (Ibd.) The proceeds of both ta es
are to be pad nto the Treasury ke nterna revenue ta es generay, and nre
not earmarked n any way. (Secton 807(a).) There are penates for
nonpayment. (Secton 807(c).)
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361
Regs. 91, rt. 801.
Tte II has the capton edera Od- ge enefts. The benefts are of two
types, frst, monthy pensons, and second, ump sum payments, the payments
of the second cass beng reatvey few and unmportant.
The frst secton of ths tte creates an account n the Unted States Treasury
to be known as the Od-age reserve account. (Secton 201.) No present
appropraton, however, s made to that account. that the statute does s
to authorze appropratons annuay thereafter, begnnng wth the fsca year
whch ends une 30, 1987. ow arge they sha be s not known n advance.
The amount suffcent as an annua premum to provde for the requred
payments s to be determned on a reserve bass n accordance wth accepted
actuara prncpes, and based upon such tabes of mortaty as the Secretary
of the Treasury sha from tme to tme adopt, and upon an nterest rate of 3
per centum per annum compounded annuay. (Secton 201(a).) Not a doar
goes nto the account by force of the chaenged ct aone, unaded by cts
to foow.
Secton 202 and ater sectons prescrbe the form of benefts. The prncpa
type s a monthy penson payabe to a person after he has attaned the age of
65. Ths beneft s avaabe ony to one who has worked for at east one day
n each of at east fve separate years snce December 31, 1936, who has earned
at east 2,000 snce that date, and who s not then recevng wages wth
respect to reguar empoyment (Sectons 202 (a), (d), and 210(c).) The
benefts are not to begn before anuary 1, 1942. (Secton 202(a).) In no
event are they to e ceed 85 a month. (Secton 202(b).) They are to be
measured (sub|ect to that mt) by a percentage of the wages, the percentage
decreasng at stated ntervas as the wages become hgher. (Secton 202(a).)
In addton to the monthy benefts, provson s made n certan contngences
for ump sum payments of secondary mportance. summary by the
Government of the four stuatons cang for such payments s prnted n the
margn.1
Ths sut Is brought by a sharehoder of the dson ectrc Iumnatng Co.
of oston, a Massachusetts corporaton, to restran the corporaton from makng
the payments and deductons caed for by the ct, whch s stated to be vod
under the Consttuton of the Unted States. The b tes us that the corpora-
ton has decded to obey the statute, that t has reached ths decson n the
face of the companant s protests, and that t w make the payments and
deductons uness restraned by a decree. The e pected consequences are
Indcated substantay as foows: The deductons from the wages of the
empoyees w produce unrest among them, and w be foowed, t s predcted,
by demands that wages be Increased. If the e actons sha utmatey be hed
vod, the company w have parted wth moneys whch as a practca matter t
w be mpossbe to recover. Nothng s sad n the b about the promse
of ndemnty. The predcton s made aso that serous consequences w ensue
f there s a submsson to the e cse. The corporaton and ts sharehoders w
suffer Irreparabe oss, and many thousands of doars w be subtracted from
the vaue of the shares. The prayer s for an n|uncton and for a decaraton
that the ct s vod.
The corporaton appeared and answered wthout rasng any ssue of fact.
Later the Unted States Commssoner of Interna Revenue and the Unted
States coector for the dstrct of Massachusetts, the pettoners n ths Court,
were aowed to ntervene. They moved to strke so much of the b as has
reaton to the ta on empoyees, takng the ground that the empoyer, not beng
sub|ect to ta under those provsons, may not chaenge ther vadty, and
(1) If through an admnstratve error or deay a person who a recevng a monthy
penson des before he receves the correct amount, the amount whch shoud have been
pad to hm Is pad In a ump sum to hs estate. (Secton 203(c).)
(2) If a person who has earned wanes In each of at east fve separate years snce
December 31, 1936, and who has earned In that perod more than 2,000, des after attan-
Ing the age of G5, but before he has receved n monthy pensons an amount equa to
3 per cent of the wages pad to hm between anuary 1, 1937, and the tme he reaches
65 then there Is pad n a ump sum to hs estate the dfference between sad 3 4 per cent
and the tota amount pad to hm durng hs fe as monthy pensons. (Secton 203(b).)
(3) If a person who has earned wages snce December 31, 1936, deR before attanng
the age of 65, then there s pad to hs estate 3 per cent of the wages pad to hm
between anuary 1, 1937, and hs death. (Secton 203(a).)
(4) If a person has, snce December 31, 1936, earned wages n empoyment covered hy
Tte II. but has attaned the age of 65 ether wthout workng for at east one day n each
of fve separate years snce 1936. or wthout earnng at east 2,000 between anuary 1.
1937 and the tme he attans 65, then there Is pad to hm or to hs estate, secton
204(b) , a ump sum equa to 3 per cent of the wages pad to hm between anuary
1,1937. and the tme he attaned 65. (Secton 204(a).)
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Regs. 91, rt. 301.
362
that the companant sharehoder, whose rghts are no greater than those of
hs corporaton, has even ess standng to be heard on such a queston. The
ntervenng defendants aso fed an answer whch restated the pont rased In
the moton to strke, and mantaned the vadty of Tte III n a ts parts.
The dstrct court hed that the ta upon empoyees was not propery at ssue,
and that the ta upon empoyers was consttutona. It thereupon dened the
prayer for an n|uncton, and dsmssed the b. On appea to the Crcut
Court of ppeas for the rst Crcut, the decree was reversed, one udge
dssentng. ( . (2d), .) The court hed that Tte II was vod as an
nvason of powers reserved by the tenth amendment to the States or to the
peope, and that Tte II In coapsng carred Tte III aong wth t. s an
addtona reason for nvadatng the ta upon empoyers, the court hed that
t was not an e cse as e cses were understood when the Consttuton was
adopted. (Cf. Davs v. oston Mane R. . Co., . (2d), , decded the
same day.)
petton for certorar foowed. It was fed by the ntervenng defendants,
the Commssoner and the coector, and brought two questons, and two ony,
to our notce. We were asked to determne: (1) Whether the ta mposed
upon empoyers by secton 804 of the Soca Securty ct s wthn the power
of Congress under the Consttuton, and (2) whether the vadty of the ta
mposed upon empoyees by secton 801 of the Soca Securty ct s propery
In ssue n ths case, and f t s, whether that ta s wthn the power of
Congress under the Consttuton. The defendant corporaton gave notce to
the cerk that t |oned n the petton but t has taken no part n any subse-
quent proceedngs. wrt of certorar ssued.
rst: uestons as to the remedy nvoked by the companant confront us at
the outset.
Was the conduct of the company n resovng to pay the ta es a egtmate
e ercse of the dscreton of the drectors as pettoner a standng to
chaenge that resove n the absence of an adequate showng of rreparabe
n|ury Does the acquescence of the company n the equtabe remedy affect
the answer to those questons Though power may st be ours to take such
ob|ectons for ourseves, s acquescence effectve to rd us of the duty Is duty
modfed st further by the atttude of the Government, ts waver of a defense
under secton 3224 of the Revsed Statutes, ts waver of a defense that the
ega remedy s adequate, ts earnest request that we determne whether the
aw sha stand or fa The wrter of ths opnon beeves that the remedy
Is conceved, that n a controversy such as ths a court must refuse to gve
equtabe reef when a cause of acton n equty s nether peaded nor proved,
and that the sut for an n|uncton shoud be dsmssed upon that ground.
e thnks ths course shoud be foowed n adherence to the genera rue
that consttutona questons are not be be determned n the absence of strct
necessty. In that vew he s supported by Mr. ustce randes, Mr. ustce
Stone and Mr. ustce Roberts. owever, a ma|orty of the Court have reached
a dfferent concuson. They fnd n ths case e traordnary features makng t
fttng n ther |udgment to determne whether the benefts and the ta es are
vad or nvad. They dstngush Norman v. Consodated Oas Co. ( . (2d),
), recenty decded by the Court of ppeas for the Second Crcut, on the
ground that n that case, the remedy was chaenged by the company and the
Government at every stage of the proceedng, thus wthdrawng from the court
any margna dscreton. The rung of the ma|orty removes from the case the
premnary ob|ecton as to the nature of the remedy whch we took of our own
moton at the begnnng of the argument. Under the compuson of that rung,
the merts are now here.
Second: The scheme of benefts created by the provsons of Tte II s not In
contraventon of the mtatons of the tenth amendment.
Congress may spend money n ad of the genera wefare. (Consttuton,
rtce I, secton 8: Unted States v. uter, 297 U. S., 1, 65 Ct. D. 1070,
C. . -1, 421 (1930) Steward Machne Co. v. Davs, supra.) There have
been great statesmen n our hstory who have stood for other vews. We w
not resurrect the contest. It s now setted by decson. (Unted States v.
uter, supra.) The concepton of the spendng power advocated by amton
and strongy renforced by Story has prevaed over that of Madson, whch
has not been ackng adherents. Yet dffcutes are eft when the power Is
conceded. The ne must st be drawn between one wefare and another, be-
tween partcuar and genera. Where ths sha be paced can not be known
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363
Regs. 91, rt. 301.
through a formua n advance of the event. There Is a mdde ground or
certany a penumbra n whch dscreton s at arge. The dscreton, however,
s not confded to the courts. The dscreton beongs to Congress, uness the
choce s ceary wrong, a dspay of arbtrary power, not an e ercse of udg-
ment Ths s now famar aw. When such a contenton comes here we
naturay requre a showng that by no reasonabe possbty can the chaenged
egsaton fa wthn the wde range of dscreton permtted to the Congress.
(Unted States v. uter, supra, page 67. Cf. Cncnnat Soap Co. v. Unted
States, May 3, 1937, U. S., Ct D. 1227, page 317, ths uetn
Unted States v. Reaty Co., 163 U. S., 427, 440 ead Money Cases, 112 U. S.,
580, 595.) Nor s the concept of the genera wefare statc. Needs that were
narrow or parocha a century ago may be nterwoven n our day wth the we-
beng of the Naton. What s crtca or urgent changes wth the tmes.
The purge of Naton-wde caamty that began n 1929 has taught us many
essons. Not the east s the sodarty of nterests that mny once have seemed
to be dvded. Unempoyment spreads from State to State, the hnterand
now setted that n poneer days gave an avenue of escape. ( ome udng
and Loan ssocaton v. asde, 290 U. S., 398, 442.) Spreadng from State
to State, unempoyment s an not partcuar but genera, whch may e
checked, f Congress so determnes, by the resources of the Naton. If ths
can have been doubtfu unt now, our rung to-day n the case of the Steward
Machne Co., supra, has set the doubt at rest. ut the s a one or at east
not greaty dfferent whether men are thrown out of work becnuse there s
no onger work to do or because the dsabtes of age make them ncapabe
of dong t. Rescue becomes necessary rrespectve of the cause. The hope
behnd ths statute s to save men nnd women from the rgors of the poorhouse
as we as from the hauntng fear that such a ot awats them when |ourney s
end s near.
Congress dd not mprovse a |udgment when t found that the award of od
age benefts woud be conducve to the genera wefare. The Presdent s Com-
mttee on conomc Securty made an nvestgaton nnd report, aded by a
research staff of Government offcers and empoyees, and by nn advsory counc
and seven other advsory groups. tensve hearngs foowed before the
ouse Commttee on Ways and Means, and the Senate Commttee on nance.
great mass of evdence was brought together supportng the pocy whch
fnds e presson In the ct. mong the reevant facts are these: The number
of persons n the Unted States 65 years of age or over s ncreasng propor-
tonatey as we as absoutey. What s even more mportant the number of
such persons unabe to take care of themseves s growng at a threatenng
pace. More and more our popuaton s becomng urban and ndustra nstead
of rura and agrcutura. The evdence s mpressve that among ndustra
workers the younger men and women are preferred over the oder. In tmes
of retrenchment the oder are commony the frst to go, and even f retaned,
ther wages are key to be owered. The pght of men and women at so ow
an age as 40 s hard, amost hopeess, when they arc drven to seek for re-
empoyment. Statstcs are n the bref. few ustratons w be chosen
from many there coected. In 1930, out of 224 mercan factores nvest-
gated, 71, or amost one-thrd, had f ed ma mum hrng age mts n 4
pants the mt was under 40 n 41 t was under 46. In the other 153 pants
there were no f ed mts, but n practce few were hred f they were over
50 years of age. Wth the oss of savngs nevtabe n perods of deness, the
fate of workers over 65, when thrown out of work. Is tte ess than desperate.
recent study of the Soca Securty oard nforms us that one-ffth of the
aged n the Unted States were recevng od-age assstance, emergency reef,
nsttutona care, empoyment under the works program, or some other form
of ad from pubc or prvate funds two-ffths to one-haf were dependent on
frends and reatves, one-eghth had some ncome from earnngs and pos-
sby one-s th had some savngs or property. ppro matey three out of four
Report to the Presdent of the Commttee on conomc Securty, 11)35.
earngs before the ouse Commttee on Ways and Menus on II. R. 4120, Seventy-
fonrth Congress, frst sesson : hearngs before the Senate Commttee on nance on S. 1130,
Seventy-fourth Congress, frst sesson.
See Report of the Commttee on Recent Soca Trends, 1932, voume 1, pages 8, 02
Thompson and Whepton, Popuaton Trends n the Unted States, pages 18, 19.
See the authortes coected at pages 54 62 of the Government s bref.
rng and Separaton Methods In mercan Industry, 35 Monthy Labor Revew, pages
1005. 1009.
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Rsgs. 91, rt. 301.
364
persons 65 or over were probaby dependent whoy or partay on others for
support. We summarze n the margn the resuts of other studes by State
and Natona commssons. They pont the same way.
The probem s pany natona In area and dmensons. Moreover, aws
of the separate States can not dea wth t effectvey. Congress, at east,
had a bass for that beef. States and oca governments are often ackng n
the resources that are necessary to fnance an adequate program of securty for
the aged. Ths s brought out wth a weath of ustraton n recent studes of
the probem. part from the faure of resources, States and oca govern-
ments are at tmes reuctant to ncrease so heavy the burden of ta aton to
be borne by ther resdents for fear of pacng themseves n a poston of
economc dsadvantage as compared wth neghbors or compettors. We have
seen ths n our study of the probem of unempoyment compensaton. (Ste-
ward Machne Co. v. Davs, supra.) system of od age pensons has speca
dangers of ts own, f put n force n one State and re|ected n another. The
e stence of such a system Is a bat to the needy and dependent esewhere, en-
couragng them to mgrate and seek a haven of repose. Ony a power that Is
natona can serve the nterests of a.
Whether wsdom or unwsdom resdes n the scheme of benefts set forth
n Tte II, It s not for us to say. The answer to such nqures must come
from Congress, not the courts. Our concern here as often s wth power, not
wth wsdom. Counse for respondent has recaed to us the vrtues of sef-
reance and frugaty. There s a possbty, he says, that ad from a pater-
na Government may sap those sturdy vrtues and breed a race of weakngs.
If Massachusetts so beeves and shapes her aws In that convcton, must
ber breed of sons be changed, he asks, because some other phosophy of
government fnds favor n the as of Congress ut the answer s not doubt-
fu. One mght ask wth equa reason whether the system of protectve tarffs
s to be set asde at w n one State or another whenever oca pocy prefers
the rue of asses fare. The ssue s a cosed one. It was fought out ong
ago. When money s spent to promote the genera wefare, the concept of
wefare or the opposte s shaped by Congress, not the States. So the con-
cept be not arbtrary, the ocaty must yed. (Consttuton, rtce I, para-
graph 2.)
Thrd: Tte II beng vad, there s no occason to nqure whether Tte III
woud have to fa f Tte II were set at naught.
The argument for the respondent s that the provsons of the two ttes
doveta n such a way as to ustfy the concuson that Congress woud have
been unwng to pass one wthout the other. The argument for pettoners
s that the ta moneys are not earmarked, and that Congress s at berty to
spend them as t w. The usua separabty cause s emboded n the ct
(Secton 1103.)
conomc Insecurty In Od ge (Soca Securty oard, 1937), page I .
The Senate commttee estmated, when Investgatng the present ct, that over one-
haf of the peope In the Unted Stotes over 65 years of age are dependent upon others for
support. (Senate Report No. 628, Seventy-fourth Congress, frst sesson, page 4.)
smar estmate was made n the report to the Presdent of the Commttee on conomc
Securty, 1935, page 24.
report of the Pennsyvana Commsson on Od ge Pensons made In 1919 (page 108)
after a study of 16,281 persons and Intervews wth more than 3,600 persons 65 years and
over showed two-ffths wth no Income but wages and one-fourth supported by chdren
1.5 per pent had savngs and 11.8 per cent had property.
report on od age pensons Dy the Massachusetts Commsson on Pensons (Senate
No. 5. 1925, pages 41, 52) showed that n 1924 two-thrds of those above 65 had. aone or
wth a spouse, ess than 5.000 of property, and one-fourth had none. Two-thrds of those
wth ess than 5,000 and ncome of ess than 1,000 were dependent In whoe or In part
on others for support.
report of the New York State commsson made n 1930 (Legs. Doc. No. 67, 1930,
page 39) showed a condton of tota dependency as to 58 per cent of those 65 and over,
and 62 per cent of those 70 and over.
The Natona Government has found n connecton wth grants to States for od age
assstance under another tte of the Soca Securty ct (Tte I) that In ebruary, 1937,
38.8 per cent of a persons over 65 n Coorado receved pubc assstance n Okahoma
the percentage was 44.1, and In Te as 37.5. In 10 States out of 40 wth pans approved
by the Soca Securty oard more than 25 per cent of those over 65 coud meet the res-
dence requrements and quafy under a means test and were actuay recevng pubc ad.
( conomc Insecurty In Od ge, supra. 15.)
6 conomc Insecurty In Od ge, supra, chapter I, page 184.
I Chnnnng, story of the Unted States, page 404 (South Carona nufcaton):
8 dams, story of the Unted States (New ngand nufcaton and the artford
conventon).
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3G5
Regs. 91, rt. 304.
We fnd t unnecessary to make a choce between the arguments, and so
eave the queston open.
ourth: The ta upon empoyers s a vad e cse or duty upon the reaton
of empoyment.
s to ths we need not add to our opnon n Steward Machne Co. v. Davs,
supra, where we consdered a ke queston n respect of Tte I .
fth: The ta s not nvad as a resut of ts e emptons. ere agan the
opnon n Steward, Machne Co. v. Davs, supra, says a that need be sad.
S th: The decree of the court of appeas shoud be reversed and that of th
dstrct court affrmed.
Ordered accordngy.
Secton 804: cse ta on empoyers.
Reguatons 91, rtce 301: Measure of empoyers ta .
Labty for ta where empoyment s termnated by dscharge or
resgnaton. (See S. S. T. 162, page 356.)
Secton 804: cse ta on empoyers.
Reguatons 91, rtce 302: Rates and computaton of
empoyers ta .
mpoyees pad on pecework bass. (See S. S. T. 128, page 356.)
Secton 804: cse ta on empoyers. T-17-8666
Reguatons 91, rtce 304: Labty for S. S. T. 135
empoyers ta .
( so Secton 907 Reguatons 90, rtce 203.)
The M ank, now n qudaton, whch borrowed funds from the
Reconstructon nance Corporaton to pay ts depostors n fu
s not reeved from the ta es Imposed by Ttes III and I of
the Soca Securty ct by reason of the provsons of secton 22 of
the ct of March 1, 1879 (20 Stat, 327).
dvce s requested whether the M ank, whch s beng qudated
for the purpose of repayng a oan from the Reconstructon nance
Corporaton, s sub|ect to the ta es mposed by Ttes III and I
of the Soca Securty ct.
The M ank went nto qudaton on pr , 1933, on account
of nsovency. On May , 1933, the N ank was organzed and
assumed the depost abty of the M ank to ts depostors. On or
about the same day the M ank borrowed from the Reconstructon
nance Corporaton 3 doars to pay ts depostors n fu, and
snce that tme ths bank has been n qudaton for the purpose of
repayng the Reconstructon nance Corporaton, whch ndebted-
ness has been reduced to appro matey doars. It s stated that
the ndebtedness to the Reconstructon nance Corporaton w be
pad n fu upon reazaton of the assets st hed by the M ank.
In S. S. T. 37 (C. . -2, 380 (1936)) the ureau hed that
n vew of 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 nsuffcent
to pay ther depostors n fu may be reeved from payng the ta es
mposed on empoyers by the Soca Securty ct. It was aso hed
that the ct of March 1, 1879, s not appcabe to such banks wth
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Regs. 91, rt. 401.
366
respect to ta es deducted from ther empoyees wages n accordance
wth secton 802 of the Soca Securty ct.
Inasmuch as t appears that the cams of ts depostors have been
or w be pad n fu, the provsons of secton 22 of the ct of
March 1,1879, as set forth n S. S. T. 37, supra, are not appcabe to
the M ank and t s not thereby reeved from the ta es mposed by
Ttes III and I of the Soca Securty ct.
Secton 807: Coecton and payment of ta es. T-22-8742
T. D. 4739
Inspecton of returns under Tte III of the Soca Securty
ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Returns requred to be fed wth the Commssoner of Interna
Revenue under Tte III of the Soca Securty ct, or under
reguatons made pursuant thereto, sha, at such tme or tmes and
n such manner as the Commssoner may determne, be made ava-
abe to the Soca Securty oard, or to any offcer or empoyee of
the sad board duy desgnated by t, for use n connecton wth the
performance of the dutes mposed on the Soca Securty oard by
the Soca Securty ct.
Ths Treasury decson s prescrbed under the authorty contaned
n sectons 808 and 1102 of the Soca Securty ct.
Gut T. L RNo,
Commssoner of Interna Revenue.
dopted and approved May 24, 1937.
ROSW LL MaGILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster May 25, 1937, 10.49 a. m.)
Secton 807: Coecton and payment of ta es. I-4-8502
Reguatons 91, rtce 401: Monthy ta S. S. T. 76
returns.
( so Secton 905 Reguatons 90, rtce 300.)
Labty of the Grand Lodge of the M raternty and of each
of ts subordnate odges wth respect to the ta es mposed under
Ttes III and I of the Soca Securty ct.
dvce s requested whether the Grand Lodge of the M raternty,
whch s sub|ect to the ta es mposed under Ttes III and I
of the Soca Securty ct, s abe for such ta es wth respect to
wages for servces performed by empoyees of ts subordnate odges.
The Grand Lodge of the M raternty s a corporaton operated
under the odge system and has a number of subordnate odges. It
e ercses a measure of |ursdcton and contro over the subordnate
odges, yet each subordnate odge s an unncorporated organzaton
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367
Regs. 91, rt. 401.
whch owns ts own assets, eects and pays ts own offcers, and e er-
cses contro over ts empoyees.
Under the facts presented, t s hed that the ta abty of the
grand odge and of each subordnate odge must be determned
separatey. ccordngy, each organzaton, as an empoyer, s re-
qured to report and pay the ta es mposed by Tte III wth
respect to wages of ts empoyees, and f t s an u empoyer as
denned n Tte I , t must aso report and pay the ta mposed
by secton 901 of that tte.
Secton 807: Coecton and payment of ta es. T-7-8547
Reguatons 91, rtce 401: Monthy ta returns. S. S. T. 91
( so Sectons 801 and 804, rtces 201 and 301.)
Under Tte III of the Soca Securty rt ta abe wages must
be reported n the return for the month In whch actuay or con-
structvey pad even though earned n a pror month.
Wages earned pror to anuary 1, 1937, are not ta abe under
Tte III of the Soca Securty ct even though pad on or after
that date.
dvce s requested reatve to the wages to be ncuded n the
return of an empoyer on orm SS-1 (monthy return) under Tte
III of the Soca Securty ct for the month of anuary, 1937.
In the present case the empoyer s pay ro s prepared after the
cose of each caendar week and he pays hs empoyees on each Wed-
nesday for the precedng week. Wages were pad on the 6th, 13th,
20th, and 27th of anuary. The wages pad on anuary C, 1937,
ncuded an amount for servces performed from December 27
through December 31, 1936. The wages for servces performed from
anuary 24 through anuary 30, and from anuary 31 through eb-
ruary 6, were not pad unt ebruary 3 and 10, respectvey.
Secton 801 of the ct mposes an ncome ta upon the ncome
of every ndvdua measured by the amount of wages, as defned n
secton 811, receved by hm on and after anuary 1, 1937, wth
respect to empoyment, as defned n secton 811, on and after that
date. Secton 804 mposes an e cse ta on every empoyer measured
by the amount of wages, as defned n secton 811, pad on and after
anuary 1, 1937, wth respect to empoyment, as defned n secton
811, on and after that date. ( rtces 201 and 301, Reguatons 91.)
very empoyer of one or more ndvduas n an empoyment,
as defned n secton 811 of the ct, s requred to make a monthy
ta return on orm SS-1 for each caendar month begnnng wth
anuary, 1937. ( rtce 401, Reguatons 91.) ach such return
must be prepared and fed n accordance wth the nstructons con-
taned thereon and the reguatons appcabe thereto. ( rtce 408,
Reguatons 91.) The tota wages whch became ta abe durng the
month must be reported n tem 2 of the return. (Paragraph D of
nstructons on reverse of orm SS-1.) Wages become ta abe
when actuay pad or, f constructvey pad pror to actua pay-
ment, when so constructvey pad. ( rtces 203 and 303, Regu-
atons 91.) Wages are constructvey pad when they are credted
to the account of, or set apart for, an empoyee so that they may be
drawn upon by hm at any tme even though not then actuay
reduced to possesson.
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Regs. 91, rt. 401.
368
It s hed that wages sub|ect to the ta es under Tte III of
the Soca Securty ct must be reported n the return for the
month n whch actuay or constructvey pad even though earned
n a prevous month. urthermore, wages earned pror to anuary
1, 1937, are not ta abe under Tte III of the Soca Securty
ct even though pad on or after that date. ccordngy, the
empoyer shoud ncude n hs return on orm SS-1 for the month
of anuary a wages pad by hm on anuary 6, 13, 20, and 27,
e cept that porton pad on anuary 6 whch s attrbutabe to
servces performed n December, 1936. The porton attrbutabe to
servces performed n December shoud not be ncuded for the rea-
son that the ta es under Tte III of the ct dd not become
effectve unt anuary 1, 1937 and appy ony wth respect to wages
pad on and after that date wth respect to empoyment on and after
that date. Moreover, none of the wages pad by the empoyer on
ebruary 3 and 10 for servces performed n anuary shoud be
reported n the return for anuary, because payment for such serv-
ces was made n the month of ebruary. The wages so pad shoud
be ncuded n the ebruary return even though a part thereof was
earned n anuary.
Secton 807: Coecton and payment of ta es. I-24-8767
Reguatons 91, rtce 401: Monthy ta Mm. 4597
returns.
( so rtce 402.)
Procedure wth respect to the fng of ta returns, orm SS-1,
and perodc nformaton returns, orms SS-2 and SS 2a, under
Tte III of the Soca Securty ct n the case of empoyers who
ether pay no ta abe wages to ther empoyees or pay such wages
ony durng certan months of the caendar year.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, May 30,1937.
Coectors of Interna Revenue and Others Concerned:
rtce 401 of Reguatons 91, ssued pursuant to the provsons of
Tte III of the Soca Securty ct, provdes that every empoyer
sha make a monthy ta return on orm SS-1 for each caendar
month begnnng wth anuary, 1937. ach such return must be
fed on or before the ast day of the frst month succeedng that for
whch t s made. Under the provsons of artce 402 of the regua-
tons, every empoyer s aso requred perodcay to fe an nfor-
maton return on orms SS-2 and SS-2a showng the amount of
ta abe wages pad to each of hs empoyees durng the perod cov-
ered by the return. The frst nformaton return w cover the pe-
rod from anuary 1, 1937, to une 30, 1937, and s requred to be
fed not ater than uy 31, 1937. Such returns must be submtted
quartery thereafter.
In connecton wth the fng of returns on the above-mentoned
forms, severa questons have been presented as to what w be
requred of empoyers who ether pay no ta abe wages to ther
empoyees or pay such wages ony durng certan months of the
caendar year.
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369
Regs. 91, rt. 401.
Wth respect to an empoyer who nether pays nor contempates
payng any ta abe wages to hs empoyees, t s consdered that such
empoyer w be compyng wth the provsons of artces 401 and
402 of Reguatons 91 f, n eu of fng the returns as requred by
such artces, he e ecutes and fes n dupcate wth the coector of
nterna revenue for hs dstrct an affdavt settng forth (a) ether
that he has not pad any ta abe wages after December 31, 1936, or
that no ta abe wages have been pad after a certan date (the ast
date on whch ta abe wages were pad) and that a returns requred
have been fed coverng the ta abe wages whch were pad subse-
quent to December 31, 1936, (5) that a empoyees are servng wth-
out remuneraton, (c) that the payment of wages s not contempated,
(d) that the requred returns w be made n the event any ta abe
wages are pad n the future, and (e) that fna returns w be
prompty fed n the event he ceases to be an empoyer. The coec-
tor shoud retan the dupcate of the affdavt and forward the
orgna to the ureau for the attenton of MT: SS: .
Wth respect to an empoyer who pays ta abe wages ony at regu-
ar semannua or annua ntervas, such an empoyer may be reeved
from fng returns on orm SS-1 for months wthn whch no ta -
abe wages are pad provded wrtten appcaton n dupcate s made
by the empoyer to the coector settng forth under oath the facts
n hs case and showng the month or months wthn whch wages
w be pad. The coector n hs dscreton s authorzed to grant
the appcaton provded he s satsfed that the nterests of the Gov-
ernment w not be |eopardzed thereby. If the appcaton s
granted, the coector shoud prompty forward the orgna of the
appcaton to the ureau for the attenton of MT: SS: , together
wth a copy of hs etter to the empoyer grantng the appcaton.
In the case of an empoyer who pays ta abe wages at rreguar
ntervas, or who pays ta abe wages at reguar ntervas but oftener
than semannuay, no e cepton may be made. It s consdered,
however, that such an empoyer w be compyng wth the provsons
of artce 401 of the reguatons f he fes a return on orm SS-1
for the frst caendar month after December 31, 1936, wthn whch
ta abe wages are pad to hs empoyees. Thereafter, t w be
necessary for hm to fe a return on orm SS-1 for each caendar
month whether or not ta abe wages are pad wthn such month.
cept as provded n the thrd paragraph of ths mmeograph, no
empoyer sub|ect to Tte III of the ct may be reeved from fng
nformaton returns on orms SS-2 and SS-2a as requred by artce
402 of the reguatons. It s consdered, however, that compance
wth the provsons of such artce w be effected f the empoyer
fes a return on orms SS-2 and SS-2a for the frst perod (as
specfed n such artce) wthn whch ta abe wages are pad to hs
empoyees, and for each subsequent quarter, ncudng subsequent
quarters wTthn whch no wages are pad. It w be noted that whe
a orm SS-2 (empoyer s summary nformaton return under Tte
III) w sometmes be requred under the foregong for a subse-
quent quarter wthn whch no ta abe wages were pad, orm SS-2a
(empoyer s report of wages pad to each empoyee) need not be fed
therewth, snce the atter s requred ony n the event ta abe wages
are pad to an empoyee.
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Regs. 91, rt 3.
370
When any person who has had one or more empoyees engaged n
ta abe empoyment ceases to be an empoyer, he shoud foow the
procedure outned n artce 404 of Reguatons 91, reatng to fna
returns, whether or not ta abe wages were pad wthn the current
caendar month or current nformaton return perod and whether
or not he has been reeved from fng returns on orm SS-1. Such
artce requres empoyers to fe fna returns wthn 30 days after the
date on whch the ast payment of ta abe wages s made. mpoy-
ers who have not pad ta abe wages shoud ndcate that fact n the
proper tems on the returns and prompty fe such returns wth the
coector.
Correspondence n regard to the procedure outned heren shoud
refer to the number of ths mmeograph and to the symbos MT: SS.
Gut T. everng,
Commssoner.
Secton 807: Coecton and payment of ta es.
Reguatons 91, rtce 402: Inta and quartery
nformaton returns.
Procedure wth respect to fng returns on orms SS-2 and SS-2a.
(See Mm. 4597, page 368.)
Secton 811: Defntons. I-2-8475
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 64
( so Tte I Reguatons 90, rtce 205.)
ppcabty of the ta es mposed under Ttes III and I
of the Soca Securty ct to servces performed n the dstrbuton
of newspapers.
dvce s requested whether the ta es mposed under Ttes III
and I of the Soca Securty ct, measured by the amount of
wages wth respect to empoyment as denned n sectons 811
and 907 of the ct, appy to the foowng types of servces per-
formed n the dstrbuton of newspapers:
L newsboy purchases newspapers from a pubsher and ses them n
such manner and at such tme and pace as he chooses. It s stated that the
pubsher does not contro, and has no rght to contro, the actvtes of the
newsboy n makng hs saes. The newsboy retans as hs proft the dfference
between the purchase prce and the seng prce of the newspapers.
Generay, the reatonshp of empoyer and empoyee e sts when
the person for whom the 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 by the work 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. (Reg-
uatons 90, artce 205 Reguatons 91, artce 3.) In the above-
descrbed stuaton the pubsher has no rght to contro or drect
the newsboy wth respect to hs servces. ccordngy, the reaton-
shp of empoyer and empoyee does not e st as to such servces.
It foows that no abty for the ta es mposed by Ttes III and
I of the Soca Securty ct s ncurred wth respect to the servces
performed by a newsboy under the crcumstances stated.
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371
Regs. 91, rt. 3.
2. person desgnated as a dstrbutor agent of a pubsher engages an
Indvdua desgnated as a carrer to dever newspapers durng certan hours
each day to customers In a partcuar terrtory. The st of customers s sub-
|ect to change from tme to tme and Is not the property of the carrer. The
carrer s requred to render statements showng the amounts owed by cus-
tomers but he does not coect such amounts. The carrer s charged wth a
certan amount each month for the newspapers devered pursuant to the
purported sae of the newspapers by the dstrbutor agent to the carrer. The
carrer receves for hs servces the dfference between the amount coected
by the dstrbutor agent from the customers and the amount charged to hm.
Under the facts stated, the carrer s sub|ect to contro as to the
terrtory wthn whch newspapers sha be devered, the tme of
devery, and the customers to whom devery sha be made. The
agreement wth the carrer may be termnated wthout hs consent
and the amount charged to hm for each newspaper s sub|ect to
change. carrer performng servces under the foregong crcum-
stances s an empoyee wthn the meanng of Ttes III and I
of the Soca Securty ct. If the dstrbutor agent s an ndepend-
ent contractor, the carrer s hs empoyee. If the dstrbutor agent
s an empoyee of the pubsher, the carrer s aso an empoyee of
the pubsher.
3. pubsher engages an ndvdua desgnated as a carrer to perform
servces substantay the same as those set forth n the second stuaton above.
or the reasons stated wth respect to the second stuaton, a
carrer engaged by a pubsher to perform servces substantay the
same as those performed by the carrer engaged by the dstrbutor
agent s an empoyee of the pubsher wthn the meanng of Ttes
III and I of the ct.
Secton 811: Defntons. I-4-8503
Reguatons 91, bttcue 3: Who are empoyees. S. S. T. 77
( so Secton 907 Reguatons 90, rtce 205.)
C, a reef or substtute moton pcture machne operator, s an
empoyee of the M Theater wthn the meanng of Tte III of the
Soca Securty ct
dvce s requested reatve to the abty for the ta es mposed
by Tte III of the Soca Securty ct wth respect to servces
performed by a reef or substtute moton pcture machne operator
under the crcumstances herenafter stated.
Secton 801 of the ct mposes an ncome ta upon the ncome
of every ndvdua equa to specfed percentages of the wages (as
defned n secton 811) receved by hm on and after anuary 1,
1937, wth respect to empoyment (as defned n secton 811) on
and after that date. Secton 804 mposes an e cse ta on em-
poyers measured by the amount of wages (as defned n secton 811)
pad on and after anuary 1, 1937, wth respect to empoyment
(as defned n secton 811) on and after that date.
s carred on the pay ro of the M Theater as a moton pcture
machne operator. s workng hours and saary are f ed by a
contract between the theater and a abor unon. Under the terms
of the contract s permtted to work 36 hours a week at a stpu-
ated houry wage. Durng a certan week he works ony 30 hours,
beng reeved by C for the other 6 hours. The theater pays for
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Regs. 91, rt. 3.
372
the fu 36 hours. pays to the abor unon the amount receved
for the s hours work performed by C and the abor unon n turn
pays C for hs servces.
The effect of the arrangements s that the wages pad by the
theater to are dvded between and C. The wages are receved
by each of them wth respect to empoyment. oth are under the
contro of the theater durng the respectve perods of ther em-
poyment. It s hed, therefore, that C (the reef operator) as
we as (the reguar operator) s an empoyee of the M Theater
and that the ta es mposed by sectons 801 and 804 of the Soca
Securty ct attach to the remuneraton receved by both of them.
The theater must deduct from the wages pad by t the amount of
the ncome ta on empoyees mposed by secton 801 and must pay
the e cse ta mposed by secton 804 n respect of the wages pad
to both empoyees, wth a proper aocaton of the ta to cover the
wages receved by each. The theater s requred to carry both men
as ts empoyees and to keep such records and make such reports
as w show the empoyment of both and C.
The foregong rue s aso appcabe under Tte I of the ct
to a moton pcture theater whch s an empoyer as defned n
that tte.
Secton 811: Defntons.
Reguatons 91, rtce 3: Who are empoyees.
Pensoners performng no servces for former empoyer. (See
S. S. T. 81, page 461.)
Secton 811: Defntons. I-5-8520
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 82
( so Secton 907 Reguatons 90, rtce 205.)
Drectors of the M udng and Loan ssocaton who serve
on certan commttees of the assocaton and are pad specfed
fees for such servces are empoyees of the assocaton wthn
the meanng of Ttes III and I of the Soca Securty ct
dvce s requested whether the drectors of the M udng and
Loan ssocaton who serve on apprasa and audt commttees of
the assocaton and are pad specfed fees for s ch servces are
empoyees of the assocaton wthn the meanng of Ttes III
and I of the Soca Securty ct.
Under the provsons of artce 3 of Reguatons 91, appcabe to
the ta es mposed under Tte III, and artce 205 of Reguatons
90, appcabe to the ta mposed under Tte I of the Soca
Securty ct, a drector of a corporaton, as such, s not an empoyee
of the corporaton. owever, as stated n those artces, a drector
who performs servces for the corporaton other than those requred
by attendance at and partcpaton n meetngs of the board of
drectors may be an empoyee of the corporaton, dependng upon
the facts presented. The drectors n the present case are apponted
by the M udng and Loan ssocaton on apprasa commttees
whch apprase property upon whch oans have been requested.
They aso serve on a commttee whch audts the books of the asso-
caton. They are pad specfed fees for such servces.
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373
Regs. 91, rt. 3.
It s hed that the drectors of the M udng and Loan ssoca-
ton n performng the servces n queston are empoyees of the
assocaton wthn the meanng of Ttes III and I of the Soca
Securty ct and artces 3 and 205 of Reguatons 91 and 90,
respectvey.
Secton 811: Defntons.
Reguatons 91, rtce 3: Who are empoyees.
ttorney pad retaner fee to defend any sut brought durng
year. (See S. S. T. 86, page 462.)
Secton 811: Defntons. I-9-8572
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 105
( so Secton 907 Reguatons 90, rtce 205.)
Where the M newspaper e ercses no contro over ts country
correspondents as to the hours whch must be devoted to ther
work, the sub|ect matter of tems furnshed by them, or the
manner n whch ther work s performed, such correspondents
are not empoyees of the newspaper wthn the meanng of
Ttes III and I of the Soca Securty ct
dvce s requested whether country correspondents of the M
newspaper are empoyees of the newspaper for the purpose of the
ta ng provsons (Ttes III and I ) of the Soca Securty ct.
It appears that the M newspaper has country correspondents
throughout the communty served by t who furnsh weeky news
tems for the use of the newspaper. The pubsher does not have any
drecton or contro over the correspondents and n most cases t
s eft entrey to the |udgment of the correspondents as to what
news tems they submt. The pubsher may ether accept or re|ect
the news tems, and payment s made ony for those tems accepted
and pubshed. though the pubsher may request a correspond-
ent to secure a partcuar story or news tem, the correspondent s
not requred to do so, n whch event the pubsher has no remedy
e cept to refuse further contrbutons. In some nstances the pub-
sher pays the correspondents no cash remuneraton but sends them
copes of the paper.
Sectons 811(b) and 907(c) of the Soca Securty ct provde
that the term empoyment 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 3 of Reguatons
91, appcabe to Tte III of the ct, and artce 205 of Regua-
tons 90, appcabe to Tte I , provde 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 sectons 811(b) ana 907(c),
respectvey. These artces further provde that 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 empoyer and empo| ee.
Inasmuch as the M newspaper e ercses no contro over ts country
correspondents as to the hours whch must be devoted to ther work,
the sub|ect matter of tems furnshed by them, or the manner n
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Regs. 91, rt. 3.
374
whch ther work s performed, t s hed that the reatonshp of
empoyer and empoyee does not e st between the pubsher and ts
country correspondents, and that such correspondents are not en-
gaged n an empoyment wthn the meanng of secton 811(b),
Tte III, and secton 907(c), Tte I , of the Soca Securty ct
Secton 811: Defntons.
Reguatons 91, rtce 3 : Who are empoyees.
Trustees n bankruptcy. (See S. S. T. 112, page 463.)
Secton 811: Defntons. I-12-8605
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 116
( so Secton 907 Reguatons 90, rtce 205.)
Members of the M Partnershp ssocaton created under the
aws of Pennsyvana are empoyees of such assocaton wthn
the meanng of Ttes III and I of the Soca Securty ct
dvce s requested whether the members of the M Partnershp
ssocaton created under the aws of Pennsyvana are empoyees
of the assocaton wthn the meanng of Tte I of the Soca
Securty ct.
The M Partnershp ssocaton was formed n 1927 under the
revsons of an act of the ssemby of the Commonweath of
ennsyvana, approved une 2, 1874, entted n act authorzng
the formaton of partnershp assocaton n whch the capta sub-
scrbed sha aone be responsbe for the debts of the assocaton
and the severa suppements and amendments thereto. The assoca-
ton has an authorzed capta stock of 10a doars dvded nto 10
shares of doars each, each share representng an actve member.
The entre capta s composed of persona property transferred to
the assocaton by the members. The by-aws of the partnershp
assocaton provde that ts affars sha be drected by a board of
managers composed of offcers of the company that the partners
sha share equay n the profts of the busness that the partners
sha receve weeky wages together wth perodc dvsons of any
surpus whch may accumuate and that each partner s to be
empoyed by the partnershp and gve hs undvded tme to ts
work or furnsh at hs own e pense a substtute.
s of anuary 1, 1936, there were nne actve members of the
company, and at a tmes durng that year there were at east
eght members.
Secton 907(c), Tte I of the Soca Securty ct, defnes the
term empoyment as meanng any servce, of whatever nature,
performed wthn the Unted States by an empoyee for hs em-
poyer, wth certan e ceptons not here matera. The term em-
poyer 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 8 or more. The
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375
Rtgs. 91, rt. 3.
term wages when used n Tte I of the ct means a remunera-
ton for empoyment ncudng the cash vaue of any remuneraton
pad n any medum other than cash.
Secton 1101(a) (3), (4), (5), and (6) of the Soca Securty ct
provdes as foows:
(3) The term person means an Indvdua, a trust or estate, a partner-
shp, or a corporaton.
(4) The term corporaton Incudes assocatons, |ont-stock companes,
and nsurance companes.
(5) The term sharehoder Incudes a member n an assocaton, |ont-
stock company, or nsurance company.
(6) The term empoyee ncudes an offcer of a corporaton.
or the purpose of the edera ncome ta aw, the M Partner-
shp ssocaton s treated as an assocaton (and, therefore, as a
corporaton) and s requred to fe corporaton ncome ta returns.
s noted above, under secton 1101 (a)4 of the Soca Securty ct,
the term corporaton s defned to ncude assocaton. Inas-
much as the members of ths assocaton are empoyed by t and
receve weeky wages, the ega reatonshp of empoyer and em-
poyee e sts. Consequenty, the members are empoyees of the
assocaton and shoud be counted for the purpose of determnng
whether t s an empo| er wthn the meanng of secton 907(a)
of the Soca Securty ct. ccordngy, the assocaton s sub|ect
to ta under secton 901 of Tte I of the Soca Securty ct
wth respect to the wages pad to the members.
Ths rung s aso appcabe under Tte III of the ct.
Secton 811: Defntons. I-13-8615
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 120
( so Secton 907 Reguatons 90, rtce 205.)
Trusts or estates managed by a fducary shoud be hed generay
to be the empoyer under the ta ng provsons (Ttes III and
I ) of the Soca Securty ct. The fducary, whether recever,
trustee n bankruptcy, admnstrator of an estate, or qudator
of a bank. Is not an empoyee wthn the meanng of these ttes.
dvce s requested (1) whether trusts or estates managed by a
fducary shoud be treated as the empoyer under the ta ng pro-
vsons of the Soca Securty ct, and (2) whether the compensaton
of the recever for the M ank actng under authorty of a State
court s sub|ect to the ta ng provsons of Ttes III and I of the
Soca Securty ct.
The M ank faed to open for busness on or about October ,
1933, and thereafter a petton was fed by the commssoner of
bankng of the State of R for the appontment of a recever.
was apponted recever and he s st actng as such under the
authorty and drecton of the Crcut Court for the County of .
In connecton wth the frst queston, t s hed that trusts or
estates managed and conducted by a fducary shoud be hed gener-
ay to be the empoyer under the provsons of Ttes III and I
of the Soca Securty ct. Ths constructon of the ct s app-
cabe not ony to strct trusts but aso to corporatons and estates
whose affars are beng admnstered or qudated by trustees n
bankruptcy and State and edera recevers, ncudng bank qu-
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Regs. 91, rt. 3.
376
dators. Returns n the name of such trusts or estates shoud be fed
by the fducary.
In connecton wth the queston whether the recever of the M
ank was an empoyee of the bank wthn the meanng of Ttes
III and I of the Soca Securty ct, artce 3 of Reguatons 91
provdes n part as foows:
the reatonshp between the person for whom such servces are
performed and the Indvdua who performs such servces must as to those
servces be the ega reatonshp of empoyer and empoyee. Generay such
reatonshp 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 by the work but aso as to the detas and
means by whch that 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. In ths connecton, t s not necessary that the empoyer
actuay drect or contro the manner n whch the servces are performed t s
suffcent f he has the rght to do so. The rght to dscharge s aso an m-
portant factor ndcatng that the person possessng that rght s an empoyer.
Other factors characterstc of an empoyer, but not necessary present n
every case, are the furnshng of toos and the furnshng of a pace to work,
to the ndvdua 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 and not as to the means and methods for accom-
pshng the resut, he s an ndependent contractor. n Indvdua perform-
ng servces as an ndependent contractor s not as to such servces an
empoyee.
(See aso artce 205 of Reguatons 90.)
In the ght of the provsons of the reguatons, t s hed that
the fducary, whether recever, trustee n bankruptcy, admnstra-
tor of an estate, or qudator of a bank, s not an empoyee wthn
the meanng of Ttes III and I of the ct. (See S. S. T. 112,
page 463, ths uetn.)
(See S. S. T. 37, C. . -2, 380 (1936), reatng to the abty of
nsovent banks for the ta es mposed by the Soca Securty ct.)
Secton 811: Defntons. I-16-8651
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 129
( so Secton 907 Reguatons 90, rtce 205.)
enefcares of s estate empoyed by the admnstrator thereof
are empoyees of the estate wthn the meanng of Ttes III and
I of the Soca Securty ct.
dvce s requested whether the benefcares of s estate
empoyed by the admnstrator of the estate n carryng on a bus-
ness prevousy conducted by the decedent are empoyees of the estate
wthn the meanng of Ttes III and I of the Soca Securty
ct.
The M ank s actng as admnstrator of the estate of , who
pror to hs death conducted a reta umber busness. The bank
as admnstrator of the estate s now carryng on the busness and
has n ts empoy four chdren of the deceased who are benefcares
of the estate. The queston has arsen whether the servces of the
benefcares are e cuded from the ta ng provsons of the Soca
Securty ct by reason of ther nterests n the estate.
Sectons 811(b) and 907(c) of the Soca Securty ct provde
that the term empoyment means any servce, of whatever nature,
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377
Regs. 91, rt. 3.
performed wthn the Unted States by an empoyee for hs empoyer
wth certan e ceptons not here matera. rtce 3 of Reguatons
91, appcabe to Tte III of the ct, and artce 205 of Regua-
tons 90, appcabe to Tte I , provde that an ndvdua s n the
empoy of another wthn the meanng of Ttes III and I f
he performs servces n an empoyment as defned n sectons 811(b)
and 907(c), respectvey.
It s hed that the benefcares of s estate empoyed by the
admnstrator of the estate n the operaton of the busness prev-
ousy carred on by the decedent are empoyees of the estate wthn
the meanng of Ttes III and I of the Soca Securty ct. The
fact that the ndvduas empoyed by the admnstrator have an
nterest n the estate whch may ater mature nto an ownershp or
part ownershp requrng subsequent cassfcaton as empoyers does
not affect ther status durng the perod the busness of the estate s
conducted by the admnstrator. ccordngy, the admnstrator, n
behaf of the estate, s requred to deduct the empoyees ta mposed
by secton 801 from the wages pad to such empoyees, and to pay
the empoyers ta mposed by secton 804 wth respect to such
u wages. Labty for the ta mposed under Tte I s depend-
ent upon the number of ndvduas empoyed by the estate.
Secton 811: Defntons. I-17-8667
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 136
( so Secton 907 Reguatons 90, rtce 205.)
Trustees and members of the advsory board of the M Trust, a
Massachusetts trust treated as an assocaton for edera ncome
ta purposes, who perform servces other than attendance at and
partcpaton n board meetngs and receve remuneraton therefor
are empoyees of such trust wthn the meanng of Ttes III and
I of the Soca Securty ct .... ...
dvce s requested whether the trustees and members of the ad-
vsory board of the M Trust are empoyees of such trust wthn the
meanng of Ttes III and I of the Soca Securty ct.
The M Trust s a Massachusetts trust for the purpose of the
edera ncome ta aw and s treated as an assocaton whch s re-
qured to fe corporaton ncome ta returns. The trustees and mem-
bers of the advsory board not ony attend and partcpate n board
meetngs but aso perform other reguar servces for whch they
receve separate remuneraton.
Secton 1101(a), (3), (4), (5), and (6) of the Soca Securty ct
provdes as foows:
(3) The term person means an ndvdua, a trust or estate, a partnershp,
or a corporaton.
(4) The term corporaton ncudes assocatons, |ont-stock companes, and
nsurance companes.
(5) The term sharehoder ncudes a member n an assocaton, |ont-stock
company, or nsurance company.
(6) The term empoyee ncudes an offcer of a corporaton.
n ndvdua s n the empoy of another wthn the meanng of
the ta ng provsons of the Soca Securty ct f he performs serv-
7088 37 13
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Iegs. 91, rt. 3.
378
ces n an empoyment as denned n sectons 811(b) and 907(c) of the
ct. 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 empoyer and em-
poyee. If the reatonshp of empoyer and empoyee e sts, the
desgnaton or descrpton of the reatonshp between the partes as
anythng other than empoyer and empoyee s mmatera. n off-
cer of a corporaton s an empoyee of the corporaton, but a drector,
as such, s not. owever, a drector may be an empoyee of a cor-
poraton f he performs servces for the corporaton other than those
requred by attendance at and partcpaton n meetngs of the board
of drectors. ( rtce 205, Reguatons 90, and artce 3, Regua-
tons 91.)
Inasmuch as the trustees and the members of the advsory board
perform servces for the SI Trust other than those requred by at-
tendance at and partcpaton n meetngs and receve remuneraton
for such servces, the ega reatonshp of empoyer and empoyee
e sts. Consequentv, the empoyers ta mposed by secton 804,
Tte III, and secton 901, Tte I , of the Soca Securty ct,
and the empoyees ta mposed by secton 801, Tte III of the
ct, are appcabe wth respect to the remuneraton pad to the
trustees and the members of the advsory board for such servces.
Secton 811: Defntons. I-17-8668
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 137
( so Secton 907 Reguatons 90, rtce 205.)
Indvduas who perform servces for the M Company n ther
homes and are compensated on a pecework bass are empoyees of
the company wthn the meanng of Ttes III and I of the
Soca Securty ct.
dvce s requested whether ndvduas who perform servces for
the M Company n ther homes and are compensated on a pecework
bass are empoyees of that company for the purposes of the ta es
mposed under Tte III of the Soca Securty ct.
The M Company manufactures buttons, whch are attached to
cards before beng sod. Ths work s done by ndvduas n ther
homes. The M Company provdes the cards, thread, and other
artces requred for attachng the buttons to the cards and gves the
ndvduas defnte nstructons reatve to the number of buttons to
be sewed to each card, the arrangement of the buttons, etc. The n-
dvduas are pad a certan amount for each dozen or gross of com-
peted cards devered to the company. In some cases two or more
members of the same famy or other ndvduas resdng n the same
home are engaged n the cardng work. The M Company deas wth
each ndvdua or wth one member of the group who acts as the
representatve of the ndvdua members of the group.
It s cear that the ndvduas n queston perform persona serv-
ces for the M Company for a stpuated remuneraton and that
the M Company drects and contros the manner n whch the
servces are performed. The fact that the M Company permts the
work to be done at the homes of the ndvduas nstead o at the fac-
tory s mmatera. The reatonshp of empoyer and empoyee de-
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379
Regs. 91, rt. 8.
pends upon the empoyer s rght to contro and drect the empoyee
and not upon the e tent to whch such rght s e ercsed.
In vew of the foregong, t s hed that each of the ndvduas
n queston s an empoyee of the M Company for the purpose of
the ta es mposed under Tte III of the Soca Securty ct.
ccordngy, the M Company s requred to coect the empoyees
ta by deductng the amount thereof from the wages of such em-
poyees as and when pad to them and to return the amount of the
ta to the coector of nterna revenue, regardess of whether t
deas drecty wth each empoyee or ndrecty wth a group of
empoyees through one member of the group. The M Company s
aso abe for the payment of the empoyers ta wth respect to
the ta abe wages pad to such empoyees. The company must man-
tan adequate records showng the remuneraton pad drecty to
each empoyee or ndrecty to each member of a group through one
member thereof.
The concuson reached heren s aso appcabe under Tte I of
the ct.
Secton 811: Defntons. I-21-8721
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 147
( so Secton 907 Reguatons 90, rtce 205.)
n ndvdua who serves as a porter n a barber shop for the
prvege of operatng the shoe shne stand theren s an empoyee
of the barber shop for the purpose of the ta ng provsons of the
Soca Securty ct.
dvce s requested whether an ndvdua who serves as a porter
n a barber shop n e change for the prvege of operatng the shoe
shne stand theren s an empoyee of the barber shop wthn the
meanng of Tte III of the Soca Securty ct.
Secton 811(b), Tte III of the Soca Securty ct, provdes
that the term empoyment means any servce, of whatever nature,
performed wthn the Unted States by an empoyee for hs empoyer,
wth certan e ceptons not here appcabe. rtce 3 of Regua-
tons 91 provdes that every ndvdua s an empoyee wthn the
meanng of Tte III f he performs servces n an empoyment as
defned n secton 811(b). Sub|ect to the mtaton mposed by sec-
ton 811(a) of the ct, the term wages as used theren ncudes a
remuneraton for empoyment regardess of the manner or medum
n whch the remuneraton s pad. If the remuneraton ncudes
tems other than money, the far vaue of such tems at the tme of
pavment shoud be ncuded n determnng the amount of wages pad.
The ndvdua here n queston receves the prvege of operatng
the shoe shne stand n a barber shop n e change for hs servces as a
porter theren. e receves no remuneraton from the barber shop
for hs servces other than the prvege of operatng the shoe shne
stand, whch s, however, a vauabe consderaton. e furnshes hs
own materas and retans a money receved for shnng shoes.
It s cear that the ndvdua whe actng as porter n the barber
shop performs persona servces for the operator of the shop, and
that the operator drects and contros the manner n whch such serv-
ces are performed ccordngy, such ndvdua s an empoyee
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Regs. 91, rt. 3.
380
of the operator of the shop wthn the meanng of Tte III of the
Soca Securty ct and artce 3 of Reguatons 91. The far renta
vaue of the shoe shne stand consttutes the amount of the ndvdua s
remuneraton and ths vaue s sub|ect to the empoyees ta and the
empoyers ta mposed by sectons 801 and 804, respectvey.
The concuson reached heren s aso appcabe under Tte I
of the ct, provded the operator of the shop s an empoyer as
denned n that tte.
Secton 811: Defntons. I-21-S722
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 148
( so Secton 907 Reguatons 90, rtce 205.)
Student nurses engaged In a prvatey owned and operated hos-
pta, who receve no saary whe n tranng but are furnshed
board, odgng, unforms, and aundry as compensaton for ther
servces, are empoyees of the hospta wthn the meanng of Ttes
III and I of the Soca Securty ct.
dvce s requested whether student nurses engaged n a prvatey
owned and operated hospta, who receve no saary whe n tranng
but are furnshed board, odgng, unformS| and aundry as compen-
saton, are empoyees of the hospta wthn the meanng of Ttes
III and I of the Soca Securty ct.
It s hed that the student nurses n queston, whose servces are
under the drecton and contro of the hospta authortes, are em-
poyees of the hospta wthn the meanng of Ttes III and I of
the Soca Securty ct. The medum n whch remuneraton s pad
s mmatera. Such remuneraton may be pad n cash or n ts
equvaent, such as goods, odgng, food, or cothng. Consequenty,
the vaue of the board and odgng, determned n the manner outned
n S. S. T. 51 (C. . -2,421 (1936)), and the vaue of the unforms
and aundry consttute wages as defned n such ttes.
Secton 811: Defntons. I-21-8723
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 149
( so Secton 907 Reguatons 90, rtce 205.)
uctoneers engaged temporary by the M Company, a frm of
auctoneers, are empoyees of that company wthn the meanng of
Ttes III and I of the Soca Securty ct.
dvce s requested whether auctoneers engaged at certan tmes
durng the year by the SI Company, a frm of auctoneers, are em-
poyees of that company or are ndependent contractors.
The term empoyment s defned by secton 811(b). Tte III,
and secton 907(c), Tte I , of the Soca Securty ct as any
servce, of whatever nature, performed wthn the Unted States by
an empoyee for hs empoyer, wth certan e ceptons not here
pertnent.
The M Company s engaged n the auctoneerng busness. Occa-
sonay the company procures the servces of addtona auctoneers
to assst n conductng aucton saes. The M Company contros and
drects the servces of such auctoneers.
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381
Regs. 91, rt. 3.
s a genera rue, auctoneers, because of ther professona charac-
ter, are cassed as ndependent contractors. That rue appes where
the ndvdua auctoneer offers hs servces to the pubc generay
and s engaged by varous persons wth respect to specfc transactons
n whch such persons do not contro or drect the performance of hs
servces. That genera rue does not appy, however, where the nd-
vdua enters nto an empoyment, even though temporary, n whch
hs empoyer contros and drects hs professona servces.
In the nstant case the M Company contros and drects the servces
rendered by the addtona auctoneers, thus estabshng the ega
reatonshp of empoyer and empoyee. It s, accordngy, hed that
the addtona auctoneers n queston are empoyees of the M Com-
pany wthn the meanng of the ta ng provsons of Ttes III and
I of the Soca Securty ct.
Secton 811: Defntons. I-20-8709
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 143
( so Secton 907 Reguatons 90, rtce 205.)
d|usters engaged by the M oard of re Underwrters In the
determnaton and settement of fre osses are not empoyees of
that board and servces performed by them do not come wthn the
scope of the term empoyment as defned by sectons 811(b) and
007(c) of the Soca Securty ct.
dvce s requested whether ad|usters performng servces for the
M oard of re Underwrters are empoyees of that board wthn
the meanng of Ttes III and I of the Soca Securty ct.
The M oard of re Underwrters represents varous fre n-
surance companes whch ssue poces n the cty of R. When a
fre occurs t s necessary to determne the amount of damages sus-
taned and ad|ust the oss. or that purpose the board uses the
servces of an ndvdua known as an ad|uster who s n busness for
hmsef as an ad|uster of fre osses and has hs own offce and cerca
staff. The ad|uster s compensated by the board on a per dem bass
and s not requred to perform hs work at any partcuar tme. The
ad|ustment s supervsed by the secretary or the board and the
ad|uster makes a report to hm drect.
The M oard of re Underwrters has a st of approved ad|usters
and when a oss occurs an ad|uster s chosen from ths st and the
case assgned to hm. Most of them are retaned from tme to tme
by nsurance companes whch are not members of the M oard of
re Underwrters. They aso receve appontments from nsurance
companes handng other types of nsurance. None of the ad|usters
s engaged e cusvey n performng servces for the M oard of
re Underwrters. Some of them are engaged n other busnesses
and n severa cases have ther own nsurance agences. The board
cas on these ad|usters as e perts, t e ercses no contro over them as
to the manner n whch they perform ther servces, and s nterested
ony n the resut, whch s the settement of the oss. The ad|uster
ad|usts osses for the nsurance companes and for the nsured. In
other words, he does a genera ad|ustment busness. It s stated that
no contract s entered nto between the board and the ad|uster and
that the board s not obged to furnsh any one ad|uster wth
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Regs. 91, rt. 3.
382
busness, nor s the ad|uster obged to accept busness whch he does
not choose to hande. It s aso stated that the nsurng company
responsbe for a partcuar oss may for some reason engage an
ad|uster other than the one retaned by the board, and ths ad|uster
then proceeds to determne the oss and report back to the nsurng
company whch retaned hm.
ased on the facts presented, t s hed that the reatonshp of
empoyer and empoyee does not e st between the M oard of re
Underwrters and the ad|usters. The term empoyment s defned
n sectons 811(b) and 907(c) of the Soca Securty ct as meanng
any servce, of whatever nature, performed wthn the Unted
States by an empoyee for hs empoyer, wth certan e ceptons not
here matera. The reguatons construng these sectons are con-
taned n artces 204 and 205 of Reguatons 90 and artce 8 of
Reguatons 91. Under these reguatons, the servces performed
by the ad|usters do not come wthn the scope of the defnton of the
term empoyment, and the ad|usters must be treated as nde-
pendent contractors.
( so Secton 907 Reguatons 90, rtce 205.)
Ta abe status under Ttes III and I of the Soca Securty
ct of servces rendered by a chropodst ocated In the M Depart-
ment Store, and by a roentgenoogst pursuant to a contract wth
the N Company.
dvce s requested whether , a chropodst, who eases space for
hs offce n the M Department Store and who receves no saary
from the store but pays to t a specfed percentage of hs gross
recepts for the use of the offce space and factes provded by the
store, s an empoyee thereof wthn the meanng of the ta ng pro-
vsons of the Soca Securty ct. It s stated that the store has
no contro or rght of contro over s actvtes.
dvce s aso requested whether C, a roentgenoogst, who nter-
prets -ray photographs under a contract wth the N Company but
who s not sub|ect to any contro or drecton by the company as
to the manner m whch hs servces are performed, s an empoyee
of the company. C mantans hs own offces and performs ke
servces for otTers
Secton 811(b), Tte III, and secton 907(c), Tte I , of the
Soca Securty ct defne the term empoyment as any servce,
of whatever nature, performed wthn the Unted States by an em-
poyee for hs empoyer wth certan e ceptons not here appcabe.
Generay, ndvduas who foow an ndependent trade, busness,
or professon, n whch they offer ther servces to the pubc, are
ndependent contractors and not empoyees. ( rtce 3, Regua-
tons 91 artce 205, Reguatons 90.)
It s hed under the facts stated that s not an empoyee of the
M Department Store and that C s not an empoyee of the N Com-
pany wthn the meanng of Ttes III and I of the Soca
Securty ct. owever, ether or C (or both) may ncur a-
Sectton 811: Defntons.
Reguatons 91, rtce 3: Who
I-22-8738
S. S. T. 152
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383
Regs. 91, rt. 3.
bty for the ta es mposed under Tte III f he empoys one
or more ndvduas n an empoyment as that term s denned
n secton 811(b) of the ct. Smary, as ndcated n S. S. T.
17 (C. . -2, 402 (1936)), ether orC (or both) may ncur
abty for the ta mposed under Tte I f he empoys eght or
more ndvduas under the condtons set forth n secton 907(a)
of the ct
Secton 811: Defntons. I-23-8748
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 156
( so Secton 907 Reguatons 90, rtce 205.)
Representatves of the M Cotton Growers ssocaton nt varous
shppng ponts, who receve and dspose of cotton for members
of the assocaton and take ther commssons out of recepts
from the sae of the members cotton, are empoyees of the asso-
caton for the purpose of the ta es mposed under Ttes III and
I of the Soca Securty ct, and the commssons pad to them
consttute wages whch shoud be ncuded n computng such
ta es.
dvce s requested whether oca representatves of the M Cot-
ton Growers ssocaton, who receve and dspose of cotton for mem-
bers of the assocaton, are empoyees of the assocaton and whether
the commssons pad to them consttute wages to be ncuded n the
computaton of the ta es mposed under Ttes III and I of the
Soca Securty ct.
The M Cotton Growers ssocaton began operatons n 192-, and
after usng varous methods of dsposng of the members cotton, 10
oca representatves were eected to hande the cotton whch s de-
vered at partcuar shppng ponts. The oca representatves
commssons are taken out of recepts from the sae of the members
cotton. The queston presented s whether such representatves must
be consdered as empoyees of the assocaton.
Sectons 811(b) and 907(c) of the Soca Securty ct defne the
term empoyment as any servce, of whatever nature, performed
wthn the Unted States by an empoyee for hs empoyer wth
certan e ceptons not here matera. rtces 4 and 204 of Regua-
tons 91 and 90, respectvey, ay down genera rues for determnng
who are empoyers wthn the meanng of the ta ng provsons of
the Soca Securty ct, and artces 3 and 205 of Reguatons 91 and
90, respectvey, dscuss the queston as to who are empoyees.
rtces 14 and 207 of Reguatons 91 and 90, respectvey, state that
the term u wages means a remuneraton for empoyment, ncud-
ng among other tems commssons on saes, and that the bass upon
whch the remuneraton s payabe, the amount of remuneraton, and
the tme of payment, are mmatera n determnng whether the re-
muneraton consttutes wages.
On the bass of the facts presented and the above-mentoned pro-
vsons of the ct and the reguatons, t s hed that for the purpose
of the ta es mposed under Ttes III and I the oca representa-
tves are empoyees of the M Cotton Growers ssocaton, and ther
commssons consttute wages whch must be ncuded n computng
such ta es.
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Regs. 91, rt. 3.
384
Secton 811: Defntons. I-23-8749
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 157
( so Secton 907 Reguatons 90, rtce 205.)
Drvers of ta cabs owned by the M Company and operated In
accordance wth a contract entered nto wth each drver are em-
poyees of that company wthn the meanng of Ttes III and
I of the Soca Securty ct.
dvce s requested whether drvers of ta cabs owned by the M
Company and operated n accordance wth a contract entered nto
wth each drver are empoyees of the M Company wthn the mean-
ng of Ttes III and I of the Soca Securty ct.
Secton 811(b), Tte III, and secton 907(c), Tte I , of the
Soca Securty ct defne the term empoyment as any serv-
ce, of whatever nature, performed wthn the Unted States by an
empoyee for hs empoyer wth certan e ceptons not here
appcabe.
rtce 8 of Reguatons 91, reatng to Tte III of the ct, pro-
vdes n part as foows wth respect to the reatonshp of empoyer
and empoyee:
Generay snch reatonshp e sts when the person for whom serv-
ces are performed has the rght to contro and drect the ndvdua who per-
forms 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 s sub|ect to the w and contro of the empoyer not
ony as to what sha be done but ow It sha be done. In ths connecton,
t s not necessary that the empoyer actuay drect or contro the manner
n 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 em-
poyer, but not necessary present n every case, are the furnshng of toos
and the furnshng of a pace to work, to the ndvdua who performs the
servces.
rtce 205 of Reguatons 90, reatng to Tte I of the ct,
contans substantay the same provsons.
The M Company owns ta cabs whch are operated by drvers
under a contract requred to be e ecuted by such drvers before beng
engaged by the company. The contract provdes that the M Com-
pany sha furnsh ta cabs sutabe for operaton on a renta bass
and sha at ts own cost and e pense pay for a o and other sup-
pes, e cept gasone make a needed repars e cept those resutng
from accdent furnsh garage space, offce| teephone, and an em-
poyee to receve cas and furnsh abty nsurance coverng
passengers carred for hre by the drver. The drver agrees to pay
the renta specfed and operate the ta cab for the purpose of carry-
ng persons for hre ony not to operate the ta cab whe under the
nfuence of nto cants or narcotcs not to tow any other vehce not
to operate the ta cab for any ega purpose to report every accdent
n wrtng wthn 24 hours to the staton offce from whch the ta cab
s rented to obey n every partcuar the e stng rues of the M
Company, or such rues as may be changed from tme to tme, and
a further nstructons whch may be gven hm: and to operate
the ta cab as a unt of the M Company feet and not as an nd-
vdua ta cab. The drver s requred to depost wth the M Com-
pany the sum of doars as a guarantee of hs compance wth
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385
Regs. 91, rt. 3.
the terms of the agreement. In the event the drver fas to operate
the ta cab on any day or days n accordance wth the agreement the
depost may be apped on the renta for such day or days based on
the schedue of rentas provded n the contract. The contract may
be termnated by ether party upon seven days notce, or mmedatey
f the drver voates certan provsons of the contract or f t
appears to the M Company that the drver s not a proper person to
operate ts ta cabs. It s cear from the provsons of the contract
that the M Company retans the rght to drect and contro the
drvers as to the detas and means by whch the resut of the con-
tract s to be accompshed, and that the drvers specfcay agree to
obey n every partcuar the rues promugated by the M Company
as they e st at the tme the contract s entered nto, or as they may
be thereafter changed, and aso to obey any further nstructons
whch may be gven them. urthermore, the M Company retans
the rght to dscharge the drvers and the drvers agree to operate
the ta cabs as a part of the M Company s feet and not as separate
unts.
In tzgerad v. Carde e (207 Mo., 514, 226 S. W., 971) an ar-
rangement between a ta cab company and ts drvers smar n a
matera respects to that dscosed by the present contract was hed to
resut n the estabshment of an empoyer-empoyee reatonshp
between the ta cab company and one of ts drvers n an acton
brought aganst the cab company by a thrd person to recover for
n|ures sustaned as a consequence of the drver s neggence n the
operaton of the cab. In ouston v. eats (166 Pac, 531) the court
stated that where the owner of an automobe entrusts t to another
under an arrangement desgned for the mutua beneft of the partes
there s a prma face presumpton that the arrangement estabshes
a master-servant reatonshp. In Morss v. Murphy Transfer
Storage Co. (170 Mnn., 1 211 N. W., 950) the court sad that the
utmate test n determnng whether the reaton of master and
servant e sts between the owner of a motor car and the drver s
whether the owner retans the rght of contro.
Whe t s true that the reatonshp of empoyer and empoyee
mpes the payment by the empoyer or wages for servces rendered,
and n ths case the fares receved by the drver were not actuay
pad by the empoyer yet the arrangement was such that payment
may propery be ascrbed to hm. The fares receved by the drver
ess authorzed deductons consttute hs compensaton. The effect
of the contract was substantay the same as f the drver turned
over to hs empoyer a the fares coected by hm, ess cost of gaso-
ne, and the atter returned to the drver, as wages, the sum reman-
ng after deductng the charge for renta.
In vew of the foregong, t s hed that the drvers n queston
are empoyees of the M Company wthn the meanng of the ta ng
provsons (Ttes III and I ) of the Soca Securty ct and
the provsons of artces 3 and 205 of Reguatons 91 and 90, re-
spectvey. It s further hed that the amount of fares coected by
each drver, ess the cost of gasone used n the operaton of the cab
and the renta charge for the cab, consttutes the wages of the
drver wthn the meanng of Ttes III and I of the ct. oth
the drver and the company must mantan proper records showng
the fares coected and the e pendtures for gasone and cab renta.
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Regs. 91, rt. 4.
386
Tps or amounts pad by passengers n e cess of the estabshed fares
whch are not n any way accounted for to the M Company shoud
not be ncuded as wages of the drver. (S. S. T. 12, C. . -2,
417 (1936).)
Secton 811: Defntons. I-24-8766
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 161
( so Secton 907 Reguatons 90, rtce 205.)
Servces performed by an Indan are not e cepted from the
term empoyment as defned n the ta ng provsons of the
Soca Securty ct soey because the Indan s a ward of the
Unted States.
dvce s requested whether servces performed by an Indan
are e cepted from empoyment as that term s defned n sectons
811(b), Tte III, and 907(c), Tte I , of the Soca Securty ct
by reason of the fact that the Indan s a ward of the Unted States.
Sectons 811(b), Tte III, and 907(c), Tte I , of the Soca
Securty ct provde that the term empoyment means any
servce, of whatever nature, performed wthn the Unted States by
an empoyee for hs empoyer wth certan e ceptons stated theren.
There s no e cepton whch e cudes from the term empoyment
servces rendered by an Indan merey because he s a ward of the
Unted States. ccordngy, the ta es mposed under Ttes III
and I of the ct are appcabe wth respect to wages for serv-
ces performed by an Indan for hs empoyer uness such servces
fa wthn the specfc e ceptons contaned n sectons 811(b) and
907(c) of the ct.
Secton 811: Defntons. I-3-8488
Reguatons 91, rtce 4: Who are empoyers. S. S. T. 69
( so Secton 907 Reguatons 90, rtce 204.)
Members of the M ssocaton, an unncorporated organzaton
of stevedores who contract through ther busness agent wth vesse
owners for the unoadng of shps, are empoyees of the vesse
owners.
dvce s requested whether the members of the M ssocaton, an
unncorporated organzaton of stevedores who contract through a
busness agent wth vesse owners for the unoadng of shps, are
empoyees of the vesse owners wthn the meanng of Ttes III
and I 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 specfed percentages
of the wages receved by hm after December 31, 1936, wth respect
to empoyment after that date. Secton 804 mposes upon every
empoyer an e cse ta wth respect to havng ndvduas n hs em-
poy (rrespectve of the number of ndvduas empoyed) measured
by the amount of wages pad by hm after December 31, 1936, wth
respect to empoyment after that date. Secton 901 mposes an e cse
ta on empoyers of eght or more ndvduas under the condtons
prescrbed n the ct measured by the amount of wages payabe wth
respect to empoyment after December 31, 1935, regardess of tme
of payment.
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387
Regs. 91, rt. 4.
The M ssocaton of stevedores was organzed for the purpose
of coectve barganng. One of the members of the assocaton acts
as busness agent n securng contracts wth vesse owners for the
unoadng of shps. members of the assocaton perform servces
n carryng out such contracts. The amount receved under the con-
tract from the vesse owner s dvded equay among the members of
the assocaton. Under the facts presented t appears that the bus-
ness agent does not act for hmsef as an ndependent contractor but
s merey a representatve of the stevedores and acts for each of them
n deang wth the vesse owners.
It s hed that the members of the assocaton n performng
servces as stevedores under the crcumstances stated are empoyees of
the owners of the vesses for whom such servces are performed
wthn the meanng of Ttes III and I of the Soca Securty
ct, and the ta es mposed thereunder are appcabe to the re-
muneraton receved by sucb members for servces rendered under
contracts of the nature referred to heren.
Sectok 811: Defntons. I-3-8489
Reguatons 91, rtce 4: Who are empoyers. S. S. T. 70
( so Secton 907 Reguatons 90, rtce 204.)
mpoyees performng servces under the drecton o , an
empoyee of the M Company, n a department of the company
supervsed by , are empoyees of the M Company wthn the mean-
ng of Ttes III and I of the Soca Securty ct, even though
such empoyees do not appear on the company s pay ro and are
pad by out of the gross amount receved by hm from the com-
pany measured by the number of unts produced n hs department
dvce s requested reatve to the appcabty of the ta es m-
posed by Ttes III and I of the Soca Securty ct wth respect
to amounts pad by the M Company to , an empoyee supervsng a
department cf the company. rom such amounts, whch are meas-
ured by the number of unts produced n s department, wages are
pad by to the empoyees workng under hs drecton, retanng
the remander as remuneraton for hs servces. The empoyees n
queston are not carred on the pay ro of the M Company.
It appears that the ndvduas workng under s supervson are
performng servces n connecton wth hs empoyment by the M
Company. They are not workng for ndvduay but are engaged
n the busness of the M Company. Under the facts presented, such
ndvduas are empoyees of that company. ccordngy, the M
Company s abe for the e cse ta on empoyers mposed by secton
804 of the Soca Securty ct wth respect to the wages of and the
empoyees workng under hs drecton. Smary, the M Company
s abe for the e cse ta mposed by secton 901 of the ct wth
respect to such wages, f the company s an empoyer of eght or
more ndvduas wthn the meanng of secton 907(a) of the ct.
urthermore, the M Company s requred, pursuant to the provsons
of secton 802(a) of the ct, to deduct the amount of the ncome ta
on empoyees mposed by secton 801 from the wages of and the
empoyees n hs department as and when such wages are pad.
Wth respect to the gross amount pad by the company to ,
measured by the number of unts produced n hs department, t s
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Regs. 91, rt. 4.
388
hed that amounts pad to hm as aowance or rembursement for
e penses ncurred n the busness of the M Company consttute
wages of ony to the e tent of the e cess of such amounts over
such e penses actuay ncurred and accounted for by . ccord-
ngy, the amounts pad by to the M Company s empoyees as
wages do not consttute a part of s wages f accounts to the M
Company for such amounts and the M Company mantans records
n substantaton thereof.
Secton 811: Defntons I-7-8548
Reguatons 91, rtce 4: Who are empoyers. S. S. T. 92
( so Secton 907 Reguatons 90, rtce 204.)
Where the M Company manages mproved rea estate as agent for
the owner thereof, hres empoyees on behaf of the owner, and pays
such empoyees out of the owner s funds n ts possesson, the owner
of the property s the empoyer wthn the meanng of Ttes III
and I of the Soca Securty ct.
dvce s requested whether the owner of rea estate or the M
Company, the managng agent, s the empoyer of the persons en-
gaged n the care and operaton of the property wthn the meanng
of Ttes III and I 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 specfed percentages
of the wages receved by hm after December 31, 1936, wth respect
to empoyment after that date. Secton 804 mposes upon every
empoyer an e cse ta wth respect to havng ndvduas n hs
empoy (rrespectve of the number of ndvduas empoyed) meas-
ured by the amount of wages pad by hm after December 31, 1936,
wth respect to empoyment after that date. Secton 901, Tte I ,
mposes an e cse ta on empoyers of eght or more ndvduas,
under the condtons prescrbed n that tte, measured by the amount
of wages payabe wth respect to empoyment after December 31,
1935, regardess of the tme of payment.
The M Company manages mproved rea estate for the owner
thereof under an agency contract. In accordance wth such contract
the M Company, as agent of the owner, empoys, pays, and ds-
charges budng managers, |antors, mads, and other hep. The M
Company supervses these empoyees but s not responsbe for the
payment of ther wages e cept from the funds of the owner n ts
possesson whch are deposted n a speca bank account n the
owner s name. The owner s funds are not commnged wth the
funds of the M Company.
though the M Company hres, pays, dscharges, and otherwse
contros and drects the servces or the ndvduas empoyed n the
operaton of the owner s property, such ndvduas are not empoyees
of the M Company. Under the contract the M Company s merey
the agent and, as such, s authorzed by the owner to empoy nd-
vduas for and on hs behaf. The ndvduas so empoyed are.
therefore, empoyees of the owner and not of the M Company for
purposes of the ta es mposed under Ttes III and I of the
Soca Securty ct.
s empoyer of the ndvduas referred to above, the owner s
requred under the aw to coect the empoyees ta from each em-
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389
Regs. 91, rt. 4.
poyee by deductng the ta from the wages as and when pad and
returnng the ta to the coector of nterna revenue. ven though
the owner may authorze the M Company to coect the empoyees
ta on hs behaf, the owner s responsbe for any faure so to do.
The owner s aso abe for the empoyers ta mposed under Tte
III wth respect to the ta abe wages of the persons empoyed.
owever, where an owner who has no empoyees other than the per-
sons workng n the budng or budngs managed for hm, the
M Company may, under a proper power of attorney, e ecute and fe
returns n the owner s name and behaf wth respect to both the
empoyers ta and the empoyees ta . If the owner has eght or
more persons n hs empoy under the condtons prescrbed n Tte
I , he s an empoyer wthn the purvew of that tte and s abe
for the ta mposed under that tte.
Secton 811: Defntons. T-14-8629
Reguatons 91, rtce 4: Who are empoyers. S. S. T. 124
( so Secton 907 Reguatons 90, rtce 205.)
and are abe for the e cse ta es mposed upon empoyers
y Ttes III and I of the Soca Securty ct notwthstand-
ng they were conductng the affars of the M Corporaton as
trustees under secton 77( ) of the Natona ankruptcy ct, as
amended.
dvce s requested whether and , who operated the busness
of the M Corporaton as trustees durng a part of the year 1936 and
durng the frst two months of 1937, are abe for the ta es mposed
upon empoyers by Ttes III and I of the Soca Securty ct.
Pursuant to a petton for reorganzaton fed by the M Corpora-
ton n une, 1936, and were apponted temporary trustees.
In uy, 1936, the appontment of the trustees wr made permanent
and they operated the busness unt ebruary , 1937, when the
assets of the company were sod under an order of the Unted States
Dstrct Court. Ten or more ndvduas were empoyed durng the
entre perod. The queston presented s whether the trustees are
abe for the ta es mposed by Ttes III and I of the Soca
Securty ct.
rtce 205 of Reguatons 90, reatng to the e cse ta on em-
poyers under Tte I of the Soca Securty ct, and artce 4
of Reguatons 91, reatng to the empoyees ta and the empoyers
ta under Tte III of the Soca Securty ct, provde that an
empoyer
may be 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, group, or entty. n empoyer
may be a person actng n a fducary capacty or on behaf of another, such
as a guardan, commttee, trustee, e ecutor or admnstrator, trustee n bank-
ruptcy, recever, assgnee for the beneft of credtors, or conservator.
It s hed that and who are actng n a fducary capacty on
behaf of the M Corporaton are abe for the e cse ta es mposed
upon empoyers by Ttes III and I of the Soca Securty ct
notwthstandng they were conductng the affars of that corporaton
as trustees under secton 77( ) of the Natona ankruptcy ct, as
amended.
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Regs. 91, rt. 4.
390
Secton 811: Defntons. I-22-8739
Reguatons 91, rtce 4: Who are empoyers. S. S. T. 153
( so Secton 907 Reguatons 90, rtce 204.)
contractor who engages workers and furnshes them wth
machnes and toos wth whch to work, such contractor havng
the rght to dscharge the workers, beng prmary abe to pay
ther wages, and controng them not ony as to what sha be
done but how t sha be done, s the empoyer of the workers
so engaged for the purpose of Ttes III and I of the Soca
Securty ct.
dvce s requested whether the |obber or the contractor n a
certan ndustry s, for the purpose of the ta ng provsons of the
Soca Securty ct, the empoyer of those persons workng under
the contractor.
The contractor n queston enters nto agreements wth |obbers
whereby he agrees to manufacture certan artces for them. It s
estabshed that the contractor hres and has the rght to dscharge
the workers empoyed to carry out hs contracts. The contractor
superntends and drects the detas and means by whch the work
s done and the resuts accompshed. The worker n the con-
tractor s shop s sub|ect to the w and contro of the contractor
not ony as to what sha be done but how t sha be done and the
contractor furnshes the machnes and toos used by the workers.
ght or more ndvduas are engaged by the contractor durng the
entre year. Under certan agreements by whch the |obber s re-
qured to regster the specfc contractors to whom he w gve
work e cusvey, such contractors are bound to work e cusvey
for the |obber thus desgnatng them. In addton to payng the
contractor an amount suffcent to pay the wages and earnngs of the
workers as provded for n the agreements, the |obber s requred
to pay to the contractor the amount of the atter s overhead and
proft. The agreements entered nto pace an obgaton upon the
|obber for wages of the workers by provdng that each |obber sha
be responsbe for payment of the wages for work done by them for
each contractor. The contractor s unabe to pass the ta on snce
he deas ony wth hs |obber and does not dea wth the retaer or
consumer.
In determnng whether the |obber or the contractor s the em-
poyer of the workers used n carryng out the contracts for the
purpose of the ta ng provsons of the Soca Securty ct, the
foowng quotatons from the reguatons are pertnent. rtce
205 of Reguatons 90 states n part as foows (artce 3 of Regu-
atons 91 s substantay smar):
bt. 205. mpoyed ndvduas. n ndvdua s In the empoy of another
wthn the meanng of the ct f he performs servces n an empoyment as
defned n secton 907(c). owever, the reatonshp between the ndvdua
who performs such servces and the person for whom such servces are ren-
dered must, as to those servces, be the ega reatonshp of empoyer and
empoyee. The ct makes no dstncton between casses or grades of empoyees.
Thus, superntendents, managers, and other superor empoyees are empoyees
wthn the meanng of the ct.

