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

shed rungs of the ureau do not nave the force and ettect
( 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 1937-2
ULY-D C M R, 1937
IN T IS ISSU
P |e
Introductory Notes II
Contents II
Rungs Nos. 8793-9118
oard of Ta ppeas ........... 1-56
Income Ta
Part I (1937, 1936,1935, and 1934 cts) . . . 57-235
Part n (1932 ct) 236-245
Part m (1928 ct) 246-328
Part I (1926 and Pror cts) 329-365
Soca Securty Ta es 366-467
Msceaneous Ta es
state and Gft Ta es 468-492
Capta Stock and cess-Profts Ta es . . . 493-500
Saes Ta es 501-538
Msceaneous Rungs 539-646
Inde 647-664
The ratngs reported n the Interna Revenue uetn are for the nformaton of ta payers and ther counse as
aowng 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 tho Department to
any nterpretaton of the aw whch has not been formay approved and promugated by the Secretary of tho
Treasury. ach rung embodes the admnstratve appcaton of the aw and Treasury Decsons to the entre
state of facts npon whch a partcuar case rests. It s especay to he 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 U 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.
Ofhcers of the ureau of Interna Revenue are especay cautoned aganst reachng a concuson n any case
merey on the bass of smarty to a pubshed rung, and shoud base ther |udgment on the appcaton of a per-
tnent provsons of the aw and Treasury Decsons to a the facts n each case. These rungs shoud be used as
ads n studyng the aw and ts forma constructon as made n the reguatons and Treasury Decsons prevousy
ssued.
In addton to pubshng a Interna Revenue Treasury Decsons, t s the pocy of the ureau of Interna Revenue
to pubsh a rungs and decsons, ncndng opnons of the Chef Counse for the ureau of Interna
Revenue, whch, because they announce a rung or decson upon a nove queston or upon a queston n regard
ta whch there crsta 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 affect n any manner whatever any pubshed rung or decson. In many nstances opnons of the
Chef Counse for the ureau of Interna Revenue are not o genera nterest because they announce
no new rung or no new 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 the ureau to pubsh such opnons.
Therefore, the numbers assgned to the 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 npon by any offcer
or empoyee of the ureau of Interna Revenue as a precedent n the dsposton of other cases. Uness otherwse
specfcay ndcated, a pubshed rungs and decsons have receved the consderaton and approva of the
Chef Counse for the ureau of Interna Revenue.
UNIT D ST T S GO RNM NT PRINTING O IC , W S INGTON : 1938
or sae by the Superntendent of Documents, Washngton, D. C - - See back of tte for prces
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The Interna Revenue uetn servce for 1938 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 3 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
1937-2
60, 50
Persons desrng to obtan the servce n dgest form may do so at
prces as foows: Dgest No. 13 (1922-1924), 60 cents Dgest No. 17
(1925), 25 cents Dgest No. 21 (1926), 15 cents Dgest No. 22 (1925-
1927), 35 cents and Dgest (ncome ta rungs ony, pr, 1919, to
December, 1930, ncusve), 1.50.
nqures n regard to these pubcatons and subscrptons shoud
be sent to the Superntendent of Documents, Government Prntng
Offce, Washngton, D. C.
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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn 1937-2, 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. 27 to 52, ncusve)
for the perod uy 1 to December 31, 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 December 31, 1937.
Income Ta rungs are prnted n four parts. Rungs under the
Revenue cts of 1937, 1936,1935, and 1934 are prnted as Part I ( ,
1937 and 1936 cts, , 1935 ct, and C, 1934 ct), the secton
headngs correspondng wth the sectons of those cts. Tho rungs
under the Revenue ct of 1936 are pubshed under the artce head-
ngs correspondng 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 1926 and pror cts are prnted as Part I ,
the secton and artce headngs correspondng wth the secton and
artce headngs of the Revenue ct of 1926 and Reguatons 69.
Rungs under Ttes III and I of the Soca Securty ct are
pubshed under artce headngs of Reguatons 91 and 90, respec-
tvey, 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. M. Commttee on ppeas and Revew memorandum.
. R. R. Commttee on ppeas and Revew recommendaton.
. T. coho Ta Unt.
. T. . oard of Ta ppeas.
C. . Cumuatve uetn.
Ct. D. Court decson.
C. 8. T Capta Stock Ta Dvson.
D. C. Treasury Department crcuar.
. T. state Ta Dvson.
G. C. M. Genera Counse s, ssstant Genera Counse s, or Chef Counse s
memorandum.
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I
I. R. . Interna Revenue uetn.
I. T. Income Ta Unt.
M, N, , Y, Z, etc. The names of corporatons, paces, or busnesses, accord-
ng to conte t.
Mm. Mmeographed etter.
MS. Msceaneous Dvson.
O. or L. O. Soctor s aw opnon.
O. D. Offce decson.
Op. . G. Opnon of the ttorney Genera.
P. T. Processng Ta Dvson.
8. T. Saes Ta Dvson.
S. Sver Ta Dvson.
S. M. Soctor s memorandum.
So. Op. Soctor s opnon.
S. R. Soctor s recommendaton.
S. S. T. Soca Securty ta and Carrers ta .
T. Tobacco Dvson.
T. . M. dvsory Ta oard memorandum.
T. . R. dvsory Ta oard recommendaton.
T. D. Treasury decson.
and y are used to represent certan numbers, and when used wth the word
doars represent sums of money.
The practce of promugatng Treasury Decsons that embody
court decsons reatng to the nterna revenue has been dscontnued.
ereafter opnons of the courts, wth approprate headnotes for the
nformaton and gudance of ta payers and offcers and empoyees of
the ureau of Interna Revenue, w be pubshed n the Interna
Revenue uetn wthout forma approva and promugaton by the
Secretary of the Treasury.
NNOUNC M NT R L TING TO O RD O T PP LS D CISIONS.
Under the provsons of the recent Revenue cts, reatng to ap-
peas to the oard of Ta ppeas, the Commssoner may acquesce
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 pavers 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.
4743.
4744
4745
4748
4747
4748
4749
4750
4751
4752
decsons:
4753.
4754
4755
4756
4757
4758
4759
4760.
4761..
4762..
4763...
4764...
4765.
4766..
4767.
4768..
4769..
4770..
4771..
4772
4773..
4774
4775
4776
4777
4778
4779.
4780.
4781...
4782.
4783.
4784.
4785.
Court decsons:
1239
1267..
Rung No.
1-27-SS03
I-27-8805
I-27-8804
I-29-8827
I-29-8828
I-29-8S30
I-29-3829
I-30-8842
I-30-8S43
I-30-8844
I-30-8845
I-30-8846
I-30-8847
I-30-S848
I-30-8849
I-37-8925
I-37- 923
I-37-8924
I-38-8940
I-39-8949
I-40-8981
0-S963
I-42-8985
I-42-8984
I-42-8996
I-42-8997
1-43-9004
I-44-9021
I-45-9028
I-45-9034
I-46-9044
I-16-9045
I-46-9046
I-47-9056
I-48-9000
I-48-9058
I-49-9082
I-50-9095
I-50-9096
I-50-9085
I-51-910S
I-51-9109
I-51-9110
I-27-8799
1-27-8798
I-28-8811
I-28-8812
I-29-8820
I-29-8821
I-30-8835
1-30-8838
I-31-8855
r-31-8856
I-O-MM
I-32-8869
I-33-8878
I-33-8877
I-34-8887
I-34-8891
I-35-8896
1-35-8895
I-36-8905
I-36-8906
1-37-8915
I-37-8916
1-38-8937
I-38-8938
I-39-8945
I-39-8U47
I-tO-8954
I-40-8959
I-41-8971
Page.
5 5
573
5 1
14
550
681
510
587
517
522
51
5111
501
459
680
690
117
128
515
357
533
561
121
158
567
582
376
568
373
578
193
582
586
51
196
374
578
673
614
1IW
350
336
502
327
309
281
483
233
298
162
4-5
336
334
314
488
344
339
204
319
240
277
463
493
289
512
236
471
279
Rung.
Court decsons Contnued
1268
1289
1270
1271
1272
1273
1274
1275
1276
1277
1278
1279
1280
1281
1282
1283
1284
1285
1286
1287
1288
1289
1290
1291 _
Opnon of ttorney Gen-
era:
11
Chef Counse s memoranda:
18383.
18399...
18602...
18657...
18658...
18676...
18705...
18718...
18778...
18801...
18828...
18835...
18883...
1 1...
18891...
18893...
18929...
18972...
18975...
19028...
19113...
19143...
19199...
19213...
19224...
19248...
19367...
oard of Ta ppeas:
3725
4017
5389 _.
58.50
6765
7359
7435
9290
9447
10202
10299.
10755.
10980.
12231.
10985.
32950.
Rung No.
I-41-S972
I-42-8988
1-42-8993
1-43-9002
I-43-9003
I-44-9014
I-44-9015
I-45-9027
I-45-9029
I-48-9043
I-46-9038
I-17-9051
I-47-9050
I-48-9063
I-48-9063
I-48-9087
I-49-9073
I-49-9074
I-50-9088
I-50-9094
I-51-9101
I-51-9102
r-52-9112
I-52-9113
I-51-9098
I-29-S819
I-35-8S94
1-32-8862
I-29-8817
I-41-8966
N -L .- M
I-28-8813
I-33-888I
I-30-8841
1-34-8886
I-37-8914
I-33-S875
I-36-80O9
I-42-8080
I-11-8967
1-38-8932
I-38-8931
I-33-8882
I-40-8955
I-40-8951
1-39-8943
I-42-89S6
I-49-9071
I-45-9026
I-47-9048
I-46-9036
I-48-908I
I-42-8979
I-4 2-8979
I-42-8979
I-42-8979
I-42-8979
I-42-8979
2-8979
I-42-8979
I-42-8979
I-42-8979
I-42-8979
I-42-8979
M2-8979
I-42-8979
I-42-8979
I-42-8979
( )
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7
/

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

n
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t
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:
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h
a
t
h

t
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s
_
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s
e
#
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I
Rung.
oard of Ta ppeas Con
373(19
46065
48788
48787
48788
48789
48890.
52795
52995
6 720--
57809
59391
60115
61205
61291
61669
62029
62100
62161
62228
62234
64737
65122
65577
67669.
67670.
68324.
68781.
69832.
69843.
70574.
71331.
71811-
71951.
72609.
72607-
73687-
74070.
74321.
74347.
74559.
74560.
74826.
75056.
7.r. M.
70285.
76507..
76508..
76699..
77324..
77506..
78000..
78077..
78200..
7 340..
78489..
78662..
78692..
78741..
78778..
78836..
78980..
79039..
79152..
79153..
79165..
79157..
79397..
79421..
70553..
79557..
79749..
79760..
79850..
79959..
80265..
RungNo.
I-42-8979
I-42-8979
I-28-8808
I-28-8808
I-28-8808
I-28-8808
I-28-8808
I-28-8808
I-42-8979
I-42-8979
I-48-9057
I-34-8S83
I-35-8892
I-42-8979
I-28-R808
I-42-8979
I-42-8979
I-42-8979
I-32-8861
I-4O-R950
I-40-8950
I-40-8950
I-35-8892
I-42-8979
I-42-8979
I-37-8912
I-37-8912
I-37-8912
I-37-8912
I-37-8912
I-34-8883
I-34-SSR3
I-42 S970
I-42-8979
I-27-8793
I-28-8808
M5-9023
I-41-8965
I-43-8998
I-42-8979
I-)2-8979
I-10-8950
I-47-9047
I-30-8831
I-42-8979
I-32-8861
I-32-8861
I-38-8928
I-38-8928
I-50-9084
I-44-9009
I-40-8950
M3-8998
I-28-8808
I-28-8808
I-39-8041
I-33-8S74
I-42-8979
I-50-9084
I-46-9036
I-36-8902
I-37-8912
1-33-8874
I-30-8831
I-33-SS74
I-4O-89 0
I-13-899R
I-12-S070
I-40-8950
I-35-8S92
I-43 8098
I-43-8998
I-35-8892
I-33-8874
I-42-8979
I-49-9C68
I-33-8874
I-43-RC9S
I-35-8892
T-4. 9023
I-42-S979
T-51-90S7
I-34-SS83
Pngo.
13
24
27
27
27
27
27
27
13
8
21
18
5,34
13
38
8
25
11
28
27
27
27
25
8
11
6
27
27
27
27
7
7
II
25
27
ss
5
M

2
8
27
7
1
27
66
48
22
22
10
36
43
16
13
13
36
12
11
21
2
17
2
16
4
a
16
:2
25
17
17
32
32
11
19
38
24. 50
9
14
8
n
66
16
a
Rung.
oard of Ta ppeas Con.
80697
80840
81080
81081
811
81118..
81213..
81323.
81324
81325
81480
81638
81748
81750
81981
82425.
82491.
82516.
83199.
83290.
83671.
83712.
84371
84497
84542
84943
85192
85476
86064
86961
87119
Offce decsons (I. T.):
3092
3093
3094
3095
3096.
3097..
3098.
3100..
3101..
3102..
3103..
3104..
3105..
3106.
3107..
3108..
3109
3110
3111
3112
3113
3114
3115
3116
3117
3118
3119
3120
3121
3122...
3123
3124
3125.
3126 ,
3127 ,
3128
3129
3130
3131
3132
3133
3134
3135
3136
3137
3138
Rung So.
I-48-9057
24
I-36-8902
SO
- I-43-8998
11
I-43-8998
3
I-43-8998
12
8-9057
8
I-48-9057

I-48-9057
9
I-48-9057
13
I-37-8912
43
I-31-8851
3
I-34-88S3
4
I-34-8883
22
I-36-8902
33
I-31-8851
14
I-44-9009
22
I-50-9084
30
I-50-9084
30
I-35-8892
27
I-35-8892
19
I-36-8902
48
I-43 8998
8
I-38-8928
2
I-34-S8S3
17
I-30-8831
29
I-36-8905
14
I-37-8912
43
I-43-8998
5
I-45 9023
11
T-33-8874
6
I-50-9084
24
I-45-9023
11
T-32-S861
25
T-33-8874
1
I-35-8892
19
T-27-8794
61
T-27-S795
SO
T-Z7-8796
80
- I-27-8797
217
I-28-8809
81
T-28-8810
219
I-30-8S32
67
I-30-8833
83
I-30-8834
166
T-31-8852
63
107
I-31-8S53
I-31-8854
114
T-32-8864
106
T-32-8870
199
I-33-8S76
166
I-34-88S4
84
I-34-8885
167
I-35-8S93
84
1-35-8900
206
T-3e-8903
85
I-38-8904
139
I-37-S913
86
I-37-S922
M
I-3S-S929
62
I-38-R930
90
I-38-8933
235
I-39-8942
92
I-39-S944
227
I-39-894S
693
I-IO-8952
138
141
I-40-8953
T-41-8968
114
T-41-S969
123
I-41-8970
214
T-I2-S981
96
I-42-8982
214
I-42-W7
349
I-43-S999
96
I-43-9000
107
I-43-9001
129
1-43-9008
200
I-44-9011
109
I-44-9012
167
I-44-9013
226
I-45-9024
160
T-45-9025
164
I-46-9037
230
G
e
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d

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Y
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U
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0
1
3
-
0
1
-
2
2

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4
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t
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p
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d

.
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/

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3
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0
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8
8
9
3
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t
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#
p
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e
II
181..
181..
183..
184..
185..
185..
187..
190...
191...
192...
193...
194...
196...
197...
198...
199...
200...
201...
202...
203...
204...
208.
210-
211.
212.
213.
214
215
216.
217..
218.
219.
220..
224.
226..
227..
RungNo.
1-47-9049
I-49-9069
I-49-9070
I-49-9072
I-50-9087
I-50-9086
I-51-9100
I-52-9111
I-27-8800
I-27-8801
I-27-8802
I-28-8814
I-28-8815
I-29-8822
I-30-8S36
I-30-8837
I-31-8S57
I-31-8858
I-31-8859
I-32-8866
I-32-8867
I-33-8879
v- suso
I-34-8888
I-34-S889
1-35-8897
1-35-8898
I-36-R907
1-36-8908
I-37-89I7
I-37-8918
I-37-8919
I-38-8934
1-38-8935
1-38 8936
I-40-8956
I-40-8957
I-40-S958
I-41-8973
I-41-8974
1-41-8975
I-41-8976
I-41-8977
I-42-89R9
I-42-8990
I-42-8991
1-42 M
I-43-9005
I-43-9006
I-44-9016
I-44-9017
I-44-9018
I-44-9019
I-45-9030
I-15-9031
1-45-9032
I-45-9033
I-46-9039
I-46-9040
I-46-9041
I-46-9042
I-47-0052
I-47-9053
I-47-9054
T-48-9064
I-48-9065
I-48-9066
I-49-9075
I-49-9076
I-49-9077
Page.
I
62
103
146
216
147
104
106
369
431
432
382
433
385
370
418
435
445
448
421
424
3S6
387
373
388
436
446
171
448
377
388
422
425
449
450
407
408
451
392
393
405
437
457
394
409
427
438
451
452
395
428
420
MO
397
441
441
443
378
398
412
412
414
430
453
366
41
454
367
368
444
Rung.
T.)-
Offee decsons (S. S.
Contnued.
229.
230.
231
232
233
234
235
238
237
238
239
240.
241
242
Offce decsons ( . T.):
10
11
Offce decsons (C. S. T.):
4
5
Offce decsons (3. T.):
863
864
868
866
867
868
869
870
Offce decson ( . T.):
1
Offce decsons (MS.):
189
190
191
192
193
Offce decsons (T.):
36....
37
38
39
40
41
Offce decson (P. T.):
35
Department crcuar:
230 (revsed)
Mmeographs:
4618..
4621
4633
4637
4651
4672
4676
4689
4693
4703
Msceaneous.
RungNo.
Page.
I-49-9078
459
I-50-9089
416
I-50-9090
417
I-50-9091
456
I-50-9092
457
I-50-9093
453
I-51-9103
378
I-51-9104
399
I-51-9105
400
I-51-9108
401
I-52-9114
402
I-52-9115
403
I-52-9116
404
I-52-9117
419
I-32-8868
469
I-34-8890
470
I-29-8S24
469
I-38-8939
498
I-41-8978
497
I-29-8825
523
I-30-8839
525
I-30-8840
52S
I-35-8899
624
I-37-8920
505
I-43-9007
527
M9-9079
510
I-49-9080
620
I-52-9118
388
I-30-8850
638
v r. vm
639
I-40-8984
640
M4-9020
641
I-48-9059
642
I-27-8807
643
1-32-8871
643
I-36-8911
643
I-40-8962
043
I-14-9022
644
1-49-9081
620
I-51-9107
630
I- 2-S994
158
I-27-8806
644
I-29-8823
U4
I-32-88 3
149
I-42-8995
640
I-39-8946
3S9
1-12-8983
145
I-44-9010
97
I-47-9055
149
I-49-9083
119
I-51-9099
78
f I-28-8816
634
I-29-8826
635
1-31 -8860
509
I-32-8872
635
636
I-36-8910
639
I-37-8921
694
I-37-8926
609
I-37-8927
634
I I-40-8960
633
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CONT NTS O CUMUL TI ULL TINS (L T.) 1 TO 5 S. T. OR 1920 ND 1921 INT RN L
R NU , 1-2. II-. II-2. n-I. m-2. I -1, I -2, -. -2. I-I, I-2, U-1. II-2. III-1, III-2.
I -1. I -2. -, -2. I-1, I-2, II-1. II-2. I1I-1, IU-2, I -1, I -2, -1, -2. 1 37-1. ND
1937-2.
Cumuatve uetn.
Income Ta :
December, 1919 (No. 1)
anuary- une, 1920 (No. 2)
uy-December, 1920 (No. 3)
anuarv- 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)
anuarv- une, 1923 (No. II 1)
uy-December, 1923 (No. II-2)...
anuarv- une, 1924 (No. 111-1)...
uy-December, 1924 (No. III-2)..
anuary- une, 1925 (No. I -1)
uy-December, 1925 (No. I -2)..
anuarv- une, 1926 (No. -)
uy-December, 1926 (No. -2)...
anuary- une, 1927 (No. I-1)
uv-December, 1927 (No. I-2)..
anuarv- une, 1928 (No. II-1)...
uy-December, 1928 (No. II-2).
anuarv- une, 1929 (No. III-1)..
uv-December, 1929 (No. III-2)
anuary- une, 1930 (No. I -1) .
uv-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)..
anuarv- une, 1933 (No. II-1)...
uy-December, 1933 (No. II-2).
anuarv- une, 1934 (No. III-1)..
uv-December, 1934 (No. III-2)
anuarv- une, 1935 (No. I -1)..
uv-December, 1935 (No. I -2).
anuary- une, 1936 (No. -1)...
uv-December, 1936 (No. -2)..
anuarv- une, 1937 (1937-1)
uy-December, 1937 (1937-2)
(vrn)
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O RD O T PP LS.
CUMUL TI LIST O NNOUNC M NTS R L TING TO
D CISIONS O T UNIT D ST T S O RD O T
PP LS PU LIS D IN T INT RN L R NU UL-
L TIN S R IC ROM NU RY 1, 1932, TO D C M R
31, 1937, INCLUSI .
nnouncements reatng to the acquescence or nonacquescence of the Commssoner n
decsons of the Unted States oard of Ta ppeas, as pubshed n the weeky Interna
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-
ments pubshed n the weeky uetns from anuary 1, 1932, to December 31,1937, ncusve.
I-51-9097
The Commssoner acquesces n the foowng decsons of the
Unted States oard of Ta ppeas:
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
40546
24
435
37695
24
435
37693
24
435
37694
24
435
37696
24
435
41034
24
435
25194
38687
24
429
39980
25
211
39593
25
1246
39593
25
1246
56960
69007
28
586
74759
33
373
20765
24
376
41295
27
1091
60700
28
1291
39019
27
1210
73687
35
323
44860
30
636
25414
25
834
31704
25
1276
76130
35
482
40039
28
868
30133

31998
50024
30
11S2
63436

.
becs, Chares T
bees, Cfford
bees, rancs, estate of
bees, ohn T
bees, atherne
bees, Wemene
cme Manfodng Co., Inc
deade Park Land et a., trustees
fremow, Davd, estate of
frcmow, Sarah, e ecutr
abama Mnera Land Co
bcrs, Wam .1
bert Lea Packng Co., Ine
brecht et a., atherne ., e ecutrces 1
coma Corporaton
e ander, . P , estate of
e andra Grave Co., Inc
egheny Garbage Co
en, Irene C
ed mercan Corporaton
vcrson, L. T
mbassador Petroeum Co
mercan Centra Lfe Insurance Co.3
1 cquescence reates to deducton for contrbutons.
1 state ta decson acquescence reates to deducton of 133,000.
cquescence reates to ssue whether pettoner receved nterest on mortgages when t bd In property
npon forecosure.
Rung No. 9087 ncudes a acquescence and nonacquescence notces pubshed n the Interna Revenue
uetn servce from anuary 1, 1932, to December 31, 1937.
(1)
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8
8
9
3
3
6
9
6
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e
cquescencks Contnued.
Ta payer.
mercan Cgar Co
mercan eature m Co.
mercan Gas ectrc Co. and subsdary com-
panes.
mercan Prntng Co
mercan Securty Trust Co. et a., e ecutors 1
mercan South frcan Lne, Inc
mes, Mure Oakcs
nco Investment Co
nderson, C.
nderson, Gustave
nderson, .
nderson, Staney S
nderson-Cayton Securtes Corporaton..
nn rbor R. R. Co
rgumbau, rank M
rmstrong, C. George
rmstrong, Wam
rnod Wnsor Co
shforth, bert ., estate of3.
shforth et a., Mabe ., e ecutors 5.
tkns, . ., estate of
tkns, Mrs. .
tanta Charotte Ry. Co
tantc Coast Lne R. R. Co.
twater, Davd .4
twater, ohn .4
twater, r., Wam C.4.
ton, dwn D
ton, Robert L
ton, Wood
.
abbtt, Inc., . T. (Deaware)..
abbtt, Inc., . T. (New Wk).
aker, I.
adwn, orence G
adwn, Ga
afour, Sr Robert
a, Php D. C
atmore Oho R. R. Co
atmore Oho R. R. Co.5
oard of Ta ppeas.
No.
oume.
Page.
16229
21
461
27623
24
18
67368
1
67369
33
471
69800

39721
27
1270
39107
24
334
62955
1
68830
y 30
753
70701

71811
30
516
58647
30
988
33242
27
1305
36224
26
1208
63827
30
1274
42053
33
88
78340
35
795
25869
29
331
73014
31
604
58400
31
418
58603
32
1261
61553
29
670
47190
4:SOU )
26
1188
49354
47190
48009
26
1188
49354

38520
28
500
38519
28
500
78077
36
558
58958
1
65310
31
730
65311

49066
34
845
49067
34
845
49065
34
845
56160
32
613
56162
32
613
56441
32
613
74047
32
693
693
74047
32
56348
32
613
32387
23
512
83005
36
364
40230
25
154
36737
27
388
53702
29
368
37239
30
194
1 state ta decson.
1 Nonacquescence (reatng to communty property agreement) pubshed n Cumuatve uetn -2
(1936), pages 27 (Docket 71811), 29 (Dockets 9447, 10202, 10755), 31 (Dockets 10299, 32950), 34 (Dockets 4017,
5389,62029,65577,68321), 35 (Docket 10380), 38 (Docket 37369), 38 (Docket 16985),39 (Docket 7 5), 41 (Docket
9290), 45 (Dockets 46065, 3725, 12231), 46 (Dockets 61669, 6S335) and 50 (Docket 7359), wthdrawn.
Nonacqesccnce pubshed n uetn II-1 (1933), wthdrawn.
4 cquescence wth respect to hodng that pettoner was not a transferee.
1. cquescence reates to ssuo nvovng contrbutons by shppers for constructon of sde and spur tracks:
and deducton for nterna-revenue stamps aff ed to bonds.
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8
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3
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cquescences Contnued.
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
48329
26
886
26747
25
513
26755
25
513
26757
25
513
26747-
25
513
26757
8743
26
970
51102
28
657
56440
32
613
45928
30
305
67637
27
1346
60061
31
580
f 31931
1
46569
) 25
474
49422

41295
27
1091
67873
34
754
67874
34
754
65675
30
370
39534
30
1290
22335
27
377
/ 18592
29104
25
195
30990
28
917
/ 57312
59796
26
1369
70298
32
600
36729
28
744
36746
26
1070
81638
35
1147
54917
29
804
51051
27
186
72389
33
466
46079
25
1084
f 27616
35098
23
731
I 40147
86961
36
346
69682
31
212
26750
25
513
f 39242

1 40939
1 45741
25
119
51507

64975
30
591
78692
35
1106
49891
29
8
39200
25
651
/ 24223
1 34964
24
995
68382
31
25
54923
26
1410
62985
33
208
ankers Dary Credt Corporaton.
arber, rthur
arber, Php C
arber, St. George
arber Trusts, Sarah P
.
arcay, W. L
arker, red -.
arnes, enry
asch, N.
Ice Coa Co.
easey, W.
eaumont, Lous D.
ebb, Rchard ., estate of
eers, Cara O
eers, rank T
eggs, ohn 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 .
ngs et aL, May, e ecutors
ups, George W
ngham, Robert W
rckhead, Over W
rdneck Reaty Corporaton
scayne ay Isands Co.
ack, .
ar, r., Mrs. Wey.
oodgood, dth ..
um, uus, trustee.
umentha, Lucy
oehn, Lous
oehrnger, Rudoph s
oos ros. Cafetera Co
org Sc. eck Co
ostck, r., ohn, trustee.
owden, Pau kers
owen, dwn L.8
a ta decson acquescence reates to deducton of 133,000.
1 cquescence reates to that part of decson hodng that Water . Icttrnnn s not abe as a transferee
and to mtaton ssue.
1 cquescence reates to rght of overrdng royaty owners to beneft of secton 211 (b), Revenue ct of
1918.
state ta decson.
1 cquescence reates to ssue nvovng secton 115(g) of the Revenue ct of 1928.
1 cquescence reates to ssue as to basc vaues of stock.
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cquebcencks Contnued.
Ta payer.
ccke
No.
oard of Ta ppeas.
raun, rthur ., trustee
rnton, Lan McDonad
rown, erence
rowne, Sopha Geason Perce-
ryan et u ., C.
ryan et u ., L.
uck, ohn ., estate of
uck et ah, Mary M., e ecutors 1
ucna sta Land Deveopment Co.
uffao Unon Iron urnace Co.2
ungton, Orve
ungton, Mrs. Sade
us, een II
uock, George 5
urdck, a P., trustee
urdck, oe W., estate of
urnham, Sas
urroughs, mbrose ., estate of_
urton, e|amn T
usche, . C.4.
uter, U.
yers Trust, . T.
Cahoka Trust
Caforna Coast O Co
Cambra Deveopment Co.5
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
Carman, . _
Carne, Goude Manufacturng Co.
Caro, Sue (Mrs. Nck Stuart)
54556
53715
24667
36637
53637
24036
24037
32584
44153
44684
32584
44153
44684
2025
16075
16076
69684
69679
68164
73954
31209
46322
46322
61009
53795
59797
61055
9447
10202
10755
46055
68382
81746
25018
75411
35955
70340
58632
68415
68415
41482
49303
44321
44939
, 50178
/ 20074
1 27095
63963
71025 1/
29
1161
28
472
25
814
35
141
19
111
19
111
25
780
25
780
13
895
23
439
31
212
31
212
32
501
23
710
29
731
29
731
29
605
29
190
28
1241
10
1345
24
506
31
25
36
81
25
902
34
1155
25
537
35
687
29
355
31
724
31
724
29
99
31
25
24
30
1 state ta decson acquescence reates to vaue of certan rea estate n San rancsco and vaue of
stock of Langendorf akng Co. for estate ta purposes and reasonabeness of Commssoner s aowance
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 Nonacquescence (reatng to communty property agreement) pubshed n Cumuatve uetn v-2
(1936), pages 27 (Docket 71811), 29 (Dockets 9447, 10202, 10765), 81 (Dockets 10299, 32950), 34 (Dockets 4017,
53S9, 62029, 65577, 68324), 35 (Docket 10980), 36 (Docket 37369), 38 (Docket 16985). 39 (Docket 7435), 41
(Docket 9290), 46 (Dockets 45065, 3725. 12231), 46 (Dockets 61669, 68335), and 60 (Docket 7359), wthdrawn.
cquescence reates to determnaton of far market vaue of obgatons receved from purchasers of rea
estate ots.
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-
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5
cquescences Contnued.
oard of Ta ppeas.
No.
oume.
Page.
71649
71650

730
77638
32
1171
44838
66891
28
160
57729
30
579
46056
24
506
46057
24
506
25421
25
834
25413
25
834
24837
25
499
42587
29
530
28701
25
1123
20776
24
376
42588
29
530
69345
31
764
55569
63818
27
1312
55568
27
1312
37403
51059
25
1166
33466
37402
47130
25
1166
50196
51058
36343
22
1407
84497
35
1125
47704
26
292
59797
29
190
31869
23
663
34499
24
1235
59391
35
424
33585
1
40890
f
29
436
51197
46058
24
506
84943
36
208
41962
46297
20
772
40554
25
446
54880
28
1311
75740
76841

1066
69843
/ 33
1199
1 36
385
38904
28
1127
27
506
Carona, Cnchfed Oho Ry ..
Carona Contractng Co
Carter Pubcatons, Inc
Caspar Lumber Co
Cat hey, George
Cathev, Luke
Catn Dane ...
Catn, Theron
Centra Market Street Co.1
Centra Natona ank
Centra Natona ank, trustee
Centra Renderng Corporaton
Centra Trust Savngs ank
Century Crcut, Inc., of Deaware.
Champon, Davd .
Champon, T. Perre
Chapman Dewey Land Co
Chapman Dewey Lumber Co.
Chcago Northwestern Ry. Co.
Chds, Mary S
Chrstopher, Rache S.4
Cty ank armers Trust Co., e ecutor
Cty ank armers Trust Co. et a., e ecutors 4._
Cark et a., ames, e ecutors
Caude Neon Lghts, Inc.5
Ceand state Co., Inc., enry .4.
Cements, W. L
Ceveand Raway Co
Ceveand Trndad Pavng Co.7
Cnchfed Securtes Co
Cnton Cotton Ms, Inc
Cother et a., Morrs L
Coast Countes Gas ectrc Co
Coats, Inc. (R. I.), . P.
Cogate, Mary
1 cquescence reates to ssue regardng apportonment of ta es among affated corporatons.
1 cquescence reates to bass upon whch gan or oss upon redempton of stock shoud be computed.
1 cquescence reates to foowng ssues: Matera and suppes ad|ustment amortzaton of bond
premum assessment of ssocaton of Raway ecutves raroad Y. M. C. .
4 state ta decson.
1 cquescence reates to ssues 0) e change by peMtoner of property soey for stock In the Caude Neon
Dspays, Inc., ott Caude Neon Lghts, Inc., pha Caude Neon Corporaton, New ersey Caude
Neon Corporaton, and Caude Neon of Connectcut, Inc. (2) grants of e cusve rghts to use of patents
to certan corporatons In e change for stock (3) n respect to prevous ssue the bass for gan or oss.
cquescence does not reate to bass of property devsed sub|ect to a fe estate.
7 Nonacquescenoe notce pubshed n Cumuatve uetn 2 (1931), revoked.
cquescence reates to contrbutons ssue and ssue respectng deducton of amount pad to treasurer
of hode Isand on account of Increasng capta stock.
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-
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2

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3
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6
9
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cquescences Contnued.
Docket
No.
oard of Ta ppeas.
oume.
Coorado Utah Coa Co...
Coumban Carbon Co.1
Coumbus rck Te Co.
Commerca Investment Trust Corporaton .
Commerca Natona ank
Communty Mausoeum Co.6
Cone, mma S., e ecutr 4
Cone, Irvng ., estate of
Conuay, Mary W. T
Connectcut ectrc Servce Co
Connectcut Rver Power Co
Conney, ames .8
Conney, L. .
Conney, Marv .
Conservatve Gas Co
Contnenta Lega and Protectve ssocaton.
Contnenta O Co 7
Contractors Constructon Suppy Co.8
Cook, zabeth .
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.
Cornwe, . L
Corrgan, ames W., estate of
Cosmopotan ond Mortgage Co.10.
Costeo, oseph 11
Cotton, G.
Couchman, Wam ennng
53799
42743
42707
43495
50051
66959
70384
68034
68034
60434
78279
18591
29106
44081
45833
46267
51967
60566
66948
44083
45834
44082
72391
44859
28427
41963
38579
53044
5-1740
60228
26751
44768
44769
32610
40115
40926
29252
30303
80345
44617
22640
59655
67729
70957
26
25
26
28
36
33
31
31
32
35
25
30
30
30
30
30
34
20
25
27
32
25
25
25
24
27
26
24
35
30
27
25
588
456
794
143
239
19
515
515
920
444
195
331
30
331
331
552
636
29
772
1351
33
100
513
1320
1320
216
388
1359
915
706
717
377
866
118
1 Nonacquoscence pubshed n Interna Revenue uetn I-14 (19 2), revoked.
1 cquescence reates to ncuson n consodated nvested capta of capta stock ssued for a te and
brck manufacturng pant, etc.
cquescence reates to the foowng ssues: Deducton of e penses n connecton wth ssuance of
preferred stock: deducton for dvdends credted to accounts of empoyees for purchase of stock.
state ta decson.
a cquescence reates to ssue whether a sae of a cemetery crypt s a sae of reaty enttng the ta payer
to the nstament bass when tota amounts receved n basc year do not e ceed 40 per cent of gross prce.
8 cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
ncome.
7 cquescence n oard s decson wth respect to computaton of ncome for perod anuary 1 to March
15, 1920.
Nonaequescence notce pubshed n Cumuatve uetn -2 (1931), revoked.
I cquescence reates to ssues regardng aocaton of tota cost between common and
purchased.
cquescence reates to ssue nvovng method of accountng used by ta payer.
II cquescence reates to that part of decson hodng that Water . ettman s not abe as a trans-
feree and to mtaton ssue.
G
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1
3
-
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1
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2
2

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0
0
0
0
8
8
9
3
3
6
9
6
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7
cquebcencks Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Coursev, Sarah .
Co , tta
Co , Carre G
Crane, e ander ., estate of2
Crane et a., e ander M., e ecutor2.
Crews, Chares
Crews, verett...
Crews, Raph W.
Crews, Robert .
Croker, ua
Cromwe et a., Wam Neson, e ecutors3.
Cronan, Mr. and Mrs. rancs M
Crouse, George N
Crowey, oseph ., estate of
Crownnshed Shpbudng Co.
Cuver, Wmer T
Cunard Coa Co.5.
Curts, Laura M_
Dah, ndrew ., estate of...
Dah et a., ua, e ecutors...
Daey, ugene S., e ecutor...
Day , Margaret P
Dana, dwn L
Dana, ra M
Dana, Mvcr
Dancer, dth M., estate of .
Daro Tradng ccount
Davdson, dth L
Davdson, ames
Davs, C. R.9-
Davs, ohn
Davs Reguator Co
Dav, Chares, estate of 7.
De orest, ate R.8
71755
69698
69698
71718
71718
66766
66767
66701
66702
41121
42619
78185
43446
51419
35472
18987
37574
26874
26875
28792
56314
44845
44845
26645
65213
67669
67670
50248
70456
81519
72905
61741
72904
10299
32950
20703
72667
75103
37284
33
31
31
30
30
30
31
33
33
30
31
33
30
31
33
27
24
33
26
25
24
24
26
28
24
24
25
32
36
36
30
30
34
34
34
10
20
24
36
34
1 cquescence reates to the foowng Issue: Incuson n pettoner s ta abe net ncome for 1930, the
tota proft receved from sae of rea estate by the trust.
1 Nonaoquescence pubshed n Cumuatve uetn III-1 (1934), wthdrawn.
1 state ta decson nonacquescence pubshed n Cumuatve uetn -2 (1931), revoked.
4 state ta decson.
1 cquescence reates to deductons for addtona royates and offcers saares and drectors fees.
onacquescence (reatng to communty property agreement) pubshed n Cumuatve uetn -2
(1636), pages 27 (Docket 71811), 29 (Dockets 9447, 10202, 10755), 31 (Dockets 10299, 32950), 34 (Dockets 4017,
53 9,62029.65577,68324), 35 (Docket 10980). 36 (Docket 37309), 38 (Docket 16985), 39 (Docket 7435), 41 (Docket
9290), 45 (Dockets 45065, 3725, 12231), 46 (Dockets 61669, 68335), and 50 (Docket 7359), wthdrawn.
1 state ta decson acquescence reates to deducton of attorneys fees n connecton wth the admn-
straton of the estate whch had been estmated and contracted for but not yet pad.
1 ft ta decson.
G
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8
8
9
3
3
6
9
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8
cquescences Contnued.
Ta payer.
oard of Ta
No.
oume.
Page.
50553
50629
26
520
77865
34
1139
52995

61291
1161
65122

71951
71858
30
49
72023
30
49
50263
26
1120
50263
26
1120
49516
33
738
81213
35
335
35472
25
340
51643
32
1283
35015
43176
23
1211
58025
59280
32
1254
17717
24
1152
17717
24
1152
63931
32
349
50828
30
1136
34853
43527
46421
50607
30
973
63628
71534
68159
31
671
41136
30
1171
78617
35
1028
41887
26
967
52165
26
421
56443
31
577
56443
31
577
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
79749
36
223
26996
18
1028
83290
Deaware udson Co.1.
Deone, Chares
de Me, Cec .
Dennett, Car P.
Dennett, Mare G.
Denns, rank ., estate of
Denns, Merry M., e ecutr
Dennv, Regnad 5
Derbv Reaty Corporaton
Detrot Trust Co. et a., e ecutors -
Dckey, Water S., estate of
Dcknson, bert G --
Don, erbert L
Drksen, nna L., e ecutr
Drksen, Theodore ., estate of
Dttmar, mmy
Dockweer et a., Isdore ., e ecutors and trustees
Doenbecher Manufacturng Co.
Dohme, fred R. L
Doese Shepherd Co., Syndcate No. 3.
Dombrowsk, Leesa
Dome Co
Domnon Natona ank
Donnev, Catherne, estate of
Donney et a., Garrett ., e ecutors
Dorc partment Co
Dougas Co., ohn.. -
Drake, rancs
Dre e Packng Co
Droge, Chrstan
Duff, Robert C.7
Duncan, T. P
Duncan, Mrs. T. P. --
Dunham, Water
Dunne, ney Peter
du Pont, ammot
du Pont, Perre S.
Durkhemer Investment Co
1 Nonacquescence pubshed n Cumuatve uetn T-2 (1932), wthdrawn.
Nonacquescence pubshed In Cumuatve uetn -2 (1936), page 31, wthdrawn
reates to communty property agreement.
cquescence reates to deductbty of osses sustaned by pettoners upon aeged saes of
each other durng the ta year.
state ta decson.
cquescence reates to ssue nvovng deducton of operatng e penses of aeropane and
thereon: and whether amounts e pended for costumes, make-up, and wgs are deductbe as
necessary e penses.
Nonacquescence pubshed n Cumuatve uetn 1937-1, page 33, wthdrawn.
stock to
1 cquescence reates to ssue 1 of decson
Nonacquescence pubshed n C
Cumuatve uetn I -2 (1930), revoked.
G
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a
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2
0
1
3
-
0
1
-
2
2

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2
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3
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0
0
0
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8
8
9
3
3
6
9
6
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cquesced era Contnued.
.
Negras rdge Co.
asterwood, r.,
W. .
astcrwood, r., Mrs. W.
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.-
drdce, ce .1
drdge, . S.1
gn Compress Co
ott-Grante Lnen Corporaton
Co
nameed Metas Co
nns Ice Co
rb et a., Rav L., e ecutors
vans, . T -
vans et a., nson, trustees
vans Products Co ....
vergreen Cemetery ssocaton.
.
ason, . M.
ack, e ander D
as Cty Ice everage Co
ame Cannng Co
armers ducatona and Cooperatve State Unon
of Nebraska
armers Lfe Insurance Co.4
armers Loan Trust Co., trustee
armers Unon State change
awsctt, Chares .
awsett, Chares .
edera Street Peasant aey Passenger Ry. Co.
erguson, arod G
dety Savngs and Loan ssocaton.
42460
79553
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
81324
20452
67636
20774
10596
18105
27194
31748
43317
29465
18105
64474
72057
29758
70463
14862
31801
39406
45215
69193
69166
23
35
28
28
28
28
28
28
28
28
30
30
31
26
27
25
24
29
30
29
29
25
34
26
27
2 1
30
27
21
30
31
30
21
34
23
33
32
dety Unon Trust Co., e ecutor
fth venue ank of New York, e ecutor
1 cquescence reates to Issue whether dvdends decared n 1928 consttuted ncome to the pettoners
1929 or 1930.
1 cquescence reates to market vaue of o and gas eases on March 1, 1913.
Nonacquescence pubshed In Cumuatve uetn -2 (1936), papc 33, wthdrawn.
1 cquescence reates to ssue In connecton wth opton payment receved for purchase of and.
Nonacquescence pubshed n Cumuatve uetn III-2 (1934), wthdrawn.
1 state t
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1
3
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2

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2
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3
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0
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8
8
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3
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10
cquebcences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
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
sher, Mram, estate of 1
tch, orence
emng, Lamar L.3
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. .3
oster, N. C, estate of 1
oster et a., Ward, e ecutor
o , ontane
rancke, Chares
rank, m
rankn Teegraph Co
rankn Tte Trust Co.5.
rschkorn Deveopment Co.
uhage, fred .
G.
Gamb, .
Gambe, Cec ., e ecutor ..
Gambe, ames N., estate of.
Gambe, Mary ., estate of .
Gambe Stockton Co.7
Gardner, Chares .8
71599
36438
46583
45186
63732
77165
68338
74826
51670
78362
15383
26079
28396
31018
68707
70738
68706
70739
68704
77740
68705
58647
46621
40229
43973
73591
43086
32984
32984
71084
56438
50224
29695
51947
60167
67805
30496
35170
42452
61754
47902
60840
55595
60840
42707
38575
32
25
26
30
35
32
36
29
34
25
25
33
33
33
33
30
27
25
32
211
25
25
30
32
27
26
82
30
32
26
33
32
33
26
25
1 state ta decson.
1 cquescence reates to Issue Invovng ncuson In ncome nterest 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.
cquescence reates to deducton for deprecaton on premses and ncuson In year 1930 In pettoner
o s ncome, 7,400 representng renta vaue of premses occuped by hm.
1 cquescence reates to ssue nvovng deducton of commssons pad on sae of mortgage notes.
8 cquescence reates to Issue whether ta payer Is entted to the statutory persona e empton as the
head of a fnmy.
cquescence reates to ncuson n consodated Invested capta of capta stock Issued for a t e and
brck manufacturng pant, etc.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
G
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n
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r
a
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e
d

f
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
3
1

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2
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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11
oquescences Contnued.
oard of Ta ppeas.
No.
oume.
Page.
47705
26
292
4017
4
1071
52163
62309

57
58787
31
580
58788
31
580
79069
35
615
66511
32
1011
45240
27
765
61218
26
594
77506
32
1258
31329
28
18
746S3
35
205
43052
50073

483
84542
85476
36
539
27628
24
18
27629
24
18
75740
76841

1066
54556
29
1161
79155
35
764
62062
31
236
43438
51694
1
25
146
53310
61568
70407

485
29470
26
914
5389
4
1073
27C25
24
18
30302
24
915
59722
29
804
57483
29
275
22332
27
377
22333
27
377
81080
36
202
39538
30
1290
42528
28
418
46619
27
632
23085
22
1124
51794
30
1028
62029
1
65577
29
760
68324

82177
35
239
56540

64064
33
512
71114

Garron et. a., Isabe . ., e ecutors -.

Gassner, Lous 1
Garton, Wam
Gay, D. --
Gay, . C
Genera Industres Corporaton
Genera Outdoor dvertsng Co., Inc.3.
George, erome R
George Machnery Co., R.
Gessner, erman 4
Gbbs, G. Wdy - --
Gbbs 4 udson, Inc.
Gette Rubber Co
Gmbe, Dane
Gnsberg, bert
Gnsberg, Nathan
Grard Trust Co., trustee
Gven, T. ., estate of
Co., Ltd
. R-
Gobe Constructon Co
Godwn, rthur M-- --
God Stock Teegraph Co.
Godberg, arry S.1
Goden, dward
Godman, Ma we
Godsmth, Ma .
Gordon, fred W
Gordon, zze 5
Gordon, Ma L.s
Gordon, Wam S.e
Gore ros., Inc
Gotteb Reaty Co
Graeper. W. .. -
Grand Rver Grave Co
Grant, arry ohnston
Grant, een .1..
Grant, osephne C.,
Great Southern Lfe Insurance Co.7.
1 state ta decson.
onacqu escence (reatng to communty property agreement) pubshed n Cumuatve uetn
- (1935), pages 27 (Docket 71811), 29 (Dockets9447, 10202,10755), 31 (Dockets 1029(1, 32950), 34 (Dockets
M17,538 , 62029, 65577, 68324), 35 (Docket 10980), 3 (Docket 37369), 38 (Docket 16985), 39 (Docket 7435), 41
(Docket 9290), 45 (Dockets 45065, 3725, 12231), 46 (Dockets 61669, 68335), and 50 (Docket 7359), wthdrawn.
1 cquescence reates to ssue whether pettoner reazed gan on transfer of certan of ts assets to Centra
Outdoor dvertsng Co. for stock of that company.
1 Nonaequeecence pubshed n Cumuatve uetn I -2 (1935), page 31, wthdrawn.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton ssue.
1 cquescence n ssue nvovng oss on account of bad debt owng aw frm.
cquescence In Issue nvovng deductbty of nterest pad on matured coupons surrendered.
G
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n
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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
:
3
1

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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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12
cqttescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Green, Robert D. .
Green, W. S
Greenwood, dna M
Greenwood, . P
Grey u Corporaton
Grffs, Stanton 1
Grffths, va Lavno
Grffths, George W
Grffths, ohn...
Grswod Co... -
Groves, Waace
Guaranty udng Loan Co.
Gudeon, Water T
Guf Coast Irrgaton Co. _
Guett, C.
Guett, W.
Gummey, rank .4--.
Gurnee, ugustus Coe.,
estate of 5.
aberand, Pau
afner, fred
aev-Oa Coa Co.
a, dward T
aaday, Sarah P.-
amburg, r., Sam.
andy, rankn Mer.
anna, R. ., estate of
anna, rgna W., e ecutr
anscom, dward ., estate of 8
anscom ct a., Meve, e ecutors _
arbeson Lumber Co., W.
arkness, dward S
arkness, Mary S
arnschfeger, enry, estate of
arnschfeger et a., Mare ., e ecutors
arper, . T
arrah, Mare
arrah, Wam
arrs, en 7
53647
43786
46373
63487
81485
81484
47376
38577
63354
42498
43074
68628
77324
55352
54739
60229
33694
40081
41343
52517
52518
61056
42619
29289
48389
57132
30962
81118
26754
30304
66810
67671
74406
62718
62718
44992
44992
33076
51012
65169
71310
71311
69636
69636
62784
25269
21643
10980

24
26
31
84
27
25
30
25
25
33
36
27
32
24
31
31
26
24
25
31
24
36
25
24
30
31
31
24
24
24
31
31
31
31
31
27
27
10
1 cquescence reates to transactons 1. 2, 3. and 4.
1 cquescence reates to Issues regardng aocaton of tota cost between common and preferred stocks
purchased.
1 cquescence reates to a ssues e cept nffaton Issue.
Nonacquescence pubshed In Cumuatve uetn II-1 (1933), wthdrawn.
1 state ta decson nonacquescence pubshed n Cumuatve uetn -2 (1931), revoked.
e state ta decson.
7 Nonacquescence (rcntng to communty property agreement) pubshed n Cumuatve uetn -2
(1936), pages 27 (Docket 71811), 29 (Dockets 9447, 10202, 10755). 31 (Dockets 10299, 32950), 34 (Dockets 4017.
5389, 62029. 65577,08324), 35 (Docket 109S0),36 (Docket 37369). 38 (Docket 16985), 39 (Docket7435), 41 (Docket
9290), 45 (Dockets 45065, 3725, 12231), 46 (Dockets 61669. 68335), and 50 (Docket 7359), wthdrawn.
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8
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13
cquescences Contnued.
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
50.594
30
455
52795
60115
27
528
29958
1
41736

26
134
53600
63789
29
163
63790
29
163
38864
27
1305
72788
32
1
40304
1
42570
I
34
782
47339
32841
25
1161
60690
29
1061
60690
29
1061
76507
76508
35
784
81323
34
918
81325
34
918
37499
25
96
76658
35
230
16552
25
736
61334
29
595
69916
74813
35
454
56161
32
613
38573
25
1351
63321
33
73
63321
33
73
56668
62845
30
301
60729
68821
32
349
46806
25
1282
33279
24
475
22341
27
377
57032
63141
30
962
82569
35
292
82568
35
292
16253
24
438
37369
27
807
62676
31
1126
62676
31
1126
41728
1
42769
26
541
45663

47781
26
1351
27352
26
241
27351
26
241
arrson, Inc., . M
art, ohn . 1
artford- mpre Co
astngs, Cve, estate of-.
astngs, .
astngs, rederck
atfed, . T
avana ectrc Raway, Lght Power Co.
avard. Chares
awk, enrv C, estate of
awk, Ida W., e ecutr
awke, . R
awkns, . C -
awkns, Mavme
ay, W.
ayes, ohn ., estate of
ayman Co.,
azewood, N.
eca Mnng Co
eck, dwn
emph, Cfford
enke Trust, Mrs. Catherne.
enke, enry, estate of
ennngsen, Water
err 4 Dttmar Land Co.
ervey, W. R
ess, Nathane
ettman, Water .4
ewtt, rskne...
att, nna ee
att, P.
ckman, anne Snyder-
ckman, oward C.
man, . D., estate of.
Uman et a., udson McCntock, admnstrators.
mehoch ros. Co
res Co., Chares
enry
pubshed n Cumuatve uetn II 1 (1633). page 17, wthdrawn.
1 Nonacquescenc pubshed n Cumuatve uetn -2 (1936), pace 35, wthdrawn.
1 cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton Issue.
1 Nonacquescence (reatng to communty property agreement) pubshed n Cumuatve uetn -2
(1936). pages 27 (Docket 71811), 26 (Dockets 9447, 10202, 10765), 31 (Dockets 10299. 32650), 34 (Dockets 4017,
a , 63029. 65577, 68324), 35 (Docket 10980), 36 (Docket 37369), 38 (Docket 16985). 39 (Docket 7435), 41
(Docket 6290), 45 (Dockets 45085, 3725, 12231), 46 (Dockets 61669, 68335), and 50 (Docket 7359), wthdrawn.
G
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a
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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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14
cquescences Contnued.
Ta payer.
offer, nta Owens
offer, T.
oday, ohn -
ongsworth, .
oster, 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.1
ouston, George T.1
ouston, orace .1
ouston Land Trust Co., trustee.
ouston, Php D.
oward et a., ohn
ubbard, dward, estate of
ubbard Mdred M
ubbard Mdred M ., 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 of
untngton-Redondo Co
untngton, Samue L
unttng, enry R
urbut, . M
urt et a., Mrs. . ., e ecutors
urt, oe, estate of
utchns, Chares P.4.. --
utchns, Lena C.4
uyer s, Inc
yman, rthur . _
Inos Centra R. R. Co.
Inos Power Lght Corporaton.
Independent Ice Coa Co
Ducket
No.
33374
33375
64127
54282
29461
42771
52661
51303
53797
29445
29444
29446
29465
12052
13104
22008
22009
63321
22007
52163
62309
63878
67569
63837
63878
67569
67335
56325
45417
45417
58490
45429
82366
78916
75304
71788
28099
28099
49070
49069
28369
29154
39841
79557
U
62023
62991
56299
396 87
67639 I
oard of Ta ppeas.
oume.
24
24
29
27
26
33
28
29
26
26
26
26
22
22
22
33
22
34
30
30
30
30
32
35
26
26
33
28
36
35
32
33
30
30
34
34
24
36
30
34
33
27
1346
1 cquescence reates ony to deducton for busness e penses n 1920 and to number of feet of tmber cut
durn 1919.
cquescence n ssue as to whether pettoner receved a ta abe dstrbuton from Marsha ed Co.
on anunry 5, 1927, n the amount of 1,118.51.
cquescence reates to Issue regardng oss from operaton of a farm n 1924 and 1926 and ssue regardng
Increasng defcency for 1925 by amount of nterest accrued on bonds e changed for art ob|ects.
1 cquescence wth respect to hodng that pettoner was not a transferee.
cquescence reates to ssue whether pettoner s entted to deduct osses from sae of securtes whch
were purchased by pettoner s wfe and oss from bad debt owng to aw frm of whch pettoner was a
member.
G
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1
3
-
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1
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2
2

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8
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9
3
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15
c tr sc NC S Contnued.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Indana Lamp Corporaton
Ingas, Chares C, estate of
Ink, Mary
Insu, Margaret __
Insu, Samue
Insu, r., Samue
Internatona Cgar Machnery Co
Internatona Mortgage Investment Corporaton..
Internatona Ocean Teegraph Co
Interstate Reaty Co
Irvng Trust Co
Isenberg Trust, een L
Isenberg Trust, Pau Otto
Iten scut Co
Iverson, I. C
Iverson, Ruphane .
ames, rthur Curtss
ames, Wam L
ohnson, orence D., estate of
ohnson, orence Lndsay, estate of.
ohnson, Wam Perce, estate of
ones, Chester ddson 2
ones, R. D
ones, Inc., T. R
.
ammerdner, .
Cty Leasehod Improvement Co.3.
Cty Memphs arms Co
ansas Cty Southern Raway Co. and affated
companes 4
52761
57835
75731
68002
68504
68003
68503
68001
68505
71331
76285
78741
29585
46272
50981
78489
71373
71374
16429
20899
48838
48837
18395
70278
75969
57890
53634
54083
50206
69858
77871
41643
46555
35718
51060
22668
35527
35528
35529
35530
35531
48293
48293
69677
69678
69681
28
25
35
32
32
32
36
36
26
25
36
35
35
25
29
29
31
30
33
35
35
31
29
35
25
17
25
22
25
25
31
31
31
asch, d
asch, Theodora
e, rank
e, Mrs. rank
e, oe
1 state ta decson.
1 cquescence as to Issue whether pettoner shoud be aowed to fe hs return on communty property
bass.
1 cquescence reates to March 1, 1913, vaue for purposes of cacuatng gan or oss upon sae of and
at ersaes, Mo. whether the Invested 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 the foowng ssues: Deducton of contrbutons to Y. M. C. ., Prests of Paace,
and ssocaton of Raway ecutves and amortzaton of commssons and e penses ncurred n sae
of bonds.
G
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a
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d

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U
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t
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
3
1

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8
8
9
3
3
6
9
6
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16
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta
oume.
e, We May
eey, ohn P
ey, Ore It. and Grace .
ent, verett .
esser, . M -
bee, O. .
ng, enretta M., estate of
ngsbury, . R
nney Co., Inc., G. R
rchner, uus C
eberg ct a., Robert ., e ecutors.
eeman, rthur S
nght, . D
oppe, Morrs D
raener, Samue
ru, rancs 1
uhn, Ida L
unau et a., Oscar . C, trustees.
Lard, Roy
Lake Chares Nava Stores
Landers, Dougas ., estate of3
Lang et a., orence O. R., e ecutors
Lang, enry, estate of
Lang, uus C, estate of 4
Langworthy, Mar|ore C 6
Lansk, Samue
Lawrence, Gadys G
Lawson, ohn
Lea, een Sperry
Leamngton ote Co
Ledcsdorf, Samue D
Leonard odng Corporaton, George ., estate of-
Letts, r., rthur
Levne, yman
Lews, Sr., . S
Ley, George W.1
Ley, Mary C
Lberty arms Co
Lberty osery Ms
Ldo udng Co., Inc
Lenfed, uus
Lncon, Robert Todd, estate of
Lppncott et a., . ertram, e ecutors 1
69685
38233
79959
39576
42589
46064
52640
24882
52632
56382
31397
32980
25428
52632
68841
56865
69323
37822
16985
32609
40267
64815
79760
34630
36940
35443
71117
71117
68316
71961
49347
75494
40232
74287
48413
48305
48871
62106
7435
56163
22336
22337
26717
29899
66546
53385
79298
39167
49233
31
26
36
26
31
27
31
31
26
27
31
35
28
35
25
10
24
27
35
25
21
32
32
34
30
34
33
28
M
26
26
26
30
8
32
27
27
22
31
31
35
24
27
1 cquescence reates to that part of decson hodng that Water . ettman Is not abe as a transferee
and to mtaton Issue.
1 Nonacquescence (reatng to communty property agreement) pubshed n Cumuatve uetn -2
(1938), pages 27 (Docket 71811), 29 (Dockets 9447, 10202.10755), 31 (Dockets 10299, 32950), 34 (Dockets 4017.
5389,62029.05577,08324),35 (Docket 10980). 30 (Docket 37369). 38 (Docket 16985), 39 (Docket 7435), 41 (Docket
9290), 46 (Dockets 45065, 3725,12231), 48 (Dockets 61669, 68335), and 50 (Docket 7359), wthdrawn.
1 state ta decson.
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.
cquescence reates to reorganzaton ssue.
G
e
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a
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e
d

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2
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1
3
-
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1
-
2
2

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4
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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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17
cquescences Contnued.
Docket
No.
oard of Ta ppeas.
oume.
Lppncot, Water, estate of1
Lttaucr, ugene, estate of1
Lttaucr ct a., Lucus N., e ecutors 2
Ltte, C.
Lvng unded Trust of arry . Lyman.
Lovd, S. Rose --
Lovd, Water
Locb, r., ct a., Wam, trustees
Logc, oseph .
Longyear, r., ohn M
Longycar, Mary ., estate of
Loughborough Deveopment Corporaton
Loure, Davd
Luhrg Coeres Co
M.
R. Co
MacCaum Gauge Co
Mackubn, George
Mackubn, Maude P
Magee, dth Grant, Trust
Mata Tempe ssocaton ...
Manhattan Lfe Insurance Co.
Manstque Lake Superor R.
Markharn Irrgaton Co.6.
Marston, dgar L
Martn, C.
Martn ote Co. and affated corporatons-
Martn et a., . are, trustees
Martn, T. S., estate of
Martns, ndy
Marvn, Water S.7
Mason, Pau
Matagarda Cana Co.
Matchette, rankn
Matthews, . P
Mauch, Russe C, and esse.
Maudn, I. M
Mayer, Mark
Mc uffe, gnes
McCahan, Rena S
McCa, orence 1
McCarter, Uza
McConne, Stea
McCoo, ess
McDonad, L. G
49233
51858
51858
01S21
78200
75765
44089
34161
37762
40071
47117
56027
62410
36438
46583
51064
27630
40048
70437
83671
83671
82178
29476
32940
35337
41344
61961
61735
16275
44583
44583
22334
38578
58413
40082
41345
40710
26250
72269
26239
78980
49071
79039
47702
69193
43478
46059
25427
27
25
25
27
36
32
30
26
24
28
25
29
24
26
32
36
36
35
16
32
29
24
29
34
24
24
24
27
25
33
24
26
22
35
22
36
29
35
26
33
29
24
27
state ta decson.
state ta decson acquescence reates to ssues 4, 5, and 7 of decson.
cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
Nonacquescence pubshed n Cumuatve uetn III-2 (1929), wthdrawn.
cquescence reates to a ssues e cept affaton ssue.
cquescence reates to that part of decson hodng that Water . cttmnn s not abe as a transferee
and to mtaton ssue.
cquescence reates to ssues regardng aocaton of tota cost between common and prefcrre stocks
purchased.
G
e
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a
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2
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1
3
-
0
1
-
2
2

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4
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1

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2
7
/

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0
0
0
0
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8
8
9
3
3
6
9
6
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#
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18
cquescences Contnued.
Ta payer.
k-t
No.
oard of Ta ppeas.
oume.
Mc wan, nna
Mc wan ct a., nna ., e ecutors.
Mc wan, .
Mc wan, Lan G
Mc wan, W. ., estate of
McGrew, zabeth W
Mcnerney, ohn ., estate of
McLaughn, Thomas
McLennan, . R
McMan, Wam Northrup, estate of -
McRae, Louse C, e ecutr 2
McRae, Php, estate of2
Mead Coa Co., C. _
Mehern, 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 2
Mercante Trust Co. of atmore et a
Merr, Isaac L
Messer, Rchard ., estate of2
Metropotan dson Co .
Metropotan Propertes Corporaton
Mchgan Centra R. R. Co.4
Mchgan Trust Co. et a., e ecutors 2
Mby Dow Coa Mnng Co_
Mgrm fe ros., Inc., .5
Mken, Sae Gbbs
Mton, osephne ohnson
Mnneapos, St. Pau Saut Ste. Mare Ry. Co.
Msssspp Packng Co., Inc
Mssour State Lfe Insurance Co.
Mtche, L. C
Mtche, Oscar 7
Mobe ar Pots ssocaton.
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
57869
45032
19930
42513
22021
22022
26259
42184
33177
31330
54092
74118
20772
58241
62386
41610
41680
41874
54673
77016
81295
26
26
26
26
26
25
35
29
25
27
30
30
28
35
28
29
2:)
29
21
32
31
27
35
24
28
27
24
24
28
35
34
24
29
28
27
1 state ta decson acquescence, e cept n so far as concerns the queston of stus.
1 state ta decson.
cquescence reates to dvdend ssue.
4 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 on property retred n 1918.
cquescence reates to ssue 1 of decson.
cquescence does not reate to foowng ssues: Deducton for reserve set up to meet abty upon
matured coupons ad|ustment of ncome for renta of space occuped In home offce budng and deprecaton
upon such budng.
7 cquescence reates to ssues regardng assgnment of earnngs of ron mnes n payment of ega servces
and deducton of amount pad to sou for aeged servces rendered.
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19
cqutescenc es Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Mobe Lght Raroad Co.1
Moore, dward W., estate of2.. --
Moore, Louse C, e ecutr 2
Moorehead, Wam
Moorshead, O
Morgan, r., dwn D
Morgan, atherne untngton, estate of
Mossman, . Pau -
Mossman, Wam ., estate of
Mountan ew Cemetery ssocaton
Mover, Water W
Muchnc, . ., admnstrator
Munroe, Grace ohnson
Murehson, Mrs. .
Murphy, Mae . eey.-
Murray, dward
Murray, Rebecca
Murtha Schmoh Co
Musgrove, oyd L
Mutua ssurance
Mygatt, enry D.
of rgna.-
N.
Na ct a., R- ., e ecutors
Natona Capta Insurance Co. of the Dstrct of
Coumba
Natona Casket Co., Inc.4
Natona Contractng Co.5
Natona M Suppy Co --
Natona Packng Corporaton ---
41026
42002
58720
58720
25853
57045
766C0
79652
59747
59747
83757
82588
87119
63789
76942
62838
38222
40176
58858
40174
58857
17911
42591
43911
76657
53044
56748
50320
24520
37001
31668
33971
64013
9290
75685
74411
38053
38053
38052
38050
23
33
33
22
28
35
34
32
32
35
35
20
32
2S
26
2S
28
17
27
24
35
27
28
29
25
23
24
30
8
35
32
26
26
26
26
Natona Te Co
Ne, ames
Neon ectrca Products Corporaton, Ltd., Caude.
Neracher, George
Netcher, Chares, estate of
Netcher, Gadys Over, e ecutr
Netcher, Irvng
Netcher, Townsend
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 1900 consttute ta abe payments of rent or nonta abe payments on the seng prce of
assets. 2. Whether pettoner sustaned statutory net osses for 1924 and 1926 whch can be deducted from
ts ncome for 1925 and 1926, respectvey.
1 state ta decson: acquescence n hodng that the commuted vaues of the nstament poces
n the frst two groups shoud be ncuded n the gross estate.
1 state ta decson.
4 cquescence reates to deducton of corporaton e cse ta es.
cquescence n oard s decson that pettoner had the rght to aocate overhead e penses to each
contract on competed bass and that formua used by pettoner was permssbe and ssue reatve to
neggence.
NonacquesoeDce (reatng to communty property agreement- pubshed n Cumuatve uetn -2
(1936), pages 27 (Docket 71811). 29 (Dockets 9447,10202, 10755). .31 (Dockets 10299, 32950), 34 (Dockets 4017,
63 6, 62029.65577.68324), 35 (Docket 10980), 36 (Docket 37369). 38 (Docket 16985), 39 (Docket 7435), 41 (Docket
9290), 45(Dockets45065,3725, 12231), 40 (Dockets 61 6 , 6S335), and 50 (Docket 7359), wthdrawn.
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1
3
-
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1
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2
2

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3
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0
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8
8
9
3
3
6
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20
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Newaygo Portand Cement Co...
Newbock O Co. of Te as .
Newbury, Moe Netcher
Newbury, Moe Netcher, trustee -
Newe et a., Sterng, e ecutors ---
New ngand Power Co
Newman et a., Rose, e ecutors
Newman, Samue, estate of1
New Market Investment Co.3
Newton, zabeth .
Newton, oseph R., estate of 2
New York Centra R. R. Co.
New York, Chcago St. Lous R. R. Co
Nagara Share Corporaton of Maryand
Nbey-Mmnaugh Lumber Co
Ncodemus, r., . C.s
Nppcrt et a., fred ., e ecutors and trustees..
Noonan state Trust, . R
North Sde Lumber Tmber Co
Northern Coa Co.9
Noyes, ansen 7
O.
Oakey, Rchard II
O Connor, Martn P
O Donohoe, ohn
O Donohoc, Mrs. ohn
Okahoma Contractng Corporaton
Ods, Margaret .8
Omsted, George W.
Omsted, Iva C.
Oympa arbor Lumber C
36319
28045
38049
38052
57835
18593
201(:
59598
59598
35719
47703
47705
19932
34437
62040
21047
70S 3
I 7527
52326
62569
55505
62664
34924
34945
38574
15778
74383
69686
69680
77871
49068
44090
45745
48121
54714
I 60746
44089
45746
48143
54713
60745
64272
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
30
30
Nonacquescence pubshed n Cumuatve uetn I-2 (1932), revoked.
1 state ta decson.
cquescence reates to March 1. 1913, vaue for purposes of cacuatng Ran 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 Improve-
ment Co.
cquescence reates to the foowng ssues: Whether amount 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 1918.
s Nonacquescence pubshed n Cumuatve uetn I-2 (1932), wthdrawn.
8 cquescence reates to nventory ssue.
T cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
1 cquescence wth respect to hodng that pet toner was not a transferee.
cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
Income.
G
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1
3
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2

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8
8
9
3
3
6
9
6
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21
cqcescencks Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
estate of _
Pacfc tantc Teegraph Co. of the Unted
States
Pacfc Coast scut Co. et a.4
Pacfc mpoyers Insurance Co
Package Machnery Co
Page, De Wtt
Pane et a., rancs Ward, e ecutors
Pane, Wam ., estate of
Pam each Mather Co
Pamer, radey W.
Parke, Davs Co
Parker, Cara ., e ecutr
Parker, George D., estate of
Parkand Ice Coa Storage Co
Parrott, . .7
Patterson, zabeth P
Peavy- yrnes Lumber Co_
Peavy-Moore Lumber Co.
Peavv-Wson Lumber Co.
Peck, Cara S., estate of.
Peck et a., remont C, e ecutors.
Pcgg, bert 0.
Penn Mutua Lfe Insurance Co...
Pennsyvana Indemnty Co
Pennsyvana Investors Co
Pennsyvana Water Power Co..
Peopes Lfe Insurance Co.
Perata, ohn M
Perkns et a., acob
35721
3233,5
59957
29586
71588
78000
54334
78907
34113
34113
43850
62652
62717
58604
58604
67640
30989
76058
15824
16354
25984
15823
16355
25986
15822
16356
25985
61520
61521
61520
61521
22338
52577
59670
71992
20766
56720
66969
71744
57923
28701
17
28
29
20
32
36
28
34
25
25
24
32
31
31
31
27
28
33
25
25
31
31
27
32
30
24
36
31
33
25
cquescence reates to March 1, 1913, vaue for purposes of cacuatng ean or oss upon sae of and at
ersaes. Mo. whether thf nvested capta of tho 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 Im-
provement Co.
1 cquescence reates to ssue as to aowabe deducton of cost of operatng automobe party used n
ta payer s busness n 1924.
Nonacqnescence pubshed n Cumuatve uetn III-1 (1934), wthdrawn.
cquescence wth respect to deducton of e pense ncdent to amendment of pettoner s charter.
1 cquescence reates to ssue whether stock rghts were capta assets where the stock n respect of
whch they were Issued had been hed for more than two years pror to sne of the rghts.
e 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.
T cquescence reates to rght of overrdng royaty owners to beneft of secton 211(b), Revenue ct of 1918.
1 cquescence reates to that part of decson hodng that Water . ettman s not abe as a trans-
feree and to mtaton ssue.
cquescence reates ony to treatment of renta vaue.
G
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a
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)

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1
3
-
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1
-
2
2

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4
:
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1

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8
8
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3
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6
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22
cquescences Contnued.
Ta payer.
Perkns et a., Thomas N.1.
Perry, oward
Perry, Raymond ., estate of_
Persnouse, ce
Pershouse, Mabe
Peters, ndrew .1
Phps, C.
Phoen Insurance Co
Pctora Revew Co
Pggy Wggy Corporaton
Ptkn, George P
Pttsburgh thetc Co.2-
Pttsburgh Metng Co
Pttsburgh West rgna Ry. Co.
Ptzman Methudy Trust
Pztz Dry Goods Co., Lous
P-M- Petroeum Co.1
Poar Ice Coa Co
Pope, Ove R
Porter, . Staney.
Powe, T. I. are
Powe, en|amn I
Powe, oseph W
Prare O Gas Co
Preston, ohn W
Preston, Sara R
Prce, Laura M
Prce, W.
Prophyactc rush Co.
Dncket
No.
57848
58305
58306
58443
58475
58770
58772
58901
58905
58906
58907
58917
58918
58925
69855
63645
26749
26748
54050
47901
48867
43995
25126
65173
60569
66964
67422
44858
72157
72158
81750
46585
50576
54779
67638
29274
82425
64464
50380
73763
57117
74560
74559
40659
41072
32996
47845
47846
45896
54968
26752
59957
oard of Ta ppeas.
oume.
33
33
32
25
25
28
26
29
26
28
31
27
30
32
36
22
24
27
25
86
27
IT,
:s
29
35
88
24
21
25
27
25
29
Prosperty Co., Inc.5
Prosser, Constance
Provdent Trust Co. of Phadepha, e ecutor _.
cquescence reates to the foowng ssues:
Is any part of the defcency as to astern Carbon ack Co., Thompson O Co:, . II. M. Co.. and Davu
ros. Co. due to fraud wth ntent to evade ta
Dd the shares of Interstate Oas Co. stock receved by O. . M. Co. as a dvdend from astern Carbon
ack Co. consttute n part a qudatng dvdend
1 Nonacquescence pubshed In Cumuatve uetn II-2 (1933), revoked.
1 cquescence reates to thrd ssue of decson.
Nonacquescence pubshed In Cumuatve uetn II-1 (1933), wthdrawn.
cquescence reates to deducton of oss resutng from qudaton of one of ts subsdares.
Nonacquescence pubshed n Cumuatve uetn III-1 (.1934), wthdrawn.
G
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0
1
3
-
0
1
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2
2

0
4
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1

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2
7
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3
0
0
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0
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8
8
9
3
3
6
9
6
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23
cquescences Contnued.
Ta payer.
Putnam Trust Co
Putty, Mrs.-Macom
-
unn, van
unn, orence M
unn, Martn M
unn, Pau --
R.
R msh, doph
Ramsh, Inc., doph
Randa, George W., estate of 1
Randa, Mar|ore G.2 -
Rands, Inc
Rands, Wam C
Rapp, ohn W., estate of -
Rauh Reaty Co
Ray O Co
Rea, enry Over
Reardon k 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, mv S., e ecutr 5
Rchardson, Chares W., estate of 5
Rchmond, redercksburg Potomac R. R. Co/.-
Rdgway, Robert..
Natona ank
34743
69683
8544
80005
8598
8574
39568
39569
5850
6765
38971
74942
2066
68846
28618
32822
34332
80265
20773
50962
62424
57728
41404
67386
70795
68445
71463
54960
54959
54899
48692
56877
21715
64023
64023
68876
77666
30903
42833
42834
42835
42836
43604
43605
43006
48749
57319
57320
57321
57322
1 Nonacquescenoe pubshed n Cumuatve uetn -2 (1931), page 90, wthdrawn.
cquescence n that part of decson reatng to deductbty of oss sustaned n 1924 from sae of res-
dence.
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.
cquescence reates to ncreased deducton for oss on retrements of roadway property.
7 Nonacquescence pubshed n Cumuatve uetn -2 (1931), wthdrawn.
Rtter Lumber Co. ct a., W. M.
Docket
No.
oard of Ta ppeas.
oume.
26
31
2G
f
26
26
30
30
27
34
31
21
26
28
35
24
32
29
30
34
30
31
29
29
34
25
24
31
31
33
35
17
30
33
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24
cqoescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Roach Studos, Inc., a
Roberts et u ., .
Robertson, Cae
Robertson, R. R
Robson, Lester L
Robson, Cara P., estate of
Rocky Mountan O Co.1
Rodeo- ae|o erry Co. .
Rodewad, . ngsey
Rogers, rown Crocker ros., Inc.
Roande, Guano 3
Rosenberg, Lous
Rosenboom nance Corporaton
Rosshem, Irvng D.
Roth, Gorton
Roth, W. .
Roy Ttcomb, Inc.
Ruz, M
Russe, bert W
Russe, C. C
Russe, Mrs. C. C...
St. ohns Investment Co
St. Lous Unon Trust Co. et a., cotrustees.
St. Lous Unon Trust Co., e ecutor 7
Saomon, Leon
Sanders, W. C
San Marcos Compress Co
San Martnez O Co
61750
80697
42496
42497
53878
26645
79421
36411
48528
76659
67581
57479
67286
27626
35778
40903
57503
22568
45065
29138
67097
73423
46060
46061
50613
65675
45966
3725
12231
26651
49304
37447
43121
85192
51944
59486
61156
63920
42908
43145
59612
31
36
28
28
33
25
36
24
35
32
33
24
24
31
26
22
24
30
35
24
24
30
30
27
4
8
2.1
31
2.
36
25
32
32
25
26
32
Sanson, arod R., estate of
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
1 cquescence reates to ncuson n ncome of o payments reserved by and pad to pettoner s assgn
ors, for purposes of computng ta abe ncome and aowabe depeton.
1 cquescence reates to deducton of contrbuton to ctory ghway ssocaton.
1 cquescence reates to reducton of proft of members of syndcate by the 2 percent 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.
Nonacquescence (reatng to communty property agreement) pubshed In Cumuatve uetn -
(1936), pages 27 (Docket 71811), 29 (Dockets 9447,10202,10755), 31 (Dockets 10299, 32950), 34 (Dockets4017,
5389, 62029, 65577, 68324), 35 (Docket 10980), 36 (Docket 37369), 38 (Docket 10985), 39 (Docket 7435), 41
(Docket 9290), 45 (Dockets45065, 3725,12231), 46 (Dockets61669, 68335), and 50 (Docket 7359), wthdrawn.
7 state ta decson acquescence, e cept n so far as concerns the queston of stus.
1 state ta decson.
cquescence reates to ssue nvovng ncuson of far market vaue of rghts to buy bonds In pet-
toner s ncome.
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2
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1
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-
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1
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2

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2
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2
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8
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3
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25
cqt|tescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Pase.
Scov Manufacturng Co
Scruggs, Gross R
Scruggs, Maran P
Scruggs Investment Co
Seaconnet 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
Securty- rst Natona ank of Los ngees, trus-
tee.
Sebert, fctd
Ses Sportng Goods Co
Shaffer, C. .3
Shand, Gadsden
Shapro, Samue
Shaw, Davd, estate of
Shea, R. P
Sheets, Leveret T., estate of
Shepherd, Cettc G., estate of
Ss, Mton, estate of4
Smcoe Reaty Co.5
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.
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
1620 roadway Corporaton
Skewes-Co , dth Page
29854
30238
33610
38711
40270
18389
24489
76825
40553
45429
86064
57059
20771
29259
20238
65158
34499
37835
40034
75223
69166
64737
35720
47210
47211
47212
47212
47210
19175
19791
61497
61496
37703
29252
37520
37520
37864
37703
41070
72005
78836
61609
68335
25
24
24
24
24
25
33
25
28
36
29
24
29
22
29
24
24
35
32
35
17
32
32
32
32
32
28
28
28
26
26
26
26
26
26
26
31
36
29
265
1174
1174
1174
307
1115
750
446
289
72
319
376
1350
858
1012
1235
798
220
208
815
213
320
320
320
320
320
988
1106
1106
1359
1359
1350
1359
1359
1359
1324
709
149
167
1 cquescence reates to nventory Issue.
1 cquescence reates to ssue recordng oss from operaton of a farm n 1925 and 192 1 and ssue regardng
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 on March 1, 1913.
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 bo ncreased for 1919:
and the March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
cquescence reates to Issues 3, 5, and 7 set forth n syabus of pubshed decson.
1 cquescence reates to bass for computng deprecaton on assets acqured by Smms O Co. In 1925
from Cayton O Refnng Co.
Nonacquescence (reatng to communty propertv agreement) pubshed n Cumuatve uetn -2
0936), pages 27 (Docket 71811), 29 (Dockets 9447, 10202, 10755), 31 (Dockets 10299, 32950), 34 (Dockets 4017,
62029. 65577. 68324), 35 (Docket 10980), 36 (Docket 37309), 3 (Docket 16985), 39 (Docket 7435), 41
(Docket 9290), 45 (Dockets 45065, 3725, 12231), 46 (Dockets 61669, 68 5), and 50 (Docket 7359), wthdrawn.
77964 38 2
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1
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-
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1
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2

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26
cqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Sack, . ., estate of1
Soss, atte echt
Smathers, . ., estate of
Smathers Power Typewrter Co
Smth et a., zabeth D., e ecutors.
Smth, I. N., estate of
Smth, esse, e ecutr
Smth, Mrs. esse
Smth, Lous, estate of
Smoot, Lews
Sneed, r., . T
South Memphs Land Co
Southard, enne
Southern tantc Teegraph Co_-
Southern Raway Co. et a. _
Spanger, Georga M
Spanger, . W
Sperry, dward G
Sperry, mer ., estate of_
Sperry, r., mer
Sperry, Zua ., estate of...
Sprague-Ses Corporaton
Spragne Son Co., C. T.
Sprunt Son, Inc., e ander.
Standard eef Co
Standard Conveyor Co_
Standard Isand Creek Coa Co
Rtandfer Constructon Corporaton, G. M.
Stanton, George
Starr, rank C
StaufTen, Theodora
Stearns, Robert L
Steege, W.
Stegeman, .
Stegeman, r., bert
Stegeman, anne L
Stegeman, . M
Stegeman, . R
72404
78525
64835
29260
43968
39291
49668
39291
49668
18876
22313
18876
32578
45694
44500
42592
29694
21481
29951
)37887-
37898
56320
56321
74297
74296
74298
74299
42006
42434
34946
38408
20770
33159
36393
40873
35260
35617
51636
62100
69259
26756
37573
67098
26643
26650
26644
26647
26646
35
33
29
28
25
25
24
24
24
25
4 30
5 33
27
27
26
27
29
29
35
35
35
35
30
24
24
24
25
28
30
36
31
26
24
30
25
25
25
25
25
cquescence n Issue Invovng deducton of attorney s fees pad by decedent.
cquescence reates to the foowng queston: Dd pettoner receve a dvdend from 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.
cquescence reates to oard s hodng that bonuses shoud be ta ed as separate or communty prop
erty n accordance wth the cassfcaton of the propertes under the ease and ssue n connecton wth
assessment of defcency for 1925.
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
portons of amounts deposted by shppers for constructon of factes for use of such shppers 3. Wher
bonds 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 Infaton contaned n book vaue of such materas and suppes as were not used durng 19207
1 cquescence reates to nventory ssue.
G
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a
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2
0
1
3
-
0
1
-
2
2

0
4
:
3
2

G
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8
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3
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27
cq u ec NC S Contnued.
Docket
No.
oard of Ta prs.
hum
Stegcman, Mabe
Stegeman, Wam L
Stephenson, Ida
Sternberg, erman
Stevens, ohn
Stevenson Consodated O Co.1
Stewart, Maco, e ecutor
Stewart, Mee sperson
Stewart, Theodore
Stock Yards ank of Cncnnat
Stockhan, |ah
Stone et a., Irvng ., e ecutors and trustees 2
Stone, Irvng Lee, estate of 1
Stoneman, Davd
Storey, . M
Story, atherne .
Story, r., Neson, estate of 1
Storv, Thomas .1
Storv, Water P.
Straube, . L. G
Street, Raph W
Stromeyer, Irene
Stromeyer, Wam
8trong, arod C.
Stryker, Ma
Stuart, Chares
Stuart, r., Woughby
Suear Creek Coa Mnng Co
Suvan, ugene C
Summerfed Co .
Summer Tubng Co
Sunburst O Refnng Co
Swenhart, ames
Symngton, zabeth L
Symngton, se
Symngton, my
Symngton Son, Inc., et a., T. II.
Tabot, . .
Teague, . ...
Te as Irrgaton Co. ..
Thee, Water
Thompson, dward W.
Thompson, W. L
Three Rvers Securty Corporaton.
26649
26618
62825
55758
29685
43416
63645
68781
70297
41085
22569
43830
43830
27627
62813
66961
66963
66962
66960
56867
72609
55341
55342
38576
82516
53796
73869
73758
29389
58711
74070
45979
54784
62234
62228
62161
48786
48787
48788
48789
48889
48890
36191
73034
10083
41346
67506
51103
51104
44857
41880
25
25
33
32
24
23
32
35
32
25
26
26
26
24
31
36
36
36
36
29
36
28
28
25
36
29
32
31
20
29
36
23
29
35
35
35
35
23
32
24
32
28
28
30
1 cquescence reates to Issues rcrardng reducton of ncome for fsc year endng November 30, 1924,
by oss sustaned for II months endng November 30, 1922. and ncus on n ncome for a yers of 1 par
vaue of capta stock of Sunburst O Oas Co. receved by pettoner as a premum.
1 state ta decson acquescence reates to ssue nvovng deductons from cross estate.
1 state ta decson.
cquescence rebates to Issues regardng aocaton of tota cost between common and preferred stocks
1 cquescence reates to oss ncurred In sae of a boat.
cquescence reates to a Issues o cept atUaton Issue.
G
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1
3
-
0
1
-
2
2

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2

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8
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3
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28
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Thrft Reaty Co
Tfft, Chares-.
Tfft, Lews ...
Tmes-Pcayune Pubshng Co
Tobey, Maurce
Toerton Warfed Co.1
Torrens, ames .1
Tracy, Davd ., estate of
Tracy et a., Gertrude emer, trustee
Tracy, Wam R
Tresner, my. -
Trcou, Sae S
Trnty Drng Co. --
Tro, nne
Trosk, George
Trost, dward .
Trout, . W
True, dward C
Turbeve, e M. -
Turner, atheen M.4
Turrsh, enry
Twn e O Syndcate
Twnng, dmund S
U.
Uster Deaware R. R. Co.
Unon Lard Corporaton
Unon Pacfc R. R. Co. ---
50653
31029
33464
42340
45957
31030
33465
42341
45958
48892
49539
27624
45320
53778
54828
62982
54828
62982
45513
66703
28093
40258
61498
61215
76256
77204
73848
39020
68501
43733
47900
55553
64334
64560
22340
44742
29518
70296
28927
20769
51530
70183
70219
29
25
25
27
24
23
31
30
30
25
30
31
33
25
28
33
35
34
27
31
31
27
24
20
32
25
24
32
1 cquescence reates to Issue regardng deducton of oss sustaned by pettoner durng nonaffated
perod.
cquescence n oard s decson In so far as t hods that pettoner was not ta abe on any part of the
proceeds of the 100 shares preferred stock gven by hm to hs four sons n 192S
8 cquescence reates to bass for computng deprecaton on assets acqured by Smms O Co. n 1925
from Cayton O Refnng Co.
cquescence reates to that part of decson hodng that Water . Iettman s not abe as a trans-
feree and to mtat on ssue.
cquescence reates to ssues wth respect to oss sustaned hy 0. W. R. R. Co. on e change of and
In Seatte n 1925 amount of oss sustaned by O. W. Raroad Navgaton Co. n 1925 on sae of aDd
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 unre/undab e porton of depost made
wth pettoner n connecton wth constructon of branch ne.
G
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2
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1
3
-
0
1
-
2
2

0
4
:
3
2

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2
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0
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8
8
9
3
3
6
9
6
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29
cquescences Contnued.
Tarpayer.
Unon Pacfc R. R. Co. et a.1.
Unon 4 Peopes Natona ank of ackson et a.,
admnstrators 1
Unon Trust Co. of Pttsburgh, trustee
Unted utographc Regster Co
Unted States Trust Co. of New York, trustee
.
aant, the Netcher ---
an ken, nne Louse
an Scken, rederck W., estate of1 -.
ermont ydro- ectrc Corporaton
rgna Iron, Coa Coke Co
oge, R. red, estate of
W.
Waker, George ., estate of.
Waker Products Corporaton.
Waker, R. D
Wa, rank .
Ward ros. Co
Co. .
Warner, Raph C. --
Washngton, Sr., George
Washngton Market Co
Waterhurv, Charotte M.6..
Waterhury, Donad N.5
Waterhurv, ugene W.
Watcrburv, Whtford N.5
Watson, r., ohn -------
Wavne Countv ome Savngs ank
Weddng, G. G. -
Weeks, anson
Wes, Samue W
Wheeock, R. L
Wheeock, Mrs. R. L
Whte Oak Transportaton Co.7
Docket
No.
35639
35649
35684
35685
40060
40061
40062
70456
61009
30384
/ 26747
1 26757
38051
76894
79334
82545
59638
51576
56182
31869
44856
76762
7359
30992
53039
53040
59190
62510
83712
43912
73381
73380
73383
73382
53414
49144
56442
63916
62126
37806
37805
18088
oard of Ta ppeas.
oume.
26
30
29
27
25
26
85
35
29
29
34
23
30
34
4
24
26
31
36
25
33
33
33
33
27
26
32
31
30
28
28
24
Page.
1126
1277
731
433
513
101
151
306
1006
1087
580
663
636
983
915
989
1225
1126
74
576
208
208
208
208
463
761
613
627
478
611
611
307
1 cquescence reates to donatons ssue amortzaton of dscount on bonds ssued pror to 1913 com-
putaton of ta Tor 1920.
1 Rstate ta decson.
1 Nonacqueseence (reatng to communty propertv agreement) pubshed In Cumuatve uetn -2
(1936), pages 27 (Docket 71811), 29 (Dockets 9447, 10202,10755), 31 (Dockets 10299, 32950), 34 (Dockets 4017,
62029, 65577, (18324), 35 (Docket 10980), 36 (Docket 37309), 38 (Docket 1G985), 39 (Docket 7435), 41
(Docket 9290), 45 (Dockets 45005, 3725, 12231), 46 (Dockets 61609. 08335). and 50 (Docket 7359), wthdrawn.
1 Nonacqueseence pubshed In Cumuatve uetn II-1 (1933), wthdrawn.
1 cquescence reates to ssue as to basc vaues of stock.
Nonacqueseence pubshed In Cumuatve uetn I-2 (1932), revoked.
cquescence reates to nventory ssue.
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30
cquebcences Contnued.
Ta pnyer.
Whtman, Ward 4 Lee Co.
Whtnev, 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 Co., Lee
Wson Commsson Co
Wson urs, Inc
Wson, George S., estate of
Wson Shpbudng Co.3
Wnne, Water G
Wnsow, Mary N
Wof, . C
Wood, red T
Wood Lumber Co., .
Woodard, ohn S.4
Woodward, rthur P
Work, orace ., estate of
Wrav, za
Wrght, George M
Wrght, Leonard Marsha
Y.
Yazoo Msssspp aey Ry. Co.
Young, the P
Yukon aska Trust
Zmmerman, ohn .
Zmmerman, Sarah . .
Znsser Co
Docket
No.
61552
76601
37927
40233
46371
66915
29273
58789
46062
40231
43972
40229
43973
80545
66718
52891
20768
33826
20767
57058
50828
34337
60900
76059
56439
38808
23005
24156
71962
. ,1741
60227
81027
25881
25854
45508
62023
02991
38868
34161
82491
82488
5242
oard of Ta ppeas.
oume.
29
35
26
25
27
29
25
31
24
25
25
34
30
31
33
33
24
25
24
29
30
25
27
33
32
27
25
30
32
34
24
22
26
30
34
24
26
36
36
21
1 cquescence reates to capta net gan ssue as to stock sod a 1933.
1 state ta decson.
I cquescence does not reate to ssue 5 of decson.
cquescence reates to reorganzaton ssue.
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31
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.
Page.
Mchennv et a., rances Pumer, e ecutors 1
45008
22
1093
Mchenny, ohn D., estate of 1
45008
22
1093
Wade, eptha ., estate of 1
43164
21
339
Wade, r., et a., eptha ., e ecutors 1
43164
21
339
state ta decson acquescence pubshed n Cumuatve uetn -2 (1U31).
The Commssoner does NOT acquesce n the foowng decsons
of the Unted States oard of Ta ppeas:
Ta payer.
Doekot
No.
oard of Ta ppeas.
oume.
Page.
beson Reaty Co., Inc.
beson s, Inc
ckerman, Irvng C.
ameda Park Co
bes, Wam .
brecht et a., athcrne ., e ecutrces 2.
ker, era M. oher
ed urrers Corporaton
mercan rck Te Corporaton
mercan Centra Lfe Insurance Co.3.
mercan Gas ectrc Securtes Corporaton
mercan Idea Ceanng Co
mercan Raways Co
Refrgerator Transt Co.
mercan Seatng Co.
mes, r., Ward
partment Corporaton
ppeby, rancs S
raborManufacturng Co.
rchbad, dward
rchbad, oseph
rchbad, r., oseph
rmstrong, Wam M
53792
53793
30311
31634
40948
40949
8355
74759
41295
36116
50059
29994
30133
31998
56024
63436
62604
49205
67662
64782
67602
72861
14676
49817
42024
73089
50489
61660
65064
61601
65062
61673
65063
40419
24
24
24
25
33
27
25
24
22
30
33
30
30
31
14
27
20
31
20
27
27
2.-)
680
686
612
850
373
1091
243
457
1121
11S2
245
529
939
465
828
021
S19
533
1068
837
837
837
928
1 Non cquescence reates to ssue concernne oss on sae of stock of . ash Co.
1 state ta decson nonacquescence reates to State nhertance ta ssue.
1 Nonecquescence reates to ssue whether certan funds denomnated Insured s persona henefU fund
were reserve funds requred by aw and ssue whether the pettoner s abty on outstandng unsurren-
dered unpad coupons consttutes reserve fund requred by aw.
pubshed n Cumuatve uetn III-2 (1929), wthdrawn.
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2

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32
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
shton, Ward
tas Lfe Insurance Co.
uto Strop Safety Razor Co., Inc.
yer, enry S., estate of 1
.
abson, red
abson, Gustavus
abson, enry
anger, esse M., e ecutr
anger, Water ., estate of
atmore Oho R. R. Co.3.-.
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 of3
ebbe, unus, trustee
ebbe, Marcus, estate of
echte, enneth
echte, Stephen D
ehan, Thomas W
efast Investment Co.4
e, rederc D., estate of
e Sons, Samue.
eresford, ven een de a Poer, estate of 5
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
umcntha, arrv S
oard of re Underwrters of the Cty of Duuth.
oca Cega Deveopment Co
oehrnger, Rudoph1
onwt, Pau
39148
40544
40751
67199
57374
7S778
79152
79153
52224
52223
52222
32177
32177
37239
55537
60699
32459
77376
63632
71565
73626
47772
66014
41295
52707
52707
75485
75486
75428
19128
69534
38056
41647
45616
67259
47415
58871
59660
69803
42313
63741
55902
53122
52221
52220
75143
43150
40446
49891
53661
28
29
28
36
27
27
27
23
23
30
30
24
34
28
33
30
34
28
27
26
26
34
34
32
17
31
32
22
31
31
28
33
29
31
26
26
29
29
34
26
25
29
33
state ta decson.
Nonacquescenee reates to deductbty as e pense for year 1920 of amount for mantenance of way
and structures.
1 state ta decson nonacquescenee reates to State nhertance ta ssue.
Nonacquescenee n ssue as to whether pettoner s entted to deducton for amortzaton of the Let
tract warehouse for 1918.
1 Nonacquescenee reates to ssue nvovng reorganzaton.
G
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d

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2
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1
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1
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2

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8
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Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
oo, .
ooth, en S
oston Safe Depost Trust Co. et a., e ecutors .
owen, dwn L.2
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. It. Co
rookyn ueens Transt Corporaton
rookyn Rado Servce Corporaton
rooks, Regnad
rown, rank ., estate of
rown, II. C
rown, arry
rown, Pear ., e ecutr
rownng, ohn N
rownng, S. P
uck, ohn ., estate of
uck et a., Mary M., e ecutors
uckhardt, ugust
uffao Unon Iron urnace Co.4..
uock, George 5
unge North mercan Gran Corporaton .
urdette, Cara
urey, anche ., e ecutr
urr, dward L
usness Rea state Trust of oston-
uter- etch Co
Cadwaader, Mary een
Cadwaader, r., Rchard M.
Cambra Deveopment Co.8..
64691
70951
81961
49272
62985
41472
43629
10651
24912
28971
38006
45714
45780
60899
41224
82818
20353
20353
61229
68560
47677
33343
48136
47677
72713
72714
32584
44153
44684
32584
44153
44684
76255
16075
16076
31209
47800
37321
44909
58795
33469
42684
50305
45169
45170
46327
71800
75411
34
30
30
33
24
24
24
23
29
27
31
27
27
31
31
26
25
2(
26
31
31
25
25
82
23
23
27
2.-
26
26
25
23
27
32
34
1 Nanacquesconce reates to ssue Invovng reorganzaton.
N onocquescence reates to ssue whether gans on sae of stock of the Watorbury Chemca Co. were
ta abe to pettoners or to trusts created by them.
1 state ta decson nonacqueseence reates to deducton of amount of a cam Ded aganst the estate
and aowed by probate court.
Nonacqueseence reates to ssue regardng deducton from gross ncome of fsca year ended pr 30,
1919, of reserve for renng bast furnaces.
1 Nonacqueseence reates to ssue 1 of decson.
Nonacqueseence reates to ncuson n cost of rea estate ots the estmated cost of future e pendtures
for contractua mprovements.
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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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4
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8
8
9
3
3
6
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6
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34
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Carey, Robert
Carey bre Products Co., merson
Carev- eed Co
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.1
Centra Unon Trust Co. of New York, e ecutor
Centra Unted Natona ank
Champon, Davd .
Champon, T. Perre1
Chander, Constance
Chander, arrson Gray
Chander, een
Chander, Maran Ots
Chander, Norman
Chander, Php
Chapman, C.
Charavay, Marus -
Chemca Natona ank of New York
Chenowth, . C
Chcago Dock Cana Co
Chcago North Western Ry. Co.
Chdaw, arry -
Chrstensen, Nes
Cark, Percy
Cark Thread Co.
Caude Neon Lghts, Inc.1..
Ceand state Co., Inc., enry .1
54033
60432
67415
36381
s:| . 3r,
51880
51881
47444
53489
45393
45392
51882
47669
51883
51884
51885
47669
51886
75816
58793
24837
31736
69212
7103
55569
63818
55568
67471
67470
67475
67468
67473
67476
52496
70005
71592
45604
38349
48268
36343
69782
72424
65177
38903
47974
59391
33585
40890
51197
31
26
36
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
28
29
30
26
32
22
29
33
31
28
35
29
1 Nonacquescence reates to ssue regardng oard s ursdcton of subsdares.
1 Nonacquescence reates to ssue whether redempton of stock was equvaent to ta abe dvdend.
Nonacquescence reates to foowng ssues: Undermafnte nance proft and oss on bonds retred
amortzaton of bond dscount.
Nonacquescence reates to ssue respectng deprecaton.
1 Nonacquescence reates to Issues (I) the acquston by pettoner of stock of the eows Corpcrattoa
and the Caude Neon edera Co. (2) the Caude Neon Lghts of Maryand, Inc., transacton nvovng
the e change of property for stock.
Nonacquescence reates to bass for determnaton of gan or oss on the sae of property devsed sub|ect
to a fe estate.
G
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n
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2
0
1
3
-
0
1
-
2
2

0
4
:
3
2

G
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2
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2
7
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35
Nonacquescences Contnued.
Ta payer.
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 4.
Communty ond Mortgage Corporaton..
Communty Mausoeum Co.s
Communty Teephone Co
Communty Water Servce Co
Cone, dward
Conney, ames . ...
Conney, L. .
Conney, Mary .8
Cont, Lucana
Cook, zabeth .
Cook, Sam
Cooper, . T. --
Cosmopotan ond Mortgage Co. ..
Coughn, 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|.e, I. T., transferee
Docket
No.
68433
39916
40765
60428
50968
42707
41646
43495
50051
43784
70384
7756S
77560
58777
44081
45833
46267
51967
60566
66948
44083
45834
44082
79793
38579
35014
3144
44617
76106
71755
43136
45267
51317
32735
26874
26875
28792
58545
48833
81826
64639
oard of Ta ppeas.
oume.
32
28
24
26
29
26
22
28
27
33
82
32
26
30
30
30
35
25
25
7
30
32
33
26
28
27
24
26
26
28
34
33
Pago.
646
725
176
1167
964
794
793
143
480
19
164
164
1401
331
331
331
28
1351
92
798
717
1048
1068
1020
236
1234
1079
234
1401
773
946
564
state ta decson.
1 cquescence pubshed n Cumuatve uetn IT-1 (1933). revoked.
1 Nonacquescence reates to ncuson n consodated nvested capta of capta stock ssued for prom-
ssory notes.
Nonacquescence reates to deducton n 1026 of e cess of market vaue over sae prce of stock sod to
empoyees.
Nonacquescence reates to ssue whether the fna nstament on the sae prce of mausoeum crypts
to be retaned by a trustee as a perpetua care fund shoud be e cuded from the fu contract prce n com-
putng proft, the ta payer reportng on the accrua nstament bass.
Nonacquescence reates to ssue nvovng the amounts pad to stockhoders by . O. Curts Leather
Co. upon canceaton of certan stock.
7 Nonacquescence reates to vaue of common stock of mercan Chan Co.. Inc.. and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
cquescence pubshed n Cumuatve uetn TI-1 (192S), wthdnwn.
Nonacquescence reates to ssue nvovng commssons charged on rea estate oans.
w 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.
Nonacquescence reates to e pendtures for mne equpment.
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36
Nonacqutcscences Contnued.
Ta payer.
D.
Dah, Chester T., estate of1
Daton, . G
Dana, Chares
Darnc, rank W. and Mrs. rank W._
Dashc, C. R
Davdson, Watson P
Davs, rederck - -- -
Davs. Thomas L
Day, Chares, estate of1
Dean, Mason L
Dcgener, ohn ., estate of
Degener, r., et ah, ohn ., e ecutors
De Lsser, orace, estate of
de Me Productons, Inc., Cec .4.
de Me Productons, Inc., Wam C...
Dennett, Mnre G.5
Denny, Regnad
Depew, Ganson
des Cognets, stee
des Cognets, Lous, estate of
Des Mones Improvement Co.7
Dohrmann, ndrew . C
Doomte, Inc
Donncr, 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 of
Drawoh, Inc
Drver, Sr., rank L., estate of
Drunheer, George
Duff, Robert C.
Dunham et a., Lucy ee, e ecutors
Dunham, Mary rgna, estate of 1
Dye, Carke
.
ast Coast O Co., S. I 58180
ckhart, ernard ., estate of I 76443
Docket
No.
81962
64711
70953
76699
79254
75056
46486
37324
37395
75102
61205
69832
38500
38500
2459
52996
61290
65123
53108
61321
72023
49516
50860
70892
70889
8573
20658
23969
60661
60237
60236
60235
60236
60235
44735
40031
45014
70574
41515
45752
37552
46603
74911
oard of Ta ppeas.
oume.
35
34
36
34
36
27
24
24
34
35
26
26
2
31
30
30
33
27
34
34
7
19
19
28
32
32
32
32
32
26
30
28
36
27
23
20
33
31
33
1 state ta decson.
state ta decson nonacqueseence 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 (1931), recaed.
Nonacquescence does not reate to the case of Constance ., de Me, Docket 71952, whch was dsposed
of by stpuaton.
1 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 not ascertaned unt 1931.
Nonacquescence reates to deducton of amount e pended for denta brdge work and amount e pended
n keepng pettoner n frst-cass physca condton.
cquescence pubshed n Cumuatve uetn I1-1 (1928), wthdrawn.
1 Nonacquescence reates to ssue 2 of decson.
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37
Nonacquescences Contnued.
Ta payer.
dson Securtes Corporaton..
dward Securtes Corporaton.
dwards Drng Co
fert, ar C
drdge, ce .1
drdge, . S.1-..
khorn Coa Co. --
kns, ae D.3
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
the D. Co
usts, ugustus .
venng Star Newspaper Co
verhart, ames Wam
.
armount Cemetery ssocaton
armers Cotton O Co
anners Lfe Insurance Co.
edman, enrv O
erree, C. ...
dety Coumba Trust Co., trustee
dety Unon Trust Co. et a., e ecutors
ed, Marsha... -
fth venue ank of New York, e ecutor.
fth Street udng.
rst Natona ank n St. Lous 8
rst Natona ank of oston, admnstrator 4.
rst Peopes Trust
sher 4 sher, Inc
sher, Irvng
Docket
No.
52602
71208
75931
45781
64779
64778
49064
39255
56449
67967
76546
77307
77309
40899
31110
33241
57867
67259
29200
32032
71637
61870
66855
26675
30925
42811
42679
43317
45359
01542
65041
65042
72236
36908
69534
16627
29264
45537
44278
8078
44746
45403
60929
61622
f 44
4c
oard of Ta ppeas.
oume.
29
30
35
23
30
30
31
24
28
31
33
35
25
33
31
20
27
30
28
26
25
27
27
2S
32
30
31
26
31
32
24
23
2:,
26
32
3D
1 Nonaequescence reates to deducton of oss In transfer of securtes to a corporaton n whch pettoner
owned a the stock ercent quafyng shares.
1 Nonaequcscenoe wth respect to the hodnp that there was a reorcanr.aton.
cquescence pubshed n Cumuatve uetn I-2 (1932), revoked.
1 state ta decson.
1 Nonaequescence reates to the foowng ssues: Reducton of cost bass f March 1. 1913, vaue) of assets
M by a partnershp In 1919 by deprecaton aowed In computng Income for perod March 1, 1913, to
December 1, 1915 computaton of partnershp proft on sae of assets by consderng as part of the sae
prce ta es of the partners pad n 1920 bv the vendee.
1 cquescence pubshed n Cumuatve uetn TII-2 (1934), wthdrawn.
T Nonaequescence does not reate to Issue n connecton wth opton payment receved for purchase
of and.
cquescence notce pubshed n Cumuatve uetn -2 (1931), recaod.
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38
Nonacquescences Contnued.
Ta payer.
tzgerad, Thomas
aherty, Wam, estate of, and a
etmann, Wam M., estate of1
etmann, r., et a., Wam M., e ecutors 1
emng, Lamar L.
emng, Wam
emng, Mrs. Wam
etcher, Saathe R
ntcrmann, Car . L., estate of3.
oey, Thomas ., estate of
oger Co., .
oger state Co
orest Gen Creamery Co
oster, Carone ., estate of1
oster et a., Chares . W., e ecutors .
oster, L. .
ounders ssocates
o , ontane s
o Rver Paper Co
rankn Tte Trust Co. .
ranks, ack M
uhage, fred .7.
uer, van T
urnture Corporaton of merca, Ltd.
Docket
No.
62075
79397
28449
28449
78362
61042
65676
61043
65677
33041
75516
67217
22212
30721
31200
35147
51833
46672
46672
43086
62684
71084
20878
51947
60167
67805
53685
61754
73759
72800
72801
oard of Ta
oume.
Page.
29
1113
35
1131
22
1291
22
1291
34
384
31
623
31
623
24
75
32
996
34
258
27
1
27
1
33
564
26
708
26
70S
26
1328
29
326
30
451
28
1183
32
266
32
260
32
222
31
154
30
878
27
837
26
794
22
1027
25
1351
25
757
25
612
30
1143
33
1215
35
523
32
1011
29
934
Gae, my 61672
Gambe Stockton Co.9 42707
Garcn, dward 21657
Gardner, Chares . 3So
Garre, Dane T., estate of _ 31736
Garvan, ohn oseph, estate of1 44746
Gary, rgna ., e ecutr 3 40031
Genera Machnery Corporaton 70449
Genera Motors Corporaton 52824
Genera Outdoor dvertsng Co., Inc.10 66511
Genera Uttes Operatng Co 52770
1 cquescence notce pubshed n Cumuatve uetn -2 (1931), recaed.
Nonacquescence reates to ssue Invovng ncuson n ncome the decedent s share of profts of a part-
nershp of whch he was a member up to the date of hs death.
state ta decson.
N on acquesce nee reates to deductons n 1924 and 1925 on account of osses resutng from aeged saM
of securtes.
8 Nonacquescence reates to ncuson In ncome of corporaton for years ended March 31, 1930, and
March 31, 1931, amounts representng renta of premses occuped by Its presdent.
Nonacquescence reates to the queston whethor rankn ond Mortgage Co. was entted to deduct
commssons pad on the sae of Its bonds nstead of proratng cost over the fe of the bonds.
Nonacquescence reates to ssue whether redempton of shares of stock represents payment n parta
qudaton of a corporaton or a ta abe dvdend.
Nonacquescence reates to ncuson n consodated nvested capta of capta stock Issued for proms-
sory notes.
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tnw
and under the same agreement.
10 Nonacquescence n ssue Invovng counse fees pad n connecton wth tgaton.
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39
Non acquesced ces Contnued.
Ta payer.
Gerard, re
Gerhardt, Php L -
Gcrach, Theodore R
Gerste et a., Mark L.1
Grard Trust Co., et a., admnstrators...
Gaddng, Mary D., estate of
G. M. 4 S. Co
Goet|en Metson Co
Goforth, Mary
Goforth, R. S --
Godberg, arrv S.4
Godschmdt, enry P., estate of
Godschmdt et a., Georgette, e ecutors 5.
Goodae, Water S
Goodan, Mav Chander
Gordon, ertha M.
Graham, M.
Great Southern Lfe Insurance Co.7.
Great Western Power Co. of Caforna-
Green, .
Green, Robert I
Greeneaf Te te Corporaton
Gregory, veyn
Grffs/Stantoh
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
agcrman, Staney
ae, rnest .. .
Docket
No.
45221
77375
38042
41041
62854
75624
31435
16383
17875
52316
52316
5389
16138
16138
78456
67472
81081
38335
56540
64064
71114
48617
74910
53647
46746
55299
38577
60381
35102
33694
400S1
41343
248S7
42150
70891
77997
78023
67105
oard of Ta ppeas.
oume.
IN
34
27
33
32
27
26
26
32
32
4
14
14
34
32
86
26
33
30
33
24
26
27
25
31
25
24
22
34
33
34
33
Nonacquescence reates to the foowng queston: re pettoners entted to deduct on ther Indvdua
returns the operatng and capta osses sustaned by rea estate syndcates of whch they were members
1 nd 18 reated dockets.
1 state ta decson.
1 cquescence pubshed n Cumuatve uetn - (1931), wthdrawn.
1 state ta decson acquescence pubshed u Cumuatve uetn -2 (1931), recaed.
Nonacquescence n hodng that pettoner s not ndvduay abe for any part of defcency.
1 Nonacquescence n foowng ssues:
Dd the ta payer reaze nterest accrued upon a oan where t forecosod ens on certan bonds pedged
coatera
Dd ta payer reaze nterest as ta abe net ncome where notes were e changod 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 nsurance companes durng the ta nbe
ywr, was ncome reazed upon the coecton of nterest that was accrued but not pad as of date of purchase.
1 Nonacquescence reates to transacton 5.
1 Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc.. and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
Nonacquescence reates to affaton ssue.
u Nonacquescence reates to ssues nvovng award of Interstate Commerce Commsson In I92 for
transportaton of Unted States mas n 1916 and 1917 and deducton n 1920 for deprecaton on ways and
tructnres.
Nonacquescence appes to the entre decson of the oard n so far as t sadverse to the Commssoner.
Parta acquescence pubshed n 1. R. . I-2S (1932), revoked.
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40
Non acquesces ces Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
ae, R. W
ae, W. T
a, arry . R.
a, Martha M_.
estate of.
aoek, enry, estate of .
ancock, G. an
anson, Chares C
arbson, Raph W.1..,...
arbson, Wam bert
ardwck, Mar|ory Tayor.
aran, George
arrs, Smon
arrson, ames M
arrson, .1.
artey, Cavour, e ecutor..
artey, G. G., estate of...
auser, W.
awaan-Phppne Co
awey Investment Co
azetne Corporaton.
edrck, . T.
effefngcr, rank T.
enz, oward
eer, . G
emph, Cfford 3
endrckson, oseph G., estate of
enn, . W
enrtze, .
cnrtze, Ne
enrtze, T. It
enrtze, T. W
ermann, ohn C
ertensten, reda M
ertensten, rederck
eronymus, Car Rchard, estate of
ghands, vanston-Lnconwood Subdvson,
rst ddton, Trust No. 1546, eta
ghands, vanston-Lnconwood Subdvson,
Trust No. 1521, et a
67750
67751
70004
71598
64501
76802
76803
76927
36867
15398
54346
54347
76545
60500
31632
66193
45361
42343
42343
43301
43302
69619
45169
45170
42277
47011
51931
60313
33533
41145
44852
53881
63407
69694
73479
79059
79450
40634
38573
73029
37102
60609
60607
60608
60606
51959
55938
55936
48930
74464
74465
32
32
29
31
34
25
23
26
21
33
30
24
30
2S
27
27
26
35
23
32
24
32
34
25
25
32
20
28
28
28
28
27
29
29
24
32
32
1 state ta decson.
cquescence pubshed n Cumuatve uetn II-1 (1033), wthdrawn.
Nnnacquescece 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.
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0
1
3
-
0
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8
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3
3
6
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41
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
ghway Traer Co
ghey Co., .
, D. ., estate of 1
et a., Pau ., e ecutors 1
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, O. P. P
omes akery Confectonery.
omes, Car
omes, . ., trustee
omes, Margaret .
ome Tte Insurance Co
onnod, W. L
ousehod Products, Inc
ousman, Carence
ousman, rederck
ouston aseba ssocaton
ouston ros.2
ouston, George T.
ouston, orace .
ouston, Php D.
oyt, 2d, ton
uburd, Chares ., estate of
uburd, De orest, ndvduay and as e ecutor
and trustee -
umme-Ross bre Corporaton
umphrey, Dudev T
unter, G. W., estate of 1
unter, r., Thomas .3
untngton, enry ., estate of
utchson Coa Co
yde, ames
44568
51003
29399
29399
49860
70820
76160
38336
38336
38337
68435
68435
58118
58119
58118
58119
G0674
44943
52861
51473
53395
44943
52861
48631
51570
53394
63737
55211
44809
58798
58774
43985
45430
12052
13104
22008
22009
22007
64710
70954
22028
22028
59S65
64376
33564
58490
45429
34939
65495
69952
28
25
24
24
32
33
34
20
26
20
32
32
33
33
30
27
27
27
27
33
30
24
20
26
24
22
22
22
22
34
27
27
31
32
25
33
2S
24
31
1 state ta decson.
1 Nonacqucsccnce reates to March 1, 1913, vaue, and to the ha.cs for the deducton for depeton and
for the computaton of gan or oss upon subsequent sae of the tmber.
1 Nonacquescence n ssue nvovng queston of reazaton of ta abe proft on e change of cass
common stock for cass stock.
4 Nonacquesccnce reates to ssue whether ta payer sustaned a net oss n any busness reguary carred
on n 1924 whch coud be carred forward and deducted from ta abe ncome In 1925.
G
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d

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t
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
3
2

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2
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8
8
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3
3
6
9
6
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Ta payer.
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
Irvne: Trust Co., trustee 1
Irvngton Investments Co
Iten scut Co
Ives, Chares
Ives Dary, Inc
Iwek, . W., transferee.
3.
ackson astern Ry. Co_
ackson, Pau Wde, trust.
ackson, Wermch Trust
amson Coa fe Coke Co _
anotta, Stea S. s --
efferson Standard Lfe Insurance Co
ohnson, . M
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 4
unge, Caus, transferee
.
ansas Cty Southern Ry. Co. and affated com-
Dnokct
No.
pancs
eener O Gass Co
eeys, dward L
ehoe, ohn
ehoe, Sarah
ey, rancs ., e ecutor 1
ey, Rose ., estate of 1
ensco Cemetery
erbaugh, enry S
errgan, rthur L
1 state ta decson.
Nonaequescer.ee reates to ssue nvovng deducton for deprecaton on ways and structures.
1 Gft ta decson.
Nonacquescencc as to ssue retardng deducton for depeton.
Nonacqucscenee reates to the foowng ssues: Deducton of amounts e pended to restore pettoner s
property notwthstandng the fact that the Drector Genera of Raroads made payment to pettoner for
hs faure to mantan the property: e cuson from gross ncome of ntercompany freght c
and suppes used n makng addtons and betterments to pettoner s property.
67201
35688
29291
67700
33859
33861
56943
84371
77557
43667
45164
51527
39873
64653
38295
42149
74928
32307
31090
34088
51172
43149
61345
79029
79029
22028
58285
50206
64637
22668
35527
35528
35529
35530
35531
60789
45360
64609
64609
70899
70899
76703
68976
58794
oard of Ta
oume.
30
25
23
35
24
24
32
35
32
25
29
23
33
22
24
24
28
25
32
33
33
27
27
31
33
22
32
28
34
34
31
31
35
29
26
G
e
n
e
r
a
t
e
d

f
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L

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a
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g

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Y
o
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k

U
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v
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s

t
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)

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2
0
1
3
-
0
1
-
2
2

0
4
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2

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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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#
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e
43
Nonacqt|escknces Contnued.
Ta payer.
ng, ohn M
rkpatrck, ohn L
tseman, CM., estate of
napp, tte .1
necand, Yae, estate of
no , Seymour
och, arry
onnk|ke, N. ., oandsche Loyd
ountze, Chares T
ountze, Luther L., estate of
ountze et a., Chares T., e ecutors
rause et a., rances ., e ecutors
rug, George
La rcada ondhoders Commttee..
La rum et a., Catherne, e ecutors.
Lafayette Lfe Insurance Co
Lang, uus C, estate of 4
Langford Investment Co., trustee
Langford, r., et a.. Perce P
Langworthy, Mar|ore C.5
Lansburgh, Lester, estate of
Lashar, Water
Laube, ustus
Laun, fred
Laun, .
Lazarus Co., . R
Leary, Sr., .
Leary, Myra L
Leeper, rank ., estate of
Leeper, Pear
Leetona urnace Co
Lembcke, George
Leon Son, Inc., bert
Lews, Wadsworth R
Lberty Marne Insurance Co
Lebes Co.,
Lnderman, Wam S., e ecutor
Lqudatng Co
Lttauer, ugene, estate of
Lttauer et a., Lucus N., e ecutors
Lvngood, Chares ., e ecutor 7
Loyd, . Darse
Loyd, Water 8
Dock t
No.
41549
67474
77812
2775
79748
65203
55318
78662
37323
37535
37535
49860
46713
75684
67217
41721
42663
68316
57203
57203
71961
81480
37883
70007
71595
45347
45348
69481
69750
76845
76846
45266
45265
32272
75365
53440
75957
67263
28544
35038
58871
60850
51858
51858
40899
71445
48120
oard of Ta ppeas.
oume.
26
32
33
7
34
33
26
34
24
24
24
32
30
35
34
26
34
28
28
30
35
34
29
26
26
32
34
28
28
23
33
29
34
32
23
28
33
25
25
25
33
30
cquescence pubshed In Cumuatve uetn II-1 (192S), wthdrawn.
1 state ta decson.
cquescence pubshed In Cumuatve uetn -2 (1936), pase 13, 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 the effect of dstrbuton of
a ta abe dvdend.
state ta decson nonacquescence n respect to that part of decson whch hods that accrued nter-
est pad on edera ncome ta es for 1927 and 1928 from date of decedent s death to November o, 1930, s
a proper aowabe admnstratve e pense.
cquescence pubshed n Cumuatve uetn I-2 (1932), revoked.
Nonacquescence reates to ssue Invovng the amounts pad to stockhoders by . G. Curts Leather
Co. upon canceaton of certan stock.
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
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2
0
1
3
-
0
1
-
2
2

0
4
:
3
2

G
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/


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p
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.
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a
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d

e
.
n
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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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#
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4-1
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Loffanr, . M.1-
Loffand, T. 8.L
Lous Cora
Lousve Trust Co. et a
Lucas, Mabee T
Lustg, Davd L., estate of2
M.
trustees.
Maernee, D.
Maorv, L. W., estate of
Maoy Co
Manchester Coa Co
Manhattan Lfe Insurance Co
Mann, George D
Mannng, Chares N -
Manus-Mucr fc Co., Inc
Margay O Corporaton
Markham Irreaton Co.
Marvn, Water S
Marvn, Wam Genn, estate of
Matagarda Cana Co.
Mather, Samue, estate of
Matheson, ugh M
Mathews, Susan ., e ecutr
Mathews, W. ., estate of
McCabe, en C
McCabe, George ., estate of
McCabe, ames
McCabe, ames Roscoe
McCabe, Mton Mathew
McCabe, Wam ohn
McCabe, r., Wam ohn
McCarter, Uza ., estate of
McCormck ct a., Cyrus ., trustees
McCrory, Luke W., trustee
Wam ., estate of 1
ames W. and ntonette
Mare Louse
Robert ..
Mcvane et a., Wam ., trustees
Mc nney, Ida I
McLauchan, Wam, estate of..
McLster, rank
McMan, Wam Northrup, estate of 6.
Mehcrn, Dora M.8
Mehern, P. W.
McCurdy
McGrath,
McGrath,
McGrath
13425
13426
49179
65040
72933
70582
10
10
29
30
34
33
63553
31
33231
27
57906
33
33392
24
60827
28
54223
33
63370
70890
34
59778
30
44891
26
41344
24
38578
25
77017
34
40082
24
41345
64712
34
71353
31
43208
33
43208
33
69783
29
69779
29
69778
29
69781
29
69777
29
69780
29
69784
29
69193
34
44139
26
32444
25
67681
31
65040
30
65042
30
65039
30
52931

57226
45823
32
62905

70952
48562
27
45966
27
80422
35
81035
35
N on acquesce nee reates to deprecaton aowabe under the Revenue ct of 1913 _.
shed n Cumuatve uetn III-1 (1929), wthdrawn n so far as t appes to ths ssue.
state ta decson.
Nonacqnescence reates to affaton ssue.
Nonacquesr-ence reates to vaue of common stock of mercan Chan Co.. Inc., and the bass of oca-
ton of rest between sad common stock am preferred stock of sad company acqured at the same tme and
under the same acreemeut.
state ta decson nonncquesccnce as to queston of stus.
Nonacquescence n ssue wth respect to mmunty from edera ncome ta of compensaton of offcers
and empoyees of the oard of State arbor Commssoners of Caforna.
G
e
n
e
r
a
t
e
d

f
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r

L

n

Z
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a
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g

(
N
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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
2

G
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/


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.
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a
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.
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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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s
s
_
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#
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e
45
Nonacqvescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Menzes, Chares M
Menzes, Inc., C. M
Merner, Deght Ward..
Merre, Irvng S
Metropotan Ice Co.1
Meyer, George L., transferee
Me ver, Robert R
Mchgan Centra R. R. Co.2
Mgetta, Oga
Mes Reaty Co.
Mer, bert
Ms, . . Goadby -
Mnnesota Tea Co
Mssour State Lfe Insurance Co.3-
Mtche, Chares
Mtche, . . -
Mtche, Oscar
Mtche, Wam
Mtten Management, Inc.
Mod|esk, Raph
Moore, ma
Moore
Moore
Moore, ohn R
dward W., estate of 5-
G.
Moore, Louse C, e ecutr .
Moore read Co
Morgante rush Co., Inc
Moro Reaty odng Corporaton.
Morrs, rthur
Morrss et a., ua L.
Morrss Reaty Co. Trust No. 1.
Morrss Reaty Co. Trust No. 2.
Morse, mma R., estate of 8
Moser, Caroyn L
Mosser, Chares
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
58720
38351
64791
68218
58720
41645
26369
37406
44759
50490
64246
41023
41024
45863
45864
41023
45863
41024
45864
44652
55937
55399
31
34
32
33
32
33
27
28
25
31
28
26
34
20
32
33
27
26
29
28
30
33
26
30
33
22
24
25
33
23
23
23
27
20
27
muatve uetn I -2 (1935), wthdrawn.
ownd ssues: Whether ma pay receved n 1921 consttuted ncome n
competed addton and betterments n fna settement wth the Drector
1 cquescence pubshed n C
1 Nonacquescence reates to f
1920 renta nterest receved o
Genera.
1 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.
Nonacquescence reates to ssue regardng deducton from ncome of sprnkng ta .
1 state ta decson: nonacquescence n the concusons on the thrd group of poces that the proceeds
thereof shoud be e cuded from the gross estate.
1 state ta decson.
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
2

G
M
T


/


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:
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.
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a
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.
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/
2
0
2
7
/

n
u
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3
0
0
0
0
0
8
8
9
3
3
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9
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46
Nonacquescences Contnued.
Ta payer.
Mott, Chares Stewart
Mott, Dee ure
Mott, Dee urey
Mueer, ar W.
Mucahy, ohn
Murphy et a., red T., trustees
Murphy Persona Property Trust
Mutua Lfe Insurance Co. of New York.
Myrck, uan S
N.
Nashve, Chattanooga St. Lous Ry.
Natona Casket Co., Inc.1
Natona Contractng Co.
Natona Grange Mutua Labty Co...
Natona Land Constructon Co
Natona Outdoor dvertsng ureau, Inc.
Natona Ppe oundry Co.
Nea et a., . enry, trustees
Nems, rank aywood
Nems, Mrs. rank aywood
Netcher, Chares, estate of
Newberry Lumber Chemca Co
Newbury, Moe Netcher, trustee
Newport Co
New York Centra R. R, Co.4.
New York Lfe Insurance Co
New York, Ontaro Western Ry.
Nbcv-Mnnaugh Lumber Co
Ncho s Co Lumber Co
Nchoson, ames
Ncoa, .
Nesen Co., .
North mercan Investment Co
Northern Coa Co.
Northport Shores, Inc
Noyes, ansen
Nudeman, Chares W
Co.
Oakman et a., Mame R_
O Donne, dth M.
Docket
No.
oard of Ta ppeas.
oume.
51585
57506
71903
45362
80769
43795
43795
9764
51526
63376
33799
50320
24520
73099
40126
65252
70999
32997
45403
51887
51888
I-. .:..
68511
42435
35431
19932
34437
62040
3SSMI
52693
17527
23601
57417
8899
30183
34945
64500
38574
79126
42917
79980
24
29
25
31
25
32
19
26
27
27
31
33
31
24
28
24
30
26
24
32
33
26
24
24
31
25
35
24
35
30
1040
35
195
28
236
34
1229
25
724
25
724
23
749
29
822
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 the oss sustaned by a parent company on the
qudaton of a subsdary company.
Nonacquescence reates to ssue 1 of decson and Issue regardng deductbty of overhead costs n 1925.
1 cquescence pubshed n Cumuatve uetn I -2(1930)t revoked. Revocaton of pror acquescence
and present nonacquescence are due to the faure of the oard s decson to mt the word dstrbuted
to the cash dstrbutons made to the stockhoders.
Nonacquescence reates to foowng ssues: Whether ma pay receved n 1921 consttuted ncome n
1920 renta nterest receved on competed addton and betterments n fna settement wth the Drector
Genera.
Nonacquesoenee 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.
1 state ta decson.
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47
Nonacqctescences Contnued.
Tapa er.
Docket
No.
oard of Ta ppeas.
oume.
O Donne, Thomas
Ogden, ugh W
Od Coony Trust Co., trustee
Od Msson Portand Cement Co
Od Natona ank n vansve, e ecutor
Onger Mortuary ssocaton
Over, Ove ume
Omsted, George W.2.
Omsted, Iva C. _
Ostad, Oscar
Omaha Coca-Coa ottng Co_
O Rear, . C.
Oregon Termnas Co
Oswego as Corporaton.
Owens, . T
Owens, Mrs. . T.
Owens, O. O
P.
Pacfc Coast scut Co. et a.
Pacfc Nash Motor Co
Pacfc Rock Grave Co.
Pamer, radey W.
Parker, Cara ., e ecutr 8
Parker, George D., estate of5
Parker, erbert L., estate of1
Parker et a., my ng, trustees 1
Parrott, . .1
Peabody, Cornea aven, estate of 1
Peabody et a., Stephen, e ecutors 1
Pennsyvana Co. for Insurances on Lves
Grantng nnutes, e ecutor and trustee
Perkns, my S.1 ---
and
52987
62979
23943
74928
38853
67681
36502
65640
44090
45745
48121
54714
60746
44089
45746
48143
54713
60745
76683
52641
32335
68893
28301
32673
34352
63149
63150
31986
71588
45169
45170
28776
62652
58604
58604
53320
53320
30989
39647
39647
73029
78532
32
24
33
2.-,
31
23
30
.30
32
26
28
29
26
27
27
26
32
23
26
32
31
31
30
30
28
24
24
32
35
1 state ta decson.
Nonacquescence reates to Issue Invovng the amounts pad to stockhoders by . G. Curts Leather
Co. upon canceaton of certan stock.
Nonacqueseence reates to ssue regardng amount of oss sustaned by pettoner by reason of destruc-
ton by fre of hs resdence and furnture.
Nonacquescence wth respect to deducton of amounts e pended n connecton wth dssouton and
qudaton of a corporaton.
Nonacquescence n oard s decson hodng that the Superpower rghts were not dvdends.
Nonacquescence reates to ssue regardng e stence of George D. Parker Co. partnershp.
T Nonacquescence reates to nterpretaton of artce 1567, Reguatons 45, as apped to e change of stock
of Pttsburgh Te as O Gas Co.
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1
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48
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Perkns et a., Thomas N.1.
Petauma Santa Rosa R. R. Co.1...
Pheps et a., Lus ames, e ecutors .
Phps, Wam S --
Perce, dward
Person Corporaton, L. D
Pttsburgh Lake re R. R. Co.4...
Pans Reaty Co.
Pant, enry radey.
Patt, amma 5
Pestcheeff, Guendoen C.
Pestcheeff, Theodore
Pettner, Maude rown..
P-M- Petroeum Co.1
Pontare, Mchae
Ponvert, Lusa Terry, estate of 7
Porter, e ander ., estate of 7
Portand urnture Manufacturng Co.
Post Shedon Corporaton
Pressnger, Mabe L., estate of 7
57848
58305
58306
58443
58475
58770
58772
58904
58905
58906
58907
58917
58918
58925
13830
50336
24446
31769
58796
74347
42764
48977
65492
67197
43889
48984
52094
55659
60923
78930
80026
80025
33345
50576
54779
83199
81568
79322
61809
70367
56695
80550
33
11
27
24
26
35
28
SI
30
35
35
35
25
24
85
35
34
80
2S
34
Nonacquescenee 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. n. 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 the statute of mtatons, at the tme of the mang of the defcency notces, bar assessment, and
coecton of the defcency as to Thompson O Co., where a consodated return was orgnay fed and the
Commssoner ater rued aganst consodaton
Is O. II. M. Co. entted to a deducton greater than 14,179.75 as an addtona bonus to ts genera
manager
1 Nonacquescenee 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 (1928), revoked.
state ta decson nonacquescenee wth respect to the trusts for the son and daughter.
Nonacquescenee reates to renta nterest queston and oard s decson wth respect to porton of ma
pay receved n 1921.
1 Nonacquescenee n Issue wth respect to Immunty from edera ncome ta of compensaton of offcers
and empoyees of the oard of State IIarbor Commssoners of Caforna.
Nonacquescenee reates to frst ssue of decson.
1 state ta decson.
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1
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-
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1
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2
2

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49
Nonacquescences Contnued.
Ta payer.
Prce, arry
Prester, . C - -
Proctor Shop, Inc.1
Prosperty Co., Inc.
Prouty, Ove L- -
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.1.
Raymond, oward W
Raymond, Raph Lese
Reaty ssocates, as syndcate manager
Reed, Latham R
Reese, ugusta ss
Rehtam, Inc
Reybne, pheus, estate of -
Reybne, Martha ., e ecutr -6 -
Reynard Corporaton 8
Rchardson et a., orrest, e ecutors 5
Rchfed O Co
Rchmond, redercksburg Potomac R. R. Co.7..
Reck, dward
Rffc, enry s... - ---
Rey, nna
Rey Stoker Corporaton
Rey, Thomas ., transferee
Docket
No.
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
45016
60660
60660
67386
70795
44652
42921
68876
79157
3576
61066
36584
64638
oard of Ta ppea.
oume.
29
33
30
27
30
33
26
34
27
31
31
27
27
28
28
26
34
17
26
30
28
31
31
30
27
25
33
35
3
29
26
33
cquescence pubshed n Cumuatve uetn III-2 (1934), revoked.
1 Nonacquescence reates to overstatement of oss sustaned as a resut of qudaton of subsdary.
1 Nonacquescence reates to Issue whether pettoner was ta abe for years 1920 to 1929, ncusve, as a
trust or as an assocaton.
cquescence pubshed n Cumuatve uetn -2 (1931), wthdrawn.
1 state a decson.
Nonacquescence reates to ncuson n ncome of corporaton for years ended March 31, 1930, and
March 31,1931, amounts representng renta of premses occuped by ts presdent.
1 Nonacquescence reates to ssue nvovng the queston, re payments made to hoders of guaranteed
Sock desgnated n certfcates as dvdends deductbe as nterest
state ta decson acquescence pubshed n Cumuatve uetn -2 (1931), recaed.
G
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2
0
1
3
-
0
1
-
2
2

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4
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2

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8
8
9
3
3
6
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50
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Ro Grande Land Cana Co
Ro Grande Reservor Dtc Co.
Robbng, arwood
Roberts, G. P
Roberts, Water
Robertson, . G
Rockwood, George O
Rockwood, Wam M
Rocky Mountan O Co.1.
Rodeo- ae|o erry Co.1.
Rogers, May
Roande, Guano
Rons, arrv T
Rons, Raph
Roosevet Son Investment und.
Rormer, Lous
Rosenboom nance Corporaton .
Ross, anche S.5.
Ross, Water L
Rosser, . M., e ecutor 8
Rosshem, Irvng D.:
Ruth, rederck S., estate of
Sabatna, Rafae.
S.
St. Lous Southwestern Ry. Co.
St. Lous Unon Trust Co., e ecutor
San Caros Mng Co., Ltd.
San acnto Lfe Insurance Co
Sand Sprngs Ry. Co
ather Lease Thomas Sather Co..
Sauk Investment Co
Scatena, vra 10
Schoen, Lous
Schumacher Wa oard Corporaton.
chwartz- asser Improvement Co
Scott, Thomas ., estate of 11
71350
71351
67076
68434
37534
49552
52370
72711
72712
79421
36411
48528
45051
57479
67286
63954
63958
76196
58850
35778
40903
51171
73282
40765
57503
80840
50134
13319
27768
33938
45966
39525
75348
32438
32439
31979
74642
63920
56776
61602
69719
36876
50336
31
31
33
32
24
28
31
31
36
24
31
32
33
34
34
31
27
24
23
30
24
31
30
32
24
27
24
34
21
26
34
32
30
33
26
27
1 Nonacquescence reates to reducton of gross ncome by ntangbe drng costs and overhead e penses
In determnng the 50 per cent mtaton on depeton.
Nonacquescence reates to frst ssue of decson.
Nonacquescence 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 .
nch Co. were not parta qudatng dvdends.
Gft ta decson.
state ta decson.
Nonacquescence reates to ssue whether Commssoner s entted to ncreased defcency as rased
by hs amended answer fed wth the oard.
state ta decson nonacquescence as to queston of stus.
cquescence as to ssue 2 and nonacquescence as to ssue 1 pubshed n Cumuatve uetn I-1
(1931), wthdrawn.
Nonacquescence reates to dvdend ssue.
state ta decson nonacquescence wth respect to the trusts for the son and daughter.
G
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U
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t
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
3
2

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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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51
Nonacquescences Contnued.
Ta payer.
Scott, Thomas S
Scovc, Cnton ., estate of
Scrpps, Robert P
Scuy, nrqueta ngea 1
Seaconnet Coa Co.1
Seatree, Wam rnest
Securty rst Natona ank of Los ngees et a.,
e ecutors 3
Securty Savngs Commerca ank
Sewyn ddy Co
Shaffer, C. .
Shaffer, ohn C . .
Sharp et a., dth uggard, e ecutors
Sharp, Water P., estate of1
Sheaffer Pen Co., W. .
Shepherd Syndcate
Shenker, Smon -
Sbey et a., ohn R., e ecutors .
Sbey, Rufus ., estate of
Sberbatt, Soomon
Smms, . .
Skff, rank .7
Sack, . ., estate of
Sma s, Inc
Smathers, . ., estate of 4.
Smey, bert
Smev, rancs G
Smth, C.
Smth, Mrs. Grant-
Smth, Mton
Smth, Mton, estate of
Smth, r., Mton, e ecutor
Smth, Sarah vs
Smth Transportaton Co
Smth, Wam den, estate of,
Sneed, r., . T.
Docket
No.
70888
49272
77116
80244
18089
22094
33640
45429
59523
21612
29259
50086
59511
48317
48317
36604
48332
51327
58801
24921
24921
46335
19175
19791
51173
72404
78525
53791
29260
74424
74425
77417
43300
43305
43306
77414
52132
52132
77416
77415
56465
45694
oard of Ta ppeas.
oume.
34
30
33
34
24
25
2S
29
25
29
28
30
33
30
33
27
26
26
16
16
28
28
28
35
24
29
33
33
34
26
34
28
28
34
34
34
30
state ta decson.
Nonacquesoonce reates to statute of mtatons ssue.
Nonacquescence reates to ssue whether ta payer sustaned a net oss n any busness reguary carrod
on n 1924 whch coud be carred forward and deducted from ta abe ncome n 1925.
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, o
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 tbe vendee.
cquescence pubshed n Cumuatve uetn III-2 (1929), wthdrawn.
Nonacquescence reates to ssues 1 and 4 set forth In syabus of pubshed decson.
T Gft ta decson.
Nonacquesoence n ssue Invovng queston of ta abe gan by reason of acquston of possesson of
property eased by hm.
Nonacquescence reates to ssue whether certan Interest 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 Income notwthstandng that the ands from whch they arse may be the separate
property of ether spouse.
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1
3
-
0
1
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2

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8
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3
3
6
9
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52
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Snyder, Inc., . S. M. W
Southern e Teephone Teegraph Co.
Southern Caforna Rock Grave Co
Southern Raway Co. et a. _
Spang, Chafant Co.s
Spencer, George rnck, estate of
Speyer, ames
Sprague, CO. M
Sprague Son Co., C. .
Sprng Cty oundry Co
Sredes, Inc
Staney Co. of merca.
Stayton, r., Wam II
Stearns, Marsha, admnstrator
Steee, Wam, estate of
Stern et a., Samue . ., e ecutors 5.
Stetson, Ioa Wse
Stevens, y am .
Stevens, Wam D
Stevenson Consodated O Co.a
Stewart, ohn
Stewart, Wam Rhneander, estate of 9
Stewart, r., et a., Wam Rhneander, e ecu-
tors 7 8
tfe, rthur C
Stfe, dward W
Stfe, enrv (
Stne, Doe M
Stne, M. osephne
Stockhom nskda ank
Stone, . C, estate of
Stone, Mrs. II. C, e ecutr
Stone et a., Irvng ., e ecutors and trustees
Stone, Irvng Lee, estate of
Straub, Teca M
Straus, aron
Straver, Water
Streefkerk, Mrs. S
1 Nonacquescence reates to Issues nvovng addtona compensaton, renta Interest on addtons and
betterments, and back ma pay for use of propertes durng edera contro.
cquescence pubshed n Cumuatve uetn I -2 (1935), wthdrawn.
state ta decson.
4 Nonacquescence reates to statute of mtatons ssue.
state ta decson acquescence pubshed n Cumuatve uetn -2 (1P31), recaed.
Nonacquescence reates to ssue regardng ncuson n ncomo for 1926 of 180,823.35 receved upon
e change by pettoner of 250,000 shares of Sunburst O 4 Oas Co, stock wth that corporaton.
T stae ta decson nonacquescence reates to far market vaue of an undvded or fractona nterest
In certan rea property.
1 state ta decson: nonacquescence reates to far market vaue of 3.630 shares of stock of Rhneander
Rea state Co. as of September , 1929. cquescence as to ths ssue pubshed n 1. R. I -7 (1935),
wthdrawn.
state ta decson nonacquescence reates to ssue nvovng property transferred by trust agreement.
36686
70887
30898
21481
29951
37887-
37898
58790
72236
56435
65833
34946
21169
45015
31516
33142
40023
71867
48930
73347
2459
41743
70006
71593
70009
71 .MM
43416
57531
67776
67776
60738
60739
C0740
62094
62695
55755
38336
38336
43830
43830
55935
65091
48564
45363
26
34
27
31
31
30
33
24
25
28
26
32
24
34
2
26
27
29
29
23
29
31
31
29
29
29
32
32
25
26
26
26
26
29
27
27
28
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53
Nonacqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Strong, arod C
Sturgeon- ubbard Trust
Sturgeon et a., Ron S., trustees.
Suvan, oseph
Sunerest Lumber Co
Swartz, Inc., dward G
Swft, Marv Dodson, estate of
Swsky, Toby W..
Swss O Corporaton.
T.
Taft, nna S., estate of1
Taft, Robert ., e ecutor1 --
Taft, Robert ., trustee
Tabot, rederck C, estate of
Tabot, . .
Tabot et a., Susan D., e ecutors
Tabot, Wam ., estate of
Tayor, . Sedon, estate of1
Tayor, r., et a., . Sedon, e ecutors .
Tayor, esse Carter
Tavor, udson L
Ten yck, Peter G
Tennessee Consodated Coa Co
Termna Raroad ssocaton of St. Lous.
Termna Reaty Corporaton.
Terre aute, Indanapos astern Tracton Co.
Terre aute Tracton Lght Co
Terrv, nna Davs
Terry, r., . T... -
Te as Irrgaton Co.4
Te as Ppe Lne Co
Thatcher Son, ohn
The ub, Inc - -- -
Theman, Mrs. Leo
Thra, dna May
353 Le ngton venue Corporaton
Tde Water O Co
Totson Manufacturng Co
Tte Trust Co
Ttus, C. Dckson
Ttus, Inc., C. W.
Todd, Ws
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
43766
50762
60596
71157
33858
33860
45446
65835
40083
41346
59457
56888
65545
46298
65041
52449
55546
65089
39936
44167
73785
20705
42268
37536
25
25
25
33
25
25
26
25
32
33
33
34
27
23
27
27
27
27
27
27
2 )
24
3
32
24
24
26
33
24
32
30
26
30
31
32
27
29
27
33
24
33
24
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
1 state ta decson.
Nonacquescence reates to deprecaton aowance n computng oss n sae of a boat.
N onacqucscence reates to affaton ssue.
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3
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54
Nonacqdescencks Contnued.
Ta payer.
Dorket
No.
oard o( Ta ppeas.
oume.
Tocrton Warfcd Co.1
Torrens, ames .
Towers Suvan Manufacturng Co
Townsend, .
Towns-end, W. S
Tov, arvey M
Transatantc Shppng Co., Inc
Traveers ank Trust Co
Traveers re Insurance Co
Traveers Indemnty Co
Tro|an O Co r--
Trustees of Lumber Investment ssocaton
Turney, . W
Turney, Mrs. W. W
Tuth, r., orace S --
Tutte, Car
Twn e O Syndcate
Tyer et a., Sdney ., trustees
U.
Uhen, oseph
Umann, manue Soomon
Umann, r., oseph
Umann, Samue, estate of
Umann et a., Theresa, e ecutors
Unon Guardan Trust Co., admnstrator 3.
Unon Guardan Trust Co., e ecutor 3
Unon Pacfc R. R. Co.4
Unon Pacfc R. R. Co. et a.5
Unon Trust Co., trustee
Unted Natona Corporaton.
Unted O Co
45320
53778
40508
73186
74541
72932
61932
62834
71349
62833
71348
57916
62832
71347
33757
52274
65258
65257
52148
70558
45052
56449
51234
56470
56471
56472
56472
75516
44735
51530
70183
70219
35639-
35649
35684
35685
40060
40061
40062
42917
67949
38082
42922
51622
23
31
25
32
32
34
31
31
31
31
26
35
31
31
31
32
31
26
28
30
30
30
30
30
32
26
32
24
33
25
1 Nonacquescence reates to ssue rcpardnp deducton of oss sustaned by two affated companes
durnp fsca year ended anuary 31, 1924, and the ta abe perod ebruary 1 to pr 25,1924, n computng
the consodated net ncome for ta abe perod pr 26 to December 31, 1924, and the year 1925.
1 Nonacquescence reates to the trust and dvdend ssues.
1 state ta decson.
Nonacquescence reates to the ssues regardng cost of ntercompany transportaton of matera used
n constructon of capta assets sae n 1926 of bock 394, Seatte Tde Lands sae of and to ansas Cty
Termna Raway Co. ad|ustment for deprecaton sustaned pror to anuary 1, 1909, of equpment retred
In 1924.
Nonacquescence reates to ssue regardng renta nterest and ssue concernng net oss of Los ngees
Sat Lake R. , Co. for perod anuary 1 to pr 30, 1921.
G
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2
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1
3
-
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1
-
2
2

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4
:
3
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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55
Nonacquescenoes Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
an Camp Packng Co., Inc
ancoh Reaty Co
an Schack, George S., Superntendent of Insur-
ance of ew York, qudator
an orst Co., C. .
aughan, Wam W
oebe, acob, estate of 1
oebe, Water W., e ecutor1
ounteer State Lfe Insurance Co.
on Gunten, Chrstan W.
onnegut ardware Co
W.
Waggoner, a
Waggoner, W. T
Wat, . Russe
Wat, atharyn
Waker, Tabot C
Waters, enry, estate of 2_
Waters, ohn W...
Ward et a., Dasy M
Wardman, arry
Warner Coeres Co. of Deaware.
Watab Paper Co.
Waterbury, Charotte M.
Waterbury, Donad N. _.
Waterbury, ugene W.
Waterbury, Whtford N. --
Watson-Moore Co
Wayburn, Ned ,-- v:T
Wes argo ank Unon Trust Co., admnstrator.
Wes, ames
Wes, Thomas .4
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.5
46131
52340
67203
70366
67843
6009
6009
54176
69058
70851
61278
44940
33517
33516
75772
75773
20407
77674
70010
71597
/62644-
62649
22348
34679
24773
28082
38685
41733
46076
51387
73381
73380
73383
73382
62179
74348
20411
62948
78829
20337
25030
72943
71338
69028
23410
57532
76367
58775
18088
26
33
32
30
31
7
7
27
35
28
28
24
24
35
35
L 7
35
29
29
24
26
27
33
33
33
33
30
32
27
29
34
21
34
32
32
27
29
35
26
24
1 state ta decson acquescence pubshed In Cumuatve uetn -2 (1931), recaed.
state ta decson.
Nonacquescence reates to ssue whother cans on sae of stock of the Waterbury Chemca Co. were
ta abe to pettoner or to trusts created by them.
ft ta decson.
1 Nonacquescence reates to statute of mtatons ssue.
G
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2
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1
3
-
0
1
-
2
2

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4
:
3
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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56
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Whte, Rta M. oher --
Whte, Sdney -
Whtng, Dwght1
Whtng, George N.1
Whtte Co., Inc., George
Wco Sons, .
We, dwn 1
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.4
Wnston ros. Co..-
Wnthrop, eekman
Wobber ros
Wobbers, Inc
Wopert, Urban
Wood, en ycr
Wood urnture Co., .
Wood, r., . O --
Wood, eremah
Wood, Stuart, estate of ---
Wood, Ws D
Woodward, ohn S.5
Woodward, George 1
Y.
Young, Du os .
Young Corporaton, .
Youngstown Sheet Tube Co
Z.
Zcger, bert W
Zcgcr, Cfford
Zmmerman and wfe, Cavn
Zobecn, George
Zobcen, Mrs. dward
Zukor, doph
36112
58776
78532
72414
40619
54451
33564
80545
67468
67179
73955
77377
52931
57226
32444
64655
34337
59270
79850
36875
77387
36874
48563
65211
40565
65832
74090
74688
75624
69844
71902
42279
78345
74321
28149
35511
46291
46292
71145
45352
45353
76120
28
6
35
34
28
31
25
34
32
35
34
29
25
33
25
29
36
26
35
26
27
29
21
33
31
32
33
30
23
34
35
24
23
23
31
28
28
33
state ta decson.
Nonacquescence reates to the trust and dvdend ssues.
1 Nonacquesconce n ssue whether bass for Ran or oss on subsequent sae wthn meanng of secton
113 (a)5, Revenue ct of 1932, was tme of actua dstrbuton or dato of court order of dstrbuton.
Nonacquescence reates to Issue 5 of decson.
1 Nonacquescence reates to queston whether dstrbuton of stock had tho effect of dstrbuton of a
ta abe dvdend.
cquescence pubshed n Cumuatve uetn -2 (1931), wthdrawn.
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2
0
1
3
-
0
1
-
2
2

0
4
:
3
2

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0
0
0
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8
8
9
3
3
6
9
6
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INCOM T RULINGS. P RT I.
R NU CTS O 1937, 1936, 1935, ND 1934.
. R NU CTS O 1937 ND 1936.
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 22(a)-: What ncuded n gross ncome. I-30-8832
( so Secton 23(c), rtce 23(c)-.) I. T. 3098
R NU CT OP 1036.
The amount of the ta deducted by a carrer from the compensa-
ton of ts empoyees under the provsons of the Carrers Ta ng
ct (49 Stat., 974) consttutes ta abe ncome to the empoyees for
edera ncome ta purposes and s not deductbe as a ta under
secton 23(c) of the Revenue ct of 1986.
dvce s requested whether empoyees of the M Raway Co. are
sub|ect to ta on the amount deducted from ther pay under the pro-
vsons of the Carrers Ta ng ct, approved ugust 29,1935, entted
n ct to evy an e cse ta upon carrers and an ncome ta upon
ther empoyees, and for other purposes. The effectve date of the
ct s March 1,1936. Secton 2 of that ct provdes as foows:
Seo. 2. In addton to other ta es, there sha be eved, coected, and pad
upon the ncome of every empoyee, 3 per centum of the compensaton of such
empoyee (e cept a representatve) not n e cess of 300 per month, receved by
hm after the effectve date.
Secton 3(a) of the ct provdes:
Sec. 3. (a) The ta mposed by secton 2 of ths ct sha be coected by the
empoyer of the ta payer, by deductng the amount of the ta from the com-
pensaton of the empoyee as and when pad. very empoyer requred so to
deduct the ta Is hereby made abe for the payment of such ta and s hereby
ndemnfed aganst the cams and demands of any person for the amount of
any such payment made by such empoyer.
The amount deducted by the carrer from the compensaton of ts
empoyees as a ta under the provsons of the Carrers Ta ng ct s
hed to be constructvey receved by the empoyee and s regarded as
though the empoyee had actuay receved the amount n cash and
77064 38 3
(57)
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22(a), rt. 22(a)- .
58
thereafter e pended t n payment of the ta mposed. The entre
amount of the empoyee s compensaton shoud, therefore, be ncuded
n hs gross ncome for the purposes of the edera ncome ta wthout
any reducton on account of the ncome ta mposed by secton 2 of
the Carrers Ta ng ct and wthhed from hs compensaton by the
empoyer. (See generay Od Coony Trust Co. v. Commssoner, 279
U. S., 716, Ct. D. 80, C. . III-2, 222 (1929) T. D. 3112, C. . 4,
76 (1921).) urthermore, n vew of the provsons of secton 23(c)
of the Revenue ct of 1936, the amount pad as edera ncome ta s
not deductbe from the gross ncome of the empoyee.
rtce 22(a)-: What ncuded n gross ncome. L-42-8980
G. C. M. 18884
R NU CT O 1936 ND PRIOR R NU CTS.
Where a husband and wfe, resdng n Caforna, enter nto a
vad agreement provdng that the earnngs of each sha be the
separate property of the earner, the entre earnngs of each spouse
are ta abe as the separate property of such spouse for edera
ncome ta purposes.
G. C. M. 9838 (0. . -2, 115 (1931)), G. C. M. 9953 (C. .
I-1, 13 (1932)), and G. O. M. 14198 (0. . I -1, 261 (1935))
revoked, and a memoranda nconsstent herewth modfed.
n opnon s requested whether the ureau shoud recognze for
edera ncome ta purposes an agreement entered nto by and ,
husband and wfe, resdng n Caforna, that the earnngs of each
sha be deemed to be the separate property of the earner.
On December , 1934, and , husband and wfe, resdng n
Caforna, entered nto an agreement as foows:
That, commencng on anuary 1, 1935, the entre earnngs of the tnder-
sgned, , from hs aw practce and corporate servces, sha be deemed to be
hs separate, and not communty property, and, kewse, the entre earnngs
of the undersgned, , derved from corporate servces or as trustee under any
trust, sha be deemed to be her separate, and not communty property.
The queston presented s whether, n vew of the agreement, s
earnngs for the years 1935 and 1936, a of whch were derved from
the above-named sources, shoud be ta ed to hm as hs separate
property or whether such earnngs shoud be treated as communty
property and one-haf thereof ta ed as the ncome of .
In G. C. M. 9938 (C. . -2,115 (1931)) ths offce hed as foows:
Under secton 161(a) of the Cv Code of Caforna, whch became effec-
tve uy 29, 1927, a husband s earnngs n Caforna consttute communty
ncome. n agreement between husband and wfe domced n Caforna,
e ecuted ugust 1, 1927, whch provdes that the husband s persona earnngs
and saary are hs separate property and ncome, s not effectve to precude
the ta aton of hs saary as communty ncome.
That poston was affrmed n G. C. M. 9953 (C. . I-1,13 (1932)).
owever, n everng v. ckman (70 ed. (2d), 985, Ct. D. 866,
C. . III-2, 274 (1934)) | the Unted States Crcut Court of p-
peas for the Nnth Crcut hed that where a husband and wfe,
resdng n Caforna, entered nto a vad agreement makng the
wfe s earnngs her separate property, such earnngs coud not be
ta ed as communty ncome. In G. C. M. 14198 (C. . I -1. 261
(1935)) ths offce e pressed the vew that the ckman decson
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59
22(a), rt. 22(a)-.
shoud not be foowed and that the ureau shoud contnue to
adhere to the poston adopted n G. C. M. 9938 and G. C. M. 9953.
Reconsderaton of the matter has now been requested.
Ths offce has carefuy reconsdered the ssue n the ght of the
decsons of the Unted States Supreme Court n Lucas v. ar (281
. S., I) and Poe v. Seaborn (282 U. S., 101, Ct. D. 259, C. .
I -2, 202 (1930|) the decson of the Crcut Court of ppeas for
the Nnth Crcut n everng v. ckman, supra, and the decsons
of the Caforna courts nvovng the ega effect of agreements be-
tween husband and wfe under the Caforna communty property
aws (Wren v. Wren, 100 Ca., 276, 34 Pac, 775 Perkns v. Sunset
Teephone Teegraph Co., 155 Ca., 712, 103 Pac, 190 Goud v.
Superor Court, tc., 49 Ca. pp., 197, 191 Pac, 56 Rayburn v.
Raybum, 54 Ca. pp., 69, 200 Pac, 1064 Gray v. Pers, 76 Ca.
pp., 511, 245 Pac, 221), and has reached the concuson that the
decson n everng v. ckman, supra, shoud be foowed n
determnng the ta abty of husband and wfe resdng n Ca-
forna who have entered nto a vad agreement provdng that the
earnngs of each sha be the separate property of the earner. c-
cordngy, s earnngs for the years 1935 and 1936 shoud be ta ed
to hm as hs separate property and shoud not be treated as com-
munty ncome for edera ncome ta purposes.
G. C. M. 9938, supra, G. C. M. 9953, supra, and G. C. M. 14198,
supra, are revoked, and a memoranda of ths offce nconsstent
herewth are modfed accordngy. It s recommended that non-
acquescences n oard of Ta ppeas decsons on ths ssue be
wthdrawn.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
rtce 22(a)-: What ncuded n gross ncome. I-46-9036
G. C. M. 19248
R NU CT O 1030 ND PRIOR R NU CTS.
Where a husband and wfe resdng n the State of Washngton
agree n wrtng that a presenty owned property and a property
to be acqured thereafter, rea and persona, sha be communty
property, such agreement changes the status of subsequenty
acqured separate property to communty property f such agree-
ment s entered nto oray, t changes the status of subsequenty
acqured persona property to communty property, but the status
of separate rea property n Washngton can be changed to com-
munty property ony by proper agreement or conveyance sgned
and acknowedged.
n opnon s requested regardng the effect, for edera ncome
ta purposes, of communty property agreements entered nto be-
tween husband and wfe resdng n the State of Washngton. Two
questons are presented, as foows:
(a) When husband and wfe agree n tentng that a presenty
owned property and a property to be acqured thereafter, both rea
and persona, sha be communty property, does such an agreement
change the status of subsequenty acqured separate property of one
spouse to communty property under the aws of the State of
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22(a), rt. 22(a)- .
60
(b) When husband and wfe agree oray that a presenty owned
property and a property to be acqured thereafter, both rea and
persona, sha be communty property, does such an agreement
change the status of subsequenty acqured separate property of one
spouse to communty property under the aws of the State of
Washngton
The Supreme Court of the State of Washngton hed n oh v.
Zang (113 Wash., 378, 194 Pac, 409) that under the aws of Wash-
ngton husband and wfe were gven the rght to dea n every pos-
sbe manner wth ther property, and that the husband and wfe
coud change the status of separate property to communty prop-
erty. (See aso acobs v. ott, 119 Wash., 283, 205 Pac, 414.) It has
been hed that n Washngton husband and wfe may freey contract
or gve one to the other and thus provde for the hodng of property
then or thereafter to be acqured as hs or her separate estate. (Lan-
gan et a. v. Mes, 102 Wash., 82, 172 Pac, 894.) It was hed n
Gage v. Gage (78 Wash., 262, 138 Pac, 886) that an agreement be-
tween husband and wfe that the wfe shoud receve and treat a
her separate earnngs as her separate property was vad. In os v.
Zang, supra, n whch a wrtten agreement to change separate prop-
erty nto communty property was hed to be vad, t was stated as
foows:
In Dobbn v. De ter orton t Co. (62 Wash., 423, 113 Pac, 1088) an ora
agreement that a wfe s persona earnngs shoud be her separate property was
sustaned. In at|e v. Gage (78 Wash., 202, 138 Pac, 880) a smar agreement
was pronounced vad. In Unon Securtes Co. v. Smth (93 Wash., 115, 1G0
Pac, 304, nn. Cas. 1918 , 710) nn ora agreement was nvoved whch provded
that a property acqured by husband and wfe shoud be ther separate prop-
erty. Ths court sad, Such agreements, made after marrage and mutuay
observed, are vad.

These cases hod that communty property may be changed to separate prop-
erty regardess of secton 5919. If ths s so, the converse must be true, that
separate property may be changed by a proper conveyance or agreement nto
communty property.
In Unon Securtes Co. v. Smth (93 Wash., 115, 160 Pac, 304),
there was an ora agreement, entered nto at the tme of marrage,
that a property nherted by the wfe from her father and what-
ever ste acqured shoud be hers and whatever he acqured and hs
persona earnngs shoud be hs. The court hed the agreement to
be vad and that property subsequenty acqured by the wfe from
her son was her separate property. The genera rue seems to be that
the spouses have fu power by contract to dea wth each other and
that agreements as to property rghts may be apped to future acqu-
stons as we as to e stng property. (Secton 892 to 896, Mc ay
on Communty Property, Second dton.) In a more recent case on
the sub|ect, the Supreme Court of Washngton n State v. Saors
(180 Wash., 269,39 Pac. (2d), 397) stated n part as foows:
It s undoubtedy true that husband and wfe may, by proper agreement or
conveyance, change ther separate property nto communty property and ther
communty property nto separate property.
(See aso Seaton v. Smth (58 Pac. (2d), 830.)
In vew of the foregong, t s concuded that where husband and
wfe resdng n the State of Washngton agree n wrtng that a
presenty owned property and a property to be acqured thereafter,
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61
22(b), rt. 22(b)(27)-2.
both rea and persona, sha be communty property, such agree-
ment changes the status of subsequenty acqured separate property to
communty property f such an agreement s entered nto oray, t
changes the status of subsequenty acqured persona property to com-
munty property, but the status of separate rea property ocated n
the State of Washngton can be changed to communty property ony
by proper agreement or conveyance sgned and acknowedged. (Sec-
ton 1908-21, Perce s nnotated Code of Washngton, 1933.)
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
rtce 22(a)-: What ncuded n gross ncome. I-51-9098
Op. . G. 11
ffect of decson n Superntendent, etc v. Commssoner (295
U. S., 418, Ct D. 974, C. . I -1, 158 (1935)) upon opnon of
ttorney Genera (34 Op., 439, T. D. 3754, C. . I -2, 37 (1925)),
regardng ta abty of ncome from certan restrcted Indan ands.
September 27, 1937.
My Deak Mr. Secretary : I have your etter of September 15.
The decson of the Supreme Court n Superntendent v. Comms-
soner (295 U. S., 418 (May 20, 1935)), that ncome on funds derved
from the restrcted aotment of a fu-bood Creek Indan whch are
n e cess of hs needs and are hed by the Unted States n trust for
hm, s sub|ect to the edera ncome ta , must preva over the
contrary concuson reached n the ttorney Genera s opnon of
March 20, 1925 (34 Op., 439), regardng the ta abty of ncome
from restrcted ands of the uapaw Indans.
Respectfuy,
omer Cummngs,
m, c T ttorney Genera.
The Secretary of the Interor.
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 22(b) (2)-2: nnutes. I-27-8794
I. T. 3092
R NU CT O 1938.
Where n the year 1936 the M Company ssued, n consderaton
of 19 r doars pad by , a snge premum |ont survvorshp an-
nuty contract coverng the ves of and , husband and wfe,
and ater n that year the annutants authorzed the company to
make the monthy payments to or nstead of and
as orgnay specfed n the contract, the perodc payments are
ta abe to the husband n the manner and to the e tent provded
n secton 22(b)2 of the Revenue ct of 1936.
dvce s requested reatve to the proper method of reportng for
edera ncome ta purposes annuty payments receved under the
foowng crcumstances:
In 1936 the M Company ssued a snge premum |ont survvorshp
annuty contract coverng the ves of and , husband and wfe,
for whch pad 19a doars. Later n 1936 the annutants author-
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22(b), rt. 22(b)(2)-2.
62
zed the company to make the monthy annuty payments to or
nstead of and as specfed n the orgna contract.
Under the contract n queston the monthy payments are to be
made to the husband or hs wfe, for whose support he s egay a-
be. ven though the payments are made to the wfe, the husband
en|oys the beneft of the ncome as though he had personay receved
t. That poston fnds support n Dougas v. WUcufs (296 U. S.,
1, Ct, D. 1041, C. . I -2, 250 (1935)), and cases theren dscussed.
Moreover, snce the husband pad the consderaton for the contract,
the company woud doubtess observe hs wshes n determnng to
whom the annuty payments shoud be made. Under such crcum-
stances the foowng prncpe stated n Corss v. owers (281 U. S.,
876, Ct. D. 188, C. . I -1, 254 (1930)) s appcabe:
The Income that s sub|ect to a man s unfettered command and
that he s free to en|oy at hs own opton may be ta ed to hm as hs ncome,
whether he sees t to en|oy t or not
It s, accordngy, hed that the perodc payments are ta abe to
the husband n the manner and to the e tent provded n secton
22(b) 2 of the Revenue ct of 1936, reatng to annutes, regardess
of who receves the payments.
rtce 22(b) (2)-2: nnutes. I-38-8929
I. T. 3115
R NU CT O 1936.
nnutes or pensons pad by the Raroad Retrement oard
pursuant to the provsons of the Raroad Retrement ct of 1937
are not sub|ect to ncome ta n the hands of the recpents.
dvce s requested whether annutes or pensons pad by the
Raroad Retrement oard are sub|ect to edera ncome ta .
The ureau hed that annutes pad pursuant to the provsons
of the Raroad Retrement ct of 1935 (49 Stat., 967) are not sub-
|ect to ncome ta n the hands of the recpents. (I. T. 3069, C. .
1937-1, 59.) The Raroad Retrement ct of 1935 has snce been
amended by Pubc, No. 162, Seventy-ffth Congress, approved une
24, 1937, whch s cted as the Raroad Retrement ct of 1937.
Secton 12 of that ct provdes as foows:
No annuty or penson payment sha be assgnabe or be sub|ect
to any ta or to garnshment, attachment, or other ega process under any
crcumstances whatsoever, nor shaU the payment thereof be antcpated.
ccordngy, nether annutes nor pensons pad by the Raroad
Retrement oard pursuant to the provsons of the Raroad Retre-
ment ct of 1937 are sub|ect to ncome ta n the hands of the
recpents.
rtce 22 (b) (2)-2: nnutes. T-49-9069
I. T. 3140
R NU CT O 1936.
Ta abty of payments receved under the provsons of a
refund annuty contract.
dvce s requested reatve to the ta abe status of certan pay-
ments made to n 1936 under a refund annuty contract.
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63
522(b), rt. 22(b) (4)-2.
The annuty contract ssued n 1934 to as annutant provded
an annuty or doars a month for the duraton of her fe and,
n the event she dd not survve a suffcent perod to recover the
purchase prce of 152# doars, payments to a benefcary or bene-
fcares woud contnue unt the tota payments under the contract
equaed the purchase prce. The payments were drected to be made
to , the husband of , as payee, f vng, otherwse to the annu-
tant, , and the rght to change the benefcary was specfcay not
reserved to the annutant. The annutant, , ded n 1936. , as
payee, receved three monthy payments n 1936 pror to s death
and receved the monthy payments thereafter as benefcary under
the refund provsons of the contract.
rtce 22(b) (2)-2 of Reguatons 94, reatng to the Revenue ct
of 1936, states n part:
If an annuty s payabe In two or more Instaments over each
12-month perod, such porton of each Instament sha be ta abe as Is equa
to 3 per cent of the aggregate premums or consderaton pad for such annuty,
whether or not pad durng the ta abe year, dvded by the number of nsta-
ments payabe durng such year.
In 1936 the ta payer. , pror to the death of hs wfe, , the
annutant, receved the frst three payments as payee, or as a donee-
annutant by reason of hs rrevocabe fe nterest n the annuty,
and the ast nne payments as donee-benefcary under the refund
provsons of the contract. The payments receved by n 1936,
as payee durng the fe of , are sub|ect to ta to the e tent stated
n artce 22(b) (2)-2 prevousy quoted.
Wth respect to the refund payments, t s hed that the rght
to receve over a perod of years payments aggregatng the unre-
covered orgna consderaton s a that passed to the donee-bene-
fcary at the decedent s death that the commuted vaue of the rght
so acqured upon the death of the decedent s ess than the aggregate
of the tota payments thereafter to be receved and that the amount
receved by the donee-benefcary n e cess of the commuted vaue
consttutes ncome. It s aso hed that the e cess of the aggregate
payments to be made to the donee-benefcary over the commuted
vaue of the rght to receve those payments n the future shoud be
dvded by the tota number of payments to be made and that the
quotent represents the porton of each payment to be reported as
ta abe ncome.
rtce 22(b) (4)-2: Dvdends and nterest from I-31-8852
edera and banks, edera ntermedate credt I. T. 3101
banks, natona farm-oan assocatons, banks
for cooperatves, and producton credt corpora-
tons and assocatons.
R NU CT OP 1936.
Interest on the promssory notes gven by a edera and bank n
the procurement of a oan from the M ank s sub|ect to edera
ncome ta .
dvce s requested whether the nterest on promssory notes of a
edera and bank, whch were ssued to the M ank n connecton
wth a oan for the beneft of the and bank and were secured by a
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22(b)7.
04
ke amount of edera and bank bonds, s sub|ect to edera n-
come ta .
It s contended that under artce 22(b) (4)-2 of Reguatons 94,
reatng to the Revenue ct of 1936, the nterest s not sub|ect to
edera ncome ta .
Secton 26 of the edera arm Loan ct (39 Stat., 360) provdes
as foows:
That every edera and bank and every natona farm oan asso-
caton, ncudng the capta and reserve or surpus theren and the ncome
derved therefrom, sha be e empt from edera, State, muncpa, and ot-a
ta aton, e cept ta es upon rea estate hed, purchased, or taken by sad bank
or assocaton under the provsons of secton 11 and secton 13 of ths ct.
rst mortgages e ecuted to edera and banks, or to |ont stock and banks,
and farm oan bonds ssued under the provsons of ths ct, sha be deemed
and hed to be nstrumentates of the Government of the Unted States, and
as such they and the ncome derved therefrom sha be e empt from edera,
State, muncpa, and oca ta aton.
There s no provson n the ct, as amended and suppemented,
or n the Revenue ct of 1936, under whch the promssory notes
n queston become nstrumentates of the Government or the nter-
est pad upon the oans covered by such notes s otherwse gven a
ta -e empt status. It s hed, therefore, that artce 22(b)(4)-2 of
Reguatons 94 s not appcabe to the nstant case and that nterest
on the promssory notes gven by a edera and bank n the pro-
curement of a oan from the M ank s sub|ect to edera ncome
ta n the hands of the recpent. (Cf. I. T. 1806, C. . II-2, 92
(1923).)
S CTION 22(b) 7. INCOM MPT UND R TR TY.
I-29-8827
T. D. 4740
INCOM T .
Reguatons wth respect to the ta aton of rench ctzens and
rench corporatons as affected by the conventon and protoco on
doube ta aton between the Unted States and the Repubc of
rance, procamed by the Presdent of the Unted States pr
16, 1935, effectve anuary 1, 1036.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Part I.
Paragraph . The conventon and protoco, procamed by the
Presdent of the Unted States on pr 16, 1935, provdes n part
as foows:
rtce I.
nterprses of one of the contractng States arc not sub|ect to ta aton by
the other contractng State n respect of ther ndustra and commerca
profts e cept n respect of such profts aocabe to ther permanent estabsh-
ments n the atter State.
No account sha be taken, n determnng the ta In one of the contractng
States, of the purchase of merchandse effected theren by an enterprse of
the other State for the purpose of suppyng estabshments mantaned by
such enterprse n the atter State.
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65
22(b)7.
rtce II.
mercan enterprses havng permanent estabshments In rance are re-
qured to submt to the rench fsca admnstraton the same decaratons and
the same |ustfcatons, wth respect to such estabshments, as rench
enterprses.
The rench fsca admnstraton has the rght, wthn the provsons of ts
natona egsaton and sub|ect to the measures of appea provded n such
egsaton, to make such correctons In the decaraton of profts reazed n
rance as may be necessary to show the e act amount of such profts.
The same prncpe appes mutats mutands to rench enterprses havng
permanent estabshments n the Unted States.
rtce III.
Income whch an enterprse of one of the contractng States derves from
the operaton of arcraft regstered n such State and engaged n transportaton
between the two States Is ta abe ony In the former State.
rtce I .
When an mercan enterprse, by reason of ts partcpaton n the manage-
ment or capta of a rench enterprse, makes or mposes on the atter, In ther
commerca or fnanca reatons, condtons dfferent from those whch woud
be made wth a thrd enterprse, any profts whch shoud normay have ap-
peared n the baance sheet of the rench enterprse, but whch have been,
n ths manner, dverted to the mercan enterprse, are, sub|ect to the
measures of appea appcabe n the case of the ta on Industra and com-
merca profts, ncorporated n the ta abe profts of the rench enterprse.
The same prncpe appes mutats mutands, n the event that profts are
dverted from an mercan enterprse to a rench enterprse.

rtce II.
Compensaton pad by one of the contractng States to ts ctzens for abor
or persona servces performed n the other State Is e empt from ta n the
atter State.
btce III.
War pensons pad by one of the contractng States to persons resdng n
the terrtory of the other State are e empt from ta In the atter State.
rtce I .
The foowng casses of Income pad n 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 n the former State:
(a) amounts pad as consderaton for the rght to use patents, secret proc-
esses and formuas, trade marks and other anaogous rghts
(6) ncome receved as copyrght royates
(c) prvate pensons and fe annutes.
rtce .

The agreement sha become effectve on the 1st day of anuary foowng the
e change of ratfcatons and sha reman effectve for a perod of 5 years,
and thereafter unt 12 months from the date on whch ether contractng party
gves notce of ts termnaton.

PROTOCOL.
t the moment of sgnng the conventon on doube ta aton between the
Unted States of merca and the Repubc of rance, the undersgned penpo-
tentares, duy authorzed by ther respectve Governments, have agreed, as
foows:
(1) The ta es referred to n ths agreement are:
(a) for the Unted States:
The edera ncome ta but t s understood that rtce I does not e empt
from ta (1) compensaton for abor or persona servces performed n the
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422(b)7.
6G
Unted States (2) ncome derved from rea property ocated n the Unted
States, or from any nterest n such property, ncudng rentas and royates
therefrom, and gans from the sae or the dsposton thereof (3) dvdends
(4) nterest.
(6) for rance:
n rtces I, II, III and I , the ta on ndustra and commerca profts
(mpot sur es benefces ndustres et comuercau )
n rtces III, and I, the tu on ncome from securtes (mpot sur
es revenues des vaeurs moberes)
n rtces II, III and I , the ta on wages and saares, pensons and
fe annutes (mpot sur es tratemcnts et saares, pensons et rentes v-
ageres), and other scheduar ta es (mpots eeduares) approprate to the
type of ncome specfed n sad artces
(2) The provsons of ths agreement sha not be construed to affect n any
manner any e empton, deducton, credt or other aowance accorded by the
aws of one of the contractng States n the determnaton of the ta mposed
by such State.
(3) s used n ths agreement:
(a) The term permanent estabshment ncudes branches, mnes and o
wes, factores, workshops, warehouses, offces, agences, and other f ed paces
of busness, but does not ncude a subsdary corporaton.
When an enterprse of one of the States carres on busness n the other
State through an agent estabshed there who s authorzed to contract for
ts account, t s consdered as havng a permanent estabshment n the atter
State.
ut the fact that an enterprse of one of the contractng States has busness
deangs n the other State through a bona fde commsson agent or broker
sha not be hed to mean that such enterprse has a permanent estabshment
n the atter State.
(6) The term enterprse ncudes every form of undertakng whether
carred on by an ndvdua, partnershp (socete en non coectf), corpora-
ton (socete anonyme), or any other entty.
(c) The term enterprse of one of the contractng States means, as the
case may be, mercan enterprse or rench enterprse.
(d) The term mercan enterprse means an enterprse carred on n the
Unted States by a ctzen of the Unted States or by an mercan corporaton
or other entty the term mercan corporaton or other entty means a
partnershp, corporaton or other entty created or organzed n the Unted
States or under the aw of the Unted States or of any State or Terrtory of
the Unted States.
(e) The term rench enterprse s defned n the same manner, mutats
mutands, as the term mercan enterprse.
(/) The mercan corporatons mentoned n rtces and I are those
whch, owng to ther form of organzaton, are sub|ect to artce 3 of the
decree of December 6, 1872. The present agreement does not modfy the
regme of abonnement for securtes.
(y) The term Unted States, when used n a geographca sense, ncudes
ony the States and the Terrtores of aska and awa, and the Dstrct
of Coumba.
(ft) The term rance, when used n a geographca sense, ndcates the
country of rance, e cusve of gera and the Coones.
Pah. . The procamaton of the treaty by the Presdent of the
Unted States on pr 16, 1935, reads n part as foows:
nd whereas, the sad conventon and protoco have been ratfed on both
parts, and the ratfcatons of the two Governments were e changed at Pars
on the 9th day of pr, 1935
nd whfzreas, t s stpuated n rtce of the sad conventon that the
conventon sha become effectve on the 1st day of anuary foowng the
e change of ratfcatons, that s to say on the 1st day of anuary, 1936
Now, therefore, be t known that I, rank n D. Roosevet, Presdent of
the Unted States of merca, have caused the sad conventon and the sad
protoco to be made pubc, to the end that the same and every artce and
cause thereof may be observed and fufed wth good fath by the Unted
States of merca and the ctzens thereof on and from the 1st day of
anuary, 193 3.
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67
22(b)7.
In testmony whereof, I have hereunto set my hand and caused the Sea
of the Unted States of merca to be aff ed.
Done at the cty of Washngton ths 16th day of pr n the year of our
Lord 1935, and of the ndependence of the Unted States of merca
sea the one hundred and ffty-nnth.
rankn D. Roosevet.
y the Presdent:
Corde u,
Secretary of State.
Pak. C. Secton 22(b) 7, Revenue ct of 1936, provdes n part as
foows:
Sec. 22. Gross ncome.

(b) cusons from gross ncome. The foowng tems sha not be n-
cuded n gross ncome and sha be e empt from ta aton under ths tte:

(7) Income e empt under treaty. Income of any knd, to the e tent re-
qured by any treaty obgaton of the Unted States
Pursuant to the provsons of secton 62 of the Revenue ct of
1936, the foowng reguatons are hereby prescrbed to carry nto
effect the quoted provsons of the treaty between the Unted States
of merca and the Repubc of rance, and a reguatons ncon-
sstent herewth are modfed accordngy:
Part L
CT O T TR TY UPON T D T RMIN TION O UNIT D ST T S
T L INCOM O R NC CITIZ NS ND R NC CORPOR TIONS.
ktce 1. Genera. The prmary purposes of the treaty are to
reguate the method of ta aton of corporatons of ether of the
contractng States carryng on ndustra or commerca actvtes
through a permanent estabshment or a subsdary corporaton n
the other State and to avod doube ta aton upon certan speca
casses of ncome.
The specfc casses of ncome reeved from Unted States ncome
ta are:
(a) Industra and commerca profts of a rench enterprse hav-
ng no permanent estabshment n the Unted States.
(6) Income derved by a rench enterprse from the operaton
of arcraft regstered n rance and engaged n transportaton be-
tween the Unted States and rance.
(c) Compensaton pad by rance to ts ctzens for abor or
persona servces performed n the Unted States.
(d) War pensons pad by rance to persons resdng n the
Unted States.
(e) Income pad to a rench corporaton, or to a ctzen of
rance resdng n rance
(1) as consderaton for the rght to use patents, secret processes
and formuas, trade marks and other anaogous rghts
(2) as copyrght royates
(3) as prvate pensons and fe annutes.
cept as to those tems of ncome e pressy e empted by the
treaty, the ta abty of rench ctzens, not resdents of the
Unted States, and rench corporatons, s determned n accord-
ance wth the provsons of the revenue aws of the Unted States
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S22(b)7.)
G8
and the reguatons thereunder appcabe generay to nonresdent
aen ndvduas and to foregn corporatons.
The treaty does not affect the abty to ta of rench ctzens
resdent n the Unted States uness and to the e tent such ctzens
are entted to the benefts of rtces II or III of the treaty. See
artces 5 and 6 of these reguatons. The ta abty of a Unted
States ctzen or Unted States resdent, a member of a rench part-
nershp carryng on a rench enterprse, s not affected by rtce
I of the treaty. Such ctzen or resdent s sub|ect to Unted States
ncome ta upon hs dstrbutve share of ts net ncome even though
the other members of such partnershp are not sub|ect to ta upon
ther share of the partnershp s ndustra and commerca profts
from sources wthn the Unted States.
The treaty has no reference to the rates of ta aton mposed by
the respectve countres and concerns ony the determnaton of
ncome arsng n one of the contractng States to ctzens or cor-
poratons of the other contractng State and sub|ect to ta aton
n the former State.
These reguatons are mted to a consderaton of the factors
nvoved n the appcaton of: (a) the provsons of the treaty
aone and (b) the provsons of the treaty as e tended by the Reve-
nue ct of 1936. These reguatons are not concerned wth rtces
or I of the treaty as such artces affect ony the appcaton of
certan rench ta aws and decrees.
rt. 2. Defntons. ny word or term used n these reguatons
whch s defned n the treaty sha be gven the defnton assgned
to such word or term n such treaty. ny word or term used n
these reguatons whch s not defned n the treaty but s defned n
the Revenue ct of 1936 sha be gven the defnton contaned n
the Revenue ct.
The term permanent estabshment ncudes branches, mnes
and o wes, factores, work shops, warehouses, offces, agences and
other f ed paces of busness. rench enterprse, as defned n
the treaty, carryng on busness n the Unted States through an
agent estabshed there who s authorzed to contract for ts ac-
count, s consdered to have a permanent estabshment n the Unted
States. owever, the carryng on of busness deangs n the Unted
States by a rench enterprse through a bona fde commsson agent
or broker does not consttute a permanent estabshment n the
Unted States. rench corporaton dong busness n the Unted
States through a domestc subsdary corporaton has not, merey
by reason of such fact, a permanent estabshment n the Unted
States.
The term enterprse means any commerca or ndustra under-
takng whether conducted by an ndvdua partnershp, corporaton
or any other entty. It ncudes such actvtes as manufacturng,
merchandsng, mnng, bankng and nsurance. It does not ncude
the operaton of. or the tradng n, rea property ocated n the
Unted States. It does not ncude the rendton of persona serv-
ces. ence, a rench ctzen renderng persona servces wthn the
Unted States s not, merey by reason of such servce, engaged n an
enterprse wthn the meanng of the treaty and hs abty to
edera ncome ta s unaffected by rtce I of the treaty.
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69
22(b)7.
The term rench enterprse means an enterprse carred on n
rance by a ctzen of rance or by a rench corporaton or other
entty. The term rench corporaton or other entty of the
treaty means a partnershp, corporaton or other entty created or
organzed n rance or under the aw of rance. If, for e ampe, a
rench ctzen or rench corporaton does not carry on an enter-
prse n rance t s not a rench enterprse wthn the meanng
of the treaty even though t carres on an enterprse n some other
foregn country and hence such enterprse s not reeved by the
treaty from Unted States ncome ta upon ts ndustra and com-
merca profts from sources wthn the Unted States even though
t has no permanent estabshment theren.
The term ndustra and commerca profts means the profts
arsng from the ndustra, mercante, or manufacturng or ke
undertakngs of a rench enterprse, as defned n ths artce. or
the purpose of the e empton under rtce I of the treaty such term
does not ncude gans from the sae or e change wthn the Unted
States of capta assets as defned n secton 117 of the Revenue
ct of 1936 uness t can be shown by cear and convncng evdence
that such sae or e change was ncdent, and had a necessary reaton,
to the commerca and ndustra actvtes of the rench enterprse.
or treatment of such gans under the Revenue ct of 1936, see
artces 8(6) and 9(b). Such term does not ncude dvdends, nter-
est, compensaton for abor or persona servces, or ncome derved
from rea property or from any nterest n such property ncudng
rentas and royates therefrom and gans from the sae or dsposton
thereof.
ht. 3. Scope of treaty wth respect to determnaton of ta abe
ncome of rench ctzen or a rench corporaton carryng on a
rench enterprse n the Unted States. (a) Genera. rtce I of
the treaty adopts the prncpe that an enterprse of one of the con-
tractng States sha not be ta abe n the other contractng State n
respect of ts ndustra and commerca profts uness t has a per-
manent estabshment n the atter State. ence, a rench enter-
prse s sub|ect to ta upon ts ndustra and commerca profts
from sources wthn the Unted States ony f t has a permanent
estabshment wthn the Unted States. rom the standpont of
edera ncome ta aton the artce has appcaton ony to a rench
enterprse and to the ndustra and the commerca ncome thereof
from sources wthn the Unted States. It has no appcaton to
compensaton for abor or persona servces performed n the Unted
States, nor to ncome derved from rea property ocated n the
Unted States, or from any nterest n such property, ncudng
rentas and royates therefrom, and gans from the sae or the ds-
poston thereof, nor to dvdends or nterest. Such atter tems of
ncome are, e cept as otherwse provded n the treaty and n these
reguatons, sub|ect to ta as ncome of rench ctzens or rench
corporatons, n the same manner and sub|ect to the same provsons
as are appcabe to other nonresdent aens and foregn corpora-
tons. s to what s a rench enterprse, a permanent estab-
shment, and ndustra and commerca profts, see artce 2.
(b)No Unted States permanent estabshment. rench ctzen
or a rench corporaton carryng on a rench enterprse but havng
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22 (b) 7.
70
no permanent estabshment n the Unted States s not sub|ect to
Unted States ncome ta upon ts ndustra and commerca profts
from sources wthn the Unted States. s to what consttutes a
rench enterprse, see artce 2. s to what consttutes ndus-
tra and commerca profts see artce 2. or e ampe, f such
rench corporaton ses stock n trade, such as wne or cosmetcs,
through a bona fde commsson agent or broker n the Unted States,
the resutng proft s, under the terms of the treaty, reeved from
Unted States ncome ta . Such rench corporaton, however,
remans sub|ect to ta upon a other tems of ncome from sources
wthn the Unted States and not e pressy e empted from 6uch ta
under the treaty. owever, under the provsons of rtce I
of the treaty the foowng tems, otherwse ta abe, pad to ctzens
of rance resdng n rance, or to rench corporatons, are e pressy
e empt from the ta :
(1) mounts pad as consderaton for the rght to use patents,
secret processes, and formuas, trade marks and other anaogous
rghts
(2 Income receved as copyrght royates
(3) Prvate pensons and fe annutes.
The e empton as to such tems does not e tend to rench ctzens
resdng esewhere than n rance nor to ndvduas resdng n
rance who are not ctzens of rance.
(o) Unted States permanent estabshment. rench ctzen or
a rench corporaton carryng on a rench enterprse whch has a
permanent estabshment n the Unted States s sub|ect to ta upon
hs or ts entre net ncome (ncudng ndustra and commerca
profts) from sources wthn the Unted States, sub|ect to the e emp-
tons e pressy provded for n rtce I of the treaty. See ar-
tce 7. In the determnaton of the ncome of such rench ctzen
or corporaton from sources wthn the Unted States a ndustra
and commerca profts from sources wthn the Unted States sha
be deemed to be aocabe to the permanent estabshment wthn the
Unted States. The net ncome from sources wthn the Unted
States of such enterprse w be determned n accordance wth the
provsons of secton 119, Revenue ct of 1936, and reguatons there-
under. In determnng such ncome no account sha he taken of the
purchaso of goods, wares, or merchandse wthn the Unted States
for the purpose of suppyng estabshments of the enterprse man-
taned by such ctzen n rance.
rench ctzen or corporaton carryng on a rench enterprse
havng busness deangs n the Unted States through a bona fde
commsson agent or broker theren has not, merey by reason of
such transactons, a permanent estabshment n the Unted States
and hence s reeved by the treaty from Unted States ncome ta
upon hs ndustra and commerca profts arsng from such trans-
actons. owever, a rench ctzen or rench corporaton not carry-
ng on a rench enterprse, havng busness deangs n the Unted
States through a bona fde commsson agent or broker s not by
the treaty reeved from Unted States ncome ta on the resutng
proft. Such rench ctzen or rench corporaton s sub|ect to ta
upon the ncome resutng from such transactons n the same man-
ner and sub|ect to the same provsons and e ceptons, under the
Revenue ct of 103G, as are appcabe to other nonresdent aens
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71
22(b)7.
and foregn corporatons. See artces 8(a) and 9. or defnton
of the terms rench enterprse, permanent estabshment, and
commerca and ndustra profts, see artce 2.
rt. 4. Contro of a domestc enterprse by a rench enterprse.
rtce I of the treaty provdes that f a rench enterprse by
reason of ts contro of a domestc busness mposes condtons dffer-
ent from those whch woud resut from norma barganng between
ndependent enterprses, the accounts between the enterprses w
be ad|usted so as to ascertan the true net ncome of the domestc
enterprse. The purpose s to pace the controed domestc enter-
prse on a ta party wth an uncontroed domestc enterprse by
determnng, accordng to the standard of an uncontroed enterprse,
the true net ncome from the property and busness of the controed
enterprse. The treaty contempates that f the accountng records
do not truy refect the net ncome from the property and busness
of such domestc enterprse the Commssoner sha ntervene and
by makng such dstrbutons, apportonments or aocatons as he
may deem necessary of gross ncome or deductons or of any tem
or eement affectng net ncome as between such domestc enterprse
and the rench enterprse by whch t s controed or drected.
The provsons of artce 45-1, Reguatons 94, sha, n so far as
appcabe, be foowed n the determnaton of the net ncome of
the domestc busness.
rt. 5. Compensaton pad by the Repubc of rance to ts ct-
zens for servces rendered n the Unted States. Under rtce II
of the treaty, rench ctzens are reeved from Unted States ncome
ta upon wages, fees, saary, remuneratons or other amounts pad
by the Repubc of rance to ts ctzens as compensaton for abor
or persona servces performed n the Unted States. Such e emp-
ton s effectve on and after anuary 1, 1936. The character of
the servces has no bearng upon the e empton from the ta and
hence the test set forth n secton 116(h)(1)( ), Revenue ct of
1936, has no appcaton n so far as the year 1936 and subsequent
years are concerned.
rt. 6. War pensons. Under rtce III of the treaty, war pen-
sons pad by the Repubc of rance to persons resdng n the
Unted States are e empt from Unted States ncome ta . The term
war pensons, for the purposes of these reguatons, ncudes pen-
sons receved under the provsons of the rench Mtary Pensons
ct of March 31,1919, or for the servces of the benefcary or another
n the mtary or nava forces of the Repubc of rance n tme
of war. It s not necessary that the recpent of such penson be
a ctzen of rance. Such penson n the hands of a Unted States
ctzen recpent, f resdng n the Unted States, s e empt from ta .
rt. 7. Patents, formuas and copyrght royates, pensons and
annutes. The foowng tems of ncome pad to a corporaton
organzed under the aws of rance or to a ctzen of rance resdng
n rance are e empt from edera ncome ta under the provsons
of rtce I of the treaty:
(a) mounts pad as consderaton for the rght to use patents,
secret processes and formuas, trade marks and other anaogous
rghts
(6) Income receved as copyrght royates
(c) Prvate pensons and fe annutes.
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22(b)7. 72
Such tems are, therefore, not sub|ect to the wthhodng provsons
of the Revenue ct of 1936. To avod wthhodng of the ta at the
source the rench ctzen or corporaton, as the case may be, shoud
notfy by etter the payor thereof that such ncome s e empt from
ta aton under the provsons of the treaty. Such etter from a
ctzen of rance sha contan hs address and a statement that he
s a ctzen of rance resdng n rance. The etter from such
corporaton sha contan the address of ts offce or pace of busness
and a statement that t s a corporaton organzed under the aws
of the Repubc of rance, and sha be sgned by an offcer of the
corporaton, gvng hs offca tte. The etter of notfcaton, or a
copy thereof, shoud be mmedatey forwarded by the recpent to
the Commssoner of Interna Revenue, Sortng Secton, Washngton,
D. C.
pakt n.
T LI ILITY O R NC CITIZ NS ND R NC CORPOR TIONS CND R
T R NU CT O 1936, S MODI I D Y T TR TY.
rt. 8. Ta aton of a rench ctzen (not a resdent of the Unted
States) under the Revenue ct of 1936, as modfed by the treaty.
Genera.
rench ctzen, not a resdent of the Unted States, s sub|ect
to the provsons of the Revenue ct of 1936 appcabe to nonresdent
aen ndvduas generay, but such ctzen s entted to the e emp-
tons provded n the treaty to whch other nonresdent aens are
not entted. Secton 211 of the Revenue ct of 1936 cassfes non-
resdent aen ndvduas nto two groups: (1) those not engaged n
trade or busness wthn the Unted States and not havng an offce
or pace of busness theren and (2) those engaged n trade or
busness wthn the Unted States or havng an offce or pace of
busness theren. The term nonresdent aen ndvduas ncudes
nonresdent aen fducares.
Whether a nonresdent aen has an offce or pace of busness
wthn the Unted States depends upon the facts of the partcuar
case. The term offce or pace of busness, however, mpes a
pace for the reguar transacton of busness and does not ncude a
pace where casua or ncdenta transactons mght be, or are7 effected.
Whe rtce I of the treaty (n so far as concerns ndvduas)
appes ony to rench ctzens carryng on a rench enterprse and
has no appcaton to those not carryng on such enterprse| secton
211 makes no dstncton between the two casses, and appes ake
to both groups.
Ths artce treats of the ta aton of rench ctzens, not resdent
n the Unted States, under secton 211, Revenue ct of 1936, as
modfed by the treaty, foowng the cassfcaton prescrbed n that
secton.
(a) No Unted States busness or ofce. rench ctzen, not a
resdent of the Unted States (whether or not he carres on a rench
enterprse), 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 s abe to the ta at the rate of 10
per cent, mposed by secton 211(a), Revenue ct of 1936, upon the
gross amount of hs f ed or determnabe annua or perodca gans,
profts and ncome from sources wthn the Unted States. Such
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73
22(b)7.
gans, profts and ncome are to be determned under the provsons
of secton 119, Revenue ct of 1936, and reguatons thereunder. (See
artces 119-1 to 119-14, Reguatons 94.) Specfc tems of f ed or
determnabe annua or perodca ncome are enumerated n the
ct as nterest (e cept nterest on deposts wth persons carryng on
the bankng busness whch s nonta abe under the ct), dvdends,
rents, saares, wages, premums, annutes, compensaton, remunera-
tons and emouments, but other f ed or determnabe annua or
perodca gans profts and ncome are aso sub|ect to the ta , as, for
nstance, royates. s to the defnton of fa ed or determnabe
annua or perodca ncome, see artce 143-2, Reguatons 94.
owever, a rench ctzen who s a resdent of rance s not ta abe
upon those tems of ncome enumerated n rtce I of the treaty
and n artce 3(6) of these reguatons. See artce 7.
The term f ed or determnabe annua or perodca ncome
wthn the meanng of secton 211(a) does not ncude ndustra
and commerca profts as that term s used n the treaty. Under
the Revenue ct of 1936, as modfed by the treaty, a rench ctzen
ta abe under secton 211(a) of that ct s e empt from Unted
States ncome ta on ndustra and commerca profts. or e -
ampe, the treaty e empts from ta profts reazed by such rench
ctzen who carres on a rench enterprse from transactons n the
Unted States n goods, wares or merchandse through a resdent
broker or commsson agent. If, however, such ctzen does not
carry on such enterprse such transactons are not e empt under the
treaty and consttute engagng n trade or busness wthn the Unted
States and he s accordngy ta abe upon the proft resutng from
such transactons under secton 211(b), Revenue ct of 1936. On
the other hand, a rench ctzen, not a resdent of the Unted States,
but ta abe under secton 211 (a) of the ct, whether or not he carres
on a rench enterprse, s not abe to Unted States ncome ta
upon profts reazed from transactons n stocks, securtes or com-
modtes n the Unted States through a resdent broker, comms-
son agent, or custodan. owever, a rench ctzen who performs
persona servces n the Unted States at any tme wthn the ta abe
year s abe to the ta upon profts arsng from transactons n
stocks, securtes or commodtes, e cept where t can be shown that
such ctzen s ony temporary present n the Unted States and
meets the other condtons wth respect to persona servce ad down
n secton 211(b), Revenue ct of 1936. See artce 211-7(6), Regu-
atons 94. s to when such profts consttute ndustra and com-
merca profts, see artce 2. s to wthhodng of the ta at the
60urce see secton 143, Revenue ct of 1936, and reguatons
prescrbed thereunder.
(b) Unted States busness or offce. rench ctzen not a res-
dent of the Unted States and not carryng on a rench enterprse,
who at any tme wthn the ta abe year s engaged n trade or bus-
ness wthn the Unted States or has an offce or pace of busness
theren, or a rench ctzen carryng on a rench enterprse and who
has a permanent estabshment n the Unted States s, ke other non-
resdent aens, abe to the norma ta of 4 per cent mposed by sec-
ton 11 of the ct and to the graduated surta mposed by secton
12(b) of the ct, upon hs net ncome from sources wthn the Unted
States (gross ncome from sources wthn the Unted States mnus
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22 (b) 7.
74
the statutory deductons provded n sectons 23 and 213) ess the
credts aganst net ncome aowed an ndvdua by secton 25. Such
net ncome ncudes a ndustra and commerca profts from sources
wthn the Unted States. Such net ncome s to be determne: under
the provsons of secton 119, Revenue ct of 1936, and reguatons
prescrbed thereunder, but n determnng such ncome no account
sha be taken of the purchase of merchandse wthn the Unted States
for the purpose of suppyng estabshments of the enterprse, f any,
mantaned by such ctzen n rance. In the determnaton of the
ncome of such rench ctzen from sources wthn the Unted States
a ndustra and commerca profts from sources wthn the Unted
States sha be deemed to be aocabe to hs permanent estabshment
wthn the Unted States. If. however, such rench ctzen s a res-
dent of rance, he s not ta abe upon those tems of ncome enumer-
ated n rtce I of the treaty and referred to n paragraph (a) of
ths artce wth respect to rench ctzens sub|ect to ta under secton
211(a). See artce 7.
rench ctzen havng an offce or pace of busness wthn the
Unted States wthn the meanng of secton 211 of the Revenue ct
of 1936, sha be presumed (f he carres on a rench enterprse) to
have a permanent estabshment n the Unted States wthn the mean-
ng of the treaty.
rench ctzen carryng on a rench enterprse wTho carres on
busness transactons through a bona fde commsson agent or broker
n the Unted States and who has no permanent estabshment n the
Unted States s not abe to ncome ta on the ndustra and com-
merca profts arsng to hm from such transactons. owever, a
rench ctzen not carryng on a rench enterprse s hed to be en-
gaged n trade or busness n the Unted States f he ses theren,
through a commsson agent or broken goods, wares or merchandse
(not ncudng stocks, securtes or commodtes) 2 and, hence, s abe
to ncome ta on resutng proft. Such rench ctzen, whether or not
he carres on a rench enterprse, otherwse abe to the ta mposed
by subsecton (a) of secton 211 of the Revenue ct of 1936 s, how-
ever, not abe to the ta upon profts arsng from transactons n
stocks, securtes or commodtes through a resdent broker, comms-
son agent or custodan. See artce 211-7(6), Reguatons 94. s to
what consttutes a rench enterprse, see artce 2. s to what con-
sttutes a permanent estabshment, see artce 2.
s to the computaton of gross ncome, the aowance of deductons
and credts, the requrements as to fng of returns and payment of
the ta n the case of nonresdent aens generay, ncudng rench
ctzens, see sectons 211 to 219, ncusve, Revenue ct of 1936, and
the provsons of Reguatons 94 wth respect thereto.
(c) Member of rench partnershp. Whether the abty to the
ta of a rench ctzen who s a member of a partnershp s affected
by rtce I of the treaty depends upon the status of the partnershp.
rtce I does not appy uness such partnershp: (1) s created or or-
ganzed n rance and (2) carres on a rench enterprse. Thus, a
partnershp created or organzed n the Unted States, even though
composed n whoe or n part of rench ctzens, s not a rench en-
terprse and hence s not affected by the treaty. rench ctzen, not
resdent n the Unted States, a member of such partnershp, s ta -
abe under the provsons of secton 211 as are other nonresdent aens.
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75
522(b) 7.
If, however, such rench ctzen s a member of a partnershp meet-
ng the tests set forth n ths paragraph, the Unted States ta a-
bty of such rench ctzen sha be determned as provded n para-
graphs (a) or (b) of ths artce, whchever s appcabe, dependent
upon whether or not the partnershp has a permanent estabshment
n the Unted States.
rt. 9. Ta aton of a rench corporaton under the Revenue ct
of 1936 as modfed by the treaty.
Genera. corporaton organzed under the aws of rance s
sub|ect to those provsons of the Revenue ct of 1936 appcabe to
foregn corporatons generay but such corporaton s entted to the
e emptons provded n the treaty to whch other foregn corporatons
are not entted.
Secton 231 of the Revenue ct of 1936 cassfes foregn corpora-
tons nto two groups: (1) those not engaged n trade or busness
wthn the Unted States and not havng an offce or pace of busness
theren (herenafter referred to as nonresdent foregn corporatons):
and (2) those whch at any tme wthn the ta abe year are engaged
n trade or busness wthn the Unted States or have an offce or pace
of busness theren (herenafter referred to as resdent foregn
corporatons).
Whether a foregn corporaton has an offce or pace of busness
wthn the Unted States depends upon the facts of the partcuar case.
The term offce or pace of busness, however, 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.
Whe rtce I of the treaty, n so far as corporatons are con-
cerned, appes ony to rench corporatons carryng on a rench
enterprse and has no appcaton to those not carryng on such enter-
prse, secton 231 makes no dstncton between the two casses, such
secton appyng ake to both groups.
Ths artce treats of the ta aton of rench corporatons under that
secton, as modfed by the treaty, foowng the cassfcaton pre-
scrbed n that secton.
(a) Nonresdent rench, corporatons. rench corporaton
(whether or not t carres on a rench enterprse) 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 s abe
to the ta at the rate of 15 per cent (10 per cent n the case of dv-
dends) mposed by secton 231 (a) Revenue ct of 1936, upon the
gross amount of ts f ed or determnabe annua or perodca gans,
profts and ncome from sources wthn the Unted States. Such
gans, profts and ncome are to be determned under the provsons
of secton 119, Revenue ct of 1936, and reguatons thereunder. See
artces 119-1 to 119-14, Reguatons 94. Specfc tems of f ed or
determnabe annua or perodca ncome are enumerated n the ct
as nterest (e cept nterest on deposts wth persons carryng on the
bankng busness whch s nonta abe under the ct), dvdends,
rents, saares, wages, premums, annutes, compensatons, remunera-
tons, emouments, but other f ed or determnabe annua or perod-
ca gans, profts and ncome are aso sub|ect to ta , as, for nstance,
royates. s to the defnton of f ed or determnabe annua or
perodca ncome, see artce 113-2, Reguatons 94. owever, a
rench corporaton s not ta abe upon those tems of ncome enumer-
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522(b) 7.
76
ated n rtce I of the treaty and referred to n artce 8 (a) wth
respect to rench ctzens sub|ect to ta under secton 211(a), Reve-
nue ct of 1936. See artce 7.
The term f ed or determnabe annua or perodca ncome
wthn the meanng of secton 231(a), Revenue ct of 1936, does not
ncude ndustra and commerca profts as that term s used n the
treaty. Under the Revenue ct of 1936 as modfed by the treaty a
rench corporaton ta abe under secton 231(a) of that ct s e -
empt from Unted States ncome ta on ndustra and commerca
profts. or e ampe, under the treaty profts reazed by such
rench corporaton, whch carres on a rench enterprse, from trans-
actons n the Unted States n goods, wares or merchandse through a
resdent broker or commsson agent are not sub|ect to ta . If, how-
ever, such corporaton does not carry on such enterprse such trans-
actons are not e empt under the treaty and consttute engagng n
trade or busness wthn the Unted States and t s accordngy ta -
abe upon the resutng proft under secton 231(b), Revenue ct of
1936. On the other hand, a rench corporaton ta abe under secton
231 (a), whether or not t carres on a rench enterprse, s not abe
to Unted States ncome ta upon profts reazed from transactons
n stocks, securtes or commodtes n the Unted States through a
resdent broker, commsson agent or custodan.
(b) Resdent rench corporatons. rench corporaton, not
carryng on a rench enterprse, whch at any tme wthn the ta -
abe year s engaged n trade or busness wthn the Unted States
or has an offce or pace of busness theren, or a rench corporaton,
carryng on a rench enterprse., whch has a permanent estabsh-
ment n the Unted States, s, ke other foregn corporatons, abe
to the norma ta of 22 per cent mposed by secton 13 as modfed
by secton 231(b), Revenue ct of 1936 upon ts net ncome from
sources wthn the Unted States (gross ncome from sources wthn
the Unted States mnus the statutory deductons provded n sec-
tons 23 and 232, Revenue ct of 1936) ess the credts aganst net
ncome aowed by secton 26 (a) and (b) for the purpose of comput-
ng the norma ta of a corporaton. Such net ncome ncudes a
ndustra and commerca profts from sources wthn the Unted
States. See artce 3(c). Such net ncome s to be determned under
the provsons of secton 119, Revenue ct of 1936, and reguatons
prescrbed thereunder, but n determnng such ncome no account
sha be taken of the purchase of goods, wares, or merchandse wthn
the Unted States for the purpose of suppyng estabshments man-
taned by such corporaton n rance. In the determnaton of the
ncome of such rench corporaton from sources wthn the Unted
States a ndustra and commerca profts from sources wthn the
Unted States sha be deemed to be aocabe to ts permanent estab-
shment wthn the Unted States. Such corporaton s not ta abe
upon those tems of ncome enumerated n rtce I of the treaty
and referred to n paragraph (a) of ths artce wth respect to non-
resdent rench corporatons. See artce 7.
rench corporaton havng an offce or pace of busness wthn
the Unted States wthn the meanng of secton 231 of the Revenue
ct of 1936, sha be presumed (f t carres on a rench enterprse)
to have a permanent estabshment n the Unted States wthn the
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77
22(c), rt. 22(c)-.
rench corporaton carryng on a rench enterprse whch car-
res on busness transactons through a bona fde commsson agent
or broker n the Unted States and whch has no permanent estabsh-
ment n the Unted States s not abe to ncome ta on the ndustra
and commerca profts arsng to t from such transactons. ow-
ever, a rench corporaton not carryng on a rench enterprse s
hed to be engaged m trade or busness n the Unted States f t ses
theren, through a commsson agent or broker, goods, wares or mer-
chandse (not ncudng stocks, securtes or commodtes) and, hence,
s abe to ncome ta on the resutng proft. Such rench corpora-
ton, whether or not t carres on a rench enterprse, otherwse
abe to the ta mposed by subsecton (a) of secton 211 of the
Revenue ct of 1936 s, however, not abe to the ta upon profts
arsng from transactons n stocks, securtes or commodtes through
a resdent broker, commsson agent or custodan. See artce
211-7(b), Reguatons 94. s to what consttutes a rench enter-
prse, see artce 2. s to what consttutes a permanent estabsh-
ment, see artce 2. s to the computaton of gross ncome, the
aowance of deductons and credts, the requrements as to fng of
returns and payment of the ta , n the case of foregn corporatons
generay, ncudng rench corporatons, see sectons 231 to 236,
ncusve, Revenue ct of 1936, and the provsons of Reguatons 94
wth respect thereto.
Gut T. everng,
Commssoner of Interna Revenue.
pproved uy 9, 1937.
RoSW LL MaGII ,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 12, 1937, 11.32 a. m.)
S CTION 22(c). GROSS INCOM : IN NTORI S.
rtce 22(c)-1: Need of nventores. I -8966
G. C. M. 18658
R NU CT OP 1936.
Operators engaged In carryng ( straddng ) operatons n
commodtes deat n on organzed e changes shoud nventory
goods on hand at market prce In determnng net ncome for ed-
era Income ta purposes.
dvce s requested whether ta payers (commony referred to as
M stradders ) engaged n carryng operatons n commodtes deat
n on organzed e changes are entted to nventory goods on hand
at market prce thus permttng them to refect n ncome the fuc-
tuatons occurrng n the market prce of goods on hand whch,
under G. C. M. 17322 (C. . -2, 151 (1936)), are n effect offset
by correspondng gans or osses on hedgng transactons n futures
provdng nsurance aganst osses due to market fuctuatons n
goods on hand.
The carryng operaton n queston conssts of buyng a spot
commodty ana enterng nto a sae contract for ts future devery.
Such operaton s carred on ony when there s a suffcent dffer-
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22(c), rt. 22(c)-8.
78
ence between the prevang commodty prce and the prce for
future devery to cover a carryng charges (ncudng storage, n-
surance, cost of certfcaton of future devery, commsson, etc.)
and eave a far return or proft upon devery of the spot com-
modty n fufment of the future sae contract. In the event that
there s a suffcent spread between spot and future devery prces
to warrant a contnuaton of the carryng operaton, the future sae
contract s sometmes dsposed of by an offsettng future purchase
contract and another contract s entered nto for future devery of
the commodty on hand at an advanced date. The prevang ac-
countng practce s to nventory the goods on hand at market prce.
The queston here presented s whether such nventoryng s per-
mssbe n determnng net ncome for edera ncome ta purposes.
rtce 22(c)- of Reguatons 94 reads n part as foows:
In order to refect the net ncome correcty, nventores at the be-
gnnng and end of each ta abe year are necessary n every case n whch
the producton, purchase, or sae of merchandse s an ncome-producng
factor.
It s cear under the quoted provson of the reguatons that the
need for nventores s not confned to one who may techncay
quafy ether as a deaer or manufacture and that the purchase or
sae of commodtes s an ncome-producng factor to persons en-
gaged n the carryng operatons n queston. ccordngy, t s
approprate for the Commssoner to requre nventores to be kept
by such operators. s the poston of such operators s smar
to that of deaers, they shoud nventory at market prce n accord-
ance wth the best nventory practce of such operators. (See gen-
eray G. C. M. 17322, supra, n whch the rungs pertanng to
accountng methods and nventory practces of deaers are revewed
and n effect sustaned.)
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
rtce 22(c)-8: Inventores of reta merchants. T-51-9099
Mm. 4703
Inventores of reta dry goods deaers.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, December 4-, 1937.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
ttenton s nvted to the provsons of I. T. Mmeograph 3077
(C. . II-,31 (1923)), deang wth the reta method of prcng
nventores.
Many msunderstandngs have arsen regardng changes from the
cost or cost or market, whchever s ower, bass to the reta
method n prcng nventores. Snce the ssuance of Reguatons
77, approved ebruary 10, 1933, acton on appcatons for perms-
son to change the accountng method has been predcated on specfc
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79
22(c). rt. 22(c)-8.
facts and fgures as at the begnnng of the ta abe year for -whch
the change s to be effectve rather than on facts and fgures as at the
cose of the ta abe year for whch the change s to be effectve.
Partcuar reference s made to the ast paragraph of Mmeograph
3077, whch provdes:
It Is recognzed that where, n changng from the cost method of com-
putng nventores to the reta method, the openng nventory s not computed
at reta, a book proft resuts for the year n whch the change s made, whch
s ceary not ncome reazed from operatons, or gan wthn the meanng of
the Revenue cts and whch need not therefore be ncuded n the ncome for
the year, provded the ta payer has kept accurute records showng such un-
reazed ncome and n fng the return the tems are ceary set up n a rder
attached to the return.
t the tme of the ssuance of Mmeograph 3077 the ureau recog-
nzed that sometmes the change to the reta method of prcng n-
ventores produces a stepped-up nventory vauaton, and that as
ong as the goods n nventory remaned on hand the ta payer ought
not to be compeed to take such stepped-up vauaton nto ncome
through a cosng nventory vauaton. It was recognzed that the
standard nventory vauaton method of cost or market, whchever
s ower, aowed unreazed osses n nventory but dd not requre
the takng nto ncome of unreazed apprecaton. In keepng wth
that thought, t was consdered that a wrte-up n nventory by the
use of the reta method shoud not be taken nto ncome as ong a9
the goods remaned on hand unsod but t was never ntended that
n cases where the nventory was so wrtten up the ta payer, on se-
ng the goods, coud use any other bass for determnng gan or oss
than the nventory vaue therefor upon whch ta abty was com-
puted for the ta abe year n whch the wrte-up occurred.
In vew of the foregong, the ast paragraph of Mmeograph 3077
s amended to provde:
It s recognzed that where, n changng from the cost or cost or market,
whchever s ower, methods of computng nventores to the reta method, the
openng nventory s not computed at reta, and a or a part of the assets
ncuded n the openng nventory are not dsposed of durng the ta abe year,
a book proft may resut for the year n whch the change s made, due to the
fact that the cosng nventory vaue of goods whch were on hand at the
begnnng of the year may be ncreased when taken at reta at the end of the
year. Ths ncrease s not the resut of a sae, snce the goods are st on hand,
and, therefore, s ceary not Income reazed from operatons or gan wthn
the meanng of the Revenue cts. or e ampe, goods whch were on hand at
the begnnng of the year and vaued n the openng nventory at cost or a
market vaue of 180, may reman unsod durng the year of change n method.
If the reta method of nventoryng at the end of the year resuts n the ncu-
son of these goods at a vaue greater than 180 (for e ampe, reta prce
300 ess mark-up, 33 per cent, or an nventory vaue of 200) the e cess
of the vaue n the cosng nventory at reta, 200, over the cost or the market
vaue at the begnnng of the year, 180, s not reazed ncome and need not be
reported. The ta payer shoud keep accurate records showng such unreazed
ncome and n fng the return the tems shoud be ceary set up n a rder
attached to the return. Where no mark-up under the reta method s ncuded
n ta abe ncome, t s not ntended that the bass for gan or oss sha be
ncreased by such wrte-up. Instead of refectng Income, ths woud accom-
psh a parta dstorton of ncome, and unawfu e empton from ta . There
sha not be ncuded n the bass for determnng gan or oss from the sae or
other dsposton of goods n nventory any wrte-up of such goods under the
reta method of prcng nventores, whch has been omtted from ta abe net
ncome, rrespectve of the ta abe year n whch the wrte-up occurred how-
ever, n the case of a wrte-down of goods n nventory under the reta method
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23(a), rt. 23(a)-. 80
where the ta payer has had the beneft of a reduced Inventory In the computa-
ton of ta abe net Income, such Inventory vaue sha be used as the bass for
determnng gan or oss on the sae or other dsposton of the goods so prced.
Correspondence and nqures regardng ths mmeograph shoud
refer to the number thereof and to the symbos IT: CT .
Gut T. everng,
C ommssvner.
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 23 (a)-: usness e penses. I-27-8795
I. T. 3093
R NU CT O 1936.
Contrbutons made by empoyers to the Pennsyvana unempoy-
ment compensaton fund are deductbe for edera ncome ta
purposes as ordnary and necessary busness e penses n the ab-
sence of cassfcaton by the State of such contrbutons as ta es.
dvce s requested reatve to the deductbty for edera ncome
ta purposes of contrbutons by empoyers to the Pennsyvana
unempoyment fund.
Under the provsons of the Pennsyvana unempoyment com-
pensaton aw ( . . No. 1, second speca sesson, approved Decem-
ber 5, 1936, as amended by act No. 175 ( . . 190), Laws of 1937),
a persons who empoy one or more workers for some part of a day
n each of 20 or more weeks n each caendar year (e cept those
engaged n ndustres whch are specfcay e cuded) are abe for
contrbutons. Secton 301 of rtce III of the aw reates to em-
poyers of eght or more, and secton 302 of the same artce reates
to empoyers not sub|ect to secton 301. The State aw was approved
by the Soca Securty oard on December 8 1936 (see secton 903,
Soca Securty ct), and there s no provson theren whch per-
mts an empoyer to recover hs contrbutons at hs opton.
It s hed that empoyer contrbutons to the Pennsyvana unem-
poyment compensaton fund are deductbe for edera ncome ta
purposes as ordnary and necessary busness e penses n the absence
of cassfcaton by the State of such contrbutons as ta es. (See
generay Mm. 4595, C. . 1937-1, 63.) The contrbutons are de-
ductbe by the empoyer n the year n whch pad or accrued,
dependng upon the method of accountng empoyed.
rtce 23(a)-: usness e penses. I-27-8796
L T.3094
R NU CT O 1936.
Contrbutons pad by empoyers nto the Dstrct of Coumba
unempoyment compensaton fund are deductbe as ordnary and
necessary busness e penses for edera ncome ta purposes.
dvce s requested whether amounts pad by empoyers as contr-
butons under the Dstrct of Coumba Unempoyment Compensa-
ton ct are deductbe for edera ncome ta purposes. That ct
s Pubc, No. 386, Seventy-fourth Congress, approved ugust 28,
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81
23(a), rt. 23(a)- .
1935, as amended by Pubc, No. 446, approved ebruary 13, 1936,
and Pubc, No. 762, approved une 23, 1936. The ct was approved
by the Soca Securty oard on November 15, 1935.
In genera, unempoyment compensaton contrbutons are deduct-
be as busness e penses, e cept that f they are offcay cassfed
as ta es, they are deductbe as such. (Mn. 4595, C. . 1937-1, 63.)
Unempoyment compensaton contrbutons under the aw of the
Dstrct of Coumba are not offcay cassfed as ta es. ccord-
ngy, contrbutons pad by an empoyer nto the Dstrct of Coum-
ba unempoyment compensaton fund are deductbe as ordnary and
necessary busness e penses n hs edera ncome ta return. Such
contrbutons are deductbe n the year n whch pad or accrued,
dependng upon the method of accountng empoyed.
rtce 23(a)-: usness e penses. I-28-8809
I. T. 3096
R NU CT O 1936.
Deductbty for edera ncome ta purposes of contrbutons
made by empoyers and empoyees to the State unempoyment
fund under the Caforna unempoyment reserves act.
dvce s requested reatve to the deductbty for edera ncome
ta purposes of contrbutons by empoyers and empoyees under the
Caforna unempoyment reserves act.
The requrement to pay the contrbutons n queston s made under
the terms of chapter 352, Statutes of Caforna, 1935, whch s en-
tted n act to estabsh a system of unempoyment reserves for
ths State, and makng an appropraton therefor. mpoyer and
empoyee contrbutons are provded for n the act as foows:
Sec. 37. On and after anuary 1, 1936, contrbutons to the unempoyment
fund sha accrue and become payabe by every empoyer sub|ect to ths act,
and n accordance wth Its provsons. Thereafter, contrbutons sha accrue
and become payabe by any empoyer ou and after the date on whch he becomes
sub|ect to ths act.

Sec. 44. egnnng on anuary 1, 1936, each 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 e cept that the rate of contrbu-
tons requred of empoyees sha not n any year e ceed 60 per cent of the
genera rate requred of empoyers. ach empoyer sha wthhod such con-
trbuton 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 commsson.
Certan empoyments are specfcay e empted from the provsons
of the act, and under secton 47 of the act, an empoyer may be
e empted from the contrbuton provsons (and certan other pro-
vsons) of the aw f he has adopted a guaranteed empoyment pan
or a prvate beneft pan whch meets certan specfed requrements
and s approved by the commsson.
Under the provsons of the Caforna aw, approved by the Soca
Securty oard on December 27, 1935, contrbutons made by an em-
poyer to the State unempoyment fund are not recoverabe at the
opton of the empoyer. In an opnon of the attorney genera of
Caforna dated anuary 24, 1936, t was hed that The pay-ro
contrbuton can not be hed to be a ta , and that The act s an
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23(c), rt. 23(c)- .
82
apparent e ercse of the poce power of the State n the nterest of
the pubc wefare. Therefore, such contrbutons to the Cafor-
na unempoyment fund consttute ordnary and necessary busness
e penses whch are deductbe for edera ncome ta purposes n
the return of the empoyer for the ta abe year n whch pad or
accrued, dependng upon the method of accountng empoyed. ow-
ever, empoyers e empted from the contrbuton provsons of the
aw by reason of the adopton of a guaranteed empoyment pan
or a prvate beneft pan are not entted under the Caforna unem-
poyment reserves act to any deducton for edera ncome ta pur-
poses uness or unt actua payments are made ether nto the State
unempoyment fund or n the form of benefts to empoyees.
Under the provsons of the act, contrbutons by empoyees to the
unempoyment fund are aso not recoverabe at the opton of the
empoyee. ccordngy, and n vew of the above-mentoned opnon
of the attorney genera of Caforna, t s hed that such contrbu-
tons are n the nature of busness e penses and are deductbe by the
empoyee n hs edera ncome ta return for the ta abe year n
whch pad or accrued, dependng upon the method of accountng
empoyed.
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 28(c)-1: Ta es. I-29-8817
G. C. M. 18657
R NU CT O 1936.
The motor fue ta mposed by the State of Coorado under the
provsons of chapter 140, Laws of Coorado, 1933, s deductbe
by the consumer for edera ncome ta purposes.
dvce s requested whether I. T. 2534 (C. . I -1, 107 (1930) ),
hodng that the motor fue ta mposed by the State of Coorado
s deductbe by the deaer, s st n effect, n vew of the fact that
the statute consdered n that rung has been repeaed and another
statute enacted n ts stead.
I. T. 2534, supra, nvoved an nterpretaton of Coorado Laws,
1929, chapter 139, and foowed the decsons of the Supreme Court
of Coorado hodng that substantay smar earer statutes m-
posed the ta on the deaer. ( ttude O Co. v. Peope, 70 Coo., 452,
202 Pac, 180 (1921) Mer v. Peope, 76 Coo., 157, 230 Pac., 603
(1924) Peope v. Te as o., 85 Coo., 289, 275 Pac., 896 (1929).)
Subsequent to those decsons and subsequent to the ssuance of I. T.
2534 the Coorado gasone ta statute was repeaed and reenacted.
(Laws, 1931, chapter 126 Laws, 1933, chapter 140.) The statute here
nvoved s substantay dfferent from the statutes passed upon by
the Supreme Court of Coorado n the above cted cases. ccord-
ngy, the concuson n those cases and n I. T. 2534 s not necessary
governng under the present Coorado statute. The present statute
shoud be construed n conformty wth the constructon paced by
the ureau upon smar statutes of other States.
The act (Laws, 1933, chapter 140) now under consderaton pro-
vdes n secton 2(a) that an e cse ta of 4 cents per gaon s
mposed and sha be coected on a motor fue sod, offered for
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3
f 23(c), rt. 23(c)-.
sae, or used n the State, provded that upon the same fue ony
one ta sha be pad for whch the dstrbutor frst recevng t n
the State sha be prmary abe. Secton 2(b) provdes that
every person who sha use n the State for the purpose of propeng
motor vehces on pubc streets or hghways any motor fue on whch
the ta has not been pad sha be abe therefor. Secton 3(c) pro-
vdes that a refund of the ta pad by hm sha be aowed to any
person who sha purchase and use motor fue for any purpose e cept
that of operatng a motor vehce on the pubc hghways of the State.
Secton 5(a) requres the dstrbutor to report a motor fue receved
by hm and secton 5(b) requres hm to compute the amount of ta
payabe thereon and pay such amount to the State treasurer. Secton
5(d) provdes:
very dstrbutor who ses any motor fue for any purpose sha
coect from the purchaser the amount of e cse ta thereon and any and
a sums of money pad by the purchaser to the dstrbutor as motor fue
ta es sha be and reman pubc money the property of the State of Coorado
n the hands of such dstrbutor and he sha hod the same n trust for the
soe use and beneft of the State of Coorado unt pad to the State treasurer
as heren provded .
Whe the deaer s requred by the statute to pay the ta to the
State and s made prmary abe therefor, the provsons of the act
of 1933 when consdered n ther entrety ndcate that t was the
ntent of the egsature to make the deaer a coector ony and to
mpose the ta upon the consumers who use the fue to prope motor
vehces on the hghwavs. Ths ntenton s especay ndcated by
secton 5(d), supra, whch appears for the frst tme n the act of
1933. (See I. T. 2978, C. . -1, 113 (1936) I. T. 2968, C. .
-1, 104 (1936).)
It s, therefore, the opnon of ths offce that the consumer s the
ta payer wthn the meanng of secton 23 (c) of the Revenue ct of
1936, and that the ta n queston s deductbe by hm for edera
ncome ta purposes. If, however, the ta s added to or made a
part of the ta payer s busness e penses, or s otherwse used to re-
duce hs net ncome, t s not deductbe separatey as a ta .
MORRISON SI ROT ,
Chef Counse, ureau of Interna Revenue.
rtce 23(c)-: Ta es.
R NC CT O 1036.
Deductons of ta es by a carrer from compensaton of ts empoyees
under Carrers Ta ng ct (49 Stat., 974). (See I. T. 3098, page 57.)
rtce 23 (c) -1: Ta es. I-30-8833
I.T. 3099
R NU CT O 1936.
The ta mposed by the Iowa reta saes ta act of March 2G,
1837, as to gross recepts from saes on and after pr 1, 1037, Is
an aowabe deducton to the consumer for edera ncome ta
purposes.
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23(c), rt. 23(c)- .
84
dvce s requested whether the Iowa reta saes ta mposed under
the acts of the orty-seventh Genera ssemby of Iowa, S. . 316,
approved March 26,1937, s deductbe by the retaer or the consumer
for edera ncome ta purposes.
Snce the act n queston s substantay smar n ts provsons
to the Iowa reta saes ta aw, Dvson I , property reef act, 1934,
whch s mted to the perod from pr 1,1934, to pr 1,1937, and
n G. C. M. 18540 (C. . 1937-1, 140) the ta mposed under the
earer act was hed to be deductbe by the consumer, t s hed that
the ta mposed by the act of March 26,1937, as to gross recepts from
saes on and after pr 1,1937, s an aowabe deducton to the con-
sumer for edera ncome ta purposes. If, however, the ta s added
to or made a part of the ta payer s busness e pense, or s otherwse
used to reduce hs net ncome, t s not deductbe separatey as a ta .
rtce 23(c)-: Ta es. I-34-8884
I. T. 3107
R NU CT O 1336.
The gross recepts ta mposed by No. 29, Loca Laws of the
Cty of New York, 1936, for the year ended une 30, 1937, accrued
on uy 1, 1936, n the case of a corporaton engaged n trade or
busness on that date.
dvce s requested whether a corporaton makng ts edera n-
come ta return for the caendar year 1936 on the accrua bass may
deduct n such return the New York Cty gross recepts ta for
the perod ended une 30, 1937.
The ta for that perod s mposed by No. 29, Loca Laws of the
Cty of New York, 1936, and s a contnuaton of a smar ta
mposed by No. 17, Loca Laws of the Cty of New York, 1934. The
ta s an e cse ta mposed for the prvege of carryng on, or
e ercsng for gan or proft, wthn the cty of New York, any trade,
busness, professon, vocaton, or commerca actvty for the perod
commencng uy 1,1936, and endng une 30,1937. The ta , there-
fore, accrued on uy 1,1936, n the case of a corporaton engaged n
trade or busness on that date. (Coumban Carbon Co. v. Com-
mssoner, 25 . T. ., 456 awcus Machne Co. v. Unted States,
282 U. S., 375 G. C. M. 17340, C. . -2, 81 (1936).) The same
prncpe s appcabe to the gross recepts ta mposed by No. 22,
Loca Laws of the Cty of New York, 1937, for the perod uy
1, 1937, to une 30, 1938, such ta beng accruabe on uy 1, 1937,
n the case of a corporaton engaged n trade or busness on that
date.
rtce 23(c)-1: Ta es. I-35-8893
I. T. 3109
R NU CT O 1930.
The motor fue ta mposed by the State of Inos under the
provsons of . . No. 608, approved une 21, 1935 (chapter 95a,
paragraphs 79 to 98, Inos Revsed Statutes, 1935), Is deductbe
as a ta n the ncome ta return of the consumer who pays t and
to whom It s not refunded.
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85
523(c), rt. 23(c)-1.
dvce s requested reatve to the deductbty for edera ncome
ta purposes of the motor fue ta mposed by the State of Inos.
The ureau hed under the provsons of the Inos motor fue
ta aw approved March 25, 1929, that the ta mposed thereby was
deductbe by the consumer. (I. T. 2497, C. . III-2, 101 (1929).)
Legsaton thereafter enacted to and ncudng . . No. 608 ap-
proved une 21, 1935 (chapter 95a, paragraphs 79 to 98, Inos
evsed Statutes, 1935), has not materay changed the pertnent
|rovsons of the aw of 1929 upon whch the pror decson was
ased.
It s hed, therefore, n accordance wth secton 23(c) of the Reve-
nue ct of 1936 and artce 23(c)- of Reguatons 94, that the motor
fue ta mposed by the State of Inos under . . No. 608, supra,
s deductbe as a ta n the ncome ta return of the consumer who
pays t and to whom t s not refunded. If the ta s added to or
made a part of the busness e penses of the consumer, or s otherwse
used to reduce hs net ncome, t may not be deducted by hm sepa-
ratey as a ta .
rtce 23(c)-: Ta es. I-36-8903
L T. 3111
R NU CT O 1936.
Contrbutons made by empoyees to the abama unempoyment
compensaton fund are deductbe as ta es for edera ncome ta
purposes.
dvce s requested whether, for edera ncome ta purposes,
contrbutons by empoyees to the abama unempoyment compen-
saton fund are aowabe deductons.
In eeand Whoesae Go. v. aufman, decded March 18,1937, the
Supreme Court of abama stated wth respect to empoyer and
empoyee contrbutons that
The contrbutons here n queston are not ustfed as an e ercse of the
rght of emnent doman, but are based upon a cam that they represent the
|ust proporton of certan ctzens share to the support of the Government.
They are ta es, and can be |ustfed ony as such.

