fc|gí INT RI LL R NU

fa Z LL TIN
(C M rr . T I ULLIT1 1955-1
.rí.ua.ry- une 1955
ín thís íssue _
índíng Líst ííí-ví
Introductíon 1
oreword 2
Ta Court of the Uníted States, The. ___ 3_8
Specíaí nnouncement g
Part I. € ” Ruííngs and Decísíons Under the Internaí
Revenue Code of 195 11-203
Part II. € ” Ruííngs and Decísíons Under the Internaí
Revenue Code of 1 939 and Reíated Pubííc Laws... 205-563
Part III € ” cohoí Ta Ruííngs and Decísíons:
Subpart . .Ruííngs and Decísíons Under the
Internaí evenue Code of 195 5G5-607
Subpart . € ” Ruííngs and Decísíons Under the
Internaí e venue Code of 1939 608
Subpart C. € ” Ruííngs and Decísíons Under the
ederaí íc boí dmínístratíon ct or Reíated
Laws 609-617
Part T . € ” Legísíatíon a-110 Treatíes:
Subpart . € ” Legísíatíon... 619-623
Subpart . € ” To- c Conventíons 62 -679
Subpart C. C ommíttee Reports 680-693
Part . € ” dmínístra-tív e and Mísceííaneous Matters. 695-722
Inde 723-7 9
€ UNIT D ST T S
If S I N t ON € 10 S
foe a hv t r- SuDerír ten íent of Documents, U. S. Government Príntíng Offíce
sUíogt 2S, .c. - Príce 2 (Parer)
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D POSIT D Y T
UNIT D ST T S O M RIC
INDING LIST
Court Decísíons:
1773
1771.
1775
1778
1777
1778
1779
1780
17
17S2.
1753
17
ITS.
_ 13 -
cvcnue Ruítnps:
6 -601 (correctíon) .
85-1
65-2.
M
65-
65-5.
SS-6 € ž
S5-7
.
5-
65-10
15-11
-12.
65-13
66-1
66-15
65-ífí
65-17
65-18
65-19
65-20
65-21
65-22
65-23
65-2
6 25
65-26
65-27
85-S
65-29
€ 6-aí
65-.T2.....

85-3
65-35
55-3
55-37

u-
65- 1
65- 2
65- 5..
65- 7..
ML.
S-61

MI
2 3
291
116
uo
6 7
6 8
e
536
620
117
no
376
178
26
211
282
291
331
09
99
518
075
7
212
259
285
302
361
386
388
75
96
516
5 0
198
275
283
283
338
350
359
13
30
76
557
128
226
286
3 0
3 7
3 9
03
670
698
610
617
129
3
126
239
2S1
31
606
61
62
528
633
837
Revenue Ruíínps-
55-56
65-57
65-58
65-59
55-60
65-61
65-62
65-63
65-6
65-65
85-6
65-67
65-68
65-69
85-70
65-71
65-72
65-73
65-7
65-75
65-76
85-77
65-78
65-79
65-80
85-81
65-82
55-83
85-8
88-85
65-86
85-87
85-88
65-S9
65-90
85-91
85-92
65-93
65-9
65-95
65-90
85-97
65-08
85-99
65-100
65-101
65-102 ,
65-103 ,
65-10
66-105
65-106
85-107
85-108
65-109
65-110
65-111... .
65-112
65-113
65-11
66-115
65-116... .
68-117
85-118
65-119
65-120
65-121
65-122
55-123
65-12
85-125
65-126
– Contínued
6 9
SU
97
88
17
– ín
212
227
228
277
282
387
.ST.
61
60
U í
206
286
230
238
232
339
387
870
887
3 C
820
831
15
33
112
2 1
28
3 8
3 1
300
.11
1 í
80
188
612
62 I
531
665
566
S 9
31
6
9
102
127
1 0
361
280
333
8
81
673
57.-,
576
233
320
352
382
382
390
– 1 1
82
618
636
(III)
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71 592 30
y
INDING LIST € ” Contínued
maae Ruííngs € ” Contínued
€ ML
::-- – ..
k-sí.
– ..
Page
27
320
.M7
831
352
3f.S
37.1
3 U
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71

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131
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312
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119
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5
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205
230
271
320

9
55
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53
6 3
657
558
129
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55R
597
101
607
21
139
232
290
3 3
172
381
398
IS
673
13
561
670
67
575
877
695
699
600
17
25
0
Revenue Ruííngs € ” Contínued
65-369
55-370
65-371
55-372
65-373
55-37
65-375
65-376
65-377
65-378
65-379
65-380
65-381
65-382
65-383
65-38
55-385
65-386
65-387
85-388
65-389
65-390
85-391
65-392
65-393
65-39
65-395
55-396
65-397
65-398
65-399
85- 00
85-101
85- 02
65-103
85- 0
85- 05
65- 06
85- 07
65- 08
85- 09
65- 10
65- 11
65- 12
65- 13
85- 1
65- 15
55- 16
65- 17
85- 18
65- 19
85- 20
65- 21
65- 22
65- 23
65- 2
65- 25
65- 26
Treasury Decísíons:
6116
6117
níís
6119
Page
M
122
131
89
363
370
88
€ 121
20
-17
I
161
1
689
79
M
100
120
131
2:1:
271
290
808
22
8
88
5
622
. ,25
535
572
690
611
618
600
615
28
7:í
77
113
120
297
303
818
321
383
12
16
3
115
88
527
639
II
1
2
– 1:1
us
101
678
698
115
823
6120
6121
6122
6123
612
6125
6126
6127
6128
6129
6130
6131
6132
6133
613
9 (Narcotícs).. -
1(1
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515
719
M
61
108
123
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0.5
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112
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60
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I
INDING LIST € ” Contínued
Treatíes:
Canada € ”
ederaí Repubííc oí Germany
apan € ”
íecutívc Orders:
10289
10583
10585
10580
10602
10606
10007
Page
62

65
( If,
17
696
I.M í
1 3

Procíamatíon 3082 _..
Pubííc Laws:
1
18 €
70 (Sept. 1, 105 )
IR-Círcuíar:
65-23 (Rev. Ruí. 55-17 )...
News Reíeases:
IR-íoy (Rev. Ruí. 55-371)
IR-Uí (Rev. Ruí. 55-262)
Tage
L 7
f.í )
(- –
1 1
IS .í
1 1
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INDING LIST O PR IOUSLY PU LIS D RULINGS
CURR NTLY M NTION D
Prevíous ruííng
ctíon
. R. R. 229, C. . 3, 35 (1920).
G. C. M. 10 86, C. . I-1, 1
(1932).
G. C. M. 23623, C. . 19 3, 313.
L T. 1557, C. . II-í, 172
(1923).
I. T. 1776, C. . II-2, 151
(1923).
I. T. 1936, C. . III-í, 122
(192 ).
I. T. 2 05, C. . II-1, 72
(1928).
I. T. 3 72, C. . 19 1-1, 252...
I. T. 3827, C. . 19 6-2, 57
I. T. 3910, C. . 19 8-1, 15
I. T. 017, C. . 1950-2, 12
I. T. 058, C. . 1951-2, 22...
L. O. 101 , C. . 2, 88 (1920).
Mím. 1 8, C. . III-1, 87
(193 ).
Mím. 6136, C. . 19 7-1, 58..
Mím. 6583, C. . 1951-1, 97..
0. D. 667, C. . 3, 52 (1920)..
0. D. 7 5, C. . 3, 355 (1920)..
0. D. 823, C. . , 77 (1921).
0. D. 9 5, C. . , (1921).
0. D. 1031, C. . 5, 1 1 (1921)..
Rev. Ruí. 25. C. . 1953-1. 31
Rev. Ruí. 117, C. . 1953-1,
Cíted
mpíífíed.
Modífíed..
Cíted
Cíted
Cíted
Modífíed
Modífíed
Modífíed
Revoked
mpíífíed
Modífíed
Cíted
Modífíed
Current revenue ruííng
98
Rev. Ruí. 119, C. . 1953-2,
95.
Rev. Ruí. 108, C. . 1953-2, 19.
Rev. Ruí. 177, C. D. 1953-2,
3 1.
Rev. Ruí. 199, C. . 1953-2,
225.
Rev. Ruí. 291, C. . 1953-2, 2
Rev. Ruí. 5 -63, C. . 195 -1,
33
Rev. Ruí. 5 -185, C. . 195 -1,
0 .3
Rev. Ruí. 5 -329, I. R. .
195 -33, 12.
Rev. Ruí. 5 -352, I. R. .
195 -3 , 2 .
Rev. Ruí. 5 -366, I. R. .
195 -35, 9.
Rev. Ruí. 5 -392, I. R. .
195 -37, 52.
Rev. Ruí. 5 -576, I. R. .
195 - 9, 21.
Modífíed
Suppíemented
Cíted
Cíted
Cíted
Modífíed
Cíted
Modífíed
mpíífíed
Modífíed
mpíífíed
mpíífíed
Superseded
Superseded
Modífíed
Modífíed
mpíífíed
Modífíed
mpíífíed
Superseded...
Modífíed.....
( II)
Rev. Ruí. 55-257, p. 28.
Rev. Ruí. 55-273, p. 221.
Rev. Ruí. 55- 35, p. 286.
Rev. Ruí. 55-227, p. 551.
Rev. Ruí. 55-275, p. 295.
Rev. Ruí. 55-250, p. 270.
Rev. Ruí. 55-227, p. 551.
55-29 , p. 368.
55-170, p. 3 2.
55-138, p. 223.
55- 88, p. 2 1.
55-139, p. 277.
55-357, p. 13.
55- 07, p. 77.
Rev. Ruí.
Rev. Ruí.
Rev. Ruí.
Rev. Ruí.
Rev. Ruí.
Rev. Ruí.
Rev. Ruí.
Rev. Ruí.
Rev. Ruí.
Rev. Ruí.
Rev. Ruí.
Rev. Ruí.
Rev. Ruí.
Rev. Ruí.
Rev. Ruí.
Rev. Ruí.
55- 60,
55- 31,
55-117,
55-257,
55-317,
55-119,
55-110,
55- 1,
55-153,
37.
76.
233.
28.
329.
352.
280.
598.
199.
Rev. Ruí. 55-136, p. 213.
Rev. Ruí
Rev. Ruí
55- 12, p. 259.
55-318, p. 509.
Rev. Ruí. 55- 6, p. 09.
Rev. Ruí. 55-171, p. 80.
Rev. Ruí. 55-220, p. 2 7.
Rev. Ruí. 55-217, p. 60 .
Rev. Ruí. 55- 98, p. 52 .
Rev. Ruí. 55-217, p. 60 .
Rev. Ruí. 55- 22, p. 198.
Rev. Ruí. 55-169, p. 612.
Rev. Ruí. 55-302, p. 577.
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III
INDING LIST O PR IOUSLY PU LIS D RULINGS
CURR NTLY M NTION D € ” Contínued
Prevíous ruííng
ctíon
Current revenue ruííng
Rev. Ruí. 5 -608, I. R. .
Modífíed
Rev.
Ruí. 55- 26, p. 68.
195 -51, 5.
Rev. Ruí. 5 -G25, I. R. .
Modífíed
Rev.
Ruí. 55-212, p. 299.
195 -52, 13.
Rev. Ruí. 55-56, I. R. . 1955-
Modífíed
Rev.
Ruí. 55-3 6, p. 607.
5, 26.
Rev. Ruí. 55-72, I. R. . 1955-
Superseded...
Rev.
Ruí. 55- 72, p. 206.
7, 11.
S. M. 31 1 , C. . I -2, 183
Modífíed
Rev.
Ruí. 55-119, p. 352.
(1925).
S. R. 5128, C. . I -2, 156
Cíted
Rev.
Ruí. 55-389, p. 276.
(1925).
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R I TIONS
The foííowíng abbrevíatíons ín current use and formeríy used wííí
appear m materíaí pubííshed ín the uííetín.
, ,C, etc. € ” The names of índívíduaís.
. T. € ” ícohoí and tobacco ta ruííng.
. T. . € ” oard of Ta ppeaís.
C . € ” Cumuíatíve uííetín.
C. . R. € ” Code of ederaí Reguíatíons.
Ct. D. € ” Court Decísíon.
D. C. € ” Treasury Department círcuíar.
. O. € ” ecutíve Order.
. T. € ” state gíft ta ruííng.
m. T. € ” mpíoyment ta ruííng.
. . . . € ” ederaí ícohoí dmínístratíon ct.
G. C. M. € ” Chíef Counseí s memorandum (formeríy Generaí Coun-
seí s memorandum).
I. R. . € ” Internaí Revenue uííetín.
IR-Mím. € ” Pubííshed IR-mímeograph.
I. T. € ” Income Ta Ruííng.
/, , Y, Z, etc. € ” The names of corporatíons, píaces, or busínesses
accordíng to conte t.
M. T. € ” Mísceííaneous ta ruííng.
Mím. € ” Pubííshed mímeograph.
O. D. € ” Offíce Decísíon.
P. L. € ” Pubííc Daw.
P. S. € ” Pensíon, profít-sharíng, stock bonus, or annuíty pían ruííng.
Rev. Proc. € ” Revenue Procedure.
Rev. Ruí. € ” Revenue Ruííng.
S. T. € ” Saíes ta ruííng.
S. P. R. € ” Statement of Proceduraí Ruíes.
Stat. € ” Statutes at Dírge.
T. C € ” The Ta Court of the Uníted States Reports.
T. D. € ” Treasury Decísíon.
U. S. C. € ” Uníted States Code.
at and y used to represent certaín numbers and when used wíth the
word doííars represent sums of money.
(I )
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INTRODUCTION
The Internaí Revenue uííetín ís the authorítatíve ínstrument of
the Commíssíoner of Internaí Revenue for the announcement of offí-
cíaí Internaí Revenue ruííngs, and for the pubíícatíon of Treasury
Decísíons, ecutíve Orders, íegísíatíon, and court decísíons pertaín-
íng to Internaí Revenue matters.
It ís the poíícy of the Servíce to pubíísh ín the uííetín aíí sub-
stantíve ana proceduraí ruííngs of ímportance or generaí ínterest, the
pubíícatíon of whích ís consídered necessary to promote a uníform
appíícatíon of the íaws admínístered by the Servíce. It ís aíso the
poíícy to pubíísh aíí ruííngs whích revoke, modífy, amend, or affect
any pubííshed ruííng. Ruííngs reíatíng soíeíy to matters of ínternaí
management are not pubííshed. The ruííngs are prepared ín the
varíous dívísíons of the Natíonaí Offíce, íncíudíng the Offíce of the
Chíef Counseí for the Internaí Revenue Servíce. íí pubííshed
ruííngs have receíved the consíderatíon and approvaí of the Chíef
Counseí.
Revenue Ruííngs reported ín the uííetín do not have the force and
effect of Treasury Department Reguíatíons (íncíudíng Treasury Decí-
síons), but are pubííshed to províde precedents to be used ín the dís-
posítíon of other cases, and may be cíted and reííed upon for thís
purpose. owever, sínce each pubííshed ruííng represents the con-
cíusíon of the Servíce as to the appíícatíon of the íaw to the entíre
state of facts ínvoíved, Revenue offícers and others concerned are
cautíoned agaínst reachíng the same concíusíon ín other cases uníess
the facts and círcumstances are substantíaííy the same. In appíyíng
ruííngs pubííshed ín the uííetín, personneí of the Servíce wííí, of
course, consíder the effect of subsequent íegísíatíon, reguíatíons, court
decísíons, and ruííngs.
ach ruííng ís desígnated as a Revenue Ruííng and shouíd be
cíted by reference to the uííetín and page where reported. Thus,
Revenue Ruííng No. 55-80 shouíd be cíted as Rev. Ruí. 55-80, C. .
1955-1, € ” . Ruííngs are keyed to the appíícabíe sectíons of the
Internaí Revenue Code and reguíatíons.
Internaí Revenue Cumuíatíve uííetín 1955-1 contaíns aíí ruííngs,
decísíons, and íegísíatíon pertaíníng to Internaí Revenue matters
pubííshed ín the weekíy Internaí Revenue uííetíns 1 to 26, íncíu-
síve, for the períod anuary 1 to une 30, 1955. It aíso contaíns a
cumuíatíve ííst of announcements reíatíng to decísíons of The Ta
Court of the Uníted States pubííshed ín those uííetíns.
(1)
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OR WORD
The Internaí Revenue uííetín ís prepared ín sí parts. Part I
íncíudes ruííngs and decísíons whích are based on the appíícatíon of
provísíons of the Internaí Revenue Code of 195 and, uníess otherwíse
stated ín the ruííng or decísíon, are pubííshed wíthout consíderatíon
as to any appíícatíon of the provísíons of the Internaí Revenue Code of
1939 or reíated pubííc íaws. Part II íncíudes ruííngs and decísíons
whích are based on the appíícatíon of provísíons of the Internaí Reve-
nue Code of 1939 and reíated pubííc íaws and, uníess otherwíse noted
thereín, are pubííshed wíthout consíderatíon as to any appíícatíon of
the provísíons of the Internaí Revenue Code of 195 . Part III con-
taíns ruííngs and decísíons pertaíníng to the varíous aícohoí ta es.
Thís part ís subdívíded ínto three subparts accordíng to matters íssued
under the Internaí Revenue Code of 195 (Subpart ), the Internaí
Revenue Code of 1939 (Subpart ), and the ederaí ícohoí dmín-
ístratíon ct (Subpart C). Part I contaíns ta íegísíatíon and
treatíes, íncíudíng reíated Commíttee and Conference Reports. Thís
part ís subdívíded ínto three subparts accordíng to íegísíatíon (Sub-
part ), ta conventíons, Treasury Decísíons and Revenue Ruííngs
íssued wíth respect thereto (Subpart ), and Commíttee Reports
(Subpart C). Part ís devoted to admínístratíve and mísceííaneous
matters. The weekíy Internaí Revenue uííetíns contaíned Part I,
consístíng of some ítems of generaí ínterest. Other than the dísbar-
ment ííst, whích has been íncorporated ín Part of thís uííetín,
those ítems are not reproduced hereín.
(2)
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T T COURT O T UNIT D ST T S
CUMUL TI LIST O NNOUNC M NTS R L TING TO
D CISIONS O T T COURT O T UNIT D
ST T S PU LIS D IN T INT RN L R NU
ULL TIN ROM NU RY 1, 1955, TO UN 30, 1955,
LNCLUSI
It ís the poíícy of the Internaí Revenue Servíce to announce ín the
Internaí Revenue uííetín at the earííest practícabíe date the deter-
mínatíon of the Commíssíoner to acquíesce or not to acquíesce ín a
decísíon of The Ta Court of the Uníted States whích dísaííows a
defícíency ín ta determíned by the Commíssíoner to be due. Notíce
that the Commíssíoner had acquíesced or nonacquíesced ín a decísíon
of The Ta Court reíates oníy to the íssue or íssues decíded adverseíy
to the Government. ctíons of acquíescences ín adverse decísíons
shouíd be reííed on by Revenue offícers and others concerned as con-
cíusíons of the Servíce oníy as to the appíícatíon of the íaw to the
facts ín the partícuíar case. Cautíon shouíd be e ercísed ín e tendíng
the appíícatíon of the decísíon to símííar cases uníess the facts and cír-
cumstances-are substantíaííy the same, and consíderatíon shouíd be
gíven to the effect of new íegísíatíon, reguíatíons, and ruííngs as weíí
as subsequent court decísíons and actíons thereon. cquíescence ín a
decísíon means acceptance by the Servíce of the concíusíon reached
and does not necessarííy mean acceptance and approvaí of any or aíí
of the reasons assígned by the Court for íts concíusíons. No announce-
ments are made ín the uííetín wíth respect to memorandum opíníons
of The Ta Court.
The Commíssíoner C UI SC S ín the foííowíng decísíons:
Ta payer
Docket No.
Report
oíume Page

arthoíomew, rederíck Cecíí, a mínor, estate of
arthoíomew, Myííícent, guardían of estate of red-
eríck Cecíí arthoíomew, a mínor
ear íím Co
ernsteín, dward, e ecutor of estate of Wííííam
ernsteín .
ernsteín, Wííííam, et aí., estate of
our, ísíe S____................................
200
297 3
1976
356 1
1 Nonaeqaíescence pubííshed In Cumuíatíve uííetín 1(1 5, g, Is wíthdrawn.
(3)

18
22
23
3 9
35
136
237
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cquíescences € ” Contínued
Ta payer
radford, . C, et u .
rookíyn Uníon Gas Co.8.
Docket No.
C
Campanarí, Chrístopher C, ct aí., e ecutors of estate
of Nína M. Campanarí 5
Campanarí, Nína M., estate of 6
Carnegíe Center Co., The
Caruso, Dorothy
Centraí Outdoor dvertísíng Co., Inc
Chang síao Líang
Country Cíub states, Inc..
Crawford County Príntíng and Pubííshíng Co
Crawford County Príntíng and Pubííshíng Co., a
díssoíved corporatíon
D
Daggítt, Dcíoss. ., et n
Davís, aroíd S., estate of
Davís, Mary, e ecutrí of estate of aroíd S. Davís.
Dírksmeyer, Lafavette
Díttmar, Martín M., et u
Drachman, .da
Drachínan, anchon
Drachman, Ríchard M
arríer, Mamíe
arríer, W. G., estate of (termínated).
eagans, rank T., et u
eagans Paínt Co
ísher, Wííson ohn1
ort Wharf Ice Co
uííerton, George I
uíton ag Cotton Mííís.
Gaynor News Co., Inc
Gírard Trust Corn change ank.
Goídberger, Norman S., estate of
Goídsmíth, íbert
Goodman, í, et u
Goodman Inc., í
Greenbros, Inc
Greenspon, nna
Greenspon, Louís
Greenspon, Louís, transferee
Greenspon Inc., Louís
35000
30895
123380
20176
38
30353
6810
23 6
3978
898
22369
33509
e port
oíume Tape
38570
2:
G005
22
3607
2:
5 2
23
32977
1
32976
1
93
32975
2 5 0
2 539

15
358 7
36075

23
3 13
23
5937
23
38572
22
3796
22
5215
22
36015
22
35388
18
1831
22
2715
271

23
9636
23
39 0

39 05
1
23
39 03
1
39 06

22
22
22
23
22
2::
22
17
€ Uníted States oard of Ta ppeaís.
€ cqníesccnee In thís case has been wíthdrawn and nonaeqníescenee substítuted therefor In I. R. .
19M-37. 7.
Nonaeqníescenee pubííshed ín Cumuíatíve uííetín -2, 82 (1831), ís wíthdrawn.
€ state taí decísíon.
– Nonacquíesccnee pubííshed ín Cumuíatíve uííetín 19 7-1, . Is wíthdrawn.
€ cquíescence reíates to íssues ínvoívíng amounts e pended by a professíonaí musícían for formaí
cíothíng, accessoríes, and maíntenance thereof, and for e penses coveríng entertaínment In the coarse of em-
píoyment aíso. It reíates to the determínatíon of the faír market vaíue of hoteí room accommodatíons fur-
níshed ín ííeu of a hígher money saíary.
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#
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í
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cqdíescences € ” Contínued
Ta payer

enshaw, Pauí ., et u
enshaw, Waíter ., et u
ooks, eanette, índependent e ecutrí and survívíng
wífe of estate of Pat . ooks ..
ooks, Pat ., estate of
uríey, .
uríey, . ., et u
I
Imburgía, rank.

íííson, Leon R., et u . ..
osíyn, George R
osíyn, George R., et u .
eííy, Daníeí S. W
Docket No.
Lake íoíse Groves, Inc.
Larsen, Leonard, et u ..
L mont Corporatíon
Líndau, Míríam C
Loewí Co
M
Marcus, rances (formeríy rances Líumenthaí)
Mííí Lane Cíub, Inc
Míííer, dward .3
Moore, R. ., former índependent e ecutor of estate
of W. (3k. arríer
Morreíí, ohn dgeríy, estate of
– N
Natíonaí ank of Topeka, ans., admínístrator wíth
the wííí anne ed of ohn dgeríy Morreíí estate ..
8530
8529
5676
1210
1211
38559
5371
38212
3821
38213
37 3
31896
37097
37759
3 2
36885
Report
oíume Paso
23
22
22
22
2
23
2:|
20
23
211
21
2:
35733
22
23
37
6759
85083
2 539
€ 103776
15
3
– 103776
3
35786
22
35787
35785
170
502
1256
1002
1101
1 26
CS2
136
599
185
. II
80
82
33
830
277
051
651
North, Ida Ríngííng, estate of, fíducíary of estate of
ohn Ríngííng
North, ohn Ríngííng, e ecutor of estate of Ida Ríng-
ííng North, fíducíary of estate of ohn Ríngííng
North, ohn Ríngííng, e ecutor of estate of ohn
_ Ríngííng
North, ohn Ríngííng, fíducíary of estate of ohn
Ríngííng.. ... . .
1307
t r.íto I St tef oard of Taí ppeaís.
cquíescence reíates to the Issue of the separabíííty of compensatíon receíved for servíces rendered as
S ír se to trustees under a wííí and compensatíon receíved as a trustee under such wííí. to determíne whether
U compensatíon for the former meets the 80 percent requírement and entítíes the taípayer to the benefít
sec 107(a) of the v. t.í Code.
ínarnuí.scence pubííshed In Cumuíatíve uííetín 1038-2, 51, Is wíthdrawn.
1 Nonacquíescence pubííshed In Cumuíatíve uííetín 19 1-1, 17, Is wíthdrawn.
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cqcíescences € ” Contínued
Ta payer
Docket No.
Report
o ump Tape
O ríen, Martín Thomas, et u
Paoíozzí, ííce Spauídíng .
Parser, míííe Poíak
Pasadena Cíty Línes, Inc...
Poíak, acob
Poíak, acob and ííseba
Poíak s rutaí Works, Inc_
Potson, Míchaeí
R
Ray s Cíothes, Inc.
Reíd, oseph, et u
Ríngííng, ohn, estate of
Rockíand Oíí Co., transferee of estate of ohn Ríngííng.
Ruwítch, Lee
S
Showeíí, ack, et u .
Sííberman, rances..
Sííberman, oseph
Sííberman, Samueí...
Smíth, Weídon D. 3.
Smoky Mountaíns everage Co
Sníveíy, ohn ., Sr., transferee of Lake íoíse Groves,
Inc
SoReííe, . W., estate of
SoReííe, . W., r., et aí., e ecutors of estate of . W.
SoReííe
SoReííe, ísíe
SoReííe, Mabeí Ruth
Stewart, Wííííam Rhíneíander, estate of
Stewart, Wííííam Rhíneíander, r., et aí., e ecutors of
Wííííam Rhíneíander Stewart estate ,5-
Strauss, Leon, et u .
10SG 8
65 3
0222
2 12
6220
6221
30131
6219
2002
1759
5093
509
5095
38571
:c,7N7
3578
15 3
8153
S15
7886
7888
7887
27569
21778
26761
31896
36 11
36218
39789
67776
15 9
7
23
21
23
2
22
22
23
22
22
23
22
17
22
20
22
31
22
561
182
953
31
953
I2
1332
31
1307
1053
95
12 0
135
12 9
13t
. ,
201
1 0
€ Uníted States oard ot Taí ppeaís.
€ NonMquíosoence pubííshed In Cumuíatíve uííetín 1SM2-2, 30, Is wíthdrawn.
11 Gíft ta decísíon.
cquíescence reíates to the determínatíon of the ta payer s net Income for the years 1936 through 19 3
aíso, to the determínatíon of the marítaí status whích wouíd entítíe the ta payer to the marítaí e emptíon
tor such years.
cquíescence reíates to the deductíbíííty of attorney s fees from proceeds of settíement payment of
former empíoyer In 19 6 príor to aííocatíon under sec. 107(d) of the 1939 Code. Nonacquíescence pubííshed
In Cumuíatíve uííetín 1951-2, 5. ís wíthdrawn, wíth respect to thís íssue.
w state ta decísíon.
11 Nonacquíescence pubííshed ín Cumuíatíve uííetín 1 -1, 38 (1935), Is wíthdrawn.
€ See Rev. Ruí. 56-170, pape M2.
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cqt|íescences € ” Contínued
Ta payer
T
Tronnstíne, deíe, e ecutrí of estate of Norman S
Goídberper
Tunníngíey, Meívín
W
Waíter, Inc., ohn W
Webb, Larry ., et u
Report
Docket No.
ourac
Page
35388
18
1233
135
22
1108
002
23
550
79 8
23
1035
The Commíssíoner docs NOT C UI SC ín the foííowíng
decísíons:
Ta payer
dams, Charíes .1
tías Oíí Refíníng Corp.
Docket No.
8827

rídgeport ydrauííc Co.
Cauíkíns, George Peck s.
C rrtese, Cíara
Crísto, oe
ashíon Park, Inc
íííson, Leon R., et u .5.
íípatríck, Líííían
Lo ue, Phíííp .

L
Report
oíume Pape
39
f 0929 1 € ž € ž
0930 1/
3322
108 22
0633
0632
3705
5371
37233
1o95
22
1
22
21
22
22
22
387
552
215
65C
293
600
1101
6
0
€ Uníted States oard of Ta ppeaís.
1 cquíescence pubííshed In Cumuíatíve uííetín 1939-1,1, wíth respect to the Incíusíon In Income of the
ctfTfrenee between the faír market vaíue and the príce at whích the ta payer acquíred shares of capítaí
stock of a corporatíon through the e ercíse of ríghts granted under an optíon agreement, Is wíthdrawn and
nor|tequtescence Is substítuted therefor.
1 cquíescence pubííshed In Cumuíatíve uííetín 10 , b, as to whether amounts receíved on ccumuía-
tíve Investment Certífícates In e cess of amounts paíd ín, constítute capítaí gaín rather than ordínary
Income, ís wíthdrawn. See Rev. Ruí. 5-136, page 213, thís uííetín.
N eoacquícscence reíates to whether under sectíon 107(a) of the 1939 Code, íong-term compensatíon re-
fftved ín IMS may be aííocated between the ta payer and wífo ín years príor to 19 8, despíte the fact that
tbey fííed separate returns for such years.
cquíescence pubííshed In Cumuíatíve uííetín 19M-2, , reíatíve to the íssue of the stock optíon granted
on anuary 18. 10 5. whích gave propríetary ínterest In a corporatíon and díd not resuít In ta abíe com-
pensatíon, ís wíthdrawn.
6 050 € ” 5 2
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8
Nonacquíescences € ” Contínued
Taípayer
Docket No.
M
Mahíer, en|amín, et u .s
Mammoth Coaí Co., The...
Míííer, Mary
N
North merícan Mortgage Co.
T
Pennroad Corporatíon ffíííated Companíes
Peters, Isabeí
It
Rosenberg, braham, et u .
S
Schwartz, ymíe, et u

