P. 1
Bureau of Internal Revenue Cumulative Bulletin 1951-2

Bureau of Internal Revenue Cumulative Bulletin 1951-2

|Views: 6|Likes:
Published by Tax History

More info:

Published by: Tax History on Jan 27, 2013
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
See more
See less

01/27/2013

Treaanry Department : : : ureau of Internaí Revenue

Internaí Revenue uííetín
Cumuíatíve uííetín 19 1-2
ULY-D C M R 19S1
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


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

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
cprrí T TTFNTTON s dírected to the cautíonary notíce on thís page that puh-
arLí|í L fíííuuwíí Iíshcd ruííngs o the ureau do not have the force and effect
of Treasury Decísíons and that they are appíícabíe oníy to facts presented ín the pubííshed case
Treasury Department : : : : ureau of Internaí Revenue
Internaí Revenue uííetín
Cumuíatíve uííetín 19 1-2
ULY-D C M R 19 1
IN T IS ISSU
Introductory Notes U
Contents
Ruííngs Nos. 1361 -1373 € ”
Ta Court o the Uníted States, The 1-6
Income Ta € ”
Part I (Internaí Revenue Code) 7-1 7
state and Gíft Ta es 1 9-160
mpíoyment Ta es 1ac o q
císe Ta es SSí a
Mísceííaneous Ruííngs 221 o 2
Legísíatíon 1 2
Commíttee Reports 3s7-6
Inde 6 -66
The ruííngs reported ín the Internaí Revenue uííetín are for the ínformatíon of ta payers and theír counseí as
showíng the trend of offícía 1 opíníon ín the admínístratíon of the ureau of Internaí Revenue; therttfíogs other than
Treasury Decísíons have none of the force or effect of Treasury Decísíons and do not commít the Department to
any ínterpretatíon of the íaw whích has not been formaííy approved and promuígated by the Secretary of the
Treasury. ach ruííng embodíes the admínístratíve appíícatíon of the íaw and Treasury Decísíons to the entíre
state of facta upon whích a partícuíar case rests. It ís especíaííy to be noted that the same resuít wííí not neces-
sarííy be reached ín another case uníess aíí the materíaí facts are ídentícaí wíth those of the reported case. sít ís
not aíways feasíbíe to pubíísh a compíete statement of the facts underíyíng each ruííng, there can be no assurance
that any new case ís ídentícaí wíth the reported case. s bearíng out thís dístínctíon, ít may be observed that the
ruííngs pubííshed from tíme to tíme may appear to reverse ruííngs prevíousíy pubííshed.
Offícers of the ureau of Internaí Revenue are especíaííy cautíoned agaínst reachíng a concíusíon ín any case
mereíy on the basís of símííaríty to a pubííshed ruííng, and shouíd base theír |udgment on the appíícatíon of aíí
pertínent provísíons of the íaw and Treasury Decísíons to aíí the facts ín each case. These ruííngs shouíd be used
as aíds ín studyíng the íaw and íts formaí constructíon as made ín the reguíatíons and Treasury Decísíons pre-
víousíy íssued.
In addítíon to pubííshíng aíí Internaí Revenue Treasury Decísíons, ít ís the poíícy of the ureau of Internaí
Revenue to pubíísh aíí ruííngs and decísíons, íncíudíng opíníons of the Chíef Counseí for the ureau of Internaí
Revenue, whích, because they announce a ruííng or decísíon upon a noveí questíon or upon a questíon ín regard
to whích there e ísts no prevíousíy pubííshed ruííng or decísíon, or for other reasons, are of such ímportance as
to be of generaí ínterest. It ís aíso the poíícy of the ureau to pubíísh aíí ruííngs or derísíons whích revoke,
modífy, amend, or affect ín any manner whatever any pubííshed ruííng or derísíon. In many ínstances opíníons
of the Chíef Counseí for the ureau of Internaí Revenue arc not of generaí ínterest because they announce no
new ruííng or new constructíon of the revenue íaws bat símpíy appíy ruííngs aíready made pubííc to certaín
sítuatíons of fact whích are wíthout specíaí sígnífícance. It ís not the poíícy of the ureau to pubíísh such opíníons.
Therefore the numbers assígned to the pubííshed opíníons of the Chíef Counseí for the ureau of Internaí
Revenue are not consecutíve. No unpubííshed ruííng or decísíon wííí be cíícíí or reííed upon by any offícer or
empíoyee of the ureau of Internaí Revenue as a precedent ín the dísposítíon of other cases. Uníets otherwíse
specífícaííy índícated, aíí pubííshed ruííngs and decísíons have receíved the consíderatíon and approvaí of the
Chíef Counseí for the ureau of Internaí Revenue.
UNIT D ST T S GO RNM NT PRINTING OFFIC ; W S INGTON : 19 2
For saíe by Superíntendent of Documents, U. S. Government Príntíng Offíce. Washíngton 2 , D. C
See bach of títíe for príces
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
The Internaí Revenue uííetín servíce consísts of uííetíns íssued
every other week and semíannuaí Cumuíatíve uííetíns.
The uííetíns contaín the ruííngs and decísíons whích are made
pubííc and aíí Treasury Department decísíons (known as Treasury
Decísíons) pertaíníng to Internaí Revenue matters. The semíannuaí
Cumuíatíve uííetíns contaín aíí ruííngs and decísíons (íncíudíng
Treasury Decísíons) pubííshed duríng the prevíous 6 months.
The compíete uííetín servíce may be obtaíned on a subscríptíon
basís from the Superíntendent of Documents, Government Príntíng
Offíce, Washíngton 2 , D. C, for 3.2 per year; foreígn, .60. Síngíe
copíes of the uííetín, 1 cents each.
Certaín íssues of Cumuíatíve uííetíns are out of prínt and are,
therefore, not avaííabíe. Persons desíríng avaííabíe Cumuíatíve uí-
íetíns may obtaín them from the Superíntendent of Documents at
príces as foííows:
Year
Cumuíatíve uííetín
Fírst 6 months
Second 6 months
1920
2 0. 2
II-1 . 3
III-1 . 0
I -1 . 0
I-1 .30
-1 .
1939-1 € ”
3 0. 30
II-2 . 0
III-2 .
I -2 . 0
192
1929
1930
1932..
1936
-2 .
1939-2 . 60
1939
Part 1 . 0
1 Part 2 1. 00
19 0
19 0- 1 . 30
19 0- 2 .60
19 1
19 1- 1 .
19 1- 2 .60
19 2
19 2- 1 . 0
19 2- 2 . 60
19 3
1. 2
19 2
2. 2
1. 0
19
19 6
19 6- 1 . 0
19 6- 2 .7
19 7
19 7- 1 . 0
19 7- 2 .7
19 .
19 - 1 .7
19 - 2 1. 00
19 9
19 9- 1 .7
19 9- 2 . 7
19 0
19 0- 1 . 7
19 0- 2 1. 0
19 1
19 1- 1 .7
19 1- 2 L 0
Contaíns oníy íncome ta ruííngs.
1 ouse, Senate, and conference reports on revenue bííís enacted as the ct of October 3,
1913. the ct of October 22, 191 , and the Revenue cts of 1916 to 193 , íncíusíve, and on
amendments to such cts.
- Prínted ín one voíume.
Persons desíríng to obtaín the servíce ín dígest form may do so at
príces as foííows: Dígest No. 19 (íncome ta ruííngs oníy, príí 1919