The contrbuton here n queston s e acted of a certan cass of empoyers
and ther empoyees for the beneft of unempoyed In that cass. In a broad
sense they are both engaged n a ont enterprse whose success s benefca
to them both. The e acton of the ta on them both n the same act s an
e cse ta on the coordnated busness of empoyment ookng to the end of
hepng them both and the peope generay, and does not deprve ether of
due process or equa protecton, and s measured by a standard whch has
reasonabe reaton to the end sought.
In vew of the decson of the Supreme Court of abama, t s
hed that the empoyee contrbutons to the abama unempoyment
compensaton fund are ta es and are deductbe as such for edera
ncome ta purposes. Such contrbutons to the State fund are, n
genera, deductbe n the empoyee s edera ncome ta return for
the ta abe year n whch pad or accrued, dependng upon the
method of accountng empoyed.
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23(c), rt. 23(c)- .
86
rtce 23 (c)-: Ta es. I-37-8913
I. T. 3113
R NU CT O 1936.
The gasone ta Imposed by the State of orda under chapter
15659, Laws of orda, 1031, as amended by . . 70, Laws of
orda, 1037, effectve une 8, 1037, Is deductbe by the consumer
for edera Income ta purposes.
dvce s requested whether the gasone ta mposed by the
State of orda under chapter 15659, Laws of orda, 1931, as
amended by . . 70, Laws of orda, 1937, effectve une 8, 1937,
s deductbe by the deaer or the consumer for edera ncome ta
purposes.
eretofore the ureau hed that the gasone ta eved by the
State of orda under the provsons of chapter 9120, Laws of or-
da, 1923, as amended by chapters 14573 and 14575, Laws of orda,
1929, was deductbe by the deaer and not by the consumer.
(G. C. M. 7421, C. . I -2, 104 (1930).) Those aws, however,
were repeaed n 1931 and a new aw enacted chapter 15659, Laws
of orda, 1931. Ths aw, substantay the same as the pror aw
n so far as mposton of the ta upon the deaer s concerned, was
aso amended n severa nstances wthout affectng the abty of
the deaer for such ta unt the addton of secton 21 by . . 70
n 1937. Provsons of that act pertnent to the present queston
read n part as foows:
Secton 1. very deaer In gasone or other ke products of petroeum n
ths State, under whatever name desgnated, sha pay a cense ta of fve
doars ( 5) to the State, and n addton thereto, a ta heren termed gas
ta of s (60) cents per gaon for every gaon of gasone or other ke
products of petroeum sod by hm, and upon whch the ta heren provded
has not been pad, or the payment whereof has not been assumed by a person
precedng hm In the handng of sad ot of products, such ta of s (60)
cents per gaon beng made up of two separate ta es, beng
rst gas ta : ta of three (30) cents per gaon for the use of the State
road department, as provded by aw
Second gas ta : ta of three (30) cents a gaon to be apportoned, as
provded for In secton 8 of ths act
The ta heren eved and assessed sha be pad to the comptroer
monthy n the foowng manner:
On or before the 15th day of each month the deaer sha report, under onth,
to the comptroer the number of gaons of such products sod by hm durng
the precedng month, and sha at the same tme, pay to the comptroer the
amount of ta above mentoned. (O. L. 1931, ch. 15659, secton L)

Sec. 21. very deaer n gasone, or other ke products of petroeum, n ths
State sha add the amount of the ta eved and assessed by chapter 15659,
Laws of orda, cts of 1031, to the prce of the gasone, or other ke
products of petroeum, t beng the purpose and ntent of ths provson that
the ta eved on gasone, or other ke products of petroeum, under the
provsons of chapter 15669 s n fact a evy on the consumer and the evy on
deaers as specfed In sad act s merey as agent of the State for the coec-
ton of sad ta . Ths provson sha In no way affect the method of coec-
ton of sad ta as specfed n chapter 15059 or any amendments thereto.
The deaer may state the amount of the ta separatey from the prce of such
gasone, or other ke products of petroeum, on a prce dspay sgns, saes
or devery sps, b and statements, whch advertse or Indcate the prce of
gasone, or other ke products of petroeum. ( dded by L 1037, . . 70,
secton 1, effectve une 8, 1937.) (Itacs supped.
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87
23(c), rt. 23(c)-.
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 certan e ceptons not here
matera. rtce 23(c)- of Reguatons 94, reatng to the Revenue
ct of 1936, states that n genera ta es are deductbe ony by the
person upon whom they are mposed.
Under the provsons of secton 21, supra, t s ceary the egs-
atve ntent to mpose the ta on the consumer and to make the
deaer the agent of the State for the coecton of the ta .
It s hed, therefore, n accordance wth secton 23(c) of the
Revenue ct of 1936 and artce 23(c)- of Reguatons 94, that the
gasone ta mposed by the State of orda under chapter 15659,
Laws of orda, 1931, as amended by . . 70, Laws of orda,
1937, effectve une 8, 1937, s deductbe, for edera ncome ta
purposes, n the ncome ta return of the consumer who pays t and
to whom t s not refunded. If, however, the ta s added to or made
a part of the busness e penses of the consumer, or s otherwse
used to reduce hs net ncome, t may not be deducted by hm sep-
aratey as a ta .
rtce 23 (c)-: Ta es. I-37-8914
G. C. M. 18828
R NU CT O 1036.
Okahoma rea and persona property ta es accrue, for edera
Income ta purposes, as of anuary 1, e cept that ta es on unman-
ufactured farm products accrue as of May 81.
The Income ta Imposed by the State of Okahoma accrues, for
edera ncome ta purposes, as of the end of the caendar or
fsca ta abe year, whchever s the bass of the return fed under
the State aw.
dvce s requested reatve to (1) the accrua date for edera
ncome ta purposes of Okahoma rea and persona property ta es
and (2) the accrua date of the ncome ta mposed by the State of
Okahoma.
Secton 12581, chapter 66, artce 17. of the 1936 nnotated Sup-
pement to the Okahoma Statutes, 1931, reads n part as foows:
ta abe property sha be sted and assessed each year at ts far cash
vaue, estmated at the prce t woud brng at a far vountary sae, n the
name of the owner thereof, on the 1st day of anuary of each year, ncudng
a property owned on the 1st day of anuary of that year . nd
provded further that a unmanufactured farm products 6ha be assessed
and vaued as of the precedng May 31st and every person, frm, company,
assocaton or corporaton n makng hs or ts assessment, sha assess a
unmanufactured farm products owned by hm or t on the precedng May 31st
accordng to ts vaue on that date nstead of anuary 1st.
The poston of the ureau wth respect to the accrua of property
ta es s that ownershp of property on the date as of whch assess-
ment s made by the State ta ng authortes s the event whch
determnes the abty for property ta es. ccordngy, such ta es
shoud be accrued as of that date. (See G. C. M. 15305, C. .
T -2, 80 (1935) and cases cted theren.) eadng case on the
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23(c). rt. 23(c)- .
88
sub|ect of the proper date of accrua of ta es s Unted States v.
nderson (269 U. S., 422, T. D. 3839, C. . -, 179 (1926)), whch
nvoved the deductbty of accrued muntons ta es under the
Revenue ct of 1916, as amended by the Revenue ct of 1917. The
Unted States Supreme Court, n the course of ts opnon, stated
n part as foows:
In a technca ega sense It may be argued that a ta does not
accrue unt t has been assessed and becomes due but t s aso true that
n advance of the assessment of a ta a the events may occur whch f the
amount of the ta and determne the abty of the ta payer to pay
t. Itacs supped.
Where State statutes have f ed the tme for determnaton of the
ta abe status of property, t s ta ed to the owner as of such tune.
On ths pont t s stated n 61 Corpus urs, page 207, as foows:
ut where property s requred to be assessed as of a certan day n
the year, and s then propery assessed to the person ownng t on that day,
he s not reeved from abty for such ta es by hs subsequent transfer or
conveyance of t to another, athough made before the ta became payabe,
uness the statute makes some provson for apportonment of the ta between
the buyer and seer. Where the date f ed by statute for determnaton of
the ta abe status of property fas before the actua assessment, one ownng the
property on such date may not escape abty for ta aton by seng the
property before competon of the assessment ros.
The concuson that ownershp of property on the date as of whch
assessment s made s the event whch f es the abty s n
accord wth decsons of the Unted States oard of Ta ppeas
n Te as Coco-Coa ottng Co. v. Commssoner (30 . T. ., 736),
Caforna Santary Co., Ltd., v. Commssoner (32 . T ., 122),
and ohn . ord v. Commssoner (33 . T. ., 342).
Referrng specfcay to the aw of Okahoma, the queston as to
the abty for property ta es was consdered by the supreme court
of that State n oard of Com rs. of Comanche County v. Centra
aptst Church (276 Pac, 726). In that case t was hed that rea
estate whch s ta abe n the name of the owner thereof on anuary
1 of any year does not change ts ta status or become e empt from
ta aton for the current year by reason of a vountary transfer of
tte to such rea estate after anuary 1 to a church corporaton whose
property s e empt under the provsons of artce 10, secton 6, of
the Consttuton of the State of Okahoma. In the course of ts
opnon, the court stated n part as foows:
If property be sub|ect to ta aton on anuary 1st, then a vountary
change n the ownershp of such property between the date f ed by statute
upon whch property shoud be assessed for the current year and the com-
peton of the varous steps n the assessment and evyng of ta es for such
year, does not change the ta abe status of the property. The date of com-
peton of the assessment of property and evy of ta es thereon s not the deter-
mnng factor n ascertanng whether property s sub|ect to ta , but rather
the ownershp and status thereof on anuary 1st. The proceedngs and var-
ous steps n the competon of the assessment and evyng of ta es for the
current year reate back to anuary st of such year.
nother case n pont s In re Sncar Prare O Co. (53 Pac.
(2d), 221), n whch t was hed that the ta abe status of property
n Okahoma for the purpose of assessment was f ed as of anu-
ary 1. The court quoted from 2 Cooey on Ta aton, 4th d., page
1203, as foows:
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89
23(c), rt. 23(c)-.
The ta abe status of persons and property reates to a certan day each
year. There must be some day of the year as of whch the power to ta
property at a, or the power to ta It to a certan person, s to be determned
and that day w f the power to ta wth reference (1) to whether the
property was n e stence on that day, (2) whether the property was wthn
the ursdcton so as to have a ta abe stus on that day, (3) whether the
property was e empt from ta aton on that day.
(See aso Rose v. Stacup, 190 Pac, 396.)
In vew of the foregong, ths offce s of the opnon that under
the aw of Okahoma ownershp of property on anuary 1 s the
event whch f es the abty for ta es thereon, e cept n the case
of unmanufactured farm products whch are assessed and vaued as
of the precedng May 31. It s hed, therefore, that Okahoma rea
and persona property ta es accrue as of anuary 1, and that ta es on
unmanufactured farm products accrue as of May 31.
The Okahoma ncome ta aw of 1935 (chapter 66, artce 15, 1936
nnotated Suppement to the Okahoma Statutes of 1931) provdes
for a graduated ta on net ncome. (Secton 12498f.) The net n-
come of any ta payer sub|ect to a ta mposed by the act must be
computed upon the bass of the ta payer s annua accountng perod,
fsca year or caendar year, as the case may be, n accordance wth
the method of accountng reguary empoyed n keepng the books
of the ta payer. (Secton 12498v(a).) The term fsca year s
defned as an accountng perod of 12 months endng on the ast day
of any month other than December. (Secton 12498d(h).)
The ureau has hed that a ta payer on the accrua bass shoud
accrue the ncome ta es whch he w be requred to pay on the n-
come accrung durng the year, and n computng hs net ncome for
such year he s entted to deduct the State ncome ta whch has ac-
crued on such ncome. (S. M. 4499 , C. . -, 56 (1926).) Wth
respect to the proper tme of accrua of ncome ta es, t was stated
n Uncasve Mfg. Co. v. C ommsso|er (55 ed. (2d), 893) as
foows:
the facts upon whch the cacuaton depended had been f ed
before the e praton of the year 1018. Dfferences coud arse, and dd, as to
the amount of the company s ncome for that year, but they were due to the
proper apprasa of ts property, and possbe dsputes as to the meanng of the
aw. The computaton was uncertan, but ts bass was unchangeabe t was
unknown, not unknowabe on December 31, 1918. That Is the test
If the books were n genera upon an accrua bass, and accrued Income ta es,
State and edera, that was enough.
When a ta abe year s cosed, the ta payer can compute ts net
ncome as requred by the statute as we as ascertan to a reasonabe
degree of certanty the amount of ncome ta whch w be payabe
to the State. The end of the ta abe year s, therefore, consdered
the event whch determnes the abty and f es the amount of
the ta . It s, accordngy, hed that for edera ncome ta pur-
poses the ncome ta mposed by the State of Okahoma shoud be
accrued as of the end of the ta abe year, caendar or fsca, whch-
ever s the bass of the return fed under the State aw.
Morrson Shafrot,
Chef Counse, ureau of Interna Revenue.
77964 38 4
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23(c). rt. 23(c)- .
90
rtce 23 (c)-: Ta es. I-38-8930
I. T. 3116
R NU CT O 1036.
Treatment of amounta accrued and camed as deductons for
the carrers e cse ta n the ncome ta returns of carrers for
1936 under the Carrers Ta ng ct of 1935 ( 49 Stat, 974), ap-
proved ugust 19, 1935, n vew of the provsons of the Carrers
Ta ng ct of 1937, Pubc, No. 174, Seventy-ffth Congress, ap-
proved une 29, 1937.
dvce s requested as to the treatment, for edera ncome ta
purposes, of amounts accrued and camed as deductons for the car-
rers e cse ta n the ncome ta returns of carrers for 1936 under
the Carrers Ta ng ct of 1935 (49 Stat., 974), approved ugust
29, 1935, n vew of the provsons of secton 11 of the Carrers Ta -
ng ct of 1937, Pubc, No. 174, Seventy-ffth Congress, approved
une 29, 1937, whch repeaed the pror ct.
It appears that raways of cass 1 accrued appro matey do-
ars as the estmated abty for the carrers e cse ta under the
ct of ugust 29, 1935, but the coecton of the ta was en|oned
by the Unted States Dstrct Court for the Dstrct of Coumba.
The case was pendng before the Crcut Court of ppeas for the
Dstrct of Coumba when the repeang ct became a aw, and that
court ordered dsmssa of the sut on uy 6, 1937. It s stated that
some of the carrers deducted the amounts accrued from gross n-
come n ther ncome ta returns for 1938 and others made no cam
for the accruas athough such accruas were set up on ther books.
Inqury s made whether the deductons for the carrers e cse ta
camed n the ncome ta returns of the carrers for the caendar
year 1936 w be aowed and a ke amount requred to be returned
as ncome for 1937, or whether the deductons w be dsaowed.
Secton 11 of the Carrers Ta ng ct of 1937 provdes:
Sec. 11. The provsons of ths ct are n substtuton for the provsons
of the ct of ugust 29, 1935, as amended, entted n ct to evy an e cse
ta upon carrers and an ncome ta upon ther empoyees, and for other par-
poses, whch s hereby repeaed. moneys payabe as and for ta es under
such ct of ugust 29, 1935, and not heretofore pad sha cease to be payabe
and a proceedngs pendng for the recovery of any such moneys sha be
termnated. sums pad nto the Treasury of the Unted States as and for
ta es under such ct sha be refunded, e cept so much of the sums so pad
as and for ta es wth respect to compensaton earned after December 31, 1936,
as equas the ta es mposed by ths ct wth respect to the same persons and
the same perod, and the sums not requred to be so refunded sha be retaned
n the Treasury of the Unted States and credted on ta es due and payabe
under ths ct. sums deducted by empoyers from the compensaton of
empoyees as and for ta es under such ct of ugust 29, 1935, whch have not
been pad nto the Treasury of the Unted States sha be repad by such em-
poyers to such empoyees, e cept so much of the sums so deducted as and for
ta es In respect of compensaton earned after December 31, 1936, as equas the
ta es mposed and requred to be deducted by ths ct wth respect to the
same persons and the same perod, and the sums not requred to be so repad
sha be pad nto the Treasury of the Unted States and thereupon sha be
credted on ta es due aud payabe under ths ct. No nterest sha be aowed
(r pad wth respect to any sum refunded, credted, or repad under the pro-
vsons of ths secton.
The foowng practce w be observed by the ureau:
(a) In those cases n whch the carrers e cse ta was pad by
the carrer pror to the enactment of the Carrers Ta ng ct of
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23(c), rt. 23(c)-.
1937, the deducton camed therefor n the ncome ta return of the
carrer for the caendar year 1936 w be aowed and refunds of
such ta w be requred to be ncuded n the gross ncome of the
carrer for the year n whch the refund s made.
(b) In those cases n whch the carrers e cse ta was not pad
to the coector and the carrer was not a party to the sut under the
Carrers Ta ng ct of 1935, or dd not otherwse contest abty
for such ta , the deducton camed therefor n the ncome ta return
of the carrer for the caendar year 1936 w aso be aowed and the
amount of the ta w be ncuded n the gross ncome of the carrer
for the year n whch the abty for the ta was e tngushed, that
s, for the caendar year 1937.
(c) In those cases n whch the carrers e cse ta was not pad
to the coector and the carrer was a party to the sut under the
Carrers Ta ng ct of 1935, or otherwse contested abty for
such ta , the deducton camed therefor n the ncome ta return
of the carrer for the caendar year 1936 w be dsaowed and no
ad|ustment of the ncome ta return of the carrer for the caendar
year 1937 w be made on account of the e tngushment of the car-
rer s abty for the ta .
rtce 23 (c)-1: Ta es. I-38-8931
G. C. M. 18929
R NU CT O 1036.
Property ta es n North Carona shoud be accrued as of pr
1 by ta payers whose books are kept on the accrua bass, be-
gnnng wth ta es whch are assessed as of pr 1, 1937.
dvce s requested whether G. C. M. 13920 (C. . III-2, 132
(1934)) s st n effect, n vew of the provsons of the North Caro-
na machnery act of 1937.
In G. C. M. 13920, supra, t was hod n effect that where the
vendee acqured rea property on pr 1, 1932, he became abe as
of uy 1, 1932, for property ta es mposed as of that date. That
rung was based on secton 490, chapter 427, Pubc Laws of North
Carona, 1931, as construed by the supremo court of that State n
State v. Champon bre Co. (204 N. C, 295, 108 S. ., 207). Inas-
much as the aw n queston was repeaed by secton 1703 of the
machnery act of 1937 (P. L. 1937, ch. 291, effectve March 22, 1937),
the decson of the supreme court referred to s no onger controng.
Secton 302 of the machnery act of 1937 provdes that:
property, rea and persona, sha be sted or sted and assessed, as the
case may be, n accordance wth ownershp and vaue as of the 1st day of
pr, 1937, and thereafter a property sha be sted or sted and assessed
n accordance wth ownershp and vaue as of the 1st day of pr each year.
Secton 1401 of the same act, reatng to the date as of whch the
en for the ta attaches, provdes:
The en of ta es eved on property and pos sted pursuant to ths act
shaU attach to rea estate as of the day as of whch property s sted, regard-
ess of the tme at whch abty for the ta may arse or the e act amount
thereof be determned.
The ureau has consstenty hed that ownershp of property on
the date as of whch assessment s made s the event whch de-
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23(c), rt. 23(c)-.
92
termnes the abty for ta es, and f the ta payer s books are kept
on the accrua bass, he shoud accrue property ta es as of that date.
(See G. C. M. 15305, C. . I -2, 80 (1935), and decsons cted
theren.) The rungs of the ureau have foowed the prncpe
ad down by the Unted States Supreme Court n Unted States v.
nderson (269 U. S., 422, T. D. 3839, C. . -, 179 (1926)) wheren
t was stated that n advance of the assessment of a ta a the events
may occur whch f the amount of the ta and determne the a-
bty of the ta payer to pay t.
In vew of the change made n the North Carona aw by the
machnery act of 1937, whch repeaed a acts nconsstent there-
wth, ths offce s of the opnon that under that aw ownershp of
property on pr 1 s the event whch determnes the abty for
ta es thereon. It s hed, therefore, that n North Carona property
ta es shoud be accrued as of pr 1 by ta payers whose books are
kept on the accrua bass, begnnng wth ta es whch are assessed
as of pr 1,1937.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
btcue 23 (c) -1: Ta es. I-39-8942
I. T. 3118
R NU CT O 1930.
The qud fues ta mposed by the State of Pennsyvana under
the act of May 21, 1931, as amended by the act of pr 8, 1937,
effectve on that date, fnd as amended by the act of uy 2, 1937, s
deductbe for edera ncome ta purposes as a ta In the ncome
ta return of the consumer.
dvce s requested whether under amendments to the qud fues
ta act of the State of Pennsyvana the consumer may deduct the
ta for edera ncome ta purposes.
The qud fues ta mposed by the State of Pennsyvana under
the act of May 21, 1931, as amended through 1935, s ceary mposed
upon the dstrbutor. (See I. T. 2587, C. . -2, 134 (1931), and
G. C. M. 10627, C. . I-1, 26 (1932) for pror rungs thereon.)
Secton 4 of that act, under whch the actua evy of the ta s made,
was amended by the act of pr 8, 1937 (P. L. No. 57), effectve
on that date, to read n part as foows:
Sec. 4. Imposton of ta emptons and deductons. permanent State
ta of 3 cents a gaon, or fractona part thereof, s hereby mposed aw
assessed upon a qud fues used or sod and devered by dstrbutors
wthn ths Commonweath, e ceptng qud fues devered to the Unted
States Government on presentaton of a duy authorzed Unted States
Government e empton certfcate or other evdence satsfactory to the depart-
ment, and such qud fues used or sod and devered as are not wthn the
ta ng power of ths Commonweath under the commerce cause of the Con-
sttuton of the Unted States: Provded, That the ta heren mposed and
assessed sha be coected by, and pad to, the Commonweath but once n
respect to any qud fues.
In addton to such ta , an addtona emergency State ta of 1 cent 1
gaon, or fractona part thereof, s hereby mposed and assessed upon a
qud fues used or sod and devered by dstrbutors wthn ths Common-
weath for the perod begnnng on the day ths act becomes effectve and
endng on the 31st day of May, one thousand nne hundred and thrty-nne.
Dstrbutors sha be abe to the Commonweath as ta payers for the
payment of the ta mposed by ths act. The ta mposed by ths act though
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93
23(c), rt. 23(c)-.
payabe by the dstrbutor, sha be borne by the consumer, and when pad by
the dstrbutor, sha be deemed to have been so pad for the account of the
consumer.
The act of pr 8, 1937, n the above-quoted paragraphs, added
the taczed matter and deeted that n brackets. further amend-
ment was made to secton 4 of the act of May 21, 1931, by act No.
571, effectve uy 2,1937. The amendment was made by deetng the
foowng provsons n brackets and addng those taczed:
The ta mposed by ths act though payabe by the dstrbutor, sha be
borne by the consumer, and when pad by the dstrbutor, sha be deemed
to have been so pad for the account of the consumer. Dstrbutors sha be
abe to the Commonweath for the coecton and payment of the ta mposed
y ths act. The ta mposed by ths act sha be coected by the dstrbutor
at the tme the qud fues are used or sod and devered by the dstrbutor
and sha be borne by the consumer.
oth the amendment to secton 4 of pr 8, 1937, and that of
uy 2, 1937, eave unchanged the matter of refunds covered by
secton 17 of the act of May 21, 1931. When a ta s pad as a
resut of error of aw or of fact, or of both, the board of fnance
and revenue s empowered to refund such ta to the dstrbutor,
even though the act, as amended, specfcay provdes that the ta
sha be borne by the consumer.
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 certan e ceptons not here
matera. rtce 23(c) of Reguatons 94, reatng to the Revenue
ct of 1936, states that n genera ta es are deductbe ony by the
person upon whom they are mposed.
Irrespectve of the ambguty (referred to above) between secton
4 of the act of May 21, 1931, as amended by the act of pr 8, 1937,
and by the act of uy 2, 1937, and secton 17 of the act of May 21,
1931, t s ceary the egsatve ntent, as e pressed n the amend-
ments of pr 8, 1937, and uy 2, 1937, to mpose the qud fues
ta upon the consumer and to make the dstrbutor the agent of
the State n the coecton of the ta . It s hed, therefore, that the
qud fues ta mposed by the State of Pennsyvana under the
act of May 21, 1931, as amended by the act of pr 8, 1937, and by
the act of uy 2, 1937, s deductbe for edera ncome ta purposes
as a ta n the ncome ta return of the consumer who pays t and
to whom t s not refunded. If the ta s added to or made a part
of the busness e penses of the consumer, t may not be deducted by
hm separatey as a ta .
rtce 23(c)-: Ta es. I-41-8967
G. C. M. 18891
R NU CT O 1936.
The capta stock ta mposed by the State of Inos shoud
be accrued by ta payers sub|ect thereto as of pr 1 of each year
for edera ncome ta purposes.
n opnon s requested whether the capta stock ta mposed by
the State of Inos shoud be accrued, for edera ncome ta pur-
poses, as of pr 1 of each year, the date of accrua for property
ta es, or as of the date when the ta s assessed.
Secton 37, chapter 120, Caaghan s Inos Statutes, nnotated,
provdes that nsurance companes and other companes and assoca-
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C3(c), rt. 23(c)- .
91
tons ncorporated under the aws of Inos sha, n addton to
the other property requred to be sted by the act, make out and
dever to the assessor a sworn statement of ts capta stock set-
tng forth partcuary: (1) the name and ocaton of the company or
assocaton (2) the amount of capta stock authorzed and the num-
ber of shares nto whch such capta stock s dvded (3) the
amount of capta stock pad up (4) the market vaue, or f no
market vaue, then the actua vaue of the shares of stock (5) the
tota amount of a ndebtedness, e cept the ndebtedness for current
e penses, e cudng from such e penses the amount pad for the
purchase or mprovement of property and (6) the assessed vaua-
ton of a ts tangbe property. Such schedue sha be made n
conformty wth such nstructons and forms as may be prescrbed
Secton 107, chapter 120, Caaghan s Inos Statutes, nnotated,
provdes n part that the ta commsson sha:
(6) ssess, and vaue, n the manner provded by aw, the capta stock,
ncudng the franchse, of a companes or assocatons now or hereafter n-
corporated under the aws of ths State, e cept companes and assocatons
organzed for purey manufacturng and mercante purposes, or for ether of
such purposes, or for the mnng and sae of coa or for prntng or for the
pubshng of newspapers or for the mprovng and breedng of stock, or for
the purpose of bankng, ncudng any of such property as may have been
omtted from assessment n any year or years, or whch, from defectve
descrpton has not pad any ta es for any year or years.
The capta stock of a corporaton for the purpose of ta aton
embraces a the property beongng to the corporaton, ncudng
a the rghts, contracts, prveges, good w, and everythng or
vaue that beongs to the corporaton of any character or descrpton.
The mode of f ng the vaue of the capta stock to be ta ed s to
take the vaue of a property, tangbe or ntangbe, rea, persona,
or m ed, ncudng the franchse granted by the State, and deduct
from t the vaue of the tangbe property. (Inos Gen. R. Go. v.
Carr, 302 111., 172, 134 N. ., 138. See aso Centra Inos Pubc
Servce Go. v. Swarte. 284 111., 108, 119 N. ., 990.) The term
capta stock, as used n the aw of Inos reatng to the capta
stock ta , does not mean shares of stock, ether separatey or n the
aggregate, but means the property of the corporaton. (Natona
Reserves Ins. Co. v. Shpton, 314 111., 472, 145 N. ., 598.) The
Inos capta stock ta s a property ta , not an e cse ta . The
each year and ts dssouton by vountary acton can not have the
effect of reevng t of ts obgaton to pay ta es on capta stock.
(See On. tty. Gen. of 111., No. 914, to Inos Ta Commsson,
Sprngfed, 111., dated September 1, 1936.)
It was hed n G. C. M. 6273 (C. . III-| 168 (1929)) that the
abty for rea and persona property ta es n Inos s ncurred
on pr 1 of each year, and accordngy such ta es accrue on that
date for edera ncome ta purposes. Inasmuch as the capta
stock ta referred to heren s aso a property ta , ta payers sub|ect
to capta stock ta provsons n Inos shoud accrue such ta es
as of pr 1 of each year, the same as other property ta es.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
becomes sub|ect
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95
23(c), rt. 23(c)-.
rtce 23 (c)-: Ta es. L42-8981
I. T. 3126
R NU CT O 1930.
The 10 per cent addtona corporaton e cse ta mposed by
chapter 397, Laws of Massachusetts, 1936, and the 10 per cent
addtona ta mposed by chapter 422, Laws of Massachusetts,
1937, are merey ncreases or addtons to the e stng corpora-
ton e cse ta and shoud be accrued as a part of the ta to whch
they are addtons.
dvce s requested reatve to the accrua date of the 10 per cent
addtona Massachusetts corporaton e cse ta mposed by chapter
397, Laws of Massachusetts, 1936, approved une 24, 1936, and the
10 per cent addtona ta mposed by chapter 422, Laws of Massa-
chusetts, 1937, approved May 29, 1937.
ke queston was consdered n I. T. 3000 (C. . -2 140
(1936)) and t was hed that the 10 per cent temporary addtona
corporaton e cse ta mposed under chapter 480, Laws of Massa-
chusetts, 1935, approved ugust 13, 1935, s merey an ncrease n
the e stng ta and shoud be accrued as a part of such ta . The
wordng of that act s substantay the same as chapter 397, Laws
of Massachusetts, 1936, whch mposes the 10 per cent addtona cor-
poraton e cse ta n queston. Practcay the same aw was re-
enacted by chapter 422, Laws of Massachusetts, 1937, whch s ap-
pcabe to the caendar year 1936. It s true that changes n the
aw have been made wth respect to the method and bass of com-
putng the ta , but the changes are not such as affect the accrua
date prevousy recognzed by the ureau. In G. C. M. 8553 (C. .
I -2, 109 (1930)) t was hed, under the Massachusetts corpora-
ton e cse ta aw (secton 32 of chapter 63 of the Genera Laws of
Massachusetts, as amended pr 15,1927), that a corporaton whch
fed ts edera ncome ta return for the year 1928 on the bass
of the caendar year and kept ts books on the accrua bass shoud
accrue as of December 31, 1928, the corporaton e cse ta payabe
n October, 1929.
Inasmuch as the 10 per cent addtona corporaton e cse ta m-
posed by chapter 397, Laws of Massachusetts, 1936, and the 10 per
cent addtona ta mposed by chapter 422, Laws of Massachusetts,
1937, are merey ncreases or addtons to the e stng corporaton
e cse ta , such ta es shoud be accrued as a part of the ta to whch
they are addtons. (See I. T. 3000, supra.)
rtce 23(c)-: Ta es. I-43-8999
I. T.3129
R NU CT O 1936.
The saes ta mposed under the ansas Retaers Saes Ta ct,
effectve as to saes on and after une 1, 1937, s deductbe as a
ta by the purchaser or consumer for edera ncome ta purposes.
dvce s requested whether the ansas reta saes ta s deductbe
by the retaer or by the consumer for edera ncome ta purposes.
The ta n queston s mposed by the ansas Retaers Saes Ta
ct, effectve as to saes on and after une 1, 1937. The act s en-
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23(c), rt. 23(c)- .
96
tted n act provdng for a ta upon the prvege of seng
tangbe persona property at reta, for the prvege of provdng
entertanment and amusement and for the prvege of engagng n
the furnshng of certan servces, and provdng for the ascertan-
ment, coecton and dstrbuton thereof, provdng for remburse-
ment to the retaer by the consumer n so far as the same can be
done provdng for the admnstraton and enforcement of ths act,
provdng penates for the voaton thereof. Provsons of the
act pertnent to the queston are as foows:
Sec. 2. Defntons. s used n ths act.

(d) Retaer means a person reguary engaged n the busness of seng
tangbe persona property at reta or furnshng eectrca energy, gas, water,
servce or entertanment, known to the trade and pubc as such, and seng
ony to the user or consumer and not for resae.

(h) Gross recepts means the tota seng prce Provded, That
the ta payer may take credt n hs report of gross recepts for an amount equa
to the seng prce of property returned by the purchaser when the fu sae
prce thereof, ncudng the ta coected, s refunded n cash or by
credt .

Sec. 3. rom and after une 1, 1937, for the prvege of engagng
n the busness of seng tangbe persona property at reta n ths Sate or
renderng or furnshng any of the thngs or servces ta abe under ths act,
there s hereby eved and there sha be coected and pad a ta as foows:
(a) ta at the rate of 2 per cent upon the gross recepts receved from the
sae of tangbe persona property at reta wthn ths State (b) a ta at the
rate of 2 per cent upon the gross recepts from teephone or teegraph servces:
Provded, That such ta sha not appy to nterstate teephone or teegraph
servces (c) a ta at the rate of 2 per cent upon the gross recepts from the
sae or furnshng of gas, water, eectrcty, and heat, whether furnshed by
muncpay or prvatey owned uttes for domestc or commerca consump-
ton (d) a ta at the rate of 2 per cent upon the gross recepts from the sae
of meas or drnks furnshed at any restaurant, eatng house, dnng car, hote,
drug store, or other pace where meas or drnks are reguary sod to the pubc
(e) a ta at the rate of 2 per cent upon the gross recepts from the sae of
admssons to any pace of amusement, entertanment, or recreaton, e ceptng,
however, 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 s e pended for educatona, regous, or chartabe
purposes.
Sec. 4. The ta eved hereunder sha he pad by the consumer
or user to the retaer and t sha be the duty of each and every retaer In ths
State to coect from the consumer or user, the fu amount of the ta mposed
by ths act, or an amount equa as neary as possbe or practcabe to the
average equvaent thereof and such ta sha be a debt from the consumer
or user to the retaer, when so added to the orgna purchase prce, and sha
be recoverabe at aw In the same manner as other debts.
Sec. 5. It sha be unawfu for any retaer to advertse or ho
out, or state to the pubc, or to any consumer, drecty or ndrecty, that the
ta . or any part thereof, mposed by ths act w be assumed or absorbed by
the retaer, or that t w not be consdered as an eement n the prce to the
consumer, or f added, that t, or any part thereof, w be refunded. Itacs
supped.
Under secton 19 the ta commsson s requred to provde for the
ssuance of meta tokens or scrp to enabe purchasers to pay and
retaers to coect the ta when t amounts to a fractona part of a
cent.
Secton 23 (c) of the evenue ct of 1936 provdes that n comput-
ng net ncome there sha be aowed as deductons ta es pad or
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97
23(c), rt. 23(c)-.
accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)- of Reguatons 94, reatng to the Reve-
nue ct of 1936, provdes that n genera ta es are deductbe ony by
the person upon whom they are mposed.
rom an e amnaton of the State aw, t was ceary the egsa-
tve ntent to mpose the saes ta upon the purchaser or consumer of
the goods or servces and to make the retaer the coector of the ta
for and on behaf of the State. It s hed, therefore, that the ansas
reta saes ta s deductbe by the purchaser or consumer n hs
edera ncome ta return. If, however, the ta s added to or made
a part of hs busness e penses, or s otherwse used to reduce hs
net ncome, t may not be deducted separatey as a ta .
rtce 23(c)-: Ta es. T-44-9010
( so Secton 26.) Mm. 4676
Deducton for e cess-profts ta , dvdends receved credt on
orm 1120, and appcaton of e cess-profts ta to nterest on
obgatons of the Unted States or nstrumentates thereof.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, October 16,1037.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
1. D DUCTION OR C SS-PRO ITS T .
Secton 23(c) of the Revenue ct of 1936 provdes n part that n
computng net ncome there sha be aowed as a deducton ta es
pad or accrued wthn the ta abe year, e cept
(1) edera ncome, war-profts, and e cess-profts ta es (other than the
e cess-profts ta mposed by secton 106 of the Revenue ct of 1935)
The ta abe years ended n 1936 wth respect to whch corporatons
sub|ect to the capta stock ta mposed by secton 105 of the Revenue
ct of 1935, as amended, for the capta stock ta year ended une
30, 1936, are abe for the e cess-profts ta mposed by secton 106
of the Revenue ct of 1935, as amended, are the caendar year 1936
and the fsca years ended uy 31, 1936, to November 30, 1936, ncu-
sve. Corporatons wth fsca years endng wthn the caendar year
1937 are aso abe for the e cess-profts ta mposed by secton 106
of the Revenue ct of 1935, as amended.
Secton 43 of the Revenue ct of 1936 provdes n part:
The deductons provded for n ths tte sha be taken for the
ta abe year In whch pad or accrued or pad or ncurred, dependent upon
the method of accountng upon the bass of whch the net ncome s computed,
.
Instructon No. 20, on page 1 of nstructons on orm 1120, for the
caendar year 1936 and for fsca years begnnng n 1936 and endng
n 1937, provdes n part:
deducton s aowabe for the e cess-profts ta mposed by secton 106
of the Revenue ct of 1935, as amended, but such deducton shoud be entered
as tem 28.
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23(c), rt. 23(c)- .
98
Instructon No. 28, on page 1 of nstructons on that form, pro-
vdes :
nter as tem 28 the amount of e cess-profts ta In tem 12, page 1 of the
return.
Item 28, page 2 of the return, drects the deducton from net n-
come of edera e cess-profts ta (tem 12, page 1).
The above-quoted nstructons on orm 1120 for the caendar year
1936 and for fsca years begnnng n 1936 and endng n 1937 do
not contempate that a deducton may be aowed under tem 28 on
page 2 of the return on that form by a corporaton makng a return
cn the bass of cash recepts and dsbursements for the e cess-profts
ta mposed by secton 106 of the Revenue ct of 1935, as amended,
uness such e cess-profts ta was pad before the cose of the ta -
abe year. Care shoud be taken n the e amnaton of ncome ta
returns made by corporatons for the caendar year 1936 and the
fsca years ended anuary 31,1937, to November 30,1937, ncusve, on
the bass of cash recepts and dsbursements, to see that no deducton
s aowed n such returns for the e cess-profts ta mposed by sec-
ton 106 of the Revenue ct of 1935, as amended, whch s not pad
before the cose of the ta abe year.
2. DI ID NDS R C I D CR DIT ON ORM 1120.
Item 12(a), page 2, of orm 1120, for the caendar year 1936 and
for fsca years begnnng n .1936 and endng n 1937, ncudes dv-
dends on stock of domestc corporatons sub|ect to ta aton under
Tte I of the Revenue ct of 1936. The dvdends receved credt
s provded by secton 26, Tte I of the Revenue ct of 1936, as
foows:
In the case of a corporaton the foowng credts sha be aowed to the
e tent provded n the varous sectons mposng ta

(b) Dvdends receved. 85 per centum of the amount receved as dvdends
from a domestc corporaton whch s sub|ect to ta aton under ths tte. The
credt aowed by ths subsecton sha not be aowed n respect of dvdends
receved from a corporaton organzed under the Chna Trade ct, 1922, or
from a corporaton whch under secton 251 s ta abe ony on ts gross ncome
from sources wthn the Unted States by reason of ts recevng a arge per-
centage of ts gross ncome from sources wthn a possesson of the Unted
States.

Snce sectons 251 and 261 (reatve to Chna Trade ct corpora-
tons) are both ncuded n Tte I of the Revenue ct of 1936, dv-
dends receved from corporatons entted to the benefts of secton
251 and Chna Trade ct corporatons woud be reported under tem
12(a), page 2 of orm 1120, f the prnted nstructons n that tem
were foowed, and 85 per cent thereof woud be ncuded n the
dvdends receved credts under tems 3 and 15, page 1 of the return,
f the prnted nstructons n those tems were foowed. owever,
under the provsons of secton 26(b) of the Revenue ct of 1936,
dvdends receved from corporatons entted to the benefts of sec-
ton 251 and Chna Trade ct corporatons are not to be ncuded n
such credts. ccordngy, n the e amnaton of returns fed on
orm 1120 for the caendar year 1936 and for fsca years begnnng
n 1936 and endng n 1937 care shoud be taken not to ncude dv-
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99
23(c), rt. 23(c)-.
dends receved from corporatons fang wthn the scope of sectons
251 and 261 of the Revenue ct of 1936 n computng the proper
aowance for the dvdends receved credt.
3. PPLIC TION O C SS-PRO ITS T TO INT R ST ON O LIG TIONS O
T UNIT D ST T S OR INSTRUM NT LITI S T R O .
Instructon No. 8, on page 1 of nstructons on orm 1120 for the
caendar year 1936 and for fsca years begnnng n 1936 and endng
n 1937, provdes n part:
The tota of the nterest reported as tems 4(a) (6) and (7), Schedue M,
shoud be entered as tem 8. Such nterest s aowabe as a credt aganst
net ncome as tems 14 and 25, page 1 of the return.
Instructon No. 30, on page 1 of nstructons on that form, pro-
vdes n part:
or e cess-profts ta purposes the net ncome sha be the same as the net
ncome for ncome ta purposes, computed wthout the deducton of the e cess-
profts ta mposed by secton 106 of the Revenue ct of 1935, as amended.
None of the credts aowed corporatons aganst net ncome for ncome ta
purposes s appcabe n respect of the e cess-profts ta e cept the credt
aganst net ncome equa to the credt for dvdends receved provded n
secton 26(b) of the Revenue ct of 1036.
If the prnted nstructons n tem 2, page 1 of orm 1120, were
foowed, the nterest on Government obgatons, ncuded as tem
8, page 2 of that form, woud be entrey ncuded n tem 6, page 1
of that form, for the purpose of the e cess-profts ta .
In G. C. M. 18893 (page 210, ths uetn) t was hed that nterest
on bonds ssued by the ome Owners Loan Corporaton and
the edera arm Mortgage Corporaton s e empt from the e cess-
profts ta mposed by secton 106 of the Revenue ct of 1935, as
amended by secton 402(a) of the Revenue ct of 1936. oowng
the recommendaton contaned n G. C. M. 18893,1. T. 3117 (page 235,
ths uetn) was ssued, revokng I. T. 2807 (C. . LLL-2,
110 (1934)), n whch t was hed that partay ta -e empt nterest
on obgatons of the Unted States s sub|ect to the e cess-profts
ta mposed by secton 702 of the Revenue ct of 1934 for ncome-
ta ta abe years begnnng after December 31, 1933. owever, t
was not ntended n G. C. M. 18893 to ay down the rue that a
nterest on obgatons of the Unted States (or nstrumentates
thereof) s e empt from the e cess-profts ta , but ony that nterest
on such obgatons s e empt from that ta where the provsons of
the ct of Congress authorzng the ssuance of the obgatons so
provde (even though the anguage of the Revenue ct teray ap-
ped woud requre the ncuson of the nterest for the purpose of
such ta ).
ccordngy, n the e amnaton of returns fed on orm 1120 for
the caendar year 1936 and for the fsca years begnnng n 1936
and endng n 1937, care shoud be taken not to ncude, for the pur-
pose of the e cess-profts ta , nterest on obgatons of the Unted
States (or nstrumentates thereof) whch s e empt from such ta
under the ct of Congress authorzng the ssuance of the obga-
tons, or any amendment or suppement thereto.
Inqures regardng ths mmeograph shoud refer to ts number
Chas. T. Russe,
ctng Commssoner.
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23(c), rt. 23(c)- .
100
rtce 23 (c)-1: Ta es. I- 5-9024
I. T. 3136
R NU CT O 1936.
The ta mposed by secton 12408 (p) and (q) of the Okahoma
Statutes (1036 nnotated Suppement to the 1031 Statutes) upon
natona bank assocatons, banks and trust companes, and
Morrs Pan companes accrues at the begnnng of the current
ta abe year, provded such ta payers were engaged n busness n
the State of Okahoma on that date.
dvce s requested as to the proper accrua date for edera
ncome ta purposes of the ta , measured by net ncome, mposed by
the State of Okahoma upon banks and trust companes.
The rue ad down n G. C. M. 18828 (page 87. ths uetn),
n so far as t reates to the accrua date of ncome ta mposed by
the Okahoma ncome ta aw of 1935, sets forth the genera rue n
that State as to the accrua date of such ta for edera ncome ta
purposes. Secton 12498(p) of the 1936 nnotated Suppement to
the Okahoma Statutes, 1931, reads as foows:
(a) In eu of the ta mposed by secton 6, every natona bankng assoca-
ton ocated or dong busness wthn the mts of the State of Okahoma, sha
annuay, pay to ths State, a ta accordng to, or measured by, ts net ncome,
to computed n the manner herenafter provded, at the foowng rates upon
tLe bass of ts entre net ncome for the ne t precedng fsca or caendar
year:
S (67c) per centum of the amount of the net ncome as heren provded.

(c) ny ta eved under ths secton sha accrue on the frst day after
the cose of the ta abe year, as that term s defned n secton 4(h), and the
bass of the ta , accordng to, or measured by, the net ncome, sha ncude
the entre net ncome from a sources to be determned by subtractng from
the gross ncome, as defned In secton 18, the deductons aowed n secton O.
Secton 12498(q) reads as foows:
(a) In eu of the ta mmsed by secton 6, every bank or trust company
organzed under the bankng aws of ths State or Morrs Pan company, sha
annuay pay to ths State for the prvege of dong busness wthn ts mts,
a ta , accordng to, or measured by, ts net ncome, to be computed n the
manner herenafter provded, at the foowng rates upon the bass of ts entre
net ncome for the ne t precedng fsca or caendar year:
(1) S (6 ) per centum of the amount of the net ncome as heren
provded.

(c) ny ta eved under ths secton sha accrue on the frst day after
the cose of the ta abe, year, as that term s defned n secton 4(h), and
(he bass of the ta , accordng to, or measured by, the net ncome, sha
ncude the entre net ncome from a sources to be determned by subtractng
from the gross ncome, as denned n secton 18, the deductons aowed n
secton 0.
though the ta n queston s measured by net ncome, t s
eved for the prvege of dong busness wthn the State of Oka-
homa and s n the nature of an e cse ta rather than an ncome ta .
nt v. Stone Tracy Co., 220 U. S., 107.) The ta s contngent
upon the bank engagng n busness wthn the mts of the State.
The ureau has prevousy hed that an e cse ta of ths character
whch s mposed for the prvege of carryng on or dong busness,
and whch s measured by net ncome or gross recepts of the preced-
ng ta abe year, accrues as of the begnnng of the current year.
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101
23(c), rt.23(c)-1.
(I. T. 2770, C. . III-1, 111 (1934) I. T. 2971, C. . -1,
107 (1936) I. T. 3107, page 84, ths uetn.)
In vew of the foregong, t s hed that the ta mposed by secton
12498 (p) and (q) of the Okahoma Statutes (1936 nnotated Sup-
pement to the 1931 Statutes) upon natona bank assocatons, banks
and trust companes, and Morrs Pan companes, -whch s mposed
n eu of an ncome ta and s measured by the net ncome for the
precedng ta abe year, accrues at the begnnng of the current ta -
abe year, provded such ta payers were engaged n busness n the
State of Okahoma on that date. or e ampe, a bank whch fes
ts return on the caendar year bass and uses the accrua method of
accountng shoud accrue as of anuary 1, 1937, the ta .n queston
whch s measured by net ncome for the caendar year 1936.
rtce 23(c)-: Ta es. I-47-9048
G. C. M. 19224
R NU CT O 1936.
The franchse ta mposed under chapter 100, Tennessee Pubc
cts of 1937, accrued on uy 1, 1937, aud s not deductbe for
edera ncome ta purposes for the caendar year 1930 even
though the ta payer empoys the accrua method of accountng.
dvce s requested whether the corporaton and busness trust
prvege or franchse ta mposed under chapter 100, Pubc cts
of 1937, State of Tennessee, s deductbe for edera ncome ta
purposes for the caendar year 1936 by ta payers reguary empoy-
ng the accrua method of accountng.
The Tennessee aw referred to provdes, nter aa:
Secton 1. a corporatons organzed for proft
and dong busness n Tennessee, sha pay annuay a prv-
ege ta , the rate and measure of whch are herenafter set forth.
The ta hereby mposed sha be pad for the prvege of engagng n busness
n corporate form n ths State .
The ta herenbefore eved sha aso be pad by a busness trusts, com-
mony known as Massachusetts trusts, for the prvege of dong busness n
Tennessee and the word corporaton when used heren sha be deemed to
ncude a busness trust uness the partcuar conte t requre a dfferent
meanng.
The prvege ta hereby mposed sha be a ta of ffteen (150) cents on the
one hundred ( 100) doars, or ma|or fracton thereof, of the ssued and out-
standng capta stock, surpus and undvded profts of each such corporaton
as shown by the books and records of such corporaton at the cose of ts ast
caendar or fsca year precedng the makng of the sworn report herenafter
requred.

Sec. 3. n the case of corporatons dong busness n Tennessee and
esewhere the measure of the ta as herenabove set forth sha be apportoned
to Tennessee for the purpose of ta aton n the foowng manner:

Sec. 4.

very corporaton abe for the ta here mposed sha, on or before uy 1
of each year, fe an accurate and compete report, whch
sha contan the foowng data :

(b) The amount of capta stock subscrbed and pad n, the amount ssued
and outstandng, the amount of surpus and undvded profts, together wth the
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23(c), rt. 23(c)- .
102
book vaue of each share of such stock as shown by the books and records of the
corporaton at the cose of Its ast caendar or fsca year.
(c) comparatve baance sheet as of the begnnng and cose of the ast
caendar or fsca year as shown by the books and records of the corporaton.

The ta heren eved sha be pad on or before uy 1 of each
year and sha be pad at the tme the sworn report s fed. Prov-
son s aso made here for determnaton of correct ta abty and for notf-
caton of defcency, or refund of overpayment, f any.
Sec. 5.

ny corporaton denquent n the fng of the report heren requred or n
the payment of the ta heren eved sha pay a penaty of ten (10 ) per cent
for the frst month or fractona part thereof of denquency, nnd penaty there-
after at the rate of one-haf of 1 per cent ( of 1 ) of the amount due for each
mouth of such denquency. denquency sha bear nterest at the rate of
s (6 ) per cent per annum from uy 1 of each year unt pad.

Sec. 7. the ta heren eved sha be n eu of that eved by
chapter 5, cts of the tra Sesson of 1935, and the frst ta payment under
ths aw sha come due on uy 1, 1937. No ta sha hereafter be coected
under chapter 5, cts of the tra Sesson of 1935. Ths ct may be cted and
referred to as The ranchse Ta Law.
Sec. 8. ths act sha take effect from and after ts passage .
The aw was approved on March 4,1937.
The ta year for whch the franchse ta s mposed s not specf-
cay stated n the aw. owever, the ta s eved annuay
aganst corporatons (ncudng certan busness trusts) organzed
for proft. It s mposed for the prvege of engagng n and dong
busness n Tennessee and the report therefor must be fed and the
ta pad on or before uy 1 of each year. The ta s measured by
appyng a certan rate to the amount of the capta stock, surpus
and undvded profts of each such corporaton at the cose
of ts ast caendar or fsca year precedng the makng of the
report requred. It s cear that the annua ta s mposed
for the prvege of engagng n and dong busness n the ta year
begnnng on uy 1 foowng the ta payer s ast accountng year
(fsca or caendar) whch cosed precedng the makng of the re-
qured report. In other words, the ta payabe under ths aw on
or before uy 1 of each year s n every case eved for the fsca
ta year begnnng uy 1 of that year. ccordngy, the franchse
ta payabe on or before uy 1, 1937, s mposed for the fsca ta
year uy 1,1937, to une 30,1938.
though the State aw provdes that the report sha be fed and
the ta sha be pad on or before uy 1 of each year, no penates
are mposed f the report s fed and the ta pad on uy 1. In other
words, no defnte abty e sts for ths franchse ta each year
unt the frst day ( uy 1) of each franchse ta year. Ths s
further ndcated by the provson of the aw that the frst ta pay-
ment under ths aw sha come due on uy 1, 1937.
In vew of the foregong, t s the opnon of ths offce that the
franchse ta n queston due on uy 1, 1937, accrued on that date
but not unt then. ccordngy, such ta s not deductbe for ed-
era ncome ta purposes for the caendar year 1936 even though the
ta payer reguary empoys the accrua method of accountng.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
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103
523(c), rt. 23(c)-.
btce 23(c)-1: Ta es. I-49-9070
I. T. 3141
R NU CT OP 1936.
The e cse ta mposed by Pennsyvana Corporate Income Ta
ct No. 91, as amended by ct No. 52, approved ugust 7, 1936,
whch s based upon net ncome, s deductbe by a ta payer re-
portng on the accrua bass for the ta abe year n whch the
ncome s earned.
dvce s requested whether the Pennsyvana e cse ta , based
on corporate net ncome, payabe for the year 1936 shoud be accrued
and aowed as a deducton for edera ncome ta purposes for
that year.
The ta s mposed under ct No. 91, the Corporate Net Income
Ta ct, approved and effectve May 16, 1935, to reman n force
for the two caendar years 1935 and 1936, or for the two fsca years
endng n the caendar years 1936 and 1937. Sectons 2 and 3 of
the act were amended by ct No. 52, approved ugust 7, 1936.
Pertnent provsons of the act, as amended, read n part as foows:
Sec. 3. Imposton of ta . very corporaton sha be sub|ect to, and sha
pay for, the prvege of dong busness n ths Commonweath, a State e cse
ta at the rate of 0 per centum per annum upon each doar of net ncome
of such corporaton such ta sha frst be eved, coected, and pad upon a
net ncome receved by, and accrung to, such corporaton durng the caendar
year 1935, e cept where a corporaton reports to the edera Government on
the bass of a fsca year and has ee tfbd such fact to the department as re-
qured by secton 4 of ths act, n whch ease, such ta at the rate of 6 per
centum, sha frst be eved, coected, and pad upon a net ncome receved
by, and accrung to, such corporaton durng the fsca year commencng n the
caendar year 1935 and endng n the caendar year 1936, and a smar ta at the
rate of 10 per centum per annum upon each doar of the net ncome of such cor-
poraton receved by and accrung to such corporaton durng the caendar year
1936, e cept where a corporaton reports to the edera Government on the bass
of a fsca year and has certfed such fact to the department as requred by
secton of ths act, n whch ease such ta at the rate of 10 per centum sha
te eved, coected and pad upon a net ncome receved by and accrung to
such corporaton durng the fsca year commencng n the caendar year 1936
and endng n the caendar year 1937.
Under paragraph 1, secton 2 of the act, as amended, net ncome
s denned to mean:
1. In case the entre busness of the corporaton s transacted wthn ths
Commonweath, net ncome for the caendar year or fsca year as returned to
and ascertaned by the edera Government, sub|ect, however, to any correc-
tons thereof, for fraud, evason, or error as fnay ascertaned by the edera
Government: Provded, That addtona deductons sha be aowed from not
ncome on account of any ta es pad to the Government of the nted States
and on account of any dvdends receved from any other corporaton: nd
provded further .
(The act of ugust 7, 1936, n the quoted paragraphs, added the
taczed matter and deeted that n brackets.)
It s hed that the e cse ta whch s mposed by the Pennsy-
vana Corporate Net Income Ta ct and s based upon net ncome
s deductbe, for edera ncome ta purposes, by a ta payer report-
ng on the accrua bass for the ta abe vear n whch the ncome s
earned. (See G. C. M. 9774, C. . -2, 137 (1931).)
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23(c), rt. 23(c)- .
104
rtce 23 (c)-1: Ta es. I-51-9100
I. T. 3145
R NU CT O 1036.
The gasone ta mposed by the State of South Carona (ch.
107, Code of Laws of South Carona, 1932) s deductbe as a ta
by the vendor or dstrbutor and not by the purchaser or consumer.
dvce s requested reatve to the deductbty, for edera n-
come ta purposes, of the gasone ta mposed by the State of South
Carona.
rtce 3 of chapter 107 of the Code of Laws of South Carona,
1932, reatng to gasone ta es, provdes n part as foows:
Sec. 2505. Lcense ta on gasone. (1) mount Coecton. very o com-
pany, person, frm or corporaton dong domestc or ntrastate busness wthn
ths State, and engagng n the busness of seng, consgnng, usng, shppng,
or dstrbutng for the purpose of sae wthn ths State, any gasone or any
substtute therefor, or combnaton thereof, for the prvege of carryng on
such busness sha be sub|ect to the payment of a cense ta , whch ta sha
be measured by and graduated n accordance wth the voume of saes of such
o company wthn the State. very such o company sha pay to the State
an amount of money equa to s (6) cents per gaon on a gasone, combna-
tons thereof, or substtutes therefor, sod or consgned, used, shpped or ds-
trbuted for the purpose of sae wthn the State. very o company sub|ect to
the ta provded for n sectons 2505, 2507 to 2511 sha on or before the 20tb
day of each month, and every month, make out and fe wth the South Carona
Ta Commsson a return under oath, n such form as may be prescrbed by sad
South Carona Ta Commsson showng the number of gaons of gasone,
combnatons thereof, or substtutes therefor, whch have been sod or consgned,
used, shpped or dstrbuted for the purpose of sae wthn ths State durng
the prevous month and sha at the same tme remt to the State treasurer
the amount of the ta provded by sectons 2505, 2507 to 2511.

(3) Labty for ta . It s hereby decared to be the ntent and purpose of
sectons 2505, 2507 to 2511 to mpose a ta upon every o company engaged
n domestc or ntrastate commerce or busness wthn the schedue provded
wthn sad sectons, at the rate heren specfed, where such gasone, combna-
tons thereof, or substtutes therefor, s orgnay sod, consgned, used, shpped
or dstrbuted by such o company n ths State, but nothng wthn sad sec-
tons sha be construed to mpose any such cense ta upon any seng agent,
consumer or retaer, seng, consgnng, shppng, dstrbutng or usng any of
sad gasone, combnatons thereof, or substtutes therefor, whch may have been
bought from, consgned by, or otherwse baed by any o company as defned
wthn sad sectons, whch has pad the ta as heren mposed, nor sha sad
sectons be hed to appy n case of nterstate commerce.
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 certan e ceptons not here
matera. rtce 23(c)- of Reguatons 94, promugated under the
Revenue ct of 1936, states that n genera ta es are deductbe ony
by the person upon whom they are mposed.
There s no provson n the aw or South Carona under whch
the gasone ta s mposed, ether for a refund to the consumer or
otherwse, ndcatng any ntenton to mpose the ta on the con-
sumer or purchaser. The ta s ceary mposed upon, and must be
pad by, the vendor or dstrbutor and s, therefore, deductbe by
hm. To the purchaser or consumer of the gasone, the amount of
the ta pad by hm represents merey an addtona cost of the
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105
23(c), rt. 23(c)-.
artce purchased and may not be deducted as a ta for edera
ncome ta purposes. If, however, the gasone s used for busness
purposes, the cost thereof s deductbe as a busness e pense. Per-
sons, frms, or corporatons engaged n the busness of seng gasone
may deduct the ta pad thereon as a ta , provded t has not been
ncuded as a part of ther busness e penses or otherwse used to
reduce net ncome. (See G. C. M. 7925, C. . I -1, 110 (1930),
reachng a ke concuson under the provsons of an earer South
Carona statute.)
rtce 23 (c)-: Ta es. I-52-9111
I. T. 3146
R NU CT O 1938.
Deductbty of abama saes ta .
dvce s requested as to the deductbty for edera ncome ta
purposes of the abama saes ta .
The ta s mposed under the terms of an act approved ebruary
23, 1937 (house b No. 179, Laws of 1936, second speca sesson),
s effectve as to saes from March 1, 1937, to September 30, 1939, and
repeas the gross recepts ta n effect from anuary 1 to March 1,
1937. Provsons of the act pertnent to the queston are as foows:
Secton 1. (a) That when used n the foowng sectons of ths act .

(f) The word ta payer means any person abe for ta es hereunder.

Seo. 2. There Is hereby eved and sha be coected
prvege or cense ta aganst the person on account of the busness actvtes
and n the amount to be determned by the appcaton of rates aganst gross
saes, or gross recepts, as the case may be, as foows:
(a) Upon every person, frm or corporaton engaged or contnung wthn ths
State n busness of seng at reta any tangbe persona property whatsoever,
an amount equa to 2 per cent of the gross proceeds of saes of the bus-
ness, e cept where a dfferent amount s e pressy provded heren.
(b) Upon every person, frm or corporaton engaged or contnung wthn ths
State n the busness of seng any automotve vehce, an amount equa to one-
baf of 1 per cent of the gross proceeds of the sae of sad automotve vehce.
(c) Upon every person, frm or corporaton engaged or contnung wthn ths
State n the busness of conductng paces of amusement and/or entertanment
an amount equa to 2 per cent of the gross recepts of any such
busness.
(d) stus s hereby decared to e st for the purpose of ths act and there
Is hereby eved a ta of 2 per cent on the far market vaue of goods, wares
and merchandse, motor vehces, rado recevng sets, phonograph mechansms,
and a artces of trade mported or brought nto ths State by any consumer
on whch the ta heren eved has not been pad
(e) cense ta s hereby eved upon a saesmen and soctors whose
stock of goods, wares and merchandse are ocated wthout the State of
abama and on whch the ta heren eved s not pad before devery to the
consumer based upon 2 per cent of the far market vaue of the goods, wares
and merchandse sod to consumers, wthn ths State, by the soctors or saes-
men. The prce charged to the consumer or user for the goods, wares and mer-
chandse sha be prma face evdence of ther far market vaue.

Sec. 3. If any person sha engage n or contnue n any busness
for whch a prvege ta s Imposed by secton 2 of ths act, he sha
appy for and obtan from the commsson a cense to engage n and to conduct
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23(c), rt. 23(c)- .
106
such busness for the current ta year upon the condton that he sha pay the
ta es accrung to the State of abama under the provsons of ths
act, .

Sec. 24. It sha be unawfu for any person, frm, corporaton, assocaton
or copartnershp engaged n or contnung wthn ths State n the busness
for whch a cense or prvege ta s requred by ts act to fa or refuse to
add to the saes prce and coect from the purchaser the amount due by the
ta payer on account of sad ta provded, heren, or the amount due by sad
ta payer on account of any ta es provded heren, or the amount due by sad
ta payer on account of any ta es provded under ths act, or who sha refund
or offer to refund a or any part of the amount coected, or absorb or adver-
tse drecty or ndrecty the absorpton or refund of sad ta or any porton
of the same.

Provson s made for refund to the ta payer n the event of error
and the ta s made a en upon the persona property of the one
sub|ect to the ta .
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 certan 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. In Doby et a. v. State Ta
Commsson (174 So., 233, decded May 6, 1937), the Supreme Court
of abama stated n part n passng upon certan questons rased
under the act now under consderaton that:
The retaer s the ta payer, the person abe to the State for the ta . e
s the person requred to take out the cense under secton 3, the person re-
qured to make returns and pay the ta to the State ta commsson under
sectons 5 and 6 the person requred to keep records under secton 8 the
person on whose persona property a en s decared as securty for the ta
under secton 9.

Ths secton secton 24, supra , qute ceary, does not confct wth
nor modfy other portons of the act defnng who s the ta payer. The ta -
payer, the seer, s charged wth the mandatory duty to add the amount of the
ta to hs saes prce .
In the ght of that decson and n vew of the apparent ntent of
the State egsature to mpose the saes ta upon the vendor for the
prvege of engagng n the busness of makng saes n the State, t
s hed that the vendor may deduct the amount of such ta pad bv
hm n hs edera ncome ta return. The ta may not be deducted,
however, uness the amount coected by the vendor on account of the
ta has been ncuded n hs gross ncome, nor s the ta deductbe
f t has been refunded to hm. urthermore, the ta may not be
deducted separatey as a ta f t s added to or made a part of the
vendor s busness e penses or s otherwse used to reduce hs net
ncome. The purchaser or consumer payng the amount of the ta
to the vendor may not deduct ths amount as a ta notwthstandng
t s passed on to hm by the vendor.
consumer brngng nto (he State goods on whch the ta has
not been pad and payng the ta drecty to the State (see secton
2(d)) s entted to deduct the amount thereof as a ta n hs edera
ncome ta return.
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107
26, rt. 26-2.
S CTION 25. C DITS O INDI IDU L
G INST N T INCOM .
rtce 25-5: Persona e empton of marred
I-31-8853
I. T. 3102
ctzen of the Unted States vng n a foregn country wth
her husband, a nonresdent aen not engaged n a trade or busness
wthn the Unted States and not havng an offce or pace of bus-
ness theren at any tme wthn the ta abe year 1936, s entted
to a persona e empton of 2,500 under secton 25(b) of the Rev-
enue ct of 1936.
dvce s requested reatve to the persona e empton aowabe
to a marred woman, a ctzen of the Unted States, under the fo-
owng crcumstances:
Durng 1936 was a ctzen of the Unted States and ved n a
foregn country wth her husband, who was a nonresdent aen. 3
husband was not requred to fe any return as he had no ncome
from sources wthn the Unted States. owever, had ncome
from sources wthn the Unted States and nqures as to the amount
of persona e empton aowabe n computng her ta abty.
s husband was not engaged n trade or busness wthn the
Unted States and dd not have an offce or pace of busness theren
at any tme durng the ta abe year 1936. Therefore, he woud not
have been entted to credt for persona e empton had he receved
any ncome from sources wthn the Unted States, as the ta woud
hare been computed on hs gross ncome receved wthout the aow-
ance of deductons or credts. ( rtce 214-1 of Reguatons 94,
reatng to the Revenue ct of 1936.) owever, the fact that the
husband was not entted to any persona e empton does not affect
the amount of persona e empton aowabe to , tho wfe, under
secton 25(b) of the Revenue ct of 1936. Snce was a ctzen
of the Unted States and was marred and vng wth her husband
durng the entre year 1936, she s entted to a persona e empton
of 2,500 for that year.
Dvdends receved credt on orm 1120. (See Mm. 4676, page 97.)
Contracts entered nto by the M Company pror to May 1, 1938,
whch precude the payment of any dvdend so ong as the ndebted-
ness covered by the contracts remans unpad meet the condtons
prescrbed for the aowance of the credt under secton 26(c) of
the Revenue ct of 1936 n computng the surta on undstrbuted
profts mposed by secton 14 of that ct. owever, such a credt
s not aowabe after the debtor becomes fnancay abe to pay
the demand obgatons In queston.
S CTION 26. CR DITS O CORPOR TIONS.
R NU CT OP 1030.
rtce 26-2: Credt n connecton wth con-
tracts restrctng payment of dvdends.
I-43-9000
I. T. 313U
R NU CT O 3936.
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2G, rt. 26-2.
108
dvce s requested whether under contracts entered nto n March,
1936, n connecton wth the ndebtedness of the M Company to two
of ts stockhoders that company s entted to the credt provded
by secton 26(c) 1 of the Revenue ct of 1936 n computng the sur-
ta on undstrbuted profts mposed by secton 14 of that ct.
Secton 26(c) of the Revenue ct of 1936, reatng to the credt
aowabe to a corporaton whch has entered nto a contract re-
strctng the payment of dvdends, provdes for the aowance of a
credt of
n amount equa to the e cess of the ad|usted net ncome over the
aggregate of the amounts whch can be dstrbuted wthn the ta abe year
as dvdends wthout voatng a provson of a wrtten contract e ecuted
by the corporaton pror to May 1, 1936, whch provson e pressy deas wth
the payment of dvdends. If a corporaton woud be entted to a credt under
ths paragraph because of a contract provson and aso to one or more credts
because of other contract provsons, ony the argest of such credts sha be
aowed, and for such purpose f two or more credts are equa n amount
ony one sha be taken nto account.
In the present case t has been necessary, due to the fnanca cond-
ton of the M Company, for the prncpa stockhoders to advance
sums of money to the company to cover operatng e penses and to
pay other outstandng ndebtedness. Interest on the ndebtedness to
the stockhoders was not pad over a perod of years but n the year
1936 the profts of the company were suffcent to pay the current
nterest and the denquent nterest together wth a payment on the
prncpa. It s stated that t was the ntenton that ths ndebted-
ness be pad by the corporaton from the frst profts, and that profts
be apped to payment of these debts unt they are competey sats-
fed. The present fnances of the corporaton w permt some fur-
ther payments to each of the stockhoder-credtors and, f present
busness condtons contnue, t s beeved that the baance of the
ndebtedness w be pad durng the year 1937. On March , 1936,
the corporaton entered nto an agreement wth each stockhoder-
credtor contanng the foowng provsons:
Whereas, Tor other credtor has made certan advances totang -
to the M Company as evdenced more partcuary by the books and records
of such corporaton, and
Whereas, the sad M Company admts abty n the amount of to
or other credtor
Now then t s agreed as foows:
That the sad M Company agrees to pay to the sad or other credtor
the amount of wth accrued nterest at the rate of per cent per annum.
That the sad M Company does further agree unt sad such amount s pad
n fu t w not decare or dstrbute any dvdends to any of ts stockhoders.
It s rected n each agreement that t s made pursuant
to a resouton adopted by the board of drectors of the sad M
Company on the day of March, 1936.
rtce 26-2(b) of Reguatons 94 provdes as foows:
(b) Prohbton on payment of d n dcncs. The credt provded n secton
26(c) s aowabe ony wth respect to n wrtten contract e ecuted by the
corporaton pror to May 1, 1936, 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. If an
amount can be dstrbuted wthn the ta abe year as a dvdend
(1) n one form (as, for e ampe, n stock or bonds of the corporaton)
wthout voatng the provsons of a contract, but can not be dstrbuted
wthn the ta abe year as a dvdend n another form (as, for e ampe,
n cash) wthout voatng such provsons, or
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109
26, rt. 26-2.
(2) at one tme (as, for e ampe, durng the ast haf of the ta abe
year) wthout voatng the provsons of a contract, but can not be ds-
trbuted as a dvdend at another tme wthn the ta abe year (as, for
e ampe, durng the frst haf of the ta abe year) wthout voatng such
provson
then the amount s one whch, under secton 26(c), can be dstrbuted wthn
the ta abe year as a dvdend wthout voatng such provsons.
though t appears from the foregong that the ndebtedness here
nvoved and abty for payment thereof were ncurred over a
perod of years pror to the e ecuton of the contracts n queston,
t s an estabshed rue of aw that a pree stng abty s a good
consderaton for a new promse and a new consderaton s not
necessary. (13 C. ., 362, secton 228.) The contracts n queston
are ceary vad contracts. They are consstent wth the obgatons
to whch they reate and were made pursuant to a resouton of the
board of drectors of the corporaton. s prevousy ndcated, the
contracts were entered nto n March, 1936, that s, pror to May 1,
1936. ach contract e pressy deas wth the payment of dvdends.
In each contract the corporaton agrees that unt the amount of the
ndebtedness referred to n the contract s pad n fu t w not
decare or dstrbute any dvdends to ts stockhoders. Under the
facts presented, t s apparent that the provsons of the contracts n
queston coud not be apped n such a way as to permt the decara-
ton and payment of a dvdend n any form or at any tme durng
the ta abe year whe the ndebtedness covered by the contracts
remans unpad.
It s, therefore, hed that the provsons of these contracts, e -
pressy deang wth the payment of dvdends and precudng the
payment of any dvdend so ong as the ndebtedness remans unpad,
operate as a ega restrcton on the corporaton as to the amounts
whch t may dstrbute as dvdends whe the ndebtedness referred
to n the contracts remans unpad, and that such provsons meet
the condtons prescrbed under secton 26(c) of the Revenue ct of
1936. The obgatons referred to n the contracts are demand
obgatons and can, therefore, be repad by the corporaton at any
tme. The credt above referred to woud therefore, not be aow-
abe after the corporaton becomes fnancay abe to repay these
obgatons, snce the restrcton on the payment of dvdends woud
then not be the resut of the provsons of the contracts but the resut
of the corporaton s wfu faure to retre the obgatons. Upon
the payment of the obgatons or upon the corporaton becomng
fnancay abe to repay them, a restrctons on the payment of
dvdends woud be removed and the corporaton woud be charged
wth the dstrbuton of ts ad|usted net ncome for the entre ta abe
year n whch the restrctons were removed. ( rtce 26-2 (b) 2,
Reguatons 94.)
rtce 26-2: Credt n connecton wth con- I 14-9011
tracts restrctng payment of dvdends. I. T. 3133
R NU CT OP 193(5.
The cause n the ndenture e ecuted by the N Corporaton In
1935, preventng payment of dvdends n any form unt a ac-
cumuated and unpad nterest on debentures to the date of dec-
araton of the dvdend has been pad n fu or has been decared
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26, rt. 26-2.
110
due and payabe and funds therefor have been set asde on op
before the date of decaraton, enttes the corporaton to the credt
provded by secton 26(c) 1 of the Revenue ct of 1936 unt the
requrements of that provson of the ndenture have been met or
unt faure to meet those requrements may be sad to be due to
the wfu conduct of the corporaton.
dvce s requested whether the N Corporaton s entted to the
credt provded by secton 2G(c) of the Revenue ct of 1936, reat-
ng to contracts restrctng the payment of dvdends.
In 1935 a pan of reorganzaton was submtted to stockhoders
and credtors of the M Corporaton proposng a reorganzaton of
ths company under secton 77 of the Natona ankruptcy ct.
The pan of reorganzaton provded, among other thngs, that the
name of the company shoud be changed to the N Corporaton and
that the funded ndebtedness represented by bonds outstandng
shoud be refunded by the ssuance of debentures. It aso provded
for the ssuance of preferred stock and common stock and set forth
n the pan proposed artces of amendment of the charter of the
corporaton defnng the respectve rghts of the stockhoders par-
tcuary wth regard to the rght to receve dvdends. When the
requste number of credtors and stockhoders had assented to the
pan, the N Corporaton e ecuted an ndenture n 1935 securng the
ssuance of the debentures provded for n the reorganzaton, and
n that year the corporaton fed artces of amendment to ts charter.
Later n 1935 the dstrct court approved the pan of reorganzaton.
oowng the reorganzaton, the corporaton pad ony a porton
of the nterest requrements on the debentures. There remaned un-
pad for the year 1935 accumuated nterest on debentures n the
amount of doars, and at the cose of the year 1936 there remaned
unpad accumuated nterest on the debentures n the amount of 3
doars, or a tota of unpad accumuated nterest n the amount of 4a
doars.
It s contended that because of ths accumuated nterest abty
the N Corporaton s restrcted from payng any dvdends by the
foowng provson contaned n the ndenture:
Sec. . No dvdends sha be decared or pad by the company on
cther ts preferred stock or common stock, or any other stock of the company,
uness and unt a accumuated and unpad nterest on the debentures to the
date of the decaraton of such dvdend sha have been pad n fu, or sha,
on or before sad date, have been decared due and payabe by the board of
drectors as heren provded, and funds for the payment of such accumuated
and unpad nterest sha have been set asde on or before the date of the
decaraton of such dvdend.
The above provson s n genera terms and s unquafed by any
anguage to ndcate that the restrcton contaned theren s to appy
to cash dvdends ony. The above provson s therefore, dstn-
gushabe from the provson of the ndenture whch was consdered
n G. C. M. 17577 C. . 1937-1, 86 . The ndenture n that case
provded as foows:
The company agrees that so ong as 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
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I
27. rt. 27-2.
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 ecured, whch sha mature or become due wthn tweve
(12) months after the payment of any such dvdend or dvdends.
The purpose of the above-quoted restrcton was stated theren as
beng merey to assure bondhoders that there woud reman a sum
avaabe to meet nterest and maturty payments on the bonds
before the company sha dsburse any sum or sums by way of
dvdends. It was hed, therefore, that the ony restrcton mposed
by the above provson was on the dsbursement of sums by way of
dvdends and that a stock dvdend woud not amount to such a ds-
bursement and woud not be contrary to the decared purpose of that
provson of the ndenture. The purpose of the restrcton con-
taned n the ndenture n the nstant case s not mted by any state-
ment contaned n ts provsons. Where there s such a genera
restrcton on the payment of dvdends n unquafed terms, the
corporaton s entted to credt under secton 26(c) of the Revenue
ct of 1936 to the e tent that dvdends are restrcted thereby.
It s hed, therefore, n the nstant case that the above provson
of the ndenture consttutes a restrcton on the payment of dv-
dends by the N Corporaton whch enttes t to the credt provded
by secton 26(c) of the Revenue ct of 1936 unt the requrements
of that provson of the ndenture have been met or unt the faure
to meet those requrements may be sad to be due to the wfu
conduct of the corporaton.
rtce 26-2: Credt n connecton wth con- I-47-9049
tracts restrctng payment of dvdends. I. T. 3139
R NU CT OP 1036.
The preferred stock certfcates of the M Corporaton ssued
pror to May 1, 1936, provde that no dvdends sha be decared
or pad on ts common stock wthout the wrtten consent of three-
fourths of the preferred shares outstandng. Durng
the year 1936 more than 90 per cent of the preferred sharehoders
refused to consent to such payment. ed, the M Corporaton s
entted to a credt under secton 26(c) of the Revenue ct of
1936 n the amount whch, e cept for the contract wth the pre-
ferred sharehoders and ther refusa to consent, coud have been
dstrbuted as dvdends on the common stock.
dvce s requested whether the provson (quoted heren) con-
taned n the preferred stock certfcates of the M Corporaton
consttutes a contract restrctng the payment of dvdends wthn the
meanng of secton 26(c) of the Revenue ct of 1936 provdng for
a credt n computng the surta mposed on undstrbuted profts by
secton 14 of that ct. That secton provdes for a credt of
n amount equa to the e cess of the ad|usted net ncome over
the aggregate of the amounts whch can be dstrbuted wthn the ta abe year
as dvdends wthout voatng a provson of a wrtten contract e ecuted by
the corporaton pror to May 1, 1936, whch provson e pressy deas wth the
payment of dvdends.
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27(b), rt. 27(b)- .
112
The provson contaned n the preferred stock certfcates of the
M Corporaton upon whch cam for credt under secton 26(c) s
based reads as foows:
Dvdends on preferred shares sha be cumuatve from and after
uy 1, 1935, and no dvdends sha be decared and/or pad on the common
shares as ong ns preferred shares are outstandng wthout the wrtten consent
of three-fourths of the preferred shares then outstandng.
The corporaton submtted a etter dated October , 1936, to ts
preferred sharehoders readng as foows:
You are no doubt famar wth: (1) certan provsons of the new edera
Income ta aw whch mpose a graduated ta on undstrbuted corporate earn-
ngs, and (2) the provsons contaned n the company s preferred stock certf-
cates whch prevent the payment of dvdends on common shares wthout the
consent of at east 75 per cent of the outstandng preferred shares.
s the owner of the number of M Corporaton preferred shares ndcated at
the bottom of ths etter, t s suggested that you wrte the corporaton statng
as to whether or not you consent to the payment of a dvdend on the outstandng
common shares durng 1936 n the event the drectors deem the fnanca con-
dton of the company |ustfes the decaraton and payment thereof.
Durng November and December, 1936, repes were receved from
sharehoders representng more than 90 per cent of the preferred
shares outstandng at that tme ob|ectng to the payment of dvdends
on the common shares.
Inasmuch as the contract wth the preferred sharehoders was
e ecuted by the corporaton pror to May 1, 1936, and e pressy deas
wth the payment of dvdends, and nasmuch as the requred number
of ts preferred sharehoders refused to consent to the payment of a
dvdend, n stock or otherwse, on the common stock, such contract
operated as a ega restrcton, wthn the meanng of artce 26-2(b)
of Reguatons 94, upon the corporaton as to amounts whch t coud
dstrbute as dvdends wthn the ta abe year 1936. ccordngy,
t s hed that the corporaton s entted to the credt provded by
secton 26(c) 1 of the Revenue ct of 1936 n the amount whch, e cept
for the contract wth the preferred sharehoders and ther refusa to
consent, coud have been dstrbuted as dvdends on the common
stock.
S CTION 27(a). CORPOR TION CR DIT OR DI ID NDS
P ID: DI ID NDS P ID CR DIT IN G N R L.
rtce 27(a)-: Dvdends pad credt n genera.
R NU CT O 1936.
Dvdends pad credt under secton 27 of the Revenue ct of 1936.
(See G. C. M. 18602, page 134.)
S CTION 27(b). CORPOR TION CR DIT OR DI ID NDS
P ID: DI ID ND C RRY-O R.
rtce 27(b)-: Dvdend carry-over. I-49-9071
G. C. M. 19199
R NU CT O 1936.
The M Corporaton, whose ta abe year began on anuary 1,
1930, s not prohbted from obtanng the beneft of a dvdend
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113
27(b), rt. 27(b)-.
carry-over from the ta abe year 1936 under secton 27(b) of the
Revenue ct of 1936 by reason of havng been e empt durng that
year under secton 14(d)2 from the surta on undstrbuted
profts.
n opnon s requested reatve to the aowabty of a dvdend
carry-over from the ta year 1936 under secton 27(b) of the Reve-
nue ct of 1936 n vew of the fact that the M Corporaton was e -
empt for that year under secton 14(d)2 from the surta on unds-
trbuted profts mposed by secton 14 of that ct.
rom May, 1934, unt May, 1936, the M Corporaton was beng
reorganzed under secton 77 of the ankruptcy ct. Durng that
perod the busness of the corporaton was operated by the N Trust
Co., trustee, pursuant to order of the edera court. On May ,
1936, the busness and propertes of the corporaton were returned to
t pursuant to court order under the corporaton s pan of reorganza-
ton, and snce then t has conducted ts own busness and affars.
It s stated that the corporaton s ta abe year began on anuary 1,
1936, and the corporaton fed an ncome ta return for the caendar
year 1936.
Secton 14(d)2 of the Revenue ct of 1936 provdes for e empton
from the surta on undstrbuted profts of
(2) Domestc corporatons whch for any porton of the ta abe year are n
bankruptcy under the aws of the Unted States, or are nsovent and n recever-
shp n any court of the Unted States or of any State, Terrtory, or the
Dstrct of Coumba.
Secton 27 of that ct reads n part as foows:
(a) Dvdends pad credt n genera. or the purposes of ths tte, the
dvdends pad credt sha be the amount of dvdends pad durng the ta abe
year.
(b) Dvdend carry-over. In computng the dvdends pad credt for any
ta abe year, f the dvdends pad durng the ta abe year are ess than the
ad|usted net ncome, there sha be aowed as part of the dvdends pad
credt, and n the foowng order:
(1) Dvdends pad durng the second precedng ta abe year n e cess of
the ad|usted net ncome for such year, to the e tent not needed as a dvdends
pad credt for the ta abe year precedng the ta abe year the ta for whch
s beng computed and
(2) Dvdends pad durng the frst precedng ta abe year n e cess of the
ad|usted net ncome for such year.
No credt sha be aowed for dvdends pad by a corporaton pror to ts frst
ta abe year under ths tte.
The ta abe year of the M Corporaton whch began anuary 1,
1936, fas under the Revenue ct of 1936 and s the frst ta abe
year of the corporaton under Tte I of that ct. Dvdends pad
by the corporaton n that year woud not be pad pror to ts frst
ta abe year under Tte I. In the ght of the provsons of the ct,
t s the opnon of ths offce that the ta payer s not prohbted from
obtanng the beneft of a dvdend carry-over from the ta abe year
1936 by reason of havng been e empt durng such year under secton
14(d)2 of the Revenue ct of 1936 from the surta on undstrbuted
profts mposed by secton 14 of that ct.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
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42, rt. 42-3.
114
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 41. G N R L UL .
rtce 41-3: Methods of accountng.
I-41-8968
I. T. 3123
R NU CT OP 1936.
ccountng methods for deaers n commodtes on organzed
e changes.
The accountng methods whch deaers n cotton and gran are
permtted to use n determnng net ncome for edera ncome ta
purposes may be empoyed by deaers n other commodtes deat n
n a smar manner on organzed e changes. The rungs of the
ureau pertanng to deaers n cotton and gran are kewse ap-
pcabe to deaers n other commodtes deat n on such e changes.
(See . R. M. 135, C. . 5, 67 (1921) S. R. 5084, C. . I -2, 120
(1925) S. M. 5693, C. . -2, 20 (1926) G. C. M. 17322, C. .
-2, 151 (1936).)
S CTION 42. P RIOD IN W IC IT MS O
GROSS INCOM INCLUD D
rtce 42-3: ampes of constructve recept. I-31-8854
Treatment of dvdends credted to the accounts of sharehoders
n cooperatve banks operatng under the aws of Massachusetts.
dvce s requested concernng the treatment, for edera ncome
ta purposes, of dvdends credted to the accounts of sharehoders n
cooperatve banks operatng under the aws of Massachusetts.
acts concernng the rghts of sharehoders to dvdends pror to
the maturty dates of the shares have been presented by the M ank
and the N ank and dscose the foowng:
Under the method of operaton used by the M ank, a cooperatve
bank, a sharehoder s permtted to wthdraw a dvdend credts
paced to hs share account at the reguar dvdend decaraton dates
at any tme pror to the maturty date of the shares wthout any
reducton because of such wthdrawa. owever, n order to secure
the amount of such dvdend credts pror to the maturty date of the
shares, the subscrber must aso wthdraw the stock aganst whch
the credts have been apped. In other words, whe a sharehoder
may wthdraw the fu amount of dvdend credts at any tme pror
to the maturty date of the shares, no wthdrawas of such credts
may be made uness accompaned by a wthdrawa of the shares
aganst whch the credts have been apped.
Under the method of operaton empoyed by the N ank, a coop-
eratve bank, a wthdrawas by a sharehoder at any tme pror to
four years from the date of subscrpton are sub|ect to a 25 per cent
reducton, desgnated as a wthdrawa proft, but after the e pra-
ton of four years no reducton s made for wthdrawa prveges.
In the case of a wthdrawas of dvdend credts after the e pra-
I. T. 3103
R NU CT OP 1936.
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115
43, rt. 43-2.
ton of the 4-year perod, the shares to whch such credts are app-
cabe must aso be wthdrawn n order for the sharehoder to secure
the fu amount of the dvdend credts. In other words, amounts
credted to the sera shares (nstament accounts) are uncond-
tonay avaabe after the e praton of the 4-year perod from the
date of subscrpton wthout any reducton for wthdrawa prv-
eges, provded, however, the sera shares appcabe to such credts
are aso wthdrawn.
The queston presented s whether the requrement, that a wth-
drawa pror to the maturty date of the shares of dvdend credts
made by Massachusetts cooperatve banks must be accompaned by
a wthdrawa of the shares to whch such credts are appcabe before
the sharehoder can secure the fu amount of the dvdend credts,
consttutes a substanta restrcton upon the wthdrawa rghts or
prveges of a sharehoder.
In I. T. 2727 (C. . II-2, 55 (1933)) the ureau hed that
amounts credted to sharehoders of cooperatve banks or domestc
budng and oan assocatons, when such credts pass wthout re-
strcton to the sharehoders, have a ta abe status as ncome for the
year of credt and that where the amount of such credts does not
become uncondtonay avaabe to the sharehoder unt the ma-
turty of a share, the amount of any share n e cess of the aggregate
amount pad n by the sharehoder s ncome for the year of the ma-
turty of the share. ny provson for forfeture of a certan por-
ton of dvdends upon wthdrawa by a sharehoder pror to the
maturty of the stock consttutes a substanta restrcton upon the
wthdrawa rghts of a sharehoder.
It s hed n the case of sharehoders n cooperatve banks whch
e act a M wthdrawa proft n the event of the wthdrawa of dv-
dend credts wthn a f ed perod that the dvdends credted to the
account of the sharehoder are not unquafedy sub|ect to the de-
mand of the stockhoder wthn that perod. Upon the e praton
of that perod the dvdends become unquafedy sub|ect to the
demand of the sharehoder and are to be ncuded n gross ncome for
the year n whch such restrcton s removed, provded there s no
restrcton wth respect to the purchase of new snares.
It s aso hed that dvdends credted to a sharehoder n a coop-
eratve bank are unquafedy sub|ect to hs demand notwthstand-
ng he may be requred to surrender hs stock before the dvdends
may be reduced to possesson, there beng no restrcton on the pur-
chase of new shares | and such dvdends are to be ncuded n gross
ncome for the year n whch they are credted.
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
rtce 43-2: When charges deductbe. I-48-90G1
G. CM. 19367
R NU CT O 193G ND PRIOR R NU CTS.
Where under State aw a mortgage forecosure sae of rea prop-
erty Is sub|ect to, or defeasbe by, redempton wthn a certan
perod, the mortgagor, or owner of the mortgaged property, does not
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43, rt. 43-2.
116
by vrtue of such sae sustan a oss for edera ncome ta pur-
poses uness and unt the redempton perod e pres wthout
redempton by hm.
G. C. M. 12737 (C. . III-1, 120 (1934)) (to the e tent t re-
ates to the tme that the osses theren nvoved were sustaned),
G. G. M. 128G0 (C. . III-1, 123 (1034)), and G. C. M. 133(50
(C. . III-2, 194 (1934)) revoked.
Recommended that nonacquescence n the decson of the oard
of Ta ppeas n . C. awkns et a. v. Commssoner (34 . T. .,
918 C. . -2, 35 (1930)) be wthdrawn.
In G. C. M. 12737 (C. . III-1, 120 (1934)) ths offce e pressed
the opnon that osses of the ta payer due to forecosure n 1927 and
1928 of mortgages on Caforna rea estate were sustaned, for ed-
era ncome ta purposes, at the tme of the sherff s saes n the fore-
cosure proceedngs, rrespectve of the ta payer s rghts under Ca-
forna aw to possesson and redempton of the property unt 12
months thereafter, and that the osses were capta osses under
the Revenue cts of 1926 and 1928.
In G. C. M. 12860 (C. . III-1, 123 (1934)) ths offce e pressed
the opnon that a oss of the ta payer due to forecosure n 1929 of
mortgages on certan Inos and n whch he had an nterest was
sustaned and deductbe, for edera ncome ta purposes, n 1929
when the forecosure sae occurred and not n 1930 when the statutory
(12-month) perod for redempton e pred wthout redempton by
hm and that such forecosure sae was the dentfabe event f ng
the oss regardess of the tme of passage of the technca ega tte.
In G. CM. 13360 (C. . III-2, 194 (1934)) ths offce hed that a
oss of the ta payer due to forecosure n 1931 of a mortgage on
ansas rea estate was sustaned and deductbe, for edera ncome
ta purposes, n 1931, the year of the forecosure sae, and not n 1932,
the year n whch the statutory (18-month) perod for redempton
e pred wthout redempton by hm and a sherff s deed was ssued
to the purchaser.
On ugust 7, 1936, n . C. awkns et a. v. Commssoner (34
. T. ., 918, nonacquescence, C. . -2, 35 (1936)), nvovng the
ta abe year 1932, the oard of Ta ppeas hed that osses of the
pettoners due to forecosure n 1931 of a mortgage on Caforna
and were sustaned and deductbe, for edera ncome ta purposes,
n 1932 when the (12-month) perod durng whch such property may
be redeemed under Caforna statutes e pred wthout redempton by
them, and not n 1931 when the property was sod at aucton under
mortgage forecosure. On uy 16, 1937, that decson was affrmed
by the Crcut Court of ppeas for the fth Crcut (91 ed. (2d),
354). The same Caforna statutes and decsons were nvoved
theren as n G. C. M. 12737, supra, and they were at east as favor-
abe to the poston taken by the Commssoner thereunder as the
statutes and decsons of Inos and ansas nvoved n G. C. M.
12860 and G. C. M. 13360, respectvey.
In vew of the foregong, G. C. M. 12737 (to the e tent t re-
ates to the tme that the osses theren nvoved were sustaned),
G. C. M. 12860, and G. C. M. 13360 are revoked, and t s recommended
that the nonacquescence n /. C. awkns et a. v. Commssoner be
wthdrawn.
The rue of the awkns decson shoud be apped n a such
edera ncome ta cases, provded deducton for the oss or osses
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117
54, rt. 54-1.
nvoved has not been camed and/or aowed wth respect to a pror
ta abe year for whch ta abty can not now be ad|usted. Such
rue s that, where under State aw a mortgage forecosure sae of
rea property s not mmedatey absoute or fna but sub|ect to, or
defeasbe by, redempton of the property wthn a certan perod
thereafter, the mortgagor, or the owner of the mortgaged property,
does not competey part wth hs tte nor ose hs property, and.
hence, does not by vrtue of such sae sustan a oss for edera
ncome ta purposes on account of the sae or dsposton of the
property uness and unt the redempton perod e pres wthout
redempton by hm. T p. Wenche,
Chef Counse, ureau of Interna Revenue.
P RT . R TURNS ND P YM NT O T .
S CTION 54. R CORDS ND SP CI L R TURNS.
rtce 54-1: Records and ncome ta forms. I-37-8923
( so Secton 102 rtces 102-1 and 102-4 T.D.4759
Secton 112(g), rtce 112(g)-2 Secton 115,
rtces 115-5 and 115-11 Secton 143, r-
tces 143-1 and 143-3 Secton 147, rtce
147-3 (Reguatons 94) Secton 166, rtces
166-1 Secton 167, rtces 167-1 (Reguatons
86 and 94) Secton 204(c), rtce 204(c)-
Secton 351, rtces 351-2, 351-3, and 351-6:
Secton 1001, rtce 1001-7 (Reguatons 94).)
INCOM T .
The foowng artces of Reguatons 94 amended:
rtce 54-1 artce 102-1 artce 102 1 artce 112(g)-2
artce 115-5 artce 115-11 artce 143-1 artce 143 3 artce
147-3 artce 166-1 artce 167-1 artce 204(c)- artce 351-2
artce 351-3 artce 351-6 and artce 1001-7.
rtce 166-1, as amended, and artce 167-1 of Reguatons 86
aso amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 54-1 of Reguatons 94 s amended to read as foows:
rt. 54-1. Records and ncome ta forms. very person sub|ect to the ta ,
e cept persons whose gross ncome (1) conssts soey of saary, wages, or sm-
ar compensaton for persona servces rendered, or (2) arses soey from the
busness of growng and seng products of the so, sha, for the purpose of
enabng the Commssoner to determne the correct amount of ncome sub|ect
to the ta , keep such permanent books of account or records, ncudng nven-
tores, as are suffcent to estabsh the amount of the gross ncome and the
deductons, credts, and other matters requred to be shown n any return under
ths tte. Such books or records sha be kept at a tmes avaabe for
Inspecton by nterna-revenue offcers, and sha be retaned so ong as the con-
tents thereof may become matera In the admnstraton of any nterna-revenue
aw.
Income-ta forms sha be prescrbed by the Commssoner and sha be e e-
cuted and fed In accordance wth these reguatons and the nstructons on
the form.
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54, rt. 54-1.
118
The frst sentence of the second paragraph of artce 102-1 of
Reguatons 94 s amended by strkng out as defned and descrbed
n secton 119 and substtutng n eu thereof as defned n secton
119 and the reguatons thereunder.
The fourth and ffth sentences of artce 102-4 of Reguatons 94
are amended by strkng out as defned and descrbed n secton
119, wherever found, and substtutng n eu thereof as defned
n secton 119 and the reguatons thereunder.
The ffth paragraph of artce 112(g)-2 of Reguatons 94 s
amended by strkng out the ast two sentences.
The fourth paragraph of artce 115-5 of Reguatons 94 s
amended by strkng out artce 27-6(b) and substtutng n eu
thereof artce 27(f)-(b).
The tte of artce 115-11 of Reguatons 94 s amended by strkng
out the word on appearng after the word profts and subst-
tutng n eu thereof the word of.
The second sentence of artce 143-1 of Reguatons 94 s amended
by strkng out the comma appearng after the word rghts.
The ast sentence of artce 143-3 of Reguatons 94 s amended by
strkng out 115 and substtutng n eu thereof 1115.
Paragraph ( ) of artce 147-3 of Reguatons 94 s amended by
nsertng (ctzen or resdent) after the word ndvdua.
The ast paragraph of artce 147-3 of Reguatons 94 s amended
by strkng out (see artce 25-5) and substtutng n eu thereof
(see artce 25-7), or f the payee s a resdent of Canada or
Me co, .
rtce 166-1, as amended, of Reguatons 86 and artce 16G 1
of Reguatons 94 are amended by addng at the end thereof the
foowng:
person may have an nterest that s both substanta and adverse to the
grantor n the dsposton of ony part of the corpus or the ncome therefrom.
If the power to revest tte n the grantor s vested n hm n con|uncton wth
such person, or s vested soey n such person, there s to be e cuded n
computng the net ncome of the grantor ony the ncome of such part
Subdvsons (b) of artces 167-1 of Reguatons 86 and 94 are
amended by addng at the end thereof the foowng:
person may have an nterest that s both substanta and adverse to the
grantor n the dsposton of ony part of the Income. There s to be e cuded
n computng the net ncome of the grantor ony that part of the trust ncome
n the dsposton of whch such person has a substanta nterest adverse to
the grantor.
The ast sentence of artce 204(c)- of Reguatons 94 s amended
to read as foows:
Insurance companes conductng ther busness n such manner as to receve
ncome under secton 204(b)(1)(C) are entted to such deductons reatng
thereto as are provded for n secton 204(c), but, n the case of deductons
referred to n secton 204(c) (10), ony to the e tent that the aggregate amount
thereof does not e ceed the ncome ncuded under secton 204(b) (1) (O).
The thrd paragraph of artce 351-2 of Reguatons 94 s amended
by strkng out n the frst sentence thereof as defned and descrbed
n secton 119 and substtutng n eu thereof as defned n sec-
ton 119 and the reguatons thereunder.
The frst paragraph of artce 351-3 of Reguatons 94 s amended
by strkng out n the thrd and fourth sentences thereof as defned
and descrbed n secton 119, wherever found, and substtutng n
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119
54, rt. 54-1.
eu thereof as defned n secton 119 and the reguatons there-
under.
The ast paragraph of artce 351-6 of Reguatons 94 s amended
to read as foows:
In determnng the undstrbuted ad|usted net ncome, as contempated n
secton 351(b)(2), there w be subtracted from the ad|usted net ncome
( 125,000), the 75,750 aggregate sum of the foowng tems:
(1) 20,750 20 per cent of 103,750, the atter amount beng the e cess of
the 125,000 ad|usted net ncome over the 21,250 ( 85 per cent of 25,000)
dvdend ncome receved durng the year from another persona hodng com-
pany, whch s aowabe as a credt
(2) 5,000 the tem set asde to appy toward the retrement of ts bonded
ndebtedness of 50,000, ncurred pror to anuary 1, 1934 and
(3) 50,000 dvdends dstrbuted to ts sharehoders durng the ta abe
year 1936.
Ths eaves 49,250 ( 125,000 ess 75,750) as the undstrbuted ad|usted
net ncome contempated n secton 351(b)(2), on whch the 8 per cent and
the 18 per cent surta rates of brackets (1) and (2) of secton 351(a) appy,
makng the 1936 surta of the M Corporaton S,065.
rtce 1001-7 of Reguatons 94 s amended by addng at the
end thereof the foowng:
Though ts name, charter powers and sub|ecton to State nsurance aws
are sgnfcant n determnng the busness whch a corporaton s authorzed
and ntends to carry on, the character of the busness actuay done n the
ta abe year determnes whether t s ta abe as an nsurance company under
the ct. or e ampe, durng the year 1936 the M Corporaton, ncorporated
under the nsurance aws of the State of R, carred on the busness of end-
ng money n addton to guaranteeng the payment of prncpa and nterest
of mortgage oans. Of ts tota ncome for the year one-thrd was derved
from ts nsurance busness of guaranteeng the payment of prncpa and
nterest of mortgage oans and two-thrds was derved from ts nonnsurance
busness of endng money. The M Corporaton s not an nsurance company
for the year 1938 wthn the meanng of the ct and these reguatons.
Ths Treasury decson s prescrbed pursuant to the provsons
of secton 62 of the Revenue ct of 1934 and of sectons 54, 62, and
147 of the Revenue ct of 1936.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved September 7, 1937.
Roswe Mag,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 9, 1937, 10.54 a. m.)
rtce 54-1: Records and ncome ta forms. I-49-9083
Mm.4C93
Net worth statement to be submtted by ndvduas havng a net
Income of 100,000 or over.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, November 17, 1937.
To Coectors of Interna Revenue, Interna Revenue gents n
Charge, and Other Offcers and mpoyees of the ureau Con-
cerned:
The attached form ( orm 962) has been prepared for the purpose
of assstng nterna revenue agents n charge n obtanng certan
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54, rt. 54-1.
120
desred nformaton wth respect to ndvdua ta payers havng a net
ncome of 100,000 or over for 1936 and subsequent years.
The form s to be prepared and submtted n dupcate by the ta -
payer (not the e amnng offcer) ncdent to the e amnaton of
the returns of the ta payer. or the year 1936, an effort shoud be
made to secure a net worth statement both as of the begnnng and
end of the year. Smary n the case of any ndvdua ta payer
havng a net ncome of 100,000 or over for any subsequent year, a
net worth statement shoud be secured both as of the begnnng and
end of such year.
The form s aso to be prepared and submtted regardess of the
net ncome or oss reported when the ndvdua ta payer receves
tota ncome n e cess of 100,000 from saares or other compensa-
ton, nterest (ta abe and nonta abe), dvdends, rents, ro ates,
or capta gan.
The orgna of the net worth statement as prepared by the ta -
payer shoud be submtted by the revenue agent as an e hbt wth hs
report. The dupcate of the net worth statement shoud be for-
warded by the agent n charge mmedatey to the ureau n Wash-
ngton for the attenton of IT: CI: St-TC .
It s mportant that these nstructons be strcty observed and
that the procedure heren prescrbed be foowed wth respect to a
returns of the above-descrbed cass hereafter e amned.
Inqures regardng ths mmeograph shoud refer to the number
thereof and to the symbos IT: CTR.
Guy T. everng,
Commssoner.
orm 962. Treasury Department. Interna Revenue Servce. November, 1937.
Statement of net worth.
Ta abe year endng , 193
(To be prepared n dupcate by ta payer.)
egnnng of
year.
nd of year.
D SCRIPTION O SS TS.

ccounts and notes recevabe:

Securtes:
Stock domestc-
fa) Persona hodng company
onds
(6) Obgatons of Unted States ssued on or before Sept. 1, 1917
assets shoud be vaued at cost.
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121 55, rt. 55(b)-3.
Statement of net worth Contnued
descrpton or SS TS contnued.
egnnng of
year.
nd of year.
Rea estate:
(a) Land . .

(6) Improvements
Nonbusness property:
(a) Resdence
(6) utos, yachts, etc
(c) Other
Partnershp nterests .
usness property not ncuded esewhere
Other assets
Tota
D SCRIPTION 0 LI ILITI S.
ccounts and notes payabe:
Morteages
usness abtes
Net worth
Tota
ID IT.
I swear that ths statement (Incudng any accompanyng schedues and state-
ments) has been prepared (or e amned) by me and to the best of my kuowedge
and beef s a true, correct, and compete statement, made n good fath as of
the date stated.
(Sgnature of ta payer.)
Subscrbed and sworn to before me ths day of
103._.
(Sgnature and tte of offcer admnster-
ng oath.)
S CTION 55. PU LICITY O R TURNS.
Secton 55(a).
R NU CT OP 1036.
Commttee on Interstate Commerce, Unted States Senate. (See
T. D. 4762, page 357.)
rtce 55(b)-3: Inspecton of copes of returns. I-42-8985
T.D.4765
INCOM T .
Reguatons governng the nspecton of ncome ta returns,
orm 1042 , by the Department of Natona Revenue, Ottawa,
Canada.
77964 38 5
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55, rt. 5o(b)-3.)
122
Treast|ky Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
Secton 55(a) of the Revenue ct of 193G provdes:
Returns made under ths tte sha be open to nspecton In the same manner,
to the same e tent, and sub|ect to the same provsons of aw, ncudng penates,
as returns made under Tte II of the Revenue ct of 1926 and a returns made
under ths ct sha consttute pubc records and sha be open to pubc e am-
naton and nspecton to such e tent as sha be authorzed n rues and regua-
tons promugated by the Presdent
Pursuant to the above provson of aw the Presdent orders that
ncome ta wthhodng returns, orm 1042 , fed under the prov-
sons of Tte I of the Revenue ct of 1936, or such ct as amended,
6ha be open to nspecton by the Department of Natona Revenue,
Ottawa, Canada, for the purpose of enabng the Unted States Treas-
ury Department to admnster effectvey the provsons of the Ta
Conventon dated December 30, 1936, between the Unted States and
Canada whch was ratfed ugust 13, 1937. Such nspecton sha be
as foows:
Upon recept by the Commssoner of Interna Revenue of ncome
ta wthhodng returns, orm 1042 , dupcate copes thereof sha be
forwarded to the Department of Natona Revenue, Ottawa, Canada.
RoSW LL M CILL,
ctng Secretary of the Treasury.
pproved October 2, 1937.
rankn D. Roosevet.
The Whte ouse.
CUTI ORD R UT ORIZING T INSP CTION O C RT IN INCOM
T R TURNS Y T D P RTM NT O N TION L R NU , OTT W ,
C N D .
y vrtue of the authorty vested n me by secton 55(a) of the
Revenue ct of 1936 (ch. 690, 49 Stat., 1648,1671), t s hereby ordered
that ncome ta wthhodng returns, orm 1042 , fed for the caen-
dar year 1937 and each subsequent caendar year, sha be open to
nspecton by the Department of Natona Revenue, Ottawa, Canada,
for the purpose of enabng the Unted States Treasury Department to
admnster effectvey the provsons of the Ta Conventon dated
December 30, 1936, between the Unted States and Canada whch was
ratfed ugust 13, 1937. Such nspecton sha be n accordance wth
the rues and reguatons prescrbed by the Secretary of the Treasury
n the Treasury decson reatng to the nspecton of returns by the
Department of Natona Revenue, Ottawa, Canada, approved by me
ths date.
rankn D. Roosevet.
The Whte ouse,
October 2,1937.
(No. 7718)
( ed wth the Dvson of the edera Regster October 4,1987, 2.43 p. m.)
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123 101, rt. 101(4)-1.
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . T S O T .
S CTION 101. MPTIONS ROM T
ON CORPOR TIONS.
|rncL 101(4)-1: udng and oan assocatons I-41-8969
and cooperatve banks. I. T. 8124
N0 CTS O 1934 ND 1036.
Where a domestc budng and oan assocaton whch s
entted to e empton under secton 101(4) of the Revenue cts of
u34 and 1936, n order to become egbe to receve benefts from
certan edera agences, Is requred by the edera ome Loan
ank oard to form a qudatng corporaton or trust for the
purpose of qudatng the sow or frozen assets of the budng
and oan assocaton, such a qudatng corporaton or trust s
e empt from edera ncome ta under secton 101(4) of the
Revenue cts of 1934 and 1936.
I. T. 3009 (C. . -2, 157 (1936)) revoked.
dvce s requested wth respect to the ta abe status, for edera
ncome ta purposes, of corporatons or trusts organzed for the
purpose of qudatng a part of the assets of budng and oan
assocatons, that s, whether such organzatons shoud be granted
e empton under secton 101(4) of the Revenue cts of 1934 and
1936.
Durng the recent depresson years many of the assets of budng
and oan assocatons became frozen and as a resut such assocatons
were unabe to make new oans or to refnance od oans and ther
fnanca condton became a matter of pubc concern. or the
purpose of restorng such assocatons to a sound and sovent bass,
thereby renewng pubc confdence n them, and for other purposes,
the edera Government created certan agences, namey, the ed-
era ome Loan ank System, the edera Savngs and Loan
System, the edera Savngs and Loan Insurance Corporaton, and
the ome Owners Loan Corporaton. These agences are under
the |ursdcton of the edera ome Loan ank oard. efore the
board w approve a budng and oan assocaton as beng egbe
to receve benefts from the above-named agences, t requres assur-
ance that such nsttutons w thereafter have suffcent funds to
make new oans, to refnance od oans, to pay a satsfactory return
upon the nvestments of ts members, and to retan od nvestments
and attract new ones. In order to become egbe to receve benefts
from the above-named agences, a budng and oan assocaton
may be requred to segregate ts frozen assets and transfer them
ether to trustees or to a qudatng corporaton created for that
urpose. If, for e ampe, an assocaton has tota assets of
1,000.000 and of ths amount 400,000 conssts of frozen assets, such
as denquent mortgage oans, and the baance of 000,000 conssts
of current oans whch are not serousy denquent ether as to
prncpa or nterest, such assocaton w be requred to segregate
the 400,000 worth of assets by transferrng them ether to trustees or
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101, rt. 101(4)- .
124
to a qudatng corporaton. The shares of the assocaton are then
canceed and the sharehoders are ssued shares n the assocaton,
after reorganzaton, n the aggregate amount of 600,000. The
sow or frozen assets whch are hed by trustees or a qudatng
corporaton are represented by partcpatng certfcates whch are
ssued to the sharehoders as the baance of ther share credts. It
s stated that many such segregatons have been made by assocatons
whch have apped for edera charters and nsurance and that n
the future addtona segregatons w probaby be made. Where
such assocatons appy for edera nsurance, many of them w
be reorganzed pursuant to the varous State reorganzaton aws.
Some States requre that sow or frozen assets be transferred to
trustees, whe other States requre that such assets be transferred
to a corporaton organzed for the purpose of qudatng them.
Occasonay, there s merey an nterna segregaton whereby assets
are transferred on the books of the assocaton and the nterest of
sharehoders wrtten down by the amount of such transfer.
Wth respect to the assets, certfcates of partcpaton, capta
stock, and supervson of such qudatng corporatons, the foow-
ng statements are made:
(a) ssets.
the assets of a qudatng corporaton are composed argey of
rea estate and denquent mortgages. The denquent mortgages are carred
In e acty the same manner and upon the same terms as the budng and
oan assocaton carred them. The rea estate was acqured by the bud-
ng and oan assocaton by forecosure of mortgages whch the borrowers were
unabe to carry further. To a great e tent, ths rea estate w be dsposed
of by sae on a purchase money contract to prospectve owners of homes.
The terms of the mortgage w generay be of the same type as a budng
and oan mortgage, that s, a ong-tme amortzed mortgage whch, when t
becomes pad down to a pont where ts percentage to apprased vaue w
make t egbe as an asset for the budng and oan assocaton, w n a
kehood be sod to the budng and oan assocaton.
(b) Certfcates of partcpaton.
The abtes of the qudatng corporaton consst of certfcates of par-
tcpaton whch were ssued for the proportonate nterest of sharehoders of
the budng and oan assocaton n the frozen assets. The hoders of these
certfcates were savers n the budng and oan assocaton. It Is as m-
portant that such savers do not ose what they have saved as that they be
Induced to save n the frst nstance. They w be encouraged to save n
proporton to the amount that they reaze on ther savngs. Ta aton of the
qudatng corporaton w decrease the amount whch they reaze. It s un-
key that they w, n any event, obtan from such assets the amount of
ther orgna nvestment wth a mnmum dvdend to the tme of payment
Interest s not payabe upon such certfcates e cept In so far as the assets
produce an e cess over the book vaue of the certfcates.
(c) Capta stock.
The capta stock of the corporaton s, n most cases, hed by the budng
and oan assocaton whose assets were segregated. In some nstances ths has
not been feasbe and ndvduas or some other corporaton have hed the stock.
In n such other cases, however, the stock has been paced under a votng
trust agreement so that t s hed n trust for the budng and oan assocaton
and the drectors of the budng and oan assocaton at a tmes have votng
contro. The drectors of the budng and oan assocaton kewse at a
tmes consttute the drectors of the qudatng corporaton. The capta stoc
s not entted to any dvdends. s ponted out above, f any e cess Is earned
on these assets over and above the certfcates of partcpaton, t must be pad
to the hoders of the certfcates by way of nterest. When a assets have been
pad out e cept an amount suffcent to provde for payment of the face vaue
of the capta stock, such stock sha be pad and canceed.
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125
101, rt. 101(6)-1.
(d) Supervson.
The qudatng corporatons are under the supervson of the supervsor In
charge of fnanca nsttutons of the State. Saes, e changes or purchases
of any of the assets of the corporaton e cept n the ordnary course of bus-
ness are sub|ect to hs approva. corporaton must submt perodca reports
of ts operaton to such supervsor. The corporaton s sub|ect to hs e amna-
ton at any tme. The supervsor may at nny tme take over such corporaton
and proceed to qudate the assets In accordance wth the aw of the State
provdng for qudaton of budng and oan assocatons. Upon compe-
ton of qudaton and payment of a recepts to the hoders of the certfcates
and payment of the face vaue of the capta stock, the corporaton w be
dssoved and can not In any event contnue to do busness.
Upon consderaton of the facts presented, t s hed that a qudat-
ng corporaton or trust, whch s requred by the edera ome
Loan ank oard to be formed for the purpose of qudatng the
sow or frozen assets of an e empt domestc budng and oan asso-
caton, s e empt from edera ncome ta under secton 101(4) of
the Revenue cts of 1934 and 193G.
The concuson reached heren s based on facts not consdered
when I. T. 3009 (C. . -2, 157 (1936)) was ssued. Snce the
concuson s n confct wth that rung, I. T. 3009 s revoked.
rtce 101(C)-1: Regous, chartabe, scen- I-40-8951
tne, terary, and educatona organzatons G. C. M. 19028
and communty chests.
R NU CT O 1936 ND PRIOR R NU CTS.
n empoyees organzaton engaged n admnsterng a fund
consstng of amounts contrbuted by the empoyees and the em-
poyer or others, whch fund s to be apped n the dscreton of
the admnstrators of the fund to the fnanca reef of the em-
poyees or ther fames, Is a chartabe organzaton wthn the
meanng of secton 101(6) of the Revenue ct of 1936 and the
correspondng sectons of pror Revenue cts, notwthstandng the
empoyee benefcares may be requred to make reguar contrbu-
tons to the fund, provded such contrbutons represent a mnor
porton of the corporaton s ncome.
S. M. 3028 (C. . I -1, 215 (1925)), S. M. 5699 (C. . -, 80
(1926)), and G. C. M. 1268 (C. . I-1, 83 (1927)), contra, revoked.
n opnon s requested reatve to the ncome ta status of the M
Poce Reef und ssocaton.
The facts presented dscose that the M Poce Reef und sso-
caton was ncorporated pursuant to an act of the Genera ssemby
of the State of R n 1893. y an act of une , 1894, t was
provded:
Secton . The cty counc of the cty of R are hereby authorzed and em-
powered to estabsh a fund for the reef of dsabed and retred pocemen
of sad cty and for that purpose are authorzed and empowered from tme
to tme to approprate such sums of money as they may see ft, to be and to
be added to sad fund, and ether the Income or prncpa of sad fund may be
from tme to tme approprated to and for the use of members of the poce
force of sad cty who have been n|ured or dsabed whe they were members
of such force, or have been retred from the sad force on account of age or
nabUty to perform the dutes of ther offce. nd the sad cty counc may
aso approprate to and for the purposes of sad fund from tme to tme the
fees receved by the poce offcers of the sad cty for servng crmna process
and testfyng In crmna cases, and from any other sources whch may be
requred to pay to the cty treasurer of sod cty by ordnance or otherwse.
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101, rt. 101(6)- .
126
Wth respect, to ths organzaton, chapter of the Ordnances of
the Cty of R, pubshed n 1931, provdes n part that:
Sec. . No money whch s approprated n any year by the representatve
counc for any department of the cty government or annutes for pensoned
empoyees of any department sha be used unt a the ncome of the penson
fund or retrement fund of any department for whch t s approprated s frst
apped and e hausted n payng annutes to pensoned empoyees and a such
moneys so approprated by the representatve counc sha be used e cusvey
and soey for that purpose. une pended baances of moneys so appro-
prated by the representatve counc, after the payment of such pensons to
such empoyees, sha revert to the genera fund of the cty.
The membershp of the organzaton s composed of members of
the permanent poce force of the cty of R. Pursuant to an ora
agreement between the commttee representng the Poce Reef
und ssocaton and a commttee representng the cty counc, each
member of the assocaton contrbutes 1 per cent of hs saary and
a court fees and the cty contrbutes a fnes n ordnance cases. In
the admnstraton of ths pan, the cty treasurer pays over to the
assocaton the aggregate of the foowng tems: 1 per cent of mem-
bers saares, court fees, process-servng fees, and a fnes n ord-
nance cases. Ths money, together wth whatever other money s on
hand from earnngs on nvested funds and savngs accounts, s pad
by the treasurer of the assocaton to the cty treasurer as custodan
of the penson fund to be dsbursed as pensons. If the amount so
pad by the assocaton s not suffcent to meet the penson pay ro,
the cty makes up the dfference. or the year 1935, the assocaton
receved 2.6a doars from membershp dues, 53.7a doars from dona-
tons, 25.9a) doars from ts annua ba, 104a: doars from bank
nterest, and 65.8a doars from the cty treasurer (1 per cent of
saares of members, court fees, process-servng fees, and fnes n
ordnance cases). rom ths ncome the assocaton contrbuted
171.G doars to the penson fund and the cty approprated O
doars.
The rues and reguatons governng the poce department,
adopted n 1936, provde n part that a members of sad force who
have served thereon for a perod of 25 years may, n the dscreton of
the board of , be paced on sad retred ro. It s evdent
that whether or not a member may retre depends upon the board
of . so, from the above fgures, t can be seen that the cty,
by refusng to approprate money, coud materay reduce the pen-
sons. If that shoud happen, a retrng member woud be entted
to receve such reef as the condton of the funds n the opnon
of the board of sha warrant, or as the by-aws may provde
when the fund has reached those proportons that w guarantee a
f ed sum In ether case, however, a retrng member
of the assocaton w be recevng more than a mere repayment of
what he has contrbuted, wth nterest, for the contrbutons of the
members consttute ony a sma porton of the ncome of the
assocaton.
The oard of Ta ppeas n Young Men s Chrstan ssocaton
Retrement und, Inc., v. Commssoner (18 . T. ., 139) hed that
the pettoner was e empt from edera ncome ta . The Comms-
soner acquesced n that concuson (. e., the resut). (C. . I -1,
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127
101, rt. 101(6)-1.
60 (1930).) In the course of ts opnon n that case the oard
stated:
The facts of the nstant case are ready dstngushabe from those nvoved
In Phadepha f Readng Reef ssocaton (4 . T. ., 713) mpoyees
enevoent ssocaton of mercan Stee oundres (14 . T. ., 116S) and
Pontac mpoyees Mutua Iencft ssocaton (15 . T. ., 74). In the
Instant case the prncpa ncome of pettoner s from nterest on the nvest-
ment of a fund contrbuted by the pubc and by the Y. M. C. . and from
contrbutons by assocatons of the T. M. C. . In the cases cted the prncpa
Income of the assocaton seekng e empton was derved from a f ed reguar
compusory contrbuton from ts members. In those cases the assocaton
undertook to pay ts members certan defnte sums n the event of sckness,
accdent or death n e change for defnte contrbutons pad by ts members at
reguar recurrng perods. In the nstant case the benefcary secretares pad
n f ed reguar contrbutons, but the annuty receved represented to a arge
e tent the donatons of the pubc and of the Y. M. C. ., whe ony a reatvey
sma porton was purchased by the payments of the secretares. In the cases
cted no ad was furnshed from generosty or beraty, whe n the nstant
case 5,700,000 was furnshed from generosty or beraty, n addton to
whch many assocatons of the Y. M. C. . made reguar contrbutons on
behaf of ther secretares.
In rederck . Rke v. Commssoner (18 . T. ., 149, acques-
cence, C. . -, 55 (1931)), the oard of Ta ppeas reached the
concuson that contrbutons to the Young Men s Chrstan ssoca-
ton Retrement und, Inc., were deductbe n determnng the net
ncome of ndvdua donors under secton 214(a) 11 of the Revenue
ct of 1921. The effect of that decson s that the Young Men s
Chrstan ssocaton Retrement und, Inc., s a chartabe corpora-
ton wthn the meanng of the secton referred to.
In Mutua d and eneft ssocaton of orstmann uffmann
mpoyees v. Commssoner (17 . T. ., 967), the oard hed that
an assocaton operated for the beneft of the empoyees of orst-
mann uffmann Co. was not operated for e cusvey chartabe
purposes wthn the meanng of secton 231(6) of the Revenue ct
of 1921. On appea to the Crcut Court of ppeas for the Thrd
Crcut the order of the oard of Ta ppeas was vacated Mutua
d and eneft ssocaton, etc., v. Commssoner, 42 ed. (2d),
619), and the case was remanded for further proceedngs n accord-
ance wth the decson rendered n oh et a. v. McCaughn (42 ed.
(2d), 616).
In Us . Gmbe v. Commssoner (20 . T. ., 213), the oard
of Ta ppeas hed that the Gmbe ros. oundaton, operated
for the beneft of the offcers and empoyees of Gmbe ros., Inc.,
was not a chartabe corporaton wthn the meanng of secton
214(a) 10( ) of the Revenue ct of 1924. Upon appea to the Cr-
cut Court of ppeas for the Thrd Crcut the decson of the oard
was reversed Gmbe v. Commssoner: 54 ed. (2d), 780). In the
course of ts opnon n that case, the crcut court sad:
In ts practca workng, the man or domnant purpose of the foundaton s
the grant of pensons, n addton to whch other ob|ects, such as carryng fe
nsurance of empoyees, the e tenson of reef, and educatona schoarshps
at the Wharton Schoo of the Unversty of Pennsyvana, Tempe Unversty,
and Dre e Insttute, are ncdents.
Ths genera sub|ect was consdered by ths court In state of dward W.
ok v. McCaughn (C. C. .) (42 P. (2d), 016. 619) and Mutua d and en-
eft ssocaton of orstmann uffmann mpoyees v. Commssoner of Inter-
na Revenue (C. C. .) (42 . (2d), 610).
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101, rt. 101(9)- .
128
In vew of these eases, to whch may be added ohn R. Sbey, r (16
. T. ., 015) agan v. Commssoner (C. C. .) (43 . (2d), 881, 71 . L. R.,
8G3) Y. M. C. . Retrement und (18 . T. , 139), we are of opnon the
oard of Ta ppeas was n error, and that the vountary payments here
made to the Gmbe oundaton shoud be e empted.
In a recent case before the oard of Ta ppeas, that s, Proctor
Patterson et a., rs., v. Commssoner (34 . T. ., 689, appea ds-
mssed une 3, 1937, C. C. . 6, 90 ed. (2d), 1016), the oard hed
that money donated to create a trust fund to be used to oan to or
assst empoyees, former empoyees, or ther fames, or dependents
was deductbe under secton 23 (n) of the evenue ct of 1928 as a
contrbuton for a chartabe purpose. In arrson v. arker nnu-
ty und (90 ed. (2d), 286), the Crcut Court of ppeas for the
Seventh Crcut cted wth approva the decsons rendered n Young
Men s Chrstan ssocaton Retrement und, Inc., v. Commssoner,
supra, the Mutua d and eneft ssocaton of orstmann uff-
mann mpoyees v. Commssoner, supra, and Gmbe v. Comms-
soner, supra.
In vew of the foregong decsons, the concuson s reached that
an empoyees organzaton engaged n admnsterng a fund consst-
ng of amounts contrbuted by the empoyees and the empoyer or
others, whch fund s to be apped n the dscreton of the admns-
trators of the fund to the fnanca reef of the empoyees or ther
fames, s a chartabe organzaton wthn the meanng of secton
101 (6) of the Revenue ct of 1936 and the correspondng provsons
of pror Revenue cts, notwthstandng the empoyee benefcares
may be requred to make reguar contrbutons to the fund, provded
such contrbutons represent a mnor porton of the corporaton s
ncome. It foows that a poce reef assocaton, operated as the
nstant one, s a chartabe organzaton wthn the contempaton of
the varous edera Revenue cts and contrbutons or gfts to such
an organzaton are deductbe n the manner and to the e tent pro-
vded n those acts.
The concuson heren reached s contrary to the concuson reached
n S. M. 3028 (C. . I -1, 215 (1925)), S. M. 5699 (C. . -, 80
(1926) ), and G. C. M. 12C8 (C. . I-1, 83 (1927)), and they are
accordngy revoked.
Morrson Shafkoth,
Chef Counse, ureau of Interna Revenue.
rtce 101(9)-1: Soca cubs. I-37-8924
T.D.4760
INCOM T .
mendment of artce 101 (9)-1 of Reguatons 86 and 94.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 101(9)-1 of Reguatons 86 and artce 101(9)-1 of Regu-
atons 94 are amended to read:
bt. 101 (9)-1. Soca cubs. The e empton granted by secton 101(9) ap-
pes to practcay a soca and recreaton cubs whch are supported by
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129
101, rt. 101(11)-1.
membershp fees, dues, and assessments. If a cub engages In traffc, n agr-
cuture or hortcuture, or In the sae of rea estate, tmber, etc., for proft, such
cub s not organzed and operated e cusvey for peasure, recreaton, or
soca purposes. Generay, an ncdenta sae of property w not deprve the
cub of the e empton.
Ths Treasury decson s ssued under the authorty prescrbed by
secton 62 of the Revenue cts of 1934 and 193G.
Guy T. evekng,
Commssoner of Interna Revenue.
pproved September 7, 1937.
RoSW LL M GILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 9, 1037, 2.57 p. m.)
rtce 101 ()-: armers or other mutua ha, 3-9001
cycone, casuaty, or fre nsurance companes or I. T. 3131
assocatons.
R NU CTS O 1034 ND 1936.
The M re Insurance Co., whch ssues nonassessabe poces
for cash premums, the unearned portons of whch may not be
returned to the pocyhoders, s not e empt from edera ncome
ta as a mutua nsurance company under secton 101(11) of the
Revenue cts of 1934 and 1036.
dvce s requested whether the M re Insurance Co. s e empt
from edera ncome ta under the provsons of secton 101(11)
of the Revenue cts of 1934 and 1936, whch e empts
(11) armers or other mutua ha, cycone, casuaty, or fre nsurance
companes or assocatons (ncudng nterusurers and recproca underwrters)
the ncome of whch s used or hed for the purpose of payng osses or
e penses.
The M re Insurance Co. obtaned a charter to engage n the
busness of nsurng dweng houses and other budngs, househod
furnture, and other persona property aganst damage or oss by
fre n any part of the Unted States. The charter provded that
ony members of the organzaton coud be nsured and that upon
becomng a member the nsured shoud depost a note n addton to
the amount of the cash premum charged, on whch note the nsured
shoud be abe to the e tent of hs proporton of osses suffered
by the organzaton n e cess of premums receved. In 18 the
assets of the corporaton were beeved suffcent to furnsh ndemnty
wthout the addtona reserve n the form of notes. Consequenty,
the board of drectors voted to ssue nonassessabe poces for a
f ed cash premum. Snce that tme the company has operated on
the cash premum pan wth no further assessments and no return
of profts to the pocyhoders. Ths method of operaton s n ac-
cord wth an act of the egsature of the State of R provdng that
any domestc mutua fre nsurance company organzed pror to 18 ,
havng a surpus of not ess than the mnmum capta requred
for the organzaton of a domestc stock fre nsurance company,
may ssue poces for a cash premum wthout any contngent a-
bty for assessment. The act further provdes that such surpus
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101, rt. 101(11)- .
130
sha be hed as a reserve for payment of osses and e penses, and
n the event of dssouton sha be dvded pro rata among the
pocyhoders whose poces are then n force, but that no pocy-
hoder sha receve more than the amount of the unearned cash pre-
mum ast pad to the company for the current term of such pocy.
The organzaton has contnued to ssue nonassessabe poces for
a f ed premum under the provsons of that act and s so engaged
at the present tme.
In atmore qutabe Soc. v. Unted States (3 ed. Supp., 427,
Ct. D. 709, C. . II-2, 121 (1933), certorar dened, 290 U. S.,
662), the Court of Cams consdered the queston whether that
socety was entted to e empton under the provsons of secton
103(11) of the Revenue ct of 1928, whch s dentca wth the cor-
respondng provsons of the Revenue cts of 1934 and 1936. In
that case the ta payer was organzed as a mutua fre nsurance
socety under the aws of the State of Maryand and was engaged
n the busness of nsurng members aganst oss by fre. The method
empoyed by the socety was to requre a depost by members of the
fu estmated premum, aganst whch were charged the propor-
tonate osses of the company and to whch were credted the pro-
portonate dvdends and profts. The members coud wthdraw the
remander of ther depost upon canceaton of ther poces when-
ever demanded. In addton to ths type of nsurance, the ta payer
n that case aso ssued term nsurance at a f ed premum for a
perod of ess than seven years. Ths term nsurance consttuted
about 10 per cent of the tota nsurance wrtten by the socety. It
was hed by the Court of Cams that such nonassessabe term nsur-
ance ssued for a f ed premum was not mutua nsurance, and that
the ta payer was not entted to the e empton granted mutua n-
surance companes. In reachng ths concuson, the court stated n
part as foows:
s before stated, the pantff was orgnay a purey mutua com-
pany n whch the premums pad by each member consttuted a common fund
devoted to the payment of any osses that mght occur and n whch aU of the
persons nsured were members of the assocaton and equay assessed n pro-
porton to each member s nsurance ether to meet osses whch mght occur
n the future or whch the company mght not have on hand funds to ds-
charge. ut subsequenty and durng a perod whch nvoved the years for
whch the ta es n queston were eved the company or assocaton by vrtue
of another resouton authorzed the ssue of term nsurance for a f ed pre-
mum for a perod of ess than seven years. s to those who receve
ths term nsurance at a f ed premum, there was no mutuaty. They pad
n advance for ther nsurance, and that was the end of a payments and
abtes so far as they were concerned.
ut n the nstant case the term nsurance, whe wrtten for
nonmembers, was nsurance busness nevertheess, and as we construe the
statute, n order to be entted to the e empton the pantff must show that
the nsurance busness was conducted on a mutua bass. Ths was ceary not
the case as to the pocyhoders who took out term nsurance. They were not
members, were not entted to any refund of premums pad upon the surrender
or canceaton of ther poces, or to share n the dstrbuton of the earnng
and profts of the company. In short, so far as those who hed poces for term
Insurance were concerned, there was no mutuaty.
rom the above porton of the court s opnon t can be seen that
the court reed not ony upon the fact that the earnngs of the com-
pany were not dstrbutabe to the pocyhoders but aso that the
pocyhoders were not abe for assessments to meet osses. In other
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131
112(), rt. 112()-
words, there must be both mutuaty of abty and partcpaton
n profts before an nsurance company can be sad to be a mutua
company wthn the meanng of secton 101(11) of the Revenue cts
of 1934 and 1936.
Inasmuch as the M re Insurance Co. s engaged n ssung non-
assessabe poces for cash premums, the unearned portons of whch
may not be returned to the pocyhoders, there are ackng both the
mutuaty of abty and partcpaton n profts essenta to con-
sttute the assocaton a mutua nsurance company e empt from ed-
era ncome ta under secton 101(11) of the Revenue cts of 1934
and 1936.
S CTION 102. SURT ON CORPOR TIONS IMPROP-
RLY CCUMUL TING SURPLUS.
rtce 102-1: Ta aton of corporaton formed or utzed
for avodance of surta .
R NU CT O 1936.
mendment of Reguatons 94, artce 102-1. (See T. D. 4759,
page 117.)
rtce 102-4: Computaton of retaned net ncome.
R NU CT O 1936.
mendment of Reguatons 94, artce 102-4. (See T. D. 4759,
page 117.)
SUPPL M NT . COMPUT TION O N T INCOM .
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 1936.
mendment of Reguatons 94, artce 112(g)-2. (See T. D. 4759,
page 117.)
S CTION 112(). R COGNITION O G IN OR
LOSS: OR IGN CORPOR TIONS.
rtce 112()-: Reorganzaton wth, or trans- I-35-8894
fer of property to, a foregn corporaton. G. C. M. 18399
R NU CTS O 1934 ND 1936.
The requrement contaned n secton 112(1) of the Revenue ct
of 1934 that, n determnng the e tent to whch gan sha be rec-
ognzed n the case of certan e changes, a foregn corporaton
sha not be consdered as a corporaton uness, pror to such
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112(), rt. I2() 1.1
132
e change, t has estabshed to the satsfacton of the Commssoner
that such e change s not n pursuance of a pan havng as one of
ts prncpa purposes the avodance of edera ncome ta es s
appcabe to the e change as of une 1, 1936, of assets of the N
Corporaton, a foregn corporaton, soey for the votng stock of
the M Corporaton, aso a foregn corporaton.
The opnon of ths offce s requested whether secton 112 () of
the Revenue ct of 1936, secton 112() of the Revenue ct of 1934.
or nether of those sectons, s appcabe to the foowng statement of
facts:
The M Company, a newy organzed corporaton, ncorporated
under the aws of a foregn country, was organzed to acqure a the
assets of the N Company, aso a foregn corporaton, soey n
e change for ts votng stock. The agreement to transfer was
entered nto by the corporatons eary n une, 1936. s the fsca
year of the N Company ended on May 31, t was agreed that the
assets shoud be transferred as of une 1, 1936. The e change arsng
out of, and pursuant to, ths transacton was accompshed pror to
une 22, 1936, the date of the enactment of the Revenue ct of 1936.
The transacton s of a knd to be cassfed as a reorganzaton
wthn the meanng of secton 112(g) 1( ) of the Revenue ct of
1936, and f the corporatons nvoved were domestc corporatons the
beneft of the ta -free e change provsons of secton 112(b) 3 and 4
of the Revenue ct of 1936 woud be accorded to the e change made
n pursuance of the pan of reorganzaton. ut as the corporatons
nvoved are foregn corporatons, the queston s whether ether sec-
ton 112() of the Revenue ct of 1936 or secton 112() of the Reve-
nue ct of 1934 s appcabe, whch provsons are to the effect that
the beneft of the ta -free e change provsons w not be e tended
uness, pror to such e change, the approva of the Commssoner
s secured to the effect that the e change s not n pursuance of a
pan havng as one of ts prncpa purposes the avodance of edera
ncome ta es. The pont n doubt s whether secton 112() of ether
ct s appcabe to an e change made wthn the perod from the
begnnng of the frst ta abe year under the Revenue ct of 1936
and the date of the passage of that ct on une 22,1936.
The provsons of secton 112() of the Revenue ct of 1936, h
so far as pertnent to the ssue, are as foows:
oregn corporatons. In determnng the e tent to whch gan sha be
recognzed n the case of any of the e changes (made after the date of tLe
enactment of ths ct) descrbed n subsecton (b) 3, 4 a foregn
corporaton sha not be consdered as a corporaton uness, pror to such e -
change, t has been estabshed to the satsfacton of the Commssoner that
such e change s not n pursuance of a pan havng as one of ts prncpa
purposes the avodance of edera ncome ta es.
It shoud be noted that secton 112() of the Revenue ct of 1936
states that ts provsons appy to e changes made after the date of
the enactment of ths ct, that s, after une 22, 1936. Inasmuch
as the e change made n pursuance of the pan of reorganzaton here
nvoved occurred pror to that date, t foows that n so far as the
Revenue ct of 1936 s concerned, the pror approva by the Com-
mssoner of such e change s unnecessary n order to entte the ta -
payers makng the e change to the beneft of the ta -free e change
provsons of secton 112(b) 3 and 4 of that ct for the reason that
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133
5112(0, rt. 112()-.
secton 112 () of the Revenue ct of 1936 ceary provdes that t s
not appcabe to e changes made before the date of the enactment
of that ct.
The queston remans, however, whether the pror approva by the
Commssoner of any such e changes made pror to une 22, 1936,
n a ta abe year whch began after December 31, 1935, may never-
theess be requred under the provsons of secton 112 () of the
evenue ct of 1934, the anguage of whch, for the purpose of the
facts n ths memorandum, s dentca wth that of secton 112()
of the evenue ct of 1936. The fact s that both the Revenue ct
of 1934 and the Revenue ct of 1936 contan dentca provsons
evdencng a contnuous egsatve purpose that any e change n
pursuance of a pan of reorganzaton nvovng a foregn corporaton
sha not be accorded the beneft of the ta -free e change provsons
of such cts uness, pror to the e change, the pan out of whch such
e change arses sha have been e amned by the Commssoner and
approved by hm as a pan not havng as one of ts prncpa purposes
the avodance of edera ncome ta es. The doubt wth reference to
e changes made n the perod between une 22, 1936, the date of the
enactment of the Revenue ct of 1936, and the begnnng of the frst
ta abe year whch began after December 31, 1935, s caused by the
anguage of secton 1 of the Revenue ct of 1936, whch provdes as
foows:
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, 193C, 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
The provsons of secton 1, supra, are to be construed strcty.
The anguage thereof drects (1) that Tte I of the Revenue ct of
1936, reatng to ncome ta , sna appy ony to ta abe years begn-
nng after December 31,1935, and sha not appy to the determna-
ton of ncome and profts ta abty for ta abe years begnnng
pror to anuary 1, 1936, and (2) that any ta abe year whch began
pror to anuary 1, 1936, sha reman sub|ect to the appcabe prov-
sons of pror Revenue cts. The secton carefuy provdes that
Tte I of the Revenue ct of 1936 sha not appy to a ta abe year
begun n 1935. On the other hand, t does not state that none of the
provsons of Tte I of the Revenue ct of 1934 sha have appca-
ton to any part of a ta abe year begun n 1936. The fact s that
the provsons of Tte I of the Revenue ct of 1934 were n fu
ega effect unt the moment of the enactment of the Revenue ct
of 1936 on une 22, 1936. Thus, the pror approva by the Comms-
soner of an e change of the knd heren dscussed was requred by
the aw n effect n ta abe years begnnng n 1936 up to the moment
of the enactment of the Revenue ct of 1936. There s no provson
n that ct whch purports to repea any porton of any pror Reve-
nue ct so that t can not be sad that the Revenue ct of 1934 was
rendered noperatve as of any date pror to une 22, 1936. The re-
qurement of the Commssoner s pror approva was thus carred by
the e stng aw rght up to une 22, 1936, and the same requrement
was mmedatey contnued n the new ct (Revenue ct of 1936)
as to e changes occurrng after ts enactment. The fact that the
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5115, rt. 115-1.
134
Revenue ct of 1936 was made retroactve to the begnnng of ta -
abe years begun n 1930, and the determnaton of ncome and profts
ta es under the Revenue ct of 1934 was set back to the cose of the
precedng ta abe year, does not mean that the requrement of the
Commssoner s approva was dspensed wth at any moment pror
to une 22, 1936. The egsatve purpose to contnue wthout any
break the ega requrement of the Commssoner s pror approva
n ths type of case s too pan to admt of any concuson that t
was ntended by secton 1 of the Revenue ct of 1936 that secton
112 () of the Revenue ct of 1934 shoud be rendered neffectve for
any perod pror to une 22 1936.
In vew of the foregong, t s the opnon of ths offce that secton
112() of the Revenue ct of 1934 remaned n effect unt the date
of the enactment of the Revenue ct of 1936, and that t s necessary
that the Commssoner s pror approva sha have been secured as
to any e change of the knd heren dscussed made between the be-
gnnng of the frst ta abe year whch began after December 31,
1935, and une 22,1936, n order that the ta -free e change provsons
of sectons 112(b) 3 and 4 of the Revenue ct of 1936 may be ac-
corded to such e changes.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
rtce 115-1: Dvdends. I-32-8862
G. C. M. 18602
R NU CTS O 1034 ND 1936.
The Revenue ct appcabe to the ta abe year of the share-
hoder determnes whether a corporate dstrbuton made to hm s
ta abe, and the evenue ct appcabe to the ta abe year of the
corporaton determnes whether the corporaton s entted to a
dvdends pad credt under secton 27 of the Revenue ct of 1936.
dvce s requested wth respect to the ta abty of certan ds-
trbutons made by the M Corporaton.
The M Corporaton, havng a fsca year endng une 30, had a
defct on uy 1, 1935, the begnnng of ts fsca year ended une
30, 1936. It made dstrbutons on March 15, 1936, and September
15, 1936. Its earnngs for ts fsca year ended une 30, 1936, were
ess than ts defct at the begnnng of the year, and ts earnngs
for the fsca year ended une 30, .1937, were not suffcent to
emnate the defct. Its earnngs for the fsca year ended une 30,
1936, were n e cess of the dstrbutons made durng such year,
and ts earnngs for the fsca year ended une 30, 1937, were n
e cess of the dstrbuton made on September 15, 1936.
The foowng questons are presented:
(a) re the dstrbutons made on March 15, 1936, and September
15, 1936, ta abe as dvdends to a sharehoder fng hs return on
the caendar year bass, the sharehoder beng sub|ect to ta under
the Revenue ct of 1936 whe the corporaton was sub|ect to the
Revenue ct of 1934 when the March 15 dstrbuton was made and
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135
115, rt. 116-1.
was sub|ect to the Revenue ct of 1936 when the September 15
dstrbuton was made
() re such dstrbutons ta abe as a dvdend to a sharehoder
fng hs return on a fsca year bass ended November 30, 1936,
or pror thereto, such sharehoder beng sub|ect to ta under the
Revenue ct of 1934 when he receved the dstrbutons
Secton 115(a) of the Revenue ct of 1934 provdes as foows:
(a) Defnton of dvdend. The term dvdend when used n ths tte
(e cept n secton 203(a)4 and secton 207(c), reatng to nsurance companes)
means any dstrbuton made by a corporaton to ts sharehoders, whether
n money or n other property, out of ts earnngs or profts accumuated after
ebruary 28, 1913.
Secton 115(a) of the Revenue ct of 1936 provdes:
(a) Defnton of dvdend. The term dvdend when used In ths tte
(e cept n secton 203(a)3 and secton 207(c), reatng to nsurance companes)
means any dstrbuton made by a corporaton to ts sharehoders, whether
n money or n other property, (1) out of ts earnngs or profts accumuated
after ebruary 28, 1913, or (2) out of the earnngs or profts of the ta abe
year (computed as of the cose of the ta abe year wthout dmnuton by
reason of any dstrbutons made durng the ta abe year), wthout regard
to the amount of the earnngs and profts at the tme the dstrbuton was
made.
Under the crcumstances n ths case, nether dstrbuton made by
the M Corporaton consttutes a dvdend as defned by secton 115(a)
of the Revenue ct of 1934, and both dstrbutons consttute dv-
dends as defned by secton 115(a) of the Revenue ct of 1936.
ccordngy, t s the opnon of ths offce that
(a) The dstrbutons of March 15, 1936, and September 15, 1936,
made by the M Corporaton to a sharehoder fng ns return on the
caendar year bass (. e., a sharehoder whose ta abe year began
on anuary 1, 1936, and who s, therefore, sub|ect to the Revenue
ct of 1936) are ta abe to the sharehoder rrespectve of the fact
that the corporaton kept ts books and fed ts returns on a fsca year
bass and was sub|ect to the Revenue ct of 1934 when the March
15 dstrbuton was made and sub|ect to the Revenue ct of 1936
(whch appes ony to ta abe years begnnng after December 31,
1935) when the September 15 dstrbuton was made.
(6) The dstrbutons made by the M Corporaton to a sharehoder
who fed hs return on a fsca year bass ended November 30, 1936
(. e., sub|ect to the Revenue ct of 1934, snce hs fsca year began
pror to December 31,1935), are not ta abe to the sharehoder under
the facts presented. If a sharehoder had a ta abe year ended
pror to November 30, 1936, the ta abty of the dstrbutons n
queston depends upon the date of termnaton of hs ta abe year.
or e ampe, f the ta payer s fsca year ended on une 30, 1936,
a dstrbutons receved wthn that fsca year are sub|ect to the
Revenue ct of 1934, and a dstrbutons receved on or after
uy 1, 1936 (. e., n a ta abe year begnnng after December 31,
1935), are sub|ect to the Revenue ct of 1936. Under the facts pre-
sented, the dstrbuton receved on March 15, 1936, by a sharehoder
whose fsca year ended une 30, 1936 s not ta abe to the share-
hoder, whereas the dstrbuton receved on September 15, 1936,
whch fas n the fsca year ended une 30, 1937. for whch year
he s sub|ect to ta under the Revenue ct of 1936, s ta abe. If
a sharehoder s fsca year ended on anuary 31, 1936, both of the
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115, rt. 115-5.
136
dstrbutons n queston woud be ta abe under tbe Revenue ct of
1936, as they were receved wthn the fsca year begnnng ebruary
1, 1936, and ended anuary 31, 1937.
It s observed that aed wth the questons presented s the deter-
mnaton of the dvdends pad credt to whch the corporaton s
entted under secton 27 of the Revenue ct of 1936. Whether a
corporaton s entted to a dvdends pad credt under that secton
on account of dstrbutons made by t depends on whether ts ta abe
year s governed by the Revenue ct of 1936, rrespectve of the
ta abe year of the sharehoder. or any ta abe year begnnng
after December 31, 1935, when dstrbutons are made as n the case
here presented, the corporaton s entted to a dvdends pad credt
regardess of whether the dstrbutons are ta abe n the hands of
the sharehoder. (See aso I. T. 3067, C. . 1937-1, 91), reatve to a
dvdends pad credt under secton 27(f) of the Re -enue ct of
1936.)
Summarzng, t s the opnon of ths offce that the Revenue ct
appcabe to the ta abe year of the sharehoder determnes whether
the dstrbuton s ta abe to hm, and the Revenue ct appcabe
to the ta abe year of the corporaton determnes whether the cor-
poraton s entted to a dvdends pad credt under secton 27 of the
Revenue ct of 1936.
Morrson Stafroth,
Chef Counse, ureau of Interna Revenue.
rtce 115-5: Dstrbutons n qudaton.
R NU CT O 1930.
mendment of Reguatons 94, artce 115-5. (See T. D. 4759,
page 117.)
rtce 115-5: Dstrbutons n qudaton. I-51-9109
T. D. 4784
Income ta Lqudaton of foregn persona hodng com-
panes. Reguatons 94 amended to accord wth secton 205 of
Tte II of the Revenue ct of 1937.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Pursuant to the provsons of secton 62 of the Revenue ct of 1936
and secton 205 of Tte II of the Revenue ct of 1937, approved
ugust 26, 1937 (Pubc, No. 377, Seventy-ffth Congress, chapter
815, frst sesson), Reguatons 94 are amended as foows:
The foowng s nserted mmedatey before artce 115-1, reatng
to dvdends:
Secton 205 of Tte II of the Revenue ct of 1937, reatng to foregn per-
sona hodng companes, provdes:
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137
115, rt. 115-5.
Sec. 205. Lqudaton of obegn Persona odng: Companes.
Secton 115(c) of the Revenue ct of 1936 s amended by addng
at the end thereof a new sentence to read as foows:
If any dstrbuton n compete qudaton (ncudng any one of a
seres of dstrbutons made by the corporaton n compete canceaton
or redempton of a ts stock) s made by a foregn corporaton whch
wth respect to any ta abe year begnnng on or before, and endng
after, the date of the enactment of the Revenue ct of 1937, was a
foregn persona hodng company, and wth respect to whch a Unted
States group (as defned n secton 331(a)(2)) e sted after the date
of the enactment of the Revenue ct of 1937 and before anuary 1,
1938, then, despte the foregong provsons of ths subsecton, 100 per
centum of the gan recognzed resutng from such dstrbuton sha be
taken nto account n computng net ncome
(1) Uness such qudaton Is competed before anuary 1,
1938 or
(2) Uness (f t Is estabshed to the satsfacton of the
Commssoner by evdence submtted before anuary 1, 1938, that
due to the aws of the foregn country n whch such corporaton
s ncorporated, or for other reason, t s or w be mpossbe to
compete the qudaton of such company before such date) the
qudaton s competed on or before such date as the Comms-
soner may fnd reasonabe, but not ater than une 30, 1938.
The foowng sentence s substtuted for the frst sentence of the
second paragraph of artce 115-5, reatng to dstrbutons n
qudaton:
In the case of amounts dstrbuted n compete qudaton of a corporaton,
the amount of gan or oss so recognzed s sub|ect n genera to the mta-
tons contaned n secton 117.
rtce 115-5 s further amended by nsertng after the second
paragraph thereof the two foowng paragraphs:
In any case comng wthn the purvew of secton 115(c) of the Revenue ct
of 1936, as amended by secton 205 of the Revenue ct of 1937, n whch t s
or w be mpossbe to compete the qudaton of the corporaton before
anuary 1, 1938, and n whch It s desred that the sharehoders obtan the
beneft of secton 117(a) wth respect to the amount of gan from the dstrbu-
ton n qudaton to be taken nto account n computng net ncome, the cor-
poraton sha submt to the Commssoner before anuary 1, 1938, a compete
statement of the facts, crcumstances, and reasons why t s mpossbe to
compete the qudaton before anuary 1, 1938, and the earest reasonabe date
after anuary 1, 1938, on whch such qudaton w be competed.
or the purposes of secton 115(c), as amended, a qudaton may be com-
peted pror to the actua dssouton of the qudatng corporaton but no qu-
daton s competed unt the qudatng corporaton and the recever or trustees
n qudaton are fnay dvested of a the property (both tangbe and
ntangbe).
The frst sentence of the thrd paragraph of artce 115-5, as that
artce e sted pror to ts amendment by ths Treasury decson s
amended by strkng therefrom the word so wherever appearng
theren.
Gut T. evekng,
Commssoner of Interna Revenue.
pproved December 15, 1937.
Roswe Mag ,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster December 16, 1937, 12.46 p. m.)
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117, rt. 117-1.
138
rtce 115-11: ffect on earnngs or profts of certan
ta -free e changes and ta -free dstrbutons.
R NU CT O 1038.
mendment of Reguatons 94, artce 115-11. (See T. D. 4759,
page 117.)
S CTION 117. C PIT L G INS ND LOSS S.
rtce 117-1: Meanng of capta assets. I-40-8952
I. T.3121
R NU CTS O 1934 ND 1936.
ppcaton of the provsons of secton 117 of the Revenue
cts of 1034 and 1036 to cases nvovng debt ad|ustments.
dvce s requested reatve to the appcaton of secton 117 of
the Revenue cts of 1934 and 1936 to cases nvovng debt ad|ust-
ments.
Under the facts presented, the foowng concusons have been
reached:
Where a debt s compromsed between debtor and credtor for a
cash consderaton because of nabty of the debtor to pay, the
oss sustaned by the credtor s to be determned under secton 23 (k)
of the Revenue cts of 1934 and 1936 and the reguatons thereunder.
Such oss shoud not be treated as a capta oss under secton
117 of the Revenue cts of 1934 and 1936. (See ae v. everng,
85 ed. (2d), 819.)
Where a debt secured by a mortgage s compromsed by the debtor
transferrng tte to the morgaged property to the credtor n e -
change for a reease of the debtor from hs obgaton to the credtor,
the oss, f any, sustaned by the credtor s to be treated as arsng
from a sae or e change of a capta asset, and s thus mted by
secton 117 of the Revenue cts of 1934 and 1936. The oss, f any.
s measured by the dfference between the bass of the obgatons or
the debtor n the hands of the credtor and the far market vaue
of the property.
If a mortgage s forecosed and the credtor buys the mortgaged
property at a prce equa to the bass of the note representng the
unpad ndebtedness, no deducton may be taken by the credtor
as a bad debt. owever, f the far market vaue of the property s
ess than the bd prce, the credtor sustans a capta oss, sub|ect
to the mtatons contaned n secton 117, measured by the dfference
between the bass of the obgatons of the debtor apped to the bd
prce of the property and the far market vaue of the property.
The far market vaue of the property w be presumed to be the
amount for whch t s bd n by the ta payer n the absence of cear
and convncng proof to the contrary. (See artce 23(k)-3, Regu-
atons 86.)
Where notes of a debtor, whch have been determned to be worth-
ess and charged off by the credtor, are sod by the credtor for a
nomna amount, such as 1, and subsequenty an amount n e cess of
the nomna cost s coected upon such notes by the purchaser, the
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139
117, rt. 117-3.
amount coected n e cess of the cost s ordnary ncome and not a
capta gan. Such gan s not derved from a sae or e change
wthn the meanng of secton 117 of the Revenue cts of 1934 and
1936. If there s a retrement by a corporaton of bonds, debentures,
notes, etc., ssued by t wth nterest coupons, or n regstered form, as
provded n secton 117(f) of the Revenue cts of 1934 and 1936,
amounts so receved by the hoder are to be consdered as amounts
receved n an e change.
rtce 117-3: Determnaton of perod for I-36-8904
whch capta assets are hed. I. T. 3112
R NU CT O 1936.
In determnng the percentage of the capta gan reazed by
on the sae of a patent n 1036 to be reported for ta aton under
secton 117 of the Revenue ct of 1936, the date on whch etters
patent were ssued to shoud be used as the begnnng of the
perod for whch the patent was hed.
, the nventor of a certan process, fed appcaton for etters
patent n anuary, 1925. Letters patent were ssued to hm n Octo-
ber, 1931. In anuary, 1936, sod hs patent at a proft and n hs
edera ncome ta return for that year reported the entre proceeds
of the sae as ta abe gan. Snce the patent consttuted a capta
asset as defned n secton 117 of the Revenue ct of 1936, the ques-
ton s presented whether, n determnng the percentage of the cap-
ta gan to be reported for ta aton under that secton, the date of
ssuance of etters patent or the date of appcaton therefor shoud
be used as the begnnng of the perod for whch the patent was hed.
Secton 117(a) of the Revenue ct of 1936 provdes as foows:
(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 n computng net ncome:
100 per centum f the capta asset has been hed for not more than 1 year
SO per centum f the capta asset has been hed for more than 1 year but
not for more than 2 years
GO per centum f the capta asset has been hed for more than 2 years but
not for more than 5 years
40 per centum f the capta asset has been hed for more than 5 years but
not for more than 10 years
30 per centum f the capta asset has been hed for more than 10 years.
The courts have hed that the appcaton for a patent does not
confer rghts n the nature of property and that t s not unt etters
patent are granted that the patentee or hs assgnee acqures an
e cusve property n the patented nventon. In Gayer et a. v.
Wder (10 ow., 477) the court stated:
The Inventor of a new and usefu mprovement certany has no e cusve
rght to t, uness he obtans a patent. Ths rght s created by the patent,
and no sut can be mantaned by the nventor aganst any one for usng t
before the patent s ssued.
In r v. St. Lous Car Co. (80 ed., 909) the court sad:
n Inventor has no e cusve rght to hs nventon at common aw, but
derves a such e cusve rght from the grant of the Government, sub|ect
to the provsons of the statutes conferrng the rght. These statutes
mt the monopoy to the term of 17 years from the date of the grant, as
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121.
140
evdenced by the patent. Manfesty, therefore, there can be no Invason of
the patentee s rghts by any manufacture or use of the devce, the sub|ect
matter of the e pected patent, pror to the date of the patent.
In Unted States v. e Teephone Co. (167 U. S., 224) the court
sad:
Indeed there s an uncertanty as to every appcaton. No one can forete
what w be the |udgment of the Patent Offce upon the questons of novety
and utty.
In vew of the foregong, t s hed that n determnng the perod
for whch the patent was hed by , for the purpose of computng
the percentage of gan to be reported under secton 117 of the Rev-
enue ct of 1936, the date on whch the etters patent were ssued
to shoud be used as the begnnng of that perod.
S CTION 121. D DUCTION O DI ID NDS P ID
ON C RT IN PR RR D STOC O
C RT IN CORPOR TIONS.
I-29-8818
G. C. M. 18676
R NU CT O 1936.
Dvdends pad by banks on preferred stock to the Unted States
or to an Instrumentaty thereof pursuant to secton 121 of the
Revenue ct of 1936 are deductbe ony to the e tent actuay
or constructvey pad durng the ta abe year.
dvce s requested whether the deducton provded by secton 121
of the Revenue ct of 1936, reatng to dvdends on preferred stock
pad by banks to the Unted States or to an nstrumentaty of the
Unted States, s aowabe ony as to such dvdends actuay pad
or whether a deducton may be aowed for such dvdends accrued.
Secton 121 of the Revenue ct of 1936 provdes as foows:
In computng the net Income of any natona bankng assocaton, or of
any bank or trust company organzed under the aws of any State, Terrtory,
possesson of the Unted States, or the Cana Zone, or of any other bankng
corporaton engaged In the busness of ndustra bankng and under the
supervson of a State bankng department or of the Comptroer of the Cur-
rency, or of any ncorporated domestc nsurance company, there sha be
aowed as a deducton from gross ncome, n addton to deductons otherwse
provded for n ths tte, any dvdend (not Incudng any dstrbuton In
qudaton) pad, wthn such ta abe year, to the Unted States or to any
Instrumentaty thereof e empt from edera Income ta es, on the preferred
stock of the corporaton owned by the Unted States or such Instrumentaty.
The amount aowabe as a deducton under ths secton sha be deducted
from the dvdends pad credt otherwse computed under secton 27.
In vew of the unequvoca anguage of secton 121, any such dv-
dend s not aowabe as a deducton from gross ncome uness t
was pad wthn the ta abe year. ctua payment s necessary e -
cept where there has been constructve payment, that s, where the
dvdend has been decared and has been made unquafedy sub|ect
to the demand of the stockhoder.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
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141 143, rt. 143-1.
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 131-5: Countres whch do or do not I-40-8953
satsfy the smar credt requrement. I. T. 3122
R NU CT O 1936.
The Netherands Government does not satsfy the smar credt
requrement of secton 131 (a)3 of the Revenue ct of 1936.
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 143. WIT OLDING O T
T SOURC .
rncL 143-1: Wthhodng ta at source. I-33-8875
( so Secton 144, rtce 144-1 Secton 211, G. C. M. 18835
rtce 211-7 Secton 231, rtce 231-1.)
R NU CT O 193G.
Wthhodng of ncome ta at the source on the gross rentas
derved from rea estate n the Unted States owned by nonres-
dent aens or foregn corporatons.
n opnon s requested whether ncome ta shoud be wthhed at
the source on the gross rentas derved from rea estate n the Unted
States owned by nonresdent aens or foregn corporatons.
Under the provsons of secton 143 of the Revenue ct of 1936,
a persons, n whatever capacty actng, ncudng essees or mort-
gagors of rea or persona property, havng the contro, recept,
custody, dsposa, or payment of rent of any nonresdent aen nd-
vdua are requred to deduct and wthhod from such ncome a ta
equa to 10 per cent thereof. Secton 211(a) mposes a ta of 10
per cent upon the amount, receved by every nonresdent aen nd-
vdua not engaged n trade or busness wthn the Unted States
and not havng an offce or pace of busness theren n eu of the
ta mposed by sectons 11 and 12 of the Revenue ct of 1936, and
secton 211(b) provdes for the ta aton of nonresdent aens n the
same manner as ctzens of the Unted States wth respect to ncome
derved from sources wthn the Unted States f they are engaged n
trade or busness n the Unted States or have an offce or pace of
busness theren. or the purpose of wthhodng, however, t s
mmatera whether a nonresdent aen ndvdua comes wthn the
provsons of secton 211(a) or secton 211(b) of the ct, and the ta
must be wthhed at the source from the amount of rent pad to a
nonresdent aen ndvdua wth respect to rea property ocated n
the Unted States, regardess of whether such ndvdua s engaged
n trade or busness wthn the Unted States.
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143, rt. 143-1.
142
Wth respect to the renta ncome pad to a foregn corporaton,
however, secton 144 of the Revenue ct of 1936 provdes for the
deducton of ncome ta at the source wth respect to certan tems
of ncome, ncudng rent, ony f pad to a foregn corporaton not
engaged n trade or busness wthn the Unted States and not havng
an offce or pace, of busness theren. Where ncome ta s requred
to be wthhed at the source under sectons 143 and 144 of the Rev-
enue ct of 1936, the ta must be wthhed from the gross amount
of the ncome rather than the net amount. (See artce 143-1, Regu-
atons 94.) It foows that n the case of rent pad to a nonresdent
aen ndvdua ncome ta must be wthhed at the source at the rate
of 10 per cent of the gross amount of rent wthout the aowance
for any e penses ncurred n connecton wth the ncome. If the
nonresdent aen ndvdua s engaged n trade or busness wthn
the Unted States or has an offce or pace of busness theren, he
s ta abe under secton 211(b) of the Revenue ct of 1936. In
other words, n the case of a nonresdent aen ndvdua who at any
tme durng the ta abe year was engaged n trade or busness n the
Unted States or had an offce or pace of busness theren, the deduc-
tons aowed by secton 23 for busness e penses, nterest, ta es,
osses n trade, bad debts, deprecaton, and depeton are aowed to
the e tent that they are connected wth ncome from sources wthn
the Unted States. ( rtce 213-1 of Reguatons 94.) nonres-
dent aen ndvdua who s ta abe under secton 211(b), that s,
one who s engaged n trade or busness wthn the Unted States
or as an offce or pace of busness theren, may receve the beneft
of the deductons aowed under the statute ony by fng or causng
to be fed a true and accurate return of hs tota ncome receved
from a sources wthn the Unted States. (Secton 215 of the
Revenue ct of 1936.)
foregn corporaton engaged n trade or busness wthn the
Unted States or havng an offce or pace of busness theren s not
sub|ect to the deducton of ncome ta at the source wth respect to
rents, but s ta abe at the rate of 22 per cent upon net ncome from
sources wthn the Unted States. The benefts of deductons and
credts are not aowed, however, uness a true and accurate return
of tota ncome receved from a sources wthn the Unted States s
fed. (Secton 233 of the Revenue ct of 1936 and artce 233-1 of
Reguatons 94.)
In connecton wth the foregong, the queston has arsen whether
the ownershp and operaton of a budng n the Unted States by
a nonresdent aen ndvdua or foregn corporaton consttute en-
gagng n trade or busness wthn the Unted States. The ncome
ta reguatons do not specfcay state what consttutes engagng
n trade or busness wthn the Unted States. The queston was
gven consderaton by ths offce n G. C. M. 17014 (C. . -2, 317
(193G)) wth the dea of harmonzng the meanng of the phrase-
oogy contaned n the aw reatng to capta stock ta wth that
reatng to ncome ta . The abty of the foregn corporaton for
capta stock purposes under secton 105(b) of the Revenue ct of
1935, as amended, s based on carryng on or dong busness n
the Unted States, whereas secton 231 of the Revenue ct of 1936
reatng to ncome ta uses the phrase engaged n trade or busness
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143
143, rt. 143-1.
wthn the Unted States. In G. C. M. 17014, supra, t was hed that
the e pressons are used synonymousy, ctng Leweyn v. Pttsburgh,
. L. . R. Co. (222 ed., 177) McGoach v. Mneh Schuyk
aven Raroad Co. (228 U. S., 295) on aumbach v. Sargent
Land Co. (242 U. S., 503) and dwards v. Che Copper Co. (270
U. S., 452). It was stated that the test of abty for ncome ta ,
e cess-profts ta , and capta stock ta , n so far as such ta es were
based upon, or measured by engagng n or dong busness wthn
the Unted States, shoud be dentca. It was concuded that f the
foregn corporaton was engaged n trade or busness for ncome ta
purposes t was dong busness for capta stock ta purposes.
In the absence of ncome ta reguatons coverng the specfc ques-
ton, resort may be had to the capta stock ta reguatons. It s
stated n those reguatons that the term busness s very comprehen-
sve and embraces whatever occupes the tme, attenton, or abor of
men for proft. ( rtce 42 of Reguatons 64.) It s aso stated n
the capta stock ta reguatons that n genera dong busness n-
cudes any actvtes of corporatons such as (3) easng or manag-
ng propertes, coectng rents or royates. ( rtce 43, Regua-
tons 64.) The determnaton whether a foregn corporaton s carry-
ng on or dong busness n the Unted States wthn the meanng of
the ct depends upon the partcuar facts of each case. ( rtce 62,
Reguatons 64.) The mere ownershp of property tsef s not suff-
cent to consttute engagng n trade or busness. It has been hed
that a company whose actvtes conssted of managng rea estate
and rentng offces was dong busness or engagng n busness.
( nt v. Stone Tracy Co., 220 U. S., 107.) On the other hand, t has
been hed that a raroad company whch eased ts entre raroad
for a term of years at an annua renta was not engagng n busness.
(McCoach v. Mneh, etc., supra.) It has aso been hed that where
a corporaton s actvtes were confned to the snge purpose of pur-
chasng and ownng an apartment house for the beneft of ts stock-
hoders so that they mght own ther apartments, the corporaton was
not dong busness. (Stafford Owners, Inc., v. Unted States, 39 ed.
(2d), 743.) ut a corporaton organzed to purchase, hod, ease, and
se rea estate was dong busness where t acqured coa and n
e change for stock and bonds and eased the and to another corpora-
ton. (Morrsdae Land Co. v. Unted States, 66 Ct. Cs., 701.)
In nt v. Stone Tracy Co., supra, whch arose under the ct of
ugust 5,1909 (36 Stat., 11), mposng a corporaton e cse ta upon
carryng on or dong busness, t was stated n part as foows:
It remans to consder whether these corporatons are engaged n
busness. usness s a very comprehensve term and embraces everythng
about whch a person can be empoyed. ( ack s Law Dctonary, 15S, ctng
Peope v. Commssoners of Ta es, 23 N. Y., 242, 244.) That whch occupes
the tme, attenton, and abor of men for the purpose of a vehood or proft.
(1 ouver s Law Dctonary, voume 1, page 273.)
We thnk t s cear that corporatons organzed for the purpose of dong
busness, and actuay engaged n such actvtes as easng property, coectng
rents, managng offce budngs, makng nvestments of profts, or easng ore
ands and coectng royates, managng wharves, dvdng profts, and n some
cases nvestng the surpus, are engaged n busness wthn the meanng of ths
statute, and n the capacty necessary to make such organzatons sub|ect to
the aw.
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5143, rt. 143-1.
144
In McCoach v. Mneh, etc., supra, whch aso arose under the ct
of ugust 5, 1909, the Court stated that the mere recept of ncome
from property dd not consttute engagng n busness and com-
mented as foows:
The dstncton s between (a) the recept of ncome from outsde
property or nvestments by a company that s otherwse engaged n busness
n whch event the nvestment ncome may be added to the busness ncome n
order to arrve at the measure of the ta and (6) the recept of ncome from
property or nvestments by a company that s not engaged n busness e cept
the busness of ownng the property, mantanng the nvestments, coectng
the ncome and dvdng t among ts stockhoders. In the former case the ta
Is payabe n the atter not.
The above quoted e tracts from the opnons rendered by the
Supreme Court may be accepted as a gude n determnng what acts
n connecton wth the ownershp of ncome-producng rea property
consttute engagng n busness. Generay, any actvtes beyond
the mere recept of ncome from property, and the payment of
organzaton and admnstraton e penses ncdenta to the recept
and dstrbuton thereof McCoach v. Mneh, etc.) consttute
carryng on or dong busness wthn the meanng of secton
105(b) of the Revenue ct of 1935, as amended, reatng to capta
stock ta , and engagng n trade or busness wthn the meanng
of sectons 211(b) and 231(b) of the Revenue ct of 1936, reatng
to ncome ta .
Where a foregn corporaton or a nonresdent aen ndvdua
operates busness rea property n the Unted States for the purpose
of proft, whether through an agent or otherwse, such actvtes
consttute engagng n trade or busness wthn the Unted States.
In the case of a foregn corporaton so engaged n trade or busness
wthn the Unted States, the ncome s not sub|ect to wthhodng,
and the corporaton s ta abe at the rate of 22 per cent on ts net
ncome, provded a return s fed as requred by the ct otherwse
the ta s based on gross ncome. nonresdent aen ndvdua
who owns or operates an apartment house or offce budng for the
purpose of gan or proft s engaged n trade or busness wthn the
Unted States but the renta ncome s sub|ect to wthhodng. Such
ndvdua may receve the beneft of the deductons to whch he s
entted n connecton wth the operaton of the budng provded
he fes a true and accurate return of hs ncome from a sources
wthn the Unted States. s ndcated above, however, the mere
ownershp of rea property n the Unted States by a nonresdent
aen ndvdua or foregn corporaton does not n tsef consttute
engagng n trade or busness wthn ths country.
MO ISON S ROT ,
Chef Counse, ureau of Interna Revenue.
rtce 143-1: Wthhodng ta at source.
R NU CT O 1936.
mendment of Reguatons 94, artce 143-1. (See T. D. 4759.
page 117.)
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145
143, rt. 143-1.
rtce 143-1: Wthhodng ta at source.
( so Secton 144, rtce 144-1.)
I-42-8983
Mm.4672
Wthhodng rates under the Revenue ct of 1936 and the recp-
roca ta conventon between the Unted States and Canada.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, October 9,1937.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
There s gven beow for your nformaton and convenence a tabe
of the wthhodng rates of ncome ta under the Revenue ct of
1936 and the recproca ta conventon between the Unted States and
Canada whch was ratfed ugust 13, 1937:
Casses of ta payers.
Corporate bond nterest.
Wth ta -free cove-
nant and ssued
before an. 1, 1834.
If corpo-
raton
over 2
per cent
of the ta .
If corpo-
raton
not over
2 per cent
of the a .
Wthout
ta -free
covenant
or ssued
on or after
an. 1.
1934, wth
ta -free
covenant.
Dv-
dends
from do-
mestc
corpora-
ton.
Dvdends
from for-
egn cor-
poraton
mentoned
n artce
143-1 of
Regua-
tons 94.
Saary
or other
compen-
saton for
persona
servces.
Other f ed
or deter-
mnabe
annua or
perodca
ncome
from
sources
wthn the
Unted
States
1. Ctzen or resdent
ndvdua, fdu-
cary, or partner-
shp
2. Nonresdent aen
ndvdua, fdu-
cary, or partner-
shp (e cept as
shown n ne 3
beow)
3. Nonresdent aen
ndvdua, fdu-
cary, or partner-
shp resdent of
Canada
4. Domestc corpora-
ton or resdent
foregn corpora-
ton .
6. Nonresdent for-
egn corporaton
(e cept as shown
n ne 6 beow)..
6. Nonresdent for-
egn corporaton
organzed under
the aws of
Percent.
2
Per cent.
Per cent.
Per cent.
Per cent.
Per cent.
Percent.
10
10
10
no
10
7. Unknown owner.
15
10
15
15
Saary or compensaton for persona servces rendered n the Unted States s not sub|ect to wthhodng
n the case of nonresdent aens, resdents of Canada or Me co, who enter and eave the Unted States at
frequent ntervas.
The recproca ta conventon between the Unted States and
Canada s effectve anuary 1, 1936, and the reguatons wth respect
thereto are contaned n Treasury Decson 4766, approved October 7,
1937 page 158, ths uetn .
Correspondence and nqures regardng ths mmeograph shoud
refer to ts number and the symbos IT: CTR.
Chas. T. Russe,
ctng Commssoner.
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143, rt. 143-1.
146
rtce 143-1: Wthhodng ta at source.
R NU CT O 1936.
Reguatons to carry nto effect the recproca ta conventon
between Unted States and Canada. (See T. D. 4766, page 158.)
rtce 143-1: Wthhodng ta at source. I-49-9072
L T. 3142
R NU CT O 1936.
The entre amount of Interest pad to the hoders of the bonds
of the SI Company ssued before anuary 1, 1934, ncudng nter-
est pad on notes attached to and sod wth the bonds pursuant to
a resouton of the board of drectors passed n 1921. s sub|ect to
wthhodng under the provsons of secton 143(a) of the Revenue
ct of 1936.
dvce s requested concernng the abty of the M Company to
deduct ncome ta at the source wth respect to addtona nterest
of per cent pad upon the rst and Refundng Mortgage Per
Cent Thrty-Year God onds wch were ssued pror to anuary
1, 1934.
Under trust ndenture of May , 1914, the company covenants
that t w prompty pay the prncpa of the oans secured thereby
wthout deducton for any ta (ncudng edera ncome ta ), as-
sessment, or governmenta charge whch the company or ts suc-
cessors or assgns, or the trustees or ether of them, may be requred
to pay by reason of any present or future aw of the Unted States,
State, Terrtory, county, or muncpaty theren and that upon or
pror to the date upon whch each nstament of nterest upon the
bonds becomes due the company w depost wth the trustee the
entre amount necessary to enabe the trustee to pay the nterest due
on a the bonds certfed and outstandng wthout any deducton
for ta es or other governmenta charge. The bond tsef contans
the foowng provsons:
oth prncpa and nterest of ths bond are payabe wthout deduc-
ton for ta es, assessments or governmenta charges whch the company or ts
successors or assgns, or the trustees herenafter mentoned, or ether of them,
may be requred to pay or to deduct or retan therefrom under or by reason
of any present or future aw of the Unted States of merca, or of any State,
Terrtory, county or muncpaty theren, ncudng any edera ncome ta
whch the company may be obged to retan or deduct. In so far as the company
may now or hereafter awfuy so covenant.
Under a resouton of the board of drectors dated ugust , 1921,
t was stated that whereas t was mpossbe to se the per cent
bonds of the company at satsfactory prces under present fnanca
condtons
Therefore, be t resoved, That the offcers of the company be and they here-
by are authorzed and drected to attach to and se wth the bonds of the
company, for as ong a perod of tme as condtons may warrant, coupon
notes of the company bearng nterest at per cent per annum, payabe per
cent semannuay to the maturty of the bonds, makng them n effect
per cent bonds.
Resoved further, That the acton of the offcers of the company n seng
per cent coupon notes wth pror ssues of bonds of the company be ratfed
and approved.
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147
143, rt. 143-1.
Secton 143(a) of the Revenue ct of 1936 provdes that n any
case where bonds, mortgages, or deeds of trust, or other smar
obgatons of a corporaton, ssued before anuary 1, 1934, contan
a contract or provson by whch the obgor agrees to pay any
porton of the ta mposed by ths tte upon the obgee, or to re-
mburse the obgee for any porton of the ta , or to pay the nterest
wthout deducton for any ta whch the obgor may be requred
or permtted to pay thereon, or to retan therefrom under any aw
of the Unted States, the obgor sha deduct and wthhod a ta
equa to 2 per cent of the nterest. The bond n the nstant case
comes squarey wthn the provsons of the statute.
Interest s defned as the prce or rate of premum per unt of
tme that s pad by a borrower for the use of what ho borrows
specfcay, a rate per cent of money pad for the use of money or
the forbearance of demandng payment of a debt. (Webster s In-
ternatona Dctonary.) The trust ndenture of May , 1914, and
the bond tsef provde for the payment of nterest on the bonds
wthout deducton for any ta es, assessments, or governmenta
charges, and the ta -free covenant n the bond s not mted to
per cent, the rate of nterest orgnay provded. The nterest on
the bonds n queston conssts not ony of the orgna per cent un-
der the trust ndenture and the terms of the bond, but aso the per
cent whch s pad n pursuance of the resouton of the board of drec-
tors passed n ugust, 1921. It s hed, therefore, that the tota
nterest payment at the rate of per cent (the amount pad by the
borrower for the use of what he borrows) s sub|ect to deducton of
ncome ta at the source n accordance wth the provsons of secton
143(a) of the Revenue ct of 1936.
rtce 143-1: Wthhodng ta at source. T-50-9086
I. T. 3144
R NU CT OP 1936.
Ctzens or resdents of the Unted States and corporatons
organzed under the aws of the Unted States are not sub|ect to
the wthhodng of an addtona ta of 5 per cent or 10 per cent
by Canadan nomnees and agents.
dvce s requested whether under the provsons of artces 4
and 8 of the reguatons (T. D. 4766, page 158, ths uetn) prescrbed
to carry nto effect the recproca ta conventon between the Unted
States and Canada, effectve anuary 1, 1936, Canadan nomnees and
agents shoud wthhod an addtona ta of 5 per cent or 10 per cent
from payees who are Unted States ctzens or resdents or Unted
States domestc corporatons.
rtce 4 of the above-mentoned reguatons provdes n part as
foows:
rt. 4. ddressee not actua owner. If the addressee n Canada s a nomnee
or agent through whom the ncome fows to a person who s not entted to
the reduced rate of 5 per cent, L e., a nonresdent aen ndvdua who s not
a resdent of Canada, or a nonresdent foregn corporaton not organzed under
the aws of Canada, the addressee n Canada from whom a ta of ony 5
per cent was wthhed, becomes n turn a wthhodng agent, and s requred
to wthhod an addtona ta of 5 per cent (10 per cent on ncome other than
dvdends receved for such foregn corporaton) before transmttng the ncome.
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144, rt. 144-1.
148
rtce 8 of the aforementoned reguatons provdes n part as
foows:
kt. 8. Returns fed by Canadan wthhodng agent . orm 1042 Is the
form to be prepared annuuy for the caendar year 1937 and each subsequent
caendar year by persons n Canada who receve for the account of any person
(other than a resdent of Canada or a corporaton organzed under the aws
of Canada) f ed or determnabe annua or perodca ncome from sources
wthn the Unted States whch s sub|ect to ta at the rate of 10 per cent
or 15 per cent, as the case may be, but from whch ony 5 per cent has been
wthhed as a resut of the conventon.
It s stated that the reference n artce 4 of the reguatons to
a person who s not entted to the reduced rate of 5 per cent, . e., a
nonresdent aen ndvdua who s not a resdent of Canada, or a
nonresdent foregn corporaton not organzed under the aws of
Canada ndcates that a ctzen or resdent of the Unted States
or a domestc corporaton s not ncuded and, therefore, a Canadan
wthhodng agent or nomnee apparenty woud not be requred to
wthhod any further ta . It s suggested that ths nterpretaton s
confrmed by artce 8 wheren t s stated for the account of any
person (other than a resdent of Canada or a corporaton organzed
under the aws of Canada) whch woud seem to ndcate, together
wth the words foowng, that a Unted States resdent s not sub|ect
to havng any ta wthhed by Canadan wthhodng agents.
The foregong nterpretaton of the anguage of artces 4 and
8 of the appcabe reguatons s correct. In other words, ctzens
or resdents of the Unted States and corporatons organzed under
the aws of the Unted States are not sub|ect to the wthhodng of
an addtona ta of 5 per cent or 10 per cent by Canadan nomnees
and agents.
rtce 143-3: empton from wthhodng.
R NU CT O 1030.
mendment of Reguatons 94, artce 143-3. (See T. D. 4759,
page 117.)
S CTION 144. P YM NT O CORPOR TION INCOM
T T SOURC .
rtce 144 1: Wthhodng n the case of nonresdent
foregn corporatons.
R NU CT O 1936.
Wthhodng on gross rentas derved from rea estate n the
Unted States owned by foregn corporatons. (See G. C. M. 18835,
page 141.)
rtce 144-1: Wthhodng n the case of nonresdent
foregn corporatons.
R NU CT O 1936.
Reguatons to carry nto effect the recproca ta conventon
between Unted States and Canada. (See T. D. 4766, page 158.)
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147, rt. 147-1.
rtce 144-1: Wthhodng n the case of nonresdent
foregn corporatons.
R NU CT O 1936.
Wthhodng rates under the Revenue ct of 1936 and the recp-
roca ta conventon between the Unted States and Canada. (See
Mm. 4672, page 145.)
S CTION 146. CLOSING Y COMMISSION R O
T L Y R.
rtce 146-1: Termnaton of the ta abe I-32-8863
perod by Commssoner. Mm. 4633
ens In transt through the Unted States.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, uy 26, 1937.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Secton 146(e) of the Revenue ct of 1936 provdes:
Departure of aen. No aen sha depart from the Unted
States uness he frst procures from the coector or agent n charge a certfcate
that he has comped wth a the obgatons mposed upon hm by the ncome,
war-profts, and e cess-profts ta aws.
Identca provsons are contaned n pror Revenue cts.
The above-quoted provson of aw s appcabe to aens wbo
are not abe to edera ncome ta and who are merey n transt
through the Unted States as we as to aens who are abe to
edera ncome ta . ny document whch such a transent aen can
e hbt to show that he s a tourst or merey n transt through the
Unted States w be suffcent, as under pror Revenue cts, to
permt the ssuance of a certfcate of compance under secton
146(e) of the Revenue ct of 1936, and the e amnaton of such
aen w be made at the per by the revenue offcer who s statoned
there. It w be unnecessary for an aen who s n transt through
the Unted States to go to the offce of the nterna revenue agent n
charge at the port of departure to obtan a certfcate of compance.
Inqures and correspondence regardng ths mmeograph shoud
refer to ts number and the symbos IT: CTR.
f Gut T. everng,
Commssoner.
S CTION 147. IN ORM TION T SOURC .
rtce 147-1: Return of nformaton as to pay- I-47-9055
ments of 1,000. Mm. 4689
Informaton return. orm 1C99, reportng wages earned but not
pad In same caendar year.
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147, rt. 147-1.
150
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, November 11, 1937.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
The ureau has receved a number of requests from corporatons,
chefy raroads, empoyng arge groups of ndvduas, for per-
msson (1) to report on nformaton returns, orm 1099, for the
caendar year 1937, wages earned by certan of ther empoyees dur-
ng the atter part of December, 1936, and pad durng 1937 and
the tota wages earned durng 1937, and (2) to report on orms 1099
for the caendar year 1938 and succeedng caendar years the amounts
of wages earned durng the year nstead of the wages pad durng tho
year.
It s stated that for 1936 and pror years the wages actuay pad
to certan empoyees durng the year were reported on orms 1099, so
that wages earned durng the atter porton of December and pad n
anuary of the foowng year were reported n the year foowng
that n whch earned. It s aso stated that snce records of wages are
requred to be kept on the bass of the caendar months wthn the
caendar year for the purposes of the soca securty ta returns and
the carrers ta returns, the change w enabe the empoyers to
prepare such returns and orms 1099 from one set of records.
Under the provsons of artce 147-1 of Reguatons 94, an nfor-
maton return, orm 1099, s requred to be fed by a persons mak-
ng payment to another person of f ed or determnabe ncome of
1,000 or more n any caendar year. The ast paragraph of that
artce provdes, that for purposes of a return of nformaton, an
amount s deemed to have been pad when t s credted or set apart
to the ta payer wthout any substanta mtaton or restrcton as
to the tme or manner of payment or condton upon whch payment
s to be made, and whch s made avaabe to hm so that t may be
drawn at any tme, and ts recept brought wthn hs own contro
and dsposton.
The ureau has gven permsson to the empoyers to report on
orm 1099 for the caendar year 1937 wages earned durng the atter
porton of December, 1936, and pad durng anuary, 1937, and
the wages earned durng the fu 12 months of 1937, provded that
n each case approprate notaton s made on the form.
It w be consdered a satsfactory compance wth the provsons
of artce 147-1 of Reguatons 94 f, for the caendar year 1938 and
subsequent caendar years, the empoyers report on orm 1099 wages
earned durng the caendar year n those cases n whch the ndvdua
empoyee s not pad hs wages earned n December unt the foow-
ng anuary. No notaton need be made on orm 109 ) n such cases.
Correspondence regardng ths mmeograph shoud refer to ts
number and to the symbos IT: CTR.
Gut T. everng,
Commssoner.
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151 166, rt. 166-1.
rtce 147-8: Cases where no return of nformaton requred.
R NU CT O 1936.
mendment of eguatons 94, artce 147-3. (See T. D. 4759,
page 117.)
SUPPL M NT . ST T S ND TRUSTS.
S CTION 166. R OC L TRUSTS.
rtce 166-1: Trusts, wth respect to the corpus of
whch, the grantor s regarded as remanng n
substance the owner.
R NU CT O 1930.
mendment of Reguatons 94, artce 166-1.
page 117.)
rtce 166-1: Trusts, wth respect to the
corpus of whch, the grantor s regarded as
remanng n substance the owner.
( so Secton 167, rtce 167-1.)
R NU CTS O 1934 ND 1936
On anuary 15, 1935, created a trust namng , C, D, and
as benefcares. The trust Instrument provdes that the trustee
sha receve and coect a dvdends on the stock of the M
Company transferred to the trust and pay such dvdends In equa
shares to the benefcares for ther respectve ves and that upon
the death of any benefcary the trust sha termnate as to hs one-
fourth share of the corpus, and such one-fourth share sha be
dstrbuted In the manner drected by the deceased benefcary In
hs ast w and testament. The donor reserves the rght to revoke
the trust by and wth the wrtten consent of , one of the bene-
fcares, at any tme upon 30 days pror notce n wrtng of hs
ntenton so to do. ed, so much of the trust Income for the
years 1935 and 1936 as reates to the nterests of the benefcares,
C, D, and , s ta abe to the grantor.
dvce s requested whether a certan trust s wthn the scope of
ether secton 166 or 167 of the Revenue cts of 1934 and 1936 so
as to make any part of the ncome of the trust ta abe to the grantor.
The trust under consderaton was created by on anuary 15,
1935, namng the T Company as trustee and transferrng to the
trustee 1,000 shares of common stock of the M Company. The trust
nstrument provdes that the trustee sha receve and coect a
dvdends on the stock and pay such dvdends n equa shares to
, C, D, and for ther respectve ves, and that upon the death
or any benefcary, the trust sha termnate as to a one-fourth share
of the corpus, and such one-fourth share sha be dstrbuted n the
manner drected by each such deceased benefcary n hs ast w
(See T. D. 4759,
I-39-8943
G. C. M. 19113
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166, rt. 166-1.
152
and testament. Provson s aso made for dstrbuton of the corpus
n the absence of the e ercse of such powers of appontment. The
trust nstrument further provdes that:
bt. . The donor reserves the rght to revoke ths trust by and wth the
wrtten consent of at any tme upon 30 days pror notce In wrtng of
hs ntenton so to do devered to the trustee, whch notce may be waved.
The queston presented s whether ncome from the trust, or any
part thereof, for the years 1935 and 1936 s ta abe to ether as
the grantor of a revocabe trust under secton 166 of the Revenue
cts of 1934 and 1936, or as the grantor of a trust wthn the scope
of secton 167 of those cts. The answer to the queston depends
on the foowng consderatons frst, as to the e tent of the sub-
stantaty and confct of nterest n the corpus or ncome between
, the grantor, and , who n con|uncton wth the grantor has the
power to revoke, and second, as to the e tent of the power reserved
by the grantor.
In connecton wth the ta abty of the trust under secton 166
of the evenue cts of 1934 and 1936, that secton provdes:
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 nterest n the dsposton of such part of the corpus or
the ncome therefrom, or
(2)
then the ncome of such part of the trust sha be ncuded In computng the
net ncome of the grantor. Itacs supped.
rtce 166-1 (as amended) of Reguatons 86 and artce 166-1
of Reguatons 94, as amended by Treasury Decson 4759 (page 117,
ths uetn), provde n part as foows:
person may have an nterest that s both substanta and adverse to the
grantor In the dsposton of ony part of the corpus or the ncome therefrom.
If the power to revest tte In the grantor s vested n hm n con|uncton wth
such person, or Is vested soey n such person, there s to be e cuded h
computng the net ncome of the grantor ony the ncome of such part
It seems cear from the above-quoted provsons of the statute that,
n so far as the substantaty and confct of nterest between , the
grantor, and s concerned, the trust must bo scrutnzed wth regard
to s contro over, and adverse nterest n, the component parts
of the trust or the ncome therefrom rather than the trust n ts
entrety. That s, whether , the grantor, has the requste contro
over any part of the corpus must be determned by the substantaty
and confct of nterest between hm and n that part of the corpm
or the ncome therefrom. though , who may revoke the trust n
con|uncton wth , the grantor, may have a substanta adverse
nterest n one part of the corpus or ncome therefrom, such an
nterest does not, n the opnon of ths offce, quafy hm as a sub-
stantay and adversey nterested person n any otner part of tb
corpus or the ncome therefrom, or n the trust as a whoe. In short,
under ths secton a trust may be part revocabe and part
rrevocabe for ncome ta purposes. (4 Pau and Mertens, Law
of edera Income Ta aton, secton 34.149 at page 186.) Thus,
f a trust s created, the ncome of whch s to be pad to one person
for fe, and then over to others, the grantor reservng the power to
revoke the trust nstrument n con|uncton wth the fe tenant, t
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153
166, rt. 106-1.
s obvous that as to the remanderman s nterest the grantor n con-
|uncton wth a person not benefcay nterested theren can revoke
and the trust woud be wthn the scope of secton 166 as to such
remanderman s nterest. ( See generay Davd . Lt et a. v. Com-
mssoner, 28 . T. ., 853, affrmed, 72 ed. (2d), 551, nvovng
edera estate ta , where the grantor n con|uncton wth the fe
benefcary coud revoke the remander estate, and Carence U.
Mackay et a. v. Commssoner, 33 . T. ., 765, where the grantor
n con|uncton wth the remanderman coud revoke the fe tenant s
nterest.) Consderatons smar to those noted n the case of suc-
cessve nterests (. e., fe tenant and remanderman) are appcabe
n the case of concurrent nterests (. e., severa fe benefcares
sharng concurrenty n a gven estate). ccordngy, f a trust s
created, the ncome of whch s to be pad to severa fe benefcares,
and the grantor reserves the power to revoke n con|uncton wth
one of the benefcares, that benefcary does not have a substanta
adverse nterest n that part of the corpus or the ncome therefrom
n whch the other benefcares are nterested. In the nstant case,
n so far as the substantaty and confct of nterest between , the
grantor, and s concerned, t appears that , the benefcary havng
power to revoke n con|uncton wth , has a substanta adverse
nterest n ony one-fourth of the trust corpus and the ncome
therefrom, and does not have a substanta adverse nterest n so
much of the corpus or ncome as reates to C, D, and .
There remans to be consdered the e tent of the power reserved n
the trust nstrument by whch tte to the corpus of the trust may
be revested n the grantor, . e., whether tte to so much of the corpus
as reates to the nterest of C, D, and may be revested n the
grantor. In ths connecton, t shoud be noted that a genera power
of revocaton ncudes by mpcaton the power partay to revoke
the trust. (4 ogert, Trusts and Trustees, secton 996 at page 2909
26 R. C. L., 1206 ooth et a. v. Oakand ank of Savngs, 122 Ca.,
19. 54 Pac, 370.) s stated by the mercan Law Insttute n the
Restatement of the Law of Trusts (voume 2, secton 330, at page 998,
et seq.)
n. Parta revocaton. r.y the terms of the trust the settor may reserve
a power to revoke the trust as to a part of the property. It Is a queston
of nterpretaton whether a provson reservng power to revoke the trust
ncudes a power to revoke t by wthdrawng a part of the trust property
from the trust. Ordnary a power to revoke the trust tc he nterpreted
as ncudng a power to revoke the trust n part hy cthdrauvn a part of
the trust property from the trust. If, however, t Is provded by the terms of
the trust that the settor sha have power to revoke the trust ony as a whoe
or as an entrety, he can not revoke the trust n part. Itacs supped.
Thus, where a paro trust was sustaned by the necessary proof
and the terms thereof were orgnay n favor of one benefcary,
further evdence was admtted to ndcate that the trust had been
partay revoked so as to provde nstead for severa benefcares,
and t was assumed as a matter of aw that ths was a vad e er-
cse of the retaned power to revoke the trust. (Russe s rs v.
Passmore, 103 S. ., 652.) Where the grantor conveyed varous
propertes n trust reservng the rght to se such property, and
where by warranty deed the grantor ater transferred certan of
77964 38 6
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166, rt. 166-1.
104
the property ncuded wthn the trust, t was hed that the reserva-
ton of a power of sae s equvaent to a power of revocaton and
that the grantor e ercsed that power by transferrng part of the
and, whch transfer operated as a parta revocaton of the trust
(Sms et a. v. rawn, 158 S. W-, 624. Cf. Stevens v. Mugan,
167 Mass., 84, 44 N. ., 1086.) Snce, n the nstant case, there
s nether an e press mtaton n the trust nstrument on the power
of (the grantor) and (a benefcary) partay to revoke the
trust nor any provson of oca aw so mtng such revokng
power, t s apparent that the prevang rue (vz, that a power to
revoke w ordnary be nterpreted as ncudng a power to revoke
n part s appcabe to the facts of ths case.
In vew of the foregong, t s the opnon of ths offce that as
to that part of the corpus of the trust whch reates to C, D, and ,
the trust s wthn the scope of secton 166 of the Revenue cts of
1934 and 1936, because , the person n con|uncton wth whom the
grantor may revoke the trust, does not have a substanta adverse
nterest n so much of the corpus or ncome of the trust as reates
to C, D, and , and as a matter of aw a genera power of revoca-
ton ncudes the power to revoke n part. In the nstant case no
factor s present to ndcate any mtaton n ths regard on the
reserved power. ccordngy, as to that part of the trust corpus
whch reates to C, D, and , the grantor s empowered to revoke
n con|uncton wth a person not havng a substanta adverse
nterest n such part of the corpus or ncome.
In regard to the ta abty of the trust ncome under secton 167,
athough trust ncome, n whoe or n part, may be regarded as
ta abe to the grantor under secton 166, such ncome may sm-
ary be regarded as ta abe to the grantor under secton 167. snce
these sectons (. e., secton 166 and secton 167) are not mutuay
e cusve and n many nstances overap. That s, The grantor
may be ta abe ether because of hs contro over the corpus or over
the ncome, or hs contro over both corpus and ncome Itacs
supped. (4 Pau and Mertens, supra, at page 187.) or ths
reason, t s necessary to consder the appcabty of secton 167 to
the nstant case.
Secton 167 provdes n part that:
(a) Where any part of the Income of a trust

(2) may, In the dscreton of the grantor or of any person not havng a
substanta adverse nterest n 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.
It s further provded n that secton that the term n the ds-
creton of the grantor means n the dscreton of the grantor,
ether aone or n con|uncton wth any person not havng a sub-
stanta adverse nterest n the dsposton of the part of the ncome
n queston. (See secton 167(b).)
rtce 167-1 (subdvson (b)) of Reguatons 86 and 94, as
amended by Treasury Decson 4759 (page 117, ths uetn), provdes
n part that:
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155
166, rt. 166-1.
person may have an Interest that Is both substanta and adverse to the
grantor In the dsposton of ony part of the Income. There s to be e cuded
n computng the net ncome of the grantor ony that part of the trust
ncome n the dsposton of whch such person has a substanta nterest
adverse to the grantor.
It s apparent that under secton 1G7 a trust may be wthn the
scope of the secton as to part of the ncome and wthout the scope
of the secton as to the remander of the ncome. In ths connecton
the dscusson above under secton 1C6 reatve to the substantaty
and confct of nterest between , the grantor, and n the trust
corpus or ncome s pertnent. Thus, the concuson reached that
does not have a substanta adverse nterest n so much of the
corpus or ncome of the trust as reates to C, D, or may be as-
sumed n the consderaton of ths case under secton 167.
The queston to be consdered, then, s whether the power re-
served by , the grantor, to be e ercsed n con|uncton wth s
such as s contempated by the provsons of secton 167. s nd-
cated above, the grantor has reserved a genera power of revocaton
to be e ercsed n con|uncton wth . It s we setted that such a
power of revocaton ncudes by mpcaton, n addton to the power
partay to revoke the trust, the power to ater or amend the trust.
(See ogert, op. ct., supra.) In ths connecton the Restatement
(op. ct., supra, secton 331 at page 1001) reads n part as foows:
(g) Whether power to revoke ncudes power to modfy. It s a queston
of nterpretaton to be determned n vew of the anguage used and a the
crcumstances whether a power to revoke the trust ncudes a power to
modfy. Ordnary a genera power to revoke the trust w he nterpreted
as authorzng the settor not ony to revoke the trust n part by wthdrawng
a part of the trust property from the trust (see secton 330, Comment n),
bat aso to modfy the terms of the trust, and t w be unnecessary for the
settor frst to revoke the trust and then to create a new trust
Itacs supped.
Snce, wth respect to the reserved power, there s no mtaton
ether n the trust nstrument or n the oca aw as to the rght
of the grantor and to e ercse that power or the manner n whch
t may be e ercsed, the prevang rue (vz, that a power to revoke
ordnary ncudes the power to ater and amend) s appcabe n
the nstant case.
It s the opnon of ths offce, therefore, that the trust s aso wthn
the scope of secton 167 of the Revenue cts of 1934 and 1936, be-
cause as a matter of aw a genera power of revocaton ncudes a
power to ater, amend, or modfy, whch fact s present n the n-
stant case, and the person n con|uncton wth whom the grantor
may ater or modfy the trust does not have a substanta adverse
nterest n so much of the corpus or ncome as reates to C, D,
and . ccordngy, as to that part of the trust ncome the grantor
n con|uncton wth one not adversey nterested theren has the
dscreton to have such ncome dstrbuted to the grantor.
In vew of the foregong, t s hed that so much of the trust
ncome for the years 1935 and 1936 as reates to the nterests of
C, D, and shoud be ta ed to the grantor.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue
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211, rt. 211-7. 156
S CTION 167. INCOM OR N IT O GR NTOR
rtce 167-1: Trusts n the ncome of whch the grantor
retans an nterest.
R NU CT O 1030.
mendment of Reguatons 94, artce 167-1. (See T. D. 4759,
page 117.)
rtce 167-1: Trusts n the ncome of whch the grantor
retans an nterest.
R NU CT O 1936.
Partay revocabe trust. (See G. C. M. 19113, page 151.)
SUPPL M NT G -INSUR NC COMP NI S.
S CTION 204(c). INSUR NC COMP NI S OT R T N
LI OR MUTU L: D DUCTIONS LLOW D.
rtce 204(c)-1: Deductons aowed nsurance companes
other than fe or mutua.
R NU CT O 1930.
mendment of Reguatons 94, artce 204(c)-. (See T. D. 4759,
page 117.)
SUPPL M NT NONR SID NT LI N INDI IDU LS.
S CTION 211. T ON NONR SID NT LI N
INDI IDU LS.
rtce 211-7: Ta aton of nonresdent aen I-30-8834
ndvduas. I. T. 3100
R NU CT O 1930.
n ancary admnstrator In the Unted States for the estate of
a nonresdent aen ndvdua not havng an offce or pace of bus-
ness n ths country, whose actvtes are confned to protectng,
conservng, and dsposng of the property of the estate and ds-
trbuton of the proceeds to the benefcares, must make a return
on orm 1O40N , ncudng ony f ed or determnabe annua or
perodca Income from sources wthn the Unted States.
dvce s requested by the M Trust Co., whch has been apponted
ancary admnstrator, c. t. a., of the estate of , reatve to fng a
return for the year 1936. It s stated that
The decedent, at hs decease, eft securtes n the Unted States whch were
converted nto cash by us as ancary admnstrator, c. t. a., durng the year
t O, at a proft. Interest and dvdends were coected. Decedent ded a res-
dent and sub|ect of a foregn country where hs estate w be prncpay admn-
stered. It s not known whether decedent eft any foregn assets or eft any
foregn ncome. The decedent had no offce or pace of busness n the Unted
States. The ureau s requested to defne the status of ths estate for the pur-
poses of ncome ta under the Revenue ct of 1936.
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.157
211, rt. 211-7.
The ast sentence of artce 142-6 of Reguatons 94, reatng to the
Revenue ct of 1936, provdes:
If the ancary representatve for the estate of a nonresdent aen s a
ctzen or resdent of the Unted States, and the domcary representatve s a
nonresdent aen, such ancary representatve Is requred to render the return
otherwse requred of the domcary representatve.
or edera ncome ta purposes, an ancary admnstrator n
the Unted States for the estate of a nonresdent aen s ta abe n
the same manner as the nonresdent aen ndvdua. Under secton
211 of the Revenue ct of 1936, nonresdent aen ndvduas are
dvded nto two casses (a) nonresdent aen ndvduas not en-
gaged 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 (b) 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. ( rtce 211-7,
Reguatons 94.) nonresdent aen ndvdua under cass (a)
must make (or have made) a return on orm 1040N wth respect
to that porton of hs ncome receved from sources wthn the
Unted States consstng of nterest on ta -free convenant bonds on
whch a ta of ony 2 per cent was wthhed at the source, and wth
respect to any other f ed or determnabe annua or perodca n-
come upon whch the ta was not fuy satsfed at the source, n-
cudng dvdends receved from a foregn corporaton whch are
treated as ncome from sources wthn the Unted States under sec-
ton 119(a)2( ) of the Revenue ct of 1936, and must pay the
baance of the ta shown to be due. nonresdent aen under cass
(6) must make (or have made) a true and accurate return on orm
1040 of hs ncome receved from a sources wthn the Unted
States.
It s hed that an ancary admnstrator n the Unted States for
the estate of a nonresdent aen ndvdua not havng an offce or
pace of busness n ths country, whose actvtes are confned to
protectng, conservng, and dsposng of the property of the estate
and the dstrbuton of the proceeds to the benefcares, s not en-
gaged n trade or busness wthn the Unted States wthn the
meanng of secton 211 of the ct. ccordngy, the M Trust Co.
as ancary admnstrator n the Unted States for the estate of
s requred to make a return on orm 1040N , ncudng theren
ony the ncome receved by the trust company consstng of nterest
and dvdends and other f ed and determnabe annua or perodca
ncome of the estate from sources wthn the Unted States.
rtce 211-7: Ta aton of nonresdent aen ndvduas.
R NU CT O 1936.
Wthhodng on gross rentas derved from rea estate n the
Unted States owned by nonresdent aen ndvduas. (See G. C.
M. 18835, page 141.)
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211, rt. 211-7.
158.
rtce 211-7: Ta aton of nonresdent aen I 2-8984
ndvduas. T.D.4766
( so Secton 231, rtce 231-1 Secton 143,
rtce 143-1 Secton 144, rtce 144-1.)
INCOM T .
Reguatons wth respect to the ta aton of nonresdent aen
Indvduas and foregn corporatons not engaged n trade or bus-
ness wthn the Unted States and not havng an offce or pace of
busness theren as affected by the recproca ta conventon be-
tween the Unted States and Canada, effectve anuary 1, 1930.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0,
To Coectors of Interna Revenue and Others Concerned:
Paragraph . The recproca ta conventon between the Unted
States and Canada whch was ratfed ugust 13, 1937, provdes as
foows:
btce I.
The hgh contractng partes mutuay agree that the ncome ta aton Imposed
In the two States sha be sub|ect to the foowng recproca provsons:
(o) The rate of ncome ta mposed by one of the contractng States, In
respect of ncome derved from sources theren, upon ndvduas resdng n the
other State, who are not engaged n trade or busness n the ta ng State and
have no offce or pace of busness theren, sha not e ceed 5 per centum for
each ta abe year, so ong as an equvaent or ower rate of ncome ta aton s
mposed by the other State upon ndvduas resdng n the former State who
are not engaged n trade or busness n such other State and do not have an
offce or pace of busness theren.
( ) The rate of ncome ta mposed by one of the contractng States, n
respect of dvdends derved from sources theren, upon nonresdent foregn
corporatons organzed under the aws of the other State, whch are not engaged
n trade or busness n the ta ng State and have no offce or pace of busness
theren, sha not e ceed 5 per centum for each ta abe year, so ong as an
equvaent or ower rate of ncome ta aton on dvdends s mposed by the
other State upon corporatons organzed under the aws of the former State
whch are not engaged n trade or busness n such other State and do not have
an offce or pace of busness theren.
(c) ther State sha be at berty to ncrease the rate of ta aton prescrbed
by paragraphs (a) and (6) of ths artce, and n such case the other State sha
be reeased from the requrements of the sad paragraphs (a) and (6).
( t) ffect sha be gven to the foregong provsons by both States as and
from the 1st day of anuary, 1936.
btc-e II.
The provsons of ths conventon sha not appy to ctzens of the Unted
States of merca domced or resdent n Canada.
rtce III.
Ths conventon sha be ratfed and sha take effect mmedatey upon the
e change of ratfcatons whch sha take pace at Washngton as soon as
possbe.
Sgned, n dupcate, at Washngton by the duy authorzed representatves of
Canada and the Unted States of merca, ths 30th day of December, n the
year of our Lord, one thousand nne hundred and thrty-s .
Par. . Secton 211(a) of the Revenue ct of 1936 provdes:
No Unted States busness or offce. There sha be eved, coected, and pad
for each ta abe year, n eu of the ta mposed by sectons 11 and 12, upon
the amount receved, by every nonresdent aen ndvdua not engaged n trade
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159
5211, rt. 211-7.
or busness wthn the Unted States and not havng an offce or pace of busness
theren, from sources wthn the Unted States as nterest (e cept nterest on
deposts wth persons carryng on the bankng busness), dvdends, rents,
saares, wages, premums, annutes, compensatons, remuneratons, emou-
ments, or other f ed or determnabe annua or perodca gans, profts, and
ncome, a ta of 10 per centum of such amount, e cept that such rate sha be
reduced, n the case of a resdent of a contguous country, to such rate (not
ess than 5 per centum) as may be provded by treaty wth such country.
Secton 501 of the Revenue ct of 1937 provdes:
(a) Secton 211(a) of the Revenue ct of 1936 s amended by addng at the
end thereof a new sentence to read as foows: The ta mposed by ths sub-
secton sha not appy to any ndvdua f the aggregate amount receved durng
the ta abe year from the sources above specfed s more than 21,600.
(b) Secton 211 of the Revenue ct of 1936 s further amended by addng
at the end thereof a new subsecton to read as foows:
(c) No Unted States busness or offce and gross ncome of more than
t1,600. nonresdent aen ndvdua not engaged n trade or busness wthn
the Unted States and not havng an offce or pace of busness theren who has
a gross ncome for any ta abe year of more than 21,600 from the sources spec-
fed n subsecton (a), sha be ta abe wthout regard to the provsons of
subsecton (a), e cept that
(1) The gross ncome sha ncude ony ncome from the sources spec-
fed n subsecton (a) and
(2) The deductons (other than the so-caed chartabe deducton pro-
vded n secton 213(c)) sha be aowed ony f and to the e tent that they
are propery aocabe to the gross ncome from the sources specfed n
subsecton (a) and
(3) The aggregate of the norma and surta under sectons 11 and 12
sha, n no case, be ess than 10 per centum of the gross ncome from the
sources specfed n subsecton (a).
(c) The amendments made by subsectons (a) and (b)
(1) Sha appy ony to ta abe years begnnng after December 31, 1936
and
(2) Sha not appy to a resdent of a contguous country so ong as there
s In effect a treaty wth such country (ratfed pror to the date of the
enactment of ths ct) under whch rates of ta under secton 211(a),
pror to ts amendment by subsecton (a), were reduced.
Par. C. Secton 231(a) of the Revenue ct of 1936 provdes:
Nonresdent corporatons. There sha be eved, coected, and pad for each
ta abe year, n eu of the ta mposed by sectons 13 and 14, upon the amount
receved by every foregn corporaton not engaged n trade or busness wthn
the Unted States and not havng an offce or pace of busness theren, from
sources wthn the Unted States as Interest (e cept nterest on deposts wth
persons carryng on the bankng busness), dvdends, rents, saares, wages,
premums, annutes, compensatons, remuneratons, emouments, or other f ed
or determnabe annua or perodca gans, profts, and ncome, a ta of 15 per
centum of such amount, e cept that n the case of dvdends the rate sha be
10 per centum, and e cept that n the case of corporatons organzed under the
aws of a contguous country such rate of 10 per centum wth respect to dvdends
sha be reduced to such rate (not ess than 5 per centum) as may be provded
by treaty wth such country.
Par. D. Secton 143 (a) of the Revenue ct of 193G provdes n part:
T - R CO N NT ONDS.
(1) Requrement of wthhodng. In any case where bonds, mortgages, or
deeds of trust, or other smar obgatons of a corporaton, ssued before
anuary 1, 1C34, contan a contract or provson by whch the obgor agrees to
pay any porton of the ta mposed by ths tte upon the obgee, or to rem-
burse the obgee for any porton of the ta , or to pay the nterest wthout
deducton for any ta whch the obgor may be requred or permtted to pay
thereon, or to retan therefrom under any aw of the Unted States, the obgor
sha deduct and wthhod a ta equa to 2 per centum of the nterest upon
such bonds, mortgages, deeds of trust, or other obgatons, whether such
nterest s payabe annuay or at shorter or onger perods, f payabe to an
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211, rt. 211-7.
160
ndvdua, a partnershp, or a foregn corporaton not engaged n trade or
busness wthn the Unted States and not havng any offce or pace of busness
theren: Provded, That f the abty assumed by the obgor does not e ceed
2 per centum of the nterest, then the deducton and wthhodng sha be at
the foowng rates: ( ) 10 per centum n the case of a nonresdent aen
ndvdua (e cept that such rate sha be reduced, n the case of a resdent
of a contguous country, to such rate, not ess than 5 per centum, as may be
provded by treaty wth such country), or of any partnershp not engaged n
trade or busness wthn the Unted States and not havng any offce or pace
of busness theren and composed n whoe or n part of nonresdent aens,
( ) n the case of such a foregn corporaton, 15 per centum, and (C) 2 per
centum In the case of other ndvduas and partnershps: Provded further.
That f the owners of such obgatons are not known to the wthhodng agent
the Commssoner may authorze such deducton and wthhodng to be at the
rate of 2 per centum, or, f the abty assumed by the obgor does not e ceed
2 per centum of the nterest, then at the rate of 10 per centum.
Par. . Secton 143(b) of the Revenue ct of 1936 provdes:
Nonresdent aens. persons, n whatever capacty actng, ncudng
essees or mortgagors of rea or persona property, fducares, empoyers, and a
offcers and empoyees of the Unted States, havng the contro, recept, custody,
dsposa, or payment of nterest (e cept nterest ou deposts wth persons
carryng on the bankng busness pad to persons not engaged n busness n the
Unted States and not havng an offce or pace of busness theren), dvdends,
rent, saares, wages, premums, annutes, compensatons, remuneratons, emou-
ments, or other f ed or determnabe annua or perodca gans, profts, and
Income (but ony to the e tent that any of the above tems consttutes gross
ncome from sources wthn the Unted States), of any nonresdent aen nd-
vdua, or of any partnershp not engaged n trade or busness wthn the
Unted States and not havng any offce or pace of busness theren and com-
posed n whoe or n part of nonresdent aens, sha (e cept n the cases pro-
vded for n subsecton (a) of ths secton and e cept as otherwse provded
n reguatons prescrbed by the Commssoner under secton 215) deduct and
wthhod from such annua or perodca gans, profts, and ncome a ta equa to
10 per centum thereof, e cept that such rate sha be reduced, n the case of a
nonresdent aen ndvdua a resdent of a contguous country, to such rate
(not ess than 5 per centum) as may be provded by treaty wth such country :
Provded, That no such deducton or wthhodng sha be requred n the case
of dvdends pad by a foregn corporaton uness (1) such corporaton s en-
gaged n trade or busness wthn the Unted States or has an offce or pace of
busness theren, and (2) more than 85 per centum of the gross ncome of such
corporaton for the 3-year perod endng wth the cose of ts ta abe year pre-
cedng the decaraton of such dvdends (or for such part of such perod as
the corporaton has been n e stence) was derved from sources wthn the
Unted States as determned under the provsons of secton 119: Provded
further, That the Commssoner may authorze such ta to be deducted and
wthhed from the nterest upon any securtes the owners of whch are not
known to the wthhodng agent. Under reguatons prescrbed by the Comms-
soner, wth the approva of the Secretary, there may be e empted from such
deducton and wthhodng the compensaton for persona servces of nonresdent
aen ndvduas who enter and eave the Unted States at frequent ntervas.
Par. . Secton 143(c) of the Revenue ct of 1936 provdes:
Return and payment. very person requred to deduct and wthhod any ta
under ths secton sha make return thereof on or before March 15 of each
year and sha on or before une 15, n eu of e tme prescrbed n secton 50,
pay the ta to the offca of the Unted States Government authorzed to receve
t. very such person s hereby made abe for such ta and s hereby n-
demnfed aganst the cams and demands of any person for the amount of any
payments made n accordance wth the provsons of ths secton.
Par. G. Secton 144(a) of the Revenue ct of 1936 provdes:
Genera rue. In the case of foregn corporatons sub|ect to ta aton under
ths tte 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 manner and upon the same tems of ncome
as s provded n secton 143 a ta equa to 15 per centum thereof, e cept that
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161
211, rt. 211-7.
In the case of dvdends the rate sha he 10 per centum, and e cept that n the
case of corporatons organzed under the aws of a contguous country such
rate of 10 per centum wth respect to dvdends sha be reduced to such rate
(not ess than 5 per centum) as may be provded by treaty wth such country
and such ta sha be returned and pad n the same manner and sub|ect to the
same condtons as provded n that secton: Provded, That n the case of
Interest descrbed n subsecton (a) of that secton (reatng to ta -free cove-
nant bonds) the deducton and wthhodng sha be at the rate specfed n
such subsecton.
Par. . Secton 322 of the Revenue ct of 1936 provdes n part:
(a) uthorzaton. Where there has been an overpayment of any ta m-
posed by ths tte, the amount of such overpayment sha be credted aganst
any ncome, war-profts, or e cess-profts ta or nstament thereof then due
from the ta payer, and any baance sha be refunded mmedatey to the
ta payer.
(b) Lmtaton on aowance.
(1) Perod of mtaton. Uness a cam for credt or refund s fed by
the ta payer wthn three years from the tme the return was ted by the
ta payer or wthn two years from the tme the ta was pad, no credt
or refund sha be aowed or made after the e praton of whchever of
such perods e pres the ater. If no return s fed by the ta payer, then
no credt or refund sha be aowed or made after two years from the tme
the ta was pad, uness before the e praton of such perod a cam
therefor s fed by the ta payer.
(2) Lmt on amount of credt or refund. The amount of the credt or
refund sha not e ceed the porton of the ta pad durng the three years
mmedatey precedng the rng of the cam, or, f no cam was fed, then
durng the three years mmedatey precedng the aowance of the credt
or refund.
Par. I. Sscton 1001 of the Revenue ct of 1936 provdes n part:
(a) When used n ths ct
(1) The term person means an Indvdua, a trust or estate, a
partnershp, or a corporaton.
(2) The term corporaton Incudes assocatons, |ont-stock com-
panes, and nsurance companes.
(3) The term partnershp ncudes a syndcate, group, poo, |ont
venture, or other unncorporated organzaton, through or by means of
whch any busness, fnanca operaton, or venture s carred on, and
whch Is not, wthn the meanng of ths ct, a trust or estate or a corpora-
ton and the term partner ncudes a member n such a syndcate,
group, poo, |ont venture, or organzaton.
(4) The term domestc when apped to a corporaton or partnershp
means created or organzed n the Unted States or under the aw of the
Unted States or of any State or Terrtory.
(5) The term foregn when apped to a corporaton or partnershp
means a corporaton or partnershp whch s not domestc.
(G) The term fducary means a guardan, trustee, e ecutor, ad-
mnstrator, recever, conservator, or any person actng n any fducary
capacty for any person.
(7) The term wthhodng agent means any person requred to
deduct and wthhod any ta under the provsons of secton 143 or 144.

(b) The terms ncudes and ncudng when used n a defnton con-
taned n ths ct sha not be deemed to e cude other thngs otherwse wthn
the meanng of the term defned.
Pursuant to the provsons of secton 62 of the Revenue ct of
1936 the foowng reguatons are hereby prescrbed to carry nto
effect the quoted provsons of the conventon between the Unted
States of merca and Canada, and a reguatons nconsstent here-
wth are modfed accordngy:
rtce 1. Rate of ta . The conventon was ratfed am became effectve
ugust 13, 1937. Under the terms of the conventon, the provsons of whch
are retroactve to anuary 1, 1936, the ta at the rate of 10 per cent mposed
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211, rt. 211-7.
162
y secton 211(a) Is reduced to 5 per cent wth respect to the amount receved
from sources wthn the Unted States as nterest (e cept nterest on deposts
wth persons carryng on the bankng busness), dvdends, rents, saares,
wages, premums, annutes, compensatons, remuneratons, emouments, or
other f ed or determnabe annua or perodca gans, profts, and ncome, by
every nonresdent aen ndvdua not engaged n trade or busness wthn
the Unted States and not havng an offce or pace of busness theren, pro-
vded he s a resdent of Canada.
Under the terms of the conventon the ta at the rate of 10 per cent mposed
by secton 231(a) s reduced to 5 per cent wth respect to the amount receved
from sources wthn the Unted States as dvdends, by every foregn corpora-
ton not engaged n trade or busness wthn the Unted States and not havng
an offce or pace of busness theren, provded t s organzed under the aws
of Canada..
rt. 2. Wthhodng n genera. The Items of ncome from sources wthn
the Unted States enumerated n sectons 211(a) and 231(a) are sub|ect to
the wthhodng provsons of sectons 143 and 144, at the rates specfed theren,
wth the e cepton that a tems of f ed or determnabe annua or perodca
ncome pad to nonresdent aen ndvduas who are resdents of Canada
(other than the compensaton for persona servces receved by such resdents
who enter and eave the Unted States at frequent ntervas) and dvdends
pad to nonresdent foregn corporatons whch are organzed under the aws of
Canada are sub|ect to wthhodng at the reduced rate of 5 per cent In gen-
era, the provsons of artce 143-1 to artce 143-9, and artces 144-1
and 144-2 of Reguatons 94 are appcabe n admnsterng the provsons of
the conventon.
rt. 3. Resdent of Canada or corporatons organzed under the aws of
Canada. or the purpose of wthhodng, every ndvdua addressee n
Canada (ncudng a nonresdent aen ndvdua, fducary, or partnershp)
sha be consdered by Unted States wthhodng agents as a resdent of
Canada, and every corporaton whose address s n Canada sha be consdered
by such wthhodng agents as a corporaton organzed under the aws of
Canada. These provsons reatve to Canadan resdents and Canadan
corporatons are based upon the assumpton that the payee s the actua
owner of the property from whch the ncome s derved and consequenty s
the person abe to the ta upon such ncome.
person recevng ncome whch s dstrbutabe to an organzaton e empt
from edera ncome ta under secton 101 of the Revenue ct of 1030 or
correspondng sectons of pror Revenue cts, sha be consdered merey a
condut through whch the ncome fows and not a ta abe entty. In pre-
parng ownershp certfcate. orm 1001, the person recevng the ncome shoud
make a notaton thereon substantay as foows: s ths organzaton has
been hed to be e empt from the payment of ncome ta by the Commssoner
of Interna Revenue under date of , the nterest on ths
certfcate s not sub|ect to wthhodng, gvng the date of the offca
etter In whch the organzaton was hed to be e empt. smar statement
made wth respect to other tems of f ed or determnabe annua or perodca
ncome whch are sub|ect to wthhodng w reeve the wthhodng agent
from abty to wthhod the ta .
rt. 4. ddressee not actua owner. If the addressee n Canada s a nomnee
or agent through whom the ncome fows to a person who s not entted to
the reduced rate of 5 per cent, . e., a nonresdent aen ndvdua who s
not a resdent of Canada, or a nonresdent foregn corporaton not organzed
under the aws of Canada, the addressee In Canada from whom a ta of ony
5 per cent was wthhed, becomes n turn a wthhodng agent, and s requred
to wthhod an addtona ta of 5 per cent (10 per cent on ncome other than
dvdends receved for such foregn corporaton) before transmttng the
ncome.
(a) ducares and partnershps. ducares and partnershps wth an
address n Canada are abe to have 5 per cent ncome ta deducted at
the source. If the fducary or partnershp s actng as a nomnee or agent
recevng the ncome for and on behaf of a person other than a resdent
of Canada or a corporaton organzed under the aws of Canada, an add-
tona ta of 5 per cent or 10 per cent, as the case may be, must be deducted
by such Canadan fducary or partnershp and remtted to the Unted States
Treasury. If the fducary or partnershp receves the Income In Its own
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163
211, rt. 211-7.
rght and dstrbutes ts ncome under a trust deed or partnershp agreement,
then no further ta In Canada need be dedtcted.
(6) Ta -free covenant bonds. No addtona wthhodng s requred wth
respect to nterest on so-caed ta -free covenant bonds ssued pror to anu-
ary 1, 1934, where the abty assumed by the obgor e ceeds 2 per cent but
under secton 143(a) of the Revenue ct of 1936 ony 2 per cent ncome ta
s requred to be wthhed at the source. n addtona ta of 5 per cent
or 10 per cent, as the case may be, s requred to be wthhed, however, by
Canadan wthhodng agents as above provded, (1) where the bonds were
Issued pror to anuary 1, 1934, and the abty assumed by the obgor
does not e ceed 2 per cent (2) where the bonds were ssued on or after
anuary 1, 1934, rrespectve of the abty assumed by the obgor (3)
where the bonds do not contan a ta -free covenant, regardess of the date
of ssue.
et. 5. Refund of e cess ta . though the hgher rates of ta mposed by
sectons 211(a) and 231(a) of the Revenue ct of 1936 were retroactve to
ncome receved on and after anuary 1, 1936, wthhodng at the hgher
rates of ta was not n effect unt uy 2, 1936. Consequenty, and snce
durng the perod anuary 1 to uy 1, 1936 (both dates ncusve), no ta
was deducted from dvdends pad to nonresdent aen ndvduas, the fu
amount of ta mposed was not wthhed at the source.
The foowng s a schedue of the rates of ta whch, n genera, were
requred to be wthhed durng the year 1936 from nonresdent aen ndvd-
uas, nonresdent partnershps, and nonresdent foregn corporatons:
Ta wthhed at source durng 1936 e pressed n percentages of the gross
amount of the ncome.
Perod an. 1- uy 1. 1936, both dates Incusve (under the Revenue ct of 1934
and that ct as amended by the Revenue ct of 1935).
Indvd-
uas and
partner-
shps.
Perod uy 2-Dec. 31,
1 36 (under the Reve-
nue ct of 1936).
Indvd-
uas and
partner-
shps.
nd of ncome.
Corporatons.
Corpora-
tons.
15 per cent of 10 per
cent (I percent).
Per cent.
None.
Per cent.
110
Per cent.
10
Corporate bond nterest:

15 per cent -_
4
2
15
2
10
2

D otber f ed or determnabe annua or

perodca ncome ncudng
Royates
4
15
O
Other nterest
11. onds Issued on or after anuary 1,1934, rrespectve of abty assumed by obgor.
2. onds Issued befoe anuary 1,1934, and abty assumed by obgor does not e ceed 2 per cent.
3. onds wthout ta -free covenant rrespectve of date of ssue.
1 onds ssued before anuary 1, 1934, and abty assumed by obgor e ceeds 2 per cent.
1 The wthhodng rates appcabe to ths knd of ncome are, by reason of the conventon, reduced to
5 per cent.
The ta mposed on such ncome s 5 per cent. The ta payer s abe for the dfference between 5 per
cent and the rate wthhed.
The ta Imposed on such ncome s 15 per cent. The ta payer s abe for the dfference between 15
per cent and the rate wthhed.
In cases where the ta pad (whether pad drecty or wthhed at the source)
Is n e cess of the ta due from the ta payer under the conventon, n order to
compute the ta propery t w be necessary for the ta payer to fe an ncome
ta return, orm 1W0N , for ndvduas and orm 1120N . for corporatons,
whether or not an ncome ta return for the year 1936 was ted. In cases where
a return has been fed for 1936, the return to be fed under these reguatons
shoud be marked mended. The ta payer s tota f rd or determnabe annua
or perodca ncome from sources wthn the Unted States for the year 1936
shoud be reported. In the case of ncome reported on orm 1040N , the ta
on the ncome shoud be computed at the rate of 5 per cent. In the case of
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211, rt. 211-7.
164
ncome reported on orm 1120N , a ta at the rate of 5 per cent shoud be
computed on the dvdends ony, a ta at the rate of 15 per cent beng computed
on the other tems of ncome reported on the return. Where there has been an
overpayment of ncome ta cam therefor on orm 843 shoud accompany
the return n order to protect the ta payers aganst the runnng of the statute
of mtatons provded by secton 322 of the Revenue ct of 1930. ny ta
pad for the year 1936 n e cess of that due from the owner of the ncome w
be refunded by the Unted States Government as requred by aw. Where
there s a defcency n ta notce thereof w be sent by the Unted States
Government.
rt. 0. Reease of e cess ta wthhed. very wthhodng agent sha m-
medatey reease to Canadan addressees (other than corporatons) any ncome
ta wthhed snce December 31, 1936, n e cess of 5 per cent, and n the case
of corporatons any ncome ta wthhed snce such date n e cess of 5 per cent
wth respect to dvdends. In such cases cams need not be fed wth the
wthhodng agent.
statement shoud be attached to annua wthhodng returns, orm 1013,
e panng the dscrepancy between the amount of the ta reported as wth-
hed on monthy returns, orm 1012, and the tota amount of such ta as shown
on orm 1013, resutng from the reease of ta n e cess of 5 per cent.
rt. 7. Return of ta wthhed from Canadan addressees. very Unted
States wthhodng agent sha make and fe wth the coector, In dupcate, an
nformaton return on orm 1042 , for the caendar year 1937 and each sub-
sequent caendar year, n addton to wthhodng return, orm 1042, wth
respect to the tems of ncome from whch a ta of ony 5 per cent was wthhed
from Canadan addressees. There sha be reported on orm 1042 not ony
such tems of ncome sted on orm 1042, but aso such tems of Interest
sted on monthy returns, orm 1012, ncudng Items of nterest where the
abty for wthhodng s ony 2 per cent. In the case of corporatons whose
addresses are wthn Canada, ony the f ed or determnabe ncome from sources
wthn the Unted States consstng of dvdends shoud be reported.
rt. 8. Returns fed by Canadan wthhodng agents. orm 1042 s the
form to be prepared annuay for the caendar year 1937 and each subsequent
caendar year by persons n Canada who receve for the account of any person
(other than a resdent of Canada or a corporaton organzed under the aws of
Canada) f ed or determnabe annua or perodca ncome from sources wthn
the Unted States whch s sub|ect to ta at the rate of 10 per cent or 15 per
cent, as the case may be, but from whch ony 5 per cent has been wthhed
as a resut of the conventon. nnua wthhodng return. orm 1042, shoud
be forwarded to the coector of nterna revenue, atmore, Md., accompaned
by the ta shown to be due In Unted States doars. n e tenson of tme to
une 15 s hereby granted to Canadan wthhodng agents n whch to fe
such returns.
Gt|y T. evernq,
Commssoner of Interna Revenue.
pproved October 7, 1937.
RoSW LL M GILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster October 9, 1937, 10.44 a. m.)
rtce 211-7: Ta aton of nonresdent aen I-45-9025
ndvduas. I. T. 3137
( so Secton 212, rtce 212-1 Secton 231,
rtce 231-3.)
R NU CT O 1936.
edgng transactons of nonresdent aen ndvduas and foregn
corporatons.
dvce s requested reatve to the abty of nonresdent aen
ndvduas and foregn corporatons to edera ncome ta on the
proft from hedgng transactons through brokers or other agents.
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165
211, rt. 211-7.
G. C. M. 17322 (C. . -2, 151 (1936)), nvovng a domestc
corporaton, n effect treats futures contracts whch represent hedges
aganst spot transactons or aganst concurrent futures or forward
saes or purchases as nsurance contracts and the gans thereon, to the
e tent they compensate for offsettng osses sustaned, as mere com-
pensaton for such os.-es whch woud otherwse be deductbe. That
s, such gans are, n effect, nsurance proceeds that represent compen-
saton for osses sustaned and become mportant for ncome ta
purposes ony through the consequent emnaton of such osses as
deductbe tems.
The basc ega concusons reached n G. C. M. 17322 (whch n-
voved a domestc corporaton) are, under G. C. M. 18383 (page
422, ths uetn), equay appcabe to foregn corporatons n
the absence of e press or mped statutory provsons dstngushng
between domestc and foregn corporatons. Whe gans from fu-
tures contracts to the e tent they merey compensate for osses on
transactons thereby hedged are not ncome, osses sustaned n the
Unted States by a foregn corporaton on hedgng transactons are
not deductbe. G. C. M. 17322 treats such osses as deductbe e -
nse tems n the case of a domestc corporaton. Secton 233 of the
evenue ct of 1932 condtons the aowance of deductons to foregn
corporatons upon the fng of returns showng tota ncome from
a sources wthn the Unted States, and, upon compance wth
such condtons, secton 232 mts such deductons to tems aocabe
o ncome from sources wthn the Unted States. Losses sustaned
n the Unted States on futures contracts consttutng hedges aganst
operatons abroad are e pense tems aocabe to the ncome arsng
from sources wthout the Unted States and are, therefore, not ava-
abe as deductons under secton 232 of the Revenue ct of 1932, a-
though a return s fed n compance wth secton 233 of that ct.
It was concuded n G. C. M. 18383 that gans of a foregn corpora-
on from hedgng contracts n the Unted States are ncome ony to
the e tent they e ceed the osses for whch they compensate, and that
osses on such hedgng contracts are nondeductbe e pense tems
aocabe to ncome from sources wthout the Unted States. There
s a dstncton, however, between hedgng transactons and specua-
tve transactons. Gans arsng from specuatve transactons rep-
resent ncome, whe deductons from osses sustaned thereon are
restrcted n the case of a foregn corporaton by sectons 232 and
233 of the Revenue ct of 1932.
though G. C. M. 18383, supra, deas wth a foregn corporaton,
the prncpes enuncated theren are equay appcabe n determn-
ng the treatment for edera ncome ta purposes of the proft
reazed by a nonresdent aen ndvdua or deductbe osses sus-
taned by hm n connecton wth hedgng transactons n the Unted
States. urthermore, whe G. C. M. 18383 nvoves the ta abty
of a foregn corporaton under the Revenue ct of 1932, t. s equay
appcabe n determnng the edera ncome ta abty of non-
resdent aen ndvduas and foregn corporatons under the Reve-
nue ct of 1934 and pror Revenue cts, whether or not the non-
resdent aen ndvduas or foregn corporatons are engaged n
trade or busness wthn the Unted States or have an offce or pace
of busness theren.
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212, rt. 212-2.
166
Under the Revenue ct of 1936, nonresdent aen ndvduas and
foregn corporatons are dvded nto two casses, (1) nonresdent
aen ndvduas and foregn corporatons not engaged n trade or
busness wthn the Unted States and not havng an offce or pace of
busness theren, and (2) nonresdent aen ndvduas and foregn
corporatons engaged n trade or busness n the Unted States or
havng an offce or pace of busness theren (sectons 211 and 231).
Nonresdent aen ndvduas and foregn corporatons fang wthn
the frst cass are not abe to edera ncome ta n connecton wth
hedgng transactons n the Unted States. (See artces 212-1 (a)
and 231-3(a) of Reguatons 94, pertanng to the ncome ta pro-
vsons of the Revenue ct of 1936.) Such e empton does not e -
tend, however, to nonresdent aen ndvduas and foregn corpora-
tons fang wthn the second cass as such nonresdent aen nd-
vduas and foregn corporatons are abe to edera ncome ta
n connecton wth ther hedgng transactons n the Unted States,
as provded n artces 212-1 (b) and 231-3(6), respectvey. In de-
termnng the edera ncome ta abty of such nonresdent aen
ndvduas and foregn corporatons under the Revenue ct of 1936
n connecton wth ther hedgng transactons n the Unted States,
the concusons reached n G. C. M. 18383, supra, are appcabe.
S CTION 212. GROSS INCOM .
rtce 212-1: Gross ncome of nonresdent aen
ndvduas.
R NU CT O 1936.
edgng transactons of foregn corporatons and nonresdent aen
ndvduas. (See I. T. 3137, page 164.)
rtce 212-2: cuson of earnngs of foregn I-32-S864
shps from gross ncome. I. T. 3104
R NU CT O 1030 ND TRIOR R NU CTS.
Norway, Great rtan, Denmark, and Greece satsfy the equva-
ent e empton provsons of secton 212(b) of the Revenue ct of
1936 and correspondng provsons of pror Revenue cts.
rtce 212-2: cuson of earnngs of foregn I-33-8876
shps from gross ncome. I. T. 3106
R NU CT O 1930.
rance and egum satsfy the equvaent e empton requrements
of secton 212(b) of the Revenue ct of 1936.
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167
231, rt. 231-1.
rtce 212-2: cuson of earnngs of foregn I-34-8885
shps from gross ncome. I. T. 3108
R NU CT OP 1836 ND PRIOR R NU CTS.
nand does not satsfy the equvaent e empton requrements of
secton 212(b) of the Revenue ct of 1936 and correspondng prov-
sons of pror Revenue cts.
SUPPL M NT I. OR IGN CORPOR TIONS.
S CTION 231. T ON OR IGN CORPOR TIONS.
rtce 231-1: Ta aton of foregn corporatons.
R NU CT O 1930.
Wthhodng on gross rentas derved from rea estate n the
Unted States owned by foregn corporatons. (See G. C. M. 18835,
page 141.)
rtce 231-1: Ta aton of foregn corporatons.
R NU CT O 1036.
Reguatons to carry nto effect the recproca ta conventon
between Unted States and Canada. (See T. D. 4766, page 158.)
rtce 231-3: Gross ncome of foregn corporatons.
R NU CT O 1936.
edgng transactons of foregn corporatons and nonresdent aen
ndvduas. (See I. T. 3137, page 164.)
rtce 231-4: cuson of earnngs of foregn I-44-9012
shps from gross ncome. I. T. 3134
R NU CTS O 1934 ND 1936.
Great rtan and Northern Ireand satsfy the equvaent e emp-
ton provsons of secton 231(b) of the Revenue ct of 1934 and
secton 231(e) of the Revenue ct of 1936.
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331, rt. 331-1. 168
SUPPL M NT P. OR IGN P RSON L OLDING COMP NI S.
S CTION 331. D INITION O OR IGN
P RSON L OLDING COMP NY.
rtce 331-1: Defnton of foregn persona I-50-9085
hodng company. T. D. 4782
INCOM T .
Reguatons 94 amended to accord wth Tte II of the Revenue
ct of 1937, reatng to foregn persona hodng companes.
Treasury Department,
Offce or Commssoner of Interna Revenue,
Washngton, . C.
To Coectors of Interna Revenue and Others Concerned:
Pursuant to the provsons of secton 62 of the Revenue ct of 1936
and Suppement P, added to that ct by secton 201 of Tte II of
the Revenue ct of 1937, approved ugust 26, 1937 (Pubc, No. 377,
Seventy-ffth Congress, chapter 815, frst sesson), Reguatons 94 are
amended by addng a new chapter after Chapter III, desgnated
Chapter I ,1 and provdng as foows:
Chapteb I .
OR IGN P RSON L OLDING COMP NI S.
SUPPL M NT P OR IGN P RSON L OLDING COMP NI S.
Sec. 202 (Revenue ct of 1937). ffectve date.
Suppement P of Tte I of the Revenue ct of 1936, added to such
ct by secton 201 of ths ct, sha not appy to a ta abe year (cther
of a sharehoder or of a foregn corporaton) endng on or before the date
of the enactment of ths ct and n no case sha the stock ownershp
requrement provded n secton 331(a) (2) of such suppement be sats-
fed uness a Unted States group (as theren denned) e sted wth
respect to the corporaton after the date of the enactment of ths ct.
If under secton 338 or 339 of such suppement the date on whch a
return s requred to be fed occurs pror to November 1, 1937, the return
sha be consdered as fed on tme f fed pror to December 1, 1937.
Sec. 201 (Revenue ct of 1937). Incuson n Income of Unted
States Sn OLU ts of Income of oregn Persona odng
Companes.
The Revenue ct of 1936 Is amended by addng after Suppement O
of Tte I a new suppement to read as foows:
sctement p foregn persona hodnd companes.
Sec. 331. Defnton of obecn Persona odng Company.
(a) Gf.nf.ra rue. or the purposes of ths tte and of Tte I
the term foregn persona hodng company means any foregn cor-
poraton f
(1) Grots ncome requrement. t east 60 per centum of ts
gross ncome (as defned In secton 334(a)) for the ta abe year
s foregn persona hodng company ncome as defned In secton
332 but f the corporaton s a foregn persona hodng company
Trrasnry Decson 4777, approved November 19. 1937 Trace 1C0 ths uetn ,
amended ernatons 94 by renumbeng e stng Chapters I and as Chapters
and I.
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169
331, rt. 331-1.
wth respect to any ta abe year, then, for each subsequent ta abe
year, the mnmum percentage sha be 50 per centum n eu of
60 per centum, unt a ta abe year durng the whoe of whch the
stock ownershp requred by paragraph (2) does not e st, or unt
the e praton of three consecutve ta abe years n each of whch
ess than 50 per centum of the gross ncome s foregn persona
hodng company ncome. or the purposes of ths paragraph
there sha be ncuded n the gross ncome the amount Incudbe
theren as a dvdend by reason of the appcaton of secton
334(c)(2) and
(2) Stock otencrshp requrement. t any tme durng the
ta abe year more than 50 per centum n vaue of ts outstandng
stock s owned, drecty or ndrecty, by or for not more than
fve ndvduas who are ctzens or resdents of the Unted States,
herenafter caed Unted States group.
(b) ceptons. The term foregn persona hodng company does
not ncude a corporaton e empt from ta aton under secton 101.
rt. 331-1. Defnton of foregn persona hodng company. foregn per-
sona hodng company s any foregn corporaton (other than a corporaton
e empt from ta aton under secton 101) whch for the ta abe year meets (a)
the gross ncome requrement specfed n artce 331-2, and (6) the stock
ownershp requrement specfed n artce 331-3. oth requrements must be
satsfed and both must be met wth respect to each ta abe year.
foregn corporaton whch comes wthn the cassfcaton of a foregn per-
sona hodng company for any ta abe year endng after the date of the enact-
ment of the Revenue ct of 1937, namey, ugust 26, 1837, s not sub|ect to
ta aton for such ta abe year ether under secton 102 or secton 351 of
Tte I , as amended, but may be sub|ect to ta aton under ether of those
sectons for other ta abe years. The fact that a foregn corporaton s a
foregn persona hodng company docs not reeve the corporaton from abty
for the ta es mposed generay under secton 231 upon foregn corporatons,
snce such ta es appy regardess of the cassfcaton of the foregn corporaton
as a foregn persona hodng company.
bt. 331-2. Gross ncome requrement. To meet the gross ncome requre-
ment, t s necessary that ether of the foowng percentages of gross ncome
of the corporaton for the ta abe year (ncudng the addtons to gross ncome
provded n secton 334(b)) be foregn persona hodng company ncome as
defned n secton 332:
(a) 60 per cent or more or
(6) 50 per cent or more f the foregn corporaton has been cassfed as a
foregn persona hodng company for any ta abe year endng after ugust 26,
1937, uness
(1) a ta abe year has ntervened snce the ast ta abe year for whch
t was so cassfed, durng no part of whch the stock ownershp requre-
ment specfed n secton 331(a) (2) e sts or
(2) three consecutve years have ntervened snce the ast ta abe year
for whch t was so cassfed, durng each of whch ts foregn persona
hodng company ncome was ess than 50 per cent of ts gross ncome.
In determnng whether the foregn persona hodng company ncome s equa
to the requred percentage of the tota gross ncome, the determnaton must not
be made upon the bass of gross recepts, snce gross ncome s not synonymous
wth gross recepts. or a further dscusson of what consttutes gross n-
come, see secton 22(a) and the reguatons prescrbed under that secton.
rt. 331-3. Stock ownershp requrement. To meet the stock ownershp
requrement, t s necessary that at some tme n the ta abe year and after
ugust 26, 1037, more than 50 per cent n vaue of the outstandng stock of the
foregn corporaton be owned, drecty or ndrecty, by or for not more than fve
ndvduas who are ctzens or resdents of the Unted States, herenafter
referred to as Unted States group. or such purpose, the ownershp of the
stock must be determned as provded n secton 333 and artces 3. 3(n)- to
333(a)-7 and artce 333(6)-.
In the event of any change n the stock outstandng durng the ta abe year,
whether n the number of shares or casses of stock, or whether n the owner-
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331, rt. 331-1.
170
shp thereof, the condtons e stng mmedatey pror and subsequent to ench
change must be taken nto consderaton, snce a corporaton comes wthn the
cassfcaton f the statutory condtons wth respect to stock ownershp are
present at any tme durng the ta abe year and after ugust 26, 1937.
In determnng whether the statutory condtons wth respect to stock owner-
shp are present at any tme durng the ta abe year, the phrase n vaue
sha, n the ght of a the crcumstances, be deemed the vaue of the corporate
stock outstandng at such tme (not ncudng treasury stock). Ths vaue may
be determned upon the bass of the company s net worth, earnng and dvdend
payng capacty, apprecaton of assets, together wth such other factors as have
a bearng upon the vaue of the stock. If a vaue of stock s used whch s
greaty at varance wth that refected by the corporate books, the evdence upon
whch such vauaton s based shoud be fed wth the return. In any case
where there are two or more casses of stock outstandng, the tota vaue of a
the stock shoud be aocated among the dfferent casses accordng to the
reatve vaue of each cass theren.
Sec. 332. oregn Persona odng Company Income.
or the purposes of ths tte the term foregn persona hodng com-
pany ncome means the porton, of the gross ncome determned for
the purposes of secton 331(a) (1), whch conssts of:
(a) Dvdends, nterest, royates, annutes.
(b) Stock and securtes transactons. cept n the case of regu-
ar deaers n stock or securtes, gans from the sae or e change of
stock or securtes.
(c) Commodtes transactons. Gans from futures transactons n
any commodty on or sub|ect to the rues of a board of trade or com-
modty e change. Ths subsecton sha not appy to gans by a pro-
ducer, processor, merchant, or hander of the commodty whch arse
out of bona fde hedgng transactons reasonaby necessary to the
conduct of ts busness n the manner n whch such busness s custom-
ary and usuay conducted by others.
(d) states and trusts. mounts ncudbe n computng the net
ncome of the corporaton under Suppement and gans from the
sae or other dsposton of any nterest n an estate or trust.
(e) Prsona servce contracts. (1) mounts receved under a
contract under whch the corporaton s to furnsh persona servces
f some person other than the corporaton has the rght to desgnate
(by name or by descrpton) the ndvdua who s to perform the
servces, or f the ndvdua who Is to perform the servces s desg-
nated (by name or by descrpton) n the contract and (2) amounts
receved from the sae or other dsposton of such a contract Ths
subsecton 6ha appy wth respect to amounts receved for servces
under a partcuar contract ony f at some tme durng the ta abe
year 25 per centum or more n vaue of the outstandng stock of the
corporaton s owned, drecty or ndrecty, by or for an ndvdua
who has performed, s to perform, or may be desgnated (by name or
by descrpton) as the one to perform, such servces.
(f) Use of corporaton property by sharehoder. mounts receved
as compensaton (however desgnated and from whomsoever receved)
for the use of, or rght to use, property of the corporaton n any case
where, at any tme durng the ta abe year, 25 per centum or more In
vaue of the outstandng stock of the corporaton Is owned, drecty
or ndrecty, by or for the ndvdua entted to the use of the prop-
erty whether such rght s obtaned drecty from the corporaton or
by means of a subease or other arrangement.
(g) Rents. Rents, uness consttutng 50 per centum or more of
the gross ncome. or the purposes of ths subsecton the term rents
means compensaton, however desgnated, for the use of, or rght to
use, property but does not ncude amounts consttutng foregn per-
sona hodng company Income under subsecton (f).
rt. 332-1. oregn persona hodng company ncome. or the purposes of
Suppement P and these reguatons the term foregn persona hodng com-
pany ncome means the porton of the gross Income determned for the pur-
poses of secton 331(a) (1) and artce 331-2 whch conssts of the foowng:
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171
331, rt. 331-1.
(1) Dvdends. The term dvdends means dvdends as defned In secton
115(a) of the Revenue ct of 1936 and ncudes amounts requred to be n-
cuded In gross ncome under secton 334(b). It does not ncude stock dvdends
(to the e tent they do not consttute Income to the sharehoders wthn the
meanng of the s teenth amendment to the Consttuton), qudatng dvdends,
or other capta dstrbutons referred to n secton 115(c), as amended, and
secton 115(d).
(2) Interest. The term nterest means any amounts, ncudbe n gross
Income, receved for the use of money oaned.
(3) Royates. The term royates ncudes amounts receved for the prv-
ege of usng patents, copyrghts, secret processes and formuas, good w, trade
marks, trade brands, franchses, and other ke property. It does not ncude
rents, nor overrdng royates receved by an operatng company. s used n
ths paragraph the term overrdng royates means amounts receved from
the subessee by the operatng company whch orgnay eased and deveoped
the natura resource property n respect of whch such overrdng royates are
pad.
(4) nnutes. The term annutes refers ony to annutes to the e tent
ncudbe n the computaton of gross ncome. (See secton 22(b)(2).)
(5) Gans from the sae or e change of stock or securtes. The term gans
from the sae or e change of stock or securtes as used n secton 332(b) and
these reguatons appes to a gans (ncudng gans from qudatng dvdends
and other dstrbutons from capta) from the sae or e change of stock or
securtes ncudbe n gross ncome. The term stock or securtes ncudes
shares or certfcates of stock, or Interest n any corporaton (ncudng any
|ont-stock company, nsurance company, assocaton, or other organzaton
cassfed as a corporaton by the ct), certfcates of nterest or partcpaton
n any proft-sharng agreement, or n any o, gas, or other mnera royaty, or
ease, coatera trust certfcates, votng trust certfcates, stock rghts or war-
rants, bonds, debentures, certfcates of ndebtedness, notes, car trust certf-
cates, bs of e change, obgatons ssued by or on behaf of a Government,
State, terrtory, or potca subdvson thereof, etc. In the case of reguar
deaers n stock or securtes the term does not ncude gans derved from the
sae or e change of stock or securtes made n the norma course of busness.
The term reguar deaer n stock or securtes means corporatons wth an
estabshed pace of busness reguary engaged n the purchase of stock or
securtes and ther resae to customers, but such corporatons are not deaers
wth respect to stock or securtes hed for specuaton or nvestment.
(6) Gans from futures transactons n commodtes. Gans from futures
transactons n commodtes ncude gans from futures transactons n any com-
modty on or sub|ect to the rues of a board of trade or commodty e change,
but do not ncude gans from cash transactons or gans by a producer, processor,
merchant, or hander of the commodty, whch arse out of bona fde hedgng
transactons reasonaby necessary to the conduct of ts busness n the manner
n whch such busness s customary and usuay conducted by others. In
genera, foregn persona hodng company ncome ncudes gans on futures
contracts whch are specuatve. utures contracts representng true hedges
aganst prce fuctuatons n spot goods are not specuatve transactons, though
not concurrent wth spot transactons. utures contracts whch are not hedges
aganst spot transactons are specuatve uness they are hedges aganst con-
current futures or forward saes or purchases.
(7) Income from estates and trusts. The Income from estates and trusts
whch s to be ncuded n foregn persona hodng company ncome conssts
of the ncome from estates and trusts whch s requred to be ncuded n the
gross ncome of a corporaton under sectons 161 to 1G9, together wth the gans
derved by the corporaton from the sae or other dsposton of any nterest
n an estate or trust.
(8) mounts receved under persona servce contracts. mounts ncudbe
n foregn persona hodng company ncome as amounts receved under per-
sona servce contracts consst of amounts receved pursuant to a contract
under whch .the corporaton s to furnsh persona servces, and amounts
receved from a sae or other dsposton of such a contract, f
(o) some person other than the corporaton has the rght to desgnate
(by name or by descrpton) the ndvdua who s to perform the servces,
or f the ndvdua who s to perform the servces s desgnated (by name
or by descrpton n the contract) and
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331, rt. 331-1.
172
(ft) at some tme durng the ta abe year 25 per cent or more In vaue
of the outstandng stock of the corporaton s owned, drecty or ndrecty,
by or for the ndvdua who has performed, s to perform, or may be
desgnated (by name or by descrpton), as the one to perform such servces.
or ths purpose the stock ownershp must be determned as provded n
secton 333 and artces 333(a)- to 333(a)-7 and artce 333(b)-.
The appcaton of secton 332(e) may be ustrated by the foowng
e ampes:
ampe (/): , whose professon s that of an actor, owns a of the
outstandng capta stock of the M Corporaton. The M Corporaton entered
nto a contract wth under whch was to perform persona servces for
the person or persons whch the M Corporaton mght desgnate, n consdera-
ton of whch was to receve 10,UO0 a year from the M Corporaton. The
M Corporaton entered nto a contract wth the O Corporaton n whch was
desgnated to perform persona servces for the O Corporaton n consderaton
of whch the O Corporaton was to pay the M Corporaton 500,000 a year.
The 500,000 receved by the M Corporaton from the O Corporaton consttutes
foregn persona hodng company ncome.
ampe (2): The N Corporaton, the entre outstandng capta stock of
whch s owned by four ndvduas, s engaged n engneerng. The N Cor-
poraton entered nto a contract wth the O Corporaton to perform engneerng
servces for the O Corporaton, n consderaton of whch the O Corporaton
was to pay the N Corporaton 50,000. The ndvdua who was to perform the
servces was not desgnated (by name or by descrpton) n the contract and
no one but the N Corporaton had the rght to desgnate (by name or by de-
scrpton) such ndvdua. The 50,000 receved by the N Corporaton from
the O Corporaton does not consttute foregn persona hodng company ncome.
(9) Compensaton for use of property. The compensaton for the use of,
or the rght to use, property of the corporaton whch s to be ncuded n foregn
persona hodng company ncome conssts of amounts receved as compensaton
(however desgnated and from whomsoever receved) for the use of, or the
rght to use, property of the corporaton n any case In whch, at any tme
durng the ta abe year, 25 per cent or more n vaue of the outstandng stock
of the corporaton s owned, drecty or ndrecty, by or for the ndvdua
entted to the use of the property, whether such rght s obtaned drecty
from the corporaton or by means of a subease or other arrangement. The
property may consst of a yacht, a cty resdence, a country house, or any other
knd of property. See sectons 331(a)(2) and 333 and artces 333(a)- to
833(r)-7 and artce 333(b)-.
(10) Rents. The rents whch are to be Incuded n foregn persona hodng
company ncome consst of compensaton, however desgnated, ncudng charter
fees, etc., for the use of, or the rght to use. rea property, or any other knd of
property, but do not ncude amounts consttutng foregn persona hodng com-
pany ncome under secton 332(f) and paragraph (9) of ths artce. owever,
rents do not consttute foregn persona hodng company ncome f consttutng
50 per cent or more of the gross ncome of the corporaton.
Pec. 333. Stock Ownershp.
(a) Constructve owN tsnp. or the purpose of determnng
whether a foregn corporaton s a foregn persona hodng company,
nsofar as such determnaton s based on stock ownershp under secton
331(a)(2), secton 332(e), or secton 332(f)
(1) Stoek not ovmed by ndvdua. Stock owned, drecty or
ndrecty, by or for a corporaton, partnershp, estate, or trust
sha bo consdered as beng owned proportonatey by Its share-
hoders, partners, or benefcares.
(2) amy and partnershp ownershp. n Indvdua sha be
consdered as ownng the stock owned, drecty or ndrecty, by
or for hs famy or by or for hs partner. or the purposes of
ths paragraph the famy of an ndvdua Incudes ony hs
brothers and ssters (whether by the whoe or haf bood), spouse,
ancestors, and nea descendants.
(3) Optons. If any person has an opton to acqure stock such
stock sha be consdered as owned by such person. or the pur-
poses of ths paragraph an opton to acqure such an opton, and
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173
331, rt. 331-1.
each one of a seres of such optons, sha be consdered as an
opton to acqure such stock.
(4) ppcaton of famy-partnershp and opton rues. Para-
graphs (2) and (3) sha be apped
( ) or the purposes of the stock ownershp requrement
provded n secton 331(a) (2), f, but ony f, the effect s to
make the corporaton a foregn persona hodng company
( ) or the purposes of secton 332(e) (reatng to persona
servce contracts), or of secton 332(f) (reatng to the use
of property by sharehoders), f, but ony f, the effect s to
make the amounts theren referred to ncudbe under such
subsecton as foregn persona hodng company ncome.
(5) Constructve ownershp as actua ownershp. Stock con-
structvey owned by a person by reason of the appcaton of para-
graph (1) or (3) sha, for the purpose of appyng paragraph (1)
or (2), be treated as actuay owned by such person but stock
constructvey owned by an ndvdua by reason of the appcaton
of paragraph (2) sha not be treated as owned by hm for the
purpose of agan appyng such paragraph n order to make another
the constructve owner of such stock.
(6) Opton rue n eu of famy and partnershp rue. If stock
may be consdered as owned by an ndvdua under ether para-
graph (2) or (3) It sha be consdered as owned by hm under
paragraph (3).
rt. 333(a)-. Stock ownershp. or the purpose of determnng whether
(a) a foregn corporaton s a foregn persona hodng company, n so far
as such determnaton s based on the stock ownershp requrement specfed
n secton 331(a)(2) and artce 331-3, or
(6) amounts receved under a persona servce contract or from the sae
of such a contract consttute foregn persona hodng company ncome n
so far as such determnaton s based on the stock ownershp requrement
specfed n secton 332(e) and paragraph (8) of artce 332-1, or
(c) compensaton for the use of property consttutes foregn persona
hodng company ncome n so far as such determnaton s based on the
stock ownershp requrement specfed n secton 332(f) and paragraph (9)
of artce 332-1,
stock owned by an ndvdua ncudes stock constructvey owned by hm as
provded n secton 333. or such purpose constructve ownershp of stock
sha be determned and apped n accordance wth the rues provded n secton
333 and artces 333(a)-2 to 333(a)-7 and artce 333(b)-. forms and
casses of stock, however denomnated, whch represent the nterests of share-
hoders, members, or benefcares n the corporaton sha be taken nto
consderaton.
bt. 333(a)-2. Stock not owned by ndvdua. In determnng the owner-
shp of stock for any of the purposes set forth n artce 333(a)-, stock owned,
drecty or ndrecty, by or for a corporaton, partnershp, estate, or trust sha
be consdered as beng owned proportonatey by ts sharehoders, partners, or
benefcares. or e ampe, f and , two ndvduas, are the e cusve and
equa benefcares of a trust or estate, and f such trust or estate owns the
entre capta stock of the M Corporaton, and f the M Corporaton n turn
owns the entre capta stock of the N Corporaton, then the stock of both the
M Corporaton and the N Corporaton sha be consdered as beng owned equay
by and as the ndvduas ownng the benefca Interest theren. See
aso artce 333(a)-6.
bt. 333(a)-3. amy and partnershp ownershp. In determnng the owner-
shp of stock for any of the purposes set forth n artce 333(a)-, an nd-
vdua sha be consdered as ownng the stock owned, drecty or ndrecty,
by or for hs famy or by or for hs partner. or the purposes of such determ-
naton the famy of an ndvdua ncudes ony hs brothers and ssters
(whether by the whoe or haf bood), spouse, ancestors, and nea descendants.
The appcaton of the famy and partnershp rue n determnng the owner-
shp of stock for the purpose set forth n (a) of artce 333(a)- s ustrated
by the foowng e ampe:
ampe: The M Corporaton at some tme durng the ta abe year had 1,800
shares of outstandng stock, 450 of whch were hed by varous ndvduas hav-
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331, rt. 331-1.
174
ng no reatonshp to one another and none of whom were partners, and the
remanng 1,350 were hed by 51 sharehoders as foows:
Reatonshps.
Shares.
Shares.
Shares.
Shares.
Shares.