argason, eíma
5231
32205
0031
15708
33309
0813
37719
-15571
1700
Repoít
o ume Page
22
22
22
IS
21
21
22
11 SO
571
293
18
1087
55
717
100
€ Uníted States oard ot Taí ppeaís.
Nonacquíeseence reíates to the Issue of whether compensatíon receíved ín 19 8 and aííocated to príor
years 19 2 through 19 7, so as to recompute the 19 8 ta under sectíon 107 a) of the ít 30Code. may befurtho
aííocated to the petítíoner s wífe, despíte the fact that they had fííed separate returns for such príor years.
6 In order to conform to the decísíon ín the case of Wíííard fí urn, Inc.. 20 T. C. 7 ). aííírmed (19511
21 ed. (Mí S15, acquíescence pubííshed ín Cumuíatíve uííetín I - , (11130), reíatíve to a foreígn e -
change transactíon ín whích doííars acquíred ín repayment of íoans were reconverted to guííders at a profít
due to a more favorabíe rate of e change, ís wíthdrawn.
cquíescence pubííshed In Cumuíatíve uííetín 11153-2, 8, as to whether the dífíerence between the faír
market vaíue and the optíon príce of corporate capítaí stock, was compensatíon for personaí servíces ta abíe
as íncome In the year the ta payer e ercísed the optíon and receíved the stock, ís wíthdrawn and noo
acquíescence ís substítuted therefor.
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SP CI L NNOUNC M NT
The pubíícatíon of Revenue Ruííng 5 -501 ín Cumuíatíve uííetín
195 -2, begínníng on page 197, faííed to refíect one of the two correc-
tíons announced on page 6 of Internaí Revenue uííetín 195 - 8,
dated ovember 29, 195 . ccordíngíy, that correctíon ís repeated ín
thís pubíícatíon to caíí partícuíar attentíon to the error and to suggest
that a pen and ínk or pencíííed notatíon be made on page 205 of Cumu-
íatíve uííetín 195 € ” 2, as foííows:
The words, the príncípaí of the Oíd onds but not ín e cess of
shouíd be added after the words, ís ín e cess of on the seventh ííne
of the fírst paragraph begínníng on page 205.
s so corrected, the paragraph shouíd read as foííows:
The gaín or íoss reaíízed upon the e change of the Oíd onds, íncíudíng those
acquíred subsequent to December 11, 19 1, wííí represent capítaí gaín or capítaí
íoss under the provísíons of sectíon 117 of the Code. owever, ín cases where
the Oíd onds were acquíred príor to December 11, 19 1, ínterest íncome wííí be
reaíízed to the e tent that the faír market vaíue of the assets receíved ín the
e change ís ín e cess of the príncípaí of the Oíd onds but not ín e cess of such
príncípaí and the ínterest accrued and unpaíd on the Oíd onds sínce the date
of the recovery. In cases where Oíd onds were acquíred subsequent to Decem-
ber 11, 19 1, ínterest íncome wííí be reaíízed to the e tent that the faír market
taíne of the assets receíved ín the e change ís ín e cess of the príncípaí of the
Oíd onds but not ín e cess of such príncípaí and the ínterest accrued and unpaíd
em such bonds sínce the date of theír acquísítíon.
(9)
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P RT I
RULINGS ND D CISIONS UND R T INT RN L
R NU COD O 195
Ruííngs and decísíons pubííshed ín Part I of the Internaí Revenue
uííetín are based on the appíícatíon of provísíons of the Internaí
Revenue Code of 195 and, uníess otherwíse stated ín the ruííngs or
decísíons, are pubííshed wíthout consíderatíon as to any appíícatíon
of the provísíons of the Internaí Revenue Code of 1939 or reíated
pubííc íaws.
SU TITL . € ” INCOM T S
C PT R 1. € ” NORM L T S ND SURT S
SU C PT R . € ” COMPUT TION O T L INCOM
P RT L € ” D INITION O GROSS INCOM , D UST D GROSS INCOM , ND
T L INCOM
S CTION 61. € ” GROSS INCOM D IN D
( íso Sectíon 102.) Rev. Ruí. 55-26
( íso Part II, Sectíons 22(a), 23(a) Reguía-
tíons 118, Sectíons 39.22(a)-í, 39.23(a)-í.)
Where a ta payer purchases an ínsurance poíícy whích, ín ac-
cordance wíth íts terms, wouíd reímburse the ta payer, to the e -
tent specífíed In the poíícy, for certaín busíness overhead e penses
Incurred by híín duríng proíonged períods of dísabíííty due to ín|ury
or síckness, any proceeds deríved under the terms of such poíícy
constítute and are íncíudíbíe ín gross íncome under the provísíons
of sectíon 61 of the Internaí Revenue Code of 105 or sectíon 22(a)
of the Internaí Revenue Code of 11)39. ny premíums paíd on such
poíícy constítute busíness e penses and are deductíbíe from gross
íncome under the provísíons of sectíon 162 of the 195 Code or
sectíon 23(a) of the 1939 Code.
dvíce has been requested whether any proceeds deríved from a
professíonaí overhead e pense dísabíííty poíícy, whích poíícy ís for
the purpose of reímbursíng the hoíders thereof for busíness overhead
e penses íncurred by them duríng proíonged períods of dísabíííty due
to ín|ury or síckness, ís e cíudabíe from gross íncome. dvíce has
aíso been requested whether the ínsurance premíums paíd wouíd
be nondeductíbíe from gross íncome as an e pendíture attríbutabíe to
ta e empt íncome.
(íí):
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161. 12
Ta payer purchased an ínsurance poíícy under the terms of whích
he wouíd be reímbursed for overhead e penses íncurred by hím wíth
respect to hís occupatíon duríng proíonged períods of dísabíííty. The
poíícy provídes that íf certaín specífíed ín|uríes or síckness, dírectíy
and índependentíy of aíí other cíasses, shaíí whoííy and contínuousíy
dísabíe the ínsured and prevent hím from performíng any and every
duty pertaíníng to hís occupatíon for a períod of more than days,
the company wííí pay certaín specífíed monthíy e penses actuaííy ín-
curred by the ínsured up to an amount not e ceedíng the íímítatíon
specífíed ín the poíícy for the períod of such contínuous dísabíííty, not
e ceedíng a períod of 8a months.
The poíícy further provídes that no índemníty shaíí be paíd for the
fírst days of any períod of dísabíííty uníess such dísabíííty contínues
for more than saíd days, nor for any períod of dísabíííty príor to the
fírst date of medícaí treatment by a íícensed physícían or surgeon,
other than the ínsured. The e pense benefíts payabíe under the poíícy
6haíí be the monthíy e penses actuaííy íncurred by the ínsured ín the
operatíon of hís offíce or, ín the event of |oínt occupancy, the ínsured s
portíon of such e penses and shaíí be íímíted ín the manner set forth
ín the poíícy. Such e penses shaíí íncíude rent, eíectrícíty, heat,
water, íaundry, deprecíatíon, empíoyees saíaríes and such other fí ed
e penses as are normaí and customary ín the conduct and operatíon of
the ínsured s offíce but shaíí not íncíude saíary, fees, drawíng account
or any other remuneratíon for the ínsured or any other member of the
ínsured s professíon híred by or workíng wíth the ínsured, or the cost
of pharmaceutícaí products.
The actuaí questíons presented are whether any ínsurance proceeds
receíved by the ta payer, ín accordance wíth the terms of the above
poíícy, are e cíudabíe from hís gross íncome and whether the ínsurance
fremíums paíd wouíd be nondeductíbíe under sectíon 2 (a) (5) of the
nternaí evenue Code of 1939 as an e pendíture attríbutabíe to ta
e empt íncome.
Gross íncome as defíned under sectíon 22(a) of the Internaí Revenue
Code of 1939 and sectíon 61 of the Internaí Revenue Code of 195 ,
means aíí íncome from whatever source deríved, uníess e empt from
ta by íaw. In generaí, íncome ís the gaín deríved from capítaí, from
íabor, or both combíned.
Insurance poíícíes íssued to províde reímbursement for overhead
e penses ín cases of proíonged dísabíííty of the ínsured do not come
wíthín the purvíew of compensatíon for personaí síckness or ín|ury.
Such ínsurance poíícíes are íssued stríctíy for busíness purposes and
ín no way compensate the ínsured for ín|uríes or síckness wíthín the
meaníng of sectíon 22(b) (5) of the 1939 Code. The proceeds of such
poíícíes are ín the nature of the proceeds of a Use and Occupancy
Contract, whích ínsures agaínst actuaí íoss sustaíned of net profíts,
and the proceeds of whích are íncome ín the same manner that the
profíts for whích they are substítuted wouíd have been. See sectíon
39.112(f)-í(c)(8) of Reguíatíons 118,
Sectíon 23(a) of the 1939 Code and sectíon 162 of the 195 Code
províde that there shaíí be aííowed as a deductíon aíí the ordínary and
necessary e penses paíd or íncurred duríng a ta abíe year ín carryíng
on any trade or busíness. Sectíon 39.23(a) (1) of Reguíatíons 118, ín
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103.) 1
P RT III. € ” IT MS SP CI IC LLY CLUD D ROM GROSS INCOMC
S CTION 102. € ” GI TS ND IN RIT NC S
( íso Part II, Sectíon 22(b) Reguíatíons Rev. Ruí. 55- 22
118, Sectíon 39.22(b) (3)-í.)
The Internaí Revenue Servíce wííí foííow the decísíon ín Charíes
Schaíí et u . v. Commíssíoner, 17 ed. (2d) 893, and other cíted
decísíons, ín decídíng ín other cases whether payments to retíred
mínísters or rabbís under símííar círcumstances represent ta abíe
compensatíon for past servíces or gífts e cíudabíe from gross íncome
under sectíon 102 of the 105 Code.
dvíce has been requested whether the Internaí Revenue Servíce
wííí contínue to íítígate íssues símííar to those ínvoíved ín Charíes
Schaíí et u . v. Commíssíoner, 17 ed. (2d) 893 ndrew Mutch v.
Commíssíoner, 209 ed. (2d) 390 avanagh v. braham M. ersh-
man et aí., 210 ed. (2) 65 and Wííííam S. bernethy et aí. v. Com-
míssíoner, 211 ed. (2d) 651, aíí ínvoívíng the questíon whether pay-
ments on an annuaí or monthíy basís to a retíred míníster or rabbí, au-
thorízed for an índefíníte períod by hís congregatíon at or about the
tíme of hís retírement, were ta abíe as addítíonaí compensatíon for
past servíces or constítuted gífts e empt under sectíon 22(b) (3) of the
1939 Code. The same probíem aríses under sectíon 102 of the 1951
Code, whích e cíudes gífts from gross íncome.
In the cíted cases the payments were not made ín accordance wíth
any enforceabíe agreement, estabííshed pían, or past practíce the
recípíent díd not undertake to perform any further servíces for
the congregatíon and was not e pected to do so there was a far cíoser
personaí reíatíonshíp between the recípíent and the congregatíon
than ís found ín íay empíoyment reíatíonshíps and the avaííabíe
evídence índícated that the amount paíd was determíned ín the ííght
of the fínancíaí posítíon of the congregatíon and the needs of the
recípíent, who had been adequateíy compensated for hís past servíces.
The decísíons ín the cíted cases, to the effect that the amounts
ínvoíved were e empt gífts rather than ta abíe íncome, are accepted
by the Servíce on theír partícuíar facts. In other cases ínvoívíng
payments to retíred mínísters or rabbís under símííar círcumstances
the amounts paíd wííí accordíngíy be treated as gífts e cíudabíe
from gross íncome under sectíon 102 of the 195 Code.
S CTION 103. € ” INT R ST ON C RT IN GO RNM NT L
O LIG TIONS
( íso Part II, Sectíon 22(b) Reguíatíons Rev. Ruí. 55-150
118, Sectíon 39.22(b) ( )-í.)
The Genesee aííey Regíonaí Market uthoríty, created by the
Legísíature of the State of New York pursuant to Chapter 20, 1951
Laws of New York, effectíve March 31,1951, ís a poíítícaí subdívísíon
of a State wíthín the meaníng of sectíon 103(a) (1) of the Internaí
Revenue Code of 195 and sectíon 22(b) ( ) of the Internaí Revenue
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8105. 16
píans wíthín the meaníng of sectíon 105 of the Code. Consequentíy,
the wages receíved by such an empíoyee for a períod duríng whích
he ís absent from work on account of personaí ín|uríes or síckness are
e cíudabíe from hís gross íncome to the e tent províded ín sectíon
105 (d) of the Code. If the absence ís, ín fact, due to personaí ín|ury
or íííness, the manner ín whích the absence ís refíected ín the records
of the empíoyíng agency wííí not be determínatíve of the ríght of the
empíoyee to the henefít of the e cíusíon under such sectíon.
Rev. Ruí. 55-2 5
To the e tent of a weekíy rate of 100, wages or payments ín ííeu
of wages receíved by an offícer or eníísted man as a member of the
rmed orces for a períod duríng whích he ís confíned as a patíent
ín a hospítaí on account of personaí ín|uríes or síckness are e cíudabíe
from gross íncome under sectíon 105(d) of the Internaí Revenue
Code of 195 , even though such member may be convaíescíng and
doíng ííght work ín the operatíon of the hospítaí to whích he ís
confíned.
Rev. Ruí. 55-263
The term síckness as used In sectíon 105(d) of the Internaí
Revenue Code of 195 does not Incíude the condítíon of pregnancy.
owever, an empíoyee who ís absent from work on account of síck-
ness duríng a períod of pregnancy may, to the e tent províded ín
sectíon 105(d), e cíude from her gross íncome amounts receíved for
the períod of absence, even though the síckness ís caused by her
pregnancy.
dvíce has been requested whether the provísíons of sectíon 105(d)
of the Internaí Revenue Code of 195 are appíícabíe to the compen-
satíon receíved under an accídent and heaíth pían by an empíoyee
who ís absent from work duríng pregnancy.
Sectíon 105 of the 195 Code, reíatíng to amounts receíved under
accídent and heaíth píans, provídes ín part as foííows:
(a) mounts ttríbutabíe to mpíoyer Contríbutíons. € ” cept as other-
wíse províded ín thís sectíon, amounts receíved by an empíoyee through accídent
or heaíth ínsurance for personaí ín|uríes or síckness shaíí be íncíuded ín gross
íncome to the e tent such amounts (1) are attríbutabíe to contríbutíons by the
empíoyer whích were not íncíudíbíe ín the gross íncome of the empíoye, or
(2) are paíd by the empíoyer.
€ € € € € €
(d) Wage Contínuatíon Píans. € ” Gross Income does not íncíude amounts
referred to ín subsectíon (a) íf such amounts constítute wages or payments In
ííeu of wages for a períod duríng whích the empíoyee ís absent from work on
account of personaí ín|uríes or síckness but thís subsectíon shníí not appíy to
the e tent that such amounts e ceed a weekíy rate of 100. In the case of a
períod duríng whích the empíoyee ís absent from work on account of síckness,
the precedíng sentence shaíí not appíy to amounts attríbutabíe to the fírst 7
caíendar days ín such períod uníess the empíoyee ís hospítaíízed on account of
síckness for at íeast one day duríng such períod. If such amounts are not
paíd on the basís of a weekíy pay períod, the Secretary or hís deíegate shaíí
by reguíatíons prescríbe the method of determíníng the weekíy rate at whích
such amounts are paíd.
mounts receíved under an accídent or heaíth pían for empíoyees
are to be treated as amounts receíved through accídent or heaíth ín-
surance for the purpose of sectíon 105 of the Code and the provísíons
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í 151. 18
thereof, ís hereby desígnated as the date of termínatíon of combatant
actívítíes ín the zone comprísed of the area descríbed ín ecutíve
Order No. 10195 of December 20, 1950, (15 . R. 9177) C. .
1951-1, 6 .
Dwíght D. ísenhower.
The Whíte ouse,
anuary 1,1955.
( ííed wíth the Dívísíon of the ederaí Regíster anuary 3,1955,10: 6 a. m.)
P RT . € ” D DUCTIONS OR P RSON L MPTIONS
S CTION 151. € ” LLOW NC O D DUCTIONS
OR P RSON L MPTIONS
( íso Part II, Sectíon 25 Reguíatíons 118, Rev. Ruí.55-325
Sectíon 39.25-2.)
spouse cannot quaíífy as a dependent under sectíon 151 of the
195 Code and an e emptíon ís not aííowabíe on a separate return
for a spouse who has gross íncome ín any amount wíthín the mean-
íng of such sectíon.
The Internaí Revenue Servíce has receíved ínquíríes reíatíve to
whether an índívíduaí may cíaím hís spouse as a dependent on hís
separate ederaí íncome ta return under the provísíons of sectíon
151 of the Internaí Revenue Code of 195 . The ínquíríes índícate
that the wríters thereof ínterpret the above sectíon of the Code to
mean that a ta payer ís aííowed a deductíon of C00 for hís wífe as
an e emptíon and an addítíonaí deductíon of 600 for her as a de-
pendent and further that the ta payer may cíaím hís wífe as a de-
pendent even though she has íncome of her own and fííes a separate
return.
Sectíon 151 (b) of the Code provídes, ín part, as foííows:
€ € n e emptíon of 600 for the ta payer and an addítíonaí e emp-
tíon of 600 for the spouse of the ta payer íf a separate return ís made by the
ta payer, and íf the spouse, for the caíendar year ín whích the ta abíe year
of the ta payer begíns, has no gross íncome and ís not the dependent of another
ta payer.
Under the provísíons of sectíon 25(b) (1) ( ) of the Internaí Rev-
enue Code of 1939, whích are substantíaííy the same as sectíon 151 (b)
of the Code of 195 , an e emptíon was not aííowabíe on a separate re-
turn for the spouse of the ta payer íf the spouse had gross íncome of
any amount or was the dependent of another ta payer.
The Report of the Commíttee on ínance, Uníted States Senate,
No. 1622, íghty-thírd Congress, on . R. 8300 (Internaí Revenue
Code of 195 ), 192, states wíth respect to sectíon 151 of the Code ín
part as foííows:
Subsectíon (b) corresponds to sectíon 25(b)(1)( ) of the 1939 Code € ™ €
No substantíve changes are made ín these provísíons.
Sectíon 152 of the 195 Code defínes a dependent and adds to the
ííst of índívíduaís eíígíbíe as dependents any índívíduaí who ís a mem-
ber of the ta payer s househoíd and whose príncípaí abode for the
ta abíe year of the ta payer ís the home of the ta payer. That sec-
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I 152. 20
wouíd have been entítíed to cíaím her as a dependent. Consequentíy,
any one of the brothers couíd cíaím a deductíon for the e emptíon of
the mother províded a wrítten decíaratíon from each of the other
brothers ís attached to hís ederaí íncome ta return. ven though
and D together contríbuted more than one-haíf the support of theír
mother, íf wíshed to cíaím hís mother as a dependent, he wouíd be
requíred to attach wrítten decíaratíons from and C as weíí as from
D to hís íncome ta return, sínce each of those three contríbuted more
than 10 percent of the totaí support of theír mother.
In e ampíe (2) above O, , and / are persons each of whom, e cept
for the fact that neíther contríbuted more than haíf of the 1,500, couíd
cíaím as a, dependent for a ta abíe year begínníng ín 195 . The
three together contríbuted 6 percent of the 1,500, and, thus, each ís
a member of the group to be consídered for the purpose of sectíon
152(c) of the Code. G and / are the oníy members of such group who
can meet aíí the requírements of sectíon 152(c) of the Code and eíther
one couíd cíaím as a dependent for hís ta abíe year begínníng ín
195 províded he attached to hís íncome ta return a wrítten decíara-
tíon sígned by the other, and furníshed the other ínformatíon requíred
by the return wíth respect to aíí the contríbutíons to . Inasmuch as
II díd not contríbute more than 10 percent of support, she wouíd
not be entítíed to cíaím as a dependent for a ta abíe year begínníng
ín 195 nor wouíd she be requíred to fííe a wrítten decíaratíon wíth
respect to her contríbutíons to . contríbuted over 10 percent of
the support of ín 195 but he does not otherwíse quaíífy as a member
of the group for the purpose of the muítípíe support agreement under
sectíon 152(c) of the Code.
The member of a group of contríbutors who cíaíms the dependency
deductíon for an índívíduaí under the muítípíe support agreement
provísíons of sectíon 152(c) of the Code must attach to hís íncome
ta return for the year of the deductíon a wrítten decíaratíon from
each of the other persons who contríbuted more than 10 percent of
the support of such índívíduaí and who, but for the faííure to con-
tríbute more than haíf of the support of the índívíduaí, wouíd have
been entítíed to cíaím the dependency e emptíon. The wrítten dec-
íaratíon requíred may be made on orm 2120, Muítípíe Support
greement, whích contaíns a statement of the fact of contríbutíon
and a waíver of the cíaím for dependency e emptíon. Copíes of
orm 2120 wííí be suppííed by Dístríct Dírectors to persons who re-
quest such forms. ny decíaratíon made other than on orm 2120
shaíí conform to the substance of orm 2120. The ta payer cíaímíng
the e emptíon shouíd be prepared to furnísh other ínformatíon, when
requíred, whích wííí substantíate hís ríght to cíaím such e emptíon.
Such ínformatíon may íncíude a statement showíng the names of aíí
contríbutors (whether members of the group descríbed ín sectíon
152(c) of the Code or not) and the amount contríbuted by each to the
6upport of the dependent cíaímed.
Thís ruííng wííí be appíícabíe oníy for the períod príor to the
promuígatíon of reguíatíons prescríbed by the Commíssíoner, wíth
the approvaí of the Secretary, ín whích wííí be set forth ruíes wíth
respect to sectíon 152(c) of the Code.
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162. 22
dence estabííshíng that the ta payer furníshed more than haíf of the
support of a cadet or mídshípman and that the other requírements
of sectíon 151(e) of the Code are met, an e emptíon for a dependent
ís not aííowabíe.
P RT I. € ” IT MIZ D D DUCTIONS OR INDI IDU LS ND CORPOR TIONS
S CTION 162. € ” TR D OR USIN SS P NS S
Rev. Ruí. 55-307
pendítures for ínto ícatíng ííquor purchased ín the State of
Okíahoma, or purchased eísewhere and brought ínto that State, for
busíness promotíon and entertaínment purposes, are not deductíbíe
busíness e penses. In víew of the stríngent íímítatíons ímposed upon
the ímportatíon of ííquor, and upon the transportatíon and saíe or
other dístríbutíon thereof wíthín the State, by 37 Okíahoma Statutes
nnotated, Sectíons 1, 31, 38, 50.1, 50.2 and 82, an índívíduaí or
corporatíon purchasíng ínto ícatíng ííquor ín Okíahoma, or ímport-
íng the same, for other than the íímíted purposes permítted thereín,
must be consídered to have been a partícípant ín a transactíon pro-
scríbed by statute, ín orígínaííy obtaíníng such ííquor. Certaín Onía-
homa court decísíons to the effect that the possessíon of ííquor ín
certaín amounts for personaí use or the dístríbutíon of ííquor for
socíaí purposes ís not, ín ítseíf, ín contraventíon of such statute are
therefore not regarded as determínatíve. Payments whích frustrate
sharpíy defíned State poíícíes evídenced by a govern-
mentaí decíaí-atíon proscríbíng partícuíar types of conduct are not
deductíbíe for ederaí íncome ta purposes. See the díscussíon ín
Thomas . Líííy, et u . v. Commíssíoner, 3 3 U. S. 90, Ct. D. 17 1,
C. . 1952-1,16, and I. T. 096, C. . 1952-2,91.
( íso Part II, Sectíon 23(a) (1) Reguíatíons Rev. Ruí. 55-265
118, Sectíon 39.23 (a)-í.)
contríbutíon by a ta payer engaged ín a trade or busíness ín a
íocaííty to a commíttee organízed for the purpose of bríngíng a
natíonaí poíítícaí conventíon to such íocaííty constítutes an aííowabíe
deductíon for ederaí íncome ta purposes as an ordínary and neces-
sary busíness e pense under the provísíons of sectíon 162(a) of the
Internaí Revenue Code of 195 , províded such contríbutíon ís made
wíth a reasonabíe e pectatíon of a fínancíaí return commensurate wíth
the amount of the contríbutíon.
Deductíbíííty of ínsurance poíícy premíums paíd by a ta payer for
the purpose oí reímbursíng hím for busíness overhead e penses ín-
curred by hím duríng proíonged períod of ínabíííty to work because
of ín|ury or síckness. See Rev. Ruí. 55-26 , page 11.
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í km. 2
In generaí the term deaíer íncíudes every person who seíís tangíbíe
personaí property at retaíí, or who offers for saíe at retaíí, or has ín hís
possessíon for saíe at retaíí, or for use or consumptíon, or dístríbutíon,
or storage to be used or consumed ín the State, tangíbíe personaí
property.
Sínce the Louísíana saíes ta ís íevíed upon saíes at retaíí persons
engaged ín seíííng tangíbíe property at retaíí are not sub|ect to the
ta . The saíes ta ís ímposed on and payabíe by the purchaser wíth
the retaííer as a computíng and coííectíng agent for the State.
ccordíngíy, ít ís heíd that the saíes ta ímposed by the State of
Louísíana, ct No. 75, cts of the State of Louísíana, reguíar sessíon
1936, revísed by sectíon 302, chapter 2, títíe 7, Louísíana Revísed Stat-
utes of 1950, paíd wíth respect to property purchased for use ín the
purchaser s trade or busíness ís aííowabíe as a deductíon to the pur-
chaser under sectíon 16 (a) of the Internaí Revenue Code of 195 .
Such ta may not be capítaíízed e cept as províded ín sectíon 266 of
the 195 Code.
In the event the purchaser ís an índívíduaí engaged ín a trade or
busíness whích does not consíst of the performance of servíces as an
empíoyee, the Louísíana saíes ta paíd on property used ín such trade
or busíness ís deductíbíe from gross íncome under sectíon 62 of the
195 Code ín determíníng ad|usted gross íncome.
In the case of purchasers other than índívíduaís where the Louísíana
saíes ta ís attríbutabíe to a trade or busíness ít ís deductíbíe from
gross íncome ín computíng ta abíe íncome.
( íso Part II, Sectíon 23(c) Reguíatíons 118, Rev. Ruí. 55-326
Sectíon 39.23(c)-í.)
The ta ímposed by the State of Louísíana, Sectíon 8 1, Chapter 8,
Títíe 7, Louísíana Revísed Statutes of 1950, on the prívííege of seíííng,
usíng, consumíng, handííng, or dístríbutíng cígarettes, payment of
whích must be evídenced by stamps affí ed to the contaíners, ís de-
ductíbíe for ederaí íncome ta purposes under sectíon 16 (a) of the
Internaí Revenue Code of 195 oy the whoíesaíe or retaíí deaíer or
other person receívíng unstamped goods who purchases, affí es, and
canceís the cígarette stamps. The ta ís not a retaíí saíes ta ímposed
on persons seíííng tangíbíe personaí property at retaíí wíthín the
meaníng of sectíon 16 (c) of the Code and ís not deductíbíe by the
consumer or purchaser of stamped cígarettes. Insofar as the uítímate
consumer or purchaser of stamped cígarettes ís concerned the ta
represents an addítíonaí cost of the artícíe.
Deductíbíííty of reaí property ta es, ímposed by sectíon 5719.01
of the Revísed Code of Ohío, effectíve October 13, 1953. See Rev.
Ruí. 55-152, page 67.
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170. 26 I
Rev. Ruí. 55- 05
questíon has arísen wíth respect to whether the faííure to reaííze
antícípated ínterest on bonds or other obíígatíons (havíng fí ed
maturíty dates at whích ínterest or íncrements ín vaíue cease) whích
are ínadvertentíy heíd past theír maturíty dates resuíts ín a deductíbíe
íoss for ederaí íncome ta purposes for the year ín whích such bonds
were redeemed. It ís weíí settíed that dísappoíntment ín e pectatíons
of profít and mere íesseníng of íncome form no basís for a deductíbíe
íoss. or e ampíe, see Warren Servíce Corporatíon v. Commíssíoner,
39 . T. . 856, affírmed (reversed and remanded on another íssue),
110 ed. (2d) 723, whereín ít was heíd that the ta payer suffered
no deductíbíe íoss because of íts ínabíííty to reíet property on terms
as advantageous as those embodíed ín a canceíed íease. See aíso
Waíter M. art v. Commíssíoner, 313 U. S. 28, Ct. D. 1502, C. .
19 1-1,319 rank . Nícoía v. Commíssíoner, 1 . T. . 87 Paímer
utcheson et u . v. Commíssíoner, 17 T. C. 1 , acquíescence, C. .
1951-2, 2. Thus, the faííure to reaííze antícípated ínterest for the
períod from the date of maturíty to date of redemptíon does not
resuít ín a íoss whích ís deductíbíe under the provísíons of sectíon
165 or any other provísíons of the Internaí Revenue Code of 195 .
S CTION 170. € ” C RIT L , TC.,
CONTRI UTIONS ND GI TS
Rev. Ruí. 55-1
ta payer píedges 30 percent of bís ad|usted gross Income to an
organízed nonprofít charíty fund-raísíng foundatíon and satísfíes
such píedge by deííveríng to the foundatíon two separate checks, one
of whích ís ín mí amount equaí to 10 percent of hís ad|usted gross
íncome and drawn payabíe to a specífíc organízatíon of the type
desígnated ín sectíon 170(b) (1) ( ) of the Internaí Revenue Code of
11)5 . The foundatíon acts mereíy as transfer agent of thís check
and deíívers ít dírectíy and uncondítíonaííy to the organízatíon
to whose order ít ís drawn. eíd: the ta payer ís entítíed to the spe-
cíaí deductíon for contríbutíons ín an amount not ín e cess of 10
percent of ad|usted gross íncome províded under sectíon 170(b)
(1) ( ) ín addítíon to the deductíon for contríbutíons ín an amount
not ín e cess of 20 percent of ad|usted gross íncome províded
under sectíon 170(b)(1)( ) of the Code. The foregoíng has ap-
píícatíon under the círcumstances stated oníy íf the fund-raísíng
foundatíon provídes for such satísfactíon of píedges and transfer
of checks.
dvíce has been requested whether a ta payer who desígnates a
portíon of the satísfactíon of a píedge, made to an organízed non-
profít charíty fund-raísíng foundatíon, ín an amount equaí to 10 per-
cent of hís ad|usted gross íncome by means of a check drawn payabíe
to a specífíc organízatíon of a type specífíed ín sectíon 170(b) (1) ( )
of the Internaí Revenue Code of 195 , ís entítíed to the specíaí deduc-
tíon for contríbutíons ín an amount not ín e cess of 10 percent of
ad|usted gross íncome províded under such sectíon 170(b) (1) ( ) ín
addítíon to the deductíon ín an amount not ín e cess of 20 percent
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í 170. 28
ín an amount not ín e cess of 10 percent of ad|usted gross íncome
províded under sectíon 170(b)(1)( ) ín addítíon to the deductíon
for contríbutíons ín an amount not ín e cess of 20 percent of ad|usted
gross íncome províded under sectíon 170(b)(1)( ) of the Code.
The foregoíng has appíícatíon under the círcumstances stated oníy
íf the fund-raísíng foundatíon provídes for such satísfactíon of
píedges and transfer of checks.
Cíaíms for deductíons sub|ect to the specíaí íímítatíon of sectíon
170(b)(1)( ) of the Code must be substantíated, when requíred by
the Commíssíoner by a statement from the organízatíon to whích the
contríbutíon or gíft was made showíng whether the organízatíon ís
of the type referred to ín such sectíon 170(b) (1) ( ), the name and
address of the contríbutor or donor, the amount of the contríbutíon or
gíft and the date of the actuaí payment thereof, and by such other
ínformatíon as the Commíssíoner may deem necessary.
( íso Part II, Sectíon 23 (o) Reguíatíons 118, ev. uí. 55-151
Sectíon 39.23(o)-í.)
ta payer íncurs traveííng e penses ín connectíon wíth the per-
formance of hís offícíaí dutíes as an uncompensated offícer and mem-
ber of an organízatíon e empt from ederaí íncome ta under
sectíon 501(c) ( ) of the Internaí Revenue Code of 195 (sec. 101 (8)
of the Internaí Revenue Code of 1939). eíd, sínce the organízatíon
ís not one to whích contríbutíons are deductíbíe wíthín the meaníng
of sectíon 170 of the 195 Code (sec. 23(o) of the 1939 Code), any
amounts e pended by the ta payer for such traveííng e penses are
not deductíbíe as charítabíe contríbutíons for ederaí íncome ta
purposes. Compare Rev. Ruí. 55- , page 291, thís uííetín.
Rev. Ruí. 55-219
museum, whích ís a corporatíon, maíntaíns a reguíar facuíty and
currícuíum and a reguíaríy enroííed body of students or pupíís at the
píace where íts educatíonaí actívítíes are reguíaríy carríed on. Con-
tríbutíons to the museums have been heíd to be charítabíe contríbutíons
under sectíon 170 of the Internaí Revenue Code of 195 . eíd, the mu-
seum ís an educatíonaí organízatíon wíthín the meaníng of sectíon
170(b) (1) ( ) (íí) of the Code of 195 . ccordíngíy, contríbutíons
made thereto by índívíduaís wííí be deductíbíe ín computíng theír ta -
abíe íncome not oníy to the e tent of the generaí íímítatíon of 20
percent of ad|usted gross íncome under sectíon 170(b)(1)( ), but
aíso to the e tent of the specíaí íímítatíon of 10 percent of ad|usted
gross íncome under sectíon 170(b) (1) ( ) of the Code of 195 .
Rev. Ruí. 55-268
rehabííítatíon center for handícapped índívíduaís provídes spe-
cíaí treatment for patíents under a doctor s prescríptíon. It has be-
come necessary to begín a dríve for funds to erect a new buíídíng suít-
abíe for housíng such rehabííítatíon center. eíd, contríbutíons made
to the rehabííítatíon center to províde for a buíídíng for use ín th
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í 266. 30
It ís deemed that the above method ís an índírect means of subsídíz-
íng the díssemínatíon of the ííterature produced by the M organíza-
tíon and constítutes ín effect a contríbutíon to the íatter organízatíon
ín support of íts own purposes rather than a contríbutíon to the recípí-
ents of the ííterature.
ccordíngíy, ít ís heíd that payments to the M organízatíon, or any
other organízatíon of the character descríbed ín sectíon 501(c) ( ) of
the 195 Code, for the purpose of subsídízíng the díssemínatíon of íts
ííterature to organízatíons of the character descríbed ín sectíon 501 (c)
(3) of the 195 Code are not deductíbíe as charítabíe contríbutíons for
ederaí íncome ta purposes.
( íso Part II, Sectíon 120 eguíatíons 118, Rev. Ruí. 55-308
Sectíon 39.120-1.)
The term íncome ta paíd, as contaíned ín sectíon 170(b) (1) (C)
of the Internaí Revenue Code of 195 (sectíon 120 of the 1939 Code),
reíatíng to the uníímíted deductíon for charítabíe contríbutíons for
certaín índívíduaís, does not íncíude aíí íncome ta es paíd, whether to
the ederaí Government a State or foreígn country. Sínce the ín-
come ta referred to ín thís sectíon must be determíned wíthout regard
to chapter 2 of the Internaí Revenue Code of 195 , reíatíng to ta on
6eíf-empíoyment íncome, ít ís heíd that the oníy íncome ta contem-
píated by such sectíon ís ederaí íncome ta .
P RT II. € ” DDITION L IT MIZ D D DUCTIONS OR INDI IDU LS
S CTION 213. € ” M DIC L, D NT L, TC., P NS S
Deductíbíííty as medícaí e penses under sectíon 213 of the Internaí
Revenue Code of 195 , of certaín e pendítures made by ta payers for
transportatíon, traveí, specíaí educatíon, medícaí ínsurance, heaíth
ínstítutes, aír condítíoners, specíaí constructíon and equípment, specíaí
cíothíng, food and beverages, and other hygíeníc artícíes for purposes
of heaíth. See Rev. Ruí. 55-261, page 307.
P RT I . € ” IT MS NOT D DUCTI L
S CTION 263. € ” C PIT L P NDITUR S
Costs íncurred ín deepeníng an e ístíng weíí or constructíng a new
weíí as a resuít of a períod of drought. See Rev. Ruí. 55-367, page 25.
S CTION 266. € ” C RRYING C RG S
No deductíon aííowabíe for ta es chargeabíe to capítaí account.
See Rev. Ruí. 55-267, page 23.
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31
355.
SU C PT R C € ” CORPOR T DISTRI UTIONS ND
D USTM NTS
P RT I. € ” DISTRI UTIONS T CORPOR TIONS
SU P RT . € ” CTS ON R CIPI NTS
S CTION 301. € ” DISTRI UTIONS O PROP RTY
Dístríbutíons by a corporatíon to íts stockhoíders of stock of a
controííed corporatíon. See Rev. Ruí. 55-103, beíow.
SU P RT C. € ” D INITIONS CONSTRUCTI OWN RS IP O STOC
S CTION 316. € ” DI ID ND D IN D
Dístríbutíon of stock by a corporatíon as a dívídend. See Rev. Ruí.
55-103, beíow.
P RT III. € ” CORPOR T ORG NIZ TIONS ND R ORG NIZ TIONS
SU P RT . € ” CTS ON S R OLD RS ND S CURITY OLD RS
S CTION 35 . € ” C NG S O STOC ND S CURITI S
IN C RT IN R ORG NIZ TIONS
The effects on sharehoíders as a resuít of e changes between two
corporatíons ín pursuance of a pían of reorganízatíon. See Rev. Ruí.
55- 5, page 3 .
The effects on sharehoíders as a resuít of e changes between two
corporatíons ín pursuance of a pían of reorganízatíon. See Rev. Ruí.
55-59, page 35.
S CTION 355. € ” DISTRI UTION O STOC ND
S CURITI S O CONTROLL D CORPOR TION
( íso Sectíons 301, 316.) Rev. Ruí. 55-103
Corporatíon owníng 80 percent of the stock of Corporatíon Y,
proposes to dístríbute íts Y. stock to tbe stockhoíders of , ust
príor to the saíe of aíí the stock of to Z Corporatíon. eíd, the
dístríbutíon of such stock wííí be used príncípaííy as a devíce for
the dístríbutíon of earníngs and profíts of the Corporatíon and,
therefore, the nonrecognítíon provísíon of sectíon 355 of the
Internaí Revenue Code of 105 wííí not appíy. eíd further, tbe
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í 355. 32
ta abíííty of the dístríbutíon shouíd be determíned under sectíon
301 and sectíon 316 of such Code.
dvíce has been requested wíth respect to the ta consequences of
a proposed transactíon under the círcumstances set forth beíow.
The Corporatíon ís engaged ín the manufacture of paper prod-
ucts. It aíso owns 80 percent of the stock of Y, a foreígn corporatíon,
whích operates a íumber busíness. The Y Corporatíon s stock has
greatíy apprecíated ín vaíue and constítutes a íarge proportíon of the
totaí asset vaíue of Corporatíon. The Corporatíon has common
stock of 120a doííars and an earned surpíus of 100 doííars. or the
1 ast severaí years, the Corporatíon has suffered severe operatíng
osses and íts stockhoíders have receíved no dívídends. or that
reason the stockhoíders of have voted to ííquídate and start dís-
soíutíon proceedíngs on a specífíed date, uníess negotíatíons to seíí
theír stock have been compíeted on or before such date.
The Z Corporatíon ís ínterested ín buyíng aíí of the outstandíng
common stock of Corporatíon and has made an offer to purchase
such stock whích has not yet been acted upon by or íts stockhoíders
owever, the Z Corporatíon s offer does not contempíate payment for
the vaíue of the Y Corporatíon s stock as an asset of Corporatíon.
Sínce the Z Corporatíon has no ínterest ín Y stock heíd by Corpo-
ratíon, the íatter corporatíon proposes to dístríbute thís stock to íts
sharehoíders, príor to the compíetíon of the saíe negotíatíons.
Sectíon 355(a) of the Internaí Revenue Code of 195 states that,
íf aíí the requírements of that sectíon are satísfíed, the dístríbutíon
by a corporatíon of the stock of a controííed corporatíon to íts share-
hoíders wííí not resuít ín the recognítíon of any gaín or íoss to a share-
hoíder upon receípt of the stock. owever, one of the requírements of
sectíon 355 (a) (1) ís that:
( ) The transactíon was not used príncípaííy as a devíce for the
dístríbutíon of the earníngs and profíts of the dístríbutíng corporatíon
or the controííed corporatíon or both (but the mere fact that subsequent
to the dístríbutíon stock or securítíes ín one or more of such corporatíons
are soíd or e changed by aíí or some of the dístríbutees (other than
pursuant to an arrangement negotíated or agreed upon príor to such
dístríbutíon) shaíí not be construed to mean that the transactíon was
used príncípaííy as such a devíce), € € ™ .
In the ínstant case, subsequent to the proposed dístríbutíon of Y
stock by , the stock of Corporatíon may be soíd by the present
stockhoíders pursuant to an arrangement negotíated ímmedíateíy
príor to the dístríbutíon. The saíe of stock of the dístríbutíng corpo-
ratíon ímmedíateíy subsequent to a dístríbutíon of stock of a controííed
corporatíon, when negotíatíons for such a saíe are aíready ín process,
ís generaííy consídered suffícíent evídence that the dístríbutíon of
stock was used príncípaííy as a devíce for the dístríbutíon of earníngs
and profíts of the dístríbutíng corporatíon. The purpose of the re-
quírement that the transactíon not be used príncípaííy as a devíce for
the dístríbutíon of earníngs and profíts ís to íímít the appíícatíon of
sectíon 355 of such Code to those cases ín whích the dístríbutíon of
stock of the controííed corporatíon effects oníy a read|ustment of con-
tínuíng ínterests ín property under modífíed corporate forms.
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33 362.
In the ínstant case, the purpose ín dístríbutíng the Y stock ís to
facííítate the saíe of stock of Corporatíon. No contínuíng ínterest
ín on the part of any of the present stockhoíders ís contempíated.
The dístríbutíon of the Y stock ís mereíy a devíce to gíve to the
stockhoíders certaín assets for whích the prospectíve purchaser of
theír stock ís unwííííng to pay. Therefore, ít ís an arrangement for
dístríbutíng the earníngs and profíts of Corporatíon and sectíon
355 of the Code ís not appíícabíe to such a transactíon.
ccordíngíy, ít ís heíd that the amount and ta abíííty of the dís-
tríbutíon of the stock of Y Corporatíon to the stockhoíders of Cor-
poratíon wííí be determíned ín accordance wíth the provísíons of sec-
tíon 301(c) (1) of the Internaí Revenue Code of 195 . The portíon
of the dístríbutíon constítutíng a dívídend wííí be determíned under
the provísíons of sectíon 316 of such Code.
S CTION 358. € ” SIS TO DISTRI UT S
The treatment of the basís to stockhoíders of theír stock ín e change
pursuant to a reorganízatíon. See Rev. Ruí. 55- 5, page 3 .
asís to stockhoíders of stock receíved ín e change for stock pur-
suant to a reorganízatíon. See Rev. Ruí. 55-59, page 35.
SU P RT C € ” CTS ON CORPOR TION
S CTION 361. € ” NONR COGNITION O G IN OR LOSS
TO CORPOR TIONS
The e changes of property between two domestíc corporatíons ín
pursuance of a pían of reorganízatíon. See Rev. Ruí. 55- 5, page 3 .
change of property between two corporatíons ín pursuance of a
pían of reorganízatíon. See Rev. Ruí. 55-59, page 35.
S CTION 362. € ” SIS TO CORPOR TIONS
Property acquíred by a corporatíon ín connectíon wíth a reorganíza-
tíon. See Rev. R uí. 55- 5, page 3 .
Property acquíred by a corporatíon ín connectíon wíth a reorganí-
zatíon. See Rev. R uí. 55-59, page 35.
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1367. 3
SU P RT D. € ” SP CI L RUL ) D INITIONS
S CTION 367. € ” OR IGN CORPOR TIONS
( íso Sectíons 35 ,358,361,362,368,381, Rev. Ruí. 55- 5
1223.)
Where a pían of reorganízatíon Is proposed for bona fíde busíness
reasons provídíng for a statutory merger of two domestíc corpora-
tíons whích are whoííy owned subsídíaríes of a foreígn corporatíon.
It Is not necessary to estabíísh príor to the merger that such trans-
actíon ís not ín pursuance of a pían of ta avoídance under sectíon
867 of the Internaí Revenue Code of 195 . The hereín descríbed
transactíon constítutes a nonta abíe reorganízatíon wíthín the
purvíew of sectíon 368(a) (1) ( ) of such Code.
dvíce has been requested wíth respect to the ta consequences of
a proposed reorganízatíon under the foííowíng círcumstances.
and Y are both merícan corporatíons engaged ín the busíness of
manufacturíng and seíííng agrícuíturaí ímpíements and are íocated
ín dífferent States. oth corporatíons have both preferred and com-
mon stock outstandíng. Y Corporatíon hoíds about 10 percent of íts
íssued common stock ín íts treasury.
oth and Y are whoííy owned subsídíaríes of Z Corporatíon, a
Canadían corporatíon.
To promote greater busíness effícíency and economy ín management
of and Y Corporatíons, a pían of reorganízatíon and agreement of
merger ís proposed whereby the Corporatíon wííí acquíre the busí-
ness and assets of the Y Corporatíon through a statutory merger ín
compííance wíth the statutes of the respectíve States ín whích they
are íncorporated. Upon compíetíon of the merger, Y Corporatíon
wííí cease as a separate corporate entíty, whííe the Corporatíon wííí
be the survívíng and contínuíng corporatíon.
Under the pían the artícíes of íncorporatíon of wííí be amended
to províde for an íncrease ín íts authorízed common stock, and newíy
íssued common stock of wííí be e changed for aíí of the common and
preferred stock of Y. The treasury shares heíd by Y wííí be canceííed
and the name of the survívíng corporatíon wííí be changed.
The questíons presented are (1) whether, under the provísíons of
sectíon 367 of the Internaí Revenue Code of 195 , ít ís necessary to
estabíísh ín advance of the transactíon that the e changes to be made
are not ín pursuance of a pían havíng as one of íts príncípaí purposes
the avoídance of ederaí íncome ta es and (2) whether the transfers,
e changes, and the termínatíon of Y s corporate e ístence wííí resuít
ín recognítíon of gaín or íoss to any of the partíes ínvoíved.
Wíth respect to the fírst questíon, sectíon 367 of the Internaí Rev-
enue Code of 195 , whích reíates to foreígn corporatíons, reads ín
part as foííows:
In determíníng the e tent to whích gaín shaíí be recognízed In the case of
any of the e changes descríbed In sectíon € € 35 , 355, or 361, a foreígn
corporatíon shaíí not be consídered as a corporatíon uníess, before such e change,
ít has been estabííshed to the satísfactíon of the Secretary or hís deíegate that
such e change ís not ín pursuance of a pían havíng as one of íts príncípaí
purposes the avoídance of ederaí íncome ta es € € .
In the ínstant case the pían of reorganízatíon as proposed provídes
for the merger of two domestíc corporatíons aíí of the stock of whích
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35
3C8.
ís owned by the same foreígn corporatíon. owever, íf aíí of the
stock of both corporatíons were owned by an índívíduaí (ínstead of
a corporatíon) thís wouíd not prevent the transactíon from beíng a
reorganízatíon under the terms of sectíon 368 of the Code. It ís there-
fore not necessary to estabíísh príor to the merger that ít ís not ín
pursuance of a pían havíng as one of íts príncípafpurposes the avoíd-
ance of ederaí íncome ta wíthín the meaníng of sectíon 367 of the
Code, ínasmuch as the transactíon has the same effect whether or
not the foreígn corporatíon ís consídered as a corporatíon.
In the ínstant case, the merger meets the provísíons of sectíon
368(a)(1)( ) of the Internaí Revenue Code. oth corporatíons
are ín the same busíness and the purpose of the transactíon ís to pro-
mote greater busíness effícíency and economy ín management. There-
fore, no gaín or íoss wííí be recognízed to eíther corporatíon or to
theír stockhoíder as a resuít of the merger. The basís of the assets
of the Y Corporatíon acquíred by the Corporatíon wííí be the same
as the cost or other basís ín the hands of Y| and the basís to the stock-
hoíder of Y Corporatíon of the stock of Corporatíon receíved wííí
be the same as the basís of the stock e changed. In determíníng the
hoídíng períod of the new shares, there wííí be íncíuded the períod
for whích the shares e changed were heíd. The undístríbuted earn-
íngs and profíts of Y Corporatíon wííí be deemed to have been receíved
by the Corporatíon as of the date of the transfer.
S CTION 368. € ” D INITION R L TING TO CORPOR T
R ORG NIZ TIONS
( íso Sectíons 35 , 358, 361, 362, 381.) Rev. Ruí. 55-59
nonstatutory merger between two corporatíons under certaín
círcumstances for bona fíde busíness reasons wííí constítute a re-
organízatíon wíthín the purvíew of sectíon 368(a)(1)(C) of the
Internaí Revenue Code of 195 and, therefore, a nonta abíe e change
as to each corporatíon and Us sharehoíders under sectíons 361 aud
35 of such Code.
dvíce has been requested wíth respect to the ta consequences of
a proposed reorganízatíon under the foííowíng círcumstances.
The Corporatíon ís engaged ín the busíness of manufacturíng
and seíííng certaín products. Its authorízed capítaí consísts of 2,500
shares of common stock of whích 1, 50 shares are outstandíng ín the
hands of the pubííc and 50 shares are heíd ín the treasury of the cor-
poratíon. Of the treasury stock 35 shares are reserved for optíons
granted to offícers and e ecutíves of the corporatíon.
The Y Corporatíon ís engaged ín the same busíness as Corpora-
tíon. Its authorízed capítaí consísts of 100 shares of preferred stock
and 500 shares of common stock. None of the preferred stock has
ever been íssued. Of the authorízed common stock 2 0 shares are
outstandíng not íncíudíng 15 shares whích have been reserved for the
purpose of Y s restrícted stock optíon pían for key empíoyees. The
corporatíon has outstandíng 750a doííars príncípaí amount of sínkíng
fund debenture bonds.
Pursuant to an agreement between the respectíve corporatíons, the
Corporatíon wííí acquíre the property and assets of the Y Corpora-
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368. 36
tíon ín e change soíeíy for votíng stock of the Corporatíon, and
the assumptíon by of the ííabííítíes of Y, íncíudíng the outstandíng
debenture bonds. urthermore, the Corporatíon wííí change íts
name to -Y Corporatíon € recíassífy íts stock so as to províde for
1,500 authorízed shares of votíng common stock, havíng a dífferent par
vaíue íssue 300 shares of new common stock ín e change for the 1,500
shares of íts oíd common stock outstandíng, the e change beíng on a
pro rata basís and make certaín other íncídentaí changes ín s artí-
cíes of íncorporatíon.
The Corporatíon wííí íssue to the Y Corporatíon 350 shares of
íts new common stock, and wííí assume the ííabííítíes of Y Corporatíon
ín e change for the property and assets of Y Corporatíon whích wííí
be acquíred by . Upon the receípt by Y of the stock of the
Corporatíon, the íatter corporatíon wííí dístríbute such stock to íts
stockhoíders ín e change for the stock of Y Corporatíon heíd by them
ín the ratío províded by the pían of reorganízatíon. The Corpora-
tíon ín íssuíng íts new common stock to íts own stockhoíders and to
the stockhoíders of Y Corporatíon wííí íssue scríp certífícates repre-
sentíng fractíonaí shares whích wííí be e changeabíe for fuíí shares.
Such scríp certífícates wííí become voíd after a specífíed date íf they
are not theretofore surrendered. Upon consummatíon of the trans-
actíon the Y Corporatíon wííí be ííquídated and díssoíved.
The purpose of the transactíon ís to advance the ínterests of the
saíd corporatíons by presentíng a strengthened organízatíon ín a
híghíy competítíve índustry through a broadened ííne of products,
íower unít costs, and a combínatíon of successfuí manageríaí taíent.
Sectíon 368 of the Internaí Revenue Code of 195 provídes, ín part,
as foííows:
(a) Reorganízatíon. € ”
(1) In generaí € the term reorganízatíon means € ”
(C) the acquísíon by one corporatíon, ín e change soíeíy for aíí or a
part of íts votíng stock (or ín e change soíeíy for aíí or a part of the
votíng stock of a corporatíon whích ís ín controí of the acquíríng cor-
poratíon), of substantíaííy aíí of the propertíes of another corporatíon,
but ín determíníng whether the e change ís soíeíy for stock the assump-
tíon by the acquíríng corporatíon of a ííabíííty of the other, or the fact
that property acquíred ís sub|ect to a ííabíííty, shaíí be dísregarded
€ € € € €
(b) Tarty to a Reorganízatíon. € € the term a party to a reorganíza-
tíon íncíudes € ”
(1) a corporatíon resuítíng from a reorganízatíon, and
(2) both corporatíons, ín the case of a reorganízatíon resuítíng from the
acquísítíon by one corporatíon of stock or propertíes of another.
Sectíon 361 of such Code ín regard to the effects on corporatíons
states, ín part:
(a) Generaí Ruíe. € ” No gaín or íoss shaíí be recognízed íf a corporatíon a
party to a reorganízatíon e changes property, ín pursuance of the pían of re-
organízatíon, soíeíy for stock or securítíes ín another corporatíon a party to the
reorganízatíon.
s to the effect on sharehoíders, sectíon 35 reads, ín part:
(a) Generaí Rut . € ”
(1) In generaí. € ” No gaín or íoss shaíí be recognízed íf stock or securítíes
ín a corporatíon a party to a reorganízatíon are, In pursuance of the pían
of reorganízatíon, e changed soíeíy for stock or securítíes ín such corpora-
tíon or ín another corporatíon a party to the reorganízatíon.
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37 01.
In the ínstant case, aíí requírements of a nonta abíe transactíon
wíthín the meaníng of the above sectíons of the Code have been met
Therefore, no gaín or íoss wííí be recognízed to eíther corporatíon or
íts stockhoíders as a resuít of the reorganízatíon. The basís of the
assets of Y Corporatíon acquíred by the Corporatíon wííí be the
same as the cost or other basís ín the hands of Y and the basís of the
new stock of Corporatíon ín the hands of the stockhoíders of
Corporatíon and ín the hands of the stockhoíders of Y Corporatíon
wííí be the same as the basís of the oíd stock e changed therefor. The
undístríbuted earníngs and profíts of Y Corporatíon wííí retaín íts
character for dívídends ín the Corporatíon.
Merger of two domestíc corporatíons whích are whoííy owned sub-
sídíaríes of a foreígn corporatíon. See Rev. Ruí. 55- 5, page 3 .
P RT . € ” C RRYO RS
S CTION 381. € ” C RRYO RS IN C RT IN CORPOR T
C UISITIONS
The undístríbuted earníngs and profíts acquíred by the survívíng
corporatíon pursuant to the pían of reorganízatíon. See Rev. Ruí.
55- 5, page 3 .
Status of undístríbuted earníngs and profíts acquíred by the sur-
vívíng corporatíon pursuant to the pían of reorganízatíon. See Rev.
Ruí. 55-59, page 35.
SU C PT R D.-D RR D COMP NS TION, TC.
P RT I. € ” P NSION. PRO IT-S RING. STOC ONUS PL NS. TC.
S CTION 01. € ” U LI I D P NSION, PRO IT-S RING,
STOC ONUS PL NS, TC.
( íso Part II, Sectíon 165 Reguíatíons 118, Rev. Ruí. 55-60
Sectíon 39.165-1.)
Where an empíoyees pensíon pían, heíd to meet the requírements
for quaíífícatíon for ta e emptíon under sectíon 165(a) of the
Internaí Revenue Code of 1939, contaíns a provísíon for íímítatíon
of benefíts for the 25 most híghíy compensated empíoyees ín accord-
ance wíth Mímeograph No. 5717, C. . 19 , 321, and has been ín
operatíon for more than 10 years, a varíance ín the dístríbutíve
shares of partícípants upon bona fíde termínatíon of the pían because
of adverse busíness condítíons wííí not resuít ín the prohíbíted
díscrímínatíon In favor of empíoyees who are offícers, sharehoíders,
supervísors, or híghíy compensated, nor adverseíy affect the quaíífí-
catíon of the pían under sectíon 01(a) of the 195 Code.
Mímeograph 6136, C. . 10 7-1. 58, and P. S. 52 dated ugust 9,
19 5, modífíed.
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01.) 38
dvíce has been requested whether upon bona fíde termínatíon of
an empíoyees pensíon pían, because of adverse busíness condítíons, a
varíatíon ín the dístríbutíve shares of partícípants ín the pían wouíd
resuít ín the prohíbíted díscrímínatíon ín favor of empíoyees who are
offícers, sharehoíders, supervísors, or híghíy compensated, and ad-
verseíy affect the quaíífícatíon of the pían under sectíon 01 (a) of the
Internaí Revenue Code of 195 .
n empíoyer estabííshed a pensíon pían of the unít benefít type for
íts empíoyees duríng 19 3. enefíts under the pían were províded by
means of índívíduaí íeveí premíum annuíty contracts. The pían had
been amended duríng 19 to íncíude íímítatíons on benefíts for th
25 most híghíy compensated empíoyees ín accordance wíth the pro-
vísíons of Mímeograph 5717, C. . 19 , 321, and upon consíderatíon
as to íts quaíífícatíon under sectíon 165(a) of the Internaí Revenue
Code of 1939 was heíd to satísfy the requírements for such quaíífíca-
tíon. The benefíts under the pían were íntegrated wíth the Oíd ge
and Survívors Insurance benefíts under the socíaí securíty program.
The pían had been maíntaíned and operated ín accordance wíth íts
terms untíí 195 when ít was termínated because of adverse busíness
condítíons.
Upon such termínatíon ít was found that dístríbutíon of the avaíí-
abíe assets under the pían, ín accordance wíth provísíons therefor,
wouíd resuít ín the respectíve partícípants receívíng dístríbutíons
equaí to the foííowíng percentages of theír totaí compensatíon:
Percen tagcof
mpíoyee totaí compentatíon
Controíííng stockhoíder 33
Mínoríty stockhoíder 21
íghíy paíd nonstockhoíder empíoyees 17
íí other empíoyees 11
It was aíso found that the pían was operated ín accordance wíth íts
provísíons and that the varíance ín dístríbutíons, as índícated above,
was occasíoned by: (1) the oíder ages of the stockhoíders and híghíy
paíd empíoyees, (2) íntegratíon of the benefíts under the pían wíth
the Oíd ge and Survívors Insurance benefíts under the socíaí securíty
program whích resuíted ín reíatíveíy greater benefíts based on com-
pensatíon above 3,600 than on the fírst 3,600 of compensatíon for
each year of credíted servíce, and (3) the tact the stockhoíders and
híghíy compensated empíoyees had reíatíveíy íong períods of credíted
servíce.
Sínce the pían had been ín operatíon for more than 10 years, the
íímítatíons on benefíts for the 25 most híghíy compensated empíoyees
ín accordance wíth Mímeograph 5717, supra, are no íonger appíícabíe.
Thus, the íssue ís whether the dístríbutíon as índícated above ís dís-
crímínatory wíthín the purvíew of sectíon 01(a)( ) of the 195
Code (sectíon 165(a) ( ) of the Internaí Revenue Code of 1939) whích
rohíbíts díscrímínatíon ín favor of empíoyees who are offícers, share-
oíders, supervísors, or híghíy compensated.
It ís recognízed that ín a pensíon pían of the unít benefít or fí ed
benefít type contríbutíons for the respectíve partícípants wííí vary ín
accordance wíth such factors as age, years of servíce, and nearness to
retírement, and that ín íntegrated píans varíances wííí resuít when
comparísons are made soíeíy on the basís of assets dístríbutabíe under
the pían. Thís, however, ís not díscrímínatíon wíthín the statutory
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39 ( 01.
sense. The varíance ín dístríbutíon ís mereíy a fortuítous círcum-
stance resuítíng from the bona fíde termínatíon of the pían whích
couíd not have been foreseen when the pían was estabííshed and whích
resuíted from causes beyond the empíoyer s controí.
ccordíngíy, under tríe above círcumstances, ít ís heíd that a varíance
ín the dístríbutíve shares of partícípants upon bona fíde termínatíon,
because of adverse busíness condítíons, of an empíoyees pensíon pían
whích contaíns a provísíon for the íímítatíon of benefíts for the 25
most híghíy compensated empíoyees and whích has been ín operatíon
for more than 10 years, wííí not resuít ín the prohíbíted díscrímínatíon
ín favor of empíoyees who are offícers, sharehoíders, supervísors, or
híghíy compensated, nor adverseíy affect the quaíífícatíon of the pían
under sectíon 01 (a) of the 195 Code.
Mímeograph 6136, C. . 19 7-1, 58, and P. S. 52, dated ugust 9,
19 5, to the e tent ínconsístent herewíth are hereby modífíed.
( íso Part II, Sectíon 1G5 Reguíatíons 118, Rev. Ruí. 55 186
Sectíon 39.165- .)
pían whích Is íntended to quaíífy under sectíon 01(a) of the
Internaí Revenue Code of 195 must contaín an appropríate proví-
síon for the purpose of grantíng fuííy vested ríghts to partícípants
upon díscontínuance of contríbutíons by the empíoyer, símííar to a
case ín whích actuaí termínatíon takes píace.
dvíce has been requested as to whether an empíoyees profít-sharíng
pían must contaín a provísíon for grantíng fuííy vested ríghts to par-
tícípants upon díscontínuance of contríbutíons by the empíoyer.
Under the provísíons of the empíoyees profít-sharíng pían ín the
ínstant case, íf the board of dírectors deems ít ínadvísabíe or ímpossí-
bíe for the corporatíon to contínue to make contríbutíons under the
pían, ít shaíí have the power to díscontínue the corporatíon s contrí-
butíons by an appropríate resoíutíon. owever, shouíd thís be done,
the other provísíons of the pían remaín ín force and the trust remaíns
ín e ístence. The pían further provídes that a partícípant shaíí for-
feít the amount credíted to hím ín the trust fund ín the event of hís
termínatíon of empíoyment príor to retírement.
Sectíon 01(a)( ) of the Internaí Revenue Code of 195 (sec.
165(a) ( ) of the 1939 Code) provídes that a trust formíng part of a
stock bonus, pensíon, or profít-sharíng pían of an empíoyer for the
e cíusíve benefít of hís empíoyees shaíí constítute a quaíífíed trust
íf the contríbutíons or benefíts províded under the pían do not dís-
crímínate ín favor of empíoyees who are offícers, sharehoíders, persons
hose príncípaí dutíes consíst ín supervísíng the work of other em-
píoyees, or híghíy compensated empíoyees.
In a profít-sharíng pían, uníess the partícípants are vested ín theír
respectíve ínterests at the tíme of díscontínuance of contríbutíons,
díscrímínatíon ín favor of empíoyees who are offícers, sharehoíders,
supervísors, or híghíy compensated may resuít. Such empíoyees wouíd
usuaííy be the íast to have theír servíces termínated and stand to
benefít from the forfeítures arísíng from severance of empíoyment
of other partícípn n ts.
36 050 € ” 36
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02. 0
In a pensíon pían, forfeítures arísíng from severance of empíoy
ment or other reasons must be used to reduce subsequent empíoye
contríbutíons rather than be aííocated among remaíníng partícípants
owever, íf contríbutíons are díscontínued there ís nothíng agaíns
whích to appíy the forfeítures.
ccordíngíy, a pían whích ís íntended to quaíífy under sectíoí
01(a) of the 195 Code (sec. 165(a) of the 1939 Code) must contaíí
an appropríate provísíon for the purpose of grantíng fuííy vesteí
ríghts to partícípants upon díscontínuance of contríbutíons by tín
empíoyer, símííar to a case ín whích actuaí termínatíon of the píaí
ana trust takes píace.
tensíon of tíme granted ín fíííng annuaí return requíred of aí
empíoyees trust quaíífíed under sectíon 01(a) of the Interna
Revenue Code of 195 . See Rev. Ruí. 55-371, page 139.
S CTION 02.-T ILITY O N ICI RY O
MPLOY S TRUST
( íso Part II, Sectíon 165 Reguíatíons 118, Rev. Ruí. 55-6:
Sectíon 39.165-6.)
íthough a dístríbutíon from an empíoyees trust meetíng the re
quírements of sectíon 01 of the Internaí Revenue Code of 195 í
made ín whoíe or ín part from funds receíved by the trust as ínteresí
on ta -free securítíes, such dístríbutíon, when receíved or made avaíí
abíe, ís ta abíe íncome to the dístríbutee ín the manner and to th
e tent províded by sectíon 02(a) of the Code.
( íso Sectíon 72.) Rev. Ruí. 55-36
The dístríbutíon of aíí funds of a pensíon trust to tbe empíoyee
partícípants, each of whom has prevíousíy e ecuted and who there-
after carríes out a íegaííy enforceabíe agreement to pay over hís
dístríbutíve share to a new pensíon trust whích, ííke the former, con-
stítutes a quaíífíed trust under sectíon 01(a) of the Internaí
Revenue Code of 195 , ís consídered a transfer of funds from one
such trust to another through the agency of the empíoyees, who wííí
reaííze no ta abíe íncome from such transactíons. The deferment of
ta atíon to the partícípants granted wíth respect to the empíoyer s
contríbutíons and any earníngs credíted to the partícípants wííí
accordíngíy contínue untíí such subsequent tíme as they may be
dístríbuted or made avaííabíe to the dístríbutees.
dvíce has been requested wíth regard to the ta consequences of
dístríbutíons from a pensíon trust whích has been heíd to be quaíífíed
under sectíon 01 (a) of the Internaí Revenue Code of 195 and e empt
under sectíon 501(a) of the Code, upon díscontínuance of the pían,
where funds are dístríbuted to the empíoyee partícípants who ín turn
pay them over to the trustees of a new pían aíso quaíífíed under sectíon
01(a) of the Code.
savíngs and íoan assocíatíon that had been a member of the Retíre-
ment und of the ederaí ome Loan ank System, whích fund had
been heíd to meet the requírements of sectíon 01(a) of the Code,
desíred to sever íts connectíon wíth the System and fund íts pensíon
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í 02. 2
however, are not deemed to prevent the partícípant s ínterest from
beíng made avaííabíe. See Rev. uí. 5 -265, C. . 195 -2, 239
Most cases ín whích the íssue aríses as to whether a partícípant s
ínterest has been made avaííabíe faíí ínto two generaí cíasses, nameíy
(1) penaítíes for wíthdrawaí, and (2) a príor írrevocabíe eíectíon tc
defer dístríbutíon to a fí ed or determínabíe future tíme.
In the penaíty type of case a partícípant, who makes a wíthdrawaí
ís requíred to díscontínue hís partícípatíon ín the trust or suffer a for-
feíture wíth respect to a portíon of hís dístríbutabíe ínterest. Dís-
contínuance of partícípatíon ís the surrender of a vaíuabíe ríght and,
as íong as that remaíns a condítíon for wíthdrawaí of hís ínterest,
such ínterest ís not made avaííabíe to the partícípant. Compare
Díííís C. napp et aí. v. Commíssíoner, 1 . T. . 23, and state o
. M. erry v. Commíssíoner, . T. . 125 .
In the deferment by príor eíectíon type of case, íf the trust índen-
ture, or the pían of whích ít ís a part, provídes for an írrevocabíe
eíectíon by the empíoyee príor to the tíme hís ínterest becomes dís-
tríbutabíe to hím to have dístríbutíon of such ínterest deferred to a
fí ed or determínabíe future tíme, such as ten years or upon hís príor
retírement, severance of empíoyment, death, or dísabíííty, hís ínterest
ís not made avaííabíe príor to such tíme or occurrence of any of the
events enumerated. So íong as an empíoyee s eíectíon to defer the
actuaí receípt of a dístríbutíon ís írrevocabíe, ít ís ímmateríaí whether
the e ercíse thereof takes the form of posítíve actíon or mereíy ín-
actíon on the part of the empíoyee.
oth ín the penaíty and deferment by príor eíectíon type of case, a
penaíty or períod of deferment whích ís ínconsequentíaí íacks sub-
stance and ís not deemed to prevent the partícípant s ínterest from
beíng made avaííabíe at the earííest date upon whích he couíd have
receíved a dístríbutíon. What ís consequentíaí and what constítutes
sr.bstance depends upon the facts ín a partícuíar case, and wííí be
further ampíífíed ín subsequent ruííngs.
( íso Part II, Sectíon 1G5 Reguíatíons 118, ev. Ruí. 55- 2
Sectíon 39.165-6.)
Where an empíoyee after 10 years of partícípatíon In an empíoy-
ees profít-sharíng trust, whích ís quaíífíed under sectíon 01(a) of
the Internaí Revenue Code of 195 (sectíon 165(a) of the 1939
Code), may eíect to wíthdraw a stated percentage of the fuíí amount
standíng to hís credít ín the account estabííshed for a partícuíar
10 year períod oníy after the approvaí of an admínístratíve commít-
tee ín the case of proved fínancíaí necessíty, such amounts wííí not be
deemed to be made avaííabíe under sectíon 02(a) (1) of the 195
Code.
dvíce has been requested whether a partícípant ín a quaíífíed em-
píoyees profít-sharíng trust wííí be consídered to be ín receípt of
íncome wnen after 10 years of partícípatíon ín the trust he may eíect
to wíthdraw a stated percentage of the amount standíng to hís credít
ín the account estabííshed for a partícuíar 10 year períod oníy upon the
approvaí of an admínístratíve commíttee ín the case of proved fínancíaí
necessíty.
The M company estabííshed an empíoyees profít-sharíng pían and
trust whích has been heíd to be quaíífíed under sectíon 165(a) of the
Internaí Revenue Code of 1939 (sec 01(a) of the 195 Code). d-
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í 02.
by reason of a partícípant s ríght to eíect, wíthín a specífíed tíme,
to receíve dístríbutíon of trust funds upon compíetíon of 15 years of
servíce.
n empíoyer estabííshed an empíoyees profít-sharíng pían whích
was heíd to be quaíífíed under sectíon 165(a) of the 1939 Code (sectíon
01(a) cf the 195 Ode). Under the terms of the trust agreement
whích forms a part of the profít-sharíng pían each empíoyee had a
severabíe and personaí trust whích termínated at the end of a períod
of 15 years of partícípatíon. The índívíduaí empíoyee s trust couíd
aíso be termínated upon hís death or other termínatíon of hís servíces.
Upon termínatíon of a partícuíar empíoyee s trust for any reason the
funds heíd thereunder (or such part wíth respect to whích he had a
nonforfeítabíe ríght) wouíd be dístríbuted to hím ín a íump sum.
n amendment to the pían and trust has been e ecuted whereby
a partícípant may receíve a dístríbutíon from the trust oníy upon the
termínatíon of hís servíces e cept ín a case where he may eíect to fííe
a wrítten decíaratíon príor to hís compíetíon of 1 years of contínuous
empíoyment to have hís trust termínated at the compíetíon of 15 years
of servíce. The wrítten decíaratíon ís írrevocabíe and no further
eíectíon may be made after the compíetíon of the 1 th year.
If he shouíd faíí to fííe such an eíectíon, wíthín the tíme specífíed,
then he may not receíve any of the trust funds e cept upon hís death or
other termínatíon of hís servíces.
Sectíon 02(a) of the 195 Code provídes that the amount actuaííy
dístríbuted or made avaííabíe to any dístríbutee by an empíoyees trust,
descríbed ín sectíon 01(a) whích ís e empt under sectíon 501 (a). shaíí
be ta abíe to hím ín the year ín whích so dístríbuted or made avaííabíe.
Where totaí dístríbutíons payabíe wíth respect to any empíoyee are
paíd to the dístríbutee wíthín 1 ta abíe year of the dístríbutee on ac-
count of the empíoyee s death or other separatíon from the servíce, or
on account of the death of the empíoyee after separatíon from servíce,
the amount of such dístríbutíon, to the e tent e ceedíng the amounts
contríbuted by the empíoyee shaíí be consídered a gaín from the saíe
or e change of a capítaí asset heíd for more than 6 months.
Revenue Ruííng 55- 23, page 1 of thís uííetín, hoíds that a par-
tícípant s ínterest ín an empíoyees trust whích meets the quaíífícatíons
of sectíon 01 (a) of the 195 Code ís not made avaííabíe to hím wíthín
the purvíew of sectíon 02(a) of the Code where there are substantíaí
condítíons or restríctíons on hís ríght of wíthdrawaí.
On the basís of the above, ít ís heíd that where a partícípant ín a
quaíífíed empíoyees profít-sharíng trust may eíect at any tíme príor
to the compíetíon of 1 years of contínuous servíce to fííe a wrítten
decíaratíon for dístríbutíon of hís trust funds upon compíetíon of 15
years of contínuous servíce and where he may otherwíse receíve a
dístríbutíon of the trust funds oníy upon the termínatíon of hís
servíces, the trust funds are not made avaííabíe wíthín the purvíew
of sectíon 02(a) of the 195 Code, by reason of the ríght to make such
an eíectíon. Compare Rev. Ruí. 5 -265, C. . 195 -2, 239. Where
totaí dístríbutíons payabíe wíth respect to an empíoyee are paíd to the
dístríbutee wíthín 1 ta abíe year of the dístríbutee on account of the
empíoyee s death or other termínatíon of servíce or death after ter-
mínatíon of servíce, íong-term capítaí gaín treatment wííí be accorded
euch a dístríbutíon.
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21. 6
the escrow fund wííí not be deductíbíe from gross íncome for edera
íncome ta purposes when so deposíted. See Mím. 5985, C. . 19 6-
72, and Mím. 6021, C. . 19 6-2, 3.
ccordíngíy, deposíts to a temporary deposítory wííí not be con
sídered as contríbutíons or payments to or under a pían quaíífíed unde
sectíon 01(a) of the 195 Code (sectíon 165(a) of the 1939 Code)
contríbutíon ís deemed to be made at the tíme the funds are írrev
ocabíy turned over to the trustee by the temporary deposítory o
agent and ís deductíbíe oníy íf then paíd to an e ístíng trust whích í
part of a quaíífíed pensíon, profít-sharíng, or stock bonus pían, or íí
the event the trust ís not so quaíífíed, íf the ríghts of the empíoyees íí
the contríbutíons are nonforfeítabíe at the tíme so paíd. paymen
by the temporary deposítory or agent ís not consídered to meet tín
requírements of sectíon 0 (a) of the 195 Code and ís not deductíbL
thereunder íf made to a trust príor to (1) the date the pían ís actuaííy
ín effect and (2) the date upon whích ít ís deemed to meet the requíre
ments of sectíon 01 (a).
Informatíon requíred to be fííed by an índívíduaí empíoyer support
íng deductíons cíaímed for contríbutíons to an empíoyees trust oí
annuíty pían on an índustry-wíde or area-wíde basís, negotíated b|
a íabor uníon, when the trustees of the pían fííe the compíete data
requíred for aíí contríbutíng empíoyers. See Rev. Ruí. 55-20
page 300.
P RT II. € ” MISC LL N OUS PRO ISIONS
S CTION 21. € ” MPLOY STOC OPTIONS
( íso Part II, Sectíon 130 Reguíatíons 118, Rev. Ruí. 55-10
Sectíon 39.130 -2.)
or the purpose of appíyíng the 10 percent combíned votíng
power ruíe contaíned ín sectíon 21(d)(1)(C) of the Internaí
Revenue Code of 195 an empíoyee who ís granted a stock optíon
by hís corporate empíoyer ís consídered to be the owner of aíí stock
owned dírectíy or índírectíy by hím, hís wífe, father, mother,
brothers and sísters.
dvíce has been requested reíatíve to the e tent to whích the dírect
and índírect ownershíp ruíe contaíned ín sectíon 21(d) (1) (C) of the
Internaí Revenue Code of 195 appííes under the condítíons stated
beíow.
The ta payer has been granted a stock optíon by hís corporate em-
íoyer. In addítíon to stock of the company whích ís owned dírectíy
y the ta payer, hís father, mother, brothers and sísters, certaín shares
are heíd by varíous trusts of whích he or they are the benefícíaríes.
íso the ta payer, hís father and mother and some of the trusts own
shares of stock ín a foreígn corporatíon whích ín turn owns certaín
shares of stock ín the corporatíon grantíng the optíon
Sectíon 21(d) (1) (C) of the Code provídes, ín part, as foííows:
or the purposes of thís subparagraph € ”
(í) such índívíduaí shaíí be consídered as owníng the stock owned,
dírectíy or Indírectíy, by or for hís brothers and sísters (whether by
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1 2. 8
195 . Sectíon states the specíaí ruíes for partnershíps and part-
ners ín the case of ta abíe years begínníng after príí 1, 195 .
Sec. 2. ppíícatíon of Stopgap eguíatíons.
In accordance wíth the provísíons of stopgap reguíatíons promuí-
gated by T. D. 6091, C. . 195 -2, 7, the provísíons of sectíon 39. 6-1
of eguíatíons 118, as amended by T. D. 6099, C. . 195 -2, 113,
contínue ín effect, ínsofar as they are not ínconsístent wíth the
provísíons of the 195 Code, untíí they are superseded by reguíatíons
íssued under the 195 Code. or certaín sítuatíons wíth respect to
whích the 195 Code contaíns new provísíons not covered by or ín-
consístent wíth sectíon 39. 6-1 of Reguíatíons 118, ínterím ruíes are
set forth ín the foííowíng sectíons of thís Revenue Ruííng. Such
ruíes are temporary and wííí be superseded by reguíatíons.
Sec. 3. Changes to 52-53-Week Ta abíe Years.
.01 Sectíon 1(f) of the 195 Code authorízes a ta payer to eíect
to compute hís ta abíe íncome on the basís of an annuaí accountíng
períod whích varíes from 52 to 53 weeks, aíways ends on the same
day of the week and eíther (a) aíways ends on whatever date thís
same day of the week íast occurs ín a desígnated caíendar month or
(b) aíways ends on whatever date thís same day of the week faíís
whích ís nearest to the íast day of a desígnated caíendar month.
.02 The eíectíon to compute ta abíe íncome on the basís of a 52 € ” 53-
week ta abíe year may be made for ta abíe years endíng after
ugust 16, 195 , by ta payers who reguíaríy keep theír books of ac-
count on that basís. ta payer wííí be consídered to compíy wíth
thís requírement íf at the tíme he eíects a 52-53-week ta abíe year
he conforms hís books to that basís and thereafter reguíaríy keeps
hís books of account and reports hís íncome on such basís.
.03 If a ta payer has been reportíng ta abíe íncome on the basís
of a caíendar year or a físcaí year endíng on the íast day of a caíen-
dar month, and eíects to change to a 52-53-week ta abíe year endíng
on a partícuíar day wíth reference to the end of the same month, ad-
vance approvaí of the change wííí not be requíred. or e ampíe, ad
vance approvaí wííí not be requíred íf a ta payer who has been report-
íng hís íncome on the basís of a ta abíe year endíng on October 31,
changes to a 52-53-week ta abíe year whích wííí eíther aíways end
on the íast Saturday ín October or wííí aíways end on the Saturday
whích ís nearest to the íast day of October. If, however, a change
ís made to a 52-53-week ta abíe year whích ends wíth reference to
the end of a month other than the month on the íast day of whích
hís príor ta abíe year ended, the ruíes referred to ín sectíon 2 or
sectíon , as the case may be, are appíícabíe ín determíníng whether
advance approvaí ís requíred. The eíectíon to change to a ta abíe
year of 52-53-weeks shaíí be índícated by a statement attached to the
return for the fírst ta abíe year to whích such eíectíon ís appíícabíe.
Thís statement shaíí furnísh fuíí detaíís as to the tíme the new ta -
abíe year wííí end.
.0 or the purpose of determíníng the tíme for fíííng an appííca-
tíon (where necessary) for approvaí of a change of annuaí accountíng
períod and for fíííng the return for the short períod requíred to effect
a change to a 52-53-week ta abíe year, the short períod shaíí be treated
as endíng wíth the íast day of the month whích ends nearest to the
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9 5 2.
íast day of such short períod. or e ampíe, íf the short períod ends
wíthín the períod frora November 2 , 195 , to December 3, 195 , ín-
cíusíve, ít shaíí be treated as endíng November SO, 195 . See sectíon
1(f) (2) ( ) of the 195 Code.
Síc. . Partnershíps and Partners.
.01 Thís sectíon appííes to changes by partnershíps and partners
to ta abíe years begínníng after príí 1,195 and to the adoptíon by
a newív organízed partnershíp of a ta abíe year begínníng after that
date. See sectíon 771(b) (1) of the 195 Code. The ruíes referred to
ín sectíon 2 appíy to changes to ta abíe years begínníng before príí
2,195 , ín determíníng whether advance approvaí ís requíred.
.02 partnershíp ís requíred to obtaín advance approvaí of a
change to or the adoptíon of a ta abíe year whích ís dífferent from
that of any of íts príncípaí partners. dvance approvaí ís not re-
quíred where (a) a partnershíp changes to or adopts a ta abíe year
whích ís the same as that of aíí íts príncípaí partners or (b) where
a partnershíp and aíí íts príncípaí partners concurrentíy change to
or adopt the same ta abíe year.
.03 or the purpose of thís sectíon a príncípaí partner ís a part-
ner havíng an ínterest of 5 percent or more ín partnershíp profíts or
capítaí
.0 partner ís requíred to obtaín advance approvaí of a change
to a ta abíe year whích ís not the same as that of every partnershíp
ín whích he ís a príncípaí partner. Uníess requíred by sectíon 39. 6-1
of Reguíatíons 118, advance approvaí ís not necessary ín the case of
a partner who changes to a ta abíe year whích ís the same as that of
every partnershíp ín whích he ís a príncípaí partner or whích ís the
same as that to whích every such partnershíp havíng a dífferent ta -
abíe year concurrentíy changes. Uníess requíred by sectíon 39. C-1
of Reguíatíons 118, advance approvaí ís not necessary ín the case of
a change of ta abíe year by a partner s spouse who ís not a príncípaí
partner ín any partnershíp.
.05 The procedure for obtaíníng advance approvaí ís the same as
that prescríbed ín the reguíatíons referred to ín sectíon 2. Where
advance approvaí ís requíred, permíssíon to change to or to adopt
the desíred ta abíe year wííí be granted oníy íf a busíness purpose
therefor ís estabííshed to the satísfactíon of the Commíssíoner of In-
ternaí Revenue.
.06 ny newíy formed partnershíp whích adopts a ta abíe year
wíth respect to whích advance approvaí ís not requíred shaíí fííe wíth
íts fírst return a statement to the effect that the ta abíe year whích
ít ís adoptíng ís the same as that of aíí the príncípaí partners, or that
aíí the príncípaí partners are concurrentíy changíng to the ta abíe