to December 1921, íncíusíve), 0 cents; Dígest No. 13 (1922-2 ), 60
cents; Dígest No. 22 (192 -27), 3 cents; and Dígest (íncome ta
ruííngs oníy, príí 1919 to December 1930, íncíusíve), 1. 0.
íí ínquíríes ín regard to these pubíícatíons and subscríptíons shouíd
be sent to the Superíntendent of Documents, Government Príntíng
Offíce, Washíngton 2 , D. C.
( )
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
INTRODUCTORY NOT S
Internaí Revenue Cumuíatíve uííetín 19 1-2, ín addítíon to aíí
decísíons of the Treasury Department (caííed Treasury Decísíons)
pertaíníng to Internaí Revenue matters, contaíns opíníons of the Chíef
Counseí for the ureau of Internaí Revenue, ruííngs and decísíons
pertaíníng to íncome, estate, gíft, saíes, e cess profíts, empíoyment,
socíaí securíty, and mísceííaneous ta es, and íegísíatíon affectíng the
revenue statutes, as índícated on the títíe page of thís uííetín, pub-
Ushed ;n uííetíns 1 to 26, íncíus;ve, for the períod uíy 1 to Decem-
ber 31, 19 1. It aíso contaíns a cumuíatíve ííst of announcements
reíatíng to decísíons of The Ta Court of the Uníted States, pubííshed
ín the Interna Revenue uííetín Servíce from uíy 1 to December 31,
19 1.
Income ta ruííngs are prínted ín two parts. The ruííngs under the
Internaí Revenue Code are prínted as part I, the íaw headíngs corre-
spondíng wíth the rectíons of the Code, as amended, and the reguíatíons
headíngs correspondíng wíth the sectíon headíngs of Reguíatíons 111
or 103. Ruííngs under the Revenue ct of 193 and príor revenue acts
are prínted as part II, the íaw head:ngs correspondíng wíth the sectíon
headíngs of tho e revenue acts and the reguíatíons beadíng: corre-
spondíng wíth the artícíe headíngs of the appíícabíe reguíatíons.
Ruííngs under títíes III and I of the Socíaí Securíty ct and
under subchapters and C, chapter 9, of the Internaí Revenue Code
ín force príor to anuary 1, 19 0, are pubííshed unfíer artícíe head-ngs
of Reguíatíons 91 and 90, respectíveíy; ruííngs under subchapters
and C, chapter 9, of the Code ín force on or after anuary 1, 19 0, are
pubííshed under the sectíon headíngs of Reguíatíons 106 and 107,
respectíveíy; ruííngs under the Carríers Ta íng ct of 1937 and under
subchapter , chapter 9, of the Code for períods príor to anuary 1,
19 9, are pubííshed under the artícíe headíngs of Reguíatíons 100, and
ruííngs under subchapter , chapter 9. of the Code for períods subse-
quent to December 31, 19 , wííí be pubííshed under the sectíon head-
íngs of Reguíatíons 11 .
R I TIONS
The foííowíng abbrev:atíons are used throughout the uííetín.
, , C, etc. € ” The names of índívíduaís.
. R. M. € ” Commíttee on ppeaís and Revíew memorandum.
. R. R. € ” Commíttee on ppeaís and Revíew recommendatíon.
. T. € ” ícohoí Ta Unít.
. T. . € ” oard of Ta ppeaís.
C. . € ” Cumuíatíve uííetín.
Ct. D. € ” Court decísíon.
C. S. T. € ” Capítaí Stock Ta Dívísíon.
C. T. € ” Ta es on empíoyment by carríers.
D. C. € ” Treasury Department círcuíar.
m. T. € ” Ta es ímposed by the Socíaí Securíty ct, the Carríers Ta íng ct of
1037, and subchapters , , C, D, and of the Internaí Revenue Code.
(ííí)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
I
. P. C. € ” cess Profíts Ta Councíí ruííng or memorandum.
. T. € ” state and Gíft Ta Dívísíon.
G. C. M. € ” Generaí Counseí s, ssístant Generaí Counseí s, or Chíef Counseí s
memorandum.
I. R. . € ” Internaí Revenue uííetín.
I. R. C. € ” Internaí Revenue Code.
I. T. € ” Income Ta Unít.
M, N, , Y, Z, etc. € ” The names of corporatíons, píaces, or busínesses, accordíng
to conte t.
M í m. € ” Mí meograph.
MS. or M. T. € ” Mísceííaneous Dívísíon.
O. or L. O. € ” Soíícítor s íaw opíníon.
O. D. € ” Offíce decísíon.
Op. . G. € ” Opíníon of the ttorney Generaí.
P. T. € ” Processíng Ta Dívísíon.
S. T. € ” Saíes Ta Dívísíon.
Síí. € ” Sííver Ta Dívísíon.
S. M. € ” Soíícítor s memorandum.
Poí. Op. € ” Soíícítor s opíníon.
S. R. € ” Soíícítor s recommendatíon.
S. S. T. € ” Ta es on empíoyment by others than carríers.
T. € ” Tobacco Dívísíon.
T. . M. € ” dvísory Ta oard memorandum.
T. . R. € ” dvísorv Ta oard recommendatíon.
T. C. € ” Ta Court of the Uníted States.
T. D. € ” Treasury Decísíon.
and y are used to represent certaín numbers, and when used wíth the word
doííars represent sums of money.
NNOUNC M NT R L TINO TO D CISIONS OF T T COURT OF T
UNIT D ST T S
In order that ta payers and the generaí pubííc may be ínformed
whether the Commíssíoner has acquíesced ín a decísíon of The Ta
Court of the Uníted States dísaííowíng a dene ency ín ta determíned
by the Comm ssíoner to be due, announcement wííí be made ín the
Internaí Revenue uí etín at the earííest practícabíe date. (No an-
nouncements are made ín the uííetín wíth respect to memorandum
opíníons of the Ta Court.) Notíce tha the Commíssíoner ha ac-
qu;esccd or nonacquíesced In a decísíon of the Ta Court reíates oníy
to the íssue or íssues dec:ded adverseíy to the Government. Decísíons
so acqu esced ,-n shouíd be reííed upon by offícers and empíoyees o the
ureau of Internaí Revenue as precedents ín the dísposítíon of other
cases.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
CUMUL TI CONT NTS
Ruííng
Uníted States Ta Court:
77
12319..
130 9...
1S020I
1 3 2...
1 992...
162 9...
162 0...
102 1...
16 ...
16 ...
17207...
17 6...
1S0 0...
Ruííng No.
20270..
20271..
19 1-1 -13619
19 1-1 -13620
19 1-16-13033
19 1-17-13G C
19 1-17-136 0
19 1-17-136 1
19 1-1 -136
19 1-1 -136 7
19 1-19-13002
19 1-20-13672
19 1-20-13671
19 1-21-1367í
19 1-21-136 0
19 1-21-136 1
19 1-21-13679
19 1-23-1369
19 1-23-1369 )
19 1-23-13791
19 1-23-13702
19 1-2 -13709
19 1-2 -1371
19 1-2 -13716
19 1-2 -13717
19 1-2 -13729
19 1-20-1372
19 1-2 -13732
19 1-20-13731
19 1-22-136 6
1 1-2 -1371
19 1-2 -1370
19 1-1 -1362
19 1-20-13666
19 1-2 -1370
19 1-19-13660
10 1-26-13723
19 1-20-13666
19 1-19-13660
19 1-1 -1361
19 1-17-136 2
19 1-17-130 2
19 1-17-136 2
19 1-17-136 2
19 1-26-13723
19 1-20-13723
10 1-1 -1362
19 1-2S-13723
19 1-16-13631
19 1-1 -1361
19 1-2 -1370
19 1-1 -1302
19 1-19-13060
19 1-1 -1361
10 1-1 -1362
19 1-17-136 2
19 1-22-136
19 1-21-1 676
19 1-23-13092
19 1-17-136 2
19 1-20-13060
19 1-23-13692
19 1-23-13692
19 1-23-13692
19 1-23-13092
19 1-23-13692
19 1-23-13692
19 1-23-13092
19 1-26-13723
19 1-16-13631
19 1-2 -1370
Pago
176
332
239
7
233
23
63
9
0
20
1 1
SO
1 1)
ISO