Generay the reatonshp 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 by the work but aso as
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391
Regs. 91, rt. 4.
to the detas and means by whch that resut s accompshed. That Is, an
empoyee Is sub|ect to the w and contro of the empoyer not ony as to what
ha be done but how It sha be done. In ths connecton, t s not necessary
that the empoyer actuay drect or contro the manner n whch the servces
are performed t s suffcent f he has the rght to do so. The rght to ds-
charge s aso an mportant factor ndcatng that the person possessng that
rght s an empoyer. Other factors characterstc of an empoyer are the fur-
nshng of toos and the furnshng of a pace to work, to the ndvdua 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
and not as to the means and methods for accompshng the resut, he s an
ndependent contractor, not an empoyee.
ppyng the foregong to the nstant case, the contractor s the
person who engages the workers, furnshes the machnes and toos,
and has the rgnt to hre and dscharge the workers. The contractor
s the person who s prmary abe to pay the wages to the workers
and who contros them not ony as to what sha be done but how t
sha be done. The ega reatonshp of the contractor and hs work-
ers woud not be atered f such workers were performng servces n
ther hom s rather than n a pace furnshed by the contractor. (See
S. S. T. 137, page 378, ths uetn.) The mtaton paced on
the contractor under the agreements entered nto and the fact that
the |obber agrees to pay to the contractor a sum suffcent to cover the
wages of the persons workng under hm, pus an amount for over-
head and proft, do not tend to change the ega reatonshp of the
partes nvoved. urthermore, the |obber s abty for the payment
of wages to the contractor s workers s mted and secondary. The
fact that the contractor s unabe to pass the ta on to the retaer
or consumer s not matera. The e stng reatonshp woud not be
atered by any agreement wherebv the |obber or other person pays
the ta es on behaf of the contractor. (See S. S. T. 30, C. . -2,
399 (1936), whch s appcabe under Ttes III and I of the
Soca Securty ct.)
Under the facts presented and n vew of the foregong provsons
of the reguatons, t s hed that, for the purposes of the ta es m-
posed by Ttes III and I of the Soca Securty ct, the con-
tractor s the empoyer of those persons engaged to carry out the
contracts wth the |obbers.
Sectto 811: Defntons. I-22-8740
Reguatons 91, rtce 4: Who are empoyers. S. S. T. 154
( so Secton 907 eguatons 90, rtce 204.)
Determnaton ns to whether the M Corporaton or ts subsda-
res, or both. Is the empoyer of certan ndvduas wthn the
meanng of Ttes III and I of the Soca Securty ct
dvce s requested reatve to the status of certan ndvduas
performng servces under the condtons herenafter stated:
(1) Indvduas empoyed by, and performng servces soey for, a
subsdary of the M Corporaton. The wages of these empoyees are
pad ntay by the M Corporaton and the amounts thereof are
bed to the subsdary.
(2) Indvduas empoyed to hande such matters as accountng,
audtng, purchasng, etc., for the M Corporaton and aso for a num-
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Regs 91 rt. 4.
392
ber of ts subsdares. The ndvduas n ths group are engaged,
supervsed, pad, and controed by the M Corporaton. The prem-
ses on whch they work and the equpment used by them are fur-
nshed by that corporaton. Certan e ecutves, n addton to beng
offcers of the M Corporaton, are aso offcers of one or more of the
subsdares. In some cases the subsdares are charged fat rates
for servces rendered to them and n other cases an aocaton s made
based on the norma producton of the subsdares. In st other
cases the subsdares make no payment to the M Corporaton for
servces rendered by the offcers.
The term empoyment s defned n secton 811(b) of Tte TII
and secton 907(c) of Tte I of the Soca Securty ct as any
servce, of whatever nature, performed wthn the Unted States by
an empoyee for hs empoyer wth certan e ceptons not here
appcabe. rtce 205 of Reguatons 90, promugated pursuant to
Tte I of the ct, provdes n part as foows wth respect to the
reatonshp of empoyer and empoyee:
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 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.
rtce 3 of Reguaton 91, promugated under Tte III of the
ct, contans substantay the same provsons as artce 205 of Regu-
atons 90. Secton 1101 (a) 6 of the Soca Securty ct provdes that
the term empoyee sha ncude an offcer of a corporaton.
Wth respect to the ndvduas n group (1) who perform servces
soey for a subsdary of the M Corporaton and whose wages are
pad ntay by that corporaton, the partcuar subsdary nvoved
beng bed by the M Corporaton for the amount thereof, t s hed
that such ndvduas are empoyees of the subsdary for whch they
render servces. In determnng abty for the ta es mposed under
Ttes III and I of the Soca Securty ct, the subsdary for
whch the servces are performed s consdered the empoyer.
Wth respect to the ndvduas n group (2) (other than the
e ecutve offcers) who perform servces for both the M Corporaton
and ts subsdares, and whose servces are drected and controed
and whose wages are pad by that corporaton, t s hed that the
M Corporaton aone s the empoyer of such ndvduas.
Snce the reatonshp of empoyer and empoyee e sts between
a corporaton and ts offcers, the offcers of each corporaton are
empoyees thereof for the purpose of the ta es mposed under Ttes
III and I of the ct. Ths reatonshp s not affected by the
fact that n some cases the subsdares are not charged wth any
porton of the tota remuneraton pad to the offcers by the M Cor-
poraton. (See generay S. S. T. 19, C. . -2, 399 (1936).)
ccordngy, each corporaton of whch an ndvdua s an offcer s
the empoyer of such ndvdua, and any charges made by the M
Corporaton to a subsdary whch represent the remuneraton of the
ndvdua as an offcer of such subsdary consttute wages p:d
by the subsdary wthn the meanng of secton 811(a), Tte III,
and secton 907(b), Tte I , of the Soca Securty ct.
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393
egs. 01, rt. 6.
Secton 811: Defntons. T-5-8523
Reguatons 91, rtce 5: cepted servces S. S. T. 85
generay.
Servce e cepted from the term empoyment under subdv-
sons (1), (2), (5), (0), and (7) of secton 907(c), Tte I of the
Soca Securty ct, s aso e cepted from the term empoyment
under the correspondng subdvsons (1), (1 ), (6), (7), and (8) of
secton 811(b), Tte T of the ct
dvce s requested whether servce whch has been hed by the
ureau to be n an e cepted cass under a provson of secton 907(c),
Tte I of the Soca Securty ct, s aso e cepted under the cor-
respondng provson of secton 811(b), Tte III of that ct.
Secton 907(c) of the Soca Securty ct provdes:
The term empoyment means any servce, of whatever nature, performed
wthn the Unted States by an empoyee for ha empoyer, e cept
(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 Indvdua 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 Government or of
an nstrumentaty of the Unted States
(0) Servce performed n the empoy of a State, a potca subdvson
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 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.
Secton 811(b) of the ct provdes:
The term empoyment means any servce, of whatever nature, performed
wthn the Unted States by an empoyee for hs empoyer, e cept
(1) grcutura abor
(2) Domestc servce In a prvate home
(3) Casua abor not n the course of the empoyer s trade or busness
(4) Servce performed by an Indvdua who has attaned the age of 65
(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
(6) Servce performed In 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 nures to the beneft
of any prvate sharehoder or Indvdua.
Under the provsons of sectons 811(b) and 907(c) of the Soca
Securty ct, certan specfed servces are e cepted from the term
empoyment. Subdvsons (1), (2), (6), (7), and (8) of secton
811(b) and subdvsons (1), (2), (5), (6), and (7) of secton 907(c)
of the ct, respectvey, are dentca. ccordngy, servce whch
has been hed by the ureau to be e cepted from the term empoy-
ment under one of the foregong subdvsons of secton 907(c) of
the ct s kewse e cepted under the correspondng subdvson of
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Regs. 01, rt. 5.
394
secton 811(b). If e empton under any of the above-named sub-
dvsons of one tte of the ct s estabshed, no evdence need be
submtted to estabsh e empton under the correspondng subdvson
of the other tte.
Secton 811: Defntons. I-9-8573
R OD ToNs 91, btce 5: cepted servces S. S. T. 106
generay.
( so Secton 907 Reguatons 90, rtce 206.)
The ta ng provsons (Ttes III and I ) of the Soca Securty
ct may not by admnstratve practce be e tended to appy to
casses of empoyers and empoyees whch are e cepted by such
provsons.
dvce s requested whether natona banks whch have been
e cepted from the ta ng provsons of the Soca Securty ct as
nstrumentates of the Unted States may wave such e cepton and
vountary pay the ta es mposed under Ttes III and I of
that ct.
Sectons 811(b) 6, Tte III, and 907(c) 5, Tte I , of the Soca
Securty ct e cept from the term empoyment :
Servce performed n the empoy of the Unted States Government
or of an nstrumentaty of the Unted States.
In S. S. T. 16 (C. . -2, 386 (1936)) t was hed that 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, and thac
nether the banks nor ther empoyees are sub|ect to the ta es mposed
under Ttes III and I of that ct. Snce nether natona banks
nor ther empoyees are sub|ect to the ta es mposed by Ttes III
and I of the Soca Securty ct, the provsons of those ttes
may not by admnstratve practce be e tended to appy ether to
natona banks or ther empoyees. There s no authorty under the
ct for the coecton of ta es from persons, whether empoyers or
empoyees, f under the terms of Ttes III and I they are
e cepted from the ta ng provsons of the ct.
Secton 811: Defntons. I-16-8652
Reguatons 91, rtce 5: cepted servces S. S. T. 130
generay.
( so Secton 907 Reguatons 90, rtce 206.)
The ta ng provsons (Ttes III and I ) of the Soca Secur-
ty ct are appcabe to servces performed wthn the Unted
States by aens, regardess of whether they enter ths country
under treates of commerce and navgaton between the Unted
States and foregn governments or whether they are admtted
temporary as empoyees of ether foregn or domestc empoyers.
dvce s requested whether the ta es mposed by Ttes III and
I of the Soca Securty ct are appcabe to aen empoyees who
are permtted to stay temporary (not resde) n the Unted States
under restrcted condtons.
The ta mposed by Tte I of the Soca Securty ct s an
e cse ta mposed on empoyers (as defned n that tte) wth
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395
Regs. 91, rt. 6.
respect to havng ndvduas n ther empoy, and the measure of
the ta s the tota amount of wages payabe by the empoyer wth
respect to empoyment durng the caendar year regardess of the
tme of payment. The empoyees ta mposed by secton 801, Tte
III of the ct, and the empoyers ta mposed by secton 804,
Tte III of the ct, are measured by the amount of wages actu-
ay or constructvey receved and pad, respectvey, on and after
anuary 1, 1937, wth respect to empoyment on and after that date.
The term empoyment means any servce, of whatever nature,
performed wthn the Unted States by an empoyee for hs
empoyer wth certan specfed e ceptons. The e ceptons attach
to the servces performed by the empoyee and not to the empoyee
as an ndvdua, and an e cepton appes ony for the perod dur-
ng whch the ndvdua s renderng servces n an e cepted cass.
There s nothng n the Soca Securty ct whch e cepts servces
performed wthn the Unted States by aens, regardess of whether
they enter ths country under treates of commerce and navgaton
wth foregn countres or whether they are admtted temporary as
empoyees of ether foregn or domestc empoyers. The ta es
mposed by Ttes III and I of the ct are, therefore, appcabe
to such servces.
Secton 811: Defntons.
Reguatons 91, rtce 5: cepted servces generay.
Servces performed by empoyees n the Unted States and Canada.
(See S. S. T. 141, page 466.)
Secton 811: Defntons.
Reguatons 91, rtce 6: grcutura abor.
Servces performed by empoyees of commerca fower growers.
(See S. S. T. 72, page 468.)
Secton 811: Defntons.
Reguatons 91, rtce 6: grcutura abor.
Servces performed by empoyees of nurserymen. (See S. S. T. 73,
page 471.)
Secton 811: Defntons.
Reguatons 91, rtce 6: grcutura abor.
Servces performed n processng of sugar cane not agrcutura
abor. (See S. S. T. 103, page 471.)
Secton 811: Defntons. I-12-8606
Reguatons 91, rtce 6: grcutura abor. S. S. T. 117
( so Secton 907 Reguatons 90, rtce 206(1).)
Servces performed by empoyees of the M Company, whch s
engaged n the busness of hatchng chckens, do not consttute
agrcutura abor wthn the meanng of that term as used n
Ttes III and I of the Soca Securty ct.
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Regs. 91, rt. 6.
396
dvce s requested whether the M Company, -whose soe busness
s the operaton of chcken hatcheres, s e cepted from the ta es
mposed by Ttes III and I of the Soca Securty ct as an
empoyer of agrcutura abor.
The M Company operates three pants, the home pant ocated n
the State of R, a branch ocated n the State of S, and another
branch ocated n the State of T. The busness conssts of recev-
ng eggs from the farmers, hatchng chckens, and seng the chck-
ens to the farmers and poutry rasers who are ocated on farms and
n sma towns. The abor s engaged n deverng eggs to the
hatcheres, operatng ncubators, deverng chckens to the farmers,
post offces, and e press companes, keepng records, drvng trucks
to the farms, and other work.
rtce 6 of Reguatons 91, reatng to the empoyees ta and the
empoyers ta under Tte III of the Soca Securty ct, and art-
ce 206(1) of Reguatons 90, reatng to the e cse ta on empoyers
under Tte I of the Soca Securty ct, whch ttes e cept agr-
cutura abor from the term empoyment as used theren,
provde 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 rasng and harvestng of crops, or the rasng, feedng, or manage-
ment of ve stock, bees, and poutry or
(6) y an empoyee n connecton wth the processng of artces from mate-
ras 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 s carred on as an ncdent to ordnary farm-
ng operatons as dstngushed from manufacturng or commerca operatons.
s used heren the term farm embraces the farm n the ordnary ac-
cepted sense, and ncudes stock, dary, poutry, frut, and truck farms, panta-
tons, ranches, ranges, and orchards.
It w be observed from the foregong that servces performed by
an empoyee n connecton wth the processng of artces from mate-
ras whch were produced on a farm are e cepted, as we as the
packng, packagng, transportaton, or marketng of such 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, packagng,
transportaton, or marketng s carred on as an ncdent to ordnary
farmng operatons as dstngushed from manufacturng or com-
merca operatons.
It s hed that the servces of the empoyees of the M Company,
whch s engaged n the busness of hatchng chckens, can not
propery be cassfed as agrcutura abor nasmuch as such
servces are commerca and are not performed as an ncdent to
ordnary farmng operatons. The ta ng provsons of the Soca
Securty ct are therefore appcabe.
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397
Regs. 01, rt. 6.
Secton 811: Defntons. -12-8607
bguatons 91, rtce 6: grcutura abor. S. S. T. 118
( so Secton 907 Reguatons 90, rtce 206(1).)
Servces performed n the growng, harvestng, processng, pack-
ng, and transportng to market of gum nava stores (turpentne
aud rosn) do not consttute agrcutura abor wthn the mean-
ng of Ttes III and I of the Soca Securty ct.
dvce s requested by the M ssocaton whether the abor em-
poyed n the growng, harvestng, processng, packng, and trans-
portng to market of gum nava stores (turpentne and rosn) s
agrcutura abor wthn the meanng of Ttes III and I of
the Soca Securty ct. Such abor s specfcay e cepted from
the ta ng provsons of the ct by sectons 811 (b) and 907 (c).
In support of ts contenton that the ta es mposed by the Soca
Securty ct are not appcabe to the type of abor referred to above,
the M ssocaton has cted certan edera and State statutes, n-
cudng the Nava Stores ct, approved March 3, 1923, the gr-
cutura d|ustment ct, as amended, the So Conservaton and
Domestc otment cts, and the treatment of nava stores n the
admnstraton of such cts and n the effectuaton of the purposes
thereof.
The characterzaton, cassfcaton, or defnton of nava stores
n such cts or n the admnstraton thereof, beng for the purposes
of the partcuar cts, s not concusve wth respect to the meanng
of the term agrcutura abor as used n Ttes III and I of the
Soca Securty ct. The constructon to be paced upon that term
must depend upon the purpose for whch t was nserted n the
partcuar ct.
ased on the record before ths offce, t s hed that the servces
performed n the growng, harvestng, processng, packng, and
transportng to market of gum nava stores do not consttute agr-
cutura abor wthn the meanng of that term as used n Ttes
III and I of the Soca Securty ct.
Secton 811: Defntons. T-14-8630
Reguatons 91, rtce 6: grcutura abor. S. S. T. 125
( so Secton 907 Reguatons 90, rtce 206(1).)
Meanng of the term agrcutura abor as used n sectons
811(b) and 907(c) of the Soca Securty ct and artces 6
and 206(1) of Reguatons 91 and 90, respectvey.
dvce s requested concernng the scope of the term agrcutura
abor as used n sectons 811 (b) 1 and 907(c) 1 of the Soca Securty
ct and artces 6 and 206(1) of Reguatons 91 and 90, respectvey.
Secton 811, Tte III of the ct, provdes n part as foows:
When used n ths tte

(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 .
The provsons of secton 907(c), Tte I , and secton 811 (b),
Tte m, are dentca.
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Regs. 91, rt. 6.
398
rtce 6 of Reguatons 91, reatng to Tte III of the ct,
reads n part as foows:
grcutura abor. The term agrcutura abor Incudes a
servces performed
(0) y an empoyee, on a farm, n connecton wth the cutvaton of the
so, the rasng and harvestng of crops, or the rasng, feedng, or management
of ve stock, bees, and poutry or
(6) 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,
packagng, transportaton, or marketng s carred on as an ncdent to ordnary
farmng operatons as dstngushed from manufacturng or commerca
operatons.
s used heren the term farm embraces the farm In the ordnary
accepted sense, and ncudes stock, dary, poutry, frut, and truck farms,
pantatons, ranches, ranges, and orchards.
Subdvsons (a) and (5) of artce 206(1) of Reguatons 90,
reatng to Tte I of the ct, are substantay the same as the
above-quoted subdvsons of artce 6 Reguatons 91.
The servces contempated n subdvson (a) of the aforementoned
artces ncude:
(1) Servces whch are performed on a farm by an empoyee of
the tenant thereof, or of the owner of such farm (whether or not
n possesson), drecty n connecton wth the cutvaton of the
so, the rasng and harvestng of crops, or the rasng, feedng,
or management of ve stock. Dees, and poutry. n ustraton
of such servce s the manua abor nvoved n carryng on any
such actvty.
(2) Servces performed on a farm by an empo| ee of the tenant
thereof, or of the owner of such farm (whether or not n possesson),
whch, athough not performed drecty n connecton wth the
cutvaton of the so, the rasng and harvestng of crops, or the
rasng, feedng, or management of ve stock, etc., are nevertheess
performed as an ncdenta and necessary ad|unct to such actvtes
that s, they are necessary n the sense that they are essenta for
the proper carryng on of such actvtes, and are ncdenta n the
sense that both ther duraton and character are such as to consttute
ther performance a subordnate and mnor part of such actvtes.
ampes of such servces are the abor nvoved n hedgng, dtch-
ng, and the repar of fences on the farm.
To the e tent that an ndvdua, such as a farm manager or
superntendent, s engaged n the drect performance or supervson
of servces whch of themseves consttute agrcutura abor
such ndvdua s aso consdered to be engaged n agrcutura
abor, provded he s an empoyee of the owner or tenant of the
farm wth respect to whch hs servces are performed.
Where the nature of the servce s such that t mght propery be
sad of the ndvdua performng t that he s pursung a speca
trade, cang, or occupaton not cosey connected wth agrcuture,
the servce does not consttute agrcutura abor, even though the
servce may be performed on a farm by an empoyee of the owner
or tenant thereof. Typca of such servces are those performed by
a bookkeeper, stenographer, carpenter, mechanc, or engneer. Serv-
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Regs. 91, rt. 6.
ces of ths nature are not agrcutura even though pertanng to
agrcutura pursuts.
The servces referred to n subdvson (b) of artces 6 and 206(1)
of Reguatons 91 and 90, respectvey, do not embrace a servces
performed by an empoyee n connecton wth the processng of
artces from materas whch were produced on a farm, or n con-
necton wth the packng, packagng, transportaton, or marketng
of those materas or artces, even though such servces are per-
formed by the empoyee of the owner or tenant of the farm upon
whch the materas or artces n ther raw or natura state were
produced. s stated n S. S. T. 10 (C. . -2,411 (1936)), the fact
that an ndvdua s engaged n handng farm products does not
of tsef make the servces performed by hm agrcutura. Serv-
ces are often performed by empoyees n connecton wth the proc-
essng, packng, or other handng of farm products, whch are not
a part of ordnary farmng operatons but a part of manufacturng
or commerca operatons. Lkewse, servces are often performed
n connecton wth the processng, packng, or other handng of
farm products, whch servces even though they are performed by
an empoyee of the owner or tenant of the farm on whch the
products n ther raw or natura state were produced, do not con-
sttute agrcutura abor for the reason that they are rendered
n the pursut of a speca trade, cang, or occupaton not agr-
cutura.
The queston whether the processng, packng, packagng, transpor-
taton, or marketng of farm products s carred on as an ncdent to
ordnary farmng operatons as dstngushed from manufacturng or
commerca operatons s necessary dependent upon the facts n the
partcuar case wth respect to whch the queston arses. The nature
of the queston does not permt of the adopton of a genera rue
whch s controng under a crcumstances, but the foowng
factors, whe not a-ncusve, w be taken nto consderaton as
ndcatng that the servces n queston consttute agrcutura
abor :
(1) The same empoyees who perform servces n connecton wth
admttedy agrcutura actvtes (that s, those actvtes contem-
pated n subdvson (a) of artce 6 of Reguatons 91 and the
correspondng subdvson of artce 206(1) of Reguatons 90) aso
perform servces n connecton wth the handhng of the farm
products (that s, those actvtes referred to n subdvson (b) of
the aforementoned artces).
(2) The equpment used and the methods empoyed n handng
the farm products are dssmar to the equpment and methods used
n ke operatons by persons admttedy engaged n commerca or
manufacturng operatons.
(3) The empoyer handes products produced on hs own farm
e cusvey.
(4) The pace where the handng s carred on s ocated on the
farm.
(5) The product handed s sod e cusvey at whoesae.
(6) It s the genera custom and practce n the partcuar type
of farmng wth respect to whch the queston arses to perform the
handng operatons n queston.
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Regs. 91, rt. 0.
400
(7) The capta nvested n the equpment used n handng the
products does not consttute the greater part of the nvestment n
the enterprse as a whoe.
No one of the condtons specfed s concusve but each s a factor
n determnng whether n a partcuar case the processng, packng,
packagng, transportaton, or marketng of farm products s carred
on as an ncdent to ordnary farmng operatons or whether such
actvty s a part of a manufacturng or commerca operaton.
If an empoyee durng certan perods renders servces whch con-
sttute agrcutura abor and durng other perods renders serv-
ces whch consttute empoyment wthn te meanng of that
term as defned n the ta ng provsons of the ct, and the perod
of tme devoted to each type of servce s substanta, the servces
whch consttute agrcutura abor must be segregated from the
servces whch consttute empoyment on the bass of the tme
durng whch each type of servce s rendered. If, n such a case,
the agrcutura servces can not be so segregated, the entre servces
must be consdered as empoyment. Thus, f an empoyee con-
currenty performs servces whch, f separate and dstnct as to tme
of performance, woud consttute agrcutura abor, and other
servces whch consttute empoyment, the entre servces must
be cassfed as empoyment.
Where, however, an empoyee durng certan perods renders serv-
ces whch consttute agrcutura abor and durng other perods
renders servces whch consttute empoyment, and one type of
servce s merey ncdenta n measure ot tme to the other, then,
even though t s possbe to segregate the one type of servce from
the other, the ncdenta servce may be dsregarded n determnng
whether the empoyee s engaged n agrcutura abor. Thus, f
an ndvdua empoyed on a farm s engaged prncpay n repar-
ng farm machnery and equpment but ncdentay engages n the
performance of servces n connecton wth the cutvaton of the
so, hs entre servces may be treated as havng been performed n
empoyment, the ncdenta agrcutura servces beng dsregarded.
On the other hand, f an ndvdua empoyed on a farm s engaged
prncpay n the performance of servces n connecton wth the
cutvaton of the so but ncdentay repars farm machnery and
equpment, hs entre servces may be treated as agrcutura abor,
the ncdenta nonagrcutura servces beng dsregarded. No f ed
rue can be ad down for the determnaton of what consttutes
ncdenta servces for ths purpose, but any reasonabe concuson
reached by the empoyer n that regard w not be dsturbed.
In any case submtted to the ureau nvovng the queston whether
servces performed under certan crcumstances consttute agr-
cutura abor, nformaton shoud be furnshed n suffcent deta
to enabe the ureau to determne the queston n accordance wth
the foregong rues.
Secton 811: Defntons. I-16-8653
Reguatons 91, rtce G: grcutura abor. S. S. T. 131
( so Secton 007 Reguatons 90, rtce 20G(1).)
Servces performed n rasng godfsh do not consttute agr-
cutura abor wthn the meanng of Ttes III and I of the
Soca Securty ct.
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401
Regs. 91, rt. 6.
dvce s requested whether the servces performed by the em-
poyees of shoud be cassfed as agrcutura abor for the
purpose of the ta es mposed by Ttes III and I of the Soca
Securty ct, such abor beng specfcay e cepted from the ta ng
provsons of the ct by sectons 811 (b) and 907(c).
The farm owned by conssts of 200 acres ncudng 40 acres of
ponds n whch godfsh are rased. The remanng and s used
or pasture, crops, gardenng, etc. In connecton wth the operatons
of the farm, empoys severa men who ve on the farm or on
near-by farms. Ther work conssts of rasng godfsh and genera
farm work.
rtce 206(1) of Reguatons 90, reatng to the term agr-
cutura abor as used n secton 907(c) 1 of the ct, provdes n
part as foows:
rt. 206(1). grcutura abor. The term agrcutura abor ncudes
a servces performed
(o) y an empoyee, on a farm, In connecton wth the cutvaton of the
fo, the harvestng of crops, or the rasng, feedng, or management of ve
stock, bees, and poutry
In vew of the provsons of that artce and based upon the fore-
gong facts, t s hed that to the e tent that ndvduas on the farm
perform servces n connecton wth the rasng of godfsh, such
servces do not consttute agrcutura abor wthn the meanng
of Tte I of the ct, and wages pad wth respect to those servces
are sub|ect to the e cse ta mposed under that tte. Inasmuch as
artce 6 of Reguatons 91, reatng to Tte III of the ct, con-
tans provsons smar to those set forth n artce 206(1) of Regua-
tons 90, wages pad wth respect to such servces are aso sub|ect
to the empoyers and empoyees ta es mposed under Tte III
of the ct.
Wth respect to servces performed by the men dong genera farm
work on the farm, such as rasng and harvestng crops, etc., such
servces consttute agrcutura abor wthn the meanng of Ttes
III and I of the ct, and the wages pad wth respect to those
servces are not sub|ect to the ta es mposed by those ttes.
Secton 811: Defntons. I-16-8654
Reguatons 91, rtce 6: grcutura abor. S. S. T. 132
( so Secton 907 Reguatons 90, rtce 206(1).)
Servces performed by ndvduas n growng and processng
mushrooms do not consttute agrcutura abor wthn the mean-
ng of sectons 811(b) and 907(c) of the Soca Securty ct
dvce s requested whether servces performed by ndvduas
n growng and processng mushrooms consttute agrcutura
abor wthn the meanng of sectons 811 (b) and 907(c) of the
Soca Securty ct.
Under the provsons of secton 811 (b) and 907(c) 1 of the ct,
agrcutura abor s e cepted from the term empoyment as
used n Ttes III and I of the ct.
It appears that mushrooms are grown n the Unted States by
specasts and by farmers. In ether case the mushrooms are not
grown under fed condtons such as characterze norma farmng
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Regs. 91, rt. 6.
402
operatons, but must be specay cutvated and grown n cears,
caves, barns, or sheds constructed for the specfc purpose.
It was hed n S. S. T. 72 (page 468, ths uetn) that servces
performed n the commerca growng of fowers do not consttute
agrcutura abor wthn the meanng of sectons 811 (b) and
907(c) of the ct. S. S. T. 73 (page 471, ths uetn) hods
to the same effect wth respect to servces performed by empoyees
of nurserymen. The reasonng upon whch these rungs are based
s emboded n S. S. T. 72, supra. The pertnent reasons and argu-
ments set forth n S. S. T. 72 appy wth equa force to servces
performed n growng and processng mushrooms.
In vew of the foregong, t s hed that servces performed by
ndvduas n growng and processng mushrooms do not consttute
agrcutura abor wthn the meanng of sectons 811 (b) and
907(c) of the Soca Securty ct.
Secton 811: Defntons. I-18-8682
Reguatons 91, rtce 6: grcutura abor. S. S. T. 139
( so Secton 907 Reguatons 90, rtce 206(1).)
Servces performed by empoyees n connecton wth the crushng
of grapes and other processng operatons n the producton of
wne, and the packagng, transportng, and marketng of the wne,
do not consttute agrcutura abor wthn the meanng of
sectons 811 (b) and 907(c) of the Soca Securty ct
dvce s requested whether servces performed by empoyees n
connecton wth the crushng of grapes and other processng op-
eratons n the producton of wne, and the packagng, transportng,
and marketng of wne, consttute agrcutura abor wthn tho
meanng of sectons 811 (b) and 907 (c), Ttes III and I ,
respectvey, of the Soca Securty ct.
owns and devoted to the cutvaton and harvestng of wne
grapes. In addton he has but a wnery on the and for the pur-
pose of crushng hs own grapes and producng wne therefrom.
In some nstances he packages and dstrbutes hs product to the
consumer and n other nstances he dsposes of the wne n buk to
dstrbutors or ses the packaged wne to retaers.
Ttes III and I of the Soca Securty ct mpose ta es at
specfed rates measured by the amount of wages wth respect to
empoyment as defned by sectons 811 and 907 of the ct.
Sectons 811 (b) and 907 (c) of the ct provde, respectvey, that
the term empoyment, as used n Ttes III and I of the ct,
means any servce, of whatever nature, performed wthn the
Unted States by an empoyee for hs empoyer, e cept among
others (1) grcutura abor
rtce 6 of Reguatons 91, reatng to the empoyees ta and
the empoyers ta under Tte III of the Soca Securty ct, and
artce 206(1) of Reguatons 90, reatng to the e cse ta on em-
poyers under Tte I of that ct, provde that the term agrcu-
tura abor does not ncude servces performed by an empoyee n
connecton wth the processng of artces from materas whch were
produced on a farm or n connecton wth the packagng, transport-
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403
Regs. 91, rt. 6.
ng, or marketng of those materas or artces, uness they are
performed by an empoyee of the owner or tenant of the farm on
whch the materas m ther raw or natura state were produced,
and uness such processng, packagng, transportng, or marketng
s carred on as an ncdent to ordnary farmng operatons as ds-
tngushed from manufacturng or commerca operatons.
It s hed that the crushng of grapes and other processng opera-
tons n producng wne, and the packagng, transportng, and
marketng of the wne, are manufacturng and commerca operatons
rather than an ncdent to ordnary farmng operatons wthn the
meanng of artce 6 of Reguatons 91 and artce 206(1) of Regua-
tons 90. ccordngy, servces performed by empoyees engaged
n such actvtes consttute empoyment wthn the meanng of
Ttes III and I of the Soca Securty ct and are not e cepted
therefrom as agrcutura abor.
Secton 811: Defntons. I-19-8700
Reguatons 91, rtce 6: grcutura abor. S. S. T. 142
( so Secton 907 Reguatons 90, rtce 206(1).)
Servces performed by empoyees In connecton wth cotton gn-
nng and rce mng do not consttute agrcutura abor wthn
the meanng of Ttes III and I of the Soca Securty ct
dvce s requested whether servces performed by empoyees n
connecton wth cotton gnnng and rce mng consttute agrcu-
tura abor wthn the meanng of Ttes III and I of the Soca
Securty ct.
Ttes III and I of that ct mpose ta es at specfed rates
measured by the amount of wages wth respect to empoyment
as defned by sectons 811 and 907 of the ct. Secton 811 (b) and
secton 907(c) of the ct provde that the term empoyment, as
used n Ttes III and I of the ct, means any servce, of what-
ever nature, performed wthn the Unted States by an empoyee for
hs empoyer, e cept among others (1) grcutura abor
rtce 6 of Reguatons 91, reatng to the empoyees ta and the
empoyers ta under Tte III of the Soca Securty ct, and
artce 206(1) of Reguatons 90, reatng to the e cse ta on em-
poyers under Tte I of the Soca Securty ct, provde that the
term agrcutura abor does not ncude servces performed by
an empoyee n connecton wth the processng of artces from mate-
ras whch were produced on a farm or n connecton wth the pack-
agng, transportaton, and marketng of those materas or artces,
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, packagng, transpor-
taton, or marketng s carred on as an ncdent, to ordnary farmng
operatons as dstngushed from manufacturng or commerca
operatons.
It s hed that cotton gnnng and rce mng are not ncdenta
to ordnary farmng operatons wthn the meanng of artce 6 of
Reguatons 91 and artce 206(1) of Reguatons 90. Therefore,
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Regs. 91, rt. 6.
404
servces performed by empoyees n connecton wth such actvtes
consttute empoyment wthn the meanng of Ttes III and I
of the Soca Securty ct and are not e cepted therefrom as agr-
cutura abor rrespectve of the sources of the cotton and rce
gnned and med.
Secton 811: Defntons. I-23-S750
Reguatons 91, rtce 6: grcutura abor. S. S. T. 158
( so Secton 907 Reguatons 90, rtce 206(1).)
The e cepton accorded to agrcutura ubor by sectons
811 (b) and 907(c) 1 of the Soca Securty ct does not e tend to
the pasteurzng, bottng, devery and sae of mk or the process-
ng, transportng, and marketng of other products n connecton
wth the commerca operaton of a dary.
dvce s requested whether servces performed by the empoyees
of the M Corporaton, engaged n the dary busness, consttute
agrcutura abor wthn the meanng of sectons 811(b) and
907(c) 1, Ttes III and I , respectvey, of the Soca Securty
ct.
The M Corporaton owns and operates three dary farms on whch
t rases ts own feed and catte. arm hands are empoyed to do the
mkng and other genera agrcutura work. The mk s then
shpped to the corporaton s creamery for pasteurzaton, bottng,
and the processng of other dary products. The dutes of the cream-
ery empoyees pertan ony to creamery actvtes and are not con-
nected wth operaton of the farms. The corporaton aso owns and
operates reta and whoesae mk routes for the dstrbuton of
dary products, and the dutes of the empoyees n ths department
consst ony of such dstrbuton.
Wth respect to servces rendered on a dary farm, the e cepton
accorded to agrcutura abor by sectons 811 (b) and 907(c) 1
of the Soca Securty ct appes ony to servces n connecton wth
the rasng, feedng, or management of ve stock and the processng,
transportng, and marketng of artces from materas produced on
the farm when such processng, transportng, and marketng are car-
red on as an ncdent to ordnary farmng operatons as dstngushed
from manufacturng or commerca operatons. The e cepton does
not e tend to the pasteurzng, bottng, devery, and sae of mk
or the processng, transportng, and marketng of other produets
n connecton wth the commerca operaton of a dary. The servces
performed by empoyees of the M Corporaton wth respect to the
rasng of crops and the feedng and mkng of cows come wthn
the e cepton provded for agrcutura abor, but the servces per-
formed n connecton wth the processng, transportng, and market-
ng of the dary products do not consttute e cepted servces under
the ta ng provsons (Ttes III and I ) of the Soca Securty
ct.
It s, therefore, hed that the M Corporaton and ts empoyees
engaged n the processng, transportng, and marketng of dary
products are sub|ect to the ta es mposed by sectons 804 and 801,
respectvey, Tte III of the ct, and f the corporaton s an
empoyer as defned by secton 907(a), Tte I of the ct, t s
aso abe for the ta mposed by secton 901 of that tte.
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405
Regs. 91, rt. 6.
Secton 811: Defntons. I-25-8777
Reguatons 91, rtce 6: grcutura abor. S. S. T. 163
( so Secton 907 Reguatons 90, rtce 206(1).)
Servces performed by empoyees of the M Company, the operator
of a stock farm, In connecton wth racng and e hbtng horses
do not consttute agrcutura abor wthn the meanng of sec-
ton 811(b), Tte III, and secton 907(c), Tte I . of the
Soca Securty ct.
dvce s requested whether servces performed n the empoy of
the M Company n connecton wth racng and e hbtng horses
consttute agrcutura abor wthn the meanng of secton
811 (b), Tte III, and secton 907(c) 1, Tte I , of the Soca
Securty ct.
Under the provsons of those sectons, agrcutura abor s
e cepted from the term empoyment as defned n the ct. The
term agrcutura abor ncudes a servces performed by an
empoyee, on a farm, n connecton wth the cutvaton of the so,
the rasng and harvestng of crops, or the rasng, feedng, or man-
agement of ve stock, bees, and poutry. ( rtce 6, Reguatons 91
artce 206(1), Reguatons 90.)
The M Company operates a stock farm. It breeds and rases
horses for sae n addton to cutvatng the so and rasng and
harvestng crops. In order to create a favorabe market for the sae
of ts horses, racng actvtes are carred on and horses are e -
hbted at horse shows. reatvey sma number of ts horses are
used n racng, the ma|orty beng sod wthout such use. The em-
poyees who render servces n connecton wth the racng and e -
hbtng actvtes are aso engaged n the ordnary farmng opera-
tons carred on by the M Company.
It s hed that servces performed by empoyees of the M Com-
pany n connecton wth the racng of horses and e hbtng them at
horse shows do not consttute agrcutura abor wthn the mean-
ng of secton 811 (b), Tte TLT, and secton 907 (c), Tte I , of
the Soca Securty ct.
It was hed n S. S. T. 125 (page 397, ths uetn) that where
an empoyee on a farm renders servces durng certan perods whch
consttute agrcutura abor and durng other perods renders
servces whch consttute empoyment, as defned n Ttes III
and I of the ct, and the perod of tme devoted to each type of
servce s substanta, the servces whch consttute agrcutura
abor must be segregated from the servces whch consttute em-
poyment on the bass of the tme durng whch each type of serv-
ce s rendered, and that where t s not possbe to make such a segre-
gaton, the entre servces must be consdered as empoyment. In
appyng the rue stated n S. S. T. 125, supra, for the purpose of
determnng whether the nonagrcutura servces performed by an
empoyee are substanta or ncdenta by comparson wth the serv-
ces whch are e cepted as agrcutura abor, t s necessary to
ascertan the proportonate amount of tme devoted e cusvey by
the empoyee to each type of servce (. e., nonagrcutura servce
and agrcutura servce). The servces actuay performed by the
ndvdua and not the varous actvtes n whch the M Company
s engaged determne whether the nonagrcutura servces rendered
by any one of ts empoyees are substanta or ncdenta.
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Regs. 91, rt. 7.
406
Secton 811: Defntons. I-26-8789
Reguatons 91, rtce 6: grcutura abor. S. S. T. 166
( so Secton 907 Reguatons 90, rtce 206(1).)
Servces rendered by empoyees of the M Company n connecton
wth the rasng of rabbts for commerca purposes, ncudng the
sae of rabbts, do not consttute agrcutura abor wthn the
meanng of that term as used n Ttes III and I of the Soca
Securty ct.
dvce s requested whether the servces of the empoyees of the
M Company shoud be cassfed as agrcutura abor wthn the
meanng of that term as used n Ttes III and I of the Soca
Securty ct.
The M Company s engaged n rasng rabbts to be sod on the
market for commerca purposes. Two men are occuped n rasng
the rabbts. One man buys rabbts and by-products from other rabbt
rasers who produce rabbts on ther own premses., and another
empoyee s engaged n genera work around the rabbtry, ncudng
genera repar work and drvng a truck. nother empoyee con-
ducts the company s reta store, seng dressed rabbts whch are
purchased n part from other rasers.
Sectons 811 (b). Tte III, and 907 (c), Tte I , of the Soca
Securty ct provde that the term empoyment as used n the ct
sha ncude any servce, e cept, among others, agrcutura abor.
rtce 6 of Reguatons 91, construng secton 811 (b) of Tte
III of the ct, provdes:
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 rasng and harvestng of crops, or the rasng, feedng, or manage-
ment of ve stock, bees, and poutry
(b) y an empoyee n connecton wth the processng of artces from mate-
ras whch were produced on a farm aso the packng, packagng, transporta-
ton, or marketng of those materas or artces. Such servces do not const-
tute 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, packagng,
transportaton, or marketng s carred on as an ncdent to ordnary farmng
operatons as dstngushed from manufacturng or commerca operatons.
Itacs supped.
rtce 206(1) of Reguatons 90, construng secton 907(c) of
Tte I of the ct, contans substantay smar provsons. (See
aso S. S. T. 125, page 397, ths uetn.)
ctvtes of the knd here n queston are nether necessary nor
usuay assocated wth farms or reated to ordnary farmng opera-
tons and such s the stuaton n the present case. It s accordngy
hed that the servces rendered by empoyees of the M Company are
not agrcutura abor wthn the meanng of the ta ng pro-
vsons (Ttes III and I ) of the Soca Securty ct.
Secton 811: Defntons. I-13-8616
Reguatons 91. rtce 7: Domestc servce. S. S. T. 121
( so Secton 907 Reguatons 90, rtce 206(2).)
Servce performed n the prvate home of a deceased empoyer
durng the perod of admnstraton of hs estate.
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Regs. 01, rt. 8.
dvce s requested whether servce performed n the prvate
home of a deceased empoyer durng the perod of admnstraton of
hs estate consttutes domestc servce n a prvate home wthn the
meanng of secton 811(b)2 of the Soca Securty ct and artce 7
of Reguatons 91.
Secton 811(b) of the ct provdes n part as foows:
(b) The term empoyment means any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer, e cept
(2) Domestc servce n a prvate home
rtce 7 of Reguatons 91 reads n part as foows:
Domestc servce. Servces of a househod nature performed by an
empoyee n or about the prvate home of the person by whom he Is empoyed
are wthn the e cepton.
prvate home s the f ed pace of abode of an ndvdua or famy.

In genera, servces of a househod nature n or about a prvate home ncude
servces rendered by cooks, mads, buters, vaets, aundresses, furnacemen,
gardeners, footmen, grooms, and chauffeurs of automobes for famy use.
Where the home of a decedent s mantaned by the e ecutor or
admnstrator of hs estate as a prvate home for the decedent s
famy, the domestc servces performed by ndvduas n such a
home durng the perod of admnstraton of the estate consttute
u domestc servce n a prvate home wthn the meanng of secton
811(b)2 of the Soca Securty ct and artce 7 of Reguatons 91.
owever, where the property durng such perod s not mantaned
as a prvate home but s merey hed by the estate pendng the sae
or other dsposton thereof, the servces performed n connecton
wth the mantenance and care of the property whe so hed do not
come wthn the e cepton.
The concuson reached heren s aso appcabe under Tte I
of the ct.
Secton 811: Defntons. I-3-8490
Reguatons 91, htcm: 8: Casua abor not n S. S. T. 71
the course of empoyer s trade or busness.
Temporary servces performed In a prvate home by a nurse, who
Is not empoyed by a doctor, hospta, or empoyer other than the
patent beng mnstered to, consttute casua abor wthn the
meanng of secton 811 (b)3 of the Soca Securty ct.
dvce s requested whether servces performed by a nurse n a
prvate home for a temporary perod consttute casua abor wthn
the meanng of secton 811(b) 3 of the Soca Securty ct.
Secton 811(b) of the ct provdes n part as foows:
(b) The term empoyment means any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer, e cept

(3) Casua abor not n the course of the empoyer s trade or busness
The term casua abor ncudes abor whch s occasona, nc-
denta, or rreguar. The e presson not n the course of the em-
poyer s trade or busness ncudes abor that does not promote or
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Regs. 91, rt. 10.
4U8
advance the trade or busness of the empoyer. ( rtce 8, Regu-
atons 91.)
It s hed that temporary servces performed by a nurse n a
prvate home consttute casua abor wthn the meanng of
secton 811(b) 3 of the ct and artce 8 of Reguatons 91, where the
nurse s not empoyed by a doctor, hospta, or empoyer other than
the person to whom she s mnsterng. Such casua servces come
wthn the scope of the e cepted servces specfed n secton 811
(b)3. ccordngy, the ta es mposed under Tte III of the ct
do not attach wth respect to such servces.
Secton 811: Defntons. I-4-8504
Reguatons 91, rtce 10: Offcers and members S. S. T. 73
of crews.
( so Secton 907 Reguatons 90, rtce 206(3).)
Dredges used for navgaton and transportaton In deepenng and
removng obstructons from channes and harbors are vesses
wthn the meanng of sectons S(b)5 and 907(c)3 of the Soca
Securty ct
dvce s requested whether dredges are vesses wthn the
meanng of secton 811(b)5, Tte III, and secton 907(c)3, Tte
I , of the Soca Securty ct.
Secton 811(b) 5, Tte III of the ct, e cepts from the term
empoyment :
(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(c)3, Tte I of the ct, e cepts:
(3) Servce performed as an offcer or member of the crew of a vesse on
the navgabe waters of the Unted States.
In Cty of Los ngees v. Unted Dredgng Co. (14 ed. (2d),
364), the court hed that barges wth dredgng machnery thereon are
water craft capabe of beng used as a means of transportaton on
water that they are but to be used n navgabe waters, and are
ntended to transport machnery, suppes, and crews necessary to
dg out mud and other obstructons n harbors n ad of navgaton.
(See aso McMaster v. One Dredge, 95 ed., 832 owers ydrauc
Dredgng Co. v. edera Contractng Co., 148 ed., 290.)
It s hed that dredges used for navgaton and transportaton n
carryng on the work of deepenng and removng obstructons from
channes and harbors are vesses wthn the meanng of secton
811(b)5 and secton 907(c)3 of the Soca Securty ct. Where the
dredges are documented under the aws of the Unted States or of
any foregn country, the servces performed by the offcers and mem-
bers of the crew of the dredge come wthn the e ceptng provsons
of secton 811(b)5, supra. Where the dredges are operated on the
navgabe waters of tre Unted States, the servces performed by
the offcers and members of the crew come wthn the e ceptng pro-
vsons of secton 907(c) 3, supra.
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409
Regs. 91, rt. 11.
Secton 811: Defntons. I-1-8466
Reguatons 91, nncL 11: Government em- S. S. T. 61
poyees.
( so Secton 907 Reguatons 90, rtce 20G(5)-(G).)
Cassfcaton of certan corporatons us nstrumentates of
the Unted States wthn the meanng of sectons 811 (b)( and
007(c)5 of the Soca Securty ct.
dvce s requested whether servces performed n the empoy of
certan corporatons whch are under the supervson of the arm
Credt dmnstraton are wthn the e ceptons contaned n sec-
tons 811(b)6, Tte III, and 907(c)5, Tte I , of the Soca Secu-
rty ct, e cudng from the term empoyment as used n the ct
Servce performed n the empoy of the Unted States Government
or of an nstrumentaty of the Unted States.
In vew of the provsons of the cts under whch the corpora-
tons were created, t s hed that servces performed by ndvduas
n the empoy of edera Land anks, Natona arm Loan sso-
catons, ont Stock Land anks, Producton Credt Corporatons,
Producton Credt ssocatons, the Centra ank for Cooperatves,
anks for Cooperatves, Regona grcutura Credt Corporatons,
the edera arm Mortgage Corporaton, and edera Intermedate
Credt anks are servces performed n the empoy of an nstru-
mentaty of the Unted States wthn the meanng of sectons
811(b)6, Tte III, and 907(c)5, Tte I , of the Soca Securty
ct. ccordngy, nether the above-named corporatons nor ther
empoyees are sub|ect to the provsons of the ct.
Servces performed by recevers of ont Stock Land anks,
apponted pursuant to authorty vested n the arm Loan oard
by secton 29 of the edera arm Loan ct (39 Stat., 360), and by
members of ther staffs come wthn the same e ceptons.
Secton 811: Defntons. I-1-8467
Reguatons 91, rtce 11: Government em- S. S. T. 62
povees.
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
Cassfcaton of certan corporatons as nstrumentates of the
Unted States wthn te meanng of sectons 811(b)8 and 907(c)5
of the Soca Securty ct.
dvce s requested whether servces performed n the empoy
of certan corporatons organzed and supervsed by the edera ome
Loan ank oard are wthn the e ceptons contaned n sectons
811(b)6, Tte III, and 907(c)5, Tte I , of the Soca Securty
ct, e cudng from the term empoyment as used n the ct
Servce performed n the empoy of the Unted States Government
or of an nstrumentaty of the Unted States.
In vew of the provsons of the cts under whch the corporatons
were created, t s hed that edera ome Loan anks, the ome
Owners Loan Corporaton, the edera Savngs and Loan Insur-
7088 87 14
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Rega. 91, rt. 11.
410
ance Corporaton, and edera Savngs and Loan ssocatons are
nstrumentates of the Unted States wthn the meanng of sectons
811(b)6, Tte III, and 907(c)5, Tte I , of the Soca Securty
ct. ccordngy, these corporatons and ther empoyees are not
sub|ect to the provsons of the ct.
Secton 811: Defntons. I-2-8476
Reguatons 91, rtce 11: Government empoyees. S. S. T. 65
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
State banks organzed under the genera bankng aws of the
State of Indana are not Instrumentates 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(c)5 of the ct.
dvce s requested whether State banks whch are organzed under
the genera bankng aws of the State of Indana are nstrumenta-
tes 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
mposes 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 emptng
servces performed n the empoy of a State or nstrumentaty
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 Indana does not dscose that banks organzed thereunder
are created for the purpose of actng as State agences or nstrumen-
tates. ccordngy, such banks are not to be consdered as nstru-
mentates 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
empovees are not sub|ect to the ta es mposed under Ttes III and
I of the ct. (S. S. T. 44, C. . -2, 388 (1936).)
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411
Regs. 91, rt. 11.
Secton 811: Defntons.
Reguatons 91, rtce 11: Government empoyees.
erry company whoy owned by a county and a cty. (See
S.S. T. 74, page 475.)
Secton 811: Defntons. I-4-8505
Reguatons 91, ktce 11: Government empoyees. S. S. T. 79
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
State banks nsured by the edera Depost Insurance Corpora-
ton but whch are not members of the edera Reserve System
are not nstrumentates of the Unted States wthn the meanng
of sectons 811tb)6 and t 07(c)5 cf the Soca Securty ct.
dvce s requested whether State banks nsured by the edera
Depost Insurance Corporaton but whch are not members of tho
edera Reserve Svstem arc sub|ect to the ta es mposed by Ttes
III and I of the Soca Securty ct.
Secton 1213 of the edera Reserve ct, as amended ugust 23,
1935 (49 Stat., 084), provdes n part wth respect to nsured banks, as
foows:
(2) The term State member bank means any State bank whch s a
member of the edera Reserve System, and the term State nonmember bank
means any State bank whch s not a member of the edera Reserve System.