year whích ít ís adoptíng. If a partner or an e ístíng partnershíp
changes to a ta abíe year wíth respect to whích advance approvaí ís
not requíred a símííar statement shaíí be fííed wíth the return for the
short períod resuítíng from the change of ta abíe year. In each such
case the statement shaíí cíte the authoríty for the change. Pendíng
the íssuance of reguíatíons under the 195 Code, thís sectíon of thís
evenue Ruííng constítutes such authoríty.
.07 If, wíthout obtaíníng the approvaí of the Commíssíoner of
Internaí Revenue, a partner or partnershíp has changed to or adopted
an annuaí accountíng períod begínníng after príí 1,195 , and, under
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I 52. 50
the foregoíng provísíons of thís sectíon, advance approvaí ís requíred
for the change or adoptíon, such annuaí accountíng períod wííí not be
accepted as a ta abíe year untíí approvaí thereof ís secured. Under
these círcumstances an appíícatíon to change to or adopt the desíred
ta abíe year wííí be consídered tímeíy íf fííed wíthín 30 days after
the date of the Internaí Revenue uííetín ín whích thís Revenue
Ruííng ís pubííshed.
P RT II. € ” M T ODS O CCOUNTING
SU P RT . € ” T L Y R OR W IC IT MS O GROSS INCOM INCLUD D
S CTION 52. € ” PR P ID INCOM
26 C R 1. 52-1: Prepaíd íncome ín generaí. T. D. 613
( íso Sectíon 62 26 C R 1. 62-1.)
TITL 26 € ” INT RN L R NU € ” C PT R I. SU C PT R . P RT 1. € ” INCOM
T T L Y S GINNING T R D C M R 81, 1953
Reguíatíons prescríbed under sectíons 52 and 62 of the Internaí
Revenue Code of 195 .
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 25, D. O.
To Offícers and mpíoyees of the Internaí Revenue Servíce and Others
Concerned:
On anuary 22,1955, a notíce of proposed ruíemakíng wíth respect
to sectíons 52 and 62 of the Internaí Revenue Code of 195 was
pubííshed ín the ederaí Regíster (20 . R. 515). fter consíderatíon
of such reíevant suggestíons as were presented by ínterested persons
regardíng the proposaís, ít was determíned that no change shouíd be
made ín the proposed reguíatíons. ccordíngíy, the proposed reguía-
tíons so pubííshed are hereby adopted.
Sec. 1. 52 Statutory Provísíons Prepaíd Income.
S C. 52. PR P ID INCOM .
(a) Prepaíd Income To e arned Oveb Short or Indefíníte
Períod. € ”
(1) Short períod. € ” In the case of any prepaíd íncome to whích
thís sectíon appííes, íf the ííabíííty descríbed ín subsectíon (e) (2) ís
(at the tíme the íncome Is receíved) to end before the fírst day of
the sí th ta abíe year after the ta abíe year ín whích such íncome
ís receíved, then such Income shaíí be Incíuded In gross íncome for
the ta abíe year ín whích receíved, and for each of the 5 succeedíng
ta abíe years, to the e tent proper under the method of accountíng
used under sectíon 0 ín computíng ta abíe íncome for such year.
If the ííabíííty does not ín fact end before the fírst day of such
sí th ta nbíe year, such íncome shaíí be íncíuded ín gross íncome
for the ta abíe years specífíed ín the precedíng sentence e cept
that wíth the consent of the Secretary or hís deíegate ít shaíí be
íncíuded ín gross íncome In such proportíons, and for such ta abíe
years, as are specífíed ín such consent.
(2) Indefíníte pkríod. € ” In the case of any prepaíd Income to
whích thís sectíon appííes, íf the ííabíííty descríbed ín subsectíon
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51 5 52.
(e) (2) Is (at the tíme the Income ís receíved) of Indefíníte duratíon,
then such Income shaíí be íncíuded ín gross Income for the ta abíe
year ín whích receíved and for each of the 5 succeedíng ta abíe
yean, consístentíy wíth the príncípíes prescríbed ín paragraph (1)
and subsectíon (b), under reguíatíons prescríbed by the Secretary
or hís deíegate. Wíth the consent of the Secretary or hís deíegate
the prepaíd íncome shaíí be íncíuded ín gross Income ín such pro-
portíons, and for such ta abíe years, as are specífíed ín such consent.
(b) Prepaíd Income To e arned Oveb Long Períod. € ” In the case
of any prepaíd íncome to whích thís sectíon appííes, íf the ííabíííty
descríbed ín subsectíon (e)(2) ís (at the tíme the íncome ís receíved)
to end after the cíose of the fífth ta abíe year after the ta abíe year ín
whích such íncome ís receíved, then € ”
(1) one-sí th of the prepaíd íncome shaíí be íncíuded ín gross
íncome for the ta abíe year ín whích receíved, and one-sí th shaíí
be íncíuded In gross íncome for each of the 5 succeedíng ta abíe
years e cept that
(2) wíth the consent of the Secretary or hís deíegate, the prepaíd
íncome shaíí be íncíuded ín gross íncome ín such proportíons, and
for such ta abíe years, as are specífíed In such consent.
(c) Where Ta payers Líabíííty Ceases. € ” In the case of any prepaíd
íncome to whích thís sectíon appííes € ”
(1) If the ííabíííty descríbed ín subsectíon (e)(2) ends, then so
much of such íncome as was not íncíudíbíe ín gross íncome under
subsectíons (a) and (b) for precedíng ta abíe years shaíí be Incíuded
ín gross íncome for the ta abíe year ín whích the ííabíííty ends.
(2) If the ta payer díes or ceases to e íst, then so much of such
íncome as was not íncíudíbíe ín gross íncome under subsectíons (a)
and (b) for precedíng ta abíe years shaíí be íncíuded ín gross íncome
for the ta abíe year ín whích such death, or such cessatíon of e íst-
ence, occurs.
(d) Prepaíd Income to Whích Thís Sectíon ppííes. € ”
(1) íectíon of benefíts. € ” Thís sectíon shaíí appíy to prepaíd
íncome íf and oníy íf the ta payer makes an eíectíon under thís
sectíon wíth respect to the trade or busíness ín connectíon wíth
whích such íncome ís receíved. The eíectíon shaíí be made ín such
manner as the Secretary or hís deíegate may by reguíatíons pre-
scríbe. No eíectíon may be made wíth respect to a trade or busíness
íf ín computíng ta abíe íncome the cash receípts and dísbursements
method of accountíng ís used wíth respect to such trade or busíness.
(2) Scope of eíectíon. € ” n eíectíon made under thís sectíon
shaíí appíy to aíí prepaíd íncome receíved ín connectíon wíth the
trade or busíness wíth respect to whích the ta payer has made the
eíectíon e cept that the ta payer may, to the e tent permítted
under reguíatíons prescríbed by the Secretary or hís deíegate, ín-
cíude ín gross íncome for the ta abíe year of receípt the entíre
amount of any prepaíd íncome íf the ííabíííty from whích ít arose
ís to end wíthín 12 months after the date of receípt. n eíectíon
made under thís sectíon shaíí not appíy to any prepaíd íncome
receíved before the fírst ta abíe year for whích the eíectíon ís made.
(3) When eíectíon mat be made. € ”
( ) Wíthout consent. € ” ta payer may, wíthout the con-
sent of the Secretary or hís deíegate, make an eíectíon under thís
sectíon for hís fírst ta abíe year (I) whích begíns after Decem-
ber 31, 1953, and ends after the date on whích thís títíe Is
enacted, and (íí) ín whích he receíves prepaíd íncome ín the
trade or busíness. Such an eíectíon shaíí be made not íater
than the tíme prescríbed by thís subtítíe for fíííng the return
for such year (íncíudíng e tensíons thereof).
( ) Wíth consent. € ” ta payer may, wíth the consent of
the Secretary or hís deíegate, make an eíectíon under thís sec-
tíon at any tíme.
(e) Defínítíons. € ” or purposes of thís sectíon € ”
(1) Prepaíd íncome. € ” The term prepaíd íncome means any
amount (Incíudíbíe ín gross íncome) whích ís receíved ín connec-
tíon wíth, and ís dírectíy attríbutabíe to, a ííabíííty whích e tends
beyond the cíose of the ta abíe year ín whích such amount ís
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5 52. 52
receíved. Such term does not íncíude any Income treated as gaín
from the saíe or other dísposítíon of a capítaí asset.
(2) Líabíííty to bendeb sebvíces, etc. € ” The term ííabíííty
means a ííabíííty to render servíces, furnísh goods or other property,
or aííow the use of property.
(3) Receípt of prepaíd íncome. € ” Prepaíd Income shaíí be treated
as receíved duríng the ta abíe year for whích ít Is íncíudíbíe ín
gross íncome under sectíon 51 (wíthout regard to thís sectíon).
Sec. 1. 52-1 Prepaíd Income ín Generaí. € ” (a) Prepaíd íncome,
regardíess of the method of accountíng used by the ta payer, ís gen-
eraííy íncíudíbíe ín gross íncome by the ta payer at the tíme of receípt
íf ít ís sub|ect to hís free and unrestrícted use. owever, ín the case
of a ta payer who uses a method of accountíng other than the cash
receípts and dísbursements method ín computíng ta abíe íncome, sec-
tíon 52 permíts the ta payer to eíect a method of accountíng for
prepaíd íncome under whích portíons of prepaíd íncome receíved ín
the ta abíe year shaíí be deferred to subsequent ta abíe years. The
generaí purpose of sectíon 52 ís to bríng ta accountíng more cíoseíy
ínto harmony wíth generaííy accepted accountíng príncípíes ít ís
not íntended to permít, for ta purposes, deferraís of íncome not prop-
eríy deferred under the ta payer s method of accountíng.
(b) Sectíon 6 provídes that ta abíe íncome shaíí be computed
under the method of accountíng on the basís of whích the ta payer
reguíaríy computes hís íncome ín keepíng hís books. Sectíon 52 pro-
vídes a specífíc method of accountíng and, accordíngíy, the books of
the ta payer must be kept ín accordance wíth such method íf ta abíe
íncome ís to be computed under the method so eíected. No eíectíon
under sectíon 52 may be made uníess the prepaíd íncome ís deferred
on the reguíar books of account whích are used ín computíng the ta -
íayer s íncome and on the basís of whích the ta payer prepares hís
ínancíaí statements (such as reports to credítors, stockhoíders, etc).
If a ta payer cíoses such books for the ta abíe year wíthout makíng
the necessary entríes thereon to record such deferraí, and íssues hís
fínancíaí statements on the basís of the books as so cíosed, any such
entríes made thereafter wííí not be deemed to meet the requírements
of the precedíng sentence wíth respect to such ta abíe year however,
thís ruíe ís not appíícabíe ín the case of a ta payer who has cíosed hís
books and íssued fínancíaí statements for the ta abíe year before
anuary 2 ,1955, íf he makes the necessary entríes before makíng the
eíectíon under sectíon 52(d) (3) ( ) and sectíon 1. 52-7(b). In the
case of a ta payer (such as a reguíated pubííc utíííty defíned ín sectíon
1503(c)) whích ís requíred by the ruíes of a governmentaí agency to
maíntaín íts books ín accordance wíth a method of accountíng dífferent
from that permítted by sectíon 52, the method of accountíng per-
mítted by sectíon 52 may be refíected ín au íííary records whích shaíí
be kept wíth, and reconcííed wíth, the ta payer s reguíar books. The
deferraí of prepaíd íncome must be refíected on the books for a períod
not shorter than that prescríbed for ta purposes. Thís ís not to be
construed as preventíng the ta payer from deferrríng prepaíd íncome
on hís books, where proper, over a períod íonger than the períod pre-
scríbed by sectíon 52.
(c) or appíícabíe defínítíons, see sectíon 52(c) and sectíon
1. 52-8.
Sec. 1. 52-2. Prepaíd Income to be arned Over Short Períod. € ”
(a) If prepaíd íncome ís attríbutabíe to a ííabíííty whích wííí end
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53 52.
before the fírst day of the sí th ta abíe year after the ta abíe year
ín whích ít ís receíved, the íncome ís deemed for purposes of sectíon
52 to be short-períod prepaíd íncome. Such íncome shaíí be ín-
cíuded ín gross íncome, to the e tent properíy aííocabíe under the
ta payer s method of accountíng, ín the ta atííe year ín whích receíved
and ín each of the succeedíng ta abíe years (not e ceedíng fíve) over
whích the ííabíííty may e tend. The amount properíy aííocabíe to
each of such ta abíe years shaíí be determíned ín the ííght of aíí the
facts and círcumstances ínvoíved, íncíudíng the ta payer s e períence
wíth such ííabííítíes.
(b) Short-períod prepaíd íncome need not be aííocated equaííy
oTer the períod, nor must any portíon necessarííy be íncíuded ín the
ta abíe year of receípt. proper aííocatíon under thís sectíon re-
quíres that such íncome be íncíuded ín gross íncome as the ííabíííty
to whích the íncome reíates ís díschargedor as ít ís deemed to be dís-
charged on the basís of the ta payer s e períence. (Where e perí-
ence ís the basís for aííocatíon, the ta payer must foííow the ruíes pro-
víded ín sectíon 1. 53-3(b).) or e ampíe, íf the rent for the 5th
year under a 5-year íease ís paíd at the begínníng of the íease and
the ta payer-íessor has eíected the benefíts of sectíon 52, and íf the
6th year of the íease faíís wíthín 2 ta abíe years of the ta payer,
such rent shaíí be aííocated to each of such 2 ta abíe years to the
e tent that the 5th year of the íease faíís wíthín each such ta abíe year.
On the other hand, íf the rent for the entíre 5 years ís receíved ín
adrance, such rent shaíí be aííocated to the ta abíe years covered by
the íease. The precedíng sentence may be íííustrated by the foííowíng
e ampíe:
ampíe. € ” Ta payer , usíng the accruaí method, whose ta abíe
year ís a caíendar year, íeases a buíídíng to for a períod of 8 months
commencíng on ebruary 1, 1955, for a totaí rent of 8,000 paíd
on December 1, 195 . ssumíng that has eíected the benefíts of
sectíon 52, rent from the íease shaíí be íncíuded ín gross íncome as
foííows:
mount íncíuded
Tcrítff year ín grost íncome
195 zero
1955 11, 000
1956 12,000
1957 12, 000
1958 12,000
1959 1,000
Totaí 8,000
So part of the short-períod prepaíd rent ís íncíudíbíe ín gross íncome
for the year 195 sínce no part of the ííabíííty was díscharged ín that
year.
(c) The determínatíon of the períod over whích the ííabíííty e tends
ís to be made on the basís of the facts known at the tíme the íncome
ís receíved. In order to treat prepaíd íncome as short-períod prepaíd
íncome, the ta payer must be abíe to ascertaín at the tíme of receípt
of such íncome that the ííabíííty wííí end before the fírst day of the
6th ta abíe year after the ta abíe year ín whích the íncome ís receíved,
(d) If subsequent events e tent the períod of ííabíííty, but ít ís
not e tended beyond the íast day of the 5th ta abíe year foííowíng
the ta abíe year of receípt of the prepaíd íncome, the portíon of the
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S 52. 5
prepaíd íncome not prevíousíy íncíudíbíe ín gross íncome shaíí b
aííocated, ín accordance wíth paragraphs (a) and (b), over the perío
remaíníng between the tíme the subsequent events become known an
the e píratíon of the ííabíííty as changed.
(e) If subsequent events e tend the períod of ííabíííty beyond tb
cíose of the 5th ta abíe year foííowíng the ta abíe year of receípt o
the prepaíd íncome, the portíon of the prepaíd íncome not prevíousíy
íncíudíbíe ín gross íncome shaíí be aííocated ratabíy over the perío
between the tíme the e tended ííabíííty becomes known and the cíosí
of such 5th ta abíe year.
(f) If subsequent events shorten the períod of ííabíííty2 the portíoí
of the prepaíd íncome not prevíousíy íncíudíbíe ín gross íncome shaí
be íncíuded ín gross íncome for the ta abíe year ín whích the subse
quent events occur íf the ííabíííty does not e tend beyond that ta abíí
year. If the ííabíííty does e tend beyond that ta abíe year, sue
portíon shaíí be íncíuded ín gross íncome over the períod remaíníng
between the tíme the subsequent events become known and the e píra
tíon of the ííabíííty as changed, ín accordance wíth paragraphs (a
and (b).
(g) In the case of a change ín the períod of the ííabíííty descríbee
ín paragraph (e) of thís sectíon, a ta payer may request permíssíor
from the Commíssíoner to aííocate the amount of prepaíd íncome no
prevíousíy íncíudíbíe ín gross íncome ín some manner other than thaí
províded ín such paragraph. The consent of the Commíssíoner shaí
be requested ín accordance wíth sectíon 1. 52-5. Ordínarííy, per
míssíon wííí not be granted to reaííocate amounts properíy íncíudíbíe
ín gross íncome for ta abíe years príor to the ta abíe year ín whícb
the change ín the períod of the ííabíííty occurs.
(h) or the purposes of the aííocatíon under thís sectíon, the ta -
payer may consíder each transactíon separateíy or may aggregate
símííar transactíons duríng the ta abíe year ín any reasonabíe manner
províded the method of aggregatíon ís consístentíy foííowed.
Sec. 1. 52-3. Prepaíd Income to be arned Over Indefínítí
Períod. € ” (a) Prepaíd íncome attríbutabíe to a ííabíííty, whích on the
basís of the facts known at the tíme such íncome ís receíved e tends
over an índefíníte períod, shaíí be íncíuded ín gross íncome ín accord-
ance wíth the provísíons of thís sectíon. n e ampíe of prepaíd
íncome of thís type ís an amount receíved by a retaíí store tor gíft
certífícates whích may be redeemed for merchandíse at any tíme.
There ís to be íncíuded ín gross íncome for the ta abíe year of receípt
cf an ítem of prepaíd íncome descríbed ín thís sectíon and ín gross
íncome for each succeedíng ta abíe year (not more than 5 years and
not necessarííy ratabíy) that portíon of such prepaíd íncome wíth
respect to whích the e períence of the ta payer índícates the ííabíííty
wííí be díscharged duríng each such ta abíe year. The remaínder
of the prepaíd íncome must be accounted for one-sí th ín the ta abíe
year of receípt and one-sí th ín each of the 5 succeedíng ta abíe years.
(b) The aííocatíon of íncome to be earned over an índefíníte períod
shaíí be based upon the ta payer s own e períence, íf adequate for a
reasonabíe aííocatíon. Ordínarííy, the most recent 6 years of e perí-
ence wíth thís kínd of prepaíd íncome wííí be consídered adequate for
the purpose of thís paragraph. owever, íf the ta payer s e períence
ís not adequate, he may use the e períence of other ta payers engaged
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55 52.
ín a símííar trade or busíness íf he estabííshes to the satísfactíon of
tíe Commíssíoner that such e períence ís representatíve of the ta -
payers busíness. In such case, íf the ta payer attaches to hís return
í compíete statement of the e períence reííed upon, he may use such
e períence ín computíng ta abíe íncome on hís return, sub|ect to
approvaí by the Commíssíoner upon subsequent e amínatíon of the
return,
(c) The foííowíng e ampíe íííustrates the provísíons of thís sectíon:
ampíe.
Saíe of servíce coupons 1,000
períence índícates that the coupons wííí be presented ín
payment for servíces as foííows:
5ft percent ín the year of saíe 500
0 percent ín the 1st succeedíng year 90
5 percent ín the 2nd succeedíng year 50
3 percent ín the 3rd succeedíng year 30
2 percent ín the th succeedíng year 20
1 percent ín the 5th succeedíng year 10
Totaí 700
mnunt to be accounted íor duríng the fírst 6 years on the basís
of e períence 700
mount sub|ect to pro rata aííocatíon over the 6-year períod 300
ííocated to each year, one-sí th of 300 50
Thus, the amovínt of íncome from the saíe of servíce coupons to be
íncíuded ín gross íncome for the ta abíe year of saíe ís 500 píus 50,
or 550, and for the fírst succeedíng year ís 90 píus 50, or 1 0, etc.
owever, íf any portíon of the amount receíved represents payment
for coupons whích the e períence of the ta payer índícates wííí never
be presented for redemptíon, such portíon may not be deferred be-
yond the ta abíe |7ear ín whích the amount was receíved and shaíí
be íncíuded ín gross íncome for such ta abíe year. or e ampíe, íf
saíes of coupons had been 1,100 ínstead of 1,000 and e períence
índícated that 100 of such amount wouíd never be presented for
redemptíon, the íncome from the saíe of servíce coupons to be ín-
cíuded ín gross íncome for the ta abíe year of saíe wouíd be 500 píus
50 píus 100, or 650.
(u) or the purposes of the aííocatíon under thís sectíon, the
ta payer may consíder each transactíon separateíy or may aggregate
símííar transactíons duríng the ta abíe year ín any reasonabíe man-
ner províded the method of aggregatíon ís consístentíy foííowed. It
wííí be necessary for the ta payer to evaíuate annuaííy hís past e pe-
ríence ín arrívíng at the proper aííocatíon of prepaíd íncome receíved
daríng that ta abíe | ear.
(e) ta payer may not defer prepaíd íncome reíatíng to a ííabíí-
íty of índefíníte duratíon beyond the 5th ta abíe year after the ta -
abíe year of receípt uníess he secures the consent of the Commíssíoner.
request for such consent shaíí be submítted ín accordance wíth the
provísíons of sectíon 1. 52-5.
Sec. 1. 52- . Prepaíd Income to be arned Over Long Períod. € ”
a) Prepaíd íncome attríbutabíe to a ííabíííty whích, based upon the
facts known at the tíme the íncome ís receíved, wííí end after the
dose of the 5th ta abíe year foííowíng the ta abíe year ín whích
36 050 € ” 56 5
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52. 56
such íncome ís receíved shaíí be regarded as íong-períod prepaíd
íncome . One-sí th of such íncome shaíí be íncíuded ín gross íncome
for the ta abíe year of receípt and one-sí th for each of the 5 sue-
ceedíng ta abíe years uníess the Commíssíoner consents to a dífferení
treatment. (See sec. 1. 52-5.) or e ampíe, assume that the ta -
payer, reportíng ta abíe íncome on a caíendar year basís, receíver
ín the 1st year of a 10-year íease commencíng on anuary 1, the ísí
and íast year s rent. The annuaí rentaí ís 6,000 the amount re-
ceíved ín the 1st year ís 12,000, of whích oníy the 6,000 aííocabíe
to the 10th year s rent ís prepaíd íncome. The 10th year s rent shaíí
be aííocated 1,000 to each of the fírst 6 years of the íease, and takír.
ínto account the 6,000 rent for each such year, there wííí be a totaí
of 7,000 íncíuded ín íncome for each of the fírst 6 years. In each
of the 7th, 8th, and 9th years oníy the 6,000 rent for such year shaíí
be taken ínto íncome. Sínce the 10th year s rent was íncíuded ín
íncome for the fírst 6 years, ít ís not to be íncíuded ín íncome for the
10th year.
(b) One-sí th of the amount of íong-períod prepaíd íncome shaíí be
íncíuded ín gross íncome for the ta abíe year of receípt. or e ampíe,
íf a ta payer on the accruaí method, on a caíendar year basís receíves
a rentaí payment of 60,000 on December 1, 195 , coveríng fuíí pay-
ment on a 6-vear íease commencíng on anuary 1,1955, 10,000 of such
íncome ís aííocabíe to 195 , the ta abíe year of receípt, and a ííke
amount to each of the 5 succeedíng ta abíe years.
(c) Whether amounts receíved are short-períod prepaíd íncome or
íong-períod prepaíd íncome shaíí be determíned by reference to the
períods to whích such amounts reíate. or e ampíe, íf, ín connectíon
wíth a 10-year íease begínníng anuary 1,1955, the rent for the th and
6th years ís receíved ín 195 , the amount of the rent for the th year
ís short-períod prepaíd íncome and the amount of the rent for the-
6th year ís íong-períod prepaíd íncome. owever, íf ín such e ampíe
the íease were to begín on anuary 1, 1957, the rent for the th year
wouíd aíso be íong períod prepaíd íncome sínce the th year wouíd
faíí more than 5 years after 195 , the year of receípt.
Sec. 1. 52-5. Manner of Obtaíníng Consent for Dífff.rf.nt
Treatment of Prepaíd Income. € ” ta payer may, wíth the consent
of the Commíssíoner, íncíude prepaíd íncome ín gross íncome ín such
proportíons, and for such ta abíe years, as are specífíed ín the consent.
The request for consent, ín the case of prepaíd íncome to whích sec-
tíon 52(a) (2) or 52(b) appííes, shaíí be made to the Commíssíoner
not íater than 30 days after the cíose of the ta abíe year ín whích such
prepaíd íncome ís receíved. In the case of a request for consent
descríbed ín sectíon 52(a)(1), the request shaíí be made to the
Commíssíoner not íater than 30 days after the cíose of the ta abíe year
ín whích the change ín the períod of the ííabíííty became known.
owever, íf the períod descríbed above for the fíííng of the request
e píres íess than 90 days after the promuígatíon of these reguíatíons
under sectíon 52, the ta payer may fííe the request for consent not
íater than 90 days after the promuígatíon of such reguíatíons. The
request shaíí contaín both a detaííed recítaí of the círcumstances upon
whích the ta payer bases hís request for a method of aííocatíon díf-
ferent from that províded ín these reguíatíons under sectíon 52 and
aíí the ínformatíon necessary for the Commíssíoner to determíne
whether the proposed method of aííocatíon wouíd be proper and, íf
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57 52.
so, to what ta abíe years and ín what amounts such aííocatíons shouíd
be made. The request for consent shouíd be dírected to the Commís-
síoner of Internaí Revenue, Washíngton 25, D. C. Such permíssíon
wííí be granted by the Commíssíoner oníy ín cases where ít ís shown
to hís satísfactíon that a dífferent method of treatíng prepaíd íncome
ís proper.
Sec. 1. 52-0. Treatment of Prepaíd Income Wheke Ta payer s
Líabíííty Ceases. € ” If the ííabíííty of the ta payer ends, then so much
of the prepaíd íncome as was not íncíudíbíe ín gross íncome for pre-
cedíns ta abíe years shaíí be íncíuded ín the gross íncome of the
Ta payer for the ta abíe year ín whích the ííabíííty ends. See sec-
tíon 381(c) (7) for ruíes appíícabíe to the treatment of prepaíd íncome
ín the case of certaín corporate acquísítíons. If an índívíduaí ta -
paver díes or a ta payer otííer than an índívíduaí goes out of e ístence,
the amount deferred under sectíon 52 and not prevíousíy íncíudíbíe
ín hís gross íncome shaíí, notwíthstandíng the provísíons of sectíon
51(b), be íncíuded ín hís gross íncome for the ta abíe year ín whích
such event occurs. Símííaríy, when a partnershíp termínates such
amount shaíí be íncíuded ín gross íncome for the year of termínatíon
of the partnershíp.
Sec. 1. 52-7. íectíon of enefíts. € ” (a) In generaí. € ” (1) n
eíectíon under sectíon 52 shaíí be appíícabíe to aíí prepaíd íncome (of
the trade or busíness for whích the eíectíon ís made) whích ís receíved
ín the ta abíe year of the eíectíon and aíí subsequent ta abíe years.
Such eíectíon shaíí not appíy to any prepaíd íncome receíved before
the ta abíe year for whích the eíectíon ís made, even though the
amounts wííí not be earned untíí after such year. The ta payer may
eíect to íncíude ín hís gross íncome for the ta abíe year of receípt aíí
prepaíd íncome wíth respect to whích the ííabíííty ís to end wíthín 12
months of íts receípt, íf he fííes a statement to that effect at the tíme
he makes hís eíectíon under sectíon 52. In such a case thís treatment
shaíí be consístentíy foííowed.
(2) n eíectíon under sectíon 52 shaíí be bíndíng for the ta abíe
year for whích made and aíí subsequent ta abíe years uníess the con-
sent of the Commíssíoner ís obtaíned to change such method of treat-
ín prepaíd íncome. See sectíon 6 and the reguíatíons thereunder.
(3) No eíectíon shaíí be permítted wíth respect to a trade or busí-
ness íf the cash receípts and dísbursements method of accountíng ís
used ín computíng ta abíe íncome or íf such method ís used, under
a combínatíon of methods, ín reportíng ítems of gross íncome for
such trade or busíness for íncome ta purposes.
( ) If the ta payer cíearíy evídences a bona fíde íntent to compíy
wíth the provísíons of sectíon 52 and the reguíatíons thereunder,
hís eíectíon under that sectíon wííí not be ínvaíídated by:
(í) ís faííure to take certaín ítems of prepaíd íncome ínto
account ín accordance wíth the provísíons of sectíon 52 and these
reguíatíons
(íí) ís faííure correctíy to aííocate prepaíd íncome ín accord-
ance wíth such provísíons or
(ííí) ís ímproper deferraí of ítems to whích sectíon 52 does
not appíy.
_ (b) Manner of wakíng eíectíon not requíríng consent. € ” The eíec-
tíon under sectíon 52 may be made wíthout the consent of the Com-
míssíoner íf made for the 1st ta abíe year begínníng after December
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52. 58
31, 1953 and endíng after ugust 16, 195 ín whích there ís receívec
prepaíd íncome of the partícuíar trade or busíness for whích th
eíectíon ís made. The eíectíon must be made not íater than the tím
prescríbed by íaw for fíííng the return for such ta abíe year (íncíud
íng e tensíons thereof). The eíectíon shaíí be made ín a statemení
attached to the ta payer s return for the 1st ta abíe year to whící
the eíectíon ís appíícabíe. The statement shaíí contaín the ínforma
tíon requíred by paragraph (tí).
(c) íectíon requíríng consent. € ” (1) If a ta payer does not eíed
under paragraph (b) he may eíect the benefíts of sectíon 52 for hí
2nd ta abíe year begínníng after December 31,1953, and endíng afteí
ugust 16,195 , províded that on or before une 30, 1955, he notífíes
the Commíssíoner of Internaí Revenue, Washíngton 25, D. C, of hís
íntentíon to make such eíectíon. The notífícatíon shaíí state that th
ta payer has not eíected the benefíts of sectíon 52 for hís 1st ta abh
|ear begínníng after December 31, 1953, and endíng after ugust 16
195 , but desíres to eíect the benefíts of such sectíon for the ne t suc-
ceedíng ta abíe year. The notífícatíon shaíí be ín trípíícate, shaí
ídentífy the trade or busíness to whích the eíectíon ís to appíy, shaíí
show the name and address of the ta payer and the dístríct ín whící
the return of the ta payer ís to be fííed. In such a case the ta payer
notífícatíon wííí be treated as an eíectíon to have the benefíts of sec
tíon 52 appíy to such ta abíe year and to aíí subsequent ta abk
years. copy of the notífícatíon wííí be stamped wíth the approvaí
of the Commíssíoner and returned to the ta payer. Such copy, to-
gether wíth a statement contaíníng the ínformatíon requíred by para-
graph (d) shaíí be attached to the return for the 1st ta abíe year tc
whích the eíectíon appííes.
(2) In the event that a ta payer does not make an eíectíon undeí
paragraph (b) or subparagraph (1) of thís paragraph, he may, af
a íater date, eíect the benefíts of the provísíons of sectíon 52 oní|
íf he obtaíns the consent of the Commíssíoner. In such a case, a wrít-
ten request for consent shaíí be made to the Commíssíoner not íateí
than 90 days after the begínníng of the 1st ta abíe year for whích
the eíectíon ís appíícabíe or 90 days after the date of promuígatíon
of the reguíatíons under sectíon 52, whíchever ís íater. Such request
shaíí contaín the ínformatíon requíred by paragraph (d).
(d) Informatíon requíred. € ” The statement or request fííed under
paragraph (b) or (c) of thís sectíon shaíí set forth the foííowíng:
(1) The name and descríptíon of each trade or busíness for
whích the eíectíon ís to appíy
(2) decíaratíon that the eíectíon ís íntended to appíy to aíí
prepaíd íncome of the trade or busíness
(3) The method of accountíng used by the ta payer ín such
trade or busíness
( ) descríptíon of each type of prepaíd íncome of such trade
or busíness, the proposed method of aííocatíon, and the basís
therefor
(5) Whether a prevíous eíectíon under the provísíons of sec-
tíon 52 has been made for such trade or busíness and, íf so, for
what ta abíe years such eíectíon was ín effect and
(6) The name and descríptíon of each trade or busíness, íf
any, for whích the eíectíon does not appíy.
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59 52.
Sec. 1. 52-8. Defínítíons € ” (a) Prepaíd íncome. € ” The term pre-
paíd íncome means any amount (íncíudíbíe ín gross íncome) whích
ís receíved ín connectíon wíth, and ís dírectíy attríbutabíe to, a
ííabíííty whích e tends beyond the cíose of the ta abíe year ín whích
such amount ís receíved. owever, amounts whích represent receípts
for goods or servíces or for the use of property to have been províded
or furníshed duríng or príor to the ta abíe year of receípt are not
prepaíd íncome. The term may íncíude, for e ampíe, amounts re-
wíved ín advance for rents and warehouse fees and amounts receíved
from the saíe of tíckets, car tokens, subscríptíons, cíub dues, and serv-
íce coupons and contracts. Such term docs not íncíude any íncome
treated as a gaín from the saíe or other dísposítíon of a capítaí asset.
íb) Líabííítí/. € ” The term ííabíííty means a ííabíííty to render
servíces, furnísh goods or other property, or aííow the use of property.
or e ampíe, an appííance servíce contract ís a ííabíííty to render
servíces for the purposes of sectíon 52 íf the contract ís a separate
transactíon for whích a charge ís made and whích ís entered ínto
at the optíon of the purchaser. The term does not íncíude a ííabíííty
under a warranty the consíderatíon for whích ís, ín effect, íncíuded
ín the seíííng príce of a product.
(c) Receípt of prepaíd íncome. € ” or the purposes of sectíon 52,
prepaíd íncome shaíí be treated as receíved duríng the ta abíe year
for whích ít wouíd be íncíudíbíe ín gross íncome under sectíon 51
and the reguíatíons thereunder (determíned wíthout regard to sectíon
52).
S C. C2. R S R S O . STIM T D r S S, TC. € ”
(n) Generaí Ruíe. € ” In computíng tn abíe íncome for the ta abíe
year, there shaíí be taken ínto account (ín the díscretíon of the Secre-
tary or hís deíegate) a reasonabíe addítíon to each reserve for estímated
e penses to whích thís sectíon appííes.
(b) d|ustments WhekeReseuve ecomes cessíve. € ” If ít ís deter-
míned that the amount of any reserve for estímated e penses to whích
thís sectíon appííes ís (as of the cíose of the ta abíe year) e cessíve, then
(under reguíatíons prescríbed by the Secretary or hís deíegate) such
e cess shaíí be taken ínto account ín computíng ta abíe Income for the
ta abíe year,
íc) stímated penses to Whích Thís Sectíon ppííes € ”
(1) íectíon of benefíts. € ” Thís sectíon shaíí appíy to estímated
e penses íf and oníy íf the ta payer makes an eíectíon under thís
sectíon wíth respect to the trade or busíness to whích such e penses
are attríbutabíe. The eíectíon shaíí be made ín such manner as the
Secretary or hís deíegate may by reguíatíons prescríbe. No eíectíon
may be made wíth respect to a trade or busíness íf ín computíng
ta abíe íncome the cash receípts and dísbursements method of
accountíng ís used wíth respect to such trade or busíness.
(2) Scope of eíectíon. € ” n eíectíon made under thís sectíon shaíí
appíy to aíí estímated e penses attríbutabíe to the trade or busíness.
(3) When eíectíon may be made € ”
( ) Wíthout consent. € ” ta payer may, wíthout the consent
of the Secretary or hís deíegate, make an eíectíon under thís
sectíon for hís fírst ta abíe year (1) whích begíns after Decem-
ber 31, 1953, and ends after the date on whích thís títíe ís
enacted, and (íí) for whích there are estímated e penses attríb-
utabíe to the trade or busíness. Such an eíectíon shaíí be made
not íater than the tíme prescríbed by íaw for fíííng the return
for such year (íncíudíng e tensíons thereof).
( ) Wíth Consent. € ” ta payer may, wíth the consent of the
Secretary or hís deíegate, make an eíectíon under thís sectíon at
an/ tíme.
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52. 60
(d) stímated pense Defíned € ”
(í) Generaí buíe. € ” or purposes of tííís sectíon, the term estí-
mated e pense means a deductíon aííowabíe by thís subtítíe € ”
( ) Part or aíí of whích wouíd (hut for thís sectíon) be
requíred to be taken Into account for a subsequent ta abíe year
( ) Whích ís attríbutabíe to the íncome of the ta abíe year
or príor ta abíe years for whích an eíectíon under thís sectíon ís
In effect and
(C) Whích the Secretary or hís deíegate ís satísfíed can be
estímated wíth reasonabíe accuracy.
(2) ceptíons. € ” The term estímated e pense does not ín-
cíude € ”
( ) ny deductíon attríbutabíe to íncome taken ínto account
In computíng ta abíe íncome for tn abíe years precedíng the
fírst ta abíe year for whích the eíectíon ís made
( ) ny deductíon attríbutabíe to prepaíd íncome to whích
sectíon 52 appííes by reason of an eíectíon made under such
sectíon by the ta payer: or
(C) ny deductíon aííowabíe under sectíon 160 (reíatíng to
bad debts).
(e) Specíaí Ruíe fob Deductíons ttríbutabíe to Períod kfore
íectíon. € ” ny deductíon attríbutabíe to íncome taken ínto account ín
computíng ta abíe íncome for tn nbíe yrars precedíng the fírst ta abíe
year for whích the eíectíon ís made shaíí be aííowabíe ín the same manner
and to the same e tent as íf thís sectíon had not been enacted.
Sec. 1. 62-1. Reserves for stímatíng penses € ” (a) In ger
eraí. € ” (1) Ordínarííy, ín computíng ta abíe íncome e penses ar
not deductíbíe for a ta abíe year príor to the ta abíe year ín whíc
paíd or íncurred, or paíd or accrued, dependíng upon the ta payer1
method of accountíng. owever, sectíon 02 permíts a ta payer, í
the díscretíon of the Commíssíoner, to deduct a reasonabíe addítíon t
a reserve for certaín e penses (desígnated as estímated e penses)
€ whích, ín the opíníon of the Commíssíoner, can be estímated wít.
reasonabíe accuracy. The generaí purpose of sectíon 62 ís to brín
ta accountíng more cíoseíy ínto harmony wíth generaííy accepte
accountíng príncípíes ít ís not íntended to permít ta payers to deduc
an addítíon to a reserve for estímated e penses ín any ta abíe yea
uníess such treatment wouíd be proper for such year under the tas
payer s method of accountíng. The eíectíon under sectíon 02 ma
be made wíth respect to any trade or busíness of the ta payer províder
that the cash receípts and dísbursements method of accountíng ís nc
used ín computíng the ta abíe íncome of such trade or busíness, am
the eíectíon shaíí appíy to aíí estímated e penses of such trade o
busíness.
(2) Sectíon 6 provídes that ta abíe íncome shaíí bs compute
under the method of accountíng on the basís of whích the ta paye
reguíaríy computes hís íncome ín keepíng hís books. Sectíon 0:
provídes a specífíc method of accountíng and, accordíngíy, the book
of the ta payer must be kept ín accordance wíth such method íf ta
abíe íncome ís to be computed under the method so eíected. In com
putíng ta abíe íncome, no amount shaíí be taken ínto account wít
respect to estímated e penses under sectíon C2 uníess a reserve there
íor has been estabííshed and ís properíy recorded on the reguíar book
of account whích are used ín computíng the ta payer s íncome and oí
the basís of whích the ta payer prepares hís fínancíaí statements (sucí
as reports to credítors, stockhoíders, etc.). If a ta payer cíoses sucí
books for the ta abíe year wíthout makíng the necessary entríe
thereon to estabíísh and record the reserve, and íssues hís fínancía
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61 52.
statements on the basís of the books as so cíosed, any such entríes
made thereafter wííí not be deemed to meet the requírements of the
precedíng sentence wíth respect to such ta abíe year however, thís
ruíe ís not appíícabíe ín the case of a ta payer who has cíosed hís
íooks and íssued fínancíaí statements for the ta abíe year before
anuary 2 ,1955, íf he makes the necessary entríes before makíng the
eíectíon under sectíon 62(c) (8) ( ) and sectíon 1. 62- (a). In the
case of a ta pav er (such as a reguíated pubííc utíííty defíned ín sectíon
1503(c)) whích ís requíred by the ruíes of a governmentaí agency to
maíntaín íts books ín accordance wíth a method of accountíng díffer-
ent from that permítted by sectíon G2, the method of accountíng
permítted by sectíon 62 may be refíected ín au íííary records whích
shaíí be kept wíth, and reconcííed wíth, the ta payer s reguíar books.
(3) or appíícabíe defínítíons, see sectíon 62(d) and sectíon
1. 62-5.
(b) Reasonabíe addítíons. € ” (1) Whether an addítíon to a reserve
for estímated e penses ís reasonabíe shaíí be determíned ín each par-
tícuíar case ín the ííght of the pertínent facts known at the cíose of
the ta abíe year. mong such pertínent facts to be consídered ís the
e períence of the ta payer. owever, ín cases where the ta payer
has no such e períence or hís e períence ís ínadequate, the e períence
of a ta payer or group of ta payers ín a símííar trade or busíness
operatíng under símííar condítíons may be used íf the ta payer es-
tabííshes to the satísfactíon of the Commíssíoner that such e períence
ís representatíve of the ta payer s busíness. In case actuaí e penses
prove to be more or íess than those estímated ín arrívíng at an addí-
tíon to the reserve for príor years, the amount of the e cess or ínade-
quacy ín the e ístíng reserve shaíí be refíected ín the determínatíon of
a reasonabíe addítíon for the current ta abíe year.
(2) ta payer cíaímíng deductíons on account of addítíons to
reserves for estímated e penses shaíí, wíth respect to each reserve for
estímated e penses, attach to hís ta return for the ta abíe year a state-
ment díscíosíng a summary of hís e períence wíth respect to such
e penses for the ta abíe year and the four precedíng ta abíe years,
Ordínarííy, the ta payer s e períence for such a períod wííí be an
acceptabíe basís for computíng the addítíon to the reserve. If, how-
ever, the ta payer s e períence does not e tend over such períod, the
statement shouíd díscíose that fact and gíve a summary of the ta -
payer s e períence wíth respect to such e penses. Thís statement shaíí
íncíude the foííowíng ínformatíon for the ta abíe year and each of
such precedíng ta abíe years: (í) a descríptíon of each e pense, (íí)
ta abíe íncome (íoss), (ííí) the amount added to the reserve, (ív) the
amount charged agaínst the reserve, (v) the baíance ín the reserve
sof the end of the ta abíe year, (ví) the amount deducted from ín-
come for such e penses ín ta abíe years ín whích a reserve was not
maíntaíned, and (víí) the name and amount of the ítem to whích the
wperíence ratío ís appííed ín determíníng the amount of the reason-
abíe addítíon, such as credít saíes, net saíes, gross íncome, etc.
(3) The foííowíng e ampíe wííí serve to íííustrate the provísíons
of thís paragraph:
ampíe. € ” ta payer, usíng an accruaí method of accountíng, who
seíís appííances sub|ect to a warranty, eíects to deduct addítíons to a
reserve for e penses whích he estímates wííí be necessary to fuífííí hís
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52.
62
obíígatíon under the warranty on appííances soíd duríng 195 . The
ta payer has not, príor to the eíectíon, maíntaíned such a reserve on
hís nooks. The statement attached to hís return shows:
ppííance warranty e penses
Ta abíe year
Net saíes
Ta abíe
íncome
ddítíon to
reserve
Charges to
reserve
aíance ín
the reserve
etna e -
penses
1950
100, 000
110,000
125, 000
150, 000
15, 000
16,000
18,000
17, 000
90(
1951
1, 101
1952
1, 5(
1953
1, 55C
195 .
165, 000
20, 000
1 1, 650
700
950
f 70C
80C
Totaís
650, 000
6, 50(1
1 Sínce tííe totaí of actuaí e penses for the most recent 5 years e períence amounts to 1 percent of the mosí
recent 6 years net saíes, a reasonabíe addítíon to the reserve for 1U5 wouíd be 1 percent o( 165,000 or 1,650,
The amount deductíbíe ín 195 ís 2, 50, composed of the addítíon to the reserve of 1,660 píus 800 actuaí
e pense attríbutabíe to saíes of years príor to 195 (aííowabíe wíthout regard to thís sectíon).
€ ctuaí e pense appíícabíe to 195 saíes.
ppíícabíe to saíes of years príor to 195 . €
Whííe ín thís e ampíe net saíes have been used as a basís upon whích
the addítíon to the reserve ís caícuíated, ít shouíd be understood that
other ítems may be appíícabíe under other círcumstances and there-
fore such ítems shouíd be substítuted where appropríate.
( ) If the ta payer has no e períence wíth thís type of e pense, the
statement shaíí íncíude a compíete descríptíon of the basís used ín
computíng the addítíon to the reserve. In any event, the addítíon to
the reserve ís sub|ect to the approvaí of the Commíssíoner upon
subsequent e amínatíon of the return.
(5) In any case, the statement and accompanyíng data shaíí set
forth for the ta abíe year such ínformatíon as ís necessary ín order to
estabíísh cíearíy that (í) the reserve ís one for whích an addítíon ís
aííowabíe under sectíon 62 ín computíng ta abíe íncome, (íí) the
amount of the addítíon ís reasonabíe, and (ííí) the amount of the
reserve at the end of the ta abíe year ís not e cessíve. The reserves to
whích sectíon 62 appííes shaíí be segregated from any reserves whích
may have been estabííshed by the ta payer for ta abíe years príor to
the ta abíe year for whích the eíectíon under that sectíon ís e ercísed.
Sec. 1. 62-2. d|ustments Where Reserve ecomes cessíve. € ”
In any case ín whích a reserve for estímated e penses as of the cíose of
any ta abíe year ís determíned to be e cessíve, such e cess shaíí be
taken ínto account ín computíng the ta abíe íncome for the ta abíe
year for whích such determínatíon ís made. or e ampíe, íf for the
ta abíe year endíng December 31, 1056, ít ís determíned by the Com-
míssíoner that a reserve (íncíudíng a cíaímed addítíon for the year
1956) ís e cessíve, such e cess shaíí be taken ínto account ín computíng
ta abíe íncome for the year 1956. In any case ín whích ít ís deter-
míned that a partícuíar reserve for estímated e penses ís no íonger
necessary, the amount of the reserve as of the cíose of the ta abíe year
for whích such determínatíon ís made shaíí be taken ínto account ín
computíng the ta abíe íncome for such year. Símííaríy, ín any case
ín whích the use of reserves for estímated e penses ís díscontínued,
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63 52.
the baíance of each such reserve shaíí be íncíuded ín ta abíe íncome
for the year of change.
Sec. 1. 62-3. í-ectíon of enefíts. € ” (a) The eíectíon referred
oín sectíon 1. 62-1 shaíí appíy to aíí estímated e penses attríbutabíe
to the trade or busíness to whích the eíectíon ís appíícabíe both for
the ta abíe year for whích the eíectíon ís made and for aíí subsequent
fcí abíe years uníess a change to a dífferent method ís authorízed by
the Commíssíoner under the provísíons of sectíon 6. owever, the
e ectíon does not appíy to any estímated e penses whích are attríbut-
abíe to prepaíd íncome deferred at the cíose of the ta abíe year under
the provísíons of sectíon 52. If the ta payer ís engaged ín more
ríían one trade or busíness, he may make a separate eíectíon wíth
íespect to each such trade or busíness.
(b) In no event shaíí an eíectíon under sectíon 62 be appíícabíe ín
the computatíon of ta abíe íncome for any ta abíe year precedíng
the ta abíe year for whích such eíectíon ís made. Such an eíectíon
cannot be made for any ta abíe year begínníng before anuary 1,195 ,
or endíng before ugust 17,195 .
(c) No eíectíon shaíí be permítted wíth respect to a trade or busíness
íf the cash receípts and dísbursements method of accountíng ís used ín
computíng ta abíe íncome or íf, under a combínatíon of methods, the
cash receípts and dísbursements method ís used ín reportíng ítems
other than ítems of gross íncome for íncome ta purposes for such trade
or busíness.
(d) If the ta payer cíearíy evídences a bona fíde íntent to compíy
wíth the provísíons of sectíon 62 and the reguíatíons thereunder, hís
tíectíon under that sectíon wííí not be ínvaíídated by:
(í) ís faííure to take ínto account certaín estímated e penses
ín estabííshíng hís reserve
(íí) ís faííure correctíy to determíne the amount of any such
reserve or addítíons thereto, or
(hí) ís estabííshment of a reserve for an e pense to whích
sectíon 62 does not appíy.
Sec.1. 62- . Tíme and Mannek ofMakíng íectíon. € ” (a) Wíth-
out consent. € ” The eíectíon under sectíon 62 may be made wíthout the
consent of the Commíssíoner íf made for the fírst ta abíe year begín-
níng after December 31, 1953, and endíng after ugust 16, 195 , ín
whích there are estímated e penses of the partícuíar trade or busíness
for whích the eíectíon ís made. The eíectíon must be made not íater
than the tíme prescríbed by íaw or fíííng the return for such ta abíe
year (íncíudíng e tensíons thereof). The eíectíon shaíí be made ín a
statement attached to the ta payer s return for the fírst ta abíe year to
hích the eíectíon ís appíícabíe. Such statement shaíí contaín the ín-
formatíon requíred by paragraph (c).
(b) Wíth consent. € ” (1) If a ta payer does not make the eíectíon
under paragraph (a) he may eíect the benefíts of sectíon 62 for hís
second ta abíe year begínníng after December 31, 1953, and endíng
fter ugust 16, 195 , províded that on or before une 30, 1955, he
ííotífíes the Commíssíoner of Internaí Revenue, Washíngton 25, D. C.,
f hís íntentíon to make such eíectíon. The notífícatíon shaíí state
that the ta payer has not eíected the benefíts of sectíon 62 for hís fírst
ta abíe year begínníng after December 31, 1953, and endíng after
ugust 16,195 , but desíres to eíect the benefíts of such sectíon for the
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5 52.1 ‚
re t succeedíng ta abíe year. The notífícatíon shaíí be ín trípíícate,
shaíí ídentífy the trade or busíness to whích the eíectíon ís to appíy,
shaíí show the name and address of the ta payer and the dístríct ín
whích the return of the ta payer ís to be fííed. In such a case the
ta payer s notífícatíon wííí be treated as an eíectíon to have the bene-
fíts of sectíon 62 appíy to such ta abíe year and to aíí subsequent ta -
abíe years. copy of the notífícatíon wííí be stamped wíth the ap-
provaí of the Commíssíoner and returned to the ta payer. Such
copy, together wíth a statement contaíníng the ínformatíon requíred
by paragraph (c), shaíí be attached to the return for the fírst ta abíe
year to whích the eíectíon appííes.
(2) In the event that a ta payer does not make an eíectíon under
paragraph (a) or subparagraph (1) of thís paragraph, he may, at a
íater date, eíect the benefíts of the provísíons of sectíon 62 oníy íf he
obtaíns the consent of the Commíssíoner. In such a case, a wrítten re-
quest for consent shaíí be made to the Commíssíoner not íater than 90
days after the begínníng of the fírst ta abíe year for whích the eíectíon
ís appíícabíe or 90 days after the date of promuígatíon of the reguía-
tíons under sectíon 62, whíchever ís íater. Such request shaíí contaín
the ínformatíon set forth ín paragraph (c).
(c) Informatíon requíred. € ” The statement or request fííed under
paragraph (a) or (b) of thís sectíon shaíí set forth the foííowíng:
(1) The name and descríptíon of each trade or busíness to
whích the eíectíon ís to appíy
(2) decíaratíon that the eíectíon ís íntended to appíy to aíí
estímated e penses of the trade or busíness
(3) The method of accountíng used by the ta payer ín such
trade or busíness
( ) descríptíon of each type of estímated e penses of such
trade or busíness
(5) Whether a prevíous eíectíon under the provísíons of sectíon
62 has been made for such trade or busíness and, íf so, for what
ta abíe years such eíectíon was ín effect: and
(6) The name and descríptíon of each trade or busíness, íf any,
to whích the eíectíon does not appíy.
Sec. 1. 62-5. stímated pense Defíned € ” (a) Generaí ruíe. € ”
or purposes of sectíon 62(a) (whích provídes that there shaíí be
taken ínto account ín the díscretíon of the Secretary or hís deíegate a
reasonabíe addítíon to each reserve for estímated e penses to whích
sectíon 62 appííes), the term estímated e pense means a deductíon
whích:
(1) Is aííowabíe ín commutíng ta abíe íncome
(2) Is attríbutabíe to íncome of the ta abíe year or of príor
ta abíe years for whích an eíectíon under sectíon 62 ís ín effect
( ) In the opíníon of the Commíssíoner can be estímated wíth
reasonabíe accuracy and
( ) Is a deductíon, a part or aíí of whích wouíd be requíred
e cept for sectíon 62, to be taken ínto account for a subsequent
ta abíe year.
(b) ceptíons. € ” The term estímated e pense does not íncíude
any deductíon whích ís:
(1) ttríbutabíe to íncome taken ínto account ín computíng
ta abíe íncome for ta abíe years precedíng the fírst ta abíe year
for whích the eíectíon ís made
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65 52.
(2) ttríbutabíe to íncome deferred as of the cíose of the ta -
abíe year under sectíon 52 or
(3) ííowabíe under sectíon 166 reíatíng to bad debts.
(c) Ruíes for appíícatíon of paragraphs (a) and (b). € ” (1) stí-
mated e penses are those whích are attríbutabíe to a transactíon or
undertakíng ín the ta abíe year or a príor ta abíe year under whích:
(í) Income ís reaíízed whích ís íncíudíbíe ín íncome for the
ta abíe year or a príor ta abíe year and
(íí) The ta payer ís under a ííabíííty to perform servíce, fur-
nísh goods, suppíy property, or assume obíígatíons, whích neces-
sítate the makíng or e pendítures by the ta payer duríng a subse-
quent ta abíe year.
(-2) penses attríbutabíe to íncome of future years are not e -
penses for whích an addítíon to a reserve under sectíon 62 ís aííow-
abíe. n e pendíture to be made ín a year subsequent to the ta abíe
year ís not attríbutabíe to the íncome of the ta abíe year or príor ta -
abíe years mereíy because ít ís íncurred ín order to restore operatíng
or productíve capacíty whích has been dímíníshed by operatíons ín the
ta abíe year or príor ta abíe years.
(3) The foííowíng e ampíes íííustrate the appíícatíon of para-
graphs (a) and (b) : If the ta payer, as an íncentíve or índucement
to empíoyment, offers vacatíons for faíthfuí servíce, amounts to be
e pended for such purpose may be estímated e penses wíthín the
meaníng of sectíon 62. Líkewíse, íf the ta payer, ín order to pro-
mote saíes or to encourage prompt payment for artícíes soíd, agrees
to keep the product soíd ín repaír for subsequent years or offers cash
díscounts, amounts set asíde for these purposes may constítute estí-
mated e penses. owever, that term does not íncíude e penses for
maíntenance and repaírs uníess the ta payer ís under a ííabíííty to
make repaírs or íncur maíntenance e penses ín a subsequent ta abíe
year as a condítíon to the reaíízatíon of íncome ín the ta abíe year.
or e ampíe, íf, as a condítíon to obtaíníng machínery under a rentaí
contract, the ta payer ís requíred to make certaín períodíc repaírs ín
subsequent ta abíe years, an addítíon to a reserve to meet the costs
thereof may be estímated e penses wíthín the meaníng of sectíon 62.
urther, the cost of repaírs to deíívery equípment used to fuífííí an
obíígatíon under the ta payer s warranty agreement to keep a product
ín repaír or ín servíce may be treated as an estímated e pense. On the
other hand, estímated costs of repaírs and maíntenance to the ta -
payer s property may not be consídered estímated e penses to whích
the provísíons of sectíon 62 appíy uníess such costs are undertaken
pursuant to a ííabíííty to another person as a condítíon to the reaííza-
tíon of íncome.
( ) Reserves created for generaí undetermíned contíngencíes, for
índefíníte possíbíe future íosses, for e penses and íosses not reasonabíy
reíated to the íncome of the ta abíe year or príor ta abíe years, or for
upenses and íosses that are beíng contested or are ín íítígatíon, can-
not ordínarííy be estímated wíth reasonabíe accuracy and may not be
the basís for addítíons to reserves for estímated e penses. Wíth re-
spect to ítems ínvoívíng reíated reserves, oníy one deductíon agaínst
ta abíe íncome wííí be aííowed. Sectíon 62 does not have the effect
of convertíng ínto deductíbíe e penses amounts whích wouíd not other-
wíse be deductíbíe ín computíng ta abíe íncome for subsequent ta -
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52.) 66
abíe years. The provísíons of sectíon 62 have no appíícatíon wíth
respect to the renegotíatíon or príce redetermínatíon of contracts.
(5) Sectíon C2 ís not appíícabíe to any ítem of deductíon for
whích the Code provídes a specífíc method of reportíng, such as de-
ductíons referred to ín € ”
(í) Sectíon 0 , reíatíng to contríbutíons of an empíoyer to an
empíoyee s trust or annuíty pían and compensatíon under a de-
ferred payment pían,
(íí) Sectíon 61(c), reíatíng to accruaí of reaí property ta es,
(ííí) Sectíon 17 , reíatíng to research and e perímentaí
e pendítures,
(ív) Sectíon 175, reíatíng to soíí and water conservatíon
e pendítures,
(v) Sectíon 615, reíatíng to e píoratíon e pendítures, and
(ví) Sectíon 616, reíatíng to deveíopment e pendítures.
(6) ampíes of e penses whích ordínarííy meet the requírements
of thís sectíon are cash díscounts, product warrantíes, saíes returns
and aííowances, freíght aííowances, quantíty díscounts, vacatíon pay,
and seíf-ínsurance by common carríers for ííabíííty for cargo dam-
ages. ampíes of e penses whích ordínarííy do not meet the re-
uírements of thís sectíon are ínventory ad|ustments, seíf-ínsurance
or íosses of the ta payer s own property, franchíse and other ta es
íevíed for a períod subsequent to the ta abíe year, and fees for pro-
fessíonaí servíces not yet rendered.
Sec. 1. 62-6. Specíaí Ruíe fok Deductíons ttríbutabíe to
Períod efore íectíon. € ” ny deductíon attríbutabíe to íncome taken
ínto account ín computíng ta abíe íncome for ta abíe years precedíng
the fírst ta abíe year for whích the eíectíon ís made shaíí be aííowabíe
ín the same manner, and to the same e tent, as íf sectíon 62 had not
been enacted. or e ampíe, merchandíse returned ín 195 , attríbutabíe
to saíes made ín 1953 (the year príor to the eíectíon), wííí be taken
ínto account ín 195 as returned saíes, even though for 195 the ta -
payer has eíected to deduct a reasonabíe addítíon to reserves for estí-
mated e penses. See e ampíe ín sectíon 1. 62-1 (b) (3).
Sec. 1. 62-7. ampíes. € ” The foííowíng e ampíes íííustrate the
provísíons of the reguíatíons under sectíon 62:
ampíe (1). € ” ta payer who has eíected the benefíts of sectíon
62 seíís aír-condítíoníng uníts whích he guarantees for 1 year. Ta -
payer s e períence índícates that the average cost per unít of fuífííííng
the guarantee ís as foííows:
Materíaí and parts . 8.00
Labor 12.00
Operatíng overhead . 00
Totaí 2 .00
or each unít soíd 2 .00 shaíí be credíted to the reserve account. s
e penses are actuaííy íncurred, the reserve shaíí be charged wíth the
amount f these e penses. In no event wííí a doubíe deductíon be per-
mítted. t the cíose of each ta abíe year the reserve shaíí be ad|usted
to refíect changes ín the actuaí cost e períence of the ta payer.
ampíe (2). € ” caíendar year ta payer who has eíected the bene-
fíts of sectíon G2 estímates from past e períence that 1 percent of aíí
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G7
61.
saíes wííí be returned for credít and that one-haíf of the returns
appíícabíe to any month s saíes wííí be returned duríng that month
and one-haíf duríng the foííowíng month. Gross saíes for the month
of December 195 totaíed 1,000,000. Cost of December s saíes amount
to 700,000. reasonabíe addítíon to a reserve for saíes returns as
of December 31, 1951, ís caícuíated as foííows:
Gross saíes for December 1,000,000
Cost of saíes for December 700, OOO
Gross profít for December 300, ooo
Reasonabíe addítíon (1 of í of 300,000) 1,500
ampíe (-5) . € ” ta payer, engaged ín the busíness of transportíng
property for híre, has eíected the benefíts of sectíon 02 for the ta abíe
year 195 , and has estabííshed a proper reserve for cíaíms for property
damaged whííe ín transít. The reserve for property damage cíaíms
at the begínníng of the ta abíe year 1955 carríes a credít baíance of
15.000. ís e períence shows that 1 percent of hís gross revenues
wííí be paíd out to meet cíaíms for property damaged whííe ín transít.
or the ta abíe year 1955 he has gross revenue of 2,000,000.
íeasonabíe addítíon to thís reserve for the ta abíe year 1955 ís 1
percent of 2,000,000 or 20,000. n anaíysís of the reserve for the
year 1955 ís as foííows:
aíance ín reserve at begínníng of year 15,000
Cíaíms paíd duríng the year 17,000
cess of charges over credíts (2,000)
Current year s addítíon aííowed as deductíon 20,000
aíance at end of yenr 18_ ooo
(Thís Treasury Decísíon ís íssued under the authoríty contaíned ín
sees. 6, 52, 62 and 7805 of the Internaí Revenue Code of 195 (G8
Stat. 151,152, 158, 917 26 U. S. C. 0, 52, 02 and 7805).)
T. Coíeman ndrews,
Commíssíoner of Internaí Revenue.
pproved une 8, 1955.
G. M. umphrey,
Secretary of the Treasury.
( ííed wíth the Dívísíon of the ederaí Regíster une 9, 1055, 12:30 p. ín.)
SU P RT C € ” T L Y R O W IC D DUCTIONS T N
S CTION 61. € ” G N R L RUL OR T L Y R O
D DUCTION
( íso Sectíon 16 .) Rev. Ruí. 55-152
( íso Part II, Sectíons 23(c), 3 Reguía-
tíons 118, Sectíons 39.23 (c)-í, 39. 3-2.)
ffectíve for 195 and subsequent years, reaí property ta es ím-
posed by the State of Ohío accrue, for ederaí íncome ta purposes,
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61. 68
on the fírst day of anuary, annuaííy. See sectíon 5719.01 of Page s
Ohío Revísed Code, nnotated, 195 edítíon, effectíve October 13,
1953. G. C. M. 8218, C. . I -2. 106 (1930) -whích hoíds, ín part,
that reaí property ta es ímposed by the State of Ohío, shaíí accrue
as of the day precedíng the second Monday of príí, ís modífíed ac-
cordíngíy wíth respect to 195 and subsequent years. urther, as a
resuít of the change ín the ííen date of Ohío reaí property ta es, an
accruaí basís ta payer, on a físcaí year basís whích íncíudes príí
12, 1953, as weíí as anuary 1, 195 , wííí have two accruaí dates of
reaí property ta es for such físcaí year. Compare I. T. 0 3, G. .
1951-1, 22.
Rev. uí. 55-369
Irrespectíve of the ta abíe year (or years) ín whích retroactíve
íncreases ín maíí pay are fírst íncíudíbíe ín the gross íncome of a
ta payer, no deductíon ís accruabíe wíth respect to amounts of such
pay whích are potentíaííy refundabíe by the ta payer to the Post
Offíce Department resuítíng from a proposed downward ad|ustment
of the retroactíve íncreases, untíí the ta abíe year ín whích the Cívíí
eronautícs oard íssues an order whích estabííshes íts fínaí decísíon
as to the amount, íf any, of such downward ad|ustment. or such
purposes, an order by the Cívíí eronautícs oard does not constítute
íts fínaí decísíon as íong as the order ís the sub|ect of a bona fíde
contest. Compare Rev. Ruí. 1C9, C. . 1953-2,139.
( íso Part II, Sectíon 3 Reguíatíons 118, Rev. Ruí. 55- 26
Sectíon 39. 3-2.)
It was announced ín Internaí Revenue uííetín 1955-6, 6, that
Revenue Ruííng 5 -608, C. . 195 -2, 8 (reíatíng to the accruaí of
vacatíon pay), was amended so that the ruííng wouíd be appííed
oníy to ta abíe years endíng on or after une 30,1955. The Revenue
Ruííng was amended to afford ta payers tíme to consíder íts effect,
partícuíaríy for determíníng whether to eíect to estabíísh reserves
for estímated e penses under sectíon 02 of the Internaí Revenue
Code of 195 . On une 15, 1955, sectíon 62 was repeaíed by Pubííc
Law 7 (8 th Cong.), for aíí ta abíe years to whích the 195 Code
appííes. In order to afford ta payers a reasonabíe tíme to consíder
the effect of the repeaí, partícuíaríy for determíníng whether the
accruaí of vacatíon pay wííí be aííowabíe under Revenue Ruííng 5 -
608, supra, such ruííng wííí be appííed oníy to ta abíe years endíng
after December 31, 1955.
ccordíngíy, the íast paragraph of Revenue Ruííng 5 -608, supra,
ís hereby amended and as amended wííí read as foííows:
I. T. 3956, supra, ís hereby revoked, and G. C. M. 25261, supra, ís modífíed to
the e tent that ít ís ínconsístent wíth the víews e pressed hereín. owever,
under the authoríty of sectíons 3791(b) of the 1939 Code and 7805(b) of the
195 Code, such revocatíon and modífícatíon wííí not be appíícabíe wíth respect
to ta abíe years endíng príor to anuary 1, 1956.
€ Thís date has been e tended to uíy 1, 1950. See nnouncement, I. . . 1035-52, p. 9.
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I 72.
S CTION 62. € ” R S R S OR STIM T D
P NS S, TC.
26 C R 1. 62-1: Reserves for estímated
e penses.
Reguíatíons under the Internaí Revenue Code of 195 . See T. D.
613 , page 12.
SU P RT D. € ” IN NTORI S
S CTION 71. € ” G N R L RUL OR IN NTORI S
( í o Part IT, Sectíon 22 (c) Reguíatíons 118, Rev. Ruí. 55-285
Sectíon 39.22(c)-2.)
In determíníng gross íncome, for ederaí íncome ta purposes, the
use of ínventoríes refíectíng the vaíue at retaíí of merchandíse on hand
at the begínníng and end of a ta abíe year ís not permítted. Such
method ís not a recognízed method of ínventory vaíuatíon eíther ac-
cordíng to best accountíng practíce under sectíon 71 of the Internaí
Revenue Code of 195 , or sectíon 22(c) of the Internaí Revenue Code
of 1939 and the reguíatíons promuígated under such 1939 Code
provísíon. € í € . , € – , í
The ínventory method referred to hereín ís not the same as the
uretaíí method descríbed ín sectíon 39.22(c)-8 of Reguíatíons 118
whích ís a recognízed method of appro ímatíng cost of ínventory íf
properíy adopted and consístentíy used ín determíníng gross íncome.
S CTION 72. € ” L ST-IN, IRST-OUT IN NTORI S
Rev. Ruí. 55-309
Príce índe es for anuary 1955, pubííshed by the ureau of Labor
Statístícs on March 8, 1055, for use by department stores empíoy-
íng the retaíí ínventory and the íast-ín, fírst-out ínventory methods.
The foííowíng príce índe es for anuary 1955, pubííshed by the
ureau of Labor Statístícs on March 8, 1955, for use by department
stores empíoyíng the retaíí ínventory and íast-ín, fírst-out ínventory
methods are accepted by the Internaí Revenue Servíce pursuant to
Treasury Decísíon 5605, C. . 19 8-1, 16, and Mímeograph 62 ,
C. . 1918 € ” 1, 21, for appropríate appíícatíon to ínventoríes for ta -
abíe vears of 12 months ended December oí, 19C and anuary 31,
1955. .
Inde es are gíven on a natíonaí basís for the store totaí, for 20 ma|or
groups of departments, and for two specíaí group combínatíons.
The store totaí íncíudes aíí departments ín the store, both those íísted
ín the groups and those not specífícaííy íísted, e cept for candy, foods,
ííquor, tobacco, and paínts and waíí paper. Contract departments
are aíso e cíuded.
ffectíve -wíth the uíy 195 Department Store Inventory 1 ríce
Inde es the revísíon program whích began ín 1952 was compíeted.
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72,
70
The fínaí change, that of the necessary ad|ustments ín the depart-
mentaí groupíngs to make them conform wíth the new departmentaí-
ízatíon pían of the Controííers Congress of the Natíonaí Retaíí Dry-
Goods ssocíatíon, was íncorporated ínto the uíy 195 índe es.
These ad|ustments were mínor and had practícaííy no effect on índe
for the 20 departments.
The Controííers Congress of the Natíonaí Dry Goods ssocíatíon
has revísed íts system of numberíng the departments ín íts Manuaí
of Departmentaí Merchandíse Content for Departmentízed Stores.
or ta payers empíoyíng the new numberíng system, tabíe II shows
the department or departments to whích each of the 20 group índe es
ís appíícabíe:
Tabíe I. € ” ureau of Labor Statístícs, department store ínvert ory príce índe es,
by department groups
anuary 1M1-100I
Department groups
an. 105
an 1955
Percent
chance from
anuary 195
to anuary
UN
I. Píece goods
II. Domestícs and draperíes
III. Women s and chíídren s shoes
I . Men s and boys shoes
. Infants wenr
I. Women s underwear
II. Women s and gírís hosíery
III. Women s and gírís accessoríes
I . Women s outerwear and gírís wear
. Men s cíothíng
I. Men s furníshíngs
II. oys cíothíng and furníshíngs
III. eweírv
I . Notíons -
. Toííet artícíes and drugs
I. urníture and beddíng
II. íoor coveríng
III. ousewares
I . Ma|or appííances
. adíus and teíevísíon sets
Totaí. Groups I-
Totaí, Groups I-
Store totaí
a .1
197.0
213.3
213. 1
170.2
172.5
173.7
170.1
ISO. 1
an.
201.3
203.2
16 .3
161.7
16 .0
211.
192.9
197.7
15 .3
157.0
I S. S
190.6
189.2
am. 7
189.6
215.3
213.0
1711.3
171.6
168.1
172.
177.7
aí. 3
197.9
USL 7
163. 6
158.7
166. 1
aí7.7
188.9
198 1
1 8.
1 2.
186.9
186.8
186.8
€ ” 1.7
€ ” 3.8
0.9
0
0.1
€ ” O.S
€ ” 3.2
1.
€ ” 1.3
0.
€ ” 1.7
€ ” 1.7
€ ” 0.
€ ” 1.9
1.3
€ ” 1.8
€ ” 2.1
0.2
€ ” 3.8
€ ” 9.3
€ ” 1.0
€ ” 2.0
€ ” 1.3
Tabíe II. € ” Revísed codíng of Controííers Congress Departments
Revísed Department Groups Revísed Controííers Congress Department
No.
No.
Name
I. Píece goods
II. Domestícs and draperíes
III. Women s and chíídren s shoes
I . Men s and boys shoes
. Infants wear
I. Women s underwear
II. Women s and gírís hosíery
III. Women s and gírís accessoríes
11-00 Píece goods
15-00 ousehoíd te tííes
6 € ” 11 Curtaíns, draperíes and decora-
tor fabrícs
39-00 Women s and chíídren s shoes
63-00 Men s and boys shoes
-12 Infants appareí and furníture
36-00 Corsets and brassíeres
38-00 Underwear and negíígees
37-00 Women s and chíídren s hosíery
32-00 Neckwear and accessoríes
33-00 andbags and smaíí íeathers
35-00 Women s and chíídren s gíovca
and míttens
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11501.
Tabíe II. € ” Revísed codíng of Controííers Congress Departments € ” Contínued
tt ífft Department Groups Revísed Controííers Congress Department
No.
Name
N o.
Name
I . Women s outerwear and gírís
wear
. Men s cíothíng
I. Men s furníshíngs
II. ovs cíothíng and furníshíng
III. eweíry and sííverware
I Notíons
. Toííet artícíes and drugs
I. urníture and beddíng
II. íoor coveríng
III. ousewares
I . Ma|or appííances
. Radío and teíevísíon seta
I. No separate índe computed
3 -00 Míííínery
1-00 Coats and suíts, women s, mísses
and |uníors
2-00 Dresses, women s, mísses and
íuníors
5-00 Rousedresses, aprons, and uníforms
3-00 íouses and sportswear
6-00 urs
-11 Gírís and teen age appareí
61-11 Men s cíothíng
or
51-1 Men s cíothíng
and
51-26 Men s sport cíothíng
51-12 Men s furníshíngs
or
51-15 Men s furníshíngs
and
51-27 Men s casuaí furníshíngs
52-00 oys cíothíng and furníshíngs
2 -00 ewíery and sííverware
12-00 Patterns
21-00 Notíons, íaces, trímmíngs and
ríbbons
25-00 rt needíework
31-00 Umbreíías
22-00 Toííet artícíes and drug sundríes
61-00 urníture and beds
62-00 Oríentaí rugs
63-00 Domestíc fíoor coveríng
65-00 Chína, gíassware and gíft shop
66-21 ousewares
67-00 Píctures, frames and mírrors
6 -12 Lamps and shades
66-12 Ma|or appííances
68-00 Radío, teíevísíon and records
69-00 Píanos and musícaí ínstruments
20-00 ooks and statíonery
66-22 Waíí paper and paínt
71-00 íower shop
72-00 utomobííe accessoríes
73-00 Pet accessoríes and pet shop
7 -00 Toys, sportíng goods and cameras
75-00 Luggage
76-00 Candy
77-00 oods and groceríes
78-00 resh and smoked meats
79-00 Líquor shop
81-00 Smoke shop
SU C PT R . € ” MPT ORG NIZ TIONS
P RT I. € ” G N R L RUL
S CTION 501. € ” MPTION ROM T ON CORPOR -
TIONS, C RT IN TRUSTS, TC.
Rev. Ruí. 55-230
n assocíatíon was organízed to guard the puríty of the breed of
Weísh poníes to promote ínterest thereín and to estabíísh, maíntaín,
36 050 € ” 56 6
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501. 72
and pubíísh authorítatíve records, regísters, and transfers of owner-
shíp of that breed. Its actívítíes consíst of regísteríng and maín-
taíníng records of pure bred Weísh poníes, recordíng transfers of
ownershíp, and pubííshíng ííterature descríbíng the Weísh pony for the
benefít of íts members or others ínterested ín ímprovíng or raísíng
the breed. Membershíp ín the assocíatíon ís open to any person, fírm
or corporatíon ínterested ín ímprovíng or raísíng pure bred Weísh
poníes. Its receípts are deríved from membershíp fees, regístratíons
and transfers. pendítures are for operatíng e penses and for
premíums for assocíatíon-sponsored cíasses at a State faír. No part
of the net íncome ínures to the benefít of any member. Persons en-
gaged ín raísíng Weísh poníes are consídered íívestock producers
engaged ín agrícuíturaí pursuíts. eíd, the assocíatíon ís entítíed to
e emptíon from ederaí íncome ta under the provísíons of sectíon
501(c)(5) of the Internaí Revenue Code of 195 as an agrícuíturaí
organízatíon.
Rev. Ruí. 55-231
The M organízatíon was íncorporated for the purpose of (1) mak-
íng known to the woríd the contents and meaníng of certaín books
wrítten by a desígnated author who was aíso one of the íncorporators
of the organízatíon and (2) acquíríng property necessary to the opera-
tíon and maíntenance of centers, readíng rooms, íecture haíís and
camps ín furtherance of the díssemínatíon of such wrítíngs. The prín-
cípaí actívíty consísts of purchasíng books of the desígnated author
and dístríbutíng them to ííbraríes, educatíonaí ínstítutíons and the
pubííc. pendítures are made príncípaííy for the purchase of books
wrítten by the desígnated author. eíd, that an organízatíon whose
prímary purpose ís to promote the círcuíatíon of books of one of íts
íncorporators and whose actívítíes consíst of purchasíng such works
and makíng them avaííabíe for pubííc use, ís not organízed and oper-
ated e cíusíveíy for educatíonaí purposes wíthín the meaníng of sec-
tíon 501(c) (3) of the Internaí Revenue Code of 195 or for any of
the other purposes províded thereín.
( íso Part II, Sectíon 101 (8) Reguíatíons Rev. Ruí. 55-311
118, Sectíon 39.101(8)-1.)
íocaí assocíatíon of empíoyees, the membershíp of whích ís íímíted
to empíoyees of the M corporatíon, operates a bus for the conveníence
of íts members. The íncome of the assocíatíon ís deríved from bus
fares and ís used to pay for the operatíon of the bus. The bus ís
operated prímarííy for the benefít of the members. No part of the
assocíatíon s earníngs ís devoted to charítabíe, educatíonaí, or recre-
atíonaí purposes. eíd, the assocíatíon does not quaíífy for e emp-
tíon from ederaí íncome ta as a íocaí assocíatíon of empíoyees under
the provísíons of sectíon 501(c) ( ) of the Internaí Revenue Code of
195 , whích provísíon of íaw corresponds to sectíon 101(8) of the
Code of 19o0. There ís no other subsectíon of sectíon 501(c) of the
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73 613.
135 Code, or of sectíon 101 of the 1939 Code, under whích the asso-
cíatíon may quaíífy for e emptíon.
Rev. uí. 55- 06
The M organízatíon was íncorporated as a nonprofít corporatíon
for the purposes of receívíng and ínvestíng funds and property and
for dístríbutíng voíuntarííy and gratuítousíy saíd funds and property,
together wíth the íncome therefrom, soíeíy to, or for the benefít of,
dependent wídows and chíídren of poíícemen or fíremen who íose
theír ííves ín the ííne of duty. The seíectíon of recípíents and the
amounts dístríbutabíe to them are determíned ín the absoíute dís-
cretíon of Ms board of dírectors. The organízatíon s sources of
fnnds and property are deríved from membershíp dues, contríbutíons,
and íncome from ínvestments. cept for dísbursements for neces-
sary admínístratíve e penses, such funds and property are e pended
soíeíy for the purposes enumerated above. No part of the funds or
property shaíí ínure to or for the benefít of any member of M. In
the event of díssoíutíon, the funds and property shaíí be dístríbuted
to the Cíty of N. eíd, the M organízatíon quaíífíes for e emptíon
from ederaí íncome ta as a charítabíe organízatíon under the pro-
vísíons of sectíon 501 (c) (3) of the Internaí Revenue Code of 195 .
State ínstrumentaííty whích quaíífíes for e emptíon under sectíon
Mí(c)(3) of the Internaí Revenue Code. See Rev. Ruí. 55-319,
page 119.
SU C PT R I.-N TUR L R SOURC S
P RT I. € ” D DUCTIONS
S CTION Gíí. € ” LLOW NC O D DUCTION OR
D PL TION
The decísíon ín the case of Uníted States v. Cherokee ríck Tííe
Company, 218 ed. (2d) 2 , does not affect the posítíon of the Serv-
íce wíth respect to ordínary treatment processes ín the case of bríck and
tííe cíay as set forth ín Revenue Ruííng 5 -109, C. . 195 -1, 62. See
e .Ruí. 55-2 , beíow.
S CTION 613. € ” P RC NT G D PL TION
( íso Sectíon 611.) Rev. Ruí. 55-2
( íso Part II, Sectíons 23(m), 11 Reguía-
tíons 118, Sectíons 39.23(m)-í, 39.11 -1.)
Wíth respect to the manufacture of bríck and tííe from bríck
and tííe cíay, ordínary treatment processes as set forth ín sectíon
11 (b) ( ) ( ) of the Internaí Revenue Code of 1030 (sec. 013(e)
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613. 7
of the Internaí Revenue Code of 105 ) do not Incíude transformíng
the cíay ínto bríck or tííe by moídíng machíne, by burníng the uníts
ín kííns, and by íoadíng the burnt bríck and tííe for shípment. The
fact that the Government díd not appíy for certíorarí ín the case of
Uníted Síates v. Cherokee ríek Tííe Company. 218 ed. (2d) 2 ,
ín no way represents an acceptance of the decísíon by the Internaí
Revenue Servíce.
dvíce has been requested whether the decísíon of the Uníted States
Court of ppeaís for the ífth Círcuít ín the case of Uníted States v.
Cherokee ríck Tííe Company, 218 ed. (2d) 2 wííí affect the
posítíon of the Internaí Revenue Servíce as set forth ín Revenue Ruííng
5 -109, C. . 195 -1, G2, as to the ordínary treatment processes wíth
respect to the manufacture of bríck and tííe from bríck and tííe cíay
whích are to be íncíuded wíthín the meaníng of sectíon 11 (b) ( ) ( )
of the Internaí Revenue Code of 1939 and sectíon 013(c) of the In-
ternaí Revenue Code of 195 .
In the Cherokee ríck Tííe Company case, affírmíng the decísíon
of the court beíow, the Court of ppeaís heíd that ordínary treatment
process normaííy appííed to cíay, ín order to obtaín the fírst com-
mercíaííy marketabíe míneraí product, íncíude transformíng the cíay
ínto bríck or tííe by moídíng machíne, by burníng the uníts ín kííns,
and by íoadíng the burnt bríck and tííe for shípment.
In Revenue Ruííng 5 -109, supra, the Internaí Revenue Servíce con-
sídered the processes ínvoíved ín the manufacture of bríck and tííe
and kíndred products from shaíe and bríck and tííe cíay. It was spe-
cífícaííy heíd that processes such as transformíng cíay ínto bríck by
e trusíon or moídíng machíne, burníng uníts ín kííns and íoadíng for
shípment or storage were not ordínary treatment processes as that
phrase ís used ín sectíon 11 (b)( )( ) of the 1939 Code (sectíon
613(G) ( ) of the 195 Code) to defíne the term míníng .
Sectíon 613(b) (5) ( ) of the 195 Code, sectíon 11 (b) ( ) ( ) of
the 1939 Code) permíts a percentage depíetíon aííowance for mínes
and naturaí deposíts of bríck and tííe cíay but not of bríck and tííe
as such. The fact that a partícuíar ta payer does not seíí the cíay tc
others for bríck but seíís oníy the compíeteíy manufactured bríck
cannot transform manufacturíng processes ínto ordínary treatment
processes.
ccordíngíy, the Revenue Servíce wííí adhere to the posítíon set
forth ín Revenue Ruííng 5 -109 as to the processes properíy íncíudíbíe
ín the term ordínary treatment processes wíth respect to the manu-
facture of bríck and tííe from bríck and tííe cíay for percentage depíe-
tíon purposes.
The fact that the Government díd not appíy for certíorarí ín the
Cherokee ríck Tííe Company case does not represent an acceptance
of the decísíon by the Internaí Revenue Servíce. See aíso Revenue
Ruííng 55-78, page 357, thís uííetín, whereín ít ís heíd that furnacíng
or heatíng ín rotary kííns, removaí from the kííns and cooííng, crushíng
and screeníng and íoadíng for shípment, are not íncíudíbíe ín the
ordínary treatment processes appíícabíe to the manufacture of ííght-
weíght aggregate from shaíe and síate.
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75 691.
SU C PT R . € ” ST T S, TRUSTS, N ICI RI S, ND