17
1
2 1
M
2
97
– 0
76
27. ,
270
23
220

3
1

6
1,6
S

t

D
Z
3
:
í

2
t
I

C
3
3
. ,6
3
3
2

2
2

1
IUíííng
Uníted States Ta Court-
Contínued
2071
20 60
20903
2111
21170
21171
21172
211 7
21 33
21 19
21 6
21670 ,
219 7
210 6 ,
22066 ,
222 1
22 9
22 7
22706
22763
227
227 6
22920
229
229
23079.
2316
23169
23170
231
231 9
2326
2327
232 .. – .
2330
23 32
23 33
236 7
23710
237 9
23760
23761
23 9
23977..
2397 ..
23979..
239 0..
239 1..
239 2..
2 9 ..
239 ..
239 ..
239 ..
239 7..
239 ..
239 9.
23990..
2C99 ..
2399 ..
23996..
23997..
2399 ..
23999..
2 101..
2 102..
2 1 0..
2 7 ..
19 1-1 -1362
19 1-1 -13621
19 1-1 -1361
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
1961-1 -136 3
19 1-19-13660
19 1-19-13660
19 1-1 -136 3
19 1-22-136
19 1-26-13723
19 1-22-130
19 1-17-136 2
19 1-1 -1361
19 1-16-13631
19 1-1 -136 3
19 1-16-13631
19 1-22-136
19 1-20-13666
19 1-20-13666
19 1-21-13676
19 1-1 -1361
19 1-1 -1361
19 1-26-13723
19 1-1 -1362
19 1-19-13000
19 1-19-13660
16 1-23-13692
19 1-23-13692
10 1-2 -1370
19 1-22-136
19 1-21-13676
19 1-1 -1301
19 1-22-136
19 1-22-136
19 1-10-13631
19 1-17-136 2
19 1-17-136 2
19 1-17-136 2
19 1-17-136 2
19 1-1 -136 3
19 1-1 -1302
19 1-1 -1362
19 1-1 -1361
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1S-136 3
19 1-1 -136 3
19 1-1S-136 3
19 1-1 -136 3
19 1-1S-136 3
19 1-1S-136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -130 3
19 1-1 -130 3
19 1-1 -136 3
19 1-1 -130 3
19 1-17-1S6 2
19 1-2 -1370
19 1-10-13031
Page
S
2