(5)

(f) (2) Sub|ect to the provsons of ths secton. any State non-
member bank, upon appcaton to and e amnaton by the Corporaton and
approva by the board of drectors, may become an nsured bank. efore
approvng the appcaton of any such State nonmember bank, the board of
drectors sha gve consderaton to the factors enumerated n subsecton (g)
of ths secton and sha determne, upon the bass of a thorough e amnaton
of such bank, that ts assets In e cess of ts capta requrements are adequate
to enabe t to meet a ts abtes to depostors and other credtors as shown
by the books of the bank.
s) The factors to be consdered by the board of drectors under
nbsecton (f) sha be the foowng: The nanca hstory and condton of the
hank, the adequacy of ts capta structure, ts future earnngs prospects, the
genera character of ts management, the convenence and needs of the com-
munty to be served by the bank, and whether or not ts corporate powers are
consstent wth the purposes of ths secton.
Tte III of the Soca Securty ct provdes n secton 801 for
the evyng of a ta upon the ncome of every ndvdua equa to a
percentage of the wages receved by hm wth respect to em-
poyment and secton 804 requres every empoyer to pay an
e cse ta measured by the amount of wages pad by hm durng
each year wth respect to empoyment. Secton 811 (b)6 provdes:
The term empoyment means any servce, of whatever nature,
performed wthn tho Unted States by an empoyee for hs empoyer, e cept

(6) Servce performed n the empoy of the Unted States Government or
of an nstrumentaty of the Unted States.
Secton 901, Tte I of the ct, mposes an e cse ta upon
empoyers (as defned n secton 907), and secton 907(c)5 s dentca
wth secton 811 (b)G, supra.
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Regs. 91, rt. 11.
412
There s nothng n the ct creatng the edera Depost Insurance
Corporaton to ndcate that State banks nsured thereunder whch
are not members of the edera Reserve System shoud be construed
to be nstrumentates of the Unted States. It s hed, therefore,
that State banks whch are nsured by the edera Depost Insur-
ance Corporaton but whch are not members of the edera Reserve
System are not nstrumentates of the Unted States wthn the
meanng of sectons 811(b) 6 and 907(c)5 of the Soca Securty ct.
(See S. S. T. 44, C. . -2, 388 (1936)), hodng that State banks
whch are members of the edera Reserve System and ther em-
poyees are not sub|ect to the ta es mposed by Ttes III and I
of the Soca Securty ct for the reason that such banks are
nstrumentates of the Unted States.)
Secton 811: Defntons. I-4-8506
Reguatons 91, rtce 11: Government empoyees. S. S. T. 80
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
State banks organzed under the genera bankng aws of the
State of Utah 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(c)5 of the ct.
dvce s requested whether State banks organzed under the
genera bankng aws of the State of Utah are nstrumentates 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, wth respect to
empoyment, and secton 804 mposes an e cse ta upon every
empoyer 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 that tte, and secton 907(c)6 s
dentca wth the above-quoted provsons of secton 811 (b)7 e cept-
ng servces performed n the empoy of a State or nstrumentaty
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 Utah does not dscose that banks organzed there-
under are created for the purpose of actng as State agences or n-
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413
Regs. 91, rt. 11.
strumentates. ccordngy, such banks are not to be consdered 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. (S. S. T. 44, C. . -2, 388 (1936).)
Secton 811: Defntons. I-6-8536
Reguatons 91, rtce 11: Government empoyees. S. S. T. 88
( so Secton 907 Reguatons 90, rtce 20G(5)-(6).)
State banks organzed under the genera bankng aws of the
State of Rhode Isand are not Instrumentates 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 ed-
era Reserve System, they are Instrumentates 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 Rhode Isand are
nstrumentates 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
mposes an e cse ta upon every empoyer measured by the amount
of wages pad wth respect to empo3 ment 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) SerTce performed n the empoy of a State, a potca subdvson
thereof, cr 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 Tte I , and secton 907(c) 6 s
dentca wth the above-quoted provsons of secton 811 (b)7 e -
emptng servces performed n the empoy of a State or nstru-
mentaty 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 Rhode Isand 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 consdered 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 nstrumen-
tates of the Unted States under sectons 311(d)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. (S. S. T. 44, C. .
-2, 388 (1936).)
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Regs. 91, rt. 11.
414
Secton 811: Defntons.
Reguatons 91, rtce 11: Government empoyees.
mpoyees of a muncpay owned but prvatey operated gas
pant. (See S. S. T. 89, page 476.)
Secton 811: Defntons. I-7-8549
Reguatons 91, rtce 11: Government empoyees. S. S. T. 93
( so Secton907 Reguatons90, rtce 206(5)-(6).)
State banks organzed wder the genera bankng aws of the State
of Maryand are not nstrumentates of the State wthn the mean-
ng 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)0 and 907(0)3 of the ct.
dvce s requested whether State banks organzed under the
genera bankng aws of the State of Maryand are nstrumentates
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, wth respect to empoyment,
and secton 804 mposes an e cse ta upon every empoyer measured
by the amount of vages 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 that tte, and secton 907(c)6 s
dentca wth secton 811 (b)7 whch e cepts servce performed n the
empoy of a State or nstrumentaty 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 Maryand does not dscose that banks organzed thereunder
are created for the purpose of actng as State agences or nstru-
mentates. ccordngy, such banks are not to be consdered 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. (S. S. T. 44, C. . -2, 388 (1936).)
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415
Regs. 91, rt. 11.
Secton 811: Defntons. I-7-8550
Reguatons 91, rtck 11: Government empoyees. S. S. T. 94
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
Power dstrcts organzed under Nebraska statutes are potca
subdvsons of the State wthn the meanng of sectons 811 (b)7 and
907(c)6 of the Soca Securty ct, and nether such dstrcts nor
ther empoyees are sub|ect to the ta es mposed under Ttes III
and I of that ct.
dvce s requested whether power dstrcts organzed under the
Nebraska statutes come wthn the provsons of sectons 811(b) 7
and 907(c)6 of the Soca Securty ct, whch e cept from the term
empoyment as defned n Ttes III and I of the ct
Servce performed n the empoy of a State, a potca sttbdvson
thereof, or an nstrumentaty of one or more States or potca sub-
dvsons. Itacs supped.
The power dstrcts n queston are created for the purpose of own-
ng, constructng, and operatng eectrc ght and power pants,
nes, and systems, or rrgaton works, pursuant to the provsons
of the Laws of Nebraska, 1933, chapter 86 (1935 Cum. Supp., sec-
ons 70-701 et seq.). Secton 70-702 provdes n part as foows:
dstrct may be created as provded In ths act and when so cre-
ated sha be a pubc corporaton or potca subdvson of ths State and
may sue or be sued In ts corporate name. ny one or more muncpates,
whether contguous or otherwse, may organze and ncorporate as such ds-
trct, but no muncpaty sha be dvded n the formaton of such dstrct,
e cept that a muncpaty wthn the terrtora boundares of a muncpaty
of arger area may organze or |on n the organzaton of such a dstrct when
such arger muncpaty sha fa or refuse to do so . Itacs sup-
ped.
The statute makes no provson for organzaton of power ds-
trcts other than by muncpates.
rtce 22(b) (4)- of Reguatons 94, deang wth the term po-
tca subdvson as used n secton 22(b)4 of the Revenue ct of
1936, provdes:
The term potca subdvson, wthn the meanng of the e empton, de-
notes any dvson of the State or Terrtory whch s a muncpa corporaton,
r to whch has been deegated the rght to e ercse part of the soveregn power
of the State or Terrtory. s thus denned, a potca subdvson of a State
or Terrtory may, for the purpose of e empton, ncude speca assessment
dstrcts so created, such as road, water, sewer, gas, ght, recamaton, dran-
a|p, rrgaton, evee, schoo, harbor, port mprovement, and smar dstrcts
and dvsons of a State or Terrtory.
It does not appear that the term potca subdvson was n-
tended to have dfferent meanngs as used n the cts referred to
heren. Whe a power dstrct organzed under Nebraska statutes
as no authorty to evy a ta , t s an organzaton of one or more
muncpates, and t s e pressy decared t y statute to be a potca
subdvson of the State. It s, accordngy, hed that such a power
dstrct s a potca subdvson of the State wthn the meanng of
the above-quoted provsons of the Soca Securty ct, and that
nether such dstrcts nor ther empoyees are sub|ect to the ta es
mposed under Ttes III and I of that ct.
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Regs. 91, rt. .
416
Secton 811: Defntons. I-8-85 )
R orL ToNs 91, rtce 11: Government empoyees. S. S. T. 98
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
Port dstrcts organzed under the statutes of the State of Wash-
ngton are potca subdvsons of the State wthn the meanng of
sectons 811(b)7 and 907(c)6 of the Soca Securty ct, and
nether such dstrcts nor ther empoyees are sub|ect to the ta es
mposed under Ttes III and I of that ct.
dvce s requested whether port dstrcts organzed under the aws
of the State of Washngton and ther empoyees are sub|ect to the
ta es mposed by Ttes III and I of the Soca Securty ct.
Remngton s Comped Statutes of Washngton, 1922, Chapter
II, secton 9688, provdes that Port dstrcts for the acqurement,
constructon, mantenance, operaton, deveopment and reguaton of
a system of harbor mprovements and ra and water transfer and
termna factes wthn such dstrcts, are hereby authorzed to be
estabshed n the varous countes of ths State, as n ths act pro-
vded. L. 11, page 412, secton 1 . The voters of the county vote
on the queston of creatng port dstrcts and eectons may be caed
by the board of county commssoners or on petton of 10 per cent of
the quafed voters. Secton 9693, Chapter II of Remngton
Comped Statutes of Washngton, 1922, provdes that n port ds-
trcts of 200,000 popuaton the port commssoner sha be pad 3,000
per year, to be pad n the same manner as the saares of the em-
poyees of the port dstrct. Port dstrcts are authorzed to e ercse
the rght of emnent doman and to evy and coect assessments.
In Pane v. Port of Seatte (70 Wash., 294, 127 Pac, 580). the
Supreme Court of Washngton hed that a port dstrct s a muncpa
corporaton havng an ndependent e stence wth powers to ncur
ndebtedness on ts own account up to the consttutona mtaton.
Secton 907(c) of the Soca Securty ct provdes that when used
n Tte I the term empoyment means any servce, of whatever
nature, performed wthn the. Unted States by an empoyee for hs
empoyer, e cept, among others, Servce performed n the empoy
of a State, a potca subdvson thereof, or an nstrumentaty
of one or more States or potca subdvsons. Secton 811(b),
Tte III of the ct, contans a smar provson pertanng to the
ncome ta on empoyees and the e cse ta on empoyers mposed
by sectons 801 and 804, respectvey. rtce 206(5)-(6) of Regua-
tons 90 and artce 11 of Reguatons 91, reatng respectvey to the
servces e cepted by secton 907(c) and secton 811(b) of the ct,
provde that ths 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 dstncton between those
e ercsng functons of a governmenta nature and those e ercsng
functons of a propretary nature.
Port dstrcts formed pursuant to the provsons of secton 968S,
Chapter II of Remngton s Comped Statutes of Washngton. 1 2 2.
are potca subdvsons of the State of Washngton wthn the mean-
ng of sectons 811(b)7 and 907(c)6 of the Soca Securty ct, and
servces performed by ndvduas n the empoy of such port dstrcts
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417
Regs. 91, rt. 11.
come wthn the e cepton contaned n those sectons of the ct.
ccordngy, nether the ncome ta on empoyees mposed by secton
SOI of the ct nor the e cse ta es on empoyers mposed by sectons
804 and 901 thereof attach wth respect to the servces of empoyees
of port dstrcts of the State of Washngton on account of such
servces.
Secton 811: Defntons. I-8-8560
Reguatons 91, rtce 11: Government empoyees. S. S. T. 99
( so Secton 907 Reguatons 90, rtce 200(5)-(6).)
State banks organzed under the genera bankng aws of the
State of Mssour 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)C and 907(c)5 of the ct.
dvce s requested whether State banks organzed under the
genera bankng aws of the State of Mssour are nstrumentates
.f 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, wth respect to
empoyment, and secton 804 mposes an e cse ta upon every em-
poyer 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-
foraed 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
ufter anuary 1, 1936, upon empoyers of eght or more ndvduas
under the condtons prescrbed n that tte, and secton 907(c)6
s dentca wth the above-quoted provsons of secton 811 (b)7,
e ceptng servces performed m 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 Mssour does not dscose that banks organzed there-
under are created for the purpose of actng as State agences or nstru-
mentates. ccordngy, such banks are not to be consdered as
nstrumentates of the State for the purpose of the ta es mposed
hy 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. (S. S. T. 44, C. -2, 388 (1936).)
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Regs. 91, rt. 11.
418
Secton 811: Defntons. I-8-8561
Reguatons 91. rtce 11: Government empoyees. S. S. T. 100
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
Servces performed by empoyees of the West rgna Lquor
Contro Commsson come wthn the e ceptng provsons of sec-
tons 811 (b)7 and 907(c)6 of the Soca Securty ct.
dvce s requested whether the West rgna Lquor Contro
Commsson and ts empoyees are sub|ect to the ta es mposed by
Ttes III and I of the Soca Securty ct.
The West rgna quor contro act, effectve March 1, 1935
(chapter 4, Laws of West rgna, 1935, as amended), creates the
West rgna Lquor Contro Commsson, whch s gven authorty
to se quor n the manner set forth n the act. It s provded that the
commsson may estabsh and mantan State quor stores and ware-
houses. Two funds were created n the State treasury known as
the operatng fund and the reserve fmd for the recept of the revenue
receved by the commsson. Moneys n the reserve fund not needed
for cash reserve sha, wth the approva of the governor, be nvested
by the board of pubc works n obgatons of the Unted States, of
the State of West rgna, or any of ts subdvsons. Recepts n
e cess of the requrements of the operatng and reserve funds are to
be transferred monthy nto the genera fund of the State treasury
upon requston of the governor.
Secton 811(b), Tte III, and secton 907(c), Tte I , of the
Soca Securty ct, provde that the term empoyment means any
servce performed wthn the Unted States e cept, among others,
servce performed n the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca sub-
dvsons. rtce 11, Reguatons 91, and artce 206(5)-(6), Regu-
atons 90, reatng to Ttes III and I of the ct, respectvey, pro-
vde that ths e cepton e tends to every servce performed by an
ndvdua n the empoy of the severa States, or any potca sub-
dvson or nstrumentaty thereof, ncudng every unt or agency
of Government, wthout dstncton between those e ercsng func-
tons of a governmenta nature and those e ercsng functons of a
propretary nature.
ased upon the provsons of the act creatng the West rgna
Lquor Contro Commsson, t s hed that the servces performed by
ndvduas n the empoy of that commsson come wthn the e -
ceptng provsons of secton 811 (b)7 and secton 907(c)6 of the
Soca Securty ct. Therefore, nether the e cse ta es mposed upon
empoyers by sectons 804 and 901 of the ct nor the ncome ta
mposed upon empoyees by secton 801 of the ct are appcabe wth
respect to such servces.
Secton 811: Defntons. I-8-8562
Reguatons 91, rtce 11: Government empoyees. S. S. T. 101
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
The M Cearng ouse ssocaton s not an nstrumentaty of
the Unted States wthn the meanng of sectons 811(b)6 and
907(c)5 of the Soca Securty ct. ccordngy, the assocaton and
ts empoyees are not e empt from the ta es mposed under Ttes
III and I of the Soca Securty ct.
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419
Regs. 91, rt. 11.
dvce s requested whether the M Cearng ouse ssocaton s
an nstrumentaty of the Unted States wthn the meanng of sec-
ton 811(b)6 of tte III and secton 907(c)5 of Tte I of the
Soca Securty ct.
Secton 811(b)6, Tte III of the Soca Securty ct, provdes
as foows:
(b) The term empoyment means any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer, e cept

(6) Servce performed n the empoy of the Unted States Government or of an
Instrumentaty of the Unted States.
The provsons of secton 907(c)5 and secton 811(b) 6 are dentca.
The M Cearng ouse ssocaton s a vountary assocaton of
banks dong busness n the same cty as the assocaton. of the
member banks e cept one are natona banks or State banks whch
are members of the edera Reserve System. The edera reserve
bank n the same cty uses the factes of the assocaton and pa 7s
an annua charge therefor. The net e penses of the assocaton are
aocated among the member banks. The ob|ects of the assocaton
as emboded n ts consttuton are as foows:
The ob|ects of the assocaton sha be the effectng at one pace of the day
e changes between the members thereof and the payment of the baances re-
sutng from such e changes, the promoton of the nterests of the members
and the mantenance of conservatve bankng through wse and Integent co-
operaton.
The above-quoted provsons of the consttuton of the assocaton
ndcate ceary that t was formed and s mantaned for the purpose
of promotng and mprovng the busness of the member banks and
not as an agency or nstrumentaty of the Unted States. The mem-
ber banks and the assocaton are separate ega enttes. The fact
that some of the member banks are e cepted from the provsons of
the aw as natona banks or State banks whch are members of the
edera Reserve System does not warrant a ke e cepton n favor
of the assocaton.
In vew of the foregong, t s hed that the M Cearng ouse s-
socaton s not an nstrumentaty of the Unted States wthn the
meanng of sectons 811(b) 6 and 907(c) 5 of the Soca Securty ct,
and that the assocaton and ts empoyees are not e empt from the
ta es mposed under Ttes III and of that ct.
Secton 811: Defntons. I-9-8574
Reguatons 91, rtce 11: Government empoyees. S. S. T. 107
( so Secton 907 Reguatons 90, rtce 206(5)-(C).)
State banks organzed under the genera bankng aws of the
State of abama are not nstrumentates of the State wthn
the meanng of sectons 811 (b)7 and 907(c)6 of the Soca Se-
curty 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(c)5 of the ct.
dvce s requested whether State banks organzed under the gen-
era bankng aws of the State of abama are nstrumentates
of the State wthn the meanng of sectons 811(b)7 and 907(c)6
of the Soca Securty ct.
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Regs. 91, rt. 11.
420
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, wth respect to
empoyment, and secton 804 mposes an e cse ta upon every em-
poyer 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 1936, upon empoyers of eght or more ndvduas
under the condtons prescrbed n that tte, and secton 907(c)G
s dentca wth secton 811(b)7, whch e cepts servce performed n
the empoy of a State or nstrumentaty 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 abama 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, (S. S. T. 44. C. . -2, 388
(1936).)
Secton 811: Defntons. I-9-8575
Reguatons 91, rtce 11: Government empoyees. S. S. T. 108
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
The M Safe Depost Co. s not an Instrumentaty of the Unted
States wthn the provsons of sectons 811(b)6 and 907(c)5 of
the Soca Securty ct even though t s whoy owned by a
State bank whch s a member of the edera Reserve System.
dvce s requested whether the M Safe Depost Co., whch s
whoy owned by a State bank, a member of the edera Reserve
System, s sub|ect to the ta es mposed by Ttes III and I of
the Soca Securty ct.
Sectons 811(b) 6 and 907(c) 5 of Ttes III and I , respectvey,
of the ct provde that the term empoyment does not ncude
Servce performed n the empoy of the Unted States Government
or of an nstrumentaty of the Unted States. The ureau has
hed that 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 907(c)5 of the Soca Securty ct, and that
nether such banks nor ther empoyees are sub|ect to the ta es m-
posed by Ttes III and I of that ct. (S. S. T. 44, C. . -2.
388 936).)
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421
Regs. 91, rt. 11.
In order for an organzaton to fa wthn the above-mentoned
e cepton, t s necessary that such organzaton tsef be an nstru-
mentaty of the Unted States. The mere fact that a company s
whoy owned by a corporaton whch has been hed to be a edera
nstrumentaty under the ct does not necessary mean that tho
whoy-owned company, a separate ega entty, s such an nstru-
mentaty. It s hed, therefore, that the M Safe Depost Co.. whch
s whoy owned by a State bank, a member of the edera Reserve
System, s not an nstrumentaty of the Unted States wthn the
e cepton contaned n sectons 811(b)6 and 907(c)o of the Soca
Securty ct, and the M Company and ts empoyees are not
e cepted from the ta es mposed by Ttes III and I of the ct.
Secton 811: Defntons. I-9-8576
Reguatons 91, rtce 11: Government empoyees. S. S. T. 109
( so Secton 907 Reguatons90, rtce 20G(5)-(6).)
Cassfcaton of certan corporatons as nstrumentates of te
Unted States wthn the meanng of sectons 811(b)G and 907(c)5
of the Soca Securty ct.
dvce s requested whether servces performed n the empoy of
budng and oan assocatons, savngs and oan assocatons, coop-
eratve banks, homestead assocatons, nsurance companes, and
savngs banks, chartered by the varous States, whch are members of
the edera ome Loan ank System, are wthn the e cepton
contaned n sectons 811(b)6 and 907(c)5 of the Soca Securty ct.
Secton 811(b), Tte III, and secton 907(c), Tte I , of the
Soca Securty ct, provde that the term empoyment means any
servce, of whatever nature, performed wthn the Unted States by an
empoyee for hs empoyer, e cept, among others, Servce performed
n the empoy of the Unted States Government or of an nstru-
mentaty of the Unted States. rtce 11, Reguatons 91, and
artce 206 (5)-(6), Reguatons 90, n construng those provsons of
the aw provde that, the e cepton e tends to every servce performed
by an ndvdua n the empoy of the Unted States, ncudng every
unt or agency of Government wthout dstncton between those e er-
csng functons of a governmenta nature and those e ercsng
functons of a propretary nature.
Secton 2 (4) and (9) and secton 4(a) of the edera ome Loan
ank ct (47 Stat., 725), as amended, provde as foows:
Sec 2. (4) The term member (e cept when used n reference to a member
of the board) means any nsttuton whch has subscrbed for the stock of a
edera home oan bank.
t
Sec. 2. (9) The term nonmember borrower Incudes an nsttuton author-
zed to secure advances from a edera home oan bank under the provsons
of secton 6(e).

Sec. 4. (a) ny budng and oan assocaton, savngs and oan assocaton,
cooperatve bank, homestead assocaton, nsurance company, or savngs bank,
fba be egbe to become a member of, or a nonmember borrower of, a edera
home oan bank f such nsttuton (1) s duy organzed under the aws of
any State or of the Unted States (2) s sub|ect to ns ecton nnd reguaton
under the bankng aws, or under smar aws, of the State or of the Unted
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Regs. 91, rt. 11.
422
States and (3) makes such home mortgage oans as, n the |udgment of the
board, are ong-term oans (and n the case of a savngs bank, f, n the |udg-
ment of the board, Its tme deposts, as defned n secton 19 of the edera
Reserve ct, warrant ts makng such oans).
Secton 5 (k) of the ome Owners Loan ct of 1933 (48 Stat., 128),
as amended, reads as foows:
Sec. 5. (k) When desgnated for that purpose by the Secretary of the Treas-
ury, any edera savngs and oan assocaton or member of any edera home
oan bank may be empoyed as fsca agent of the Government under such regu-
atons as may be prescrbed by sad Secretary and sha perform a such reason-
abe dutes as fsca agent of the Government as may be requred of It. ny
edera savngs and oan assocaton or member of any edera home oan hank
may act as agent for any other Instrumentaty of the Unted States when
desgnated for that purpose by such nstrumentaty of the Unted States.
In Davs v. mra Savngs ank (161 U. S., 275), t was hed that
Natona banks are nstrumentates of the edera Government.
ths concuson beng based 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.
urthermore, Congress may empoy State corporatons wth ther
consent as nstrumentates of the Unted States. (Caam County
v. Unted States, 263 U. S., 341.)
It s hed that budng and oan assocatons, savngs and oan
assocaton s, cooperatve banks, homestead assocatons, nsurance
companes, and savngs banks, chartered by the varous states whch
are members of the edera ome Loan ank System, are nstru-
mentates of the Unted States under the ta ng provsons of the
Soca Securty ct, and that servces performed by ndvduas n
ther empoy come wthn the e cepton contaned n sectons 811(b)6
and 907(c) 5 of that ct. The organzatons and ther empoyees are
not, therefore, sub|ect to the ta es mposed by Ttes III and I
of the ct.
Secton 811: Defntons. I-10-8585
Reguatons 91, rtce 11: Government empoyees. S. S. T. I
( so Secton 907 Reguatons 90, rtce 20G(5)-(6).)
Savngs and oan assocatons organzed under the bankng aws
of the State of New York and supervsed by the State bankng de-
partment are not nstrumentates of the State wthn the meanng
of sectons 811(b)7 and 907 (e)C of the Soca Securty ct, and
such assocatons and ther empoyees are sub|ect to the ta es
mposed by Ttes III and I of that ct.
dvce s requested whether savngs and oan assocatons whch are
organzed under the bankng aws of the State of New York and
supervsed by the State bankng department 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 per-
centage of the wages receved by hm, and n secton 804 requres
every empoyer to pay an e cse ta measured by the amount of wages
G
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423
Regs, 91. rt. 11.
Secton 811(b) provdes:
(b) Tbe term empoyment means any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer, e cept

(7) Servces performed n the empoy of a State, a potca subdvson thereof,
or an nstrumentaty of one or more States or potca subdvsons.
Tte I mposes an e cse ta upon empoyers of eght or more
ndvduas, and secton 907(c) 6 thereof s dentca wth the above-
quoted provsons.
Whether a savngs and oan assocaton whch receved ts charter
from the State government and s supervsed by the State bankng
department 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
assocaton s organzed. n e amnaton of the bankng aws of the
State of New York does not dscose that savngs and oan assoca-
tons ncorporated pursuant thereto and supervsed by the State
bankng department are created for the purpose of actng as State
agences or nstrumentates. ccordngy, such savngs and oan
assocatons are not to be consdered as nstrumentates of the State
for the purpose of the ta es mposed by the Soca Securty ct.
Such savngs and oan assocatons and ther empoyees are sub|ect
to the ta es mposed by Ttes III and I of the ct.
Secton 811: Defntons. I-11-8597
Reguatons 91, rtce 11: Government empoyees. S. S. T. 114
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
State banks organzed under the genera bankng aws of the
State of entucky are not nstrumentates of the State wthn
the meanng of sectons 811(b)7 and 907(c)G 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(c)5 of the ct
dvce s requested whether State banks organzed under the
genera bankng aws of the State of entucky are nstrumentates
of the State wthn the meanng of sectons 811(b) 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, wth respect to em-
poyment, and secton 804 mposes an e cse ta upon every empoyer
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 Instrumentaty of one or more States or potca subdvsons.
G
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Regs. 91, rt. 11.
424
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 that tte, and secton 907(c) 6 s
dentca wth secton 811(b)7 whch e cepts servce performed n the
empoy of a State or nstrumentaty 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 entucky does not dscose that banks organzed there-
under are created for the purpose of actng as State agences or
nstrumentates. ccordngy, such banks are not to be consdered
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 eserve 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. (S. S. T. 44, C. . -2, 388 (1936).)
Secton 811: Defntons. I-11-8398
Reguatons 91, rtce 11: Government empoyees. S. S. T. 115
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
udng and oan, savngs and oan, and homestead assocatons
whose accounts are nsured by the edera Savngs and Loan In-
surance Corporaton are not by reason of that fact nstrumenta-
tes of the Unted States wthn the meanng of sectons 811 (h)6
and 907(c)5 of the Soca Securty ct.
dvce s requested whether budng and oan, savngs and oan,
and homestead assocatons whch are nsured by the edera Sav-
ngs and Loan Insurance Corporaton may because of such nsurance
be cassed as nstrumentates of the Unted States wthn the
meanng of sectons 811(b) 6 and 907(c) 5 of the Soca Securty ct.
Tte I of the Natona ousng ct (48 Stat., 1246), as amended,
provdes for the creaton of a edera Savngs and Loan Insurance
Corporaton. Secton 403(a), Tte I of the ct, provdes that
t sha be the duty of the edera Savngs and Loan Insurance
Corporaton to nsure the accounts of a edera savngs and oan
assocatons, and t may nsure the accounts of budng and oan,
savngs and oan, and homestead assocatons and cooperatve banks
organzed and operated accordng to the aws of the State, Dstrct,
or Terrtory n whch they are chartered or organzed. The ct
creatng the edera Savngs and Loan Insurance Corporaton pro-
vdes that the corporaton s an nstrumentaty of the Unted States.
There s nothng n the ct, however, whch ndcates that the
nsured nsttutons by reason of such nsurance are to be consdered
as such nstrumentates.
It s, therefore, hed that budng and oan, savngs and oan, and
homestead assocatons whose accounts are nsured by the edera
Savngs and Loan Insurance Corporaton are not by reason of that
fact nstrumentates of the Unted States wthn the meanng of
sectons 811 (b)6 and 907(c)5 of the Soca Securty ct.
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425
Regs. 91, rt. 11.
Secton 811: Defntons. I-13-8G17
Reguatons 91, rtce 11: Government empoyees. S. S. T. 122
( so Secton 907 Reguatons 90, rtce 20G(5)-(6).)
The ta es Imposed by Ttes III and I of the Soca Securty
ct are not appcabe wth respect to servces performed by a
referee n bankruptcy and ndvduas empoyed by hm In the
performance of hs dutes.
dvce s requested whether the servces performed by a referee
n bankruptcy and ndvduas empoyed by hm are e cepted from
the term empoyment, as defned n sectons 811(b) and 907(c) of
the Soca Securty ct, as
Servce performed In the empoy of the Unted States Government
or of an nstrumentaty of the Unted States.
The offce of referee n bankruptcy was created by the ankruptcy
ct of uy 1, 1898 (30 Stat., 544), whch provdes that referees
sha be apponted by the courts for the term of two years, prescrbes
ther fees, and mposes ther dutes.
It s hed that servces performed by a referee n bankruptcy and
ndvduas empoyed by hm n the performance of hs dutes as
such come wthn the e cepton Servce performed n the empoy
of an nstrumentaty of the Unted States contaned n
sectons 811 (b)6 and 907(c)5 of the Soca Securty ct. ccord-
ngy, the ta es mposed upon empoyers by sectons 804 and 901,
and the ta es mposed upon empoyees by secton 801 of that ct,
do not attach wth respect to the servces performed by a referee
n bankruptcy and ndvduas empoyed by hm n carryng out
hs dutes as such referee.
Secton 811: Defntons. I-14-8631
Reguatons 91, rtce 11: Government empoyees. S. S. T. 12G
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
State banks whch are depostores of posta savngs funds, or
whch may be quafed to act as such depostores, are not by reason
of such facts e empt from ta aton under Ttes III and I of
the Soca Securty ct as nstrumentates of the Unted States.
dvce s requested whether State banks whch are quafed
under the Posta Savngs ct to receve deposts under the terms
of that ct are nstrumentates of the Unted States wthn the
meanng of sectons 811(b) 6 and 907(c) 5 of the Soca Securty
ct, whch e cept from the provsons of tre ct Servce performed
n the empoy of the Unted States Government or of an nstru-
mentaty of the Unted States.
The fact that a State bank may be quafed to receve deposts
under the terms of the Posta Savngs ct, as amended, and receves
such deposts does not make such bank an nstrumentaty of the
Unted States. It does not appear from an e amnaton of the
Posta Savngs ct and amendments thereto that such bank s a
fsca agent of the Unted States, nor does t appear that such bank s
a depostory of pubc money when posta savngs funds are deposted
n such bank. It was hed n nne Leka, dm ., v. Unted States
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Regs. 91, rt. 11.
426
(69 Ct. Cs., 79) that deposts made under the Posta Savngs Sys-
tem are trust funds not covered nto the Treasury of the Unted
States, do not become ts property, and n a sut by the admnstrator
of a depostor to recover the decedent s deposts, the Court of Cams
has no power to render |udgment aganst the Unted States. In 37
Op. tty. Gen., 420 (1934), t s stated that the 1933 amendment
(48 Stat., 182) to secton 9 of the Posta Savngs ct, approved une
25, 1910 (36 Stat., 814), as amended by secton 2, ct of May 18,
1916 (39 Stat., 159), e pressy ndcates the ntenton of Congress
that deposts of posta savngs funds by the board of trustees for
the contro and supervson of posta savngs depostory offces sha
be nsured to the same e tent as deposts by prvate persons.
It s, accordngy, hed that State banks whch are depostores of
posta savngs funds, or whch may be quafed to act as such
depostores, are not by reason of such facts e empt from ta aton
under Ttes III and I of the Soca Securty ct as nstru-
mentates of the Unted States.
(See S. S. T. 44, C. . -2, 388 (1936), hodng that State banks
whch are members of the edera Reserve System and ther em-
poyees are not sub|ect to the ta es mposed by Ttes III and I
of the Soca Securty ct for the reason that such banks are
nstrumentates of the Unted States.)
Secton 811: Defntons. I-15-8641
Reguatons 91. rtce 11: Government empoyees. S. S. T. 127
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
The ower Coorado Rver authorty s an nstrumentaty of
the State of Te as wthn the meanng of sectons 811 (b)7 and
007(e)6 of the Soca Securty ct, and nether the authorty nor
ts empoyees are sub|ect to the ta es mposed under Ttes III
and I of that ct.
dvce s requested whether the ower Coorado Rver authorty
comes wthn the provsons of sectons 811(b)7 and 907(c)6 of the
Soca Securty ct, whch e cept from the term empoyment as
defned n Ttes III and I of the ct servce performed n the
empoy of a State, a potca subdvson thereof, or an nstru-
mentaty of one or more States or potca subdvsons.
It appears that the ower Coorado Rver authorty, herenafter
referred to as the dstrct, was created n accordance wth chapter 7,
Genera and Speca Laws of the State of Te as, orty-thrd Legs-
ature, ourth caed Sesson, whch convened October 12, 1934, and
ad|ourned November 10, 1934. The act was passed for the purpose
of creatng a conservaton dstrct known as the ower Coorado
Rver authorty pursuant to, and for the purposes set forth n, sec-
ton 59 of artce 16 of the consttuton of the State of Te as. The
act provdes n part as foows:
Secton 1. There s hereby created wthn the State of Te as, n addton to
the dstrcts nto whch the State has heretofore been dvded, a conservaton
and recamaton dstrct to be known as Lower Coorado Rver authorty
(herenafter caed the dstrct) . Such dstrct sha be and Is
hereby decared to be a governmenta agency and body potc and corporate,
wth the powers of government and wth the authorty to e ercse the rghts,
prveges and functons herenafter specfed, and the creaton of such dstrct
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427
Regs. 91, rt. 11.
s hereby determned to be essenta to the accompshment of the purposes of
secton 50 of artce 16 of the consttuton of the State of Te as, ncudng (to
the e tent herenafter authorzed) the contro, storng, preservaton and dstrbu-
ton of the waters of the Coorado Rver and ts trbutares for Irrgaton,
power and other usefu purposes, the recamaton nnd Irrgaton of ard, sem-
ard and other ands needng rrgaton, and the conservaton and deveopment
of the forests, water and hydroeectrc power of the State of Te as.

Sec. 16. bonds and the Interest thereon Issued pursuant to the provsons
of ths act sha be e empt from ta aton (e cept nhertance ta es) by the
State of Te as or by any muncpa corporaton, county or other potca sub-
dvson or ta ng dstrct of the State.
Secton 59, rtce I of the consttuton of Te as, adopted
ugust 21, 1917, provdes:
(a) The conservaton and deveopment of a of the natura resources of
ths State, Incudng the contro, storng, preservaton and dstrbuton of ts
storm and food waters, the waters of ts rvers and streams, for rrgaton,
power and a other usefu purposes, the recamaton and rrgaton of ts ard,
wmard and other ands needng rrgaton, the recamaton and dranage of
ts overfowed ands, and other auds needng dranage, the conservaton and
deveopment of ts forests, water and hydroeectrc power, the navgaton of
ts nand and coasta waters, and the preservaton and conservaton of a
such natura resources of the State are each and a hereby decared pubc
rghts and dutes: and the egsature sha pass a such aws as may be
approprate thereto.
(b) There may be created wthn the State of Te as, or the State may be
dvded nto, such number of conservaton and recamaton dstrcts as may
be determned to be essenta to the accompshment of the purposes of ths
amendment to the consttuton, whch dstrcts shn be governmenta agences
and bodes potc and corporate wth such powers of government and wth
the authorty to e ercse such rghts, prveges and functons concernng the
sub|ect matter of ths amendment as may be conferred by aw.
ny and a rghts of the dstrct were decared to be n one way
or another subordnate and nferor to the rghts of ctes, towns,
bodes potc, and ctzens of Te as. The powers, rghts, prveges,
and functons of the organzaton are to be e ercsed by a board or
nne drectors, three of whom sha be apponted by the governor,
three by the attorney genera, and three by the commssoner of the
genera and offce of the State of Te as. The board s authorzed to
estabsh rates and other charges for the sae or use of water, water
connectons, power, eectrc energy, or other servces sod or supped
by the dstrct. It s further authorzed to pay a e penses necessary
to the operaton and mantenance of the propertes and factes of
the dstrct. The compensaton of the offcers and empoyees s to be
pad from State funds. Out of the revenues the dstrct s to pay
the nterest and prncpa of bonds ssued.
rtce 206(5)-(6) of Reguatons 90 and artce 11 of Regua-
tons 91 provde that the e ceptons contaned n secton 907(c)(5)
and (6) and secton 811(b) (6) and (7) of the Soca Securty ct
e tend 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 gov-
ernment, wthout dstncton between those e ercsng functons of
a governmenta nature and those e ercsng functons of a propre-
tary nature.
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Regs. 91, rt. 11.
428
It s hed that the ower Coorado ver authorty, whch s
created, organzed, and operated under the aws and consttuton of
the State of Te as, s an nstrumentaty of the State wthn the
meanng of secton 811(b)7, Tte III, and secton 907(c)6, Tte
I , of the Soca Securty ct, and nether the ower Coorado
Rver authorty nor ts empoyees are sub|ect to the ta es mposed
by Ttes III and I of that ct.
Secton 811: Defntons. I-16-8655
Reguatons 91, rtce 11: Government empoyees. S. S. T. 133
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
The ank of North Dakota s an nstrumentaty of the State
wthn the meanng of sectons 811(b)7 and 907(c)6 of the
Soca Securty ct, and nether the bank nor ts empoyees are
sub|ect to the ta es mposed under Ttes III and I of that
ct.
dvce s requested whether the ank of North Dakota s an n-
strumentaty of the State wthn the meanng of sectons 811(b) 7
and 907 (c)G of the Soca Securty ct, whch e cept from the term
empoyment, as defned n the ct
Servce performed n the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons
The statute whch provdes for the organzaton of the ank of
North Dakota e pressy provdes that such bank s a State agency
and that the busness conducted thereby s the busness of the State.
In the opnon rendered by the Unted States Crcut Court of
ppeas, ghth Crcut, n North Dakota v. Guder Oson (33 ed.
(2d), 848, Ct. D. 88, C. . III-2, 423 (1929), appea dsmssed by
Unted States Supreme Court, 280 U. S., 528), t s stated that the
ank of North Dakota s an nstrumentaty of the State.
ccordngy, t s hed that the ank of North Dakota s an
nstrumentaty of the State wthn the meanng of sectons 811(b) 7
and 907(c) 6 of Ttes III and I , respectvey, of the Soca
Securty ct, and nether the bank nor ts empoyees are sub|ect
to the ta es mposed under those ttes.
Secton 811: Defntons. I-18-8683
Rf.ooatons 91, rtce 11: Government empoyees. S. S. T. 140
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
edera credt unons orpnnzed pursuant to the edera Credt
Unon ct of une 2G, 1934 (48 Stnt., 1216), are nstrumentates
of the Unted States wthn the meanng of sectous S(b)G and
907(c)5 of the Soca Securty ct.
dvce s requested whether edera credt unons organzed pur-
suant to the edera Credt Unon ct of une 26, 1934 (48 Stat.,
1216, ch. 750). are nstrumentates of the Unted States wthn the
meanng of sectons 811(b)6, Tte III, and 907(c) 5, Tte I , of
the Soca Securty ct.
Under the provsons of those sectons of the Soca Securty ct,
servce performed n the empoy of an nstrumentaty of the Unted
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429
Regs. 91, rt. 11.
States s e cepted from the term empoyment as used n Ttes
III and I of the ct.
edera credt unons are organzed pursuant to the edera Credt
Unon ct, supra, for the purpose of promotng thrft among ts
members and creatng a source of credt for provdent or productve
purposes. Secton 17 of the ct provdes:
Sk. 17. ach edera credt unon organzed under ths ct, when requested
by the Secretary of the Treasury, sha act as fsca agent of the Unted States
and sha perform such servces as the Secretary of the Treasury may requre
n connecton wth the coecton of ta es and other obgatons due the Unted
States and the endng, borrowng, and repayment of money by the Unted
States, ncudng the ssue, sae, redempton or repurchase of bonds, notes,
Treasury certfcates of ndebtedness, or other obgatons of the Unted States
and to factate such purposes the governor sha furnsh to the Secretary
of the Treasury from tme to tme the names and addresses of a edera
credt unons wth such other avaabe nformaton concernng them as may
be requested by the Secretary of the Treasury. ny edera credt unon
organzed under ths ct, when desgnated for that purpose by the Secretary
of the Treasury, sha be a depostory of pubc money, e cept recepts from
customs, under such reguatons as may be prescrbed by the Secretary of the
Treasury.
In vew of the above-quoted provsons of the edera Credt
Unon ct of une 26, 1934, t s hed that edera credt unons
organzed pursuant to that ct are nstrumentates of the Unted
States wthn the meanng of sectons 811 (b)6, Tte III, and
907(c)5, Tte I , of the Soca Securty ct.
Secton 811: Defntons. 1-22-8741
Reguatons 91, rtce 11: Government empoyees. S. S. T. 155
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
The M Partnershp and Its empoyees, engaged n reportng tras
and other proceedngs for the |udges of a Unted States dstrct
court under an agreement between the partnershp and the |udges
of the court, are not, by reason of the provsons of sectons 811(b)6
and 907(c)5 of the Soca Securty ct, reeved from abty for
the ta es mposed by Ttes III and I of that ct.
dvce s requested reatve to the abty of the M Partnershp
and ts empoyees under the ta ng provsons (Ttes III and I )
of the Soca Securty ct.
The members of the M Partnershp are the offca reporters of the
Unted States Dstrct Court for the Dstrct of the State of
R under an agreement between the partnershp and the |udges of
that court. The partnershp empoys 10 shorthand court reporters
who are not frm members, a of whom are pad on a pecework
bass. The ma|orty of the reporters receve ther entre compensa-
ton from the partnershp but they are permtted to take outsde
cases. The partnershp aso has s empoyees who are pad reguar
saares. Partnershp ncome s derved prncpay from the sae
of copes of the stenographc mnutes, rent-free offces beng the ony
compensaton receved from the edera Government.
Under secton 907(c) 5, Tte I of the Soca Securty ct, servces
performed n the empoy of the Unted States Government or an
nstrumentaty of the Unted States are e cepted from the term
empoyment as used n Tte I of the ct. rtce 20G(5)-(6)
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Regs. 91, rt. 11.
430
of Reguatons 90, reatng to Tte I of the ct, provdes that
servces performed by edera empoyees are e cepted from the pro-
vsons of that tte and that such e cepton e tends to every servce
performed by an ndvdua n the empoy of the Unted States, or
an nstrumentaty thereof, ncudng every unt or agency of govern-
ment, wthout dstncton between those e ercsng functons of a gov-
ernmenta nature and those e ercsng functons of a propretary
nature. ccordngy, where such servces as those here nvoved are
performed n the empoy of the edera Government, or an nstru-
mentaty thereof, 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 empoyer who hres
and pays the ndvduas preformng such servces, and f the rea-
tonshp of empoyer and empoyee e sts as provded n artce 205
of Reguatons 90, such ndvduas are the empoyees of the prvate
empoyer and the ta mposed by secton 901 of the ct s appcabe
wth respect to the wages pad to them.
It s hed that the fact that the M Partnershp and ts empoyees
are engaged n reportng tras and other proceedngs for |udges
of a Unted States dstrct court by vrtue of an agreement entered
nto between the partnershp and the |udges of the court does not
reeve the partnershp from abty for the ta mposed by Tte I
of the Soca Securty ct. In ths connecton, however, attenton s
nvted to S. S. T. 23 (C. . -2, 405 (1936)), wheren t was hed
that 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 deter-
mnng the tota number of ndvduas empoyed by the partnershp.
Snce secton 811 (b) 5 of the Soca Securty ct s dentca wth
secton 907(c) 5 of the ct, t s aso hed that the partnershp and ts
empoyees are sub|ect to the ta es mposed by sectons 801 and 804,
respectvey, of Tte III of the Soca Securty ct.
Secton 811: Defntons. I-24-8762
Reguatons 91, rtce 11: Government empoyees. S. S. T. 159
( so Secton 907 Reguatons 90, rtce 206(5)-(G).)
The M Water Improvement Dstrct, organzed under ehapter 2,
tte 12.S, Revsed Statutes of Te as (as passed by the egsature
n the 1025 recodfcaton), Is a potca subdvson of the State
of Te as wthn the meanng of sectons 811(b)7 and C07(c)6 of
the Soca Securty ct, and servces performed by ts empo.-ees
come wthn the e cepton provded by those sectons.
dvce s requested reatve to the status of the M Water Improve-
ment Dstrct under the ta ng provsons (Ttes III and I ) of
the Soca Securty ct.
The M Water Improvement Dstrct was organzed and s oper-
ated under authorty of chapter 2, tte 128, Revsed Statutes of
Te as, as passed by the egsature n the 1925 recodfcaton. That
statute provdes for the estabshment of water mprovement ds-
trcts by the county commssoners court upon petton of a ma-
|orty of the owners of and stuated wthn the proposed dstrct
for the purpose of provdng for the rrgaton of the and ncuded
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431
Regs. 91, rt. 11.
n such dstrcts, and the furnshng of water for domestc, power,
and commerca purposes. The court s requred to gve notce of,
and hod a hearng upon, the petton, and f t fnds n favor or
the pettoners, an eecton s ned and the queston whether the
dstrct sha be estabshed s submtted to vote of the ta payers
wthn the proposed dstrct. t such eecton drectors for the
dstrct are eected. The drectors appont other offcers, ncudng
a ta assessor and coector. The dstrct s authorzed to sue and
be sued, acqure and own property, construct rrgaton works, assess
and coect ta es upon the property n the dstrct, ssue bonds when
authorzed by vote of the ta payers, and e ercse the rght of emnent
doman.
Secton 901, Tte I of the Soca Securty ct, provdes for
the evy of an e cse ta upon empoyers (as defned n secton 907)
wth respect to havng ndvduas n ther empoy. Secton 907(c),
Tte I of the Soca Securty ct, provdes n part as foows:
The term empoyment means any servce, of whatever nature,
performed wthn the Unted States by an empoyee for hs empoyer, e cept

(6) Servce performed n the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons.
Sectons 801 and 804, respectvey, Tte III of the Soca Secu-
rty ct, mpose an ncome ta upon empoyees and an e cse ta
upon empoyers, and secton 811 (b)7 of Tte III s dentca wth
secton 907(c) 6 quoted above.
rtce 11 of Reguatons 91 and artce 206(5)-(6) of Reguatons
90, reatng to the ta ng provsons of Ttes III and I of the
ct, respectvey, n nterpretng those sectons provde as foows:
Servces performed by edera and State empoyees are e cepted.
The 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 nstru-
mentaty thereof, ncudng every uut or agency of government, wthout ds-
tncton between those e ercsng functons of a governmenta nature am
those e ercsng functons of a propretary nature.
In an opnon dated anuary 30, 1914 (30 Op. . G., 252), the
ttorney Genera hed that speca assessment dstrcts created under
the aws of the severa States for the purpose of the mprovement of
Greets and pubc hghways, the provson of sewerage, gas, ght,
and the recamaton, dranage, or rrgaton of consderabe bodes
of and wthn the same, when awfuy created under the authorty
of the State, are potca subdvsons thereof wthn the meanng
of paragraph , secton II, of the Revenue ct of 1913, whch pro-
vdes that n computng net ncome under that secton there sha be
e cuded nterest upon the obgatons of a State or any potca
subdvson thereof. In an opnon dated ebruary 4. 1937 (Op.
. G. 10, page 328, ths uetn), the ttorney Genera re-
consdered the pror opnon n the ght of certan decsons of
State courts and concuded that the former opnon shoud not be
dsturbed. (See aso artce 22(b) (4)- of Reguatons 86 and 94,
reatng to ncome ta es mposed by the Revenue cts of 1934 and
1936, respectvey.) The term potca subdvson ceary was
not ntended to have dfferent meanngs as used n the dfferent cts.
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Regs. 91, rt. 11.
432
In vew of the foregong, t s hed that the M Water Improvement
Dstrct s a potca subdvson of the State of Te as wthn thf
meanng of sectons 811(b)7 and 907(c)6 of the Soca Securty ct,
and servces performed for t by ts empoyees come wthn the
e cepton provded by those sectons.
Secton 811: Defntons. I-25-8778
Reguatons 91, rtce 11: Government empoyees. S. S. T. 164
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
The N Trust, whch took over a part of the assets of the nso-
vent M Natona ank for the beneft of the credtors of the hank,
s not an nstrumentaty of the Unted States wthn the mean-
ng of sectons 811(b)6 and 907(c)5, Ttes III and I , respec-
tvey, of the Soca Securty ct, and s not entted to the
beneft of secton 22 of the ct of March 1, 1879 (20 Stat., 327).
dvce s requested whether the N Trust, whch took over a part
of the assets of the nsovent M Natona ank, s an nstrumentaty
of the Unted States wthn the meanng of secton 811(b)6, Tte
III, and secton 907(c) 5, Tte I , of the Soca Securty ct, am
whether secton 22 of the ct of March 1, 1879 (20 Stat., 327), s
appcabe to the N Trust.
Under the provsons of sectons 811 (b)6 and 907(c)5, Ttes III
and I , respectvey, of the Soca Securty ct, servces performed
n the empoy of an nstrumentaty of the Unted States are e cepted
from the term empoyment as defned n sectons 811(b) and
907(c) of the ct,
The M Natona ank suspended operatons because of nsovency.
Pursuant to the pan of reorganzaton approved by the stockhoders
and credtors of the bank, a new natona bank was organzed. The
new bank acqured a porton of the assets of the M Natona ank,
the remanng assets of that bank beng transferred to the N Trust
for qudaton for the beneft of the credtors of the M Natona
ank. The credtors and depostors reeased the M Natona ank
and ts stockhoders from a abty to them, and each credtor of
that bank was aowed a credt by the new bank to the e tent of GO
per cent of hs cam aganst the M Natona ank. It s contended
that the qudatng trust s an nstrumentaty of the Unted States,
and that n any event under the provsons of secton 22 of the ct
of March 1, 1879, t s not abe for the empoyers ta es mposed
under Ttes III and I of the Soca Securty ct.
natona bank s an nstrumentaty of the Unted States wthn
the meanng of sectons 811(b )G and 907(c) 5 of the Soca Securty
ct. S. S. T. 16, C. . -2, 38(3 (1936).) It does not foow,
however, that the N Trust, created by and on behaf of the credtors
of the M Natona ank, s aso an nstrumentaty of the Unted
States. It s evdent that the N Trust was created by, and acts
for and on behaf of, the credtors of the M Natona ank and not
for or on behaf of such bank, and that t does not act as an nstru-
mentaty of the Unted States. It s therefore hed that the N Trust
s not an nstrumentaty of the Unted States wthn the meanng of
sectons 811(b)6 and 907(c)5 of the Soca Securty ct. ccord-
ngy, the servces rendered by the empoyees of the trust are not
e cepted from the ta ng provsons of the Soca Securty ct.
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433
Regs. 91, rt. 12.
owever, wth respect to servces rendered n ther offca capacty,
the trustees are not empoyees of the trust wthn the meanng of
Ttes III and I of the ct.
It s aso hed that the provsons of secton 22 of the ct of
March 1, 1879, whch prohbt the assessment or coecton of a ta
on account of any bank whch has ceased to do busness by reason of
nsovency or bankruptcy where the assets thereof are nsuffcent
to pay at depostors n fu, do not appy wth respect to the assess-
ment or coecton of the ta es mposed under Ttes III and I of
the Soca Securty ct wth respect to the wages pad by the N
Trust to ts empoyees, snce the N Trust s not a bank, the M Na-
tona ank has no nterest n the assets of the trust, and the cred-
tors and depostors of the I Natona ank reeased the bank and
ts stockhoders from a abty to them.
Secton 811: Defntons.
Reguatons 91, rtce 12: Regous, char-
tabe, scentfc, terary, and educatona or-
ganzatons and communtv chests.
( so Secton 907 Reguatons 90, rtce 206(7).)
n organsaton whch has been hed by the ureau to be e empt
from edera Income ta under secton 101(6) of the Revenue ct
of 1036 or correspondng provsons of pror Revenue cts s aso
e empt under sectons 811(b)8 and 907(c)7 of the Soca Securty
ct from the ta es mposed under Ttes III and I of that ct
If such e empton has been estabshed, the organzaton need not
make a return or any further showng wth res eet to ts status
under Ttes III and I of the Soca Securty ct uness t
changes ts character, purposes, or methods of operaton.
dvce s requested whether an organzaton whch has been hed
by the ureau to be e empt from edera ncome ta under secton
101(6) of the Revenue ct of 1936 or correspondng provsons of
pror Revenue cts s requred to estabsh ts e empton under
secton 811(b)8 or secton 907(c)7 of the Soca Securty ct n the
event t has not estabshed e empton under ether of such sectons.
Secton 101(6) of the Revenue ct of 1936 provdes that the foow-
ng organzatons sha be e empt from ta aton under Tte I of
that ct (ncome ta )

(6) Corporatons, and any communty chest, fund, or foundaton, organzed
and operated e cusvey for regous, chartabe, scentfc, terary, or edu-
catona 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 share-
hoder or ndvdua, and no substanta part of the actvtes of whch s
carryng on propaganda, or otherwse attemptng, to nfuence egsaton.
Correspondng provsons of pror Revenue cts are substantay
the same.
Secton 811(b) of the Soca Securty ct provdes n part as
foows:
(b) The term empoyment means any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer, e cept

(8) Servce performed n the empoy of a corporaton, communty chest, fund,
or foundaton, organzed and operated e cusvey for regous, chartabe,
I-2-8477
S. S. T. 66
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Regs. 91, rt. 12.
434
scentfc, terary, or educatonn 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
dentca wth the foregong provsons of secton 811 (b)8.
Inasmuch as the provsons of sectons 811(b)8 and 907(e)7 of the
Soca Securty ct are substantay the same as the provsons of
secton 101(C) of the Revenue ct of 193(5 and the correspondng pro-
vsons of pror Revenue cts n so far as the casses of organzatons
theren e empted are concerned, an organzaton whch has been hed
by the ureau to be e empt from edera ncome ta under the pro-
vsons of secton 101(G) of the Revenue ct of 1936, or under the
correspondng provsons of pror Revenue cts, s aso e empt from
the ta es mposed under Ttes III and I of the Soca Securty
ct. Such an organzaton w not be requred to estabsh ts
e empt status under that ct, provded t has not, subsequent to the
date ts e empt status was estabshed, changed ts character, pur-
poses, or methods of operaton. ny change n the character, pur-
poses, or methods of operaton of such an organzaton shoud be
reported mmedatey to the coector of nterna revenue for the
dstrct n whch the organzaton s ocated n order that the effect
of any such change upon the e empt status of the organzaton may
be determned.
Inasmuch as sectons 811(b)8 and 907(c)7 of the Soca Securty
ct are dentca, an organzaton whch has been hed by the ureau
to be e empt under one of these sectons s kewse e empt under the
other secton.
Ths rung appes ony to the casses of organzatons specfed
n sectons 8(b)8 and 907(c)7 of the Soca Securty ct and sub-
dvson (6) of secton 101 of the Revenue ct of 193G, or correspond-
ng provsons of pror Revenue cts. The fact that an organzaton
has been granted e empton for ncome ta purposes under any other
subdvson of secton 101 of the Revenue ct of 1936 or correspond-
ng provsons of pror Revenue cts does not warrant e empton
for soca securty ta purposes. (See S. S. T. 7, C. . -1, 475,
whch s not appcabe to organzatons whch have been granted
e empton under secton 101 (6), supra.)
Secton 811: Defntons. I-12-8608
Reguatons 91, rtce 12: Regous, char- S. S. T. 119
tabe, scentfc, terary, and educatona
organzatons and communty chests.
( so Secton 907 Reguatons 90, rtce 206(7).)
The M Socety, a fraterna beneft socety organzed and operated
under the aws of Pennsyvana, s not a corporaton organzed
and operated e cusvey for chartabe pur oses wthn the mean-
ng of sectons 811 (b)8 and 907(c)7 of the Soca Securty ct.
dvce s requested whether the M Socety, a fraterna beneft
socety, shoud be cassfed as a corporaton organzed and operated
e cusvey for chartabe purposes wthn the meanng of sectons
811(b) 8 and 907(c)7 of the Soca Securty ct.
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435
Regs. 91, rt. 12.
The M Socety was orgnay chartered under the provsons of
the genera corporaton act of Pennsyvana, approved pr 29,
1874 authorzng ncorporaton not for proft. The organzaton
contnued to operate under such act, as amended, unt the egsa-
ture of Pennsyvana passed an act on pr 6, 1893, governng
fraterna beneft socetes. The organzaton comped wth the pro-
vsons of the act of 1893 and contnued to operate thereunder unt
1921 when the so-caed fraterna code was passed by the egs-
ature of Pennsyvana. Operatons were conducted under the act
of 1921, as amended, unt a new code governng fraterna beneft
socetes was approved on uy 17,1935. Such code decares fraterna
beneft socetes to be chartabe corporatons and entted to State ta
e empton on that bass.
The M Socety operates through a system of oca odges. Durng
the years 1932 to 1935. ncusve, the oca odges e pended appro -
matey doars n chartabe work. The charter and by-aws of
the socety e press the ntenton to carry out such actvtes. n
e amnaton of the socety s charter shows that one purpose of the
socety s to make safe pecunary provson out of the funds of the
order to the members themseves, or, upon the death of a member
whe n good standng n the order, to hs or her benefcary or
benefcares, as he or she may have drected. It appears that, n
addton to ts ordnary chartabe purposes, the socety was organzed
to provde ts members wth a form of fe nsurance such actvty
beng a prncpa functon of the socety. n e amnaton of the
consttuton and by-aws of the socety shows that certfcates of
beneft are ssued furnshng the benefcares wth a protecton
smar to that afforded by an ordnary fe nsurance pocy.
Sectons 811(b) and 907(c) of the Soca Securty ct defne
de term empoyment as any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer.
Subdvsons 8 and 7 of sectons 811(b) and 907(c), respectvey,
e cept from the term empoyment
Servce performed tn the empoy of a corporaton, communty ce.st,
fond, 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.
Language smar to that above quoted s found n secton 101 (6)
of the Revenue ct of 1934 (n effect when the Soca Securty ct
was passed n 1935) e emptng from ta aton
(6) Corporatons, and any communty chest, fund, or foundaton, organzed
and operated e cusvey for regous, chartabe, scentfc, terary, or educa-
tona 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, and no substanta part of the actvtes of whch s carryng
on propaganda, or otherwse attemptng, to nfuence egsaton.
Language smar to that above s contaned n correspondng
sectons of Revenue cts pror to 1934 and n the Revenue ct of
1936.
Secton 101(3) of the Revenue ct of 1934 e empts
(3) raterna benefcary socetes, orders, or assocatons, ( ) operatng
nnder the odge system or for the e cusve beneft of the members of a
fraternty tsef operatng under the odge system and ( ) provdng for
the payment of fe, sck, accdent, or other benefts to the members of such
socety, order, or assocaton or ther dependents.
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Regs. 91, rt. 12.
43G
Smar anguage s contaned n secton 231(3) of the Revenue
ct of 1918 and correspondng sectons of subsequent Revenue cts.
It s to be noted that sectons 811 (b)8 and 907(c)7 of the Soca
Securty ct correspond substantay wth secton 101(6), supra,
but nowhere n the Soca Securty ct s there any secton corre-
spondng wth secton 101(3), supra. It appears, therefore, that
Congress ntended to ncude among the organzatons not sub|ect
to the ta es mposed by Ttes III and I of the Soca Securty
ct those corporatons comng wthn the anguage of secton 101(6)
but not those corporatons comng wthn the anguage of secton
101(3). It s evdent that n enactng the Revenue ct of 1934
Congress dd not consder fraterna beneft socetes to be chartabe
corporatons wthn the meanng of secton 101(6) for otherwse
secton 101(3) woud have consttuted surpusage. It s a we
recognzed rue of statutory constructon that the provsons of an act
are to be so construed that no part w be noperatve or superfuous.
(Lews Sutherand on Statutory Constructon, secton 580.) It fo-
ows that the term chartabe corporaton, as used n the above
sectons of the Soca Securty ct, must be construed as not n-
cudng a fraterna beneft socety snce the term does not ncude
such a socety n the ncome ta e empton provsons heretofore
cted. (See generay In re Southern Pac. Co., 82 ed., 311, affrmed
87 ed., 8C3 Reche v. Smyths, 13 Wa., 162 Tayor v. Treat, 153
ed., 656, and 59 C. ., 1050.) The queston of constructon under
the nstant egsaton must be decded n the ght of the prncpe
that Revenue cts stand n par matera, and ther provsons soud
receve, f possbe, a consstent nterpretaton. (Lews Sutherand
on Statutory Constructon, sectons 443 and 449.)
In vew of the foregong, t s hed that the M Socety s not a
corporaton organzed and operated e cusvey for chartabe pur-
poses wthn the meanng of sectons 811(b)8 and 907(c)7 of the
Soca Securty ct.
The M Schoo, prvatey owned and operated for proft whch
Inures to the beneft of the owners, s not an organzaton no
part of the net earnngs of whch nures to the beneft of any
prvate sharehoder or ndvdua wthn the meanng of sectons
811(b)8 and 907(c)7 of the Soca Securty ct, and nether the
schoo nor ts empoyees are e cepted from the ta es mposed by
Ttes III and I of that ct.
dvce s requested whether the M Schoo and ts empoyees are
sub|ect to the ta ng provsons of the Soca Securty ct, or
whether the servces rendered by the empoyees are e cepted from the
term empoyment under the provsons of sectons 811(b)S
and 907(c)7 of the ct. Those sectons e cept from the term
empoyment :
Secton 811: Defntons.
I-20-8710
S. S. T.144
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437
Regs. 91, rt. 14.
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 M Schoo hods a charter as an academy from the Unversty
of the State of . It s owned by two ndvduas, and , and s
operated on a proft bass. The schoo empoys eght teachers, a
secretary, and a |antor. One teacher devotes her entre tme to
teachng, others teach ony one or two hours a day, and the secretary
and |antor hod other postons n addton to those at the schoo.
In order for the servces performed by the empoyees of the M
Schoo to come wthn the e cepton provded by sectons 811(b)8
and 907(c)7, supra, they must be performed for an organzaton of
one or more of the casses specfed theren. Inasmuch as the M
Schoo s prvatey owned and operated for proft whch nures to
the beneft of the owners, t s not an organzaton no part of the
net earnngs of whch nures to the beneft of any prvate share-
hoder or ndvdua wthn the contempaton of the above-quoted
provsons of the Soca Securty ct. It s, accordngy, hed that
nether the M Schoo nor ts empoyees are e cepted from the ta es
mposed by Ttes III and I of that ct.
Secton 811: Defntons. I-5-8521
Regu tons 91, rtce 14: Wages. S. S. T. 83
( so Secton 907 Reguatons 90, rtce 207.)
Where an empoyer pays the empoyees ncome ta mposed
by secton 801 of the Soca Securty ct wthout deductng the
amount thereof from hs empoyees wages, the amount of the ta
eo pad w not be consdered as addtona wages for the
purpose of Ttes III and I of the ct.
dvce s requested whether an amount of empoyees ncome ta
pad by an empoyer wthout deductng the amount thereof from the
wages of hs empoyees consttutes addtona wages wthn the
meanng of the ta ng provsons of the Soca Securty ct.
The term wages s defned n secton 811(a), Tte III of the
Soca Securty 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 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, s pad to such ndvdua
by such empoyer wth respect to empoyment durng such caendar year.
In so far as the present ssue s concerned, the defnton of the term
wages n Tte I of the ct s not dfferent from that contaned
n Tte III.
ny amount of the empoyees ncome ta mposed by secton 801
of the Soca Securty ct whch s vountary pad by an empoyer
wthout deducton from the remuneraton of hs empoyees w not
be consdered as addtona wages for the purpose of Ttes III
and I of the ct.
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Regs. 91, rt. 14.
438
Secton 811: Defntons.
Reguatons 91, rtce 14: Wages.
I-5-8522
S. S. T. 84
Proper method of determnng abty under Tte III of the
Soca Securty ct where the e penses pad by a saesman for
whch he s not rembursed e ceed hs commssons.
dvce s requested reatve to the proper method of determnng
ta abty under Tte III of the Soca Securty ct wth respect
to the remuneraton of a traveng saesman empoyed on a com-
msson bass, where the e penses pad by the saesman and reported
to hs empoyer, and for whch he s not rembursed, e ceed the
saesman s commssons n some months.
Secton 801 of the ct mposes an ncome ta upon the ncome of
every ndvdua measured by the amount of wages, as defned n
secton 811, receved by hm on and after anuary 1, 1937, wth
respect to empoyment, as defned n secton 811, on and after that
date. Secton 804 mposes an e cse ta on every empoyer measured
by the amount of wages, as defned n secton 811, pad on and after
anuary 1, 1937, wth respect to empoyment, as defned n secton
811, on and after that date.
The saesman n queston s empoyed on a commsson bass and
pays the e penses ncurred by hm n connecton wth hs empoy-
ment wthout rembursement by hs empoyer. In some months hs
e penses e ceed the commssons actuay or constructvey receved,
so that he has no net remuneraton for such months.
In S. S. T. 28 (C. . -2, 397 (1936)) t was hed that where a
saesman s pad a certan amount to cover both hs saary and
e penses ncurred n the busness of hs empoyer, the bass for
computng the ta under Tte I s the tota amount pad or pay-
abe mnus the e penses actuay ncurred by the saesman n hs
empoyer s busness and accounted for as such by the saesman.
Under that rung, the saesman s requred to mantan such records
as w enabe, hm to account to hs empoyer for the e penses actu-
ay ncurred by hm. and the empoyer must keep such records as
w show the portons of the tota amount pad to the saesman
whch represent e penses and remuneraton for servces, respec-
tvey. In the event that proper accountng of the e penses n-
curred s not made, the ta w attach to the entre amount pad.
It s hed that, n computng the ta es due under Tte III of
the Soca Securty ct wth respect to the saesman s remuneraton
n the nstant case, such ta es shoud be pad for the month n whch
t s frst estabshed that the remuneraton pad to the saesman
e ceeds hs e penses ncurred n connecton wth hs empoyment.
In other words, where n any caendar month after December 31,
193G, the amount of the e penses ncurred by the saesman n hs
empoyer s busness and propery accounted for to hs empoyer
e ceeds the commssons actuay or constructvey pad to the saes-
man for that month, the amount of such e cess shoud be carred
over to the foowng month and added to the amount of the e penses
for that month, and that procedure contnued unt such tme as the
tota commssons pad e ceed the tota e penses reported. In that
month, the e cess of the tota commssons over the tota e penses
so determned w consttute remuneraton sub|ect to the ta es
mposed by Tte III of the Soca Securty ct.
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439
Regs. 91, rt. 14.
Secton 811: Defntons. I-7-8551
Regt-attons 91. rtce 14: Wages. S. S. T. 95
( so Secton 907 Reguatons 90, rtce 207.)
Royaty payments made by the M Company are not wages wthn
the meanng of Ttes III and I of the Soca Securty ct.
dvce s requested whether royaty payments shoud be consdered
wages sub|ect to the ta es mposed by Ttes III and I of the
Soca Securty ct.
The M Company s payng royates to fve ndvduas for censes
to manufacture certan artces on whch the ndvduas hod Unted
States etters patent. Three of the ndvduas are empoyed by the
company and two have no connecton wth the company. The royaty
contracts are entrey separate and dstnct from the empoyment con-
tracts and the royates are not pad for servces rendered.
The term wages s defned n secton 811(a), Tte III of the
Soca Securty ct, as foows:
(a) The ter o wages means a remuneraton for empoyment, ncudng
the cash vaue or a remuneraton pad n any medum other than cash e cept
that such term sha not ncude 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, s pad to such nd-
vdua by such empoyer wth respect to empoyment durng such caendar
year.
The defnton of the term wages under Tte I s the same n
so far as the present ssue s concerned.
The term empoyment s defned n sectons 811(b) and 907(c)
of the ct as any servce, of whatever nature, performed wthn the
Unted States by an empoyee for hs empoyer, wth certan e -
ceptons not here matera.
Snce the royates n queston pad for censes to manufacture
certan artces were not pad as remuneraton for empoyment, such
royaty payments do not consttute wages wthn the meanng of
Ttes III and I of the Soca Securty ct.
Secton 811: Defntons. I-7-8552
Reguatons 91, rtce 14: Wages. S. S. T. 9G
( so Secton 907 Reguatons 90, rtce 207.)
Proper method for determnng ta abty under Ttes III
and I of the Soca Securty ct wth respect to empoyees of
of the M Sororty.
dvce s requested reatve to the proper method of determnng
ta abty under Ttes III and I of the Soca Securty ct
wth respect to wages pad to empoyees of the M Sororty.
The M Sororty mantans a sororty house. Certan of ts
empoyees are furnshed meas and odgng n addton to cash remu-
neraton. Severa coege students render servces n return for whch
they are furnshed room and board wthout any cash remuneraton.
The term M wages s defned n secton 811, Tte III of the ct,
as foows:
When used n ths tte-
fa) The term wages means a remuneraton for empoyment, ncudng the
cash vaue of a remuneraton pad In any medum other than cash e cept
that such term sha not ncude that part of the remuneraton whch, after
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Regs. 91, rt. 14.
440
remuneraton equa to 3,000 as 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.
Secton 907, Tte I of the ct, defnes the term wages as
foows:
When used n ths tte