D C D NTS
P RT 1. € ” ST T S, TRUSTS. ND N ICI RI S
SU P RT C € ” ST T S ND TRUSTS W IC M Y CCUMUL T INCOM O
– W IC DISTRI UT CORPUS
S CTION 661. € ” D DUCTION OR ST T S ND TRUSTS
CCUMUL TING INCOM OR DISTRI UTING CORPUS
( íso Sectíon 662.) Rev. Ruí. 55-286
( íso Part II, Sectíon 162 Reguíatíons 118,
Sectíon 39.162-1.)
Under the terms of an írrevocabíe trust agreement, the trustee ís
requíred to set asíde a certaín portíon of the net íncome of the trust
ín a separate fund and ís authorízed to províde and maíntaín out of
the fund annuítíes and/or gífts for the use and benefít of such persons
empíoyed by or connected wíth the grantor s busíness as the trustee
ín hís uncontroííed díscretíon may determíne and desígnate as deserv-
íng of the same. eíd, payments made out of the fund are deductíbíe
under sectíon 661(a) (2) of the Internaí Revenue Code of 195 (sectíon
162(c) of the Internaí Revenue Code of 1939) ín computíng the ta abíe
íncome of the trust sub|ect to the íímítatíon that the amount so deductí-
bíe when added to amounts otherwíse deductíbíe under sectíon 661(a)
(1) and (2) of the Internaí Revenue Code of 195 (sectíons 162 (b)
índ (c) of the 1939 Code) cannot e ceed the dístríbutabíe net íncome
of the trust. urther, the amounts so deducted by the trust shaíí be
íncíuded ín the gross íncome of the recípíents to the e tent províded
ín sectíon 662 of the Internaí Revenue Code of 195 (sectíon 162 (b)
and(c) of the 1939 Code).
S CTION 662. € ” INCLUSION O MOUNTS IN GROSS IN-
COM O N ICI RI S O ST T S ND TRUSTS
CCUMUL TING INCOM OR DISTRI UTING CORPUS
Payments made out of a fund whích has been set asíde out of the
net íncome of an írrevocabíe trust. See Rev. Ruí. 55-286, above.
P RT II. € ” INCOM IN R SP CT O D C D NTS
S CTION 691. € ” R CIPI NTS O INCOM IN R SP CT
O D C D NTS
Rev. Ruí. 55-229
íump sum payment to a ederaí Government empíoyee upon
separatíon from the servíce for accumuíated or accrued annuaí íeave
represents saíary or compensatíon for servíces rendered and ís ín-
cíudíbíe ín gross íncome for ederaí íncome ta purposes. See I. T.
30C9, C. . 19 9-2, 13. The death of such an empíoyee and the
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871. 76
receípt by hís wídow or other benefícíary of such íump sum íeave
payment does not change íts nature and ídentíty. See the ct of
ugust 3, 1950, 6 Stat. 395, 5 U. S. C. 61f, 61g. Therefore, where
such íncome ís not properíy íncíudíbíe ín the gross íncome of the
decedent for the ta abíe períod ín whích faíís the date of the decedent s
death and the ríght to receíve the amount due ís acquíred by the wídow
or other benefícíary, or by the decedent s estate the íump sum payment
ís íncíudíbíe ín the gross íncome of the recípíent ín the ta abíe year
receíved, under the provísíons of sectíon 091(a) of the Internaí
Revenue Code of 195 .
SU C PT R . € ” P RTN RS ND P RTN RS IPS
P RT I. € ” D T RMIN TION O T LI ILITY
S CTION 706. € ” T L Y RS O P RTN R ND
P RTN RS IP
Procedure to be foííowed wíth respect to changes by partnershíps
and partners ín the cases of ta abíe years begínníng after príí 1,
195 , pendíng íssuance of reguíatíons under the Internaí Revenue
Code of 195 . See Rev. Ruí. 55-10, page 7.
SU C PT R L. € ” INSUR NC COMP NI S
P RT II. € ” MUTU L INSUR NC COMP NI S (OT R T N LI OR M RIN OR
IR INSUR NC COMP NI S ISSUING P RP TU L POLICI S)
S CTION 822. € ” D T RMIN TION O MUTU L INSUR-
NC COMP NY T L INCOM
Rev. Ruí. 55-270
Capítaí íoss deductíons taken by mutuaí ínsurance companíes to
meet abnormaí ínsurance íosses, províded by sectíon 822(c) (6) of the
Internaí Revenue Code of 195 , must be computed on the basís of
actuaí íosses paíd reduced by actuaí (rather than e pected) reínsur-
ance recoveríes receíved ín the ta abíe year.
SU C PT R N. € ” T S D ON INCOM ROM SOURC S WIT IN
OR WIT OUT T UNIT D ST T S
P RT II. € ” NONR SID NT LI NS ND OR IGN CORPOR TIONS
SU P RT . € ” NONR SID NT LI N INDI IDU LS
S CTION 871. € ” T ON NONR SID NT LI N
INDI IDU LS
Request by a Uníted íngdom bank for data appeaííng on the Cor-
poratíon Income Ta Return, orm 1120, fííed by a domestíc corpo-
ratíon. See Rev. Ruí. 55-9, page G75.
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77 881.
S CTION 872. € ” GROSS INCOM : CLUSIONS
( íso Sectíon 883.) ev. Ruí. 55- 07
( íso Part II, Sectíons 212, 231 Reguíatíons
118, Sectíons 39.212-2,39.231-3.)
The recíprocaí e emptíon requírements of sectíons 872(b) and 883
of the Internaí Revenue Code of 195 (sectíons 212(b) and 231(d)
of the Internaí Revenue Code of 1939) are not satísfíed by enezueía
sínce that country now íías an íncome ta íaw ín effect whích provídes
for the ímposítíon of n ta on transportatíon companíes but does not
grant an e emptíon to cítízens of the Uníted States nonresídent ín
that country or to corporatíons organízed ín the Uníted States.
Mímeograph 1 8, C. . III-1, 87 (193 ), whích hoíds that
enezueía satísfíed the equívaíent e emptíon requírements of sectíon
212(b) and 231(b) of the Revenue ct of 1932, sínce at that tíme
enezueía ímposed no íncome ta , ís hereby modífíed to the e tent
that ít ís ínconsístent wíth the víews e pressed hereín.
SU P RT . € ” OR IGN CORPOR TIONS
S CTION 881. € ” T ON OR IGN CORPOR TIONS NOT
NG G D IN USIN SS IN UNIT D ST T S
I íso Sectíon 882.) Rev. Ruí. 55-182
( íso Part II, Sectíon 231
Reguíatíons 118, Sectíon 39.231-1.)
Canadían mutuaí ínvestment company, composed substantíaííy
of stockhoíders who are resídents of the Uníted States, operates as
an open-end management ínvestment company. It ís restrícted to
ínvestments whích deríve no íncome from sources wíthín the Uníted
States. It maíntaíns no offíce ín the Uníted Stntes and Its trans-
actíons ín the Uníted Staíes are effected oníy through a resídent
broker, commíssíon agent or custodían. eíd, such mutuaí ínvest-
ment company constítutes a foreígn corporatíon not engaged ín trade
or busíness wíthín the Uníted States, ta abíe under the provísíons
of sectíon 881(a) of the Internaí Revenue Code of 195 oníy on
amounts receíved from sources wíthín the Uníted States.
dvíce has been requested regardíng the ta abíííty of a Canadían
martíaí ínvestment company whích was formed under the Companíes
ct of Canada and has e|ected to quaíífy as a nonresídent owned
ínvestment corporatíon, pursuant to sectíon 63( ) of the Canadían
Income Ta ct. In order to retaín such cíassífícatíon, a mínímum
of 95 percent of íts outstandíng stock must at aíí tímes be heíd by
stockhoíders other than Canadían resídents.
The offer and saíe of the ínvestment company s shares to resídents
of the Uníted States was made pursuant to the ruíes of the Securítíes
and change Commíssíon and the company ís sub|ect to the ap-
píícabíe provísíons of the Investment Company ct of 19 0.
The company does not deaí ín íts own stock, ít does not have an offíce
ín the Uníted States and íts shares are íssued to ínvestors eíther
ía) through íts offícers or empíoyees at íts offíce ín Canada or (b)
throuch underwríters and deaíers ín the Uníted States and ngíand.
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5 881. 78
The common shares íssued are, at the optíon of the hoíder, sub|ect to
repurchase for canceííatíon by the company at a príce based on net
asset vaíue at the tíme of repurchase. The shares of common stock
repurchased are canceíed and retíred and are not to be reíssued or
resoíd by the company. In accordance wíth the provísíons of the
Companíes ct of Canada the company wííí notífy the Secretary of
State of Canada, períodícaííy, of the repurchase for canceííatíon of
íts common shares and íts authorízed capítaí wííí be reduced to refíect
the repurchase and canceííatíon of the shares sub|ect to confírmatíon
by the Canadían Secretary of State.
The company ís a mutuaí ínvestment company and íts ínvestment
portfoíío ís restrícted at aíí tímes to securítíes of Canadían corpora-
tíons, Canadían Government províncíaí and munícípaí obíígatíons,
Canadían ínvestments generaííy and securítíes of corporatíons whích
deríve no íncome from sources wíthín the Uníted States. Purchases
and saíes of íts portfoíío securítíes made ín Canada or other foreígn
countríes are made ín the estabííshed Canadían or other foreígn
markets. Purchases and saíes of íts portfoíío securítíes whích are
made wíthín the Uníted States are, ín aíí cases, effected through an
índependent broker, commíssíon agent or custodían. Its íncome ís
deríved soíeíy from ínterest and dívídends and from gaíns from the
dísposítíon of securítíes and other ínvestments ín íts ínvestment port-
foíío.
The offíces of the company are maíntaíned ín Canada where aíí
ma|or decísíons wíth respect to íts poíícíes are made. íí reguíar
meetíngs of the board of dírectors ana of the stockhoíders are heíd ín
Canada. n occasíonaí specíaí meetíng of the board of dírectors may
be heíd wíthín the Uníted States ín order to accommodate those dírec-
tors who are Uníted States cítízens and resídents.
Sectíon 881 of the Internaí Revenue Code of 195 provídes that a
foreígn corporatíon not engaged ín trade or busíness wíthín the Uníted
States ís sub|ect to ederaí íncome ta oníy wíth respect to fí ed or
determínabíe annuaí or períodícaí íncome from sources wíthín the
Uníted States as determíned under sectíon 861 of the Code. See sec-
tíon 231 of the Internaí Revenue Code of 1939 and sectíon 39.231-1 (b)
of Reguíatíons 118. Ta abíe íncome does not íncíude profíts deríved
from the effectíng of transactíons ín the Uníted States ín stocks, secu-
rítíes, or commodítíes through a resídent broker, commíssíon agent, or
custodían or profíts deríved from the saíe wíthín the Uníted States of
personaí property or reaí property íocated thereín. Sectíon 39.231-
2(c) of Reguíatíons 118 (appíícabíe under the Code of 195 by vírtue
of T. D. 6091, C. . 195 -2, 7) states that a foreígn corporatíon
whích effects transactíons ín the Uníted States ín stocks, securítíes, or
commodítíes (íncíudíng hedgíng transactíons) through a resídent
broker, commíssíon agent, or custodían ís not mereíy by reason of
such transactíons consídered as beíng engaged ín trade or busíness
wíthín the Uníted States whích wouíd cause ít to be cíassed as a resí-
dent foreígn corporatíon.
In the case of The Scottísh merícan Investment Co., Ltd., v. Com-
míssíoner, 12 T. C. 9, ít ís heíd that a foreígn ínvestment corporatíon
whích made aíí decísíons as to purchase and saíe of securítíes and
ínvestment poíícíes ín the home offíce ín Scotíand, handíed aíí transac-
tíons ín securítíes dírectíy by the home offíce through resídent brokers,
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79 ( 9oí.
and maíntaíned an offíce ín the Uníted States oníy for the purpose of
maíntaíníng records, coííectíng dívídends, fíííng reports to the home
offíce, and otherwíse performíng cíerícaí and routíne servíces for the
home offíce, was not engaged ín busíness wíthín the Uníted States.
In víew of the foregoíng, ít ís heíd that a Canadían mutuaí ínvest-
ment company constítutes a foreígn corporatíon not engaged ín trade
or busíness ín the Uníted States, ta abíe under the provísíons of sec-
tíon 881(a) of the Internaí Revenue Code of 195 oníy on amounts
receíved from sources wíthín the Uníted States.
Thís ruííng has no effect upon any questíon concerníng the ta atíon
of the stockhoíders of the ínvestment company.
S CTION 882. € ” T ON R SID NT
OR IGN CORPOR TIONS
Canadían mutuaí ínvestment company composed substantíaííy of
stockhoíders resídent ín the Uníted States. See Rev. Ruí. 55-182,
page 77.
Determínatíon of whether a Canadían corporatíon has a permanent
estabííshment ín the Uníted States as defíned ín the íncome ta con-
ventíon between the Uníted States and Canada, page 62 of thís uí-
íetín. See Rev. Ruí. 55-282, page 63 .
S CTION 883. € ” CLUSIONS ROM GROSS INCOM
quívaíent e emptíon requírement wíth respect to enezueía. See
Rev. Ruí. 55- 07, page 77.
P RT III. € ” INCOM ROM SOURC S WIT OUT T UNIT D ST T S
SU P RT . € ” OR IGN T CR DIT
S CTION 901. € ” T S O OR IGN COUNTRI S ND O
POSS SSIONS O UNIT D ST T S
Rev. Ruí. 55-383
Indía satísfíes the símííar credít requ rement oí sectíon 001(b) (3)
of the Internaí Revenue Code of 195 .
The Internaí Revenue Servíce has been requested to consíder whether
Indía ís a country whích satísfíes the símííar credít requírements of
sectíon 901(b) (3) of the Internaí Revenue Code of 195 .
Sectíon 901(b) (3) of the Internaí Revenue Code of 195 provídes
for the aííowance of a credít for íncome ta es paíd or accrued duríng
the ta abíe year to any foreígn country by an aííen resídent of the
Uníted States or Puerto Ríco províded the foreígn country of whích
the aííen resídent ís a cítízen or sub|ect, ín ímposíng such ta es, aííows
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911. 80
a símííar credít to cítízens of the Uníted States resídíng ín such
country.
Sectíon 9 D of the Indían Income Ta Law, as submítted to the
Internaí Revenue Servíce for consíderatíon ín thís matter, provídes
as foííows:
(1) If any person who Is resídent ín the ta abíe terrítoríes In any year proves
that, ín respect of hís Income whích accrues or aríses duríng that year wíthout
the ta abíe terrítoríes (and whích ís not deemed to accrue or aríse ín the ta abíe
terrítoríes), he has paíd ín any country, wíth whích there ís no recíprocaí ar-
rangement for reííef or avoídance of doubíe ta atíon, íncome ta , by deductíon
or otherwíse, under the íaw ín force ín that country, he shaíí be entítíed to the
deductíon from the Indían íncome ta pnynbíe by hím of a sntn caícuíated on
such doubíy ta ed íncome at the Indían rate of ta or the rate of ta of the saíd
country, whíchever ís the íower.
Sínce sectíon 9 I) of (he Indían Income Ta Law provídes, sub|ect
to certaín condítíons and íímítatíons substantíaííy símííar to those ín
sectíon 90 (a) of the Code, for the aííowance as a credít agaínst íncome
ta es whích accrue or aríse wíthín the ta abíe terrítoríes of Indía,
of íncome ta es paíd to foreígn countríes by any person who ís a resí-
dent of such terrítoríes. Indía satísfíes the símííar credít requírements
of sectíon 901 (b) (3) of the Code.
S CTION 902. € ” CR DIT OR CORPOR T STOC OLD R
IN OR IGN CORPOR TION
Rev. Ruí. 55-312
Sectíon 902(d) of the Internaí Revenue Code of 195 provídes for
the treatment to be accorded specífíed dístríbutíons of property re-
ceíved by a domestíc corporatíon from a whoííy-owned foreígn cor-
poratíon, ín ííeu of the generaí treatment of property dístríbutíons
as províded for ín sectíon 301 of the Code. The term property as
used ín sectíon 301 ís defíned ín sectíon 317(a) of the Code as spe-
cífícaííy íncíudíng money. Consequentíy, the term property as
used ín sectíon 902(d) of the Code ís deemed to íncíude money.
SU P RT . € ” RN D INCOM O CITIZ NS O UNIT D ST T S
S CTION 911. € ” RN D INCOM ROM SOURC S WIT -
OUT T UNIT D ST T S
( íso Part II, Sectíon 11G Reguíatíons 118, Rev. Ruí. 55-171
Sectíon 39.116-1.)
Income ta ííabíííty of Uníted States cítízens resídent or physícaííy
present ín foreígn countríes for ta abíe years begínníng on or after
anuary 1, 1951. Rev. uí. 2 1, C. . 1053-2, 2, superseded.
Sectíon 1. Purpose.
The purpose of thís Revenue Ruííng ís to supersede Revenue Ruííng
291, C. 15. 1953-2, 2 (pubííshed aíso as a pamphíet entítíed Income
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81 911.
Ta Guídes for Uníted States Cítízens broad) and ín conformíty
wíth the Internaí Revenue Code of 195 to íncíude addítíonaí ínfor-
matíon for use ín provídíng assístance and guídance to Uníted States
cítízens, resídíng or physícaííy present ín foreígn countríes, ín the
preparatíon of theír ederaí íncome ta returns.
Sec, 2. Scot e.
The ínformatíon set forth hereín reíates oníy to the ta probíems
pecuííar to Uníted States cítízens resídíng or physícaííy present ín
foreígn countríes for ta abíe years begínníng on or after anuary 1,
1951, and ís íntended to suppíement ínformatíon íssued by the Inter-
naí Revenue Servíce for ta payers generaííy. Therefore, ín the
preparatíon of theír ederaí íncome ta returns and other forms, such
cítízens shouíd foííow the ínstructíons íssued ín connectíon wíth the
forms ínsofar as they are appíícabíe. The guídes set forth ín thís
Revenue Ruííng do NOT appíy to (1) ta abíe years begínníng príor
to anuary 1, 1951, e cept to the e tent hereínafter noted (2) res-
ídent aííens temporarííy absent from the Uníted States and (3)
cítízens performíng cívííían or mííítary servíces for the Uníted States
or any agency or ínstrumentaííty thereof. resídent aííen tem-
porarííy absent from the Uníted States ís, ín generaí, ta abíe on ín-
come deríved from aíí sources. Compensatíon for personaí servíces
performed by a cítízen as an empíoyee of the Uníted States, or any
agency or ínstrumentaííty thereof, ís requíred to be íncíuded ín gross
íncome regardíess of where the servíces are performed. ( or ederaí
íncome ta purposes, the nonappropríated fund actívítíes of the
rmed orces, such as the rmy and ír orce change Servíce,
the Navy change, offícers and eníísted men s cíubs and other sím-
ííaríy organízed actívítíes under the |urísdíctíon of the rmed orces,
are agencíes of the Uníted States.)
Sec. 3. ppíícabíííty op Ta to Uníted States Cítízens broad.
.01 Ta abíe years begínníng on or after anuary 1, 195 , and end-
íng after ugust 16, 195 .. € ” The ríght of the Uníted States to ímposo
íncome ta upon íts cítízens, wherever resídent, ís based on cítízenshíp.
Uníted States cítízens resídíng or physícaííy present ín foreígn coun-
tríes are ta abíe ín the same manner as those resídíng wíthín the
Uníted States, uníess they can satísfy the requírements of sectíon 911
of the Internaí Revenue Code of 195 - If the cítízen meets eíther
the foreígn resídence test or the presence ín a foreígn country
test províded by sectíon 911, he ís entítíed to e cíude from gross ín-
come amounts receíved as earned íncome for personaí servíces ren-
dered outsíde the Uníted States.
.02 Ta abíe years begínníng on or after anuary 1,1951, and físcaí
years endíng ín 195 - € ” Sectíon 116(a) of the Internaí Revenue Code
of 1939, as amended by the Revenue ct of 1951 and the Technícaí
Changes ct of 1953, ís, ín substance, ídentícaí wíth sectíon 911 of
the 195 Code, e cept that ín the defínítíon of earned íncome, ín a
sítuatíon where both personaí servíces and capítaí are materíaí ín-
come-producíng: factors, the íímítatíon ís 20 percent, as contrasted to
SO percent under the present íaw.
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| on. 82
Sec. . cíusíon Under Sectíon 911(a)(1) ased Upon ona
íde Resídence ín oreígn Countríes.
.01 Generaí. € ” Uníted States cítízen ís entítíed to e cíude from
gross íncome under sectíon 911(a) (1) of the 195 Code, hís earned
íncome (as defíned ín sec. 7 of thís Revenue Ruííng) íf € ”
(a) e has been a bona fíde resídent of a foreígn country or coun-
tríes for an unínterrupted períod whích íncíudes an entíre ta abíe
year and
(b) Such íncome ís € ”
(1) Receíved for personaí servíces rendered outsíde the Uníted
States
(2) ttríbutabíe to such unínterrupted períod and
(3) Not paíd by the Uníted States or any agency or ínstru-
mentaííty thereof.
íí of these requírements must be met by the cítízen ín order to cíaím
the e cíusíon from gross íncome. or e ampíe, a prívateíy empíoyed
cítízen was a bona fíde resídent of a foreígn country for an unínter-
rupted períod, as hereínafter defíned, begínníng ugust 1, 1952, and
endíng une 30, 195 , and fííes hís returns on the caíendar year basís.
e ís entítíed to e cíude from gross íncome the amount of compen-
satíon receíved for personaí servíces rendered abroad duríng such
períod. (These same ruíes are aíso appíícabíe to ta abíe years begín-
níng on or after anuary 1, 1951, whích faíí wíthín the scope of the
1939 Code. See par. .0 of thís sectíon for ruíes appíícabíe to príor
ta abíe years.)
.02 ona fíde foreígn resíííence. € ” No specífíc ruíe can be stated for
determíníng whether a Uníted States cítízen ís a bona fíde resídent of
a foreígn country, sínce ít ínvoíves hís íntentíons wíth respect to the
íength and nature of hís stay. The íntentíon of the ta payer to es-
tabíísh a bona fíde resídence ín a foreígn country may be evídenced
by words and acts, but where they confííct, more emphasís wííí be
píaced on the acts than on the words. Generaííy, a cítízen who goes
to a foreígn country for a defíníte purpose, whích ís of a temporary
nature, and who returns to the Uníted .States after ít has been accom-
pííshed, ís not a bona fíde resídent of such foreígn country. owever,
íf hís purpose ís of such a nature that an e tended and índefíníte
stay may be necessary for íts accompííshment, and to that end he
estabííshes resídence ín the foreígn country, he may be a bona fíde
resídent of such foreígn country for ederaí íncome ta purposes.
or e ampíe, merícan cítízens who go to foreígn countríes to work
on constructíon pro|ects, whích are obvíousíy of a temporary nature,
cannot be cíassífíed as bona fíde resídents of such countríes for the
purposes of sectíon 911(a)(1) of the 195 Code, even though they
remaín abroad for an entíre ta abíe year or íonger. ( or ínformatíon
as to whether the earned íncome attríbutabíe to such personaí serv-
íces rendered abroad ís e cíudabíe under the presence ín a foreígn
country ruíe, see sec. 5 of thís Revenue Ruííng.) owever, cítízens
of the Uníted States who are permanentíy assígned to foreígn díví-
síons of busíness concerns and who estabíísh and maíntaín theír res-
ídence ín a foreígn country or countríes for a períod of índefíníte
duratíon may be cíassífíed as bona fíde resídents of a foreígn country
or countríes for the purposes of sectíon 911(a)(1) of the 195 Code,
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83 5 9íí.
.03 Temporary absence from foreígn country. € ” Once bona fíde resí-
dence ín a foreígn country or countríes has been estabííshed, temporary
vísíts to the Uníted States or eísewhere on vacatíon or busíness tríps
wííí not necessarííy depríve the cítízen of hís ST TUS as a bona fíde
resídent of a foreígn country. ( ut see sec. 8 of thís Revenue Ruííng
or the effect of such tríps on source of íncome.) Such absences must
not be unreasonabíe ín íength, there must be fuíí íntentíon on the part
of the índívíduaí to return to hís foreígn post, and there must be sub-
stantíaí evídence that the foreígn resídence has not been reíínquíshed.
Long períods of tíme spent ín the Uníted States or any possessíons
thereof wouíd be consídered as evídence that the cítízen had reíín-
quíshed bona fíde resídence ín a foreígn country.
.0 Príar íaw reíatíng to bo7ía fíde foreígn resídence. € ” or ta -
abíe years begínníng on or after anuary 1,1951, whích are sub|ect to
the provísíons of the 1939 Code, the íaw ín effect wíth respect to the
e cíusíon under the bona fíde foreígn resídence ruíe was, ín sub-
stance, ídentícaí wíth such e cíusíon under sectíon 911(a) (1) of the
1C5 Code, e cept for the revísíon from 20 percent to 30 percent re-
gardíng the defínítíon of earned íncome.. (See sec. 7.02 of thís
Revenue Ruííng.) Under the íaw ín effect príor to anuary 1, 1951
(and after 19 2), a Uníted States cítízen was permítted to e cíude
earned íncome from sources outsíde the Uníted States íf he had been
a bona fíde resídent of a foreígn country or countríes duríng the
entíre ta abíe year. Therefore, a cítízen who estabííshed resídence
ín a foreígn country ín the course of the ta abíe year was not entítíed
to such e cíusíon for such ta abíe year. owever, íf he had been
a bona fíde resídent of a foreígn country or countríes for a períod of
at íeast two years before the date on whích he ceased to be resídent of
euch foreígn country or countríes, he couíd e cíude from gross íncome,
for the year ín whích he reíínquíshed hís foreígn resídence, earned
íncome from sources outsíde the Uníted States attríbutabíe to that
part of such períod of foreígn resídence before the date of reíínquísh-
ment. owever, under sectíon 116(a)(1) of the 1939 Code, as
amended by the Revenue ct of 1951, a cítízen who was a bona fíde
resídent of a foreígn country or countríes for an unínterrupted períod
– whích íncíuded an entíre ta abíe year ís entítíed to e cíude from gross
íncome the amount of compensatíon receíved on or after anuary 1,
1951, for personaí servíces rendered abroad, attríbutabíe to such un-
ínterrupted períod. or e ampíe, a prívateíy empíoyed cítízen, who
fííes hís returns on the caíendar-year basís, was a bona fíde resídent of
a foreígn country for an unínterrupted períod begínníng uíy 1,19 9,
and endíng October 31, 1951. Under sectíon ííG(a) (1) of the 1939
Code, as amended by the Revenue ct of 1951, the ta payer ís entítíed
to e cíude the earned íncome attríbutabíe to such períod and receíved
on or after anuary 1, 1951, sínce hís períod of bona fíde foreígn
resídence íncíudes an entíre ta abíe year (1950).
Sec. 5. cíusíon Under Sectíon 911(a) (2) ased on Presence tn
a oreígn Country.
.01 Generaí. € ” cítízen of the Uníted States may e cíude from
gross íncome under sectíon 911(a) (2) of the 195 Code, amounts con-
stítutíng earned íncome (as defíned ín sec. 7 of thís Revenue Ruííng)
(a) e ís present ín a foreígn country or countríes duríng a totaí
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911. 8
of at íeast 510 fuíí days duríng any períod of 18 consecutíve months
and
(b) Such earned íncome ís € ”
(1) Receíved for personaí servíces rendered outsíde the Uníted
States
(2) ttríbutabíe to such 18-month períod and
(3) Not paíd by the Uníted States or any agency or ínstrumen-
taííty thereof.
íí of these requírements must be met ín order for the cítízen to quaíífy
for the e cíusíon. The e cíuded gross íncome may be attríbutabíe to
any 18-consecutíve-month períod duríng whích the cítízen ís ín a for-
eígn country or countríes for 510 fuíí days. or e ampíe, a cítízen of
the Uníted States, prívateíy empíoyed, arríves ín a foreígn country on
ugust 3, 1953, and remaíns there contínuousíy untíí hís departure
therefrom on December 27, 105 , a períod duríng whích he ís present
ín the foreígn country 510 fuíí days. The cítízen may e cíude from
gross íncome the earned íncome from sources wíthout the Uníted
States that ís attríbutabíe to any 18-consecutíve-month períod whích
íncíudes the above 510 fuíí days, notwíthstandíng that the cítízen was
actuaííy present ín the foreígn country for a períod of íess than 18
months. or e ampíe, the e cíusíon wouíd be appíícabíe but not íím-
íted to the foííowíng 18-month períods: an 18-month períod whích
commences ugust , 1953, and ends ebruary 3, 1955 an 18-month
períod whích commences une 28, 1953, and ends December 27, 195
or an 18-month períod whích commences uíy 1, 1953, and ends
December 31,195 .
.02 Límítatíon on amount e cíudabíe. € ” The amount e cíuded from
gross íncome under the provísíons of sectíon 911(a) (2) of the 195
Code shaíí not e ceed 20,000 ín those cases ín whích the 18-month
períod íncíudes the entíre ta abíe year. In those cases ín whích the
18-month períod does not íncíude the entíre ta abíe year, the 20,000
annuaí íímítatíon shaíí be prorated ín the foííowíng manner: The
amount e cíuded from gross íncome under such sectíon for such ta abíe
year shaíí not e ceed an amount whích bears the same ratío to 20,000
as the number of days ín the part of the ta abíe year wíthín the 18-
month períod bears to the totaí number of days ín such year. or
e ampíe, a ta payer was present ín a foreígn country 510 fuíí days
duríng the 18-month períod endíng une 30, 195 , duríng whích the
requírements of sectíon 911(a)(2) of the 195 Code were satísfíed.
Duríng the caíendar year 1953 he receíved 20,000, and duríng the
períod anuary 1, 195 , through une 30, 195 , he receíved 13,000 as
saíary. If the ta payer reported on a caíendar year basís, oníy 20,000
of the 20,000 receíved duríng 1953 wouíd be, e cíudabíe, and onív
9,917.81 (181/305 of 20,000) wouíd be e cíudabíe ín 195 . The
baíance of 6,000 wouíd be íncíudíbíe ín the ta payer s gross íncome
for 1953 and 3,082.19 for 195 . (There ís no íímítatíon upon the
amount of earned íncome whích may be e cíuded from gross íncome
under the bona fíde foreígn resídence ruíe.)
.03 Computatíon of 510 fuíí days presence ín foreígn country. € ” In
computíng the mínímum of 510 fuíí days presence ín a foreígn country
or countríes, aíí separate períods of such presence duríng the 18-month
períod are to be aggregated. or the purpose of sectíon 911(a) (2) of
the 195 Code, íf an índívíduaí traveís over ínternatíonaí waters from
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85 9íí.
one píace ín a foreígn country to another píace ín the same country, or
to a píace ín another foreígn country, and íf such traveí e tends over
a períod of íess than 2 hours and does not ínvoíve traveí wíthín the
Uníted States or any possessíon thereof, such índívíduaí shaíí not be
deemed outsíde a foreígn country duríng the períod of such traveí.
or e ampíe, a cítízen of the Uníted States, prívateíy empíoyed, de-
parts by aírcraft from Tokyo, apan, at 11 p. m. on uíy 23 and arríves
ín Maníía, Phíííppínes, at 8 a. m. on the foííowíng morníng. The cítí-
zen, for the purpose of sectíon 911(a) (2) of the 195 Code, wííí not be
deemed outsíde a foreígn country duríng the períod of traveí from
Tokyo to Maníía, ínasmuch as such períod of traveí ís íess than 2
hours. On the other hand, íf a prívateíy empíoyed cítízen of the
Uníted States departs by vesseí from Genoa, Itaíy, on ugust 20 and
arríves ín Napíes, Itaíy, on ugust 22, the cítízen, for the purpose of
sectíon 911(a) (2) of the 195 Code, wííí be deemed outsíde a foreígn
country for a períod of 3 days from ugust 20 to ugust 22. The 510
fuíí days need not be consecutíve, but may be ínterrupted by períods
dnríng whích the cítízen ís not present ín a foreígn country. Tíme
spent ín a foreígn country ín the empíoyment of the Uníted States
Government wííí count toward satísfactíon of the 510 fuíí-day requíre-
ment, even though amounts paíd by such Government are not e cíud-
abíe from gross íncome. The períod duríng whích the cítízen was
present ín a foreígn country, or countríes, príor to anuary 1, 1951,
may be taken ínto account ín determíníng whether such cítízen ís pres-
ent ín a foreígn country or countríes duríng at íeast 510 fuíí days
duríng any 18-month períod. owever, the íncome attríbutabíe to the
períod príor to anuary 1, 1951, ís not e cíudabíe from gross íncome
íf receíved before such date, sínce the e cíusíon ís appíícabíe oníy to
ta abíe years begínníng on or after anuary 1, 1951.
.0 Computatíon of 18-month períod. € ” The 18-consecutíve-month
períod may be part of a íonger períod of presence ín a foreígn country
and need not commence wíth the cítízen s day of arrívaí thereín or
termínate wíth the day of hís departure therefrom. or e ampíe, a
cítízen who arríves ín a foreígn country on anuary 1,1953 and fínaííy
departs therefrom on ebruary 1 , 1955, may not be present ín such
country for 510 fuíí days duríng the 18-month períod commencíng
wíth anuary 1,1953, and endíng wíth the cíose of une 30, 195 , be-
cause of hís vísíts to the Uníted States duríng such períod. owever,
he may satísfy the 510 fuíí-day requírement duríng the 18-month
períod commencíng wíth ebruary 15,1953, and endíng wíth the cíose
of ugust 1 ,195 . In such event, the e cíusíon wííí appíy to íncome
attríbutabíe to the íatter períod, but not to íncome attríbutabíe to the
períod commencíng wíth anuary 1, 1953, and endíng wíth the cíose
of ebruary 1 , 1053. The e cíusíon ís appíícabíe as íong as there ís
a contínuíng períod throughout whích the cítízen satísfíes the requíre-
ment of 510 fuíí days presence ín a foreígn country or countríes dur-
íng an 18-month períod.
.05 Defínítíons. € ” The term fuíí day means a contínuous períod
o/f í hours commencíng from mídníght and endíng wíth the foííowíng
mídnícht The term 18 consecutíve months means any 18-month
períod commencíng wíth the begínníng of any day of any month and
endíng wíth the cíose of the day precedíng the correspondíng day ín
the succeedíng eíghteenth month or íf there ís no such correspondíng
da ríththec ose of the íast day of the succeedíng eíghteenth month.
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911. 86
or e ampíe, the períod uíy 3, 1953, through anuary 2, 1955, and
the períod uíy 1, 1953, through December 31, 195 , wouíd both be
períods of 18 consecutíve months. The term foreígn country ín-
cíudes oníy terrítory under the sovereígnty of a government other
than that of the Uníted States ít does not íncíude the terrítoríes
( awaíí and íaska) or the possessíons of the Uníted States.
.06 Príor íaw reíatíng to presence ín a foreígn country. € ” The
e cíusíon under the presence ín a foreígn country ruíe.ís appíícabíe
oníy to ta abíe years begínníng on or after anuary 1, 1951. Under
the íaw ín effect for ta abíe years begínníng on or after that date and
endíng before anuary 1, 1953, there was no íímítatíon upon the
amount of earned íncome receíved duríng such períod whích couíd
he e cíuded from gross íncome under the presence ín a foreígn
country ruíe. owever, for ta abíe years endíng after December 31,
1952, but oníy wíth respect to amounts receíved after such date, the
amount e cíuded from gross íncome under such ruíe, as under pres-
ent íaw, couíd not e ceed 20,000 ín those cases ín whích the 18-month
períod íncíuded the entíre ta abíe year. In those cases ín whích the
18-month períod díd not íncíude the entíre ta abíe year, the 20,000
annuaí íímítatíon was sub|ect to the same proratíon e píaíned ín sec-
tíon 5.02 of thís Revenue Ruííng. specíaí ruíe was appíícabíe to a
físcaí year begínníng ín 1952 and endíng ín 1953. ( or ta abíe years
begínníng before anuary 1, 1951, a cítízen was entítíed to e cíude
earned íncome from sources outsíde the Uníted States oníy íf he couíd
estabíísh that he was a bona fíde foreígn resídent.)
Sec. 6. Income Deríved rom Possessíons of the Uníted States.
Income deríved from possessíons of the Uníted States may, under
certaín círcumstances, be e cíuded from gross íncome ín accordance
wíth the provísíons of sectíon 931 and sectíon 933 and, ín some rare
ínstances, under sectíon 911 of the 195 Code. Generaííy, sectíon 911
of the 1951 Code has no appíícatíon to cítízens of the Uníted States
performíng personaí servíces or engaged ín a trade or busíness wíthín
the possessíons. owever, a cítízen who has quaíífíed for the foreígn
resídence or presence ín a foreígn country e cíusíon under sectíon
911 of the 1951 Code may e cíude earned íncome attríbutabíe to a
períod he ís temporarííy present ín a possessíon duríng such quaíífy-
íng períod. or e ampíe: prívateíy empíoyed cítízen arríved ín
razíí on December 31, 1952, and remaíned there contínuousíy untíí
May 26, 195 , a períod duríng whích he quaíífíed for the presence
ín a foreígn country e cíusíon. (See sec. 5 of thís Revenue Ruííng.)
On May 26, 195 , he íeft razíí for a temporary assígnment ín the
Panama Canaí Zone, a possessíon of the Uníted States, where he
remaíned untíí uíy 15, 195 , when he returned to the Uníted States
for a permanent assígnment. The cítízen may e cíude from gross
íncome under the presence ín a foreígn country ruíe, the earned
íncome attríbutabíe to the períod begínníng anuary 1,1953, and end-
íng une 30, 195 , sub|ect to the íímítatíon of 20,000, sínce he was
present ín a foreígn country for 510 fuíí days duríng such 18-month
períod and such íncome was for personaí servíces rendered outsíde
the Uníted States. e may not e cíude, under thís ruíe, the earned
íncome attríbutabíe to the períod uíy 1 to uíy 15, 195 , sínce he
díd not quaíífy for the presence ín a foreígn country e cíusíon for
an 18-month períod whích íncíuded such períod. ( owever, such
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87 9íí.
íncome may, tínder certaín círcumstances.be e cíudíbíe under the pro-
vísíons of sec. 931 of the 195 Code.) or purposes of sectíon 911,
some of the more ímportant possessíons of the Uníted States are the
Panama Canaí Zone, Guam, merícan Samoa, Wake, Mídway Isíand,
Puerto Ríco, and the írgín Isíands.
Sec. 7. arned Income.
.01 Compensatíon for personaí servíces rendered. € ” The term
earned íncome means wages, saíaríes, professíonaí fees, and other
amounts receíved as compensatíon for personaí servíces actuaííy
rendered. It does not íncíude such íncome as dívídends, other dís-
tríbutíons of corporate earníngs or profíts, gambííng gaíns, ínterest,
rents, or gaíns or profíts from deaííng ín reaí or personaí property.
or e ampíe, where a cítízen performs personaí servíces for a cor-
poratíon ín whích he owns stock, earned íncome means oníy such
I ortíon of any íncome receíved from the corporatíon whích repre-
sents a reasonabíe aííowance as compensatíon for the personaí servíces
actuaííy rendered. The entíre amount receíved as professíonaí fees
by a cítízen engaged ín a professíonaí occupatíon, such as a doctor or
íawyer, may be treated as earned íncome even though he empíoys
assístants ín the performance of the servíces, íf the patíents or cííents
are those of the cítízen and íook to hím as the person responsíbíe for
the servíces rendered, and capítaí ís not a materíaí íncome-producíng
factor.
.02 Profít from trade or busíness. € ” If a cítízen ís engaged ín a trade
or busíness, eíther as soíe propríetor or as a member of a partnershíp,
ín whích both personaí servíces and capítaí are materíaí íncome-pro-
ducíng factors, a reasonabíe aííowance as compensatíon for the per-
sonaí servíces actuaííy rendered by hím shaíí be consídered to be
earned íncome, but the amount whích may be treated as earned
íncome from such trade or busíness may not e ceed 30 percent of hís
share of the net profíts therefrom. To íííustrate: cítízen quaíífyíng
for the foreígn resídence e cíusíon operates a retaíí saíes outíet ín a
foreígn country. Sínce capítaí ís a materíaí íncome-producíng factor
ín the busíness, not more than 39 percent of the net profíts from the
busíness may be treated as earned íncome and e cíuded. The
baíance of the profíts must be íncíuded ín gross íncome for ederaí
íncome ta purposes. ( or ta abíe years begínníng before anuary
1, 195 , and for short ta abíe years begínníng ín 195 and endíng
before ugust 17, 195 , not more than 20 percent of the net profíts-
from such trade or busíness couíd be treated as earned íncome. )
Sec 8. .Source of Income.
or the purpose of sectíon 911 of the 195 Code, the píace where per-
sonaí servíces are performed ís consídered to be the source of the
íncome for such servíces, írrespectíve of the píace where payment ís
made. Therefore, íf earned íncome ís attríbutabíe to a períod ín
vhích the cítízen satísfíes eíther the foreígn resídence test or the
presence ín a foreígn country test, the amounts of such íncome
receíved for personaí servíces rendered outsíde the Uníted States may
be e cíuded from gross íncome, sub|ect to the íímítatíons set forth ín
sectíon 5 02 of thís Tíevenue Ruííng, even though receíved wíthín
the Uníted States. Compensatíon for personaí servíces rendered
8M050 € ” ‚ 6 -T
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5 9 .) 88
wíthín the Uníted States ís ta abíe and ís not e cíudabíe from gro-
íncome, regardíess of the píace where payment ís made. or e ampíe
a Uníted States cítízen who ís a bona ríde resídent of a foreígn country
returns to the Uníted States on a busíness tríp. The compensatíon foí
the servíces rendered whííe ín the Uníted States ís ta abíe and ín
cíudíbíe ín gross íncome, even though payment for such servíces ma|
be receíved by the ta payer after hís return to the foreígn country.
Sec. 9. Income Receíved ín oreígn Currency.
The íncome reported on a ederaí íncome ta return must be e -
pressed ín terms of Uníted States doííars. Where íncome ís actuaííy
or constructíveíy receíved ín foreígn currency, the computatíon ín
terms of Uníted States doííars must be based on the rate of e change
at the tíme of receípt by the cítízen, or when credíted to hís account
ín the foreígn country, even though not actuaííy converted ínto Uníted
States currency at that tíme. (In the case of bíocked foreígn íncome,
tee sec. 10 of thís Revenue ííííng.)
Sec. 10. íocked oreígn Income.
Generaííy, aíí íncome (other than that e cíudabíe by íaw) of Uníted
States cítízens from sources wíthín a foreígn country or countríes,
whether ín terms of Uníted States doííars or foreígn currencíes, s
íncíudíbíe ín gross íncome for ederaí íncome ta purposes, notwíth-
standíng the fact that under the íaws or reguíatíons of the foreígn
country or countríes conversíon of such foreígn íncome ínto Uníted
States doííars, or ínto other money or property whích ís readííy con-
vertíbíe ínto Uníted States currency, may be bíocked. The cítízen
must íncíude the bíocked íncome ín hís gross íncome when such íncome
ís eíther actuaííy or constructíveíy receíved or ís credíted to hís account
ín the foreígn country, uníess he takes aííírmatíve actíon to eíect to
defer the reportíng of such íncome untíí ít ceases to be bíocked. If he
wíshes to make such eíectíon and defer the íncome ta es otherwíse due
on such íncome he must compíy wíth the proceduraí requírements of
the Internaí Revenue Servíce reíatíng to bíocked foreígn íncome,
íncíudíng the fíííng, wíth hís reguíar return, of a tentatíve return
refíectíng such bíocked íncome, but on whích no ta ís computed. De-
taíís of the requírements are pubííshed ín the Internaí Revenue uí-
íetíns. See Mímeograph G 75, C. . 1950-1, 50, as amended bv
Mímeograph 6 9 , C. . 1950-1, 5 , and Mímeograph 058 , C. .
1951-1, 19. Income ceases to be bíocked and ís íncíudíbíe ín gross
íncome when ít ís convertíbíe, or has been converted, ínto Uníted States
doííars or ínto other money or property whích ís convertíbíe ínto
Uníted States currency or the cítízen uses the íncome for hís personaí
e pendítures or dísposes of ít by way of gíft, bequest, devíse or
ínherítance, or ín some other manner.
Sec. 11. íííng of Income Ta Returns.
.01 Gross íncome. € ” cítízen of the Uníted States, wherever resí-
dent, who has gross íncome of 600 or more (other than íncome e -
cíuded by íaw) duríng the ta abíe year must íe an íncome ta return,
regardíess of hís marítaí status, the number of hís dependents, or the
amount of hís deductíons. or e ampíe, a cítízen who quaíífíes for the
foreígn resídence e cíusíon fííes hís return on a caíendar-year basís.
or the year 195 he receíved a saíary of 10,000 for servíces performed
ín a foreígn country, dívídends of 500 from a foreígn corporatíon,
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89 9íí.
and ínterest of 200 from ínvestments ín foreígn countríes. The cítí-
zen must tííe a return for such year sínce he had gross íncome of 600
or more e cíusíve of the saíary of 10,000 e cíudabíe under the pro-
vísíons of sectíon 911 (a) (1) of the 195 Code. seíf-empíoyed cítí-
zen not meetíng the above requírements may nevertheíess be requíred
to tííe a return for purposes of the seíf-empíoyment ta íf he ís engaged
ín a trade or busíness as defíned ín sectíon 1 02 of the 195 Code, and
has net earníngs of 00 or more from seíf-empíoyment. (See sec.
12.01 of thís Revenue Ruííng.)
.02 Deductíons. € ” n|T e penses, íosses, and other deductíons whích
are attríbutabíe to íncome properíy e cíuded under sectíon 911 are not
aííowabíe as deductíons ín a ederaí íncome ta return. or e ampíe,
a saíesman resídíng and traveííng abroad, who properíy e cíuded from
gross íncome under sectíon 911 of the 195 Code íncome earned abroad,
may not deduct ín hís ederaí íncome ta return traveííng and other
e penses íncurred by hím ín earníng such e cíuded íncome. penses,
íosses, and other deductíons whích cannot be ídentífíed as beíng attríb-
utabíe e cíusíveíy to eíther íncíudíbíe or e cíudabíe íncome but are
attríbutabíe to both must be aííocated or apportíoned.
.03 Income ta es paíd to foreígn countríes. € ” If a cítízen ís requíred
to íncíude ín bís orm 10 0 Indívíduaí Income Ta Return, íncome
from foreígn sources on whích íncome ta es to a foreígn country or
countríes are paíd or accrued, he may cíaím credít for such foreígn
íncome ta es agaínst hís Uníted States íncome ta ín accordance wíth
the provísíons of sectíon 901 of the Internaí Revenue Code, províded he
does not cíaím the standard deductíon or compute hís ta by the use of
the optíonaí ta tabíe íncíuded ín the ínstructíons for orm 10 0. The
foreígn ta credít shouíd be cíaímed on the ííne províded therefor
(ííne 9 of the 195 orm 10 0) at the bottom of page 3 of the return.
The method of computíng the foreígn ta credít aííowabíe under sec-
tíon 901 of the 195 Code ís e píaíned on orm 1116, whích must be
fííed wíth the íncome ta return by every ta payer cíaímíng credít
under that sectíon. If credít ís cíaímed nnder sectíon 901 of the 195
Code and a redetermínatíon of the ta payer s foreígn íncome ta
ííabíííty díscíoses that he has overpaíd or underpaíd such ta , he
shouíd ímmedíateíy notífy the Commíssíoner of Internaí Revenue ín
order that appropríate ad|ustment may be made of the foreígn ta
credít cíaímed on hís ederaí íncome ta return. s an aíternatíve
to cíaímíng the foreígn íncome ta as a dírect credít agaínst hís Uníted
States íncome ta , the ta payer may cíaím the amount of íncome ta es
gííd to a foreígn country or countríes as a deductíon on page 3 of
orm 10 0 ín computíng hís ta abíe íncome, províded he ítemízes hís
deductíons. In most cases, however, ít wííí be to the ta payers advan-
tage to cíaím foreígn íncome ta es as a credít agaínst the ederaí ta
under sectíon 001 of the 195 Code. Ta payers who cíaím the foreígn
íncome ta es eíther as a credít or as a deductíon may not aíso have the
benefít of the standard deductíon.
.01 Where ríght to e emptíon not yet estabííshed. € ” If a cítízen
empíoyed abroad has not been there íong enough to quaíífy for e emp-
tíon under eíther the foreígn resídence ruíe or the presence ín a
foreígn countrv ruíe at the tíme hís íncome ta return ís due to be
fííed ííe must eíther íncíude the compensatíon ín hís gross íncome and
M.íí, € ž pvr7príí ta due thereon, or obtaín an e tensíon of tíme for the
of hís return. (See par. .06 of thís sectíon.) If he eíects to ín-
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911. 90
eíude the compensatíon ín hís gross íncome, he may, after he has met
the statutory requírements for e emptíon and wíthín the statutory
períod, fííe an amended return or a cíaím on orm 8 3 for refund or
credít of any ta thus overpaíd. or e ampíe, a cítízen was a bona
fíde resídent of a foreígn country from November 1, 1953, through
anuary 31,1955, duríng whích períod he performed personaí servíces
abroad. e wouíd be requíred to íncíude ín hís 1953 return, tííed on
the caíendar year basís, aíí íncome for the year, íncíudíng the earned
íncome receíved duríng the períod November 1,1953, through Decem-
ber 31, 1953, sínce he had not met the requírements of sectíon 911(a)(1)
of the 195 Code as of the due date for the fíííng of such return. ow-
ever, sínce the requírements of that sectíon wouíd be met as of Decem-
ber 31, 195 , he wouíd then be entítíed to a refund or credít of any
overpayment of ta resuítíng from the e cíusíon of the earned ín-
come receíved duríng the períod November 1, 1953, through Decem-
ber 31, 1953, and a cíaím on orm 8 3, Cíaím for batement, or Re-
fund, or an amended return shouíd then be fííed.
.05 Due date for fíííng return . € ” Cítízens of the Uníted States who,
on príí 15, are resídíng or traveííng outsíde of the Uníted States and
who fííe theír returns on the caíendar year basís are automatícaííy
aííowed an e tensíon of tíme untíí une 15 for fíííng the return for
the precedíng ta abíe year. Símííaríy, an e tensíon of 2 months ís
granted to físcaí-year ta payers. ta payer who takes advantage of
thís e tensíon must attach to hís return a statement showíng that he
was resídíng or traveííng outsíde the Uníted States on the due date
( príí 15, for caíendar-year ta payers), and he must pay ínterest at
the rate of 6 percent per annum on the unpaíd ta , íf any, from the
due date untíí paíd.
.06 tensíons of tíme for fíííng returns. € ” n e tensíon of tíme for
fíííng íncome ta returns may be granted for more than 6 months ín
the case of cítízens of the Uníted States who are abroad. cítízen
desíríng an e tensíon of tíme, ín addítíon to the 2 months auto-
matícaííy granted, for fíííng hís return untíí after the compíetíon of
the quaíífyíng períod under sectíon 911 of the 195 Code shouíd make
appíícatíon therefor wíth the dístríct dírector of ínternaí revenue
wíth whom the return ís requíred to be fííed. The appíícatíon must
be ín wrítíng, properíy sígned by the ta payer or hís duíy authorízed
agent, and must be made before the due date for fíííng the return wíth
respect to whích the e tensíon ís requested. The appíícatíon shouíd
set forth the facts reííed upon to |ustífy the e tensíon of tíme re-
quested and shouíd íncíude a statement as to the earííest date the
ta payer e pects to be ín a posítíon to determíne whether he wííí be
entítíed to the e cíusíon províded by sectíon 911 of the 195 Code.
Sec. 12. Seíf-empíoyment Ta
.01 Ta abíe years endíng on or before December 31,195 . € ” In gen-
eraí, a cítízen of the Uníted States, wherever resídent, who deríves
íncome duríng the ta abíe year from a trade or busíness carríed on
by hím or from a partnershíp of whích he ís a member ís sub|ect to
the seíf-empíoyment ta . Such cítízen ís requíred to fííe a return
on orm 10 0 for the purpose of reportíng the seíf-empíoyment ta
íf he has net earníngs from seíf-empíoyment of 00 or more, even
though he may not have suffícíent íncome to requíre the ríííng of an
íncome ta return. or seíf-empíoyment ta purposes, earned ín-
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91 911.
come whích quaíítíes for eíther the bona fíde foreígn resídence
e cíusíon or the presence ín a foreígn country e cíusíon ís not to
be taken ínto account ín computíng net earníngs from seíf-empíoy-
ment. scheduíe for the computatíon of the ta ís províded on page 3
ot separate Scheduíe C of the íncome ta return ( orm 10 0), and
ínstructíons for íts compíetíon are shown on page of the Scheduíe.
Net earníngs from seíf-empíoyment ís the gross íncome deríved
by an índívíduaí from any trade or busíness carríed on by hím, íess
the aííowabíe deductíons attríbutabíe to such trade or busíness, píus
hís share of seíf-empíoyment net earníngs (or íoss) from a partnershíp
of whích he ís a member. The deductíons for personaí e emptíons
are not aííowabíe ín determíníng the net earníngs from seíf-empíoy-
ment. The term trade or busíness as used hereín íncíudes aíí seíf-
empíoyment actívítíes of the cítízen e cept those specífícaííy e cíuded
by íaw. Some of the seíf-empíoyment actívítíes so e cíuded by íaw
for ta abíe years endíng before anuary 1, 1955, are the practíce of
certaín professíons, such as the medícaí, accountíng and íegaí pro-
fessíons or servíces as a míníster or member of a reíígíous order
or farmíng. or a ííst of e cíuded actívítíes and íncome, see -
CLUSIONS on page of separate Scheduíe C ( orm 10 0).
.02 Ta abíe years endíng after December 31, 195k- € ” The Socíaí
Securíty mendments of 195 bríngs certaín seíf-empíoyed índívíd-
uaís, prevíousíy e cíuded, wíthín the socíaí securíty system. These
changes are effectíve for ta abíe years endíng after December 31,
195 . cítízen who ís a Chrístían Scíence practítíoner, archítect,
accountant, funeraí dírector, engíneer, míníster, member of a reíígíous
order, or a fanner and reports hís íncome on the basís of a físcaí year
í -gínnínq ín 105 and endíng ín 1055 shouíd communícate wíth the
dístríct dírector of ínternaí revenue wíth whom he fííes hís return for
detaííed ínformatíon regardíng the changes ín the íaw whích affect
hís ííabíííty for seíf-empíoyment ta .
Sec. 13. Decíaratíon of stímated Ta .
.01 Who must fííe. € ” very cítízen of the Uníted States who, for ta -
abíe years begínníng on or after anuary 1, 1955, e pects to receíve
more than 100 of gross íncome duríng the ta abíe year from sources
other than wages sub|ect to wíthhoídíng must fííe a decíaratíon of
estímated ta on orm 10 0- S íf hís gross íncome from aíí sources
(e cíusíve of íncome e empt from ta ) ís reasonabíy e pected to
e ceed the sum of G00 muítípííed by the number of e emptíons to
whích he ís entítíed, píus 00. cítízen who e pects no more than
100 of gross íncome duríng the ta abíe year from sources other than
ages sub|ect to wíthhoídíng ís requíred to fííe a decíaratíon íf hís
gross íncome ís reasonabíy e pected to e ceed 5,000 ín the case of a
ang e índívíduaí or a marríed person fíííng a separate decíaratíon,
10,000 for a person who quaíífíes as a head of househoíd or survívíng
wídow or wídower, and 5,000 ín the case of a marríed person who fííes
a |oínt decíaratíon and the totaí íncome of both husband and wífe can
rt-asonaMv be e pected to e ceed 10,000. Specífíc ínstructíons for
the preparatíon and fíííng of the decíaratíon are prínted on orm
1W0- S and wíth the e ceptíons mentíoned hereín, shouíd be foí-
ded by cítízens outsíde theí Uníted States. .
(P Due date for -fíííng decíaratíons. € ” The decíaratíon ís requíred
to be fííed on or before the 15th day of the th month of the ta abíe.
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911. 92
year for whích ít ís made. owever, a cítízen traveííng or resídíng
ín a foreígn country on the due date for tíííng the decíaratíon ís
aííowed an e tensíon of tíme to and íncíudíng the 15th day of the 6th
month of the ta abíe year ( une 15, for caíendar-year ta payers) for
fíííng the decíaratíon and payment, wíthout ínterest, of aíí ínstaíí-
ments of estímated ta then due.
Sec. 1 . Where Returns and Decíaratíons Shouíd e ííed.
Income ta returns and decíaratíons of estímated ta shouíd be fííed
wíth the dístríct dírector of ínternaí revenue for the dístríct ín whích
the ta payers íegaí resídence or príncípaí píace of busíness ín the
Uníted States ís íocated, or íf he has no íegaí resídence or píace of
busíness ín the Uníted States, wíth the Dístríct Dírector of Internaí
Revenue, aítímore 2, Maryíand, U. S. .
Sec. 15. Penaítíes.
Cítízens of the Uníted States resídíng or present ín foreígn countríes
are ííabíe, to the same e tent as ta payers wíthín the Uníted States, for
aíí the penaítíes and addítíons to the ta ímposed by íaw, íncíudíng
penaítíes and addítíons to the ta ín respect of decíaratíons and pay-
ments of estímated ta .
Sec. 1C. Where orms May e Obtaíned.
Necessary forms for the fíííng of returns, decíaratíons, and/or cíaíms
for refund may be obtaíned from any dístríct dírector of ínternaí
revenue and from most Uníted States embassíes and consuíates.
Sec. 17. Correspondence.
ny ta payer desíríng addítíonaí ínformatíon concerníng thís
Revenue Ruííng or ínformatíon reíatíng to the íaw or reguíatíons
appíícabíe to ta abíe years for whích no return has been tííed, may
address a communícatíon to the Commíssíoner of Internaí Revenue,
ttentíon: ssístant Commíssíoner (Technícaí), Washíngton 25,
D. C. ta payer desíríng ínformatíon reíatíng to a ta abíe year for
whích a return has been fííed shouíd communícate wíth the Dístríct
Dírector of Internaí Revenue wíth whom hís íncome ta return was
fííed.
Sec. 18. ffect on Other Documents.
Revenue Ruííng 291, C. . 1953-2, 2, ís superseded by thís Revenue
Ruííng.
( íso Part II, Sectíon 11G Reguíatíons 118, Rev. Ruí. 55-2 6
Sectíon 39.116-1.)
The dívísíon of íncome on the communíty property basís does not
aíter the e empt character of íncome entítíed to e emptíon under
sectíon 011(a) of the Internaí Revenue Code of 195 . If the bona
fíde resídence requírements of sectíon 911(a)(1) or the physícaí
presence requírements of sectíon íí(a) (2) of the Code are met by
the spouse who earns the íncome and the íncome quaíífíes as earned
íncome wíthín the meaníng of sectíon 911(b) of the Code, such ín-
come (sub|ect to any íímítatíons of the appíícabíe sectíon of the
Code) ís e empt from ta atíon on the Indívíduaí íncome ta re-
turns of the husband and wífe fíííng separate returns ín a com-
muníty property State regardíess of whether the other spouse meets
the requírements specífíed ín sectíon 911(a) of the Code.
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63 oíí.
dvíce has been requested reíatíve to the appíícatíon of sectíon
911(a) of the Internaí Revenue Code of 195 (sec. 110(a) of the 1939
Code) to the wífe s share of íncome earned by her husband wíthout
the Uníted States, where the partíes are domícííed ín a communíty
property State € wíthín the Uníted States and fííe separate returns on
the communíty property basís.
Sectíon 911(a) of the Code provídes wíth certaín e ceptíons not
here pertínent for the statutory e cíusíon from gross íncome of
earned íncome from sources wíthout the Uníted States ín the case of
a Uníted States cítízen who ís a bona fíde resídent of a foreígn country
or who duríng any períod of IS consecutíve months ís present ín a
foreígn country or countríes duríng at íeast 510 fuíí days ín such
períod.
The specífíc questíons presented reíate to whether the wífe ís
requíred to íncíude ín her ta abíe íncome one-haíf of the íncome of
her husband from foreígn sources ín the foííowíng cases:
(1) usband and wífe are cítízens of the Uníted States domí-
cííed ín a communíty property State ín the Uníted States. us-
band accepted work ín a foreígn country wíth the wífe remaíníng
ín the communíty property State. usband remaíned ín such
foreígn country for the períod requíred to quaíífy under sectíon
911(a) (2) of the Code and hís íncome quaíífíes as earned íncome
under sectíon 911(b) of the Code. The communíty property
system was ín effect ín the foreígn country ín whích the husband
was empíoyed.
(2) The same sítuatíon as above e cept that the foreígn country
ín whích the husband worked was not sub|ect to communíty
property íaws.
(3) usband quaíífíes as a bona fíde resídent of a foreígn coun-
try under sectíon 911(a) (1) of the Code. ís wífe and famííy
contínue to ííve ín a communíty property State ín the Uníted
States and the marítaí domícííe contínues ín such State.
The dívísíon of íncome on the communíty property basís does not
aíter the e empt character of íncome entítíed to e emptíon under
sectíon 911 (a) of the Code. See Revenue Ruííng 5 -16, C. . 195 -1,
157. If the bona fíde resídence requírements of sectíon 911(a) (1) or
the physícaí presence requírements of sectíon 911(a)(2) of the In-
ternaí evenue Code of 195 are met by the spouse who earns the
íncome and the íncome quaíífíes as earned íncome wíthín the meaníng
of sectíon 911 (b) of the Code, such íncome sub|ect to any íímítatíons
of the appíícabíe sectíon of the Code ís e empt from ta atíon on
tíe índívíduaí íncome ta returns of the husband and wífe fíííng
separate returns ín a communíty property State regardíess of
wether the other spouse meets the requírements specífíed ín sectíon
Píí(a) of the Code. Whether the communíty property system ís
ífí effect ín the foreígn country where the íncome ís earned ís ím-
materíaí.
ccordíngíy, ín each of the sítuatíons presented, the wífe may
( chíde from gross íncome on her separate return her share of the
íncome earned bv her husband wíthout the Uníted States whích ís
e cíudabíe from gross íncome under the appíícabíe provísíons of
actíon 911(a) of the Code. owever, wíth respect to that portíon
of the earned íncome of the husband whích ís not e empt under the
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031. 9
provísíons of 911(a) of the Code, the wífe must íncíude ín gross
íncome on her separate return her share of such earned íncome.
( íso Sectíon 931.) Rev. Ruí. 55-3S
( íso Part II, Sectíons 116, 251 (|) Reguía-
tíons 118, Sectíon 39.116-1.)
índergarten and nursery schooís organízed and operated or
Uníted States bases or ínstaííatíons íocated ín foreígn countríes or
possessíons of the Uníted States when operated on a permíssíve basís
rather than under offícíaí ínstructíons or reguíatíons and the suppor
of whích ís furníshed by the parents of the pupíís are not agencíes
or ínstrumentaíítíes of the Uníted States wítnín the meaníng of sec-
tíon 911(a) or 931 (í) of the Internaí Revenue Code of 195 (sectíons
116(a) or 251 (|) of the 1939 Code). ccordíngíy Uníted States
cítízens who receíve compensatíon from such organízatíons are en-
títíed to the benefíts accorded by sectíon 911(a)(1) or sectíon
911(a)(2) or sectíon 931 of the Code wíth respect to such íncome,
províded the provísíons of the appíícabíe sectíon of the Code are
otherwíse met. Compare Rev. Ruí. 5 -612, C. . 195 -2,169.
SU P RT C € ” W ST RN MISP R TR D CORPOR TIONS
S CTION 921. € ” D INITION O W ST RN MISP R
TR D CORPOR TIONS
Rev. Ruí. 55-105
The Internaí Revenue Servíce has no comprehensíve ííst of aíí the
countríes íncíudíbíe ín the geographícaí terrítoríes referred to ín sec-
tíon 921 of the Internaí Revenue Code of 195 , reíatíng to Western
emísphere trade corporatíons. The írgín Isíands, Puerto Ríco,
the Greater ntíííes, the Lesser ntíííes, the ahamas and the ísíands
off the coast of enezueía, ín addítíon to the numerous ísíands ín the
West Indíes, are consídered to be Western emísphere trade corpora-
tíon countríes. See I. T. 37 8, C. . 19 5, 152, and I. T. 067, C. ,
1951-52, 55.) owever, neíther ermuda nor the aíkíand Isíands
are consídered to be Western emísphere trade corporatíon countríes.
See I. T. 3990, C. . 1950-1, 57. íaska, beíng a terrítory of the
Uníted States and therefore an íntegraí part of thís country, ís not a
country ín North meríca wíthín the contempíatíon of thís sectíon.
SU P RT D. € ” POSS SSIONS O T UNIT D ST T S
S CTION 931. € ” INCOM ROM SOURC S WIT IN POSS S-
SIONS O T UNIT D ST T S
Compensatíon receíved by a Uníted States cítízen, from kíndergar-
ten and nursery schooís operated on Uníted States bases or ínstaíía-
tíons íocated ín possessíons of the Uníted States whích are operated on
a permíssíve basís rather than under offícíaí ínstructíons or reguíatíons.
See Rev. Ruí. 55-38 , above.
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95 ío20.
SU C PT R O. € ” G IN OR LOSS ON DISPOSITION O PROP RTY
P T II. € ” SIS RUL S O G N R L PPLIC TION
S CTION 1020. € ” L CTION IN R SP CT O D PR CI -
TION, TC., LLOW D OR 1952
20C R, 1.1020-1: íectíon as to amounts T. D. 6125
aííowed ín respect of deprecíatíon, etc.,
before 1952.
TITL 26 € ” INT RN L R NU . € ” C PT R I, 8U C PT , P RT I. € ” INCOM
T T L I S OINNINU T R D C M R 31. 1953
Reguíatíons prescríbed under sectíon 1020 of the Internaí Revenue
Code of 195 .
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 25, D. C.
To Offícers and mpíoyees of the Internaí Revenue Servíce and Others
Concerned:
On December 1 ,195 , a notíce of proposed ruíemakíng wíth respect
to sectíon 1020 of the Internaí Revenue Code of 195 (Pubííc Law 591,
83d Cong., approved ugust 1C, 195 ) was pubííshed ín the ederaí
Regíster (19 . R. 8537). No protests were receíved. The reguía-
tíons so pubííshed have been modífíed and are hereby adopted as set
forth beíow:
Sec. 1.1020. Statutory Provísíons íectíon ín Respect of Deprecíatíon,
tc., ííowed efore 1052.
S C. 3020. L CTION IN R SP CT O D PR CI TION, TC.,,
LLOW D OR 11)52. I
ny person may eíect to have subparagraph ( ) of sectíon 1010(a) (2)
appíy ín respect of períods sínce ebruary 2S, 1013, and before anuary 1,
11 52. Such an eíectíon shaíí be made ín such manner as I be Secretary
or hís deíegate may by reguíatíons prescríbe and shaíí bo Irrevocabíe
when made, e cept that an eíectíon made on or before December 31,
1952. may be revoked at any tíme before anuary 1, 1055. revocatíon
of an eíectíon shaíí be made ín such manner as the Secretary or bís
deíegate may by reguíatíons prescríbe, and no eíectíon may be made by
any person after he has so revoked an eíectíon. The eíectíon shaíí appíy
ín resí ect of aíí property heíd by the poíson makíng the eíectíon at any
tíme on or before December 31, 1052, and ín respect of aíí períods sínce
ebruary 28, 11)13, and before anuary 1, 1052. duríng whích such per-
son heíd such property or for whích ad|ustments must be made under
sectíon 1010(b). n eíectíon or a revocatíon of an eíectíon by a trans-
feror, donor, or grantor made after the date of the transfer, gíft or
grant of property shaíí not a Toct the basís of such property ín the hands
of the transferee, donee, or grantee. No eíectíon may be made under thís
Sectíon after December 31, 105 .
Sec. 1.1020-1. íectíon- as to mounts ííowed ín- Respect of Deprecíatíon,
tc., efore 1052. € ” (a) In generaí. € ” (1) ny person may eíect to have the
€ d|nsfments to the cost or other basís of property under sectíon 1010(a) (2) de-
termíned ín accordance wíth subparagraph ( ) of such sectíon by tíííng a state-
ment of eíectíon ín accordance wíth the requírements set forth ín paragraph (b),
Mow ív eíectíon made after 1052 shaíí be írrevocabíe when made. ny eíec-
tíon níade after 1 52 shaíí appíy wíth respect to aíí property heíd by the person
rakínr the eíectíon at any tíme on or before December 31, 1052. and shaíí appíy
to aíí períods sínce ebruary 28, 1913, and before anuary 1, 1052, duríng whích
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1020.1 96
such person hoíd such property or for whích ad|ustments must be made Tínder
sectíon 101G(b). or ruíes wíth respect to an eíectíon made on or before
December 31, 1052, see paragraph (c) of thís sectíon.
(2) n eíectíon by a partner on hís own behaíf ís not an eíectíon for the
partnershíp of whích he ís a member. separate eíectíon must be made on
behaíf of the partnershíp. See sectíon 703(b) (reíatíng to eíectíons of the
partnershíp). n eíectíon on behaíf of the partnershíp appííes oníy wíth respect
to the partnershíp, and does not appíy to the separate property of the partners.
símííar ruíe appííes wíth respect to eíectíons by trusts and benefícíaríes of
trusts. These ruíes aíso appíy wíth respect to a revocatíon of an eíectíon where
such eíectíon was made on or before December 31, 1052.
(b) Rííes appíícabíe to makíng of cUctíon. € ” The foííowíng ruíes are appíí-
cabíe to be mííkíng of an eíectíon under sectíon 1020:
(1) orm of eíectíon. € ” The eíectíon shaíí be ín the form of a statement ín
wrítíng, shaíí state the name aníí address of the ta payer makíng the eíec-
tíon, and shaíí contaín a statement that such ta payer eíects to have the
provísíons of sectíon 1016(a)(2)( ) appíy ín respect of aíí períods sínce
eíírna y 28, 1013, and before anuary 1, 1052.
(2) Sígnature. € ” The statement shaíí be sígned by the ta payer makíng
the eíectíon, íf an índívíduaí, or, íf the ta payer makíng the eíectíon ís not
an índívíduaí, the statement shaíí be sígned by the person or persons re-
quíred to sígn the íucome return of such ta payer.
(3) íííng. € ” The statement must be fííed on or before December 31, 105 ,
In the offíce of the dístríct dírector of ínternaí revenue for the dístríct ín
whích the íncome return for the year of the eíectíon ís requíred to be fííed.
or ruíes as to when tímeíy maíííng wííí he treated as tímeíy fíííng of the
statement see sectíon 7502.
) íííng of dupíícate. € ” copy of the statement of eíectíon must be fííed
wíth the fírst return, amended return, or cíaím for refund fííed on or after
the date on whích the eíectíon ís made.
(c) íectíon made on or before December St, 1052 € ” n eíectíon made on or
before December 31, 1052, ín accordance wíth the provísíons of sectíon 113(d)
of the Internaí Revenue Code of 1030, may be revoked by fíííng on or before
December 31, 105 , ín the same offíce ín whích the eíectíon was fííed, a statement
of revocatíon sígned ín the same manner as the eíectíon. Such statement made
by any person ís írrevocabíe when made wíth respect to such person, and no new
eíectíon may thereafter be made by such person. copy of the revocatíon most
be fííed wíth the fírst return, amended return or cíaím for refund, fííed after the
date of the revocatíon. or addítíonaí ruíes wíth respect to eíectíon made on or
before December 31, 1052, see sectíons 30.113(b) (1)-1 and 30.113(d)-í of Regu-
íatíons IIS (20 C , 1053 revísíon, íít. 30).
(d) aíídíty of eíectíons or revocatíon of eíectíons. € ” n eíectíon or revocatíon
of an eíectíon whích conforms ín substance to the provísíons of thís sectíon wííí
not ííe deemed ínvaííd soíeíy because ít was fííed before the date the reguíatíons
under sectíon 1020 were promuígated.
(e) ffect of eíectíon. € ” or ruíes reíatíng to the effect of an eíectíon under
thís sectíon see sectíon 1010(a) (2) and the reguíatíons thereunder.
(These reguíatíons are íssued under the authoríty contaíned ín sees.
1020 and 7805 of the Internaí Revenue Code of 195 (68 Stat, 302,
917 26U.S. C. 1020,7805).)
ustín . Wínkíe,
ctíng Commíssíoner of Internaí Revenue.
pproved March 8,1955.
M. . oísom,
ctíng Secretary of the Treasury.
( ííed wíth the Dívísíon of the ederaí Regíster March 10, 1955, 8: 8 a. m.)
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97 1235.
SU C PT R P.-C PIT L G INS ND LOSS S
RT III. € ” G N R L RUL S OR D T RMINING C PIT L G INS ND LOSS S
S CTION 1223. € ” OLDING P RIOD O PROP RTY
The períod of new shares of the survívíng corporatíon ín e change
for díe oíd shares pursuant to a reorganízatíon. See Rev. Ruí. 55- 5,
page C .
P RT I . € ” SP CI L RUL S OR D T RMINING C PIT L G INS ND LOSS S
S CTION 1235. € ” S L OR C NG O P T NTS
( íso Part II, Sectíon 22(a) Reguíatíons 118, Rev. Ruí. 55-58
Sectíon 39.22(a)-1.
Many requests have been receíved for reconsíderatíon of Mímeo-
graph 6 90, C. . 1950-1, 9, reíatíng to the treatment of amounts
receíved by ínventors from the assígnment of a patent, or the e cíusíve
ríght to make, use and seíí a patented artícíe under a íícense agree-
ment, where such amounts are not sub|ect to the provísíons of sectíon
1233 of the Internaí Revenue Code of 195 .
Mímeograph 6 90, supra, hoíds that, effectíve for ta abíe years
begínníng after May 31, 1950, payments receíved by ínventors from
the assígnment of a patent or the íícense of the e cíusíve ríght to make,
use and seíí a patented artícíe under an agreement whereby payments
are measured by productíon, saíe, or use by the transferee, or are
payabíe períodícaííy over a períod generaííy cotermínous wíth the
transferee s use of the patent, constítute ordínary íncome.
carefuí study of the probíem has been made, takíng ínto consídera-
tíon, among other thíngs, recent court decísíons whích support the
posítíon taken by the Internaí Revenue Servíce ín 1950. See íock
v. Uníted States, 200 ed. (2d) 03, certíorarí deníed, 3 5 U. S. 935
and roderíck v. Neaíe, 201 ed. (2d) G21. ccordíngíy, ít ís con-
cíuded that Mímeograph 6 90, supra, shouíd not be dísturbed. In
reachíng thís concíusíon, the Revenue Servíce has consídered the
decísíons ín dward C. Myers v. Commíssíoner, 6 T. C. 258 Com-
míssíoner v. Ceíanese Corp. of meríca, 1 0 ed. (2d) 339 and ííen
v. Werner. 190 P ed. (2d) 8 0.
íthough sectíon 1235 of the Internaí Revenue Code of 195 specífí-
caííy provídes that, wíth specífíed e ceptíons, such payments receíved
ín 19o and subsequent years wííí receíve capítaí gaíns treatment ín
the hands of the ínventor, thís provísíon of the 195 Code ís appííca-
bíe onív to amounts receíved ín ta abíe years begínníng after Decem-
ber 31 1953 and therefore does not appíy to amounts receíved ín
ta abíe years begínníng after May 31, 1950, and before an-
ccordíngíy, e cept as sectíon 1235 of the Internaí Revenue Code
of 195 appííes, the Internaí Revenue Servíce wííí contínue to treat
a m-dínar-v íncome the payments receíved by ínventors duríng ta -
abí arsíegínnínff after May 31, 1950, from such transfers.
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M02.1 98
C PT R 2. € ” T ON S L - MPLOYM NT INCOM
S CTION 1 02. € ” D INITIONS
( íso Part II, Sectíon 81 Reguíatíons 118, Rev. Ruí. 55-172
Sectíon 39. 81-1.)
Income deríved from sources wíthout the Uníted States by an merí-
can cítízen engaged ín a trade or busíness ns a scíentífíc consuítant,
ís Incíudíbíe ín computíng net earníngs from seíf-empíoyment for pur-
poses of the Seíf- mpíoyment Contríbutíons ct, sub|ect to the proví-
síons of sectíon 911 of the Internaí Revenue Code of 195 .
questíon has been raísed whether íncome deríved from sources
wíthout the Uníted States by an merícan cítízen engaged ín a trade
or busíness as a scíentífíc consuítant ís íncíudíbíe ín computíng net
earníngs from seíf-empíoyment for purposes of the Seíf- mpíoyment
Contríbutíons ct (chapter 2, subtítíe , Internaí Revenue Code of
195 ).
In the ínstant case, an merícan cítízen ís engaged ín carryíng
on scíentífíc research as an índependent contractor ín a foreígn
country.
Sectíon 1 02(a) of the Seíf- mpíoyment Contríbutíons ct de-
fínes net earníngs from seíf-empíoyment, ín part, as foííows:
The term net earníngs from seíf-empíoyment means the gross íncome de-
ríved by an Indívíduaí from any trade or busíness carríed on by such Indívíduaí.
íess the deductíons aííowed by thís subtítíe Subtítíe , of the Code whích are
attríbutabíe to such trade or busíness, €
It ís heíd that íncome deríved from sources wíthout the Uníted
States by an merícan cítízen engaged ín a trade or busíness as a
scíentífíc consuítant ís íncíudíbíe ín computíng net earníngs from seíf-
empíoyment for purposes of the Seíf- mpíoyment Contríbutíons ct,
sub|ect to the provísíons of sectíon 911 of the 195 Code. See Rev.
Ruí. 55-171, page 80.
( íso Sectíon 3121.) Rev. Ruí. 55-328
( íso Part II, Sectíons 81, 1 26
Reguíatíons 118, Sectíon 39. 81-3,
Reguíatíons 128, Sectíon 08.20 .)
The owner of a cemetery entered ínto a contract wíth an ín-
dívíduaí to perform servícps as se ton of the cemetery for a 6-
months períod. The índívíduaí agreed to furnísh aíí íabor and
maíntaín the cemetery to the satísfactíon of the owner for a íump-
sum payment. eíd, (1) the índívíduaí ís not an empíoyee of the
cemetery owner wíth respect to hís servíces as se ton nnd (2) the
íncome deríved by hím for such servíces shouíd be consídered ín
computíng net earníngs from seíf-empíoyment for purposes of the
Seíf- mpíoyment Contríbutíons ct.
n ínquíry has been receíved reíatíve to the status, for purposes of
the ederaí Insurance Contríbutíons ct (chapter 21, subtítíe C,
Internaí Revenue Code of 195 ) and the Seíf- mpíoyment Contríbu-
tíons ct (chapter 2, subtítíe , Internaí Revenue Code of 195 ) of a
cemetery se ton under the círcumstances descríbed beíow.
The cemetery ís owned and operated by a corporatíon whích entered
ínto a contract wíth an índívíduaí to perform servíces as se ton of the
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09 ( 1 02.
cemetery íor a r -montns períod. Under the terms of the contract,
the se ton agreed, to maíntaín the cemetery to the satísfactíon of the
corporatíon and. to furnísh aíí íabor necessary for íts maíntenance.
The corporatíon agreed to compensate the se ton on a íump-sum basís
íor the 6-months períod. The contract specífícaííy províded that the
se ton ís engaged as an índependent contractor.
The se ton determínes hís own routíne, works when he chooses, and
receíves no ínstructíons ín the performance of hís servíces. ís dutíes
consíst of mowíng grass, takíng care of the graves, and maíntaíníng
aíí waíks and avenues. e has compíete controí over the índívíduaís
who assíst hím and aíí ederaí Insurance Contríbutíons ct ta es and
íncome ta on theír wages are wíthheíd and paíd by hím. e ínstaíís
aíí memoríaí footíngs, furníshes the materíaís for the footíngs, and
receíves aíí revenue therefrom. e uses hís own píckup truck and
Land tooís.
Sectíon 3121(d) of the ederaí Insurance Contríbutíons ct as
amended provídes, among other thíngs, that the term empíoyee
means any índívíduaí who, under the usuaí common íaw ruíes appíí-
cabíe ín determíníng the empíoyer-empíoyee reíatíonshíp, has the
status of an empíoyee. The guídes for determíníng, under the usuaí
common íaw ruíes, whether an empíoyer-empíoyee reíatíonshíp e ísts
are found ín sectíon 03.20 (c) of Reguíatíons 128, appíícabíe to the
provísíons of the Internaí Revenue Code of 195 by vírtue of T. D.
G091, C. . 195 -2, 7, untíí superseded by reguíatíons íssued under
the 195 Code.
The determínatíon whether an empíoyer and empíoyee reíatíonshíp
e ísts depends upon the partícuíar facts of each case. If the reíatíon-
shíp of empíoyer and empíoyee e ísts, the desígnatíon or descríptíon
of the reíatíonshíp by the partíes as anythíng other than that of em-
píoyer and empíoyee ís ímmateríaí. Thus, íf the facts show that such
reíatíonshíp e ísts, ít ís of no consequence that the empíoyee ís desí, -
nated as an índependent contractor. In the ínstant cafe, however, tho
facts substantíate the desígnatíon ín the contract of the se ton as an
índependent contractor. The se ton entered ínto the contract wíth
the corporatíon to maíntaín the cemetery to the satísfactíon of the
corporatíon for a specífíed amount. e agreed to furnísh aíí íabor
necessary to maíntaín the cemetery and receíved no ínstructíons ín
the performance of hís servíces. e determíned hís own routíne and
worked when he chose. It ís, therefore, heíd that the se ton ís not
an empíoyee of the corporatíon wíth respect to such servíces for
ederaí Insurance Contríbutíons ct purposes.
.Sínce the índívíduaí ís not an empíoyee for ederaí Insurance
Contríbutíons ct purposes, the questíon aríses as to whether hís
actívítíes as a se ton of the cemetery constítute a trade or busíness,
for purposes of the Seíf- mpíoyment Contríbutíons ct, and whether
the íncome deríved therefrom ís sub|ect to the ta ímposed under that
ct.
Sectíon 1 02(c) of the Seíf- mpíoyment Contríbutíons ct pro-
vídes that the term trade or busíness, when used wíth reference to
seíf-empíoyment íncome or net earníngs from seíf-empíoyment, shaíí
have the same meaníng as when used ín sectíon 1G2 of the Internaí
Revenue Code, wíth certaín e ceptíons not here materíaí.
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1 02. 100
s a generaí ruíe, u person who ís reguíaríy engaged ín an occu-
atíon or professíon for profít, whích constítutes, ín whoíe or ín part,
íís ííveííhood, and who ís not an empíoyee for purposes of the ederaí
Insurance Contríbutíons ct, ís engaged ín a trade or busíness.
Under the círcumstances stated hereín, ít ís concíuded that the
índívíduaí ís engaged ín a trade or busíness wíth respect to hís
servíces as se ton of the cemetery and the íncome he deríves from such
servíces shouíd be íncíuded ín computíng net earníngs from seíf-
empíoyment.