1
3
3

1
1
2

2,3
t

3

1
2
3
2


6

2
2
2

6
1
a
s

3
3
2

3
3
1
a
2
2
( )
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
I
Ruííng
Uníted States Ta Court-
Contínued
2 2
2 26
2 27
2 1
2 9
2 0
2 7 ._
2 91
2611 ..
20139..
26166..
26172..
26 20..
26 21..
26 22..
26 23..
26 2 ..
26763
269 7.
269
269 9
27096.
2727
27319
27320
27:09
277 0...
102 0
102 07
111M1
1116 2
Offíce decísíons (L T.):
0 3
0
0
0 6
0 7
0
0 9
060
061
062
06
06
066
0( 7
Offíce decísíons ( . T :
Offíce decísíons (M. T.):
1.
2.
Ruííng No.
Pupo
19 1-17-136 2
:
19 1-17-136 2
í
19 1-17-136 2
í
19 1-23-13692
3
19 1-2 -1371

19 1-2 -1371
€ í
19 1-1 -1362
1
19 1-1 -1361
6
19 1-1 -136 3
2
19 1-19-13íí60
3
19 1-22-136
2
19 1-19-13660

19 1-20-13666
3
19 1-1 -136 3

19 1-23-13693
2
19 1-1 -136 3
1
19 1-10-13663
3
19 1-1 -136 3
3
19 1-1 -136 3

19 1-1 -136 3

19 1-2 -1371
2
19 1-2 -1371
2
19 1-19-13660
3
19 1-21-13676

19 1-21-13676

19 1-21-13676
2
19 1-21-13676
2
19 1-21-13676
1
19 1-21-13076
1
19 1-26-13723

19 1-23-13692
6
19 1-2 -1371
2
19 1-2 -1371
2
19 1-26-13723
,
19 1-22-136
6
19 1-19-13660
2,
19 1-19-13660
2,
19 1-1 -136 3
1 2
19 1-1 -136 3
2
19 1-1 -13616
3
19 1-1 -1362
36
19 1-16-13632
30
19 1-17-136 3

19 1-17-136
S3
19 1-1 -136
22
19 1-19-13661
2
19 1-20-13067
11
19 1-20-1366
13
19 1-20-13670
61
19 1-21-13677
2
19 1-23-13693
1
19 1-2 -1370
7
19 1-26-1372
26
19 1-26-1372