100

3D
O
20
D
20

30

10

10
C
10
D
10

10
W
10
W
40
CW
40
DW
40
W
4f

10

10
C
10
D
10

10
s daughter by former mar-
3
10
S
to
CS
40
DS
10
S

S S
:o
S 9
a
CS S
40
DS 3
40
S S
40
W
10
W
10
cmv
10
D W
100
W
10
s wfe s father
W
10
W
10
CW
110
DW
10
W
10
W
10
W
10
CW
10
DW
10
W
10
s wfe s brother s wfe ...
W W
10
W W
10
CW W
10
DW W 10
W W 110
P
10
y appyng the statutory rue provded n secton 333(a) (2) fve Indvduas
own more than 50 per cent of the outstandng stock as foows:
(ncudng P, W, , S, S S, P) 160
(ncudng P, W, , S, S S) | 160
CW (ncudng C, CS, CW , CW ) 220
D (ncudng D, DP, D W) 200
W (ncudng W, W , W W) 170
Tota, or more than 50 per cent 910
Indvdua represents the obvous case where the head of the famy owns
the buk of the famy stock and naturny s the head of the group. s part-
ner owns 10 shares of the stock. Indvdua represents the case where he Is
st head of the group because of the ownershp of stock by hs Immedate
famy. Indvduas C and D represent cases where the ndvduas fa In
groups headed n C s case by hs wfe and n D s case by hs brother because of
the preponderance of hodngs on the part of reatves by marrage. Indvdua
represents the case where the preponderant hodngs of others emnate that
ndvdua from the group.
The method of appyng the famy and partnershp rue as Iustrated In the
foregong e ampe aso nppes n determnng the ownershp of stock for the
purposes stated n (6) and (c) of artce 333(a)-.
rt. 333(a)-4. Optons. In determnng the ownershp of stock for any of
the purposes set forth n artce 333(a)-, If any person has an opton to acqure
stock, such stock may be consdered as owned by such person. The term
opton as used In ths artce Incudes an opton to acqure such an opton
and each one of a seres of such optons, so that the person who has an opton
on an opton to acqure stock may be consdered as the owner of the stock.
rt. 333(a)-5. ppcaton of famy-partnershp and opton rues. The fam-
y and partnershp rue provded In secton 333(a) (2) and artce 333(a)-3
and the opton rue provded n secton 333(a) (3) and artce 333(a)-4 sha 6e
apped
(a) for the purpose stated In (a) of artce 333(a)-, f, but ony If, the
effect of such appcaton s to make the foregn corporaton a foregn
persona hodng company, or
(6) for the purpose stated In (6) of artce 333(a)-, f, but ony If, the
effect of such appcaton s to make the amounts receved under a persona
servce contract or from the sae of such a contract foregn persona hodng
company Income, or
(c) for the purpose stated n (c) of artce 333(a)-, If, but ony If, the
effect of such appcaton s to make the compensaton for the use of prop-
erty foregn persona hodng company ncome.
The famy and partnershp rue and the opton rue must be apped nde-
pendenty for each of the purposes stated n artce 333(a)-.
rt. 333(a)-6. Constructve ownershp as actua ownershp. In determnng
the ownershp of stock for any of the purposes set forth n artce 333(a)-
(a) stock constructvey owned by a person by reason of the appcaton
of the rue provded n secton 333(a) (1) reatng to stock not owned by
an ndvdua (see artce 333(a)-2) sha be consdered as actuay owned
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175
331, rt. 331-T.
by uch person for the purpose of agan appyng such rue or of appyng
the famy and partnershp rue provded n secton 333(a)(2) (see artce
833(a)-3) n order to make another person the constructve owner of such
stock, and
(6) stock constructvey owned by a person by reason of the appcaton
of the opton rue provded n secton 333(a)(3) (see artce 333(aM)
sha be consdered as actuay owned by such person for the purpose of
appyng ether the rue provded n secton 333(a)(1), reatng to stock
not owned by an Indvdua, or the famy and partnershp rue provded
In secton 333(a)(2) n order to make another person the constructve
owner of such stock, but
(c) stock constructvey owned by an ndvdua by reason of the app-
caton of the famy and partnershp rue provded n secton 333(a)(2)
sha not be consdered as actuay owned by such Indvdua for the pur-
pose of agan appyng such rue n order to make another ndvdua the
constructve owner of such stock.
The appcaton of ths artce may be ustrated by the foowng e ampes:
ampe (1): s a Unted States ctzen, whose wfe, W, owns a of
the stock of the M Corporaton, whch n turn owns a the stock of the O
Corporaton. The O Corporaton n turn owns a the stock n the P
Corporaton.
Under the rue provded n secton 333(a) (1), reatng to stock not owned by
an ndvdua, the stock n the P Corporaton owned by the O Corporaton Is
consdered to be owned constructvey by the M Corporaton, the soe share-
hoder of the O Corporaton. Such constructve ownershp of the stock by the
M Corporaton s consdered as actua ownershp for the purpose of agan
appyng such rue n order to make W, the soe sharehoder of the M Corpora-
ton, the constructve owner of the stock of the P Corporaton. Smary, the
constructve ownershp of the stock by W s consdered as actua ownershp
for the purpose of appyng the famy and partnershp rue provded n secton
333(a)(2) n order to make the constructve owner of the stock of the P
Corporaton, f such appcaton s necessary for any of the purposes set forth
In artce 333(a)-. ut the stock thus constructvey owned by may not be
consdered as actua ownershp for the purpose of agan appyng the famy
and partnershp rue n order to make another member of s famy, for
e ampe s father, the constructve owner of the stock of the P Corporaton.
ampe (2): s a Unted States ctzen who owns a the stock of the
R Corporaton whch has an opton to acqure a the stock of the S Corporaton,
a foregn corporaton, owned by C, an ndvdua, who s not reated to .
Under the opton rue provded n secton 333(a)(3) the R Corporaton may
be consdered as ownng constructvey the stock of the S Corporaton owned
by C. Such constructve ownershp of the stock by the R Corporaton s con-
sdered as actua ownershp for the purpose of appyng the rue provded n
secton 33(a)(1), reatng to stock not owned by an ndvdua, n order to
make , the soe sharehoder of the R Corporaton, the constructve owner of
the stock of the S Corporaton. The stock thus constructvey owned by
by reason of the appcaton of the rue provded n secton 333(a) (1) kewse
s consdered as actua ownershp for the purpose, f necessary, of appyng the
famy and partnershp rue provded n secton 333(a)(2). n order to make
another member of s famy, for e ampe, s wfe, W, the constructve
owner of the stock of the S Corporaton. owever, the famy and partner-
shp rue coud not agan be apped so as to make st another ndvdua the
constructve owner of the stock of the S Corporaton, that s, the stock con-
structvey owned by RW coud not be consdered as actuay owned by her Id
order to make Ws father the constructve owner of such stock by a second
appcaton of the famy and partnershp rue.
bt. 333(a)-7. Opton rate n eu of famy and partnershp rue. If, n de-
termnng the ownershp of stock for any of the purposes set forth n artce
333(a)-1, stock may be consdered as constructvey owned by an ndvdua
by an appcaton of both the famy-partnershp rue provded n secton
333(a)(2) (see artce 333(a)-3) and the opton rue provded In secton
333(a) (3) (see artce 333(a)-4) such stock sha be consdered as owned con-
structvey by the ndvdua by reason of the appcaton of the opton rue.
The appcaton of ths artce may be Iustrated by the foowng e ampe:
ampe: Two brothers, and , each own 10 per cent of the stock of the
M Corporaton, a foregn corporaton, and s wfe, W, aso owns 10 per cent
of the stock of such corporaton. W s husband, , has an opton to acqure
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331, rt. 331-1.
176
the stock owned by her at any tme. It becomes necessary, for one of the pur-
poses stated n artce 333(a)-, to determne the stock ownershp of n the
M Corporaton.
If the famy and partnershp rue were the ony rue that apped n the
case, woud be consdered, under that rue, as ownng 20 per cent of the
stock of te M Corporaton, namey, hs own stock pus the stock owned by hs
brother. In that event, coud not be consdered as ownng the stock hed by
W snce (1) W s not a member of s famy and (2) the constructve
ownershp of such stock by through the appcaton of the famy and part-
nershp rue In hs case s not consdered as actua ownershp so as to make
the constructve owner by a second appcaton of the same rue wth respect
to the ownershp of the stock. (See artce 333(a)-C.)
owever, there s more than the famy and partnershp rue Invoved n ths
e ampe. s the hoder of an opton upon the stock, may be consdered the
constructve owner of hs wfe s stock by the appcaton of the opton rue and
wthout reference to the famy reatonshp between and W. If s
consdered as ownng the stock of hs wfe by appcaton of the opton rue,
then under artce 333(a)-6, such constructve ownershp by s regarded as
actua ownershp for the purpose of appyng the famy and partnershp rue so
as to make another member of s famy, for e ampe, , the constructve
owner of the stock. ence, snce may be consdered as ownng hs wfe s
stock by appyng both the famy-partnershp rue and the opton rue, the
provsons of secton 333(a) (( ) appy and accordngy must be consdered
the constructve owner of hs wfe s stock under the opton rue rather than the
famy-partnershp rue. thus becomes the constructve owner of 30 per cent
of the stock of the M Corporaton, namey, hs own 10 per cent, s 10 per cent
and W s 10 per cent constructvey owned by as the hoder of an opton
on the stock.
Sec. 333. Stock Ownershp.
(b) Convertbe securtes. Outstandng securtes convertbe nto
stock (whether or not convertbe durng the ta abe year) sha be
consdered as outstandng stock
(1) or the purpose of the stock ownershp requrement provded
n secton 331(a)(2), but ony f the effect of the ncuson of a
such securtes s to make the corporaton a foregn persona hod-
ng company
(2) or the purpose of secton 332(e) (reatng to persona
servce contracts), but ony f the effect of the ncuson of a
such securtes s to make the amounts theren referred to ncud-
be under such subsecton as foregn persona hodng company
ncome: and
(3) or the purpose of secton 332(f) (reatng to the use of
property by sharehoders), but ony f the effect of the ncuson
of a such securtes s to make the amounts theren referred to
Incudbe under such subsecton as foregn persona hodng com-
pany ncome.
The requrement n paragraphs (1), (2), and (3) that a convert-
be securtes must be ncuded f any are to be Incuded sha be sub-
|ect to the e cepton that, where some of the outstandng securtes
are convertbe ony after a ater date than n the case of others, the
cass havng the earer converson date may be ncuded athough the
others are not ncuded, but no convertbe securtes sha be ncuded
uness a outstandng securtes havng a pror converson date are
aso ncuded.
ut. 333(b)-. Convertbe securtes. Under secton 333(b), outstandng
securtes of a foregn corporaton, such as bonds, debentures, or other cor-
porate obgatons, convertbe nto stock of the corporaton (whether or not
convertbe durng the ta abe year) sha be consdered as outstandng stock
of the corporaton for the purpose of the stock ownershp requrement provded
n secton 331(a)(2), but ony f the effect of such consderaton s to make
the corporaton a foregn persona hodng company. Such convertbe secur-
tes sha be consdered as outstandng stock for the purpose of secton 332(e),
reatng to nmounts receved under persona servce contracts, or of secton
332(f), reatng to compensaton for the use of property, but ony f the effect
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177
331, rt. 331-1.
of such consderaton s to make the amounts theren referred to ncudbe un-
der such sectons as foregn persona hodng company ncome. The consderaton
of convertbe securtes as outstandng stock s sub|ect o the e cepton that,
f some of the outstandng securtes are convertbe ony after a ater date
than n the case of others, the cass havng the earer converson date may
be consdered as outstandng stock athough the others are not so consdered,
but no convertbe securtes sha be consdered as outstandng stock uness a
outstandng securtes havng a pror converson date arc aso so consdered.
or e ampe, f outstandng securtes are convertbe n 1937, 1935, and 1939,
those convertbe n 1937 can be propery consdered as outstandng stock wth-
out so consderng those convertbe n 1938 or 1939, and those convertbe n
1937 and 1938 can be propery consdered as outstandng stock wthout so
consderng those convertbe n 1939. owever, the securtes convertbe n
1938 coud not be propery consdered as outstandng stock wthout so con-
sderng those convertbe n 1937 and the securtes convertbe n 1939 coud
not be propery consdered as outstandng stock wthout so consderng those
convertbe n 1937 and 1938.
Sec. 334. Gboss Income of oregn Persona odng Companes.
(a) Genera rue. s used n ths suppement wth respect to a
foregn corporaton the term gross ncome means gross ncome com-
puted (wthout regard to the provsons of Suppement I) as f the
foregn corporaton were a domestc corporaton.
(b) ddtons to gross ncome. In the case of a foregn persona
hodng company (whether or not a Unted States group, as defned In
secton 331(a)(2), e sted wth respect to such company on the ast
day of ts ta abe year) whch was a sharehoder n another foregn
persona hodng company on the day n the ta abe year of the second
company whch was the ast day on whch a Unted States group
e sted wth respect to the second company, there sha be ncuded,
as a dvdend, n the gross ncome of the frst company, for the ta abe
year n whch or wth whch the ta abe year of the second company
ends, the amount the frst company woud have receved as a dvdend
f on such ast day there had been dstrbuted by the second company,
and receved by the sharehoders, nn amount whch bears the same
rato to the undstrbuted Suppement P net ncome of the second
company for ts ta abe year ns the porton of such ta abe year up
to and ncudng such ast day bears to the entre ta abe year.
(c) ppcaton of subsecton ( ). The rue provded n subsec-
ton (b)
(1) sha be apped n the case of a foregn persona hodng
company for the purpose of determnng ts undstrbuted Suppe-
ment P net ncome whch, or a part of whch, s to be ncuded n
the gross ncome of ts sharehoders, whether Unted States share-
hoders or other foregn persona hodng companes
(2) sha be apped n the case of every foregn corporaton
wth respect to whch a Unted States group e sts on some day
of ts ta abe year, for the purpose of determnng whether such
corporaton meets the gross ncome requrements of secton
331(a)(1).
rt. 334-1. Gross ncome n genera for purposes of Suppement P. or a
purposes of Suppement P and Chapter I of these reguatons, the gross
ncome of a foregn corporaton sha be computed as f the corporaton were
a domestc corporaton and wthout regard to the provsons of Suppement
I and Chapter II of these reguatons, reatng to the ta aton of for-
egn corporatons generay. ence, for such purposes, the gross ncome n-
cudes ncome from a sources, whether wthn or wthout the Unted States.,
whch s not e cuded from gross ncome by secton 22(h) and the reguatons
pertanng to that secton. The gross ncome thus ncudes the nterest on bonds,
notes, and certfcates of ndebtedness of the Unted States, even though owned
benefcay by a foregn corporaton not engaged n trade or busness n the
Unted States, and even though such nterest otherwse woud come wthn the
e empton provded for In secton 3 of the ourth Lberty ond ct of uy 9,
1918, as amended by secton 4 of the ctory Lberty Loan ct of March 3,
1919.
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331, rt. 331-1.)
178
bt. 334-2. ddtons to gross ncome for purposes of Suppement P. If, for
any ta abe year
(a) a foregn corporaton meets the stock ownershp requrement spec-
fed n artce 331-3, regardess of whatever day n ts ta abe year s the
ast day on whch the requred Unted States group e sts, and
(6) such foregn corporaton s a sharehoder n a foregn persona hod-
ng company on any day of a ta abe year of the second company whch
ends wth or wthn the ta abe year of the frst company and such day s
the ast day n the ta abe year of the second company on whch the Unted
States group e sts wth respect to the second company,
then for the purpose of
(c) determnng whether the frst company meets the gross Income re-
qurement specfed n artce 331-2, so as to come wthn the cassfcaton
of a foregn persona hodng company, and
(d) determnng the undstrbuted Suppement P net ncome of the frst
company whch (n the event the frst company s a foregn persona hod-
ng company) s to be Incuded, n whoe or n part, n the gross Income
of ts sharehoders, whether Unted States sharehoders or other foregn
persona hodng companes,
there sha be ncuded as a dvdend n the gross Income of the frst company
for the ta abe year n whch or wth whch the ta abe year of the second
company ends, the amount the frst company woud have receved as a dv-
dend, f on the ast day referred to n (6) there had been dstrbuted by the
second company, and receved by the sharehoders, an amount whch bears the
same rato to the undstrbuted Suppement P net ncome of the second com-
pany for ts ta abe year as the porton of such ta abe year up to and ncudng
such ast day bears to the entre ta abe year. The foregong rues appy to
any chan of foregn corporatons regardess of the number of corporatons
ncuded n the chan.
The appcaton of ths artce may be ustrated by the foowng e ampes:
ampe (1): The Corporaton s a foregn corporaton whose stock s
owned by , a Unted States ctzen. The Corporaton owns the entre stock
of the Y Corporaton, another foregn corporaton. The ta abe year of the
Corporaton s the caendar year and the ta abe year of the Y Corporaton
s the fsca year endng une 30. or the fsca year endng une 30, 1938,
more than the requred percentage of the Y Corporaton s gross ncome conssts
of foregn persona hodng company ncome and no part of the earnngs for
such year s dstrbuted as dvdends. On the bass of these facts the Y
Corporaton s a foregn persona hodng company for the fsca year endng
une 30, 1038. The Corporaton meets the stock ownershp requrement and
consttutes a foregn persona hodng company for 1938, f t aso meets the
gross Income requrement.
or the purpose of determnng whether the Corporaton meets the gross
ncome requrement, the entre undstrbuted Suppement P net Income of the
Y Corporaton for the fsca year endng une 30, 1938, must be ncuded as a
dvdend n the gross Income of the Corporaton for 1938, snce
(a) the Corporaton s a sharehoder n the Y Corporaton on a day
( une 30, 1938) In the ta abe year of the Y Corporaton endng wth or
wthn the ta abe year of the Corporaton, whch day s the ast day
n the ta abe year of the Y Corporaton on whch the Unted States group
requred wth respect to the Y Corporaton e sts,
(6) such ast day s aso the end of the Y Corporaton s ta abe year so
that the porton of the ta abe year of the Y Corporaton up to and ncud-
ng such ast day s equa to 100 per cent of the ta abe year of the Y
Corporaton, and, therefore, the porton of the undstrbuted Suppement P
net ncome of the Y Corporaton ncudbe n the gross ncome of ts share-
hoders s kewse equa to 100 per cent, and
(c) the Corporaton beng the soe sharehoder of the Y Corporaton
must ncude such porton In ts gross ncome for 1938, the ta abe year
n whch or wth whch the ta abe year of the Y Corporaton ends.
If, after the ncuson of the presumptve dvdend n ts gross ncome, the
Corporaton s a foregn persona hodng company for 1938, then the un-
dstrbuted Suppement P net ncome of the Y Corporaton must aso be n-
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179
331, rt. 331-1.
euded as a dvdend In the gross Income of the Corporaton n determnng
Its undstrbuted Suppement P net ncome whch s to be ncuded n the
gross ncome of , the soe sharehoder n the Corporaton. On the other
hand, f, after ncudng such presumptve dvdend, the Corporaton does not
consttute a foregn persona hodng company, the undstrbuted Suppement P
net ncome of the Y Corporaton s not ncudbe n the gross ncome of the
Corporaton for any purpose other than determnng whether the Corpora-
ton s a foregn persona hodng company.
ampe (2): The Corporaton referred to n e ampe (1) ses the stock
n the Y Corporaton to other nterests on September 30, 1938, so that after
that date no Unted States group e sts wth respect to the Y Corporaton. or
the fsca year endng une 30, 1939, more than the requred percentage of the
gross ncome of the Y Corporaton conssts of foregn persona hodng company
ncome. The net ncome of the Y Corporaton for such fsca year amounts to
1,000,000, of whch 900,000 s dstrbuted n dvdends, after September 30,
1938. The undstrbuted Suppement P net ncome of the Y Corporaton for
such fsca year amounts to 100,000. Upon the bass of these facts the Y
Corporaton s a foregn persona hodng company for the fsca year endng
une 30, 1939, snce at one tme n such fsca year, or from uy 1, to and
ncudng September 30, 1938, t meets the stock ownershp requrement, and
the gross Income requrement s aso satsfed.
In determnng whether the Corporaton consttutes a foregn persona
hodng company for 1939, a porton of the undstrbuted Suppement P net
ncome of the Y Corporaton for the fsca year endng une 30, 1939 (3/12 of
100,000, or 25,000), must be ncuded as a dvdend n the gross ncome of the
Corporaton, snce
(a) the Corporaton s a sharehoder n the Y Corporaton on Septem-
ber 30, 1938, or on a day n the ta abe year of the Y Corporaton endng
wth or wthn the ta abe year of the Corporaton, whch day s the
ast day n the Y Corporaton s ta abe year on whch the Unted States
group requred wth respect to the Y Corporaton e sts,
(6) the porton of the ta abe year of the Y Corporaton up to and
ncudng such day s three-twefths of the entre ta abe year of the Y
Corporaton and, therefore, the porton of the undstrbuted Suppement P
net Income of the Y Corporaton ncudbe n the gross ncome of ts share-
hoders aso s equa to three-twefths, and
(c) the Corporaton, beng the soe sharehoder of the Y Corporaton
at the tme the Unted States group wth respect to the Y Corporaton ast
e sts, must ncude a of such porton n ts gross ncome for 1939, the
ta abe year of the Corporaton n whch or wth whch the ta abe
year of the Y Corporaton ends.
It s to be observed that three-twefths of the undstrbuted Suppement P
net ncome of the Y Corporaton for the entre ta abe year and not the earn-
ngs reazed by the Y Corporaton up to and ncudng September 30, 1938, the
ast day on whch the Unted States group wth respect to the Y Corporaton
e sts, must be ncuded n the gross ncome of the Corporaton.
ampe (3): The Corporaton referred to n e ampe (1) ses the stock
n the Y Corporaton to other nterests on September 30, 1938, so that after
that date a dfferent Unted States group e sts wth respect to the Y Corpo-
raton. ssumng that the Y Corporaton s a foregn persona hodng com-
pany for the fsca year endng une 30, 1939, no part of the undstrbuted
Suppement P net ncome of the Y Corporaton for such fsca year woud, n
ths nstance, be ncudbe n the gross ncome of the Corporaton for the
year 1939, n determnng whether the Corporaton s a foregn persona hod-
ng company for that year. In such case, the undstrbuted Suppement P net
ncome of the Y Corporaton s ncudbe n the gross ncome of the other for-
egn persona hodng companes, f any, and of the Unted States sharehoders
who are sharehoders n the Y Corporaton the day after September 30, 1938,
whch s the ast day n the ta abe year of the Y Corporaton on whch the
Unted States group wth respect to the Y Corporaton e sts.
If, however, the Corporaton ses 90 per cent of ts stock n the Y Corpo-
raton and thus Is a mnorty sharehoder n the Y Corporaton on the ast day
of the ta abe year of the Y Corporaton on whch the Unted States group wth
respect to the Y Corporaton e sts, the porton of the undstrbuted Suppement
P net Income aocabe to the mnorty nterest of the Corporaton woud be
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331, rt. 331-1.
180
Incudbe In the gross ncome of the Corporaton, even though on such ast
day the Unted States group s not the same wth respect to both corporatons.
ampe (4). I the Y Corporaton n e ampe (1) owns a of the stock of
the Z Corporaton, another foregn corporaton, there woud be a chan of three
foregn corporatons. In such case, assumng that the Z Corporaton s a
foregn persona hodng company for a ta abe year endng wth or wthn
the ta abe year of the Y Corporaton, the undstrbuted Suppement P net
ncome of the Z Corporaton woud be ncuded n the gross ncome of the Y
Corporaton for the purpose of determnng whether the Y Corporaton comes
wthn the cassfcaton of a foregn persona hodng company. If, after the
ncuson of such presumptve dvdend, the Y Corporaton s a foregn persona
hodng company, the undstrbuted Suppement P not ncome of the Z Corpora-
ton woud be ncuded n the gross ncome of the Y Corporaton n determnng
the undstrbuted Suppement P net ncome of the Y Corporaton whch Is In-
cudbe n the gross ncome of ts sharehoder, the Corporaton. The same
process woud be repeated wth respect to determnng whether the Corpora-
ton s a foregn persona hodng company and n determnng ts undstrbuted
Suppement P net ncome. If a three corporatons are foregn persona hod-
ng companes,- the undstrbuted Suppement P net ncome of each woud, n
ths manner, be refected as a dvdend n the gross ncome of , the utmate
benefca sharehoder of the chan.
In the event that after the ncuson of the undstrbuted Suppement P net
Income of the Z Corporaton In the gross ncome of the Y Corporaton, the Y
Corporaton s not a foregn persona hodng company, then no part of the
Income of ether the Z Corporaton or the Y Corporaton woud be ncudbe n
the gross ncome of the Corporaton. In that event, whether the Corpora-
ton s a foregn persona hodng company, and ts undstrbuted Suppement P
net ncome, woud be determned ndependenty of the ncome of the Y Corpora-
ton and the Z Corporaton.
Seo. 335. Undstrbuted Suppement P Net Income.
or the purposes of ths tte the term undstrbuted Suppement P
net ncome means the Suppement P net ncome (as defned n secton
336) mnus the amount of the dvdends pad credt provded n secton
27, computed wthout the beneft of subsecton (b) thereof (reatng to
the dvdend carry-over).
Seo. 336. Suppement P Net Income.
or the purposes of ths tte the term Suppement P net ncome
means the net ncome wth the foowng ad|ustments:
(a) ddtona deductons. There sha be aowed as deductons
(1) edera ncome, war-profts, and e cess-profts ta es pad or
accrued durng the ta abe year to the e tent not aowed as a
deducton under secton 23 but not ncudng the ta mposed by
secton 102, secton 351 (ether before or after ts amendment by
the Revenue ct of 1037). or a secton of a pror ncome-ta aw
correspondng to ether of such sectons.
(2) In eu of the deducton aowed by secton 23(q), contr-
butons or gfts made wthn the ta abe year to or for the use
of donees descrbed n secton 23 (q) for the purposes theren spec-
fed, to an amount whch does not e ceed 15 per centum of the
company s net ncome, computed wthout the beneft of ths para-
graph and secton 23(q). and wthout the deducton of the amount
dsaowed under subsecton (b) of ths secton, and wthout the
Incuson n gross ncome of the amounts ncudbe theren as
dvdends by reason of the appcaton of the provsons of secton
834(b) (reatng to the ncuson n the gross ncome of a foregn
persona hodng company of ts dstrbutve share of the unds-
trbuted Suppement P net ncome of another foregn persona hod-
ng company n whch t s a sharehoder).
(b) Dkohctons not aowed.
(1) Ta es and penson trusts. -The deductons provded n sec-
ton 23(d), reatng to ta es of n sharehoder pad by the cor-
poraton, and n secton 23(p), reatng to penson trusts, sha not
be aowed.
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181
331, rt. 331-1.
(2) penses and deprecaton. The aggregate of the deduc-
tons aowed under secton 23(a), reatng to e penses, and secton
23(1), reatng to deprecaton, whch are aocahe to the operaton
and mantenance of property owned or operated hy the company,
sha be aowed ony n an amount equa to the rent or other com-
pensaton receved for the use or rght to use the property, uness t
Is estabshed (under reguatons prescrbed by the Commssoner
wth the approva of the Secretary) to the satsfacton of the
Commssoner:
( ) That the rent or other compensaton receved was the
hghest obtanabe, or, f none was receved, that none was
obtanabe
( ) That the property was hed n the course of a busness
carred on bona fde for proft and
(C) ther that there was reasonabe e pectaton that the
operaton of the property woud resut n a proft, or that the
property was necessary to the conduct of the busness.
bt. 336-1. Suppement P net ncome. The term Suppement P net Income
means the gross ncome as defned n secton 334 ess the deductons provded
n secton 23 of the Revenue ct of 1936 (computed wthout regard to the pro-
vsons of Suppement I of the Revenue ct of 1036), sub|ect to the quafca-
tons, mtatons, and e ceptons provded n secton 336. In addton to the
quafcatons, mtatons, and e ceptons provded n secton 336(a) and sec-
ton 330(b) (1), under secton 336(b) (2) the aggregate of the deductons aowed
under secton 23(a) of the Revenue ct of 1936, reatng to e penses, and sec-
ton 23(1) of the Revenue ct of 1936, reatng to deprecaton, whch are
aocabe to the operaton and mantenance of property owned or operated by
the company sha be aowed ony n an amount equa to the rent or other
compensaton receved for the use of, or rght to use, the property, uness t s
estabshed to the satsfacton of the Commssoner:
(1) That the rent or other compeusaton receved was the hghest
obtanabe, or f none was receved, that none was obtanabe
(2) That the property was hed n the course of a busness carred on
bona fde for proft and
(3) ther that there was reasonabe e pectaton that the operaton
of the property woud resut n a proft, or that the property was necessary
to the conduct of the busness.
The burden of proof w rest upon the ta payer to sustan the deducton
camed. If n Unted States sharehoder, n computng hs dstrbutve share of
the undstrbuted Suppement P net ncome of a foregn persona hodng com-
pany to be ncuded n gross ncome n hs ndvdua return (see secton 337
and artce 337-1), cams deductons for e penses and deprecaton aocabe to
the operaton and mantenance of property owned or operated by the company,
n an aggregate amount n e cess of the rent or other compensaton receved for
the use of, or the rght to use, the property, he sha attach to hs ncome ta
return a statement settng forth hs cam for aowance of the addtona
deductons together wth a compete statement of the facts, crcumstances and
arguments on whch he rees n support of hs cam. Such statement sha set
forth:
(o) descrpton of the property
(6) The cost or other bass to the corporaton and the nature and vaue of the
consderaton pad for the property
(c) The name and address of the person from whom acqured and the date
thereof:
(d) The name and address of the person to whom eased or rented, or the
person permtted to use the property, and the number of shares of stock, f any,
hed by such person and the members of hs famy
(e) The nature and gross amount of the rent or other compensaton receved
for the use of, or the rght to use, the property durng the ta abe year and for
each of the fve precedng years and the amount of the e penses ncurred wth
respect to, and the deprecaton sustaned on, the property for such years
(f) vdence that the rent or other compensaton was the hghest obtanabe
and, f none was receved, a statement of the reasons therefor
g) copy of the contract, ease or renta agreement
(h) The purpose for whch the property was used
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331, rt. 331-1.
182
(0 The busness carred on by the corporaton wth respect to whch the
property was hed and the gross Income, e penses and net Income derved from
the conduct of such busness for the ta abe year and for each of the fve preced-
ng years
(/) statement of any reasons whch e sted for e pectaton that the opera-
ton of the property woud be proftabe, or a statement of the necessty for the
nse of the property n the busness of the corporaton, and the reasons why the
property was acqured and
(k) ny other nformaton on whch the ta payer rees.
rt. 336-2. Iustraton of computaton of Suppement P net ncome and unds-
trbuted Suppement P net ncome. The method of computaton of the Suppe-
ment P net ncome and undstrbuted Suppement P net ncome may be us-
trated as foows:
The foowng facts e st wth respect to the M Corporaton, a foregn persona
hodng company, for the caendar year 1937:
The gross ncome of the corporaton as defned n secton 334 amounts to 300,-
000, of whch 85,000 represents ts dstrbutve share of the undstrbuted Sup-
pement P net ncome of another foregn persona hodng company n whch t a
a sharehoder, 200,000 conssts of dvdends, 10,000 conssts of nterest, and the
remander ( 5,000) conssts of rent receved from the prncpa sharehoder of
the corporaton for the use of property owned by the corporaton.
The e penses of the corporaton amount to 83,000, of whch 75,000 s aocabe
to the mantenance and operaton of the property used by the prncpa share-
hoder, and 8,000 conssts of ordnary and necessary offce e penses aowabe
as a deducton. The cam for deducton for the e penses of, and deprecaton on,
the rented property n e cess of the rent receved for ts use s not estabshed
as provded n secton 330(b) (2). The yeary deprecaton on the rented property
amounts to 30,000.
edera ncome ta wthhed at the source on the ncome of the corporaton
from sources wthn the Unted States amounts to 30,000.
No gan from the sae or e change of stock or securtes s reazed durng the
ta abe year, but osses n the amount of 10,000 are sustaned from the sae of
stock or securtes whch consttute capta assets.
Contrbutons made to or for the use of donees descrbed n secton 23(q) of
the Revenue ct of 193G, for the purposes theren specfed, amount to 15,000, of
whch 5,000 Is deductbe n computng net ncome under secton 21.
Dvdends pad by the corporaton to ts sharehoders durng the ta abe year
amount to 50,000.
The net ncome for the purposes of computng the Suppement P net ncome
of the corporaton (ncudng the dstrbutve share of the undstrbuted Suppe-
ment P net ncome of the other foregn persona hodng company) s 180,000,
computed as foows (assumng for the purposes of ths e ampe ony that the
e penses of, and deprecaton on, the rented property are deductbe under sec-
ton 23) :
INCOM (S CTION 22).
Dvdends 200,000
Interest 10,000
Rent 5,000
Gross ncome as defned n secton 22 215,000
dd:
Dstrbutve share of undstrbuted Suppement P net ncome of
the other foregn persona hodng company (consdered as a
dvdend) 83,000
Gross ncome as defned n secton 334 300,000
D DUCTIONS (S CTION 23).
penses aocabe to operaton of the rented property 75,000
Deprecaton of the rented property 30,000
Ordnary and necessary e penses (offce) 8,000
Losses (mted as provded n secton 117) 2,000
Contrbutons (wthn the 5 per cent mtaton specfed n
secton 23(q)) 5,000 120.000
Net ncome for purposes of computng Suppement P net Income 180,000
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183
331, rt. 331-1.
The Suppement P net Income and the undstrbuted Suppement P net ncome
of the corporaton are 240,000 and 190,000, respectvey, computed as foows:
Net Income for purposes of computng Suppement P net ncome 180,000
dd:
Contrbutons deductbe n computng net ncome under
secton 21 5,000
cess property e penses and deprecaton over amount of
rent receved for use of property ( 105,000- 0,000) 100,000
Deduct: 105, 000
edera ncome ta es 30,000
Contrbutons (wthn the 15 per cent mtaton
specfed n secton 336(a)(2)) 15,000 45,000
Net addtons under secton 336 60,000
Suppement P net ncome 240,000
Sec. 337. Corporaton Income Ta ed to Unted States Share-
hoders.
(a) Genera rue. The undstrbuted Suppement P net ncome of
a foregn persona hodng company sha be ncuded n the gross n-
come of the ctzens or resdents of the Unted States, domestc cor-
poratons, domestc partnershps, and estates or trusts (other than
estates or trusts the gross ncome of whch under ths tte ncudes
ony ncome from sources wthn the Unted States), who are share-
hoders n such foregn persona hodng company (herenafter caed
Unted States sharehoders ) n the manner and to the e tent set
forth n ths suppement.
(b) mount ncuded n gross ncome. ach Unted States share-
hoder, who was a sharehoder on the day n the ta abe year of the
company whch was the ast day on whch a Unted States group (as
defned n secton 331(a)(2)) e sted wth respect to the company,
sha ncude n hs gross ncome, as a dvdend, for the ta abe year
n whch or wth whch the ta abe year of the company ends, the
amount he woud have receved as a dvdend f on such ast day
there had been dstrbuted by the company, and receved by the share-
hoders, an amount whch bears the same rato to the undstrbuted
Suppement P net ncome of the company for the ta abe year as the
porton of such ta abe year up to and ncudng such ast day bears
to the entre ta abe year.
(c) Credt for obgatons of unted states and ts nstrumen-
tates. ach Unted States sharehoder sha be aowed a credt
aganst net ncome, for the purpose of the ta mposed by secton 11,
13, 14, 201, or 204, of hs proportonate share of the nterest specfed
In secton 25(a) (1) or (2) whch s ncuded n the gross ncome of
the company otherwse than by the appcaton of the provsons of
secton 334(b) (reatng to the ncuson In the gross ncome of a for-
egn persona hodng company of ts dstrbutve share of the unds-
trbuted Suppement P net ncome of another foregn persona hodng
company n whch t s a sharehoder).
(d) Informaton n return. very Unted States sharehoder who
s requred under subsecton (b) to ncude n hs gross ncome any
amount wth respect to the undstrbuted Suppement P net ncome of
a foregn persona hodng company and who, on the ast day on whch
a Unted States group e sted wth respect to the company, owned 5
per centum or more n vaue of the outstandng stock of such company,
sha set forth In hs return n compete deta the gross ncome, de-
ductons and credts, net ncome, Suppement P net ncome, and un-
dstrbuted Suppement P net Income of such company.
(e) ffect on catta account of foregn persona hodng com-
pany. n amount whch bears the same rato to the undstrbuted
Suppement P net ncome of the foregn persona hodng company for
Less
Dvdends pad credt-.
50,000
Undstrbuted Suppement P net ncome.
190,000
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331, rt. 331-1.
184
Its ta abe year as the porton of such ta abe year up to and Incud-
ng the ast day on whch u Unted States group e sted wth respect
to the company bears to the entre ta abe year, sha, for the purpose
of determnng the effect of dstrbutons n subsequent ta abe years
by the corporaton, be consdered as a contrbuton to capta.
(f) ass of stock n hands op sharehoders. The amount re-
qured to be ncuded n the gross ncome of a Unted States share-
hoder under subsecton (b) sha, for the purpose of ad|ustng the
bass of hs stock wth respect to whch the dstrbuton woud have
been made (f t had been made), be treated as havng been renvested
by the sharehoder as a contrbuton to the capta of the corporaton
but ony to the e tent to whch such amount s ncuded n hs gross
ncome n hs return, ncreased or decreased by any ad|ustment of
such amount n the ast determnaton of the sharehoder s ta abty,
made before the e praton of seven years after the date prescrbed
by aw for fng the return.
(g) ass or stock n cask of death. or bass of stock or secur-
tes n a foregn persona hodng company acqured from a decedent,
see secton 113(a) (5).
(h) Lqudaton. or amount of gan taken nto account on quda-
ton of foregn persona hodng company, see secton 115(c).
(I) Perod of mtaton on assessment and coecton. or
perod of mtaton on assessment and coecton wthout assessment,
n case of faure to ncude n gross ncome the amount propery n-
cudbe theren under subsecton (b), see secton 275(d).
rt. 337-1. Income of foregn persona hodng companes ta ed to Unted
States sharehoders. (a) Genera rue. Suppement P does not mpose a ta
on foregn persona hodng companes. The undstrbuted Suppement P net
ncome of such companes, however, must be ncuded n the manner and to
the e tent set forth n ths artce, n the gross ncome of ther Unted States
sharehoders, that s, the sharehoders who are ndvdua ctzens or resdents
of the Unted States, domestc corporatons, domestc partnershps (see secton
1001(a)), and estates or trusts other than estates or trusts the gross Income of
whch under Tte I ncudes ony ncome from sources wthn the Unted States.
(6) mount ncudbe n gross ncome. ach Unted States sharehoder,
who was a sharehoder on the day n the ta abe year of the foregn persona
hodng company whch was the ast day on whch a Unted States group (see
secton 331(a) (2) and artce 331-3) e sted wth respect to the company, sha
ncude In hs gross ncome, as a dvdend, for the ta abe year In whch or
wth whch the ta abe year of the company ends, the amount he woud have
receved as a dvdend f on such ast day there had been dstrbuted by the
company and receved by the sharehoders an amount whch bears the same
rato to the undstrbuted Suppement P net Income of the company for the
ta abe year as the porton of such ta abe year up to and ncudng such
ast day bears to the entre ta abe year.
The undstrbuted Suppement P net ncome of the foregn persona hodng
company s ncudbe ony n the gross ncome of the Unted States sharehoders
who were sharehoders n the company on the ast day of ts ta abe year on
whch the Unted Sates group e sted wth respect to the company. Such
Unted States sharehoders, accordngy, are determned by the stock hodngs
as of such specfed tme. Ths rue appes to every Unted States sharehoder
who was a sharehoder n the company at the specfed tme regardess of
whether the Unted States sharehoder s ncuded wthn the Unted States
group. or e nmpe, n domestc corporaton whch s a Unted States share-
hoder at the specfed tme must return ts dstrbutve share n the unds-
trbuted Suppement P net ncome even though the domestc corporaton can not
be ncuded wthn the Unted States group snce, under secton 333(a)(1) and
artce 333(a)-2, the stock t owns n the foregn corporaton s consdered as
beng owned proportonatey by ts sharehoders for the purpose of determnng
whether the foregn corporaton s a foregn persona hodng company.
The Unted States sharehoders must ncude n ther gross ncome ther
dstrbutve shares of that proporton of the undstrbuted Suppement P net
ncome for the ta abe year of the company whch s equa n rato to that
whch the porton of the ta abe year up to and ncudng the ast day on
whch the Unted States group wth respect to the company e sted bears to
the entre ta abe year. Thus, If the ast day In the ta abe year on whch
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185
331, rt. 331-1.
the requred Unted States group e sted was aso the end of the ta abe year,
the porton of the ta abe year up to and Incudng such ast day woud be
equa to 100 per cent and n such case, the Unted States sharehoders woud
be requred to return ther dstrbutve shares n the entre undstrbuted Sup-
pement P net Income. ut f the ast day on whch the requred Unted
States group e sted was September 30, and the ta abe year was a caendar
year, the porton of the ta abe year up to and ncudng such ast day woud
be equa to nne-twefths and n that case, the Unted States sharehoders
woud be requred to return ther dstrbutve shares n ony nne-twefths of
the undstrbuted Suppement P net ncome.
The amount whch each Unted States sharehoder must return s that
amount whch he woud have receved as a dvdend f the above specfed
porton of the undstrbuted Suppement P net ncome had In fact been ds-
trbuted by the foregn persona hodng company as a dvdend on the ast
day of ts ta abe year on whch the requred Unted States group e sted.
Such amount s determned, therefore, by the nterest of the Unted States
sharehoder n the foregn persona hodng company, that s, by the number
of shares of stock owned by the Unted States sharehoder and the reatve
rghts of hs cass of stock, f there are severa casses of stock outstandng.
Thus, f a foregn persona hodng company has both common and preferred
stock outstandng and the preferred sharehoders are entted to a specfed
dvdend before any dstrbuton may be made to the common sharehoders,
then the assumed dstrbuton of the stated porton of the undstrbuted Suppe-
ment P net Income must frst be treated as a payment of the specfed dvdend on
the preferred stock before any part may be aocated as a dvdend on the
common stock.
The assumed dstrbuton of the requred porton of the mdstrbuted Sup-
pement P net ncome must be returned as dvdend ncome by the Unted
States sharehoders for ther respectve ta abe years n whch or wth whch
the ta abe year of the foregn persona hodng company ends. or e ampe,
f the M Corporaton whose ta abe year s the caendar year s a foregn per-
sona hodug company for 1037, and f , one of ts Unted States sharehoders
makes returns on a caendar year bass, whe , another Unted States share-
hoder, makes returns on the bass of a fsca year endng November 30,
must returu hs assumed dvdend as ncome for the ta abe year 1937, and
must return hs dstrbutve share as ncome for the fsca year endng Novem-
ber 30, 1938. In appyng ths rue, the date as of whch the Unted States
group ast e sted wth respect to the company s mmatera. Thus, n the
foregong e ampe, f September 30, 1037, was the ast day on whch the Unted
States group wth respect to the M Corporaton e sted, woud st be re-
qured to return hs assumed dvdend as ncome for the fsca year endng
November 30, 1038, even though September 30, 1937, the date as of whch the
dstrbuton s assumed to have been made, does not fa wthn such fsca
year.
rt. 337-2. Credt for obgatons of the Unted States ach Unted States
sharehoder requred to return hs dstrbutve share n the undstrbuted Sup-
pement P net ncome of a foregn persona hodng company for any ta abe
year Is aowed, for purposes of the ta mposed by secton 11, 13, 14, 201, or
201, a credt aganst hs net ncome for hs proportonate share of whatever
nterest on obgatons of the Unted States or ts nstrumentates (as specfed
n secton 25(a) (1) and (2)) may be ncuded n the gross ncome of the com-
pany for such ta abe year, wth the e cepton of any such Interest as may be
so ncuded by reason of the appcaton of the provsons of secton 334(b) and
artce 334-2.
or e ampe, the M Corporaton s a foregn persona hodng company whch
owns a the stock of the N Corporaton, nuother foregn persona hodng com-
pany. oth companes receve nterest on obgatons of the Unted States or
ts nstrumentates as specfed n secton 25(a) (1) and (2). In appyng
the credt aowabe under secton 337(c), the Unted States sharehoders of
the M Corporaton woud be entted to a credt ony for ther proportonate
shares of the nterest receved by that company and not for any part of the
Interest receved by the N Corporaton, regardess of whether the Interest re-
ceved by the N Corporaton Is ncuded In the gross ncome of the M Corpora-
ton, as an actua dvdend or as a constructve dvdend under secton 334(b).
rt. 337-3. Informaton n return. The nformaton requred by secton
337(d) n the returns of certan Unted States sharehoders reates ony to the
77904 38 7
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186
ta abe year of a foregn persona hodng company for whch Is computed such
corporaton s undstrbuted Suppement P net Income, a or part of whch must
be Incuded In gross Income by the Unted States sharehoder of whom the
nformaton s requred. The nformaton sha be submtted as a part of the
Income ta returns requred by the ct of such persons, In the form of a
statement attached to the return.
rt. 337-4. ffect on capta account of foregn persona hodng company and
bass of stock n hands of sharehoders. Sectons 337(e) and 337(f) are de-
sgned to prevent doube ta aton wth respect to the undstrbuted Suppement
P net ncome of foregn persona hodng companes. The appcaton of these
sectons may be ustrated by the foowng e ampes:
ampe 1: The M Corporaton Is a foregn persona hodng company. Sev-
enty-fve per cent In vaue of ts capta stock Is owned by , a ctzen of the
Unted States, and the remander, or 25 per cent, of ts stock s owned by , a
nonresdent aen Indvdua. or the caendar year 1937 the M Corporaton
has an undstrbuted Suppement P net Income of 100,000. s requred to
ncude 75,000 of such ncome n gross ncome n hs return for the caendar
year 1037. The 100,000 s treated as a contrbuton to the capta of the M
Corporaton. If for the caendar year 1938, the M Corporaton had no ncome
and no accumuated earnngs and profts, but dstrbuted 100,000 as dvdends,
the dvdends so dstrbuted woud be ta -free In the hands of both and . If,
however, the M Corporaton had accumuated earnngs and profts of 100,000 at
the begnnng of 1937, the facts otherwse beng the same, the dstrbutons n
1938 woud be ta abe to , and the ta abty of such dstrbutons to woud
depend upon the appcaton of secton 119(a) (2) (b), reatng to the treatment
of dvdends from a foregn corporaton as ncome from sources wthn or
wthout the Unted States.
ampe 2: In e ampe 1 assume the bass of s stock to be 300,000. If
ncudes n gross ncome n hs return for the caendar year 1937, 75,000 of
such ncome as a constructve dvdend, the bass of hs stock woud be 375,000.
When the 75,000 Is dstrbuted by the M Corporaton ta -free the bass of s
stock, assumng no other changes, woud agan be 300,000. If faed to n-
cude the 75,000 n gross ncome n hs return as requred by the ct and hs
faure was not dscovered unt after the 7-year perod of mtatons had e -
pred, the appcaton of the rue woud not ncrease the bass of s stock.
The subsequent ta -free dstrbuton of 75,000 woud reduce hs bass to
225,000, thus tendng to compensate for hs faure to ncude the amount of
75,000 n hs gross ncome. If the undstrbuted Suppement P net ncome of
the M Corporaton s read|usted wthn the statutory perod of mtatons, thus
ncreasng or decreasng the amount woud have to ncude n hs gross ncome,
proper ad|ustment s requred to be made to the bass of s stock on account of
such read|ustment.
Sec. 338. Informaton Returns by Offcers and Drectors.
(a) Monthy returns. On the 15th day of each month each nd-
vdua who on such day Is an offcer or a drector of a foregn corpora-
ton whch, wth respect to ts ta abe year (f not begnnng more
than 12 months before the date of the enactment of the Revenue ct
of 1937) precedng the ta abe year n whch such month occurs, was
a foregn persona hodng company, sha fe wth the Commssoner a
return settng forth wth respect to the precedng caendar month the
name and address of each sharehoder, the cass and number of shares
hed by each, together wth any changes n stock hodngs durng such
perod, the name and address of any hoder of securtes convertbe
nto stock of such corporaton, and such ether nformaton wth respect
to the stock and securtes of the corporaton as the Commssoner wth
the approva of the Secretary sha y reguatons prescrbe as necessary
for carryng out the provsons of ths ct. The Commssoner, wth
the approva of the Secretary, may by reguatons prescrbe, as the
perod wth respect to whch returns sha be fed, a onger perod than
a month. In such case the return sha be due on the 15th day of
the succeedng perod, and sha be fed by the ndvduas who on such
day are offcers and drectors of the corporaton.
(b) nnua returns. On the s teth day after the cose of the
ta abe year of a foregn persona hodng company each ndvdua who
on such s teth day s an offcer or drector of the corporaton sha
fe wth the Commssoner a return settng forth
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331, rt. 331-1.
(1) In compete deta the gross Income, deductons and credts,
net ncome, Suppement P net ncome, and undstrbuted Suppe-
ment P net ncome of such foregn persona hodng company for
such ta abe year and
(2) The same nformaton wth respect to such precedng ta -
abe year as s requred n subsecton (a) e cept that f a the
requred reports wth respect to such year have been fed under
subsecton (a) no nformaton under ths paragraph need be set
forth n the annua report.
rt. 338-1. Informaton returns hy offcers and drectors of certan foregn
corporatons. (a) Requrement for fng returns.
(1) Genera. Under secton 338(a), on the 15th day of each month each
ndvdua who on such day s an offcer or a drector of a foregn corporaton
whch, wth respect to ts ta abe year (f not begnnng more than 12 months
before ugust 26, 1937) precedng the ta abe year n whch such month occurs,
was a foregn persona hodng company, s requred to fe wth the Comms-
soner a monthy nformaton return as provded n that secton and ths
artce.
(2) Returns for a perod e ceedng one month. In the case of a foregn
persona hodng company whch before the cose of ts ta abe year specfed
n paragraph (a) (1) of ths artce, dstrbuted to ts sharehoders 90 per cent
or more of ts Suppement P net ncome, the foowng perods are prescrbed
wth respect to whch nformaton returns on orm 957 sha be fed durng
the foowng year:
The return requred under secton 338(a) for the ast month of the precedng
ta abe year sha be fed on the 15th day of the frst month foowng the cose
of such ta abe year. Subsequent returns sha be fed for each 6-month perod
foowng the cose of such ta abe year and sha be fed on te 15th day of the
frst month foowng such perod. If any change n the stock hodngs or n
the hodngs of securtes convertbe nto stock of the corporaton occurs durng
such perods, a monthy nformaton return must aso be fed on the 15th day
of the month foowng each month n whch the change occurs. In any case
under ths paragraph where the date for fng a monthy return concdes
wth the date for fng the return for a 6-month perod .ony the return for
the 6-month perod need be fed.
(3) Returns |onty made. If two or more offcers or drectors of a foregn
corporaton are requred to fe nformaton returns for any perod under
secton 338(a) and ths artce, any two or more of such offcers or drectors
may, n eu of fng separate returns for such perod, |onty e ecute and fe
one return.
(6) orm of return. The returns under secton 338(a) and ths artce sha
be made on orm 957. Such forms may, upon request, be procured from any
coector. ach offcer or drector shoud carefuy prepare hs return so as to
set forth fuy and ceary the nformaton caed for theren and by the app-
cabe reguatons. eturns whch have not been so prepared w not be con-
sdered as meetng the requrements of the ct.
(c) Contents of return. The return on orm 957 sha, n accordance wth
the provsons of ths artce and the nstructons on the form, set forth wth
respect to the precedng perod the foowng Informaton:
(1) Name and address of corporaton
(2) nd of busness n whch the corporaton s engaged
(3) Date of ncorporaton
(4) The country under the aws of whch the corporaton s ncorporated
(5) Number of shares and par vaue of common stock of the corporaton out-
standng as of the begnnng and end of the perod
(6) Number of shares and par vaue of preferred stock of the corporaton
outstandng as of the begnnng and end of the perod, the rate of dvdend on
such stock and whether such dvdend s cumuatve or noncumuatve
(7) descrpton of the convertbe securtes ssued by the corporaton,
ncudng a statement of the face vaue of, and rate of nterest on, such
securtes
(8) The name and address of each sharehoder, the cass and number of
shares hed by each, together wth any changes n stock hodngs durng such
perod
(9) The name and address of each hoder of securtes convertbe nto stock
of the corporaton, the cass, number and face vaue of the securtes hed by
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331, rt. 331-.
188
each, together wth any changes n the hodngs of such securtes durng the
perod and
(10) Such other Informaton as may be requred by the return form.
If a person s requred to fe a return under secton 338(a) and ths artce
wth respect to more than one foregn corporaton, a separate return must be
fed wth respect to each foregn corporaton.
( f) erfcaton of returns. returns requred by secton 338(a) and ths
artce sha be verfed under oath or affrmaton n the same manner as pre-
scrbed n artce 51-4.
(c) Penates. or crmna penates for faure to fe the returns requred
by secton 338(a) and ths artce, see secton 341.
t. 338-2. nnua nformaton returns by offcers and drectors of certan
foregn corporatons. (a) Requrement for fng returns.
(1) Genera. Under secton 338(b), on the s teth day after the cose of the
ta abe year of a foregn persona hodng company each ndvdua who on
such s teth day s an offcer or drector of the corporaton sha fe wth the
Commssoner an annua nformaton return as provded n that secton and
ths artce.
(2) Returns |onty made. If two or more offcers or drectors of a foregn
corporaton are requred to fe annua nformaton returns under secton 338(b)
and ths artce for any ta abe year of the corporaton, any two or more of
such offcers or drectors may n eu of fng separate annua returns for
such ta abe year, |onty e ecute and fe one annua return.
(6) orm of return. The returns under secton 338(b) and ths artce sha
be made on orm 958 and shoud be carefuy prepared by each offcer or drec-
tor so as to set forth fuy and ceary the nformaton caed for theren and
by the appcabe reguatons. Returns whch have not been so prepared w
not be consdered as meetng the requrements of the ct. Copes of orm
908 may, upon request, be procured from any coector.
(c) Contents of return. The return on orm 958 sha, n accordance wth
the provsons of ths artce and the nstructons on the form, set forth wth
respect to the ta abe year of the foregn persona hodng company the foow-
ng nformaton:
(1) In compete deta the gross ncome, deductons and credts, net ncome,
Suppement P net ncome, and undstrbuted Suppement P net ncome of the
foregn persona hodng company for such ta abe year
(2) The same nformaton wth respect to such ta abe year whch s re-
qured by secton 33S(a) and paragraph (c) of artce 338-1, e cept that f a
the requred returns wth respect to such year have been fed under secton
338(a) and artce 338-1, no nformaton under secton 338(b)(2) and ths
paragraph need be sot forth n such annua return and
(3) Such other nformaton as may be requred by the return form.
(d) erfcaton of returns. returns requred by secton 338(b) and ths
artce sha be verfed tnder oath or affrmaton as prescrbed n artce 51 1.
(e) Penates. or crmna penates for faure to fe the returns requred
by secton 338(b) and ths artce, see secton 341.
rt. 338-3. Tme and pace of fng returns. Returns requred by secton
338 and the reguatons thereunder sha be fed wth the Commssoner of
Interna Revenue, Washngton, D. C, attenton Records Dvson, and w be
consdered fed wthn the tme or tmes requred by aw f, wthn such tme
or tmes, such returns are made and paced n the mas n due course, propery
addressed and postage pad, provded they are actuay receved n the offce
of the Commssoner of Interna Revenue, Washngton, D. C, even though
receved after such tme or tmes.
Seo. 339. Informaton Returns by Sharehoders.
(a) Monthy returns. On the 15th day of each month each Unted
States sharehoder, by or for whom 50 per centum or more n vaue of
the outstandng stock of a foregn corporaton s owned drecty or
ndrecty (ncudng In the case of an ndvdua, stock owned by the
members of hs famy as defned n secton 333(a)(2)), f such for-
egn corporaton wth respect to ts ta abe year (f not begnnng
more than 12 months before the date of the enactment of the Revenue
ct of 1937) precedng the ta abe year n whch such month occurs
was a foregn persona hodng company, sha fe wth the Comms-
soner a return settng forth wth respect to the precedng caendar
month the name and address of each sharehoder, the cass and number
of shares hed by each, together wth any changes n stock hodngs
durng such perod, the name and address of any hoder of securtes
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189
331, rt. 331-1.
convertbe Into stock of such corporaton, and such other nformaton
wth respect to the stock and securtes of the corporaton as the
Commssoner wth the approva of the Secretary sha by reguatons
prescrbe as necessary for carryng out the provsons of ths ct. The
Commssoner, wth the approva of the Secretary, may by reguatons
prescrbe, as the perod wth respect to whch returns sha be fed,
a onger perod than a month. In such case the return sha be due
on the 15th day of the succeedng perod, and sha be fed by the
persons who on such day are Unted States sharehoders.
(b) nua betubns. On the s teth day after the cose of the
ta abe year of a foregn persona hodng company each Unted States
sharehoder by or for whom on such s teth day more than 50 per
centum of the outstandng stock of such company s owned drecty or
Indrecty (ncudng n the case of an ndvdua, stock owned by
members of hs famy as defned n secton 333(a) (2)), sha fe wth
the Commssoner a return settng forth the same nformaton wth
respect to such precedng ta abe year as s requred n subsecton (a)
e cept that f a the requred reports wth respect to suc year have
been fed under subsecton (a) no nformaton under ths subsecton
need be set forth n the annua report.
rt. 330-1. Informaton returns by sharehoders of certan foregn corpora-
tons. (a) Requrement for fng returns.
(1) Genera. On the 15th day of each month each Unted States sharehoder,
by or for whom 50 per cent or more n vaue of the outstandng stock of a foregn
corporaton s owned, drecty or ndrecty (ncudng n the case of an nd-
vdua, stock owned by members of hs famy as defned n secton 333(a) (2)),
f such foregn corporaton wth respect to ts ta abe year (f not begnnng
more than 12 months before ugust 26, 1037) precedng the ta abe year n
whch such month occurs was a foregn persona hodng company, sha fe wth
the Commssoner an nformaton return as provded n secton 330(a) and ths
artce.
(2) Returns for a perod e ceedng one month. In the case of a foregn
persona hodng company whch before the cose of ts ta abe year specfed n
paragraph (a)(1) of ths artce, dstrbuted to ts sharehoders 90 per cent or
more of ts Suppement P net ncome, the perods wth respect to whch Infor-
maton returns under secton 339(a) sha be fed sha be the same as the
perods prescrbed n paragraph (a)(2) of artce 338-1.
(3) Dupcate returns. If a sharehoder n a foregn corporaton fes, as an
offcer or drector n such corporaton, the returns requred by secton 338(a)
and artce 338-1 such returns sha be consdered as returns fed under
secton 339(a).
(6) orm of return. The return under secton 339(a) and ths artce sha
be on orm 957, copes of whch, upon request, may be secured from any co-
ector. ach sharehoder shoud carefuy prepare hs return so as to set forth
fuy and ceary the nformaton caed for theren and by the appcabe regu-
atons. Returns whch have not been so prepared w not be consdered as
meetng the requrements of the ct.
(c) Contents of return. The return on orm 957 sha, n accordance wth
the provsons of ths artce and the nstructons on the form, set forth wth
respect to the precedng perod the same nformaton as requred to be shown
on that form by secton 338(a) and paragraph (c) of artce 338-1.
If a person s requred to fe a return under secton 339(a) and ths artce
wth respect to more than one foregn corporaton, a separate return must be
fed wth respect to each foregn corporaton.
(d) erfcaton of returns. returns requred by secton 339(a) and ths
artce sha be verfed under oath or affrmaton as prescrbed n artce 51-4.
(e) Penates. or crmna penates for faure to fe the returns requred
by secton 339(a) and ths artce, see secton 341.
rt. 339-2. nnua nformaton returns by sharehoders of certan foregn
corporatons. (a) Requrement for fng returns.
(1) Genera. Under secton 339(b), on the s teth day after the cose of
the ta abe year of a foregn persona hodng company, each Unted States
sharehoder, by or for whom on such s teth day more than 50 per cent n
vaue of the outstandng stock of the company s owned drecty or ndrecty
(ncudng n the case of an ndvdua stock owned by members of hs famy
as defned n secton 333(a)(2)), sha fe wth the Commssoner an nforma-
ton return as provded n that secton and ths artce.
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331, rt. 331-1.
190
(2) Dupcate returns. If a sharehoder In a foregn corporaton fes, as as
offcer or drector n such corporaton, the returns requred by secton 338(b)
and artce 338-2, such returns sha be consdered as returns fed under
secton 339(b).
(6) orm of return. The returns under secton 339(b) and ths artce sha
be made on orm 957 and shoud be carefuy prepared by each sharehoder
so as to set forth fuy and ceary the nformaton caed for theren and by
the appcabe reguatons. Returns whch have not been so prepared w not
be consdered as meetng the requrements of the ct. Copes of orm 957
may, upon request, be procured from any coector.
(c) Contents of return. The return on orm 957 sha, In accordance wth
the provsons of ths artce and the nstructons on the form, set forth wth
respect to the ta abe year of the foregn persona hodng company the same
nformaton whch s requred under secton 339(a), paragraph (c) of artce
338- 1 and paragraph (c) of artce 339-1, e cept that If a the requred returns
wth respect to such year have been fed under secton 339(a) and artce
339- 1, no nformaton under secton 339(b) and ths artce need be set forth
n such annua return.
If a person s requred to fe an annua return under secton 339(b) and ths
artce wth respect to more than one foregn persona hodng company, a
separate return must be fed wth respect to each foregn persona hodng
company.
(d) erfcaton of returns. returns requred by secton 339(b) and ths
artce sha be verfed under oath or affrmaton as prescrbed n artce 51-4.
(e) Penates. or crmna penates for faure to fe the returns requred
by secton 339(b) and ths artce see secton 341.
rt. 339-3. Tme and pace of fng return . Returns requred by secton
339 and the reguatons thereunder sha be fed wth the Commssoner of
Interna Revenue, Washngton, D. C, attenton Records Dvson, and w be
consdered fed wthn the tme or tmes requred by aw If, wthn such tme
or tmes, such returns are made and paced n the mas n due course, propery
addressed and postage pad, provded they are actuay receved n the offce
of the Commssoner of Interna Revenue, Washngton, D. C, even though
receved after such tme or tmes.
Sec. 340. Returns as to ormaton, tc., of oregn Corporatons.
(a) Requrement. Under reguatons prescrbed by the Comms-
soner wth the approva of the Secretary, any attorney, accountant,
fducary, bank, trust company, fnanca nsttuton, or other person
(1) Who, on or after the date of the enactment of the Rev-
enue ct of 1937, ads, asssts, counses, or advses In, or wth
respect to, the formaton, organzaton, or reorganzaton of any
foregn corporaton, sha, wthn 30 days thereafter, fe wth
the Commssoner a return or
(2) Who. snce December 31, 1033, and pror to 00 days after
the date of the enactment of the Revenue ct of 1937, has aded,
asssted, counseed, or advsed n the formaton, organzaton, or
reorganzaton of any foregn corporaton sha, wthn 90 days
after the date of the enactment of such ct, fe wth the Com-
mssoner a return.
(b) orm and contents of return. Such return sha be n such
form, and sha set forth, under oath, n respect of each such cor-
poraton, to the fu e tent of the nformaton wthn the possesson
or knowedge or under the contro of the person requred to fe the
return, such nformaton as the Commssoner wth the approva of
the Seeretnry prescrbes by reguatons as necessary for carryng out
the provsons of ts ct Nothng n ths secton sha be construed
to requre the dvugng of prveged communcatons between attorney
and cent.
rt. 340-1. Returns of nformaton wth respect to foregn corporatons by at-
torncn, accountants, or other persons. (a) Return under secton 340(a) ).
ny attorney, accountant, fducary, bank, trust company, fnanca nsttuton,
or other person, who, on or after ugust 26, 1937, ads, asssts, counses, or
advses n, or wth respect to, the formaton, organzaton, or reorganzaton
of any foregn corporaton sha fe wth the Commssoner, wthn 30 days
after gvng such ad. assstance, counse, or advce, an nformaton return as
provded n secton 340(a)(1) and ths artce. The return must be fed n
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191
331 rt. 331-1.
every such case (1) regardess of the nature of the counse or advce gven,
whether for or aganst the formaton, organzaton, or reorganzaton of the
foregn corporaton, or the nature of the ad or assstance rendered and (2)
regardess of the acton taken upon the advce or counse, that s, whether
the foregn corporaton s actuay formed, organzed, or reorganzed.
If, n a partcuar case, the ad, assstance, counse, or advce gven by any
person e tends over a perod of more than 1 day and not for more than 30 days,
such person, to avod the mutpe fng of returns, may fe a snge return
for the entre perod. In such case, the return sha be fed wthn 30 days from
the frst day of such perod. If, n a partcuar case, the ad, assstance, counse,
or advce gven by any person e tends over a perod of more than 30 days, such
person may fe a return at the end of each 30 days ncuded wthn such perod
and at the end of the fractona part of a 30-day perod, f any, e tendng
beyond the ast fu 30 days. In each such case, the return must dscose a
the requred nformaton whch was not reported on a pror return.
(6) Return under secton 340(a) (2). ny attorney, accountant, fducary,
bunk, trust company, fnanca nsttuton, or other person, who, snce December
31, 1933, and pror to November 24, 1937 (the nneteth day after the enactment
of the Revenue ct of 1937), has aded, asssted, counseed, or advsed n the
formaton, organzaton, or reorganzaton of any foregn corporaton, sha fe
wth the Commssoner, on or before November 24, 1937, an nformaton return
as provded n secton 340(a) (2) and ths artce. The return must be fed n
every such case regardess of the nature of the counse or advce gven, whether
for or aganst the formaton, organzaton, or reorganzaton of the foregn
corporaton, or of the nature of the ad or assstance rendered, f such forma-
ton, organzaton, or reorganzaton occurs subsequent to the gvng of such ad,
assstance, counse, or advce and pror to the e praton of 90 days after the date
of enactment of the ct.
(c) Requrements common to returns under secton 340(a)(1) and secton
340(a)(2).
(1) mpoyers. In the case of ad, assstance, counse, or advce n, or wth
respect to, the formaton, organzaton, or reorganzaton of a foregn corpora-
ton gven by a person n whoe or n part through the medum of subordnates
or empoyees (ncudng n the case of a corporaton the otfcers thereof) the
return of the empoyer must set forth to the fu e tent a nformaton pre-
scrbed by ths artce ncudng that whch, as an ncdent to such empoyment,
s wthn the possesson or knowedge or under the contro of such subordnates
or empoyees.
(2) mpoyees. The obgaton of a subordnate or empoyee (ncudng n
the case of a corporaton the offcers thereof) to fe a return wth respect to any
ad. assstance, counse, or advce n, or wth respect to, the formaton, or-
ganzaton, or reorganzaton of a foregn corporaton, gven as an ncdent
to hs empoyment, w be satsfed f a compete and accurate return as pre-
scrbed by secton 340 and ths artce s duy fed by the empoyer settng
forth a of the nformaton wthn the possesson or knowedge or under the
contro of such subordnate or empoyee.
Cerks, stenographers, and other subordnates or empoyees, renderng ad or
assstance soey of a cerca or mechanca character n, or wth respect to,
the formaton, organzaton, or reorganzaton of a foregn corporaton are not
requred to fe returns by reason of such servces.
(3) Partners. In the case of ad, assstance, counse, or advce n, or wth
respect to, the formaton, organzaton, or reorganzaton of a foregn corpora-
ton gven by one or more members of a partnershp n the course of Its busness,
the obgaton of each such ndvdua member to fe a return w be satsfed
f a compete and accurate return, as prescrbed by ths artce, s duy fed by
the partnershp, e ecuted by a the members of the frm who gave any such
ad, assstance, counse, or advce. If, however, the partnershp has been ds-
soved at the tme the return s due, ndvdua returns must be fed by each
member of the former partnershp who gave any such ad, assstance, counse,
or advce.
(4) Returns |onty made. It two or more persons ad, assst, counse, or
advse n, or wth respect to, the formaton, organzaton, or reorganzaton of
a partcuar foregn corporaton, any two or more of such persons may, n eu
of fng severa returns, |onty e ecute and fe one return.
(d) orm of return. The returns under ths artce sha be made on orm
059. Such forms may, upon request, be procured from any coector. ach
person shoud carefuy prepare the return so as to set forth fuy and ceary
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192
the nformaton caed for theren and by the appcabe reguatons. Returns
whch have not been so prepared w not be consdered as meetng the requre-
ments of the ct.
(e) Contents of return. The return on orm 059 sha, n accordance wth
the provsons of ths artce and the nstructons on the form, set forth the
foowng nformaton to the fu e tent such nformaton s wthn the know-
edge or possesson or under the contro of the person requred to fe the return:
(1) The name and address of the person (or persons) to whom and the
person (or persons) for whom or on whose behaf the ad, assstance, counse,
or advce was gven
(2) compete statement of the ad, assstance, counse, or advce gven
(3) Name and address of the foregn corporaton and the country under the
aws of whch t was formed, organzed, or reorganzed
(4) e month and year when the foregn corporaton was formed, organzed,
or reorganzed
(5) statement of how the formaton, organzaton, or reorganzaton of the
foregn corporaton was effected
(6) compete statement of the reasons for, and the purposes sought to be
accompshed by, the formaton, organzaton, or reorganzaton of the foregn
corporaton
(7) statement showng the casses and knds of assets transferred to the
foregn corporaton n connecton wth ts formaton, organzaton, or reor-
ganzaton, ncudng a detaed st of any stock or securtes ncuded n such
assets, and a statement showng the names and addresses of the persons who
were the owners of such assets mmedatey pror to the transfer
(8) The names and addresses of the sharehoders of the foregn corporaton
at the tme of the competon of ts formaton, organzaton, or reorganzaton,
showng the casses of stock and number of shares hed by each
(9) The name and address of the person (or persons) havng custody of the
books of account and records of the foregn corporaton
(10) Such other nformaton as may be requred by the return form and
(11) Where any of the nformaton requred to be furnshed s wthhed be-
cause ts character s camed to be prveged as a communcaton between
attorney and cent wthn the meanng of secton 340(b), the return must so
state and must contan a compete statement of the nature and the crcum-
stances of the communcaton on whch a decson as to the proprety of the
cam of prvege may be reached.
If a person ads, asssts, counses, or advses n, or wth respect to, the forma-
ton, organzaton, or reorganzaton of more than one foregn corporaton, a
separate return must be fed wth respect to each foregn corporaton.
(/) erfcaton of returns. returns requred by secton 340 and ths ar-
tce sha be verfed under oath or affrmaton as prescrbed n artce 51-4.
(g) Penates. or crmna penates for faure to fe the returns requred
by secton 340 and ths artce, see secton 341.
rt. 340-2. Pace of fng returns. Returns requred by secton 340 and the
reguatons thereunder sha be fed wth the Commssoner of Interna Reve-
nue, Washngton, D. C, attenton Records Dvson.
Sec. 341. Penates.
ny person requred under secton 338, 339, or 340 to fe a return,
or to suppy any nformaton, who wfuy fas to fe such return, or
suppy such nformaton, at the tme or tmes requred by aw or regu-
atons, sha, n eu of the penates provded n secton 145(a) for such
offense, be guty of a msdemeanor and, upon convcton thereof, be
fned not more than 2,000, or mprsoned for not more than one year,
or both.
Treasury Decson 4773, approved November 9, 1937 page 193, ths uetn ,
reatng to returns of nformaton wth respect to foregn corporatons, s hereby
superseded.
Gut T. eyerno,
Commssoner of Interna Revenue.
pproved December 7,1937.
ROSW LL MaGILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster December 10, 1937, 3.59 p. m.)
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193
340.
S CTION 340. R TURNS S TO ORM TION, TC.,
O OR IGN CORPOR TIONS.
I-46-9044
T. D.4773
INCOM T . R NU CT O 1937.
Reguatons under Tte II, reatng to returns of nformaton
wth respect to foregn corporatons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Tte II of the Revenue ct of 1937, approved
ugust 26,1937 (Pubc, No. 377, Seventy-ffth Congress, chapter 815,
frst sesson), provdes n part:
tte foregn persona hodng companes.
Sec. 201. Incuson n Income of Unted States Sharehoders of Income of
oregn Persona odng Companes.
The Revenue ct of 1936 s amended by addng after Suppement O of Tte I
a new suppement to read as foows:
suppement p foregn persona hodng companes.

Sec. 340. Returns as to ormaton, tc., of oregn Corporatons.
(a) Requrement. Under reguatons prescrbed by the Commssoner wth
the approva of the Secretary, any attorney, accountant, fducary, bank, trust
company, fnanca nsttuton, or other person
(1) Who, on or after the date of the enactment of the Revenue ct of
1937, ads, asssts, counses, or advses n, or wth respect to, the formaton,
organzaton, or reorganzaton of any foregn corporaton, sha, wthn 30
days thereafter, fe wth the Commssoner a return or
(2) Who, snce December 31, 1933, and pror to 90 days after the date
of the enactment of the Revenue ct of 1937, has aded, asssted, counseed,
or advsed n the formaton, organzaton, or reorganzaton of any foregn
corporaton sha, wthn 90 days after the date of the enactment of such
ct, fe wth the Commssoner a return.
(b) orm and Contents of Return. Such return sha be n such form,
and sha set forth, under oath, n respect of each such corporaton, to the fu
e tent of the nformaton wthn the possesson or knowedge or under the
contro of the person requred to fe the return, such nformaton as the Com-
mssoner wth the approva of the Secretary prescrbes by reguatons as
necessary for carryng out the provsons of ths ct. Nothng n ths secton
sha be construed to requre the dvugng of prveged communcatons between
attorney and cent.
Sec 341. Penates.
ny person requred under secton 338, 339, or 340 to fe a return, or to
suppy any nformaton, who wfuy fas to fe such return, or suppy such
nformaton, at the tme or tmes requred by aw or reguatons, sha, n eu
of the penates provded n secton 145(a) for such offense, be guty of a
msdemeanor and, upon convcton thereof, be fned not more than 2,000, or
mprsoned for not more than one year, or both.
Par. . Secton 1001 of the Revenue ct of 1936 provdes n part:
Sec. 1001. Defntons.
(a) When used n ths ct
(1) The term person means an ndvdua, a trust or estate, a partner-
shp, or a corporaton.
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340.
194
Par. C. Secton 62 of the Revenue ct of 1936 provdes:
Sec. 62. Rues and Reguatons.
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths tte.
Pursuant to the above-quoted provsons and other provsons of
the nterna revenue aws, the foowng reguatons are hereby pre-
scrbed wth respect to returns of nformaton to be fed bv attorneys,
accountants, fducares, banks, trust companes, fnanca nsttutons,
or other persons as to the formaton, organzaton, or reorganzaton
of foregn corporatons:
rtce 1. Informaton returns. (a) Return under secton 3 0(a)(f). ny
attorney, accountant, fducary, bank, trust company, fnanca nsttuton, or
other person, who, on or after ugust 26, 1037, ads, asssts, counses, or advses
n, or wth respect to, the formaton, organzaton, or reorganzaton of any for-
egn corporaton sha fe wth the Commssoner, wthn 30 days after gvng
such ad, assstance, counse, or advce, an nformaton return as provded In
secton 340(a)(1) and these reguatons. The return must be fed n every
such case (1) regardess of the nature of the counse or advce gven, whether
for or aganst the formaton, organzaton, or reorganzaton of the foregn
corporaton, or the nature of the ad or assstance rendered and (2) regardess
of the acton taken upon the advce or counse, that s, whether the foregn
corporaton s actuay formed, organzed, or reorganzed.
If, n a partcuar case, the ad, assstance, counse, or advce gven by any
person e tends over a perod of more than 1 day and not for more than SO
days, such person, to avod the mutpe fng of returns, may fe a snge
return for the entre perod. In such case, the return sha be fed wthn 30
days from the frst day of such perod. If, n a partcuar case, the ad,
assstance, counse, or advce gven by any person e tends over a perod of
more than 30 days, such person may fe a return at the end of each 30 days
ncuded wthn such perod and at the end of the fractona part of a 30-day
perod. If any, e tendng beyond the ast fu 30 days. In each such case, the
return must dscose a the requred nformaton whch was not reported on a
pror return.
(6) Return under secton 840(a)(2). ny attorney, accountant, fducary,
bank, trust company, fnanca nsttuton, or other person, who, snce December
81, 1933, and pror to November 24, 1937 (the nneteth day after the enactment
of the Revenue ct of 1937), has aded, asssted, counseed, or advsed n the
formaton, organzaton, or reorganzaton of any foregn corporaton, sha fe
wth the Commssoner, on or before November 24, 1937, an nformaton return
as provded n secton 340(a)(2) and these reguatons. The return must be
fed n every such case regardess of the nature of the counse or advce gven,
whether for or aganst the formaton, organzaton, or reorganzaton of the
foregn corporaton, or of the nature of the ad or assstance rendered, f such
formaton, organzaton, or reorganzaton occurs subsequent to the gvng of
such ad, assstance, counse, or advce and pror to the e praton of 90 days
after the date of enactment of the ct
(c) Requrements common to returns under secton 340(a)(1) and secton
840(a) (2). (1) mpoyers. In the case of ad, assstance, counse, or advce
n, or wth respect to, the formaton, organzaton, or reorganzaton of a foregn
corporaton gven by a person n whoe or n part through the medum of
subordnates or empoyees (ncudng n the case of a corporaton the offcers
thereof), the return of the empoyer must set forth to the fu e tent a nfor-
maton prescrbed by these reguatons, ncudng that whch, as an ncdent
to such empoyment, s wthn the possesson or knowedge or under the contro
of such subordnates or empoyees.
(2) mpoyees. The obgaton of a subordnate or empoyee (ncudng
n the case of a corporaton the offcers thereof) to fe a return wth respect
to any ad, assstance, counse, or advce n, or wth respect to, the formaton,
organzaton, or reorganzaton of a foregn corporaton gven as an ncdent
to hs empoyment, w be satsfed f a compete and accurate return as pre-
scrbed by secton 340 and these reguatons s duy fed by the empoyer
settng forth a of the nformaton wthn the possesson or knowedge or under
the contro of such subordnate or empoyee.
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340.
Cerks, stenographers, and other subordnates or empoyees, renderng ad or
assstance soey of a cerca or mechanca character n, or wth respect to,
the formaton, organzaton, or reorganzaton of a foregn corporaton are not
requred to fe returns by reason of such servces.
(3) Partners. In the case of ad, assstance, counse, or advce n, or wth
espect to, the formaton, organzaton, or reorganzaton of a foregn corpora-
ton gven by one or more members of a partnershp n the course of ts
busness, the obgaton of each such ndvdua member to fe a return w
be satsfed f a compete and accurate return, as prescrbed by these reguatons,
Is duy fed by the partnershp, e ecuted by a the members of the frm who
gave any such ad, assstance, counse, or advce. If, however, the partnershp
has been dssoved at the tme the return s due, ndvdua returns must be
fed by each member of the former partnershp who gave any .such ad,
assstance, counse, or advce.
(4) Returns |onty made. If two or more persons ad, assst, counse, or
advse n, or wth respect to, the formaton, organzaton, or reorganzaton
of a partcuar foregn corporaton, any two or more of such persons may,
In eu of fng severa returns, |onty e ecute and fe one return.
(5) Penates. or crmna penates for faure to fe the returns requred
by secton 340 and these reguatons, see secton 341 quoted n paragraph .
rt. 2. ortn of return. The returns under artce 1 sha be made on orm
959. Such forms may, upon request, be procured from any coector. ach
person shoud carefuy prepare hs return so as to set forth fuy and ceary
the nformaton caed for theren. Iteturns whch have not been so prepared
w not be accepted as meetng the requrements of the ct.
rt. 3. Contents of returns. The return on orm 959 sha, n accordance
wth the provsons of these reguatons and the nstructons on the form, set
forth the foowng nformaton to the fu e tent such Informaton s wthn
the knowedge or possesson or under the contro of the person requred to
fe the return:
(1) The name and the address of the person (or persons) to whom and (he
person (or persons) for whom or on whose behaf (he ad, assstance, counse,
or advce was gven
(2) compete statement of the ad, assstance, counse, or advce gven
(3) Name and address of the foregn corporaton and the country under the
aws of whch t was formed, organzed, or reorganzed
(4) The month and year when the foregn corporaton was formed, organzed,
or reorganzed
(5) statement of how the formaton, organzaton, or reorganzaton of
the foregn corporaton was effected
(6) compete statement of the reasons for, and the purposes sought to
be accompshed by, the formaton, organzaton, or reorganzaton of the
foregn corporaton
(7) statement showng the casses and knds of assets, transferred to
the foregn corporaton n connecton wth ts formaton, organzaton, or
reorganzaton, Incudng a detaed st of any stock or securtes ncuded
n such assets, and a statement showng the names and addresses of the
persons who were the owners of such assets mmedatey pror to the transfer
(8) The names and addresses of the sharehoders of the foregn corporaton
at the tme of the competon of ts formaton, organzaton, or reorganzaton,
showng the casses of stock and number of shares hed by each
(9) The name and address of the person (or persons) havng custody of
the books of account and records of the foregn corporaton
(10) Such other nformaton as may be requred by the return form and
(11) Where any of the nformaton requred to be furnshed s wthhed
because ts character s camed to be prveged as a communcaton between
attorney and cent wthn the meanng of secton 340(b), the return must
so state and must contan a compete statement of the nature am the crcum-
stances of the communcaton on whch a decson ns (o the proprety of the
cam of prvege may be reached.
If a person ads, asssts, counses, or advses In, or wth respect to, the
formaton, organzaton, or reorganzaton of more than one foregn corpora-
ton, a separate return must be fed wth respect to each foregn corporaton.
rt. 4. erfcaton of return. returns requred by secton 340 and these
reguatons sha be verfed under oath or affrmaton. The onth or affrma-
ton may be admnstered by an offcer duy authorzed to admnster oaths
for genera purposes by the aw of the Unted States, or of any State, Terr-
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351, rt. 351-1.
19G
tory, or possesson of the Unted States, wheren such oath Is admnstered,
or by a consuar offcer of the Unted States. Such returns e ecuted abroad
may be uttested free of charge before Unted States consuar offcers. If a
foregn notary or other offca havng no sea sha act as attestng offcer,
the authorty of such attestng offcer sha be certfed to by some |udca
offca or other proper offcer havng knowedge of the appontment and offca
character of the attestng offcer.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved November 6, 1937.
RosW LL M GILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 9, 1937, 11.24 a. m.)
TITL I . DDITION L INCOM T S.
S CTION 351. SURT ON P RSON L
OLDING COMP NI S.
rtce 351-1: Surta on persona hodng I-48-90GO
companes. T. D. 4777
INCOM T .
Reguatons 94 amended by renumberng Chapters I and
as Chapters and I, and by amendng artces
351-1 and 351-4 artce 351-4 of Reguatons 86 aso amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
1. Reguatons 94, approved November 12, 1936, are amended as
foows:
(a) Chapters I and are renumbered as Chapters
and I.
(b) The foowng s substtuted for the headng of Chapter
I renumbered as Chapter :
SURT O P RSON L OLDING COMP NI S.
(Under Tte I of the Revenue ct of 1936 as t e sted pror to the
amendment made by secton 1 of the Revenue ct of 1937.)
(c) Immedatey after the quotaton of secton 351 the foowng
s nserted:
Secton 3 of the Revenue ct of 1937 enacted ugust 26, 1937, provdes n
part:
um Tte I of the Revenue ct of 1936, as t e sted pror to
such amendment secton 1 of the Revenue ct of 1937 , sha not appy
to a foregn persona hodng company (as defned n secton 331 of the
Revenue ct of 1936, added to such ct by secton 201 of ths ct) wth
respect to any ta abe year endng after the date of the enactment of
ths ct.
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197
15351, rt. 351-1.
Note. The provsons of ths chapter appy to ta abe years begnnng after
December 31, 1935, but do not appy to any ta abe year begnnng after De-
cember 31, 1936, or, n the case of a foregn persona hodng company as defned
n secton 331 of the Revenue ct of 1936 (added to such ct by secton 201 of
the Revenue ct of 1937) to any ta abe year endng after ugust 26, 1937.
(d) The foowng sentence s added at the end of the second para-
graph of artce 351-1:
foregn corporaton whch s a foregn persona hodng company (as defned
n secton 331 of the Revenue ct of 1936, added to such ct by secton 201
of the Revenue ct of 1937) s not sub|ect to the ta mposed by secton 351
wth respect to any ta abe year endng after ugust 26, 1937 (see secton 3
of the Revenue ct of 1937).
2. rtces 351-4 of Reguatons 86 and 94 are amended to provde:
bt. 3o-4. mounts used or set asde to retre ndebtedness ncurred pror
to anuary 1, 1984. (a) Indebtedness. The term Indebtedness means an
obgaton, absoute and not contngent, to pay, on demand or wthn a gven
tme, n cash or other medum, a f ed amount. The term ndebtedness
does not ncude the obgaton of a corporaton on ts capta stock.
The ndebtedness must have been ncurred (or, f ncurred by assumpton,
assumed) by the ta payer pror to anuary 1, 1934. n ndebtedness ev-
denced by bonds, notes, or other obgatons ssued by a corporaton s ordnary
ncurred as of the date such obgatons are ssued and the amount of such
ndebtedness s the amount represented by the face vaue of the obgatons.
In the case of renewa or other changes n the form of an ndebtedness, so
ong as the reatonshp of debtor and credtor contnues between the ta payer
and hs credtor, the gvng of a new promse to pay by the ta payer w not
have the effect of changng the date the Indebtedness was ncurred.
(6) mounts used or set asde. The deducton s aowabe, n any ta abe
year, ony for amounts used or set asde n that year. The use or settng asde
must be to effect the e tngushment or dscharge of Indebtedness. Snce,
therefore, n the case of renewa and other changes n the form of an ndebted-
ness, the reatonshp of debtor and credtor contnues between the ta payer
and hs credtor, the mere gvng of a new promse to pay by the ta payer w
not resut n an aowabe deducton. If amounts are set asde n one year, no
deducton s aowabe for such amounts for a ater year n whch actuay
pad. s ong as a other condtons are satsfed, the aggregate amount
aowabe as a deducton for any ta abe year ncudes a amounts (from what-
ever source) used and, as we, a amounts (from whatever source) set asde,
rrespectve of whether n cash or other medum. Doube deductons are not
permtted.
resouton, specfyng the partcuar ndebtedness to be retred, the pan of
retrement, and the specfc assets to be used for that purpose, passed by the
board of drectors or correspondng authorty durng the ta abe perod or
pror thereto, w be consdered suffcent to meet the statutory requrement
that the amounts must be set asde. certfed copy of such resouton
must accompany the return on orm 1120 .
(c) Reasonabeness of the amounts tcth reference to the sze and terms of
the ndebtedness. The reasonabeness of the amounts used or set asde must be
determned by reference to the sze and terms of the partcuar ndebtedness.
ence, a the facts and crcumstances wth respect to the nature, scope,
condtons, amount, maturty, and other terms of the partcuar ndebtedness
must be shown n each case.
Ordnary an amount used to pay or retre an ndebtedness, n whoe or n
part, at or pror to the maturty and n accordance wth the terms thereof w
be consdered reasonabe, and may be aowabe as a deducton for the year n
whch so used, f no ad|ustment s requred by reason of an amount set asde
In a pror year for payment or retrement of the same ndebtedness.
amounts set asde for the payment or retrement of an ndebtedness n
accordance wth and pursuant to the terms of the obgaton, for e ampe, the
annua contrbuton requred by a mandatory snkng fund, w be consdered
as compyng wth the statutory requrement of reasonabeness. mounts set
asde by a corporaton vountary and wthout specfc requrement by the
terms of the ndebtedness to whch they appy w be consdered reasonabe f
set asde pursuant to and n accordance wth a defnte and reasonabe Dan
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351, rt. 351-6.
198
for payment or retrement of the partcuar obgaton at maturty. Thus,
an amount of 250,000 set asde n one year for the payment or retrement of
an ndebtedness of 300,000 whch st has severa years to run woud not,
e cept under e traordnary crcumstances, be consdered reasonabe. To be
consdered reasonabe t s not necessary that the pan of retrement provde
for a retroactve settng asde of amounts for years pror to that n whch the
pan s adopted. owever, f a vountary pan was adopted pror to 1934,
no ad|ustment s aowabe n respect of the amounts set asde n the years
pror to 1934. pan once adopted must be adhered to n a subsequent years
uness crcumstances other than mere ta abty ater arse whch |ustfy
a modfcaton of the pan.
(d) Genera. The burden of proof w rest upon the ta payer to sustan
the deducton camed. Therefore, the ta payer must furnsh the nformaton
requred by the return, and such other nformaton as the Commssoner may
requre n substantaton of the deducton camed.
Ths Treasury decson s ssued under the authorty contaned n
sectons 62 of the Revenue cts of 1934 and 1936.
Guy T. everng,
Commssoner of Interna Revenue.
pproved November 19, 1937.
RoSW LL M GILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 22, 1937, 8.20 p. m.)
rtce 351-2: Cassfcaton of a persona hodng
company.
R NU CT O 1936.
mendment of Reguatons 94, artce 351-2. (See T. D. 4759,
page 117.)
rtce 351-3: Computaton of undstrbuted ad|usted
net ncome.
R NU CT O 193G.
mendment of Reguatons 94, artce 351-3. (See T. D. 4759,
page 117.)
rtce 351-4: mounts used or set asde to retre n-
debtedness ncurred pror to anuary 1, 1934.
R NU CT O 1936.
mendment of artce 351-4. (See T. D. 4777, page 196.)
rtce 351-6: Iustraton of computaton of undstrb-
uted ad|usted net ncome and surta .
R NU CT O 1936.
mendment of Reguatons 94, artce 351-6. (See T. D. 4759,
page 117.)
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199
501 Regs. 95, rt. 1.
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-32-8870
I. T. 3105
R NU CT O 1036.
Payments or credts by the M Company after une 1, 1936, to
ts vendees of amounts of processng ta es ncuded n the prce of
artces sod were not made pursuant to a wrtten agreement
and may not, therefore, be deducted from seng prce under
secton 501 (f)3 of the Revenue ct of 193G, or be e cuded from
ncome as a ta ad|ustment under secton 501(|)4 of that ct.
The M Company s now and has been for a number of years the
e cusve agent of the N Ms for a specfed terrtory. Durng such
perod, after ascertanng the prce of four from the N Ms, the M
Company entered nto wrtten agreements wth ts vendees for the
sae of four and then entered nto a contract wth the N Ms for
the purchase of such four from the N Ms. When purchasng four
the M Company was requred by the N Ms to pay to them the
amount of the ta wth respect to the processng or the wheat from
whch the four was med. Under the wrtten agreements wth ts
vendees, made pror to March 3, 1936, the M Company ncuded n
the prce of the four sod the amount of the processng ta whch
was mposed wth respect thereto. The queston s presented whether
payments or credts by the M Company after une 1, 1936, to ts
vendees of the amount of the processng ta so ncuded n the sae
prce are aowabe to that company under secton 501(f) 3 of the
Revenue ct of 1936 as a deducton from the seng prce of the
four or are aowabe as a ta ad|ustment under secton 501 (|)4.
The ta cause contaned n the saes contracts used by the N Ms
n effectng ts saes to the M Company reads as foows:
4. Ta es: The prces named n ths contract ncude the processng ta es as
now mposed by the Unted States on the processng of the commodtes used n
the manufacture of the products covered by ths contract .
ny decrease n the processng ta es as now or hereafter mposed by any
egsatve or admnstratve branch of the Unted States sha nure to the
beneft of the buyer f, as and when the beneft of such decrease has been
actuay reazed and secured by the seer .
The foregong provson s substantay the same as the ta cause
contaned n the contract construed n G. C. M. 17232 (C. . -2,
119 (1936), and that rung s appcabe to payments or credts
made by the N Ms to the M Company under wrtten agreements
entered nto pror to March 3, 1936, contanng the cause quoted
above.
The ta cause contaned n saes agreements used by the M Com-
pany n seng to ts vendees products purchased from the N Ms
under contracts contanng the above-quoted provsons s as foows:
11. The prce named n ths contract s e cusve of any ta or mposton
now or hereafter eved or mposed by the Unted States or any State thereof,
or any governmenta agency, upon wheat or the products thereof, and such ta
or mposton, f eved or mposed, sha be added to the prce f ed n ths
contract, and sha be pad by the buyer to the seer.
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5501 Regs. 95, rt. 1.
200
Secton 501 (f)3 of the Revenue ct of 1936 provdes n part as
foows:
(3) The term seng prce means seng prce mnus ( ) amounts sub-
sequenty 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 In such prce
on account of a edera e cse ta and mnus ( ) the aocabe porton of
any professona fees and e penses of tgaton ncurred n securng the refund
or preventng the coecton of the edera e cse ta , not to e ceed 10 per
centum of the amount of such ta .
Secton 501 (|) 4 provdes:
(4) The term ta ad|ustment means a repayment or credt by the ta -
payer to hs vendee of an amount equa to the edera e cse ta wth respect
to an artce (ess reasonabe e pense to the vendor n connecton wth the
nonpayment or recovery by hm of the amount of such ta and n connecton
wth the makng of such repayment or credt) f 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 evdent that the provson reatng to processng ta es con-
taned n the saes agreement used by the M Company ncudes no
provson, e press or mped, for refund or credt to the vendee of
any part of the processng ta referred to theren. ence, there was
no wrtten agreement wthn the meanng of the ct to make such
refunds or credts. It s hed, therefore, that payments or credts by
the M Company after une 1, 1936, to ts vendees of amounts of
processng ta es ncuded n the prce of artces sod were not made
n the bona fde settement of a wrtten agreement and may not be
deducted from seng prce under secton 501 (f)3 of the Revenue
ct of 1936, or be e cuded from ncome as a ta ad|ustment
under secton 501 (|)4 of that ct.
Reguatons 95, rtce 1: Defntons. I 3-9008
I. T. 3132
R NU CT OP 1936.
Determnaton as to whether wrtten agreements e st wthn
the meanng of secton 501, subdvsons (f) (3) and ( ) (4), of the
Revenue ct of 1936 where copes of agreements are n the posses
son of both the vendor and vendee (a) whch nether has sgned,
or (6) whch ony one of them has sgned.
The prncpa busness of the M Company s the manufacturng
and seng of four, cereas, and feed, some of whch products were
processed from commodtes sub|ect to the processng ta . That
company states that some but not a of ts four contracts were
sgned by purchasers and that many of ts contracts for other prod-
ucts were not so sgned. owever, e cept n the case of cash saes
or saes for mmedate devery, the buyer and seer each has a copy
of the contract or order. The company nqures whether n the fo-
owng stuatons a wrtten agreement e sts wthn the purvew
of secton 501, subdvsons (f) (3) and (|) (4), of the Revenue ct
of 1936:
1. Where each has a copy but nether has sgned.
2. Where ony the seer has sgned.
3. Where ony the buyer has sgned.
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201
501 Regs. 95, rt. 2.
Secton 501, subdvsons (f) (3) and (|) (4), respectvey, of the
Revenue ct of 1936 provdes n part as foows:
(f)
(3) The term seng prce means seng prce mnus ( ) amounts sub-
equenty pad or credted to the purchaser 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, as rembursement for the amount Incuded n such
prce on account of a edera e cse ta .

( )
(4) The term ta ad|ustment means a repayment or credt by the ta -
payer to hs vendee of an amount equa to the edera e cse ta wth respect
to an artce (ess reasonabe e pense to the vendor n connecton wth the
nonpayment or recovery by hm of the amount of such ta and In connecton
wth the makng of such repayment or credt) f 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. Itucs supped.
Wth respect to the stuatons presented, where copes of the agree-
ments are n the possesson of both the vendor and the vendee but
nether the vendor nor the vendee has sgned, or the vendor aone
or the vendee aone has sgned, t s hed that payments or credts
made to vendees n settement of such agreements w not be con-
sdered as made wthn the mtatons prescrbed by secton 501,
subdvsons (f)(3) and (|)(4), of the Revenue ct of 1936 uness
such agreements (assumng that they otherwse quafy as wrtten
agreements ) are sgned by ether the vendor or the vendee or, f
not sgned by ether party, t can be shown by correspondence or
other wrtngs sgned by ether party, or both, on or before March 3,
1936, that the partes ntended to be bound by the terms of such
agreements, and provded further that where the wrtten agreement,
or other wrtngs evdencng an ntent to be bound thereby, was
sgned by ony one party to the sae t can aso be shown that the
other party manfested hs acceptance thereof on or before March 3,
1936.
Reguatons 95, rtce 2: Nature of ta . I-46-9043
Ct. D. 1277
T ON UN UST NRIC M NT R NU CT O 1936 R IS D ST TUT S-
decson of court.
1. Sut s quty In|uncton.
The pantff Is not entted to an n|uncton restranng the
assessment and coecton of the so-caed wndfa ta mposed
by Tte III of the Revenue ct of 1936 because of the camed
unconsttutonaty of the statute and the chaenge to the method
prescrbed by the statute for determnng the ta . Secton 3224,
Revsed Statutes, apped.
2. Consttutonaty.
Tte III of the Revenue ct of 1936, mposng a so-caed
wndfa ta and provdng a method for ts computaton, s not
unconsttutona. The statute Imposes a true ta and s not an
attempt to nufy the decson n Unted States v. Suter, whch
hed the processng ta to be nvad It does not make an arbtrary
and unreasonabe cassfcaton wth respect to the ncome ta ed
t does not voate the requrement of due process because of ts
retroactve provsons or because of the statutory presumpton,
whch may be rebutted, that the burden of the ta has been shfted
to customers when the margna spread between cost and seng
prce e ceeds the average margna spread durng the precedng
6-year perod.
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5501 Regs. 95, rt. 2.
202
Unted States Crcut Court of ppeas fob te ourth Crcut.
Whte Packng Co., appeant, v. Chares . Robertson, Indvduay and at
Coector of Interna Revenue for the Dstrct of North Carona, appeee.
89 ed. (2d), 775.
ppea from the Dstrct Court of the Unted States for the Mdde Dstrct o
North Carona, at Sasbury.
pr 6, 1937.
OPINION.
Parker, Crcut udge: Ths s au appea from an order dsmssng a sut
nsttuted to eu|on the coector of Interna revenue for the North Carona
dstrct from proceedng under Tte III of the Revenue ct of 1936 to coect
from pantff the so-caed wndfa ta mposed by the tte, from fng
a return for pantff wth respect to such ta , from mposng penates ou
pantff, or from takng other acton aganst pantff thereunder. Reef was
asked n the b on the ground that the statute mposng the ta was nvad
because both the ta tsef and the method provded for ts computaton were
voatve of provsons of the edera Consttuton. second cause of acton
asked the ad of the court n determnng the amount of the ta , f t shoud
be hed vad, ou the ground that aternatve methods of return provded n
the ct eft the pantff n doubt as to whch method to adopt and that ths
doubt coud not be resoved n the absence of an audt whch woud requre
a greater ength of tme than aowed by the ct for a return.
The pantff n the court beow was the Whte Packng Co. of Sasbury,
N. C, a sma meat packng concern, whch as a processor of hogs was sub|ect
to the processng ta mposed by the grcutura d|ustment ct of May 12,
1933. The b aeged that between uy 11, 1935, and anuary 16, 1936, pan-
tff pad Into the regstry of the court n a sut n whch the coecton of the
processng ta had been en|oned a tota of 34,190.49, whch was pad back
to t when that ta was decared unconsttutona by the Supreme Court. In
ths court t s stated by pantff that there was an addtona amount of
processng ta es, not pad nto the regstry of the court, for whch t woud
have been abe for the year 1935 under the terms of grcutura d|ustment
ct, amountng to 11,286.66.
The moton to dsmss n the court beow was based upon three grounds:
(1) that the sut was forbdden by R. S. 3224 (2) that the b faed to
aege facts suffcent to entte pantff to equtabe reef and (3) that pan-
tff had an adequate remedy at aw. The dstrct |udge sustaned the moton
ou the frst and thrd grounds and stated, n addton, that the b faed to
show that companant was abe for any ta and for that reason was defcent
n fang to show threat of n|ury. (See 17 ed. Supp., 120.) In vew of hs
hodngs wth respect to these matters he propery decned to consder or pass
upon the consttutonaty of the ta ng statute. ( uston v. Iowa Soap Co.
(C. C. . 8), 85 ed. (2d), 649, 652.) We thnk that hs hodngs were unques-
tonaby correct on the record before hm and that nothng need be added to
the dscusson of the questons there nvoved whch s contaned n hs opnon.
ke concuson was reached by the Crcut Court of ppeas of the Tenth
Crcut 1n Sherdan ourng Ms v. Cassdy (87 ed. (2d), 20) and of the
fth Crcut n Stcnhagen Rce Mng Co. v. Scofed et at, (C. C. . 5) (87
ed. (2d), 804), by udge Chesuut n Star Mng Co. v. Magruder ( ed.
Supp., ), by udge amton n Lousve Provson Co. v. Oenn (18 ed.
Supp., 423), and by udge Yaukweh u Unon Packng Co. v. Rogan (17 ed.
Supp., 934).
In ths court companant has fed a moton, supported by affdavts, askng
that the cause be remanded wth drecton to te dstrct |udge to permt
au amendment to ts b to show the facts set forth u the affdavts. rom
these t appears that the cost of preparng a return under the statute w be
between 7,500 and 10,000, owng to the fact that pantff has not kept ts
saes of pork segregated from ts other busness, and the compaton of the
nformaton necessary for the makng of a proper return w necesstate the
e amnaton and anayss of 600,000 or 650,000 nvoces. It s further aeged
n these affdavts that pantff s a sma concern n urgent need of addtona
capta, and that to wthdraw from Its funds the amounts necessary to make
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203
501 Regs. 95, rt. 2.
the payment under protest, as bass of sut for recovery, of the ta es whch
woud be assessed aganst t on the bass of ts abty for processng ta es
woud resut n ts fnanca run. It s argued that payment under protest
and sut for recovery w not afford an adequate remedy at aw, for the reason
that there woud be no means of recoverng the e pendture of 7,500 to 10,000
necessary for the makng of a return and that ths, together wh the hardshp
nvoved n what, t s aeged, woud be a runous wthdrawa of capta for
the purpose of makng the payment, brngs the case wthn the prncpe of
Met- v. Standard Nut Margarne Co. (284 U. a., 498 ICt. D. 457, C. . I-1,
370 (1932) ).
.suffcent reason for denyng the moton to remand woud be that we are
not mpressed wth the contenton that any such e pendture as s aeged
woud be necessary for the makng of a return, or that rreparabe n|ury woud
resut from the payment under protest of the ta shown thereby to be due.
that the aw requres s that the return be made n good fath wth the
gvng of such nformaton as s reasonaby avaabe. s records must have
been kept for the payment of the processng ta , t s cear that the ta payer
has ready avaabe records from whch wth tte dffcuty or e pense a
good part of the nformaton necessary for the ta return can be obtaned.
Offcas of ta payer, from ther knowedge of the busness, can suppy, no
doubt, an appro matey correct estmate as to the remanng tems. nd, f
the Commssoner s not satsfed wth the returns so fed, t s the Govern-
ment and not the ta payer that w have the burden of audtng the nvoces.
(Unon Packng Co. v. Rogan, supra Lousve Packng Co. v. mn, supra.)
s to the wthdrawa of capta from busness, t appears that the ta can not
e ceed 80 per cent of the processng ta and that appro matey that porton
of the processng ta had aready been pad nto court by pantff and returned
to t shorty before the passage of the statute here nvoved. If the processng
ta was passed on to the customer so that the amount mpounded was cear
proft to pantff when returned to hm, t s fute to argue that the busness
w be runed by the wthdrawa of such amount. If, on the other hand,
pantff bore the burden of the processng ta and dd not pass t on, there
shoud be tte dffcuty n showng ths (Unted States v. efferson ectrc
Co., 291 U. S., 386, 402 Ct. D. 803, C. . III-1, 393 (1934) ) and certany
pantff s return woud show t and no ta woud be payabe. In other words,
ony to the e tent of 80 per cent of the processng ta passed on by the proces-
sor s the wndfa ta mposed the return of pantff w presumaby not
show any greater ta abe ncome than n reaty e sted and the payment of
the ta so shown to be due can not resut n rreparabe n|ury to the busness
of pantff as It must be pad from profts recenty receved, and not from
workng capta. court of equty, of course, can not entertan such pea of
rreparabe n|ury as pantff attempts to base on the need of busness
e panson.
ut a concusve reason for denyng the moton, s that wo are satsfed that
the statute s consttutona, and that no purpose woud be served by remand-
ng the cause, n order that the adequacy of the remedy at aw mght be deter-
mned n the ght of the addtona facts shown by the affdavts, when we are
of opnon that n any event the order dsmssng the b shoud be affrmed.
The queston as to the consttutonaty of the statute and the adequacy of the
ega remedy both go to the suffcency of the b and the case shoud not be
remanded for addtona fndngs wth respect to one ground of dsmssa when
the dsmssa s ceary correct on another ground. It s we setted that
where t appears from the record that the court has done the rght thng, ts
acton w not be reversed because based upon the wrong ground. ( ct ebru-
ary 26, 1919, 28 U. S. C. ., 391. armer s Gude Co. v. Prare Co., 293 U. S.,
268, 281 Unted States v. ot ank, 270 U. S., 49 hcrh| v. Craven County
(C. C. . 4), 70 ed. (2d), 52, 54 Great mercan Ins. Co. v. ohnson (C. C. .
4), 25 ed. (2d), 847 Cty of St. Pau v. Certan Lands (C. C. . 8), 48 ed.
(2d), 805 Ramsey v. Crevn (C. C. . 8), 254 ed., 813 rown v. Lane Cotton
Ms Co. (C. C. . 5), 28 ed. (2d), 911.) fortor, a dsmssa shoud not
be reversed and the case remanded for further hearng wth respect to the
ground assgned, when t appears from the face of the b that companant s
entted to no reef whatever. It woud be absurd to proong tgaton for the
purpose of determnng whether or not the ega remedy s adequate, when t
s apparent from the face of the b tsef that pantff s not threatened wth
wrong enttng hm to a remedy of any sort because the ony statute of whch
compant s made Is consttutona.
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501 Regs. 95, rt. 2.
204
The statute whch s attacked s Tte III of the Revenue ct of 1936 mposng
the wndfa ta of 80 per cent on ncome of a ta payer whch has arsen
because he has shfted to others the burden of processng ta es mposed upon
hm and has been reeved of the payment of the ta es. Its purpose was to
ta at a hgh rate the proft whch had been reazed by processors as a resut
of the rse n prces due to the mposton of ta es by the grcutura d|ust-
ment ct of May 12, 1933, whch was hed nvad n Unted States v. uter
(297 U. S., 1 Ct. D. 1070, C. . -1, 421 (1936) ). The ta es were mposed
on three casses of persons, (1) processors who had shfted the burden of the
ta wthout payng t, (2) vendees of processors who had shfted the burden
of the ta and been rembursed for the amount of the ta by ther vendors,
and (3) processors who after payng the ta es and shftng the burden thereof
had obtaned a refund of the ta es so pad. s pantff fas wthn the frst
cass, ony the provsons of the statute reatng to that cass need be consd-
ered. The provson mposng the ta on that cass s as foows:
ta equa to 80 per centum of that porton of the net Income 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 ncome for the entre ta abe year from the sae of artces wth respect
to whch such edera e cse ta was mposed. (Revenue ct of 1936, Tte
III, secton 501 (a)1.)
The ta ng statute s attacked on four dstnct grounds: (1) that t s an
attempt to nufy the decson n uter v. Unted States, supra, and the rghts
ested n pantff under that decson (2) that t makes arbtrary and un-
reasonabe cassfcaton wth respect to the ncome ta ed (3) that t mposes
a retroactve penaty or at best a retroactve e cse ta and (4) that t s
arbtrary and unreasonabe wth respect to the bass of mposton and the
return requred of the ta payer.
s to the frst of these grounds of attack, t Is to be noted that the ta s
mposed, not upon the ta retaned by the processor, but upon the ncome
whch he has reazed by passng on the ta whch he was requred by statute
to pay but dd not pay. If he has reazed no net ncome as a resut of the
busness upon whch the processng ta was mposed, he s not abe for the
wndfa ta athough he woud have been abe for the processng ta . (Sec-
ton 501(c) (1) (2).) nd ony the net ncome derved from the busness upon
whch the processng ta was mposed s ta abe, even though the processng
ta may have e ceeded the net ncome. The wndfa ta s based upon the
theory that the processng ta mposed by the ct woud ncrease the prces ot
the ta ed product by the amount of the ta and the graph prepared by the
Unted States Department of grcuture and pubshed as hbt of the
Government s bref shows that the spread n prces due to the mposton of
the ta corresponded to the amount of the ta and was practcay unform
durng the tme that t was n force. Ths ncrease n prces resuted n an
abnorma ncrease n profts for the processors when they were reeved from
the payment of the ta whch had resuted n the ncrease. It s not unreason-
abe that the Government shoud mpose a speca ta , and a heavy ta , upon
ths abnorma proft whch had ts orgn n governmenta acton. It was upon
ths theory that the e cess profts ta of March 3, 1917 (40 Stat., 300), was
mposed. (La ee Iron Works v. Unted States, 256 U. S., 377, 387 Ct. D. 12,
C. . 4, 373 (1921) .)
The hodng of the uter case was that the processng ta was nvad be-
cause not a ta at a but a mere step n a pan for the reguaton of agrcu-
ture beyond the powers of Congress. The wndfa ta , on the other hand,
s not a step n any pan of unconsttutona reguaton of agrcuture or n-
dustry, but a ta n the strctest sense of the word, mposed for the purpose
of meetng an antcpated defct n the budget due to the passage of the
Soders onus b and the nvadaton of the processng ta es. There s
nothng n the ct to ndcate that the revenue to be derved from t s to go
nto any fund other than the genera fund of the Government or to be used
n any way other than the proceeds of other awfu ta es. ( ngan d Co. v.
Smth, 17 ed. Supp., 217, 221 Unon rackng Co. v. Rogan, 17 ed. Supp..
934.)
Comng to the second ground of ob|ecton, . e., that the statute makes an
unreasonabe cassfcaton wth respect to the ncome ta ed, t s cear that
the ta s mposed ony on ncome derved from a partcuar source, 1. e., from
the shftng of processng ta es to others n the sae of products wthout pay-
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205
5501 Regs. 95, rt. 2.
ng the ta es. It s no bass of ob|ecton to the ta that ncome of th s
pecuar and abnorma knd shoud be snged out for speca treatment, as
were profts from war contracts n R. oe d Co. v. Commssoner of Interna
Revenue (C. C. . 2) (30 ed. (2d), 630). wde dscreton must be accorded
he egsatve authorty n the matter of cassfyng for purposes of ta aton.
(Ta Commssoner v. ackson, 283 U. S., 527 nt v. Stone Tracy Co., 220
U. S., 107, 158-150.) nd the motves of Congress n evyng a ta wthn ts
consttutona power w not be nqured nto f t s n reaty a ta , as s the
case here. McCruy v. Unted States, 195 U. S., 27.) nd cassfcaton n the
mposton of the ta w be uphed f any state of facts reasonaby can be
conceved to sustan t. (Ta Commssoner v. ackson, supra Rust v. an
Demon d Lews, 240 U. S., 342.)
The thrd ground of attack s that the statute s vod because retroactve, and
s a mere penaty or at best a retroactve e cse ta . The argument that the
ta s a mere penaty, mposed for the punshment of those who have contested
the processng ta ct, s suffcenty answered by what has aready been sad.
The fact that the rate of ta aton s hgh, does not make the ta a penaty
or render t nvad for where the power to ta e sts the e tent of the burden
s a matter for the dscreton of the egsatve body. ( o v. Standard O Co.
of Netc ersey, 294 U. S., 87 Maynano Co. v. amton, 292 U. S., 40 nyan
d Co. v. Smth, supra.) The ta s, of course, an e cse ta , as are a ta es on
ncome, but t s not rendered vod on that account because t s retroactve.
On the contrary, the vadty of statutes mposng ncome ta es retroactvey s
we setted. (Unted States v. udson, 299 U. S., 498, 57 S. Ct., 30 ) accus
Machne Co. v. Unted States, 282 U. S., 375 Ct. D. 278, C. . -, 424
(1931) rushaber v. Unon Par. R. Co., 240 U. S., 1, 20 Stockdac v. tantc
Ins. Co., 20 Wa., 323, 331 kcn et a. v. Unted States, 283 U. S., 15
Ct D. 320, C. . -, 472 (1931) Osburn Caforna Corporaton v. Wech
(C. C. . 9), 39 ed. (2d), 41, 43 Ct D. 173, C. . t -1, 250 (1930) .) s
s.d n the case ast cted, Many past Revenue cts have been made retro-
actve, as w appear from the ong st of cases cted n the dssentng opnon
of Mr. ustce randes n Untermyer v. nderson (270 U. S., 440, 447, 48 S. Ct.,
353, 72 L. d., 645 T. D. 4157, C. . II-1, 326 (1928) ), and n many of the
cases thus cted the retroactve provsons of the cts under consderaton
worked far greater n|ustce to the companng partes than s the case here.
The ta here mposed s not ke an estate ta mposed upon a transfer made
many years before or a gft ta upon a gft aready consummated, as was the
case of the ta es consdered n Nchos v. Coodge (274 U. S., 531 T. D. 4072,
C. . I-2, 851 (1927) ) and Untermyer v. nderson (270 U. S., 440 Such
ta es may we be sad to voate the requrement of due process. ere the
ta s mposed on ncome whch has recenty been earned and whch, f the
ta payer has comped wth the aw, has ether been pad to the Government
under an unconsttutona statute or pad nto the regstry of a court pendng
the determnaton of the vadty of same, and whch for practca purposes
has come nto the possesson of the ta payer durng the year n whch the
ta s mposed. The ma mum perod of retroactvty under the statute s 16
months and ths covers a perod as to whch there w necessary be read|ust-
ments of ncome as a resut of the decson n the case of Unted States v.
uter, supra. s sad by udge amton n Lousve Provson Co. v. Ocnv,
supra, we thnk that the perod of appcabty of the ct had a sensbe con-
necton wth the determnaton of ncome. We recognze no prncpe nvoved
n the concept of due process whch forbds the ta ng of such ncome. On the
contrary, we thnk the case fas squarey wthn the prncpe of Unted tntr
v. udson, supra, n whch the Supreme Court, speakng through Mr. ustce
|n Devanter, sad:
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 n process of enactment,
or wthn so much of the caendar year as preceded the enactment and re-
peated decsons of ths Court have recognzed ths practce and sustaned t as
consstent wth the due process of aw cause of the Consttuton.
On the fourth pont, the argument s that the ta s voatve of the due
process cause of the ffth amendment because ts fundamenta structure s
based upon a hypothess that s arbtrary and caprcous, n that t s sad
there s no bass for the presumpton, created by secton 501(e) (1)(2), that
the ta has been passed on because the margna spread between cost and
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501 R gs. 95, rt. 12.
206
seng prce e ceeds the average margna spread, as determned by 501(f) 1,
durng the precedng 6-year perod. It s to be noted, however, that the statute
mts the ta abe ncome to net ncome. (501 (a) 1, 501(c) (1) (2).) nd
Congress mght cassfy net ncome derved from the branches of producton to
whch the processng ta had been apped wthout provdng for the deducton
of the average margn, or wthout reference to whether the ta had been
shfted or not. The aowance of the deducton, therefore, coud not nvadate
the ta on net ncome, even though, as camed, t bore no reaton to the
shftng of the ta .
Rut we do not thnk that the presumpton created by the statute s an arb-
trary or caprcous one. Whe a theoretca argument can be made that the
e cess by whch the margn of proft e ceeds the average margn over the
6-year perod represents other eements than the shftng of the ta burden,
the method provded by the statute s neary euough accurate for purposes of
ta aton, where theoretca accuracy s not requred. It certany can not be
sad to be wthout reaton to the fact presumed for t s safe to say that the
processor has shfted to hs customers a ta enterng nto the eement of cost n
so far as t was possbe to shft t. The processor s protected from any n-
|ustce n the matter not ony by the provsons whch mt the ta abe ncome
to net ncome, but aso by a provson mtng t to the amount of the process-
ng ta pad, ess certan deductons (501(e)3), and by a provson that the
presumpton may be rebutted by proof of the actua e tent to whch the burden
as been shfted (501()). s sad n Unted States v. efferson ectrc Co.
(291 U. S., 380, 402), If the ta payer has borne the burden of the ta , he
ready can show t. ny dffcuty arsng out of the fact that books have
not been kept wth the ta n vew s met by what we have sad above wth
regard to the return, . e., a that s requred of the ta payer s that the return
be made n good fath wth the gvng of such nformaton as s reasonaby
avaabe and wth the rght on the part of the Government to check the return
by an e amnaton of ta payer s books and records.
Ltte need be sad as to the second cause of acton askng an n|uncton and
accountng, upon the assumpton that the ta ng ct s vad, n order that
a bass may be determned for the makng of a return. It s we setted that
mere compcaton of facts aone and dffcuty of proof are not a bass of
equty |ursdcton. (Currden v. Mddeton, 232 U. S., 633, 63G Unted States
v. tter Root Deveopment Co., 200 U. S., 451, 472 rodcrck v. mercan
Genera Corporaton (C. C. . 4), 71 ed. (2d), 864, 8G8.) nd certany, the
courts of equty of the Unted States w not take upon themseves the deter-
mnaton of a bass for ta assessment when Congress has provded eaborate
admnstratve machnery for that purpose. That the courts, n face of the
prohbton contaned n R. S. 3224, shoud en|on the coecton of a ta and
order an accountng that a ta payer may determne upon what bass to make
a ta return, s a proposton so much at varance wth the prncpes upon
whch equty |ursdcton s e ercsed as not to requre dscusson. No author-
ty s cted remotey |ustfyng such procedure n ta matters, and we know of
none.
The court beow refused to grant a restranng order, but upon appcaton
to ths court we granted such order and have e tended t to protect pantff
unt the ssuance of our mandate. s we fee that we shoud not nterfere
wth the coecton of a ta whch we have hed to be consttutona to any
greater e tent than s necessary to enabe pantff to secure an ad|udcaton
of ts rghts, mandate w ssue n accordance wth our rues 30 days after the
handng down of ths opnon, but w not be further stayed uness n the
meantme pautff sha have fed wth the Supreme Court an appcaton for
wrt of certorar to revew our decson.
or the reasons stated, the order dsmssng the b w be affrmed.
ffrmed.
Reguatons 95, rtce 12: cusons from T-35-8900
net ncome. I. T. 3110
R NU CT OP 1936.
Rembursements receved by the manufacturer of arge cotton
bags from the processor or other vendor representng agrcutura
ad|ustment ta burdens ncuded n prces pad by hm to the
vendor may be e cuded by the manufacturer from net Income
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207
501 Regs. 95, rt. 12.
sub|ect to the ta on un|ust enrchment mposed by Tte III
of the Revenue ct of 1036 f, under the terms of any statute,
the ta payer woud have been entted to a refund from the Unted
States of edera e cse ta wth respect to the artce otherwse
than as an erroneous or ega coecton. credt or refund
receved from the Government by the manufacturer of arge cotton
bags uuder the provsons of secton 15(a) of the grcutura
d|ustment ct, as amended and reenacted by secton 601, Tte I
of the Revenue ct of 1936, s not sub|ect to the ta on un|ust
enrchment mposed by Tte III of the Revenue ct of 1936.
Rembursements receved by the vendee from the manufacturer
of arge cotton bags for amounts representng agrcutura ad|ust-
ment ta burdens ncuded n prces pad by such vendee to the
manufacturer fa wthn the provsons of secton 501 (a)2 of the
Revenue ct of 1936, and the vendee must fe a return and pay
the ta mposed by Tte III of the ct.
dvce s requested wth respect to the un|ust enrchment ta
abty of the manufacturer of arge cotton bags and of hs vendee.
The ta payer purchased durng the perod uy 8, 1934, to an
nary 6, 1936, arge cotton bags from the manufacturer of such bags
for use by hm as a |obber of four and feed. The manufacturer of
the arge cotton bags was not the frst domestc processor of the
cotton contaned n such bags. The |obber has been nformed by
the manufacturer from whom he purchased the arge cotton bags n
queston that the edera e cse ta ncuded n the prces pad for
the bags w be refunded to the |obber when the manufacturer re-
ceves a refund from the processor of amounts representng the ed-
era e cse ta ncuded m the prces pad to the atter for cotton
fabrc used n the manufacture of such arge cotton bags.
The questons presented are (1) whether rembursements receved
by the manufacturer from the processor of amounts representng the
edera e cse ta ncuded n prces pad by the former to the atter
for cotton fabrc used n the manufacture of arge cotton bags are
sub|ect to the ta on un|ust enrchment mposed by Tte III of the
Revenue ct of 1936, and (2) whether rembursements receved by
the |obber from the manufacturer of amounts representng the ed-
era e cse ta ncuded n prces pad by the former to the atter for
arge cotton bags are sub|ect to the ta on un|ust enrchment mposed
by Tte III of the Revenue ct of 1936, and whether the |obber
must fe an un|ust enrchment ta return wth respect to such rem-
bursements or refunds.
Tte III of the Revenue ct of 1936 provdes n part as foows:
Sec. 501. Ta on Net Income bom Certan Sources.
(a) The foowng ta es sha be eved, coected, and pad for each ta abe
year (n addton to any other ta on net ncome), upon the net Income of every
person whch arses from the sources specfed beow:

(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 u turn shfted to hs vendees.

(b) The net ncome (specfed n subsecton (a) (1)) from the sae of artces
wth respect to whch the edera e cse ta was not pad, and the net ncome
specfed n subsecton (a) (2) or (3), sha not ncude the net ncome from
the sae of any artce, from rembursement wth respect to any artce, or
from refund or credt of edera e cse ta wth respect to any artce
(3) f under the terms of any statute the ta payer woud have beeu entted
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501 Regs. 95, rt. 12.
208
to a refund from the Unted States of the edera e cse ta wth respect to
the artce otherwse than as an erroneous or ega coecton (assumng, n
case the ta was not pad, that t had been pad).
Sec. 503. dmnstratve Pbovsons.
(a)
(b) very person who receved any rembursement specfed n
subsecton (a) (2) sha make a return under ths tte .
Paragraph C of secton 15(a) of the grcutura d|ustment ct,
as amended by the ct approved une 26, 1934 (48 Stat., 1241),
provdes:
If at any tme the Secretary of grcuture fnds, upon nvestgaton and
after due notce and opportunty for hearng to nterested partes, that any
cass of products of any commodty s of such ow vaue, consderng the quan-
tty of the commodty used for ther manufacture, that the mposton of the
processng ta woud prevent n whoe or n arge part the use of the commodty
n the manufacture of such products and thereby substantay reduce con-
sumpton and ncrease the surpus of the commodty, then the Secretary of
grcuture sha so certfy to the Secretary of the Treasury, specfyng
whether such resut w n hs |udgment most effectvey be prevented by a
suspenson of the mposton of the processng ta or a refund of the ta pad,
wth respect to such amount of the commodty or any product thereof as s
used n the manufacture of such products, and thereafter, as sha be specfed
n such certfcaton, (1) the mposton of the processng ta sha be sus-
pended wth respect to such amount of the commodty as s used n the manu-
facture of such products, and thereafter, as sha be specfed n such certfca-
ton, (2) the mposton of the processng ta sha be suspended wth respect
to such amount of the commodty as s used n the manufacture of such prod-
ucts unt such tme as the Secretary of grcuture, after further nvestgaton
and due notce and opportunty for hearng to nterested partes, revokes hs
certfcaton to the Secretary of the Treasury, or (3) the Secretary of the Treas-
ury sha refund (n accordance wth the provsons of, to such persons and n
such manner as sha be specfed n, such certfcaton) the amount of any ta
pad (pror to the date of any revocaton by the Secretary of grcuture of
hs certfcaton to the Secretary of the Treasury, upon further nvestgaton
and after due notce and opportunty for hearng to nterested partes) under
ths tte wth respect to such amount of the commodty or any product thereof
as s used after the date of such certfcaton n the manufacture of such
products.
Paragraph D of the certfcate of the Secretary of grcuture
dated uy 7, 1934 (T. D. 4486, C. . III-2, 485 (1934)), provdes
n part as foows:
Whereas, on une 12, 1934, enry . Waace, Secretary of grcuture of the
Unted States of merca, actng under and pursuant to secton 15, subsecton
(a), of an ct of Congress, known as the grcutura d|ustment ct,
approved May 12, 1933, as amended, after nvestgaton and due notce and
opportunty for hearng to nterested partes, and due consderaton havng
been gven to a the facts, found and certfed to the Secretary of the Treas-
uary that arge cotton bags as n sad certfcate defned , a cass of products
of cotton, are of such ow vaue compared wth the quantty of cotton used
n the manufacture thereof, that the mposton of the processng ta on cotton
used n the manufacture of such products woud prevent n arge part the use
of cotton n the manufacture of such cass of products and thereby substantay
reduce consumpton and ncrease the surpus of cotton. nd
Whereas, by the ct approved une 26, 193-1 (Pubc, No. 476), secton 15, sub-
secton (a), of the grcutura d|ustment ct, has been amended to provde
that the Secretary of grcuture sha specfy whether such resut w n
hs |udgment most effectvey be prevented by a suspenson of the mposton
of the processng ta or a refund of the ta pad, wth respect to such amount
of the commodty or any product thereof as s used n the manufacture of
such products.
Now. therefore, , IT. . Waace, Secretary of grcuture of the Unted
States of merca, actng under and pursuant to the provsons of secton ),
subsecton (a), of the ct of Congress, known as the grcutura d|ustment
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209
501 Regs. 95, rt. 12.
ct, approved May 12, 1933, as amended, do hereby certfy and specfy to the
Secretary of the Treasury that such resut w, n my |udgment, most effec-
tvey be prevented by a refund of any tu pad under the grcutura d|ust-
ment ct, as amended, wth respect to such amount of cotton or any product
thereof as s used n the manufacture of targe cotton bags, on the foowng
bass:
Upon the manufacture of arge cotton bags from cotton fabrc, as heren
defned, the manufacturer thereof sha be entted at the tme of such manufac-
ture to a refund of the amount of any ta pad under the grcutura d|ust-
ment ct, as amended, wth respect to the cotton fabrc used n such manufac-
ture. The manufacturer of such arge cotton bags s hereby specfed as the
person entted to the refund of the amount of ta pad wth respect to such
amount of cotton fabrc as s used by hm n the manufacture of arge cotton bags.
Itacs supped.
Secton 601 of Tte I of the Revenue ct of 1936 provdes n
part as foows:
(a) The provsons of sectons 10(d), 15(a), 15(c), 16(e)(1), 16(e)(3), and
17(a) of the grcutura d|ustment ct, as amended, are hereby reenacted
but ony for the purpose of aowng refunds n accordance therewth n cases
where the devery for chartabe dstrbuton or use, or the e portaton, or the
manufacture of arge cotton bags, or the decrease n the rate of the processng
ta (or ts equvaent under secton 16(e) (3)), took pace pror to anuary 6,
1936.
(b) cept for refunds under secton (a) of the grcutura d|ustment
ct, as reenacted heren, no refund under ths secton sha be made to the
processor or other person who pad or was abe for the ta wth respect to
the artces on whch the cam s based.
It s evdent from the above-quoted provsons of the certfcate of
the Secretary of grcuture, dated uv 7, 1934. that the mposton
of the e cse ta on the processng of cotton by the grcutura
d|ustment ct, as amended, was not suspended wth respect to
cotton used n the manufacture of arge cotton bags, but that the
refund of such mposed ta to the manufacturer of the arge cotton
bags was authorzed.
In vew of the foregong, where the manufacturer of arge cotton
bags s rembursed by the processor or other vendor for amounts
representng agrcutura ad|ustment ta burdens ncuded n prces
pad by the manufacturer to such vendor, t s hed that such manu-
facturer receves a rembursement wthn the meanng of the
provsons of secton 501 (a)2, supra. owever, the ncome from
such rembursement may be e cuded by the manufacturer from
the net ncome sub|ect to the un|ust enrchment ta snce secton
501 (b)3, supra, provdes for an e cuson of such ncome f, under
the terms of any statute, the ta payer woud have been entted to a
refund from the Unted States of the edera e cse ta wth respect
to the artce otherwse than as an erroneous or ega coecton
(assumng, n case the ta was not pad, that t had been pad).
Under the above crcumstances, the manufacturer woud have been
entted to a refund from the Unted States under the provsons of
secton 15(a) of the grcutura d|ustment ct, as amended, other-
wse than as an erroneous or ega coecton. Where the manu-
facturer of arge cotton bags receves a credt or refund from ths
Government under the provsons of secton 15(a) of the grcu-
tura d|ustment ct, as amended and as reenacted by secton C01
of Tte I of the Revenue ct of 1936, he does not ncur abty
under the provsons of Tte III of the Revenue ct of 19:56 wth
respect to such refund. In ths connecton attenton s caed to
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100.
210
artce 1 (n) of Reguatons 95, whch states that the terra refund
or credt (as used n secton 501(a) (2) and (3), supra) does not
ncude a refund or credt to a ta payer under Tte I of the
Revenue ct of 1936.
Where the manufacturer of arge cotton bags remburses hs
vendee for amounts representng agrcutura ad|ustment ta bur-
dens ncuded n prces pad by such vendee to the manufacturer,
t s hed that such vendee receves a rembursement wthn the
meanng of the provsons of secton 501 (a) 2, supra, and must fe a
return and pay the ta mposed by Tte III of the Revenue ct of
1936.
TITL III. G N R L PRO ISIONS.
S CTION 1001. D INITIONS.
rtce 1001-7: Insurance company.
R NU CT OP 1936.
mendment of Reguatons 94, artce 1001-7. (See T. D. 4759,
page 117.)
. R NU CT O 1935.
TITL I. INCOM ND C SS-PRO ITS T S.
S CTION 106. C SS-PRO ITS T .
Secton 106. I-38-8932
G. C. M. 18893
R NU CTS O 1035 ND 1936.
Interest on bonds ssued by the ome Owners Loan Corporaton
and the edera arm Mortgage Corporaton s e empt from the
e cess-profts ta mposed by secton 106 of the Revenue ct of
11)35, as amended by secton 402(a) of the Revenue ct of 1936,
and shoud not be ncuded n net ncome for e cess-profts ta
purposes.
n opnon s requested whether nterest on bonds ssued by the
ome Owners Loan Corporaton and the edera arm Mortgage
Corporaton s sub|ect to the e cess-profts ta mposed by secton
106 of the Revenue ct of 1935, as amended by secton 402(a) of the
Revenue ct of 1936.
The ome Owners Loan ct ( ct of une 13,1933, 48 Stat., 128),
as amended by ct of pr 27, 1934 (48 Stat., 643), specfcay des-
gnates the ome Owners Loan Corporaton as an nstrumentaty of
the Unted States and further provdes as foows:
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211
106.
The bonds Issued by the corporaton nnder ths subsecton sha be
e empt, both as to prncpa and nterest, from a ta aton (e cept surta es,
estate, nhertance, and gft ta es) now or hereafter mposed by the Unted
States or any Dstrct, Terrtory, dependency, or possesson thereof, or by any
State, county, muncpaty, or oca ta ng authorty.
The edera arm Mortgage Corporaton ct ( ct of anuary 31,
1934, 48 Stat., 344), as amended by ct of ebruary 26, 1934 (48
Stat, 360), provdes n part:
bonds ssued by the corporaton under the provsons of ths ct,
sha be deemed and hed to be nstrumentates of the Government of the
Unted States, and as such they and the ncome derved therefrom sha be
e empt from edera, Stnte, muncpa, and oca ta aton (e cept surta es,
estate, nhertance, and gft ta es).
It w be seen that the e empton provded n each of the cts s
substantay the same. It s a we setted rue of statutory con-
structon that an e cepton n a statute amounts to an affrmaton of
the appcaton of ts genera provsons to a other cases not e -
cepted. (Wam . end v. esse oyt, 13 Pet, 263, and enda
v. Unted States, 107 U. S., 123. Thus, under the provsons of these
cts, the nterest s e empt from the e cess-profts ta snce the
e cess-profts ta does not come wthn any of the e ceptons. It s
not a surta and t s not smar to the surta on ndvduas. ur-
thermore, Congress dd not ca t a surta . There has aways been
a we-recognzed dstncton between a surta and an e cess-profts
ta . or e ampe, Congress, n secton 14 of the Revenue ct of
1936, makes provson for a surta on undstrbuted profts of corpo-
ratons, and aso n secton 106 of the Revenue ct of 1935, as
amended by secton 402 of the Revenue ct of 1936, mposes an
e cess-profts ta on corporatons. nother e ampe s the reference
by Congress to both surta es and e cess-profts ta es n the provsons
reatng to e empton of certan Lberty bond nterest. The genera
concept of the term surta s set forth n Webster s Coegate
Dctonary as:
speca ta over and above the genera charge upon a whoe cass specf.,
U. S., a graduated ncome ta , n addton to the norma ncome ta , mposed
on the amount by whch the net ncome of any ndvdua e ceeds a certan
sum.
The e cess-profts ta does not meet ths test. It s mposed, not
upon a whoe cass, but ony upon those corporatons sub|ect to the
capta stock ta , and s not mposed over and above a norma ta .
It s ponted out n the report of the Senate Commttee on nance
on the revenue b of 1934 that the e cess-profts ta s mposed pr-
mary for the purpose of nducng corporatons to decare a far
vaue for ther corporate stock for purposes of the capta stock ta .
Secton 106 of the Revenue ct of 1935, as amended by secton 402
of the Revenue ct of 1936. whch mposes the e cess-profts ta upon
certan corporatons, provdes that for the purpose of the e cess-
profts ta 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, . y secton 21 of the Revenue
ct of 1936, the net ncome for ncome ta purposes s the gross n-
come computed under secton 22, ess the deductons aowed by sec-
ton 23. Secton 23 contans no provson whch woud aow the de-
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106.
212
duct on of ths nterest. The queston arses then whether such n-
terest s to be ncuded n gross ncome under secton 22, whch pro-
vdes n part as foows:
(b) cusons from gross ncome. The foowng tems sha not be In-
cuded n gross ncome and sha be e empt from ta aton under ths tte:

(4) Ta -free nterest. Interest upon ( ) the obgatons of a State, Terr-
tory, or any potca subdvson thereof, or the Dstrct of Coumba or
( ) obgatons of a corporaton organzed under ct of Congress, f such
corporaton s an nstrumentaty of the Unted States or (C) the obgatons
of the Unted States or ts possessons. very person ownng any of the ob-
gatons enumerated n cause ( ), ( ), or (C) sha, n the return requred by
ths tte, submt a statement showng the number and amount of such obga-
tons owned by hm and the Income receved therefrom, n such form and wth
such nformaton as the Commssoner may requre. In the case of obgatons
of the Unted States ssued after September 1, 1017 (other than posta savngs
certfcates of depost) and n the case of obgatons of a corporaton organ-
zed 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 t s whoy e empt from the ta es mposed by ths tte
The ast sentence of secton 22(b)4 refers to the same type of cor-
poratons mentoned n the frst sentence. (See I. T. 2873, C. .
I - 1, 51 (1935).) It s, therefore, cear that for purposes of the
ncome ta the nterest n queston s to be ncuded n gross ncome,
and aso net ncome, snce t s not whoy e empt from the ta es
mposed by Tte I. The e empton of ths nterest from the norma
ncome ta orgnay contempated by Congress n the ome Own-
ers Loan ct and the edera arm Mortgage Corporaton ct s
accompshed by means of the credts provded n sectons 25 and 26
of the Revenue ct of 1936. owever, there s no correspondng
provson for purposes of the e cess-profts ta (T. D. 4666, C. .
- 2,121 (1936)), and, consequenty, f the statutory provsons m-
posng the e cess-profts ta are teray apped and the nterest s
ncuded n net ncome for e cess-profts ta purposes, the e empton
of ths nterest from the e cess-profts ta orgnay contempated by
the ome Owners Loan ct and the edera arm Mortgage Cor-
poraton ct w not be accompshed. In the ght of the unequvo-
ca anguage empoyed by Congress n the ome Owners Loan ct
and the edera arm Mortgage Corporaton ct wth respect to
e empton of the prncpa and nterest on such bonds, t s the opn-
on of ths offce that the provsons of the ta ng cts n ths respect
shoud not be so construed as to ncude the nterest n net ncome
for e cess-profts ta purposes.
The Unted States Supreme. Court has repeatedy stated that the
etter of the statute shoud not be foowed f t woud resut n n|us-
tce or a resut not ntended. In Unon Pacfc Raroad Co. v. Snow
(231 U. S., 204) t was stated:
Courts w not, enforce a tera nterpretaton when by
dong so antecedent rghts are affected . Such a purpose the courts
refuse to assgn to the egsature uness compeed by anguage e pct and
mperatve. .
In awa v. Mankch (190 U. S., 197), the court stated:
the books are fu of authortes to the effect that the ntenton of
the awmakng power w preva, even aganst the etter of the statute,
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213
106.
In Lonberger v. Rouse (9 Wa., 4G8), t was stated:
It s a unversa rue n the e poston of statutes that the ntent
of the aw, f t can be ceary ascertaned, sha preva over the etter, and
ths s especay true where the precse words, f construed n ther ordnary
sense, woud ead to manfest n|ustce.
(See aso Insurance Co. v. GrdUy, 100 U. S., C14.)
It has aso been hed by the Supreme Court that t s proper to
ascertan the ntenton of the egsature from prevous egsaton
upon the same sub|ect. (Unted States v. Saunders, 22 Wa., 492,
and Corrdtos Go. v. Unted States, 178 U. S., 280. See aso tkns
v. The Dsntegratng Co., 18 Wa., 272, and Ryan v. Carter, 93 U. S.,
78.) It has aso been hed to be a we setted rue that a specfc
provson, even though contaned n a dfferent statute, works an
e cepton to the genera provsons of another statute. See Town-
send v. Ltte (109 U. S., 504), where the Supreme Court stated
(page 512) :
genera nnd specfc provsons, n apparent contradcton, whether
n the same or dfferent statutes, nnd wthout regard to prorty of enactment,
may subsst together, the specfc quafyng and suppyng e ceptons to the
genera, .
The specfc e empton provsons of the ome Owners Loan ct
and the edera arm Mortgage Corporaton ct provde e ceptons
to the appcaton of the genera provsons mposng the e cess-
profts ta . The specfc ntenton e pressed by Congress n the ome
Owners Loan ct and the edera arm Mortgage Corporaton ct
to e empt the nterest n queston, couped wth the fact that there s
no anguage contaned n the e cess-profts ta provsons sub|ectng
such nterest to the e cess-profts ta , ndcates that there was no
ntenton on the part of Congress to sub|ect such nterest to that ta .
urthermore, t w be noted that n the ast sentence of secton
22(b) 4 Congress reterates ts ntenton to e empt nterest on ob-
gatons of corporatons organzed under ct of Congress to the
e tent provded n the respectve cts authorzng the ssuance of the
obgatons. (See aso artce 22(b) (4)-4 of Reguatons 94.)
In vew of the foregong, t s the opnon of ths offce that nterest
on bonds of the ome Owners Loan Corporaton and the edera
arm Mortgage Corporaton s e empt from the e cess-profts ta m-
posed by secton 106 of the Revenue ct of 1935, as amended by sec-
ton 402 of the Revenue ct of 1936, and shoud not be ncuded n
net ncome for e cess-profts ta purposes.
In I. T. 2807 (C. . III-2, 110 (1934)) t was hed that:
Partay ta -e empt nterest on obgatons of the Unted States s sub|ect to
the e cess-profts ta mposed by secton 702 of the Revenue ct of 1934 for
ncome-ta ta abe years begnnng after December 31,1933. (Compare G. C. M.
12357, C. . I1-2, 414.)
Upon reconsderaton of the queston, t s the opnon of ths offce
that such rung s erroneous and t s, therefore, recommended that
I. T. 2807 be revoked.
Morrson Sua froth,
Chef Counse, ureau of Interna/ Rerctm-e.
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106.
214
Secton IOC. I-41-8970
I. T. 3125
R NU CTS O 1034, 1935, ND 1936.
Partay ta -e empt nterest on obgatons of the Unted States
s sub|ect to the e cess-profts ta uness t s e empt from such
ta under the ct of Congress authorzng the Issuance of the ob-
gatons, or any amendment or suppement thereto.
dvce s requested whether any partay ta -e empt nterest on
obgatons of the Unted States s sub|ect to the e cess-profts ta
mposed by secton 702 of the Revenue ct of 1934 and by secton
106 of the Revenue ct of 1935, as amended by secton 402(a) of the
Revenue ct of 193G.
Ths queston has arsen n vew of I. T. 3117 (page 235,
ths uetn), revokng I. T. 2807 (C. . III-2,110 (1934) foowng
the recommendaton contaned n G. C. M. 18893 (page 210, ths
uetn). In that G. C. M. t was hed that nterest on bonds ssued
by the ome Owners Loan Corporaton and the edera arm Mort-
gage Corporaton s e empt from the e cess-profts ta mposed by
secton 106 of the Revenue ct of 1935. as amended by secton 402(a)
of the Revenue ct of 1936. It was not ntended n G. C. M. 18893
to ay down the rue that a nterest on obgatons of the Unted
States (or nstrumentates thereof) s e empt from the e cess-
profts ta , but ony that nterest on such obgatons s e empt from
that ta where the provsons of the ct of Congress authorzng
the ssuance of the obgatons so provde (even though the anguage
of the Revenue ct teray apped woud requre the ncuson of
the nterest for the purpose of such ta ). ccordngy, partay
ta -e empt nterest on obgatons of the Unted States s sub|ect to
the e cess-profts ta uness t s e empt from such ta under the ct
of Congress authorzng the ssuance of the obgatons, or any
amendment or suppement thereto.
Secton 106. I-42-89S2
I. T.3127
R NU CTS O 1935 ND 1936.
Interest on bonds ssued by a edera ome Loan ank s not
sub|ect to the edera e cess-profts ta mposed by secton 106 of
the Revenue ct of 1935, as amended by secton 402 of the Revenue
ct of 1930.
dvce s requested whether nterest on edera ome Loan ank
bonds s e empt from the e cess-profts ta mposed by secton 106 of
the Revenue ct of 1935, as amended by secton 402 of the Revenue
ct of 1936.
The edera ome Loan ank ct ( ct of uy 22. 1932, ch. 522,
47 Stat., 725, as amended by the ct of une 27, 1934, ch. 847. 48
Stat., 1261, and by the ct of May 28, 1935, ch. 150. 49 Stat., 293)
creates a board and provdes for the organzaton of banks as corpo-
rate bodes under ts drecton. Secton 14 of the ct provdes that
tt eacn edera ome Loan ank may
be empoyed as a fnanca agent of the Government. Sectons 13
and 15 of the ct provde:
Sec. 13. ny and a notes, debentures, bonds, and other such obgatons
ssued by any bank, and consodated edera ome Loan ank bonds aud
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215
22(a), rt. 22(a)-.
debentures, sha be e empt both as to prncpa and nterest from n ta aton
(e cept surta es, estate, nhertance, am gft ta es) now or hereafter mposed
by the Unted States, by any Terrtory, dependency, or possesson thereof, or by
any State, county, muncpaty, or oca ta ng authorty.

Sec. 15. obgatons of the edera ome Loan anks sha
pany state that such obgatons are not obgatons of the Unted States
and are not guaranteed by the Unted States.
In G. C. M. 18893 supra t was hed that:
Interest on bonds ssued by the ome Owners Loan Corporaton and the
edera arm Mortgage Corporaton s e empt from the e cess-profts ta
mposed by secton 106 of the Revenue ct of 1935, as amended by secton
402(a) of the Revenue ct of 1936, and shoud not be ncuded n net ncome
for e cess-profts ta purposes.
The e empton provded n secton 13 of the edera ome Loan
ank ct, supra, s substantay the same as that provded n the
ome Owners Loan ct and the edera arm Mortgage ct wth
respect to the ta aton of nterest on bonds ssued by the respectve
organzatons. ccordngy the reasonng contaned n G. C. M.
18893, supra, s appcabe wth respect to nterest on bonds ssued by
a edera ome Loan ank. It foows that such nterest s not
sub|ect to the edera e cess-profts ta mposed by secton 106 of
the Revenue ct of 1935, as amended by secton 402 of the Revenue
ct of 1936.
Secton 106.
revenue act of 1935 as amended by the revenue act of 1936.
ppcaton of e cess-profts ta to nterest on obgatons of the
Unted States or nstrumentates thereof. (See Mn. 4676, page 97.)
Secton 106(c).
revenue act of 1035.
Commttee on Interstate Commerce, Unted States Senate. (See
T. D. 4762, page 357.)
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.
rtce 22(a)-: What ncuded n gross ncome.
R NU CT O 1034.
Marta agreement under Caforna aw as to earnngs. (See
G. C. M. 18884, page 58.)
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22(a), rt. 22(a)-. 216
rtce 22 (a)-1: What ncuded n gross ncome.
R NU CT O 1934.
Marta agreement under Washngton aw as to presenty owned
and subsequenty acqured property. (See G. C. M. 19248, page 59.)
rtce 22(a)-: What ncuded n gross ncome. I-50-9087
I. T. 3143
R ND CT O 1934.
Where a contract entered nto In 1935 between a processor and
hs vendee provded that n the event the grcutura d|ustment
ct were hed unconsttutona a processng ta es ncuded n the
seng prce of goods sod wthn a perod of 90 or 120 days pror
to the date of the decson of the Unted States Supreme Court
nvadatng that ct woud be refunded to the vendee, no part
of such addtons to the seng prce receved by the processor
shoud be emnated from hs gross saes for the year 1935.
dvce s requested reatve to the proper treatment for edera
ncome ta purposes of processng ta es mposed by the grcutura
d|ustment ct under the facts stated beow.
In 1935 certan processors n the State of R entered nto contracts
wth ther vendees whch provded that n the event the grcutura
d|ustment ct were hed unconsttutona a processng ta es n-
cuded n the seng prces of goods sod wthn the perod of 90 or
120 days pror to the date of the decson of the Unted States Su-
preme Court nvadatng that ct woud be refunded to ther
customers. The queston has arsen n connecton wth the audt of
ncome ta returns for 1935 whether the processng ta es whch ac-
crued n 1935 but whch had not been pad by the processor to the
coector of nterna revenue, and whch under the terms of the con-
tract the processor must refund to hs vendees, shoud be refected n
the return as a reducton of the seng prce, snce the processor s
abty was not dscharged by the decson of the Unted States
Supreme Court hodng the grcutura d|ustment ct nvad but
was merey converted from a abty to the Unted States to a
abty to the vendees.
In the cases covered by the contracts referred to, the manufacturer
(processor) was not obgated on December 31, 1935, ether (1) to
pay such processng ta es to the coector or (2) to remburse the
vendees for the amount of such ta es, snce on that date t coud not
be determned when a decson of the Unted States Supreme Court
wth respect to the vadty of such ta es woud be rendered. Conse-
quenty, t was not known on that date whether, n the event of a
decson of the Supreme Court nvadatng the grcutura d|ust-
ment ct, any part of such processng ta es woud represent ta es
for the perod stated n the contracts. If the processng ta es were
not for the specfed perod mmedatey precedng a decson of the
Supreme Court nvadatng such ta es, then no obgaton woud
e st for rembursng the vendee wth respect to amounts added to
the seng prces of commodtes on account of the ta es. Under
such crcumstances, a ega contractua obgaton to make the rem-
bursements dd not arse unt anuary 6, 1936, the date of the dec-
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217
23(b), rt. 23(b)-.
son of the Supreme Court n Unted States v. uter (297 U. S., 1,
Ct. D. 1070, C. . -1, 421 (193G)) hodng the processng ta es to
be unconsttutona and, therefore, no part of the addtons to the
seng prces receved by the manufacturer (processor) shoud be
emnated from hs gross saes for the year 1935.
rtce 22(a)-: What ncuded n gross ncome.
R NU CT O 1034.
Ta abty of ncome from certan restrcted Indan ands. (See
Op. . G. 11, page 61.)
rtce 22(a)-18: Sae and purchase by corporaton of
ts bonds.
R NU CT O 1934.
Purchase n Unted States of ts bonds by a resdent foregn cor-
poraton for ess than face vaue or ssung prce. (See I. T. 3119,
page 227.)
S CTION 22(c). GROSS INCOM : IN NTORI S.
rtce 22(c)-8: Inventores of reta merchants.
R NU CT O 1034.
Inventores of reta dry goods deaers. (See Mm. 4703, page 78.)
S CTION 23(b). D DUCTIONS ROM GROSS
INCOM : INT R ST.
ktce 23(b)-: Interest. I-27-8797
I. T. 3095
R NU CTS O 1932 ND 1034.
The hoders of defnte term nvestment certfcates and fu-pad
nvestment certfcates ssued by the M udng and Loan ssoca-
ton, a Caforna organzaton, are credtors of such assocaton
and dstrbutons out of earnngs made to such nvestment certfcate
hoders represent nterest rather than dvdends.
dvce s requested whether hoders of defnte term nvestment
certfcates and fu-pad nvestment certfcates ssued by the M
udng and Loan ssocaton (a Caforna organzaton) under
act of May 5,1931 (Statutes and mendments to the Codes, Cafor-
na, 1931, at page 483), are credtors of the assocaton, and whether
payments out of earnngs to such nvestment certfcate hoders
represent nterest rather than dvdends.
The amended by-aws of the assocaton read n part as foows:
The purposes of ths corporaton sha be to encourage ndustry, frugaty,
home budng, and the accumuaton of savngs among ts members and cer-
tfcate hoders and among others the oanng of the moneys or funds so ac-
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23(b), rt. 23(b)- .
218
cumuated, wth the profts and earnngs thereon, to ts members and certfcate
hoders, and to others and, sub|ect to the provsons contaned n or authorzed
by the Caforna budng and oan assocaton act of 1931, and any acts
amendatory thereof and suppementa thereto the repayment to each member
or certfcate hoder of hs savngs and profts, whenever they have accumuated
to the fu par vaue of hs shares or nvestment certfcates .
The assocaton ssues what s known as a defnte term nvestment
certfcate and a fu-pad nvestment certfcate. y ts pro-
vsons reatve to prncpa and nterest, each certfcate purports
on ts face to evdence a oan to the assocaton. ach has a wth-
drawa provson permttng a demand for repayment wth accrued
nterest upon wrtten notce requred by ts terms. s such certfcates
purport to create a debtor-credtor reatonshp between the assoca-
ton and the hoders of the certfcates, they must be accepted as estab-
shng such reatonshp uness provsons of the ta payer s by-aws
or prevang State statutes authorzng the ssue of such certfcates
requre a contrary concuson.
The pertnent statutes appcabe to State budng and oan asso-
catons operatng n Caforna for the years 1933 and 1934| when
the certfcates n queston were ssued, are argey contaned n acts
approved May 5, 1931, and May 16, 1933. The act of May 5, 1931,
dvdes, a the nvestors n budng and oan assocatons operatng
n that State nto two prncpa casses. One of the casses conssts
of stockhoders and varous types of sharehoders or members. The
other cass s made up of varous types of nvestment certfcate
hoders. cear dstncton between these two man casses of n-
vestors s recognzed throughout the act. Wherever the dstncton
becomes mportant, the act recognzes and mantans t by use of
termnoogy commony apped to descrbe the stockhoder, share-
hoder, or member, and the nature of hs nterests on the one hand,
and by the use of anguage generay recognzed as denotng the
debtor-credtor reatonshp on the other hand. The defntons
contaned n secton 1.01 of the act of May 5, 1931, ndcate that the
certfcate hoder s a credtor rather than a sharehoder or member.
Sectons 2.06 and 8.01 provde that ony stockhoders and sharehoders
may vote uness there s e press provson n the by-aws to the con-
trary, an e cepton not operatve here as there s no such e press pro-
vson n the by-aws. Secton 5.01 provdes that hoders of nvestment
certfcates have preference over sharehoders or stockhoders upon
qudaton that nvestment certfcate hoders may not partcpate
n profts or dvdends and that such hoders are entted to nterest
at the agreed rate (see aso secton 10.03, whch provdes for the ap-
portonment of profts and osses among stockhoders and sharehoders
ony) and to the return of ther prncpa wth accrued nterest upon
wthdrawa, redempton, or maturty. Secton 5.02 makes nvestment
certfcates ega nvestments for the funds of e ecutors, admnstra-
tors, guardans, recevers, and trustees. Secton 5.03 provdes for the
protecton of nvestment certfcate hoders by requrng reserves to
be mantaned. Secton 5.04 ndcates that nvestment certfcate
hoders are enders by use of the e presson a borrowngs of such
assocaton e cept through the ssuance of nvestment certfcates.
Smar anguage s found n sectons 6.02 and 9.11 as we as n the
by-aws of the assocaton. Secton 13.15 paces nvestment certfcate
hoders on the same bass as other credtors upon qudaton.
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219
42, rt. 42-1.
Phraseoogy ndcatve of the egsatve ntent to dstngush be-
tween the stockhoder, sharehoder, or member and the nvestment
certfcate hoder aso appears n acts approved May 16, 1933, and
May 13,1935, whch amend the 1931 act. Sectons 5 and oa of the 1933
act provde for restrctons on wthdrawas appcabe to both share-
hoders and nvestment certfcate hoders as an emergency measure.
owever, the fact that such restrctons are made appcabe to both
casses of nvestors does not remove the dstncton between such
casses. On the contrary, the nvestment certfcate hoders are gven
preference n funds avaabe for wthdrawa. Nor does the act of
May 13,1935, affect the dstncton e stng between the two casses of
nvestors. It thus appears that the pertnent State statutes reguatng
budng and oan assocatons and authorzng the ssuance of cer-
tfcates to nvestors theren treat the nvestment certfcate hoder
as a credtor of the budng and oan assocaton as dstngushed
from a sharehoder theren. The by-aws of the nstant assocaton
and the certfcates ssued are drawn pursuant to the controng
statutes n recognzng and mantanng such dstncton.
It s therefore hed that hoders of defnte term nvestment cer-
tfcates and fu-pad nvestment certfcates of the M udng and
Loan ssocaton are credtors of the assocaton and that dstrbu-
tons out of earnngs to such nvestment certfcate hoders represent
nterest rather than dvdends.
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 23(c)-: Ta es.
R NU CT O 1934.
Canadan net premum ta . (See I. T. 3138, page 230.)
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. -28-8810
I. T. 3097
R NU CT O 1934.
Where bonds are transferred n trust by a settor keepng hs
accounts on the cash recepts and dsbursements bass, the date
on whch the nterest accrued on the bonds s coectbe deter-
mnes the perod wthn whch such nterest shoud be ncuded
n the settor s gross ncome under I. T. 3011 (C. . -2, 132
(1936)).
dvce s requested wth respect to the treatment for edera n-
come ta purposes of nterest accrued on bonds at the tme of ther
transfer n trust.
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42, rt. 42-3.
220
The nqury nvoves the rung n I. T. 3011 (C. . -2, 13:
(1936)), n whch t was hed that nterest accrued on bonds pror
to donaton of the bonds to a trust s ncome ta abe to the settor
and not to the benefcares, even though the settor returns hs ncome
on the cash recepts and dsbursements bass. In such a case the
accrued nterest s consdered a gft by the settor to the benefcares,
uness otherwse specfcay provded n the deed of trust, and a-
though the nterest s coected and dstrbuted to the benefcares
by the trustee, t shoud be ncuded n the gross ncome of the settor.
The queston presented n the present case s whether such accrued
nterest shoud be ncuded n the return of the settor for the perod
n whch the donaton to the trust s made or whether such nterest
s ncudbe for the perod n whch t s coectbe, where the trust
s created n one year and the accrued nterest s coectbe n a ater
year.
The ast sentence of I. T. 3011, supra, reads as foows:
In order that the returns of the settor n the nstant case may
ceary refect hs ncome, the accrued nterest shoud be ncuded n hs gross
ncome for the year 1935 when t was coectbe.
In that case the trust wras estabshed n anuary, 1935, and the
nterest was payabe semannuay on ebruary 1 and ugust 1. In
other words, the trust was created and the accrued nterest was co-
ectbe n the same ta abe perod. In the present case the settor s
accounts were kept on the cash recepts and dsbursements bass and
the trust was estabshed n December, 1935. Interest on the bonds
donated to the trust s payabe semannuay n March and Septem-
ber of each year so that no nterest was payabe (coectbe) thereon
after creaton of the trust unt March, 1936. In such a case, t s
hed that the nterest whch accrued before the date of creaton of
the trust shoud be ncuded n the settor s gross ncome for the year
1936 when t was coectbe, rather than n 1935 when the trust was
created and the bonds were deposted wth the trustee that s, the
date when such accrued nterest s coectbe and not the date of cre-
aton of the trust determnes the perod wthn whch such nterest
shoud be ncuded n the settor s gross ncome under I. T. 3011, supra.
rtce 42-3 : ampes of constructve recept. I-45-9026
G. C. M. 19213
R NU CT O 1934.
Renewa commssons on nsurance whch were assgned by to
, hs wfe, are ta abe to even (hough pad to hs wfe pursuant
to the assgnment.
n opnon s requested regardng the ta abty of renewa com-
mssons on poces of nsurance wrtten by , genera agent of the
M Lfe Insurance Co., whch commssons were assgned to , hs
wfe.
was empoyed as a genera agent for the M Lfe Insurance Co.
unt March, 1933, at whch tme hs contract wth the company n
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221
I 42, rt. 42-3.
that capacty was termnated by mutua consent n order that he
mght accept a poston as offcer of the company. Upon assumng
hs dutes n the new empoyment, e ecuted an nstrument readng
as foows:
now a men by these presents that I, , of , do hereby gve,
transfer, assgn and set over absoutey and rrevocaby unto my wfe, , durng
her fetme, a my rght, tte and nterest n and to, and a benefts to be
derved from, that certan contract between the M Lfe Insurance Co. and
mysef, whch was e ecuted at , November , 1923, and effectve Novem-
ber , 1923, and that certan contract between the M Lfe Insurance Co. and
mysef, whch was e ecuted at , ebruary , 1931, and effectve October
, 1930, and n any and a amendments to sad contracts.
Pursuant to ths nstrument, the SI Lfe Insurance Co. pad to ,
the wfe, renewa commssons due and payabe at subsequent dates
wth respect to poces prevousy wrtten by as genera agent for
that company. Durng the year 1934, receved commssons ag-
gregatng doars whch she returned for edera ncome ta pur-
poses and pad the ta thereon. The queston presented s whether
such commssons shoud be reported for edera ncome ta purposes
by , the husband, or by , the wfe.
In a v. urnet, decded by the Court of ppeas of the Dstrct
of Coumba, November 16, 1931 (54 ed. (2d), 443, reversng 17
. T. ., 752, certorar dened, 285 U. S., 552), the assgnor was hed
not ta abe on ncome pad to hs wfe where he had assgned an
undvded nterest n a contract for commssons on nsurance re-
newas. In shop v. Commssoner (54 ed. (2d), 298, Ct. D. 477,
C. . I-1, 164 (1932)), a v. urnet, supra, was cted wth
approva on the ground that the assgnment there nvoved was not
of future earnngs but the transfer of a property rght. Whatever
may have been the sco||e of the decson n a v. urnet, consder-
abe doubt has been cast on the concuson theren by the subsequent
decson of the Crcut Court of ppeas, ghth Crcut, n an
Meter v. Commssoner (61 ed. (2d), 817, Ct. D. 675, C. . II-1,
207 (1933)). In the an Meter case, the an Meter company was
the genera agent of an nsurance company. t varous meetngs of
the stockhoders of the an Meter company, that company assgned
renewa commssons on busness wrtten under the genera agency
contract to varous persons. The queston before the court was
whether the an Meter company, by reason of these assgnments, re-
eved tsef of ncome ta abty on ncome pad to an assgnee
pursuant to the assgnments. The court hed that the ncome n the
form of renewa commssons was ta abe to the an Meter company,
the assgnor, regardess of the assgnments. In reachng ths de-
cson, the court reed on Lucas v. ar (281 U. S., I), whch de-
cded n effect that Congress has the power to ta the person who
earns the ncome rrespectve of whether t s pad to another. In
the an Meter case, the ta payer reed strongy on the decson n
a v. urnet, supra. Wth respect to that decson the court stated
n part as foows:
nother of these s a v. urnet (60 pp. D. C, 332, 54 ed. (2d), 443),
Court of ppeas of Dstrct of Coumba. We thnk ths case s an authorty
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42, rt. 42-3.
222
for pettoner. owever, and wth a due respect, we thnk the dstncton of
the Lucas v. ar case, attempted n the opnon, s unsound. It may be true
that ncome aready entrey earned s transferabe as a speces of propery,
but that has no effect upon the power and ntenton of Congress to ta ncome
to the earner. The earner may, n a egay bndng way, dspose of hs earn-
ngs, whether they are aready earned or are to be earned, wthout affectng
n the sghtest manner hs status as earner thereof and hs resutng abty
for ta aton thereon as ncome. Such s the rue of the Lucas, Corss, and
Lennger cases, to whch the a case s, n our |udgment, opposed. Itacs
supped.
The recent case of ar v. Commssoner, decded by the Unted
Sates Supreme Court ebruary 1, 1937 ( 300 U. S., 5, Ct. D. 1205,
C. . 1937-1, 175), whe reachng the concuson that the benefcary
of a trust may assgn a or a part of hs nterest n the trust and by
reason of such assgnment escape ncome ta abty wth respect
to ncome pad to the assgnees, dstngushes the decson n Lucas
v. ar, supra, hodng 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. (See aso Dougherty v. Commssoner, 63 ed.
(2d), 77, Ct. D. 721, C. . II-2, 180 (1933) Parker v. Routsahn.
56 ed. (2d), 730, certorar dened, 287 U. S., 606, Ct. D. 489. C. .
I-1, 256 (1932) Rossmoore v. Commssoner. 76 ed. (2d), 520,
Ct. D. 1009, C. . I -2, 278 (1935):- ak-w v. Commssoner, 77
ed. (2d), 569, certorar dened, 296 U. S., 609 mery v. Comms-
soner, ed. (2d), 437, Ct. D. 1032, C. . I -2, 196 (1935).)
In uus . Lenfed v. Commssoner (35 . T. ., 391, acqu-
escence, C. . 1937-1, 15), the pettoner had e ecuted a cense to a
corporaton gvng t the e cusve rght to manufacture, use, or se
products embodyng certan nventons he had competed n return
for royates. On the same day the pettoner assgned to hs wfe
a benefts of the cense agreement and a moneys to be receved
therefrom. The oard hed that the pettoner s rght to receve
royates was competey assgned to hs wfe and the royates pad
thereafter to the wfe were not ta abe to the pettoner. There s a
rea dstncton, however, between the Lenfed case and the nstant
case (or the an Meter case). The Lenfed case dd not nvove,
as does the nstant case, the assgnment of saary or earnngs of the
assgnor. Where there s nvoved the assgnment of saary or earn-
ngs, the rue of Lucas v. ar, supra, n effect confrmed n the
ar case, namey, that the statute coud ta saares to those who
earned them, s controng and shoud be foowed rrespectve of
whether the assgnment was made before or after the ncome was
earned.
In the present case there s no dspute that the renewa comms-
sons were earned by . ccordngy, on the bass of the foregong,
t s the opnon of ths offce that the assgnment of such commssons
by to , hs wfe, dd not reeve hm of ncome ta abty wth
respect thereto even though such commssons were pad to hs wfe
pursuant to the assgnment.
. P. WeSTC Ia,
Chef Counse, ureau of Interna Revenue.
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223 51, rt. 51-1.
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
rtce 43-2: When charges deductbe.
R NU CT O 1934.
Losses by vrtue of rea estate forecosure saes where State aw
provdes for redempton perod. (See G. C. M. 19367, page 115.)
P RT . R TURNS ND P YM NT O T .
S CTION 51. INDI IDU L R TURNS.
rtce 51-1: Indvdua returns. I-12-8986
G. C. M. 19143
R NU CT OP 1934.
usband and wfe hodng property as tenants by the entrety
n the State of Mchgan may each report one-haf of the ncome
from such property n ther separate returns.
Recommended that I. T. 1574 (C. . II-, 143 (1923)) be mod-
fed and that nonacqueseences n erman, Gessner v. Comms-
soner (32 . T. ., 1258, C. . 1 -2, 31 (1935)) and ohn .
art v. Commssoner (27 . T. ., 528, C. . II-1, 17 (1933)) be
wthdrawn.
The opnon of ths offce s requested whether the ureau shoud
contnue to foow the rue ad down n I. T. 1574 (C. . II-, 143
(1923)) and ta to the husband a the ncome from property hed
by husband and wfe as tenants by the entrety n tho State of
Mchgan, n vew of the decson n erman Gessner v. Comms-
soner (32 . T. ., 1258) and Commssoner v. art (76 ed.
(2d), 864).
and , husband and wfe resdng n Mchgan, fed separate
returns for the year 1935. It s proposed to ncude n the return
of for that year the rents from property owned by hm and hs
wfe as tenants by the entrety and dvdends on stocks owned by
them |onty. The queston has arsen whether such acton s
correct.
In I. T. 1574, supra, t was hed that a husband and wfe hodng
property as tenants by the entrety n the State of Mchgan shoud
report the entre ncome arsng from the ownershp of such prop-
erty n ther |ont return or n the separate return of the husband,
reyng upon the decson n Morr v. Morr (138 Mch., 112, 101
N.W., 209).
In Commssoner v. art, supra, affrmng ohn . art v. Com-
mssoner (27 . T. ., 528), the ncome sought to be ta ed to the
husband was the nterest receved from a vendee upon deferred
payments on tho seng prce of property whch had been owned
by husband and wfe, resdents of the State of Mchgan, as tenants
by the entrety. The court hed that the vendors nterest n the
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51, rt. 51-1.
224
contract of sae, athough personaty, was an estate by the entrety
snce the rea property had been so owned, and that the ncome
therefrom was ta abe equay to husband and wfe. The court
stated n part as foows:
we announced an opnon on anuary 8, 1934 1035 , settng asde
the oard s decson. Ths was on the ground that one of the ncdents of
an estate by entrety under Mchgan aw s that the husband has contro of
the property and the rght to receve and dspose of ncome therefrom, ctng
Morr v. Morr (138 Mch., 112, 101 N. W., 209, 110 m. St. Rep., 308, 4
m. St. Rep., 1100). We are now convnced by a study of the Mchgan vases
dscussed n the bref supportng the petton for rehearng, and n the brct
of amcus curae, submtted to us at our request, that the rue apparenty
announced n Morr v. Morr s no onger the aw of Mchgnn, f ever
t was. ( att|es ue t udng Matera Co. v. Manocsk. 230 Mch., 622,
211 N. W., 27 Peope s State ank of Pontne v. Reckng, 252 Mch., 383, 233
N. W., 353 mercan State Trust Co. v. Rosentha, 255 Mch., 157, 237 N. W,
543 ankers Trust Co. v. umber, 2G4 Mch., 71, 249 N. W, 454.) It s ceary
the hodng of these cases that payments due upon a contract for the sae
of and hed by husband and wfe as tenants by the entretes can not be
eached n garnshment by the husband s credtors, that rent from property
so hed s not sub|ect to garnshment by credtors of the husband, and that
the rents, profts, or ncome of such property s not sub|ect to process under
a |udgment credtor s b n equty at the Instance of the husband s credtors.
The hodng by the entretes n Mchgan Is therefore entrey anaogous
to the communty hodng nvoved n Poe, Coector of Interna Revenue, v.
Seaborn (282 U. S., 101, 51 S. Ct, 58, 75 L. d., 239), and ncome therefrom Is
not ta abe to the husband aone. Cooey v. Commssoner (75 . (2d), 188
(C. C. . 1)), decded anuary 31. 1935, beng based on a rue of property n
Massachusetts, does not persuade us to the contrary.
Whe the nstant case nvoves rents receved from property
hed by husband and wfe n Mchgan as tenants by the entrety
rather than nterest receved upon deferred payments on the seng
prce of property hed as tenants by the entrety, the prncpe set
forth n the art case s equay appcabe here. oowng Com-
mssoner v. art, supra, the oard of Ta ppeas hed n erman
Oessner v. Commssoner, supra, that renta ncome receved from
property owned by husband and wfe, resdents of Mchgan, as
tenants by the entrety s ta abe one-haf to each spouse. Certorar
was not requested n the art case and no appea was taken n
the Gessner case. In vew of the foregong, t s the opnon of ths
offce that one-haf of the ncome from the property owned by the
ta payers as tenants by the entrety shoud be ta ed to each of them.
Wth respect to the dvdends on stocks stated to be owned by the
ta payers |onty, attenton s nvted to the foowng statement by
the court n Commssoner v. art, supra:
In Mchgan, the common-aw rue that a conveyance to husband and wfe
creates a tenancy by the entrety has perssted e cept n respect to convey-
ances e pcty ndcatng that some other knd of tenancy s ntended. ven
the quafyng phrase as |ont tenants, whe sufcent to create a |ont
tenancy n a conveyance to grantees generay, does not avod the creaton
of an estate by the entrety when the grantees stand n the marta reaton
to each other. ( oyt v. Wnstaney, 221 Mch., 515, 191 N. W., 213 Way v.
Root, 174 Mch., 418, 427, 430, 140 N. W., 577.)
In the nstant case the stock n queston may be owned by the ta -
payers as tenants by the entrety or as |ont tenants. owever, n
ether event the ncome s ta abe one-haf to each nasmuch as sepa-
rate ncome ta returns were fed. If the stock s owned by them
as tenants by the entrety, ths resut foows from what has been
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225
101, rt. 101(11)- .
sad above. If t s owned by them as |ont tenants, such a hodng
s requred by the decson n rederck . aynes v. Commssoner
(7 . T. ., 465, acquescence, C. . II-1, 14 (1928)), whch hed
that where a husband and wfe, resdents of Mchgan, owned a note
and mortgage as |ont tenants, the ncome therefrom s ta abe one-
haf to each.
It s recommended that I. T. 1574, supra, be modfed n so far as
t s nconsstent wth the vews heren e pressed, and that the non-
acquescences n erman Gessner v. Commssoner, supra, and ohn
II. art v. Commssoner, supra, be wthdrawn.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
S CTION 55. PU LICITY O R TURNS.
Secton 55(a).
R NU CT OP 1934.
Commttee on Interstate Commerce, Unted States Senate. (See
T. D. 4762, page 357.)
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.
rtcf, 101(6)-1: Regous, chartabe, scentfc, terary,
and educatona organzatons and communty chests.
R NU CT O 1934.
Poce reef assocaton. (See G. C. M. 19028, page 125.)
rtce 101(9)-1: Soca cubs.
R NU CT O 1934.
mendment of Reguatons 86, artce 101(9)-1. (See T. D. 4760,
page 128.)
rtce 101(11)-1: armers or other mutua ha, cycone,
casuaty, or fre nsurance companes or assocatons.
R NU CT O 1934.
Organzaton ssung nonassessabe poces for cash premums,
unearned portons not returnabe to pocyhoders. (See I. T. 3131,
page 129.)
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22G
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112(). R COGNITION O G IN OR
LOSS: OR IGN CORPOR TIONS.
rtce 112() 1: Reorganzaton wth, or transfer of
property to, a foregn corporaton.
R NU CT O 1934.
changes made wthn perod from anuary 1, 1936, to une 22,
1936. (See G. C. M. 18390, page 131.)
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
rtce 115-1: Dvdends.
R NU CT O 1034.
Revenue ct appcabe to corporate dstrbutons receved. (See
G. C. M. 18602. page 134.)
S CTION 117. C PIT L G INS ND LOSS S.
rtce 117-1: Meanng of capta assets.
R NU CT O 1034.
ppcaton of secton 117 to cases nvovng debt ad|ustments.
(See I. T. 3121, page 138.)
rtce 117-1: Meanng of capta assets. I-44-9013
I. T. 3135
R NU CT O 1034.
Proper treatment for edera ncome ta purposes of osses to a
debtor where rea estate was sod and subsequenty repossessed by
the seer cther pursuant to an agreement between the partes
or through forecosure.
dvce s requested reatve to the foowng cases nvovng the
appcaton of secton 117 of the Revenue ct of 1934 to rea estate
transactons under and contracts:
(1) purchased rea estate from on and contract n Novem-
ber, 1927. Tte dd not pass at the tme of sae. The purchase prce
under the contract was 20a doars and n September, 1934, the
baance due was 9.5 doars. then pad to 1.5 doars n order
to be reeased from any further abty on the contract. In hs
return for the year 1934, camed a deducton for hs entre oss.
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227
119, rt. 119-1.
The queston presented s whether the oss to s mted by secton
117 of the Revenue ct of 1934, reatng to capta gans and osses.
It s hed that the oss sustaned by , the purchaser-debtor, s a
capta oss measured by the dfference between the purchase prce
of the property ad|usted n accordance wth secton 113(b) of the
Revenue ct of 1934 and the amount of the obgaton of the debtor
canceed n e change for such property. The cash pad by the pur-
chaser-debtor pursuant to the compromse shoud be consdered as a
reducton from what woud otherwse be consdered as the amount
of hs obgaton. Such oss arses from a sae or e change of the
purchaser-debtor s property for hs obgaton, and the oss s mted
by secton 117 of the Revenue ct of 1934. Ths concuson appes
regardess of whether tte orgnay passed to the purchaser-debtor.
rtce 44-3 and 44-4 of Reguatons 86, n whch a dstncton s
made dependng on whether tte passed to the purchaser, reates
to the determnaton of gan or oss to the seer upon repossesson
and does not reate to the stuaton of the purchaser-debtor.
(2) purchased rea estate and acqured tte thereto n 1913.
In 1934 a mortgage on the property was forecosed and a oss was
taken n hs return as foows:
Doars.
Cost 56
Less: Dottan.
Deprecaton Z
Mortgage 15
Net oss 5
The property was bd n for the unpad baance of 5 doars pus
accrued nterest and ta es. The accrued nterest and ta es amount-
ng to 12a doars were then canceed. The queston presented s
whether the oss s a capta oss sub|ect to the mtaton contaned
n secton 117 of the Revenue ct of 1934.
It s hed that from the standpont of the mortgagor-debtor a mort-
gage forecosure s a sae of rea estate n consderaton of the can-
ceaton of the mortgage debt. The e cess of the bass of the rea
estate to the mortgagor-debtor (whch s the purchase prce, or cost,
as provded n secton 113(a) of the Revenue ct of 1934, ad|usted
n accordance wth secton 113(b)) over the amount of the canceed
obgatons whch he receves from the mortgagee s deemed a capta
oss to the mortgagor-debtor. (See generay G. C. M. 12737 (C. .
III-1, 120 (1934).)
S CTION 119. INCOM ROM SOURC S WIT IN
UNIT D ST T S.
rtce 119-1: Income from sources wthn the I-39-8944
Unted States. I. T. 3119
( so Secton 22(a), rtce 22(a)-18.)
R NU CT O 1034.
resdent foregn corporaton derves ncome sub|ect to edera
Income ta by reason of tbe purchase n the Unted States of ts
bonds for ess than the face vaue or ssung prce.
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5119, rt. 119-1.
228
dvce s requested whether the M Corporaton derved ncome
sub|ect to edera ncome ta by the purchase n the Unted States
of certan of ts obgatons for ess than the face vaue or ssung
prce.
The ta payer s a corporaton organzed under the aws of a for-
egn country and s engaged theren n the producton of a mnera
I roduct. Wth mmatera e ceptons a ts assets are physcay
ocated n that country, and athough t mantans an offce n the
Unted States, ts busness, consstng of the producton and sae of
the mnera product, s conducted whoy outsde the Unted States.
Durng the fsca year ended une 30, 1936, the corporaton was abe
on a bond ssue whch had been sod n the Unted States and durng
that year, pursuant to the terms of the snkng fund provsons of
the ndenture, t purchased for snkng fund purposes certan of
those bonds for prces ess than ther face vaue or ssung prce. It
fed a tentatve return for the fsca year ended une 30, 1936, whch
dd not ncude as ncome from Unted States sources any part of
the dfference between the face vaue of the bonds and the prces pad
therefor by the corporaton at the tme of purchase.
It s contended that under these crcumstances the e cess of the
face vaue or ssung prce over the purchase prce of the bonds does
not represent ncome whch may be ta ed as ncome derved from
Unted States sources for the reason that such ncome does not con-
sttute nterest, dvdends, ncome from persona servces, rentas
and royates, ncome from sae of rea property, or from sae of
persona property, and that these tems are the ony tems sub|ect to
ta as ncome from Unted States sources under secton 119(a) of the
Revenue ct of 1934.
It s the vew of the ureau that secton 119 of the Revenue ct of
1934 s merey a statement of the condtons under whch the tems
of ncome specfed theren are to be treated as ncome from sources
wthn the Unted States or ncome from sources wthout the Unted
States. It sets forth the method of computng net ncome from
sources wthn the Unted States, net ncome from sources wthout
the Unted States, and the determnaton of ncome from sources
party wthn and party wthout the Unted States. The appcaton
of the provsons of secton 119 s not mted to those persons who are
ta abe ony upon ncome from sources wthn the Unted States,
but such provsons are appcabe to any person who s requred for
edera ncome ta purposes to segregate hs ncome from sources
wthn the Unted States, or hs ncome from sources wthout the
Unted States, from hs tota gross ncome from both sources. or
nstance, a ctzen of the Unted States and a domestc corporaton n
computng the credts aowed to them for ncome, war-profts, or
e cess-profts ta es pad to foregn countres or possessons of the
Unted States are requred to determne ther net ncome from source
wthout the Unted States, as the credt for foregn ta es depends
upon the rato of net ncome from sources wthout the Unted States
to tota net ncome from a sources. (See secton 131(b) of the
Revenue ct of 1934.) ccordng to the ta payer s contenton, the
tota ncome from a sources of such ta payers woud be the sum of
.he tems of gross ncome to be treated as ncome from sources wthn
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229
119, rt. 119-1.
the Unted States specfed n secton 119(a) and the tems of gross
ncome to be treated as ncome from sources wthout the Unted
States as specfed n secton 119(c), thus nufyng the provsons
of secton 22(a) defnng the term gross ncome.
In genera, the gross ncome from sources wthn the Unted States
n the case of a nonresdent aen ndvdua and a nonresdent
foregn corporaton s sub|ect to the wthhodng provsons of sec-
tons 143 and 144 of the Revenue ct of 1934. Secton 143 specf-
cay sts severa tems of gross ncome whch are sub|ect to wth-
hodng. Some of these tems, such as nterest, rent, saares, and
wages are mentoned n secton 119(a), but there are severa other
secton 119 such as premums, annutes, compensatons, remunera-
tons, emouments, or other f ed or determnabe annua or perodca
gans, profts, and ncome. The addton of the phrase or other
f ed or determnabe annua or perodca gans, profts, and ncome
apparenty s ntended to ncude any tem of ncome not partcuary
desgnated by name but whch woud fa wthn the cass of f ed
or determnabe annua or perodca ncome. Consequenty, t can
not reasonaby be hed that the tems of ncome whch are to be
treated as ncome from sources wthn the Unted States are ony
those tems whch are mentoned n secton 119(a).
In vew of the foregong, t s evdent that the gross ncome of a
resdent foregn corporaton s not mted to the tems of ncome
from sources wthn the Unted States specfed n secton 119(a).
That secton must be read wth secton 22(a), whch defnes gross
ncome. Such has been the consstent practce of the ureau n
determnng the gross ncome from sources wthn the Unted States
of persons who are abe to ta upon such ncome ony. In ths
connecton attenton s nvted to I. T. 1398 (C. . 1-2, 149 (1922))
and G. C. M. 3845 (C. . II-1, 178 (1928)).
It s hed that, as a resdent foregn corporaton, the ta payer n
the nstant case s abe to edera ncome ta upon any tem of
ncome derved from sources wthn the Unted States, provded such
ncome s not e empt from edera ncome ta by statute or by
treaty.
rtce 22(a)-18 of Reguatons 86, pertanng to the ncome ta
provsons of the Revenue ct of 1934, provdes m part:
Sae and purchase by corporaton of ts bonds. (1) (a) If bonds
are Issued by a corporaton at ther face vaue, the corporaton reazes no gan
or oss. (c) If, however, the corporaton purchases any of such bonds
at a prce ess than the ssung prce or face vaue, the e cess of the ssung
prce or face vaue over the purchase prce s gan or ncome for the ta abe
year.
In vew of the fact that the ta payer purchased certan of ts
bonds for ess than ther face vaue, t derved a ta abe gan. s
the purchase was made n the Unted States, such gan s ncome
from sources wthn the Unted States and, therefore, s requred to
be ncuded n gross ncome for the fsca year ended une 30, 1936.
(Cf. Unted States v. rby Lumber Co., 284 U. S., 1, Ct. D. 420,
C. . -2, 356 (1931).)
tems of ncome sted n secton
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131, rt. 131-1. 230
SUPPL M NT C CR DITS G INST T .
S CTION 181. 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. 1 6-9037
( so Secton 23(c), rtce 23(c)-.) L T.3138
R NU CTS O 1932 ND 1934.
The Canadan 1 per cent net premum ta s a busness prvege
or franchse ta rather than an ncome ta and s not aowabe as
a credt under secton 131 of the Revenue cts of 1032 and 1034.
Such ta s, however, an aowabe deducton under secton 23(c)
of the Revenue cts of 1932 and 1034.
dvce s requested whether the 1 per cent net premum ta m-
posed by Canada s an ncome ta aowabe as a credt under secton
131 of the Revenue cts of 1932 and 1934 whch provdes for a
credt to a ctzen of the Unted States or to a domestc corporaton
of any ncome, war-profts, and e cess-profts ta es pad or accrued
durng the ta abe year to any foregn country .
Part III of the speca war revenue act of Canada, 1915, chapter 8,
secton 1 (ncorporated nto revsed statutes, 1927, chapter 179),
provdes n part:
14. very company, censed or regstered or otherwse authorzed to trans-
act n Canada or n any provnce thereof, the busness of nsurance sha pay
to the mnster a ta of 1 per cent upon the net premums receved by t n
Canada on and after the 1st day of anuary n any year. (1015, eh. 8, secton 5.)
Net premums are defned n the ct to mean the gross premums
receved ess the rebates, return premums and premums pad for
rensurance to companes to whch ths part appes.
In I. T. 2909 (C. . I -2, 136 (1935)), t was stated that or
the purpose of a credt for foregn ta es, t s necessary to determne
whether the ta s a ta on ncome wthn the concept of that term as
used and recognzed n the Unted States ncome ta aw. The
Canadan ta on net premums s not mposed under the Canadan
ncome ta acts but s mposed under the speca war revenue act
whch s entrey separate and dstnct from the Canadan ncome
ta acts. The ta on net premums s not a ta on ncome but s
mposed upon premums receved by the company wthout regard to
the queston of gan or net profts. The deductons referred to n the
Canadan statute, whch convert gross premums nto statutory net
premums, have no necessary reaton to deductons found n the
Unted States ncome ta aw for e penses, nterest, bad debts, de-
precaton, depeton, etc.
Ta es upon net premums are referred to n Cooey on Ta aton
as e cse ta es and the further statement s made that ta on net
ncome s not an ncome ta as such where t s assessed ony f and
when the corporaton does busness wthn the State .
( oume 2, 4th ed. (1924), secton 894.)
It s hed that the Canadan 1 per cent net premum ta mposed
under the Canadan speca war revenue act, supra, s a busness
prvege or franchse ta rather than an ncome ta and s not aow-
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231
167, rt. 167-1.
abe as a credt under secton 131 of the Revenue cts of 1932 and
1934. Such ta s, however, an aowabe deducton under secton
23(c) of the Revenue cts of 1932 and 1934.
SUPPL M NT . ST T S ND TRUSTS.
S CTION 166. R OC L TRUSTS.
rtce 166-1: Trusts, wth respect to the corpus of
whch, the grantor s regarded as remanng n
substance the owner.
R NU CT O 1034.
Mantenance trusts created for beneft of grantor s mnor chdren.
(See G. C. M. 18972, page 231.)
rtce 166-1: Trusts, wth respect to the corpus of
whch, the grantor s regarded as remanng n
substance the owner.
R NU CT O 1034.
mendment of Reguatons 86, artce 166-1. (See T. D. 4759,
page 117.)
rtce 166-1: Trusts, wth respect to the corpus of
whch, the grantor s regarded as remanng n
substance the owner.
R NU CT O 1034.
Partay revocabe trusts. (See G. C. M. 19113, page 151.)
S CTION 167. INCOM OR N IT O GR NTOR.
rtce 167-1: Trusts n the ncome of whch I-33-8882
the grantor retans an nterest. G. C. M. 18972
( so Secton 166, rtce 166-1.)
R NU CTS O 1032 ND 1034.
Ta abe status of Income derved from mantenance trusts
created by for the beneft of hs mnor chdren.
n opnon s requested whether the ncome of trusts created by
for the beneft of hs three chdren shoud be ta ed to the grantor.
On May , 1933, estabshed three trusts, one for each of hs
three mnor chdren, who were then 20, 18, and 16 years of age.
ach trust contaned a provson readng as foows:
1. The trustees sha pay the sad mnor chd of grantor the net ncome
of the trust or may set same asde and credt t to hs account perodcay
or at east once n each caendar year. The ncome heren provded to be pad
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167, rt. 167-1.
232
to may be used by sad trustees n ther dscreton for the support, man-
tenance and educaton of sad benefcary, or may be pad to for the use of
, to be apped by hm n the manner aforesad unt sad benefcary reaches
the age of 21 years.
2. In the event the ncome receved from the fund herewth deposted wth
the trustees s not suffcent for the e pense of supportng, mantanng and
educatng sad benefcary n any one year, the trustees are then authorzed to
borrow the necessary amount to make up such defct as appears, or they may
encroach upon the prncpa n ther dscreton.
ach trust nstrument aso provded:
3. The party of the frst part hereby reserves the rght to revoke ths trust
pror to the determnaton thereof upon and at the e praton of 12 months and
1 day after notce of revocaton, as herenafter set forth. Such revocaton sha
be made by servce upon and devery to the trustees heren named, or ther
successors, of a notce n wrtng to them to that effect. Upon such
revocaton sad trustees or ther successors n trust sha forthwth dever to
te party of the frst part a of the prncpa of sad trust estate by deverng
to hm the securtes, rea estate and money n whch t s then Invested.
The trustees of each of the trusts were and another person who
had no nterest n the trust ncome adverse to that of the grantor.
On pr , 1934, the power of revocaton contaned n paragraph
3 quoted above was rescnded and the trust was made e pressy r-
revocabe. fter ths amendment the grantor possessed no power to
revest n hmsef tte to any part of the corpus of the trust.
On September , 1935, paragraphs 1 and 2 of the trust nstru-
ments were amended to read as foows:
1. The trustees sha pay sad the net ncome of the trust or may set asde
same and credt to hs account perodcay or at east once In each caendar
year. The trustees under no crcumstances are to pay to any part of the
ncome of the trust or to remburse hm n any manner for any sums he may
have pad for the educaton, mantenance or support of sad benefcary whe
same was a mnor.
2. The trustees are drected to counse and advse the sad benefcary regard-
ng hs e pendtures of trust ncome n order that same mny be spent wsey
and |udcousy and n ther dscreton they may advance or oan to sad bene-
fcary n any caendar year an amount not e ceedng the antcpated ncome
for that perod.
The ta abe years nvoved are 1933, 1934, and 1935. or the year
1933 the net ncome of each trust was doars, for the year 1934 the
net ncome was 3,r doars, and for the year 1935, doars. No
part of the ncome of any of the trusts was used for the educaton,
support, or mantenance of the mnors for any of the years n ques-
requred by the trust nstruments. It s stated that each benefcary
fed an ncome ta return ncudng the dstrbuton receved from
the fducary and pad ncome ta thereon.
ttenton w frst be gven to the queston whether any part of
the ncome of the trusts s ta abe to the grantor because of the
provson orgnay contaned n paragraph 3 of the trust nstru-
ments (deeted by the amendment of pr , 1934) gvng the
grantor the power to revoke the trusts upon a year and a day s notce.
Snce the trusts were not revocabe durng the ta abe year 1933,
the trust ncome for that vear was not ta abe to the grantor under
secton 166 of the Revenue ct of 1932. (See G. C. M. 11640, C. .
II-1, 144 (1933). and cases cted theren.) owever, snce the
phrase durng the ta abe year does not appear n secton 166 of
the Revenue ct of 1934, t s hed that the ncome from the trusts
for the perod anuary 1 to pr , 1934 (the date on whch the
ton, but a of the ncome
mnors as
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233
1C7, rt. 167-1.
trusts became rrevocabe), s ta abe to the grantor under the Revenue
ct of 1934.
The ne t queston to be consdered s what part, f any, of the n-
come of the trusts s ta abe to the grantor under secton 167 of the
Revenue cts of 1932 and 1931. That secton reads n part as
foows:
(a) Where any part of the Income of a trust
(1) s, or In 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 n the dsposton of such part of the ncome, be
dstrbuted to the grantor
then such part of the ncome of the trust sha e Incuded n computng the
net ncome of the grantor.
Ths offce has reached the concuson that n cases where the trust
ncome, or at east part of t, mght, n the dscreton of the trustees,
have been used to support the mnor chdren of the grantor there
shoud be ta ed to the grantor ony so much of the trust ncome
as s actuay dstrbuted for the support and mantenance of the
benefcares whom the grantor s egay obgated to support. The
fact that the trust ncome may be dstrbuted for the support of such
persons (but actuay s not) does not make such ncome sub|ect to
dstrbuton to the grantor wthn the meanng of secton 167 of
the Revenue cts here nvoved.
The opnon n . . ack v. Commssoner, promugated by the
oard of Ta ppeas on uy 20, 1937 (36 . T. ., , No. 55.
acquescence pubhsned on page 3, ths uetn), correcty states the
rue. In that case, the trust nstruments provded wth respect to
mnor chdren that the trustees n ther soe dscreton coud pay
a or none of the ncome arsng from the respectve trusts for the
educaton, mantenance, and support of the chdren. ny of the
ncome not pad for the beneft of the chdren was to be added to the
trust corpus. The opnon reads n part as foows:
The Commssoner determned a defcency of 2,559.50 n pettoner s n-
dvdua Income ta for 1934. sde from mnor ad|ustments whch are not
assaed, the Commssoner ncuded n pettoner s ncome 8,000 dvdends on
corporate shares hed by four trusts created by pettoner n 1933, of each
of whch pettoner s wfe and three mnor chdren were the respectve bene-
fcares. Ths ncuson the pettoner assas.
We are of opnon that the Commssoner s determnaton s n error. The
trusts were compete and rrevocabe. Pettoner had no rght to the ncome
ether presenty or prospectvey, and none of t actuay came to hm. e
dd not beneft by ts use for the support and mantenance of hs wfe and
chdren or n dscharge of any other of hs own obgatons (cf. Commssoner
v. Orosvenor, 85 ed. (2d), 2), and the trusts were at a tmes admnstered
wth a strct regard for ther separate |ura personates (cf. Wam C.
Rands, 34 . T. ., 1107). There s no occason, therefore, to regard the
ncome as constructvey receved by pettoner.
Consequenty, t s hed that none of the ncome of the trusts
n the nstant case s ta abe to the grantor under secton 167 of tho
Revenue cts of 1932 and 1934, snce no part of the, ncome was
dstrbuted or used for the support and mantenance of the bene-
fcares.
Morrson Shafrot,
Chef Counse, ureau of Interna Revenue.
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231, rt. 231-2. 234
rtc e 167-1: Trusts n the ncome of whch the grantor
retans an nterest.
R NU CT O 1934.
mendment of Reguatons 86, artce 167-1. (See T. D. 4759,
page 117.)
rtce 167-1: Trusts n the ncome of whch the grantor
retans an nterest.
R NU CT O 1934.
Partay revocabe trusts. (See G. C. M. 19113, page 151.)
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 Norway, Great rtan, Denmark, and Greece. (See
I. T. 3104, page 166.)
rtce 211-7: cuson of earnngs of foregn shps
from gross ncome.
R NU CT O 1934.
Ta aton of earnngs of shps documented under the aws of n-
and. (See I. T. 3108, page 167.)
SUPPL M NT I. OR IGN CORPOR TIONS.
S CTION 231. GROSS INCOM .
rtce 231-2: 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 Great rtan and Northern Ireand. (See I. T. 3134,
page 167.)
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235 702.
TITL I . DDITION L INCOM T S.
S CTION 351. SURT O P RSON L
OLDING COMP NI S.
rtce 351-4: mounts used or set asde to retre n-
debtedness ncurred pror to anuary 1, 1934.
R NU CT O 1934.
mendment of artce 351-4. (See T. D. 4777, page 196.)
TITL . C PIT L STOC ND C SS-PRO ITS
T S.
S CTION 702. C SS-PRO ITS T .
Secton 702. I-38-8933
I. T. 3117
R NU CT O 1934.
I. T. 2807 (C. . III-2, 110 (1934)) s revoked, n vew of G.
C. M. 18893. (See page 210.)
Secton 702.
revenue act of 1934.
Interest on obgatons of the Unted States. (See I. T. 3125,
page 214.)
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22(a), rt. 51. 236
INCOM T RULINGS. P RT TL
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). G OSS INCOM : G N R L
D INITION.
rtce 51: What ncuded n gross ncome. I-40-S954
Ct. D. 1265
ncome ta revenue act of 1932 decson op court.
1. Income Refund of State Income Ta es.
Where, as the resut of a decson by the Supreme Court of the
Unted States that the appcabe State ncome ta aw was uncon-
sttutona, the ta payer n 1932 receved a refund of State ncome
ta es whch he had pad for the years 192G to 1931 and had de-
ducted from gross ncome n computng edera ncome ta es for
those years, the amount of such refund consttuted ncome for
1932 wthn the meanng of secton 22(a) of the Revenue ct of
1932 and artces 41 (o) and 51 of Reguatons 77.
2. Decson ffsmed.
Decson of the oard of Ta ppeas (34 . T. ., 075) affrmed.
3. Certorar Dened.
I etton for certorar dened May 24, 1937.
Unted States Crcut Court of ppeas for the Seventh Crcut.
Chares W. Nash, pettoner, v. Commssoner of Interna Revenue, respondent.
88 ed. (2d), 477.
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore vans and Sparks, Crcut udges, and rgoe, Dstrct udge.
ebruary 4, 1937.
OPINION.
vans, Crcut udge: Pettoner, the ta payer, rases ths queston: Does
the refund of a State ncome ta theretofore unconsttutonay e acted, the
annua amount of whch was deducted by the ta payer In hs edera ncome
a return, consttute ncome for edera ta purposes n the year n whch t s
refunded
The facts: Pettoner, pursuant to the Wsconsn State ncome ta aw, pad
81,346.50 ncome ta es upon hs wfe s ncome durng the years 1926 to 1931.
e deducted these payments n hs edera ta returns. In 1931, the Unted
States Supreme Court hed the State ta enactment to be unconsttutona as to
the partcuar provson nvoved ( ooper v. Ta Com., 284 U. S., 206), and
the State of Wsconsn n 1032 refunded to Mr. Nash 81,346.50 (the sum u
dspute) and 20,420.76, nterest The nterest tem s conceded by pettoner to
be ta abe and s therefore not before us. urther assessment of edera ta es
for the years 1926 to 1931, to correct the assessments for those years, s barred
by the statute of mtatons.
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237
22(c), rt. 108.
Pettoner pad hs ncome ta es for the year 1032 wth ths tem of 81,346.50
ncuded n hs ncome hence the form of ths proceedng s a cam for refund,
beng n e cess of a defcency assessed and not here n ssue. The oard
ncuded the 81,346.50 n pettoner s 1932 ncome. Pettoner made hs return
on the cash recepts and dsbursement bass.
Pettoner argues that the refund does not consttute ncome as defned n
secton 22(a), Revenue ct of 1932, or the reguatons.
It s the Commssoner s contenton that a refund resutng from the return
of ta es prevousy pad under a mstaken vew of the vadty of a State ta
s ta abe ncome. Reance for ths vew s paced on urnet v. Sanford t
rooks Co. (282 U. S., 358 Ct. D. 277, . . -, 3C3 (1931) ) Chcago, R. .
d P. Ry. Co. v. Comm. (47 . (2d), 990) oubgant, Inc., v. Commssoner
(31 . T. ., 954, affrmed, 80 . (2d), 1012).
We accept the vews e pressed n these opnons.
The order of the oard of Ta ppeas s affrmed.
rtce 51: What ncuded n gross ncome.
R NU CT O 1932.
Marta agreement under Caforna aw as to earnngs. (See
G. C. M. 18884, page 58.)
rtce 51: What ncuded n gross ncome.
R NU CT O 1932.
Marta agreement under Washngton aw as to presenty owned
and subsequenty acqured property. (See G. C. M. 19248, page 59.)
rtce 51: What ncuded n gross ncome.
R NU CT O 1932.
Ta abty of ncome from certan restrcted Indan ands. (See
Op. . G. 11, page 161.)
S CTION 22(c). GROSS INCOM : IN NTORI S.
rtce 108: Inventores of reta merchants.
R NU CT O 1932.
Inventores of reta dry goods deaers. (See Mm. 470. . page 78.)
Secton 22(a), Revenue ct of 1932: (a) encra defnton. Gross Income In-
cudes gans, profts, and Income derved from saares, wages, or compensaton for
persona servce, of whatever knd and In whatever form pad, or from professons, voca-
tons, trades, busnesses, commerce, or saes, or deangs rn property, whether rea or per-
sona, growng out of the ownershp or use of or Interest n such property aso from
Interest, rent, dvdends, securtes, or the transacton of any busness carred on for pan
or proft, or gans or profts and ncome derved from any source whatever.
rtce 41(a), Reguatons 77: (a) Income (In the broad sense), meanng a weath
whch fows n to the ta payer other than as a mere return of capta. It ncudes the
forms of Income specfcay descrbed as gans aud profts, Incudng gans derved from
the sae or other dsposton of capta assets.
rtce 51, Reguatons 77 : Gross ncome Incudes In genera compensaton for per-
sona and professona servces, busness Income, profts from saes of and deangs n
property, nterest, rent, dvdends, and gans, profts, and Income derved from any source
whatever, . In genera, ncome Is the gan derved from capta, from abor, or
from both combned, provded It be understood to ncude proft ganed through a sae or
converson of capta assets.
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23(r), rt. 272. 238
S CTION 23(b). D DUCTIONS ROM GROSS
INCOM : INT R ST.
rtce 141: Interest.
R NU CT OP 1932.
udng and oan dstrbutons nterest or dvdends. (See
I. T. 3095, page 217.)
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM :T S G N R LLY.
rtce 151: Ta es.
R NU CT 01 1932.
Canadan net premum ta . (See I. T. 3138, page 230.)
S CTION 23(r). D DUCTIONS ROM GROSS INCOM :
LIMIT TION ON STOC LOSS S.
rtce 272: Lmtatons on deductons for T-31-8355
osses from saes and e changes of stocks Ct. D. 1247
and bonds.
( so Secton 183, rtce 902.)
INCOM T R NU CT O 1932 D CISION O COURT.
1. Deductons Lmtaton on Stock Losses ot owed to
tent of Partnershp Gan Prom Smar Saes.
Under secton 23(r) of the Revenue ct of 1932, a partner en-
tted as such to a share of the profts of the partnershp, ncudng
gan from the sae of noncapta assets, may not, n computng hs
ndvdua ta abe ncome, reduce hs share of such partnershp
gans by the amount of hs oss upon the sae of smar assets
owned by hmsef ndvduay.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (34 . T. ., 27C) affrmed.
3. Certorar Dened.
Petton for certorar dened pr 12, 1937.
Unted States Crcut Court of ppeas for te Second Crcut.
Percy . ohnston, pettoner, v. Commssoner of Interna Revenue, respondent.
80 ed. (2d), 732.
Petton to revew a decson of the oard of Ta ppeas sustanng a defcency deter-
mned by the Commssoner n the ncome ta es of the pettoner for the year 1931
ffrmed.
efore L. and, Swan, and Chase, Crcut udges.
December 7, 1930.
OPINION.
Chase, Crcut udge: Durng the ta abe year 1932 the pettoner sod at
a oss noncapta assets whch he owned personay. Durng the same year
he was one of the partners n a partnershp whch sod noncapta assets of the
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239
23(r), rt. 272.
partnershp at a proft. The partnershp fed ts nformaton return showng
ths proft and the pettoner ncuded hs share of t n hs own return. The
amount of gan so ncuded was ess than the oss he had sustaned. e de-
ducted the above-mentoned oss to the e tent of hs share of the partnershp
gan thus dmnshng what woud otherwse have been hs net ta abe ncome
as shown by hs return. The Commssoner, decdng that the deducton was not
aowabe n vew of secton 23(r) of the 1032 ct, added t to the pettoner s
net ncome as shown n hs return and determned the defcency accordngy.
ma|orty of the oard uphed that acton.
Secton 23(r) of the 1032 Revenue ct mted deductons whch mght be
taken from ncome on account of osses sustaned on the sae or e change
of noncapta assets to the e tent of the gans, from such saes or e changes.
Snce t s undsputed that the profts of the partnershp wth whch we are now
concerned were derved from the sae of assets hed ess than two years and so
from the sae of noncapta assets as defned n secton 101 of the ct and
that the persona osses of the pettoner were sustaned n the sae of such
assets, the soe ssue s whether the pettoner s share of such partnershp gans
s to be treated as though derved from the sae of noncapta assets whch the
pettoner owned personay.
It s argued wth much force that as a partnershp s not a ta payer ts
ncome dstrbutabe to a partner and ta ed to hm shoud be hed to retan
n the partner s return a the characterstcs by way of dervaton whch t bad
n the nformaton return hed by the partnershp as there s nothng n secton
23(r) whch s e pressy to the contrary. nd ths dea s thought to be some-
what fortfed by the fact that when Congress passed the Natona Industra
Recovery ct n 1033 secton 218(d) provded that ffectve as of anuary 1,
1033, secton 182(a) of the Revenue ct of 1032 s amended by nsertng at the
end thereof a new sentence as foows: No part of any oss dsaowed to a
partnershp as a deducton by secton 23(r) sha be aowed as a deducton to
a member of such partnershp n computng net ncome. Reance s paced
upon the usua nference that when a statute s amended the purpose s that
of change rather than a decaraton of ts former meanng uness the atter
ntenton ceary appears.
Yet we thnk these consderatons must yed to others that seem to be more
potent n ther bearng upon the ssue. Though a partnershp s not a ta payer
(secton 181 of the 1932 ct) and each partner s ta ed on hs dstrbutve share
of partnershp ncome (secton 182), the partnershp s a ta computng unt
whose ncome s to be cacuated n the same manner and on the same bass
as that of an ndvdua wth the e cepton that no deductons for chartabe
contrbutons are aowabe. (Secton 183.) (See are v. Commssoner, 38
ed. (2d), 965 Ct. D. 246, C. . I -2, 363 (1030) .) In such computaton non-
capta osses are of course deductbe to the e tent of noncapta gans under
secton 23(r) but when the partnershp return shows net ncome a partner s
dstrbutve share s to be entered n hs own return as hs own ncome derved
from the partnershp wthout retanng the pecuar character t had n the
partnershp return uness Congress has e pressy so provded and then ony for
the purpose stated. The genera rue of secton 182 ndcated that ths s so
and uness t s there woud be no reason for secton 1S4 whch provdes that
for the purpose of the norma ta a partner sha be aowed as an addtona
credt hs proportonate share of such amounts of dvdends and nterest spec-
fed n secton 25 (a) and (b) as are receved by the partnershp nor for
secton 186 provdng for showng n the partnershp return the proper part
of each share of the net ncome whch conssts, respectvey, of ordnary net
ncome, capta net gan, or capta net oss, and for ta ng the partners at
the rates and n the manner provded n secton 101 (a) and (b), reatng to
capta net gans and osses. So, too, secton 188 permts a partner to take
credt for partnershp ncome, war-profts, and e cess-profts ta es mposed by
foregn countres or possessons of the Unted States to the e tent provded n
secton 131. These provsons are to be read n connecton wth the genera rue
of sectons 182 and 183 for they are parts of the same statute and show that
Congress dd ntend to permt partnershp ncome to retan ts pecuar char-
acter for certan e press purposes when carred over nto the return of a
partner. nd ths e presson of purposes ncudes the negatve of anv othtrs.
otany Ms v. Unted States, 278 U. S., 282, 289 Ct. D. 39, C. . III-1. 279
(1029) .) Moreover, we are deang wt an enactment restrctng a rght to
take oss deductons from ncome whch must bear the ta burden mposed
uness Congress has seen ft to permt the offset camed. The rght to take
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23(r), rt. 272.
240
deductons from gross ncome s whoy a statutory prvege whch may be
granted or wthhed. (Loyd v. Commssoner, 55 ed. (2d), 842 Ct D. 542,
C. . I-2, 2C8 (1032) .)
Whe t s true that each partner owns hs share of the net worth of the
partnershp of whch he s a member (Unted States v. ack, 8 Pet., 271) and
consequenty hs dstrbutve share of the partnershp net ncome s ta abe
drecty to hm (Unted States v. aufman, 207 U. S., 408 T. D. 3G89, C. .
1 -1, 248 (1925) ), t s equay true that the partnershp status has not been
dsregarded n the scheme of ncome ta aton set up by Congress. (See
Shearer v. urnet, 285 U. S., 228.) That scheme provdes n genera for the
carryng over nto hs own return of a partner s dstrbutve share of partner-
shp ncome as computed n the partnershp nformaton return as so much
ordnary ncome wthout notcng ts source as shown by the partnershp
return e cept n those nstances for whch especa provson has been made.
So the pettoner must treat hs share of the partnershp gan as ordnary ncome
n hs return snce he can not sustan the camed rght to have t retan there
ts status as a gan derved from the sae of noncapta assets by brngng t
wthn one of the e ceptons to the genera rue whch Congress has created.
In vew of ths we fee bound to treat the above mentoned secton 218(d) of the
Natona Industra Recovery ct as havng been nserted out of abundant
cauton when that aw was passed and as but a carfcaton of e stng aw.
( cverng v. New York Trust Co., 292 U. S., 455, 469 Ct D. 840, O. . III-1,
188 (1934) .)
ffrmed.
rtce 272: Lmtatons on deductons for osses I-37-8915
from saes and e changes of stocks and bonds. Ct. D. 1259
INCOM T R NU CT O 1932 D CISION O COURT.
1. Deducton Losses Sustaned from Sae oe change of Non-
Capta ssets Consttutonaty of Statute.
Secton 23(r) of the Revenue ct of 1932, mtng the deduc-
ton for osses sustaned from saes or e changes of noncapta
assets to the e tent of gans from such saes or e changes, s not
unconsttutona. The mtaton prescrbed docs not effect the evy-
ng of a drect ta wthout apportonment, and s not so unreason-
abe, arbtrary, and caprcous as to voate the due process cause
of the ffth amendment.
2. Cebtorar Dened.
Petton for certorar dened une 1, 1937.
Unted States Crcut Court of ppeas fob the Second CRCurr.
Samue . Davs, pantff-appeant, v. Unted States of merca, defendant-
respondent.
87 ed. (2d), 323.
anuary 4, 1937.
opnon.
Chase, Crcut udge: Durng the ta abe year 1932, the appeant had, and
reported, net ncome of 17,100.35 derved other than from saes or e changes of
stocks and bonds hed not more than two years. That s to say, he had no
ncome whatever from saes or e changes of what are by secton 101 of the
Revenue ct of 1932 defned to be noncapta assets.
Durng the same ta abe perod he sod stocks whch were noncapta assets
wthn the defnton of the above mentoned secton at a oss of 13,285. e
camed the rght to deduct the oss so sustaned from hs net ncome derved
as before stated but the deducton was dsaowed n accordance wth the pro-
vsons of secton 23(r) of the 1932 ct mtng, wth certan e ceptons not
here pertnent, deductons for osses sustaned from saes or e changes of
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241
23(r), rt. 272.
rtock and bonds defned to be noncapta assets to the e tent of the gans from
such saes or e changes. Ths dena of the deducton camed resuted n the
assessment and coecton of the entre ta sought to be recovered n ths sut
snce appeant was aowed other deductons from net ncome whch brought
s net ta abe Income beow the amount of the oss he was not permtted to
deduct
The soe queston rased on ths appea s the vadty of secton 23(r) of the
1932 Revenue ct ppeant argues (1) that ts effect s to cause a drect ta
to be eved wthout apportonment contrary to rtce I, secton 9 of the
Consttuton and (2) that the cassfcaton resutng s so unreasonabe, arb-
trary and caprcous as to voate the due process cause of the ffth amendment.
It w be we to note at the start that our scheme of ncome ta aton provdes
for a method of computaton whereby a recepts durng the ta abe perod
whch are defned as gross ncome are gathered together and from the tota are
taken certan necessary tems ke cost of property sod ordnary and necessary
e penses ncurred n gettng the so-caed gross ncome deprecaton, depeton
and the ke n order to reduce the amount computed as gross nepme to what s n
fact ncome under the rue of sner v. Macomber (252 U. S., 189 T. D. 3010,
C. . 3, 25 (1920) ), and so awfuy ta abe as such. In ths way true ncome s
ascertaned by takng from gross ncome as defned that whch s necessary as a
matter of actua fact n order to determne what as a matter of aw may be
ta ed as ncome. Whe such subtractons are caed deductons, as ndeed they
are, they are not to be confused wth deductons of another sort ke persona
e emptons deductons for ta es pad osses sustaned n unreated transactons
and other ke prveges whch Congress has seen ft to accord to ncome ta -
payers under cassfcatons t has estabshed. Whe the frst knd of deduc-
tons are nherenty necessary as a matter of computaton to arrve at ncome,
the second may be aowed or not n the sound dscreton of Congress the ony
restrcton beng that t does not act arbtrary so as to set up n effect a cassf-
caton for ta aton so unreasonabe as to be a voaton of the ffth amendment.
Such deductons as dstngushed from the frst knd, are aowed by Congress
whoy as a matter of grace. New Coona Co. v. evcrng, 292 U. S., 435
Ct. D. 841, C. . III-1, 194 (1934) an cck v. Commssoner, 80 ed. (2d),
217 (C. C. . 2) Ct. D. 1116, C. . -1, 232 (1936) Gette v. Commssoner,
76 ed. (2d), 6 (C. C. . 2).) Whe the computaton of ncome s made wth
due and necessary regard to perods of tme, whch are estabshed years ether
caendar or fsca, t cuts atogether too fne to say that true, and therefore ta -
abe, ncome can ony be ascertaned by puttng together a the proft and oss
transactons of the perod and determnng net ncome accordngy regardess of
the fact that they may n whoe or n part be qute unreated e cept for the
tme eement and the fact that they were those of the same ta payer. If, for
Instance, a separate and dstnct transacton durng the year resuts n a net
reazed gan to the ta payer n and of tsef, ncome whch s ta ed has been
receved but Congress may, or may not, have aowed deductons whch as a
matter of computaton w reeve that ncome n whoe or n part from the
ta aton to whch otherwse t woud be sub|ect. s the aowance of deduc-
tons workng such a resut s dscretonary wth Congress, net ncome for any
ta abe perod need not necessary be the same as net ta abe ncome for that
perod and the varaton may be to the e tent that Congress has seen ft ether
to aow, to mt or to deny deductons wthn ts contro as a matter of grace.
(See rushaber v. Unon Pacfc R. R. Co., 240 U. S., 1 Dcnman v. Sayton, 282
D. S., 514 Ct. D. 318, C. . -, 380 (1931) cverng v. Ind. Lfe Ins. Co., 292
U. S., 371 Ct. D. 839, C. . III-1, 302 (1934) .)
The oss whch the appeant tred to deduct from hs unreated ncome fas
wthn the second cass of deductons of whch menton hns been made and so ts
mtaton as n secton 23(r) was one whch Congress coud contro n ts sound
dscreton wthout n substance evyng a drect ta wthout apportonment. (See
rushaber v. Unon Pacfc R. R. Co., supra.)
There remans ony the queston whether Congress n passng secton 23(r) drt
so n the e ercse of ts sound dscreton as dstngushed from takng mere
arbtrary and caprcous acton whch resuted n ta aton so baseess n reason
as to deprve those adversey affected of ther property wthout due process n
voaton of the ffth amendment. Ths n turn depends upon whether the cass-
fcaton of stocks and bonds hed by a ta payer for more than two years as
capta assets and other stocks and bonds as noncapta assets and permt-
tng those who suffered osses n seng and e changng the former deductons
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103, rt. 527.
242
whch are dened the atter Is based on a dfference whch actuay e sts or
whether those who se or e change stocks and bonds they have not hed for more
than two years have been whmscay deprved of an advantage gven those who
keen ther stocks and bonds for more than that tme.
It s common knowedge that stocks and bonds hed for more than two years
are more key to have been acqured for nvestment than those turned over
sooner and we thnk t reasonabe for Congress so to cassfy between probabe
Investment ncome and osses and probabe specuatve ncome and osses confnng
deductons for the second knd of osses to the e tent of ke gan whe not so
restrctng osses of the former sort.
Permttng deductons for osses from transactons whch may often be but
one form of gambng ony to the e tent of ke gans s not a mtaton whch
w resut n ta ng as ncome that whch s not and we thnk t otherwse we
wthn the bounds of reasonabe acton by Congress to curta the effect of such
osses upon the natona revenue. It has much attude n that respect. (Com-
pare Cohan v. Commssoner. 39 ed. (2d), 540 (C. C. . 2) arcay d Co., Inc., .
dwards. 207 U. S., 442 T. D. 3001, C. . I -1, 207 (1925) Denman v. Sauton,
supra rushaber v. Unon Pacfc R. R. Co., supra Neuss, Iesscn f Co., Inc.,
v. Commssoner, 30 ed. (2d), G20 (C. C. . 2) Ct. D. 120, C. . III-2, 312
(1929)1.)
udgment affrmed.
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
rtce 342: When charges deductbe.
R NU CT O 1932.
Losses by vrtue of rea estate forecosure saes where State aw
provdes for redempton perod. (See G. C. M. 19367, page 115.)
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 527: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT O 1932.
Poce reef assocatons. (See G. C. M. 19028, page 125.)
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243 212, rt. 1042.
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 601: nayss of credt for ta es.
R NU CT O 1032.
Canadan net premum ta . (See I. T. 3138, page 230.)
SUPPL M NT . ST T S ND TRUSTS.
S CTION 166. R OC L TRUSTS.
S CTION 167. INCOM OR N IT O GR NTOR.
rtce 881: Income of trusts ta abe to grantor.
R NU CT O 1932.
Mantenance trusts created for beneft of grantor s mnor chdren.
(See G. C. M. 18972, page 231.)
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 Norway, Great rtan, Denmark, and Greece. (See I.
T. 3104, page 166.)
rtce 1042: cuson of earnngs of foregn shps
from gross ncome.
R NU CT O 1932.
Ta aton of earnngs of shps documented under the aws of n-
and. (See I. T. 3108, page 167.)
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231, rt. 1101.
244
SUPPL M NT I. OR IGN CORPOR TIONS.
S CTION 231. GROSS INCOM .
rtce 1101: Gross ncome of foregn corpo-
ratons.
I-29-8819
G. C. M. 18383
( so Secton 232, rtce 1111.)
R NU CT O 1932.
Treatment for edera ncome ta purposes of hedgng transac-
tons on a domestc commodty e change by a foregn corporaton
whch mantans no domestc ofce.
dvce s requested whether G. C M. 17322 (C. . -2, 151
(1936)), reatng to hedgng transactons, s appcabe to deangs
n cotton futures contracts on the New York Cotton change n
1932 and 1933 by a foregn corporaton.
The M Corporaton s a foregn corporaton whch had no offce
or pace of busness n the Unted States durng the years under con-
sderaton. It s engaged n the cotton te te manufacturng bus-
ness, havng cotton ms ocated outsde the Unted States. or
many years t has purchased ts requrements of physca cotton n
ths country. It has customary and as a matter of standard prac-
tce hedged ts cotton requrements on the futures market of the New
York Cotton change. The hedgng transactons have been made
n order to f the cost of physca cotton to the M Corporaton. Its
practce s to purchase cotton futures contracts n ths country when
contracts for fnshed goods are entered nto abroad. When the
physca cotton s thereafter purchased, the cotton futures contracts
are cosed out. owever, the hedgng operatons and purchases of
actua cotton are not necessary earmarked, one aganst the other.
The hedgng operaton s for the e press purpose of nsurng the
m aganst adverse prce movements on physca cotton. It enabes
the m to make contracts for fnshed goods for forward devery
on the bass of the prce f ed by the futures contracts. The profts
on the hedgng contracts were more than offset by osses sustaned on
physca cotton sod by the ta payer n the form of fnshed goods.
undamentay, G. C. M. 17322, supra, n effect treats futures con-
tracts whch represent hedges aganst spot transactons or aganst
concurrent futures or forward saes or purchases as nsurance con-
tracts and the gans thereon, to the e tent they compensate for off-
settng osses sustaned, as mere compensaton for such osses whch
woud otherwse be deductbe. That s, such gans are, n effect,
nsurance proceeds that represent compensaton for osses sustaned
and become mportant for ncome ta purposes ony through the
consequent emnaton of such osses as deductbe tems. though
G. C. M. 17322, supra, nvoves a domestc corporaton, the basc ega
concusons theren reached are equay appcabe to foregn corpo-
ratons n the absence of e press or mped statutory provsons
dstngushng between domestc and foregn corporatons. Whe
gans from futures contracts to the e tent they merey compensate
for osses on transactons thereby hedged are not ncome, osses sus-
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245
232, rt. 1111.
taned n ths country by the ta payer on hedgng transactons are
not deductbe. G. C. M. 17322, supra, treats such osses as deduct-
be e pense tems n the case of a domestc corporaton. Secton 233
of the Revenue ct of 1932 condtons the aowance of deductons
to foregn corporatons upon the fng of returns showng tota n-
come from a sources wthn the Unted States, and, upon compance
wth such condton, secton 232 mts such deductons to tems ao-
cabe to ncome from sources wthn the Unted States. Losses sus-
taned n the Unted States on futures contracts consttutng hedges
aganst operatons abroad are e pense tems aocabe to the ncome
arsng from sources wthout the Unted States and are, therefore,
not avaabe as deductons under secton 232 of the Revenue ct of
1932, athough a return s fed n compance wth secton 233 of
that ct.
It s, therefore, the opnon of ths offce that under G. C. M.
17322, supra, gans of the M Corporaton from the hedgng contracts
n the Unted States are ncome ony to the e tent they e ceed the
osses for whch they compensate, and that osses on such hedgng
contracts are nondeductbe e pense tems aocabe to ncome from
sources wthout the Unted States. Care shoud be e ercsed n
dstngushng between hedgng transactons and specuatve trans-
actons. Gans arsng from specuatve transactons represent n-
come, whe deductons for osses sustaned thereon are restrcted by
sectons 232 and 233 of the Revenue ct of 1932.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
S CTION 232. D DUCTIONS.
rtce 1111: Deductons aowed foregn corporatons.
R NU CT O 1932.
edgng transactons on domestc commodty e change by foregn
corporaton wth no domestc offce. (See G. C. M. 18383, page 422.)
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22(a), rt. 53.
246
INCOM T RULINGS. P RT I.
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.
Marta agreement under Caforna aw as to earnngs. (See
G. C. M. 18884, page 58.)
rtce 51: What ncuded n gross ncome.
Marta agreement under Washngton aw as to presenty owned
and subsequenty acqured property. (See G. C. M. 19248, page 59.)
rtce 51: What ncuded n gross ncome.
Ta abty of ncome from certan restrcted Indan ands. (See
Op. . G. 11, page 61.)
INCOM T R NU CT O 1928 D CISION O COURT.
1. Gross Income Premum Payments Insurance on Lfe of
Corporate Offcer.
Lfe Insurance premums pad by a corporaton on poces taken
out by t on the fe of ts presdent, one of the ma|orty stockhod-
ers, the wfe and sons of the nsured beng rrevocaby named as
benefcares wth hs acquescence n the corporate acton, const-
tute ncome to the nsured.
2. oard of Ta ppeas ndngs op act Premum Payments
as ddtona Compensaton ffrmatve vdence ur-
den of Proof.
statement n the opnon of the oard of Ta ppeas that
there was no evdence that premum payments were ntended as
addtona compensaton may he construed ony as a statement that
no affrmatve evdence was offered to prove such ntenton, where
the oard s forma fndngs of fact made no reference to add-
R NU CT O 1928.
R NU CT O 1928.
R NU CT O 1928.
rtce 53: Compensaton pad other than
n cash.
I-51-0102
Ct. D. L289
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247
522(a), rt. 53.
tona compensaton but dd ncude a fndng that the corporate
records contaned no resoutons nor any agreement between the
partes pertanng to the poces. The burden was not upon the
Commssoner to present such affrmatve evdence n support of hs
determnaton, but upon the ta payer to show that the payments
were wrongfuy ncuded n ncome.
8. Decson Reversed and Cause Remanded.
Decson of the oard of Ta ppeas (33 . T. ., 507) reversed
and cause remanded.
4. Certorar Dened.
Petton for certorar dened October 11, 1937.
Unted States Crcut Court of ppeas fob the Second Crcut.
Commssoner of Interna Revenue, pettoner, v. Pau . onwt, respondent.
87 ed. (2d), 764.
Petton to revew order of the Unted States oard of Ta ppeas.
efore Swan, ugustus N. and, and Chase, Crcut udges.
ebruary 8, 1937.
OPINION.
The Commssoner of Interna Revenue seeks revew of an order of the oard
of Ta ppeas determnng the respondent s ncome ta abty for the year
1928. Reversed.
Swan, Crcut udge: In the year 1928 onwt Teer Co., herenafter re-
ferred to as the corporaton, pad premums of 46,434.90 upon poces of
nsurance ssued on the fe of Pau . onwt, the ta payer whose ncome
ta for that year s n tgaton. Ths appea presents the queston whether
certan of the premums so pad by the corporaton consttuted ta abe ncome
to the respondent
The poces fa nto three groups. One group conssts of poces for 175,000
whch had been ssued on the appcaton of the respondent and named as
benefcares members of hs famy or hs estate. Premums pad on these
poces were hed ta abe ncome to hm. The correctness of ths rung s no
onger questoned. nother group conssts of poces for 139,500 for whch
the corporaton had made appcaton and under whch t was the benefcary.
The premums pad on ths group were hed not ta abe to Mr. onwt, and
ths rung s aso not dsputed. thrd group embracng poces n the
aggregate amount of 500,000, rases the queston presented here.
These poces were taken out n 1923. The appcatons named the cor-
poraton as the appcant for nsurance and were sgned both by t and by
Mr. onwt. The nsurance was apped for by the corporaton for the purpose
of creatng greater effcency among ts offcers and for the betterment of ts
busness. Some of the poces were orgnay payabe to the corporaton but
n 1928 the benefcares were the respondent s wfe, n poces for the face
amount of 250,000, and hs sons Water and arod, n poces for 125,000
each. The poces were n the standard form no power to change the bene-
fcary was reserved. The records of the corporaton contan no resoutons
pertanng to the nsurance poces nor any agreement between the corpora-
ton and the respondent wth respect to them. The respondent was the pres-
dent of the corporaton, and hs two sons were n ts empoy durng 1928
at saares of 26,000 and 36,C00 respectvey. ma|orty of the stock of the
corporaton outstandng n 1928 was owned by the respondent and hs wfe, her
shares beng hed n trust for the sons. The premums pad by the corpora-
ton n 1928 were deducted by t n ts ncome ta return as ordnary and
necessary e penses. In the respondent s return no menton was made of the
premums. The Commssoner surcharged hs return to ncude them as ncome.
The oard reversed hs rung and the Commssoner brngs ts order here for
revew.
There s no specfc statutory provson wth respect to the premums n ques-
ton, as there was n urnet v. I cs (289 U. S., 670 Ct. D. 688, C. . II-1,
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522(a), rt. 53.
248
261 (1933) .) Ther payment dd not satsfy any debt or obgaton owng by
the respondent, as dd the payment of ta es n Od Coony Trust Co. v. Com-
mssoner (279 U. S., 716 Ct. D. SO, C. . III-2, 222 (1929) ). The respondent
was not a party to the contracts of nsurance, for he sgned the appcatons
as the nsured, not as the appcant for the nsurance. (Cyrenns v. Mutua
Lfe Ins. Co., 145 N. Y., 576, 081.) ven f he had been the appcant, he woud
have ncurred no obgaton to pay any premum beyond that for the frst year.
If subsequenty accrung premums were not pad the poces woud apse, but
no acton coud have been mantaned by the nsurance companes for the
premums pad n 1928. ence the premum payments can be consdered ncome
to the respondent ony f they were made as addtona compensaton for hs
servces to the corporaton. Severa cases have hed that payment of nsurance
premums by an empoyer consttuted addtona compensaton to an empoyee
whose fe was nsured n favor of hs wfe and chdren or other benefcares
desgnated by hm. (Yuengny v. Commssoner, 69 . (2d), 971 (C. C. . 3)
Canaday v. Outteau, 86 . (2d), 303 (C. C. . 6) George Matthew dams v.
Commssoner, 18 . T. ., 381 N. Lorng anforth v. Commssoner, 18 . T. ,
1221.) The oard of Ta ppeas dstngushed these from the case at bar,
but the dfferences they pont out seem to us nsuffcent bass for an opposte
resut.
In the present case the corporaton pad premums on poces whch rrevo-
caby name as benefcares the wfe or one of the sons of ts presdent. It can
gan no drect beneft from the nsurance ndrect beneft to t must come ony
from the effect that keepng the poces n force may have upon ether the
respondent or the benefcares. corporaton may not awfuy gve away ts
property n order to gratfy an ndvdua hence there s a presumpton that
payments benefca to an empoyee are ntended as addtona compensaton
rather than gfts. Noe v. Parrot t, 15 . (2d), 609, 671 (C. C. . 4) T. D.
3908, C. . -2, 149 (1926) , cert, dened, 273 U. S., 754 sher v. Comms-
soner, 59 . (2d), 192, 193 (C. C. . 2) Yrngng v. Commssoner, 69 . (2d),
971, 972 (C. O. . 3).) The presumpton gans added force from the corpora-
ton s treatment of the payments, n ts own ta return, as ordnary and neces-
sary e penses obvousy t dd not regard them as gfts. When the poces
n queston were taken out by the corporaton, and when those orgnay pay-
abe to the corporaton were changed to name rrevocaby the presdent s wfe
and sons, he was consuted and acquesced n the corporate acton. The nsur-
ance broker testfed that Mr. Pau onwt was aways present he had to be,
coudn t go ahead wthout hm. The nference s nescapabe that he was
nstrumenta n desgnatng the benefcares. Under these crcumstances, the
presumpton that nsurance premums pad by the corporaton were ntended
as addtona compensaton to m shoud be nduged, regardess of the fact
that he was not the appcant for the poces or that he had no power to
change the benefcares. Nor do we thnk the presumpton s rebutted wth
respect to the poces payabe to the sons by the fact that n 1928 they were
recevng saares whch woud seemngy make them fnancay ndependent
of ther father. What the stuaton was when they were named the benefcares
does not appear.
The oard s opnon states that there s no evdence that he or hs empoyer
ntended or regarded them premum payments as addtona compensa-
ton, and the respondent rghty asserts that ths court s bound by the
oard s fndngs on questons of fact, f they fnd any support n the evdence.
The oard s forma fndngs of fact make no reference to addtona compen-
saton but do ncude a fndng that the records of the corporaton contan no
resoutons pertanng to the poces, nor any agreement between the corpora-
ton and the respondent respectng them. The above-quoted sentence from the
opnon was perhaps ntended as a reference to the absence of evdence n
the corporate records. t most t can be construed as a statement that no
affrmatve evdence was offered to prove that the premums were ntended
as addtona compensaton. ut the burden was not upon the Commssoner
to present such affrmatve evdence. e had determned a defcency based
on ncudng these payments n the ta payer s ncome, and the burden of proof
was upon the ta paver to show that they were wrongfuy so ncuded.
(Wech v. nerrrng, 290 U. S., I, 115 Ct D. 755, O. . II-2, 112 (193311
Wckwre v. Penecke, 275 U. S., 101 T. D. 4126, C. . II-1, 316 (1928)1
ustn Co. v. Commssoner, 35 . (2d), 910, 912 (O. C. . 6) Ct D. 189, O. .
I -1, 332 (1930) .) e faed to carry that burden. On the contrary the
facts dscosed rased the presumpton, aready dscussed, that the premums
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249
22(a), rt. 58.
were pad as addtona compensaton to the ta payer, and the record contans
nothng to rebut t. We are at berty, therefore, to dsregard the above-
quoted statement from the opnon, f It may be consdered as a fndng of fact.
The order s reversed and the cause remanded o entry of an order n
conformty herewth.
rtce 58: Sae of stock and rghts. I-44-9014
Ct. D. 1273
ncome ta revenue act of 1928 decson of court.
1. Gan ob Loss Sae of Stock ass bst n, bst out
Rue.
The ta payer n 1028 surrendered certan stock whch had been
acqured by hm at dfferent tmes and at dfferent prces, and
receved n e change therefor certfcates for new shares of stock
In the same corporaton, at a reduced par vaue, for four tmes
the number of od shares. Upon the sae n 1929 of a porton of
the new shares, the bass for determnng the gan derved there-
from was propery determned by appyng the frst In, frst out
rue, n the absence of proof that the shares sod coud be dent-
fed as havng been receved n e change for any partcuar od
shares.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (33 . T. ., 1088) affrmed.
Unted States Crac nT Couet of ppeas foe the Second Cbcut.
Soomon . raus, pettoner, v. Commssoner of Interna Revenue, respondent.
88 ed. (2d), 616.
Petton to revew a decson of the oard of Ta ppeas redetermnng a defcency In
the ncome ta es of the pettoner for the caendar year 1929. ffrmed.
efore L. and, Swan, and Chase, Crcut udges.
March S, 1937.
OPINION.
The pettoner owned shares of the capta stock of the Manufacturers Trust
Co. whch he sod In 1929. The defcency was determned by takng what the
pettoner says was an Incorrect bass for the stock.
e began acqurng the capta stock of the Ctzens Trust Co. of rookyn,
N. ., n 1905 and from tme to tme bought more at varyng prces unt In
1915 he owned 627 shares when the name of that bank was changed to Manu-
facturers Trust Co. In October. 1910, he bought 15 addtona shares of
stock. In 1918 the assets of the West Sde ank were acqured by merger by
the Manufacturers Trust Co. n a reorganzaton whch made hs hodngs
amount to 538 shares. e contnued to buy stock unt by une 6, 1928,
he hed 3,505 shares of Manufacturers Trust Co. stock whch then had a par
vaue of 100. In une of that year the bank reduced the par vaue of ts
shares to 25 and ssued to hm 14,020 of the new shares n e change for
those he hed. Ths was done as part of a change n Its capta structure n a
reorganzaton when t ncreased ts captazaton by ssung 90,000 shares
of ts stock to purchase the assets of the Unted Capta ank Trust Co.
of New York.
In 1929 pettoner sod 3,000 of the new shares thus acqured for SS4,970.
They were represented by three certfcates, vz: Nos. 8322, S323, and 8324,
each for 1,000 shares, and there was no dentfcaton of them on the books
of the Manufacturers Trust Co. wth any of the shares the pettoner sur-
rendered when the shares sod were Issued to hm. The oard further found
as foows:
In the fa of 1928, the accountant who had audted the pettoner s books
for severa years suggested to pettoner that n vew of the spt-up of trust
779G4 38 9
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250
company stock somethng shoud be done towards dentfcaton so that saea
coud be made advantageousy to hm from an ncome ta standpont The
pettoner took no acton to carry out the suggeston. The accountant ds-
cussed the matter further wth pettoner s nephew who hed a power of
attorney from the pettoner and conducted some of pettoner s busness mat-
ters. The nephew furnshed the accountant wth sts of the certfcate num-
bers of the od stock turned n n 1928 and of the stock receved n that year n
the spt-up. The accountant thereupon prepared a schedue stng n one
coumn the new certfcates n numerca order, pacng at the top the three
owest numbered, to wt: 8322, 8323, and 8324. ganst these he baanced
the od certfcate numbers, not n numerca order, but accordng to cost,
stng at the top those havng the hghest cost. Ths schedue was coped
nto one of pettoner s edgers by hs bookkeeper. In the edger entres so
made, od certfcate Nos. 17479, 18812, and 16798 representng 675, 48,
and S2 shares, respectvey, whch shares were purchased by pettoner In
1927, were baanced aganst new certfcate Nos. 8322-24, Incusve, whch
were the owest numbered new certfcates receved by pettoner In 1928.