(b) The term wages means a remuneraton for empoyment, Incudng
the cash vaue of a remuneraton pad n any medum other than cash.
The medum n whch the remuneraton s pad or payabe s m-
matera. It may be pad n cash or n somethng other than cash,
such as goods, odgng, food, and cothng. ( rtce 14, Reguatons
91, and artce 207, Reguatons 90.) In determnng the amount of
wages pad to the empoyees n queston, the cash vaue of the board
and odgng furnshed to them and the wages pad n cash must be
ncuded. In computng the cash vaue of the board and odgng, the
M Sororty must determne the far, reasonabe cash vaue thereof,
due consderaton beng gven to a the surroundng crcumstances.
(See generay S. S. T. 51, C. . -2. 421 (1936).) The cost to the
sororty of the board and odgng s not controng for the reason
that the term wages ncudes the cash vaue of the accommoda-
tons.
The M Sororty s abe as empoyer for the ta es mposed under
Tte III of the ct, and f t s an empoyer of eght or more under
the condtons set forth n Tte I of the ct, t s aso abe for the
ta mposed theramder. The sororty s requred by secton 802 of
the ct to coect the empoyees ta mposed by secton 801 wth
respect of the wages of the empoyees n queston. The ta , whch
s to be returned monthy, must be coected by the empoyer by
deductng the amount of the ta from the wages of the empoyee
as and when pad, and every empoyer requred so to deduct the ta
s e pressy made abe for the payment thereof. The M Sororty
may make whatever arrangements are sutabe for the coecton
and payment of the empoyees ta wth respect to those empoyees
who receve ony board and odgng for ther servces so ong as the
correct amount of such ta s coected and returned.
Secton 811: Defntons.
Reguatons 91, rtce 14: Wages.
Determnaton of wages where amount s pad for persona serv-
ces and use of equpment. (See S. S. T. 104, page 481.)
Secton 811: Defntons. I-9-8577
Reguatons 91, rtce 14: Wages. S. S. T. 110
( so Secton 907 Reguatons 90, rtce 207.)
Where an empoyee works overtme and s pad a reasonabe
amount of supper money for the convenence of the empoyer
and not as addtona compensaton, such payment does not con-
sttute wages wthn the meanng of Ttes III and I of the
Soca Securty ct.
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441
IRegs. 91, rt. 14.
dvce s requested whether an amount desgnated as supper
money whch s pad to an empoyee who works overtme for the
convenence of the empoyer n havng the overtme servce of the
empoyee consttutes addtona compensaton to the empoyee for the
purpose of the ta ng provsons of the Soca Securty ct.
rtce 207 of Reguatons 90 reads n part as foows:
Ordnary, factes or prveges (such as entertanment, cafeteras, restau-
rants, medca servces, or so-caed courtesy dscounts on purchases), fur-
nshed or offered by an empoyer to hs empoyees generay, are not consdered
as remuneraton for servces f such factes or prveges are offered or fur-
Dshed by the empoyer merey as a convenence to the empoyer or as a means
of promotng the heath, good w, contentment, or effcency of hs empoyees.
(See aso artce 14, Reguatons 91.)
In 0. D. 514 (C. . 2,90) t was hed that:
Snpper money pad by an empoyer to an empoyee, who vountary per-
forms e tra abor for bs empoyer after reguar busness hours, such payment
not beng consdered addtona compensaton and not beng charged to the saary
account, s consdered as beng pad for the convenence of the empoyer and
for that reason does not represent ta abe ncome to the empoyee.
It s hed that where an empoyee works overtme and s pad a
reasonabe amount of supper money for the convenence of the
empoyer n havng the overtme servce of the empoyee and not as
addtona compensaton such payment does not consttute wages
wthn the meanng of Ttes III and I of the Soca Securty ct,
and the reguatons promugated thereunder.
Secton 811: Defntons. I-16-8656
Reguaton s 91, rtce 14: Wages. S. S. T. 134
( so Secton 907 Reguatons 90, rtce 207.)
mounts pad to the members of a safety counc, composed of
empoyees of the M Company who meet outsde of workng hours
to formuate pans for the safety of empoyees, consttute wages
wthn the meanng of sectons 811(a) and 907(b) of the Soca
Securty ct.
dvce s requested whether amounts pad to the members of a
safety counc, composed of empoyees of the M Company, whch
s engaged n the busness of mnng, consttute wages under
Ttes III and I of the Soca Securty ct.
It s stated by the M Company that t desgnates certan key men
who are company empoyees as members of a safety counc. The
members of the counc meet outsde of workng hours to dscuss
varous pans for the safety of the empoyees n genera. The
counc aso promotes a compettve sprt between groups whch
serves to reduce the number of accdents. In order to keep the men
nterested n ths actvty, the company pays each counc member
doars for each meetng attended n addton to hs reguar
compensaton.
It s hed that the amounts pad by the M Company to the
members of the safety counc consttute wages wthn the mean-
ng of secton 811(a), Tte III, and secton 907(b), Tte I , of
the Soca Securty ct. Such amounts shoud be ncuded n com-
7088 87 15
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Regs. 91, rt. 14.
442
putng the tota wages sub|ect to the ta es mposed by Ttes III
and I of the ct. (See generay artce 207, Reguatons 90. and
artce 14, Reguatons 91.)
Secton 811: Defntons. I-17-8669
Reguatons 91, ktce 14: Wages. S. S. T. 138
( so Secton 907 Reguatons 90, rtce 207.)
Determnaton of what consttutes wages wthn the meanng
of sectons 811(a) and 907(b) of the Soca Securty ct n the
case of contract coa mners.
dvce s requested as to what consttutes wages of contract
coa mners wthn the meanng of the provsons of secton 811(a),
Tte III, and secton 907(b), Tte I , of the Soca Securty ct.
It s stated that many of the anthracte coa mnng empoyees
are so-caed contract mners empoyed on a contract bass at spec-
fed rates per car of coa mned or per near yard of e cavaton. It
appears that on a contract mner s due b coverng a haf-month
perod hs account s credted at the specfed rate wth the number
of cars of coa mned or yards of e cavaton. rom ths amount
the empoyer deducts the cost of the abor of the mner s hepers
pad by the empoyer, the cost of e posves and other suppes
furnshed to the mner by the empoyer for use n mnng opera-
tons, the soca securty ta , dues, fees, assessments, rent, and
persona suppes furnshed to the mner. warrant to be pre-
sented to the paymaster s ssued to the mner for the baance.
Secton 811(a), Tte III of the Soca Securty ct, provdes
n part as foows:
Sec. 811. When used In 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 .
Secton 907 (b), Tte I , contans a smar provson.
rtce 14 of Reguatons 91 provdes n part that:
The medum n whch the remuneraton s pad s aso mmatera. It may
be pad n cash or n somethng other than cash, such as goods, odgng, food,
and cothng.
smar provson s found n artce 207 of Reguatons 90.
It s hed that the ony amounts, other than cash pad to the
contract mner, whch consttute wages of the mner wthn the
meanng of the above-quoted provsons of the statute are those
whch represent charges for suppes or servces for hs persona
use such as rent, fue and cothng, ta es, dues, fees, etc., pad n hs
behaf by the empoyer. The amount pad by the empoyer for
hepers and the cost of suppes and materas furnshed by the
empoyer for use of the contract mner n mnng operatons, whch
amounts are charged aganst the contract mner s account, do not
consttute remuneraton to hm. and hence are not wages wthn
the meanng of sectons 811(a) and 907(b), Ttes f and I ,
respectvey, of the Soca Securty ct.
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443
Regs. 91, rt. 14.
Secton 811: Defntons. I-20-8711
Reguatons 91, rtce 14: Wages. S. S. T. 145
( so Secton 907 Reguatons 90, rtce 207.)
Where a cub docs not permt the tppng of empoyees but n
eu thereof adds 10 per cent to the cafe charges made aganst ts
members accounts and dsburses the added amounts monthy to
the cub s waters, the sums so dsbursed consttute wages
wthn the meanng of sectons 811(a) and 907(b) of the Soca
Securty ct.
dvce s requested whether certan amounts receved by the
waters of the M Cub consttute wages for the purpose of the
ta es mposed by Ttes III and I of the Soca Securty ct.
The M Cub does not permt the tppng of ts empoyees n cash
but n eu thereof adds 10 per cent to the amount of the cafe charges
made to the accounts of cub members. The added amounts are set
asde n a fund whch s dvded and dsbursed monthy to the
cub s waters. It s stated by the M Cub that the amount the
waters receve through ths pan does not affect the reguar wages
pad to them.
Whe t has been hed that tps or gratutes pad drecty to an
empoyee by a customer of an empoyer, and not n any way
accounted for by the empoyee to the empoyer, do not consttute
u wages wthn the meanng of the ta ng provsons of the ct
artce 15(c) Reguatons 91, and S. S. T. 12, C. . -2, 417
1936)), that hodng s not appcabe to the facts here presented.
The 10 per cent added to the cafe charge s an arbtrary charge f ed
by the cub whch the member s requred to pay and s ceary not
a gratuty. Moreover, the added charge s not pad by the customer
drecty to the empoyee but s pad to the cub and becomes a part
of the cub s funds. In other words, the transacton wth respect
o the 10 per cent added charge s between the customer and the
cub and not between the customer and the empoyee of the cub.
The empoyee does not share n the fund on account of servces
rendered ndvduay to any customer.
It s hed that when the fund made up from the 10 per cent added
charges s dvded and dsbursed to the waters by the cub t s
dsbursed to them as empoyees of the cub n consderaton for serv-
ces rendered to the cub as the waters empoyer. The sums so ds-
bursed consttute wages pad by an empoyer to ts empoyees
wthn the meanng of sectons 811(a) and 907(b) of Ttes III and
I , respectvey, of the Soca Securty ct.
Secton 811: Defntons. I-20-8712
Reguatons 91, rtce 14: Wages. S. S. T. 146
( so Secton 907 Reguatons 90, rtce 207.)
Premums pad by the M Company on a sck beneft nsurance
pocy coverng ts empoyees do not consttute wages wthn the
meanng of sectons 811(a) and 907(b), Ttes III and I , respec-
tvey, of the Soca Securty ct.
dvce s requested whether premums pad by the M Company
on a sck beneft nsurance contract coverng ts empoyees const-
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Regs. 90, rt. 200.
444
tute wages wthn the meanng of secton 811(a), Tte III of
the Soca Securty ct, whch defnes the term wages as foows:
The term wages means a remuneraton for empoyment. Incud-
ng the cash vaue of a remuneraton pad n any medum other than
cash
The contract of empoyment n the present case does not provde
that premums on the sck beneft nsurance pocy sha be pad by
the empoyer as a part of the compensaton of the empoyee. The
empoyee has no opton to take a proportonate part of the amount
of the premums nstead of acceptng the nsurance and he has no
equty n the pocy. Under such condtons, the premums pad by
the empoyer on the nsurance pocy do not consttute wages
wthn the meanng of secton 811(a), Tte III of the Soca
Securty ct.
The concuson reached heren s aso appcabe under Tte I
of the ct.
TITL I . T ON MPLOY RS O IG T OR MOR .
Secton 901: Imposton of ta . I-25-8779
Reguatons 90, rtce 200: Nature of ta . Ct. D. 1236
CIS T SOCI L S CURITY CT D CISION O SUPR M COURT.
Consttutonaty.
Tte I of the Soca Securty ct, whch mposes a ta upon
empoyers of eght or more ndvduas, Is not unconsttutona.
(1) The ta consttutes an e cse upon the reaton of empoy-
ment, and s ad wth unformty throughout the Unted States.
(2) It does not voate the ffth amendment on the ground that
the e emptons drected by the statute consttute arbtrary ds-
crmnaton. (3) The e cse s not vod as nvovng the coercon
of the States n contraventon of the tenth amendment or of
restrctons mpct n the federa form of government (4) The
statute does not ca for a surrender by the States of powers es-
senta to ther quas soveregn e stence. (5) Tte III of the
ct s separabe from Tte I , and ts vadty s not at ssue.
Supreme Court of the Unted States.
Chan. C. Steward Machne Co., pettoner, v. arwe ( . Davt, Indwduay
and as Coector of Interna Revenue for the Dstrct of abama, re-
spondent.
57 S. Ct., 883.
On wrt of certorar to the Unted States Crcut Court of ppeas for the fth Crcut.
May 24, 1937.
OPINION.
Mr. ustce Cabdozo devered the opnon of the Court,
The vadty of the ta mposed by the Soca Securty ct on empoyers of
eght or more s here to be determned.
Pettoner, an abama corporaton, pad a ta n accordance wth the stat-
ute, fed a cam for refund wth the Commssoner of Interna Revenue, and
sued to recover the payment ( -10.14), assertng a confct between the statute
and the Consttuton of the Unted States. Upon demurrer the dstrct court
gave |udgment for the defendant dsmssng the compant, and the Crcut
Court of ppeas for the fth Crcut affrmed. ( . (2d), .) The decson
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445
Regs. 90, rt. 200.
Is In accord wth |udgments of the Supreme udca Court of Massachusetts
owes ros. Co. v. Massachusetts Unempoyment Compensaton Commsson,
December 30, 1936, 5 N. . (2d), 720), the Supreme Court of Caforna (Oum
. ohnson, November 25, 1936, 62 Pac. (2d), 1037), and the Supreme Court
of abama ( eeand Whoesae Co. v. aufman, March 17, 1937, a., ).
It s n confct wth a |udgment of the Crcut Court of ppeas for the rst
Crcut, from whch one |udge dssented. Davs v. oston Mane R. R. Co.,
pr 14, 1937, . (2d), .) n mportant queston of consttutona aw
beng Invoved, we granted certorar.
The Soca Securty ct ( ct of ugust 14, 1935, ch. 531, 49 Stat, 620,
42 D. S. C, ch. 7 (Supp.)) s dvded nto 11 separate ttes, of whch ony
Ttes I and III are so reated to ths case as to stand n need of summary.
The capton of Tte I s Ta on mpoyers of ght or More. very
empoyer (wth stated e ceptons) s to pay for each caendar year an e cse
ta , wth respect to havng ndvduas n hs empoy, the ta to be measured
by prescrbed percentages of the tota wages payabe by the empoyer durng
the caendar year wth respect to such empoyment. (Secton 901.) One s
not, however, an empoyer wthn the meanng of the ct uness he empoys
eght persons or more. (Secton 907(a).) There are aso other mtatons of
mnor mportance. The term empoyment too has ts speca defnton,
e cudng agrcutura abor, domestc servce n a prvate home and some other
smaer casses. (Secton 907(c).) The ta begns wth the year 1936, and
s payabe for the frst tme on anuary 81, 1937. Durng the caendar year
1 36 the rate s to be 1 per cent, durng 1937 2 per cent, and 3 per cent thereafter.
The proceeds, when coected, go nto the Treasury of the Unted States ke
nterna revenue coectons generay. (Secton 905(a).) They are not ear-
marked n any way. In certan crcumstances, however, credts are aowabe.
(Secton 902.) If the ta payer has made contrbutons to an unempoyment
fund under a State aw, he may credt such contrbutons aganst the edera
ta , provded, however, that the tota credt aowed to any ta payer sha not
e ceed 80 per centum of the ta aganst whch t s credted, and provded aso
that the State aw sha have been certfed to the Secretary of the Treasury
by the Soca Securty oard as satsfyng certan mnmum crtera. (Secton
902.) The provsons of secton 903 defnng those crtera are stated n the
margn.1 Some of the condtons thus attached to the aowance of a credt are
desgned to gve assurance that the State unempoyment compensaton aw sha
bp one In substance as we as name. Others are desgned to gve assurance
that the contrbutons sha be protected aganst oss after payment to the State.
To ths ast end there are provsons that before a State aw sha have the ap-
prova of the board t must drect that the contrbutons to the State fund
be pad over mmedatey to the Secretary of the Treasury to the credt of the
Sec. 903. (a) The Soca Securty oard sha approve any State aw submtted to t,
wthn 30 days of such submsson, whch t fnds provdes that
(1) compensaton s to be pad through pubc empoyment offces In the State or
rach other agences as the board may approve
(2) No compensaton sha be payabe wth respect to any day of unempoyment occur-
rng wthn two years after the frst day of the frst perod wth respect to whch con-
trbutons are requred
(3) money receved n the unempoyment fund sha Immedatey upon such recept
be pad over to the Secretary of the Treasury to the credt of the Unempoyment Trust
und estabshed by secton 904
(4) money wthdrawn from the Unempoyment Trust und by the State agency sha
be used soey n the payment of compensaton, e cusve of e penses of admnstraton
(5) Compensaton sha not be dened n such State to any otherwse egbe Indvdua
for refusng to accept new work under any of the foowng condtons: ( ) If the poston
offered s vacant due drecty to a strke, ockout, or other abor dspute ( ) f the wages,
hours, or other condtons of the work offered are substantay ess favorabe to the
ndvdua than those prevang for smar work In the ocaty (C) f as a condton of
bene empoyed the Indvdua woud be requred to on a company unon or to resgn from
or refran from |onng any bona fde abor organzaton
(6) te rghts, prveges, or mmuntes conferred by such aw or by acts done pur-
suant thereto sha e st sub|ect to the power of the egsature to amend or repea such
aw at any tme.
The board sha, upon approvng such aw, notfy the governor of the State of Its approva.
(b) On December 31 n each ta abe year the board sha certfy to the Secretary of the
Treasury each State whose aw It has prevousy approved, e cept that It sha not certfy
any State whch, after reasonabe notce and opportunty for hearng to the State agency,
the board fnds has changed Its aw so that t no onger contans the provsons specfed In
subsecton (a) or has wth respect to such ta abe year faed to compy substantay wth
any such provson.
(c) If, at any tme durng the ta abe year, the board has reason to beeve that a State
whose aw It has prevousy approved, may not be certfed under subsecton (b), It sha
prompty so notfy the governor of such State.
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Reg3. 90, ft. 200.1
446
Unempoyment trust fund. Secton 904 estabshng ths fund s quoted
beow.1 or the moment t s enough to say that the fund s to be hed by the
Secretary of the Treasury, who s to nvest n Government securtes any por-
ton not requred n hs |udgment to meet current wthdrawas. e s author-
zed and drected to pay out of the fund to any competent State agency such
sums as t may duy requston from the amount standng to ts credt. (Sec-
ton 904(f).)
Tte I, whch s aso chaenged as nvad, has the capton Grants to
States for Unempoyment Compensaton dmnstraton. Under ths tte,
certan sums of money are authorzed to be approprated for the purpose
of assstng the States n the admnstraton of ther unempoyment compen-
saton aws, the ma mum for the fsca year endng une 30, 1936, to be
4,000,000, and 49,000,000 for each fsca year (hereafter. (Secton 301.)
No present appropraton s made to the e tent of a snge doar. that
the tte does s to authorze future appropratons. ctuay ony 2,250,000
of the 4,000,000 authorzed was approprated for 1936 ( ct of ebruary 11,
1936, ch. 49, 49 Stat., 1109, 1113), and ony 29,000,000 of the 49,000,000
authorzed for the foowng year. ( ct of une 22, 1936, ch. 689, 49 Stat.,
1597, 1605.) The appropratons when made were not specfcay out of the
proceeds of the empoyment ta , but out of any moneys n the Treasury.
Other sectons of the tte prescrbe the method by whch the payments are
to be made to the State (secton 302) and aso certan condtons to be estab-
shed to the satsfacton of the Soca Securty oard before certfyng the pro-
prety of a payment to the Secretary of the Treasury. (Secton 303.) They
are desgned to gve assurance to the edera Government that the moneys
granted by t w not be e pended for purposes aen to the grant, and w
be used n the admnstraton of genune unempoyment compensaton aws.
The assaut on the statute proceeds on an e tended front. Its assaants
take the ground that the ta Is not an e cse that It s not unform through-
out the Unted States as e cses are requred to be that ts e ceptons are so
many and arbtrary as to voate the ffth amendment that ts purpose was
not revenue, but an unawfu nvason of the reserved powers of the States
and that the States n submttng to t have yeded to coercon and have
abandoned governmenta functons whch they are noc permtted to surrender.
The ob|ectons w be consdered seratm wth such further e panaton
as may be necessary to make ther meanng cear.
Sec. 904. (a) There Is hereby estabshed In the Treasury of the Unted States a trust
fund to be known as the Unempoyment Trust und, herenafter n ths tte caed the
und. The Secretary of the Treasury s authorzed and drected to receve and hod n
the und a moneys deposted theren by a State agency from a State unempoyment fund.
Such depost may bo made drecty wth the Secretary of the Treasury or wth any edera
reserve bank or member bank of the edera Reserve System desgnated by hm for such
purpose.
(b) It sha be the duty of the Secretary of the Treasury to Invest such porton of the
und as s not. In hs udgment, requred to meet current wthdrawas. Such nvestment
may be made ony In nterest-bearng obgatons of the Unted States or In obgatons
guaranteed as to both prncpa and nterest by the Unted States. or such purpose such
obgatons may be acqured (1) on orgna Issue at par, or (2) by purchase of outstand-
ng obgatons at the market prce. The purposes for whch obgatons of the Unted
States may be Issued under the Second Lberty ond ct, as amended, are hereby e tended
to authorze the Issuance at par of speca obgatons e cusvey to the und. Such
speca obgatons sha bear Interest at a rate equa to the average rate of nterest, com-
puted as of the end of the caendar month ne t precedng the date of such ssue, borne by
a Interest-bearng obgatons of the Unted States then formng part of the pubc debt
e cept that where such average rate Is not a mutpe of one-eghth of 1 per centum, the
rate of nterest of such speca obgatons sha be the mutpe of one-eghth of 1 per
centum ne t ower than such average rate. Obgatons other than such speca obga-
tons may be acqured for the und ony on such terms as to provde an nvestment yed
not ess than the yed whch woud be requred n the case of speca obgatons If Issued
to the und upon the date of such acquston.
(c) ny obgatons acqured by the und (e cept speca obgatons Issued e cusvey
to the und) may be sod at the market prce, and such speca obgatons may be
redeemed at par pus accrued nterest.
(d) The Interest on. and the proceeds from the sae or redempton of, any obgatons
hed n the und sha bo credted to and form a part of the und.
(e) The und sha be nvested as a snge fund, but the Secretary of the Treasury sha
mantan a separate book account for each State agency and sha credt quartery on
March 31, une 30. September 30, and December 31, of each year, to each account, on the
bass of the average day baance of such account, a proportonate part of the earnngs of
the und for the quarter endng on such date.
(f) The Secretary of the Treasury Is authorzed and drected to pay out of the und to
any State agency such amount as It may duy requston, not e ceedng the amount
standng to the account of such State agency at the tme of such payment.
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447
Regs. 90, rt. 200.
Pnt: The ta , whch s descrbed n the statute as an e cse, s ad wth
unformty throughout the Unted States as a duty, an mpost or an e cse
upon the reaton of empoyment.
1. We are tod that the reaton of empoyment s one so essenta to the
pursut of happness that t may not be burdened wth a ta . ppea s made
to hstory. Prom the precedents of coona days we are supped wth us-
tratons of e cses common n the coones. They are sad to have been bound
up wth the en|oyment of partcuar commodtes. ppea s aso made to
prncpe or the anayss of concepts. n e cse, we are tod, Imports a ta
upon a prvege empoyment, t s sad, s a rght, not a prvege, from
whch t foows that empoyment s not sub|ect to an e cse. Nether the
one appea nor the other eads to the desred goa.
s to the argument from hstory: Doubtess there were many e cses n
coona days and ater that were assocated, more or ess ntmatey, wth
the en|oyment or the use of property. Ths woud not prove, even f no
others were then known, that the forms then accepted were not sub|ect to
enargement (Cf. Pensacoa Teephone Co. v. Western Unon Teegraph Co.,
96 D. S., 1, 9 In re Debs, 158 U. S., 564, 591 outh Carona v. Unted
States, 199 D. S., 437, 448, 449.) ut n truth other e cses were known, and
known snce eary tmes. Thus n 1695 (6 7 Wm. I, ch. 6), Parament
passed an act whch granted to s Ma|esty certan Rates and Dutes upon
Marrage, rths and uras, a for the purpose of carryng on the War
aganst rance wth gour. (See Opnon of the ustces, 196 Mass., 602,
609.) No commodty was affected there. The Industry of counse has sup-
ped us wth an apter ustraton where the ta was not dfferent n sub-
stance from the one now chaenged as nvad. In 1777, before our Const-
tutona Conventon, Parament ad upon empoyers an annua duty of 21
shngs for every mae servant empoyed n stated forms of work. (Rev-
enue act of 1777, 17 George III, ch. 39. ) The pont s made as a dstncton
that a ta upon the use of mae servants was thought of as a ta upon a
u ury. (DavU v. oston f Mane R. R. Co., supra.) It dd not touch em-
poyments n husbandry or busness. Ths s to throw over the argument that
hstorcay an e cse s a ta upon the en|oyment of commodtes. ut the
attempted dstncton, whatever may be thought of ts vadty, s nappcabe
to a statute of rgna passed n 1780. There a ta of 3 pounds, 6 shngs
and 8 pence was to be pad for every mae tthabe above the age of 21 years
(wth stated e ceptons), and a ke ta for every whte servant whatsoever,
e cept apprentces under the age of 21 years. (10 enng s Statutes of
rgna, page 244.) Our coona forbears knew more about ways of ta ng
than some of ther descendants seem to be wng to concede.
The hstorca prop fang, the prop or fanced prop of prncpe remans.
We earn that empoyment for awfu gan s a natura or nherent or
naenabe rght, and not a prvege at a. ut natura rghts, so
caed, are as much sub|ect to ta aton as rghts of ess mportance. n e -
cse s not mted to vocatons or actvtes that may be prohbted atogether.
It s not mted to those that are the outcome of a franchse. It e tends
to vocatons or actvtes pursued as of common rght What the ndvdua
does n the operaton of a busness s amenabe to ta aton ust as much as
what he owns, at a events f the cassfcaton s not tyrannca or arbtrary.
usness s as egtmate an ob|ect of the ta ng powers as property. (Cty
The st of servces Is comprehensve. It ncuded: Matre dTTote, ouse-steward,
Master of the orse, Groom of the Chamber, aet de Chanbre, uter, Under-buter,
Cerk of the tchen Confectoner, Cook. ouse-porter ootman, Runnng-footman, Coach-
man, Groom, Poston, Stabe-boy, and the respectve epers tn the Stabes of such
Coachman, Groom, or Poston, or In the Capacty of Gardener (not beng a Day-
abourer), Park-keeper, Gamekeeper, untsman. Whpper-n .
The statute, amended from tme to tme, but wth ts basc structure unaffected, Is on
the statute books to-dny. ( ct of 1803, 43 George III, ch. 161 ct of 1812, 52 George
I, ch. 93 | ct of 18 )3, 10 17 ct., ch. 00 ct of 1809, 32 33 ct., ch. 14.
24 asbury s Laws of ngand. 1st ed., pages 602 et seq.)
See aso the foowng aws Imposng occupaton ta es: 12 enng s Statutes of r-
Oa, page 285, ct of 1780: Chander, The Coona Records of Georga, voume 19,
P rt 2, page 88, ct of 1778 1 Potter, Tayor and Yancev, North Carona Revsed Laws,
Ps|p 501, ct of 1784.
I( The cases are brought together by Professor ohn Mac rthur Magure In an essay,
Twns the ercse of Natura Rghts ( arvard Lega ssays, 1934, pages 273, 322).
The Massachusetts decsons must be read In the ght of the partcuar defntons and
rattrctons of the Massachusetts Consttuton. (Opnons of the ustces, 2S2 Mass.,
622 206 Mass., 590, 593. nd see owr Itros. Co. v. Massachusetts Unempoyment
w penwton Commsson, supra, pages 730, 731.)
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Regs. 90, rt. 200.
448
of Newton v. tchson, 31 an., 151, 154 (per rewer, .).) Indeed, ownershp
tsef, as we had occason to pont out the other day, s ony a bunde of
rghts and prveges nvested wth a snge name. ( enneford v. Sas Mason
Co., Inc., March 29, 1937, U. S., .) State s at berty, f t peases, to
ta them a coectvey, or to separate the faggots and ay the charge ds-
trbutvey. (Ibd.) mpoyment s a busness reaton, f not tsef a bus-
ness. It s a reaton wthout whch busness coud sedom be carred on
effectvey. The power to ta the actvtes and reatons that consttute a
cang consdered as a unt s the power to ta any of them. The whoe
ncudes the parts. Nashve 0. St. L. Ry. Co. v. Waace, 288 U. S., 249,
267, 268.)
The sub|ect matter of ta aton open to the power of the Congress Is as
comprehensve as that open to the power of the States, though the method of
apportonment may at tmes be dfferent The Congress sha have power
to ay and coect ta es, dutes, mposts and e cses. ( rtce I, secton 8.)
If the ta s a drect one, t sha be apportoned accordng to the census or
enumeraton. If t s a duty, mpost, or e cse, t sha be unform throughout
the Unted States. Together, these casses ncude every form of ta approprate
to soveregnty. (Cf. urnet v. rooks, 288 U. S., 378, 403, 405 Ct D. 648,
0. . II-1, 362 (1932) rushaoer v. Unon Pacfc R. R. Co., 240 U. S.,
1, 12.) Whether the ta Is to be cassfed as an e cse s In truth not of
crtca Importance. If not that, It s an mpost (Poock v. armers Loan
Trust Co., 158 U. S., 601, 622, 625 Pacfc Insurance Go. v. Soue, 7 Wa., 433,
445), or a duty ( eaze ank v. Penno, 8 Wa., 533, 546, 547 Poock v.
armers Loan d Trust Co., 157 U. S., 429, 570 nowtcn v. Moore, 178 U. S-,
41, 46.) captaton or other drect ta It certany s not though
there have been from tme to tme Intmatons that there mght be some ta
whch was not a drect ta nor ncuded under the words dutes, mposts and
e cses, such a ta for more than 100 years of natona e stence has as yet
remaned undscovered, notwthstandng the stress of partcuar crcumstances
has nvted thorough nvestgaton nto sources of powers. (Poock v. arm-
ers Loan Trust Co., 157 . S., 429, 557.) There s no departure from that
thought n ater cases, but rather a new emphass of t. Thus, n Thomas v.
Unted Sates (192 U. S., 363, 370), t was sad of the words dutes, mposts and
e cses that they were used comprehensvey to cover customs and e cse
dutes mposed on Importaton, consumpton, manufacture and sae of certan
commodtes, prveges, partcuar busness transactons, vocatons, occupatons
and the ke. t tmes ta payers have contended that the Congress s wthout
power to ay an e cse on the en|oyment of a prvege created by State aw.
The contenton has been put asde as baseess. Congress may ta the transms-
son of property by nhertance or w, though the States and not Congress have
created the prvege of successon. ( nowton T. Moore, supra, page 58.) Con-
gress may ta the en|oyment of a corporate franchse, though a State and
not Congress has brought the franchse nto beng. ( nt v. Stone Tracy Co.,
220 U. S., 108, 155.) The statute books of the States are strewn wth ustra-
tons of ta es ad on occupatons pursued of common rght. We fnd no bass
for a hodng that the power n that regard whch beongs by accepted practce
to the egsatures of the States, has been dened by the Consttuton to the
Congress of the Naton.
2. The ta beng an e cse, ts mposton must conform to the canon of un-
formty. There has been no departure from ths requrement. ccordng to
the setted doctrne the unformty e acted s geographca, not ntrnsc.
( nowton v. Moore, supra, page 83 nt v. Stone Tracy Co., supra, page 358
ngs v. Unted States, 232 U. S., 261, 282 Stewagen v. Chm. 245 U. S., 605,
613 La ee Iron Works v. Unted States, 256 U. S., 377, 392 T. D. 3181,
abama Genera cts, 1935, chapter 194, rtce III (fat cense ta on occupa-
tons) rzona Revsed Code, Suppement (1936), secton 3138a et acq. (genera gross
recepts ta ) Connectcut Genera Statutes, Suppement (1935), sectons 457c, 458c
(gross recepts ta on unncorporated busnesses) Revsed Code of Deaware (1935), sec-
tons 192-197 (fat cense ta on occupatons) Comped Laws of orda, Permanent
Suppement (1936), oume I, secton 1279 (fat cense ta on occupatons) : Georqa
Laws, 1935, page 11 (fat cense ta on occupatons) Indana Statutes nn. (1933),
secton 64-2601 ct sea. (genera gross recepts ta ) Lousana Laws, Thrd tra Ses-
son, 1934, ct No. 15, rst tra Sesson, 1935, cts Nos. 5, 0 (genera gross recepts
ta ) : Msssspp Laws, 1934, chapter 119 (genera gross recepts ta ) New Me co
Laws. 1935. chapter 73 (genera gross recepts ta ) : South Dakota Laws, 1933, chapter
184 (genera gross recepts ta , e pred une 30. 1935) Washngton Laws, 1935, chap-
ter 180, Tte II (genera gross recepts ta ) West rgna Code, Suppement (1935),
secton 960 (genera gross recepts ta ).
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449
Regs. 90, rt. 200.
C. . 4, 373 (1921) Poe v. Seaborn, 282 U. S., 101, 117 Ct D. 259, C. . 1 -2,
202 (1930) Wrght v. nton ranch Mountan Trust ank, March 29, 1937,
U. S., .) The rue of abty sha be the same n a parts of the Unted
States. ( orda v. Meon, 273 U. S., 12, 17.)
Second: The e cse s not nvad under the provsons of the ffth amendment
by force of ts e emptons.
The statute does not appy, as we have seen, to empoyers of ess than eght.
It does not appy to agrcutura abor, or domestc servce n a prvate home
or to some other casses of ess Importance. Pettoner contends that the effect
of these restrctons s an arbtrary dscrmnaton vtatng the ta .
The ffth amendment unke the fourteenth has no equa protecton cause.
(La ce Iron Works y. Unted States, supra rushaber v. Unon Pacfc
R. R. Co., supra, page 24.) ut even the States, though sub|ect to such a
cause, are not confned to a formua of rgd unformty n framng measures of
ta aton. (Swss O Corporaton v. Shanks, 273 U. S., 407, 413.) They may ta
some knds of property at one rate, and others at another, and e empt others
atogether. e s Gap R, R. Co. v. Pennsyvana, 134 U. S., 232 Stebbns v.
Rey, 268 U. S., 137, 142 Oho O Co. v. Conway, 281 U. S., 146, 130.) They
may ay an e cse on the operatons of a partcuar knd of busness, and e empt
some other knd of busness cosey akn thereto. ( uong Wng v. rkenda,
223 U. S., 59, 62 mercan Sugar Refnng Co. v. Lousana, 179 U. S., 89, 94
rmour Packng Co. v. Lacy. 200 U. S., 226, 235 rocn- orman Co. v. entucky,
217 U. 8., 563, 573 eser v. Thomas Coery Co., 260 U. S., 245, 255 State
oard of Ta Comm rs v. ackson, 283 U. S., 527, 537, 538.) If ths attude of
|udgment s awfu for the States, t s awfu, a fortor, n egsaton by the
Congress, whch s sub|ect to restrants ess narrow and confnng. ( uong
Wng v. rkenda, supra.)
The cassfcatons and e emptons drected by the statute now n contro-
rersy have support n consderatons of pocy and practca convenence that
can not be condemned as arbtrary. The cassfcatons and e emptons woud
therefore be uphed f they had been adopted by a State and the provsons of the
fourteenth amendment were nvoked to annu them. Ths s hed n two cases
passed upon to-day n whch precsey the same provsons were the sub|ect of
attack, the provsons beng contaned n the unempoyment compensaton aw
of the State of abama. (Carmehae v. Southern Coa Coke Co., No. 724,
U. S., , and Carmehae v. Ouf States Paper Corporaton, No. 797, U. S., .)
The opnon rendered n those cases covers the ground fuy. It woud be useess
to repeat the argument. The ct of Congress s therefore vad, so far at east
as ts system of e emptons s concerned, and ths though we assume that ds-
crmnaton, f gross enough, s equvaent to confscaton and sub|ect under the
ffth amendment to chaenge and annument.
Thrd: The e cse s not vod as nvovng the coercon of the States n contra-
venton of the tenth amendment or of restrctons mpct n our federa form
of government
The proceeds of the e cse when coected are pad nto the Treasury at
Washngton, and thereafter are sub|ect to appropraton ke pubc moneys
generay. (Cncnnat Soap Co. v. Unted States, May 3,1937, U. S., Ct. D.
1227, page 317, ths uetn.) No presumpton can be nduged that they
w be msapped or wasted ven f they were coected u the hope or e -
pectaton that some other and coatera good woud be furthered as an ncdent,
that wthout more woud not make the ct nvad. (Sonznsky v. Unted
States, March 29, 1937, . S., Ct D. 1217, page 351, ths uetn .)
Ths ndeed s hardy questoned. The case for the pettoner s but on the
contenton that here an uteror am s wrought nto the very structure of
the ct and what s even more mportant that the am s not ony uteror, but
essentay unawfu. In partcuar, the 90 per cent credt s reed upon as
supportng that concuson. ut before the statute succumbs to an assaut
upon these nes, two propostons must be made out by the assaant. (Cn-
cnnat Soap Co. v. Unted States, supra.) There must be a showng n the
frst pace that separated from the credt the revenue provsons are ncapabe
of standng by themseves. There must be a showng n the second pace that
The tota estmated recepts wthout takng Into account the 90 per cent deducton,
range from 225,000,000 n the frst year to over 900,000,000 seven years ater. ven
If the mn mum credts are avaabe to ta payers n a States, the ma mum estmated
recepts from Tte I w range between 22,000,000, at one e treme, to 90,000,000 at
the other. If some of the States hod out n ther unwngness to pass statutes of ther
wn, the recepts w be st arger.
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Regs. 90, rt. 200.
450
the ta and the credt n combnaton are weapons of coercon, destroyng or
mparng the autonomy of the States. The truth of each proposton beng
essenta to the success of the assaut, we pass for convenence to a consdera-
ton of the second, wthout pausng to nqure whether there has been a
demonstraton of the frst
To draw the ne ntegenty between duress and nducement there s need
to remnd ourseves of facts as to the probem of unempoyment that are now
matters of common knowedge. (West Coast ote Co. v. Parrsh, March 29,
1937, . S., .) The reevant statstcs are gathered n the bref of counse
for the Government. Of the many avaabe fgures a few ony w be men-
toned. Durng the years 1929 to 1936, when the country was passng through
a cycca depresson, the number of the unempoyed mounted to unprece-
dented heghts. Often the average was more than 10,000,000 at tmes a peak
was attaned of 16,000,000 or more. Dsaster to the breadwnner meant ds-
aster to dependents. ccordngy the ro of the unempoyed, tsef formdabe
enough, was ony a parta ro of the desttute or needy. The fact deveoped
qucky that the States were unabe to gve the requste reef. The probem
had become Natona n area and dmensons. There was need of hep from
the Naton f the peope were not to starve. It s too ate to-day for the argu-
ment to be heard wth toerance that n a crss so e treme the use of the
moneys of the Naton to reeve the unempoyed and ther dependents s a use
for any purpose narrower than the promoton of the genera wefare. (Cf.
Unted States v. uter, 297 U. S., 1, 65, 66 everng v. Davs, decded here-
wth Ct. D. 1235, page 300, ths uetn .) The Naton responded to the ca
of the dstressed. etween anuary 1, 1933, and uy 1, 1936, the States
(accordng to statstcs submtted by the Government) ncurred obgatons of
CS9.291,S02 for emergency reef oca subdvsons an addtona 775,675,366.
In the same perod the obgatons for emergency reef ncurred by the
Natona Government were 2,929,307,125, or twce the obgatons of States
and oca agences combned. ccordng to the Presdent s budget message for
the fsca year 1938, the Natona Government e pended for pubc works and
unempoyment reef for the three fsca years 1934, 1935, and 1933, the
stupendous tota of 8,681,000,000. The parens patrae has many reasons-
fsca and economc as we as soca and mora for pannng to mtgate
dsasters that brng these burdens n ther tran.
In the presence of ths urgent need for some remeda e pedent, the queston
s to be answered whether the e pedent adopted has overept the bounds of
power. The assaants of the statute say that ts domnant end and am s
to drve the State egsatures under the whp of economc pressure nto the
enactment of unempoyment compensaton aws at the bddng of the Centra
Government. Supporters of the statute say that ts operaton s not con-
strant, but the creaton of a arger freedom, the States and the Naton onng
n a cooperatve endeavor to avert a common ev. efore Congress acted,
unempoyment compensaton nsurance was st, for the most part, a pro|ect
and no more. Wsconsn was the poneer. er statute was adopted n 1931.
t tmes bs for such nsurance were ntroduced esewhere, but they dd not
reach the stage of aw. In 1935, four states (Caforna, Massachusetts, New
ampshre and New York) passed unempoyment aws on the eve of the
adopton of the Soca Securty ct, and two others dd kewse after the
edera ct and ater n the year. The statutes dffered to some e tent n type,
but were drected to a common end. In 1936, 28 other States fe n ne, and
8 more the present year. ut f States had been hodng back before the
passage of the edera aw, nacton was not owng, for the most part, to the
ack of sympathetc nterest. Many hed back through aarm est n ayng such
a to upon ther ndustres, they woud pace themseves n a poston of eco-
nomc dsadvantage as compared wth neghbors or compettors. (See ouse
Report No. 615, Seventy-fourth Congress, frst sesson, page 8 Senate Report
No. 628, Seventy-fourth Congress, frst sesson, page 11. ) Two consequences
The atttude of Massachusetts s sgnfcant. er act became a aw ugust 12, 1935,
two days before the edera ct. ven so, she prescrbed that ts provsons shoud not
become operatve uness the edera b became a aw, and uness 11 of the foowng
States ( abama, Connectcut. Deaware, Georga, Inos. Indana. Iowa, Mane, Mary-
and. Mchgan. Mnnesota, Mssour, New ampshre, New ersey, New York, North
Carona, Oho, Ihode Isand, South Carona, Tennessee, ermont) shoud mpose on
ther empoyers burdens substantay equvaent. ( cts of 1935, ch. 479, page 655.)
er fear of competton s thus forcefuy attested. (See aso Caforna Laws. 1935,
ch. 352, rtce I, secton 2 : Idaho Laws, 1936 (thrd e tra sesson), ch. 12, secton 26
Msssspp Laws, 1930, ch. 176, secton 2-a.
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451
Regs. 90, rt. 200.
ensued. One was that the freedom of a State to contrbute ts far share to
the souton of a Natona probem was parayzed by fear. The other was that
In so far as there was faure by the States to contrbute reef accordng to
the measure of ther capacty, a dsproportonate burden, and a mountanous
one, was ad upon the resources of the Government of the Naton.
The Soca Securty ct s an attempt to fnd a method by whch a these
pubc agences may work together to a common end. very doar of the new
ta es w contnue n a kehood to be used and needed by the Naton as
ong as States are unwng, whether through tmdty or for other motves,
to do what can be done at home. t east the Inference s permssbe that
Congress so beeved, though retanng undmnshed freedom to spend the money
as t peased. On the other hand fufment of the home duty w be ghtened
and encouraged by credtng the ta payer upon hs account wth the Treasury
of the Naton to the e tent that hs contrbutons under the aws of the ocaty
have smpfed or dmnshed the probem of reef and the probabe demand
upon the resources of the fsc. Dupcated ta es, or burdens that approach
them, are recognzed hardshps that government, State or Natona, may propery
avod. ( enneford v. Sas Mason Co., Inc., supra dd v. abama, 188 U. S.,
730, 732 Watson v. State Comptroer, 254 U. S., 122, 125.) If Congress be-
eved that the genera wefare woud better be promoted by reef through oca
unts than by the system then n vogue, the cooperatng ocates ought not In
t farness to pay a second tme.
Who then s coerced through the operaton of ths statute Not the ta -
payer. e pays n fufment of the mandate of the oca egsature. Not
the State. ven now she does not offer a suggeston that n passng the
unempoyment aw she was affected by duress. (See Carmchae v. Southern
Coa Coke Co., supra Carmchae v. Ovf States Paper Corporaton, supra.)
or a that appears she s satsfed wth her choce, and woud be sorey ds-
apponted If t were now to be annued. The dffcuty wth the pettoner s
contenton s that t confuses motve wth coercon. very ta s n some
measure reguatory. To some e tent t nterposes an economc mpedment to
the actvty ta ed as compared wth others not ta ed. (Sonznsky v. Unted
States, supra.) In ke manner every rebate from a ta when condtoned upon
conduct s n some measure a temptaton. ut to hod that motve or tempta-
ton s equvaent to coercon s to punge the aw n endess dffcutes. The
outcome of such a doctrne s the acceptance of a phosophca determnsm
by whch choce becomes mpossbe. T now the aw has been guded by a
robust common sense whch assumes the freedom of the w as a workng
hypothess n the souton of Its probems. The wsdom of the hypothess has
ustraton n ths case. Nothng n the case suggests the e erton of a power
akn to undue nfuence, f we assume that such a concept can ever be apped
wth ftness to the reatons between State and Naton. ven on that assump-
ton the ocaton of the pont at whch pressure turns nto compuson, and
ceases to be Inducement, woud be a queston of degree at tmes, perhaps, of
fact. The pont had not been reached when abama made her choce. We
can not say that she was actng, not of her unfettered w, but under the stran
of a persuason equvaent to undue nfuence, when she chose to have reef ad-
mnstered under aws of her own makng, by agents of her own seecton, n-
stead of under edera aws, admnstered by edera offcers, wth a the ensu-
ng evs, at east to many mnds, of edera patronage and power. There
woud be a strange rony, ndeed, f her choce were now to be annued on the
bass of an assumed duress n the enactment of a statute whch her courts
have accepted as a true e presson of her w. ( eeand Whoesae Co. v.
aufman, supra.) We thnk the choce must stand.
In rung as we do, we eave many questons open. We do not say that a ta
s vad, when mposed by ct of Congress, f t s ad upon the condton
that a State may escape Its operaton through the adopton of a statute un-
reated In sub|ect matter to actvtes fary wthn the scope of natona
pocy and power. No such queston s before us. In the tender of ths credt
Congress does not Intrude upon feds foregn to ts functon. The purpose of ts
nterventon, as we have shown, s to safeguard ts own Treasury and as an
ncdent to that protecton to pace the States upon a footng of equa oppor-
tunty. Drans upon Its own resources are to be checked obstructons to the
freedom of the States are to be eveed. It s one thng to mpose a ta depend-
ent upon the conduct of the ta payers, or of the State n whch they ve, where
the conduct to be stmuated or dscouraged s unreated to the fsca need sub-
served by the ta In Its norma operaton, or to any other end egtmatey
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Rcg8. 90, rt. 200.
452
natona. The Chd Labor Ta Case (259 U. S.. 20 T. D. 3346, C. . 1-2, 237
(1922) ) and v. Waace (259 U. S., 44) were decded n the beef that the
statutes there condemned were e posed to that reproach. (Cf. Unted States y.
Constantno, 2 M U. S., 287 Ct. D. 1053, C. . I -2, 403 (1935) .) It s
qute another thng to say that a ta w be abated upon the dong of an act
that w satsfy the fsca need, the ta and the aternatve beng appro mate
equvaents. In such crcumstances, f n no others, nducement or persuason
does not go beyond the bounds of power. We do not f the outermost ne.
nough for present purposes that wherever the ne may be, ths statute s
wthn t. Defnton more precse must abde the wsdom of te future.
orda v. Meon (273 U. S., 12) suppes us wth a precedent, f precedent
be needed. What was n controversy there was secton 301 of the Revenue
ct of 1926, whch mposes a ta upon the transfer of a decedent s estate,
whe at the same tme permttng a credt, not e ceedng 80 per cent, for
the amount of any estate, nhertance, egacy or successon ta es actuay pad
to any State or Terrtory. orda chaenged that provson as unawfu.
orda had no nhertance ta es and aeged that under ts consttuton It
coud not evy any. (273 U. S., 12, 15.) Indeed, by aboshng nhertance
ta es, t had hoped to nduce weathy persons to become ts ctzens. (See 67
Congressona Record, Part 1, pages 735, 752.) It argued at our bar that
the estate ta provson was not passed for the purpose of rasng edera
revenue (273 U. S., 12, 14), but rather to coerce States nto adoptng estate
or nhertance ta aws. (273 U. S., 12, 13.) In fact, as a resut of the
80 per cent credt, matera changes of such aws were made n 36 States.1 In
the face of that attack we uphed the ct as vad. (Cf. Massachusetts t.
Meon, 2G2 U. S., 447, 482 aso ct of ugust 5, 1861, ch. 45, 12 Stat., 292 ct
of May 13, 1862, ch. 66, 12 Stat.. 384.)
Unted States v. uter, supra, s cted by pettoner as a decson to the
contrary. There a ta was mposed on processors of farm products, the pro-
ceeds to be pad to farmers who woud reduce ther acreage and crops under
agreements wth the Secretary of grcuture, the pan of the ct beng to n-
crease the prces of certan farm products by decreasng the quanttes pro-
duced. The court hed (1) that the so-caed ta was not a true one (pages 56,
61). the proceeds beng earmarked for the beneft of farmers compyng wth the
prescrbed condtons, (2) that there was an attempt to reguate producton
wthout the consent of the State n whc producton was affected, and (3)
that the payments to farmers were couped wth coercve contracts (page 73),
unawfu n ther am and oppressve n ther consequences. The decson was
by a dvded court, a mnorty takng the vew that the ob|ectons were un-
tenabe. None of them s appcabe to the stuaton here deveoped.
(a) The proceeds of the ta n controversy are not earmarked for a speca
group.
(b) The unempoyment compensaton aw whch s a condton of the credt
has had the approva of the State and coud not be a aw wthout It
(c) The condton s not nked to an rrevocabe agreement, for the State
at ts peasure may repea ts unempoyment aw (secton 903(a)6), termnate
the credt, and pace tsef where t was before the credt was accepted.
(d) The condton s not drected to the attanment of an unawfu end,
but to an end, the reef of unempoyment, for whch Naton and State may
awfuy cooperate.
ourth: The statute does not ca for a surrender by the States of powers
essenta to ther quas soveregn e stence.
rgument to the contrary has ts source n two sectons of the ct One
secton (903u) defnes the mnmum crtera to whch a State compensaton
system s requred to conform f t Is to be accepted by the board as the bass
for a credt. The other secton (904 ) rounds out the requrement wth compe-
mentary rghts and dutes. Not a the crtera or ther Incdents are chaenged
as unawfu. We w speak of them frst generay, and then more specfcay
n so far as they are questoned.
credt to ta payers for payments made to a State under a State unem-
poyment aw w be manfesty fute n the absence of some assurance that
the aw eadng to the credt s n truth what t professes to be. n unem-
10 Terkns, State acton under the edera estate ta credt cause, 13 North Carona
L. ey., 271. 280.
u See note 1, supra.
M See note 2, supra.
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453
R gs. 90, rt. 200.
poyment aw framed n such a way that the unempoyed who ook to t w
be deprved of reasonabe protecton s one n name and nothng more. What
s basc and essenta may be assured by sutabe condtons. The terms
emboded n these sectons are drected to that end. wde range of |udgment
s gven to the severa States as to the partcuar type of statute to be spread
upon ther books. or anythng to the contrary n the provsons of ths ct
they may nse the pooed unempoyment form, whch s n effect wth varatons
n abama, Caforna, Mchgan, New York, and esewhere. They may
estabsh a system of mert ratngs appcabe at once or to go nto effect ater
on the bass of subsequent e perence. (Cf. sectons 909, 910.) They may
provde for empoyee contrbutons as n abama and Caforna, or put the
entre burden upon the empoyer as n New York. They may choose a system
of unempoyment reserve accounts by whch an empoyer s permtted after
ts reserve has accumuated to contrbute at a reduced rate or even not at a.
Ths s the system whch had ts orgn n Wsconsn. What they may not do,
f they woud earn the credt, s to depart from those standards whch n the
udgment of Congress are to be ranked as fundamenta. ven f opnon may
dffer as to the fundamenta quaty of one or more of the condtons, the
dfference w not ava to vtate the statute. In determnng essentas
Congress must have the beneft of a far margn of dscreton. One can not
say wth reason that ths margn has been e ceeded, or that the basc stand-
ards have been determned n any arbtrary fashon. In the event that some
partcuar condton sha be found to be too uncertan to be capabe of enforce-
ment, t may be severed from the others, and what s eft w st be vad.
We are to keep n mnd steady that the condtons to be approved by the
board as the bass for a credt are not provsons of a contract, but terms
of a statute, whch may be atered or repeaed. (Secton 903(a)6.) The State
does not bnd Itsef to keep the aw n force. It does not even bnd tsef that
the moneys pad nto the edera fund w be kept there ndefntey or for
any stated tme. On the contrary, the Secretary of the Treasury w honor
a requston for the whoe or any part of the depost n the fund whenever
one s made by the approprate offcas. The ony consequence of the repea
or e cessve amendment of the statute, or the e pendture of the money, when
requstoned, for other than compensaton uses or admnstratve e penses,
s that approva of the aw w end, and wth t the aowance of a credt,
upon notce to the State agency and an opportunty for hearng. (Secton
903(b)(c).)
These basc consderatons are n truth a sovent of the probem. Sub|ected
to ther test, the severa ob|ectons on the score of abdcaton are found to
be unrea.
Thus, the argument s made that by force of an agreement the moneys
when wthdrawn must be pad through pubc empoyment offces n the
State or through such other agences as the board may approve. (Secton
903(a).) ut In truth there s no agreement as to the method of dsburse-
ment There s ony a condton whch the State s free at peasure to dsre-
gard or to fuf. Moreover, approva s not requste f pubc empoyment
offces are made the dsbursng nstruments. pprova s to be a check upon
resort to other agences that may, perchance, be Irresponsbe. State
ookng for a credt must gve assurance that her system has been organzed
upon a base of ratonaty.
There s argument agan that the moneys when wthdrawn are to be devoted
to specfc uses, the reef of unempoyment, and that by agreement for such
payment the quas soveregn poston of the State has been mpared, f not
abandoned. ut agan there s confuson between promse and condton.
abama Is st free, wthout breach of an agreement, to change her system
overnght No offcer or agency of the Natona Government can force a
compensaton aw upon her or keep t n e stence. No offcer or agency of
that Government, ether by sut or other means, can supervse or contro the
appcaton of the payments.
nay and chefy, abdcaton s supposed to foow from secton 904 of
the statute and the parts of secton 903 are compementary thereto. (Secton
903(a)3.) y these the Secretary of the Treasury Is authorzed and drected
to receve and hod n the Unempoyment Trust und a moneys deposted
theren by a State agency for a State unempoyment fund and to Invest n ob-
gatons of the Unted States such porton of the und as s not In hs |udgment
G
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Regs. 90, rt. 200.
454
requred to meet current wthdrawas. We are tod that abama In con-
sentng to that depost has renounced the pentude of power Inherent In her
statehood.
The same pervasve msconcepton Is In evdence agan. that the State
has done s to say n effect through the enactment of a statute that her agents
sha be authorzed to depost the unempoyment ta recepts n the Treasury
at Washngton. ( abama unempoyment act of September 14, 1935, secton
10().) The statute may be repeaed. (Secton 903(a)6.) The consent may
be revoked. The deposts may be wthdrawn. The moment the State com-
msson gves notce to the depostary that t woud ke the moneys back, the
Treasurer w return them. To fnd State destructon there s to fnd t amost
anywhere. Wth neary as much reason one mght say that a State abdcates
ts functons when t paces the State moneys on depost n a natona bank.
There are very good reasons of fsca and governmenta pocy why a State
shoud be wng to make the Secretary of the Treasury the custodan of the
fund. s possesson of the moneys and hs contro of nvestments w be an
assurance of stabty and safety n tmes of stress and stran. report of the
Ways and Means Commttee of the ouse of Representatves, quoted n the
margn,11 deveops the stuaton ceary. Nor Is there rsk of oss or waste.
The credt of the Treasury s at a tmes back of the depost, wth the resut
that the rght of wthdrawa w be unaffected by the fate of any Intermedate
nvestments, |ust as f a checkng account n the usua form had been opened
n a bank.
The nference of abdcaton thus dssoves In thnnest ar when the depost
Is conceved of as dependent upon a statutory consent, and not upon a contract
effectve to create a duty. y ths we do not ntmate that the concuson woud
be dfferent If a contract were dscovered. ven soveregns may contract wth-
out derogatng from ther soveregnty. (Perry v. Unted States, 294 T . S., 330,
353 1 Oppenhem, Internatona Law, 4th ed., sectons 493, 494 a, Interna-
tona Law, 8th ed., secton 107 2 yde Internatona Law, secton 489.) The
States are at berty, upon obtanng the consent of Congress, to make agree-
ments wth one another. (Consttuton, rtce I, secton 10, paragraph 3
Pooe v. ecger, Pet., 185, 209 Rhode Isand v. Massachusetts, 12 Pet, 657,
725.) We fnd no room for doubt that they may do the ke wth Congress If
the essence of ther statehood s mantaned wthout Imparment.1 abama s
seekng and obtanng a credt of many mons In favor of her ctzens out of
the Treasury of the Naton. Nowhere n our scheme of government n the
mtatons e press or mped of our edera Consttuton do we fnd that she
s prohbted from assentng to condtons that w assure a far and |ust
requta for benefts receved. ut we w not abor the pont further. n
unrea prohbton drected to an unrea agreement w not vtate an ct of
Congress, and cause t to coapse n run.
fth: Tte III of the ct s separabe from Tte I , and Its vadty s not
at ssue.
The essenta provsons of that tte have been stated In the opnon. m
aready ponted out, the tte does not approprate a doar of the pubc moneys.
It does no more than authorze appropratons to be made n the future for the
purpose of assstng States n the admnstraton of ther aws, If Congress sha
decde that appropratons are desrabe. The tte mght be e punged, and
Ths ast provson w not ony afford ma mum safety for these funds but 1 very
essenta o nsure that they w operate to promote the stabty of busness rather than
the reverse. Unempoyment reserve funds have the pecuarty that the demands upon
them fuctuate consderaby, beng heavest when busness sackens. If, In such tmes,
the securtes n whch these funds are Invested are thrown upon the market for quda-
ton, the net effect s key to be Increased defaton. Such a resut Is avoded In ths
b through the provson that a reserve funds are to be hed by the Unted States
Treasury, to be nvested and qudated by the Secretary of the Treasury n a manner
cacuated to promote busness stabty. When busness condtons are such that Invest-
ment In securtes purchased on the open market s unwse, the Secretary of the Treasury
may ssue speca nonnegotabe obgatons e cusvey to the unempoyment trust fund.
When a reverse stuaton e sts and heavy drans are made upon the fund for payment
of unempoyment benefts, to Treasury does not have to dspose of the securtes beong-
ng to the fund In open market but may assume them tsef. Wth such a method of
handng the reserve funds, t s beeved that ths b w sove the probem often raned
In dscussons of unempoyment compensaton, regardng the possbty of transferrng
purchasng power from boom perods to depresson perods. It w In fact operate to
sustan purchasng power at the onset of a depresson wthout havng any counteractng
defatonary tendences. ( ouse Report No. 616, Seventy-fourth Congress, frst sesson,
page 9.)
Cf. 12 Stat., 503 26 Stat., 417.
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455
Regs. 90, rt. 211.
Tte I woud stand Intact. Wthout a severabty cause we shoud st be
ed to that concuson. The presence of such a cause (secton 1103) makes the
concuson even cearer. (Wams v. Standard O Co., 278 U. S., 235, 242
Utah Povoer Lght Co. v. Pfost, 286 U. S., 165, 184 Carter v. Carter Coa Co.,
298 U. S., 238, 312 Ct. D. 1123, G. . -1, 438 (1930) .)
The udgment Is affrmed.
Secton 902: Credt aganst ta . I-24-8763
Reguatons 90, rtce 211: Credt of contrbutons S. S. T. 160
aganst ta .
Where a State s not certfed on December 81, 1036, by the
Soca Securty oard as provded n secton 903(b), Tte I of
the Soca Securty ct, contrbutons pad by an empoyer nto the
unempoyment fund of such State wth respect to the year 1936 may
not be credted aganst the ta mposed under secton 901 of the ct
for the year 1936 even though the State may be certfed on Decem-
ber 31, 1937.
dvce s requested whether contrbutons pad nto the unempoy-
ment fund of the State of R wth respect to the ta abe year 1936
may be credted, pursuant to secton 902, Tte I of the Soca
Securty ct, aganst the ta eved under secton 901 of the ct
for the year 1936 where the State unempoyment egsaton s not
enacted and certfed n accordance wth secton 903(b) of the ct
on December 31, 1936, but such certfcaton s made n 1937.
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)
nto an unempoyment fund under a State aw. The tota credt aowed to a
ta payer under ths secton for a contrbutons pad Into unempoyment
funds wth respect to empoyment durng such ta abe year sha not e ceed
90 per centum of the ta aganst whch t Is 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(b), Tte I of the Soca Securty ct, provdes as
foows:
(b) On December 31 n each ta abe year the board Soca Securty oard
sha certfy to the Secretary of the Treasury each State whose aw t has
prevousy approved, e cept that t sha not certfy any State whch, after
reasonabe notce and opportunty for hearng to the State agency, the board
fnds has changed ts aw so that t no onger contans the provsons specfed
In subsecton (a) or has wth respect to such ta abe year faed to compy
substantay wth any such provson.
Whe the aw provdes that the Soca Securty oard sha cer-
tfy to the Secretary of the Treasury on December 31 of each caen-
dar year each State whose aw t has prevousy approved, t s not
provded that the board sha on such date certfy the severa States
for specfc years durng whch they may have had approved egs-
aton. The certfcaton s for the partcuar year n whch t s
gven and does not cover pror caendar years. Consderng the
provsons of the aw quoted above, t s cear that the 90 per cent
credt provded n secton 902 s not avaabe to empoyers for the
caendar year 1936 n a State whch has not enacted soca securty
egsaton whch has been approved by the Soca Securty oard
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Regs. 90, rt. 211.
456
and certfed to the Secretary of the Treasury on December 31, 1936,
n accordance wth the provsons of secton 903, supra. In other
words, f a State s not certfed on December 31, 1936, contrbutons
pad by an empoyer wth respect to the year 1936 may not be credted
aganst the ta mposed under secton 901 of the Soca Securty ct
for the year 1936 even though the State may be certfed on December
31, 1937.
Secton 902: Credt aganst ta . I-25-8780
Reguatons 90, rtce 211: Credt of contrbu- S. S. T. 165
tons aganst ta .
Credts for contrbutons pad nto unempoyment funds under
aws of States whch have been certfed to the Secretary of the
Treasury by the Soca Securty oard where the State aw pro-
vdes that empoyers not otherwse sub|ect to the aw may eect
to become sub|ect thereto under certan condtons.
dvce s requested reatve to credts for contrbutons aowabe
to the M Company under secton 902, Tte I of the Soca Securty
ct.
The M Company, n addton to severa hundred other empoyees,
empoys three persons n each of the States of R, S, and T. ach of
those States has enacted an unempoyment compensaton aw whch
has been approved by the Soca Securty oard and whch provdes
that empoyers not otherwse sub|ect to such aw may eect to be-
come sub|ect thereto under certan condtons. The M Company s
not sub|ect to those aws e cept upon ts eecton. ach of the three
States has been certfed for the year 1936 to the Secretary of the
Treasury by the Soca Securty oard as provded n secton 903 (b),
Tte I of the Soca Securty ct. The nqury presented s
whether f the M Company eects to be sub|ect to the unempoyment
compensaton aws of the States mentoned t may credt the amounts
pad nto the State unempoyment compensaton funds aganst the
edera ta mposed by secton 901, Tte I of the Soca Securty
ct.
If the M Company made an eecton whch requres t to pay con-
trbutons to the unempoyment funds estabshed by the States of
R, S, and T, and pad nto such funds the contrbutons requred
under the aws of those States before the date on whch ts edera
return under Tte I of the Soca Securty ct for the caendar
year 1936 was requred to be fed, credt aganst the ta mposed by
secton 901, Tte I of the ct, for contrbutons pad to such State
funds s aowabe for the year 1936 n the manner and to the e tent
provded by secton 902, Tte I of the Soca Securty ct, whch
reads as foows:
Seo. 902. The ta payer may credt aganst the ta mposed by secton 001
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 e a-
owed ony for contrbutons made under the aws of States certfed for the
ta abe year as provded In secton 903.
( so see artce 211(6)2 of Reguatons 90.)
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457
Regs. 90, rt. 300.
If the M Company dd not make an eecton to become sub|ect to
the unempoyment compensaton aws of the States of R, S, and T,
and dd not pay nto such funds the contrbutons requred under the
aws of those States before the date on whch ts edera return for
the caendar year 1936 was requred to be fed, but durng the year
1937 t takes steps whch w requre t to make contrbutons under
each State aw credt aganst the ta mposed by secton 901, Tte
I of the Soca Securty ct for the caendar year 1937 may be
aowed for such contrbutons m the manner and to the e tent pro-
vded by secton 902, supra.
Secton 905: dmnstraton, refunds, and I-2-8478
penates. S. S. T. 67
Reguatons 90, rtce 300: Returns.
Returns of partnershps under Tte I of the Soca Seeurt|
ct
dvce s requested whether the M, N , and O partnershps havng
certan members common to a of them but n whch there s some
dfference n membershp shoud make a |ont return for the purpose
of the ta mposed by secton 901, Tte I of the Soca Securty
ct, or whether each partnershp shoud make a separate return.
It s hed that each partnershp shoud make a separate return for
the purpose of the ta mposed by secton 901, Tte I of the Soca
Securty ct.
Secton 905: dmnstraton, refunds, and penates.
Reguatons 90, rtce 300: Returns.
Separate returns by Grand Lodge of M raternty and subordnate
odges. (See S. S. T. 76, page 366.)
Secton 905: dmnstraton, refunds, and I-7-8553
penates. S. S. T. 97
Reguatons 90, rtce 300: Returns.
Where a partnershp was engaged In busness durng the frst
two months of 1936 and was then succeeded by a corporaton whch
carred on the busness for the remander of the year, the partner-
shp s not requred to fe a return under Tte I of the Soca
Securty ct. The corporaton must fe a return thereunder for
the perod March 1, 1936, to December 31, 1936.
dvce s requested whether a corporaton whch began busness on
March 1, 1936, contnung the busness of a partnershp whch was n
e stence for the months of anuary and ebruary, 1936, shoud fe a
return under Tte I of the Soca Securty ct for the 12 months
of the caendar year 1936, or whether the partnershp shoud fe a
return for the months of anuary and ebruary and the succeedng
corporaton fe a return for the months March to December, 1936,
ncusve.
It s hed that the partnershp whch was n e stence for ony the
frst two months of the year 1936 s not requred to fe a return under
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Regs. 90, rt. 304.
458
Tte I of the Soca Securty ct, snce t was not an empoyer
wthn the meanng of secton 907(a) of the ct, whch defnes the
term empoyer as foows:
(a) The term empoyer does not ncude any person uness on each of
some twenty 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 corporaton whch began busness March 1, 1936, shoud fe a
return for the 10-month perod March 1, 1936, to December 31, 1936,
as the corporaton s a separate ega entty and s abe for the ta es
mposed by secton 901 of the ct, the corporaton beng an empoyer
as defned n secton 907(a) of the ct.
Secton 905: dmnstraton, refunds, and penates. T-8-8563
Reguatons 90, rtce 300: Returns. S. S. T. 102
Returns ( orm 940) under Tte I of the Soca Securty ct
must be fed on the caendar year bass.
dvce s requested by the M Company whether t may fe ts
1936 soca securty ta return on orm 940 on the bass of the fsca
year ebruary 1,1936, to anuary 31,1937, nstead of on the caendar
year bass.
Secton 901, Tte I of the Soca Securty ct, provdes that on
and after anuary 1, 1936, every empoyer (as defned n secton 907)
sha pay for each caendar year an e cse ta , wth respect to havng
ndvduas n hs empoy, equa to certan percentages of the tota
wages (as defned n secton 907) payabe by hm wth respect to
empoyment (as defned n secton 907) durng such caendar year.
rtce 300, Reguatons 90, provdes that every empoyer of eght
or more under the condtons prescrbed n Tte I sha make a
return under oath on orm 940 for each caendar year and that the
frst year for whch returns are requred s the caendar year 1936.
Snce there s no authorty under Tte I of the Soca Securty
ct whereby returns on orm 940 may be accepted coverng any
perod other than the caendar year, such returns must be fed on
the caendar year bass.
Secton 905: dmnstraton, refunds, and penates. I-4-8509
T. D.4726
Reguatons 90, rtce 304: tensons of
tme for fng returns.
( so Secton 905 Reguatons 90, rtce 401.)
tenson of tme for fng returns and payng ta .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
Coectors of Interna Revenue and Others Concerned:
n e tenson of tme unt pr 1, 1937, s hereby granted for the
rng of returns and payng the ta under Tte I of the Soca
Securty ct, for the caendar year 1936.
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459
Regs. 90, rt. 304.
Ta payers who take advantage of ths e tenson of tme w not be
requred to fe tentatve returns and w not be charged wth nterest,
provded the ta , or the frst nstament thereof f the ta payer
eects to pay the ta n nstaments, s pad on or before pr 1,
1937. If the ta , or the frst nstament thereof, s not pad on or
before pr 1,1937, nterest w be charged at the rate of 6 per cent
per annum from pr 1, 1937, unt the ta , or the frst nstament
thereof, as the case may be, s pad.
Ths Treasury decson s ssued under the authorty prescrbed by
secton 908 and secton 905 of the Soca Securty ct.
Guy T. evernq,
Commssoner of Interna Revenue.
pproved anuary 21, 1937.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster anuary 22, 1937, 12.22 p. m.)
Secton 905: dmnstraton, refunds, and penates I-18-8686
ecuatons 90, rtce 304: tensons of tme Mm. 4591
for fng returns.
( so Secton 905 Reguatons 90, rtce 401.)
tenson of tme for fng returns and payng ta under Tte
I of the Soca Securty ct
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, pr 2b, 1937.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Reference s made to Treasury Decson 4726 (page 458, ths u-
etn), approved anuary 21, 1937, n whch an e tenson of tme
unt prd 1, 1937, was granted for the fng of returns and payng
the ta under Tte I of the Soca Securty ct for the caendar
year 1936.
Treasury Decson 4726 provdes that ta payers takng advantage
of the e tenson of tme theren granted w not be charged wth
nterest, provded the ta , or the frst nstament thereof f the ta -
payer eects to pay the ta n nstaments, was pad on or before
pr 1, 1937. The Treasury decson does not grant any e tenson
or tme for payng the second, thrd, or fourth nstament of the
ta for the caendar year 1936, and such nstaments are due pr
80, 1937, uy 31, 1937, and October 31, 1937, respectvey.
Correspondence regardng ths mmeograph shoud refer to the
number thereof and to the symbos IT: CTR.
Guy T. everng,
Commssoner.
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Regs. 90, rt. 204.
460
Secton 905: dmnstraton, refunds, and penates.
Reguatons 90, rtce 401: tenson of tme for payment
of the ta or nstament thereof.
tenson of tme for payng the ta under Tte I of the Soca
Securty ct. (See T. D. 4726, page 458.)
Secton 905: dmnstraton, refunds, and penates.
Reguatons 90 rtce 401: tenson of tme for payment
of the ta or nstament thereof.
tenson of tme for payng the ta under Tte I of the Soca
Securty ct. (See Mm. 4591, page 459.)
Secton 907: Defntons.
Reguatons 90, rtce 203: Persons abe for the ta .
ank n qudaton whch borrowed from Reconstructon nance
Corporaton to pay depostors n fu. (See S. S. T. 135, page 365.)
Secton 907: Defntons. I-21-8724
Reguatons 90, rtce 203: Persons abe for S. S. T. 150
the ta .
In determnng the tota number of empoyees for the purpose of
the ta mposed by Tte I of the Soca Securty ct, honorary
offcers of a corporaton who functon ony as drectors and receve
no compensaton as offcers or drectors shoud be Incuded.
dvce s requested whether the M Corporaton, a trade assocaton
organzed as a membershp corporaton, s sub|ect to the ta mposed
by Tte I of the Soca Securty ct. The assocaton has fve pad
empoyees, one of whom s ts presdent, and fve honorary vce pres-
dents who functon ony as drectors and receve no compensaton
ether as offcers or drectors.
Secton 1101 (a) 6, Tte I of the Soca Securty ct, provdes that
when used n that ct the term empoyee ncudes an offcer of a
corporaton. It w, therefore, be necessary for the M Corporaton
to ncude the fve honorary vce presdents n determnng the tota
number of ts empoyees for the purpose of the ta mposed by Tte
I of the Soca Securty ct. ccordngy, snce the corporaton
had 10 empoyees for the entre ta abe year 1936, t s sub|ect to the
ta mposed by Tte I
Secton 907: Defntons.
Reguatons 90, rtce 204: Who are empoyers.
gent managng property under an agency contract. (See S. S. T.
92, page 388.)
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4G1
Regs. 90, rt. 205.
Secton 907: Defntons.
Reguatons 90, rtce 204: Who are empoyers.
Contractors and |obbers. (See S. S. T. 153, page 390.)
Secton 907: Defntons.
Reguatons 90, rtce 204: Who are empoyers.
Status of empoyees of the M Corporaton, ts subsdares, or both.
(See S. S. T. 154, page 391.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Substtute moton pcture machne operator as empoyee of theater.
(See S. S. T. 77, page 371.)
Secton 907: Defntons. I-4-8507
Reguatons 90, rtce 205: mpoyed ndvduas. S. S. T. 81
( so Secton 811 Reguatons 91, rtce 3.)
Indvduas who have been pensoned and who perform no serv-
ces for ther former empoyer do not occupy the ega reatonshp
of empoyee wth respect to such former empoyer and the ta ng
provsons of Ttes III and I of the Soca Securty ct are not
appcabe to such pensons.
dvce s requested whether S. S. T. 4 (C. . -1, 476), whch
hods that ndvduas who were pensoned pror to December 31,
1935, and who have performed no servces for ther former empoyer
snce that date are not empoyees wthn the meanng of Tte I of
the Soca Securty ct, s appcabe to ndvduas pensoned after
December 31, 1935.
Secton 901, Tte I of the Soca Securty ct, mposes a ta
wth respect to empoyment, whch term s defned by secton
907(c) of the ct as beng any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer,
wth certan e ceptons not pertnent here. To consttute empoy-
ment the ega reatonshp of empoyer and empoyee must e st
between the person for whom the servces are performed and the
ndvdua who performs them. (See artce 205, Reguatons 90.)
Indvduas who have been pensoned ether before or after Decem-
ber 31, 1935, and who perform no servces for ther former empoyer
do not occupy the ega reatonshp of empoyee wth respect to such
former empoyer. ccordngy, the ta ng provsons of Tte I
of the Soca Securty ct are not appcabe wth respect to such
pensons.
The above concuson s aso appcabe under Tte III of the
Soca Securty ct.
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Regs. 90, rt. 205.
462
Secton 907: Defntons. I-5-8524
Reguatons 90, rtce 205: mpoyed nd- 8. S. T. 86
vduas.
( so Secton 811 Reguatons 91, rtce 3.)
n attorney engaged by the M Corporaton and pad a retaner
fee to defend t In any sut that may be brought aganst It durng
the year s not an empoyee of the corporaton for the purpose of
Tte I of the Soca Securty ct
dvce s requested whether, under the foowng crcumstances,
an attorney s to be consdered an empoyee of a corporaton under
Tte I of the Soca Securty ct: The M Corporaton pays an
attorney doars as a retaner fee to defend t n any sut that may
be brought aganst the corporaton durng the year. The stpuated
sum of doars s pad to the attorney regardess of whether he s
requred to defend the corporaton.
In connecton wth the ssue presented, attenton s nvted to sec-
ton 907(c) of the ct, whch defnes the term empoyment, and
to artces 204 and 205 of Reguatons 90, statng generay who are
empoyers and who are empoyees wthn the meanng or the ct,
partcuary that porton of artce 205 whch provdes that the word
empoyee, as used n that artce, s to be taken n ts ordnary
meanng.
Ordnary, an empoyee s one who s hred to render servces
of a routne character and who s sub|ect to the drecton or contro
of the empoyer. (See generay Metcaf ddy v. Mtche, 269
U. S., 514 T. D. 3824, C. . -, 218.)
In ar v. yers (35 ed. (2d), 326 Ct. D. 146, C. . I -1, 247),
t was hed that an attorney engaged n the genera practce of hs
professon, who was retaned as ega counse for the board of water-
works of a cty and who had not contracted to gve the cty hs e -
cusve servces, dd not thereby become an offcer or empoyee of the
cty. In urnet v. McDonough (46 ed. (2d), 944 Ct. D. 338. C. .
-, 367), t was hed that an attorney who was retaned by a brdge
dstrct (a potca subdvson of a State), whch reserved no rght
to drect hm as to how hs work shoud be done, but eft ts ega
matters n hs hands for hm to take care of by hs own methods, was
not an empoyee but an ndependent contractor.
In vew of the foregong, t s hed that an attorney engaged by
the M Corporaton and pad a retaner fee to defend t n any sut
that may be brought aganst t durng the year, whether or not he
performs any servces for t durng the year, s not an empoyee of
the corporaton for the purpose of Tte I of the Soca Securty
ct.
The concuson reached heren s aso appcabe under Tte
of the ct.
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Servces performed by drectors of a budng and oan assocaton
on apprasa and audt commttees of the assocaton. (See S. S. T.
82, page 372.)
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463
Regs. 90, rt. 205.
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Country correspondents of newspaper whch e ercses no contro
over hours, sub|ect matter of tems, or manner of work. (See S. S. T.
105, page 373.)
Secton 907: Defntons. I-10-858G
Reguatons 90, rtce 205: mpoyed ndvduas. S. S. T. 112
( so Secton 811 Reguatons 91, rtce 3.)
Compensaton pad to trustees n bankruptcy s not sub|ect to the
ta es mposed under Ttes III and I of the Soca Securty
ct
dvce s requested whether the compensaton pad to certan nd-
vduas as trustees n bankruptcy n charge of the assets of the M
Company s sub|ect to the ta mposed on empoyers by secton 901,
Tte I of the Soca Securty ct.
rtce 205 of Reguatons 90 provdes that an ndvdua s n the
empoy of another wthn the meanng of the ct f he performs
servces n an empoyment as defned m secton )07(c). owever,
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 empoyer and empoyee. s
stated n artce 205, ths reatonshp generay e sts when the per-
son 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 that resut s accompshed.
It s hed that the compensaton of trustees n bankruptcy s not
sub|ect to the ta mposed by secton 901, Tte I of the Soca
Securty ct, because the reatonshp of empoyer and empoyee
does not e st wth respect to such persons, and they are not em-
poyed ndvduas wthn the meanng of artce 205 of Regua-
tons 90, promugated under Tte I of the Soca Securty ct.
The concuson reached heren s aso appcabe under Tte III
of the ct.
Secton 907: Defntons.
Reguatons 90, btce 205: mpoyed ndvduas.
Members of M Partnershp ssocaton created under the aws of
Pennsvvana empoyees of such assocaton. (See S. S. T. 116,
page 374.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Recevers, trustees n bankruptcy, admnstrators of estates, and
qudators of banks, (See S. S. T. 120, page 375.)
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Regs. 90, rt. 205.
464
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Trustees operatng corporate busness under secton 77( ) of the
Natona ankruptcy ct, as amended. (See S. S. T. 124, page 389.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
enefcares of estate empoyed by the admnstrator thereof.
(See S. S. T. 129, page 376.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Trustees and members of advsory board of Massachusetts trust.
(See S. S. T. 136, page 377.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Servces performed n home on a pecework bass. (See S. S. T.
137, page 378.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
d|usters performng servces for M oard of re Underwrters.
(See S. S. T. 143, page 381.)
Secton 907: Defntons. I-21-8725
Reguatons 90, rtce 205: mpoyed ndvduas. S. S. T. 151
Where a corporaton fed a petton for reorganzaton under
secton 77( ) of the Natona ankruptcy ct on September ,
1036, from whch date t has been contnuousy operated by a
trustee, wages payabe for the perod of operaton by the trustee
n 1930 shoud be ncuded n determnng ta abty for that
year under the provsons of Tte I of the Soca Securty ct
together wth wages payabe by the corporaton Itsef for the
perod anuary 1 to September , 1936, rrespectve of the fact
that the perod of operaton by the trustee was ess than 20 weeks.
return coverng both perods shoud be fed wth the coector
for the dstrct n whch the corporaton s ocated.
dvce s requested concernng abty for the ta mposed by
Tte I of the Soca Securty ct n the case of the M Corporaton
whch, on September , 1936, fed ts petton for reorganzaton
under secton 77( ) of the Natona ankruptcy ct, from whch
date t has been contnuousy operated by a trustee. The foowng
questons are propounded:
(a) Shoud wages payabe for the perod from September ,
1936, to December 31, 1936, durng whch the trustee operated the
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465
Regs. 90, rt. 205.
busness of the corporaton be ncuded n determnng ta abty
for 1936 under Tte I of the Soca Securty ct aong wth wages
payabe by the corporaton for the pror perod
(b) If abty for the soca securty ta s for the entre year,
shoud the return coverng both perods be fed wth the coector
for the dstrct n whch the corporaton s ocated or n the dstrct
where the trustee s ocated
Secton 901, Tte I of the Soca Securty ct, mposes an
e cse ta on empoyers wth respect to empoyment on and after
anuary 1, 1936, and secton 907(a) of that tte provdes that The
term empoyer does not ncude any person uness on each of some
20 days durng the ta abe year, each day beng n a dfferent
empoy for some porton of the day was 8 or more.
rtce 205 of Reguatons 90, reatng to Tte I of the ct,
states n part as foows:
n empoyer, however, may be 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,
group, or entty. n empoyer may be a person actng n a fducary capacty
or on behaf of another, such as a guardan, commttee, trustee, e ecutor or
admnstrator, trustee n bankruptcy, recever, assgnee for the beneft of
credtors, or conservator.
It s the opnon of ths offce that where a corporaton s under-
gong reorganzaton pursuant to secton 77( ) of the Natona
ankruptcy ct and s beng operated by a trustee, the empoyng
unt, or the corporaton, contnues for purposes of the ta ng prov-
sons of the Soca Securty ct unnterrupted by the fng of the
petton for reorganzaton or the appontment of the trustee. Con-
sequenty, t s hed that wages payabe for the perod durng whch
the trustee operated the busness of the corporaton shoud be n-
cuded n determnng ta abty under the provsons of Tte I
of the Soca Securty ct, together wth the wages payabe for the
pror perod by the corporaton tsef, rrespectve of the fact that
the perod of operaton by the trustee was ess than 20 weeks.
Secton 905(b), Tte I of the Soca Securty ct, provdes that
8 ach such return sha be made under oath, sha be fed wth the
coector of nterna revenue for the dstrct n whch s ocated
the prncpa pace of busness of the empoyer, or f he has no
prncpa pace of busness n the Unted States, then wth the coector
at atmore, Md. ccordngy, t s hed that a return coverng
both perods, that s, for the year 1936, shoud be fed wth the co-
ector of nterna revenue for the dstrct n whch the corporaton
s ocated.
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Servces as porter n a barber shop performed n e change for shoe
shnng prvege. (S. S. T. 147, page 379.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Student nurses n a prvate hospta. (See S. S. T. 148, page 380.)
caendar week, the tota number
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Regs. 90, rt. 206.
466
Secton 907: Defntons.
Reguatons 90, ktce 205: mpoyed ndvduas.
uctoneers. (See S. S. T. 149, page 380.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Chropodst ocated n a department store roentgenoogst under
contract. (See S. S. T. 152, page 382.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Loca representatves dsposng of cotton for members of M Cotton
Growers ssocaton. (See S. S. T. 156, page 383.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Drvers of ta cabs owned by the M Company and operated under
contract wth each drver. (See S. S. T. 157, page 384.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Servces performed by Indans. (See S. S. T. 161, page 386.)
Secton 907: Defntons.
Reguatons 90, rtce 206: cepted servces generay.
tenson of Soca Securty ct to e cuded casses of empoyers
and empoyees. (See S. S. T. 106, page 394.)
Secton 907: Defntons.
Reguatons 90, rtce 206: cepted servces generay.
Servces performed by aen empoyees permtted to stay tem-
porary n the Unted States. (See S. S. T. 130, page 394.)
Secton 907: Defntons. I-18-8684
Reguatons 90, rtce 206: cepted servces S. S. T. 141
generay.
( so Secton 811 Reguatons 91, rtce 5.)
Where servces are performed by empoyees n both the Unted
States and Canada, the tota wages payabe shoud be aocated
on the bass of the perod of tme servce s performed In each
country for the purpose of determnng ta abty under Ttes
III and I of the Soca Securty ct
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467
Regs. 90, rt. 206.
dvce s requested concernng the appcaton of the ta ng pro-
vsons of Tte I of the Soca Securty ct wth respect to servces
performed n the Unted States by certan empoyees of the M a-
road Co. who render servces both n the Unted States and Canada.
The queston presented s how the amount of compensaton for serv-
ces performed wthn the Unted States shoud bo determned n
those cases where empoyees such as tranmen, trackmen, tcket
agents, teegraph operators, and secton hands perform servces part
of the tme n the Unted States and part of the tme n Canada.
Secton 901 of the Soca Securty ct provdes that on and after
anuary 1, 1936, every empoyer (as defned n secton 907) sha
pay for each caendar year an e cse ta wth respect to havng nd-
vduas n hs empoy measured by a percentage of the tota wages
payabe durng the caendar year. Secton 907(c) of the ct pro-
vdes that the term empoyment 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 206
of Reguatons 90 provdes that to the e tent an empoyee performs
servces wthout the Unted States, he s not n an empoyment
wthn the meanng of the ct. It foows, therefore, that re-
muneraton payabe to empoyees for empoyment wthout the Unted
States must be e cuded from tota wages whch s the bass of the
ta assessment aganst the empoyer.
The foowng methods have been suggested by the M Raroad
Co. for determnng ts abty under Tte I of the Soca
Securty ct wth respect to servces performed by ts empoyees
wthn the Unted States:
1. ocate the tota wages payabe to the country n whch the
servces were predomnanty performed and, f ths can not be ready
determned, aocate the tota wages to the country n whch the
headquarters of the empoyees are ocated.
2. ocate the tota wages payabe on the bass of the perod of
tme servce s performed n each country.
3. ocate the tota wages payabe on the bass of the number of
mes of track wthn the respectve countres n whch the servces
are performed.
It s the vew of ths offce that the frst method suggested w
not propery refect ta abty wth respect to the casses of em-
poyees referred to above. To use the meage bass (method 3)
n the case of trackmen, tranmen, and secton hands woud resut n
an unfar apportonment of the wages n many cases. or e ampe,
where a tranman was deayed by a sow track n the Unted States,
he woud be empoyed n ths country for a onger perod of tme
than a tranman who operated on a fast track n Canada contanng
the same meage. urthermore, under bad track condtons a sec-
ton crew mght be engaged 30 days n the repar and upkeep of
10 mes of track n the Unted States, whereas under more favorabe
condtons ony 15 days mght be consumed n the repar and upkeep
of 10 mes of track n Canada. In the atter case, f the secton
crew receved 1,500 for the 45 days work, there woud be ncuded
1,000 (30/45ths) n the tota wages payabe under Tte I f the
apportonment were based on the perod of tme durng whch the
servces were performed, whereas on the meage bass ony 750
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Regs. 90, rt. 206(1).
468
(10/20ths) woud be ncuded. It s evdent, therefore, that the use
of the meage method of apportonment woud not accuratey refect
the wages attrbutabe to servces performed n the Unted States.
It s ned, therefore, that for the purpose of determnng the a-
bty of the M Raroad Co. for the ta mposed by secton 901,
Tte I of the Soca Securty ct, wth respect to the servces
performed by the empoyees referred to above the amount of wages
to be aocated to servces performed wthn the Unted States shoud
be determned by an apportonment on the tme bass (method 2)
of the wages payabe durng the year. In other words, there shoud
be ncuded as wages for servces performed wthn the Unted States
that porton of the tota wages payabe to an empoyee durng the
year whch the number of days of empoyment wthn the Unted
States durng the year bears to the tota number of days of empoy-
ment. The actua tme consumed n the performance of servces
wthn the Unted States and wthn Canada shoud be used as a
bass of apportonment. owever, f actua tme can not be deter-
mned, reasonabe estmates of tme w be acceptabe. (See gen-
eray artce 119-4, Reguatons 94, reatng to ncome ta , pro-
vdng for an apportonment on the tme bass.)
The concuson reached heren s aso appcabe under Tte TII
of the Soca Securty ct.
Secton 907: Defntons. I-3-8491
Reguatons 90, rtce 206(1): grcutura abor. S. S. T. 72
( so Secton 811 Reguatons 91, rtce 6.)
Servces performed by empoyees of commerca fower growers
do not consttute agrcutura abor wthn the meanng of
secton 907(c) of the Soca Securty ct
dvce s requested whether servces performed by empoyees of
commerca fower growers consttute agrcutura abor wthn
the meanng of secton 907(c), Tte I of the Soca Securty ct,
and artce 206(1) of Reguatons 90.
Secton 907(c) provdes that the term empoyment as used n
the ct means any servce performed wthn the Unted States by an
empoyee for hs empoyer wth certan e ceptons, the frst of whch
s agrcutura abor. Obvousy, Congress ntended by ths pro-
vson to e cude from the operaton of the ct the ordnary type of
farm abor whch s performed n the cutvaton and harvestng of
farm products. rtce 206(1) of Reguatons 90 so provdes. Ths
artce reads as foows:
rt. 206. (1) grcutura abor.
The term agrcutura abor Incudes 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 mate-
ras whch were produced on a farm aso the packng, packagng, transporta-
ton, or marketng of those materas or artces. Such servces do not con-
sttute agrcutura abor, however, uness they are performed by an em-
poyee of the owner or tenant of the farm on whch the materas In ther raw
or natura state were produced, and uness such processng, packng, packagng.
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469
IRegs. 90, rt. 206(1).
transportaton, or marketng Is carred on as an ncdent to ordnary farmng
operatons as dstngushed from manufacturng or commerca operatons.
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.
The term u agrcuture n ts broadest sense reates not ony to ord-
nary farmng but to the tage of the so n genera, and n ths
sense ncudes hortcuture n a ts branches, one of whch s for-
cuture or the cutvaton of ornamenta pants. The contenton s
advanced n the nstant case that the term agrcutura abor as
used n the Soca Securty ct shoud receve ths broad nterpreta-
ton. It s stated that fowers rased by fower growers are strcty
the resut of tage and cutvaton of the so both under gass and
n the open that e acty the same cass of abor s empoyed by the
forsts as by the truck and gran farmers and that appro matey
50 per cent of the fowers grown n the Unted States are grown n
the open. It s, therefore, contended that empoyees of fower
growers must be regarded as performng agrcutura abor wthn
the meanng of the ct.
There s ampe authorty, however, for pacng a narrower con-
structon upon the term. The word agrcuture s commony used
n a narrower or more restrcted sense n whch t appes to the
rasng of farm or food crops, and when so used t e cudes hort-
cuture or at east some of ts branches. See, for e ampe, the artce
on hortcuture n 11 ncycopeda rtannca, page 774, n whch t
s sad:
dmttedy hortcuture deas wth crop producton, and therefore
has a cose reatonshp to agrcuture, but yet there s a dstncton whch s
offcay recognzed n many acts of Parament In some acts the term agrcu-
ture s defned specay as Incudng hortcuture, but where no such defnton
s made hortcuture often has been deemed to be e cuded.
uthorty more cosey n pont s found n en v. Ludwg (179
t., 917 Penn., 1935), n whch t was recognzed that the word
agrcuture as commony used does not ncude the cutvaton of
fowers for commerca purposes. It was hed n that case that the
operaton of commerca greenhouses s more akn to ndustry than
to agrcuture and that empoyees engaged n the operaton of such
greenhouses are not agrcutura workers wthn the meanng of the
e empton provsons of the Pennsyvana workmen s compensaton
act.
It s obvous n so far as ngsh usage s concerned that the term
agrcutura abor may be gven a broad nterpretaton and be hed
to appy to a abor performed n the tage of the so, or t may
be gven a narrower nterpretaton by whch t woud ncude ord-
nary farm abor but woud not appy to servces performed for com-
merca fower growers. The constructon to be paced upon the term
must depend upon the purpose for whch t was nserted n the ct.
It s the prncpa rue of statutory constructon, to whch a other
rues are secondary, that a statute s to be construed accordng to the
urpose and ntent of the awmaker. Thus, as stated n Lews
utherand on Statutory Constructon, secton 376, The partcuar
nqury s not what s the abstract force of the words or what they
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Regs. 90, rt. 206(1).
470
may comprehend, but n what sense they were ntended to be used as
they are found n the ct.
grcutura abor was e empted from the ta es mposed by the
Soca Securty ct because of the dffcutes n coectng the ta
whch otherwse woud have arsen. (Report of the Senate Com-
mttee on nance, page 45.) The dffcutes of appyng the Soca
Securty ct to ordnary farm abor are easy understood. ecause
of the seasona character of the empoyment, such abor s somewhat
mgratory n nature. urthermore, a arge part of such abor s
empoyed n rura sectons at a consderabe dstance from commerca
centers. These condtons, whch woud make the appcaton of the
Soca Securty ct to farm abor very dffcut, do not e st n any
substanta degree n the case of commerca fower growers. In fact,
the ta payer states that mpoyment n fower growng s of neces-
sty very constant, as records of ndvdua growers w show durng
the perod of depresson. ny curtament of empoyment n produc-
ton of fowers woud resut n tremendous crop osses, owng to the
fact that pantng stocks must be mantaned and many crops requre
severa years to mature. Ths statement ndcates that abor among
fower growers s far more stabe than n the case of rura farmng.
Lkewse, fower growng estabshments are ocated n and near ctes
to a far greater e tent than s true of ordnary farms. These facts
support the concuson that, so far as the probems of appyng the
Soca Securty ta es are concerned, forcutura abor s much more
smar to ndustra abor than to farm abor. Snce Congress n
e emptng agrcutura abor, had n mnd the dffcutes of appy-
ng the ta , t woud seem that the term shoud be nterpreted as not
ncudng abor performed n the fower growng ndustry.
Ths restrcted nterpretaton of agrcutura abor s consstent
wth the constructon of anaogous provsons contaned n the Rev-
enue cts. Secton 101(1) of the Revenue ct of 1936 and smar
provsons of the earer Revenue cts provde n part as foows:
The foowng organzatons sha be e empt from ta aton under ths tte
(1) Labor, agrcutura, or hortcutura organzatons .
It s a we recognzed rue of statutory constructon that the pro-
vsons of an ct are to bo so construed that no part thereof w be
noperatve or superfuous. (Lews Sutherand on Statutory Con-
structon, secton 380.) Consequent the term agrcutura as
used n the varous ncome ta e empton provsons of the Revenue
cts must be gven a somewhat, restrcted meanng dstnct from
the word hortcutura. or purposes of statutory constructon,
Revenue cts stand n par matera and ther provsons shoud re-
ceve, f possbe, a consstent nterpretaton. (Lews Sutherand on
Statutory Constructon, sectons 443 and 419.)
In vew of the foregong, t s hed that servces performed by the
empoyees of commerca fower growers do not consttute agr-
cutura abor wTthn the meanng of secton 907(c) of the Soca
Securty ct
The above concuson under Tte I of the Soca Securty ct s
aso appcabe under Tte III thereof, n vew of the provsons of
secton 811(b) e ceptng agrcutura abor.
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471
Regs. 90, rt. 206(1).
Secton 907: Defntons. I-3-8492
Reguatons 90, rtce 206(1): grcutura abor. S. S. T. 73
( so Secton 811 Reguatons 91, rtce 6.)
Servces performed by empoyees of nurserymen do not consttute
agrcutura abor wthn the meanng of secton 907(c) of the
Soca Securty ct.
dvce s requested whether servces performed by empoyees of
nurserymen consttute agrcutura abor wthn the meanng of
secton 907 (c). Tte I of the Soca Securty ct, and artce
206(1) of eguatons 90.
In S. S. T. 72 (page 468, ths uetn) t was hed that servces
performed by the empoyees of commerca fower growers do not
consttute agrcutura abor wthn the meanng of secton
907(c) 1 of the Soca Securty ct. The reasonng n that rung s
appcabe n the nstant case. In fact, the nursery and fower grow-
ng trades merge nto one another and frequenty are carred on by
the same ndvdua as part of a snge busness. Consequenty, for
the reasons stated n S. S. T. 72, supra, t s hed that servces per-
formed by empoyees of nurserymen do not consttute agrcutura
abor wthn the meanng of secton 7(c) of the Soca Securtv
ct,
Ths concuson s aso appcabe under Tte III of the ct, n
vew of the provsons of secton 811 (b) e ceptng agrcutura
abor.
Secton 907: Defntons. I-8-8564
Reguatons 90, htce 206(1): grcutura abor. S. S. T. 103
( so Secton 811 Reguatons 91, rtce 6.)
Servce performed by an empoyee n connecton wth the proc-
essng of sugar cane does not consttute agrcutura abor wthn
the meanng of Tte I of the Soca Securty ct rrespectve of
the sources of the sugar cane processed.
dvce s requested whether, for the purpose of the ta mposed
by Tte I of the Soca Securty ct, servces rendered by the
empoyees of the M Company n ts factores consttute agrcu-
tura abor. The M Company operates three factores n whch
t processes sugar cane grown on ts own and as we as sugar
cane purchased from other growers. In some cases sugar cane s
processed for other ndvduas for whch a reguar fee s charged.
Secton 907 (c) of the Soca Securty ct defnes the term em-
poyment (as used n Tte I of the ct) and e cepts therefrom
agrcutura abor.
rtce 206(1) of Reguatons 90 provdes n part as foows:
The term agrcutura abor ncudes a servces performed