19 1-1 -136 6
213
19 1-21-136 2
216
19 1-.3-1369
21
. 1961-23-13699
21
19 1-2 -1370
21
Ruííng
Ruííng No. Page
Offíce decísíons (T.):
302
303.
30 ...
30
306
307
30
309
310
311
312
313
31
31
316
317
31
Offíce decísíon (Tob.):
319
Department Círcuíars:
9.
Mímeographs:
612 C mdt. 1)
6 1
66 2
66
6 60
666
66 3
66 6
669
6702..
6703.
671 .
6720:
6720 (Suppí. 1)
6726
Círcuíars:
22 9
2299
231
Legísíatíon.
ecutíve Order:
10262
M ísoeUanceus. € ž ..-.í;r,
19 1-1 -13621
19 1-1 -13622
19 1-1 -13629
19 1-16-13639
19 1-16-136 1
19 1-17-136 2
19 1-1 -136
19 1-1 -136 9
19 1-19-1366
19 1-20-1367
19 1-21-136 3
19 1-21-136
19 1-22-13691
19 1-23-13703
19 1-2 -13713
19 1-2 -13721
19 1-2 -13722
19 1-26-13733
19 1-17-136
19 1-17-136 9
19 1-17-136 7
19 1-1 -13617
19 1-1 -1361
19 1-1 -13627
19 1-16-13626
19 1-17-136
19 1-20-13669
19 1-22-136 7
19 1-23-13696
19 1-2 -1370
19 1-2 -13706
19 1-26-13727
19 1-26-1373
19 1-26-1373
19 1-26-13726
19 1-19-13063
19 1-23-13697
19 1-2 -13719
19 1-1 -1 62
19 1-1 -13630
19 1-16-1363
19 1-16-1363
19 1-16-13636
19 1-16-13637
19 1-10-1363
19 1-16-136 0
19 1-19-1366
19 1-20-13673
19 1-20-1367
19 1-22-136
19 1-22-13 9
19 1-22-13690
19 1-2 -13710
19 1-2 -13711
19 1-1 -13623
(19 1-23-13700
19 1-2 -13712
19 1-2 -13720
19 1-26-13730
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
CONT NTS OF CUMUL TI ULL TINS (I. T.) 1 TO ; S T FOR 1920 ND 1921; INT RN L
R NU I-1,1-2.11-1, 11-2. 1II-1, Uí-2, 1 -1. 1 -2. -í. -2, I-1, í-2, U-1. I1-2, II1-1, II1-2,
1 -1. I -2, -í. -2, 30-1, I-2. II-1, II-2. I1I-1, III-2, 1 -1, I -2, -1. -2, 1937-1,1937-2,
193 -1. 193 -2. 1939-1 (P RT 1 ND P RT í). 193C-2. 19 0-1. 19 0-2. 19 1-1, 19 1-2. 19 2-1. 19 2-2;
NNU L ULL TINS FOR 19 3, 19 , ND 19 : S MI NNU L ULL TINS 19 6-1. 19 G-2,
19 7-1. 19 7-2, 19 -1, 19 -2, 19 9-1. 19 9-2, 19 0-1, 1S 0-2, 19 1-1. ND 19 1-2
Cumuíatíve uííetín
Ruííng Nos.
Income Ta :
December 1019 (No. 1)
anuary- une 1920 (No. 2). _.
uíy-December 1910 (No. 3).
anuary- une 1921 (No. )._.
uíy-December 1921 (No. ).
Saíe Taí:
1920 (S. T. 1-20)
anuary- une 1921
uíy-December 1921.
Internaí Revenue uííetín:
anuary- une 1922 (No. 1-1)
uíy-December 1922 (No. 1-2)
anuary- une 1923 (No. II-í)
uíy-December 1923 (No. II-2)
anuary- une 192 (No. III-í)
uíy-December 192 (No. 111-2)
anuary- une 192 (No. I -í)
uíy-December 192 (No. 1 -2)
anuary- une 1920 (No. -í)
uíy-Deeember 1920 (No. -2)
anuary- une 1927 (No. I-1).
uíy-December 1927 (No. I-2)
anuary- une 192 (No. Ií-1)
uíy-December 192 (No. II-2)
anuary- une 1929 (No. I1I-1)
uíy-December 1929 (No. TII-í)
anuary- une 1930 (No. I -1)
uíy-December 1930 (No. 1 -2)
anuary- une 1931 (No. -í)
uíy-December 1931 (No. -2)
anuary- une 1932 (No. I-1)
uíy-December 1932 (No. I-2)
anuary- une 1933 (No. II-1)
uíy-December 1933 (No. II-2)
anuary- une 193 (No. III-1)
uíy-December 193 (No. III-2)
anuary- une 193 (No. I -1)
uíy-December 193 (No. I -2)
anuary- une 1930 (No. -1)
uív-December 1936 (No. -2)
anuary- une 1937 (1937-1)
uíy-December 1937 (1937-2)
anuary- une 193 (193 -1)
uíy-December 193 (193 -2)
anuarv- unc 1939 (1939-1 € ” part 1 and pert 2)
uíy-December 1939 (1939-2)
anuary- une 19 0 (19 0-1)
uíy-December 19 0 (19 0-2)
anuary- une 19 1 (19 1-1)
uíy-December 19 1 (19 1-2)
anuary- une 19 2 (10 2-1) .
uíy-December 19 2 (19 2-2).
_ 19 3 (12 months)
anuary-December 19 (12 months)
ínuary-December 19 (12 months)
anuary- une 19 6 (19 6-1)
uíy-December 19 6 (19 6-2)
anuary- une 19 7 (1 7-1)
uíy-December 19 7 (19 7-2)
anuary- une 19 (19 -1)
uíy-December 19 (19 -2)..
anuary- une 19 9 (19 9-1)
uíy-December 19 9 (19 9-2)..
anuary- une 19 0 (19 C-1) ...
uíy-December 19 0 (19 0-2).
anuary- une 19 1 (19 1-1)
uíy-December 19 1 (19 1-2)..
( II)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


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

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
T T COURT OF T UNIT D ST T S
CUMUL TI LIST OF NNOUNC M NTS R L TING TO
D CISIONS OF T T COURT OF T UNIT D ST T S
PU LIS D IN T INT RN L R NU ULL TIN
S R IC FROM ULY 1, 19 1, TO D C M R 31, 19 1,
INCLUSI
19 1-26-13723
The Commíssíoner acquíesces ín the foííowíng decísíons:
Ta payer
ícorn Whoíesaíe Co
ííen, L. D
ííen, ída
merícan Pad Te tííe Co., The
merícan Securíty and Trust Co., trustee and trans-
feree of estate of Wííííam caíe íbbs 1
merícan Wíre Fabrícs Corporatíon
mphítríte Corporatíon

ates Motor Transport Línes, Inc
eríand s Inc. of marííío
eríand s Inc. of Des Moínes
eríand s Inc. of í Paso
eríand s Inc. of Fort Worth
eríand s Inc. of Indíanapoíís
oríand s Inc. of acksonvíííe
eríand s Inc. of Los ngeíes
eríand s Inc. of Nebraska
eríand s Inc. of New Me íco
eríand s Inc. of Sacramento
eríand s Inc. of San ngeío
eríand s Inc. of San ntonío
eríand s Inc. of South end
eríand s Inc. of ermont Manchester.
eríand s Inc. of Wíchíta Faíís
eríand s Seventh Street Corporatíon
eríand s Sí th Street Corporatíon
eríand s Spríngfíeíd Inc
eríand s West Madíson, Inc
íg Chíef Drííííng Co..
owcn, Truman
razneíí, Carí W
recher, eannctte
recher, Leo
Docket No.
2111
20 20
2 ; ís
269 9
2029
111 1
2 G21
21 33
1 932
200 3
2397
239
239 7
23999
239
239 3
239 9
2399G
2399
239 1
239 0
23997
23977
23979
239 6
23990
2399
2399
239
23761
12319
22 7
2 26
2 27
Report
oíume Pago
16
16
16
16
10
16
10
17
16
16
16
16
16
16
16
10
16
10
16
16
16
16
16
16
16
16
16
1
12
16
16
16
7
93
93
130
3
007
11 0
1 1
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
966
6
03
69
1 state ía decísíon.
Nonacquíoscencc pubííshed :n Cumuíatíve uííetín 19 9-2, page , wíthdrawn.
(1)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
cquíescences € ” Contínued
Ta payer
Docket No.
oíume Page
roadcast Measurement ureau, In:
rown, Fíoyd II
rown et u ., Fíoyd
urreíí Groves, Inc
Caíí, Thomas Davíd
Campbeíí Chaín Co. (formeríy Internatíonaí Chaín
and Manufacturíng Co.)
Cary et aí., Guy, e ecutors and trustees under the íast
wííí and testament of Frank Work
Cedar aííey Dístíííery, Inc
Comber, oward ., estate of
Comber, atheríne It., e ecutrí of estate of oward
. Comber
Crawford, Mary
Críííy, dgar
Dífferentíaí Steeí Car Co.