The accountant above mentoned prepared pettoner s ncome ta return
for 1929. In reportng the proft on the sae of the 3,000 shares of trust
company stock he used, as cost, fgures gven to hm by the pettoner, and
he made no use of the schedue of certfcate numbers that he had prepared
n 1928.
Chase, Crcut udge: The dspute between the pettoner and respondent
concerns ony the proper cost bass of the stock sod. The pettoner nssts
that t shoud be at the average cost per share of hs hodngs acqured
throughout the years up to the tme of sae whe the respondent apped
the frst n, frst out rue n determnng the defcency. ( rtce 58 of
Reguatons 74.)
It may be taken as estabshed that f the pettoner were abe to dentfy the
stock he sod wth any partcuar stock he acqured that he woud be entted
to take the bass of that stock so dentfed as the bass of the shares sod. (Sec-
ton 113(a) G, Revenue ct of 1928.) We agree that he acqured the shares he
sod n a nonta abe e change of stock for stock n a reorganzaton. (Secton
112(b)3, Revenue ct of 1928.) e had the rght to se whatever stock he
desred and the rght of course to have the ta abe gan, f any, computed on
the bass of the cost of the partcuar shares whch he eected to se. The
weakness of hs ob|ecton to the acton of the respondent es n the fact that
he dd not take steps whch woud enabe hm to dentfy the shares sod wth any
partcuar shares he acqured at any defnte cost. Consequenty t s of no
ava to hm to show merey acquston under such crcumstances that the stock
sod shoud be gven the bass of some of the stock for whch he acqured t on
the e change he made for he e changed then many shares of od stock for the
new. e must prove such dentfcaton of new shares sod wth specfc od
shares that the bass of those od shares can be known. The od shares had
been acqured by hm at dfferent tmes and at dfferent prces, and, when a
were turned In ndscrmnatey for an aggregate amount of new snares wth
no aocaton of new shares to od, t became mpossbe to te whether any
partcuar new shares were e changed for any partcuar od shares rather
than for some other od shares. Moreover, t has been |ustfaby found by the
oard that the pettoner made no aocaton of new shares to od. It s qute
true that the frst n, frst out rue Is appcabe ony when there s no dentfca-
ton of shares sod wth shares purchased. ( everng v. Rankn, 295 U. S., 123
Ct. D. 966, C. . I -1, 160 (1935) Sknner v. aton, 45 ed. (2d), 568
(C. C. . 2).) nd equay true that stock certfcates are not the ony means of
dentfcaton. drecton to a broker to se shares desgnated by date of pur-
chase and prce pad w be suffcent to estabsh Identty of the stock sod
for determnng the cost bass of t even though the broker actuay devers other
certfcates than those he was drected to se, but ntenton wthout more s not
desgnaton. (Mer v. Commssoner, SO ed. (2d), 219 (C. C. 2). See aso
uer v. Commssoner, 81 ed., 176.)
ut notwthstandng ths, the pettoner nssts that as he has shown that
a the shares he sod were acqured at one tme n a nonta abe e change of
stock for stock he s entted to the average cost of the od shares as a bass
for the new. (See Commssoner v. on Ounten, 76 ed. (2d), 670 Commssoner
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251
22(a), rt. 58.
T. Over, 78 ed. (2d), 561 and Commssoner v. oender, 82 ed. (2d), 591.
See aso everng v. Stfe (C. O. .), 75 ed. (2d), 583.) U these cases
however, deat wth nonta abe e changes of stock for stock In one or more
corporatons other than the one whose stock was gven up n the e change.
We thnk that dstngushes those cases from the present one, but, however that
may be, we are not prepared to e tend the rue of them to an nstance ke ths
where od stock was merey e changed for new stock n the same corporaton.
The fact that the new shares were four tmes as numerous as the od because
ther par vaue was ony one-fourth as much dd not change the stuaton for
present purposes from what t woud have been had the od certfcates merey
been surrendered for new certfcates for a ke aggregate number of shares
there beng no change n par vaue. ad there been no dentfcaton of new
shares wth od such an e change woud have made t possbe, f the pettoner s
vew s sound, for hm to have 6od any new shares and be ta ed for any gan
on the bass of average cost of the od though he coudn t have sod any of the
od ones and computed hs ta abe ncome, f any, e cept ether by appyng the
frst n, frst out rue of artce 58 of Reguatons 74 or provng the cost of the
shares actuay sod. It may we be doubted whether one may so easy avod
at w a computaton of ta abe ncome on the bass of actua cost of the shares
od or n accordance wth the frst n, frst out rue and get the beneft of
average cost as a bass whenever that s desred. It s1 apparent that any
e change of stock n one corporaton for a ke number of shares of the same
knd of stock n the same corporaton merey changes certfcates and eaves
the hoder n the same fnanca poston as before. It must aways be a non-
ta abe e change n fact. So n our opnon the e change through whch the
pettoner acqured the new shares he sod merey eft hs ta abe status on a
sae of them the same that t woud have been had he retaned hs od shares
and sod some of them. (Compare Perkns v. Unted. States, 12 ed. Sup. (2d),
481 atrtcr v. Commssoner, 83 ed. (2d), 11 Ct. D. 1198, C. . 1937-1, 184 .)
e had ether to dentfy the new shares sod wth partcuar od ones so as
to show actua cost or be ta ed on the bass upon whch hs ta es have been
determned.
ffrmed.
rtce 58: Sae of stock and rghts. I-49-9073
Ct. D. 1284
INCOM T R NU CT O 1928 D CISION O SUPR M COURT.
. Gross Income Issuance and ercse of Rghts to Purchase
Stocks Increase n aue at Tme of ercse Whether
Sae or Dvdend.
sae of corporate assets to stockhoders for substantay ess
than the vaue of the property sod, by means of the ssuance and
e ercse of rghts to purchase the stock of another corporaton,
may appropratey be deemed n effect the decaraton of a dvdend,
ta abe to the e tent that the dstrbuted property e ceeds the
stpuated prce but f the opton prce s far when f ed by the
corporate acton, the transacton s a tender for a sae and not a
dvdend under sectons 22 and 115 of the Revenue ct of 1928.
Nor s the transacton converted nto a dvdend by the mere cr-
cumstance that ater, at the tme of e ercse, the reasonabe vaue
of the property s greater than the purchase prce.
2. Issuance of Rghts to Subscbbe to Stock Nor a Dvdend.
The mere ssue of rghts to subscrbe and ther recept by stock-
hoders s not a dvdend. The rghts are at most optons or con-
tnung offers. Ta abe ncome mght resut from ther sae, but
dstrbuton of the corporate property coud take pace ony on ther
e ercse.
3. Decson Reversed.
Decson of the Crcut Court of ppeas, rst Crcut (88 ed.
(2d), 559), vacatng and remandng decson of the Unted States
oard of Ta ppeas (32 . T. ., 550), reversed.
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22(a), rt. 58.
252
StTP M COU T O T UNIT D ST T S.
19. radey W. Pamer, pettoner, v. Commssoner of Interna Revenue.
59. Guy T. Ucverng, Commssoner of Interna Revenue, pettoner, v. radey
W. Pamer.
302 U. S., 63.
On wrts of certorar to the Unted States Crcut Court of ppeas for the rst Crcut
November 8, 1937.
OPINION.
Mr. ustce Stone devered the opnon of the Court
The queston for decson s whether a purported sae by a corporaton to
ts stockhoders, of shares of stock ssued by and acqured from another cor-
poraton, the sae beng effected by means of an ssue to the stockhoders of
rghts to purchase the stock at a named prce, s to be treated as a dstrbu-
ton of corporate earnngs ta abe as a dvdend to the stockhoders when re-
ceved, wthn the reach of sectons 22 and 115 of the Revenue ct of 1928 (ch.
852, 45 Stat., 791).
In anuary, 1929, the mercan Superpower Co., of whch pettoner was a
stockhoder, acqured through consodaton of pubc utty corporatons, n
some of whch t n turn was a stockhoder, a arge amount of the securtes
of the Unted Corporaton, the atter beng receved n e change for stock
of the consodated corporatons owned by Superpower. The securtes re-
ceved ncuded shares of the preference stock of Unted, 2,210,583 shares of
ts common stock, and 1,000,000 rghts to subscrbe for Unted common stock
at any tme for 27.50 a share. Unted was ncorporated anuary 7, 1929.
The consodaton was effected anuary 9, when Superpower became entted
to ts aotment of the securtes. On anuary 23, 1929, the board of drectors
of Superpower, pursuant to a pan to strengthen ts cash poston and to create
a wde market for the stock of Unted, adopted a resouton offerng to ts
common stockhoders of record anuary 26, 1929, the prvege of purchasng,
at 25 a share, one-haf share of Unted for each share of ther common stock
n Superpower. The prvege was evdenced by negotabe certfcates dstrb-
uted to stockhoders about anuary 31. y ther terms they were to become
vod uness the prvege was e ercsed by ebruary 15, 1929. On that date
pettoner e ercsed the prvege by purchasng hs aotment of 3,198 shares
of Unted at 25 a share. In ts books, records and accounts, Superpower
treated the transacton as a sae of the Unted stock, resutng n no change n
ts net assets or earnngs.
The prces receved by Superpower for shares dstrbuted to ts stockhoders
represented a substanta proft to t over cost of the securtes whch t had
e changed for them. It reported the proft n ts 1929 ncome ta return and
pad the ta on t for t|at year. In computng the ta the Commssoner n
aocatng the cost of the three casses of securtes receved from Unted by
Superpower, found t necessary to determne the vaue of each cass of securty
when receved. e dd ths by fndng the tota vaue of the securtes and
aocatng to the common stock a vaue of 25 a share. On or about anuary
0, bankers who were actve In promotng the consodaton purchased from
Unted 400,000 shares of Its stock at 22.50 per share. Shorty after the adop-
ton by Superpower, on anuary 23, of the pan for dstrbuton of the Unted
stock, an actve market deveoped on the New York Curb change for the
sae of subscrpton rghts. On anuary 25, 11,000 rghts were sod at prces
rangng from 11 to 12 , makng the cost per share to purchasers of the
rghts, upon ther e ercse, about 50. On anuary 28, 44,000 of them were
deat n on the e change at prces rangng from 12 to 17 4, wth a corre-
spondng cost of the shares of from 50 to 60. On anuary 29, 30, and 31,
Superpower sod about 9,200 shares of ts Unted stock on the open market at
from 30 to 63 per share.
On May 1, 1929, a ke prvege to purchase one-fourth of a share of stock of
Unted at 30 a share for each share of Superpower was e tended to the stock-
hoders of the atter, as of May 8, 1929, whch pettoner smary e ercsed
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253
22(a), t. 58.
on May 24, 1929. On une 5, 1929, a ke prvege was gven to the common
stockhoders of Superpower as of une 18, 1929, to purchase stock of Common-
weath Southern Corporaton at 15 a share, whch pettoner e ercsed on
uy 2, 1929.
Pettoner dd not, n 1029, se or otherwse dspose of any of the shares
for whch he subscrbed, or report ther recept n hs ncome ta returns for
that year. The Commssoner rued that the rghts to subscrbe were dvdends
and assessed a defcency aganst pettoner based on ther market vaue on
the respectve dates when the stockhoders were frst entted to e ercse them.
The cause was heard by the oard of Tu ppeas upon a stpuaton of facts
whch t adopted as a fndng and whch specfed the facts aready detaed.
The oard hed that the dstrbutons were saes of the shares by Superpower
to ts stockhoders, not dvdends, and reduced the defcency accordngy. In
reachng ths decson the oard, upon consderaton of a the facts and cr-
cumstances attendng the ssue of the rghts by Superpower to ts stockhoders,
found that there was no ntenton to dstrbute any of ts earnngs to stock-
hoders and that the transacton was what It purported to be on ts face a
sae to stockhoders of part of the corporate assets. s a supportng fact t
found that the far vaue of the common stock of Unted durng anuary, 1929,
was 25 a share. It concuded that the facts as stpuated and as found by
t dd not show far market vaue of the Unted stock u May, 1929, or of the
Commonweath Southern stock n une or uy of that year. Upon the entre
record t was of the opnon that there was no reason to treat the transacton
any dfferenty than the partes had treated t, as a sae of a part of the assets
of Superpower from .whch no ta abe gan woud resut before the ta payer
sod or otherwse dsposed of the shares.
The Court of ppeas for the rst Crcut reversed, hodng that the dstr-
butons were ta abe dvdends measured by the dfference between the vaue
of the severa aotments of shares on the respectve dates when the rghts
were e ercsed and the prces pad for them. (88 . (2d), 559.) In reachng
ths concuson the court recognzed that the oard had found the anuary,
3929, vaue of the stock of Unted to be 25 a share. ut t thought that the
oard n makng the fndng had dsregarded the substanta prces at whch
the rghts were sod pendng ther e ercse, denyng to them persuasve weght
because t had mstakeny assumed that the purported sae coud not be treated
as a dvdend uness there was ntenton to dstrbute the corporate earnngs.
The court hed that what was done, and not what was Intended, was the de-
csve factor and as there was substanta evdence that the stock, when ds-
trbuted, was worth more than the prce receved, there was a dstrbuton of
corporate assets from earnngs, ta abe to stockhoders as a dvdend. It
accordngy remanded the cause to enabe the oard to ascertan the vaue of
the dstrbuted shares on the dates when the rghts were e ercsed ( ebruary
15, 1929, May 24, 1929, uy 2, 1929).
oth the ta payer and the Commssoner pettoned for certorar, the one
chaengng the rung that the dstrbutons were dvdends, and the other
assgnng as error the faure to hod that the crtca dates for f ng the
vaue of the dvdends for ta aton were ether those when the rghts were
receved by the stockhoders or when the stockhoders frst became entted
to e ercse them, rather than the tmes when they were actuay e ercsed.
We granted certorar (301 U. S., ), because of the mportance of the ques-
tons n the admnstraton of the revenue aws, and the doubts whch have
been rased as to ther approprate answers by the varyng opnons of the
crcut courts of appeas. Compare the opnons beow (Ramapo, Inc., v. Com-
mssoner, 84 . (2d), 986 (C. C. . 2) and Commssoner v. Mayer, 80 . (2d),
593 (C. C. . 7)) wth evcrvg v. artett (71 . (2d), 598 (C. C. . 4)) and
Commssoner v. Cnmmngs (77 . (2d), 670 (C. C. . 5) Ct. D. 1026, C. .
I -2, 206 (1935) ).
y sectons 111, 112, and 113 of the Revenue ct of 1928, profts derved
from the purchase of property, as dstngushed from e changes of property,
are ascertaned and ta ed as of the date of ts sae or other dsposton by the
purchaser. Proft, f any, accrues to hm ony upon sae or dsposton, and the
ta abe ncome s the dfference between the amount thus reazed and ts
cost, ess aowed deductons. It foows that one does not sub|ect hmsef
to ncome ta by the mere purchase of property, even f at ess than Its true
vaue, and that ta abe gan does not accrue to hm before he ses or other-
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22(a), rt. 58.
254
wse dsposes of t Specfc provsons estabshng ths bass for the ta aton
of gans derved from purchased property were Incuded n the 1916 and each
subsequent Revenue ct and accompanyng reguatons.
Secton 22 of the Revenue ct of 1928 ncudes dvdends n gross n-
come, whch s the bass of determnng ta abe net ncome, and secton 115
defnes dvdend as any dstrbuton made by a corporaton to ts stock-
hoders, whether n money or n other property, out of ts earnngs or profts.
Whe a sae of corporate assets to stockhoders s, n a tera sense, a ds-
trbuton of ts property, such a transacton does not necessary fa wthn the
statutory defnton of a dvdend. or a sae to stockhoders may not resut n
any dmnuton of ts net worth and n that case can not resut n any
dstrbuton of ts profts.
On the other hand such a sae, f for substantay ess than the vaue of
the property sod, may be as effectve a means of dstrbutng profts among
stockhoders as the forma decaraton of a dvdend. The necessary conse-
quence of the corporate acton may be n substance the knd of a dstrbuton
to stockhoders whch t s the purpose of secton 115 to ta as present ncome
to stockhoders, and such a transacton may appropratey be deemed n effect
the decaraton of a dvdend, ta abe to the e tent that the vaue of the
dstrbuted property e ceeds the stpuated prce. ut the bare fact that a
transacton, on ts face a sae, has resuted n a dstrbuton of some of the
corporate assets to stockhoders, gves rse to no nference that the dstrbuton
s a dvdend wthn the meanng of secton 115. To transfer t from the one
category to the other, t s at east necessary to make some showng that the
transacton s n purpose or effect used as an mpement, for the dstrbuton
of corporate earnngs to stockhoders.
The facts stpuated and the fndng of the far market vaue of the Unted
stock at the tme of the adopton of the frst pan for ts dstrbuton abundanty
sustan the oard s concuson that the transacton n form a sae was not
ntended to be the means of a dstrbuton of earnngs to stockhoders. There
may be cases n whch market quotatons, after the subscrpton rghts haTe
been ssued, are persuasve evdence of vaue as of the tme when the pan
was adopted, and hence of ts purpose and probabe effect. ut we can not
say that the oard here, n fndng the vaue of the shares of the newy or-
ganzed Unted as of the tme of adopton of the frst pan, dd not consder
the market prces of the rghts. The fndngs are nferences whch the oard
was free to draw from a the facts and crcumstances dscosed by the record.
Such a determnaton of fact s not to be set asde by a court even f upon
e amnaton of the evdence t mght draw a dfferent nference. ( everng v.
Rankn, 295 U. S., 123, 131, 132 Ct. D. 966, O. . I -1, 160 (1935) mhurst
Cemetery Co. v. Commssoner, 300 U. S., 37 Ct D. 1202, C. . 1937-1, 209 .)
We accept the fndngs as at east estabshng that the pan was adopted by
Superpower n good fath as a means of effectng a sae of ts assets to stock-
hoders at far market vaue. ence the ssue for decson, n so far as the
frst aotment of stock Is concerned, s narrowed to the queston of aw whether
the commtment of Superpower, by forma acton of ts board, to the sae of
Unted stock at ts then far market vaue and the ensung dstrbuton to
stockhoders s taken out of the category of saes and paced n that of dv-
dends by the fact that, pendng e ecuton of the pro|ect rghts to subscrbe
sod on the e change at substanta prces, or that the stock tsef sod at prces
substantay above the stpuated purchase prce.
rst. The mere ssue of rghts to subscrbe and ther recept by stockhoders,
s not a dvdend. No dstrbuton of corporate assets or dmnuton of the net
worth of the corporaton resuts n any practca sense. ven though the rghto
have a market or e change vaue, they are not dvdends wthn the statutory
defnton. (Cf. Mes v. Safe Depost Trust Co., 259 U. S., 247 T. D. 3365,
C. . 1-1, 72 (1922) everng v. Son oaqun Co., 297 U. S., 496 Ct D. 1098,
C. . -1, 190 (1930) everng v. artett, supra.) They are at most
optons or contnung offers, potenta sources of Income to the stockhoders
through sae or the e ercse of the rghts. Ta abe ncome mght resut from
ther sae, but dstrbuton of the corporate property coud take pace ony on
ther e ercse. The queston, then, s whether the dstrbuton whch resuts
from the e ercse of the rghts must be regarded as a dvdend If the reasonabe
vaue of the property at the tme of e ercse s more than the purchase prce.
Second. We thnk that a dstrbuton of assets by a corporaton to ts stock-
hoders by means of a sae, to whch t Is commtted by approprate corporate
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255
22(a), rt. 58.
acton at a tme when ther sae prce represents ther reasonabe vaue, s not
converted nto a dvdend by the mere crcumstance that ater, at the tme of
ther devery to stockhoders, they have a hgher vaue. The meanng of sec-
ton 115 must be sought n the ght of the stuatons to whch t must be
apped. It does not purport to wthdraw corporatons and ther stockhoders
whoy from the operaton of sectons 111, 112, and 113, ta ng the profts of
purchasers. It can not be taken to wthhod from corporatons the power at
ther own eecton to effect, by workabe means, saes of ther assets to stock-
hoders at far vaue, sub|ect to that ncdence of ta ng statutes whch usuay
attends saes. The dstrbuton contempated and defned by t as a dvdend s
one to be effected by corporate acton. ence, n determnng whether a gven
transacton s sae or dvdend, the corporate acton whch resuts n one
or the other must be scrutnzed n the ght of the crcumstances at the tme
when the acton s taken, and of the condtons under whch n practce t must
be taken.
The ony feasbe method by whch a corporaton of arge membershp can
effect a sae of ts assets to stockhoders s by tenderng to them rghts to
subscrbe, a method whose ndspensabe frst step s the adopton, by appropr-
ate corporate acton, of the terms of the offer. etween the dates of the frst
step and of subscrpton a substanta perod of tme must eapse, durng whch
the rghts may, and often do, become the sub|ect of voent market fuctuatons.
ny vendor who offers property for sae at a named prce smary carres the
burden of rsk that the property may ncrease n vaue between offer and
acceptance. If the sae s by e ecutory contract he aso carres the rsk between
promse and performance. It s an nseparabe ncdent of every sae e cept
those n whch condtons admt of payment for the property smutaneousy
wth ts tender for sae, a procedure whch may not be avaabe to a corporaton
seetng to se ts property to stockhoders.
It s a soecsm to speak of a corporaton as dstrbutng ts profts for the
soe reason that, after t has unavodaby assumed that rsk n order to effect
a sae of ts property to stockhoders at a far prce, the property ncreases n
vaue. Prce, whch n the present case s decsve of the ssue, must be de-
termned n the ght of the stuaton e stng when prce Is f ed. If the opton
prce s far when f ed the transacton s a tender for a sae and not for a ds-
trbuton of profts a dvdend as defned by secton 115. If, pendng e ecuton
of the pan, there were no change n vaue of the stock the transacton woud
throughout concededy retan Its character as a sae. Its character s not
atered by the fuctuatons of a specuatve market, after the corporate acton
whch defnes the character of the transacton has been taken.
When the corporaton has commtted tsef to a sae of Its assets to stock-
hoders at present market vaue the effect on ts baance sheet s the same as
n the case of other vendors who n varous ways assume the rsk of rsng
prces pendng the consummaton of the sae. In every case purchasers may,
as a Tesut of market change, acqure property at ess tha,n Its vaue at the
date of acquston. ut n the case of the corporaton t does not foow that
there has been a dstrbuton of ts profts. It can hardy be sad that profts
accrue to a corporaton from a fortutous gan n market vaue, the benefts
of whch t has renqushed before the gan occurs. Dstrbuton of profts s
nether the purpose nor effect of the acton taken by the corporaton and there
s no adequate bass for sayng that the transacton to whch the drectors com-
mtted ther corporaton was the dstrbuton of earnngs, and hence a dvdend
rather than a fary conducted sae of corporate property wth a the ncdents
whch usuay attend a sae when the prce s f ed n advance of performance.
It s decsve of the present case, so far as the frst aotment of Unted shares
s concerned, that dstrbuton of corporate assets, effected by the sae, was
not ntended to be a means of dstrbutng earnngs, and that the prce when
f ed represented the far market vaue of the property to be dstrbuted.
There has been no fndng, ether by the Commssoner or the oard, of the
far market vaue of the Unted stock n May or of the Commonweath
Southern n une, the months when the pans for the second and thrd aot-
ments of the shares were adopted. The fndng of the oard that the facts
as stpuated were not suffcent to estabsh far market vaue of the shares
on those dates furnsh suffcent support for ts concuson that there was no
bass for treatng the transactons, whch were on ther face saes, as dstrbu-
tons of earnngs and hence dvdends as defned by secton 115..
The wrt n No. 59 s dsmssed and n No. 19 the |udgment s reversed.
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22(a), rt. 66.
256
ktce 66: cquston or dsposton by a
corporaton of ts own capta stock.
I-47-9050
Ct. D. 1280
INCOM T R NU CT O 1928 D CISION O COURT.
Deducton Losses Premums Pad Upon Redempton of Pre-
ferred Stock.
Premums pad by a corporaton upon redempton of ts out-
standng preferred stock do not consttute a deductbe oss, where
the obgaton was dependent upon the accumuaton of profts and
where there was no provson that the preferred sharehoders coud
uncondtonay demand a f ed sum at some perod set n advance.
In the absence of such a provson the securty can not be a debt
Unted States Crcut Court of ppeas fob the Second Cracurr.
ewe Tea Co., Inc., appeant, v. Unted States of merca, appeee.
90 ed. (2d), 451.
L. and, Crcut udge: Ths Is an appea from a |udgment for the defendant
n an acton under the Tucker ct to recover ncome ta es, erroneousy co-
ected. The queston s whether the pantff was rght, under secton 23(f) of
the Revenue ct of 1928, In deductng n the year 1929 the premums pad by
t upon the redempton of what remaned outstandng of ts preferred shares.
These had been ssued to a par vaue of 4,000,000 for cash and property,
under an agreement whch provded that the company shoud each year acqure
120,000 of them out of the surpus profts of the company, f suffcent, after
a cumuated and defauted dvdends (If any) upon sad preferred stock sha
have been pad, or set apart. Ths was to be accompshed ether by redeemng
them at 125 or by buyng In the market at no more than that prce. Ths
provson was cumuatve that s to say, f the profts were not enough n
one year, the defct shoud be made up whenever they became so. The com-
pany mght aso redeem the whoe or any part of the ssue at ts peasure at
the same prce. It must accumuate an earned surpus of 500,000 above a
obgatons before payng any dvdend on the common shares, and of 1,000,000
before payng more than 6 per cent Upon any dssouton, qudaton,
merger or consodaton , whether vountary or nvountary (e cept
n the event of nsofency or bankruptcy), or upon any dstrbuton of capta
the preferred sharehoders were to receve 125 for each share and a past dv-
dends. In the event of any dssouton or qudaton by reason
of ts nsovency or bankruptcy, they shoud be preferred as to past dv-
dends, and receve the par of ther shares. They were to have no rght to
vote unt two quartery payments of dvdends were n arrears, when the
soe votng power, though ony to eect drectors or to change the by-aws,
went to them unt the arrears were pad. The case nvoves the premums
pad by the company upon the purchase n the market of 5,381 shares between
uy 15, 1927, and ebruary 12, 1929, and upon the vountary redempton of
the whoe remander of the Issue, 20,219 shares, on pr 1 of that year. No
queston s made as to the purchase of that part of the 5,381 shares bought
before anuary 1, 1929.
Unted States v. ry Lumber Co. (284 U. S., 1 Ct. D. 420, C. . -2, 358
(1931) ), decded that If a company bought n ts bonds at a dscount, a ta -
abe gan emerged the theory beng, as we understand t, that therenpon the
borrowed money became pro tanto a proft by the canceaton of the debt
whch had theretofore offset t. ( rtce 68(1) (c), Reguatons 74.) Con-
versey, f the company buys or retres ts bonds at a premum, the premum s
a deductbe e pense. ( rtce 68(1) (6).) Obvousy t can ony be a oss
under secton 23(f). rtce 68(1) (o) of the same reguatons provdes that
no gan or oss sha resut from the ssuance of shares, or from ther pur-
chase or sae, but t docs not dea wth ther redempton. When a number of
ppea from a |udgment for the defendant
une 7, 1937.
OPINION.
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257
22(a), rt. 66.
persons unte to contrbute to a common enterprse, whether by endng money,
or by takng shares of any sort, n one sense they a become coadventurers
both enders and sharehoders can ook ony to the success of the venture for
payment. If the sharehoders aso set up prortes between themseves, there
resuts a herarchy n whch the enders are merey the pror group the pre-
ferred sharehoders, ke them, are mted n ther return, and any eventua
prutt goes to the common shares. Thus t woud be possbe to treat preferred
shares ke debts: that s, as consttutng merey a cam upon the company
the common sharehoders. Such a vew woud make them aone the company,
snce they aone share profts and manage the enterprse t woud treat a
others as separate groups wth whom they dea as thrd partes. It woud have
been an entrey ogca and reasonabe theory and the aw mght we have
Inssted upon t. It has not on the contrary t has aways dstngushed be-
tween credtors and preferred sharehoders, regardng the frst as outsde the
corporate aggregaton, and the second as embarked as owners aong wth the
common sharehoders. ut It s an atogether conventona concepton, and
whe In ta aton t must be treated as rea, the test can not be merey the
name gven to the securty. (In re cchhcmer- ghe Co., 212 ed. Rep., 357
(C. C. . 2).) Concevaby there may be preferred shares gong by the name
of bonds, and bonds gong by the name of preferred shares. It s not aways
easy to te whch are whch, for securtes can take many forms, and t s
hazardous to try to fnd mods nto whch a arrangements can certany be
poured. ut we may say that at east those are not credtors, who can not
wthdraw from the venture wthout the consent of the rest, demandng a f ed
sum at some perod set n advance. In Commssoner v. O. P. P. odng Co.
(76 ed. (2d), 11), the ta payer had been aowed a deducton arsng
from the purchase of what went by the name of debenture bonds. These were
subordnate to the cams of a other credtors, and nterest upon them coud
be suspended by the company, as s commony the case, though t was then
cumuated. On the other band they were pror, both as to prncpa and
nterest to the sharehoders, preferred or common, and f there had been
nothng more, we mght have treated them as shares. ut they contaned a
provson whch made them payabe at a f ed tme, when ther hoders coud
demand ther money, whether the venture was successfu or not. That we
thought kept them bonds, as they were caed, and the deducton coud be
recognzed. ( rthur . ones Syndcate v. Commssoner, 23 ed. (2d), 833
(C. C. . 7) Commssoner v. Proctor s Shop, Inc., 82 ed. (2d), 792
(C. C. . 9).)
The ta payer at bar does not, we understand, dspute our rung t professes
to compy wth the requrement. s to the shares caed, as requred by the
charter, t says that, athough t coud not bo tod In advance whch hoders
woud be seected, those whch were, coud nsst upon payment. Possby the
argument mght preva, had not the obgaton been dependent upon the accumu-
aton of profts. It was the company need not redeem any shares uness there
was a surpus and ony to the e tent of that surpus. Thus there was no tme
f ed wThen the hoders coud demand ther money they were at the mercy of
the company s fortunes and payment was merey a way of dstrbutng profts.
The case s even paner as to those shares whch the company redeemed at
Its peasure much the greater part here at ssue. The hoders had no
power to demand redempton e cept as the company chose to emnate them
from the enterprse. It was of no consequence that as a condton of dong so,
t must pay them a bonus of 23 that was merey a way of commutng any
future profts they mght get f they were aowed to contnue. The same s
true as to the prorty of the preferred shares, f the company, whe sovent,
was merged, dssoved or qudated. Ths ay In the power of the common
sharehoders, for athough the provson whch we quoted at the outset put the
votng power n the hands of the preferred shares upon two quartery defauts
In dvdends, t ony e tended to the eecton of drectors and amendments
of the by-aws. That woud not enabe the preferred shares to wnd up the
bnsness by merger or the ke. Sectons 86 and 105 of the New York corpora-
ton aw requre for merger or dssouton the vote of two-thrds of a share-
hoders entted to vote, and secton 51 confers votng power on a share-
hoders whom the charter does not e cude. The mted power gven by ths
company s charter woud not be enough, even supposng that fu votng rghts
woud In any event serve, whch we do not suggest. Possby Commssoner v.
0. P. P. odng Co., supra (76 ed. (2d), 11), does not commt us to
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22(b), rt. 83.
258
the doctrne that shares must under a crcumstances be debts when they
contan a provson that the hoder may uncondtonay demand hs money
at a f ed tme. Courts have dffered as to that. t tmes they have gone
to engths to construe such a power as mted to a surpus. ( aze tas
asa Co. v. an Dyk Reeves, 8 ed. (2d), 716 (C. C. . 2).) t tmes they
have thought such an agreement unawfu under oca aw or, even f awfu,
not by tsef enough to make the sharehoder a credtor. ( dety Savngs f
Loan ssocaton v. urnet, 65 ed. (2d), 477 (O. . D. C.) Ct D. 794, O. .
III-1, 285 (1934) In, re Cubertson s, 54 ed. (2d), 753 (O. O. . 9) en-
tucky Rver Coa Corporaton v. Lucas, 51 ed. (2d), 586 63 ed. (2d), 1007
(C. C. . 6) Ct. D. 409, C. . -2, 364 (1931) .) we now decde s that
n the absence of such a provson the securty can not be a debt.
udgment affrmed.
S CTION 22(b). G OSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 83: Gfts and bequests. I-48-9062
Ct. D. 1281
INCOM T R NU CT OP 1928 D CISION O SUPR M COURT.
Income Payment Receved by mpoyee op Corporaton from
nother Corporaton Whether Gut or Compensaton for
Servces.
Corporaton pad to the ta payer and other empoyees of T
Corporaton, certan of whose assets t had acqured, sums of
money n recognton of ther vauabe and oya servces to Y
Corporaton. The ta payer was never empoyed by Corporaton
or ts stockhoders, the corporatons were In no way connected
at the tme of the dstrbuton, and It was e pressy stpuated
that nether of the corporatons nor ther stockhoders were under
any ega or other obgaton to pay any addtona compensaton
and that the dstrbutons were not made or ntended to be made
for any servce rendered or to be rendered or for any consd-
eraton gven or to be gven by the recpents to Corporaton or
to nny of ts stockhoders. Under these facts, the payment receved
by the ta payer was a nonta abe gft wthn the meanng of
secton 22(b)3 of the Revenue ct of 1928, and not compensaton
for servces.
Supreme Court of the Unted States.
rthur O. ogardus, pettoner, v. Commssoner of Interna Revenue.
302 U. S., 34.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Second Crcut
November 8, 1937.
OPINION.
Mr. ustce Sutherand devered the opnon of the Court
The queston for decson s whether a sum of money receved by pettoner
n anuary, 1931, was compensaton sub|ect to the edera ncome ta , or
a gft e empt therefrom. The Commssoner hed t to be compensaton,
consttutng part of pettoner s gross Income, and decared a defcency. The
oard of Ta ppeas sustaned the determnaton of the Commssoner and
the court beow, upon revew, affrmed the order of the oard. (88 . (2d),
646.)
The decsons of other courts of appea upon the queston under revew are
confctng. Upon the one sde, the rst Crcut (Waker v. Commssoner, 88
. (2d), 61, udge Morton dssentng), the ourth ( a . Commssoner, 89
. (2d), 441). and the fth (Smpknson v. Commssoner, 89 . (2d), 897)
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259
22 (b), rt. 83.
end defnte support to the decson of the court beow. Upon the other sde,
more or ess defntey to the contrary, are to be found the decsons of the
Thrd Crcut ( ones v. Commssoner, 31 . (2d), 755 Cunnngham v. Com-
mssoner, 67 . (2d), 205), the S th (Lutsford v. Commssoner, 62 . (2d),
740), and the Nnth ar v. Rosseter, 33 . (2d), 286). No usefu purpose
woud be served by revewng these decsons and we pass to a consderaton
of the case before us. The facts foow:
The amount ( 10,000) receved by pettoner was part of a. dstrbuton,
aggregatng over 600,000 made by the Unopco Corporaton at the nstance of
ts stockhoders to pettoner and others who had theretofore rendered servce
as empoyees or n some other capacty to the Unversa O Products Co. The
Unversa company was a corporaton organzed n 1914. In the begnnng,
Its ony asset was an appcaton for a patent for a process for refnng petro-
eum and manufacturng gasone. It thereafter acqured other patents, whch
t censed to varous producers on a royaty bass. egnnng n 1922, ts bus-
ness deveoped ncreasngy unt by 1930 Its royates amounted to about
9,000,000. In anuary, 1931, ts entre stock was sod to the Unted Gasone
Corporaton for 25,000,000. Pror to the sae, and n contempaton of It, the
Unopco Corporaton had been organzed for the purpose of acqurng, and t
dd acqure, certan assets of the Unversa company of the vaue of over
4,000,000. Up to the tme of ths acquston, the Unopco company had never
engaged n any busness actvtes, and thereafter ts ony busness was the
nvestment and management of the assets thus acqured.
of the former stockhoders of the Unversa company became stockhoders
of the Unopco, wth the same proportonate hodngs. None of them, after the
sae of the Unversa stock, hed any stock n the Unversa, or n the Unted
Gasone Corporaton. Under Its new ownershp, the Unversa contnued to
carry on the same busness, retanng a arge part of ts assets. few days
after the sae of the Unversa company s stock, the former stockhoders, then
stockhoders of the Unopco, hed a meetng at whch t was proposed that they
show ther apprecaton of the oyaty and support of some of the empoyees of
the Unversa company by makng them a gft or honorarum. resouton
to that effect was adopted at a meetng of the board of drectors of Unopco on
anuary 9, 1931, and by the stockhoders the foowng day. y these resou-
tons, t was resoved that the sum of 607,500 be approprated, pad and ds-
trbuted, as a bonus, to 64 former and present empoyees, attorneys and e perts
of Unversa O Products Co., In recognton of the vauabe and oya servces
of sad empoyees, attorneys and e perts to sad Unversa O Products Co.
Payments ranged In amount from 100,000 to 500. Some of the recpents had
been out of the empoy of the Unversa company for many years and one
of them was the sster of an empoyee ked n an e poson about the year
1919.
t the meetng of the former stockhoders of Unversa, the former presdent
of that company, then presdent of the Unopco Corporaton, sad that they had
reason to congratuate themseves on ther great good fortune n the Unversa
company, whch started wth nothng and had been but up In a phenomena
way that they had profted argey that durng the years when they were
struggng and movng forward they had had the oya support of a number of
empoyees, and he thought t woud be a nce and generous thng to show ther
apprecaton by rememberng them n the form of a gft or honorarum. of
the stockhoders acquesced, wth the resut that t was understood that we
woud come forward and make these presents or gfts to the empoyees that
were to be sated for t. The matter had theretofore never been dscussed
among the od stockhoders and ths was the frst tme t had been brought up
for consderaton. None of the recpents had ever been empoyed by Unopco
or by any of the former stockhoders of the Unversa. The partes stpuated
that nether the Unversa company nor the Unted was under any ega or
other obgaton to pay sad empoyees any addtona
compensaton other than that whch they were pad by the Unversa com-
pany 1 and that nether Unopco nor any of ts stockhoders, nor any of the
stockhoders of Unversa, was at any tme under any ega or other obgaton
to pay any of sad empoyees, attorneys or e perts, ncudng pettoner, any
saary, compensaton or consderaton of any knd.
1 The reference to addtona compensaton pad by the Unversa company probaby
refers to a bonus whch was ceary compensaton, pad by that company to ts varous
empoyees, some 400 n number, In 1930.
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22 (b), rt. 83.
260
It was further stpuated sad payments were not made or ntended to be
made by sad Unopco Corporaton or any of ts stockhoders as payment or
compensaton for any servces rendered or to be rendered or for any consdera-
ton gven or to be gven by any of sad empoyees, attorneys or e perts to sad
Unopco Corporaton or to any of ts stockhoders. None of the three corpora-
tons or ther stockhoders ever made or camed any deducton for edera n-
come ta purposes n respect of the payments made to the pettoner and the
others. Payments were charged, n anuary, 1931, not to e pense but to surpus
account on the books of the Unopco company.
The dstrbuton wa made to pettoner and the other empoyees, attorneys
and e perts by checks, devered ether personay or by ma and n each n-
stance wth the accompanyng statement that the moneys represented by such
checks were gven at the nstance of the stockhoders of the Unopco Corporaton
as a gft and gratuty, and were, therefore, not sub|ect to ncome ta on the
part of the recpents.
The oard of Ta ppeas concuded that, from a carefu consderaton of a
the evdence, the payments made by Unopco to the pettoners and others were
addtona compensaton n consderaton of servces rendered to Unversa and
were not ta -free gfts. Ths, as we recenty have ponted out, 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 fndngs of prmary, evdentary or crcumstanta facta.
It s sub|ect to udca revew and, on such revew, the court may substtute ts
|udgment for that of the oard. ( everng v. Te -Penn O Co., 300 U. S.. 481,
491 Ct D. 1220, C. . 1937-1, 236 everng v. Rankn, 295 U. S., 123, 131
Ct. D. 966, C. . I -1, 160 (1935) .) If the concuson of the oard be
regarded as a determnaton of a m ed queston of aw and fact, t has, as we
sha presenty show, no support In the prmary and evdentary facts. The
utmate determnaton, therefore, shoud be overturned, under the doctrne of
everng v. Rankn, supra, as a matter of aw.
The statutory provsons nvoved are very pan and drect. Secton 22(a)
of the appcabe Revenue ct (45 Stat., 791) provdes that gross ncome,
among other thngs, ncudes compensaton for persona servce, of whatever
knd and n whatever form pad. Subdvson (b)(3), mmedatey foowng,
provdes that the vaue of property acqured by gft, bequest, devse or nhert-
ance sha not be ncuded n gross ncome and sha be e empt from ta aton
under the ncome ta tte.
The court beow thought that payments such as are here nvoved may be at
once gfts under secton 22, subdvson (b) (3) and compensaton for persona
servce under subdvson (a). Such a vew of the statute s nadmssbe and
confusng. The statute defntey dstngushes between compensaton on the
one hand and gfts on the other hand, the former beng ta abe and the atter
free from ta aton. The two terms are, and were meant to be, mutuay e -
cusve: and a bestowa of money can not, under the statute, be both a gft
and a payment of compensaton. The court beow went on to say that decsons
ke Od Coony Trust Co. v. Commssoner of Interna Revenue (279 U. S., 718
Ct. D. 80, C. . III-2, 222 (1929) ) proved that payments coud be Iwth gfts
and compensaton for persona servces. The most casua readng of that case
shows that t s authorty for no such doctrne. There, an empoyer had pad
the ncome ta assessed upon the saary of an empoyee. The empoyee had
entered upon the dscharge of hs dutes for the year n queston-under an
e press agreement to that effect. ute evdenty the payment, so agreed upon
n advance, was n consderaton of servces to be rendered and In no sense a
gft. It was a part of the empoyee s compensaton: and the Court so hed.
The dea that t coud be a gft n any sense was defntey re|ected. We sad
(page 730), Nor can t be argued that the payment of the ta n No. 130 was
a gft. The payment for servces, even though entrey vountary, was neverthe-
ess compensaton wthn the statute.
If the sum of money under consderaton was a gft and not compensaton,
It s e empt from ta aton and cau not be made ta abe by resort to any form
of subcassfcaton. If t be n fact a gft, that Is an end of the matter and
nqury whether t s a gft of one sort or another s rreevant. Ths s neces-
sary true, for snce a gfts are made nonta abe, there can be no such thng
under the statute as a ta abe gft. cam that t s a gft presents the
soe and smpe queston whether ts desgnaton as such s genune or fct-
tous that Is to say, whether, though caed a gft, t s n reaty compensaton.
To determne that queston we turn to the facts, whch we have aready
detaed.
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261
22(b)( rt. 83.
rom these we earn thnt the recpents of the bounty here n queston never
were empoyees of the Unopeo company, or of any of ts stockhoders. The
Unversa company, n whose empoy some of the recpents then were, was
at the tme n no way connected wth the Unopeo company or any of ts stock-
hoders. Some of the recpents had not been n the empoy even of the
Unversa company for many years, and one of them never had been an
empoyee. Nether the Unversa company nor anyone ese was under any
obgaton, ega or otherwse, to pay any of the recpents, ncudng pettoner,
any saary, compensaton or consderaton of any knd. Such s the e press
stpuaton of the partes. nd most sgnfcant s the further stpuated fact
that the dsbursements were not made or ntended to be made for any servces
rendered or to be rendered or for any consderaton gven or to be gven by
any of sad empoyees, attorneys or e perts to sad Unopeo Corporaton or
to any of ts stockhoders. If the dsbursements had been made by the Un-
versa company, or by stockhoders of that company st nterested n ts
success and n the mantenance of the good w and oyaty of ts empoyees,
there mght be ground for the nference thnt they were payments of addtona
compensaton. (Compare oe v. Parrott, 15 . (2d), 6G9 T. D. 3908, C. . -2,
149 (1926) .) ut such an nference, even upon one of these suppostons, we
mght stran the reates n the ght of the foregong facts. owever thnt
may be, the dsbursements here were authorzed nnd the burden borne by per-
sons who were then strnngers to the Unversa company and Its empoyees,
under no obgaton, ega or otherwse, to that company or to any of ts present
or former empoyees. There s entrey ackng the constranng force of any
mora or ega duty as we as the ncentve of nntcpnted beneft of any knd
beyond the satsfacton whch fows from the performance of a generous act.
The Intent Is shown by the appea made at the stockhoders meetng to the
effect that t woud be a nce and generous thng for these former stockhoders
of the Unversa to show ther apprecaton of the past oyaty of that com-
pany s empoyees by rememberng them n the form of a gft or honorarum,
and by the common understandng then reached that the stockhoders woud
make the suggested presents or gfts to these empoyees. ute evdenty,
none of these stockhoders had the sghtest noton that a payment of com-
pensaton was to be made.
In sum, then, the case comes to ths: The stockhoders of the Unopeo, havng
at the tme no connecton wth the Unversa company, but re|ocng In the
fact of ther own great good fortune, and mndfu of the former oya support
of a number of empoyees of the Unversa company, and desrng to remember
them In the form of a gft or honorarum, resoved to make through the
Unopeo company the dstrbuton n queston. In dong so, they were moved,
as udge Swan sad n hs dssentng opnon beow, to an net of spontaneous
generosty. We agree wth ths dssentng opnon of udge Swnu, nnd the
dssentng opnon of udge Morton In Waker v. Commssoner, suprn, ns statng
the correct vew of the matter.
The ony facts whch even seem to mtate ngnnst ths vew are (1) thnt
the Unopeo stockhoders hnd benefted by the former servces of the recpents
(2) that the stockhoders at ther meetng descrbed the payment as a gft or
honorarum and (3) that the resoutons nuthorzed the payment ns a
bonus n recognton of the vauabe nnd oya servces of the
empoyees, etc.
1. ecause the Unopeo stockhoders had benefted by the past servces of
the recpents, t by no means foows thnt the dstrbuton n queston was not
a gratuty. It nowhere nppears n the record that fu compensaton had not
been made for these servces. There woud seem to be a natura nference to
the contrary and the nference s made determnate by the stpuated fact thnt
no one was under any obgaton, ega or otherwse (nnd ths woud ncude
a mora obgaton, however sght) to pay any addtona compensaton
There s no ground for sayng that the beneft receved and the compensaton
then pad for t were not equvaents.
2. It s snd that the word honorarum aways denotes n compensatory
payment. Wthout ngreeng to ths broad generazaton, t s enough to say
that the word Is not here used by tsef, but couped wth the word gft n
the phrase gft or honorarum. Presumptvey, the user of the phrase must
have known that the word gft dd not Incude a compensatory payment,
and It s hardy to be supposed that he woud conscousy nufy that word
by the mmedate use of another meanng the opposte. The phrase was used
In an Informa speech at the stockhoders meetng made by the presdent of
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23(a), rt. 121.
262
the Unopco company. The whoe tone of the meetng Indcates that the Inten-
ton was to make gfts In recognton of, not payments for, former servces.
The concuson n whch the stockhoders acquesced was that they woud come
forward and make these presents or gfts to the empoyees. In the ght
of a the crcumstances, the absence of mora or other obgaton and of any
e pectaton of future beneft, t s reasonabe to concude that the word
honorarum, f the court beow correcty defned t, was oosey and nac-
curatey used.
3. The resoutons, whch empoy the word bonus, were adopted to carry
Into effect the w of the stockhoders e pressed at ther meetng. What
occurred at that meetng, as we have aready sad, Indcated ther cear nten-
ton to make gfts. nd snce Intenton must govern, we must consder the
word used n the ght of the ntenton. smar queston was before the
Court of ppeas for the Dstrct of Coumba In Levey v. everng (68 .
(2d), 401). There, the corporate resouton characterzed the payments to be
made to remburse certan offcers for ncome ta es pad on saares as gfts.
ut the court hed ths characterzaton dd not sette the matter. It revewed
the facts and reached the concuson that n the ght of them what was Intended
was not a gft but a bonus, and decded the case n accordance wth that vew.
In other words, the tng that was decded upon and ntended, n that case
as n ths case, was msdescrbed In the resoutons to carry the decson and
Intenton nto effect In Rogers v. (289 U. S., 582, 591-592) we hed, fo-
owng the dssentng ppnon n the court beow, that a bonus payment havng
no reaton to the vaue of servces for whch It s gven s n reaty a gft In
part. Certany, where a the facts and crcumstances n the case, Incudng
the e press stpuaton of the partes, ceary show the makng and the Intent
to make a gft, t can not be converted nto a payment for servces by Inac-
curatey descrbng It, n the consummatng resoutons, as a bonus.
Some stress Is ad on the recta to the effect that the bounty s bestowed
In recognton of past oya servces. ut ths recta amounts to nothng more
than the acknowedgment of an hstorc fact as a reason for makng the gfts.
gft s none the ess a gft because nspred by grattude for the past fathfu
servce of the recpent. (Compare obart s dmr. v. a, 80 t, 152.)
udgment reversed.
S CTION 22(c). GROSS INCOM : IN NTORI S.
rtce 108: Inventores of reta merchants.
R NU CT O 1928.
Inventores of reta dry goods deaers. (See Mm. 4703, page 78.)
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 121: usness e penses. I-32-8865
Ct. D. 1249
INCOM T R NU CT O 192S D CISION O COURT.
L Deductons Payments Made to nnutants by Resduary
Devsees Operatng Property as Partners Ordnary and
Necessary usness pense Persona Obgaton or Part-
ners.
Where resduary devsees took certan hote property charged
by the terms of the w wth the payment of annutes and op-
erated the hote as partners, payments made to the annutants
Were not deductbe as ordnary and necessary busness e penses,
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263
23(a), rt. 121.
snce the payments had no reaton to the operaton of the
property but were made by the partnershp n dscharge of the
persona obgatons of the partners.
2. Decson Revkrkkd.
Decson of the oard of Ta ppeas (33 . T. , 198) reversed.
Unted States Crucurr Cot|bt of ppeas for the Second Crcut.
Commssoner of Interna Revenue, pettoner, v. bert . Smey, respondent.
Commssoner of Interna Revenue, pettoner, v. rancs O. Smey, respondent.
86 ed. (2d), 658.
efore L. and, Swan, and Chase, Crcut udges.
November 30, 1936.
opnon.
These pettons to revew decsons of the oard of Ta ppeas both reate
to defcences n ncome ta es for 1930 determned by the Commssoner and
not sustaned by the oard of Ta ppeas. They were both based on the
same facts and the Commssoner has sought a revew In each nstance. The
pettons were heard together and may be dsposed of n one opnon. Reversed.
Chase, Crcut udge: The ta payers, as resduary devsees under the w
of ther father, took a parce of rea estate comprsng the and and budngs
of a hote stuated In the State of New York whch was caed hs Lake Mohonk
property and whch w be so desgnated heren. The two formed a partnershp
that operated the hote from ebruary 15 to December 31, 1930, at a proft. The
partnershp had net Income dstrbutabe to each partner n that year n
e cess of the deductons whch are n controversy.
The father s w provded for the payment of an annuty to hs wdow of
6,000 n 4 equa quartery nstaments and of one to hs sster of 1,500
payabe In 12 equa monthy nstaments. The w made them a charge upon
hs Lake Mohonk property. Durng the ta abe perod n ssue the annutes
were pad by the partnershp to the amount of 6,500 and that amount was
deducted n the partnershp return. The Commssoner, hodng t not deduct-
be, ncreased the dstrbutabe share of each partner by addng one-haf of
the amount and so determned the defcences whch a ma|orty of the
oard dd not sustan. In so dong we thnk the Commssoner was rght for
the foowng reasons:
When the ta payers took the hote property charged by the terms of the w
of ther father wth the egaces, they became personay abe to the annu-
tants for the payments provded In the w. ( roum v. napp, 79 N. Y., 136
Dnan v. Coneys, 143 N. Y., 544 Rcdfed v. Redfed, 126 N. Y., 466 Tman v.
Ogren, 227 N. Y., 495.) Ths persona abty arose regardess of any ncome
derved from the property. (Oatner v. Oatner, 149 . D. (N. Y.), 89.)
The annutants had securty for the payments to be made to them snce the
charge created a en upon the hote property In ther favor. (Dnan v. Coneys,
supra), but that gave them ony the rght to forecose upon defaut. Unt
then they had nether the rght to possesson nor the rght to coect rents and
profts.
Consequenty the ncome from the hote property was a unrestrcted partner-
shp ncome. s each partner was ta abe upon hs dstrbutabe share of t the
defcences were correcty determned by the Commssoner, provded the
partnershp net ncome was propery computed wth no deducton for the
annuty payments as ordnary and necessary e penses of the busness. There
coud be no such deducton snce these payments had no reaton to the opera-
ton of the hote as a busness and so were not necessary e penses nor were
thev ordnary e penses n the busness of operatng hotes. (See Wech v.
everng, 290 U. S., I Ct. D. 755, C. . II-2, 112 (1933) .) They were
nstead payments made by the partnershp n dscharge of the persona obga-
tons of the partners.
Decson reversed.
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23 (c), rt. 171.
264
S CTION 23(e). D DUCTIONS ROM GROSS
INCOM : LOSS S Y INDI IDU LS.
rtce 171: Losses. I-36-8905
Ct.D. 1257
INCOM T R NU CT O 1928 D CISION O COURT.
1. Deducton Loss orced Purchase of Stock Under Under-
wrtng greement.
Where the ta payer, a member of a syndcate whch agreed to
underwrte the ssuance of addtona stock of a corporaton,
was compeed to take up hs entre aotment of stock, the market
vaue of whch at the date of devery was ess than he was re-
qured by the terms of the agreement to pay for t, the transacton
consttuted a mere sae of the stock and no deductbe oss was sus-
taned by the ta payer at the tme of ts acquston.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (33 . T. ., 5G8) affrmed.
3. Certorar Dened.
Petton for certorar dened May 3, 1937.
Unted States Crcut Court of ppeas for the Seventh Crcut.
ertram . rgsby, pettoner, v. Commssoner of Interna Revenue, respondent.
87 ed. (2d), 96.
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore vans and Sparks, Crcut udges, and rgge, Dstrct udge.
anuary 8, 1937.
OPINION.
Sparks, Crcut udge: Ths petton for revew of a decson of the oard
of Ta ppeas rases the queston whether the oss resutng from beng
compeed to take tp the stock whch was the sub|ect of an undcrwrng agree-
ment and whch was worth ess at the date of devery than pettoner was
requred by the terms of the agreement to pay for t, s deductbe from gross
ncome n the year of the transacton. The oard of Ta ppeas hed that the
transacton consttuted a mere sae of the stock to pettoner, hence no de-
ductbe oss was sustaned at ts acquston n 1929, the year for whch the
deducton was sought.
Pettoner was the presdent of the Grgsby-Grunow Co. In 1929, that com-
pany determned, by resouton of ts board of drectors, to embark upon a
program of e panson for whch t requred about 9,000,000 new capta. In
order to obtan ths new capta, the board decded to offer for sae 249,737
shares of stock of the company then authorzed but unssued. The offer was
to be made frst to the then stockhoders, and on October 16, 1929, notce was
gven to them of the warrants to be ssued and the e panson pan decded upon.
In order to avod deay, t was consdered desrabe to have the sae under-
wrtten by responsbe partes. ence, on October 14, 1929, an underwrtng
agreement was entered nto between the board of drectors and a frm of nvest-
ment bankers, ohn urnham Co., whereby the atter agreed to buy any of
the 249,737 shares whch were not purchased by the hoders of stock subscrpton
warrants at 40 a share by November 15. The date for settement was sub-
sequenty e tended to November 25. In return, the company was to pay the
underwrter a commsson of 4 a share for ts servces n the underwrtng,
or a tota of 998,948. On October 15, urnham Co. offered pettoner the
opportunty to partcpate n a syndcate of whch they were to be managers,
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265
23(e), rt. 171.
for the purpose of underwrtng the stock sae. Pettoner was aotted 18,730
shares as hs part n the syndcate, partcpaton n whch he duy accepted.
Durng the week endng October 18, when the underwrtng agreement was
entered nto, and the syndcate of whch pettoner was a member was formed,
the stock of the Grgsby-Grunow Co. ranged n prce from 59 to (56 a share
on the market. Thereafter t began to decne, cosng at 30M on October 28.
Durng the perod wthn whch the subscrpton warrants coud be e ercsed,
t ranged from 34 to I414 a share. On November 25, the settement date,
urnham Co. notfed pettoner that he woud have to take up the entre
aotment of 18,730 shares, requestng hm to accept devery from, and make
payment to, the Grgsby-Grunow Co. Pettoner then devered hs check for
749,200, recevng n return the shares, and the check of that company for
74,920, to cover the 4 per share commsson to whch he was entted under
the terms of the underwrtng agreement It was stpuated that the far mar-
ket vaue of the stock on November 25, was 18.50 a share. Pettoner dd not
dspose of the stock unt after the year 1929, seng most of t n 1933 for
around 1 a share. In computng hs osses on the 1933 saes, he used 18.50
as the cost bass. In fng hs return for the year 1929, he deducted from hs
gross ncome the Item of 327,775, the dfference between the 40 a share he
was compeed to pay for the stock, and the 18.50 t was actuay worth at the
date of devery, ess the 4 a share he receved back as a commsson on the
transacton. The Commssoner assessed a defcency as to ths tem, and the
oard of Ta ppeas sustaned the assessment, hodng that snce the dsputed
transacton was a mere sae of the stock to pettoner, no deductbe oss was
sustaned on ts acquston, but that that must be deferred unt ts ater
admtted sae.
Pettoner s prncpa argument n support of hs cam to the deducton Is
that the syndcate agreement created an assocaton whch amounted to a
separate entty wthn the defnton of corporaton, and that the transac-
ton whch arose out of t was competey cosed wthn the ta abe year, hence
the resutant oss was reazed wthn the year. It s conceded that the trans-
acton was a transacton entered nto for proft
Pettoner abors to dstngush between the effect of an ordnary sae where
the partes ntend by ther contract that the vendee sha become the purchaser
of the sub|ect matter of the sae, whatever It may be, and an underwrtng
transacton as here where t was ntended that the proft shoud arse from
the commsson on the sae to other partes, and t was not contempated that
the partes woud be compeed to become the purchasers of the stock, the sae
of whch they guaranteed. e ctes secton 701 (a)2 of the Revenue ct of 1928,
Reguatons 74, artces 1312, 1313, and 1314, and a ne of cases, a of whch
have to do wth the ta abty of assocatons whch are to be treated as cor-
poratons.1 Reyng on these authortes, he argues that secton 115(c) of the
ct provdng that amounts dstrbuted n qudaton of a corporaton sha be
treated as n fu payment n e change for the stock, s appcabe to determne
that the syndcate can be consdered as a corporaton, and that the wndng up
of t by dstrbuton of the stock consttuted a competed transacton, the oss
from whch s to be computed accordng to sectons 111 and 113 of the ct,
as the e cess of the cost bass over the amount reazed.
We can not agree wth ths ne of reasonng. n underwrtng agreement of
the type here nvoved means smpy that f others don t buy, the underwrter
w. That the purchase s a forced one does not make t any the ess a pur-
chase, nor does the fact that partcpaton n the agreement was, so to speak,
subet, change the resut. The fact remans that pettoner and others partc-
pated n the agreement orgnay entered nto by the urnham company, shar-
ng pro rata the prveges and obgatons arsng out of t. The prvege was
the rght to coect the 4 a share commsson on a shares nvoved the ob-
gaton was to take any shares not otherwse dsposed of. Takng those shares
consttutes a purchase, regardess of the fact that t was not orgnay con-
tempated that the necessty for so dong woud arse. Snce the shares were
not dsposed of durng the ta abe year, no oss was sustaned.
Morr tcv v. Commtaoner (2 ) IT. S.. 344 rOt. D. 1064, C. . -1, 264 (Ofn) :
vanson v. Commssoner (20ft U. S., 362 fCt. D. 1065, C. . -1. 270 (1930) )
cverng v Coeman Gbert (200 U. S., 300 Ct. D. 1007, C. . -1, 261 (19:SG) ).
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23(0, rt. 172.
266
Pettoner quotes from the case, Unted States v. Whte Denta Co. (274
U. S., 398 T. D. 4050, C. . I-2, 198 (1927) ), to the effect that a oss may
become compete enough for deducton wthout the ta payer s estabshng that
there s no possbty of an eventua recoupment, provded that that oss s
f ed by some dentfabe event. s e ampes of such events, the Court ctes
sae of property or ts physca destructon, or, n the case of bad debts, the
occurrence of such events as prevent ther coecton. We thnk pettoner may
not soate the carryng out of the underwrtng agreement here and f t as
the dentfabe event by whch hs oss may be determned, whe st hodng
the stock devered to hm under the agreement.
Pettoner aso rees upon the decson of the oard of Ta ppeas n the
case of bert rskne (26 . T. ., 147). That case, however, hed smpy that
a contract between an empoyer and ts empoyee, permttng the atter to pur-
chase from the former a certan number of shares of the stock of the empoyer
for a nomna sum, whch shares the empoyer purchased on the open market
for a much arger amount, consttuted a contract of empoyment and compensa-
ton therefor, whch compensaton was ta abe, at a rate determned by the
dfference between the market vaue of the stock and the prce to the ta payer.
Whe that may be used n support of the proposton that every contract that
Invoves a purchase and sae of stocks s not necessary to be construed pr-
mary as such for ta ng purposes, t does not support the proposton that
every contract of purchase and sae whch nvoves another eement must be
construed n accordance wth the other eement rather than as a contract of
purchase and sae. The oard of Ta ppeas hed n the rskne case that
the contract there nvoved was prmary an empoyment contract n the
case at bar t hed that the contract was prmary one for purchase and sae.
The oard aso paced ts decson on another ground, the correctness of
whch pettoner chaenges, namey, that he had not proved that the syndcate
was a separate entty, and that n fact, he as a member of t was contractng
as a prncpa wth the Grgsby-Grunow Co., wth urnham Co. actng as hs
agents. There s evdence n the record supportng ths theory. owever, we
do not consder t necessary to pass on ths pont, snce we are convnced that
even though the syndcate may have been a separate assocaton, the termna-
ton of ts actvtes by e ecuton of a contract obgatons by boh partes,
dd not consttute such a cosed transacton as to render osses deductbe pror
to the dsposton of the stocks.
Decson affrmed.
S CTION 23(f). D DUCTIONS ROM GROSS
INCOM : LOSS S Y CORPOR TIONS.
rtce 172: ountary remova of budngs. I-47-9051
( so Secton 23 (q), rtce 271.) Ct. D. 1279
INCOM T R NU CT OP 1928 D CISION O COURT.
1. Deducton Loss Demoton of Property ccrua ass.
Where a budng on property owned by a corporaton makng ts
returns on an accrua bass for fsca years endng anuary 31 was
demoshed pror to anuary 31, 1929, but remova of the founda-
ton, fng n of the e cavaton, and remova of debrs were de-
ayed unt the succeedng fsca year, and the and was sod n the
atter year, the oss ncurred was deductbe n the year of demo-
ton, rrespectve of the year n whch the sae occurred.
2. Deducton Payments to mpoyees Penson und ccrua
ass.
Settng asde of corporate funds as a reserve for pensons
durng the fsca year ended anuary 31, 1930, was nsuffcent to
create an aowabe deducton for that year where the evdence
shows that nether contro of the approprated money nor the
consent of the trustee occurred before ebruary 1, 1930, on whch
date the wrtten trust whch was contempated was e ecuted.
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23(f), rt. 172.
Unted States Crcut Court of ppeas for the ghth Cbcutt.
The Dayton Co., a Corporaton, pettoner, v. Commssoner of Interna Revenue,
respondent.
90 ed. (2d), 767.
On petton to revew decson of Unted States oard of Ta ppeas.
efore Stone, Sanborn, and Thomas, Crcut udges.
une 12, 1937.
OPINION.
Stone, Crcut udge, devered the opnon of the court.
Ths Is a petton for revew by the Dayton Co., a corporaton, from a rede-
termnaton of ts ncome ta for the fsca year begnnng ebruary 1, 1929,
and endng anuary 31,1930, by the oard of Ta ppeas.
The controversy nvoves the dsaowance of two deductons camed by pet-
toner. One deducton camed s for oss on a pece of rea property sod by
pettoner on November 15, 1929. The other deducton s for aeged payments
to an empoyees penson fund. These deductons, beng whoy unreated, w
be e amned separatey.
I. Rea Property Deducton.
The pertnent undsputed facts found by the oard are as foows: On
ugust 10, 1928, pettoner purchased a pot of ground wth a arge resdence
thereon for 50,000. t the tme of purchase and for severa months there-
after, It was the ntenton of pettoner to make certan uses of ths resdence
n connecton wth ts busness. Later, t was determned that such uses woud
react unfavoraby and, snce the carryng charges on ths property were rea-
tvey heavy, t was (n November, 1928) deemed wse to demosh the bud-
ng and thus materay reduce such charges. The demoton was pad for by
the materas n the budng and the contractor was requred to remove the
foundaton, to f n the e cavaton and to eave the property n presentabe
condton. The demoton began eary n December, 1928, and proceeded as
rapdy as weather condtons aowed. y anuary 20, 1929, the budng
had been removed to the foundaton and a materas of vaue taken away.
Weather prevented remova of the foundaton, fng n of the e cavaton and
remova of the remanng debrs unt durng the sprng of 1929. November
15, 1929, the and was sod for 12,000. Thrty-eght thousand doars (the
dfference n purchase and sae prces) s camed as a deducton for the fsca
year endng anuary 31, 1930.
There was never any deprecaton charged nor was there any parta re-
covery of oss through nsurance, savage or otherwse. The demoton was
not In pursuance of any pan to repace or renew the structure or to further
use the property. The books of pettoner show a proft and oss entry of
35,000 on anuary 31, 1929, coverng ths matter t beng the then udgment
of the offcers of the pettoner that the and was worth 15,000. owever, pet-
toner reazed ony 12,000 on sae some months ater. or ths and pror
years, pettoner returned ts ta es on the accrua bass. There are no ds-
putes as to farness of purchase and sae prces, as to good fath of pettoner
nor as to amount of actua oss. The soe ssue here s whether the oss oc-
curred In the ta year camed the fsca year begnnng ebruary 1,1929.
The contentons of pettoner are (1) that t coud not cam the deducton
unt sae of the property but (2), f the deducton must be camed n the
year of demoton, such cam must be made durng the year the demoton
and the contract therefor were competed, whch was the ta year here n-
voved. The Commssoner s answer to the frst contenton s that osses are
deductbe wthn a ta abe year where f ed by an dentfabe event n such
year and that ths demoton was such an event. s answer to the second
contenton s that ths event occurred durng the pror ta year because theren
were the decson to demosh, competon of arrangement therefor, demoton
(e ceptng ony the foundaton), and treatment by pettoner through entry
of oss therefrom on ts books. s to the frst above contenton, the oard hed
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23(f), rt. 172.
268
the oss deductbe In the year suffered, rrespectve of sae. s to the second
contenton, t hed that the burden upon pettoner of overthrowng the pre-
sumptvey correct determnaton of the Commssoner as to the year of oss
had not been successfuy carred.
( ) T IRST CONT NTION.
Ths contenton presents the ssue as to whether ths undsputed oss must
be postponed unt the year of sae. Ths s a capta oss. The Revenue ct
of 1928 ( 45 Stat., 791) governs. Secton 23(f) of that ct aows deducton In
the case of a corporaton, osses sustaned durng the ta abe year and not
compensated for by nsurance or otherwse. Ths s the broad genera pro-
vson as to deductons aowabe to corporatons. That t ncudes capta
osses s further made cear by the ne t foowng subsecton (g) whch
defnes the ass for determnng oss thereunder to be the same as s
provded n secton 113 for determnng the gan or oss from the sae or other
dsposton of property, whch s, the cost of such property (secton 113).
ere there was no compensaton for ths oss by nsurance or otherwse
and no queston of the fact of oss or of the aowabe character of such oss.
The secton requres aowance wthn the ta abe year sustaned. (Unted
States Cartrdge Co. v. Unted States, 284 U. S., 511, 520 Ct D. 4U0, C. . I-1,
282 (1932) .) When s a deductbe oss sustaned In dscussng dentca
anguage n the evenue ct of 191S, the Supreme Court sad:
The statute obvousy does not contempate and the reguatons (artce 144)
forbd the deducton of osses resutng from the mere fuctuaton n vaue of
property owned by the ta payer. (New York Ins. Co. v. dwards, 271 U. S.,
109, 116 T. D. 3872. C. . -, 305 (1926) cf. Mes v. Safe Depost Co., 259
U. S., 217 Ct. D. 29, C. . 1-1, 72 (1922) .) ut wth equa certanty they
do contempate the deducton from gross ncome of osses, whch are f ed by
dentfabe events, such as the sae of property (artces 141, 144), or caused
by ts destructon or physca n|ury (artces 141, 142, 143) or, n the case of
debts, by the occurrence of such events as prevent ther coecton (artce 151).
(Unted States v. Whte Denta Co., 274 U. S., 398, 401 T. D. 4059, C. . I-2,
198 (1927) .)
In Lucas v. mercan Code Co. (280 U. S., 445, 449 Ct. D. 168, C. . I -1,
314 (1930) ), the Court sad:
Generay speakng, the ncome-ta aw s concerned ony wth reazed
osses, as wth reazed gans. (Wess v. Wener, 279 T . S., 333, 335 Ct. D. 60,
C. . III-1, 257 (1929) .) cepton s made, however, n the case of osses
whch are so reasonaby certan n fact and ascertanabe n amount as to
|ustfy ther deducton, n certan crcumstances, before they are absoutey
reazed. s respects osses occasoned by the ta payer s breach of contract,
no defnte ega test s provded by the statute for the determnaton of the
year n whch the oss s to be deducted. The genera requrement that osses
be deducted n the year n whch they are sustaned cas for a practca, not
a ega test.
rom these two statements of the Supreme Court are deduced the crtera
that a oss s deductbe under ths provson of the statute f (1) t s f ed
by dentfabe events, such as destructon of the property and
(2) t s reasonaby certan n fact and ascertanabe n amount. 1 ere, the
In Shoenbcrg v. Commssoner (77 ed. (2d), 440, 448 Ct. D. 1051 C I -2 ISO
(1935) , cetorar dened, 206 U. R., 580), ths court seated the rue as foows:
The Revenue ct here nvoved ( ct of 1028, 45 Stat., 701, 26 U. S. C. ., secton
2001 et seq. as we ns earer and ater Revenue cts permt deductons of osses from
ta abe net Income. It requres such osses to he 1 reazed by some cosed and competed
dentfabe event (Unted States v. S. S. Whte Denta Co., 274 T S 308 401 47
S. Ct., 508, 71 L. d., 1120 T. D. 4030, C. . I-2, 198 (1927) ) whch defntey
settes and deermnes the e stence of and the amount of such oss ( urnet r. ut,
288 U. S., r.f, 101, 53 S. Ct., 330, 77 L. d.. 670 tCt. D. 640, C. . II-1 220 (1933)1:
Wess v. Wener, 279 D. S.. 333. 335, 49 S. Ct., 337. 73 I.. d., 720 Unted States v. S. 8.
Whte Denta Co., 274 U. S., 398. 401, 47 S. Ct.. 508. 71 L d., 1120) an t requres
such osses to be actua and rea (Gregory v. Ucvernq, 293 U. S., 465. 55 a Ct 266,
79 L. d., 590 ft. I). 011, C. . I -1, 193 (1935)1 : /me v. ub, 288 D. S.. 156 161,
53 S. Ct., 3 0, 77 L. d., 670 Unted States v. tanncry, 2C8 U. IS., 98, 45 S Ct. 420,
60 L. d., 805 T. D 3703, C. . I -1, 106 (1925) eCaughn v. Ludnqton, 26 b. S,
100, 45 S. Ct., 423, 69 L. fed., 868 T. D. 3705. C. I -1, 110 (1925) ).
What consttutes a f aton of an Identfabe event depends upon the character of
the camed oss. (Lcweyn v. ectrc Reducton Co., 275 U. S., 243, 246-247 T. D.
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23 (f), rt. 172.
demoton was an dentfabe event, the oss was certan In fact and
the amount of oss was reasonaby ascertanabe. The ack of
necessty of aways watng for a sae where there has been a parta destructon
of the physca property s drecty rued In the Tenth Crcut n erguson v.
Commssoner (59 ed. (2d), 893, 894), where the court approved and apped
the decson n the Whppe and the Shearer cases (cted n footnote 1), sayng:
In Whppe v. Unted States (D. O. Mass.) (25 . (2d), 520) the court hed
that damage to shade and ornamenta trees from storm was a deductbe oss.
In Shearer v. nderson (O. 0. . 2) (10 . (2d), 995, 51 . L. R., 534) the court
hed that damage resutng to an automobe from the wreckng thereof on an
Ice covered road was a deductbe oss. In each of these cases there had been
no sae of the property nvoved and there was a physca In|ury to, rather than
a tota destructon of such property. The anguage of the statute s, osses ars-
ng from destructon of or damage to property. Loss from damage occasoned
by physca n|ury seems to be ceary wthn ts purvew. ( so see Oreen v.
Commssoner, 19 . T. ., 904.)
Our concuson s that pettoner here was not ony not compeed to wat but
coud not wat unt sae of ths property to cam ths oss but that t was
deductbe ony durng the ta year of the demoton.
3739. C. . I -2, 208 (1025)1.) If the oss Is from a physca happenng such happen-
ng s an dentfabe event and the occurrence of It Is a f aton of such event
(Leuteyn v. ectrc Reducton Co., 275 U. S., 243, 247 Unted States v. 8. S. Whte
Denta Mfg. Co., 274 U. S., 398, 401). Instances of such physca facts are demoton
(Inge v. Gage, 52 ed. (2d), 738, 741, W. D. N. Y.), re (Leweyn v. ectrc Reducton
Co., 275 U. S., 243, 247 Commssoner v. ghway Traer Co., 72 ed. (2d), 913,
C. C. . 7, certorar dened, 293 U. S., 626, petton for rehearng dened, 294 II. S.,
731 Ct. D. 938, C. . I -1, 293 (1935) ppea of Producers ue Co., 1 . T. .,
202 : Martn eneer Co. v. Commssoner, 5 . T. ., 207) uness there are quafyng
condtons (see Pke County Coa Corporaton v. Commssoner, 4 . T. ., 625), food
( erguson v. Commssoner, 69 ed. (2d), 893, C. C. . 10), ce, storm (Whppe v.
nted States, 25 ed. (2d), 520, D. Mass.), tmber destroyng nsect (Orono Pup
Paper Co. v. nted States, 34 ed. (2d), 714, D. Mane), wreck of automobe on cy
road (Shearer v. nderson, 16 ed. (2d), 995, C. C. . 2 T. D. 3860, C. . -, 239
(1920) ), storm at sea ( ppea of Leand D. Webb, 1 . T. ., 759), or shpwreck (Oreen
T. Commssoner, 19 . T. ., 904).
If the oss s from a defnte act of some person such act Is the Identfabe event
and the dong thereof s a f aton of such event. Instances of ths are: embezzement
( rst Natona Dank of Sharon, Pa., v. ener, Coector, GG ed. (2d), 925, C. C. . 3),
uness changed by crcumstances (Dougas County L. W. Co. v. Commssoner, 43 ed.
(2d), 904, 0. C. . 9 Ledger Co. v. Unted States, 37 ed. (2d), 775, Ct. Cs. ohn .
Parsh Co. v. Commssoner, 31 ed. (2d), 79, C. C. . 8), or theft (Lewcyn v. ectro
Reducton Co., 275 U. S., 243, 247), uness there are quafyng condtons (see ed
urrers Corporaton v. Commssoner, 24 . T. ., 457). If the oss Is from a contract
the dentfabe event Is the occurrence whch estabshes the defnte e stence of
the o:5s and the happenng of such occurrence s the f aton of such event. Instances
of ths are: bankruptcy of the debtor ( efery v. Commssoner, 62 ed. (2d), GG1,
C. C. . 6). qudaton of the debtor (Oowen v. Commssoner. 65 ed. (2d). 923, C. C. . 6.
certorar dened, 290 U. S., G87), forecosure of mortgage (Ltte v. cverng, 75 ed.
(2d), 436, C. C. . 8), and whether the contract s entre or dvsbe (Commssoner v.
R. . Darne, Inc., GO ed. (2d), 82, C. C. . G). If the oss s uncertan or contngent,
the dentfabe event s the happenng whch removes Ruch uncertanty or contngency
am such happenng s the f aton of such event. Instances of ths are: parts of
constructon compensaton retaned to guarantee mantenance of the constructon (Com-
mssoner v. Ceveand Trndad Pavng Co., 62 ed. (2d), 85, C. C. . 6), fnanca woth-
c-ssness of debtor (Leweyn v. ectrc Reducton Co., 275 U. S., 243), and contract
provson for penaty or for premum dependent on performance of contract (Comms-
soner v. R. . Darne, Inc., 60 ed. (2d), 82, C. C. . G).
The above ctaton of ad|udcated nstances s by no means compete but they serve
to ustrate appcatons of the rue to varous stuatons. They show that the resuts
of appyng the rue depend upon the facts of each stuaton. so, they show that
physca destructon or damage to property may f the oss as of the tme of destructon
or damage.
Some of the numerous other cases, not cted here, whch revea appcatons of the
rue to a varety of fact stuatons are urnet v. Logan (283 U. S., 404 Ct. D. 351,
C. . -, 345 (1931) Lucas v. North Te as Co. (281 U. S., 11 Ct. D. 109, C. .
I -1. 294 (1930) ) Lucas v. mercan Code Co. (280 U. S., 445) Unted States v.
nderson (209 U. S., 422 IT. D. 3839, C. . -, 179 (1926) ) oward v. Commssoner
(56 ed. (2d), 781, C. C. . G, certorar dened, 287 U. S., 619) Dresser v. Unted States
(55 ed. (2d). 499, Ct. Cs. Ct. D. 503. C. . I-1. 207 (1932) . certorar dened. 287
TT. S-, 635) Darng v. Commssoner (49 ed. (2d), 111, C. C. . 4, certorar dened,
283 U. S., 866) Centra Trust Co. v. urnet (45 ed. (2d). 922, C. C. . D. C.)
De Loss v. Commssoner (28 ed. (2d), 803, C. C. . 2, certorar dened, 279 U. S.,
840) Roya Packng Co. v. Commssoner (22 ed. (2d), 53G, C. C. . 9).
s sad by ths court, the most commony occurrng Instance of an dentfabe event
s a sae of property. (Shoenberg v. Commssoner, 77 ed. (2d), 446, 448, certorar
dened, 29G U. S., 586.)
1 s to the amount of os beng reasonaby ascertanabe. It s an everyday matter n
fre Insurance to ascertan the oss by destructon of a house by fre.
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23(0, rt. 172.
270
( ) T S COND CONT NTION.
Ths contenton Is as to whether the actua demoton of ths budng took
pace wthn ths fsca year begnnng ebruary 1, 1929. The undsputed and
found facts are as foows: The demoton was determned upon n November,
1928. n arrangement was made wth a contractor whereby he was to tear
down the budng, take out the foundaton, dspose of the debrs and f the
e cavaton. s entre compensaton was the matera savaged. The actua
work began eary n December, 1928, and, by anuary 20, 1929, the structure
was taken down and a vauabe savage matera removed from the premses
the unperformed work at that tme conssted of removng the foundaton and
the remanng debrs and fng n the e cavaton. Weather prevented ths
further work unt n the sprng of 1929. The determnaton of the oard as to
whether the demoton took pace n the fsca year begnnng ebruary 1, 1929
(here nvoved), or n the pror fsca year, s as foows:
ere the determnaton of respondent that the oss upon the property was
not sustaned n the ta abe year n queston upon the sae of the property s
presumptvey correct. The burden s upon the pettoner to show error n the
determnaton of the respondent. Ths burden carres wth t the ncdenta
burden of showng that the oss was not sustaned n the pror year when the
budng was demoshed. rom the evdence we can not determne that the oss
was not sustaned n the pror year upon the demoton. On the contrary, some
of the facts tend to ndcate that the oss may have been sustaned n such pror
year. or nstance, by far the greater cost of the property to . N. Dayton was
the house. In 1922 and 1923, he but addtons to the house at a cost n e cess
of 47,000. Ths tends to show that the greater part of the cost of the property
was the budng, and that when t was demoshed the pettoner ost such
greater part of ts nvestment The evdence shows that after the fsca year
ended anuary 31, 1929, the pettoner coud not and dd not receve any savage
or compensaton for the demoshed budng. fter that fsca year the pet-
toner had no further nterest n the budng. The matera savaged went to
the wreckng company as consderaton for the demoton. urthermore, the
evdence shows that the pettoner, on anuary 81, 1929, made a book entry
chargng the sum of 35,000 to proft and oss on account of the demoton.
Ths entry, n our opnon, was correct. Good accountng requred that snce
pettoner was on the accrua bass, ths tem be accrued on the books of pet-
toner n such year, rather than n the year before us. Under the crcumstances
we are constraned to approve the acton of the respondent n dsaowng the
deducton of the camed oss n the year n queston.
The facts stated n ths quotaton are undsputed. The reasonng and the
concusons stated theren are sound and are approved. When nothng but the
bare foundaton remaned, pettoner had, under a of the facts here, suffered a
oss of the vaue of the house. It may not be unreasonabe to argue that a
contnuous transacton such as the demoton of a budng s cosed ony
when the process of destructon and remova s entrey competed. On the
other hand, there Is here the actuaty of oss before that tme, the refecton of
such oss by pettoner n ts own books, and the entre proprety, under ts
reguar system of accountng, of such book showng. ven f these opposng
vews created a stuaton of doubt, the oard was ustfed n castng ts decson
aganst pettoner whch had the burden of provng the acton of the Comms-
soner to be arbtrary. The resut s affrmance of the order of the oard
dsaowng ths tem of deducton.
II. The Penson und Deducton.
Ths concerns the dsaowance of a deducton of 20,300 camed to have been
contrbuted by pettoner to an empoyees penson fund wthn ths fsca year
endng anuary 31, 1930. The governng statute s secton 23(q), Revenue ct
of 1928, whch Is as foows:
ppcabe to tta stuaton a the anguage of the Supreme Court In Lucas v. mercan
Code Co. (280 U. S., 445, 449), as foows:
The genera requrement that osses be deducted In the year In whch they are
sustaned cas for a practca, not a eua teRt. nd the drecton that net Income be
computed accordng to the method of accountng reguary empoyed by the ta payer s
e pressy mted to cases where the Commssoner beeves that the accounts ceary
refect the net ncome. Much attude for dscreton Is thus gven to the admnstratve
board charged wth the duty of enforcng the ct. Its nterpretaton of the statute and
the practce adopted by t shoud not be Interfered wth uness ceary unawfu.
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271
23(f), rt. 172.
(q) Penson trusts. n empoyer estabshng or mantanng a penson
trust to provde for the payment of reasonabe pensons to hs empoyees (f
such trust s e empt from ta under secton 165, reatng to trusts created for
the e cusve beneft of empoyees) sha be aowed as a deducton (n addton
to the contrbutons to such trust durng the ta abe year to cover the penson
abty accrung durng the year, aowed as a deducton under subsecton (a),
of ths secton) a reasonabe amount transferred or pad nto such trust durng
the ta abe year In e cess of such contrbutons, but ony f such amount (1)
has not theretofore been aowabe as a deducton, and (2) s apportoned n
equa parts over a perod of ten consecutve years begnnng wth the year n
whch the transfer or payment s made.
Pettoner attaches varous fndngs of the oard as to specfc matters. It s
unnecessary and unproftabe to e amne these n deta. The essenta and
controng facts found by the oard and reed upon by t and whch are here
necessary to determne ths ssue are: that pettoner ntended ths fund to take
the form of a trust that no such trust was formed unt ebruary 1, 1930 that
no transfer of the above amount was made to the trustee unt ebruary 1, 1930.
The evdentary facts are as foows: uy 81, 1929, pettoner determned to
estabsh an empoyees penson fund and set asde 10,000 for that purpose.
November 15, 1929, a drectors meetng of pettoner adopted a resouton
whch, after settng forth the desrabty of provdng for pensonng em-
poyees and statng the most effectve mode of makng sutabe provson for
sad empoyees appears to the stockhoders to be by the estabsh-
ment of a trust fund, contaned the foowng provsons here pertnent:
Resoved: That such trust fund be, and the same s hereby estabshed,
and that the sum of 10,000 heretofore approprated by ths corporaton for
the beneft and protecton as aforesad of certan of ts empoyees sha be
pad to the trustee of sad fund to ntate the same.
Resoved, further, That Dayton Investment Co., a corporaton of the State
of Mnnesota, be and t s hereby desgnated as the trustee of sad fund, to
receve, hod, nvest, and, from tme to tme, n the |udgment of ts proper
drectors or offcers thereunto authorzed, to renvest the same and any add-
tons to sad nta payment whch may be made to sad trust fund by ths
corporaton.

Resoved, further. That upon the devery to the secretary of ths cor-
poraton of the consent of sad Dayton Investment Co. to act as such trustee
and to receve and nvest sad sum of 10,000 for the ntaton of sad trust
fund, the treasurer of ths corporaton s hereby authorzed to pay over sad
sum to sad Dayton Investment Co., as trustee as aforesad, for the purposes
heren named and not otherwse.
Pursuant to ths resouton, the aforesad sum of 10,000 was transferred
and set apart by a credt to Reserve for pensons on the books of pettoner.
Thereafter, on anuary 81, 1930, the further sum of 10,300 was treated ke-
wse.
There was testmony that the presdent of pettoner, who was aso presdent
of the Dayton Investment Co., agreed between ourseves wth the vce
presdent of the Dayton Investment Co., who was aso the secretary-treasurer
of pettoner that the Dayton Investment Co. woud act as trustee of the
penson fund ths was at the tme the above resouton was adopted. ow-
ever, the same wtness testfed mmedatey thereafter that It was con-
tempated that there woud be a wrtten trust. There s no evdence of any
wrtten trust unt and e cept the nstrument herenafter notced, whch was
not e ecuted unt ebruary 1, 1930. The most that can be sad of ths test-
mony concernng a verba acceptance by the contempated trustee s that t
rased a weak confct wth the evdent purpose of the resouton to dea wth
a forma trust thereafter to be created and wth the postve evdence that
such a wrtten trust was contempated at that tme. The fndng of the oard
that there was no such acceptance on November 15, 1929, s abundanty sup-
ported and s bndng on ths court.
On ebruary 1, 1930, an agreement was e ecuted by pettoner (party of
the frst part) and Dayton Investment Co. (party of the second part). The
portons of ths agreement here matera are as foows:
The stockhoders of the frst party have drected the estabshment of a
trust fund, to be hed and admnstered by a sutabe trustee e cusvey for
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23(f). rt. 172.
272
the beneft of empoyees of the frst party, who sha be desgnated from tme
to tme by a resouton of the board of drectors of the frst party as entted
to especa consderaton and protecton by reason of ong and fathfu servce
whe n ts empoy.
The second party, upon the request of the frst party, has consented to act
as such trustee, n accordance wth the condtons of ths agreement heren-
after stated.
or a good and vauabe consderaton, passng from the frst party to
the second party, and n further consderaton of the recproca agreements
and obgatons of the respectve partes hereto, as herenafter set out, t
Is agreed by and between sad partes as foows:
rst: The frst party, at the tme of the e ecuton and devery of ths
agreement, has pad over to the second party the sum of twenty thousand
doars ( 20,000) (the recept of whch by the second party s hereby acknow-
edged) for the purpose of estabshng a trust fund to be ncreased n amount
by the frst party, from tme to tme.

Second: The second party hereby accepts sad payment of twenty thousand
doars ( 20,000).
The above facts ceary estabsh the ntenton of pettoner to estabsh ths
fund soey n the form of a trust fund to retan contro of the approprated
money unt the consent of the trustee to serve as such was devered to the
secretary of pettoner that the trust ntended was not created unt ebruary
1, 1930, and that no such consent nor such partng wth the money by pet-
toner before that date occurred.
There was evdence that the above amounts were nvested n bonds whch
were paced n a safety bo of the Dayton Investment Co. pror to anuary 31,
1930. t most, ths evdence merey rased a confct wth the statements n
the trust nstrument The frst party, at the tme of the e ecuton and devery
of ths agreement, has pad over to the second party the sum of twenty thousand
doars ( 20,000) (the recept of whch by the second party s hereby acknow-
edged) for the purpose of estabshng a trust fund and The second party
hereby accepts sad payment of twenty thousand doars ( 20,000)
a tacs added .
bove, we have treated ths deducton as beng governed by secton 23(q)
of the ct. It s not a proper deducton durng ths ta year under that
secton. or the same reasons, t s not deductbe durng ths ta year under
secton 23(a) of the ct as an ordnary and necessary e pense. The settng
asde of these funds as a reserve for pensons on the books of pettoner for
ths ta abe year s nsuffcent, under the crcumstances here, to create an
aowabe deducton. (.Lucas v. mercan Code Co., 280 U. S., 445, 4. 2.)
The partes have dscussed some other matters such as Incompeteness
of the trust Instrument to create a trust because of ack of desgnaton of
benefcares. None of such matters can ater the determnatve facts whch
are dscussed above and whch formed the man bass of the decson of the
oard. The determnaton of the oard s substantay supported by the
evdence and, therefore, s concusve here. The acton of the oard In ds-
aowng ths deducton s affrmed.
The resut upon the entre case s affrmance of the order of the oard and
dsmssa of the petton.
4 Secton 23(a), In bo far as here pertnent, aows as deductons a the ordnary and
necessary e penses pad or ncurred durng the ta abe year n carryng on any trade or
busness .
In smmng up ts concusons the oard sad :
In short, t Is our opnon that there was no Intenton of estabshng a vad and
enforceabe trust durng the year before us and that none was estabshed. ths
acton taken by the pettoner durne the fsca year before us, ncudng ear-marknc of
bonds and settng them asde, was merey preparatory to the estabshment of a penson
trust, and no trust was estabshed In that year. We are not unmndfu of the fact that
the resouton of the board of drectors, passed on November 16 (15). 1929, states that
1 such trust fund be and the same s hereby created, and that the Dayton Investment
Co. be and t Is hereby desgnated as the trustee of sad fund. Ths
anguaRe s not determnatve n vew of a the other facts and crcumstances whch
must aso be consdered.
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23(n), rt. 262.
S CTION 23 (). D DUCTIONS ROM GROSS
INCOM : D D TS.
rtce 195: Reserve for bad debts.
NU CT O 1928.
Dscreton of the Commssoner as to reserves. (See Ct. D. 1256,
page 339.)
S CTION 23(n). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
rtce 262: Donatons by corporatons. I-52-9112
Ct D. 1290
INCOM T R NU CTS O 1920 ND 1928 D CISION O COURT.
L Deducton Contrbutons by Corporaton to Wefare Organ-
zaton.
Contrbutons made by a corporaton n 1927 and 1929 to a cvc
wefare federaton are not deductbe from gross ncome as an ord-
nary and necessary busness e pense, under the provsons of sec-
tons 234 and 23(a) of the Revenue cts of 1926 and 1928, respec-
tvey, where the facts show that the benefts accrung from the
donatons were ndrect rather than drect.
2. Decson oowed.
Od Msson Portand Cement Co. v. Meverng, Commssoner
(293 U. S., 289 Ct. D. 903, C. . I -1, 332 (1935) ), foowed.
Dstrct Coubt of the Unted States for the Dstrct or Massachusetts.
Morgan Constructon Co. v. Unted States of merca.
18 ed. Supp., 892.
pr 12, 1937.
OPINION.
rewster, .: Pettoner, a corporaton, n the years 1927 and 1929 con-
trbuted 4,250 to the Worcester Wefare ederaton, an assocate of 32 char-
tabe organzatons whch ncuded the . M. C. ., to whch assocaton pet-
toner had contrbuted pror to the organzaton of the federaton. The present
controversy s over the refusa of the Commssoner of Interna Revenue to
aow these contrbutons as an ordnary and necessary e pense pad or n-
curred durng the ta abe year n carryng on any trade or busness deduct-
be under the Revenue ct of 1926 (secton 234) and the Revenue ct of 1928
(secton 23(a)). These facts are estabshed:
Worcester s a cty of about 195,000 nhabtants. Pettoner empoyed, n
1927, 709 and n 1929, 738 empoyees. The tota contrbutons made to the we-
fare federaton n 1927 and 1929 averaged about 470,000. Ths was dstrb-
uted among the 32 chartes. The aocaton of the funds was not based on
amounts contrbuted. Not over 6 of pettoner s empoyees benefted from as-
socated chartes, 5 from boys cub, and from 28 to 48 empoyees used the
factes of the Y. M. O. . of these organzatons were members of the
wefare federaton. The Y. M. C. . had what was caed Morgan nght
when the factes of the assocaton were turned over to the empoyees of the
pettoner. Ths assocaton contrbuted n other ways to the amusement and
wefare of pettoner s empoyees. Pettoner s reatons wth ts empoyees were
not dsturbed by strkes. It can be added that f pettoner had refused to
contrbute to the wefare federaton ts reputaton woud have suffered, both
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274
In the pubc estmaton as we as among Its empoyees. The offcers beeved
It was good busness to |on wth other Industres and Indvduas In sus-
tanng ths work of the wefare federaton.
If the queston were whether ths practce was ustfed as a matter of
good busness udgment, there coud be no doubt as to the answer. Such s
not the ssue, however. Rather, t Is whether the appcabe statute can be
construed to permt these deductons from gross Income as an ordnary and
necessary e pense. In Od Msson Portand Cement Co. v. everng, Com-
mssoner (293 U. S., 289), t was hed that a contrbuton to the San rancsco
Communty Chest by a corporaton coud not be so deducted. In the opnon
(page 293) It was observed:
The prvege of deductng chartabe donatons from gross ncome, con-
ferred on ndvdua ta payers by secton 214(a) of the Revenue cts of 1921,
1924, and 1920, has not been e tended to corporatons. proposa to e tend t
to them was re|ected by Congress pendng the passage of the Revenue ct
of 1918. (Congressona Record, ouse, voume 56, part 10, 10426-10428.)
It s sgnfcant In Its bearng on the congressona ntent that the 1936
Revenue ct granted ths prvege to corporatons for the frst tme.
It does not foow that n a cases of a contrbuton to eeemosynary pur-
poses the amount contrbuted may not be deducted as a proper e pense. See
Treasury Reguatons 62, artce 562. The crteron seems to be whether the
benefts accrung from the donaton are drect or ndrect. Ths s ustrated
by the facts appearng n the ower court n the Od Msson Portand Cement
Co. case (69 . (2d), 676).
Whe the contrbuton to the communty chest was not deductbe, a contrbu-
ton to a Y. M. C. . budng fund, made wth the understandng that the douor
woud receve ts share of orders for cement gong Into the budng, was a-
owed as a reasonabe and necessary e pense.
The facts presented n the case at bar do not, n my opnon, furnsh any
bass for an e cepton to the genera rue that contrbutons to chartes are
not to be deducted under Revenue cts n force pror to 1936. The benefts whch
pettoner en|oyed were ndrect, rather than benefts fowng drecty to the
donor as an ncdent to ts busness.
ny benefts receved by empoyees of the pettoner from the organzatons
n the federaton were not dependent on pettoner s contrbutons.
Pettoner rees on mercan Rong M Co. v. Commssoner of Interna
Revenue (41 . (2d), 314). If that case can now be consdered as an authorty
n vew of the ater decson n Od Msson Portand Cement Co. v. everng,
supra, It s a case ceary dstngushabe on the facts. The Court there was
pany nfuenced by the fact that the pantff empoyed haf of the com-
munty s wage-earnng popuaton and contrbuted 36 per cent of the tota cvc
funds rased n the communty. In the nstant case, pettoner empoys about
750 persons out of a popuaton of 195,000 and contrbuted ess than 1 per cent
of the tota federaton funds.
It s not suffcent that the gfts of pettoner were made n the beef
that they resuted n good w toward the pettoner and ncreased ts bus-
ness. (Od Msson Portand Cement Co. v. Icrcrng, supra see aso Con-
sodated Oas, ectrc Lght d Power Co. of atmore v. Unted States, 65
Ct. Cs 252 T. D. 4182, C. . II-2, 294 (1928) , fred . Sweet, Inc., v.
Unted States. 68 Ct. Cs., 654 Ct. D. 55, C. P.. III-1, 266 (1929) .)
It Is my concuson that ths case s controed by the Od Msson Portand
Cement Co. case and accordngy |udgment must be entered for the respondent
S CTION 23(q). D DUCTIONS ROM GROSS
INCOM : P NSION TRUSTS.
ktce 271: Payments to empoyees penson trusts.
R NU CT O 1928.
Perod for whch deductbe. (See Ct. D. 1279, page 266.)
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41, rt. 322.
P RT rW- CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 41. G N R L. RUL .
rtce 322: ases of computaton.
I 3-9002
Ct. D. 1271
ncome ta revenue act of 1928 decson of court.
1. Deducton Interest Incurred n Pror Years Pad n Ta abe
Year ccrua ass.
n operator of cargo vesses, keepng ts books on a so-caed ac-
crua system on competed voyage bass, fed ncome ta returns
for 1923 to 1929 on the accrua bass, whch was accepted as ceary
refectng ncome. ach year money was borrowed for operatng
e pense, but no nterest thereon was pad unt 1930, when the
operatng agreement was canceed, both prncpa and nterest were
pad n fu, and deducton was camed n the 1930 return for the
entre amount of nterest pad, wth no ndcaton thereon as to the
bass upon whch such return was made. Under these facts, ony
the nterest attrbutabe to 1930 may be aowed as a deducton.
The faure to cam deducton for Interest ncurred durng each
of the years 1923 to 1929 dd not |ustfy the deducton n 1930 of n-
terest whch, under the method of accountng empoyed, shoud have
been deducted n former years.
2. Decson ffrmed.
Decson of oard of Ta ppeas (34 . T. ., 253) affrmed.
Unted States Crcut Court op ppeas for the Second Crcut.
Panet Lnes, Inc., pettoner, v. Commssoner of Interna Revenue, respondent.
89 ed. (2d), 16.
Petton to revew a decson of the oard of Ta ppeas redetermnng a defcency n
the ncome ta es of the pettoner for the caendar year 1030. ffrmed.
efore Manton, ugustus N. and, and Chase, Crcut udges.
Chase, Crcut udge: The pettoner was ncorporated n 1923 and entered
nto an operatng agreement wth Panet Steamshp Corporaton coverng seven
cargo vesses owned by the atter. Pettoner s due and tmey performance of
the agreement was guaranteed by Seas Shppng Co., Inc., whch owned a
the outstandng capta stock of the pettoner.
The contract was duy performed by pettoner, that beng the ony busness
t conducted, unt t was canceed n 1930 by mutua agreement at whch
tme the pettoner receved a substanta sum as ts consderaton for the
canceaton and snce then t has done no busness e cept that concerned wth
wndng up ts affars.
y the terms of the operatng agreement the pettoner receved a manager s
commsson out of the gross freght of each cargo oaded and pad e penses
as agreed whch need not be stated n deta as there s no dspute as to amounts.
t the end of each caendar perod of s months the accounts of a competed
voyages were qudated and the net profts dvded equay between the partes
to the operatng agreement
Durng a te years 1923 to 1930, ncusve, the pettoner kept ts books
on a varaton of the accrua system whch may be caed the accrua system
on the competed voyage bass. Its Income ta returns were fed In accordance
pr 5, 1937.
OPINION.
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276
wth the system t used n keepng ts books and that method was accepted as
one ceary refectng ncome as ndeed t dd so far as the method empoyed
wus concerned. In genera t conssted n hodng n suspense cash recepts
and dsbursements appyng to uncompeted voyages unt an accountng was
made for the s months perod n whch such voyages were competed at
whch tme the tems n suspense were aocated to the proper competed voy-
ages as were accrued tems proper to be so treated.
The defcency determned by the Commssoner for 1930 and redetermned
by the oard s due to the fact that n each year from 1923 to 1930 ncusve
the pettoner owed the Seas Shppng Co., Inc., money whch t borrowed from
tme to tme as needed to carry out the operatng agreement and so became
abe to pay nterest on the baance n each year due Seas Shppng Co., Iuc.
It dd not pay any such nterest unt 1930 when the contract was canceed
and t pad both prncpa and nterest n fu. Durng prevous years no such
nterest had been accrued In the returns of ncome t fed n accordance wth
what the pettoner represented n the returns to have been the accrua bass.
In the 1930 return the pettoner dd not ndcate whether the bass was that
of cash recepts and dsbursements or accrua but t dd deduct the fu amount
of nterest pad n that year to Seas Shppng Co., Inc. The Commssoner
aowed ony the nterest attrbutabe to 1930 and determned the defcency
by dsaowng a nterest for prevous years on the ground that the method
of accountng empoyed requred the prevous accrua of that. The oard
sustaned ths poston and the petton to revew ts decson foowed n due
course.
Though the pettoner argues that t had no abty, e cept a contngent one,
to pay nterest n the prevous years, that s not supported by the evdence, and
the respondent s determnaton that there was such abty must be taken
as correct. Secton 43 of the 1928 ct requred deductons and credts aow-
abe to be taken for the ta abe year n whch pad or accrued or pad
or ncurred and made the method of accountng empoyed by the ta payer
the test uness the deductons shoud be taken for a dfferent perod n order
ceary to refect the ncome. s ts practce of reportng ts ncome on the
method of accrua on the competed voyage bass had been approved, and
propery so ( adgcy v. Commssoner, 59 ed. (2d), 203 (C. C. . 2)), t
foows that the faure to gve effect to nterest abty n the years before
1930 was an error. ( umnum Castngs Co. v. Routzahn, 282 U. S., 92 Ct D.
270, C. . -, 352 (1931) .) Whatever mstakes were thus made, however,
were no |ustfcaton for deductng n 1930 nterest whch, under the method
of accountng the pettoner empoyed, shoud have been deducted In former
years. (Ne ement Pond Co. v. Unted States, 281 U. S., 357 Ct. D. 185,
O. . I -1, 290 (1930) .)
The statute (secton 41 of the 1928 ct) requred the pettoner to report ts
ncome n accordance wth ts reguar accountng method f that, ceary re-
fected ts ncome or, f t dd not, to report t n accordance wth such method
as n the opnon of the Commssoner woud do so. There was no partcuar
named method that was requred and no name gven to the method empoyed
mattered so ong as there was a cear refecton of ncome. ( umnum Cast-
ngs Co. v. Routzahn, supra.) ut t was essenta, n the absence of perms-
son to do otherwse, and there was none, that the pettoner report Its ncome
for 19 0 n accordance wth the method of accountng t had been usng and
the Commssoner had approved n order that there be no dstorton. Whe
the ob|ect to be attaned s the cear refecton of ncome for the ta abe perod
and not consstency of accountng methods or ncety of descrptve anguage n
speakng of such methods, t becomes necessary to ca them somethng. The
pettoner takes e cepton to the acton of the oard n treatng the ssue
as one dependent for souton upon whether t was on the accrua or the cash
recepts and dsbursements bass. ut n so dong t has ost sght of the
substance of the oard s acton n ts crtcsm of what s but anguage.
Grantng that pettoner dd not empoy e cusvey the usua method of
accountng known as the accrua system, t was correct enough for the oard
to speak of t as accrua n dstngushng t from the cash recepts and ds-
bursements bass of accountng whch was the method used by the pettoner n
makng ts 1930 return n respect to the tem of nterest for prevous years.
Ths was obvousy a departure, and an unauthorzed one, from the way t
had prevousy made ts returns of ncome. Consequenty, t s of no moment
that somethng ke the accrua system on the competed voyage bass woud
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42, rt. 331.
have been a more accurate descrpton of that. It dd In fact change the
bass on whch t reported n 1930 from that on whch t had prevousy re-
ported and that dd n fact dstort ts reported ncome for 1030. That was
the ground of the oard s decson and t was a sound one because accrua on
the competed voyage bass caed for deducton of nterest n prevous years
whch on that bass was an eement n determnng proft or oss on such
voyages. (See Mer d dor Lumber Co. v. Commssoner, 39 ed. (2d), 890.)
The pettoner has presented for revew no ssue not based on an un|ustfed
attempt n 1930 to take nterest deductons whch under ts method of account-
ng shoud have been taken n former years.
ffrmed.
S CTION 42. P RIOD IN W IC IT MS O
GROSS INCOM INCLUD D.
rtce 331: When ncuded n gross ncome. I-37-8916
Ct. D. 1260
INCOM T R NG CTS O 1926 ND 1928 D CISION O COURT.
1. Income ecutors Commssons Ta abe n Year of ow-
ance- by Court Loca Law.
In 1925 the e ecutrces of a decedent s w advanced to the
estate an amount suffcent to pay ther estmated commssons n
order that they mght take a deducton therefor n the decedent s
edera estate ta return, and Issued notes payabe to themseves
as ndvduas to cover the so-caed oan, but mmedatey took
back the money, together wth the notes. Under oca aw,
e ecutors are not entted to commssons unt ther aowance by
the orphans court. Under these facts, the commssons were not
ta abe as ncome unt 1930, when the fna account of the e ecu-
trces was aowed by the court and the commssons were actuay
pad by the decedent s estate.
2. Decson Reversed.
Decson of the oard of Ta ppeas (32 . T. ., 1157) reversed.
3. Certorar Dened.
Petton for certorar dened une 1, 1937.
Unted States Crcut Court op ppeas for the Thrd Crcut.
Commssoner of Interna Revenue, pettoner, v. Rchard M. Cadcaader, r.,
respondent.
88 ed. (2d), 274.
Petton for revew from the Unted States oard of Ta ppeas.
efore uffnqton and Thompson, Crcut udges, and Wesh, Dstrct udge.
ebruary 5, 1937.
opnon.
t|ffngton, .: Ths Income ta case concerns e ecutors fees and the decsve
queston s whether such fees, vz, 142,707.88, were receved by the ta payer-
e ecutor n 1930.
The estate n queston was a New ersey one n e cess of 50,000. Conse-
quenty, t s governed by New ersey aw, whch provdes:
The commssons of e ecutors, admnstrators, and trustees n any estate
where the recepts e ceed the sum of 50,000, sha be determned by the
orphans court on the fna settement of ther accounts accordng to the actua
servces rendered, not e ceedng 5 per centum on a sums whch come nto
ther hands.
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278
In appyng ths statute, the courts of that State, In re Smth (107 N. . q,
607), Ttscorth v. Ttsworth (107 N. . q., 436), hod that such e ecutors are
not entted to commssons unt fna settement of ther account and f before
that tme they wthdraw money from the estate, they are chargeabe wth
nterest. Thus n Wyckoff v. O Ne (72 N. . q., 880) It sad:
s he was not entted to commssons unt hs accounts had been setted
and aowed by the court, he was propery charged wth Interest on the amount
whch he had wthdrawn from the estate.
To the same effect s In re ua (3 N. . Ms. R., 976) :
It s we setted that an e ecutor, admnstrator, guardan, or trustee, s
not entted to commssons unt they are setted and aowed by the orphans
court, . If accountant takes commssons before they are aowed
by the court he occupes the poston of a borrower of the amount so taken,
and s chargeabe wth nterest thereon, to the tme of hs accountng.
Now n the present case the fna account of the e ecutors was approved une
6, 1980, and under the aws of New ersey they were not entted to be pad
and n pont of fact dd not receve commsson from ncome on the estate before
that date. ut t sought to avod ncome ta by vrtue of certan pror proceed-
ngs n the settement of the estate. In ad|ustng the nhertance ta , the
estate camed that a deducton of 285,415.76 nhertance ta shoud be aowed
on account of e ecutor s commssons. The Commssoner refused to aow on
the ground that the ta was not pad. e subsequenty retracted from that
poston by reason of steps taken by the e ecutors, and aowed the reducton
contended for to be made, wth the consequent reducton of Inhertance estate
ta .
In vew of the practca fact that the estate had no money to pay the
e ecutors commssons and of the ega fact that the e ecutors commssons
coud not be aowed unt fna accountng, certan steps were taken to procure
the aowance for nhertance ta purposes, whch steps are stated n the
mnorty opnon of the Ta oard (tacs ours) :
The facts are smpe. my R. Cadwaader and her sster were e ecutrces
of the estate of Chares G. Roebng, ther father. The hodng of the ureau
of Interna Revenue at that tme requred that e ecutrces commssons must
be pad before a deducton mght be had for estate ta purposes. The estate
was wthout ready cash to make the payments. Mrs. Cadwaader and her
sster, therefore, advanced the money to themseves as e ecutrces and ssued a
note to each coverng the so-caed oan. They mmedatey took back the
money, together wth the note. In 1927 ths transacton was e amned by a
revenue agent, who recommended that the e ecutr s commsson be ncuded
n ncome for the year 1925. Mrs. Cadwaader protested ths suggeston on
the ground that she n fact had receved no ncome from the estate. The
Commssoner accepted her pea and the tem was emnated from ta abe
ncome and no ta pad. I beeve that ths acton was correct for she had
n effect smpy receved a note for her camed commsson and the whoe
matter was one of accommodaton n order that the Roehtmg estate mght
secure a deducton for ta purposes. When n fact the commsson of 142,-
707.88 was aowed by the court and pad n 1930, nstead of reportng ths sum
as ncome, Mrs. Cadwaader urged that she shoud have been ta ed on t n
1925. s 1980 was the year n whch she n fact receved the cash commsson
from the Roebng estate, that s the year n whch the Income was receved
and the ta upon ts recept due. The Commssoner shoud preva.
greeng therewth as we do, we hod the order of the Ta oard be reversed
and the record remanded for further procedure n accordance wth our so
hodng.
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
rtce 342: When charges deductbe.
R NU CT OP 1928.
Losses by vrtue of rea estate forecosure saas where State aw
provdes for redempton perod. (See G. C. M. 19367, page 115.)
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279 51, rt. 381.
P RT . R TURNS ND P YM NTS O T .
S CTION 51. INDI IDU L TU NS.
rtce 381: Indvdua returns. T-11-8971
Ct. D. 1267
ncome ta revenue act op 1928 decson of court.
Income Communty Property Profts from Lqudaton of
Stock Durng dmnstraton of usband s state Not
Ta abe to Wdow Loca Law.
Where certan stock acqured as communty property was qu-
dated after the dssouton of the communty by the death of the
husband, and the profts therefrom were pad to the e ecutors
and trustees apponted by hs ndependent w and were used wth
other assets to pay communty debts and e penses of admnstra-
ton, the wdow dd not receve such profts as ta abe ncome,
snce under the oca aw the communty property s regarded ns
beongng entrey to the estate of the husband n case there are
communty debts.
Unted States Crcut Court of ppeas for the fth Crcut.
enne obos arbour, pettoner, v. Commssoner of Interna Revenue,
respondent.
89 ed (2d), 474.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of Te as).
efore oster, Sbey, and utcheson, Crcut udges.
pr 6, 1937.
OPINION.
utcheson, Crcut udge: The Commssoner found and the oard affrmed,
that one-haf of the proft on qudaton of stock, property of the communty
of Mr. and Mrs. Cyde arbour, n fact pad to and receved by the ndepend-
ent e ecutors of Cyde arbour, deceased, n 1931, whe the estate was st
In admnstraton, was n aw receved by and ta abe to Mrs. arbour as
Income n that year.
y her petton for revew Mrs. arbour takes ssue wth ths fndng and
determnaton, as a compete gnorng of the controng facts, to gve effect
to a supposed, but mstaken, anaogy. She nssts that n aw, as n fact, not
she, but the ndependent e ecutors receved her share of the proft, as they
hed her nterest n the stock as statutory trustees, and that not havng
receved t she may not be ta ed on t
She ponts out that the Commssoner and the oard, n nsstng that profts
on qudaton of communty property, reazed after the dssouton of the
communty by death, and pad to her husband s ndependent e ecutors, are n
aw receved by the wfe e acty as such profts woud n aw have been
receved by her f they had been reazed n her husband s fetme and pad
over to hm, competey overooked the dfferences n fact and n aw between
the communty reaton of husband and wfe, and the reaton between the
survvng wfe and the ndependent e ecutors of the husband. She ponts out,
n short, that n ther attempt to e tend by anaogy, after the communty has
been dssoved, the prncpes governng ts actve e stence, the Commssoner
and the oard have cosed ther eyes to an obvous fact that the od reaton
of a partnershp between husband and wfe, the husband the managng, the
wfe the sent, partner, has termnated, and an entrey new reaton between
the wfe, as survvng partner, and the husband s successors as ndependent
e ecutors of hs estate, and statutory trustees of her communty nterest, has
now arsen. She ponts out that durng the e stence of the communty, the
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280
husband, n hs capacty as managng partner, receves communty profts as
he does other communty ncome, for hmsef and for her, as the ont ncome
of the two of them. The e ecutors, on the other hand, receve such profts,
as the ncome of ther statutory trust estate, dedcated to the purposes of the
trust, and sub|ect aone to ther dsposton and contro, to e ecute such
purposes.
The facts are stpuated. Cyde . arbour, a resdent of ouston, Te .,
ded une 24, 1931, eavng an ndependent w appontng enne obbs ar-
bour, esse Cons arbour, and the presdent of the rst Natona ank of
ouston ndependent e ecutors of hs estate, and trustees of the trusts created
In t. Mrs. arbour, hs wdow, fed her return for the year 1931, reportng
one-haf of the acknowedged communty ncome. She dd not report any part
of the proft from the qudaton, n 1931, of 1,000 shares of New Process
Carbon ack Co., Inc. Of ths stock, 999 o shares had been acqured as
communty property n 1926-1927, and was at the tme of the dssouton of
the communty, st owned as such. No partton of Mrs. arbour s one-haf
nterest n t was made durng the perod from une 25 to December 31, 1931,
and her nterest n ths stock, as n a of the communty estate, was admn-
stered wth the rest of arbour s assets, the e ecutors retanng possesson
and contro of the wfe s undvded one-haf of the communty property and
managng and operatng the entre estate as a unt On December 4, 1931,
seventeeu-twenteths share of stock was acqured, brngng the tota to 1,000
shares. In December, 1931, the company was qudated and for the 1,000 shares
of stock whch had cost 205,258.81 the e ecutors were pad 252,223.40. These
proceeds were used aong wth other assets of the estate, to pay communty
debts and e penses of admnstraton durng 1931 and subsequent years. None
of the proceeds derved from the qudaton of ths stock have ever been pad
drecty to Mrs. arbour.
The controng statutes and decsons are: Tte 26, secton 142(a), U. S.C. ,
ducary returns. 1 rtce 3630, Rev. Cv. Stats, of Te as, 1925. oUng-
corth v. Davs (62 Te ., 438), Carton v. oeber (94 Te ., 93), hodng that
the appontment of an ndependent e ecutor confers upon hm the power to
admnster the communty estate of the testator and hs deceased wfe, and
Love |oy v. Cockre (63 S. W. (2d), 1009). The ast cted case Is concerned
wth the Independent w of a husband, and ts effect upon the admnstraton
of communty property. In t the aw of Te as Is e amned, Its controng
statutes are cted, and It s upon fu deberaton hed (1) the communty
property of a husband and hs wfe Is chargeabe wth the debts of the hus-
band. (2) The communty property, for the purpose of payng hs debts, whch
are chargeabe to t, s as an entrety regarded n aw as beongng to hs
estate. (3) Whe the admnstraton of the estate of the deceased husband
Is pendng n the probate court, the entre communty property s sub|ect to
the e cusve |ursdcton of that court Sad the court:
Nether the survvng wfe as such, had authorty under the statutes, to
se communty property for the purpose of payng communty debts of her
husband, nor, n case she does not survve does that authorty appertan to
the admnstraton of her estate. uthorty n that respect appertans e cu-
svey to the pendng admnstraton of the deceased husband.
It was further concuded that an admnstraton by Independent e ecutors
stood n the same case, and that by an ndependent w a husband, who owes
communty debts, coud dvert from the probate court the admnstraton of
hs entre estate, ncudng a the communty property. The statute, for the
purposes of the statute, regards the communty property of the husband and
wfe n case there be communty debts, as beongng entrey to the estate of the
husband, and does not authorze the dsmemberment of the estate for admn-
straton purposes. It s setted aw that ncome receved by the admnstra-
1 very fducary Rna mnke under oath a return for any of the foowng
Indvduas, estates or trusts for whch he acts, (c) very fducary requred to make a
return under ths chapter sha be sub|ect to a the provsons of aw whch appy to
ndvduas.
rt. 3 30 (3550) (2180) (2131). Property hed by e ecutor. Unt such partton s
apped for and made, te e ecutor or admnstrator of the deceased sha recover pos-
sesson of a such common property and hod the same In trust for the beneft of the
credtors and others entted thereto.
Upon the grantng of etters of admnstraton on the estate of 8. P. ongsworth,
the wfe s contro over the communty property ceased, and the estate passed under the
ursdcton of the county court for admnstraton and settement. (Mote v. rackett,
28 Te ., 443 Tucker v. rackett, d., 337.)
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281
112, rt. 574.
tor of an estate, whe the admnstraton Is n progress, must e returned and
ta es pad on t as ncome of the estate, and not by the person utmatey
entted to t ( ude v. Commssoner, (59 ed. (2d), 739.)
If ths were the ease of an admnstraton n court of an ntestate, or wth
w anne ed, t woud seem, upon the authorty of that case and the Te as
uthortes governng such admnstraton, that t coud not be sad that Mrs.
arbour had receved ths proft as ncome so as to make t ta abe to her.
I ve |oy v. Coccre eaves n no doubt that an ndependent e ecutor stands n
the same case, and that ncome receved by hm whe admnsterng the prop-
erty as the e ecutor of the husband and the statutory trustee, s not receved
by or ta abe to the survvng member of the communty.
We are not concerned here wth the form of return whch the e ecutors
shoud have made, whether the proft shoud have been treated by them for
the purposes of ther admnstraton as ncome of the husband s estate, or as
party ncome to the e ecutorshp and party to the trusteeshp. It s suff-
cent for us to hod, as we do, that ether as e ecutors of the husband or as
statutory trustees for the beneft of the credtors and others entted to t,
the e ecutors, and not Mrs. arbour, receved the proft, and the e ecutors,
and not Mrs. arbour shoud have returned t. When and f Mrs. arbour
eceves ths proft from the e ecutors she shoud, of course, account for and
pay the ta es on t. Unt she does, she may not be requred to.
The udgment of the oard s reversed, and the cause s remanded for
further proceedngs not nconsstent herewth.
Reversed and remanded.
SU TITL C SUPPL M NT L PRO ISIONS.
SUITL M NT . R T S O T .
S CTION 103. MPTIONS ROM T
ON CORPOR TIONS.
rtce 527: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT O 1928.
Poce reef assocaton. (See G. C. M. 19028, page 125.)
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112. R COGNITION O G IN OR LOSS.
rtce 574: changes n connecton wth I-30-8835
corporate reorganzatons. Ct. D. 1245
INCOM T R NU CT O 1928 D CISION O COURT.
1. Reorganzaton change of Long-Term Promssory Notes
for Stock Securtes Nonrecognton of Loss.
Long-term promssory notes of a corporaton whch the hoders
thereof, who were credtors and stockhoders of the corporaton,
e changed for new stock n connecton wth a recaptazaton
whch was a reorganzaton wthn the meanng of secton 112()
of the Revenue ct of 1928, were securtes wthn the meanng
of secton 112(b)3 of the ct, and the stockhoders were not en-
tted to deduct as a oss the dfference between the unpad prn-
cpa of the notes and the stpuated vaue of the new stock as
of the date of the e change.
77904 38 10
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112, rt. 574.
282
2. Decson ffrmed.
Decson of the oard of Ta ppeas (33 . T. ., 147) affrmed.
3. Certorar Dened.
Petton for certorar dened pr 5, 1937.
Unted States Crcut Court of ppeas for the Seventh Crcut.
Dane . urnham, pettoner, v. Commssoner of Interna Revenue,
respondent.
S6 ed. (2d), 776.
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore Sparks, Crcut udge, and Lndey and kgge, Dstrct udges.
December 8, 1936.
opnon.
Sparks, Crcut udge: Ths s an appea from a decson of the oard of
Ta ppeas, nvovng deductbe osses under secton 112(b)3 of the evenue
ct of 1928. Certan credtors of a corporaton, whch was undergong re-
captazaton, were aso ts prncpa stockhoders and hed the company s
promssory note. They e changed these notes for new stock of the corporaton.
The oard hed that they were not entted to deduct as a oss the dfference
between the unpad prncpa of the notes and the stpuated vaue of the new
stock as of the date of the e change.
The pettonng ta payer and hs brother owned n equa parts a but two
shares of the capta stock of the Courts udng Corporaton. In addton
they and ther wves hed the notes of the corporaton n the prncpa amount
of 668,000, payabe 10 years after date. In 1929 t became necessary to re-
fnance the outstandng obgatons of the corporaton, consstng of a frst mort-
gage ndebtedness of 4,500,000, genera mortgage bonds of 425,000, |unor
mortgage bonds of 599,000, and the notes above mentoned. pan was de-
vsed for the recaptazaton of the corporaton whereby 177,000 shares of
new stock of no par vaue were to be ssued n pace of the 5,000 shares of
od stock of 100 par vaue. One hundred and ffty thousand of these shares
were to be cass common stock to be e changed for the 5,000 shares of
orgna stock at the rate of 30 for 1. Ta payer and hs brother made an
agreement that each woud assgn 16,579 of the 74,970 shares to be receved
by hm, to be used n the process of reorganzaton. Twenty thousand were
to be cass preferred, to be sod by an underwrter, and 7,000 shares of cass
common, to be e changed for the notes hed by ta payer, hs brother, and
ther wves. These notes, wth the nterest then accrued, amounted at that
tme to 700,000. It was stpuated that the cass common stock had a
market vaue of 66 a share. It s as to ths dfference between the amount
due on the notes e changed and the vaue of the stock accepted n e change
that pettoner cams a deducton for oss.
Secton 112(b)3 of the Revenue ct of 1928 under whch ths case arses,
provdes as foows: No gan or oss sha be recognzed f stock or securtes
n a corporaton a party to a reorganzaton are, n pursuance of the pan of
reorganzaton, e changed soey for stock or securtes n such corpora-
ton . Secton 112() defnes reorganzaton to ncude, among other
thngs, a recaptazaton.
It s cear from the facts that the transacton nvoved an e change of
promssory notes of the corporaton, gven pror to recaptazaton, for stock
of the corporaton upon recaptazaton. The queston Is whether those proms-
sory notes consttute securtes wthn the meanng of secton 112(b)3.
Pettoner rees upon two cases to support hs contenton that the notes were
not such securtes. In Pneas Ire Co. v. Commssoner (287 T . S., 462 Ct. D.
0, C. . II-1, 161 (1933) ) the court hed that a sae by one corporaton
to another of a ts assets for a money consderaton, to be pad party n cash,
and the baance In nstaments evdenced by short-term promssory notes, dd
not consttute an e change of property for cash and securtes by a party to
a reorganzaton. To the same effect was the case, Cortand Co. v. Commt -
soncr (00 . (2d), 937 Ct. D. 668, C. . II-1, 164 (1933) ), referred to wth
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283
112, rt. 574.
approva In the Pneas case. In both those cases, corporate ta payers sought
to secure the e empton from recognton of gan permtted by secton 203(b)3
of the ct of 1926 n the case of a corporaton a party to a reorganzaton whch
e changes property n pursuance of the pan of reorganzaton soey for stock
or securtes n another corporaton a party to the reorganzaton. The court
n both cases hed that the transactons there Invoved were saes rather than
reorganzatons, hence the ta payers were not entted to the e empton
camed. It s obvous that both courts based ther decsons not so much on
the ground that the short-term purchase money notes were not securtes as
that the transactons nvoved were not reorganzatons.
Secton 203(a) of the ct of 192G and secton 112(a) of the ct of 1928,
both provde that as a genera rue, upon the sae or e change of property, the
entre amount of the gan or oss sha be recognzed. Subsecton (b) of each
secton then provdes certan e ceptons n the case of e changes soey n
knd, where no gan or oss sha be recognzed. It s obvous that n the case
of an outrght sae, whether the purchase prce was to be pad n cash at the
tme of devery of the property, or n nstament payments, gan or oss was
to be determned and recognzed n computng the net ncome. The Supreme
Court n the Pneas case hed that there was there nvoved such an outrght
sae that the takng of the short-term notes of the vendee gave the vendor
no nterest n the affars of the vendee more defnte than that ncdent to
ownershp of ts short-term notes. It s true that the Court sad n ths con-
necton, These notes mere evdence of obgaton to pay the purchase prce
were not securtes wthn the ntendment of the ct and were propery re-
garded as the equvaent of cash. It woud requre cear anguage to ead us
to concude that Congress ntended to grant e empton to one who ses property
and for the purchase prce accepts we-secured, short-term notes (a payabe
wthn four months), when another who makes a ke sae and receves cash
certany woud be ta ed. In substance the pettoner sod for the
equvaent of cash the gan must be recognzed. 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 owner-
shp of ts short-term purchase-money notes.
We thnk t can not be sad that ths case hods that no promssory note can
be consdered a securty wthn the meanng of secton 203(b) or ts coun-
terpart, 112(b). We construe t to mean merey that under the facts there
presented, the notes nvoved were not to be consdered such securtes.
Pettoner argues that by usng the term securtes n drect connecton
wth the term stock, Congress ndcated that t was thereby referrng to
types of obgatons whch have dgnty and formaty at east smar to, f not
equa to, that of shares of stock. We thnk t can not be sad that ong-term,
promssory notes are not of suffcent dgnty and formaty to be caed secu-
rtes. In fact, t s stated n the opnon of the oard of Ta ppeas that
pettoners there conceded that the word, as generay used, mght be broad
enough to ncude such notes, snce, when so used, t means somethng gven to
make certan the fufment of an obgaton, the evdence of a debt or of
property. The transacton nvoved smpy the e change of one form of
securty, the promssory note, for another, the cass stock. The Court of
ppeas for the Second Crcut, n the Cortand case, supra, observed, In
defnng reorganzaton, secton 203 of the Revenue ct gves the wdest room
for a knds of changes n corporate structure but does not abandon the pr-
mary requste that there must be some contnuty of nterest on the part of
the transferor corporaton or ts stockhoders n order to secure e empton.
Reorganzaton presupposes contnuance of busness under modfed corporate
forms. The word securtes was used so as not to defeat the
e empton n cases where the nterest of the transferor was carred over to the
new corporaton n some form. ere, we unquestonaby have an nterest of
the pettoner n the corporaton pror to ts recaptazaton ns evdenced by
ts ong-term notes upon the recaptazaton we see that nterest e changed
for shares of stock. ut the same party hods the nterest, athough t s
carred over to the recaptazed corporaton n changed form.
We concude, therefore, that there was no error n the hodng of the oard
of Ta ppeas that pettoner was not entted to deduct as a oss the dffer-
ence between the unpad prncpa of the notes and the stpuated vaue of
the new stock as of the date of the e change, and the decson of the oard
of Ta ppeas s affrmed.
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112, rt. 574.
284
rtce 574: changes n connecton wth
corporate reorganzatons.
I-46-9033
Ct. D. 1278
INCOM T R NU CT O 1928 D CISION OP COURT G IN OR LOSS-
R ORG NIZ TION S L CCOUNTS R C I L S PROP RTI S.
Where a the assets of a corporaton, e cept accounts recevabe,
were transferred to a corporaton n e change for cash, notes, and
preferred stock, the assets transferred amountng to 67 per cent of
the tota assets usng cost as a bass and 68 per cent usng vaue
as a bass, the transacton s not a transfer of substantay a
of the propertes of the corporaton wthn the meanng of sec-
ton 112()( ) of the Revenue ct of 1928. ccounts recev-
abe are propertes and the transacton was a sae and not a
reorganzaton.
Unted States Crcut Court of ppeas for the Nnth Crcut.
Par Rock Packng Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
90 ed. (2d), 949.
Upon petton to revew a decson of the Unted States oard of Ta ppeas.
IIaney, Crcut udge: The petton presented, asks revew of a decson of
the oard of Ta ppeas, sustanng respondent s determnaton that there was
a defcency n the ncome ta pad by pettoner for the year 1930, n the
sum of 4,087.46.
The facts found by the onrd are not n dspute.
Pror to une 1, 1926, the pettoner, a corporaton, owned and operated a
fsh cannery at Par Pock, Wash., and subsequent to that date t eased ts
cannery to the Par Rock Co., a partnershp, whch thereafter operated t
but three of the members of the partnershp hed stock n the pettoner,
but these three owned 281/ per cent of the partnershp. but three stock-
hoders of the pettoner had nterests n the partnershp, but these three hed
68 per cent of the stock of the corporaton. Those persons who dd hod an
nterest n both the partnershp and the corporaton dd not n a nstances
hod n the same proporton.
On anuary 17, 1930, the pettoner, the partnershp, and certan ndvdua
stockhoders transferred certan assets owned by them respectvey to the New
ngand Psh Co., a Mane corporaton. The tota consderaton for the trans-
fer was 150,000. The ndvdua stockhoders receved 6,300 n cash for the
assets they transferred. The partnershp receved 6,390 n cash, 17,085 n
notes, and 25,633.50 par vaue of preferred stock of the New ngand sh Co.
and the pettoner receved 12,310 n cash, 32,915 n notes, and 49,366.50
n preferred stock. The notes and preferred stock were devered drecty to
the stockhoders of the pettoner, pursuant to agreement
of pettoner s assets were transferred, e cept ts accounts recevabe n
the amount of 45,294.52, whch amount was due from the partnershp. The
cost of the assets transferred was 00,536.06.
The pettoner Immedatey ceased to transact busness and the propertes
conveyed were thereafter operated as the Par Rock Cannery of the New
ngand sh Co. On uy 1, 1932, the pettoner was strcken from the fes of
the department of state of the State of Washngton for faure to pay annua
cense fees.
Respondent audted pettoner s return, and assessed a defcency, whch was
sustaned by the oard s decson. The petton to revew that decson was
then fed.
efore Wbur, Mathews, and aney, Crcut udges.
une 21, 1937.
OPINION.
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285
112, rt. 574.
Pettoner contends that the transacton reated was a reorganzaton wthn
the defnton of that term n secton 112()( ) of the Revenue ct of 1928
as foows:
The term reorganzaton means ( ) a merger or consodaton (ncudng
the acquston by one corporaton of substantay a of the prop-
ertes of another corporaton) .
The oard hed: We do not thnk that substantay a of the assets
were transferred. ppeee contends that there was no reorganzaton.
If there was a reorganzaton, then the e tent of recognton to be gven the
gan on the transacton n the return, s determned by the foowng provsons
of secton 112 of the ct:
(a) 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.
(b) (4) No gan or oss sha be recognzed f a corporaton a
party to a reorganzaton e changes property, n pursuance of the pan of
reorganzaton, soey for stock or securtes n another corporaton a party
to the reorganzaton.
(d) If an e change woud be wthn the provsons of subsecton (b) (4) of
ths secton If 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,
(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.
The frst queston Is: Dd pettoner convey substantay a of ts
propertes Substantay the same anguage was used n the Revenue cts
of 1921, 1924, and 1926. ere, pettoner transferred assets costng 60,536.06
recevng therefor 94,591.50. It retaned as assets, ony accounts recevabe n
the sum of 45,294.52. Usng cost as a bass, pettoner transferred appro -
matey 57 per cent of ts assets, and usng vaue receved as a bass, pettoner
transferred appro matey 68 per cent of ts assets.
Pettoner contends that substantay a ts propertes means substantay
a ts physca operatng propertes. We beeve no such mtaton can be
paced on the word propertes. The word must be taken n ts ordnary
sense, and as t s a comprehensve word, t Incudes accounts recevabe. If
Congress had Intended to restrct the meanng of the word, t woud have
done so.
Pettoner ponts out that n Western Industres Co. v. Ieverng ( pp. D. O.)
(82 . (2d), 461, 464) t was sad :
It s true pettoner retaned, of ts assets, 199,719.34 n money
and aso notes and accounts recevabe of a book vaue of 79,774.74 but the
ony property whch t retaned as dstngushed from money, was a ranch
whch t subsequenty sod for 5,000 .
Ths Indcates that accounts recevabe were consdered ns money, and
that money was not consdered as part of the propertes. There s no bass
for consderng accounts recevabe as money. They are propertes. In
so far as the case cted s contrary, we decne to foow t. s to whether
money shoud be consdered as propertes, the queston s not before us,
and we eave It open.
When the statute says substantay a, It means what t says. Consder-
ng t most favorabe to pettoner, 68 per cent s not substantay a Its
propertes. It kept about one-thrd of ts propertes.
We hod there s no reorganzaton here, because pettoner dd not transfer
substantay a Its propertes. It s therefore unnecessary to consder the
contentons, regardng the e tent of recognton of the gan.
ffrmed.
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112, rt, 577.
286
rtce 577: Defntons. I-49-9074
a. D. 1285
INCOM T R NU CT O 1928 D CISION O SUPR M COURT.
Gan- or Loss Recognton change of Stock for Stock and
Other Property Party to a Reorganzaton.
Pursuant to a contract entered Into between Corporaton and
the stockhoders of Y Corporaton, organzed a new corporaton
and became the owner of a ts common but none of ts preferred
stock the stockhoders of Y transferred ther shares to the new
corporaton n e change for pror preferred stock of , preferred
stock of the new corporaton, and for cash and thereafter Y Cor-
poraton was dssoved. Under such facts, Corporaton was not
a party to the reorganzaton wthn the meanng of secton 112
of the Revenue ct of 1928, and the recept of ts stock by the
sharehoders of Y n parta e change for ther stock was the
bass for the computaton of ta abe gan to them n the year n
whch the e change was made.
Supreme Court of the Unted States.
erman C. Groman, pettoner, v. Commssoner of Interna Revenue.
302 U. S., 82.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh
Crcut.
November 8, 1937.
OPINION.
Mr. ustce Roberts devered the opnon of the Court.
Ths case nvoves the meanng and scope of the phrase a party to a re-
organzaton as used n secton 112 of the Revenue ct of 1928.1
anuary 29, 1929, the pettoner, and a other sharehoders of Metas Refnng
Co., an Indana corporaton, herenafter desgnated Indana, entered nto a
contract wth the Gdden company, an Oho corporaton, rectng that the share-
hoders of Indana were desrous of mergng and consodatng the propertes
of ther company wth Gdden and wth a corporaton Gdden was to organze
under the aws of Oho, whch corporaton we sha ca Oho. The share-
hoders covenanted that they woud assgn ther shares to Oho, whch was
to have a specfed capta structure dvded nto preferred and common shares,
and Gdden covenanted that t woud ssue and dever, or cause to be ssued
and devered to the sharehoders a stated number of shares of ts own pror
preference stock at an agreed vauaton, a stated number of shares of the
preferred stock of Oho, aso at an agreed vauaton, and suffcent cash to
equa the apprased vaue of Indana s assets as of March 1, 1929, and that,
after the e change of stock, Gdden woud cause Indana to transfer ts assets
to Oho.
Gdden organzed Oho and became the owner of a ts common stock bat
none of ts preferred stock. Pursuant to the contract the sharehoders of
Indana transferred ther stock to Oho and receved therefor a tota consdera-
ton of 1,207,010 consstng of Gdden pror preference stock vaued at 533,980,
-harcs of the preferred stock of Oho vaued at 500,000, and 153,030 n cash.
Indana then transferred ts assets to Oho and was dssoved.
s a resut of the reorganzaton pettoner receved shares of Gdden stock,
shares of Oho stock, and 17,293 n cash. In hs return for 1929 he ncuded
the 17,293 as ncome receved but gnored the shares of Gdden and of Oho
as stock receved n e change n a reorganzaton. The respondent rued that
Gdden was not a party to a reorganzaton wthn the meanng of the Revenue
ct, treated the transacton as a ta abe e change to the e tent of the cash
and shares of Gdden, and determned a defcency of 7,420. Upon recept
of notce to ths effect the pettoner appeaed to the oard of Ta ppeas
whch reversed the Commssoner, hodng that Gdden was a party to a
reorganzaton. The crcut court of appeas reversed the oard.
1 Ch. 852. 45 Stat., 791, 81C.
80 . (2d), C70.
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287
112, rt. 577.
We granted the wrt of certorar because of an aeged confct of decson.
Secton 112(b)3 of the Revenue ct of 1928 decares that No gan or oss
sha be recognzed f stock or securtes n a corporaton a party to a reorganza-
ton are, n pursuance of the pan of reorganzaton, e changed soey for stock
or securtes n such corporaton or n another corporaton a party to the
reorganzaton. If the transacton nvoves the recept of such stock or secur-
tes and aso of other property or money then the gan, f any, Is to be recog-
nzed n an amount not n e cess of the sum of such money and the far market
vaue of such other property. Secton 112(c).
Secton 1120)1 decares: The term reorganzaton means ( ) a merger
or consodaton (ncudng 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 corpora-
ton to whch the assets are transferred, or (C) a recaptazaton, or (D) a
mere change n dentty, form, or pace of organzaton, however effected.
Subsecton (2) s: The term a party to a reorganzaton ncudes a corpora-
ton resutng from a reorganzaton and Incudes both corporatons n the case
of an 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.
It s agreed that under the pan terms of the statute the cash receved by
the pettoner was ncome, and that as the stock of Oho was obtaned n part
payment for that of Indana, the e change, to that e tent, dd not gve rse to
ncome to be ncuded n the computaton of pettoner s ta .
The queston s whether that porton of the consderaton consstng of
pror preference shares of Gdden shoud be recognzed n determnng petton-
er s ta abe gan. The decson of ths queston depends upon whether Gdden s
stock was that of a party to the reorganzaton for, f so, the statute decares
gan or oss due to ts recept sha not be ncuded n the ta payer s computaton
of ncome for the year n whch the e change was made.
If secton 112()2 s a defnton cf a party to a reorganzaton and e cudes
corporatons not theren descrbed, Gdden was not a party snce Its reaton
to the transacton s not wthn the terms of the defnton. It was not a cor-
poraton resutng from the reorganzaton and t dd not acqure a ma|orty
of the shares of votng stock and a ma|orty of the shares of a other casses
of stock of any other corporaton n the reorganzaton. The crcut court of
appeas thought the secton was ntended as a defnton of the term party ns
nsed n the ct and e cuded a corporatons not specfcay descrbed. It
therefore hed Gdden coud not be consdered a party to the reorganzaton.
The pettoner contends, we thnk correcty, that the secton s not a defnton
but rather s ntended to enarge the connotaton of the term a party to a
reorganzaton to embrace corporatons whose reaton to the transacton woud
not n common usage be so denomnated or as to whose status doubt mght
otherwse arse. Ths concuson s fortfed by the fact that when an e cusve
defnton s ntended the word means s empoyed, as In the secton we have
quoted defnng reorganzaton and n secton 112(|), defnng the term con-
tro, whereas here the word used s Incudes. If more were needed secton
701(b) decares: The terms ncudes and ncudng when used n a defn-
ton contaned n ths ct sha not be deemed to e cude other thngs other-
wse wthn the meanng of the term defned.
The Treasury, n ts reguatons, has construed the secton as not embodyng
an e cusve defnton.4 The admnstratve constructon of an dentca secton
n the Revenue cts of 1924 and 1926 has been the samo.
See aoe v. Commnsoner (83 . (2d), 221): Commssoner v. th venue ank
(84 . (2d), 7S7) : Commssoner v. ash ord (S7 . (2). 827).
4 Treasury ernatons 74, promugated under the Revenue ct of 1028, artce 577:
The term a party to a reorganzaton Incudes a corporaton resutng
from a reorganzaton and Incudes both corporatons In the case of an acquston by one
corporaton of at east a ma|orty of the votng stock and at east a ma|ortv of the
tota number of shares of a other casses of stock of another corporaton. Ths defn-
ton s not an a-ncusve one, but smpy enumerates certan cases wth respect to
whch doubt mght arse.
8 Reguatons 65, artce 1577. appcabe to secton 203(h)2 of the Revenue ct of
1024 Reguatons 09, artce 1577, appcabe to secton 203(h)2 of the Revenue ct
of 1926.
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112, rt. 577.
288
If the sharehoders of , and those of , shoud agree to convey ther stock
to a new corporaton C, n e change for C s stock, a reorganzaton, as defned
n secton 112() woud be effected. ut t mght we be contended, were t
not for secton 112(1)2, that the sharehoders of the od corporatons had not
receved stock n a nonta abe e change, as specfed n secton 112(b)3, snce
the new corporaton C was not a party to the e change. In the present nstance,
Indana had no part In the transacton. The sharehoders agreed to transfer
ther stock to Oho n e change for securtes. Indana, as such, was not a party
to any agreement and took no corporate acton. If the pan had contempated
the contnued e stence of Indana, and part payment of ts sharehoders n
bonds or preferred stock of that company, and part n shares of Oho, whe
ths woud ceary have consttuted a reorganzaton as defned by the ct,
t mght, wth reason, be urged that, as respects the bonds or preferred stock
of Indana, the e change was ta abe snce Indana was not a party to the
reorganzaton. Secton 112() 2 precudes the contenton.
Pany, however, there may be corporate partes to reorganzatons, wthn
the meanng of the statute, other than those enumerated n secton 112()2.
Thus f corporatons and transfer a ther assets to C, a new corporaton, n
e change for a C s stock, the stock receved s not a bass for cacuaton of
gan on the e change.7 and are so evdenty partes to the reorganzaton
that we do not need secton 112()2 to nform us of the fact
gan, f company transfers a ts assets to company , a gong concern,
upon the agreement of to ssue to s sharehoders ts stock n such amount
that they w own SO per cent of every cass of s outstandng stock, the con-
summaton of the agreement w be a reorganzaton under the ct Unques-
tonaby the gan ensung upon the e change of stock by s sharehoders w
not be ta abe snce the stock receved by them s that of , a party to the
reorganzaton, though s not descrbed as such n secton 112()2. We most,
therefore, rrespectve of Gdden s faure to quafy as a party under that
secton, determne whether ts reaton to the reorganzaton s that of a party
wthn the ordnary connotaton of the term.
Gdden was a party to an agreement wth the sharehoders of Indana and
the agreement envsaged a reorganzaton as defned by secton 112()( ) for t
contempated that Oho shoud acqure a of the stock of Indana. The agree-
ment was fufed. ut the cruca queston s whether Gdden was a party
to the reorganzaton thus effected. Gdden receved nothng from the share-
hoders of Indana. The e change was between Indana s sharehoders and
Oho. Do the facts that Gdden contracted for the e change and made t pos-
sbe by subscrbng and payng for Oho s common stock n cash, so that Oho
coud consummate the e change, render Gdden a party to the reorganzaton
No more so than f a bankng corporaton had made the agreement wth Ind-
ana s sharehoders and bad organzed the new corporaton, and, by subscrpton
to ts stock and payment therefor n money and the bankng company s stock
put the new company n poston to compete the e change. Not every corporate
broker, promoter, or agent whch enters nto a wrtten agreement effectuatng
a reorganzaton, as defned n the Revenue ct, thereby becomes a party to the
reorganzaton. nd, f t s not a party, ts stock receved n e change,
pursuant to the pan, s other property mentoned n secton 112(c) and
must be reckoned n computng gan or oss to the recpent. Gdden was, n
the transacton n queston, no more than the effcent agent n brngng about a
reorganzaton. It was not, n the natura meanng of the term, a party to the
reorganzaton.
It s argued, however, that Oho was the ater ego of Gdden that n truth
Gdden was the prncpa and Oho ts agent that we shoud ook at the rea-
tes of the stuaton, dsregard the corporate entty of Oho, and treat t as
Gdden. ut to do so woud be to gnore the purpose of the reorganzaton
sectons of the statute, whch, as we have sad, s that where, pursuant to a
pan, the nterest of the stockhoders of a corporaton contnues to be defntey
represented n substanta measure n a new or dfferent one, then to the e tent,
but ony to the e tent, of that contnuty of nterest, the e change s to be
Compare Ifrvr.rno v. Watts (290 T . S., 3871.
Compare evetng v. Mnnesota Tea Co. (290 U. S., 378 Ct. D. 1000, C. . -1.
189 (1930)1: O. 6 . Manufacturng Co. v. everng (290 D. S., 389 Ct. I). 1059,
C. . -1, 188 (1930) .)
Secton 112, subsectons ()( ) am (|).
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289
114, rt. 611.
treated as one not gvng rse to present gan or oss. If cash or other
property that Is, property other than stock or securtes of the reorganzed
corporatons Is receved, present gan or oss must be recognzed. Was not
Gdden s pror preference stock other property n the sense that ts owner-
shp represented a partcpaton n assets n whch Oho, and ts sharehoders
through t, had no propretorshp Was t not other property n the sense
that qua that stock the sharehoders of Indana assumed a reaton toward
the conveyed assets not measured by a contnued substanta nterest n those
assets n the ownershp of Oho, but an nterest n the assets of Gdden a part
of whch was the common stock of Oho These questons we thnk must be
answered n the affrmatve. To re|ect the pan meanng of the term party,
and to attrbute that reaton to Gdden, woud be not ony to dsregard the
etter but aso to voate the sprt of the Revenue ct.
We hod that Gdden was not a party to the reorganzaton and the recept of
ts stock by Indana s sharehoders In e change, n part, for ther stock was the
bass for computaton of ta abe gan to them n the year 1929.
The |udgment s affrmed.
Mr. ustce ack took no part n the consderaton or decson of ths case.
ncome ta revenue act of 1928 decson of court.
1. Gross Income- Deducton Depeton Msappropraton of Pro-
ceeds from O and Gas Saes ed n scrow.
Where a substanta porton of the proceeds from the sae of o
and gas produced from ta payers property had been hed n es-
crow pendng the outcome of certan tgaton, and was not re-
coverabe upon termnaton thereof because of the msappropra-
ton and dsspaton of the proceeds and the nsovency of the
escrow agent, such porton was never actuay or constructvey
receved by the ta payers, and can not be ncuded n gross n-
come derved by them from the property for the purpose of com-
putng aowance for depeton under the provsons of secton
114(b)3 of the Revenue ct of 192S.
2. Decsons greed wth n Prncpe but Reversed as to Com-
putaton of Deducton.
Decsons of the oard of Ta ppeas (33 . T. ., 36, 441)
agreed wth n prncpe but reversed as to computaton of aow-
abe deducton.
Pneas Ice Co. v. Commssoner (287 U. S 402, 470 (Ct. D. 630, C. . II-1, 161
(1933)1 : Neson Co. v. everna (296 U. S., 374, 377) everng v. Mnnesota Tea Co.
(296 U. S., 378, 385) . d . Manufacturng Co. v. everng (296 U. S 389, 391).
S CTION 114. SIS OR D PR CI TION
ND D PL TION.
rtce 611: ass for aowance of depreca-
ton and depeton.
I-39-8945
Ct. D. 1263
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290
Unted States Crcut Court of ppeas for thb Tenth Cacurr.
Raph W. Crews, pettoner, v. Commssoner of Interna Revenue, respondent.
Rooert . Crews, pettoner, v. Commssoner of Interna Revenue, respondent.
Mrs. my Tresner, pettoner, v. Commssoner of Interna Revenue, respondent,
rs. Mary Ws, pettoner, v. Commssoner of Interna Revenue, respondent.
Chares Crews, pettoner, v. Commssoner of Interna Revenue, respondent.
verett . Crecs, pettoner, v. Commssoner of Interna Revenue, respondent.
89 ed. (2d), 412.
Pettons to revew the decsons of the Unted States oard of Ta ppeas.
efore Lews, Phps, and ratton, Crcut udges.
March 29, 1937.
OPINION.
Phps, Crcut udge, devered the opnon of the court.
These are pettons to revew decsons of the oard of Ta ppeas nvov-
ng ncome ta es for the year 1930. The severa pettons present Identca
questons.
The undsputed facts are these:
The s pettoners are chdren and hers at aw of Thomas Crews and hs
wfe, Luu Crews, who ded n 1909 and 1910, respectvey. Pettoners were
mnors at the tme of the death of ther parents and each acqured by nhert-
ance an undvded one-s th nterest n 240 acres of and stuated In Garfed
County, Oka., n what s now known as the Garber o fed. Laura Crews,
ther aunt, was apponted guardan for such hers n 1912, the guardanshp to
contnue as to each her durng mnorty.
On ebruary 21, 1916, the guardan e ecuted an o and gas ease coverng
the and to . . Garber, reservng a one-eghth royaty. y successve assgn-
ments such ease passed n turn to Chanute Refnng Co., Garfed O Co.,
change O Co., and fnay on anuary 9, 1922, to the Sncar O Gas Co.
On September 10, 1921, a sut was commenced n the dstrct court of Gar-
fed County by the guardan and the two hers who had reached ther ma-
|orty aganst the change O Co., the then owner of the ease, for cancea-
ton thereof on the ground that the change O Co., whch was aso operat-
ng on a the contguous acreage, had voated the Imped covenant to dr
offset wes wth the resut that the pettoners were beng In|ured through
dranage. On uy 26, 1923, the court found that the aw of Okahoma reatve
to the e ecuton of eases by guardans wth respect to property of ther
wards had not been comped wth and ad|udged the ease vod n ts entrety.
The Sncar company, whch had acqured an assgnment of the ease, appeaed
the case to the Supreme Court of Okahoma wth the resut that t was re-
manded wth nstructons that the ease be ad|udged vod as to three of the
hers who were st mnors, and vad as to the three hers who had reached
ther ma|orty and had accepted royates under the ease. On ebruary 14,
1929, and subsequent to the recept of the mandate from the supreme court
n the above cause, the dstrct court rendered a second |udgment, hodng
that the Sncar company shoud pay to the guardan of the mnors the sum
of 559,094.34 pus costs and Interest from uy 26, 1924. On October 18,
1930, whe an appea from ths |udgment was pendng, the compromse sette-
ment herenafter referred to was effected.
Pendng the outcome of the tgaton above referred to, the pettoners
entered upon the undeveoped porton of the ease and began operatons under
the name, Crows state O and Gas Producers. The Sncar company oper-
atng the deveoped porton served notce on the purchasers of the o and gas
produced by the pettoners that t camed the ncome from such producton.
In order to provde an outet for ther producton, the pettoners entered nto
nn escrow agreement wth the Garber efnng Co. whereby t was agreed that
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114, rt. 611.
the Refnng company woud pay to pettoners one-eghth of the purchase prce
of tre o devered to t and depost the remanng seven-eghths of the pur-
chase prce In escrow In the armers State ank of Garber, Oka., as escrow
agent that the bank shoud pay over to the pettoners from the seven-eghths
part such sums as were necessary for them to use n further deveopng the
and that the pettoners shoud gve the bank a bond to ndemnfy t aganst
any and a cams of the Sncar company to such seven-eghths part of the
purchase prce that the bank shoud nvest the unused porton of the seven-
eghths part of the purchase prce n bonds and obgatons of the Unted
States that the bank shoud pay over to the pettoners the seven-eghths of
the purchase prce of the o upon the rendton of a fua |udgment that the
ease was nvad or that the pettoners were the owners of the o devered
to the Refnng company, or upon the agreement of the partes that same
shoud be pad to pettoners.
The bank accepted and agreed to the escrow agreement
On October 18, 1930, a fna settement of a tgatons was effected by a
compromse agreement under the terms of whch pettoners were to and dd
receve 355,000 from Sncar company and became entted to receve the escrow
funds whch had been deposted n the bank. Whe the record s not cear,
we thnk t reasonabe to assume that Sncar company retaned the easehod.
Immedatey after the compromse agreement was e ecuted, the pettoners
made a demand upon the bank for devery to them of the bonds, moneys and
other property n the escrow account. The offcers of the bank then, for the frst
tme, notfed pettoners that the funds n the escrow account had been ds-
spated and the bonds msapproprated. It aso deveoped that the bank was n-
sovent. Immedatey thereafter, . . Garber, presdent of the bank, and
certan of hs assocates entered nto an Indemnty contract whereby property
represented to be worth 900,000 was transferred to certan trustees to ndemnfy
and secure the escrow account. The trustees e pended 39,000 n admnsterng
the trust and were ony abe to coect 1,000. It s admtted that such con-
tract was vaueess from ts e ecuton. In consderaton for the ndemnty con-
tract pettoners reeased the bank from a abty for the converson of the
escrow depost.
Durng the tme the escrow agreement was n effect, the producton from the
property amounted to 1,402,504.02. Out of such amount, the bank had ad-
vanced 849,544.37 to the pettoners whch had been e pended n operatng
the property and had nvested 514,000 n Government bonds. Pettoners had
receved nterest on these bonds n the amount of 47,871.79. t the tme of
the compromse settement, the escrow account showed a baance of 708,449.63.
In addton to the e pendture of 849,544.37 made by pettoners n operat-
ng the property, they pad 158,000 to attorneys for servces rendered n the
tgaton, 10,000 to a trustee, and 5,000 to an attorney under the ndemnty
contract.
No accountng of the proceeds of the operatons was made by the pettoners
n any ncome ta return pror to 1930. In fact, representatves of the Com-
mssoner of Interna Revenue Investgated the queston of ncome ta abty
whe the tgaton was pendng and agreed that a fu accountng shoud be
made upon the termnaton of the escrow agreement.
ach pettoner fed a return for 1930 made on the cash recepts and ds-
bursements bass. The Commssoner redetermned the ta abty of each
pettoner and proposed addtona assessments aganst each one. Pettons
for redetermnaton of such ta abty were fed wth the oard of Ta
ppeas and t made fndngs and promugated an opnon n the ease of
verett . Crews on September IS. 1035. (See 33 . T. ., 36.) On November
12, 1935, the oard promugated ts opnons n the fve other cases and
adopted the fndngs n the verett . Crews case, supra (33 . T. ., 441).
The oard hed that the pettoners dd not have the rght to receve the
proceeds In escrow pror to October, 1030, and that snce the 514,000 n bonds
were msapproprated pror to such date, pettoners nether receved such
amount as ncome nor sustaned a oss of such amount. It emnated such
bonds In computng depeton, basng ts acton on North mercan O Con-
sodated v. urnet (2S0 U. S., 417 Ct. D. 499, C. . I-1, 293 (1032) ).
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114, rt. 611.
292
The computaton of the oard s as foows:
Tota proceeds from o and gas 1,462,504. 02
Less stoen bonds 514,000.00
048,504.02
dd Sncar Co. compromse 355,000.00
1, 303,504.02
Deductons:
Producton e pense 849,544.37
ttorneys fees 173,000.00
1, 022, 544. 37
Net ncome from property before depeton 280,959. 65
Depeton aowance of 27 per cent of gross s 358,463.61 whch
s more than 50 per cent of net ncome.
50 per cent aowance Is 140,479.83.
Other ncome 47,871. 79
328, 831.44
S hers. ach her s net ncome before depeton s 54,805.24
ach her s depeton aowance s one-s th of 140,479.83 or 23,413.31
In North mercan O Consodated v. urnet, supra, at page 423, the court
sad:
There was no constructve recept of the profts by the company n that
year, because at no tme durng the year was there a rght n the company to
demand that the recever pay over the money. Throughout 1916 t was un-
certan who woud be decared entted to the profts. It was not unt 1917,
when the dstrct court entered a fna decree vacatng the recevershp and
dsmssng the b, that the company became entted to receve the money.
The pettoners were not entted to receve the seven-eghths porton of the
purchase prce of the o unt the compromse agreement was entered nto wth
the Sncar company n 1930.
Pror to the makng of ths agreement, 708,449.63 was dsspated by the bank
or ts offcers. That porton of the purchase prce was n fact never receved
actuay or constructvey by pettoners and never was gross ncome derved
by them from the and.
849,544.37 was condtonay advanced to them for deveopment and operat-
ng e penses under an ndemnty bond whch requred pettoners to ndemnfy
the bank aganst the cam of Sncar company thereto. The condton was
removed by the compromse agreement made n 1930 so that amount became
ncome to pettoners n 1930.
Was the 708,449.03 gross ncome from the property for the purpose of com-
putng the depeton aowance
Secton 114(b)3 of the Revenue ct of 1928 (45 St., 791) n part reads:
In the case of o and gas wes the aowance for depeton sha be 27 /a
per centum of the gross ncome from the property durng the ta abe year.
Such aowance sha not e ceed 50 per centum of the net Income of the ta -
payer (computed wthout aowance for depeton) from the property, e cept
that n no case sha the depeton aowance be ess than t woud be If com-
puted wthout reference to ths paragraph.
The above secton does not grant a depeton aowance. It merey pre-
scrbes a new method or formua for computng depeton, found frst n the
Revenue ct of 1926. The grant of or authorty for deductng depcton re-
mans where t has aways been snce the ct of 1918, namey, n secton
214(a)9 of Part II, Indvduas, and secton 234(a)8 of Part III, Corporaton .
These sectons provde that the aowance sha be apportoned between essor
and essee. ( cverng v. Twn e Syndcate, 293 U. S., 312, 318 Ct. D. 905,
C. . I -1, 253 (1935) .)
It s true that the frst sentence of secton 114(b)3 uses the phrase gross
ncome from the property but we thnk the phrase to the ta payer s
necessary mped.
Secton 22(a) of the Revenue ct of 1928 (45 Stat, 791, 797) defnes gross
ncome as foows:
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293
114, rt. 611.
Genera defnton. Gross ncome Incudes gans, profts and ncome de-
rved from saares, wages, or compensaton for persona servce, of whatever
knd and n whatever form pad, or from professons, vocatons, trades, bus-
nesses, commerce, or saes, or deangs n property, whether rea or persona,
growng out of the ownershp or use of or nterest n such property aso from
nterest, rent, dvdends, securtes, or the transacton of any busness carred on
for gan or proft, or gans or profts and ncome derved from any source what-
ever. Itacs ours.
Secton 42 of the Revenue ct of 1928 (45 Stat., 701, 805) n part reads:
The amount of a tems of gross ncome sha be ncuded n the gross
ncome for the ta abe year n whch receved by the ta payer .
Income from property s a gan, a proft, somethng of e changeabe vaue
derved from the property, that s receved or drawn by the recpent (the
ta payer) for hs separate use, beneft and dsposa. ( sner v. Sacombcr, 252
. S., 189, 207 T. D. 3010, C. . 3, 25 (1020) Merchants L. T. Co. v.
Smetanka, 255 U. S., 509, 520 Ct. D. 6, C. . 4, 34 (1921) Commssoner v.
Independent Lfe Ins. Co. (C. C. . 6), 07 . (2d), 470, 472, reversed on other
grounds, 292 U. S., 371 Ct. D. 839, C. . III-1, 302 (1032) ordyce v.
everng (C. C. . 8), 78 . (2d), 525, 528 LCt. D. 1028, C. . I -2, 169
(1935) Centra R. Co. v. Commssoner (C. C. . 3), 79 . (2d), 697, 609.)
The word derve means to receve, as from a source or orgn. (Web-
ster s New Internatona Dctonary (2d d.).)
ence gan or proft from property, though t comes nto e stence, does
not become gross ncome unt t s derved, that s receved by the ta payer.
Ths s a common sense constructon of the secton. To aow a deducton
on the bass of ncome never receved and therefore no part of the gross ncome,
on the net part of whch a ta s e acted woud be manfesty unfar. Whe
o e tracted and sod to the Refnng company depeted the aud, the de-
peton aowance s not granted to create a depeton reserve but to aow a
deducton from gross ncome for ta purposes and there shoud not be ncuded
n such gross ncome proceeds of o never receved by the ta payer and no
part of whch became sub|ect to ncome ta aton.
The aowance s based on gross ncome from producton (Darby-Lynde Co. v.
e ander (C. C. . 10), 51 . (2d), 56 Ct. D. 305, C. . -2, 224 (1931) ), but
the deducton whch may be taken s dependent upon the ta payer s share of
the gross ncome from the property. (See everng v. Twn e Syndcate,
293 U. S., 312 Pamer v. ender, 287 U. S., 551 Ct. D. 641, C. . II-1, 235
(1933) .)
In everng v. Tcn e Syndcate, supra, the Court sad:
t a events, as the secton must be read n the ght of the requrement
of apportonment of a snge depeton aowance, we are unabe to say that
the Commssoner erred n hodng that for the purpose of computaton gross
ncome from the property meant gross ncome from producton ess the
amounts whch the ta payer was obged to pay as royates. The apporton-
ment gves respondent 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 of each of the partes entted to partcpate n the
depeton aowance.
ere the pettoners receved n 1030 a one-eghth royaty on the producton
durng that year, 355,000 n cash n the nature of a bonus or advanced royaty
(See Murphy O Co. v. urnet, 2S7 U. S., 290 Ct. D. 610, C. . II-1, 231
(1933) ), 840,544.37 dscharged of the obgaton to ndemnfy the bank, and
an agreement to receve the funds n escrow whch agreement was worthess.
The amount of the one-eghth royaty pus the sums of 840,544.37 and 355,000
consttuted ther gross ncome from the property n 1030.
The depeton aowance shoud be 27 per cent of 1,204,544.37 pus the
amount of the one-eghth royaty receved n 1030 or 50 per cent of the net
ncome of the pettoners from the property, whchever amount s the esser.
Reversed and remanded to the oard for further proceedngs n accordance
wth ths opnon.
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116 rt. 642.
294
S CTION 11G. CLUSIONS ROM GROSS INCOM .
rtce 642: Income of States. I-51-9101
Ct. D. 1288
INCOM T R NU CT O 1928 D CISION O COURT.
1. Geoss Income cuson Income of Prvate Corporaton ur-
nshng Water to Cty Consttutonaty of Ta Govkkn-
menta agency.
Where a prvnte corporaton furnshed water to a cty under an
ordnance whereby the cty owned one-thrd of the votng stock, was
represented on the board of drectors, and had the rght to purchase,
and to compe retrement of preferred stock from surpus earnngs,
wth mtatons upon dvdends and fnanca e pendtures, and the
corporaton operated under an e cusve franchse, f ng rates to
prvate consumers and furnshng water for pubc purposes n re-
turn for the proceeds from a defned water ta , Congress has the
consttutona power to ta the ncome of the corporaton. It was
not a governmenta agency, snce the cty dd not become the owner
of the surpus earnngs but merey had a mted power of drecton
as to ther use.
2. Income Prvate Corporaton urnshng Water to Cty -
empton Cam for Refund ry Cty.
The ncome of a prvate corporaton furnshng water to a cty
s not e empt from ta aton because of the fact that part of ts
stock was owned by the cty. The entre ta s coectbe, under
the provsons of secton 116(d) of the Revenue ct of 192S, sub|ect
to subsequent cam by the cty for a refund.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (152 . T. ., 750) affrmed.
4. Certorar Dened.
Petton for certorar dened October 11, 1937.
Unted States Crcut Court of ppeas for the ghth Crcut.
Ct cns Water Co., pettoner, v. Commssoner of Interna Revenue, respondent.
87 ed. (2d), 874.
On petton to revew decson of Unted States oard of Ta ppeas.
efore Stone, Woodrough, and Thomas, Crcut udges.
ebruary 4, 1937.
OPINION.
Stone, Crcut udge, devered the opnon of the court
Ths s a petton to revew redetermnatons by the oard of Ta ppeas
of the corporaton ncome ta es of pettoner for the years 1930 and 1931.
Pettoner s a corporaton organzed under the statutes of Iowa and engaged
n the busness of furnshng water to the cty of urngton, Iowa. Its net
ncome for 1930 was 43,804.80 and for 1931 was 32,349.55. Pettoner camed
these ncomes were entrey e empt under the provsons of secton 116(d) of the
Revenue ct of 1928 ( 45 Stat., 791, 823). The oard sustaned the determna-
ton of the Commssoner that the entre ncomes were ta abe. The
broad ssue presented here s whether these ncomes nre entrey e empt.
Pettoner contends to ta such ncomes woud be opposed to the Consttuton
and to the above secton of the statute because such net ncomes accrued to
and are the property of the cty. It bases ths cam that such ncomes beong
to the cty upon the reaton and stuaton created by a contract between pet-
toner and the cty, the contract havng the form of a cty ordnance accepted
by pettoner.
Under the ordnance (approved October 10. 1902), pettoner was to be cap-
tazed for .330,000 of whch 150,000 was to be C per cent cumuatve common
stock and 180,000 to be 5 per cent cumuatve preferred stock. The preferred
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295
116, rt. 642.
and 100,000 of the common stock were to be subscrbed at par the remanng
950,000 common stock to beong to the cty. The preferred stock was sub|ect
to retrement out of surpus earnngs n the water fund, as the cty may drect,
GO days notce n wrtng to be gven by the cty to the company. The company
was to have a board of fve drectors of whom two were to be seected by the cty.
To provde for e tensons and mprovements agreed to by the cty, the company
was entted to ssue frst mortgage 4 per cent bonds to the amount of 220,000.
These bonds to be ndorsed by the mayor and authentcated by the sea of sad
cty wth a statement of the present assessed vaue of property sub|ect to
the water ta together wth a stpuaton that from sad water ta , the cty
w pay the semannua nterest upon sad bonds, before any money sha be
taken therefrom, for any other purpose.
The company was to f water rates to prvate consumers not to e ceed a
stated standard. The company was to furnsh water to the cty for fre, cty
budngs and sewer fushng n return for a 5-m water ta to be annuay
coected on rea estate wthn a water dstrct comprsng the portons of
the cty benefted or protected by the water system ths ta not to be dmnshed
unt a surpus shoud be accumuated by pettoner.
Ths ta wth the earnngs of the company consttute a water fund from
whch payments were to be made n the order for the purposes foowng: rst,
nterest on outstandng bondssecond, current e penses, repars and a ta es
that may be eved upon sad waterworks or upon the stock hed by the stock-
hoders n sad company thrd, dvdends on preferred stock fourth, dvdends
on common stock such dvdend payments to ncude current and accumuated
dvdends. fter settng asde 1,000 for contngences, any surpus after the
above payments may be used n makng e tensons and Improvements ,
or n retrng 5 per cent (preferred) stock, or n creatng a snkng fund, ether,
as the cty may determne and drect.
s to e pendtures by the company, t was provded that ony certan desg-
nated offcas shoud receve saares that semannua temzed reports of
recepts and e pendtures shoud be made to the cty that the company books
shoud be open to nspecton by the cty that no e pendtures e ceedng 1,000
for any purpose whatever e ceptng current e penses or n case of emergency
sha be made aganst the ob|ectons of the two drectors chosen by the cty,
uness the proposed e pendture s frst submtted to and mproved (approved )
by arbtrators that a new work, mprovements or betterments must be
approved by the cty.
fter fve years and upon one year notce, the cty mght take over the prop-
erty upon then assumng a the dutes and abtes devovng upon sad
company, and repayng to ts stockhoders, par for a the then outstandng
capta stock, wth a accrued and unpad dvdends, and wth nterest at the
specfed dvdend rate, on the par vaue of sad stock, from the date when the
ast dvdend accrued, down to the tme when such payment s made.
so t was provded:
It s ntended by ths ordnance, that sad company sha make an annua
net dvdend at the rates herenbefore specfed, upon a cash actuay pad n
upon Its stock, and no more. ut t must rey for the means of makng such
dvdends, entrey upon the water fund aforesad. Nothng for ths purpose
or for defrayng any of the other e penses connected wth sad works sha ever
be payabe out of the proceeds of the genera revenues of sad cty. ut the
speca ta herenbefore provded for, sha never be so far dmnshed as to
prevent the annua dvdends by sad company, upon the cash payments on ts
stock, as herenbefore provded.
Pettoner was organzed under chapter 1, Tte I of the State statutes (now
chapter 384 of the Iowa Code of 1931) entted Of Corporatons for Pecunary
Proft. The artces of ncorporaton were e ecuted shorty before and were
fed shorty after the ordnance was passed and accepted. They contaned
provsons as to capta stock, dvdends, retrement of preferred stock, and
representaton of the cty on the board of drectors whch were n harmony
wth the requrements of the ordnance.
Durng the ta years (1930 and 1931) nvoved here, the entre authorzed
capta stock (common and preferred) was outstandng as we as bonds n
the amount of 148,000. The cty hed the 500 shares of common stock pro-
vded for n the ordnance. so, It owned 537 shares of the preferred stock
The ta was to be coected by the cty whch retaned and pad drect to the bond-
hoders the Interest turnng over to the company any amount coected beyond that
needed for the ne t semannua nterest payment.
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110, rt. 642.
296
(25 shares beng ssued n the name of the remen s Penson) and 68,500
of the bonds. These shares of preferred stock were acqured from tme to
tme n varyng amounts. ust when the bonds were acqured does not appear.
so, It s not shown from what funds of the cty these preferred shares and
bonds were purchased.
In these ta years the prescrbed dvdends on both casses of stock were
pad. or those two years, the operatng revenues were 162,339.30 (for 1930)
unc 159,912.33 (for 1931), of whch the 5-m ta yeded 28,077.35 and
25,979.39, respectvey beng desgnated as the return for Muncpa servce.
Durng these years, addtons to pnut were made from earnngs n the respectve
amounts of 05,952.17 and 71,447.40.
n outne of the above arrangement s as foows: prvate corporaton
wheren the cty owned one-thrd of the votng stock wth the rght to a
drectorate representaton of two-ffths. mtaton of dvdends. Lmta-
tons upon and a certan supervson of fnanca e pendtures. rght n the
cty to compe retrement of preferred stock from surpus earnngs. Ths cor-
poraton operatng under an e cusve franchse whereunder t f ed water
rates to prvate consumers and furnshed water for pubc purposes n return
for the proceeds from a defned water ta . rght of purchase by the cty.
Wth ths fact stuaton n mnd, we turn to the ega ssues presented by
pettoner s contentons (1) that ths company s a governmenta agency of
the cty and, as such, ts ncome Is beyond the ta ng power of Congress, and
(2) that t s not ta abe under the Revenue ct of 1928 because e cuded by
secton 116(d) thereof.
(1) GO RNM NT L G NCY.
We start wth the estabshed rue of aw that governmenta agences of a
potca subdvson of a State are not wthn the ta ng power (ncome or
otherwse) of the Natona Government ( urnet v. Coronado O Oas Co.,
285 U. S., 393, 399 Ct. D. 485, C. . I-1, 265 (1932) Indan otocyce Co. v.
Unted Sates, 283 U. S., 570, 575 Ct. D. 354, C. . -, 439 (1931) Unted
States v. Raroad Co., 17 Wa., 322). The queston here s whether ths cor-
poraton n ths stuaton s such an nstrumentaty. ust what nstru-
mentates of ether a State or the edera Government are e empt from
ta aton by the other can not be stated n terms of unversa appcaton
(Meteaf and ddy v. Mtche, 269 U. S., 514, 522 T. D. 3824, C. . -, 218
(1926) , quoted n urnet v. Coronado O d Oas Co., 285 U. S., 393, 390).
owever, t has been determned that those agences through whch ether
Government mmedatey and drecty e ercses ts soveregn powers, are
mmune from the ta ng power of the other Meteaf and ddy v. Mtche,
269 U. S., 514, 522 urnet v. Coronado O Oas Co., 285 U. S., 393, 399)
whe as to persons or corporatons whch serve as agences of government.
Natona or State, and aso have prvate property or engage on ther own
account n busness for gan, t s we setted that the prncpe does not e tend
to ther prvate property or prvate busness, but ony to ther operatons or
acts as such agences (Indan Motoeyee Co. v. Unted States, 283 U. 8.,
570, 576).
Wthout e amnaton or determnaton and soey for the purposes of ths
case we accept the vew that the furnshng of water to the ctzens of and
to a cty s a governmenta functon. In seectng the means by whch ths
functon sha be carred out, tho cty has a wde and vared choce. One
e treme s where the cty owns and operates ts own pant wthout supervenng
agency. The other e treme s where the servce Is furnshed by a purey
prvate person or corporaton under a cense or franchse whch mposes tte
or no supervson or contro. In the frst of these nstances, any ta by the
Naton even on property or ncome woud be ceary vod. In the other nstance,
there coud be no queston of the e stence of such ta ng power because the
effect upon the cty woud be too remote. etween these two e tremes are
a manner of gradatons each of whch w fa under one or the other roe.
few e ampes of such gradatons are Caam County v. Unted States (263
U. S., 341), atmore Shpbudng Dry Dock Co. v. atmore (195 U. S.,
375), Centra Pacfc Raroad v. Caforna (162 U. S., 91), Raroad Co. v.
Pen ton (IS Wa., 5), Thomson v. Pacfc R. R. (9 Wa., 579), and amestown
C Nerport erry Co. v. Commssoner (41 ed. (2d), 920 (C. O. . 1)).
It seems to us that pettoner fus wthn the cass sub|ect to such ta aton.
It was not a corporaton organzed and entrev owned bv the cty (anaogous
to the stuaton n Caam County v. Unted States, 263 U. S., 341, 345) nor
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297
116, rt. 642.
one prvatey organzed but controed and practcay owned by the cty and
not reay operated for proft ( amestocn Newport eTy Co. v. Comms-
soner, 41 ed. (2d), 920 (C. O. . 1)). It s a prvate corporaton organzed for
the proft of ts sharehoders. The stuaton s qute ke that n Raroad Co. v.
Perston (18 Wa., 5), whch Is descrbed by the Court (page 31) as foows:
It s nssted on behaf of the pantffs that the ta of whch they com-
pan has been ad upon an agent of the Genera Government consttuted and
organzed as an nstrument to carry nto effect the powers vested n that
Government by the Consttuton, and t s camed that such an agency s not
sub|ect to State ta aton. That the Unon Pacfc Raroad Co. was created to
subserve, n part at east, the awfu pur| |ses of the Natona Government:
that t was authorzed to construct and mantan a raroad and teegraph
ne aong the prescrbed route, and that grants were made to t, and prveges
conferred upon t, upon condton that t shoud at a tmes transmt ds-
patches over ts teegraph ne, and transport mas, troops, and muntons of
war, suppes and pubc stores, upon the raroad for the Government, when-
ever requred to do so by any department thereof, and that the Government
shoud at a tmes have the preference n the use of the same for a the
purposes aforesad, must be conceded. Such are the pan provsons of ts
charter. So t was provded that In case of the refusa or faure of the com-
pany to redeem the bonds advanced to t by the Government, or any part of
them, when awfuy requred by the Secretary of the Treasury, the road, wth
a the rghts, functons, mmuntes, and appurtenances thereunto beongng,
and aso a ands granted to the company by the Unted States whch at the
tme of the defaut shoud reman n the ownershp of the company, mght be
taken possesson of by the Secretary of the Treasury for the use and beneft
of the Unted States. The charter aso contans other provsons ookng to a
supervson and contro of the road and teegraph ne, wth the avowed purpose
of securng to the Government the use and beneft thereof for posta and m-
tary purposes. It s unnecessary to menton these n deta. They a ook
to a purpose of Congress to secure an agency competent and under obgaton
to perform certan offces for the Genera Government. Notwthstandng ths,
the raroad and the teegraph ne are nether n whoe nor n part the prop-
erty of the Government. The ownershp s n the companants, a prvate
corporaton, though e stng for the performance of pubc dutes. The Gov-
ernment owns none of Its stock, and though t may appont two of the drectors,
the rght thus to appont s pany reserved for the soe purpose of enabng
the enforcement of the engagements whch the company assumed, the engage-
ments to whch we have aready auded.
dmttng, then, fuy, as we do, that the company s an agent of the
Genera Government, desgned to be empoyed, and actuay empoyed, n the
egtmate servce of the Government, both mtary and posta, docs t neces-
sary foow that ts property s e empt from State ta aton
The Court answered ts queston as foows (page 36) :
It s, therefore, manfest that e empton of edera agences from Sate
ta aton s dependent, not upon the nature of the agents, or upon the mode
of ther consttuton, or upon the fact that they are agents, but upon the
effect of the ta that s, upon the queston whether the ta does n truth deprve
them of power to serve the Government as they were Intended to serve t, or
does hnder the effcent e ercse of ther power ta upon ther property
has no such necessary effect. It eaves them free to dscharge the dutes they
have undertaken to perform. ta upon ther operatons s a drect obstructon
to the e ercse of edera powers.
In ths case the ta s ad upon the property of the raroad company
precsey as was the ta companed of n Thompson v. Unon Pacfc. It s not
Imposed upon the franchses or the rght of the company to e st and perform
the functons for whch t was brought nto beng. Nor s t ad upon any
act whch the company has been authorzed to do. It s not the transmsson
of dspatches, nor the transportaton of Unted States mas, or troops, or
muntons of war that s ta ed, but t s e cusvey the rea and persona
property of the agent, ta ed n common wth a other property n the State
of a smar character. It s mpossbe to mantan that ths s an nterference
wth the e ercse of any power beongng to the Genera Government, and f
t Is not, t s prohbted by no consttutona mpcaton.
The ony dfference between the above genera stuaton n the Penston case
and ths case s that the cty here owned a mnorty of the votng stock a
dfference not decsve.
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110, rt. 642.
298
Pettoner contends that the Important and controng eement n the stua-
ton here s that the ta drecty affects ts surpus earnngs and that such
surpus earnngs beonged to the cty. It s cear that the ta w affect
such surpus by a reducton to the amount of the ta . ut s t true that
ths surpus beonged to and became the property of the Cty of urngton 1
Pettoner argues t dd because:
The settng asde of surpus and makng t a part of the water fund, whch
Is compusory under the terms of the ordnance, defntey paced the contro
of sad fund n the hands of the cty and sad ncome by so pacng t and
settng t up as a part of the water fund made t a part of the ncome
derved and accrung to any State, Terrtory or Dstrct of Coumba or any
potca subdvson of a State or Terrtory.
The porton of the ordnance deang wth surpus s secton 13 whch Is as
foows:
Shoud the sad water fund prove nadequate n any one year, to meet a
the foregong cams upon It for that year, the defct sha be made good out
of any surpus that may reman n any subsequent year, after the payment of
the cams enumerated n the two precedng sectons and shoud the sad
water fund be more than suffcent for a the purposes aforesad, the surpus,
after settng asde 1,000 for contngences may be used n makng e tensons
and mprovements of the waterworks, or In retrng 5 per cent stock, or n
creatng a snkng fund, ether, as the cty may determne and drect.
Whe ths provson gves the cty a power of drecton as to the use of the
surpus, that power s mted to the three uses (1) of e tensons and m-
provements, (2) retrement of preferred stock, and (3) creaton of a snkng
fund (the purposes and uses of such snkng fund beng undefned). Ths fas
far short of ownershp or any nterest appro matng ownershp. We are
constraned to hod that the consttutona power e sts n Congress to ta the
ncome of pettoner.
(2) T U CT.
avng the power to ta such ncome, the contenton remans that Congress
has, n secton 116(d) of the ct, e empted such ncome. In e amnng ths
matter, we keep n mnd the mts of the ssue as presented here. The cty
s not a party, hence, what separate rghts It may have as dstngushed from
those of pettoner are not before us. The rghts of the cty are pertnent here
ony as they may be affected by the rghts of pettoner. The conten-
ton here s that the ct e empts the entre ncome, ncudng that gong to
the stockhoders.
It Is unnecessary here to construe secton 116(d) further than to determne
that the secton very ceary e presses the mtaton that ony the ncome accru-
ng to the cty s e empt and that the ncome gong to prvate partes s not.
Nor Is t necessary for us to determne whether the dvdends comng to
the cty on ts stock of pettoner are e empt and that the ta shoud not appy
thereto. The statute requres coecton of the entre ta wth refund of any
part fang on the cty and e empt under the secton If, by the terms of such
contract the ta mposed by ths tte s to be pad out of the proceeds from
the operaton of such pubc utty, pror to any dvson of such proceeds
between the person and the potca subdvson (secton 116(d)).
The provsons of ths ordnance (secton 12) are that, before any dvdends
are pad or any surpus can arse, the current e penses ncudng aso a ta es
that may be eved upon sad waterworks or upon the stock hed by the stock-
hoders sha be pad. Thus, the requrement of coecton and subsequent
refund n secton 116(d) appes here. Ths provson for admnstratve pro-
cedure (S. Rept. 398, page 24, S ty-eghth Congress, frst sesson, and S.
Rept. 960, pages 19-20, Seventeth Congress, frst sesson) does not aow the
cty, even If the matter ta ed comes wthn the e empton, to proceed e cept
as for a refund where any part of the matter ta ed Is wthout the e empton.
ere, a part, at east, of the Income of pettoner goes to prvate stockhoders.
ence, even f the cty were a party here the entre ta woud be coected
n the frst nstance.
The orders of the oard are affrmed.
The secton s unambguous. If t were not so cear the egsatve hstory woud
ead to tn- name concuson (Congressona Record, voume 60, pages 5320-5322: . S.
Rept. 170, page 21, S ty-eghth Congress, frst sesson.)
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2(M
116, rt. 043.
rtce 643: Compensaton of State offcers I-31-8850
and empoyees. Ct. D. 1248
ncome ta revenue acts of 1926 and 1028 decson of court.
1. Gross Income emptons Compensaton of ctuary m-
poyed by Retrement oakds Created by State Legsa-
tures vdence.
Retrement boards were created by the Legsatures of Inos
and Wsconsn to admnster annuty funds to empoyees and others
of the cty of Chcago and the cty of Mwaukee. Pettoner was
empoyed by the boards as an actuary under etter contracts whch
stated hs dutes and compensaton, and was permtted to use hs
ndependent |udgment as to the empoyment of assstants and the
amount of tme to be e pended upon the work of the boards. e
mantaned hs own offces, and was empoyed by cents other than
the retrement boards. Under the facts, there was substanta ev-
dence to support the concuson of the oard of Ta ppeas that
the pettoner was an ndependent contractor and not an empoyee,
and the compensaton receved by hm from the retrement boards
consttuted ta abe ncome.
2. Decson oowed.
Prncpe n Mctcaf t ddy v. Mtche (209 U. S., 514 T. D.
3824, C. . -, 218 (1920) ), on queston of what consttutes an
ndependent contractor as dstngushed from an empoyee, fo-
owed.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (33 . T. ., 101) affrmed.
4. Certorar Dened.
Petton for certorar dened pr 20, 1037.
Unted States Crcut Court of ppeas for the Seventh Crcut.
Donad frauds Campbe, pettoner, v. Commssoner of Interna Revenue,
respondent.
87 ed. (2d), 128.
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore vans, Crcut udge, and Lndey and atze, Dstrct udges.
December 21, 1930.
opnon.
atze. Dstrct udge: Ths Is a petton for revew of a decson of the
oard of Ta ppeas sustanng the determnaton of a defcency, by respond-
ent, n the ncome ta of pettoner for the years 1926, 1927. and 1928. The
tota amount of defcency thus determned was 2,285.77, beng 1,032.79 for
1 26, 640.27 for 1927, and 600.71 for 1928.
Pettoner s a consutng actuary, resdes n vanston, 111., and for the
years n queston the greater porton of hs ncome was derved from the
ractce of hs professon. Severa years ago there was created by the Legs-
ature of Inos a commsson whch was charged wth the duty of makng a
study of pensons and penson systems for pubc empoyees, and pettoner
was the actuara advser for ths commsson. Through the efforts of ths
commsson there was enacted by the Legsature of Inos an act creatng
the Muncpa empoyees annuty and beneft fund. Ths act provdes for
benefts or annutes for empoyees, ther wdows and mnor chdren n ctes
of a certan cass. The act provdes the method by whch funds are to be
rased for the payment of such benefts or annutes. Later, the egsature
enacted egsaton provdng for an annuty or beneft fund for the county
empoyees of Cook County, 111. There was aso enacted about ths tme smar
egsaton n Wsconsn provdng for a beneft and annuty fund for the poce-
men and fremen of Mwaukee. Provson was made n the acts n each State
for the admnstraton of these funds by a board of trustees caed a retre-
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116, rt. C43.
300
ment board whch was to consst of fve members. Pursuant to these acts,
such boards were duy apponted. The revenue necessary for the successfu
operaton of ths system was provded by the mposton of a ta eved by
the common councs of the ctes and by contrbutons made reguary by the
empoyees who were to be benefted by such system. The varous amounts thus
contrbuted were deducted from the saares of the empoyees. It became the
duty of the board admnsterng such fund to see that these deductons were
made, that the ta es eved by the ctes were receved, that a money receved
by t was propery nvested, and that the nterest receved from such nvest-
ments was propery accounted for. The boards were, under the act, gven rather
broad powers. They were authorzed to accept gfts, bequests, etc., of money
or property and to use t as specfed n the act. They aso had the power
to receve, consder, and ether approve or dsapprove a appcatons for annu-
tes or benefts. It became ther duty to adopt such rues and reguatons as
were necessary n the proper admnstraton of ther affars, and to empoy a
necessary medca, actuara, cerca and other assstants, and to f ther fees
or saares.
There were four retrement boards, wth whch we are concerned, created
under these acts. One board was to admnster the fremen s annuty fund In
Mwaukee one the pocemen s annuty fund n Mwaukee one the munc-
pa empoyees annuty fund In Chcago, and one the county empoyees annuty
fund n Cook County, 111.
Pettoner took an actve part n promotng and encouragng the passage
of the acts provdng for the creaton of these funds and for the appontment
of the boards for ther admnstraton. Consequenty, he was empoyed as
ther actuary under etter contracts termnabe by ether party upon 30 days
notce. Is dutes, as we as hs compensaton, were stated n each contract
It was hs duty to attend a meetngs, cther n person or by an assstant n
an advsory capacty to compute the amounts to whch annutants w be
entted and to do such work of an actuara nature as the board may requre.
or hs servces, he was to receve 75 per month from the fremen s annuty
fund n Mwaukee 75 per month from the pocemen s fund n Mwaukee
250 per month and f ed sums for each pror servce certfcate ssued
from the annuty fund of Cook County, 111., nnd 4.25 per hour when workng
strcty aone or wth the board, from the muncpa empoyees fund n Ch-
cago. In addton, he aso receved a substanta aowance for the empoyment
of cerks, stenographers, etc., and for offce space n whch to do the work of
the boards. e supervsed the work of a hs assstants and assumed fu
responsbty for the resut of ther work. e empoyed a such assstants
and had the authorty to dscharge them at hs w. e had varous other
cents for whom he dd actuara work, and these same empoyees asssted
hm n such work. bout 50 per cent of hs tme was devoted to the work
of the boards n 1926 60 per cent n 1927, and 70 per cent n 1928. e devoted
such tme as was necessary to do the work requred for each board, but he
was not requred, under the contract, to devote any certan engths of tme
each day, week, etc., to ether board. e nether took an oath of offce nor
gave a bond. Durng the three years u queston he receved from the board
admnsterng the fremen s fund n Mwaukee a tota sum of 2,741.35: the
pocemen s fund n Mwaukee the sum of 2,804, the empoyees fund of
Cook County, 111., the sum of 21,219.08 the muncpa empoyees fund of
Chcago, the sum of 33,461.17, or a tota from the four boards of 60,225.60.
It s the contenton of pettoner that the creaton, mantenance and opera-
ton of an annuty and beneft fund by a retrement board for the empoyees
of certan subdvsons of a State s the e ercse of an essenta governmenta
functon that he was a part-tme empoyee of the boards admnsterng such
fund, and that, therefore, the ncome receved by hm for the servces rendered
s e empt from ta aton. It s the contenton of respondent that the retre-
ment boards were not engaged n the e ercse of essenta governmenta func-
tons, and further, f they were so engaged, pettoner was not an empoyee,
but was an ndependent contractor, and that, therefore, the ncome receved
by hm, durng the three years n queston, s ta abe.
The queston of whether or not a person s an empoyee of government or s
an ndependent contractor has been before ths and other courts many tmes.
In the nstant case, the oard of Ta ppeas found that pettoner was an
ndependent contractor, and that, therefore, the ncome receved by hm from
the four retrement boards, durng the three years n queston, s ta abe
Income. rom that decson ths appea s beng prosecuted.
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301
116, rt. 643.
Pettoner made a wrtten proposa to each of the four boards, before hs
empoyment, outnng In deta hs dutes and the compensaton desred. The
proposa to each board was substantay the same n so far as hs dutes were
concerned, but Incuded a dfferent rate of compensaton. These proposas were
presented to the respectve boards, and approprate acton taken by resouton
of the boards. In one of the proposas t s stated by pettoner that I sha do
the actuara work requred. You are to furnsh me wth data re-
gardng the servce and date of brth of each contrbutor. It w
then be my duty to compute the credt n the case of each contrbutor and
furnsh you wth the resuts of my computatons on a certfcate prepared under
your drecton, sgned as the board sha determne, and certfed to as to ac-
curacy of computatons by me as actuary of the board. Payment for such work
sha be made upon recept of b for same, accompaned by certfcates as
they are beng competed. Ths dd not ncude a of the dutes of pettoner
as outned n hs proposa, but s a provson whch strongy ndcates that
pettoner s an ndependent contractor and not an empoyee. smar prov-
son s found n the contract wth each board.
In speakng upon the queston of what consttutes an ndependent contractor
as dstngushed from an empoyee, the Supreme Court n the case of Metcaf
ddy v. Mtche (269 U. S., 514 48 S. Ct., 172 70 L. d., 3S4 T. D. 3824, C. .
-, 218 (1926) ) sad: In each nstance the performance of ther contract
nvoved the use of |udgment and dscreton on ther part and thoy were
requred to use ther best professona sk to brng about the desred resut.
Ths permtted to them berty of acton whch e cudes the dea of that contro
or rght of contro by the empoyer whch characterzes the reaton of empoyer
and empoyee and dfferentates the empoyee or servant from the ndependent
contractor. (Chcago, Rock Isand Pacfc Ry. Co. v. ond, 240 U. S., 449, 456
Standard O Co. v. nderson, 212 U. S., 215, 227 and see Casement v. rown,
148 U. S., 615 Snger Mfg. Co. v. Rahn, 132 U. S., 518, 523.) So, n the nstant
case, pettoner had, by wrtten contract, undertaken to do a certan ne of
work for the retrement boards for whch he was to receve a stpuated compen-
saton. In the performance of ths work he was to use hs ndependent |udg-
ment. e was sked n hs professon and naturay apped ths sk to the
performance of hs dutes, as outned n hs wrtten proposas. e mantaned
hs own offce, empoyed hs own assstants who dd a part of the work under
the contracts and for whose work he was responsbe. These same assstants
dd work for hm n connecton wth hs cents other than the boards. Instead
of attendng the meetngs of the boards hmsef, he had authorty, under the
contract, to permt one of hs assstants to attend them. e or hs assstant
attended such meetngs n an advsory capacty. e was not requred to e pend
any certan tme durng any day, week or month, In the performance of hs
dutes. Such tme ony as was necessary to perform the dutes outned n
hs contract was requred. e had berty of acton n each case submtted
to hm for consderaton. The e tent of the work necessary to be done n each
case was determned by hm, and any part or a of such work coud be done
by hs assstants and he aone was responsbe for ther acts. e coud empoy
or dscharge such assstants at hs peasure. The fu e tent of hs dutes, as
we as hs compensaton, was contaned n the wrtten proposas of pettoner
and the resoutons of the retrement board.
The oard of Ta ppeas heard the evdence and decded aganst the con-
tenton of pettoner. In speakng of the duty of an appeate court, n a case
somewhat smar to the nstant case, ths court sad: The burden was upon
t to estabsh the affrmatve, for t was seekng a deducton from ts gross
ncome. In ths court ts burden was even greater. It must here show that
there was no substanta evdence to support a fndng that t was not an offcer
or empoyee of the muncpaty, whereas before the oard of Ta ppeas the
burden was met f t estabshed ts asserton by a preponderance of the ev-
dence. (Consocr, Oder d untan, Inc., v. Commssoner, etc. (C. C. . 7),
85 . (2d), 461.) It was a queston of fact as to whether or not pettoner
was an empoyee or an ndependent contractor. There was substanta evdence
to support the concuson of the oard. In fact, the evdence shows concusvey
that no other concuson coud have been reached.
It w not be necessary for us to consder or decde whether or not such
creaton, mantenance and operaton of an annuty and beneft fund by a retre-
ment board s the e ercse of an essenta governmenta functon, n vew of
our concuson.
The decson of the oard of Ta ppeas s affrmed.
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131, rt. 694.
302
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 694: Redetermnaton of ta when I-34-S886
credt proves ncorrect. G. C. M. 18801
( so Secton 275, rtce 1201.)
R NU CT O 1928.
The 2-year mtaton upon assessment prescrbed by secton
275(a) of the Revenue ct of 1928 s not appcabe to assessment
of addtona ta based upon a refund of foregn ta es for whch
credt has been taken aganst domestc ta es under secton 131 (a)1
of the Revenue ct of 1928.
n opnon s requested whether an addtona ta found due for
1929 upon ad|ustment of a credt for ta es pad to a foregn coun-
try may now be assessed and coected under the provsons of sec-
ton 131(c) of the Revenue ct of 1928, notwthstandng the fact that
the perod for assessment of ta under secton 275 of the Revenue ct
of 1928 e pred n 1932.
The Revenue ct of 1928 provdes n Tte I Income Ta
under Suppement C Credts ganst Ta as foows:
Sec. 131. Ta es of oregn Countres and Possessons of Unted States.
(a) owance of credt. The ta mposed by ths tte sha be credted
wth:
(1) Ctzen and domestc corporaton. In the case of a ctzen of the Unted
States and of a domestc corporaton, the amount of any ncome, war-profts,
and e cess-profts ta es pad or accrued durng the ta abe year to any foregn
country or to any possesson of the Unted States