(o) y an empoyee n connecton wth the processng of artces from
materas whch were produced on a farm aso the packng, packagng,
transportaton, 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, packagng, transportaton, or marketng s carred on as an ncdent
to ordnary farmng operatons as dstngushed from manufacturng or
commerca operatons.
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Regs. 90, rt. 206(1).
472
The processng of sugar cane s consdered to be a manufacturng
operaton rather than an ncdent to ordnary farmng operatons
wthn the meanng of the above-quoted provsons of the regua-
tons. ccordngy, servce performed by an empoyee n connec-
ton wth such processng of sugar cane consttutes empoyment
wthn the meanng of Tte I of the Soca Securty ct and s
not e cepted therefrom as agrcutura abor rrespectve of the
sources of the sugar cane processed.
The concuson neren reached s aso appcabe under Tte III
of the Soca Securty ct.
Secton 907: Defntons.
Reguatons 90, rtce 206(1): grcutura abor.
Servces performed by empoyees of chcken hatchery. (See
S. S. T. 117, page 395.)
Secton 907: Defntons.
Reguatons 90, rtce 206(1): grcutura abor.
Servces performed n the growng, harvestng, processng, etc., of
gum nava stores not agrcutura abor. (See S. S. T. 118,
page 397.)
Secton 907: Defntons.
Reguatons 90, rtce 206(1): grcutura abor.
Meanng of the term agrcutura abor. (See S. S. T. 125,
page 397.)
Secton 907: Defntons.
Reguatons 90, rtce 206(1): grcutura abor.
Servces performed n rasng godfsh. (See S. S. T. 131, page 400.)
Secton 907: Defntons.
Reguatons 90, rtce 206(1) : grcutura abor.
Growng and processng mushrooms. (See S. S. T. 132, page 401.)
Secton 907: Defntons.
Reguatons 90, rtce 206(1): grcutura abor.
Servces performed n the producton, packagng, transportng,
and marketng of wne. (See S. S. T. 139, page 402.)
Secton 907: Defntons.
Reguatons 90, rtce 206(1): grcutura abor.
Servces performed n cotton gnnng and rce mng. (See
S. S. T. 142, page 403.)
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473 Regs. 90, rt. 206(3).
Secton 907: Defntons.
Reguatons 90, rtce 200(1) : grcutura abor.
Servces performed n the commerca operaton of a dary. (See
S. S. T. 158, page 404.)
Secton 907: Defntons.
Reguatons 90, rtce 200(1) : grcutura abor.
Racng and e hbtng of horses. (See S. S. T. 1C3, page 405.)
Secton 907: Defntons.
Reguatons 90, rtce 206(1) : grcutura abor.
Servces rendered n rasng rabbts for commerca purposes.
(See S. S. T. 16G, page 40G.)
Secton 907: Defntons.
Reguatons 90, rtce 20G(2): Domestc servce.
Servce performed durng perod of admnstraton of estate of
deceased empoyer. (See S. S. T. 121, page 406.)
Secton 907: Defntons.
Reguatons 90, rtce 206(3) : Offcers and members
of crews.
Status of dredges as vesses. (See S. S. T. 78, page 408.)
Secton 907: Defntons. I-10-8587
Reguatons 90, rtce 206(3) : Offcers and S. S. T. 113
members of crews.
mpoyees of the M Corporaton who se candy, soft drnks,
and cgarettes to passengers on ferryboats operated by that com-
pany and who are under the supervson of offcers of the boats
are members of the erew of such vesses wthn the meanng
of secton 907(c)3, Tte I of the Soca Securty ct.
Inqury s made whether the servces of certan ndvduas em-
poyed by the M Corporaton come wthn the e ceptng provsons
of secton 907(c)3, Tte I of the Soca Securty ct, whch e -
cepts from the term empoyment, as defned n the ct
(3) Servce performed as an offcer or member of the crew of a vesse on
the navgabe waters of the Unted States.
The M Corporaton operates a number of ferryboats between the
ctes of R and S and severa persons are empoyed by the corpora-
ton to se candes, soft drnks, and cgarettes to the passengers on
7086 37 16
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Rega. 90, rt. 206(5)-(6).
the ferres. These empoyees are under the supervson of the offcers
of the ferres. Whether such empoyees may be cassed as members
of the crew of the vesse s the queston presented.
The term crew s not mted to those persons on board a vesse
who are physcay engaged n causng the vesse to move through the
water. (See The uena entura, 243 ed., 797, and the cases theren
cted.) rtce 206(3) of Reguatons 90 provdes that the e pres-
son offcers and members of the crew ncudes the master or
offcer n charge of the vesse, however desgnated, and every nd-
vdua, sub|ect to hs authorty, servng on board and contrbutng
n any way to the operaton and wefare of the vesse, and specfcay
ncudes n the e presson such persons as surgeons, stewards, porters,
cerks, etc.
ased on the evdence presented, t s hed that the empoyees n
queston are members of the crew wthn the meanng of the e -
ceptng provsons of secton 907(c) 3 of the Soca Securty ct.
Therefore, the servces performed by such persons shoud be e -
cuded for the purpose of determnng whether the M Corporaton
empoys a suffcent number of ndvduas to be an empoyer sub-
|ect to the ta under Tte I of that ct. Ths concuson s not
nconsstent wth S. S. T. 58 (C. . -2, 414 (1936)), snce n that
case the servces were performed under the supervson and for the
beneft and wefare of the empoyer operatng the concesson, who wa3
not the owner or operator of the vesse, whereas, n the nstant case,
the servces were performed under the supervson of the master of
the vesse for the owner of the vesse, and, thus, for the wefare of
the vesse wthn the meanng of artce 206(3) of Reguatons 90.
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
Servces performed for varous corporatons under supervson of
arm Credt dmnstraton and servces performed by recevers of
ont Stock Land anks and ther staffs. (See S. S. T. 61, page 409.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
edera ome Loan anks, the ome Owners Loan Corporaton
the edera Savngs and Loan Insurance Corporaton, and edera
Savngs and Loan ssocatons. (See S. S. T. 62, page 409.)
Secton 907: Defntons.
Reguatons 90, rtce 200(5)-(6): Government empoyees.
State banks organzed under the aws of Indana. (See S. S. T.
65, page 410.)
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475 Regs. 0, rt. 206(5)-(6).
Secton- 907: Defntons. I-3-8493
Reguatons 90, rtce20G(5)-(6): Government em- S.S.T.74
poyees.
( so Secton 811 Reguatons 91, rtce 11.)
Servces performed by the empoyees of the M Company, whch
s whoy owned by a county and a cty n the State of It and
whch operates ferres n that State, come wthn the e ceptng
provsons of sectons 907(c)0 and 811(b)7 of the Soca Securty
ct
dvce s requested whether the M Company and ts empoyees are
sub|ect to the ta es mposed by Ttes III and I of the Soca
Securty ct. The company s owned |onty by the county of
and the cty of , State of R. It operates ferres between certan
ctes n that State. The profts derved from operaton of the
ferres are dvded between the county and the cty.
Tte I of the Soca Securty ct provdes n secton 901 for the
evy of an e cse ta upon empoyers (as defned n the ct) wth
respect to havng ndvduas n ther empoy. The measure of the
ta s the tota amount of wages payabe by an empoyer wth
respect to empoyment durng the caendar year regardess of the
me of payment. Secton 907(c) 6 of the ct provdes n part as
foows:
(e) The term empoyment means any servce, of whatever nature, per-
formed wthn the Unted States by an empoyee for hs empoyer, e cept

(6) Servce performed n the empoy of a Stae, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons
Tte III of the Soca Securty ct mposes an ncome ta upon
empoyees and an e cse ta upon empoyers, and secton 811(b)7
thereof s dentca wth secton 907(c)G quoted above.
rtce 206(5)-(6) of Reguatons 90 and artce 11 of Reguatons
91, reatng to the ta ng provsons of Ttes I and III of the
ct, respectvey, provde that the e cepton reatve to servces per-
formed by State empoyees e tends to every servce performed by an
ndvdua n the empoy of the severa States, or any potca sub-
dvson or nstrumentaty thereof, ncudng every unt or agency
of government, wthout dstncton between those e ercsng func-
tons of a governmenta nature and those e ercsng functons of a
propretary nature. Snce the M Company s owned and operated
as an nstrumentaty of the county of and the cty of ,
potca subdvsons of the State of R, the e ceptng provsons or
sectons 907(c)6 and 811 (b)7 of the ct e tend to the servces per-
formed by the empoyees of that company. The organzaton and
ts empoyees are not, therefore, sub|ect to the ta es mposed by the
Soca Securty ct.
Secton 907: Defntons.
Reguatons 90, rtce 203(5)-(6) : Government empoyees.
State banks nsured by edera Depost Insurance Corporaton.
(See S. S. T. 79, page 411.)
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Regs. 90, rt. 206(5)-(6). 476
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6): Government empoyees.
State banks organzed under the aws of Utah. (See S. S. T. 80,
page 412.)
Secton 907: Defntons. I-6-8537
Reguatons 90, rtce 206(5)-(6): Government S. S. T.89
empoyees.
( so Secton 811 Reguatons 91, rtce 11.)
Servces performed by ndvduas engaged n the operaton and
mantenance of a gas pant whch s muncpay owned but pr-
. vatey operated do not come wthn the e ceptons contaned n
sectons 811(b)7 nnd 907(c)C of the Soca Securty ct
dvce s requested whether servces performed by ndvduas n
connecton wth the operaton and mantenance, of a gas pant n the
cty of R whch s muncpay owned but s operated by a prvate
corporaton are e cepted from the, term empoyment under the
provsons of secton 811 (b)7, Tte III, and secton 907(c)G, Tte
I , of the Soca Securty ct.
On anuary , 1928, the cty of R eased to the M Company, a
corporaton organzed under the aws of the. State of S, a the prop-
erty, rea and persona, known as the. R Gas Works owned by the
cty of R. In the contract the cty authorzed and empowered the
M Company durng the ease to retan possesson of, mantan, ater,
repar, and operate the gas works. The ease s to contnue n fu
force and effect unt termnated by ether party thereto n the man-
ner set forth n the contract. The M Company pays a f ed annua
sum for the ease and hres the empoyees necessary for the opera-
ton of the gas pant.
Ttes III and I of the Soca Securty ct mpose ta es at
specfed rates measured by the amount of wages wth respect to
empoyment as defned by sectons 811 and 907 of the ct. Sec-
ton 907(c) provdes that the term empoyment used n Tte I
means any servce, of whatever nature, performed wthn the Unted
States by an empoyee for hs empoyer, e cept

(C) Servce performed n the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca su vsons
rtce 20G(5)-(6), Reguatons 90, reatng to the e cse ta on
empoyers under Tte I , reads as foows:
Government empoyee . Servces performed by edera and State empoyees
are e cepted. The e cepton e tends to every servce performed by an nd-
vdua 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
Instrumentaty thereof, ncudng every unt or agency of government, wthout
dstncton between those e ercsng functons of n governmenta nature and
those e ercsng functons of a propretary nature.
Secton 811(b)7 of the ct s dentca wth secton 907(c)6, supra,
and artce 11, Reguatons 91, reatng to the empoyees ta and
the empoyers ta under Tte III of the Soca Securty ct, s
dentca wth artce 20G(5)-(G), Reguatons 90, quoted above. It
was hed n S. S. T. 2 (C. . -1, 473) that nether the ncome ta
on empoyees nor the e cse ta on empoyers mposed by Tte III
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477
Regs. 90, rt. 206(5)-(6).
of the Soca Securty ct s appcabe wth respect to servces per-
formed n the empoy of a cty owned and operated ghtng pant,
waterworks or cemetery, and that the e cse ta on empoyers m-
posed by Tte I of that ct does not attach wth respect to such
servces. owever, under the facts presented n the present case,
the R Gas Works s not operated by the cty of and the ndvd-
uas engaged n the operaton and mantenance thereof are not
empoyees of the cty. ccordngy, the servces performed by such
empovees do not come wthn the e cepton contaned n sectons
811(b)7 and 907(c) 6 of the Soca Securty ct. Therefore, the
ta es mposed by Ttes III and I of the ct attach wth respect
to such servces.
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6): Government empoyees.
State banks organzed under the aws of Rhode Isand. (See
S. S. T. 88, page 413.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6): Government empoyees.
State banks organzed under the aws of Maryand. (See S. S. T.
93, page 414.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(G) : Government empoyees.
Power dstrcts (Nebraska) and ther empoyees. (See S. S. T. 94,
page 415.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6): Government empoyees.
Servces performed by empoyees of West rgna Lquor Contro
Commsson. (See S. S. T. 100, page 418.)
Secton 907: Defntons.
Reguatons 90, rtce 20G(o)-(6) : Government empoyees.
State banks organzed under the aws of Mssour. (See S. S. T.
99, page 417.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(G): Government empo|rees.
Port dstrcts (State of Washngton) and ther empoyees. (See
S. S. T. 98, page 416.)
Secton 907: Defntons.
Reguatons 90, rtce 20G(5)-(G): Government empoyees.
The M Cearng ouse ssocaton not an nstrumentaty of the
Unted States. (See S. S. T. 101, page 418.)
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Regs. 90, rt. 206 (5)-(6). 478
Secton 907: Defntons.
Reguatons 90, rtce 20G(5)-(6) : Government empoyees.
State banks organzed under the aws of abama. (See S. S. T.
107, page 419.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
Safe depost company whoy owned by State bank member of
edera Reserve System. (See S. S. T. 108, page 420.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
State-chartered budng and oan assocatons, savngs and oan
assocatons, cooperatve trnnks, homestead assocatons, nsurance
companes, and savngs banks, members of the edera ome Loan
ank System. (See S. S. T. 109, page 421.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
Savngs and oan assocatons organzed under the aws of New
York and supervsed by State bankng department. (See S. S. T.
I, page 422.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6): Government empoyees.
State banks organzed under the aws of entucky. (See S. S. T.
114, page 423.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(G) : Government empoyees.
udng and oan, savngs and oan, and homestead assocatons
nsured by the edera Savngs and Loan Insurance Corporaton.
(SeeS. S. T. 115, page 424.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
Referee n bankruptcy and ndvduas n hs empoy. (See S. S. T.
122, page 425.)
Secton 907: Defntons.
Reguatons 90, rtce 206 (5)-(6): Government empoyees.
State banks whch are depostores of posta savngs funds or are
quafed to act as such. (See S. S. T. 126, page 425.)
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479 (Regs. 90, rt. 2C6(7).
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
The ower Coorado Rver authorty and ts empoyees. (Seo
S. S. T. 127, page 426.)
Secton 907: Defntons.
Reguatons 90, rtce 20G(5)-(G) : Government empoyees.
ank of North Dakota and ts empoyees. (See S. S. T. 133,
page 428.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6): Government empoyees.
edera credt unons. (See S. S. T. 140, page 428.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
Partnershp and ts empoyees reportng proceedngs for |udges
of a Unted States dstrct court. (See S. S. T. 155, page 429.)
Secton 907: Defntons.
Reguatons 90, rtce 206 (5)-(C) : Government empoyees.
M Water Improvement Dstrct, organzed under aws of Te as.
(See S. S. T. 159, page 430.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
Lqudatng trust whch took over part of assets of an nsovent
natona bank. See S. S. T. 1G4, page 432.)
Secton 907: Defntons.
Reguatons 90, rtce 206(7) : Regous, chartabe,
scentfc, terary, and educatona organzatons and
communty chests.
raterna beneft socety organzed and operated under the aws of
Pennsyvana. (See S. S. T. 119, page 434.)
Secton 907: Defntons.
Reguatons 90, rtce 206(7) : Regous, chartabe,
scentfc, terary, and educatona organzatons and
communty chests.
Schoo prvatey owned and operated for proft. (See S. S. T.
144, page 436.)
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Regs. SO, rt. 207.
480
Secton 907: Defntons. I-5-8525
Reguatons 90, rtce 207: Wages. S. S. T. 87
Where a sae nade n one caendar year Is canceed In a sub-
sequent caendar year and the commsson on the sae s deducted
from the saesman s earnngs durng the year of canceaton,
such commsson reducton, for the purpose of computng the ta
mposed by Tte I of the Soca Securty ct, consttutes a reduc-
ton of wages of the saesman for the year n whch he performed
the servces and not a reducton of wages for the year n whch
the sae s canceed.
dvce s requested by the M Company n connecton wth the ta
mposed by secton 901, Tte I of the Soca Securty ct, reatve
to the proper method of reportng commssons of ts saesmen where
saes made n one caendar year are canceed n the foowng year.
The M Company states that saes made n one caendar year are
sometmes canceed n the foowng year, and that the commsson
on the canceed sae whch was pad or credted to the saesman n
the year n w hch the sae was made s then charged to the saesman
as a reducton of earnngs n the current year. The queston s pre-
sented whether, for the purpose of the ta mposed by secton 901
Tte I of the Soca Securty ct, such a charge shoud be treated
as a reducton of wages for the year of the sae or for the year of
canceaton.
The measure of the ta mposed upon empoyers by secton 901,
Tte I of the Soca Securty ct, s the tota amount of wages
payabe by an empoyer wth respect to empoyment durng the
caendar year, regardess of the tme of actua payment. Comms-
sons on saes made n one caendar year consttute wages payabe
wth respect to empoyment durng that caendar year. (Secton
907(b), Tte I , Soca Securty ct, and artces 207-209, Regua-
tons 90.) The ta for any caendar year s computed by appyng
the rate for that year to the tota wages payabe by an empoyer
wth respect to empoyment durng such year. rtce 210, Regua-
tons 90, provdes n part as foows:
(o) If the amount of wages payabe wth respect to empoyment
durng the caendar year s computed and reported by the ta payer n hs
return for such year, at an amount greater than the amount whch s subse-
quenty determned to have been payabe, the overpayment of ta sha be
refunded or credted. (See artce 503 for genera provsons appcabe wth
respect to cams for refund or credt.)
ccordngy, when a sae made n one caendar year s canceed n
a subsequent caendar year and the commsson s deducted from the
earnngs of the saesman durng the caendar year n whch the sae
s canceed, such a reducton n commsson s a reducton of the
wages of the saesman for the caendar year n whch the servces
were performed and not for the year n whch the sae s canceed.
The empoyer shoud, therefore, fe a cam for credt or refund of
the ta pad on the commsson for the earer year.
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
Payment by empoyer of empoyees ncome ta mposed by sec-
ton 801 of Soca Securty ct. (See S. S. T. 8.1, page 437.)
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481
Regs. 90, rt. 207.
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
Royaty payments. (See S. S. T. 95, page 439.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
mpoyees of a sororty who receve for ther servces ether cash
and board and odgng or ony board and odgng. (See S. S. T. 96,
page 439.)
Secton 907: Defntons. I-8 8565
Reguatons 90, rtce 207: Wages. S. S. T. 104
( so Secton 811 Reguatons 91, rtce 14.)
Method of determnng wages under Tte I of the Soca Secu-
rty ct where an amount s pad n consderaton of both persona
servces and the use of equpment.
dvce s requested by the M Company, a Mssour corporaton, as
to the percentage of the tota amount pad for the use of a truck and
the servces of a drver whch shoud be consdered as wages of the
drver for the purpose of the ta mposed by Tte I of the Soca
Securty ct.
The M Company hres a truck and drver at so much per oad to
hau stone from ts quarry to ts rver oadng dock. In smar
cases the Mssour Workmen s Compensaton Commsson has agreed
that one-thrd of the amount pad to such an empoyee shoud be
consdered as wages and two-thrds as payment for the use of the
truck. Inqury s made whether the M Company w be permtted
to report on the same bass wages pad under the contract of empoy-
ment wth the empoyee.
The ta mposed by Tte I of the Soca Securty ct s an
e cse ta on empoyers wth respect to havng ndvduas n ther
empoy, and the measure of the ta s the tota amount of wages
payabe by an empoyer wth respect to empoyment durng the ca-
endar year. The term wages as used n Tte I s defned as
meanng a remuneraton for empoyment, ncudng the cash vaue
of a remuneraton pad n any medum other than cash.
The aocaton of the amount pad to an ndvdua where the
payment s n consderaton of both persona servces and the use of
equpment must be governed by the facts n each case. Where the
empoyment nvoves not ony persona servces of an ndvdua but
aso the use of equpment to be furnshed by hm, an aocaton of
the amount pad appears to be proper. If the contract of empoy-
ment does not specfy a reasonabe dvson of the tota amount pad
between wages and equpment, a proper aocaton may be arrved at
by reference to the prevang wage scae n the partcuar ocaty for
smar servces n operatng the same cass of equpment or the far
renta vaue of smar equpment. If the dvson adopted by the
Mssour Workmen s Compensaton Commsson s determned by
reference to these factors, t may be accepted for the purposes of
Tte I of the Soca Securty ct.
The concuson reached heren s aso appcabe under Tte III
of the ct.
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Regs. 90, rt. 209.
4S2
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
mount pad to empoyee as rembursement for supper money.
(See S. S. T. 110, page 440.)
Secton 907: Defntons.
Reguatons 90, rtcus 207: Wages.
mounts pad to empoyee members of safety counc. (See S. S.
T. 134, page 441.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
Determnaton of wages of contract coa mners. (See S. S. T. 138,
page 442.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
mounts charged to cub members accounts n eu of tps and
dsbursed to waters. (See S. S. T. 145, page 443.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
Premums pad by an empoyer on sck beneft nsurance for ts
empoyees. (See S. S. T. 146, page 443.)
Secton 907: Defntons. I-3-8494
Reguatons 90, rtce 209: Items ncuded as S. S.T.75
wages.
mpoyers keepng books on the bass of a fsca year endng
anuary 31 who pay bonuses to ther empoyees n ebruary on the
bass of earnngs for such year shoud determne the amount of the
bonuses appcabe to the caendar year 1936 by takng one-twefth
of the bonuses pad for the year ended anuary 31, 1930, and add-
ng thereto eeven-twefths of the estmated amount of the bonuses
payabe for the fsca year endng anuary 31, 1937.
dvce s requested n connecton wth the ta mposed by Tte I
of the Soca Securty ct reatve to the method to be used n deter-
mnng the amount of bonuses payabe n ebruary, 1937, whch s
appcabe to the caendar year 1936 where an empoyer keeps hs
accounts on the bass of a fsca year endng anuary 31.
It s stated that the accounts of numerous empoyers are kept on
the bass of a fsca year endng anuary 31 that a arge porton of
the earnngs of certan empoyees conssts of a yeary bonus deter-
mned upon the resuts of the operatons of the fsca year and that
as a rue the amount of the bonus s not determned unt ebruary
15, the amount so determned beng pad about ebruary 20.
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483
Regs. 90, rt. 209.
ttenton s nvted to nstructon No. 8 of orm 940, nnua
return of e cse ta on empoyers of eght of more ndvduas,
whch reads n part as foows:
8. The tota wages payabe by an empoyer to hs empoyees wth
respect to empoyment durng any caendar year sha ncude (1) tems payabe
and actuay pad durng that caendar year, and (2) Items payabe but not
actuay pad durng that caendar year.