quíno Mííí.
Fearon, Charíes, estate of
Fearon, Margaret ., e ecutrí of estate of Charíes
Fearon
th Street Píaza Theatre, Inc --
Fíannery, ohn S., trustee and transferee of estate of
Wííííam eaíe íbbs 1 - € ” €
G
Gannon, Gaíns G.
Gannon, Mary P..
– __
Good. ohn
Guíf States Utííítíes Co.
II
echt, Sam D
echt, Susan
erder, Fíorence
erder, r., George, estate of
erder, III, George, admínístrator of estate of George
erder, r
errman, nna
íbbs, Wííííam eaíe, estate of 1
oward, Líndsay C
owe, George ., estate of
utcheson, íeanor T
utcheson, Paímer
state ta decísíon.
21 19
23 1
23 0
19 6
20270
2 91
102 0
102 07
227
20267
20267
2 7
236 7
23909
22706
19 60
19 60
2 2
111 2
26762
26763
2 2
26172
23169
23170
269 7
269 7
20269
111 1
111 2
20 60
2316
21670
27320
27319
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
cquíescences € ” Contínued
Ta payer
ohnson Lumber Corporatíon, CD.

aufmann Department Stores, Ine
ay et aí., I. M., statutory trustees of eríand s Inc.
of acksonvíííe
emon, George R
err-McGee Oíí Industríes, Inc
ííne et u ., Cíavton
ííne, Leonard C
Lee Whoíesaíe Co
Líííey, r., Wííííam
Loewensteín, Frederícka, estate of 1
Lowensteín, Ma S., e ecutor of estate of Frederícka
Loewensteín 1
M
M- - Drííííng Co., Inc., díssoíved
MacMurray, athryn Títus
Maddock et aí., nne W., e ecutors of estate of
enrv . Maddock 1
Maddock, enrv ., estate of
Marshaíí, íder W.
Marshaíí et u ., íder W.
Mc erty et u ., Robert .
McDonneíí írcraft Corporatíon3
Mutuaí Fíre, Maríne Iníand Insurance Co., The € ”
Myers, dward
N
etz, . C, e ecutor of estate of George . owe
Pauí, Davíd unt, admínístrator of estate of díth
Wííson Pauí
Pauí, díth Wííson, estate of
Pavne et aí., Wííííam T., trustees of M- - Drííííng
Co., Inc., díssoíved
Píerce states, Inc
Píace, Roíand P
Co
any, Inc., The.
Docket No.
77
23 9
230 3
2026
23760
2 162
2 161
21 170
26 21
20260
2 1
2 1
237 9
20137
22000
2 90
2.ís; 0
23 32
23 33
26139
22763
1 0 0
1200
21670
19 61
19 61
237 9
26S3
23079
21171
26 22
17 6
oíume
1 state ta decísíon.
Nonaequíescence pubííshed ín Cumuíatíve uííetín 19 0-1, page 7, wíthdrawn.
1 Nonacquíesccnce pubííshed ín Internaí Revenue uííetín 19 1-1 , page 1, wíthdrawn.
N onacquíescence pubííshed ín Cumuíatíve uííetín 19 9-2, page , wíthdrawn.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
cquíescences € ” Cont í n ned
Ta payer
Ríddíesbarger, Rufus
Roeser Pendíeton, Inc., transferee..
Ruud Manufacturíng Co. (Deíaware).
Ruud Manufacturíng Co. (N. .)
Docket No.
S
Schuíz, ames
730 ucííd Corporatíon
Sherman, r., et u ., oseph .
Shumíín. erman
Smíth, Weídon D.í
South Te as Propertíes Co
Stern rothers Co..
Tennessee Conso ídated Coaí Co.1.
Típpah Whoíesaíe Co
U
Uníon Pacífíc Raííroad Co. .
Uníon Whoíesaíe Co
W
Weeks, C. Francís
Weísman, Wííííam
Weíís, ífred D
Weísh, r., enry C
Wheeíock, . N - -
Wheeíock Wííma -----
Whítney Manufacturíng Co...
Wííííams, íma
Wííííams, R. L --
Wood, Thomas ---
Woodíawn Park Cemetery Co.
Work, Frank, estate of
Young, Sarah
19 7
23710
16
16
222 1
239 2
22 9
2336
27 69
2611
19 79
13967
2022
211 7
26 2
1 992
21172
26 23
20903
227 6
20271
2026
2 9
2 0
10912
269
269
21 6
219 6
102 0
102 07
27096
oíume Page


1 cquíescence reíates oníy to the íssue whether n settíement payment receíved . rom a former empíoyer
m 19 constítutes back pay under sectíon 107(d) of the Internaí Revenue Code.
1 cquíescence reíates to aíí íssues e cept the íssue whether the freehoíd ínterest of the petítíoner and the
íeasehoíd ínterests of other operators ín míneraí property constítute a síngíe property or separate propertíes
íor depíctíon purposes,
1 cquíescence reíates to the Issue whether modífícatíon of the terms of aítímore and Ohío Raííroad Co.
bonds under a court-approved pían resuíted ín a reorganízatíon by way of recapí taíí ratíon. Nonacquíes-
cencc pubííshed ín Cumuíatíve uííetín 1960-2, page 6, wíthdrawn as to thís íssue oníy.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
The Commíss:oner docs NOT acqírescc n the foííow ng decísíons:
Ta payer
Docket No.
oíume Ta e
pe íectrícaí Manufacturíng Co., The.