(c) d|ustments on payment of accrued ta es. If accrued ta es when pad
dffer from the amounts camed as credts by the ta payer or f any ta pad
s refunded n whoe or n part, the ta payer sha notfy the Commssoner,
who sha redetermne the amount of the ta for the year or years affected,
and the amount of ta due upon such redetermnaton, f any, sha be pad
by the ta payer upon notce and demand by the coector, or the amount of
ta overpad, f any, sha be credted or refunded to the ta payer n accord-
ance wth the provsons of secton 322. Itacs supped.
On the other hand secton 275 of the Revenue ct of 1928, entted
Perod of Lmtaton upon ssessment and Coecton provdes,
wth certan e ceptons, as foows:
(a) Genera rue. The amount of ncome ta es mposed by ths tte sha
be assessed wthn two years after the return was fed, and no proceedng n
court wthout assessment for the coecton of such ta es shu be begun after
the e praton of such perod. Itacs supped.
The present ta payer was ncorporated n the State of R n 1916
and has at a tmes kept ts books of account on the accrua bass.
It accrued ncome ta es of 7.3a doars for 1929 as beng due to a
certan foregn country and took such amount as a credt n ts
edera ncome ta return for that year. owever, the amount actu-
ay pad (n 1930) was 5.7a| doars. Therefore, an ad|ustment of
the credt taken resuted n a defcency n Unted States ncome ta
of 1.0a) doars (the dfference between the amount accrued and the
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303
131, rt. 694.
amount pad), whch was assessed and pad to the coector of nter-
na revenue. In 1935, the ta payer advsed the ureau that t had
receved from the foregn government durng the year 1934 a refund
of ncome ta of 2.9a doars, whch ta was pad for the year 1929
and taken as a credt for that year under the provsons of secton
131 (a) 1 of the Revenue ct of 1928, supra. The ta payer s return
for 1934 dscoses that the amount of 2.9a doars was receved but
was not reported as ncome. d|ustment of the ta abty for
1929 under secton 131(c) of the Revenue ct of 1928, supra, f now
permtted, w resut n an addtona ta of 2.9a doars. Such
ad|ustment, wth assessment and coecton, s permssbe f not
barred by secton 275 of the Revenue ct of 1928, supra. Does such
secton consttute a bar here that s, s secton 275 appcabe so as
to defeat the cear drecton of secton 131 (c)
Secton 131, supra, s compete n tsef wth respect to credts
on account of foregn ta es, the accrua thereof, and ad|ustments by
vrtue of payments and refunds of such ta es. It s a speca pro-
vson Suppement C Credts ganst Ta , and, therefore, under
we setted rues of statutory constructon w preva over a gen-
era provson. Secton 275, supra, s a genera statutory provson,
snce subdvson (a), barrng assessment and coecton after two
years after a return s fed, s entted Genera rue. Its very
tte ndcates that there w be e ceptons, and certan e ceptons
e pressy provded for are cases where a fase return or no return
s fed, where a waver s fed, or where a petton s fed wth the
oard of Ta ppeas. (See sectons 27G and 277 of the Revenue
ct of 1928.) Other e ceptons are those effected by the rue of
constructon mentoned n the precedng paragraph.
The foregong poston s supported not ony by ega ogc and
reasonng and the ntenton of Congress (herenafter dscussed) but
aso by the decson of the Unted States Supreme Court n Cook
County Natona ank v. Unted States (107 U. S., 445), where the
prorty gven to the Unted States by secton 3466, R. S., for pay-
ment of ta es due from nsovents was hed not to appy to ts de-
mands aganst nsovent natona banks. The Court sad (page 451) :
aw embracng an entre sub|ect, deang wth t n a ts phases,
may thus wthdraw the sub|ect from the operaton of a genera aw as effec-
tuay as though, as to such sub|ect, the genera aw were n terms repeaed.
The queston s one respectng the ntenton of the egsature.
Or, to paraphrase the anguage of the Unted States Supreme
Court (see aso page 451), the provsons of sectons 275(a) and
131 (c) of the Revenue ct of 1928 beng, as apped to cases where
refunds of foregn ta es have been made, nconsstent and repug-
nant, the former must yed to the atter, and s, to the
e tent of the repugnancy, superseded by t.
Nothng appears n secton 131(c), supra, to ndcate the ntent
of Congress to have the 2-year perod of mtaton contaned n
secton 275(a) of the Revenue ct of 1928 appy to ta ad|ustments
under t. On the contrary, certan provsons of secton 131(c)
ndcate the ntent of Congress (through the omsson of any ref-
erence to secton 275(a)) not to have the mtaton appy. or
nstance, athough n the case of an overpayment of ta secton 131 (c)
e pressy provdes that the mtaton of secton 322 sha appy, no
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131, rt. 694.
304
mtaton s provded wth respect to an addtona ta found due
as a resut of a refund of foregn ta es for whch credt was taken
aganst domestc ta es. Congress seems ntentonay not to have
paced any mtaton on an assessment of addtona ta found due
upon a refund of foregn ta es for very practca reasons. No one
coud foresee or te when such refund woud be made. Due to
negotatons wth respect to the true ta abty or to other causes,
such refunds mffht not be made for severa years, or n any event
not unt after the perod of mtaton for assessment of domestc
ta es had e pred Ths s e acty what happened n the nstant case.
The foregn ta refund was made after the perod of mtaton pre-
scrbed by secton 275(a) (f appcabe to secton 131(c) cases) had
e pred. Obvousy, no assessment coud have been made pror to the
runnng of the 2-year mtaton perod because no bass (the refund)
e sted for an assessment unt ong after ts runnng. Congress
coud never have ntended the bar to appy to such cases. Otherwse,
ta es admttedy due, and whch woud have been assessed at once
e cept for the credt for foregn ta es, woud never be coected
notwthstandng the foregn ta es were refunded. pparenty, t
was for the e press purpose of avodng such a resut that Congress
omtted any reference to secton 275(a) n secton 131(c).
When a refund of foregn ta es s made, Congress e pressy
drects the Commssoner to make a redetermnaton of ta abty
for the year affected and requres that the amount found due sha
be pad by the ta payer upon notce and demand. (Secton 131(c),
supra.) such nstructon and drecton woud be nufed, e cept
n a mted number of cases, were the bar of secton 275(a) to appy.
In the absence of any reference to that secton or of any ndcaton of
an ntenton of Congress to have t appy, t w be presumed not
to appy. urthermore, the purpose of mposng a bar on the
assessment and coecton of ta es (to protect the ta payer aganst
unknown and unantcpated demands ong after the fng of hs ta
return) has no appcaton here. The ta payer n such a case reports
a certan amount of ta due (thus beng fuy aware of the amount)
aganst ts amount he takes a credt for foregn ta es and pays the
net baance to the coector. When the amount for whch he took
credt and whch he pad to a foregn country s returned to hm (t
may be ong after such payment), that amount rghtfuy beongs
to the Unted States. It represents the ta whch he reported due
to the Unted States but dd not pay to the Unted States. Such pay-
ment was n effect suspended. Ceary, no statute of mtatons coud
wthn reason be hed to be runnng durng such suspenson. The
amount refunded shoud mmedatey be turned over to the coector,
for t consttutes a wthhed ta now n possesson of the ta payer
for payment. It payment taken nothng from the ta payer. There
s no new, unknown, and unantcpated demand upon hm for whch
e has made no provson. The purpose served by a statute of
mtatons s not present n such a case. In order for the statute
of mtatons to appy n ths case, t woud be necessary for secton
131 so to provde, but t does not so provde.
In vew of the foregong, t s the opnon of ths offce that an
addtona ta found due under secton 131(c) of the Revenue ct
of 1928 (whch the Commssoner s e pressy drected to determne,
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305
167, rt. 881.
no statutory perod of mtaton beng prescrbed) may be assessed
and coected at any tme. ccordngy, the addtona ta due for
1929 n the present case may now be assessed and coected.
Morrson Shafrot,
Chef Counse, ureau of Interna Revenue.
rtce 697: When credt for ta es may be taken.
R NU CT O 1928.
rtsh ta es. (See Ct. D. 1256, page 339.)
SUPPL M NT . ST T S ND TRUSTS.
S CTION 167. INCOM OR N IT O GR NTOR.
rtce 881: Income of trusts ta abe to I 5-9027
grantor. Ct. D. 1275
INCOM T R NU CT O 1028 D CISION O COURT.
L Gross Income Trust Income Used to Mantan amy
ome: Ta abe to Settor.
Income from an Irrevocabe trust, used, pursuant to the terms
of the trust Instrument, to support the settor s wfe and to man-
tan the famy home In whch the settor and hs wfe and adut
chdren resde, Is ta abe to the settor.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (33 . T. ., 801) affrmed.
Unted States Crcut Court of ppeas for the ghth Crcut.
Lous W. , pettoner, v. Commssoner of Interna Revenue, respondent.
88 ed. (2d), 941.
On petton to revew decson of Unted States oard of Ta ppeas.
efore Gardner, Thomas, and ars, Crcut udges.
March 16, 1937.
opnon.
ars, Crcut udge, devered the opnon of the court.
Ths s a petton to revew a decson of the Unted States oard of Ta
ppeas. The soe queston up for |udgment heren s, whether the ncome from
an rrevocabe trust, used, pursuant to ts terms to support the settor s wfe
and mantan the famy home n whch both the settor and hs wfe resde
wth severa adut chdren, s ta abe to such settor as ncome The oard
of Ta ppeas hed such ncome ta abe as aganst pettoner, who thereupon
sued out ths petton for revew.
The queston for decson arose on the beow facts: In December, 1017, pet-
toner, then resdng wth hs wfe and four chdren n St. Pau, Mnn., created
and duy e ecuted fve separate rrevocabe trusts one for each of hs four ch-
dren, a of whom were seemngy then nfants, am one for hs wfe. In and by
each of these trusts he conveyed to hmsef as trustee, and to hs successor or
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167, rt. 881.
306
successors, certan property and securtes theretofore owned by hm absoutey,
and of the then appro mate vaue of 800,000, and of the aggregate vaue
of 4,000,000. The ncome from these severa trusts was to be pad annuay
to the benefcares named theren respectvey, for ther support and mante-
nance. ut the terms and effect of such trusts n favor of pettoner s chdren,
are not reevant here, save as mere ncdents ndcatng that they were not de-
pendent for support on pettoner after reachng ther respectve ma|ortes,
whch each of them dd before the arsng of the controversy here nvoved.
The provsons n the trust n favor of pettoner s wfe, whch aone are
pertnent here, read thus:
1. Out of the ncome of the trust estate, there sha be pad to my wfe
Maud van Cortandt Tayor , so ong as she sha ve, for her own persona
uses and purposes, the sum of tweve thousand doars ( 12,000) per annum.
2. So ong as I sha ve and my wfe and I sha ve together, the baance
of the ncome of sad trust estate sha be apped by the trustee or trustees
to her mantenance and support, to the mantenance, upkeep and operaton of
the dweng or dwengs n whch she may from tme to tme resde, to the
mantenance, support, traveng e penses of hersef and her chdren, ncudng
e penses of servants, cothes, educaton of chdren, and other tems of famy
e penses provded, however, that no more than fve-s ths of the e pense of
operaton, upkeep and mantenance of any dweng or estabshment occuped
or used by the trustor n common wth the members of hs famy sha be
pad out of the ncome of the trust estate, t beng contempated that of such
e pense the trustor sha provde at east one-s th out of hs own ncome and
property, and no part of such ncome sha be apped to the use or beneft of
the trustor.
Durng the year 1030, pettoner ved wth hs wfe and three adut, but un-
marred chdren n the famy resdence n St. Pau. ach of the atter mem-
bers of ths famy were often absent, n 1930, but when n St. Pau they ved
wth pettoner and hs wfe, ther mother, as members of one famy. In the
year above named, the ta year nvoved heren, the dsbursements for upkeep
and mantenance of the famy home of pettoner and hs wfe, amounted n
the aggregate to the sum of 49,409.17. Pettoner personay pad of the above
dsbursements 24,573.29, and the baance of 24,860.88, was pad by hm as
trustee, out of the ncome of the trust created by hm for the support and
mantenance of hs wfe and for the upkeep of a home for the famy, as pro-
vded n cause 2, of the trust nstrument quoted ast above. oth the Com-
mssoner of Interna Revenue and the oard of Ta ppeas were as forecast,
of the vew that sad sum of 24,860.88 was ta abe to pettoner as ncome for
the year 1930 pettoner s of the vew that t was not. nd the above are
the facts, and the dspute ast stated s, as ndcated, the concrete matter up
for |udgment here.
Dffcuty s encountered here, n mne, for that the partes do not agree
upon any common ground on whch to stage ther respectve ega controverses.
The pettoner contends, that the case s referabe for souton to the prov-
sons of secton 167 of the Revenue ct of 1928, In force n the ta year of
1930, and the reguatons made thereunder whe the respondent nssts that
aone the provsons of sectons 22 and 24 of the Revenue ct of 1928, rue the
case, as the two sectons ast above were construed n the case of Dougas v.
Wcuts (206 U. S., 1. 9 Ct. D. 1041, C. . I -2. 250 (1935) ).
Secton 22, supra, defnes gross ncome as ncudng, gans, profts,
and ncome derved from saares, wages, or compensaton for persona servce,
of whatever knd and n whatever form pad, or from professons, vocatons,
trades, busnesses, commerce, or saes, or deangs n property, whether rea or
persona, growng out of the ownershp or use of or nterest n such property
aso from nterest, rent, dvdends, securtes, or the transacton of any busness
carred on for gan or proft, or gans or profts and ncome derved from any
source whatever.
Secton 24, supra, provdes, so far as s reevant here, tems of e pense whch
are not deductbe from net ncome and among such nondeductbe tems, we
fnd persona, vng or famy e penses . Snce secton 22, supra,
merey defnes the many sources of gross ncome, and secton 24, supra, smpy
provdes that persona e penses, vng e penses and famy e penses can not be
deducted from gross ncome In ascertanng net ncome to be ta ed, we are con-
straned to the concuson that the contenton of respondent n ths behaf
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307
167, rt. 881.
nvoves a beggng of the queston, and s of neggbe hep n sovng the actua
queston presented.
or the rue of aw, whch denes the rght to ta the settor n respect of
ncome derved from an rrevocabe trust, seems to us to be bottomed on
the fact or assumpton, at east, that such ncome does not come Into, or
pass from the bauds of the settor, but arses from the trust entty created,
and proceeds from It drecty to the cestu que trust n whose hands t
becomes ta abe Income, perforce the provsons of secton 22, supra. In the
nstant case the ncome sought to be ta ed was derved from an rrevocabe
trust t passed nto the hands of the settor of the trust, pettoner here,
who aso fortutousy happened to be the trustee he took t as trustee, and
not as owner. If he had taken t as owner, then, of course, sectons 22 and
24, supra, woud appy he woud be ta abe on t and the nqury woud
be ended. ut the nqury here, we thnk, goes deeper.
Ths nqury s, whether when ths trust estate Income came nto the hands
of pettoner he used It, or was permtted to use t, perforce the trust s pro-
vsons, n payment of hs own ega obgatons. It s ony n the aspect,
and to the e tent, that secton 22, supra, makes outgo, or use, the test and
touchstone of ncome, that ts provsons are reevant hero. Specfcay, sec-
ton 22, goes so far nto deta n defnng gross ncome, as we-ngh to
render constructon unnecessary. Generay shakng, ths secton appes
to and ta es Income, qua ncome, a money and property comng Into the
hands of any person, whch s to be used, or hed by such person n absoute
ownershp, and to be ether hed, or used by such owner, as desre, whm, or
ega obgaton sha dctate, unhampered by the awfu cams or rghts of
any other person whomsoever. Corss v. owers, 281 U. S., 376 Ct D. 188,
C. . I -1, 254 (1930) .)
In the behavor and phosophy of the human race the norm of motvaton
to conduct s rarey constant. One person may spend thousands n contrbut-
ng to educatona or chartabe purposes soey for the persona peasure
and gratfcaton whch the makng of the gfts affords to hm, whe another
may spend, or waste, accordng as t may be vewed, thousands n concrete
efforts to ascertan whch of two or more specmens of the genus equdae
sha demonstraby e hbt the greater comparatve rapdty n passng from
one gven pont to another gven pont. In ether case, the money beng
spent by, s used for the beneft of, hm who thus gets rd of It.
Secton 167 of the Revenue ct of 1928, n ts anguage dffers n no ma-
tera way from secton 167 of the Reve|ue ct of 1936. The departmenta
reguatons made thereunder foow the secton cosey. Sad secton so far
as s here reevant reads thus:
Where any part of the ncome of a trust may, n the dscreton of the
grantor of the trust, ether aone or n con|uncton wth any person not a
benefcary of the trust, be dstrbuted to the grantor or be hed or accumu-
ated for future dstrbuton to hm, such part of the ncome of
the trust sha be ncuded n computng the net ncome of the grantor.
The above secton forbade, and a smar secton of the e stng statute
forbds, under penaty of renderng such ncome ta abe, the dstrbuton, or
the accumuaton for future dstrbuton, of any ncome from a trust estate,
to the settor thereof, whether such dstrbuton be made aone by the settor,
or n con|uncton wth any other person not a benefcary of the trust. Under
ts provsons a forbdden dstrbuton occurs whenever the settor of the
trust dstrbutes, or uses the ncome from the trust estate, n payment of hs
persona ega obgatons. nd ndeed t s dffcut to understand why such
dstrbuton s not aso present, whenever the settor of hs own voton or
wsh goes further and uses such ncome to subserve hs persona uses, whms,
and desres n any behaf, as we as n provdng, servants and sheter for
adut chdren for whose support the settor s no onger under any ega ob-
gaton. Though the ban of the statute s ad on the fact of dstrbuton, t
|ust as effectuay covers the creaton of trusts havng the forbdden ob|ect
or resut
Whe t seems dffcut to fnd, ether under secton 22, supra, or under
secton 167, supra, any ogca dstncton arsng from the queston, as to
the use to whch the ncome was put, that s, as to whether t was devoted
to the payment of ega obgatons, or went to subserve the persona uses,
peasure, whms, or even vces of the spender, provded, t was actuay used
by hm, our Inqury here n the case at bar does not take us so far afed.
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1G7, rt. 881.
308
ere In the nstant case, the trust nstrument provded for the payment
annuay to the wfe of the settor, so ong as she shoud ve the sum of
12,000 for her own persona uses and purposes. Ths sum was pad
from the trust estate ncome, and about t no queston Is heren rased. It s
about the beow provson that the nstant dspute, rages, namey, So ong
as I sha ve and my wfe and I sha ve together, the baance of the n-
come of sad trust estate sha bo apped by the trustee or trustees to her
mantenance and support, to the mantenance, upkeep and operaton of the
dweng or dwengs n whch she may from tme to tme resde,
ncudng e penses of servants and other tems of famy e penses.
Omtted parts of the provson, or cause 2, n dspute, refer to the man-
tenance, support, traveng e penses of the wfe and her chdren, ther
cothng and educaton. Snce the tems found n the record of e penses for
1930, ncude no outay for traveng e penses, educaton, or cothng for
the three adut chdren, and ony ntermttent support home and food and
servce for them, hereafter brefy dscussed the mportance of these atter
provsons (esewhere fuy quoted heren) does not |ustfy any e tended
reference to them, or warrant the use of space n further quotaton of them.
Pettoner contends that ncome from an rrevocabe trust, pad for the
mantenance of a dweng, as a home for hmsef and hs famy, can be ta ed
to the settor of such trust ony n case the money from the trust estate was
used to dscharge a ega obgaton of such settor, and that snce n the case
at bar the facts stpuated show that t was party used as a pace of sheter
and a source of food for the adut chdren of the settor, upon whom (because
they were a aduts, and because they had arge ndependent means) no ega
obgaton for ther support and mantenance rested, pettoner was not ta -
abe. We are of opnon that ths contenton s too narrow. It s obvousy
true that when, n December, 1917, the trust estate was created, there was
a ega obgaton restng on the settor to support, mantan, and educate
these chdren, and so t s wthn the contenton of pettoner that ths obga-
ton has faen n, perforce the fu of tme. So much may be conceded, f
the matter were bottomed soey on a ega obgaton to the chdren.
( nudson v. augcn, 191 Mnn., 420.)
ut here the trust agreement provded for the mantenance, upkeep and
operaton of the dweng or dwengs n whch she (the wfe of the settor)
may from tme to tme resde, and ths duty we thnk the settor was by the
aw of the State of hs domce obgated to perform. It s, of course eemen-
tary, that at common aw a husband was abe for necessares furnshed
to hs wfe. What s ncuded by the word necessares, s often troubesome
but t was sad n the case of crgh v. Warner (47 Mnn., 250, 252, 50 N. W.,
77) that, The term necessares, n ts ega sense, as apped to a wfe,
s not confned to artces of food and cothng requred to sustan fe or
preserve decency, but ncudes such artces of utty, or even ornament, as
are sutabe to mantan the wfe accordng to the estate and rank of her
husband. Itacs ours. nd ths s true, even though, as here, the wfe
has ndependent means, or even though the husband had furnshed her wth
money to pay for such necessares. ( osanke v. osanke, 137 Mnn., 115, 162
N. W., 1060 Roterng v. bbard, 168 Mnn., 502, 210 N. W., 395.)
It s ceary to be nferred from the record, and the oard of Ta ppeas
so found, that pettoner s a man of weath, and the mantenance of a more
or ess eaborate estabshment as a home for hs wfe and hmsef s n keepng
wth hs estate and rank n fe, and so the fact brngs the stuaton n accord
wth the e tent of the ega duty as defned n the above quotaton from the
ergh case, supra. It s now qute we setted that the ncome, even from
an rrevocabe trust estate, can not be used by the settor, n payment of
obgatons for whch the settor s by aw personay abe. (Dougas v.
WUcuts, 296 U. S., 1 urnet v. Wes, 289 U. S., 670 Ct. D. 688, C. . II-1,
261 (1933) .) In the Dougas case, supra, the obgaton arose from a |udg-
ment for amony n a decree of dvorcement, and n the urnet case, supra,
from the payment of premums on nsurance poces on the fe of the settor
and n favor of benefcares who were dependents of the settor, whch was
hed to be ncome used by the settor for hs own beneft. Generay aud
as bearng on vews suggested above by us, the Supreme Court n the Dougas
case, supra, sad:
Nor are the provsons of the statutes (Revenue cts, 1928, secton 219(h)
1928, secton 167) defnng nstances n whch the grantor remans ta abe, as
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309
183, rt. 901.
In case of certan reservatons for hs beneft or provsons for the payment
of premums npon poces of nsurance on hs fe, to be regarded as e cudng
Instances not specfed, where In contempaton of aw the ncome remans n
substance that of the grantor. No such e cuson s e pressed and we see no
ground for mpyng It.
The mantenance, operaton, and upkeep of a dweng as a home for a
man and hs wfe connote somethng more than the mere food and sheter for
the two spouses aone. It ncudes a pace to whch frends and the chdren
and other reatves of the man and hs wfe may come and vst and be
socay entertaned from tme to tme. So much ne orabe custom woud
seem to dctate. ardy, we thnk, may t successfuy be contended that the
provsons of the trust nstrument here under nqury had n contempaton
or hed wthn ther ntendments that the wfe of one occupyng the rank
and staton of the pettoner shoud be requred to unduy mt her frendy
and soca dutes or to refuse to entertan her frends, chdren, or other
reatves, or to resort to the e pedent of takng them n ony as payng guests.
ut to such reducto ad absurdum the facts and ega stuaton woud otherwse
seem to compe us.
We are of the opnon that the petton for revew shoud be dsmssed and
the case affrmed, and so t s ordered.
SUPPL M NT . P RTN RS IPS.
S CTION 183. COMPUT TION O P RTN RS IP
INCOM .
rtce 901: Partnershps. I-29-8821
Ct. D. 1244
n come ta revenue acts of 1024, 1928, and 1028 decson of court.
Res udcata Partnershp Marta greement.
decson of the Supreme Court, hodng that a marta agree-
ment made n 1920 dd not consttute the wfe a member of a part-
nershp In whch the husband had an Interest and that he was abe
for ta on a the profts of hs nterest n the frm for the years
1920 to 1923, s res |udcata n a subsequent proceedng nvovng
the same ssue for the years 1924 to 1929.
Unto) States Crcut Court of ppeas for the S th Crcut.
Chares P. Lcnnger, pettoner, v. Commssoner of Interna Revenue,
respondent.
80 ed. (2d), 791.
Petton to revew decsons of the Unted States oard of Ta ppeas.
efore cks and Smons, Crcut udges, and ord, Dstrct udge.
December 15, 1936.
opnon.
oks, Crcut udge: Petton by Chares P. Lcnnger to revew decsons
of the oard of Ta ppeas n assessng, on redetermnaton, defcences n
ncome ta es of 2,030.19, 1,617,08, 2,110.92, 990.99, 1,162.69 and 558.01 for
the years 1924, 1925, 1926, 1927, 1928, and 1929, respectvey.
The statute (Revenue ct 1924, ch. 234, secton 218(a)) provdes that the
Indvdua members of a busness partnershp sha be abe for the ncome ta
upon ther dstrbutve share of the partnershp profts.
Pror to 1920 pettoner owned a one-haf nterest n a partnershp styed
the age Laundry Co. The Commssoner found that for the yours nvoved
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1183, rt. 901.
310
heren pettoner had faed to return one-haf of the ncome from ths 50 per
cent Interest and made defcency assessments accordngy. Pettoner s con-
tenton, both before the Commssoner and the oard was, that n those years
he owned ony a 25 per cent nterest n the partnershp, that hs wfe owned
the other 25 per cent nterest formery owned by hm, and that he, therefore,
was not assessabe wth the ta es thereon.
t the hearng before the oard respondent moved for |udgment upon the
ground that the former decson n Lennger v. Cotnmr. (19 , T. ., 621),
reversed by ths court (Lennger v. Commr., 51 ed. (2d), 7) but affrmed In
urnett v. Lennger (285 U. S., 136), was res ad|udcata. The oard hed that
the |udgment of the Supreme Court consttuted an estoppe aganst the con-
tenton of pettoner.
We concur n that vew.
The former proceedng was kewse between pettoner and the Commssoner
and the controversy was the same as that presented here, . e., whether
pettoner owned a 50 per cent nterest n the partnershp. owever, the
defcences assessed n the former case were for the years 1920 to 1923. ncu-
sve. Pettoner s contenton n the former case was based upon a wrtten
agreement made durng the atter part of 1920 confrmatory of a pree stng ora
agreement, between pettoner and hs wfe, wheren t was acknowedged
that pettoner s wfe had been and was a fu equa partner wth hm n the
nterest n the age Laundry Co., entted to share equay n the profts
and obgated to bear equay any osses. Ths agreement was retroactve
as of anuary 1, 1920. The transfer was known to M. . Monaghan, who
represented the owners of the other 50 per cent nterest n the aundry company.
The Supreme Court hed that ths agreement between pettoner and hs wfe
dd not consttute her a member of the partnershp that he and not she was
the frm member and t affrmed the decson of the oard that pettoner was
abe for the ta es on a the profts of a one-haf nterest n the partnershp.
In the present case pettoner shfts hs ground. s contenton here s, not
that Mrs. Lennger was a subpartner n hs 50 per cent Interest, but that he
owned ony one-haf of hs orgna hodngs and that hs wfe owned the other
haf as an actua partner n the aundry company tsef. e ntroduced at
ths hearng testmony tendng to show that n 1920 an agreement, retroactve
as of anuary 1, was effected between pettoner, representng hmsef and hs
wfe, and Monaghan, representng hmsef and hs ssters, who coectvey
owned the other 50 per cent nterest n the partnershp, that Mrs. Lennger
shoud be and was accepted as a partner aong wth pettoner, each ownng
a one-quarter nterest n the busness.
ssumng that ths evdence was suffcent to reduce pettoner s nterest
n the partnershp to 25 per cent, hs dffcuty s, that athough ths may have
been hs actua status at the begnnng of the ta year 1920, the Supreme
Court decded ths very ssue, that s, the e tent of hs nterest, aganst hm
n the former proceedng and ts decson s undoubtedy concusve aganst hs
present contenton, athough dfferent ta years are nvoved. (See Tat v.
Western Md, Ry. Co., 289 T . S., 620, 623 Ct. D. 683, C. . II-1, 357 (1933)
Unted Shoe Mach. Co. v. Unted States, 258 D. S.. 451, 458 ates v. ode,
245 U. S., 520, 526 Radford v. Myers, 231 U. S., 725, 730 Cromwe v. County of
Sac, 94 U. S., 351, 370 Sutton v. Wentworth, 247 ed., 493, 501 (C. C. . 1)
Santos v. Moreda, 71 ed. (2d), 608. 609 (C. C. . 1).) The e tent of pet-
toner s nterest havng been determned In the frst sut, the queston may
not be retgated In the second. If pettoner shoud now be permtted to
Introduce evdence avaabe on the frst hearng, or new evdence, or advance
a dfferent theory to sustan the contenton decded aganst hm n the frst
acton, the purpose of res ad|udcata woud be frustrated. Southern Pac.
R. R. Co. v. Unted States, 168 U. S., 1 Tat v. Western Md. Ry. Co., 62 ed.
(2d), 933. 935 (C. C. . 4).) It must be kept n mnd that pettoner ntroduced
no evdence to Indcate any change n hs status at the begnnng of the ta
year 1924 e cept the returns of the partnershp and the ndvdua returns of
hmsef and wfe for that and subsequent years. Wthout dscussng these
returns n deta t s suffcent to say that for such purpose they are wthout
probatve force.
Pettoner urges that res ad|udcata does not appy to orders of the oard
It s enough to say that the doctrne does appy to decsons of the Supreme
Court.
The order of the oard of Ta ppeas s affrmed.
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311
203, rt. 973.
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 203. N T INCOM O LI
INSUR NC COMP NI S.
rtce 973: Investment e penses. I-44-9015
Ct. D. 1274
ncome ta revenue acts of 1926 and 1928 decson of court.
Deducton Commssons Pad to Rea state gents by Lfe
Insurance Company Capta pendture.
Commssons pad n 1927 and 1928 by a ega reserve fe nsur-
ance company to rea estate agents for servces n seng rea
estate prevousy acqured by defaut on oans made by the com-
pany were not deductbe from gross Income as nvestment e -
penses wthn the meanng of the appcabe statutes, but were
e pendtures made on capta transactons wthout reaton to
ta ed ncome. It was the Intenton of Congress to aow deductons
ony from compementary ta abe Income.
Unted States Crcut Court of ppeas for the S th Crcut.
The Unon Centra Lfe Insurance Co., pettoner, v. Commssoner of Interna
Revenue, respondent.
89 ed. (2d), 969.
Petton to revew an order of the Unted States oard of Ta ppeas.
efore Moorman, cks, and en, Crcut udges.
May 4, 1937.
OPINION.
Moorman, Crcut udge: The pettoner s a ega reserve fe nsurance
company organzed under the aws of the State of Oho. Pror to the ta ng
perod here nvoved t nvested a part of ts reserve n mortgage oans on rea
estate. There were defauts on some of the oans, and the pettoner, n order
to protect ts nvestments, acqured the mortgaged propertes. Durng the ca-
endar years of 1927 and 1928 t sod some of the propertes through rea estate
agents and pad them the usua commssons for ther servces. In makng
ts ncome ta returns for those years t deducted the amounts pad n com-
mssons from ts gross ncome. The deductons were dsaowed by the Com-
mssoner and defcency ta es assessed. The oard of Ta ppeas sustaned
the acton of the Commssoner and ths petton for revew foowed.
Pettoner s ta abe for ncome purposes under sectons 242 to 245, ncusve,
of the Revenue ct of 1926 and the correspondng provsons of sectons 201
to 203, ncusve, of the Revenue ct of 1928. These statutes aow deductons
from gross ncome of nvestment e penses pad by the ta payer durng the
ta abe year. The pettoner contends that the commssons pad by t to the
rea estate agents were nvestment e penses deductbe from ts ncome.
The term nvestment e penses has not been defned by statute or author-
tatve ad|udcaton. We ook for ts meanng to the reaton of the e pend-
tures to ta ed ncome. It was the ntenton of Congress to aow deductons
ony from compementarv ta abe ncome. (See Rock ford Lfe. Insurance Co. v.
Commssoner, 292 U. S., 383. 3S4, 385 Ct. D. 837, C. . III-1, 153 (1934) .)
ega reserve fe nsurance company s ta ed under a statute whch does not
consder capta gan or oss n the sae of rea estate. The deductons here
sought are payments of commssons on saes of rea estate and were a part of
the gans or osses thereon, not to be consdered In computng ta abe ncome.
In our opnon they are not nvestment e penses wthn the meanng of the
statutes but e pendtures made on capta transactons wthout reaton to
ta ed ncome. (Compare everng v. Mssour State Lfe Insurance Co., 78
ed. (2d), 778, 781.)
The order of the oard of Ta ppeas s affrmed.
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204, rt. 993.
312
S CTION 204. INSUR NC COMP NI S OT R
T N LI OR MUTU L.
rtce 993: Deductons aowed nsurance I-41-8972
companes other than fe or mutua. Ct. D. 1268
INCOM T R NU CT O 1928 D CISION OP COURT.
1. Deducton Losses Incurred Insurance Company Other
Than Lfe or Mutua Constructon op Statute.
In determnng underwrtng ncome for edera ncome ta
purposes, an nsurance company other than fe or mutua may not
deduct as osses ncurred the amount so desgnated n ts under-
wrtng and nvestment e hbt of the annua statement approved
by the Natona ssocaton of Insurance Commssoners, where
such amount conssted of tems specfed n the State statute to be
used n computng the reserve for outstandng osses, but where
no showng was made that such reserve was actuay the amount
of osses ncurred wthn the meanng of the edera statute.
Secton 204(b)6 of the Revenue ct of 1928, whch specfcay
defnes osses ncurred, s paramount to the genera provsons
of secton 204(b), whch reates to the entre sub|ect of nvest-
ment ncome and underwrtng ncome.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (33 . T. ., 501) affrmed.
Unted States Crcut Court of ppea.s for the Nnth Crcut.
Pacfc mpoyers Insurance Co., pettoner, v, Commssoner of Interna
Revenue, respondent.
89 ed. (2d), 186.
Upon petton to revew a decson of the Unted States oard of Ta ppeas.
efore Wu||ur, Mathews, and anet, Crcut udges.
March 29, 1937.
OPINION.
anet, Crcut udge: To revew a decson of the oard of Ta ppeas
ths petton s presented to us.
Pettoner, a Caforna corporaton, has been and s operatng an nsurance
busness soey n Caforna. ourteen-ffteenths of the net premum ncome
of pettoner for the year 1930 was from workmen s compensaton nsurance,
and the baance was from automobe abty, coson and property damage
nsurance, prncpay, and a sma voume from pubc abty and theft
nsurance.
Secton 204 of the Revenue ct of 1928 s appcabe to pettoner In the
computaton of ts ncome ta for the year 1930, the year n queston. y
the terms of that secton one tem of gross ncome s underwrtng n-
come as provded n ths subsecton, computed on the bass of the underwrt-
ng and nvestment e hbt of the annua statement approved by the Natona
Conventon of Insurance Commssoners. Underwrtng ncome s defned
to be the premums earned on nsurance contracts durng the ta abe year
ess osses ncurred and e penses ncurred. In computng the underwrtng
ncome, the deducton for osses ncurred s to be computed as foows:
To osses pad durng the ta abe year, add savage and rensurance recov-
erabe outstandng at the end of the precedng ta abe year, and deduct
savage and rensurance recoverabe outstandng at the end of the ta abe
year. To the resut so obtaned add a unpad osses outstandng at the end
of the ta abe year and deduct unpad osses outstandng at the end of the
precedng ta abe year
In ts return pettoner, n arrvng at the amount of underwrtng n-
come computed the osses ncurred at 882,032.55, but subsequenty camed
an error theren, and asserted the correct amount to be 1,022,015.88.
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313
204, rt. 993.
In the return osses pad are shown to be 865,801.55, and the unpad
osses outstandng at the end of the ta abe year are shown to be 600,980.
The tota of these tems s 1,526,781.55. rom ths tota there s to be deducted
unpad osses outstandng at the end of the precedng ta abe year, whch
tem s shown n the return to be 644,149. The tota ess that deducton eaves
the sum of 882,632.55, shown n the return as osses ncurred.
The camed error arses as foows: Secton 602a, Potca Code of Ca-
forna, provdes a method for computng a reserve for outstandng osses.
Pettoner submtted to the nsurance commssoner of Caforna, Its annua
report whch Incuded the underwrtng and nvestment e hbt, the entre
form of the statement beng approved by the Natona Conventon of Insur-
ance Commssoners. The osses ncurred as shown on the e hbt, con-
ssted of tems specfed n secton 602a, Potca Code of Caforna, whch
are used u computng the reserve theren mentoned. Under that e hbt
tne osses pad s n accord wth the amount shown on the return -
865,801.50. owever, the unpad osses outstandng at the end of the ta -
abe year are shown to be 596,532.85. (In the return ths tem s 600,980.)
The tota of the osses pad and the unpad osses outstandng at the end
of the ta abe year thus shown, s 1,462,334.40. The e hbt shows the
unpad osses outstandng at the end of the precedng ta abe year to be
440,318.52. (The return shows ths tem to be 644,149.) Deductng the
440,318.52 from the tota of 1,402,334.40, eaves a baance of 1,022,015.88
whch s the reserve for outstandng osses specfed by the Caforna
statute.
The oard hed that the method used by pettoner n reportng unpad
osses n ts return was proper and that the method now advanced by t s
not n accordance wth the statute, and affrmed respondent s determnaton,
assessng a defcency n the sum of 1,193.45. Pettoner fed ts petton wth
ths court to revew that determnaton.
Pettoner contends that snce secton 204 of the Revenue ct of 1928 pro-
vdes that underwrtng Income as provded n ths subsecton, computed
on the bass of the underwrtng and nvestment e hbt of the annua state-
ment approved by the Natona Conventon of Insurance Commssoners, the
portons of the subsecton specfyng the tems to be used n computng such
underwrtng ncome by mpcaton carry wth them the provson reatng
to the underwrtng and nvestment e hbt of the annua statement
that therefore the amounts of the tems mentoned n the statute, are to be
determned by the amounts contaned n such e hbt.
rtce 992 of Reguatons 74, promugated under the Revenue ct of
1928, provdes n part:
rpne underwrtng and nvestment e hbt s presumed ceary
to refect the true net ncome of the company, and n so far as t s not
nconsstent wth the provsons of the ct w be recognzed and used as a
bass for that purpose. tems of the e hbt, however, do not refect an
nsurance company s ncome as defned n the ct.
Pettoner s contenton s untenabe. The provson (secton 204(b)) men-
tonng the e hbt s genera, and reates to the entre sub|ect of nvestment
ncome and underwrtng Income. nother provson (secton 204(b)6)
has specfc reference to one deducton to be made n computng underwrtng
ncome. The genera must succumb to the specfc. (Murphy O Co. v.
urnet (C. C. . 9), 55 . (2d), 17, 25 affrmed 287 U. S., 299 Ct. D. 619.
C. . II-1, 231 (1933) .) The statute (secton 204(b)6) settng the measure
of the deducton of osses Incurred s therefore paramount. The reguaton
s not contrary to that constructon.
The amount of osses ncurred shown by the e hbt, s estabshed to be a
reserve. Whe the amount of a reserve set up n the e hbt mght concde
wth the amount of osses ncurred as computed accordng to the statute
(secton 204(h)6), the mere fact that the reserve s desgnated for osses
ncurred does not estabsh that the amount of such reserve s the amount
of osses ncurred wthn the meanng of the edera statute. reserve
mght be set up for payment of osses whch may or may not happen n the
future, but the amount thereof s not, concevaby, a oss ncurred. No show-
ng s here made that the reserve shown by the e hbt s actuay the amount
of osses ncurred, specfed n the edera statute. Reance s paced
entrey on the contenton herenabove mentoned.
ffrmed.
77964 38 11
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322, rt. 1257. 314
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 1028.
empton from ta aton of earnngs of shps documented under
the aws of Norway, Great rtan, Denmark, and Greece. (See I. T.
3104, page 166.)
rtce 1042: cuson of earnngs of foregn shps
from gross ncome.
R NU CT OP 1928.
Ta aton of earnngs of shps documented under the aws of n-
and. (See I. T. 3108, page 167.)
SUPPL M NT L. SS SSM NT ND COLL CTION O D ICI NCI S.
S CTION 275. P RIOD O LIMIT TION UPON
SS SSM NT ND COLL CTION.
rtce 1201: Perod of mtaton upon assessment
of ta .
R NU CT O 1928.
ddtona ta based upon refund of foregn ta es for whch
credt has been taken. (See G. C. M. 18801, page 302.)
SUPPL M NT O. O RP YM NTS.
S CTION 322. R UNDS ND CR DITS.
rtce 1257: Lmtatons upon the credtng I-34-8887
and refundng of ta es pad. Ct. D. 1253
INCOM ND PRO ITS T R NU CTS O 1924, 1926, ND 1928
D CISION O COURT.
Res udcata Order op oard of Ta ppeas Reversa of
Credt of 1917 Overpayment ganst 1922 Defcency.
fna order of redetermnaton ssued by the oard of Ta
ppeas n accordance wth a stpuaton agreeng to the amount of
defcency for 1922 and overpayment for 1923 s res udcata not
ony as to matters submtted to the oard but aso as to a other
matters whch mght have been presented wth reference to the
ta es for those years, ncudng the queston whether the Com-
mssoner, havng credted an overpayment of ta for 1917 aganst
the 1922 defcency, and havng subsequenty found a defcency for
1917. had the rght In 1928 to reverse such credt.
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315
322, rt. 1257.
Court of Cams of the Unted States,
mercan Wooen Go. v. The Unted States.
18 . Supp., 783.
pr 6, 1937.
OPINION.
Green-, udge, devered the opnon of the court
y agreement of partes two cases, Nos. 42459 and 42904, of the mercan
Wooen Co. v. Unted States, have been submtted to the court under one
fndng of facts and one argument. Pantff s pettons set out aternatve
causes of acton for the caendar years of 1922 and 1923 upon whch t bases
cams for refund. Certan proceedngs wth reference to pantff s ta for
1917 become mportant n determnng the cases now before the court but no
refund s camed for 1917.
Pantff duy fed ts ncome and profts ta returns for 1917 and pad the
amount of ta es thereby shown to be due. s a resut of subsequent audts
an overassessment n the amount of 138,492.16 was aowed and pantff on
March 14, 1923, fed a cam for credt thereof aganst the assessment for 1922.
bout uy 2, 1923, a certfcate of overassessment of 138,492.16 for the year
1917 was ssued to pantff showng that the amount of the overassessment
was credted to the ta for 1922 on the une, 1923, st. Ths was duy aowed
ugust 1, 1923. The cash payments made by pantff n 1923 together wth
ths credt made a tota of 1,292,058.94 whch was the assessment for 1922 as
t then stood.
une 15, 1924, pantff fed ts competed return of ncome for 1923 In-
dcatng a ta thereon of 1,465,483.39 whch was assessed and pad n fu
December 15, 1924, and ater the pantff pad nterest In the sum of 245.57
on a defcency n the frst quartery payment.
anuary 27, 1925, the Commssoner advsed pantff that ts 1917 ta a-
bty had been reaudted wth the resut that a barred defcency was deveoped
n the amount of 1,829,223.03, and on anuary 30, 1928, the credt of 138,492.10
whch had been made on the ta es of 1922 from an overassessment of 1917
whch the Commssoner had determned to be erroneous was reversed
on the coector s books by drecton of the Commssoner ndcatng that
amount as coectbe for 1922.
March 15, 1928, the pantff fed a cam for refund of 213,996.15 of ta es
for the year 1923. Later n the same year proceedngs were begun to coect
the amount of 138,492.16 then shown by the coector s books to be outstandng
on the ta es of 1922 by ssung a warrant of dstrant and on pr 12, 1928,
the pantff under protest pad ths amount together wth nterest In the sum
of 42,170.86, a tota of 180,663.02.
On December 14, 1928, the pantff fed a further cam for refund n the
sum of 299,967.23 for the year 1923 and on pr 10, 1930, pantff fed a
cam for refund of the sum of 180,603.02 coected pr 12, 1928, statng t
n the aternatve as appcabe to the year 1917 or 1922 as the case mght be.
bout December 17, 1930, the Commssoner sent pantff a 60-day defcency
etter showng defcences of 154,819.50 for 1922 and 88.50 for 1923 and
statng that the refund cams for the year 1923 had been carefuy consdered.
nne ed to the etter was an eaborate statement and cacuaton of the
method by whch the Commssoner s offce reached ths resut whch was set
forth n more than 30 pages of e panatory matters and fgures. It contaned
a summary of the ta abty of the pantff as foows:
Year.
Corrected ta
abty.
Ta prevousy
assessed.
Defcency.
1922.
1, 44f, 87S. 44
1, 463, 571. 89
1. 292.058. 94
1, 485, 483. 39
154,819.50
88.50
1923
2,812,450.33
2, 757,542. 33
154. DOS. 00
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322, rt. 1257.
316
It w be observed that ths statement s made as If the ta prevousy
assessed had been pad, but there was nothng In the statement as to the
manner n whch the orgna assessment for 1922 had been satsfed. It Is
pan, however, that the credt of 138,492.16 orgnay made from an over-
assessment for 1917 was not aowed In the statement submtted.
bout December 29, 1930, the pantff was formay notfed by the Comms-
soner that ts refund cam of 180,663.02 woud be re|ected both as to the
year 1917 and the year 1922, and shorty after on anuary 12, 1931, the pan-
tff fed a petton wth the oard of Ta ppeas for redetermnaton of ts
ta abty for 1922 and 1923. The proceedngs before the oard of Ta p-
peas w be narrated further on. In the meantme, the pantff brought sat
In the Dstrct Court of Massachusetts aganst the coector to recover wth
nterest the sum of 180,663.02 coected from It on the ta es of 1922 as stated
above. Ths sut utmatey resuted In a dsmssa wthout pre|udce and has
no bearng on the Issues now before us.
It has been herenabove shown that after the account of pantff for 1922
had been baanced by a credt of 138,492.16 and after the statute of mta-
tons had run aganst the coecton of the ta for 1917, the Commssoner
reversed hs hodng that there was an overassessment for 1917 and hed
nstead that there was a defcency for that year of 1,829,223.03 aso that ths
eft 138,492.16 outstandng aganst the pantff and unpad for 1922. In hs
drectons to the coector gven about anuary, 1928, under whch ths so-caed
reversa was made, the Commssoner, after statng that a arge defcency had
been found n the ta es for 1917 nstead of an overassessment, sad:
It therefore w be necessary for you to reverse the overassessment of
138,492.16 apped to the une, 1923, st, account No. 424000, and to mmed-
atey coect the ta eft outstandng as a resut of ths ad|ustment
y ths, he meant that the coector shoud cance the overassessment for
1917 and the credt made therefrom on the ta es of 1922, and that was what
the coector dd. The pantff strenuousy contends thnt the Commssoner
had no rght to reverse the credt, especay as the statute of mtatons
had then run aganst the coecton of ta es for 1917, and aso argues that the
reversa of the credt was never ordered by the Commssoner but ony by the
deputy commssoner wthout authorty. The pantff aso says that the record
does not dscose any facts whch woud |ustfy the fndng of the defcency for
1917 nstead of an overassessment and that the burden of proof on ths pont
rested wth the defendant. We are ncned to thnk the Commssoner had
nuthorty to reverse the credt, but n vew of what took pace subsequenty, we
do not consder t necessary to dscuss these contentons.
Takng up ne t the proceedngs before the oard of Ta ppeas to deter-
mne the ta es of pantff for 1922 and 1923, we fnd that the partes fed a
stpuaton n whch t was agreed that for the year 1922 there s a defcency
n ncome ta of 154,819.50, and that for the year 1923 the foowng s a state-
ment of the pettoner s ncome ta abty:
Ta assessed and pad 1,405,4S3.39
Correct ta abty 1,240,681.79
Overpayment 224, SOI. 60
nd t was further agreed that the Commssoner mght assess and coect the
defcences mmedatey upon the ssue by the oard of Ta ppeas of ts
order of redetermnaton. ccordngy, on anuary 12, 1932, the oard entered
an order of defcency for 1922 of 154,819.50 and an overpayment of 224,801.60
for 1923. No appea was ever taken from ths decson and t therefore became
fna as a statement of pantff s account for ta es for these two years on the
date ast mentoned. No queston was rased before the oard of Ta ppeas
as to the manner n whch the orgna assessment for 1922 had been satsfed.
Under the statute and the rungs whch we have made n severa decsons the
order of the oard became res ad|udcata not ony as to such matters as were
submtted to the oard but as to a other matters wth reference to the ta es
for these two years whch mght have been preseuted. (See quotaton from
case of Oho Stee oundry Co. v. Unted States, 09 C. Cs., 158, set out ater
on n ths opnon.)
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317
322, rt. 1257.
ebruary 13, 1032, the Commssoner assessed aganst pantff the defcency
of 154,819.50 for 1022 found by the oard and nterest thereon to ebruary 11,
1032, of 70,258.04, tota 234,077.54. March 7, 1032, the Commssoner sgned a
schedue of overassessments showng 224,801.60 overassessed for 1923. The
coector credted that sum March 14, 1932, upon the addtona ta es for 1922
wth nterest, whch acton was approved by the Commssoner March 15, 1932,
nd that eft, after another mnor ad|ustment, 9,030.37 unpad for 1922. The
aw e pressy requred the Commssoner to make ths credt. See secton
284(a), ct of 1926, and secton 322(a), ct of 1928. We have hed to that
effect n Standard O Co. v. Unted States (78 C. Cs., 714, 740 Ct. D. 842, C. .
III-1, 339 (1934) ) and severa other cases whch were compcated by sur-
roundng crcumstances. In the case at bar, there are no such compcatons.
It s a cear case for the appcaton of the statutory provson that where
there has been an overpayment of any ta the amount of such over-
payment sha be credted aganst any ncome, war profts, or e cess profts ta ,
or nstament thereof then due from the ta payer. In the case ast cted we
went so far as to hod that the overpayment must be so apped athough such
appcaton was not consstent wth the nstructons of the ta payer. In
March, 1932, the coector demanded and receved from pantff 0,030.37, beng
the amount unpad on the ta es of 1922, after the defcency for that year and
Interest thereon had been credted wth the overpayment for 1923, together
wth a sma tem of nterest and shorty after pad pantff 06,612.34 Interest
on the overpayment for 1923. Ths baanced and cosed the accounts for both
years (see ndng 17).
these proceedngs were strcty n accordance wth aw. Some queston
may arse as to whether the Commssoner re|ected the ast cam for refund
for 1923 fed December 14, 1928, but we do not thnk ths s matera and t s
not treated as matera n the argument of pantff s counse n support of a
refund of the overassessment fnay determned for 1923 by both the oard
and the Commssoner, the argument beng based on the decson of the oard
of Ta ppeas. We have hed that when a ta payer has a decson of the
oard n hs favor he can brng sut thereon wthout fng a cam for refund.
ut ths does not mean that where the Commssoner has apped an over-
payment found by the oard n the manner requred by aw, the ta payer can
st recover by sut the amount thereof. When the Government shows, as t
has n ths case, that the amount of the overassessment was credted on a de-
fcency then due under the decson of the oard, t s a compete defense.
No ogca theory can be framed under whch pantff can now mantan a
sut on the ground that there s due t 138,492.10 wth nterest, for the proceed-
ngs of the Commssoner subsequent to the decson of the oard of Ta p-
peas were based upon the order of the oard and are not n confct but n
accord therewth. It s argued on behaf of the pantff that the oard of Ta
ppeas, after ts determnaton had been made, dd not have |ursdcton to
decde anythng wth reference to the nterest charged on the defcency for
1922 and the appcaton of the overpayment for 1923 whch eft a baance of
9,030.37 to be pad by the pantff. Ths argument obges us to repeat n a
tte dfferent form some matters aready stated, the consderaton of whch
w show that the oard s decson eft nothng further to ad|udcate. The
net amount due the pantff under the determnaton of the oard of the ta es
of 1922 and 1923 and the aw wth reference to credts was merey a matter of
mathematca cacuaton n whch Interest was charged accordng to aw on
the defcency for 1922 and from the resutng tota of 5234,077.54 due for 1922,
there was deducted the overpayment of 224,801.60 on ta es for 1923 and
another sma nterest payment as to whch there s no controversy. Ths made
no dsposton of the nterest on the overpayment for 1923. The Commssoner
mght have satsfed the 9,030.37 out of ths Interest due the pantff on the
overpayment Instead of so dong, he coected ths sura from pantff and
certfed for payment the whoe amount of nterest due on the 1923 overassess-
ment. ut there s nothng n ths of whch the pantff can compan. The
utmate resut was the same.
The form of the stpuaton s such that t must be presumed that a matters
of controversy between the partes wth reference to the ta es for 1922 and
1923 were covered thereby and dsposed of by tho fna order of the oard.
Moreover, the ta abty of 1,446,878.44 f ed by the oard for 1922 s
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322, rt. 1257.
318
uttery Inconsstent wth the aegatons upon whch pantff bases ts cam
for refund for 1922 as ast fed.
The case of Oho Stee oundry Co. v. Unted States (69 C. Cs., 158) a
cted by pantff n support of ts poston. We thnk the opnon theren a to
the contrary. In the frst pace the basc facts n the Oho Stee case were
atogether dfferent from those n the case at bar and a dfferent queston was
presented to the court The ssue n that case was whether after a sut had
been commenced n ths court to recover ta es, the determnaton of a defcency
by the Commssoner and the nsttuton by the ta payer of a proceedng before
the oard of Tar ppeas n reaton to the same matters deprved ths court
of |ursdcton, and the court hed that t dd not. In that case t appeared
us n the case at bar that the Commssoner had determned and notfed
Ihe ta payer of a defcency n respect to a ta abe year and the ta payer
nsttuted a proceedng before the oard of Ta ppeas for the redetermnaton
of such defcency. mong other thngs, the court hed that n such a case the
oard of Ta ppeas and the appeate courts had e cusve power ut-
matey and fnay to decde a questons, both as to defcences and overpay-
ments, that coud arse between the ta payer and the Government n connec-
ton wth the ta abty for the year or years nvoved n such proceedngs
(hat under such crcumstances the aw contempated that no sut shoud be
Insttuted by a ta payer for the recovery of a ta and further that
Under such crcumstances t woud be ncumbent upon the ta payer to
rase a questons reatng to hs ta abty for the ta abe year, n respect
of whch the Commssoner had determned the defcency, before the oard
of Ta ppeas and to pursue hs remedy wth respect both to the defcency
and to any camed overpayment to a concuson under the provsons of the
evenue ct of 1926, ether by acceptng the decson of the oard, whch has
become fna by the e praton of the tme for fng of a petton for revew
of such decson, or by prosecutng such revew to a concuson as provded
by aw.
The court, however, went on to hod that the statutory provson that no sut
by the ta payer for the recovery of any part of such ta abty sha be
nsttuted n any court apped ony to suts begun after the mang of the
defcency notce and nsttuton of a proceedng before the oard of Ta
ppeas such as s found n the case now before us, and that t had no appca-
ton to a case commenced pror to the proceedngs before the oard of Ta
ppeas, whch was the stuaton n the case cted.
Pantff s counse quote the foowng from the opnon n the ast named
case as supportng ther argument:
Wth respect to the queston of nterest and credts over whch the oard
has hed t has no ursdcton, we fnd nothng n the statute whch woud
precude the ta payer from brngng sut n ths court upon any aeged m-
proper credt or aeged faure propery to compute and pay nterest upon any
overpayment found by the oard.
When we consder ths statement n connecton wth the remander of the
opnon, t s qute pan that the court had reference to credts made and
nterest aowed after the decson of the oard to whch the oard s decson
manfesty woud not appy, but there s no cam n the case at bar that the
subsequent proceedngs as to Interest and credt were setted by the oard s
decson. The nterest charged on the defcency for 1922 was f ed by the aw
wth reference to nterest on defcences. The credt of the overassessment
for 1923 upon the amount due for 1922 was postvey requred by the statute.
The rest, as we have sad, was merey a matter of mathematca cacuaton.
It s evdent that no proper ob|ecton can be made to the proceedngs of the
Commssoner subsequent to the decson of the oard of Ta ppeas.
It foows from what s sad above that the pantff has no vad cam for
a refund and ts pettons n the two cases before us must be dsmssed.
Whaey, udge Wams, udge and ooth, Chef ustce, concur.
Ltteton, udge: I concur n the decson dsmssng the pettons on the
ground that the |udgment of the Unted States oard of Ta ppeas s
tcs ad|udcata as to a questons affectng the ta abty for 1922 and 1923.
(Peeress Wooen Ms v. Commssoner, 13 . T. ., 1119, and T. W. Warner
Co. v. Unted States, 83 C. Cs., , 15 ed. Supp., 160.)
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319
322, rt. 1257.
rtce 1257: Lmtatons upon the credtng I-36-8906
and refundng of ta es pad. Ct. D. 1258
INCOM T R NU CT O 1928 D CISION O COURT.
1. Sut Recovery of Overpayment rroneous Refund stop-
pe Recoupment Statute of Lmtaton.
Where the Commssoner erred n determnng the vaue of the
ta payer s nventory as of November 30, 1926, whch had the effect
of decreasng ta abe ncome for 1927 and ncreasng t for 1926,
the ta payer s not estopped to mantan a sut to recover the over-
payment for 1927, snce the Government faed affrmatvey to
show that, because of reance upon representatons made n ta -
payer s cam for refund of the 1927 overpayment, t had not made
demand for an erroneous refund of ta for 1926 however, the
Government s entted to recoup the amount of the erroneous re-
fund, notwthstandng that t had not nsttuted sut therefor wthn
the perod of mtaton, snce the defense of recoupment s not
barred so ong as the man acton s tmey.
2. Decson oowed.
u v. Unted States (295 U. S., 247 Ct. D. 969, C. . I -1, 310
(1935) ) foowed.
Unted States Crcut Court of ppeas fob the ghth Crcut.
Crossett Lumber Co. et a., appeants, v. Unted States of merca, appeee.
87 ed. (2d), 930.
ppea from the Dstrct Court of the Unted States for the Western Dstrct of
rkansas.
ebruary 8, 1937.
OPINION.
Thomas, Crcut udge, devered the opnon of the court.
Ths sut was brought n the court beow by the ta payer appeant as pan-
tff to recover 6,548.42 as an overassessment of ncome ta for the fsca year
endng November 20, 1927. The acton was tred to the court wthout a |ury
upon a stpuaton of facts. rom a |udgment n favor of the appeee the
pantff appeas.
The court adopted the facts as stpuated as ts fndngs. rom such fndngs
t appears that the Commssoner of Interna Revenue erred In determnng
the vaue of the pantff s Inventory of November 30, 1926. Ths had the effect
of decreasng appeant s ta abe ncome n 1926 and ncreasng t n 1927.
s a resut thereof the sum of 6,528.21 was credted to the appeant by the
Commssoner on anuary 19, 1931, aganst a 1924 defcency. s a further
resut of the erroneous vauaton the appeant pad the ta now sought to be
recovered. On November 2, 1931, wthn two years after the Commssoner s
erroneous refund, the appeant fed wth the Commssoner ts cam for
refund for the fsca perod endng November 20, 1927. In the refund cam
the appeant contended that faure of the Commssoner to revse the Inven-
tory of November 30, 1926, as was done for other years, was nconsstent and
erroneous and shoud be ncreased n a stated amount. The cam fed by
appeant contans the foowng statements:
The above tem s camed prmary to protect the company s rghts In
the event that the Unted States shoud ever brng sut on the theory that any
part of the 1926 overassessment credted aganst a 1924 defcency of Crossett
Lumber Co. on or about anuary 19, 1931, was an erroneous refund wthn the
meanng of secton 610 of the Revenue ct of 192,8. The company docs not
Intend to pursue ths cam for a reducton of 48,506.84 n 1927 ncome pro-
vded that wthn the perod of mtatons n ts favor on ths tem there
contnue as to the varous sgnatores of ths cam for refund the reatons wth
the ureau that have e sted In the past as to settements of ta controverses
wthout resort to the oard of Ta ppeas or the courts.
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320
Ths cam s not to be construed as revvng a rght to assess or coect any
1926 ta now barred by the statute of mtatons but f n any proceedng as to
1926 ta the Unted States shoud aege that the umber Inventory at November
30, 1926, amounted to more than 441,288 cam s hereby made that such
arger amount be used n determnaton of 1927 ta abe Income.
No sut was nsttuted by the Unted States wthn the perod provded by
secton 610 of the Revenue ct of 1928 for the recovery of the erroneous refund
ut on une 19, 1934, after the tme n whch the Government mght have sued,
ths sut was nsttuted by the Crossett Lumber Co. The Unted States
answered aegng that because of the foregong representatons, set out In the
refund cam by the appeant, t had negected to make demand for the er-
roneous refund, and that the appeant shoud, therefore, be estopped from
recovery and, further, that on account of the representatons of the appeant
the defendant was entted to recoupment and set-off. The tra court found
for the appeee on the theory of estoppe, apparenty not passng upon the rght
of recoupment.
The stpuaton of fact pertanng to the acton of the Unted States s as
foows:
No sut or proceedng was nsttuted by the Unted States wthn the perod
provded by secton 610 of the Revenue ct of 1928 for the recovery of that
part of the erroneous refund and/or overassessment for the year 1926 admtted
to be erroneous and credted by the Commssoner of Interna Revenue aganst
a 1924 defcency of Crossett Lumber Co. on or about anuary 19, 1931.
The appeee n ths case peaded estoppe. y so dong It drew upon tsef
the burden of estabshng affrmatvey the facts n support thereof. Sever-
ng v. rookyn Cty Raroad Co. (0. C. . 2), 72 . (2d), 274 reweron v.
Unted States (Ct. Cs.), 9 . Supp., 503.) Whether the statement n the
cam was such that the Commssoner was |ustfed n reyng on the same
need not be determned. There s no statement n the stpuaton of fact to
the effect that n reance upon such representaton the Commssoner faed
to take acton to recover the erroneous refund. The reason of hs nacton s
eft purey to con|ecture. One who peads an estoppe n pas must be abe
to show among other thngs that he reed on the conduct of the party aganst
whom he s urgng the estoppe. (Washngton L. d T. Co. v. Conventon of
P. . Church, 293 ., 833, 839.) The Government In ths case therefore faed
affrmatvey to show one of the necessary eements of estoppe.
It does not foow, however, that the |udgment of the court beow must be
reversed. |ust |udgment whch s warranted by the record and facts w not
be overthrown because t was based on the wrong reason. aker v. aser
(C. C. . 8), 83 ., 684, 687.) In ths case the Government set up the defense
of recoupment so, f the facts n the case ceary support that defense, the
|udgment may stand.
The ordnary sub|ect matter of recoupment s a cam arsng drecty from
the partcuar contract sued upon. amar e ampes are where the defendant
n an acton to recover the purchase prce of goods sod wth warranty sets up
n defense a breach of warranty (C. utman Co. v. Torrey, 55 Mnn., 492, 57
N. W., 211), or where In an acton to forecose a purchase money mortgage the
defendant recoups because of the vendor s fraud n nducng the purchase
( aup v. Schnstock, 88 Neb., 95, 129 N. W., 184 Wams v. Neey (C. O. 8),
134 ., 1). Recoupment, however, Is not necessary so mted. In Word T.
pne Tp. (204 Mch., 619, 171 N. W., 446), n an acton n assumpst aganst a
townshp for the converson of materas whch had been furnshed by pantff
n the coustructon of a brdge, t was hed that the defendant coud recoup for
damages sustaned by reason of the pantff s nonperformance of the contract
That case contaned the foowng quotaton from Waterman on Set-off and
ecoupment (2d d.), page 480, as to how recoupment s dstngushed from
set-off:
rst, n beng confned to matters arsng out of, and connected wth, the
transacton or contract upon whch the sut s brought second, In havng no
regard to whether or not such matter be qudated or unqudated and thrd,
that the |udgment s not the sub|ect of statutory reguaton, but controed by
the rues of common aw. It s suffcent that the countercams arse
out of the same sub|ect matter, and that they are susceptbe of ad|ustment n
one acton.
urther, the equtabe bass for the doctrne of recoupment has pecuar
appcaton to actons to recover ta es. The bass of the doctrne Is that pruv
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321
322, rt. 1257.
cpe of natura ustce whch denounces a cam as un|ust, Immora and fraudu-
ent when the camant Is at the same tme wrongfuy wthhodng money
whch In equty beongs to the other party. n acton to recover ta es s n
the nature of an acton for money had and receved. though n form t s
an acton at aw, t s governed by equtabe prncpes. (Champ Sprng Co. .
Unted States (C. C. . 8), 47 . (2d), 1 Ct. D. 323, C. . -, 446 (1931)
artwe Ms v. Rose (C. C. . 5), 61 . (2d), 441 Rose v. Mc achern (C. C. .
6), 86 . (2d), 231 Unted States v. efferson ectrc Co., 291 U. S., 386 Ct
D. 803, C. . III-1, 393 (1934) .) In such an acton a pantff can not recover
uness he can show that n equty and good conscence he s entted, as aganst
the defendant, to the money. Such an acton ams at the abstract |ustce of
the case, and ooks soey to the Inqury, whether the defendant hods money,
whch e aequo et bono beongs to the pantff. Cafn v. Godfrey, 38 Mass.,
t, 6, quoted wth approva In the efferson ectrc Co. case, supra.) In ths
case the appeant has faed to estabsh such an equtabe rght to recover.
In u v. Unted States (295 U. S., 247 Ct. D. 969, C. . I -1, 310 (1935) ),
It appears that u, a member of a partnershp, ded ebruary 13, 1920. Profts
accrung to hs estate from the partnershp busness for the perod from the
decedent s death to the end of 1920 were 212,718.79. Ths sum was erroneousy
made the bass of an estate ta and pad by the e ecutor. Thereafter the Com-
mssoner correcty determned that ths sum shoud have been the bass of an
ncome ta . The e ecutor appeaed to the oard of Ta ppeas from the
proposed ncome ta defcency. s appea was dsmssed pr 9, 1928. It
was then too ate to fe a cam for refund for overpayment of the estate ta
arsng from the error of ncudng In the estate ta ts share of frm profts.
The e ecutor pad the ncome ta so assessed under protest on pr 14, 1928,
and, after havng hs cam fo refund re|ected, brought an acton n the Court
of Cams on September 16, 1930, to recover the same. The Court of Cams
found aganst the ta payer on the ground that the cam was barred by the
statute of mtatons. On certorar to the Supreme Court the udgment of the
Court of Cams was reversed. The Court stated the ta payer s predcament
thus:
The fact that the pettoner reed on the Commssoner s assessment for
estate ta , and beeved the nconsstent cam of defcency of ncome ta was
of no force, can not ava to to the statute of mtatons, whch forbade the
brngng of any acton n 1930 for refund of the estate ta payments made
In 1921. s the Income ta was propery coected, sut for the recovery of
any part of the amount pad on that account was fute. Upon what theory,
then, may the pettoner obtan redress n the present acton for the unawfu
retenton of the money of the estate
The Court answered the nqury In the foowng anguage:
In a proceedng for the coecton of estate ta , the Unted States through
a papabe mstake took more than t was entted to. Retenton of the money
was aganst moraty and conscence. ut cam for refund or credt was not
presented or acton Insttuted for resttuton wthn the perod f ed by the
statute of mtatons. If nothng further had occurred, congressona acton
woud have been the soe avenue of redress.
In uy, 1925, the Government brought a new proceedng arsng out of
the same transacton nvoved n the earer proceedng. Ths tme however,
Its cam was for ncome ta . The ta payer opposed payment n fu, by
demandng recoupment of the amount mstakeny coected as estate ta and
wrongfuy retaned. ad the Government nsttuted an acton at aw, the
defense woud have been good. The Unted States, we have hed, can not,
as aganst the cam of an nnocent party, hod Ins money whch has gone
Into ts Treasury by means of the fraud of ts agent. (Unted States v. State
ank, 96 U. S., 30.) Whe here the money was taken through mstake wth-
out any eement of fraud, the un|ust retenton s mmora and amounts n aw
to a fraud on the ta payer s rghts. What was sad n the State ank case
appes wth equa force to ths stuaton. n acton w e whenever the
defendant has receved money whch s the property of the pantff, and whch
the defendant s obged by natura ustce and equty to refund. The form of
the ndebtedness or the mode n whch t was ncurred s mmatera.
In these cases (cted n the opnon), and many others that mght be cted, the
rues of aw appcabe to ndvduas were apped to the Unted States
(pages 35, 36). cam for recovery of money so hed may not ony be the
sub|ect of a sut n the Court of Cams, as shown by the authorty referred to,
but may be used by way of recoupment and credt n an acton by the Unted
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607.
322
States arsng out of the same transacton. (Unted States v. Macdane, 7 Pet,
1,16, 17 Unted States v. Rnggod, 8 Pet, 150, 163-164. ) If the cam
for ncome ta defcency had been the sub|ect of a sut, any counter demand
for recoupment of the overpayment of estate ta coud have been asserted
by way of defense and credt obtaned notwthstandng the statute of mta-
tons had barred an ndependent sut aganst the Government therefor. Ths
s because recoupment s n the nature of a defense arsng out of some feature
of the transacton upon whch the pantff s acton s grounded. Such a
defense s never barred by the statute of mtatons so ong as the man
acton tsef s tmey.
In the case at bar one act, the erroneous vauaton of the nventory of
November 30, 1926, set n moton a course of events resutng n the erroneous
refund to the ta payer on one hand and an overassessment n hs favor on
the other. ad the Government, wthn the tme mted, brought an acton
to recover the refund, made erroneous by the nventory, the ta payer coud
have set up by way of defense ts overpayment of ncome ta of the foowng
year, nduced by the same erroneous nventory. There s as drect connecton
n ths case between ncome ta es pad n successve years based upon a snge
erroneous nventory as there was between the estate ta erroneousy deter-
mned and ncome ta correcty determned on the same tem n u v. Unted
States, supra. That beng the stuaton t s mmatera that the partes are
reversed and the ta payer s brngng the sut. In u v. Unted States, supra,
page 262, the Court sad:
The crcumstance that both cams, the one for estate ta and the other
for ncome ta , were prosecuted to |udgment and e ecuton n summary form
does not obscure the fact that n substance the proceedngs were actons to
coect debts aeged to be due the Unted States. It s mmatera that n
the second case, owng to the summary nature of the remedy, the ta payer
was requred to pay the ta and afterwards seek refundment. Ths procedura
requrement does not obterate hs substanta rght to rey on hs cross-demand
for credt of the amount whch f the Unted States had sued hm for ncome
ta he coud have recouped aganst hs abty on that score.
Nether s t matera n the nstant case that the acton by the appeant
was deayed unt the Government s rght of acton was toed. Such a de-
fense s never barred by the statute of mtatons so ong as the man acton
tsef s tmey. ( u v. Unted States, supra, page 262.)
ppyng the foregong prncpes to the facts stpuated recovery by the
pantff even n ts acton at aw must be dened. The |udgment appeaed
from s, therefore, affrmed.
TITL I DMINISTR TI PRO ISIONS.
S CTION 607. CT O PIR TION O P RIOD
O LIMIT TION G INST UNIT D ST T S.
Secton 607. I-48-9063
Ct. D. 1282
INCOM T R NU CT O 1028 D CISION O SUPR M COURT.
Recovery of Overpayments arred Defcency n cess of
Overpayments.
Where ta es on ncome erroneousy reported n returns for 1929,
1930, and 1931 are ess than the ta whch shoud have been pad
n 1928 on the correct bass and where the Government s faure to
assess the approprate ta n 1928 s not shown to be attrbutabe
to the erroneous statements made n the returns for the ater years,
the ta payer s by vrtue of the provsons of sectons 607 and
609 of the Revenue ct of 1928 entted to recover the overpay-
ments so made for 1929, 1930, and 1931, even though the coecton
of the 1928 ta , whch e ceeded the overpayments, was barred by
the statute of mtaton.
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323
607.
Supreme Court of the Unted States.
D. TP. Mc achcm, dmnstrator of the state of 8. C. Mc achern, Deceased,
pettoner, v. . T. Rose, ormer Coector of Interna Revenue for the Dstrct
of Georga.
302 U. S., 56.
On wrt of certorar to the Unted States Crcut Court of ppeas for the fth Crcut
November 8, 1937.
OPINION.
Mr. ustce Stone devered the opnon of the Court.
Ts petton for certorar rases the queston whether overpayments of
Income ta es for the caendar years 1929, 1930, and 1931 are so reated to a ta
on ncome whch shoud have been but was not assessed aganst the ta payer for
the year 1928, as to precude recovery of the overpayments athough coecton
of the 1928 ta s barred by the statute of mtatons.
In 1924 pettoner s decedent sod 500 shares of the corporate stock of an
Insurance company for the sum of 300,000, at a net proft of 295,000 over 1918
cost. Ten per cent of the purchase prce was pad at the tme of sae and the
baance was to be pad n nstaments, aggregatng annuay 10 per cent of the
purchase prce, n each of the nne succeedng years. s permtted by the app-
cabe statutes (secton 202, Revenue ct of 1924, ch. 234, 43 Stat., 255 sectons
202, 212, Revenue ct of 1926, ch. 27, 44 Stat., 11, 23 secton 44, Revenue ct of
1928, ch. 852, 45 Stat., 805), decedent eected to return the proft for ncome
ta aton on the Instament bass. fter hs death n 1928 pettoner, as hs
admnstrator, fed ncome ta returns n behaf of hs estate for the caendar
years 1928 to 1931, ncusve, showng n each year a sae of 50 shares of the
stock of the nsurance company at a net proft of 29,500. These returns were
erroneous In pont of fact and of aw, as the pettoner sod no shares of the
stock n any of those years and snce, by reason of the provsons of secton
44(d) of the 1928 ct1 the capta gan ncuded n the vaue of the unpad
nstaments at the tme of decedent s death, was ncome ta abe to decedent for
the year 1928 and not n subsequent years.
y the provsons of secton 44(d), as construed by Treasury Reguatons 74,
artce 355, the transmsson of an nstament obgaton at the death of the
payee captazes the unpad nstaments of the contract and resuts n ta abe
gan to the estate of the decedent, measured by the dfference between the
far market vaue of the obgaton at the tme of hs death and ts unrecovered
cost y secton 113 of the 1928 ct tho bass for computng the annua proft
upon the nstaments pad after the decedent s death s the far market vaue
of the contract at the tme of hs death. The unpad ta for 1928, computed
as requred by secton 44(d), e ceeds the sum of the overpayments made n 1929,
1930, and 1931.
On the tra In the dstrct court the coector contended that pettoner was
estopped to deny that the saes of stock occurred and proft accrued as reported
In hs returns for the years n whch refunds were camed and that, n any
case, upon equtabe prncpes, the pettoner was not entted to recover the
overpayments for those years, snce they were ess n amount than the ta whch
shoud have been assessed aganst hm for 1928. (See Stone v. Whte, 301
T . S-, 532 Ct. D. 1232, C. . 1937-1, 224 .) The tra court overrued these
contentons and gave |udgment for pettoner. The Court of ppeas for the
fth Crcut reversed, hodng that pettoner was not n equty and good con-
scence entted to recover the overpayments whch, because of hs faure to
pay the 1928 ta , had resuted n no un|ust enrchment of the Government. (86
. (2d), 231.) We granted certorar (301 T . S., ), because of the mportance
of the queston n admnstraton of the revenue aws.
The coector does not press here the contenton that pettoner s esopped
to chaenge the correctness of hs returns for the years of overpayment. The
Sec 44.
(d) Gan or ost upon dnposton of nstament obnatnnR. If nn nstamont obga-
ton s dstrbuted, transmtted, sod, or otherwse dsposed of, gan or ots
ha resut to the e tent of the dfference between the bass of the obgaton and
the far market vaue of the obgaton at the tme of such dstrbuton, trans-
msson, or dsposton. The bnss of the obgaton sha be the e cess of the face vaue of
the obgaton over an amount equa to the ncome whch woud be returnabe were the
obgaton satsfed In fu.
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607.
324
faure of the Government to assess the approprate ta In 1928 s not shown
to be attrbutabe to the erroneous statements made n the returns for the ater
years, and t s not necessary for pettoner to show understatement of the
ncome ta abe n 1928 n order to show the correct amount of the dfferent
Income derved from the nstament contract n the years of overpayment. or,
under secton 113, the overpayments are estabshed by showng that n each
year the amount of ncome from the sae of the stock as reported e ceeded the
dfference between the nstaments coected and so much of the vaue of the
nstament contract at the death as s aocabe to the ta abe year. ut
respondent nssts, as the court beow hed, that pettoner s not equtaby
entted to recover overpayments of ta es upon the profts derved from the
contract a certan years because the overpayments are e ceeded by a ta whch
he shoud have pad on the profts reazed n an earer year.
We may assume that, n the crcumstances, equtabe prncpes woud precude
recovery n the absence of any statutory provson requrng a dfferent resut.
ut Congress has set mts to the e tent to whch courts mght otherwse go
n curtang a recovery of overpayments of ta es because of the ta payer s
faure to pay other ta es whch mght have been but were not assessed
aganst hm. Secton 607 of the 1928 ct decares that any payment of a ta
after e praton of the perod of mtaton sha be consdered an overpayment
and drects that t be credted or refunded to the ta payer f cam therefor s
fed wthn the perod of mtaton for fng such cam and secton 609(a)
of the 1928 ct provdes that ny credt aganst a abty n 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 precude
the Government from takng any beneft from the ta payer s overpayment by
credtng t aganst an unpad ta whose coecton has been barred by mtaton.
It s pan that these provsons forbd credt of the overpayments of ta es for
1930 and 1931, whch were made after coecton of the 1928 ta was barred.
If pettoner had then pad the 1928 ta there woud have been an overpayment
of the ta , refund of whch s made mandatory by secton 607. Credts aganst
the ta of overpayments of ta es assessed for other yenrs, f made at that tme,
coud not stand on any dfferent footng under the provsons of secton 609. The
rght of the Government to credt the overpayments upon the earer unpad ta
coud arse ony when the overpayments occurred but snce at that tme coec-
ton of the 1928 ta was barred by mtaton, and payment of t woud be an
overpayment, credt aganst t of the 1930 and 1931 overpayments was for-
bdden by secton 609.
Dfferent consderatons appy to the 1929 overpayment. When t was made,
coecton of the 1928 ta was not barred and the Commssoner was not then
prevented by secton 609 from credtng the overpayment upon the 1928 ta .
athough he dd not do so. Secton 322 of the 1928 ct, contnued wthout
matera change n the 1932 ct, authorzes the credt of an overpayment of any
ta aganst any ncome ta then due from the ta payer, and drects that any
baance sha be refunded mmedatey to the ta payer. We need not nqure
whether the 1928 defcency was due wthn the meanng of ths secton before
the ta was assessed, for n any case there coud be no credt aganst the ta of
the 1929 overpayment, before the amount of the atter was ascertaned and
aowed and at that tme coecton of the 1028 ta was barred and any credt
of the overpayment aganst t was decared to be vod by secton 609.
oth secton 322 and secton 609 contempate that the tme of credt of an
overpayment n one year aganst a ta for another s to be marked by some
defnte admnstratve acton. Ths Court, upon an e amnaton of the estab-
shed practce n the ureau of Interna Revenue, concuded that the tme of
aowance of a refund and the tme of credt of an overpayment aganst a ta
cue, s the date of approva by the Commssoner of the schedue of refunds
and credts prepared by the coector, showng the amount due the ta payer,
rather than the earer date of the certfcaton by the Commssoner to the co-
ector, of the schedue of overassessments. (See Unted States v. Swft Co.
282 U. S., 408 rCt. D. 200. C. . -, 283 (1931) Orard Trust Co. v. Unted
States, 270 T . S., 163 IT. D. 3019, C. . -2, 209 (1926) .) We accordngy hed
s Skc. 3 2.
(a) uthorzaton. Where there has been an overpayment of any ta Imposed by
th te, the amount of such overpayment shn be credted aganst any Income, war-
prnft , or e cess-profts ta or Instament thereof then due from the ta payer, and any
baance sha be refunded mmedatey to the ta payer.
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325
611.
that approva of the schedue of refunds and credts f es the date from whch
nterest s aowed upon any baance refunded to the ta payer ( rard Trust
Co. v. Unted States, supra) and the date from whch the statute of mtatons
runs aganst the ta payer s rght to demand refund of a ta pad by the aow-
ance of a credt (Unted States v. Swft d Co., supra).
fter these decsons secton 1104 of the Revenue ct of 1932 (ch. 209, 47
Stat., 287) changed the date whch shoud be deemed to be the tme of aowance
of the credt or refund wthn the meanng of that and earer revenue aws.
It provded that Where the Commssoner has (before or after the enactment
of ths ct) sgned a schedue of overassessments n respect of any Interna
revenue ta Imposed by ths ct, or any pror Revenue ct, the date on whch
he frst sgned such schedue (f after May 28, 1928) sha be consdered as
the date of aowance of refund or credt In respect of such ta .
The date of the cam for refund and the date of the aowance of the credt
whch, accordng to secton 1104, was that of the approva by the Commssoner
of the schedue of overassessments, came after recovery of the 1928 ta was
barred. If pettoner had then pad the ta he coud have recovered t back as
an overpayment under secton 607 accordngy, credt aganst the ta of the
1929 overpayment s prohbted by secton 609, as are ke credts for the over-
payments of 1930 and 1931.
The smar treatment accorded by the statutes to credt aganst an overdue
ta , and to payment of t the prohbton of credt of an overpayment of one
year aganst a barred defcency for another and the requrement that payment
of a barred defcency sha be refunded, are controng evdences of the con-
gressona purpose by the enactment of sectons 607 and 609 to requre refund
to the ta payer of an overpayment, even though he has faed to pay ta es for
other perods, whenever ther coecton s barred by mtaton.
Sectons 607 and 609 do not appy n the crcumstances dscosed n Stone v.
Whte, supra. There testamentary trustees had pad from ncome a ta upon t
whch shoud have been pad by the benefcary, and t was hed that they were
not equtaby entted to recover the ta after the statute had barred coecton
from the benefcary. The assessment of a defcency aganst the trustees and
the payment of t by them were not barred by mtaton. ence secton 607
dd not compe a recovery. Secton 609 dd not requre t. The Commssoner
nether sought, nor dd secton 322, regardess of any perod of mtaton,
permt hm to credt the amount whch the one ta payer had pad aganst the
ta whch another shoud have pad. qutabe consderatons not wthn the
reach of the statutes dened a recovery. It was enough, n the pecuar facts
of the case, that the trustees had suffered no burden and that the Government
was not un|usty enrched.
Reversed.
S CTION 611. COLL CTIONS ST Y D Y
CL IM IN T M NT.
Secton 611. T-28-8811
Ct. D. 1241
INCOM ND C SS PRO ITS T R NU CT O 1828 D CISION O
COURT.
Sut Cams n batement Coecton Stayed Statute of
Lmtaton.
The ta payer may not recover payment of 1917 ta es, made In
anuary, 1926, on the ground that coecton was barred by the
statute of mtaton, where cams for abatement had been fed,
the frst three camng the beneft of the speca reef prov-
sons of secton 210 of the Revenue ct of 1917, whch cams were
aowed and the overassessment abated n December, 1922, and the
fourth camng abatement on another ground, whch was aowed
In part and re|ected n part n December, 1925. Not ony was co-
ecton of the ta stayed, wthn the meanng of secton 611 of
the Revenue ct of 1928, by the fng of the ast cam, but the
ta payer obtaned a reducton n ta thereby and s now n no
poston to cam the beneft of the statute of mtaton.
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611.1
326
Court of Cams of the Unted States.
U. . et Co. v. Unted States.
17 . Supp., 143.
December 7, 1936.
OPINION.
Green, udge, devered the opnon of the court
Pantff brngs ths sut to recover 9,701 ta es assessed for the caendar
year 1917 and not pad unt anuary 27, 1926, when t s aeged coecton was
barred by the statute of mtatons.
The fndngs show that pantff fed four cams for abatement of ts ta es
for 1917. The frst three camed the rght to assessment of ts ta es under
the speca reef provsons of secton 210 of the Revenue ct of 1917. The
fourth referred to a defcency of 17,163.11 and the dsaowance of a porton
of the saares pad. Thereafter, pantff s ta abty for 1917 was rede-
termned under the provsons of secton 210 of the Revenue ct of 1917 and
an overassessment determned whch was abated on a schedue dated Decem-
ber 21, 1922. s pantff st dsputed the amount of ts ta abty for 1917,
the representatves of pantff and defendant n 1925 hed conferences wth
reference to t. On September 16, 1925, pantff e ecuted a coecton waver
whch provded t was to reman In effect unt December 31, 1926, but whch
was never sgned by the Commssoner. Shorty after the fng of the waver,
pantff was advsed n substance that the cam for the abatement of 17,-
163.11 for 1917 woud be reopened for further consderaton, and on November
13, 1925, pantff was further advsed as a resut of a redetermnaton of ts
ta abty under secton 210 of the Revenue ct of 1917 that ts cam for
abatement of 17,163.11 woud be re|ected for 11,662.25 and aowed for
5,500.86. The aowance was based on a determnaton of pantff s tota
ta under the assessment provsons of secton 210 at 24,600.31. The amount
aowed was abated on a schedue of these proceedngs dated December 4, 1925.
The baance of the orgna ta assessed but unpad for 1917 n the amount
of 9,704 was pad by pantff on anuary 27, 1926, pursuant to notce and
demand.
It s qute cear that ths case comes under secton 611 of the Revenue ct
of 1928 provdng that where a cam n abatement was fed and the coecton
of any part of the ta stayed the payment of such part sha not be consdered
as an overpayment under the provsons of secton 607, reatng to payments
made after the e praton of the perod of mtaton on assessment and co-
ecton. The meanng of ths provson s so ceary e paned by the Supreme
Court n Graham and oster v. OoodceU (282 U. S., 409 Ct D. 287, C. . -,
191 (1931) ) as to requre nothng further.
It s contended on behaf of pantff that t was not dsputng a of the
ta but ony a speca part thereof and the porton of the ta whch was pad
was not ncuded theren. Pantff made dfferent cams, but the ncton of the
Commssoner was stayed under a of them. In the frst three cams for
abatement he was requested to appy the provsons of secton 210 of the
Revenue ct of 1917 and he dd so. The fourth cam for abatement apped
to the defcency aone. ut none of these cams coud be or were determned
unt a cacuaton had been made of a of pantff s ta es and the fna com-
putaton and determnaton were not made unt December 4, 1925. of ths
deay resuted from the acton of pantff n fng these cams for abate-
ment. Not ony was the coecton of the ta stayed wthn the meanng
of the aw by the fng of the ast cam n abatement but pantff obtaned a
reducton n ts ta thereby and s now n no poston to cam the beneft of the
statute of mtatons.
What s sad above renders t unnecessary to consder whether the waver
fed was vad. The petton of pantff must be dsmssed and t s so ordered.
Whaey, udge Wams, udge Ltteton, udge and ooth, Chef
ustce, concur.
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327
618.
S CTION 618 MIN TION O OO S
ND WITN SS S.
Secton 618. I-29-8820
Ct. D. 1243
ncome ta revenue act op 1928 decson of court.
amnaton of ooks Summons upon ank foe Producton op
ccounts of Deceased Ta payer Rght of ecutr to
Restranng Order.
The e ecutr of the w of a decedent has no rght to an
order of court to restran revenue agents from servng summonses
upon a bank requrng producton of a copy of the bank accounts of
the decedent and of hs estate n the nvestgaton of transactons
n whch t was suspected that frauduent returns had been fed.
The fourth amendment does not guarantee to a person securty
aganst search, reasonabe or unreasonabe, n papers whch are
not that person s property and are not n hs possesson.
Unted States Dstrct Court, Southern Dstrct of New York.
In the Matter of Investgaton by the Commssoner of Interna Revenue nto
the eged Income Ta Labty of Rchard D. Upham, Deceased, for the
years 1S1G to 1924, ncusve.
18 . Supp., 737.
March 4, 1937.
opnon.
Patterson, D. .: zabeth R. Upham brought a petton showng that she
Is e ecutr of the estate of Rchard D. Upham, deceased, who ded n 1924
that the respondent rgbaum, an nterna revenue agent, served on Centra
anover ank Trust Co. a summons requrng producton before hm of a
copy of the bank account of the decedent from 1916 to 1924 and aso a summons
requrng producton of a copy of the bank account of the estate from 1924 to
the present tme, both summonses entted In the Matter of the ta abty of
R. D. Upham, deceased. The petton further aeges that the decedent s
Income ta returns were audted and the ta abty ed pror to or soon
after hs death, that the tme wthn whch assessment of ta aganst the
decedent may be made has ong snce e pred, that the returns of the estate
have aways been truthfuy made by the pettoner, and that no cam has
been made that any return was fase or frauduent. y reason of these facts
the pettoner charges that the summonses amount to an unreasonabe search
and sezure of her papers n voaton of the fourth amendment. On ths pet-
ton an order was ssued drectng the Commssoner of Interna Revenue and
rgbaum to show cause why the two summonses shoud not be vacated.
In answer to the petton and order to show cause, the affdavts of two nter-
na revenue agents are submtted. These affdavts are to the effect that an
nvestgaton nto the ncome of the decedent, Upham, and of hs estate, from
1914 down, s under way, and that there s reason to beeve that from 1916
to 1933 frauduent returns were made. The affdavts set out on nformaton
and beef certan crcumstances sad to be suspcous. It s unnecessary to
refer to these aeged crcumstances, snce the petton must be dsmssed as
Insuffcent on ts face.
oth summonses were served under secton 618 of the Revenue ct of 1928
(26 U. S. C. ., secton 1514) :
The Commssoner, for the purpose of ascertanng the correctness of any
return or for the purpose of makng a return where none has been made, s
hereby authorzed, by any offcer or empoyee of the ureau of Interna Reve-
nue, ncudng the fed servce, desgnated by hm for that purpose, to e am-
ne any books, papers, records, or memoranda bearng upon the matters re-
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618.
328
qured to be ncuded n the return, and may requre the attendance of the
person renderng the return or of any offcer or empoyee of such person, or the
attendance of any other person havng knowedge n the premses, and may
take hs testmony wth reference to the matter requred by aw to be ncuded
n such return, wth power to admnster oaths to such person or persons.
y secton 617 of the same ct (26 U. S. O. ., secton 1523), the dstrct
court s empowered to compe attendance, testmony or producton of papers n
obedence to the summons.
The pettoner cams that the summonses voate the fourth amendment,
guaranteeng securty to her n her papers and effects aganst unreasonabe
searches and sezures. We may pass the queston whether the summonses
coud n any event be taken as unreasonabe n the consttutona sense, n
vew of the fact that a check of ta returns fed s a practca necessty uness
payment of ncome ta s to become a purey vountary affar. In ths case the
summonses dd not run aganst the pettoner, nor dd the Commssoner de-
maud producton of the pettoner s papers. The summonses were on the bank
to produce papers beongng to the bank and n ts possesson. The fourth
amendment does not guarantee to a person securty aganst search, reasonabe
or unreasonabe, n papers whch are not that person s property and are not
n hs possesson. (McMann v. nge, 16 ed. Supp., 446 (D. C. N. T.), affrmed
by the Crcut Court of ppeas.)
The same queston, the rght of a ta payer to ob|ect to a summons by the
Commssoner served on a bank for producton of the bank s records reatve to
transactons wth the ta payer, came before udge rewster n Cooey v. er-
gn (27 ed. (2d), 930 (D. C. Mass.) T. D. 4203, C. . II-2, 178 (1028) ).
e ponted out that the records caed for were the property of the bank, and
hed that the ta payer, havng no propretary nterest n tem, coud not pre-
vent ther producton under the summons. The case strkes me as a convncng
one.
The pettoner ctes Zmmerman v. Wson (81 ed. (2d), 8-17 (C. C. . 3)
as precedent In her favor. That case had a feature that dstngushes t from
the present case no cam of frauduent return was made there, and the court
ad stress on the absence of any such cam. ut t suffces for the Zmmerman
case to say that the crcut court of appeas of ths crcut, n McMann v. nge,
supra, has decned to foow t.
oth of the summonses were vad. The pettoner s consttutona rghts
can not be Impared by producton of the papers. The petton w be ds-
mssed.
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329 204, rt. 1598.
INCOM T RULINGS. P RT I .
R NU CT O 1926 ND PRIOR CTS.
TITL II. INCOM T .
P RT I. G N R L PRO ISIONS.
S CTION 204. SIS OR D T RMINING G IN OR
LOSS, D PL TION, ND D PR CI TION.
rtce 1598: Property acqured after Decern- I-52-9113
ber 31,1920, by a corporaton. Ct D. 1291
INCOM T R NU CT O 1926 D CISION O COURT.
1. Gan ob Loss ass ssgnment of Opton to ut Stock
Sae of Stock by ssgnee.
fter an ndvdua entered the empoy of a corporaton whch
had offered hm an e ecutve poston and the rght to buy shares
of ts stock at book vaue, he caused a new corporaton to be organ-
zed, and, n e change for a of ts capta stock, assgned to t hs
opton to buy, whch opton was then e ercsed by the new corpora-
ton, the prce actuay pad for the shares beng ess than the
market vaue thereof on the date of purchase due to certan
accretons and charges made before the opton was e ercsed.
Under the facts dscosed, the opton was one of the nducements
offered to the ndvdua to enter the empoy of the corporaton
when receved by the optonee t had no cost vaue n hs hands
t was wthout addtona consderaton e tended from tme to
tme, effectve as of ts date and upon ater sae of the stock by
the new corporaton the bass to be used n determnng gan or
oss, under the provsons of secton 204(a)8 of the Revenue ct
of 1926, was the amount actuay pad for the stock when the
opton was e ercsed, wth certan ad|ustments for preferred stock
subsequenty acqured.
2. Cebtorab Dened.
Petton for certorar dened October 11, 1937.
Unted States Coubt of ppeas fob the Dstrct of Coumba.
tferhengood Corporaton (De.), pettoner, v. Ouy T. everng, Commssoner
of Interna Revenue, respondent.
89 ed. (2d), 972.
On petton for revew of decson of the Unted States oard of Ta ppeas.
efore Martn, C. ., and Ross, Gboneb, and Stephens, .
March 15, 1937.
opnon.
Gboneb, .: Petton to revew a decson of the oard of Ta ppeas.
Pror to December 31, 1924, enry Lockhart, r., had been nterested n the
Investment bankng fed and had successfuy organzed, fnanced, and de-
veoped severa corporatons. Late n 1924 ar Co., Inc., a arge bankng
and nvestment corporaton ocated n New York Cty, offered Lockhart an
e ecutve poston n ts organzaton at a saary of 25,000 annuay and as
an nducement to hs becomng one of ts offcers and drectors offered hm the
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204, rt. 1598.
330
rght to acqure 5,000 shares of the common capta stock of ar Co. at the
book vaue thereof on December 31, 1924 about 158 a share. (The stock
was not actvey traded n, but t was customary traded n at ts book vaue.)
In eary anuary, 1925, Lockhart became an offcer and drector of ab: on
a saary bass of 25,000 a year (ncreased n 1927 and subsequent years to
35,000). There was no obgaton on Lockhart under the terms of the offer
to purchase the stock. It was an offer runnng to hm whch hs acceptance
converted nto a bndng opton. Nor was the contract of empoyment for a
defnte perod or appcabe to any other offcer or empoyee of ar Co.
than hmsef. Lockhart dd not e ercse the opton concdentay wth the
commencement of hs empoyment, but some 12 months ater on December 30
of that year caused pettoner, Merhengood Corporaton, to be organzed under
the aws of Deaware for the purpose of acqurng the common capta stock
of ar Co. whch under the opton he had the rght to buy. To ths end,
as neary as we can determne from the stpuated facts, he assgned the op-
ton to Merhengood Corporaton n consderaton of the ssuance to hm by
that corporaton of ts entre capta stock. Merhengood then acqured 6,400
shares of common stock of ar Co., Inc., and e ecuted ts note to ar
Co. n the sum of 617,462.27. Ths transacton s ndcated as havng been
consummated on December 31, 1925.
The statement of Merhengood Corporaton n account wth ar Co. shows
how the opton coverng ony 5,000 shares was enarged to cover 6,400 shares
and aso the debts and credts as the resut of whch the purchase prce of
617,462.27 was arrved at It appears that the agreed purchase prce of
5,000 shares, at 158,788 per share, as of anuary 1, 1925, woud amount to
793,890 but apparenty around September 1 ar Co. decared a 20 per
cent stock dvdend and an addtona rght to subscrbe to 10 per cent of a new
stock at par and aso decared a 40 per cent stock dvdend n preferred on
common. The resut of ths to a hoder of 5,000 shares of ar Co. stock
as of anuary 1, 1925, woud have been the recept, frst, of 1,000 shares of
new common stock at no cost, second, of the rght to acqure 500 shares of new
common stock at par, or 50,000, and thrd, of 2,000 shares of preferred stock
wthout cost. The statement ndcates, however, that ar Co. had pror
to the e ercse of the opton dsposed of the 2,000 shares of preferred stock
at 111.801 per share whch, f Lockhart had e ercsed the rght on anuary
1, ho woud have been entted to. ar Co. had aso sod, at 145.8133
per share, 100 shares of the 500 shares of common stock whch Lockhart
kewse woud have been entted to buy at par had he e ercsed the opton
on anuary 1. The resut of these transactons was to eave n the hands
of ar Co., avaabe to Lockhart, ony 1,400 shares of new common stock.
ut, n order to treat Lockhart precsey as though he had been the hoder of
5,000 shares of ar Co. stock as of anuary 1, 1925, ar Co. credted
on the 1924 opton prce the sum of 223,602, the proceeds of the sae of 2,000
shares of preferred stock, and 14,581.33, the proceeds of the sae of the 100
shares of common stock, and charged Lockhart wth 50,000, the cost to hm
of the 500 shares whch, as hoder of 5,000 shares, he woud have been en-
tted to subscrbe for at par. The resut of ths was that Merhengood Cor-
poraton acqured 6,400 shares of ar Co. stock for 617,462.27, or at the
rate of 96.48 per share. s of ths date, namey December 31, 1925, the
market vaue of ar Co. stock was 227.
In 1927 Merhengood sod, for 537,839.68, 3,948 shares of common stock
and some preferred stock acqured In 1927. Merhengood reported n ts 1927
return a oss of 37,903.56 on ths transacton. Its method of fgurng ths
oss was by takng as cost the market vaue of the ar Co. stock on the
day t was purchased 227 a share or, n other words, by addng to the
prce pad, the then vaue of the opton n Lockhart s hands, computed to be
the dfference between the prce pad for the stock and ts market vaue at
the tme of acquston.
The Commssoner, on the other hand, determned Merhengood reazed a
proft of 209,422.25 from the sae of the stock. e arrved at hs bass by
takng as the cost of the stock the amount actuay pad to ar Co. for t
whch we have sad was 96.48 a share wth ad|ustment for the preferred
stock acqured subsequent to the e ercse of the opton on a bass as to whch
no queston s rased.
Secton 203(a) of the Revenue ct of 1926 (44 Stat, 9) provdes that upon
the sae or e change of property, the entre amount of the gan or oss sha
be recognzed e cept as therenafter provded. Subdvson (b) (4) of secton
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331
204, rt. 1598.
203 provdes that no gan or oss sha be recognzed f property Is transferred
to a corporaton by one or more persons soey n e change for stock or secur-
tes In such corporaton, and mmedatey after the e change such person or
persons are n contro of the corporaton. In the nstant case Merhengood ac-
qured the opton n e change for a ts ssued stock, and mmedatey after
the e change Lockhart, the transferor, owned a the stock of Merhengood.
Therefore, the case comes squarey wthn the provsons of secton 203(b)4
whch provdes that no gan or oss sha be recognzed under such
crcumstances.
Secton 204(a)8 of the Revenue ct of 1926 provdes that the bass for de-
termnng the gan or oss sha be the cost of the property, e cept that f the
property was acqured after December 31, 1920, by a corporaton by the
Issuance of Its stock n connecton wth a transacton descrbed n paragraph
(4) of subdvson (b) of secton 203, then the bass sha be the same as t
woud be In the hands of the transferor, ncreased n the amount of the gan
or decreased n the amount of the oss recognzed to the transferor from such
transfer under the aw appcabe to the year n whch the transfer was made.
Inasmuch as the transacton between Merhengood and Lockhart comes under
secton 203(b)4, It foows that the cost bass of the opton n the hands of
Merhengood s the same as t woud be n the hands of Lockhart wthn the
meanng of secton 204(a)8.
Therefore, the soe queston In ths case s: What was the cost bass of the
opton In the hands of Lockhart
Merhengood argues that the opton to Lockhart was gven n part compensa-
ton for hs servces to ar Co. that the orgna opton was effectve ony
as of the 31st of December, 1924 that Lockhart dd not e ercse ths opton
but that ar Co., by reason of hs contnued empoyment and servces to
the company, renewed the opton from tme to tme unt, on the date when
t was e ercsed a year ater t had ncreased In vaue to the e tent of
835,337.73 that amount beng the dfference between the market vaue of
the stock and ts prce under the opton. Merhengood says, therefore, that
Lockhart reazed ta abe ncome durng 1925 equa to ths dfference n vaue
and cost under the opton. In other words, that Lockhart s rght on December
30, 1925, to buy ar stock at a ower fgure than ts vaue was a rght whch
was ta abe ncome to hm whether he saw ft to e ercse the rght or not.
Merhengood rees n ths respect argey on rsknc v. Commssoner (26 . T. .,
147).
The Commssoner, on the other hand, nssts that the opton whch Lockhart
transferred to Merhengood had no vaue at the tme t was acqured by Lock-
hart, that s to say, 12 months prevous to ts e ercse, and that, snce secton
204(a)8 refers to cost bass and not to the vaue of the property at some
other tme, the vaue of the opton at the tme of transfer can not be taken to
determne the cost bass of the ar Co. stock acqured by Merhengood.
The oard affrmed the Commssoner s determnaton, on the ground that
Merhengood woud have to use the same bass for the stock that Lockhart
woud have used apparenty overookng the fact that Lockhart had ony an
opton and had never acqured the stock. In the vew we take of the queston,
we agree wth the oard s concuson but on a somewhat dfferent ground.
s we have aready ponted out, Merhengood argues that on the purchase
date the dfference between the book vaue of 6.400 shares of ar stock and
the prce pad for them (a dfference of some 835,000) represented the cost
to t of the opton. Ths contenton s based upon the supposton that the
opton had ths cost vaue n the hands of Lockhart because Lockhart had
earned ths vaue n servces to ar Co. or, n other words, that t was
part of the compensaton pad hm by ar Co. somethng he had worked
for and acqured durng the year 1925. The opton, verba or wrtten, s not
set forth n the record. Nether s the contract of empoyment, and much of
the confuson, as we thnk, has resuted from ths omsson. The oard eaves
n doubt the queston whether the opton was or was not ntended to be add-
tona compensaton to Lockhart, but we thnk there Is no proper ground for
ths doubt, and we fnd nothng whch woud |ustfy us In reachng the con-
cuson that It was anythng ese than the stpuated facts say t was, vz, an
nducement to accept empoyment. that Is sad n the stpuaton Is that
Lockhart was offered and accepted the rght to acqure 5,000 shares of ar
stock at book vaue and that the consderaton was hs enterng ar s em-
poyment at a f ed saary for an ndefnte tme and that, Lockhart not
beng n present funds to compete the opton, ar granted e tensons of tme.
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204, rt. 1598.
332
In sayng ths, we are by no means unmndfu that Merhengood contends
dfferenty and nssts that the orgna opton was merged n succeedng optons
and that, though the frst offer was based upon the consderaton of Lockhart s
acceptng empoyment, the opton fnay e ercsed was for a dfferent number
of shares at a dfferent prce and based on a dfferent consderaton, that s,
upon Lockhart s contnung hs empoyment. ut the contenton that there
were separate optons gven throughout the year 1925 Is not borne out by the
record. Instead, the contenton s confuted by subsequent events. nd we
stop to say, parenthetcay, that f these events do not truy refect the con-
tract between the partes, the bame s attrbutabe whoy to Merhengood,
for t and not the Commssoner was at a tmes fu-handed wth proof of
every step n the deangs of the partes. There was ampe opportunty to
show the facts on whch t rees but whch t faed to prove, and n the
crcumstances t s perhaps not too much to assume that a fuer dscosure
woud have been hurtfu rather than hepfu. The events, however, to whch
we refer are these:
Lockhart engaged hs servces to ar Co. at the begnnng of 1925 on a
saary bass whch, so far as appears, was commensurate wth the saary
receved n subsequent years,1 and he was Induced to make ths arrangement
by the agreement of ar Co. to e tend to hm the rght to a substanta
nterest n the future profts of the company, f there were any, through the
rght to purchase 5,000 shares of Its stock at ts then market vaue. That
ths opton had a sentmenta vaue may, for present purposes, be admtted,
but certany t had no market vaue. n opton to acqure shares of stock
at market prce s of tsef not a thng of vaue, snce In ordnary crcum-
stances the resut coud be accompshed wthout such an opton. Lockhart,
as appears, was not prepared to e ercse the opton at the tme, but t Is stpu-
ated the opton was from tme to tme e tended and was fnay f ed on
December 30, 1925, and was e ercsed by Merhengood, to whom t was assgned.
When t was e ercsed, ar Co., as we have shown, treated t as a con-
tnung opton datng from ts date n other words, ar made no new opton
nor changed ts terms. It treated the transacton |ust as though Lockhart
had accepted the opton and e ecuted a note wthout nterest as of December
81, 1924. The purchase prce per share was the same, the number of shares
on whch the cost was cacuated was the same, and the resut was dfferent
ony because the subsequent accretons were treated as an ncdent to the
ownershp of the opton. nd so n the fna statement of account the charges
and accretons were baanced, and the resut was the acquston of the stock
on a bass of 96.48 a share rather than 158. ut n our opnon ths dmnu-
ton n prce was not the resut of a new or dfferent opton. It was as ceary
appears from the statement the e ercse of the opton as of Its date.
In these crcumstances, t s ogca and reasonabe to concude that the
opton whch Lockhart acqured was ndefnte n tme or at east that ts e ten-
sons were contempated by the partes as part of the consderaton of Lockhart s
acceptance of empoyment. Certany nothng to the contrary s shown.
In ths vew we are mpeed to hod:
rst, that the rght to buy the stock was one of the nducements from ar
Co. to Lockhart to enter nto the contract of empoyment
Second, that when receved by Lockhart the rght had no present ascertan-
abe market vaue and therefore no cost vaue n hs hands and
Thrd, that t was wthout addtona consderaton e tended from tme to
tme, effectve as of ts date, as appears from the conduct of the partes.
case much ke ths s oth cc v. Commssoner (77 . (2d), 85 Ct D.
1018, C. . I -2, 203 (1035) ), affrmng 27 . T. ., 1351. There an o com-
pany was n bad condton, and t was advantageous to t to secure the servces
of othwc, an e perenced o operator. contract of empoyment was made,
and a part of the arrangement was that othwe mght acqure at book vaue
a arge bock of stock of the corporaton n order to enabe hm to share n the
1 It Is obvous that If the vaue of the opton 83.1,000 was addtona compensaton
In 1U25, Lockhart receved In that year a tota compensaton grossy dsproportonate to
the compensaton receved In the subsequent years of hs empoyment wth ar Co.
nd ths crcumstance seems to Indcate a sound dstncton between ths case and the
rskne case (even If we adopt the theory of that case) for there the stock purchase
rght was spread over the term of the ta payer s empoyment, and there was not In any
one year the overwhemng e cess of compensaton whch woud resut here In adoptng
Merhengood s theory.
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333
20-1, rt. 1598.
fruts of hs management. The contract there, as here, provded for the pay-
ment of a saary. othwe entered nto the servce, and some four or fve years
ater e ercsed the opton, buyng the stock at the stpuated opton prce whch,
as we have seen, was book vaue as of the tme the opton was gven. year
ater he sod t at consderabe proft, and the queston was whether the proft
was ordnary ncome or capta gan. The questons there were ke those here,
that Is to say, whether the opton prce or the market vaue, when e ercsed,
was the bass for computng ncome or gan aso whether the ncrease n the
vaue of the rghts covered n the opton shoud be regarded as addtona com-
pensaton for servces rendered n the 5-year perod precedng e ercse. Prac-
tcay the ony dfference n the cases s ths: that there was not there the
pont made by Merhengood that the opton e ercsed was not the orgna opton
but an entrey new and dfferent opton orgnatng out of an entrey new and
dfferent consderaton. Counse for Merhengood say that the dfference s that
n the othwe case hs opton had no vaue unt t was e ercsed, whereas
Lockhart s modfed optons ceary had a vaue as of the dfferent e tenson
dates durng 1925.
In the othwe case the Tenth Crcut ppeas Court sad they ( othwe
and an assocate) were gven optons to purchase stock n the parent corpora-
ton at 2.56 a share whch was the vaue then paced upon the stock by the
drectors of that corporaton. No condtons attached to the optons. They
coud have e ercsed them mmedatey, had they eected to do so. ad they
e ercsed the optons wthout deay, they woud have receved nothng more than
they had pad out, and the future success of the corporaton woud have
ncreased the vaue of ther stock or capta nvestment. No doubt the court
sad the optons were an nducement to them to agree to enter nto the con-
tracts of empoyment, but they consttuted a present consderaton and not an
agreement to pay for servces n the future. Precsey that, we thnk, s shown
here.
In that case t was recognzed that stock gven to an empoyee as remunera-
ton for hs servces s ncome and ta abe at ts far market vaue at the tme
t Is receved, and kewse that where a contract s entered nto for the pur-
pose of remuneratng an empoyee for servces through the purchase
of stock at a reduced prce, ta abe gan resuts to the e tent of the dffer-
ence between the cost and market vaue at the tme of devery (purchase).
ut under the facts of ths case nether of those rues or prncpes s app-
cabe. If we coud fnd n the record support for Merhengood s poston that
the opton t acqured from Lockhart was not the orgna opton he receved n
consderaton of hs agreeng to assocate hmsef wth ar Co. but was a
new and dfferent opton obtaned at a ater date, n consderaton of servces
he was then renderng and as part of hs compensaton for such servces, we
shoud have a dfferent case, for the opton woud n that event have a present
vaue n Lockhart s hands.
ut, as we have seen, such proof as there s ndcates ceary that the opton
had no ascertanabe vaue when frst receved and that the opton as gven
remaned unchanged unt e ercsed, e cept that, beng recognzed as of ts
orgna date, t ncuded, when e ercsed, a the credts and debts whch woud
have attached to Lockhart s ownershp f he had acqured the stock conc-
dentay wth recevng the opton. We have, therefore, nothng on whch to
predcate Merhengood s cam that Lockhart earned the ncrement arsng out
of the opton as compensaton for servces. Certany there Is nothng to show
that ar Co. camed the dfference between the opton prce and market
vaue of the stock on the date of sae as addtona compensaton to Lockhart
durng 1925, and Lockhart hmsef made no such cam, for t Is stpuated that
he dd not return as ncome or pay the ta upon that amount whch Merhengood
now nssts he receved as addtona compensaton n that year. Lockhart s
faure to return t as ncome not ony gves rse to the presumpton that he
dd not treat t as such, but aso, f Merhengood s present cam s successfu,
w resut n compete e empton of both from ta aton. Concedng, therefore,
the egastc fcton of Merhengood s separate dentty, the resut woud be that
Merhengood woud avod ta aton by usng (on the theory that t was com-
pensaton to Lockhart) the precse amount whch Lockhart and ar Co.
apparenty dd not treat as addtona compensaton and upon whch Lockhart
dd not pay and can not now be compeed to pay a ta .
We thnk the Commssoner s assessment of the ta shoud be sustaned.
ffrmed.
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213(a), rt. 50. 334
S CTION 205. IN NTORI S.
rtce 1618: Inventores of reta merchants.
R NU CT O 1926 ND PRIOR R NU CTS.
Inventores of reta dry goods deaers. (See Mm. 4703, page 78.)
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 CT O 1926 ND PRIOR R NU CTS.
Marta agreement under Caforna aw as to earnngs. (See
G. C. M. 18884, page 58.)
rtce 31: What ncuded n gross ncome.
R NU CT O 1926 ND PRIOR R NU CTS.
Marta agreement under Washngton aw as to presenty owned
and subsequenty acqured property. (See G. C. M. 19248, page 59.)
rtce 31: What ncuded n gross ncome.
R NU CT O 1926 ND PRIOR R NU CTS.
Ta abty of ncome from certan restrcted Indan ands. (See
Op. . G. 11, page 61.)
rtce 50: When ncuded n gross ncome. I-33-8877
( so Secton 214(a) 1, rtce 112.) Ct. D. 1252
INCOM T R NU CTS O 1924 ND 1926 D CISION O COURT.
1. Income dvance Rentas Cash Recepts and Dsbursements
ass.
Rentas receved by essors pror to the commencement of a ease
made n 1924 for the perod of 99 years begnnng May 1, 1928,
represented ta abe ncome for the years when receved, where
the books were kept on a cash recepts and dsbursements bass.
2. Dkductons Commssons mortzaton.
Commssons pad to brokers n 1924, 1925, and 1926 for nego-
tatng a 99-year ease may not be deducted n fu from the ncome
for those years, but shoud be amortzed over the term of the
ease.
3. stoppe.
Ta payers havng admtted n the tra court that advance rentas
represented ncome and that the ony queston to be decded was
as to the perod for whch they were ta abe, they may not now
rey upon a dfferent theory.
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335
213(a), rt. 50.
Unted States Cbcut Court of ppeas foh the Seventh Cbcut.
drard . Renwck, ohn . oabrd, and ora . nger, as Trustees of a
Trust nown as the Mchgan venue Syndcate, appeants, v. The Unted
States of merca, appeee.
87 ed. (2d), 123.
ppea from the Dstrct Court of the Unted States for the Northern Dstrct of
Inos, astern Dvson.
efore Spabks, Crcut udge, and Lndey and a tze, Dstrct udges.
December 16, 1936.
OPINION.
Lndey, Dstrct udge: ppeants are trustees of a trust known as the
Mchgan venue Syndcate, admttedy an assocaton wthn the meanng of
that word as used n the ncome ta aw, and essors n a ease made n une,
1024, to . W. Wooworth Co. for certan property on Mchgan venue n Ch-
cago for the perod of 99 years, begnnng May 1, 1928, endng pr 30, 2027.
The renta provded n the ease was 17,575,000, payabe 100,000 upon the
e ecuton thereof 45,000 on anuary 1, 1925 smar amounts on anuary 1,
1926, and anuary 1, 1927, on the 1st of anuary, 1928, 15,000 and the ba-
aoce n monthy nstaments of 14,583.33, begnnng wth the frst day of the
term, May 1, 1928. The sums due and payabe pror to the commencement of
the ease, were receved by appeants, and aganst same dsbursements were
made to the benefcares of the trust. ppeants made no return of the moneys
thus coected n ther ncome ta reports, nor dd they deduct from ther
ncome sums pad as commssons to brokers n negotatng the ease, n the
amounts 20,000 n 1924 15,000 n 1925, and 33,000 n 1926.
The Commssoner, upon revew of the returns, hed that the advance rentas
receved by appeants pror to the commencement of the term, represented ta -
abe ncome for the years when receved, and that the dsbursements for com-
mssons were not aowabe deductons for the years n whch they were pad
but shoud be amortzed over the entre 99-year perod. ccordngy he assessed
addtona ta es upon ths bass. ppeants made the payments requred by
the assessment and brought sut n the dstrct court to recover the same as
mpropery coected. The dstrct court found that the appeants were not
entted to recover and ths appea foowed.
In the dstrct court appeants admtted that the advance payments repre-
sented ncome and agreed that the queston to be decded was as to the perod
for whch the same were ta abe. Consequenty the dstrct court assumed
that the advance payments were ncome and hed that they were propery ta -
abe for the years n whch they were receved.
The case havng been tred by the court wthout a |ury, t seems apparent
that appeants shoud not now be aowed to rey upon a dfferent theory.
(Genera Uttes Co. v. cverng, 296 U. S., 200 Ct. D. 1055, C. . -1, 214
(1906) ovay v. uer, 03 . (2d), 280 (C. C. . 8).)
Upon consderaton of the facts, however, t s apparent that the advanced
rentas were ncome n the fu sense of the word. They were payments of
renta upon a ease coverng a perod of years. Whether amortzaton shoud
be aowed aganst them, s a queston for the Congress. If a ta payer receves
earnngs upon property under a cam of rght and wthout restrcton as to
ts dsposton, he has receved ncome for whch he s requred to account
(North mercan O v. urnet, 286 U. S., 417 Ct. D. 499, C. . I-1, 293
(1932) ) and when the books of the ta payer are kept on a cash bass as to
recepts and dsbursements, the return must be made upon the same bass. Ths
s the essence of the cash bass system and n drect contrast wth the accrua
method. ( ckert v. urnet, 283 U. S., 140, 51 St. Ct., 373, 75 L. d., 911 Ct. D.
825, C. . -, 241 (1931) Unted States v. Mtche ct a, 271 U. S., 9, 40
S. Ct, 418 T. D. 3S65, C. . -. 233 (192G) ctu Tte Trust Co. v.
ener, 34 . (2d), 350 Ct. D. 130, C. . III-2, 246 (1929) ord v. Comms-
soner, 51 . (2d), 206 (C. C. . 6), certorar dened, 284 U. S. 600 urnet v.
Sanford rooks, 282 U. S., 359 Ct. D. 277, C. . -, 363 (1931) Cemmon
v. Commssoner, 54 . (2d), 209 (C. C. . 5) Ct. D. 529, C. . I-2, 178
(1932) .)
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213 (a), rt. 52.
336
ppeants rey upon Tocne sner (245 U. S., 418) and sner r. Ma-
comber (252 U. S., 189 T. D. 3010, C. . 3, 25 (1920) ), sayng that If a stock
dvdend s not ta abe, advance payments kewse shoud be free of ta .
Those cases hed that a stock dvdend payabe n the same cass of stock repre-
sents no ncrease n capta that by the decaraton of such a dvdend the
nterest of the stockhoder n the corporate assets s not ncreased. These opn-
ons are dstngushed n the recent case of oshand v. everng (298 U. S.,
441 Ct. D. 1124, C. . -1. 219 (1936) ), where t was hed that dvdends
pad n common stock to a hoder of preferred stock consttuted ta abe Income,
pontng out that the Interest of the ta payer n the corporate assets, after the
recepts of such dvdends, dffers from that formery hed. If the reasonng of
cther of the frst two cases can be consdered appcabe to the nstant case. It
s apparent that the atter s more neary n pont. ere the assocaton re-
ceved advance earnngs under the ease n cash, purey as ncome.
ppeents contenton that the commssons pad for securng the ease shoud
be deducted e cusvey from the ncome for the years n whch they were pad
was before ths court n Grffths v. Commssoner (70 . (2d), 94C) and there
re|ected. s sad there, t seems unfar to a ta payer to permt for the frst
year a deducton of ony one nnety-nnth of commssons. The court ndcated
sympathy wth the poston of the ta payer that the cost shoud be spread
equay over the entre 99 years, but concuded that the stuaton requred egs-
atve reef and that the court coud not determne arbtrary how the e pense
of negotatng a ong tme ease shoud be dstrbuted. (See aso ome Trust
Co. v. Commssoner, 65 P. (2d), 532 (C. C. . 8) Meyran v. Commssoner, 63
. (2d), 986 (C. C. . 3) Tonnngsen v. Commssoner, 61 . (2d), 199 (C. C. .
9) Ct. D. 669, C. . II-1, 251 (1933) Centra ank ock ssn. v. Comms-
soner, 57 . (2d), 5 twe v. Unted States, 1 ed. Supp., 720 pnks Reaty
Co. v. urnet, 62 . (2d), 860.)
The udgment of the dstrct court s affrmed.
rtce 50: When ncuded n gross ncome,
R NU CT O 1026.
ecutors commssons. (See Ct. D. 1260, page 277.)
rtce 52: ampes of constructve recept. I-33-8S78
Ct. D. 1251
INCOM T R NU CT O 1024 D CISION O COURT.
Income Dvdends Credted to Stockhoder Wthout Lmtaton
Upon Rght to Wthdraw Subsequent Canceaton.
Dvdends on preferred stock credted on the books of a corpora-
ton to the persona account of a stockhoder durng 1924 and 1925,
wth no mtaton upon hs rght to wthdraw them, are ncudbe
n hs gross ncome for those years under the provsons of artces
51 and 52 of Reguatons 65, even though such credts were can-
ceed by the corporaton, wth the consent of the stockhoder, In
1926.
Court or Cams of the Unted States.
oseph L. aker v. The Unted States.
17 . Supp., 976.
ebruary 8, 1937.
OPINION.
Wams, udge, devered the opnon of the court
The ssue presented n ths case s whether dvdends n te respectve
amounts of 2S,640 and 29,688 for the years 1924 and 1925, voted on shares
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337
213 (a), rt. 52.
of preferred stock In the aker Ice Machne Co., Inc., owned by pantff, are
propery ncudbe n hs gross ncome for those years.
The preferred stock of aker Ice Machne Co., Inc., provded for an 8 per
cent annua dvdend, to be pad at the rate of 4 per cent semannuay, and
such dvdends were reguary decared from the date of the company s organ-
zaton down to and through the years here nvoved. the shares of pre-
ferred stock, of a par vaue of 1,500,000, wth the e cepton of about 200
shares, were owned by pantff and members of hs Immedate famy. It wns
the consstent practce of the corporaton, when dvdends on ts preferred stock
were voted, to pay the mnorty stockhoders ther dvdends n cash and to
credt dvdends of pantff and members of hs famy to ther persona
accounts on the books of the corporaton. Ths practce was foowed n
1924 and 1925, and pantff was credted on hs persona account wth 28,640
for 1924 and 29,688 for 1925, the preferred stock dvdends voted to hm
for those years. Ths account was an open one, contanng many tems n no
way reatng to dvdends, upon whch the pantff had the unrestrcted rght
to draw at hs peasure. There was no mtaton on hs rght to wthdraw
the dvdends credted to hm whenever he saw ft to do so. It appears, how-
ever, that no part of the dvdends credted to pantff for the years 1924
and 1925 was wthdrawn by hm, and that on anuary 8, 1926, the board of
drectors of aker Ice Machne Co., Inc., formay and wth the pantff s
consent canceed a unpad dvdends standng to pantffs credt ( 135,911.83)
and credted that amount back to surpus account.
rtce 51 of Reguatons 65, Revenue ct of 1924, provdes:
Income whch s credted to the account of or set apart for a ta payer and
whch may be drawn upon by hm at any tme Is sub|ect to ta for the year
durng whch so credted or set apart, athough not then actuay reduced to
possesson.
nd In artce 52 of the same reguatons t s stated: dvdends on cor-
porate stock are sub|ect to ta when unquafedy made sub|ect to the de-
mand of the stockhoder.
These provsons have been ncuded n a Treasury reguatons snce 1918
and have been accepted and approved by Congress through subsequent roenact-
ment of the statute. Whether a stockhoder actuay wthdraws from hs
account moneys representng dvdends decared and entered n the account
credted to hm s not mportant It Is not necessary that dvdends credted
to hs account be reduced to actua possesson n order to make them ta abe.
They are ta abe as ncome for the year n whch they unquafedy become
sub|ect to the demand of the stockhoder.
The pantff contends that the dvdends n queston were not unquafedy
sub|ect to pantffs demand by reason of the fnanca condton of aker Ice
Machne Co., Inc. It s contended that when the dvdends were decared no
fnanca statements were consdered by the board of drectors and that no
attempt was made to determne whether any funds were avaabe to pay
them, as s the case when a common stock dvdend s decared t s further
contended that t was never ntended by the corporaton that dvdends be pad
pantff, or that he shoud receve such dvdends ether actuay or construc-
tvey that the preferred dvdends were decared so that funds coud be ava-
abe for payment of dvdends to the mnorty stockhoders, prncpay em-
poyees and customers of the company, In order to mantan the good w
of the corporaton.
The cash baances of the aker Ice Machne Co., Inc., as shown by the
books of ts Omaha and Los ngees offces, were not suffcent at a tmes
durng the years 1924 and 1925 to pay the dvdends credted to pantffs
account, but the cash poston aone s not concusve as to the abty of the
company to pay. It s ony one of the tems gong to make up ts capta
and surpus ( acobus v. Unted States, 80 C. Cs., 357, 9 ed. Supp., 41 . D.
aenger, Inc., v. Commssoner, 84 ed. (2d), 23), and the fact that the cash
baances may at tmes fa beow the amount of dvdends standng on the
books to the credt of a stockhoder does not of tsef estabsh that the amounts
so credted to the stockhoder are not avaabe to hm. When we ook to the
fnanca stuaton of the aker Machne Co., Inc., durng the years 1924 and
1925, ncudng the cash baances mantaned by t, there can be no doubt, we
thnk, that the corporaton was at a tmes n a fnanca condton to pay the
dvdends credted to pantff. The net assets of the company on une 30,
1924, were 1,659,018.60, ncudng a surpus of 127,745.96 after deductng a
prevousy decared dvdends, and ts net ncome for the year was 93,834.33,
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213Cb), rt. 89.
338
whe Its not assets as of une 30, 1925, were 1,676,395.82, Incudng surpus
of 121,938.23 after deductng a prevousy decared dvdends, and ts net
Income for the fsca year was 92,882.21. These fgures, a of whch are
dscosed by the books of the aker Ice Machne Co., Inc., show beyond ques-
ton that the company was entrey sovent and a reasonaby prosperous con-
cern durng the years 1924 and 1925. ven concedng that the assets of the
company were carred on the books of the company at an nfated vaue t
had a net ncome for each of the years of more than 90,000. In vew of a
the facts and crcumstances shown, the concuson s not ony |ustfed but Is
Inescapabe that the company s fnanca condton was such that the dvdends
credted to pantff s account coud have been and woud have been pad wth-
out embarrassment to the company at any tme the pantff mght have seen
ft to wthdraw them.
Pantff s contenton that dvdends on the preferred stock of the aker Ice
Machne Co., Inc., were voted for the soe beneft of the mnorty stockhoders,
and that t was not Intended to pay dvdends to pantff Is not supported by
competent proof and Is wthout mert. The pocy of the company from ts
organzaton n 1919 down to the end of 1925, t s true, was to pay the m-
norty stockhoders ther dvdends n cash and to credt pantff s dvdends
to hs persona account wth the company. Why ths pocy was foowed does
not appear and s not mportant, as the pocy, whatever the reason for It
may have been, was dctated by pantff who owned a the common stock and
was n compete contro of the aker Ice Machne Co., Inc. The mportant
and controng fact s that dvdends voted n 1924 and 1925 on the preferred
stock hed by pantff n the aker Ice Machne Co., Inc., were credted to hs
persona account wth the company wthout any restrctons whatever on hs
rght to wthdraw them at w. They were unquafedy sub|ect to hs
demand, and the wthdrawa of them woud not have serousy embarrassed
the company or mpared ts fnanca standng.
Pantff s not entted to recover, and the petton s dsmssed. It Is so
ordered.
Whaet, udge Ltteton, udge Green, udge and ooth, Chef ustce,
concur.
S CTION 213(b). G OSS INCOM D IN D:
CLUSIONS.
rtce 88: Compensaton of State offcers and
empoyees.
R NU CT O 1026.
Independent contractor empoyed by varous boards. (See Ct. D.
1248, page 298.)
rtce 89: ddtona e cusons from gross ncome.
R NU CT O 1926 ND PRIOR R NU CTS.
empton from ta aton of earnngs of shps documented under
the aws of Norway, Great rtan, Denmark, and Greece. (See I. T.
3104, page 166.)
rtce 89: ddtona e cusons from gross ncome.
R NU CTS O 1921, 1924, ND 1926.
Ta aton of earnngs of shps documented under the aws of n-
and. (See I. T. 3108, page 167.)
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339
214(a)4,5,6, rt. 141.
S CTION 214 (a) 1. D DUCTIONS LLOW D INDI-
IDU LS: USIN SS P NS S.
rtce 112: When charges deductbe.
Commssons pad for negotatng 99-year ease. (See Ct. D. 1252,
page 334.)
rtce 112: When charges deductbe.
Losses by vrtue of rea estate forecosure saes where State aw
provdes for redempton perod. (See G. C. M. 19367, page 115.)
S CTION 214 (a) 4, 5, 6. D DUCTIONS LLOW D
INDI IDU LS: LOSS S.
INCOM T R NU CTS O 1926 ND 1028 D CISION O COURT.
1. Deducton Loss ffated Corporatons Sae of Worth-
ess Patents by Subsdary.
In computng consodated net ncome for 1027 and subsequent
years the ta payer corporaton s not entted to deducton for an
aeged oss sustaned by ts subsdary n 1927 upon the sae to ts
soe stockhoder for a nomna consderaton of certan patents
acqured n 1925, where the evdence shows that the orgna
patentee had sustaned consstent osses n the manufacture of
the patented devce from 1915 to 1920, when manufacture ceased,
and had stated n ts capta stock ta returns for 1923-1925
that the nventory was obsoete and that the good w and patents
had no vaue.
2. Deducton Reserve fob ad Debts.
Where the evdence dscosed that the baance In the reserve for
bad debts as f ed by the ta payer at the cose of the years 1927
and 1930 was much n e cess of the tota charge-offs for those and
pror years, the addtons to the reserve as aowed by the Com-
mssoner for the ta abe years were reasonabe and adequate, and
the reducton n the amount of deductons aowabe therefor was
not an abuse of dscreton.
8. Credt for oregn Ta es ccrua ass.
The ta payer, on an accrua bass, s not entted to credt for
the caendar year 1930 on account of ncome ta es pad to Great
rtan on ebruary 4, 1932, for the rtsh year of assessment,
pr 6, 1931, to pr 5, 1932, based on earnngs of ts London
branch n 1930. though t appeared at the end of that year that
a events necessary for a determnaton of the amount of ta had
occurred, the abty for payment depended upon whether the ta -
payer contnued n busness durng the year of assessment, and
under such crcumstances the bass for accrua dd not e st unt
after the end of the caendar year 1930.
R NU CTS O 1924 ND 1920.
R NU CT O 1926 ND PRIOR R NU CTS.
rtce 141: Losses.
( so Secton 214(a) 7, rtce 155.)
I-35-8895
Ct. D. 1256
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214 (a) 4, 5, 6, rt. 141.
340
Cot T op Cams of the Unted States.
rt Meta Constructon Co. v. The Unted States.
17 . Supp., 854.
anuary 11, 1937.
OPINION.
Ltteton, udge, devered the opnon of the court.
These two cases were consodated for the purpose of takng testmony and
submsson to the court, and arse as a resut of adverse acton by the Com-
mssoner of Interna Revenue on tmey refund cams fed by pantff for
ncome ta aeged to have been overpad for 1927, 1929, and 1930.
Pantff contends, frst, that a corporaton ater affated wth t sustaned a
oss n 1927 on the dsposton of certan patents, the unabsorbed porton of
whch shoud be carred forward and aowed as a deducton n computng con-
sodated net ncome for 1929. Ths queston presents a rather nvoved set
of facts but the essenta eements upon whch recovery depends nvove a very
narrow queston of fact. Pror to 1911 one ugey was deveopng a devce
caed a costmeter, whch was desgned to record nformaton necessary n the
determnaton of abor nnd overhead cost In factores. In 1911 . C. Lggett,
after conferences wth ugey, became convnced that the devce had com-
merca possbtes. ccordngy, September 28, 1911, Lggett organzed the
Costmeter Co. of Caforna and to that corporaton were transferred the
patents and patent appcatons on the costmeter devce. In the meantme
Lggett had nterested hs brother, L. . Lggett, and perhaps others. In the
proposton. The corporaton had outstandng capta stock of the par vaae
of 500,000, most, f not a, of whch was hed by the Lggetts, ugey, and
ther fames, more than three-fourths of the stock beng hed by the Lggetts
of whch more than a ma|orty was hed by L. . Lggett. rom 1911 to 1915
consderabe e permenta work was carred on for the purpose of perfectng
the devce.
In November, 1914, the Costmeter Co. of Massachusetts was organzed and
to that corporaton were transferred n October, 1915, a of the assets of the
Caforna corporaton n e change for stock of a par vaue of 300,000. The
stock was apportoned among the stockhoders of the Caforna corporaton on
the bass of ther hodngs n that corporaton. The Massachusetts corpora-
ton aso assumed abtes of the Caforna corporaton of appro matey
49,000, and, n addton to the patents and the patent appcatons on the
costmeter devce, acqured certan msceaneous assets havng a vane of
seventeen or eghteen thousand doars. The patents and patent appcatons
were entered on the books of the Massachusetts corporaton at 331,696.S0,
whch that corporaton used as cost based upon the par vaue of stock ssued
for the varous assets and the abtes assumed. bout the same tme the
Caforna corporaton sod stock of a par vaue of 40,000 for cash n the same
amount to three ndvduas who had not been prevousy connected wth ether
corporaton.
The Massachusetts corporaton then proceeded to manufacture some of the
devces and at the same tme contnued ts e permenta and deveopment work
ookng to ts mprovement and perfecton. rom tme to tme over the perod
from 1915 to 19 0 machnes were manufactured and paced wth about s
busness concerns for use on a renta bass of 50 cents a month. The devce
was never a commerca success, osses beng shown consstenty n connecton
wth the venture. In 1920 a manufacture of the devce under the patents
ceased and none was thereafter manufactured.
In the meantme a patent on a vsbe fe Inde , whch came to the Massa-
chusetts corporaton through a patent appcaton In e stence at the tme of
the 1915 transfer of assets, had deveoped nto an asset of vaue. In 1922 t
was decded to transfer the vsbe fe nde busness to a separate corpora-
ton. ccordngy the Postnde company was formed September 15. 1922, to
whch were transferred the patent on the vsbe fe nde and a other assets
of the Costmeter Co. of Massachusetts e cept the costmeter patents and Inven-
tory, the entre capta stock of the Postnde company beng Issued to the
Costmeter Co. of Massachusetts. The Postnde company seems to have been
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341
214 (a) 4,5,6, rt. 141.
proftabe from 1922 to 1925, whereas In or before 1925 the costmeter busness
had become a hopeess venture. owever, the Costmeter company had become
ndebted to the Postnde company, as we as to L. . Lggett s a resut
the Costmeter company on December 30, 1925, transferred the costmeter patents
and Inventory to the Postnde company n settement of ts ndebtedness to
the atter corporaton and on the same day the Costmeter company transferred
a of the stock of the Postnde company to L. . Lggett n settement of ts
Indebtedness to hm. avng thus dsposed of a ts assets the Costmeter
TOmpany qudated on the foowng day. L. . Lggett contnued to own a
the stock of the Postnde company from December 30, 1925, unt ebruary 9,
1927, when he sod ths stock to pantff. Two days before ths sae the Post-
Inde company sod the costmeter patents to L. . Lggett for 100.
On the bass of ths sae of the costmeter patents n 1927 by the Postnde
company to L . Lggett pantff cams a deductbe oss measured by the
dfference between the aeged cost of 331,696.80, as entered on the books of
the Costmeter Co. of Massachusetts In 1915, ess proper ad|ustment for deprec-
aton, and the sae prce of 100 n 1927. On ths bass pantff aso contends
such part of the oss as was not used n determnng ta abe ncome for 1927
and 1928 shoud be carred forward and aowed as a deducton n computng
net Income for 1929. On the atter pont the partes agree that n the event a
oss was sustaned pantff s correct n prncpe as to carryng forward such
oss.
Pantff proceeds on the theory that these patents were acqured n 1915 at
a cost measured by the par vaue of stock ssued therefor and certan abtes
assumed, and that such stock had a far market vaue equa to ts par vaue.
Ths cam s based argey on the proposton that certan shares of stock
were sod for cash at par about the date of acquston n 1915, whereas de-
fendant strongy urges that the evdence s not suffcent to support the camed
vaue.
We do not fnd It necessary to determne the merts of these contentons for
the reason that we are convnced, and have found as a fact, that the patents
had become worthess ong before the ta abe years nvoved. Ths concuson
s fuy supported by the record. owever optmstc the vews of the pro-
moters of the enterprse may have been at ts ncepton, these hopes had been
destroyed pror to the tme when the Costmeter Co. of Caforna made a
transfer of the assets to the Postnde company on December 30, 1925. fter
about fve years of effort had produced gross ncome from the devce of ony
about 14,000, and the corporaton had shown consstent osses therefrom over
that entre perod, manufacture ceased In 1920 and was not thereafter resumed.
Whether the nventon mght have been a success f the war had not ntervened
and f better methods of dong the same thng had not been found s of no
mportance here. The controng fact s that fve years of effort, n addton
to about fve years of e permentaton pror to the formaton of the Costmeter
Co. of Caforna, not ony faed to produce successfu resuts but demonstrated
that fnanca returns coud not be e pected from the manufacture of ths
devce.
The concuson of the Costmeter Co. of Massachusetts that the patents were
worthess pror to ther transfer to the Postnde company s shown by state-
ments appearng In the capta stock returns fed uy 21, 1923, September 29,
1924, and uy 24, 1925, wheren t Is sad that The nventory s obsoete, and
Good w and patents have no vaue n vew of the recurrng defcts. The
overwhemng weght of evdence to the effect that the patents had become
worthess pror to December 30, 1925, more propery f es the perod wthn
whch any deductbe oss was sustaned than the sae n 1927 of the asset n
queston by a corporaton to ts soe stockhoder for a nomna consderaton.
Snce the oss had been sustaned pror to 1927 t foows that t can not be
taken Into consderaton n arrvng at ta abe ncome for 1927 and subsequent
years.
Pantff ne t contends that the defendant erroneousy reduced the amount of
the aowabe deductons In 1927 and 1930 on account of addtons to ts reserve
for bad debts. Ths ssue arses under the provsons of secton 234 (a)5 of
the Revenue ct of 1926 and the correspondng provson of the Revenue ct of
1928, secton 23(|), whch provde that n computng net ncome there sha be
aowed as deducton Debts ascertaned to be worthess and charged off wthn
the ta abe year (or, n the dscreton of the Commssoner, a reasonabe add-
ton to a reserve for bad debts) .
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214(a)4, 5,6, rt. 141.
342
The use of the reserve system n connecton wth deductons for worthess
debts was frst permtted n the Revenue ct of 1921 and has been contnued n
substantay the same form. Pror to 1921 deductons for worthess debts coud
ony be aowed when they were ascertaned to be worthess and charged off.
The new provson for the use of reserves consttuted an mportant departure
from the former Revenue cts as far as worthess debts were concerned, and
aso a departure from the method empoyed wth respect to other deductons,
n that, by the use of the reserve method, deductons were thereafter aowabe
wthout regard to whether evdenced by cosed and competed transactons.
It s not wthout sgnfcance therefore that under the quoted provsons the
addtons to the reserve must be reasonabe and aowabe ony n the dscreton
of the Commssoner. Whe the Commssoner s e ercse of hs dscreton n
ths respect s sub|ect to revew (cf. ar v.-Osteren Machne Co., 275 U. S.t
220 T. D. 4120, C. . II-1, 1S1 (1928) ), hs determnaton of a reasonabe
addton to a reserve s not to be ghty set asde. The burden s on pantff
to show that the addtons whch the Commssoner has aowed to the reserve
as deductons from ncome for the years nvoved are not reasonabe. In ths
there s more than a mere presumpton of the correctness of the Commssoner s
determnaton. In addton, we are revewng e ercsed dscreton whch has
been confded n the Commssoner. Upon these prncpes we can not say, upon
ths record, that there was any abuse of the dscreton odged n the Com-
mssoner n the determnaton and aowance as a deducton of the addtons
to the reserves for 1927 and 1930, or that the addtons for those years were
other than reasonabe. It s true that the addton aowed by the Comms-
soner for each of the three years precedng 1927. as we as for each of the three
subsequent years, was 20,000, whereas the amount aowed for 1927 was ony
11,080.38. ach year, however, must be |udged on ts own partcuar facts and
an aowance by the Commssoner for a pror year does not bnd hm to approve
the same aowance for a ater year. (C. P. ord Co., Inc., v. Commssoner,
28 . T. ., 156.) The addton to the reserve camed by pantff for 1927
was 38,591.82, whereas the tota amount charged off by pantff from 1921 to
1927, ncusve, amounted to ony 54,387.97, or an average of 7,769.71 a year,
and that does not take nto account the amounts recovered n each of the years
on account of debts prevousy charged off. The baance n the reserve as f ed
by pantff at December 31, 1927, was 177,114.51, an amount more than three
tmes the tota charge-offs for 1921 to 1927, ncusve. When, therefore, the
Commssoner aowed an addton for 1927 of 11,680.38 and showed a baance
n the reserve at December 31, 1927, of 84,171.28, a showng of unusua cr-
cumstances woud be necessary to requre a concuson that the Commssoner
had abused hs dscreton n makng such aowance and that a reasonabe
addton to the reserve had not been made. The evdence fas to |ustfy such
a concuson.
smar anayss coud be made wth respect to 1930 and a ke concuson
must be reached. In further support of ts poston wth respect to the atter
year, wth respect to whch the Commssoner aowed an addton to the re-
serve of 20,000 when the charge-offs n that year were 28,145.33, pantff
cas attenton to the unusua condtons brought about by the economc de-
presson and states that the osses sustaned n the three subsequent years
substantate ts contenton. though what happened n those three years
woud not be controng as to the proper addton n 1930 and we have not
consdered the facts wth respect thereto suffcenty matera to be Incor-
porated n the fndngs, what was shown, however, tends to confrm rather
than refute the accuracy of the aowance as made by the Commssoner. The
actua charge-offs for 1931, 1932, and 1933 were 13,941, 53,049.03, and 23,-
204.27, respectvey. ven after these charge-offs substanta amount e sted
n the reserve at the end of 1933 and a substanta part of the charge-offs
was wth respect to busness done for 1930 and pror years, as to whch years
reserves had been but up, even on the Commssoner s aowance, much n
e cess of the charge-offs for those years. The further argument s ad-
vanced that the pantff was not aways fuy protected through the character
of bonds taken out by the party through whom t was dong work, but It shoud
be borne n mnd that protecton of ths character s somethng In addton
to that ordnary found to whch a party may have recourse n the event
of the faure of the debtor. In many nstances, therefore, pantff had doube
protecton aganst bad-debt osses and the reatvey sma osses sustaned of
that nature may reasonaby be attrbuted n part to that source.
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343
214(a) 7, rt. 155.
The record we thnk confrms rather than dscredts the resonabeness of
the addtons to the reserve as aowed by the Commssoner of Interna Revenue.
The fna queston s whether pantff s entted to a credt aganst ts ta
for the caendar year 1930 on account of ncome ta pad to the rtsh Govern-
ment ebruary 5, 1932, on earnngs of ts London branch for that year. Pan-
tff kept ts books and rendered ts returns on an accrua bass and contends
that the ta n queston accrued at the end of 1930. The meager facts on ths
pont are not suffcent to |ustfy the concuson that the ta es accrued on a
date other than that f ed by the Commssoner. In order to substantate
credts for foregn ta es, t s necessary to prove the detas of the aw m-
posng the ta as we as the varous factors f ng the date of accrua. Mes
enent Pond Co. v. Unted States, 281 U. S., 357 Ct. D. 185, C. . I -1, 295
(1930) Law of edera Income Ta aton, Pau and Mertens, voume 3, page
212.) Some of these essenta eements are not shown. cceptng as true,
however, the facts as used by both partes, some of whch are not n the record,
we are of opnon that the Commssoner s acton was correct.
Pror to 1932 the Commssoner had proceeded on hs rung that rtsh n-
come ta assessabe for the rtsh year of assessment, pr 6 to pr 5 of
the succeedng year, on the average ncome of three years endng on that day
of the year mmedatey precedng the year of assessment on whch the ac-
counts of the sad trade had been usuay made up, s propery accruabe as
at the end of the thrd year n the average, and where the ta for the rtsh
year of assessment s based on the ncome of the precedng year, the ta accrues
as at the end of such precedng year. (G. C. M. 5971, C. . III-1, 182 1929 .)
owever, on ebruary 4, 1932, t was hed n Coumban Carbon Co. v. Comms-
soner (25 . T. ., 456), that such ta dd not accrue at the end of the year
precedng the year of assessment but rather n the year of assessment, snce t
appeared that abty for the payment of such rtsh ta es s dependent
upon whether the ta payer contnues n busness durng the year of assessment.
s a resut of that decson the Commssoner revoked the pror decson re-
ferred to and ssued G. C. M. 10613 (C. . I-1, 173 (1932)), n whch be made
a rung consstent wth that decson of the oard. Pantff fed ts return
for 1930 on the bass of the earer decson but n hs audt the Commssoner
made ad|ustments to conform to the ater decson whch was then In force,
thereby dsaowng the entre deducton for 1930 of the ta for the rtsh
year of assessment, pr 6, 1931, to pr 5, 1932, whch was based on the
earnngs of pantffs London branch for the caendar year ended December
31, 1930, and whch was pad ebruary 4, 1932.
ta accrues when a events have occurred whch f the amount of ta
and determne the abty of the ta payer to pay t. (Unted States v. nder-
son, 269 U. S., 423 T. D. 3839, C. . -, 179 (1926) .) On the bass of the facts
set out In the decson of the oard n the Coumban Carbon Co. ease, supra,
and n the rungs of the Commssoner heretofore referred to, whch facts
the partes seem to have accepted as a bass for ther postons, t appears
that at the end of 1930 a events had occurred necessary for a determnaton
of the amount of ta but that pantffs abty for ta was dependent on
the happenng of an event subsequent to the end of that year, namey, ts
contnuance n busness. Under such crcumstances the bass for accrua dd
not e st unt after the end of the caender year 1930. The pettons must
be dsmssed. It s so ordered.
Whaey, udge Wams, udge Gbeen, udge and ooth, Chef ustce,
concur.
S CTION 214 (a) 7. D DUCTIONS LLOW D
INDI IDU LS: D D TS.
rtce 155: Reserve for bad debts.
R NU CT O 1028.
Dscreton of the Commssoner as to reserves, (See Ct. D. 1256,
page 339.)
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217, rt. 319.
344
S CTION 217. N T INCOM O NONR SID NT
LI N INDI IDU LS.
rtce 319: Dvdends. I-35-8896
( so Secton 1113, rtce 1351.) Ct. D. 1255
INCOM T R NU CT O 1926 D CISION OP COURT.
1. Income oregn Testamentary Trust Dvdends of Domestc
Corporaton Ta abe to Nonresdent en enefcary.
Dvdends on stock of a domestc corporaton receved by a non-
resdent aen as soe benefcary of a foregn testamentary trust,
the ncome from whch was dstrbutabe and actuay dstrbuted
durng the years 1927 to 1030, ncusve, were ta abe to the bene-
fcary as ncome from sources wthn the Unted States, n ac-
cordance wth the provsons of sectons 213(c) and 217 of the
Revenue ct of 1920.
2. Cams for Refund Suffcency.
Cams for refund for the years 1927, 1928, and 1929, as orgnay
made, and as amended, pursuant to a conference wth the Comms-
soner, by the fng of wrtten recepts for ncome ta es pad to
Great rtan, were suffcent for the purpose of the aowance and
sut. The Commssoner had a the Informaton desred and a
that the ta payer coud furnsh and the demand for refund was
evdenced n wrtten form before he acted on the cams.
Court of Cams of the Unted States.
Dorothy Septma ence v. The Unted State .
18 . Supp., 848.
pr 5, 1937.
OPINION.
Ltteton, udge, devered the opnon of the court
The queston presented n ths case s whether the amounts receved by
pantff durng the ta abe years 1927 to 1930, Incusve, as the soe benefcary
of a dstrbutabe trust created by the w of her husband, Percy Russe Grace,
were ta abe to her as ncome from sources wthn the Unted States n
accordance wth sectons 213(c) and 217 of the Revenue ct of 1926.
Te amounts receved by pantff upon whch she was hed ta abe conssted
of dvdends of a domestc corporaton receved by her durng the ta abe
years from the trustee of a dstrbutabe testamentary trust created by her
former husband.
Pantff contends that under the appcabe Revenue cts she s sub|ect to
ncome ta ony on ncome from sources wthn the Unted States that the
amounts receved by her were ncome from a foregn testamentary trust and
not ncome to her from sources wthn the Unted States that the trust was
a separate entty and that the Revenue cts do not provde that Income re-
ceved by a nonresdent aen from a foregn testamentary tmst sha he
treated as ncome from sources wthn the Unted States, nor s any such
provson made n any rues or reguatons prescrbed by the Commssoner of
Interna Revenue. Stated another way, pantff contends that what she
receved was trust ncome rather than dvdends, and that, snce the stock of
the domestc corporaton upon whch such dvdends were pad was hed by
the trustee and the dvdends upon such stock were pad to the trustee, such
dvdends, f ta abe at a, were ta abe ony to the trust and that the
character of such dvdends as beng ncome from sources wthn the Unted
States ceased upon ther recept by the trust.
The power of Congress to ta the ncome n queston s conceded, but It Is
contended that Congress dd not ntend to ta t n crcumstances here present
and that the anguage of the pertnent sectons of the Revenue cts does not
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345
217, rt. 319.
reach It. We are of opnon that the Income In queston was ta abe to
pantff as dvdends from a domestc corporaton and that the Commssoner
correcty dened her cams for refund on ths ground. It s generay true
that a trustee s not the agent of a benefcary and that the recept by a
trustee does not amount to a recept by the benefcary, but ths rue s
sub|ect to mportant e ceptons, partcuary wth respect to edera ta aton.
The argument that a trustee s not an agent for a benefcary and that the
anguage of the Revenue cts docs not, n the crcumstances, reach ths ncome
fas to take proper account of the structure and the underyng purpose of the
Revenue cts provdng for the ta aton of the ncome of the trust and aso
of the fact that a benefcary of a dstrbutabe trust has an equtabe, f not a
ega, nterest n the trust property. (See dward T. ar v. Commssoner
of Interna Revenue, 299 U. S., , decded ebruary 1, 1937 Ct. D. 1205,
C. . 1937-1, 175 .) The purpose to e act a ta upon a ncomes of non-
resdent aens from sources wthn the Unted States s cear. nd t was
the obvous purpose of Congress to mpose such ta upon the person requred
by the statute to report such ncome and pay the ta thereon. The Revenue
cts provde that a trust sha pay the ta upon ncome whch s not dstrbuta-
be, or dstrbuted, to the benefcary and that the trustee sha make a return
aad pay the ta es. In the case of recept by a trust of nondstrbutabe ncome
from sources wthn the Unted States, the dentty of such ncome as beng
from such source ceases upon ts beng returned and ta ed to the trustee and
t s not subsequenty ta abe to the benefcary f and when t Is dstrbuted.
In the case of a dstrbutabe trust, the statutes provde that the trustee sha
deduct amounts ta abe to the benefcary and that the benefcary sha report
and pay the ta on the amounts dstrbuted or dstrbutabe. Thus the ntent
to ta the entre ncome of the trust, ether to the trustee or to the benefcary,
s cear. dstrbutabe trust s treated by the statute as a mere condut
through whch the ncome passes to the benefcary who s made ta abe
thereon, and, n nstances of the character wth whch we are here concerned,
the amounts receved by the benefcary retan ther dentty as dvdends and
as ncome from sources wthn the Unted States unt ther recept by the bene-
fcary who, under the statute, s made ta abe thereon. In other words, the
recept by the trust of money dstrbutabe to a benefcary s for the purpose
of ta aton recept by the benefcary. In reuer, dmnstrator, v. everng
(291 U. S., 35 Ct. D. 782, C. . III-1, 242 (1934) ), the Court, n construng
secton 219 of the Revenue ct of 1921 and smar provsons of the Revenue
ct of 1920, sad:
Pany the secton contempates the ta aton of the entre net ncome of
the trust. Pany, aso, the fducary, n computng net ncome, s authorzed
to make whatever approprate deductons other ta payers are aowed by
aw. The net ncome ascertaned by ths operaton, and that ony, s the ta -
abe ncome. Ths the fducary may be requred to accumuate or, on the
other hand, he may be under a duty currenty to dstrbute t. If the atter,
then the scheme of the ct s to treat the amount so dstrbutabe, not as the
trust s ncome, but as the benefcary s. ut as the ta on the entre net
ncome of the trust s to be pad by the fducary or the benefcares, or party
by each, the benefcary s share of the ncome s consdered hs property from
the moment of ts recept by the estate. Ths treatment of the benefcary s
ncome s necessary to prevent the possbty of postponement of the ta to
a year subsequent to that n whch the Income was receved by the trustee.
If t were not for ths provson the trustee mght pay on part of the ncome
n one year and the benefcary on the remander n a ater year. or the
purpose of mposng the ta , the ct regards ownershp, the rght of property
n the benefcary, as equvaent to physca possesson. The test of ta abty
to the benefcary s not recept of ncome, but the present rght to receve t.
(See, aso, everng v. utterworth et a., Trustees, 290 U. S., 365 Ct D.
709, C. . III-1, 151 (1934) .)
If It be assumed that the amounts receved by pantff durng the years n
queston were not dvdends wthn the meanng of secton 217(a)2 of the
Revenue ct of 1926 when receved by pantff, they were, nevertheess, ta abe
to her as ncome from sources wthn the Unted States snce such amounts
were pad on stock of a corporaton dong busness n the Unted States and
were, therefore, derved from sources wthn the Unted States. In everng
77964 38 12
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218, rt. 335.
v. Stockhoms nskda ank (293 . S., 84 Ct. D. 887, C. . I -2, 299
(1932) ) the Court sad:
The genera ob|ect of ths ct s to put money nto the edera Treasury
and there s manfest n the reach of ts many provsons an ntenton on the
part of Congress to brng about a generous attanment of that ob|ect by m-
posng a ta upon pretty much every sort of ncome sub|ect to the edera
power. Pany, the payment n queston consttutes ncome derved from a
source wthn the Unted States and the natura am of Congress woud be to
reach t
The case of ondermuh v. evermg (75 ed. (2d), 656 Ct. D. 985, C. .
1 -2, 292 (1935) ), reed upon by the pantff, s dstngushabe on the
facts.
Our concuson that pantff was propery ta ed upon the amounts receved
by her n the years nvoved presents the further queston whether she may
recover any porton of the net ta determned by the Commssoner for the
years 1927, 1928, and 1929 on account of her faure to receve at the hands
of the Commssoner the fu beneft of the authorzed deductons for ncome
ta es pad to Great rtan. Nether the amount of ta es so pad to Great
rtan n each of the years 1927 to 1929, ncusve, nor the egaty of the
deducton thereof s n controversy. The ony queston s whether the cams
for refund for these years, when acted upon by the Commssoner, were suff-
cent as orgnay made and as amended by the fng of wrtten recepts for
the ta es pad after and pursuant to a conference wth the Commssoner on
uy 18, 1932, as dscosed n fndng 6. In the crcumstances of ths case we
thnk the cams were made suffcent for the purpose of the aowance and sut
as a resut of the consderaton and dscusson of the cams between the
Commssoner and the pantff on uy 18, 1932, wth specfc reference to the
aowabe deductons for ncome ta es pad to Great rtan and the fng by
pantff wth the Commssoner, as a part of ts cams, of the wrtten recepts
for the ta es pad to Great rtan n each of the years 1927 to 1930, ncusve.
The Commssoner was not msed. e had a the nformaton that he desred
and a that pantff coud furnsh and the demand of pantff for the refund
of such amounts as mght resut from these conceded deductons was evdenced
n wrtten form before the Commssoner acted upon the cams. In addton,
pantff and the Commssoner, durng consderaton of the cams when ths
queston was rased and dscussed, consdered and treated the fng of the
wrtten recepts by pantff as beng suffcent to brng these Items nto her
cams then under consderaton as a ground for refund In the years nvoved.
The Commssoner aowed the deductons n hs computatons of the ta
abty but refused to refund the overpayments resutng from such deduc-
tons for 1927, 1928, and 1929. or 1930 the Commssoner aUowed the entre
deducton camed of 4,848.67 n determnng the net ta of 575.19 pad for
that year. There has, therefore, been no overpayment for that year.
ntry of |udgment for the years 1927, 1928, and 1929 w be wthhed pendng
the fng by the partes of a computaton showng the amounts of the over-
payments for those years resutng from the deductons of ta es pad to Great
rtan. It s so ordered.
Whaet, udge Wams, udge Geeen, udge and ooth, Chef ustce,
concur.
S CTION 218. P TN RS IPS.
rtce 335: Partnershps.
R NU CTS O 1024 ND 1920.
Res |udcata, decson of court wth respect to pror years as to
wfe becomng member of husband s partnershp by marta agree-
ment. (See Ct. D. 1244, page 309.)
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219, rt. 347.
S CTION 219. ST T S ND TRUSTS.
etc|5 347: Income of trusts ta abe to
grantor.
I-43-9003
Ct. D. 1272
INCOM T R NU CTS O 1024 ND 1020 D CISION O COURT.
Income states and Trusts Power to evest Tte to Tbust
Where trusts were created by the ta payers under whch poces
of nsurance on the fe of each were transferred to the other and to
a trust company as cotrustees, and certan securtes were trans-
ferred n trust to pay premums on the assgned poces, each trust
ndenture provdng that f at any tme the trustees shoud deem t
wse they mght use any of such funds for the beneft of the grantor
or mght assgn the trust property to the grantor and termnate the
trust, the ncome from the trust property was ta abe to the grant-
ors under the provsons of secton 219(g) of the Revenue cts of
1924 and 1926. The anguage of the statute does not requre that
the trust property sha be sub|ect to a rght whch s e pressy
reserved to the grantor. If the power to revest s found n the
terms of the trust, t s of tte consequence whether the power
s granted or reserved, or whether the power s e ercsed by the
grantor n hs capacty as grantor or as trustee.
Dstrct Court of the Unted States fob the Dstrct of Massachusetts.
rewster, .: The above actons are brought to recover ncome ta es for
the years 1924 to 1927. Defendant has demurred. The cases present dentca
Issues and can be consdered n one opnon.
The controversy arses over the ncuson n the gross ncome of pantffs,
for the years nvoved, of ncome derved from certan so-caed nsurance
trusts created by the pantffs. In each decaraton t s aeged that the
pantff entered nto certan ndentures of trust wth the oston Safe Depost
Trust Co. whereby poces of nsurance on the fe of the other pantff were
transferred to hmsef or hersef and the Trust company, as cotrustees, and
certan securtes were transferred to them upon trust to pay premums on the
poces assgned to the trustees. ach ndenture of trust contaned the foow-
ng provson:
Thrd: ny funds n the hands of the trustees whch the trustees sha deem
not to be needed to pay premums, together wth any other property whch may
from tme to tme be receved by them, sha e cept as herenafter provded,
be hed durng the fetme of Cara C. ggns, n trust, to add the net ncome
thereof to the prncpa and accumuate sad net ncome, provded that f at
any tme durng the fetme of sad Cara C. ggns the trustees sha deem t
wse so to do they may use any of the funds n ther hands specfcay ncudng
the cash surrender vaue of sad pocy for the beneft of ohn W. ggns and
the ssue of sad ohn W. ggns and Cara C. ggns by payng out to hm
and them, or any one or more of them, such sum or sums out of the prncpa as
they sha deem necessary or advsabe for the comfort, mantenance, support,
advancement, educaton or wefare of sad ohn W. ggns and sad ssue or
any one or more of them, or they may surrender and assgn sad pocy and the
trust property hed hereunder to sad ohn W. ggns, n whch case ths trust
sha cease and determne.
The ssue rased by the demurrer s whether the quoted provson renders the
ncome ta abe under secton 219(g) of the Revenue cts of 1924 and 1926. The
provsons of the sectons are Identca n both cts, and are as foows:
Where the grantor of a trust has, at any tme durng the ta abe year,
ether aone or n con|uncton wth any person not a benefcary of the trust,
Corpus.
Cara C. ggns v. Thomas W. Whte, Coector.
ohn W. ggns v. Thomas W. Whte, Coector.
18 ed. Supp., 986.
pr 12, 1937.
OPINION.
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219, rt. 347.
348
the power to revest n hmsef tte to any part of the corpus of the trust, then
the ncome of such part of the trust for such ta abe year sha be ncuded
n computng the net ncome of the grantor.
The defendant contends that the facts aeged present a case where each
pantff, as grantor of a trust, had durng the ta abe years n con|uncton
wth a person not a benefcary power to revest n hmsef tte to a of the
corpus of each trust.
The pantffs, on the other hand, urge that snce the power s to be e er-
csed by them n ther capactes as trustees, the ncome docs not fa wthn
the sweep of the statute.
If, as pantffs contend, t s necessary that the settor e pressy reserve
power to revest n hmsef tte to the property n order to brng the ncome
wthn the scope of the statute, then t woud seem that the ncome was
mpropery ncuded. There are no words of reservaton to be found n the trust
nstrument.
It may be taken to be setted aw that a grantor retans ony those rghts
whch, by e press words, he reserves to hmsef. Thorp v. Lund, 73T Mass,
474, 476 Coodgc v. Lorng, 235 Mass., 220, 223 ames v. ama, 260 Mass.,
19, 22.)
It must aso be conceded that whatever powers were conferred upon the
pantffs by the provsons of the trust ndentures, they must be e ercsed
by them n ther fducary capacty.
The prncpe that an ndvdua, n hs capacty as trustee, s dfferent from
the same ndvdua n hs capacty as grantor, was recognzed n Whte v. Poor
(296 U. S., 98), as t was n the dstrct court (Poor v. Whte, 8 . Supp., 995)
but not n the crcut court of appeas (Whte v. Poor, 75 . (2d), 35). That
case, however, s not decsve of the ssues now under consderaton, and ths
for two reasons: rst, The decson of the Supreme Court turned upon the fact
that the deceased trustee had receved her appontment by the acton of two
other trustees. The Court eft open the queston whether the same resut woud
have been reached had the decedent acqured her powers by vrtue of her
appontment, made when she e ecuted the trust ndenture and secondy, there
s danger n carryng too far the anaogy between the Poor case and the case
at bar. Not ony dfferent statutes are nvoved, but dfferent ta es arc m-
posed n the e ercse of egsatve powers derved from dfferent sources.
In deang wth an estate ta whch must have a reasonabe reaton to the
event of death, It s mportant to ascertan whether the decedent, as grantor,
had reserved any rghts or powers whch were cut off by death. (Renecke v.
Northern Trust Co., 278 U. S.. 339 T. D. 4261, C. . III-1, 30a (1920) May
v. cncr, 281 U. S., 238 Ct. D. 186, C. . I -1, 382 (1930) .)
ut n cases arsng under the ncome ta provson t has been sad that
contro over the property ta ed s an mportant factor. In Renccke v. mth
(289 U. S., 172, 177) the Court sad:
Decsons of ths Court decare that where ta ng cts are chaenged we
ook not to the refnements of tte but to the actua command over the prop-
erty ta ed the actua beneft for whch the ta s pad. (Ctng Corss v.
owers, 281 U. S., 376 Ct. D. 188, C. . I -1, 254 (1930) .)
In apan v. Commssoner of Interna Revenue (66 . (2d), 401), the crcut
court of appeas for ths crcut, n appyng secton 219(h) of the Revenue
ct of 1924, refused to recognze any dstncton between a grantor and a
trustee when the same ndvdua was actng In the dua capacty. That case
Invoved the ncome of a trust created by one who had named hmsef as
trustee. The statute consdered by the court provded that f the ncome, n
the dscreton of the grantor of the trust, ether aone or n con|uncon wth
any person not a benefcary of the trust, be dstrbuted or accumuated for
future dstrbuton to the grantor, the ncome was ta abe. The court
observed:
s apan named hmsef trustee, the arge dscreton gven In the trust
Instrument to the trustee as to the accumuaton and payment of Income Is
attrbutabe to hm personay. y the terms of the trust that dscreton can
be e ercsed for hs own possbe beneft, wthn wde mts. We sec no oc-
cason for refnement of constructon aganst the Government. We thnk the
statute means that f under any crcumstances or contngences any part of
the accumuated ncome mght Inure to the beneft of the grantor such porton
of the ncome s ta abe to hm.
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231, rt. 517.
y the same reasonng t mght we be sad that the statute meant that f,
under any crcumstances or contngences, any part of the corpus of the trust
coud be revested n the grantor, the ncome from such property woud be
ta abe to hm. The ony essenta dfference between subparagraph (g) and
subparagraph (h) of secton 219 s that n the former the provsons reate to
the grantor s contro over the corpus of the trust, and n the atter over the
ncome. Ths dfference nvoves no dstncton In prncpe.
In other |ursdctons the courts seem to have proceeded upon the theory
that f the ta payer has a measure of contro over the trust res, t s mma-
tera whether he acts n hs capacty as grantor, or trustee. romey v.
Commssoner of Interna Revenue, 06 P. (d), 532 ower v. everng, 80
. (2d), 103 Ct. D. 1117, C. . -1, 248 (1030) .)
In Reneeke v. Smth, supra, the grantor e pressy reserved a rght of revo-
caton, and t was there noted that the trustee was not a trustee of the power
of revocaton and owed no duty to the benefcary to resst ateraton or revoca-
ton of the trust The Court added, however, that the very fact that he
(grantor) partcpates n the rght of ateraton or revocaton negatves any
fducary duty to the benefcary to refran from e ercsng the power.
In vew of the anguage of the trust empowerng the trustees to transfer
the trust res to the pantffs and thereby termnate the trusts, t woud
seem to foow that the trustees owed no duty to the benefcares to resst
revocaton, and the mere fact that the pantffs partcpate n ths rght woud
negatve such fducary duty. The e ercse of ths power to termnate the
trust and revest tte n the pantffs was not made dependent upon the e -
stence of certan condtons whch the trustees were under a fducary duty
to ascertan. It was a power whch coud be e ercsed at any tme when the
Trust company coud be persuaded by the donor-trustee to e ercse t, and
ths wthout consutng the nterest of the benefcary.
If the power to revest s to be found n the terms of the trust, t can be
a matter of tte consequence whether the power s granted or reserved, or
whether the power s e ercsed by the grantor n hs capacty as grantor or
as trustee. ( ower v. everng, supra apan v. Commssoner of Interna
Revenue, supra.)
The anguage of the statute does not requre that the trust property sha
be sub|ect to a rght whch s e pressy reserved to the grantor. If he has a
rght, however t may be e ercsed, the condtons of subparagraph (g) of sec-
ton 219 have been met, and the ncome s propery ncuded n the gross ncome
of the pantffs.
My concuson, therefore, s that the acton of the Commssoner of Interna
Revenue, n ncudng the ncome n dspute, was awfu and that the demurrer
shoud be sustaned.
S CTION 223. INDI IDU L R TURNS.
rtce 401: Indvdua returns T-42-8987
I. T. 3128
R NU CT O 1021.
I. T. 1574 (C. . II-, 143 (1923)) s modfed n so far as t
s nconsstent wth the vews e pressed n G. C. M. 19143 (page 223).
P RT III. CORPOR TIONS.
S CTION 231. CONDITION L ND OT R
MPTIONS O CORPOR TIONS.
rtce 517: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT OP 102G ND PRIOR R NU CTS.
Poce reef assocaton. Revocaton of S. M. 3028 (C. . I -1,
215 (1925)), S. M. 5699 (C. . -, 80 (1926)), and G. C. M. 1268
(C. . I-1, 83 (1927)). (See G. C. M. 19028, page 125.)
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240, rt. 632.
350
S CTION 234. D DUCTIONS LLOW D
CORPOR TIONS.
rtce 562
Donatons.
ND CT O 1926.
Donatons to a cvc wefare federaton. (See Ct. D. 1290,
page 273.)
S CTION 240. CONSOLID T D R TURNS O
CORPOR TIONS.
INCOM ND C SS-PRO ITS T R NU CT O 1918 D CISION O
COURT.
1. Sut Recovery of Overpayments Credted to Ta foe Later
Teak Cams for Refund ccount Stated.
Overpayments of ta for 1917 and 1918, aowed and credted to
the ta for 1920, are not recoverabe as overpayments for 1920 or
for 1917 and 1918, where the credts were not mentoned In a cam
for refund fed for 1920 and no cams were fed for 1917 and 1918,
and where there was no statement of account showng a baance n
favor of the ta payer.
2. ffated Corporatons Consodated Return ssessment
and Coecton greement as to ocaton.
Where the Commssoner was not advsed of any agreement
among affated corporatons whch fed a consodated return
for 1920 as to the manner n whch assessment of the ta shoud
be aocated, assessment aganst the corporaton whch made the
return s not ega, and the ta coected s not refundabe. The
rght to refund depends upon whether any of the corporatons had
overpad ts ta rather than upon the manner n whch the assess-
ment was made.
3. ffated Corporatons ocaton of ssessment Overpay-
ment of Ta Cam for Credt.
The Commssoner determned that one of four companes whch
had fed a consodated return for 1920 was not affated wth the
other three companes for that year, and aocated the orgna
assessment made on the consodated return to the new affated
group and to the unaffated company on the bass of the rato
whch the net ncome of each company bore to the tota net ncome
as shown n the orgna return. The unaffated company con-
trbuted, ether to the parent company or to the coector, Its pro-
portonate part of the assessment, deductng from the frst nsta-
ment payment an amount whch t camed as a credt on account
of an aeged overpayment for 1918, whch cam was subsequenty
re|ected. These facts do not support the parent company s cam
that an overpayment was made by the three companes for the year
1920 as a resut of the emnaton of the fourth company from the
nffated group. The cam for credt pad nothng ether on behaf
of the unaffated company or any other company, and no money
beongng to the three affated companes s n the hands of the
Government n e cess of what they propery owed as ta es for
rtce 632: Consodated returns.
I-27-8798
Ct. D.1240
1920.
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240, rt. 632.
Court op Cams of the Unted States.
Poneer Coa Coke Co. v. The Unted States.
14 . Supp., 661.
May 4, 1936.
opnon.
Ltteton, udge, devered the opnon of the court.
Wth reference to the amounts of 7,029.66 and 9,755.27, overpayments
aowed by the Commssoner of Interna Revenue for 1917 and 1918 and credted
pr 27, 1925, to the unpad porton of the ta shown and assessed on the
consodated return fed for 1920, the pantff, n paragraphs 2 and 19 of ts
petton fed n ths court, seeks to recover these amounts as overpayments for
1917 and 1918, and n the orgna bref the court was asked to enter |udgment
for these amounts as overpayments for 1917 and 1918. In the repy bref pan-
tff contends that these amounts, totang 16,784.93, are recoverabe n ths
proceedng as an overpayment for 1920 under the prnted anguage or such
greater amount as s egay refundabe, contaned n the cam for refund
fed for 1920 for 94,013.91, or as overpayments for 1917 and 1918 on the
theory of an account stated. We are unabe to agree wth ether poston. No
cause of acton s stated n the petton for the recovery of these amounts as a
coecton or overpayment for 1920, but, on the contrary, such amounts were
set up n the petton and sought to be recovered as overpayments for 1917 and
1918. Moreover, such credts were not ncuded or n any way mentoned n
the cam for refund fed for 1920. The refund cam as fed reated whoy
to the Commssoner s determnaton and aocaton wth respect to the ta
assessed on the orgna return and to the resutng camed overpayment of
94,013.91, herenafter dscussed. The amounts can not be recovered as over-
payments for 1917 and 1918 for the reason that no refund cams for those
years were fed and the certfcates of overassessment devered on May 4,
1925, showed the credts. There was no statement of account showng a ba-
ance n favor of pantff. (Lesenrng et a., ecutors, v. Unted States, 78
C. Cs., 171 Ct D. 741, O. . II-2, 264 (1933) rst Natona ank of
earer as, dmnstrator, v. Unted States, 79 C. Cs., 744 Ct. D. 876, C. .
III-2, 365 (1934) Pratt d Whtney Co. v. Unted States, 80 C. Cs., 670.)
Pantff contends on behaf of tsef, the Natona, and the Tdewater com-
panes n support of ts rght to recover the camed overpayment of 04,013.91
for 1920 (1) that the Commssoner was bound under the statute to assess the
ta shown to be due on the consodated return separatey aganst the four
corporatons whose ncome and nvested capta were ncuded theren In the
proporton of ther respectve net ncomes to the tota consodated net ncome
as shown by the affated return, and that the assessment of the entre amount
of 680,222.58 shown to be due by the consodated return aganst pantff
aone was erroneous (2) that under the agreement made between the four
corporatons, partes to the afated return, to the effect that each corporaton
was to pay ts own ta upon the net ncome propery assgnabe to t, the ta
abty of the Consodated Coke Co. was to be assessed aganst and pad
by t and that an assessment of the ta abty of that company, n the name
of pantff, was ega and (3) that the Commssoner, when he found and
decded that the Consodated company was not afated wth the other corpo-
ratons, shoud have corrected hs orgna assessment of the entre ta abty
of 686,222.58 upon the affated return aganst pantff by abatng 42,510.55
thereof, representng the reducton n the ta abty of pantff, Natona,
and Tdewater companes resutng from the computaton of the profts tn
under secton 328, ct of 1918, and by abatng 222,955.77, representng that
porton of the tota assessment aocated to the Consodated Coke Co., so that
the corrected assessment aganst pantff for tsef and the two affated corpo-
ratons woud have been ony 420,756.26.
Upon the record n ths case we fa to fnd anythng n what the Commssoner
dd that woud gve the pantff, the Natona or the Tdewater companes,
partes to the affated group for 1020, the rght to recover any amount uness
they actuay overpad ther ta . Ths they dd not do wth respect to the ta
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352
pad upon the consodated return, as we sha herenafter endeavor to show.
In so far as the credts of the overpayments for 1917 and 191S made aganst
the porton of ta shown on the consodated return for 1920 are concerned,
no recovery can be had n respect thereto for the reasons herenbefore men-
toned.
When the consodated return was fed each of the four corporatons whose
Income and nvested capta were ncuded theren was to be responsbe for
payment through pantff, as agent, of ts porton of the ta shown to be due
on the consodated return on the bass of the rato whch ts ta , f computed
on a separate return, bore to the tota net consodated ncome as dscosed n
the return, as neary as coud be determned. Ths was done so far as the
payments made to the Government were concerned. The evdence does not
show that there was any defnte agreement as to the manner n whch the
Commssoner shoud assess the ta or that any partcuar amount shoud be
separatey assessed by the Commssoner aganst any one or more of the cor-
poratons ncuded n the affated group. The Commssoner was not advsed
of any understandng or agreement among the four corporatons |onng n the
affated return unt pr 0, 1029, when the pantff, Natona, and Tdewater
companes consttutng the new affated group endeavored to have the Com-
mssoner change hs determnaton and aocaton of the ta shown and
assessed upon the orgna consodated return so as to show an overassessment
of at east 04,013.91 for 1920 n favor of pantff. We thnk the Commssoner
was correct n refusng to do ths and we are aso of the opnon that the Com-
mssoner s aocaton of the assessment of 680,222.58 made on the return to
the correct ta abty of pantff, Natona, and Tdewater companes as the
new affated group and to the Consodated Coke Co., the ncome of whch was
ncuded n the assessment mentoned, was n compance wth the statute and
n substanta accordance wth the understandng between the four corporatons
when the consodated return was fed. Ths was on the bass of the rato
whch the net ncome of each separate company bore to the tota net ncome
as shown n the orgna return. If the Consodated Coke Co. had not been
emnated from the affated group, the Commssoner n hs fna determnaton
woud have made the same sort of aocaton. The fact that the tota ta
shown on the affated return was assessed n the name of pantff rather than
aganst the four corporatons n separate amounts was of no controng mpor-
tance when the Commssoner came to aocate the tota assessment made on
the return to the separate corporatons on the bass of the net ncome and
nvested capta propery assgnabe to each n accordance wth ts fna deter-
mnaton. The assessment of the ta shown to be due on the consodated
return aganst pantff who made the return, even f not strcty n accordance
wth the statute, was not ega. Nor dd the manner n whch the assessment
was made render the ta coected for 1920 ega or refundabe. or the
purpose of aocaton of the assessments to the severa corporatons, no new
assessments were necessary and the queston whether any of the corporatons
were entted to a refund depends upon whether t had overpad ts ta rather
than upon the manner n whch the orgna assessment was made. (Uather
Paper Go., 3 . T. ., 1 Meyersdae ue Co. v. Unted States, 70 C. Cs., 765
Mahonng Investment Go. v. Unted States, 78 C. Cs., 231. Compare Lews
et a. v. Reynods, 284 U. S., 281 Ct. D. 443, C. . I-1, 130 (1932) .) drect
and separate assessment aganst a ta payer s not necessary to a vad payment
or coecton of a ta due. (Meyersdae ue Co. v. Unted States, supra ohn
Mur v. Unted States, 78 C. Cs., 150.)
oowng the usua practce, the Commssoner pror to e amnaton and
audt of the consodated return fed for 1920 assessed the ta shown to be
due thereon n the name of the company makng the return. ssessments of
ta es shown to be due upon returns fed wth the coectors are made by the
Commssoner on assessment sts prepared by the coector and forwarded to
the Commssoner wth the returns sted theren. These assessments, whether
made on sts prepared by the coector or the Commssoner, are made wthout
nvestgaton or e amnaton of returns and of necessty the ta shown on the
return s sted and assessed n the name of the person or corporaton makng
the return, and ths s true n the case of consodated returns, uness there Is
fed wth the return a defnte statement settng forth the names of ta payers to
be assessed and the amount to be assessed aganst each. The procedure ust
mentoned was foowed n ths case. If t be assumed that the assessment n
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353
240, rt. 632.
the name of the pantff of the tota ta es shown on the consodated return
was erroneous, ths error was corrected when the Commssoner aocated the
assessment to the severa corporatons n the rato whch the net ncome of
each separate company of the group bore to the tota net ncome as shown
by the orgna return. The dvson and aocaton of the orgna assessment
reeved pantff, Natona, and Tdewater companes from further payment n
respect of the porton of the assessment aocated to the Coke company.
Ths brngs us to the queston whether the ta for 1920 was overpad n
connecton wth the payments made n respect of the ta shown on the con-
sodated return. s herenafter e paned n more deta, the aeged over-
payment s based on the cam that the tota ta pad to the Government by
the pantff, the Natona, and the Tdewater companes n respect of the ta
dscosed to be due by the consodated return for 1020 before the Consodated
company was emnated from the affated group was 514,770.17, and that
the correct ta abty of these three corporatons as fnay determned by
the Commssoner was 420,756.26. It s obvous that the ony ground upon
whch ths camed overpayment of 94,013.91 can be supported s by proof
that the ta pad to the Government, or contrbuted and used for that pur-
pose, by the pantff, the Natona, and the Tdewater companes, as the ta -
payers, was 514,770.17. In an attempt to estabsh ths fact t s contended
that the Consodated Coke Co., whch was ncuded n the consodated group
when the return was made but afterwards emnated by the Commssoner,
pad as a ta payer, ony 1,452.41 whch was the amount of cash devered
by the Coke company to the pantff to be pad to the coector wth an add-
tona amount of 103.25 to be contrbuted by pantff to take care of the
e cess of the frst nstament of 171,555.66 of the ta shown to be due on
the consodated return over and above the Consodated Coke Co. s cam for
credt of an aeged overpayment for 1918 of 170,000. In answer to ths the
defendant ponts to the fact that the Consodated Coke Co. on une 13, Sep-
tember 12, and December 2, 1921, ssued and devered to pantff ts three
checks, each n the amount of 42,863.10, the e act amount of the Coke com-
pany s proportonate part of the second, thrd, and fourth nstaments of the
tota ta of 686,222.58 shown on the consodated return. ach of these
checks bore on ts face the ndorsement that t was n fu payment of the
Coke company s porton of the ta nstament for 1920 to whch t reated.
These checks were payabe to and were cashed by pantff and the amounts
thereof, e cept the thrd check, were retaned and used by pantff, so far as
the record shows, to remburse t for equa amounts transmtted by pantff
to the coector as the agent of the other three corporatons. The thrd check
of the Coke company for 42,863.10, dated December 2, 1921, was ndorsed
by pantff and devered to the coector n parta payment of the fourth
nstament. In answer to ths pantff contends that the three amounts of
42,863.10 each, totang 128,589.30, were not contrbutons by the Conso-
dated Coke Co. as a ta payer toward the payment of any porton of the
second, thrd, and fourth nstaments of ta shown on the consodated return,
but were returns of oans made to the Consodated Coke Co. on May 2, 1921,
of 56,182.64 by pantff, 9,203.85 by the Natona company, and 61,750.40
by the Tdewater company, totang 127,136.89, whch oans, t s contended,
were made to the Coke company by pantff, Natona, and Tdewater com-
panes n the e act amounts of ther proportonate abtes on the frst nsta-
ment of ta shown on the consodated return because the Consodated com-
pany had taken care of such abty by the fng of ts cam for credt.
These crcumstances, however, w not support pantff s cam for an over-
payment. The fact remans that the tota amount of cash contrbuted and
pad to the Government by the pantff, Natona, and Tdewater companes
as ta payers n connecton wth the ta shown to be due and assessed upon
the consodated return for 1920 was ony 386,180.87 made up of drect pay-
ments or contrbutons of 173,318.13 by pantff, 27,611.55 by Natona, and
185,251.19 by Tdewater the baance of the amount of 514,770.17, whch
was remtted to the coector by pantff as the payng agent, was drecty
pad by the Coke company out of ts funds by ts three checks, each n the
amount of 42,863.10, the e act amount of the Coke company s proportonate
part of the second, thrd, and fourth nstaments. The fact that pantff,
Natona, and Tdewater companes n May, 1921, oaned, as they cam, to
the Consodated company amounts totang 127,136.90 whch they mght
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245, rt. 683.
354
have pad to the coector In March, 1921, If the pantff had not fed a cam
for credt aganst the frst nstament, does not make the amount of 128,589.30
subsequenty contrbuted by the Coke company by ts checks drawn aganst
ts funds n une, September, and December, 1921, when the second, thrd, and
fourth nstaments fe due, a payment to the Government of a ta by pan-
tff, Natona, and Tdewater companes.
The fng of the cam for credt aganst the frst Instament of ta reported
for 1920 pad nothng. Ths cam was wthout mert and was subsequenty
re|ected. What the stuaton woud now be f the 1918 overpayment camed
had been aowed and credted, as requested, we need not decde. The fact
here s that by fng ths cam for credt the Coke company pad nothng to
the Government on ts own behaf or on behaf of any other corporaton. The
amounts totang 127,130.90 pad to the Coke company on May 2, 1921, by
pantff, Natona, and Tdewater companes (fndng 2) at most ony created
the reatonshp of debtor and credtor between the Coke company and such
corporatons. If the amounts totang the sum mentoned were oans, as
camed, the Coke company s st ndebted to these companes for snch
amounts f repayment has not been made. If they were pad to the Coke
company by the pantff, Natona, and Tdewater companes on the beef
that the cam for credt was vad for an overpayment of 170,000 for 1918
and therefore the equvaent of a cash payment, as strongy appears to have
been the case from the manner n whch the matter was handed, these
companes smpy purchased an nterest n a cam, whch, as matters turned
out, was vaueess. These facts and crcumstances compe the concusons,
frst, that upon the fng of the cam for credt, the ony effect of whch was
to postpone coecton of the frst nstament by the coector, none of the
four corporatons, partes to the consodated return, pad anythng on the
frst nstament, e cept 1,452.41 by the Coke company and 103.25 by pan-
tff second, that the abty of each of the corporatons n connecton wth
the second, thrd, and fourth ta nstaments shown and assessed upon the
return was the amount set forth n the tabuaton n fndng 3, and these
were the amounts pad by each corporaton thrd, that the Coke company s
proportonate abty on each of these three nstaments was 42,863.10 and
that amount t contrbuted out of ts funds by three checks payabe to pan-
tff fourth, that pantff, Natona, and Tdewater companes each pad from
Its own funds ts proportonate part of the second, thrd, and fourth nsta-
ments of ta determned to be due by each on the bass of ts net ncome for
1920, |ust as the Coke company dd. It s cear, therefore, that the Coke com-
pany pad no ta on the frst nstament for pantff, Natona, or Tdewater
companes for whch they rembursed t, and the three amounts of 42,863.10,
each pad by the Coke company n connecton wth the second, thrd, and
fourth nstaments, were not payments by pantff, Natona, and Tdewater
companes on account of ther ta abtes for 1920.
No money beongng to pantff, Natona, or Tdewater companes s now
n the hands of the Government n e cess of what they propery owed as
ta es for 1920. No overpayment has been made by pantff or by any other
corporaton whch |oned n the consodated return for 1920. In fact the
tota amount of 386,180.87 drecty pad on ths return to the Government out
of the funds of the pantff, Natona, and Tdewater companes, ns ta payers,
for 1920, was 34,013.91, ess than ther combned ta abty of 420,75126.
The petton s dsmssed. It s so ordered.
Whaey, udge Wh ams, udge Green, udge and ooth, Chef ustce,
concur.
S CTION 245. T S ON INSUR NC COMP NI S.
rtce 683: Investment e penses.
R NU CT O 1920.
Commssons pad rea estate agents for seng rea estate. (See
Ct. D. 1274, page 311.)
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355
I 246 and 247, rt. 692.
S CTIONS 246 ND 247. T S ON
INSUR NC COMP NI S.
rtce 692: Gross ncome of nsurance I-40-8955
companes. G. C. M. 18975
R NU CTS O 1921, 1924, ND 1926.
n amount n addton to unearned premums whch was
set asde or reserved by the M Company to meet future payments
on heath and accdent poces s not an aowabe deducton under
the Revenue ct of 1926, notwthstandng such amount was set
asde pursuant to State statutory requrements or reguatons of
the State nsurance department.
dvce s requested reatve to the meanng of the term unearned
premums n secton 246(b)5 of the Revenue ct of 1926 (quoted
beow). The nqury refers to secton 234(a) 10(a) of the Revenue
ct of 1918, whch authorzes, n the case of nsurance companes,
the deducton of: The net addton requred by aw to be made
wthn the ta abe year to reserve funds . The precse
queston s whether under the Revenue ct of 1921 and subsequent
Revenue cts the ureau must accept the requrements of State
aw (or the rues and reguatons of the nsurance departments of
varous States) as controng n determnng the net ncome of n-
surance companes, other than fe or mutua, for edera ncome
ta purposes. In other words, s the ureau, under the Revenue
ct of 1921 and subsequent Revenue cts, requred to permt the
deducton of the net addton requred by aw to be made wthn
the ta abe year to reserve funds n determnng the net or ta abe
ncome of nsurance companes, other than fe or mutua nsurance
companes, as was the case under the Revenue ct of 1918
It appears that the M Company, whch s not a fe or mutua
nsurance company, as a resut of nstructons receved from the
nsurance department of the State of R, set asde an addtona
amount (or reserve) for the year 1926 over ts ncrease n unearned
premums to cover ts estmated future abty on noncanceabe
heath and accdent poces. Ths amount was camed as a deduc-
ton under the provsons of secton 246(b) 5 of the Revenue ct
of 1926. The ureau aowed as a deducton the amount of the
ncrease n the unearned premums, but dsaowed the ncrease n
the reserve for noncanceabe poces resutng n an addtona ta .
The company contends that the ncrease n the reserve to meet the
abty of the company on ts noncanceabe poces shoud aso
be aowed.
Under the Revenue ct of 1921, Congress abandoned the method
of ta ng nsurance companes foowed under the Revenue ct of
1918. In ths connecton reference s made to the report of the
Senate Commttee on nance (Report No. 275, dated September
26, 1921), submtted n connecton wth . R. 8245, whch ater
became the Revenue ct of 1921, n whch the commttee (page 20)
sad:
Sectons 242-246 provde a new pan for the ta aton of fe nsurance
companes, substantay smar to the pan emboded n the Revenue ct
of 1918 as frst adopted by the Senate. The provsons of the present aw
appcabe to fe nsurance companes are mperfect and productve of con-
stant tgaton. The proposed pan woud ta fe nsurance companes on
the bass of ther Investment ncome from nterest, dvdends, and rents, wth
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246 and 347, rt. 692.
356
sutabe deductons for e penses fary chargeabe aganst such Investment
ncome. The new ta woud take the pace of the present Income and e cess-
profts ta es for the year 1921, and fe nsurance companes woud share
wth other nsurance companes n the repea n the year 1922 of the capta
stock ta and the ta es mposed by secton 503. The new ta w yed
a arger revenue than the ta es whch t s proposed to repace.
In that report the commttee referred e pressy to fe nsurance
companes ony. owever, as the commttee n ts report aso re-
ferred to secton 24G of the Revenue ct of 1921, t s evdent that
the commttee s comments n ths partcuar are equay appcabe
to nsurance companes other than fe or mutua whch are sub|ect
to ta aton under secton 246 of the Revenue ct of 1921. Smar
provsons are contaned n the Revenue ct of 1926 for the ta aton
of nsurance companes other than fe or mutua. The provsons
of the atter ct, deang wth the method of determnng the net
ncome of nsurance companes, other than fe or mutua, so far as
pertnent to the present dscusson are as foows:
Sec. 24G.

(b) In the case of an nsurance company sub|ect to the ta mposed by ths
secton
(1) The term gross ncome means the combned gross amount earned
durng the ta abe year, from nvestment ncome and from underwrtng
Income as provded n ths subdvson, computed on the bass of the under-
wrtng and nvestment e hbt of the annua statement approved by the
Natona Conventon of Insurance Commssoners

(5) The term premums earned on nsurance contracts durng the ta abe
year means an amount computed as foows:
rom the amount of gross premums wrtten on nsurance contracts durng
the ta abe year, deduct return premums and premums pad for rensurance.
To the resut so obtaned add unearned premums on outstandng busness
at the end of the precedng ta abe year and deduct unearned premums on
outstandng busness at the end of the ta abe year
The term unearned premums, as we as ts treatment n the
above statute was adopted from the parance and practce of nsur-
ance companes of referrng to and treatng as unearned premum
that porton of the premum whch the company has not yet earned.
In ths connecton reference s made to uebner on Property Insur-
ance, page 217, n whch that author says:
The reserve n fre nsurance has ts orgn n the fact that the
nsurer coects the whoe premum n advance, whereas the protecton can
ony be gven as tme eapses durng the one, two or fve year pocy perod.
It may be dened as that porton of the premum whch the company has not
yet had tme to earn.

Ths unearned porton of the premum consttutes the reserve. It must be
regarded as a sum hod n trust by the company for ts pocyhoders. -
though pad to t n advance the company can not cam ths sum as ts own
property. It beongs to the pocyhoders, and must be earned by the com-
pany before t can be used at w for ts own purposes. The reserve may
thus be defned as the unearned premum or as the abty of the com-
pany to ts pocyhoders for that porton of the premum aready coected,
but not yet earned.
The foregong dscusson s confned to fre nsurance companes.
owever, Congress has grouped a nsurance companes, other than
fe or mutua companes, as one for edera ncome ta purposes.
(See secton 242 and secton 246(a) of the Revenue ct of 1926.)
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357
257, rt. 1090.
It must be assumed therefore that Congress n usng the term un-
earned premums n secton 246(b) 5 contempated ony that part of
the premum coected whch a company has not yet had tme to earn.
or reasons appearng n the foregong, t s the opnon of ths
offce that there s no |ustfcaton for treatng the provsons of the
Revenue ct of 1918, deang wth the ta aton of nsurance com-
panes, as statutes n par matera wth the correspondng provsons
of the Revenue ct of 1921 or subsequent Revenue cts. ttenton
s nvted to the fact that under the Revenue cts subsequent to
the Revenue ct of 1918 no nsurance company s permtted the
beneft of the deducton of the net addton requred by aw to be
made wthn the ta abe year to reserve funds. ccordngy, t s
the opnon of ths offce that there s no statutory |ustfcaton for
aowng as a deducton to the M Company under secton 246(b) 5
of the Revenue ct of 1926 an amount n addton to the unearned
premums (. e., the premums whch the company has not yet
earned) whch was set asde or reserved to meet future payments on
noncanceabe heath and accdent poces, notwthstandng such
amount was set asde pursuant to State statutory requrements or
reguatons of the State nsurance department. (See mercan Tte
Co. v. Commssoner, 76 ed. (2d), 332, Ct. D. 992, C. . I -2,
254 (1935), and Pacfc mpoyers Insurance Co. v. Commssoner,
33 . T. ., 501, aff d, Pacfc mpoyers Ins. Co. v. Commssoner,
89 ed. (2d), 186.)
I. T. 2665 (C. . I-2, 134 (1932)) s not appcabe to the reserve
camed by the M Company.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
P RT I . DMINISTR TI PRO ISIONS.
S CTION 257. R TURNS TO PU LIC R CORDS.
rtce 1090: Inspecton of returns. I-39-8949
T. D. 4762
Reguatons governng the Inspecton of ncome, profts and cap-
ta stock ta returns made under the Revenue ct of 1935, as
amended, and the Revenue ct of 1936, by the Commttee on Inter-
state Commerce, Unted States Senate.
Treasury Department,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Pursuant to the provsons of secton 257(a) of the Revenue ct
of 1926 secton 55 of the Revenue ct of 1934 sectons 105(e) and
106(c) of the Revenue ct of 1935 and secton 55 of the Revenue
ct of 1936, ncome ta returns made under the Revenue ct of
1936 and capta stock and e cess-profts ta returns made under the
Revenue ct of 1935, as amended, may be nspected by the Com-
mttee on Interstate Commerce, Unted States Senate, or any duy
authorzed subcommttee thereof, for the purpose of, and to the
e tent necessary n the nvestgaton of nterstate raroads and
affates wth respect to fnancng, reorganzatons, mergers, and
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257, rt. 1090.
358
certan other matters, whch the commttee or an authorzed sub-
commttee thereof s authorzed and drected to make by Senate
Resouton 71 (Seventy-fourth Congress, frst sesson), passed May
20, 1935. The nspecton of returns heren authorzed may be by the
commttee or a duy authorzed subcommttee thereof, actng drecty
as a commttee or a subcommttee, or by or through such e amners
or agents as the commttee or subcommttee may desgnate or
appont. Upon wrtten notce by the charman of the commttee or
of the authorzed subcommttee to the Secretary of the Treasury,
gvng the names and addresses of the ta payers whose returns t
|s necessary to nspect and the ta abe perods covered by the re-
turns, the Secretary and any offcer or empoyee of the Treasury
Department sha furnsh such commttee or subcommttee wth any
data reatng to or contaned n any such return, or sha make such
return avaabe for nspecton by the commttee or subcommttee
or by such e amners or agents as the commttee or subcommttee
may desgnate or appont, n the offce of the Commssoner of In-
terna Revenue. ny nformaton thus obtaned by the commttee
or the subcommttee thereof, whch s reevant or pertnent to the
purpose of the nvestgaton, may be submtted by the commttee or
the subcommttee to the Senate.
Wayne C. Tayor,
ctng Secretary of the Treasury.
pproved ugust 31, 1937.
rankn D. Roosevet,
The Whte ouse.
( ed wth the Dvson of the edera Regster September 21, 1937, 3.28 p. m.)
CUTI ORD R INSP CTION OP INCOM , PRO ITS. ND C PIT L STOC
T R TURNS Y T COMMITT ON INT RST T COMM RC , UNIT D
ST T S S N T .
y vrtue of the authorty vested n me by secton 257(a) of the
Revenue ct of 1926 (44 Stat, 9, 51), secton 55 of the Revenue ct
of 1934 (48 Stat., 680, 698), sectons 105(e) and 106(c) of the Reve-
nue ct of 1935 (49 Stat., 1014, 1018, 1019), and secton 55 of the
Revenue ct of 1936 (49 Stat., 1648, 1671), t s hereby ordered that
ncome, profts, and capta stock ta returns made under the Revenue
ct of 1935, as amended by the Revenue ct of 1936, and the Reve-
nue ct of 1936 sha be open to nspecton by the Commttee on
Interstate Commerce, Unted States Senate, or any duy authorzed
subcommttee thereof, for the purpose of, and to the e tent necessary
n, the nvestgaton of nterstate raroads and affates wth respect
to fnancng, reorganzatons, mergers, and certan other matters,
whch such commttee or subcommttee s authorzed and drected to
make by Senate Resouton 71 agreed to May 20,1935 (Seventy-fourth
Congress, frst sesson) such nspecton to be n accordance and
upon compance wth the rues and reguatons prescrbed by the
Secretary of the Treasury n the Treasury decson reatng to the
nspecton of returns by that commttee, approved by me ths date.
rankn D. Roosevet.
The Whte ouse,
ugust 31, 1937.
(7700 )

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359
270, rt. 1204.
P RT . P YM NT, COLL CTION, ND R UND O T
ND P N LTI S.
S CTION 270. D T ON W IC T
S LL P ID.
rtce 1204: Coecton of ta by dstrant. I-50-9088
Ct. D. 1286
federa ta es revenue act of 1020 decson of court.
Dstrant ank Depost Duty of ank to Surrender.
bank may not avod payment to a coector of nterna revenue
of funds on depost by a ta debtor under the chaenge of want
of due process, nor make a coatera attack on the egaty of the
assessment, where under secton 1114 (e) and (f) of the Revenue
ct of 1026 notce of en and warrant of dstrant on such de-
post are served by the coector and the depost was not sub|ect to
an attachment or e ecuton under any |udca process.
Unted States Dstrct Court fob the Western Dstrct of Tennessee.
Unted States v. Cty State ank et a.
19 ed. Supp., 775.
March 4, 1937.
opnon.
Martn, Dstrct udge: Ths s an acton at aw brought pursuant to secton
1114 (e) and (f) of the Revenue ct of 1926 (26 U. S. C. ., secton 1610 and
note) by the Unted States of merca aganst a bank and ts casher. On
moton. udgment n the amount of 3,776.88, wth nterest from une 6, 1935,
and costs, s demanded on the peadngs.
The pertnent statute nvoved s U. S. C. ., Tte 26, secton 1610(a) and
note: ny person n possesson of property, or rghts to property, sub|ect
to dstrant, upon whch a evy has been made, sha, upon demand by the co-
ector or deputy coector makng such evy, surrender such property or rghts
to such coector or deputy, uness such property or rght s, at the tme of
such demand, sub|ect to an attachment or e ecuton under any |udca process.
( ebruary 26, 1926, ch. 27, secton 1114(e), 44 Stat, 116.)
The answer of the defendant bank and of Its casher, the defendant Mburn
Gardner, admts, as charged by the pantff, that on une 6, 1935, when they
were served wth the notce of en and evy for tobacco ta es assessed aganst
uen rnest Choate and wth a warrant for dstrant therefor, the atter had
on depost to hs credt n the defendant bank the sum of 3,776.88. The de-
fendants aso admt that on une 0, 1935, the sad depost was not sub|ect
to any |udgment or e ecuton under any |udca proceedng.
Defendants, therefore, when served wth the aforesad dstrant process, were
stuated wthn the e press provsons of the ct, and were obgated by ts
terms to surrender to the coector of nterna revenue, or hs deputy, the afore-
sad depost standng n the name of uen rnest Choate.
The defendants urge that the assessment of a ta s an acton |udca n
Its nature, requrng for the ega e erton of the power such opportunty to
appear and be heard as the crcumstances of the case requre. (Centra of
Georga Raway Co. v. Wrght, 207 U. S., 127, 28 S. Ct., 47, 52 L. d., 134, 12 nn.
Cas., 463 Davdson v. New Oreans, 96 U. S., 97, 24 L. d., 616 Wcycrhauscr v.
Mnnesota, 176 U. S., 550, 20 S. Ct.. 4S5, 44 L. d., 583 Iagar v. Recamaton Ds-
trct, 111 U. S., 701, 4 S. Ct., G63, 28 L. d., 569 Securty Trust Co. v. Le ngton,
203 U. S., 323, 27 S. Ct, 87, 51 L. d., 204.)
Ths prncpe of aw s recognzed, but t s not to be e tended to permt an
Inert ta payer, through the medum of a frendy bank depostory of hs funds,
to resst the payment of a ta for aeged want of due process of aw n ts
assessment The ta payer must rase the queston hmsef and not resst pay-
ment under cover of coatera attack upon the egaty of the assessment.
Ths court concurs n the reasonng of udge Co o n Unted States v. mer-
can change Irvng Trust Co. (43 . (2d), 829, 831 Ct. D. 234, C. . I -2, 239
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273 and 274, rt. 1235.
3(50
(1930) ). Construng the dentca statute here nvoved, udge Co e sad (page
831) :
The ony e cuse recognzed by the statute for faure to compy wth the
demand s mted to an attachment or e ecuton under any udca process,
and I can see no reason for broadenng the secton to ncude other defenses
not permtted by the statute tsef. Ceary, t was not ntended that the merts
of a ta cam shoud be tgated whenever a demand was served on a thrd
party under the secton. I thnk ths s manfest not ony from the anguage
of the secton Itsef, but aso from the report of the Senate nance Commttee,
No. 52. e panatory of the proposed egsaton. Ths report reads as foows,
at page 58:
The e stng aw permts dstrant upon persona property of a denquent
ta payer even though n possesson of another person. The commttee amend-
ment specfcay makes t the duty of the possessor to surrender the property
upon whch a evy s made, and mposes upon hm, n addton to any crmna
abty, a cv abty, f he fas to do so, equa to the vaue of the property
but not e ceedng the amount of ta , a abty smar to that of an e ecutor who
pays debts before he pays a debt due the Unted States.
The statute, U. S. C. ., Tte 26, secton 1610(a), s unmstakabe n meanng,
and s pany appcabe to, and drecty contros the decson on, ths moton.
ccordngy, on moton of the Unted States, |udgment n favor of the pan-
tff s awarded on the peadngs.
S CTIONS 273 ND 274. D ICI NCY IN T .
rtce 1235: Interest on a defcency. I-42-8988
Ct. D. 1269
INCOM T R NU CTS OP 1920 ND 1028 D CISION O COURT.
Defcency tenson or Tme fob Payment Statutory ond
Interest Payabe.
bond requred, e ecuted, and furnshed by the ta payer, as
prncpa, and a surety company, as surety, n favor of the Unted
States pursuant to the provsons of secton 274(k) of the Revenue
ct of 1926 as amended by secton 502 of the Revenue ct of 1928
to secure an e tenson of tme for the payment of a defcency n
ta , s a statutory bond and the Government s entted to nterest
at the rate of 6 per cent per annum for the perod of the e -
tenson and 1 per cent per month thereafter wthout demand for
payment. The statute and reguatons, ncudng the provsons
wth respect to nterest, are as much a part of the bond as f set
out theren n hacc verbs.
Unted States Crcut Court of ppeas for the Nnth Crcut.
Unted States of merca, appeant, v. bert Rga and dety Depott
Co. of Maryand, appeees.
90 ed. (2d), 929.
Upon appea from the Dstrct Court of the Unted States for the Southern Dstrct of
Caforna, Centra Dvson.
efore Wbur, Mathews, and aney, Crcut udges.
une 14, 1937.
OPINION.
Mathews, Crcut udge: Ths was an acton by appeant on a bond e -
ecuted by appeee Rga, as prncpa, and appeee dety Depost Co. of
Maryand (herenafter caed the surety company), as surety, n favor of
appeant. ppeant prayed |udgment for the prncpa sum of 1,955, wth
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361
273 and 274, rt. 1235.
nterest thereon at the rate of 6 per cent per annum from anuary 19, 1931,
to uy 19, 1933, and at the rate of 1 per cent a month from and after uy
19, 1933. The surety company answered. Rga dd not s defaut was
duy entered. The case was tred by the court wthout a |ury, tra by |ury
havng been e pressy waved. The court made speca fndngs of fact and
thereupon entered |udgment n appeant s favor for the prncpa sum camed,
wth nterest thereon at the rate of 6 per cent per annum from uy 19, 1931,
to ebruary 14, 1934, and at the rate of 7 per cent per annum from and
after ebruary 14, 1934. Ths appea foowed.
The facts are not n dspute. s found by the tra court they are as
foows:
On December 30, 1930, the Commssoner of Interna Revenue assessed
aganst Rga a defcency of 3,466.28 n respect of Rga s ncome for
1925. On anuary 19, 1931, Rga apped for an e tenson of tme wthn
whch to pay the defcency. Thereafter the Commssoner, wth the approva
of the Secretary of the Treasury, granted such e tenson for a perod of 30
months, commencng anuary 19, 1931, and endng uy 19, 1933, but, as a
condton thereof, requred Rga to furnsh a bond, wth surety, n the sum
of 4,310. In compance wth ths requrement and n consderaton of the
e tenson granted by the Commssoner, Rga and the surety company
e ecuted the bond n sut It reads as foows:
INCOM ND PRO ITS T OND.
Under secton 274(k) of the Revenue ct of 1926, as amended by secton
502 of the Revenue ct of 1928.
now a men by these presents, That bert . Rga, as
prncpa, and dety Depost Co. of Maryand, as surety, are
hed and frmy bound unto the Unted States of merca n the sum of our
thousand three hundred ten doars ( 4,310), awfu money of the Unted
States, for the payment whereof we bnd ourseves, our hers, e ecutors, ad-
mnstrators, successors, and assgns, |onty and severay, frmy by these
presents.
Whereas, there s due from the above bounden prncpa certan addtona
ncome or profts ta es resutng from a defcency n ta
Whereas, to e act payment of the defcency n ta at ths tme w
resut n undue hardshp to the above bounden prncpa
Whereas, secton 274(k) of the Revenue ct of 1926 as amended by secton
502 of the Revenue ct of 1928, provdes that the Commssoner, wth the
approva of the Secretary, may e tend the tme for the payment of such
defcency n ta , or any part thereof, for such perod as may be consdered
necessary not n e cess of 30 months, and provdes further that the Com-
mssoner may requre the ta payer to furnsh a bond wth suffcent suretes
condtoned upon the payment of the defcency n accordance wth the terms
of the e tenson granted and
Whereas, t appears that the amount of ths bond s suffcent to cover
the defcency of ta pus penaty and nterest
Now, therefore, the condton of the foregong obgaton s such that f
the prncpa sha on or before the 19th day of uy, 1933, pay such defcency
n ta found to be due by the Commssoner, pus penaty and nterest, n
accordance wth the terms of the e tenson as heren stated, and sha other-
wse we and truy perform and observe a the provsons of aw and the
reguatons
Then ths obgaton s to be nu and vod, but otherwse to reman n
fu force, vrtue, and effect.
The terms of the e tenson are as foows: (Defcency n ta of 3,460.28
for the caendar year 1925 assessed on December, 1930, st #6 10P. Payment
to be made of the sum of 131.28, on or before ebruary 19, 1931, and the
baance of 3,335 to be pad n 29 consecutve monthy nstaments of 115
each, begnnng March 19. 1931, pus nterest at the rate of 6 per cent per
annum from anuary 19, 1931.
The e tenson was apped for and granted and the bond was requred and
furnshed under and pursuant to secton 274(k) of the Revenue ct of 1926
(44 Stat, 57) as amended by secton 502 of the Revenue ct of 1928 (45
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273 and 274, rt. 1235.
362
Stat., 791), and artce 1235 of Treasury Reguatons 69. Secton 274(k),
as amended, provdes:
Where t s shown to the satsfacton of the Commssoner that the
payment of a defcency upon the date prescrbed for the payment thereof
w resut n undue hardshp to the ta payer the Commssoner, wth the
approva of the Secretary , may grant an e tenson for the pay-
ment of such defcency or any part thereof for a perod not n e cess of 18
months, and, n e ceptona cases, for a further perod not n e cess of 12
months. If an e tenson s granted, the Commssoner may requre the
ta payer to furnsh a bond n such amount, not e ceedng doube the amount
of the defcency, and wth such suretes, as the Commssoner deems neces-
sary, condtoned upon the payment of the defcency n accordance wth
the terms of the e tenson. In such case there sha be coected, as part
of the ta , nterest on the part of the defcency the tme for payment of
whch s so e tended, at the rate of 6 per centum per annum for the perod
of the e tenson, and no other nterest sha be coected on such part of the
defcency for such perod. If the part of the defcency the tme for payment
of whch Is so e tended s not pad n accordance wth the terms of the
e tenson, there sha be coected, as a part of the ta , nterest on such
unpad amount at the rate of 1 per centum a month for the perod from
the tme f ed by the terms of the e tenson for ts payment unt t s pad,
and no other nterest sha be coected on such unpad amount for such
perod.
rtce 1235 of Treasury Reguatons 69 provdes:
If the tme for the payment of a defcency, or any part thereof,
s e tended , nterest sha be coected as a part of the ta on
that part of the defcency, tme for payment of whch s so e tended, at
the rate of 6 per cent per annum for the entre perod of the e tenson. If the
defcency or a part thereof, the tme for payment of whch s so e tended, s
not pad on or before the e praton of the perod of the e tenson, nterest
on such unpad amount sha be coected at the rate of 1 per cent a mouth
from the date of the e praton of the perod of e tenson unt t s
pad .
Of the tota defcency mentoned above, 1,955 remaned unpad at the
e praton of the e tenson perod, uy 19, 1933, and, athough payment thereof
was demanded of appeees on ebruary 14, 1934, and frequenty thereafter,
st remans unpad.
Upon those facts, the tra court concuded that appeant was entted to
|udgment aganst appeees for 1,955, wth nterest thereon at the rate of
C per cent per annum from the commencement of the e tenson perod ( an-
uary 19, 1931) to the date ( ebruary 14, 1934) on whch payment was frst
demanded of the surety company, and at the rate of 7 per cent per annum
from nnd after that date. udgment was entered accordngy.
In awardng nterest at a rate ess than 1 per cent a month from the
date of the e praton of the e tenson perod, the tra court erred. The
bond n sut s a statutory bond whch the Commssoner requred and ap-
peees e ecuted and furnshed under and pursuant to secton 274(k) of
the Revenue ct of 1920, as amended, and artce 1235 of Reguatons 69,
supra. It s condtoned upon payment of the defcency n ta found to be
due by the Commssoner, pus penaty and nterest, n accordance wth the
terms of the e tenson, and performance of a the provsons of aw and
the reguatons. The aw (secton 274(k)) and the reguatons (artce
12. 15) are as much a part of the bond as f set out theren n haec verbs.
oth the aw and the reguatons e pressy provde that, where the tme
for payment of a ta defcency has been e tended, nterest thereon sha be
coected at the rate of 6 per cent for the perod of e tenson and at the rate
of 1 per cent a month after the e praton of such perod. Courts are not
empowered to rase or ower these nterest rates. (Compare Unted State
v. Man/and Casuaty Co. (C. C. . 7), 49 . (2d), 556, 558 Ct. D. 371, C. .
-2, 381 (1931) .)
In ths case the perod of e tenson commenced on anuary 19, 1931, and
e pred on uy 19, 1933. ppeant was, therefore, entted to nterest on
the unpad part of the defcency ( 1,955) at the rate of 6 per cent per annum
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363
1003 and 1004.
from anuary 19, 1931, to uy 19, 1933, and at the rate of 1 per cent a
month from and after uy 19, 1933. The fact that payment was not de-
manded of the surety company unt ebruary 14, 1934, s mmatera. The
statute and reguatons provde that nterest at the rate of 1 per cent a month
sha be coected, not from the date on whch payment s demanded, but from
the date on whch the e tenson perod e pres. No demand was necessary
n order to start the runnng of nterest at the hgher rate.
The case of Maryand Casuaty Co. v. Unted States (C. C. . 5) (76 . (2d),
626), reed on by the surety company, s, we thnk, dstngushabe from ths
case, n that the bond there nvoved was not consdered by the court to be
a statutory bond, but was treated as a common-aw obgaton, whereas the
bond here nvoved professes to be and s admttedy and unquestonaby a
statutory bond. If not dstngushabe, the decson n Maryand Casuaty Co.
v. Unted States, supra, s ceary wrong, and we decne to foow t.
udgment reversed, and case remanded for further proceedngs n con-
formty wth ths opnon.
S CTION 284. CR DITS ND R UNDS.
rtce 1305: Lmtatons upon the credtng and refundng
of ta es pad.
R NU CT O 1920.
na order of redetermnaton by oard of Ta ppeas n
accordance wth stpuaton as res ad |udcata. (See Ct. D. 1253,
page 314.)
TITL . O RD O T PP LS.
Sectons 1003 and 1004: ursdcton. I-27-879 )
Ct. D. 1239
ncome and profts ta revenue acts of 1916. 1917, 1918, and 192c
decson of court.
1. oard op Ta ppeas Poweress to ow mendment of
Petton Under Specfc Mandate of Court.
Upon hearng before the oard of Ta ppeas for fna decson
n accordance wth the mandate of the crcut court of appeas,
whch had entered |udgment n conformty wth the mandate of
the Supreme Court, and upon a second appea had agan remanded
the cause wth specfc fndngs and drectons to determne pet-
toner s ta abty n accordance wth such fndngs, the oard s
wthout power under the second mandate to aow the pettoner to
amend the peadngs so as to rase an entrey new ssue.
2. Cam for Credt stoppe.
Where the pettoner faed to assert any cam for credt of
payments made wth respect to t and ts affate when the cause
was beng consdered by the oard on the frst mandate from the
crcut court of appeas, after affaton had been dened by the
Supreme Court, t s estopped, upon consderaton of the case under
the second mandate of the court drectng an order to be entered
n accordance wth specfc fndngs, to assert that the payments
were mpropery apped and to cam addtona credts on that
account
3. Certorar Dened.
Petton for certorar dened March 15, 1937.
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1003 and 1004.
364
Unted States Crcut Court of ppeas fob the fth Crcut.
Peavy- yrncs Lumber Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
86 ed. (2d), 234.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of
Lousana).
efore Sbey, utcheson, and omes, Crcut udges.
November 10, 1038.
OPINION.
omes, Crcut udge: Ths appea has reference to ncome and profts
ta es for the years 1916, 1917, and 1918. It s the thrd appea to ths court
from a decson of the oard of Ta ppeas n ths case. The opnon of
ths court on the frst appea s reported n 51 ed. (2d), 163. Certorar was
granted by the Supreme Court upon appcaton of the Commssoner, and
the decson of ths court was reversed on the Issue of affaton. (286 U. S.,
524.) Thereafter ths court entered |udgment n conformty wth the mandate
of the Supreme Court. (61 ed. (2d), 1023.) The severa decsons of the
oard of Ta ppeas are reported n 14 . T. ., 025, 25 . T. ., 223, and
31 . T. ., 985, respectvey.
On the second appea, reported n 69 ed. (2d), 712, ths court, havng agan
reversed the decson of the oard of Ta ppeas because of ts faure to
determne, n accordance wth the mandate, the vaue of the addton to n-
vested capta and the cost of the tmber, the cause was sent back wth
specfc fndngs and drectons, contaned n the mandate, to determne
pettoner s ta abty n accordance wth ts fndng of 665,000 as the far
vaue of the stock, the cost of the tmber, as of uy 28, 1913, when the e change
was made.
The oard ordered that the cause be caed for hearng on fna decson
n accordance wth the opnon of ths court and that pror to such hearng
the partes fe rccomputatons of the ta n accordance wth the mandate. The
case was caed pursuant to the oard s order, the partes havng prevousy
fed ther respectve computatons of ta abty for each year. The pet-
toner then asked eave to amend further ts petton so as to cam addtona
deductons for depeton on tmber not covered by the rause-Monagan con-
tract. The pettoner further camed an addtona credt aganst ts ta
abty for 1918 on account of payments prevousy made. The Commssoner
ob|ected to the amendment and to the ntroducton of evdence as to addtona
depeton deductons on the ground that, under the mandate of ths court, the
oard had no |ursdcton to grant such further reef. The Commssoner
further ob|ected to any evdence respectng the cam for credts aganst the
1918 ta on the ground that the pettoner was estopped to queston the amount
determned by the Commssoner. The oard hed that t had no power under
the mandate to grant the addtona deductons for depeton and the cam
for credt, and that, n any event, the petton to amend the petton shoud
be dened. ccordngy, the oard entered ts order redetermnng the ta
abty for each year n accordance wth the recomputaton fed by the Com-
mssoner. The pettoner has appeaed from that decson.
The second mandate, unke the frst, remanded ths cause not for a rehearng
but wth drectons to redetermne the ta abty n conformty wth specfc
fndngs, eavng to the oard ony the matter of computng the correct amount
on the bass thereof. The aowance of the camed addtona depeton n-
voves no mere matter of accountng. It necesstates an amendment to the
peadngs and the takng of further evdence. The case has been twce heard
and decded by ths court on the merts, and we thnk the oard propery
hed t was wthout power under the mandate to aow an amendment attempt-
ng to rase an entrey new ssue camng addtona depeton deductons.
The appcabe genera rue s stated as foows: When the merts of the
case have been once decded by ths Court on appea, the crcut court has no
authorty, wthout the e press eave of ths Court, to grant a new tra, a re-
hearng or a revew, or to permt new defenses on the merts to be ntroducted
by amendment of the answer. (In re Potts, 166 U. S., 263, 267.) In Maekatt
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365
1113, rt. 1351.
v. Rchards (116 U. S., 45) It was hed that upon the remand of a cause, heard
and decded upon appea on the merts, wth drectons as to the |udgment to
be entered, the tra court propery dened a moton for eave to fe a suppe-
menta b settng up new defenses. The Court sad (page 47): No ds-
creton was eft n that court to grant such a moton. The order of ths
Court was n effect to enter the precse decree whch has been made.
(See aso. In re Sanford ork Too Co., 160 D. S., 247, 255-250 Unted
States v. New York Indans, 173 U. S., 464 Stewart v. Saomon, 97 U. S., 301,
362 ansas Cty Southern Raway Co. v. Trust Co., 281 U. S., 1 Ganes v.
Rugg. 148 U. S., 228 In re Washngton d Georgetown Raroad Co., 140 U. S.,
91 Godcyn Pctures Corporaton v. owcs Saes Co., 2S7 ed., 100 (C. C. .
2) D rcy v. ackson Cushon Sprng Co., 212 ed., 889 (C. C. . 6) arrson
v. Carke. 182 ed., 765 (C. C. . 8) In rc N. . Zud- oandsche Scheepvaart,
etc., 64 ed. (2d), 915 (C. C. . 5).)
or ke reasons, the oard dened pettoner s cam for credts upon ts
return for the year 1918. consodated return, on the bass of affaton,
was fed n the name of Peavy-Wson Co., whose offcers were the same as
pettoner s. The notce of defcency was sent pettoner n March, 1920, and
about a year ater t was advsed by the coector that the payments on behaf
of both corporatons had been credted to Peavy-Wson s account. Thus t
appears that as eary as March, 1927, the pettoner was advsed of the ap-
pcaton of the payments made wth respect to t and ts aeged affate, but
not unt ths cause was remanded the second tme, wth specfc drectons,
dd t queston the appcaton of payments. fter affaton was dened by
the Supreme Court n pr, 1932 (286 U. S., 524), the matter of appcaton
of payments to the respectve affates became matera, and the pettoner
coud and shoud have asserted any cam for credts to whch t was entted,
the cause beng at that tme before the oard on the frst mandate. avng
faed to do so, t was too ate for t to rase the queston when the case was
beng consdered under the second mandate of ths court drectng the order
to be entered n accordance wth specfc fndngs. The ta abty of Peavy-
Wson Co. for 1918 had been ong snce fnay determned and coud not then
be reopened, nor coud the Commssoner then have reassessed and coected
any ta that mght have been due from Peavy-Wson as the resut of the
aeged erroneous credt of payments made by pettoner. Under such crcum-
stances the pettoner was estopped to assert that the payments were mpropery
apped and to cam addtona credts aganst ts ta abty on account
thereof.
The order of the oard of Ta ppeas s n strct accord wth the mandate
of ths court, and s affrmed.
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 erroneousy
coected.
R NU CT O 1020.
Suffcency of cam for refund. (See Ct. D. 1255, page 344.)
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SOCI L S CURITY T S.
SOCI L S CURITY CT.
TITL III. T S WIT R SP CT TO MPLOYM NT.
Secton 801: Income ta on empoyees. S-9064
Reguatons 91, rtce 201: Measure of S. S. T. 223
empoyees ta .
( so Secton 804 Reguatons 91, rtce 301
Secton 901 Reguatons 90, rtce 201.)
The ta es mposed under Ttes III and I of the Soca Se-
curty ct are appcabe wth respect to the wages pad to the
presdent of the M Corporaton n accordance wth a resouton of
the board of drectors, notwthstandng the fact that a part of
the wages was vountary returned to the corporaton due to
rescsson of the resouton at a meetng of the board of drectors
subsequent to such payment.
dvce s requested whether the ta es mposed under Ttes III
and I of the Soca Securty ct are appcabe wth respect to
wages pad to the presdent of the M Corporaton where that
ndvdua vountary returned a part of the wages to the corpora-
ton n vew of a resouton passed at a subsequent meetng of the
board of drectors.
It s stated that the M Corporaton was founded n pr, 1937.
t a meetng of the board of drectors on pr , 1937, the pres-
dent of the corporaton was voted a saary of doars per week.
Durng the months of pr, May, and une ths saary was pad to
the presdent and the empoyees ta mposed by secton 801 of the
ct was deducted therefrom. That ta and the empoyers ta m-
posed by secton 804 were pad to the coector of nterna revenue.
On uy , at a meetng of the board of drectors, t was found that
payment of the saary of the presdent had mpared the capta of
the corporaton. The resouton to pay the saary was rescnded
and the presdent vountary agreed to return to the corporaton
an amount equa to hs saary for the month of une.
Sectons 811(a) and 907(b) of the Soca Securty ct defne the
term wages as a remuneraton for empoyment, sub|ect to
a mtaton under Tte III not here appcabe. Under Tte L
the empoyees ta mposed by secton 801 s measured by the amount
of wages actuay or constructvey receved by an empoyee (Regua-
tons 91, artce 201) and the empoyers ta mposed by secton 804
s measured by the amount of wages actuay or constructvey pad
by the empoyer (Reguatons 91, artce 301). The empoyers ta
mposed by secton 901, Tte I of the ct, s measured by the tota
amount of wages payabe by an empoyer wth respect to empoyment
durng the caendar year. Wages are payabe wthn the meanng of
(366)
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367
Regs. 91. rt. 203.
Tte I of the ct (1) f there s an obgaton at any tme to pay
wages wth respect to empoyment durng the caendar year, or (2) f,
at any tme, wages are actuay pad wth respect to empoyment
durng the caendar year (Reguatons 90, artce 201).
rom the facts submtted, t s apparent that the amounts pad to
the presdent of the M Corporaton durng the months of pr,
May, and une, 1937, were pad as remuneraton for empoyment n
accordance wth the resouton passed at the meetng of the board
of drectors on pr , 1937. These amounts, therefore, consttuted
wages under Ttes III and I of the ct. The fact that the
presdent vountary pad back the amount of saary receved by
hm durng the month of une does not affect the ta abty prev-
ousy ncurred nor gve rse to any rght to refund or credt of any
porton of such ta es.
Secton 801: Income ta on empoyees.
Reguatons 91, rtce 203: When empoyees ta
attaches.
( so Secton 804 Reguatons 91, rtce 303
Secton 901 Reguatons 90, rtce 201.)
Where an empoyee accepts a negotabe promssory note as
remuneraton for empoyment, the far market vaue of the note
at the tme of devery to the empoyee consttutes wages for
the purpose of Ttes III and I of the Soca Securty ct.
dvce s requested reatve to the appcabty of the ta es m-
posed under Tte III of the Soca Securty ct to a negotabe
promssory note gven to an empoyee as remuneraton for empoy-
ment.
Secton 801, Tte III, of the Soca Securty ct provdes that
there sha be eved, coected, and pad upon the ncome of every
ndvdua a ta equa to a specfed percentage of the wages (as
defned n secton 811) receved by hm after December 31,1936, wth
respect to empoyment (as denned n secton 811) after such date.
Secton 802 provdes that the ta mposed by secton 801 sha be
coected by the empoyer by deductng the amount of the ta from
the wages of the empoyee as and when pad. Secton 804 eves
an e cse ta on every empoyer wth respect to havng ndvduas n
hs empoy whch s measured by the amount of wages pad by
hm after December 31, 1936, wth respect to empoyment after
that date.
The empoyees ta mposed by secton 801 attaches at the tme the
wages are ether actuay or constructvey receved (Reguatons
91, artce 203), and the empoyers ta mposed by secton 804
attaches at the tme such wages are ether actuay or construc-
tvey pad. (Reguatons 91, artce 303.) The term wages
means a remuneraton for empoyment sub|ect to a mtaton
not here appcabe. The medum n whch the remuneraton s pad
s mmatera. (Reguatons 91, artce 14.) Where pad as an tem
other than money, the wages are computed on the bass of the
far vaue of such tem at the tme of payment. (Reguatons 91,
artce 16.)
I-49-9075
S. S. T. 226
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Regs. 01, rt. 203.
3G8
ccordngy, t s hed that where an empoyee accepts a negotabe
promssory note as remuneraton for empoyment, the far market
vaue of the note at the tme of devery to the empoyee consttutes
wages for the purpose of Tte III of the Soca Securty ct
Ths concuson s aso appcabe under Tte I of the ct.
Secton 801: Income ta on empoyees. T-49-9076
Reguatons 91, rtce 203: When empoyees ta S. S.T. 227
attaches.
( so Secton 804 Reguatons 91, rtce 303.)
Where at the end of each pay ro perod the M Company
credts the wages of ts empoyees to ther respectve accounts and
where such empoyees have the unrestrcted rght to wthdraw
such wages at that tme or at any tme thereafter, the ta es m-
posed under Tte III of the Soca Securty ct attach at the
tme the wages are so credted rrespectve of the tme of actua
payment and recept The M Company s requred to report such
wages on the return for the perod wthn whch the wages are so
credted.
dvce s requested as to when the ta es mposed under Tte III
of the Soca Securty ct attach wth respect to the wages of em-
poyees of the M Company whch are credted to the accounts of
such empoyees.
It s stated that the wages of the empoyees of the M Company
for a partcuar pay ro perod are credted to the empoyees ac-
counts at the termnaton of such perod. owever, actua payment
of the wages s deferred unt the foowng month because of the
mpossbty of preparng the entre pay ro n tme for payment
on the ast day of the month n whch the wages are earned. The
empoyees, however, have the unrestrcted rght to demand and re-
ceve payment of such wages at the tme credted to ther accounts
and at any tme thereafter.
Secton 801 of the Soca Securty ct eves a ta upon the ncome
of every ndvdua equa to a specfed percentage of hs wages
(as defned n secton 811(a)) receved by hm after December 31,
1936, wth respect to empoyment (as defned n secton 811(b))
after such date. Secton 804 eves an e cse ta on every empoyer
equa to a specfed percentage of the wages pad by hm after
December 31,1936, wth respect to empoyment after such date. The
empoyees ta attaches at the tme the wages are ether actuay or
constructvey receved by the empoyee and the empoyers
ta attaches at the tme the wages are ether actuay or con-
structvey pad by the empoyer. Wages are constructvey pad
and receved when they are credted to the account of or set apart
for an empoyee so that they may be drawn by hm at any tme
athough not then actuay reduced to possesson. To consttute pay-
ment and recept n such a case, the wages must be credted or set
apart to the empoyee wthout any substanta mtaton or restrc-
ton as to the tme or manner of payment or condton upon whch
payment s to be made, and must be made avaabe to hm so that
they may be drawn at any tme, and ther payment and recept
brought wthn hs own contro and dsposton. ( rtces 203
and 303, Reguatons 91.)
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369
Regs. 91, rt. 204.
Under the facts stated, the wages of the empoyees of the M
Company are credted to the empoyees accounts under the cr-
cumstances set out n artces 203 and 303, supra, and hence are
constructvey pad by the empoyer and constructvey receved by
the empoyees. It s accordngy hed that the ta es mposed under
Tte III of the Soca Securty ct attach wth respect to a such
wages at the tme they are credted to the empoyees accounts rre-
spectve of the tme of actua payment and recept. It w therefore
be necessary for the M Company to report such wages on the return
for the perod wthn whch the wages are so credted.
Secton 802: Deducton of ta from wages. I-27-8800
Reguatons 91, rtce 204: Coecton of, S. S. T. 167
and abty for, empoyees ta .
( so Secton 804 Reguatons 91, rtce 304
and Secton 907 Reguatons 90, rtce 203.)
Where, under nsurance poces coverng use and occupancy of
certan property, the nsurance companes agree to pay to the M
Company the saares of certan empoyees of that company n
the event of a shut-down due to specfed causes, the SI Company
s abe for the ta es mposed by Ttes III and I of the
Soca Securty ct upon the tota wages pad or payabe for the
fu caendar year, even though t s rembursed under the terms
of the nsurance poces for wages pad or payabe durng the shut-
down perod.
dvce s requested reatve to the abty of the M Company
for the ta es mposed by Ttes III and I of the Soca Securty
ct wth respect to wages pad to certan empoyees when ts factory
s not operatng.
Under nsurance poces coverng use and occupancy of property
owned by the M Company, the nsurance companes agree to bear the
cost of saares of certan empoyees of the M Company durng the
perod the busness s dscontnued n the event of a shut-down due
to fre, e poson, or certan other causes. The partcuar empoyees
are engaged n reparng and repacng damaged property, conduct-
ng correspondence, purchasng, advertsng, etc., or n some n-
stances the empoyee s not dong any work durng the perod of
shut-down but s nevertheess recevng the amount of hs reguar
saary.
It s hed that n the event of a shut-down by the M Company
under the crcumstances stated wth certan ndvduas remanng
on the pay ro of the company such ndvduas retan ther status
as empoyees of the M Company durng the shut-down perod
whether or not they are performng servces. The M Company s
abe for the ta es mposed by Ttes III and I of the Soca
Securty ct upon the tota wages pad (Tte III) or payabe
(Tte I ) to ts empoyees for the fu caendar year, even though
t s rembursed under the terms of the nsurance poces for the
wages pad or payabe to certan empoyees durng the shut-down
perod.
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Regs. 91, rt. 303.
370
Secton 802: Deducton of ta from wages. I-30-8836
.Reguatons 91, rtce 206: Statements of ta S. S. T. 173
deductons to be furnshed to empoyees.
n empoyer who assumes payment of the empoyees ta Im-
posed by secton 801, Tte III, of the Soca Securty ct wth-
out deductng the amount thereof from the empoyee s wages must
furnsh the empoyee a wrtten statement showng the amount of
ta so pad.
dvce s requested whether an empoyer who assumes payment
of the empoyees ta mposed by secton 801, Tte III, of the
Soca Securty ct wthout deductng the amount thereof from the
empoyee s wages must furnsh the empoyee a wrtten statement
showng the amount of ta so pad.
Pursuant to artce 206 of Reguatons 91, at the tme each pay-
ment of wages s made to an empoyee hs empoyer s requred to
furnsh a wrtten statement to the empoyee showng the amount of
empoyees ta deducted from such wages. The fact that an em-
poyer may eect to assume payment of the empoyees ta wthout
deductng the amount thereof from the empoyee s wages does not
reeve the empoyer from furnshng a statement to the empoyee
for the purposes contempated n the aforementoned artce. It s
accordngy hed h such a case that the empoyer s requred to
furnsh to the empoyee a wrtten statement showng the amount of
empoyees ta , the payment of whch has been assumed by the em-
poyer wthout deducton from the wages of the empoyee. Where
a or any part of the wages are pad n cash, the statement must be
furnshed at the tme qf each cash wage payment. In cases where
the wages are pad e cusvey n a medum other than cash, for
e ampe, where an empoyer furnshes hs empoyee wth the use of
a dweng as remuneraton for empoyment, the statement must be
furnshed at the end of each caendar month.
Secton 804: cse ta on empoyers.
Reguatons 91, rtce 301: Measure of empoyers ta .
Wages pad to empovee and subsequenty returned by hm to em-
poyer. (See S. S. T. 223, page 366.)
Secton 804: cse ta on empoyers.
Reguatons 91, rtce 303: When empoyers ta attaches.
Payment of wages by negotabe promssory note. (See S. S. T.
226, page 367.)
Sf.cton 804: cse ta on empoyers.
Reguatons 91, rtce 303: When empoyers ta attaches.
Constructve payment and recept of wages. (See S. S. T. 227,
page 368.)
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371
Regs. 91, rt. 304.
Secton 804: cse ta on empoyers.
Reguatons 91, rtce 304: Labty for empoyers ta .
Saares durng shut-down perod covered by use and occupancy
nsurance. (See S. S. T. 167, page 369.)
Secton 804: cse ta on empoyers. I-36-8907
Reguatons 91, rtce 304: Labty for em- S. S. T. 186
poyers ta .
( so Secton 907 Reguatons 90, rtce 203.)
Status of budng and oan assocatons n process of qudaton
by the budng and oan commssoner of the State of Caforna
for purposes of the ta es mposed under Ttes III and I of the
Soca Securty ct.
dvce s requested whether budng and oan assocatons n proc-
ess of qudaton n the State of Caforna are sub|ect to the ta ng
provsons (Ttes III and I ) of the Soca Securty ct.
It s stated that a number of budng and oan assocatons have
been taken over by the budng and oan commssoner of the State
of Caforna because of nsovency and for other reasons assgned n
the code. The assets of the assocatons are nsuffcent to pay ther
nvestors n fu. It s contended that such assocatons are n an
dentca poston wth banks whch have ceased to do busness by
reason of nsovency or bankruptcy and have nsuffcent assets to pay
ther depostors n fu, and that funds of such assocatons beongng
whoy to the nvestors can not be used to meet the requrements of the
Soca Securty ct.
In the Caforna budng and oan act of 1931 (Statutes and
mendments to the Codes, ch. 269, secton 1.02), the term budng
and oan assocaton s defned to mean any ncorporated nsttu-
ton whch sha have been ncorporated to conduct, or sha be en-
gaged n conductng, the busness of recevng and endng money n
accordance wth the provsons of ths act or sha have heretofore
been ncorporated to conduct the busness of recevng and endng
money n accordance wth the provsons of any act or acts, or part or
parts of any act or acts, of whch ths act s a contnuaton or amend-
ment.
The word bank, as used n the bank act of Caforna, s to be
construed to mean any ncorporated bankng nsttuton whch sha
have been ncorporated to conduct the busness of recevng money on
depost, or transactng a trust busness as defned n the act. Speak-
ng generay, a bank s a moneyed nsttuton to factate the
borrowng, endng, and carng for money, whe a budng and oan
assocaton s an organzaton created for the purpose of accumuat-
ng a fund by subscrptons and savngs of ts members to assst them
n Dudng or purchasng for themseves dwengs or rea estate by
the oan to them of the requste money from the funds of the asso-
caton.
In S. S. T. 37 (C. . -2, 380 (1936)), the ureau hed that
under the provsons of secton 22 of the ct of March 1, 1879 (20
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Regs. 91, rt. 504.
372
Stat., 327), nsovent banks whch have ceased to do busness by rea-
son 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. The ct of March
1,1879, s not appcabe to such banks wth respect to ta es deducted
from ther empoyees wages n accordance wth secton 802 of the
Soca Securty ct. Secton 22 of the ct of March 1, 1879, reads
as foows:
Sec. 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 a ts de-
postors 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.
The budng and oan aws of Caforna manfest an endeavor to
restrct the powers of budng and oan assocatons and safeguard
the rghts of ther members, but under these statutes they are not
bankng nsttutons nor are they permtted to carry on the bankng
busness, beng nether commerca banks, savngs banks, trust
companes, nor nvestment companes.
It s hed, therefore, that the budng and oan assocatons n
rocess of qudaton b the budng and oan commssoner of the
tate of Caforna are not banks wthn the meanng of secton 22
of the ct of March 1, 1879. ccordngy, such a budng and oan
assocaton n process of qudaton s abe for the empoyers ta
mposed under Tte III of the Soca Securty ct, and ts em-
poyees are abe for the empoyees ta mposed by that tte. If
the assocaton s an empoyeras defned n Tte I of the ct,
t s aso abe for the ta mposed by that tte. In computng
the amount of ta abty of such a budng and oan assoca-
ton, however, compensaton for servces performed by persons ap-
ponted by the commssoner pursuant to secton 13.16 of tte 7G
of the 1933 Suppement of the Codes, Laws and Consttutona
mendments of Caforna, shoud be e cuded. The above-men-
toned secton of the Caforna aw provdes that the com-
mssoner may under hs hand and offca sea appont one or more
speca deputes to assst n the dutes of qudaton and ds-
trbuton under hs drecton and may aso empoy such speca ega
counse, accountants and assstants as may be needfu and requste,
and f the saares and compensaton to be aowed and pad to each.
The servces performed by such persons apponted by the comms-
soner fa wthn the e ceptng provsons of secton 907(c) 6, Tte
I , and secton 811(b) 7, Tte III, of the Soca Securty ct.
Secton 806: Refunds and defcences.
Reguatons 91, rtce 504: Credt or refund of over-
payments whch are not ad|ustabe.
en who returns to hs home country. (See S. S. T. 216.
378.)
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373
Regs. 91, rt. 401.
Secton 807: Coecton and payment of ta es. . I-34-8888
Reguatons 91, rtce 401: Monthy ta returns. S. S. T. 182
( so Secton 905 Reguatons 90, rtce 300.)
Under the ta ng provsons of the Soca Securty ct, a part-
nershp conductng two separate busnesses shoud not fe separate
returns coverng each busness but shoud ncude n the returns
under Tte III and n the return under Tte I the wages of a
empoyees engaged n both busnesses.
dvce s requested reatve to the fng of returns under the
ta ng provsons of the Soca Securty ct by a partnershp oper-
atng separate busnesses.
and , as partners, tradng under the name of the - Lumber
Co., own and operate a umberyard. The same ndvduas aso own
and operate, as partners, the - Cothng Co., each havng a 50
per cent nterest n the busnesses. The partnershp has eght or
more empoyees throughout the year. The queston s presented
whether ony one return ( orms 940 and SS-1) under each ta ng
tte of the ct shoud be fed ncudng the wages pad to the
empoyees of both the umber company and the cothng company,
or whether separate returns shoud be fed coverng each busness
and each of the above-named companes be treated as a separate
empoyer.
The fact that two ndvduas, as partners, carry on dfferent bus-
nesses under dfferent trade names does not resut n separate part-
nershps. In enze v. Industra Commsson (288 111., 342, 123
N. ., 598) t was hed that the same partes carryng on dfferent
busnesses under dfferent names consttuted but one partnershp.
smar concuson woud be reached from the reasonng n rancs
v. McNca (228 U. S., 695) and Iefferman v. e ander (48 ed.
(2d), 855).
In the present case there are not two partnershps carryng on two
busnesses but one partnershp carryng on two busnesses. ccord-
ngy, t s hed that separate returns coverng each busness shoud
not be fed for the purpose of Tte III of the Soca Securty ct,
nor shoud such separate returns be fed under Tte I of the ct.
The wages of a the empoyees of both busnesses shoud be ncuded
n the returns requred under Tte III and n the annua return
requred under Tte I .
Secton 807: Coecton and payment of ta es. I-45-9028
Reguatons 91, rtce 401: Monthy ta returns. T. D. 4771
Monthy ta returns under Tte III of the Soca Securty
ct rtce 401 of Reguatons 91, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 401 of Reguatons 91, approved November 9, 1936, reatng
to the empoyees ta and the empoyers ta under Tte III of the
Soca Securty ct, as amended by Treasury Decson 4756, approved
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Regs. 91, rt. 401.
374
uy 22, 1937 page 459, ths uetn , s further amended to read
as foows:
Monthy ta return . very empoyer (see artce 4) shaU make a monthy
ta return on orm SS-1 for each caendar month begnnng wth November,
1037. The orgna copy w be fed wth the coector (see artce 409). The
dupcate copy may be retaned by the empoyer as a part of hs records. See,
however, artce 404, reatng to fna returns.
Ths Treasury decson s prescrbed pursuant to the provsons of
secton 1102(a) of the Revenue ct of 1926 and secton 808 of the
Soca Securty ct.
Gut T. evet| g,
Commssoner of Interna Revenue.
pproved October 29, 1937.
. Morge thau, r.,
Secretary of the Treasury.
( ed wth the Dvson of the edera Regster October 30, 1937, 11.33 a. m.)
Secto 807: Coecton and payment of ta es. I- 8-9058
Reguato s 91, rtce 401: Monthy ta returns. T. D. 4778
( so rtces 402, 403, 404, 406, 407, 408, 409,
410, 502, 503, 504, and 604.)
uartery ta returns under Tte III of the Soca Securty ct
prescrbed for the frst quarter of the caendar year 1938 and for
each quarter thereafter ta and nformaton returns combned.
Reguatons 01, amended.
Treasury Department,
Offce of Commssoner of I ter a Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 91, approved November 9, 1936, reatng to the em-
poyees ta and the empoyers ta under Tte TII of the Soca
Securty ct, as amended by Treasury Decson 4756, approved uy
22, 1937 page 459, ths uetn , Treasury Decson 4769, approved
October 15, 1937 page 376, ths uetn , and Treasury Decson
4771, approved October 29,1937 page 373, ths uetn , are further
amended as foows:
(1) rtces 401 and 402 are amended to read as foows:
rt. 401. Returns for perods cthn the caendar year 1937. (a) Monthy
ta return . very empoyer (see artce 4) sha make a monthy ta return
on orm SS-1 for each caendar month of the caendar year 1037.
( ) Perodca nformaton returns. very empoyer sha make an nfor-
maton return on orms SS-2 and SS-2a for the perod anuary 1, 1937, to
une 30, 1937, both dates ncusve, and for the perod uy 1, 1937, to December
31, 1937, both dates ncusve. The empoyer sha attach to orm SS-2 a sepa-
rate orm SS-2a for each of hs empoyees who receved ta abe wages durng
the perod covered by the return. orm SS-2 sha be fed In dupcate but
ony one orgna orm SS-2a sha be fed for each empoyee.
t. 402. Returns for perods cthn the caendar year 1938 and subsequent
years. very empoyer sha make a ta and nformaton return on orm
Is S-a for the frst quarter after December 31, 1937, wthn whch ta abe wages
are pad to hs empoyee or empoyees, and for each subsequent quarter whether
or not ta abe wages are pad theren. One orgna return sha be fed wth
the coector. or purposes of returns under Tte III of the ct, the quarters
sha each be three caendar months as foows: (1) from anuary 1 to March
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375
egs. 91, rt. 401.
31, both dates ncusve (2) from pr 1 to une 30, both dates ncusve
(3) from uy 1 to September 30, both dates ncusve and (4) from October 1
to December 31, both dates ncusve. ach empoyer sha make returns under
ths artce unt he ceases to be an empoyer and fes a fna return as requred
by the provsons of artce 404.
(2) The parenthetca reference n artce 403 s amended to read
as foows:
(See artce 402 for the 3-month perods whch consttute quarters wthn the
meanng of provsons of these reguatons reatng to returns.)
(3) rtce 404 s amended to read as foows:
rt. 404. na returns. The ast return on orm SS-a coverng perods
subsequent to December 31, 1037, or the ast returns on orm SS-1, and on
orms SS-2 and SS-2a, coverng perods wthn the caendar year 1937, for
any person who ceases to be an empoyer, sha be marked na return by
the empoyer or the person fng the return. Such fna returns sha be fed
wth the coector on or before the thrteth day after the date on whch the
fna payment of wages sub|ect to ta s made for servces performed for the
empoyer, and sha pany show the perod covered and aso the date of the
ast payment of wages. There sha be e ecuted as part of each fna return
a statement gvng the address at whch the records requred by artce 412
w be kept and the name of the person keepng the records. Persons whose
status as empoyers s ony temporary suspended, ncudng persons engaged
n seasona actvtes, sha not fe fna returns by reason of such temporary
suspenson.
(4) The frst three sentences of artce 406, reatng to the use of
numbers assgned to empoyers and empoyees under Tte III, s
amended to read as foows:
very empoyer sha enter on each return requred under these reguatons
the dentfcaton number assgned to hm under Tte III of the ct. If no
dentfcaton number has been assgned to the empoyer pror to the tme he
fes such return, the empoyer sha enter on the return the date on whch
the appcaton therefor on orm SS- was fed (or maed) by hm, and the
name and address of the offce to whch the appcaton was sent. The account
number assgned under Tte III of the ct to every empoyee wth respect
to whom nformaton s requred to bo reported on orm SS-a, orm SS-2a,
or orm SS-3 sha be entered on such forms by the empoyer.
(5) The ast two sentences of artce 407, reatng to e ecuton of
returns, are amended to read as foows:
If the sum of the empoyees ta and the empoyers ta shown to be payabe
by any return on orm SS-1 (coverng a monthy perod endng December 31,
1937, or pror perod), or any return on orm SS-a (coverng a perod subse-
quent to December 31, 1937) s 10 or ess, the return may be sgned or acknow-
edged before two wtnesses nstead of under oath. If the amount of wages
requred to be reported n tem 2 on orm SS-2 (coverng a perod wthn the
caendar year 1937) s 500 or ess, the return may be sgned or acknowedged
before two wtnesses nstead of under oath.
(6) The seventh sentence of artce 408, reatng to use of pre-
scrbed forms, s amended to read as foows:
In case the prescrbed ta return form s not avaabe, a statement made by
the empoyer dscosng for the perod for whch a return s requred the
amount of wages wth respect to whch the ta es are mposed, together wth
the amount of ta es due, may be accepted as a tentatve return.
rtce 408 s further amended by strkng out the word monthy
n the eghth sentence.
(7) rtce 409, reatng to pace and tme for fng returns, s
amended by strkng out the word monthy n the ne t to the ast
sentence thereof.
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Regs. 91, rts. 402 and 403. 376
(8) The frst sentence of artce 410, reatng to payment of ta , s
amended to read as foows:
The empoyees ta and the empoyers ta requred to be reported on each
return on orm SS-1 or orm SS-a are due and payabe to the coector,
wthout assessment by the Commssoner or notce by the coector, at the tme
f ed for fng such return.
(9) rtce 502, reatng to ad|ustment of empoyees ta , artce
503, reatng to ad|ustment of empoyers ta , artce 504, reatng to
credt or refund of overpayments whch are not ad|ustabe, and
artce 604, reatng to penates for denquent or fase returns, are
amended by nsertng after the words orm SS-1 wherever they
appear theren the words or orm SS-a and by nsertng after
the word month wherever t appears theren the words tt or
quarter and by nsertng after the word montdy wherever t
appears theren the words or quartery.
(10) rtce 604 s further amended by strkng out the ast para-
graph of subdvson (a) thereof and by nsertng n eu of such
paragraph the foowng:
very person fng a return after the due date sha securey attach to the
return hs statement settng out n deta the reasons for denquency.
Ths Treasury decson s prescrbed under the authorty contaned
n sectons 807 and 808 of the Soca Securty ct.
Gut T. everng,
Commssoner of Interna Revenue.
pproved November 23, 1937.
. MoRG NT U, r.,
Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 27, 1937, 11.57 a. m.)
Secton 807: Coecton and payment of ta es. I-43-9004
Reguatons 91, rtce 402: Inta and quar- T. D. 4769
tery nformaton returns.
rtce 403: Informaton returns for em-
poyees who attan age 65 or de.
S -month nformaton return prescrbed for uy 1 through
December 31, 1937, under Tte III of Soca Securty ct
quartery returns for such perod aboshed. Reguatons 91,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 91, approved November 9, 1936, reatng to the em-
poyees ta and the empoyers ta under Tte III of the
Soca Securty ct, are amended by strkng out subdvson (c)
of artce 402, whch prescrbes quartery nformaton returns for
perods begnnng after une 30, 1937, and by nsertng n eu
thereof the foowng new subdvsons:
(c) Informaton return for perod uy 1, 1937, to December SI, 1937.
very empoyer sha make an nformaton return on orms SS-2 and SS-2a
for the perod uy 1, 1937, to December 31, 1937, both dates ncusve.
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377
Regs. 91, rt. 404.
(d) uartery nformaton returns. very empoyer sha make an nforma-
ton return on orms SS-2 and SS-2a for the perod anuary 1, 1938, to
March 31, 1938, both dates ncusve, and for each subsequent perod of three
caendar months endng une 30, September 30, December 31, and March 31.
Reguatons 91 are further amended by strkng out the foowng
sentences of artce 403, reatng to nformaton returns on orm
SS- 3 for empoyees who attan age 65 or de:
If the empoyee attans age 65 or des on or after uy 1, 1937, the return
sha cover the perod begnnng wth the frst day of the quarter n whch
the attanment of age 65 or the death occurs and endng on the date on whch
the return s competed for fng, both dates ncusve. (See artce 402(c)
for the 3-month perods whch consttute quarters wthn the meanng of pro-
vsons of these reguatons reatng to returns.)
and by nsertng n eu thereof the foowng:
If the empoyee attans age 65 or des wthn the perod uy 1, 1937, to
December 31, 1937, both dates ncusve, the return sha cover the perod
from uy 1, 1937, to the date the return s competed for fng, both dates
ncusve. If the empoyee attans age 65 or des on or after anuary 1, 1938,
the return sha cover the perod begnnng wth the frst day of the quarte
n whch the attanment of age 65 or the death occurs and endng on the
date on whch the return s competed for fng, both dates Incusve. (See
artce 402(d) for the 3-month perods whch consttute quarters wthn the
meanng of provsons of these reguatons reatng to returns.)
Ths Treasury decson s prescrbed under the authorty con-
taned n sectons 807 and 808 of the Soca Securty ct.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved October 15, 1937.
ROSW LL M GILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster October 18,1937, 2.52 p. m.)
Secton 807: Coecton and payment of ta es. T-37-8917
Reguatons 91, rtce 404: na returns. S. S. T. 188
( so Secton 905 Reguatons 90, rtces 305 and 308.)
Where a company Incorporated under the aws of the State of
R surrendered Its charter and ncorporated under the aws of the
State of S, fna returns must be fed by the od company n the
State of R and notce of change n status gven under the
provsons of Ttes III and I of the Soca Securty ct.
dvce s requested whether a company ncorporated under the
aws of the State of R whch surrendered ts charter n that State
and ncorporated n the State of S must fe fna returns n the
former State under the ta ng provsons of the Soca Securty ct.
rtce 404 of Reguatons 91, appcabe to Tte III of the ct,
provdes that the ast return on orm SS-1 and the ast return on
orms SS-2 and SS-2a for any person who ceases to be an em-
poyer sha be marked na return by the empoyer or person
sgnng the return. rtce 308 of Reguatons 90, appcabe to
Tte I , provdes that an empoyer who contempates ether d s-
contnung busness by retrement therefrom or a merger, consoda-
ton, or reorganzaton nvovng the transfer of assets sha m-
770G4 38 13
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Regs. 91, rt. 2.
378
medatey gve notce n wrtng of that fact. rtce 305 of
Reguatons 90 provdes that f an empoyer ceases busness, hs ast
return ( orm 940) sha be marked na return.
Where a company ncorporated under the aws of one State ds-
contnues busness, surrenders ts charter, and ncorporates n another
State, t becomes a separate and dstnct ega entty, and, therefore, a
separate empoyer. or the purpose of the ta es mposed under the
Soca Securty ct, the former corporaton ceases to be an empoyer.
ccordngy, t s hed that the ormer corporaton must fe fna
returns n the State of R pursuant to the provsons of artce 401
of Reguatons 91. If t was an empoyer wthn the meanng of
that term as defned n secton 907(a) of the ct and artce 204 of
Reguatons 90, a fna return on orm 940 must be fed and ap-
proprate notce of change n status gven pursuant to artces 305
and 308 of Reguatons 90.
Secton 807: Coecton and payment of ta es. I-51-9103
Reguatons 91, rtce 504: Credt or refund of S. S. T. 235
overpayments whch are not ad|ustabe.
( so Secton 905 Reguatons 90, rtce 503.)
The rght to a refund or credt of ta es mposed under Ttes
III and I of the Soca Securty ct s not dependent upon
whether such ta es were pad under protest.
dvce s requested whether refund of the ta es mposed under
Ttes III and I of the Soca Securty ct s dependent upon
whether such ta es were pad under protest.
Under secton 3220 of the Revsed Statutes, as amended, the Com-
mssoner of Interna Revenue, sub|ect to reguatons prescrbed by
the Secretary of the Treasury, s authorzed to remt, refund, and
pay back a ta es erroneousy or egay coected. Secton 3226
of the Revsed Statutes, as amended, provdes n part that no sut
or proceedng sha be mantaned n any court for the recovery of
any nterna revenue ta aeged to have been erroneousy or egay
coected unt a cam for refund or credt has been duy fed wth
the Commssoner of Interna Revenue accordng to the appcabe
provsons of the aw and reguatons but such sut or proceedng
may e mantaned whether or not such ta , penaty, or sum has
been pad under protest or duress.
ccordngy, the rght to a refund or credt of ta es mposed under
Ttes III and I of the Soca Securty ct s not dependent upon
whether such ta es were pad under protest.
Secton 811: Defntons. I-46-9039
Reguatons 91, rtce 2: mpoyment. S. S. T. 216
( so Secton 806 Reguatons 91, rtce 504.)
Labty ncurred for the ta es mposed under Tte III of the
Soca Securty ct on account of servces performed wthn the
Unted States by an aen s not affected by the return of such
aen to hs home country nor does a rght to refund or credt
accrue.
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379
Regs. 91, rt. 3.
dvce s requested whether a refund of ta es pad under the pro-
vsons of Tte III of the Soca Securty ct w be aowed where
an aen, after performng servces wthn the Unted States n an
empoyment, returns to hs home country.
Secton 811(b) of the Soca Securty ct provdes n part as fo-
ows :
The term empoyment moans any servce, of whatever nature, per-
formed wthn the Unted States hy an empoyee for hs empoyer, e cept .
servces performed wthn the Unted States by an empoyee
for hs empoyer, wth certan e ceptons not here appcabe, con-
sttute empoyment wthn the meanng of Tte III of the
ct. To consttute an empoyment, the servces nvoved must be
performed wthn the Unted States, that s, wthn any of the sev-
era States, the Dstrct of Coumba, or the Terrtory of aska or
awa. To the e tent that an empoyee performs servces outsde
of the Unted States for the person who empoys hm, he s not n
an empoyment. The pace where the contract for servces s entered
nto and the ctzenshp or resdence of the empoyee or of the
empoyer are mmatera. Thus, the empoyee and the empoyer may
be ctzens and resdents of a foregn country and the contract for
the servces may be entered nto n a foregn country, and yet, f
the empoyee under such contract actuay performs servces wthn
the Unted States, there may be to that e tent an empoyment wthn
the meanng of Tte III of the ct. ( rtce 2, Reguatons 91.)
The empoyers ta mposed by Tte III of the Soca Securty
ct wth respect to remuneraton for empoyment attaches at the tme
such remuneraton s actuay or constructvey pad, and the em-
poyees ta attaches at the tme the remuneraton s actuay or con-
structvey receved. ( rtces 303 and 203, Reguatons 91.) The
termnaton of the reatonshp of empoyer and empoyee or the fact
that an empoyee may become empoyed at some ocaton outsde the
Unted States does not affect the abty ncurred on account of the
servces rendered n the Unted States. ccordngy, t s hed that
where an aen empoyee sub|ect to the provsons of Tte III of the
ct eaves the Unted States there accrues no rght to refund or
credt of the ta es pad under that tte wth respect to servces per-
formed by such empoyee wthn the Unted States. The fact that
such empoyee has no ntenton of agan becomng engaged n an
empoyment s mmatera.
Secton 811: Defntons. I-28-8813
Reguatons 91, rtce 3: Who are empoyees. G. C. M. 18705
( so Secton 907 Reguatons 90, rtce 205.)
The genera agents, dstrct agents, speca agents, and soctng
agents of the M Lfe Insurance Co. are ndependent contractors
and not empoyees of that company for the purposes of Ttes III
and I of the Soca Securty ct.
dvce s requested whether the agents of the M Lfe Insurance
Co. are empoyees of that, company wthn the meanng of Ttes
III and I of the Soca Securty ct.
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Regs. 91, rt. 3.f
380
Under the agency organzaton of the M Lfe Insurance Co., the
company enters nto a contract wth a genera agent gvng the atter
the e cusve rght to soct, appcatons for nsurance and annuty
contracts wthn the terrtory specfed n hs contract. The com-
pany has a arge number of genera agences. ach genera agency
mantans an offce at ts own e pense and s compensated by comms-
sons and coecton fees based upon a f ed percentage of nsurance
premums. ach genera agent contracts wth certan dstrct agents
and speca agents for the deveopment of varous parts of the ter-
rtory covered by the genera agency contract. The dstrct agents
and speca agents n turn contract wth soctng agents. owever,
the soctaton of busness s not mted to the soctng agents, for
any agent n the organzaton, ncudng the genera agents, may
soct appcatons for fe nsurance and annuty contracts. Lke
the genera agents, the dstrct agents, speca agents, and soctng
agents conduct ther busness operatons at ther own e pense am
receve ther entre compensaton n the form of commssons.
nsurance matters, ncudng appcatons for nsurance and pre-
mum coectons, reatng to the terrtory of each genera agent pass
through hs offce. The agent s contracts do not permt the company
to prescrbe rues governng the deveopment of centee, the tme or
pace of soctaton, or otherwse contro the physca actvtes of
the agent. The agents can come and go as they pease and are not
requred to spend a f ed amount of tme n workng for the company.
The company does not furnsh or contro the means of transportaton
nor s t requred to pay for the means used. The company has no
rght to say whether an agent sha or sha not advertse. If the
agent does advertse, the advertsng copy must frst be submtted to
the company n order that there be no msrepresentaton or state-
ments n voaton of aw or contrary to rungs of nsurance depart-
ments. The agent usuay has an e tensve terrtory and mantans
hs offce whoy upon hs own responsbty and at hs own e pense.
Paragraph of a typca contract provdes as foows:
Nothng contaned heren sha be construed to create the reaton of empoyer
and empoyee between the M Lfe Insurance Co., herenafter caed the com-
pany, and soctng agent, or between the genera agent or agent and soctng
agent. Wthn the terrtory above descrbed soctng agent sha be free to
e ercse hs own |udgment as to the persons from whom he w soct nsur-
ance and the tme and pace of soctaton, but the company may from tme
to tme prescrbe rues and reguatons respectng the couduct of the busness
covered hereby, not nterferng wth such freedom of acton of soctng agent,
whch rues and reguatons sha be observed and conformed to by soctng
agent.
It s stated by the company that the reference to rues and regu-
atons n the above paragraph s ntended to refer soey to a man-
ua of nformaton ssued by the company under the tte of Rues
and Instructons, whch smpy reserves to the company the rght to
ssue underwrtng rues coverng ts own practces n deang wth
ts pocy contracts. It appears that the contract does not permt
the company to contro or drect the busness actvtes of the agents.
Sectons 801 and 804, Tte III, and secton 901, Tte I , of the
Soca Securty ct mpose certan ta es wth respect to empoy-
ment. Concernng the constructon of the term empoyment, art-
ce 205 of Reguatons 90, reatng to Tte I , contans the foowng:
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381
Regs. 91, rt. 3.
Whether the reatonshp of empoyer and empoyee e sts, w n doubtfu
cases be determned upon an e amnaton of the partcuar facts of each case.
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
to the detas and means by whch that resut s accompshed. That s, an em-
poyee 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 per-
formed t s suffcent f he has the rght to do so. The rght to dscharge s
aso an mportant factor ndcatng that the person possessng that rght s
an empoyer. Other factors characterstc of an empoyer are the furnshng
of toos and the furnshng of a pace to work, to the Indvdua who performs
the servces. In genera, f an ndvdua s sub|ect to the contro or drecton
of another merey as to the resut to be accompshed by the work and not
as to the means and methods for accompshng the resut, he s an ndependent
contractor, not an empoyee.
If the reatonshp of empoyer and empoyee e sts, the desgnaton or de-
scrpton of the reatonshp by the partes as anythng other than that of
empoyer and empoyee Is mmatera. Thus, f two ndvduas n fact stand
n the reaton of empoyer and empoyee to each other, t s of no consequence
that the empoyee s desgnated as a partner, coadventurer, agent, or ndepend-
ent contractor.
The measurement, method, or desgnaton of compensaton s aso mmatera,
f the reatonshp of empoyer and empoyee n fact e sts.
Indvduas performng servces as ndependent contractors are not empoyees.
Generay, physcans, awyers, dentsts, veternarans, contractors, subcontrac-
tors, pubc stenographers, auctoneers, and others who foow an ndependent
trade, busness, or professon, n whch they offer ther servces to the pubc, are
ndependent contractors and not empoyees.
rtce 3 of Reguatons 91, reatng to Tte III of the Soca
Securty ct, contans a smar statement.
The queston presented s whether the M Lfe Insurance Co. agents
have such freedom and ndependence n the conduct of ther nsur-
ance actvtes that they shoud be cassed as ndependent contractors
rather than empoyees.
In Neece v. Lee (262 N. W., 1, Neb., 1935), the court consdered the
status of a soctng agent for an nsurance company under a con-
tract whereby he was apponted the company s speca agent for the
purpose of canvassng for appcatons for nsurance on the ves of
ndvduas. The court hed that the status of the agent was that of
ndependent contractor. In the opnon the court sad:
There was no provson that the company shoud pay a saary or hs
traveng e penses or any other e penses. There was no provson n the con-
tract as to how or where or when Lee shoud trave or that he shoud trave
at a. The defendant reserved no contro over Lee s manner or method of
workng. e was not requred to devote any partcuar porton of hs tme to
the servce of the company.
mercan Sav. Lfe Insurance Co. et a. v. Rpnger (60 S. W.
(2d), 115, y., 1933) nvoved a soctor engaged n seng fe n-
surance on commsson for the nsurance company. contract be-
tween the soctor and the company provded that he shoud not rep-
resent any other company durng the fe of the contract. e was not
requred to drve an automobe nor dd the company pay hs trans-
portaton e penses. In hodng that the reatonshp between the
company and the soctor was that of ndependent contractor, the
court sad:
The rght of contro of the means of dong the work, or want of It, s the
determnatve factor when consderng the reatonshp n such cases, for one
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Regs. 91, rt. 3.
382
who has no rght of contro In ths respect over another ought not to be re-
qured to respond n damages for hs acts. The uneontroverted facts are, te
nsurance company had no rght of contro over the acts of Owens other than
as to the resut of hs work.
(See aso Chrstensen v. Protector Saes Co., 181 N. ., 146, Neb.,
1920 Income Lfe Ins. Co. v. Mtche, 79 S. W. (2d), 572, Tenn..
1935 ewtt v. Casuaty Co. of merca, 113 N. ., 572, Mass., 1916.)
Whe the decsons cted are not necessary controng n deter-
mnng whether the agents of the M Lfe Insurance Co. are empoyees
of that company wthn the meanng of Ttes III and I of the
Soca Securty ct, they are persuasve that the M Lfe Insurance
Co. does not e ercse, or have the rght to e ercse, the contro pre-
scrbed by Reguatons 91 and 90, reatng to Ttes III and I ,
respectvey, as necessary to estabsh the reatonshp of empoyer
and empoyee for the purposes of those ttes. It s concuded, there-
fore, that the agents of the M Lfe Insurance Co. are ndependent
contractors and not empoyees of the company wthn the meanng of
Ttes III and I of the Soca Securty ct.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
Secton 811: Defntons. T-28-8814
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 170
( so Secton 907 Reguatons 90, rtce 205.)
Indvduas who operate teephone e changes desgnated as
agency or contract offces under contracts entered nto wth
varous teephone companes of the M Teephone System, together
wt ther hepers, are empoyees of such companes wthn the
moanng of Ttes III and I of the Soca Securty ct.
dvce s requested whether the ndvduas who perforn servces
under crcumstances herenafter stated n so-caed agency or
contract offces of the varous teephone companes comprsng
the M Teephone System, together wth ther hepers, are empoyees
of such companes wthn the meanng of Ttes III and I of the
Soca Securty ct.
The term empoyment s defned n sectons 811(b) and 907(c),
Ttes III and I , respectvey, 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 3 of Reguatons 91, appcabe to the ta es mposed under
Tte III, reads n part as foows:
Who are empoyees. very ndvdua s an empoyee wthn the
meanng of Tte III of the ct f he performs servces n an empoyment
as denned n secton 811(b) .
owever, the reatonshp between the person for whom such servces are
performed and the ndvdua 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
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383
Regs. 91, rt. 3.
the empoyer actuay drect or contro the manner In whch the servces arc
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.

If the reatonshp of empoyer and empoyee e sts, the desgnaton or de-
scrpton of the reatonshp by the partes as anythng other than that of
empoyer and empoyee s mmatera. Thus, f such reatonshp e sts, t s
of no consequence that the empoyee s desgnated as a partner, coadventurer,
agent, or Independent contractor.
The measurement, method, or desgnaton of compensaton s aso mma-
tera, f the reatonshp of empoyer and empoyee n fact e sts.
rtce 205 of Reguatons 00. appcabe to the ta mposed under
Tte I , contans substantay the same provsons.
The varous companes of the M Teephone System enter nto con-
tracts wth ndvduas for the operaton of teephone e changes,
desgnated as agency or. contract offces, n certan outyng
dstrcts. The e changes are n some cases mantaned on property
owned by the company and n other nstances on eased property.
In some cases the e change s ocated n the home or store of the
ndvdua wth whom the contract s made, such ndvdua beng
desgnated as agent, operator, chef operator, operatng
agent, or contractor. The person so desgnated (hereafter re-
ferred to as the operator) agrees to conduct the e change, whch s
estabshed and mantaned by the partcuar company, n accord-
ance wth the practces, rues, and reguatons prescrbed by the
company to procure such hep as may be necessary to operate the
e change propery to coect moneys from subscrbers and depost
the amount coected to the credt of the company n a certan bank
to take appcatons for servce and to make reports to the company
wth respect thereto to receve compants and report them to the
company to report to the company accdents to empoyees and to
notfy the company of any ne troube, athough occasonay the
operator undertakes to make the necessary repars. Where hepers
are engaged by the operator, the company n some nstances reserves
the rght to desgnate the number and pay of the hepers whe n
some cases such authorty s vested n the operator. The operator
s usuay pad on a weeky or monthy bass. s compensaton
ncudes the wages of hs hepers where the empoyment of hepers
s eft to the dscreton of the operator. The operator usuay pro-
vdes |antor servce, heat, and ght for the premses. The equp-
ment used n the e changes s furnshed by and remans the property
of the company. The contracts are made for defnte perods and are
sub|ect to canceaton on 30 to GO days notce by the company, e cept
that where the servces of the operator are unsatsfactory, the contract
may be termnated on 1 day s notce. Some of the contracts provde
for contnuous servce whe others requre ony nterrupted or part
tme servce. Where the operator uses hs own automobe n con-
necton wth hs dutes under the contract, the company s protected
by nsurance. The contracts generay make no provson for pay-
ment of the ta es mposed under compensaton or unempoyment aws.
The frst queston for consderaton s whether the reatonshp
of empoyer and empoyee e sts between the company and the
ndvdua wth whom the contract s made for the operaton of an
e change.
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Regs. 91, rt. 3.
384
The contracts n queston reate to, and provde for, the conduct of
the reguar busness of the teephone companes at e changes estab-
shed and mantaned by such companes and the performance of
the dutes of the company as a pubc utty pursuant to a franchse
granted by the State. The contracts do not reate to the accom-
pshment smpy of a f ed resut but to a contnung operaton.
Supervson s e ercsed by the companes wth regard to the detas
and means of accompshment as set forth n artce 3 of Reguatons
91 and artce 205 of Reguatons 90. The contracts provde that
performance thereunder sha be satsfactory to the company and
that the contracts may be termnated forthwth f the servces
rendered are unsatsfactory. They further provde specfcay that
certan of the dutes contempated under the contracts sha be per-
formed as drected by the company. Due to the remoteness from
a centra offce, somewhat broader supervsory powers have been
entrusted to the operator wth regard t6 hepers and assstants than
mght be customary n a centra offce, but the rght to contro the
method of operaton n deta s reserved n the company. The
nature of the work of the operator s the same as that of the reguar
empoyees on the pay ro of the companes. It s sgnfcant that
the premnary statement n the contracts provdes that the e -
change s to be estabshed and mantaned by the company. s
prevousy ndcated, the contracts provde for the performance of
servces and for operatons the e ercse of whch s pursuant to a
franchse granted by the State. The companes themseves are
drecty responsbe for the proper e ercse of the functons wth
whch they are charged.
Under the facts presented, t s hed that the contracts n queston
create the reatonshp of empoyer and empoyee between the tee-
phone company and the ndvdua agent or operator of the e -
change. Under the terms of the contracts, the teephone company
ceary has the contro or rght of contro prescrbed by artce 3,
Reguatons 91, and artce 205, Reguatons 90. Consequenty, each
agent or operator s an empoyee of the teephone, company for
whch he renders servces under such contract.
The ne t queston for consderaton s whether the ndvduas
who perform servces as hepers, etc., under the mmedate drecton
of the contractng agent or operator are aso empoyees of the tee-
phone company. In connecton wth such reatonshp, t s mpor-
tant to note the provsons n the unempoyment acts of the States.
or e ampe, secton 502 of the abor aw of the State of New York
provdes n part as foows:
Whenever any heper, assstant or empoyee of an empoyer engages any other
person n the work whch sad heper, assstant or empoyee s dong for
the empoyer, such empoyer sha for a purposes hereof be deemed the
empoyer of such other person, whether such person s pad by the sad heper,
nssstant or empoyee, or by the empoyer, provded the empoyment has been
wth the knowedge, actua, constructve or mped, of the empoyer.
(See aso other smar State aws.)
It was hed n S. S. T. 70 (C. . 1937-1, 387) that where an
entre department of a company was operated by who pad the
empoyees theren out of the remuneraton pad to hm by the com-
pany, such ndvduas were empoyees of the company wthn the
meanng of Ttes III and I of the Soca Securty ct, even
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385
Regs. 91, rt. 3.
though the names of such empoyees dd not appear on the company s
pay ro. smar stuaton e sts wth respect to the hepers who
are under the mmedate drecton of the ndvduas operatng the
e changes n the nstant case. The servces performed by the hepers
are n connecton wth the work whch the operator s performng as
an empoyee of the company, such hepers are empoyed wth the fu
knowedge of the company, aowance s made for ther compensa-
ton, and they are n fact under the contro of the teephone companes
wthn the contempaton of artce 3, eguatons 91, and artce 205,
eguatons 90. It s hed, therefore, that the hepers of the oper-
ators of the e changes are empoyees of the varous teephone com-
panes of the M Teephone System wthn the meanng of Ttes III
and I of the Soca Securty ct.
Secton 811: Defntons. I-29-8822
Reguatons 91, ktce 3: Who are empoyees. S. S. T. 172
( so Secton 907 Reguatons 90, rtce 205.)
antors who serve severa property owners, attendng to fur-
naces, ceanng has, etc., of apartment budngs, and who are
unrestrcted as to the hours they work but are engaged to gve the
necessary attenton to such dutes, are empoyees of the persons
for whom they perform servces wthn the meanng of Ttes III
and I of the Soca Securty ct.
dvce s requested whether certan |antors shoud be consdered
empoyees wthn the meanng of Ttes III and I of the Soca
Securty ct. These |antors are reguary empoyed and servo
severa dfferent property owners, attendng to furnaces, ceanng
has, etc., of sma apartment budngs. They are not restrcted
as to the hours they work but are engaged to gve the necessary
attenton to the aforementoned dutes. Compensaton s receved
from each property owner.
rtce 3 of Reguatons 91, reatng to the empoyees ta and the
empoyers ta under Tte III of the Soca Securty ct, states
that every ndvdua s an empoyee wthn the meanng of Tte
III of the ct f he performs servces n an empoyment as de-
fned n secton 811(b). That secton defnes the term empoy-
ment as any servce, of whatever nature, performed wthn the
Unted States by an empoyee for hs empoyer wth certan e cep-
tons not appcabe here. rtce 3 of Reguatons 91 further pro-
vdes that the reatonshp of empoyer and empoyee generay 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 mportant
factor ndcatng that the person possessng that rght s an empoyer.
Sectons 801 and 804, Tte III of the Soca Securty ct, mpose
ta es upon empoyees and empoyers, respectvey, regardess of the
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egs. 91, rt. 3.
386
number of empoyees nvoved. In S. S. T 24 (C. . -2, 406
(193G)), the ureau hed that an ndvdua may be an empoyee of
two or more persons wthn the contempaton of Tte I of the
Soca Securty ct. That rung s aso appcabe to Tte III
of the ct. (See aso artce 14, Reguatons 91.) ased upon the
foregong, t s hed that the |antors n queston are empoyees of
the severa persons for whom they perform servces for the purpose
of the ta es mposed under Tte III.
It s further hed that the |antors n queston shoud be counted
n determnng whether the persons for whom they perform servces
are empoyers, as defned by secton 907(a), Tte I of the ct,
and the remuneraton pad or payabe to such |antors shoud be
ncuded n the tota wages for the purpose of the ta mposed under
that tte. (See aso artce 205, Reguatons 90.)
Secton 811: Defntons. I-33-8879
Reguatons 91. rtce 3: Who are empoyees. S. S. T. ISO
( so Secton 907 Reguatons 90, rtce 205.)
, the owner of a store, who receves payment of gas and eectrc
bs pursuant to a contract wth the M Company, s not an em-
poyee of that company wthn the meanng of Ttes III and I
of the Soca Securty ct.
dvce s requested whether , the owner of a store, who, pur-
suant to a contract wth the M Company, a gas and eectrc company,
receves payment of gas and eectrc bs rendered by that company
s an empoyee of the company wthn the meanng of Ttes III
and I of the Soca Securtv ct.
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 app-
cabe. n ndvdua performng servces as an ndependent con-
tractor s not, as to such servces, an empoyee. ( rtce 3, Regu-
atons 91 artce 205, Reguatons 90.)
operates a store n a certan cty. e entered nto a contract
wth the M Company whereby he s to receve payments on behaf of
that company of gas and eectrc bs rendered by t to ts customers.
The contract provdes that sha furnsh sutabe space n hs store
where the M Company s customers may pay ther bs that he sha
eceve such payments and ssue recepts therefor n the name of the
M Company that where bs are pad by check, draft, or monev
order, no ndorsement or other wrtng sha be made thereon by
e cept for depost to the credt of the company that sha receve
appcatons for servce and compants reatve to servce and for-
ward them to the company that a rght, tte, and nterest n the
payments receved by sha be vested soey n the company, and
such payments sha be kept separate from other funds n hs hands
and that sha ma to the company a statement showng payments
receved, the stubs of bs pad, and the depost sps coverng depos-
ts. s abe to the company for a payments made to hm re-
gardess of oss by theft, fre, or otherwse and s pad by the com-
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387
Regs. 91, rt. 3.
pany a specfc sum for each b coected. The contract may be
termnated by ether party by gvng wrtten notce to that effect.
Under the facts n ths case, t can not be sad that contro, or the
rght of contro, of s actvtes by the M Company e sts wthn
the meanng of artce 3, Reguatons 91, and artce 205, Reguatons
90. ccordngy, t s hed, for purposes of the ta es mposed under
the Soca Securty ct, that the reatonshp of empoyer and em-
poyee does not e st between the M Company and , and that the
ta es mposed under Ttes III and I of the ct are not app-
cabe wth respect to the remuneraton for such servces.
Secton- 811: Defntons. I-33-8880
Reguatons 91, rtce 3: Who are empovees. S. S. T. 181
( so Secton 907 Reguatons 90, rtce 205.)
C, who s the guardan of , the henefcary of a trust estate,
and whose remuneraton s pad by the trustee thereof pursuant
to a court order, s not an empoyee of the trust estate wthn
the meanng of Ttes III and I of the Soca Securty ct
dvce s requested whether C, who s the guardan of , an nfant
benefcary of a trust estate, and whose remuneraton s pad by the
trustee thereof pursuant to a court order, s an empoyee of the trust
estate wthn the meanng 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 servce,
of whatever nature, performed wthn the Unted States by an
empoyee for hs empoyer wth certan e ceptons not here
appcabe.
very ndvdua s an empoyee wthn the meanng of Ttes
III and I of the ct f he performs servces n an empoyment
as defned n sectons 811(b) and 907(c). owever, the reatonshp
between the person for whom such servces are performed and the
ndvdua who performs such servces must, as to those servces, be
the ega reatonshp of empoyer and empoyee. ( rtce 3, Regu-
atons 91 artce 205, Reguatons 90.)
In accordance wth the provsons of the w of D, C was ap-
ponted guardan of the person of , an nfant benefcary of a trust
created pursuant to the w of D. The trustee was drected by a
court decree to pay a specfc sum annuay to C for servces rendered
as guardan. The trustee has no contro over the servces performed
by C n the capacty of guardan. C s requred to e ercse hs own
dscreton n the dscharge of hs dutes and s accountabe ony to
the court whch apponted hm.
Under the facts stated, t s hed that the reatonshp of empoyer
and empoyee does not e st between the trust estate and C wth
respect to the servces rendered as guardan of . ccordngy, C
s not an empoyee of the trust estate wthn the meanng of Ttes
III and I of the Soca Securty ct, and the remuneraton
receved by C for hs servces as guardan s not sub|ect to the ta es
mposed by the ct.
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Regs. 91, rt. 3.
388
Secton 811: Defntons. I-34-8889
Reguatons 91. rtce 3: Who are empoyees. S. S. T. 183
( so Secton 907 Reguatons 90, rtce 205.)
Waters engaged by the M Cub to serve at dnners gven at the
cub by cub members, and whose wages are pad by the M Cub
and charged to the accounts of the members, are empoyees of the
M Cub wthn the meanng of Ttes III and I of the Soca
Securty ct.
dvce s requested whether waters engaged by the M Cub to
serve at dnners gven at the cub by ndvdua members, and whose
wages are pad by the M Cub and charged to the accounts of the
members, are empoyees of the M Cub.
t varous tmes members of the M Cub use the cub s factes
for entertanment purposes whch necesstates the empoyment of
addtona waters. The M Cub engages the necessary waters, con-
tros and drects the waters so engaged, pays them ther entre
remuneraton, and bs the cub member or members who entertaned
for the amount of the remuneraton so pad. The queston s pre-
sented whether such waters are empoyees of the M Cub.
Sectons 811(b) and 907(c), Ttes III and I , respectvey, 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.
n ndvdua s an empoyee wthn the meanng of Ttes III
and I of the ct f he performs servces n an empoyment as
defned n sectons 811(b) and 907(c). owever, the reatonshp
between the person for whom the servces are performed and the
ndvdua who performs the servces must, as to those servces, be
the ega reatonshp of empoyer and empoyee. Generay the
reatonshp e sts when the person for whom the servces are per-
formed 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 the resut
s accompshed. Other factors characterstc of an empoyer are
the furnshng of toos and a pace to work to the ndvdua who
f erforms the servces. ( rtce 3, Reguatons 91 artce 205, Re-
atons 90.)
It s hed that the waters n queston are empoyees of the M
Cub wthn the meanng of Ttes III and I of the Soca
Securty ct. The fact that the wages pad by the M Cub arc
charged to the members accounts s mmatera.
Secton 811: Defntons. I-37-891S
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 189
( so Secton 907 Reguatons 90, rtce 205.)
The ta es mposed by Ttes III and I of the Soca Securty
ct are appcabe wth respect to servces performed by umpres
for the M aseba ederaton.
dvce s requested whether the ta es mposed under Ttes III
and I of the Soca Securty ct appy wth respect to servces
performed by umpres for the M aseba ederaton.
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389
Regs. 91, rt. 3.
Sectons 811(b)8 and 907(c)7 of the Soca Securty ct provde
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