(2) Items payabe but not actuay pad sha ncude: (a) The amount
of aU remuneraton agreed by the empoyer to be pad to the empoyee and
(6) The far and reasonabe vaue of a servces performed wth respect to
empoyment durng the caendar year, f there s no agreement between the
empoyer and the empoyee as to the amount of remuneraton for such servces
and (c) The far estmated amount of a remuneraton, If the bass of such
remuneraton has been agreed upon between the empoyer and the empoyee
but the e act amount utmatey to be pad can not be determned unt a subse-
quent year and (d) The pro rata or other amount, fary estmated or
aocated, of the tota remuneraton agreed to be pad by the empoyer to
the empoyee, If such tota remuneraton Is for servces rendered n part n
the caendar year and n part n a dfferent year or years, (e) When remu-
neraton for servces performed In a caendar year Is pad, or when an obgaton
to pay such remuneraton arses, In a subsequent caendar year, the empoyer
s requred to advse the coector under oath of the amount thereof (f not
reported n the return for the caendar year durng whch the servces were
performed) and to pay any ta wth respect thereto at the rate n effect for the
caendar year durng whch the servces were performed.
or the purpose of makng ther returns under Tte I of the
Soca Securty ct for the caendar year 1936, the empoyers n
queston shoud determne the amount of the bonuses appcabe to
the caendar year 1936 by takng one-twefth of the bonuses actuay
pad for the year ended anuary 31, 1936, and addng thereto eeven-
twefths of the estmated amount of the bonuses payabe for the
fsca year endng anuary 31, 1937. If the amount so estmated for
the caendar year 1936 and reported n the returns for such year s
greater than the amount whch s subsequenty determned to be
payabe, any overpayment of ta resutng therefrom w be re-
funded or credted as provded n artces 210 and 503 of Reguatons
90. If the amount so estmated for the caendar year 1936 and
reported n the returns for that year s ess than the amount whch s
subsequenty determned to have been payabe, the empoyer w be
requred to advse the coector under oath of the amount of the
bonuses whch has not been reported n the return for the caendar
year durng whch the servces were performed and pay any ta
wth respect thereto at the rate n effect for that caendar year.
Secton 907: Defntons. I-13-8618
Reguatons 90, rtce 209: Items ncuded S. S. T. 123
as wages.
S. S. T. 27 (O. . -2, 893 (1936)), n whch t was hed that
where a cash bonus s pad to empoyees based on remuneraton 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, 1930, consttutes wages
under Tte I of the Soca Securty ct, s not nconsstent wth
artce 209(6) of Reguatons 90, whch provdes that Payment to
an empoyee of so-caed dsmssa wages consttutes
wages.
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Regs. 90, rt. 209.
484
dvce s requested whether the concuson reached n S. S. T. 27
(C. . -2, 303 (1936)) s consstent wth that porton of artce
209(ft), Reguatons 90, whch provdes that Payment to an
empoyee of so-caed dsmssa wages consttutes wages.
In S. S. T. 27 t was hed that where a cash bonus s pad to
empoyees based on remuneraton 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, 1936,consttutes wages for the purpose of the ta mposed
by secton 901, Tte I of the Soca Securty ct. It s stated by
the ta payer that the reasonng n the above-mentoned rung seems
nconsstent wth artce 209(6) for the reason that dsmssa wages
may be a cash award for servces rendered pror to dsmssa.
The words dsmssa wages as used n artce 209(6) of Regua-
tons 90 contempate wages pad to an empoyee because of hs ds-
charge from empoyment and a reease by the empoyer of hs serv-
ces rather than as a bonus for fathfu servces. Whe such a pay-
ment s remuneraton for empoyment wthn the meanng of
secton 907(b), t shoud not ordnary be consdered as a payment
for servces performed pror to dsmssa. If such remuneraton
pad at the tme of dsmssa does represent payment for servces
rendered pror thereto, then such payment s not a dsmssa wage
wthn the meanng of artce 209(6) and must be aocated to the
caendar year n whch the servces were performed. ccordngy,
there appears to be no nconsstency between artce 209(6) of Regu-
atons 90 and S. S. T. 27, supra.
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MISC LL N OUS RULINGS.
TITL II. R UNDS O MOUNTS COLL CT D UND R
T GRICULTUR L D USTM NT CT. (1936)
S CTIONS 901 TO 917, INCLUSI .
Regttuutons 96. I-24-8761
Ct. D. 1234
PROC SSING ND LOOR STOC T S R NU CT O 19 0 D CISION O
SUPR M COURT.
dmnstratve Pboceduee Consttutonaty.
Tte II, sectons 901-917, of the Revenue ct of 193C, whch
provdes a new admnstratve procedure for the recovery of
amounts coected under the grcutura d|ustment ct, s
not unconsttutona. The authorzed procedure provdes for a
fu and far hearng and determnaton of a matters of fact, and,
through |udca revew, provdes for the protecton of a the
ega rghts of the pettoner, ncudng any consttutona rght
whch t may be entted to nvoke wth respect to the recovery
of ta es pad.
Supreme Coubt of the Unted States.
mt on Manufacturng Co., pettoner, v. arwe O. Davs, Coector
of Interna Revenue.
57 S. Ct., 816.
On wrt of certorar to the Unted States Crcut Court of ppeas for the fth Crcut
May 17, 1937.
opnon.
Mr. Chef ustce ughes devered the opnon of the Court.
Pettoner brought ths sut on November 22, 1935, aganst the coector of
nterna revenue to recover the amounts pad as cotton processng ta on
(frst cause of acton) and as cotton foor stock ta es (second cause of
acton) under the grcutura d|ustment ct of 1933. (48 Stat., 31, 35, 40.)
Pettoner aeged the unconsttutonaty of the statute mposng the ta
Unted States v. uter, 297 U. S., 1 Ct. D. 1070, C. D. -1, 421 (1936) )
and that cam for refund had been re|ected by the Commssoner of Interna
Revenue on ugust 16, 1935. fter the enactment of Tte II of the Revenue
ct of 1936, sectons 901-917 ( 49 Stat, 1747), pettoner amended ts compant,
assertng the unconsttutonaty of these provsons. Demurrer was sustaned
by the dstrct court (15 . Supp., 257) and ts |udgment of dsmssa was
affrmed by the crcut court of appeas upou the ground that the court beow
was wthout |ursdcton to entertan the acton. (87 . (2d), 773.) In vew
of the mportance of the questons rased, we granted certorar.
Tte II, sectons 901-917, of the Revenue ct of 1936, provded a new
admnstratve procedure for the recovery of amounts coected under the
grcutura d|ustment ct. Secton 901 repeaed sectons 21(d), 21(e),
and 21(g), of the amendments of 1935 (49 Stat., 771-773). Secton 902 pre-
scrbed the condtons on whch refunds shoud be made. Secton 003 reated
(485)
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486
to the fng of cams. Sectons 904 and 905 prescrbed perods of mtaton
and provded for the |ursdcton of the dstrct courts, concurrent wth the
Court of Cams, for the recovery of amounts coected as foor stock and com-
pensatng ta es. Secton 906 prescrbed the procedure on cams for refunds
of processng ta es. Secton 907 estabshed certan rues of evdence or pre-
sumptons to be observed n the admnstratve proceedng. Secton 908 reated
to aowance of nterest. Secton 909 dened revew of the admnstratve ru-
ng by any other admnstratve or accountng offcer. Secton 910 undertook
to free coectors from abty for moneys coected by hm and pad nto
the Treasury n performance of hs offca dutes. Secton 913 defned varous
terms empoyed. Other sectons ad down admnstratve rues not requrng
attenton n the present dscusson.
rst. Pettoner contends that at the tme t brought ths sut t had a vested
rght of acton aganst the coector to recover the amounts e acted under statu-
tory provsons hed to be nvad that ths rght of acton coud not be
destroyed wthout voatng the ffth amendment that the coector was pcr-
sonay abe for the amounts coected and that secton 910 whch attempted
to destroy that abty s unconsttutona.
The Government answers that the nstant case does not requre a decson
as to the power of Congress to wthdraw sut entrey, both aganst the coector
and aganst the Government that Congress has eft a remedy aganst the
Government whch s far and adequate n every respect. We agree wth the
Government s contenton that f the admnstratve remedy s far and ade-
quate, other questons wth respect to the abty of the coector and the
vadty of secton 910 need not now be consdered. We had occason to dea
wth a cognate queston n urr, Treasurer, v. Locomobe Co. (258 U. S., 34).
That decson was rendered n suts brought by foregn corporatons n the
edera court to recover ta es aeged to have been pad to the defendant,
the treasurer of Massachusetts, under duress and In obedence to statutes hed
by ths Court to be unconsttutona n Internatona Paper Co. v. Massachu-
setts (246 U. S., 135) and Locomobe Co. v. Massachusetts (246 U. S., 140).
statute of Massachusetts provded that any corporaton aggreved by the
e acton of the ta coud appy by petton to the supreme |udca court and
that the remedy so provded shoud be e cusve. s the statute contaned a
provson for repayment of any sum ad|udged to have been egay e acted.
It was contended that t consttuted a bar to a persona sut aganst the treas-
urer who had coected the ta . Ths Court agreed wth the defendant upon
that pont. The State had substtuted an e cusve remedy aganst tsef for
the remedy aganst the treasurer and had guaranteed payment of the amount
found to be due. The vadty of the statute was sustaned. We sad
that we dd not perceve why the State may not provde that ony the author
of the wrong sha be abe for It, at east when, as here, the remedy offered
Is adequate and backed by the responsbty of the State.
The same reasonng s appcabe here. The Government has not dened ts
obgaton to refund the amounts found n the authorzed proceedng to be
recoverabe, but has recognzed that obgaton. In such a case, the substtu-
ton of an e cusve remedy drecty aganst the Government s not an nvason
of consttutona rght. Nor does the requrement of recourse to admnstratve
procedure estabsh nvadty If ega rghts are st sutaby protected. The
Immedate queston s whether the authorzed proceedng affords a far and
adequate remedy. We accordngy nqure whether the prescrbed procedure
gves an opportunty for a fu and far hearng and determnaton of a ques-
tons of fact and adequatey provdes for the protecton of the ega rghts of
the camant, embracng whatever rght of refund the camant s entted to
assert under the edera Consttuton.
Second. Wth respect to foor stock ta es, no serous queston s presented as
to the adequacy of the remedy. The remedy by sut s e pressy preserved. If
the Commssoner refuses refund, sut may be brought aganst the Unted States
In the Court of Cams or In the dstrct court for the recovery of the amount
camed to have been egay e acted. (Secton 905.)
Thrd. Wth respect to the refundng of processng ta es, a speca and
e cusve admnstratve procedure Is provded. (Secton 906.) Dsaowance
by the Commssoner of a cam of refund, n whoe or part, s made fna un-
ess wthn three mouths the camant fes a petton for hearng upon the
merts by a oard of Revew whch the ct estabshes In the Treasury Depart-
ment. The board s composed of nne members who are offcers or empoyees of
s
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487
Msc.
the Department and are desgnated by the Secretary of te Treasury. The
board s to determne the amount of refund due any camant wth respect to
such cam. The Commssoner s requred to make refund of any such
amount determned by a decson of the board whch has become fna. (Sec-
ton 906(b).) The hearng, upon notce, before the board s to be open to the
pubc and Is to be conducted by a presdng offcer who s ether a member of
the board or an offcer or empoyee of the Treasury Department desgnated
by the Secretary of the Treasury. The proceedngs are to be In accordance wth
the rues of practce and procedure prescrbed by the board wth the approva
of the Secretary of the Treasury save wth respect to rues of evdence whch
are to be n accordance wth those appcabe n courts of equty of the Dstrct
of Coumba. The camant and the Commssoner are entted to be repre-
sented by counse, to have wtnesses subpoenaed, and to e amne and cross
e amne wtnesses. Provson s made to compe the attendance and testmony
of wtnesses and the producton of books and papers from any pace In the
Unted States and to requre the takng of depostons. (Secton 900 (c) (d).)
The presdng offcers are to recommend fndngs of fact and a decson to
the board or the proper dvson thereof wthn s months after the concuson
of the hearng. refs wth respect to such recommendatons may be submtted
wthn a specfed tme. The board or a dvson s to make ts fndngs of fact
and decson n wrtng as qucky as practcabe. The fndngs and decson of
a dvson are to become those of the board wthn 30 days uness the charman
has drected that they be revewed by the board. Copes of the fndngs and
decson are to be maed to the camant and the Commssoner. (Secton
906(e).) There s a further provson as to costs and fees. (Secton 906(f).)
The decson of the board s to become fna n the same manner as decsons
of the oard of Ta ppeas under secton 1005 of the Revenue ct of 1926 as
amended. (Secton 906(g) 26 U. S. C, 640.)
udca revew of the decson of the board s provded. That revew may be
had by a crcut court of appeas or by the Unted States Court of ppeas
for the Dstrct of Coumba, accordng to the resdence or pace of busness of
the camant, or by any such court as may be desgnated by the Commssoner
and the camant by stpuaton. Upon petton for revew the board s to cer-
tfy and fe In the approprate court a transcrpt of the record upon whch
the fndngs and decson were based. Thereupon, the court of appeas s to
have e cusve |ursdcton-to affrm the decson of the board, 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 may requre. (Secton
906(g).) If the camant or the Commssoner appes to the court of appeas
for eave to adduce addtona evdence the court may order t to be taken
before the presdng offcer f the court s satsfed that the addtona evdence
s matera and that there were reasonabe grounds for faure to adduce t at
the hearng. The board may modfy ts fndngs and decson by reason of
such addtona evdence, fng ts modfed or new determnaton wth the
court. The |udgment of the court of appeas s to be fna, sub|ect to revew by
ths Court upon certfcaton or certorar as provded n sectons 239 and 240
of the udca Code.
We thnk that ths pan of procedure provdes for the |udca determnaton
of every queston of aw whch the camant s entted to rase. We fnd noth-
ng n the statute whch mts the |udca revew to questons of statutory
constructon or of mere reguarty of procedure. The aw, wth whch the
decson of the board may be n confct, may be the fundamenta aw. ues-
tons of vadty as we as of statutory authorty or reguarty may be deter-
mned. These may reate to due process n the hearng or n the refusa of a
refund. The Government does not contest ths constructon but on the contrary
affrms t. The Government recognzes and urges that the |ursdcton gven
to the court of appeas to modfy or reverse the decson of the board f
t s not n accordance wth aw ncudes the power to revew a questons of
genera and statutory aw and a consttutona questons. Thus every con-
sttutona rght whch the pettoner here s entted to nvoke wth respect to
the refund of the ta es whch t has pad may be heard and determned by the
court of appeas and utmatey by ths Court upon a revew of a decson
reached n the course of the prescrbed admnstratve procedure. The Govern-
ment urges, and we thnk correcty, that f on such a revew any part of Tte
MI were hed to be nvad, the ta payer may recover a of the ta es to
whch he s entted under such a decson. Upon the |udca revew of the
acton of the board, the court of appeas and ths Court woud have power to
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488
drect the board to enter any desgnated |udgment and the Commssoner a
requred to make refund of any amount whch may thus be determned to be
due the camant.1
ourth. The queston then s whether, despte ths broad rght of udca
revew of the acton of the board, the admnstratve scheme has such nherent
consttutona defects that the pettoner shoud not be remtted to that proce-
dure. The nqury has partcuar reaton to the provsons (1) as to burden
of proof, secton 902, (2) as to presumptons, secton 907, and (3) as to certan
matters of admnstratve deta.
The burden of proof. Secton 902, the fu te t of whch s set out n the
margn, provdes that no refund sha be aowed uness the camant estab-
shes to the satsfacton of the Commssoner, or of the tra court, or of the
oard of Revew n cases under secton 906, that the camant bore the burden
of the amount pad as ta and has not been reeved thereof nor rembursed
therefor nor shfted such burden, drecty or ndrecty, (1) through the n-
cuson of the amount pad n the prce of the product, (2) through reducton
of the prce pad for the raw matera, or (3) n any manner whatsoever.
ccordng to the aegatons of the compant, the pettoner ntay dd
bear the burden of the unconsttutona ta , as pettoner pad t. The
queston for admnstratve determnaton s whether the burden of that
payment has been shfted. So far as pettoner s contenton may be taken
to be that t s entted to recover by reason of the nvadty of the ta ,
athough n fact ts burden has been passed on to another, the contenton
can not be sustaned. Whe the ta payer was undoubtedy hurt when he
pad the ta , f he has obtaned reef through the shftng of ts burden,
he s no onger n a poston to cam an actua n|ury and the refusa of a
refund n such a case can not be regarded as a dena of consttutona rght
That queston was decded n Unted States v. efferson ectrc Co. (291
U. 8., 386 Ct. D. 803, C. . III-1, 393 (1934) ), and the controng prn-
cpe as to burden of proof was decared. There, actons at aw had been
brought, one aganst the Unted States and others aganst a revenue coector,
to recover money aeged to have been egay e acted as an e cse ta
The ground of egaty was that the saes, wth respect to whch the ta es
were ad, were not wthn the purvew of the ta statute. The queston
concerned the authorty of the court to entertan the actons n vew of the
provson of secton 424 of the Revenue ct of 1928 reatng to refunds. Prop-
1 Upon ths pont the Government states In Its bref (pages 104, 105) :
The estabshed rue as to the proper scope of consttutona tgaton can be apped
n ths case wth no danger of n|ury to pettoner. If, upon an approprate record and n
the ght of an actua attempt by the ta payer to show the ncdence of the processng ta ,
ts Court shoud hod any part of Tte II Invad, the ta payer may recover a of the
ta es to whch he s entted under such a decson, wth nterest at 0 per cent per annum.
(Secton 908(a) secton 614(a) of the Revenue ct of 1928, ch. 852, 45 Stat.. 791.)
or, whether or not secton 902 and secton 907 be hed nvad, the oard of Revew
woud st reman as a mechanca means by whch to enforce the decson of a crcut
court of appeas or of ths Court. ven f secton 902 were hed nvad, and recovery
aowed on mere proof of payment of grcutura d|ustment ct ta es, the oard of
Revew woud st have ursdcton to revew the aowance or dsaowance of any cam,
and the crcut courts of appeas and ths Court woud st have power to drect the board
to enter any desgnated udgment. nd secton 906(b) provdes that the Commssoner
sha make refund of any such amount determned by a decson of the board whch has
become fna.
Sec. 902. Condtons on aowance of refund .
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|ust-
ment 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 900, 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 ndrecty, (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, n the prce of any
artce wth respect to whch a ta was mposed under the provsons of such ct. or
n the prce of any artce processed from nny commodty wth respect to whch a ta
was mposed under such ct, or n any charge or fee for servces or processng (2)
through reducton 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 nuy shft the
burden thereof or
(b) That he has repad uncondtonay such amount to hs vendee (1) who bore th
burden thereof, (2) who has not been reeved thereof nor rembursed therefor, nor shfted
such bunon, drecty or Indrecty, and (3) who s not entted to receve any remburse-
ment therefor from any other source, or to be reeved of such burden n any manner
whatsoever.
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489
Msc.
ery construed, that provson was taken as substantvey mtng the rght
to a refund of ta es of the desgnated cass to nstances where the ta payer
ether has not drecty or ndrecty coected the ta from the purchaser or
havng so coected t has returned t to hm. Ths substantve mta-
ton was deemed to be an eement of the rght to a refund of such ta es,
athough they were whoy nvad and not merey ad n e cess of what was
awfu, and hence the statute requred that ths eement, ke others, be
satsfactory estabshed n any proceedngs where an asserted rght to a
refund s presented for e amnaton and determnaton. We hed that the
provson was appcabe to udca as we as to admnstratve proceedngs
for refunds under the ct (Id., page 395.) We recognzed that, under the
system then n force, n vew of the egaty of the ta , there accrued
to the ta payer when he pad the ta a rght to have t refunded wthout
any showng as to whether he bore the burden of the ta or shfted t to
the purchasers. nd t was further conceded that the provson of secton
424 of the Revenue ct of 1928 apped to rghts accrued theretofore and
st subsstng, and sub|ected them to the restrcton that the ta payer
(a) must show that he aone has borne the burden of the ta , or (b) f he
has shfted the burden to the purchasers, must gve a bond prompty to use
the refunded sum n rembursng them. (Id., page 401.) ut we were un-
abe to concude that n mposng ths restrcton the secton struck down
pror rghts or dd more than to requre that t be shown or made certan
that the money when refunded w go to the one who has borne the burden
of the ega ta , and therefore s entted n |ustce and good conscence
to such reef. We hed that there was no nfrngement of due process of
aw n that restrcton or n pacng upon the camant the burden of proof.
We sad (d., page 402) :
If the ta payer has borne the burden of the ta , he ready can show t
and certany there s nothng arbtrary n requrng that he make such a
showng. If he has shfted the burden to the purchasers, they and not he
have been the actua sufferers and are the rea partes n nterest and n
such a stuaton there s nothng arbtrary n requrng, as a condton to
refundng the ta to hm, that he gve a bond to use the refunded money
n rembursng them.
The opposng contenton was found to be partcuary fauty n that t
overooked the fact that the statutes provdng for refunds proceed on the
same equtabe prncpes that undere an acton n assumpst for money
had and receved. That acton ams at the abstract |ustce of the case, and
ooks soey to the nqury, whether the defendant hods money, whch e
aequo et bono beongs to the pantff. (Id., page 403.)
The crcumstance that under Tte II, here nvoved, there s no provson
for makng a refund to partcuar persons, to whom the burden of the nvad
e acton may be found to have been shfted, presents no sound dstncton
so far as the camant s concerned. The controng prncpe s that there
s no dena of consttutona rght n requrng the camant to show, where
t can be shown, that he aone has borne the burden of the nvad ta and
has not shfted t to others.
part from ths queston, the gravamen of pettoner s compant a that
secton 902 demands the mpossbe that t sets up a condton of recovery
whch n pettoner s case can not possby be met. That s, that the statute
not ony requres the camant to show that the burden of the ta has not
been shfted, where that can be shown, but bars recovery where n the
nature of the case that can not be shown. Pettoner contends that t s
wthn the atter cass. In ts amended compant, pettoner sets forth at
ength the features of the operaton of a cotton m such as ts own. y
reason of the nature of these operatons pettoner asserts that there s an
nherent mpossbty of provng whether or to what e tent the burden of the
ta es pad has been shfted to others.
Ths aegaton s at best but a statement of a ega concuson whch must
depend upon the facts as they appear when proof s taken. The queston s
whether the pettoner s entted to nsst as a matter of consttutona rght
upon tryng out the queston of mpossbty n ths sut rather than n un
admnstratve proceedng where a the pertnent facts as to the course of
busness may be presented and the concusons they requre both of fact
and aw may be reached. Ths asserton of such a consttutona rght rests
upon a constructon of secton 902 to the effect that f the facts, fuy ds-
cosed, afforded no bass for any determnaton as to the shftng of the burden
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Mso.
490
of the ta , and hence gave no warrant for n fndng that the burden had been
shfted from the camant to others, st the statute woud requre a dena
of the rght to a refund. The camant woud then stand, by vrtue of the
n|ury caused by the payment of the ta , not as one seekng reef when
he had not been hurt, but as one who had been hurt by a payment unconst-
tutonay requred and whose proved n|ury coud not be sad to have been
redressed. It s n that aspect that the statute s assaed as eavng the
camant wthout remedy for u deprvaton of hs property wthout due process
of aw.
Despte the broad anguage of secton 902, we do not thnk that t shoud
bo construed as ntended to deny a refund n any case where a camant s
consttutonay entted to t. We appy the famar canon whch makes It our
duty, of two possbe constructons, to adopt the one whch w save and not
destroy. We can not attrbute to Congress an ntent to defy the ffth amend-
ment or even to come so near to dong so as to rase a serous queston
of consttutona aw. ( edera Trade Commsson v. mercan Tobacco Co.,
204 U. S., 298, 307 Panama It. R. Co. v. ohnson, 264 T . S., 375, 390 odgett
v. Iodcn, 275 U. S., 142, 148 T. D. 4117, C. . II-1, 324 (1928) .) When
the Congress requres the camant, who has pad the nvad ta , to show that
e has not been rembursed or has not shfted ts burden, the provson shoud
not be construed as demandng the performance of a task, f utmatey found
to be nherenty mpossbe, as a condton of reef to whch the camant
woud otherwse be entted. There s ampe room for the pay of the statute
wthn the range of possbe determnatons. Impossbty of proof may not
be assumed. It can not be doubted that the requrement has approprate and
vad effect n pacng upon the camant the duty to present fuy a the
facts pertanng to the queston of the shftng of the burden of the ta and n
denyng reef where the facts |ustfy a concuson that the burden has been
shfted from the camant to others. When the facts have been shown t be-
comes the duty of the oard of Revew to make ts determnaton accordng to
the ega rghts of the camant. That s the necessary Import of the provson
for |udca revew, gvng authorty to the revewng court to modfy or reverse
the decson of the board f t s not n accordance wth aw. ndngs
that can propery be made upon the evdence must thus support a decson
accordng to ega rght. nd, as we have seen, the revewng court, and
fnay ths Court, may drect the board to enter any desgnated udgment
to whch the camant s consttutonay entted and the Commssoner must
refund the amount thus determned to be due.
In sayng ths, we are not passng upon the consttutona rght of pettoner
to a refund or upon the queston whether n ts case the shftng of the burden
of the ta s or s not susceptbe of proof. Consttutona questons are not
to be decded hypothetcay. When partcuar facts contro the decson they
must be shown. ( orden s arm Products Co. v. adwn, 203 U. S., 194,
208-210.) Pettoner s contenton as to mpossbty of proof Is premature.
Manfesty there s no mpossbty so far as the producton of proof of
pettoner s operatons or course of busness s concerned. What s meant
by mpossbty of proof s mpossbty of determnaton after these facts
are n. Whether or not any such mpossbty of determnaton w e st
s a queston whch propery shoud awat the ascertanment of the facts.
or the present purpose t s suffcent to hod, and we do hod, that the
pettoner may consttutonay be requred to present a the pertnent facts
n the prescrbed admnstratve proceedng and may there rase, and ut-
matey may present for |udca revew, any ega queston whch may arse
as the facts are deveoped.
These consderatons aso dspose of the contenton that secton 902 s so
vague and uncertan that t s meanngess, and therefore affords no remedy.
It was uot necessary for the Congress, n nsstng that a camant shoud not
recover where t appeared that e had not borne the burden of the ta , to
attempt to formuate the concusons whch woud be approprate upon varyng
states of fact. Pettoner s argument, drawn from the wrtngs of economsts,
s tsef suffcent to show the futty of such an effort. The Congress coud,
and dd, ay down- a genera prncpe and eave ts appcaton to the fncts
as they woud appear n partcuar nstances n a proceedng adapted to ther
fu dscosure. The genera prncpe thus ad down s no more vague nnd
ndefnte than the equtabe doctrne whch governs the rght of recovery In
actons for money had and receved.
1 Sre footnote 1, pRc 488.
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491
Msc.
The presumptons under secton 807. Pettoner aso contests the vadty
of the admnstratve proceedng because of the rues of evdence and pre-
sumptons whch the statute estabshes. Secton 907 provdes, wth respect
to processng ta es, that 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 and that f 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.
The ta perod s defned as the perod n whch the camant actuay
pad the ta to a coector nud ends wth the ast payment. The perod
before and after the ta s defned as the 24 months (e cept that n the
ease of tobacco t sha be the 12 months) mmedatey precedng the effectve
date of the processng ta , and the t months, ebruary to uy, 1936, ncusve.
Provson s made for the computaton of what s caed the average margn
for the respectve perods, the margn beng determned by deductng from
the gross saes vaue of artces processed the cost of the commodty processed
and the processng ta .
Pettoner contends that the presumptons are entrey arbtrary and there-
fore unconsttutona. There s a genera aegaton to that effect n petton-
er s amended compant. ut t can not be sad that the comparsons set up
between the resuts of operatons durng the ta perod and the perod
before and after the ta are whoy rreevant. Nor can t now be deter-
mned what w be the effect of the presumptons. Whe pettoner assas
them, ts compant contans no aegaton as to ther actua effect n reaton
to pettoner s operatons. on constat but that they may work to pettoner s
advantage. or a that we know the presumpton may estabsh prma face
that pettoner has borne the burden of the ta . Pettoner nvtes us to enter
nto a purey specuatve Inqury for the purpose of condemnng statutory
provsons whch have not been tred out and the effect of whch can not now
be defntey perceved. We must decne that nvtaton and adhere to the
fundamenta prncpe whch governs our determnaton of consttutona ques-
tons. (Lverpoo, New York Phadepha Steamshp Co. v. Commssoners,
113 U. S., 33, 39 Cncnnat v. ester, 281 U. S., 439, 448, 449 shwander v.
Tennessee aey uthorty, 297 U. S., 288, 324.)
The stated presumptons are rebuttabe. If they work adversey to ts
nterests, pettoner w have ampe opportunty to prove a the rebuttng
facts. Secton 907(e) provdes that ether the camant or the Commssoner
may rebut the presumptons by proof of the actua e tent to whch the cam-
ant shfted to others the burdens of the processng ta . There foows a
detaed provson as to what such proof may Incude. ut that provson s
not e cusve. It s e pressy stated that the proof n rebutta sha not bo
mted to what s thus descrbed. Pettoner urges that the statute requres
that ths proof sha be of the actua e tent to whch the burden of the ta
has been shfted, and recurs to the argument as to the nherent mpossbty of
producng such proof. What we have aready sad wth respect to that argu-
ment s appcabe n ths connecton. We do not thnk that Congress was
attemptng to requre the Impossbe. The permssbe, and we thnk the true,
constructon of secton 907(e) s that the words actua e tent are used
n contradstncton to the presumed e tent, accordng to the prma face pre-
sumpton to whch the proof n rebutta Is addressed. In the ght of the
conte t, and of the entre scheme of the admnstratve proceedng, we are
of the opnon that the provson was ntended to afford, and does afford, fu
opportunty to the camant to present any evdence whch may be pertnent to
te questons to be determned by the oard of Revew and whch may be
approprate to overcome any presumpton whch mght be nduged ether
under secton 907(a) or otherwse.
Procedura due process n the conduct of the admnstratve hearng. Pet-
toner aso compans that under secton 906(d) the hearng s to be conducted,
not by the oard of Revew, or a dvson thereof, but by a presdng offcer
desgnated by the Secretary of the Treasury and that under secton 906(e)
the presdng offcer s to recommend to the board, or a dvson, fndngs of fact
and a decson. Pettoner urges that the board, or ts dvson, s not re-
qured by the statute to consder the evdence and hence that the procedure
contempated by secton 906 does not meet the requrements of duo process.
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492
We fnd no mert n these contentons. There s no provson of the statute
whch s necessary nconsstent wth the observance of the due process re-
qured n hearngs by admnstratve bodes. (Interstate Commerce Comms-
son v. Lousve Nashve R. R. Co., 227 U. S., 88, 91 Unted States v.
bene d Southern Rwy. Co., 265 U. S., 274, 288 Morgan v. Unted States, 298
U. S., 468, 480, 481 Oho e Teephone Co. v. Pubc Uttes Commsson,
decded pr 26, 1937.) The provson for a hearng mpes both the prv-
ege of ntroducng evdence and the duty of decdng n accordance wth It
(Chcago uncton case, 264 U. S., 258, 265.) Whatever the prvege or duty of
the presdng offcer, and whatever may be hs recommendaton, the statuto
requres that the board or a dvson sha make ts fndngs of fact and
decson n wrtng and sha certfy and fe wth the court on |udca
revew a transcrpt of the record upon whch ts fndngs and decson are
based. The court has |ursdcton to affrm the decson of the board or to
modfy or reverse such decson. If addtona evdence s taken the board
may modfy ts fndngs of fact and decson by reason of such evdence.
The whoe scheme of the admnstratve proceedng presupposes hearng and
determnaton n accordance wth the demands of due process. The board
whch makes ts fndngs and renders ts decson must consder the evdence
and base ts fndngs and decson upon t, and unt the contrary appears we
must assume that the board w do so. (Morgan v. Unted States, supra.)
We concude that the authorzed procedure provdes for a fu and far
hearng and determnaton of a matters of fact and that, through udca
revew, t provdes for the protecton of a the ega rghts of the pettoner
ncudng any consttutona rght whch t may be entted to nvoke wth
respect to the refund whch t seeks. The pettoner may thus obtan through
ths proceedng whatever udgment ts case warrants, a |udgment whch the
Government, by vrtue of the requrement that the Commssoner sha make
refund accordngy, bnds tsef to pay.
The |udgment of dsmssa s affrmed, but upon the grounds stated n ths
opnon.
It s so ordered.
Reguatons 9G. I-19-8701
Ct. D. 1223
PROC SSING T R NU CT O 193G D CISION O COURT.
1. Sut Recovery or Ta es ursdcton of Court.
The provsons of Tte II of the Revenue ct of 1936, whch
prescrbe the procedure for recovery of processng ta es pad, are
appcabe even though sut was commenced pror to the enactment
of the ct, and, the pettoner havng faed to prove compance
wth such provsons, the court s wthout |ursdcton to entertan
the sut. The Unted States can not be sued as of rght.
2. Certorar Dened.
Petton for certorar dened anuary 4, 1937. (299 U. S., 014.)
Court of Cams of the Unted Statks.
Contnenta Ms, Inc., v. The Unted Staes.
r7 . Supp., 138.
December 7, 1D3G.
OPINION.
Pantff brought ths sut anuary 7, 1935, to recover 3,1(10.30, wth nterest,
foor stocks ta es pad under Tte I of rhe grcutura d|ustment ct approved
Say 12, 1933, on artces processed from cotton and hed for sae or other
dsposton on ugust 1, 1933.
In the orgna and amended pettons pantff aeged as a ground of
recovery that the grcutura d|ustment ct approved May 12, 1933, as
amended (48 Stat., 31), under whch the ta es n queston were pad, was
unconsttutona. In anuary, 1936, the grcutura d|ustment ct was hed
nvad n Unted States v. utcr et a. (297 U. S.( 1) and Rtkert Rce Ms,
Inc., v. ontcnot (297 U. S., 110).
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493
Msc.
Secton 21(d) of the ct of ugust 24, 1935, prescrbed that certan cond-
tons theren set forth shoud be comped wth before any refund or recovery
of ta es pad under the grcutura d|ustment ct of May 12, 1933, as
amended, coud be had. In Tte II, secton 901 of the Revenue ct of 1936,
approved une 22, 1936, sectons 21 (d), (e), and (g), of the grcutura
d|ustment ct, as amended, were repeaed and other sectons of the same
tte prescrbed the procedure to be foowed and the condtons upon whch a
refund or recovery of such ta coud be had. The poston of the defendant
s that pantff can not recover n ths case for the reason that t has faed
to compy wth the statutory requrements.
SP CI L INDING 8 O CT.
Pantff, a Pennsyvana corporaton wth prncpa offce and pace of
busness n Phadepha, fed, on ugust 30, 1933, a return of foor stocks ta es
on account of artces processed whoy or n chef vaue from cotton and hed
for sae or other dsposton by t on ugust 1, 1933. Ths return showed
pantff s abty to be 3,160.30 under the provsons of the grcutura
d|ustment ct approved May 12, 1933, as amended (48 Stat., 31). Ths
amount was pad to the coector of nterna revenue at Phadepha n four
nstaments of 790.09 on ugust 30, 1933, and 790.07 each on September 28,
October 27, and November 28, 1933. Thereafter, on December 17, 1934, pan-
tff fed a cam for refund for the whoe of the amount pad. Ths refund
cam s n evdence as hbt to the stpuaton of facts and s made a part
hereof by reference. The Commssoner of Interna Revenue re|ected ths
cam anuary 3, 1935, and ths sut was nsttuted anuary 7, 1935. n
amended petton was fed ebruary 28, 1935. Other than the cam for refund
above mentoned, pantff has not fed wth the Commssoner any orgna
or amended cam for refund under secton 21 of the ct of ugust 24, 1935,
and no hearng or consderaton has been had n the case of ths pantff before
or by the Commssoner and no decson has been made by the Commssoner
under the provsons of secton 21 of the ct of ugust 24, 1935. Nor does t
appear that pantff has fed a cam for refund under Tte II of the Revenue
ct of 1936.
CONCLUSION O L W.
Upon the foregong speca fndngs of fact, whch are made a part of the
|udgment heren, the court decdes, as a concuson of aw, that the pantff
s not entted to recover, and ts petton s therefore dsmssed.
udgment s rendered aganst pantff for the cost of prntng the record
heren, the amount thereof to be entered by the cerk and coected by hm
accordng to aw.
OPINION.
Ltteton, udge, devered the opnon of the court.
fter ths sut was nsttuted the ct of ugust 24, 1935, amendng the gr-
cutura d|ustment ct of May 12, 1933, was enacted. Secton 21 of ths ct
provded that no refund or recovery shoud be made or aowed of any amount
of any ta accrued before, on, or after the date of that ct, uness, after a
cam had been duy fed, t shoud be estabshed, In addton to a other
facts requred to be estabshed, to the satsfacton of the Commssoner of
Interna Revenue and the Commssoner shoud fnd and decare of record, after
notce and opportunty for hearng, that nether the camant nor any person
drecty or ndrecty under hs contro or havng contro over hm, had, drecty
or ndrecty, ncuded such amount n the prce of the artce n respect of
whch t was mposed, or of any artce processed from the commodty wth
respect to whch t was mposed, or passed on any part of such amount to the
vendee or any other person n any manner, or Incuded any part of such amount
n the charge or fee for processng, and that the prce pad by the camant
or such person was not reduced by any part of such amount.
Secton 21 further provded that, notwthstandng any other provson of aw,
no sut or proceedng for the recovery of any such ta coud be mantaned n
any court unt such a cam had been fed.
Pantff dd not compy wth the above-mentoned provsons of the ct of
ugust 24, 1935.
Secton 901 of Tte II of the Revenue ct approved une 22, 1936, repeaed
sectons 21 (d), (e), and (g), of the above-mentoned ct of 1935, and n
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Mso.
494
sectons 902 to C04, Incusve, substantay smar provsons were enacted
requrng compance therewth before a sut, such as the oue at bar, coud be
mantaned n any court Secton 902 prescrbed condtons ou aowance of
refunds as foows:
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 sats-
facton 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 mposed under
such ct, or n any charge or fee for servces or processng (2) through reduc-
ton of the prce pad for any such commodty or (3) n any manner what-
soever 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 Indrecty, and (3) who s not
entted to receve any rembursement therefor from any other source, or to be
reeved of such burden n any manner whatsoever.
Secton 903 provded wth reference to fng of cams for refund as foows:
No refund sha be made or aowed of any amount 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 reguatons prescrbed by the Comms-
soner 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 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.
Secton 904 provded wth reference to suts for the recovery of such ta aa
foows:
Notwthstandng any other provson of aw, no sut or proceedng, whether
brought before or after the date of enactment of ths ct, sha be brought or
mantaned n 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 18 months from the date of fng a cam
therefor under ths tte, uness the Commssoner renders a decson thereon
wthn that tme, or (b) after the e praton of 2 years from the date of mang
by regstered ma by the Commssoner to the camant a notce of dsaow-
ance of that part of the cam to whch such sut or proceedng reates. ny
consderaton or acton by the Commssoner wth respect to such cam foow-
ng the mang of notce of dsaowance sha not operate to e tend the perod
wthn whch any sut or proceedng may be brought.
It s cear from the above that ths sut can not be mantaned. When t was
nsttuted t was not brought as a matter of rght but pursuant to an ct of
Congress. The Unted States can not be sued as of rght. In Unted tatet v.
Carke (8 Pet., 430, 443, 414) the court sad: s the Unted States are not
suabe of common rght, the party who nsttutes such sut must brng hs case
wthn the authorty of some ct of Congress, or the court can not e ercse
|ursdcton over t
nd, n Cheatham ct a. v. Unted States (92 U. S., 85, 83, 89), t was hed
that t w be ready conceded, that the Government has the rght
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495
Msc.
to prescrbe the condtons on whch t w sub|ect tsef to the udgment of
the courts n the coecton of ts revenues.
In The Coector v. ubbard (12 Wa., 1, 14), the court sad: Remedes of
the knd, gven by Congress, may be changed or modfed, or they may be wth-
drawn atogether at the peasure of the awmaker, as the ta payer can not
have any vested rght n the remedy granted by Congress for the correcton of
an error n ta aton.
In that case the court aso ponted out at page 16 that party can not have
any vested rght n a remedy conferred by an ct of Congress to prevent Con-
gress from modfyng t or addng new condtons to ts e ercse.
See aso Red Rver aey ank v. Crag (181 U. S., 548, 553) and ackus v.
ort Street Unon Depot Co. (169 U. S., 507). In the ast cted case, at page
570, the court sad: There s no vested rght n a mode of procedure. ach
succeedng egsature may estabsh a dfferent one, provdng ony that n each
are preserved the essenta eements of protecton.
In Campbe v. Iron-Sver Mnng Co. (83 ed., 643, 646) the court sad: t
can not be sad that the mere brngng of a sut enttes the party who brngs t
to have the same conducted at every stage accordng to the course of procedure
whch was prescrbed by aw when the sut was commenced. ctons are a-
ways brought n vew of the known power of the egsature to change or
modfy rues of procedure at peasure, and a tgant can not consstenty cam
that, because the egsature takes away some prvege whch was accorded to
tgants when sut was nsttuted, he s thereby deprved of a vested rght.
Whe the cam for refund upon whch ths sut s based comped, when t
was fed, wth the provsons of secton 1103(a) of the Revenue ct of 1932,
whch was the ony statute n force wth respect to suts for the recovery of
ta es at the tme ths sut was begun, Congress afterwards modfed the cond-
tons upon whch suts coud be brought or mantaned for recovery of ta es
pad under the grcutura d|ustment ct. These addtona condtons have
not been comped wth. In the absence of such compance Congress has de-
cared that notwthstandng any other provson of aw no sut or proceedng,
whether brought before or after une 22, 1936, may be mantaned n any court
for the recovery of such ta . In these crcumstances the court s wthout urs-
dcton to proceed wth the case and the petton must be dsmssed.
In vew of our concuson that ths sut can not be mantaned, t s unneces-
sary to dscuss other questons rased by pantff to the effect that the statu-
tory provsons, compance wth whch s made necessary to suts, deny due
process for the reasons (a) they mpose condtons to refunds whch can not be
met, (6) they create a presumpton n favor of the Government whch s rre-
buttabe, and (c) they repudate the contract rght, of pantff to a refund of
moneys egay e acted. It s suffcent to state, n addton to what has a-
ready been sad, that ths record contans no Informaton tendng to show that
t s mpossbe to prove whether or not the ta n queston was drecty or
ndrecty ncuded n the prce of the artce n respect of whch t was mposed.
(Unted States v. efferson ectrc Mfg. Co., 291 U. S., 386 Ct. D. 803, C.
III-1, 393 (1934) .)
The petton s dsmssed, and t s so ordered.
Whaey, udge Wams, udge Greek, udge and ooth, Chef ustce,
concur.
Reguatons 96. I-17-8G70
Ct. D. 1219
PROC SSING T R NU CT O 1936 D CISION OP COURT.
Suts ganst Coectors Recovery of T ts Consttutona-
ty of Statute ursdcton of Court.
The provsons of Tte II of the Revenue ct of 1936, whch
prescrbe the procedure for recovery of processng tn es pad and
abosh the abty of coectors for acts done n ther offca ca-
pacty, are not unconsttutona. No common aw rght e sts
aganst the coector, and a sut brought aganst a coector must
be regarded as essentay a sut aganst the Government. Con-
gress has the power to mpose new condtons u on whch sut may
be brought, and, the Unted States havng wthdrawn ts consent to
be sued, the dstrct court s wthout ursdcton to entertan
these suts.
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496
Dstrct Court of te Unted States, Dstrct of Massachusetts.
No. G375. Wam M. uter ct at v. oseph P. Carney, ormer Coector.
No. 66-16. ussett M v. Thomas W. Whte, ormer Coector.
No. CG44. ussett M v. Thomas . Uassett, ormer ctng Coector.
No. 6645. ussett M v. oseph P. Carney, ormer Coector.
No. 6CC1. odgman Rubber Co. v. oseph P. Carney, ormer Coector.
r7 . Supp., 133.1
December 2, 1036.
OPINION.
rewster, .: These fve suts were brought to recover ta es egay co-
ected under the provsons of the grcutura d|ustment ct.
The case of Wam M. uter et a. v. Carney, No. 6375, was begun by a
wrt dated pr 22, 1935. oth processng ta es and foor stocks ta es are
nvoved. The pantffs aege that they have fed cams for the refund of
these ta es on the ground that the ct mposng them was beyond the power
of Congress under the Consttuton of the Unted States, and that ther cams
have been re|ected by the Commssoner of Interna Revenue. The defendant
n ths case at frst fed an answer but has been aowed to wthdraw bs
answer and substtute a demurrer.
The three cases brought by the ussett M contan substantay smar
aegatons. The wrts n these suts were dated anuary 13, 1936. s n the
uter case, both processng ta es and foor stocks ta es are nvoved.
The case of odgman Rubber Co. v. Carney nvoves foor stocks ta es ony.
The wrt s dated anuary 10, 1936. The pantff s aegatons do not dffer
materay from those n te other cases.
To each of these decaratons the defendant has fed a demurrer on the
grounds that ths court acks ursdcton to hear and determne the contro-
versy and that the facts, as stated theren, fa to set forth a cause of acton.
It s the contenton of the defendants that the provsons of Tte II of the
Revenue ct of 1936 are appcabe to a of these suts and operate both to
take away the |ursdcton of ths court to hear these cases and to take away
the rght of the varous pantffs to any recovery under the facts as set forth
n ther varous decaratons. The pantffs, on the other hand, contend that
f these provsons of the Revenue ct of 1936 are appcabe, they are uncon-
sttutona, and of no effect
In Tte II of the Revenue ct of 1936, provson s made for refunds of
amounts coected under the grcutura d|ustment ct. Secton 902 pro-
vdes :
Seo. 902. Condtons on aowance 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 camaut estabshes to the satsfacton of the Commssoner n ac-
cordance 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 ndrecty,
(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, n the prce of any artce wth respect to whch
a ta was mposed under the provsons of such ct or n the prce of any
artce processed from any commodty wth respect to whch a ta was m-
posed under such ct or n any charge or fee for servces or processng (2)
through reducton 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 rem-
bursed therefor, or may shft the burden thereof or
(h) That he has repad uncondtonay such amount to hs vendee (1) who
boro the burden thereof, (2) who has not been reeved thereof nor rembursed
therefor, nor shfted such burden, drecty or ndrecty, and ( ) who Is not
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497
Msc.
entted to receve any rembursement therefor from any other source, or to
be reeved of such burden n any manner whatsoever.
Secton 903, deang wth the fng of cams, provdes:
Sec. 803. ng of cams. No refund sha be made or aowed of any
amount 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 reguatons
prescrbed by the Commssoner wth the approva of the Secretary.
Secton 904 provdes mtatons upon the tme of brngng sut.
Sec. 904. Statute of mtatons. Notwthstandng any other provson of
aw, no sut or proceedng, whether brought before or after the date of en-
actment of ths ct, sha be brought or mantaned n any court for the re-
covery, recoupment, set-off, refund, or credt of, or countercam for, any
amount pad by and coected from any person as ta (e cept processng ta as
defned heren) under the grcutura d|ustment ct (a) before the e pra-
ton of 18 months from the date of fng a cam therefor under ths tte, uness
the Commssoner renders a decson thereon wthn that tme, or .
Secton 906 provdes a speca admnstratve remedy for the recovery of
amounts pad as processng ta es. Ths secton has no appcaton to the
recovery of amounts pad as foor stocks ta es.
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
mantaned 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 provded n ths secton.
The Commssoner s gven three years n whch to act upon such cams
after they have been fed. oard of Revew s created, to consst of nne
persons, to be offcers or empoyees of the Treasury Department, desgnated to
act by the Secretary of the Treasury. The Commssoner s aowance or dsa-
owance of any cam s to be fna, uness wthn three months the camant
fes a petton wth ths oard of Revew requestng a hearng on the merts of
hs cam, n whoe or n part. The camant s then aowed to appea to the
approprate Crcut Court of ppeas, whch s gven e cusve |ursdcton to
modfy the decson of the oard of Revew, f t s found to be not n ac-
cordance wth aw. Provson s made for takng any e tra evdence before the
oard of Revew, f ths becomes necessary.
Secton 910 aboshes the abty of coectors under a crcumstances.
14 Sec. 910. Labty of coectors. No coector of nterna revenue or cus-
toms, or nterna 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 per-
formance 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.
So far as refunds of processng ta es are concerned, there s no doubt that
the words of secton 906 appy to a appcatons for refunds whether pendng
before the courts at the tme of the passage of the ct or not. The statute
e pressy so states. In addton there s a prohbton aganst mantanng
any sut or proceedng. It has been hed that such anguage ncudes suts
aready begun at the tme of the passage of the ct. (Smauood v. Gaardo,
273 . 8., 56.) s to the recovery of amounts pad us foor stocks ta es, there
s more dffcuty. The anguage of secton 902 does not dffer, n ths partcu-
ar, materay from that used n secton 21(d) of the grcutura d|ust-
ment ct, as amended. It has been hed that the atter statute has no appca-
ton to suts begun before ts passage. (Wkesbarre Lace Mfg. Co. v. Mundy,
13 . Supp., 870.) Secton 21(d) of the grcutura d|ustment ct. more-
over, s now e pressy repeaed by secton 901 of the Revenue ct of 1930. The
same consderatons are perhaps appcabe to secton 903, reatve to the fng
of cams. Secton 904, however, provdes that no sut or proceedng, whether
begun before or after the passage of the ct, may be begun or mantaned
before the e praton of 18 months from the date of fng a cam therefor
under ths tte, . The effect of ths anguage woud appear to be to
cut off any proceedngs pendng at the tme of the passage of the ct.
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498
It Is necessary to decde, therefore, whether any voaton of the Consttu-
ton of the Unted States s nvoved n the statute quoted above. In the frst
pace, the pantffs contend that the effect of secton 910, quoted above, s to
deprve them of a common aw rght aganst the coector of nterna revenue,
and that consequenty they are deprved of property wthout due process of
aw. Snce these suts are a brought aganst former coectors of nterna
revenue, I sha frst consder the present status of suts aganst coectors of
nterna revenue.
t common aw an aggreved ta payer, who had pad an ega assessment
under protest, coud brng an acton of assumpst, for money had and receved,
aganst the coector to whom he had pad the money. ( ott v. Scartwout,
10 Peters, 137.) In 1839, however, a statute was passed makng t the duty of
coectors to turn over to the Secretary of the Treasury a amounts receved as
ta es, whether pad under protest or not. Ths statute was hed to have the
effect of aboshng the common aw rght of acton aganst the coector.
(Cary v. Curts, 3 oward, 236 Curts v. eder, 2 ack, 401, 478 The
Coector v. ubbard, 12 Wa., 1.) The court sad n Curts v. eder, supra :
ut the aw never mpes a promse to pay uness some duty creates such
an obgaton, and more especay t never mpes a promse to do an act
contrary to duty or contrary to aw. Coectors under the ct referred to were
requred to pay a moneys receved for unascertaned dutes or for dutes pad
under protest nto the Treasury of the Unted States, and consequenty ths
court hed that n a case arsng under that aw, where that duty had been
performed by the coector, the aw woud not mpy a promse on hs part to
pay the same back to the mporter, because he was under no obgaton to pay
the money twce, and to have pad the same back to the.mporter n the frst
pace woud have been contrary to hs offca duty as prescrbed by an ct of
Congress.
Subsequent egsaton authorzng the Commssoner to pay back sums co-
ected by |udgments aganst coectors of nterna revenue was construed as
gvng statutory authorty to brng such suts. (.Phadepha v. Coector,
5 Wa., 720.) ut the e act nature of such a sut was for some tme n doubt.
The matter now appears setted by Moore Ice Cream Co. v. Rose (289 U. 8.,
873). In that case, sut was brought aganst a coector of nterna revenue
to recover ncome and profts ta es aeged to have been wrongfuy coected.
The defendant demurred on the ground that the money had not been pad
under protest. Subsequent to the payments n queston, but before sut was
begun, Congress had aboshed the requrement of protest n suts aganst a
coector. The ower courts sustaned the defendant s demurrer. It was argued
by the Government that as apped to payments made before the statute was
passed, such a statute deprved the coector of property wthout due process of
aw, and was unconsttutona. The Supreme Court, after hodng the anguage
of the statute broad enough to cover a payments, whether made before or
after ts passage, hed that a sut aganst a coector, where t appeared on the
face of the peadngs that the coector woud be entted to e oneraton as a
matter of rght, was merey a method of brngng tho Government nto court,
and that n a such cases the coector was not deprved of any property by
the aboton of the requrement of protest as a defense. The court sad, at
page 382:
sut aganst a coector who has coected a ta n the fufment of a
mnstera duty s to-day an anomaous rec of bygone modes of thought. e
s not suabe as a trespasser, nor s he to pay out of hs own purse. e s
made a defendant because the statute has sad for many years that such a
remedy sha e st, though he has been guty of no wrong, and though another
s to pay. (Phadepha v. Coector, supra, 731.) There may have been utty
n such procedura devces n days when the Government was not suabe as
freey as now, . They have tte utty to-day, at a events where
the compant aganst the offcer shows upon ts face that n the process of
coectng ho was actng n the ne of duty, and that n the ne of duty he has
turned the money over. In such crcumstances hs presence as a defendant s
merey a remeda e pedent for brngng the Government nto court
It w be noted that secton 910 of the Revenue ct of 193f ony purports
to abosh the coector s abty n those cases where he has acted, ether n
performance of hs offca dutes or under the drecton of the Secretary or
other proper offcer of the Government In other words, the coector s a-
bty s aboshed ony n those cases n whch the coector woud have been
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entted as of rght to a certfcate turnng the sut nto one aganst the Gov-
ernment. It s mpossbe to reconce the Moore Ice Cream Co. case wth the
theory urged by the pantffs that a common aw rght e sts aguust he
coector. Such common aw rght ceased to e st many years ago. The present
6uts must be regarded as essentay suts aganst the Government
s to the requrements of the Revenue ct of 1936 n obtanng refunds,
certan provsons, wth whch the pantffs have made no attempt to compy,
are unquestonaby wthn the powers of Congress, standng aone.
The pantffs contend, however, that a such provsons are a part of the
genera framework set up by Tte II for the recovery of ta es mposed by
the grcutura d|ustment ct, and that the effect of Tte II n ts entrety
s to make t practcay mpossbe for anybody who has pad any such ta es
to recover the amounts so pad. The pantffs compan that ths s a deprva-
ton of ther rghts under the ffth amendment
That the Unted States may not be sued wthout ts consent s not, of course,
open to queston. Congress has an absoute dscreton to specfy the cases and
contngences n whch the abty of the Government may be determned by
the courts. (Unted States v. Carke, 8 Peters, 436 Cheatham v. Unted States,
92 U. 8., 85 Schnger v. Unted States, 155 U. S., 163 Prce v. Unted States,
174 O. ., 373.)
One who seeks to sue the Unted States must show that hs case s ceary
wthn the terms of the statute n whch the Government consents to be sued.
t astern Transp. Co. v. Unted States, 272 U. S., 675 Unted States v. Mche,
2S2 U. S., 656 Ct. D. 310, C. . -, 297 (1931) Onoco v. Unted States,
C C. . 7, 1934, 74 . (2d), 42.)
It has been hed that fng of a cam for refund may be made a condton
precedent to the rght to sue the Government for ta es egay coected, and
that n such a case the requrements of a statute must be strcty foowed
before the ta payer may brng sut. (Tucker v. e ander, 275 U. S., 228
T. D. 3973, C. . I-1, 287 (1927) Unted States v. et Tarrant Co.,
2 3 U. S., 269 Ct D. 336, C. . -, 431 (1031) .)
Snce Congress has the undoubted power to wthdraw at any tme ts con-
sent to be sued, t ogcay foows that t may mpose new condtons upon
whch ts consent s granted.
The pantffs contend that ther rght to brng sut to recover egay
e acted ta es s a vested substantve rght, and that to take away such a rght
s a voaton of the provsons of the ffth amendment. Some such theory s
apparenty the bass of one recent case nvovng the same facts as the present
case. (Chas. W. Prddy t Co., Inc., v. ary (October 29, 1936, D. C. N. D. a.),
reported n 1936 C. C. . edera Ta Servce, par. 9495.) I am unabe to
agree, however, wth ths argument. In Lynch v. Unted States (292 U. S.,
571) t s sad, at page 581:
though consent to sue was thus gven when the pocy ssued, Congress
retaned power to wthdraw the consent at any tme. or consent to sue the
Unted States s a prvege accorded, not the grant of a property rght pro-
tected by the ffth amendment The consent may be wthdrawn, athough gven
after much deberaton and for a pecunary consderaton. (DeCroot v. Unted
States, 5 Wa., 419, 432.)
Iu Lynch v. Unted States, supra, t was hed that athough Congress mght
ater or take away the remedy at ts peasure, t coud not repudate the
obgatons of the Government on war rsk Insurance poces and that, n the
statute under consderaton n that case, no ntenton was shown to take away
the remedy, shoud Congress be hed wthout power to repudate the obgaton.
N o smar contenton coud here be made. The statute s ceary ntended as
a mtaton upon the rght to sue the Government. To hod otherwse woud
be to voate the pan wordng of the statute. It foows that Tte II of
the Revenue ct of 1936 s not unconsttutona n so far as t forbds the
mantenance of these suts. The same resut has been reached In a smar
caso, athough on a somewhat dfferent ne of reasonng, n Lncon Ms v.
Davs (15 . Supp., 257, D. C. No. D. a.).
The statute does not operate to e tngush vested rghts of the pantffs.
These rghts persst, even though the Unted States has wthdrawn Its consent
to be sued n ths court. (Terry v. Unted Sates, 294 U. S., 330 Lynch v.
Unted States, supra.)
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500
In the Perry case, the court observed (page 354) :
The fact that the Unted States may not be sued wthout ts consent s a
matter of procedure whch does not affect the ega and bndng character of
ts contracts. Whe the Congress s under no duty to provde remedes through
the courts, the contractua obgaton st e sts and, despte nfrmtes of
procedure, remans bndng upon the conscence of the soveregn.
So far as we are concerned wth the processng ta , Congress has provded
admnstratve remedes wth |udca revew upon questons of aw. Whether
these remedes are adequate or voatve of any provson of the Consttuton
are questons whch ths court s wtout |ursdcton to entertan, n vew of
secton 000.
The demurrers n the above entted cases are sustaned.
GRICULTUR L D USTM NT CT.
I-1S-8619
Ct. D. 1211
processng ta agrcutura ad|ustment act decson of court.
Sut Cam fob Refund Procedura Requrement adty.
ta payer company whch seeks recovery of processng ta es
pad s requred to fe a cam for refund therefor, as provded by
the grcutura d|ustment ct, as amended, even though the
amendment to the ct was enacted subsequent to the fng of sut.
The decson of the Supreme Court hodng the orgna ct uncon-
sttutona does not nvadate the procedura portons of the ct or
of the amendment.
Unted States Dstrct Court, astern Dstrct of New York.
tantc Macaron Co., Inc., pantff, v. Water . Corcn, Indvduay and as
Coector of Interna Revenue, defendant.
14 . Supp., 433.
May 1, 1936.
opnon.
Gaston, D. .: The Unted States attorney moves to dsmss the compant on
the ground that t seeks recovery from the Unted States, through the coector
of nterna revenue, of certan nterna revenue ta es aeged to have been
erroneousy assessed and coected by the defendant, and fas to aege the
fng wth the Commssoner of Interna Revenue of a cam for refund.
The compant aeges that the pantff was engaged n the manufacture and
sae of spaghett, macaron, noodes and amentary pastes that on uy 9, 1933,
t had n ts possesson a arge amount of wheat four for the purposes of ts
busness that n ugust, 1933, the defendant, whe coector of nterna revenue
for the frst dstrct of New York, demanded of the pantff the sum of
8,770.32 as a ta mposed by the ct of Congress of May 12, a33 (eh. 25.
Tte 1, secton 1, 48 Stat., 31 ( grcutura d|ustment ct, U. S. C, Tte 7,
secton 010)). Pantff refused to pay ths sum and defendant threatened that
uness It was pad pantff woud be treated as a denquent and ts property
sezed. Under the coercon of the demand the pantff pad the sum demanded
to the defendant.
The pantff aeges that the ct and the ta es mposed were and st are con-
trary to the Consttuton of the Unted States. ccordngy pantff demands
|udgment aganst the defendant n the sum of 8,770.32. The compant was
fed uy 11, 1935.
Snce the fng of the compant the Supreme Court, on anuary 15, 1930, n
nted States v. Wam 31. uter et ah, affrmed the order of the Unted States
Crcut Court of ppeas (78 ed. (2d), 1), whch reversed the order of the
dstrct court. That court had rendered |udgment hodng the ta es mposed
vad and orderng them pad.
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ccordngy, the pantff here contends that the ct n queston, havng been
decared unconsttutona, the procedura parts fu wth the substantve parts,
and ctes Truser v. Crooks (1926) (269 U. S., 475, at page 482 T. D. .S810,
0. . -. 422 ) Connoy v. Unon Sewer Ppe Co. (19: 2) (184 U. S., 540 ( 565))
Ogden Cty v. rmstrong (1897) (1C8 U. S., 224) Poock v. armers Loan C
Trust Co. (1895), rearguraent 158 U. S., 601 (page 635) : Sprague v. Thompson
(1886) (118 U. S., 90) rgna Coupon Cases (1884) (114 U. S., 270).
In Truser v. Crooks, supra, the vadty of secton 3 of the utures Tradng
ct (ch. 86, 42 Stat., 187) was under consderaton prevousy n v.
Waace (259 U. S., 44), the ma|or part of the pan had been condemned and
t was hed, therefore, that secton 3 beng a mere feature wthout separate
purpose must share the nvadty of the whoe, despte the fact that secton
11 of the ct provded that f any provson of ths ct s hed
nvad, the vadty of the remander of the ct sha not be affected
thereby. Ths ease does not stand for the proposton asserted by the pantff
that the procedura provsons fa wth the substantve.
Connoy v. Unon Sewer Ppe Co., supra, hods no more than the we under-
stood proposton that f dfferent sectons of the statute are ndependent of
each other, that whch s unconsttutona may be dsregarded, and vad sectons
may stand to be enforced. ut f an obno ous secton s of such mport that
the other sectons wthout t woud cause resuts not contempated or desred by
the egsature, then the entre statute must be hed noperatve. Ths was not
an acton to recover money from the Government or any of ts admnstratve
agences and ceary s not n pont.
Ogden Cty v. rmstrong, supra, kewse s of no vaue n the determnaton
of the queston nvoved here because the remeda provson n respect to cams
or actons for refund was not part of the statute n queston.
Poock v. armers Loan d Trust Co., supra Sprague v. Thompson and
rgna Coupon Cases, supra, are equay unavaabe to the pantff and for
the same reasons.
On the other hand the Government contends that the vadty of the pro-
vsons of the grcutura d|ustment ct, as amended wth respect to refunds
and recoveres of ta es pad thereunder, s not affected by the determnaton
of the Supreme Court that such ta es are unconsttutona and vod.
Secton 14 of the statute as orgnay enacted (U. S. C, Tte 7, secton 614)
provdes that f any provson of the tte s decared unconsttutona, the
vadty of the remander sha not be affected thereby.
On ugust 24, 1935, a tme subsequent to the fng of the compant heren,
the grcutura d|ustment ct was amended (secton 25, 48 Stat., 31, as
amended by the ct of ugust 24, 1935 secton 641, 49 Stat., 750).
The amendment (U. S. C, Tte 7, secton 623(d)), n part provdes:
No recovery, recoupment, set-off, refund, or credt sha be made
for any amount of any ta , whch accrued before, on, or after the
date of the adopton of ths amendment uness, after a cam has
been duy fed, t sha be estabshed, n addton to a other facts requred
to be estabshed, to the satsfacton of the Commssoner of Interna Revenue,
and the Commssoner sha fnd and decare of record, that nether
the camant nor any person drecty or ndrecty under hs contro, or havng
contro over hm, has, drecty or ndrecty, ncuded such amount n the prce
of the artce wth respect to whch t was mposed, or of any artce processed
from the commodty wth respect to whch t was mposed, or passed on any
part of such amount to the vendee and that the prce pad by the
camant was not reduced by any part of such amount.
The vadty of the provsons of the ct as thus amended was not consdered
by the Supreme Court n Unted States v. uter ct a., snce the opnon decares
that the Court was concerned ony wth the orgna ct.
It may be noted that n no part of the amended ct s t e pressy provded
that the amendment sha appy to suts whch had been begun before ts
adopton.
What effect, then, f any, dd the amendment of ugust 24, 1935, have on
suts then pendng whch sought recovery of ta es unawfuy coected In
Graham and oster v. Goodcc (282 U. S., 409 Ct. D. 287, C. . -, 101 ), the
Court consdered suts whch had been nsttuted to recover ta es nvountary
pad. There was no queston as to the orgna abty of the ta payers. The
ta was a vad one. Deay n coecton had foowed upon the ta payer s
request and n the mstaken beef on the part of the admnstratve authortes
that a statute of mtatons dd not bar coecton, and the deay had con-
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502
tnued unt after the statute had run. On the dscovery of the mstake the
Congress sought to prevent a refund of the amount then coected. The ques-
ton presented was whether n those crcumstances the case was removed from
the operaton of the genera rue that t s not consstent wth due process to
take away from a prvate party a rght to recover an amount due pror to
the enactment.
fter the consderaton of orbes oatne v. oard of Commssoners (258
U. S., 338) Unted States v. enszen f Co. (200 U. S., 370) MacLeod v.
Unted States (229 U. S., 416) Rafferty v. Smth, e Co., Ltd. (237 U. S.,
226) Charotte arbor d Northern Raway Co. v. Wees (260 U. S., 8)
and odges v. Snyder (261 U. S., 600), Mr. ustce ughes observed:
It s apparent, as the resut of the decsons, that a dstncton s made
between a bare attempt of the egsature retroactvey to create abtes for
transactons whch, fuy consummated n the past, are deemed to eave no
ground for egsatve nterventon, and the case of a curatve statute apty
desgned to remedy mstakes and defects n the admnstraton of government
where the remedy can be apped wthout n|ustce. Where the asserted vested
rght, not beng nked to any substanta equty, arses from the mstake of
offcers purportng to admnster the aw n the name of the Government, the
egsature s not prevented from curng the defect n admnstraton smpy
because the effect may be to destroy causes of acton whch woud otherwse
e st. The power s necessary, that government may not be defeated by
omssons or naccuraces n the e ercse of functons necessary to Its
admnstraton.
To dstngush the case at bar from Graham and oster v. oodce, supra,
by assertng that the amendment of the grcutura d|ustment ct of ugust,
1035, was not for the purpose of correctng a mere mstake of Government
offcers n admnsterng the aw, In no way detracts from the prncpe
enuncated. Nor does a controng dstncton resut from the decaraton of
nvadty of the ta n Unted States v. uter, supra. The orgna ct, of
May 12, 1933, havng faed to provde adequatey for the refunds of ta es
egay or unawfuy assessed, t was wthn the power of the Congress to
amend the ct by correctng the defect The effect of the amendment s not
to deprve the pantff of a substantve rght, as It contends, but merey to
compe t and a others n the same cass, n order to assert a rght to
recover, to pursue the remedy set forth. In essence, what the pantff wants
s the money pad as the resut of an unawfu e acton. The amendment,
though compeng proof beyond the mere payment of the unawfu e acton,
does not deprve the pantff of the rght to recover. The cear purpose of
the remeda amendment s to prevent the ta payer from securng an un|ust
enrchment.
Provsons such as are found n the grcutura ct as amended were con-
sdered n Unted Staes v. efferson ectrc Co. (291 U. S., 386 Ct. D. 803,
C. . III-1, 393 ). There the Revenue ct of 1928 was under consderaton
and the same ob|ectons were rased to secton 424(a)2 as amended by the
Revenue ct of 1932, secton 3226, as are here rased to the grcutura
d|ustment ct. Sr. ustce an Devanter sad:
We can not assent to the vew that a court may gve a |udgment awardng
the ta payer a refund wthout nqurng whether he has borne the burden
of the ta or has rembursed hmsef by coectng It from the purchaser.
gan:
We do not perceve In the restrcton any nfrngement of due process of
aw. If the ta payer has borne the burden of the ta , he can ready show t
and certany there s nothng arbtrary n requrng that he make such a
showng. If he had shfted the burden to the purchasers, they and not he
have been the actua sufferers and are the rea partes n nterest and In
such a stuaton there s nothng arbtrary n requrng, as a condton to
refundng the ta to hm, that he gve a bond to use the refunded money In
rembursng them. Statutes made appcabe to e stng cams or causes of
acton aud requrng that suts be brought by the rea rather than the nomna
party n nterest have been unformy sustaned when chaenged as Infrngng
the contract and due process causes of the Consttuton.
compance wth the provsons of the amendment not havng been shown,
the moton to dsmss must be granted, wthout pre|udce.
Sette order on notce.
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503
Msc.
LI UOR T DMINISTR TION CT. (1936)
I-1-S4G9
T. D.4722
ottng dsted sprts n bond.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, . C.
To Dstrct Supervsors and Others Concerned:
Secton 306 of the Lquor Ta dmnstraton ct (Pubc, No. 815,
Seventy-fourth Congress) provdes as foows:
Sec. 306. (a) Secton 1 of the ct entted n ct to aow the bottng of
dsted sprts n bond, approved March 3, 1897, as amended (U. S. C, t 34 ed.,
tte 26, secton 1276), s further amended to read as foows:
That whenever any dsted sprts deposted n the nterna revenue bonded
warehouse have been duy entered for wthdrawa, bef re or after ta -payment,
or for e port n bond, and have been duy gauged and the requred marks, brands,
and ta -pad stamps (f requred) or e port stamps, as the case may be, have
been aff ed to the package or packages contanng the same, (he dster or
owner of sad dsted sprts, f he has decared hs purpose so to do n the
entry for wthdrawa, whch entry for bottng purposes may be made by the
owner as we as the dster, may remove such sprts to a separate porton of
sad warehouse whch sha be set apart and used e cusvey for that purpose,
and there, under the supervson of a Unted States storekeeper-gauger n charge
of such warehouse, may mmedatey draw off such sprts, botte, pack, and case
the same. or convenence n such process any number of packages of sprts
of the same knd, dfferng ony n proof, but produced at the same dstery by
the same dster, may be mnged together n a cstern provded for that purpose,
bnt nothng heren sha authorze or permt any mngng of dfferent products,
or of the same products of dfferent dstng seasons, or the addton or sub-
tracton of any substance or matera or the appcaton of any method or process
to ater or change n any way the orgna condton or character of the product
ecept as heren authorzed nor sha there be at the same tme n the bottng
room of any nterna revenue bonded warehouse any sprts entered for wth-
drawa upon payment of the ta and any sprts entered for e port.
very botte when fed sha have aff ed thereto and passng over the mouth
of the same such sutabe adhesve engraved strp stamp as may be prescrbed, as
herenafter provded, and sha be packed nto cases to contan s bottes or
mutpes thereof, and In the aggregate not ess than two nor more than fve
gaons n each case, whch, f ta -pad, sha be mmedatey removed from the
warehouse premses. ach of such cases sha have aff ed thereto a stamp
denotng the number of gaons theren contaned, such stamp to be aff ed to the
case before ts remova from the warehouse, and such stamps sha have a cash
vaue of 10 cents each, and sha be charged at that rate to the coectors to whom
ssued, and sha be pad for at that rate by the dster or owner usng the same.
nd there sha be pany burned, embossed, or prnted on the sde of each
case, to be known as the Government sde, the proof of the sprts, the regs-
tered dstery number, the State and supervsory dstrct n whch the ds-
tery s ocated, the rea name of the actua bona fde dster or of the
ndvdua, frm, partnershp, corporaton or assocaton In whose name the
sprts were produced and warehoused, the year and dstng season, whether
sprng or fa, of orgna nspecton or entry nto bond, and the date of
bottng, and the same wordng sha be paced m the adhesve engraved
strp stamp over the mouth of the botte. It beng understood that the sprng
season sha ncude the months from anuary to uy, and the fa season
the months from uy to anuary.
nd no trade-marks sha be put upon any botte uness the rea name of
the actua bona fde dster, or the name of the ndvdua, frm, partnershp,
corporaton, or assocaton n whose name the sprts were produced and ware-
housed, sha aso be paced conspcuousy on sad botte.
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504
(b) Secton 2 of the ct entted n ct to aow the bottng of dsted
sprts n bond, approved March 3, 1807, as amended (U. S. C, 1034 cd., tte
26, secton 1277), s further amended by strkng out the ast cause foowng
the words Secretary of the Treasury, and nsertng In eu thereof the
foowng: but no sprts (e cept gn for e port) sha be botted n bond unt
they have remaned n bond n wooden contaners for at east four years from
the date of orgna gauge as to frut brandy, or orgna entry as to a other
sprts: Provded, That nothng n ths ct sha authorze the abeng of
sprts n bottes contrary to the provsons of reguatons ssued pursuant to
the edera coho dmnstraton ct, or any amendment thereof.
Pursuant to ths amendment of the statute, sectons 1, 5, 8, 12, and
1C, of Reguatons No. 6, ottng of dsted sprts n bond, aro
amended to read as foows:
Secton 1. ottng warehouses. ny propretor of an nterna revenue
bonded warehouse who desres to botte dsted sprts n bond, sha frst set
apart a porton of such warehouse for ths purpose, and separate the same
from the remander of the warehouse by sod, secure, and unbroken parttons,
wth no nteror communcaton whatever between the bottng room and other
portons of the warehouse, e cept that, where sprts aro botted before ta -
payment, whch necesstates ther return to the storage porton of the ware-
house, a door to be secured on ts warehouse sde by Government ock w
be permtted n the partton separatng the bottng room from the storage
porton of the warehouse. Such door must be kept ocked at a tmes, wth
the key n the possesson of the Government offcer assgned to the warehouse,
e cept when the door s necessary opened to aow the transfer of sprts to
the bottng room or ther return to the storage porton of the warehouse.
Where the bottng house s constructed as above provded and sprts are
aso botted after ta -payment, a door must be provded through whch such
ta -pad sprts may be removed after bottng wthout beng taken through
the storage porton of the warehouse.
Shoud the propretor desre to have an addton to hs warehouse approved
for use soey for bottng purposes, he w make appcaton In the manner
now provded by Treasury Decson 4651 G. . -2, 443 (1936) , concernng
nterna revenue bonded warehouses. If the addton s not a separate struc-
ture on the bonded premses, t must be separated from the other portons of
the warehouse as heren requred. The appcaton and dstrct supervsor s
certfcate shoud state that the addton s for bottng purposes.
The cabnet or case prescrbed n Treasury Decson 4527 C. . I -1, 532
and Treasury Decson 4561 C. . I -2, 512 must be provded n each bottng
house for the safe storage of case and strp stamps.
Sec. 5. Sprts whch may be botted. cept n the case of gn whch may be
botted for e port at any tme, ony sprts whch have remaned n bond n
wooden contaners for at east four years can be wthdrawn for bottng n bond.
Sprts may be botted n bond ether before or after payment of the nterna
revenue ta . Sprts botted n bond before payment of the ta w be returned
to the bonded warehouse for storage unt ta -pad or unt removed wthout pay-
ment of ta under the provson of aw and reguatons appcabe thereto.
Sprts botted after ta -payment must be removed from the bottng warehouse
Immedatey upon competon of the bottng, wthout beng returned to the
bonded warehouse.
The entry for wthdrawa for bottng must bear date not ess than four years
after date of orgna gauge as to frut brandy, or orgna entry as to a other
sprts.
Sprts of two or more dsters, or sprts produced by the same dster n the
names of two or more ndvduas, frms, partnershps, corporatons, or assoca-
tons, may not be n the process of bottng n the same bottng room at the same
tme nor may sprts of two or more seasons producton, or ta -pad and unta -
pad sprts, or sprts botted for e port and sprts botted before ta -payment,
be n the process of bottng n the same bottng room at the same tme.
Sb 8. Case and strp stamps. Case stamps for dsted sprts botted n
bond for domestc sae or use w be prnted n fve denomnatons: 3 gaons for
cases contanng 12 bottes of 1 quart each 2.4 gaons for cases contanng 12
bottes of quart ( gaon) each 3 gaons for cases contanng 24 bottes of
1 pnt each 3 gaons for cases contanng 48 bottes of a pnt each and 3
gaons for cases contanng 2-10 bottes of pnt each.
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Msc.
The strp stamps w be marked otted n ond and w bear the foow-
ng data: The rea name of the actua bona fde dster or of the ndvdua,
frm, partnershp, corporaton or assocaton n whose name the sprts were pro-
duced and warehoused the regstered dstery number tate and supervsory
dstrct u whch the dstery s ocated the proof of the sprts the year and
dstng season, whether sprng or fa the bottng season and the number of
the warehouse and supervsory dstrct n whch the snrts are botted.
The stamps w be bound n books of 20 case stamps to whch are attached
the requste number of strp stamps.
Sec. 12. Trade-marks and dster s name upon ottes. The provson of
the aw that no trade-marks sha be put upon any botte uness the rea
unme of the actua bona fde dster or the name of the ndvdua, frm,
partnershp, corporaton or assocaton n whose name the sprts were pro-
duced and warehoused, sha aso be paced conspcuousy on sad botte renders
t absoutey necessary that ether the abe whch contans the trade-mark or
speca name whch the owner may see ft to gve to hs sprts, or some add-
tona abe equay conspcuous sha bear the rea name of the actua bona
tde dster or the name of the ndvdua, frm, partnershp, corporaton or
assocaton n whose name the sprts were produced and warehoused. Labes
must conform to the provsons of reguatons ssued by the edera coho
dmnstraton.
Sec. 16. (a) Marks and brands on cases. On the Government sde of cases
of dsted sprts botted In bond there sha be pany burned, embossed,
or prnted, n etters and fgures not ess than fve-eghths of an nch n heght,
the rea name of the actua bona fde dster or of the ndvdua, frm, part-
nershp, corporaton or assocaton n whose name the sprts were produced
and warehoused, the number, State, and supervsory dstrct of the dstery at
whch the sprts were produced, the quantty and proof of the sprts, and the
season and year of producton and bottng. Where sprts are botted at a
warehouse not on the premses of the dstery where produced, or contguous
thereto, the number and State of the warehouse at whch the sprts are botted
sha aso be pany burned, embossed, or prnted on the Government sde of
he case, but the name of the dster or of the ndvdua, frm, partnershp,
orporaton or assocaton n whose name the sprts were produced and ware-
housed, the number, State, and supervsory dstrct of the dstery at whch
the sprts were produced, and the season and year of producton and bottng
may be stenced wth permanent back nk. The sera number of the case
and the date of bottng (nspecton) sha aso be marked on each case.
(6) The marks and brands w be paced on the cases n the foowng
manner and order:
Sera No. 099.
ohn Wams Dstng Co.
Dstery No. 1, 7th Supervsory Dstrct y.
otn Robnson,
otted at
Interna Revenue
onded Warehouse
No. 6 y.
case stamp
3 gaons
100 proof
Made
a 1931
otted
a 1935
S. Storckecper-gaw|er.
Insp. uy 8, 1935.
Gut T. evekng,
Commssoner of Interna Revenue.
pproved December 30, 193G.
osephne Roche,
ctng Secretary of the Treasury,
( ed wth the Dvson of the edera Regster anuary G, 1937, 10.01 a. m.)
ose 37 17
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50G
I-21-8718
T. D. 4T38
ottng dsted sprts n bond.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, I). C.
To Dstrct Supervsors and Others Concerned:
Treasury Decson 4722, approved December 30, 1936 page 503,
ths uetn , s hereby amended by strkng out the words fve-
eghths, appearng n secton 16, paragraph (a), ne 3, and nsertng
n eu thereof the words one-haf.
Gut T. everng,
Commssoner of Interna Revenue.
pproved May 19, 1937.
Roswe Mao,
ctng Secretary of the Treasury.
(Ped wth the Dvson of the edera Regster May 21, 1937, 10.03 a. m.)
I-17-8663
T. D. 4735
Markng packages of whsky Gaugng Manua amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Paragraph 71 of the Gaugng Manua, as amended by Treasury
Decson 4652 C. . -2, 465(1936) , s amended, as to subpara-
graphs (d) and (e), to read as foows:
(d) Sprts dsted from a fermented mash of gran at more than 160
degrees and ess than 100 degrees of proof n such manner that the dstate
possesses the taste, aroma, and characterstcs generay attrbuted to whsky,
and wthdrawn from the cstern room of the dstery at not more than 110
degrees and not oss than 80 degrees of proof, sha be branded Whsky.
(e) Srts 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
barey gran, or mated rye gran, and wthdrawn from the cstern room of tho
dstery at not more than 110 degrees and not ess than 80 degrees of proof,
sha be branded Rye Whsky, ourbon Whsky ( Corn Whsky, f
packaged n uncharred contaners, or n reused contaners whch have not been
recharred pror to use), Wheat Whsky, Mat Whsky, or Rye Mat
Whsky, respectvey.
Guy T. everng,
Commssoner of Interna Revenue.
pproved pr 20, 1937.
ROSW LL MaGILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster pr 23, 1937, 2.02 p. m.)
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507
Mso.
LI UOR T DMINISTR TION CT. (1934)
I-16-8658
T. D.4733
Method of payment of nterna revenue ta on dsted sprts
for shpment n tank cars.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue, Dstrct Supervsors, and Others
Concerned:
Pursuant to secton 13 of Tte III of the Natona Prohbton
ct (U. S. C, 1934 ed., Tte 27, secton 83) and secton 308 of the
Lquor Ta dmnstraton ct (U. S. C, 1934 ed., Supp. II, Tte
27, secton 74b) the foowng reguatons are hereby prescrbed:
P TM T O INT RN L R NU T ON DISTILL D SPIRITS OR S IPM NT
IN T N C nS
1. ffectve une 1, the ssuance by coectors of nterna revenue
of orm 1, Recept for Payment of Ta es, as evdence of the
payment of nterna revenue ta on dsted sprts, ncudng aco-
ho, to be shpped n tank cars, sha be dscontnued. Thereafter,
coectors of nterna revenue w ssue orm 1595, Coector s
Certfcate of Ta -Payment of Dsted Sprts for Shpment n
Tank Cars. certfyng payment of the nterna revenue ta on
dsted sprts, ncudng acoho, to be shpped n tank cars.
2. The vendor sha obtan the certfcate o ta -payment by fng
wth the coector of nterna revenue n the dstrct n whch the
vendor s ocated, orm 1594, ppcaton for Coector s Certfcate
of Ta -Payment of Dsted Sprts for Shpment n Tank Cars,
accompaned by a remttance n the form of cash, certfed check,
or post offce money order, and a report of the gauge of the contents
of the car as prescrbed by reguatons.
3. orm 1595, Coector s Certfcate of Ta -Payment of Ds-
ted Sprts for Shpment n Tank Cars, s not negotabe and
sha not be used on any tank car other than the one descrbed n
the certfcate of ta -payment.
4. stng reguatons n confct herewth are amended accord-
ngy.
Gut T. everno,
Commssoner of Interna Revenue.
pproved pr 12, 1937.
ROSW LL MaGILL,
ctng Secretary of the Treasury.
ed wth the Dvson of the edera Regster pr 16, 1937, 4.26 p. m.)
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508
I-16-8659
T. D. 4734
pprova of bonds.
Treasury Department,
Offce of Commssoner of Interna, Revenue,
Washngton, D. O.
To Dstrct Supervsors:
Pursuant to the authorty conferred by secton 305 of the Lquor
Ta dmnstraton ct (U. S. C, 1934 ed., Supp. II, Tte 26, sec-
ton 1166(c)) and secton 5 of the Lquor nforcement ct of
1936 (U. S. C, 1934 ed., Supp. II, Tte 27, secton 225), the fo-
owng reguatons are prescrbed:
1. ffectve pr 1, 1937, dstrct supervsors are authorzed to
approve a bonds (a) respectng the operaton of bonded wneres,
bonded storerooms, and breweres (b) reatng to the e portaton of
dsted sprts, ncudng acoho, fermented mat quors and wnes
(c) reatng to the remova of dsted sprts, ncudng acoho, and
wnes to customs manufacturng warehouses (d) reatng to deaers
n, and users of, specay denatured acoho (e) reatng to the pro-
curement and use of ta -free acoho (/) reatng to the transporta-
ton of specay denatured and ta -free acoho and (g) reatng to
the wthdrawa of dsted sprts free of ta .
2. other bonds fed by an ndvdua, frm, partnershp, cor-
poraton, or assocaton ntendng to commence or to contnue the
busness of a dster, rectfer, or as propretor of an nterna rev-
enue bonded warehouse, dstery denaturng bonded warehouse, or
ndustra acoho pant, acoho bonded warehouse and/or denaturng
pant, w be approved by the Commssoner of Interna Revenue.
3. The bonds referred to n paragraph 1 hereof sha be prepared
and e ecuted n trpcate and submtted to the supervsor of the ds-
trct n whch the busness s ocated who w approve the bond f
the prncpa has n a respects comped wth the aw and regua-
tons.
If the bond s approved, the orgna copy sha be forwarded to
the Commssoner, one copy sent to the prncpa, and the thrd copy
retaned by the dstrct supervsor.
If the bond s dsapproved, a copes sha be returned to the
prncpa and the surety or suretes notfed of such dsapprova.
ppea from such dsapprova may be made to the Commssoner of
Interna Revenue.
4. The bonds referred to n paragraph 2 hereof sha be prepared
and e ecuted n trpcate and submtted to the supervsor of the
dstrct n whch the busness s ocated who w ndcate on the
bond hs recommendaton for approva or dsapprova, as foows:
Recommended for approva or, Recommended for dsapprova.
If the recommendaton s for dsapprova, the dstrct supervsor
sha submt wth t a statement settng forth hs reasons therefor.
The three copes of the bond sha be forwarded to the Commssoner
wth other quafyng documents requred by aw and reguatons.
If the bond s approved, two copes sha be returned to the ds-
trct supervsor, who sha forward one copy to the prncpa wth
authorzaton to operate, and retan the other copy for hs fes.
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If the bond s dsapproved, a copes sha be returned to the ds-
trct supervsor, who w return them to the prncpa and notfy the
surety or suretes of such dsapprova.
5. If the surety or suretes are found not to be acceptabe by tho
Commssoner of ccounts and Deposts, the prncpa sha be re-
qured to fe a new and satsfactory bond.
6. Reguatons heretofore ssued n so far as they are nconsstent
herewth are hereby revoked.
Gut T. everng,
Commssoner of Interna Revenue.
pproved pr 14, 1937.
R OS W LL MaGILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster pr 16, 1937, 4.27 p. m.)
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510
LI UOR T ING CT O 1934.
I-10-8591
T. D. 4728
Purchase and use of strp stamps In Puerto Rco.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue, Dstrct Supervsors, Coectors
of Customs, and Others Concerned:
Pursuant to the authorty conferred bv secton 205 of Tte II of
the Lquor Ta ng ct of 1934 (U. S. C., 1934 ed.. Tte 26, secton
1152(e)) strp stamps to be attached to bottes of dsted sprts to
be shpped from Puerto Rco to the Unted States, awa, or aska,
sha be obtaned and aff ed n accordance wth the foowng
reguatons:
1. The dster, rectfer, or botter, or hs duy authorzed agent,
n Puerto Rco sha make a requston on nterna revenue orm
428, n trpcate, for the purchase of strp stamps, and sha attach
thereto a statement, under oath n the foowng form:
Poet op .
I soemny swear (or affrm) that the stamps requested on the orm 42S to
whch ths statement s attached, are requred, and w be used, for the quan-
ttes of the brands and knds of dsted sprts sted beow, whch w be
shpped to the Unted States, awa, or aska, to suppy e stng orders
and/or antcpated requrements wthn 00 days from ths date:
Number ot bottes.
Sze of bottes.
rands.
nds.
(Dster, Rectfer, or otter.)
. . . Permt No.
Subscrbed and sworn to before me ths day of
193 ,
The orm 428, n trpcate, together wth a sworn statement, sha
be submtted to the coector of customs n Puerto Rco for approva.
2. The coector of customs sha approve orm 428 f he s sats-
fed that the stamps are requred for dsted sprts to be shpped to
the Unted States, awa, or aska, to suppy e stng orders
and/or antcpated requrements wthn 90 days from the date of the
requston. e sha retan a copy of orm 428 and the sworn
statement for hs fes.
3. The dster, rectfer, or botter, or hs duy authorzed agent,
sha submt the orgna, wth one copy, of the approved orm 428
to the nterna revenue stamp deputy n Puerto Rco, who sha se
the stamps requstoned and approved. The stamp deputy sha
enter the sera numbers of the strp stamps on the orgna and copy
of orm 428. o sha gve the strp stamps wth the copy of
orm 428 to the purchaser and retan the orgna orm 428 for hs
fes. The stamp deputy sha mantan a record on orm 19, Co-
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511
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ector s offce record of botte strp stamps for dsted sprts requs-
toned on orm 428, of strp stamps sod and aso a card or edger
record for each purchaser showng the date of each sae and the
quantty and denomnatons of the strp stamps sod.
4. The dster, rectfer, or botter sha, at hs e pense, have each
of the strp stamps overprnted, wth hs name and address and the
brand and knd of dsted sprts, and submt the stamps to the
coector of customs for verfcaton.
5. The coector of customs sha verfy the overprntng and enter
on hs copy of orm 428 the sera numbers of the strp stamps and
return them to the purchaser.
6. The dster, rectfer, or botter sha pany and egby mark
on each case contanng bottes of sprts to whch strp stamps are
attached, the foowng egend:
The stamps requred by the Unted States Lquor Ta ng ct of 1934 are
aff ed to the bottes contaned n ths case, consstng of bottes, each
(Number.)
contanng
(Net euutents of bottes.)
(Dster, ectfer7or Dot te )
T. ny breach of these reguatons, or faure to use the strp
stamps wthn a reasonabe tme for the purpose for whch they were
procured, not satsfactory e paned to the coector of customs, w
be grounds for dena of approva of further requstons for pur-
chase of strp stamps for aff ng under these reguatons.
8. The coector of customs n Puerto Rco sha mantan a record
of the orms 428 approved, and sha check a outgong shpments
of botted dsted sprts and credt the respectve dster, rectfer,
or botter wth the strp stamps used, as evdenced by the egend on
the cases. The coector sha furnsh the ureau of Customs on
pr 1, uy 1 October 1, and anuary 1 of each | ear a consodated
report n dupcate showng the name of the purchaser n Puerto
Rco, the number of stamps, and the denomnatons of stamps pur-
chased on requston on orm 428 approved by the coector of
customs, not used wthn 90 days from the date of approva. The
ureau of Customs sha forward the copy of such report to the
Commssoner of Interna Revenue.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
rank Dow,
ctng Commssoner of Custom .
pproved March 4, 1937.
RoSW LL MaGILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster March 9, 1937, 11.31 a. m.)
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Msc. 512
TITL I. T ON R G S. (1918)
S CTION 605 O T R NU CT O 1918, S M ND D Y S CTION
319 O T LI UOR T DMINISTR TION CT O 1934
I-21-8726
T. D.4737
Transfer of ta -pad rectfed sprts by ppe ne from rectfyng
pants to contguous ta -pad bottng houses.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Pursuant to the authorty conferred by secton 605 of the Revenue
ct of 1918 (U. S. C, 1934 ed., Tte 26, secton 1151), as amended
by secton 319 of the Lquor Ta dmnstraton ct (U. S. C, 1934
ed., Supp. II, Tte 26, secton 1151(2)), the foowng reguatons
are prescrbed:
Where a rectfyng pant and a ta -pad bottng house are oper-
ated on contguous premses by a dster or propretor of an nter-
na revenue bonded warehouse, the Commssoner may, n hs ds-
creton, authorze the transfer of rectfed sprts on whch the
rectfcaton ta has been pad from the bottng tanks n the rect-
fyng pant to the bottng tanks n the ta -pad bottng house by
means of ppe ne.
separate and permanent ppe ne sha be nstaed to connect
the rectfyng pant wth each bottng tank n the ta -pad bottng
house. The ppe nes sha be e posed to vew throughout ther
entre ength, and a connectons, vaves, fanges, etc., sha be brazed
or weded from the pont where they eave the rectfyng pant
premses, provded, however, that the termnaton of such ppe nes
n the rectfyng pant may reman open to permt hose connecton
wth the bottng tanks. There sha be panted on each such ppe
ne, on that, porton e tendng nto the rectfyng pant, a number
correspondng wth the sera number of the tank n the ta -pad
bottng house to whch t connects.
When ta -pad rectfed sprts are authorzed to be transferred as
above provded, the procedure for ta -payng rectfed sprts n the
bottng tank n the rectfyng pant w be the same as provded
by Reguatons 15, e cept that at the tme of ta payment an e tra
copy of orm 237 w be e ecuted and certfed by the coector.
The e tra copy of orm 237 w be attached to orm 230 on the
bottng tank n the ta -pad bottng house as evdence that the
proper ta on the sprts theren has been pad.
Upon competon of transfer of the rectfed sprts to the ta -pad
bottng house, there sha be entered under part 7, Certfcate of
cases fed, on a copes of orm 237, a statement that the sprts
descrbed on the reverse sde of ths form have been transferred bv
ppe ne to bottng tank No. n the contguous ta -pad
bottng house operated by , and the date of such
transfer. Ths statement sha aso ncude the sera number of
orm 230 to whch the e tra copy of orm 237 s to be attached n
the bottng house. Upon competon of bottng the e tra copy of
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513
Msc.
orm 237 w reman attached to the approprate orm 230 and
be transmtted to the dstrct supervsor n the manner prescrbed
by Treasury Decson 4561 C. . I -2, 512 (1935) .
Rectfers who transfer ther entre producton by ppe ne, pur-
suant to the provsons of ths Treasury decson, w not be requred
toprovde a fnshed products room as prescrbed by Reguatons 15.
Reguatons 15, as amended, and Treasury Decson 4561 are hereby
amended accordngy.
Gut T. everng,
Commssoner of Interna Revenue.
pproved May 14, 1937.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster May 17, 1937, 2.57 p. m.)
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LI UOR L W R P L ND N ORC M NT CT.
I-18-8C89
Reguatons No. 92. mended pr, 1037.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Dstrct Supervsors of the ureau of Interna Revenue and
Others Conceded:
The foowng reguatons are prescrbed under the provsons of
Tte I of the Lquor Law Repea and nforcement ct, approved
ugust 27, 1935:
rtce I. Defntons.
In these reguatons the foowng words sha, uness otherwse stated, be
consdered as havng the meanng heren denned:
(a) rtces sha mean denatured acoho, denatured rum, ethy acetate
and any qud substance or preparaton whch contans more than 25 per cent
by voume of denatured acoho or denatured rum
Commssoner sha mean the Commssoner of Interna Revenue
(c) Person sha mean and ncude natura persons, frms, partnershps,
corporatons, and assocatons.
rtce II. Returns.
very person n the Uned States who consgns, ses, or otherwse dsposes
of, artces as defned n these reguatons, sha, when requred n wrtng by
the Commssoner of Interna Revenue, the Deputy Commssoner n charge of
the coho Ta Unt, or a dstrct supervsor or actng dstrct supervsor of
the coho Ta Unt, for the purpose of determnng whether such artces
are beng used for the recovery of acoho n fraud of the nterna revenue ta
on such acoho, render n wrtng a correct return showng (1) the date of
each consgnment, sae, or other dsposton of, such artces on or after the
recept of the notce requrng such returns (2) the quantty and knd of
artces consgned, sod, or otherwse dsposed of (3) the name and compete
address of the purchaser, or person to whom dsposton s made, and If the
sae or dsposton s made by or through any other person, the name and com-
pete address of such other person (4) the name and compete address of the
consgnee (5) the date and method of shpment or devery, such as by truck,
or other conveyance, and the State or cty regstraton number of such truck
or other conveyance, f any (6) the name and compete address of the drver
of such truck, or other conveyance, as shown by the drver s operator s cense,
f any, gvng the number of the cense and the date of Issuance (7) the
name and compete address of the person to whom actua devery has been, or
Is to be, made and (8) the e act date of such devery, or proposed devery.
Where shpment s made by a common carrer, such as a raroad, truckng
company, steamboat ne, etc., the nformaton requred by subdvsons (5) and
(6) of ths artce need not be reported, but n eu thereof there sha be
furnshed the compete routng of the shpment.
Returns sha be fed wth the offcer or empoyee of the ureau of Interna
Revenue desgnated by the Commssoner or the offcer requrng returns, not
ater than 10 days after the recept of the notce requrng the same to be fed,
uness that notce sha specfy a shorter |wrod of tme wthn whch the
return s to be fed.
rtce III. Records.
very person who consgns, sos, or otherwse dsposes of any such artces,
as defned In those reguatons, sha, on and after the recept of a notce n
wrtng requrng returns to be made under rtce II of these reguatons,
keep at hs pace of busness such books, records, documents, papers. Invoces,
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515
Msc.
bs of adng, etc., reatng to or connected wth every such consgnment, sae,
or dsposton, as w enabe such person to make the return provded for by
rtce II of these reguatons.