( íso Part II, Sectíon 81 Reguíatíons 118, Iíev. uí. 55-385
Sectíon 39. 81-1.)
n índívíduaí ís empíoyed as a professor by a State uníversíty.
s sídeííne actívítíes, sepnrate and apart from hís servíces for the
uníversíty, the Indívíduaí ís engaged ín wrítíng books and gívíng
íectures for profít. eíd, the royaítíes and other íncome receíved
by the índívíduaí from thí- sídeííne actívítíes are íncíudíbíe ín com-
putíng net earníngs from seíf-empíoyment for purposes of the Seíf-
mpíoyment Contríbutíons ct of í 5 .
n ínquíry has been receíved whether royaítíes and other íncome
receíved hy a professor empíoyed by a State uníversíty, who wrítes
books and gíves íectures as sídeííne actívítíes, may be íncíudíbíe ín
computíng net earníngs from seíf-empíoyment under the Seíf- m-
íoyment Contríbutíons ct of 105 (chapter 2, subtítíe , Internaí
íevenue Code of 195 ).
In the ínstant case, a professor, empíoyed by a State uníversíty to
perform fuíí-tíme teachíng servíces at tííe uníversíty, ís engaged ín
sídeííne actívítíes ínvoívíng pubííc íecturíng and the wrítíng of sev-
eraí books. One of hís books ís a coííege te tbook whích he revíses
from tíme to tíme under contract wíth the pubíísher another ís a
íaboratory manuaí whích he has devísed for the use of students at
the uníversíty where he teaches and whích he seíís dírect to them. e
receíves royaítíes from the pubíísher from the saíe of hís te tbook.
Duríng the past year, the pubíísher made hím an advance on hís roy-
aítíes wíth respect to the preparatíon of a current revísíon of the
te tbook. íthough the books and íectures are ín the generaí fíeíd
of educatíon, they are the resuít of hís own ínítíatíve and are not
ínstígated pursuant to hís empíoyment contract wíth the uníversíty.
íso, aíthough the amounts whích he receíves from these sídeííne
actívítíes vary from year to year, they e ceed the mínímum requíre-
ment of 00 per year for seíf-empíoyment ta purposes.
Sectíon 1 02 of the ct provídes ín part:
(a) Net arníngs rom Seíf- mpíoyment. € ” The term net earníngs from
seíf-empíoyment means the gross íncome deríved by an índívíduaí from any trade
or busíness carríed on by such índívíduaí, íess the deductíons aííowed by thís
subtítíe Subtítíe whích are attríbutabíe to such trade or busíness, € € €
(c) Trade ob usíness. € ” The term trade or busíness , when used wíth refer-
ence to seíf-empíoyment íncome or net earníngs from seíf-empíoyment, shaíí
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101 1 02.
toethe same meaníng as when used ín sectíon 1G2, e cept that such
Una shaU not íncíude € ”
€ € € € €
(1 the performance of servíce by an índívíduaí as an empíoyee .
dmíttedíy, the reíatíonshíp between the uníversíty and the profes-
sor ís t íat of empíover and empíoyee under the common íaw ruíes
used, for ederaí empíoyment ta purposes, ín arrívíng at such a
determínatíon. See S. S. T. 3 1, C. 13. 1938-2, 297. Thís ís true even
though, for ederaí empíoyment ta purposes, such servíces are e -
cepted from empíoyment 5 by sectíons 3121(b)(7) and 3306(c)(7)
of the ederaí Insurance Contríbutíons ct and the ederaí Unem-
píoyment Ta ct (chapters 21 and 23, respectíveíy, subtítíe C, Inter-
naí Revenue Code of 195 ). Therefore, the servíces of the índívíduaí
as a professor for the uníversíty are e cíuded from the term trade
or busíness, by vírtue of sectíon 1 02(c) (2) of the ct. owever,
the sídeííne actívítíes engaged ín by the professor are entíreíy separate
from hís servíces for the uníversíty and wíth respect to such actívítíes
he ís not an empíoyee.
Whether or not an índívíduaí ís engaged ín a trade or busíness
depends upon the facts ín the partícuíar case. s a generaí ruíe, a
person -who ís reguíaríy engaged ín an occupatíon or professíon for
profít whích constítutes ín whoíe or ín part hís ííveííhood, and who ís
nor regarded as an empíoyee for ederaí Insurance Contríbutíons
ct purposes, ís engaged ín a trade or busíness for seíf-empíoyment
ta purposes. If an índívíduaí wrítes oníy one book as a sídeííne and
never revíses ít, he wouíd not be consídered to be reguíaríy engaged
ín an occupatíon or professíon and hís royaítíes therefrom wouíd not
be consídered net earníngs from seíf-empíoyment. owever, where
an índívíduaí prepares new edítíons of the book from tíme to tíme,
wrítes other books and materíaís, and íectures professíonaííy, such
actívítíes refíect the conduct of a trade or busíness, and, íf ít ís not one
of the e cíuded professíons of sectíon 1 02(c) of the Seíf- mpíoyment
Contríbutíons ct, the íncome from ít ís íncíudíbíe ín computíng net
earníngs from seíí-empíoyment, sub|ect to the íímítatíons of sectíon
1 )2(b) of the ct.
Iu the ínstant case, ít ís heíd that the sídeííne actívítíes of the pro-
fessor constítute a trade or busíness for purposes of the Seíf- mpíoy-
ment Contríbutíons ct. To the e tent that the íncome from those
actívítíes does not e ceed the íímítatíons of 3,G00 (for 195 ) and
1,200 (for any ta abíe year endíng after 195 ), after consíderíng the
amount of any wages paíd to hím duríng the year, as set forth ín
. Wfíon 1 02(b) of that ct, the royaítíes and other íncome receíved by
Mm from those sídeííne actívítíes are to be taken ínto account ín com-
putíng hís net earníngs from seíf-empíoyment for such purposes.
Income deríved from the operatíon of a watch repaír department
wíthín a |eweíry store. See Rev. Ruí. 55-2 8, page 117.
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í 1 1. 102
C PT R 3. € ” WIT OLDING O T ON NONR SID NT
LI NS ND OR IGN CORPOR TIONS ND T - R
CO N NT ONDS
SU C PT R . € ” NONR SID NT LI NS ND OR IGN
CORPOR TIONS
S CTION 1 11. € ” WIT OLDING O T ON
NONR SID NT LI NS
( íso Part II, Sectíon 1 3 Reguíatíons 118, Rev. Ruí. 55-106
Sectíon 39.1 3-3.)
Letters of notífícatíon of e emptíon from wíthhoídíng ta , whích
are fííed by nonresídent aííens wíth a wíthhoídíng agent as an au-
thorízatíon for the payment of íncome wíthout wíthhoídíng of
Uníted States íncome ta at source, pursuant to a ta conventíon
between the Uníted States and the country of resídence of the non-
resídent aííen, shaíí be fííed wíth the wíthhoídíng agent for each
successíve three-caíeudnr-year períod duríng whích the íncome ís
paíd.
dvíce has been requested whether a íetter of notífícatíon of e -
emptíon from wíthhoídíng of Uníted States íncome ta fííed wíth a
wíthhoídíng agent by a nonresídent aííen pursuant to a ta conventíon
ís requíred to be renewed and fííed every three caíendar years.
Sectíon 1 1 of the Internaí Revenue Code of 195 requíres that
aíí persons, ín whatever capacíty actíng, havíng the controí #or pay-
ment of certaín ítems of íncome, to the e tent that such ítems constí-
tute gross íncome from sources wíthín the Uníted States, of any
nonresídent aííen índívíduaí, shaíí deduct and wíthhoíd from such
ítems a ta equaí to 30 percent thereof.
Pursuant to recíprocaí íncome ta , conventíons between the Uníted
States and varíous foreígn countríes, certaín ítems of íncome are e -
empt from Uníted States ta and the wíthhoídíng rate on certaín
other ítems of íncome ís íess than 30 percent thereof. In order to stop
the wíthhoídíng of Uníted States íncome ta at source on e empt
íncome, ít ís necessary for the nonresídent aííen to fííe wíth the wíth-
hoídíng agent a íetter of notífícatíon of e emptíon. See, for e ampíe,
Treasury Decísíon 5199, C. . 19 C-1, 13 , sectíon 7. 18, wíth regard
to reguíatíons prescríbed for the conventíon between the Uníted States
and rance. These íetters of notífícatíon of e emptíon are used ín
the píace of forms prescríbed ín reguíatíons governíng some
conventíons.
Where forms are prescríbed, as ín the admínístratíon of the con-
ventíon between tííe Uníted States and the íngdom of Denmark,
Treasury Decísíon 5692, C. . 19 9-1,10 . ít ís requíred that they be
fííed for each 3-caíendar-year períod. owever, ít ís not stated
whether the íetters of e emptíon prescríbed ín Treasury Decísíon
5 99, supra, and ín some other cases, cover an índefíníte períod of
e emptíon or must be renewed every 3 years as ín the case of the forms.
It wííí be noted that after the use of forms became generaí under
íater conventíons, reguíatíons prescríbíng the use of íetters ínstead
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103 ( 1 2.
of forms foííowed the pattern estabííshed wíth respect to forms gen-
eraííy and made the same provísíons as to the effectíve períod appíí-
cabíe to both. In thís regard, Treasury Decísíon 5897, C. . 1952-1,
S5, prescríbíng wíthhoídíng reguíatíons under the conventíon between
the Uníted States and the Repubííc of Ireíand, provídes that the íetter
of notífícatíon there prescríbed, ín sectíon 7.1002(b), must be renewed
for each 3-cníendar-year períod.
ccordíngíy, ít ís heíd that íetters of notífícatíon of e emptíon
from wíthhoídíng ta , used where forms are not prescríbed, fííed wíth
a wíthhoídíng agent, by a nonresídent aííen, as an authorízatíon for
the payment of íncome wíthout wíthhoídíng of Uníted States íncome
ta at source, pursuant to a ta conventíon, shaíí be renewed and fííed
wíth the wíthhoídíng agent for each successíve 3-caíendar-year períod
duríng whích the íncome ís payabíe.
Reíease of e cess ta wíthheíd, and e emptíon from, or reductíon
ín rate of, wíthhoídíng of ta at source ín the case of resídents of the
ederaí Repubííc of Germany, as affected by the íncome ta conven-
tíon between the Uníted States and the ederaí Repubííc of Germany.
SeeT.D. 6122, page 6 1.
Reíease of e cess ta wíthheíd, and e emptíon from, or reductíon ín
rate of, wíthhoídíng ta at source ín the case of resídents of apan,
as affected by the íncome ta conventíon between the Uníted States
and apan. SeeT.D. 6130, page 665.
arníngs of a pensíon trust deríved by a resídent trustee of a Uníted
State subsídíary of a Canadían corporatíon. See Rev. Ruí. 55-200,
page 633.
S CTION 1 2.-WIT OLDING O T ON
OR IGN CORPOR TIONS
Reíease of e cess ta wíthheíd, and e emptíon from, or reductíon ín
rate of, wíthhoídíng of ta at source ín the case of German companíes,
as affected by the íncome ta conventíon between the Uníted States
and the ederaí Repubííc of Germany. See T. D. 6122, page 6 1.
Reíease of e cess ta wíthheíd, and e emptíon from, or reductíon ín
rate of, wíthhoídíng of ta at source ín the case of apanese corpora-
tíons, as affected by the íncome ta conventíon between the Uníted
States and apan. See T. D. 6130, page 665.
W050
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1 71. 10
C PT R . € ” RUL S PPLIC L TO R CO RY O
C SSI PRO ITS ON GO RNM NT CONTR CTS
SU C PT R . € ” R CO RY O C SSI TRO ITS ON
GO RNM NT CONTR CTS
S CTION 1 71. € ” R CO RY O C SSI PRO ITS ON
GO RNM NT CONTR CTS
( íso Sectíon 1 81.) Rev. Ruí. 55-173
( íso Part II, Sectíon 380G.)
Contracts or pubcontracts sub|ect to renegotíatíon under the Renego-
tíatíon ct of 11)51, 05 Stat. 7, 50 . S. C. 1211-1233, C. 15. 1951-1, ISO,
as amended and e tended by Pubííc aw 7Gt, approved September 1,
11)5 , pase 620 of thís uííetín, 68 Stat. 1116, 50 pp. U. S. C. 1519, are
e empt from tbe profít-íímítatíon provísíons of the ínson ct, 8 Stat.
503, 505, 3 U. S. C. , as amended. Contracts or subcontracts e -
empted from renegotíatíon under sectíon 106(a) (8) of the Renegotíatíon
ct of 1051, supra, or whích otherwíse are not sub|ect to renegotíatíon,
are sub|ect to the profít-íímítatíon provísíons of the ínson ct, supra,
íf they are for the constructíon and/or manufacture of any compíete
navaí vesseí or rmy or Navy aírcraft, or any portíon thereof, and are
otherwíse wíthín the scope of such provísíons.
dvíce has been requested as to whether the e emptíon from rene-
gotíatíon of certaín contracts nnd subcontracts under the provísíons
of sectíon 10G(a) (8) of the Renegotíatíon ct of 1951, G5 Stat. 7, 50
U. S. C. 1211-1233, C. . 1951-1,180, as amended and e tended by Pub-
ííc Law 76 , approved September 1, 195 , 68 Stat. 1116, 50 pp.
IT. S. C. 1519, wííí cause the proíít-íímítatíon provísíons (sec. 3) of the
ínson ct, 8 Stat. 503, 505, 3 U. S. C. 9 , as amended, whích
were suspended ín certaín cases under the provísíons of sectíon 102(d)
of the Renegotíatíon ct of 1951, supra, to be appíícabíe wíth respect
to such contracts and subcontracts.
Sectíon 106 of the Renegotíatíon ct of 1951, as amended, supra,
provídes ín part as foííows:
(a) Mandatory emptíons. € ” The provísíons of thís títíe shaíí not appíy to € ”
(8) any contract or subcontract for the makíng or furníshíng of a standard
commercíaí artícíe, uníess the oard makes a specífíc Síídíng that competítíve
condítíons affectíng the saíe of such artícíe are such as wííí not reasonabíy pre-
vent e cessíve profíts. Thís paragraph shaíí appíy to any such contract or sub-
contract oníy íf (1) the contractor or subcontractor tííes, at such tíme nnd ín
such form and detaíí as the oard shaíí by reguíatíons prescríbe, such ínforma-
tíon and data as may be requíred by the oard under íts reguíatíons for the
purpose of enabííng ít to reach a decísíon wíth respect to the makíng of a specífíc
fíndíng under thís paragraph, and (2) wít bín a períod of sí mouths after the
date of fíííng of such ínformatíon and data, the oard faíís to make a specífíc
fíndíng that competítíve condítíons affectíng the saíe of such artícíe are such
as wííí not reasonabíy prevent e cessíve profíts, or (3) wíthín such sí -month
períod, the oard makes a specífíc fíndíng that competítíve condítíons affectíng
the saíe of such artícíe are such as wííí reasonabíy prevent e cessíve profíts.
ny contractor or subcontractor may waíve the e emptíon províded ín thís
paragraph wíth respect to receípts or accruaís ín any físcaí year by íncíudíng a
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105 81.
statement to stíeh effect ín the fínancíaí statement fííed í y sncíí contractor or
tvbcontractor for sucb físcaí year pursuant to sectíon 105(e) (1).
Under sectíon 5(b) of Pubííc Law 76 , supra, sectíon 10G (a) (8) of
(he Renegotíatíon ct of 1951, as amended, supra, shaíí appíy to con-
tracts wíth the Departments and subcontracts oníy to the e tent of the
amounts receíved or accrued by a contractor or subcontractor after
December 31, 1953.
Under the Renegotíatíon ct of 10 8, G2 Stat. 259, 50 U. S. C. 1193,
0. . 19 8-1, 238, and the Renegotíatíon ct of 1950, 6 Stat. 75 ,
C. . 1950-2, 2 8, aíí ínson ct contracts entered ínto after May 21,
19 8, and aíí subcontracts thereunder generaííy are e empt from the
ront-íímítatíon provísíons of the ínson ct, e cept those whích
ave been e empted from renegotíatíon by the Secretary of Defense
(or hís deíegate) as authorízed ín subsectíons (d) and (g) of the
Renegotíatíon ct of 19 8, supra. See I. T. 022, C. . 1950-2, 1 7.
Sectíon 102(d) of the Renegotíatíon ct of 1951, supra, provídes
that the profít-íímítatíon provísíons of the ínson ct shaíí not appíy
to any contract or subcontract íf any of the receípts or accruaís there-
from are sub|ect to Títíe 1 of that Renegotíatíon ct. Pubííc Law
76 , supra, e tended and amended the Renegotíatíon ct of 1951 wíth-
out change as to such suspensíon or e emptíon provísíons. Under the
provísíons of sectíon 1 of Pubííc Law 76 , supra, renegotíatíon wííí
not be appíícabíe to receípts or accruaís attríbutabíe to performance
after December 31, 195 .
ccordíngíy, based on the foregoíng provísíons, ít ís heíd that con-
tracts or subcontracts sub|ect to renegotíatíon under the Renegotía-
tíon ct of 1951, supra, as amended and e tended, are e empt from
the profít-íímítatíon provísíons of the ínson ct. Contracts and
subcontracts e empted from renegotíatíon under sectíon 106(a)(8)
of the Renegotíatíon ct of 1951, supra, or whích otherwíse are not
sub|ect to renegotíatíon, are sub|ect to the profít-íímítatíon provísíons
of the ínson ct íf they are for the constructíon and/or manufacture
of any compíete navaí vesseí or rmy or Navy aírcraft, or any portíon
thereof, and are otherwíse wíthín the scope of such provísíons.
SU C PT R . € ” MITIG TION O CT O R N GOTI TION O
GO RNM NT CONTR CTS
S CTION 1 81. € ” MITIG TION O CT O R N GO-
TI TION O GO RNM NT CONTR CTS
ffect of ínson ct, 8 Stat. 503 at 505,3 U. S. C. 9 , as amended,
on contracts and subcontracts sub|ect to or e empted from renegotía-
tíon under the Renegotíatíon ct of 1951, 65 Stat. 7, 51 U. S. C. 5,
C. . 1951-1, 180, as amended and e tended. See Rev. Ruí. 55-173,
page 10 .
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106
C PT R 5. € ” T ON TR NS RS TO OID INCOM
T
S CTION 1 91. € ” IMPOSITION O T
26 C R 1.1 91-1: Imposítíon of ta . T. D. G127
( íso Sectíons 1 92,1 93,1 9 26 C R
1.1 92-1, 1.1 93-1, 1.1 9 -1.)
TITL 2G € ” INT RN L R NU . € ” C PT R I, SU C PT R . P RT 1 € ”
INCOM T T L T RS GINNING T R D C M R 31, 1053
Reguíatíons prescríbed under chapter 5 of the Internaí Revenue
Code of 195 .
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 25, D. C.
To Offícers and mpíoyees of the Internaí Revenue Servíce and
Others Concerned:
On anuary 28, 1955, notíce of proposed ruíemakíng wíth respect
to reguíatíons under chapter 5 (reíatíng to ta on transfers to avoíd
íncome ta ) of the Internaí Revenue Code of 195 (Pubííc Law 591,
83d Cong., approved ugust 16, 195 ), was pubííshed ín the ederaí
Regíster (20 . R. 619). No comments regardíng the reguíatíons
proposed were receíved duríng the oO-day períod prescríbed ín such
notíce, and the reguíatíons as so pubííshed are hereby adopted.
ta on transfers to avoíd íncome ta
Sec. 1.1 91, Statutory Provísíons Imposítíon of Ta .
S C. 1 91. IMPOSITION O T .
There Is hereby Imposed on the transfer of stock or securítíes by a
cítízen or resídent of the Uníted States, or by a domestíc corporatíon
or partnershíp, or by a trust whích ís not a foreígn trust, to a foreígn
corporatíon as paíd-ín surpíus or ns a contríbutíon to capítaí, or to a
foreígn trust, or to a foreígn partnershíp, an e císe ta equaí to 27 í
percent of the e cess of € ”
(1) The vaíue of the stock or securítíes so transferred, over
(2) Its ad|usted basís (íor determíníng gaín) ín the hands of the
transferor.
Sec 1.1 91-1. Imposítíon of Ta . € ” Sectíon 1 91 ímposes an e císe
ta upon transfers of stock or securítíes by a cítízen or resídent of the
Uníted States, or by a domestíc corporatíon or partnershíp, or by a
trust whích ís not a foreígn trust, to a foreígn corporatíon as paíd-ín
surpíus or as a contríbutíon to capítaí, or to a foreígn trust, or to
a foreígn partnershíp. The ta ís ín an amount equaí to 27y2 percent
of the e cess of (a) the vaíue of the stock or securítíes so transferred
over (b) íts ad|usted basís, as províded ín sectíon 1011, for deter-
míníng gaín ín the hands of the transferor.
Sec. 1.1 92. Statutory Provísíons Nonta abíe Transfers,
sec. 1 92. nonta abíe transfers.
The ta ímposed by sectíon 1 91 shaíí not appíy € ”
(1) If the transferee ís an organízatíon e empt from Income ta
under part I of subchapter of chapter 1 (other than an organízatíon
descríbed In sectíon 01(a)) or
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107 f 1 91.
(2) If before ttíe transfer It hns been estabííshed to the satísfactíon
of the Secretary or bís deíegate that such transfer ís not ín pursuance
of a pían havíng as one of íts príncípaí purposes the avoídance of ederaí
íncome ta es.
Sec. 1.1 92-1. Nonta abíe Transfers. € ” (a) The ta ímposed by
sectíon 1 91 does not appíy:
(1) If the transferee ís an organízatíon (other than an organí-
zatíon descríbed ín sectíon 01(a)) e empt from íncome ta under
the provísíons of sectíons 501 to 50 , íncíusíve or
(2) If before the transfer ít has been estabííshed to the satísfac-
tíon of the Commíssíoner of Internaí Revenue that the transfer ís
not ín pursuance of a pían havíng as one of íts príncípaí purposes
the avoídance of ederaí íncome ta es.
(b) Whether a transfer of stock or securítíes ís ín pursuance of a
pían havíng as one of íts príncípaí purposes the avoídance of ederaí
íncome ta es ís a questíon to be determíned from the facts and círcum-
stances of each partícuíar case. In any such case where a transferor
desíres to estabíísh that the transfer ís not ín pursuance of such a pían,
a statement of the facts reíatíng to the pían under whích the transfer
ís to be made or was made, together wíth a copy of the pían íf ín wrít-
íng, shaíí be forwarded to the Commíssíoner of Internaí Revenue,
Washíngton 25, D. C, for a ruííng. Thís statement shaíí contaín, or
be verífíed by, a wrítten decíaratíon that ít ís made under the penaítíes
of per|ury. íetter notífyíng the transferor of the Commíssíoner s
determínatíon wííí be maííed to the transferor.
Sec. 1.1 93. Statutory Provísíons Defínítíon or oreígn Trust.
S C. 1 93. D INITION O OR IGN T UST
trust shaíí be consídered a foreígn trust wíthín the meaníng of thís
chapter íf, assumíng a subsequent saíe by the trustee, outsíde the Uníted
States and for cnsb, of the property so transferred, the profít, íf any,
íí ín such saíe wouíd not be íncíuded ín the gross íncome of the trust
under thís subtítíe.
Sec. 1.1 93-1 Defínítíon of oreígn Trust. € ” (a) trust ís to be
consídered a foreígn trust wíthín the meaníng of chapter 5 íf, assum-
íng a subsequent saíe by the trustee, outsíde the Uníted States and for
cash, of the property transferred to the trust, the profít, íf any, from
such saíe (beíng íncome from sources wíthout the Uníted States
under the provísíons of sectíons 8G1 to 86 , íncíusíve) wouíd not be
íncíuded ín the gross íncome of the trust under subtítíe .
(b) domestíc corporatíon or partnershíp ís one organízed or
created ín the Uníted States, íncíudíng oníy the States, the Terrítoríes
of íaska and awaíí, and the Dístríct of Coíumbía, or under the
íaw of the Uníted States or of any State or Terrítory and a foreígn
corporatíon or partnershíp ís one whích ís not domestíc.
Sec. 1.1 9 . Statutory Provísíons Payment and Coííectíon.
sec. 1 0 . í aysíent and coííectíon.
(a) Tíme foc Payment. € ” The ta ímposed by sectíon 1 91 shaíí, wíth-
out as-sessnu-íít or notíce and demand, be due and payabíe by the trans-
feror at the tíme of the transfer, and shaíí be assessed, coííected, and paíd
under reguíatíons prescríbed by the Secretary or hís deíegate.
(b) batement or efund. € ” Under reguíatíons prescríbed by the Sec-
retary or hís deíegate, the ta may be abated, remítted, or refunded íf
after the transfer ít has been estabííshed to the satísfactíon of the Secre-
tary or hís deíegate that such transfer was not ín pursuance of a pían
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1 91. 108
havíng ns one of íts príncípaí purposes the avoídance of ederaí íncome
ta es,
Sec. 1.1 9 -1. Rf.tt| íns Payment and Coííectíon of Ta . € ” (a)
Returns and payment. € ” very person makíng a transfer descríbed ín
sectíon 1 91 shaíí make a return to the dístríct dírector on the day on
whích the transfer ís made and, uníess the transfer ís nonta abíe un-
der sectíon 1 92, pay the ta due on such transfer. Thís return, whích
shaíí contaín, or be verífíed by, a wrítten decíaratíon that ít ís maríe
under the penaítíes of per|ury, shaíí be made on orm 92G and shaíí
be fííed wíth the dístríct dírector to whom the transferor s return of
íncome ís requíred to be made. The return shaíí set forth ín detaíí
the foííowíng ínformatíon:
(1) Name and address of transferor, and píace of organízatíon
or creatíon, íf a corporatíon, partnershíp, or trust.
(2) Name and address of transferee, píace of organízatíon or
creatíon, and whether the transferee ís a foreígn corporatíon, a
foreígn trust, or a foreígn partnershíp. If the transferee ís a
foreígn trust or a foreígn partnershíp, the name and address of
the fíducíary and each benefícíary, ín the case of a trust, or of each.
partner, ín the case of a partnershíp, must be shown.
(3) Descríptíon and amount of stock or securítíes transferred,
the date of transfer, and a compíete statement showíng aíí the
facts reíatíng to the transfer, accompaníed by a copy of the pían
under whích the transfer was made.
( ) The faír market vaíue of the stock or securítíes transferred
as of the date of transfer, and the ad|usted basís províded ín sec-
tíon 1011 for determíníng gaín ín the hands of the transferor.
(5) Whether the transfer was made ín pursuance of a pían
submítted to and approved by the Commíssíoner of Internaí Rev-
enue as not havíng as one of íts príncípaí purposes the avoídance
of ederaí íncome ta es. If the pían has been so approved, a
copy of the Commíssíoner s íetter approvíng the pían shaíí accom-
pany the return.
(6) Such other ínformatíon as may be requíred by the return
form.
(b) Certífícate. € ” (1) If the transferee of the stock or securítíes,
the transfer of whích ís reported ín the return, ís a foreígn organíza-
tíon meetíng the tests of e emptíon from íncome ta províded ín sec-
tíons 501 to 50 , íncíusíve, and the transferor on that account cíaíms
that no ííabíííty for ta ís ímposed by sectíon 1 91, such transferor
must fííe wíth orm 920 a certífícate estabííshíng the e emptíon of
the transferee under sectíons 501 to 50 , íncíusíve. Thís certífícate,
whích shaíí contaín, or he verífíed by, a wrítten decíaratíon that ít ís
made under the penaítíes of per|ury, shaíí contaín compíete ínforma-
tíon showíng the character of the transferee, the purpose for whích
ít was organízed, íts actuaí actívítíes, the source of íts íncome and the
dísposítíon of such íncome, whether or not any of íts íncome ís credíted
to surpíus or may ínure to the benefít of any prívate sharehoíder or
índívíduaí, and ín generaí aíí facts reíatíng to íts operatíons whích
affect íts ríght to e emptíon. To such certífícate shaíí be attached a
copy of the charter or artícíes of íncorporatíon, the by-íaws of the
organízatíon, and the íatest fínancíaí statement showíng the assets,
ííabííítíes, receípts, and dísbursements of the organízatíon.
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109 9 .
( € 2 ) If the transferee ís a foreígn organízatíon whích has been heíd
to be e empt from íncome ta under sectíons 501 to 50 , íncíusíve (or
correspondíng provísíons of príor íaw), a copy of the Commíssíoner s
íetter so hoídíng shaíí be fííed wíth orm 926 ín ííeu of the above
certífícate and attachments.
(c) ssessment and coííectíon. € ” The determínatíon, assessment,
untí coííectíon of the ta and the e amínatíon of returns and cíaíms
tííed pursuant to chapter 5 wííí be made under such procedure as may
íe prescríbed from tíme to tíme by the Commíssíoner.
Sec. 1.1 9 -2. ffectíve Date. € ” Chapter 5 of the Internaí Reve-
nue Code of 195 (sees. 1 91 through 1 9 ) and the reguíatíons píe-
scríbed thereunder appíy wíth respect to transfers occurríng after
December .31, 195 . (See sec. 7851(a)(1)( ).) Chapter 7 of the
Internaí Revenue Code of 1939 (sees. 1250 through 125 ) and the
reguíatíons appíícabíe thereto appíy wíth respect to transfers occur-
ríng príor to anuary 1, 1955.
(Thís Treasury Decísíon ís íssued under the authoríty contaíned
ín sec. 7805 of the Internaí Revenue Code of 195 (68 Stat. 917).)
T. Coíeman ndrews,
Commíssíoner of Internaí Revenue.
pproved March 15, 1955.
M. I . oí-so r,
ctíng Secretary of the Treasury.
( ííed wíth the Dívísíon of the ederaí Regíster March 17, 1055, 8: 9 a. m.)
S CTION 1 92.-NONT I3L TR NS RS
26 C R 1.1 92-1: Nonta abíe transfers.
Reguíatíons under chapter 5 of the Internaí Revenue Code of 195
reíatíng to transfers of stock and securítíes to foreígn enterpríses to
avoíd íncome ta . See T. D. G127, page 106.
S CTION 1 93. € ” D INITIONS O OR IGN TRUST
26 C R 1.1 93-1: Defínítíon of foreígn trust.
Reguíatíons under chapter 5 of the Internaí Revenue Code of 195
reíatíng to transfers of stock and securítíes to foreígn enterpríses to
avoíd íncome ta . See T. D. 6127, page 106.
S CTION 1 9 .-P YM NT ND COLL CTION
26 C R 1.1 9 -1: Returns payment and coííec-
tíon of ta .
Reguíatíons under chapter 5 of the Internaí Revenue Code of 195
reíatíng to transfers of stock and securítíes to foreígn enterpríses to
avoíd íncome ta . See T. D. 6127, page 106.
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S 2031. 110
C PT R 6. € ” CONSOLID T D R TURNS
SU C PT R . € ” R TURNS ND P YM NT O T
S CTION 1501. € ” PRI IL G TO IL CONSOLID T D
R TURNS
tensíon of tíme for fíííng a short ta abíe year return of a subsíd-
íary corporatíon. See Rev. Ruí. 55-108, page 1 0.
tensíon of tíme for fíííng consoíídatíon returns. See Rev. Ruí.
55-17 , page 1 1.
SU TITL . € ” ST T ND GI T T S
C PT R 11. € ” ST T T
SU C PT R .- ST T O CITIZ NS OR R SID NTS
P RT III. € ” GROSS ST T
S CTION 2031. € ” D INITION O GROSS ST T
( íso Sectíons 2032, 2512.) Rev. Ruí. 55-71
( íso Part II, Sectíons 811, 1005 Reguía-
tíons 105, Sectíon 81.10 Reguíatíons 108,
Sectíon 80.19.)
The ederaí e císe ta on |eweíry, furs, and reíated artícíes of
personaí property ís a reíevant factor whích shouíd be consídered
ín determíníng the faír market vaíue of such property for ederaí
estate amí gíft ta purposes.
dvíce has been requested whether the ederaí e císe ta on |eweíry,
furs and reíated artícíes of personaí property shouíd be consídered ín
determíníng (he faír market vaíue of such property for ederaí
estate and gíft ta purposes.
Sectíons 2031, 2032, and 2512 of the Internaí Revenue Code of 105
(sectíons 811 and 1005 of the Internaí Revenue Code of 1039) requíre
that the property to be íncíuded ín the decedent s gross estate, or made
the sub|ect of a gíft, shaíí be ta ed on the basís of the vaíue of the
property at the tíme of the death of the decedent, the optíonaí vaíua-
tíon date, íf so eíected, or the date of gíft.
Sectíon 81.10 of state Ta Reguíatíons 105 and sectíon 86.19 of
Gíft Ta Reguíatíons 108, made appíícabíe here by Treasury Decísíon
6091, C. . 195 -2, 7, províde that the vaíue of property íncíud-
íbíe ín the decedent s gross estate or made the sub|ect of a gíft, ís íts
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Iíí 2031.
faír market vaíue as of the appíícabíe vaíuatíon date or at the tíme
of the gíft. Those sectíons defíne faír market vaíue as the príce at
whích the property wouíd change hands between a wííííng buyer and
8 wííííng seííer when the former ís not under any compuísíon to buy
and the íatter ís not under any compuísíon to seíí. The reguíatíons
farther províde that aíí reíevant facte and eíements of vaíue as of the
appíícabíe vaíuatíon date shouíd be consídered.
Whííe the determínatíon of faír market vaíue ís a questíon of fact,
the questíon of whích críteríon or standard shouíd be used ín determín-
íng the vaíue of property for estate or gíft ta purposes ís a questíon
of íaw. See Madeíeíne D. Powers v. Commíssíoner, 312 U. S. 259,
Ct. D. 1 89, C. . 19 1-1, 8.
In Rose Pubíícker v. Commíssíoner, 206 ed. (2d) 250, certíorarí
deníed, 3 6 U. S. 92 , ít was heíd that where |eweíry was purchased at
retaíí by a ta payer and made the sub|ect of gífts, the ederaí e císe
ta shouíd be íncíuded ín ascertaíníng the vaíue of the |eweíry for
ederaí gíft ta purposes. The court stated that ín víew of the
írreconcííabíe confííct of testímony of the e pert wítnesses, the cost of
the |eweíry, íncíudíng that part of the donor s cost of the gífts whích
represented the ederaí e císe ta , was consídered as the best evídence
of vaíue. To the same effect, see nthony D. Duíte v. Commíssíoner,
200 ed. (2d) 82, certíorarí deníed, 3 5 U. S. 906, and state of rank
M. Gouíd v. Commíssíoner, 1 T. C. 1 .
In íorence Guggenheím v. Rasquín, 312 U. S. 25 , Ct. D. 1 87,
C. . 19 1-1, 5, ít was heíd that the vaíue of síngíe premíum íífe
ínsurance poíícíes, whích were írrevocabíy assígned símuítaneousíy
wíth íssuance, ís cost to the donor rather than theír cash surrender
vaíue at the tíme of the transfer. The Court stated, Presump-
tíveíy the vaíue of these poíícíes at the date of the gíft was the amount
whích the ínsured had e pended to acquíre them. Cost ís cogent
evídence of vaíue. nd here ít ís the oníy suggested críteríon whích
refíects the vaíue to the owner . Cost ín thís sítuatíon ís not
market príce ín the normaí sense of the term. ut the absence of
market príce ís no barríer to vaíuatíon. See aíso state of Ríchard
C. DuPont v. Commíssíoner, 18 T. C. 113 , whereín the Ta Court
heíd that, for estate ta purposes, the proper measure of the vaíue of
certaín ínsurance poíícíes, owned by the decedent on the íífe of hís
father, was the repíacement cost thereof or, ín the absence of such
repíacement cost, the respectíve ínterpoíated termínaí reserve vaíue
thereof.
The e ístence of the ederaí e císe ta on |eweíry, furs, and other re-
íated artícíes of personaí property soíd by deaíers, ís an ítem whích
wííí tend to íncrease the amount at whích an índívíduaí or an estate
wouíd be wííííng to seíí such property. It ís an eíement whích affects
the generaí market for that type of property.
In víew of the foregoíng, ít ís heíd that the ederaí e císe ta on
|eweíry, furs, and reíated artícíes of personaí property ís a reíevant
factor whích shouíd be consídered ín determíníng the faír market
vaíue of such property for ederaí estate and gíft ta purposes.
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2033. 112
S CTION 2032. € ” LT RN T LU TION
aíuatíon of |eweíry, furs, and reíated artícíes of personaí property
ín ederaí estate ta returns. See Rev. Ruí. 55-71, page 110.
S CTION 2033. € ” PROP RTY IN W IC T D C D NT
D N INT R ST
( íso Part II, Sectíon 811(a) Reguíatíons 105, Rev. Ruí. 55-87
Sectíon 81.13.)
The íump sum payabíe under Títíe II of the Socíaí Securíty ct,
as amended, to the wídow or wídower of the deceased or to any per-
son or persons equítabíy entítíed thereto ís not íncíudíbíe ín the
decedent s gross estate for ederaí estate ta purposes.
dvíce has been requested whether the íump sum payment receíved
by the e ecutors or admínístrators of the estate pursuant to sectíon
202(í) of the Socíaí Securíty ct, as amended, Pubííc Law 269,
íghty-thírd Congress, approved ugust 1 , 1953, 67 Stat. 580, 2
U. S. C. 02 (í), ís íncíudíbíe ín the decedent s gross estate for ederaí
estate ta purposes.
Sectíon 2033 of the Internaí Revenue Code of 195 (sectíon 811(a)
of the 1939 Code) provídes as foííows:
The vaíue of the gross estate shaíí íncíude the vaíue of aíí property (e cept
reaí property sítuated outsíde of the Uníted States) to the e tent of the ínterest
thereín of the decedent at the tíme of hís death.
Sectíon 202 (í) of the Socíaí Securíty ct, as amended, provídes ín
part as foííows:
Upon the death, after ugust 1950, of an Indívíduaí who díed a fuííy or cur-
rentíy ínsured índívíduaí, an amount equaí to three tímes such índívíduaí s
prímary ínsurance amount shaíí be paíd ín a íump sum to the person. If any,
determíned by the dmínístrator to be the wídow or wídower of the deceased and
to have been íívíng wíth the deceased at the tíme of death. If there Is no such
person, or íf such person díes before receívíng payment, then such amount shaíí
be paíd to any person or persons equítabíy entítíed thereto, to the e tent and ín
the proportíons that he or she shaíí have paíd the e penses of buríaí of such
ínsured índívíduaí. .
amínatíon of the nature of the payments under the above-quoted
sectíon of the Socíaí Securíty ct díscíoses that the decedent had no
controí over the desígnatíon of the benefícíary or the amount of the
payment sínce these are fí ed by the statute. urthermore, the dece-
dent had no property ínterest ín the ederaí Oíd ge and Survívors
Insurance Trust und from whích the payment ís made.
In víew of the foregoíng, ít ís heíd that the íump sum death payment
receíved by the e ecutors or admínístrators of the estate of the dece-
dent under Títíe II of the Socíaí Securíty ct, as amended, does not
constítute property of the decedent at the tíme of hís death wíthín
the meaníng of sectíon 2033 of the Internaí Revenue Code of 195 .
ccordíngíy, the íump sum death payment ís not íncíudíbíe ín the de-
cedent s gross estate for ederaí estate ta purposes. Compare . T.
10, C. . 1937-2, 09, and . T. 18, C. . 19 0-2,285.
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113 2503(b).
C PT R 12. € ” GI T T
SU C PT R .-D T RMIN TION O T LI ILITY
S CTION 2503. € ” T L GI TS
( íso Part IT, Sectíon 1003(b) Reguíatíons Rev. Ruí. 55- 08
103, Sectíon 86.11.)
Where a poíícy of ínsurance, whích grants to the owner the usuaí
íncídents of ownershíp, íncíudíng the ííght to change the benefícíary
and the ríght to surrender the poíícy for íts cash vaíue, íf any, ís
transferred or assígned to a donee as absoíute owner, and the donee,
or hís guardían, ís not íestrícted ín any manner from e ercísíng aíí
íegaí íncídents of ownershíp ín the poíícy, by príor endorsement or
otherwíse, a gíft of the poíícy and subsequent payment of premíums
thereon 1 t the doííor wííí constítute gífts of present ínterests for the
purpose of determíníng the gíft ta e cíusíon authorízed by sectíon
2303(b) of the Internaí Revenue Code of ) - .
dvíce has been requested ín víew of the decísíon ín Nashvíííe Trust
Company v. Commíssíoner, Ta Court Memorandum Opíníon entered
November 15, 19 3, whether gífts of íífe ínsurance poíícíes, whích
have no ímmedíate cash vaíue, are gífts of present or future ínterests
for ederaí gíft ta purposes.
The Nashvíííe Trust Company case ínvoíved gífts of ínsurance
poíícíes havíng no cash vaíues, the poíícíes havíng been assígned ím-
medíateíy after theír íssuance. efore assígníng the poíícíes the
donor had e ecuted settíement optíons whích, by the terms thereof,
íímíted the ínterests of the donees to future ínterests and ín the audít
of the gíft ta return the cíaímed e cíusíons were dísaííowed. The
donor híed a petítíon wíth The Ta Court of the Uníted States. In
sustaíníng the Commíssíoner s determínatíon that the gífts were of
future ínterests, the Ta Court commented upon the fact that the
poíícíes had no cash or íoan vaíues. owever, as the gífts were of
future ínterests by reason of the terms of the settíement optíons e er-
císed by the donor príor to the assígnments, ít ís not beííeved the
decísíon can be consídered as authoríty for hoídíng that a gíft of an
ínsurance poíícy ís a gíft of a future ínterest uníess ít has a cash vaíue.
Sectíon 80.11 of Gíft Ta Reguíatíons 108, defíníes the term future
ínterests as foííows:
uture ínterests ís a íegaí term, and íncíudes reversíons, remaínders, and
fíther ínterests or estates, whether vested or contíngent, and whether or not
supported by a partícuíar ínterest or estate, whích are íímíted to commence ín
use, possessíon, or en|oyment at some future date or tíme. The term has no
reference to such contractuaí ríghts as e íst ín a bond, note (though bearíng
w ínterest untíí maturíty), or ín a poíícy of íífe ínsurance, the obíígatíons of
whích are to be díscharged by payment ín the future. ut a future ínterest or
ínterests ín such contractuaí obíígatíons may be created by the íímítatíons con-
taíned ín a trust or other Instrument of transfer empíoyed ín effectíng a gíft.
Under the reguíatíons a gíft of an ínsurance poíícy havíng no cash
vaíue ís not a gíft of a future ínterest mereíy because the poíícy has
no cash vaíue. owever, a gíft of an ínsurance poíícy, whether or
not ít has a cash vaíue, may or may not be a gíft of a future ínterest,
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3121. 11
dependíng upon whether, by the terms of the gíft, the ínterests of the
donee ín the poíícy are ín some manner restrícted. Compare Nashvíííe
Trust Company v. Commíssíoner, supra.
ccordíngíy, ít ís heíd that where a poíícy of ínsurance, whích
grants to the owner the usuaí íncídents of ownershíp, íncíudíng the
ríght to change the benefícíary and the ríght to surrender the poíícy
for íts cash vaíue, íf any, ís transferred or assígned to a donee as
absoíute owner, and the donee, or hís guardían, ís not restrícted ín
any manner from e ercísíng aíí íegaí íncídents of ownershíp ín the
poíícy, by príor endorsement or otherwíse, a gíft of the poíícy and
subsequent payment of premíums thereon by the donor wííí constítute
gífts of present ínterests for the purpose of determíníng the gíft ta
e cíusíon authorízed by sectíon 2503(b) of the Internaí Revenue
Code of 195 .
SU C PT R .-TR NS RS
S CTION 2512. € ” LU TION O GI TS
aíuatíon of |eweíry, furs, and reíated artícíes of personaí property
ín ederaí gíft ta returns. See ev. uí. 55-71, page 110.
SU TITL C € ” MPLOYM NT T S
C PT R 21. € ” D R L INSUR NC CONTRI UTIONS
CT
SU C PT R C.-G N R L PRO ISIONS
S CTION 3121. € ” D INITIONS
( íso Sectíon 3102.) ev. uí. 55-203
( íso Part II, Sectíons 1 26,1022 Reguíatíons
128, Sectíon 08.220 Reguíatíons 120, Sec-
tíon 00.300.)
mounts paíd pursuant to sectíon 10(c) of the aír Labor Stand-
ards ct, as amended effectíve anuary 2 ), í 0, on account of un-
paíd mínímum wages or unpaíd overtíme compensatíon constítute
wages for purposes of ederaí empíoyment ta es and íncome ta
wíthhoídíng. The empíoyee ta under sectíon 8101 of the ederaí
Insurance Contríbutíons rt and the íncome ta requíred to be coí-
íected at source under sectíon 3 02 of the Internaí Revenue Code
of í í í shouíd be deducted by the empíoyer at the tíme the wages
are paíd over to the Government for dístríbutíon to the empíoyees.
Such ta es, and the empíoyer ta under sectíon 8111 of the ederaí
Insurance Contríbutíons ct shouíd be reported ín the current quar-
teríy return Díed by the empíoyer.
n ínquíry has been receíved reíatíve to the ta abíííty and treatment
for purposes of the ederaí Insurance Contríbutíons ct and Coí-
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115 3121.
íotíon of Income Ta at Source on Wages (chapters 21 and 2 , re-
spectíveíy, subtítíe C, Internaí Revenue Code of 195 ) of wages re-
covered pursuant to sectíon 16(c) of the aír Labor Standards ct,
as amended effectíve anuary 25,1950, 29 U. S. C. 216 (c).
Sectíon 16(c) of the aír Labor Standards ct, as amended, au-
thorízes the dmínístrator of the Wage and our Dívísíon, U. S.
Department of Labor, to bríng an actíon ín court agaínst an empíoyer
on behaíf of one or more empíoyees to recover unpaíd mínímum wages
and unpaíd overtíme compensatíon due empíoyees. The sums thus
recovered are heíd ín a specíaí deposít account and are paíd, on the
order of the dmínístrator, dírectíy to the empíoyee or empíoyees
affected. The names of the empíoyers who paíd the |udgments are
furníshed to the Dístríct Dírector of Internaí Revenue ín order that
empíoyment ta returns may be secured.
mounts paíd by empíoyers pursuant to sectíon 16(c), supra, on
account of unpaíd mínímum wages or unpaíd overtíme compensatíon
are paíd ín consíderatíon of servíces performed for the empíoyer and
constítute wages for purposes of ederaí empíoyment ta es and ín-
come ta wíthhoídíng. The ederaí Insurance Contríbutíons ct
ernpíovee ta and the íncome ta requíred to be coííected at source
shouíd be deducted and wíthheíd at tho tíme the empíoyer turns the
money over to the Government for dístríbutíon to the índívíduaís ín-
voíved. Such ta es, together wíth the empíoyer ta ímposed by the
ederaí Insurance Contríbutíons ct, shouíd be reported ín the m-
píoyer s uarteríy ederaí Ta Return, orm 9 1, for the quarter
duríng whích the ta es were deducted and wíthheíd and shouíd he
paíd to the Government ín the usuaí manner. The empíoyer shouíd
furnísh the empíoyee a Wíthhoídíng Ta Statement, orm W-2,
showíng the amount of the payment attríbutabíe to hís servíces and
the amount of the ederaí íncome ta wíthheíd. Where other wages
are paíd to the empíoyee duríng the caíendar year, the wages paíd
pursuant to sectíon 16(c) shouíd be íncíuded ín the totaí wages re-
ported ín the wíthhoídíng statement. See S. S. T. 393, C. . 19 0-1,
213, wíth respect to payments made to empíoyees pursuant to sectíon
16(b) of the aír Labor Standards ct of 1938.
( íso Sectíon 3 01.) Rev. Ruí. 55-232
( íso Part II, Sectíons 1 26,1621 Reguía-
tíons 128, Sectíon 08.226 Reguíatíons
120, Sectíon 0G.207.)
The cash vaíue of awards earned by saíesmen through theír efforts
to íncrease saíes for theír empíoyer constítutes addítíonaí wages to
the saíesmen for purposes of ederaí empíoyment ta es and the
wíthhoídíng of íncome ta , even though tíe awards are made to
the wíves of the saíesmen.
questíon has been raísed whether the cash vaíue of awards made
to saíesmen s wíves by the saíesmen s empíoyer, as a resuít of efforts
of the saíesmen to make addítíonaí saíes duríng a saíes promotíon
campaígn, constítutes addítíonaí wages for purposes of the ederaí
Insurance Contríbutíons ct and Coííectíon of Income Ta at Source
on Wages (chapters 21 and 2 respectíveíy, subtítíe C, Internaí Reve-
nue Code of 195 ).
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3121. 116
In S. S. T. 29, C. . -2, 17 (1936), ít ís heíd that for ederaí
empíoyment tu purposes prízes awarded to saíesmen as wínners of
contests conducted by theír empíoyer constítute addítíonaí wages.
or purposes of the ederaí Insurance Contríbutíons ct and íncome
ta wíthhoídíng, wages consíst of aíí remuneratíon for servíces per-
formed by an empíoyee for hís empíoyer, íncíudíng the cash vaíue of
aíí remuneratíon paíd ín any medíum other than cash, wíth certaín
e ceptíons not here materíaí.
It ís heíd that the cash vaíue of awards earned by saíesmen through
theír efforts to íncrease saíes for theír empíoyer constítutes addítíonaí
wages for purpose of the ederaí Insurance Contríbutíons ct and
íncome ta wíthhoídíng, írrespectíve of the fact that such awards,
aíthough earned by the saíesmen, are íssued to the saíesmen s wíves
by the empíoyer.
( íso Part II, Sectíon 1 26 Reguíatíons 128, Rev. Ruí. 55-233
Sectíon 08.20-1.)
n Indívíduaí entered Into an agreement wíth an organízatíon
to perform servíces on íts behaíf as an organízer of forum-type
dínner cíubs. The índívíduaí seíects the cítíes ín whích he estab-
ííshes cíubs, determínes the heíp requíred, and engages, pays, and
dírects such heíp. e ís not requíred to gíve preference to the
organízatíon s affaírs, to work a specífíed number of hours, to estab-
íísh a mínímum number of cíubs, or to furnísh reports, other than a
report on the number of members secured. e receíves a com-
míssíon based on the membershíp of each cíub estabííshed by hím.
e ís not aííowed a drawíng account and he ís not reímbursed for
e penses. eíd, the índívíduaí ís not an empíoyee of the organí-
zatíon for ederaí empíoyment ta purposes.
ruííng has been requested whether an índívíduaí who organízes
forum-type dínner cíubs on behaíf of an organízatíon, under the
círcumstances descríbed beíow, ís an empíoyee of the organízatíon for
purposes of the ederaí Insurance Contríbutíons ct (chapter 21,
subtítíe C, Internaí Revenue Code of 195 ).
n organízatíon whose purposes generaííy are to promote socíaí
contacts among busíness and professíonaí íeaders and to keep the
pubííc at íarge ínformed on modern pubííc and prívate probíems of
government, busíness, índustry, fínance and the professíons through
addresses by natíonaí íeaders, engaged an índívíduaí to perform serv-
íces as an organízer of forum-type dínner cíubs. Under the organí-
zatíon s operatíonaí procedure, cíubs are organízed from coast to coast
dínners are arranged monthíy, e cept duríng the summer, for the cíub
members and natíonaííy known índívíduaís are obtaíned as guest
speakers at such dínners. Under the terms of an agreement between
the partíes, the organízer receíves a portíon of the membershíp fee
for eacíí person who becomes a member duríng the cíub s fírst físcaí
year. e has no fínancíaí ínterest ín a cíub estabííshed by hím after
that períod. e seíects the cítíes ín whích he estabííshes the cíubs
and ís not requíred to confíne hís actívítíes to anv specífíed terrítory.
Shouíd he be unabíe to organíze a group suffícíentíy íarge to oe
accepted by the organízatíon, he wouíd be obííged to refund aíí fee
payments and aíí e penses íncurred ín such effort wouíd be borne by
hím. e ís not requíred to work any specífíed number of hours per
day or week, or to furnísh any reports other than to advíse the organí-
zatíon of the number of members secured after the organízatíon of a
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117 3121.
cíub ís compíeted. e ís not obíígated to estabíísh a mínímum number
of cíubs and ís furníshed no íeads by the organízatíon concerníng
members, or píaces where cíubs míght be organízed. If needed, he
engages heípers and they are sub|ect to hís dírectíon and controí and
are paíd by hím. e performs no other servíces for the organízatíon
and ís not requíred to gíve preference to hís servíces on the organí-
atíon s behaíf. The arrangement may be termínated by eíther party
at any tíme for any reason.
Sectíon 3121(d) of the ederaí Insurance Contríbutíons ct pro-
rídes, among other thíngs, that the term empíoyee means any índí-
víduaí who under the usuaí common íaw ruíes appíícabíe ín deter-
míníng the empíoyer-empíoyee reíatíonshíp has the status of an
empíoyee. Whether an índívíduaí ís an empíoyee under the usuaí
míníon íaw ruíes depends upon the partícuíar facts ín each case.
The guídes for determíníng, under the usuaí common íaw ruíes,
whether an empíoyer-empíoyee reíatíonshíp e ísts are found ín sectíon
08.20 (c) of Reguíatíons 128, appíícabíe to the provísíons of the
Internaí Revenue Code of 195 by vírtue of T. D. 6091, C. . 195 -2,
7, untíí superseded by reguíatíons íssued under the 195 Code.
In the ínstant case, ít ís determíned that the organízatíon for whích
the índívíduaí performs servíces as an organízer of forum-type dínner
ubs neíther e ercíses nor has the ríght to e ercíse such controí over
t e índívíduaí ín the performance of hís servíces as ís necessary under
the usuaí common íaw ruíes to estabíísh the reíatíonshíp of empíoyer
amí empíoyee for ederaí empíoyment ta purposes.
( íso Part IT, Sectíon 1120 Reguíatíons 128, Rev. Ruí. 55-2 7
Sectíon 08.21 .)
Servíces of cívííían empío rees of State Natíonaí Guards and uníts
hereof are e cepted from empíoyment as servíces performed ín the
empíoy of a State under sectíon 3121(b)(7) of the ederaí Insur-
ance Contríbutíons ct (chapter 21, subtítíe C, Internaí Revenue Code
of 105 ). ccordíngíy, the ta es ímposed by the ct are not ap-
píícabíe to the remuneratíon for such servíces. Thís ruííng ís aíso
appíícabíe under the provísíons of sectíon 1 20(b) (8) of the Internaí
Revenue Code of 1939.
ffectíve as of anuary 1, 1951, sectíon 218(b)(5) of the Socíaí
Securíty ct, as amended by the Socíaí Securíty mendments of
195 , provídes that certaín cívííían empíoyees of State Natíonaí
Guard uníts shaíí be deemed to be empíoyees of the State for purposes
of coverage under Títíe II of that ct. The matter of coverage of
State empíoyees pursuant to a voíuntary agreement under sectíon 218,
upra, ís wíthín the |urísdíctíon of the Secretary of eaíth, duca-
tíon and Weífare, Washíngton, D. C. uestíons reíatíng to such
aatters shouíd be addressed to that Department.
( íso Sectíon 1 02.) Rev. Ruí. 55-2 8
( íso Part II, Sectíons 81,1 20 Reguía-
tíons 118, Sectíon 39. 81-3, Reguía-
tíons 128, Sectíon 08.20 .)
n Indívíduaí conductíng a watch repaír busíness ín a eweíry
ttore, payíng the |eweíer a percentage of receípts as rent for space
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5 3121. 118
occupíed, furníshíng aíí hís own equípment, tooís, ínstruments and
materíaís requíred ín the conduct of such busíness, reguíatíng hís
own workíng hours, fí íng hís own príces for hís work, and doíng aíí
repaír work ín accordance wíth hís own methods, ís not an empíoyee
of the |eweíer for ederaí empíoyment ta purposes.
Income deríved from such actívíty shouíd be consídered ín com-
putíng net earníngs from seíf-empíoyment for purposes of the Seíf-
mpíoyment Contríbutíons ct
n ínquíry has been receíved reíatíve to the status, for purposes of
the ederaí Insurance Contríbutíons ct (chapter 21, subtítíe C,
Internaí Revenue Code of 1951) and the Seíf- mpíoyment Contríbu-
tíons ct (chapter 2, subtítíe , Internaí Revenue Code of 195 ) of
a watch repaírman performíng servíces under the círcumstances de-
scríbed beíow.
In order to províde a facíííty for watch repaír ín hís |eweíry store,
entered ínto an agreement wíth , a watch repaírman, whereby he
Mouíd furnísh the space ín hís store to operate such facíííty ín re-
turn for 0 percent of the proceeds from s work. furníshes aíí
íabor, tooís (íncíudíng a workbench), suppííes, and parts necessary
ín the busíness of watch repaír, deaís dírectíy wíth the customer and
determínes the fees to be charged. has compíete controí over the
tíme to So taken ín compíetíng a repaír and ís responsíbíe for aíí work
done by hím, ít beíng understood that any guarantee made by hím
Mouíd not be bíndíng upon the |eweíry store. In ínstances where ho
may b caííed upon to repaír a watch for the store, he determínes the
vaíue of hís work and the transactíon ís handíed as a reguíar repaír.
íther or may deííver the repaíred artícíe to the customer and
coííect for the work. or the purpose of maíntaíníng a correct ac-
countíng system, assuríng each party of hís share of the proceeds, aíí
moníes coííected are handíed through the store, receívíng hís share
of the proceeds semí-monthíy ín accordance wíth the agreement.
determínes hís hours of work and receíves no ínstructíons from as
to how the work shouíd be done.
Sectíon 3121(d) of the ederaí Insurance Contríbutíons ct, as
amended, provídes, among other thíngs, that the term empíoyee
means any índívíduaí who, under the usuaí common íaw ruíes appíí-
cabíe ín determíníng the empíoyer-empíoyee reíatíonshíp, has the
status of an empíoyee. The guídes for determíníng, under the usuaí
common íaw ruíes, whether an empíoyer-empíoyee reíatíonshíp e ísts
are found ín sectíon 08.201(c) ot Reguíatíons 128, appíícabíe to the
provísíons of the Internaí Revenue Code of 195 by vírtue of Treas-
ury Decísíon 0091, C. . 195 -2, 7, untíí superseded by reguíatíons
íssued under the 1951 Code.
Whether an índívíduaí ís an índependent contractor or an empíoyee
ís íargeíy a questíon to be determíned upon consíderatíon of the partíc-
uíar facts ín each case. In the ínstant case, ít ís determíned that _,
the |eweíer, neíther e ercíses nor has the ríght to e ercíse such controí
over / , the watch repaírman, ín the performance of hís servíces as ís
necessary under the usuaí common íaw ruíes to estabíísh the reíatíon-
shíp of empíoyer and empíoyee for ederaí empíoyment ta purposes.
Sínce ís not an empíoyee wíth respect to hís servíces as a Mrateh
repaírman, the questíon resoíves ítseíf ínto whether such actívítíes con-
stítute a trade or busíness for purposes of the Seíf- mpíoyment
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119 3121.
Contríbutíons ct and whether the íncome deríved therefrom ís sub-
|ect to the ta ímposed under the ct.
Sectíon 1 02(c) of the Seíf- mpíoyment Contríbutíons ct pro-
vídes that the term trade or busíness, when used wíth reference
to seíí-empíoyment íncome or net earníngs from seíf-empíoyment,
shaíí have the same meaníng as when used ín sectíon 162 of the In-
ternaí Revenue Code, wíth certaín e ceptíons not here materíaí.
s a generaí ruíe, a person who ís reguíaríy engaged ín an occupa-
tíon or professíon for profít, whích constítutes, ín whoíe or ín part,
hís ííveííhood, and who ís not an empíoyee for purposes of the ederaí
Insurance Contríbutíons ct, ís engaged ín a trade or busíness.
Under the círcumstances stated hereín, ít ís concíuded that ís en-
paged ín a trade or busíness wíth respect to hís servíces as a watch
repaírman and the íncome deríved therefrom ís íncíudíbíe ín comput-
íng net earníngs from seíf-empíoyment.
( íso Sectíon 501.) Rev. uí. 55-319
( íso Part , Sectíon 1 26 Reguíatíons 128,
Sectíon 08.21 .)
whoííy-owned State Instrumentaííty may In some círcumstances
quaíífy for e emptíon from ederaí Income ta under sectíon
501 (c) (3) of the Internaí Revenue Code of 195 .
Coverage under the Socíaí Securíty ct of empíoyees of a whoííy-
owned State ínstrumentaííty may be effected oníy pursuant to a
compact under sectíon 218 of the Socíaí Securíty ct. The waíver
procedure províded ín sectíon 3121 (k) of the ederaí Insurance
Contríbutíons ct ís not appíícabíe to a whoííy-owned State ínstru-
mentaííty írrespectíve of whether the partícuíar ínstrumentaííty ís
e empt under sectíon 501(c) (3) of the Code.
n ínquíry has been receíved whether (.1) a whoííy-owned State
ínstrumentaííty may aíso quaíífy for e emptíon from ederaí íncome
ta under sectíon 501(c) (3) of tne Internaí Revenue Code of 195 and
(2), íf so, whether the waíver procedure províded ín sectíon 3121(k)
of the ederaí Insurance Contríbutíons ct (chapter 21, subtítíe C,
Internaí Revenue Code of 195 ) ís appíícabíe ín effectíng coverage for
íts empíoyees under the Socíaí Securíty ct.
It ís heíd that where an organízatíon desíres to have the benefít of
a partícuíar ta feature e tended to íts empíoyees, such as the e cep-
tíon províded by sectíon 03 of the Code, whích depends on e emptíon
under sectíon 501 (a) of an empíoyer descríbed ín sectíon 501 (c) (3),
and the partícuíar organízatíon meets the statutory requírements for
e emptíon under sectíon 501 (c) (3) of the Code ít may be granted
e emptíon thereunder, regardíess of the fact that ít aíso quaíífíes as a
whoííy-owned State ínstrumentaííty and, as such, wouíd not be sub|ect
to ederaí íncome ta .
It does not foííow, however, that coverage under the Socíaí Securíty
ct may be effected for empíoyees of such an organízatíon by the
waíter procedure províded by sectíon 3121 (k) of the ederaí In-
surance Contríbutíons ct.
Sectíon 3121(b) (8) ( ) of the ct, as amended by the Socíaí Secur-
íty mendments of 195 , e cepts from empíoyment servíce per-
formed ín the empíoy of an organízatíon e empt from íncome ta
6 050 € ” 9
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3121. 120
under sectíon 501 (c) (3) of the Code. owever, such an organízatíon
may waíve íts e ceptíon as to certaín empíoyees by compíyíng wíth
the provísíons of sectíon 3121 (k) of the ct.
Sectíon 3121(b) (7) of the ct e cepts from empíoyment servíce
performed ín the empíoy of a State, or any poíítícaí subdívísíon
thereof, or any ínstrumentaííty of any one or more of the foregoíng,
whích ís whoííy owned by one or more States or poíítícaí subdíví-
síons. Sectíon 218 of the Socíaí Securíty ct, as amended, 2,
S. C. 18, provídes for the coverage of empíoyees of whoííy-owned
State organízatíons íf the State and the Department of eaíth, du-
catíon, and Weífare enter ínto a compact provídíng for such coverage.
To secure coverage under the Socíaí Securíty ct of empíoyees of
an organízatíon e empt under sectíon 501(c) (3) of the Code, sectíon
3121(k) of the ederaí Insurance Contríbutíons ct requíres the con-
sent of the partícuíar organízatíon and two-thírds of íts empíoyees
but to secure coverage for a whoííy-owned State ínstrumentaííty, sec-
tíon 218 of the Socíaí Securíty ct requíres the consent of the State,
rather than that of the partícuíar ínstrumentaííty.
In víew of the Congressíonaí purpose behínd sectíon 218 of the
Socíaí Securíty ct of aííowíng State governments, rather than a
partícuíar State ínstrumentaííty, díscretíon ín determíníng whích
State empíoyees shouíd be covered under the Socíaí Securíty ct,
ít ís heíd that empíoyees of whoííy-owned State ínstrumentaíítíes
may secure socíaí securíty coverage oníy by the procedure outííned ín
sectíon 218 of the Socíaí Securíty ct. See Senate Report No. 1669
on Socíaí Securíty ct mendments of 1950, C. . 1950-2, 302, at 307,
and 32 . Therefore, the waíver procedure províded ín sectíon
3121 (k) of the ederaí Insurance Contríbutíons ct ís not appíícabíe
to a whoííy-owned State ínstrumentaííty írrespectíve of whether the
partícuíar ínstrumentaííty aíso quaíífíes for e emptíon under sectíon
501(c)(3) of the Code.
ev. uí. 55-386
n Indívíduaí performs servíces of a domestíc nature In the prí-
vate nonfarm home of the empíoyer and, ín addítíon, servíces at hís
píace of busíness. eíd, the ta es Imposed under the ederaí Insur-
ance Contríbutíons ct shouíd be computed on the totaí wages
paíd to the empíoyee províded the Indívíduaí meets the 50 a
quarter test wíth respect to the domestíc servíces. The íncíuded
and e cíuded servíce ruíe contaíned ín sectíon 3121(c) of the ct
Is not appíícabíe.
n ínquíry has been receíved reíatíve to the procedure whích shouíd
be foííowed ín computíng the ta es ímposed under the ederaí In-
surance Contríbutíons ct (chapter 21, subtítíe C, Internaí Revenue
Code of 195 ) on wages paíd by an empíoyer to an empíoyee who
performs servíces of a domestíc nature ín the prívate nonfarm home
of the empíoyer and, ín addítíon, servíces at hís píace of busíness
aíso, whether the íncíuded and e cíuded servíce ruíe contaíned ín
sectíon 3121 (c) of the ct ís appíícabíe to thís empíoyment.
Under sectíon 3121(a) of the ct the term wages means aíí
remuneratíon for empíoyment, íncíudíng the cash vaíue of aíí remu-
neratíon paíd ín any medíum other than cash e cept that such term
shaíí not íncíude € ”
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121 ( 3121.
(1) that part of tbe remuneratíon whích, after remuneratíon (other than
remuneratíon referred, to In the succeedíng paragraphs of thís subsectíon) equaí
to 20O wíth respect to empíoyment has been paíd to an índívíduaí by an em-
p)o í duríng any caíendar year, ís paíd to such índívíduaí by such empíoyer
duríng such caíendar year. € €
€ € € €
(1) k) remuneratíon paíd ín any medíum other than cash to an empíoyee
íot € € € domestíc servíce ín a prívate home of the empíoyer
( ) cash remuneratíon paíd by an empíoyer ín any caíendar quarter to an
empíoyee for domestíc servíce ín a prívate home of the empíoyer, íf the cash
remuneratíon paíd ín such quarter by the empíoyer to the empíoyee for such
servíce ís íess than 50. €
efore determíníng whether wages paíd to a domestíc servant are
sub|ect to the ederaí empíoyment ta es, ít ís necessary to consíder
whether 50 ín cash was paíd to the servant for the domestíc servíce
performed duríng a caíendar quarter. Where an empíoyee meets the
50 a quarter test for servíces of a domestíc nature ín the prívate non-
farm home of an empíoyer and aíso receíves ta abíe wages from the
same empíoyer for servíces of a busíness nature, the ta es ímposed
under the ct shouíd be computed wíth respect to aíí wages paíd by
the empíoyer for servíces of a busíness nature and wíth respect to the
cash wages paíd for servíces of a domestíc nature, sub|ect to the íím-
ítatíon províded by sectíon 3121(a) (1) of the ct. owever, íf the
50 a quarter test ís not met wíth respect to the servíces of a domestíc
nature, no ííabíííty for the ta es under the ct ís íncurred wíth respect
to such servíces and the remuneratíon paíd therefor shouíd not be
íncíuded ín computíng ta abíe wages under the ct.
Sectíon 3121 (c) of the ct provídes, ín part:
€ € € íf the servíces performed duríng one-haíf or more of any pay períod
by an empíoyee for the person empíoyíng hím constítute empíoyment, aíí the
servíces of such empíoyee for such períod shaíí be deemed to be empíoyment
but íf the servíces performed duríng more than one-haíf of any such pay períod
by an empíoyee for the person empíoyíng hím do not constítute empíoyment,
then none of the servíces of such empíoyee for such períod shaíí be deemed to be
empíoyment. s used ín thís subsectíon, the term pay períod means a períod
(of not more than 31 consecutíve days) for whích a payment of remuneratíon ís
oníínarííy made to the empíoyee by the person empíoyíng hím. € €
The íncíuded and e cíuded servíce ruíe contaíned ín sectíon 3121(c)
of the ct ís appíícabíe oníy ín those ínstances where the reíatíonshíp
of empíoyer and empíoyee e ísts and a portíon of the servíces per-
formed by an empíoyee for the person empíoyíng hím duríng a pay
períod constítutes eínpíoyment and the remaínder does not constí-
tute empíoyment. Domestíc servíces ín the prívate nonfarm home
of the empíoyer constítute empíoyment even though by reason of
sectíon 3121(a) (7) ( ), supra, certaín remuneratíon therefor ís not
ta abíe as wages. Therefore, sínce both the busíness servíces and
the domestíc servíces of an empíoyee for hís empíoyer constítute em-
píoyment, the íncíuded and e cíuded servíce ruíe has no appíícatíon.
form 9 1, mpíoyer s uarteríy ederaí Ta eturn, ís the regu-
íar ta and ínformatíon return prescríbed for use by empíoyers of
busíness empíoyees. orm 9 2, mpíoyer s uarteríy Ta eturn for
ousehoíd mpíoyees, ís the form prescríbed for use by every em-
píoyer ín reportíng wages paíd by hím for domestíc servíce ín a
prívate home not on a farm operated for profít. Ta abíe wages of
busíness empíoyees shouíd not be reported by an empíoyer on orm
9 2, but an empíoyer who fííes orm 9 1 for busíness empíoyees may
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3121(d). 122
íncíude hís domestíc empíoyees on such form íf he so desíres by foí-
íowíng the specíaí ínstructíons whích appear on orm 9 1, or he may
report hís domestíc empíoyees on a separate orm 9 2. If the em-
píoyer has oníy one empíoyee and ta abíe wages are paíd to thís
empíoyee for both busíness and domestíc servíces, the empíoyer may
combíne the wages for each type of servíce and report aíí of the em-
píoyee s ta abíe wages on orm 9 1. See Sectíon 08.601, Reguíatíons
128, appíícabíe to the provísíons of the 195 Code by vírtue of T. D.
6091, C. . 195 -2 7. Where the empíoyer eíects to combíne the
wages, and the servíces performed by the empíoyee are predomínantíy
of a domestíc nature, the íetter shouíd be ínserted at the e treme
ríght-hand síde of coíumn 20 of the return, orm 9 1, opposíte the
empíoyee s name.
Indívíduaí performíng servíces as se ton of cemetery. See Rev.
uí. 55-328, page 98.
S CTION 3121. € ” D INITIONS
( íso Part II, Sectíon 1 26, Reguíatíons 128, Rev. Ruí. 55-370
Sectíon 08.20 )
n índívíduaí performs automobííe repaír servíces ín the repaír
department of an automobííe saíes company. e works reguíar
hours and ís paíd on a percentage basís. e has no ínvestment In
the repaír department. The company furníshes aíí facííítíes, ín-
cíudíng materíaís and paínt, checks aíí estímates and repaír orders,
and íssues Instructíons reíatíve to amount to be charged. eíd,
the Indívíduaí ís an empíoyee of the company for ederaí
empíoyment ta purposes.
The Internaí Revenue Servíce has been requested to determíne the
status, for purposes of the ederaí Insurance Contríbutíons ct
(chapter 21, subtítíe C, Internaí Revenue Code of 195 ), of an índí-
víduaí who performs automobííe repaír servíces ín a repaír department
of an automobííe saíes company.
The company seíís automobííes and trucks and operates a repaír
department ín connectíon wíth íts saíes department. or severaí years
the company engaged the índívíduaí as an automobííe body and fender
man ín the repaír department, duríng whích tíme he was paíd 60 per-
cent of the íabor charges. Later he worked as foreman of the depart-
ment on a weekíy saíary basís. t aíí tímes the company consídered
hím to be íts empíoyee. owever, duríng 195 the company advísed
the índívíduaí that he wouíd no íonger be carríed on the payroíí
that íf he wíshed to contínue workíng ín the estabííshment he couíd
make estímates and repaír vehícíes, for whích he wouíd be charged
0 percent of hís weekíy receípts to defray costs of rent, utííítíes, and
shop facííítíes and that the 0 percent charge wouíd be deducted
from the receípts for compíeted work. The company agreed to
furnísh aíí materíaís and paínts and the índívíduaí agreed to pay hís
own ta es and keep hís own books.
The índívíduaí contínued to perform the same repaír servíces and
he observed reguíar workíng hours The company checked aíí estí-
mates and repaír orders, ínstructed the worker as to the amount he
was aííowed to charge for a |ob, advísed when to use new or used parts,
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123 3 01.
and set the date for the compíetíon of the |ob. The índívíduaí per-
formed hís servíces ín the company s píace of busíness on a fuíí-tíme
basís, had no ínvestment ín the repaír shop, and furníshed oníy smaíí
band tooís for hís work. e operated under the company s name,
díd not hoíd hímseíf out to the pubííc as avaííabíe to do work of a
ímuar or reíated nature, and díd not perform servíces for others.
Sectíon 3121(d) of the ederaí Insurance Contríbutíons ct pro-
vídes, among other thíngs, that the term empíoyee means any índí-
víduaí who, under the usuaí common íaw ruíes appíícabíe ín deter-
míníng the empíoyer-empíoyee reíatíonshíp, has the status of an
empíoyee.
Whether a person ís an índependent contractor or an empíoyee ís
íargeíy a questíon to be determíned upon the partícuíar facts or each
case. The guídes for determíníng, under the usuaí common íaw ruíes,
whether an empíoyer-empíoyee reíatíonshíp e ísts are found ín sectíon
08.20 (c) of Reguíatíons 128, appíícabíe to the provísíons of the
Internaí Revenue Code of 195 by vírtue of Treasury Decísíon 6091,
C. . 195 € ” 2, 7, untíí superseded by reguíatíons íssued under the
195 Code.
Under the círcumstances stated, ít ís apparent that the company
has the ríght to e ercíse such controí over the índívíduaí ín the per-
formance of hís servíces as wííí assure the company a reasonabíe ín-
come from the arrangement. The fact that the índívíduaí s remu-
neratíon ís on a percentage basís ís ímmateríaí. ccordíngíy, ít ís heíd
that, for ederaí empíoyment ta purposes, the reíatíonshíp between
the company and the índívíduaí ís that of empíoyer and empíoyee,
both príor and subsequent to the date on whích he was notífíed that
hís name wouíd no íonger be carríed on the company s payroíí.
C PT R 2 . € ” COLL CTION O INCOM T T SOURC
ON W G S
S CTION 3 01. € ” D INITIONS
26 C R 06.207: Wages. T. D. 6128
( íso Sectíon 6001 26 C R 06.607.)
( íso Part II, Sectíons 1621, 3603
Reguíatíons 120, Sectíons 06.207,
06.607.)
TITL 2 € ” INT RN L, R NU . € ” C PT R I, SU C PT R n, P RT 06. € ”
COLL CTION O INCOM T T SOURC ON W G S PPLIC L ON NU
T NU RY 1. 195
Reguíatíons 120 amended to províde ruíes for wíthhoídíng on
payments under sectíon 105(d) of the Internaí Revenue Code of 195 .
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 26, D. C.
To Offícers and mpíoyees of the Internaí Revenue Servíce and Others
Concerned:
On September 2 , 195 , a notíce of proposed ruíemakíng reíatíng
to Reguíatíons 120 (26 C R (1939) pt. 06) was pubííshed ín th
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3 01. 12
ederaí egíster (19 . R. 61 ) ín order to províde ruíes for -wíth-
hoídíng on payments sub|ect to sectíon 105 (d) of the Internaí Revenue
Code of 195 . Reguíatíons 120 were made appíícabíe to the Internaí
Revenue Code of 195 by Treasury Decísíon 6091 C. . 195 -2, 7 ,
whích was sígned on ugust 16, 195 . fter consíderatíon of the
reíevant suggestíons presented by ínterested partíes regardíng the
roposed ruíes, the foííowíng amendments to Reguíatíons 120 are
ereby adopted:
Paragraph 1. Sectíon 06.207 ís hereby amended by ínsertíng at the
end thereof the foííowíng new paragraph:
Sec. 06,207. Wages. € ” € €
(í) Compensatíon for personaí ín|uríes or síckness amounts paíd after
1053 ND OR 11)50 UND R W O CONTINU TION PL NS. € ” (1) mOUTítS paíd by
empíoyer for whom servíces are performed. € ” (í) Wíthhoídíng ís not requíred
upon amounts paíd after December 31, 1053, and before anuary 1, 1956, to an
empíoyee by hís empíoyer under a wage contínuatíon pían for a períod duríng
whích the empíoyee ís absent from work on account of personaí ín|uríes or
síckness, íf such amounts are e cíudabíe from the gross íncome of the empíoyee
under sectíon 105(d) of the Internaí Revenue Code of 195 and the records
maíntaíned by the empíoyer ín accordance wíth the provísíons of sectíon
00.607(a) € ”
(a) Separateíy show the amounts of such payments and dístínguísh such
amounts from aíí other payments, and
(6) stabíísh the facts necessary to show that the empíoyee ís entítíed
to the e cíusíon províded by sectíon 105(d) of the Internaí Revenue Code
of 195 , eíther by means of a wrítten statement from the empíoyee as to
the ín|ury, íííness, or hospítaíízatíon, or by any other ínformatíon whích
the empíoyer beííeves to be accurate and whích he Is wííííng to accept for
purposes of payments under the wage contínuatíon pían,
(íí) or the purpose of sectíon 00.501, reíatíng to the requírement of receípts
for empíoyees, amounts paíd after December 31, 1953, and before anuary 1, 1956,
whích are e cíudabíe from gross íncome under the provísíons of sectíon 105(d)
of the Internaí Revenue Code of 195 shaíí be íncíuded ín the totaí wages re-
quíred to be shown on orm W-2. The amount of any such wages on whích the
empíoyer, ín reííance on sectíon 105(d) of the Internaí Revenue Code of 195 ,
does not wíthhoíd must be shown separateíy, and properíy ídentífíed, on orm
W-2 ín such manner that ít may be read on each copy of the form.
( í) See sectíon 06.607 for generaí requírements reíatíng to the keepíng of
records by empíoyers.
(2) mounts paíd by person other than empíoyer for hom servíces are per-
formed. € ” Wíthhoídíng ís not requíred upon any amounts paíd after December 31,
1953, and before anuary 1, 1956, to an empíoyee for a períod duríng whích the
empíoyee ís absent from work on account of personaí ín|uríes or síckness, whether
or not such amounts are e cíudabíe from the gross íncome of the empíoyee, If
such amounts are paíd through accídent or heaíth ínsurance or under an accídent
or heaíth pían by a person who ís not the empíoyer for whom the empíoyee
performs servíces but who Is regarded as an empíoyer under sectíon 06.205(c).
or e ampíe, no wíthhoídíng ís requíred ín connectíon wíth accídent or heaíth
benefíts paíd by an ínsurance company under an accídent or heaíth poíícy, by
a separate trust under an accídent or heaíth pían, or by a State agency from
a síckness and dísabíííty fund maíntaíned under State íaw.
Par. 2. Sectíon 06.607(a) ís hereby amended by ínsertíng at the
end thereof the foííowíng new subparagraph:
Sec. 00.607. Records. € ” (a) Records of empíoyers. € ”
( ) or addítíonaí record-keepíng requírements ín the case of payments under
sectíon 105(d) of the Internaí Revenue Code of 195 , see sectíon 06.207U).
(Thís Treasury Decísíon ís íssued under the authoríty contaíned ín
sectíons 1 29 and 3791 (53 Stat. 178, 67 26 U. S. C. 1 29, 3791)
and sectíon 1627 (57 Stat. 138 26 U. S. C. 1627) of the Internaí
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125 2 1
cthhms Coda of 1939 and sectíon 7805 (68 Stat. 917 26 U. S. C.
1805) of the Internaí Revenue Code of 195 .)
T. Coíeman ndrews,
Commíssíoner of Internaí Revenue.
pproved March 25, 1955.
Davíd W. endaíí,
ctíng Secretary of the Treasury.
( íed wíth the Dívísíon of the ederaí Regíster March 25, 1955, :02 p. m.)
Cash vaíue of awards earned by empíoyee saíesmen. See Rev. Ruí.
5 -232, page 115.
S CTION 3 02. € ” INCOM T COLL CT D T SOURC
Wages paíd under the aír Labor Standards ct. See Rev. Ruí.
55-203, page 11 .
C PT R 32. € ” M NU CTUR RS CIS T S
SU C PT R D. € ” R CR TION L UIPM NT
P RT III. € ” IR RMS
S CTION 181. € ” IMPOSITION O T
Líabíííty to the manufacturer s e císe ta by reason of the saíe
of fírearms assembíed from component parts by other than the
manufacturer of such parts. See Rev. Ruí. 55-3 2, page 562.
C PT R 33. € ” CILITI S ND S R IC S
SU C PT R .- DMISSIONS ND DU S
P RT II. € ” CLU DU S
S CTION 2 1. € ” IMPOSITION O T
LI M M RS IPS
ppíícatíon of the cíub dues ta on íífe membershíps to certaín
cíasses of honorary members. See Rev. Ruí. 55-198, page 510.
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1 321.) 126
SU C PT R C € ” TR NSPORT TION
P RT I. € ” P RSONS
S CTION 261. € ” IMPOSITION O T
( íso Part II, Sectíon 3 69 Reguíatíons 2, Rev. Ruí. 55- 09
Sectíon 130.5 .)
resídent of the Uníted States dríves hís automobííe from a poínt
ín the Uníted States to Whítehorse, Yukon Terrítory, Canada, On
the return tríp, ín order to avoíd traveííng over the same route, he
purchases a tícket ín Canada for transportatíon vía raííroad and
steamshíp from Whítehorse to ancouver, rítísh Coíumbía, Canada.
Thís |ourney crosses a portíon of íaska. eíd, sínce the payment
made ín Canada ís for a tríp whích begíns and ends outsíde the Uníted
States, the ta on the transportatíon of persons, ímposed by sectíon
261 of the Internaí Revenue Code of 195 (sectíon 3 69 of the 1939
Code), ís not appíícabíe to such payment even though the person
purchasíng such transportatíon ís a resídent of the Uníted States.
C PT R 3 . € ” DOCUM NT RY ST MP T S
SU C PT R . € ” S L S OR TR NS RS O C PIT L STOC ND
C RTI IC TIONS O IND T DN SS O CORPOR TION
P RT I. € ” S L S OR T NS RS O C PIT L STOC ND SIMIL R INT R STS
S CTION 321. € ” TR NS RS O C PIT L STOC -
IMPOSITION O T
Rev. Ruí. 55- 6
The ruíes on sectíon 1802 of the Internaí Revenue Code of 1939
contaíned In Reguíatíons 71 shouíd be appííed to sectíon 321 of the
Internaí Revenue Code of 195 untíí the reguíatíons are íssued under
sectíon 321.
dvíce has been requested reíatíve to the computatíon of the docu-
mentary stamp ta on saíes and transfers of capítaí stock under sec-
tíon 321(1) of the Internaí Revenue Code of 195 on and after an-
uary 1,1955. the effectíve date of such sectíon, ín víew of the dífference
ín wordíng between that sectíon and sectíon 1802(b), the correspond-
íng sectíon of the Internaí Revenue Code of 1939.
Under the provísíons of sectíon 1802(b) of the 1939 Code a stamp
ta was ímposed on saíes and transfers of capítaí stock at specífíed
rates on each 100 of the par vaíue or fractíon thereof of the certífí-
cates soíd or transferred. The methods of computíng the ta ímposed
by sectíon 1802(b) on the saíe or transfer of snares or certífícates of
stock are stated ín sectíon 113.32 of Reguíatíons 71.
Treasury Decísíon 6091, C. . 195 -2, 7, approved ugust 16,195 ,
prescríbíng stopgap reguíatíons under the Internaí Revenue Code of
195 , provídes, ín part:
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127 591.
M reguíatíons (íncíudíng aíí Treasury Decísíons) appíícabíe under
n| provísíon of. íaw ín effect on the date of enactment of the 195 Code, to
the e tent such provísíon of íaw ís repeaíed by the Code, are hereby prescríbed
tto and made appíícabíe to the provísíons of the Code correspondíng to the
provísíon of íaw so repeaíed ínsofar as any such reguíatíon ís not íuconsístent
víííí the Code. Such reguíatíons shaíí become effectíve as reguíatíons under
the varíous provísíons of the Code ns of the dates the correspondíng provísíons
ot íaw are repeaíed by the Code, untíí superseded by reguíatíons íssued under
the Code.
The reports on the 195 Code submítted by the commíttees of both
houses ot Congress state that any changes ín the e císe ta statutes
under the new Code wouíd be structuraí rather than substantíve. In
víew of the foregoíng, the ruíes on sectíon 1802 of the 1939 Code con-
taíned ín Reguíatíons 71 shouíd be appííed to sectíon 321 of the
195 Code untíí the reguíatíons are íssued under sectíon 321.
C PT R 38. € ” IMPORT T S
SU C PT R . € ” OL OM RG RIN
S CTION 591. € ” IMPOSITION O T
( íso Sectíons 803, 871.) Rev. Ruí. 55-107
Interím procedure for affí íng adhesíve stamps to packages or
bo es of whíte phosphorus matches and Imported oíeomargaríne,
and to contracts or memoranda In the case of cotton futures.
Sectíon 1. Purpose.
The purpose of thís Revenue Ruííng ís to províde an ínterím pro-
cedure for affí íng adhesíve stamps to packages or bo es of whíte pííos-
phorus matches and ímported oíeomargaríne, and to contracts or
memoranda ín the case of cotton futures, as evídence of the payment of
the ínternaí revenue ta es ímposed by íaw.
Sec. 2. ackground.
Sectíon 801 of the Internaí Revenue Code of 195 ímposes a ta at
the rate of 2 cents per hundred on whíte phosphorus matches, and sec-
tíon 803 provídes that thís ta shaíí be represented by adhesíve stamps.
Sectíon 591 ímposes a ta of 15 cents per pound on aíí oíeomargaríne
ímported from foreígn countríes, and states thís ta wííí be represented
by coupon stamps. Sectíon 851 ímposes an e císe ta of 2 cents for
each pound of cotton ínvoíved ín any contract of saíe of such cotton for
future deíívery, sub|ect to certaín e emptíons, and sectíon 871 pro-
vídes that thís ta shaíí be paíd by means of stamps. It ís not antící-
pated that there wííí be many, íf any, cases whích wííí requíre the
ímposítíon of these ta es. Under the círcumstances, ít ís not con-
tempíated that specíaí ínternaí revenue stamps wííí be províded for use
ín evídencíng the payment of the ta es ín these 3 ínstances.
Sec. 3. Procedure.
Untíí further notíce, any orders for stamps for use ín ta payíng the
artícíes and the transactíons mentíoned hereín wííí be fíííed by Dístríct
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5 5801. 128