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.
rtce 3 of Reguatons 91, appcabe to Tte III of the ct,
and artce 205 ot Reguatons 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.
The M aseba ederaton s a nonproft, amateur baseba eague
composed of certan teams whch pay on the open parks of the
cty of R. No admsson fee s charged to wtness the games payed
by such teams. Contrbutons are socted among the spectators at
such games to assst n payng the umpres engaged by the federa-
ton. The umpres are the ony ndvduas who are pad for servces
performed for the federaton.
Under the crcumstances set forth, the umpres n queston are
empoyees of the M aseba ederaton. The federaton s not
organzed and operated e cusvey for any of the purposes enumer-
ated n sectons 811(b) 8 and 907(c)7 of the Soca Securty ct, and
no other e cepton contaned n the ct coud possby appy. c-
cordngy, abty as an empoyer for the ta es mposed under Tte
III s ncurred, and f the federaton s an empoyer as defned n
Tte I , t s aso abe for the ta mposed by that tte. mpoyees
who receve no remuneraton for ther servces must be counted n
determnng whether the federaton empoys a suffcent number of
ndvduas to be an empoyer under Tte I .
Secton 811: Defntons. I-39-8946
Reguatons 91, rtce 3: Who are empoyees. Mm. 4C51
( so Secton 907 Reguatons 90, rtce 205.)
Status under Ttes III and I of the Soca Securty ct
of muscans generay, and partcuary wth respect to muscans
engaged under contract forms and procedure prescrbed by varous
oca unons of the mercan ederaton of Muscans.
S. S. T. 47 (C. . -2, 409 (1936)) not appcabe to cases of
certan contractors and muscans.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ugust 31, 1937.
Coectors of Interna Revenue and Others Concerned:
The status under Ttes III and I of the Soca Securty ct
of muscans generay, and partcuary wth respect to muscans
engaged under contract forms and procedure prescrbed by the
varous oca unons of the mercan ederaton of Muscans, has
been consdered by the ureau.
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Regs. 91, rt. 3.
390
The purpose of ths mmeograph s to carfy the matter of the
appcaton of the soca securty ta es wth respect to the reaton-
shp whch e sts between so-caed contractors, muscans, and
purchasers of musc, and to set forth certan dstnctons between
so-caed nonname orchestras and name orchestras.
The method of engagng unon muscans to perform servces for
purchasers of musc and the facts bearng upon the resutng
reatonshp appear to be substantay as foows n the case of
nonname orchestras or groups of muscans:
Purchasers of musc, such as hotes, theaters, cafes, cubs, rado
statons, rado sponsors, etc., desrng the servces of muscans, usu-
ay contact these ndvduas through a member of the muscans
unon. The member through whom such contact s made s caed a
contractor.
The practce of engagng muscans e cusvey through a so-caed
contractor has become genera throughout the country. In fact,
n an overwhemng ma|orty of ocates ths practce s by pre-
scrpton of both the mercan ederaton of Muscans and oca
unon reguatons. Ths practce has orgnated out of the assstance
whch t affords to a purchaser of musc who s thus enabed to
dea wth ony one out of the number of muscans requred and aso
n the convenence whch t furnshes to the unon n enforcng ts
reguatons. The term contractor, as used n the musca vocaton,
desgnates that ndvdua muscan through whom, n any partcuar
case, the party wshng to purchase musc (the purchaser ) and
the partes wshng to suppy such musc (the muscans) conduct
ther recproca affars, ncudng the negotaton and performance
of the contract by both partes. In a few ocates there are no con-
tractors, as such, ther pace beng taken by the oca unon whch
suppes the muscans to the purchaser.
The status of contractor s not f ed ether as to the occupancy
or as to dutes. ny muscan who s a member of the mercan
ederaton of Muscans may serve as a contractor. avng
served as a contractor for a partcuar engagement, he may, upon
hs ne t engagement, perform ony musca servces under a contract
negotated by another muscan servng as contractor. It shoud
be notced that a contractor may or may not perform musca
servces under a contract whch he has negotated. In genera, the
contractor has the soe rght of a the muscans to negotate
the contract for musca servces, seect the muscans upon the en-
gagement (on behaf of the purchaser ), and dscharge the mus-
cans (aso on behaf of the purchaser ). Other ncdents of the
status ncude the duty to pay the ndvdua muscans (on behaf
of the purchaser ), the power to requre conformance wth the re-
qurements of the contract on the part of the muscans, and prmary
responsbty to the unon for the satsfactory performance of the
engagement. In some cases the contractor drects the artstc
quaty of the musca servces by servng as eader. In other
cases the duty to drect s vested entrey n another muscan.
The mnmum compensaton of both the contractor and the
muscans s f ed n accordance wth the unon scae. In some cases
the contract to furnsh muscans desgnates the e act amount to be
receved by the contractor and ndvdua muscan. In many
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Regs. 91, rt. 3.
cases the contract e presses ony a ump sum consderaton whch
may or may not be n e cess of the unon scae. In most such cases
where payment s made n a ump sum, the contractor receves ony
hs proportonate part n accordance wth unon reguatons n
others, however, the contractor (or even ndvdua muscans)
may receve compensaton n e cess of the wages receved by the
other members of the orchestra. In these cases the e cess sums pad
to the contractor or other muscans are based on superor abty.
In every case where the contractor performs as a muscan, the
mnmum rate of hs compensaton s set, varyng accordng to oca-
ty. at from 10 per cent to 100 per cent hgher than the mnmum rate
set for other muscans.
Under contracts n whch contractors appear, the purchaser
has the rght to seect specfc muscans (athough n certan oca-
tes ths rght does not e st), even though the purchaser may not
aways, or even usuay, e ercse ths rght. e further has the
rght to requre that a certan type of musc be payed. e nvar-
aby furnshes the pace where the contract s performed. e desg-
nates the hours of performance, and, n addton, often contros tmes
for ntermssons so as to coordnate the performance of musc wth
hs other actvtes, such as the sae of food and drnks or the rend-
ton of other artstc performances. In addton, he has the rght
to dscharge ndvdua muscans n the event of a matera breach
of ther contract. In the case of the engagement of muscans and of
ther dscharge, ths rght n the purchaser may be e ercsed
through the contractor as the purchaser s agent. The mus-
cans performng under such a contract do not have any permanent
organzaton or standng nor s ther personne f ed beyond the par-
tcuar engagement.
In the ght of ts consderaton of the foregong crcumstances, t
t the opnon of the ureau that the purchaser, under such or
smar crcumstances, retans suffcent power to drect and contro
the performance of the contract as to render hm the empoyer of
the ndvdua muscans, ncudng the eader, f any. so on
the bass of these consderatons, t s the opnon of the ureau that
the purchaser has suffcent drecton and contro over the conduct
of the contractor hmsef as to render the purchaser the em-
poyer of such contractor, e cept n the case where the con-
tractor performs no musca servces. In a case where the
contractor renders no musca servces to the purchaser, t s
the opnon of the ureau that the purchaser s the empoyer of
the ndvdua muscans, ncudng the eader, f any, but not of
the contractor.
S. S. T. 47 (C. . -2, 409 (1936)) shoud not be foowed n
the case of contractors and muscans performng servces under
the crcumstances set forth above. owever, such rung s gener-
ay appcabe n cases where ndvduas are performng servces
n a so-caed name orchestra, snce ndvduas performng n
so-caed name orchestras are ordnary empoyees of the orches-
tra eaders wthn the meanng of Ttes III and I of the
Soca Securty ct.
It shoud be noted, however, n ths connecton that determnaton
of whether any partcuar group of muscans consttutes a so-caed
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Regs. 91, rt. 3.
392
name orchestra w not rest upon the mere adopton of a name
by such organzaton. The chef characterstc dstngushng a
name orchestra from a nonname orchestra s the permanency
of the organzaton and the personne performng n the orchestra.
In genera, an orchestra w be consdered a name orchestra when,
n addton to beng desgnated by a name, t has a f ed personne
e tendng from engagement to engagement and hods tsef out to
the pubc as a permanent busness organzaton. Name orches-
tras may aso be dstngushed from other orchestras where the
eader of the orchestra contracts wth the members thereof for
ther servces at a f ed saary, ether by term or by engagement, and
where the eader s abe for the payment of such saary wthout
reference to the dscharge of the purchaser s obgaton. In the
c ase of a name orchestra, the eader of the orchestra and not
the purchaser can seect and dscharge the members of the orches-
tra and the eader aone contros and drects ther conduct.
No snge factor affords the bass of determnng whether an
orchestra s a name orchestra. Whether or not a partcuar or-
chestra s a name orchestra may be dffcut to determne n some
cases. ccordngy, n any case upon whch a rung s desred, a
request therefor shoud be accompaned by nformaton suffcenty
detaed and compete to enabe ths offce to make a determnaton
upon consderaton of the above-mentoned factors and appcaton
of the foregong tests.
Inqures and correspondence regardng ths mmeograph shoud
refer to ts number and the symbos SST.
Gut T. evekng,
C ommssoner.
Secton 811: Defntons. I- -S973
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 11)7
( so Secton 907 Reguatons 90, rtce 205.)
, the operntor of a motorcyce furnshed to the N Company by
the M Cyce Co., whch operates a genera devery servce, s an
empoyee of the M Cyce Co. for the purposes of Ttes III and I
of the Soca Securty ct.
dvce s requested whether , who s engaged by the M Cyce
Co. n connecton wth the operaton of a devery servce and who
makes deveres for the N Company pursuant to an agreement be-
tween the two concerns, s an empoyee of the M Cyce Co. or the
N Company for the purposes of Ttes III and I of the Soca
Securty ct.
The M Cyce Co., whch operates a genera devery servce, entered
nto a contract wth the N Company whereby the former agreed to
furnsh the atter wth a motorcyce and an operator for a stpu-
ated amount per month. The M Cyce Co. has the soe rght to
hre and dscharge such operator and may reca hm at any tne.
That company pays a the e penses of the servce, ncudng the
saary of the operator. Under the contract an operator s to be
avaabe from 8 o cock n the mornng unt 5 o cock n the after-
noon for the purpose of makng deveres, runnng errands, etc- The
M Cyce Co. does not aways furnsh the same operator or the same
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393
Regs. 91, rt. 3.
motorcyce and smar servce s furnshed to many other concerns
n the cty. It s stated that the M Cyce Co. retans contro over
the actvtes of the operator.
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,
provdes n part as foows:
Who are empoyees. very ndvdua s an empoyee wthn the meanng
of Tte III of the ct f he performs servces n an empoyment as defned
n secton 811(b) .
owever, the reatonshp between ths person for whom such servces are
performed and the ndvdua who performs such servces must as to those serv-
ces be the ega reatonshp of empoyer and empoyee. Generay such rea-
tonshp 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 actu-
ay drect or contro the manner c whch the servces are performed It Is
suffcent f he has the rght to do so. The rght to dscharge s aso an mpor-
tant factor ndcatng that the person possessng that rght s an em-
poyer.
rtce 205 of Reguatons 90, appcabe to Tte I of the ct,
contans substantay the same provsons.
Under the facts presented, athough the servces of the operator
are performed to some e tent n accordance wth nstructons gven
by the N Company, the M Cyce Co. has not renqushed, and the
N Company has not acqured, such a rght of contro and drecton
over the operator as woud dssove the empoyer-empoyee reaton-
shp e stng between the M Cyce Co. and the operator and estabsh
such reatonshp between the S Company and the operator.
ccordngy, t s hed that the operator n queston s an empoyee
of the M Cyce Co. and not of the N Company for the purposes of
Ttes III and I of the Soca Securty ct.
Secton 811: Defntons. I-41-8974
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 198
( so Secton 907 Reguatons 90, rtce 205.)
entered nto an agreement wth the Y Company to furnsh t
a truck and drver and to pay a operatng costs of the truck for a
stpuated sum per month. ordnary serves as drver of the
truck but at certan tmes he engages to substtute for hm.
does not furnsh smar servce to any other concern and the Y
Company contros hs actvtes. ed, both and are em-
poyees of the Y Company wthn the meanng of Ttes III and
I of the Soca Securty ct.
dvce s requested whether and are empoyees of the Y
Company for the purposes of Ttes III and I of the Soca Se-
curty ct.
entered nto an agreement wth the Y Company to furnsh that
company a truck and drver and to pay a e penses of operaton for
a stpuated sum per month. The truck and drver must be avaabe
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Regs. 91, rt. 3.
394
to the Y Company for e cusve use for devery purposes between
the hours of 8 n the mornng and 5 n the afternoon. ordnary
drves the truck but at certan tmes durng the year, due to other
busness nterests, furnshes a drver, , for the truck. does not
furnsh smar servce to any other concern. The Y Company n-
structs the drver as to where and n what order deveres are to be
made and actuay contros the actvtes of or hs substtute
drver.
It was hed n S. S. T. 197 page 392, ths uetn that where
the M Cyce Co., whch operates a genera devery servce for a
number of concerns, furnshes a motorcyce and operator to the N
Company and pays a e penses of the servce, ncudng the saary
of the operator, such operator s not an empoyee of the N Company
for the purposes of the ta es mposed under Ttes III and I of
the Soca Securty ct. That concuson was based upon the fact
that the M Cyce Co. n conductng a genera devery busness for
a number of concerns actuay possessed fu rght to drect and con-
tro the operator, and the reatonshp of empoyer and empoyee
between the N Company and the operator was not estabshed merey
by reason of the fact that the operator made deveres for that
company.
In the present case the Y Company has the rght to drect and
contro as to the detas and manner of performance of hs serv-
ces as drver of the truck, the e stence of whch rght defntey
estabshes the reatonshp of empoyer and empoyee between the
Y Company and . urthermore, the servces of whe drvng
the truck are performed n accordance wth nstructons gven by the
Y Company and he s n substantay the same poston as wth
respect to contro e ercsed by the Y Company. ccordngy, the
reatonshp of empoyer and empoyee aso e sts between the Y
Company and the substtute drver engaged to drve s truck. s
not an ndependent contractor wth respect to the servces he per-
forms for the Y Company nasmuch as hs trade or busness s not
that of furnshng vehces and drvers to varous concerns, as n the
case of the M Cyce Co. n S. S. T. 197, supra, and contro s e ercsed
by the Y Company as to the detas and manner of performance of
the servces.
ccordngy, t s hed that and , when performng servces as
drver of a truck for the Y Company under the stated crcumstances,
are empoyees of that company wthn the meanng of Ttes III
and I of the Soca Securty ct.
Secton 811: Defntons. I 2-89S9
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 202
( so Secton 907 Reguatons 90, rtce 205).
or the purpose of the ta ng provsons of the Soca Securty
ct, check wegmen engaged by the M Organzaton, a oca
mners unon, are empoyees of that organzaton even though
they are pad by the N Coa Co.
dvce s requested whether check weghmen engaged by the M
Organzaton, a oca mners unon, are empoyees thereof for the
purpose of Ttes III and I of the Soca Securty ct.
I
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395
Regs. 91, rt. 3.
The N Coa Co. operates under a contract wth the M Organza-
ton. The contract provdes, among other thngs, that empoyees
who are members of the M Organzaton sha have the prvege
of pacng check weghmen on the scaes of the N Coa Co. Cer-
tan amounts are deducted by the N Coa Co. each week from the
mners remuneraton and the check weghmen are pad by that com-
pany from the amounts so deducted by t.
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 wth certan e ceptons
not here matera. n ndvdua s an empoyee wthn the
meanng of Ttes III and I of the ct f he performs servces
n an empoyment as defned n sectons 811(b) and 907(c),
respectvey. owever, the reatonshp between the person for
whom such servces aro performed and the ndvdua who per-
forms such servces must, as to those servces, be the ega reaton-
shp 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 such servces
not ony as to the resut to be accompshed by the work but aso
as to the detas and means by whch such resut s accompshed.
(Reguatons 91, artce 3 Reguatons 90, artce 205.)
In the present case, the check weghmen n queston are engaged
by the M Organzaton and may aso be dscharged by t. The N
Coa Co. has no rght to drect or contro such check weghmen n
the performance of ther servces, they beng accountabe ony to
the M Organzaton. ccordngy, t s hed that the check wegh-
men engaged by the M Organzaton, n performng servces under
the crcumstances outned, are empoyees thereof wthn the mean-
ng of Ttes III and I of the Soca Securty ct even though
they are pad by the N Coa Co.
The M Organzaton may make whatever arrangements wth the
N Coa Co. for the coecton of the empoyees ta mposed by
secton 801 as t deems e pedent, but, as the empoyer of the check
weghmen, the M Organzaton s abe for the return and pay-
ment of the ta es mposed under Ttes III and I of the Soca
Securty ct.
Secton 811: Defntons. I-44 9016
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 208
( so Secton 907 Reguatons 90, rtce 205.)
Status of accountants and audtors under Ttes III and I of
the Soca Securty ct.
dvce s requested whether, for the purpose of the ta es mposed
under Ttes III and I of the Soca Securty ct, accountants
and audtors are consdered to be empoyees.
Sectons 811(b) and 907(c) of the Soca Securty ct provde
that the term empoyment means any servce, of whatever na-
ture, performed wthn the Unted States by an empoyee for hs
empoyer wth certan e ceptons not here matera. n ndvdua
s an empoyee wthn the meanng of Ttes III and I of the
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Regs. 91, rt. 3.
ct f he performs servces n an empoyment as defned n sec-
tons 811(b) and 907(c), respectvey. owever, the reatonshp
between the person for whom such servces are performed and the
ndvdua who perforns the 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 per-
formed 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 how
t sha be done. In ths connecton, t s not necessary that the em-
poyer actuay drect or contro the manner n whch the servces
are performed t s suffcent f he has the rght to do so. In gen-
era, 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 nde-
pendent contractor. n ndvdua performng servces as an nde-
pendent contractor s not as to such servces an empoyee. (Regua-
tons 91, artce 3 Reguatons 90, artce 205.)
Usuay an audtor or accountant who acts ndependenty of the
persons contractng for hs servces n connecton wth the audtng
of books and accounts does not contnuousy have charge of such
books or accounts. Such an ndvdua offers hs servces to the
pubc n genera and not to any partcuar person or group of per-
sons. Under these crcumstances the person who engages hm does
so ony for the perod requred to audt the books. Such person
has no rght to e ercse contro or drecton over the performance
of the audtor s or accountant s servces nasmuch as the audtor or
accountant s engaged to accompsh a certan resut. ccordngy,
for the purpose of Ttes III and I of the ct, an audtor or
accountant who s n busness for hmsef offerng hs servces to the
pubc generay under such crcumstances s consdered to be an n-
dependent contractor and not an empoyee of the person who con-
tracts for hs servces.
On the other hand, an accountant who s engaged n actuay keep-
ng the books of a concern does not obtan such wde ndependence
of acton. e s usuay requred to spend a certan amount of tme
reguary n performng hs servces. e s engaged not for a cer-
tan perod whch s termnated by the competon of the work but
for a contnuous perod even though hs work s ntermttent. Ths
s evdent from the fact that the books and accounts must be con-
tnuousy mantaned. It s aso cear that the person who engages
such an ndvdua ordnary has the rght to drect and contro
hm n the performance of hs servces. ccordngy, where an n-
dvdua s empoyed to keep the books or accounts of a concern on
a contnuous bass under the foregong crcumstances, he s consd-
ered to be an empoyee for the purpose of the ta es mposed under
the Soca Securty ct.
The foregong genera rues w suffce n most nstances to deter-
mne whether the reatonshp of empoyer and empoyee e sts. ow-
ever, a determnaton of whether such reatonshp e sts must, n
doubtfu cases, be based upon the partcuar facts n each case.
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397
Regs. 91, rt. 3.
Secton 811: Defntons. I-45-9030
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 212
( so Secton 907 Reguatons 90, rtce 205.)
Outsde readers engaged by the M Moton Pcture Co. to pre-
pare synopses of terary matera, the company possessng no rght
of contro over the readers work whch s not performed on the
premses of the company, are not empoyees of the M Moton Pc-
ture Co. wthn the meanng of Ttes III and I of the Soca
Securty ct
dvce s requested whether outsde readers engaged n per-
formng servces for the M Moton Pcture Co. are empoyees of that
company for the purpose of the ta ng provsons of the Soca
Securty ct.
The outsde readers ca at the offces of the company and any
avaabe terary matera s turned over to them for the purpose of
submttng a synopss before a certan date. The ndvduas are not
under contract. They are pad upon the submsson of the competed
synopses at a f ed rate for each separate tem. The company e er-
cses no contro as to the pace of work or the hours durng whch the
reader performs servces. It has no rght to requre that a certan
amount of tme be spent n readng the matera or n preparaton of
the synopses. If a synopss whch s submtted s not satsfactory to
the company, t may ether refuse to pay for the synopss or pay for
t and nform the reader that no further matera w be assgned to
hm. The personne of outsde readers s constanty changng.
The readers are usuay engaged n other feds of terary pursut
and usuay do smar work for other persons or companes.
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 matera.
rtce 3 of Reguatons 91, reatng to Tte III of the ct,
provdes n part as foows:
Who are empoyees. very ndvdua s an empoyee wthn the
meanng of Tte III of the ct If he performs servces n an empoyment as
denned n secton 811(b) .
owever, the reatonshp between the person for whom such servces arc
performed and the ndvdua who performs such servces must as to those
servces be the ega reatonshp of empoyer and empoyee. In gen-
era, 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 meaDS and
methods for accompshng the resut, he s an ndependent contractor. n
ndvdua performng servces as an Independent contractor s not as to such
servce an empoyee.
(See aso artce 205 of Reguatons 90.)
In determnng whether an ndvdua s an empoyee or an nde-
pendent contractor, the foowng, among other thngs, shoud be
consdered: (1) The e tent of contro whch the empoyer may e -
ercse over the detas of the work ether under the contract or n
fact (2) the sk requred n the partcuar occupaton (3) whether
the empoyer or workman suppes the nstrumentates, toos, and
the pace of work (4) whether the one empoyed s engaged n a
dstnct occupaton or busness (5) the ength of tme for whch the
person s empoyed and (6) the method of payment, whether by the
tme or by the |ob.
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Regs. 91, rt. 3.
398
In the present case the agreement between the M Moton Pcture
Co. and the readers n queston contempates the devery of a sats-
factory synopss. The detas of the work are eft entrey to the
reader. The work requres an appcaton of ndependent sk and
|udgment. The reader suppes the pace of work, s engaged for
a partcuar |ob, and s pad separatey for each |ob.
In S. S. T. 137 (C. . 1937-1, 378) t was hed that ndvduas
who work n ther homes and are pad on a pece-work bass for
attachng buttons to cards for a button manufacturng company
are empoyees of the company. In the present stuaton the outsde
readers are not sub|ect to the degree of contro over the detas
of the work as n the case consdered n S. S. T. 137, the method of
performng the work beng eft entrey to the dscreton of the
readers. The greater amount of ndependent |udgment whch s
requred n the preparaton of synopses aso dstngushes the cases.
urthermore, the character of the servces performed for the button
manufacturer s a contnuous empoyment and may be dfferentated
from the present case, whch merey nvoves rreguar or ntermt-
tent contracts for readng and makng synopses.
In vew of the foregong, t s hed that the outsde readers who
are engaged n performng servces for the M Moton Pcture Co.
are not empoyees of that company wthn the meanng of Ttes
III and I of the Soca Securty ct.
Secton 811: Defntons. I-46-9040
Reguatons 91, rtce 3: Who are empovees. S. S. T. 217
( so Secton 907 Reguatons 90, rtce 205.)
Wresters performng servces for the M Wrestng nterprse
nro not empoyees of that enterprse for the purpose of Ttes
III and I of the Soca Securty ct.
dvce s requested whether wresters engaged by the M Wrestng
nterprse are empoyees of that enterprse wthn the meanng of
the ta ng provsons of the Soca Securty ct.
The wresters n queston are engaged on a contract bass for
each match n whch they wreste. contracts are n wrtng on
forms requred by the State athetc commsson and the rues and
reguatons adopted by that agency are made a part of each con-
tract. Under the contract the wrester agrees to enter nto a wrestng
match to a decson not to e ceed a certan ma mum weght eght
hours before the contest to depost a certan amount wth the enter-
prse guaranteeng hs appearance and performance of the contract
to report for weghng and medca e amnaton n accordance wth
the rues and reguatons of the State athetc commsson and to
compy wth a other rues and reguatons ssued by the athetc
commsson. The M Wrestng nterprse agrees to pay the wresters
a certan sum or a certan per cent of the gross recepts, ess State
and edera ta , compensaton for rng offcas, and other e penses,
and to provde a sutabe pace and proper factes for stagug the
contest. If, n the performance of the contract, the wrester fous hs
opponent durng the contest n whch he s engaged, whether nten-
tonay or unntentonay, he w not be entted to receve the com-
pensaton contracted for or any part thereof, t beng agreed, however,
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399
Regs. 91, rt. 3.
that the M Wrestng nterprse w remburse the wrester for such
reasonabe e penses ncurred by hm n preparng to carry out the
terms of the contract.
Pursuant to artce 3 of Reguatons 91, appcabe to Tte III of
the ct, and artce 205 of Reguatons 90, appcabe to Tte I , an
ndvdua s an empoyee wthn the meanng of those ttes f ho
performs servces n an empoyment as defned n sectons 811(b)
and 907(c), respectvey. owever, the reatonshp between the per-
son for whom servces are performed and the ndvdua who performs
such servces must, as to those servces, be the ega reatonshp of
empoyer and empoyee. In genera, f an ndvdua s sub|ect to
the contro and 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. n nd-
vdua performng servces as an ndependent contractor s not, as to
such servces, an empoyee.
In S. S. T. 212 (page 397, ths uetn) t was stated that n
determnng whether an ndvdua s an empoyee or an ndependent
contractor the foowng, among other thngs, shoud be consdered:
(1) The e tent of contro whch the empoyer may e ercse over the
detas of the work ether under the contract or n fact (2) the sk
requred n the partcuar occupaton (3) whether the empoyer
suppes nstrumentates, toos, and pace of work (4) whether
the one empoyed s engaged n a dstnct occupaton or busness
(5) the ength of tme for whch the person s empoyed and (6) the
method of payment, whether by tme or by the |ob.
rom the facts presented, t s apparent that the M Wrestng n-
terprse has no rght to e ercse drecton or contro over the detas
of the work performed by the wrester other than to see that hs does
not break the rues of the State athetc commsson whch are em-
boded n the contract or the other terms specfcay set forth theren.
though the enterprse suppes the pace of work, under the cr-
cumstances of ths case, that fact s not of partcuar mportance.
The wrester s engaged n a dstnct occupaton or busness of hs
own, s engaged ony for a short perod of tme, and s pad by the
|ob.
It s hed that the wresters engaged n performng servces under
the crcumstances of ths case are not empoyees of the M Wrestng
nterprse wthn the meanng of Ttes III and I of the Soca
Securty ct.
Secton 811: Defntons. I-51-9104
Reguatons 91, rtce 3: Who are empovees. S. S. T. 23G
( so Secton 907 Reguatons 90, rtce 205.)
arbers under contract wth the M arber Shop requrng them
to conform wth certan shop rues and who receve for ther servces
a percentage of the money taken n by them are empoyees of the
M arber .Shop for the purpose of Ttes III and I of the Soca
Securty ct.
dvce s requested whether barbers engaged n performng serv-
ces for the M arber Shop under a so-caed ease agreement are
empoyees thereof wthn the meanng of Ttes III and I of the
Soca Securty ct.
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Regs. 91, rt. 3.
400
Under the ease agreement the barber agrees to ease a space n
the M arber Shop for the purpose of operatng ndvduay and
caterng to hs own customers. e receves for hs servces per cent
of a money taken n by hm. The agreement provdes that the ease
may be termnated wthout notce upon faure to conform wth the
provsons thereof or any of the shop rues. Those rues requre the
barber to be at hs char at 8 a. m. each week day, to be at a tmes
neat and cean, to be courteous to a patrons of the shop, and to wear
whte unforms. No barber s aowed to work whe under the n-
fuence of nto cants, to converse wth other barbers whe workng
uness on a matter pertanng to the shop, or to smoke whe on duty.
barbers are aowed one hour for unch and are requred to work
unt 6 p. m. each week day.
rtce 3 of Reguatons 91, appcabe to Tte III of the ct,
provdes n part as foows:
very ndvdua s an empoyee wthn the meanng of Tte III
of the ct f he performs servces n an empoyment as defned In secton
811(b) .
owever, the reatonshp between the person for whom such servces are per-
formed and the ndvdua 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
aud 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 bo
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 empoyer, but not necessary present n every case, are the
furnshng of toos aud the furnshng of a pace to work, to the ndvdua who
performs the servces.
rtce 205 of Reguatons 90, appcabe to Tte I , contans
smar provsons.
It s cear under the foregong crcumstances that the M arber
Shop has the unrestrcted rght to drect the barbers n the perform-
ance of ther 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. It s accordngy hed that barbers engaged n
performng servces for the M arber Shop are empoyees of that
shop for the purpose of Ttes III and I of the Soca Securty ct.
Secton 811: Defntons. I-51-9105
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 237
( so Secton 907 Reguatons 90, rtce 205.)
concessonare who eases a concesson from the M Carnva,
pays a the e penses of operaton, and s not sub|ect to the drec-
ton and contro of the carnva s not an empoyee thereof for the
purpose of Ttes III and I of the Soca Securty ct e s,
however, the empoyer of any ndvduas engaged by hm In the
operaton of the concesson.
dvce s requested whether a concessonare, the essee of a con-
cesson of the M Carnva, s an empoyee thereof for the purpose of
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401
Regs. 91, rt. 3.
the ta es mposed under Ttes III and I of the Soca Securty
ct.
The concessonare engages hs own hep, pays the saares of such
hep together wth a other e penses, furnshes a necessary equp-
ment, and s not under the drecton or contro of the M Carnva.
The number of performances gven and the number of hours whch
the concesson w reman open are entrey wthn the dscreton of
the concessonare. The carnva does not ssue any nstructons,
rues, or reguatons wth respect to the operaton of the concesson
and s nterested ony n the easng of space to, and the coecton of
rent from, the concessonare.
Under the facts presented, t s hed that for the purpose of Ttes
III and I of the Soca Securty ct the concessonare s not an
empoyee of the M Carnva. (See artce 3, Reguatons 91 artce
205, Reguatons 90.) owever, those ndvduas engaged by the
concessonare n the operaton of the concesson are hs empoyees
and he must mantan the necessary records, fe the proper returns,
and pay the ta es mposed under Tte III of the ct. If the con-
cessonare s an empoyer as defned n secton 907(a), Tte I ,
of the ct, he s aso abe for the ta mposed under that tte.
Secton 811: Defntons. I-51-910G
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 238
( so Secton 907 Reguatons 90, rtce 205.)
gof professona engaged n seng gof cubs and essons on
the grounds of the M Gof Cub, retanng a remuneraton re-
ceved from such saes, makng hs own appontments for essons,
and f ng hs own prces, the M Gof Cub possessng no rght to
drect or contro hs servces, s not an empoyee of that cub for
the purpose of Ttes III and I of the Soca Securty ct.
dvce s requested whether a gof professona performng serv-
ces under crcumstances herenafter set forth s an empoyee of the
M Gof Cub wthn the meanng of Ttes III and I of the
Soca Securty ct.
The gof professona n queston s gven the prvege of seng
essons and gof cubs on the grounds. e s furnshed wth certan
factes, such as space n the caddy house and ocker room and use
of the cub s teephone. s actvtes are confned strcty to gof
nstructon and the sae of cubs, the M Gof Cub retanng no rght
to drect or contro hm n the manner or method of performance of
hs servces. e retans a remuneraton receved, makes hs own
appontments for essons, f es hs own prces, and buys and ses
gof cubs n the same manner as woud a reta store. No orders or
nstructons of any nature are gven to hm by any member or offca
of the cub.
Inasmuch as the gof professona n queston s engaged n an
ndependent trade offerng hs servces to the pubc n genera and
the M Gof Cub has no rght to drect or contro hs servces, t s
hed that he s not an empoyee of that cub wthn the meanng of
Ttes III and I of the Soca Securty ct. (See artce 3, Regu-
atons 91 artce 205, Reguatons 90.)
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Regs. 91, rt. 3.
402
Secton 811: Defntons. I-52-9114
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 239
( so Secton 907 Reguatons 90, rtce 205.)
and I , members of the N Partnershp, who are engaged n per-
formng servces for the O Corporaton under a contract of empoy-
ment entered nto between the partnershp and the O Corporaton,
are empoyees of the corporaton wthn the meanng of Ttes III
and I of the Soca Securty ct
dvce s requested whether and , members of the N Partner-
shp, are empoyees of the O Corporaton wthn the meanng of
Ttes III and I of the Soca Securty ct.
The O Corporaton empoys the N Partnershp under a contract
of empoyment by whch t reserves the rght to drect and contro
the members of the partnershp n the performance of ther servces.
The work of the partners s supervsed, controed, and drected by
the corporaton to the same e tent as that of other persons empoyed
by t. The remuneraton pad for servces performed by the partners
accrues to the partnershp.
n ndvdua s an empoyee wthn the meanng of Ttes III
and I of the ct f he performs servces n an empoyment as
defned n sectons 811(b) and 907(c), respectvey. owever, the
reatonshp between the person for whom such servces are performed
and the ndvdua who performs such servces must as to those serv-
ces be the ega reatonshp of empoyer and empoyee. Generay,
such reatonshp e sts when the person for whom servces are per-
formed 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. ( rtce 3, Reguatons 91 artce 205, Reguatons
90.)
though the contract of empoyment here nvoved s between the
O Corporaton and the N Partnershp, the genera rue s that a part-
nershp s a quas person for certan purposes ony, such as the keep-
ng of ts accounts and marshang of ts assets. (See 20 R. C. L.,
page 805 In Re Peck. 20G N. Y., 55, 99 N. ., 258 bbot v. nder on,
265 111., 285, 10G N. ., 782.) Moreover, t was hed n S. S. T. 23
(C. . -2, 405 (1936)) that bona fde members of a partnershp
are not empoyees of that partnershp wthn the meanng of Tte
I of the ct. That rung s aso appcabe under Tte III.
It s accordngy hed that where a member of a partnershp s
engaged n performng servces under a contract of empoyment en-
tered nto between the partnershp and the empoyer, the atter
havng the rght to drect and contro hm n the performance of hs
servces, the partner s wth respect to such servces an empoyee of
the person for whom the servces are performed. In the nstant case,
and , the ndvdua partners of the N Partnershp, are ceary
empoyees of the O Corporaton, snce they are sub|ect to the same
degree of contro and drecton n the performance of ther servces
as are the other ndvduas who are admttedy empoyees of the
corporaton.
Pursuant to secton 802(a) of the Soca Securty ct, the em-
poyer, the O Corporaton, s requred to deduct the empoyees ta
mposed by secton 801 from the empoyees wages as and when
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403
Regs. 91, rt. 3.
pad and to pay the ta , together wth the ta mposed by secton
804, to the coector of nterna revenue. If the O Corporaton s an
empoyer wthn the meanng of Tte I of the ct, t s aso abe
for the ta mposed by secton 901 thereof wth respect to the
wages n queston.
Secton 811: Defntons. I-52-9115
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 240
( so Secton 907 Reguatons 90, rtce 205.)
physcan engaged by the M Coa Co. to render medca servces
to ts empoyees s not an empoyee of that company wthn the
meanng of Ttes III and I of the Soca Securty ct.
dvce s requested whether a physcan who s engaged n render-
ng medca servces to empoyees ot the M Coa Co. under condtons
herenafter set forth s an empoyee of that company wthn the
meanng of Ttes III and I of the Soca Securty ct.
The physcan n queston serves under a verba contract wth the
M Coa Co. whereby he agrees to render medca servces to the em-
poyees of that company n cases where the company s n any way
responsbe for the empoyees heath. In some nstances the empoyees
are treated where an accdent occurs whe n others they are treated
n a hospta or n the physcan s offce. The phvscan must be
avaabe at a tmes. The M Coa Co. furnshes af medcnes and
dressngs and pays any necessary e pense of hosptazaton. The
physcan empoys two assstants who serve the empoyees of the
M Coa Co. at the physcan s drecton. The physcan conducts hs
own prvate practce, n whch he s asssted by the two afore-mentoned
ndvduas, out he must gve preference to the empoyees of the com-
pany. There s no agreement wth the company as to the ength of
tme whch the physcan s to serve and no agreement as to the dscon-
tnuance of hs servces. e s not requred to care for a of the em-
poyees of the company however, he serves many of them ndepend-
enty of hs contract wth the company. The company has nothng
whatever to do wth the genera practce of the physcan and he
s pad by empoyees of the company for treatment they receve where
such treatment does not fa wthn the scope of the contract. The
physcan s pad a reguar monthy saary by the company for hs
servces under the contract.
Under artce 3, Reguatons 91, and artce 205, Reguatons 90,
reatng to Ttes III and I , respectvey, physcans, awyers,
dentsts, veternarans, contractors, subcontractors, pubc stenog-
raphers, auctoneers, and others who foow an ndependent trade,
busness, or professon, n whch they offer ther servces to the pubc,
are generay ndependent contractors and not empoyees. owever,
ths s not to say that such persons are n a stuatons to be cassfed
as ndependent contractors as dstngushed from empoyees for the
purpose of the ta ng provsons of the Soca Securty ct. The
tests for determnng whether one s an empoyee are set forth n
artces 3 and 205, supra, and f such ndvdua s sub|ect to the
necessary contro, then he s an empoyee regardess of the fact that
he s a physcan, awyer, dentst, or other professona man.
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Regs. 91, rt. 3.
404
In S. S. T. 86 (C. . 1937-1, 462) t was 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 s not an
empoyee of that corporaton for the purpose of Tte I of the Soca
Securty ct. That concuson s aso appcabe under Tte III
of the ct.
In the present case, the physcan s pad a reguar monthy saary,
whch s n effect a fee to retan hs servces to treat empoyees of
the company n accordance wth the verba contract. It s the
opnon of the ureau that the M Coa Co. does not have the rght to
e ercse suffcent contro over the manner and means n whch the
physcan performs hs dutes to estabsh the reatonshp of em-
poyer and empoyee. The fact that the company furnshes a med-
cnes and dressngs and pays the e penses of oca hosptazaton
when necessary s not determnatve n ths case. It s, accordngy,
hed that the physcan engaged n performng servces under the
stated crcumstances s not an empoyee of the M Coa Co. wthn
the meanng of Ttes III and I of the Soca Securty ct.
Secton 811: Defntons. T-52-9116
Reguatons 91, rtce 3: Who are empoyees. S. S. T. 241
( so Secton 907 Reguatons 90, rtce 205.)
Drvers of ta cabs who purchase ther ears from the N Ta
ssocaton under condtona saes agreements and who pay a
ta es, censes, fees, and e penses of operaton of the ta cabs are
not empoyees of the N Ta ssocaton wthn the meanng of
Ttes III and I of the Soca Securty ct.
dvce s requested whether drvers of ta cabs who purchase ther
cars from the N Ta ssocaton under condtona saes agreements
wth that assocaton are empoyees thereof wthn the meanng of
Ttes III and I of the Soca Securty ct.
The drvers n queston pay day fees to the N Ta ssocaton
for teephone servce. The assocaton enters nto condtona saes
agreements wth the ta cab operators (caed owner-drvers) n
whch t s provded that the assocaton sha se and the owner-
drver sha buy a certan ta cab and pay for ta cab teephone cas.
The owner-drver agrees to pay a ta es, censes, fees, and charges
for operaton of the ta cab and to use the ta cab soey for pas-
senger hre. e accepts the ta cab sub|ect to the saes contract,
makes a down payment, e ecutes a note for the unpad baance, and
agrees to make specfed day payments unt the ta cab s pad for
n fu and to make day payments for teephone servce. The
agreement stpuates that the owner-drver has no nterest n the
assocaton other than the prvege of purchasng teephone servce.
The assocaton has no contro over the movements of the ta cab or
the operator. The owner-drver may ether accept or refuse any
teephone cas for ta cab servce. No fee s pad to the assocaton
other than that for teephone servce and the assocaton has no rght
to dscharge any owner-drver.
rtce 3 of Reguatons 91, appcabe to Tte III of the Soca
Securty ct, and artce 205 of Reguatons 90, appcabe to Tte
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405
Regs. 91, rt. 4.
I , provde n effect that generay the empoyer-empoyee reaton-
shp 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.
The rght to dscharge s aso an mportant factor ndcatng that
the person possessng that rght s an empoyer. Other factors, not
necessary present n every case, are the furnshng of toos and a
pace to work to the ndvdua who performs the servces. In
S. S. T. 157 (C. . 1937-1, 384) t was hed that drvers of ta cabs
owned by the M Company and operated n accordance wth the terms
of a contract entered nto wth each drver are empoyees of that
company wthn the meanng of Ttes III and I of the Soca
Securty ct. owever, n that case the company owned the ta -
cabs, pad a the e penses of operaton e cept gasone, and the
drvers were requred to obey n every partcuar the rues of the
company and a further nstructons that mght be gven them. The
company further reserved the rght to dscharge the drver f t
appeared that he was not a proper person to operate ts ta cabs.
In that rung the case of ouston v. eats (85 Ore., 125, 166 Pac,
531) was cted wheren the court stated that where the owner of an
automobe entrusted t to another under an arrangement desgned
for the mutua beneft of the partes there s a prma face presump-
ton that the arrangement estabshes a master-servant reatonshp.
In the nstant case the drvers have purchased the ta cabs and
the assocaton has no rght to contro ther actvtes. ccordngy,
t s hed that drvers engaged n operatng ta cabs purchased from
the N Ta ssocaton under the stated crcumstances are not em-
poyees of that assocaton wthn the meanng of Ttes III and I
of the Soca Securty ct.
Secton 811: Defntons. I-41-8975
Reguatons 91, rtce 4: Who are empoyers. S. S. T. 199
( so Secton 907 Reguatons 90, rtce 204.)
Changes n status of empoyers and effect of such changes In
the determnaton of ta abty under Ttes III and I of the
Soca Securty ct.
dvce s requested wth respect to a number of cases nvovng
changes n status of empoyers and the effect thereof for the purposes
of Ttes III and I of the Soca Securty ct. The questons
and answers are as foows:
ueston 1. s empoyed by , an ndvdua empoyer. des
and the admnstrator of hs estate contnues to empoy n carry-
ng on the busness for the estate. re and hs estate consdered
to be the same empoyer and s empoyment subsequent to s death
merey a contnuaton of the former empoyment
nswer. though s deceased, so ong as s n the empoy
of the admnstrator workng for the estate of , t s hed that there
has been no change of empoyer for the purposes of Ttes III and
I of the Soca Securty ct. In such a case the empoyng unt
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Regs. 91, rt. 4.
406
contnues unnterrupted by the appontment of an admnstrator to
operate the busness for the estate of the deceased.
ueston 2. C s empoyed by D and , partners. D des and .
the survvng partner, contnues tn busness and qudates the de-
ceased partner s nterest. e retans the servces of C. Does a new
empoyment begn at the tme of D s death
nswer. new empoyment begns upon the death of one of the
partners, the survvng partner, , becomng the empoyer.
must make the necessary returns, coect and pay the empoyees ta
and pay the empoyers ta mposed under Tte III of the Soca
Securty ct. If s an empoyer as defned n Tte I of the
ct, he s aso abe for payment of the ta mposed under that
tte.
ueston 3. s empoyed by and C, partners. retres and
D, a new partner, s admtted to the frm. Does a new empoyment
of begn at the tme retres from the frm
nswer. Where one partner retres a new empoyment begns, as
n the case of queston 2. If, concurrenty, retres and D s ad-
mtted to the frm, the partnershp of C and D becomes the new em-
poyer. If an nterva of tme eapses between the retrement of
and the admsson of D nto the frm, C becomes the new empoyer
durng such nterva, after whch the partnershp of C and D becomes
the empoyer.
ueston 4- The N Corporaton fes a petton for reorganzaton
under secton 77( ) of the Natona ankruptcy ct and trustees
are apponted to operate the busness. Later n the same year the
corporaton resumes contro and operaton of the busness. Does
a new empoyment begn upon resumpton of contro by the N
Corporaton
nswer. It was hed n S. S. T. 151 (C. . 1937-1, 464) that
where a corporaton s undergong reorganzaton pursuant to sec-
ton 77( ) of the Natona ankruptcy ct and s beng operated
by trustees the empoyng unt or corporaton contnues for the pur-
poses of the ta ng provsons of the Soca Securty ct unnter-
rupted by the fng of the petton for reorganzaton or the appont-
ment of trustees. Ths s aso true where the corporaton resumes
contro and operaton of the busness.
ueston 5. The Corporaton fes a petton n bankruptcy.
Recevers and trustees are apponted to qudate the corporaton.
Is the estate of the Corporaton a new empoyer
nswer. The fng of a petton n bankruptcy does not operate
to create a new empoyment.
ueston 6. The Y Corporaton merges or consodates wth the
Z Corporaton. Is the YZ Corporaton consdered to be a new em-
poyer of a ndvduas who were prevousy empoyed by the Y
Corporaton and the Z Corporaton
nswer. The answer to ths queston s dependent upon whether
the Y Corporaton or the Z Corporaton contnues n e stence after
the merger or consodaton. If the Y Corporaton retans ts
corporate e stence and merey absorbs the Z Corporaton, ts name
beng changed to the YZ Corporaton, the YZ Corporaton s not
consdered to be a new empoyer of those ndvduas who were
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407
Regs. 91, rt. 6.
empoyed by the Y Corporaton. owever, under these crcum-
stances, the YZ Corporaton s consdered to be a new empoyer of
the ndvduas who were formery empoyed by the Z Corporaton.
On the other hand, f the corporate e stence of both the Y Cor-
poraton and the Z Corporaton s termnated and they consodate
nto one new corporate body, the YZ Corporaton, such corpora-
ton s consdered to be a new empoyer of the ndvduas who were
formery empoyed by both the Y Corporaton and the Z Cor-
poraton.
Under the crcumstances outned n questons 2, 3, and 6, where
a new empoyment begns, fna returns must be fed by the former
empoyer pursuant to the provsons of artce 404 of Reguatons 91.
If such person was an empoyer wthn the meanng of secton 907(a)
of the ct and artce 204 of Reguatons 90, a fna return on orm
940 must be fed and approprate notce of change n status gven
pursuant to artces 305 and 308 of Reguatons 90.
Snce the 3,000 mtaton provded n secton 811(a), Tte III
of the ct, appes ony f the remuneraton receved by an empoyee
from the same empoyer for empoyment durng any one caendar
year e ceeds 3,000, the new empoyer n computng the frst 3,000
of wages pad to an empoyee shoud e cude wages pad to such
empoyee by the former empoyer.
Where a new empoyment begns under crcumstances as stated
n questons 2 and 3, and under crcumstances e stng n the atter
part of the answer to queston 6, an empoyer s appcaton for dent-
fcaton number on orm SS 4 must be fed by the new empoyer
pursuant to the provsons of artce 4() of Treasury Decson 4704
(C. . -2, 381 (193G)).
Secton 811: Defntons.
Reguatons 91, rtce 6: grcutura abor.
Servces performed by cooks on ranches. (See S. S. T. 174, page
418.)
Secton 811: Defntons. I-40-895G
Reguatons 91, rtce 6: grcutura abor. S. S. T. 194
( so Secton 907 Reguatons 90, rtce 20G(1).)
Servces performed by empoyees on farms of whch ther em-
poyer s owner or tenant n connecton wth pantng, cutvaton,
and growng of tung trees and harvestng of tung nuts consttute
agrcutura abor wthn the meanng of Ttes III and I
of the Soca Securty ct.
dvce s requested whether servces performed n pantng, cut-
vaton, and growng of tung trees and harvestng of tung nuts con-
sttute agrcutura abor wthn the meanng of secton 811 (b),
Tte III, and secton 907(c) 1, Tte I , of the Soca Securty
ct, whch e cept agrcutura abor from the ta ng provsons
of that ct.
rtce 6 of Reguatons 91. reatng to the empoyees ta and the
empoyers ta under Tte III of the Soca Securty ct, provdes
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Regs. 91, rt. 6.
408
that the term agrcutura abor ncudes a servces performed
by 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. s used theren 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. rtce 208(1) of Reguatons 90 contans
substantay the same provsons.
It s hed that servces performed by an empoyee on a farm of
whch the empoyer s the owner or tenant, n connecton wth pant-
ng, cutvaton, and growng of tung trees and harvestng of tung
nuts consttute agrcutura abor wthn the meanng of that
term as used n Ttes III and I of the Soca Securty ct and
artces 6 and 206(1) of Reguatons 91 and 90, respectvey.
Secton 811: Defntons. I-40-8957
Reguatons 91, rtce 6: grcutura abor. S. S. T. 195
( so Secton 907 Reguatons 90, rtce 206(1).)
Servces performed n the producton of mape srup and mape
sugar do not consttute agrcutura abor wthn the meanng
of Ttes III and I of the Soca Securty ct.
dvce s requested whether servces performed n the producton
of mape srup and mape sugar consttute agrcutura abor
wthn the meanng of secton 811 (b), Tte III, and secton
907(c), Tte I , of the Soca Securty ct whch e cept agr-
cutura abor from the ta ng provsons of that ct.
In the State of R many farms have mape orchards whch n most
cases are not the prncpa source of the farmers ncome. It s con-
tended that nasmuch as the mape trees on each farm are a part of
that farm and furnsh a porton of ts ncome, the ndvduas em-
poyed n the producton of mape srup and mape sugar on such
farms are engaged n agrcutura abor, and ther servces are
e cepted from the ta ng provsons of the ct.
The fact that an ndvdua s engaged n handng farm products
does not of tsef make the servces performed by hm agrcu-
tura. Servces are often performed by empoyees n connecton
wth the packng, processng, and other preparaton of farm prod-
ucts for sae to consumers whch are not a part of ordnary farmng
operatons but a part of commerca or manufacturng operatons.
(S. S. T. 10, C. . -2, 411 (1936).) It appears that the pro-
ducton of mape srup and mape sugar does not nvove a cutva-
ton of the trees n the ordnary accepted sense, and that the
processng of the sap nto mape srup and mape sugar s a manufac-
turng and commerca actvty rather than an ncdent to ordnary
farmng operatons. It s hed, therefore, that servces performed
n the producton of mape srup and mape sugar do not consttute
agrcutura abor wthn the meanng of Ttes III and I of
the Soca Securty ct. (See generay S. S. T. 125, C. . 1937-1,
397.)
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409
Regs. 91, rt. 6.
Secton 811: Defntons. I-12-8990
Reguatons 91, rtce 6: grcutura abor. S. S. T. 203
( so Secton 907 Reguatons 90, rtce 206(1).)
Servces performed by an empoyee on a farm of whch the em-
poyer s owner or tenant n the growng of nursery stock consttute
agrcutura abor for the purpose of Ttes III and I of
the Soca Securty ct S. S. T. 73 (C. . 1937-1, 471) revoked.
Servces performed by an empoyee on a farm of whch the em-
poyer s owner or tenant n the growng of fowers consttute
agrcutura abor for the purpose of Ttes III and I of
the Soca Securty ct. S. S. T. 72 (C. . 1937-1, 468) revoked.
The queston s presented whether servces performed by em-
poyees of nurserymen and commerca fower growers consttute
agrcutura abor wthn the meanng of sectons 811 (b), Tte
III, and 907 (c), Tte I , of the Soca Securty ct. Sectons
811 (b) and 907 (c) of that ct provde as foows:
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.
In S. S. T. 72 (C. . 1937-1, 468) t was hed that servces per-
formed by empoyees of commerca fower growers do not consttute
agrcutura abor wthn the meanng of secton 907(c) 1 of the
Soca Securty ct. It was further hed n S. S. T. 73 (C. . 1937-1,
471) that servces performed by empoyees of nurserymen do not
consttute agrcutura abor wthn the meanng of that secton.
These concusons under Tte I of the ct were aso made app-
cabe under Tte III n vew of the provsons of secton 811 (b).
In those rungs the term agrcutura abor was gven a narrow
constructon based upon the authortes and reasonng contaned
theren. ddtona nformaton has now been submtted and recon-
sderaton of the pror rungs has been asked n the ght of such
nformaton and a number of court decsons pertnent to the ssue.
Consderng frst the queston as to empoyees of nurserymen, n
Davs v. Industra Commsson of Utah (206 Pac, 267) the court
dscussed the meanng of the words agrcutura abor as used
n secton 3110 of the Utah Industra ct. The court stated:
Doubtess the egsature used the words agrcutura aborers n ther
pan, usua, and commony accepted sense and as defned by e cographers.
There s no reason for beevng that t was ntended that the words shoud be
gven the most narrow defnton of whch they are susceptbe.
The court n that case cted wth approva a defnton of agr-
cuture found n 2 C. ., page 988, readng as foows:
The term agrcuture has been defned to be the art or scence of cut-
vatng the ground, especay n feds or arge quanttes, ncudng the prepa-
raton of the so, the pantng of seeds, the rasng and harvestng of crops,
and the rearng, feedng, and management of ve stock, tage, husbandry,
and farmng. In ts genera sense the word aso ncudes gardenng or
hortcuture.
That defnton has aso been quoted wth approva n oger v.
. T. Woods, Inc. (31 Pac. (2d), 255), Dorre v. Norda Land
Tmber Co. et a, (27 Pac. (2d), 960), and many other cases.
In ucher v. mercan rut Growers Co. (163 t., 33) the
court hed that a frut grower s empoyee was engaged n agr-
77961 3S 14
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egs. 91, rt. 6.
410
cuture wthn the meanng of the State compensaton act. The
court quoted wth approva the foowng e cerpt from the opnon
of the court beow:
It Is contended by the camant that frut growng Is hortcuture, an occu-
paton dstnct from agrcuture and not ncuded theren. ut the dctonary
defnton of hortcuture s the department of the scence of agrcuture
whch reates to the cutvaton of gardens or orchards, ncudng the care of
vegetabes, frut, fowers, and ornamenta shrubs and trees. In common
parance t s unquestoned that agrcuture woud be consdered as ncudng
frut growng. If t s correct that hortcuture s one department of agr-
cuture, then agrcuture must ncude hortcuture. (See, aso, 2 Corpus
urs, OSS.) The occupatons of growng frut and of rasng other crops are
so aed to each other and the character and condton of abor requred so
dentca n each case that we can see every reason why a aborer n frut
growng shoud be treated and cassfed n the same way under ths act of
assemby as a aborer on a farm whch grew crops other than frut
In v. Georga Casuaty Co. (45 S. W. (2d), 566) the court
hed that a nursery aborer was an agrcutura aborer and was
e cuded from the operaton of the State compensaton aw. The
court stated n part as foows:
That one engaged n the nursery busness s engaged n an agrcutura pur-
sut s not to be doubted. In Webster s Dctonary a Nursery s defned
to be a pace where trees, shrubs, vnes, etc., are propagated for transpantng
or as use for stocks for graftng a pantaton of young trees or other pants.
nurseryman Is defned by the. same authorty to be one who conducts
or cutvates a nursery for young trees, shrubs, etc. The specfc branch of
agrcuture to whch the nursery Industry beongs s denomnated hortcu-
ture, whch term s defned by Webster as foows: The cutvaton of a
garden or orchard the scence or art of growng fruts, vegetabes, and fower
or ornamenta pants. ortcuture s a branch of pant producton, whch
s one of the man dvsons of agrcuture.
It s a matter of common knowedge that the genera character of
work done n nursery operatons s not materay dfferent from work done
n other agrcutura operatons .
The Supreme Court of Tennessee n Gnn v. orest Nursery Co.
(52 S. W. (2d). 141) concuded that a nursery empoyee shoud be
cassfed as a farm or agrcutura aborer wthn the meanng
of secton 6 of the workman s compensaton aw. The court stated
n part as foows:
The empoyment of the pantff n error n the case before us requred htm
to t the so, to tend growng pants, shrubs, and young trees, to prepare
them for market, and to dever them to a shppng pont. The harvestng
and marketng of gran, the transpantng and care of tobacco pants, and
the devery of a bae of cotton from farm to shppng pont, are a ordnary
ncdents of farm abor. The work and abor performed by pantff n error
dffered from that of the ordnary fanner ony n the knd and nature of the
products of the so grown and prepared for market. No dfference n hours
of abor, hazard, or remuneraton Is ponted out whch mght nduce a egs-
ature to ncude the one and e cude the other from the operaton of the
statute. The abor performed by pantff n error and contempated by hs
empoyment was agrcutura n the tera sense and meanng of the word,
and we thnk we woud not be |ustfed n hodng that he was not a farm or
agrcutura aborer.
There s authorty for gvng the word agrcuture a restrcted
and narrow meanng. See, for e ampe, the artce on hortcuture
n 11 ncycopeda rtannca, page 774, n whch t s stated as
foows:
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411
Regs. 91, rt. 6.
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
agrcuture s denned specay as Incudng hortcuture, but where no such
defnton Is made hortcuture often has been deemed to be e cuded.
The queston s then whether the term agrcutura abor as
used n the ta ng provsons of the Soca Securty ct shoud be
gven a broader constructon than was gven thereto n S. S. T. 72
and S. S. T. 73, supra. The egsatve hstory of the term s not
partcuary enghtenng. owever, the report of the Senate Com-
mttee on nance (No. 628, page 45) ndcates that agrcutura
abor was e cepted from the ta es mposed by the Soca Securty
ct because of the dffcutes n coectng the ta . Such dffcutes
arse n part from the transent and mgratory nature of the abor.
It s stated that n genera nurserymen (as we as fower growers)
use. the same type of abor as that used by the ordnary farmer who
s engaged n growng food products, and that no speca sk s
needed by such abor, whch s |ust as transent and mgratory as the
ordnary farm abor. It further appears that such abor s not ony
of the same type but that t aso performs the same dutes n cutvat-
ng nursery stock (and fowers as t woud perform n cutvatng
food products on an ordnary farm.
Upon reconsderaton of the ssue n the ght of the further nfor-
maton submtted, t s hed that the term agrcutura abor
shoud be gven a broader constructon than that contaned n S. S. T.
72 and S. S. T. 73, supra, and that servces performed by an empoyee
on a farm of whch the empoyer s the owner or tenant n the grow-
ng of nursery stock consttute agrcutura abor wthn the mean-
ng of sectons 811 (b) and 907(c) of the Soca Securty ct. In
vew of ths concuson, S. S. T. 73, supra, s revoked.
In conformty wth the above concuson wth respect to empoyees
of nurserymen, t s hed that servces performed by an empoyee
on a farm of whch the empoyer s owner or tenant m the growng
of fowers consttute agrcutura abor wthn the meanng of that
term as used n the ta ng provsons of the Soca Securty ct.
ccordngy, S. S. T. 72, supra, s revoked.
It shoud be noted, however, that not every ndvdua empoyed
by a nurseryman or commerca fower grower s entted to be cassed
as an agrcutura aborer. (See artce 206(1) of Reguatons 90 and
artce 6 of Reguatons 91.) Pursuant to the reguatons, the e emp-
ton depends upon the type of work the empoyee performs. In gen-
era, servces performed by empoyees n pantng, cutvatng, har-
vestng, and preparng for market the products of the so and n
dong ncdenta tasks connected therewth consttute agrcutura
abor, whe servces performed by empoyees such as offce workers
or ndvduas empoyed n a reta or whoesae estabshment, who
are concerned merey wth the sae or dsposa of the nursery stock
or fowers and who do not perform servces n connecton wth the
growng thereof, do not consttute agrcutura abor wthn the
meanng of that term as used n the ta ng provsons of the Soca
Securty ct.
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Regs. 01, rt. 6.
412
Secton 811: Defntons. I-46-9041
Reguatons 91, rtce 6: grcutura abor. S. S. T. 218
( so Secton 907 Reguatons 90, rtce 206(1).)
Servces performed by an empoyee In the growng of vegetabes
In greenhouses ocated on a farm of whch the empoyer Is owner
or tenant 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 an empoyee n
the growng of vegetabes n greenhouses ocated on a farm of whch
the empoyer s owner or tenant consttute agrcutura abor
wthn the meanng of sectons 811 (b), Tte III, and 907 (c).
Tte I , of the Soca Securty ct, whch e cept agrcutura
abor from empoyment.
In S. S. T 203 (page 409, ths uetn) t was hed that servces
performed by an empoyee on a farm of whch the empoyer s
owner or tenant n the growng of nursery stock and fowers con-
sttute agrcutura abor wthn the meanng of Ttes III and
I of the Soca Securty ct and the appcabe provsons of Regu-
atons 91 and 90, respectvey, ssued pursuant thereto. It was
further hed that the term agrcutura abor shoud be construed
so as to ncude hortcuture.
It s hed that servces performed by an empoyee n the growng
of vegetabes on a farm of whch the empoyer s owner or tenant
consttute agrcutura abor wthn the meanng of Ttes III
and I of the Soca Securty ct, rrespectve of whether such
vegetabes are grown n open feds or n greenhouses.
Secton 811: Defntons. I-46-9042
Reguatons 91, rtce 6: grcutura abor. S. S. T.219
( so Secton 907 Reguatons 90, rtce 206(1).)
Servces performed by empoyees of the M Company on farms
owned by that company n connecton wth the growng, harvest-
ng, dryng, transportng, fermentng, gradng, and bang of cgar
eaf wrapper tobacco grown on such farms 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 of
the M Company n connecton wth the preparaton of cgar eaf
wrapper tobacco for market consttute agrcutura abor wthn
the meanng of sectons 811 (b) and 907(c) of the Soca Securty
ct, whch e cept agrcutura abor from empoyment,
rtce 6 of Reguatons 91, appcabe to Tte III of the ct,
provdes n part as foows:
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 management of
ve stock, bees, and poutry or
(6) y an empoyee n connecton wth the processng of artces from ma-
teras 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 owne or tenant of the farm on whch the materas n ther raw or
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413
Regs. 91, rt. 6.
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.
rtce 206(1) of Reguatons 90, appcabe to Tte I of the ct,
contans substantay the same provsons.
The M Company owns farms n severa States on whch t grows
cgar eaf wrapper tobacco and prepares such tobacco for market.
The tobacco s gathered, hung n she/ds. and dred. It s then re-
moved to warehouses ocated on such farms, or n the mmedate
neghborhood thereof, and paced on the foor, where the process of
fermentaton begns. ermentaton s a further curng and dehy-
dratng process n whch no machnery s empoyed. The tobacco
s then sorted and graded accordng to coor, te ture, and soundness
of each eaf. urther fermentaton takes pace after whch the
tobacco s baed. na fermentaton (coverng a perod of severa
months) takes pace n warm, most rooms. It s ony after the above
processes have been competed that the tobacco s n marketabe
condton for the partcuar use grown. Substantay the same
empoyees work n the warehouses of the M Company as are engaged
n cutvatng and harvestng the tobacco. None of the tobacco so
processed by the M Company s purchased from other growers. The
product s sod e cusvey at whoesae and the capta nvested n
handng the product n the warehouses comprses ony about 20 per
cent of the nvestment n the enterprse as a whoe. The record
shows that appro matey two-thrds of the cgar eaf wrapper
tobacco produced by ndvdua farmers s processed by them n the
manner ndcated.
Servces performed n the growng, harvestng, dryng, and trans-
f orth above ceary consttute agrcutura abor wthn the mean-
ng of sectons 811 (b) and 907 (c) of the ct and artces 6 and
206(1), supra, nasmuch as they are ordnary farmng actvtes.
The queston remans whether servces performed for the M Com-
pany n connecton wth fermentng, gradng, and bang of tobacco
consttute agrcutura abor. Under artces 6 and 206(1), supra,
such servces, n order to be e cepted, must be carred on as an n-
cdent to ordnary farmng operatons as dstngushed from manu-
facturng or commerca operatons. In ths regard, the foowng
tests were outned n S. S. T. 125 (C. . 1937-1, 397) as factors
to be consdered: (1) The same empoyees who perform servces
n connecton wth admttedy agrcutura actvtes (that s, those
actvtes contempated n subdvson (a) of artce 6 of Regu-
atons 91 and the correspondng subdvson of artce 206(1) of
Reguatons 90) aso perform servces n connecton wth the handng
of the farm products (that s, those actvtes referred to n subdv-
son (6) of the aforementoned artces) (2) the equpment used
and the methods empoyed n handng the farm products are ds-
smar to the equpment and methods used n ke operatons by per-
sons 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) t s the genera custom and practce n the partcuar type of
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Regs. 91, rt. 6.
414
farmng wth respect to whch the queston arses to perform the
handng operatons n queston (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. ppy-
ng these tests n the nstant case, as prevousy ndcated substan-
tay the same empoyees perform work n the warehouses of the
company as are engaged n cutvatng and harvestng tobacco, none
of the tobacco s purchased from other growers, the tobacco s sod
e cusvey at whoesae, and the capta nvested n handng the
products n the warehouses comprses ony a sma part of the nvest-
ment n the enterprse as a whoe. The fact that a cgar eaf wrap-
per tobacco must be put through the processes of fermentaton, grad-
ng, and bang before t s ready for market and the fact that a arge
percentage of the cgar eaf wrapper tobacco s so processed by nd-
vdua farmers themseves tend to show that servces performed n
connecton therewth are ncdenta to ordnary farmng operatons
and are not manufacturng or commerca operatons.
In vew of the foregong, t s hed that servces performed bv em-
poyees of the M Company n ts warehouses n connecton wth the
fermentng, gradng, and bang of cgar eaf wrapper tobacco
grown on farms owned by that company consttute agrcutura
abor wthn the meanng of sectons 811(b), Tte III, and
907 (c), Tte I , of the Soca Securty ct.
Pror rungs whch may at frst appear to be n confct wth ths
concuson are dstngushabe. It was hed n S. S. T. 103
(C. . 1937-1,471) that servces performed n the processng of sugar
cane are not agrcutura abor. That rung s dstngushabe
on the ground that such processng s regarded as a commerca opera-
ton and not ncdenta to ordnary farmng operatons wthn the
meanng of the reguatons. The same may be sad of rce mng
and cotton gnnng (S. S. T. 142, C. . 1937-1, 403) and the crushng
of grapes and the producton of wne (S. S. T. 139, C. . 1937-1,402).
Secton 811: Defntons. I-47-9052
Reguatons 91, rtce 6: grcutura abor. S. S. T. 220
( so Secton 907 Reguatons 90, rtce 206(1).)
Servces performed n connecton wth the packng of ceberg
ettuce by an empoyee of the owner or tenant of the farm on whch
the ettuce s produced consttute agrcutura abor wthn the
meanng of sectons 811(b) and 907(c) of the Soca Securty
ct.
dvce s requested whether servces performed n the packng of
ceberg ettuce under crcumstances herenafter set forth const-
tute agrcutura abor whch s e cepted from empoyment
under sectons 811(b) and 907(c), Ttes III and I , respectvey,
of the Soca Securty ct.
arm owners n severa States pant and cutvate ettuce of the
ceberg varety. In preparng the ettuce for shpment to the
markets, t s carefuy packed n crates wth sma peces of ce.
Crushed ce s bown over the tops of the crates after they have been
oaded nto refrgerator cars. It s necessary for such ettuce farmers
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415
Regs. 91, rt. 6.
to use ths method of packng due to the hghy pershabe nature
of the product. Cuttng at partcuar tmes of the day s aso neces-
sary and the ettuce must be packed mmedatey n order to nsure
satsfactory marketng. Ordnary the packng operatons are not
conducted on the farm but are carred on at some ocaton where
adequate oadng factes are avaabe. Usuay the same empoyees
cut and pack the ettuce.
Sectons 811 (b) and 907 (c) of the Soca Securty ct provde
n part as foows:
The terra empoyment means any servce e cept
(1) grcutura abor
The term agrcutura abor ncudes servces performed by an
empoyee n connecton wth the packng of materas whch were pro-
duced on a farm, provded such packng s performed by an em-
poyee of the owner or tenant of the farm on whch the materas
n ther raw or natura state were produced and provded such
packng s carred on as an ncdent to ordnary farmng operatons
as dstngushed from manufacturng or commerca operatons.
(Reguatons 91, artce 6 Reguatons 90, artce 206(1).)
In S. S. T. 125 (C. . 1937-1, 397) t was stated that n determn-
ng whether servces performed n the handng of farm products
consttute agrcutura abor no genera rue can be adopted whch
s controng under a crcumstances, but that certan factors enu-
merated theren w be taken nto consderaton n determnng
whether the servces consttute agrcutura abor. It was further
stated that no one of the condtons specfed n that rung s con-
cusve but that each s a factor n determnng whether, n a par-
tcuar case, the processng, packng, packagng, transportaton,
or marketng of farm products s carred on as an ncdent to ord-
nary farmng operatons or whether such actvty s a part of a
manufacturng or commerca operaton.
It s cear that the packng operatons here nvoved are essenta
to the marketng of the product due to the pershabe nature thereof,
that t s the genera custom and practce n the partcuar type of
farmng to perform the packng operatons n the manner outned,
and that such operatons are carred on as an ncdent to ordnary
farmng.
Under the facts presented, t s hed that servces performed by
the empoyees n connecton wth the packng of ceberg ettuce
consttute agrcutura abor wthn the meanng of sectons
811(b) and 907(c) of the Soca Securty ct.
Secton 811: Defntons. I-48-9065
Reguatons 91, rtce G: grcutura abor. S. S. T. 224
( so Secton 907 Reguatons 90, rtce 206(1).)
Servces performed n connecton wth a commerca dog kenne
operated for the breedng and rasng of dogs 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 n connecton wth
a commerca dog kenne operated for the breedng and rasng of
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Regs. 91, rt. 6.
416
dogs consttute agrcutura abor wthn the meanng of sectons
811 (b) and 907(c) 1 of the Soca Securty ct whch e cept agr-
cutura abor from empoyment.
Under the provsons of artce 6 of Reguatons 91, appcabe to
Tte III of the ct, and artce 206(1) of Reguatons 90, appcabe
to Tte I , the term agrcutura abor ncudes a servces per-
formed by an empoyee on a farm of whch the empoyer s owner
or tenant n connecton wth the rasng, feedng, or management of
ve stock. The e presson rasng, feedng, or management of re
stock, as used n the reguatons, reates ony to actvtes whch are
usuay or customary assocated wth ordnary farmng operatons.
It s hed that servces performed n connecton wth a commerca
dog kenne operated for the breedng and rasng of dogs do not
consttute agrcutura abor wthn the meanng of sectons
811(b) and 907(c) of the Soca Securty ct,
Secton 811: Defntons. I-50-9089
Reguatons 91, rtce 6: grcutura abor. S. S. T. 230
( so Secton 907 Reguatons 90, rtce 206(1).)
Servces performed by empoyees of de M Company In the
ceanng, packng, and shppng of varous seeds whch were pro-
duced on a farm owned by that company consttute agrcutura
abor wthn the meanng of sectons S(b) and 807( :)1 of the
Soca Securty ct.
dvce s requested whether the ceanng, packng, and shppng
of varous seeds for the M Company consttute agrcutura abor
wthn the meanng of sectons 8(b) and 907(c) 1 of the Soca
Securty ct.
The M Company s engaged n growng tobacco and grass pr-
mary for seed. Indvduas are empoyed n the cutvaton of the
so and the growng and harvestng of the tobacco and grass. The
same empoyees engage n the ceanng, packng, and shppng of the
seed, the work beng done on the farm. Ony ordnary farm ma-
chnery s utzed n ceanng the seed. The seeds are sod e cu-
svey at whoesae.
Sectons 811 (b) and 907 (c) of the Soca Securty ct provde
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
(1) grcutura abor.
rtce 6 of Reguatons 91 provdes that the term agrcutura
abor ncudes a servces performed
(h) 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 em-
poyee 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.
rtce 206(1) of Reguatons 90 contans substantay the sanw
provsons.
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417
Regs. 91, rt. 6.
It s cear that the servces performed by the empoyees of the M
Company n the cutvaton of the so and n the rasng and har-
vestng of ts crops are e cepted from empoyment under sectons
811(b) and 907(c) of the ct. In S. S. T. 219 (page 412, ths
uetn) t was hed that servces performed under certan descrbed
crcumstances n the growng, harvestng, dryng, transportng, fer-
mentng, gradng, and bang of cgar eaf wrapper tobacco con-
sttute agrcutura abor. In S. S. T. 220 (page 414, ths uetn)
servces performed n the packng of ceberg ettuce by an em-
poyee of the owner or tenant of the farm on whch the ettuce was
produced were hed to consttute agrcutura abor when per-
formed under the condtons set forth theren.
It s hed that the servces performed n the ceanng, packng, and
shppng of seeds under the crcumstances stated heren are suff-
centy smar to the servces consdered n S. S. T. 219 and S. S. T.
220, supra, to warrant ther e cepton from empoyment. c-
cordngy, servces performed by empoyees of the M Company n the
ceanng, packng, and shppng of seeds whch were produced on a
farm owned by that company consttute agrcutura abor wthn
the meanng of sectons 811(b) and 907 (c) of the Soca Securty
ct.
Secton 811: Defntons. T-50-90P0
Reguatons 91, ktce 6: grcutura abor. S. S. T. 231
( so Secton 907 Reguatons 90, rtce 206(1).)
Servces performed by nn empoyee on a farm of whch the
empoyer s owner or tenant n the growng of mushrooms const-
tute agrcutura abor wthn the meanng of sectons 811(b)
and 907(c) of the Soca Securty ct. S. S. T. 132 (C. . 1937-1,
101) revoked.
The queston s presented whether servces performed n the grow-
ng of mushrooms consttute agrcutura abor wthn the meanng
of sectons 811 (b) and 907(c) of the Soca Securty ct whch
e cept agrcutura abor from empoyment.
In S. S. T. 132 (C. . 1937-1, 401) t was hed that servces per-
formed by ndvduas n growng and processng mushrooms do not
consttute agrcutura abor wthn the meanng of sectons
811 (b) and 907(c) of the ct. In arrvng at that concuson, t
was stated that the pertnent reasons and arguments set forth n
S. S. T. 72 C. . 1937-1, 468 appy wth equa force to servces
performed n growng and processng mushrooms. S. S. T. 72 was
subsequenty reconsdered and n S. S. T. 203 (page 409, ths u-
etn) t was hed that servces performed by an empoyee on a
farm of whch the empoyer s owner or tenant n the growng of
nursery stock and fowers consttute agrcutura abor wthn the
meanng of Ttes III and I of the ct, and S. S. T. 72 was
accordngy revoked.
Mushrooms are generay grown n sheds, cears, caves, or barns
and not under genera fed condtons. In S. S. T. 218 (page 412,
ths uetn) t was hed that servces performed by an empoyee
n the growng of vegetabes n greenhouses ocated on a farm
of whch the empoyer s owner or tenant consttute agrcutura
abor. No vad dstncton can bo made between the growng of
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Regs. 91, rt. 7.
418
products n greenhouses ocated on a farm and the growng of prod-
ucts n cears, caves, barns, or specay constructed sheds so ocated.
Mushrooms are by defnton somewhat cosey reated to those vege-
tabes whch are produced for food, and t s the opnon of the
ureau that snce the abor performed by empoyees n the growng
of vegetabes s cassfed as agrcutura abor, servces performed
n the growng of mushrooms shoud n genera be so cassfed, pro-
vded such abor s performed on a farm n the ordnary accepted
sense of that word. S. S. T. 132, supra, s accordngy revoked.
It shoud be noted, however, that not every person empoyed on a
farm by a mushroom grower s entted to be cassed as an agrcutura
aborer. Pursuant to artce 6 of Reguatons 91, appcabe to Tte
III of the ct, and artce 206(1) of Reguatons 90, appcabe to
Tte I , the e empton depends upon the type of work the empoyee
performs. In genera, servces performed by empoyees n pantng,
cutvatng, and harvestng the products of the so and n dong nc-
denta tasks connected therewth consttute agrcutura abor, whe
servces performed n connecton wth the processng, packng, pack-
agng, transportaton, and marketng of such products consttute ag-
rcutura abor ony f they are performed under the crcumstances
set forth n subdvson (b) of the above-mentoned artces. (Sec
generay S. S. T. 125, C. . 1937-1, 397.)
Secton 811: Defntons. I-30-S837
Reguatons 91, rtce 7: Domestc servce. S. S. T. 174
( so Reguatons 91. rtce 6 Secton 907,
Reguatons 90, rtces 206(1) and 206(2).)
Status uuder Ttes III and I of the Soca Securty ct of
servces performed by ranch cooks.
dvce s requested whether servces performed by ranch cooks
are e cepted from empoyment as domestc servce n a prvate
home wthn the meanng of sectons 811 (b)2, Tte III, and
907(c) 2, Tte I , of the Soca Securty ct.
Secton 811(b), Tte III, of the 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, ecept

(2) Domestc servce n a prvate home
The provsons of sectons 811 (b)2, Tte III, and 907(c)2, Tte
I , are dentca.
rtce 7 of Reguatons 91, promugated under Tte III, 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 s
empoyed are wthn the above e cepton.
prvate home s the f ed pace of abode of an ndvdua or famy.
If the home s utzed prmary for the purpose of suppyng board or
odgng to the pubc as a busness enterprse, t ceases to be a prvate home.
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.
The servces above enumerated are not wthn the e cepton f performed n
or about roomng or odgng houses, boardng houses, fraternty houses, cubs,
hotes, or commerca offces or estabshments.
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419
Regs. 91, rt. 7.
rtce 206(2) of Reguatons 90, promugated under Tte I ,
contans substantay the same provsons.
It s hed that servces of a househod nature, ncudng cookng,
performed on a ranch by an empoyee n or about the prvate pace
of abode of the person by whom he s empoyed consttute domestc
servce n a prvate home wthn the meanng of the appcabe
provsons of the aw and reguatons set forth above, and are, there-
fore, e cepted from the term empoyment as defned n Ttes
III and I of the ct. Servces performed by an empoyee for
hs empoyer n preparng meas furnshed by the empoyer to em-
poyees whose servces are e cepted as agrcutura abor are aso
consdered, to that e tent, to consttute agrcutura abor. Ths
concuson s not n confct wth S. S. T. 125 (C. . 1937-1, 397),
snce such servces are cosey reated to agrcuture. On the other
hand, servces performed by a cook n preparng meas for pay guests
on a so-caed dude ranch or for empoyees on a ranch who are
engaged n manufacturng or commerca operatons as dstngushed
from ordnary farmng actvtes do not consttute ether domestc
servce n a prvate home or agrcutura abor and are, there-
fore, performed n empoyment as defned n sectons 811(b) and
907(c) of the ct.
Where durng certan perods a cook on a ranch performs e cepted
servces (such as agrcutura abor or domestc servce n a
prvate home ) and durng other perods performs none cepted
servces whch consttute empoyment, and the perods of tme
devoted to the e cepted servce and to the none cepted servce are
both substanta, the e cepted servces must be segregated from the
none cepted servces on the bass of the tme devoted to each type of
servce. The remuneraton attrbutabe to the none cepted servce
n such a case must be ncuded n determnng ta abty under
Ttes III and I of the ct. Where t s not possbe to make
such a segregaton, the entre servces are consdered to be n the
none cepted cass and the entre remuneraton pad to a ranch cook
so empoyed must be ncuded for the purpose of the ta es mposed
under Ttes III and I . owever, where a ranch cook durng
certan perods performs e cepted servces and durng other perods
performs servces whch are not e cepted and one type of servce s
merey ncdenta to the other n measure of tme, the ncdenta
servces may be dsregarded n determnng whether the servces are
e cepted from the term empoyment, even though t may be poss-
be to segregate one type of servce from the other. No f ed rue
can be ad down for determnng what consttutes ncdenta serv-
ces for ths purpose, but any reasonabe concuson reached by the
empoyer n that regard w not be dsturbed.
Secton 811: Defntons. I-52-9117
Reguatons 91, rtce 7: Domestc servce. S. S. T. 242
( so Secton 907 Reguatons 90, rtce 20G(2).)
Whether servces performed by varous ndvduas In or about
the home of ther empoyer consttute domestc servce n a pr-
vate home under sectons 811(b)2 and 907(c)2 of the Soca
Securty ct.
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Regs. 91, rt. 7.
420
number of questons have been presented concernng the status
under the provsons of Ttes III and I of the Soca Securty
ct of servces performed by varous ndvduas n or about the
prvate home of ther empoyer. The questons presented and the
answers thereto are set forth beow.
ueston 1. handy man s empoyed on a fu-tme bass. e
ves n hs empoyer s prvate home, carng for the furnace, washng
the wndows, ayng the carpets, mendng the furnture, etc. re
such servces e cepted from empoyment under sectons 811 (b)2
and 907(c) 2 of the Soca Securty ct
nswer. Sectons 811(b) and 907(c) of the Soca Securty ct
provde 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

(2) Domestc servce n a prvate home.
The term domestc servce means servce of a househod nature
performed by an empoyee n or about the prvate home of the person
by whom he s empoyed. The term prvate home means 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 ren-
dered by cooks, mads, buters, vaets, aundresses, furnacemen, gar-
deners, footmen, grooms, and chauffeurs of automobes for famy
use. ( rtce 7, Reguatons 91 artce 206(2), Reguatons 90.)
The servces performed by the handy man n queston are
ceary of a househod nature and are performed n or about the
prvate pace of abode of hs empoyer. ccordngy, such servces
are e cepted from empoyment under sectons 811 (b)2 and
907(c) 2, supra.
ueston 2. n ndvdua who has an e tensve brary ocated n
hs prvate home empoys a braran on a fu-tme bass to seect
books for hs brary and to arrange and cars for the books n such -
brary. re the servces of the braran e cepted from empoyment
nswer. Under the provsons of artce 7 of Reguatons 91 and
artce 206(2) of Reguatons 90, servces of a househod nature n
or about a prvate home consttute domestc servce n a prvate
home. Thus, the nature of the servces and the pace where per-
formed are determnatve. In order to be of a househod nature
the servces must be of a knd whch are ordnary and customary
performed as an ntegra part of househod or home dutes. (See
Catto v. Pant, 106 Conn., 236, 137 t., 764.) Servces performed
n or about a prvate home whch are not ordnary a part of
home dutes and whch nvove the use of sked or specazed
tranng are not cassfed as domestc servce n a prvate home
wthn the meanng of the ct. ccordngy, t s hed that the
servces performed by the braran n queston are not e cepted from
empoyment under Ttes III and I of the ct.
ueston 3. n ndvdua empoys a museum assstant on a fu-
tme bass whose dutes ncude the cataogung of, and the acquston
of, artces of hstorca and artstc nterest. of the servces of
such assstant are performed n the empoyer s prvate home. re
such servces e cepted from empoyment I
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421
Regs. 91, rt. 8.
nswer. or reasons set forth n the answer to queston 2, the
servces of the museum assstant are not e cepted from empoyment
under sectons 811 (b)2 and 907(c)2 of the ct.
ueston 4- n ndvdua empoys two soca secretares n hs
prvate home on a fu-tme bass. They perform servces n arrang-
ng for appontments, answerng prvate correspondence, etc. re
such servces e cepted from empoyment
nswer. rtce 7 of Reguatons 91, appcabe to Tte III of
(he ct, specfcay provdes that servces performed as a prvate
secretary, even though performed n the empoyer s home, are not
wthn the e cepton. ccordngy, the servces performed by the
ndvduas n queston consttute empoyment under Tte III.
Ths concuson s aso appcabe under Tte I .
ueston 5. n ndvdua empoys a resdent carpenter and a res-
dent panter on a fu-tme bass to supervse the work of other work-
men hred for the purpose of budng, remodeng, reparng, and
mantanng hs prvate resdence and other structures subordnate to
and used n connecton therewth. re the servces of the carpenter
and panter e cepted from empoyment
nswer. Inasmuch as the servces of a carpenter and panter are
not ordnary a part of home dutes and nvove the use of sked
and specazed tranng (see answer to queston 2), such servces are
not e cepted from empoyment as domestc servce n a prvate
home.
ueston 6. n ndvdua empoys a bookbnder who works on the
books n the empoyer s home brary, such books beng owned by the
empoyer for hs prvate use and not for sae or proft. Do the servces
of such bookbnder consttute empoyment
nsoer. s n the case of the braran, servces of the bookbnder
are obvousy nether ordnary nor customary performed as an
ntegra part of househod or home dutes. ccordngy, such servces
consttute empoyment wthn the meanng of Ttes III and I
of the ct.
Secton 811: Defntons. I-32-8866
Reguatons 91, rtce 8: Casua abor not n S. S. T. 178
the course of empoyer s trade or busness.
Temporary servces performed for a funera drector by chauf-
feurs, pabearers, and sngers do not consttute casua abor not
n the course of the empoyer s trade or busness wthn the mean-
ng of secton 811(b)3, Tte III, of the Soca Securty ct.
mnster who offcates at a funera and receves a fee for such
servces s not an empoyee of the funera drector wthn the
meanng of Tte III of the Soca Securty ct.
dvce s requested whether servces performed for a funera drec-
tor by chauffeurs, pabearers, and sngers who are empoyed from
tme to tme as the need arses consttute casua abor not n the
course of the empoyer s trade or busness wthn the meanng of
secton 811(b) 3 of the Soca Securty ct aso whether a mnster
who offcates at a funera and receves a fee for such servces s an
empoyee of the funera drector wthn the meanng of Tte III
of the ct.
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Regs. 91, rt. 9.
422
Secton 811(b), Tte III, of the Soca Securty ct provdes n
part as foows:
The terra empoyment means any servce, of whatever nature,
performed wthn the Unted States by an empoyee for ha 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
advance the trade or busness of the empoyer. Thus, abor whch s
occasona, ncdenta, or rreguar, and does not promote or advance
the empover s trade or busness, s e cepted. ( rtce 8, Reguatons
91.)
very ndvdua s an empoyee wthn the meanng of Tte III
of the ct f he performs servces n an empoyment as that term
s defned n secton 811(b). The chauffeurs, pabearers, and sngers
n queston are empoyed from tme to tme as the busness of the
funera drector requres such addtona hep. Ther servces are,
therefore, occasona and rreguar. It s cear, however, that the
chauffeurs, pabearers, and sngers perform servces n the course
of the funera drector s busness. Consequentv, such servces do not
come wthn the e cepton accorded to casua abor not n the course
of the empoyer s trade or busness by secton 811 (b)3, Tte III,
of the ct.
The reatonshp of empoyer and empoyee does not ordnary
e st between a funera drector and a mnster who offcates at a
funera. Under the crcumstances n ths case, t s hed that a mn-
ster who partcpates n funera rtes and receves a fee for such
servces s not an empovee of the funera drector wthn the mean-
ng of Tte III of the Soca Securty ct.
Secton 811: Defntons. I-37-S919
Reguatons 91, rtce 9: mpoyees who have S. S. T. 190
attaned age 65.
Procedure to be foowed by an empoyer n order to estabsh
to the satsfacton of the Commssoner the age of an empoyee
whose servces are camed to be e cepted from empoyment
under secton 811 (b)4 of the Soca Securty ct.
dvce s requested as to the procedure to be foowed n estab-
shng to the satsfacton of the Commssoner the age of an em-
poyee whose servces are camed to be e cepted from empoyment
under secton 811 (b)4 of the Soca Securty ct, whch reads n part
as foows:
The term empoyment means any servce e cept

(4) Servce performed by an ndvdua who has attaned the age of Co
The empoyer has the burden of estabshng to the satsfacton
of the Commssoner the age of any empoyee whose servces are
camed to be e cepted by reason of hs havng attaned the age of
65. servces performed by an ndvdua on or after the day
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423
Regs. 91, rt. 9.
precedng the s ty-ffth annversary of hs brth are wthn ths
e cepton (artce 9, Reguatons 91). very empoyer s requred
to make an nformaton return on orm SS-3 wth respect to each
of hs empoyees who attans the age of 65 or des before attan-
ng that age. separate return s requred to be made for each
such empoyee. The return on orm SS-3 for an empoyee who
attans the age of 65 sha be fed on or before the ffteenth day after
the date of the s ty-ffth annversary of hs brth. The empoyer
sha attach to and fe wth each return on orm SS-3 for an em-
poyee attanng the age of 65 certan evdence that the empoyee has
attaned such age. owever, no return s requred for any empoyee
whose s ty-ffth annversary of brth occurred on or before anuary
2, 1937 (artce 403, Reguatons 91).
s provded n artce 9, supra, before an empoyer may be re-
eved of abty for the ta es mposed under Tte III of the
Soca Securty ct, he must estabsh to the satsfacton of the
Commssoner the age of the empoyee whose servces are camed
to be e cepted. Pursuant to the provsons of paragraph of the
nstructons on orm SS-3, a statement of the empoyee and a
statement of the empoyer reatve to the empoyee s eate and pace
of brth must be attached to and fed wth the return made for an
empoyee who has attaned age 65 after anuary 1, 1937. The
statements of the empoyer and empoyee, whch must be acknow-
edged before an offcer authorzed to admnster oaths, may be made
n separate affdavts, or f both subscrbe to the same date of brth,
may do combned n one affdavt sgned by the empoyee and the
empoyer. The empoyee s statement must set forth the date and
pace of hs brth to the best of hs nformaton and beef. The
empoyer s statement must set forth (a) whether or not, to the best
of hs nformaton and beef, the empoyee s statement s correct,
and (b) what f anythng the empoyer s records show as to the
date and pace of the empoyee s brth. If the empoyer has reason
to beeve the empoyee has ncorrecty stated the date or pace of
hs brth, the empoyer s statement must aso set forth (c) such
reasons and, f practcabe for hm to ascertan them, (d) the
correct date and pace of brth to the best of hs nformaton and
beef, and (e) hs reasons for beevng them correct. The em-
poyee sha furnsh hs empoyer wth a wrtten and dated notce
of the e act date and pace of hs brth n suffcent tme pror to
the attanment of age 65 that the requste affdavts may be pre-
pared and on hand to fe wth the return, and that the payment
of the ta es wth respect to hs remuneraton may be dscontnued
at the proper tme.
Ordnary, where the empoyer s statement under (a) above nd-
cates that he beeves the empoyee s statement to be correct and
where the date and pace of the empoyee s brth as shown under
( ) agree wth the empoyee s statement, no addtona evdence
w be requred. owever, where the empoyer does not beeve the
empoyee s statement to be correct, or where the date and pace of
the empoyee s brth as shown on the empoyment records dffer from
those shown on the empoyee s statement, supportng evdence w
be requred. Whe t s not possbe to state n advance what ev-
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Regs. 91, rt. 10.
424
dence w be satsfactory n connecton wth a such cases, the four
most acceptabe types of evdence n order of acceptabty are as
foows: (1) The orgna of the empoyee s brth certfcate or a
photostatc or certfed copy thereof, (2) an authentcated copy of
the empoyee s nfant baptsma certfcate or other smar church
record, (3) a certfed copy of famy or busness records showng
the empoyee s age or date of brth, or (4) affdavts of ndvduas
havng knowedge of the empoyee s age or date of brth.
If nether the above evdence nor any other evdence s avaabe,
the empoyee s statement requred by paragraph of the nstruc-
tons on orm SS-3 shoud set forth (a) that no other evdence s
avaabe, (6) the date and pace of hs brth to the best of hs n-
formaton and beef, and c) an e panaton of the dscrepancy
between hs statement of the date and pace of hs brth and the
statement of the empoyer.
The empoyer shoud make deductons representng the empoyees
ta and pay amounts representng the empoyers ta wth respect
to remuneraton for servces performed by such empoyee pror to the
date on whch the empoyee attans the age of 65 as shown to the
best of the empoyer s nformaton and beef n tem 1 of the return
on orm SS-3.
In the event the empoyer has reason to beeve, on the bass of the
best avaabe evdence as outned above, that the empoyee attaned
the age of 65 on or before anuary 1, 1937, the empoyer s not
requred to fe a return on orm SS-3 for such empoyee but shoud
be prepared to estabsh by proper records that no abty was n-
curred under Tte III of the ct wth respect to the remuneraton
for servces performed by such an empoyee.
Secton 811: Defntons.
Reguatons 91, rtce 9: mpoyees who have attaned age 65.
Computaton of wages when empoyee attans age 65. (See S. S. T.
225. page 454.)
Secton 811: Defntons. I-32-8867
Reguatons 91, rtce 10: Offcers and members S. S. T. 179
of crews.
( so Secton 907 Reguatons 90, rtce 206(3).)
Temporary empoyees engaged to suppement the reguar crews
of vesses of the M Company are members of the crews of such
vesses wthn the meanng of sectons 811 (b)5 and 907(c)3 of
the Soca Securty ct.
dvce s requested whether the servces of ndvduas empoyed
temporary to suppement the reguar crews of vesses of the 51
Companv come wthn the e ceptng provsons of sectons 811 (b)5,
Tte III, and 907(c) 3, Tte I , of the Soca Securty ct.
Secton 811(b)5, Tte III, e cepts from the term empoy-
ment
Servce performed ns an offcer or member of the erew of a vesse
documented under the aws of the Unted States or of any foregn country
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425
Regs. 91, rt. 10.
Secton 907(c)3, Tte I , e cepts
Servce performed as an offcer or member of the crow of a vesse
on the navgabe waters of the Unted States
rtce 10 of Reguatons 91 appcabe to Tte III of the ct,
provdes that the e presson offcers and members of the crew
ncudes the master or other offcer n charge of the vesse, however
desgnated, and every ndvdua, sub|ect to hs authorty, servng on
board and contrbutng n any way to the operaton and wefare
of the vesse. rtce 206(3) of Reguatons 90 contans an dentca
provson.
Indvduas are frequenty hred to suppement the reguar crews
of vesses of the M Company. Such ndvduas are hred ony for
the duraton of a partcuar trp or |ob, athough, ke the reguar
members of the crew, they must sgn the shp s artces and are
requred by the Unted States Department of Commerce to have
contnuous dscharge books and certfcates of servce.
It s hed that the temporary empoyees n queston are members
of the crews of such vesses wthn the meanng of the e ceptng pro-
vsons of sectons 811(b) 5 and 907(c) 3 of the Soca Securty ct.
Where the vesses are documented under the aws of the Unted
States or of any foregn country, the servces performed by such
empoyees are e cepted from empoyment under secton 811(b)5,
supra. Where the vesses are operated on the navgabe waters of
the Unted States, the servces performed by such empoyees come
wthn the e ceptng provsons of secton 907(c)3, supra.
Secton 811: Defntons. I-38-8934
Reguatons 91, rtce 10: Offcers and members S. S. T. 191
of crews.
vesse whch s numbered and recorded pursuant to an ct
of Congress tted n ct to requre numberng and recordng of
undocumented vesses, approved une 7, 1918 (40 Stat., 602), as
amended by secton 210 of the ct approved ugust 5, 1935 (49
Stat., 517), Is not documented wthn the meanng of secton
811 (b)5 of the Soca Securty ct.
dvce s requested whether a vesse whch s numbered and re-
corded by a coector of customs under the provsons of secton 1 of
the ct approved une 7,1918 (40 Stat., G02), as amended by secton
210 of the ct approved ugust 5, 1935 (49 Stat., 517), s a vesse
documented under the aws of the Unted States wthn the mean-
ng of secton 811(b)5 Tte III, 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
rtce 10 of Reguatons 91 provdes that the word vesse n-
cudes every descrpton of watercraft or other contrvance used as a
means of transportaton on water. It s further provded n that
artce that the e presson vesse documented under the aws of the
Unted States or of any foregn country means a vesse whch s
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Regs. 91, rt. 10.
426
regstered, enroed, or censed n conformty wth the aws of the
Unted States or any foregn country.
The ct of une 7, 1918 (40 Stat., 602), provdes n part that
every undocumented vesse, operated n whoe or n part by ma-
chnery, owned n the Unted States and found on the navgabe
waters thereof, e cept pubc vesses, and vesses not e ceedng 16
feet n ength measured from end to end over the deck e cudng
sheer, temporary equpped wth detachabe motors, sha be num-
bered. The numbers, on appcaton of the owner or master, sha
be awarded by the coector of customs of the dstrct n whch the
vesse s owned and a record thereof kept n the customhouse. Sec-
ton 1 of ths ct was amended by secton 210 of the ct approved
ugust 5, 1935, referred to heren, by the addton of the foowng
sentence:
When a number s awarded to a vesse under the provsons of ths ct, a
certfcate of such award sha be ssued by the coector, the sad certfcate
to be at a tmes kept on board of such vesse and to consttute a document
n eu of enroment or cense.
Wth respect to the numbers awarded to vesses under the pro-
vsons of secton 1 of the ct of une 7, 1918, before t was amended,
the foowng statement appears n Stephens et a. v. Unted States
(30 ed. (2d),286):
Under the aw provdng for numberng vesses, a record of the number s
kept n the customhouse of the dstrct n whch the owner or managng owner
resdes. (46 U. S. C. ., secton 288.) Wthn the meanng of the above set
out statute, the number aotted to a vesse s to be consdered a record or
document granted n eu of a certfcate of regstry, enroment, or cense.
vesse not regstered, enroed, or censed, but havng ony a number aotted
pursuant to the statute, s not authorzed to be empoyed n trade, foregn
or coastng.
(See aso ord v. ne. 42 ed. (2d), 558.)
Secton 1 of the ct of une 7,1918, referred to heren reates par-
tcuary to undocumented vesses and specfcay provdes that the
certfcate sha consttute a document n eu of enroment or
cense. The words n eu of are words of e cuson. (State,
etc., v. nke, 136 Ws., 66, 116 N. W., 639 State, etc., v. ank of
Commerce, 53 ed., 735.) The partcuar provson of the ct pro-
vdes a means of dentfcaton of vesses whch are not enroed or
censed, that s, vesses whch are not documented under the aws
of the Unted States. It has been hed that the term documented
under the aws of the Unted States means regstered, enroed, or
censed under the aws of the Unted States. (The Ieor, 24 ed.
(2d), 710.) In cases where a vesse s documented under the aws
of the Unted States, that s, regstered, enroed, or censed, there
woud be no need for a further dentfcaton of the vesse by havng
t awarded a number by the customs offcer havng |ursdcton over
ts home port. It s hed, therefore, that the awardng of a number
to a vesse and the ssuance of a certfcate therefor, n accordance
wth the provsons of the ct approved une 7, 1918, as amended
by secton 210 of the ct approved ugust 5, 1935, does not make
t a vesse documented under the aws of the Unted States wthn
the meanng of secton 811(b) 5 of the Soca Securty ct and
artce 10 of Reguatons 91.
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427
Regs. 91, rt. 10.
Secton 811: Defntons. I-42-8991
R Gtr.ToNs 91, btce 10: Offcers and members S. S. T. 204
of crews.
( so Secton 907 Reguatons 90, rtce 206(3).)
Where an offcer or member of the crew of a vesse documented
under the aws of the Unted States or of any foregn country
performs servce on shore whch s drecty connected wth, or
ncdenta to, reguar duty on shpboard, and whch contrbutes to
the operaton and wefare of the vesse, such servce s e cepted
from empoyment by secton 811 (b)5, Tte III, of the Soca
Securty ct.
dvce s requested whether servce performed by an offcer or
member of the crew of a vesse under the foowng crcumstances s
e cepted from empoyment under secton 811(b)5, Tte III, of
the Soca Securty ct:
(1) n offcer of a documented vesse s requred to attend a hear-
ng on shore n drect connecton wth the operaton and wefare of
the vesse.
(2) The purser of a documented vesse s requred to trave by
ra from one port to another n order to reeve a purser aboard
another documented vesse. The former purser receves hs reguar
saary whe en route.
(3) The crew of a documented fshng vesse returns to shore each
evenng after a day s catch. The fsh are brought ashore and sorted
by the crew, whch then proceeds to pack them n bo es and barres
for shpment. These operatons must be carred out mmedatey
after the catch n order to nsure proper preservaton of the fsh. It
s sometmes necessary for the crew to spend a short tme ashore
mendng the nets whch become torn n the course of the day s opera-
tons. The sortng, packng, and mendng are ncdenta n measure
of tme to the ma|or porton of the crew s servces, whch porton s
actuay performed on board the vesse.
Secton 811(b) 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

(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 .
The e presson offcers and members of the crew ncudes the
master or offcer n charge of the vesse, however desgnated, and
every ndvdua sub|ect to hs authorty servng on board and con-
trbutng n any way to the operaton and wefare of the vesse.
(Reguatons 91, artce 10.) The anguage of the reguatons n
defnng the phrase offcers and members of the crew s descrp-
tve of the personne of the crew whose servces are e cepted from
empoyment and s not ntended to restrct such e cepton entrey
to servces actuay performed on the vesse. Where, as n the cases
presented, servce s performed on shore by an offcer or member of
the crew of a vesse documented under the aws of the Unted States
or of any foregn country, and the servce s drecty connected wth,
or s ncdenta.to, reguar duty on shpboard and contrbutes to the
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Regs. 91, rt. 10.
428
operaton and wefare of the vesse, such servce s e cepted from
empoyment under secton 811(b)5 of the Soca Securty ct
It shoud be noted, however, that the servce performed n the
packng of fsh (as outned n case 3 above) s e cepted from em-
poyment ony f such packng s drecty connected wth, or s
ncdenta to, reguar duty on shpboard and performed as part of
the reguar vesse dutes for the mmedate preservaton of the
catch. The e cepton does not e tend to servce performed n con-
necton wth the commerca processng and packng of fsh n
canneres, etc., even though such servce s performed by an offcer
or member of the crew of a vesse.
The concuson reached heren aso appes to servce performed
by an offcer or member of the crew of a vesse on the navgabe
waters of the Unted States as provded n secton 907(c)3, Tte I ,
of the ct.
Secton 811: Defntons. I-44-9017
Reguatons 91, rtce 10: Offcers and members of S. S. T. 209
crews.
( so Secton 907 Reguatons 90, rtce 206(3).)
Dock buders, casson buders, concrete m ers, and carpenters
engaged by the M Constructon Co. and performng servces on board
vesses n connecton wth I he constructon of pers and docks are not
members of the crews of such vesses wthn the meanng of sectons
811(b)5 and 907(c)3 of the Soca Securty ct.
dvce s requested whether ndvduas engaged n performng
servces on board vesses under crcumstances herenafter set forth are
members of the crews of such vesses wthn the meanng of sectons
811 (b) 5 and 907 (c) 3 of the Soca Securty ct.
The M Constructon Co. engages dock buders, casson buders,
concrete m ers, carpenters, etc., n connecton wth the constructon
of docks and pers on the water front. The work of these ndvduas
s conducted many on board foatng pe drvers, barges, and dredges.
The empoyees performng servces on the foatng equpment are not
navgators or seamen. The vesses are towed from pace to pace hy
means of tugboats.
Secton 811(b) 5, Tte III, of the Soca Securty ct e cepts from
empoyment
Servce performed as an offcer or member of the crew of a vesse
documented under the aws of the Unted States or of any foregn country.
Secton 907(c) 3, Tte I , e cepts
Servce performed as an offcer or member of the crew of a vesse on
the navgabe waters of the Unted States.
The e presson offcers and members of the crew ncudes the
master or offcer n charge of the vesse, however desgnated, and every
ndvdua sub|ect to hs authorty servng on board and contrbutng
n any way to the operaton and wefare of the vesse. The e cepton
e tends, for e ampe, to servces rendered by the master, mates, pots,
purser s, surgeons, stewards, engneers, fremen, cooks, cerks, car-
penters, deck hands, porters, and chambermads, and by sea hunters
and fshermen on seang and fshng vesses. (Reguatons 91, artce
10 Reguatons 90, artce 206(3).)
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429
Regs. 91, rt. 10.
In order to be e cepted under the above-quoed provson of Tte
III of the ct, the servces must be performed by offcers or members
of the crew of a vesse documented under the aws of the Unted States
or of any foregn country. If the servces are performed by an offcer
or member of the crew of a vesse on the navgabe waters of the
Unted States, such servces are aso e cepted under the above-quoted
provsons of Tte I of the ct. In S. S. T. 78 C. . 1937-1, 408
t was hed that dredges used for navgaton and transportaton
n carryng on the work of deepenng and removng obstructons
from channes are vesses wthn the meanng of Ttes III and
I . Under the facts presented, t s hed that the pe drvers, barges,
and dredges used n performng the work n the present case are
vesses wthn the meanng of those ttes.
The queston remans n the nstant case whether the empoyees
engaged n performng servces on board such vesses n the construc-
ton of docks and pers are members of the crew wthn the meanng
of the ct. The ndvduas n queston can not reasonaby be sad to
be contrbutng to the operaton or wefare of the vesses. They are
concerned wth the constructon of pers and docks n the rver and are
on the barges and other equpment for that purpose aone. Whe the
term crew s not mted to those persons on board who are phys-
cay engaged n causng the vesse to move through the water, t s
ordnary mted to those contrbutng n some way to ts operaton
and wefare. (See S. S. T. 113 C. . 1937-1, 473 .)
ccordngy, t s hed that the dock buders, casson buders, con-
crete m ers, carpenters, etc., performng servces for the M Construc-
ton Co. on vesses n the constructon of concrete pers and docks are
not members of the crew of such vesses wthn the meanng of sec-
tons 811 (b)5 and 907(c)3 of the Soca Securty ct.
Secton 811: Defntons. I-44-9018
Reguatons 91, rtce 10: Offcers and members S. S. T. 210
of crews.
( so Secton 907 Reguatons 90, rtce 206(3).)
Cassfcaton of certan types of watereraft as vesses
wthn the meanng of sectons 811 (b)5 and 907(c)3 of the Soca
Securty ct.
dvce s requested whether the foowng types of watereraft
are vesses wthn the meanng of sectons 8(b)5 and 907(c)3
of the Soca Securty ct:
(1) oatng pe drvers. Used prmary n connecton wth the nstaa-
ton of traps for catchng fsh. These drvers are aso used n the drvng of
png for docks, budngs over water, etc., as we as n the transportaton of
nettng, anchors, and cabe for such nstaaton. uarters are generay pro-
vded for the housng and feedng of the crew.
(2) Moorng scows. foatng craft smar to a pe drver as to construc-
ton and use but more adaptabe for use n connecton wth the nstaaton
and dsmantng of foatng traps.
(3) Coumba Rver type fshng boats. Used generay n the far northern
waters where fshng wth g nets s carred on. These boats usuay have a
crew of two men, are propeed by sas, and are used to transport the fsh
and nets.
(4) arges. Used to hau sand, coa, grave, etc., between varous ponts n
and near a harbor. They are usuay nonsef-propeed but towed by a tug-
boat.
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Regs. 91, rt. 10.
430
(5) Showboats. These craft trave between varous ctes and towns aong
certan rvers gvng entertanments n each port.
(6) oatng gran eevators. Used n the eevaton and transportaton of
gran n or about a harbor.
Secton 811(b) 5, Tte III, of the Soca Securty ct e cepts
from empoyment
Servce performed as an offcer or member of the crew of a vesse
documented under the aws of the Unted States or of any foregn country.
Secton 907(c)3, Tte I , e cepts
Servce performed as an offcer or member of the crew of a vesse
on the navgabe waters of the Unted States.
rtce 10 of Reguatons 91, appcabe to Tte III, and artce
200(3) of Reguatons 90, appcabe to Tte I , provde that the
term vesse ncudes every descrpton of watercraft or other
contrvance, used as a means of transportaton on water. In S. S. T.
78 C. . 1937-1, 408 t was hed that dredges used for navga-
ton and transportaton n deepenng and removng obstructons
from channes and harbors are vesses wthn the meanng of
sectons 811(b) 5 and 907(c)3 of the Soca Securty ct.
It s hed that the aforementoned craft used for navgaton and
transportaton are vesses wthn the meanng of those sectons.
Where the vesses are documented under the aws of the Unted
States or of any foregn country, servces performed by the offcers
and members of the crews of such vesses come wthn the e ceptng
provsons of secton 811(b)5, supra. Where the vesses are on the
navgabe waters of the Unted States, servces performed by the
offcers and members of the crews come wthn the e ceptng prov-
sons of secton 907(c)3, supra.
Secton 811: Defntons.
Reguatons 91, rtce 10: Offcers and members
of crews.
( so Secton 907 Reguatons 90, rtce 206(3).)
Servces performed by ndvduas as watchmen on a documented
vesse permanenty wthdrawn from navgaton are not e cepted
from empoyment under secton 811(b)5 of the Soca Securty
ct.
Servces performed as watchmen by members of the crew of a
documented vesse whch s temporary wthdrawn from navgaton
are e cepted from empoyment under secton 811(b)5 of the
Soca Securty ct.
dvce s requested reatve to the foowng questons:
(1) Where a documented vesse s wthdrawn from navgaton and
permanenty ad up wth no prospect of navgaton beng resumed,
are servces performed by ndvduas as watchmen aboard such ves-
se e cepted from empoyment under secton 811(b) 5 of the Soca
Securty ct
(2) Where a documented vesse s temporary wthdrawn from
navgaton n order to effect repars or for other reasons, navgaton
to be resumed at a ater date, are servces performed as watchmen by
members of the crew of such vesse e cepted from empoyment
under secton 811 (b) 5 of the Soca Securty ct
I-47-9053
S. S. T.221
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431
Regs. 91, rt. 11.
Secton 811(b)5, Tte III, of the Soca Securty ct e cepts
from the term empoyment as defned thereunder
Servce performed as an offcer or member of the crew of a vesse
documented under the aws of the Unted States or of any foregn country.
The e presson offcers and members of the crew ncudes the
master or offcer n charge of the vesse, however desgnated, and
every ndvdua sub|ect to hs authorty, servng on board and con-
trbutng n any way to the operaton and wefare of the vesse.
(Reguatons 91, artce 10.)
Where a documented vesse s permanenty wthdrawn from nav-
gaton, ndvduas performng servces as watchmen thereon can not
reasonaby be sad to be contrbutng to the operaton and wefare
of the vesse wthn the meanng of artce 10, supra. It s hed that
such ndvduas are not offcers or members of the crew and ther
servces are not e cepted from empoyment under secton 811(b) 5,
Tte III, of the Soca Securty ct. owever, where a docu-
mented vesse s temporary wthdrawn from navgaton n order to
effect repars or because of changes n schedue or other reasons,
servces performed as watchmen by members of the crew of such
vesse are e cepted from empo| ment under secton 811(b)5, Tte
III, of the ct.
The concusons reached heren are equay appcabe under Tte
I of the ct. (See secton 907(c)3.)
Secton 811: Defntons. I-27-8801
Reguatons 91, rtce 11: Government S. S. T. 168
empoyees.
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
The M ssocaton, whch was organzed by, and conducts a
camp for, a county and carres on other work connected wth the
care and preventon of tubercuoss, such work beng fnanced by
county funds and money rased by the sae of seas, s an n-
strumentaty of the county, a potca subdvson of a State, and
the ta es mposed by Ttes III and I of the Soca Securty
ct are not appcabe wth respect to servces performed by ts
empoyees.
dvce s requested whether the ta es mposed by Ttes III and
I of the Soca Securty ct are appcabe wth respect to servces
performed by the empoyees of the M ssocaton.
The M ssocaton was organzed by a county n the State of R
to conduct a tubercuoss camp, or hospta, and carry on other
work connected wth the care and preventon of tubercuoss. The
camp, or hospta, whch t conducts for the county s ocated on
and deeded by the cty of and s mantaned by county funds.
Certan phases of the work of the assocaton, such as cncs and
the genera educatona program, are fnanced wth money rased by
the sae of seas.
Ttes III and I of the Soca Securty ct mpose ta es at
specfed rates measured by the amount of wages pad or pay-
abe wth respect to empoyment, as defned n sectons 811(b) and
907(c) of the ct. Secton 811(b)7 provdes that the term em-
poyment, as used n Tte III, means any servce, of whatever
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Regs. 91, rt. 11.
432
nature, performed wthn the Unted States by an empoyee for hs
empoyer, e cept
(7) Servce performed In the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons
Secton 907(c) 6 contans an dentca e cepton wth respect to
the ta under Tte I .
rtce 206(o)-(6) of Reguatons 90, reatng to the e cse ta
on empoyers under Tte I of the Soca Securty ct, and artce
11 of Reguatons 91, reatng to the empoyees ta and the em-
poyers ta under Tte III of the ct, provde as foows:
Government empoyees. Servces performed by edera and State
empoyees are e cepted. The e cepton e tends to every servce performed by
nn 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 nnd those e ercsng functons of a propretary nature.
ased on the provsons of the aw and reguatons and the facts
presented, t s hed that the. M ssocaton s an nstrumentaty of
the county bv whch t was organzed. The county beng a po-
tca subdvson of the State, of R, the ta es mposed by Ttes
III and I of the Soca Securty ct are not appcabe wth
respect to servces performed n the empoy of the assocaton.
Secton 811: Defntons. I-27-8S02
Reguatons 91, rtce 11: Government S. S. T. 1G9
empoyees.
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
Servces rendered by an ndvdua paced n vocatona tranng
wth the M Company by the cvan rehabtaton department of a
State, the M Company beng rembursed by the State for one-haf
of the remuneraton pad to the ndvdua, are not e cepted from
the ta ng provsons of the Soca Securty ct.
dvce s requested whether an ndvdua paced n vocatona
tranng wth the M Company by the cvan rehabtaton depart-
ment of a State, the M Company beng rembursed by the State
for one-haf of the remuneraton pad to the ndvdua whe n
tranng, s an empoyee of the State, and, f not, whether that por-
ton of the remuneraton for whch the M Company s rembursed
by the State consttutes wages wthn the meanng of Ttes III
and I of the Soca Securty ct.
Under the provsons of sectons 811(b)7 and 907(c)6, Ttes III
and I respectvey, of the Soca Securty ct, servces per-
formed n the empoy of a State, a potca subdvson thereof, or
an nstrumentaty of one or more States or potca subdvsons
are e cepted from the term empoyment as defned n sectons
811(b), Tte III, and 907(c), Tte I , of the ct,
In the present case the M Company, n accordance wth an agree-
ment wth the State, engages the ndvdua to render servces to
t for a specfed wage. The contract for servces s between the
company and the ndvdua and the company s responsbe to
the empoyee for the payment of the tota wages to be receved by
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433
Regs. 91, rt. 11.
m. The ndvdua n queston performs persona servces for the
M Company and not for the State and s sub|ect soey to the
drecton and contro of the M Company so that the ega re-
atonshp of empoyer and empoyee e sts between the company
and the ndvdua.
It s hed that the ndvdua n queston s an empoyee of the
M Company for the purpose of the ta es mposed by Ttes III
and I of the Soca Securty ct and that the wages of the
ndvdua to be reported by the M Company shoud be computed
wthout regard to the fact that the M Company s rembursed by
the State for a porton thereof.
Secton 811: Defntons. I-2S-8815
Reguatons 91, rtce 11: Government empoyees. S. S. T. 171
( so Secton 907 Reguatons 90, rtce 20C(5)-(6).)
The State oard of Law amners of Pennsyvana s an nstru-
mentaty of that State wthn the meanng of sectons 811(b)7
and 907(c)6 of the Soca Securty ct, and nether the board nor
ts empoyees are sub|ect to the ta es mposed under Ttes III
and I of that ct.
dvce s requested whether the State oard of Law amners
of Pennsyvana s an nstrumentaty of the State wthn the mean-
ng of sectons 811(b)7 and 907(c)6, Ttes III and I , respectvey,
of the Soca Securty ct.
The State board of aw e amners was created n 1902 by an order
of the Supreme Court of Pennsyvana through e ercse of ts |ud-
ca power granted by rtce of the State consttuton. Its func-
tons are to e amne and pass upon the quafcatons of canddates who
have apped for admsson to the bar of the supreme court of that
State. The board conssts of fve members of the bar apponted by
the court for a term not e ceedng fve years. The members serve
wthout compensaton but are rembursed for traveng and other
e penses. The board may, wth the approva of the court, appont
e amners, a secretary, a treasurer, an assstant secretary, and such
cerks as may be needed, and, after deductng a necessary e penses,
t may pay to such appontees a reasonabe compensaton out of any
baance on hand. ppcants for regstraton as aw students and
for premnary e amnatons are aso passed upon by the board.
Such appcants and canddates for admsson to the bar are requred
to pay certan fees to the board, whch retans such fees n ts treasury
e cept as requred to meet ts operatng e penses.
Secton 907(c)6, Tte I , and secton 811 (b)7, Tte III, of the
Soca Securty ct provde that servce performed n the empoy
of a State, a potca subdvson thereof, or an nstrumentaty of
one or more States or potca subdvsons, does not consttute era-
goyment wthn the meanng of those ttes. rtce 20G(5)-(6),
eguatons 90, and artce 11 Reguatons 91, provde that these e -
ceptons e tend to every servce performed by an ndvdua n the
empoy of the severa States or any potca subdvson or nstru-
mentaty thereof.
It s hed that the State oard of Law amners of Pennsyvana
s an nstrumentaty of the State of Pennsyvana wthn the mean-
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Regs. 91, rt. 11.
434
ng of sectons 811 (b)7 and 907(c)6 of the Soca Securty ct, nas-
much as t, s a medum for carryng nto e ecuton the |udca pow-
ers of the State government. The State board of aw e amners and
ts empoyees are not, therefore, sub|ect to the ta es mposed under
Ttes III and I of the Soca Securty ct.
Secton 811: Defntons. I-29-SS23
Reguatons 91, rtce 11: Government empoyees. Mm. 4621
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
Labty of banks and trust companes organzed and operated
under State aws for ta es mposed by Ttes III and I of the
Soca Securty ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, une 30, 1937.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
a u Others Concerned:
Reference s made to the foowng rungs of the ureau hod-
ng that banks organzed and operated under the genera bankng
aws of certan States are not nstrumentates of such States wthn
the meanng of secton 811(b) 7 and secton 907(c) 6 of the Soca
Securty ct:
Rung. State.
S. S. T. 43, C. . -2, 387 (1936) Mchgan.
S. S. T. 52, C. . -2, 389 (1936) Iowa.
S. S. T. 53, C. . -2, 390 (1930) Tc as.
S. S. T. 59, C. . -2. 391 (1936) West rgna.
S. S. T. 65, C. . 1937-1, 410 Indana.
S. S. T. 80, C. . 1937-1, 412 Utah.
S. S. T. 88, C. . 1937-1, 413 Rhode Isand.
S. S. T. 93, C. . 1937-1, 414 Maryand.
S. S. T. 99, C. . 1937-1, 417 Mssour.
S. S. T. 107, C. . 1937-1, 419 abama.
S. S. T. 114, C. . 1937-1, 423 entucky.
The above-mentoned rungs were based on an e amnaton of the
genera bankng aws of the States covered by the rungs. n
e amnaton of such aws dd not dscose that banks organzed and
operated under the aws of those States are nstrumentates of such
States. or the same reason the ureau hods that banks organzed
and operated under the genera bankng awrs of the foowng States
are not nstrumentates of such States wthn the meanng of secton
811(b)7 and secton 907(c)6 of the Soca Securty ct:
rzona, rkansas, Caforna, Coorado, Connectcut, Deaware,
orda, Georga, Idaho, Inos, ansas, Lousana, Mane Massa-
chusetts, Mnnesota, Msssspp, Montana, Nebraska, Nevada, New
ampshre, New ersey, New Me co, New York, North Carona,
North Dakota, Oho, Okahoma, Oregon, Pennsyvana, South
Carona, South Dakota, Tennessee, ermont, rgna, Washngton,
Wsconsn, Wyomng.
The ureau hods 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
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435
Regs. 91, rt. 11.
Securty ct, and that nether the banks nor ther empoyees are
stb|ect to the ta es mposed under Ttes III and I of that ct.
(S. S.T. 44, C. . -2, 388 (1936).)
In vew of the foregong, t s hed that banks and trust companes
organzed and operated under the genera bankng aws of the severa
States sted above, whch are not members of the edera Reserve
System, and whch are empoyers as defned n secton 907 of the
Soca Securty ct, are sub|ect to the ta mposed under Tte I
of that ct. It s aso hed that banks and trust companes so
organzed and operated, whch are not members of the edera
Reserve System, and ther empoyees are sub|ect to the ta es m-
posed under Tte III of the Soca Securty ct.
Correspondence n regard to ths mmeograph shoud refer to the
number thereof and to the symbos IT: CTR.
Guy T. everng,
Commssoner.
Secton 811: Defntons. I-31-8857
Reguatons 91, rtce 11: Government empoyees. S. S. T. 175
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
Servces performed by ndvduas n the empoy of the essee of
restrcted Indun ands n connecton wth operatons under the ease
are not servces performed n the empoy of an Instrumentaty of
the Unted States wthn the meanng of sectons 811(b)6 and
907(c)5 of the Soca Securty ct.
Servces performed n the empoy of the essee of State ands n
connecton wth operatons under the ease are not servces per-
formed n the empoy of an nstrumentaty of the State wthn the
meanng of sectons 811(b)7 and 907(c)6 of the Soca Securty
ct.
dvce s requested whether servces performed by empoyees n
connecton wth operatons under eases approved by the Secretary of
the Interor coverng restrcted Indan ands fa wthn the e ceptons
to the defnton of empoyment contaned n sectons 811(b)6 and
907(c)5 of the Soca Securty ct and whether servces performed
by empoyees wth respect to eases coverng State ands fa wthn
the e ceptons to the defnton of empoyment contaned n sec-
tons 811(b)7 and 907(c)6 of that ct.
mong the servces e cepted from the ta ng provsons of Ttes
III and I of the Soca Securty ct are servces performed n
the empoy of the Unted States Government or of an nstrumentaty
of the Unted States, and servces performed n the empoy of a State,
a potca subdvson thereof, or an nstrumentaty of one or more
States or potca subdvsons. (See secton 811(b) 6 and 7, Tte
III, and secton 907(c) 5 and 6, Tte I .) rtce 206(5)-(6) of
Reguatons 90 and artce 11 of Reguatons 91 provde that the e cep-
tons contaned n secton 811(b) 6 and 7 of Tte III and secton
907(c) 5 and 6 of Tte I 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 government, wthout dstncton between those e ercsng
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Regs. 91, rt. 11.
436
functons of a governmenta nature and those e ercsng functons
of a propretary nature.
It s hed that servces performed by ndvduas n the empoy
of the essee of restrcted Indan ands n connecton wth operatons
under the ease are not servces performed n the empoy of an n-
strumentaty of the Unted States wthn the meanng of sectons
811(b) 6 and 907(c)5 of the Soca Securty ct It s aso hed that
servces performed n the empoy of the essee of State ands n con-
necton wth operatons under the ease are not servces performed n
the empoy of an nstrumentaty of the State wthn the meanng of
sectons 811 (b)7 and 907(c)6 of that ct. Therefore, the ta es m-
posed upon empoyers by sectons 804 and 901 of the Soca Securty
ct and the ta mposed upon empoyees by secton 801 of that ct
appy to wages for such servces.
Secton 811: Defntons. I-35-S897
Reguatons 91, rtce 11: Government empoyees. S. S. T. 184
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
The II Trust Co., whch became a member of the edera Reserve
System on uy 1, 1937, s abe for the ta es mposed under Ttes
III and I of the Soca Securty ct wth respect to servces
performed n ts empoy pror to admsson to the edera Reserve
System.
dvce s requested whether the M Trust Co. s abe for the return
and payment of ta es mposed under Ttes III and I of the
Soca Securty ct wth respect to servces performed pror to ts
admsson to the edera Reserve System.
Sectons 811(b)6 and 907(c) 5 of the Soca Securty ct provde,
n part, as foows:
The term empoyment means any servce e cept

Servce performed n the empoy of the Unted States Government or of an
nstrumentaty of the Unted States
Ths e cepton e tends to every servce performed by an ndvdua
n the empoy of the Unted States or any nstrumentaty thereof
wthout dstncton between those e ercsng functons of a govern-
menta nature and those e ercsng functons of a propretary nature.
( rtce 11, Reguatons 91, and artce 206(5)-(6), Reguatons 90.)
The M Trust Co. durng the perod from anuary 1, 1937, to
une 30, 1937, contnuousy empoyed more than eght ndvduas.
On uy 1, 1937, the M Trust Co. was admtted to membershp n
the edera Reserve Svstem and s now operatng under that system.
In S. S. T. 44 (C. . -2, 388 (1936)) t was hed that State
banks whch are members of the edera Reserve System are nstru-
mentates 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 mposed by
Ttes III and I of that ct. ccordngy, servces performed
for the M Trust Co. on and after uy 1, 1937, do not consttute
empoyment wthn the meanng of the ta ng provsons of the
ct. owever, servces performed for the M Trust Co. pror to
uy 1 were performed n an empoyment wthn the purvew of
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437
Regs. 91, rt. 11.
both Ttes III and I and, therefore, ta abty was ncurred
under those ttes. The admsson of the M Trust Co. nto the
edera Reserve System does not operate to reeve that company
of abty whch was prevousy ncurred. It s hed, therefore, that
the M Trust Co. s abe for the ta es mposed under Ttes III
and I of the Soca Securty ct wth respect to servces whch
were performed n ts empoy pror to the date t became a member
of the edera Reserve System.
Secton 811: Defntons. I-41-8976
Reguatons 91, rnc 11: Government empoyees. S. S. T. 200
( so Secton 907 Reguatons 90, rtce 20G(5)-(6).)
Servces performed by track nspectors an stewards at race
tracks n the State of R are e cepted from the term empoy-
ment under sectons 811(b)7 and 07(c)6 of the Soca Securty
ct.
dvce s requested whether servces performed by certan n-
spectors and stewards at race tracks n the State of R are e cepted
from empoyment under sectons 811(b)7 and 907(c)6 of the
Soca Securty ct.
The racng commsson of the State of R was created by an act
of the egsature n that State. It conssts of three members who
are apponted by the governor and who receve saares from the
State. The commsson s gven authorty to appont track n-
spectors and stewards. Its prmary purpose s to cense and reg-
uate horse racng carred on by racng assocatons n the State.
Sectons 811(b) 7 and 907(c)6 of the Soca Securty ct e cept
from empoyment:
Servce performed n the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons
The e cepton e tends to every servce performed by an ndvdua
n the empoy of the severa States, the Dstrct of Coumba, or the
Terrtory of aska or awa, or any potca subdvson or nstru-
mentaty thereof, ncudng every unt or agency of government,
wthout dstncton between those e ercsng functons of a govern-
menta nature and those e ercsng functons of a propretary nature.
(Reguatons 91, artce 11 Reguatons 90, artce 206(5)-(6).)
Under the facts presented, t s cear that the racng commsson
of the State of R s an nstrumentaty of that State wthn the
meanng of sectons 811(b)7 and 907(c)6 of the ct.
Pursuant to the authorty granted by the statute, the commsson
has adopted certan racng reguatons whch specfy the method of
appontment and dutes of race track nspectors and stewards. The
nspectors are requred to gve ther attenton many to matters per-
tanng to the safety and heath of the pubc, traffc condtons, and
the mantenance of order. They are requred to check up on racng
assocaton empoyees to see whether they are performng the dutes
assgned to them. The nspectors are ndependent of the assocatons
and are requred to make frequent, reports to the commsson.
rtce 3 of Reguatons 91, appcabe to Tte III of the ct,
and artce 205 of Reguatons 90, appcabe to Tte I , provde
that an ndvdua s n the empoy of another f he performs servces
n an empoyment as defned n sectons 811(b) and 907(c), re-
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Regs. 91, rt. 11.
438
spectvey. owever, the. reatonshp between the person for whom
such servces are performed and the ndvdua who performs such
servces must, as to those servces, be the ega reatonshp of em-
poyer and empoyee. Generay, such reatonshp 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 that resut s accompshed.
It s apparent that the track nspectors are n the empoy of the
commsson nasmuch as they are sub|ect to ts contro not ony as
to the resut to be accompshed by the work but aso as to the detas
and means by whch that resut s accompshed. The fact that
such nspectors may be pad by the racng assocaton does not of
tsef consttute them empoyees of the assocatons. Payment of
compensaton by the empoyer s not ndspensabe to the empoyer-
empoyee reatonshp under the genera aw of master and servant
(39 C. ., 36-37 18 R. C. L., 495) nor under the. ta ng provsons
of the Soca Securty ct (S. S. T. 157, C. . 1937-1, 384). c-
cordngy, t s hed that servces performed by the track nspec-
tors n the empoy of the commsson are e cepted from empoy-
ment : under sectons 811(b)7 and 907(c) 6 of the ct.
The racng reguatons promugated by the commsson specfy n
deta the dutes of the stewards. They have genera supervson
over owners, traners, |ockeys, grooms, and offcas of the meetng.
questons of racng are decded by the stewards. They have
supervson of entres, may f vacances among the offcas, and, n
genera, are the e ecutves of the race tracks. In matters per-
tanng to racng, the orders of the stewards supersede the orders
of the offcers of the assocaton. urthermore, the assocatons have
no rght to dscharge the stewards. In vew of these facts, t s
apparent that the racng assocatons do not have the requste rght
to contro the actons of the stewards to gve rse to the empoyer-
empoyee reatonshp. Snce the statute and the racng reguatons
of the commsson reserve to that body the rght to contro the
manner of performance of the stewards dutes, t foows that the
stewards are empoyees of the commsson and the servces whch
they perform are e cepted from empoyment under sectons
811(b) 7 and 907(c) 6 of the Soca Securty ct.
Secton 811: Defntons. I-42-8992
Reguatons 91, rtce 11: Government empoyees. S. S. T. 205
( so Secton 907, Reguatons 90, rtce 206(5)-(6).)
n Indvdua who enters Into a contract wth the Unted
States Post Offce Department for the devery of ma and hres
such persons as are requred to carry out the contract s not an
empoyee of the Unted States Government and servce per-
formed n hs empoy consttutes empoyment for the purpose
of the ta es mposed under Ttes III and I of the Soca
Securty ct.
dvce s requested whether servce performed n the empoy of
an ndvdua who has entered nto a contract wth the Unted
States Post Offce Department for devery of ma consttutes em-
poyment under Ttes III and I of the Soca Securty ct
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439
Regs. 91, rt. 11.
Sectons 811(b)6, Tte III, and 907(c) 5, Tte I , of the Soca
Securty ct provde n part as foows:
The term empoyment means nny servce e cept

Servce performed n the empoy of the Tutted States Government
or of an nstrumentaty of the Unted States
The genera provsons under whch contracts for carryng the
mas are entered nto by the Unted States Government are con-
taned n chapter 12, sectons 421 to 451, Tte 39, U. S. C. .
Under the provsons of that chapter, the Government s authorzed
to advertse for bds for carryng the mas and must et the con-
tract therefor to the owest responsbe bdder. It s requred that
a bond accompany each bd, approved as to suretes and condtoned
upon the fathfu performance of the dutes under the proposed
contract. Pror to enterng on the performance of the contract,
the contractor, subcontractors, carrers, ma -messengers, and other
empoyees of the contractor concerned wth the carryng of the mas
must take the oath prescrbed by secton 365, Tte 5, U. S. C. .
That secton provdes that before enterng upon ther dutes the
Postmaster Genera and a persons empoyed n the Posta Serv-
ce sha subscrbe to an oath to perform fathfuy a the dutes
requred of them and abstan from everythng forbdden by the aws
n reaton to the estabshment of post offces and post roads wthn
the Unted States and honesty and truy to account for and pay
over any money beongng to the Unted States whch may come
nto ther possesson or contro and aso to support the Consttu-
ton of the Unted States. Persons enterng nto contracts wth the
Government pursuant to these statutory provsons are nvaraby
referred to n the statutes as contractors and never as empoyees or
agents. Ther contracts requre the transportaton of ma at par-
tcuar tmes between partcuar paces and there s nothng n the
statutes whch woud gve the Government any power to contro or
drect the manner n whch the servce must be performed so ong
as the specfed resut s accompshed and the provsons of the
oath are not voated. The contractor must furnsh the necessar|
equpment, hre the empoyees requred by hm, and defray a e -
penses ncdent to the performance of the contract.
Under the facts presented, t s hed that such persons (contrac-
tors) are ndependent contractors and not empoyees of the Unted
States Government.
s prevousy ndcated, the contractor hres such ndvduas as
may be requred for the performance of the contract. Whe t ap-
pears that such ndvduas must take the same oath requred of the
contractor, they are not empoyees of the Government. The Gov-
ernment has no power to hre or dscharge them or to e ercse con-
tro over ther actvtes. Ther servces are rendered on behaf of
the contractor n assstng hm n the performance of hs dutes under
the contract. Secton 448, chapter 12, Tte 39, U. S. C. ., pro-
vdes that any person who performs any servces for the contractor
sha have a en therefor on any money due the contractor, and
that f the contractor fas to pay such person the Postmaster Gen-
era may cause the amount to be. pad to such person and charged
to the contractor.
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Regs. 91, rt. 11.
440
Snce such persons engaged by the contractor are not n the em-
poy of the Unted States, they and ther empoyers are sub|ect to
the ta es mposed by the Soca Securty ct uness such empoyers
are nstrumentates of the Unted States wthn the meanng of
sectons 811(b)6 and 907(c) 5 of that ct.
It s the opnon of the ureau that the term nstrumentaty of
the Unted States as used n sectons 811(b)6 and 907(c)5, supra,
s to be construed as meanng ony such agences as are made use of
by the Government as an nstrument through whch t drecty e -
ercses some governmenta power, and that t does not comprehend
prvate persons who, by contract wth the Government, have under-
taken to perform some servces therefor. ccordngy, t s hed
that persons who perform servces n carryng the ma pursuant to a
contract wth the Unted States are not nstrumentates of the
Unted States wthn the meanng of sectons 811(b)6 and 907(c)5 of
the Soca Securty ct and that they and ther empoyees are sub-
|ect to the ta es mposed under Ttes III and I of that ct.
Secton 811: Defntons. I-44-9019
Reguatons 91, rtce 11: Government empoyees. S. S. T. 211
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
The M Muncpa League, a nonproft corporaton organzed by
certan muncpates n the State of Mchgan and ncorporated
under the aws of that State, s an nstrumentaty of such munc-
pates, potca subdvsons of the State, and the servces of
ts empoyees are e cepted from the ta ng provsons of the Soca
Securty ct under sectons 811(b)7 and 907(c)6, Ttes III and
I , respectvey.
dvce s requested whether the M Muncpa League s consdered
to be an nstrumentaty of certan potca subdvsons of the State
of Mchgan wthn the meanng of sectons 811 (b)7 and 907(c)6 of
the Soca Securty ct.
Sectons 811(b) 7 and 907(c) 6 of the ct provde n part as foows:
The term empoyment means any servce e cept

Servce performed n the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons

The e cepton e tends to every servce performed by an ndvdua
n the empoy of the severa States, the Dstrct of Coumba, or the
Terrtory of aska or awa, or any potca subdvson or nstru-
mentaty thereof, ncudng every unt or agency of government,
wthout dstncton between those e ercsng functons of a govern-
menta nature and those e ercsng functons of a propretary
nature.
The M Muncpa League, ncorporated under the aws of the
State of Mchgan, was organzed by certan ctes and vages of
that State for educatona and servce purposes and s supported by
ta aton of member ctes and vages on the bass of popuaton.
The eague aso asssts the ctes and vages wth varous fnanca
and personne probems and serves as a fact-fndng body n con-
necton wth proposed egsaton affectng the muncpates.
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441
Regs. 91, rt. 11.
Under the facts presented, t s apparent that the M Muncpa
League s engaged n carryng out governmenta functons of pot-
ca subdvsons of the State of Mchgan and s an nstrumentaty
thereof wthn the meanng of sectons 811(b) and 907(c) 6 of the
ct. Therefore, the eague and ts empoyees are not sub|ect to the
ta es mposed under Ttes III and I of the ct.
Secton 811: Defntons. I-45-9031
Reguatons 91, rtce 11: Government empoyees. S. S. T. 213
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
Under the ta ng provsons of the Soca Securty ct, the e -
empt status of a State bank or trust company whch s a member
of the edera Reserve System contnues throughout qudaton
proceedngs, provded such bank or trust company retans ts
membershp n the edera Reserve System.
dvce s requested whether servces performed n the empoy of
a State bank or trust company whch s n process of qudaton and
whch s a member of the edera Reserve System consttute em-
poyment wthn the meanng of Ttes III and I of the Soca
Securty ct.
Sectons 811(b)6 and 907(c) 5 of the Soca Securty ct provde 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

Servce performed n the empoy of the Unted States Government
or of an nstrumentaty of the Unted States.
It was hed n S. S. T. 44 (C. . -2, 388 (1936)) that State
banks whch are members of the edera Reserve System are nstru-
mentates of the Unted States wthn the meanng of Ttes III
and I of the Soca Securty ct and that nether such banks nor
ther empoyees are sub|ect to the ta es mposed under those ttes.
Where membershp n the edera Reserve System s retaned by such
a bank n qudaton, the bank does not ose ts e empt status merey
because qudaton proceedngs are begun.
ccordngy, t s hed that servces performed n the empoy of
a State bank or trust company whch s a member of the edera
Reserve System are e cepted from empoyment under sectons
811(b)6 and 907(c)5 of the Soca Securty ct even though such
bank or trust company s n qudaton, provded t retans ts mem-
bershp n the edera Reserve System.
Secton 811: Defntons. I-45-9032
Reguatons 91, rtce 11: Government empoyees. S. S. T. 214
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
grcutura conservaton assocatons organzed pursuant to the
authorty contaned n secton 8(b) of the So Conservaton and
Domestc otment ct, as amended (49 Stat, 1148), are Instru-
mentates of the Unted States wthn the meanng of sectons
811(b)6 and 907(c)5 of the Soca Securty ct, and nether such
assocatons nor ther empoyees are sub|ect to the ta es mposed
by that ct
77864 38 15
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Regs. 91, rt. 11.
442
The queston s presented whether agrcutura conservaton asso-
catons organzed pursuant to the authorty contaned n secton
8(b) of the So Conservaton and Domestc otment ct, as
amended (49 Stat., 1148), 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 term empoyment servces per-
formed n the empoy of the Unted States Government or of an
nstrumentaty of the Unted States.
Secton 8(b) of the So Conservaton and Domestc otment ct
provdes n part as foows:
(b) Sub|ect to the mtatons provded n subsecton (a) of ths secton, the
Secretnry sha have power to carry out the purposes specfed n causes (1),
(2), (3), and (4) of secton 7(a) by makng payments or grants of other ad
to agrcutura producers, ncudng tenants and share-croppers, In amounts,
determned by the Secretary to be far and reasonabe n connecton wth the
effectuaton of such purposes durng the year wth respect to whch such
payments or grants are made, . In carryng out the provsons of
ths secton, the Secretary s authorzed to utze county and communty
commttees of agrcutura producers and the agrcutura e tenson servce,
or other approved agences.
Secton 7 of the ct reads n part as foows:
(b) The Secretary of grcuture sha cooperate wth States, n the e ecu-
ton of State pans to effectuate the purposes of ths secton, by makng grants
under ths secton to enabe them to carry out such pans.
(c) ny State whch submts to the Secretary, pror to such tme and n
such manner and form as the Secretary prescrbes, a State pan to effectuate
the purposes of ths secton sha be entted to payments, as provded n ths
secton, for the year to whch such pan s appcabe, f such pan s approved
by the Secretary as provded In ths secton.
(d) No such pan sha be approved uness by ts terms:
(1) It provdes that the agency to admnster the pan sha be such State
agency as may be desgnated by the Secretary If such agency s authorzed
by the State, or such other State agency as s authorzed by the State and
approved by the Secretary
(2) It provdes for such methods of admnstraton, and such partcpaton
n the admnstraton of the pan by county and communty commttees or
assocatons of agrcutura producers organzed for such purpose, as the
Secretary fnds necessary for the effectve admnstraton of the pan .
Instructons for organzaton and operaton of such county agr-
cutura conservaton assocatons are ssued by the Secretary of
grcuture through hs desgnated representatve n the State n
whch such assocaton s ocated. It s provded n the artces of
assocaton that the assocaton s organzed sub|ect to approva bv
the Secretary of grcuture for the purpose of cooperatng wth
the Secretary and the grcutura d|ustment dmnstraton n
carryng out the provsons of the So Conservaton and Domestc
otment ct and performng such servces n connecton wth the
agrcutura conservaton program or other agrcutura programs
as may be authorzed by the Secretary, but sha not engage n any
other actvty. It s further provded that a books, records, docu-
ments, papers, and accounts of the assocaton are and sha reman
the property of the grcutura d|ustment dmnstraton and
are to be safey mantaned n good order n the offce of the assoca-
ton. The artces of assocaton are sub|ect to amendment by the
Secretary of grcuture. It s ponted out that a funds used by
these assocatons for ther e penses, wth the e cepton of mnor
contrbutons from qudated commodty contro assocatons, are
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443
Regs. 91, rt. 11.
furnshed out of the edera moneys approprated for the admnstra-
ton of the So Conservaton and Domestc otment ct pursuant
to secton 11 thereof, as amended (49 Stat., 1915). Ths secton, as
amended, provdes that funds avaabe for carryng out ths
ct sha be avaabe for aotment to the bureaus and offces of the
Department of grcuture and for transfer to such other agences
of the edera or State Governments as the Secretary may request
to cooperate or assst n carryng out ths ct and for payments to
commttees or assocatons of producers n any regon or regons to
cover the estmated admnstratve e penses to be ncurred by any
such commttee or assocaton n cooperatng n carryng out tns
ct: Provded, That the Secretary may prescrbe that a or part of
such estmated e penses of any such commttee or assocaton may
be deducted pro rata from the payments or grants made to the mem-
bers thereof: nd provded further, That the Secretary may make
such payments n advance or determnaton of performance.
In vew of the above provsons of the So Conservaton and Do-
mestc otment ct, the artces of assocaton of the varous county
agrcutura conservaton assocatons, and the nformaton submtted,
t s evdent that the assocatons n queston are organzed and op-
erated as a means of carryng nto e ecuton the powers of the Unted
States Government. It s accordngy hed that such assocatons 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 the
assocatons nor ther empoyees are sub|ect to the ta es mposed
under Ttes III and I thereof.
Secton 811: Defntons. I-15-9033
Reguaton s 91, rtce 11: Government empovees. S. S. T. 215
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
Servces performed by custodan engneers and ther assstants
for the M oard of ducaton n New York State come wthn
the e ceptng provsons of sectons 811(b)7 and 907(c)6 of the
Soca Securty ct.
dvce s requested whether servces performed by custodan eng-
neers and ther assstants for the M oard of ducaton n the State
of New York are e cepted from empoyment under sectons
811(b) 7 and 907(c)6 of the Soca Securty ct.
The M oard of ducaton n the mantenance of pubc schoos
empoys engneers to take charge of the management of schoo bud-
ngs. These engneers are apponted by the board from the State
cv servce commsson sts. ach engneer receves annuay a
f ed compensaton for the management of the budngs of whch he
as charge, such compensaton beng pad from funds approprated
for that purpose. The engneer n charge of the budng empoys
hs own assstants and pays ther wages out of hs remuneraton.
The board e ercses supervsory contro over the custodan engneer
and prescrbes the quafcatons of the assstants whom the custodan
may appont, the mnmum remuneraton whch he may pay to them,
and the ma mum number of hours whch he may requre them to
work. The custodan engneer s requred to make a strct accountng
of a funds receved by hm, such accountng showng the names of
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Regs. 91, rt. 11.
444
the assstants empoyed and the amount of remuneraton pad to
each. The baance remanng after the custodan has pad hs assst-
ants consttutes hs net persona remuneraton.
Sectons 811(b)7 and 907(c)6 of the Soca Securty ct read n
part as foows:
The term empoyment means any servce e cept

Servce performed n the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons.
rtce 11 of Reguatons 91, appcabe to Tte I T, and artce
206(5)-(6) of Reguatons 90, appcabe to Tte I , provde that
the e cepton contaned n the above-quoted sectons e tends to every
servce performed by an ndvdua n the empoy of the severa
States, the Dstrct of Coumba, or the Terrtory of aska or
awa, or any potca subdvson or nstrumentaty thereof, n-
cudng every unt or agency of government, wthout dstncton be-
tween those e ercsng functons of a governmenta nature and those
e ercsng functons of a propretary nature.
It s hed that custodan engneers engaged n performng servces
under the aforementoned crcumstances are empoyees of the M
oard of ducaton. The assstants engaged by them wth actua
or constructve knowedge of the board n connecton wth the man-
agement and mantenance of the schoo budngs are aso empoyees
of the M oard of ducaton. (See generay S. S. T. 35, C. .
-2, 407 (1936), and S. S. T. 70, C. . 1937-1, 387.) ccordngy,
servces performed for the M oard of ducaton by such custodan
engneers and ther assstants come wthn the e ceptng provsons
of sectons 811 (b)7 and 907(c)6 of the Soca Securty ct.
Secton 811: Defntons. I-49-9077
Reguatons 91, rtce 11: Government empoyees. S. S. T. 228
( so Secton 907 Reguatons 90, rtce 206(5)-(6).)
Motor vehce agents of the State of New ersey, apponted pur-
suant to secton 5 of the motor vehces act of that State, and ther
empoyees engaged n performng offca dutes are not sub|ect to
the ta es mposed under Ttes III and I of the Soca Securty
ct
dvce s requested whether servces performed by motor vehce
agents n the State of New ersey and ndvduas n ther empoy
are e cepted from empoyment under sectons 811(b) 7 and 907(c) 6
of the Soca Securty ct.
Secton 811(b)7, Tte III, and secton 907(c)6, Tte I , of the
Soca Securty ct provde n part as foows:
The term empoyment means any servce e cept

Servce performed n the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdv-
sons
The motor vehce agents are apponted by the commssoner of
motor vehces of the State of New ersey, pursuant to secton 6 of
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445
Regs. 91, rt. 12.
te State motor vehces act (secton 135-54, 1911-1924, Cum. Supp.
to Comp. Stat, of N. .), whch reads as foows:
The commssoner of motor vehces sha bo authorzed and fu
power and authorty are hereby gven to hm, to desgnate any proper person to
be the agent of sad commssoner of motor vehces for the regsterng of motor
vehces and ssung regstraton certfcates and censng of drvers, .sub|ect to
the requrements of ths act and to such rues and reguatons as sha be
mposed by the commssoner and any agent who may be so desgnated s hereby
authorzed and requred to act accordng and unt the sad authorty so to
act s revoked by the sad commssoner. The fee aowed such agent for
regstraton certfcate so ssued by hm and for every cense so granted by
hm sha be f ed by the commssoner of motor vehces, the same to be
deducted and remtted to such agent by sad commssoner from the regstraton
fee or the cense fee pad to hm and the sad commssoner may mt the
fee so pad to a ma mum.
In connecton wth the performance of ther dutes, the agents
necessary empoy other ndvduas. The ndvduas thus em-
poyed are pad by the agents out of the fees receved pursuant to
te statute and the empoyees are responsbe ony to the agent.
- nstructons of the commssoner of motor vehces are gven to
te agent and he n turn nstructs the empoyees accordngy.
It s apparent that the agents n queston are State nstrumenta-
tes engaged n carryng nto e ecuton the powers of the State.
hey are not merey prvate contractors but are sub|ect to the
mmedate and detaed contro of the commssoner of motor vehces
and ther appontments may be revoked by hm at any tme. c-
cordngy, servces rendered by such agents and persons n ther
empoy n the performance of ther offca dutes are e cepted from
empoyment under sectons 811(b)7 and 907(c)6 of the Soca
Securty ct, and nether such agents nor ther empoyees are abe
for the ta es mposed by Ttes III and I thereof.
Secton 811: Defntons.
Reguatons 91, rtce 12: Regous, chartabe,
scentfc, terary, and educatona organzatons
and communty chests.
( so Secton 907 Reguatons 90, rtce 206(7).)
Servces rendered by ndvduas to the M Organzaton, a oca
mners unon, are not e cepted from the ta ng provsons of the
Soca Securty ct under sectons 811(b)8 and 007(c)7 of that ct.
dvce s requested whether servces rendered to the M Organza-
ton, a oca mners unon, are e cepted from the ta ng provsons
of the Soca Securty ct under secton 811(b)8 and 907(c)7 of that
ct. Those sectons e cept from the term empoyment :
Servce performed n the empoy of a corporaton, communty chest,
fund, or foundaton, organzed and operated e cusvey for regous, char-
tabe, scentfc, terary, or educatona purposes, or for the preventon of
cruety to chdren or anmas, no part of the net earnngs of whch nures to
the beneft of any prvate sharehoder or ndvdua.
Smar anguage 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 ncome ta
(6) Corporatons, and any communty chest, fund, or foundaton, organzed
and operated e cusvey for regous, chartabe, scentfc, terary, or edu-
I-31-8858
S. S. T. 176
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Regs. 91, rt. 12.
446
catona purposes, or for te 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 carry-
ng on propaganda, or otherwse attemptng, to nfuence egsaton
(See aso correspondng sectons of evenue cts pror to 1934
and the Revenue ct of 1936.)
Secton 101(1) of the Revenue ct of 1934 e empts from ncome
ta
(1) Labor, agrcutura, or hortcutura organzatons.
Smar anguage s contaned n secton 231(1) of the Revenue
ct of 1918 and correspondng sectons of subsequent Revenue cts.
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 correspondng wth secton 101(1),
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 organzatons comng
wthn the anguage of secton 101(6) but not those organzatons
comng wthn the anguage of secton 101(1). Snce there s no
specfc e empton contaned n Ttes III and I of the Soca
Securty ct reatng to abor organzatons, and the M Organza-
ton, a mners unon, does not fa wthn any of the casses of
organzatons enumerated n sectons 811(b) 8 and 907(c)7 of the
Soca Securty ct, t s hed that servces rendered by the empoyees
of the M Organzaton are not e cepted from the ta ng provsons
of the Soca Securty ct.
Secton 811: Defntons.
Reguatons 91, rtce 12: Regous, chartabe,
scentfc, terary, and educatona organzatons
and communty chests.
( so Secton 907 Reguatons 90, rtce 206(7).)
The M Cemetery Corporaton and ts empoyees are not e -
cepted from the ta ng provsons of the Soca Securty ct under
sectons 811 (b)S and 907(e)7 of the ct, even though the corpora-
ton s not operated for proft.
dvce s requested whether the M Cemetery Corporaton and ts
empoyees are sub|ect to the ta es mposed by Ttes III and I
of the Soca Securty ct.
The cemetery corporaton contends that such ta es are not ap-
pcabe because of the provsons of sectons 811(b) 8 and 907(c)7,
Ttes III and I , respectvey, of the Soca Securty ct, whch
e cept from the term empoyment as used n those ttes
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.
The M Cemetery Corporaton was ncorporated soey for the pur-
pose of mantanng a pubc cemetery. It operates a pubc cemetery
n whch any person may purchase a ot. No shares of stock have
T-35-889S
S. S.T. 185
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447
Regs. 91, rt. 12.
been ssued and there are no outstandng certfcates or and shares.
None of the corporaton s offcers and trustees receves any part of ts
net earnngs, and no person receves any part of the proceeds from
the sae of ots, such proceeds beng used entrey for the mantenance
of the cemetery. The corporaton hods a arge number of trust funds
for the perpetua care of ots wthn the cemetery.
The corporaton takes the poston that t s a chartabe corpora-
ton that such a corporaton s one whch carres on a chartabe use
that a trust whch tends to reduce ta aton and essen the burdens
of government s a chartabe use and that t has been hed n severa
court cases that the mantenance of a pubc cemetery s a chartabe
use.
It may be conceded that the term chartabe has been gven var-
ous meanngs, the meanng n each case dependng upon the partcu-
ar use of the term. It has been hed to appy to amost anythng
that tends to promote the we-dong and we-beng of soca man.
Oud v. Washngton ospta for oundngs, 95 IT. S., 303.) Par-
tcuary, n deang wth chartabe trusts or uses, the courts have
gven a broad meanng to the term chartabe on the ground that
t was e pedent to uphod such trusts or uses where such a con-
structon of the aw woud possby permt. owever, by reason
of the assocaton of the term chartabe wth the terms regous,
scentfc, terary, or educatona n sectons 811 (b)8 and 907(c)7
of the Soca Securty ct, t seems obvous that the congressona
ntent was to use the word n ts more mted sense. Otherwse, the
word chartabe woud have been used by tsef as an a-ncusve
term.
Where statutes are part of a genera system reatng to the same
genera sub|ect and rest upon the same reason, they shoud be so con-
strued as to be unform n ther appcaton and the resuts whch
they accompsh. It s, therefore, the vew of the ureau that the
Soca Securty ct and contemporaneous edera Revenue cts must
be construed together so as to harmonze and gve unform effect to
ther provsons. reference to the varous edera Revenue cts
w dscose that n such cts Congress made e press provson for
the e empton of cemetery companes not operated for proft on the
one hand and chartabe and smar organzatons on the other. Com-
pare subdvsons (5) and (6) of secton 101 of the Revenue ct of
1936 and the correspondng provsons of pror Revenue cts. y
reason of ths unform dstncton made by Congress n the varous
edera Revenue cts, t s evdent that Congress dd not consder
cemetery companes to be corporatons operated e cusvey for char-
tabe purposes. The foregong fnds support n the reasonng and
concusons n Schuster v. Nchos (20 ed. (2d), 179, T. D. 4086,
C. . I-2, 224 (1927)) George L. Crag v. Commssoner (11 . T.
., 193) S. S. T. 119 (C. . 1937-1, 434), and authortes theren
cted.
In vew of the foregong, t s hed that the anguage of sectons
811(b) 8 and 907(c) 7 of the Soca Securty ct may not be con-
strued to ncude a cemetery corporaton notwthstandng the cor-
poraton s not operated for fnanca gan. It foows that the M
Cemetery Corporaton and ts empoyees are not e cepted from the
ta es mposed by Ttes III and I of that ct.
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Regs. 91, rt. 14.
448
Secton 811: Defntons. I-31-8859
Reguatons 91, rtce 14: Wages. S. S. T. 177
( so Secton 907 Reguatons 90, rtce 207.)
or the purposes of the ta ng provsons of the Soca Securty
ct, the amount of the e penses ncurred by an empoyee n con-
necton wth the use of an automobe n the empoyer s busness
may be determned by tsng a reasonabe f ed meage rate.
dvce s requested whether, under the ta ng provsons of the
Soca Securty ct, a reasonabe f ed meage rate may be used n
determnng the amount of e penses ncurred by an empoyee n the
use of an automobe n hs empoyer s busness n eu of actua
records to show that partcuar tems of e pense were ncurred by
the empoyee and accounted for to the empoyer.
rtce 16 (r) of Reguatons 91 and artce 209(c) of Reguatons
90 provde as foows:
Traveng and other e penses. mounts pad to traveng saesmen
or other empoyees as aowance or rembursement for traveng or other e -
penses ncurred n the busness of the empoyer consttute wages ony to the
e tent of the e cess of such amounts over such e penses actuay ncurred and
accounted for by the empoyee.
It s hed, for the purpose of determnng the amount of the e -
penses ncurred by an empoyee n connecton wth the use of an
automobe n the empoyer s busness, that a reasonabe f ed me-
age rate may be used. The tems of e pense to be taken nto con-
sderaton as a bass for the computaton of the f ed meage rate
must be mted to e penses of operaton of the automobe attrbut-
abe to ts use n the empoyer s busness. The empoyer, when
caed upon to do so, must estabsh that the f ed meage rate s
reasonabe and that the empoyee n fact used the automobe and
thereby ncurred such e penses. It w, therefore, be necessary that
the number of mes traveed by the empoyee n the empoyer s bus-
ness be reported by the empoyee to the empoyer.
Secton 811: Defntons. I-30-8903
Reguatons 91, rtce 14: Wages. S. S. T. 187
( so Secton 907 Reguatons 90, rtce 207.)
Where an ndvdua receves remuneraton for servces per-
formed both as an offcer and as a drector of the M Corporaton,
the remuneraton attrbutabe to servces performed as a drector
shoud be e cuded n the computaton of wages under Ttes
III and I of the Soca Securty ct.
dvce s requested as to the method of computng wages under
Ttes III and I of the Soca Securty ct of an ndvdua who
s remunerated for servces performed as an offcer of the M Corpo-
raton and aso as a drector thereof.
The term wages s defned under Ttes III and I of the
Soca Securty ct to mean a remuneraton for empoyment,
sub|ect to a mtaton under Tte III and to certan e ceptons
under Ttes III and I not here appcabe. Secton 1101 (a)6
of the ct provdes that the term empoyee ncudes an offcer
of a corporaton. rtce 3 of Reguatons 91, appcabe to Tte
III of the ct, and artce 205 of Reguatons 90, appcabe to
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449
Regs. 91, rt. 14.
Tte I , provde that an ndvdua s n the empoy of another f
he performs servces n an empoyment as defned n sectons
811(b) and 907(c) of the ct, respectvey. owever, the reaton-
shp between the person for whom such servces are performed and
the ndvdua who performs such servces must, as to those servces,
be the ega reatonshp of empoyer and empoyee. drector of
a corporaton as such s not an empoyee. drector may be an
empoyee, however, f he performs servces for the corporaton other
than those requred by attendance at, and partcpaton n, meetngs
of the board of drectors.
The ndvdua here n queston s a drector of the M Corporaton
and for hs servces n that capacty he receves doars for each
meetng of the board of drectors whch he attends. The ndvdua
s aso an offcer of the corporaton and receves 100 doars per
month for servces performed n that capacty.
Inasmuch as the ega reatonshp of empoyer and empoyee
does not e st between the ndvdua n queston and the M Corpo-
raton wth respect to those servces requred by attendance at, and
partcpaton n, meetngs of the board of drectors t s hed that
the remuneraton whch he receves for such servces as drector
shoud be e cuded from hs tota remuneraton n computng
wages for the purpose of Ttes III and I of the Soca
Securty ct.
Secton 811: Defntons. I-38-8935
Reguatons 91, rtce 14: Wages. S. S. T. 192
( so Secton 907 Reguatons 90, rtce 207.)
The vaue of unches served by the M Company to ts empoyees
and cash pad to empoyees to remburse them for amounts e -
pended by them for unches obtaned esewhere consttute wages
wthn the meanng of Ttes III and L of the Soca Securty
ct.
dvce s requested whether the vaue of unches served by the
M Company to certan empoyees and cash pad to empoyees of
branch estabshments of the company to remburse them for amounts
e pended by them for unches consttute wages wthn the mean-
ng of Ttes III and I of the Soca Securty ct.
Sub|ect to the 3,000 mtaton provded n secton 811(a), Tte
III of the ct, the term wages as used theren means a re-
muneraton for empoyment, ncudng the cash vaue of a remuner-
aton pad n any medum other than cash. In so far as the present
ssue s concerned, the defnton of the term wages n secton
907(b), Tte I of the ct, s smar to that n secton 811(a),
Tte III.
The M Company serves unches wthout charge to ts empoyees
ocated n budngs where factes for servng unches are pro-
vded. In certan Dranch offces where such factes are not pro-
vded, the empoyees are rembursed for the amounts pad by them
for ther uncnes. The M Company states that t has not treated
the vaue of the unches served to the empoyees and the cash
rembursement referred to as addtona remuneraton for empoy-
ment.
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Regs. 91, rt. 14.
450
rtce 14 of Reguatons 91, ssued pursuant to Tte III of the
Soca Securty ct, reads n part as foows:
Ordnary, factes or prveges (such as entertanment, cafeteras, res-
taurants, medca servces, or so-caed courtesy dscounts on purchases),
furnshed or offered by an empoyer to hs empoyees generay, are not
consdered as remuneraton for servces If such factes or prveges are
offered or furnshed by the empoyer merey as a means of promotng the
heath, good w, contentment, or effcency of hs empoyees.
rtce 207 of Reguatons 90 ssued pursuant to Tte I of the
ct, contans substantay smar provsons. The provsons set
forth above are restrcted to the factes or prveges furnshed
and do not appy to the far vaue of goods or merchandse fur-
nshed by an empoyer to hs empoyee because of the e stence of
the reatonshp of empoyer and empoyee. Thus, where the opera-
tor of a store aows hs empoyees a courtesy dscount on pur-
chases, ordnary such dscounts are not ncuded n computng the
amount of wages wth respect to whch the ta es under Ttes YTII
and I are mposed. Smary, where an empoyer operates a
cafetera or restaurant and hs empoyees purchase unches for ess
than f purchased esewhere, the savng or economc advantage
accrung to the empoyees s not taken nto account n computng
the amount of wages wth respect to whch the ta es mposed under
the ct attach. If no charge (or ony a nomna charge) s made
for the unches, then the vaue of the unches, determned as set
forth n S. S. T. 51 (C. . -2, 421 (1936)), reatng to Tte I
(whch s equay appcabe to Tte III), consttutes wages
wthn the meanng of Ttes III and I .
In vew of the foregong, t s hed that the far vaue of the
unches furnshed by the M Company to certan empoyees and the
cash rembursement of amounts e pended for unches by other em-
poyees consttute remuneraton for empoyment and must, therefore,
be ncuded n the computaton of wages under Ttes III and
I of the Soca Securty ct.
Secton 811: Defntons. I-38-8936
Reguatons 91, rtce 14: Wages. S. S. T. 193
( so Secton 907 Reguatons 90, rtce 207.)
mounts pad by the M Company to ts empoyees as rem-
bursement for certan tuton payments consttute wages wthn
the meanng of sectons 811(a) and 907(b) of the Soca Securty
ct.
dvce s requested whether amounts pad by the M Company to
ts empoyees as rembursement for tuton payments made by such
empoyees for addtona tranng n sub|ects approved by the com-
pany consttute wages wthn the meanng of sectons 811(a),
Tte III, and 907(b), Tte I , of the Soca Securty ct.
The term wages as used n Ttes III and I of the Soca
Securty ct means a remuneraton for empoyment, ncudng
the cash vaue of a remuneraton pad n any medum other than
cash.
n empoyee of the M Company may, upon permsson of the
head of the department n whch he s workng and of the N Depart-
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451
Regs. 91, rt. 14.
ment, enter nght schoos for addtona tranng n any sub|ect
whch has been approved by those departments of the company.
Such schoos are not conducted by the company. If the empoyee
makes a passng grade, he s rembursed for one-haf of the tuton
payments made Dy hm. It s hed that, under these condtons, such
rembursements consttute wages wthn the meanng of sectons
811(a), Tte III, and 907(b), Tte I , of the Soca Securty
ct.
Secton 811: Defntons. I-40-8958
Reguatons 91, rtce 14: Wages. S. S. T. 196
( so Secton 907 Reguatons 90, rtce 207.)
n amount pad by the M Mners Unon to a member thereof
for tme ost from hs reguar empoyment whe conductng nego-
tatons for the unon wth the N Company consttutes wages
wthn the meanng of secton 811(a), Tte III, and secton
907(b), Tte I , of the Soca Securty ct.
dvce s requested whether an amount pad to a member of the
M Mners Unon for servces performed as the unon s representa-
tve n conductng negotatons wth the N Company, such amount
servng as rembursement for the tme ost from hs reguar empoy-
ment, consttutes wages wthn the meanng of secton 811(a), Tte
III, and secton 907(b), Tte I , of the Soca Securty ct.
Sub|ect to a mtaton under Tte III of the ct, and to certan
e ceptons under Ttes III and I not here appcabe, the term
wages s defned under those ttes to mean a remuneraton for
empoyment, ncudng the cash vaue of a remuneraton pad n
any medum other than cash.
It s hed that the M Mners Unon s the empoyer of the member
wth respect to the servces rendered n negotatons wth the N
Company, and that the amount pad to hm as rembursement for
tme ost from hs reguar empoyment consttutes wages for the
purposes of the ta es mposed under Ttes III and I of the
Soca Securty ct. (See S. S. T. 176 (page 445, ths uetn),
wheren t was hed that servces performed for a mners unon are
not e cepted from the ta ng provsons of the Soca Securty ct
under sectons 811(b)8 and 907(c) 7 of that ct.)
Secton 811: Defntons. I-43-9005
Reguatons 91, rtce 14: Wages. S. S. T. 206
( so Secton 907 Reguatons 90, rtce 207.)
onuses pad by the M Company, a manufacturer, to saesmen
empoyed by reta deaers seng ts products n order to encourage
the sae of such products do not consttute wages wthn the
meanng of Ttes III and I of the Soca Securty ct.
S. S. T. 42 (C. . -2, 418 (193G)) modfed.
dvce s requested whether bonuses pad under crcumstances
herenafter set forth consttute wages wthn the meanng of the
ta ng provsons of the Soca Securty ct.
The M Company, a manufacturer, has agreed wth varous deaers
engaged n seng ts products to pay a bonus to each of the deaers
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Regs. 91, rt. 14.1
452
empoyees whose saes reach a certan voume. No other remunera-
ton s pad by the M Company to the empoyees of the deaers nor
does t have the rght to e ercse any contro over them. The saes-
men are hred and pad by the deaers, are entrey under ther con-
tro, and are, therefore, ther empoyees. The manufacturng concern
sometmes sends bonus checks to the ndvdua saesmen, whe n
other nstances t authorzes the deaers to pay the bonuses to the
empoyees who quafy and remburses the deaers for the amounts so
pad.
The term wages, as used n Ttes III and I of the Soca
Securty ct, means a remuneraton for empoyment, sub|ect to
a mtaton under Tte III not here appcabe. The name by
whch remuneraton for servces s desgnated s mmatera. Thus,
saares, fees, bonuses, and commssons on saes are wages wthn
the meanng of the ct f pad by an empoyer to hs empovee as
compensaton for empoyment. (Reguatons 91, artce 14 Re|ru-
ntons 90, artce 207.) mpoyment s defned under Ttes III
and I of the ct as any servce, of whatever nature, performed
wthn the Unted States by an empoye for hs empoyer wth cer-
tan e ceptons whch are not appcabe to the queston presented.
In order for remuneraton to consttute wages under the ta ng
provsons of the ct, t must be remuneraton for empoyment. It
s necessary n order for servces to consttute empoyment that they
be performed by an empoyee for hs empoyer. It s apparent, there-
fore, that remuneraton does not consttute wages for the purpose
of Ttes III and I of the ct uness t s compensaton for serv-
ces performed by an empoyee for hs empoyer n an empoyment.
The bonuses pad to the saesmen by the M Company, the manufac-
turer, whether drecty or through an agent (the deaer), are not
remuneraton for servces performed for the deaer who empoys the
saesmen, but are compensaton for servces rendered to the manu-
facturer. Under the facts presented, the saesmen are not empoyees
of the M Company, the manufacturer, and therefore, the bonuses
pad by t to saesmen empoyed by the reta deaers do not const-
tute wages wthn the meanng of Ttes III and I of the ct.
Snce the concuson reached n S. S. T. 42 (C. . -2, 418
(1936)) s contrary to the concuson reached heren, that rung s
modfed accordngy.
Secton 811: Defntons. I-43-9006
Reguatons 91, rtce 14: Wages. S. S. T.207
( so Secton 907 Reguatons 90, rtce 207.)
commsson pad to , an offce empoyee of the M Company,
for submUng the name of a prospectve customer to whom mer-
chandse was subsequenty sod consttutes wages, whereas a com-
msson pad to , a former customer of the M Company who s not
an empoyee of the company, for submttng the name of a prospec-
tve customer to whom merchandse was sod does not consttute
wages for the purpose of the ta ng provsons of the Soca Se-
curty ct.
dvce s requested whether commssons pad under the foowng
crcumstances consttute wages for the purpose of Ttes III and
I of the Soca Securty ct:
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453
Regs. 91, rt. 14.
(a) commsson s pad to , an offce empoyee of the M Com-
pany, for submttng the name of a prospectve customer to whom
merchandse was subsequenty sod by one of the company s reguar
saesmen. The usua dutes of do not nvove any saes actvtes.
Is such commsson consdered wages for the purpose of Ttes
III and I of the Soca Securty ct
The term wages s defned under sectons 811(a) and 907(b)
of the ct to mean a remuneraton for empoyment sub|ect to
a mtaton under Tte III not here appcabe. rtce 14 of
Reguatons 91, appcabe to Tte III, provdes that the name by
whch remuneraton for servces s desgnated s mmatera. Thus,
saares, fees, bonuses, and commssons on saes are wages wthn
the meanng of the ct f pad by an empoyer to hs empoyee as
compensaton for empoyment. rtce 207 of Reguatons 90,
appcabe to Tte I , contans a smar provson. The term em-
poyment as used n Ttes III and I of the ct means any serv-
ce, of whatever nature, performed wthn the Unted States by an
empoyee for hs empoyer wth certan e ceptons not here matera.
Snce s an empoyee of the M Company, the commsson pad
to hm by the company for submttng the name of a prospectve
customer to whom merchandse was subsequenty sod consttutes
wages wthn the meanng of Ttes III and I of the Soca
Securty ct.
b) commsson s pad to , a former customer of the M Com-
pany who s not an empoyee of the company, for submttng the
name of a prospectve customer to whom merchandse was sod by
one of the company s reguar saesmen. No contro s e ercsed over
the actvtes of such former customer. Does the commsson n ques-
ton consttute wages wthn the meanng of Ttes III and I
of the ct
Inasmuch as the former customer s not an empoyee of the M
Company, the commsson pad to hm s not remuneraton for
empoyment and, consequenty, not wages wthn the meanng
of Ttes III and I of the ct.
Secton 811: Defntons. I-47-9054
Reguatons 91, rtce 14: Wages. S. S. T. 222
( so Secton 907 Reguatons 90, rtce 207.)
or the purpose of the ta es mposed under Ttes III and I
of the Soca Securty ct, the amount of an empoyee s contrbu-
ton vountary pad by hs empoyer nto the unempoyment fund
of the State of R wthout deducton from the remuneraton of the
empoyee w not be consdered as addtona wages.
dvce s requested whether the amount of an empoyee s contrbu-
ton vountary pad by hs empoyer nto the unempoyment fund of
the State of R wthout deducton from the remuneraton of the em-
poyee consttutes addtona wages for the purpose of the ta es
mposed under Ttes III and I of the Soca Securty ct.
The term wages s defned under the ta ng provsons of the
ct as a remuneraton for empoyment, sub|ect to a mtaton
under Tte III not here appcabe. The unempoyment compen-
saton aw of the State of R provdes that an empoyee s requred to
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Regs. 91, rt. 14.
454
pay nto the unempoyment fund of that State a contrbuton of
per cent of the remuneraton pad to hm by an empoyer wth respect
to empoyment. Such contrbutons are deductbe by the empkoyer
from the remuneraton of the empoyee.
In S. S. T. 83 (C. . 1937-1, 437) t was hed that the amount of
empoyees ncome ta mposed by secton 801 of the Soca Securty
ct whch s vountary pad by the empoyer wthout deducton
from the remuneraton of hs empoyees w not be consdered as ad-
dtona wages for the purpose of Ttes III and I of the
ct,
It s kewse hed that the amount of an empoyee s contrbuton
whch s vountary pad by an empoyer nto the unempoyment
fund of the State of R wthout deducton from the remuneraton of
the empoyee w not be consdered as addtona wages for the
purpose of the above-mentoned ttes of the ct.
Secton 811: Defntons. I-48-9066
Reguatons 91, rtce 14: Wages. S. S. T. 225
( so rtce 9.)
Computaton of wages under Tte III of the Soca
Securty ct where an empoyee receves from an empoyer monthy
remuneraton at a rate In e cess of 3,000 per year.
Computaton of wages under Tte III of the Soca Securty
ct where an empoyee attans the age of 65.
The foowng questons have been presented wth respect to Tte
III of the Soca Securty ct:
(1) Where an empoyee who s pad monthy receves remunera-
ton for empoyment at a rate n e cess of 3,000 per year, shoud
hs ta abe wages under Tte III of the Soca Securty ct be
computed on the bass of hs tota saary each month unt the aggre-
gate pad equas 3,000, or on the bass of 250 each month whch n
the course of the year w tota 3,000
(2) What method shoud be empoyed n computng the wages
of an empoyee who attans the age of 65 durng a pay perod
Secton 811 of the Soca Securty ct provdes n part as foows:
(a) The term wages means a remuneraton for empoyment, ncudng
the cash vaue of a remuneraton pad n any mednm 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 Indvdua by an empoyer
wth respect to empoyment durng any caendar year, s pad to such ndvdua
by such empoyer wth respect to empoyment durng such caendar year.
(b) The term empoyment means any servce, of whatever nature,
performed wthn the Unted States by an empoyee for hs empoyer, e cept

(4) Servce performed by an Indvdua who has attaned the age of 65.
Where an empoyee who s pad monthy receves from an empoyer
remuneraton for empoyment at a rate n e cess of 3,000 per year,
hs ta abe wages under Tte III of the ct must be computed
monthy on the bass of the tota amount pad each month unt
the aggregate so pad wth respect to empoyment durng such year
equas 3,000. Where such aggregate e ceeds 3,000, the amount n
e cess thereof does not consttute ta abe wages.

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455
Regs. 91, rt. 14.
ampe 1: Durng 1937, receves remuneraton for empoyment
at the rate of 3,600 per year or 300 per month. s tota monthy
saary consttutes wages unt 3,000 has been pad wth respect to
empoyment durng the year. If 3,000 s pad for empoyment dur-
ng the frst 10 months of the year, hs remuneraton for November
and December does not consttute wages.
ampe 2: Durng 1937, receves remuneraton for empoyment
at the rate of 3,480 per year, or 290 per month. If pad at ths
rate for empoyment durng the year, at the end of October an aggre-
gate of 2,900 has been pad. On November 30, s pad hs reguar
monthy saary of 290. Snce 190 of ths amount s n e cess of
the aggregate of 3,000 pad wth respect to empoyment durng the
year, ony 100 of the payment on November 30 consttutes wages
under Tte III of the ct.
Dasmuch as servces performed by an empoyee who has attaned
the age of 65 are e cepted from empoyment under secton 811(b) 4,
supra, where an empoyee attans that age wthn a pay perod, hs
ta abe wages must be computed on the bass of the amount of re-
muneraton attrbutabe to servces performed n an empoyment
pror to the tme he attaned the age of 65. n empoyee attans the
age of 65 for purposes of the ta es mposed under Tte III of the
ct on the frst moment of the day precedng the s ty-ffth annver-
sary of hs brth (Reguatons 91, artce 9). Thus, where the s ty-
ffth annversary of an empoyee s brth occurs on the 17th of the
month, he attans the age of 65 on the frst moment of the 16th day of
that month and remuneraton for servces performed on and after
the 16th does not consttute wages.
ampe 3: C receves a monthy saary of 310. The s ty-ffth
annversary of hs brth occurred on the 20th of anuary, 1937. Snce
he attaned the age of 65 on anuary 19, 1937, ony the remuneraton
pad to hm wth respect to servces performed from anuary 1 to
anuary 18, ncusve, consttutes wages. Such wages shoud
be computed by dvdng hs tota remuneraton for the month of
anuary by 31, the number of days n that month, and mutpyng
the resut by 18, the number of days n whch he was engaged n an
empoyment, the resut beng 180, hs ta abe wages under Tte III
of the ct.
Secton 811: Defntons. I- 9-9078
Reguatons 91, rtce 14: Wages. S. S. T. 229
( so Secton 907 Reguatons 90, rtce 207.)
Where an empoyee of the M raternty who Is aso a member
thereof receves an aowance aganst hs dues as remuneraton for
servces performed as secretary of the fraternty, such aowance
consttutes wages sub|ect to the ta es mposed under Ttes
III and I of the Soca Securty ct.
dvce s requested whether an aowance made by the M rater-
nty aganst the dues of an empoyee who s a member of the frater-
nty for servces performed as secretary thereof consttutes wages
wthn the meanng of Ttes III and I of the Soca Securty ct.
Sub|ect to a mtaton under Tte III not here appcabe, sec-
tons 811(a), Tte III, and 907(b), Tte I , of the ct defne the
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Regs. 91, rt. 14.
456
term wages as a remuneraton for empoyment, ncudng the
cash vaue of a remuneraton pad n any medum other than cash.
In S. S. T. 18 (C. . -2, 416 (1936)) t was hed that the M
raternty, an empoyer as defned n secton 907(a) of the ct, s
sub|ect to the ta mposed by secton 901 thereof. That rung s
equay appcabe under Tte III.
Inasmuch as the aowance made to the secretary of the fraternty
aganst hs membershp dues s remuneraton for servces performed
n empoyment, such amount consttutes wages wthn the
meanng of Ttes III and I of the Soca Securty ct, and the
fraternty w be requred to pay the empoyers ta mposed by
secton 804 of the ct and to coect the empoyees ta mposed by
secton 801 thereof wth respect to such w ages, notwthstandng the
fact that payment s made n a medum other than cash. The aow-
ance shoud aso be taken nto consderaton n the computaton of
wages under Tte I of the ct.
Secton 811: Defntons. I-50-9091
Reguatons 91, rtce 14: Wages. S. S. T. 232
( so Secton 907 Reguatons 90, rtce 207.)
wards pad by the M Company to empoyees In Its manufactur-
ng pant for the submsson of suggestons to ncrease effcency,
comfort, etc., consttute wages wthn the meanng of Ttes III
and I of the Soca Securty ct.
dvce s requested whether awards pad by the M Companv to ts
empoyees for submsson of suggestons n order to ncrease effcency,
comfort, etc., consttute wTages wthn the meanng of Ttes III and
I of the Soca Securty ct.
It s stated that suggeston bo es are paced at varous paces
throughout the pant and that empoyees may submt suggestons
ntended to ncrease the effcency, comfort, and heathfu condtons
wthn the pant. Where a suggeston s approved, an amount s
pad to the empoyee submttng t, and four tmes each year fna
awards are made based on the best suggestons submtted wthn the
year. The empoyees are not requred to make suggestons and there
s no agreement that the company w pay for them.
Sectons 811(a) and 907(b) of the Soca Securty ct defne the
term wages as a remuneraton for empoyment sub|ect to a
mtaton under Tte III not here appcabe. In S. S. T. 29 (C.
. -2, 417 (1936)) t was hed that przes awarded to saesmen,
wnners of contests conducted by ther empoyer, consttute wages
wthn the meanng of Tte I of the Soca Securty ct. That
rung s aso appcabe under Tte III. Snce the suggeston
awards are made n connecton wth, and as a resut of, the em-
poyment reaton e stng between the partes to the transacton, t
s hed that such awards consttute wages for the purpose of the ta es
mposed under Ttes III and I of the Soca Securty ct. The
fact that the suggestons are made vountary and there s no agree-
ment on the part of the company to pay the awards s mmatera.
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457
Regs. 91, rt. 16.
Secton 811: Defntons. I-41-8977
Reguatons 91, rtce 16: Items ncuded as S. S. T. 201
wages.
( so Secton 907 Reguatons 90, rtce 209.)
mounts pad to an empoyee temporary dsabed and who s
contnued n the empoy of hs empoyer consttute wages
wthn the meanng of Ttes III and I of the Soca Securty
ct
mounts pad to an ndvdua who s totay and permanenty
dsabed and who s no onger empoyed do not consttute wages.
S. S. T. 54 (C. . -2, 421 (1936)) modfed.
dvce s requested whether amounts pad to ndvduas under
the foowng crcumstances consttute wages wthn the meanng
of Ttes III and I of the Soca Securty ct:
(1) , an empoyee of the M Company, s temporary dsabed
through sckness unreated to hs empoyment and s pad a part
saary by the M Company whe so dsabed.
(2) , a former empoyee of the M Company, s permanenty ds-
abed and for that reason s no onger empoyed. The M Company
pays a reguar amount each month.
The term wages s defned under the ta ng provsons of
the Soca Securty ct to mean a remuneraton for empoy-
ment sub|ect to a mtaton under Tte III and to certan
e ceptons under Ttes III and I not here appcabe. Pay-
ment to an empoyee of so-caed dsmssa pay, vacaton aowances,
or sck pay consttutes wages. (Reguatons 90, artce 209(6)
Reguatons 91, artce 16( ).)
Where an empoyee s temporary dsabed and s contnued n
the empoy of hs empoyer, amounts pad by the empoyer to
such empoyee durng the perod of hs dsabty are cassfed as
sck pay wthn the meanng of artces 16(6) and 209(6),
supra, and accordngy consttute wages wthn the meanng
of Ttes III and I of the ct.
In the case of an ndvdua who s permanenty dsabed and
who performs no servces for hs former empoyer, the ega rea-
ton of empoyer and empoyee no onger e sts. ccordngy,
amounts pad to such ndvdua by hs former empoyer are n the
nature of a penson and do not consttute wages. (See S. S. T.
81, C. . 1937-1, 461.) Inasmuch as the repy to queston 2 (a),
consdered n S. S. T. 54 (C. . -2, 421 (1936)), s m confct wth
ths concuson, that rung s modfed to conform herewth.
Secton 811: Defntons. I-50-9092
Reguatons 91, rtce 16: Items ncuded as S. S. T. 233
wages.
Computaton of wages under Tte III of the Soca Securty
ct of an empoyee of the M Company where such empoyee en-
gages other ndvduas to assst hm wth the e press or mped
consent of the company, whch ndvduas do not appear on the
company s pay roL
dvce s requested reatve to the method of computng the wages
of , an empoyee of the M Company, for the purpose of the ta es
mposed under Tte III of the Soca Securty ct.
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Regs. 91, rt. 16
458
s engaged n seng merchandse for the M Company. To
assst hm n the sae of such merchandse, he engages the servces
of C and D as offce cerks wth the mped consent of the company.
owever, the company pays drecty, C and D beng pad by
from hs tota remuneraton. Durng the month of November, 1937,
receved commssons n the aggregate of 5a doars. e pad C
and D a doars each durng that month. s e penses durng
November amounted to 1.5a doars.
In S. S. T. 70 (C. . 1937-1, 387) t was hed that empoyees per-
formng servces under the drecton of , an empoyee of the M
Company n a department of the company supervsed by , are em-
poyees of the M Company wthn the meanng 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. The concuson reached n that rung s
appcabe to the nstant case. Thus , C, and D are a empoyees of
the M Company.
In computng the wages of for the purpose of Tte III of
the Soca Securty ct, the amount of remuneraton pad to C and
D, whch amount consttutes ther wages, shoud be deducted from
the gross remuneraton pad to . deducton may aso be made
from such amount for e penses ncurred by n the course of the
company s busness, provded accounts to the company for such
e penses and the company mantans the proper records n substanta-
ton thereof. (See generay S. S. T. 28, G . -2, 397 (1936).)
The remander, after these deductons are made, consttutes s
wages for the purpose of Tte III of the ct. It w be necessary
for the M Company to deduct and pay the empoyees ta mposed by
secton 801 of the ct and to pay the empoyers ta mposed by sec-
ton 804 wth respect to the wages of C and D as we as those of
and to keep proper records n connecton therewth as n the case
of ts other empoyees.
Secton 811: Defntons. I-50-9093
Reguatons 91, rtce 16: Items ncuded as S. S. T. 234
wages.
( so Secton 907 Reguatons 90, rtce 209.)
Premums pad by an empoyer pursuant to the requrements of
the workmen s compensaton act of the State of R for protecton
of hs empoyees aganst n|ures sustaned n the course of empoy-
ment do not consttute wages wthn the meanng of Ttes III
and I of the Soca Securty ct.
dvce s requested whether premums pad by an empoyer pur-
suant to the requrements of the workmen s compensaton act of
the State of R consttute wages wthn the meanng of Ttes III
and I of the Soca Securty ct.
In S. S. T. 54 (C. . -2, 421 (1936)) t was hed that benefts
pad to an empoyee pursuant to the Indana Workmen s Compen-
saton ct do not consttute wages wthn the meanng of Tte I
of the Soca Securty ct. That concuson s aso appcabe under
Tte III.
It s hed that premums pad by an empoyer on a pocy of n-
surance whch ho s requred to take out pursuant to the statutory
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459
Regs. 90, rt. 300.
requrements of the workmen s compensaton act of the State of R
for the protecton of hs empoyees aganst n|ury sustaned n the
course of empoyment do not consttute wages wthn the meanng
of Ttes III and I of the Soca Securty ct.
Secton 807: Coecton and payment of ta es. I-30-8848
Reguatons 91, rtce 401: Monthy ta returns. T. D. 4756
Monthy ta returns under Tte III of the Soca Securty
ct. rtce 401 of Reguatons 91, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
rtce 401 of Reguatons 91, approved November 9, 1936, reatng
to the empoyees ta and the empoyers ta under Tte III of the
Soca Securty ct, s amended to read as foows:
Monthy ta returns. very empoyer (see artce 4) sha make a monthy
ta return, n trpcate, on orm SS-1 for each caendar month begnnng wth
anuary, 1937. See, however, artce 404, reatng to fna returns.
Ths Treasury decson s prescrbed pursuant to the provsons of
secton 1102(a) of the Revenue ct of 1926 and secton 808 of the
Soca Securty ct.
Guy T. everng,
Commssoner of Interna Revenue.
pproved uy 22, 1937.
Roswt Mag,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 26, 1937, 9.33 a. m.)
TITL I . T ON MPLOY RS O IG T OR MOR .
Secton 901: Imposton of ta .
Reguatons 90, rtce 201: Measure of ta .
Wages pad to empoyee and subsequenty returned by hm to em-
poyer. (See S. S. T. 223, page 366.)
Secton 901: Imposton of ta .
Reguatons 90, rtce 201: Measure of ta .
Payment of wages by negotabe promssory note. (See S. S. T.
226, page 367.)
Secton 905: dmnstraton, refunds, and penates.
Reguatons 90, rtce 300: Returns.
Partnershp conductng dfferent busnesses under dfferent trade
names. (See S. S. T. 182, page 373.)
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Regs. 90, rt. 205.
460
Secton 905: dmnstraton, refunds, and penates.
Reguatons 90, rtce 305: Due date of return.
Corporaton surrenderng charter. (See S. S. T. 188, page 377.)
Secton 905: dmnstraton, refunds, and penates.
Reguatons 90, rtce 308: Termnaton of busness.
Corporaton surrenderng charter. (See S. S. T. 188, page 377.)
Secton 905: dmnstraton, refunds, and penates.
Reguatons 90, rtce 503: Refund and credt of ta es
erroneousy coected.
Refund or credt of soca securty ta es. (See S. S. T. 235,
page 378.)
Secton 907: Defntons.
Reguatons 90, rtce 203: Persons abe for the ta .
Saares durng shut-down perod covered by use and occupancy
nsurance. (See S. S. T. 167, page 369.)
Secton 907: Defntons.
Reguatons 90, rtce 203 : Persons abe for the ta .
udng and oan assocatons of Caforna n process of qu-
daton. (See S. S. T. 186, page 371.)
Secton 907: Defntons.
Reguatons 90, rtce 204: Who are empoyers.
Changes n status of empoyers. (See S. S. T. 199, page 405.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Insurance agents under contract wth M Lfe Insurance Co. (See
G. C. M. 18705, page 379.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Operators of teephone e changes and ther assstants. (See
S. S. T. 170, page 382.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
antors servng severa property owners. (See S. S. T. 172,
page 385.)
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461
Regs. 90, rt. 205.
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Owner of store recevng payment of gas and eectrc bs pur
suant to contract wth M Company. (See S. S. T. 180, page 386.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Guardan of nfant benefcary of a trust estate. (See S. S. T.
181, page 387.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Waters engaged and pad by the M Cub to serve at dnners gven
at the cub by members. (See S. S. T. 183, page 388.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Servces performed by umpres for the M aseba ederaton.
(See S. S. T. 189, page 388.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Muscans. (See Mn. 4651, page 389.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Operator of motorcyce furnshed by one company to another n
operaton of devery servce. (See S. S. T. 197, page 392.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Truck drver or substtute performng servces under contract.
(See S. S. T. 198, page 393.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Check weghmen. (See S. S. T. 202, page 394.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
ccountants and audtors. (See S. S. T. 208, page 395.)
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Regs. 90, rt. 206(1). 462
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Servces performed bv outsde readers for M Moton Pcture
Co. (See S. S. T. 212, page 397.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Wresters. (See S. S. T. 217, page 398.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
arbers. (See S. S. T. 236, page 399.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Concessonare easng concesson from carnva. (See S. S. T. 237,
page 400.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Gof professona. (See S. S. T. 238, page 401.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Member of partnershp performng servces under contract of em-
poyment entered nto by partnershp. (See S. S. T. 239, page 402.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Physcan renderng medca servces to empoyees of coa company.
(See S. S. T. 240, page 403.)
Secton 907: Defntons.
Reguatons 90, rtce 205: mpoyed ndvduas.
Drvers of ta cabs purchased from ta assocaton. (See S. S. T.
241, page 401.)
Secton 907: Defntons.
Reguatons 90, rtce 206(1): grcutura abor.
Servces performed by cooks on ranches. (See S. S. T. 174,
page 418.)
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463 Regs. 90, rt. 200(1).
Secton 907: Defntons.
Reguatons 90, rtce 206(1): grcutura abor.
Servces performed n pantng, cutvaton, and growng of tung
trees and harvestng of tung nuts. (See S. S. T. 194, page 407.)
Secton 907: Defntons.
Reguatons 90, rtce 206(1) : grcutura abor.
Servces performed n the producton of mape srup and mape
sugar. (See S. S. T. 195, page 408.)
Secton 907: Defntons.
Reguatons 90, rtce 206(1) : grcutura abor.
Servces performed n growng of fowers and nursery stock.
S. S. T. 72 (C. . 1937-1, 4C8) and S. S. T. 73 (C. . 1937-1, 471)
revoked. (See S. S. T. 203, page 409.)
Secton 907: Defntons.
Reguatons 90, rtce 206(1) : grcutura abor.
Growng of vegetabes n greenhouses. (See S. S. T. 218, page
412.)
Secton 907: Defntons.
Reguatons 90, rtce 206(1): grcutura abor.
Growng, harvestng, dryng, transportng, fermentng, gradng,
and bang of cgar eaf wrapper tobacco. (See S. S. T. 219, page
412.)
Secton 907: Defntons.
Reguatons 90, rtce 200(1): grcutura abor.
Packng of ceberg ettuce. (See S. S. T. 220, page 414.)
Secton 907: Defntons.
Reguatons 90, rtce 206(1): grcutura abor.
reedng and rasng of dogs. (See S. S. T. 224, page 415.)
Secton 907: Defntons.
Reguatons 90, rtce 206(1): grcutura abor.
Ceanng, packng, and shppng of seeds. (See S. S. T. 230,
page 416.)
Secton 907: Defntons.
Reguatons 90, rtce 206(1): grcutura abor.
Mushroom growng. (See S. S. T. 231, page 417.)
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Regs. 90, rt. 206(5)-(6). 464
Secton 907: Defntons.
Reguatons 90, rtce 206(2): Domestc servce.
Servces performed by cooks on ranches. (See S. S. T. 174,
page 418.)
Secton 907: Defntons.
Reguatons 90, rtce 206(2): Domestc servce.
Status of servces performed n or about a prvate home. (See
S. S. T. 242, page 419.)
Secton 907: Defntons.
Reguatons 90, rtce 206(3): Offcers and members
of crews.
Crew of vesse temporary empoyees. (See S. S. T. 179, page
424.)
Secton 907: Defntons.
Reguatons 90, rtce 206(3) : Offcers and members of crews.
Shore servces performed by offcer or member of crew of vesse.
(See S. S. T. 204, page 427.)
Secton 907: Defntons.
Reguatons 90, rtce 206(3) : Offcers and members of crews.
Dock buders, casson buders, concrete m ers, and carpenters
performng servces on board vesses n constructng pers and docks.
(See S. S. T. 209, page 428.)
Secton 907: Defntons.
Reguatons 90, rtce 206(3) : Offcers and members of crews.
Cassfcaton of certan types of watercraft as vesses. (See
S. S. T. 210, page 429.)
Secton 907: Defntons.
Reguatons 90, rtce 206(3) : Offcers and members of crews.
Watchmen on vesses temporary or permanenty wthdrawn from
navgaton. (See S. S. T. 221, page 430.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6): Government empoyees.
Tubercuoss assocaton organzed and mantaned by county.
(See S. S. T. 168, page 431.)
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465 Regs. 90, rt. 206(5)-(6).
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
Indvdua paced n tranng wth M Company by State, company
beng rembursed by State for part of remuneraton. (See S. S. T.
169, page 432.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6): Government empoyees.
State oard of Law amners of Pennsyvana and ts empoyees.
(See S. S. T. 171, page 433.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6): Government empoyees.
anks and trust companes organzed under the aws of varous
States. (See Mm. 4621, page 434.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
mpoyees of essees of restrcted Indan ands and State ands.
(See S. S. T. 175, page 435.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
Servces performed for bank or trust company before t became a
member of edera Reserve System. (See S. S. T. 184, page 436.)
Secton 907: Defntons
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
Race track nspectors and stewards. (See S. S. T. 200, page 437.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
Contract ma carrers. (See S. S. T. 205, page 438.)
Secton 907: Defntons.
Reguatons 90, rtce 206 (5)-(6) : Government empoyees.
The M Muncpa League, a nonproft Mchgan corporaton. (See
S. S. T. 211, page 446.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6): Government empoyees.
State bank or trust company, member of edera Reserve System,
n qudaton. (See S. S. T. 213, page 441.)
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Regs. 90, rt. 207.
466
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
grcutura conservaton assocatons. (See S. S. T. 214, page
441.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6): Government empoyees.
Servces performed by custodan engneers and ther assstants for
the M oard of ducaton n New York State. (See S. S. T. 215,
page 443.)
Secton 907: Defntons.
Reguatons 90, rtce 206(5)-(6) : Government empoyees.
New ersey motor vehce agents and ther empoyees. (See S. S.
T. 228, page 444.)
Secton 907: Defntons.
Reguatons 90, rtce 206(7): Regous, chartabe,
scentfc, terary, and educatona organzatons and
communty chests.
Mners unon. (See S. S. T. 176, page 445.)
Secton 907: Defntons.
Reguatons 90, rtce 206 (7) : Regous, chartabe,
scentfc, terary, and educatona organzatons and
communty chests.
Cemetery corporaton not operated for proft. (See S. S. T. 185,
page 446.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
penses ncurred by empoyee n use of automobe n empoyer s
busness. (See S. S. T. 177, page 448.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
Computaton of wages of ndvdua performng servces both as an
offcer and a drector of the M Corporaton. (See S. S. T. 187,
page 448.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
Lunches served by the M Company to ts empoyees and remburse-
ment for unches obtaned esewhere. (See S. S. T. 192, page 449.)
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4G7
Regs. 90, rt. 209.
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
mounts pad by the M Company to ts empoyees as remburse-
ment for certan tuton payments. (See S. S. T. 193, page 450.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
Payment by M Mners Unon to member for tme ost from hs
reguar empoyment whe conductng negotatons for unon. (See
S. S. T. 19G, page 451.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
onuses. (See S. S. T. 206, page 451.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
Commssons, bonuses, etc. (See S. S. T. 207, page 452.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
mpoyee s contrbuton to State unempoyment fund vountary
pad by empoyer wthout deducton from remuneraton of empoyee.
(See S. S. T. 222, page 453.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
mpoyee of fraternty recevng aowance for dues. (See S. S.
T. 229, page 459.)
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
wards pad to empoyees for submsson of suggestons. (See
S. S .T. 232, page 456.)
Secton 907: Defntons.
Reguatons 90, rtce 209: Items ncuded as wages.
mounts pad to empoyees temporary or permanenty dsabed.
(See S. S. T. 201, page 457.)
Secton 907: Defntons.
Reguatons 90, rtce 209: Items ncuded as wages.
Insurance premums pad by empoyer pursuant to workmen s
compensaton act. (See S. S. T. 234, page 458.)
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MISC LL N OUS T RULINGS.
TITL III. ST T T . (1926)
S CTION 301.
Reguatons 80(1934), rtce 9(b) : Credt I-38-8937
for estate, nhertance, egacy, or succes- Ct. D. 1261
son ta es.
ST T T R NU CT OP 1020 D CISION OP COURT.
1. Credt fob State Inhertance Ta Lmted to mount
ctuay Pad.
The 80 per cent credt for State nhertance ta es s mted to
the amount actuay pad and does not ncude a depost n a
arger amount, made pursuant to State aw, to nsure payment of
the ta at some future tme upon the transfer of utmate re-
manders.
2. ssessment Whether Tmey Made Court Can Not Con sdes
ueston Not Rased n Refund Cam or n Peadngs.
The court can not consder whether assessment was tmey made
where the pont was not rased as a ground for recovery ether n
the cam for refund or n the peadngs. The reguatons requre
that cam for refund sha set forth each ground upon whch the
refund s camed, and facts suffceut to apprse the Comms-
soner of the e act bass thereof.
Unted States Dstrct Court for the Southern Dstrct of New York.
ua ronauer, braham . errck, and acob ron, ecutors and ecutr
of the state of oseph ron, Deceased, pantffs, v. Unted States of merca,
defendant.
anuary 11, 1037.
opnon.
Patterson, D. .: 1. The pantffs were entted to a credt (not n e cess
of 80 per cent) for the New York nhertance ta actuay pad wthn three
years after fng the return. Wthn the 3-year perod they pad to the
State of New York a net amount of . 5,861.76 n cash, and for that they were
gven credt. It s true that the pantffs aso deposted wth the State secur-
tes worth 18,420.10, under the provsons of secton 241 of the New York
ta aw, for the purpose of securng payment of the ta on the transfer of
utmate remanders. Ths depost, however, was not payment of a ta , but
ony a depost to nsure payment at some tme n the ndefnte future. (See
Soomon v. State Ta Commsson, 278 U. S., 484.) The Commssoner was
rght n aowng no more than the 5,861.76 pad n cash as a credt aganst
the estate ta .
2. On the tra the pantffs rased the pont that the assessment of estate
ta was made too ate. The assessment was evdenty not tmey as to the
e ecutors, athough as to transferees t was seasonabe. ut the pont was not
rased as a ground of recovery ether n the cam for refund fed wth the
t
(408)
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469
Regs. 80(1934), rt. 10.
Commssoner or In the peadng fed In ths sut. It can not now be con-
sdered. y reguaton havng the force of aw, the pettoners were requred
to set forth In ther cam for refund each ground upon whch the refund was
camed and facts suffcent to apprse the Commssoner of the e act bass
thereof. There s no mert n the argument that the pettoners were msed
by the Commssoner.
The petton w accordngy be dsmssed. The defendant w present
fndngs and concusons.
S CTION 302 O T R NU CT O 1926, S M ND D Y OINT
R SOLUTION O M RC 3, 1931, S CTION 803 O T R NU CT
O 1932, S CTIONS 401 ND 404 O T R NU CT O 1934, ND
S CTION 805 O T R NU CT O 1936.
Reguatons 80 (1934), rtce 10: Character I-32-8808
of nterests ncuded. . T. 10
( so rtce 2.)
Payments made under secton 203 of the Soca Securty ct to
the estate of a decedent are Incudbe n hs gross estate for
edera estate ta purposes.
dvce s requested whether payments made under secton 203
of the Soca Securty ct to the estate of a decedent consttute a
part of the decedent s gross estate for edera estate ta purposes.
Secton 203 of the Soca Securty ct, approved ugust 14, 1935
(49 Stat., 620), provdes as foows:
Seo. 203. (a) If any ndvdua des before attanng the age of 65, there
sha be pad to hs estate an amount equa to 3 per centum of the tota wages
determned by the board to have been pad to hm wth respect to empoyment
after December 31, 1936.
(b) If the board fnds that the correct amount of the od-age beneft payabe
to a quafed ndvdua durng hs fe under secton 202 was ess than 8
per centum of the tota wages by whch such od-age beneft was measurabe,
then there sha be pad to hs estate a sum equa to the amount, f any, by
whch such 3 per centum e ceeds the amount (whether more or ess than
the correct amount) pad to hm durng hs fe as od-age beneft.
(c) If the board fnds that the tota amount pad to a quafed ndvdua
under an od-age beneft durng hs fe was ess than the correct amount to
whch he was entted under secton 202, and that the correct amount of such
od-age beneft was 3 per centum or more of the tota wages by whch such
od-age beneft was measurabe, then there sha be pad to hs estate a sum
equa to the amount, If any, by whch the correct amount of the od-age beneft
e ceeds the amount whch was so pad to hm durng hs fe.
The provsons of Tte III of the Revenue ct of 1926, as
amended and suppemented by the Revenue ct of 1928, |ont resou-
ton of March 3,1931, and the Revenue cts of 1932, 1934, 1935, and
1936, are comprehensve and generay ncude n the gross estate
a transfers resutng from the decedent s death. ( rtce 2, Regua-
tons 80.)
Wth respect to the payments made under secton 203 of the Soca
Securty ct to the estate of a decedent, there s a transfer wthn
the purvew of the statute, snce the decedent s death generates rghts
n hs estate to receve such payments. s death s not ony the
occason for the passng of benefts to hs estate t s aso the cause
of t. In such a case the payment w, f t e ceeds 500, be made
under secton 203 to the e ecutors or admnstrators, to be admn-
stered as a part of the decedent s estate, or the payment may, f t s
500 or ess, be made under secton 205 to those persons who woud
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Regs. 80(1934), rt. 10.
470
have been entted utmatey to receve such payment had t been
made to the e ecutors or admnstrators. The fact that the payment
w be (or may be) made under secton 205 does not operate to re-
move such payment from that cass of property whch woud ord-
nary bo ncuded n the admnstraton of a decedent s estate.
Snce there s no provson of aw specfcay e emptng from
edera estate ta the payments made under secton 203 of the Soca
Securty ct, t s hed that n determnng edera estate ta
abty such payments are ncudbe n the gross estate of the de-
ceased ndvdua wth respect to whch the payment s made.
Reguatons 80 (1934), rtce 10: Character I-34-8890
of nterests ncuded. . T. 11
( so rtce 2.)
The amount payabe under subdvsons (c) and (d) of secton
724, Tte 5, of the Unted States Code from the cv servce retre-
ment and dsabty fund upon the death of an empoyee of the
edera Government Is ncudbe n the decedent s gross estate for
edera estate ta purposes.
dvce s requested whether the amount payabe under subdvsons
(c) and (d) of secton 724, Tte 5, of the Unted States Code from
the cv servce retrement and dsabty fund upon the death of an
empoyee of the edera Government s ncudbe n the decedent s
gross estate for edera estate ta purposes under secton 302 of the
Revenue ct of 1926, as amended by ont Resouton of March 3,
1931, secton 803 of the Revenue ct of 1932, sectons 401 and 404
of the Revenue ct of 1934, and secton 805 of the Revenue ct of
1936.
Subsectons (c) and (d) of secton 724, Tte 5, of the Unted States
Code provde as foows:
(c) In case the annutant sha de wthout havng receved In annutes
purchased by the empoyee s contrbutons as provded In (2) of secton 098 of
ths tte an amount equa to the tota amount to hs credt at tme of retre-
ment, the amount remanng to hs credt and any accrued annuty sha be pad,
upon the estabshment of a vad cam therefor, In the foowng order of
precedence:
rst, to the benefcary or benefcares desgnated In wrtng by such annu-
tant and recorded on hs ndvdua account
Second, f there be no such benefcary, to the duy apponted e ecutor or
admnstrator of the estate of such annutant
Thrd, f there be no such benefcary, or e ecutor or admnstrator, payment
may be made, after the e praton of 30 days from the date of the death of
the annutant, to such person or persons as may appear n the |udgment of the
Cv Servce Commsson to be egay entted thereto, and such payment sha
be a bar to recovery by any other person.
In the case of an annutant who has eected to receve an ncreased annuty
as provded In secton 698 of ths tte, the amount to be pad under the prov-
sons of ths subsecton sha be ony the accrued annuty.
(d) In case an empoyee sha de wthout havng attaned egbty for
retrement or wthout havng estabshed a vad cam for annuty, the tota
amount of hs deductons wth nterest thereon sha be pad, upon the estab-
shment of a vad cam therefor, n the foowng order of precedence:
rst, to the benefcary or benefcares desgnated n wrtng by such em-
poyee and recorded on hs Indvdua account
Second, f there be no such benefcary, to the duy apponted e ecutor or
admnstrator of the estate of such empoyee
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471
Regs. 70(1929), rt. 16.
Thrd, If there be no such benefcary, or e ecntor or admnstrator, payment
may be made, after the e praton of 30 days from the date of the death of the
empoyee, to such person or persons as may appear In the |udgment of the
Cv Servce Commsson to be egay entted thereto, and such payment sha
be a bar to recovery by any other person.
It s hed that the amount payabe under the above-quoted prov-
eons of secton 724, Tte 5, of the Unted States Code from the cv
servce retrement and dsabty fund upon the death of an empoyee
of the edera Government s ncudbe n the decedent s gross estate
for edera estate ta purposes. Where the decedent dd not desg-
nate a benefcary other than hs estate, the amount payabe upon hs
death s ncudbe n hs gross estate under subdvson (a) of sec-
ton 302 of the Revenue ct of 1926, as amended, and where he dd
desgnate a benefcary other than hs estate the amount payabe upon
hs death s ncudbe n hs gross estate under subdvsons (c) and
(d) of that secton.
S CTION 302.
Reguatons 70(1929), rtce 15: Transfers I-40-8959
durng fe. Ct. D. 1266
( so rtce 18.)
ST T T R NU CT O 1920 D CISION O COURT.
1. Gsoss state Transfers Contempaton or Death.
The decedent n 1926, at the age of 85 years, transferred to hs
three sons substantay a of hs property and on the same day
e ecuted hs w, namng the sons as benefcares. t the same
tme and as a part of the same transacton the sons agreed to pay
to the decedent durng hs fe a yeary sum, whch was thereafter
pad n quartery payments unt the decedent s death n 1931.
The sons aso agreed to pay specfed amounts to the grandchdren
and the brother of the decedent, whch amounts were mmedatey
pad out of the transferred assets. The record shows that at the
tme of the transfer the decedent was n good heath e cept for
mpared vson that hs wfe had ust ded that the transfers
were made to the natura ob|ects of hs bounty that the sons
were ndependenty estabshed n busness and that pror gfts
had been made to them wth the apparent purpose of equazng
matters because of debts of some of the sons to the father rather
than pursuant to any contnung pocy of makng gfts. Under
these facts, there was substanta evdence n the record to support
the fndng of the oard of Ta ppeas that the transfer was
made n contempaton of death wthn the meanng of secton
302(c) of the evenue ct of 1926.
2. Deducton aue op nnuty.
Under the facts shown, the transferee of decedent s property was
not pre|udced by the fndng of the oard of Ta ppeas that,
for the purpose of aowng a deducton from the gross estate, the
vaue of the annuty shoud not be greater than ts present vaue
at the tme of the transfer as determned by the Commssoner from
the tabe n the reguatons, and such fndng can not be dsturbed
where t appears that the amount of the annuty was appro -
matey the same as the ncome derved from the transferred prop-
erty and that under the reguatons the vaue of such an annuty
shoud not be deducted from the vaue of the transferred property
at the tme of decedent s death.
3. Certorar Dened.
Petton for certorar dened une 1, 1937.
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Regs. 70(1929), rt. 15.
472
Unted States Crcut Court of ppeas fob the ghth Crcut.
Robert IS. Updke, pettoner, v. Commssoner of Interna Revenue, respondent.
88 ed. (2d), 807.
On petton to revew decson of Unted States oard of Ta ppeas.
efore Gardner, Woodbough, and Thomas, Crcut udges.
March G, 1937.
OPINION.
Thomas, Crcut udge, devered the opnon of the court.
dward Updke, a resdent of Omaha, Nebr., ded uy 29, 1031, at the age
of 01 years 10 mouths and 0 days. The Commssoner of Interna Revenue, a
1934, gave notce to hs three sons of a proposed assessment aganst them of
11,401.93 consttutng ther abty as transferees of property of the deceased
under sectons 315(b) and 310 of the Revenue ct of 1926 and as fducares
under secton 3407 of the Revsed Statutes of the Unted States on the ground
that the transfer was made n contempaton of death. Petton for redeter-
mnaton of the assessment was fed wth the Unted States oard of Ta
ppeas wthn the statutory perod, and the case comes here on petton of
one of the sons for revew of the order of redetermnaton of the oard
confrmng the proposed assessment by the Commssoner.
Two questons are presented for revew:
1. Is there any substanta evdence n the record to sustan the decson that
the transfer was made n contempaton of death
2. If so, was the ta propery cacuated
The transfer n queston was made by dward Updke on May 5, 1926, when
he was 85 years 7 months and 11 days of age. On that day by deed of gft
he transferred to hs three sons |onty substantay a of hs property con-
sstng of securtes of the vaue at the tme of hs death of 453,871.45. On
the same day he e ecuted hs w, namng hs three sons as benefcares, share
and share ake, of a hs property.
t the same tme, and as a part of the same transacton, the three sons
e ecuted and devered to ther father an agreement n wrtng, rectng that
n consderaton of ove and affecton, and other good and vauabe consdera-
tons, they |onty and severay agreed to pay to hm durng hs fe, the
yeary sum of 27,000 n four equa quartery payments, free and cear of a
ta es, ncudng edera ta es.
In connecton wth these transactons, and at the request of the father, the
three sons oray agreed to pay the sum of 70,000, beng 10,000 each, to the
seven grandchdren of the deceased, and 1,000 to hs brother. The payments
were mmedatey made by the sons out of the transferred assets.
t the ora request of the deceased the sons set asde 190,000 of the
securtes transferred to secure the payment of the annuty.
rom May 5, 1920, to the date of decedent s death, on uy 29, 1931, the
27,000 annuty was pad by the transferees n quarter-yeary payments.
The two fndngs of the oard camed to be erroneous n the petton for
revew are that:
1. The transfer of substantay a of decedent s property of May 5, 1926,
was not a bona fde sae for an adequate and fu consderaton n money
or money s worth and was made n contempaton of death.
2. The vaue of an annuty of 27,000 payabe quartery on the fe of a man
85 years of age was 09,700.70 that that amount ony was deductbe from
the vaue of the transferred securtes ( 453,871.45) and that the baance
of 384,170.09 was ncudbe n the gross estate.
It s conceded at the outset by counse for the pettoner that n revewng
decsons of the oard of Ta ppeas ths court s mted to a consderaton
of errors of aw, and that the oard s fndngs may not be dsturbed f there
Is any substanta evdence to support them. ( annery v. WUeuts (C. C. .
8), 25 . (2d), 951 Washburn v. Commssoner (C. 0. . 8), 51 . (2d), 949
ca v. Commssoner (C. O. . 8), 53 . (2d), 806, 807 Whtow v. Com-
mssoner (C. C. . 8), 82 . (2d), 509 Rchards v. Commssoner (O. C. . 9),
81 . (2d), 369.)
The frst queston for consderaton s whether there s substanta evdence
n the record to support the oard s fndng that the transfer n queston
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473
Regs. 70(1929), rt. 15.
was made In contempaton of death wthn the meanng of the statute. The
statute, secton 302 of the Revenue ct of 1926 (ch. 27, 44 Stat, 9), provdes
that
The vaue of the gross estate of the decedent sha be determned by
Incudng the vaue at the tme of hs death of a property wher-
ever stuated

(c) To the e tent of any Interest theren of whch the decedent has at
any tme made a transfer In contempaton of death
The fndng of the oard that the transfer was made n contempaton
of death s a fndng of fact. The phrase, In contempaton of death, Is
used to descrbe the mpeng motve of the donor at the tme the gft was
made. The courts have gven the meanng of the phrase, as t s used n
the statute, carefu consderaton. It was anayzed at ength by Chef ustce
ughes n 1930 In Unted States v. Wes (283 U. S., 102, 51 S. Ct., 446, 75 L.
d., 867 Ct. D. 340, C. . -, 475 (1931) ) and snce that tme the courts
have endeavored to foow the rues there stated. Ths court has revewed
and apped the doctrnes of that decson on severa occasons: In an opnon
by udge Stone, In Nea v. Commssoner of Interna Revenue (53 . (2d),
806, 807) n an opnon by udge ooth, n Wcuts v. Stotze (73 . (2d),
868, 871) and n an opnon by udge Sanborn, n St. Lous Unon Trust Co.
v. ecker (76 . (2d), 851, 862). So far as appcabe here, these decsons
estabsh the foowng propostons: (1) the test of whether or not the trans-
fer was made n contempaton of death s aways to be found n the trans-
feror s motve (2) the motve whch nduces the transfer must be of the
sort whch eads to testamentary dsposton (3) n determnng the pres-
ence or absence of such motve the fact fndng trbuna, where the evdence
s crcumstanta, shoud take nto consderaton such crcumstances as (a)
the condton of the body and mnd of the transferor, (6) hs age, (c) hs
desre to be reeved of responsbty, (d) hs desre to dscharge any mora
obgatons, or (e) hs purpose to carry out some prevousy adopted pocy
wth respect to the ob|ects of hs bounty. ut, t Is ponted out by the
Supreme Court n the Wes case, supra, that
It s apparent that there can be no precse demtaton of the transac-
tons embraced wthn the concepton of transfers n contempaton of death,
as there can be none In reaton to fraud, undue nfuence, due process of
aw, or other famar ega concepts whch are appcabe to many varyng
crcumstances. There s no escape from the necessty of carefuy scrutnzng
the crcumstances of each case to detect the domnant motve of the donor In
the ght of hs body and menta condton, and thus gve effect to the man-
fest purpose of the statute.
s to decedent s motve, the oard havng revewed a the testmony, con-
cuded that The transfer s a substtute for testamentary dsposton. In
the fndngs and opnon of the oard t s shown that the age of Mr. Updke
was consdered the fact that he was n good heath that hs wfe had |ust
ded that hs sght was mpared that by the transactons of May 5, 1926,
he had dsposed of substantay a of hs estate to the natura ob|ects of hs
bounty that y these acts he put hs house n order aganst the tme of hs
demse that No other act was necessary or. so far as the record shows,
was ever done by the decedent reatng to the dsposa of hs property. It was
aso ponted out by the oard that the sons were ndependenty estabshed
In busness, were a fnancay we off and n nowse dependent upon gfts
from ther father that the decedent had made pror gfts to the sons, but wth
the apparent purpose to equaze matters because of certan debts of some of the
sons to the father, and not pursuant to any contnung pocy of makng gfts.
t the hearng before the oard now under revew, the pettoner assumed
the burden and undertook to show that the mpeng motve was consstent
wth the thought of fe and not of death. s counse contend that the test-
mony estabshes that the motve for the transfer conssts of the foowng ee-
ments a of whch negatve the fndng of the oard:
(a) To reeve decedent of the cares and worres connected wth the manage-
ment of hs estate, whch had become a burden due to hs mpared vson to
ease hs mnd and emnate the annoyance caused by havng strangers hande
hs securtes.
77964 88 16
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Regs. 70(1929), rt. 15.1
474
( ) To avod partaty n hs oans to hs sons.
(c) To avod an ety over oans to one son, who was n a hghy specuatve
busness.
(d) To carry out a pocy prevousy adopted of makng bera gfts to hs
sons and grandchdren from tme to tme.
(e) To afford decedent greater freedom to trave and In the e pendture
of an assured ncome as ong as he ved.
There s testmony n the record tendng to support each one of these nfer-
ences but t s not so concusve that the oard was bound to accept pet-
toner s theory.
There s no drect evdence to support the frst (a) nference. It s based
upon the fact that pror to the transfer the decedent s vson was mpared and
that he secured the assstance of a cerk n hs son s offce to ad hm n check-
ng hs securtes and n cppng hs coupons. The second (6) Inference s
based upon the fact that among the securtes transferred were notes of hs
three sons n unequa amounts representng oans made by the father. The
transfer had the effect of equazng the dvson of hs property among hs
sons. The father at varous tmes showed concern (c) over the fact that one
of the sons was engaged n the gran busness and deat on a reatvey arge
scae n gran futures contracts. The transferor, however, dd not say that ths
fact In any way nfuenced hs decson to gve the sons a of hs property. ad
he feared such specuatons woud resut n dsaster fnancay to the son It s
at east as reasonabe to Infer that the father woud have kept hs property
under hs own contro so that he coud hep the son when the day of ms-
fortune arrved as t s to assume that he woud gve hm a fu share of the
estate whe the son was st engaged In specuaton.
The fourth (d) concuson s drawn from the fact that In 1916 Mr. Updke
gave hs sons stocks of the vaue of 31,000: n 1917, stocks of the vaue of
40,500 and In 1022 he gave each of them 50,000 In cash. e aso made a
number of sma gfts to hs grandchdren at varous tmes pror to 192(5.
The ffth (e) eement s supported by testmony to the effect that the trans-
feror was fond of traveng that he was accustomed for severa years to make
trps for peasure, especay to hs od home n New ersey that he was de-
prved of ths peasure for some tme pror to hs wfe s death because of the
condton of her heath and that after her death and after the transfer of hs
property, consstng as has been ponted out of securtes, he resumed hs prac-
tce of makng a |ourney somewhere annuay.
these matters consdered together are as consstent wth the fndng of the
oard as they are wth the cam of the pettoner. They do not, therefore,
estabsh the contenton that the oard erred as a matter of aw n hodng that
the transfer was made n contempaton of death.
That the evdence supportng the fndng that the transfer was made In con-
tempaton of death s substanta can not, n our opnon, be doubted. Od
age n tsef Is not a decsve test, yet t s proper to be consdered as gv-
ng premontons and promptngs ndependent of morta dsease. (Unted
States v. Wes, supra nneke v. Wetts (D. C. Mnn.), 1 . Supp., 662, 663.)
That Mr. Updke by the deed of gft transferred substantay a of hs prop-
erty to hs three sons and on the same day e ecuted hs w In ther favor
are facts whch n themseves end support to the fndng that contempaton
of death was decedent s controng motve In makng the transfer. rom any
reasonabe pont of vew these facts, consdered n connecton wth decedent s
age, hs affectonate famy reatons and the fact that the bounty was not
essenta to the wefare of hs sons at that tme, ndcate a testamentary
dsposton. In the case of Igeheart v. Commssoner of Interna Revenue
(C. C. . 5) (77 . (2d), 704, 709) the court say: gft s to be regarded as
made n contempaton of death where the domnant motve of the donor s to
make proper provson for the donee after the death of the donor. Where
a gft of a of a arge estate, no art of whch n a probabty w be
consumed by the donees n the fetme of the donor, Is made by transfer
before death to chdren and grandchdren who are not In need, the act tsef
s evdence tendng to support the concuson that the gft was made n
contempaton of death. That concuson here s buttressed by a the other
facts consdered and enumerated by the oard. The good heath of the donor,
and the other facts and nferences reed upon by pettoner, may be regarded
as opposng consderatons, but they do not cance the substanta character
nor the weght to be accorded to the facts supportng the oard s fndng.
In the Igeheart case, supra, the decedent, at the age of 74, by the creaton
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475
Regs. 70(1929), rt. 15.
of two trusts and the e ecuton of a w on the same day, provded for the
conveyance to hs wfe and chdren of hs whoe estate amountng to more
than 2,000,000. Upon hs death the entre estate was assessed for an estate
ta under the Revenue ct of 1928. Upon petton to revew an order of re-
determnaton of the oard of Ta ppeas, the court observed:
In the crcumstances dscosed t reasonaby was to be nferred that each
of those nstruments beng a part of a comprehensve pan embracng the
entre estate of the decedent, ncudng the makng of a w, was made In
contempaton of death and that each of the trust nstruments was
a substtute for testamentary dsposton.
Upon smar facts a ke concuson was reached In Rengstorff v. McLaughn
(N. D. CaL) (21 . (2d), 177).
The second queston presented Invoves the correctness of the amount of
the ta . Secton 302() of the Revenue ct of 1920 provdes that there
sha be ncuded In the gross estate ony the e cess of the far market vaue
at the tme of denth of the property otherwse to be Incuded on account of
such transfer, over the vaue of the consderaton receved therefor by the
decedent. The Commssoner appyng ths statute determned the far market
vaue of the transferred assets at the tme of death to be 453,871.45 and, on
the theory that the annuty was a consderaton for the transfer, f ed ts
vaue at 09,700.76 and aowed a deducton In that amount. No queston s
rased as to the vaue of the transferred assets as so determned. Compant
s drected to the vaue attrbuted to the consderaton.
The vaue of the consderaton was found by takng the present vaue of an
annuty of 27,000 payabe quartery, to be pad n the future to a person
85 years of age, from a tabe n artce 13 of Treasury Reguatons 70 reatng
to the state Ta under the Revenue ct of 1926, wheren the present vaue of
annutes are tabuated n deta. The pettoner contends n ths court that a
greater deducton shoud have been aowed that the consderaton was the
sum of the payments actuay made and not the vaue of an annuty at the
date of the transfer and that even f the present vaue of an annuty at the
tme of the transfer shoud be consdered the proper amount the aowance
shoud be n the sum of at east 125,000. The ast contenton s based upon
evdence to the effect that the cost of an annuty, f purchased from a fe
nsurance company, woud be 125,000 nstead of 69,700.76.
The oard found that the cost of the annuty shoud not he an amount
greater than the respondent has determned. The oard further found, upon
ampe evdence to support such fndng, that the annuty of 27,000 amounted
appro matey to the same ns the Income derved from the transferred property.
Ths atter fndng partcuary s concusve here. The Court of ppeas s
wthout power, on revew of the proceedngs of the oard of Ta ppeas, to
make any fndngs of fact. ( evcrnq v. Rankn, 295 U. S., 123, 131 Ct. D.
966, C. . I -1, 160 (1935) Genera Uttet Operatng Co. v. cvcrng,
296 U. 8., 200, 206 TCt. D. 1055, C. . -1, 214 (1936)1 m-hurst Cemetery
Co. v. Commssoner, decded by the Supreme Court ebruary 1, 1937.) s
aready ndcated the revew by ths court s mted to the queston of whether
or not the decson of the oard s ether arbtrary or erroneous as a matter
of aw. proper determnaton of ths pont requres a further consderaton
of the appcabe statutes and reguatons.
rtce 20 of Reguatons 63 under the Revenue ct of 1921 provdes n part
that where the transfer was made n contempaton of death, the fu vaue of
the transferred property, as of the date of the decedent s death, shoud be In-
cuded n the gross estate rrespectve of the amount of ncome or of the annuty
payabe to the decedent. Itacs supped. rtce IS of Reguatons 70
under the Revenue ct of 1926, concernng reservaton of ncome or an annuty,
provdes:
transfer, not amountng to a bona fde sae for an adequate and fu
consderaton In money or money s worth, s ta abe where the decedent re-
served to hmsef durng fe the entre ncome of the property transferred.
In such a case the transfer of the prncpa takes effect n possesson and
en|oyment at the death of the decedent, and the vaue of the entre property
shoud be ncuded n the gross estate. Itacs supped.
Where n any case the transfer was made n contempaton of death, the
vaue of the transferred property, as of the date of the decedent s denth,
houd be ncuded n the gross estate whether or not the transfer was one
ntended to take effect n possesson or en|oyment at or after death.
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Regs. 80(1934), rt. 50.
476
Smar reguatons were n e stence under the Revenue ct of 1924. In
other words the reguatons under the ct of 1926 were n effect for some
years pror thereto. The rue appcabe has been recenty stated n rst
Nat. ank of Greeey, Coo., v. Unted States (C. C. . 10) (86 . (2d), 934
939), as foows: Congress wth knowedge of ths reguaton has repeatedy
revsed the Income ta ng statutes none of the ater cts n any way Im-
pnged on ths ong standng reguaton. Ths s such drect and convncng
proof of egsatve approva of the reguaton that the courts woud not be
warranted n overturnng t uness t s ceary nconsstent wth a statute
(Ctatons.)
These reguatons do not aow any deducton where property s transferred
n contempaton of death and an annuty In e change s pad by the trans-
feree to the decedent It must be borne n mnd that transfers n contem-
paton of death are ncuded wthn the same category, for the purposes of
ta aton, wth transfers ntended to take effect at or after the death of the
transferor. The domnant purpose s to reach substtutes for testamentary
dspostons and thus to prevent the evason of the estate ta . (Unted State
v. Wes, 283 U. S., 102, 116.) If the decedent Updke n ths case had kept
the property unt death hs estate woud have been ta ed for the entre
453,871.45. That beng the stuaton, why shoud the ta be ess where he
has transferred n contempaton of death and the transferee n substance has
agreed to coect the ncome and pay t back to hm n the form of an annuty
The transferees ost nothng n the fetme of the decedent The persona
property and ncome ta es are not dfferent than they woud have been had
the decedent kept the securtes. Secton 411, 26 U. S. C. ., specfcay pro-
vdes that the vaue of the gross estate sha be determned by ncudng the
vaue at the tme of hs death of a property . ut the vaue of the
transferred property at the tme of the decedent s death was not dmnshed
by the fact that there had been pad back to hm n the form of an annuty
an amount substantay equa to the ncome derved from such property. It Is
because of ths rather common sense resut that the varous reguatons no
doubt have consstenty provded that such an annuty shoud not be deducted
from the vaue of the transferred property at the tme of the decedent s death.
To regard such an annuty as consderaton woud ead to absurd consequences.
To evade estate ta es, f that were the rue, a the owner of property need do
woud be to transfer hs entre estate n contempaton of death and requre
the transferee to pay back the Income as an annuty. Shoud the decedent ve
for severa years onger than dd Updke, no estate ta mght be payabe at
a a resut drecty contrary to the ntenton of the statute, n that nstead
of preventng the evason of the estate ta such evason woud thereby be
promoted.
Secton 302(1) of the Revenue ct of 1926 was obvousy enacted to prevent
doube ta aton on the same economc nterest. If t were shown that the
annuty e ceeded to any substanta degree the ncome derved from the trans-
ferred property, t mght then be proper to consder such e cess n order to
avod doube ta aton. That stuaton s not present n ths case.
Under these crcumstances the decson of the oard of Ta ppeas can
not be dsturbed. The Commssoner has not appeaed nor taken any step,
so far as the record dscoses, ookng to a revson of the assessment and the
pettoner s not pre|udced thereby.
The order of the oard s affrmed, and the petton for revew s dsmssed.
, a nonresdent aen, was at the tme of hs death a member
wth unmted abty of a rench cv aw partnershp (soccte
en commandte smpe) whch, under the terms of the nstrument
creatng t and as provded by the aws of rance, was not ds-
soved by the death of a member but contnued unt the date
specfed n the nstrument between the survvng members and
the hers and representatves of a deceased member as com-
S CTION 303.
Reguatons 80(1934), btce 50: Stus of
property.
I-33-8881
G. C. M. 18718
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477
Regs. 80(1934). rt. 50.
mandtares, members wth abty mted to the amount of
ther capta contrbuton. The rench cv aw partnershp of
whch decedent was a member was the Pars partner of a domestc
partnershp whose other members were resdents of New York.
Under the aws of rance a cv aw partnershp s a ega entty
separate from ts members. ed, snce, under the aws of
rance, the cv aw partnershp s a ega entty separate from
Its members and was not dssoved by the death of a member, the
nonresdent aen decedent had no property stuated n the Unted
States at the tme of hs death by reason of the fact that the
rench cv aw partnershp of whch he was a member was a
member of a domestc partnershp.
G. C. M. 16104 (C. . -1, 363 (1936)) revoked.
n opnon s requested whether the nterest of , a nonresdent
aen decedent, n a rench cv ave partnershp (socete en com-
mandte smpe) attrbutabe to such partnershp s nterest n a
New York partnershp consttutes property stuated n the Unted
States whch s ncudbe n s gross estate for edera estate ta
purposes.
Secton 303 of the Revenue ct of 1926, contnued n effect by a
subsequent Revenue cts, provdes for the ncuson n the gross
estate of a nonresdent decedent of a property of the nonresdent
whch at the tme of hs death s stuated n the Unted States.
t the tme of hs death n 1928 was a ctzen and resdent of
rance and was a member of a rench cv aw partnershp (socete
en commandte smpe) engaged n busness n rance. The cv
aw partnershp of whch decedent was a member was tsef a mem-
ber of a domestc partnershp organzed and dong busness n New
York, the other partners beng resdents of New York, and s re-
ferred to n the partnershp agreement as the Pars partner.
The rench partnershp was orgnay organzed as a socete en
nom coectf under an nstrument whch was duy regstered and
pubshed n accordance wth the requrements of the rench aw.
The nstrument provdes that the socete sha contnue unt a spec-
fed date that t sha not be dssoved by the death of a member
that n the case of the death of one of the members the socete sha
contnue between the survvng members and the hers and repre-
sentatves of the deceased member, but ony as members command-
tares, ther contrbuton beng the amount of the nterest of the
deceased member n the corporate capta augmented as specfcay
provded and that the members commandtares sha be abe
up to the mt of ther commandte (capta contrbutons). One
of the members of the partnershp ded pror to the death of the
nstant decedent and the socete was transformed from a socete en
nom coectf nto a socete wth the four survvng members as asso-
cates severay responsbe, and the hers and representatves of the
deceased assocate as smpe command tares. Wrtten documents
makng these changes were duy e ecuted and regstered. The so-
cete thereupon became a socete en commandte smpe under the
rench aw.
It s contended by the representatves of s estate that, snce un-
der the aws of rance the rench partnershp s a ega entty ds-
tnct from ts members, such partnershp has a |urdca personaty
of the same nature as s possessed by corporatons under mercan
aw and must, therefore, be treated as a corporate entty and that,
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Regs. 80(1934), rt. 50.
478
snce the members of the rench partnershp do not own the part-
nershp property and the partnershp was not dssoved by the
death of a member, no part of the rench partnershp s nterest n
the New York partnershp was property of whch, at the tme of
hs death, was stuated n the Unted States wthn the meanng
of secton 303 of the Revenue ct of 1926.
The ega status of the rench partnershp s determnabe under
the aws of rance. Under such aws commerca assocatons are
dvded nto two groups, namey, assocatons of persons or accordng
to nterests (socetes en nom coetf and en commandte smpe) and
assocatons of capta or of shares socetes en commandte par ac-
tons and socetes anonymes). Socetes en commandte par actons
and socetes anonymes are counterparts of corporatons under our
aw. The socete en nom coectf s formed between two or more
persons and has for ts purpose the dong of busness under a cor-
porate name. Ony the names of the assocates may form part of
the corporate name. The assocates en nom coectf ndcated n the
nstrument are severay responsbe for the obgatons of the socete
even though ony one of the assocates has sgned, provded t was
done n the corporate name. The socete en commandte smpe s
formed between one or more assocates severay responsbe and
one or more assocates, mere nvestors of capta, who are desgnated
commandtares. It s conducted under a corporate name whch must
be that of one or more of the severay responsbe assocates. The
shares or nterests n such assocatons are not transferabe uness
there s a provson to the contrary n the artces of assocaton. The
death of one of the assocates termnates the socete uness t be pro-
vded otherwse n the artces of assocaton. In the absence of any
provson to the contrary, a of the assocates en nom coectf are
managers of the corporate busness and the socete must aways act
n ts own name through the managers, who aone can bnd t by con-
tract or otherwse. They must sue and be sued n the corporate
name. The socetes en nom coectf and en commandte smpe must
be evdenced by nstruments under pubc or prvate sgnature. Wth-
n a month after the organzaton of any commerca socete, copy of
the consttuent nstrument must be deposted wth the cerks of the
|ustce of the peace and of the court of commerce of the ocaty n
whch the socete s ocated. Wthn the same perod an e tract of
the consttuent nstrument and the documents attached must be pub-
shed n one of the newspapers desgnated to receve ega notces.
These formates must be comped wth under pan of nufcaton
as to the nterested partes. very commerca socete s aso requred
to regster n the regster of commerce of the corporate home gvng
the same nformaton. very change or modfcaton reatng to the
data requred to be regstered must aso be entered n the regster
of commerce. The shares or nterest n fnanca, commerca, or
ndustra socetes are persona property, athough rea estate s n-
cuded among the propertes of such socetes, such shares or nterests
beng consdered persona property wth reaton to each assocate
ony so ong as the socete contnues to e st.
The ega characterstcs of a rench socete en commandte smpe
are the same as the ega characterstcs of a socedad en cornandta
created under the aw of Puerto Rco as descrbed by Mr. ustce
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479
Regs. 80(1934, rt. 50.
Stone n the opnon n Puerto Rco v. Russe Co. e.t a. (1933)
(288 U. S., 476). In that case Puerto Rco brought sut n the
Insuar Dstrct Court aganst Russe Co., a socedad en com-
andta organzed under the aws of Puerto Rco to recover certan
assessments eved on ands of the company. The members of the
socedad, nono of whom were ctzens of Puerto Rco or domced
there, were not named as defendants. They appeared specay n
the Insuar Court and removed the cause to the Unted States Ds-
trct Court for Puerto Rco. The Unted States Dstrct Court
dened a moton to remand and gave ts decree for the respondents.
On appea to the Crcut Court of ppeas for the rst Crcut,
the |udgment of the Unted States Dstrct Court was affrmed.
Certorar was granted by the Unted States Supreme Court. The
ueston before that Court was whether the Unted States Dstrct
ourt had |ursdcton. The contenton was made on behaf of
Puerto Rco that the socedad was a |urdca entty under Puerto
Rcan aw, and, as n the case of a corporaton, ts domce, rather
than that of ts members, determned ctzenshp for purposes of
edera |ursdcton. Wth respect to the nature of the socedad,
the Court stated:
The tradton of the common aw s to treat as ega persons ony ncor-
porated groups and to assmate a others to partnershps. (Chapman v.
arney, 129 T . S., 677 Great Southern reproof ote Co. v.
ones, 177 U. S., 449 .) The tradton of the cv aw, as e -
pressed n the Code of Puerto Rco, s otherwse. Therefore to ca the
socedad en comandta a mted partnershp n the common aw sense, as the
respondents and others have done, s to nvoke a fase anaogy. In the aw
of ts creaton the socedad s consstenty regarded as a |urdca person.
It may contract, own property and transact busness, sue and be sued n ts
own name and rght. (Cv Code (1930), paragraphs 27 to 30 Code of Com-
merce (1930), paragraphs 95, 97, 123, 124.) Its members are not thought
to have a suffcent persona nterest n a sut brought aganst the entty
to entte them to ntervene as partes defendant. (See Peope v. Rvera
Zayas, 29 P. R., 423, 480.) It s created by artces of assocaton fed as
pubc records. (Code of Commerce, paragraphs 95, 98 compare Cv Code,
paragraphs 1558, 15C0.) Where the artces so provde, the socedad endures
for a perod prescrbed by them regardess of the death or wthdrawa of
Indvdua members. (Cv Code, paragraphs 1591, 15C6, 1598 Code of Com-
merce, paragraph 141.) Powers of management may be vested n managers
desgnated by the artces from among the members whose partcpaton s
unmted, and they aone may perform acts egay bndng on the socedad.
(Cv Code, paragraphs 1583, 1589 Code of Commerce, paragraphs 102, 106,
125.) Its members are not prmary abe for ts acts and debts (Code of
Commerce, paragraph 156), and ts credtors are preferred wth respect to
ts assets and property over the credtors of ndvdua members, athough
the atter may reach the nterests of the ndvdua members n the common
capta. (Cv Code, paragraph 1590 see untana ros, d Co. v. 8. Ramrez
d Co., 22 P. R., 707, 716.) though the members whose partcpaton s un-
mted are made contngenty abe for the debts of the socedad n the event
that ts assets are nsuffcent to satsfy them (Code of Commerce, paragraphs
125, 156 see Successors of M. Lamadrd d Co. v. Torrens, Mart or e d Co.,
28 P. R., 824), ths abty s of no more consequence for present purposes
than that mposed on corporate stockhoders by the statutes of some States.
(Compare Lousve, C. d C. R. Co. v. Letson 2 ow.. 497 , 557,
558 Lverpoo Insurance Co. v. Massachusetts. 10 Wa., 566, 575.) These
characterstcs under the Codes of Puerto Rco gve content to ther decaraton
that the socedad s a |urdca person. That personaty s so compete n
contempaton of the aw of Puerto Rco that we see no adequate reason for
hodng that the socedad has a dfferent status for purposes of edera
ursdcton than a corporaton organzed under that aw.
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Regs. 80(1934), rt. 50.
480
The rench cv aw partnershp s of e acty the same nature
as the socedad en comandta descrbed by the Court. The ega
personaty of the socete s as compete n contempaton of the aw
of rance as that of a corporaton organzed under the rench aw.
In G. . Mumm Co. of Rhems, rance, v. Thomas W. Mer,
en Property Custodan, et a., whch was decded by the Supreme
Court of the Dstrct of Coumba on May 15, 1925, quty No.
39680 (memorandum opnon), the court hed that the pantff was
a socete en nom coectf under the rench aw that whe t dd
not have a of the characterstcs of a body corporate as such body
s known and recognzed n ths country, t dd have many of the
attrbutes of a corporaton and that, gvng due regard to the at-
trbutes under rench aw of such a company, the concuson was
reached that substantay at east t was a corporate body created
under the aws of rance and was entted to have returned to t the
property whch had been sezed by the en Property Custodan.
The rtsh courts had occason to consder the nature of a rench
socete en nom coectf n Dreyfus v. The Commssoners of Inand
Revenue (1929) ( I rtsh Ta Cases, 560). The queston was
whether the members of the socete, whch had a branch n ngand,
were carryng on a partnershp busness there, n whch case the
members woud be abe to superta on the partnershp profts.
The court hed that the socete was a ega person dstnct from
the ndvduas composng t and that the profts n queston were
not profts of a partnershp wthn the meanng of secton 20 of
the Income Ta ct of 1918.
In Sanchez v. owers (70 ed. (2d), 715 (C. C. . 2)), the ques-
ton was whether certan persona property n New York standng
n the name of the nonresdent decedent Sanchez, but the tte to
whch under Cuban aw was vested n a socedad de ganancaes
composed of hmsef and hs wfe, was property of the decedent
stuated n the Unted States and requred to be ncuded n hs
gross estate. The court, speakng through ustce Learned and,
sad:
Nothng n the decson urnet v. rooks, 288 U. S., 378 sug-
gests that the devouton of a share n a foregn corporaton s ta abe,
merey because the corporaton has property n the Unted States, and that
the defendant does not so mantan. Nevertheess, even though we assume
that a socedad de ganancaes s a competey new and separate |urstc
person, the soe owner of a property acqured after marrage, as a ths prop-
erty was, t does not necessary foow that the estate of a deceased spouse
may not be ta ed for any part of ts assets. True, n ascertanng whether
an assocaton camng to be an entty sha be recognzed as such, a court
of the forum w ook to the State whch created t and so far as t was
mportant here whether the socedad s an entty, we shoud have to
see what the aw of Cuba sad about t ut the condtons upon the crea-
ton of an e cse are ony the power to ay one and an e pressed ntent. s
tor power, the property was here, and though the tte were n the socedad,
any event whch had a substanta ega resut upon Sanchez s Interest n t
woud serve. The ony queston s whether hs death was such an event, and
t must be owned that t woud probaby not have been, f the socedad
perssted thereafter wthout substanta change, f t had been ke an ord-
nary busness corporaton to whose actvtes the death of ts sharehoders s
ndfferent. ut that was not the case death necessary termnated the
socedad however much of an entty t had been. It mght st keep
a shadowy e stence durng qudaton, but that was merey of practca
necessty n fact ts assets thereupon became rpe for dstrbuton and must
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481
Regs. 70(1929), rt. 47.
be dstrbuted as soon as was convenenty possbe. The ega change be-
tween the nterest of the husband before and after dssouton therefore seems
to us to be bass enough to evy an e cse.
In the nstant case, under the aws of rance, the socetc s a ega
entty. The death of dd not termnate the socete. s ong as
t e sts the shares of the assocates are persona property under
rench aw. that happened by hs death was that he ceased
to be a member and hs hers and representatves succeeded to hs
share. The socete st perssted wthout substanta change.
In vew of the foregong, t s the opnon of ths offce that ,
the decedent n the nstant case, at the date of hs death had no
property n the Unted States by reason of the nterest of the socete
en commandte smpe ( rench cv aw partnershp) n the New
York partnershp wthn the meanng of secton 303 of the Revenue
ct of 1926.
G. CM. 16164 (C. . -1, 363 (1936)), hodng that the dece-
dent s nterest at the date of hs death n the property of the rench
partnershp attrbutabe to such partnershp s nterest n a New
York partnershp consttuted property of the decedent stuated n
the Unted States for edera estate ta purposes, s hereby revoked.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
Reguatons 70(1929), rtce 47: Condtona I-42-8993
bequests. Ct. D. 1270
ST T T R NU CT O 1926 D CISION O COURT.
Deducton equest to Charty Not Certan or scertanabe.
Where the decedent by hs w created a trust fund of hs entre
estate, the trust ncome to be pad to hs fve chdren for ther
ves wth bequest over of prncpa to a chartabe nsttuton, but
drected that f the ncome was nsuffcent to adequatey provde
for the need of any benefcary because of serous ness, physca
or menta ncapacty, or otherwse, then the trustees shoud n ther
dscreton pay to such benefcary any part of the prncpa they
mght deem advsabe, the vaue of the bequest to charty s not
certan or ascertanabe wthout resortng to con|ecture or guess-
work, and no deducton can be aowed therefor n determnng the
vaue of the decedent s net estate for edera ta purposes.
Dstrct Court or the Unted States for the Dstrct of Massachusetts.
ohn . McDonad, ecutor, v. Wam 31. Wech, Coector of Interna
Revenue.
17 ed. Sup., 549.
December 23, 193G.
OPINION.
Sweeney, .: Ths s an acton at aw fed by the e ecutor of the estate o
Mchae . McLaughn to recover an estate ta aeged to have been egay
assessed aganst the estate of the decedent by the Commssoner of Interna
Revenue.
The court adopts as ts fndngs of fact the foowng agreed statement of
facts fed by the partes hereto:
The decedent ded on anuary 25, 1933, eavng a ast w and testament n
whch he created a trust fuud of hs entre estate. e was survved by fve
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Regs. 70(1929), rt. 47.
482
sons and daughters, a of whom were over 50 years of age. On pr 11, 1934,
the pantff fed wth the coector an estate ta return showng a tota gross
estate of 78,840.49, and camed tota deductons of 107,869.49 whch ncuded
a chartabe deducton of 00,000 to the ome for Desttute Cathoc Chdren.
Under ths return no ta was payabe. On ebruary 13, 1935, the Commssoner
determned the gross estate to be 89,582.94, and aowed deductons, ncudng a
specfc e empton of 50,000, n the amount 66,511.24, resutng n a net estate,
sub|ect to ta , of 23,072.45 on whch a edera estate ta of 392.17 was as-
sessed and pad together wth nterest n the amount of 34.68. It s for the
return of ths ta and nterest totang 426.85 that ths sut was brought,
cam for refund was propery fed, and was dsaowed on December 28, 1935.
The trust created n the w provded that the ncome therefrom shoud be
pad n equa shares to the fve chdren of the testator, and by cause 2C pro-
vded that:
If n the opnon of the trustees the share of the ncome for any benefcary
or benefcares because of serous sckness, ness, physca or menta ncapac-
ty, or otherwse, of any benefcary or benefcares does not adequatey provde
for the fnanca need of such benefcary or benefcares on account of such
sckness, ness, physca or menta ncapacty, the sad trustees are hereby
authorzed to pay any part of the prncpa of the trust fund to such fnancay
embarrassed benefcary or benefcares as n the |udgment and dscreton of
sad trustees they deem advsabe.
t the tme of the testator s death, three of hs chdren were n good heath.
The fourth was weak physcay and mentay, had never been abe to support
hersef, and had no ncome other than that furnshed by the testator. or
severa years pror to the testator s death she had ved wth her brother, and
the testator had pad that brother 40 a month for her support. Shorty after
the death of the testator another sster was apponted conservator of her prop-
erty, and took her to ve wth her. The ffth was of a shftess type, drftng
about the country, dong odd |obs here and there.
The ome for Desttute Cathoc Chdren s a chartabe nsttuton wthn
the purvew of the revenue statutes here nvoved.
The soe queston presented s whether the secton of the w above quoted
renders the bequest to charty of such an uncertan character and amount as
to prevent ts beng a proper deducton from the decedent s gross estate for ta
purposes.
In the case of umes v. Unted States (276 U. S., 487 T. D. 4185, C. . II-2,
378 (1928) ), the court refused to aow as a proper deducton the aeged
vaue of an nterest n an estate whch was arrved at by a combnaton of the
standard e perence tabe of mortaty wth two other reatvey unknown tabes,
on the theory that such a vaue woud be mere guesswork. The rue seems to be
that a gft to a charty s deductbe when the amount that w go to charty
s certan or ascertanabe.
In Ithaca Trust Co. v. Unted States (279 T . S., 151 Ct. D. 61, C. . III-1.
313 (1929) ), the court hed that a devse of a fe estate to the testator s
wfe wth authorty to use from the prncpa any sum that may be necessary
to sutaby mantan her n as much comfort as she now en|oys wth a gft
over to charty dd not make the gft so uncertan that the deducton from the
gross estate coud not be aowed. The amount of money that coud be used
n any gven year for the support of the wfe was ony such amount as mght
be necessary to mantan her n her then comfort. The trustees coud ready
have ascertaned the ma mum amount that she coud have drawn In any year,
and thus there was no uncertanty as to the vaue of the devse to charty.
In the case of Ithaca Trust Co. v. Unted States (supra) the court stated
that the estate of the testator Is to be setted as of the date of the testator s
death, and that the ta s on the act of the testator, and not on the recept of
the property by the egatees. So much of the pantff s argument as reates to
payments to the chdren snce hs death, as a bass for ascertanng probabe
future necessary payments s not consdered as we must dea wth the matter
as of the date of the testator s death, and determne whether the vaue of the
charty bequest s ascertanabe or certan. The present case seems to come
wthn the doctrne n the umes v. Unted States (supra) where mere guess-
work must be empoyed to ascertan the vaue of the bequests whch eventuay
go to charty. Whe It has been argued by the pantff that the amounts, as
shown by e perence snce the death of the testator, to be used under the cause
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483
Regs. 70, rt. 99.
n the w w be reatvey sma, at best ths s mere guesswork. ny ong
sckness, physca or menta ncapacty, on the part of any one or more of the
chdren mght resut n a matera decrease of the funds. It s true that the
money s to be pad ony f, n the opnon of the trustees, the stuaton warrants
t. It s to be assumed, however, that they w fathfuy dscharge the request
of the testator whch s to the genera effect that f the ncome from the estate
of each chd was not suffcent to adequatey provde for the needs of the
benefcares on account of sckness, physca or menta ncapacty, they were
charged wth the duty of payng such benefcares such porton of the prncpa
as mght be needed. The devse to charty s not certan or ascertanabe
wthout resortng to con|ecture or guesswork. The pantff s moton for |udg-
ment n hs favor s therefore dened.
The pantffs requests for rungs are dened n so far as they are ncon-
sstent wth ths opnon, and are aowed n so far as they are consstent
wth t.
The defendant s requests for fndngs of fact and concusons of aw are
dened n so far as they are nconsstent wth ths opnon, and are aowed n
bo far as they are consstent wth t.
udgment may be entered for the defendant.
S CTION 325.
Reguatons 70, rtce 99: Cam for refund. I-30-8838
Ct. D. 1246
ST T T R NU CT O 1926 D CISION O COURT.
1. Interest Overpayment of Ta .
Where, upon fna computaton, an overpayment of edera estate ta
was determned, due to the retroactve appcaton of the reduced ta
rates prescrbed by the Revenue ct of 1920, the aowance of nterest on
the overpayment s specfcay prohbted, n vew of the provsons of
secton 325 of the ct.
2. Certorar Defed.
Petton for certorar dened March 29, 1937.
Court of Cams of the Unted States.
. Pennngton Pearson, dmr. state of rederck . ycr, Deceased, v. The
Unted States.
14 ed. Strop., 1016.
une 1, 1936.
OPINION.
Ltteton, udge, devered the opnon of the court.
The ony queston n ths case s whether secton 325 of the Revenue ct
of 1926 s appcabe to the overpayment of 321,9. 3.63 n respect of ta pad by
the estate of rederck . yer. That secton provdes as foows: ny ta
that has been pad under the provsons of Tte III of the Revenue ct of
1924 pror to the enactment of ths ct n e cess of the tn mposed by such
tte as amended by ths ct sha be refunded wthout nterest.
une 8, 1925, the estate of yer fed a return showng an estate tn of
2,370,953.38 computed n accordance wth the provsons of the Revenue ct
of 1924, aganst whch ta a credt of 502,738.32, on account of estate and n-
hertance ta es pad to the State of New York, was camed as provded n the
1924 ct. The dfference of 1,178,215.06 between the ta shown on the return
and the credt mentoned was pad une 8, 1025. The Commssoner audted
the return after the enactment of the Revenue ct of 1920 and determned an
estate ta of 1,808,758.54 computed n accordance wth the provsons of the
Revenue ct of 1928. In ths determnaton the Commssoner, not beng
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Regs. 70, rt. 99.
484
satsfed wth the proof as to payment of the New York nhertance ta , dd
not aow the camed credt therefor. fter some controversy the dfference
of 30,553.78 between the ta determned by the Commssoner and that pre-
vousy pad by the estate was pad on March 1, 1029, wth nterest of 13,491.98,
or a tota addtona payment of 44,135.70. In 1931 the estate submtted to the
Commssoner satsfactory proof as to the payment of the New York nhertance
ta and durng that year the Commssoner determned an estate ta abty
of 1,356,569.13, whch determnaton was kewse made pursuant to the
Revenue ct of 1926. The computaton resutng n ths ta abty dffered
from the prevous determnaton of the Commssoner ony In that a credt of
452,189.71 was aowed for New York nhertance ta to the e tent of 25
per cent of the gross edera estate ta determned. In other words, a gross
edera ta of 1,808,758.84 was computed pursuant to the Revenue ct of 1926,
a credt of 452,189.71 was aowed, and a net edera estate ta abty of
1,356,509.13 was determned. Inasmuch as 1,822,350.82 had prevousy been
pad, there was shown an overpayment of 465,781.69. s a resut of ths de-
termnaton the Commssoner refunded the addtona payment of ta and
nterest of 44,135.76 whch had been made March 1, 1929, but refused to refund
the baance of 421,645.93 on the ground that t was barred by the statute of
mtaton. It s now agreed that the Commssoner was n error n hodng
that the refund of the overpayment was barred. owever, n the presentaton
of proof n ths proceedng, t appeared that certan assets had been omtted
from the gross estate n the orgna return fed by the estate and by the
Commssoner n hs determnatons. s a resut of the ncuson of these
addtona assets the partes now agree that the correct overpayment s 321,-
933.63 and that pantff s entted to |udgment for that amount. Ths eaves
for consderaton ony the queston whether, n vew of the provsons of
secton 325 of the Revenue ct of 1926 herenbefore quoted, pantff s entted
to nterest on ths overpayment from the date of payment on une 8, 1925.
We thnk t s cear from the facts rected above that secton 325 s appcabe
to the overpayment, and accordngy no nterest may be aowed. The ta
pad by the estate pror to the enactment of the Revenue ct of 1926 was
1,778,215.00 e cusve of the addtona payment made n 1929 after the passage
of the Revenue ct of 1926, whch has been refunded, and therefore must be
dsregarded n ths case. The amount of 1,778,215.00 was computed and pad
under the provsons of Tte III of the Revenue ct of 1924. The e cess pay-
ment of 321,933.03, whch s now to te refunded, s the dfference between the
above-mentoned amount of 1,778,215.06 and the correct estate ta abty as
computed under Tte III of the Revenue ct of 1926. Ths dfference and
more s accounted for by the fact that the rates prescrbed by the Revenue ct
of 1926 were used n the fna computaton, whereas the rates prescrbed
by the Revenue ct of 1924 were used n the computaton of ta orgnay
pad by the estate. Whe t s true that the Commssoner n hs frst deter-
mnaton dd not aow any credt for New York nhertance ta , that a cam
for refund was fed on the ground that such credt shoud be aowed, and
that the overpayment was determned by the Commssoner after aowUv
the camed credt, these facts do not make secton 325 nappcabe. Thv
Revenue ct of 1924 provded for the credt, and ts aowance by the Com-
mssoner was postponed merey because he was not satsfed wth the proof
submtted by the estate as to the payment thereof. When satsfactory proof
had been furnshed, the Commssoner aowed the proper credt resutng n the
overpayment computed under Tte III of the Revenue ct of 1926. com-
putaton of the correct ta at the rates prescrbed by the Revenue ct of 1924
and the aowance of the credt woud not have produced an overpayment
The computaton of the ta n the orgna return pursuant to the 1924 ct
and the aowance of the credt, whch was taken aganst the ta computed
at those rates, produced the amount of ta whch the estate pad and as a
resut of the omsson of certan assets the correct net estate was greater
than that shown n the return. rom ths t s cear that had the ta been
computed under the Revenue ct of 1924 rather than the ct of 1926 a de-
fcency n ta rather than an overpayment woud have resuted. In these cr-
cumstances t s cear, we thnk, that secton 325 s appcabe to the overpay-
ment of 321,933.63 and that the aowance of nterest thereon Is specfcay
prohbted. (Cf. Sunny rook Dstery Co. v. Unted States, 72 O. Cs., 157.)
udgment accordngy w be entered n favor of pantff for 321,933.63
wthout nterest. It s so ordered.
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485
Regs. 68(1924), rt. 99.
TITL III. P RT I ST T T . (1924)
S CTION 3220, R IS D ST TUT S, S M ND D.
Reguatons 68(1924), rtce 99: Cam for
refund.
I-32-8869
Ct. D. 1250
1. utt state Ta Recoupment of Gft Ta Statute of
Lmtatons.
The Unted States s entted to recoup or set off a gft ta ad-
mttedy due by the decedent for the year 1924 upon the gft of a
fe Interest n n trust fund estabshed n 19123, whch gft became
Irrevocabe n 1924, aganst a refund due the e ecutors by reason of
an admtted overpayment of estate ta , despte the fact that the
statute of mtatons bars the assessment and coecton of any
further gft ta for the year 1924.
2. Decson oowed.
rnest M. u v. Unted States (295 U. S., 247 Ct. D. 969,
a . I -1, 310 (1935) ) foowed.
Unted States Dstrct Court fob the astern Dstrct of Pennsyvana.
Davd . Lt and rancs . racken, Survvng ecutors of the state of
Samue D. Lt, Deceased, v. Unted States of merca.
18 . Supp., 435.
Mars, D. .: s has been stated, the facts n ths case are not n dspute.
It s aso true that there s agreement as to certan ega concusons to be
drawn from those facts. One of these s that the pantffs overpad the estate
ta due upon the decedent s estate. Ths came about as a resut of the add-
tona assessment of estate ta determned by the oard of Ta ppeas In
respect of the remander Interest gven to bs son by the decedent under hs
trust agreement of December 30, 1927. Ths addtona assessment, when t
became fna, In ts turn brought about an addtona assessment of Pennsy-
vana nhertance ta under the aws of that State equa to 80 per cent of the
addtona edera ta due. Te pantffs were entted to credt ths add-
tona State ta upon ther addtona edera ta abty and pay ony the
remanng 20 per cent of the atter. They chose nstead to pay the fu amount
of the edera ta and, havng afterward pad 80 per cent thereof to the State
of Pennsyvana n settement of ts addtona ta , they asked, as they had the
rght to do, for a refund from the edera Government of the amount so pad
to Pennsyvana for whch they woud have been entted to credt f the order
of payment had been reversed. sde from the queston of recoupment or
offset to whch I sha refer ater, no queston whatever s rased as to the
rght of pantffs to receve ths refund.
It s equay cear that under the aw as ad down by th Supreme Court n
urnet v. Guggenhem (288 U. S.. 280 Ct D. 636, C. . II-1, 374 (1933) ),
the acton of the decedent n surrenderng n 1924 hs rght to revoke the trust
whch he created n 1923, amounted to a gft n 1924 whch was sub|ect to gft
ta In that year under the provsons of the Revenue ct of 1924. No gft
ta upon ths partcuar gft was pad, however, and no menton of t was
made n the decedent s gft ta return fed for that year. The Guggenhem
case was not decded unt ebruary 6, 1933, eght years after that gft ta re-
turn was fed and by the weght of authorty pror to that decson the re-
nqushment of the power to revoke a trust was not regarded as a transfer
of property by gft. The decedent accordngy had the rght to assume when
he fed hs return n 1925 that hs renuncaton of the rght of revocaton n
December, 1924, dd not resut n a gft whch he was requred to report. In my
opnon hs faure to ncude the gft n that return was no more than an
ebruary 26, 1937.
opnon.
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Regs. 68(1924), rt. 99.
486
honest mstake based upon a very genera msunderstandng of the aw. Con-
sequenty snce hs gft ta return was prepared and fed n good fath, t was
suffcent to start the runnng of the perod of mtaton provded by the
statute. ( orahem ros. Co. v. Unted States, 280 U. S., 4. 3 Ct. D. 1C7, C. .
I -1, 200 (1930) Zeerbach Co. v. everng, 293 U. S., 172 Ct D. 8S9, C. .
III-2, 341 (1934) .)
The Revenue ct of 1924 provded that gft ta es shoud be assessed wthn
four years after the return was fed e cept n the case of a fase or frauduent
return wth ntent to evade the ta . It foows that n ths case the Unted
States after March 15, 1929, no onger had the rght to assess or coect a gft
ta n respect of the gft made by the decedent n the year 1924. The queston
to be determned n ths case, therefore, comes down to whether the Unted
States may recoup or set off a gft ta admttedy due by the decedent for the
year 1924 upon hs gft of a fe nterest n the trust fund of 1923 whch then
became rrevocabe, aganst a refund due pantffs by reason of an admtted
overpayment of estate ta upon decedent s estate, despte the fact that the
statute of mtatons bars the assessment and coecton of any further gft ta
from the decedent for the year 1924.
The Unted States strongy urges that the estate ta , the refund of whch s
beng sought by the pantffs, and the gft ta whch t s seekng to set oft
aganst that refund both arose out of dfferent features of the same transac-
ton, namey, the trust fund set up by the decedent, and consequenty t s
entted to recoup the gft ta out of the overpayment of estate ta notwth-
standng the bar of the statute of mtatons.
u v. Unted States (295 U. S., 2-17) s reed on as authorty for the
proposton |ust stated. In that case u, a member of a partnershp, ded
ebruary 13, 1920. Profts from the partnershp, accrung to hs estate after
hs death to December 31, 1920, were 212,718.79 of whch amount 200,117.09
was pad to the estate n 1920. or the purpose of the estate ta the Com-
mssoner ncuded the atter amount n the decedent s gross estate and sub-
|ected t to estate ta , whch the e ecutors pad. The Commssoner n con-
sderng the ncome ta abty of the estate for the year 1S20 hed that the
same sum was ncome and assessed an ncome ta thereon. The e ecutors
pad the ncome ta under protest and brought sut to recover t back, cam-
ng that, concedng the sad sum of 200,117.09 to be ncome, the Unted States
shoud have credted aganst the ncome ta eved thereon the overpayment
of estate ta whch resuted from ncudng the same sum n the decedent s
ta abe estate. The Supreme Court hed that the Unted States shoud have
aowed credt for the estate ta erroneousy pad notwthstandng the fact
that a cam for a refund thereof was barred by the statute of mtatons
consequenty the e ecutors were entted to set up the cam for the estate ta
erroneousy pad by way of recoupment to offset the Government s cam to
the ncome ta es. Mr. ustce Roberts sad:
If the cam for ncome ta defcency had been the sub|ect of a sut, any
counter demand for recoupment of the overpayment of estate ta coud have
been asserted by way of defense and credt obtaned notwthstandng the
statute of mtatons had barred an ndependent sut aganst the Government
therefor. Ths s because recoupment s n the nature of a defense arsng
out of some feature of the transacton upon whch the pantffs acton s
grounded. Such a defense s never barred by the statute of mtatons so ong
as the man acton tsef s tmey.
I thnk t s cear that f the two ta es here nvoved arose out of dfferent
phases of the same transacton the defendant s entted to recoup the gft ta
out of the overpad estate ta under the authorty of the u case and udg-
ment must be entered for the defendant. Whe the procedura stuaton was
qute dfferent n that case the doctrne of recoupment there apped woud be
equay appcabe here. The queston for consderaton s, therefore, narrowed
to whether the two ta es here nvoved dd arse out of phases of the same
transacton. I thnk they dd. In the u case the transacton, as to df-
ferent phases of whch the two ta es attached, was the recept of cash by the
estate from the partnershp. Ths cash was sub|ected to the estate ta on the
theory that t was a part of the decedent s gross estate and to the ncome ta
npon the theory that It was a part of the estate s Income. In the present case
the transacton whch Is at the base of the two ta e actons kewse concerns
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487
Regs. 68(1924), rt. 99.
a snge fund, that s the trust fund set up by the decedent on anuary 27,
1923, for the beneft of hs wfe, hmsef and hs son. The gft ta was upon a
fe estate rrevocaby carved out of that fund by the decedent n 1924, whe
the estate ta was assessed n respect of the remander nterest n favor of
decedent s son n the dentca fund, whch the oard of Ta ppeas and the
crcut court of appeas hed must be ncuded n hs gross estate and sub-
|ected to estate ta . Indeed ths case woud seem cearer than the u case
snce, as the Supreme Court sad n urnet v. Guggenhem, supra:
The ta upon gfts s cosey reated both n structure and n purpose to
the ta upon those transfers that take effect at death. What s pad upon the
one s n certan crcumstances a credt to be apped n reducton of what w
be due upon the other. (43 Stat, 315, secton 322, 20 U. S. C, secton 1134.)
The gft ta s Part II of Tte III of the Revenue ct of 1924 the estate ta
s Part I of the same tte. The two statutes are pany n par matera.
On the other hand there s no such cose reatonshp between the ncome
ta and the estate ta , the ta es nvoved n the u case. Nor do I beeve
that the present case s dstngushabe from the u ease because n that case
one ndvdua, u s e ecutor, pad both ta es nvoved, whereas here the
gft ta was payabe by the decedent, whe the estate ta was pad by hs
e ecutors. The e ecutors n each case were actng ony as fducares and the
rea party n Interest n each case was the decedent, hs estate merey suc-
ceedng to hs rghts and abtes. Under such crcumstances the doctrne
of recoupment s appcabe. (Whte v. Stone, 78 . (2d), 136 Ct. D. 1013,
C. . I -2, 244 (1935) Unted States v. everng, 85 . (2d), 230 Ct. D.
1150, C. . -2, 282 (1936) .)
I see no escape from the concuson that under the rue of the u case the
Unted States s entted to recoup ts gft ta from the admtted overpayment
of estate ta uness t arses from the acton of the decedent and the other
partes n nterest on December 30, 1927, n revokng the trust orgnay set
up n 1923 and mmedatey creatng a new trust. When these transactons
fre e amned, however, t w be seen that the net resut of them was to make
the trust revocabe by the |ont acton of the decedent and hs wfe ony, the
|onder of hs son no onger beng necessary, and to provde, n case of the
death of the son pror to the termnaton of the fe estate, that the remander
Interest shoud pass to hs appontees by w and ony n case he made no
appontment to hs ne t of kn under the ntestate aws. The transacton
effected no change whatever n the fe estate or n the remander to the son
n case he survved. The same Indvdua contnued as trustee. The stock
whch composed the corpus of the trust before December 30, 1927, contnued to
consttute the corpus of the trust after that date and for a that appears t
remaned contnuousy n the possesson of the trustee.
It must be borne n mnd that ths sut s essentay one for money had and
receved. It s to be governed by equtabe prncpes and s sub|ect to any
defense whch shows that n equty and good conscence the pantff shoud
not recover. (Unted State v. efferson ectrc Co., 291 U. S.. 386 Ct. D.
803, C. . III-1, 393 (1934) .) Consdered from an equtabe standpont
and ookng through the ega form to the substance I can not say that the
transactons of December 30, 1927, n fact broke the contnuty of the trust
fund whch the decedent set up n 1923. I accordngy concude that the de-
fendant s entted n defense of ths acton to recoup out of the sum admt-
tedy due the pantffs the gft ta for the year 1924 and nterest thereon
aggregatng the amount of the pantffs cam and I, therefore, come to the
foowng concusons of aw:
The Unted States s entted to recoup aganst the pantffs cam for the
refund of 07,836.43, the gft ta dun by pantffs decedent for the year 1924,
wth nterest thereon, n the sum of 67,836.43.
The defendant s entted to |udgment n ts favor aganst the pantffs
wth costs.
The partes have submtted to me certan requests for concusons of aw.
Pantffs request No. 1 s affrmed. Ther requests Nos. 2 and 3 are refused.
Defendant s requests Nos. I and III to III ncusve are affrmed. Its request
No. II s refused.
Defendant s moton for |udgment n ts favor s granted and |udgmeut may
be entered accordngy.
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Regs. 63(1922), rt. 11.
488
TITL I . ST T T . (1921)
S CTION 402.
Reguatons 63(1922), ktce 11: Character
of nterests ncuded.
I-34-8891
Ct. D. 1254
estate ta revenue act of 1921 decson of couet.
Sut Res udcata ntre Cam Not Presented n rst Sut.
|udgment rendered by the Court of Cams In a sut to recover
an aeged e cess payment of edera estate ta on the ground that
the proceeds of certan nsurance poces were not ncudbe n
the gross estate s res |udcata of a second acton brought n the
dstrct court to recover so much of the e cess as resuted from the
wrongfu ncuson n the gross estate of the vaue of certan rea
estate stuated n Mssour. The pror decson ad|udged the con-
tentons made and those whch mght have been made n support of
the cause of acton.
Dstrct Court of the Unted States foe the Western Dstrct of Mssour,
Western Dvson.
Martha . Ouette, rthur . Ouette, Martha . Ouette, and enry . ucr-
bach. Trustees for dward . Ouette, and dward . Ouette, pantffs,
v. The Unted States of merca, defendant.
17 ed. Supp., 725.
Ots, D. .: In ts chef essentas the case Is ths. One enry . Guette ded
testate. The edera estate ta demanded was pad. or the cacuaton of
the ta the vaue of three parces of Mssour rea estate was ncuded. There
were aso ncuded the proceeds of certan nsurance poces. Pantffs brought
sut n the Court of Cams to recover from the defendant an aeged e cess
payment. The partcuar cam was that the proceeds of the nsurance poces
shoud not have been ncuded n the cacuaton of the vaue of the estate.
That case went to |udgment May 6, 1929. No cam was asserted n that case
based on the ncuson of the vaue of Mssour rea estate.
Crooks v. arreson was decded by the Supreme Court November 24, 1930.
Pantffs dscovered, from the opnon of the Court n that case, that the vaue
of the Mssour rea estate erroneousy was Incuded n cacuatng the vaue
of the Guette estate for the purpose of assessng the estate ta . They sue now
therefore to recover so much of the ta as resuted from that wrongfu Incu-
son. The defendant contends that the matter s res ad|udcata, that pantffs
shoud have presented the whoe of ther cam for refund In the case sub-
mtted to and decded by the Court of Cams.
1. It seems to us that the defense of res ad|udcata can not be crcumvented.
We are concerned wth one ta on. one thng. If the ta demanded was e -
cessve the pantffs (assumng compance wth condtons precedent) are
entted to sue for the refund of so much of the whoe as was egay e acted.
ut ther cause of acton s snge (athough concevaby made up of severa
tems) and can not be spt.
The Supreme Court dd not change the aw by Its decson of Crooks
arreson. The aw as then decared was the aw when the ta was pad and
when the sut n the Court of Cams was fed. The pantffs knew the aw
(t s concusvey presumed that they knew t). nowng the aw, they chose
not to assert as an eement of ther cam, that the estate was e cessvey
ta ed, a contenton based on the wrongfu ncuson of the rea estate. The
|udgment of the Court of Cams ad|udged the contentons they dd make and
those they mght have made n support of ther cause of acton. (Northern
Pacfc R. Co. v. Snght, 205 U. S., 122.) We may ustrate thus: persona
property ta of 100 Is coected from . e was assessed on 10 charots. e
November 25, 1936.
opnon.
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489
Regs. 63(1922), rt. 11.
cams he was overta ed by the amount of 90, that he owned ony 1 charot.
e has one cause of acton, not nne, athough there may be nne subdvsons
n the one wrong perpetrated aganst hm.
The earnestness wth whch earned counse for pantffs assert there s
no res ad|udcata here eads us carefuy to e amne the cases they cte.
Cromwe v. County of Sao (94 U. S., 35) s cted. that was rued n
that case was that a |udgment that was not entted to recover on one bond,
ad|udged nvad e cept as to an nnocent purchaser and as to whch he was
unabe to prove he was an nnocent purchaser, coud not precude hm from
recoverng on another, athough of the same seres, as to whch he proved he
was an nnocent purchaser. Those cams were separate. They were dfferent
cams, thus were cams to dfferent thngs. The cam here Is to one thng,
namey, the unawfuy demanded e cess over the true ta .
Cambrdge Loan d udng Co. v. Unted States (57 ed. (2d), 236) s
cted. ut that case (n the Court of Cams) aso had to do wth two entrey
dstnct cams (not, as here, wth two parts of one cam) one, a cam for an
e cess of Income and profts ta for fve years, whch had been pad and the
cam dened, the other a cam for penates assessed, never pad, abated, but
the amount of whch was wthhed out of other moneys beongng to camant
(that s, out of e cess pad as ncome ta for the 5-year perod). These were
whoy dstnct cams, the second of whch was not even n e stence when
sut was nsttuted on the frst.
ncent v. Unted States (76 ed. (2d), 428) s cted. It was a case n whch
the pantff sought to recover from the defendant on a contract of war rsk
nsurance contendng that the contract was n force n ugust, 1920, that
It nsured hm aganst becomng totay and permanenty dsabed not ater
than that date, and that on that date he was totay and permanenty dsabed.
In an earer proceedng (tred after ugust, 1920) he had sued to recover on
the same contract contendng, n that sut, that he had become totay and
permanenty dsabed on pr 5, 1919. t the tra of the frst proceedng
he asked hut teas dened the prvege of amendng so as to ask recovery from
ugust, 1920. The |udgment n proceedng No. 1 was hed not res ad|udcata
as to the ssues presented n proceedng No. 2. The reason assgned by the
court of appeas for that concuson was that the second proceedng nvoved an
entrey dstnct cause of acton. Whether t was a dstnct cause of acton
concevaby s debatabe but f t was then, of course, the |udgment was not
res ad|udcata. The resut, moreover, certany was equtaby |ustfed by the
acton of the court n denyng n the frst proceedng the pantff s attempt to
then assert hs second cause of acton. That he coud have asserted t n the
frst proceedng scarcey can be urged aganst ts asserton n the second pro-
ceedng when n fact he was dened the prvege of assertng t n the frst
proceedng.
Loyd, etc., v. tng (80 ed. (2d), 869) s cted. The case was ths: the
pantff, a transportaton company, had brought an aen to the Unted States
nnder such crcumstances as to voate two statutes. or each voaton It
pad a fne, assessed by the Secretary of Labor, one of 250 and one of 1,000.
It sued to recover both. udgment went aganst t as to the 250 fne. It was
the aw that athough the fnes were for voatons of dfferent statutes ony
one coud be recovered on account of the brngng n of one aen. The court
of appeas rued that the udgment n the sut to recover the 250 fne dd not
ad|udcate the Issues n the entrey dstnct cause of acton to recover the
1,000 fne. ere agan the causes of acton are dstnct.
Such are the cases cted. They present no prncpe whch anyone w ques-
ton. Ther nappcabty here proceeds from the fact that what we have
here s one amount coected as a ta , one e cess above what was rghtfuy
coected, and one cause of acton to recover that e cess. The one e cess, t
we may be, Is an e cess on severa grounds, one of whch pantffs negected
to assert n the case whch has been ad|udcated, but t s st one e cess, a sut
to recover whch Is one cause of acton. |udgment as to that cause of acton
Is a |udgment as to the whoe of t.
2. The fndngs of fact and concusons of aw requested by counse for de-
fendant n a document fed contemporaneousy wth ths opnon are adopted
by the court as the court s fndngs of fact and concusons of aw. To each
of the concusons of aw pantffs are aowed an e cepton.
Pantffs requested concusons of aw (see document fed contemporaneousy
wth ths opnon) are dened. s to the dena of each request an e cepton
s aowed to pantffs.
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Regs. 79(1933), rt. 2.
490
TITL III. GI T T . (1932)
S CTION 501. IMPOSITION O T .
Reguatons 79(1933), rtce 2: Transfers
reached.
I-50-9094
Ct. D. 1287
GI T T R NU CT O 1932 D CISION O COURT.
1. Unted States Treasury onds empton.
transfer by gft of Unted States Treasury bonds s sub|ect to
the edera gft ta Imposed by the Revenue ct of 1932, notwth-
standng a covenant n the bonds that they sha be e empt both as
to prncpa and nterest from a ta aton e cept estate or nhert-
ance ta es, and surta es, e cess-profts and war-profts ta es. The
ta s not eved upon ether the prncpa or nterest of the bonds
whch consttuted the gft but s an e cse on the transfer of the
property to another.
2. Certorar Dened.
Petton for wrt of certorar dened ebruary 8, 1937 (300 U. S.,
659).
3. Rehearng Dened.
Petton for rehearng on dena of certorar dened November
8, 1937.
Green, udge, devered the opnon of the court
Ths s a sut to recover a ta coected under the provsons of what s com-
mony known as the gft ta of the Revenue ct of 1932. There s no dspute as
to the facts, whch are as foows:
Pantff, on December 31, 1934, made a gft of 2,400,000 n prncpa face
amount of Unted States 3 /4 per cent Treasury bonds due ugust 1, 1941, wth
nterest coupons attached. The Commssoner of Interna Revenue requred the
pantff to make a gft ta return for 1934 and to pay the sum of 322,415
as a gft ta n connecton wth the transacton. Thereafter, n due tme and
proper form, pantff fed a cam for refund of the ta on the ground that
the aw under whch t had been assessed was not appcabe, and the cam
havng been dened the pantff brought ths sut.
The bonds whch the pantff transferred contaned a covenant whch read as
foows:
Ths bond sha be e empt, both as to prncpa and Interest, from a ta aton
now or hereafter mposed by the Unted States, any State, or any of the posses-
sons of the Unted States, or by any oca ta ng authorty, e cept (a) estate
or nhertance ta es, and (6) graduated addtona ncome ta es, commony
known as surta es, and e cess-profts and war-profts ta es, now or hereafter
mposed by the Unted States, upon the ncome or profts of ndvduas, partner-
shps, assocatons, or corporatons. The Interest on an amount of bonds author-
zed by sad ct approved September 24, 1917, as amended, the prncpa of
whch does not e ceed 5,000, owned by any ndvdua, partnershp, asso-
caton, or corporaton, sha be e empt from the ta es provded for n cause
(6) above.
Ths covonnnt conformed to the ct authorzng the ssuance of the bonds
whch contaned substantay the same anguage.
Court of Cams of the Unted States.
L. Gordon amcrsey v. The Unted States.
16 ed. Supp., 768.
November 9, 1936.
OPINION.
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491
Regs. 79(1933), rt. 2.
The fact that a ta Is In some way reated to Government bonds and s meas-
ured by the vaue of the bonds does not make It a ta upon the bonds themseves.
In Centra anover ank d Trust Co. v. Unted States, decded May 4, 1936
(82 C. Cs., ), t was hed that a ta on profts from the sae of the bonds
was not a ta on the bonds. In Itner v. Lederer (14 ed. (2d), 991 T. .
3905, C. . -2, 152 (1926) , affrmed C3 ed. (2d), 877), a payment n bonds
was hed sub|ect to the ncome ta on the ground that the bonds themseves
were not ta ed. So aso n ames v. Commssoner (13 . T. ., 764), dvdends
payabe In Government bonds were hed to be ta abe. In Murdoch v. Ward
(178 U. S., 139), t was hed that Unted States bonds beongng to the decedent
were sub|ect to an nhertance ta notwthstandng a comprehensve and gen-
era provson n the bonds e emptng them from ta aton. In romey v. c-
Caughn (280 U. S., 124 Ct D. 140, C. . III-2, 392 (1929) ) t was hed that
gft ta es ke death ta es are Imposed on the e ercse of the rght to transfer
the property and not upon the property tsef. Whe n nether of the opnons
In the two cases ast cted s t sad n so many words that the ta es con-
sdered were not ta es upon the bonds themseves, the decsons necessary
80 hed In effect, for f the ta es n queston had been drect ta es upon the
bonds they unquestonaby woud have been nvad for more than one reason.
They were, however, uphed by the Supreme Court
Startng then wth the prncpe estabshed by the cases above cted that
the words a ta aton mean a ta aton upon the bonds themseves and do
not refer to e cse ta es upon some rght connected wth the bonds, we reach
the concuson that f the e cepton contaned n the bond covenant and upon
whch the pantff rees had been omtted, there woud be no queston but that
the bonds were sub|ect to the ta . In other words, f the covenant had smpy
provded that the bonds were e empt from a ta aton these words woud
not ncude the ta n queston whch woud have been propery Imposed.
The pantff urges, however, that the addton of the cause e cept estate
or nhertance ta es to the provsons wth reference to ta aton operates to
enarge the scope of the e empton. Stated n another way, t s contended that
snce estate and nhertance ta es are specfcay e cepted from the e empton,
other ke ta es such as the gft ta , athough not mentoned, are not so e cepted.
It w be observed that the pantff seeks to appy the famar rue of e presso
unus est e cuso aerus.
The defendant ctes a number of cases to show that the e ceptons to ths
prncpe are numerous and contends that n the case we have before us the
rue does not appy. We do not thnk t s necessary to revew these cases.
The case before us presents a feature dfferent from that n any other to whch
our attenton has been caed, or we have been abe to fnd, and whch has not
been presented n argument It has aready been shown that the genera pro-
vson of the ct e emptng the bonds themseves from a ta aton was
not suffcenty broad to ncude the ta nvoved heren. To ths genera
provson there was added certan e ceptons. ceptons when propery and
ogcay made narrow the provson to whch they appy. The pecuar fea-
ture of the case before us s that t s camed that by makng the e cepton
Congress, nstead of mtng the genera provson, actuay enarged It and
made t appy to ta es other than those ncuded n ts terms. Such a con-
structon we thnk s nether reasonabe nor ogca.
It Is contended on behaf of pantff that the e empton cause s eft wthout
force or meanng uness t be construed so that t woud appy to gft ta es.
ut ths s not correct. The refusa to appy the constructon contended for
by pantff smpy eaves the e ceptng causes as they were. The ncuson n
the e cepton of estate or nhertance ta es added nothng thereto, for
such ta es were not ncuded n the genera provson and the effect of the
other e ceptons s not atered.
Nor do we see anythng n the crcumstances surroundng the passage of the
aw and the subsequent proceedngs under whch the bonds were ssued that
ndcated a purpose on the part of Congress to make the bonds e empt from
gft ta es. Gft ta es were not mentoned n the orgna statute for the
obvous reason that none had been mposed at the tme t was enacted. The
provson that the bonds were not to be e empt from estate and nhertance
ta es was probaby nserted because the ordnary ayman and even busness
men not famar wth ega dstnctons mght thnk the statutory provson
e emptng the bonds from a ta aton woud prevent the mposton of
estate and nhertance ta es reatng to them. Such provsons are often
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Regs. 79(1933), rt. 2.
492
nserted n a statute and when ncuded n the statute are usuay made a
part of any Treasury statement made wth reference to the ssuance of te
bonds. The bonds nvoved were not ssued unt after a gft ta had been
enacted, but n nsertng n the bonds and n crcuars the anguage of the
statute the Treasury smpy foowed the ordnary course.
The precse queston nvoved n the case before us was presented to the
oard of Ta ppeas n the case of Lawrence C. Phpps v. Commssoner
(34 . T. ., 641). The ma|orty of the oard n a decson promugated
une 2, 1936, hed that the ta was not eved upon ether the prncpa or n-
terest of the bonds whch consttuted the gft nvoved n the case before t
but was an e cse on the transfer of the property to another. (Ctng nowton
v. Moore, 178 U. S., 41 cr York Tru.t Co. v. sner, 206 U. S.. 345 romey
v. McCaughn, supra and Pummer v. Coor, 178 U. S-, 115.) dssentng opn-
on was fed but we thnk the oard of Ta ppeas was ceary rght n ts
concuson.
It foows that pantff s petton must be dsmssed, and t s so ordered.
Whaey, udge Wams, udge Ltteton, udge and ooth, Chef
ustce, concur.
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493
Regs. 64(1933), rt. 21.
C PIT L STOC T .
N TION L INDUSTRI L R CO RY CI -S CTION 215.
Reguatons 64(1933), rtce 21: ppca-
ton of ta .
I-38-8938
Ct. D. 1262
C PIT L STOC T N TION L INDUSTRI L R CO RY CT D CISION O
COURT.
Corporaton Organzed to od Stock Carryng on usness.
corporaton organzed by an nsurance company prmary to
hod the stock of ts subsdares n order that the nsurance com-
panes mght operate more freey under State nsurance aws, and
whch aso acqured and hed certan other securtes for nvest-
ment purposes and to reeve the nsurance companes of undesr-
abe nvestments, and otherwse factated the operatons of the
companes, was carryng on busness wthn the meanng of secton
215 of the Natona Industra Recovery ct and was sub|ect to
the ta mposed by that secton.
Unted States Crcut Court of ppeas for the Second Crcut.
The New aven Securtes Co., appeee, v. . Don tgood, ctng Coector
of Interna Revenue, appeant.
87 ed. (2d), 759.
Manton, Crcut udge: The appeee, a Connectcut corporaton, wth an
orgna nomna capta stock of 2,000 was organzed by the Securty Insur-
ance Co., of New aven whch owns a ts shares of stock, e ceptng drectors
quafyng shares. Its charter conferred broad powers. The man reason for
ts organzaton n 1920 was to hod capta stock of other nsurance companes
as assets prmary t was organzed to take over stock of the rst Rensur-
ance Co., a subsdary of the Securty Insurance Co. Its capta stock was
ncreased from tme to tme for the purpose of acqurng the capta stock of
other nsurance companes. In e change for the shares ssued to the Securty
Insurance Co., the corporaton receved the funds whch enabed t to acqure
securtes of other companes. The offcers were eected annuay books of
account were kept, and there were reguar meetngs of the board of drectors
and busness transactons were recorded. The appeee s not In qudaton
and has contnued ts corporate organzaton. The mnutes revea that the
company bought and sod securtes as we as other property and authorzed
the negotaton of oans to assst agences of the Securty Insurance Co. t
a meetng of the board ebruary 6, 1933, ts e ecutve offcers were authorzed
unt anuary, 1934, to borrow funds at ther dscreton not to e ceed 25,000,
to gve notes of the company and to use as coatera for such oans any secur-
ty owned by the company. The appeee s offcers were aso offcers of the
varous nsurance companes whose stock t hed. It never had any empoyees
to whom compensaton was pad and kept ts records and books n the offce of
the Securty Insurance Co. Its ncome was derved entrey from the ownershp
of property and ts hodngs of stock. The appeee moreover served the con-
venence of the Securty Insurance Co. by acqurng and hodng n addton to
the stock of subsdares of the Securty Insurance Co., certan other secur-
tes, some for nvestment purposes and others to reeve the portfoo of the
Securty Insurance Co. or one of ts subsdares of undesrabe nvestments.
Rea estate was acqured for the accommodaton of a subsdary. Moreover, the
appeee gave ts guarantee on an obgaton of the Securty Insurance Co. and
dscharged t n cash receved from dvdends and oans.
efore Manton, L. and, and N. and, Crcut udges.
ebruary 8, 1937.
opnon.
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Regs. 64(1933), rt. 21. 494
The appeee duy fed a cam une 30, 1933, for e empton from the cap-
ta stock ta Imposed by secton 215 of the Natona Industra Recovery ct
(48 Stat., 195, 207) upon the ground that t dd not carry on or do busness
durng the perod between une 10, 1933, to une 30, 1933, and on September 29,
1033. It fed a capta stock ta return and camed e empton. The Com-
mssoner dened the appeee s cam for e empton and assessed aganst It a
capta stock ta for the year endng une 30, 1933, wth nterest. The appeee
pad the ta . cam for refund was re|ected and ths sut foowed.
The capta stock ta s an e cse ta mposed upon corporatons engaged
In busness actvtes and en|oyng advantages nherent In corporate organza-
ton. ( nt v. Tracy, 220 U. S., 07.) The queston presented s whether the
appeee was carryng on busness wthn the meanng of the corporate ta pro-
vsons of secton 215 of the Natona Industra Recovery ct and our nqury
Is whether the fndng of fact that the appeee was not carryng on busness
durng the ta abe year endng une 30, 1933, s based upon evdence to be
found n ths record. The Commssoner s determnaton aganst the appeee
requred t to bear the burden of proof estabshng the facts whch entte t to
e empton from the ta . ( otany Ms v. Unted States, 278 U. S., 282 Ct D.
39, C. . III-1, 279 (1929) Renecke v. Spadng, 280 U. S., 227 Ct. D. 154,
C. . I -1, 305 (1930) rgonaut Consodated Mnng Co v. nderson, 52 ed.
(2d), 55 (C. C. . 2), cert, den., 284 U. S., 682 Ct. D. 404, C. . -2, 441
(1931) .)
If the prveges ncdent to corporate organzaton are possessed and e -
ercsed, the precse e tent of ther e ercse s not mportant. (See on aum-
hach v. Sargent Land Co., 242 U. S., 503, 517.) corporaton whch does bus-
ness durng part of the ta abe year s sub|ect to the capta stock ta . (Da-
focfc v. Oa. Ry. ec. Co., 228 ed., 290 (C. C. . 5).) In d cards v. Che
Copper Co. (270 U. S., 452 T. D. 3857, C. . -, 410 (1926) ), a corporaton
was organzed for the purpose of borrowng money through the ssuance of
bonds to assst a subsdary. It mantaned an offce, voted the stock of the
subsdary, eected drectors, oaned part of the proceeds of the bonds on ca
oans, and coected nterest. It was hed to be dong busness wthn the
capta stock provsons of the Revenue cts of 1916 and 1919. The court sad:
The e cepton when not engaged n busness ordnary woud seem pretty
neary equvaent to when not pursung the ends for whch the corporaton
was organzed, n the cases where the end s proft.
Ths appeee was organzed for proft. It was capabe of payng dvdends to
ts stockhoders. The fact that the transactons over a perod of tme do not
show a proft s mmatera. Profts from Its organzaton coud resut to ts
prncpa stockhoder, Securty Insurance Co., n other ways than through
dvdc7ds. ( ouston et Co. v. Unted States, 250 ed., 1 (C. C. . 5).)
Indeed there were numerous economc benefts nurng to the stockhoder. The
Securty Insurance Co. organzed the appeee to enabe t and ts subsdarps
to operate more freey under the Insurance aws of New York State whe
hodng stock n other nsurance companes. s stated n the Che Copper Co.
case:
If the one busness coud not be carred on wthout two corporatons takng
part n t, each must pay n the pan words of the ct.
In Phps v. Internatona Sat Co. (274 U. S., 718), reversng 9 ed. (2d),
389 (C. C. . 3), t was decreed suffcent to be engaged n busness that the
corporaton mantaned ts corporate form to conduct actvtes whch were
substantay those of a hodng compnny, controng the stock of subsdares
and occasonay ndorsng notes for ther beneft. (See, aso, armar Coa Co.
v. ever, 34 ed. (2d), 725 (C. C. . 3). cert, den., 280 U. S., 610.) In rgonaut
Consodated Mnng Co. v. nderson (52 ed. (2d), 55 (C. C. . 2), cert den.,
284 U. S., 682), the ma|orty of the ta payer s shares were owned by another
company. It was oanng and nvestng money for specuatve purposes aso
advanced money to the parent company for the payment of ta es. On one
occason t advanced funds to pay part of the purchase prce of property bought
by a mnng company, the ma|orty of whose stock t hed. We hed that these
deangs consttuted the dong of busness and that the ta payer was not a
mere dry hoder of property or condut between ts parent and the company
whose ma|orty stock t hed.
In Rose v. Nunnay (22 ed. (2d), 102 (C. C. . 5), cert, den., 276 U. S.,
628 T. D. 4243, C. . II-2, 3S3 (1928) ) and aton v. Phoen Securtes Co.
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495
Regs. 64(1933), rt. 21.
(22 ed. (2d), 497 (C. C. . 2)), there was that degree of nertness whch
e empted the corporatons from mposton of the capta stock ta . In the
aton case, substantay a that was done by the company durng the ds-
puted perod was to ncrease ts hodngs n subsdares by the purchase or
ncrease of capta stock. It receved dvdends upon the shares t owned and
decared dvdends out of the proceeds. We hed on the stpuated facts that
the corporaton was not dong busness.
McCoach v. Mneh Ry. Co. (228 U. S., 295) s to be dstngushed from the
Instant case by the fact that the corporaton had retred from the busness
for whch t was organzed and was engaged merey n the ownershp of
property as essor, n the dstrbuton of the avas from eases, and n the
recept of nterest and dvdends from Invested funds. ere the ta payer
contnued actvey n the busness for whch t was organzed. It had not
wthdrawn at any tme nor may t cam e empton as an nactve corporaton
dong no more than qudatng ts assets. The domnant purpose of hodng
the stock of other nsurance companes was to factate the operatons of ts
prncpa sharehoder. It acqured certan other securtes some for nvest-
ment purposes and others to reeve the portfoo of the Securty Insurance Co.
or one of ts subsdares of undesrabe nvestments. It receved rentas from
property t hed as an accommodaton to ts prncpa sharehoder. It took
notes of certan agences of the Securty Insurance Co. In one nstance as an
accommodaton t gave ts guarantee upon the obgaton of the Securty Insur-
ance Co. on an assessment of ts stock n a bank and ater dscharged t.
Underyng these facts s the mportant practca consderaton that the corpo-
rate form was adopted and corporate prveges were e ercsed to accompsh
ends of consderabe vaue and beneft to the ta payer s prncpa stockhoder.
The capta stock ta was meant to embrace ths en|oyment of corporate ad-
vantages. The appeee s actvtes consttuted dong busness wthn the ta ng
statute.
udgment reversed.
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Regs. 64(1934), rt. 43.
496
TITL . C PIT L STOC ND C SS-PRO ITS
T S. (1934)
S CTION 701. C PIT L STOC T .
Recusatons 64(1934), rtce 43: d|usted I-29-8S24
decared vaue. C.S.T.4
In computng the ad|usted decared vaue of the capta stock of
the M Corporaton for the year ended une 30, 1935, the amount of
the bonded Indebtedness of the corporaton gratutousy forgven
by the bondhoders, who were aso stockhoders of the corporaton,
consttutes an addton to the orgna decared vaue as pad-n
surpus and a contrbuton to capta wthn the meanng of sec-
ton 701(f) of the Revenue ct of 1934.
dvce s requested whether n computng the ad|usted decared
vaue of the capta stock of the M Corporaton for the ta abe year
ended une 30, 1935, the amount of the bonded ndebtedness of the
corporaton gratutousy forgven by ts bondhoders, who were aso
stockhoders of the corporaton, consttutes an addton to the org-
na decared vaue of the corporaton s capta stock wthn the mean-
ng of secton 701(f) of the Revenue ct of 1934. That secton pro-
vdes n part as foows:
the ad|usted decared vaue n the case of a domestc corporaton
sha be the orgna decared vaue pus (2) pad n surpus and
contrbutons to capta . The amount of such ad|ustment for each
such year sha be computed accordng to the Income ta aw app-
cabe to such year.
rtce 43 of Reguatons 64(1934) reads n part as foows:
(b) Tear subsequent to frst ta abe year. or any ta abe year subsequent
to the frst ta abe year the ad|usted decared vaue for purposes of ths ta
sha be ascertaned as foows:
To the ad|usted decared vaue appcabe to the ast precedng ta abe year
sha be added the sum of the foowng:

(2) cash pad In and the far market vaue of a property receved
(whether pad n by, or receved from, stockhoders or others) consttutng
pad-n surpus or contrbutons to capta.
rtce 22(a)-14 of Reguatons 86, reatng to the ncome ta
mposed by the Revenue ct of 1934, reads n part as foows:
Canceaton of ndebtedness. If a sharehoder n a corpo-
raton whch s ndebted to hm gratutousy forgves the debt, the transacton
amounts to a contrbuton to the capta of the corporaton.
The M Corporaton n September, 1934, had outstandng bonds n
the amount of 13a doars and assets havng a tota vaue of do-
ars. The bondhoders were aso stockhoders of the corporaton.
In a revson of the capta structure n September, 1934, the bond-
hoders gratutousy forgave 10a doars face vaue of the bonded
ndebtedness, thereby reducng the face vaue of the bonded ndebted-
ness to 3a doars. Ths acton produced an equty of a doars for
the stockhoders.
It s hed that the actua vaue (a doars) of M Corporaton s
assets reeased to the stockhoders equty by the gratutous forgve-
ness of the 10a doars ndebtedness by the bondhoders became
pad-n surpus, and that the baance of the ndebtedness so forgven
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497
Regs. 64(1934), rt. 43.
(9 doars) consttuted a contrbuton to the capta of the corpora-
ton wthn the meanng of the above-quoted provsons of the aw
and reguatons. In ths connecton see Unted States v. Oregon-
Washngton R. Nav. Co. (251 ed., 211) and Commssoner v. uto
Strop Safety Razor Co., Inc. (74 ed. (2d), 226). ccordngy, the
entre amount of the bonded ndebtedness forgven (10a doars) con-
sttutes an addton to the orgna decared vaue of the capta
stock of the M Corporaton n determnng the ad|usted decared
vaue thereof for the ta abe year ended une 30, 1935.
Ths rung s equay appcabe under the correspondng prov-
sons of the Revenue ct of 1935 and Reguatons 64 (1936).
Reguatons 64 (1934), rtce 43: d| usted I-41-8978
decared vaue. C. S. T. 6
or the purpose of ad|ustments under secton 701(f) of the
Revenue ct of 1934 and correspondng provsons of the Revenue
ct of 1935, capta notes and debentures ssued by banks con-
sttute evdences of ndebtedness and preferred stock consttutes
stock rather than evdence of ndebtedness.
dvce s requested whether capta notes debentures, and pre-
ferred stock ssued to the Reconstructon nance Corporaton by
Natona or State banks or trust companes shoud be treated as ev-
dences of ndebtedness or capta stock for capta stock ta purposes.
Secton 701(f) of the Revenue ct of 1934 provdes n part as
foows:
or any subsequent year endng une 30, the ad|usted decared
vaue In the case of a domestc corporaton sha be the orgna decared vaue
pus (1) the cash and far market vaue of property pad n for stock or
shares , and mnus ( ) the vaue of property dstrbuted In qu-
daton to sharehoders .
Secton 9 of the edera Reserve ct (U. S. C. ., Tte 12, secton
321), as amended by secton 2 of the ct of une 16, 1934 (48 Stat.,
969), provdes n part as foows:
ppcaton for membershp. ny bank ncorporated by speca aw of any
State, or organzed under the genera aws of any State or of the Unted States,
ncudng Morrs Pan banks and other ncorporated bankng nsttutons en-
gaged n smar busness, desrng to become a member of the edera Reserve
System, may make appcaton to the oard of Governors of the edera Re-
serve System, under such rues and reguatons as t may prescrbe .
or the purposes of membershp of any such bank the terms capta and
capta stock sha Incude the amount of outstandng capta notes and
debentures egay ssued by the appyng bank and purchased by the Recon-
structon nance Corporaton.
The foregong secton provdng that the terms capta and
capta stock sha ncude the amount of outstandng capta notes
and debentures egay ssued by the appyng bank and purchased
by the Reconstructon nance Corporaton s by ts very terms
made appcabe for the purposes of membershp n the edera Re-
serve System and has no bearng upon the status of capta notes and
debentures for capta stock ta purposes.
It s hed that n determnng abty for capta stock ta capta
notes and debentures ssued to the Reconstructon nance Corpora-
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Regs. 64(1936), rt. 46.
498
ton by banks or trust companes are evdences of ndebtedness rather
than capta stock of the ssung banks or trust companes. It fo-
ows that no ad|ustment of the decared vaue of the capta stock of
the ssung banks and trust companes s requred by secton 701(f)
of the Revenue ct of 1934 wth respect to the ssuance or retre-
ment of such nstruments. owever, preferred stock so ssued con-
sttutes stock rather than evdence of ndebtedness. ccordngy,
the proceeds from preferred stock ssued to the Reconstructon -
nance Corporaton by banks or trust companes consttutes an add-
ton to the decared vaue of the capta stock of the ssung bank or
trust company as provded n secton 701 (f) of the Revenue ct of
1934. When preferred stock so ssued s caed and retred, the
amount of the dstrbuton to the Reconstructon nance Corpora-
ton made for that purpose consttutes a deducton under secton
701(f) of that ct as property dstrbuted to sharehoders n
qudaton or parta qudaton as the case may be.
The same rues appy to a capta notes, debentures, and pre-
ferred stock ssued by banks and trust companes wthout regard to
whom ssued.
The above concusons are equay appcabe under the corre-
spondng provsons of the Revenue ct of 1935, as amended,
Reguatons 64(1936), rtce 46: ppcaton I-38-8939
of ad|ustments to specfc transactons. C. S. T. 5
Where the charter of a domestc corporaton or the aw of the
State under whch the corporaton s created provdes that stock
acqured by the ssung corporaton may never be ressued, the
acquston of ts stock by such corporaton consttutes n effect
both the purchase and retrement of the stock as of the date
acqured and a dstrbuton n qudaton to sharehoders aowabe
as a deducton ad|ustment for capta stock ta purposes.
dvce s requested whether under the crcumstances herenafter
stated the M Company, a corporaton chartered under the aws of
entucky, s entted to a deducton under secton 701(f) of the
Revenue ct of 1934 for the ta abe year ended une 30, 1935, wth
respect to shares of ts own stock purchased durng the years 1930
to 1934, ncusve.
The M Company durng the years 1930 to 1934, ncusve, pur-
chased 10a shares of ts own stock at a cost of 10a doars, 2 shares of
whch were purchased n 1934 at a cost of 2 doars. The M Com-
pany s charter at the tme t purchased the stock provded that any
shares of ts own stock purchased by the company must be canceed
and never ressued. orma acton for the canceaton of the
stock was not taken by the board of drectors unt 1934.
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 de-
cared vaue In the case of a domestc corporaton sha be the orgna decared
vaue pus , and mnus ( ) the vaue of property dstrbuted n
qudaton to sharehoders .
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499 Regs. 64(1936), rt. 46.
rtce 46 of Reguatons 64(1936) reads n part as foows:
ppcaton of ad|ustments to specfc transactons. (a) Transac-
tons n own capta stock. Whether the acquston or dsposton by a cor-
poraton of shares of Its own capta stock gves rse to ad|ustments depends
upon the rea nature of the transacton, whch s to be ascertaned from a
Its facts and crcumstances.
The purchase by a corporaton of part of ts own stock for retrement and
the retrement of such stock In due course resuts n an ad|ustment under
secton 105(f) ( ).
G. C M. 15055 (C. . I -2, 410 (1935)) reads n part as foows:
Where a corporaton acqures stock not for resae but for retrement, a dffer-
ent rue Is appcabe. Secton 701(f) provdes that the amount of the ad-
|ustment authorzed by ts terms for each ncome-ta ta abe year sha be
computed accordng to the ncome ta aw appcabe to such year. Secton
115(c) of the Revenue ct of 1934 provdes that amounts dstrbuted n
parta qudaton of a corporaton sha be treated as n part or fu payment
In e change for the stock. Subdvson () of that secton defnes the term
amounts dstrbuted n parta qudaton as meanng a dstrbuton by a
corporaton 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. The compete retrement of any part of the stock
of a corporaton s a dstrbuton n qudaton. ( rtce 115-5, Reguatons
86.) The purchase of stock for retrement marks the commencement of the
dstrbuton for qudaton but the transacton s not compete uness and
unt the stock s actuay retred.