When any person has made a return pursuant to the procedure provded for
n rtce II of these reguatons, such books, records, documents, papers, In-
voces, bs of adng, etc., sha be kept ready avaabe for, and open to,
nspecton by any offcer or empoyee of the coho Ta Unt of the ureau of
Interna Revenue durng the hours of busness of such person.
rtce I .
These reguatons sha be n addton to, and sha not ater, modfy or
repea, the provsons of e stng reguatons reatng to denatured acoho,
denatured rum, or products contanng such acoho or rum.
rtc-b . Deegaton of uthorty.
The Deputy Commssoner n charge of the coho Ta Unt, ureau of
Interna evenue, s charged wth the admnstraton and enforcement of the
ct and these reguatons, under the drecton of the Commssoner.
These reguatons sha become effectve mmedatey.
Gt|y T. everno,
Commssoner of Interna Revenue.
pproved pr 27, 1937.
ROSW LL M GILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster pr 29, 1937, 12.30 p. m.)
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516
DISTILL D SPIRITS.
Reguatons 8(Pro.) : Removng dsted water I-4 8510
from dstery premses. T. D. 4725
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Page 45, Reguatons 8, under the capton, Removng dsted
water from dstery premses, s hereby amended to read as foows:
Dsted water must be drawn off nto barres or other contaners pror to
remova from dstery premses, provded, however, the Commssoner of In-
terna Revenue, n hs dscreton, may permt dsted water to be transferred
by ppe ne off the dstery premses to contguous pants operated under the
nterna revenue aws, ncudng ta -pad bottng warehouses, sub|ect to the
foowng condtons:
1. Provded one or more tanks are ocated n the dstery budng and desg-
nated as Dsted water storage tanks. ach tank must be cosed, and any
necessary openng theren, affordng access to the nteror or to the contents,
must be provded wth a cover whch w be secured by a Government ock.
Stop cocks must be provded and so arranged as to competey contro the fow
of dsted water both nto and out of the tank, and so constructed that they
may be ocked wth a Government ock and each tank must aso be provded wth
a gass gauge whereby the contents of the tank may be ascertaned at a tmes.
2. If dsted water s to be transferred off the dstery premses by ppe
ne an ndependent ne must be nstaed for such purpose, wthout any connec-
ton wth any other ppe, vesse or utens other than the dsted water storage
tank, and a connectons, vaves, fanges, etc., n the dstery premses, must be
brazed or otherwse secured n such a manner that the ppes can not be detached
or atered wthout showng evdence of tamperng. The ppe ne sha be e posed
to vew throughout ts entre ength.
3. Dsted water must under no crcumstances be drawn off or removed
through the cstern room or warehouse and a such water, when drawn off
or transferred by ppe ne, must be Inspected by the storekeeper-ganger who
w supervse ts remova and make an entry n some porton of record No. 17,
not otherwse used, of the date of the remova, the number of barres, or quan-
tty, n gaons, f removed by ppe ne, and of the names of the persons to
whom shpped or transferred.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved anuary 19,1937.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster anuary 22, 1937, 12.22 p. m.)
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517
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R GUL TION O T TR IC IN CONT IN RS
O DISTILL D SPIRITS.
Reguatons 13, rtce 1: Defntons. I-14-8633
T. D.4731
mendment of Treasury Decson 45G0 C. . I -1, 521 .
Treasury Department,
Offce of the Secretary of the Treasury.
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
1. Treasury Decson No. 4560, approved une 15, 1935, and ssued
pursuant to Pubc Resouton No. 40, approved une 18, 1934 (U. S.
C, 1934 ed., tte 26, secton 1222), s amended by addng the foow-
ng paragraphs at the end thereof:
The term age appearng n ths reguaton sha have the meanng gven
to such term by defnton (|) of rtce I of Reguatons No. 5 Reatng to
abeng and advertsng of dsted sprts, heretofore promugated by the
edera coho dmnstraton.
The term knd appearng n ths reguaton sha mean the standards
of dentty for dsted sprts set forth n rtce II of Reguatons No. 5
Reatng to abeng and advertsng of dsted sprts, heretofore promugated
by the edera coho dmnstraton.
ge and knd sha be stated respectvey as requred by sectons 39 and
34 of rtce III of Reguatons No. 5 Reatng to abeng and advertsng of
dsted sprts, heretofore promugated by the edera coho dmnstraton.
2. These reguatons sha be effectve mmedatey.
ROSW LL MaOILL,
ctng Secretary of the Treasury.
pproved March. 29, 1937.
( ed wth the Dvson of the edera Regster March 31, 1937, 3.52 p. n.)
Reguatons 13, rtce 1: Defntons. I-17-8672
T. D.4736
mendment to Treasury Decson 45G0 C. . I -1, 521 (1935)
and Treasury Decson 4731 above. .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
The second paragraph of Treasury Decson 4731 s amended to
read as foows:
These reguatons sha be effectve on November 1, 1937.
pproved pr 22, 1937.
Roswe Mac,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster pr 24, 1937, 12.30 p. m.)
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518
INDUSTRI L LCO OL.
I-10-8590
T. D. 4727
Revokng specay denatured acoho formuae.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Chemsts n Charge, uthorsed Chemsts,
and Others Concerned:
Pursuant to authorty conferred by the ct of une 7, 1906 (U. S.
C, 1934 d., Tte 26, secton 1320), and Tte III of the Natona
Prohbton ct, specay denatured acoho formuae 11, 26, 31- ,
and 31-C are hereby revoked effectve May 1, 1937, and acoho sha
not be denatured n accordance wth such formuae on and after that
date.
Chas. T. Russee,
ctng Commssoner of Interna Revenue.
pproved March 4, 1937.
Roswe Mag,
ctng Secretary of the Treasury.
(Ted wth the Dvson of the edera Regster March 9, 1937. 11.31 a. m.)
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519
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S CTION 3 O T INSON CT.
I-2-S480
T. D. 4723
C SS PRO ITS O N Y CONTR CTS.
Reguatons under secton 3 of the ct of March 27, 1934, as
orgnay enacted and ns amended. Treasury Decson 4434 C. .
III-1, 540 superseded.
Treasury Department,
Offce of the Secretary of the Treasury,
Washngton, D. C.
Navy Department,
Offce of the Secretary of the Navy,
Washngton, D. C.
To Offcers and mpoyees of the Treasury Department, the Nary
Department, and Others Concerned:
Paragrafh . Secton 3 of the ct entted n ct to estabsh
the composton of the Unted States Navy w th respect to the cate-
gores of vesses mted by the treates sgned at Washngton, eb-
ruary 6, 1922, and at London, pr 22, 1930 at the mts prescrbed
by those treates to authorze the constructon of certan nava ves-
ses and for other purposes, approved March 27, 1934 (48 Stat. L.,
505 U. S. C, tte 34, secton 496), provdes:
Sec. 3. The Secretary of the Navy s hereby drected to submt annuay to
the ureau of the udget estmates for the constructon of the foregoug ves-
ses and arcraft and there s hereby authorzed to be approprated such sums
as may be necessary to carry nto effect the provsons of ths ct: Provded,
That no contract sha be made by the Secretary of the Navy for the con-
structon and/or manufacture of any compete nava vesse or arcraft, or any
porton thereof, heren, heretofore, or hereafter authorzed uness the con-
tractor agrees
(n) To make a report, as herenafter descrbed, under oath, to the Secretary
of the Navy upon the competon of the contract.
(b) To pay nto the Treasury proft, as herenafter provded sha be deter-
mned by the Treasury Department, n e cess of 10 per centum of the tota
contract prce, such amount to become the property of the Unted States: Pro-
vded, That f such amount s not vountary pad the Secretary of the Treasury
may coect the same under the usua methods empoyed under the nterna
revenue aws to coect edera ncome ta es.
(c) To make no subdvsons of any contract or subcontract for the samo
artce or artces for the purpose of evadng the provsons of ths ct, but
any subdvson of any contract or subcontract nvovng an amount n e cess
of 10,000 sha be sub|ect to the condtons heren prescrbed.
(d) That the manufacturng spaces and books of ts own pant, affates,
and subdvsons sha at a tmes be sub|ect to nspecton and audt by any
erson desgnated by the Secretary of the Navy, the Secretary of the Treasury,
and/or by a duy authorzed commttee of Congress.
(e) To make no subcontract uness the subcontractor agrees to the foregong
condtons.
The report sha be n form prescrbed by the Secretary of the Navy and
sha state the tota contract prce, the cost of performng the contract, the
net ncome, and the per centum such net ncome bears to the contract prce.
cop - of such report sha be transmtted to the Secretary of the Treasury
or consderaton n connecton wth the edera ncome ta returns of to
ontrnctor for the ta abe year or years concerned.
The method of ascertanng the amount of e cess proft to be pad Into the
Treasury sha be determned by the Secretary of the Treasury n agreement
wth the Secretary of the Navy and made avaabe to the pubc. The method
ntay ed upon sha be so determned on or before une 30, 1934: Provded,
That n any case where an e cess proft may be found to bo ownsr to tho
Unted States n conseauence hereof, the Secretary of the Treasury sha aow
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520
credt for any edera ncome ta es pad or remanng to be pad upon the
amount of such e cess proft.
The contract or subcontracts referred to heren are mted to those where
the award e ceeds 10,000.
Par. . Secton 3(b) of the ct referred to above n paragraph
was amended by the ct of une 25,1936 (Pubc, No. 804, Seventy-
fourth Congress), to read as foows:
Sec. 8. (b) To pay nto the Treasury proft, as herenafter provded sha be
determned by the Treasury Department, n e cess of 10 per centum of the tota
contract prces, of such contracts wthn the scope of ths secton as are com-
peted by the partcuar contractng party wthn the ncome ta abe year, such
amount to become the property of the Unted States, but the surety under such
contracts sha not be abe for the payment of such e cess proft: Provded,
That If 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, If
any, for the ne t succeedng ncome ta abe year: Provded further, That If
such amount s not vountary pad the Secretary of the Treasury sha coect
the same under the usua methods empoyed under the nterna-revenue aws
to coect edera ncome ta es: Provded further, That a provsons of aw
(ncudng penates) appcabe wth respect to the 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 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 subcontracts or
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, together wth the
appcabe contracts and the amounts thereof: nd provded further, That the
ncome-ta abe years sha be such ta abe years begnnng after December
31, 1035, e cept that the above provsos reatng to the assessment, coecton,
payment, or refundng of e cess proft to or by the Treasury sha be retro-
actve to March 27, 1934.
Pursuant to the authorty prescrbed by secton 3 of the ct of
March 27, 1934 (48 Stat. L., 505 U. S. G, tte 34, secton 496), as
amended, the foowng reguatons are hereby prescrbed wth
respect to secton 3 of such ct as orgnay enacted and as amended:
btce 1. Defntons. s used n these reguatons the term
(o) ct means the ct of March 27, 1934 (48 Stat L., 505 U. S. O., tte
34, secton 496), as orgnay enacted and as amended by the ct of une 25,
1936 (Pubc, No. 804, Seventy-fourth Congress).
(b) 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.
(c) Contract means an agreement made by authorty of the Secretary
of the Navy for the constructon or manufacture of any compete nava vesse
or arcraft, or any porton thereof.
(d) Contractor means a person enterng nto a drect contract wth the
Secretary of the Navy or hs duy authorzed representatve.
(e) Subcontract means an agreement entered nto by one person wth
another person for the constructon or manufacture of a compete nava vesse
or arcraft or any porton thereof, the prme contract havng been entered nto
between a contractor and the Secretary of the Navy or hs duy authorzed
representatve.
(f) Subcontractor means any person other than a contractor enterng
nto a subcontract
(g) Contractng party means a contractor or subcontractor as the case
may be.
(ft) Contract prce or tota contract prce means the amount or tota
amount to be receved under a contract or subcontract as the case may be.
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Msc.
( ) Income-ta abe year means the caendar year, the fsca year endng
durng such caendar year, or the fractona part of such caendar or fsca
year, upon the bass of whch the contractng party s net ncome s computed
and or whch ts ncome ta returns are made for edera Income ta purposes.
rt. 2. Contracts and subcontracts under whch e cess proft abty may
be ncurred. cept as otherwse provded wth respect to contracts or sub-
contracts for certan scentfc equpment (see artce 3 of these reguatons),
every contract awarded for an amount e ceedng 10,000 and entered nto
after the enactment of the ct of March 27, 1934, for the constructon or manu-
facture of any compete nava vesse or arcraft, or any porton thereof, s
sub|ect to the provsons of the ct reatng to e cess proft abty. ny
subcontract made wth respect to such a contract and nvovng an amount In
e cess of 10,000 Is aso wthn the scope of the ct. If a contractng party
paces orders wth another party, aggregatng an amount n e cess of 10,000,
for artces or materas whch consttute a part of the cost of performng the
contract or subcontract, the pacng of such orders sha consttute a subcon-
tract wthn the scope of the ct, uness t Is ceary shown that each of the
orders nvovng 10,000 or ess s a bona fde separate and dstnct subcon-
tract and not a subdvson made for the purpose of evadng the provsons of
the ct
rt. 3. Contracts or subcontracts for scentfc equpment. No e cess proft
abty s ncurred upon a contract or subcontract entered nto after the
amendment of secton 3(b) of the ct on une 25, 1936, f at the tme or pror
to the me such contract or subcontract s made t s desgnated by the Sec-
retary of the Navy as beng for scentfc equpment used for communcaton,
target detecton, navgaton, and fre contro. The e empton of contracts or
subcontracts for scentfc equpment does not e tend to any contract or sub-
contract entered nto pror to the enactment of the amendment of secton 3(b)
of the ct
rt. 4. Manner of determnng abty. The frst step n the determna-
ton of the e cess proft to be pad to the Unted States s to ascertan the
amount of e cess proft tmder the appcabe method whch depends upon the
date of competon of the contract or subcontract See artce 5 of these regu-
atons. The second step s to ascertan the amount of credt aowed for
edera Income ta es pad or remanng to be pad upon the amount of such
e cess proft See artce 10 of these reguatons. The thrd step s to sub-
tract from the amount of e cess proft as computed n the frst step the amount
of credt for edera ncome ta es as computed In the second step. The
amount remanng after such subtracton s the amount of e cess proft to be
pad to the Unted States.
st. 5. Measure of e cess proft. (a) Competon of contract defned. The
method of ascertanng the amount of e cess proft n respect of a contract or
subcontract comng wthn the scope of the ct depends upon the date of com-
peton of the contract or subcontract (L e., whether the contract or subcon-
tract was competed pror to the contractng party s frst ncome-ta abe year
begnnng after December 31, 1935, or was competed wthn or subsequent to
such ncome-ta abe year). Wth the e cepton of those contracts whch pro-
tde a method for determnng the date of competon, the date of devery of
the vesse, arcraft or porton thereof covered by the contract or subcontract
sha be consdered the date of competon of the contract or subcontract uness
otherwse determned by the Secretary of the Navy and the Secretary of the
Treasury or ther duy authorzed representatves. s to a refund n case of
ad|ustment due to subsequenty ncurred addtona costs, see artce 19 of these
reguatons. If a contract or subcontract s at any tme canceed or termnated,
It s competed at the tme of the canceaton or termnaton.
(6) Contracts or subcontracts competed pror to contractng party s ncome-
ta abe year begnnng after December SI, 1935. If a contract or subcontract
Is competed pror to the contractng party s frst ncome-ta abe year begnnng
after December 31, 1935, the e eess proft sha be determned separatey upon
the competon of each such contract or subcontract. The amount of such
eces proft sha be the amount of the proft on such contract or subcontract
In e cess of 10 per cent of the tota contract prce. The amount of the proft
on the contract or subcontract sha be the e cess of the tota contract prce
OTer the cost of performng the contract or subcontract. s to the cost of
performance, see artce 8 of these reguatons.
(o) Contracts or subcontracts competed wthn contractng party s ncome-
ta abe year begnnng on or after anuary 1, 10 6. In the case of contracts
or subcontracts competed wthn, or subsequent to, the contractng party s frst
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522
ncome-ta abe year begnnng after December 31, 1935, the e cess proft sha
be determned upon the bass of a contracts and subcontracts competed by
the partcuar contractng party wthn each ncome-ta abe year. The amount
of such e cess proft for an ncome-ta abe year sha be the amount of the
net proft upon a contracts and subcontracts competed by the contractng
party wthn the ncome-ta abe year (ess the credt aowabe for net oss,
f any, sustaned n the precedng ncome-ta abe year) n e cess of 10 per
cent of the tota contract prces of a such contracts and subcontracts. s
to the aowabe credt for a net oss for the precedng ncome-ta abe year,
see artce 9 of these reguatons. The amount of the net proft on a con-
tracts and subcontracts competed by a partcuar contractng party wthn
the ncome-ta abe year sha be the e cess of the tota contract prces of such
contracts and subcontracts over the tota costs of performng such contracts and
subcontracts. s to the cost of performng a contract or subcontract, see
artce 8 of these reguatons. s to the keepng of separate accounts wth
respect to each contract or subcontract, see artce 13 of these reguatons.
rt. 6. Computaton of e cess proft abty. ampes. The appcaton
of the provsons of artces 4 and 5 of these reguatons may be ustrated
by the foowng e ampes:
ampe 1: On anuary 2, 1935, the Corporaton, whch keeps ts books and
makes ts edera ncome ta returns on a caendar year bass, entered nto
a contract comng wthn the scope of the ct. The tota contract prce was
100,000. The contract was competed on ugust 5, 1935, at a cost of 85,000.
second contract for 20,000, entered nto on pr 15, 1935, was competed
on une 10, 1935, at a cost of 21,000. or the year 1935 the Corporaton
had a net ncome of 100,000 (ncudng 10,000 of the proft upon the frst
contract), on whch t pad a edera ncome ta of 13,750. oss havng
been ncurred upon the second contract, there s no e cess proft abty n
respect of such contract. The e cess proft abty upon the frst contract
Is 5,000 computed as foows:
Tota contract prce 00,000
Less: Cost of performng contract 85. 000
Proft on contract 15, 000
Less: 10 per cent of tota contract prce (10 per cent of 100,000) 10,OOP
cess proft 5, 00u
Less: Credt for edera ncome ta es None
cess proft abty 5,000
ampe 2: On September 1, 1935, the Corporaton whch keeps ts books
and makes ts edera ncome ta returns on a caendar year bass entered
nto a contract comng wthn the scope of the ct, the tota contract prcw
of whch was 200,000. On March 10, 1936, the corporaton entered nto an-
other such contract, (he tota contract prce of whch was 40,000. oth con-
tracts were competed wthn the caendar year 1930, the frst at a cost of
155,000 and the second at a cost of 45,000. The net ncome of the Cor-
poraton for the year 1936 amounted to 96,000, whch ncuded the tota net
proft of 40,000 upon the two contracts. or the year 1936 the Corporaton
pad a edera ncome ta of 13,240, no part of whch was surta mposed bv
secton 14 of the Revenue ct of 1930. The e cess proft abty s 13,600,
computed as foows:
Tota contract prces:
Contract No. 1 40,000
Contract No. 2 200,000
240,000
Less: Cost of performng contracts:
Contract No. 1 45,000
Contract No. 2 155,000
200.000
Net proft on contracts 40,000
Less: 10 per cent of tota contract prces (10 per cent of 240.000) 24.000
cess proft 16,000
Less: Credt for edera ncome ta es (norma ta on 16,000 at 15
per cent) 2. 400
cess proft abty 13. GOO
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523
Msc.
rt. 7. Tota contract prce. The tota contract prce of a partcuar contract
or subcontract (see artce 1 of these reguatons) may be receved n money
or ts equvaent. If somethng other than money s receved, ony the far
market vaue of the thng receved, at the date of recept, s to be ncuded n
determnng the amount receved. onuses earned for betterng performance
and penates ncurred for faure to meet the contract guarantees are to be
regarded as ad|ustments of the orgna contract prce. Trade or other ds-
counts are aso to be deducted n determnng the true tota contract prce.
kt. 8. Cost of performng a contract or subcontract. (o) Genera rue.
The cost of performng a partcuar contract or subcontract sha be the sum
of 1) the drect costs, ncudng theren e pendtures for materas, drect
abor and drect e penses, ncurred by the contractng party n performng the
contract or subcontract and (2) the proper proporton of any ndrect costs
(ncudng theren a reasonabe proporton of management e penses) ncdent
to and neeessary for the performance of the contract or subcontract.
(6) ements of cost. No defntons of the eements of cost may be stated
whch are of nvarabe appcaton to a contractors and subcontractors. In
genera, the eements of cost may be defned for purposes of the ct as foows:
(1) Manufacturng cost, whch s the sum of factory cost (see paragraph
c) of ths artce) and other manufacturng cost (see paragraph (d) of ths
artce) :
(2) Cost of nstaaton and constructon (see paragraph ( ) of ths artce)
sad
(3) Genera e penses, whch are the sum of ndrect engneerng e penses,
usuay termed engneerng overhead (see paragraph (f) of ths artce)
and e penses of admnstraton, usuay termed admnstratve overhead
(see paragraph (g) of ths artce).
(c) actory cost. actory cost s the sum of the foowng:
(1) Drect materas. Materas, such as those purchased for stock and sub-
sequenty ssued for contract operatons and those acqured under subcontracts,
whch become a component part of the fnshed product or whch are used
drecty n fabrcatng, convertng or processng such materas or parts.
(2) Drect productve abor. Productve abor, usuay termed shop abor,
whch s performed on and s propery chargeabe drecty to the artce manu-
factured or constructed pursuant to the contract or subcontract, but whch
ordnary does not ncude drect engneerng abor (see subparagraph (3) of
ths paragraph).
(3) Drect engneerng abor. The compensaton of professona engneers
and other techncsts, and of draftsmen, propery chargeabe drecty to the
cost of the contract or subcontract.
(4) Msceaneous drect charges. Items whch are propery chargeabe d-
recty to the factory cost of performng the contract or subcontract but whch
do not come wthn the cassfcatons n subparagraphs (1), (2), and (3) of
ths paragraph, as for e ampe royates whch the contractng party pays to
another party and whch are propery chargeabe to the cost of performng the
contract or subcontract (but see paragraph (d) of ths artce).
(5) Indrect factory e penses. Items, usuay termed factory overhead,
whch are not drecty chargeabe to the factory cost of performng the eon-
tract or subcontract but whch are ceary ncdent to and neeessary for the
performance of the contract or subcontract and consst of the foowng:
( ) Labor. mounts e pended for factory abor, such as supervson and
nspecton, cerca abor, tmekeepng, packng and shppng, stores suppy, and
servces n the factory empoyment bureau, whch are not chargeabe drecty
to productve abor of the contract or subcontract.
( ) Matera and suppes. The cost of materas and suppes for genera
use n the factory, such as shop fue, ubrcants, patng, ceanng and anodzng
suppes, statonery, such as tme tckets and other forms, and bo ng and
wrappng materas.
(C) Servce e penses. actory e penses of a genera nature, such as those
for power, heat and ght (whether purchased or produced), ventaton and
ar-condtonng and operaton and mantenance of genera pant assets and
factes used n the performance of the contract or subcontract
(D) ed charges. Recurrng charges wth respect to property used for
manufacturng purposes of the contract or subcontract, such as premums for
fre and eevator nsurance, property ta es, rentas and aowances for depreca-
ton of such property.
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524
( ) Msceaneous ndrect factory e penses. Msceaneous factory e pense
not drecty chargeabe to the factory cost of performng the contract or sub-
contract, such as empoyees wefare e penses premums or dues on compensa-
ton nsurance empoyers payments to unempoyment, od age and soca
securty edera and State funds not ncudng payments deducted from or
chargeabe to empoyees or offcers pensons and retrement payments to fac-
tory empoyees factory accdent compensaton (as to sef-nsurance, see para-
graph (17) of ths artce) but not ncudng any amounts whch are not Inc-
dent to servces, operatons, pant, equpment or factes used or empoyed n
the performance of the contract or subcontract.
( /) Other -manufacturng cost. Other manufacturng cost as used In para-
graph (6) of ths artce ncudes tems of manufacturng cost whch are not
propery chargeabe to factory cost (see paragraph (0) of ths artce), as
for nstance, deferred or unqudated e permenta and deveopment
charges f upon a compete showng of a pertnent facts they are propery to
be ncuded as a cost of manufacturng under the contract or subcontract and
payments of royates and amortzaton of the cost of patent rghts, the nature
of whch payments or amortzaton precudes a satsfactory charge to the cass-
fcatons of factory cost (see paragraph (c)(4) of ths artce).
(e) Cost of nstaaton and constructon. Cost of nstaaton and construc-
ton whch s an eement of cost (see paragraph (6) of ths artce) ncudes
(he cost of materas, abor and e penses necessary for the erecton and nstaa-
ton after the devery of the product or matera manufactured or constructed
pursuant to the contract or subcontract.
(f) Indrect cnnecrng e penses. Indrect engneerng e penses, usuay
termed engneerng overhead, whch are treated n ths artce as a part of
genera e penses n determnng the cost of performng a contract or sub-
contract (see paragraph (b) of ths artce), comprse the genera engneerng
e penses whch are ncdent to and necessary for the performance of the
contract or subcontract, such as the foowng:
(1) Labor. Compensaton of empoyees for persona servces to the engneer-
ng department, such as supervson, whch s propery chargeabe to the
contract or subcontract, but whch s not chargeabe as drect engneerng abor
(see paragraph (c)(3) of ths artce).
(2) Matera. Suppes for the engneerng department, such as paper and
Ink for draftng and smar suppes.
(3) Msceaneous e penses. penses of the engneerng department, such
ns servces purchased outsde of the engneerng department for bue prntng,
drawng, computng, nnd ke purposes.
(g) penses of admnstraton. penses of admnstraton, usuay termed
admnstratve overhead, whch are treated n ths artce as a part of
genera e penses n determnng the cost of performng a contract or sub-
contract (see paragraph (6) of ths artce) do not Incude any seng or
dstrbuton e penses but comprehend the e penses ncdent to and necessary
for the performance of the contract or subcontract, whch are ncurred n the
genera admnstraton of the busness, such as
(1) Compensaton for persona servces of empoyees. The saares of the
corporate and genera e ecutve offcers and the saares and wages of admns-
tratve cerca empoyees and of the offce servces empoyees (teephone
operators, antors, ceaners, watchmen and offce equpment reparmen).
(2) penses. Msceaneous offce and admnstratve e penses, such as
statonery and offce suppes, postage, repar and deprecaton of offce equp-
ment, empoyees wefare e penses, premums and dues on compensaton Insur-
ance empoyers payments to unempoyment, od age and soca securty
edera and State funds not ncudng payments deducted from or chargeabe
to empoyees or offcers pensons and retrement payments to admnstratve
offce empoyees accdent compensaton to offce empoyees (e cept amounts
for sef-nsurance) but ncudng no tems whch are not ncdenta to actv-
tes necessary for the performance of the contract or subcontract.
If a party assumes ts own nsurabe rsks (usuay termed sef -nsurance
(a) wth respect to osses arsng from fre or other casuaty, wth respect to
materas and suppes, (6) for compensaton pad to empoyees for n|ures
receved n the performance of ther dutes, or (c) for unempoyment rsks n
States where nsurance s requred, such osses and payments w be aowed
n the cost of performng a contract or subcontract ony to the e tent of the
actua osses suffered or payments ncurred durng, and In the course of, the
performance of the contract or subcontract.
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Msc.
owances for nterest on nvested capta are not aowabe as costs of
performng a contract or subcontract.
mong the tems whch sha not be ncuded as a part of the cost of per-
formng a contract or subcontract or consdered n determnng such cost, are
the foowng: Seng e penses, ncudng compensaton of empoyees engaged
n seng, operaton and mantenance of saes offces, commssons, advertsng
and demonstratons, deprecaton of saes equpment, grats servce, entertan-
ment e penses dues and membershps other than of reguar trade assoca-
tons donatons commerca traveng e penses and the ke osses on other
contracts osses from saes or e changes of capta assets e traordnary e -
penses due to strkes or ockouts fnes and penates amortzaton of unrea-
sed apprecaton of vaues of assets e penses and deprecaton of de pant
ncreases n reserve accounts for contngences, repars, compensaton nsurance
and guarantee work edera and State ncome and e cess profts ta es and
surta es cash dscount earned up to 1 per cent of the amount of the pur-
chase, e cept that a dscounts on subcontracts sub|ect to the ct w be
consdered nterest ncurred or earned: bond dscount or fnance charges n-
come from royates premums for fe nsurance on the ves of offcers ega
and accountng fees n connecton wth reorganzatons, securty ssues, capta
stock ssues and the prosecuton of cams aganst the Unted States (ncudng
ncome ta matters) ta es and e penses on ssues and transfers of capta
stock osses on nvestments bad debts and e penses of coecton and
e change.
In order that the cost of performng a contract or subcontract may be ac-
counted for ceary, the amount of any e cess profts repayabe to the Unted
States pursuant to the ct shoud not be charged to or ncuded n such cost.
cessve or unreasonabe payments whether n cash, stock or other prop-
erty ostensby for saares, bonuses or other compensaton for persona servces,
may not be ncuded n the cost of performng a contract or subcontract
( ) ocaton of ndrect costs. No genera rue appcabe to a cases may
be stated for ascertanng the proper proporton of the ndrect costs to be
aocated to the cost of performng a partcuar contract or subcontract Such
proper proporton depends upon a the facts and crcumstances reatng to the
performance of the partcuar contract or subcontract Sub|ect to a requre-
ment that a tems whc have no reaton to the performance of the contract
or subcontract sha be emnated from the amount to be aocated, the foow-
ng methods of aocaton are outned as acceptabe n a ma|orty of cases:
(1) actory ndrect e penses. The aowabe ndrect factory e penses (see
paragraph (c)(5) of ths artce) sha ordnary be aocated or dstrb-
uted to the cost of the contract or subcontract on the bass of the proporton
whch the drect productve abor (see paragraph (c) (2) of ths artce)
attrbutabe to the contract or subcontract bears to the tota drect productve
abor of the producton department or partcuar secton thereof durng the
perod wthn whch the contract or subcontract Is performed.
(2) ngneerng ndrect e penses. The aowabe ndrect engneerng e -
penses (see paragraph (f) of ths artce) sha ordnary be aocated or
dstrbuted to the cost of the contract or subcontract on the bass of the
proporton whch the drect engneerng abor attrbutabe to the contract or
subcontract (see paragraph (c) (3) of ths artce) bears to the tota drect
engneerng abor of the engneerng department or partcuar secton thereof
durng the perod wthn whch the contract or subcontract s performed. If
te e penses of the engneerng department are not suffcent n amount to
requre the mantenance of separate accounts, the engneerng ndrect costs
may be ncuded n the ndrect factory e penses (see para graph (c) (5) of ths
artce) and aocated or dstrbuted to the cost of performng the contract or
subcontract as a part of such e penses, provded the proporton so aocated or
dstrbuted s proper under the facts aud crcumstances reatng to the per-
formance of the partcuar contract or subcontract.
(3) dmnstratve e penses (or overhead ). The aowabe e penses of
admnstraton (see paragraph (g) of ths artce) or other genera e penses
e cept ndrect engneerng e penses sha ordnary be aocated or dstrbuted
to the cost of performng a contract or subcontract on the bass of the pro-
porton whch the sum of the manufacturng cost (see paragraph (6) of ths
artce) and the cost of Instaaton and constructon (see paragraph (e) of
ths artce) attrbutabe to the partcuar contract or subcontract bears to the
tota manufacturng cost and cost of Instaaton and constructon durng the
perod wthn whch the contract or subcontract s performed.
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526
et. 9. Credt for net oss n computng e cess proft. The term net oss
as used n the ct means the amount by whch the tota costs of performng
a contracts and subcontracts competed by a partcuar contractng party
wthn the ncome-ta abe year e ceeds the tota contract prces of such con-
tracts and subcontracts. s to the meanng of ncome-ta abe year, see artce
1 of these reguatons.
net oss for any ncome-ta abe year begnnng pror to anuary 1, 1936,
s not aowabe as a credt n computng e cess proft for any succeedng
ncome-ta abe year.
net oss sustaned by a contractng party for any ncome-ta abe ye:r
begnnng after December 31, 1936, s aowabe as a credt n computng the
contractng party s e cess proft for the ne t succeedng ncome-ta abe year.
Credt for such a net oss may be camed n the contractng party s report of
proft fed wth the coector of nterna revenue (see artces 15 and 16 of
these reguatons), but t shoud be supported by separate schedues for each
contract or subcontract nvoved showng tota contract prces, costs of per-
formance and pertnent facts reatve thereto, together wth a summarzed
computaton of the net oss. The net oss camed s sub|ect to verfcaton
and ad|ustment.
Net oss for one ncome-ta abe year may not bo consdered n computng net
oss for another ncome-ta abe year.
The provsons of ts artce may be ustrated by the foowng e ampe:
ampe: The Company, whch keeps ts books and makes ts edera
ncome ta returns on a caendar year bass and whch entered nto contracts
comng wthn the scope of the ct, sustaned a net oss of 50,000 upon con-
tracts competed wthn the caendar year 1936, but had a net proft of 40,000
upon contracts competed wthn the caendar year 1937 and a net proft of
30,000 upon contracts competed wthn the caendar year 1938. The net oss
of 50,000 sustaned n 1936 may be taken as a credt aganst the net proft of
40,000 for the year 1937, but the e cess of 10,000 ( 50,000 ess 40,000) may
not be taken as a credt for the year 1938.
et. 10. Credt for edera ncome ta es. or the purpose of computng the
amount of e cess proft to be pad to the Unted States, a credt s aowabe
aganst the e cess proft for the amount of edera ncome ta es pad or
remanng to be pad on the amount of such e cess proft. The edera ncome
ta es n respect of whch ths credt s aowabe are those mposed by Ttes
I and I of the Revenue ct of 1934 and Ttes I and I of the Revenue ct
of 1936. In case such a credt has been camed and the amount of edera
ncome ta es mposed upon the e cess proft s redetermned, the credt sha
be accordngy ad|usted.
rt. 11. aure of contractor to requre agreement hy subcontractor. very
contract or subcontract comng wthn the scope of the ct s requred by the
ct to contan, among other thngs, an agreement by the contractng party to
make no subcontract uness the subcontractor agrees
(n) To make a report, as descrbed n the ct, under oath to the Secretary
of the Navy upon the competon of the subcontract
(6) To pay Into the Treasury e cess proft, as determned by the Treasury
Department, n the manner and amounts specfed n the et
(c) To make no subdvson of the subcontract for the same artce or
artces for the purpose of evadng the provsons of the ct
(d) That the manufacturng spaces and books of ts own pant, affates,
and subdvsons sha at a tmes be sub|ect to nspecton and audt as pro-
vded n the ct.
If a contractng party enters Into a subcontract wth a subcontractor who
fas to make such agreement, such contractng party sha, n addton to ts
abty for e cess proft determned on contracts or subcontracts performed
by t, be abe for any e cess proft determned to be due the Unted States
on the subcontract entered nto wth such subcontractor. In such event, how-
ever, the e cess proft to be pad to the Unted States In respect of the sub-
contract entered nto wth such subcontractor sha be determned separatey
from any contracts or subcontracts performed by the contractng party enter-
ng nto the subcontract wth such subcontractor.
rt. 12. roson of e cess proft. Secton 3 of the ct provdes that the
contractng party sha agree to make no subdvsons of any contract or sub-
contract for the same artce or artces for the purpose of evadng the prov-
sons of the ct. If any such subdvson or subcontract s made It sha con-
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Msc.
sttnte a voaton of the agreement provded for In the ct, and the cost of
competng a contract or subcontract by a contractng party whch voates
such agreement sha be determned In a manner necessary ceary to refect
the true e cess proft of such contractng party.
|t. 13. ooks of account and records. It s recognzed that no unform
method of accountng can be prescrbed for a contractng partes sub|ect to
the provsons of the ct. ach contractng party s requred by aw to make
a report of ts true proft and e cess proft. Such party must, therefore, man-
tan such accountng records as w enabe t to do so. See artce 8 of these
reguatons. mong the essentas are the foowng:
(1) The proft or oss upon a partcuar contract or subcontract sha be
accounted for and fuy e paned n the books of account separatey on each
contract or subcontract.
(2) ny cost accountng methods, however standard they may be and re-
gardess of ong-contnued practce, sha be controed by, and be In accord
wth, the ob|ectves and purposes of the ct and of any reguatons pre-
scrbed thereunder.
(3) The accounts sha ceary dscose the nature and amount of the df-
ferent tems of cost of performng a contract or subcontract.
In cases where t has been the custom prory to use so-caed norma
rates of overhead e pense or admnstratve e pense, or standard or nor-
ma prces of matera or abor charges, no ob|ecton w be made to the use
temporary durng the perod of performng the contract or subcontract of such
methods n chargng the contract or subcontract, f the method of accountng
empoyed s such as ceary to refect, n the fna determnaton upon the books
of account, the actua proft derved from the performance of the contract or
subcontract and If the necessary ad|ustng entres are entered upon the books
and they e pan n fu deta the revsons necessary to accord wth the facts.
s to the eements of cost, see artce 8 of these reguatons.
bt. 14. Report to Secretary of the Navy. (a) Genera requrements. Upon
the competon of a contract or a subcontract comng wthn the scope of the
ct, the contractng party s requred to make a report, under oath, to the
Secretary of the Navy. s to the date of competon of a contract or subcon-
tract, see artce 5 of these reguatons. The ct requres that such report sha
be n the form prescrbed by the Secretary of the Savy and sha state the
tota contract prce, the cost of performng the contract, the net ncome from
such contract, and the per centum such ncome bears to the contract prce. The
contractng party sha aso ncude as a part of such report a statement
showng
(1) the manner n whch the ndrect costs were determned and aocated to
the cost of performng the contract or subcontract (see artce 8 of these
reguatons)
(2) the name and address of every subcontractor wth whom a subcontract
was made, the ob|ect of such subcontract, the date when competed and the
amount thereof and
(3) the name and address of each affate or other organzaton, trade or
busness owned or controed drecty or ndrecty by the same nterests as
those who so own or contro the contractng party, together wth a statement
showng n deta a transactons whch were made wth such affate or other
organzaton, trade or busness and are pertnent to the determnaton of the
e cess proft.
(6) Copy of report to be transmtted to Secretary of the Treasury. copy
of the report requred to be made to the Secretary of the Navy s requred to
be transmtted by the contractng party to the Secretary of the Treasury.
Such copy sha be fed by the contractng party wth the coector of nterna
revenue for the coecton dstrct n whch the contractng party s edera
ncome ta returns are requred to be fed. In the case of a contract or sub-
contract competed pror to the contractng party s frst ncome-ta abe year
begnnng after December 31, 1935, a copy of the report to the Secretary of the
Navy sha be fed wth the coector of nterna revenue at the tme and as a
part of the report requred by artce 15 of these reguatons. In the case of
a contract or subcontract competed wthn the contractng party s frst ncome-
ta abe year begnnng after December 31. 1935, or competed subsequent to
rach ncome-ta abe year, copes of reports to the Secretary of the Navy wth
respect to contracts and subcontracts competed by the contractng party wthn
the ncome-ta abe year sha be fed as a part of the contractng party s
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528
annua report for such ncome-ta abe year. s to the annua report to be ted,
sec artce 10 of these reguatons.
rt. 15. Report to be fed wth coector upon competon of contract or sub-
contract. In the case of a contract or subcontract competed pror to the
contractng party s frst Income-ta abe year begnnng after December 31, 1933,
a separate report on the prescrbed form of the proft and e cess proft on each
such contract or subcontract sha be fed wth the coector of Interna revenue
for the coecton dstrct n whch the contractng party s edera ncome
ta returns are requred to be fed. ny report thus requred to be fed
wth the coector s due on or before the 15th day of the thrd month foowng
the month wthn whch the contract or subcontract s competed. If sub-
sequent to the approva of these reguatons and pror to the ssuance of
a prescrbed form for such report the contractng party fes wth the coector
of nterna revenue a copy of the report to the Secretary of the Navy (see
artce 14 of these reguatons) wthn the tme prescrbed by ths artce for
fng a report, or f pror to the approva of these reguatons the contractng
party has fed wth the coector of nterna revenue a copy of the report
to the Secretary of the Navy, n the form and manner prescrbed by Treasury
Decson 4434 (C. . III-1, 540), such copy sha be treated as a report
wthn the meanng of ths artce.
rt. 16. nnua reports for ncome-ta abe years. (a) Genera requre-
ments. very contractng party competng a contract or subcontract wthn
the contractng party s ncome-ta abe year begnnng after December 31, 1935,
sha fe wth the coector of nterna revenue for the coecton dstrct n
whch the contractng party s edera ncome ta returns are requred to bo
fed an annua report on the prescrbed form of the proft and e cess proft
on a contracts and subcontracts comng wthn the scope of ths ct. There
sha be ncuded as a part of such report a statement, preferaby n coumnar
form, showng separatey for each contract or subcontract competed by the
contractng party wthn the ncome-ta abe year the tota contract prce, the
cost of performng the contract or subcontract and the resutng proft or oss
on each contract or subcontract together wth a summary statement showng
n deta the computaton of the net proft or net oss upon a contracts and
subcontracts competed wthn the ncome-ta abe year and the amount of
the e cess proft, f any, for the ncome-ta abe year covered by the report.
copy of the report made to the Secretary of the Navy (see artce 15 of
these reguatons) wth respect to each contract or subcontract covered n the
annua report, sha be fed as a part of such annua report. In case the
ncome-ta abe year of the contractng party s a perod of ess than 12 months
(see artce 1 of these reguatons), the report requred by ths artce sha
be made for such perod and not for a fu year.
(6) Tme for fng annua reports. nnua reports of contracts and sub-
contracts competed by a contractng party wthn an ncome-ta abe year
begnnng after December 31, 1935, must be fed on or before the 15th day
of the thrd month foowng the cose of the contractng party s ncome-ta abe
year. It s mportant that the contractng party render on or before the due
date an annua report as neary compete and fna as t s possbe for the
contractng party to prepare. n e tenson of tme granted the contractng
party for fng ts edera Income ta return does not serve to e tend the
tme for fng the annua report requred by ths artce. uthorty consstent
wth authorzatons for grantng e tensons of tme for fng edera ncome
ta returns s hereby deegated to the varous coectors of nterna revenue
for grantng e tensons of tme for fng the reports requred by ths artce.
ppcaton for e tensons of tme for fng such reports shoud be addressed
to the coector of nterna revenue for the dstrct n whch the contractng
party fes Its edera ncome ta returns and must contan a fu recta of
the causes for the deay.
rt. 17. Payment of e cess proft abty. The amount of the e cess proft
abty to be pad to the Unted States sha be pad on or before te due date
for fng the report wth the coector of nterna revenue. See artces 15 and
10 of these reguatons. t the opton of the contractng party, the amount of
the e cess proft abty may be pad n four equa nstaments nstead of n
a snge payment, n whch case the frst nstament s to be pad on or before
the date prescrbed for the payment of the e cess proft as a snge payment, the
second nstament on or before the 15th day of the thrd month, the thrd
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Instament on or before the 15th day of the s th month, and the fourth Insta-
ment on or before the 15th day of the nnth month, after such date.
rt. 18. Labty of surety. The surety under contracts entered Into after
the amendment of secton 3(b) of the ct of une 25, 1936, sha not be abe
for payment of e cess proft due the Unted States In respect of such contracts.
rt. 19. Determnaton of abty for e cess proft, nterest and penates
assessment, coecton, payment, refunds. The duty of determnng the correct
amount of e cess proft abty on contracts and subcontracts comng wthn
the scope of the ct Is upon the Commssoner of Interna Revenue. Under
secton 3(b) of the ct, as amended, a provsons of aw (ncudng the pro-
vsons of aw reatng to nterest, penates and refunds) appcabe wth
respect to the ta es mposed by Tte I of the Revenue ct of 1034 and not
nconsstent wth secton 3 of the ct are appcabe wth respect to the assess-
ment, coecton, or payment of e cess profts on contracts and subcontracts
comng wthn the scope of the ct and to refunds of overpayments of profts
nto the Treasury under the ct. Cams by a contractng party for the refund
of an amount of e cess proft, nterest, penates, and addtons to such e cess
proft sha conform to the genera requrements prescrbed wth respect to
cams for refund of overpayments of ta es mposed by Tte I of the Revenue
ct of 1934 and, If fed on account of any addtona costs ncurred pursuant
to guarantee provsons n a contract, sha be suppemented by a statement
under oath showng the amount and nature of such costs and a facts pertnent
thereto.
dmnstratve procedure for the determnaton, assessment and coecton
of e cess proft abty under secton 3 of the ct and these reguatons and
the e amnaton of reports aud cams n connecton therewth w be prescrbed
from tme to tme by the Commssoner of Interna Revenue.
rt. 20. Treasury Decson /S- superseded. Treasury Decson 4434, ap-
proved May 19, 1934, Is hereby superseded.
G rr T. everng,
Commssoner of Interna Revenue.
pproved December 31, 1936.
osephne Roche,
ctng Secretary of the Treasury.
pproved anuary 6, 1937.
Wam D. Leahy,
ctng Secretary of te Navy.
( ed wth the Dvson of the edera Regster anuary 8, 1937, 11.25 a. m.)
I-24-8764
I. T. 3089
Where a contract or subcontract under the nson ct, ap-
proved March 27, 1934 ( 48 Stat., 503), as amended by the ct of
une 25, 193t (49 Stat., 192(5), docs not provde a method for
determnng the date of competon thereof, the date of devery
of the artces specfed n the contract or subcontract s con-
sdered the date of competon for the purposes of secton 3 of
the ct, regardess of whether fu payment has been made or
whether the guarantee perod contaned In the contract or subcon-
tract has e pred.
dvce s requested wth respect to certan contracts entered nto
by the M Company under the ct of March 27, 1934 ( nson ct),
as amended by the ct of une 25, 1936.
The M Company was awarded contracts by the Secretary of the
Navy under the ct of March 27, 1934 ( nson ct), desgnated as
contract , dated n 1934, contract Y, dated n 1934, and contract
Z, dated n 1935. Contract provdes for certan equpment for
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530
nava vesses under constructon by the Navy Department. The
equpment s beng furnshed under two orders, the amount of each
order beng n e cess of 10,000. The equpment specfed theren
has been devered and nstaed aboard shp and the fu amount of
the contract prce has been pad by the Government.
Contract Y provdes for certan equpment for nava vesses
whch are beng constructed by the Navy Department. The equp-
ment caed for n ths contract s supped n accordance wth three
orders, the amount of each order beng n e cess of 10,000. of
the equpment specfed n such orders has been devered and n-
staed aboard shp. Payments aggregatng 90 per cent of the tota
contract prce have been made by the Government, the remander
beng wthhed pendng certan tests.
Contract Z provdes for the furnshng and nstaaton of certan
equpment for nava vesses whch are beng constructed by the
Navy Department. The amount of the order coverng each vesse
s n e cess of 10,000. Compete devery and nstaaton of the
equpment specfed n such orders have not been made. Payment
of ony a sma part of the tota contract prce has been made by
the Government on ths contract.
It aso appears that n March, 1936, the N Company paced two
orders wth the M Company, each of whch nvoves an amount n
e cess of 10,000, for equpment to be used by the N Company n the
constructon and as a part of nava vesses under a Navy contract.
No part of the cost of these orders has been pad by the N Company
and the guarantee perod has not e pred. It s not stated whether
devery as been made.
The nqury presented s whether the contracts and the sub-
contract mentoned above w bo deemed to be competed (a) when
devery of a of the artces specfed theren has been made or
(b) when fna payment of the tota contract prce has been made
or (c) when the guarantee perod has e pred.
In artce 1( ) of the reguatons prescrbed by Treasury Dec-
son 4723 (page 519, ths uetn) under secton 3 of the ct of
March 27, 1934, as orgnay enacted and as amended, the term
contract prce or tota contract prce s defned to mean the
amount or tota amount to be receved under a contract or sub-
contract as the case may be. The term competon of the con-
tract as used n secton 3(a) of the ct, as amended, s defned by
artce 5(a) of Treasury Decson 4723 as foows:
Wth the e cepton of these contracts whch provde a method
for determnng the date of competon, the date of devery of the vesse,
arcraft or porton thereof covered by the contract or subcontract sha be
consdered the date of competon of the contract or subcontract uness other-
wse determned by the Secretary of the Navy and the Secretary of the
Treasury or tor duy authorzed representatves.
It s hed that where devery of a of the artces specfed n the
contract or subcontract has been made, whether fu payment has been
made wth abty on the part of the contractor or subcontractor
under a guarantee for a certan perod, or whether a porton of the
contract prce has been wthhed to assure performance of the-
guarantee, the contract or subcontract (where t does not specfcay
provde a method for determnng the date of competon) w be
consdered as competed for the purposes of secton 8 of the nson
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531
Mss.
ct, as amended, on the date of devery of the artces specfed
n the contract or subcontract. owever, attenton s nvted to the
fact that e tenson of tme for makng pavment of any e cess proft
due may be granted under, and n accordance wth, sectons 56(c)
and 272(|) of the Revenue ct of 1934 and artces 56-2 and 272-3
of Reguatons 86.
I-24-8765
T. D. 4741
C SS PRO ITS ON N Y CONTR CTS.
penses of admnstraton Seng, bddng, and servcng e -
penses and sef-nsurance. meudmeut or Treasury Decson 4723
fpage 519, ths uetn .
Treasury Department,
Offce of the Secretary of the Treasury,
Washng to, D. C.
Navy Department,
Offce of the Secretary of the Navy,
Washngton, D. C.
To Offcers and mpoyees of the Treasury Department, the Navy
Department, and, Others Concerned:
rtce 8(g) of Treasury Decson 4723, reatng to e penses of
admnstraton, s amended to read as foows:
(g) penses of admnstraton. penses of admnstraton, usuay termed
admnstratve overhead, whch are treated n ths artce as a part of genera
e penses n determnng the cost of performng a contract or subcontract (see
paragraph (6) of ths artce) comprehend the e penses ncdent to and nec-
essary for the performance of the contract or subcontract, whch are ncurred
n the genera admnstraton of the busness, such as
(1) Compensaton for persona servces of empoyers. The saares of the cor-
porate and genera e ecutve offcers and the saares and wages of admnstra-
tve cerca empoyees and of the offce servces empoyees (teephone operators,
|antors, ceaners, watchmen and offce equpment reparmen).
(2) Seng ncudng bddng) and servcng e penses. In eu of drect
charges for seng e penses (ncudng bddng e penses) or for servcng e -
penses ncdent to devered or nstaed artces, there may be aocated to the
cost of performng a contract or subcontract the proportons of such e penses
whch by reference to a the pertnent facts and crcumstances reasonaby con-
sttute a part of such cost or the purposes of ths method of treatng seUng
and bddng e penses, the tota of such aowabe e penses whch may be the
bass of an aocaton to the cost of performng a contract or subcontract sha
ncude a e pendtures In connecton wth preparng and submttng bds or
other work ncdent to a prospectve contract or subcontract.
(3) Other e penses. Msceaneous offce and admnstratve e penses, such
as statonery and offce suppes, postage, repar and deprecaton of offce equp-
ment, empoyees wefare e penses, premums and dues on compensaton nsur-
ance empoyers payments to unempoyment, od age and soca securty ed-
era and State funds not ncudng payments deducted from or ohar pabe to
empoyees or offcers pensons and retrement payments to admnstratve offce
empoyees and accdent compensaton to offce empoyees (as to sef-nsurance,
see the foowng subparagraph) but ncudng no tems whch are not nc-
denta to actvtes necessary for the performance of the contract or subcontract.
Sub|ect to the e cepton stated n ths subparagraph, n cases where a con-
tractng party assumes ts own nsurabe rsks (usuay termed sef-nsur-
ance ), osses and payments w be aowed n the cost of performng a con-
tract or subcontract ony to the e tent of the actua osses suffered or payments
ncurred durng, and n the course of, the performance of the contract or sub-
contract and propery chargeabe to such contract or subcontract. If a contract-
ng party assumes ts own nsurabe rsks (a) for compensaton pad to em-
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532
poyoes for In|ures receved n the performance of ther dutes, or (6) for
unempoyment rsks n States where nsurance s requred, there may be aowed
as a part of the cost of performng a contract or subcontract a reasonabe por-
ton of the charges set up for purposes of sef-nsurance under a system of
accountng reguary empoyed by the contractng party, as determned by the
Commssoner of Interna Revenue, at rates not e ceedng the awfu or ap-
proved rates of nsurance companes for such nsurance, reduced by amounts
representng the acquston cost n such companes, provdng the contractng
party adopts and consstenty foows ths method wth respect to sef-nsurance
n connecton wth a contracts and subcontracts subsequenty performed by
hm.
owance for nterest on nvested capta are not aowabe as costs of
performng a contract or subcontract.
mong the tems whch sha not be ncuded as a part of the cost of per-
formng a contract or subcontract or consdered n determnng such cost, are
the foowng: Seng e penses, ncudng compensaton of empoyees engaged
n seng, operaton and mantenance of saes offces, commssons, advertsng
and demonstratons, deprecaton of saes equpment, and grats servce, whch
do not consttute proper charges (1) as drect costs or (2) as provded n
paragraph g) (2) of ths artce entertanment e penses dues and member-
shps other than of reguar trade assocatons donatons osses on other con-
tracts profts or osses from saes or e changes of capta assets e traor-
dnary e penses due to strkes or ockouts fnes and penates amortzaton of
unreazed apprecaton of vaues of assets e penses and deprecaton of de
pant ncreases n reserve accounts for contngences, repars, compensaton
nsurance (e cept as above provded wth respect to sef-nsurance) and guar-
antee work edera and State ncome and e cess profts ta es and surta es
cash dscount earned up to 1 per cent of the amount of the purchase, e cept
that a dscounts on subcontracts sub|ect to the ct w be consdered nterest
ncurred or earned bond dscount or fnance charges ncome from royates
premums for fe nsurance on the ves of offcers ega and accountng fees n
connecton wth reorganzatons, securty ssues, capta stock ssues and the
prosecuton of cams aganst the Unted States (ncudng ncome ta mat-
ters) ta es and e penses on ssues and transfers of capta stock osses on
nvestments bad debts and e penses of coecton and e change.
In order that the cost of performng a contract or subcontract may be
accounted for ceary, the amount of any e cess profts repayabe to the Unted
States pursuant to the ct shoud not be charged to or ncuded n such cost
cessve or unreasonabe payments whether n cash, stock or other property
ostensby for saares, bonuses or other compensaton for persona servces,
may not be ncuded n the cost of performng a contract or subcontract.
Ths Treasury decson s prescrbed pursuant to the provsons of
secton 3 of the ct of March 27, 1934 (48 Stat, L., 505, U. S. C,
Tte 34, secton 496), as amended by the ct of une 25, 1936 (49
Stat. L., 1926, U. S. C. Sup. II, Tte 34, secton 496).
Gut T. everng,
Commssoner of Interna Revenue.
pproved une 1, 1937.
OSW LL MaGILL,
ctng Secretary of the Treasury.
pproved une 3, 1937.
Caude . Swa so ,
Secretary of the Nary.
( ed wth the Dvson of the edera Regster une 7, 1986, 12.23 p. n.)
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533
Msc.
N RUPTCY CT.
I-15-8642
Ct. D. 1215
D R L T S R IS D ST TUT S N RUPTCY CT D CISION
O COURT.
ankruptcy Pboof or Cam of Partcuars ursdcton
of Court.
The Unted States s not requred to compy wth an order of a
referee n bankruptcy ssued on moton of the trustee and drect-
ng the fng of a b of partcuars n support of proof of cam
for ta es, where the proof compes n a respects wth the prov-
sons of the ankruptcy ct and no forma ob|ectons thereto have
been fed by the trustee. There s no statutory authorty nor any
provson of the rues or orders n bankruptcy authorzng the
court to order a b of partcuars of a cam of a credtor n a
bankruptcy proceedng.
Umed States Dstrct Court fob the Western Dstrct of New Tobk.
In the Matter of Chares L. Nobe, Debtor.
15 . Sup., 648.
Moton for confrmaton of referee s order drectng fng of b of partcuar
uy 18, 1936.
opnon.
Rppey, Dstrct udge: Ths matter comng on for revew of an order of the
referee drectng the Unted States Government to furnsh bs of partcuars
on two cams ted by the Government, one for ta es and the other for breaches
of the condtons of certan bonds attached to the cam.
On uy 15, 1935, rank . Shaughnessy, as coector of nterna revenue
for the twenty-frst coecton dstrct of New York, fed a cam duy verfed
on une 18, 1935, for the ta on 140,492 gaons of acoho manufactured by
the bankrupt and for three sma tems of whoesae quor deaers ta es for
7 months e prng une 30, 1933, the 12 months e prng une 30, 1934, and
the 12 months e prng une 30, 1985, respectvey, aggregatng 226,016.85,
wth nterest at the rate of 1 per cent per month from une 28, 1935, and
camed prorty for the payment of ta es beng fuy determned by secton
3466 of the Revsed Statutes and secton 64(a) of the ankruptcy ct. In
the verfed cam attenton s aso caed to secton 3467 of the Revsed Statutes
on the queston of prorty.
The second cam was fed by ohn . ynn as dstrct supervsor of the
coho Ta Unt, ureau of Interna Revenue, Treasury Department of the
Unted States, for 58,000 on or about October 29, 1935. The proof of cam
here kewse compes wth a requrements of the ankruptcy ct. The
proof ndcates that the cam s founded upon the breach of condton of three
bonds posted by the debtor, condtoned for the fathfu performance of a
permt and renewa thereof ssued by ynn on behaf of the Unted States
and permttng the wthdrawa, ta -free, of specay denatured acoho, the
pena sums mentoned n sad bonds beng respectvey 22,000, 18,000, and
18,000.
Prevous to acton upon ether cam by the referee, an order was ssued on
the appcaton of the trustee on ebruary 11, 1935, (1) drectng the camant
Shaughnessy to show cause why an order shoud not be made drectng hm
to furnsh a b of partcuars n varous respects, (2) drectng camant
ynn to show cause (a) why hs cam shoud not be e punged on the ground
that t was not fed wthn the tm- prescrbed by secton 57(n) of the Rank-
rnptcy ct (11 U. S. O. , 93(n)), or (6) f not e punged, why a b of
partcuars thereof shoud not be ordered, and (3) f bs of partcuars were
ordered n ether case, why the cam of the camant ordered to fe the b
shoud not be e punged n the event he shoud fa to compy wth the order.
The ground urged for t :s reef was, n substance, that the camants dd not
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534
set up suffcent facts n the cams as fed to enabe other credtors to In-
vestgate and the referee to pass upon the farness and egaty of the cams.
return was made before the referee to such order to show cause n each
case, n whch the |ursdcton of the court to drect the furnshng of bs of
partcuars was chaenged, and t was asserted that the camants had com-
ped n a respects wth the provsons of the bankruptcy aw n the matter
of the preparaton and fng of the cams. The referee overrued the ob|ec-
tons rased as to |ursdcton, hed that the ynn cam was fed n tme,
and ordered a b of partcuars n each case, n whch each camant was
requred to furnsh partcuars as to hs cam coverng substantay every
tem of evdence whch woud be necessary to enabe the camant to estabsh
hs cam n the event ssues were rased as to aowabty, f ob|ectons were
fed thereto.
No ob|ectons have been fed by the trustee to the aowance of ether
cam.
The aw s we setted that where the proof of cam compes n a respects
wth the provsons of secton 57 of the ankruptcy ct, t consttutes prma
face evdence of the vadty of the cam Whtney v. Dresser, 200 U. S., 532)
and s suffcent, on behaf of the camant, to overcome unsupported forma
ob|ecton (Rasmussen v. Oresy, 77 . (2d), 252). ad ob|ectons been fed n
good fath and suffcent evdence ntroduced thereon to overcome the prma
face case made by the cam tsef, t woud have been the duty of the cam-
ant to estabsh by a far preponderance of the credbe evdence (as he was
requred to do n the frst nstance) the vadty of hs cam. (See cases
supra and e ander v. Thccman, 63 . (2d), 610.)
There s no statutory authorty nor any provson of the rues or orders
n bankruptcy authorzng the court to order a b of partcuars of a cam
of a credtor n a bankruptcy proceedng. The ony decson caed to our at-
tenton or whch we have been abe to fnd for such practce s In re enry
Segc Co. (223 ed., 308), where t s hed by the dstrct |udge of Massachusetts
that where the proof reated to an unqudated cam the referee had power
under secton C3(b) of the ankruptcy ct to order fu specfcatons as one
step n the proceedng for the qudaton of the amount aeged to be due.
Secton 63(b) (11 U. S. O. ., 103(b)) provdes ony that unqudated cams
aganst the bankrupt may, pursuant to appcaton to the court, be qudated
n such manner as t sha drect, and may thereafter be proved and aowed
aganst the estate. It s dffcut to see how t can be consdered authorty for
the referee to order a b of partcuars of a provabe cam propery fed.
Its ony purpose s to provde procedure for qudatng cams provabe under
secton 63(a) f not aready qudated (Dunbar v. Dunbar, 190 U. S., 340,
349 Scha v. Camors, 251 U. S., 239). We do not here pass upon the queston
of whether the cams n queston are qudated, and therefore provabe, or un-
qudated, and therefore sub|ect to procedure for qudaton under secton
63(b). We hod merey that there s no authorty In aw for the practce of
requrng a b of partcuars of the cam of a credtor, whether hs cam
s qudated or not, and we have no power, by |udca decson, to estabsh
any such practce for ths dstrct.
The procedure n the matter of the provng and aowance or contest of
cams s defntey estabshed by the ct Debts whch may be proved are
enumerated n secton 03(a). Secton 57 and the genera orders and offca
forms provde for the form, proof and aowance of cams and procedure
where ob|ectons are fed. Cams, f proved, must be aowed uness ob|ec-
tons are fed by partes n nterest. though no ob|ectons are fed, the
referee must satsfy hmsef of the vadty of the cam and may, of course, of
hs own moton, requre further proof f the cam s unverfed, or, f verfed,
does not present a prma face case for aowance or, whether verfed or not,
f t does not set forth the facts wt suffcent partcuarty. If the cam
does not present a prma face case or s not amended or f the necessary
proof therefor s not presented after notce to present the same, the referee
may dsaow and e punge the cam. (Coer on ankruptcy, 13th ed.,
voume 2, paces 1130 et sequ and cases cted In re Cayton Magaznes, Inc.,
77 . (2d), 852.)
No reason appears why the trustee can not prepare and fe whatever ob-
|ectons ho may have to the cams n queston. It woud seem that one of
the specfcatons of ob|ecton mght propery be to the effect that the cams
as fed do not state facts suffcent to consttute a prma face cam, If the
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535
Mte.
trustee beeves such to be Ue fact. If such an ob|ecton were made and sus-
taned, t woud resut n the dsaowance and e pungng of the cam us to
whch t was made uness the camant shoud be aowed to amend and shoud
fe hs amendment wthn the tme aowed by the referee.
Ony one other consderaton needs attenton here, n vew of the decson to
send the matter back for further consderaton. It s possbe that the referee
made hs order on the theory that the New York State practce governed.
The Conformty ct (28 U. S. C. ., 724) does not appy to practce n
bankruptcy cases. In addton to that, the ankruptcy ct, together wth the
rues and genera orders, ays down a defnte practce whch woud bar fo-
owng State practce f t were otherwse avaabe.
If ths were a case where State practce were authorzed, a party coud not
be compeed to furnsh to hs adversary by way of a b of partcuars the
evdence upon whch he must rey to prove hs cam. The offce of a b of
partcuars has frequenty been stated to be to ampfy or mt the peadng
served to the end that the proof offered at the tra may be mted and addressed
ony to the questons arsng upon the peadng as thus ampfed or mted,
and that surprse and needess preparaton may be avoded. It w not be
ordered where the effect s merey to make the compant more defnte and
certan. ( espc v. Comng Gass Works, 9 . Supp., 72r .) The ends of
ustce here especay requre that the Government shoud not be requred
to dscose the detas of ts evdence n support of the cams pendng the
fng of forma ob|ectons, at east, or the tra of the ssue rased by such
ob|ectons, n vew of the fact that the debtor s under ndctment arsng
out of the transactons on whch the two cams arc founded.
In any aspect of the case, the orders were so broad as to requre the Govern-
ment to furnsh the evdence upon whch t w be requred to rey to estab-
sh ts cam. or e ampe, under the order requrng partcuars as to both
cams the camants were requred n genera to furnsh an temzed state-
ment of the acoho aeged to have been manufactured, statng the days and
dates on whch and the pace or paces where such manufacture occurred,
gvng the quantty so manufactured on each date and the use or dsposton
of each such quantty and the person or persons to whom the same was
devered and a partcuar statement of the way, manner and means of such
manufacture, the process used, the knd of acoho manufactured, and the
matera or substance used therefor. In addton, under the ynn cam,
camant was requred to furnsh a statement of the way, manner and means
of each dverson of acoho and the knd and descrpton of the acoho so
dverted and an temzed statement of the ta or ta es aeged to have been
assessed, showng n deta and n tems that part thereof aeged to be for a
ta and that part thereof aeged to be for a penaty or penates. The ynn
cam, upon ts face, purports not to be for a ta at a. The detas of the
cam are fuy set out. It thus appears that even though State practce were
permssbe n reaton to the furnshng of a b of partcuars, the orders
are too broad and woud requre modfcaton.
or the reasons above stated t s our opnon that the referee dd not have
ursdcton to make the order of ebruary 27, 103 , drectng the fng of a
b of partcuars, and I answer the queston certfed n the negatve. There-
fore the order s reversed and the matter remanded to the referee wth
nstructons to proceed n accordance wth ths opnon and as the partes may
be further advsed.
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536
MISC LL N OUS.
I-18-8G85
Mra. 4589
Procedure wth respect to submttng nqures to te I ureau
of Interna Revenue regardng ta abty.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, pr 21, 1937.
Offcas and empoyees of the ureau of Interna Revenue, Coectors
of nterna Revenue, Interna Revenue gents n Charge, and
Others Concerned:
The ureau s recevng a arge number of requests from ta -
payers and ther counse for rungs whch reate to the character
and e tent of ta abtes resutng from prospectve as dstn-
gushed from consummated transactons. cept upon specfc au-
thorzaton by the Commssoner of Interna Revenue or as ndcated
n (a) beow, the estabshed pocy of not compyng wth such
made ony under the foowng crcumstances:
(a) The transacton must bo competed and not merey proposed
or panned, e cept where the aw or reguatons provde for a deter-
mnaton by the Commssoner of the effect of a proposed transacton
for ta purposes, as n the case of a transfer comng under the pro-
vsons of sectons 901-904 of the Revenue ct of 1932, or an e -
change comng under the provsons of secton 112 () of the Revenue
ct of 1936.
(b) The compete facts reatve to the transacton, together wth a
copy of each contract, or other document, necessary to present the
queston, must be gven.
(c) The names of a the rea partes nterested must be stated
regardess of who presents the queston, whether an nterested party,
attorney, accountant, or other representatve.
(d) request for a rung must bo sgned by the ta payer,
or n case he s represented by an attorney or agent, the request
must be accompaned by propery e ecuted power of attorney. anks,
however, w not be requred to furnsh powers of attorney wth
respect to nqures affectng ther depostors.
copy of a rung addressed to a ta payer w not be furnshed
to hs attorney or agent uness the ureau s specfcay authorzed
to do so by the ta payer.
requests
Rungs w contnue to be
Gut T. everno,
Commssoner.
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537
fMsc,
I- -8566
Mn. 4298 (Rev.)
Symbos for use n correspondence
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ebruary 5, 1937.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Dstrct Supervsors, Deputy Commssoners, and Other Offcers
and mpoyees Concerned:
The foowng drectons supersede those contaned n Mmeograph
4298, dated ebruary 23, 1935 C. . I -, 547 , and a other
nstructons n confct herewth. so secton 06, Part I, of the
Interna Revenue Manua s amended to conform to the foowng:
very etter prepared n the ureau n Washngton w bear n
the upper eft-hand corner of the frst page, and mmedatey beow
the nstructons ddress repy to, etc., a symbo that w ndcate
the offce of orgn: Provded, That ths practce w not appy to
Congressona correspondence, nor to etters prepared for sgnature
by other than offcas of ths ureau.
very etter addressed to the ureau by a fed offce, f t s n
repy to a communcaton from the ureau, w bear, mmedatey
above the body of the etter and near the center of the sheet, the sym-
bo that appears n the communcaton that s beng answered thus
ttenton: IT: Rec: S. If the etter s not n repy to a ureau
communcaton, the symbo of the unt, dvson, or secton n the u-
reau concerned w be ndcated n the same manner, provded there
s no queston as to the proper symbo f any doubt e sts, no symbo
whatever w be used.
Where a fed offce uses a system of symbos n conductng ts
correspondence, the symbo used n ths connecton w be paced n
the upper eft-hand corner of the frst sheet of each etter addressed
to the ureau |ust beow the nstructons In repy refer to. The
ureau etter, f any, repyng to such communcaton w show the
fed offce symbos above the body of the etter n the same manner
as s prescrbed n the ne t precedng paragraph.
nveopes wth prnted or typewrtten address w be used by
fed offces n transmttng ma to the ureau, rather than wndow
enveopes. so, every such enveope or wrapper w bear, n the
ower eft-hand corner of the face thereof, the same symbo that s
quoted n the communcaton whch t ncoses. There s no ob|ec-
ton to forwardng n one enveope a number of communcatons
ntended for the same unt or dvson of the ureau n fact, ths
s desrabe. Under no crcumstances, however, shoud correspond-
ence pertanng to the work of one unt be ncosed n an enveope
addressed to another unt.
Informaton whch w assst the fed offcer n determnng the
destnaton of correspondence that s not n repy to ureau etters
may be obtaned by drectng an nqury to the dmnstratve
Dvson, Communcaton Secton.
Ony one sub|ect w be treated n any one etter.
The foowng represents the organzaton and symbos used:
708G 87 18
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538
O IC O T COMMISSION D
d dmnstratve Dvson.
d: C Communcaton Secton.
d: P Prntng and ndng Secton.
d: SL Space and Lease Secton.
d: S Suppes and qupment Secton.
P Personne Dvson.
Pub. Re. Pubc Reatons Dvson.
SD Speca Deputy Commssoner.
SD: Tn Tranng Dvson.
TS Technca Staff.
ccounts and Coectons Unt.
C: DC Deputy Commssoner.
C: D ssstant Deputy Commssoner.
C: D Dsbursement ccountng Dvson.
C: Co Coecton ccountng Dvson.
C: P S Coectors Personne, qupment, and Spuce Dvson.
coho Ta Unt.
T: DC Deputy Commssoner.
T: L Lega Dvson.
NfO C M NT DI ISION.
T: ssstant Deputy Commssoner.
T: amnng Secton.
T: PP Pardon and Paroe Secton.
T: nforcement es Secton.
T: M Raw Materas Secton.
P RMISSI ND DMINISTR TI .
T: P ssstant Deputy Commssoner.
T: I ed Inspecton Dvson.
T: PS Personne and Suppy Dvson.
T: PR Procedure Dvson.
T: S Statstca Secton.
T: udt Dvson.
T: onded ccounts Secton.
T: T Ta Secton.
T: L Laboratory Dvson.
Offce of tot Chef Counse.
GO: ppeas Dvson.
GC: C Cv Dvson.
GC: C: C Compromse Secton.
GC: I Interpretatve Dvson.
GC: L R Legsaton and Reguatons Dvson.
GC: P Pena Dvson.
GC: R Revew Dvson.
GC: d dmnstratve Dvson.
Mas and Records Secton.
Lbrary and Manuscrpt Secton.
Reorganzaton Secton.
Income Ta Unt.
IT Deputy Commssoner.
ssstant Deputy Commssoner.
IT: udt Dvson .
IT : udt Dvson .
IT: C udt Dvson C.
IT: D udt Dvson D.
IT: udt Dvson .
IT: Rev Revew Dvson.
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539
IMso.
CL RING DI ISION.
IT: CI ead of Dvson.
IT: CI: CC Cams Contro Secton.
IT: CI: P Provng Secton.
IT: CI: St Statstca Secton.
IT: Conf Conference Dvson.
NGIN RING ND LU TION DI ISION.
IT: ead of Dvson.
IT: : p pprasa Secton.
IT: : NR Natura Resources Secton.
IT: : PU Pubc Uttes Secton.
IT: : Se Securtes Secton.
IT: ed Procedure Dvson.
R CORDS DI ISION.
IT: Rec ead of Dvson.
IT: Rec: es Secton.
IT: Rec: S Sortng Secton.
IT: RR Rues and Reguatons Dvson.
IT: S Servce Dvson.
SOCI L S CURITY DI ISION.
IT: SS ead of Dvson.
IT: SS: R Rung and d|ustment Secton.
IT: SS: amnng Secton.
IT: SS: es Secton.
IT: | Speca d|ustment Dvson.
Integence Unt.
SI Chef, Integence Unt.
Msceaneous Ta Unt.
IT: DC Deputy Commssoner.
MT: C S tumnous Coa and Sver Ta Dvson.
MT: CST Capta Stock Ta Dvson.
MT : T state Ta Dvson.
MT: PT Processng Ta Dvson.
MT: ST Saes Ta Dvson.
MT: SS Soca Securty Dvson.
MT: T Tobacco Dvson.
Gut T. everno,
Commssoner.
I-16-8657
Mm.4576
Interna Revenue uetn.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, pr 7, 1937.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Offcers and mpoyees of the ureau of Interna Revenue, and
Others Concerned:
t the present tme two cumuatve buetns are pubshed
annuay, each of whch covers a perod of s months. There are
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540
assgned to these cumuatve buetns roman numera voume num-
bers. or e ampe| the cumuatve buetn coverng the perod uy
to December, 1935, s desgnated as Cumuatve uetn I -2, and
the cumuatve buetn coverng the perod anuary to une, 1936,
s desgnated as Cumuatve uetn -1. The weeky Interna
Revenue uetns, kewse, are assgned roman numera voume
numbers and numbers correspondng to the weeks of the year n
whch they are pubshed. or e ampe, the weeky buetn dated
March 29, 1937, s desgnated as oume I, No. 13.
It s beeved that some convenence woud be served f the voumes
of the buetns were desgnated by the year and the number of the
buetn for that year. It has, therefore, been decded that a new
system of numberng w be used for the cumuatve buetns for
1937, and they w be cted as C. . 1937-1 and C. . 1937-2. No
change, however, w be made n numberng the weeky Interna
Revenue uetns unt anuary 1, 1938, and De respectve buetns
ssued thereafter w be cted as I. R. . 1938-1, 1. R. . 1938-2,
etc.
Offcers and empoyees of the ureau of Interna Revenue, n ct-
ng a rung pubshed n a cumuatve buetn ssued pror to 1937,
shoud aso refer to the year of pubcaton. or nstance, G. C. M.
16020, whch appears on page 78, C. . -1, woud be cted as
foows: G. C. M. 16020, C. . -1, 78 (1936). If a weeky
Interna Revenue uetn ssued n 1937 or a pror year s cted,
the year of pubcaton shoud be shown. s an ustraton, G. C.
M. 17920, appearng on page 2, I. R. . I-18, woud be cted as
foows: G. C. M. 17920,1. R. . I-13, 2 (1937).
Correspondence and nqures regardng ths mmeograph shoud
refer to the numbers thereof and to the symbos IT: CTR.
Got T. evertnq,
Commssoner.
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541
IM.se.
OL OM RG RIN .
I-1-84G8
MS. 182
Schedue of oeomargarne produced and materas used durng the month of
November, 19S6, at compared wth November, 1935.
Tota producton of uncoored oeomargarne.
Ingredent schedue of uncoored oeomargarne:
abnssue o
Coconut o - -
Corn o
Cottonseed o-
Dervatve of gycerne
Lecthn-.
Mk
Neutra ard
Oeo o
Oeo stearne
Oeo stock
Ourcury ._.
Pam o
Pam kerne o
Peanut o
Sat
Sesame o
Soda (bentoate of).
Soya bean o
Tota-
Tota producton of coored oeomargarne.
Ingredent schedue of coored oeomargarne:
Coconut o
Coor
Cottonseed o
Dervatve of gycerne.
Muk
Neutra ard
Oeo o-
O
Oeo stock
Ourcury.
Pam o,.
Pam )
Peanu
Sat.
to-
o..
Soya
Tota..
of).
November,
1938.
Povndt.
31.031,200
33, 73ft 745
616, 784
10. 205. 437
10,100
10, 348. 014
100,881
2.038
8,308,804
17S.2. .3
1,948,673
259, 210
172.738
102.200
17,310
283,808
332.387
1,643,880
3,620
13,991
3,643,989
38. 048, 857
178,101
C 794
68,013
184
26,857
220
44, 178
5, 553
36,838
600
1.973
2,500
650
650
430
13, 479
36
7,313
207, 172
Of the amount produced, 32,166 pounds were reworked.
Of the amount produced, 20,921 pounds were reworked.
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Msc.
542
I-5-8527
MS. 183
Schedue of oeomargarne produced and materas used durng the month of
December, 1936, as compared wth December, 1935.
December.
- -
1936.
Pounds.
Tota producton of uncoored oeomargarne
88,612,503
Tota wthdrawn ta -pad
37,9-28, 720
33,388,096
Ingredent schedue of uncoorod oeomargarne:
abfssue oU.._ .
1,014,639
10,866,606
25,317
12,663,837
126,411
2.127
7,153, 649
194,513
1,899,926
296.814
236,620
3D. 451
277, 219
161.613
337,726
1,872, W
1,800
15,438
3,813,294
931,806
14,926,840
M.115
9,090,433
89,218
2,363
6,888.475
168,607
1,248,422
191,375
130.019
Neutra ard .
Oeo stearn
Oeo stock. . .
Ourcury _. .
Pam o- .
Pam kerne o .
94,054
877.170
1,725,450
8,353
14,177
271,0S0
Peanut o
Sat
Soda (bemoate of)
40.9S8.717
16,192,057
Tota producton of coored oeomargarne
160.724
183,496
Tota wthdrawn ta -pad _
62.556
49,11-
Ingredent schedue of coored oeomargarne:
305
49,800
127
34.877
204
34,800
3,770
27,838
400
2,859
150
6,220
390
13,663
110
2,440
400
96.774
199
23.609
Mk
148
4 ,37t
8,607
20,582
Ooo o
1,810
Peanut o ...
. 100
SO
14,035
16
Sat
Sunfower seed o
1170
Tota....
178,013
212.502
Of the amount produced, 38,565 pounds were reworked.
1 Of the amount produced, 32,411 pounds were reworked.
1 Of the amount produced, 26 pounds were reworked.
Of the amount produced, 64 pounds were reworked.
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543
Msc.
I-10-8588
MS. 184
Schedue of oeomargarne produced and materas used durng the month of
anuary, 1937, as compared eth anuary, 1936.
Tota producton of uncoored oeomargarn
Tota wthdrawn ta -pad.
anuary, 1937
Pound .
30. 7 5,55
Ingredent schedue of uncoored oeomargarne:
abassue o
Coconut o .
Corn o -
Cottonseed o._
Dervatve of gycerne ... ...
Lecthn
Mk.
Neutra ard .. .
OoooU
Oeo steerne
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
Coconut o
Coor
Corn o
Cottonseed o
Dervatve of gycerne
Mk
Neutra ard
Oeo o
Oeo stearne ....
Oeo stock: .
Ourcury
Pam o
Peanut o
Sat.
Soda
Soya .
Sunfower seed o.
Tota
of)
31.430,270
590, SSI
S, 678,486
181,008
13,702,264
88,328
2,710
5, 724, 550
161,318
1,281,458
258,887
132, 320
117.155
447, 808
293,792
1, 427, 891
1,144
13. 672
2, 682, 572
32,786, 125
170,028
59, 772
64
34,682
167
29
50,069
385
47, 468
4.206
22,809
1.850
1,255
45
20.980
346
14,729
104
4,548
203, 733
anuary, 1938.
1 Of the amount produced, 23,482 pounds were reworked.
Of the amount produced, 27,474 pounds were reworked.
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Msc.
644
I-13-8622
MS. 185
Schedue of oeomargarne produced and materas used durng the
ebruary, 1917, as compared wth ebruary, 1UM.
ebruary,
1937.
Tota producton of uncoored oeomargarne..
Tota wthdrawn ta -pad.
Ingredent schedue of uncoored oeomargarne:
Pounds.
n 30, 438, 842
Coconut o-
Corn o.
Cottonseed o
rvat
thn.
Dervatve of gycerne..
Lectr
Neutra ard..
Oku o..
Oeo stearne.
Oeo stock..
30, 745, 788
257,444
6, 5C7. m
172,560
12,850, 759
97,522
2,159
(,344,836
170,660
1,343, 211
Pam o
Pam
Pean
nut o..
o.
Sesame o
Soda (benzoate of)..
oya bean o
129,909
146, 040
82,850
246.253
1, 266, 524
11.640
2,710,209
Tota..
31,622.931
Tota producton of coored oeomargarne..
Tota wthdrawn ta-pad
179, 224
56.803
Ingredent schedue of coored oeomargarne:
abassue o...
Coconut o
Coor
Corn o
Cottonseed oL
Dervatve of gycerne
Lecthn
Mk
Neutra ard
Oeo o
Oeo stearne
Oeo stock
Pam o...
Peanut o _
Sat..
Soda (benzoate of)
8oya bean o
Sunfower seed o .
Tota
210, 579
Of the amount produced, 24,131 pounds were reworked.
Incudes 1,403,852 pounds omtted from the anuary, 1937,
1 Of the amount produced, 10,971 pounds were reworked.
Incudes 1,735,652 pounds omtted from the anuary, 1937, schedue.
Incudes 1,424,791 pounds omtted from the anuary, 1937, schedue.
1 Of the amount produced, 48 pounds were reworked.
I Of the amount produced, 20 pounds were reworked.
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545
Mso,
I-18-8688
MS. 188
Schedue of oeomargarne produced and materas used durng the month of
March, 1937, as compared wth March, 1938.
Tota producton of uncoored
Tota wthdrawn ta-pad
Ingredent schedue of
abassue o
Coconut o
Corn o
Cottonseed o-
Dervatve of gycerne.
Lecthn-
Mk
Neutra ard.
Oeo o
Oeo stearne
Oeo stock -
Pam oL
Pam kerne o
Peanut o-
Sat
so
Tota.
Tota producton of coored oeomargarne..
ta-pad
Ingredent schedue of coored oeomargarne:
abassaeoL
Coconut o..
Coor..
Corn o.
Cottonseed o
Dervatve of gycerne..
Mk
Neutra ard -
Oeo o
Oeo stearne.
Oeo stock..
Pam o._
Pam kerne o
Peanut o
Sat
Soda (benzoate of)--
Soya bean o
Tota..
March, 1937.
S5. 74,170
MS NO
181,715
147,147
593, 856
104.262
2,603
737,562
178, 231
532, US
230,273
158,089
202,447
M , 202
320, 065
494.269
38,059.919
16a 459
64,788
4.342
15,553
157
990
49, 634
279
56,791
6,873
25.939
7,580
2,188
11,110
725
1,278
11,477
47
10,354
184,287
1 Of the amount produced, 88,653 pounds were reworked.
1 Of the amount produced, 15,426 pounds were reworked.
1 Of the amount produced, 234 pounds were reworked.
Of the amount produced, 32 pounds were reworked.
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#
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Msc.
546
I-22-8727
MS. 187
Schedue of oeomargarne produced and materas used durng the month of
pr, 1937, as compared wth pr, 1936.
pr, 1937. pr,
oeomargarne..
Tota wthdrawn ta -pad ...
Ingredent schedue of uncoored oeomargarne:
abossue o .,
33.884,383
Coconut o..
Corn o
Cottonseed o
Dervatve of gycerne..
Lecthn.
Mk
Neutra ard.
Oeo o
Oeo stearne
Oeo stock
Pam o..
Pam kerne o
Peanut o
Rape seed o
at
esame o
Soda (benzoate of).
Soya bean o
3,029.441
4,084.999
63,953
14,723,124
93.495
2,948
6,325, 231
168,182
1,832,644
278,819
156, 285
161, 510
1,134,092
393,484
1,490,034
13. .M
2,746,938
TotaL.
38,198,738
Tota producton of coored oeomargarne.
Tota wthdrawn ta -pad...
146, 000
62,490
Ingredent schedue of coored oeomargarne:
abassue o..
Coconut c
Coor
Corn o.
Cottonseed o
Dervatve of gycerne-
Mk.
Neutra ard
Oeo o. -
Oeo stearne
Oeo stock
Pam o
Pam kerne o
Peanut o
Sat --
Soda (bemoate of)
Soya bean o
Tota.
2,406
11,155
128
321
65,461
245
S3,432
4,412
26,706
710
1,442
3,070
1,736
1,345
10,816
41
5,199
168,625
1 Of the amount produced, 28,919 pounds were reworked.
Of the amount produced, 14,206 pounds were reworked.
Of the amount produced, 640 pounds were reworked.
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#
p
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o
o
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547
Msc.
I-26-8792
MS. 188
Schedue of oeomargarne produced and materas used durng the month of
May, 1037, as compared v th May, 1936.
May, 1937.
May, 1936.
Pound .
28.811.770
Pounds.
25. 265, 49S
28, 794.142
25, 452,311
Ingredent schedue of uncoored oeomargarne:
2,613,413
1,034,517
9, 793, 729
229.19
7, 332,137
70, 871
1,441
4, 971. 350
135, 251
1,085,333
316, 449
117,844
71.096
215.542
168.304
1,207,137
1,400
11,030
209. 135
Dervatve of gycerne .
4,079. 470
117,312
12,615,022
86. 214
1.883
Lecthn..
Mk
8, 212.170
147.227
Neutra ard
Oeo o
1.094,898
274.819
113,040
153,178
832, 766
188.638
Oeo stearne _
Oeo stock
Pam oL
Pam kerne o _
1, 737, 626
Sesame o
cda (benzoate of) . _ ...
11.583
1,486,199
Tota
30.165, 454
27.148,822
128,744
314,700
Ingredent schedue of coored oeomargarne:
65,998
44, 670
Coor
3.163
14,364
129
687
41.671
227
31,908
3, 253
26,724
528
2,253
3.S 0
1,812
6.417
8, 447
37
4,023
766
185, 493
242
41
28,838
391
Mk
57.268
3.389
Oeo o
28.717
8.000
2,003
Oeo stock
Pam o
Pam kerne o
1,048
22,798
53
923
Sat
Tota- - -
148,255
337, 628
Of the amount produced, 14,289 pounds were reworked.
Of the amount produced, 35,231 pounds were reworked.
Of the amount produced, 382 pounds were reworked.
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548
TO CCO.
I-2-8479
T.30
Statement of manufactured tobacco produced, by casses, durng the month of
October, 1936, as compared wth October, 1935.
October,
1936.
October,
1935.
October,
1936.
October,
1935.
Pound .
Pound .
Pounds.
18, 036,186
Pounds.
18,280,680
Pug
6,328,258
603,301
435, 195
6,928,206
543,396
460,703
Smokng
Twst
ne-cut chewng
Tota
28, 395,135
29,280,643
Scrap chewng
3,992,195
4,067,658
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
I-G-853S
T.31
Statement of manufactured tobacco produced, by casses, durng the month of November
19S6, as compared wth November, 1986.
November,
1936.
November,
1935.
November,
1938.
November,
Pounds.
Pounds.
Pounds
15,203,008
1935.
Pug -
4, 409, 839
492, 810
409,056
4, 720,630
437,994
36S,346
14,811,607
Twst
ne-cut chewng
Tota
23,976,098
23.752,541
Scrap chewng
8, 371, 385
3,407,964
Note. These fgures are sub|ect to revson unt pubshed n the Commss oner s annua report.
I-10-8o89
T.32
Statement of manufactured tobacco produced, by casses, durng the month of
December, 1936, as compared wth December, 1935.
Pug
Twst
ne-cut chewng
December,
1936.
Pounds.
4, 455,169
676,727
621, 618
December,
1935.
Pounds.
4,052,361
457, 084
393,977
December,
1936.
Scrap chewng.
Smokng
Tota....
Pounds.
3,440,4 4
15,375, 428
24, 369,396
Pounds.
3.083,642
13,883,600
21,870,664
Note. These fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
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549 Msc.
I-14-8G34
T. 33
Statement of manufactured tobacco produced, by dases, durng the month of
anuary, 1037, as compared wth anuary, 1956.
anuary,
1837.
anuary,
1938.
anuary,
anuary.
,1937.
1936.
Poundt.
Pounds.
Poundt.
13.435,753
Poundt.
16,797,188
Pug
4,823,880
503.342
382.452
4,698,069
444,6 7
413.101
Smokng
Twst
ne-cut chewng
Tota
22,092,504
24,867,640
Scrap chewng
3.147,071
3,619,615
Note These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
I-18-8G87
T. 34
Statement of manufactured tobacco produced, by casses, durng the month of ebru-
ary, 1937, as compared wth ebruary, 1936.
ebruary,
1937.
ebruary,
ebruary,
1937.
ebruary,
1936.
1936.
Pound).
Poundt.
Poundt.
14,327,006
Poundt.
15,433,834
Pug
4,908,974
494,307
372.001
4,804.301
620.855
853.138
Smokng
Twst
ne-cut chewng
Tota
23,912,659
24, 571, 599
Scrap chewog
3,809,872
8,499,671
ot. These fgures are sub|ect to revson unt pubshed n I he Commssoner s annua report.
I-23-8751
T. 35
Statement of manufactured tobacco produced, by casses, durng the month of March
1937, as compared wth March, 1936.
March,
March,
1936.
March,
March.
1937.
1937.
1936.
Poundt.
Poundt.
Poundt.
17,634.877
Pound .
17.281,200
Twst
5,348,065
652,793
434,657
4,987,982
661,499
379,414
Tota
28.099,490
26.767,933
Scrap chewng
4,129,208
8,647.838
Note. These fgures are sub|ect to revson unt puhshed n the Commssoner s annua report.
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550
L GISL TION.
I-26-8790
. 160. PU LIC, NO. 96, S NTY- I T CONGR SS. C PT R 227,
IRST S SSION.
n ct mendng secton 2 of Pubc Law Numbered 716 of the
Seventy-fourth Congress, beng an ct entted n ct to reeve
restrcted Indans whose ands have been ta ed or have been ost
by faure to pay ta es, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 2 of
Pubc Law Numbered 716 of the Seventy-fourth Congress, beng an
ct entted n ct to reeve restrcted Indans whose ands have
been ta ed or have been ost by faure to pay ta es, and for other
purposes , s hereby amended to read as foows:
Seo. 2. homesteads, heretofore purchased out of the trust or restrcted
funds of ndvdua Indans, are hereby decared to be Instrumentates of the
edera Government and sha be nonta abe unt otherwse drected by Con-
gress : Provded, That the tte to such homesteads sha be hed sub|ect to
restrctons aganst aenaton or encumbrance e cept wth the approva of the
Secretary of the Interor: nd provded further. That the Indan owner or
owners sha seect, wth the approva of the Secretary of the Interor, ether
the agrcutura and grazng ands, not e ceedng a tota of one hundred and
s ty acres, or the vage, town, or cty property, not e ceedng In cost 5,000, to
be desgnated as a homestead.
pproved May 19, 1937.
C RRI RS T ING CT, PPRO D UGUST 29, 1935
(49 Stat., 974).
I-14-8632
. . R S. 212. PU LIC R SOLUTION NO. 9, S NTY- I T CONGR SS.
C PT R 19, IRST S SSION.
ont Resouton to amend the ct entted n ct to evy an
e cse ta upon carrers and an Income ta upon ther empoyees,
and for other purposes, approved ugust 29, 1935.
Resoved by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 12
of the ct entted n ct to evy an e cse ta upon carrers and
an ncome ta upon ther empoyees, and for other purposes,
approved ugust 29,1935, s amended by strkng out ebruary 28,
1937 and nsertng n eu thereof une 30, 1938.
pproved ebruary 27, 1937, 12 noon.
I-18-8620
. . R S. 249. PU LIC R SOLUTION, NO. 12, S NTY- I T
CONGR SS. C PT R 40, IRST S SSION.
ont Resouton uthorzng the Commssoner of Interna
Revenue to grant further e tensons of tme for fng returns
under Tte III of the Revenue ct of 1936.
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Resoved by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed, That the Commssoner
of Interna Revenue be, and he s hereby, authorzed to grant add-
tona reasonabe e tensons of tme for fng returns under Tte
III of the Revenue ct of 1936 for the caendar year 1935 and any
fsca year endng on or before ugust 31, 1936: Provded, That,
e cept n the case of ta payers who are abroad, no such e tenson
sha be made beyond une 15, 1937.
pproved March 13, 1937, 11 a. m.
OINT R SOLUTION TO PROT CT T R NU , TC.
(NO. 373, PPRO D UN 18, 1934.)
I-18-8675
Reguatons No. 17. mended pr, 1937.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
Dstrct Supervsors of the ureau of Interna Revenue and Others
Concerned:
The foowng reguatons are prescrbed under the provsons
of ont Resouton No. 373, approved une 18, 1934, entted ont
Resouton to protect the revenue by requrng nformaton concern-
ng the dsposton of substances used n the manufacture of dsted
sprts, whch s as foows:
Resoved by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed, That every person dsposng
of any substance of the character used In the manufacture of dsted
sprts sha, when requred by the Commssoner, render a correct
return In such form and manner as the Commssoner, wth the ap-
prova of the Secretary of the Treasury, may by rues and reguatons
prescrbe, showng the names and addresses of the persons to whom
such dsposton was made, wth such detas, as to the quantty
so dsposed of or other nformaton whch the Commssoner may re-
qure as to such dsposton, as w enabe the Commssoner to de-
termne whether a ta es due wth respect to any dsted sprts
manufactured from such substances have been pad. ny person who
wfuy voates any provson hereof, or of any such rues or regua-
atons, and any offcer, drector, or agent of any such person who
knowngy partcpates n such voaton, sha upon convcton be fned
not more than 500 or be mprsoned for not more than one year, or
both. s used n ths ont resouton (a) the term dsted sprts
has the same meanng as that n whch t s used n Tte II of the
Lquor Ta ng ct of 1934 (b) the term person ncudes Ind-
vduas, corporatons, partnershps, assocatons, trusts, and other n-
corporated and unncorporated organzatons (c) Commssoner
means the Commssoner of Interna Revenue and (d) the term
substance of the character used In the manufacture of dsted
sprts ncudes, but not by way of mtaton, moasses, corn sugar,
cane sugar, and mat sugar.
btto.e I. Defntons.
In these reguatons the foowng words and phrases sha, uness otherwse
stated, be consdered as havng the meanng heren defned:
(a) ct sha mean the ont Resouton of Congress No. 373, approved
nne 18. 1934, entted ont Resouton to protect the revenue by requrng
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Mne.
552
Informaton concernng the dsposton of substances used n the manufacture
of dsted sprts.
(6) Commssoner sha mean the Commssoner of Interna Revenue.
(c) Substance sha mean cane moasses of the grade commony known
as backstrap moasses dehydrated moasses corn sugar, beet sugar, and
cane sugar hydro sugar srup, 1. e. any known corn dervatve contanng
more than 60 per cent reducng sugar cacuated as de trose on a dry bass
yeast cder mat oak chps, charred and not charred urea, ammonum
phosphate, ammonum carbonate, ammonum suphate and other yeast foods
corn mea, corn chops, cracked corn, rye chops, mddngs, bran and other
gran dervatves.
(d) Unted States sha mean the contnenta Unted States and Its out-
yng possessons to whch the nterna revenue aws appy.
(e) Words n the snguar sha Incude the pura.
rtce II. Returns.
very person In the Unted States who consgns, ses or otherwse dsposes
of any substance, as defned In paragraph (c) of rtce I of these reguatons,
sha, when requred n wrtng by the Commssoner of Interna Revenue, the
Deputy Commssoner n charge of the coho Ta Unt, or a dstrct super-
vsor or actng dstrct supervsor of the coho Ta Unt for the purpose
of determnng whether a ta es due wth respect to any dsted sprts
manufactured from such substances have been pad, render In wrtng a correct
return showng (1) the date of the consgnment, sae, or other dsposton
of the substance (2) the quantty and knd of the substance consgned, sod,
or otherwse dsposed of (3) the name and compete address of the purchaser,
or person to whom dsposton s made, and f the sae or dsposton s made
by or through any other person, the name and compete address of such other
person (4) the name and compete address of the consgnee (5) the date
and method of shpment or devery, such as by truck, or other conveyance,
and the State or cty regstraton number of such truck, or other conveyance,
f any (6) the name and compete address of the drver of such truck, or
other conveyance, as shown by the drver s operator s cense, f any, gvng
the number of the cense and the date of Issuance (7) the name and
compete address of the person to whom actua devery has been, or s to be,
made and (8) the e act date of such devery, or proposed devery. Where
shpment Is made by a common carrer, such as a raroad, truckng company,
steamboat ne, etc., the nformaton requred by subdvsons (5) and (6)
of ths artce need not be reported, but n eu thereof there sha be furnshed
the compete routng of the shpment.
Returns sha be fed wth the offcer or empoyee of the ureau of Interna
Revenue desgnated by the Commssoner or the offcer requrng returns, not
ater than 10 days after the recept of the notce requrng the same to be fed,
uness that notce sha specfy a shorter perod of tme wthn whch the
return s to be made.
rtce III. Records.
very person n the Unted States who consgns, ses, or otherwse dsposes
of any substance, as defned n paragraph (c) of rtce I of these reguatons,
sha keep at hs pace of busness such books, records, documents, papers,
nvoces, bs of adng, etc., reatng to or connected wth any such consgnment,
sae, or other dsposton, as w enabe such person to make the return pro-
vded for by rtce II of these reguatons: Provded, That, uness the Com-
mssoner, Deputy Commssoner, dstrct supervsor, or assstant dstrct
supervsor sha, n wrtng, notfy any such person so to do, he sha not be
requred to keep such books, records, documents, papers, Invoces, bs of
adng, etc., when the consgnment, sae, or other dsposton of any such sub-
stances at the same tme, does not e ceed the foowng: (a) 800 pounds of
cane, corn, or beet sugar (6) 250 gaons of backstrap moasses, or (c) 6
pounds of yeast when packaged or cartoned In quarter pound, haf pound, pound,
or arger packages (d) 100 gaons cder (e) 250 pounds mat (/) 300 pounds
of dehydrated moasses (g) 250 gaons of hydro or sugar srup (h) 100
pounds of urea, ammonum phosphate, ammonum carbonate, ammonum su-
phate, or other yeast foods ( ) 300 pounds of corn mea, corn chops, cracked
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553
Msc.
corn, rye chops, mddngs, bran, or other gran dervatves. When any person
has made a return pursuant to the procedure provded for n rtce II of
these reguatons, such books, records, documents, papers, nvoces, bs of
adng, etc., sha be kept ready avaabe for, and open to, nspecton by any
offcer or empoyee of the coho Ta Unt of the ureau of Interna Revenue
durng the hours of busness of such person.
nc I . Deegaton or uthorty.
The Deputy Commssoner n charge of the coho Ta Unt, ureau of
Interna Revenue, s charged wth the admnstraton and enforcement of the
ct and these reguatons, under the drecton of the Commssoner.
These reguatons sha become effectve mmedatey.
Gut T. everng,
Commssoner of Interna Revenue.
pproved pr 27, 1937.
ROSW LL MaGILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster pr 29, 1937, 12.30 p. m.)
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2
0
2
7
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0
0
0
0
0
8
8
9
3
3
6
9
6
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n
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#
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IND .
.
(See Msceaneous ta es: dmssons.)
grcutura d|ustment ct, recovery of processng ta es. (See
Processng ta es.)
abama, State banks, soca securty ta es
coho, ndustra, formuae 11, 26, 31- , and 31-C, revoked
mendments:
Gaugng Manua (1934), paragraph 71
Reguatons 6, sectons 1, 5, 8, 12, 16
Reguatons 8
Reguatons 17, revsed
Reguatons 77, artce 53
Reguatons 80, artces 15, 17, 18, 19, 20, 21, 25, 36, 38, 67,
72, 73
Reguatons 86
rtce 22(a)-3 - --
rtce 55(b)-5 (added)
Reguatons 92, revsed
Reguatons 93, artces 1, 201, 301, 401, 402, 501, 504, 609. _.
Reguatons 94-
rtce 22(a)-3 ---
rtce 55(b)-5 (added)
Reguatons 98, artce 11
Treasury decsons
4434, superseded
4560..
4722
4723. ---
4731 ---
nson ct (Navy contracts), secton 3
nnutes:
Raroad Retrement ct, 1935, ta abty
Survvor annutant, ta determnaton
rzona, unempoyment compensaton fund, contrbutons to
rmy offcers, quarters furnshed, e empton
ssgnments:
O and gas eases, assgnee s abty
Trust ncome
ssocatons, dstngushed from trusts
.
ad debts:
anks
Charge-off deducton
Charge-offs ordered by edera Depost Insurance Cor-
poraton
Retenton of coatera after parta charge-off
ankruptcy, proof of cam, b of partcuars n support of
(555)
Rung
No.
8574
8590
8663
8469
8510
8675
8508
8614
8508
8635
8689
8621
8508
8635
8791
8480
(8633
8672
8718
8765
8672
8480
8674
8716
8754
8508
8784
8531
8747
8782
8692
8745
8642
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
2