Dírectors by furníshíng documentary ínternaí revenue stamps ín the
appropríate denomínatíons. Upon presentatíon of a requísítíon, ta -
Dayers wííí be advísed by íetter that no specíaí types of stamps have
een províded, and that the documentary stamps shouíd be affí ed to
the packages, bo es or contracts and canceíed ín the manneí set forth ín
the reguíatíons on documentary stamp ta es.
I
C PT R 39. € ” R GUL TORY T S
SU C PT R . € ” W IT P OSP ORUS M TC S
S CTION 803. € ” ST MPS
Interím procedure for affí íng adhesíve stamps to packages or bo es
of whíte phosphorus matches. See Rev. Ruí. 55-107, page 127.
SU C PT R D. € ” COTTON UTUR S
P RT III. € ” DMINISTR TI PRO ISIONS
S CTION 871. € ” M T OD O P YM NT
Interím procedure for affí íng adhesíve stamps to contracts or mem-
oranda ín the case of cotton futures. See Rev. Ruí. 55-107, page 127.
C PT R 53. € ” M C IN GUNS ND C RT IN OT R
IR RMS
SU C PT R . € ” T S
P RT I. € ” SP CI L (OCCUP TION L) T S
S CTION 5801. € ” T
Reguíatíons 88, Sectíon 319.36: Rates of ta . Rev. Ruí. 55-33
( íso ederaí írearms ct, Sectíon 3 Sectíon
315. 0, Reguíatíons 131.)
Líabíííty to specíaí (occupatíonaí) ta Imposed under sectíon 5S01
of the Internaí Revenue Code of 19u wouíd not be íncurred by a
íícensed deaíer under the ederaí írearms ct for transmíttíng
orders for fírearms to a bona fíde manufacturer of fírearms.
dvíce has been requested whether fírearms deaíers íícensed under
the ederaí írearms ct must pay specíaí (occupatíonaí) ta under
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129 58 8.
sectíon 5801 of the Internaí Revenue Code of 195 íf they receíve a
commíssíon for referríng orders for fírearms to manufacturers.
In the ínstant case, the deaíer has no actíve part ín the saíes transac-
tíon other than the referraí of the saíe to the manufacturer for whích
he receíves a commíssíon.
. íícensed deaíer under the ederaí írearms ct wouíd not íncur
ía n íty to the specíaí (occupatíonaí) ta ímposed under sectíon 5801
of the Internaí Revenue Code of 195 for transmíttíng an order for
a fírearm to a bona fíde manufacturer of fírearms, notwíthstandíng the
fact such deaíer receíves a commíssíon for the servíce rendered
person actíng ín thís capacíty wouíd be consídered as an agent or
fínder and the functíon he performs may be conducted under the
specíaí (occupatíonaí) ta stamp íssued to the manufacturer to whom
the saíe ís referred.
SU C PT R .-G N R L PRO ISIONS
S CTION 58 8. € ” D INITIONS
esuí atíon-s 88, Sectíon 319.5a: ny other Rev. Ruí. 55-
weapon.
( íso Sectíons 319.20, 319.27.)
The foííowíng types of gadget guns have been e amíned by the
Internaí Revenue Servíce for the purpose of determíníng whether
they come wíthín the purvíew of sectíon 58 8(5) of the Internaí
Revenue Code of 195 , and are cíassífíed as foííows: the nuckíe-
duster, the rench pache íst Revoíver, and the Pepperbo , aíí
of whích empíoy the muítípíe rotatíng barreí príncípíe of desígn, are
entítíed to e ceptíon as a pístoí or revoíver under sectíon 58 8(1)
of the Internaí Revenue Code of 195 and sectíons 319.26 and 319.27
of Reguíatíons 88. ccordíngíy, these weapons are e empt from the
requírements of chapter 53 of the Code.
The Chícago Paím Protector ís neíther a pístoí nor a revoíver but
a devíce capabíe of beíng conceaíed on the person from whích a shot
can be díscharged through the energy of an e píosíve. ccordíngíy,
ít comes wíthín the category of any other weapon as defíned ín
sectíon 58 8(5) of the Internaí Revenue Code of 195 and sectíon
319.5a of Reguíatíons 88, as added by Treasury Decísíon 609 , C. .
195 -2, , and ís therefore a fírearm sub|ect to the requírements of
chapter 53 of the Code.
Rzgttíatíovs 88, Sectíon 319.12: írearm. Rev. Ruí. 55-3 1
The Internaí Revenue Servíce has had the occasíon to e amíne
a 20 gau e gun havíng two barreís poíntíng ín opposíte dírectíons,
each of whích ís threaded to a center píece contaíníng a fíríng mecha-
nísm. The center píece ís fítted wíth two sííp boít fíríng píns, each
capabíe of fíríng a sheíí from oníy one of the barreís. The overaíí
íength of the weapon ís appro ímateíy 11 ínches, each barreí havíng
a íength of / ínches wíth ínsíde measurements of 3 ínches. The
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319.27.) 130
gun ís íoaded by unscrewíng the barreí and ínsertíng a sheíí ín the
breech end. The center sectíon contaíníng the fíríng mechanísm
ís appro ímateíy 3 ínches ín íength and ís encased ín a metaí gríp.
Ostensíbíy, the devíce was desígned to fíre 20 gauge tear gas cartrídges.
owever, ít has been estabííshed that the devíce ís aíso capabíe of
chamberíng and repeatedíy fíríng, wíthout apparent structuraí dam-
age, 20 gauge fí ed shotgun sheíís. eíd, sínce the above-descríbed
gun ís a weapon or devíce capabíe of beíng conceaíed on the person,
ít ís a fírearm wíthín the purvíew of the Natíonaí írearms ct, as
amended (Chapter 53 of the Internaí evenue Code of 195 ). See
specífícaííy sectíons 58 8(1) and 58 8(5) of such code.
Reguíatíons 88, Sectíon 319.26: Pístoí.
Cíassífícatíon of gadget guns under sectíon 58 8 of the Internaí
Revenue Code of 195 . See Rev. Ruí. 55- , page 129.
Reguíatíons 88, Sectíon 319.27: Revoíver.
Cíassífícatíon of gadget guns under sectíon 58 8 of the Internaí
Revenue Code of 195 . See Rev. Ruí. 55- , page 129.
SU TITL . € ” PROC DUR ND DMINISTR TION
C PT R 61. € ” IN ORM TION ND R TURNS
SU C PT R . € ” R TURNS ND R CORDS
P RT I. € ” R CORDS, ST T M NTS. ND SP CI L R TURNS
S CTION 6001. € ” NOTIC OR R GUL TIONS R UIRING
R CORDS, ST T M NTS, ND SP CI L R TURNS
26 C R 06.607: Records.
Reguíatíons 120, amended to províde ruíes for wíthhoídíng duríng
195 and 1955 on payments under wage contínuatíon píans. See
T.D. 6128, page 123.
P RT II. € ” T R TURNS OR ST T M NTS
SU P RT . € ” INCOM T R TURNS
S CTION 6012. € ” P RSONS R UIR D TO M
R TURNS O INCOM
Rev. Ruí. 55-287
trust contínues ín e ístence for ederaí íncome ta purposes dur-
íng the períod wíthín whích the trustee ís aííowed by the íaws of the
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131 6012 (b).
State ín whích the trust ís beíng admínístered to dístríbute the assets
of the trust to the dístríbutees upon the termínatíon of the trust.
orm 10 1, Uníted States íducíary Income Ta Return, shouíd be
fííed for each year that the trust so contínues ín e ístence and has
ta abíe íncome, or gross íncome of 600 or over, regardíess of the
amount of ta abíe íncome.
S CTION G012. € ” P RSONS R UIR D TO M
R TURNS O INCOM
( íso Part II, Sectíon 51 Reguíatíons 118, Rev. Ruí. 55-387
Sectíon 39.51-1.)
íegaííy appoínted guardían of a ta payer who has dísnppeared
must fííe the requíred ederaí íncome ta returns for such míssíng
person for the ta abíe year ín whích he dísappeared and for any
subsequent ta abíe years duríng whích he contínues ín the status
of a míssíng person, t. c, untíí found or decíared dead by a court
under the provísíons of the pertínent State íaws. The fact that the
ta payer s spouse ís appoínted as hís guardían does not precíude the
fíííng of a |oínt return by the spouse for herseíf and as guardían for
ber míssíng husband (ta payer).
dvíce has been requested reíatíve to the requírements for fíííng
ederaí íncome ta returns ín a case where a ta payer has dísappeared
and hís spouse ís appoínted as hís íegaí guardían.
The facts ín the ínstant case díscíose that the ta payer dísappeared
whííe on a fííght ín hís prívateíy owned píane over a sparseíy settíed
coastaí regíon ín the southern part of the Uníted States duríng the
ta abíe year and has not been heard from or otherwíse accounted
for sínce hís dísappearance. Duríng the portíon of the ta abíe year
príor to the date of hís dísappearance he was ín receípt of ta abíe
íncome and ta abíe íncome wííí contínue to accrue to hís benefít
thereafter. t the tíme, of the fííght the ta payer r.nd hís spouse were
íívíng together as man and wífe. The wífe was appoínted íegaí
guardían to act for her husband untíí the termínatíon of such míssíng
status.
Sectíon 6012(b) provídes ín part that:
(2) Pebsons rND a DIS ILITY. € ” If an índívíduaí ís unabíe to make a
return requíred under subsectíon (a) or sectíon C015(a), the return of
swh índívíduaí shaíí be made by a duíy authorízed agent, hís commíttee,
guardían, fíducíary or other person charged wíth the care of the person or
property of such índívíduaí.
In thís respect the above-quoted provísíon of the 105 Code ís
substantíaí v the same as the provísíon of sectíon 51 (c) of the Internaí
Revenue Code of 1939.
The íaw of the State ín whích the míssíng spouse resíded provídes
for the presumptíon of death of an índívíduaí after an une píaíned
absence of 7 years. Thus, where such a person ís not heard from or
seen or where no evídence of hís death ís presented before the e píra-
tíon of that períod he ís presumed to be aííve. Compare I. T. 3750,
C. . 19 5, 126. Sínce such índívíduaí ís unabíe to make a return, a
return shouíd be made by hís guardían under the provísíons of the
above sectíon of the Code. It foííows that where the guardían ís aíso
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I 6015. 132
the spouse of the míssíng ta payer an eíectíon may be made to fííe a
|oínt return. Satísfactory evídence of the appoíntment of the guardían
shouíd be fííed wíth the return.
In víew of the foregoíng, ít ís heíd that the íegaííy appoínted
fuardían of a ta payer who has dísappeared must fííe the requíred
ederaí íncome ta returns for such míssíng ta payer for the ta abíe
year ín whích he dísappeared and for any subsequent ta abíe years
duríng whích the ta payer contínues ín the status of a míssíng person,
í. e., untíí found or decíared dead by a court under the provísíons of
the pertínent State íaws. The fact that the ta payer s spouse ís ap-
poínted as hís guardían does not precíude the fíííng of a |oínt return
by the spouse for herseíf and as guardían for her míssíng husband
(ta payer).
S CTION 6015. € ” D CL R TION O STIM T D T
Y INDI IDU LS
ev. Ruí. 55-318 a
nswers to certaín questíons pertaíníng to the Decíaratíons of
stímated Ta , orm 10 0- S, and cíarífícatíon of ínstructíons
wíth respect to such decíaratíon.
The purpose of thís Revenue Ruííng ís to províde answers to some
of the questíons whích have been raísed regardíng the fíííng of decíara-
tíons and payment of estímated íncome ta by índívíduaís and to
cíarífy the ínstructíons pertaíníng to the Decíaratíon of stímated
Ta , orm 10 0- S, for the year 1955.
ttentíon ís caííed to the statement made ín paragraph 9 of the
ínstructíons on orm 10 0- S reíatíve to the nonímposítíon of the
charge for underpayment where the amount paíd on or before the
ínstaííment date equaís 90 percent of the ta computed on the actuaí
ta abíe íncome receíved for the months ín the ta abíe year endíng
before the month ín whích the ínstaííment date faíís. It ís possíbíe
to construe the íanguage used ín thís paragraph to mean that, ín
determíníng whether the charge shouíd be ímposed, 90 percent of the
ta so computed ís to be treated as íf ít were the entíre estímated ta
but such ínterpretatíon ís not correct. The correct ínterpretatíon
ís made cíear ín paragraph of the answer to questíon 2.
New ruíes are províded by the Internaí Revenue Code of 195 whích
wííí govern whether you are requíred to fííe a decíaratíon of estímated
ta , orm 10 0- S for 1955, on or before príí 15, 1955, or on or
before a subsequent ínstaííment date. Such ruíes are contaíned ín the
ínstructíons on orm 10 0- S. Probíems affectíng certaín cíasses of
ta payers, as weíí as probíems whích may be encountered by ta pay-
ers generaííy, are díscussed ín the foííowíng questíons and answers:
PRO L MS CTING T P Y RS G N R LLY
1. . What factors shouíd I take ínto account ín computíng the
amount of estímated ta to be shown on my decíaratíon
. You may compute your estímated ta by takíng ínto account
the amount of gross íncome whích you can reasonabíy e pect to report
ased on IRS Pubíícatíon No. 1SG, dated March 30 1955.
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133 6015.
for 1955, and the amount of your estímated aííowabíe deductíons and
credíts for that year. You shouíd determíne these estímates of ín-
come, deductíons, and credíts upon the basís of facts and círcumstances
e ístíng at the tíme prescríbed for fíííng your decíaratíon. You are
aíso permítted to use any of the methods of computatíon descríbed
ín the answer to questíon 2. These methods take ínto account your
ta ííabíííty for íast year, or your íncome and deductíons for íast year,
or the amount of your ta abíe íncome receíved ín the current year
duríng the months precedíng the month ín whích the ínstaííment date
faíís.
2. . Is ít true that I wííí not be sub|ect to any charge for under-
payment of my estímated ta for 1955 íf I fííe a decíaratíon showíng
as my estímated ta for that year the amount of my ta for 195 , and
make proper ínstaííment payments on that basís
. Yes. No charge for underpayment of an ínstaííment ís made
íf the totaí amount of aíí payments made on or before the íast date
prescríbed for the payment of the ínstaííment equaís or e ceeds any
of the amounts under the foííowíng four methods:
(1) The amount whích you wouíd have been requíred to pay
on or before the ínstaííment date íf your estímated ta was the
ta shown on your return for 195 (íf your return for 195 showed
a ííabíííty for ta and covered a ta abíe year of 12 months)
(2) The amount whích you wouíd have been requíred to pay on
or before the ínstaííment date íf your estímated ta was an amount
determíned by computíng a ta on the basís of the facts shown on
|-our return for 195 and the íaw appíícabíe to that year but
usíng ín the computatíon the rates appíícabíe for 1955 and the
personaí e emptíons to whích you are entítíed for 1955 ín ííeu of
the rates and e emptíons appíícabíe for 195
(3) The amount whích you wouíd have been requíred to pay on
or before the ínstaííment date íf your estímated ta was an amount
determíned by computíng 70 percent (66 percent ín the case of
farmers) of a ta computed on your ta abíe íncome for the
months ín 1955 precedíng the month ín whích the ínstaííment date
faíís. or the purpose of thís computatíon your ta abíe íncome
ís píaced on an annuaí basís by usíng the method descríbed ín
the answer to questíon 3.
( ) The amount determíned by computíng 90 percent of a ta ,
at the rates appíícabíe to 1955, on the basís of your actuaí ta abíe
íncome for the months ín 1955 precedíng the month ín whích the
ínstaííment date faíís as íf such months constítuted a ta abíe year.
(Thís method requíres payment on or before the ínstaííment date
of 90 percent of such ta .)
If you use eíther the fírst or second method as a basís for determíníng
and payíng your estímated ta , you may not ad|ust these amounts by
eíímínatíng the portíon of the ta whích ís attríbutabíe to capítaí gaíns
or other non-recurríng ítems of íncome receíved ín 195 .
If you use eíther the thírd or fourth method as a basís for deter-
míníng and payíng your estímated ta , ít wííí usuaííy be necessary for
yon to make amended decíaratíons and ad|ust the amount of your
ínstaííment payments at subsequent ínstaííment dates sínce the amount
of vour ta abíe íncome to be used ín computatíons under these methods
wííí usuaííy change between ínstaííment dates.
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6015. 13
3. . ow do I píace my ta abíe íncome for months precedíng the
month ín whích the ínstaííment date faíís on an annuaí basís for the
purpose of makíng the computatíon requíred by the thírd method dís-
cussed ín the answer to questíon 2
. The foííowíng method shouíd be used ín the case of a ta abíe
year oí 12 months:
(1) Muítípíy by 12 the amount of your ta abíe íncome com-
puted wíthout deductíon of personaí e emptíons for the months
ín your ta abíe year whích precede the month ín whích the ín-
staííment date faíís
(2) Dívíde the resuítíng amount by the number of months ín
your ta abíe year whích precede the month ín whích the ínstaíí-
ment date faíís and
(3) Subtract from such amount your aííowabíe deductíons for
personaí e emptíons (determíned as of the ínstaííment date).
. . My íncome ís deríved from a busíness whích I operate and
ín whích the productíon, purchase, or saíe of merchandíse ís an íncome-
producíng factor. I use the accruaí method of accountíng for report-
íng íncome. If I use the fourth method díscussed ín the answer to
questíon 2 for the purpose of determíníng my estímated ta , must I
take ínventoríes and determíne the amount of accrued ítems so that
actuaí ta abíe íncome for the months precedíng the month ín whích
the ínstaííment date faíís can be determíned
. If you use thís method, ít wííí be necessary for you to estabíísh
the amounts of your ínventoríes and accruaís at the end of the month
precedíng the month ín whích the ínstaííment date faíís.
5. . I own and operate a retaíí hardware store and empíoy 10
persons. It ís my custom to dístríbute year-end bonuses to my em-
píoyees but the síze of the bonuses ís not determíned untíí the íast
month of the ta abíe year. I íntend to use the fourth method dís-
cussed ín the answer to questíon 2 for determíníng and payíng my
estímated ta . May I take ínto account as a deductíon ín determíníng
my actuaí ta abíe íncome for the months whích precede the month ín
whích the príí 15 ínstaííment date faíís a proportíonate part of the
year-end bonus to empíoyees
. No. Deductíons are not aííowabíe untíí paíd or accrued, de-
pendíng on the method of accountíng used by the ta payer.
6. . I now díscover that the estímated ta shown on my orígínaí
decíaratíon, fííed príí 15, and the payments made on príí, une,
and September 15 are ínsuffícíent ín amount to prevent e ístence of
underpayments as of such ínstaííment dates. None of the reííef pro-
vísíons díscussed ín the answer to questíon 2 wííí appíy to reííeve me
from the ímposítíon of the addítíon to the ta for such underpayments.
Wííí the fíííng of an amended decíaratíon, or a fínaí return ín ííeu of
such amended decíaratíon, on anuary 15, together wíth payment of
any ta shown to be due on such amended decíaratíon or fínaí return,
reííeve me of such ímposítíon
. No. owever, payment on anuary 15 wííí termínate the períod
of tíme for whích the addítíon to the ta ís to be computed.
7. . I íntend to use the fourth method díscussed ín the answer to
questíon 2 ín computíng my estímated ta for 1955 to be shown on my
orm 1010- S to be fííed on príí 15. If I fííe an amended orm
10 0- S on or before any of the subsequent ínstaííment dates must
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135 6015.
Insethe same method ín computíng the estímated ta to be shown on
such amended decíaratíon
. So. The fact that you orígínaííy used one of the avaííabíe
methods ín computíng your estímated ta does not prevent you from
íaterusínc any of the other methods.
8. . I íow ís the amount of an underpayment determíned
. The amount of any underpayment of any ínstaííment ís aíways
determíned by subtractíng (í) the amount actuaííy paíd ín respect of
such ínstaííment from (íí) the amount requíred to be paíd on or before
the ínstaííment date. 2 he amount of the underpayment ís never de-
termíned by subtractíng the amount actuaííy paíd from the amount
computed under any of the methods dísmíssed ín the answer to ques-
tíon 2. owever, no penaíty wííí be ímposed íf any of these methods
appííes. The amount requíred to be paíd ís determíned by dívídíng
To percent (66 percent ín the case of farmers) of the ta whích ís
shown on your orm 10 0 return for 1955 by the number of ínstaíí-
ment dates ín your ta abíe year. The amount actuaííy paíd ín respect
of the ínstaííment íncíudes amounts paíd on príor ínstaííments ín
e cess of the amounts requíred to be paíd by such príor ínstaííment
dates.
To íííustrate the foregoíng, assume that a ta payer (other than a
farmer) who reports a ta ííabíííty of 10,000 on hís fínaí return, has
paíd a totaí of -20,000 estímated ta ín equaí ínstaííments of 5,000
duríng the year. There ís an underpayment of estímated ta as of
each ínstaííment date computed as foííows:
Ta ííabíííty 10, 000
70 percent of ra ííabíííty 28, 000
One-qííarter of 70 percent 7,000
I ednct ínstaííment payment 5,000
Underpayment on each ínstaííment date 2,000
If, ín thís e ampíe, the ta payer, ínstead of payíng hís estímated ta
ín equaí ínstaííments, paíd 10,000 on príí 15 and 10,000 on une 15,
there wouíd not be an underpayment on eíther of those dates but there
wouíd be an underpayment of 1,000 on September 15 and an under-
payment of 7,000 on anuary 15 computed as foííows:
Requíred Under-
ínsíaíím.n. to be paíd Paíd payment
príí 15 _ 7,000 10,000
une 15 7,000 10,000
S pt. 15 7,000 6, 000 1,000
an. 15 7,000 0 7,000
€ mount paíd ín príor aístftí.mcn s In e cess or amounts equíred to be paíd.
9. . Does the amount actuaííy paíd ín respect of an ínstaííment ín-
cíude amounts of íncome ta wíthheíd at source on wages
. Yes. The totaí amount of the credít for ta wíthheíd at source
on wages ís consídered to be a payment of estímated ta and, ín gen-
eraí, an equaí part of such amount ís consídered to have been paíd on
rach ínstaííment date. or e ampíe, íf 1,000 ta has been wíthheíd
from the wages of a ta payer who makes hís return on the basís of the
caíendar year, one-fourth of such amount or 250 ís consídered to
tare been paíd ín respect of each ínstaííment. owever, íf the ta -í
snow € ” se ío
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6015. 136
payer can estabíísh dates and amounts of the actuaí wíthhoídíng, tí
actuaí amount wíthheíd duríng each ínstaííment períod wííí be cor
sídered as a payment ín respect of that ínstaííment In the abov
e ampíe, íf the ta payer can estabíísh that 800 of the 1,000 wa
wíthheíd duríng the fírst three months of the ta abíe year, such 80
wííí be consídered as a payment on the ínstaííment due príí 15.
10. . ow ís the addítíon to the ta computed ín the case of a
underpayment
. The amount of addítíon to the ta ís computed at the rate of sí
percent a year on the amount of the underpayment for the períod froí
the ínstaííment date when the underpayment aríses untíí the date paí
or the date prescríbed for fíííng the orm 10 0 return for the ta abí
year, whíchever date ís the earííer.
11. . If I shouíd move from the dístríct ín whích I fííed m
orígínaí decíaratíon on orm 10 0- S, where shouíd I make ínstaíí
ment payments and fííe amendments to my orígínaí decíaratíon
. If you move from the dístríct ín whích you fííed your orígíns
decíaratíon, you shouíd contínue to make ínstaííment payments o
fííe amendments of thís decíaratíon wíth the Dístríct Dírector wít
whom you fííed your orígínaí decíaratíon. Provísíon ís made for yo
to show on your orm 10 0 return the Dístríct Dírector s offíce t
whích you paíd the amounts cíaímed as a credít on account of estí
muted ta paíd.
PRO L MS CTING M M RS O P RTN RS IPS
12. . I am a member of a partnershíp ín whích profíts and íosse
are shared accordíng to a ratío prescríbed ín the partnershíp agree
ment. oth the partnershíp return and my return are made on th
basís of a caíendar year. What amount, íf any, of the íncome of th
partnershíp shouíd I take ínto account for the purpose of fíííng
decíaratíon of estímated ta on príí 15
. You shouíd take ínto account your dístríbutíve share of the part
nershíp s estímated íncome for 1955. s ín the case of aíí other índí
vídua ta payers, you are entítíed to use any method of computatíoí
descríbed ín the answer to questíon 2. owever, íf you use the thín
or fourth method descríbed ín the answer to that questíon, you mus
take ínto account ín determíníng the amount of your ta abíe íncom
for the months precedíng the month ín whích the ínstaííment dat
faíís your dístríbutíve share of the partnershíp íncome for sue
months, whether or not actuaííy dístríbuted to you ín those months.
13. . ssume the same set of círcumstances as ín the precedín
questíon, e cept that I receíve guaranteed payments under the partner
shíp agreement. What then do I take ínto account for the purpose o
determíníng the amount of my estímated ta
. Guaranteed payments, to the e tent determíned wíthout regan
to the íncome of the partnershíp, are íncíuded ín gross íncome of th
partner. ccordíngíy, you shouíd take ínto account the totaí amoun
of guaranteed payments to whích you are entítíed píus any othe
amount of the partnershíp earníngs to whích you are aíso entítíed.
1 . . I am a partner ín a íaw fírm and I receíve a guaranteed pay
ment each month determíned wíthout regard to the íncome of tín
partnershíp. oth the partnershíp return and my return are made oí
a caíendar-year basís. The partnershíp agreement provídes that an
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137 6015.
earníngs ín e cess of guaranteed payments shaíí be aííocated to the
Taríous partners duríng the íast month of the year. It further pro-
rídes that the aííocatíon ís to be made by the seníor partner after
takíng ínto consíderatíon each partner s work duríng the year. ow
cm I use the fourth method díscussed ín the answer to questíon 2 to
determíne the amount of my estímated ta to be decíared and paíd
by príí 15
. In order for any ta payer to use thís method wíth certaínty, he
must estabíísh hís actuaí ta abíe íncome for the months ín hís ta abíe
year precedíng the month ín whích the ínstaííment date faíís. Your
actuaí ta abíe íncome wííí íncíude both the amount of guaranteed pay-
ments and your dístríbutíve share of the partnershíp earníngs for the
months that precede the month ín whích the ínstaííment date faíís,
whether or not your share was actuaííy dístríbuted to you ín those
months. If, príor to the ínstaííment date, the partnershíp ín good
faíth furníshes the partners wíth ínformatíon enabííng them to deter-
míne theír dístríbutíve shares of partnershíp earníngs for such months,
you wííí be abíe to use the fourth method wíth certaínty by takíng ínto
account your dístríbutíve share so determíned of the actuaí partner-
shíp earníngs for such months and aíí your other íncome for those
months, even though the partnershíp may íater reconsíder and fí a
dífferent percentage aííocatíon of partnershíp earníngs for the year.
If, príor to the ínstaííment date, the partnershíp does not furnísh you
fíth ínformatíon that wííí enabíe you to determíne your dístríbutíve
share of the partnershíp earníngs for such months, you wííí be unabíe
to use the fourth method wíth certaínty that your ínstaííment payment
wííí be ín an amount suffícíent to reííeve you from a possíbíe addítíon
to the ta for underpayment. Under such círcumstances, you may
fínd ít desírabíe to use the fírst or second method díscussed ín the
answer to questíon 2.
15. . The partnershíp of whích I am a member reports íncome on
the basís of a físcaí year endíng une 30 whííe my returns are made on
the basís of a caíendar year. I do not íntend to use any of the methods
díscussed ín questíon 2 for the purpose of determíníng my estímated
ta . What portíon of the partnershíp earníngs for the físcaí year
endíng une 30, 1955, and for the físcaí year endíng une 30, 1956,
shouíd I take ínto account for the purpose of determíníng the amount
of my estímated ta for 1955
. You shouíd take ínto account ín connectíon wíth your decíara-
tíon of estímated ta due príí 15,1955, aíí of your estímated dístríbu-
tíve share of the partnershíp earníngs for the físcaí year endíng une
30,1955, sínce thís amount wííí be properíy reportabíe by you ín your
orm 10 0 return for 1955. No part of the partnershíp earníngs for
the físcaí year endíng une 30, 1956, shouíd be taken ínto account ín
determíníng the amount of your estímated ta for 1955.
16. . ssume the same círcumstances as ín questíon 15 e cept that
I íntend to use the fourth method díscussed ín the answer to questíon 2
m determíníng and payíng my estímated ta . What portíon of the
Partnershíp earníngs for the físcaí year endíng une 30,1955, shouíd
I take ínto account ín determíníng the amount of each ínstaííment
payment
. You shouíd take ínto account ín determíníng the amount of the
– príí 15 ínstaííment your dístríbutíve share of the partnershíp earn-
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6033. 138
íngs for the períod uíy 1,195 , to March 31, 1955 for the une 1
ínstaííment, your dístríbutíve share of the partnershíp earníngs fo
Seríod uíy 1, 195 , to May 31, 1955 and for the September 15 an
anuary 15 ínstaííments, your dístríbutíve share of the partnershí
earníngs for the períod uíy 1,195 , to une 30,1955. (Note that íí
determíníng the amount of an ínstaííment, you shouíd take ínto ac
count the totaí amount paíd on príor ínstaííments.)
17. . ssume the same círcumstances as ín questíon 16, e cept tha
the partnershíp uses a físcaí year endíng anuary 31. What portíoí
of the partnershíp earníngs for the físcaí year endíng anuary 31,1952
shouíd I take ínto account ín determíníng the amount of the príí 1
ínstaííment payment
. You shouíd take ínto account ín determíníng the amount of tíí
príí 15 ínstaííment payment your dístríbutíve share of the partner
shíp earníngs for the períod ebruary 1,195 to anuary 31,1955.
PRO L MS CTING N ICI RI S O ST T S ND TRUST
18. . I am the benefícíary of a trust. ow shouíd I take íntí
account dístríbutíons of íncome from the trust ín computíng my estí
mated ta
. You may use any of the methods díscussed ín the answer t
questíon 2 ín computíng your estímated ta . or the purpose of usín|
eíther of the methods based on actuaí ta abíe íncome, you must tak
ínto account your dístríbutabíe share of the trust íncome (whethe
or not actuaííy dístríbuted) for the months precedíng the month íí
whích the ínstaííment date faíís íf the trust ís one whích ís requíre
to dístríbute íncome to you currentíy. If the trust ís not requíre
to dístríbute íncome to you currentíy, you wííí be requíred to tak
ínto account oníy the amounts actuaííy dístríbuted to you duríng sue
months.
Where you report íncome on a caíendar-year basís and the trus
reports on a físcaí-year basís, portíons of the trust íncome shouíd b
taken ínto account ín determíníng your íncome at the same tíme a
íncome from a partnershíp. See the answers to questíons 15, 10
and 17.
Reguíatíons wííí be íssued under sectíons 0015, 6073, 6153, and 665
of the Internaí Revenue Code of 1951. The opportuníty to commen
on the proposed constructíon of these sectíons, províded by the d
mínístratíve Procedure ct, wííí be avaííabíe when the reguíatíon
are pubííshed as a notíce of proposed ruíemakíng.
P RT III. € ” IN ORM TION R TURNS
SU P RT . € ” IN ORM TION CONC RNING P RSONS SU CT TO SP CI L
PRO ISIONS
S CTION 6033. € ” R TURNS Y MPT ORG NIZ TIONS
( íso Part II, Sectíon 5 Reguíatíons 118, Rev. Ruí. 55-13
Sectíon 39.5 -1)
ederaí credít uníons are recognízed as ínstrumentaíítíes of th
Uníted States wíthín the meaníng of sectíon 501(c) (1) of the Interna
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139 60C5.
Revenue Code of 195 (see. 101(15) of the 1939 Code). They are,
hoíwer, requíred to fííe annuaí ínformatíon returns on orm 990
sínce they are not -whoííy owned by the Uníted States or any agency
or ínstrumentaíítv thereof wíthín the íntendment of sectíon 6033(a)
of the 195 Code (sec. 5 (f) of the 1939 Code).
The ureau of ederaí Credít Uníons, Department of eaíth,
, ducatíon, and Weífare, períodícaííy furníshes the Internaí Revenue
Servíce íísts of ederaí credít uníons whích have been chartered by ít
group ruííng and suppíements thereto have been íssued hoídíng the
chartered ederaí credít uníons íncíuded ín the íísts to be entítíed to
e emptíon from ederaí íncome ta as ínstrumentaíítíes of the Uníted
States wíthín the meaníng of sectíon 501(c) (1) of the Code of 195 ,
whích corresponds to sectíon 101(15) of the Code of 1939. s pro-
víded ín these ruííngs, the ederaí credít uníons íncíuded ín the íísts
are requíred to fííe annuaí ínformatíon returns on orm 990.
Rev. Ruí. 55-371
( íso Sectíon 01.)
Sectíon 6033 of the Internaí Revenue Code of 195 provídes, ín
effect, that every organízatíon, wíth certaín e ceptíons, e empt from
ta atíon under sectíon 501(a) of the Code, shaíí fííe an annuaí return
statíng specífícaííy the ítems of gross íncome, receípts, dísbursements,
and other ínformatíon. These returns are requíred to be fííed on or
before the 15th day of the 5th month foííowíng the cíose of the annuaí
accountíng períod.
Pursuant to the authoríty contaíned ín sectíon 6081(a) of the Code,
empíoyees trusts quaíífíed under sectíon 01(a) of the Code and e -
empt under sectíon 501(a), wíth annuaí accountíng períods begínníng
after December 31, 1953, and endíng on or before May 31, 1955, are
granted an e tensíon of tíme untíí November 15, 1955, ín whích to
fííe orm 990-P, U. S. Return of mpíoyees Trust Descríbed ín
Sectíon 01(a) and empt Under Sectíon 501(a) of the Internaí
Revenue Code of 195
P ST I . € ” SIGNING ND RI YING O R TURNS ND OT R DOCUM NTS
S CTION 6065. € ” RI IC TION O R TURNS
Rev. Ruí. 55-1 9
If a return ís prepared for a ta payer by a person (s) or a fírm (ín-
cíudíng partnershíps, corporatíons, etc.), the índívíduaí or fírm
responsíbíe for such preparatíon shaíí compíete the statement of verí-
fícatíon províded on the íncome return forms ín the foííowíng manner:
(a) íf the person, (or persons) responsíbíe for the preparatíon
of the return ís an índívíduaí actíng ín hís own capacíty, the
statement of verífícatíon shaíí be sígned by such índívíduaí
awd on IR New Reíease No. IR-109, dated March 28,1055.
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5 6072. 1 0
(b) íf a fírm ís responsíbíe for the preparatíon of the return,
the statement of verífícatíon shaíí be sígned wíth the fírm name.
owever, íf the fírm name ís stamped or typed, ít shouíd be foí-
íowed by the sígnature of a person authorízed to sígn the verífíca-
tíon on behaíf of the fírm. The fírm may authoríze any offícer,
member, or empíoyee to sígn the verífícatíon.
Such verífícatíon ís not requíred íf the actuaí preparatíon of the
return ís a reguíar and usuaí íncídent of the empíoyment of one reg-
uíaríy and contínuousíy empíoyed for fuíí tíme by the person for
whom the return ís made (such as a cíerk, secretary, bookkeeper, etc.).
P RT . € ” TIM OR ILING R TURNS ND OT R DOCUM NTS
S CTION 6072. € ” TIM OR ILING INCOM T
R TURNS
( íso Sectíon 1501.) Rev. Ruí. 55-103
( íso Part II, Sectíon 53 Reguíatíons 118,
Sectíon 39.53-1.)
The Dístríct Dírector of Internaí Revenue may prescríbe a date for
fíííng the short ta abíe year return of a díssoíved subsídíary corpora-
tíon to correspond wíth the due date of the return of the common
parent corporatíon where the short períod return of the subsídíary
ís not deíínquent and where the subsídíary may eíect to or Is
requíred to be íncíuded ín a consoíídated return. The amount of
ta paíd upon the basís of the return of the subsídíary wííí be con-
sídered as havíng been paíd by the common parent corporatíon.
dvíce has been requested whether a subsídíary corporatíon on the
caíendar year basís whích was díssoíved and merged ínto íts parent
corporatíon on March 31,195 , and whích had been granted a 6-months
e tensíon of tíme to December 15,195 , ín whích to tííe íts short períod
return may (1) receíve a further e tensíon of tíme ín whích to ní
íts return, or (2) íf the return ís fííed on December 15, 195 , whetheí
the subsídíary ís requíred to be íncíuded ín a consoíídated return foí
the caíendar year 195 .
In the ínstant case, the subsídíary fííed a tentatíve return on une 15
195 , and that date paíd one-haíf of íts estímated ta , and paíd th
baíance on September 15,195 .
Sectíon 39.53-1( ) of Reguíatíons 118, promuígated under sectíoí
53 of the Internaí Revenue Code of 1939 whích ís the counterpart o
sectíon 6081 of the 195 Code, provídes that ín the case of any returí
for a fractíonaí part of a year, the Dístríct Dírector of Interna
Revenue may, upon a showíng by the ta payer of unusuaí círcum
stances, prescríbe a íater tíme for the fíííng of the return. The tern
unusuaí círcumstances ís construed to íncíude the sítuatíon where
subsídíary has been merged ínto the common parent before the end o
the ta abíe year of the parent and ít ís not known at that tíme whethe
a consoíídated return wííí be fííed by the affíííated group.
Sectíon 1501 of the Internaí Revenue Code of 195 provídes tha
ín the case of a corporatíon whích ís a member of an affíííated grou
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1 1
0081.
forí fractíonaí part of the year, the consoíídated return shaíí íncíude
the íncome oí such corporatíon for such part of the year as ít ís a
member c-f the affíííated group. If the affíííated group has and eíects
to e ercíse the prívííege of makíng a consoíídated return, the prívííege
must be e ercísed at the tíme of makíng the return of the common
parent corporatíon. In the case of a caíendar year ta payer, the
return shaíí he fííed on or before March 15, or such íater tíme as ís
prescríbed by the Dístríct Dírector.
ccordíngíy, the Dístríct Dírector may prescríbe a date for fíííng
the short ta abíe year return of a díssoíved subsídíary corporatíon
/ to correspond wíth the due date of the return of the common parent
/ ín a case where the return of the subsídíary ís not deíínquent and where
the subsídíary may eíect to or ís requíred to be íncíuded ín a con-
s ídated return. The amount of ta paíd upon the basís of the return
of the subsídíary wííí be consídered as havíng been paíd by the common
parent corporatíon
P RT I. € ” T NSION O TIM OR ILING R TURNS
S CTION 6081. € ” T NSION O TIM OR ILING
R TURNS
( íso Sectíon 1501.) Rev. Ruí. 55-17
The tíme for fíííng consoíídated returns for ta abíe years endíng
on or after December 31,105 , but before une 30, 1955, ís e tended
to September 15,I860.
1. Pursuant to the authoríty contaíned ín sectíon 6081(a) of the
Internaí Revenue Code of 195 , the tíme for fíííng the return for a
usabíe year endíng on or after December 31, 195 , but before une
30, 1955, by a corporatíon whích ís a member of an affíííated group
havíng the prívííege of makíng a consoíídated return for such ta -
abíe year under sectíon 1501 of the Internaí Revenue Code of 195
ís hereby e tended to September 15,1955.
2. Requests for an addítíonaí e tensíon of tíme for fíííng such
return beyond that set forth ín paragraph 1, to whích a ta payer may
be entítíed under sectíon 6081 (a) or (b), shouíd be addressed to the
Dístríct Dírector of Internaí Revenue for the dístríct ín whích the
consoíídated return wííí be fííed.
3. The e tensíon of tíme granted ín paragraph (1) of thís Revenue
Ruííng shaíí not be construed as an e tensíon of tíme for payment of
ta nor as a waíver of ííabíííty for ínterest on any amount of ta due
tad unpaíd as províded by íaw.
Rev. Ruí. 55-262 f
íducíaríes of estates and trusts are hereby granted an e tensíon of
tíme up to and íncíudíng May 16, 1955, for fíííng nonta abíe returns
€ Orfrínnííy hnatd as IR-Círcuíar No. 5-23. dated March 1 .10R5.
tOrígícaU| íssued aa I News Reíease No. I -111, dated príí 13, 1955.
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6103(a). 1 2
on orm 10 1, U. S. íducíary Income Ta Return, for ta abíe year
endíng on December 31, 195 . Tbís e tensíon appííes oníy íf th
return contaíns, or has attached to ít, a statement that the bene
fícíaríes or other dístríbutees of the estate or trust were apprísed oí
or before príí 15, 1955, of theír dístríbutíve shares of íncome o
the estate or trust.
Date ínterest wííí commence to run on addítíonaí ta due to th
change ín íaw províded by sectíon 7851(a)(1)(D). See Rev. Ru
55-22, page 198.
SU C PT R . € ” MISC LL N OUS PRO ISIONS
S CTION 6103. € ” PU LICITY O R TURNS ND LISTS 0:
T P Y RS
26 C R 301.6103 (a)-101: Inspectíon of returns T. D. 613
by commíttees oí Congress other than those
enumerated ín sectíon 6103(d) of the Internaí
Revenue Code of 195 .
TITL 26 € ” INT RN L R NU , 195 . € ” C PT R I. SU C PT R , P RT 301.
PROC DUR ND DMINISTR TION
Inspectíon of certaín returns by commíttees of Congress other
than those ennumerated In sectíon 6103(d) of the Internaí Revenue
Code of 195 .
Treasury Department,
Washíngton 25, D. C.
To Offícers and mpíoyees of the Internaí Revenue Servíce and Othe
Concerned:
Sec. 301.6103(a)-101. Inspectíon of Returns by Commíttees
Congress Other Than Those numerated ín Sectíon 6103(d) í
the Internaí Revenue Code of 195 . € ” (a) (1) Pursuant to the pr
vísíons of sectíon 6103(a) of the Internaí Revenue Code of 195 (68
Stat. 753 26 U. S. C. 6103(a)), any return wíth respect to íncom
estate, or gíft ta ímposed by the Internaí Revenue Code of 195 shn
be open to ínspectíon by any commíttee of the Congress, or any su
commíttee of a commíttee of the Congress, specíaííy authorízed
ínspect such returns by an ecutíve order íssued under the afoí
mentíoned statutory provísíons on or after the date of the approv
of thís Treasury Decísíon. Such ínspectíon shaíí be sub|ect to t
condítíons and restríctíons ímposed by the ecutíve order and t
ruíes and reguíatíons hereínafter prescríbed.
(2) Oníy such of the aforementíoned returns as are specífíed ín
resoíutíon adopted by the commíttee ín accordance wíth the ruíes
the appropríate house of the Congress then appíícabíe to the reportíí
of a measure or recommendatíon from such commíttee shaíí be op
to ínspectíon. Such resoíutíon shaíí set forth the names and address
of the ta payers whose returns ít ís necessary to ínspect and the ta
abíe períods covered by the returns. The ínspectíon of retur
authorízed ín thís sectíon may be made by the commíttee of the Co
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1 3 6103(a).
pes, or tbe subcommíttee of a commíttee of the Congress, authorízed
ísprovíded ín subparagraph (1) of thís paragraph, actíng dírectíy as
commíttee or as a subcommíttee, or by or through such e amíners or
agents as such commíttee or subcommíttee may desígnate or appoínt ín
íts wrítten request hereínafter mentíoned. Upon wrítten request by
the chaírman of such commíttee or of such subcommíttee to the Secre-
tary of the Treasury, gívíng the names and addresses of the ta payers
whose returns ít ís desíred to ínspect and the ta abíe períods covered
by the returns and statíng that the resoíutíon hereínbefore mentíoned
wíth respect to the ínspectíon of such returns has been duíy adopted
by such commíttee or by the commíttee under whích such subcommíttee
functíons, the Secretary or any offícer or empíoyee of the Department
of the Treasury, wíth the approvaí of the Secretary, shaíí furnísh
such commíttee or subcommíttee wíth any data reíatíng to or con-
taíned ín any such return or shaíí make such return avaííabíe for
ínspectíon by such commíttee or subcommíttee or by the e amíners
or agents desígnated or appoínted by such commíttee or subcommíttee.
Such data shaíí be furníshed, or such return shaíí be made avaííabíe
for ínspectíon, ín an offíce of the Internaí Revenue Servíce. ny ín-
formatíon thus obtaíned by such commíttee or subcommíttee shaíí be
heíd confídentíaí: Províded, however, That any portíon thereof reíe-
vant or pertínent to the purpose of the ínvestígatíon may be submítted
by the ínvestígatíng commíttee to the appropríate house of the
Congress.
(3) Thís sectíon shaíí not be appíícabíe to any commíttee author-
ízed by sectíon 6103(d) of the Internaí Revenue Code of 195 to
ínspect returns.
(b) ecause thís Treasury Decísíon constítutes a generaí statement
of poíícy and estabííshes a ruíe of Departmentaí practíce and pro-
cedure, ít ís found that ít ís unnecessary to íssue thís Treasury De-
císíon wíth notíce and pubííc procedure thereon under sectíon (a)
of the dmínístratíve Procedure ct, approved une 11, 19 6, or
sub|ect to the effectíve date íímítatíon of sectíon (c) of that ct.
(c) Thís Treasury Decísíon shaíí be effectíve upon íts fíííng for
pubíícatíon ín the ederaí Regíster.
pproved: May 3,1955,
Dwíght D. ísenhower,
The Whíte ouse.
G. M. uMrííR r,
Secretary of the Treasury.
( ííed wíth the Dívísíon of the ederaí Regíster May 3,1955,5: 02 p. m.)
CUTI ORD R 10606
( íso Part II.)
Inspectíon of íncome, e cess-profíts, decíared vaíue e cess-profíts,
capítaí-stock, estate, and gíft ta returns by the Senate Commíttee
on Government Operatíons.
y vírtue of the authoríty vested ín me by sectíons 55(a), 508, 603,
729(a), and 120 of the Internaí Revenue Code of 1939 (53 Stat. 29,
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6103(a). 1
111, 171 5 Stat. 989,1008 55 Stat. 722 26 U. S. C. 55(a), 508, 603,
729(a), and 120 ), and by sectíon 6103(a) of the Internaí Revenue
Code of 195 (68 Stat. 753 26 U. S. C. 6103(a)), ít ís hereby ordered
that any íncome, e cess-profíts, decíared vaíue e cess-profíts, capítaí
stock, estate, or gíft ta return for the years 19 5 to 195 , íncíusíve,
shaíí, duríng the íghty-fourth Congress, be open to ínspectíon by the
Senate Commíttee on Government Operatíons, or any duíy authorízed
subcommíttee thereof, ín connectíon wíth íts studíes of the operatíon
of Government actívítíes at aíí íeveís wíth a víew to determíníng íts
economy and effícíency, ín accordance and upon compííance wíth the
ruíes and reguíatíons prescríbed by the Secretary of the Treasury ín
the Treasury Decísíons, reíatíng to the ínspectíon of returns by cer-
taín commíttees of the Congress, approved by me thís date.
Thís ecutíve order shaíí be effectíve upon íts fíííng for pubíícatíon
ín the ederaí Regíster.
DwíG T D. ísenhower.
The Whíte ouse,
May 3,1955.
( ííed wíth the Dívísíon of the ederaí Regíster May 3,1955, 5: 02 p. m.)
CUTI ORD R 10607
( íso Part II.)
Inspectíon of íncome, e cess-profíts, decíared-vaíue e cess-profíts,
capítaí-stock, estate, and gíft ta returns by the Commíttee on Gov-
ernment Operatíons, ouse of Representatíves.
y vírtue of the authoríty vested ín me by sectíons 55(a), 508, 603
729(a), and 120 of the Internaí Revenue Code of 1939 (53 Stat. 29
111, 171 5 Stat. 989,1008 55 Stat. 722: 26 U. S. C. 55(a), 508, 603,
729(a), and 120 ), and by sectíon 6103(a) of the Internaí Revenue
Code of 195 (68 Stat. 753 26 U. S. C. 6103(a)), ít ís hereby ordered
that any íncome, e cess-profíts, decíared-vaíue e cess-profíts, capítaí-
stock, estate, or gíft ta return for any períod to and íncíudíng 105
shaíí, duríng the íghty-fourth Congress, be open to ínspectíonby the
Commíttee on Government Operatíons, ouse of Representatíves, oí
any duíy authorízed subcommíttee thereof, ín connectíon wíth íts
studíes of the operatíon of Government actívítíes at aíí íeveís wíth
víew to determíníng the economy and effícíency of the Government
such ínspectíon to be ín accordance and upon compííance wíth the ruíes
and reguíatíons prescríbed by the Secretary of the Treasury ín the
two Treasury Decísíons, reíatíng to the ínspectíon of returns by com-
míttees of the Congress, approved by me thís date.
Thís order shaíí be effectíve upon íts fíííng for pubíícatíon ín the
ederaí Regíster.
Dwíght D. ísenhower.
The Whíte ouse,
May 3,1955.
( ííed wíth the Dívísíon of the ederaí Regíster May 3,1955,5: 02 p. m.)
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1 5 6201.
C PT R 63. € ” SS SSM NT
SU C PT R IN G N R L
S CTION 6201. € ” SS SSM NT UT ORITY
6 C R 301 201-1: ssessment authoríty. T. D. 6119
( íso Sectíons 6301, 6 02, 6 0 26 C R
301.6301-1, 301 02-1, 301.6 0 -1.)
TITL 2C € ” INT RN L R NU . € ” C PT R I, SU C PT R , P RT 301
Reguíatíons under chapters 63, 6 , and 65 nf the Internaí Revenue
Code or 195 , reíatíng to assessment, coííectíon, abatements, credíts,
and refunds.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washínffton 25, D. C.
To Offícers and mpíoyees of the Internaí Revenue Servíce and Others
Concerned:
On December 11,195 , there was pubííshed ín the ederaí Regíster
(19 . R. 8 57) a notíce of proposed ruíe makíng regardíng reguía-
tíons under chapter 63, reíatíng to assessment, chapter 6 (e cept sec-
tíon 6316), reíatíng to coííectíon, and chapter 65. reíatíng to abate-
ments, credíts, and refunds, of the Internaí Revenue Code of 195 .
On December 15,195 , a correctíon notíce makíng four changes ín the
proposed reguíatíons was pubííshed ín the ederaí Regíster (19 . R.
8580). fter consíderatíon of aíí reíevant matter presented by ín-
terested partíes regardíng the ruíes proposed, the foííowíng reguía-
tíons are hereby adopted.
ssessment
ín generaí
ee.
301.6201 Statutory provísíons assessment authoríty.
301.62O1-1 ssessment authoríty.
301.6202 Statutory provísíons estabííshment by reguíatíons of mode or tíme
of assessment.
3)1.6203 Statutory provísíons method of assessment.
301.6203-1 Method of assessment.
301.620 Statutory provísíons suppíementaí assessments.
301.62O -1 Suppíementaí assessment.
301.6205 Statutory provísíons specíaí ruíes appíícabíe to certaín empíoy-
ment ta es.
301.620-5-1 Specíaí ruíes appíícabíe to certaín empíoyment ta es.
30L6206 Statutory provísíons cross references.
D ICI NCY P OC DU S
301.6211 Statutory provísíons defínítíon of a defícíency.
3M .6211-1 Defícíency defíned.
301.6212 Statutory provísíons notíce of defícíency.
301.6212-1 Notíce of defícíency.
301.6213 Statutory provísíons restríctíons appíícabíe to defícíencíes petítíon
to Ta Court.
301.6213-1 Restríctíons appíícabíe to defícíencíes: petítíon to Ta Court.
30L621 Statutory provísíons determínatíons by Ta Court.
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6201. 1 6
Sec.
301.6215 Statutory provísíons assessment of defícíency found by Ta Court
301.6215-1 ssessment of defícíency found by Ta Court.
301.6210 Statutory provísíons cross references.
Coííectíon
generaí provísíons
301.6301 Statutory provísíons coííectíon authoríty.
301.6301-1 Coííectíon authoríty.
301.6302 Statutory provísíons mode or tíme of coííectíon.
301.6302-1 Use of ederaí reserve banks and authorízed commercíaí banks ín
connectíon wíth the payment of certaín empíoyment and e císe
ta es.
301.6303 Statutory provísíons notíce and demand for ta .
301.6303-1 Notíce and demand for ta .
301.030 Statutory provísíons coííectíon under the Taríff ct.
R C IPT O P YM NT
301.6311 Statutory provísíons payment by check or money order.
301.6311-1 Payment by check or money order.
301.6312 Statutory provísíons payment by Uníted States notes and certífí-
cates of índebtedness.
301.6312-1 Treasury certífícates of índebtedness. Treasury notes, and Treasury
bííís acceptabíe ín payment of ínternaí revenue ta es or stamps.
301.6312-2 Certaín Treasury savíngs notes acceptabíe In payment of certaín
ínternaí revenue ta es.
301.6313 Statutory provísíons fractíonaí parts of a cent.
301.6313-1 ractíonaí parts of a cent.
301.031 Statutory provísíons receípt for ta es.
301.631 -1 eceípt for ta es.
301.6315 Statutory provísíons payments of estímated íncome ta .
301.6315-1 Payments of estímated íncome ta .
301.6316 Statutory provísíons payment by foreígn currency.
LI N OR T S
301.6321 Statutory provísíons ííen for ta es.
301.6321-1 I.íen for ta es.
301.6322 Statutory provísíons períod of en.
301.6323 Statutory provísíons vaíídíty agaínst mortgagees, píedgees, pur-
chasers, and |udgment credítors.
301.6323 1 aíídíty of ííen agaínst mortgagees, píedgees, purchasers, and |udg-
ment credítors.
301.632 Stntutory provísíons: specíaí ííens for estate and gíft ta es.
301.632 -1 Specíaí ííens for estate and gíft ta es personaí ííabíííty of trans-
fen es and others.
301.6325 Statutory provísíons reíease of ííen or partíaí díscbarge of property.
301.6325-1 ítcíense of ííen or partíaí díscharge of property.
301.6320 Statutory provísíons cross references.
S IZUR O P OP RTT OR COLL CTION O T S
301.6331 Statutory provísíons íevy and dístraínt,
301.6331-1 Levy and dístraínt.
301.6332 Statutory provísíons surrender of property sub|ect to íevy.
301.6332-1 Surrender of property sub|ect to íevy.
301.6333 Statutory provísíons productíon of books.
30I.6333-1 Productíon of books.
301.633 Statutory provísíons property e empt from íevy.
301.033 -1 Property e empt from íevy.
301.6335 Statutory provísíons saíe of seízed property.
301.6335-1 Saíe of seízed property.
301.6336 Stntutory provísíons saíe of períshabíe goods.
301.6330-1 Saíe of períshabíe goods.
301.6337 Statutory provísíons redemptíon of property.
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1 7
6201.
3 1.G33T-1
an.sm
30 .6338-1
301.5339
3M.6339-1
Redemptíon of property.
Statutory provísíons certífícate of saíe deed of reaí property.
Certífícate of saíe deed of reaí property.
Statutory provísíons íegaí effect of certífícate of saíe of personaí
property and deed of reaí property.
Legaí effect of certífícate of saíe of personaí property and deed of
reaí property.
301.63 0 Statutory provísíons records of saíe.
301.63 O-1 Records of saíe.
301.63 1 Statutory provísíons e pense of íevy and saíe.
301.63 1-1 pense of íevy and saíe.
301.63 2 Statutory provísíons appíícatíon of proceeds of íevy.
301.63 2-1 ppíícatíon of proceeds of íevy.
301.63 3 Statutory provísíons authoríty to reíease íevy.
301.63 3-1 uthoríty to reíease íevy.
301.63 Statutory provísíons cross references.
batements, Credíts, and Refunds
procedure ín generaí
301.8 01 Statutory provísíons amounts treated as overpayments.
301.6 01-1 mounts treated as overpayments.
301.6 02 Statutory provísíons authoríty to make credíts or refunds.
301.6 02-1 uthoríty to make credíts or refunds.
301.6 02-2 Cíaíms for credít or refund.
301.6 O2-3 Specíaí ruíes appíícabíe to Income ta .
3U1.0 O2- Payments ín e cess of amounts shown on return.
301.6 02-5 Cíaím for payment of udgment obtaíned agaínst dístríct dírector.
301.6 02-6 Cíaím for payment of |udgment obtaíned ín Uníted States dístríct
court agaínst the Uníted States.
301.6 02-7 Cíaím for payment of |udgment obtaíned ín the Court of Cíaíms
agaínst the Uníted States.
301.6 03 Statutory provísíons overpayment of ínstaííment.
301.6 03-1 Overpayment of ínstaííment.
301.6 0 Statutory provísíons abatements.
30L6 0 -1 batements.
301.6 05 Statutory provísíons reports of refunds and credíts.
301.6 05-1 Reports of refunds and credíts.
301.6 06 Statutory provísíons prohíbítíon of admínístratíve revíew of de-
císíons.
301.6 07 Statutory provísíons date of aííowance of refund or credít.
301.6 07-1 Date of aííowance of refund or credít.
RUL S O SP CI L PPLIC TION
301.6 11 Statutory provísíons tentatíve carryback ad|ustments.
301.6 11-1 Tentatíve carryback ad|ustments.
301.6 12 Statutory provísíons fíoor stock refunds.
301.6 12-1 íoor stocks refunds.
301.6 13 Statutory provísíons specíaí ruíes appíícabíe to certaín empíoyment
ta es.
301.6 13-1 Specíaí ruíes appíícabíe to certaín empíoyment ta es.
901.6 1 Statutory provísíons íncome ta wíthheíd.
301.6 1 -1 Income ta wíthheíd.
301.6 15 Statutory provísíons credíts or refunds to persons who coííected cer-
taín ta es.
301.6 15-1 Credíts or refunds to persons who coííected certaín ta es
301.6 16 Statutory provísíons certaín ta es on saíes and servíces.
301.6 16-1 Certaín ta es on saíes and servíces.
301.6 17 Statutory provísíons coconut and paím oíí.
301.6 17-1 Coconut and paím oíí.
301.6 18 Statutory provísíons sugar.
301.6 18-1 Sugar.
301.6 19 Statutory provísíons e císe ta on wageríng.
301.6 10-1 císe ta on wageríng.
301.6 20 Statutory provísíons cross references.
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6201. 1 8
CTI D T ND L T D PRO ISIONS
Sec.
301.7851 Statutory provísíons appíícabíííty of revenue íaws.
uthoríty : 301.6201 to 301.7851 Issued under sec. 7805, 68 Stat 917 2(
. S. O. 7805.
ssessment
ín generaí
Sec. 301.6201. Statutory Provísíons ssessment uthoríty.
Sec. 6201. ssessment authoríty.
(a) uthoríty of Secretary or deíegate. The Secretary or hís deíegate Is
authorízed and requíred to make the ínquíríes, determínatíons, and assessments
of aíí ta es (íncíudíng Interest, addítíonaí amounts, addítíons to the ta , and
assessabíe penaítíes) ímposed by thís títíe, or accruíng under any former ínterna
revenue íaw, whích have not been duíy paíd by stamp at the tíme and ín the
manner províded by íaw. Such authoríty shaíí e tend to and íncíude th(
foííowíng:
(1) Ta es shown on return. € ” The Secretary or hís deíegate shaíí assess at
ta es determíned by the ta payer or by the Secretary or hís deíegate as to whícfc
returns or íísts are made under thís títíe.
(2) Unpaíd ta es payabíe by stamp.
( ) Omítted stamps. € ” Whenever any artícíe upon whích a ta ís requíred
to be paíd by means of a stamp ís soíd or removed for saíe or use by the mnnu
facturer thereof or whenever any transactíon or act upon whích a ta ís requírec
to be paíd by means of a stamp occurs wíthout the use of the proper stamp, íí
shaíí be the duty of the Secretary or hís deíegate, upon such ínformatíon as h(
can obtaín, to estímate the amount of ta whích has been omítted to be paíc
and to make assessment therefor upon the person or persons the Secretary oí
hís deíegate determínes to be ííabíe for such ta .
( ) Check or money order not duíy paíd. € ” In any case ín whích a check oí
money order receíved under authoríty of sectíon 6311 as payment for stamps U
not duíy paíd, the unpaíd amount may be ímmedíateíy assessed as íf ít were s
ta ímposed by thís títíe, due at the tíme of such receípt, from the person whe
tendered such check or money order.
(3) rroneous íncome ta prepayment credíts. € ” If on any return or cíaím foí
refund of íncome ta es under subtítíe there ís an overstatement of the emííí
for íncome ta wíthheíd at the source, or of the amount paíd as estímated íncomt
ta , the amount so overstated whích ís aííowed agaínst the ta shown on th
return or whích ís aííowed as a credít or refund may be assessed by the Secretar|
or hís deíegate ín the same manner as In the case of a mathematícaí error appear
íng upon the return.
(b) stímated íncome ta . € ” No unpaíd amount of estímated ta under sectíor
6153 or 615 shaíí be assessed.
(c) Compensatíon of chííd. € ” ny íncome ta under chapter 1 assessed agaín
a chííd, to the e tent attríbutabíe to amounts íncíudíbíe ín the gross íncome oí
the chííd, and not of the parent, soíeíy by reason of sectíon 73 (a), shaíí, íf noí
paíd by the chííd, for aíí purposes be consídered as havíng aíso been properí|
assessed agaínst the parent.
(d) Defícíency proceedíngs. € ” or specíaí ruíes appíícabíe to defícíencíes oí
Income, estate, and gíft ta es, see subchapter .
Sec. 301.0201-1. ssessment uthoríty € ” (a) In generaí. € ” The Dístríct Dí
rector ís authorízed and requíred to make aíí ínquíríes necessary to the deter
mínatíons and assessments of aíí ta es ímposed by the Internaí Revenue Code oí
105 or any príor ínternaí revenue íaw. e ís further authorízed and requírec
to make the determínatíons and the assessments of such ta es. owever, cer
taín ínquíríes and determínatíons are, by dírectíon of the Commíssíoner, mad(
by other offícíaís, such as ssístant Regíonaí Commíssíoners. The term ta es
íncíudes ínterest, addítíonaí amounts, addítíons to the ta es, and assessabí
penaítíes. The authoríty of the Dístríct Dírector to make assessments íncíudes
the foííowíng:
(1) Ta es shown on return. € ” The Dístríct Dírector shaíí assess aíí ta es deter
míned by the ta payer or by the Dístríct Dírector and díscíosed on a return oí
ííst.
(2) Unpaíd ta es payabíe by stamp, (í) If wíthout the use of the propeí
stamp:
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f 6201.
(a) ny artícíe n-pon whích a ta Is requíred to be paíd by means of a stamp ía
soíd ot removed íor saíe or use by the manufacturer thereof, or
í ny transactíon or act upon whích a ta Is requíred to be paíd by means
ot a stamp occurs í
Use Dístríct Dírector, upon such ínformatíon as he can obtaín, must estímate the
amount ot the ta whích has not been paíd and must make assessment therefor
oprathe person the Dístríct Dírector determínes to be ííabíe for the ta . IIow-
er, tíw Dístríct Dírector may not assess any ta whích ís payabíe by stamp
uníess the ta payer faíís to pay such ta at the tíme and ín the manner províded
– b| íaw or reguíatíons.
(u) If a ta payer gíves a check or money order as payment for stamps but
the check or money order ís not paíd upon presentment, then the Dístríct Dí-
rector shaíí assess tríe amount of the check or money order agaínst the ta payer
as íf ít were a ta due at the tíme the check or money order was receíved by
the Dístríct Dírector.
(3) rroneous íncome ta prepayment credíts. € ” If the amount of Income ta
wíthheíd or the amount of estímated íncome ta paíd Is overstated by a ta payer
on a return or on a cíaím for refund, the amount so overstated whích ís aííowed
agaínst the ta shown on the return or whích ís aííowed as a credít or refund
shaíí be assessed by the Dístríct Dírector ín the same manner as In the case of a
mathematícaí error on the return. See sectíon 6213(b)(1), reíatíng to e cep-
tíons to restríctíons on assessment.
(6) stímated íncome ta . € ” The Dístríct Dírector shaíí not assess any amount
of estímated Income ta requíred to be paíd under sectíon 6153 or 615 whích Is
unpaíd.
c) Compensatíon of chííd. € ” ny íncome ta assessed agaínst a chííd, to the
e tent of the amount attríbutabíe to Income íncíuded ín the gross Income of the
ííd soíeíy by reason of sectíon 73(a) or the correspondíng provísíon of príor
taw. If not paíd by the chííd, shaíí, for the purposes of the íncome ta ímposed
by chapter 1 (or the correspondíng provísíons of príor íaw), be consídered as
havíng aíso been properíy assessed agaínst the parent. In any ease ín whích
the earníngs of the chííd are íncínded ín the gross íncome of the chííd soíeíy
by reason of sectíon 73(a) or the correspondíng provísíon of príor íaw, the
parent s ííabíííty ís an amount equaí to the amount by whích the ta assessed
agaínst the chííd (and not paíd by hím) has been íncreased by reason of the
íncíusíon of such earníngs ín the gross íncome of the chííd. Thus, If for the
caíendar year 195 the chííd has íncome of 1,000 from Investments and of 3,000
for servíces rendered, and the íatter amount ís íncíudíbíe ín the gross íncome
of the chííd under sectíon 73(a) and the chííd has no wífe or dependents, the ta
ííabíííty determíned under sectíon 3 ís 625. If the chííd had oníy the ínvest-
ment Income of 1,000, hís ta ííabíííty wouíd be 62. If the ta of 025 ís
assessed agaínst the chííd, the dífference between 623 and 62, or 563, ís the
amount of such ta whích Is consídered to have been properíy assessed agaínst
the parent. If not paíd by the chííd.
Sec. 301.6202. Statutory Provísíons stabííshment by Reguíatíons of
Mode or Tíme of ssessment.
Sec. 6202. stabííshment by reguíatíons of mode or tíme of assessment.
If the mode or tíme for the assessment of any ínternaí revenue ta (íncíudíng
Interest, addítíonaí amounts, addítíons to the ta , and assessabíe penaítíes) ís
not otherwíse províded for, the Secretary or hís deíegate may estabíísh the
ume by reguíatíons.
Sec. 301.C203. Statutory Provísíons Method of ssessment.
Sfc. 6203. Method of assesment.
The assessment shaíí be made by recordíng the ííabíííty of the ta payer ín the
offíce of the Secretary or hís deíegate ín accordance wíth ruíes or reguíatíons
Prescríbed by the Secretary or hís deíegate. Upon request of the ta payer, the
Secretary or hís deíegate shaíí furnísh the ta payer a copy of the record of the
assessment,
Sec. 301.6203-1. Method of ssessment.
The Dístríct Dírector shaíí appoínt one or more assessment offícers, and the
assessment shaíí be made by an assessment offícer sígníng the summary record
of assessment. The summary record, through supportíng records, shaíí províde
Identífícatíon of the ta payer, the character of the ííabíííty assessed, the ta abíe
Períod If appíícabíe, and the amount of the assessment. The amount of the
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62C 150
assessment shaíí In the case of ta shown on a return by the ta payer, be tí
amount so shown, and ín aíí other cases the amount of the assessment shaíí I
the amount shown on the supportíng ííst or record. The date of the assessmeí
ís the date the summary record ís sígned by an assessment offícer. If the ta:
payer requests a copy of the record of assessment, the Dístríct Dírector síía
furnísh the ta payer a copy of the pertínent parts of the assessment whích s
forth the name of the ta payer, the date of assessment, the character of tí
ííabíííty assessed, the ta abíe períod, íf appíícabíe, and the amounts assesseí
Skc. 301.020 . Statutory Provísíon Suppíementaí ssessments.
skc. 020 . suppíementaí assessment.
(a) Generaí ruíe. € ” The Secretary or hís deíegate may, at any tíme wíthín tíí
períod prescríbed for assessment, make a suppíementaí assessment whenever
Is ascertaíned that any assessment ís ímperfect or íncompíete ín any nínterh
respect.
(b) Restríctíons on assessment. € ” or restríctíons on assessment of defícíenoís
ín íncome, estate, and gíft ta es, see sectíon 6213.
Sec. 301.020 -1. Suppíementaí ssessment. € ” If any assessment ís íncompíet
or íncorrect ín any materíaí respect, the Dístríct Dírector, sub|ect to the restríí
tíons wíth respect to the assessment of defícíencíes ín íncome, estate, and gíf
ta es, and sub|ect to the appíícabíe períod of íímítatíon, may make a suppk
mentaí assessment for the purpose of correctíng or compíetíng the orígíns
assessment.
Seo. 301.0205. Statutory Provísíons Specíaí Ruíes ppíícabíe to Cehtaí:
mpíoyment Ta es.
Sec. 0205. Specíaí rttíes appíícabíe to certaín empíoyment ta es.
(a) d|ustment of ta .
(1) Generaí ruíe. € ” If íess than the correct amount of ta ímposed by sectíoí
3101. 3111. 3201, 3221, or 3 02 ís paíd wíth respect to any payment of wages o
compensatíon, proper ad|ustments, wíth respect to both the ta and the aínoun
to he deducted, shaíí be made, wíthout ínterest, ín such manner and at such tíme:
as the Secretary or hís deíegate may by reguíatíons prescríbe.
(2) nítcít States as empíoyer. € ” or purposes of thís subsectíon, In the case oí
remuneratíon receíved from the Uníted States or a whoííy owned ínstrumentaíít
thereof duríng any caíendar year, each head of a ederaí agency or ínstrumen
taííty who makes a return pursuant to sectíon 3122 and each agent, desígnated
by the head of a ederaí agency or ínstrumentaííty, who makes a return pur
suant to such sectíon shaíí be deemed a separate empíoyer.
(b) Underpayments. € ” If íess than the correct amount of ta ímposed by sectíon
3101, 3111, 3201, 3221, or 3 02 ís paíd or deducted wíth respect to any payment
of wages or compensatíon and the underpayment cannot be ad|usted under sub
sectíon (a) of thís sectíon, the amount of the underpayment shaíí be assessed
and coííected ín such manner and at such tímes (sub|ect to the statute of íímíta-
tíons properíy appíícabíe thereto) as the Secretary or hís deíegate may by regu-
íatíons prescríbe.
Sec 301.0205-1. Specíaí Ruí.es ppíícabíe to Certaín mpíoyment Ta es.
or reguíatíons under thís sectíon, see the mpíoyment Ta Reguíatíons (Pt. 31
of thís chapter).
Sec 301.0200. Statutory Provísíons Cross References.
Sec. 0200. Cross references.
(1) or prohíbítíon of suíts to restraín assessment of any ta , see sectíon
7 21.
(2) or prohíbítíon of assessment of ta es agaínst ínsoívent banks, see sec-
tíon 7507.
(3) or assessment where property suh|ect to ta has been soíd ín a dístraínt
proceedíng wíthout the ta havíng been assessed príor to such saíe, see sec-
tíon 03 2.
( ) or assessment ín case of saíe or removaí of tobacco, snuff, cígars, and
cígarettes wíthout the use of proper stamps, see sectíon 5703(d).
(5) or assessment ín case of dístíííed spíríts removed from píace where dís-
stíííod and not deposíted ín bonded warehouse, see sectíon 5006(c).
(0) or assessment ín case of certaín spíríts sub|ect to e cessíve íeakage, see
sectíon 5003(b).
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151 6201.
) or assessment of defícíencíes In productíon of dístíííed spíríts, see sec-
tíon mí (e) (1).
(8) or períod of íímítatíon upon assessment, see chapter 66.
W) or assessment tínder the provísíons of the Taríff ct of 1030 of the ta es
ímposed by sectíon 501 (b), and subchapters , , C, D, and of chapter 38, see
sectíons o and 601, respectíveíy,
D ICI NCY PROC DUR S
Sec. 301.G211. Statutory Provísíons Defínítíon of a Defícíency.
Sec. 6211. Defínítto | of a defícíency.
(a) In generaí. or purposes of thís títíe In the case of Income, estate, and
íft ta es, ímposed by subtítíes and , the term defícíency means the amount
by whích the ta ímposed by subtítíes or e ceeds the e cess of:
(1) The sum of:
( ) The amount shown as the ta by the ta payer upon hís return, íf a return
was made by the ta payer and an amount was shown as the ta by the ta payer
thereon, píus
( ) The amounts prevíousíy assessed (or coííected wíthout assessment) as a
defícíency, over:
(2) the amount of rebates, as defíned ín subsectíon (b) (2), made.
(b) Ruíes for appíícatíon of subsectíon (a). or purposes of thís sectíon:
(1) The ta ímposed by chapter 1 and the ta shown on the return shaíí both
be determíned wíthout regard to payments on account of estímated ta , wíthout
regard to the credít under sectíon 31, and wíthout regard to so much of the credít
under sectíon 32 as e ceeds 2 percent of the ínterest on obíígatíons descríbed ín
sectíon 1 01.
(2) The term rebate means so much of an abatement, credít, refund, or other
repayment, as was made on the ground that the ta ímposed by subtítíes or
was íess than the e cess of the amount specífíed ín subsectíon (a) (1) over the
rebates prevíousíy made.
(3) The computatíon by the Secretary or hís deíegate, pursuant to sectíon
001 , of the ta ímposed by chapter 1 shaíí be consídered as havíng been made
by the ta payer and the ta so computed consídered as shown by the ta payer
upon hís return.
Sec. 301.6211-1 Defícíency Defíned. € ” (a) In the case of the Income ta Im-
posed í y subtítíe , the estate ta ímposed by chapter 11, or the gíft ta ímposed
by chapter 12, the term defícíency means the e cess of the ta (íncome, estate,
or gíft ta , as the case may be) over the sum of the amount shown as such ta
by the ta payer upon hís return and the amounts prevíousíy assessed (or coííected
wíthout assessment) as a defícíency but such sum shaíí fírst be reduced by the
amount of rebates made. If no return ís made, or íf the return (e cept a return
of íncome ta on orm 10 0 pursuant to sectíon 601 ) does not show any ta ,
for the purpose of the defínítíon the amount shown as the ta by the ta payer
upon hís return shaíí be consídered as zero. ccordíngíy, ín any such case.
If no defícíencíes wíth respect to the ta have been assessed, or coííected wíthout
ass Rsment, and no rebates wíth respect to the ta have been made, the defícíency
ís the amount of the ta ímposed by subtítíe , chapter 11, or chapter 12. ddí-
tíonaí ta shown on an amended return, so-caííed, fííed after the due date
of the return, ís a defícíency wíthín the meaníng of the Internaí evenue Code.
b) or purposes of the defínítíon, the íncome ta ímposed by subtítíe and
the íncome ta shown on the return shaíí both be determíned wíthout regard
to the credít províded ín sectíon 31 for íncome ta wíthheíd at the source and
wíthout regard to so much of the credít províded ín sectíon 32 for íncome ta es
wíthheíd at the source as e ceeds 2 percent of the ínterest on ta -free covenant
bonds descríbed ín sectíon 1 51. Payments on account of estímated íncome ta ,
ííke other payments of ta by the ta payer, shaíí ííkewíse be dísregarded ín
the determínatíon of a defícíency.
(c) The computatíon by the Dístríct Dírector, pursuant to sectíon 601 (a),
of the íncome ta Imposed by subtítíe shaíí be consídered as havíng been made
by the ta payer and the ta so computed shaíí be consídered as the ta shown
by the ta payer upon hís return.
(d) If so much of the credít cíaímed on the return for Income ta es wíthheíd
t the source as e ceeds 2 percent of the ínterest on ta -free covenant bonds ís
UííOW € ” 5C 11
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í 6201. 152
greater than the amount of such credít aííowabíe, the unpaíd portíon of the ta
attríbutabíe to such dífference wííí be coííected not as a defícíency but as an
underpayment of the ta shown on the return.
(e) Thís sectíon may be íííustrated by the foííowíng e ampíes:
ampíe (1). The amount of íncome ta shown by the ta payer upon hís return
for the caíendar year 195 was 1,600. The ta payer had no amounts prevíousíy
assessed (or coííected wíthout assessment) as a defícíency. e cíaímed a credít
In the amount of 2,050 for ta wíthheíd at source on wages under sectíon 3 02
and a refund of 50 (not a rebate under sec. 6211) was made to hím as an ovtr-
payment of ta for the ta abíe year. It ís íater determíned that the correct
ta for the ta abíe year Is 1,850.
defícíency of 250 Is determíned as foííows:
Ta ímposed by subtítíe 1,850
Ta shown on return 1,600
Ta prevíousíy assessed (or coííected wíthout assessment) as a
defícíency None
Totaí 1,600
mount of rebates made None
aíance 1,600
Defícíency 250
ampíe (2). The ta payer made a return for the caíendar year 195 showíng
a ta of 1,250 before any credíts for ta wíthheíd at the source. e cíaímed a
credít ín the amount of 800 for ta wíthheíd at source on wages under sectíon
3 02 and G0 for ta paíd at source under sectíon 1 51 upon ínterest on bonds
contaíníng a ta -free covenant. The ta payer had no amounts prevíousíy assessed
(or coííected wíthout assessment) as a defícíency. The Dístríct Dírector deter-
mínes that the 2 percent ta paíd at the source on ta -free covenant bonds Is 0
Instead of 00 as cíaímed by the ta payer and that the ta ímposed by subtítíe
ís 1,300 (totaí ta 1, 00 íess 0 paíd at source on ta -free covenant bonds).
defícíency ín the amount of 170 Is determíned as foííows:
Ta ímposed by subtítíe ( 1, 00 mínus 0) 1,360
Ta shown on return ( 1,250 mínus 60) 1,190
Ta prevíousíy assessed (or coííected wíthout assessment) as a
defícíency None
Totaí 1,190
mount of rebates made None
aíance 1,190
Defícíency 170
(f) s used ín sectíon 6211, the term rebate means so much of an abate-
ment, credít, refund, or other repayment as Is made on the ground that the ta
Imposed by subtítíe or ís íess than the e cess of (1) the amount shown as
the ta by the ta payer upon hís return íncreased by the amount prevíousíy
assessed (or coííected wíthout assessment) as a defícíency over (2) the amount
of rebates prevíousíy made. or e ampíe, assume that the amount of íncome
ta shown by the ta payer upon hís return for the ta abíe year ís 000 and the
amount cíaímed as a credít under sectíon 31 for Income ta wíthheíd at the
source ís 900. If the Dístríct Dírector determínes that the ta ímposed by
subtítíe ís 600 and makes a refund of 300, no part of such refund constítutes
a rebate sínce the refund Is not made on the ground that the ta Imposed
by subtítíe ís íess than the ta shown on the return. If, however, the Dístríct
Dírector determínes that the ta ímposed by subtítíe ís 500 and refunds 00,
the amount of 100 of such refund wouíd contsítute a rebate sínce ít ís made
on the ground that the ta Imposed by subtítíe ( 500) Is íess than the ta
shown on the return ( 600). The amount of such rebate ( 100) wouíd be taken
Into account ín arrívíng at the amount of any defícíency subsequentíy determíned.
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153 6201.
Sk.301.6212. Stat ttobt Provísíons Notíce of Defícíency.
Sec 6212. Nottck or defícíency.
U) In generaí. € ” If the Secretary or hís deíegate determínes that there Is a
defícíency ín respect of any ta ímposed by subtítíes or , he Is authorízed to
send notíce of such defícíency to the ta payer by regístered maíí,
(b) ddress for notíce of defícíency.
(1) Income and, gíft tares. € ” In the absence of notíce to the Secretary or hís
deíegate under sectíon 6903 of the e ístence of a fíducíary reíatíonshíp, notíce of a
defícíency ín respect of a ta ímposed by chapter 1 or 12, If maííed to the ta -
payer at hís íast known address, shaíí be suffícíent for purposes of such chapter
and thís chapter even íf such ta payer ís deceased, or ís under a íegaí dísabíííty,
or, ín the case of a corporatíon, has termínated íts e ístence.
(2) oínt íncome ta return. In the case of a |oínt íncome ta return fííed by
husband and wífe, such notíce of defícíency may be a síngíe |oínt notíce, e cept
that íf the Secretary or hís deíegate has been notífíed by eíther spouse that sep-
arate resídences have been estabííshed, then, ín ííeu of the síngíe |oínt notíce, a
dupíícate orígínaí of the |oínt notíce shaíí be sent by regístered maíí to each
spouse at hís íast known address.
(3) state ta . € ” In the absence of notíce to the Secretary or hís deíegate under
sectíon 6903 of the e ístence of a fíducíary reíatíonshíp, notíce of a defícíency ín
respect of a ta ímposed by chapter 11, íf addressed ín the name of the decedent
or other person sub|ect to ííabíííty and maííed to hís íast known address, shaíí be
suffícíent for purposes of chapter 11 and of thís chapter.
(c) urther defícíency íetters restrícted.
(1) Generaí ruíe. € ” If the Secretary or hís deíegate has maííed to the ta payer
a notíce of defícíency as províded ín subsectíon (a), and the ta payer fííes a
petítíon wíth the Ta Court wíthín the tíme prescríbed ín sectíon 6213(a), the
Secretary or hís deíegate shaíí have no ríght to determíne any addítíonaí defícíency
of íncome ta for the same ta abíe year, of gíft ta for the same caíendar year,
or of estate ta ín respect of the ta abíe estate of the same decedent, e cept
ín the case of fraud, and e cept as províded ín sectíon 621 (a) (reíatíng to
assertíon of greater defícíencíes before the Ta Court), ín sectíon 6213(b)(1)
(reíatíng to mathematícaí errors), or ín sectíon 6861(c) (reíatíng to the makíng
of |eopardy assessments).
(2) Cross references. € ” or assessment as a defícíency notwíthstandíng the
prohíbítíon of further defícíency íetters, ín the case of:
( ) Defícíency attríbutabíe to change of eíectíon to take standard deductíon
where ta payer and hís spouse made separate returns, see sectíon 1 (b).
( ) Defícíency attríbutabíe to gaín on ínvoíuntary conversíon, see sectíon
1033(a)(3) (C) and (D).
(C) Defícíency attríbutabíe to gaín on saíe or e change of personaí resídence,
see sectíon 103 (|).
(I ) Defícíency attríbutabíe to war íoss recoveríes where príor benefít ruíe ís
eíected, see sectíon 1335.
Sec. 301.6212-1. Notíce of Defícíency € ” (a) Generaí ruíe. € ” It a Dístríct Dí-
rector (or an ssístant Regíonaí Commíssíoner, ppeííate) determínes that there
ís a defícíency ín respect of íncome, estate, or gíft ta ímposed by subtítíe or
, he ís authorízed to notífy the ta payer of the defícíency by regístered maíí.
(b) ddress for notíce of defícíency € ” (1) Income and gíft ta es. € ” Uníess the
Dístríct Dírector for the dístríct ín whích the return ín questíon was fííed has
been notífíed under the provísíons of sectíon 6903 as to the e ístence of a fíducíary
reíatíonshíp, notíce of a defícíency ín respect of íncome ta or of gíft ta shaíí
be suffícíent íf maííed to the ta payer at hís íast known address, even though
such ta payer ís deceased, or ís under a íegaí dísabíííty, or, ín the case of a cor-
poratíon, has termínated íts e ístence.
(2) oínt íncome ta returns. € ” If a oínt íncome ta return has been fííed
by husband and wífe, the Dístríct Dírector (or ssístant Regíonaí Commís-
síoner, ppeííate) may, uníess the Dístríct Dírector for the dístríct ín whích
such |oínt return was fííed has been notífíed by eíther spouse that a separate
resídence has been estabííshed, send eíther a oínt or separate notíce of defícíency
to the ta payers at theír íast known address. If, however, the proper dístríct
Dírector has been so notífíed, a separate notíce of defícíency, that ís, a dupíícate
orígínaí of the oínt notíce, must be sent by regístered maíí to each SP U at
or her íast known address. The notíce of separate resídences shouíd be aaaressea
to the Dístríct Dírector for the dístríct In whích the |oínt return was mea.
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6201. 15
I (3) state ta . € ” In the absence of notíce, under the provísíons of sectíon 69C
as to the e ístence of a fíducíary reíatíonshíp, to the Dístríct Dírector for th
dístríct In whích the estate ta return was fííed, notíce of a defícíency ín respe
of the estate ta ímposed by chapter 11 of subtítíe shaíí be suffícíent If ac
dressed In the name of the decedent or other person sub|ect to ííabíííty and ínaííe
to hís íast known address.
(c) urther defícíency íetters restrícted. € ” If the Dístríct Dírector (or ssístar
Regíonaí Commíssíoner, ppeííate) maíís to the ta payer notíce of a defícíency
and the ta payer fííes a petítíon wíth the Ta Court wíthín the prescríbed perk
no addítíonaí defícíency may be determíned wíth respect to íncome ta for tb