The term dstrbuted n qudaton to sharehoders, appearng
n subdvson 5( ) of secton 701(f), shoud be construed as ncudng both
the purchase and the retrement of outstandng shares of stock by the cor-
poraton whch ssued them.

Where outstandng stock s purchased for retrement In one In-
come-ta ta abe year but s not retred unt a subsequent year, the stock
shoud be consdered outstandng unt retred and canceed by the method
provded by the partcuar State statute for the retrement and canceaton
of capta stock, and no ad|ustment may be made unt retrement s effected.
(Commssoner v. S. . Woods Machne Co., 57 ed. (2d), 635 Doernhecher
Manufacturng Co. v. Commssoner, 30 . T. ., 973.)
In Germann et a. v. armers Tobacco Warehouse Co. of Danve
(84 S. W. (2d) ( entucky), 82) the Court of ppeas of entucky
had under consderaton a case where the corporaton had acqured
certan shares of ts stock under such condtons that secton 544 of
the Code of entucky prohbted the ressuance of those shares but
under such condtons that secton 553 of the code dd permt ther
retrement. In the course of ts opnon, rendered on une 21, 1935.
hodng that the stock so acqured never came nto the treasury of
the company so that the company acqured a property rght theren,
the court sad:
We thnk under the crcumstances and for the purpose here presented, ths
secton 544 must be consdered n connecton wth secton 553 of the statutes
e pressy authorzng a corporaton to reduce ts capta stock by the vote or
wrtten consent of ts stockhoders representng two-thrds of ts capta stock.
The manner or methods by whch the reducton may be made s not
specfed.

ere the corporaton does not acqure or become the hoder of the
stock n the sense n whch those terms are used n secton 544. It s smpy
passng out of e stence wth a resutng reducton n the capta stock.
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Regs. 64(1936), rt. 46.
500
If the charter of a corporaton or the aw of the State under whch
the corporaton s created provdes that stock acqured by the ssung
corporaton can never be ressued, the acquston of the stock under
such crcumst ances consttutes n effect both the purchase and re-
trement thereof wthn the ntendment of the prncpes enunc-
ated n G. C. M. 15055, supra, snce the stock passes out of e stence
at the moment of such acquston.
In vew of the foregong, t s hed that the 2 doars pad by
the M Company for the 2 shares of ts stock purchased n 1934
consttutes a dstrbuton n qudaton to ts sharehoders durng
the perod covered by ts capta stock ta return for the ta abe
year ended une 30, 1935, and s, therefore, an aowabe deducton
ad|ustment under secton 701(f) of the Revenue ct of 1934. The
amount of S doars (cost of stock acqured n years 1930 to 1933,
ncusve), representng dstrbutons n qudaton to sharehoders
durng the years 1930 to 1933, ncusve, s not a proper ad|ustment
for the ta abe year ended une 30, 1935.
Ths rung s equay appcabe under the correspondng prov-
eons of the Revenue ct of 1935 and Reguatons 64(1936).
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501
Regs. 46(1932), rt. 1.
TITL I . M NU CTUR RS CIS T S. (1932)
Reguatons 44(1934), rtce 2: ffectve T-30-8846
perod. T. D. 4754
cse ta es on saes by the manufacturer. Tte I of the
Revenue ct of 1932, amended by secton 212 of the Natona
Industra Recovery ct, secton 1 of the ct approved une 16,
1933 (Pubc, No. 73, Seventy-thrd Congress), and Pubc Resou-
ton No. 36, Seventy-fourth Congress, and further amended by
Pubc Resouton No. 48, Seventy-ffth Congress, approved une 29,
1937.
rtce 2 of Reguatons 44, approved September 11, 1934,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Tte I of the Revenue ct of 1932, as amended by secton 212
of the Natona Industra Recovery ct (approved une 16, 1933),
secton 1 of the ct approved une 16, 1933 (Pubc, No. 73, Seventy-
thrd Congress), and Pubc Resouton No. 36, Seventy-fourth Con-
gress (approved une 28, 1935), was further amended by Pubc
Resouton No. 48, Seventy-ffth Congress (approved une 29, 1937),
whch reads, n part, as foows:
That tte I , as amended, and parts I, II, III, and I , of tte , as amended,
of the Revenue ct of 1932, are further amended by strkng out 1937
wherever appearng theren and nsertng n eu thereof 1939.
In conformty wth the provsons of aw quoted above, artce 2
of Reguatons 44 (revsed September, 1934), as amended by Treas-
ury Decson 4572, approved uy 24,1935 C. . I -2, 373 (1935) ,
s further amended to read as foows:
bt. 2. ffectve perod. The ta s mposed upon any sae, ease, or use, on
or after une 21, 1932, and before uy 1, 1939, of gasone, ubrcatng o,
brewer s wort, certan mat products, or matches by the manufacturer or other
person abe for ta under the provsons of secton 623 (see artce 5), rre-
spectve of when the artce was manufactured, produced, or mported.
Ths Treasury decson s ssued under the authorty contaned n
secton 628 of the Revenue ct of 1932.
Gut T. everng,
Commssoner of Interna Revenue.
pproved uy 21, 1937.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 23, 1937, 10.50 a. m.)
Reguatons 46(1932), rtce 1: ffectve I-30-8847
perod. T. D. 4755
cse ta es on saes by the manufacturer. Tte I of the
Revenue ct of 1932, amended by secton 212 of the Natona
Industra Recovery ct, and Pubc Resouton No. 36, Seventy-
fourth Congress, and further amended by Pubc Resouton No.
48, Seventy-ffth Congress, approved une 29, 1937.
rtce 1 of Reguatons 40, approved une 18, 1932, amended.
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Regs. 46, rt. 22.
502
Treasury Department,
Offce of Commssoner of Interna, Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
Tte I of the Revenue ct of 1932, as amended by secton 212
of the Natona Industra Recovery ct (approved une 16, 1933),
and Pubc Resouton No. 36, Seventy-fourth Congress (approved
une 28, 1935), was further amended by Pubc Resouton No. 48,
Seventy-ffth Congress (approved une 29, 1937), whch reads, n
part, as foows:
That tte I , as amended, and parts I, II, III, and I , of tte , as amended,
of the Revenue ct of 1982, are further amended by strkng out 1937
wherever appearng theren and nsertng n eu thereof 1939.
In conformty wth the provsons of aw quoted above, the second
paragraph of artce 1 of Reguatons 40, as amended by Treasury
Decson 4380, approved ugust 9, 1933 C. . II-2, 344 (1933) ,
and Treasury Decson 4573, approved uy 24, 1935 C. . I -2,
364 (1935) , s further amended to read as foows:
No such sae, ease, or use after une 30, 1939 (or after uy 31, 1939, n
the case of artces ta abe under sectons 602 and 606, reatng to the ta
on tres and nner tubes and automobes, etc.), Is ta abe under the tte.
Ths Treasury decson s ssued under the authorty contaned n
secton 628 of the Revenue ct of 1932.
Gut T. everng,
Commssoner of Interna Revenue.
pproved uy 21,1937.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 23, 1937, 10.50 a. m.)
S CTION 603. TOIL T PR P R TIONS, TC
Reguatons 46. rtce 22: Scope of ta . I-28-8812
( so Secton 619 and rtce 15.) Ct. D. 1242
M NU CTUR RS CIS T R NU CT O 1932 D CISION O COURT.
1. Toet Preparatons Sae by Manufactures to Whoy
Owned Suhsdabes Sae by Subsdares to Trade ar
Mahket Prce.
Where a manufacturer of toet preparatons organzed whoy
owned saes subsdares to whch t sod ts products, and
the subsdares sod to the trade at substantay the same prce
at whch the manufacturer had prevousy sod them, the Com-
mssoner was |ustfed, under the evdence, n determnng that
the far market prce wthn the meanng of secton 619(b)3
of the Revenue ct of 1932 was that at whch the subsdares
sod to the trade.
2. Decson ffrmed.
Decson of the Unted States Dstrct Court, Western Dstrct
of New York (Ct. D. 1074, C. . -1, 383 (1936), 12 . Supp., 787),
affrmed.
3. Certorar Dened.
Petton for certorar dened pr 5, 1937.
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503
Regs. 46, rt. 22.
Unts) States Crcut Court of ppeas fob the Second Crcut.
our|os, Inc., pantff-appeant, v. George T. McOotoan, Indvduay and as
Coector of Interna Revenue, defendant-appeee.
85 ed. (2d), 510.
ppea from a udgment for the defendant entered In the Dstrct Court for the Western
Dstrct of New York n a sut to recover ta es pad. The tra was by court after a
|ury had been waved. ffrmed.
ugust 17, 1936.
OPINION.
Chase, Crcut udge: The appeant pad to the defendant ta es for the
month of September, 1932, whch were assessed by the Government on the
sae prce of toet preparatons manufactured by our|os, Inc., and sod
durng that month. The ta es were coected n accordance wth the de-
fendant s nterpretaton of the provsons of sectons 603 and 619 of the
Revenue ct of 1932 whch are quoted:
Sec. 603. Ta on Toet Preparatons, etc.
There s hereby mposed upon the foowng artces, sod by the manu-
facturer, producer, or mporter, a ta equvaent to 10 per centum of the
prce for whch so sod: Perfumes, essences, e tracts, toet water, cosmetcs,
petroeum |ees, har os, pomades, har dressngs, har restoratves, har
dyes, tooth and mouth washes (e cept that the rate sha be 5 per centum),
dentfrces (e cept that the rate sha be 5 per centum), aromatc cachous,
toet soaps (e cept that the rate sha be 5 per centum), toet powders, and
any smar substance, artce or preparaton, by whatsoever name known or
dstngushed any of the above whch are used or apped or ntended to be
used or apped for toet purposes.
Sec. 619. Sae Prce.
(a) In determnng, for the purposes of ths tte, the prce for whch an
artce s sod, there sha be ncuded any charge for coverngs or contaners
of whatever nature, and any charge ncdent to pacng the artce n condton
packed ready for shpment, but there sha be e cuded the amount of ta
mposed by ths tte, whether or not stated as a separate charge. trans-
portaton, devery, nsurance, nstaaton, or other charge (not requred by
the foregong sentence to be ncuded) sha be e cuded from the prce
ony f the amount thereof s estabshed to the satsfacton of the Com-
mssoner, n accordance wth the reguatons.
(b) If an artce s
(1) sod at reta
(2) sod on consgnment or
(3) sod (otherwse than through an arm s-ength transacton) at ess
than the far market prce
the ta under ths tte sha (f based on the prce for whch such artce
Is sod) be computed on the prce for whch such artces are sod, n the
ordnary course of trade, by manufacturers or producers thereof, as determned
by the Commssoner.
The appeant s a corporaton whch manufactures cosmetcs and toet
preparatons of varous knds whch, from the tme t was organzed and
began dong busness n 1929, t sod to the trade at prces t estabshed,
unt t began to se ts products to two whoy owned subsdares whch
were organzed n ugust, 1932. These two corporatons were known as
our|os Saes Corporaton and arbara Goud Saes Corporaton. Durng
the month n queston they had separate books of account and separate bank
accounts and, though the same man was vce presdent and genera manager
of a three corporatons and they a occuped the same budng, they kept
ther transactons separate and dstnct The appeant rendered bs to
the saes corporatons and was pad by them n a respects, e cept perhaps
as to the amounts, the same as t woud have been had the saes been made
to outsders. efore ths the appeant had pad the seng costs tsef but
In ths month a such costs were pad by the seng corporatons whch took
over, for the most part f not whoy, the appeant s saes force and sod
the our|os products to the trade at the same prces at whch the appeant
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Regs. 46, rt. 22. 504
had prevousy sod them. The appeant sod ts products to the saes
corporatons at cost pus per cent pus 10 per cent and Inssts that such
prces are those upon whch the ta s ad. The defendant coected ta es
based on the prces the saes corporatons charged the trade computed upon
the saes voume to the saes corporatons for that month those beng the
prces determned by the Commssoner to be the ones at whch the artces
were sod by the manufacturer n the ordnary course of trade. The df-
ference s the amount now n controversy.
It appeared that the prces charged the saes corporatons were about the
same, though often sghty more, than the appeant charged foregn cor-
poratons to whch t made some saes of ts products durng the month and
that these foregn corporatons owned no shares of stock n the appeant
corporaton nor t n them. It kewse was suffcenty shown that a the
appeant s products coud easy be dupcated by any other competent manu-
facturer of ke artces and that ther manufacture and sae at the prces
charged by the appeant woud eave the manufacturer a far margn of proft
ut t was aso proved that when by advertsng, or otherwse, a trade name
had been estabshed as a mark of dstncton under whch such artces were n
demand for sae to the reta trade t was customary to charge for them
whatever the traffc woud bear and that the demand for them at such
prces was great. The appeant owned e cusvey the rght to contro the
saes of ts products under the we known and vauabe trade names used
n ther sae.
rom a ths t appears that the rea ssue here s what s meant by the far
market prce n secton 619(b)3 of the 1932 ct above quoted and whether the
prce for whch such artces are sod, n the ordnary course of trade, by
manufacturers or producers thereof, as determned by the Commssoner as
provded n secton 619(b) has been propery found and gven effect or t
s both cear and undsputed by the appeant that ts saes to ts whoy owned
subsdares were not through arm s-ength transactons. nd t was. conse-
quenty, a case cang for the appcaton of a prce determned by the Com-
mssoner to be that prevang n the ordnary course of trade.
There are two aspects to the probem. If we are to treat the products of the
appeant as merey the equvaent of commodtes composed of ther ngredents
m ed or bended nto toet preparatons sutabe for sae and use as such,
there can be no doubt that the evdence shows that the appeant sod them
to ts saes corporatons at the far market prce. There was ampe proof that
no secret formuas were used and that other smar manufacturers, not ownng
trade names, coud and woud make them for anybody for the same prces. In
ths vew of the matter the queston of prce n the ordnary course of trade
under secton 019(b) woud not arse for even though the saes to the saes
corporatons were not arm s-ength transactons they were not at ess than the
far market prce so as to fuf the other condton of secton 019(b)3.
ut to take the appeant s products as mere unnamed bends, m tures, or
compostons saabe to the trade as such at the tme the appeant sod them
s to gnore the very thng whch gave them ther pecuar saes vaue. That s,
the trade names under whch they were sod not ony eventuay to the whoe-
saers, retaers and consumers but by the appeant tsef to the saes corpora-
tons. In September, 1932, no change had taken pace, so far as shown, to vary
the prces at whch the appeant coud se ts dstnctvey named products.
The ony change had been the creaton of whoy owned subsdares to whch
t was wng to se at ower prces than t had been obtanng and presumaby
coud have then obtaned had t seen ft to do so. Its own prevous busness
e perence rght up to the tme the saes corporatons were created had estab-
shed the far market prce for ts dstnctvey named products and the Com-
mssoner was |ustfed n determnng that n September, 1932, there beng no
change n market condtons but smpy a change n seng methods, the far
market prce of these same products contnued to be what t had been mme-
datey precedng the change n the method of seng. specay s ths so
snce t was proved that the saes corporatons sod the products n September
at the same prces the appeants had prevousy sod them. So the saes to
the saes corporatons were not ony not arm s-ength transactons, as a now
agree, but were |ustfaby found to be at ess than the far market prce.
nd n the ght of ths |ustfed concuson, the Commssoner was requred
to determne the prce at whch such artces were sod n the ordnary course
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505
Regs. 46, rt 36.
of trade by the manufacturers or producers thereof. The court beow decded
that the prce on whch the ta es were coected was proved correct and as the
determnaton a supported by the evdence t must be accepted. (Dooey v.
Pease, 180 U. S., 131 athaway v. rst Natona ank, 134 U. S., 498 Mc n-
ey Creek Mn. Co. v. aska Unted Mnng Co., 183 U. S., 563 Ranke v. urn-
ham, 153 U. S., 216 Payne v. anbert, 111 ed., 646.) On ths queston, whch
s but a varaton of the prevous determnaton that the saes made not at
arm s ength were at ess than the far market prce, the same evdence that
ths ta payer had ust prevousy been seng the same knd of products t
sod n September, 1932, at the prces on whch the ta es were assessed and
coected, couped wth the fact that the saes corporatons actuay sod the
goods n that month at those prces supports the concuson that the ta es were
computed on the prces at whch such artces were beng sod n the ordnary
course of trade by the manufacturers or producers thereof. On the appeant
rested the burden to show that the ta es sought to be recovered were assessed
and pad contrary to the statute and It faed to do that In fang to show
that the determnaton of the Commssoner was wrong. Consequenty t.
proved no overpayment of ta es and no cause of acton aganst the defendant.
ffrmed.
S CTION 606. UTOMO IL S, TC
Reguatons 46, rtce 36: Scope of ta . I-37-8920
( so Secton 620, as amended, and Secton 622 S. T. 867
rtces 16 and 17.)
The resae or use by a manufacturer or producer of a motorcyce
orgnay sod ta -free and subsequenty accepted as a trade-n
on a new motorcyce Is not ta abe under secton 006(b) of the
Revenue ct of 1932 uness pror to such resae or use the motor-
cyce was so atered or rebut as to ose ts dentty.
S. T. 514 (C. . I-2, 471 (1932)) modfed.
dvce s requested whether the resae or use by a manufacturer
or producer of a motorcyce orgnay sod ta -free, as provded n
secton 620 of the Revenue ct of 1932, as amended, and ater
accepted by the manufacturer, or a deaer or dstrbutor of the manu-
facturer, as a trade-n on a new motorcyce s sub|ect to the ta
mposed by secton 606(b) of the Revenue ct of 1932.
That secton mposes a ta of 3 per cent of the prce for whch
motorcyces (ncudng parts or accessores therefor sod on or n
connecton therewth or wth the sae thereof) are sod by the manu-
facturer, producer, or mporter. Secton 622 of the ct provdes
that the ta sha be appcabe where the manufacturer, producer,
or mporter of a ta abe artce (other than a tre or nner tube)
uses the artce otherwse than as matera n the manufacture or
producton of, or as a component part of, another artce to be manu-
factured or produced by hm whch w be ta abe under Tte I
or sod free of ta by vrtue of the provsons of secton 620, as
amended. Secton 620, as amended by the ct of une 16, 1933
(Pubc, No. 73, Seventy-thrd Congress), and by secton 401(a) of
the Revenue ct of 1935, provdes that under reguatons prescrbed
by the Commssoner wth the approva of the Secretary, no ta
sha be mposed under Tte I wth respect to the sae of any
artce for the e cusve use of the Unted States, any State, Terr-
tory of the Unted States, or any potca subdvson of the fore-
gong, or the Dstrct of Coumba.
77064 38 17
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Regs. 46, rt. 36.
506
S. T. 514 (C. . I-2, 471 (1932)), reatng to the ta abty of
saes of secondhand motorcyces by a manufacturer who accepted
them as trade-ns on new motorcyces, reads n part as foows:
Where manufacturer accepts as a trade-n a used motorcyce made
by manufacturer , the resae by manufacturer s not ta abe because t
s not a sae by the manufacturer, producer, or mporter. owever, n the
event that used motorcyces are so materay changed before beng resod as
to ose ther orgna dentty, the resae of such machnes s sub|ect to the ta
mposed by secton 606(b) of the Revenue ct of 1932.
If any such machnes are acqured by the manufacturer and resod by hm
to the trade after une 21, 1932, ether as new machnes or as rebut machnes,
they are ta abe. Lkewse, f a manufacturer, pror to une 21, 1932, used
ta abe artces of hs manufacture n connecton wth hs own busness, and
subsequent to une 20, 1932, ses such artces, the saes are ta abe. Where
a manufacturer repossesses hs products and rescnds a sae, a subsequent
resae s sub|ect to the ta mposed by secton 606(b) of the Revenue ct of
1932.
S. T. 514, supra, may be construed to mean that any number of
saes of a new or used ta abe artce by the orgna manufacturer
are a sub|ect to ta . Such a vew s not nconsstent wth the
etter of the aw, whch provdes for ta aton of the enumerated
artces sod by the manufacturer, producer, or mporter. Ths
anguage makes no dstncton between orgna and successve saes.
ut from a practca standpont, t seems that Congress ntended
to do no more than ta the frst sae n the Unted States. In
Indan Motocyce Go. v. Unted States (283 U. S., 570, Ct. D. 354,
C. . -, 439 (1931)), the Government contended that the ta was
not ad soey on the sae. The Supreme Court, n hodng the ta to
be on the sae, sad n part:
oth partes rghty regard the ta as an e cse, and not a drect ta on the
artces named. ut they dffer as to the transacton or act on whch t s
ad. Counse for the pantff nsst It s ad on the sae. Counse for the
Government regard t as ad on manufacture, producton or mportaton, or,
In the aternatve, on any one of these and the sae. We thnk t Is ad
on the sae, and on that aone. It Is eved as of the tme of sae and s
measured accordng to the prce obtaned by the sae. It s not ad on a
saes, but ony on frst or nta saes those by the manufacturer, producer
or mporter. Subsequent saes, as where purchasers at frst saes rese, are
not ta ed. Counse for the Government base ther contenton on the requre-
ment that the ta be pad by the manufacturer, producer, or mporter
but we thnk ths requrement s ntended to be no more than a comprehensve
and convenent mode of reachng a frst or nta saes, and that t does not
refect a purpose to base the ta n any way on manufacture, producton or
mportaton.
Whe the Court was not consderng the pont here nvoved, ts
statement to the effect that the manufacturer makes ony one ta abe
sae of an artce (whch s of course the usua condton) s n
harmony wth the apparent congressona ntent.
In vew of the foregong| t s hed that, uness the used motor-
cyce accepted as a trade-n s so atered or rebut pror to ts use or
resae by the manufacturer or producer as to ose ts dentty, no ta
other than that mposed upon the orgna sae attaches wth respect
thereto, rrespectve of the number of tmes t s subsequenty used
or resod by the orgna or any other manufacturer or producer.
In other words, payment, wthout credt or refund, of the ta on one
use or sae estabshes mmunty wth respect to subsequent use or
resae, provded no change of dentty has been effected pror to
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507
Regs. 46, rt. 55.
such use or resae. In determnng the ta abty of a subsequent
use or sae, an orgna sae whch s ta e empt has the same effect
as an orgna ta -pad sae.
S. T. 514, supra, s modfed accordngy.
S CTION 609. SPORTING GOODS.
Reguatons 46, rtce 55: Games. I-48-9067
Ct. D. 1283
M NU CTUR RS CIS T R NU CT OP 1932 D CISION O
SUPR M COURT.
Ta on Sromrco Goods Games a Saw Pcture Puzzes.
g saw pcture puzzes are not sub|ect to edera e cse ta as
games and parts of games wthn the meanng of secton 609 of
the Revenue ct of 1932.
Supbeme Court or the Unted States.
Thomas W. Whte, Indvduay and as ormer Coector of Interna Revenue,
pettoner, v. Php . ronson, Trustee.
302 U. S., 16.
Certorar to the Unted States Crcut Court of ppeas for the rst Crcut,
November 8, 1937.
opnon.
Mr. ustce McReynods devered the opnon of the Court,
Respondent, ronson, trustee n bankruptcy of the kng Manufacturng Co.,
Inc., brought sut n the Unted States Dstrct Court for Massachusetts to recover
37,021.63 e acted of the bankrupt by the coector, under coor of secton 609
Revenue ct 19321 (ch. 209, 47 Stat, 264), on account of |g saw pcture puzzes
manufactured and sod from une 21, 1932, to May 1, 1933.
The puzzes were made by cuttng seected pctures backed up by rgd card-
board nto from 162 to 500 separate peces. These were sod to those who found
dverson or amusement n puttng them together so as to reproduce the orgna
pcture.
Obvousy the word games In the statute was ntended to desgnate nstru-
mentates used n payng them.
The coector mantaned that the effort propery to arrange the peces was
for amusement or dverson and amounted to a game, wthn the approprate
defnton of the word.2 ccordngy, he sad, these nstrumentates were
ta abe.
On the other hand, respondent nssted that the word games refers to con-
tests, physca or menta, conducted accordng to set rues, undertaken for amuse-
ment or recreaton or for wnnng a stake, requrng the partcpaton of two or
more persons 1 aso that the sundry peces were parts of a puzze, a contrvance
desgned for testng ngenuty somethng not wthn the scope of the statute.
1 Revenue ct of 1032. Secton 609. Ta on sportng poods.
There s hereby mposed upon the foowng artces, sod by the manufacturer, r|- oducer,
or mporter, a ta equvaent to 10 per centum of the prce for whch so sod : Tenns
rackets, tenns racket frames and strngs, nets, racket covers and presses, skates, snow-
shoes, sks, toboggans, canoe paddes, poo maets, baseba bats, goves, masks, protectors,
shoes and unforms, footba hemets, harness and unforms, basket ba goas and un-
forms, gof bags and cubs, acrosse stcks, bas of a knds, Incudng basebas, footbas,
tenns, gof, acrosse, bard and poo bas, fshng rods and rees, bard and poo
tabes, chess and checker boards and peces, dce, games and parts of games (e cept payng
cards and chdren s tors and games) and a smar artces commony or commercay
known as sportng goods.
Webster s New Internatona Dctonary, 2d ed.. gves the word game 17 defntons.
2. a n amusement or dverson| s. make-beeve s a chdren s ame formery,
specf., amorous pay. Daughters of the game. fsak, 4. contest, physca or
menta, conducted accordng to set rues, and undertaken for amusement or recreaton,
or for wnnng a stake .
Puzze. 2. Somethng whch pcrpb ps or embarrasses a dffcnt probem or ques-
ton an engma hence, a toy, contrvance, queston, or probem desgned for testng In-
genuty as, a cross word puzze. (Webster s New Internatona Dctonary, 2d ed.)
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Regs. 46, rt. 55.
508
The tra |udge, havng heard the cause upon peadngs and evdence wthout
a |ury, sustaned the coector s defense. The crcut court of appeas concuded
otherwse and drected |udgment for the trustee. It sad
The secton 609 s headed Ta on Sportng Goods. The artces or nstru-
mentates there specfcay named are sportng goods whether they are used
n connecton wth games or n some recreaton or dverson other than a game.
ut the arger porton of the artces specfcay named are a used n games
of contest between two or more persons, and the queston of constructon s
whether the artces or nstrumentates ntended to be covered by the phrase
games and parts of games means artces or nstrumentates used n games
of contest ke the specfc artces prevousy named n the secton, whch are used
n games of tenns, poo, baseba, etc., a of whch nvove a contest.
urthermore the partcuar artce here sought to be ta ed s a puzze.
puzze s defned as 4 somethng whch perpe es or embarrasses a dffcut
probem or queston hence a toy, contrvance, queston or probem desgned
for testng ngenuty as a cross word puzze. (Webster s New Internatona
Dctonary.) |g saw pcture puzze comes squarey wthn ths defnton
a contrvance desgned for testng ngenuty. None of the artces
specfcay named n the statute and used n games Is a contrvance desgned
for testng ngenuty. They are desgned for use n games of contest, whe a
|g saw puzze s not.
Secton 600(f) (ch. 63, 40 Stat., 316), Revenue ct of 1917, and secton 900(5)
(ch. 18, 40 Stat, 1122), Revenue ct of 1918 (repeaed In 1921), ad a ta npon
tenns rackets, gof cubs, baseba bats, etc., chess and checker
boards and peces, dce, games and parts of games. g saw pcture puzzes
were then we known artces of commerce. They go back at east to the frst
part of the ast century perhaps much further. The same words games or
parts of games appear agan n the ke secton 609 Revenue ct of 1932.
The court beow ponted out that
|g saw puzze was never ta ed under secton 900(5) of the ct of 1918.
It was not ta ed unt after the passage of secton 609 of the Revenue ct of 1932,
when the Government attempted to ta t as a game. The ct of 1932 became
effectve une 6, 1932. On ugust 26, 1932, the Commssoner ssued a rung
statng that |g saw or de cut pcture puzzes were not ta abe. On November
14, 1932, he ssued a rung that they were ta abe. On ebruary 7, 1933, he
rued that after ebruary 7,1933, they were ta abe If they contaned more than
DO peces. nd on pr 20, 1933, he rued that they were ta abe after une 21,
1932, f they contaned more than 50 peces.
mpe evdence dscosed that n commerca usage |g saw pcture puzzes
were never regarded as games aso that the trade recognzed a defnte dstncton
between puzzes and games. We must assume that Congress had knowedge of
these thngs aso knew that |g saw pcture puzzes were not assessed for ta es
under the cts of 1917 and 1918 and, further, was not unmndfu of the
uncertantes concernng the meanng of game dscosed by atmore Takng
oard Co. v. Mes (280 ed., 658 T. D. 3312, C. . 1-1, 445 (1922) ) and U
Novety Co. v. Unted States (50 . (2d), 476 Ct D. 374, C. . -2, 417 (1931) ).
The cam for the ta payer here does not rest upon any e cepton to a genera
rue but upon constructon of genera anguage found n the ct.
The crcut court of appeas rghty concuded that The words games and
parts of games brng nto the st of ta abes ony such other artces as are used
In games of contest, the same as those partcuary named are, and wth whch
they are cosey assocated.
Certany we can not say that ths constructon was ceary erroneous. Other
|udges had accepted t. Nor can we affrm that the statute as framed gave
adequate notce to the bankrupt that ts puzzes were to be ta ed.
Where there s a reasonabe doubt as to the meanng of a ta ng ct t shoud
be construed most favoraby to the ta payer. (Goud v. Goud, 245 U. S., 151.)
Ta aws, ke a other aws, are made to be obeyed. They shoud therefore be
ntegbe to those who are e pected to obey them. (Phadepha Storage
attery Co. v. Lederer, 21 . (2d), 320, 321, 322.)
Counse for the coector mantan that atmore Takng oard Co. v. Mes
(1922), supra, the Ou|a oard case, and Ms Novety Co. v Unted State
(1931), supra, Con Operated Gambng Machne case, are n confct wth
the rung under revew.
These causes nvoved the ct of 1918 and n both the |udges e pressed sharpy
opposng vews. Of course, the genera anguage of the opnons must be read
n connecton wth the facta.
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509
Msc.
The ou|a board s whoy dfferent from the puzze here under consderaton
nothng Indcates that t was commony regarded by the trade as a puzze and
In an appcaton for a patent t had once been descrbed as a game. If the
opnon construes the statute as embracng a nstrumentates, not necessary
for comfort, whose chef use s to afford amusement and dverson, t s obvousy
too broad. nttng for dverson s not a game nor s horseback rdng.
The con-operated gambng machne has no resembance to a |g saw pcture
puzze and what was sad concernng t Is not hepfu n the probem now
before us.
oth of these causes were decded pror to the ct of 1932 n whch the words
of the 1918 ct were repeated notwthstandng the dscosed uncertantes con-
cernng ther meanng and wth knowedge of the fact that theretofore puzzes
bad not been assessed for ta aton under them.
The chaenged |udgment must be affrmed.
Mr. ustce Stone and Mr. ustce Cabdozo concur In the resut.
S CTION 620 O T R NU CT O 1932, S M ND D Y S CTION
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.
I-31-8860
cerpts from a decson ( -86795) rendered by the ctng
Comptroer Genera of the Unted States to the dmnstrator of
eterans ffars on une 21, 1937, hodng that a ta e empton
certfcate may not be ssued wth respect to the sae of a ta abe
artce for the e cusve use of the Unted States where the
vendor s bd for the sae of the artce does not affrmatvey show
whether the prce quoted ncudes or e cudes the manufacturers
e cse ta .
The dmnstrator of eterans ffars, eterans dmnstraton,
requested the ctng Comptroer Genera of the Unted States to
render an opnon on the queston whether an automobe deaer
whose bd n connecton wth an automobe to be devered to the
eterans dmnstraton s sent as to the e cuson or ncuson n
the bd prce of the edera e cse ta on automobes s entted to
an e empton certfcate. Pertnent e tracts from the etter dated
une 21, 1937, addressed to the dmnstrator of eterans ffars,
are as foows:
There has been receved your etter of une 8,1937, as foows:
Under date of pr 23, 1936, the eterans dmnstraton advertsed
for bds for a ght weght coupe n accordance wth eterans dmnstraton
specfcaton -M-31b, for devery to eterans dmnstraton facty, Sou
as, S. Dak. ds were opened under date of May 5, 1936, award made to
the Northwest Motor Co., Chevy Chase, Md, and purchase order 6- -23141
ssued to cover procurement of the vehce. The bd of the Northwest Motor
Co. s attached, and t shoud be noted that paragraph 5 under the headng
Condtons was deeted before Invtatons to bd were ssued and that the
speca provson n regard to the e cse ta , whch was attached to the face
of the Invtaton, was returned wth the bdder s proposa wthout any dee-
tons or ndcatons as to whether the prces quoted were Incusve or e cusve
of the e cse ta .

It Is the opnon of the eterans dmnstraton that the decson of the
Comptroer Genera -81763, does not dea wth the queston at
ssue n ths case, whch s, as to whether an automobe deaer whose bd Is
sent as to the e cuson or ncuson n the prces quoted of the edera
e cse ta on automobes, Is entted to an e empton certfcaton, upon recept
of an affdavt testfyng that the e cse ta was not ncuded n the bd prce.
In accordance wth the decson referred to, e empton certfcate woud have
been ssued upon recept of affdavt, If the bd of the Northwest Motor Co.
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Regs. 44(1934), rt. 84.)
510
had stated that the prce dd not ncude the e cse ta . owever, In the
absence of such a statement n the proposa, t s the opnon of ths dmns-
traton that the e empton certfcate shoud not be furnshed and nforma-
ton s requested as to whether ths concuson s correct The Northwest
Motor Co. s a deaer agent of the ord Motor Co.
The nterpretaton paced by the eterans dmnstraton on the decson
of December 15, 1936 (16 Comp. Gen., 583), s correct, and the
decson has no appcaton upon the facts here presented. In that case there
were for consderaton certan bds of the Northwest Motor Co. and Oursman
Chevroet Co. deaers, as dstngushed from manufacturers n ord and
Chevroet automobes, respectvey. The bds of the Northwest Motor Co.
stated the amounts to be added to the bd prces f ta e empton certfcates
were not furnshed. The Oursman Chevroet Co. stated on ts bds that ts
prce was e cusve of the edera e cse ta and that t w be necessary
that e empton certfcate be furnshed wth the purchase order. It thus was
pan that the bds of both deaers were made n contempaton of the e cse
ta and prce ad|ustments or ta e emptons n reaton thereto. It was hed
that, n that nstance, f the bds of ether company were otherwse for accept-
ance, ta e empton certfcates mght be furnshed upon a cear showng that
the bd prces were In fact e cusve of the ta . so, t was suggested n
that decson that nvtatons for bds thereafter ssued request a bdders, manu-
facturers and deaers, to submt bds upon both ta ncuson and ta e cuson
bases, wth the understandng that e empton certfcates woud be ssued or
wthhed dependent upon the bass of the accepted bd. It s to be observed
that the cted decson was rendered to the Secretary of grcuture n answer
to certan questons submtted by hm reatve to the proper procedure to be
foowed n connecton wth some bds then pendng. It not ony ceary had
no reference to bds submtted wthout reference to e cuson or Incuson
of e cse ta , but was whoy prospectve n ts appcaton. It had no bearng
upon a transacton whch had been consummated some seven months pror
to ts date.
arer as we as ater decsons have been to the effect that uness a bd
as submtted affrmatvey shows the e cuson of the e cse ta the bd prce
s presumed to be ncusve thereof and that, therefore, no e empton certf-
cate s to be ssued to the contractor for the purpose of obtanng e emptons
from or refund of the ta . (15 Comp. Gen., 1030: -80269, May 21, 1937,
16 Comp. Gen., 1021 -86472, une 7, 1937, copy herewth.) These decsons
are controng here. The Northwest Motor Co. submtted a bd offerng a
fat prce of 583.68 for one ord coupe, sub|ect to a trade-n aowance of 20
for a used vehce. The bd prce was accepted on that bass and became the
contract prce and was not thereafter sub|ect to modfcaton, drect or ndrect,
to the pre|udce of the Government If t was the purpose of the Northwest
Motor Co. to cam refund of e cse ta n addton to the bd prce, that fact
shoud have been shown on the face of ts bd when submtted. avng faed
so to ndcate such purpose there s no authorty for the ssuance of a ta
e empton certfcate to sad company upon request made severa months after
award of the contract Tour submsson s answered accordngy.

Respectfuy,
R. N. ott,
ctng Comptroer Genera of the Unted Statet.
S CTION 621 O T R NU CT O 1932, S M ND D Y S C-
TION 4(c) O T CT O UN 16, 1933, ND S CTION 401 O T
R NU CT O 1935. CR DITS ND R UNDS.
Reguatons 44(1934), rtce 84: Credts and I 9-9079
refunds. S. T. 869
( so Sectons 600(c) 1 and 617 of the Revenue
ct of 1932 as amended.)
orm for submttng evdence n support of credts of ta pad
on saes of gasone and ubrcatng o whch w be consdered as
a compance wth artce 84 of Reguatons 44(1934), as amended.
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511
Regs. 44(1934), rt. 84.
rtce 84 of Reguatons 44 (1934), as amended bv Treasury De-
cson 4604 (C. . I -2, 381 (1935)), sets forth the nature of the
evdence requred by the ureau to support a credt of ta pad
under Tte I of the Revenue ct of 1932, as amended.
Wth the vew to unformty and smpfcaton n the presentaton
of evdence n support of credts of ta pad, as provded n secton
621 of the Revenue ct of 1932, as amended, the submsson wth the
return n whch the credt s camed of data showng saes or uses of
gasone and ubrcatng o durng a gven month and the varous
credt deductons, separated nto casses, n substantay the form set
forth beow w be consdered as a suffcent compance wth artce
84 of Reguatons 44 (1934) to enabe the ureau tentatvey to pass
upon the credt camed pendng a fna determnaton of the ta -
payer s correct ta abty:
Name of ta payer.
ddress
Month for whch fed.
L Tota quanttes credted to gasone and ubrcatng os (ths may be tota
quantty sod and used by some companes and It may be tou credts to
stock accounts (or other companes, dependng upon method of accountng)
II. Deductons:
(a) Stock credts (ths represents transfers, osses, and other quantty credts
not representng saes or products used. Ths s not shown f No. I
shows ony quanttes sod and used)
(o) Ta -free saes
1. Sovents, naphthas, etc., cassfed In accounts a gasone, sod ta free
because ureau of Interna Revenue does not cassfy as gasone
2. Paes to manufacturers and producers
8. aes of process os for nonuhrcatng purposes
4. Saes of sovents, naphthas, etc.. for nonfue purposes
s to the Unted States, States, and potca subdvsons..
5 Saes
6. Saes for e port
7. empt saes to shps...,
8. Correcton of errors
(e) Ta-pad saes
sof purchased products on whch ta was pad at the tme of purchase
were on hand une 20, 1932..
(d) Returned products on whch ta was pad when sod..
III. Tota deductons
I . Saes on whch ta shoud be pad (No. I ess No. III)...
Gasone.
Gaons
Lubrcat-
ng os.
Gaons.
There shoud be made a part of the form a statement to the effect
that the e empton certfcates and supportng data w be retaned
by the ta payer for a perod of four years n a centra ocaton and
so arranged that they can be nspected by revenue offcers and can
be ready reconced wth each tem or cass of deducton camed
on the return nvoved. There shoud aso be attached to the return
n whch the credt s camed, or made a part of the form submtted,
a statement from the ta payer that he has repad or agreed to repay
the amount of the ta to the utmate vendors or has obtaned the
consent of the utmate vendors to the aowance of the credt
camed.
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Regs. 47, rt. 15.
512
TITL I . CIS T S. (1918 ND 1921)
S CTION 900.
Req |atons 47, rtce 15: Defnton of I-39-8947
parts. Ct. D. 1264
( so Secton 600(1924) eguatons 47(1924).
rtce 16: Defnton of parts or accessores. )
CIS T S R NU CTS O 1918, 1921, ND 1924 D CISION O COURT.
arts or ccessores Gears Prmary dapted fob Use n
Motor ehces.
Where the record estabshes the fact that certan types of gears
are prmary adapted for use n motor vehces, such artces are
to be regarded as automobe parts or accessores wthn the mean-
ng of sectons 900 of the Revenue cts of 1918 and 1921 and
secton 600 of the Revenue ct of 1924, notwthstandng the fact
that they are aso adapted for use n other mechansms.
Court of Cams of the Unted States.
Unted States Gear Corporaton v. The Unted State .
15 . Supp., 66.
une 1, 1936.
opnon.
ooth, Chef ustce, devered the opnon of the court
Ths ta case nvoves an ssue of fact. The sut s brought under the pro-
vsons of subdvson 3 of secton 900 of the Revenue cts of 1918 and 1921,
and subdvson 3 of secton 600 of the ct of 1924. The cts of 1918 and
1921 (40 Stat, 1122, 42 Stat, 291) are n part as foows:
Sec. 900. That there sha be eved, assessed, coected, and pad upon the
foowng artces sod or eased by the manufacturer, producer, or mporter, a
ta equvaent to the foowng percentages of the prce for whch so sod or
eased
(1) utomobe trucks and automobe wagons (ncudng tres, nner tubes,
parts, and accessores therefor, sod on or n connecton therewth or wth the
sae thereof), 3 per centum
(2) Other automobes and motorcyces (Incudng tres, nner tubes, parts,
and accessores therefor, sod on or n connecton therewth or wth the sae
thereof), e cept tractors, 5 per centum
(3) Tres, nner tubes, parts, or accessores, for any of the artces
enumerated n subdvson (1) or (2), sod to any person other than a manu-
facturer or producer of any of the artces enumerated n subdvson (1) or
(2), 5 per centum.
Secton 600 of the ct of 1924 (43 Stat., 253, 322) reads as foows:
Sec. 000. On and after the e praton of 30 days after the enactment of ths
ct there sha be eved, assessed, coected, and pad upon the foowng
artces sod or eased by the manufacturer, producer, or mporter a ta
equvaent to the foowng percentage of the prce for whch so sod or
eased
(1) utomobe truck chasss and automobe wagon chasss sod or eased
for an amount n e cess of 1,000, and automobe truck bodes and automobe
wagon bodes sod or eased for an amount n e cess of 200 (ncudng n both
cases, tres, nner tubes, parts, and accessores therefor sod on or n connecton
therewth or wth the sae thereof), 3 per centum. sae or ease of an
automobe truck or of an automobe wagon sha, for the purposes of ths
subdvson, be consdered to be a sae of the chasss and of the body
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513
Regs. 47, rt. 15.
(2) Other automobe chasss and bodes and motorcyces (Incudng tres,
Inner tubes, parts, and accessores therefor sod on or In connecton therewth
or wth the sae thereof), e cept tractors, 5 per centum. sae or ease of
an automobe sha, for the purposes of ths subdvson, be consdered to be
a sae of the chasss and of the body
(3) Tres, nner tubes, parts, or accessores for any of the artces enumerated
In subdvson (1) or (2) sod to any person other than a manufacturer or
producer of any of the artces enumerated n subdvson (1) or (2), per
centum. Ths subdvson sha not appy to chasss or bodes for automobe
trucks, automobe wagons, or other automobes.
No |ursdctona ssue s nvoved. The payment of the e cse ta es s con-
ceded, and tmey refund cams were fed by the pantff. The udgment
sought s for 26,412.70 and nterest.
The case Is dsposed of by the fndngs, and an opnon n the case woud not
be necessary were t not for the fact that the pantff n connecton wth other
contentons nssts that the gears nvoved n ts case are of the same type and
n many respects dentca to the gears nvoved n the case of rost dear
orge Co. v. Unted States (73 C. Cs., 750), for whch pantff recovered a
udgment under the statutes reed upon here.
Ths case and a smar cases must be ad|udcated upon the facts of record.
It a true that n the rost Gear orge Co. case, supra, the gears nvoved
were smar and In many nstances Identca n type and constructon to the
gears n ths case. There Is, however, n ths case a voume of proof pertnent
and convncng, emanatng from a source whch can not be questoned as to ts
worth, whch shoud have been, but was not, In the record In the rost Gear
orge case.
Ths record deveops the scentfc fact that an automobe gear s nds-
pensaby one whch must be prmary adapted for use In such a mechansm.
It s true, of course, that such a gear may under certan condtons be used n
other mechansms when they are adapted for ts use, but the demand for such
a gear s n no sense commensurate wth the demand for ts use n automobes.
The fact that one gear may be used Interchangeaby In dfferent mechansms
does not of tsef determne the prmary purpose of ts manufacture.
It woud be dffcut, f not Impossbe, to state as a fact that the gears em-
poyed n automobes may not under any and a crcumstances be used n any
other mechansm. s was sad by the Supreme Court n the Unversa attery
Co. v. Unted States (281 U. S., 580, 583, 584 Ct D. 220, C. . I -2, 422
(1930) ):
Certany It woud be unreasonabe to hod that artces equay adapted to
a varety of uses and commony put to such uses, one of whch s use In motor
vehces, must be cassfed as parts or accessores for such vehces. nd It
woud be aso unreasonabe to hod that artces can be so cassfed ony where
they are adapted soey for use n motor vehces and are e cusvey so used.
(Uagone v. T ederer, 159 U. S., 555, 559.) It s that artces prmary
adapted for use n motor vehces are to be regarded as parts or accessores of
such vehces, even though there has been some other use of the artces for
whch they are not so we adapted.
Whe the evdence n ths case Is somewhat confctng, and rather sharp
dfferences as to matters of fact obtan, the record does estabsh the fact that
the type of gear ta ed was not commony put to a use other than n motor
vehces, and whe adapted for use n other mechansms ther use depended to
such an e tent upon the dentty of the mechansm n whch they were to be
used as to precude the possbty of fndng t to be a common use. pert
and dsnterested testmony, predcated upon actua e perence of many years
In the automotve ndustry, we thnk confrms the fndngs, and the petton
w be dsmssed. It s so ordered.
Whaey, udge Wt ams, udge and Green, udge, concur.
Ltteton, udge, dssents.
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Regs. 8(1934), rt. 76.
514
TITL I T ON CIG RS, TO CCO, ND M NU-
CTUR S T R O . (1928)
S CTION 400.
Reguatons 8(1934), rtce 76: Subdvson I-50-9096
packages. T. D. 4781
SU DI ISION P C G S O CIG RS ND CIG R TT S.
Reguatons No. 8, reatng to the ta es on tobacco, snuff, cgars,
and cgarettes, aso on cgarette papers and tubes and purchase
and sae of eaf tobacco, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 76, Reguatons No. 8, as revsed and approved November
12, 1934, as amended by Treasury Decson 4668, approved uy 22,
1936 C. . -2, 350 (1936) , s further amended to read as
foows:
bt. 76. Subdvson package . The statutory number of cgars and cga-
rettes contaned n the bo or package may be subdvded by the use of paper
or rbbon bands. The statutory number of cgars and cgarettes contaned
In the bo or package may be subdvded, aso, nto parces as foows:
(a) Cgars weghng more than 8 pounds per thousand may be separated
Into parces contanng not more than 10 cgars each. The subdvson parces
may be made of fo, fo paper, wa paper, ceophane, or other unsubstanta
matera upon whch t woud be Impractcabe to prnt the requred factory
brand or aff an Interna revenue stamp. The subdvson parces may be
made aso of ghtweght cardboard or other substanta matera upon whch
t s practcabe to prnt the factory brand or to aff an Interna revenue
stamp, provded the ghtweght cardboard or other substanta parces have
cut-out wndows or are open at one end.
(6) Cgarettes (ncudng sma cgars weghng not more than 3 pounds
per thousand) may be subdvded nto parces contanng a statutory number,
. e., 5, 8, 10, 12, 15, 16, 20, 24, 40, 50, 80, or 100 cgarettes or sma cgars,
provded such subdvson parces are made of fo, fo paper, wa paper,
ceophane, or other unsubstanta matera upon whch t woud be mprac-
tcabe to prnt the requred factory brand or to aff an nterna revenue
stamp. Subdvson parces whch do not contan a statutory number of cg-
arettes or sma cgars as enumerated above may be made of the same unsub-
stanta matera as mentoned n the precedng sentence, or the subdvson
parces may be made of ghtweght cardboard or other substanta matera
provded the ghtweght cardboard or other substanta subdvsons have
cut-out wndows, or are open at one end. The above provsons reatng to
the use of subdvson parces n packng cgarettes or sma cgars do not
appy to subdvson parces contanng not more than four cgarettes or sma
cgars each, when such parces are prepared by the manufacturer soey for
devery to hs agents or representatves end to be dstrbuted e cusvey
by them drecty from the orgna stamped statutory packages to prospectve
customers for advertsng purposes ony.
(c) The cauton notce abe (artce 84), factory brand (artce 85), and
cassfcaton abe (artce 86), must not appear on any subdvson parce of
a statutory bo or package, but must appear ony on the statutory bo or
package on whch the requste stamp s aff ed. No subdvson parce sha
bear any statement whch ndcates that the ta has been pad on the contents
of any such subdvson parce.
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515
(Regs. 8(1934), rt. 163.
(d) Cgars and cgarettes when subdvded nto parces must reman n the
stamped statutory bo or package unt they are sod or devered drect to the
consumer, and the whoe number of cgars or cgarettes packed n each
statutory bo or package must correspond to the denomnaton of the stamp
aff ed to the bo or package. (See artce 151.)
Ths Treasury decson s promugated under the authorty con-
taned n secton 1101 of the Revenue ct of 1926.
Gut T. everng,
Commssoner of Interna Revenue.
pproved December 7, 1937.
Roswe Mag,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster December 9, 1937, 1.01 p. m.)
Reguatons 8(1934), rtce 163: endng I-38-8940
machnes. T. D. 4761
endng machnes for tobacco products. Reguatons No. 8,
reatng to the ta es on tobacco, snuff, cgars, and cgarettes,
aso on cgarette papers and tubes and purchase and sae of eaf
tobacco, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 163 of Reguatons No. 8, as revsed and approved Novem-
ber 12, 1934, s amended to read at foows:
rt. 163. endng machnes. endng machnes may be used for vend-
ng ony tobacco products whch have been propery packed and stamped by
the manufacturers of such products. The tobacco products may be vended
ether n such packages or drecty from such packages as put up by the
manufacturers and approved by the Commssoner of Interna Revenue, as
provded for n artce 109.
Machnes desgned for the automatc sae of tobacco products must have
gass panes through whch the packages are pany vsbe. The machnes
must be approved by the Commssoner before ther use s authorzed.
workng mode or photographs of such machnes, whch w show that the
constructon conforms wth the foowng requrements, must be submtted
to the Commssoner for Inspecton before such machnes are used n ds-
pensng tobacco products:
(a) Machnes for vendng a tobacco product drecty from a statutory pack-
age must have the gass panes so paced that the nterna revenue stamp,
together wth the requred cauton notce and marks or brands, are pany
vsbe. The mechansm for devery must provde for practcay a drect
feed of the artce from the orgna stamped package. of the stamp
must reman on the package unt the contents are sod, when the empted
package sha be removed mmedatey and the package and the stamp there-
on uttery destroyed. No such empted package may agan be used for a
tobacco product under severe penates mposed by aw.
(6) In respect to machnes desgned to vend ony fu and unbroken org-
na stamped statutory packages of tobacco products, responsbty for strct
compance wth the nterna revenue aws and reguatons governng the sae
of tobacco products w rest wth the persona who se, or offer to se, tobacco
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Regs. 8(1934), rt. 163. 516
products by means of Tendng machnes, and such persons sha be abe to the
penates prescrbed by aw for havng n possesson and seng or offerng for
sae tobacco products not propery packed and stamped.
Ths Treasury decson s promugated under the authorty con-
taned n secton 321, Revsed Statutes, and secton 3396, Revsed
Statutes.
Gut T. everno,
Commssoner of Interna Revenue.
pproved September 10, 1937.
RoSW LL M GILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 14, 1937, 10.13 a. m.)
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517 Regs. 42(1932), rte. 1,8,25, 39.
TITL MISC LL N OUS T S. (1932)
P T I. T O T L GR P , T L P ON , R DIO,
ND C L CILITI S.
S CTION 701.
Reguatons 42 (1932), rtces 1, 8, 25, 39: T-30-8843
ffectve perod. T. D. 4751
Ta on teegraph, teephone, rado and cabe factes, trans-
portaton of o by ppe ne, and eectrca energy. Ttes I and
of the Revenue ct of 1932, amended by secton 212 of the Natona
Industra Recovery ct, secton 6 of the ct approved une 16,
1933 (Pubc, No. 73, Seventy-thrd Congress), Pubc Resouton
No. 36, Seventy-fourth Congress, and further amended by Pubc
Resouton No. 48, Seventy-ffth Congress, approved une 29, 1937.
rtces 1, 8, 25, and 39 of Reguatons 42, approved October 22,
1932, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Ttes I and of the Revenue ct of 1932, as amended by secton
212 of the Natona Industra Recovery ct (approved une 16,
1933), and Pubc Resouton No. 36, Seventy-fourth Congress (ap-
proved une 28, 1935), were further amended by Pubc Resouton
No. 48, Seventy-ffth Congress (approved une 29,1937), whch reads,
n part, as foows :
That tte I , as amended, and parts I, II, III, and I , of tte , as amended,
of the Revenue ct of 1932, are further amended by strkng out 1937
wherever appearng theren and nsertng In eu thereof 1939.
In conformty wth the provsons of aw quoted above, artces 1,
8, and 25 of Reguatons 42 (revsed October, 1932), as amended by
Treasury Decson 4382, approved ugust 9, 1933 C. . II-2,
364 (1933) , and Treasury Decson 4570, approved uy 24, 1935
C. . I -2, 391 (1935) , and artce 39 of Reguatons 42, as
amended by Treasury Decson 4393, approved September 20, 1933
C. . II-2 322 (1933) , and Treasury Decson 4570, approved
uy 24,1935 supra , are further amended as foows:
rtce 1. ffectve perod. The ta Is Imposed upon payments for the trans-
msson by teegraph, teephone, cabe, or rado dspatches, messages, and con-
versatons orgnatng In the Unted States on or after une 21, 1932, and before
uy 1, 1939, regardess of the date of payment.
rt. 8. ffectve perod. The ta mposed under secton 701(a)(2) attaches
to the amount pad on or after une 21, 1932, for any eased wre or takng
crcut speca servce furnshed on or after une 21, 1932, and before uy 1,
1939. If the rendton of the servce occurs wthn the effectve perod of the
aw the ta attaches thereto even though the payment therefor Is made on
or after uy 1, 1939.
rt. 25. ffectve perod. The ta mposed under secton 731 appes to a
transportaton of crude petroeum and qud products thereof by ppe ne
where the movement begns on or after une 21, 1932, and before uy 1, 1939,
e cept that the ta under secton 731(a) (1) Is Imposed ony when payment for
the transportaton Is made on or after une 21, 1932. In the case of any such
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Regs. 43, rt. 57.
518
transportaton by ppe ne where the movement orgnates pror to uy 1,
1939, and ends on or after that date, the ta attaches to the entre amount
charged for the transportaton, athough pad on or after uy 1, 1939.
et. 39. ffectve perod. The ta appes to eectrca energy sod on or
after September 1, 1933, and before uy 1, 1939.
Ths Treasury decson s ssued under the authorty contaned
n sectons 628 and 773 of the Revenue ct of 1932.
Gut T. everng,
Commssoner of Interna Revenue.
pproved uy 21, 1937.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 23, 1937, 10.49 a. m.)
P RT n. DMISSIONS T
S CTION 711.
Reguatons 43, rtce 57: ffectve date I-30-8845
of change n e empton. T. D. 4753
Ta on admssons. Secton 711(e) of the Revenue ct of 1932,
amended by secton 212 of the Natona Industra Recovery ct,
and Pubc Resouton No. 36, Seventy-fourth Congress, and fur-
ther amended by Pubc Resouton No. 48, Seventy-ffth Congress,
approved une 29, 1937.
rtce 57 of Reguatons 43, approved une 14, 1932, amended.
Treasury Department,
Offce or Commssoner op Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 711 (e) of the Revenue ct of 1932, as amended by secton
212 of the Natona Industra Recovery ct (approved une 16,
1933), and Pubc Resouton No. 36, Seventy-fourth Congress (ap-
Sroved une 28, 1935), was further amended by Pubc Resouton
o. 48, Seventy-ffth Congress (approved une 29, 1937), whch
reads, n part, as foows:
That tte I , as amended, and parts I, II, III, and I , of tte , as
amended, of the Revenue ct of 1932, are further amended by strkng out
1937 wherever appearng theren and nsertng n eu thereof 1939.
In conformty wth the provsons of aw quoted above, artce
57 of Reguatons 43 (revsed une, 1932), as amended by Treasury
Decson 4379, approved ugust 9, 1933 C. . II-2, 353 (1933) ,
and Treasury Decson 4571, approved uy 24, 1935 C. . I -2,
392 (1935) , s further amended as foows:
rt. 57. ffectve date of change n e empton. The sums pad for adms-
son whch are not sub|ect to ta under secton 500(a) (1) of the Revenue ct
of 1926, as amended by secton 711(a) of the Revenue ct of 1932, are those
whch are ess than 41 cents. ffectve uy 1, 1939, any sum of 3 or
ess pad for admsson w not be ta abe. The tme of payment and not
the tme of admsson w govern n determnng whch e empton Is appcabe.
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519
Regs. 43(1932), rt. 29.
Consequenty, If a person shoud purchase a tcket of admsson for an amount
In e cess of 40 cents where the payment was made before uy 1, 1939, for an
admsson to take pace after that date, the payment so made woud be sub|ect
to ta .
Ths Treasury decson s ssued under the authorty contaned n
secton 1101 of the Revenue ct of 1926.
Gut T. everng,
Commssoner of Interna Revenue.
pproved uy 21, 1937.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 23, 1937, 10.50 a. m.)
TITL . DMISSIONS ND DU S. (1926)
S CTION 500(a) O T R NU CT O 1926, S M ND D.
Reguatons 43 (1932), rtce 29: Requre- I-29-8829
ments appcabe to tckets. T. D. 4749
Ta on admssons. Secton 500(a) of the Revenue ct of 1926,
amended by secton 411(a) of the Revenue ct of 1928, secton
711 (a) and (e) of the Revenue ct of 1932, sectons 212 and 219
of the Natona Industra Recovery ct, Pubc Resouton No. 3G,
Seventy-fourth Congress, and Pubc Resouton No. 48, Seventy-
ffth Congress.
rtce 29 of Reguatons 43, approved une 14, 1932, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The frst paragraph of artce 29 of Reguatons 43 s amended to
read:
Where tckets or cards of admsson are used, they must compy wth the
foowng requrements: (1) The prce (e cusve of the ta to be pad by the
person payng for admsson) at whch every tcket or card s sod must be
conspcuousy and ndeby prnted, stamped, or wrtten on that part of the
tcket whch s to be taken up by the management of the pace for whch t s
vad for admsson. Ths s a specfc requrement of the ct tsef. or
admnstratve purposes t s necessary to show not ony the seng prce but
aso (a) the reguar or estabshed prce (see artce 5), (6) the ta , and (c)
the tota of the prce and ta . The reguar or estabshed prce, the ta based
thereon, and tota sha appear on the face (n the case of strp tckets the
back may be used) of the porton of the tcket whch s to be taken up by the
management In the foowng or equvaent form:
stabshed prce
Ta pad
Tota
If the tcket Is sod at a prce other than the reguar or estabshed prce, the
actua seng prce, the ta (for bass and computaton of ta see artce 1)
and the tota sha be shown on the face of the porton of the tcket to be
taken up by the management. If the tcket shows the seat or bo for whch
It s vad the ocaton and seat or bo number must appear on that part of
the tcket whch s taken up by the management as we as on the stub whch
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Regs. 43(1932), rt. 29. 520
s even to the patron. If the tcket s sod other than at the tcket offce of
the theater, opera, or other pace of amusement, the actua seng prce and
the name and address of each vendor must be shown on the back of the porton
of the tcket to be taken up by the management. persons requred to coect
and account for ta on admssons must keep for possbe nspecton by revenue
offcers the portons of the tckets taken up by them, or In the case of a cabaret
or smar pace, the waters checks, for a perod of not ess than three months.
or penates mposed n ths connecton see artce 56.
Ths amendment sha be effectve on and after October 1, 1937.
Ths Treasury decson s ssued under the authorty contaned n
secton 1101 of the Revenue ct of 1926.
Gut T. everng,
Commssoner of Interna Revenue.
pproved uy 14, 1937.
RoSW LL MaGILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 10, 1937, 3.13 p. m.)
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, S CTION 711 (a) ND
(e) O T R NU CT O 1932, S CTIONS 212 ND 219 O T
N TION L INDUSTRI L R CO RY CT, PU LIC R SOLUTION NO.
36 (49 ST T., 431), ND PU LIC R SOLUTION NO. 48, S NTY- I T
CONGR SS.
Reguatons 43(1932), rtce 29: Requrements I-49-9080
appcabe to tckets. S. T. 870
Condtons under whch a movng pcture theater w not be
requred to retan the portons of admsson tckets taken up
by t.
dvce s requested whether under the crcumstances herenafter
stated movng pcture theaters w be requred to retan the portons
of admsson tckets taken up by them for a perod of not ess than
three months, as provded n artce 29 of Reguatons 43(1932), as
amended by Treasury Decson 4749 (page 519, ths uetn).
In the case presented, the movng pcture theater does not se
tckets coverng reserved seats or bo es. No tckets are sod other-
wse than through a mechanca recordng devce. No tckets are
sod to tcket brokers or specuators, or for an amount n e cess of
the reguar estabshed bo offce prce. oury records are kept
showng the sera numbers of the tckets sod each day and the
regster numbers whch record each sae made durng the day.
rtce 29 of Reguatons 43(1932), as amended by Treasury De-
cson 4749, supra, reads n part as foows:
persons requred to coect and account for fa on admssons
must keep for possbe nspecton by revenue offcers the portons of the tckets
taken up by them, for a perod of not ess than three months.
rtce 44 of Reguatons 43(1932) reads n part as foows:
very ndvdua, corporaton, partnershp, or assocaton requred
by the provsons of the ct to coect any ta on admssons must keep or
cause to be kept an accurate day record of e casses of admsson, ncud-
ng free or compmentary tckets or admssons and reduced rate admssons,
even though certan casses are not ta abe. Ths record n the case of ta abe
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521
Regs. 43(1932), rt. 29.
admssons must show n the case of each cass of admssons (a) a fgures
and other nformaton necessary to determne the amount of ta due for that
day, and (6) the amount of ta due for that day and n the case of nonta abe
admssons, the number of admssons of each cass. The propretor or man-
ager of the busness must certfy, over hs sgnature, to the correctness of the
day record, and f any other person s drecty nterested n the proceeds of
the amounts receved for admsson, he or hs agent must aso certfy to ts
correctness. Whenever n the course of the busness a report s prepared
day or at some other reguar nterva or at any tme by a treasurer or man-
ager for the beneft of the propretor, or by the propretor, treasurer, or manager
for the beneft of some other nterested party, a sworn copy of such report
must be attached to and made a part of such day record. Such day records,
ncudng such sworn copes of reports, must be kept on fe at the bo offce
of the pace or at some other convenent ocaton for a perod of at east four
years from the date the ta became due, n such a manner as to be ready
accessbe to nterna-revenue offcers on request.
It s hed that where a movng pcture theater (1) does not se
reserved seat tckets to cover partcuar seats or bo es, (2) does not
se tckets to tcket brokers or specuators, (3) does not se any
tckets for an amount n e cess of the reguar estabshed bo offce
prces, (4) does not se tckets otherwse than through a mechanca
tcket saes recordng devce whch records accuratey every tcket
sod and ts seng prce, and (5) makes and keeps for nspecton
by revenue offcers, as we as for other purposes, houry records of
a transactons made through the mechanca devce or otherwse,
such records beng transcrbed from an accurate mechanca system
of recordng whch s the equvaent of an ndvdua count of tcket
stubs, there s n effect compance wth the above-quoted provsons
of the reguatons and t w not be necessary for such theater to
retan the tcket stubs uness nstructed to do so for certan perods
by duy authorzed representatves of the ureau of Interna
Revenue.
If at any tme such movng pcture theater ses any reserved seat
tckets, or ses tckets to tcket brokers or specuators, or ses tckets
for an amount n e cess of the reguar estabshed bo offce prces,
such theater must compy wth a of the provsons of artce 29
of Reguatons 43(1932), as amended by Treasury Decson 4749,
supra, ncudng the retanng of a tcket stubs for a perod of
not ess than three months.
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Regs. 71, rt. 2. 522
TITL III. ST MP T S. (1926)
Reguatons 71, rtce 2: ffectve perod. T-30-8844
T. D.4752
Stamp ta es on Issues and transfers of stocks and bonds, saes
of produce for future devery, and deeds of conveyance, under Tte
III of the Revenue ct of 1926, as amended by Tte II, Part , of
the Revenue ct of 1928, by Tte , Part III, of the Revenue ct
of 1932, by secton 212 of the Natona Industra Recovery ct, by
secton 012 of the Revenue ct of 1934, by Pubc Resouton No. 36,
Seventy-fourth Congress, by the ct of une 29, 1936 (Pubc, No.
842, Seventy-fourth Congress), and as further amended by Pubc
Resouton No. 48, Seventy-ffth Congress.
rtce 2 of Reguatons 71, approved uy 16, 1932, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Tte of the Revenue ct of 1932 has been amended by Pubc
Resouton No. 48, Seventy-ffth Congress, approved une 29, 1937,
whch reads, n part, as foows:
That parts I, II, III, and I , of tte , as amended, of the Reve-
nue ct of 1932, are further amended by strkng out 1937 wherever appear-
ng theren and nsertng n eu thereof 1939.
In conformty wth the provsons of the aw above quoted, artce
2 of Reguatons No. 71, approved uy 16, 1932, as amended bv
Treasury Decson 4383 C. . II-2, 358 (1933) and Treasury
Decson 45C9 C. . I -2, 390 (1935) , s further amended to read
as foows:
rt. 2. ffectve perod. The stamp ta provsons of the Revenue ct of
1926, as amended by the Revenue ct of 1928, are st n fu force and effect,
e cept as amended by the Revenue cts of 1932 and 1934 and the ct of une 29,
1936. The amendments made by the Revenue ct of 1932 are effectve on and
after une 21, 1932. The amendment made by the Revenue ct of 1934 Is effec-
tve on and after May 11, 1934. The amendment made by the ct of une 29,
1930, s effectve on and after that date. The rates of ta , as we as the add-
tona ta es mposed by the amendments made by the Revenue cts of 1932 and
1934 to Schedue of Tte III of the Revenue ct of 1926, as amended by the
Revenue ct of 192S, are effectve ony to and ncudng une 80, 1939.
Ths Treasurv decson s ssued under the authorty contaned n
secton 1101 of the Revenue ct of 1926.
Gut T. evernc,
Commssoner of Interna Revenue.
pproved uy 21, 1937.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 23, 1937, 10.49 a. m.)
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523
Regs. 71, rts. 55, 58, 60.
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, btce 53: Passage tckets I-29-8825
ssued to certan foregn repre- S. T. 863
sentatves.
Consus genera of Denmark are e empt from the stamp ta on
passage tckets.
S. T. 681 (O. . II-1, 455 (1933)) modfed.
dvce s requested whether consus genera of Denmark 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 III of the conventon of
frendshp, commerce and navgaton of pr 26, 1826, between the
Unted States and Denmark, consus genera of Denmark, not engaged
n professona busness, trade, manufacture, or commerce, are e -
empt from the stamp ta on passage tckets mposed by Schedue -5
of Tte III of the Revenue ct of 1926, as amended by secton 442
of the Revenue ct of 1928.
S. T. 681 (C. . II-1, 455 (1933)) s modfed to ncude consus
genera n the offcers of Denmark entted to e empton from the ta
on passage tckets.
SC DUL -5, TITL III, R NU CT O 1926, S M ND D Y
S CTION 442(a), R NU CT O 1928, S URT R M ND D Y
PU LIC, NO. 400, S NTY- I T CONGR SS.
Reguatons 71, rtces 55, 58, and 60. T-40-8961
T. D.4763
Stamp ta on passage tckets Schedue -5, Tte III of the
Revenue ct of 1926, as amended by secton 442(a) of the Revenue
ct of 1928, as further amended by Pubc, No. 400, Seventy-ffth
Congress, to e empt passage tckets between the contnenta Unted
States and Puerto Rco.
Reguatons 71, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The ct approved ugust 28, 1937 (Pubc, No. 400, Seventy-ffth
Congress), entted n ct to amend the Revenue ct of 1926, as
amended, to e empt persons traveng between Puerto Rco and the
contnenta Unted States from the payment of a stamp ta on
teamshp tckets, provdes, as foows:
That subdvson 5 of Schedue of Tte III of the Revenue ct of 1920,
as amended by secton 442(a) of the Revenue ct of May 29, 1928, be, and
hereby s, amended by strkng out the word or before the word Cuba
and by addng the words or Puerto Rco after the word Cuba.
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Regs. 71, rt. 84.
524
In conformty wth the provsons of the ct above quoted, artces
55, 58, and 60 of Reguatons 71, approved uy 16,1932, are amended
to read as foows:
et. 55. Passage tckets to Phppne Isands. Passage tckets to Phppne
Isands are ta abe.
rt. 58. Passage tckets to ports not n the Unted States, Canada, Me co,
Cuba, or Puerto Rco. (a) Passage tckets from any foregn port or domestc
port sod or ssued n the Unted States costng more than 10, whose port of
destnaton s not wthn the Unted States, Canada, Me co, Cuba, or Puerto
Rco, are sub|ect to ta .
(6) Such passage tckets sod or ssued n the Unted States to a port n
Newfoundand are sub|ect to ta .
bt. 60. Passage tckets to ports n the Unted States, Canada, Me co, Cuba,
or Puerto Rco. Passage tckets sod or ssued n the Unted States for passage
to ports of destnaton n the Unted States, Canada, Me co, Cuba, or Puerto
Rco are not sub|ect to ta uness sod or ssued n the Unted States as a round
trp or through tcket for a port not wthn the Unted States, Canada, Me co,
Cuba, or Puerto Rco.
Ths Treasury decson s ssued under the authorty contaned n
secton 1101 of the Revenue ct of 1926.
Gut T. ever g,
Commssoner of Interna Revenue.
pproved September 25, 1937.
Roswe Mag,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 28,1937,10.55 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-35-8899
rea property determnabe by aw of State S. T. 866
where ocated.
conveyance of a perpetua rght of way for a ppe ne n New
ersey s sub|ect to stamp ta as a conveyance of reaty.
dvce s requested whether the conveyance of a perpetua rght of
wav for a ppe ne n New ersey s sub|ect to the stamp ta 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
sha be granted, assgned, transferred, or otherwse conveyed to, or
vested n, the purchaser or purchasers 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.)
The nstrument n queston, desgnated a rght of way agree-
ment, provdes that n consderaton of the payment of doars the
grantor grants to the grantee a rght-of-way easement, wth the
rght to ocate, construct, and ay a ppe ne and mantan, operate,
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525
Regs. 71, rt. 84.
repar and remove sad ne over, upon, under and across specf-
cay descrbed and n the State of New ersey. The nstrument
further provdes that the grantee sha have the rghts of ngress,
egress, and regress necessary for the use of the easement and sha
be abe for any damages arsng from ts use. There s no mta-
ton as to the duraton of the easement. The nstrument s acknow-
edged by the grantor n the form requred by the aws of New
ersey for recordng nstruments conveyng ands, tenements, or
heredtaments.
In Tde-Water Ppe Co. v. erry (53 N. . L., 212 21 t., 490),
easements smar to the one under consderaton were hed ta abe
as rea estate. The nstruments n that case granted a rght of way
over and through ands n Mddese County for the purpose of con-
structng from tme to tme one ne of ron ppe for the transporta-
ton of petroeum, n such manner as sad grantee may deem neces-
sary, wth free ngress and egress to construct, operate, mantan
and from tme to tme repar and remove the same n such manner
as may be desred. The nstrument provded that the ppe shoud
be ad so as not to nterfere wth the usua cutvaton of the
premses, nor wth any budngs thereon, and that the grantee shoud
pay for a damage to crops, tmber, or otherwse, resutng from the
constructon or operaton of the ppe ne. In hodng the easements
ta abe as rea estate, the Court of rrors and ppeas of New
ersey stated n part as foows:
Under these grants, whch contan apt words to create an estate
In fee, the prosecutor acqured an nterest n the so, and a rght of possesson,
upon the terms and sub|ect to the condtons e pressed n the grant .
The Tde-Water Ppe Co. case, supra, s cted n State v. ag (58
N. . L., 295 33 t., 215) and Deaware, L. W. R. Go. v. recken-
rdge (55 N. . q., 141 35 t., 756), and represents the present aw
of the State of New ersey.
In vew of the foregong, t s hed that the rght of way (ease-
ment) conveyed by the rght of way agreement m queston const-
tutes reaty, and that such agreement s sub|ect to the stamp ta
mposed by Schedue -8 of Tte III of the Revenue ct of 1926,
as added by secton 725 of the Revenue ct of 1932.
Reguatons 71, rtce 84: What consttutes I-30-8839
rea property determnabe by aw of State S. T. 864
where ocated.
The sae pror to the e praton of the redempton perod of a
certfcate of purchase ssued by a sherff to the purchaser at a
forecosure sae of reaty n ansas s not sub|ect to stamp ta
as a conveyance of reaty where the rght to redeem had not been
waved by the mortgagor.
dvce s requested whether the sae pror to the e praton of the
redempton perod of a certfcate of purchase ssued by a sherff to
the purchaser at a forecosure sae of rea property n the State of
ansas consttutes a conveyance of reaty sub|ect to stamp ta under
Schedue -8 of Tte III of the Revenue ct of 1926, as added by
secton 725 of the Revenue ct of 1932, where the mortgagor had not
waved the rght to redeem the property.
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Regs. 71, rt. 84.
526
It s stated that bd n certan rea estate at a forecosure sae
and that a certfcate of purchase was ssued to hm by the sherff.
Durng the 18 months redempton perod provded for under ansas
aw (secton 60-3438, Genera Statutes of ansas, 1935), sod the
certfcate of purchase to . The queston presented s whether such
sae s sub|ect to stamp ta .
The aw mposes a stamp ta on any
Deed, nstrument, or wrtng whereby any ands, tene-
ments, or other reaty sod sha be granted, assgned, transferred, or other-
wse conveyed to, or vested n, the purchaser or purchasers when
the consderaton or vaue of the nterest or property conveyed, e cusve of the
vaue of any eu or encumbrance remanng thereon at the tme of sae, e ceeds
100 .
What consttutes ands, tenements, or other reaty s deter-
mnabe by the aw of the State n whch the property s stuated.
( rtce 84, Reguatons 71.) The term sod mports the transfer
of the absoute or genera tte for a vauabe consderaton or prce.
( rtce 79, Reguatons 71.)
The ta abe status of the sae of the certfcate of purchase n
quest on depends upon whether under the aws of . ansas ega tte
to the reaty passed to at the tme the certfcate of purchase was
ssued to hm by the sherff.
In Zmmerman v. Rose (206 Pac, 336) the Supreme Court of
ansas hed that at a |udca sae the purchaser obtans an nchoate
equtabe tte to the property that on the confrmaton of the fore-
cosure sae ony equtabe tte passes to the purchaser and that
ega tte does not pass unt e ecuton of the sherff s deed. In
Necse v. Ltte (5 Pac. (2d), 865) the Supreme Court of ansas, n
referrng to such a certfcate of purchase, stated:
The transfer of tte to the certfcate hoder s not competed unt
the e ecuton and devery of the deed by the sherff. The ega tte durng
ths perod s n the mortgagor. The certfcate hoder acqured an equtabe
tte, whch, f the mortgagor docs not e ercse hs rght of redempton, w
entte hm to the deed and vest hm wth the tte.
In Rutand Sav. ank v. Norman (266 Pac., 98) the Supreme
Court of ansas referred to a party acqurng property from the
mortgagor after forecosure and pror to redempton as the owner
thereof. Such ownershp s the same as the mortgagor had before
forecosure, namey, ega ownershp. Snce the ega ownershp re-
mans n the mortgagor n such a case, t foows that such ownershp
does not pass to the mortgagee or the certfcate purchaser at the
forecosure sae.
It s apparent, therefore (e cept where a corporate mortgagor
waves the rght of redempton as provded by secton 60-3439,
Genera Statutes of ansas, 1935), that a purchaser at a fore-
cosure sae of rea property stuated n ansas does not acqure
ega tte thereto through the certfcate of purchase. Snce the cer-
tfcate of purchase n the present case was sod pror to the e pra-
ton of the redempton perod and there was no waver of the mort-
gagor s rght of redempton, the sae of such certfcate does not
resut n a conveyance of reaty, and s, therefore, not sub|ect to the
stamp ta mposed by Schedue -8 of Tte III of the Revenue
ct of 1926, as added by secton 725 of the Revenue ct of 1932.
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527
Regs. 71, rt. 84.
Reguatons 71, rtce 84: What consttutes I-43-9007
rea property determnabe by aw of State S. T. 868
where ocated.
O and gas eases coverng ands n ansas and Te as, whch
are of unmted duraton or for a term of years and as ong
thereafter as o and/or gas s produced from the property, are
sub|ect to stamp ta as conveyances of reaty.
dvce s requested whether the nstruments herenafter descrbed
conveyng certan nterests n o and gas and coverng ands stuated
n ansas and Te as are sub|ect to the stamp ta on conveyances
mposed by Schedue -8 of Tte III of the Revenue ct of 1926,
as added by secton 725 of the Revenue ct of 1932.
The aw mposes a stamp ta on any Deed, nstrument,
or wrtng whereby any ands, tenements, or other reaty
sod sha be granted, assgned, transferred, or otherwse conveyed
to, or vested n, the purchaser or purchasers when the
consderaton or vaue of the nterest or property conveyed, e cusve
of the vaue of any en or encumbrance remanng thereon at the
tme of sae, e ceeds 100 . What consttutes ands, tene-
ments, or other reaty s determnabe by the aw of the State n
whch the property s stuated. ( rtce 84, Reguatons 71.)
The foowng descrbed nstruments coverng ands n ansas and
Te as are nvoved:
1. Sae of o and gas royaty. The grantor for a specfed con-
sderaton grants, ses, conveys, assgns and devers to the grantee
forever an undvded nterest n and to a of the o, gas, and other
mneras that may be produced from certan desgnated ands, to-
gether wth the rght to dr and e pore such ands for o and gas
and other mneras and remove the same therefrom, sub|ect to the
terms of an e stng o and gas ease coverng such ands, the grantee
to receve a royates, money rentas, and bonuses payabe under
such ease.
2. Mnera deed. The provsons of ths nstrument are n a
matera respects the same as those set forth n (1).
3. Sae of o and gas royaty. The ony matera dfference be-
tween ths nstrument and that descrbed n (1) s that ts duraton
s for a term of years and as ong thereafter as o and/or gas s
produced from the property or the property s beng deveoped or
operated.
The Supreme Court of ansas n Rchards v. Shearer (64 Pac.
(2d), 56) construed an nstrument smar to the nstruments under
consderaton e cept that the term of the nstrument before the court
was mted to the same term as the e stng ease coverng the same
property. The court hed that the nstrument created a determnabe
fee m the o and gas n pace and as such consttuted rea estate. If
such an nstrument created a determnabe fee, ceary an nstrument
for a specfed term of years and as ong thereafter as o and/or
gas s produced from the property or the property s beng deveoped
or operated woud kewse create a determnabe fee n the o and
gas, snce the term of the atter s at east as ndefnte as the term
of the former and an nstrument of unmted duraton woud create
a fee smpe estate n the o and gas rather than a determnabe fee.
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Regs. 71, rt. 92.
528
In Te as o and gas are sub|ect to ownershp n pace. (Ms and
Wengham. Law on O and Gas, secton 35.) In Sheffed v. oqg
et a. and edera Royaty Co. v. State (77 S. W. (2d), 1021), the
Supreme Court of Te as hed that the essor s nterest n the mn-
eras and royates under varous knds of o and gas eases coverng
ands n Te as consttuted rea estate.
In vew of the foregong, t s hed that each of the nstruments
n queston consttutes a conveyance of reaty sub|ect to stamp ta
under Schedue -8 of Tte III of the Revenue ct of 1926, as
added by secton 725 of the Revenue ct of 1932.
Reguatons 71, rtce 92: Deeds of reease I-30-8840
and deeds of trust. S. T. 865
Ta abty for stamp ta purposes of a transacton whereby rea
estate was transferred In trust, a ong-term ease mmedatey
granted thereon, and a subsequent reconveyance of the property
made n accordance wth the provsons of the ease.
dvce s requested whether the conveyance of reaty by the N
Company, as trustee, to the P Company n accordance wth the pro-
vsons of a ease under the crcumstances herenafter stated s sub|ect
to the stamp ta mposed by Schedue -8 of Tte III of the Rev-
enue 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, tene-
ments, 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 te tme of sae, e ceeds 100 .
The term sod mports the transfer of the absoute or genera
tte for a vauabe consderaton or prce. ( rtce 79, Reguatons
71.) Deeds of reease are not sub|ect to stamp ta . ( rtce 92,
Reguatons 71.)
Certan rea estate was conveyed by the M Company to the N
Company, as trustee. t the tme of the conveyance the stock of the
M Company was owned n ts entrety by the O Company. The trust
agreement provded that the benefca ownershp n the trust prop-
erty shoud be dvded nto 500 equa shares represented by nterest-
bearng certfcates of ownershp, desgnated as and trust certf-
cates. On the same date the property was eased to the O Com-
pany by the trustee (N Company) for a term of 50 years, wth the
prvege of renewa for addtona ke perods. The ease provded
that the rent payabe thereunder shoud be apped to payment of
the nterest on the outstandng and trust certfcates and the baance,
f any, to the purchase of such certfcates. The O Company (essee)
was gven the opton to purchase the N Company s (essor s) nterest
n the eased property on or after a certan date for an amount equa
to the then ca purchase prce of a of the outstandng and trust
certfcates. If the essee (O Company) e ercsed ts opton to pur-
chase the eased premses, the N Company (essor) agreed to convey
to the O Company a of the eased property free of the ease and
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529
Regs. 71, rt. 92.
trust. Subsequenty a of the assets of the O Company were ac-
qured by the P Company, whch company ater eected to pay off
the baance of the oan. The outstandng and trust certfcates were
thereupon retred and the property was conveyed to the P Company
by the N Company (trustee) n accordance wth the provsons of
the ease.
The determnaton of the ssue presented requres consderaton of
the queston whether the deed by the M Company to the N Company,
as trustee, was gven to secure a debt or pursuant to a sae of the
property. If the ega effect of the transacton was a sae, the subse-
quent transfer of the property by the N Company to the P Company
was a sae and not merey a reease of the N Company s nterest n
the property.
smar stuaton was consdered by the oard of Ta ppeas n
Cty Natona ank udng Co. v. Commssoner (34 . T. ., 93
(1936)). The oard hed n that case that the transacton whereby
the trustee acqured the property was a sae of rea property and not
a oan or mortgage. In the course of ts decson the oard sad:
Thus the transactons In the present ease were In aw and In fact
e acty what they purported to be. The pettoner sod Its property, bene-
fted from the method whch t used, and now can not deny the fact of sae
In order to cam ta benefts whch woud have resuted from the use of a
mortgage or some other form of oan. The test s what was done, not what
mght have been done.
The oard s decson n the above-named case sustaned the u-
reau s poston that a transacton whereby property s conveyed to a
trustee to be hed n trust for the owners of and trust certfcates, the
former owner mmedatey recevng back a ong-term ease wth an
opton to purchase the property, consttutes a sae and not a mort-
gage. ccordngy, the transacton whereby the M Company con-
veyed the rea estate to the N Company, as trustee, consttutes a sae
and not a mortgage. It foows that the subsequent transfer of the
rea estate by the N Company to the P Company pursuant to the
provsons of the ease consttuted a sae rather than a reease of the
mortgage, and that the conveyance effectng such transfer s sub|ect
to the stamp ta mposed by Schedue S of Tte III of the
Revenue ct of 1926, as added by secton 725 of the Revenue ct
of 1932.
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Regs. 99, rt. 502. 530
TITL I CIS T S WIT R SP CT TO SUG R
SUG R CT O 1937.
S CTION 40 COLL CTION O T S.
Reguatons 99, rtce 502: Payment of ta . I-51 9107
P. T. 35
Secton 620(3) of the Revenue ct of 1932, as amended, reatng
to ta -free saes by the manufacturer, producer, or mporter of
artces ta abe under Tte I of the Revenue ct of 1932, as
amended, s not appcabe n respect to the ta mposed bv secton
402 of the Sugar ct of 1937 (Pubc, No. 414, Seventy-ffth Con-
gress).
dvce s requested whether, n vew of the provsons of secton
405(b) of the Supr ct of 1937, secton 620(3) of the Revenue ct
of 1932, as amended, reatng to ta -free saes, appes to the ta m-
posed by secton 402 of the Sugar ct of 1937 (Pubc, No. 414,
Seventy-ffth Congress).
Secton 405(b) of the Sugar ct of 1937 provdes n part as
foows:
(b) provsons of aw, ncudng penates, appcabe wth respect to the
ta es mposed under Tte I of the Revenue ct of 1932, sha, nsofar as
appcabe and not nconsstent wth the provsons of ths tte, be appcabe
n respect to the ta mposed by secton 402.
Tte I of the Revenue ct of 1932, as amended, mposes e cse
ta es upon the sae of specfed artces by the manufacturer, pro-
ducer, or mporter. Secton 620 of that tte, as amended by secton
4(a) of the ct of une 16,1933 (48 Stat., 254), and by secton 401(a)
of the Revenue ct of 1935, provdes n part as foows:
Under reguatons prescrbed by the Commssoner wth the approva
of the Secretary, no ta under ths tte sha be Imposed 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.
The ta mposed by the Sugar ct of 1937 attaches upon the com-
peton of that process of manufacturng the drect resut of whch s
manufactured sugar, and s not mposed wth respect to the sae of
the manufactured sugar so derved.
Snce the provsons of secton 620(3) of the Revenue ct of 1932,
as amended, appy ony wth respect to the ta es mposed by Tte
I of the ct upon the sae of enumerated artces by the manufac-
turer, producer, or mporter, and the ta mposed by secton 402 of
the Sugar ct of 1937 s not mposed upon the sae of the manu-
factured sugar, t s hed that the provsons of secton 620(3) of the
Revenue ct of 1932, as amended, do not appy n respect to the ta
mposed by secton 402 of the Sugar ct of 1937. ccordngy, the
manufacture of sugar s ta abe, even though the sugar s sod 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.
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531 Regs. 43(1932), rt. 56.
TITL I, G N R L DMINISTR TI PRO ISIONS.
(1926)
S CTION 1114(e) O T R NU CT O 1926.
Reguatons 43(1932), rtce 56: Penates I-45-9029
and nterest Ct. D. 1276
( so Tte dmssons and dues.)
federa ta es revenue act of 1926 decson of court.
dmssons Ta ank Depost Sub|ect to Dstbant Labty
of ane.
credt arsng from the depost n a bank of money coected
by the board n contro of athetcs of a State unversty for ad-
mssons to footba games hed at the unversty and the edera
ta thereon was sub|ect to dstrant to the e tent of the ta co-
ected by the board as agent for the Unted States, and the bank
was abe, under the provsons of secton 1114(e) of the Rev-
enue ct of 1926, for refusa, upon demand by the coector, to
surrender the amount of the edera ta , wth nterest and penaty
accrung by reason of nonpayment.
Unted States Cntcurr Coubt of ppeas fob thb ghth Cntcurr.
Unted States of merca, appeant, v. rst Capta Natona ank of Iowa
Cty, Iowa, et a., appeees.
89 ed. (2d), 116.
ppea from the Dstrct Court of the Unted States for the Southern Dstrct of Iowa.
March 31, 1937.
OPINION.
ooth, Crcut udge, devered the opnon of the court
Ths s an appea from a udgment n an acton at aw by the Unted States
aganst the rst Capta Natona ank of Iowa Cty and two of ts offcers
to recover a money |udgment by reason of the faure and refusa of the
defendants to surrender to the coector of nterna revenue a credt arsng
from money deposted n the defendant bank by the oard n Contro of th-
etcs of the State Unversty of Iowa, Inc. (herenafter caed the board n
contro ), to ts own credt
The acton was brought by vrtue and under authorty of secton 1114(e) (f)
of the Revenue ct of 1926 (Tte 26, secton 1610, U. S. C). It s not an
acton aganst a ta payer for the coecton of a ta , but s a proceedng to
enforce a statutory abty under the statute cted. The statute contans the
foowng provson:
Seo. 1114. (e) ny person In possesson of property, or rghts to
property, sub|ect to dstrant, upon whch a evy has been made, sha, upon
demand by the coector or deputy coector makng such evy, surrender such
property .
The record shows, and the tra court found, that the premnary steps
were propery taken by the Commssoner and the coector of nterna rev-
enue such as makng the assessment, servng and fng a notce of ta en.
Issung and servng the warrant for dstrant, and evy upon the credt stand-
ng upon the books of the bank n the name of sad board n contro.
arous defenses were set up, but the one whch was adopted by the court
s that the property eved upon was not sub|ect to dstrant, but that It at
a tmes was the property of the Unversty of the State of Iowa, and as
such not sub|ect to evy. We sha assume, wthout decdng, that the words
sub|ect to dstrant permt Inqury as to the ownershp of the property
eved upon, as we as to the knd of property eved upon.
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Regs. 43(1932), rt. 56.
532
Many of the facts are undsputed.
The date of the evy under the warrant for dstrant was October 21, 1933.
It appeared that durng the months of September, October, November, and
December, 1032, footba games were hed at the Unversty of Iowa, whch
were partcpated n by the students of that unversty and of other un-
verstes. Tckets of admsson were sod by the board In contro, and n
addton to the admsson prce, there was coected from each purchaser
the edera ta mposed by secton 500(a) of the Revenue ct of 1926, as
amended by secton 711 of the Revenue ct of 19321 Ths admsson money
and the edera ta money, together wth other moneys coected by the board
n contro, were deposted n the defendant bank, and a copy of the depost
sp was handed by the board n contro to the comptroer of the unversty.
It may be noted n passng that ths s not the usua way of transferrng
the rght to bank deposts.
The account n the bank n whch the money was deposted was desgnated:
oard n Contro of thetcs and checks aganst the account were
sgned: oard n Contro of thetcs, Inc., authentcated by the sgnatures
of two of ts offcers.
It appears that after some of the money had been coected, ncudng the
ta , there arose a queston n the mnds of the board n contro as to whether
the Government was entted to the ta coected and the sad board drected
the comptroer of the unversty to estabsh a reserve for the amount of
the ta , and ths was estabshed on the books of the unversty and was
carred as such. Such amount of reserve was part of the amount on depost
n the defendant bank to the credt of the board In contro.
Demand was duy made by the coector of Interna revenue upon the
defendants for the edera ta coected, but ths, by authorty of the offcers
of the State of Iowa, was refused by the defendants. Sut foowed.
The case was trabe by a |ury, but a |ury was e pressy waved by stpua-
ton and at the cose of a the evdence each sde submtted fndngs of fact
and concusons of aw to the tra court. The court made fndngs and concu-
sons In favor of defendants. The fndngs n fu are set out as
foows :
ndngs of act and Concusons or Law.
fndngs of fact.
1. Ths s an acton at aw of a cv nature arsng under a aw of Con-
gress provdng for nterna revenue, brought by the Unted States of merca,
pursuant to subsectons (e) and (f) of secton 1114 of the Revenue ct of
192G: and the Commssoner of Interna Revenue has authorzed and sanctons
ths proceedng. (Pantff I.)
2. t a tmes mentoned n the compant on fe heren the pantff. Unted
States of merca, was, and now Is, a corporaton soveregn and body potc.
(Pantff II.)
3. t a tmes mentoned n the compant the defendant. rst Capta
Natona ank of Iowa Cty, Iowa, was, and now s, a natona bankng cor-
poraton, duy organzed, e stng and operatng under and by vrtue of the
Natona ankng ct, of the aws of the Unted States, wth ts prncpa
pace of busness at Iowa Cty, n the southern dstrct of Iowa, and durng
a of sad tme, has been and now Is engaged n the bankng busness n sad
cty, State, and dstrct and the defendants . D. Wams and Thos. arre
were, and now are, vce presdent and casher and assstant casher of sad
defendant bank, and ctzens and resdents of sad Iowa Cty and of sad
southern dstrct of Iowa. (Pantff III.)
Sue. 711. 4 f msson tar.
(a) raragrnph (1) of secton 500(a) of the Revenue ct of 1926, as amended. Is
amended to read as foows:
(1) ta of 1 cent for each 10 cents or fracton thereof of the amount pad for ad-
msson to any pace, ncudng admsson by season tcket or subscrpton, to be pad by
the person payng for such admsson e cept that In case the amount pad for adms-
son s ess than 41 cents, no ta sha be Imposed. In the case of persons (e cept boos
fde empoyees, muncpa offcers on offca busness, and chdren under 12 years of age)
admtted free or at reduced rates to any pace at a tme when and under crcumstances
under whch an admsson charge s made to other persons, an equvaent ta sha bs
coected based on the prce so charged to such other persons for the same or smar
nccomnodntons, to be pad by the person so admtted. mounts pad for admsson by
Reason tcket or subscrpton sha be e empt ony f the amount whch woud be charged
to the hoder or subscrber for a snge admsson Is ess than 41 cents
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533
Regs. 43(1932), rt. 56.
4. On or about March 2, 1931, there was ncorporated, pursuant to the
provsons of chapter 394, Tte I , of the Code of Iowa, 1931, a corporaton,
by the name of the oard n Contro of thetcs of the State Unversty
of Iowa, Inc., whose ncorporators and board of drectors for the frst year were
ennng Larson, Ron M. Perkns, oward L. eye, C. C. Wams, R. .
enton, . . uever, C. . Phps, dward . Lauer, P. G. gbee, Rush C.
uter, and W. ar a, a e cept two of whom were ether offcers of or
members of the facuty of the State Unversty of Iowa, and two of whom
were representatves of the aumn of the State Unversty of Iowa. The
offcers of sad corporaton for the frst year named n sad artces of
ncorporaton were: C. C. Wams of Iowa Cty, Iowa, charman, . L.
Lauer of Iowa Cty, Iowa, secretary, W. . ates of Iowa Cty, Iowa, treasurer.
(Pantff I .)
5. Pror to the ncorporaton of sad the oard n Contro of thetcs
of the State Unversty of Iowa, Inc., there e sted at the State Unversty
of Iowa a certan facuty board or commttee known as the board n contro of
athetcs, whch carred on ntercoegate sports and other athetc sports
partcpated n by students n attendance at the State Unversty of Iowa. t
the tme of the ncorporaton of sad corporaton the members of sad facuty
board or commttee were the same ndvduas who are descrbed n sad artces
of Incorporaton as the frst board of drectors, and the offcers of sad cor-
poraton were ether offcers of or members of the facuty of sad unversty.
(Pantff .)
6. The artces of Incorporaton of sad the oard n Contro of thetcs
of the State Unversty of Iowa, Inc., provde
The busness and ob|ect of ths corporaton sha be to carry on nter-
coegate sports and other athetc actvtes of the State Unversty of Iowa,
to promote athetc nterest among the students of sad unversty, and to
manage the fnances and busness ncdent thereto. (Pantff I.)
7. The artces of ncorporaton of sad the oard n Contro of thetcs
of the State Unversty of Iowa, Inc., further provde
Membershp of ths corporaton sha consst of those who may sgn these
artces of ncorporaton and ther assocates or successors, who may here-
after be eected and desgned In accordance wth the by-aws of ths corpora-
ton, but no person sha be or become a member of ths corporaton uness
nomnated for membershp by the presdent of the State Unversty of Iowa.
(Pantff II.)
8. Durng the months of September, October, November, and December, 1932,
sad oard n Contro of thetcs of the State Unversty of Iowa, Inc., had
contro of the athetc games and events n whch teams composed of athetes
who were students of sad Unversty of Iowa competed wth teams composed
of athetes who were students of other unverstes and coeges, to whch
spectators were admtted upon payment of the prescrbed admsson prce pus
the amount of admssons ta mposed by secton 500 of the Revenue ct of
1926, as amended by secton 711 of the Revenue ct of 1932. (Pantff III.)
9. Durng sad months of September, October, November, and December,
1932, athetc games or contests were hed or payed n and upon the grounds
or campus of sad Unversty of Iowa, to whch the genera pubc was ad-
mtted as spectators upon payment of the prescrbed admssons prce pus
the edera ta . Such admssons prce and edera ta were evdenced by
tckets, whch tckets were sod, and sad admssons charges pus edera ta
were coected by sad the oard n Contro of thetcs of the State Unversty
of Iowa, Inc., through certan of ts offcers, agents and servants. ach tcket
of admsson had prnted on the face thereof the admsson prce, the amount
of edera ta , and the tota of admsson charge and ta . The fu amount
shown upon the face of each such tcket of admsson, beng admsson prce
pus ta , was coected from the purchaser of each tcket by sad the oard
n Contro of thetcs of the State Unversty of Iowa, Inc., ts offcers, agents,
and sen-ants. The funds so derved from the sae of tckets to athetc games
and events for admsson thereto, ncudng the funds coected from purchasers
of sad tckets as and for the edera admsson ta , were coected and
hed by sad the oard n Contro of thetcs of the State Unversty of
Iowa, Inc., and by t deposted to ts credt n the rst Capta Natona ank
of Iowa Otv, Iowa, defendant heren, n an account desgnated as oard n
Contro of thetcs. (Pantff I .)
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Regs. 43(1932), rt. 56.
534
10. Nether the oard n Contro of thetcs of the State Unversty of
Iowa, Inc., nor anyone on ts behaf, made any returns of ta es so coected and
requred by aw to be coected, to the coector of nterna revenue under
secton 500 of the Revenue ct of 1926, as amended by secton 711 of the
Revenue ct of 1932. (Pantff .)
11. Upon the faure of sad the oard In Contro of thetcs of the
State Unversty of Iowa, Inc., to make returns and pay the ta on sad
admssons, the coector of nterna revenue for the coecton dstrct of
Iowa caused an nvestgaton to be made of the books, records and accounts
of sad the oard n Contro of thetcs of the State Unversty of Iowa, Inc.,
and on uy 31, 1933, determned that for sad months of September, October,
November, and December, 1932, sad the oard n Contro of thetcs of the
State Unversty of Iowa, Inc., had ncurred a abty for admsson ta es
n the amount of 3,985.50, and an assessment n sad amount was there-
after duy made by the Commssoner of Interna Revenue, together wth
Interest thereon at the rate of 1 per cent per month as provded by secton
502(d) of the Revenue ct of 1926, amountng at the date of sad assessment
to 350.39. (Pantff I.)
12. Upon the assessment of sad ta and nterest as aforesad, the sad
coector of nterna revenue demanded payment of sad ta and nterest of the
sad the oard n Contro of thetcs of the State Unversty of Iowa, Inc.,
but sad the oard n Contro of thetcs of the State Unversty of Iowa, Inc,
negected and refused and st negects and refuses to pay the same or any part
thereof, and sad ta and nterest and the whoe thereof reman unpad.
(Pantff II.)
13. The oard n Contro of thetcs of the State Unversty of Iowa, Inc.,
havng faed to pay sad ta and nterest wthn 10 days after demand, the
coector of nterna revenue added thereto under the provsons of secton 3184
of the Revsed Statutes, a penaty of 5 per cent, amouutng to 216.79. (Pau-
tff III rearranged by the court.)
14. On September 13, 1933, sad coector of Interna revenue duy fed for
record n the offce of the cerk of the Dstrct Court of the Unted States for
the Southern Dstrct of Iowa, and aso n the offce of the recorder of ohnson
County, Iowa, a notce of ta en on a the property of sad the oard n
Contro of thetcs of the State Unversty of Iowa, Inc., as authorzed by sec-
ton 31S6 of the Revsed Statutes, as amended by secton 613 of the Revenue ct
of 1928. (Pantff I rearranged by the court.)
15. Upon faure and refusa of the oard n Contro of thetcs of the
State Unversty of Iowa, Inc., to pay sad ta es, the coector of nterna rev-
enue of the dstrct of Iowa, Issued, or caused the ssuance of a warrant for
dstrant, No. 332S0, on October 3, 1933, whch he paced, or caused to be paced,
n the hands of George oehn, deputy coector of nterna revenue of sad
dstrct, for servce thereof. (Pantff rearranged by the court.)
16. On October 21, 1933, George oehn, C. . Doak, and P. . Garrett, dep-
uty coectors of nterna revenue for the dstrct of Iowa, served sad warrant
for dstrant and eved upon the money, credt, bank depost and bank account
property rghts of the oard n Contro of thetcs of the State Unversty of
Iowa, Inc., n the hands of the defendants, and each of them, and forthwth
served notce of evy on bank deposts and demand upon defendants, and each
of them. (Pantff I.)
17. t the tme of such evy, demand and servce of notce of evy on such
money, credt, bank depost and bank account property rghts and demand upon
defendants, there was n the hands of the defendants a credt baance to the
oard n Contro of thetcs of the State Unversty of Iowa, Inc., of 21,350.70,
whch represented among other revenues proceeds from the sae of admsson
tckets to athetc events, and ncuded the amounts coected as edera ta
on such admssons to athetc events hed durng the months of September,
October, November, and December, 1932. (Pantff II rearranged by the
court.)
18. On December 27, 1934, sad coector of nterna revenue served, or
caused to be served, upon each of the defendants, notce and demand, for sur-
render, devery and payment over to hm of such money, credt, bank depost,
and bank account property rghts of sad the oard n Contro of thetcs of
the State Unversty of Iowa, Inc., n the hands of defendants, and each of
them, aganst whch evy was made on October 21, 1933, whch defendants, and
each of them, refused to surrender, dever or pay over to sad coector. (Pan-
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535
Regs. 43(1932), rt. 56
19. t the tme of such evy, demand and servce of notce of evy on bank
deposts and demand, the sad money, credt, bank depost and bank account
property rghts of the oard n Contro of thetcs of the State Unversty of
Iowa, Inc., n the hands of defendants, and each of them, was not sub|ect to
any en, attachment or e ecuton eved thereon under any |udca process
other than such evy made by sad deputy coector on October 21, 1933.
(Pantff I.)
20. That the Legsature of the State of Iowa created the State board of
educaton whose members are apponted by the Governor and confrmed by the
Senate of the State of Iowa, and whose dutes and powers are provded for In
chapter 195 of the Code of Iowa, 1935, and that pursuant to powers gven to
t by aw and to assst n admnsterng the affars of the State Unversty of
Iowa, whch s one of the nsttutons governed by the State board of educa-
ton, t provded for a board n contro of athetcs, whch board s named by
the presdent of the unversty and s composed of facuty members of the
unversty and aumn. (Defendant I .)
21. That the State Unversty of Iowa was provded for In the Consttuton
of the State of Iowa, adopted n 1857 and thereafter, the egsature provded
by chapter 198 of the Code of Iowa, 1935, that the ob|ect of the State Un-
versty of Iowa was to provde the best and most effcent means of Impart-
ng to men and women a bera educaton and a thorough knowedge of the
dfferent branches of terature, n the arts and scences wth ther vared app-
catons and that the unversty sha ncude coeges of bera arts, aw, med-
cne and such other coeges and departments, wth such courses of nstructon
and eectve studes as the board of educaton may from tme to tme deter-
mne, and further provded that f a teachers tranng course s estabshed,
t sha ncude the sub|ect of physca educaton.
That such a course was estabshed at the Unversty of Iowa and the de-
partment of physca educaton made a part of the bera arts coege and that
degrees were offered to those enrong n the physca educaton department,
and that as a part of the physca educaton and as a part of the department
of physca educaton, ntercoegate athetc games were offered and sponsored
by the State Unversty of Iowa In the fa of 1932, durng the months of Sep-
tember, October, November, and December, beng the perod In controversy In
ths acton. (Defendant .)
22. That the fu amount of the admsson prce, ncudng the Government
ta coected, was turned over by the oard In Contro of thetcs of the
State Unversty of Iowa, Inc., to the treasurer of the State Unversty of
Iowa by depostng such proceeds n an account of the sad board n contro of
athetcs n the rst Capta Natona ank of Iowa Cty, Iowa, and turnng a
copy of the depost sp over to the comptroer of the State Unversty of Iowa.
That there was aso deposted n such account durng the perod companed
of certan fees receved from students and other tems. Incudng depost on
unforms. That ths money was dsbursed on orders of the offcers and those In
charge of the State Unversty of Iowa. (Defendant III rearranged by the
court.)
23. That pursuant to the aw of the State of Iowa, the orty-fourth Genera
ssemby, meetng In the sprng of 1931, approprated for the State Unversty
of Iowa at Iowa Cty, Iowa, for the bennum begnnng uy 1, 1931, the sum of
4,900,000, or so much thereof as may be necessary for saares, support, man-
tenance, equpment, genera mprovements and speca capta purposes, and
provdng further that the unaocated funds be dstrbuted by the State board
of educaton. (Defendant II.)
24. That n determnng the appropraton, there was submtted by the un-
versty to the egsature, a budget of the varous coeges and departments for
the bennum and aso a schedue or report of antcpated revenues from the
varous sources such as tuton fees and athetc contests, ncudng these for
the months of September, October, November, and December, 1932, and n arrv-
ng at the amount of money necessary to approprate from money rased
through ta aton, there was deducted ths antcpated revenue. (Defendant
III.)
25. That the proceeds from the athetc contests durng the perod n con-
troversy were e pended for the genera purposes of the physca educaton
department, Incudng the payment of saares and that the coaches of the
footba teams aso served as nstructors n the physca educaton department,
and that the students ma|orng n the physca educaton department were
requred to |on the freshman footba squad and receve tranng from the
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Regs. 43(1932), rt. 56.
536
coaches and those egbe, become members of the varsty footba squad at the
unversty, whch took part n these athetc games n the fa of 1932. (De-
fendant I .)
20. The students so ma|orng In physca educaton, receve a degree from
the unversty upon competng the requred course and are avaabe for teach-
ng work, ncudng physca educaton and the coachng of athetc teams,
and that beng a part of the varsty squad and takng part n these Inter-
coegate games at the Unversty of Iowa, asssts such students In securng
teachng postons, as those athetes, wth Intercoegate footba e perence,
are much more n demand than those wthout such e perence and reputaton.
(Defendant .)
27. That the money n the hands of the defendants and each of them and
whch s attempted to be eved upon and dstraned by the pantff, and whch
s sought to be enforced n ths acton, was at a tmes property and moneys
of the State Unversty of Iowa. (Defendant III rearranged by the court.)
concusons of aw.
1. That under the aw and the evdence a notces and demands requred
by aw to be served, were duy served upon the defendants pror to the n-
sttuton of ths acton. (Pantff .)
2. That under tbe aw and the evdence ths acton s one to enforce a
statutory abty mposed by secton 1114(e) of the Revenue ct of 1926, and
Is not a proceedng aganst a ta payer to enforce a ta abty. (Pantff
II.)
3. That under the aw and the evdence the egaty or vadty of a ta
can not be tgated by these defendants n ths acton. (Pantff III.)
4. That under the aw and the evdence the defenses ordnary avaabe to
ta payers n actons brought aganst them to recover ta es can not be set up
or nterposed by these defendants n ths acton. (Pantff I .)
5. That under the aw and the evdence the consttutonaty of a ta ng
ct can not be tested n ths acton by these defendants. (Pantff I.)
6. That the pantff has faed to sustan the burden of provng a cause
of acton n Its favor aganst the defendants and each of them. (Defendant
II.)
7. That the peadngs and evdence n ths case are nsuffcent n aw to
sustan a udgment n favor of the pantff and aganst the defendants. (De-
fendants III.)
8. That the pantff has faed to sustan the aegatons of Its petton.
(Defendant I .)
9. That under the aw and the evdence, the funds on depost n the rst
Capta Natona ank of Iowa Cty, Iowa, defendant heren, on October 21,
1933, n an account desgnated oard n Contro of thetcs, were not sub|ect
to dstrant by the coector of nterna revenue for edera ta es whch have
been assessed aganst the oard n Contro of thetcs of the State Unversty
of Iowa, Inc., for the months of September, October, November, and December,
1932. (Defendant I.)
10. That the pantff has bottomed ts acton upon the provsons of secton
1114(e) of the Revenue ct of 1926, and therefore, must prove that the moneys
and propertes whch the defendants refused to turn over, were sub|ect to
dstrant and by way of defense to such acton, the defendants are entted to
show and prove every reason why the sad property and bank account were
not sub|ect to dstrant. (Defendant I .)
11. That the pantff, on the peadngs and the evdence n ths cause, s
not entted to a |udgment n ts favor aganst the defendants or ether of them,
for the sum of 4,552.68, or any amount, nor Is t entted to a udgment for
costs. (Defendant II.)
12. That the conduct of the athetc games at the Unversty of Iowa n
the fa of 1932 was an ntegra part of the program of athetcs and physca
educaton whch s a part of the work of the State educaton nsttuton.
(Defendant III.)
ppea s from the |udgment.
The vta fndngs were that the credts eved upon as the property of the
board n contro were n reaty credts beongng to the State Unversty of
Iowa and not sub|ect to dstrant and that, therefore, they dd not come
nto the purvew of secton 1114(e) of the Revenue ct of 1926. (See fndng 27,
and concuson 9.)
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537
Regs. 43(1932), rt. 56.
There was a good dea of testmony offered as to the necessty of a physca
educaton as a part of a genera educaton, and to the effect that these athetc
contests were an essenta part of the physca educaton at the unversty. ut
as heretofore Indcated, and as shown by the fndngs, the tra court restrcted
the case to narrower ssues.
In ts memorandum opnon accompanyng the fndngs, the tra court says
(13 . Supp., 380) :
though many questons are presented, the queston to be determned by
Os court Is whether the money eved upon and In the hands of the defendant
bank was sub|ect to dstrant
nd agan:
Pantff havng defntey aeged, accordng to the terms of secton 1114,
that the property was sub|ect to dstrant and the defendants havng dened ths,
t seems to me that ths queston s not ony drecty n ssue and can be deter-
mned n ths sut but that the burden of proof s on the Government to estabsh
that the fund eved upon was In fact sub|ect to dstrant.
nd further:
It s true that a part of ths fund was coected for and on behaf of the
Government of the Unted States but the fund tsef had not been segregated
from other property of the State Unversty of Iowa and unt ths was done It
coud not be consdered n aw as the property of the Unted States Government.
nay, the tra court specfcay fnds (fndng 27) :
That the money n the hands of the defendants and each of them and whch
s attempted to be eved upon and dstraned by the pantff, and whch s sought
to be enforced n ths acton, was at a tmes property and moneys of the State
Unversty of Iowa.
nd concudes (concuson 9) :
That under the aw and the evdence, the funds on depost In the rst
Capta Natona ank of Iowa Cty, Iowa, defendant heren, on October 21,
1933, n an account desgnated oard n Contro of thetcs, were not sub|ect
to dstrant by the coector of nterna revenue for edera ta es whch have
been assessed aganst the oard n Contro of thetcs of the State Unversty
of Iowa, Inc., for the months of September, October, November, and December,
1932.
One of the frst questons whch arses Is: What was the status of the board
In contro In reaton to the Unted States
Unted States v. ohnston (268 U. S., 220), decded May 11, 1925, hods that
the reaton of a smar coectng agent to the Unted States was that of debtor
and credtor.
The board n contro was, therefore, at east prma face, Indebted to the
Unted States for the ta coected.
The board n contro was ncorporated n 1931 under the genera aw of the
State of Iowa. Its genera purpose was stated In rtce III of the artces of
ncorporaton:
The busness and ob|ect of ths corporaton sha be to carry on Intercoegate
sports and other athetc actvtes of the State Unversty of Iowa, to promote
athetc nterest among the students of sad unversty, and to manage the
fnances and busness ncdent thereto.
The corporaton had no stock, and we may assume, though t s not strcty
proven, that t was controed by the State Unversty of Iowa.
The hoard In contro n ts work used papers bearng ts name wth the
abbrevaton (Inc.) foowng. Ths was known to the bank, to the unversty
authortes, and to the coector of nterna revenue of the Unted States.
The board n contro had ts own bank account n defendant bank, on whch
t drew checks whch were sgned by offcers of the sad board.
The board n contro kept ts own accounts and made ts own baance sheets.
It carred on the busness for whch t was formed n ts own name, ncudng
the coecton of admssons to athetc contests.
y vrtue of the Unted States statutes (secton 500 of the Revenue ct of
1920, as amended by secton 711 of the Revenue ct of 1932 and secton 502
of the Revenue ct of 1926), the board n contro undertook to coect and dd
coect the edera ta on such admssons. It was the duty of the board In
contro to account for the money coected (see secton 502(a) (c) (d)).
77964 38 18
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Regs. 43(1932), rt. 56.
538
The unversty fsca authortes knew that the board In contro was actng as
coectng agent for the edera ta , and acquesced n ths actvty.
The edera ta so coected was deposted by the board n contro In defendant
bank, and n makng sad depost, sad board mnged the edera ta wth the
moneys coected for admssons.
Demand by the coector of Interna revenue on the board In contro for the
edera ta coected was unavang.
Thereafter, the usua and reguar proceedngs, Incudng demand upon the
defendant bank, were had, whch aso proved unavang. These notces and
demands requred by aw to be served were duy served upon defendants heren.
The tra court so found.
Sut foowed aganst the bank and Its offcers under secton 1114(e) of the
Revenue ct of 1926.
It seems obvous that the board In contro was quafed to act as coectng
agent of the Unted States to coect the edera ta n queston, and dd so act
Reatve to ths matter the tra court, In ts memorandum opnon, used the
foowng anguage:
It s true that a part of ths fund admsson ta was coected for and on
behaf of the Government of the Unted States.
ut the tra court was of the opnon that because a segregaton had not been
made, the edera ta money coud not be the property of the Unted States and
the tra court was aso of the opnon that because e board In contro was an
agency of the State unversty, any funds In the hands of the board In contro
beonged to that unversty.
We can not agree wth the atter part of ths concuson of the tra court.
Whatever the reaton whch e sted between the board In contro and the
Unversty of the State of Iowa, when the board n contro, wth the consent of
the Unversty of the State of Iowa, undertook to act and dd act as coectng
agent for the Unted States n the coecton of the edera admsson ta , ts
reatonshp wth the Unversty of the State of Iowa wth respect to the ed-
era ta coected became of secondary mportance. It was governed, whe
so actng for the Unted States, by the statutes of the Unted States and the
reguatons ssued thereunder. The bank under the crcumstances e stng In
the nstant case was certany In no poston to assert that the ta moneys so
coected by the board were funds beongng to the Unversty of the State of
Iowa.
It may be noted at ths pont that the depost n the bank, accordng to the
fndng of the tra court, beonged to the Unversty of the State of Iowa
but accordng to the appeees counse, beonged to the State of Iowa. It stood
n the name of nether on the books of the bank.
If segregaton of ta moneys coected and deposted by the board from
other moneys coected and deposted by t were necessary, attenton Is caed
to the fact that such had aready been made by the unversty authortes on
ther books.
It shoud aso be noted that the demand made upon the bank and ts offcers
dd not cover the whoe amount to the credt of the board n contro, but smpy
e tended to the amount of the edera ta wth nterest and penaty accrung
by reason of the nonpayment of the ta .
There was standng to the credt of the board In contro at the bank more
than suffcent to pay the amount demanded.
The State unversty, havng acquesced In the coecton of the admsson
ta es for the Unted States by the board In contro, may not n ths acton
aganst the bank assert ownershp n tsef of the edera ta es so coected.
The tra court has hed that the vadty of the edera ta can not be t-
gated by the defendants n the present acton. We are In accord wth ths
hodng.
We nd n the record no ground upon whch can be |ustfed the attempt by
ndrecton to prevent the money coected as a edera ta from beng sur-
rendered to the Unted States. We thnk that credt arsng from ts depost
n the bank was sub|ect to dstrant as beongng to the oard n Contro of
thetcs of the State Unversty of Iowa, Inc., whch had coected It for the
Unted States. The payng over by the board to the Unted States of the ta
moneys coected by the board for t w not deprve the Unversty of Iowa
of any funds or assets coected by the board for the unversty.
We thnk aso that the speca defenses avaabe under secton 1114(e) of
the Revenue ct of 1926 were not proven.
The udgment s reversed and a new tra granted.
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MISC LL N OUS RULINGS.
R CIPROC L T CON NTION TW N T UNIT D
ST T S ND C N D .
I-86-8910
The Government of the Unted States of merca and the Gov-
ernment of Canada, beng desrous of concudng a recproca con-
venton concernng rates of ncome ta mposed upon nonresdent
ndvduas and corporatons have agreed as foows:
rtce I.
The hgh contractng partes mutuay agree that the ncome ta a-
ton mposed n the two States sha be sub|ect to the foowng
recproca provsons:
(a) The rate of ncome ta mposed by one of the contractng
States, n respect of ncome derved from sources theren, upon n-
dvduas resdng n the other State, who are not engaged n trade
or busness n the ta ng State and have no offce or pace of busness
theren, sha not e ceed 5 per centum for each ta abe year, so ong
as an equvaent or ower rate of ncome ta aton s mposed by the
other State upon ndvduas resdng n the former State who are not
engaged n trade or busness n such other State and do not have an
offce or pace of busness theren.
(b) The rate of ncome ta mposed by one of the contractng
States, n respect of dvdends derved from sources theren, upon
nonresdent foregn corporatons organzed under the aws of the
other State, whch are not engaged n trade or busness n the ta ng
State and have no offce or pace of busness theren, sha not e ceed
5 per centum for each ta abe year, so ong as an equvaent or ower
rate of ncome ta aton on dvdends s mposed by the other State
upon corporatons organzed under the aws of the former State
whch are not engaged n trade or busness n such other State and
do not have an offce or pace of busness theren.
(c) ther State sha be at berty to ncrease the rate of ta aton
prescrbed by paragraphs (a) and (b) of ths artce, and n such
case the other State sha be reeased from the requrements of the sad
paragraphs (a) and (6).
(d) ffect sha be gven to the foregong provsons by both States
as and from the 1st day of anuary, 1936.
rtce II.
The provsons of ths conventon sha not appy to ctzens of
the Unted States of merca domced or resdent n Canada.
(539)
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Msc.
540
rtce III.
Ths conventon sha be ratfed and sha take effect mmedatey
upon the e change of ratfcatons whch sha take pace at Washng-
ton as soon as possbe.
Sgned, n dupcate, at Washngton by the duy authorzed repre-
sentatves of the Unted States of merca and Canada, ths 30th
day of December, n the year of our Lord, one thousand nne hundred
and thrty-s .
or the Unted States of merca:
R. Waton Moore,
ctng Secretary of State.
or Canada:
erbert Marer,
nvoy traordnary and Mnster Penpotentary.
Note. change of ratfcatons occurred on ugust 13, 1937.
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541
Msc.
TITL I - PORT, C RIT L , TC., R UNDS ND
LOOR STOC S D USTM NT UND R GRICULTUR L
D USTM NT CT. (1936)
S CTION 602. LOOR STOC S S O NU RY 6, 1936.
I-30-8841
G. CM. 18778
cam for payment under secton C02 of the Revenue ct of
1030 whch was paced n the ma, addressed to the Commssoner,
pror to anuary 1, 1037, and receved by hm on anuary 4, 1937,
was not fed wthn the statutory perod prescrbed n secton 002
of the Revenue ct of 1936.
n opnon s requested whether a propery e ecuted cam for
payment under the provsons of secton 602 of the Revenue ct of
1936 whch was maed to the Commssoner of Interna Revenue by
regstered ma on December 30, 193G, and receved by hm on an-
uary 4, 1937, was fed wthn the statutory perod prescrbed n sec-
ton 602 (d) of the Revenue ct of 1936.
Secton 602 of the Revenue ct of 1936 provdes n part as foows:
(a) There sha be pad to any person who, at the frst moment of anuary
6, 1936, hed for sae or other dsposton (ncudng manufacturng or further
processng) any artce processed whoy or n chef vaue from a commodty
sub|ect to processng ta , an amount computed as provded n subsecton (b),
e cept that no such payment sha be made to the processor or other person
who pad or was abe for the ta wth respect to the artces on whch the
cam s based.

(d) No payment sha he made under ths secton uness the camant fes a
cam therefor pror to anuary 1, 1937, n conformty wth reguatons pre-
scrbed by the Commssoner wth the approva of the Secretary, nor uness
he estabshes to the satsfacton of the Commssoner the facts on whch such
cam s based.
rtce 3(6) of Treasury Decson 4672 (C. . -2, 428 (1936)),
promugated pursuant to the provsons of secton 602 of the Revenue
ct of 1936, reads as foows:
The cam sha be fed wth the coector of Interna revenue for
the dstrct n whch the prncpa pace of busness of the camant s ocated.
If the camant has no prncpa pace of busness n the Unted States, the
cam sha be fed wth the coector of nterna revenue at atmore, Md.
rtce 6 of Treasury Decson 4672, supra, reads as foows:
Lmtaton as to tme for fng cam. No payment sha be made
uness cam therefor s fed by the person entted thereto pror to anuary 1,
1C37.
The word fe n ts ordnary and usua sense means to dever
(a paper or nstrument) to the proper offcer so that t s receved by
hm to be kept on fe, or among the records of hs offce. (Webster s
New Internatona Dctonary.) In Unted States v. Lombardo (228
ed., 980) t s stated:
ng s not compete unt the document s devered and
receved. Sha fe means to dever to the offce, and not send through the
Unted States ma. (Gates v. State, 128 N. Y., 221, 28 N. ., 373.) paper s
fed when t s devered to the proper offca and by hm receved and fed.
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Regs. 96, rt. 101.
542
(See aso Pendrey et a. v. rennan, 169 Pac. 174, and Common-
weath v. O n/an, Utey Co., 155 S. W., 1126.)
It was hed n I. T. 1921 (C. . III-, 345 (1924)), wth respect
to a cam for refund or credt fed pursuant to the provsons of
secton 252 of the Revenue ct of 1921, as amended by the ct of
March 4| 1923, that to be aowabe the cam must be actuay
receved n the offce of the Commssoner or the coector pror to the
e praton of the statute of mtatons. In O ford ank v. Unted
States (44 ed. (2d), 253), t was hed that though the evdence
showed that waver was paced n the ma n tme to have reached
revenue offce n the ordnary course of ma wthn tme provded for
under the Revenue ct of 1926, secton 284(g), 26 U. S. C. ., secton
1065(g), ta payer had no rght to assume that the waver woud be
carred and devered wth the utmost dgence and despatch, and n
so dong t dd not e ercse reasonabe care to make sure devery
woud be n tme.
In vew of the foregong t s the opnon of ths offce that the
cam n queston was not fed pror to anuary 1, 1937, wthn the
meanng of secton 602(d) of the Revenue ct of 1936.
Morrson Shafroth,
Chef Counse, ureau of Interna Revenue.
TITL II. R UNDS O MOUNTS COLL CT D UND R
T GRICULTUR L D USTM NT CT. (1936)
Secton 902: Condtons on aowance of refunds. I-36-8909
Reguatons 96, rtce 101: Defntons. G. C. M. 18S83
cam for the refund of processng ta wth respect to rce,
where abty for such ta was satsfed by the surrender of ta -
payment warrants, s not a eam for an amount pad as ta
wthn the meanng of Tte II of the Revenue ct of 1936 and
s, therefore, not aowabe.
dvce s requested whether a cam for refund of processng ta
wth respect to rce s aowabe under Tte II of the Revenue ct
of 1936 where the camant s entre abty for such processng
ta was satsfed by the surrender of ta -payment warrants ssued
by the Secretary of grcuture under the provsons of secton 15
(b-1) and (b-2) of the grcutura d|ustment ct, as amended.
Secton 9(a) of the grcutura d|ustment ct, as amended,
provded for a processng ta on rce, effectve pr 1, 1935. Sec-
ton 15 (b-1) and (b-2) provded:
(b-) The Secretary of grcuture s authorzed and drected to ssue ta -
payment warrants, wth respect to rough rce produced In 1933 and 1931
(provded the processng of such rce s not e empt from the ta , and provded
no ta -payment warrant has been prevousy ssued wth respect thereto or
prevousy apped for by appcaton then pendng) suffcent to cover the
ta wth respect to the processng thereof at the rate u effect at the tme
of such ssuance, to any processor wth respect to any such rce whch he
had n hs possesson on March 31, 1935, and to, or at the drecton of any
other person wth respect to any such rce whch, on or after pr 1, 1935,
he devers for processng or ses to a processor. nd provded
further, That In case such processor or other person Is not the producer
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543
Regs. 96, rt. 101.
thereof (nor a person who has receved such rce by gft, bequest, or descent
from the producer thereof), (a) that, If the tte to such rce was transferred
from the producer thereof, whether by operaton of aw or otherwse, pror
to pr 1, 1935, such producer receved the prce prescrbed n any marketng
agreement, cense, reguaton, or admnstratve rung, pursuant to ths tte,
appcabe to the sae of such rce by the producer, and (b) that, f the tte
to such rce was transferred from the producer thereof, whether by operaton
of aw or otherwse, on or after pr 1, 1935, such producer receved at east
The fu market prce therefor pus an amount equa to 99 per centum of the
face vaue of ta -payment warrants suffcent to cover the ta on the processng
of such rce at rate n effect at the tme tte was so transferred, and was,
f egbe, a cooperatng producer.
(b-2) The warrants authorzed and drected to be ssued by subsecton (b-1)
of ths secton

(2) sha be accepted by the coector of nterna revenue and the Secretary
of the Treasury at the face vaue thereof n payment of any processng ta
on rce.
Pror to the mposton of the processng ta , the rce ndustry had
been operatng under marketng agreements and when the ta went
nto effect processors had on hand arge quanttes of rce produced
n 1933 and 1934, whch had been acqured under the marketng
agreements. In order to cover the ta on the processng of such
rce (known as od crop rce), the Secretary of grcuture was
authorzed to, and dd, ssue ta -payment warrants. Under the
above-quoted secton (secton 15 (b-1) and (b-2)), a processor was
entted to receve ta -payment warrants suffcent to cover the proc-
essng ta on the od crop rce n hs hands on March 31, 1935,
provded he had pad the producer thereof the prce f ed under
any marketng agreement, etc. whe as to od crop rce acqured
after March 31, 1935, he was requred to pay to the producer the
market vaue pus 99 per cent of the face vaue of ta -payment war-
rants to whch the producer was entted. In ths atter case, for a
practca purposes, the processor was merey payng to the producer
a prce smar to that requred under the marketng agreements
and, athough the ta -payment warrants were acceptabe n satsfac-
ton of the ta , no money found ts way nto the Treasury as a resut
of ther ssuance.
Secton 902, Tte II, of the Revenue ct of 1936 provdes n part
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 Itacs sup-
ped.
rtce 101 of Reguatons 96, reatng to cams for refund under
Tte II of the Revenue ct of 1936, reads n part as foows:
(ft) Pad as ta . The term pad as ta ncudes any amount pad to,
or coected by, a coector of nterna revenue as ta under the
grcutura d|ustment ct.
Where Congress ntended that ta pad under the grcutura
d|ustment ct by the surrender of ta -payment warrants shoud be
refunded, specfc provson was made therefor. or e ampe, sec-
ton 17(a) of the grcutura d|ustment ct, as amended, pro-
vded for the refund of ta pad on the processng of a commodty
whch was ater e ported. (See aso paragraphs and L of
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Regs. 96, rt. 101.
544
Treasury Decson 4586 (C. . I -2, 445 (1935).) Secton 17(a)
provdes n part as foows:
In the case of rce, a ta due under ths tte whch has been
pad by a ta -payment warrant sha be deemed for the purposes of ths sub-
secton to have been pad and wth respect to any refund authorzed under
ths secton, the amount schedued by the Commssoner of Interna Revenue
for refundng sha be pad .
There s no such provson n Tte II of the Revenue ct of 1936.
In vew of the foregong, t s hed that a cam for refund of proc-
essng ta wth respect to rce satsfed by the surrender of ta -
payment warrants, as provded n secton 15 (b-1) and (b-2) of the
grcutura d|ustment ct, as amended, s not a cam for an
amount pad by or coected from any camant as ta wthn
the meanng of secton 902, Tte II, of the Revenue ct of 1936,
and artce 101 of Reguatons 96, and s, therefore, not aowabe
under Tte II of the Revenue ct of 1936.
Morrson Shafrcth,
Chef Counse, ureau of Interna Revenue.
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545
Msc.
SP CI L T S.
S CTION 3244, R. S, S M ND D, S CTION 3232, R. S., S CTION
3233, R. S S CTION 3235, R. S., ND S CTION 3239, R. S.
I-52-9118
. T.
When two or more stands operated by the same person n the
sae of quors are separated from each other by ground or foor
space not under the contro and management of such person,
speca ta must be pad for each such stand.
S. T. 668 (C. . II-1, 465 (1933)) revoked.
dvce s requested whether the Company ncurred abty to
more than one speca ta as reta quor deaer or reta mat quor
deaer, as the case may be, on account of the sae of acohoc quors
at a number of stands operated by t wthn the Y Stadum, whch s
used for baseba, footba, and smar sports and e hbtons. The
severa quor stands operated n the Y Stadum by the Company
are separated from each other by ground or foor space under the
contro and management of the Z aseba Co., owner of the premses.
Reguatons No. 1, revsed November 1, 1917, concernng assess-
ments, provde on page 55 as foows:
When an asssocaton rentng and occupyng premses or grounds, such as
far grounds, trottng parks, etc., empoys persons as agents to se quors for
the beneft of the assocaton at varous ponts wthn the grounds or ncosure,
but one speca ta for the sae of quors w be requred of sad assocaton
In respect to such saes but where the prvege of makng such stes s et
to one or more ndvduas who estabsh severa dfferent stands where quors
are sod, whch stands are separated from each other by grounds occuped by
the assocaton or by other persons, the essee s abe to speca ta for each
stand where saes are made.
On page 51 of those reguatons, t s provded that one speca
ta stamp s not suffcent to cover the operaton of two bars on
the same premses, one for whtes and one for negroes, (1) f the
propretor has made an order e cudng the negroes from the whte
bar or the whtes from the negro bar, or (2) f the communcaton
between them s through ntervenng space used for other purposes.
Under the provsons of the reguatons, t s cear that where the
propretorshp of the quor busness and of the premses on whch t
s conducted s one and the same, one speca stamp ta s suffcent
to cover the operaton of any number of bars or quor stands under
such propretorshp, provded there s free pubc nteror com-
muncaton between the varous bars or stands. If the propretor
of the premses ets the prvege of seng quors to another person
(for e ampe, a concessonare who sets up severa bars or quor
stands on the premses), such person (concessonare) w be sub-
|ect to moe than one ta f, as s generay the case, hs bars or
stands are competey separated from each other by grounds under
the contro of the propretor or other person. In such a case, the
varous pots of ground eased or subeased to, and occuped by, such
concessonare are regarded as separate paces of busness for the
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546
purpose of the speca ta aws. If, after grantng such concessons,
the propretor of the premses ses quors for hs own account, hs
abty to more than one ta depends on whether the concessons
so granted effect a compete separaton of two or more of hs own
bars or stands.
Whether the premses consst of grounds (ncosed or unncosed)
or a budng or group of budngs, substantay the same rues
appy. The fact that the patrons of an estabshment havng two or
more bars may move freey from one to another wthout eavng the
premses of the propretor thereof, or wthout gong across premses
controed or occuped by other persons, suggests one smpe test for
determnng whether the bars consttute separate paces of busness or
merey parts of one pace of busness for purposes of speca ta es.
concessonare who operates severa bars or quor stands wthn
a park, stadum, hote, or other smar premses can not escape a-
bty to severa ta es merey by acqurng the e cusve prvege
of seng quors theren. If hs contract gves hm the rght to
occupy and se quors on separate pots of ground or foor space on
the premses, he generay ncurs abty to speca ta for each such
pace, and the payment of these ta es enttes hm to se at those
paces ony. If hs contract gves hm no rght to the e cusve occu-
pancy or contro of any porton of the premses, then he s n the
poston of a pedder and ncurs abty at each pace where he
ses or offers quors for sae. In genera, speca ta aws contem-
pate that stamps sha be ssued ony to persons carryng on busness
at a f ed pace and make prohbtve the peddng of quors.
S. T. 6G8 (C. . II-1, 465 (1933)) answers two questons nvov-
ng the sae of mat quors by the propretors of ba parks and hotes
or ther concessonares and by boys who purchase quors from the
propretor of the ba park, or the concessonare, and se the quors
from baskets throughout the ncosure. That rung hods n sub-
stance that (1) f there s but one propretor or concessonare who
has the e cusve prvege of seng mat quors at the ba park, one
speca ta stamp s suffcent to cover a saes made at any number
of stands wthn the park by such propretor or concessonare or by
the boys who purchase the quors for cash and rese the same from
baskets throughout the ncosure and (2) f there s one propretor
of, or concessonare at, a hote havng theren severa bars or quor
stands whch can be reached through ntercommuncatng entrances,
ony one speca ta stamp s requred of such propretor or con-
cessonare.
It s apparent, n the ght of the provsons of the reguatons
and the concusons reached n ths rung, that S. T. 668, supra, does
not ay down the proper rues. In other words, the propretor of a
ba park or hote may conduct theren for hs own account any num-
ber of bars or quor stands wthout ncurrng abty for more than
one speca ta , provded (1) hs bars or stands are connected by
ntercommuncatng doors or passageways whch are freey open to
the pubc, and (2) they are not separated by grounds or foor space
under the contro of other persons. Concessonares who operate
more than one bar or stand w, for reasons prevousy set forth, gen-
eray be sub|ect to more than one speca ta . speca ta stamp
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taken out by the propretor of a reta quor estabshment covers
ony saes made by hm or hs empoyees for hs account. It does
not cover saes by so-caed agents who purchase and se quors
for ther own account. avng no f ed pace of busness, the boys
who make cash purchases of quors and se from baskets under
the condtons outned n S. T. 668 are substantay n the poston
of pedders and ncur speca ta abty at each pace where such
saes are made. Such practce s, however, prohbted by speca ta
aws.
In vew of the foregong, S. T. 668, supra, s hereby revoked.
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548
LI UOR T ING CT O 1934.
L47-9056
T. D. 4776
Mutated or mssng strp stamps.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngtan, D. C.
To Coectors of Interna Revenue, Dstrct Supervors, and Other
Offcers and mpoyees of the ureau of Interna Revenue Con-
cerned:
Pursuant to secton 205, Tte II, Lquor Ta ng ct of 1934
(U. S. C, 1934 ed., Tte 26, secton 1152 ), the foowng regua-
tons are hereby prescrbed:
1. ny person who has n hs possesson bottes contanng dsted
sprts requred to be stamped by Tte II of the Lquor Ta ng ct
of 1934, on whch the stamps are so mutated that they can not agan
be aff ed n ther entrety, or to whch no stamps are aff ed, may
purchase strp stamps to aff to such bottes n accordance wth the
condtons heren set forth.
2. Proper remttance and appcaton under oath for the necessary
stamps sha be submtted wth orm 428, n trpcate, to the dstrct
supervsor, coho Ta Unt. The appcant n every case w
state the cause of mutaton or absence of the stamps and submt
evdence that the sprts are ta -pad. Such evdence may consst of
the nvoces coverng the purchase of such sprts, n addton to other
avaabe documents. The dstrct supervsor w approve the
requston, orm 428, f he s satsfed from the evdence submtted
that the ta has been pad on the sprts, and that the mutaton or
absence of the stamps has been satsfactory e paned. e w
forward the orgna orm 428 and one copy wth the remttance to
the coector of nterna revenue. The coector w enter the sera
numbers of the stamps ssued and stamp the date of sae on both
copes of orm 428. e w send the stamps and the copy of orm
428 to the dstrct supervsor, who w dever the stamps to the
appcant, ether by ma or by a representatve of hs offce, together
wth nstructons n regard to markng and aff ng them to the
contaners.
3. Where a botte contanng dsted sprts on whch the stamp s
so mutated that t can not agan be aff ed n ts entrety, or to
whch no stamp s aff ed, s dscovered and t s ascertaned that no
appcaton for a stamp has been made, such botte w be detaned
pendng approprate acton. If, upon nvestgaton, t deveops that
the sprts n the botte have been ta -pad, the offcer who made the
dscovery sha secure an affdavt from the proper party settng forth
the reason for the mutaton or absence of the stamp, as we as docu-
mentary evdence, f any, n support thereof. e sha then requre
the party nvoved to e ecute a sutabe appcaton to be submtted
to the supervsor, accompaned by a statement of the facts and the
offcer s recommendaton. Such offcer w nform the possessor of
such botte that t s hs prvege to submt an offer n compromse.
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In the event a sutabe offer n compromse s tendered, the procedure
sha thereafter conform wth the procedure governng cases n whch
an appcaton for stamps was made wthout the nterventon of a
Government offcer. When receved, the stamp may be ssued and
aff ed, and the botte may be reeased from detenton wthout awat-
ng acton on the offer n compromse. Where no offer n compro-
mse s submtted, the botte and the sprts theren sha be sezed
for forfeture.
4. Nothng contaned n these reguatons sha supersede or other-
wse affect the authorty granted and the procedure estabshed by
Treasury Decson 4744, approved une 24, 1937 page 573, ths u-
etn , for obtanng, wthout cost, stamps to repace those whch
nave been ost or destroyed.
Gut T. kvertng,
Commssoner of Interna Revenue.
pproved November 12, 1937.
oswz Mag,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 16, 1937. 12.55 p. m.)
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550
DISTILL D SPIRITS.
I-29-8S23
T. D.4747
Dsted sprts botted In bond.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue, Dstrct Supervsors, and Others
Concerned:
The foowng reguatons are prescrbed pursuant to the ct of
uy 9, 1937 (Pubc, No. 198, Seventy-ffth Congress), entted, n
ct To amend the stamp provsons of the ottng n ond ct :
(1) The provsons of Reguatons No. 6, as amended, ottng of
Dsted Sprts n ond, and the provsons of Reguatons No. 23,
so far as they reate to sprts botted n bond for e port, are hereby
contnued n force and effect
(2) otted-n-bond strp stamps w be sod to persons entted
thereto at a prce of 1 cent for each stamp, e cept that n the case of
stamps for contaners of ess than one-haf pnt, the prce sha be
one-quarter of 1 cent for each stamp.
Gut T. everng.
Commssoner of Interna Revenue.
pproved uy 9, 1937.
ROSW LL M GILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 12, 1037, 4.18 p. m.)
I-37-8925
T. D. 4758
Drawback on dsted sprts botted especay for e port
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, and Others Concerned:
Pursuant to secton 313(d) of the Tarff ct of 1930, as amended
(U. S. C, 1934 ed., Sup. II, Tte 19, secton 1313(d)), secton
313 () (3) of the Tarff ct of 1930, as amended (U. S. C, 1934 ed.,
Sup. II, Tte 19, secton 1313 ()), and to secton 309(b) of the
Tarff ct of 1930 (U. S. C, 1934 ed., Tte 19 secton 1309(b)), the
foowng reguatons are prescrbed for the bottng especay for
e port, of dsted sprts manufactured or produced n the Unted
States, on whch an nterna revenue ta has been pad, and for the
aowance, upon the e portaton thereof, of a drawback equa n
amount to the ta found to have been pad thereon:
Pabagraph 1. (a) n e portaton s a severance of goods from the mass of
thngs beongng to ths country wth the ntenton of untng them to the
mass of thngs beongng to some foregn country. ( rtce 1253, Customs
Reguatons, 1931.) The e port character of any shpment w be determned
by the ntenton wth whch t s made. The shpment assumes an e port
character ony when destned for use n a foregn country.
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(6) The aw provdes that artces of domestc manufacture or producton
aden as suppes upon the foowng vesses sha be consdered to be e ported
wthn the meanng of the drawback provsons of the Tarff ct of 19o0, but
no such artce sha be anded at any port or pace n the Unted States or
n any of ts possessons: esses of war, n ports of the Unted States, of any
naton whch may recprocate such prvege toward the vesses of war of
the Unted States n ts ports and vesses of the Unted States empoyed n
the fsheres or n the whang busness, or actuay engaged n foregn trade or
trade between the tantc and Pacfc ports of the Unted States or between
the Unted States and any of ts possessons.
OTTU NO SP CI LLY O TORT.
Pab. 2. Persons who are authorzed to botte dsted sprts under the pro-
vsons of the edera coho dmnstraton ct, may botte especay for
e port wth beneft of drawback, such sprts manufactured or produced n
the Unted States and on whch an nterna revenue ta has been pad.
Pab. 3. The provsons of Treasury Decson 4T)( C. . I -2, 512 (1935)
and Reguatons 15, n so far as they are appcabe and not nconsstent wth
the provsons of these reguatons, sha govern the bottng of dsted sprts
to be e ported wth beneft of drawback.
Par. 4. very authorzed person desrng to botte ta -pad dsted sprts
especay for e port wth beneft of drawback must provde n hs bottng pant
one or more bottng tanks so constructed that every net, outet, or other nec-
essary openng theren whch woud afford access to the contents may be cosed
ana ocked wth Government ocks. very such tank nstaed n such bottng
|.ant must conform n other respects wth the requrements of Treasury Dec-
son 4561 and Reguatons 15. Where pants are equpped wth bottng tanks
constructed as prescrbed heren, separate bottng tanks for bottng sprts
especay for e port need not he provded.
Par. 5. very authorzed person desrng to botte ta -pad dsted sprts
especay for e port wth beneft of drawback, must aso provde at hs bottng
pant a separate room sutabe for the storage of such botted sprts pendng
remova thereof from the bottng pant for e portaton. The room must be
ecurey constructed of substanta matera. wndows, doors, or other open-
ngs must be so constructed that they may be securey ocked or fastened from
the nsde, e cept the entrance door, whch must be so constructed that t may
e securey ocked from the outsde wth a Government sea ock. The room so
provded sha not he used for other purposes whe the same s beng used
for the storage of dsted sprts botted especay for e port. The room must
reman ocked at a tmes when such dsted sprts are stored theren, e cept
when necessary to be open for the depost or remova of sprts. The key to
the Government ock w be n the custody of the Government offcer assgned
to the bottng pant. If no offcer s reguary assgned to the bottng pant,
the key w be retaned n the custody of the dstrct supervsor or other Gov-
ernment offcer desgnated by hm.
Par. 6. very storage room and every bottng tank so provded at a bottng
pant sha be sub|ect to approva by the dstrct supervsor. very person
desrng to secure the approva of such a storage room or bottng tank at hs
bottng pant sha fe appcaton therefor n trpcate wth the dstrct super-
vsor, e cept that a rectfer addng such a storage room to hs rectfyng pant
or snch a bottng tank to hs equpment sha fe n eu of such appcaton a
notce on orm 27 or report n trpcate, whch notce or report sha, after
nspecton of the premses, be dsposed of n accordance wth the provsons of
Reguatons 15. The appcaton sha ncude a fu and compete descrpton
of the bottng tank and storage room. If the dstrct supervsor fnds, upon
nspecton of the premses, that the bottng tank and the storage room are cor-
recty descrbed n the appcaton and meet the requrements of the reguatons,
he w ndorse hs approva on the appcaton. One copy of the appcaton,
together wth a copy of the nspecton report attached, w be forwarded to
the Commssoner, one copy of the appcaton w be forwarded to the botter,
and the remanng copy w be retaned by the dstrct supervsor. If the
appcaton s dsapproved by the dstrct supervsor, he w ndorse hs ds-
approva thereon, and return two copes to the appcant wth a statement of
the reasons for such dsapprova. The dstrct supervsor w retan the
remanng copy.
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552
OTTLING WIT OUT R CTI IC TION.
Pab. 7. When rectfcaton s not nvoved, the botter sha prepare a separate
appcaton on orm 230, n dupcate, for each ot of sprts to be dumped and
botted for e portaton wth beneft of drawback. The botter sha nsert n
each copy of orm 230, after the descrpton of the packages, a notce of Inten-
ton as foows:
The above-descrbed sprts are to be botted for
(Name and address of e porter.)
especay for e port wth beneft of drawback.
Par. 8. oth copes of orm 230 sha be forwarded by the botter to the ds-
trct supervsor for approva. The dstrct supervsor w, upon approva of
the form, forward both copes to the Government offcer on duty at the botter s
pant. If no Government offcer s on duty at the pant, the supervsor w
assgn an offcer to make the requred e amnatons and nspectons, and to
supervse the dumpng, bottng, casng and markng of the sprts.
Par. 9. The Government offcer supervsng such operatons at the bottng
pant w nspect the packages to be dumped and satsfy hmsef that the
contents of each are as descrbed by the botter on orm 230, and were propery
ta -pad. The offcer w then e ecute hs certfcate to that effect on orm 230,
uness such certfcate was, as n the case of bottng at rectfyng pants,
e ecuted before the form was submtted to the dstrct supervsor. oth copes
of the form w be devered by the offcer to the botter, who w proceed wth
the bottng operatons. efore the sprts are transferred to the bottng tank,
the offcer w see that the tank s empty and the outet thereof cosed and
ocked. When the sprts have been transferred to the tank, the offcer w
ock the net, and when the bottng s to begn, he w unock the outet.
Upon competon of the bottng the offcer w, e cept n the case of bottng
at rectfyng pants, where the procedure prescrbed n Reguatons 15 w be
foowed, unock both the net and outet of the tank pendng further use of
such tank for bottng especay for e port. The sprts sha be dumped,
botted, ensed, and marked under the Immedate supervson of the Government
offcer. The offcer w verfy the botter s certfcate on orm 230 of cases
fed and nta such certfcate n the space provded therefor. No strp stamps
sha be aff ed to sprts botted especay for e port
rectfcaton and bottng.
Par. 10. Rectfers sha prepare a separate appcaton on orm 122, n dup-
cate, for each ot of dsted sprts to be rectfed before beng botted for
e portaton wth beneft of drawback. The rectfer sha nsert n each copy
of the form, after the descrpton of the packages to be dumped for rectfcaton,
a notce of ntenton as foows:
The above-descrbed sprts w, after rectfcaton, be botted pursuant to
approva on orm 237 for especay for e port
(Name and address of e porter.)
wth beneft of drawback.
Par. 11. oth copes of orm 122 sha be forwarded by the rectfer to the
dstrct supervsor for approva. The dstrct supervsor w, upon approva
of orm 122, forward both copes of the form to the Government offcer on
duty at the rectfyng pant. The Government offcer w dever both copes
of orm 122 to the rectfer, and w supervse the dumpng and rectfcaton of
the sprts and the transfer of the same to a bottng tank. The rectfcaton
sha be conducted separatey from the rectfcaton of sprts for other purposes,
and mmedatey upon competon thereof the sprts sha be run nto a bottng
tank.
Par, 12. When a rectfer manufactures dsted sprts to be botted espe-
cay for e port wth beneft of drawback, by a process of rectfcaton nvov-
ng the m ng of mported sprts wth sprts of domestc orgn, he sha note
on each copy of orm 122 the number of proof gaons of each such knd of
sprts m ed together n each processng receptace, and no further m ng of
the sprts contaned n any one receptace wth sprts contaned n any other
receptace sha be made, uness a smar notaton s made on orm 122 and
such further m ng s done under the mmedate supervson of the Government
offcer. When sprts so manufactured by the use of mported sprts have
been botted and cased, the botter sha note on orm 237 the percentage of
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553
Msc.
mported sprts and the percentage of domestc sprts cacuated on a proof
gaon bass, used n manufacturng the sprts contaned n each case.
Par. 13. The rectfer sha make appcaton on orm 237 n quadrupcate
to the supervsor for permsson to botte the sprts. notce of ntenton
sha be nserted by the rectfer n each copy of orm 237 after the descrpton
of the sprts, as foows:
The above-descrbed sprts, rectfed pursuant to orm 122 dated
are to be botted for
(Name aDd address of e porter.)
especay for e port wth beneft of drawback.
The supervsor w, after approva, return a copes of orm 237 to the
rectfer, who sha, f the sprts are sub|ect to rectfcaton ta , forward a
copes of the form to the coector of nterna revenue wth remttance for the
ta . The coector w certfy as to the payment of the rectfcaton ta on
each copy of orm 237, retan one copy for hs fes, and return the other three
copes to the rectfer. Upon recept of the copes of orm 237 from the co-
ector, or, n the case of sprts e empt from rectfcaton ta , upon the recept
of the copes of such form from the dstrct supervsor, the rectfer sha pro-
ceed to botte the sprts. The sprts sha be botted, cased and marked under
the mmedate supervson of the Government offcer. Upon competon of the
bottng and casng, and the e ecuton on orm 237 of the certfcate of cases
fed, the rectfer sha dever one copy of the form to the Government offcer
and dspose of the other copes as n the case of sprts rectfed for other
purposes.
Par. 14. Where dsted sprts ntended to be botted especay for e port
are to be rectfed by a person other than the botter, the rectfer sha nsert
n each copy of orm 122 after the descrpton of the packages to be dumped,
a notce of ntenton as foows:
The above-descrbed sprts w, after rectfcaton, be packed and shpped
to for bottng especay for e port.
(Name and address of botter.)
When the sprts have been rectfed and packaged, the rectfer sha nsert
n each copy of orm 237, before forwardng the same to the dstrct super-
vsor, a notce of ntenton as foows:
The above-descrbed sprts, rectfed pursuant to orm 122 dated
are to be snpped to
(Nome and address of botter.)
for bottng especay for e port
fter the packages have been propery stamped, the rectfer sha stenc or
mark thereon, n addton to the other requred marks or brands, the words,
to be botted especay for e port. If mported sprts are used n the rec-
tfyng process, the rectfer sha proceed n accordance wth the provsons
of paragraph 12, notatons beng made on orm 122 and orm 237 smar to
those requred where sprts so manufactured are botted by the rectfer. One
copy of orm 237 sha, when competed, be devered to the Government offcer
who supervsed the operatons. The offcer w mmedatey forward the form
to the dstrct supervsor, who w, f the sprts are botted n hs dstrct,
forward the same to the Deputy Commssoner wth the e porter s cam for
drawback, as provded n paragraph 49. If the sprts are to be botted n
another dstrct, the dstrct supervsor w forward the form to the dstrct
supervsor of such dstrct for the same purpose.
Pab. 15. The bottng of dsted sprts especay for e port wth beneft of
drawback sha be conducted separatey from the bottng of such sprts for
other purposes. The sprts sha be mmedatey cased and marked as heren-
after provded and deposted n the room provded for the storage of such
sprts pendng remova for e portaton.
C SINO OP T SPIRITS.
Par. 16. Cases for packagng dsted sprts botted especay for e porta-
ton wth beneft of drawback may be constructed of ether wood or fberoard.
Par. 17. If the cases are constructed of wood, the outer sde on whch the
Government marks are to be paced sha be dressed, and the top, bottom, and
des sha be of a thckness not ess than one-haf Inch and the ends of a
thckness not ess than three-fourths nch. The corners of the cases sha be put
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554
together by the ock-corner or doveta method. The top, bottom, sdes and
ends of the cases must not consst of more than two peces of wood each.
When two peces are used the same sha be tongued and grooved, gued, and
fastened on the nsde wth not ess than two meta corrugated fasteners.
ach endpece must be mortsed to the e tent of haf ts thckness and the
top and bottom of the cnse set theren. The sdes must e tend the fu heght
of the endpeces. Cement coated nas of a sze not ess than fourpenny must
be used. t east s such nas sha be drven through each end of the top
and bottom peces nto the endpece at east two such nas sha be drven
through each sdepece nto the bottompece at east two such nas sha be
drven through each sdepece nto the toppece at east two such nas sha
be drven through each endpece nto the bottompece and at east two such
nas sha be drven through each endpece nto the toppece.
Par. 18. In addton to beng naed as above provded, the cases must be
wred by drawng meta straps or heavy wre around the same about 4 nches
from each eud, or by passng a wre around the center of the case, both
ateray and crosswse, so as to form rght anges n the center and be counter-
sunk, and nstead of passng over the edges of the case, must pass under or
through the edges at a depth suffcent to carry the wre through the sde or
end and the ad|onng top or bottom of the case. The wre sha be tghty
drawn and the two ends brought together at the center of the sde bearng the
Government marks. The ends sha then be securey knotted or twsted to-
gether and countersunk n the wood at the pont ndcated and sha be secured
n pace by a sma wre stape or na.
Par. 19. berboard cases sha be constructed of sod fberboard, or of
snge or doube wa corrugated fberboard, one-pece stye, meetng the requre-
ments of rue 41, Consodated reght Cassfcaton rue 18, Offca press
Cassfcaton and Secton I (part 5), edera Specfcatons of uy 22, 1930.
Par. 20. In addton to meetng such requrements, the outer contaner of
the cases sha be doube-faced and sha not be ess thnn 0.080 of an nch
thck for sod fberboard, and three-s teenths of an nch thck for snge
and doube wa corrugated fberboard, and sha have a burstng strength of
not ess than 200 pounds per square nch, Muen or Cady test, for sod and
snge wa corrugated fberboard contaners, and 275 pounds per square nch
for doube wa fberboard contaners, and be faced on the outsde wth tough
smooth matera. The outer py sha be waterproofed as requred by the
above-mentoned rues, and the nner pes may be waterproofed where de-
sred. The outer faps of both the top and bottom sha meet at the center
of the case.
Par. 21. The |ont of the case sha be secured by adhesve coth tape, metat
fastenngs of stapes, or sttchng wre made of stee, treated to resst rust,
and not ess than one-haf an nch ong. The stapes or sttches sha be spaced
not more than 2 nches apart, sha pass through a the peces to be fastened,
and sha be cnched on the Insde.
Par. 22. The top, bottom, and sdes of the case sha be ned wth doube-
faced corrugated board, havng facngs at east 0.016 of an nch thck and the
combned board sha be not ess than three-s teenths of an nch thck and
have a burstng strength of not ess than 200 pounds per square nch, Muen
or Cady test. The case sha aso contan parttons separatng each botte.
Such parttons sha be tghty fttng, touchng the top, bottom, and a sdes
of the case, and made of the same board as the ners for the top, bottom, and
sdes. The corrugated medum of the ners and parttons, as we as of the
outer contaners, sha be made of chestnut, strawboard, suphate, suphte, or
pne wood fberboard not ess than 0.009 of an nch thck. The nteror packng
of pads, ners, or parttons s not requred where the bottes are paced n
ndvdua doube-faced corrugated cartons testng 200 pounds or more per
square nch.
Par. 23. ach case shn bear the bo maker s certfcate requred by the
above-mentoned rues, and a further cetrfcate by the bo maker, as foows:
outer contaner.
Mnmum burstng strength
200 pounds per square nch (sod or snge wa).
275 pounds per square Inch (doube wa).
Mnmum combned thckness 0.080 nch (sod).
Mnmum combned thckness of an nch (corrugated).
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555
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LIN RS ND P RTITIONS.
Mnmum burstng strength 200 pounds per square nch.
Mnmum combned thckness of an nch.
Par. 24. The top and bottom of the case sha be secured by gung the
entre nner surface of the nner faps to the top and bottom ners and the
entre nner surface of the outer faps to the nner faps wth scate of
soda or an equay effcent adhesve. Contaners seaed wth automatc seang
machnes are not requred to have the nner faps gued to the top and
bottom pads or ners.
Par. 25. Dsted sprts botted especay for e port wth beneft of draw-
back may aso be paced n such other cases of equay secure matera and
constructon, and affordng equa protecton to the sprts aganst breakage
and theft as may be approved therefor by the Commssoner.
M S ING O C S S.
Par. 26. ach case of dsted sprts fed at a rectfyng pant for e port
wth beneft of drawback sha bear on one sde the markngs requred by
rtce I of Reguatons 15, as amended and each case fed for the
same purpose at the bottng pants of other authorzed botters sha bear
on one sde the markngs requred by Treasury Decson 4561 supra . ach
case sha aso bear on the same sde the words: or e port from U. S. .
Par. 27. The sera number, the name of the botter (or symbo and number
If used In eu thereof), the knd of sprts, and the words or e port from
U. S. ., sha be burned or mprnted upon each wooden case, or pany
and duraby stenced or marked upon each fberboard case n etters and
fgures not ess than fve-eghths nch n heght. If the sprts are to be
e ported by a person other than the botter, the name and address of the
e porter, preceded by the words otted for or otted e pressy for,
may be marked n the same manner upon the case.
botteb s becobds.
Par. 28. The recept, rectfcaton (f any), bottng, and dsposton of ds-
ted sprts botted especay for e port wth beneft of drawback sha be
entered n the records of the botter n the same manner as sprts receved,
rectfed, botted, and dsposed of for other purposes are entered. In addton
to such entres, however, the botter sha make on the ast page of hs record
and report reatng to the dsposton of botted dsted sprts, mmedatey
foowng the ast temzed entry, a summary showng the number of cases
and number of proof gaons of sprts botted especay for e port on hand
the 1st day of the month, the number of cases and number of proof gaons
of sprts botted for such purpose durng the month, the number of cases
and number of proof gaons removed for e portaton durng the mouth, and
the number of cases and number of proof gaons on hand at the end of the
month.
cam and entry for drawback.
Par. 29. (a) Cam for aowance of drawback of nterna revenue ta es
on dsted sprts manufactured or produced n the Unted States and botted
especay for e port, and entry for the e portaton of such sprts, wth bene-
ft of drawback, sha be prepared by the e porter on orm 15S2 n quadrup-
cate. The nterna revenue ta es on dsted sprts referred to n secton 402
of the Lquor Ta dmnstraton ct, are the ta of 2 on each proof gaon,
or wne gaon when beow proof, and the ta of 30 cents a proof gaon on
rectfed dsted sprts. copes of the form, wth part 1 and part 2
e ecuted, sha be fed by the e porter wth the dstrct supervsor of the
dstrct n whch the sprts were botted. of the nformaton caed for, as
ndcated by the headngs of the coumns and the nes of the form, and the
nstructons prnted on the form, sha be furnshed.
(6) If the sprts on whch drawback s camed are for use as shp s
suppes, notaton to that effect w be made by the camant n part 2 of
orm 1582. The e porter s affdavt n orm 1582 w aso be modfed by
strkng out the words, e ported to the port, and substtutng therefor the
words, aden for use as shp s suppes on the vesse.
Par. 30. If the dstrct supervsor fnds that the cam and entry are propery
e ecuted, and that the sprts descrbed n the entry have, accordng to the
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556
records of hs offce, been botted especay for e port, he w e ecute part
8 of the form authorzng the Government offcer to whom t s addressed
to reease the sprts for shpment.
Par. 31. efore the sprts are reeased, the foowng egend n pan, durabe
etters and fgures must be stenced or marked upon the case:
Drawback camed by ,
(Name of camant.)
Supervsory Dst. No
Inspected , 193 .
S. G.
The frst two nes must be fed n by the e porter (or by the botter for
hm) and the ast two by the Government offcer. The name of the Govern-
ment offcer may be paced on the case by means of a rubber stamp.
Par. 32. The Government offcer w, upon reeasng the sprts, e ecute hs
report of such reease on part 4 of the cam and entry. One copy of the cam
and entry, together wth the copy of orm 237 (f any) receved from the bot-
ter showng payment of rectfcaton ta on the sprts w be mmedatey for-
warded to the dstrct supervsor by the Government offcer. The other three
copes (one of them the orgna) of the form, each competed dentcay wth
the dstrct supervsor s copy, w be devered to the e porter or hs agent,
who sha mmedatey forward or dever the three copes to the coector of
customs at the port of e port.
C RTI IC T O COLL CTION O T ON IMPORT D SPIRITS.
Par. 33. Where sprts manufactured n the Unted States from mported
sprts are botted especay for e port wth beneft of drawback, the coector
of customs at the port where the entry or wthdrawa for consumpton was
made w, upon appcaton n wrtng by the e porter, e ecute a certfcate on
orm 1583 n trpcate showng that nterna revenue ta has been coected on
the mported sprts descrbed n the appcaton. Two copes of the certfcate
w be forwarded by the coector of customs to the dstrct supervsor of the
coho Ta Unt dstrct n whch the sprts are botted. The remanng copy
w be retaned by the coector. Such certfcates sha be seray numbered
begnnng wth No. 1 for each customs dstrct.
Par. 34. The e porter must set forth n hs appcaton for the ssuance of
the certfcate suffcent nformaton to enabe the coector of customs to den-
tfy the mportaton, such as the entry number, name of mportng vesse or
otcr carrer, date of mportaton, name of mporter, marks and numbers of
packages, and a descrpton of the sprts.
Par. 35. The dstrct supervsor w not approve a cam for drawback on
sprts manufactured from mported sprts and botted especay for e port,
pror to the recept of the certfcate from the coector of customs showng
that nterna revenue ta has been coected on such mported sprts. Where
the sprts descrbed n a certfcate of the coector of customs are the sub|ect
of two or more drawback cams, the dstrct supervsor w forward the
orgna certfcate to the Deputy Commssoner n charge of the coho Ta
Unt wth the frst cam and w prepare and forward certfed copes wth
subsequent cams. (See paragraph 49.)
drawback dond.
Par. 36. The e porter sha, ether before or at the tme of the e ecuton of
hs frst entry for drawback on orm 1582, fe wth the dstrct supervsor a
drawback bond on orm 1581 n trpcate to nsure the bona fde e portaton
of sprts on whch drawback s camed, and the procurement and submsson
of the requred evdence of the andng of such sprts at the desgnated foregn
port or the oss of such sprts after shpment on and or at sea outsde the
|ursdcton of the Unted States, wthout faut or neggence on the part of the
e porter. The bond must be furnshed wth acceptabe corporate surety or
Indvdua suretes, or secured by the depost of proper coatera.
Par. 37. The pena sum of the bond must be suffcent to cover the amount
of drawback whch w at any tme consttute a charge aganst the bond:
Provded, That such bond sha be furnshed n mutpes of 100 and sha n
no case be n a ess pena sum than 500. The abty under such bond sha
be a contnung one, sub|ect to ncrease as successve cams for drawback Rre
approved by the dstrct supervsor and to decrease as satsfactory evdence of
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557
Msc.
e portaton or of oss after shpment wthout neggence on the part of the
e porter, as herenafter provded, Is receved by the dstrct supervsor. When
the mt of abty under any such bond Is reached, no further cams for
drawback may be approved thereunder. In such event a new bond must be
fed n trpcate to cover subsequent cams.
Par. 38. The bond w be approved by the dstrct supervsor If the prncpa
has In a respects comped wth the aw and reguatons. The orgna w be
forwarded to the Deputy Commssoner, one copy w be returned to the prn-
cpa, and the remanng copy w be retaned by the dstrct supervsor.
Par. 39. Drawback cams may be approved from tme to tme under the bond
as ong as t remans good and suffcent, or unt t sha have been reeased or
termnated by the order of the dstrct supervsor or Commssoner.
Par. 40. No cam for an aowance of drawback on dsted sprts botted
especay for e port, and e ported, w be approved unt the camant has fur-
nshed the prescrbed bond.
CCOUNT WIT OND.
Par. 41. The dstrct supervsor w keep an account wth each drawback
bond, n whch the prncpa w be charged wth the fu amount for whch
each drawback cam s approved and w be gven credt for the amount of
drawback represented by the dsted sprts concernng whch satsfactory
evdence of foregn andng, or of oss on and or at sea outsde the ursdc-
ton of the Unted States wthout neggence on the part of the e porter, as
herenafter provded, has been receved.
S IPM NT OR D LI RY OR PORT.
Par. 42. very case of botted dsted sprts ntended for e port wth
beneft of drawback sha be consgned to the coector of customs at the port
of e portaton, e cept that when the shpment s to contguous foregn terr-
tory t sha be consgned to the foregn consgnee at destnaton, but stenced
or marked n care of the coector of customs or deputy coector of customs
at the port of e port. In the case of shpment to contguous foregn terrtory,
the carrer sha dever the sprts for customs nspecton at the port of e port
before transportng the same to the foregn destnaton.
Par. 43. (a) If the pace where the sprts are botted Is ocated at the port
of e portaton, the e porter sha dever the shpment drecty for customs
nspecton and supervson of adng. The drawback entry must be fed wth
the coector of customs at east s hours pror to the adng of the sprts
n order to aow opportunty for customs nspecton. The e porter must fe
one copy of the e port b of adng wth the coector of customs and one copy
wth the dstrct supervsor. The b of adng must show the e porter as the
shpper, the sera numbers of the cases, and the quantty shpped n wne
gaons.
(6) If the sprts on whch drawback s camed are for use as shp s sup-
pes, a recept coverng the sprts showng marks, numbers, and quantty,
sgned by the master, or an authorzed offcer of the vesse or steamshp com-
pany, w be fed In eu of an e port b of adng.
Par. 44. In the event the pace where the sprts are botted s ocated ese-
where than at the port of e portaton, the e porter sha dever the shpment
ether drecty for customs nspecton and supervson of adng as n the case
where sprts are botted at the port of e portaton or to a common carrer
for transportaton to the port of e portaton. If the sprts are devered
to a common carrer for transportaton, the e porter sha procure two copes
of the b of adng coverng such transportaton. In case of e portaton
through a border port to contguous foregn terrtory, the b of adng sha
cover transportaton to destnaton and must show the routng, partcuary the
carrer whch w dever the shpment for customs nspecton at the border.
The b of adng sha aso show that the shpment was sent n care of
the coector or deputy coector of customs at the border port. The e porter
sha mmedatey forward one copy of the b of adng drect to the co-
ector of customs at the port of e port, and transmt the other copy to the
dstrct supervsor of the dstrct where the sprts were botted. The ds-
trct supervsor w attach hs copy of the b of adng to the copy of the
cam and entry, orm 1582, returned by the Government offcer at tha
bottng pant
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558
Par. 45. In the case of shpments by carrer to the port of e port, the
e porter w have hs agent represent hm In respect to transferrng of the
shpment from the termna of the carrer to the dock, arrangng ocean trans-
portaton und other mutters ncdenta to e portaton wth beneft of draw-
back, e ceptng that such representaton s not necessary In the case of shp-
ment on a through b of adng through a border port for e portaton to
contguous foregn terrtory.
CUSTOMS PROC DUR .
Par. 46. (a) The coector of customs, upon recept of the drawback entry
on orm 1082, w cause the date and hour of recept to be stamped on each
copy of the form and w e ecute part 5, the order for Inspecton and adng.
The nspector of customs to whom the order Is devered w Inspect the cases
of sprts. e w e amne the contents of such cases as are found broken or
tampered wth, or whch he Is ed to suspect do not contan the sprts
orgnay packed theren, and w make a speca report thereon. The
Inspector of customs w note n hs report any defcency n quantty or ds-
crepancy between the merchandse Inspected and that descrbed In the entry.
fter havng comped wth the order of nspecton, and after the sprts have
been duy aden on board the e portng vesse, arcraft, car, or other convey-
ance, the nspector of customs w compete and sgn part 6, hs certfcate of
nspecton and adng, on each copy of the form. If the nspector of customs
dscovers any evdence of fraud, he w detan the merchandse and notfy the
coector of customs, who w nform the dstrct supervsor of the coho
Ta Unt dstrct In whch the port s ocated. The dstrct supervsor
w take approprate acton and Immedatey report the facts to the Deputy
Commssoner.
(6) If the sprts are for use as shp s suppes, the nspector of customs
w aso note that fact on part 6 of orm 1582.
Par. 47. Whenever the nspectng offcer s unabe to certfy to the actua
nspecton and adng of the sprts, he w make hs return on part 7 of orm
1582, statng theren the reasons why the sprts were not nspected by hm
and aden under hs supervson. The offcer w, after the vesse, arcraft, car,
or other conveyance has ceared, e amne the records of the deverng and
e portng steamshp or transportaton nes for the purpose of verfyng the
partcuars stated n the drawback entry, and w make hs certfcate accord-
ngy. If the records e amned show that packages of smar descrpton were
aden on the e portng vesse, arcraft, car, or other conveyance for the desg-
nated port, the offcer w set forth n hs certfcate, n addton to other data
ndcated by the form, the date and hour of adng.
Par. 48. fter the nspector of customs has e ecuted hs certfcate of n-
specton or nonnspecton, as the case may be, and after recept of the e port
or through b of adng, the coector of customs w e ecute hs certfcate
on part 8 of each copy of orm 1582. The coector of customs w retan one
copy of the form for hs entry record and w transmt the other two copes
(one of them the orgna) fuy e ecuted to the dstrct supervsor of the ds-
trct from whch the botted sprts were shpped.
DISPOSITION 01 CL IM.
Par. 49. The dstrct supervsor w e amne the two copes of the draw-
back cam, orm 1582, receved from the coector of customs and compare the
same wth the copy receved from the Government offcer who supervsed
the bottng operatons. If the dstrct supervsor s satsfed that the cam-
ant has comped n every resect wth the aw and reguatons and the cam
s vad, and f a good and suffcent bond has been furnshed, he w e ecute
hs certfcate of approva on each copy of the cam and forward the orgna
to the Deputy Commssoner. The dstrct supervsor w forward wth the
cam a copy of each of the foowng documents, when requred hereunder to
support the cam:
(a) orm .r 83. Certfcate of coector of customs or certfed copy thereof:
(6) orm 237, Rectfer s return showng payment of rectfcaton ta .
Par, 50. Where the sprts were not nspected by a customs offcer at the
port of e port, and oaded on the e portng vesse, raroad car, motor truck,
or other conveyance under hs supervson, the cam for drawback may, never-
theess, be aowed provded that the aw and reguatons were comped wth
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559
(Msc.
In other respects and the e portaton wthout customs nspecton and super-
vson of adng was not the faut of the e porter or carrer or the agent of
ether.
Par. 51. The Commssoner w, upon recept of the cam and accompany-
ng documents, e amne the records of hs offce to determne whether the
sprts of domestc orgn descrbed n the cam have been ta -pad. If the
Commssoner fnds that such sprts have been duy ta -pad, he w e ecute
a certfcate to that effect on orm 64t- . If the cam s aowed, n whoe
or n part, the Commssoner w forward It, together wth hs certfcate,
orm 646- , and the certfcate of the coector of customs, orm 1583, f any,
schedued on orm 1550- , to the Comptroer Genera of the Unted States
for certfcaton of the amount aowed. If the cam s dsaowed, the Com-
mssoner w so notfy the camant and state the reasons therefor.
Par. 52. (a) ach camant for drawback on botted dsted sprts e ported
must agree n the requred bond that he w procure and furnsh wthn s
months (or such addtona e tensons of tme as may be granted by the dstrct
supervsor or Commssoner), evdence satsfactory to the dstrct supervsor or
Commssoner that such dsted sprts have been anded at the desgnated
foregn port or that after shpment the same were ost on and or at sea,
outsde the |ursdcton of the Unted States, wthout faut or neggence on the
part of the e porter. Proof of the foregn andng of the sprts sha, n
every case, consst of a duy e ecuted andng certfcate e cept as otherwse
provded heren. The andng certfcate must gve such descrpton of the
sprts as w ready dentfy the shpment to whch t reates. It w be
n substantay the foowng form:
Port of ,
19 .
I, , of , do hereby certfy
that the merchandse herenafter descrbed, shpped by
at the port of , on board the on
or about the day of , 19 , has been anded at ths
port from on board the
., 19
on or about the
day of
Number of
cases.
uantty.
Marks and numbers.
Namo of artce.
Wne
gaons.
Proof
gaons.
S L
Subscrbed and sworn to before me ths
hea
day of
19
(Name.)
(Tte.)
(6) If the sprts were aden on board a vesse for use as shp s suppes,
there must be submtted to the dstrct supervsor wth whom the cam s
fed, an affdavt of the master or other offcer of the vesse on whch the
artces were aden, havng knowedge of the facts, showng that the sprts
have been used on board the vesse and that no porton thereof has been anded
In the Unted States or any of ts possessons. In the case of vesses of war,
such affdavt w not be requred.
Par. 53. The andng certfcate sha be sgned by a revenue offcer of the
foregn country to whch the merchandse s e ported, uness t s shown that
such country has no customs admnstraton, n whch case the certfcate sha
be sgned by the consgnee or by the vesse s agent at the pace of andng and
sworn to before a notary pubc or other offcer authorzed to admnster oaths
and havng an offca sea. The certfcate must be fed wth the dstrct
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Msc.
560
supervsor wth whom the drawback cam was fed wthn the perod ndcated
n the precedng paragraph. The dstrct supervsor w, upon recept of a
proper andng certfcate, enter an approprate credt n the account kept wth
the drawback bond.
Pau. 54. One andng certfcate may cover severa consgnments made by the
same shpper to the same consgnee, or to a genera agent, on the same date
by the same vesse, arcraft, raroad car, motor truck, or other conveyance,
and to the same foregn port, provded each consgnment s specfcay and sepa-
ratey descrbed n the certfcate. certfcate n a foregn anguage must be
accompaned by a sworn transaton thereof.
P OO O LOSS T R S IPM NT.
Par. 55. When the e porter s unabe to procure a andng certfcate In
consequence of oss on and or at sea, he sha fe wth the dstrct super-
vsor wth whom the entry for e portaton was fed, an appcaton for reef
settng forth the e tent of the oss and f possbe, the ocaton and manner of
shpwreck, raroad wreck, or other casuaty and the tme of ts occurrence.
Such appcaton must be accompaned by the affdavts of two or more credt-
abe and dsnterested persons as to the oss. If the goods were nsured, the
e porter sha aso fe certfcates by offcers of the nsurance companes or
board of underwrters that the nsurance has been pad, and that to the best
of ther knowedge and beef, the goods were actuay destroyed on and or at
sea. When obtanabe, the e porter must furnsh affdavts of the master and
mate of the vesse, conductor or other offca of the raroad, or operator of the
motor truck or other conveyance, detang the manner and e tent of the oss
and the tme and ocaton of the dsaster or other casuaty. Such proof sha
be furnshed to the dstrct supervsor wthn s months from the date of
e portaton. The dstrct supervsor w, upon recept of the requred ev-
dence, f satsfed therefrom that the merchandse was ost on and or at sea
outsde the ursdcton of the Unted States and wthout faut or neggence
on the part of the e porter, enter an approprate credt n the account kept
wth the bond.
T NSION O TIM OR SU MITTING PROO .
Par. 56. In case the e porter, from causes beyond hs contro, s unabe to
furnsh the requred proof of andng or oss on and or at sea wthn the tme
prescrbed, he may make appcaton to the dstrct supervsor for an e tenson
of tme for producton of the evdence. Such appcaton must state specfcay
the cause of faure to produce the evdence and be verfed under oath. The
dstrct supervsor may grant one e tenson of three months and, f necessary,
upon a second appcaton an addtona three months may be granted, provded
the e porter s bond s good and suffcent.
COLL T R L ID NC O L NDING.
Par. 57. In case of nabty to produce the prescrbed evdence of andng,
appcaton for reef may be made to the dstrct supervsor of the dstrct
from whch the dsted sprts were shpped.
Par. 58. Such appcaton must be made under oath and must recte the
facts connected wth the aeged e portaton, settng forth the date of shpment,
the knd, quantty, and vaue of the dsted sprts shpped the name of the
consgnee the name of the vesse or arcraft, or descrpton of the raroad
car, motor truck, or other conveyance and the port to whch the shpment
was made and the date and amount of the bond coverng such
shpment. The appcaton sha aso state n what partcuar the regu-
atons respectng the proofs of andng have not been comped wth
the cause of faure to produce such proofs that such faure was not occa-
soned by any ack of dgence on the part of the appcant, or hs agents and
that he s unabe to produce any other or better evdence than that submtted
wth hs appcaton.
Par. 50. ach appcaton sha be supported by such coatera evdence as
the e porter s abe to submt. The evdence may embrace orgna or verfed
copes of etters from consgnee advsng the shpper of the arrva or sae
of the sprts, wth such other statements respectng the faure to furnsh the

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561
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prescrbed evdence of andng as may be obtaned from the consgnee or
other persons havng knowedge thereof. Letters and other documents n a
foregn anguage must be accompaned by sworn transatons and when the
etters fa to dentfy suffcenty the goods, the orgna saes account must be
produced.
I ab. 60. If the dstrct supervsor s satsfed from the evdence presented
that the sprts were duy e ported from the Unted States and were anded
at the desgnated foregn port or, for a good and suffcent reason, at some
other port outsde of the |ursdcton of the Unted States, and that the faure
of the appcant to furnsh the prescrbed proofs of andng was not occasoned
by any ack of dgence on hs part or that of hs agents, and that the appcant
s unabe to produce any other or better evdence than that submtted wth
the appcaton, he w ndorse hs approva on the appcaton and enter proper
credt n the account kept wth the drawback bond.
Par. 61. If the prescrbed andng certfcate s not furnshed by the e -
porter to the dstrct supervsor wthn the prescrbed 6-month perod (or such
addtona e tensons of tme as may be granted), or f the e porter sha
fa to furnsh other satsfactory evdence of the foregn andng of the
merchandse or proof of oss on and or at sea after shpment, as authorzed
heren, the dstrct supervsor w, n the event the drawback cam has been
pad, make wrtten demand upon the prncpa and surety for repayment to
the Unted States of the fu amount of such drawback, pus nterest. If the
amount demanded Is not prompty pad, a copy of the bond, accompaned by
a fu report of the facts, w be forwarded to the Unted States attorney for
enforcement of the cam by sut
Gut T. everng,
Commssoner of Interna Revenue.
pproved September 7, 1937.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 9, 1037, 10.54 a. m.)
I-40-89G3
T. D.4764
Records and transcrpts of whoesae quor deaers, ncudng
rectfers, dsters, propretors of nterna revenue bonded ware-
houses, ta -pad bottng houses, and ta -pad premses, and
mporters.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Oters Concerned:
Pursuant to the authorty conferred by secton 3318, R. S., as
amended by secton 411, Lquor Ta dmnstraton ct (U. S. C,
1934 ed., Supp. II, Tte 26, sectons 1208 and 1209), secton 62 of
the ct of ugust 27, 1894, as amended by secton 412, Lquor Ta
dmnstraton ct (U. S. C, 1934 ed., Supp. II, Tte 26, secton
1210 and secton 3317, R. S. (U. S. C, 1934 ed., Tte 26, secton
1206), the foowng reguatons we prescrbed, effectve October
1, 1937:
1. very whoesae quor deaer, wth the foowng e ceptons,
sha keep Record 52, Whoesae quor deaer s record, and render
monthy transcrpts, orms 52 and 52 , Whoesae quor dea-
er s monthy report, and orm 338, Whoesae quor deaer s
monthy report (Summary of orms 52 and 52 ) :
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562
( ) Regstered Dst ebes and Interna Revenue onded Warehouses.
2. very propretor of a regstered dstery and of an nterna
revenue bonded warehouse sha keep a day record and render
monthy reports on orm 52C, Monthy record and report of regs-
tered dstery and nterna revenue bonded warehouse, of a buk
dsted sprts shpped from the dstery, and a buk and botted-
n-bond dsted sprts removed from the warehouse.
3. Where the dstery and the nterna revenue bonded warehouse
are ocated on the same premses, ony one record on orm 52C w
be requred. Such record may be kept at the dstery or at the
nterna revenue bonded warehouse.
4. emovas of dsted sprts from the cstern room for depost
n the nterna revenue bonded warehouse on the same premses, need
not be reported on orm 52C. owever, removas of dsted sprts
from the cstern room for depost n an nterna revenue bonded
warehouse not ocated on the dstery premses sha be reported
by the propretor of the dstery on orm 52C.
( ) Ta -pad ottng ouse.
5. very propretor of a ta -pad bottng house sha keep a day
record and render a monthy report on orm 52D, Monthy record
and report of ta -pad bottng house operatons, of a dsted
sprts receved, botted, and dsposed of at hs bottng house.
(C) Ta -pad Premses at Whch Dsted Sprts or coho are Sod
n uk.
6. very propretor of a regstered dstery, a frut dstery, an
nterna revenue bonded warehouse, or an ndustra acoho bonded
warehouse who mantans ta -pad premses at whch ta -pad ds-
ted sprts or acoho are receved, stored, and sod n buk, and
every whoesae quor deaer who deas n acoho n buk for ndus-
tra purposes, sha keep orm 52 , Monthy record and report of
mporter or propretor of ta -pad premses, of a sprts, both
buk and botted, receved and dsposed of at hs ta -pad premses:
Provded, That, f such propretor or whoesae quor deaer so
desres, he may keep orm 52 for buk sprts ony and Record 52
for botted sprts ony.
(D) Importers.
7. very mporter who mports and ses dsted sprts n buk,
sha keep at the pace of busness covered by hs whoesae quor
deaer speca ta stamp, orm 52 , Monthy record and report of
mporter or propretor of ta -pad premses, of a dsted sprts,
both buk and botted, mported and dsposed of by hm: Provded,
That, f the mporter so desres, he may keep orm 52 for buk
sprts ony and Record 52 for botted sprts ony. The recept of
mported dsted sprts, both buk and botted, sha be entered on
orm 52 as of the tme of makng the customs entry. The ds-
poston of such dsted sprts sha be entered on orm 52 as
of the tme of ther sae or ther ta payment and wthdrawa from
customs custody.
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8. very mporter who mantans whoesae quor deaer premses
where botted dsted sprts are receved and stored, sha keep
Record 52 of a botted dsted sprts receved and dsposed of
thereat (ncudng botted sprts transferred from customs custody).
( ) Rectfers.
9. very rectfer sha report on orm 45, Rectfer s monthy
record and report, a buk dsted sprts, wnes, and other quors
receved by hm, whether for rectfcaton or for bottng wthout
rectfcaton.
10. The rectfer sha report on such orm 45 a buk products
removed from hs rectfyng pant, and a botted products removed
from hs rectfyng pant and from hs contguous whoesae quor
deaer room where such room s mantaned and s used e cusvey
for products botted at hs rectfyng pant.
11. very rectfer who mantans noncontguous whoesae quor
deaer premses sha report a botted products (rectfed and un-
rectfed) removed from hs rectfyng pant, on orm 45, kept at
such pant. e sha keep ecord 52 at such noncontguous whoe-
sae quor deaer premses of a botted products (rectfed and
unrectfed) receved and dsposed of thereat, ncudng products
transferred from hs noncontguous rectfyng pant and products
receved from other persons.
12. very rectfer who mantans a contguous whoesae quor
deaer room, whch s not used e cusvey for products botted at
hs rectfyng pant, sha report a botted products (rectfed and
unrectfed) removed from hs rectfyng pant, on orm 45, kept
at such pant. e sha keep Record 52, Whoesae quor deaer s
record, at such contguous whoesae quor deaer room of a
botted products (rectfed and unrectfed) receved and dsposed of
thereat, ncudng those products transferred from hs contguous
rectfyng pant.
( ) but Dstebes.
13. very propretor of a frut dstery sha keep a day record
and render monthy reports on orm 15, Monthy return of frut
dster, of a dsted sprts removed from the dstery. Pend-
ng the revson of orm 15, the name and address of the consgnee
of dsted sprts wthdrawn ta -pad w be entered n the name
and address coumns under Wthdrawn for fortfcaton of wne.
R CTI I R S D ILY R CORD O OTTLING.
14. Where the contents of a tank are not competey botted at
the cose of busness for the day, the rectfer sha enter on the copy
of orm 237 attached to the bottng tank, the tota dsted sprts,
wnes and other quors botted that day from such tank, gvng a
the nformaton requred by the form. orm 237 sha be kept on the
tank unt the entre contents are botted. Upon competon of the
bottng, orm 237 sha be removed from the bottng tank and the
orgna and a copes of orm 237 competed and dsposed of n
accordance wth nstructons on the form. The same procedure sha
be foowed for reportng on orm 230 the day bottng of sprts
botted wthout rectfcaton.
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564
TIM OP M ING NTRI S.
15. Day entres sha be made on Record 52, orms 52C, 52D, 52 ,
and 45, as ndcated by the headngs of the varous coumns, and n
accordance wth nstructons prnted thereon, not ater than the
cose of busness of the day on whch the transactons occur: Pro-
vded, That, where the whoesae quor deaer, the propretor of the
ta -pad bottng house, the mporter or the propretor of ta -pad
premses where dsted sprts are sod n buk, or the rectfer, keeps
a separate record, such as nvoces, of the removas of dsted sprts,
showng the remova data requred to be entered on Record 52, orm
52D, orm 52 , or orm 45, respectvey, day entres of the re-
mova of goods from hs premses may be made on the respectve
record not ater than the cose of busness of the foowng busness
day, provded such separate record s approved by the dstrct super-
vsor. Such provson s not appcabe to day entres on orm
52C, Monthy record and report of regstered dstery and nterna
revenue bonded warehouse.
S P R T R CORD O S RI L NUM RS O C S S.
f. Sera numbers of cases of dsted sprts dsposed of need
not be entered on Record 52, Whoesae quor deaer s record,
orm 52D, Monthy record and report of ta -pad bottng house
operatons, orm 52 , Monthy record and report of mporter or
propretor of ta -pad premses, or orm 45, Rectfer s monthy
record and report, provded the respectve propretor keeps n hs
pace of busness a separate record, approved by the dstrct super-
vsor, showng such sera numbers, wth necessary dentfyng data,
ncudng the date of remova and the name and address of the
consgnee. Such separate record may be kept n book form (ncud-
ng oose-eaf books) or may consst of commerca papers, such as
nvoces or bs. Such books, nvoces, and bs sha De preserved
for a perod of four years and n such a manner that the requred
nformaton may be ascertaned ready therefrom, and, durng such
perod, sha be avaabe durng busness hours for nspecton and
the takng of abstracts therefrom by revenue offcers. ntres sha
be made on such separate approved record not ater than the cose
of busness of the day on whch the transactons occur. The deaer,
whose separate record has been approved by the dstrct supervsor,
sha note n the coumn for reportng sera numbers that, Sera
numbers shown on commerca records per authorty, dated
NTRY O MISC LL N OUS IT MS.
17. Whoesae quor deaers may enter on Record 52, Whoesae
quor deaer s record, as one tem the tota quantty of dfferent
knds of sprts made vp from broken cases sod to the same person
on the same day, provded such tota quantty s not n e cess of 10
gaons. The entry of such tems sha be stated as Msceaneous
or Msc. and sha show the date, the name and address of the
person to whom sod, and the quantty. The tota quantty of such
msceaneous sprts so dsposed of durng the month sha be re-
ported n the monthy summary, orm 338, as Msceaneous :
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Provded, The whoesae quor deaer determnes by actua nven-
tory the quantty of each knd of sprts remanng on hand at the
end of the month.
PL C W R R CORD 52 S LL PT Y W OL S L LI UOR D L RS.
18. cept as otherwse provded heren, the whoesae quor
deaer sha keep Record 52, Whoesae quor deaer s record, at
the pace of busness covered by hs whoesae quor deaer speca
ta stamp, f the sprts are receved and sent out from such
premses.
19. If the pace of busness covered by the whoesae quor deaer
speca ta stamp s not the same premses where the sprts are re-
ceved and sent out, the whoesae quor deaer sha keep hs Record
52 at the atter pace and render transcrpts from such pace on
orms 52 and 52 : Provded, That, f approved by the dstrct
supervsor, a whoesae quor deaer who so desres may keep hs
Record 52 at the pace of busness covered by the speca ta stamp
and render transcrpts on orms 52 and 52 from such pace. If,
however, the pace of busness covered by the speca ta stamp
s not n the same supervsory dstrct as the pace where the sprts
are receved and sent out, Record 52 must be kept at the atter pace
and transcrpts on orms 52 and 52 rendered to the dstrct
supervsor of that dstrct.
W R W OL S L LI UOR D L R LSO M INT INS R T IL LI UOR
D L R D P RTM NT.
20. Where a whoesae quor deaer mantans a separate reta
quor deaer department on the same premses, he sha keep Record
52, Whoesae quor deaer s record, at hs whoesae quor deaer
department, of a sprts receved and dsposed of thereat. Dsted
sprts transferred from the whoesae department to the reta de-
partment sha be reported on Record 52, part 2, as Transferred
to reta quor deaer department. Saes of 5 wne gaons or more
of dsted sprts to the same person at the same tme, fed whoy
or party from the reta quor deaer department, sha be entered on
Record 52, part 2, and the quantty taken from the reta depart-
ment sha be entered on Record 52, part 1, as Transferred from
reta quor deaer department.
21. Where the whoesae quor deaer ses at both whoesae and
reta and does not mantan a separate reta department, a ds-
ted sprts receved and dsposed of sha be entered on Record 52.
MONT LY R PORTS.
22. fu and compete transcrpt of the requred records sha
be rendered on the respectve monthy reports. orms 52 , 52 , 52C,
52D, and 52 , and orm 45, and forwarded to the dstrct super-
vsor. coho Ta Unt, on or before the 10th day of the succeedng
month. Record 52, and records kept on orms 52C, 52D, 52 , and
45, sha be preserved for a perod of four years and durng such
perod sha be avaabe durng busness hours for nspecton and
the takng of abstracts therefrom by the Commssoner or any
nterna revenue offcer.
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56G
US O PR IOUS ISSU S O R CORDS ND ORMS.
23. The revsed Record 52, orms 52 , 52 , 52C, 338, and 45, and
the new orms 52D and 52 are effectve October 1, 1937. ow-
ever, commerca prnters of Record 52, orms 52 52 , 52C, orms
338 and 45, w be gven unt anuary 1,1938, to dspose of stocks of
present ssues. Users of Record 52, orms 52 , 52 , 52C, 338, and
45 w be gven unt March 1, 1938, to use stocks of the present s-
sues. Dstrct supervsors w not accept orms 52 , 52 , 52C,
338, or 45 on other than the revsed forms (October, 1937) coverng
transactons begnnng wth the month of March, 1938.
ORMS TO PRO ID D Y US RS T OWN P NS .
24. Record 52, orms 52 , 52 , 52C, 52D, 52 , 338, and 45 w be
provded by users at ther own e pense, but must be n the form pre-
scrbed by the Commssoner: Provded, That, wth the approva
of the Commssoner, they may be modfed to adapt ther use to
tabuatng or other mechanca equpment Provded, further, That
where the form s prnted n book form, ncudng oose-eaf books,
the nstructons may be prnted on the cover or the fy eaf of the
book nstead of on the ndvdua form.
R GUL TIONS R O D.
25. Treasury Decsons 2571, 4475 C. . III-2, 573 (1934) , 4525
C. . I -1, 536 (1935) , 4654 C. . -2, 472 (1936) , and
4655 C. . -2, 473 (1936) the frst two sentences of para-
graph 41 of Treasury Decson 4650 C. . -2, 435 (1936)
paragraph 136 of Treasury Decson 4051 C. . -2, 443 (1936)
and paragraph 193 of Reguatons 15, are hereby revoked.
26. The provsons of Treasury Decson 4679 C. . -2, 515
(1936) artce 53 of Reguatons 3 paragraph 9, page 35 of Regu-
atons 8 paragraphs 189, 191, and 191 of Reguatons 15 and a
pertnent provsons of Reguatons 7, Concernng the Ta on Ds-
ted Sprts (1914 edton), reatve to orms 45, 52 52 , 52 t
52C, and 338, are hereby revoked n so far as they are nconsstent
herewth.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved September 24, 1937.
Wayne C. Tator,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 28,1937,12.02 p. m.)
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567
Msc.
I-42-8996
T. D. 4767
Transfer of or successon to speca ta stamps ssued under the
Interna revenue aws pertanng to acohoc quors.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue, Dstrct Supervsors, and Others
Concerned:
1. Pursuant to sectons 1411, 1691, and 1821, Tte 26, U. S. C,
1934 edton, the foowng reguatons are prescrbed:
C NG O LOC TION.
2. speca ta payer may, durng the ta abe perod for -whch
speca ta was pad, remove hs busness to a pace other than that
specfed n hs orgna return on orm 11, Speca ta return,
and stated on hs speca ta stamp, wthout ncurrng addtona
speca ta abty, provded the change s regstered wth the
coector of nterna revenue from whom the speca ta stamp was
purchased, wthn 30 days after such remova occurs, by e ecutng
a new return on orm 11, desgnated as mended return, settng
forth the tme when and the pace to whch such remova was made,
and surrender of the speca ta stamp.
3. When a speca ta payer removes hs busness to another ad-
dress wthn the same coecton dstrct, the coector of nterna
revenue w enter on hs Record 10 the new address and the date
of remova, and w note the change on the face of the speca ta
stomp, statng ceary thereon the new ocaton where sad busness
s to be carred on, and w return the speca ta stamp to the
ta payer.
4. When a ta payer removes hs busness to a ocaton wthn a
coecton dstrct other than that n whch the speca ta stamp
was ssued, the coector of nterna revenue who ssued the speca
ta stamp w enter on hs Record 10 the new address and date of
remova, statng ceary the new ocaton where sad busness s to
be carred on, and w transmt the stamp to the coector of nterna
revenue n charge of the dstrct to whch the ta payer removed.
The coector of that dstrct w make entry on hs Record 10, as
n the case of a new regstrant, and note the ta payer s new address
and the coector s name, tte and dstrct, and the date on the
speca ta stamp, whch w be returned to the ta payer.
C NG O CONTROL.
5. Certan persons other than the speca ta payer may, wthout
ncurrng addtona speca ta abty, carry on the same busness
at the same address and for the remander of the ta abe perod for
whch the speca ta was pad. To secure such rght, the person
or persons contnung the busness must fe wth the coector of
nterna revenue from whom the speca ta stamp was purchased,
wthn 30 days after the tme of successon, a return on orm
11, Speca ta return, showng the bass of the successon.
. 6. Under the condtons ndcated above, the persons havng such
rght of successon are as foows:
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568
(a) Death. The wdow, chd, or other ega representatves of
the ta payer.
(b) usband and wfe. husband or wfe succeedng to the bus-
ness of hs or her spouse (vng).
(c) Insovency. recever or trustee n bankruptcy, or an as-
sgnee for beneft of credtors.
(d) Wthdrawa from frm. The partner or partners remanng
after death or wthdrawa of a member.
DDITION L Sr CI L T LI ILITY.
7. speca ta payer who reocates hs busness, or a person re-
ferred to n paragraph 4, so succeedng to a busness for whch spe-
ca ta has been pad, and who fas to regster such remova or
successon wth the coector of nterna revenue, wthn 30 days
from the date of such remova or successon, w become abe to
addtona speca ta computed from the 1st day of the caendar
month n whch such remova or successon occurred, as provded by
secton 1403, Tte 26, U. S. C, 1934 edton, Sup. II.
R SON L C US .
8. The ad vaorem penaty provded by secton 1525, Tte 26,
U. S. C, 1934 edton, Sup. II, may be waved n such nstances
where the ta payer removng hs pace of busness or a person suc-
ceedng to a speca ta stamp shows reasonabe cause n accordance
wth e stng reguatons.
C RTI IC T S ON ORM 785 IN LI U O LOST OR D STROY D ST MPS.
9. These reguatons sha appy to certfcates on orm 785 ssued
n eu of speca ta stamps ost or destroyed.
PRIOR R GUL TIONS.
10. reguatons nconsstent herewth are revoked to the e tent
of ther nconsstences.
Guy T. everno,
C ommsson er.
pproved October 9, 1937.
Roswf Mag,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster October 13, 1937, 10.08 a. m.)
I-44-9021
T. D. 4770
Coecton of nterna revenue ta on nto catng quors, dena-
tured acoho, and artces contanng denatured acoho, comng
nto the Unted States from the Phppne Isands, the rgn
Isands, and Puerto Uco.
Treasury Department,
Offce of Commssoner of Interna Reve tte,
Washngton, D. C.
To Coectors of Interna Revenue, Dstrct Supervsors, Coectors
of Customs, and Others Concerned:
Secton 1460(a), Tte 26, U. S. C, 1934 ed., s as foows:
1460. Shpments to the Unted States (a) Ta mposed n Unted States
(1) mount. There sha be eved, coected, and pad, In the Unted States,
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569
Msc.
upon artces, goods, wares, or merchandse comng nto the Unted States from
the Phppne Isands, a ta equa to the nterna-revenue ta mposed n the
Unted States upon the ke artces, goods, wares, or merchandse of domestc
manufacture.
(2) Payment. Such ta sha be pad by nterna-revenue stamp or stamps,
to be provded by the Commssoner (of Interna Revenue), and to be aff ed
n such manner and under such reguatons as he, wth the approva of the
Secretary, sha prescrbe. ( une 17, 1930, ch. 497, secton 301, 40 Stat., 685.)
Secton 1463 of sad tte and code s as foows:
1463. Depost of nterna revenue coectons. nterna revenues coected
n or for account of the Phppne Isands sha accrue ntact to the genera
government thereof and be pad nto the nsuar treasury. ( une 17, 1930, ch.
497, secton 301, 46 Stat., 686.)
Secton 1470(a) of sad tte and code s as foows:
1470. Shpments to the Unted States (a) Tames mposed n the Unted
States. There sha be eved, coected, and pad n the Unted States, upon
artces comng nto the Unted States from the rgn Isands, a ta equa to
the nterna-revenue ta mposed n the Unted States upon ke artces of
domestc manufacture. ( ebruary 24, 1919, ch. 18, secton 1304, 40 Stat., 1142.)
Secton 1480 (a), (b), and (c) of sad tte and code s as foows:
1480. Shpments to the Unted States (a) Rate of ta . rtces of mer-
chandse of Puerto Rcan manufacture comng nto the Unted States and
wthdrawn for consumpton or sae sha be sub|ect to a ta equa to the n-
terna revenue ta mposed n the Unted States upon the ke artces of mer-
chandse of domestc manufacture. ( pr 12, 1900, ch. 191, secton 3, 31 Stat.,
77 May 17, 1932, ch. 190, 47 Stat., 158.)
(b) Payment of ta (1) Upon entry nto Unted States. Such ta sha be
pad by nterna revenue stamp or stamps to be purchased and provded by the
Commssoner (of Interna Revenue) and to be procured from the coector of
nterna revenue at or most convenent to the port of entry of sad merchandse
n the Unted States, and to be aff ed under such reguatons as the Comms-
soner, wth the approva of the Secretary, sha prescrbe. ( pr 12, 19C0,
ch. 191, secton 3, 31 Stat, 77.)
(2) efore shpment from Puerto Rco. Unted States nterna revenue
ta es mposed by aw on artces of Puerto Rcan manufacture comng nto
the Unted States for consumpton or sae may be pad by aff ng to such
artces before shpment thereof a proper Unted States nterna revenue stamp
denotng such payment.