0
4
:
3
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
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d

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.
n
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/
2
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2
7
/

n
u
.
3
0
0
0
0
0
8
8
9
3
3
6
9
6
P
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w
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h
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s
s
_
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#
p
d
-
g
o
o
g

e
556
Rung
No.
anks:
ad debts
Charge-off deducton
Charge-offs ordered by edera Depost Insurance Cor-
poraton
Mutua savngs, abty to fe nformaton returns
Natona, nsovent, returns by recevers or conservators
equests, sae of, gan or oss..
tumnous Coa ct of 1937, effectve date, reguatons amended.
onds:
Lquor Ta dmnstraton ct and Lquor nforcement ct.
Unted States savngs, ta abty for edera estate and gft
ta purposes
udng and oan assocaton, earnngs of, ta abty
ureau of Interna Revenue:
Correspondence symbos
Inqures regardng ta abty, procedure
usness e penses:
ttorney s fees, appontment of guardan
Contrbutons to State unempoyment compensaton funds.
(See Contrbutons.)
pendtures to avert enactment of egsaton
Mortgage nsurance premums, property not used n busness.
Saares, reasonabeness of, evdence
C.
Caforna, motor vehce fue ta
Canada:
Shps earnngs, equvaent e empton
Ta es
Net revenue, Ontaro, ta on profts, uebec, credts
Smar credt requrements
Capta e pendtures, property ta for pror years pad by pur-
chaser
Capta gans and osses:
Lfe nsurance pocy, gan from surrender of
Persona hodng companes, nonresdent foregn corporatons
Resdence converted nto renta property, sae of
Capta stock ta :
Corporaton s actvtes pror to acqurng assets of other cor-
poratons n uy, 193o, carryng on or dong busness
Dstrbutons from pad-n surpus, parta or compete qu-
daton, deducton
Carrers Ta ng ct:
mendment of, effectve perod e tended
Reguatons amended
Coast Guard and Coast and Geodetc Survey members, quarters
furnshed, e empton
Coconut o, etc. (See Processng ta es.)
Commssons, contract transferred to corporaton, to whom ta -
abe
Communty property, wfe s separate property under manage-
ment of husband, ta abty
Compensaton:
Insurance premums, corporaton s payment on offcer s
pocy, trust agreement
Persona servces, reasonabeness of, evdence
Comptroer Genera of the Unted States, saes by deaers for
e cusve use of Unted States, e empton certfcates
Connectcut, Pubcty Commsson, contrbutons to
8782
8692
8715
8732
8556
8791
8659
8643
8540
8566
8685
8076
8486
8624
8486
8714
8470
8695
8696
8485
8717
8648
8484
8584
8787
8632
8621
8508
8463
8473
8697
8486
8519
8703
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
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a
n
g

(
N
e
w

Y
o
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k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
2

0
4
:
3
0

G
M
T


/


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p
:
/
/
h
d

.
h
a
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d

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.
n
e
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/
2
0
2
7
/

n
u
.
3
0
0
0
0
0
8
8
9
3
3
6
9
6
P
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a

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,

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o
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w
w
.
h
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t
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/
a
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s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
557
Constructve recept, dvdends, porton credted to ta payer on
corporaton s books
Consuar offcers. (See Msceaneous ta es: Stamp ta es.)
Contracts, nava, nson ct, e cess proft on. (See nson ct.)
Contrbutons:
Chartabe
ass for computaton, capta net osses
y corporaton, funds used abroad, deducton
Connectcut Pubcty Commsson
State unempoyment nsurance fund
rzona
Credt aganst ta
mpover and empoyee, deductons
New ampshre
New York
Conveyance. (See Msceaneous ta es: Stamp ta es.)
Conveyance to nduce manufacturng company to ocate busness,
ncome
Corporatons:
Chartabe contrbutons, funds used abroad, deducton
empt, procedure n appcatons for e empton
Organzed n 1936, fsca year bass, appcabe revenue act
Correspondence symbos, ureau of Interna Revenue
Court decsons:
mercan Propeer St Manufacturng Co. v. Unted Staes
nderson Lawrence e a. v
nnston Manufacturng Co. v. Davs
tantc Macaron Co., Inc., v. Corwn
utomatc Washer Co. Unted States v
very v. Commssoner
auer v. Wech
enedum everng v
ar v. Commssoner
owers Potter v
retzfeder et a. v. Commssoner
rush v. Commssoner
uter e a. v. Carney
Caforna Iron Yards Corporaton v. Commssoner
Canaday v. Gueau
Carney uter et a. v
Carney odgman Rubber Co. v
Carney ussett M v
Chase Natona ank of New York Commssoner v
Cncnnat Soap Co. v. Unted States
Commssoner very v
Commssoner ar v
Commssoner retzfeder et a. v
Commssoner rush v
Commssoner Caforna Iron Yards Corporaton v
Commssoner v. Chase Natona ank of New York
Commssoner mhurst Cemetery Co. of oet v
Commssoner arbanks Court Whoesae Grocery Co. v
Commssoner God Stock Teegraph Co. v
Commssoner oderness v
Commssoner ohnson v
Commssoner Lews Co. e a. v
Commssoner McGure v
Commssoner Od Coony Trust Co. v
Commssoner Pacfc tantc Teegraph Co. v
Commssoner R. L., Inc., v
Commssoner Saenger, Inc., v
Commssorer Stuart, r., v
Rung
No.
8464
8640
8530
8703
8754
8763
8730
8755
8743
8472
8530
8771
8729
8566
8664
8681
8761
8619
8604
8640
8515
8680
8581
8596
8719
8628
8670
8603
8697
8670
8670
8670
8499
8720
8640
8581
8719
8628
8603
8499
8569
8627
8516
8649
8734
8747
8613
8746
8517
8463
8464
8582
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
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a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
2

0
4
:
3
0

G
M
T


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/
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d

.
h
a
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d

e
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n
e
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/
2
0
2
7
/

n
u
.
3
0
0
0
0
0
8
8
9
3
3
6
9
6
P
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D
o
m
a

n
,

G
o
o
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-
d

z
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d


/


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/
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.
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t
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/
a
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e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
558
Court decsons Contnued.
Commssoner v. Sunset Scavenger Co., Inc
Commssoner Sunset Scavenger Co., Inc., v
Commssoner Turbeve v
Commssoner Twnng v
Commssoner awter v
Commonweath of Massachusetts v. Unted States
Contnenta Ms, Inc., v. Unted Staes
Corwn tantc Macaron Co., Inc., v
Davs nnston Manufacturng Co. v
Davs everng e a. v
Davs Steward Machne Co. v
Dupont et a. v. Unted Staes
mhurst Cemetery Co. of oet v. Commssoner...
arbanks Court Whoesae Grocery Co. v. Commssoner
ounders Genera Corporaton v. oey
Gardner v. Wech
God Stock Teegraph Co. v. Commssoner
Gutteau Canaday v
askns ros. Co. v. O Maey
IIa set ussett M v
ener Unon Cub of Pttsburgh, Pa., v
everng v. Denedum
everng et a. v. Davs
everng Merchants ank udng Co. v
everng v. Mdand Mutua Lfe Insurance Co
everng v. arrott
everng Rodck v
everng v. Te -Penn O Co
everng Unted Sates e re. Grard Trust Co. v
Iodgman Rubber Co. v. Carney
oey ounders Genera Corporaton v
ohcnau et a. v. Unted Staes
oderness v. Commssoner
ubbard v. Unted Staes
udson Unted Staes v
uston v. Iowa Soap Co
Iowa Soap Co. uston v
ohnson v. Commssoner
eegan, In the matter of the e amnaton of
ey v. Unted Staes et a
rausz et a. v. Unted States
Lawrence et a. v. nderson
Leach Co., Inc. Unted Staes v
Lews (fc Co. et a. v. Commssoner
Lggett Myers Tobacco Co. v. Unted States
Lggett fc Myers Tobacco Co., on behaf of the Commonweath of
Massachusetts, v. Unted States
McGure v. Commssoner
Merchants ank udng Co. v. everng
Mdand Mutua Lfe Insurance Co. everng v
Nobe, Debtor, In the matter of
Obspo O Co. Wech v
Od Coony Trust Co. v. Commssoner
O Maey askns ros. Co. v
Pacfc tantc Teegraph Co. v. Commssoner
Parrot everng v
Perkns et a. Thomas v
Potter v. owers
ussett M v. Carney
ussett M v. Iasset
ussett M v. Whte
R. L., Inc., v. Commssoner
8486
202
84S6
202
8473
199
8556
210
8544
184
8501
332
8701
492
8019
500
8761
485
8775
360
8779
444
8558
336
8569
209
8627
212
8604
344
8515
256
8516
262
8697
182
8720
317
8670
495
8545
334
8680
236
8775
360
8485
189
8595
178
8680
236
8736
290
8680
236
8760
278
8670
495
8604
344
8474
302
8649
295
8706
259
8535
353
8533
311
8533
311
8734
187
8785
230
8570
276
8474
302
8681
293
8604
344
8747
232
8501
332
8501
332
8613
215
8485
189
8595
17S
8642
533
8707
273
8746
227
8720
317
8517
260
8680
236
8784
162
8596
254
8670
495
8670
495
8670
495
8463
173
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
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a
n
g

(
N
e
w

Y
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k

U
n

v
e
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s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
2

0
4
:
3
0

G
M
T


/


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t
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/
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.
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.
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/
2
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2
7
/

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3
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0
0
0
0
8
8
9
3
3
6
9
6
P
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s
s
_
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#
p
d
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o
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e
559
Rung
No.
Court decsons Contnued.
Rodek v. everng
Saenger, Inc., v. Commssoner
Sonznskyv. Unted States _
Steward Machne Co. v. Davs
Stone v. Whte
Stuart, r., v. Commssoner
Sunset Scavenger Co., Inc., v. Commssoner
Sunset Scavenger Co., Inc. Commssoner v
Te -Penn O Co. everng v
Thomas v. Perkns et a
Turbeve v. Commssoner
Twnng v. Commssoner
Unon Cub of Pttsburgh v. ener
Unted States mercan Propeer Manufacturng Co. v
Unted States v. utomatc Washer Co
Unted Stees Cncnnat Soap Co. v
Unted States Commonweath of Massachusetts v
Unted States Contnenta Ms, Inc., v
Unted Sates Dupont et a. v
Unted States e re. Grard Trust Co. v. everng
Unted States ohenau et a. v
Unted States ubbard v... --- --- -.
Unted States v. udson
Unted States et a. ey v
Unted States rausz et a. v
Unted States v. Leach Co., Inc
Unted States gget Myers Tobacco Co. v
Unted States Lggett Myers Tobacco Co., on behaf of the
Commonweath of Massachusetts, v
Unted States Sonznsky v -
aw .er v. Commssoner
Wech auer v
Wech Gardner v
Wech v. Obspo O Co
Whte ussett M v.
Whte Stone v.. --
Courts:
Crcut court of appeas, return of records for proper authen-
tcaton
In|uncton to restran coecton of ta es, |ursdcton
Revew of speca assessment determnaton, |ursdcton
Credt or refund, customs dutes and ta es, ta abe status
Credts:
Corporatons
Contract restrctng dvdend payments
Dvdends pad
Dstrbutons n qudaton
cess-profts ta computaton, mutua nvestment
companes
Stock dvdend dstrbuton
Dvdends receved, e cess-profts ta computaton, mu-
tua nvestment companes
oregn ta es
Canada, smar credt requrement
Me co, e portaton of captas ta , domestc corporaton.
Ontaro ta on net revenue, uebec ta on profts
Saary earned abroad
8736
8464
8650
8779
8759
8582
8486
8486
8680
8784
8473
8556
8545
8664
8604
8720
8501
8701
8558
8760
8474
8706
8535
857(1
8474
8604
8501
8501
8650
8544
8515
8515
8707
8670
8759
8570
8533
8707
8594
f8482
8541
8625
8647
8704
8461
8704
8696
8483
8695
8706
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
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g

(
N
e
w

Y
o
r
k

U
n

v
e
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s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
2

0
4
:
3
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
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a
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d

e
.
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/
2
0
2
7
/

n
u
.
3
0
0
0
0
0
8
8
9
3
3
6
9
6
P
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a

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,

G
o
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-
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e
d


/


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:
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w
.
h
a
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t
r
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/
a
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s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
560
Credts aganst ta :
Contrbutons to State unempoyment fund, soca securty
ta es
Ta wthhed at source, partnershp members
Customs dutes and ta es, refunds of, ta abe status
D.
Daas (Te .) dvson, determnaton of ncome and profts ta
n -
Defcency n ta , nterest on, notce and demand requrement.
Deaware ncome ta , |ont and separate returns, deducton
Denatured acoho, formuae 11. 26, 31- , and 31-C, revoked...
Depeton, o and gas wes, ntangbe drng costs, e pense
deducton, eecton by successor company
Deprecaton:
d|ustment, gan or oss bass, deprecaton sustaned pror
to 1909-. -
Improved mnera property, bass where percentage depeton
e ceeds cost
Dsted sprts:
Dsposton of substances used n manufacture of
In bottes, purchase and use of strp stamps, Puerto Rco
Labeng quor bottes and other contaners
ffectve date e tended
Markng packages of, Gaugng Manua amended
Remova of dsted water from dstery premses, regua-
tons amended
Shpment n tank cars, method of payment of nterna rev-
enue ta on, reguatons
Dvdends:
udng and oan assocatons reorganzed as edera savngs
and oan ssocatons, ta abty
Credt re contracts restrctng payment of
Pad, credt for
Dstrbutons n qudaton
cess-profts ta , computaton, mutua nvestment
company
Porton credted to ta payer on corporaton s books, con-
structve recept
Receved, e cess-profts ta computaton, mutua Investment
companes
Redempton of stock
Wthodng ta at source
Dues, etc. (See Msceaneous ta es: Dues.)
.
states and trusts, decedent s estate durng admnstraton, wdow s
aowance, deducton
state ta :
ssessment and coecton where property was sezed by
en Property Custodan
Deductons
Pedges to orphan asyum, etc
Trustees commssons
Gross estate-
Death beneft pad by empoyer to benefcary desg-
nated by deceased empoyee
Nonresdent decedent, property passng under w or
marrage settement
Rung
No.
8763
8679
8594
8757
8664
8498
8590
8770
8786
8637
8675
8591
8633
8672
8663
8510
8658
8540
8482
8541
.8625
8647
8704
8464
8704
8613
8543
8705
8474
8719
8719
8583
8736
G
e
n
e
r
a
t
e
d

f
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L

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Z
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g

(
N
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w

Y
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k

U
n

v
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s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
2

0
4
:
3
0

G
M
T


/


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d

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7
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3
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0
0
0
0
8
8
9
3
3
6
9
6
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s
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#
p
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e
561
state ta Contnued.
Gross estate Contnued.
Rea estate sub|ect to admnstraton e penses
Transfer n trust, power to ater, amend, or revoke
Transfers n contempaton of death, evdence
Unted States savngs bonds, ta abty of
Lmtaton statute, property sezed by en Property Cus-
todan
Reguatons 80(1934) amended
amnaton of wtnesses, revenue agent s authorty to requre
testmony under summons
cess proft, nava contracts, nson ct. (See nson ct.)
cess-profts ta :
Dvdends pad credt, mutua nvestment company
Net ncome computaton, 1936, deductbty
change rates, foregn
changes:
Gan or oss
onds for stocks, separate companes
Converson of bonds nto stocks
Reorganzaton, gan or oss
cse ta es, Soca Securty ct, consttutonaty
empt corporatons:
ppcatons for e empton, procedure
Scavenger servce organzaton
empt ncome:
nnutes, under Raroad Retrement ct, 1935
Compensaton, State offcers and empoyees. (See States.)
arnngs of shps documented under foregn aws
Canada
Grenada
Netherands
Sweden
Indans, Osage, ncome from restrcted aotment
uarters furnshed offcers and ensted men, reguatons
amended
Retrement pay, foregn servce offcers
tenson of tme, fng of returns:
ppcatons for
Payment of soca securty ta es
.
edera Depost Insurance Corporaton, debts charge-offs ordered
by, deducton
edera empoyees, foregn servce, traveng e penses
edera savngs and oan assocaton, earnngs of, ta abty
ees, attorney s, appontment of guardan, deducton
oor stocks, payments wth respect to, treatment of
oregn e change, rates prevang December 31, 1936
oregn servce:
mpoyees, State Department, traveng e penses
Offcers, retrement pay
orms:
1087, ownershp certfcate, mtaton on use of
1134, appcaton for e tenson of fng perod
Rung
No.
8719
f8499
L8649
8681
8643
8474
8614
8785
8704
8661
8542
8580
8772
8557
(8775
8779
8771
8480
8674
8470
8471
8513
8744
8691
8508
8512
8693
/S509
8686
8692
/8733
18735
8540
S676
8593
8542
/8733
8735
8512
8662
8693
G
e
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2
0
1
3
-
0
1
-
2
2

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4
:
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7
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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
9
6
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#
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e
562
Gan or oss:
ass for determnng, ad|ustment, deprecaton sustaned
pror to 1909.-.
changes
onds for stocks, separate companes
Converson of bonds nto stocks
Reorganzatons
Reorganzaton, consderaton receved, revew of oard s
utmate fndng
Saes
March 1,1913, vaue, authorty of court to reverse oard s
decson
Property acqured by bequest, remander nterest
Property acqured n reorganzaton
Stock receved as dvdend
Gft ta :
Transfer of property to nduce busness ocaton
Unted States savngs bonds, ta abty of
Grenada, shps earnngs, equvaent e empton
II.
ypothetca questons.
I.
Indana, State banks, soca securty ta es
Indans:
Labty for soca securty ta es
Osage, ncome from restrcted aotment, ta abty
Restrcted, homesteads purchased out of trust funds
Informaton at source:
Ownershp certfcates, dvdends, mtaton on use of
Returns, e empt mutua savngs banks
In|uncton restranng coecton of ta , coconut o, etc
Insurance companes, fe, soca securty ta es, deducton
Insurance poces, fe, surrender of, capta gan
Insurance premums, payment by corporaton on offcer s pocy,
compensaton
Interest:
ccrued, on oans, forecosure sae by mortgagee, ncome
ond, pad outsde Unted States by foregn guarantor, wth-
hodng
Defcency n ta , notce and demand requrement
Denquency n payment of ta wthhed, agent s abty
Mortgages nsured under Natona ousng ct
Trust fund for payment of nsurance premums
Interna Revenue uetn, change n system of numberng
Iowa saes ta
Irrgaton dstrcts, e cse ta on saes to.
ursdcton:
Court s revew of Commssoner s determnaton of speca
assessment
In|uncton restranng coecton of ta , coconut o, etc
entucky, State banks, soca securty ta es I 8597
Runft
No.
8786
8580
8772
8557
8680
8569
8556
8627
8544
8472
8643
8471
8685
8476
8706
8691
8790
8662
8715
8533
8783
8717
8697
8595
8C02
8664
8462
8601
8734
8657
/S773
8774
8644
8707
8533
G
e
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2
0
1
3
-
0
1
-
2
2

0
4
:
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0

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2
7
/

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3
0
0
0
0
0
8
8
9
3
3
6
9
6
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#
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e
563
L.
Leases, o and gas, assgnment, assgnee s abty
Legsaton:
Carrers Ta ng ct, e tenson of
Restrcted Indans, homesteads purchased out of trust funds
Returns, Tte III, 1936 ct, e tenson of tme for fng
Lquor Law Repea and nforcement ct, reguatons
Lquor ta , New York
Lquor Ta dmnstraton ct:
Reguatons
mended
onds, approva of
Markng packages of dsted sprts
Ta on shpment of dsted sprts n tank cars
Transfer of ta -pad rectfed sprts by ppe ne
Losses, trustees rembursement to trust for mproper nvestment
Lousana, u ury or reta saes ta , deductbty
Lubrcatng o. See Manufacturers e cse ta es.)
M.
Manufacturers e cse ta es:
empton certfcates to deaers makng saes to Unted
States, Comptroer Genera s opnon
Irrgaton dstrcts, saes to
Lubrcatng o, used or waste os, separaton nto sembrght
stocks or neutras or other fractonated products
Refrgerators, unform charge coverng repars, etc
Toet preparatons, etc., nment of soft soap, U. 8. P.,
tncture of green soap, U. S. P
Maryand, State banks, soca securty ta es
Me co, e portaton of captas ta aw
Mchgan:
Prvege ta , deductbty
Land contracts, stamp ta
Mnes, deprecaton bass, percentage depeton e ceedng cost...
Msceaneous ta es:
dmssons, cub s swmmng poo
Dues, soca cub
Stamp ta es
Conveyances, water rghts, Caforna
Land contracts, qutcam deed
Mchgan
Nebraska
Natona rearms ct, consttutonaty
Passage tckets, e empton
Certfed persons attendng oy Scout Word
amboree
Consuar offcers of Savador
Consus genera of Swtzerand
Sae of produce for future devery
Sver buon, transfers of, consttutonaty
Stock transfers
Guardan to ward, abama, Caforna, Inos,
Mchgan, Washngton -.
Income ta deducton
Tobacco, manufactured, sod to State for free dstrbu-
ton to patents n State hospta
Transfer of rght to receve stock, nomnees
Mssour, State banks, soca securty ta es
Rung
No.
8784
8632
8790
8620
8689
8731
8469
8718
8659
8663
8658
8726
8582
8496
8519
8644
8500
8518
8549
8483
8529
8571
8637
8699
8545
8708
8571
8788
8650
8752
8665
8737
8558
8535
8534
8677
8501
8604
S560
G
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2
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1
3
-
0
1
-
2
2

0
4
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0

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2
7
/

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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
9
6
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#
p
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e
564
Mortgages:
Insurance premums on, deducton
Insured under Natona ousng ct, nterest on, ta abty..
Motor vehce fue ta , Caforna
Mutua nvestment companes, e cess-profts ta , dvdends pad
credt
N.
Natona rearms ct. (See Msceaneous ta es: Stamp ta es.)
Navy:
Contracts under nson ct. (Set nson ct.)
Offcers, quarters furnshed, e empton
Nebraska, and contracts, stamp ta
Netherands, shps earnngs, equvaent e empton
New ampshre, unempoyment compensaton fund, contrbutons
to
New York:
Lquor ta
Unempoyment nsurance fund, contrbutons to, deducton..
Nonresdent aens, dvdends, wthhodng ta at source
Nonresdent foregn corporatons, persona hodng companes,
capta gan treatment
O.
Oho, department of quor contro, empoyee s compensaton,
e empton
O and gas propertes:
Intangbe drng costs, e pense deducton, eecton by suc-
cessor company
Leases, assgnment, assgnee s ta abty
Oeomargarne:
Schedue producton and materas used
November, 1936 and 1935
December. 1936 and 1935.
anuary, 1937 and 1936
ebruary, 1937 and 1936
March, 1937 and 1936
pr, 1937 and 1936.
May, 1937 and 1936
Ownershp certfcates, dvdends, mtaton on use of
P.
Partnershps, ta wthhed at source, members credt
Passage tckets. (See Msceaneous ta es: Stamp ta es.)
Penates, faure to fe return, return prepared by ureau
Pennsyvana, empoyees compensaton, admnstraton of unem-
poyment compensaton aw
Persona hodng companes, nonresdent foregn corporatons,
capta gan treatment
Phppne Isands, resdents of, ncome ta abty
Processng ta es:
Cam for refund, vadty of procedura requrement
Coconut o, etc.
Consttutonaty of secton 602 4, 1934 ct
In|uncton to restran coecton of ta , |ursdcton of
court
Procedure n e amnaton of ncome returns where deductons
camed
Rung
No.
8624
8601
8714
8704
8508
8788
8513
8755
8731
8743
8543
8648
8758
8770
8784
8468
8527
8588
8622
8688
8727
8792
8G62
8679
8514
8638
864S
8694
8619
8720
8533
f875
G
e
n
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f
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(
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2
0
1
3
-
0
1
-
2
2

0
4
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7
/

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3
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0
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0
0
8
8
9
3
3
6
9
6
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#
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e
565
Rung
No.
Page.
Processng ta es Contnued.
Recovery of ta es
dmnstratve procedure, consttutonaty
Coector s abty, Tte II, 193G ct, consttutona-
ty-
Sut commenced pror to enactment of 1936 ct
When reported as ncome
Produce, sae on e change. (See Msceaneous ta es: Stamp
ta es.)
Puhc eath Servce members, quarters furnshed, e empton
-
uarters and commutaton of quarters, e empton
R.
Raroad Retrement ct, 1935, annutes, ta abty
Rates of e change, foregn
Recevers, nsovent natona banks, returns
Refrgerators. (See Manufacturers e cse ta es.)
Reguatons:
mendments. (See mendments: Reguatons.)
pprova of bonds, Lquor Ta dmnstraton ct and
Lquor nforcement ct
Shpment of dsted sprts n tank cars
Transfer of ta -pad rectfed sprts by ppe ne -
Rentas, payments to essor s stockhoders, ncome
Reorganzaton:
changes n connecton wth gan or oss bass
Resdenta property, sae of, capta oss
Retrement pay, foregn servce offcers, ta abty
Returns:
tenson of tme for fng
aure to fe, return prepared by ureau, penaty
Inspecton of orgna, perod e tended
Recevers, nsovent natona banks
Soca securty ta es. (See Soca securty ta es: Returns.)
Revenue agents, authorty to requre testmony under summons-
Rhode Isand, State banks, soca securty ta es
Rungs, request for, procedure
S.
Gan or oss
March 1, 1913, vaue, authorty of court to reverse
oard s decson
Property acqured by bequest, remander nterest
Property acqured In reorganzaton
Stock receved as dvdend
Resdenta property, capta oss
Ta es. (Set Ta es.)
an rancsco (Caf.) dvson, determnaton of Income and
profts ta In
Shps, foregn, e empton of Income from, Sweden
Sver buon, ta on transfers of:
Consttutonaty
8761
8670
8701
8626
8508
8508
8674
8542
8732
8659
8658
8726
/8516
8517
8680
8557
18627
8484
8512
/8620
8693
8514
8635
8732
8785
8536
8685
8569
8556
8627
8544
8484
8757
8744
8535
/8531
8678
G
e
n
e
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a
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d

f
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L

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g

(
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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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2
7
/

n
u
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3
0
0
0
0
0
8
8
9
3
3
6
9
6
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#
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e
566
Rung
No.
Soca cubs, dues. (See Msceaneous ta es: Dues.)
Soca securty ta es:
Coecton and payment of ta es, e tenson of tme, payment
of ta ---
Computaton of empoyer s and empoyee s ta es, varaton
n amounts
Computaton where more than one day wage payment
Consttutonaty, Soca Securty ct
Credt of contrbutons aganst ta
ecton to be sub|ect to State aw
Payment n year pror to certfcaton
Deducton, net ncome computaton
mpoyees ta deducton from wages, statements showng..
mpoyees
d|usters engaged by fre underwrters board.. ...
ttorney pad retaner fee
uctoneers, temporary
enefcares of estate empoyed by admnstrator
udng and oan assocaton drectors, commttee serv-
ces for specfed fees
Chropodst wth offce n department store
Corporaton offcers, honorary
ducares
Indvduas empoyed by corporaton or ts subsdares.
Loca representatves, cotton growers assocaton
Massachusetts trust, trustees and board members
Moton pcture machne operator, reef or substtute
Newspapers
Country correspondents
Servces performed n dstrbuton of
Partnershp assocaton, Pennsyvana, members of
Pensoners and empoyees dstngushed
Porter n barber shop --
Roentgenoogst under contract and wth genera practce.
Servces performed n home on pecework bass
Stevedore assocaton, members of, contract wth vesse
owners through busness agent
Student nurses n prvate hospta . ,_.
Supervsed and pad by department head pad on unt
bass
Ta cab drvers under contract wth ta cab company
Trustees n bankruptcy
mpoyers
gent managng property for owner
Contractors and |obbers
Corporaton or ts subsdares, or both, empoyng nd-
vduas
Trustees n bankruptcy
Trusts or estates
cepted servces
grcutura abor, meanng of term
en empoyees, temporary stay nUnted States
anks n qudaton
Chcken hatchery
Commerca fower growers
Cotton gnnng and rce mng
Dary, commerca
Dredges used for navgaton and transportaton
erryboat empoyees seng candy, etc., crew mem-
bers
raterna beneft socety, Pennsyvana
r8509
453
,8686
459
8546
358
8645
356
8775
360
,8779
444
8780
456
8763
455
8610
68
8465
357
8709
381
8524
462
8723
380
8651
376
8520
372
8738
382
8724
460
8615
375
8740
391
8748
383
8667
377
8503
371
8572
373
8475
370
8605
374
8507
461
8721
379
8738
382
8668
378
8488
386
8722
380
8489
387
8749
334
8586
463
8548
388
8739
390
8740
391
8629
389
8725
464
8615
375
8630
397
8652
394
8666
365
8606
393
8491
463
8700
403
8750
404
8504
408
8587
473
8608
434
G
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1
3
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2
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
9
6
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567
a securty ta es Contnued.
cepted servces Contnued.
raterna organzaton, grand odge and subordnates,
abty of
Godfsh farm
Gum nava stores, growng, marketng, etc., of
orses, racng and e hbtng
Indans
Muncpay owned
erry company
Gas pant
Mushroom growng and processng ..
Nurse temporary empoyed u prvate home
Nurserymen
Rabbt rasng, commerca
Regous, chartabe, and ke organzatons, e empted
from ncome ta
Schoo prvatey owned and operated for proft
Servces n home of deceased empoyer durng estate s
admnstraton
Servces performed n Unted States and Canada
Smar provsons of Ttes III and I
State banks
abama --
Depostores of posta savngs funds
Indana
Insured by edera Depost Insurance Corporaton-
entucky
Maryand
Mssour
North Dakota
Rhode Isand
Utah
State nstrumentates
anks. (See above.)
Lquor Contro Commsson, West rgna
Lower Coorado Rver authorty
Port dstrcts, Washngton --.
Power dstrcts, Nebraska
Savngs and oan assocatons, New York
Water mprovement dstrct, Te as
Sugar factores
Unted States nstrumentates
udng and oan assocatons, etc., nsured by
edera Savngs and Loan Insurance Corporaton..
Cearng house assocaton
Court reporters, partnershp and empoyees
edera credt unons
edera home oan banks, etc
edera ome Loan ank System, members of
edera and banks, etc
Referee n bankruptcy and empoyees of
Safe depost company .
Trust company takng part of assets of nsovent
natona bank
Waver of e cepted status
Wne producton, marketng, etc
Insurance company, fe, nvestment e pense deducton
Labty for ta es where empoyment s termnated
Returns
Caendar year bass
Corporaton n bankruptcy, perod operated by trustee..
tenson of tme for fng
Rung
No.
8502
8653
8607
8777
8766
8493
8537
8654
8490
8492
8789
8477
8710
8616
8684
8523
8574
8631
8476
8505
8597
8549
8560
8655
8536
8506
8501
8641
8559
8550
8585
8762
8564
8598
8562
8741
8683
8467
8576
8466
8617
8575
8778
8573
8682
8783
8776
8563
8725
8509
18686
18693
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568
Rung
No.
Pag .
Soca securty ta es Contnued.
Returns Contnued.
Partnershp and successor corporaton, fractona year
perods
Partnershps, |ont and separate returns
Procedure n re fng orms SS-1, SS-2 and SS-2a
Under Tte III made avaabe to Soca Securty oard.
Wages
dvance payments to saesmen
oard and odgng furnshed empoyees of sororty
onus payments, empoyer on fsca year bass
Cash bonus for pror years servces, dsmssa wages ds-
tngushed
Commssons reduced by saes canceaton n ater year..
Contract coa mners
Dredge crew
arned n one month and pad n ater month
arned pror to anuary 1, 1937
mpoyees ta pad by empoyer, addtona wages ...
cess of e penses pad by saesman over commssons
Persona servces and use of equpment
Royaty payments
Safety counc, empoyee members of
Sck beneft nsurance premums pad by empoyer
Supper money, overtme worker
Waters, cub, payments n eu of tps .
Speca assessment, revew of Commssoner s determnaton,
|ursdcton of court
Speca ncome ta es, Soca Securty ct, consttutonaty
Stamps, strp, purchase and use of, Puerto Rco
Stamp ta es. (See Msceaneous ta es: Stamp ta c .)
State banks, soca securty ta es. (-See Soca Securty ta es.)
State Department, foregn servce empoyees, traveng e penses..
States:
Offcers and empoyees, compensaton
Oho quor contro department
Pennsyvana unempoyment compensaton aw, admn-
straton of
Water system, muncpa
Ta es. (See Ta es: State.)
Unempoyment compensaton funds, contrbutons to. (See
Contrbutons.)
Stock:
Redempton, dvdend dstrbuton
Sae of, gan or oss bass
Ta on transfers of, deductbty
Suts, recovery of ta es, trustee s overpayment, coecton from
benefcares barred
Surta es. (See Ta es.)
Sweden, shps earnngs, equvaent e empton
Symbos, correspondence, ureau of Interna Revenue
T.
Ta es:
Credt for foregn ta es
cess-profts ta , 1936, deductbty
oregn, credt for
Canada, smar credt requrement
Ontaro ta on net revenue, uebec ta on profts.
Saary earned abroad
Ta on e portaton of captas, Me co
8553
8478
8767
8742
8487
8552
8494
8618
8525
8669
8504
8547
8547
8521
8522
8565
8551
8656
8712
8577
8711
8707
8775
8591
/S733
8735
8758
8638
8628
8613
8544
8677
8759
87b0
8744
8566
8483
8661
8696
8695
8706
8483
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569
Ta es Contnued.
Processng ta
Procedure n e amnaton of ncome returns where deduc-
tons camed
Rembursement of, when reported as ncome
Sver buon, transfers of
Consttutonaty
Deducton, ncome ta
Soca securty ta es. (See Soca securty ta es.)
Stamp ta es, transfer of stock, deductbty
State-
Income ta , |ont and separate returns
Deaware
Wsconsn
Lquor ta . New York
Motor vehce fue ta , Caforna
Prvege ta , Mchgan
Property ta , pror year payments by purchaser, deduc-
ton
Saes ta
Iowa
Lousana
Unempoyment compensaton funds, contrbutons to.
(.See Contrbutons.)
Surta
vason by ncorporaton, evdence
Stockhoders eecton to pay on dstrbutve shares..
Patronage dvdends dstrbuted after cose of year
Un|ust enrchment ( wndfa ). (See Un|ust enrchment
ta .)
Wthhodng, denquency n payment, agent s abty
Tobacco:
Statement of manufactured, produced, by casses
October, 1936 and 19.35
November, 1936 and 1935
December, 1936 and 1935
anuary, 1937 and 1936
ebruary, 1937 and 1930
March, 1937 and 1936
Toet preparatons. (See Manufacturers e cse ta es.)
Transferred assets, proceedngs aganst transferor, res |udcata
Traveng e penses, State Department foregn servce empoyees..I
Tru ts:
ssocatons dstngushed
Income
ssgnment by fe benefcary
Chartabe contrbutons, deductons
Grantor s ta abty.
U.
Unted States oard of Ta ppeas:
Decsons of, st of acquescences and nonacquescences
Un|ust enrchment ( wndfa ) ta :
ssgnment of cam for rembursement of processng ta es..
Contngent credt of processng ta es to customers, deduct-
bty
7088 -37 19
Rung
No.
18756
18769
8626
8535
18531
S678
8677
8498
8497
8731
8714
8529
84S5
/S773
8774
8496
/8463
8464
8515
8579
S t ,2
8479
853S
8589
8634
8687
8751
8603
8733
8735
8747
8581
18596
8710
IS532
,8568
8781
8071
8554
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570
Un|ust enrchment ta Contnued.
Inventores of sugar
Payments or credts to vendees, treatment
Processng ta rembursement, accrua of
Utah, State banks, soca securty ta es
.
nson ct:
cess proft on nava contracts
Competon date, determnaton of
penses of admnstraton, etc
Reguatons
W.
Water, dsted, remova from dstery premses
Water rghts, Caforna
Wndfa ta . (See Un|ust enrchment ta .)
Wsconsn ncome ta , |ont and separate returns, deducton
Wthhodng ta at source:
Denquency n payment, agent s abty for nterest on
Dvdends, stock owned |onty by nonresdent aen and
ctzen
Insurance premums pad drect to foregn company
Interest, bond
Pad outsde Unted States by foregn guarantor
Partnershp ncome, members credt
Ownershp certfcates, dvdends, mtaton on use of
Rembursement for ta wthhed, ncome
Trust ncome pad ctzens of rance, annutes dstngushed.
Rung
No.
8526
8599
8620
8.306
8764
8765
8480
8510
8708
8497
8462
8543
8612
8602
8679
8662
8639
8611
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