same ta abíe year, gíft ta for the same caíendar year, or estate ta wíth respet
to the ta abíe estate of the same decedent. Thís restríctíon shaíí not appíy í
the case of fraud, assertíon of greater defícíencíes before the Ta Court as pr
víded ín sectíon 621 (a), mathematícaí errors as províded ín sectíon 6213(b) (í
or |eopardy assessments as províded ín sectíon 6861(c).
Sec. 301.6213. Statutory Provísíons Restríctíons ppíícabíe to Dí
fícíencíes Petítíon to Ta Court.
Sec. 6213. Restríctíons appíícabíe to defícíencíes petítíon to ta cm R
(a) Tíme for fíííng petítíon and restríctíon on assessment. Wíthín 90 dayí
or 150 days If the notíce ís addressed to a persou outsíde the States of the Unío
and the Dístríct of Coíumbía, after the notíce of defícíency authorízed ín sectío
6212 ís maííed (not countíng Saturday, Sunday, or a íegaí hoííday ín the Dístrí
of Coíumbía as the íast day), the ta payer may fííe a petítíon wíth the Ta Couí
for a redetermínatíon of the defícíency. cept as otherwíse províded ín sectío
6861 no assessment of a defícíency ín respect of any ta ímposed by subtítíe c
and no íevy or proceedíng ín court for íts coííectíon shaíí be made, begun, c
prosecuted untíí such notíce has been maííed to the ta payer, nor untíí the e pírt
tíon of such 90-day or 150-day períod, as the case may be, nor, íf a petítíon ha
been fííed wíth the Ta Court, untíí the decísíon of the Ta Court has becoru
fínaí. Notwíthstandíng the provísíons of sectíon 7 21(a), the makíng of sue
assessment or the begínníng of such proceedíng or íevy duríng the tíme sue
prohíbítíon Is ín force may be en|oíned by a proceedíng In the proper court,
(b) ceptíons to restríctíons on assessment.
(1) Mathematícaí errors. € ” If the ta payer ís notífíed that, on account of
mathematícaí error appearíng upon the return, an amount of ta ín e cess of ths
shown upon the return ís due, and that an assessment of the ta has been or wí
be made on the basís of what wouíd have been the correct amount of ta bv
for the mathematícaí error, such notíce shaíí not be consídered as a notíce c
defícíency for the purposes of subsectíon (a) (prohíbítíng assessment and co
íectíon untíí notíce of the defícíency has been maííed), or of sectíon 6212(c) (1
(restríctíng further defícíency íetters), or sectíon 6512(a) (prohíbítíng credíts c
refunds after petítíon to the Ta Court), and the ta payer shaíí have no rígt:
to fííe a petítíon wíth the Ta Court based on such notíce, nor shaíí such asses:
ment or coííectíon be prohíbíted by the provísíons of subsectíon (a) of thí
sectíon.
(2) ssessments arísíng out of tentatíve carryback ad|ustments. € ” If the Seor
tary or hís deíegate determínes that the amount appííed, credíted, or refunde
under sectíon 6 11 ís ín e cess of the overassessment attríbutabíe to the carr|
back wíth respect to whích such amount was appííed, credíted, or refunded, h
may assess the amount of the e cess as a defícíency as If ít were due to a mat hí
matícaí error appearíng on the return.
(3) ssessment of amount paíd. € ” ny amount paíd as a ta or ín respect c
a ta may be assessed upon the receípt of such payment notwíthstandíng th
provísíons of subsectíon (a). In any case where such amount ís paíd after th
maíííng of a notíce of defícíency under sectíon 6212, such payment shaíí not d
príve the Ta Court of |urísdíctíon over such defícíency determíned under seí
tíon 6211 wíthout regard to such assessment.
(c) aííure to fííe petítíon. € ” If the ta payer does not fííe a petítíon wíth th
Ta Court wíthín the tíme prescríbed ín subsectíon (a), the defícíency, notíc
of whích has been maííed to the ta payer, shaíí be assessed, and shaíí be paí
upon notíce and demand from the Secretary or hís deíegate.
(d) Waíver of restríctíons. € ” The ta payer shaíí at any tíme (whether or rtn
a notíce of defícíency has been Issued) have the ríght, by a sígned notíce ín wrítín
fííed wíth the Secretary or hís deíegate, to waíve the restríctíons províded ín sut
sectíon (a) on the assessment and coííectíon of the whoíe or any part of th
defícíency.
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155 6201.
ít) Cross references. € ” (3) or assessment as íf a mathematícaí error on the
Mara, n the case of erroneous cíaíms for íncome ta prepayment credíts, see
sectíon 201.(.a) (3).
(2) or assessments wíthout regard to restríctíons ímposed by thís sectíon ín
toe case ot € ”
( ) Recovery of foreígn íncome ta es, see sectíon 905(c).
( ) Itecovery of foreígn estate ta , see sectíon 2016.
S . 301.(3213-1. Restríctíons ppíícabíe to Defícíencíes Petítíon to Ta
Cot|bt € ” (a) Tíme for fíííng petítíon and restríctíons on assessment € ” (1) Tíme
íor fíííng petítíon. € ” Wíthín 90 days after notíce of the defícíency Is maííed (or
wíthín íoO days after maíííng ín the case of such notíce addressed to a person
outsíde the States of the Uníon and the Dístríct of Coíumbía), as províded ín
sectíon 6212, a petítíon may be fííed wíth the Ta Court of the Uníted States for
a redetermínatíon of the defícíency. In determíníng such 90-day or 150-day
períod, Saturday, Sunday, or a íegaí hoííday ín the Dístríct of Coíumbía ís not
counted as the 90th or 150th day. The term States of the Uníon referred to
ín thís paragraph does not íncíude the Terrítoríes of íaska and awaíí.
(2) .Restríctíon on assessment. € ” cept as otherwíse províded by thís sectíon,
by sectíon 6861(a) (reíatíng to |eopardy assessments of íncome, estate, and
gíft ta es), by sectíon 6871(a) (reíatíng to ímmedíate assessment of cíaíms for
íncome, estate, and gíft ta es ín bankruptcy and receívershíp cases), or by
sectíon 7 S5 (ín case ta payer petítíons for a revíew of a Ta Court decísíon
wíthout fíííng bond), no assessment of a defícíency ín respect of a ta ímposed
by subtítíe or and no íevy or proceedíng In court for íts coííectíon shaíí be
made untíí notíce of defícíency has been maííed to the ta payer, nor untíí the
e píratíon of the 90-day or 150-day períod wíthín whích a petítíon may be fííed
– wíth the Ta Court, nor, íf a petítíon has been fííed wíth the Ta Court, untíí
the decísíon of the Ta Court has become fínaí. s to the date on whích a
decísíon of the Ta Court becomes fínaí, see sectíon 7 81. Notwíthstandíng the
provísíons of sectíon 7 21(a), the makíng of an assessment or the begínníng of
a proceedíng or íevy whích ís forbídden by thís paragraph may be en|oíned by
a proceedíng ín the proper court.
(b) ceptíons to restríctíons on assessment of defícíencíes € ” (1) Mathemat-
ícaí errors. € ” If a ta payer Is notífíed of an addítíonaí amount of ta due on
account of a mathematícaí error appearíng upon the return, such notíce Is not
deemed a notíce of defícíency, and the ta payer has no ríght to fííe a petítíon
wíth the Ta Court upon the basís of such notíce, nor ís the assessment of such
addítíonaí amount prohíbíted by sectíon 6213(a).
(2) Tentatíve carryback ad|ustments. € ” (I) If the Dístríct Dírector deter-
mínes that any amount appííed, credíted, or refunded under sectíon 6 11(b) wíth
respect to an appíícatíon for a tentatíve carryback ad|ustment ís ín e cess of the
overassessment properíy attríbutabíe to the carryback upon whích such appíí-
catíon was based, he may assess the amount of the e cess as a defícíency as
If such defícíency were due to a mathematícaí error appearíng on the return.
That ís, the Dístríct Dírector may assess an amount equaí to the e cess, and
such amount may be coííected, wíthout regard to the restríctíons on assessment
and coííectíon ímposed by sectíon 6213(a). Thus, the Dístríct Dírector, for
e ampíe, may assess such amount wíthout regard to whether he has maííed the
ta payer a príor notíce of defícíency. íther before or after assessíng such an
amount, the Dístríct Dírector wííí notífy the ta payer that he has made, or .vííí
make, such assessment. Such notíce wííí not constítute a notíce of defícíency,
and the ta payer may not fííe a petítíon wíth the Ta Court of the Uníted
States based on such notíce. owever, the ta payer wíthín the appíícabíe
períod of íímítatíon may fííe a reguíar cíaím for credít or refund based on the
carryback, íf be has not aíready fííed such a cíaím, and may maíntaín a suít
based on such cíaím íf ít ís dísaííowed or íf ít ís not acted upon by the Internaí
erenne Servíce wíthín 6 months from the date the cíaím was fííed.
(íí) The method províded ín subdívísíon (I) of thís paragraph to recover
any amount appííed, credíted, or refunded ín respect of an appíícatíon for a
tentatíve carryback ad|ustment whích the Dístríct Dírector íater determínes
shouíd not have been so appííed, credíted, or refunded ís not an e cíusíve method.
Two other methods are avaííabíe to recover such amount: (a) y way of a
defícíency notíce under sectíon 6212 or (6) by a suít to recover an erroneous
refund under sectíon 7 05. The Dístríct Dírector, ín hís díscretíon, may proceed
by way of any one or more of the three avaííabíe methods to recover any
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6201. 156
amount whích he determínes was ímproperíy appííed, credíted, or refunded In
respect of an appíícatíon for a tentatíve carryback ad|ustment.
(3) ssessment of amount paíd. € ” ny payment made after the maíííng of a
notíce of defícíency whích ís made by the ta payer as a payment wíth respect to
the proposed defícíency may be assessed wíthout regard to the restríctíons on
assessment and coííectíon ímposed by sectíon 6213(a) even though the ta -
payer has not fííed a waíver of restríctíons on assessment as províded ín
sectíon 6213(d). payment of aíí or part of the defícíency asserted ín the
notíce together wíth the assessment of the amount so paíd wííí not affect the
|urísdíctíon of the Ta Court. If any payment ís made before the maíííng of
a notíce of defícíency, the Dístríct Dírector ís not prohíbíted by sectíon 6213(a)
from assessíng such amount, and the Dístríct Dírector may assess such amount
íf he deems such actíon to be proper. If the Dístríct Dírector assesses such
amount, the assessment ís taken Into account ín determíníng whether or not
there ís a defícíency for whích a notíce of defícíency must be íssued. Thus, íf
such a payment satísfíes the ta payer s ta ííabíííty, no notíce of defícíency wííí
be maííed and the Ta Court wííí have no |urísdíctíon over the matter. In any
case ín whích there ís a controversy as to the correct amount of the ta ííabíííty,
the assessment of any amount pursuant to the provísíons of sectíon 6213(b) (3)
shaíí ín no way be consídered to be the acceptance of an offer by the ta payer
to settíe such controversy.
( ) eopardy. € ” If the Dístríct Dírector beííeves that the assessment or coííec-
tíon of a defícíency wííí be |eopardízed by deíay, such defícíency shaíí be assessed
ímmedíateíy, as províded ín sectíon 6861(a).
(c) aííure to fííe petítíon. € ” If no petítíon ís fííed wíth the Ta Court wíthín
the períod prescríbed ín sectíon 6213(a), the Dístríct Dírector shaíí assess the
amount determíned as the defícíency and of whích the ta payer was notífíed by
regístered maíí and the ta payer shaíí pay the same upon notíce and demand
therefor. In such case the Dístríct Dírector wííí not be precíuded from deter-
míníng a further defícíency and notífyíng the ta payer thereof by regístered
maíí. If a petítíon ís fííed wíth the Ta Court the ta payer shouíd notífy
the Dístríct Dírector who íssued the notíce of defícíency that the petítíon has
been fííed ín order to prevent an assessment of the amount determíned to be
the defícíency.
(d) Waíver of restríctíons. € ” The ta payer may at any tíme by a sígned notíce
ín wrítíng fííed wíth the Dístríct Dírector waíve the restríctíons on the assess-
ment and coííectíon of the whoíe or any part of the defícíency. The notíce
must ín aíí cases be fííed wíth the Dístríct Dírector or other authorízed offícíaí
under whose |urísdíctíon the audít or other consíderatíon of the return ín ques-
tíon ís beíng conducted. The fíííng of such notíce wíth the Ta Court does not
constítute fíííng wíth the Dístríct Dírector wíthín the meaníng of the Interna-
tíonaí Revenue Code. fter such waíver has been acted upon by the Dístríct
Dírector and the assessment has been made ín accordance wíth íts terms,
the waíver cannot be wíthdrawn.
Sec. 301.621 . Statutory Pbovísíons Determínatíons by Ta Couet.
Sec. 621 . Determínatíons by ta court.
(a) urísdíctíon as to íncrease of defícíency, addítíonaí amounts, or addítíons
to the ta . € ” The Ta Court shaíí have |urísdíctíon to redetermíne the correct
amount of the defícíency even íf the amount so redetermíned ís greater than the
amount of the defícíency, notíce of whích has been maííed to the ta payer, and
to determíne whether any addítíonaí amount, or addítíon to the ta shouíd be
assessed, íf cíaím therefor ís asserted by the Secretary or hís deíegate at or before
the hearíng or a rehearíng.
(b) urísdíctíon over other years. € ” The Ta Court ín redetermíníng a defí-
cíency of íncome ta for any ta abíe year or of gíft ta for any caíendar year
shaíí consíder such facts wíth reíatíon to the ta es for other years as may be
necessary correctíy to redetermíne the amount of such defícíency, but In so
doíng shaíí have no |urísdíctíon to determíne whether or not the ta for any
other years has been overpaíd or underpaíd.
(c) ínaí decísíons of Ta Court. € ” or purposes of thís chapter and sub-
títíes or the date on whích a decísíon of the Ta Court becomes fínaí shaíí
be determíned accordíng to the provísíons of sectíon 7 81. t
Sec. 301.6215. Statutobt Pbovísío s ssessment of Defícíency ound by
Ta Coubt.
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157 6201.
Sec. 6215. ssessment of defícíency found by ta court.
W Generaí ruíe. € ” If the ta payer fííes a petítíon wíth the Ta Court, the
este amount redetermíned as the defícíency by the decísíon of the Ta Court
ínch has become fínaí snaíí be assessed and shaíí be paíd upon notíce and
demand tíom the Secretary or hís deíegate. No part of the amount determíned
u a defícíency by the Secretary or hís deíegate but dísaííowed as such by the
dwíaon ot the Ta Court whích has become fínaí shaíí be assessed or be
wUerted hy íevy or by proceedíng ín court wíth or wíthout assessment.
(b) Cross references. € ” (1) or assessment or coííectíon of the amount of
the defícíency determíned by the Ta Court pendíng appeííate court revíew, see
sectíon 7 85.
(2) or dísmíssaí of petítíon by Ta Court as affírmatíon of defícíency as
determíned by the Secretary or hís deíegate, see sectíon 7 59(d).
(3) or decísíon of Ta Court that ta ís barred by íímítatíon as íts decísíon
that there ís no defícíency, see sectíon 7 59(e).
( ) or assessment of damages awarded by Ta Court for ínstítutíng pro-
ceedíngs mereíy for deíay, see sectíon 6673.
(5) or treatment of certaín defícíencíes as havíng been paíd, ín connectíon
wíth saíe of surpíus war-buíít vesseís, see sectíon 9(b)(8) of the Merchant
Shíp Saíes ct of 19 6 (60 Stat. 8 50 U. S. C. pp. 17 2).
(6) or ruíes appíícabíe to Ta Court proceedíngs, see generaííy subchapter
C of chapter 76.
(7) or proratíon of defícíency to ínstaííments, see sectíon 6152(c).
(8) or e tensíon of tíme for payíng amount determíned as defícíency, see
sectíon 0161(b).
Sec. 301.6215-1. ssessment of Defícíency ound by Ta Court. € ” Where
a petítíon has been fííed wíth the Ta Court, the entíre amount redetermíned
as the defícíency by the decísíon of the Ta Court whích has become fínaí
shaíí be assessed by the Dístríct Dírector and the unpaíd portíon of the amount
so assessed shaíí be paíd by the ta payer upon notíce and demand therefor.
Sec. 301.6216. Statutory Provísíons Cross References.
Sec. 6216. Cross references.
(1) or procedures reíatíng to bankruptcy and receívershíp, see subchapter
of chapter 70.
(2) or procedures reíatíng to eopardy assessments, see subchapter of
chapter 70.
(3) or procedures reíatíng to cíaíms agaínst transferees and fíducíaríes, see
chapter 71.
Coííectíon
generaí provísíons
Sec. 301.6301. Statutory Provísíons Coííectíon uthoríty.
Sec. 6301. Coííectíon authoríty.
The Secretary or hís deíegate shaíí coííect the ta es Imposed by the Internaí
revenue íaws.
Sec. 301.6301-1. Coííectíon uthoríty. € ” The ta es ímposed by the Internaí
revenue íaws shaíí be coííected by Dístríct Dírectors of Internaí revenue. See,
however, sectíon 630 , reíatíng to the coííectíon of certaín ta es under the
provísíons of the Taríff ct of 1930.
Sec. 301.6302. Statutory Provísíons Mode or Tíme of Coííectíon.
Sec. 6302. Mode or tíme of coííectíon.
(a) stabííshment by reguíatíons. If the mode or tíme for coííectíng any ta
Is not províded for by thís títíe, the Secretary or hís deíegate may estabíísh the
same by reguíatíons.
(b) Díscretíonary method. Whether or not the method of coííectíng any ta
Imposed by chapters 21, 31, 32, 33, sectíons 501(a) or 511 of chapter 37, or
sectíons 701 or 721 of chapter 39 ís specífícaííy províded for by thís títíe, any
neí) ta may, nnder reguíatíons prescríbed by the Secretary or hís deíegate, be
coííected by means of returns, stamps, coupons, tíckets, books, or such other
reasonabíe devíces or methods as may be necessary or heípfuí ín securíng a
compíete and proper coííectíon of the ta .
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6201. 158
(c) 17 6 0/ Government deposítaríes. The Secretary or hís deíegate may
authoríze ederaí Reserve banks, and Incorporated banks or trust companíes
whích are deposítaríes or fínancíaí agents of the Uníted States, to receíve any
ta Imposed under the Internaí revenue íaws, ín such manner, at such tímes,
and under such condítíons as he may prescríbe and he shaíí prescríbe the
manner, tímes, and condítíons under whích the receípt of such ta by such banks
and trust companíes ís to be treated as payment of such ta to the Secretary
or hís deíegate.
Seo. 301.6302-1. Use or ederaí Reserve anks and uthorízed Commer-
cíaí anks ín Connectíon Wíth the Payment op Certaín mpíoyment and
císe Ta es. € ” or reguíatíons under thís sectíon € ”
(a) Wíth respect to empíoyment ta es under the ederaí Insurance Contrí-
butíons ct and the íncome ta wíthheíd at source on wages, see sectíon
81.6302 (c)-1 of thís chapter
(b) Wíth respect to the empíoyer ta and the empíoyee ta under the Raííroad
Retírement Ta ct, see sectíon 3L6302(c)-2 of thís chapter and
(c) Wíth respect to certaín e císe ta es, see sectíon 0.6151-1, sectíon
2.6011-1, and sectíon 6.6011-1 of thís chapter.
Sec. 301.6303. Statutory Provísíons Notíce and Demand for Ta .
Sec. 6303. Notíce and demand fob ta .
(a) Generaí ruíe. € ” Where ít ís not otherwíse províded by thís títíe, the Secre-
tary or hís deíegate shaíí, as soon as practícabíe, and wíthín 60 days, after the
makíng of an assessment of a ta pursuant to sectíon 6203, gíve notíce to each
person ííabíe for the unpaíd ta , statíng the amount and demandíng payment
thereof. Such notíce shaíí be íeft at the dweíííng or usuaí píace of busíness of
euch person, or shaíí be sent by maíí to such person s íast known address.
(b) ssessment príor to íast date for payment. € ” cept where the Secretary
or hís deíegate beííeves coííectíon wouíd be eopardízed by deíay, íf any ta ís
assessed príor to the íast date prescríbed for payment of such ta , payment of
such ta shaíí not be demanded under subsectíon (a) untíí after such date.
Sec. 301.6303-1. Notíce and Demand fob Ta € ” (a) Generaí ruíe. € ” Where
It ís not otherwíse províded by the Code, the dístríct dírector shaíí, after tbe
makíng of an assessment of a ta pursuant to sectíon 6203, gíve notíce to each
person ííabíe for the unpaíd ta , statíng the amount and demandíng payment
thereof. Such notíce shaíí be gíven as soon as possíbíe and wíthín 60 days.
owever, the faííure to gíve notíce wíthín 60 days does not Invaíídate the notíce.
Such notíce shaíí be íeft at the dweíííng or usuaí píace of busíness of such per-
son, or shaíí be sent by maíí to such person s íast known address.
(b) ssessment príor to íast date for payment. € ” If any ta ís assessed príor
to the íast date prescríbed for payment of such ta , the Dístríct Dírector wííí
not demand that such ta be paíd before such íast date, e cept where the
Dístríct Dírector beííeves coííectíon wouíd be eopardízed by deíay.
Sec. 301.630 . Statutory Provísíons Coííectíon Under the Taríff ct.
Sec. 630 . Coííectíon under the taríff act.
or coííectíon under the provísíons of the Taríff ct of 1930 of the ta es ím-
posed by sectíon 501(b), and subchapters , , C, D, and of chapter 38, see
sectíons 50 and 601, respectíveíy.
receípt of payment
Sec. 301.6311. Statutory Provísíons Payment by Check or Monet Order,
Sec. 6311. Payment by check or money ordeb.
(a) uthoríty to receíve. € ” It shaíí be íawfuí for the Secretary or hís deíegate
to receíve for ínternaí revenue ta es, or In payment for Internaí revenue stamps,
checks or money orders, to the e tent and under the condítíons províded In
reguíatíons prescríbed by the Secretary or hís deíegate.
(b) Check or money order unpaíd.
(1) Uítímate ííabíííty. € ” If a check or money order so receíved ís not duíy paíd,
the person by whom such check or money order has been tendered shaíí remaín
ííabíe for the payment of the ta or for the stamps, and for aíí íegaí penaítíes
and addítíons, to the same e tent as íf such check or money order had not been
tendered.
(2) Líabíííty of banks and others. € ” If any certífíed, treasurer s, or cashíer s
check or any money order so receíved ís not duíy paíd, the Uníted States shaíí.
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159 6201.
ía addítíon to Its rígnt to e act payment from the party orígínaííy índebted
thereíor.have a. ííen for the amount of such check upon aíí the assets of the bank
or trost company on -whích drawn or for the amount of such money order upon
ííí the assets of tne íssuer thereof and such amount shaíí be paíd out of such
ísets In preference to any other cíaíms whatsoever agaínst such bank or íssuer
e cept the necessary costs and e penses of admínístratíon and the reímburse-
ment of the Uníted States for the amount e pended ín the redemptíon of the
círcuíatíng notes of such bank.
Sec. 301.6311-1. Payment by Check ob Money Obdeb € ” (a) uthoríty to re-
wíre € ” (1) In generaí. € ” (1) Dístríct Dírectors may accept checks drawn on any
íank or trust company íncorporated under the íaws of the Uníted States or under
the íaws of any State, Terrítory, or possessíon of the Uníted States or money or-
ders ín payment for ínternaí revenue ta es, províded such checks or money orders
íre coííectíbíe ín Uníted States currency at par. Dístríct Dírectors may accept
such checks or money orders ín payment for Internaí revenue stamps, or for the
prepayment of the ta es on wínes as authorízed by the Wíne Reguíatíons
prescríbed under chapter 51 (pt. 2 0 of thís chapter), to the e tent and under
the condítíons prescríbed ín subparagraph (2) of thís paragraph. cheek
or money order ís payabíe at par oníy íf the fuíí amount thereof ís payabíe
wíthout any deductíon for e change or other charges. s used ín thís sectíon,
the term money order means: (a) Uníted States postaí, bank, e press, or
teíesraph money order (b) money order Issued by a domestíc buíídíng and
íoan assocíatíon (as defíned ín sectíon 7701 (a) (19)) or by a símííar assocíatíon
íncorporated under the íaws of a possessíon of the Uníted States (c) a money
order íssued by such other organízatíon as the Commíssíoner may desígnate and
íd) a money order descríbed ín subdívísíon (íí) of thís subparagraph ín cases
thereín descríbed. owever, the Dístríct Dírector may refuse to accept any
personaí check whenever he has good reason to beííeve that such check wííí not
be honored upon presentment.
(íí) n merícan cítízen resídíng ín a country wíth whích the Uníted States
maíntaíns dírect e change of money orders on a domestíc basís may pay hís
ta by postaí money order of such country. Such countríes presentíy are:
ntígua, the ahamas, arbados, ermuda, rítísh Guíana, rítísh onduras,
rítísh írgín Isíands, Canada, Canaí Zone, Cuba, Domíníca, Grenada, amaíca,
Montserrat, Nevís, St. ítts, St. Lucía, St. íncent, and Trínídad and Tobago.
(ííí) If one check or money order ís remítted to cover two or more persons
ta es, the remíttance shouíd be accompaníed by a íetter of transmíttaí cíearíy
ídentífyíng € ”
(a) ach person whose ta ís to be paíd by the remíttance
(6) The amount of the payment on account of each such person and
(c) The kínd of ta paíd.
(2) Payment for ínternaí revenue stamps prepayment of tcíne ta . € ” The
Dístríct Dírector may accept checks and money orders descríbed ín subpara-
graph (1) of thís paragraph ín payment for ínternaí revenue stamps other than
stamps for ta es ímposed under subchapter of chapter 39 (reíatíng to sííver
buíííon), stamps for ta es Imposed under chapter 3 (reíatíng to documentary
stamps), stamps for ta es on dístíííed spíríts ímposed under chapter 51, íncíud-
íng the rectífícatíon ta , and stamps for ta es ímposed under chapter 52 (reíatíng
to tobacco and manufactures), and ín prepayment of the ta es on wínes as
authorízed by the Wíne Reguíatíons prescríbed under chapter 51 (pt. 2 0 of thís
chapter). The Dístríct Dírector may accept ín payment for such ta es certífíed,
cashíers or treasurers checks drawn on any bank or trust company íncorporated
under the íaws of the Uníted States or under the íaws of any State, Terrítory,
or possessíon of the Uníted States or money orders descríbed ín subparagraph
(1 of thís paragraph. owever, íf an appíícatíon has been submítted by a
person desíríng to tender personaí checks for such ta es or ín prepayment of
wíne ta es, and the appíícatíon has been approved by the Dístríct Dírector, the
Dístríct Dírector may accept such personaí checks as are descríbed ín sub-
dívísíon (I) of subparagraph (1) of thís paragraph. The appíícatíon shaíí be
made to the Dístríct Dírector and shaíí contaín the appíícant s name, address,
fírm name (íf any), such fínancíaí ínformatíon as wííí enabíe the Dístríct
Dím-tor to determíne the amount of the credít to be e tended to the appíícant,
and the appro ímate vaíue of stamps to be purchased or the amount of wíne
ta es to be prepaíd duríng the períod fí ed by the Dístríct Dírector. The Dís-
tríct Dírector ís authorízed to approve or dísapprove such appíícatíon and, íf
tíe appíícatíon ís approved, to fí the ma ímum amount of the vaíue of the
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G201. 160
Internaí revenue stamps or of the prepayment of the ta es on wínes for whích
personaí checks wííí be accepted and to prescríbe such other íímítatíons and
condítíons as he deems appropríate. The Dístríct Dírector may, for good cause,
díscontínue at any tíme the acceptance of personaí checks under the provísíons
of thís subparagraph.
(b) Checks or money order not paíd € ” (1) Uítímate ííabíííty. € ” The person
who tenders any check (whether certífíed or uncertífíed, cashíer s, treasurer s, or
other form of check) or money order ín payment for ta es or stamps Is not
reíeased from hís ííabíííty untíí the check or money order Is paíd and, íf the
check or money order ís not duíy paíd, he shaíí aíso be ííabíe for aíí íegaí penaí-
tíes and addítíons, to the same e tent as íf such check or money order had not
been tendered. or the penaíty ín case a check or money order ís not duíy
paíd, see sectíon 6657 and the reguíatíons thereunder. or assessment of the
amount of a check or money order not duíy paíd, see sectíon 6201 (a) (2) ( )
and the reguíatíons thereunder.
(2) Líabíííty of banks and others. € ” If any certífíed treasurer s or cashíer s
check or money order ís not duíy paíd, the Uníted States shaíí have a ííen for
the amount of such check upon aíí assets of the bank or trust company on whích
drawn or for the amount of such money order upon the assets of the íssuer
thereof. The unpaíd amount shaíí be paíd out of such assets ín preference to
any other cíaíms agaínst such bank or Issuer e cept the necessary costs and
e penses of admínístratíon and the reímbursement of the Uníted States for the
amount e pended ín the redemptíon of the círcuíatíng notes of such bank. In
addítíon, the Government has the ríght to e act payment from the person re-
quíred to make the payment.
Sec. 301.6312. Statutory Provísíons Payment by Uníted States Notes and
Certífícates op Indebtedness.
, Sec. 6312. Payment by uníted states notes and certífícates of índebtedness
(a) Generaí ruíe. € ” It shaíí be íawfuí for the Secretary or hís deíegate to re-
ceíve, at par wíth an ad|ustment for accrued ínterest, Treasury bííís, notes and
certífícates of índebtedness íssued by the Uníted States ín payment of any ínternaí
revenue ta es, or ín payment for ínternaí revenue stamps, to the e tent and
under the condítíons províded In reguíatíons prescríbed by the Secretary or
hís deíegate.
(b) Cross references. € ” (1) or authoríty to receíve sííver certífícates, see
sectíon 5 of the act of une 19,193 ( 8 Stat. 1178 31 U. S. C. 05a).
(2) or fuíí íegaí tender status of aíí coíns and currencíes of the Uníted
States, see sectíon 3(b)(1) of the grícuíturaí d|ustment ct, as amended
( 8 Stat. 52,113 31 U. S. C. 62).
(3) or authoríty to receíve obíígatíons under the Second Líberty ond ct,
see sectíon 20(b) of that act, as amended (56 Stat. 189 31 U. S. C. 75 b).
Sec. 301.6312-1. Treasury Certífícates of Indebtedness, Treasury Notes,
and Treasury ííís cceptabíe ín Payment of Internaí Revenue Ta es or
Stamps. € ” (a) Treasury certífícates of índebtedness. Treasury notes or
Treasury bííís of any seríes (not Incíudíng ínterím receípts íssued
by ederaí reserve banks ín ííeu of defínítíve certífícates, notes, or
bííís) may be tendered at or before maturíty ín payment of ínternaí revenue
ta es due on the date (or ín payment for stamps purchased on the date),
on whích the certífícates, notes, or bííís mature, or ín payment of ínternaí
revenue ta es due on a specífíed príor date, but oníy íf such certífícates, notes,
or bííís, accordíng to the e press terms of theír íssue, are made acceptabíe ín
payment of such ta es or for the purchase of stamps. If the ta es for whích
the certífícates, notes, or bííís are tendered ín payment become due, or the
stamps are purchased, on the same date as that on whích such certífícates, notes,
or bííís mature, they wííí be accepted at par píus accrued ínterest, íf any, pay-
abíe wíth the príncípaí (not represented by coupons attached) ín payment of
such ta es or stamps. If the ta es for whích the certífícates, notes, or bííís
are tendered ín payment become due, or the stamps are purchased, on a date
príor to that on whích the certífícates, notes, or bííís mature, they wííí be
accepted at the vaíue specífíed ín the terms under whích such certífícates, notes,
or bííís were íssued. íí ínterest coupons attached to Treasury certífícates of
índebtedness or Treasury notes shaíí be detached by the ta payer before such
certífícates or notes are tendered ín payment of ta es or stamps.
(b) Receípts gíven by a Dístríct Dírector for Treasury certífícates of índebted-
ness, Treasury notes, or Treasury bííís receíved ín payment of Internaí revenue
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161 C201.
tUMottor stamps as províded ín thís sectíon shaíí contaín an adequate descríp-
tíon of such certífícates, notes, or bííís, and a statement of the vaíue, íncíudíng
írcmed ínterest, ít any, payabíe wíth tíe príncípaí (not represented by coupons
trucked , at whícb accepted, and shaíí show that the certífícates, notes, or
Wís art tendered by the ta payer and receíved by the Dístríct Dírector, sub|ect
to no condítíon, quaíífícatíon, or reservatíon whatsoever, ín payment of an amount
of ta es or tor stamps no greater than such vaíue. ny certífícate, note, or bííí
offered ín payment of ínternaí revenue ta es or for stamps sub|ect to any condí-
tíon, quaíífícatíon, or reservatíon, or for any greater amount than the vaíue at
whích acceptabíe ín payment of ta es or stamps, as specífíed ín the terms under
whích such certífícate, note, or bííí was íssued, shaíí not be deemed to be duíy
tendered and shaíí be returned to the ta payer.
(e) or the purpose of savíng ta payers the e pense of transmíttíng Treasury
certífícates of índebtedness. Treasury notes, or Treasury bííís to the offíce of
the Dístríct Dírector ín whose dístríct the ta es are payabíe, or stamps are to
be purchased, ta payers desíríng to pay ta es, or purchase stamps, wíth such
cr ífíoates, notes, or bííís acceptabíe ín payment of ta es or for the purchase
of stamps may deposít such certífícates, notes, or bííís wíth a ederaí reserve
hank or branch. In such cases, the ederaí reserve bank or branch shaíí íssue
a receípt ín the name of the Dístríct Dírector, descríbíng the certífícates, notes,
or bííís by par or doííar face amount and statíng on the face of the receípt that
the certífícates, notes, or bííís represented thereby are heíd by the bank or branch
for redemptíon at the vaíue specífíed ín the terms under whích the certífícates,
notes, or bííís were íssued, and for appíícatíon of the proceeds ín payment of
ta es due or for the purchase of stamps on a specífíed date by the ta payer named
thereín.
Sec. 801.6312-2. Certaín Treasury Savíngs Notes cceptabíe ín Payment op
Cebtaín Internaí Revenue Ta es. € ” ccordíng to the e press terms of theír
íssue, the foííowíng seríes of Treasury savíngs notes are presentíy acceptabíe In
payment of íncome ta es (current and back, personaí and corporatíon ta es,
€ nd e cess profíts ta es) and estate and gíft ta es (current and back):
(a) Treasury Savíngs Notes, Seríes ,
(b) Treasury Savíngs Notes, Seríes ,
(c) Treasury Savíngs Notes, Seríes C.
Sec. 301.6313. Statutory Provísíons ractíonaí Parts or a Cent.
Sec. 6313. ractíonaí parts of a cent.
In the payment of any ta ímposed by thís títíe not payabíe by stamp, a frac-
tíonaí part of a cent shaíí be dísregarded uníess ít amounts to one-haíf cent or
more, ín whích case ít shaíí be íncreased to 1 cent.
Sec. 301.6313-1. ractíonaí Parts of a Cent. € ” In the payment of any ta not
payabíe by stamp, a fractíonaí part of a cent shaíí be dísregarded uníess ít
amounts to one-haíf cent or more, ín whích case ít shaíí be íncreased to one cent.
ractíonaí parts of a cent shaíí not be dísregarded In the computatíon of ta es.
Sec. 301.631 . Statutory Provísíons Receípt fob Ta es.
Sec. C31 . Receípt fob ta es.
(a) Generaí ruíe. € ” The Secretary or hís deíegate shaíí, upon request, gíve
receípts for aíí sums coííected by hím, e ceptíng oníy when the same are ín pay-
ment for stamps soíd and deíívered but no receípts shaíí be íssued In ííeu of a
stamp representíng a ta .
b) Dupíícate receípts for payment of estate ta es. € ” The Secretary or hís
deíegate shaíí, upon request, gíve to the person payíng the ta under chapter 11
(reíatíng to the estate ta ) dupíícate receípts, eíther of whích shaíí be suffícíent
evídence of such payment, and shaíí entítíe the e ecutor to be credíted and
aííowed the amount thereof by any court havíng |urísdíctíon to audít or settíe hís
accounts.
t) Cross references. € ” (1) or receípt requíred to be furníshed by empíoyer
to empíoyee wíth respect to empíoyment ta es, see sectíon 6051.
(2) or receípt of díscharge of e ecutor from personaí ííabíííty, see sectíon
220 .
Sec. 301.631 -1. Receípt fob Ta es € ” (a) In generaí. € ” The Dístríct Dírector
shaíí íssue a receípt for each ta payment made ín cash (other than a payment
for stamps soíd and deíívered). In the case of payments made by check, the
canceíed check ís usuaííy a suffícíent receípt. owever, upon request, the Dístríct
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6201.1 162
Dírector shaíí íssue a receípt for such payment (other than a payment for
stamps soíd and deíívered). No receípt shaíí be Issued ín ííeu of a stamp repre-
sentíng a ta , whether the payment ís ín cash or otherwíse.
(b) Dupíícate receípt for payment of estate ta es. Upon request, the Dístríct
Dírector wííí Issue dupíícate receípts to the person payíng the estate ta , eíther
of whích wííí be suffícíent evídence of such payment and entítíe the e ecutor
to be credíted wíth the amount by any court havíng |urísdíctíon to audít or settíe
hís accounts. or defínítíon of the term e ecutor, see sectíon 2203.
Sec. 301.6315. Statutory Provísíons Payments of stímated Income Ta .
Sec. 6315. Payments of estímated íncome ta .
Payment of the estímated íncome ta , or any Instaííment thereof, shaíí be
consídered payment on account of the íncome ta es ímposed by subtítíe for
the ta abíe year.
Sec. 301.6315-1. Payments of stímated Income Ta . € ” The payment of any
Instaííment of the estímated íncome ta (see sectíons 6015 and 6016) shaíí be con-
sídered payment on account of the íncome ta for the ta abíe year for whích
the estímate ís made. The aggregate amount of the payments of estímated ta
shouíd be entered upon the íncome ta return for such ta abíe year as payments
to be appííed agaínst the ta shown on such return.
Sec. 301.6316. Statutory Provísíons Payment by oreígn Currency.
Sec. 6316. Payment by foreígn currency.
The Secretary or hís deíegate ís authorízed ín hís díscretíon to aííow payment
of ta es ín the currency of a foreígn country under such círcumstances and sub-
|ect to such condítíons as the Secretary or hís deíegate may by reguíatíons pre-
scríbe.
ííen for ta es
Sec 301.6321. Statutory Provísíons Líen for Ta es.
Sec 6321. Líen for ta es.
If any person ííabíe to pay any ta negíects or refuses to pay the same after
demand, the amount (íncíudíng any ínterest, addítíonaí amount, addítíon to ta ,
or assessabíe penaíty, together wíth any costs that may accrue ín addítíon
thereto) shaíí be a ííen ín favor of the Uníted States upon aíí property and
ríghts to property, whether reaí or personaí, beíongíng to such person.
Sec. 301.6321-1. Líen for Ta es. € ” If any person ííabíe to pay any ta neg-
íects or refuses to pay the same after demand, the amount (íncíudíng any
ínterest, addítíonaí amount, addítíon to ta , or assessabíe penaíty, together wíth,
any costs that may accrue ín addítíon thereto) shaíí be a ííen ín favor of the
Uníted States upon aíí property and ríghts to property, whether reaí or personaí,
tangíbíe or íntangíbíe, beíongíng to such person. The ííen attaches to aíí property
and ríghts to property beíongíng to such person at any tíme duríng the períod of
the ííen, íncíudíng any property or ríghts to property acquíred by such person
after the ííen aríses. or the specíaí ííen for estate and gíft ta es, see sectíon
632 and sectíon 301.632 -1.
Sec. 301.0322. Statutory Provísíons Períod of Lten.
Sec 6322. Períod of ííen.
Uníess another date Is specífícaííy fí ed by íaw, the ííen ímposed by sectíon
6321 shaíí aríse at the tíme the assessment ís made and shaíí contínue untíí the
ííabíííty for the amount so assessed ís satísfíed or becomes unenforceabíe by
reason of íapse of tíme.
Sec 301.G323. Statutory Provísíons aíídíty gaínst Mortgagees, Píedgees,
Purchasers, and udgment Credítors.
Sec 6323. aíídíty agaínst mortgagees, píedgees, purchasers, and |udgment
credítors.
(a) Invaíídíty of ííen wíthout notíce. € ” cept as otherwíse províded In sub-
sectíon (c), the ííen ímposed by sectíon 6321 shaíí not be vaííd as agaínst any
mortgagee, píedgee, purchaser, or |udgment credítor untíí notíce thereof has been
fííed by the Secretary or hís deíegate.
(1) Under State or terrítoríaí íaws. € ” In the offíce desígnated by the íaw of the
State or Terrítory ín whích the property sub|ect to the ííen ís sítuated, whenever
the State or Terrítory has by íaw desígnated an offíce wíthín the State or Terrí-
tory for the fíííng of such notíce or
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163 6201.
(2) Wíth cíeríc of dístríct court. € ” In the offíce of the cíerk of the Uníted States
dístríct court for the |udícíaí dístríct In whích the property suh|ect to the ííen ís
sítuated, whenever the State or Terrítory has not by íaw desígnated an offíce
wíthín the State or Terrítory for the fíííng of such notíce or
(3) Wíth cíerk of dístríct court for Dístríct of Coíumbía. € ” In the offíce of the
cíerk of the Uníted States Dístríct Court for the Dístríct of Coíumbía, íf the
property sub|ect to the ííen ís sítuated In the Dístríct of Coíumbía.
(b) orm of notíce. € ” If the notíce fííed pursuant to subsectíon (a) (1) ís ín
soch form as wouíd be vaííd íf fííed wíth the cíerk of the Uníted States dístríct
court pursuant to subsectíon (a) (2), such notíce shaíí be vaííd notwíthstandíng
any íaw of the State or Terrítory regardíng the form or content of a notíce of
ííen.
(c) ceptíon ín case of securítíes.
(1) ceptíon. € ” ven though notíce of a ííen províded ín sectíon C321 has been
fííed ín the manner prescríbed In subsectíon (a) of thís sectíon, the ííen shaíí not
be vaííd wíth respect to a securíty, as defíned ín paragraph (2) of thís subsec-
tíon, as agaínst any mortgagee, píedgee, or purchaser of such securíty, for an
adequate and fuíí consíderatíon ín money or money s worth, If at the tíme of such
mortgage, píedge, or purchase such mortgagee, píedgee, or purchaser ís wíthout
notíce or knowíedge of the e ístence of such ííen.
(2) Defínítíon of securíty. € ” s used ín thís subsectíon, the term securíty
means any bond, debenture, note, or certífícate or other evídence of índebtedness,
íssued by any corporatíon (íncíudíng one íssued by a government or poíítícaí
aubdívísíon thereof), wíth ínterest coupons or ín regístered form, share of
stock, votíng trust certífícate, or any certífícate of ínterest or partícípatíon ín,
certífícate of deposít or receípt for, temporary or ínterím certífícate for, or war-
rant or ríght to subscríbe to or purchase, any of the foregoíng negotíabíe Instru-
ment or money.
d) Díscíosure of amount of outstandíng ííen. € ” If a notíce of ííen has been fííed
nnder subsectíon (a), the Secretary or hís deíegate ís authorízed to províde by
raíes or reguíatíons the e tent to whích, and the condítíons under whích, ín-
formatíon as to the amount of the outstandíng obíígatíon secured by the ííen may
be díscíosed.
Sec. 301.6323-1. aíídíty of Líen gaínst Mortgagees, Píedgees, Purchasers,
asd udgment Cbedítors. € ” (a) Invaíídíty of ííen wíthout notíce € ” (1) íííng of
notíce. The ííen ímposed by sectíon 6321 shaíí not be vaííd as agaínst any mort-
gagee, píedgee, purchaser, or udgment credítor untíí notíce of ííen has been
fííed. (See, however, sectíon 6323(c) and paragraph (b) of thís sectíon, reíatíng
to the círcumstances under whích the ííen Is not vaííd wíth respect to a securíty
even though notíce thereof ís duíy fííed.) The píace for the fíííng of the notíce
of ííen ís € ”
(í) The offíce desígnated by the íaw of the State or Terrítory ín whích the
property sub|ect to the ííen ís sítuated, whenever the State or Terrítory has
desígnated an offíce wíthín the State or Terrítory for the fíííng of such notíce
(íí) The offíce of the cíerk of the Uníted States dístríct court for the |udícíaí
dístríct ín whích the property sub|ect to the ííen ís sítuated, whenever the State
or Terrítory has not by íaw desígnated an offíce wíthín the State or Terrítory
for the fíííng of such notíce or
(ííí) The offíce of the cíerk of the Uníted States Dístríct Court for the Dístríct
of Coíumbía íf the property sub|ect to the ííen ís sítuated ín the Dístríct of
Coíombía.
(2) Meaníng of terms. (1) s used ín sectíon 6323 and thís sectíon € ”
(a) The term purchaser means a person who, for a vaíuabíe present con-
síderatíon, acquíres property or an ínterest ín property.
16) The term |udgment credítor means a person who has obtaíned a vaííd
nd|nnent ín a court of record and of competent |urísdíctíon for the recovery
of specífícaííy desígnated property or for a certaín sum of money and, ín the
case of a |udgment for the recovery of a certaín sum of money, who has a per-
fected ííen under such |udgment on the property ínvoíved. The term |udgment
does not íncíude an ínchoate ííen, such as an attachment ííen, uníess and untíí
rcch en has rípened ínto a udgment. Uníted States v. Securíty Trust and
oeíngs ank (1950) 3 0 U. S. 7. Nor does the term |udgment íncíude the
determínatíon of a quasí- udícíaí body or of an índívíduaí actíng ín a quasí-
|ndícíaí capacíty, such as, for e ampíe, the actíon of State ta íng authorítíes.
níted States v. Gííbert ssocíates (1953) 3 5 U. S. 361 and Uníted States v.
Cíty of eíc rítaín (195 ) 3 7 U. S. 81,
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6201. 16
(II) The determínatíon whether a person Is a mortgagee, píedgee, purchaser,
or |udgment credítor, entítíed to the protectíon of sectíon 6323(a), shaíí be made
by reference to the reaíítíes and the facts ín a gíven case rather than to the tech-
nícaí form or termínoíogy used to desígnate such person. Thus, a person who
Is In fact and ín íaw a mortgagee, píedgee, or purchaser wííí be entítíed as such
to the protectíon of sectíon 6323(a) even though such person ís otherwíse desíg-
nated under the íaw of a State, such as the Uníform Commercíaí Code.
(3) orm of notíce. The form to be used for fíííng the notíce of ííen shaíí be
orm 668, Notíce of ederaí Ta Líen under Internaí Revenue Laws. Such
notíce, fííed ín the ofííce desígnated by the íaw of a State or Terrítory, shaíí be
vaííd notwíthstandíng any íaw of the State or Terrítory regardíng the form or
content of a notíce of ííen. or e ampíe, the omíssíon from the notíce of ííen of a
descríptíon of the property sub|ect to the ííen wííí not affect the vaíídíty thereof,
even though the íaw of the State or Terrítory requíres that the notíce of ííen
contaín a descríptíon of the property sub|ect to the ííen.
(b) ceptíon ín case of securítíet € ” (1) ceptíon. € ” ven though a notíce of
ííen províded for ín sectíon 6321 has been fííed ín the manner prescríbed ín
sectíon 6323(a), the ííen shaíí not be vaííd wíth respect to a securíty, as defíned
In sectíon 6323(c) (2), as agaínst any mortgagee, píedgee, or purchaser of such
securíty, for an adequate and fuíí consíderatíon In money or money s worth, íf
at the tíme of such mortgage, píedge, or purchase such mortgagee, píedgee, or
purchaser ís wíthout notíce or knowíedge of the e ístence of such ííen. n
adequate and fuíí consíderatíon ín money or money s worth, as used ín sectíon
6323(c), means that the consíderatíon must have been an adequate and fuíí
equívaíent reducíbíe to a money vaíue. purchase of property made ín the
ordínary course of busíness (that ís, a transactíon whích ís bona fíde and made at
arm s íength) wííí be consídered as made for an adequate and fuíí consíderatíon
ín money or money s worth. reíínquíshíng or promísed reíínquíshment of
dower, curtesy, or of a statutory estate created ín ííeu of dower or curtesy, or of
other marítaí ríghts ís not a consíderatíon ín money or money s worth. Nor Is
íove and affectíon, promíse of marríage, or any other consíderatíon not reducíbíe
to a money vaíue a consíderatíon ín money or money s worth.
(2) Defínítíon of securíty. € ” s used ín sectíon 6323(c), the term securíty
means: ny bond, debenture, note or certífícate or other evídence of índebted-
ness, íssued by any corporatíon (Incíudíng one Issued by a government or
poíítícaí subdívísíon theroof), wíth ínterest coupons or ín regístered form, share
of stock, votíng trust certífícate, or any certífícate of ínterest or partícípatíon ín,
certífícate of deposít or receípt for, temporary or ínterím certífícate for, or
warrant or ríght to subscríbe to or purchase, any of the foregoíng negotíabíe
ínstrument or money.
(c) Díscíosure of amount of outstandíng ííen. € ” (1) If a notíce of ííen has been
fííed, the Dístríct Dírector to whom the assessment whích gave ríse to the ííen
ís charged ís authoríbed to díscíose Informatíon as to the amount of the out-
standíng obíígatíon secured by the ííen to any person who has a proper ínterest
In determíníng the amount of the outstandíng obíígatíon. ny person desíríng
such ínformatíon shouíd present to the Dístríct Dírector a wrítten request.
Such request shouíd cíearíy descríbe the property sub|ect to the ííen, ídentífy the
appíícabíe en, and gíve the reasons for requestíng such ínformatíon. ny per-
son who has a ríght ín the property or íntends to obtaín a ríght ín the property
by purchase or otherwíse wííí, upon satísfactory proof of such ríght or of the
Intentíon to obtaín such ríght, be consídered to have a proper ínterest.
(2) If the Dístríct Dírector determínes that the appíícant ís entítíed to the
Informatíon requested, he wííí díscíose to such appíícant the totaí amount of the
outstandíng obíígatíon secured by the ííen.
(3) Tho Commíssíoner may díscíose the amount of any outstandíng obíígatíon
secured by the ííen If he determínes such actíon Is warranted under the facts
and círcumstances ín the partícuíar case.
( ) The provísíons of thís paragraph appíy to any notíce of ííen fííed under
sectíon 6323 or correspondíng provísíons of príor ínternaí revenue íaws.
(d) ppíícatíon of sectíon 632S to ííens ímposed under sectíon 8670 of the
Internaí Revenue Code of 1939. € ” In the case of any ííen arísíng under sectíon
3670 of the Internaí Revenue Code of 1039 or the correspondíng provísíons of
príor íaw (reíatíng to the generaí ta ííen) whích ís In effect on anuary 1,
1955, the provísíons of sectíon 6323 shaíí be appíícabíe to such ííen on and after
such date ín ííeu of the provísíons of sectíon 3672 of the Internaí Revenue Code
of 1939 or the correspondíng provísíons of príor íaw.
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163 6201.
8ec 301.032 Statt tobt Pbovíbío.nb Specíaí Líens for state and Gíft
Ta es.
Sec. 632 . Specíaí ííens fob estate and gíft ta es.
(a) Líens for estate ta . cept as otherwíse províded In subsectíon (c)
(reíatíng to transfers of securítíes).
(1) Upon gross estate. € ” Uníess the estate ta ímposed by chapter 11 ís sooner
paíd ín fuíí, ít shaíí be a en for 10 years upon the gross estate of the decedent,
e cept that such part of the gross estate as Is used for the payment of charges
agaínst the estate and e penses of íts admínístratíon, aííowed by any court
havíng |urísdíctíon thereof, shaíí be dívested of such ííen.
(2) abíííty of transferees and others. € ” If the estate ta Imposed by chapter
11 ís not paíd when due, then the spouse, transferee, trustee (e cept the trustee
of an empíoyee s trust whích meets the requírements of sectíon 01(a)), sur-
vívíng tenant, person In possessíon of the property by reason of the e ercíse,
none ercíse, or reíease of a power of appoíntment, or benefícíary, who receíves,
or has on the date of the decedents death, property íncíuded ín the gross estate
under sectíons 203 to 20 2, Incíusíve, to the e tent of the vaíue, at the tíme of
the decedent s death, of such property, shaíí be personaííy ííabíe for such ta .
ny part of such property transferred by (or transferred by a transferee of)
such spouse, transferee, trustee, survívíng tenant, person ín possessíon of
property by reason of the e ercíse, none ercíse, or reíease of a power of appoínt-
ment, or benefícíary, to a bona fíde purchaser, mortgagee, or píedgee, for an
adequate and fuíí consíderatíon ín money or money s worth shaíí be dívested
of the ííen províded In paragraph (1) and a ííke ííen shaíí then attach to aíí
the property of such spouse, transferee, trustee, survívíng tenant, person ín pos-
sessíon, benefícíary, or transferee of any such person, e cept any part transferred
to a bona fíde purchaser, mortgagee, or píedgee for an adequate and fuíí con-
síderatíon ín money or money s worth.
(3) Contínuance after díscharge of e ecutor. € ” The provísíons of sectíon 220
(reíatíng to díscharge of e ecutor from personaí ííabíííty) shaíí not operate as a
reíease of any part of the gross estate from the ííen for any defícíency that may
thereafter be determíned to be due, uníess such part of the gross estate (or any
ínterest thereín) has been transferred to a bona fíde purchaser, mortgagee, or
píedgee for an adequate and fuíí consíderatíon ín money, or money s worth, ín
whích case such part (or such ínterest) shaíí not be sub|ect to a ííen or to any
cíaím or demand for any such defícíency, but the ííen shaíí attach to the consíd-
eratíon receíved from such purchaser, mortgagee, or píedgee by the heírs,
íegatees, devísees, or dístríbutees.
(b) Líen for gíft ta . € ” cept as otherwíse províded ín subsectíon (c) (reíat-
íng to transfers of securítíes), the gíft ta ímposed by chapter 12 shaíí be a
ííen upon aíí gífts made duríng the caíendar year, for 10 years from the tíme the
gífts are made. If the ta ís not paíd when due, the donee of any gíft shaíí be
personaííy ííabíe for such ta to the e tent of the vaíue of such gíft. ny part
of the property comprísed In the gíft transferred by the donee (or by a trans-
feree of the donee) to a bona fíde purchaser, mortgagee, or píedgee for an ade-
quate and fuíí consíderatíon ín money or money s worth shaíí be dívested of the
ííen hereín ímposed and the en, to the e tent of the vaíue of such gíft, shaíí
attach to aíí the property (íncíudíng after-acquíred property) of the donee (or
the transferee) e cept any part transferred to a bona fíde purchaser, mortgagee,
or píedpee for an adequate and fuíí consíderatíon ín money or money s worth.
(c) ceptíon ín case of securítíes. The ííen Imposed by subsectíon (a) or (b)
shaíí not be vaííd wíth respect to a securíty, as defíned ín sectíon 6323(c) (2), as
azaínst any mortgagee, píedgee, or purchaser of any such securíty, for an ade-
quate and fuíí consíderatíon ín money or money s worth, íf at the tíme of such
mortgage, píedge, or purchase such mortgagee, píedgee, or purchaser Is wíthout
notíce or knowíedge of the e ístence of such ííen.
Sec. 301.632 -1. Specíaí Líens for state and Gíft Ta es Personaí Lía-
ttrrr of Transferees and Others. € ” (a) state ta . (1) The en Imposed by
sectíon 632 (a) attaches at the date of the decedent s death to every part of the
gross estate, whether or not the property comes ínto the possessíon of the duíy
quaíífíed e ecutor or admínístrator. It attaches to the e tent of the ta shown to
be due by the return and of any defícíency ín ta found to be due upon revíew and
audít If the estate ta ís not paíd when due, then the spouse, transferee, trus-
tee (e cept the trustee of an empíoyee s trust whích meets the requírements of
€ ectíon 01(a)), survívíng tenant, person ín possessíon of the property by reason
of the e ercíse, none ercíse, or reíease of a power of appoíntment, or benefícíary,
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6201. 166
who receíves, or has on the date of the decedent s death, property íncíuded ín the
gross estate under sectíons 203 to 20 2, íncíusíve, shaíí be personaííy ííabíe for
such ta to the e tent of the vaíue, at the tíme of the decedent s death, of such
property.
(2) Uníess the ta Is paíd ín fuíí, and e cept as otherwíse províded ín sectíon
632 (c) (reíatíng to transfers of securítíes), the ííen upon the entíre property
constítutíng the gross estate contínues for a períod of 10 years after the dece-
dent s death, e cept that such ííen shaíí be dívested wíth respect to :
(1) Such portíon of the gross estate as ís used for the payment of charges
agaínst the estate and e penses of íts admínístratíon aííowed by any court hav-
íng |urísdíctíon thereof
(íí) Such property as ís transferred to a bona fíde purchaser, mortgagee, or
píedgee, for an adequate and fuíí consíderatíon ín money or money s worth, by
the spouse, transferee, trustee, survívíng tenant, person ín possessíon of the
property by reason of the e ercíse, none ercíse, or reíease of a power of ap-
poíntment, or benefícíary, who receíves, or has on the date of the decedent s
death, property íncíuded ín the gross estate under sectíons 203 to 20 2, íncíusíve
(or the correspondíng provísíons of the Internaí Revenue Code of 1939), or such
property as ís transferred by the transferee of such person. In such case, a ííke
ííen attaches to aíí the property of such spouse, transferee, trustee, survívíng
tenant, person ín possessíon, benefícíary, or transferee of any such person, e -
cept such part thereof as may be transferred to a bona fíde purchaser, mortgagee,
or píedgee for an adequate and fuíí consíderatíon ín money or money s worth.
See paragraph (b) (1) of sectíon 301.6323-1 for the meaníng of the term an ade-
quate and fuíí consíderatíon ín money or money s worth
(ííí) Such portíon of the gross estate (or any ínterest thereín) as has been
transferred to a bona fíde purchaser, mortgagee, or píedgee for an adequate and
fuíí consíderatíon ín money or money s worth, íf paymeut ís made of the fuíí
amount of ta determíned by the Dístríct Dírector pursuant to a request of the
e ecutor for díscharge from personaí ííabíííty as authorízed by sectíon 220
(reíatíng to díscharge of e ecutor from personaí ííabíííty), but there ís substí-
tuted a ííke ííen upon the consíderatíon receíved from such purchaser, mort-
gagee, or píedgee by the heírs, íegatees, devísees, or dístríbutees and
(ív) Such property as to whích the Dístríct Dírector has íssued a certífícate
reíeasíng the ííen pursuant to sectíon 6325.
(b) Líen for gíft ta . € ” cept as províded ín sectíon 632 (c) (reíatíng to
securítíes), a ííen attaches upon aíí gífts made duríng the caíendar year for the
amount of the ta ímposed upon the gífts made duríng such year. The ííen
e tends for a períod of 10 years from the tíme the gífts were made, uníess the
ta ís sooner paíd. If the ta ís not paíd when due, the donee of any gíft becomes
personaííy ííabíe for the ta to the e tent of the vaíue of hís gíft. ny part
of the property comprísed ín the gíft whích ís transferred by the donee (or by
a transferee of the donee) to a bona fíde purchaser, mortgagee, or píedgee, for
an adequate and fuíí consíderatíon ín money or money s worth, ís dívested of
the ííen, but a ííke ííen to the e tent of the vaíue of such gíft attaches to aíí the
property (íncíudíng after-acquíred property) of the donee (or the transferee),
e cept any part transferred to a bona fíde purchaser, mortgagee, or píedgee,
for an adequate and fuíí consíderatíon ín money or money s worth. See para-
graph (b) (1) of sectíon 301.6323-1 for the meaníng of the term an adequate
and fuíí consíderatíon ín money or money s worth.
(c) ppíícatíon of ííen ímposed by sectíon 6321. € ” The generaí ííen under sec-
tíon 6321 and the specíaí ííen under subsectíon (a) or (b) of sectíon 632 for
the estate or gíft ta are not e cíusíve of each other, but are cumuíatíve. ach
ííen wííí aríse when the condítíons precedent to tííe creatíon of such ííen are met
and wííí contínue ín accordance wíth the provísíons appíícabíe to the partícuíar
ííen. Thus, the specíaí ííen may e íst wíthout the generaí ííen beíng ín force,
or the generaí ííeu may e íst wíthout the specíaí ííen beíng ín force, or the
generaí ííen and the specíaí ííen may e íst símuítaneousíy, dependíng upon the
facts and pertínent statutory provísíons appíícabíe to the respectíve ííens.
(d) ppíícatíon of sectíon 682b to estate and gíft ta ííens ímposed under the
Internaí Revenue Code of 19S9. € ” In the case of any ííen arísíng under sectíon
827 or 1009 of the Internaí Revenue Code of 1939 (reíatíng to ííens for estate
and gíft ta es, respectíveíy) whích ís ín effect on anuary 1, 1955, the provísíons
of sectíon 632 shaíí be appíícabíe to such ííen on and after such date ín ííeu of
the provísíons of sectíon 827 or 1009 of the 1939 Code,
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1(57 6201.
Sec. 301.6323. Statutory Pbovísíons Reíease of Líen or Pabtíaí Díscharge
PeOP TY.
Sec. 6325. Reíease of ííen ob partíaí díscharge of property.
(a) Reíease of ííen. € ” Sub|ect to such ruíes or reguíatíons as the Secretary or
hís deíegate may prescríbe, the Secretary or hís deíegate may íssue a certífícate
of reíease of any ííen Imposed wíth respect to any ínternaí revenue ta íf € ”
(1) Líabíííty satísfíed or unenforceabíe. € ” The Secretary or hís deíegate fínds
that the ííabíííty for the amount assessed, together wíth aíí ínterest ín respect
thereof, has been fuííy satísfíed, has become íegaííy unenforceabíe, or, ín the case
of the estate ta ímposed by chapter 11 or the gíft ta ímposed by chapter 12,
has been fuííy satísfíed or províded for or
(2) ond accepted. € ” There ís furníshed to the Secretary or hís deíegate and
accepted by hím a bond that ís condítíoned upon the payment of the amount
assessed, together wíth aíí ínterest ín respect thereof, wíthín the tíme prescríbed
byíaw (íncíudíng any e tensíon of such tíme), and that ís ín accordance wíth
seen requírements reíatíng to terms, condítíons, and form of the bond and suretíes
thereon, as may be specífíed by such ruíes or reguíatíons.
(b) Partíaí díscharge of property.
(1) Property doubíe the amount of the ííabíííty. € ” Sub|ect to such ruíes or
reguíatíons as the Secretary or hís deíegate may prescríbe, the Secretary or
hís deíegate may íssue a certífícate of díscharge of any part of the properíy
sub|ect to any ííen ímposed under thís chapter íf the Secretary or hís deíegate
fínds that the faír market vaíue of that part of such property remaíníng sub|ect
to the ííen ís at íeast doubíe the amount of the unsatísfíed ííabíííty secured by
such ííen and the amount of aíí other ííens upon such property whích have
príoríty to such ííen.
(2) Part payment or ínterest of Uníted States vaíueíess. € ” Sub|ect to such ruíes
or reguíatíons as the Secretary or hís deíegate may prescríbe, the Secretary or
hís deíegate may íssue a certífícate of díscharge of any part of the property
sub|ect to the ííen íf € ”
( ) There ís paíd over to the Secretary or hís deíegate ín part satísfactíon
of the ííabíííty secured by the ííen an amount determíned by the Secretary or
hís deíegate, whích shaíí not be íess than the vaíue, as determíned by the Secre-
tary or hís deíegate, of the ínterest of the Uníted States ín the part to be so
díscharged, or
( ) The Secretary or hís deíegate determínes at any tíme that the ínterest
of the Uníted States ín the part to be so díscharged has no vaíue.
In determíníng the vaíue of the ínterest of the Uníted States ín the part to be so
díscharged, the Secretary or hís deíegate shaíí gíve consíderatíon to the faír
market vaíue of such part and to such ííens thereon as have príoríty to the ííeu
of the Uníted States.
(c) ffect of certífícate of reíease or partíaí díscharge. € ” certífícate of reíease
or of partíaí díscharge íssued under thís sectíon shaíí be heíd concíusíve that
the ííen upon the property covered by the certífícate ís e tínguíshed.
(d) Cross references. € ” (1) or síngíe bond compíyíng wíth the requírements
of both subsectíon (a) (2) and sectíon 6165, see sectíon 7102.
(2) or other provísíons reíatíng to bonds, see generaííy chapter 73.
(3) or provísíons reíatíng .to suíts to enforce ííen, see sectíon 7 03.
( ) or provísíons reíatíng to suíts to cíear títíe to reaíty, see sectíon 7 2 .
Sec 301.6325-1. Reíease of Líen ob Partíaí Díscharge of Property € ” (a)
Reíease of ííen € ” (1) Líabíííty satísfíed or unenforceabíe. The Dístríct Dírector
to whom ís charged an assessment ín respect of any ínternaí revenue ta shaíí
íssue a certífícate of reíease of any ííen ímposed wíth respect to such ta ,
whenever he fínds that the ííabíííty for the amount assessed (together wíth
aíí Interest ín respect thereof) has been satísfíed or has become unenforceabíe as
a matter of íaw (and not mereíy uncoííectíbíe or unenforceabíe as a matter of
fact). Ta ííabííítíes frequentíy are unenforceabíe In fact for the tíme beíng,
due to the temporary nonpossessíon by the ta payer of díscoverabíe property
or property ríghts. In aíí cases the ííabíííty for the payment of the ta con-
tínues untíí satísfactíon of the ta In fuíí or untíí the e píratíon of the statutory
períod for coííectíon, íncíudíng such e tensíon of the períod for coííectíon as
may be agreed upon In wrítíng by the ta payer and the Dístríct Dírector. The
form to be used by the Dístríct Dírector ís orm 600, Certífícate of Reíease of
ederaí Ta Líen.
M 060 -
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6201.1 168
(2) state or (ííft ta ííabíííty fuííy satísfíed or províded for. € ” (1) If the
Dístríct Dírector determínes tha . the ta ííabíííty for estate or gíft ta has been
fuííy satísfíed, he may íssue hís certífícate reíeasíng any or aíí property from
the ííen ímposed thereon. If the Dístríct Dírector determínes that the ta ííabíí-
íty for estute or gíft ta has been adequateíy províded for, he may íssue hís
certífícate reíeasíng partícuíar ítems of property from the ííen. The Issuance
of such a certífícate ís a matter restíng wíthín the díscretíon of the Dístríct
Dírector, and a certífícate wííí be Issued oníy ín case there ís actuaí need therefor.
The prímary purpose of such reíease ís not to evídence payment or satísfactíon
of the ta , but to permít the transfer of property free from the ííen ín case It ís
necessary to cíear títíe. The ta wííí be consídered fuííy satísfíed oníy when
Investígatíon has been compíeted and payment of the ta , íncíudíng any defícíency
determíned, has been made.
(11) n appíícatíon for a reíease of the íípn for estate or gíft ta shouíd be
fííed wíth the Dístríct Dírector charged wíth the assessment ín respect of the
ta . It shouíd be made ín wrítíng under penaítíes of per|ury and shouíd e píaíu
the círcumstances that requíre the reíease, and shouíd fuííy descríbe the par-
tícuíar ítems for whích the reíease ís desíred. In the case of an estate ta
ííen, the appíícatíon shouíd show the appíícant s reíatíonshíp to the estate,
such as e ecutor, heír, devísee, íegatee, benefícíary, transferee, or purchaser. If
the estate or gíft ta return has not been tííed, a statement under penaítíes of
per|ury may be requíred showíng (a) the vaíue of the property to be reíeased,
(b) the basís for such vaíuatíon, (c) ín the case of the estate ta , the appro í-
mate vaíue of the gross estate and the appro ímate vaíue of the totaí reaí prop-
erty Incíuded ín the gross estate, and ((/) ín th_- case of the gíft ta , the totaí
amount of gífts made duríng the caíendar year and the príor caíendar years
subsequent to the enactment of the Itevenue ct of 1932 and the appro ímate
vaíue of aíí reaí estate sub|ect to the gíft ta ííen, and (e) If the property ís to
be soíd or otherwíse transferred, the name and address of the purchaser or trans-
feree and the consíderatíon, íf any, paíd or to be paíd by hím.
(3) ond accepted. € ” The Dístríct Dírector may, ín hís díscretíon, Issue a
certífícate of reíease of any ta ííen íf he ís furníshed and accepts a bond that ís
condítíoned upon the payment of the amount assessed (together wíth aíí ínterest
ín respect thereof), wíthín the tíme agreed upon ín the bond, but not íater than
6 mouths before the e píratíon of the statutory períod for coííectíon, íncíudíng
any períod for coííectíon agreed upon ín wrítíng by the Dístríct Dírector and
the ta payer. or provísíons reíatíng to bonds, see sectíons 7101 and 7102 and
the reguíatíons thereunder.
(b) Díscharge of specífíc property from the ííen € ” (1) Property doubíe the
amount of the ííabíííty. € ” (í) The Dístríct Dírector may, ín hís díscretíon, íssue
a certífícate of díscharge of any part of the property sub|ect to any ta ííen íf
he determínes that the faír market vaíue of that part of the property remaíníng
sub|ect to the ííen ís at íeast doubíe the sum of the amount of the unsatísfíed
ííabíííty secured by such ííen and of the amount of aíí other ííens upon such
property whích have príoríty to such ííen. In generaí, faír market vaíue ís that
amount whích one ready and wííííng but not compeííed to buy wouíd pay to
nnother ready and wííííng but not compeííed to seíí the property. The form to
be used by the Dístríct Dírector ís orm 609- , Certífícate of Díscharge of
Property from ederaí Ta Líen. or ínformatíon requíred to be submítted
ín an appíícatíon for a certífícate of díscharge, see subparagraph ( ) of thís
paragraph.
(íí) The foííowíng e ampíe íííustrates a case ín whích a certífícate of díscharge
may not be gíven under thís subparagraph:
ampíe: The ederaí ta ííabíííty secured by a ííen Is 1,000. The faír mar-
ket vaíue of aíí property whích nfter the díscharge wííí contínue to be sub|ect
to the ederaí ta ííen ís 10,000. There ís a príor mortgage on the property
of 5,000, íncíudíng ínterest, and the property ís sub|ect to a príor en of 100
for reaí estate ta es. ccordíngíy, the ta payer s equíty In the property over
and above the amount of the mortgage and reaí estate ta es ís ,000, or nearíy
fíve tímes the amount requíred to pay the assessed ta on whích the ederaí ta
ííen ís based. Nevertheíess, a díscharge under thís subparagraph Is not per-
míssíbíe. In the íííustratíon, the sum of the amount of the ederaí ta ííabíííty
( 1,000) and of the amount of the príor mortgage and the ííen for reaí estate
ta es ( r ,000 100 5,100) ís 6,100. Doubíe thís sum ís 12,200, but the faír
market vaíue of the remaíníng property ís oníy 10,000. ence, a díscharge of
the property ís not permíssíbíe under thís subparagraph, sínce the Code requíres
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169 6201.
that the faír market vaíue of the remaíníng property be at íeast doubíe the sum
of two amounts, one amount beíng the outstandíng ederaí ta ííabíííty and the
other amount beíng aíí príor ííens upon such property. In order that the díscbarge
may be Issued, ít. wouíd t e necessary that the remaíníng property be worth not
fas than 12 0O.
(2) Port payment. € ” The Dístríct Dírector may, In hís díscretíon, íssue a cer-
tífícate oí díscharge of any part of the property sub|ect to the en íf there ís
paíd over to hím ín part satísfactíon of the ííabíííty secured by the ííen an amount
ermme hy hím to be not íess than the vaíue of the ínterest of the Uníted
States ín the property to be so díscharged. In determíníng the amount to be
paíd, the Dístríct Dírector wííí take ínto consíderatíon aíí the facts and círcum-
stances of the case, íncíudíng the e penses to whích the Government has been
put ín the matter. In no case shaíí the amount to be paíd be íess than the vaíue
of the ínterest of the Uníted States ín the property wíth respect to whích the
certífícate of díscharge ís to be íssued, as such vaíue has been determíned by
the Dístríct Dírector ín the ííght of the faír market vaíue of the property and
the amount of aíí ííens and encumberances thereon havíng príoríty over the
ederaí ta ííen. The form to be used by the Dístríct Dírector ís orm 669- ,
Certífícate of Díscharge of Property from ederaí Ta Líen. or Informatíon
requíred to be submítted ín an appíícatíon for a certífícate of díscharge, see sub-
paragraph ( ) of thís paragraph.
(3) Interest of Uníted States vaíueíess. € ” The Dístríct Dírector may, ín hís
díscretíon, íssue a certífícate of díscharge of any part of the property sub|ect
to the ííen íf he determínes that the Interest of the Uníted States ín the property
to be so díscharged has no vaíue. The form to be used by the Dístríct Dírector
ís orm 669-C, Certífícate of Díscharge of Property from ederaí Ta Líen.
or ínformatíon requíred to be submítted ín an appíícatíon for a certífícate of
díscbarge, see subparagraph ( ) of thís paragraph.
( ) ppíícatíon for certífícate of díscharge. € ” ny person desíríng a certífícate
of díscharge of property from a ederaí ta ííen shaíí submít to the Dístríct
Dírector to whom the assessment ís charged a wrítten appíícatíon ín trípíícate,
under penaítíes of per|ury, requestíng that the certífícate be íssued. The appíí-
catíon shaíí contaín the foííowíng ínformatíon:
(í) cíear descríptíon of the property wíth respect to whích the díscharge Is
desíred and, where appíícabíe, of the property remaíníng sub|ect to the ííen
( íí ) The reason the díscharge ís sought
(ííí) descríptíon of the ederaí ta ííen ín respect of whích the certífícate
of díscharge ís sought, Incíudíng the amount, nature of the ta , the dates of
assessment, and, íf appíícabíe, an appropríate reference to the regístry and the
page and voíume of the book ín whích the notíce of ederaí ta ííen ís fííed, ín-
de ed, or recorded, and the date of the fííííng of the notíce
(ív) statement In numbered paragraphs of aíí facts materíaí to the appííca-
tíon, íncíudíng the amount, character, and dates (both of e ecutíon and of record)
ef an encumbrances of record príor to the ederaí ííen, wíth an appropríate
reference to the regístry and the page and voíume of the book ín whích each such
encumbrance ís recorded
( – ) The amounts, character, and dates of e ecutíon of any unrecorded encum-
brances beííeved to be príor to the ederaí ta ííen, Incíudíng Informatíon as
to how and when such encumbrances arose
( – í) In support of the appíícatíon, the appíícant must furnísh proof suffícíent
to estabíísh the faír market vaíue of the property wíth respect to whích the dís-
charge ís sought, and where appíícabíe, proof suffícíent to estabíísh the faír mar-
ket vaíue of the property whích wííí remaín sub|ect to the ííen and
(víí) ny other Informatíon whích ín the opíníon of the appíícant míght have
€ bearíng upon the determínatíon to be made.
€ ppíícatíons submítted under subparagraph (1) or (3) of thís paragraph do not
requíre the submíssíon of any 6um of money for the díscharge of the property
from a ta ííen. Sínce the amount to be paíd for the íssuance, under subpara-
graph (2) ot thís paragraph, of a certífícate of díscharge of property from a
ederaí ta ííen ís a matter for the determínatíon of the Dístríct Dírector after
consíderatíon ot the facts and íaw ínvoíved, no sum of money or check shouíd
be snhmíttctí wfrh the appíícatíon. The Dístríct Dírector shaíí cause a thorough
ín „ . í. „ . tohí made as to the proof and accuracy of aíí materíaí statements
hmstíatíon toh M vm mpíetíon of mc ínvestígatíon the Dístríct
Dtector wíU nfake bís determínatíon and advíse the appíícant of the decísíon
reached.
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6201. 170
(c) ffect of certífícate of reíease or díscharge of specífíc property. € ” certíí-
cate of reíease of ííen or a certífícate díschargíng specífíc property from the ííen
íssued under sectíon 6325 shaíí be concíusíve that the ííen upon the property cov-
ered by the certífícate Is e tínguíshed.
Sec. 301.6326. Statutobt pbotísíons cr.oss references.
Sec. 6326. Cross befebences. (1) or ííen In case of ta on dístíííed spíríts,
see sectíon 500 .
(2) or e cíusíon of ta ííabíííty from díscharge In bankruptcy, see sectíon
17 of the ankruptcy ct, as amended (52 Stat. 851 11 U. S. C. 35).
(3) or íímít on amount aííowed In bankruptcy proceedíngs on debts owíng
to the Uníted States, see sectíon 57(|) of the ankruptcy ct, as amended (52
Stat. 807 11 U. S. C. 93).
( ) or recognítíon of ta ííens In proceedíngs under the ankruptcy ct, see
sectíon 67 (b) and (c) of that act, as amended (52 Stat. 876-877 11 U. S. C. 107).
(5) or coííectíon of ta es In connectíon wíth wage earners píans In bank-
ruptcy courts, see sectíon 680 of the ankruptcy ct, as added by the act of
une 22,1938 (52 Stat. 938 11 U. S. C. 1080).
(6) or provísíons permíttíng the Uníted States to be made party defendant ín
a proceedíng ín a State court for the forecíosure of a ííen upon reaí estate where
the Uníted States may have a cíaím upon the premíses ínvoíved, see sectíon 2 10
of Títíe 28 of the Uníted States Code.
(7) or príoríty of en of the Uníted States ín case of Insoívency, see R. S.
3 66 (31 U. S. C. 191).
seízure of pbopebtt fob coííectíon of ta es
Sec. 301.6331. Statdtobt Pbovísíons Levt and Dístraínt.
Sec. 6331. Levy and dístbaínt.
(a) uthoríty of Secretary or Deíegate. If any person ííabíe to pay any ta
negíects or refuses to pay the same wíthín 10 days after notíce and demand. It
shaíí be íawfuí for the Secretary or hís deíegate to coííect such ta (and such
further sum as shaíí be suffícíent to cover the e penses of the íevy) by íevy upon
aíí property and ríghts to property (e cept such property as ís e empt under.
sectíon 633 ) beíongíng to such person or on whích there Is a eD províded ín thís
chapter for the payment of such ta . Levy may be made upon the accrued saíary
or wages of any offícer, empíoyee, or eíected offícíaí, of the Uníted States, the
Dístríct of Coíumbía, or any agency or ínstrumentaííty of the Uníted States or
the Dístríct of Coíumbía, by servíng a notíce of íevy on the empíoyer (as defíned
ín sectíon 3 01 (d)) of such offícer, empíoyee, or eíected offícíaí. If the Secretary
or hís deíegate makes a fíndíng that the coííectíon of such ta ís ín |eopardy,
notíce and demand for Immedíate payment of such ta may be made by the
Secretary or hís deíegate and, upon faííure or refusaí to pay such ta , coííectíon
thereof by íevy shaíí be íawfuí wíthout regard to the 10-day períod províded In
thís sectíon.
(b) Seízure and saíe of property. € ” The term íevy as used In thís títíe In-
cíudes the power of dístraínt and seízure by any means. In any case ín whích
the Secretary or hís deíegate may íevy upon property or ríghts to property, he
may seíze and seíí such property or ríghts to property (whether reaí or personaí,
tangíbíe or íntangíbíe).
(c) Successíve seízures. € ” Whenever any property or ríght to property upon
whích íevy has been made by vírtue of subsectíon (a) ís not suffícíent to satísfy
the cíaím of the Uníted States for whích íevy Is made, the Secretary or hís
deíegate may, thereafter, and as often as may be uecessary, proceed to íevy ín
ííke manner upon any other property ííabíe to íevy of the person agaínst whom
such cíaím e ísts, untíí the amount due from hím, together wíth aíí e penses
ís fuííy paíd.
(d) Cross references. € ” (1) or provísíons reíatíng to eopardy, see subchapter
of chapter 70.
(2) or proceedíngs appíícabíe to saíe of seízed property, see sectíon 6335.
Sec. 301.6331-1. Levy and Dístraínt € ” (a) uthoríty to íevy € ” (1) In generaí.
If any person ííabíe to pay any ta negíects or refuses to pay such ta wíthín
10 days after notíce and demand, the Dístríct Dírector to whom the assessment:
ís charged or, upon hís request, any other Dístríct Dírector may proceed to coííect
the ta by íevy upon any property, or ríghts to property, whether reaí or personaí.
tangíbíe or íntangíbíe, beíongíng to such person or on whích there ís a ííen pro-
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171 6201.
Medby sectíon 6321 or 632 (or the correspondíng provísíon of príor íaw) for
the payment of snch ta . t used ín sectíon 6331 and thís sectíon, the term ta
Wades any ínterest, addítíonaí amount, addítíon to ta , or assessabíe penaíty,
together € wíth any costs and e penses that may accrue ín addítíon thereto. or
e emptíon of certaín property from íevy, see sectíon 633 and the reguíatíons
thereunder. Property sub|ect to a ederaí ta ííen, whích has been soíd or other-
wíse transferred by the ta payer, may be seízed ín the hands of the transferee
or ot any subsequent transferee. Levy may be made by servíng a notíce of íevy
on any person ín possessíon of, or obíígated wíth respect to, property or ríghts
tn property sub|ect to íevy, such as, for e ampíe, receívabíes, bank accounts,
evídences of debt, securítíes, and accrued saíaríes, wages, commíssíons, and
other compensatíon.
(2) eopardy cases. If the Dístríct Dírector fínds that the coííectíon of any
ta ís ín |eopardy, he may make notíce and demand for ímmedíate payment of
such ta and, upon faííure or refusaí to pay such ta , coííectíon thereof by íevy
shaíí be íawfuí wíthout regard to the 10-day períod províded ín sectíon 6331 (a).
(3) ankruptcy or receívershíp cases. Duríng a bankruptcy proceedíng or a
receívershíp proceedíng ín eíther a ederaí or a State court, the assets of the
ta payer are ín generaí under the controí of the court ín whích such proceedíng ís
pendíng. Ta es cannot be coííected by íevy upon assets ín the custody of a court,
whether or not such custody ís íncídent to a bankruptcy or receívershíp proceed-
íng, e cept where the proceedíng has progresseC to such a poínt that the íevy
wouíd not ínterfere wíth the work of the court or where the court grants permís-
síon to íevy. ny assets whích under appíícabíe prevísíons of íaw are not under
the controí of the court may be íevíed upon, for e ampíe, property e empt from
court custody under State íaw or the bankrupt s earníngs and property acquíred
after the date of bankruptcy. owever, íevy upon such property ís not manda-
tory and the Government may reíy upon payment of ta es ín the proceedíng.
( ) Certaín types of compensatíon € ” (í) ederaí empíoyees. € ” Levy may be
made upon the accrued saíary or wages of any offícer or empíoyee (Incíudíng