(c) Depost of nterna-revenue coectons. ta es coected under the
nterna revenue aws of the Unted States on artces produced n Puerto Rco
and transported to the Unted States, or consumed n the sand, sha be
covered nto the treasury of Puerto Rco. (March 2, 1917, ch. 145, secton 9,
39 Stat., 954 May 17, 1932, ch. 190, 47 Stat., 158.)
1. Pursuant to the above provsons of aw and secton 251 of the
Revsed Statutes (U. S. C, 1934 ed., Tte 26, secton 1821), and
secton 5 of the Lquor nforcement ct of 1936 (U. S. C, 1934 ed.,
Supp. II, Tte 27, secton 225), quor and artces, . e., nto catng
quors (acoho and other dsted sprts, queurs, cordas and
smar compounds, wnes and fermented mat quors), denatured
acoho, and artces contanng denatured acoho (e cept as heren-
after provded), and artces contanng pure acoho such as bay
rum, e tracts, perfumes, etc., arrvng n the Unted States from
any of the possessons to whch reference s made, are sub|ect to
ta es at the rates mposed upon domestc products of the same knd
by the nterna revenue aws.
The Lquor Ta ng ct of 1934, approved anuary 11, 1934
(U. S. C, 1934 ed., Tte 26, sectons 1150 et seq., 1300 et seq., and
77064 38 10
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570
1330 ct seq.), as amended by the Lquor Ta dmnstraton rt
of une 26,1936 (U. S. C, 1934 ed., Supp. II, Tte 26, secton 1300(a)
(1) and (2)), mposes ta es at varous rates upon dsted sprts,
wnes, queurs and cordas, and fermented mat quors. Rectfca-
ton ta on rectfed dsted sprts or wnes at the rate of 30 cents
per proof gaon s aso coectbe because of the provsons of the
thrd subsecton of secton 3244, Revsed Statutes, as amended
(U. S. C, 1934 ed., Tte 26, secton 1398(f)), and the provsons
of secton 605 of the Revenue ct of 1918, as amended (U. S. C,
1934 ed., Tte 26, secton 1150(a)(6)), f the product so rectfed
woud be sub|ect to that ta f manufactured n the Unted States.
2. rgn Isands and Puerto Rco. Tte III of the Natona
Prohbton ct, as amended, and a provsons of the nterna rev-
enue aws reatng to the enforcement thereof, were e tended to and
made appcabe n the rgn Isands and Puerto Rco on and after
ugust 27, 1935, by secton 329 (c) of the Lquor Ta dmnstraton
ct approved une 26, 1936 (U. S. C, 1934 ed., Supp. II, Tte 27,
secton 90). Therefore, acoho denatured n accordance wth ap-
proved formuae, and artces made therewth n accordance wth
authorzed formuae may bo shpped to the Unted States from such
possessons, wthout ncurrng abty to nterna revenue ta es.
Uness the acoho s denatured n accordance wth a prescrbed
formua and the artces are made therewth n accordance wth pre-
scrbed formuae, the denatured acoho and such artces when
shpped to the Unted States w be sub|ect to ta at the rate of
2 per proof gaon, or wne gaon f beow7 proof, on the acoho
theren.
3. Phppne Isands. Tte III of the Natona Prohbton ct
s not n effect n the Phppne Isands. Lquor and artces con-
tanng acoho, whether denatured or not, arrvng n the Unted
States from such sands, w be sub|ect to ta on the acoho theren
at rates provded by aw, ncudng ta at the rate of 30 cents per
proof gaon on sprts and wTnes f they are rectfed n such a
manner that they woud be sub|ect to such ta f manufactured n
the Unted States.
1 ROC DL R OR ST LIS ING T L CL SSI IC TION O T LI OR
OR RTICL .
4. (a) ffectve December 1,1937, every person ntendng to brng
n from the nsuar possessons named the quor or artces to whch
reference s made (e cept fermented mat quors, and e cept de-
natured acoho and artces made therewth produced n Puerto
Rco or the rgn Isands pursuant to Tte III of the Natona
Prohbton ct and reguatons) sha submt, n advance, to the
Commssoner of Interna Revenue n quntupcate (and f the quor
or artce s to arrve at more than one port, an addtona copy as
to each such port), through the dstrct supervsor of the coho
Ta Unt of the dstrct n whch such person s ocated, a seray
numbered (commencng wth the number 1 for the frst and con-
tnung n seres thereafter) and dated formua, statng the name and
address of the manufacturer and the brand of the quor or artce,
and showng the names of the ngredents of whch t s composed
and the process by whch t s made, each step beng set forth n
sequence. Uness e empton from the rectfcaton ta at the rate
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571
Msc.
of 30 cents per proof gaon s camed, the quanttes or percentages
of each ngredent need not be gven. Where the ngredents or
processes are subsequenty changed, a new formua must be sub-
mtted. The Commssoner of Interna Revenue or the dstrct super-
vsor of the coho Ta Unt may, at any tme, requre the subms-
son of a formua or formuae notwthstandng a formua or formuae
have aready been submtted. In submttng such formua, the m-
porter sha ndcate thereon n each nstance the port, or ports,
through whch he ntends to brng n the merchandse.
(b) When a numbered and dated formua has been fed, the
Commssoner of Interna Revenue sha transmt a copy thereof,
wth the cassfcaton for ta purposes ndcated thereon, to the
coector of customs at each port named theren. ny shpment of
quor or artces arrvng n the Unted States pror to the recept
of notce by the coector of customs that the formua therefor has
been fed and acted upon sha be detaned by the coector of cus-
toms unt the ta found to be due thereon, f any, has been pad.
(c) There sha be fed wth the coector of customs n connecton
wth each shpment a certfcate, n the ngsh anguage, sgned by
the shpper and addressed to the coector of customs, whch sha
show: (1) the name and address of the consgnee, (2) the desgna-
ton of the quor or artce, (3) the quantty thereof, (4) the num-
ber and date of the formua coverng the quor or artce, (5) a
decaraton that t has been manufactured n accordance wth such
formua, and (6) the name and address of the person who fed the
formua. In the case of shpments arrvng from Puerto Rco, the
certfcate sha state whether the Unted States nterna revenue
ta es have been pad and, f pad, the amount thereof. Where the
formua and certfcate have been receved by the coector of cus-
toms, shpments of the quor or artce covered thereby may be
reeased upon payment of the ta , f any, due as shown by such
formua. Sampes need not be taken for e amnaton uness there
s reason to beeve that the quor or artce s not n accordance
wth the formua.
(d) In the nterm between the date of approva of ths regua-
ton and December 1, 1937, the mporter and the shpper may con-
form wth the above requrements, or the shpper may attach to the
shppng documents a certfcate, n the ngsh anguage, addressed
to the coector of customs, statng the brand of the quor or artce
and showng the names of the ngredents and the processes by whch
made, each step beng set forth n sequence. In such event, nterna
revenue ta es found to be due w be coected wthout detanng
the shpment, uness there s reason to beeve that the quor or
artce s not as represented. Shpments arrvng durng ths perod
of tme, as to whch the mporter or shpper has not conformed wth
ether of the above aternatves, and shpments arrvng on and after
December 1, 1937, as to whch a certfcate based upon a formua that
has been acted upon has not been fed, w be detaned by the co-
ector of customs pendng the payment of ta es, f any, found to be
due. Shpments sha aso be detaned by the coector of customs
n any case n whch there s reason to beeve that a nterna
revenue ta es due on the quor or artces shpped have not been
pad.
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Msc.
572
Y W OM TU INT RN L R NU T S R TO COLL CT D.
5. Interna revenue ta es on quors or artces arrvng from
Puerto Rco, uness pad before shpment, and on those from the
Phppne Isands, w be coected by the coector of nterna
revenue for the dstrct n whch the quors or artces are brought n
on notce to hm by the coector of customs of the arrva thereof.
Interna revenue ta es on quors or artces arrvng from the r-
gn Isands w be coected by the coector of customs.
TO W IC GO RNM NT T INT RN L R NG T S S LL
CR DIT D.
6. nterna revenue ta es coected on quors and artces ar-
rvng from Puerto Rco and the Phppne Isands w be credted,
respectvey, to the governments of such possessons. nterna
revenue ta es coected on quors and artces arrvng from the
rgn Isands w be credted to the Government of the Unted
States n accordance wth 35 Op. tty. Gen., 63, of une 9, 1926.
Gtrr T. everng,
Commssoner of Interna Revenue.
ames . Moye,
Commssoner of Customs.
pproved October 25, 1937.
ROSW LL M GILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster October 28, 1937, 9.37 a. m.)
I-50-9095
T. D.4780
Weghts for toutng scaes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Pursuant to authorty conferred by secton 3249, Revsed Statutes
(U. S. C, 1934 ed., Tte 26, secton 1157), the foowng reguatons
are prescrbed:
1. Propretors of dsteres frut dsteres nterna revenue
bonded warehouses ndustra acoho pants acoho bonded ware-
houses denaturng pants rectfyng pants whch ta -pay rectfed
products n packages and bonded wneres whch receve brandy n
packages for fortfcaton and/or ta -pay wne by weght, w pro-
vde, at ther own e pense, a set of ten 50-pound cast ron test weghts,
whch sha be certfed by the Natona ureau of Standards or State
departments of weghts and measures as conformng wth cass C
requrements of the Natona ureau of Standards. If the propretor
operates one or more of the enumerated estabshments on the same
or contguous premses, ony one set of test weghts need be provded.
2. Test weghts now n the possesson of propretors whch conform
to the requrements of ths reguaton, may be contnued n use pro-
vded that such weghts are certfed by the Natona ureau of Stand-
ards or State departments of weghts and measures as accurate.
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3. The test weghts sha be paced under the contro and n the
custody of the storekeeper-gaugers n charge, and w be used fre-
quenty by such offcers to check a scaes used n the pant or
warehouse.
Gut T. everng,
Commssoner of Interna Revenue.
pproved December 3, 1937.
ROSW LL MaGII ,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster December 7, 1937, 12.51 p. m.)
S CTION 3315, R IS D ST TUT S, S M ND D, TC.
I-27-8S05
T. D.4744
Restampng packages of dsted sprts, tobacco, cgars, snuff,
cgarettes, fermented mat quors, oeomargarne, and wnes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue, Dstrct Supervsors, and Other
Offcers and mpoyees of the ureau of Interna Revenue
C oncerned:
1. Secton 3315, Revsed Statutes, as amended (U. S. C, 1934 ed.,
Tte 20, sectons 803(b), 812(b), 1152(b), 1300(b), and 1332(d)),
provdes that the Commssoner of Interna Revenue may, under
reguatons prescrbed by hm wth the approva of the Secretary of
the Treasury, ssue stamps for restampng packages of tobacco, snuff,
cgarettes, cgars, dsted sprts, wnes, and fermented quors,
whch have been duy stamped, but from whch the stamps have
been ost or destroyed by unavodabe accdent.
2. Secton 8 of the ct of ugust 2, 1886, as amended (U. S. C,
1934 ed., Tte 2G, sectons 982-983), provdes wth respect to oeo-
margarne stamps that the provsons of e stng aw governng the
engravng, ssue, sae, accountabty, effacement, and destructon of
stamps reatng to tobacco and snuff, as far as appcabe, are hereby
made to appy to stamps provded for by ths secton.
3. The foowng reguatons are prescrbed n conformty wth the
provsons of aw above cted:
appcatons for restampng.
4. ppcatons for restampng shoud be made n wrtng to the
coector of nterna revenue for the dstrct n whch the packages to
be restamped are stuated. Wth respect to contaners of dsted
sprts requred to bear strp stamps by the Lquor Ta ng ct of
1934 (Tte 26, secton 1152(c), U. S. C, 1934 ed.) the procedure
outned n paragraphs 11,12, and 13 hereof shoud be observed. The
appcants shoud state n deta the number of packages, descrpton
of the contents, where the packages are ocated, the knd and denom-
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574
naton of the stamps ost or destroyed, and the nature of the app-
cant s nterest n the property.
5. If the stamps were ost or destroyed n transt, the appcaton
shoud be accompaned by an affdavt of the consgnor that the pack-
ages were propery stamped when shpped and, f possbe, the aff-
davt of some one havng knowedge of the facts attendng ther oss
or destructon en route.
6. In the event the stamps were ost or destroyed ether before or
after shpment and whe n the possesson of the appcant, the ap-
pcaton shoud be accompaned by an affdavt of the appcant or
some one n hs empoy statng that the packages were once duy
stamped or propery stamped when receved, as the case may be, ana
detang a the crcumstances connected wth the destructon of the
stamps.
INSP CTION.
7. When an appcaton s receved, the coector w e amne t
and the supportng affdavts for the purpose of determnng whether
a of the papers have been correcty prepared. If so, the coector
w order an mmedate nspecton of the packages by one of hs
deputy coectors, who w make a wrtten report to the coector of
the number of packages whch need restampng, the condton and
contents of each, and the knd of stamps or fragments of stamps st
attached thereto.
8. In the case of sprts n barres, the nspecton shoud be made by
a storekeeper-gauger, f possbe, or by some other representatve of
the dstrct supervsor s offce. fu report of regauge on the pre-
scrbed gaugng form and a statement of the marks and brands found
upon the bung stave and stamp head of the packages must be made.
9. If ths nspecton can not be made wthout substanta e pense
to the Government, the coector w, before e penses are ncurred,
forward to the Commssoner of Interna Revenue for consderaton
the appcaton and accompanyng papers as we as an estmate of
the cost of competng the e amnaton.
DDITION L ID NC .
10. In the foowng cases where stamps for sprts and wne have
been ost or destroyed, coectors of nterna revenue w procure and
forward to the Commssoner of Interna Revenue wth the appca-
ton, report of nspecton, and report of regauge, addtona evdence
as foows, accordng to the nature of the case:
(a) or ta -pad sprts n orgna packages: Certfed copy of
the report on the prescrbed gaugng form showng the contents of
the packages at the tme they were gauged for ta payment. Certf-
cate of the coector n whose dstrct the mssng or mutated stamps
were purchased, whch shoud contan a of the nformaton shown
on the stubs from whch the orgna stamps were detached.
(b) or rectfed sprts n bu k packages: Certfed copy of the
rectfer s Notce of competon of rectfcaton and return of rectfed
sprts, wnes, or other quors gauged, marked, and stamped. Cer-
tfcate of the coector n whose dstrct the mssng or mutated
stamps were purchased, whch shoud contan a of the nformaton
shown on the stubs from whch the orgna stamps were detached.
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(c) or e port sprts n buk packages: Certfed copy of the pre-
scrbed gaugng form showng the contents of the packages at the
tme they were gauged for wthdrawa and e portaton. Ths cer-
tfcate shoud contan a of the nformaton shown on the stubs from
whch the orgna stamps were detached.
(d) or whoesae quor deaer s packages of sprts: Certfed
copy of the appcaton for the stamps on the prescrbed form.
(e) or wne: ffdavt from the ta payer showng the contents
of the cases or packages when stamped, vaue of stamps aff ed to
the cases or packages, ta abe grade of wne, sera numbers of the
cases or packages, and date on whch the stamps were aff ed to the
packages.
(/) or rectfed products requred to bear wne stamps: ffdavt
of the ta payer and a certfed copy of the prescrbed form showng
the sera numbers and the contents of the cases or packages when
stamped, vaue of stamps aff ed to the cases or packages, and the
date of aff ng.
PPLIC TIONS OR R ST MPING OTTL S R UIR D TO R ST MPS Y
T LI UOR T ING CT O 1934.
11. ppcatons under oath for restampng contaners of ds-
ted sprts requred to be stamped by the Lquor Ta ng ct of
1934 (Tte 26, secton 1152(c), U. S. C., 1934 ed.), from whch the
orgna strp stamps have been ost or destroyed, sha be made to
the oca coector of nterna revenue. The appcant n every case
w state the cause of the oss or destructon of the orgna stamps,
and submt evdence that the sprts have been ta -pad. Such ev-
dence may consst of the nvoces coverng the purchase of the sprts,
n addton to other avaabe documents. Where the stamps, whch
t s camed have been destroyed, or any porton thereof, have become
detached from the contaners and recovered, they sha be submtted
wth the appcaton.
12. ach appcaton for new stamps, wthout cost, to repace
those whch have been ost or destroyed by unavodabe accdent,
sha be e ecuted n dupcate and addressed to the oca coector of
nterna revenue. It w be forwarded to the coector through the
offce of the approprate dstrct supervsor. If the evdence pre-
sented shows concusvey that the ta on the sprts has been pad
and f the oss or destructon of the strp stamps has been satsfac-
tory e paned, the dstrct supervsor w approve the appcaton
and forward the orgna copy, together wth supportng papers, to
the oca coector of nterna revenue. The dupcate copy of the
appcaton sha be retaned by the dstrct supervsor for record
purposes. The coector w transmt the appcaton and accom-
panyng evdence to the ureau for consderaton as requred by
paragraph 19 hereof. If the ureau approves the appcaton, an
approprate authorzaton on orm 7706 w be maed to the co-
ector to cover the ssuance of the dupcate strp stamps. Such
stamps w then be sent to the dstrct supervsor, who, after makng
sutabe notatons on the dupcate copy of the appcaton fed n
hs offce, w dever the stamps to the appcant, ether by ma or
by a representatve of hs offce, together wth nstructons n regard
to markng and aff ng them to the contaners.
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576
13. If n connecton wth any appcaton for dupcate strp
stamps to be aff ed to contaners of dsted sprts, the dstrct
supervsor has doubt, from the evdence submtted, as to whether the
ta on the sprts has been pad or f the oss or destructon of the
strp stamps has not been satsfactory e paned, he w cause the
necessary nvestgaton to be made before approvng and forwardng
such appcaton to the coector.
RM NT D M LT LI UORS.
14. Wth respect to fermented mat quors, upon recept of an
ap2)caton, supported by an affdavt of ta payment and oss of
stamps, and after report of nspecton by a deputy coector, the
coector may, f the evdence s satsfactory, ssue the stamps neces-
sary to repace those ost or destroyed wthout securng forma author-
zaton so to do from the ureau. Such stamps w be aff ed to
contaners under the drect supervson of a deputy coector. These
reports by deputy coectors are requred n a cases of appcatons
for restampng packages, e cept where an offcer workng under the
|ursdcton of the dstrct supervsor of the coho Ta Unt ds-
covers an unstamped package. The coector may act upon the re-
port and recommendaton of such offcer wthout requrng a further
nvestgaton by a deputy coector. The coector shoud transmt
a the papers n each case, ncudng a sgned report on orm 7706-
n dupcate, to the ureau wth hs monthy stamp report, n order
that credt may be aowed n hs stamp account.
ILUR TO M OLUNT RY PPLIC TION OR R ST MPING CONT IN RS
O LI UORS.
15. Where an unstamped contaner of dsted sprts, fermented
mat quor, or wne, from whch the orgna stamp has been ost or
destroyed, s dscovered and t s ascertaned that no appcaton for
the restampng thereof has been made such contaner w be de-
taned pendng approprate acton. If, upon nvestgaton, t de-
veops that the contaner has been ta -pad, the offcer who made the
dscovery sha secure an affdavt from the proper party, settng
forth the reason for the oss or destructon of the stamp, as we as
documentary evdence, f any, n support thereof. e sha then
requre the party nvoved to e ecute a sutabe restampng appca-
ton to be submtted through the offce of the dstrct supervsor to
the oca coector of nterna revenue, accompaned by a statement
of the facts and the offcer s recommendaton. Such offcer w n-
form the possessor of the unstamped contaner of quor that t s
hs prvege to submt an offer n compromse. In the event a sut-
abe offer m compromse s tendered, the procedure sha thereafter
conform wth the procedure governng cases n whch an appcaton
for restampng was made wthout the nterventon of a Government
offcer. When receved, the stamp may be ssued and aff ed, and the
contaner of quor may be reeased from detenton wthout awatng
acton on the offer n compromse. Where no offer n compromse s
submtted, the contaner of quor sha be sezed for forfeture.
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R P C ING CONT TS O P C G S O TO CCO, CIG RS, SNU ,
CIG R TT S, ND OL OM RG RIN .
16. Where packages of tobacco, cgars, snuff, cgarettes, or oeo-
margarne are found to be n such condton that they requre re-
packng before new stamps can be attached, the deputy coector
w n such cases ncude n hs report of nspecton the e act num-
ber, denomnaton, and cass of stamps to be used.
17. If the coector s satsfed that the packages were once duy
stamped and there appears to be no evdence of fraud, he w
authorze ther mmedate repackng n new packages not before used
for that purpose and of a sze to contan a statutory quantty or
number of artces, under the supervson of a deputy coector. The
packages w then be hed unt the coector s authorzed to ssue
the requred stamps, whch must be attached to the packages under
the supervson of a deputy coector.
18. The work of repackng and restampng these packages must
not be done wthn the factory premses of any manufacturer of
artces sub|ect to nterna revenue ta es.
ISSU NC O ST MPS.
19. Wth the e cepton of appcatons for the restampng of con-
taners of fermented mat quors, as set forth n paragraph 14
hereof, the coector w forward a appcatons, together wth sup-
portng evdence, to the ccounts and Coectons Unt of the ureau
for consderaton and an approprate authorzaton on orm 7706,
pror to ssung any dupcate stamps.
CR DIT OR ST MPS ISSU D.
20. The ssuance of a stamps under these reguatons shoud be
refected n the approprate monthy record of stamps receved,
ssued, etc., n coumn headed Issued by order of the Commssoner,
and credt for the stamps shoud be taken on the proper ne of the
coector s monthy stamp report.
21. In every case, the coector shoud obtan a recept from the
party recevng dupcate stamps and transmt such recept to the
ureau wth hs stamp report for the month n whch the stamps
were ssued.
22. The reguatons heren promugated supersede those contaned
n Treasury Decsons 1869 and 4580 C. . I -2, 517 (1935) ,
dated, respectvey, ugust 5, 1913, and ugust 20, 1935.
Gur T. everng,
Commssoner.
pproved une 24, 1937.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 25, 1937, 3.24 p. m.)
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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-45-9034
T.D.4772
Statement of ape and knd on sprts wthdrawn from
csterns pror to pr 1, 1937.
Tbeasuby Department,
Offce of the Secretary of the Treasury,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Paragraphs (o) and (p) of artce 1 of Reguatons No. 13,
approved May 24, 1937, sha not be appcabe to dsted sprts
wthdrawn from csterns at regstered dsteres pror to pr 1,
1937.
pproved October 30, 1937.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 2, 1937, 11.01 a. m.)
Reguatons 13(1937), rtce 5: Imports T-49-90S2
and e ports. T. D. 4779
mendment of Reguatons 13.
Treasury Department,
Offce of the Secretary of the Treasury,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Paragraph (1) of artce 5 of Reguatons 13, under the provsons
of |ont resouton approved une 18, 1934, entted ont Resou-
ton to Protect the Revenue by Reguaton of the Traffc n Con-
taners of Dsted Sprts, s amended to read as foows:
rt. 5. Imports and e ports. (1) The mportaton Into the Unted States
of contaners of one-haf pnt capacty or greater for use In packagng ds-
ted sprts for sae at reta, e cept n connecton wth the mportaton of the
quor contaned theren, s prohbted: Provded, That upon appcaton by
any mporter the supervsor of the dstrct n whch the port of entry Is stu-
ated may In hs dscreton, by the ssuance of an approprate permt, authorze
the Importaton of empty quor bottes, or other contaners, for packagng
dsted sprts mported by hm and there sha be bown egby ether n
the bottom or n the body of a empty bottes mported under ths provson,
the name, and the name of the cty of address, of the mporter thereof, and
there sha be bown egby n the shouder of each such botte the words
edera Law orbds Sae or Reuse of Ths otte : Provded further. That
upon appcaton by any dster, rectfer, or whoesae quor deaer author-
zed to botte dsted sprts, the supervsor of the dstrct n whch the app-
cant s stuated may n hs dscreton, by the Issuance of an approprate per-
mt, authorze the Importaton, for the packagng of domestc dsted sprts,
of empty quor bottes whch are ascertaned by the Commssoner to be of
dstnctve shape or desgn, and n regard to whch satsfactory evdence Is sub-
mtted that they can not be obtaned n the Unted States. The dstrct super-
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579
Msc.
vsor ssung the permt w furnsh a copy to the supervsor of the dstrct
n whch the port of entry s stuated. There sha be bown egby n the
shouder of each such botte Imported under ths provson, the words edera
Law orbds Sae or Reuse of Ths otte, and n the body thereof, the name,
and the name of the cty or country of address of the gass manufacturer.
The permt symbo and number of the botter sha be bown ether In the body
or n the bottom of each such botte.
(a) fter the ssuance of the permt authorzng the mportaton of quor
bottes for packagng mported or domestc dsted sprts, the mporter, ds-
ter, rectfer or whoesae quor deaer sha forward a certfed copy of the
order to the supervsor of the dstrct n whch the appcant s stuated. The
certfed copy of the order sha show the name, and the name of the cty and
country of address, of the gass manufacturer abroad, the date of the order,
the pace from whch shpped, the name and address of the consgnee, the
method of forwardng, the sze, quantty, and descrpton of the bottes ordered,
and the shpment or devery date requested by the consgnee. Upon recept
of any shpment or devery of such quor bottes, the mporter, dster, rec-
tfer or whoesae quor deaer pacng the order sha forward to the Super-
vsor of the dstrct n whch the appcant s stuated a notce of the recept of
shpment or devery, showng the name, and the name of the cty and country
of address, of the gass manufacturer abroad, the date of the order, the pace
from whch shpped, the date of recept, the name and address of the con-
sgnee, the method of forwardng, and the sze, quantty, and descrpton of
the bottes furnshed.
pproved November 27, 1937.
ROSW LL M GILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 30, 1937, 12.33 p. m.)
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Msc. 580
RM NT D M LT LI UORS.
Reguatons 18, rtce I: Coectors I-30-8849
reports of stamps sod. T. D. 4757
Reguatons 18 amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Dstrct Supervsors:
Paragraph 19, of Reguatons 18, reatng to the manufacture and
ta -payment of fermented mat quors, s nereby revoked.
Gut T. everng,
Commssoner of Interna Revenue.
pproved uy 22, 1937.
ROSW LL M GILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 26, 1937, 9.33 a. m.)
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581
Msc.
INDUSTRI L LCO OL.
I-29-8830
T. D.4748
Denaturaton of ethy acetate.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
1. Pursuant to sectons 2(6) and 4, Tte I of the Lquor Law Re-
pea and nforcement ct (sectons 151(6) and 153, Tte 27,
U. S. C, 1934 d., Sup. II), the foowng reguatons are hereby
promugated:
2. ffectve mmedatey ethy acetate must be denatured before
beng removed from the premses of the manufacturer, by addng to
every 100 gaons of ethy acetate one-eghth gaon of cao ethatate,
or other products or chemcas whch possess denaturng propertes
satsfactory to the Commssoner: Provded, That ethy acetate used
as a denaturant for specay denatured acoho or for pharmaceu-
tca, scentfc, and food preparatons, or where t s e ported, or
transferred from one producer to another producer need not be
denatured.
3. Where undenatured ethy acetate s receved by a producer from
another producer t must be denatured before t s sod to deaers
or users uness t s sod for purposes where undenatured ethy acetate
may be used, as provded n paragraph 2.
4. ny manufacturer desrng to purchase ethy acetate denatured
wth products or chemcas n eu of cao ethatate sha make ap-
pcaton to the Commssoner showng n deta for what purpose
the ethy acetate s to be used, and why they can not use such matera
denatured wth cao ethatate. The appcaton shoud show the
knd and quantty of products or chemcas that the purchaser of
ethy acetate desres to be substtuted for cao ethatate, m order that
t may be determned whether they possess satsfactory denaturng
propertes.
5. Treasury Decson 53, approved pr 28, 1930, and the ast
paragraph on page 5 of the ppend to Reguatons No. 3, revsed
October, 1931, pertanng to the denaturaton of ethy acetate, are
hereby rescnded.
Gut T. everno,
Commssoner of Interna Revenue.
pproved uy 13, 1937.
ROSW LL MagILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Resstor uy 15, 1937, 9.50 a. n.)
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Msc.
582
I-2-8997
T.D.476S
Revokng specay denatured acoho formuae.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Chemsts n Charge, uthorzed Chemsts,
and Others Concerned:
Pursuant to authorty conferred by the ct of une 7, 1906
(U. S. C, 1934 edton, Tte 20, secton 1320), and Tte III of the
Natona Prohbton ct, specay denatured acoho formuae 1- ,
15, and 44- are hereby revoked effectve anuary 1, 1938, and
acoho sha not be denatured n accordance wth such formuae
on and after that date.
Guy T. everno,
Commssoner of Interna Revenue.
pproved October 11, 1937.
ROSW LL MaGII.L,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster Octoher 13, 1937, 10.08 a. m.)
Reguatons 3( coho), rtce 55: Cases I 6-9045
contanng pnt and gaon bottes. T. D. 4774
Cases and bottes for packagng Industra acoho.
Treasury Department,
Offce of Commssoner of Interna Revenue,
W ashng ton, D. C.
To Dstrct Supenvsors and Others Concerned:
The frst paragraph of artce 55 of Reguatons 3, page 57, as
amended by Treasury Decson 4502, dated December 15, 1934 C. .
III-2, 509 (1934) , s further amended to read as foows:
rt. 55. Orgna packages of acoho fed at ndustra-acoho bonded ware-
houses may consst of cases contanng one-haf-pnt, 1-pnt, 1-quart, or 1-gaon
bottes (qud measure), as foows: 32 oue-haf-pnt bottes, 48 one-haf-pnt
bottes, 10 one-pnt bottes, 24 one-pnt bottes, 12 one-quart bottes, 1 one-gaon
botte, or 3 one-gaon bottes.
Guy T. everng,
Commssoner of Interna Revenue.
pproved November 9, 1937.
Roswe Mag,
ctng Secreta y of the Treasury.
( ed wth the Dvson of the edera Regster November 11, 1937, 3.56 p. m.)
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583
Msc.
Reguatons 3( coho), rtce 136: uaf- I-51-9110
catons of appcant. T. D. 4785
Sae of ethy acetate and acquer thnners.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Treasury Decson 4745, approved une 24, 1937 page 584, ths
uetn , s hereby modfed to read as foows:
Paragraph (C), of secton 2, Tte I, of the Lquor Law Repea and nforce-
ment ct, reads as foows:
(6) The term reguatons sha mean any reguaton prescrbed by the
Commssoner wth the approva of the Secretary of the Treasury for carryng
out the provsons of ths tte or of Tte III of the Natona Prohbton ct,
and the Commssoner s authorzed to make such reguatons.
Pursuant to authorty conferred by the statute above quoted, the
ast paragraph of artce 136, Reguatons 3, s hereby revoked and
the foowng substtuted n eu thereof:
thy acetate and acquer thnners may be sod by producers thereof to
(1) egtmate users for sovent or other manufacturng purposes and (2) rep-
utabe whoesae and reta deaers engaged n a bona fde pant or chemca
trade for resae to egtmate users ether n manufacturers orgna packages or
n smaer contaners not e ceedng 5 gaons n capacty fed by such deaers.
Saes by producers to whoesae and reta deaers sha be n contaners of
a capacty of not more than 55 gaons, and sha not e ceed a tota of 550
gaons to any whoesae or reta deaer durng any caendar month. Saes
by any whoesae or reta deaer sha not e ceed 550 gaons (urng a caendar
month, and not more than 55 gaons sha be sod by them to a customer at
any one tme: Provded,, That such saes to whoesae and reta deaers and
by such deaers may e ceed the above ma mum saes mtatons of 550 gaons,
and 550 gaons and 55 gaons, respectvey, upon the producton of evdence
satsfactory to the dstrct supervsor that there s a need for ethy acetate and
acquer thnners by such deaers and ther customers n greater quanttes to
suppy ther egtmate needs.
Tank car shpments of ethy acetate and acquer thnners may be made
by the producer drect to a egtmate user, provded authorzaton therefor s
obtaned by the user from the dstrct supervsor n whose dstrct he s ocated.
Producers and whoesae deaers w be responsbe for devery of the product
drect to ther customers and must satsfy themseves that the purchaser s
engaged n a awfu busness, and that the quantty purchased s ntended for
egtmate purposes. Reta deaers must not se ethy acetate and acquer
thnners under crcumstances from whch they mght reasonaby deduce that
t s the ntenton of the purchaser to procure the same for dverson to ega
purposes.
Contaners of ethy acetate and acquer thnners, rrespectve of sze, must
have marked thereon the name of the product, the quantty, and the name and
address of the producer, or, n eu thereof, the name and address of the whoe-
sae or reta deaer and the permt number and State of the producer.
Producers of ethy acetate sha contnue to fe day reports of shpments
of ethy acetate.
Gut T. everng,
Commssoner of Interna Revenue.
pproved December 15, 1937.
ROSW LL MagILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster December 17, 1037, 11.03 a. m.)
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Msc.
584
Reguatons 3( coho), rtce 136: uaf- T-27-8804
catons of appcant. T. D. 4745
Sae of ethy acetate and acquer thnners.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Paragraph (6), of secton 2, Tte I, of the Lquor Law Repea
and nforcement ct, reads as foows:
(6) The term reguaton sha mean any reguaton prescrbed by the
Commssoner wth the approva of the Secretary of the Treasury for carryng
out the provsons of ths tte or of Tte III of the Natona Prohbton ct,
and the Commssoner s authorzed to make such reguatons.
Pursuant to authorty conferred by the statute above quoted, the
ast paragraph of artce 136 Reguatons 3, s hereby revoked and
the foowng substtuted n eu thereof:
thy acetate and acquer thnners may be sod by producers thereof to (1)
egtmate users for sovent or other manufacturng purposes, and (2) repu-
tabe deaers engaged n a bona fde pant or chemca trade for resae n manu-
facturers orgna packages to egtmate users and retaers.
Saes by producers to deaers sha be n contaners of a capacty of not
more than 55 gaons, and sha not e ceed a tota of 550 gaUons to any deaer
durng any caendar month. Saes by deaers sha not e ceed 550 gaons dur-
ng a caendar month and not more than 65 gaons sha be sod to a customer
at any one tme: Provded, That such saes to deaers and by deaers may
e ceed the above ma mum saes mtatons of 550 gaons, and 550 gaons
and 55 gaons, respectvey, upon the producton of evdence satsfactory to
the dstrct supervsor that there s need for ethy acetate and acquer thnners
by such deaers and ther customers n greater quanttes to suppy ther
egtmate needs.
Producers and deaers w be responsbe for devery of the product drect
to ther customers and must satsfy themseves that the purchaser s engaged
n a awfu busness and that the quantty purchased s ntended for egtmate
purposes.
Contaners of ethy acetate and acquer thnners, rrespectve of sze, must
have marked thereon the name of the product, the quantty, and the name and
address of the producer, or, n eu thereof, the name and address of the deaer
and the permt number and State of the producer.
Producers of ethy acetate sha contnue to fe day reports of shpments
of ethy acetate.
Gut T. everng,
Commssoner of Interna Revenue.
pproved une 24, 1937.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 26, 1937, 1.06 p. m.)
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Reguatons 3( coho), rtce 146: Genera I-27-8803
provsons governng the use of specay de- T. D. 4743
natured acoho.
Modfyng Treasury Decson 4541 as amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstnct Supervsors, Chemsts n Charge, uthorzed Chemsts,
and Others Concerned:
Treasury Decson 4541, approved pr 17, 1935 C. . I -1,
525 (1935) , as amended by Treasury Decson 4555, approved May
24, 1935 C. . I -1, 528 (1935) , s hereby modfed to read as
foows:
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 formua No. 23-G must be compounded on and
after September 1, 1937, as foows:
To every 100 gaons of ethy acoho add
3.5 gaons of methy propy ketone.
0.5 gaon of methy sobuty ketone.
SP CI IC TIONS O M T YL P OPYL TON .
Purty. Conssts of at east 97 per cent of ketones.
Specfc gravty 20/20 C 0.807 to 0.811.
Coor. Water-whte.
Water. Mscbe wthout turbdty wth 19 voumes of 60 e. gasone at
20 C.
cdty (free acd a acetc acd). Less than 0.003 per cent
Dstaton range (accordng to . S. T. M. Specfcatons D268S3). More
than 90 per cent dsts over between 100 and 103 C.
Nonvoate matter. Less than .005 per cent.
SP CI IC TIONS OR M T YL ISO UTYL TON .
Specfc gravty 20/20 C 0.799 to 0.804.
Coor. Water-whte.
cdty. Not more than 0.02 per cent as acetc acd.
ong range (TOO mm.). None shoud come over beow 111 C. or none
above 117 C. when dsted by the . S. T. M. method D-268-33.
On and after September 1, 1937, a rubbng acoho compounds or prepa-
ratons comng under the genera cassfcatons of rubbng acohos must be
manufactured wth specay denatured acoho formua No. 23-G as revsed
heren, and they must contan 70 per cent absoute ethy acoho by voume,
or as near 70 per cent as s practcabe to be obtaned by the ordnary com-
merca methods used for compoundng acoho preparatons. In order that
the fnshed products sha contan 70 per cent absoute ethy acoho by
voume, the manufacturer shoud use 98.1 fud ounces of specay denatured
acoho formua No. 23-G to whch must be added ounce of sucrose octa
acetate, and then made up to 1 gaon wth water.
ST ND RD ORMUL O RU ING LCO OL COMPOUNDS.
Specay denatured acoho formua No. 23-G fud ounces 9S. 1
Sucrose octa acetate avordupos ounce
Water q. s gaon 1
The manufacturer of rubbng acoho compounds may aso add to the standard
formua such other odorous consttuents or medcaments as s desred, provded
they are shown n the formua submtted for approva and that the fnshed
product contans 70 per cent absoute acoho by voume.
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586
The supervsor w notfy a permttees n hs dstrct manufacturng
rubbng acoho compounds to submt revsed formuae and abes for ther
rubbng acoho compounds to hm on orm 1479- , n quadrupcate, compyng
wth the requrements set forth heren. The supervsor w e amne the
formuae and abes submtted by the permttee, and f they compy wth the
provsons of ths Treasury decson, he w note hs approva on each copy
of orm 1479- . fter approva, one copy w be returned to the permttee,
one copy furnshed the chemst n charge, one copy retaned n the supervsor s
offce, and the remanng copy forwarded to the Commssoner. If the formuae
or abes are dsapproved, a copes of orm 1479- w be returned to the
permttee wth a statement of the reason for the dsapprova.
ffectve uy 1, 1935, the second paragraph of artce 146 of
Reguatons No. 3 s hereby amended to read as foows:
ny product manufactured wth specay denatured acoho formua No. 23-G
under permt ssued pursuant to these reguatons and abeed and sod as a
rubbng acoho compound must be put up and sod by the manufacturer thereof
n contaners or packages n whch t s to be devered to the utmate con-
sumer. Such contaners or packages sha not e ceed 1 pnt n capacty, and
must be abeed to show name and address of the manufacturer. Where rubbng
acoho compounds are manufactured and botted under the name of a deaer
for resae to the egtmate trade, the manufacturer must pace hs name and
address or hs permt number on the abes of the contaners n type of suffcent
sze to be ceary egbe. No mseadng statement w be permtted on abes
whch woud gve the Impresson that the product s pure acoho, and a product
whch s not marketed under a trade name must be abeed Rubbng coho
Compound, n type of the same sze and coor. cauton notce must aso be
paced on each abe to the effect that the preparaton s for e terna use ony
nnd s medcated so that f taken nternay serous gastrc dsturbance w
resut. Labes or facsmes thereof must be submtted for approva before use.
The saes of ths product must be confned to persons egtmatey engaged n a
bona fde drug trade, or to hosptas, santarums, turksh baths or other estab-
shments or stores where such compounds have customary been sod, or used
for massage or other e terna purposes. aure to compy wth these requre-
ments and to confne saes to such persons, or the makng of saes to such
persons n quanttes n e cess of ther reasonabe requrements w consttute
bad fath on the part of the permttee and grounds for the revocaton of hs
permt
Gut T. eyerng,
Commssoner of Interna Revenue.
pproved une 24, 1937.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster une 25, 1937, 3.24 p. m.)
Reguatons 3 ( coho), rtce 146: Genera L46-9046
provsons governng use of specay dena- T. D. 4775
tured acoho.
Sae and shpment of propretary sovents.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Paragraph (6), of secton 2, Tte I, of the Lquor Law Repea
and nforcement ct, reads as foows:
(6) The term reguaton sha mean any reguaton prescrbed by the
Commssoner wth the approva of the Secretary of the Treasury for carryng
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587
Msc.
out the provsons of ths tte or of Tte III of the Natona Prohbton ct,
and the Commssoner s authorzed to make such reguatons.
Pursuant to the authorty conferred by the statute above quoted,
the fourth, ffth, and s th paragraphs of artce 146 of Reguatons
No. 3, as amended by Treasury Decson 16, dated ugust 2, 1933,
Treasury Decson 4524, dated ebruary 16, 1935 C. . I -1, 479
(1935) , and Treasury Decson 4577, dated ugust 8, 1935 C. .
I -2, 524 (1935) , are further amended to read as foows:
Propretary sovents produced from specay denatured acoho, ormua
No. 1, may be 6od by producers to users for sovent or other manufacturng
purposes ony, or to deaers or other producers for resae. Packages of such
propretary sovents contanng more than 5 wne gaons sha be of meta
ony, and sha have embossed thereon the sera numbers and permt number
or symbo of the producer by or for whom the packages are fed, such as are
prescrbed by artce 111, as amended by Treasury Decson No. 0, wth respect
to competey denatured acoho. Such packages sha aso bear the name and
address of the producer by or for whom the packages are fed. efore pack-
ages are fed by one producer for another producer, permsson must frst be
obtaned therefor from the Commssoner.
Upon wrtten authorzaton of the Commssoner, shpments of propretary
sovents may be made by producers n raroad tank cars, or n tank wagons
or tank trucks operated or controed by them, or by ther bona fde agents to
themseves at other ocatons, and to ther bona fde agents where tte remans
vested n the producer and producers and ther bona fde agents may make
shpments of such sovents by such means to (1) other producers of propretary
sovent and (2) actua users for sovent or manufacturng purposes, and not
for resae provded that, n the case of shpments to whoy owned subsdares
of the producer tte may be transferred to such agents and, provded further
that, n the case of raroad tank car shpments the vendee has raroad sdng
factes on hs premses for recevng such tank car shpments and, provded
further, n the case of tank wagon or tank truck shpments the producer sha
be responsbe under hs bond for the devery of the propretary sovents to
actua users for sovent or manufacturng purposes.
When propretary sovents are sod by the producer to another producer,
compete records of these transactons must be mantaned by the actua pro-
ducer and the vendee producer. Users of propretary sovents who receve such
sovents n raroad tank cars, tank wagons, or tank trucks, must mantan
compete records of the recept and actua use thereof. The records heren pre-
scrbed must be kept avaabe for nspecton by nterna revenue offcers.
Guy T. b verno,
Commssoner of Interna Revenue.
pproved November 9, 1937.
ROSW LL MaGILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 11, 1937, 3.50 p. m.)
Reguatons 3, rtce 146- . I-30-8842
T. D. 4750
Saes of denatured acoho, denatured rum and artces.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Pursuant to the authorty contaned n secton 13 of Tte III of
the Natona Prohbton ct (U. S. C, 1934 ed., Tte 27, secton 83)
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588
and sectons 2(6) and 4 of Tte I of the Lquor Law Repea and
nforcement ct (U. S. C, 1934 ed., Sup. II, Tte 27, sectons 151 (6)
and 153, respectvey) Reguatons No. 3 s amended by addng
thereto, mmedatey precedng artce 147 thereof, a new artce to
be known as rtce 146- , readng as foows:
rt. 146- . No person sha se denatured acoho, denatured rum, or any
substance or preparaton n the manufacture of whch denatured acoho or
denatured rum s used, under crcumstances from whch he mght reasonaby
deduce that t s the ntenton of the purchaser to procure the same for use for
beverage purposes.
Gut T. everng,
Commssoner of Interna Revenue.
pproved uy 16, 1937.
Stephen . Gbbons,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 20, 1937, 10.4S a. m.)
I-51-9108
T. D. 4783
Pats and pans of ndustra acoho pants, bonded warehouses
and denaturng pants dsteres other than frut dstery
denaturng bonded warehouses frut dsteres nterna revenue
bonded warehouses rectfyng pants and breweres.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Pursuant to authorty conferred by secton 3263 Revsed Statutes
(U. S. C, 1934 ed., Tte 26, secton 1167): secton 13, Tte III of
the Natona Prohbton ct (U. S. C, 1934 ed., Tte 27, secton
83) secton 1309 of the ct of ebruary 24, 1919 (U. S. C, 1934 ed.,
Tte 26, secton 1350) and secton 405 of the ct of une 26, 1936
(U. S. C, 1934 ed., Supp. II, Tte 26, secton 1265), the foowng
reguatons are prescrbed:
SIZ ND M T RI LS.
Paragraph 1. Pats and pans of the premses of ndustra acoho
pants, bonded warehouses and denaturng pants: dsteres other
than frut dstery denaturng bonded warehouses frut dster-
es nterna revenue bonded warehouses rectfyng pants and brew-
eres, hereafter fed, sha be n trpcate, on sheets of tracng coth
or senstzed nen, 15 by 20 nches outsde measurement, wth a cear
margn of at east 1 nch on each sde of the drawng, etterng, and
wrtng. Pats and pans may e orgna drawngs or reproductons
made by the dtto process, or bue ne thoprnt, or brown ne tho-
prnt, f cear and dstnct.
descrpton of premses on pat.
Par. 2. Pats must show the outer boundares of the premses by
courses and dstances n feet and nches, and the pont of begnnng
wth respect to ts dstance and bearngs, from some near and we
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known and mark, and contan an accurate descrpton of the budng
or budngs comprsng the premses: Provded, That pats of rect-
fyng pants need show ony the dstances n feet and nches. If two
or more budngs are to be used, they must be shown n ther reatve
postons and the desgnaton by name of each such budng must be
shown. Where two or more budngs are used for the same purpose,
each budng w be desgnated consecutvey by etter, begnnng
wth | and sha be so shown on the pat. The surroundng bud-
ngs, drveways, streets, and raroad sdngs, and the purposes for
whch such budngs are used, w be ndcated on the pat.
frst foor openngs of each budng w be shown on the pat.
PROC SS LOW S T.
Par. 3. Propretors of ndustra acoho pants, dsteres other
than frut, and frut dsteres must fe a dagrammatc or somet-
rc process fow sheet showng the recept of fermentng or dstng
matera on the premses, and the fow thereof through the mash tubs,
fermenters, beer wes, sts, doubers, try bo es, hgh and ow wne
tanks, recevng csterns, etc., and depost of the fnshed sprts n
the warehouse.
RTIC L, S CTION L. L TION L, ND LOOR PL NS.
Par. 4. ertca, sectona, or eevatona pans, as we as foor
pans of apparatus and equpment, must be fed. ertca, sectona,
or eevatona pans of the dstng apparatus must be so drawn
that a f ed ppe nes may be traced from begnnng to end. Rect-
fers w not be requred to fe eevatona pans of apparatus
and equpment wth the e cepton of sts, bottng tanks, and
storage tanks. The provsons of ths paragraph sha not appy to
breweres.
LOC TION of vaves, L NG S, TC.
Par. 5. vaves and connectons n ppe nes must be propery
ndcated on the pans. The ocaton of a Government ocks used to
secure the apparatus or equpment, or on doors, must be ndcated on
the pans at the ponts where the ocks are attached, by the symbos
G.L. If fanges, unons, or other connectons n ppe nes are
brazed, weded, or otherwse permanenty secured n such a manner
as to consttute a contnuous snge ppe ne, the ocaton of such
fanges, unons, etc., whch are weded or brazed, and the manner of
securng same, need not be ndcated on the pans.
SU ICI NT S TS R UIR D.
Par. 6. Suffcent sheets of pans w n every case be prepared so
that the ureau w be abe to ascertan accuratey whether the
estabshment s constructed n conformty wth the requrements of
the aw and reguatons.
COLORS PR SCRI D OR PIP LIN S.
Par. 7. The foowng coors are prescrbed for the pantng of
ppe nes n ndustra acoho pants, bonded warehouses, and de-
naturng pants dsteres other than frut dstery denaturng
bonded warehouses frut dsteres and nterna revenue bonded
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590
warehouses ocated on dstery premses, and must be so panted and
sha be shown on the pans by ther respectve desgnated coors:
ack. randy, whsky, gn, rum, acoho, or other fnshed sprts.
ue. apor, sngngs, hgh wnes and ow wnes, or other un-
fnshed sprts.
Red. Mash, beer, or other dstng matera.
Grey. Moasses, or other fermentng matera.
rown. Spent beer or sop.
Dark green. Denatured acoho and denatured rum.
Lght green. Denaturants.
Yeow. use o.
Whte. Water.
umnum. Steam.
Orange. r.
These coors are ntended for such ppe nes ony, and are for the
purpose of dstngushng such ppe nes from each other and from
other nes for whch coors are not prescrbed. The pantng of
other ppe nes n one of the prescrbed coors, or coors smar
thereto, s prohbted.
PIP LIN S MPT D.
Par. 8. Cty or pubc utty servce nes, such as sewers, eectrc
or gas conduts or ppes, need not be shown on the pans. Sprnk-
er, refrgeraton, or heatng systems whch have no connecton wt
the dstng equpment or any apparatus or ppe ne connected
therewth, need not be shown on the pans, provded that where such
apparatus orgnates outsde of the bonded premses the pont of
entry to the bonded premses sha be ndcated on the pans.
C RTI IC T O CCUR CY.
Par. 9. very pat and pan sha be drawn by a competent drafts-
man. ach sheet of every pat and pan, both orgna, suppementa
or supersedng, sha bear a certfcate of accuracy, dated and sgned
by the draftsman, propretor, and dstrct supervsor. The certf-
cate sha be paced n the ower rght corner of each sheet and sha
be n the foowng form:
Dstrct, , 19_
It Is hereby certfed that ths Is an accurate ( Orgna ), ( Suppementa ),
(Omt words not appcabe)
or ( Supersedng ) ( Pat ) or ( Pan ) of the
(State whether Interna revenue bonded
Regstry No. Premses of
warehouse, dstery, etc.) (Name of propretor.)
n ths dstrct.
(Street and number.) (Cty and State.)
(Draftsman.)
(Propretor.)
Date of dstrct supervsor s approva.
19_
(Date.)
(Dstrct Supervsor.)
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591 Msc.
DDITION L IN ORM TION M Y R UIR D.
Par. 10. Pats and pans w show such other nformaton as may
be specfcay requred by the Commssoner of Interna Revenue
for the purpose of determnng conformty wth the constructon
requrements of the aw and reguatons.
reguatons revoked.
Par. 11. The provsons of Reguatons 3, 7, 8, 15, 18, 30, and
Treasury Decson 4651 C. . -2, 443 (1936) , and a amend-
ments and modfcatons thereof, whch are nconsstent wth these
reguatons are hereby revoked.
Gut T. everng,
Commssoner of Interna Revenue.
pproved December 11, 1937.
ROSW LL MaGILL,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster December 15, 1937, 10.26 a. m.)
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592
S CTION 3 O T INSON CT (48 ST T, 503), S
M ND D Y CT O UN 25, 1936 (49 ST T, 1926).
I-37-8922
I. T. 3114
contract for reproductons of pans and drawngs n e cess
of 10,000 receved by the M Company from another company n
connecton wth a contract of the atter whch s sub|ect to secton
3 of the nson ct s not a subcontract whch s sub|ect to that
secton of the ct as orgnay enacted or as amended.
dvce s requested whether the contract for reproducton of pans
and drawngs m e cess of 10,000 receved by the M Company from
another company n connecton wth a contract of the atter whch
s sub|ect to secton 3 of the nson ct s a subcontract whch s
sub|ect to that secton of the ct.
Secton 3 of the ( nson) ct of March 27, 1934 (48 Stat, 503)
provdes n part:
That no contract sha be made by the Secretary of the Navy
for the constructon and/or manufacture of any compete nava vesse or
arcraft, or any porton thereof, heren, heretofore, or hereafter authorzed
uness the contractor agrees

(c) To make no subdvsons of any contract or subcontract for the same
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.
though the ct referred to above was amended by the ct of
une 25, 1936 (49 Stat., 1926), the above-quoted provsons were
not changed.
rtce 1(e) of the reguatons prescrbed n Treasury Decson
4723 (C. . 1937-1, 519), under secton 3 of the ct as orgnay
enacted and as amended, provdes that the term 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.
Reference s made to the foowng hodng n I. T. 2930 (C. .
I -2, 533 (1935)) :
Generay speakng, secton 3 of the nson ct s appcabe to any con-
tract or subcontract whch s over 10,000 n amount and for the constructon
and/or manufacture of any compete nava vesse or arcraft, or any porton
thereof, ncudng tems, such as fabrcatng materas, whch become a
component part of an artce or artces constructed and/or manufactured
under the ct.
The above hodng was not revoked or modfed by Treasury
Decson 4723 supra, and consstent therewth, the contract reatve
to whch nqury s made s not a subcontract whch s sub|ect to the
provsons of secton 3 of the ct, as orgnay enacted or as
amended.
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I-39-8948
I. T. 3120
Genera requrements as to accountng systems or books of
account and records for purposes of secton 3 of the nson ct,
as amended.
owabty of e permenta and deveopment e penses as cost
of performng contract or subcontract for the purposes of secton
3 of the nson ct, as amended.
dvce s requested (1) whether the provsons of artce 8 of
Treasury Decson 4723 (C. . 1937-1, 519), as amended by
Treasury Decson 4741 (C. . 1937-1, 531), reatng to cost
of performng a contract or subcontract whch s sub|ect to the
provsons of secton 3 of the ct of March 27, 1934 ( nson ct,
48 Stat., 503), as amended by the ct of une 25, 1936 (49 Stat.,
1926), are ustratve ony and are not ntended to requre that the
contractor keep a separate system of accountng or modfy hs pres-
ent system to conform strcty to these provsons so ong as hs
accounts are mantaned n such deta as to permt the determnaton
of far and equtabe charges aganst appcabe Navy contracts or
subcontracts and (2) whether the |ont statement of the Treasury
and Navy Departments, pages 1508-1509 of the hearngs before the
ouse Nava ffars Commttee wth respect to the amendment of
the nson ct, outnng e permenta and deveopment e penses,
meets wth the approva of the ureau.
Snce artce 8 of Treasury Decson 4723, as amended by Treas-
ury Decson 4741, defnes n genera the eements of cost for pur-
poses of secton 3 of the ct, as amended, the provsons of that
artce must be consdered as beng more than an outne for purposes
of ustraton. owever, a Navy contractor or subcontractor s not
requred to keep a separate system of detaed accounts for contracts
or subcontracts, or modfy hs present system of accountng, f, as
provded n artce 13 of Treasury Decson 4723, the method of
accountng empoyed s such as ceary refects, n the fna determna-
ton upon the books of account, the actua proft derved from the
performance of the contracts or subcontracts.
The |ont statement of the Treasury and Navy Departments re-
ferred to above reads as foows:
permenta e pense s recognzed n prncpe as an tem of cost, sub|ect,
however, to ratabe aocaton whch s deemed reasonabe n consderaton of
the pertnent facts.
To ustrate, t s consdered that where n accordance wth the ndustry s
accountng system, engneerng and deveopment e pense s wrtten off cur-
renty, that a reasonabe porton as prorated to a Navy contract w be accepted
as costs. In pubshed decsons, t has been stated that a proper porton of
uch e pense w be aowed as a part of the cost of performng the contract,
such proper cost to be determned n ght of the facts n each partcuar case.
Where a speca e permenta pro|ect s carred on n connecton wth a Navy
contract or n antcpaton of a Navy contract and the e pense s not prorated
wth other genera e permenta e pense but reserved for charge to the par-
tcuar Navy contract concerned, there ceary appearng no reasonabe prospect
of addtona contracts for ths type of equpment, the entre cost of ths e per-
menta work w be aowed.
The above-quoted statement correcty refects the vew of the
ureau. (I. T. 2813, C. . III-2, 579 (1934), ssue 1, and I. T.
2821, C. . III-2, 580 (1934), ssue 6.)
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594
L GISL TION.
R NU CT O 1937.
I-37-8921
. R. 8234. PU LIC, NO. 377, S NTY- I T CONGR SS. C PT R
815, IRST S SSION.
n ct To provde revenue, equaze ta aton, prevent ta eva-
son and avodance, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That ths ct may
be cted as the Revenue ct of 1937.
tte persona hodng companes.
Sec. 1. mendment of 1936 ct.
Tte. I of the Revenue ct of 1936 s amended to read as foows:
tte a addtona ncome ta es.
Sec. 351. Surta on Persona odng Companes.
There sha be eved, coected, and pad, for each ta abe year (n addton
to the ta es mposed by Tte I), upon the undstrbuted ad|usted net ncome
of every persona hodng company a surta equa to the sum of the foowng:
(1) (15 per centum of the amount thereof not n e cess of 2,000 pus
(2) 75 per centum of the amount thereof n e cess of 2,000.
Sec. 352. Defnton of Persona odng Company.
(a) Genera Rue. or the purposes of ths tte and of Tte I the term
persona hodng company means any corporaton f
(1) Gross ncome requrement. t east 80 per centum of ts gross
ncome for the ta abe year s persona hodng company ncome as defned
n secton 353 but f the corporaton s a persona hodng company wth
respect to any ta abe year, then, for each subsequent ta abe year, the
mnmum percentage sha be 70 per centum n eu of 80 per centum,
unt a ta abe year durng the whoe of the ast haf of whch the stock
ownershp requred by paragraph (2) does not e st, or unt the e pra-
ton of three consecutve ta abe years n each of whch ess than 70
per centum of the gross ncome s persona hodng company ncome and
(2) Stock ownershp requrement. t any tme durng the ast haf
of the ta abe year more than 50 per centum n vaue of ts outstandng
stock s owned, drecty or ndrecty, by or for not more than fve
ndvduas.
(b) ceptons. The term persona hodng company does not ncude
a corporaton e empt from ta aton under secton 101, a bank as defned n
secton 104, a fe nsurance company, a surety company, or, e cept wth
respect to a ta abe year endng on or before the date of the enactment of
the Revenue ct of 1937, a foregn persona hodng company as defned n
secton 331.
Sec 353. Persona odno Company Income.
or the purposes of ths tte the term persona hodng company Income
means the porton of the gross ncome whch conssts of:
(a) Dvdends, nterest, royates (other than mnera, o, or gas royates),
annutes.
(b) Stock and Securtes Transactons. cept n the case of reguar
deaers n stock or securtes, gans from the sae or e change of stock or
securtes.
(c) Commodtes Transactons. Gans from futures transactons n any
commodty on or sub|ect to the rues of a board of trade or commodty e -
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change. Ths subsecton sha not appy to gans by a producer, processor,
merchant, or hander of the commodty whch arse out of bona tde hedgng
transactons reasonaby necessary to the conduct of ts busness n the manner
In whch such busness s customary and usuay conducted by others.
(d) states and Trusts. mounts ncudbe n computng the net ncome
of the corporaton under Suppement of Tte I and gans from the sae
or other dsposton of any nterest n an estate or trust.
(e) Persona Servce Contracts. (1) mounts receved under a contract
under whch the corporaton s to furnsh persona servces f some person
other than the corporaton has the rght to desgnate (by name or by
descrpton) the ndvdua who s to perform the servces, or f the ndvdua
who s to perform the servces s desgnated (by name or by descrpton) n
the contract and (2) amounts receved from the sae or other dsposton of
such a contract Ths subsecton sha appy wth respect to amounts receved
for servces under a partcuar contract ony f at some tme durng the ta abe
year 25 per centum or more n vaue of the outstandng stock of the corpora-
ton s owned, drecty or ndrecty, by or for the Indvdua who has per-
formed, s to perforn, or may be desgnated (by name or by descrpton) as
the one to perform, such servces.
(f) Use of Corporaton Property by Sharehoder. mounts receved as
compensaton (however desgnated and from whomsoever receved) for the
use of, or rght to use, property of the corporaton n any case where, at any
tme durng the ta abe year, 25 per centum or more n vaue of the outstandng
stock of the corporaton s owned, drecty or ndrecty, by or for an ndvdua
entted to the use of the property whether such rght s obtaned drecty
from the corporaton or by means of a subease or other arrangement
(g) ents. Rents, uness consttutng 50 per centum or more of the gross
ncome. or the purposes of ths subsecton the term rents means com-
pensaton, however desgnated, for the use of, or rght to use, property but
does not ncude amounts consttutng persona hodng company ncome under
subsecton (f).
(h) Mnera, O, or Gas Royates. Mnera, o, or gas royates, uness
(1) consttutng 50 per centum or more of the gross ncome, and (2) the
deductons aowabe under secton 23(a) (reatng to e penses) other than
compensaton for persona servces rendered by sharehoders, consttute 15
per centum or more of the gross ncome.
Sec. 354. Stock Ownershp.
(a) Constructve Ownershp. or the purpose of determnng whether a
corporaton s a persona hodng company, nsofar as such determnaton s
based on stock ownershp under secton 352(a)(2), secton 353(e), or secton
353(f)
(1) Stock not owned by ndvdua. Stock owned, drecty or nd-
recty, by or for a corporaton, partnershp, estate, or trust sha be con-
sdered as beng owned proportonatey by ts sharehoders, partners, or
benefcares.
(2) amy and partnershp ownershp. n ndvdua sha be con-
sdered as ownng the stock owned, drecty or ndrecty, by or for hs
famy or by or for hs partner. or the purposes of ths paragraph the
famy of an ndvdua ncudes ony hs brothers and ssters (whether
by the whoe or haf bood), spouse, ancestors, and nea descendants.
(3) Optons. If any person has an opton to acqure stock such stock
sha be consdered as owned by such person. or the purposes of ths
paragraph an opton to acqure such an opton, and each one of a seres of
such optons, sha be consdered as an opton to acqure such stock.
(4) ppcaton of famy-partnershp and opton rues. Paragraphs
(2) and (3) sha be apped
( ) or the purposes of the stock ownershp requrement provded
n secton 352(a) (2), f, but ony f, the effect s to make the corpora-
ton a persona hodng company
( ) or the purposes of secton 353(e) (reatng to persona servce
contracts), or of secton 353(f) (reatng to the use of property by
sharehoders), f, but ony f, the effect s to make the amounts theren
referred to ncudbe under such subsecton as persona hodng
company ncome.
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596
(5) Constructve ownershp as actua ownershp. Stock construc-
tvey owned by a person by reason of the appcaton of paragraph (1)
or (3) sha, for the purpose of appyng paragraph (1) or (2), be treated
as actuay owned by such person but stock constructvey owned by an
ndvdua by reason of the appcaton of paragraph (2) sha not be
treated as owned by hm for the purpose of agan appyng such paragraph
n order to make another the constructve owner of such stock.
(6) Opton rue n eu of famy and partnershp rue. If stock may
be consdered as owned by an ndvdua under ether paragraph (2) or (3)
t sha be consdered as owned by hm under paragraph (3).
(b) Convertbe Securtes. Outstandng securtes convertbe nto stock
(whether or not convertbe durng the ta abe year) sha be consdered as
outstandng stock
(1) or the purpose of the stock ownershp requrement provded n
secton 352(a) (2), but ony f the effect of the ncuson of a such secur-
tes s to make the corporaton a persona hodng company
(2) or the purpose of secton 353(e) (reatng to persona servce con-
tracts), but ony f the effect of the ncuson of a such securtes s to
make the amounts theren referred to ncudbe under such subsecton as
persona hodng company ncome and
(3) or the purpose of secton 353(f) (reatng to the use of property
by sharehoders), but ony f the effect of the ncuson of a such secur-
tes s to make the amounts theren referred to ncudbe under such
subsecton as persona hodng company ncome.
The requrement n paragraphs (1), (2), and (3) that a convertbe securtes
must be ncuded f any are to be ncuded sha be sub|ect to the e cepton that,
where some of the outstandng securtes are convertbe ony after a ater date
than n the case of others, the cass havng the earer converson date may be
ncuded athough the others are not ncuded, but no convertbe securtes
sha be ncuded uness a outstandng securtes havng a pror converson
date are aso ncuded.
Sec. 355. Undstrbuted d|usted Net Income.
or the purposes of ths tte the term undstrbuted ad|usted net ncome
means the ad|usted net ncome (as defned n secton 35(5) mnus
(a) The amount of the dvdends pad credt provded n secton 27, com-
puted wthout the beneft of subsecton (b) thereof (reatng to the dvdend
carry-over) and
(b) mounts used or rrevocaby set asde to pay or to retre ndebtedness of
any knd ncurred pror to anuary 1, 1934, f such amounts are reasonabe
wth reference to the sze and terms of such ndebtedness.
Sec 356. d|usted Net Income.
or the purposes of ths tte the term ad|usted net ncome means the
net ncome wth the foowng ad|ustments:
(a) ddtona Deductons. There sha he aowed as deductons
(1) edera ncome, war-profts, and e cess-profts ta es pad or accrued
durng the ta abe year to the e tent not aowed as a deducton under
secton 23 but not ncudng the ta mposed by secton 102, secton 351
(ether before or after ts amendment by the Revenue ct of 1937), or a
secton of a pror ncome-ta aw correspondng to ether of such sectons.
(2) In eu of the deducton aowed by secton 23(q), contrbutons or
gfts made wthn the ta abe year to or for the use of donees descrbed n
secton 23(q) for the purposes theren specfed, to an amount whch does
not e ceed 15 per centum of the ta payer s net ncome, computed wthout
the beneft of ths paragraph and secton 23(q), and wthout the deducton
of the amount dsaowed under subsecton (b) of ths secton.
(3) In the case of a corporaton organzed pror to anuary 1, 1936, to
take over the assets and abtes of the estate of a decedent, amounts
pad n qudaton of any abty of the corporaton based on the abty
of the decedent to make contrbutons or gfts to or for the use of donees
descrbed n secton 23(o) for the purposes theren specfed, to the e tent
such abty of the decedent e sted pror to anuary 1, 1934. No deduc-
ton sha be aowed under paragraph (2) of ths subsecton for a ta abe
year for whch a deducton s aowed under ths paragraph.
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597
Msc.
(b) Deductons Not owed. The aggregate of the deductons aowed
under secton 23(a), reatng to e penses, and secton 23(1), reatng to depre-
caton, whch are aocabe to the operaton and mantenance of property
owned or operated by the corporaton, sha be aowed ony n an amount equa
to the rent or other compensaton receved for the use or rght, to use the
property, uness t s estabshed (under reguatons prescrbed by the Com-
mssoner wth the approva of the Secretary) to the satsfacton of the
Commssoner:
(1) That the rent or other compensaton receved was the hghest ob-
tanabe, or, f none was receved, that none was obtanabe
(2) That the property was hed n the course of a busness carred
on bona fde for proft and
(3) ther that there was reasonabe e pectaton that the operaton
of the property woud resut n a proft, or that the property was neces-
sary to the conduct of the busness.
Sec. 337. Meanng of Terms Uskd.
The terms used n ths tte sha have the same meanng as when used
n Tte I.
Sec. 358. dmnstratve Provsons.
provsons of aw (ncudng penates) appcabe n respect of the
ta es mposed by Tte I of ths ct, sha nsofar as not nconsstent wth
ths tte, be appcabe n respect of the ta mposed by ths tte, e cept
that the provsons of secton 131 of that tte sha not be appcabe.
Sec. 359. Improper ccumuaton of Surpus.
or surta on corporatons whch accumuate surpus to avod surta on
stockhoders, see secton 102.
Sec. 300. oregn Persona odng Companes.
or provsons reatng to foregn persona hodng companes and ther
sharehoders, see Suppement P of Tte I.
Sec. 2. Changes n Cross-References.
Secton 12(c), secton 14(f), and secton 102(e) of the Revenue
ct of 1936 are amended by strkng out secton 351 and nsertng
n eu thereof Tte I .
Sec. 3. ffectve Dates.
The amendment made by secton 1 sha appy ony wth respect
to ta abe years begnnng after December 31, 1936 and Tte I
of the Revenue ct of 1936, as t e sted pror to such amendment,
sha not appy to a foregn persona hodng company (as defned
n secton 331 of the Revenue ct of 1936, added to such ct by
secton 201 of ths ct) wth respect to any ta abe year endng after
the date of the enactment of ths ct.
tte foregn persona hodng companes.
Sec. 201. Incuson n Income of Unted States Sharehoders
of Income of oregn Persona odng Companes.
The Revenue ct of 1936 s amended by addng after Suppement
O of Tte I a new Suppement to read as foows:
suppement p foregn persona hodng companes.
Sec. 331. Defnton of oregn Persona odng Company.
(a) Genera Rue. or the purposes of ths tte and of Tte I the
term foregn persona hodng company means any foregn corporaton f
(1) Gross ncome requrement. t east 60 per centum of Its gross
ncome (as defned n secton 334(a)) for the ta abe year s foregn
persona hodng company ncome as defned n secton 332 but f the
corporaton s a foregn persona hodng company wth respect to any
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598
ta abe year, then, (or each subsequent ta abe year, the mnmum
percentage sha be 50 per centum In eu of 60 per centum, unt a ta abe
year durng the whoe of whch the stock ownershp requred by para-
graph (2) does not e st, or unt the e praton of three consecutve
ta abe years n each of whch ess than 50 per centum of the gross
ncome s foregn persona hodng company ncome. or the purposes
of ths paragraph there sha be ncuded n the gross ncome the amount
ncudbe theren as a dvdend by reason of the appcaton of secton
334(c)(2) and
(2) Stock ownershp requrement. t any tme durng the ta abe
year more than 50 per centum n vaue of ts outstandng stock s owned,
drecty or ndrecty, by or for not more than fve ndvduas who are
ctzens or resdents of the Unted States, herenafter caed Unted
States group.
(b) ceptons. The term foregn persona hodng company does not
ncude a corporaton e empt from ta aton under secton 101.
Sec. 332. oregn Persona odng Company Income.
or the purposes of ths tte the term foregn persona hodng company
ncome means the porton, of the gross ncome determned for the purposes
of secton 331(a)(1), whch conssts of:
(a) Dvdends, nterest, royates, annutes.
(b) Stock and Securtes Transactons. cept n the case of reguar
deaers n stock or securtes, gans from the sae or e change of stock or
securtes.
(c) Commodtes Transactons. Gans from futures transactons n any
commodty on or sub|ect to the rues of a board of trade or commodty e -
change. Ths subsecton sha not appy to gans by a producer, processor,
merchant, or hander of the commodty whch arse out of bona fde hedgng
transactons reasonaby necessary to the conduct of ts busness n the manner
n whch such busness s customary and usuay conducted by others.
(d) states and Trusts. mounts ncudbe n computng the net ncome
of the corporaton under Suppement and gans from the sae or other
dsposton of any nterest n an estate or trust.
(e) Persona Servce Contracts. (1) mounts receved under a contract
under whch the corporaton s to furnsh persona servces f some person
other than the corporaton has the rght to desgnate (by name or by descrp-
ton) the ndvdua who s to perform the servces, or f the ndvdua who
s to perform the servces s desgnated (by name or by descrpton) n the
contract and (2) amounts receved from the sae or other dsposton of snch
a contract. Ths subsecton sha appy wth respect to amounts receved for
servces under a partcuar contract ony f at some tme durng the ta abe
year 25 per centum or more n vaue of the outstandng stock of the corpora-
ton s owned, drecty or ndrecty, by or for an ndvdua who has per-
formed, s to perform, or may be desgnated (by name or by descrpton) as
the one to perform, such servces.
(f) Use of Corporaton Property by Sharehoders. mounts receved as
compensaton (however desgnated and from whomsoever receved) for the
use of, or rght to use, property of the corporaton n any case where, at any
tme durng the ta abe year, 25 per centum or more n vaue of the outstand-
ng stock of the corporaton s owned, drecty or ndrecty, by or for the nd-
vdua entted to the use of the property whether such rght s obtaned
drecty from the corporaton or by means of a subease or other arrangement.
(g) Rents. Rents, uness consttutng 50 per centum or more of the gross
ncome. or the purposes of ths subsecton the term rents means com-
pensaton, however desgnated, for the use of, or rght to use, property but
does not ncude amounts consttutng foregn persona hodng company n-
come under subsecton (f).
Sec 333. Stock Ownershp.
(a) Constructve Ownershp. or the purpose of determnng whether a
foregn corporaton s a foregn persona hodng company, nsofar as such
determnaton s based on stock ownershp under secton 331(a)(2), secton
332(e), or secton a2(f)
(1) Stock not owned by ndvdua. Stock owned, drecty or ndrecty,
by or for a corporaton, partnershp, estate, or trust sha be consdered as
beng owned proportonatey by ts sharehoders, partners, or benefcares.
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599
Msc.
(2) amy and partnesshp ownershp. n Indvdua sha be con-
sdered as ownng the stock owned, drecty or ndrecty, by or for hs
famy or by or for hs partner. or the purposes of ths paragraph the
famy of an Indvdua ncudes ony hs brothers and ssters (whether
by the whoe or haf bood), spouse, ancestors, and nea descendants.
(3) Optons. If any person has an opton to acqure stock such stock
sha be consdered as owned by such person. or the purposes of ths
paragraph an opton to acqure such an opton, and each one of a seres
of such optons, sha be consdered as an opton to acqure such stock.
(4) ppcaton of famy-partnershp and opton rues. Paragraphs
(2) and (3) sha be apped
( ) or the purposes of the stock ownershp requrement provded
n secton 331(a) (2), f, but ony f, the effect s to make the corpora-
ton a foregn persona hodng company
( ) or the purposes of secton 332(e) (reatng to persona serv-
ce contracts), or of secton 332(f) (reatng to the use of property by
sharehoders), f, but ony f, the effect s to make the amounts
theren referred to ncudbe under such subsecton as foregn per-
sona hodng company ncome.
(5) Constructve ownershp as actua ownershp. Stock construc-
tvey owned by a person by reason of the appcaton of paragraph (1)
or (3) sha, for the purpose of appyng paragraph (1) or (2), be treated
as actuay owned by such person but stock constructvey owned by an
ndvdua by reason of the appcaton of paragraph (2) sha not be
treated as owned by hm for the purpose of agan appyng such paragraph
In order to make another the constructve owner of such stock.
(6) Opton ruf. n eu of famy and partnershp rue. If stock
may be consdered as owned by an ndvdua under ether paragraph (2)
or (3) t sha be consdered as owned by hm under paragraph (3).
(b) Convertbe Secuktes. Outstandng securtes convertbe nto stock
(whether or not convertbe durng the ta abe year) sha be consdered as
outstandng stock
(1) or the purpose of the stock ownershp requrement provded n
secton 331(a) (2), but ony If the effect of the ncuson of a such secur-
tes s to make the corporaton a foregn persona hodng company
(2) or the purpose of secton 332(e) (reatng to persona servce con-
tracts), but ony f the effect of the ncuson of a such securtes s to
make the amounts theren referred to ncudbe under such subsecton as
foregn persona hodng company ncome and
(3) or the purpose of secton 332(f) (reatng to the use of property
by sharehoders), but ony f the effect of the Incuson of a such secur-
tes s to make the amounts theren referred to ncudbe under such sub-
secton as foregn persona hodng company ncome.
The requrement n paragraphs (1), (2), and (3) that a convertbe securtes
must be ncuded f any are to be ncuded sha be sub|ect to the e cepton
that, where some of the outstandng securtes are convertbe ony after a
ater date than n the case of others, the cass hnvng the earer converson
date may be ncuded athough the others are not ncuded, but no convertbe
securtes sha be ncuded uness a outstandng securtes havng a pror
converson date are aso ncuded.
Sec. 334. Gross Income of oregn Persona odno Companes.
(a) Genera Rue. s used n ths Suppement wth respect to a foregn
corporaton the term gross ncome means gross ncome computed (wthout
regard to the provsons of Suppement I) as f the foregn corporaton were a
domestc corporaton.
(b) ddtons to Gross Income. In the case of a foregn persona hodng
company (whether or not a Unted States group, as denned n secton 331(a) (2),
e sted wth respect to such company on the ast day of ts ta abe year) whch
was a sharehoder n another foregn persona hodng company on the day n
the ta abe year of the second company whch was the ast day on whch a
Unted States group e sted wth respect to the second company, there sha be
ncnded, as a dvdend, n the gross ncome of the frst company, for the ta abe
year n whch or wth whch the ta abe year of the second company ends, the
amount the frst company woud have receved as a dvdend f on such ast day
there had been dstrbuted by the second company, and receved by the share-
hoders, an amount whch bears the same rato to the undstrbuted Suppe-
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600
ment P net ncome of the second company for Its ta abe year as te porton of
such ta abe year up to and ncudng such ast day bears to the entre ta abe
year.
(c) ppcaton of Subsecton (b). The rue provded n subsecton (b)
(1) sha be apped n the case of a foregn persona hodng company
for the purpose of determnng ts undstrbuted Suppement P net ncome
whch, or a part of whch, s to be ncuded n the gross ncome of ts share-
hoders, whether Unted States sharehoders or other foregn persona hod-
ng companes
(2) sha be apped n the case of every foregn corporaton wth respect
to whch a Unted States group e sts on some day of ts ta abe year,
for the purpose of determnng whether such corporaton meets the gross
ncome requrements of secton 331(a)(1).
Sec. 335. Undstrbuted Suppement P Net Income.
or the purposes of ths tte the term undstrbuted Suppement P net
ncome means the Suppement P net ncome (as defned n secton 336) mnus
the amount of the dvdends pad credt provded n secton 27, computed wth-
out the beneft of subsecton (b) thereof (reatng to the dvdend carry-over).
Sec. 336. Suppement P Net Income.
or the purposes of ths tte the term Suppement P not ncome means
the net ncome wth the foowng ad|ustments:
(a) ddtona Deductons. There sha be aowed as deductons
(1) edera ncome, war-profts, and e cess-profts ta es pad or accrued
durng the ta abe year to the e tent not aowed as a deducton under
secton 23 but not ncudng the ta mposed by secton 102, secton 351
(ether before or after ts amendment by the Revenue ct of 1937), or
a secton of a pror ncome-ta aw correspondng to ether of such sectons.
(2) In eu of the deducton aowed by secton 23(q), contrbutons or
gfts made wthn the ta abe year to or for the use of donees descrbed n
secton 23(q) for the purposes theren specfed, to an amount whch does
not e ceed 15 per centum of the company s net ncome, computed wthout
the beneft of ths paragraph and secton 23(q), and wthout the deducton
of the amount dsaowed under subsecton (b) of ths secton, and wth-
out the ncuson n gross ncome of the amounts ncudbe theren as
dvdends by reason of the appcaton of the provsons of secton 334(b)
(reatng to the ncuson n the gross ncome of a foregn persona hodng
company of ts dstrbutve share of the undstrbuted Suppement P net
ncome of another foregn persona hodng company n whch t s a share-
hoder).
(b) Deductons Not owed.
(1) Ta es and penson trusts. The deductons provded n secton 23(d),
reatng to ta es of a sharehoder pad by the corporaton, and n secton
23(p), reatng to penson trusts, sha not be aowed.
(2) penses and deprecaton. The aggregate of the deductons aowed
under secton 23(a), reatng to e penses, and secton 23(1), reatng to
deprecaton, whch are aocabe to the operaton and mantenance of prop-
erty owned or operated by the company, sha be aowed ony n an amount
equa to the rent or other compensaton receved for the use or rght to use
the property, uness t s estabshed (under reguatons prescrbed by the
Commssoner wth the approva of the Secretary) to the satsfacton of the
Commssoner:
( ) That the rent or other compensaton receved was the hghest
obtanabe, or, f none was receved, that none was obtanabe
( ) That the property was hed n the course of a busness carred on
bona fde for proft and
(C) ther that there was reasonabe e pectaton that the operaton of
the property woud resut n a proft, or that the property was necessary
to the conduc t of the busness.
Sec. 337. Corporaton Income Ta ed to Unted States Sharehoders.
(a) Genera Rue. The undstrbuted Suppement P net ncome of a foregn
persona hodng company sha be ncuded n the gross ncome of the ctzens or
resdents of the Unted States, domestc corporatons, domestc partnershps, and
estates or trusts (other than estates or trusts the gross ncome of whch under
ths tte ncudes ony ncome from sources wthn the Unted States), who are
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601
Msc.
sharehoders In such foregn persona hodng company (herenafter caed
Unted States sharehoders ) n the manner and to the e tent set forth n ths
Suppement.
(b) mount Incuded n Gboss Income. ach Unted States sharehoder, who
was a sharehoder on the day n the ta abe year of the company whch was the
ast day on whch a Unted States group (as defned n secton 331(a)(2))
e sted wth respect to the company, sha ncude n hs gross ncome, as a dv-
dend, for the ta abe year n whch or wth whch the ta abe year of the com-
pany ends, the amount he woud have receved as a dvdend f on such ast day
there had been dstrbuted by the company, and receved by the sharehoders, an
amount whch bears the same rato to the undstrbuted Suppement P net ncome
of the company for the ta abe year as the porton of such ta abe year up to and
Incudng such ast day bears to the entre ta abe year.
(c) Credt for Obgatons or U. S. and Its Instrumentates. ach Unted
States sharehoder sha be aowed a credt aganst net ncome, for the purpose
of the ta mposed by secton 11, 13, 14, 201, or 204, of hs proportonate share of
the nterest specfed n secton 25(a) (1) or (2) whch s ncuded n the gross
ncome of the company otherwse than by the appcaton of the provsons of
secton 334(b) (reatng to the ncuson n the gross ncome of a foregn persona
hodng company of ts dstrbutve share of the undstrbuted Suppement P net
ncome of another foregn persona hodng company n whch t s a sharehoder).
(d) Informaton n Return. very Unted States sharehoder who s re-
qured under subsecton (b) to ncude n hs gross ncome any amount wth
respect to the undstrbuted Suppement P net ncome of a foregn persona hod-
ng company and who, on the ast day on whch a Unted States group e sted
wth respect to the company, owned 5 per centum or more n vaue of the out-
standng stock of such company, sha set forth n hs return n compete deta
the gross ncome, deductons and credts, net ncome, Suppement P net ncome,
and undstrbuted Suppement P net ncome of such company.
(e) ffect on Capta ccount of oregn Persona odng Compant. n
amount whch bears the same rato to the undstrbuted Suppement P net ncome
of the foregn persona hodng company for ts ta abe year as the porton of such
ta abe year up to and ncudng the ast day on whch a Unted States group
e sted wth respect to the company bears to the entre ta abe year, sha, for
the purpose of determnng the effect of dstrbutons n subsequent ta abe years
by the corporaton, be consdered as a contrbuton to capta.
(f) ass of Stock n ands of Sharehoders. The amount requred to be
ncuded n the gross ncome of a Unted States sharehoder under subsecton (b)
sha, for the purpose of ad|ustng the bass of hs stock wth respect to whch
the dstrbuton woud have been made (f t had been made), be treated as
havng been renvested by the sharehoder as a contrbuton to the capta of the
corporaton but ony to the e tent to whch such amount s ncuded n hs gross
ncome n hs return, ncreased or decreased by any ad|ustment of such amount
n the ast determnaton of the sharehoder s ta abty, made before the
e praton of seven years after the date prescrbed by aw for fng the return.
(g) ass of Stock n Case of Death. or bass of stock or securtes n a
foregn persona hodng company acqured from a decedent, see secton 113(a) (5).
(h) Lqudaton. or amount of gan taken nto account on qudaton of
foregn persona hodng company, see secton 115(c).
() Perod of Lmtaton on ssessment and Coecton. or perod of m-
taton on assessment and coecton wthout assessment, n case of faure to
ncude n gross ncome the amount propery ncudbe theren under subsecton
(b), see secton 275(d).
Sec. 338. Informaton Returns bt Offcers and Drectors.
(a) Monthy Returns. On the 15th day of each month each ndvdua who
on such day s an offcer or a drector of a foregn corporaton whch, wth
respect to ts ta abe year (f not begnnng more than 12 months before the
date of the enactment of the Revenue ct of 1937) precedng the ta abe year
n whch such month occurs, was a foregn persona hodng company, sha
fe wth the Commssoner a return settng forth wth respect to the precedng
caendar month the name and address of each sharehoder, the cass and
number of shares hed by each, together wth any changes n stock hodngs
durng such perod, the name and address of any hoder of securtes con-
vertbe nto stock of such corporaton, and such other nformaton wth respect
to the stock and securtes of the corporaton as the Commssoner wth the
77064 28 20
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602
approva of the Secretary sha by reguatons prescrbe as necessary for
carryng out the provsons of ths ct. The Commssoner, wth the approva
of the Secretary, may by reguatons prescrbe, as the perod wth respect to
whch returns sha be fed, a onger perod than a month. In such case
the return sha be due on the ffteenth day of the succeedng perod, and sha
be fed by the Indvduas who on such day are offcers and drectors of the
corporaton.
(b) nnua Returns. On the s teth day after the cose of the ta abe
year of a foregn persona hodng company each ndvdua who on such
s teth day Is an offcer or drector of the corporaton sha fe wth the
Commssoner a return settng forth
(1) In compete deta the gross Income, deductons and credts, net
ncome, Suppement P net ncome, and undstrbuted Suppement P net
ncome of such foregn persona hodng company for such ta abe year
and
(2) The same nformaton wth respect to such precedng ta abe year
as s requred n subsecton (a) e cept that If a the requred reports
wth respect to such year have been fed under subsecton (a) no nforma-
ton under ths paragraph need be set forth n the annua report.
Seo. 339. Informaton Returns by Sharehoders.
(a) Monthy Returns. On the 15th day of each mouth each Unted States
sharehoder, by or for whom 50 per ceuum or more In vaue of the outstandng
stock of a foregn corporaton s owned drecty or ndrecty (Incudng n the
case of an ndvdua, stock owned by the members of hs famy as defned n
secton 333(a)(2)), f such foregn corporaton wth respect to ts ta abe
year (f not begnnng more than 12 months before the date of the enact-
ment of the Revenue ct of 1937) precedng the ta abe year n whch such
month occurs was a foregn persona hodng company, sha fe wth the Com-
mssoner a return settng forth wth respect to the precedng caendar month
the name and address of each sharehoder, the cass and number of shares hed
by each, together wth any changes n stock hodngs durng such perod, the
name and address of any hoder of securtes convertbe nto stock of such
corporaton, and such other nformaton wth respect to the stock and secu-
rtes of the corporaton as the Commssoner wth the approva of the Secre-
tary sha by reguatons prescrbe as necessary for carryng out the provsons
of ths ct. The Commssoner, wth the approva of the Secretary, may bv
reguatons prescrbe, as the perod wth respect to whch returns sha be
fed, a onger perod than a month. In such case the return sha be due on
the ffteenth day of the succeedng perod, and sha be fed by the persons
who on such day are Unted Staes sharehoders.
(b) nnua Returns. On the s teth day after the cose of the ta abe
year of a foregn persona hodng company each Unted States sharehoder by
or for whom on such s teth day more than 50 per centum of the outstandng
stock of such company s owned drecty or ndrecty (Incudng n the case
of an ndvdua, stock owned by members of hs famy as defned n secton
333(a)(2)), sha fe wth the Commssoner a return settng forth the same
nformaton wth respect to such precedng ta abe year as s requred n sub-
secton (a) e cept that f a the requred reports wth respect to such year
have been fed under subsecton (a) no nformaton under ths subsecton need
be set forth n the annua report.
Sec. 340. Returns as to ormaton, etc., of oreqn Corporatons.
(a) Requrement. Under reguatons prescrbed by the Commssoner wth
the approva of the Secretary, any attorney, accountant, fducary, bank, trust
company, fnanca nsttuton, or other person
(1) Who, on or after the date of the enactment of the Revenue ct of
1937, ads, asssts, counses, or advses n, or wth respect to, the formaton,
organzaton, or reorganzaton of any foregn corporaton, sha, wthn
SO days thereafter, fe wth the Commssoner a return or
(2) Who, snce December 31, 1933, and pror to 90 days after the date
of the enactment of the Revenue ct of 1937, has aded, asssted, counseed,
or advsed n the formaton, organzaton, or reorganzaton of any foregn
corporaton sha, wthn 90 days after the date of the enactment of such
ct, fe wth the Commssoner a return.
(b) orm and Contents or Rkturn. Such return sha be In such form, and
sha set forth, under oath, n respect of each such corporaton, to the fu
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Msc.
e tent of the nformaton wthn the possesson or knowedge or under the con-
tro of the person requred to fe the return, such nformaton as the Com-
mssoner wth the approva of the Secretary prescrbes by reguatons as neces-
sary for carryng out the provsons of ths ct. Nothng n ths secton sha
be construed to requre the dvugng of prveged communcatons between
attorney and cent.
Sec. 341. Penates.
ny person requred under secton 338. 339, or 340 to fe a return, or to
suppy any nformaton, who wfuy fas to fe such return, or suppy such
nformaton, at the tme or tmes requred by aw or reguatons, sha, n eu
of the penates provded n secton 145(a) for such offense, be guty of a ms-
demeanor and, upon convcton thereof, be fned not more than 2,000, or
mprsoned for not more than one year, or both.
Sec. 202. ffectve Date.
Suppement P of Tte I of the Revenue ct of 1936, added to such
ct by secton 201 of ths ct, sha not appy to a ta abe year
(ether of a sharehoder or of a foregn corporaton) endng on or
before the date of the enactment of ths ct and n no case sha
the stock ownershp requrement provded n secton 331(a)(2) of
such Suppement be satsfed uness a Unted States group (as theren
defned) e sted wth respect to the corporaton after the date of the
enactment of ths ct. If under secton 338 or 339 of such Suppe-
ment the date on whch a return s requred to be fed occurs pror to
November 1, 1937, the return sha be consdered as fed on tme f
fed pror to December 1, 1937.
Sec. 203. d|usted ass of Stock of oregn Persona odng
Company.
Secton 113(b)(1) of the Revenue ct of 193G s amended by
strkng out the perod at the end thereof and nsertng n eu
thereof a semcoon and the foowng:
and
( ) to the e tent provded n secton 337(f) n the case of- the stock of
Unted States sharehoders n a foregn persona hodng company.
Sec. 204. ass of Stock n oregn Persona odng Company
cqured from Decedent.
Secton 113(a)(5) of the Revenue ct of 1936 s amended by
addng at the end thereof a new sentence to read as foows:
If the property was acqured by bequest, devse, or nhertance, or by the
decedent s estate from the decedent, and f the decedent ded after the
date of the enactment of the Revenue ct of 1937, and f the property
conssts of stock or securtes of a foregn corporaton, whch wth re-
spect to ts ta abe year ne t precedng the date of the decedent s death
was a foregn persona hodng company, then the bass sha be the far
market vaue of such property at the tme of such acquston or the bass
n the hands of the decedent, whchever s ower.
Sec. 205. Lqudaton of oregn Persona odng Companes.
Secton 115(c) of the Revenue ct of 1936 s amended by addng
at the end thereof a new sentence to read as foows:
If any dstrbuton n compete qudaton (ncudng any one of a seres
of dstrbutons made by the corporaton n compete canceaton or redemp-
ton of a ts stock) s made by a foregn corporaton whch wth respect to
any ta abe year begnnng on or before, and endng after, the date of the
enactment of the Revenue ct of 1937, was a foregn persona hodng company,
and wth respect to whch a Unted States group (as defned n secton
331(a)(2)) e sted after the date of the enactment of the Revenue ct of 1937
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604
and before anuary 1, 1938, then, despte the foregong provsons of ths sub-
secton, 100 per centum of the gan recognzed resutng from such dstrbuton
sha be taken nto account n computng net ncome
(1) Uness such qudaton s competed before anuary 1, 1938 or
(2) Uness (f t s estabshed to the satsfacton of the Commssoner
by evdence submtted before anuary 1, 1938, that due to the aws of the
foregn country n whch such corporaton s ncorporated, or for other
reason, t s or w be mpossbe to compete the qudaton of such com-
pany before such date) the qudaton s competed on or before such
date as the Commssoner may fnd reasonabe, but not ater than une
30, 193S.
Sec. 200. Perod of Lmtaton Upon ssessment and Coecton.
(a) Secton 275 of the Revenue ct of 1936 s amended by nsertng
after subsecton (c) thereof a new subsecton to read as foows:
(d) Sharehoders of oreon Persona odng Companes. If the ta -
payer omts from gross ncome an amount propery ncudbe theren under
secton 337(b) (reatng to the ncuson n the gross ncome of Unted States
sharehoders of ther dstrbutve shares of the undstrbuted Suppement P
net ncome of a foregn persona hodng company) the ta may be assessed,
or a proceedng n court for the coecton of such ta may be begun wthout
assessment, at any tme wthn seven years after the return was fed.
(b) Subsecton (d) of such secton 275, before ts amendment by
subsecton (a) of ths secton, s amended to read as foows:
(e) or the purposes of subsectons (a), (b), (c), and (d), a return fed
before the ast day prescrbed by aw for the fng thereof sha be consdered
ns fed on such ast day.
(c) Subsecton (e) of such secton 275, before ts amendment by
subsectons (a) and (b) of ths secton, s amended by strkng out
(e) and nsertng n eu thereof (f).
Sec. 207. Mnor mendments to Tte I of 1936 ct.
(a) Secton 4 of the Revenue ct of 1936 s amended by addng at
the end thereof a new subsecton to read as foows:
(1) oregn persona hodng companes and ther sharehoders Suppement
P.
(b) Secton 22 of such ct s amended by addng at the end
thereof a new subsecton to read as foows:
(g) oregn Persona om no Companes. or provsons reatng to gross
ncome of foregn persona hodng companes and of ther sharehoders, see
secton 334.
(c) Secton 54 of such ct s amended by addng at the end thereof
a new subsecton to read as foows:
(e) oregn Persona odng Companes. or nformaton returns by
offcers, drectors, and arge sharehoders, wth respect to foregn persona
hodng companes, see sectons 338, 339, and 841. or nformaton returns by
attorneys, accountants, and so forth, as to formaton, and so forth, of foregn
corporatons, see sectons 310 and 341.
(d) Such ct s amended by addng after secton 150 a new secton
to read as foows:
Sec. 151. oregn Persona odng Companes.
or nformaton returns by offcers, drectors, and arge sharehoders, wth
respect to foregn persona hodng companes, see sectons 338, 339, and 341.
or nformaton returns by attorneys, accountants, and so forth, as to forma-
ton, and so forth, of foregn corporatons, see sectons 340 and 341.
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(e) Secton 145 of such ct s amended by addng at the end
thereof a new subsecton to read as foows:
(d) or penates for faure to fe nformaton returns wth respect to
foregn persona hodng companes and foregn corporatons, see secton 341.
tte dsaowed deductons.
Sec. 301. Dsaowed Deducton s.
(a) Secton 24(a) of the Revenue ct of 1936 s amended to read
as foows:
(a) Gen-eha Rue. In computng net ncome no deducton sha n any case
be aowed n respect of
(1) Persona, vng, or famy e penses
(2) ny amount pad out for new budngs or for permanent mprove-
ments or betterments made to ncrease the vaue of any property or
estate
(3) ny amount e pended n restorng property or n makng good
the e hauston thereof for whch an aowance s or has been made:
(4) Premums pad on any fe nsurance pocy coverng the fe of
any ofcer or empoyee, or of any person fnancay nterested n any
trade or busness carred on by the ta payer, when the ta payer s drecty
or ndrecty a benefcary under such pocy or
(5) ny amount otherwse aowabe as a deducton whch s aocabe
to one or more casses of ncome other than nterest (whether or not any
amount of ncome of that cass or casses s receved or accrued) whoy
e empt from the ta es mposed by ths tte.
(b) Losses from Saes ok changes of Property.
(1) Losses Dsaowed. In computng net ncome no deducton sha
n any case be aowed n respect of osses from saes or e changes of
property, drecty or ndrecty
( ) etween members of a famy, as defned n paragraph (2) (D)
( ) cept n the case of dstrbutons n qudaton, between an
Indvdua and a corporaton more than 50 per centum n vaue of
the outstandng stock of whch s owned, drecty or ndrecty, by
or for such ndvdua
(C) cept n the case of dstrbutons n qudaton, between two
corporatons more than 50 per centum n vaue of the outstandng stock
of each of whch s owned by or for the same ndvdua, f
() ther one of such corporatons, wth respect to the ta abe
year (f begnnng after December 31, 1935) of the corporaton
precedng the date of the sae or e change, was a persona hodng
company as defned n secton 352, or
() ther one of such corporatons, wth respect to the ta -
abe year (f not begnnng more than 12 months before the date
of the enactment of the Revenue ct of 1937) of the corporaton
precedng the date of the sae or e change, was a foregn persona
hodng company as defned n secton 331
(D) etween a grantor and a fducary of any trust
( ) etween the fducary of a trust and the fducary of another
trust, f the same person s a grantor wth respect to each trust or
(P) etween a fducary of a trust and a benefcary of such trust
(2) Stock ownershp, famy, and partnershp rue. or the purposes
of determnng, n appyng paragraph (1), the ownershp of stock
( ) Stock owned, drecty or ndrecty, by or for a corporaton,
partnershp, estate, or trust, sha be consdered as beng owned pro-
portonatey by or for ts sharehoders, partners, or benefcares
( ) n ndvdua sha be consdered as ownng the stock owned,
drecty or ndrecty, by or for hs famy
(C) n ndvdua ownng (otherwse than by the appcaton of
subparagraph ( )) any stock n a corporaton sha be consdered
as ownng the stock owned, drecty or ndrecty, by or for hs partner
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606
(D) The fmy of an ndvdua sha ncude ony hs brothers and
ssters (whether by the whoe or haf bood), spouse, ancestors, and
nea descendants and
( ) Constructve Ownershp as ctua Ownershp. Stock construc-
tvey owned by a person by reason of the appcaton of subparagraph
( ) sha, for the purpose of appyng subparagraph ( ), ( ), or (C),
be treated as actuay owned by such person, but stock constructvey
owned by an ndvdua by reason of the appcaton of subparagraph
( ) or (C) sha not be treated as owned by hm for the purpose of
agan appyng ether of such subparagraphs n order to make another
the constructve owner of such stock.
(3) Speca rue fob year 1930. In appyng paragraph ()(C)() In
a case where the precedng ta abe year theren referred to began n the
caendar year 1930, the determnaton as to whether the corporaton was a
foregn persona hodng company sha be made under secton 351(b) (1)
before the amendment of Tte I made by secton 1 of the Revenue ct
of 1937.
(c) Unpad penses and Interest. In computng net ncome no deducton
ha be aowed n respect of e penses ncurred under secton 23(a) or nterest
accrued under secton 23(b)
(1) If not pad wthn the ta abe year or wthn two and one-haf
months after the cose thereof and
(2) If, by reason of the method of accountng of the person to whom
the payment s to be made, the amount thereof s not, uness pad, ncudbe
n the gross ncome of such person for the ta abe year n whch or wth
whch the ta abe year of the ta payer ends and
(3) If, at the cose of the ta abe year of the ta payer or at any tme
wthn two and one-haf months thereafter, both the ta payer and the
person to whom the payment s to be made are persons between whom
osses woud be dsaowed under secton 24(b).
(b) Secton 24(b) and secton 24(c) of the Revenue ct of
1936, as n force pror to the amendment to secton 24 made by sub-
secton (a) of ths secton, are amended by strkng out (b) and
(c) and nsertng n eu thereof (d) and (e).
Sec. 302. ffectve Dates.
The amendments made by ths tte sha appy ony wth respect
to ta abe years begnnng after December 31, 1936.
tte v trusts.
Sec. 401. Dena of Persona empton to Trusts.
Secton 163(a) of the Revenue ct of 1936 s amended to read as
foows:
(a) Credts op state or Trust.
(1) or the purpose of the norma ta and the surta an estate or trust
sha be aowed the same persona e empton as s aowed to a snge
person under secton 25(b) (1), e cept that no e empton sha be aowed
a trust f the trust nstrument requres or permts the accumuaton of any
porton of the Income of the trust and there s not dstrbuted an amount
equa to the net ncome. or the purposes of ths paragraph the term
net ncome does not ncude amounts ncuded n gross ncome whch,
under tht aw of the |ursdcton under whch the trust s admnstered,
cannot (even f permtted or requred by the trust nstrument to be con-
sdered as ncome) bo consdered as ncome and are not dstrbutabe.
(2) If no part of the ncome of the estate or trust s ncuded n.
computng the net ncome of any egatee, her, or benefcary, then the
estate or trust sha be aowed the same credts aganst net Income for
nterest as are aowed by secton 25(a).
Sec. 402. ducart Returns.
Secton 14 2(a) of the Revenue ct of 1936 s amended to read as
foows:
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(a) Requrement op Return. very fducary (e cept a recever apponted
by authorty of aw n possesson of part ony of the property of an ndvdua)
sha make under oath a return for any of the foowng ndvduas, estates,
cr trusts for whch he acts, statng specfcay the tems of gross ncome thereof
and the deductons and credts aowed under ths tte and such other nforma-
ton for the purpose of carryng out the provsons of ths tte as the Comms-
soner wth the approva of the Secretary may by reguatons prescrbe
(1) very ndvdua havng a net ncome for the ta abe year of . 1,000
or over, f snge, or f marred and not vng wth husband or wfe
(2) very ndvdua havng a net ncome for the ta abe year of 2,500
or over, f marred and vng wth husband or wfe
(3) very ndvdua havng a gross ncome for the ta abe year of
5,000 or over, regardess of the amount of hs net ncome
(4) ( ) very estate, and every trust entted to the persona e empton
aowed by secton 103(a) (1), the net ncome of whch for the ta abe year
s 1,000 or over.
( ) very trust, not entted to a persona e empton under secton
103(a) (1), whch has a net ncome for the ta abe year.
(5) very estate or trust the gross ncome of whch for the ta abe year
s 5,000 or over, regardess of the amount of the net ncome
(0) very estate or trust of whch any benefcary s a nonresdent
aen and
(7) Regardess of the amount of the gross or net ncome, every trust,
though havng no net ncome, whch woud have a net ncome f dstrbu-
tons had not been made whch under the terms of the trust nstrument
were n the dscreton of the trustee or condtoned upon a contngency
but sub|ect to such condtons, mtatons, and e ceptons and under such
reguatons as may be prescrbed by the Commssoner, wth the approva
of the Secretary, a fducary requred by ths paragraph to fe a return
may be e empted from the requrement of fng such return.
Sec. 403. ffectve Dates.
The amendments made by ths tte sha appy ony wth respect
to ta abe years begnnng after December 31, 1936.
tte v nonresdent aen ndvduas.
Sec. 501. Ta on Nonresdent en Indvduas.
(a) Secton 211(a) of the Revenue ct of 1936 s amended by
addng at the end thereof a new sentence to read as foows: The
ta mposed by ths subsecton sha not appy to any ndvdua f the
aggregate amount receved durng the ta abe year from the sources
above specfed s more than 21,600.
(b) Secton 211 of the Revenue ct of 1936 s further amended
by addng at the end thereof a new subsecton to read as foows:
(c) No Unted States usness or Offce and Gross Income of More Than
21,600. nonresdent aen ndvdua not engaged n trade or busness wthn
the Unted States and not havng an offce or pace of busness theren who
has a gross ncome for any ta abe year of more than 21,000 from the sources
specfed n subsecton (a), sha be ta abe wthout regard to the provsons
of subsecton (a), e cept that
(1) The gross ncome sha ncude ony ncome from the sources spec-
fed n subsecton (a) and
(2) The deductons (other than the so-caed chartabe deducton
provded n secton 213(c)) sha be aowed ony f and to the e tent that
they are propery aocabe to the gross ncome from the sources specfed
n subsecton (a) and
(3) The aggregate of the norma and surta under sectons 11 and 12
sha, n no case, be ess than 10 per centum of the gross ncome from the
sources specfed n subsecton (a).
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608
(c) The amendments made by subsectons (a) and (b)
(1) Sha appy ony to ta abe years begnnng after De-
cember 31, 1936 and
(2) Sha not appy to a resdent of a contguous country so
ong as there s n effect a treaty wth such country (ratfed
pror to the date of the enactment of ths ct) under whch
rates of ta under secton 211(a), pror to ts amendment by
subsecton (a), were reduced.
TITL I MISC LL N OUS.
Sec. C01. Corporatons cepted from Secton 102.
(a) Secton 102(a) of the Revenue ct of 1936 s amended by
strkng out (other than a persona hodng company as defned n
secton 351 and nsertng n eu thereof (e cept as provded n
subsecton (f)).
(b) Such secton 102 s further amended by addng at the end
(hereof a new subsecton to read as foows:
(f) Corporatons cepted. Ths secton sha not appy to any corpora-
ton
(1) Wth respect to a ta abe year begnnng after December 31, 1936,
f the corporaton s wth respect to such year a persona hodng company
as defned n secton 352.
(2) Wth respect to a ta abe year begnnng before anuary 1, 1937, If
the corporaton s wth respect to such year a persona hodng company
a.s defned n secton 351(b)(1) before the amendment of Tte I by
secton 1 of the Revenue ct of 1937.
(3) Wth respect to a ta abe year endng after the date of the enact-
ment of the Revenue ct of 1937, f the corporaton s wth respect to such
year a foregn persona hodng company as defned n secton 331.
Sec. 602. Mutua Investment Companes.
(a) Secton 48(e) (1) of the Revenue ct of 1936 s amended by
strkng out other than a persona hodng company as defned n
secton 351 and nsertng n eu thereof e cept as provded n
paragraph (3).
(b) Such secton 48(e) s further amended by addng at the end
of such subsecton a new paragraph to read as foows:
(3) Corporatons e cepted. Ths secton sha not appy to any cor-
poraton
( ) Wth respect to a ta abe year begnnng after December 31,
1930, f the corporaton s wth respect to such year a persona hodng
company as defned In secton 352.
(1 ) Wth respect to a ta abe year begnnng before anuary 1,
1937, f the corporaton Is wth respect to such year a persona hodng
company as defned n secton 351(b)(1) before the amendment of
Tte I by secton 1 of the Revenue ct of 1937.
(C) Wth respect to a ta abe year endng after the date of the
enactment of the Revenue ct of 1937, f the corporaton s wth
respect to such year a foregn persona hodng company as defned n
.secton 331.
Sec. 603. Separabty Cause.
If any provson of ths ct, or the appcaton thereof to any
person or crcumstances, s hed nvad, the remander of the ct,
and the appcaton of such provsons to other persons or crcum-
stances, sha not be affected thereby.
pproved, ugust 26, 1937, 10 a. m.
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R NU ILL O 1937 S N T R PORT.
I-37-8926
Senate Report No. 1242, Seventy-ffth Congress, frst sesson.
ugust 16 (caendar day, ugust 17), 1937.
Mr. arrson, from the Commttee on nance, submtted the
foowng report to accompany . R. 8234 :
The Commttee on nance, to whom was referred the b ( . R. 8231) to
provde revenue, equaze ta aton, prevent ta evason and avodance, and
for other purposes, havng consdered the same, report favoraby thereon
wth amendments and recommend that the b as amended do pass.
The commttee fees that an e panaton of the provsons of the b s
unnecessary, n vew of the fact that the commttee has reported the b as
passed by the ouse wth amendments wth respect to ony two matters,
and n vew of the fu and compete report made by the Ways and Means
Commttee, whch s appended to and made a part of ths report.
The commttee recommends the nserton n secton 353 of new Tte I ,
whch reates to the gross ncome of persona hodng companes, of a new
subsecton (secton 353(h)) deang wth ncome from mnera, o, or gas
royates. The effect of the subsecton s to e cude such royates from per-
sona hodng company ncome f they consttute 50 per cent or more of the
gross ncome of the corporaton. Ths provson s sub|ect to the mtaton
that, n order for such ncome to be e cuded, the amount aowabe for the
ta abe year for e penses under secton 23(a) must consttute 15 per cent
or more of the gross ncome. Compensaton to sharehoders for persona serv-
ces s not to be counted as part of the 15 per cent. Ths amendment w
not e cude royaty ncome f t consttutes ess than 50 per cent of the
gross ncome, and t s beeved that the 15 per cent e penses requrement
w furnsh a satsfactory separaton between companes whch may be
cassfed as operatng companes and the pure hodng company type. The
amendment to secton 353(a) s a technca amendment made necessary by
reason of the nserton of the new secton 353(h).
The commttee recommends that Secton 355 (b) on page 0 of the b be
amended to read as foows:
(b) mounts used or rrevocaby set asde to pay or retre ndebtedness of
any knd ncurred pror to anuary 1, 1934, f such amounts are reasonabe
wth reference to the sze and terms of such ndebtedness.
The commttee agrees wth the Ways and Means Commttee of the ouse
that the deducton (n arrvng at the undstrbuted ad|usted net ncome of a
persona hodng company) of amounts used or set asde to retre ndebted-
ness ncurred pror to anuary 1, 1034, shoud be retaned In the b. The
nserton of the words to pay and of any knd are carfyng amend-
ments to e stng aw, some controversy havng arsen as to the ntent of such
aw. The word rrevocaby s added to protect the revenue, so that amounts
may not be set asde for retrement of debt, and deductons secured, athough
fnay such amounts are never used to retre the ndebtedness.
(The report of the ouse Ways and Means Commttee foows:)
R NU ILL O 1937 OUS R PORT.
Seventy-ffth Congress, rst Sesson. ouse of Representatves Report No. 1546.
ugust 13, 1937.
Mr. Poughton, from the Commttee on Ways and Means, submtted the fo-
owng report to accompany . R. 8234 :
The Commttee on Ways and Means, to whom was referred the b (11. It.
8234) to provde revenue, equaze ta aton, prevent ta evason and avodance,
and for other purposes, report t back to the ouse wthout amendment and
recommend that the b do pass.
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610
The need for such a b was caed to the attenton of the Congress by the
Presdent of the Unted States n hs message dated une 1, 1937. fter nvest-
gatng the matters contaned n the Presdent s message, the ont Commttee
on Ta vason and vodance submtted a report to the Congress under date
of ugust 5, 1937, pursuant to Pubc Resouton No. 40, Seveuty-ffth Congress.
The report of the ont Commttee on Ta vason and vodance contans
the foowng sgnfcant statement:
In order prompty to consder and nvestgate the matters brought to the
attenton of the Congress by the above message a |ont resouton was ntroduced
provdng for the creaton of a ont Commttee on Ta vason and vodance.
Ths |ont resouton became aw on une 11, 1937. It provded for a |ont com-
mttee to be composed of s Members of the Senate who are members of the
Commttee on nance, and s Members of the ouse of Representatves who
are members of the Commttee on Ways and Means. The requste powers were
gven the |ont commttee to hod hearngs, to e amne documents, and to take
testmony. Power was aso gven the |ont commttee to e amne Income ta
returns and reated matters. Secton 2 of the |ont resouton referred to makes
t the duty of the |ont commttee to nvestgate the methods of evason and
avodance of ncome, estate, and gft ta es, ponted out In the message of the
Presdent transmtted to Congress on une 1, 1937, and other methods of ta
evason and avodance, and to report to the Senate and the ouse, at the earest
practcabe date, and from tme to tme thereafter but not ater than ebruary
1, 1938, ts recommendaton, as to remedes for the evs dscosed by such
nvestgaton.
The ont commttee havng consdered the sub|ect matter submtted to t
submts the foowng report:
The commttee has hed pubc hearngs, begnnng on une 17, 1937. Snce
that date t has been amost contnuousy engaged In hodng such hearngs, or
n consderng the sub|ect of ta evason and avodance In e ecutve sesson.
ecause of ack of tme te commttee has confned tsef for the present to those
sub|ects whch mny be drecty cassfed under the head of evason or avodance,
eavng out of account sub|ects such as communty property or percentage depe-
ton whch w receve further consderaton by the |ont commttee.
The commttee, as a resut of ts nvestgatons, beeves t s mperatve at
ths tme that egsaton shoud be enacted n regard to the foowng sub|ects,
wth respect to whch t has been shown that certan serous oophoes e st:
1. Domestc persona hodng companes.
2. Incorporated yachts, country estates, etc.
3. Incorporated taents.
4. rtfca deductons for osses from saes or e changes of property.
5. rtfca deductons for nterest and busness e pense.
f . Mutpe trusts.
7. oregn persona hodng companes.
8. Nonresdent aens.
Detaed recommendatons are made on these sub|ects n the body of ths
report. The commttee has e amned the probem of certan aeged ta -savng
devces based on snge-premum fe Insurance poces ssued by fake foregn
nsurance companes. The commttee beeves the e stng aw s adequate to
reach these cases. The sub|ect of penson trusts has been passed over for the
present because t does not appear to have resuted n much oss of revenue to
date. owever, ths matter w be reported on ater.
The prnted record of the pubc hearngs hed by the commttee ampy sus-
tans the statements made by the Presdent of the Unted States n hs message.
The commttee strongy urges that egsaton aong the nes recommended be
enacted at the earest possbe moment n order to protect the revenue, and n
order that a may bear ther far share of the ta bnrden.
Your commttee has gven carefu consderaton to the message of the
Presdent of the Unted States and to the report of the ont Commttee on
Ta vason and vodance. Tour commttee beeves that the evdence
presented before the |ont commttee and the Ways and Means Commttee fuy
substantates the statements made by the Presdent of the Unted States In hs
message to the Congress. Your commttee concurs In the recommendatons
made by the |ont commttee wth respect to egsaton n a ma|or respects
and the b s desgned to carry out these recommendatons.
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The b Is dvded nto s ttes as foows: .
I. Persona odng Companes.
II. oregn Persona odng Companes.
III. Dsaowed Deductons.
I . Trusts.
. Nonresdent ens.
I. Msceaneous Provsons.
detaed dscusson of each of these ttes foows:
Tte I Persona odng Companes.
Secton 1 of Tte I of the b substtutes, for tbe ta abe years to whch
t s appcabe, a new Tte I for the provsons of e stng aw reatng:
to persona hodng companes. Under the new provsons Tte I s dvded
nto 10 sectons that s, sectons 351 to 360, ncusve. dscusson of each
of these sectons foows:
N W S CTION 361, 1936 CT SURT ON P RSON L OLDING COMP NI S.
Under e stng aw, persona hodng companes are sub|ect to a surta
at rates rangng from 8 per cent upon undstrbuted ad|usted net ncomes
not n e cess of 2,000 to 48 per cent n the case of undstrbuted ad|usted
net ncomes n e cess of 1,000,000. These rates are sufcenty ow to permt
ndvduas n the hgh surta brackets to secure consderabe ta savngs,
partcuary through the formaton of mutpe persona hodng companes.
To prevent weathy ndvduas from securng ta advantages through the
formaton of mutpe persona hodng companes, t s necessary that very
hgh mnmum rates be mposed upon persona hodng companes. ccord-
ngy, under ths secton, t s proposed to ta the undstrbuted ad|usted net
ncome of persona hodng companes not n e cess of 2,000 at a rate of 65
per cent, and the remander over 2,000 at a rate of 75 per cent.
N W S CTION 352, 1036 CT D INITION O P RSON L OLDING COMP NY.
Under e stng aw, a corporaton s ta abe as a persona hodng company
for any ta abe year n whch t derves 80 per cent or more of ts gross
ncome from certan specfed sources (many Investments) and at any tme
durng the ast haf of such ta abe year more than 50 per cent n vaue of
ts outstandng stock s owned, drecty or ndrecty, by or for not more than
fve ndvduas. Ths rue has not been entrey satsfactory. It permts a
corporaton whch s ta abe as a persona hodng company n one year to
escape ta entrey as a persona hodng company n the foowng year by
makng a sght change n the character of ts ncome (for nstance, n the
foowng year, the company mght derve 79 per cent of ts gross ncome
from such specfed sources nstead of 80 per cent). Ths s true athough
there was no change n the stock ownershp of the company, and the change
n the sources of the ncome was so sght as not to affect the company s
beng avaed of as a persona hodng company.
To overcome such defects, ths secton of the b provdes that f n any
ta abe year the persona hodng company ncome, as defned n secton 353
of new Tte I , equas 80 per cent or more of the tota gross ncome of the
persona hodng company, the mnmum percentage for each subsequent ta -
abe year sha be 70 per cent nstead of 80 per cent unt (1) a year n whch
the corporaton does not meet the stock ownershp test (namey, that at any
tme durng the ast haf of the ta abe year, more than 50 per cent n vaue
of ts outstandng stock s owned, drecty or ndrecty, by or for not more
than fve ndvduas) or (2) for each of three consecutve years ess than 70
per cent of the gross ncome s persona hodng company ncome. or
e ampe, suppose a corporaton durng the ast haf of each of Its ta abe
years (the caendar years 1937, 1938, and 1939) has more than 50 per cent of
ts outstandng stock n pont of vaue owned by fve or ess ndvduas. or
the caendar year 1937, 85 per cent of ts gross ncome consttutes persona
hodng company ncome as defned n the b. or the caendar year 1938,
such persona hodng company ncome represents ony 60 per cent of ts tota
gross ncome, and for the caendar year 1939 such persona hodng company
ncome consttutes 79 per cent of ts tota gross ncome. Under e stng aw,
ths company s ta abe as a persona hodng company for the caendar year
1937 but not for the caendar years 1938 and 1939.
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612
1
Under the b as reported, such a company s ta abe as a persona hodng
company for both the caendar years 1937 and 1939 but not for the caendar
year 193S. If, however, the persona hodng company ncome consttuted
ess than 70 per cent of the company s gross ncome for the years 1938, 1939,
and 1940, t woud not thereafter be ta abe as a persona hodng company
unt a ta abe year n whch 80 per cent or more of ts gross ncome const-
tuted persona hodng company ncome. Moreover, f n any ta abe year
such a corporaton ceased to be a persona hodng company because t faed
to meet the stock ownershp test (regardess of whether t met the gross
ncome test), t woud not thereafter be ta abe as a persona hodng
company unt a ta abe year n whch t agan satsfed the stock ownershp
test and n whch at east 80 per cent of ts gross ncome consttuted per-
sona hodng company ncome. In a cases the frst year for whch the
determnaton of ts ncome s apped to ascertan whether n ater years
t s a persona hodng company (even though ess than 80 per cent of ts
gross ncome Is persona hodng company ncome) Is the frst year for
whch new Tte I appes to t
In defnng a persona hodng company ths secton, ke secton 351 of
e stng aw, e empts from the defnton chartabe and other corporatons
(e empt under secton 101 of the Revenue ct of 1936 from the norma ta
and the surta on undstrbuted profts), banks as defned In secton 104,
fe nsurance companes, and surety companes.
oregn corporatons meetng the defnton of a persona hodng company
under new Tte I are aso sub|ect to ths surta . Secton 351 of e stng
aw sub|ects foregn corporatons to ts provsons. owever, a foregn per-
sona hodng company, as defned n secton 331 of Suppement P (see secton
201 of the b), s, wth respect to a ta abe year endng after the date of
the enactment of ths b, e cuded from new Tte I for such year.
N W S CTION 868, 1888 CT P RSON L OLDINO COMP NY INCOM .
In order for a corporaton to be cassed as a persona hodng company, one
of the condtons mposed by e stng aw s that at east 80 per cent of ts
gross ncome for the ta abe year must be derved from royates, dvdends,
nterest, annutes, and, e cept n the case of reguar deaers n stock or secur-
tes, gans from the sae of stock or securtes. In secton 353 of new Tte I ,
your commttee Incuded a of these Items under the term persona hodng
company Income and adds to that defnton certan other tems.
These Items w now be dscussed n deta:
Subsecton (a) ncudes as Items of persona hodng company ncome dv-
dends, Interest, royates, and annutes. These tems are the same as those
used for the purpose of the 80 per cent test under e stng aw. Royates
as used heren has the same meanng as n the case of royates referred to n
secton 851 of e stng aw and, therefore, ncudes Income from copyrghts.
Subsecton (b) ncudes as persona hodng company ncome gans from
the e change of stock or securtes. Ths s merey a carfyng amendment to
carry out the Intent of e stng aw.
Subsecton (c) Incudes as persona hodng company ncome, gans derved
from futures transactons n commodtes on or sub|ect to the rues of boards
of trade and e changes. owever, an e cepton Is made n the case of gans on
bona fde hedgng transactons derved by corporatons engaged n good fath n
producng, processng, merchandsng, or handng such commodtes. Gans
from cash transactons are not ncuded. vdence was submtted to the |ont
commttee whch dscosed that corporatons, whch n a respects e cept the
ncome test were persona hodng companes, derved enough of ther ncome
from specuatve futures transactons to enabe them to fa outsde the ncome
test.
Subsecton (d) ncudes as persona hodng company ncome, ncome requred
to be taken up by a corporate benefcary from an estate or trust as we as
gans from the sae or other dsposton of any nterest of the corporaton In
an estate or trust. The present aw makes no reference to Income of corpora-
tons from estates or trusts. It s possbe, therefore, that the persona hodng
company secton mght be crcumvented by creatng a trust whch pays ts
Income to the corporaton. Under such crcumstances, t mght be contended
that under e stng aw a corporaton recevng more than 20 per cent of ts
gross ncome from estates and trusts was not a persona hodng company. y
ncudng trust and estate ncome wthn the defnton of persona hodng com-
pany ncome, your commttee amendment coses ths possbe oophoe.
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Msc.
Subsecton (e) Incudes n persona hodng company ncome certan amounts
receved by a corporaton from contracts for persona servces (ncudng gan
from the sae or other dsposton thereof). stng aw contans no com-
parabe provsons. To make such ncome ncudbe as persona hodng com-
pany ncome, the foowng condtons must e st:
(1) Some person other than the corporaton must have the rght to desg-
nate (by name or by descrpton) the ndvdua who s to perform the servces,
or the ndvdua who s to perform the servces must be desgnated (by name or
descrpton) n the contract and
(2) The ndvdua who has performed, s to perform, or may be desgnated
(by name or by descrpton) as the one to perform such servces, must at some
tme durng the ta abe year of the corporaton own, drecty or ndrecty, 25
per cent or more n vaue of the outstandng stock of the corporaton.
vdence was presented to the commttee of nstances where an ndvdua
wth unque taents, whose compensaton for persona servces was arge,
formed a corporaton whch contracted wth hm for hs servces at a reatvey
modest fgure, and then contracted out hs servces wth thrd persons at a much
hgher fgure. The corporaton accumuated the dfference between the sums
receved and the sums pad to the ndvdua, and under e stng aw pad ony
the corporate norma and undstrbuted-profts ta es thereon, snce the corpo-
rate ncome from ts contract for servces dd not come wthn the casses of
ncome descrbed n secton 351 of e stng aw. It s necessary to provde that
the ndvdua may be desgnated by descrpton as we as by name, as some
contracts may so descrbe the ndvdua that hs dentty coud not be ms-
taken, athough hs name was not mentoned. The provson that some thrd
party must have the rght to desgnate who sha perform the servces con-
tracted for, or that the person to perform the servces must be desgnated n
the contract, w prevent ths rue from appyng n genera to operatng cor-
poratons engaged prmary n renderng persona servces and whch neces-
sary enter contracts to render such servces, seectng such members of ther
staff as they desre to render such servces. Thus, corporatons whch et out
the servces of archtects, engneers, and advertsers woud not as a genera
rue be requred to report such ncome as persona hodng company ncome.
It s beeved that the proposed amendment w take care of the ncorporated
taent oophoe.
Subsecton (f) ncudes n persona hodng company ncome amounts re-
ceved as compensaton for the use of, or the rght to use, the property of the
corporaton. owever, ths rue ony appes where durng the ta abe year of
the corporaton, 25 per cent or more n vaue of ts outstandng stock s owned,
drecty or ndrecty, by an ndvdua easng or otherwse entted to the use
of the property. It makes no dfference whether the rght to use the property
s obtaned by the ndvdua drecty from the corporaton or by means of a
subease or other arrangement. Snce under e stng aw, ths type of com-
pensaton s not now ncuded for the purpose of determnng whether the
corporaton meets the 80 per cent test, the ta payer may f such compensa-
ton n an amount suffcent to brng ts other nvestment ncome beow the 80
per cent test. It has been shown to the commttee that ths devce has been
empoyed by ta payers who had ncorporated ther yachts, cty resdences, or
country houses and had pad suffcent rent to gve the corporatons enough n-
come from ther servce to take them out of present secton 351. y ncudng
ths type of ncome n the defnton of persona hodng company ncome, your
commttee removes ths method of ta avodance.
Subsecton (g) ncudes as persona hodng company ncome, rents whch
do not consttute 00 per cent or more of the gross ncome. or ths purpose,
rents are defned as compensaton, however desgnated, for the use of, or rght
to use, property. ut rents do not ncude compensaton receved for the use
of property covered by subsecton (f) (rent of yachts, arpanes, etc., to share-
hoders). Under e stng aw, rents are e cuded from the 80 per cent
cassfcaton. Ths was done prncpay so as not to nterfere wth bona fde
and egtmate operatng companes, whose busness conssted of the owner-
shp and operaton of offce budngs, apartment houses, etc. owever, your
commttee beeves that the entre e empton of rents from ths cassfcaton
has permtted certan persona hodng companes whch are not bona fde
operatng companes to escape ther |ust share of the ta burden. To prevent
certan hodng compnnes whch are not bona fde operatng companes from
takng advantage of ths e cepton and to protect egtmate operatng com-
panes, the proposed b provdes that rents be ncuded n the defnton of
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G14
persona hodng company ncome uness they consttute 50 per cent or more
of the gross ncome of the corporaton. Ths w prevent a conwratoa
from gettng out of Tte I by nvestng |ust enough n routs to consttute
the gross ncome therefrom, 21 per cent of the tota, and st dervng
the remander of ts ncome from dvdends, nterest, etc. On the other hand,
t w protect the bona fde rea estate corporaton and other corporatons
rentng property and dervng 50 per cent or more of ther gross ncome
from rents. Rents as here used s defned n ts broadest sense and
ncudes such tems as charter fees, etc., and s not mted to rent of rea
property.
N W S CTION 354, 1936 CT STOC OWN RS IP.
Under the proposed Tte I , t s necessary to ascertan the ownershp
of stock for the foowng purposes:
(1) To determne whether durng the ast haf of the ta abe year more
than 50 per cent n vaue of the outstandng stock s owned drecty or nd-
recty by or for not more than fve ndvduas (secton 352(a)2).
(2) To determne whether or not 25 per cent or more n vaue of the out-
standng stock of a corporaton s owned drecty or ndrecty by or for an
ndvdua whose servces are furnshed such corporaton to some other per-
son (secton 353(e)).
(3) To determne whether 25 per cent or more n vaue of the outstandng
stock of a corporaton s owned by or for an ndvdua usng or havng the
rght to use the property of a corporaton for whch the corporaton s pad
compensaton (secton 353(f)).
Secton 354 of new Tte I sets forth the rues for determnng the owner-
shp of stock of an Indvdua where he has the constructve and not the actua
ownershp of such stock, and the rues governng the treatment of other obga-
tons of the corporaton whch are consdered to be outstandng stock.
The provsons dscussed beow estabsh methods of brngng nto the
ownershp of an ndvdua stock actuay or constructvey owned by others.
s under Tte I of the present aw, t Is not necessary that the ndvdua
who may be counted to make ve ndvduas, under the constructve owner-
shp rues, actuay own stock hmsef. To e cude the case where he owned
no stock woud permt avodance by the empoyment of the devce of pacng
the stock n others whose actons woud be sub|ect to the ndvdua s contro
because of the famy or other reatonshp e stng between hm and the actua
owner.
Paragraph (1) of subsecton (a) provdes that stock owned drecty or
ndrecty by or a corporaton, partnershp, estate, or trust sha be coasdered
as beng owned proportonatey by ts sharehoders, partners, or benefcares.
Ths Is the same rue whch s apped under secton 351 of e stng aw for
the purpose of determnng the ownershp of stock n a persona hodng
company. Its effect s e paned by the foowng e ampe: Corporaton
owns a the stock of corporaton . In determnng whether or not, and the
e tent to whch, the stock of corporaton Is consdered to be hed by nd-
vduas the proposed amendments ook through corporaton and provde,
n effect, that the stock of corporaton Is owned by the sharehoders of
corporaton Instead of by corporaton , tsef. smar rue s apped
n a case n whch the stock s hed by a partnershp, estate, or trust the
partners or benefcares are deemed to own the stock. The rue appes to
the porton of the stock of owned by , and the rue aso appes f there
Is a chan of corporatons.
Paragraph (2) of subsecton (a) deems stock owned drecty or ndrecty
by or for the famy of an Indvdua or by or for hs partner as owned
by the ndvdua hmsef. Ths s the same rue whch Is apped under
secton 351 of e stng aw for the purpose of determnng stock ownershp
e cept that the rue s broadened to Incude the stock of the partner of such
ndvdua. ecause of the cose busness reatonshp e stng between mem-
bers of a partnershp, your commttee s of the opnon that t s proper to
e tend the provson so as to ncude n determnng the ownershp of stock
by an ndvdua the stock owned by or for a partner of such ndvdua.
The defnton of famy for the purpose of ths rue s the same as that
contaned n secton 351 of e stng aw. It therefore embraces a members
of the famy In the drect ne as we as brothers and ssters (whether of the
whoe or haf bood) and spouse.
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Msc.
Paragraph (3) of subsecton (a) provdes that f any person has an opton
to acqure stock such stock may be consdered as owned by such person. The
term opton as used n ths paragraph ncudes an opton to acqure such
an opton and each one of a seres of such optons, and so the person who has
an opton on an opton may be consdered an owner of the stock. Under e st-
ng aw, some Indvduas try to crcumvent the provsons of secton 351 by
spttng up the ownershp of stock among more than fve ndvduas but gv-
ng ess than fve ndvduas an opton to acqure the stock at any tme they
desre. or e ampe, fve ndvduas may own 49 per cent of the vaue of
the outstandng stock of a corporaton and one of them may have an opton
to acqure 2 per cent or more n vaue of the shares. In such a case, they are
for a practca purposes n the same stuaton as f they owned 51 per cent
n vaue of the stock. If the stock whch such ndvdua had a rght to
acqure by opton was added to the other shares actuay owned by hm, there
woud be a suffcent stock ownershp to brng the company wthn the persona
hodng company stock ownershp test. The amendment proposed by your
commttee adopts such a rue.
Paragraph (4) of subsecton (a) provdes, n effect, that the famy and
partnershp rue referred to In paragraph (2), as we as the opton rue
referred to In paragraph (3), may or may not be apped, dependng upon
whether they are necessary to produce the smaest number of ndvduas
requred to make the corporaton a persona hodng company or to make the
recept of ncome derved from persona-servce contracts or from the use of
property by sharehoders, Incudbe as persona hodng company Income. or
e ampe, where fve or ess ndvduas own more than 50 per cent n vaue of
the outstandng stock of the corporaton durng the ast haf of the ta abe
year, t w not be necessary to appy ether the famy rue or the opton rue.
In some cases, the appcaton of the opton rue mght brng the corporaton
wthn the persona hodng company cass, whereas the appcaton of the fam-
y rue woud not In such cases, the opton rue woud be apped and not
the famy rue.
Paragraph (5) of subsecton (a) provdes that stock constructvey owned by
a person by reason of the appcaton of the rue n paragraph (1) (reatng
to stock owned by a corporaton, etc.) or the opton rue contaned n para-
graph (3) may be used agan for the purpose of appyng ether the paragraph
(1) rue or the paragraph (2) rue reatng to famy and partnershp owner-
shp. owever, stock constructvey owned by an ndvdua because of the
appcaton of the famy and partnershp rue may not be used agan for the
purpose of appyng such famy and partnershp rue to another ndvdua.
or e ampe, f owns 50 per cent of the stock of corporaton and the
atter n turn owns 50 per cent of the stock of corporaton Y, the ndvdua
s consdered, by vrtue of hs stock ownershp n , to own hs proportonate
share of the Y stock owned by . In ths e ampe, s proportonate share of
the Y stock woud be 50 per cent of 50 per cent, or 25 per cent. Ths rue
appes regardess of the number of corporatons n the chan. Thus, f n the
above e ampe, Y owned 50 per cent of the stock n corporaton Z, the Ind-
vdua woud be consdered, by vrtue of hs constructve ownershp of stock
n Y, as ownng a proportonate share of the Z stock, whch n ths case woud be
50 per cent of 50 per cent of 50 per cent, or 12 per cent. Smary, the same
resut foows from the appcaton of the rue wth respect to optons to
acqure stock. If n the foregong e ampes dd not own the stock but
nstead hed an opton to acqure 50 per cent of the stock n and f the
facts otherwse were not changed, woud st be consdered as ownng 25
per cent of the Y stock and 12 per cent of the Z stock. In both cases,
whether actuay owns the 50 per cent nterest n or merey has an opton
to acqure such nterest, hs constructve ownershp of the Y stock and the Z
stock (as we as the constructve ownershp of the stock under the opton
rue) woud be sub|ect to the famy rue. That s, s wfe or any other
member of hs famy coud be consdered, under the famy rue, as construc-
tvey ownng the stock constructvey owned by n any of these corporatons.
owever, stock constructvey owned by an ndvdua through appcaton of
the famy rue may not be consdered as actuay owned by such ndvdua
for the purpose of makng some other person the constructve owner of such
stock. If an ndvdua I , hs wfe W, and her father W each own 10 per
cent of the stock n corporaton M, the wfe W may be consdered as ownng
constructvey the stock hed by her husband, , and her father W . ut,
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616
whe tbe famy rue mght aso be apped to so that he woud be consdered
as ownng hs wfe s stock, such appcaton woud be confned to the stock
actuay owned by W and coud not operate to make own constructvey the
stock of W consdered to be constructvey owned by W. In the same man-
ner, W coud be consdered as ownng constructvey the stock actuay owned
by W but not the stock of constructvey owned by W. Thus, because of
the absence of a drect nk between and W , these ndvduas woud each
own constructvey ony 20 per cent, whereas W, because of her reatonshp
to and W woud be consdered as constructvey ownng 30 per cent Of
course, whether , or W, or W woud be counted as the domnant person
woud depend upon the stock hodngs of other pertnent reatves, f any.
Paragraph (6) of subsecton (a) provdes that f the stock may be consd-
ered as owned by an ndvdua by appyng ether the opton rue or the famy
and partnershp rue, t sha be consdered as owned by hm under the opton
rue and not under the famy or partnershp rue. The reason for ths rue s
evdent from the foowng e ampe :
ssume that two brothers, and , each own 10 per cent of stock n
corporaton and that s wfe, W, aso hods 10 per cent, on whch her
husband, , has an opton to acqure at any tme. ssume further that t
becomes necessary to determne the stock ownershp of . Under the famy
rue woud be consdered as constructvey ownng 20 per cent, or the 10
per cent actuay owned by hm pus s 10 per cent constructvey owned by
hm. Under such rue, whe woud be consdered as constructvey ownng
hs wfe s 10 per cent, that nterest coud not be ncuded n computng s
stock ownershp. owever, snce has an opton to acqure hs wfe s stock,
he may, as the opton hoder and wthout reference to the famy reatonshp,
aso be consdered as constructvey ownng hs wfe s stock. Inasmuch as
constructve ownershp under the opton rue s n a respect equvaent to
actua ownershp, W s 10 per cent, f s deemed to constructvey own hs
wfe s stock under the opton rue rather than the famy rue, coud be ncuded
n computng s stock ownershp so as to brng hs tota up to 30 per cent.
Subsecton (b) of secton 354 provdes that outstandng securtes convertbe
nto stock, whether or not convertbe durng the ta abe year, may be con-
sdered as outstandng stock. ecause these securtes are consdered as out-
standng stock, the rues whch appy n arrvng at stock ownershp aso appy
to these securtes, ncudng the famy and partnershp rue as we as the
opton rue. owever, these securtes may or may not be consdered as out-
standng stock, dependng upon whether t s necessary so to consder them n
order to make the corporaton n persona hodng company or to permt the
ncuson of ncome from persona servce contracts or from the use of property
by sharehoders as persona hodng company ncome. The reason for ths
rue s that t appears that the rea owners of certan of these ncorporated
pocketbooks may own bonds, debentures, or other corporate obgatons whch
contan provsons under whch they may be converted nto stock. Wthout
such a rue, t mght be possbe for the company to escape cassfcaton as a
persona hodng company by havng ts stock hed by more than fve ndvduas
and at the same tme havng the nterest of the rea owner represented by
convertbe securtes.
Where some of the securtes are convertbe at a ater date than others, the
rue provdes that the cass havng the earer converson date may be ncuded
wthout the ncuson of the others, wth the quafcaton that no convertbe
securtes sha be ncuded uness a such outstandng securtes havng a
pror converson date are aso ncuded. or e ampe, where outstandng
securtes are convertbe n 1937, 1938, and 1939, those convertbe n 1937
can be ncuded wthout ncudng those convertbe n 1938 or 1939, and
those convertbe n 1987 and 1938 can bo ncuded wthout those convertbe
n 1939. owever, the rue woud not permt the ncuson of the securtes
convertbe n 1938 wthout ncudng those convertbe n 1937 or permt the
ncuson of the securtes convertbe n 1939 wthout the ncuson of those
convertbe n 1937 and 1938. The reason for ths rue s that the securtes
wth the earer converson date are more key to be hed by those who contro
the corporaton.
It s to be noted that n ths tte wherever any outstandng securty whch
Is not stock but whch, under the provsons of the tte Is consdered outstandng
stock, the rues reatng to outstandng stock appy as f t were stock.
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617
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N W S CTION 355, 1936 CT UNDISTRI UT D D UST D N T INCOM .
Ths secton defnes the term undstrbuted ad|usted net ncome. Ths s
the amount upon whch the ta under Tte I s based. The provson pro-
posed s the same as e stng aw e cept n the foowng respect: Under
e stng aw, a persona hodng company s aowed a deducton of 20 per cent
of the e cess of the ad|usted net ncome over the amount of dvdends receved
from other persona hodng companes. or e ampe, f the ad|usted net
ncome of a persona hodng company n e cess of dvdends receved from other
persona hodng companes s 10,000,000, 20 per cent or one-ffth of ths amount,
namey, 2,000,000, may be accumuated wthout the payment of any persona
hodng company surta whatever. The b does not aow ths deducton.
The b does not carry out a recommendaton of the ont Commttee on Ta
vason and vodance that there shoud be emnated the deducton (n arrv-
ng at undstrbuted ad|usted net ncome of a persona hodng company) of
amounts used or set asde to retre ndebtedness ncurred before anuary 1, 1934.
Whe recognzng the reasons whch mpeed the |ont commttee to make ths
recommendaton, your commttee fees, from further study of the queston,
that the dena of ths deducton woud cause hardshp n numerous cases
where, due to the partcuar crcumstances of the corporaton, a dvdend
dstrbuton can not be made because of a necessty for ega reasons of usng
the earnngs and profts to dscharge the debts. Moreover, any oss of revenue
caused by the contnued aowance of ths deducton can not Increase, snce
ndebtedness ncurred after 1933 can not be used as a bass for the deducton.
No corporaton can be formed for the purpose of takng advantage of ths
deducton. urthermore, t s nevtabe that the revenue oss must decrease
as pre-1984 debts are retred. It s the hope of your commttee that further
study of the probem w dscose a souton whereby the deducton may be
dened n the usua case but permtted n case ts dena seems un|ustfabe.
Ths deducton s not aowed n the case of foregn persona hodng companes.
N W S CTION 350, 1936 CT D UST D N T INCOM .
Ths secton defnes ad|usted net ncome.
The term ad|usted net ncome s aso defned n secton 351 of e stng aw,
and the foowng changes n that defnton are made by ths secton:
(1) Under e stng aw a persona hodng company s aowed as a deduc-
ton n computng ts ad|usted net ncome not ony ordnary edera ncome
and profts ta es pad durng the ta abe year but aso the speca ta under
secton 102 of the Revenue ct of 1936 (or a correspondng provson of a
pror Revenue ct) whch Imposes a surta on corporatons mpropery ac-
cumuatng surpus. though secton 102 does not appy to a corporaton for
a ta abe year durng whch t s sub|ect to the provsons of secton 351, t s
possbe for a corporaton ta abe for the current year under secton 351 to
pay durng such year ta es assessed aganst t under secton 102 for years
pror to that durng whch the corporaton was a persona hodng company.
Thus a corporaton may greaty reduce Its surta under secton 351 by takng
deductons for ta es pad for back years under secton 102. Snce the ta
under secton 102 s computed upon undstrbuted profts for back years t s
beeved It shoud be pad out of accumuated earnngs and profts rather than
out of the current earnngs and profts of the corporaton for the ta abe year.
Therefore, a provson of the b (secton 350(a) 1 of new Tte I ) dsaows
persona hodng companes a deducton for ta es mposed by secton 102 but
pad wthn the ta abe year.
(2) Under e stng aw a persona hodng company s aowed an unmted
deducton for chartabe and other ke contrbutons made wthn the ta abe
year to or for the use of donees descrbed n secton 23(q). The b restrcts
the deducton to contrbutons to the same chartes wth respect to whch the
deducton s aowed a corporaton, to an amount not n e cess of 15 per cent
of the net ncome of the corporaton, thereby gvng the persona hodng com-
pany the same percentage deducton as n the case of an ndvdua. or such
purpose, as n the case of the ndvdua, the deducton s computed wthout
subtractng the amount of t from gross Income, and n ths case, wthout sub-
tractng the amounts dsaowed under subsecton (b), reatng to e penses
dsaowed. Whe corporatons now en|oy a deducton of 5 per cent of ther
net Income for the amount of such contrbutons, persona hodng companes
are not under the b entted to ths 5 per cent aowance for the purpose of
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618
ths ta but are mted to the 15 per cent aowance. n e cepton to the
dena of the fu chartabe deducton s made under ths secton whch retans
the speca provson nserted n 351(b)3( ) of the Revenue ct of 1936 whch
grants an unmted deducton, n the case of a corporaton organzed pror to
anuary 1, 1936, to take over the assets of the estate of a decedent, for amounts
pad n qudaton of any abty of the corporaton based upon the abty
of the decedent to make a contrbuton or gft to charty, to the e tent such
abty of the decedent e sted pror to anuary 1, 1934. Your commttee be-
eves the retenton of ths speca provson s |ustfed on the ground that the
deducton w not nure to the beneft of any prvate ndvdua. Ths deduc-
ton and the chartabe deducton are not aowabe for the same year.
(3) Under e stng aw a persona hodng company s aowed n computng
ts ad|usted net ncome an unmted deducton for osses from saes or e -
changes of capta assets. If such osses were ncurred by an ndvdua, they
woud be aowed under e stng aw ony to the e tent of 2,000 pus the gans
from such saes or e changes. y dsaowng the unmted deducton, the b
makes the provson the same as n the case of an ndvdua.
Under subsecton (b) of secton 356 of new Tte I there s dsaowed as a
deducton from gross ncome, the e penses of operaton and mantenance (n-
cudng deprecaton) of property owned or operated by a persona hodng
company to the e tent that the e penses e ceed the rent or other compensaton
for the use of such property, uness t s estabshed to the satsfacton of
the Commssoner
( ) That the rent or other compensaton receved s the hghest obtanabe
or f noue was obtaned that none was obtanabe
( ) That the property was hed n the course of busness carred on bona
fde for proft and
(C) That there was reasonabe e pectaton that the operaton of the property
woud resut n a proft, or that such property was necessary to the conduct
of the busness.
To prevent a persona hodng company from chargng e penses n e cess of
ts ncome from the operaton and mantenance of property, such as yachts,
cty resdences, country estates, etc., aganst ts nvestment ncome, such e -
penses shoud be dsaowed uness the corporaton can meet the condtons
outned above. Ths has the effect of pacng the persona hodng company
on the same bass, n ths respect, as an ndvdua who can not offset hs
persona (as contrasted wth busness) e penses aganst hs ncome. If the
corporaton estabshes to the satsfacton of the Commssoner that the second
test s satsfed and that the property was necessary to the conduct of such
busness, t w not be necessary to prove there was reasonabe e pectaton
that the operaton of the property woud resut n a proft, n order to obtan
a fu deducton.
Ths provson woud not appy to an enterprse such as a farm or a racng
stabe operated by the corporaton tsef where more than 20 per cent of the
gross ncome of such corporaton came from such operatons. Ths s because
the corporaton must frst be a persona hodng company before ths provson
w appy. Moreover, even f such a corporaton mght be a persona hodng
company because more than 80 per cent of ts ncome came from nvestment
sources, t woud st have the opportunty of escapng ths provson by estab-
shng that the property was hed n the course of a bona fde busness carred
on for proft and that such property was necessary for the conduct of the bus-
ness. The stuaton of the corporaton n such cases remans essentay the
same as that of ta payers under e stng aw, who are requred to prove that
e penses for whch deductons are camed are ordnary and necessary and pad
or ncurred n carryng on a trade or busness for a proft. ven where an n-
vestment corporaton s runnng a yacht, cty resdence, or country estate on the
sde, t s, nevertheess, recognzed that certan property may be necessary for
the conduct of ts nvestment busness, such as typewrters, offce furnture,
automobe, and the ke. penses attrbutabe to such property woud
satsfy the thrd test.
N W S CTION 337, 19.10 CT M NING O T RMS US D.
Ths secton provdes that the terms used n the new Tte I sha have
the same meanng as where used n Tte I of the Revenue ct of 1936, reatng
to the ncome ta . It s the same as the correspondng provson of e stng
aw.
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N W S CTION 338, 1936 CT DMINISTR TI PRO ISIONS.
Ths secton s the same as secton 351(c) of e stng aw. It makes the
ncome-ta provsons of Tte I appcabe n so far as not nconsstent wth
Tte I , wth the e cepton that the foregn ta credt s dsaowed.
N W S CTION 859, 1936 CT IMPROP R CCUMUL TION O SURPLUS.
Ths secton contans a cross-reference to secton 102.
S CTION 2 O T MI C NG S IN CROSS-R R NC .
Ths Is merey a cerca amendment makng certan changes n cross-
references.
S CTION 3 O T ILL CTI D T S.
Ths secton appes the amendments to Tte I of the Revenue ct of 1936
by ths tte ony to ta abe years begnnng after December 31, 1936. It aso
makes t cear that Tte I of the Revenue ct of 1936 pror to such amend-
ment sha not appy to a foregn persona hodng company as defned n
secton 201 of the b, wth respect to any ta abe year endng after the date
of the enactment of the b.
Tte II oregn Persona odng Companes.
Tte II of the b deas wth foregn persona hodng companes. The ev-
dence presented to the ont commttee has shown that foregn persona hodng
companes have afforded one of the most fagrant oophoes for ta avodance.
The use of such corporatons has greaty ncreased wthn the ast few years.
Uness mmedate preventve measures are taken ncreased oss of revenue
w be suffered n the future. Therefore, ths sub|ect has receved speca
attenton by your commttee. On account of ack of drect |ursdcton over
such companes, substanta dffcutes have been encountered. Your com-
mttee s of the opnon that t Is |ustfabe on a grounds, ncudng const-
tutona grounds, to provde for a method of ta aton whch w reach the
sharehoders who own stock In such companes and over whom the Unted
States has |ursdcton. new method of ta aton s therefore proposed under
the b whch treats the ncome of the foregn corporate entty as the ncome
of the sharehoders wthn the |ursdcton of the Unted States and requres
them to report as ther ncome the undstrbuted net ncome of such foregn
persona hodng companes.
S CTION 201 O T ILL.
Ths secton amends Tte I of the Revenue ct of 1936 by addng after
Suppement O a new Suppement P deang wth foregn persona hodng com-
panes and ther sharehoders. n e panaton of the provsons of ths sup-
pement foows:
N W S CTION 331, 1936 CT D INITION O OR IGN P RSON L OLDING COMP NY.
Secton 331 defnes a foregn persona hodng company as a foregn corpora-
ton whch meets the foowng two requrements:
(1) dross ncome requrement. t east 60 per cent of the gross ncome of
the foregn persona hodng company for the ta abe year must be derved
from dvdends, nterest, royates, annutes, and other ncome as specfed n
secton 332. The tems of gross Income used for ths determnaton are the
same as n the case of persona hodng companes sub|ect to new Tte I .
provson smar to one descrbed In the case of persona hodng companes
sub|ect to new Tte I (see dscusson above under New secton 352 ) pro-
vdes that If a foregn persona hodng company has for one year once sats-
fed the 60 per cent gross ncome test, the mnmum percentage for subsequent
years sha be 50 per cent unt a ta abe year durng the whoe of whch the
stock ownershp test s not satsfed or unt the e praton of three consecu-
tve years n each of whch ess than 50 per cent of the gross ncome s foregn
persona hodng company ncome. Ths proposa s made to prevent companes
from gong In and out of the foregn persona hodng company cassfcaton
merey by sma changes n the character of ther ncome.
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C20
The b aso provdes for the ncuson n groas ncome (for the purpose of
determnng the gross ncome to whch the above percentage tests are to be
apped) of the dstrbutve share of the corporaton n the undstrbuted n-
come of a foregn persona hodng company n whch t s a sharehoder. or
a detaed e panaton see beow under headng New secton 334 and sub-
headng Gross ncome test
(2) Stock ownershp requrement. In order to come wthn the foregn per-
sona hodng company defnton, at some tme durng the ta abe year more
than 50 per cent n vaue of the outstandng stock of the company must be
owned, drecty or ndrecty, by or for not more than fve ndvduas who are
ctzens or resdents of the Unted States (herenafter caed the Unted
States group ). (See dscusson under New secton 333 for provsons
governng the determnaton of stock ownershp.)
corporaton whch s e empt from ta aton under secton 101 of e stng
aw s not n any case to be cassed as a foregn persona hodng companv
(secton 331(b)).
N W S CTION .132, 1936 CT OR IGN P RSON L OLDING COMP NY INCOM .
Secton 332 defnes persona hodng company ncome n e acty the same
way as t s denned n secton 353 of the Revenue ct of 1936 as amended bv
Tte I of ths b.
N W S CTION 333 STOC OWN RS IP IN OR IGN P RSON L OLDING COMP ST.
Secton 333 sets forth the provsons governng the determnaton of stock
ownershp for the purposes of ascertanng whether a foregn persona hodng
company s stock s owned by a Unted States group, and whether amounts
recevabe from persona servce contracts or for the use of corporaton property
are ncudbe as foregn persona hodng company ncome. These provsons
are the same as those provded n the case of persona hodng companes sub-
|ect to Tte I . See dscusson New secton 354.
N W S CTION 334, 1036 CT GROSS INCOM O OR IGN P RSON L OLDING
COMP NI S.
Secton 334(a) provdes, for the purposes of the new suppement, the gross
ncome of a foregn corporaton sha be computed as f t were a domestc
corporaton. Ths means that ncome from a sources, both wthn and wth-
out the Unted States, s ncuded n a foregn corporaton s gross ncome.
Such a provson s necessary n order to prevent ctzens and resdents avod-
ng ther proper share of the ta burden by pacng ther foregn securtes
n a foregn corporaton. If dvdends were decared by such a foregn corpora-
ton, Unted States sharehoders woud be ta abe on the entre amount receved
wthout regard to the source of the corporate earnngs of the corporaton.
Snce the new pan proposes that the undstrbuted ncome of the foregn
persona hodng company sha be consdered dstrbuted as a dvdend, t
foows that, n computng the corporate net ncome, gross ncome shoud not
be mted to that from sources wthn the Unted States. Computng the gross
ncome as f the corporaton were a domestc corporaton aso means that
nterest on obgatons of the Unted States, notwthstandng the provsons of
secton 4 of the ctory Lberty Loan ct of March 3, 1919, amendng secton 3
of the ourth Lberty ond ct of uy 9, 1918, s ncuded. Ths s beeved
|ustfed and s n no sense a voaton of the e empton contaned n the
Lberty Loan ct snce such nterest s a part of the corporate earnngs ava-
abe for dvdends and under we setted aw woud ose ts dentty and
e empt character f t were dstrbuted as a dvdend.
Snce the prncpe of the proposed addton of the suppement to the Revenue
ct of 1936 s that the undstrbuted ncome of foregn persona hodng
companes s to be ncuded n ther ncomes by Unted States sharehoders,
t s necessary that the suppement provde means by whch the amount to
be ncuded s ascertaned. The amount of the gross ncome determned as
descrbed above s the basc fgure for that cacuaton. In the smpe case
that amount mnus deductons and mnus the dvdends pad credt s the
amount the mercan sharehoders ncude. The smpe ease, s one where a
the stock of a foregn persona hodng company s owned by one Unted States
sharehoder and no other foregn corporaton need be consdered. In order to
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prevent the use of a chan of corporatons to avod a statute whch woud be
wrtten ony for the smpe case, t s necessary to provde for crcumstances
where the foregn persona hodng company n whch the Unted States share-
hoder owns stock n turn owns stock n another foregn persona hodng com-
pany and so down through a chan of foregn persona hodng companes. Sec-
ton 334(b), recognzng such a possbty, provdes for ncudng n the ncome
of a foregn persona hodng company the undstrbuted amount of the ncome
of any foregn persona hodng company n whch t owns stock. Ths sub-
secton Is desgned to reach down through a chan of corporatons to brng
the ncome of foregn persona hodng companes nto the foregn persona
hodng company, the ncome of whch s treated as ncome of mercan stock-
hoders.
ampes of the appcaton of these subsectons foow:
Suppose , a ctzen of the Unted States, owns a the stock of , a foregn
persona hodng company. n turn owns a the stock of Y, another foregn
persona hodng company. Corporaton Y has earnngs consstng of dv-
dends and nterest, upon stock and securtes of other domestc and foregn
corporatons, for the ta abe year of 100, none of whch s pad out n dv-
denda Corporaton has receved ncome for ts ta abe year of 100 from
dvdends and nterest, but makes no dstrbuton. Under the proposed rue, n
computng the net ncome of corporaton t woud be necessary to ncude n
ts gross ncome ts dstrbutve share whch Is undstrbuted of the net ncome
of Y. ssumng that s ony deducton s 10 on ts dvdends from sources
wthn the Unted States wthhed at the source, corporaton s undstrbuted
Suppement P net ncome for the year woud be 190, whch s the amount the
mercan stockhoder woud be requred to ncude In gross Income n hs
return. If, however, n the above e ampe corporaton Y derved 45 of ts
100 ncome, or 45 per cent, from the operaton of a busness as dstngushed
from nvestments, t woud not be a foregn persona hodng company and cor-
poraton woud not be requred to ncude n ts gross ncome any part of
Y s ncome of 100. If corporaton Y pad no dvdends to corporaton the
undstrbuted Suppement P net ncome of woud be ony 90, whch woud be
the amount woud have to report as gross ncome n hs return.
Smary, f corporaton Y n the frst e ampe owned stock n Z, another
foregn persona hodng company, Z s ncome woud be hed to be construc-
tvey receved by Y to determne the undstrbuted ncome of Y whch s to
be ncuded In the gross ncome of .
In the above e ampes, s a frst company wthn the meanng of sec-
ton 334(b) for the purpose of addng Y s undstrbuted ncome to t und Y s
a second company. Y s a frst company for the purposes of ascertanng
the amount to be ncuded n ts gross ncome on account of ts dstrbutve
share of Z s undstrbuted ncome.
In the appcaton of provsons of subsecton (b), ony the undstrbuted
ncome of foregn persona hodng companes s ncuded n the gross ncome
of foregn corporatons whch own stock n them. That s, f the company,
the undstrbuted Income of whch Is to be Incuded n the ncome of another,
does not have a type of ncome whch woud make t a foregn persona hod-
ng company, none of ts undstrbuted ncome Is to be ncuded n the gross
ncome of another.
Gross ncome test. n Important e tenson of the above rues s to be noted
(secton 334(c)2). Suppose Unted States ctzen owns a of the stock of
, whch s a foregn corporaton. Snce Is owned 100 per cent by an
mercan ctzen, It satsfes the stock ownershp requrement test. If t meets
the gross ncome test of 60 per cent foregn persona hodng company ncome
t w be a foregn persona hodng company. Does t meet such test Sup-
pose ts gross ncome from actua recepts s 50, 35 from manufacturng
operatons and 15 from nterest. Wthout more t does not meet the test-
ut suppose t owns 90 per cent of Y, a foregn persona hodng company
whose undstrbuted ncome s 100, a of Its gross Income beng from nterest.
Secton 334(c)2 provdes that for the purpose of determnng whether corpora-
ton meets the gross ncome test, there sha be ncuded n ts gross ncome,
as a dvdend, ts pro rata share of the 100 ( 90) whch t dd not receve.
Its gross ncome therefore becomes 140, of whch 35 s manufacturng ncome
and 105 from nterest and dvdends. More than 60 per cent of ts gross
ncome s foregn persona hodng company ncome, and therefore t s a foregn
persona hodng company. Secton 334(b) then operates for ta purposes,
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622
and the 90 remans n the gross ncome of corporaton for the purpose of
determnng ts undstrbuted ncome, whch s to be ncuded n the gross
ncome of Unted States ctzen who owns a the stock of corporaton .
If the above e ampe be changed so that the undstrbuted Income of corpora-
ton Y Is ony 10 nstead of 100, the appcaton of the rue above stated
makes the gross ncome of corporaton 59 ( 50 pus 90 per cent of 10), ony
24 ( 15 pus 9) of whch s foregn persona hodng company ncome. Ths
s ess than 60 per cent of the tota of 59, and hence corporaton does not
meet the gross ncome test, s not a foregn persona hodng company, and
none of ts undstrbuted ncome Is ncuded n the gross ncome of Unted
States ctzen who owns a the stock.
The rue above stated s to be successvey apped n the case of a chan
of foregn corporatons. Thus, n the above e ampes, f corporaton Y owns
stock n Z, a foregn persona hodng company, then (for the purpose of
determnng whether Y s a foregn persona hodng company) the unds-
trbuted ncome of Z s to be ncuded n the gross ncome of Y. In such case,
for the purpose of appyng secton 334(b) (as requred by secton 334(c)2)
Y woud be consdered a frst company and Z woud be consdered a sec-
ond company. urther, t makes no dfference whether the same Unted States
group e sts wth respect to the company whose ncome s augmented ( ) and
the company (Y) whose undstrbuted ncome s hed to have been receved.
Y need be s a foregn persona hodng company under the ownershp and
ncome rues. need be Is a foregn persona hodng company under such
rues before (or wth the addton of ts share of Y s undstrbuted ncome,
after) the addton of ncome consdered to be receved from Y as a dvdend.
In cSses where one company ( ) s consdered to have receved as a dvdend
the undstrbuted Income of another (Y), the amount It s consdered to have
receved s, of course, ts pro rata share of that Income. If the Unted States
group ceased to e st n the second company (Y) durng Y s ta abe year,
the amount whch s ncudbe as havng been receved by s s pro rata
share of that part of Y s undstrbuted ncome whch bears the same rato to
Y s entre, undstrbuted ncome as the perod up to and ncudng the ast day
of Y s ta abe year n whch a Unted States group e sted bears to Y s entre
ta abe year.
N W S CTION 335, 1938 CT UNDISTRI UT D SUPPL M NT P N T INCOM .
Secton 335 defnes undstrbuted Suppement P net ncome, whch s the
term used to descrbe the amount ther dstrbutve shares of whch the Unted
States sharehoders are requred to ncude n ther returns athough not
dstrbuted to them, and the amount whch Is consdered to have been ds-
trbuted by foregn persona hodng companes, not ony for the purpose of
ncudng amounts n the ncome of Unted States sharehoders, but aso for
the purpose of ascertanng the gross ncome of other foregn persona hodng
companes n whch that amount s ncuded under secton 334. The term s
defned to mean Suppement P net ncome (see dscusson of secton 336)
mnus the dvdends-pad credt aowed In secton 27 computed wthout the
beneft of subsecton (b) thereof (reatng to the dvdend carry-over).
N W S CTION 836, 1930 CT SUPPL M NT P N T INCOM .
Secton 330 defnes Suppement P net ncome. s e paned above, ths Is
the amount from whch the dvdends-pad credt s subtracted In order to
ascertan the amount requred to be ncuded n the gross ncome of the share-
hoders of a foregn persona hodng company. The term s defned to mean
the net ncome (that s, gross Income mnus deductons) wth the foowng
ad|ustments. ddtona deductons as foows are aowed:
(1) edera ncome, war-profts, and e cess-profts ta es (see e panaton
under Tte I, secton 356).
(2) Contrbutons or gfts (chartabe contrbutons) made wthn the ta -
abe year to or for the use of donees descrbed In secton 23(q) for the pur-
poses theren specfed to an amount whch does not e ceed 15 per cent of
the company s net ncome computed wthout regard to secton 23(q) or the
subsecton aowng the deducton and wthout deductng the amounts ds-
aowed under subsecton (b), the deductons descrbed beow. (See e pa-
naton under secton 356.) or the purpose of ths computaton, the construc-
tve ncome consdered to have been receved as provded n secton 334(b)
Is gnored.
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The foowng deductons are not aowed:
(1) The deductons provded n secton 23(d), reatng to ta es of a share-
hoder pad by the corporaton, and n secton 23(p), reatng to penson trusts.
These deductons appear unnecessary and nappcabe wth respect to ths cass
of corporatons.
(2) penses and deprecaton. Ths provson s the same as the compa-
rabe provson n Tte I and s e paned n connecton wth secton 356
of that tte.
N W S CTION 837, 1936 CT CORPOR TION INCOM T D TO UNIT D ST T S
S R OLD RS.
The undstrbuted Suppement P net ncome of a foregn persona hodng
company s ta ed to ts Unted States sharehoders under secton 337. It s
beeved that n the ordnary case the stock of a foregn persona hodng
company s owned by the mercan Indvdua (ncudng the members of hs
famy) for whom the corporaton was created as a foregn ncorporated
pocketbook. owever, the set-up s not aways so smpe and n some n-
stances the ta avodance pan may nvove a dvson of the stock of the
foregn company among controed domestc corporatons, partnershps, estates,
and trusts. or that reason, and snce a such controed domestc nterests
are wthn the |ursdcton of the Unted States, secton 337 appes not ony
to ctzens or resdents of the Unted States who are sharehoders n the
foregn persona hodng company but aso to any domestc corporaton, partner-
shp, estate, or trust whch may be a sharehoder theren. The revenue aws
defne domestc corporaton and domestc partnershp but do not defne
a domestc estate or trust ccordngy, secton 337 contans a further spec-
fcaton to the effect that estates and trusts whch make returns ony of ncome
from sources wthn the Unted States are not counted as Unted States share-
hoders.
Subsecton (b) : The partcuar Unted States sharehoders to be ta ed upon
the undstrbuted Suppement P net ncome of the foregn persona hodng
company are f ed by the stock hodngs as of the ast day of the company s
ta abe year on whch more than 50 per cent n vaue of ts outstandng stock
was owned by a Unted States group of fve or ess Indvduas. Whe n some
cases the Unted States group may be dentca wth the Unted States
sharehoders the two terms are nevertheess dstnct. or e ampe, a do-
mestc corporaton whch owns stock n the foregn company s a Unted States
sharehoder for purposes of secton 337 but s not a member of the Unted
States group snce, under secton 833(a), the stock t owns n the foregn
company s consdered as beng owned proportonatey by ts sharehoders for
the purpose of determnng whether the foregn company consttutes a foregn
persona hodng company.
The undstrbuted Suppement P net ncome of the foregn persona hodng
company for ts ta abe year s ta ed to the Unted States sharehoders n the
same rato that the porton of the ta abe year up to and ncudng the ast
day on whch the Unted States group e sted bears to the entre ta abe year.
Thus, f the Unted States group e sted on the ast day of the ta abe year,
the Unted States sharehoders woud return ther pro rata shares of the un-
dstrbuted Suppement P net ncome for the entre ta abe year. ut f the
Inst day on whch the Unted States group e sted was on September 30, the
Unted States sharehoders woud, f the ta abe year was a caendar year,
return ony nne-twefths of the undstrbuted Suppement P net ncome for the
entre ta abe year. It w bo observed that n the ast case the cacuaton
s based upon the undstrbuted Suppement P net ncome for the entre ta abe
year and not merey upon the ncome receved by the foregn company pror to
September 30. y ths rue, a dvdend dstrbutons made by the foregn
company are taken nto account regardess of the day wthn the ta abe year
on whch the ast Unted States group e sted. If, n the ast case, the current
earnngs had a been dstrbuted after September 30, there woud have been no
undstrbuted Suppement P net ncome to be returned by the Unted States
sharehoders who owned stock n the foregn company on September 30.
The pro rata shares of the undstrbuted Suppement P net ncome to be
returned by the Unted States sharehoders are treated as a dvdend pad by
the foregn company and receved by the Unted States sharehoders on the
ast day of the foregn company s ta abe year on whch the Unted States
group e sted. The respectve amount to be returned by each Unted States
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624
sharehoder depends not ony upon the number of shares of stock owned by
hm but aso upon the reatve rghts of the severa casses of sharehoders, t
the foregn company has more than one cass of stock outstandng. Thus, If
the foregn company has both common and preferred stock outstandng and
the preferred stock, whether cumuatve or noncumuatve, ranks ahead of the
common stock wth respect to dvdend dstrbutons, the assumed dstrbuton
of the undstrbuted Suppement r net ncome w frst be apped to the
preferred sharehoders accordng to ther reatve nnd respectve nterests,
before beng aocated to the common sharehoders. Secton 337(b) e pressy
provdes that the amounts returned by the Unted States sharehoders as ther
pro rata shares of the undstrbuted Suppement P net ncome sha be treated
as a dvdend pad by the foregn company and a dvdend receved by the
sharehoders n order that such amounts w be gven the same fu force and
effect as though the assumed dstrbuton had actuay been made by the
foregn company.
In ts appcaton, secton 337 reaches a Unted States sharehoders who
own stock n the foregn persona hodng company on the specfed day. The
secton may, therefore, reach ndvduas havng ony a mnorty nterest n the
foregn company. owever, that s not consdered very key to happen. In
the ordnary course of events, strangers do not hod stock n a famy owned
ncorporated pocketbook, whether ncorporated under foregn or domestc
aw. Moreover, the defnton paced upon the term foregn persona hodng
company shoud e cude foregn corporatons whose securtes are sted on
any e change so that mercans generay mght purchase such securtes as
nvestments. If any ndvdua s a mnorty sharehoder of a foregn persona
hodng company, t s more than key that such ndvdua s a member of,
or s n some way connected wth, the famy ownng and controng the
foregn company. If by chance an ndvdua shoud be a mnorty share-
hoder n a foregn corporaton under such crcumstances that he woud not be
aware of the company s cassfcaton as a foregn persona hodng company,
he woud not be sub|ected to any penates for fang to compy wth secton
337. t most, hs faure woud stay the tong of the statutory perod of
mtatons upon assessment and coecton for a perod of seven years and he
woud, wthn such perod, be sub|ected to a defcency assessment when the
fact became known.
Secton 337(c) proposes to aow the Unted States sharehoder a credt
aganst hs norma ta (and n the case of a corporate sharehoder, credt
aganst the surta on undstrbuted profts) for hs proportonate share of the
nterest receved by the foregn company on obgatons of the Unted States
of the casses specfed n secton 25(a) (1) or (2). Ths rue appes ony
where the foregn corporaton n whch the Unted States sharehoder owns
stock r, fact receved such nterest and not where such nterest s ncuded n
the gross ncome of the foregn company by reason of ts ownershp of stock n
another foregn persona hodng company. Thus f the Unted States share-
hoders owned the stock of corporaton , a foregn persona hodng company,
and the atter owned the stock of corporaton , aso a foregn persona
hodng company, and both foregn companes receved Interest on Unted
States obgatons, the Unted States sharehoders woud be entted to a credt
ony for the nterest actuay receved by corporaton and not for any of the
nterest receved by corporaton whch mght be ncuded n corporaton s
gross ncome ether as a dvdend from corporaton or as a constructve
dvdend from corporaton under secton 334(b).
Secton 337(d) requres that each Unted States sharehoder who Incudes n
hs gross ncome hs pro rata share of the undstrbuted Suppement P net
ncome of a foregn persona hodng company, sha, f he owns 5 per cent or
more n vaue of the outstandng stock, set forth n hs return n compete
deta a statement of the gross ncome, deductons and credts, Suppement P
net ncome and undstrbuted Suppement P net ncome of the foregn company
for ts ta abe year. Ths requrement s necessary snce a return may not be
fed by the foregn company from whch such nformaton may otherwse be
procured.
Secton 337(e) : In order to avod the possbty that amounts of undstrb-
uted Suppement P net ncome of foregn persona hodng companes, whch
are returned by Unted States sharehoders as constructve dvdends, mght
be ta ed agan when ater actuay dstrbuted, t has been provded that the
entre undstrbuted Suppement P net ncome for a ta abe year, wth respect
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623
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to whch such persons are requred to ncude n gross ncome ther dstrbutve
shares, sha be consdered as a contrbuton to capta of the foregn persona
hodng company. subsequent dstrbuton, f made out of such capta,
woud not be pad out of earnngs and profts for the ta abe year and woud
not consttute a dvdend under secton 115 of the Revenue ct of 1936.
Through the appcaton of e stng aw the pan, however, woud operate to
requre the company to dstrbute a ts accumuated earnngs and profts
before a ta -free dstrbuton coud be made. The appcaton of the rue s
ustrated by the foowng e ampe: , a foregn persona hodng company,
s owned 75 per cent by , a ctzen of the Unted States, and 25 per cent by ,
a nonresdent aen. or the caendar year 1937 has an undstrbuted Sup-
pement P net ncome of 100. woud be requred to report 75. woud
treat 100 as a contrbuton to capta. If for the caendar year 1938 had
no ncome and no accumuated earnngs and profts, but dstrbuted 100, the
dvdend woud be ta -free n the hands of both and . If, however, had
accumuated earnngs and profts of 100 at the begnnng of 1937, the facts
otherwse beng the same, the dstrbutons n 1938 woud be ta abe to and
the ta abty of woud depend upon the appcaton of secton 119(a)2( )
of the Revenue ct of 1936.
Secton 337(f) : Ths s a coroary to the proposed rue n secton 337(e).
It s provded that the amount of the undstrbuted Suppement P net ncome
requred to be ncuded n the gross ncome of Unted States sharehoders
shoud be added to the bass of ther shares and be treated as havng been
remtted by the sharehoder as a contrbuton to the capta of the company.
Ths rue, however, ony appes to the e tent the amount s ncuded n the
gross ncome of the sharehoder ncreased or decreased by any ad|ustment n
the ast determnaton of the sharehoder s ta abty, made before the e pra-
ton of seven years after the date prescrbed by aw for fng the return.
The appcaton of the rue s ustrated as foows: In the e ampe gven
under (e) assume the bass of s stock to be 300. If takes up 75 as a
constructve dvdend In 1937 the bass of hs stock woud be 375. When the
75 s dstrbuted ta -free, s bass, assumng no other changes, woud agan be
300. If faed to ncude the 75 as requred by aw and hs faure was
not dscovered unt after the 7-year statute of mtatons had e pred, the
appcaton of the rue woud not ncrease the bass of s stock. The subse-
quent ta -free dstrbuton of 75 woud reduce hs bass to 225, thus tendng
to compensate for hs faure to report the amount of 75 n hs gross ncome.
If the Commssoner shoud read|ust the undstrbuted Suppement P net n-
come of the company wthn the statutory perod, thus ncreasng or decreasng
the amount shoud have reported, proper ad|ustment woud be made. More-
over, ths rue as to ad|ustment of the sharehoder s bass appes even though
the sharehoder has sod hs stock and reported a capta gan n gross ncome
n a ta abe year pror to the year n whch he s requred to ncude n gross
ncome hs dstrbutve share of the undstrbuted Suppement P net ncome of
the company. In some cases such ad|ustment may entte the sharehoder to
a refund wth respect to such pror year.
N W S CTIONS 338, 839, 840, ND 341, 1938 CT IN ORM TION R TURNS.
In order adequatey to enforce the provsons of Suppement P added to the
Revenue ct of 1936 by Tte II, t s necessary that the Treasury have nfor-
maton as to the e stence of foregn persona hodng companes, who ther
Unted States sharehoders are, and the ncome of, and dstrbutons by, foregn
persona hodng companes. Snce the Unted States may have no effectve
|ursdcton over the corporatons themseves, the ony persons from whom such
nformaton can usuay be obtaned are the mercan ct/sens or resdents who
are nterested n them.
Secton 338 of the proposed Suppement P requres offcers and drectors of
foregn corporatons whch were foregn persona hodng companes for the
precedng ta abe year to fe monthy returns and annua returns. The
monthy returns must be fed wth the Commssoner on the oth day of the
month coverng the precedng caendar month and must show the name and
address of each sharehoder, the cass and number of shares hed by each, the
names and addresses of hoders of securtes convertbe nto stock, the changes
n ownershp durng the perod, and such other nformaton as may he pre-
scrbed to carry out the ct. The Commssoner may permt the fng of
returns coverng a onger perod In eu of monthy returns.
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626
Smary, annua returns are requred of offcers and drectors of such for-
egn corporatons. These returns must set forth n compete deta the gross
ncome, deductons and credts, net ncome, Suppement P net ncome, and
undstrbuted Suppement P net ncome of the foregn persona hodng com-
pany for the year. If the requred number of- monthy returns wth respect to
stock ownershp has not been fed, the offcers and drectors must fe an
annua return showng, wth respect to the year, the same nformaton as s
requred under the monthy returns provsons.
Secton 339 requres returns by Unted States sharehoders by or for whom
more than 50 per cent or more n vaue of stock (ncudng stock hed by the
famy) s owned f the foregn corporaton was a foregn |wrsona hodng
company for the precedng ta abe year. The nformaton requred, the power
of the Commssoner to prescrbe a onger perod than a month, and the
requrement of an annua report, f a reports for the shorter perod are not
fed, are the same as n secton 338.
Secton 340 provdes that under reguatons prescrbed by the Commssoner
wth the approva of the Secretary any attorney, accountant, fducary, bank,
trust company, fnanca nsttuton, or other person who on or after the date of
the enactment of ths b ads, asssts, counses, or advses n, or wth respect
to, the formaton, organzaton, or reorganzaton of any foregn corporaton
sha, wthn 30 days after gvng such ad, assstance, counse, or advce, fe
wth the Commssoner of Interna Revenue a return. The secton aso re-
qures such persons who snce 1933 and pror to 90 days after the date of the
enactment of ths b have aded, asssted, counseed, or advsed n the forma-
ton, organzaton, or reorganzaton of any foregn corporaton wthn 90 days
after the date of the enactment of ths b to fe a return wth the Comms-
soner of Interna Revenue. Returns requred by the secton must be under
oath and must gve such nformaton n the possesson, knowedge, or contro
of such person as the Commssoner wth the approva of the Secretary pre-
scrbes by reguatons as necessary for carryng out the provsons of the Reve-
nue ct of 1930. Nothng n ths secton s to be construed to requre the
dvugng of prveged communcatons between attorney and cent.
Secton 341 provdes a crmna penaty for the wfu faure to compy wth
secton 338, 339, or 310, such penaty to be n eu of the penates provded n
secton 143(a) of the Revenue ct of 1936 for such offense.
S CTION 202 O T ILL CTI D T S.
Secton 202 of the b deas wth the effectve date of the provsons reatng
to foregn persona hodng companes. It provdes that the provsons of Sup-
pement I , added to the Revenue ct of 1930 by secton 201 of the b, sha
not appy to a ta abe year endng on or before the date of the enactment of
ths b nto aw, and that no foregn corporaton sha be consdered a foregn
persona hodng company uness, after the date of the enactment of ths ct,
more than 50 per cent n vaue of ts outstandng stock s owned, drecty or
ndrecty, by or for fve or ess ndvduas who are ctzens or resdents of
the Unted States.
The secton aso aows n perod of grace for fng the frst nformaton
returns whch are requred by sectons 338 and 339 of Suppement P to be
fed by offcers and drectors and prncpa Unted States sharehoders of
foregu persona hodng companes.
SUCTION 203 O T ILL D UST D SIS O STOC O OR IGN P RSON L OLDING
COMP NY.
Ths secton makes the necessary substantve change n secton 113(b) of the
Revenue ct of 1936 (whch reates to ad|usted bass for determnng gan or
oss on the sae or e change of property) to compement the provson of sec-
ton 337(f) of Suppement P whch provdes that the bass of stock owned by
Unted States sharehoders s ad|usted on account of amounts ncuded n
ther gross ncome under Suppement P. Ths amendment provdes that the
provson stated n secton 337(f) s a rue of secton 113(b).
S CTION 204 O T ILL SIS O STOC IN OR IGN P SON L OLDING COMP NY
C UIR D Y D C D NT.
The genera rue governng the bass of property acqured from a deceased
person by hs estate or by bequest, devse, or Inhertance s stated In secton
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113(a)5 of the Revenue ct of 1036, vz, the far market vaue of such property
at the tme of such acquston. Your commttee beeves that nn e cepton to
ths genera rue shoud be created, n the case of a decedent dyug after the
date of enactment of the Revenue ct of 1937, where the property so acqured
conssts of stock or securtes of a foregn corporaton whch for ts ta abe
year ne t precedng the date of the decedent s death was a foregn persona
hodng company, . e., a corporaton whch for such year satsfes the gross
ncome requrement of secton 331 (a), and wth respect to whch a Unted
States group (as defned n secton 331 (a)2) e sted at any tme durng such
year. It s the vew of the commttee that the proper rue as to bass to be
apped n such cases shoud be the far market vaue of such property at the
tme of such acquston or the bass n the hands of the decedent, whchever
s ower. Secton 204 of the b woud estabsh ths rue.
The commttee fees that ths more severe rue s |ustfed by the character
of the corporatons to whose stock and securtes ts appcaton s mted.
Such foregn persona hodng companes are, wth few e ceptons, t s be-
eved, formed or avaed of by ther owners to evade or avod the payment
of ther |ust share of edera ncome ta es by the accumuaton of ncome
abroad. Sound fsca pocy demands that a possbe awfu means be Invoked
to protect the ntegrty of the revenues from the destructve effects of wde-
spread resort to ths type of ta -dodgng devce. The rue contaned n secton
204 Is therefore thought to be |ustfed by the same sort of consderatons as
the estabshed prncpe appcabe to transfers by gft, contaned n secton
113(a)2 of the Revenue ct of 1936.
Secton 204 Is aso Intended to compement and support secton 205 of the
b reatng to qudaton of foregn persona hodng companes. Together
they shoud operate to e ert effectve pressure upon the mercan owners of
these foregn companes to dssove them wth a mnmum of deay.
S CTION 205 O T ILL LI UID TION O OR IGN P RSON L OLDING COMP NI S.
Secton 115(c) of the Revenue ct of 1934 e cepted from the benefts of
secton 117(a), reatng to gans on the sae or e change of capta assets, gans
reazed by stockhoders on the parta or compete qudaton of a corporaton.
ence, 100 per cent of the gans on such qudatons were requred to be taken
nto account n computng net ncome, wthout regard to the ength of tme
a sharehoder had hed hs stock. Ths severe rue was rea ed n the Revenue
ct of 1936 by an amendment to secton 115(c), whch e tended secton 117(a)
to gans reazed In the case of dstrbutons n compete qudaton, compete
qudaton beng defned for the purposes of such amendment to ncude any
one of a seres of dstrbutons made by a corporaton n compete canceaton
or redempton of a of ts stock n accordance wth a bona fde pan of quda-
ton and under whch the transfer of the property under the qudaton s to
be competed wthn a tme specfed n the pan, not e ceedng two years from
the cose of the ta abe year durng whch s made the frst of the seres of
dstrbutons under the pan. One of the consderatons whch motvated the
adopton of ths amendment was the desre to encourage and factate the
dssouton of persona hodng companes formed n foregn countres by
mercan ctzens and resdents n pror years.
Your commttee beeve that the tme has arrved to wthdraw atogether
from the stockhoders of such companes the benefts of secton 117(a), uness
they are qudated wthn a mted tme after the date of the enactment of
ths b. That s the purpose and effect of secton 205 of the b. It woud
appy to any foregn corporaton whch wth respect to any ta abe year
begnnng on or before, and endng after, the date of the enactment of the
Revenue ct of 1937, was a foregn persona hodng company, and wth
respect to whch a Unted States group (as defned n secton 331(a)2) e sted
after the date of such enactment. In order for the sharehoders of any such
corporaton to derve any beneft from secton 117(a). t woud be necessary
that the qudaton be competed before anuary 1, 1938. Snce your commttee
recognze that ths mted perod may not be adequate n certan cases for
the competon of a qudaton aready started or prompty begun, further
provson has been made under whch the Commssoner s authorzed to e tend
the tme for the competon of the qudaton for such perod as he may fnd
reasonabe, but not ater than une 30, 1938, If t s estabshed to hs sats-
facton by evdence submtted before anuary 1, 1938, that due to the aws
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628
of the foregn country n whch the corporaton s ncorporated, or for other
reason, t s or w be mpossbe to compete the qudaton before that date.
Ths wthdrawa of the prveges created by the amendment to secton 115(c)
In the 1936 ct w have no appcaton to or effect upon bona fde operatng
companes ncorporated by mercans n foregn countres to carry on egtmate
commerca enterprses nor upon foregn nvestment companes whose stock s
wdey hed. Rather, t w operate ony aganst a cass of companes formed
or used prmary to evade or avod edera ta es. Ther rapd dssouton
s hghy desrabe as a matter of sound fsca pocy. Your commttee beeve
secton 205 w create an effectve nducement to prompt qudaton n the
ease of many of the companes to whch t appes.
S CTION 206 O T ILL ST TUT O LIMIT TIONS.
Secton 206(a) of the b provdes for a 7-year statute of mtatons n cases
where the ta payer omts from hs gross ncome the amount of hs dstrbutve
share of the undstrbuted ncome of a foregn persona hodng company. In
vew of the dffcuty whch the Government has n obtanng nformaton wth
respect to foregn corporatons formed or used for ta avodance and the poss-
btes of conceament of ownershp by sharehoders, t s beeved that a
perod onger than the usua perod for assessment and coecton wthout
assessment of the ta s necessary. Subsectons (b) and (c) make necessary
technca and cerca amendments to carry out the pocy of subsecton (a).
S CTION 207 O T ILL MINOR M NDM NTS.
Secton 4 of Tte I of the Revenue ct of 1986 provdes that the genera
provsons of Tte I appy to speca casses of ta payers sub|ect to the
e ceptons and addtona provsons contaned n the suppement appcabe to
such ta payers. Secton 207(a) makes ths provson appy to Suppement P
added by Tte II of the b. The remanng subsectons of secton 207 make
necessary cross-references.
Tte III Dsaowed Deductons.
S CTION 301 O Tn ILL DIS LLOW D D DUCTIONS.
Losses from saes or e changes. Under e stng aw, secton 24(a)6 of the
Revenue ct of 1936, osses are specfcay dened n the case of saes or
e change of property between members of a famy or between a sharehoder
nnd a corporaton n whch such sharehoder and hs mmedate famy owns
more than 50 per cent n vaue of the outstandng stock. Ths provson of
e stng aw s not e cusve and the Government may st deny osses n the
case of saes or e changes not specfcay covered thereby (for nstance,
between unce and nephew) f such saes or e changes are not bona fde.
owever, because the evdence necessary to estabsh the fact that a sae or
e change was not made n good fath s amost whoy wthn the knowedge
of the person camng the deducton, the Government has encountered con-
sderabe dffcuty n sustanng the dsaowance of the deducton n a great
many cases. Moreover, the specfc provsons of secton 24(a)6 of e stng
aw have proved nadequate to meet many stuatons of ths type. ccordngy,
your commttee proposes the amendment of ths secton to provde certan add-
tona restrctons on deductons of ths character. owever, as n the case
of the provsons of e stng aw, t s not ntended by ths amendment to mpy
any egsatve sancton of camng deductons for osses on saes or e changes
n cases not covered thereby, where the transacton acks the eements of good
fath or fnaty, generay characterzng saes and e changes of property.
Secton 301 adds to e stng aw provsons whch specfcay deny osses
between
(1) Two corporatons f more than 50 per cent n vaue of the outstandng
stock n both s owned, drecty or ndrecty, by the same ndvdua, and f
ether one of the corporatons was a persona hodng company for the precedng
ta abe year
(2) n ndvdua and a corporaton n whch such ndvdua, together wth
a partner, owns more than 50 per cent n vaue of the outstandng stock:
(3) n ndvdua and a fducary of any trust of whch the ndvdua
Is a grantor
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629
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(4) fducary of one trust and a fducary of another trust, f any grantor
of one of the trusts s aso a grantor of the other and
(5) fducary of a trust and any benefcary of such trust.
The amendments made by secton 301 further strengthen the e stng aw
by appyng, for the purpose of determnng stock ownershp n a corporaton,
substantay the same rues as used n determnng the stock ownershp of a
persona hodng company. The present aw and the proposed b provde
that an ndvdua sha be consdered as ownng the stock hed by the members
of hs famy. (Ths rue, carred Into the secton as rewrtten by the b, does
not, of course, operate to dsaow a os on a sae by a wfe to her brother-n-
aw of stock n a corporaton. though for the purpose of appyng paragraphs
(1) ( ) and (C) the stock owned by the wfe may be consdered as owned by
the husband, t s the wfe and not the husband who made the sae and sustaned
the oss.) y the proposed amendments, the stock ownershp rues are enarged
so that
(1) Stock hed by a corporaton, partnershp, estate, or trust s consdered
to be owned proportonatey by ts sharehoders, partners, or benefcares
and
(2) Stock hed by an ndvdua s partner s consdered to be owned by such
ndvdua f such ndvdua aso owns stock n the corporaton.
In appyng the stock ownershp rues, stock constructvey owned by an
ndvdua as the sharehoder, partner, or benefcary of the corporaton, part-
nershp, or trust, or estate, whch hods the stock s consdered to be actuay
owned by such ndvdua for the purpose of makng another the constructve
owner of such stock. Thus, f a the stock of corporaton s hed by
corporaton Y, and a the stock of corporaton Is owned n equa proporton
by three brothers, , , and C, no oss woud be aowabe on a sae or
e change of property between , or , or C and corporaton or corporaton
Y. Wth respect to corporaton Y, each brother woud be consdered as
ownng the stock actuay owned by hs brothers and, therefore, each woud be
a constructve owner of a the stock of corporaton Y. Wth respect to cor-
poraton , ts stock, athough owned by corporaton Y, woud be consdered
as constructvey owned by , , and C n equa proportons, and such con-
structve ownershp by , , and C woud be consdered as actua ownershp
for the purpose of makng , , or C the constructve owner of a the stock
of corporaton .
owever, stock constructvey owned by an ndvdua through the appca-
ton of the rues appyng to famy reatonshps or a partnershp reaton
s not consdered to be actuay owned by the constructve owner so as to
make another the constructve owner of the stock. Thus, f a the stock
of corporaton was owned 5 per cent by , 20 per cent by , hs brother,
50 per cent by W, hs wfe, and 25 per cent by P, hs partner, no oss woud
be aowabe on a sae or e change of property between or W and corpora-
ton . woud constructvey own the stock of hs brother, hs wfe, and
hs partner and so woud constructvey own a the stock of corporaton .
W woud constructvey own the 5 per cent actuay owned by her husband
but not the 20 per cent and 25 per cent constructvey owned by as
s brother and P s partner, respectvey. ccordngy, W woud own construc-
tvey 55 per cent of the stock or more than 50 per cent and her oss woud
not be aowabe. Smary, on the appcaton of the same rue, and P
woud be consdered as ownng constructvey ony the 5 per cent actuay
owned by and so woud be constructve owners of 25 per cent and 30
per cent, respectvey, or, In each case, ess than 50 per cent.
ddtona ustratons of the appcaton and effect of the stock ownershp
rues are set out n the foowng tabe:
ssumng that
owns 45 per cent of the stock of corporaton (whch s a persona
hodng company) and aso owns 10 per cent of the stock of corporaton Y.
, who s s brother, owns 5 per cent of the stock of corporaton and
41 per cent of the stock of corporaton Y.
P, who s s partner, owns 5 per cent of the stock of corporaton and no
stock of corporaton Y.
W, who s s wfe, owns 40 per cent of the stock of corporaton Z, a per-
sona hodng company.
Corporaton owns 60 per cent of the stock of corporaton Z.
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630
Losses woud not be aowabe between
P RTI S.
corporaton and Y corporaton
corporaton and Z corporaton
Y corporaton and Z corporaton.
and corporaton
owns more than 50 per cent n
vaue of the outstandng stock
of both corporatons and one of
the corporatons s a persona
hodng company.
and T corporaton The ndvduas own more than 50
and Z corporaton f per cent n vaue of the out-
and Y corporaton standng stock.
W and Z corporaton
and I amy reatonshp of the nd-
and W I vduas.
The foowng transactons woud not be affected and any osses, otherwse
aowabe, woud be aowed:
Transactons between:
corporaton or Z corporaton and .
corporaton or Y corporaton or Z corporaton and P.
corporaton or Y corporaton and W.
and P or W.
P and or or W.
W and or P.
It w be observed from the foregong tabe that the amendments made
by secton 301 (a) and (b) do not reach a possbe stuatons n whch
due to famy reatonshps or frendy contro, artfca osses mght be
created for ta purposes. It shoud aso be noted that n the case of the
famy rue under the amendments as we as under e stng aw, t s not
necessary for the ndvdua to own stock hmsef n the corporaton whch
s the party to a sae or e change between hm and the corporaton for the
oss to be dsaowed. or nstance, osses resutng from saes or e changes
between a husband and hs wfe s corporaton are not deductbe, regardess of
whether or not the husband owns any stock n such corporaton.
S CTION 301 O T ILL UNP ID P NS S ND INT R 8T.
Secton 301 aso adds to secton 24 of the 1936 ct a subsecton (c) whch
denes deductons for unpad e penses and nterest n certan cases. Under
e stng aw, some ndvduas have attempted to take advantage of the
dfference n operaton between dfferent accountng methods of reportng
ncome to obtan artfca deductons for nterest and busness e penses. or
e ampe, t was found that an ndvdua on the accrua bass became ndebted
ether to an ndvdua wth whom he en|oyed a speca reatonshp, such as a
member of hs famy, or to a corporaton whch he controed, and hs credtor
reported ncome on the cash bass. Thereafter as nterest became due on
the ndebtedness, the debtor on the accrua bass reported the nterest as a
deducton for ncome-ta purposes, but he dd not make any actua payment
to hs credtor. Snce the credtor was on a cash bass, he reported no ncome
and thus the sum nvoved escaped ncome ta atogether, for usuay n
these cases f the payment were fnay made t was done at a tme when the
credtor had offsettng osses. The use of ths devce as a practca matter
s restrcted to stuatons where the partes occupy speca reatonshps to
each other because an ordnary bona fde credtor woud not permt hs debtor
to engage n such a practce.
Your commttee recommends that secton 24 of the Revenue ct of 1936 be
amended by addng a new subsecton under whch t s provded that where the
credtor, by reason of hs method of accountng, s not requred to ncude n hs
gross ncome the amount of the e penses or the nterest unt t s pad, no deduc-
ton sha be aowed to the debtor under secton 23(a) (for e penses) or sec-
ton 23(b) (for nterest) for sums not pad by the debtor durng hs ta abe year
or wthn two and one-haf months after the cose of such ta abe year. Ths
provson s mted n ts appcaton to cases n whch both the ta payer and
the person to whom the payment s to be made are, at the cose of the year of the
ta payer or at any tme wthn two and one-haf months thereafter, persons
between whom osses woud be aowed under secton 24(b).
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CTION 802 O T ILL CTI D T .
Ths secton provdes that the amendments made by secton 301 sha appy ony
wth respect to ta abe years begnnng after December 31, 1936.
Tte I Trusts.
S CTION 401 O T ILL D NI L O SON MPTION TO T USTS.
Ths secton amends secton 163(a) of the Revenue ct of 1 )36 by emnatng
the 1,000 e empton now granted to a trusts. Ths w not affect trusts whch
dstrbute ther Income, snce such trusts are not ta abe and the benefcares
have the rght to a persona e empton under e stng aw but w prevent trusts
to accumuate from escapng ta entrey. or e ampe, f an ndvdua forms
50 trusts, each of whch has an ncome of not more than 1,000 a year to be
accumuated, under e stng aw no ncome ta Is pad. Under your commttee s
proposa, the entre net ncome of each such trust woud be sub|ect to some ta .
urther consderaton and study w be gven to the genera probem of the proper
treatment for ta purposes of mutpe trusts to accumuate ncome.
S CTION 402 O T ILL IDUCI T R TURNS.
Ths secton amends secton 142(a) of the Revenue ct of 1936, reatng to
fducary returns. In addton to the returns requred from fducares of trusts
under e stng aw, the secton requres the fducary to fe a return In the case
of any trust havng a net Income, regardess of amount. return s aso requred
from the fducary of a trust where the dstrbutons under the terms of the trust
are dscretonary or based on a contngency, even though the trust may have no
net Income because the fducary has made compete dstrbuton.
In any case where the dstrbuton s a charge upon the corpus of the trust
and, therefore, not ta abe n the hands of the benefcary, the fducary w, n
most cases, be requred to fe a return under ths secton because as such dstrbu-
ton Is not deductbe In computng the Income of the trust, the trust may have
a net ncome.
S CTION 4 03 O T ILL CTI D T S.
Ths secton provdes that the amendments made by Tte I shoud be effectve
ony wth respect to ta abe years begnnng after December 31, 1936.
Tte Nonresdent en Indvdua .
S CTION 501 O T ILL.
Secton 211(a) of tho Revenue ct of 1936 mposes on nonresdent aen nd-
vduas not engaged n trade or busness wthn the Unted States and not havng
an offce or pace of busness theren, a fat rate of ta of 10 per cent on ncome
from Interest, dvdends, rents, saares, annutes, and smar f ed and deter-
mnabe annua or perodca ncome (ncudng royates) receved from Unted
States sources. Ths ta s n the usua case coected at the source by means of
wthhodng, and has worked we both from an admnstratve and revenue stand-
pont. Whe the addtona revenue derved over that produced under pror
Revenue cts Is estmated to be not ess than 15,000,000 per annum, t appears
that certan weathy nonresdent aens have had ther edera ncome ta es
substantay reduced by ths new system. In fact, t has permtted certan
former ctzens of the Unted States now ctzens of other countres, but who
derve a arge amount of ncome from sources wthn the Unted States ether
drecty or through an mercan trust, to pay substantay ess edera ncome
ta than they pad under pror Revenue cts.
If these ndvduas were sub|ect to both norma and sur ta es the effectve
rate of ta on ther Income from sources wthn the Unted States woud be
much hgher than the 10 per cent rate appcabe to such ncome under e stng
aw. To remedy ths stuaton t s proposed that secton 211(a) of e stng aw
be amended so that It w not appy to any nonresdent aen ndvdua If the
aggregate amount receved durng the ta abe year from the sources specfed n
secton 211(a) s more than 21,600. Ths amount s the appro mate pont at
whch the effectve rate (norma ta pus surta es) becomes 10 per cent It s
aso proposed that f the aggregate amount receved from the sources specfed
In secton 211(a) e ceeds 21,600, such aen ndvdua be sub|ect to norma
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G32
and sur ta es on such ncome wth the aowance of the credts and certan
deductons provded n Suppement of e stng aw. In vew of the fact that
gans from the sae or e change of capta assets are not ta abe to such aens,
osses from such transactons are not aowed. or ths reason the deductons
(other than the 15 per cent deducton for contrbutons to Unted States chartes
provded n secton 213(c) of e stng aw) shoud be aowed ony to the e tent
they are propery aocabe to the gross ncome from Unted States sources whch
s sub|ect to the ta . further mtaton s mposed that the ta n no case
sha bo ess than 10 per cent of the gross ncome from the sources specfed n
secton 211(a). Ths s necessary to prevent the payment of ess ta (due to
credts and deductons) than s pad under e stng aw.
In vew of the fact that the appro mate pont at whch the effectve rate
(norma ta pus surta es) becomes 10 per cent, s 21,000, t s not beeved that
the new pan w unduy ncrease the ta on nonresdent aens whose net ncome
s |ust suffcent to take them out of the od rue and sub|ect them to the new
rue. It s beeved that the cases are too few n number and the ncrease n ta
s too sma to warrant any speca treatment for such cases.
There w be wthhed from the amounts recevabe by a nonresdent aen
ta ed under the new provsons the amounts requred to be wthhed under
secton 143 of the present aw. Such ndvduas w be requred to fe annua
returns wth the coector at atmore, Sd. They w, however, be entted, n
computng ther ta , to a credt n ther returns for the amount whch has been
so wthhed at the source.
Secton 211(a) of the Revenue ct of 1930 provded that the rate of 10 per
cent sha be reduced n the case of a resdent of a contguous country, to
such rate (not ess than 5 per cent) as may be provded by treaty wth such
country. In order to preserve the beneft of any treaty wth such a country
that may have been ratfed pror to the date of the enactment of the proposed
ct t s provded n secton 501(c) of the b that the amendments to secton
211 sha not appy to the resdents of such a country so ong as such a treaty
s n effect
The amendments made by the tte appy ony to ta abe years begnnng
after December 31, 1930.
Tte I Msceaneous.
S CTION 001 O T ILL CORPOR TIONS C PT D ROM S CTION 102.
Ths secton adds to secton 102 of the present aw, whch mposes a surta
on corporatons mpropery accumuatng surpus, a new subsecton whch e -
cudes certan domestc and foregn corporatons from the operaton of that
secton. The present aw and the amendments proposed have as a basc prn-
cpe that a corporaton s not mpropery accumuatng surpus f the amount
accumuated s sub|ect to substantay the same ta es as f t were dstrbuted.
Under the present aw corporatons sub|ect to Tte I of the present aw are
e cuded from secton 102. Secton 601 carres out a correspondng pocy wth
respect to a corporaton sub|ect to new Tte I and a foregn corporaton
whose Unted States sharehoders are obged to ncude ts undstrbuted In-
come n ther return. The effect of the amendment s to e cude from secton
102 domestc and foregn persona hodng companes for ta abe years for
whch they are sub|ect to Tte I before or after ts amendment by the b or
to the provsons of Suppement P added by the b.
S CTION 002 O T ILL MUTU L IN STM NT COMP NI S.
Ths secton e cudes from the speca treatment accorded mutua nvest-
ment companes, domestc and foregn persona hodng companes for ta abe
years for whch they are sub|ect to Tte I before or after ts amendment by
the b or to the provsons of Suppement P added by the b.
S CTION C03 O T .L S P R ILITY CL US .
Ths secton contans the separabty cause.
Concuson.
Your commttee has ponted out that the ma|or purpose of ths b s to
cose ooshoes n the revenue aws of whch numerous ta payers have avaed
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themseves, often by means of ngenous and compe devces, to escape the
share of the burdens of ta aton the Congress has Intended that they shoud
bear. The commttee beeves the proposed egsaton s adequate for these
purposes but aso recognzes the dffcuty of framng a ta aw whch s whoy
proof aganst a the devces and schemes whch ega ngenuty may evove.
Shoud tme revea that new stratagems are beng devsed to thwart the sprt
and ntent of the correctve egsaton whch the Congress may enact at ths
tme, t s the purpose of your commttee to frame such further egsaton as
may be necessary to checkmate them and, to whatever e tent may be consstent
wth |ustce and sound pocy, to recommend that the egsaton be made retro-
actve. It s beeved that such measures of ths knd as may be requred to
protect the Integrty of the revenue aws are we wthn the scope of const-
tutona power and w be sustaned by the courts.
I-40-8960
S. 1685. PU LIC, NO. 412, S NTY- I T CONGR SS. (C PT R
896 IRST S SSION.)
n ct To provde fnanca assstance to the States and potca
subdvsons thereof for the emnaton of unsafe and nsantary
housng condtons, for the eradcaton of sums, for the provson
of decent, safe, and santary dwengs for fames of ow Income,
and for the reducton of unempoyment and the stmuaton of bus-
ness actvty, to create a Unted States ousng uthorty, and for
other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed,

UNIT D ST T S OUSING UT ORITY.
Sec. 3. (a) There s hereby created n the Department of the Inte-
ror and under the genera supervson of the Secretary thereof a
body corporate of perpetua duraton to be known as the Unted
States ousng uthorty, whch sha be an agency and nstru-
mentaty of the Unted States.

Sec. 5. (e) The uthorty, ncudng but not mted to ts fran-
chse, capta, reserves, surpus, oans, ncome, assets, and property
of any knd, sha be e empt from a ta aton now or hereafter m-
posed by the Unted States or by any State, county, muncpaty, or
oca ta ng authorty. Obgatons, ncudng nterest thereon,
ssued by pubc housng agences n connecton wth ow-rent hous-
ng or sum-cearance pro|ects, and the ncome derved by such agen-
ces from such pro|ects, sha be e empt from a ta aton now or
hereafter mposed by the Unted States.

IN NCI L PRO ISIONS.

Sec. 20. (a) The uthorty s authorzed to ssue obgatons, n
the form of notes, bonds, or otherwse, whch t may se to obtan
funds for the purposes of ths ct. The uthorty may ssue such
obgatons n an amount not to e ceed 100,000,000 on or after the
date of enactment of ths ct, an addtona amount not to e ceed
77964 38 21
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Msc.
634
200,000,000 on or after uy 1,1938, and an addtona amount not to
e ceed 200,000,000 on or after uy 1, 1939. Such obgatons sha
be n such forms and denomnatons, mature wthn such perods not
e ceedng 60 years from date of ssue, bear such rates of nterest not
e ceedng 4 per centum per annum, be sub|ect to such terms and con-
dtons, and oe ssued n such manner and sod at such prces as may
be prescrbed by the uthorty, wth the approva of the Secretary of
the Treasury.
(b) Such obgatons sha be e empt, both as to prncpa and
nterest, from a ta aton (e cept surta es, estate, nhertance, and
gft ta es) now or hereafter mposed by the Unted States or by any
State, county, muncpaty, or oca ta ng authorty.

Sec. 30. Ths ct may be cted as the Unted States ousng ct
of 1937.
pproved September 1, 1937.
I-28-8816
. R S. 375. PU LIC R SOLUTION NO. 48, S NTY- I T
CONGR SS. C PT R 402, IRST S SSION.
ont resouton to provde revenue, and for other purposes.
Resoved by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed, That tte I , as amended,
and parts I, II, III, and I , of tte , as amended, of the evenue
ct of 1932, are further amended by strkng out 1937 wherever
appearng theren and nsertng n eu thereof 1939 . Secton
1001(a), as amended, of the Revenue ct of 1932, and secton 2, as
amended, of the ct entted n ct to e tend the gasone ta for
one year, to modfy postage rates on ma matter, and for other
purposes . approved une 16, 1933, are further amended by strkng
out 1937 wherever appearng theren and nsertng n eu thereof
1939 .
pproved, une 29,1937, 10 p. m.
I-37-8927
. R 1481. PU LIC, NO. 400, S NTY- I T CONGR SS. C PT R
871, IRST S SSION.
n ct To amend the Revenue ct of 1926, as amended, to
e empt persons traveng between Puerto Rco and the contnenta
Unted States from the payment of a stamp ta on steamshp
tckets.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That subdvson
5 of Schedue of Tte III of the evenue ct of 1926, as
amended by secton 442(a) of the evenue ct of May 29, 1928, be,
and hereby s. amended by strkng out the word or before the
word Cuba and by addng the words or Puerto co after the
word Cuba.
pproved ugust 28, 1937.
1
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635
Msc.
n ct To amend the edera Regster ct.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 11 of
the edera Regster ct, approved uy 26, 1935 (49 Stat. 500), s
Sbc. 11. (a) On uy 1, 1938, and on the same date of every ffth year
thereafter, each agency of the Government sha have prepared and sha fe
wth the dmnstratve Commttee a compete codfcaton of a documents
whch, n the opnon of the agency, have genera appcabty and ega effect
and whch have been ssued or promugated by such agency and are n force
and effect and reed upon by the agency as authorty for, or Invoked or used
by t n the dscharge of, any of ts functons or actvtes on une 1, 1938.
The Commttee sha, wthn 90 days thereafter, report thereon to the Pres-
dent, who may authorze and drect the pubcaton of such codfcaton n
speca or suppementa edtons of the edera Regster.
(b) There s hereby estabshed a Codfcaton oard, whch sha consst
of s members: The Drector of the Dvson of the edera Regster, charman
e offco three attorneys of the Department of ustce, desgnated by the
ttorney Genera and two attorneys of the Dvson of the edera Regster,
desgnated by the rchvst. The oard sha supervse and coordnate the
form, stye, arrangement, and nde ng of the codfcatons of the varous
agences.
(c) The codfed documents of the severa agences pubshed n the suppe-
menta edton of the edera Regster pursuant to the provsons of subsecton
(a) hereof, as amended by documents subsequenty fed wth the Dvson, and
pubshed n the day ssues of the edera Regster, sha be prraa-face
evdence of the te t of such documents and of the fact that they are n fu
force and effect on and after the date of pubcaton thereof.
(d) The dmnstratve Commttee sha prescrbe, wth the approva of
the Presdent, reguatons for carryng out the provsons of ths secton.
. R. 6737. PU LIC, NO. 198, S NTY- I T CONGR SS. C PT R
472, IRST S SSION.
n ct To amend the stamp provsons of the ottng n ond
ct
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That the frst and
fourth paragraphs of 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, 1934 edton, Supp. II, tte 26, sec. 1276),
are desgnated (1) and (6) , respectvey, and the second and
thrd paragraphs of sad secton are amended to read as foows:
(2) very botte when fed sha have aff ed thereto and passng over the
mouth of the same a stamp denotng the quantty of dsted sprts contaned
theren and evdencng the bottng n bond of such sprts under the provsons
of ths ct, and of reguatons prescrbed hereunder.
pproved, une 19, 1937.
I-32-8872
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Msc.
636
(3) The Commssoner of Interna Revenue, wth the approva of the
Secretary of the Treasury, sha prescrbe (a) reguatons wth respect to the
tme and manner of appyng for, ssung, aff ng, and destroyng stamps re-
qured by ths secton, the form and denomnatons of such stamps, appca-
tons for purchase of the stamps, proof that appcants are entted to such
stamps, and the method of accountng for recepts from the sae of such
stamps, and (b) such other reguatons as the Commssoner sha deem
necessary for the enforcement of ths ct
(4) Such stamps sha be ssued by the Commssoner of Interna Revenue
to each coector of Interna revenue, upon hs requston n such numbers as
may be necessary n hs dstrct, and, upon compance wth the provsons of
ths ct and reguatons ssued hereunder sha be sod by coectors to persons
entted thereto, at a prce of 1 cent for each stamp, e cept that n the case
of stamps for contaners of ess than one-haf pnt, the prce sha be one-
quarter of 1 cent for each stamp.
(5) nd there sha be pany burned, embossed, or prnted on the sde of
each case, to be known as the Government sde, such marks, brands, and stamps
to denote the bottng n bond of the whsky packed theren as the Commssoner
may by reguatons prescrbe.
pproved uy 9, 1937.
I-32-8873
. R. 7562. PU LIC, NO. 210, S NTY- I T CONGR SS. C PT R
517, IRST S SSION.
n ct To create the armers ome Corporaton, to promote
more secure occupancy of farms and farm homes, to correct the
economc nstabty resutng from some present forms of farm
tenancy, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That ths ct may
be cted as The ankhead- ones arm Tenant ct.

TITL I G N L PRO ISIONS.
RM RS OM CORPOR TION.

() The corporaton, ncudng ts franchses, ts capta, reserves,
and surpus and ts ncome and property sha, e cept as otherwse
provded n secton 50(a), be e empt from a ta aton now or here-
after mposed by the Unted States or any State, Terrtory, Dstrct,
dependency, or potca subdvson.

T TION.
Seo. 50. (a) property whch s beng utzed to carry out the
purposes of tte I or tte II of ths ct (other than property used
soey for admnstratve purposes) sha, notwthstandng that ega
tte to such property remans n the secretary or the corporaton, be
sub|ect to ta aton by the State, Terrtory, Dstrct, dependency, and
potca subdvson concerned, n the same manner and to the same
e tent as other smar property s ta ed.
1 So In orgna.
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637
Msc.
(b) property to whch subsecton (a) of ths secton s nap-
pcabe whch s hed by the secretary or the corporaton pursuant
to ths ct sha be e empt from a ta aton now or hereafter m-
posed by the Unted States or any State, Terrtory, Dstrct, de-
pendency, or potca subdvson, but nothng n ths subsecton sha
be construed as affectng the authorty or duty of the secretary under
any other aw to make payments n respect of any such property n
eu of ta es.

pproved uy 22, 1937.
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638
MISC LL N OUS.
OL OM RG RIN .
I-30-8850
MS. 189
Schedue of oeomargarne produced and materas used durng the month of
une, 1931, as compared wth une, 1936.
une, 1937.
Tota producton of uncoored oeomargarne..
Tota wthdrawn ta-pad
Pounds.
27,837,809
27,561,482
Ingredent schedue of uncoored oeomargarne:
abassue o
Coconut o
Corn o,.
Cottonseed o
Dervatve o gycerne -
Lecthn
Mk
Neutra ard
Oeo o
Oeo stearne
Oeo stock -
Pam o...
Pam kerne o
Peanut o
Sat
Sesame o -
Soda (benzoato of)
6oya bean o
793, 410
608.147
900, d
940.057
105.223
2,405
074.854
119,087
m, m
259. 783
122,560
81,405
863.702
IMI. Ts
10, 579
567.3 4
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
Pam o
Pam kerne o
Peanut o
at
Soda (benzoate of)
Soya bean o.
Tota
Of the amount produced, 10,575 pounds were reworked.
1 Of the amount produced, 26,661 pounds were reworked.
Of the amount produced, 32 pounds were reworked.
Of the amount produced, 256 pounds were r orked.
29,165,721
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641
Msc.
I-44 9020
MS. 192
Schedue of oeomargarne produced and materas used durng the month of
September, 1037, as compared wth September, 1936.
September,
1837.
Tota producton of uncoored oeomargarne_
Tota wthdrawn ta -pad..
Ingredent schedue of uncoored oeomargarne:
Pounds.
34.708.82S
o
Coconut o..
Corn o.
Cottonseed o
Dervatve of gycerne-
Lecthn-
Mk.
Neutra ard
Oeo o
Oeo steanne
Oeo stock
Ourcury.
Pam o-.
(benzoate
bean o..
of)
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 gyoerne.
Mk,
Neutra ard
Oeo o
Oeo stearne
Oeo stock
Pam o
Pam kerne o
Peanut o
at..-
s of)...
Tota-
S, 772.267
166 - v.
8,022.494
141,969
13,252, 621
105.035
6, 437
, 377. 643
109,330
736.964
363,933
91.457
529,828
215,051
L527,644
12,257
3.834,100
36.482.319
133,789
48, 426
31,333
105
37
28,922
232
33,141
2. 512
26,741
602
2,079
2,260
73
12,043
50
20,356
160, 4S6
1 Of the amount produced, 11,017 pounds were reworked.
1 Of the amount produced, 25,084 pounds were reworked.
Of the amount produced, 582 pounds were reworked.
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Msc.
642
I 8-9059
MS. 193
Schedue of oeomargarne produced and materas used durng the month of
October, 1987, as compared wth October, 1936.
October,
1837.
October.
1 . 38.
Tota producton of uncoored oeomargarne
Pounds.
40,300,446
Tota wthdrawn ta-pad
39,664,073
35.541,820
Ingredent schedue of uncoored oeomargarne:
Coconut o
991,278
6,941,254
75,326
20,089,218
160,381
6,131
7,455.232
115,304
744,338
297,810
99,617
672, 100
13.575,697
5,935
10,013.516
105.179
2,448
6,698,768
196.635
1,712,506
293,873
171.418
199.485
28,566
Corn o
Cottonseed o
Dervatve of gycerne
Lecthn
Mk
Neutra ard
Oco o
Oeo stearne
Oeo stock
Pam o
Pam kerne o
230.980
255,117
1,899,940
m,m
Peanut o .
1. Ira 901
6,000
15,625
1,556,802
Sat
Sesame o
Soda (benzoate of)
18,705
2.976,152
217
Soya bean o
tamn concentrate
42,357,000
37,971,073
Tota producton of coored oeomargarne
164,353
131.622
Tota wthdrawn ta -pad
63,312
66.076
Ingredent schedue of coored oeomargarne:
Iabassue o. . _.
1,086
22,190
145
7
425
43.343
164
Coor..
Corn o
Cottonseed o..
64,226
383
41,638
5,173
28,349
1,901
922
tm
Dervatve of gycerne
231
33.198
8,019
28.158
325
2,623
1,815
260
330
8,770
29
1.978
Mk
Oco o
Pam o..
Sat
12,303
30
14,030
19
Soda (benzoate of) _
Tota
102,401
155.579
Of the amount produced, 6,614 pounds wore reworked.
Of the amount produced, 23,861 pounds were reworked.
Of the amount produced, 88 pounds were reworked.
Of tho amount produced, 1,048 pounds were reworked.
G
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643
Msc.
TO CCO.
I-27-8807
T. 36
Statement of manufactured tobacco produced, by casses, durng the month of
pr, 1937, as compared wth pr, 19S6.
pr, 1937.
pr, 1936.
pr, 1937.
pr, 1936.
Pound .
Pounds.
Pounds.
17, 124, 482
Pounds.
16,437,097
png
8,002,482
612,605
829,887
8,047,869
630,407
402,110
Smokng .
ne-cut chewng
Tota
27, 029,009
26,301,665
Scrap chewng
8,759,653
3,944,072
Note These fgures are sub|ect to revson unt pubshed In the Commssoner s annua report
I-32-8871
T. 37
Statement of manufactured tobacco produced, by casses, durng the month of
May, 1937, as compared wth May, 1936.
May, 1937.
May, 1936.
May, 1937.
May, 1938.
Pus.
Twst
ne-cut chewng..
Scrap chewng
Pounds.
4,732, 357
648,302
414, 3S6
3, 701, 385
Pounds.
4, 907,460
484,504
660,492
3,483,403
Smokng
TotaL.
Pounds.
15, 182,253
Pounds.
15,825,48
24,578, 683
25, 261,408
Not. These fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
I-36-8911
T. 38
Statement of manufactured tobacco produced, by casses, durng the month of
une, 1937, as compared wth une, 1936.
une, 1937.
une, 1936.
une, 1937.
une, 1936.
Pounds.
Pounds.
Pounds.
16,840,154
Pounds.
16,412,782
Pug
8, 252,497
690, 717
697, 685
4, 733,168
657.372
446,320
fmnUng ,
ne-cut chewng
TotaL .
27,185,036
26,291,004
Scrap chewng
3,903,983
4,141,362
Not . These fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
I O-8962
T. 39
Statement of manufactured tobacco produced, by casses, durng the month of
uy, 1937, as compared wth uy, 1936.
uy, 1937.
uy, 1936.
uy, 1937.
uy, 1936.
Pounds.
Pounds.
Pounds.
15, 249, 480
Pounds.
17,290,822
Pug
4,861,077
575, 729
657, 472
6,253, 357
547,446
612,068
Smokng
Twst
ne-cut chewng
Tota
25,371,060
27,887,128
Scrap chewng
4,127, 302
4,183, 433
NOT . These fgures a e sub|ect to revson unt pubshed n the Commssoner s annua report.
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Msc.
644
I-44-9022
T.40
Statement of manufactured tobacco produced, by casses, durng the month of
ugust, 1937, as compared wth ugust, 1936.
ugust, 1937.
ugust, 1936.
Pounds.
6,014,546
607,947
484,337
4,292,988
15,396,376
Pounds.
5,013,160
538, 161
403,056
3.951,383
14,423,443
Tota
25,796,194
24,329,208
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
I-49-9081
T. 41
Statement of manufactured tobacco produced, by casses, durng the month of
September, 1931, as compared wth September, 1936.
September,
1937.
September,
1936.
Pound .
5,509,86
610, 777
447,140
8, 832,283
15,937.914
Pounds.
pug
5,538.713
535.768
562.118
Twst
ne-cut chewng
Scrap chewng
3,749.045
16, 639,172
Smokng
Tota -
28,397,976
27,024,816
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
I-27-8806
Mm. 4618
Soca Securty Ta Unt estabshed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, une , 1937.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Other Offcers and mpoyees of the ureau of Interna
Revenue:
ffectve uy 1, 1937, there s estabshed n the ureau of In-
terna Revenue an addtona unt to be known as the Soca Securty
Ta Unt. ffectve uy 1, 1937, the personne of the Soca Secur-
ty Dvson of the Income Ta Unt admnsterng the provsons of
Tte I of the Soca Securty ct and the Soca Securty Dvson
of the Msceaneous Ta Unt admnsterng the provsons of Tte
III, together wth a returns, records and equpment, w be
transferred to the Soca Securty Ta Unt. The severa casses of
work now performed n the Cearng Dvson and the Rues and
Reguatons Dvson of the Income Ta Unt n connecton wth
the admnstraton of the provsons of Tte I w aso be
transferred to the Soca Securty Ta Unt.
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645
Mne.
Mr. ctor . Sef, ssstant Deputy Commssoner of the c-
counts and Coectons Unt, s detaed from hs present poston
and s desgnated ctng Chef, Soca Securty Ta Unt, effectve
uy 1, 1937. Mr. . . Ness, now ead of the Soca Securty
Dvson of the Income Ta Unt, s desgnated ssstant Chef of
the Soca Securty Ta Unt
Gut T. everng,
Commssoner.
I 2-8994
D. C. 230 (Rev.)
Laws and reguatons governng the recognton of agents,
attorneys, and other persons representng camants before the
Treasury Department and offces thereof.
193T amendment Department Crcuar No. 230 of 1036 (revsed). Commttee on
nroment and Dsbarment.
September 7, 1937.
Department Crcuar No. 230 (revsed) of October 1, 1936, secton
2(y), s hereby amended by the addton of the foowng sentence
thereto: Ths requrement sha not be appcabe to powers of
attorney wheren the authorty granted s mted to the fng of ta
or nformaton returns. s amended secton 2(y) w read as
foows:
(y) No enroed person sha e act from hs cent a manfesty unreasonabe
fee, whether contngent or otherwse, n any matter before the Treasury Depart-
ment. The reasonabeness of a fee n any case s wthn mts a matter of
udgment and depends upon a the facts and crcumstances thereof, ncudng
the compe ty and dffcuty of the case, the amount of tme and abor requred
for ts proper preparaton and presentaton, the amount nvoved, and the
professona standng and e perence of the attorney or agent.
whoy contngent fee agreement sha not be entered nto wth a cent
by an enroed person uness the fnanca status of the cent s such that he
woud otherwse be unabe to obtan the servces of an attorney or agent
Partay contngent fee agreements are permssbe where provson s made
for the payment of a mnmum fee, substanta In reaton to the possbe ma -
mum fee, whch mnmum fee s to be pad and retaned rrespectve of the
outcome of the proceedng. Such mnmum fee need not be pad n advance, f
provson for ts payment s made rrespectve of the outcome of the case.
The payment of or agreement to pay a nomna mnmum fee w not satsfy
the requrements of ths subsecton.
Whenever an enroed attorney or agent sha enter nto a contrnct to repre-
sent a cent before the Treasury Department on a whoy or partay contngent
bass, he sha fe wth the commttee a sgned statement to that effect, con-
tanng the terms of the contract as they reate to compensaton.
When a power of attorney s fed wth the Treasury Department t sha be
the duty of the attorney or agent fng the same to fe therewth a statement
as foows:
Pace ,
Date
Ths to certfy that I | not entered nto a contngent or partay
contngent fee agreement for the representaton before the Department of
n the matter of under the terms of a
power of attorney fed wth the Treasury Department on ,
and (n case a contngent or partay contngent fee agreement has been made)
that a report of such fee agreement n t been made to the Commttee
on nroment and Dsbarment
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#
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Msc.
646
Ths requrement sha not be appcabe to powers of attorney wheren the
authorty granted s mted to the fng of ta or nformaton returns.
Wayne C. Tayor,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 14, 1937,12.54 p. m.)
I-42-8995
Mm.4637
Statement reatve to fee arrangements n connecton wth powers
of attorney. (Mmeograph 4507 modfed.)
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Dstrct Supervsors, Offcers and mpoyees of the ureau of
Interna Revenue, and Others Concerned:
Mmeograph 4507 (C. . -2, 540 (1936)) provdes n effect that
n any case where a power of attorney s fed and there s not sub-
mtted wth t a statement concernng the fee arrangement as requred
by Department Crcuar 230 (revsed) t sha be the duty of the
offca or empoyee of the ureau recevng the power of attorney to
obtan such statement from each and every attorney or agent named
n the power of attorney.
Unt further notce such a statement as to fee arrangement w not
be requred where the authorty granted n the power of attorney s
mted to the fng of ta or nformaton returns. Mmeograph 4507
s hereby modfed accordngy.
Chas. T. Russe,
ctng Commssoner.
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IND .
ccountng methods, deaers n commodtes
dmssons. See Msceaneous ta es.)
ffated corporatons:
Consodated returns, aocatons of assessment, refund cam.
Sae of worthess patents by subsdary, deductbe oss
abama:
Saes ta
Unempoyment compensaton fund, contrbutons to
coho, ndustra and denatured:
Cases and bottes for packagng
Coecton of ta on shpments from Phppne Isands, etc.
thy acetate:
Denaturaton of, reguatons
nd acquer thnners, sae of, reguatons
ermented quor, saes by propretor of two or more stands
at baseba stadum, etc
New formua for use n manufacturng rubbng acoho com-
pounds
Pats and pans of acoho pants, warehouses, etc
Propretary sovents, sae and shpment of
Revokng specay denatured acoho formuae
Rum and acoho, denatured, sae of, reguatons
ens:
Departure from Unted States, certfcates of compance
Nonresdent. ( See Nonresdent aens.)
mendments:
Reguatons 3
rtce 55
8968
8798
rtce 136.
rtce 146
rtce 146- (added)
Reguatons 8 (1934)
rtce 76
rtce 163
Reguatons 13, artce 5
Reguatons 18, paragraph 19
Reguatons 42, artces 1, 8, 25, 39.
Reguatons 43 -
rtce 29...
rtce 57
Reguatons 44, artce 2
Reguatons 40, artce 1
Reguatons 71
rtce 2
rtces 55, 58, and 60
9111
8903
9045
9021
8830
/8804
19110
9118
8803
9108
9046
8997
8842
8863
9045
/8804
19110
(8803
19046
8842
9096
8940
9082
8849
8843
8829
8845
8846
8847
8844
8961
(647)
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648
mendments Contnued.
Reguatons 86
rtce 101(9)-1._
rtce 166-1
rtce 167-1
rtce 351-4
Reguatons 91
rtce 401 _
rtce 402_
rtce 403 --
rtces 404, 406-410, 502-504, and 604.
Reguatons 94
rtce 54-1
rtce 101(9)-1.
rtce 102-1
rtce 102-4
rtce 112(g)-2
rtce 115-5 ---
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
rtce
115-11
143-1
143-3
147-3
166- 1
167- 1
204(c)-
331-1
331-2
331- 3
332- 1
333(a)-
333(a)-2
333(a)-3
333(a)-4
333 (a)-5
333 (a)-6
333(a)-7
334-1
334- 2
336-1
336- 2
337- 1
337-2
337-3
337- 4.
338- 1
338- 2
335- 3
339- 1
339-2.
339- 3
340- 1
340-2 (added).
351-1
351-2..
351-3
351-4
351-6
Rung
No.
8924
128
8923
117
8923
117
9060
196
8848
459
9028
373
19058
374
/9004
376
19058
374
/9004
376
19058
374
9058
374
8923
117
8924
128
8923
117
8923
117
8923
117
/8923
117
9109
136
8923
117
8923
117
8923
117
8923
117
8923
117
8923
117
8923
117
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
168
9085
108
9085
168
9060
196
8923
117
8923
117
9060
196
8923
117
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649
mendments Contnued.
Reguatons 94 Contnued.
rtce 1001-7
Chapters I and (renumbered)..
Chapter I (added)
Revenue ct of 1926, Tte III..
Revenue ct of 1932
Secton 1001
Ttes I and
Treasury Decsons
1869, superseded
4541, modfed ...
4580, superseded
nnutes:
ont survvorshp, reportng of payments
Payments under refund provsons of contract, ta abty
Raroad Retrement ct, 1937, ta abty
ssessment of ta , ad|ustment of foregn ta credt, mtaton
perod
ttorneys and agents:
Reguatons governng recognton by Treasury Depart-
ment (1937 amendment)
Statement re fees to be fed wth power of attorney
utomobes, etc. (See Manufacturers e cse ta es.)
.
ad debts, addtons to reserves, reducton by Commssoner
ankhead- ones arm Tenant ct
anks:
Deposts, dstrant thereon, abty of bank
Dvdends, preferred stock owned by Unted States, de-
ducton
egum, shps earnngs, e empton
oard of Ta ppeas, power to aow amendment of petton
under court mandate
onds:
Interest accrued pror to donaton to trust, when reported
Resdent foregn corporaton, purchase n Unted States, n-
come.-
Unted States Treasury, ta abty for gft ta purposes
udng and oan assocatons:
Dstrbutons, nterest or dvdends
Lqudatng corporaton or trust
udngs, vountary remova, sae of and n ater year, when de-
ductbe
ureau of Interna Revenue, Soca Securty Ta Unt, estabsh-
ment of
usness e penses:
Commssons, 99-year ease
Contrbutons to State unempoyment compensaton fund.
(See Contrbutons.)
Corporatons, contrbutons to cvc wefare organzaton
Partners as resduary devsees, payments to annutants under
w
Caforna:
Communty property and ncome
Unempoyment compensaton fund, contrbutons to.
Rung
No.
8923
9060
9085
8927
8816
8816
8805
8803
8805
8794
9069
8929
8886
8994
8995
8895
8873
/9029
9088
8818
8876
8799
8810
8944
9094
8797
8969
9051
8806
8877
9112
8865
8980
8809
G
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1
3
-
0
1
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2
2

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4
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8
8
9
3
3
6
9
6
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#
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e
650
Canada:
Department of Natona Revenue, nspecton of returns by..
Income ta conventon wth
Reguatons
Wthhodng rates
Net premum ta
Capta gans and osses:
Debt ad|ustment .
Patent, sae of, determnaton of perod hed
Rea estate, sae and repossesson, treatment
Capta stock ta :
d|usted decared vaue
Gratutous forgveness of ndebtedness by bondhoders. _
Preferred stock, capta notes and debentures, ssuance
and retrement by banks
Where corporaton s charter or aw of State provdes
that stock acqured may never be ressued
Dong busness, corporaton organzed to hod stock
Inos, accrua date
Inspecton of returns, reguatons
Carrers e cse ta :
mpoyees, raway, pay deducton, ncome
Income deducton, 1936 returns, treatment
Certfcates of compance, aens n transt through Unted States.
Chartabe organzatons, benefca assocatons, contrbutons
by members, e empton
Cgars and cgarettes. (See Msceaneous ta es: Stamp ta es.)
Cv servce retrement and dsabty fund payments, estate ta
abty
Cams:
batement, coecton stayed, statute of mtaton
oor stocks, cam receved after anuary 1, 1937
Coorado, motor vehce fue ta
Commssons:
ecutors , ta abe n year aowed by court
Insurance premum renewas
Lfe nsurance company payments to rea estate agents,
deducton
99-ycar ease, amortzaton
Communty property and ncome:
Caforna
Lqudaton of stock durng estate s admnstraton, ta -
abty of wdow
Washngton
Compensaton:
ddtona, premum payments, nsurance on fe of corporate
offcer
Payments receved by empoyee of corporaton from another
corporaton, ta abty
Raway empoyees, deducton from pay under Carrers
Ta ng ct
Comptroer Genera of the Unted States, e empton certfcates,
sae to Unted States where bd s sent as to ta
Constructve recept:
ssgnments, renewa commssons
Dvdends credted to stockhoder s account ater canceed
Consuar offcers. (Sec Msceaneous ta es: Stamp ta es.)
Contracts, Navy, under nson ct
Rung
No.
8910
8984
8983
9037
8952
8904
9013
8824
8978
8939
8938
8967
8949
8832
8930
8863
8951
8S90
8811
8841
8817
8916
9026
9015
8877
8980
8971
9036
9102
9062
8S32
8860
9026
8878
G
e
n
e
r
a
t
e
d

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L

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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
4
1

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0
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8
8
9
3
3
6
9
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#
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651
Contrbutons:
Cvc wefare organzaton, corporaton s deducton
State unempoyment fund
abama
Caforna
Dstrct of Coumba
Pennsyvana
Conventon, recproca ta , between Unted States and Canada..
Reguatons
Wthhodng rates
Conveyances. (See Msceaneous ta es: Stamp ta es.)
Cooperatve banks, Massachusetts, dvdend credts, when reported.
Corporatons:
Credts, contracts restrctng payment of dvdends.
Dvdend carry-over
Demoton of budng n year pror to sae of and, when
deductbe
mpoyees penson fund, payments to, when deductbe
oregn. (See oregn corporatons.)
Premums pad on redempton of preferred stock, oss deducton
Court decsons:
mercan Wooen Co. v. Unted States
ronauer et a. v. Unted States
ronson Whte v
rt Meta Constructon Co. v. Unted States
aker v. Unted Sates
arbour v. Commssoner
cnce v. Unted Staes
tgood New aven Securtes Co. v
ogardus v. Commssoner
onwt Commssoner v
our|os, Inc., v. McGowan
urnham v. Commssoner
Cadwaader Commssoner v
Campbe v. Commssoner
Ctzens Water Co. v. Commssoner
Cty State ank et a. Unted Sates v
Commssoner arbour v
Commssoner ogardus v
Commssoner v. onwt
Commssoner urnham v
Commssoner v. Cadwaader
Commssoner Campbe v
Commssoner Ctzens Water Co. v
Commssoner Crews v
Commssoner Dayton Co. v
Commssoner Grgsby v
Commssoner Groman v
Commssoner v
Commssoner ohnston v
Commssoner raus v
Commssoner Lennger v
Commssoner Nash v
Commssoner Pacfc mpoyers Insurance Co. v
Commssoner Pamer v
Commssoner Peavy- yrnes Lumber Co. v
Commssoner Par Rock Packng Co. v
Commssoner Panet Lnes, Inc., v
9112
273
8903
85
8809
81
8796
80
8795
80
8910
539
8984
158
8983
145
8854
114
9000
107
9011
109
9049
111
9071
112
9051
266
9051
266
9050
256
8887
314
8937
468
9067
507
8895
339
8878
336
8971
279
8896
344
8938
493
9062
258
9102
246
8812
502
8835
281
8916
277
8856
298
9101
293
9088
359
8971
279
9062
258
9102
246
8835
281
8916
277
8856
298
9101
293
8945
289
9051
266
8905
264
9074
286
9027
305
8855
238
9014
249
8821
309
8954
230
8972
312
9073
251
8799
363
9038
284
9002
275
G
e
n
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r
a
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d

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2
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1
3
-
0
1
-
2
2

0
4
:
4
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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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652
ng
No.
Court decsons Contnued.
Commssoner v. Smey
Commssoner Tresner v
Commssoner Unon Centra Lfe Insurance Co. v
Commssoner Updke v
Commssoner Ws v
Crews v. Commssoner
Crosset Lumber Co. e a. v. Unted Staes
Davs v. Unted States
Dayton Co. v. Commssoner .--
rst Capta Natona ank of Iowa Cty, Iowa, et a. Unted
States v
Grsby v. Commssoner
Groman v. Commssoner
Guette et a. v. Unted States
amersey v. Unted States
everng Merhengood Corporaton (De.) v
everng v. Pamer
ggns v. Whte
v. Commssoner
ewe Tea Co., Inc., v. Unted States
ohnston v. Commssoner
e Co. v. Unted Staes... __ -
raus v. Commssoner
Lennger v. Commssoner
Lt et a. v. Unted Sates
McDonad v. Wech
Mc achern v. Rose
McGowan our|os, Inc., v
Merhengood Corporaton (De.) v. everng
Morgan Constructon Co. v. Unted States
Nash v. Commssoner
New aven Securtes Co. v. tgood
Pacfc mpoyers Insurance Co. v. Commssoner
Pamer v. Commssoner
Pamer everng v
Pearson v. Unted States
Peavy- yrnes Lumber Co. v. Commssoner
Par Rock Packng Co. v. Commssoner
Poneer Coa Coke Co. v. Unted Sates...
Panet Lnes, Inc., v. Commssoner
Renwck et a. v. Unted Sates
Rga and dety Depost Co. of Maryand Unted States v
Robertson Whte Packng Co. v
Rose Mc achern v
Smey Commssoner v
Tresner v. Commssoner
Unon Centra Lfe Insurance Co. v. Commssoner
Unted States mercan Wooen Co. v
Unted Staes ronauer et a. v
Unted States rt Meta Constructon Co. v
Unted States aker v
Unted States cnce v
Unted States v. Cty Sate ank et a
Unted States Crosset Lumber Co. et a. v
Unted Staes Davs v
Unted Staes v. rst Capta Natona ank of Iowa Cty,
Iowa, et a
Unted Sates Gear Corporaton v Unted Staes
Unted States Guette e a. v
Unted Sates amersey v
Unted States ewe Tea Co., Inc., v
Unted States e Co. v - -
8865
262
8945
289
9015
311
8959
471
8945
289
8945
289
8906
319
8915
240
9051
266
9029
631
8905
264
9074
286
8891
488
9094
490
9113
829
9073
251
9003
347
9027
305
9050
256
8855
238
8811
325
9014
249
8821
809
8S69
485
8993
481
9063
322
8812
502
9113
329
9112
273
8954
236
8938
493
8972
312
9073
251
9073
251
8838
483
8799
363
9038
284
8798
350
9002
275
8877
336
8988
360
9043
201
9063
322
8865
262
8945
289
9015
311
88S7
314
8937
468
8895
339
8878
336
8896
344
9088
359
8906
319
8915
240
9029
531
8947
612
8891
488
9094
490
9050
256
8811
825
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
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g

(
N
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U
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
4
2

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T


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3
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8
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3
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6
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s
s
_
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#
p
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g
o
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e
653
Court decsons Contnued.
Unted Staes Lt et a. v -
Unted States Morgan Consructtm Co. v
Unted States Pearson v
Unted States Poneer Coa Coke Co. v
Unted States Renwck et a. v
Unted States v. Rga and dety Depost Co. of Maryand-
Unted States Unted States Gear Corporaton v..
Updke v. Commssoner
Upham, In the matter of
Wech McDonad v
Whte v. ronson
Whe ggns v
Whte Packng Co. v. Robertson
Ws v. Commssoner
Credt or refund:
Cams
mendment by fng ta recepts, suffcency
na order of oard, res |udcata
Rce processng ta , ta -payment warrant surrendered,
suffcency
Gasone and ubrcatng o ta , form for submttng evdence
n support of credts
Overpayment of ta es, barred defcency n e cess of over-
payments
Recoupment of erroneous refund, mtaton perod
State ncome ta es, ncome
Credts:
Corporatons
Contracts restrctng dvdend payments
Dvdend carry-over
Dvdends pad credt
Dvdends receved
oregn ta es
ccrua bass, aowance
d|ustment of, mtaton on addtona assessment
Netherands, smar credt requrement
Net premum ta , Canada
Credts aganst net ncome, persona e empton, ctzen resdng
abroad wth aen husband
D.
Deaers n commodtes, accountng methods
Denmark, shps earnngs, e empton
Depeton, msappropraton of proceeds from o and gas saes
Dsted sprts:
otted n bond, reguatons prescrbed
ottng n ond ct, stamp provsons amended
Coecton of ta on shpments from Phppne Isands, rgn
Isands, and Puerto Rco
Drawback on, botted especay for e port
Mutated or mssng strp stamps, reguatons prescrbed
Reguatons for restampng packages of dsted sprts, etc.-.
Traffc n contaners of, reguatons amended
Transfer of speca ta stamps
Weghts for testng scaes at dsteres, etc., reguatons
Wthdrawn from csterns at regstered dsteres
Dstrant on bank deposts, abty of bank
Dstrct of Coumba, unempoyment compensaton fund, contr-
tons to
8869
9112
8838
8798
8877
8988
8947
8959
8820
8993
9067
9003
9043
8945
8896
8887
8909
9079
9063
8906
8954
9000
9011
9049
9071
8862
9010
8895
8886
8953
9037
8853
8968
8864
8945
8828
8872
9021
8925
9056
8805
9082
8996
9095
9034
/9029
19088
8796
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
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w

Y
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k

U
n

v
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s

t
y
)

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n

2
0
1
3
-
0
1
-
2
2

0
4
:
4
2

G
M
T


/


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7
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0
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0
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8
8
9
3
3
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6
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s
s
_
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e
#
p
d
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o
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g

e
654
Dvdends:
Cooperatve banks, Massachusetts aw, when credts reported.
Credted to stockhoder s account, subsequent canceaton,
ncome
Credts. (See Credts: Corporaton.)
Domestc corporaton, nonresdent aen benefcary of foregn
testamentary trust
Issuance and e ercse of stock rghts, sae dstngushed
Preferred, bank stock owned by Unted States, deducton
Ta abty, ct governng
.
mpoyees penson fund, payments to, when deductbe
state ta :
Court of Cams |udgment, res |udcata
Credt for State nhertance ta , mtaton
Deductons
nnuty, vaue of
equest to charty, not certan or ascertanabe
Gross estate
Cv servce retrement and dsabty fund payments
Nonresdent aen s nterest n rench partnershp a mem-
ber of New York partnershp-..
Payments under secton 203, Soca Securty ct.
Transfers n contempaton of death.
Overpayment of ta
Due to reduced ta rates, nterest
Set-off of barred gft ta
thy acetate:
Denaturaton of, reguatons
nd acquer thnners, sae of, reguatons
amnaton of books, decedent s bank accounts, e ecutor s rght to
restranng order
cess proft on nava contracts. (See nson ct.)
cess-profts ta :
Deducton, net ncome computaton
Interest
ond-
edera ome Loan ank
ome Owners Loan and edera arm Mortgage
Corporatons
Unted States obgatons
changes, gan or oss, reorganzaton and sae dstngushed
cse ta es:
Massachusetts
Pennsyvana
empt corporatons:
Chartabe organzatons, benefca assocatons, contrbutons
by members
re nsurance company
Lqudatng corporaton or trust of budng and oan assoca-
ton
empt ncome:
nnutes
Payments under refund provsons of contract
Raroad Retrement ct, 1937
Compensaton, State offcers and empoyees
arnngs of shps documented under foregn aws
egum
Denmark
nand
8854
8878
8896
9073
8818
8862
9051
8891
8937
8959
8993
8890
8881
8868
8959
8838
8869
8830
/8804
9110
8820
9010
8982
/8932
8933
8970
9038
8981
9070
8951
9001
8969
9069
8929
8856
8876
8864
G
e
n
e
r
a
t
e
d

f
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r

L

n

Z
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g

(
N
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w

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k

U
n

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y
)

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n

2
0
1
3
-
0
1
-
2
2

0
4
:
4
2

G
M
T


/


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2
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/

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3
0
0
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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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d


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

e
655
empt ncome Contnued.
arnngs of shps documented under foregn aws Contnued.
rance
Great rtan
Greece
Norway
rench ctzens and corporatons
Gfts, payments receved by empoyee of corporaton from
another corporaton
Indans, ncome from restrcted aotment
Interest
ond, Unted States nstrumentates, e cess-profts ta
edera and bank notes
Unted States obgatons, e cess-profte ta
Payments to annutants under w by partners as resduary
devsees
Prvate corporaton furnshng water to cty
tenson of tme defcency, bond, nterest payabe
.
armers ome Corporaton
edera arm Mortgage Corporaton, nterest on bonds of, e cess-
profts ta
edera ome Loan ank, nterest on bonds of, e cess-profts
ta
edera and banks, nterest on promssory note of
edera Regster ct, amendment of
ermented mat quors, manufacture, etc., reguatons amended.
nand, shps earnngs, e empton
oor stocks, cam receved after anuary 1, 1937
orda, gasone ta
oregn corporatons:
edgng transactons
Informaton returns, re formaton, etc
Persona hodng companes
Dstrbutons n qudaton
Reguatons amended
Reguatons, ncome ta conventon, Canada
Rentas from Unted States rea estate, wthhodng
Reorganzaton, ta -free e changes, Commssoner s approva
Resdent, purchase of own bonds n Unted States, ncome...
orm 962, net worth statement
rance:
Ctzens and corporatons, e empton of ncome under treaty
Shps earnngs, e empton
ranchse ta , Tennessee, accrua date
Gan or oss: G.
changes
Reorganzaton dstngushed from sae
Stock for stock and other property, reorganzaton
Reorganzaton. (See Reorganzaton.)
Saes
Property acqured after 1920 by corporaton, bass
Stock frst n, frst out rue
Rung
No.
8876
/8864
9012
8864
8864
8827
9062
9098
f8932
8933
8982
8852
8970
8865
9101
8988
8873
/8932
18933
8982
8852
8826
8849
8885
8841
8913
8819
19025
9044
9109
9085
8984
8875
8894
8944
9083
8827
8876
9048
9038
9074
9113
9014
G
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)

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2
0
1
3
-
0
1
-
2
2

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4
:
4
2

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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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,

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s
_
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#
p
d
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g
o
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e
G56
Gasone ta . (See Ta es: State ee aso Manufacturers e cse
ta es.)
Gft ta , Unted States Treasury bonds, ta abty
Gfts, payments receved by empoyee of corporaton from another
corporaton
Great rtan, shps earnngs, e empton ......
Greece, shps earnngs, e empton
Gross ncome, deducton and depeton, msappropraton of pro-
ceeds from o and gas saes
Gross recepts ta , New York Cty
.
edgng transactons, nonresdent aens and foregn corporatons..
ome Owners Loan Corporaton, nterest on bonds of, e cess-
profts ta
usband and wfe:
Communty property and ncome
Caforna
Washngton
Lqudaton of stock durng estate s admnstraton, ta a-
bty of wdow
Persona e empton
Tenants by entrety, ncome returns, Mchgan
Inos:
Capta stock ta
Motor vehce fue ta
Income from sources wthn Unted States resdent foregn cor-
poraton, purchase of own bonds n Unted States
Indans, ncome from restrcted aotments
Informaton at source, returns, reportng of wages earned and not
pad.
Inspecton of returns, wthhodng, Department of Natona Reve-
nue, Canada
Insurance:
Premums, pocy on fe of corporate offcer, ncome
Renewa commssons, assgnment of
Insurance companes:
Lfe, commssons pad rea estate agents, deducton
Other than fe or mutua
Increase n reserves for noncanceabe poces, deduc-
ton
Losses ncurred, deducton
Interest:
ond-
ccrua pror to donaton to trust, when reported
tenson of tme, defcency payment
edera ome Loan ank, e cess-profts ta
ome Owners Loan and edera arm Mortgage Cor-
poratons, e cess-profts ta
Ta -free covenant, and notes, wthhodng
udng and oan dstrbutons
edera and bank notes, ta abty
Incurred n pror years, pad n ta abe year
Unted States obgatons, e cess-profts ta
9094
9062
/8864
9012
8864
8945
8884
/8819
9025
8932
18933
8980
9036
8971
8853
8986
8987
8967
8893
8944
9098
9055
8985
9102
9026
9015
8955
8972
8810
8988
8982
/8932
8933
9072
8797
8852
9002
8970
G
e
n
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r
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3
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2
2

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4
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8
8
9
3
3
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9
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_
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#
p
d
-
g
o
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g

e
657
Inventores:
utures, transactons n
Reta merchants
Iowa saes ta .
ansas: .
O and gas eases
Saes ta
Sherff s certfcate of sae
L.
Legsaton:
ankhead- ones oregn Tenant ct
ottng of dsted sprts n bond ct, stamp provsons
amended
Revenue ct of 1937 _
Unted States ousng uthorty
Lmtaton perod:
ssessment of addtona ta , ad|ustment of foregn ta credt
Coecton stayed by abatement cam
oor stocks, cam receved after anuary 1, 1937
Lquor Ta dmnstraton ct, reguatons, records requred
aes:
Demoton of budng n year pror to sae of and
Mortgage forecosure, when deductbe
Premums pad upon redempton of preferred stock
Sae of worthess patents by subsdary
Stock-
Deducton mtaton
orced purchase under underwrtng agreement
Lubrcatng o. (See Manufacturers e cse ta es.)
M.
Manufactured sugar. (See Sugar.)
Manufacturers e cse ta es:
utomobes, parts or accessores
Gears prmary adapted for use n motor vehces
Used motorcyce, sae of
ffectve perod
empton certfcates, saes to Unted States, bd sent as
to ta
tenson of certan ta es, Tte I , Revenue ct of 1932, as
amended
Gasone and ubrcatng o, cams for credt of ta pad on
saes of, evdence
Sportng goods, |g saw puzzes, ta abty as games
Toet preparatons, sae by manufacturer to whoy owned
subsdares whch sod to trade, far market prce
Massachusetts:
Cooperatve banks, dvdend credts, when reported
Corporate e cse ta , accrua date
Mchgan, tenants by entrety, ncome returns
Msceaneous ta es:
dmssons ta
Coected and deposted n bank by State agency, ds-
trant
Requrements appcabe to tckets
Movng pcture theater
Reguatons amended
ffectve date of change n e empton -.
Rung
No.
8906
9099
8833
9007
8999
8839
8873
8872
8921
8960
8886
8811
8841
8963
9051
9061
9050
8895
/8855
8915
8905
8947
8920
(8846
8847
8860
8816
9079
9067
8812
8854
8981
/8986
8987
1/9029
t 9088
9080
8829
8845
G
e
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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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3
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8
8
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3
3
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9
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_
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#
p
d
-
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e
658
Msceaneous ta es Contnued.
ffectve perod
tenson of certan ta es, Tte , Revenue ct of 1932, as
amended.
Stamp ta es
Cgars and cgarettes, subdvson packages, reguatons
amended
Conveyances
Long-term ease and subsequent reconveyance by
trustee (essor) pursuant to ease
O and gas eases, ansas and Te as
Ppe-ne rght of way, New ersey
Sae of sherff s certfcate of sae ( ansas) durng
redempton perod
ffectve perod
Passage tckets
etween Puerto Rco and contnenta Unted States
Consus genera of Denmark
Reguatons for restampng packages of tobacco, etc..
Mortgages, forecosure, oss deducton, when deductbe
Motorcyces. (See Manufacturers e cse ta es.)
Motor vehce fue ta , Coorado
N.
Nava contracts under nson ct. (See nson ct.)
Netherands, ta es, smar credt requrement
Net worth statement, nstructons
New ersey, ppe-ne rght of way, stamp ta abty
New York Cty, ta es, gross recepts ta
Nonresdent aens:
state of, return of ancary representatve n Unted States
oregn trust benefcary, ncome from dvdends of domestc
corporaton
edgng transactons, ncome
Reguatons, ncome ta conventon, Canada
Rentas from Unted States rea estate, wthhodng
North Carona, property ta es, accrua date
Norway, shps earnngs, e empton
O.
Okahoma:
Income and property ta es
Ta on banks, trust companes, etc
Oeomargarne:
Reguatons for restampng packages of
Schedue of producton and materas used
une, 1937 and 1936.
uy, 1937 and 1936 -
ugust, 1937 and 1936
September, 1937 and 1936 -
October, 1937 and 1936
Overpayments, recovery, barred defcency n e cess of overpay-
ments
8843
8816
9096
8840
9007
8899
8839
8844
(8927
8961
8825
8805
9061
8817
8953
9083
8899
8884
8834
8896
9025
8984
8875
8931
8864
8914
9024
8805
8850
8901
8964
9020
9059
9063
Partnershp, marta agreement, res |udcata
Passage tckets. (See Msceaneous ta es: Stamp ta es.)
Patents, sae of, capta gan, determnaton of perod hed.
8821
8904
309
139
G
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8
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3
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#
p
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e
659
Pennsyvana:
cse ta , accura bass, deducton
Lqud fues ta
Unempoyment compensaton fund, contrbutons to
Pensons, Raroad Retrement ct, 1937, ta abty
Persona e empton, ctzen resdng abroad wth aen husband...
Persona hodng companes:
oregn
Dstrbutons n qudaton
Reguatons amended
Surta , reguatons amended
Power of attorney, fee arrangements
Processng ta es:
Deducton, procedure n e amnaton of returns
oor stocks, cam receved after anuary 1, 1937
Rce, cam for refund where ta -payment warrant surrendered
suffcency
Property ta es. (See Ta es.)
Puerto Rco, passage tckets to Unted States
Raroad Retrement ct, 1937, annutes and pensons, ta abty-
Raway empoyees, pay deducton under Carrers Ta ng ct
Rea estate, osses on forecosures, when deductbe
Refunds. (See Credt or refund.)
Reguatons (see aso mendments: Reguatons):
Dsted sprts botted n bond
Governng ta aton of rench ctzens and corporatons under
treaty
Income ta conventon, Canada
Informaton returns, n re formaton, etc., of foregn corpora-
tons
Inspecton of ncome ta wthhodng returns, Canada
Mutated or mssng strp stamps, repacement on dsted
sprts n bottes
Recognton of attorneys, agents, and others by Treasury De-
partment (1937 amendment)
Records requred, Lquor Ta dmnstraton ct
Restampng of packages of dsted sprts, etc
Sae of ethy acetate and acquer thnners
Weghts for testng scaes at dsteres
Rentas, advance, perod ta abe
Reorganzaton:
Gan or oss
change
Long-term promssory notes for stock
Stock for stock and other property
oregn corporatons, ta -free e changes, Commssoner s
approva
Saes dstngushed..
Res |udcata:
state ta , |udgment n one sut res |udcata as to second sut.
na order of oard
Partnershp, marta agreement
Returns:
usband and wfe, tenants by entrety, Mchgan
Informaton
Reguatons n re formaton, etc., of foregn corporatons..
Reportng of wages earned and not pad
Rung
No.
9070
8942
8795
8929
8853
9109
9085
9060
8995
9087
8841
8909
/8927
8961
8929
8832
90G1
8828
8827
8984
9044
8985
9056
8994
8963
8805
8804
9095
8877
8835
9074
8894
9038
8891
8887
8821
(8986
8987
9044
9055
G
e
n
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r
a
t
e
d

f
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L

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Z
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g

(
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
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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s
s
_
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e
#
p
d
-
g
o
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g

e
660
Rung
No.
Returns Contnued.
Inspecton of, reguatons
Wthhodng returns, Department of Natona Revenue,
Canada
Soca securty ta es. (See Soca securty ta es: Returns.)
Wthhodng, nspecton of, Department of Natona Revenue,
Canada
Revenue ct of 1937
Commttee reports
Rce processng ta , cam for refund
Rum, denatured, sae of, reguatons
S.
Saes:
Gan or oss, reorganzaton dstngushed
Stock, gan or oss bass, frst n, frst out rue...
Stock rghts, ssuance of, sae and dvdend dstngushed
Ta -
abama
ansas
Shps, foregn, earnngs of, e empton. (See empt ncome.)
SnutT, reguatons for restampng packages of...
Soca cubs, e empton, reguatons amended
Soca Securty Ta Unt, estabshment of
Soca securty ta es:
udng and oan assocaton n process of qudaton, Ca-
forna
Credt or refund
en returnng to home country
Ta es pad under protest
mpoyees
ccountants and audtors
gents, nsurance
arbers
Check wcghmen
Concessonares
Drver furnshed to company
Gof professonas
Guardan of trust benefcary
antors, servng severa property owners
Mners unon empoyer of check weghmen
Mnster offcatng at funera
Muscans
Operators, agency or contract teephone e changes
Partners under empoyment contract
Physcan under contract
Readers for moton pcture company
Store owner recevng payment of bs for company
Ta cab owner-drvers
Truck owner and substtute under contract
Waters engaged by cub to serve for cub members
Wresters
mpoyees ta assumed by empoyer, statement of
mpoyers, changes n status of
cepted servces
grcutura abor
Commerca dog kenne
ower growng
Greenhouses, vegetabes
Iceberg ettuce, packng of
Mape srup and mape sugar producton
Mushroom growng
8949
8985
8985
8921
8926
8909
8842
9038
9014
9073
9111
8999
8805
8924
8806
8907
9039
9103
9016
8813
9104
8989
9105
8973
9106
8880
8822
8989
8866
8946
8814
9114
9115
9030
8879
9116
8974
8889
9040
8836
8975
9065
8990
9041
9052
8957
9090
G
e
n
e
r
a
t
e
d

f
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r

L

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Z
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g

(
N
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Y
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U
n

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t
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)

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n

2
0
1
3
-
0
1
-
2
2

0
4
:
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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.
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.
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/
a
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e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
661
Soca securty ta es Contnued.
cepted servces Contnued.
grcutura abor Contnued.
Nursery stock, growng of
Seeds, packng and shppng of
Tobacco, producton and processng of
Tung nuts, producton of
Cemetery corporaton
Crew members
Dock buders, etc
Shore servces
Temporary
esse numbered and recorded
Watchmen on vesses
Watercraft, cassfcaton
Domestc servces
mpoyees 65 years of age
unera drector, temporary servces of chauffeurs, pa-
bearers, and sngers
Mners unon
Ranch cooks
State nstrumentates
anks and trust companes
Custodan engneers and assstants, New York
Motor vehce agents, New ersey
Muncpa eague
Race track nspectors and stewards
State board of aw e amners, Pennsyvana
State ands, empoyees of essee of
Tubercuoss assocaton
ocatona tranng wth prvate company, part of
wages pad by State
Umpres, amateur baseba eague
Unted States nstrumentates
grcutura conservaton assocatons
ank, etc., edera Reserve System member, n qu-
daton
Ma carrers, contract
Restrcted Indan ands, empoyees of essee of
Trust company, servces pror to admsson nto
edera Reserve System
Payments under secton 203, Tte II, estate ta abty
Returns
na, corporaton surrenderng charter
Partnershp conductng separate busnesses
Rung
No.
Reguatons 91 amended.
Saares pad under nsurance pocy durng shut-down perod.
Wages
utomobe e pense
wards for suggestons .
onuses pad by manufacturer to empoyees of retaer..
Commssons pad to empoyee and former customer
Computaton
Credted to empoyees, when ta abe
Dsabty pay
Dues aowance, fraternty offcer
mpoyee s contrbuton to unempoyment fund pad by
empoyer
8990
409
9089
416
9042
412
8956
407
8898
446
9017
428
8991
427
8867
93
8934
425
9053
430
9018
429
9117
419
8919
422
8866
421
8858
445
8837
418
8823
434
9033
443
9077
444
9019
440
8976
437
8815
433
8857
435
8801
431
8802
432
8918
38S
9032
441
9031
441
8992
438
8857
435
8897
436
8868
469
8917
377
8888
373
f8848
459
9004
376
19028
373
19058
374
8800
369
8859
448
9091
456
9005
451
9006
452
9066
454
9092
457
9076
368
8977
457
9078
459
9054
453
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662
Soca securty ta es Contnued.
Wages Contnued.
Insurance premums
Mners unon, rembursement to representatve for tme
ost
Negotabe promssory note
Offcer and drector, computaton
Returned to empoyer.
Tuton payments, rembursement by empoyer
aue of unches or rembursement for
South Carona, gasone ta
Speca ta es. (See Ta es.)
Sportng goods. (See Manufacturers e cse ta es.)
Stamp ta es. (See Msceaneous ta es.)
States:
anks and trust companes, abty for soca securty ta es..
Income, company furnshng water to cty, e empton
Offcers and empoyees, compensaton, actuary empoyed by
retrement boards
Ta es. (See Ta es: State.)
Unempoyment compensaton fund, contrbutons to. (See
Contrbutons.)
Stock:
Losses
Deducton mtaton .
orced purchase under underwrtng agreement
Rghts, ssuance and e ercse of, sae or dvdend .
Preferred, premums pad on redempton of, oss deducton
Sae of, gan or oss bass, frst n, frst out rue
Sugar, appcaton of ta -free saes provson of 1932 ct
Suts:
udgment n one sut res |udcata as to ater sut
Recovery of ta es
Cam for refund, overpayments credted n ater year
state ta es, set off of barred gft ta
Lmtaton perod, coecton stayed by abatement cam..
Overpayment apped aganst defcency
Ta es: T.
Carrers Ta ng ct
mpoyees deducton
Income deductons, 1936 returns, treatment
Defcences, e tenson of tme for payment, nterest payabe
cess-profts. (See cess-profts ta .)
oregn
Credt for. (See Credts.)
Net premum ta , Canada
Netherands, smar credt requrement
Recproca provsons, Canada
Processng. (See Processng ta es.)
Speca
ermented quor, saes by propretor of two or more
stands at baseba stadums, etc
State-
anks, trust companes, etc., Okahoma
Capta stock ta , Inos, accrua date
Contrbutons to State unempoyment compensaton
fund. (See Contrbutons.)
cse:
Massachusetts corporaton, accrua date
Pennsyvana, accrua bass, deducton
9093
8958
9075
8908
9064
8936
8935
9100
8823
9101
8856
/8855
(8915
8905
9073
9050
9014
9107
8891
8798
8869
8811
8906
8832
8930
8988
9037
8953
8910
9118
9024
8967
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663
Ta es Contnued.
State Contnued.
ranchse ta , Tennessee, accrua date
Gasone ta . (See Ta es: State Motor vehce fue ta .)
Gross recepts ta , New York Cty
Income ta , Okahoma
Motor vehce fue ta
Coorado
orda
Inos
Pennsyvana
South Carona
Property ta
North Carona, accrua date
Okahoma
Refund of, ncome
Saes ta
abama
Iowa
ansas
Un|ust enrchment ( wndfa )
Consttutonaty, restrant of assessment and coecton. .
Payments or credts of processng ta under agreement to
vendees
Rembursement receved by manufacturer and vendee,
arge cotton bags
Wrtten agreements, prncpes determnng
Tenants by entrety, Mchgan
Tennessee, franchse ta , accrua date
Te as, o and gas eases, stamp ta
Tobacco:
Reguatons for restampng packages of
Statement of manufactured, produced, by casses
pr, 1937 and 1936- -- -.
May, 1937 and 1936 -
une, 1937 and 1936..
uy, 1937 and 1936 - --.
ugust, 1937 and 1936
September, 1937 and 1936
Subdvson packages, cgars and cgarettes, reguatons
amended
endng machnes, reguatons amended
Toet preparatons. (See Manufacturers e cse ta es.)
Treaty, Unted States and Canada, ncome ta
Trusts:
Income ta abe to grantor
Mantenance, beneft of grantor s chdren
Partay revocabe
U.
Unempoyment funds, State, contrbutons to. (See Contrbu-
tons.)
Unted States oard of Ta ppeas:
Decsons of, st of acquescences and nonacquescences
na order of, res |udcata
Un|ust enrchment ( wndfa ) ta . GSee Ta es.)
Rung
No.
9048
8884
8914
8817
8913
8893
8942
9100
8931
8914
8954
9111
8833
8999
9043
8870
8900
9008
fS SG
8987
9048
9007
8805
8807
8871
8911
8962
9022
9081
9096
8940
8910
/9003
19027
8882
8943
9097
8887
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664
.
endng machnes, tobacco, reguatons amended
nson ct:
cess proft on nava contracts
ccountng systems and records, requrements
permenta and deveopment e penses
Subcontract
W.
Washngton, communty property
Weghts for testng scaes at dsteres, etc., reguatons
Wndfa ta . (See Ta es: Un|ust enrchment.)
Wthhodng ta at source:
Conventon between Unted States and Canada
Unted States ctzens and domestc corporatons, Cana-
dan nomnees and agents
Rates
Gross rentas from rea estate owned by aens, foregn corpor-
atons
Interest, bond, ta -free covenant bonds, and addtona note
nterest
Rung
No.
8940
8948
8948
8922
9036
9095
9086
8983
8875
9072
O
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