íum, Tííííc
oston íevated Raííway Co
rown Wííííamson Tobacco Corporatíon.
Cheísea Products, Inc
Crow- urííngame Co
De oer et u ., . enry.
Federaí Natíonaí ank of Shawnee, Okía., The.
, Incorporated
Foerderer, Percívaí
Frame, Robert G
arroan Coaí Corporatíon, . _
artfícíd. Gordon W
eaí -, dwín
obbs, ohn W. F., estate of
obbs et aí., Leon P., e ecutors and trustees of estate
of ohn . F. obbs
M
Manníng, Mrs. . Grady, trustee of II. Grady Man-
níng Trust
Manníng, Ruth.
Manníng Trust, . Grady
Míííer, Cecíí
Moore, Mary Young
Muííígan, ohn ., transferee
R
Reííance Factoríng Corporatíon.
S
Scott, oy Manníng.
Smíth, Weídon D.í_.
2727
130 9
12 93
1 020
19 9
22920
19 9
20166
1 3 2
1 6 0
219 7
2 1 0
232
229
229
231
231 9
231
231 9
162 9
162 0
162 9
2326
2 7
17207
193 3
2327
2071
162 1
27 69
Nonacqnícscence reíates to aíí íssues e cept the íssue whether a settíement payment receíved from a
íormer empíoyer ín 19 constítutes back pay under sectíon 107(d) of the Internaí evenue Code.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
6
Nonacqthescences € ” Contínued
Ta payer
T
Tayíor, ííaíscy W
Tennessee Consoíídated Coaí Co.1
Tíffany, Carter
Twogood, Frances F., e ecutrí of estate of Frederíck
ohn Twogood 1
Twogood, Frederíck ohn, estate of 2
Docket No.
2 7 3
13967
2022
277 0
2063
2063
Report
oíume I Page
16
1
16
1
1
376
2
1 3
9 0
9 9
1 Nonacquíescence reíates oníy to the íssue whether the freehoíd ínterest of the petítíoner and the íease-
hoíd ínterest of other operators ín míneraí property constítute a síngíe property or separate propertíes
for depíctíon purposes.
2 state ta decísíon.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
INCOM T RULINGS. € ” P RT I
INT RN L R NU COD
C PT R 1 € ” INCOM T
SU C PT R . € ” G N R L PRO ISIONS
P RT II. € ” COMPUT TION OF N T INCOM
S CTION 22(a). € ” GROSS INCOM : G N R L
D FINITION
Sectíon 29.22(a)-í: What íncíuded ín gross 19 1-2 -1371
íncome. G. C. M. 27026
INT RN L R NU COD
Treatment for Federaí íncome ta purposes of proceeds deríved
from pubííc entertaínments conducted for the benefít of charítabíe
organízatíons.
n opíníon ís requested as to the treatment for Federaí íncome ta
purposes of the proceeds deríved from pubííc entertaínments con-
ducted for the benefít of charítabíe organízatíons.
It ís a common practíce for those engaged ín the busíness of
promotíng sportíng events, or other forms of pubííc entertaínment,
to desígnate events conducted on certaín days as charíty events, the
net proceeds beíng turned over to specífíc charítabíe organízatíons.
It ís a weíí-estabííshed príncípíe, based on decísíons of the Supreme
Court of Ihe Uníted States, that an assígnment of íncome by the person
who earns ít, or ís otherwíse entítíed to ít, does not reííeve hím from
ta on such íncome. When a person who ís ín the busíness of pro-
motíng sportíng events, or other pubííc entertaínments, enters ínto
an agreement wíth a charítabíe organízatíon under the terms of whích
the facííítíes of the former r.re operated by hím as agent for the charí-
tabíe organízatíon, and aíí the proceeds from the event íess e penses
are receíved by or on account of the íatter, the promoter ís ín effect
assígníng to the charítabíe organízatíon earníngs deríved by hím from
the operatíon of the event. To aííow the promoter ín these círcum-
stances to e cíude such amounts from hís gross íncome wouíd be to
gíve effect to form rather than substance, and wouíd permít círcum-
ventíon of the specífíc statutory íímítatíons, contaíned ín sectíon
23 (o) and (q) of the Internaí Revenue Code, on the amount of charí-
tabíe contríbutíons whích ís deductíbíe ín computíng net íncome. Thís
(7)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.22(a)-2.