members of the rmed orces), or eíected or appoínted offícíaí, of the Uníted
States, the Dístríct of Coíumbía, or any agency or ínstrumentaííty of eíther, by
servíng a notíce of íevy on the empíoyer of the deíínquent ta payer. s used ín
thís subdívísíon, the term empíoyer means (a) the offícer or empíoyee of the
Uníted States, the Dístríct of Coíumbía, or of the agency or ínstrumentaííty of
the Uníted States or the Dístríct of Coíumbía, who has controí of the payment
of the wages, or (6) any other offícer or empíoyee desígnated by the head of the
branch, department, agency, or ínstrumentaííty of the Uníted States or of the
Dístríct of Coíumbía as the party upon whom servíce of the notíce of íevy may
be made. If the head of such branch, department, agency, or ínstrumentaííty
desígnates an offícer or empíoyee other than one who has controí of the payment
of the wages, as the party upon whom servíce of the notíce of íevy may be made,
such head shaíí promptíy notífy the Commíssíoner of the name and address
of each offícer or empíoyee so desígnated and the scope or e tent of hís authoríty
as such desígnee.
(íí) State and munícípaí empíoyees. € ” ccrued saíaríes, wages, or other com-
pensatíon of any offícer, empíoyee, or eíected or appoínted offícíaí of a State
or Terrítory, or of any agency, ínstrumentaííty, or poíítícaí subdívísíon thereof,
are aíso sub|ect to íevy to enforce coííectíon of any ederaí ta .
(ííí) Seamen. € ” Notwíthstandíng the provísíons of sectíon 12 of the Seamen s
ct of 1915 (38 Stat. 1169 6 U. S. C. 601), accrued wages of seamen, appren-
tíce seamen, or físhermen empíoyed on físhíng vesseís are sub|ect to íevy. See
sectíon 633 (c).
(b) Successíve seízures. € ” Whenever any property or ríghts to property upon
whích a íevy has been made are not suffícíent to satísfy the cíaím of the
Uníted States for whích the íevy ís made, the Dístríct Dírector may thereafter,
and as often as may be necessary, proceed to íevy ín ííke manner upon any other
property or ríghts to property sub|ect to íevy of the person agaínst whom such
cíaím e ísts or on whích there ís a ííen ímposed by sectíon 6321 or 632 (or the
correspondíng provísíon of príor íaw) for the payment of such cíaím untíí the
amount due from such person, together wíth aíí costs and e penses, ís fuííy paíd.
Sec. 301.6332. Statutoby Provísíons Subbendeb or Pbopebty Sub|ect to
Levy.
Sec. 6332. Sotrewdeb of pbopebty sub|ect to íevy.
(a) Requírement. € ” ny person ín possessíon of (or obíígated wíth respect to)
property or ríghts to property sub|ect to íevy upon whích a íevy has been made
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5 6201.) 172
shaíí, upon demand of the Secretary or hís deíegate, surrender such property or
ríghts (or díscharge such obíígatíon) to the Secretary or hís deíegate, e cept
such part of the property or ríghts as ís, at the tíme of such demand, sub|ect
to an attachment or e ecutíon under any |udícíaí process.
(b) Penaíty for víoíatíon. € ” ny person who faíís or refuses to surrender as
requíred by subsectíon (a) any property or ríghts to property, sub|ect to íevy,
upon demand by the Secretary or hís deíegate, shaíí be ííabíe ín hís own person
and estate to the Uníted Stntes ín a sum equaí to the vaíue of the property or
ríghts not so surrendered, but not e ceedíng the amount of the ta es for the
coííectíon of whích such íevy has been made, together wíth costs and ínterest on
such sum at the rate of 6 percent per annum from the date of such íevy.
(c) Person defíned. € ” The term person, as used ín subsectíon (a), íncíudes
an offícer-or empíoyee of a corporatíon or n member or empíoyee of a partner-
shíp, who as such offícer, empíoyee, or member ís under a duty to surrender the
property or ríghts to property, or to díscharge the obíígatíon.
Sec. 301.6332-1. Surrender of Property Sub|ect to Levy. € ” (a) Requíre-
ment. € ” ny. person ín possessíon of (or obíígated wíth respect to) property or
ríghts to property sub|ect to íevy upon whích a íevy has been made shaíí, upon
demand of the Dístríct Dírector, surrender such property or ríghts (or díscharge
such obíígatíon) to the dístríct dírector, e cept such part of the property or ríírht
as ís, at the tíme of such demand, sub|ect to an attachment or e ecutíon under
any |udícíaí process.
(b) Penaíty for víoíatíon. € ” ny person who faíís or refuses, upon demand of
the Dístríct Dírector, to surrender any property or ríghts to property sub|ect to
íevy, as requíred by sectíon 6332(a), shaíí be ííabíe ín bís own person and estate
to the Uníted States ín a sum equaí to the vaíue of the property or ríghts not
so surrendered, but not e ceedíng the amount of the ta es for the coííectíon of
whích such íevy has been made, together wíth costs míd ínterest on such sum
at the rate of 0 percent per annum from the date of such íevy.
(c) Person defíned. € ” The term person, as used ín sectíon 6332(a) and thís
sectíon, íncíudes an offícer or empíoyee of a corporatíon or a member or em-
píoyee of a partnershíp, who as such offícer, empíoyee, or member ís under a duty
to surrender the property or ríghts to property or to díscharge the obíígatíon.
Thus, ís the ense of a íevy upon the saíary or wages of an offícer, empíoyee, or
eíected or appoínted offícíaí, of the Uníted States, the Dístríct of Coíumbía, or
any agency or ínstrumentaííty of eíther, the term person Incíudes the offícer or
empíoyee of the Uníted States, of the Dístríct of Coíumbía, or of such agency or
ínstrumentaííty, who as such offícer or empíoyee ís under a duty to díscharge the
obíígatíon. s to the offícer or empíoyee who ís under such duty, see
301.0331-1 (a) ( ) (1).
Sec. .101.6333. Statutory Provísíons Productíon of ooks.
Sec. tí333. Productíon of books.
If a íevy has been made or ís about to be made on any property, or ríght to
property, any person havíng custody or controí of any books or records, contaín-
íng evídence or statements reíatíng to the property or ríght to property sub|ect
to íevy, shaíí, upon demand of the Secretary or hís deíegate, e híbít such books
or records to the Secretary or hís deíegate.
Sec 301.6333-1. Productíon of ooks. € ” If a íevy has been made or hís about
to be made on any property or ríghts to property, any person, havíug custody or
controí of any books or records contaíníng evídence or statements reíatíng to the
property or ríghts to property sub|ect to íevy, shaíí, upon demand of the ínternaí
revenue offícer who has made or ís about to make the íevy, e híbít such books or
records to such offícer.
Sec. 301.633 . Statutory Provísíons Property empt rom Levy.
Sec. 633 . Property e empt from íevy.
(a) numeratíon. € ” There shaíí be e empt from íevy € ”
(1) Wearíng appareí and schooí boohs. Such ítems of wearíng appareí and
such schooí books as are necessary for the ta payer or for members of hís
famííy
(2) ueí, provísíons, furníture, and personaí effects. € ” If the ta payer ís the
head of a famííy, so much of the fueí, provísíons, furníture, and personaí effects
ín hís househoíd, and of the arms for personaí use, íívestock, and pouítry of the
ta payer, as does not e ceed 500 ín vaíue
(3) ooks and tooís of a trade, busíness, or professíon. € ” So many of the books
and tooís necessary for the trade, busíness, or professíon of the ta payer as do
not e ceed ín the aggregate 250 ín vaíue.
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173 6201.
( ) ppraísaí. € ” The offícer seízíng property of the type descríbed In subsectíon
(í) shaíí appraíse and set asíde to the owner the amount of such property
decíared to be e empt. If the ta payer ob|ects at the tíme of the seízure to the
TOta tíon fí ed by the offícer makíng the seízure, the Secretary or hís deíegate
staíí summon three dísínterested índívíduaís who shaíí make the vaíuatíon,
(c) So other property e empt. € ” Notwíthstandíng any other íaw of the Uníted
States, no property or ríghts to property shaíí be e empt from íevy other than
the property specífícaííy made e empt by subsectíon (a).
Sec. 301.633 -1. Property empt rom Levt. € ” (a) numeratíon. € ” There
shaíí be e empt from íevy € ”
(1) Wearíng appareí and schooí books. Such ítems of wearíng appareí and
such schooí books as are necessary for the ta payer or for members of hís
famííy. pensíve ítems of wearíng appareí, such as furs, whích are íu uríes
and are not necessary for the ta payer or for members of hís famííy, are not
e empt from íevy.
(2) ueí, provísíons, furníture, and personaí effects. € ” If the ta payer ís the
head of a famííy, so much of the fueí, provísíons, furníture, and personaí effects
ín hís househoíd, and of the arms for personaí use, íívestock, and pouítry of the
taíí ayer, as does not e ceed 500 ín vaíue.
(S) ooks and tooís of a trade, busíness, or professíon. € ” So many of the boobs
and tooís necessary for the trade, busíness, or professíon of the ta payer as do
not e ceed In the aggregate 250 ín vaíue.
(b) ppraísaí. € ” The Internaí revenue offícer seízíng property of the type
descríbed In sectíon 633 (a) shaíí appraíse and set asíde to the owner the
amount of such property decíared to be e empt. If the ta payer ob|ects at the
tíme of the seízure to the vaíuatíon fí ed by the offícer makíng the seízure, such
offícer shaíí summon three dísínterested índívíduaís who shaíí make the
vaíuatíon.
(c) No other property e empt. € ” No property or ríghts to property are e empt
from íevy other than the property specífícaííy e empted by sectíon 633 (a).
No provísíon of a State íaw may e empt property or ríghts to property from
íevy for the coííectíon of any ederaí ta . Thus, property e empt from e ecu-
tíon under State personaí or homestead e emptíon íaws ís, nevertheíess, sub|ect
to íevy by the Uníted States for coííectíon of íts ta es.
Sec. 301.6335. Statutory Provísíons Saíe of Seízed Peopebty.
Sec. 6335. Saíe of Seízed Property.
(a) Notíce of seízure. s soon as practícabíe after seízure of property, notíce
ín wrítíng shaíí be gíven by the Secretary or hís deíegate to the owner of the
property (or, ín the case of personaí property, the possessor thereof), or shaíí
be íeft at hís usuaí píace of abode or busíness íf he has such wíthín the ínternaí
revtnue dístríct where the seízure ís made. If the owner cannot be readííy
íocated, or has no dweíííng or píace of busíness wíthín such dístríct, the notíce
may be maííed to hís íast known address. Such notíce shaíí specífy the sum
demanded and shaíí contaín, ín the case of personaí property, an account of the
property seízed and, In the case of reaí property, a descríptíon wíth reasonabíe
certaínty of the property seízed.
(b) Notíce of saíe. € ” The Secretary or hís deíegate shaíí as soon as practícabíe
after the seízure of the property gíve notíce to the owner, ín the same manner
as that prescríbed ín subsectíon (a), and shaíí cause a notífícatíon to be pub-
ííshed In some newspaper wíthín the county whereín such seízure ís made, or,
íf there be no newspaper pubííshed ín such county, shaíí post such notíce at
the post offíce nearest the píace where the seízure ís made, and ín not íess
than two other pubííc píaces. Such notíce shaíí specífy the property to be soíd,
and the tíme, píace, manner, and condítíons of the saíe thereof. Whenever íevy
ís made wíthout regard to the 10-day períod províded ín sectíon 6331(a), pubííc
notíce of saíe of the property seízed shaíí not be made wíthín such 10-day períod
uníess sectíon 6336 (reíatíng to saíe of períshabíe goods) ís appíícabíe.
(c) aíe of índívísíbíe property. € ” If any property ííabíe to íevy Is not dívísíbíe,
k as to enabíe the Secretary or hís deíegate by saíe of a part thereof to raíse
the whoíe amount of the ta and e penses, the whoíe of such property shaíí
be soíd.
(d) Tíme and píace of saíe. € ” The tíme of saíe shaíí not be íess than 10 days
nor more than 0 days from the tíme of gívíng pubííc notíce under subsectíon
(b). The píace of saíe shaíí be wíthín the county ín whích the property ía
aeízed, e cept by specíaí order of the Secretary or hís deíegate.
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6201. 17
(e) Manner and condítíons of gaíe.
(1) Mínímum príce. € ” efore the saíe the Secretary or hís deíegate shaíí de-
termíne a mínímum príce for whích the property shaíí be soíd, and íf no
person offers for such property at the saíe, the amount of the mínímum príce,
the property shaíí be decíared to be purchased at such príce for the Uníted
States otherwíse the property shaíí be decíared to be soíd to the híghest bídder.
In determíníng the mínímum príce, the Secretary or hís deíegate shaíí take ínto
account the e pense of makíng the íevy and saíe.
(2) ddítíonaí ruíes appíícabíe to saíe. € ” The Secretary or hís deíegate shaíí
by reguíatíons prescríbe the manner and other condítíons of the saíe of prop-
erty seízed by íevy. If one or more aíternatíve methods or condítíons are per-
mítted by reguíatíons, the Secretary or hís deíegate shaíí seíect the aíterna-
tíves appíícabíe to the saíe. Such reguíatíons shaíí províde:
( ) That the saíe shaíí not be conducted In any manner other than € ”
(í) y pubííc auctíon, or
(íí) y pubííc saíe under seaíed bíds.
( ) In the case of the seízure of severaí Items of property, whether such
Items shaíí be offered separateíy, ín groups, or ín the aggregate and whether
such property shaíí be offered both separateíy (or ín groups) and ín the aggre-
gate, and soíd under whíchever method produces the híghest aggregate amount.
(C) Whether the announcement of the mínímum príce determíned by the
Secretary or hís deíegate may be deíayed untíí the receípt of the híghest bíd.
(D) Whether payment ín fuíí shaíí be requíred at the tíme of acceptance
of a bíd, or whether a part of such payment may be deferred for such períod
(not to e ceed 1 month) as may be determíned by the Secretary or hís deíegate
to be appropríate.
( ) The e tent to whích methods (íncíudíng advertísíng) ín addítíon to those
prescríbed ín subsectíon (b) may be used ín gívíng notíce of the saíe.
( ) Under what círcumstances the Secretary or hís deíegate may ad|ourn
the saíe from tíme to tíme (but such ad|ournments shaíí not be for a períod
to e ceed In aíí 1 month).
(3) Payment of amount bíd. € ” If payment ín fuíí Is requíred at the tíme of
acceptance of a bíd and ís not then and there paíd, the Secretary or hís deíegate
shaíí forthwíth proceed to agaín seíí the property ín the manner províded ín
thís subsectíon. If the condítíons of the saíe permít part of the payment to be
deferred, and íf such part ís not paíd wíthín the prescríbed períod, suít may be
Instítuted agaínst the purchaser for the purchase príce or such part thereof as
has not been paíd, together wíth ínterest at the rate of 6 percent per annum
from the date of the saíe or, ín the díscretíon of the Secretary or hís deíegate,
the saíe may be decíared by the Secretary or hís deíegate to be nuíí and voíd
for faííure to make fuíí payment of the purchase príce and the property may
agaín be advertísed and soíd as províded ín subsectíons (b) and (c) and thís
subsectíon. In the event of such readvertísement and saíe any new purchaser
shaíí receíve such property or ríghts to property, free and cíear of any cíaím
or ríght of the former defauítíng purchaser, of any nature whatsoever, and the
amount paíd upon the bíd príce by such defauítíng purchaser shaíí be forfeíted.
(f) Stay of saíe of seízed property pendíng Ta Court decísíon. € ” or re-
stríctíons on saíe of seízed property pendíng Ta Court decísíon, see sectíon
0803(b)(3).
Sec. 301.C335-1.1 Saíe of Seízeo Property. € ” (a) Notíce of seízure. € ” s soon
as practícabíe after seízure of property, the ínternaí revenue offícer seízíng the
property shaíí gíve notíce ín wrítíng to the owner of the property (or, ín the
case of personaí property, to the possessor thereof). The wrítten notíce shaíí
be deíívered to the owner (or to the possessor, ín the case of personaí property)
or íeft at hís usuaí píace of abode or busíness íf he has such wíthín the Internaí
revenue dístríct where the seízure ís made. If the owner cannot be readííy
íocated, or has no dweíííng or píace of busíness wíthín such dístríct, the notíce
may be maííed to hís íast known address. Such notíce shaíí specífy the sum
demanded and shaíí contaín. In the case of personaí property, a ííst suffícíent
to ídentífy the property seízed and, ín the case of reaí property, a descríptíon
wíth reasonabíe certaínty of the property seízed.
(b) Notíce of saíe. € ” (1) s soon as practícabíe after seízure of the property,
the Dístríct Dírector shaíí gíve notíce of saíe ín wrítíng to the owner. Such
notíce shaíí be deíívered to the owner or íeft at hís usuaí píace of abode or
1 Thís sectíon has the effect of supersedíng Commíssíoner s Reorganízatíon Order No. 33,
C. . 195 -2. 73 .
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175 6201.
busíness íf be has such, -wíthín the ínternaí revenue dístríct where the seízure
Is made. If the owner cannot be readííy íocated, or has no dweíííng or píace of
busíness wíthín such dístríct, the notíce may be maííed to hís íast known address.
íe notíce shaíí specífy the property to be soíd, and the tíme, píace, manner, and
condítíons of the saíe thereof, and shaíí e pressíy state that oníy the ríght,
títíe, and ínterest of the deíínquent ta payer ín and to such property ís to be
offered for saíe. The notíce shaíí aíso be pubííshed ín some newspaper wíthín
the county -whereín such seízure ís made. owever, íf there ís no newspaper
pubííshed ín such county, such notíce shaíí be posted at the post offíce nearest
the píace where the seízure ís made, and ín not íess than two other pubííc píaces.
(2) The dístríct dírector may use other methods of gívíng notíce of saíe
and of advertísíng seízed property ín addítíon to those referred to ín subpara-
graph (1) when he beííeves that the nature of the property to be soíd ís such
that a wíder or more specíaíízed advertísíng coverage wííí enhance the possí-
bíííty of obtaíníng a hígher príce for the property.
(3) Whenever íevy ís made wíthout regard to the 10-day períod províded ín
sectíon 6331(a) (reíatíng to cases ín whích coííectíon ís ín eopardy), a pubííc
notíce of saíe of the property seízed shaíí not be made wíthín such 10-day períod
uníess sectíon 6336 (reíatíng to períshabíe goods) ís appíícabíe.
(c) Tíme, píace, manner, and condítíons of saíe. € ” The tíme, píace, manner,
and condítíons of the saíe of property seízed by íevy shaíí be as foííows:
(1) Tíme and píace of saíe. € ” The tíme of saíe shaíí not be íess than 10 days
nor more than 0 days from the tíme of gívíng pubííc notíce under sectíon
6335(b) (see par. (b) of thís sectíon). The píace of saíe shaíí be wíthín the
county ín whích the property ís seízed, e cept that íf ít appears to the Dístríct
Dírector under whose supervísíon the seízure was made that substantíaííy
hígher bíds may be obtaíned for the property íf the saíe ís heíd at a píace
outsíde such county, he may order that the saíe be heíd ín such other píace.
The saíe shaíí be heíd at the tíme and píace stated In the notíce of saíe.
(2) d|ournment of saíe. € ” When ít appears to the Dístríct Dírector that an
ad|ournment of the saíe wííí best serve the Interest of the Uníted States or that
of the ta payer, the Dístríct Dírector may ad|ourn, or cause the ínternaí revenue
offícer conductíng the saíe to ad|ourn, the saíe from tíme to tíme, but the date
of the saíe shaíí not be íater than one month after the date fí ed ín the orígínaí
notíce of saíe.
( 3) Mínímum príce. € ” The Dístríct Dírector shaíí determíne a mínímum príce,
takíng ínto account the e penses of íevy and saíe, for whích the property shaíí be
– oíd. If no person offers for such property at the saíe the amount of the míní-
mum príce, the property shaíí be decíared purchased at such príce for the Uníted
States otherwíse, the property shaíí be decíared to be soíd to the híghest
bídder. The ínternaí revenue offícer conductíng the saíe shaíí eíther announce
the mínímum príce before the saíe begíns or defer announcement of the míní-
mum príce untíí after the receípt of the híghest bíd, and, íf the híghest bíd ís
greater than the mínímum príce, no announcement of the mínímum príce shaíí
be made.
( ) Offeríng of property € ” (1) Saíe of índívísíbíe property. € ” If any property
íevíed upon ís not dívísíbíe, so as to enabíe the Dístríct Dírector by saíe of a part
thereof to raíse the whoíe amount of the ta and e penses of íevy and saíe, the
whoíe of such property shaíí be soíd. or appíícatíon of surpíus proceeds of
aaíe. see sectíon 63 2(b).
(íí) Separateíy, ín groups, or ín the aggregate. € ” The seízed property may be
offered for sate € ”
(a) s separate Items, or
(6) s groups of Items, or
(c) In the aggregate, or
(d) oth as separate Items (or In groups) and ín the aggregate. In such
cases, the property shaíí be soíd under the method whích produces the híghest
aggregate amount.
The Dístríct Dírector shaíí seíect whíchever of the foregoíng methods of of-
feríng the property for saíe as, ín hís opíníon, ís most feasíbíe under aíí the
facts and círcumstances of the case, e cept that íf the property to be soíd ín-
cíudes both reaí and personaí property, oníy the personaí property may be
grouped for the purpose of offeríng such property for saíe. owever, reaí and
personaí property may be offered for saíe In the aggregate, províded the reaí
property, as separate ítems, and the personaí property as a group, or as groups,
or as separate ítems, are fírst offered separateíy.
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6201. 176
(111) Condítíon of títíe and of property. € ” Oníy the ríght, títíe, and Interest
of the deíínquent ta payer ín and to the property seízed shaíí be offered for saíe,
and such ínterest shaíí be offered sub|ect to any príor outstandíng mortgages, en-
cumbrances, or other ííens ín favor of thírd partíes whích are vaííd as agaínst
the deíínquent ta payer and are superíor to the ííen of the Uníted States. íí
seízed property shaíí be offered for saíe as ís and where Is and wíthout re-
course agaínst the Uníted States. No guaranty or warranty, e press or ím-
pííed, shaíí be made by the Internaí revenue offícer offeríng the property for saíe,
as to the vaíídíty of the títíe, quaííty, quantíty, weíght, síze, or condítíon of any
of the property, or íts fítness for any use or purpose. No cíaím shaíí be con-
sídered for aííowance or ad|ustment or for rescíssíon of the saíe based upon
faííure of the property to conform wíth any representatíon, e press or ímpííed.
(ív) Terms of payment. € ” The property shaíí be offered for saíe upon whích-
ever of the foííowíng terms ís fí ed by the Dístríct Dírector ín the pubííc notíce of
saíe:
(a) Payment ín fuíí upon acceptance of the híghest bíd, wíthout regard to the
amount of such bíd, or
(6) If the aggregate príce of aíí property purchased by a successfuí bídder at
the saíe ís more than 200, an ínítíaí payment of 200 or 20 percent of the pur-
chase príce, whíchever ís the greater, and payment of the baíance (Incíudíng
aíí costs íncurred for the protectíon or preservatíon of the property subsequent
to the saíe and príor to fínaí payment) wíthín a specífíed períod, not to e ceed
one month from the date of the saíe.
(5) Method of taíe. € ” The Dístríct Dírector shaíí seíí the property eíther € ”
(í) t pubííc auctíon, at whích open competítíve bíds shaíí be receíved, or
(íí) t pubííc saíe under seaíed bíds. The foííowíng ruíes, In addítíon to the
other ruíes províded ín thís paragraph, shaíí be appíícabíe to pubííc saíe under
seaíed bíds:
(a) Invítatíon to bídders. € ” íds shaíí be soíícíted through a pubííc notíce of
saíe.
(6) orm for use by bídders. € ” bíd shaíí be submítted on a form whích wííí
furníshed by the Dístríct Dírector upon request. The form shaíí be compíeted
ín accordance wíth the ínstructíons thereon.
(c) Remíttance wíth bíd. € ” If the totaí bíd ís 200 or íess, the fuíí amount of
the bíd shaíí be submítted therewíth. If the totaí bíd ís more than 200, 20 per-
cent of such bíd or 200, whíchever ís greater, shaíí be submítted therewíth.
(In the case of aíternatíve bíds submítted by the same bídder for ítems of
property offered separateíy, or ín groups, or ín the aggregate, the bídder shaíí
remít the fuíí amount of the híghest aíternatíve bíd submítted, íf that bíd Is
200 or íess. If the híghest aíternatíve bíd submítted ís more than 200, the
bídder shaíí remít 20 percent of the híghest aíternatíve bíd or 200, whíchever
Is greater.) Such remíttance shaíí be by a certífíed, cashíer s or treasurer s
check drawn on any bank or trust company Incorporated under the íaws of the
Uníted States or under the íaws of any State, Terrítory, or possessíon of the
.Uníted States, or by a Uníted States postaí, bank, e press, or teíegraph money
order.
(d) Tíme for receívíng and openíng bíds. € ” ach bíd shaíí be submítted ín a
secureíy seaíed enveíope. The bídder shaíí índícate ín the upper íeft hand corner
of the enveíope hís name and address and the tíme and píace of saíe as announced
ín the pubííc notíce of saíe. bíd wííí not be consídered uníess ít ís receíved
by the ínternaí revenue offícer conductíng the saíe príor to the openíng of the
bíds. The bíds wííí be opened at the tíme and píace stated ín the notíce of
saíe, or at the tíme fí ed ín the announcement of the ad|ournment of the saíe.
(e) Consíderatíon of bíds. € ” The pubííc notíce of saíe shaíí specífy whether
the property ís to be soíd separateíy, by groups, or ín the aggregate or by a
combínatíon of these methods, as províded ín subparagraph ( ) (íí) of thís para-
graph. If the notíce specífíes an aíternatíve method, bídders may submít bíds
under one or more of the aíternatíves. In case of error ín the e tensíon of
príces ín any bíd, the unít príce wííí govern. The ínternaí revenue offícer con-
ductíng the saíe shaíí have the ríght to waíve any technícaí defects ín a bíd.
In the event two or more híghest bíds are equaí ín amount, the ínternaí revenue
offícer conductíng the saíe shaíí determíne the successfuí bídder by drawíng íots.
fter the openíng, e amínatíon, and consíderatíon of aíí bíds, the ínternaí reve-
nue offícer conductíng the saíe shaíí announce the amount of the híghest bíd
or bíds and the name of the successfuí bídder or bídders. ny remíttance sub-
mítted ín connectíon wíth an unsuccessfuí bíd shaíí be returned at the concíusíon
of the saíe.
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177 6201.
(/) Wtthdraícoí o/ bíds. € ” bíd may be wíthdrawn on wrítten or teíegraphíc
rcqnest receíved from the bídder príor to the tíme fí ed for openíng the bíds.
technícaí defect ín a bíd confers no ríght on the bídder for the wíthdrawaí of
íís bíd after ít bas been opened.
(6) Payment of bíd príce. € ” íí payments for property soíd under thís sectíon
– haíí be made by cash or by a certífíed, cashíer s, or treasurer s check drawn on
uy bant or trust company íncorporated under the íaws of the Uníted States or
under the íaws of any State, Terrítory, or possessíon of the Uníted States, or
by a Uníted States postaí, bank, e press, or teíegraph money order. If pay-
ment ín fuíí ís requíred upon acceptance of the híghest bíd, the payment shaíí
be made at such tíme. If deferred payment ís permítted, the ínítíaí payment
shaíí be made upon acceptance of the bíd, and the baíance shaíí be paíd on or
before the date fí ed for payment thereof. ny remíttance submítted wíth a
raeeessfuí seaíed bíd sbaíí be appííed toward the purchase príce.
(7) Deíívery and removaí of personaí property. € ” Responsíbíííty of the Uníted
States for the protectíon or preservatíon of seízed personaí property shaíí cease
ímmedíateíy upon acceptance of the híghest bíd. The rísk of íoss ís on the
purchaser of personaí property upon acceptance of hís bíd. Possessíon of any
personaí property shaíí not be deíívered to the purchaser untíí the purchase príce
has been paíd ín fuíí. If payment of part of the purchase príce for personaí
property ís deferred, the Uníted States wííí retaín possessíon of such property
as securíty for the payment of the baíance of the purchase príce and, as agent
for the purchaser, wííí cause the property to be cared for untíí the purchase
príce has been paíd ín fuíí or the saíe Is decíared nuíí and voíd for faííure to
make fuíí payment of the purchase príce. In such case, aíí charges and e penses
íncurred ín caríng for the property after the acceptance of the bíd shaíí be
borne by the purchaser.
(8) Defauít ín payment. € ” If payment ín fuíí Is requíred upon acceptance of
the bíd and ís not then and there paíd, the ínternaí revenue offícer conductíng
the saíe shaíí forthwíth proceed agaín to seíí the property ín the manner pro-
Tíded ín sectíon 6335(e) and the reguíatíons thereunder. If the condítíons of
the saíe permít part of the payment to be deferred, and such part ís not paíd
wíthín the prescríbed períod, suít may be ínstítuted agaínst the purchaser for
the purchase príce or such part thereof as has not been paíd, together wíth
ínterest at the rate of 6 percent per annum from the date of the saíe or, ín the
díscretíon of the Dístríct Dírector, the saíe may be decíared by the Dístríct
Dírector to be nuíí and voíd for faííure to make fuíí payment of the purchase
príce and the property may agaín be advertísed and soíd as províded ín sub-
sectíons (b), (c), and (e) of sectíon 6335 and the reguíatíons thereunder. In
the event of such readvertísement and saíe, any new purchaser shaíí receíve such
pro íerty or ríghts to property free and cíear of any cíaím or ríght of the former
defauítíng purchaser, of any nature whatsoever, and the amount paíd upon
the bíd príce by such defauítíng purchaser shaíí be forfeíted to the Uníted
States.
(9) Stay of taíe of seízed property pendíng Ta Court decísíon. € ” or restríc-
tíons on saíe of seízed property pendíng Ta Court decísíon, see sectíon 6803(b)
(3) and the reguíatíons thereunder.
Sec. 301.6336. Statutory Provísíons Saíe of Períshabíe Goods.
Sec. 6336. Saíe or períshabíe goods.
If the Secretary or hís deíegate determínes that any property seízed ís ííabíe
to perísh or become greatíy reduced ín príce or vaíue by keepíng, or that such
property cannot be kept wíthout great e pense, he shaíí appraíse the vaíue of
such property and € ”
(1) Return to owner. € ” If the owner of the property can be readííy found, the
Secretary or hís deíegate shaíí gíve hím notíce of such determínatíon of the
appraísed vaíue of the property. The property shaíí be returned to the owner íf,
wíthín such tíme as may be specífíed ín the notíce, the owner € ”
( ) Pays to the Secretary or hís deíegate an amount equaí to the appraísed
vaíue, or
( ) Gíves bond ín such form, wíth such suretíes, and ín such amount as the
Secretary or hís deíegate shaíí prescríbe, to pay the appraísed amount at such
hme as the Secretary or hís deíegate determínes to be appropríate ín the
dreumstances.
(2) Immedíate saíe. If the owner does not pay such amount or furnísh such
bond ín accordance wíth thís sectíon, the Secretary or hís deíegate shaíí as soon
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I 6201. 178
as practícabíe make pubííc saíe of the property ín accordance wíth such reguía-
tíons as may be prescríbed by the Secretary or hís deíegate.
Sec. 301.6336-1. Saíe or Pebíshabíe Goods € ” (a) ppraísaí of certaín seízed
property. € ” If the Dístríct Dírector determínes that any property seízed by íevy ís
ííabíe to perísh or become greatíy reduced ín príce or vaíue by keepíng, or that
such property cannot be kept wíthout great e pense, he shaíí appraíse the
vaíue of such property and return ít to the owner íf the owner compííes wíth
the condítíons prescríbed ín paragraph (b) of thís sectíon or, íf the owner does
not compíy wíth such condítíons, díspose of the property In accordance wíth
paragraph (c) of thís sectíon.
(b) Return to o ener. € ” If the owner of the property can be readííy found,
the dístríct dírector shaíí gíve hím wrítten notíce of hís determínatíon of the
appraísed vaíue of the property. owever, íf the Dístríct Dírector determínes
that the círcumstances requíre ímmedíate actíon, he may gíve the owner an oraí
notíce of hís determínatíon of the appraísed vaíue of the property, whích notíce
shaíí be confírmed ín wrítíng príor to saíe. The property shaíí be returned to
the owner íf, wíthín the tíme specífíed ín the notíce, the owner € ”
(1) Pays to the Dístríct Dírector an amount equaí to the appraísed vaíue, or
(2) Gíves an acceptabíe bond as prescríbed by sectíon 7101 and the reguía-
tíons thereunder. Such bond shaíí be ín an amount not íess than the appraísed
vaíue of the property and shaíí be condítíoned upon the payment of such amount
at such tíme as the Dístríct Dírector determínes to be appropríate ín the
círcumstances.
(c) Immedíate saíe. € ” If the owner does not pay the amount of the appraísed
vaíue of the seízed property wíthín the tíme specífíed ín the notíce, or furnísh
bond as províded ín paragraph (b) wíthín such tíme, the Dístríct Dírector shaíí
as soon as practícabíe make pubííc saíe of the property In accordance wíth the
foííowíng terms and condítíons € ”
(1) Notíce of saíe. € ” If the owner can readííy be found, a notíce shaíí be gíven
to hím. notíce of saíe aíso shaíí be posted ín two pubííc píaces ín the county
ín whích the property ís to be soíd. The notíce shaíí specífy the tíme and píace
of saíe, the property to be soíd, and the manner and condítíons of saíe. The
Dístríct Dírector may gíve such other notíce and In such other manner as he
deems advísabíe under the círcumstances.
(2) Saíe. € ” The property shaíí be soíd at pubííc auctíon to the híghest bídder.
(3) Terms. € ” The purchase príce shaíí be paíd ín fuíí upon acceptance of the
híghest bíd. The payment shaíí be made ín cash, or by a certífíed, cashíer s, or
treasurer s check drawn on any bank or trust company Incorporated under the
íaws of the Uníted States or under the íaws of any State, Terrítory, or posses-
síon of the Uníted States, or by a Uníted States postaí, bank, e press, or teíegraph
money order.
Sec. 301.6337. Statutory Provísíons Redemptíon or Property.
Sec. 6337. Redemptíon of property.
(a) efore saíe. € ” ny person whose property has been íevíed upon shaíí have
the ríght to pay the amount due, together wíth the e penses of the proceedíng,
íf any, to the Secretary or hís deíegate at any tíme príor to the saíe thereof,
and upon such payment the Secretary or hís deíegate shaíí restore such property
to hím, and aíí further proceedíngs ín connectíon wíth the íevy on such property
shaíí cease from the tíme of such payment.
(I)) Redemptíon of reaí estate after saíe.
(1) Períod. € ” The owners of any reaí property soíd as províded ín sectíon
6335, theír heírs, e ecutors, or admínístrators, or any person havíng any ínterest
thereín, or a ííen thereon, or any person ín theír behaíf, shaíí be permítted to
redeem the property soíd, or any partícuíar tract of such property, at any tíme
wíthín 1 year after the saíe theerof.
(2) Príce € ” Such property or tract of property shaíí be permítted to be re-
deemed upon payment to the purchaser, or In case he cannot be found ín the
county ín whích the property to be redeemed Is sítuated, then to the Secretary or
hís deíegate, for the use of the purchaser, hís heírs, or assígns, the amount paíd
by such purchaser and Interest thereon at the rate of 20 percent per annum.
(c) Record. € ” When any íands soíd are redeemed as províded In thís sectíon,
the Secretary or hís deíegate shaíí cause entry of the fact to be made upon the
record mentíoned ín sectíon 63 0, and such entry shaíí be evídence of such
redemptíon.
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179 6201.
Sre. 301.6337 € ” 1. Redumptíon of Property € ” (a) efore saíe. € ” ny person
whose property has been íevíed upon shaíí have the ríght to pay the amount due,
together wíth costs and e penses of the proceedíng, íf any, to the Dístríct Dírector
ít any tíme príor to the saíe of the property. Upon such payment the Dístríct
Dírector shaíí restore such property to the owner and aíí further proceedíngs ín
connectíon wíth the íevy on such property shaíí cease from the tíme of such
payment.
(b) Redemptíon of reaí estate after saíe € ” (1) Períod. € ” The owner of any
reaí estate soíd as províded ín sectíon 6335, hís heírs, e ecutors, or admínístra-
tors, or any person havíng any ínterest thereín, or a ííen thereon, or any person
ín theír behaíf, shaíí be permítted to redeem the property soíd, or any partícuíar
tract of such property, at any tíme wíthín one year after the saíe thereof.
(2) Príce. € ” Such property or tract of property may be redeemed upon pay-
ment to the purchaser, or ín case he cannot be found In the county ín whích
the property to be redeemed ís sítuated, then to the Dístríct Dírector for the
ínternaí revenue dístríct In whích the property ís sítuated, for the use of the
purchaser, hís heírs, or assígns, the amount paíd by such purchaser and ínterest
thereon at the rate of 20 percent per annum. In case reaí and personaí property
(or severaí tracts of reaí property) are purchased ín the aggregate, the redemp-
tíon príce of Uíe reaí property (or of each of the severaí tracts) shaíí be deter-
míned on the basís of the ratío, as of the tíme of saíe, of the vaíue of the reaí
property (or tract) to the vaíue of the totaí property purchased. or thís purpose
the mínímum príce or the híghest bíd príce, whíchever ís hígher, offered for the
property separateíy or ín groups shaíí be treated as the vaíue.
(c) Record. € ” When any reaí property ís redeemed, the Dístríct Dírector shaíí
cause entry of the fact to be made upon the record of saíe kept ín accordance
wíth sectíon 63 0, and such entry shaíí be evídence of such redemptíon. The
party who redeems the property shaíí notífy the Dístríct Dírector of the ínternaí
revenue dístríct ín whích the property ís sítuated of the date of such redemptíon
and of the transfer of the certífícate of saíe, the amount of the redemptíon príce,
an-í the nama of the party to whom such redemptíon príce was paíd.
Sec. 301.6338. Statutory Provísíons Certífícate of Saíe Deed of Reaí
Pbofektt.
Sec 6338. Certífícate of Saíe Deed of Reaí Property.
(a) Certífícate of saíe. € ” In the case of property soíd as províded ín sectíon
6335, the Secretary or hís deíegate shaíí gíve to the purchaser a certífícate of
saíe upon payment ín fuíí of the purchase príce. In the case of reaí property,
each certífícate shaíí set forth the reaí property purchased, for whose ta es the
same was soíd, the name of the purchaser, and the príce paíd therefor.
(b) Deed to reaí property. € ” In the case of any reaí property soíd as províded
In sectíon 6335 and not redeemed ín the manner and wíthín the tíme províded ín
sectíon 6337, the Secretary or hís deíegate shaíí e ecute (ín accordance wíth the
íaws of the State ín whích such reaí property ís sítuated pertaíníng to saíes of
reaí property under e ecutíon) to the purchaser of such reaí property at such
saíe, upon hís surrender of the certífícate of saíe, a deed of the reaí property so
purchased by hím, recítíng the facts set forth ín the certífícate.
(c) Reaí property purchased oy Uníted States. € ” If reaí property ís decíared
purchased by the Uníted States at a saíe pursuant to sectíon 6335, the Secretary
or hís deíegate shaíí at the proper tíme e ecute a deed therefor after íts prepara-
tíon and the endorsement of approvaí as to íts form by the Uníted States dístríct
attorney for the dístríct In whích the property ís sítuated, and the Secretary or
hís deíegate shaíí, wíthout deíay, cause the deed to be duíy recorded ín the proper
regístry of deeds.
S c. 301.6338-1. Certífícate of Saíe Deed of Reaí Property € ” (a) Certífícate
of saíe. In the case of property soíd as províded ín sectíon 6335 (reíatíng to
saíe of seízed property), the Dístríct Dírector shaíí gíve to the purchaser a
certífícate of saíe upon payment ín fuíí of the purchase príce. certífícate of
saíe of reaí property shaíí set forth the reaí property purchased, for whose ta es
the same was soíd, the name of the purchaser, and the príce paíd therefor.
(b) Deed to reaí property In the case of any reaí property soíd as províded
In sectíon 6335 and not redeemed In the manner and wíthín the tíme prescríbed
In sectíon 6337, the Dístríct Dírector shaíí e ecute (In accordance wíth the íaws
of the State ín whích the reaí property Is sítuated pertaíníng to saíes of reaí
property under e ecutíon) to the purchaser of such reaí property at the saíe or
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6201. 180
hís assígns, upon surrender of the certífícate of saíe, a deed of the reaí property
so purchased, recítíng the facts set forth ín the certífícate.
(c) Deed to reaí property purchased by the Uníted States. € ” If reaí property
ís decíared purchased by the Uníted States at a saíe pursuant to sectíon 6335,
the Dístríct Dírector shaíí at the proper tíme e ecute a deed therefor after íts
preparatíon and the endorsement of approvaí as to the form by the Uníted States
dístríct attorney for the dístríct ín whích the property ís sítuated, and the
Dístríct Dírector shaíí, wíthout deíay, cause the deed to be duíy recorded ín the
proper regístry of deeds.
Sec. 301.6339. Statutory Provísíons Legaí ffect of Certífícate of Saíe
of Personaí Property and Deed of Reaí Property.
Sec 6339. Legaí effect of certífícate of saíe of personaí property and
deed of reaí property.
(a) Certífícate of saíe of property other than reaí property. € ” In aíí cases of
saíe pursuant to sectíon 6335 of property (other than reaí property), the certífí-
cate of such saíe € ”
(1) s evídence. € ” Shaíí be príma facíe evídence of the ríght of the offícer to
make such saíe, and concíusíve evídence of the reguíaríty of hís proceedíngs ín
makíng the saíe and
(2) s conveyances. € ” Shaíí transfer to the purchaser aíí ríght, títíe, and
ínterest of the party deíínquent ín and to the property soíd and
(3) s authoríty for transfer of corporate stock. € ” If such property consísts of
stocks, shaíí be notíce, when receíved, to any corporatíon, company, or assocíatíon
of such transfer, and shaíí be authoríty to such corporatíon, company, or assocía-
tíon to record the transfer on íts books and records ín the same manner as íf the
stocks were transferred or assígned by the party hoídíng the same, In ííeu of
any orígínaí or príor certífícate, whích shaíí be voíd, whether canceíed or not
and
( ) s receípts. € ” If the sub|ect of saíe ís securítíes or other evídences of debt,
shaíí be a good and vaííd receípt to the person hoídíng the same, as agaínst any
person hoídíng or cíaímíng to hoíd possessíon of such securítíes or other evídences
of debt and
(5) s authoríty for transfer of títíe to motor vehícíe. € ” If such property
consísts of a motor vehícíe, shaíí be notíce, when receíved, to any pubííc offícíaí
charged wíth the regístratíon of títíe to motor vehícíes, of such transfer and
shaíí be authoríty to such offícaí to record the transfer on hís books and records
ín the same manner as íf the certífícate of títíe to such motor vehícíe were
transferred or assígned by the party hoídíng the same, ín ííeu of any orígínaí
or príor certífícate, whích shaíí be voíd, whether canceíed or not.
(b) Deed of reaí property. € ” In the case of the saíe of reaí property pursuant
to sectíon 6335 € ”
(1) Deed as evídence. € ” The deed of saíe gíven pursuant to sectíon 6338 shaíí
be príma facíe evídence of the facts thereín stated and
(2) Deed of conveyance of títíe. € ” If the proceedíngs of the Secretary or hís
deíegate as set forth have been substantíaííy ín accordance wíth the provísíons
of íaw, such deed shaíí be consídered and operate as a conveyance of aíí the
ríght, títíe, and ínterest the party deíínquent had ín and to the reaí property thus
soíd at the tíme the ííen of the Uníted States attached thereo.
Sec. 301.0339-1. Legaí ffect of Certífícate of Saíe of Personaí Property
and Deed of Reaí Property € ” (a) Certífícate of saíe of property other than reaí
property. In aíí cases of saíe pursuant to sectíon 633 of property (other than
reaí property), the certífícate of such saíe € ”
(1) s evídence. € ” Shaíí be príma facíe evídence of the ríght of the offícer to
make such saíe, and concíusíve evídence of the reguíaríty of hís proceedíngs ín
makíng the saíe and
(2) s conveyance. € ” Shaíí transfer to the purchaser aíí ríght, títíe, and ínterest
of the party deíínquent ín and to the property soíd and
(3) s authoríty for transfer of corporate stock. € ” If such property consísts
of corporate stocks, shaíí be notíce, when receíved, to any corporatíon, company,
or assocíatíon of such transfer, and shaíí be authoríty to such corporatíon, com-
pany, or assocíatíon to record the transfer on íts books and records ín tíe same
manner as íf the stocks were transferred or assígned by the party hoídíng the
stock certífícate, ín ííeu of any orígínaí or príor certífícate, whích shaíí be voíd,
whether canceíed or not and
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181 f 6201.
( ) ít receípt . € ” If the sub|ect of saíe Is securítíes or other evídences of debt,
shaíí be a good and vaííd receípt to the person hoídíng the certífícate of saíe as
ípínst any person hoídíng or cíaímíng to hoíd possessíon of such securítíes or
otter evídences of debt and
(5) authoríty for transfer of títíe to motor vehícíe. € ” If such property con-
íísts of a motor vehícíe, shaíí be notíce, when receíved, to any pubííc offícíaí
charged wíth the regístratíon of títíe to motor vehícíes, of such transfer and shaíí
be authoríty to sach offícíaí to record the transfer on hís books and records ín
the same manner as íf the certífícate of -Itíe to such motor vehícíe were trans-
ferred or assígned by the party hoídíng the certífícate of títíe. In ííeu of any
orígínaí or príor certífícate, whích shaíí be nuíí and voíd, whether canceíed or
DOt.
(b) Deed to reaí property. € ” In the case of the saíe of reaí property pursuant
to sectíon 6:535 € ”
(1) Deed as evídence. € ” The deed of saíe gíven pursuant to sectíon 6338 shaíí
be príma facíe evídence of the facts thereín stated and
(2) Deed as conveyance of títíe. € ” If the proceedíngs of the Dístríct Dírector
as set forth have been substantíaííy In accordance wíth the provísíons of íaw,
rach deed shaíí be consídered and operate as a conveyance of aíí the ríght, títíe,
and ínterest the party deíínquent had In and to the reaí property thus soíd at the
tíme the ííen of the Uníted States attached thereto.
S c. 301.63 0. Statutory Provísíons ecobds of Saíe.
Sec. 63 0. ecobds of saíe.
(a) Requírement. € ” The Secretary or hís deíegate shaíí, for each Internaí
revenue dístríct, keep a record of aíí saíes of reaí property under sectíon 6335
and of redemptíons of such property. The record shaíí set forth the ta for
whích any such saíe was made, the dates of seízure and saíe, the name of the
party assessed and aíí proceedíngs ín makíng such saíe, the amount of e penses,
the names of the purchasers, and the date of the deed.
(b) Copy as evídence. € ” copy of such record, or any part thereof, certífíed
by the Secretary or hís deíegate shaíí be evídence In any court of the truth
of the facts thereín stated.
Sec. 301.63 0-1. Records of Saíe € ” (a) Requírement. € ” Such Dístríct Dírector
shaíí keep a record of aíí saíes under sectíon 6335 of reaí property sítuated wíthín
hís dístríct and of redemptíons of such property. The records shaíí set forth
ííí the ta for whích any such saíe was made, the dates of seízure and saíe,
the name of the party assessed and aíí proceedíngs ín makíng such saíe, the
amount of e penses, the names of the purchasers, the date of the deed, and, ín
the case of redemptíon of the property, (2) the date of such redemptíon and
of the transfer of the certífícate of saíe, the amount of the redemptíon príce,
and the name of the party to whom such redemptíon príce was paíd.
(b) Copy as evídence. € ” copy of such record, or any part thereof, certífíed
by the Dístríct Dírector shaíí be evídence ín any court of the truth of the facts
thereín stated.
Sec. 301.63 1. Statutory. Provísíons pense of Levy and Saíe.
Síc. 63 1. pense of íevy and saíe.
The Secretary or hís deíegate shaíí determíne the e penses to be aííowed ín
aíí cases of íevy and saíe.
Sec. 301.63 1-1. pense of Levy and Saíe. The Dístríct Dírector shaíí
determíne the e penses to be aííowed In aíí cases of íevy and saíe. Such e penses
shaíí íncíude the e penses of protectíon and preservatíon of the property duríng
the períod subsequent to the íevy, as weíí as the actuaí e penses íncurred ín
connectíon wíth the saíe thereof. In case reaí and personaí property (or severaí
tracts of reaí property) are soíd ín the aggregate, the Dístríct Dírector shaíí
properíy apportíon the e penses to the reaí property (or to each tract).
Src. 301.63 2. Statutohy Provísíons ppíícatíon of Proceeds of Levy,
Sec. 63 2. ppíícatíon of proceeds of íevy.
(a) Coííectíon of ííabíííty. € ” ny money reaíízed by proceedíngs under thís
fvbehapter (whether by seízure, by surrender under sectíon 6332, or by saíe of
– eked property) shaíí be appííed as foííows:
(1) pense of íevy and saíe. € ” írst, agaínst the e penses of the proceedíngs
under thís subchapter
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I 6201.1 182
(2) Specífíc ta ííabíííty on seízed property. € ” If the property seízed and soíd
ís sub|ect to a ta ímposed by any ínternaí revenue íaw whíeh has not been
paíd, the amount remaíníng after appíyíng paragraph (1) shaíí then be appííed
agaínst such ta ííabíííty (and, íf such ta was not prevíousíy assessed, ít shaíí
then be assessed)
(3) Líabíííty of deíínquent ta payer. € ” The amount, íf any, remaíníng after
appíyíng paragraphs (1) and (2) shaíí then be appííed agaínst the ííabíííty ín
respect of whích the íevy was made.
(b) Surpíus proceeds. € ” ny surpíus proceeds remaíníng after the appíícatíon
of subsectíon (a) shaíí, upon appíícatíon and satísfactory proof ín support there-
of, be credíted or refunded by the Secretary or hís deíegate to the person or
persons íegaííy entítíed thereto.
Sec. 301.63 2-1. ppíícatíon of Proceeds of Levy € ” (a) Coííectíon of ííabíí-
íty. € ” ny money reaíízed by proceedíngs under subchapter D of chapter 6 of
the Internaí Revenue Code (whether by seízure, by surrender under sec. 6332,
or by saíe of seízed property), shaíí be appííed as foííows:
(1) pense of íevy and saíe. € ” írst, agaínst the e penses of the proceedíngs
as aííowabíe under sectíon 63 1
(2) Specífíc ta ííabíííty on seízed property. € ” If the property seízed and soíd
ís sub|ect to a ta Imposed by any ínternaí revenue íaw whích has not been
paíd, the amount remaíníng after appíyíng subparagraph (1) shaíí then be
appííed agaínst such ta ííabíííty (and, íf such ta was not prevíousíy assessed,
ít shaíí then be assessed)
(3) Líabíííty of deíínquent ta payer. € ” The amount, íf any, remaíníng after
appíyíng subparagraphs (1) and (2) of thís paragraph shaíí then be appííed
agaínst the ííabíííty ín respect of whích the íevy was made.
(b) Surpíus proceeds. € ” ny surpíus proceeds remaíníng after the appíícatíon
of paragraph (a) of thís sectíon shaíí, upon appíícatíon and satísfactory proof
ín support thereof, be credíted, or refunded by the Dístríct Dírector to the
person or persons íegaííy entítíed thereto. The deíínquent ta payer ís the
person entítíed to the surpíus proceeds uníess another person estabííshes a
superíor cíaím thereto.
Sec. 301.63 3. Statutory Provísíons uthoríty to Reíease Levy.
Sec 63 3. uthoríty tc reíease íevy.
It shaíí he íawfuí for the Secretary or hís deíegate, under reguíatíons pre-
scríbed by the Secretary or hís deíegate, to reíease the íevy upon aíí or part
of the property or ríghts to property íevíed upon where the Secretary or hís
deíegate determínes that such actíon wííí facííítate the coííectíon of the ííabíííty,
but such reíease shaíí not operate to prevent any subsequent íevy.
Sec 301.63 3-1. uthoríty to Reíease Levy € ” (a) uthoríty. € ” The Dístríct
Dírector may reíease the íevy upon aíí or part of the property or ríghts to prop-
erty íevíed upon, íf the deíínquent ta payer compííes wíth such of the condí-
tíons under paragraph (b) of thís sectíon as the Dístríct Dírector may requíre
and íf the Dístríct Dírector determínes that such actíon wííí facííítate the
coííectíon of the ííabíííty. The reíease shaíí not operate to prevent any sub-
sequent íevy.
(b) Condítíons for reíease. € ” The Dístríct Dírector may reíease the íevy as
authorízed under paragraph (a) of thís sectíon, íf € ”
(1) scrow arrangement. € ” The deíínquent ta payer offers, and there ís ac-
cepted by the Dístríct Dírector, a satísfactory arrangement píacíng property ín
escrow to secure the payment of the ííabíííty (íncíudíng the e penses of íevy)
whích ís the basís of the íevy.
(2) ond. € ” The deíínquent ta payer deíívers an acceptabíe bond to the Dís-
tríct Dírector condítíoned upon the payment of the ííabíííty (íncíudíng the e -
penses of íevy) whích ís the basís of the íevy. Such bond shaíí be ín the form
as províded ín sectíon 7101 and the reguíatíons thereunder.
(3) Payment of amount of Uníted States ínterest ín the property. € ” There ís
paíd to the Dístríct Dírector an amount determíned by hím to be equaí to the
ínterest of the Uníted States ín the seízed property or the part of the seízed
property to be reíeased.
( ) ssígnment of saíaríes and tcages. € ” The deíínquent ta payer e ecutes
an agreement dírectíng hís empíoyer to pay to the Dístríct Dírector amounts
deducted from the empíoyee s wages on a reguíar, contínuíng, or períodíc basís,
ín such manner and ín such amount as ís agreed upon wíth the Dístríct Dírector,
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183 6201.
oMíí the fuíí amount of the ííabíííty ís satísfíed, and such agreement ís accepted
by the empíoyer.
(5) Instaííment payment arrangement. € ” The deíínquent ta payer makes
Mtísfactory arrangements wíth the Dístríct Dírector to pay the amount of the
ííaí íííty ín Instaííments.
(6t tensíon of statute of íímítatíons. € ” The deíínquent ta payer e ecutes
an agreement to e tend the statute of íímítatíons In accordance wíth sectíon
65CC (a)(2) and the reguíatíons thereunder.
Sec. 301.63 . Statutory Provísíons Cross References.
Sec 3 . Cross references.
(a) Length of períod. or períod wíthín whích íevy may be begun In case
of-
(1) Income, estate, and gíft ta es, see sectíons 6502 (a) and 6503(a) (1).
(2) mpíoyment and mísceííaneous e císe ta es, see sectíon 6502(a).
(b) Deíínquent coííectíon offícers. or dístraínt proceedíngs agaínst deíín-
onent ínternaí revenue offícers, see sectíon 7803(d).
(c) Other references. or provísíons reíatíng to-
ut Stamps, marks and brands, see sectíon 6807.
2) dmínístratíon of reaí estate acquíred by the Uníted States, see sectíon
7506.
T M NTS, CR DITS, ND R UNDS
PROC DUR IN G N R L
Sec. 301.6 01 Statutory Provísíons mounts Treated as Overpayments.
Sec 6 01. mounts treated as overpayments.
(a) ssessment and coííectíon after íímítatíon períod. € ” The term overpay-
ment íncíudes that part of the amount of the payment of any ínternaí revenue
ta whích ís assessed or coííected after the e píratíon of the períod of íímítatíon
proptríy appíícabíe thereto.
tb) cessíve wíthhoídíng. € ” If the amount aííowabíe as a credít under sectíon
31 (reíatíng to credít for ta wíthheíd at the source under ch. 2 ) e ceeds the
ta es ímposed by chapter 1 agaínst whích such credít ís aííowabíe, the amount
of such e cess shaíí be consídered an overpayment.
(c) uíí- trín re no ía ííabíííty. n amount paíd as ta shaíí not be consíd-
ered not to constítute an overpayment soíeíy by reason of the fact that there was
bo ta ííabíííty ín respect of whích such amount was paíd.
Skc. .01.0 01-1. mounts Treated as Overpayments. € ” (a) The term over-
payment íncíudes:
(1) ny payment of any ínternaí revenue ta whích ís assessed or coííected
after the e píratíon of the períod of íímítatíon appíícabíe thereto.
(2) ny amount aííowabíe for a ta abíe year as a credít under sectíon 31
(reíatíng to credít for íncome ta wíthheíd at source on wages) whích e ceeds
the correct íncome ta ímposed by chapter 1 for such year.
(b) n amount paíd as ta shaíí not be consídered not to constítute an over-
payment soíeíy by reason of the fact that there was no ta ííabíííty ín respect
of whích such amount was paíd.
Sec. 301.0 02. Statutory Provísíons uthoríty to Make Credíts ob Refunds.
Sec. 6 I2. uthoríty to make credíts or refunds.
a) Generaí ruíe. € ” In the case of any overpayment, the Secretary or hís
deít gate. wíthín the appíícabíe períod of íímítatíons, may credít the amount of
fuch overpayment, íncíudíng any ínterest aííowed thereon, agaínst any ííabíííty
ín resr ft of an ínternaí revenue ta on the part of the person who made the
overpayment and shaíí refund any baíance to such person.
(b) Credíts agaínut estímated ta . € ” The Secretary or hís deíegate ís author-
ízed to prescríbe reguíatíons provídíng for the credítíng agaínst the estímated
Income ta for any ta abíe year of the amount determíned by the ta payer or
the Secretary (or hís deíegate) to be an overpayment of the íncome ta for a
precedíng ta abíe year.
Sec. 301.6 02-1. uthoríty to Make Credíts or Refunds. € ” The Commíssíoner,
Wítííío fhe appíícabíe períod of íímítatíons, may credít any overpayment of íu ,
SOíO|O € ” 50 13
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6201.
1S
Incíudíng Interest thereon, agaínst any outstandíng ííabíííty for any ta (or for
any ínterest, addítíonaí amount, addítíon to the ta , or assessabíe penaíty) owed
by the person makíng the overpayment, and the baíance, If any, shaíí be refunded
to such person by the Commíssíoner.
Sec. 301.6 02-2. Cíaíms fob Credít ob Refund € ” (a) Requírement that cíaím ííe
fííed. € ” (1) Credíts or refunds of overpayments may not be aííowed or made after
the e píratíon of the statutory períod of íímítatíon properíy appíícabíe uníess,
before the e píratíon of such períod, a cíaím therefor has been fííed by the
ta payer. urthermore, under sectíon 7 22, a cívíí actíon for refund may not
be ínstítuted uníess a cíaím has been fííed wíthín the properíy appíícabíe períod
of íímítatíon.
(2) The cíaím, together wíth appropríate supportíng evídence, must be fííed
In the offíce of the Dístríct Dírector for the ínternaí revenue dístríct ín whích
the ta was paíd. s to ínterest In the case of credíts or refunds, see sectíon
CG11. See sectíon 7502 for provísíons treatíng tímeíy maíííng as tímeíy fíííng and
sectíon 7503 for tíme for fíííng cíaím when the íast day faíís on Saturday,
Sunday, or a íegaí hoííday.
(b) Grounds set forth ín cíaím. € ” (1) No refund or credít wííí be aííowed after
the e píratíon of the statutory períod of íímítatíon appíícabíe to the fíííng of a
cíaím therefor e cept upon one or more of the grounds set forth ín a cíaím fííed
before the e píratíon of such períod. The cíaím must set forth ín detaíí each
ground upon whích a credít or refund Is cíaímed and facts suffícíent to appraíse
the Commíssíoner of the e act basís thereof. The statement of the grounds and
facts must be verífíed by a wrítten decíaratíon that ít ís made under the penaítíes
of per|ury. cíaím whích does not compíy wíth thís paragraph wííí not be
consídered for any purpose as a cíaím for refund or credít.
(2) The Dístríct Dírector has no authoríty to refund on equítabíe grounds
penaítíes or other amounts íegaííy coííected.
(c) orm for fíííng cíaím. € ” Cíaíms by the ta payer for the refundíng of over-
payments of ta es, ínterest, penaítíes, and addítíons to ta shaíí be made on
orm 8 3. or specíaí ruíes appíícabíe to íncome ta es, see sectíon 301.6 02-3.
(d) Separate cíaíms for separate ta abíe períods. € ” In the case of Income,
gíft, and ederaí unempíoyment ta es, a separate cíaím shaíí be made for each
type of ta for each ta abíe year or períod.
(e) Proof of representatíve capacíty. € ” If a return ís fííed by an índívíduaí
and, after hís death, a refund cíaím ís fííed by hís íegaí representatíve, certífíed
copíes of the íetters testamentary, íetters of admínístratíon, or other símííar
evídence must be anne ed to the cíaím, to show the authoríty of the íegaí repre-
sentatíve to fííe the cíaím. If an e ecutor, admínístrator, guardían, trustee,
receíver, or other fíducíary fííes a return and thereafter a refund cíaím ís fííed
by the same fíducíary, documentary evídence to estabíísh the íegaí authoríty of
the fíducíary need not accompany the cíaím, províded a statement Is made ín the
cíaím showíng that the return was fííed by the fíducíary and that the íatter ís
stííí actíng. In such cases, If a refund ís to be paíd, íetters testamentary,
íetters of admínístratíon, or other evídence may he requíred, but shouíd he sub-
mítted oníy upon the receípt of a specífíc request therefor. If a cíaím ís fííed
by a fíducíary other than the one by whom the return was fííed, the necessary
documentary evídence shouíd accompany the cíaím. cíaím may be e ecuted
by an agent of the person assessed, but ín such case a power of attorney must
accompfíny the cíaím.
(f) aíííng of refund check. € ” Checks ín payment of cíaíms aííowed wííí be
drawn ín the names of the persons entítíed to the money and may be sent to
such persons In care of an attorney or apent who has fííed a power of attorney
specífícaííy authorízíng hím to receíve such checks. The Dístríct Dírector may,
however, send any such check dírect to the cíaímant. In thís connectíon, see
sectíon 3 77 of the Revísed Statutes (31 U. S. C. 203).
Sec. 301.6 02-3. Specíaí Rc es ppíícabíe to Income Ta . € ” (a) In the case
of íncome ta , cíaíms for refund may not oníy be made on orm 8 3 but may
aíso he made on orm 10 0, orm 10 0 , orm 10 0 , orm 10 0N , orm
íOíON -a, or an amended return.
(b) properíy e ecuted íncome ta return on orm 10 0, orm 10 0 , orm
10 0N . or orm 10 0 -a shaíí, at the eíectíon of the ta payer, constítute a
cíaím for refund or credít wíthín the meaníng of sectíon 6 02 and sectíon 6511
for the amount of the overpayment díscíosed by such return. or purposes oí
sectíon 6511, such cíaím shaíí be consídered as fííed on the date on whích such
return ís consídered as fííed. n eíectíon to treat the return as a cíaím for
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185 G201.
refund or credít shaíí be evídenced by a statement on the return settíng forth the
mount determíned as an overpayment and advísíng whether such amount shaíí
be refunded to the ta payer or shaíí be appííed as a credít agaínst the ta payer s
estímated íncome ta for the ta abíe year ímmedíateíy succeedíng the ta abíe
fear fot whích such return ís fííed. If the ta payer eíects to have aíí or part
of the overpayment shown by hís return appííed to hís estímated íncome ta for
hís succeedíng ta abíe year, no Interest shaíí be aííowed on such portíon of the
overpayment credíted and such amount shaíí be appííed as a payment on ac-
count of the estímated íncome ta for such year or the ínstaííments thereof.
cí The fíííng of a properíy e ecuted íncome ta return on orm 10 0 shaíí
constítute an eíectíon by the ta payer to have the return treated as a cíaím for
refund, and such return shaíí constítute a cíaím for refund wíthín the meaníng
of sectíon 6 02 and sectíon (5511 for the amount of the overpayment shown by
the Dístríct Dírector s computatíon of the ta on the basís of the return. or
purposes of sectíon 6511, such cíaím shaíí be consídered as fííed on the date on
whích such return ís consídered fííed.
(d) In any case ín whích a ta payer eíects to have an overpayment refunded
to hím he may not thereafter change hís eíectíon to have the overpayment ap-
pííed as a payment on account of hís estímated íncome ta .
Sec. 301.(5 02- . Payments ín cess of mounts Shown on Retubn. € ” In
wrtaín cases, the ta payer s payments ín respect of hís ta ííabíííty, made before
íhe Sííng of hís return, may e ceed the amount of ta shown on the return. or
e ampíe, such payments may aríse ín the case of the íncome ta when the estí-
cíated ta or the credít for íncome ta wíthheíd at the source on wages e ceeds
the amount of ta shown on the return, or where a corporatíon obtaíns an
e tensíon of tíme for fíííng íts return and makes ínstaííment payments based on
íts estímate of íts ta ííabíííty whích e ceed the ta ííabíííty shown on the return
mbse íuentíy fííed. In any case In whích the Dístríct Dírector determínes that
the payments by the ta payer (made wíthín the períod prescríbed for payment
and before the fíííng of the return) are ín e cess of the amount of ta shown on
the return, he may make credít or refund of such overpayment wíthout awaítíng
e amínatíon of the compíeted return and wíthout awaítíng fíííng of a cíaím for
refund. owever, the provísíons of sectíons 301.6 02-2 and 301.6 02-3 are ap-
píícabíe to such overpayment, and ta payers shouíd submít cíaíms for refund
(íf the íncome ta return Is not ítseíf a cíaím for refund, as províded In
sec. 301.6 02-3) to protect themseíves ín the event the Dístríct Dírector faíís to
make such determínatíon and credít or refund. The provísíons of sectíon 6 05
(reíatíng to reports of refunds of more than 100,000 to the oínt Commíttee on
Internaí Revenue Ta atíon) are not appíícabíe to the overpayments descríbed
ín thís sectíon caused by tímeíy payments of ta whích e ceed the amount of
ta shown on a tímeíy return.
Síze. 301.6 02-5. Cíaím fob Payment of udgment Obtaíned gaínst Dís-
tbíc-t Díeectob. € ” (a) cíaím for the amount of a |udgment agaínst a Dístríct
í írector for the recovery of ta es, penaítíes, or other sums shouíd be made on a
properíy e ecuted orm 8 3, and fííed dírectíy wíth the Commíssíoner of In-
ternaí Revenue, Washíngton 25, D. C. The cíaím must be verífíed by a wrítten
decíaratíon that ít ís made under the penaítíes of per|ury. Two certífíed copíes
of the fína |udgment and a certífícate of probabíe cause shouíd be attached to
the cíaím. If the payment of court costs Is cíaímed, an ítemízed bííí of the
court costs paíd, receípted by the cíerk of the court, shouíd aíso accompany the
cíaím. Wíth respect to the certífícate of probabíe cause, 28 U. S. C. 2000
provídes:
S C. 2006. CUTION G INST NU O IC S.
ecutíon shaíí not Issue agaínst a € revenue offícer on a fínaí |udgment
ín any proceedíng agaínst hím for any of hís acts, or for the recovery of any
money e acted by or paíd to hím and subsequentíy paíd Into the Treasury, ín
performíng bís offícíaí dutíes, If the court certífíes that:
(1) Probabíe cause e ísted or
(2) The offícer acted under the dírectíons of the Secretary of the Treasury
or other proper Government offícer.
When such certífícate has been Issued, the amount of the |udgment shaíí be paíd
wít of the proper appropríatíon by the Treasury.
tt the case was appeaíed, two certífíed copíes of the mandate of the appeííate
court shouíd aíso be attached to the cíaím. |udgment wííí not be paíd untíí the
Períod for appeaí has e píred uníess a stípuíatíon, sígned by both partíes to the
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| 6201. 186
suít, waívíng the ríght to appeaí, has heen fííed wíth the cíerk of the court, and trw
certífíed copíes of such waíver are furníshed to the Commíssíoner.
(b) If the |udgment debtor shaíí have aíready paíd the amount recovere
agaínst hím, the cíaím shouíd be made ín bís name, accompaníed by two certítít
copíes of the fínaí udgment, and an Itemízed bííí of the court costs paíd.
certífícate of the cíerk of the court In whích the |udgment was recovered (o
other satísfactory evídence) showíng that the |udgment has been satísfíe
and specífyíng the e act sum paíd ín Its satísfactíon, shouíd accompany th
cíaím.
Sec. 301.6 02-6. Cíaím for Payment of udgment Obtaíned ín Uhítí
States Dístríct Coubt gaínst the Uníted States. € ” cíaím for the paymer
of a |udgment rendered by a Uníted States dístríct court agaínst the Uníte
States representíng ta es, penaítíes, or other sums shouíd be made on a proper 1
e ecuted orm 8 3 and fííed dírectíy wíth the Commíssíoner of Internaí Revenm
Washíngton 25, D. C. The cíaím must be verífíed by a wrítten decíaratíon th:
It ís made under the penaítíes of per|ury. Two certífíed copíes of the tíns
udgment shouíd be attached to the cíaím. If the |udgment specífícaííy provídf
for the recovery of costs, an ítemízed bííí of such court costs paíd, receípte
by the cíerk of the court, shouíd aíso accompany the cíaím. If the ease wa
appeaíed, two certífíed copíes of the mandate of the appeííate court shouí
aíso be attached to the cíaím. |udgment wííí not be paíd untíí the perío
for appea has e píred uníess a stípuíatíon, sígned by both partíes to the suí
waívíng the ríght to appeaí, has been fííed wíth the cíerk of the court, and tw
certífíed copíes of such waíver are furníshed to the Commíssíoner.
Sec. 301.6 02-7. Cíaím fob Payment of cdgment Obtaíned ín the CotT T c
Cíaíms gaínst the Uníted States. € ” cíaím for the payment of a udgmer
rendered by the Uníted States Court of Cíaíms agaínst the Uníted States repr
sentíng ta es, penaítíes, or other sums shouíd be made on a properíy e ecute
orm 8 3 and fííed dírectíy wíth the Commíssíoner of Internaí Revenne, Wast
íngton 25, D. O. The cíaím must be verífíed by a wrítten decíaratíon that ít I
made under the penaítíes of per|ury. The cíaím shaíí be accompaníed hv
certífícate of udgment íssued by the cíerk of the court and two copíes of th
prínted opíníon of the Court, íf an opíníon was rendered. |udgment -wííí no
be paíd untíí the períod for appeaí has e píred uníess a stípuíatíon, sígned b
both partíes to th suít, waívíng the ríght to appeaí, has been fííed wíth tíí
cíerk of the court, and two certífíed copíes of such waíver are furníshed t th
Commíssíoner.
Sec. 301.6 03. Statutory Provísíons Overpayment of Instaííment.
Sec. 6 03. Overpayment of ínstaííment.
In the case of a ta payabíe ín ínstaííments, If the ta payer has paíd as a
Instaííment of the ta more than the amount determíned to be the correct amoun
of such ínstaííment, the overpayment shaíí be credíted agaínst the unpní
ínstaííments, íf any. If the amount aíready paíd, whether or not on the basí
of ínstaííments, e ceeds the amount determíned to be the correct amount c
the ta , the overpayment shaíí be credíted or refunded as províded In sect ín
6 02.
Sec. 301.6 03-1. Overpayment of Instaííment. € ” If any Instaííment of ta
ís overpaíd, the overpayment shaíí fírst be appííed agaínst any outstandín
ínstaííments of such ta . If the overpayment e ceeds the correct amount of ta
due, the overpayment shaíí be credíted or refunded as províded In sectíon G 0
and the reguíatíons thereunder.
Sec. 301.6 0 . Statutory Provísíons batements.
Sec. 6 0 . batements.
(a) Generaí ruíe. € ” The Secretary or hís deíegate Is authorízed to abate th
unpaíd portíon of the assessment of any ta or any ííabíííty In respect thereoí
whích € ”
(1) Is e cessíve ín amount, or
(2) Is assessed after the e píratíon of the períod of íímítatíon proper
appíícabíe thereto, or
(3) Is erroneousíy or íííegaííy assessed.
(b) No cíním for abatement of íncome, estate, and gíft ta es. € ” No cíaím fo
abatement shaíí be fííed by a ta payer ín respect of an assessment of any tní
ímposed under subtítíe or .
(c) Smaíí ta baíances. € ” The Secretary or hís deíegate ís authorízed to aba t.
the unpaíd portíon of the assessment of any ta , or any ííabíííty ín respect there
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187 6201.
of, íf the Secretary or hís deíegate determínes under uníform ruíes prescríbed
by the Secretary or hís deíegate that the admínístratíon and coííectíon costs
ínvoíved wouíd not warrant coííectíon of the amount due.
Sec. 301.6 0 -1. batements, (a) The Dístríct Dírector may abate any
assessment, or unpaíd portíon thereof, íf the assessment ís ín e cess of the
correct ta ííabíííty, íf the assessment ís made subsequent to the e píratíon of
the períod of íímítatíons appíícabíe thereto, or íf the assessment has been erron-
eousíy or íííegaííy made.
íb) No cíaím for abatement may be fííed wíth respect to íncome, estate, or
f|ft ta .
(c) cept ín case of íncome, estate, or gíft ta , íf more than the correct amount
of ta , ínte-est, addítíonaí amount, addítíon to the ta , or assessabíe penaíty
ís assessed but not paíd to the Dístríct Dírector, the person agaínst whom the
assessment ís made may fííe a cíaím for abatement of such overassessment. ach
cíaím for abatement under thís sectíon shaíí be made on orm 8 3 and shaíí be
tííed wíth the Dístríct Dírector for the ínternaí revenue dístríct ín whích the
tar was assessed. orm 8 3 shaíí be made In accordance wíth the ínstructíons
reíatíng to such form.
(d) The Commíssíoner may íssue uníform ínstructíons to Dístríct Dírectors
authorízíng them, to the e tent permítted ín such ínstructíons to abate amounts
the coííectíon of whích ís not warranted because of the admínístratíon and coí-
íectíon costs.
Sec. 301.6 05. Statutory Provísíons Reports or Refunds and Credíts.
Sec 6 05. Reports of refunds and credíts.
(a) y Treasury to oínt Commíttee. No refund or credít of any Income, war
profíts, e cess profíts, estate, or gíft ta ín e cess of 100,000 shaíí be made untíí
after the e píratíon of 30 days from the date upon whích a report gívíng the
name of the person to whom the refund or credít ís to be made, the amount of
soch refund or credít, and a summary of the facts and the decísíon of the Secre-
tary or hís deíegate, ís submítted to the oínt Commíttee on Internaí Revenue
Ta atíon.
b) y oínt Commíttee to Congress. € ” report to Congress shaíí be made an-
nuaííy by such commíttee of such refunds and credíts, íncíudíng the names of
aíí persons and corporatíons to whom amounts are credíted or payments are made,
together wíth the amounts credíted or paíd to each.
(c) Tentatíve ad|ustments. € ” ny credít or refund aííowed or made under sec-
tíon 6 11 shaíí be made wíthout regard to the provísíons of subsectíon (a) of
thís sectíon. In any such case, íf the credít or refund, reduced by any defícíency
ín snob, ta thereafter assessed and by defícíencíes ín any other ta resuítíng from
ad|ustments refíected ín the determínatíon of the credít or refund, ís ín e cess
of 100,000, there shaíí be submítted to such commíttee a report contaíníng the
matter specífíed ín subsectíon (a) at such tíme after the makíng of the credít or
refund as tht Secretary or hís deíegate shaíí determíne the correct amount of
tbe ta .
Sec. 301.6 05-1. Reports of Refunds and Credíts. € ” Sectíon 6 05 requíres that
€ report be made to the oínt Commíttee on Internaí Revenue Ta atíon of pro-
posed refunds or credíts of any íncome, war profíts, e cess profíts, estate, or gíft
taí ín e cess of 100,000.
Sec. 301.6 06. Statutory Provísíons Prohíbítíon of dmínístratíve Re-
víew or Decísíonb.
Sec. 6 06. Prohíbítíon of admínístratíve revíew of decísíons.
In the absence of fraud or místake ín mathematícaí caícuíatíon, the fíndíngs of
art ín and the decísíon of the Secretary or hís deíegate upon the meríts of any
cíaím presented under or authorízed by the ínternaí revenue íaws and the aííow-
ance or nonaííowance by the Secretary or hís deíegate of Interest on any credít
or refund under the ínternaí revenue íaws shaíí not, e cept as províded In sub-
chapters C and D of chapter 76 (reíatíng to the Ta Court), be sub|ect to revíew
T any other admínístratíve or accountíng offícer, empíoyee, or agent of the
Lníted States.
Sec. 301.6 07. Statutory Provísíons Date of ííowance of Refund ob
CS DIT.
8rc. 6 07. Date of aííowance of refund or credít.
The date on whích the Secretary or hís deíegate fírst authorízes the scheduííng
of an overassessment ín respect of any ínternaí revenue ta shníí be consídered
u the date of aííowance of refund or credít ín respect of such ta .
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6201. 188
Sec. 301.6 07-1. Date or ííowance of Refund oe Credít. € ” The date on
whích the Dístríct Dírector, or an authorízed certífyíng offícer desígnated by
hím, fírst certífíes the aííowance of an overassessínent ín respect of any Internaí
revenue ta shaíí be consídered as the date of aííowance of refund or credít
ín respect of such ta .
UI. S of specíaí appíícatíon
Sec. 301.6 11 Statutory Provísíons Tentatíve Carryback d|ustments.
Sec. 6 11. Tentatíve carryback ad|ustments.
(a) ppíícatíon for ad|ustment. € ” ta payer may fííe an appíícatíon for a ten-
tatíve carryback ad|ustment of the ta for the príor ta abíe year affected by a
net operatíng íoss carryback, províded ín sectíon 172(b), from any ta abíe year.
The appíícatíon shaíí be verífíed ín the manner prescríbed by sectíon 6065 ín tbe
case of a return of such ta payer, and shaíí be fííed, on or after the date of fíííng
of the return for the ta abíe year of the net operatíng íoss from whích the carry-
back resuíts and wíthín a períod of 12 months from the end of such ta abíe year,
ín the manner and form requíred by reguíatíons prescríbed by the Secretary or
hís deíegate. The appíícatíon shaíí set forth ín such detaíí and wíth such sup-
portíng data and e píanatíon as such reguíatíons shaíí requíre € ”
(1) The amount of the net operatíng íoss
(2) The amount of the ta prevíousíy determíned for the príor ta abíe year
affected by such carryback, the ta prevíousíy determíned beíng ascertaíned ín
accordance wíth the method prescríbed ín sectíon 131 (a)
(3) The amount of decrease ín such ta , attríbutabíe to such carryback, such
decrease beíng determíned by appíyíng the carryback ín the manner províded
by íaw to the Items on the basís of whích such ta was determíned
( ) The unpaíd amount of such ta , not íncíudíng any amount requíred to be
shown under paragraph (5)
(5) The amount, wíth respect to the ta for the ta abíe year Immedíateíy
precedíng the ta abíe year of such íoss, as to whích an e tensíon of tíme for
payment under sectíon 616 ís ín effect and
(6) Such other ínformatíon for purposes of carryíng out the provísíons of
thís sectíon as may be requíred by such reguíatíons.
n appíícatíon under thís subsectíon shaíí not constítute a cíaím for credít or
refund.
(b) ííowance of ad|ustments. € ” Wíthín a períod of 90 days from the date on
whích an appíícatíon for a tentatíve carryback ad|ustment ís fííed under sub-
sectíon (a), or from the íast day of the month ín whích faíís the íast date pre-
served by íaw (íncíudíng any e tensíon of tíme granted the ta payer) for
fíííng the return for the ta abíe year of the net operatíng íoss from whích such
carryback resuíts, whíchever ís the íater, the Secretary or hís deíegate shaíí
make, to the e tent he deems practícabíe ín such períod, a íímíted e amínatíon
of the appíícatíon, to díscover omíssíons and errors of computatíon thereín,
anc1. shaíí determíne the amount of the decrease ín the ta attríbutabíe to such
carryback upon the basís of the appíícatíon and the e amínatíon, e cept that
the Secretary or hís deíegate may dísaííow, wíthout further actíon, any appíí-
catíon whícíí he fínds contaíns errors of computatíon whích he deems cannot
be corrected by hím wíthín such 90-day períod or materíaí omíssíons. Such
decrease shaíí be appííed agaínst any unpaíd amount of the ta decreased
(Incíudíng any amount of such ta as to whích an e tensíon of tíme under
sectíon 610 ís ín effect) and any remaínder shaíí be credíted agaínst any
unsatísfíed amount of any ta for the ta abíe year ímmedíateíy precedíng the
ta abíe year of the net operatíng íoss the tíme for payment of whích ta ís
e tended under sectíon 61G . ny remaínder shaíí, wíthín such 90-day períod,
be eíther credíted agaínst any ta or ínstaííment thereof then due from the
ta payer, or refunded to the ta payer.
(c) Consoíídated returns. € ” If the corporatíon seekíng a tentatíve carryback
ad|ustment under thís sectíon, made or was requíred to make a consoíídated
return, eíther for the ta abíe year wíthín whích the net operatíng íoss aríses,
or for the precedíng ta abíe year affected by such íoss, the provísíons of thís
sectíon shaíí appíy oníy to such e tent and sub|ect to such condítíons, íímítatíons,
and e ceptíons as the Secretary or hís deíegate may by reguíatíons prescríbe.
Sec. 301.6 11-1. Tentatíve Carhtback d|ustments. € ” or reguíatíons under
thís sectíon, see the Income Ta Reguíatíons (pt. 1 of thís chapter).
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189 ( 6201.
Src. 301.6 12. Statt|tobt Pkovísíons íoob Stocks Refunds.
Sec. 6 12. íoor stocks refunds.
(a) Motor vehícíes.
(1) In generaí. € ” Where before príí 1, 1955, any artícíe sub|ect to the ta
Imposed by sectíon 061 (a) or (b) has been soíd by