offíce ís accordíngíy of the opíníon that íf a professíonaí promoter
wouíd, ín the absence of an agreement between the partíes, be entítíed
tc the proceeds of an event, such agreement wííí not operate to permít
hím to e cíude the proceeds of the event from hís íncome for Federaí
íncome ta purposes.
It ís recognízed, however, that there are ínstances ín whích a charí-
tabíe organízatíon ís ítseíf the promoter of an event desígned to pro-
duce íncome to be used for íts purposes. azaars, amateur produc-
tíons, and sportíng events are. of course, frequentíy promoted by such
organízatíons. If the charítabíe organízatíon ís actuaííy the promoter
of an event, the fact that servíces and property are contríbuted or
facííítíes íoaned to the organízatíon does not, of ítseíf, resuít ín ta
to the contríbutor or íender.
Determínatíon of whether the charítabíe organízatíon ís ín sub-
stance the benefícíary of profíts earned by a professíonaí promoter of
an event, or whether ít ís ítseíf the promoter, must depend on the
partícuíar facts ín each case, consíderíng the reaíítíes of the sítuatíon.
Charíes Oííphant,
Chíef Counseí, ureau of Internaí Revenue.
Sectíon 29.22(a)-2: Compensatíon for personaí 19 1-17-136 3
servíces. I- T. 0 6
( íso Sectíon 22(b), Sectíon 29.22(b) (3)-í.)
INT RN L R NU COD
Stípends receíved under feííowshíp awards granted by the M
Foundatíon are not e empt from Federaí íncome ta as gífts under
sectíon 22(b)(3) of the Internaí Revenue Code but are íncíudíbíe
ín gross íncome as compensatíon for personaí servíces under sectíon
22(a) of the Code.
dvíce ís requested as to the treatment for Federaí íncome ta pur-
1)oses of stípends receíved under feííowshíp awards granted by the M
foundatíon.
Numerous feííowshíp awards have been granted by the M Founda-
tíon, and ínformatíon reíatíve to four representatíve awards has been
submítted for consíderatíon. The facts wíth respect to such represent-
atíve awards are as foííows:
n award was granted by the foundatíon to , an assístant profes-
sor of physícaí chemístry ín a uníversíty, for a períod of 9 months
wíth a stípend of 3,000 to be paíd ín the manner desígnated by hím,
for ínvestígatíon ín the fíeíd of structuraí chemístry. had obtaíned
a masters degree ín une 19 , and he had compíeted hís doctorate ín
May 19 7. Thereafter he engaged ín research, and he appííed for a
feííowshíp from September 19 0 to une 19 1. e ís engaged ín a
íong-term pro|ect whích was not compíeted wíthín the term of the
feííowshíp. e píans to contínue the pro|ect wíth the fínancíaí aíd
of hís uníversíty s aíumní research foundatíon when he returns to the
uníversíty, as he beííeves that the sub|ect matter of hís ínvestígatíon
wííí become an íncreasíngíy fruítfuí fíeíd of research. Duríng the
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
9
29.22(a)-2.
19 to 19 , íncíusíve, numerous artícíes on the sub|ects covered
feííowshíp for creatíve wrítíng was awarded by the foundatíon to
, a wríter, wíth a stípend of 3, 00 for a 12-month períod begínníng
ín the spríng; of 19 0. The purpose of the feííowshíp ís to enabíe the
recípíent to fínísh a noveí, or at íeast advance ít to a poínt at whích he
couíd seríousíy díscuss píans for íts pubíícatíon. has prevíousíy
wrítten severaí books, and ít ís contended that thís feííowshíp wííí
enabíe the recípíent to díscontínue short-range nonfíctíon pro|ects
and to proceed wíth a work whích he hopes wííí be of ma|or ímportance
ín hís deveíopment as a wríter.
feííowshíp award was granted by the foundatíon to C, an assístant
professor of botany and mícrobíoíogy at one of the uníversítíes, for
the study of the physíoíogy and bíochemístry of aquatíc fungí. Thís
award was for 12 months commencíng ugust 1,19 0, wíth a stípend of
13, 00 whích was paíd ín fuíí ín advance. The ínformatíon submítted
índícates that C receíved an . . degree ín 19 3 and a Ph. D. degree
ín 19 . C states that hís uítímate aím ís to become suffícíentíy weíí
grounded ín the bíoíogícaí servíces to be abíe to teach botanícaí sub-
|ects from a dynamíc and bíoíogícaí poínt of víew and more specífícaííy
to devote hís research to an ínvestígatíon of the ííttíe-understood
actívítíes of the water fungí. Príor to the awardíng of hís feííowshíp,
C had made severaí contríbutíons to scíence whích were pubííshed.
D receíved an . . degree from one uníversíty ín the year 1936 and
a Ph. D. degree from another uníversíty ín 19 0. e was awarded a
feííowshíp |oíntíy wíth another grantee for purposes of research ínto
díe reíatíons between government and economíc processes, wíth
a stípend of 3, 00 for a períod of 12 months begínníng February 1,
19 1. e was prevíousíy engaged ín research, and he has compíeted
the manuscrípt of a book whích wííí be or has been pubííshed. rtícíes
on sub|ects reíated to the proposed research have been pubííshed by
hím. D and hís coworker pían to go to urope for a year to make
a systematíc anaíysís of the sub|ect of theír research. It was for thís
partícuíar research ín urope that D appííed for an M Foundatíon
feííowshíp. Neíther grantee has a contract guaranteeíng pubíícatíon
of a book of reports or artícíes resuítíng from theír research, but
severaí commercíaí pubííshers have e pressed ínterest ín pubííshíng
such a book. owever, before pubíícatíon of such a book, ít ís e -
pected that portíons of theír reports wííí be pubííshed ín professíonaí
|ournaís ín the fíeíd of economícs and poíítícaí scíence. One of the
uítímate purposes of D s research ís stated to be that at the compíetíon
of the present pro|ect ín 19 2, he e pects to engage ín research and
wrítíng on partícuíar probíems raísed duríng the course of the |oínt
research but not adequateíy treated ín the present pro|ect.
íí feííowshíp programs are orígínated by the prospectíve grantees
and not by the foundatíon, and ít has never receíved any ríghts ín
research or creatíve work produced by the grantees. The foundatíon
does not requíre the grantees to submít reports of theír progress. The
awards are ín no way contíngent upon compíetíon of the feííowshíp
programs, and the stípends are dísbursed at such tímes and ín such ín-
staííments as may suít the grantees conveníence.
9 016 € ” 2 2
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.22(a)- .
10
Sectíon 22(a) of the Internaí Revenue Code provídes ín part as
foííows:
(a) Generaí Defínítíon. € ” Gross Income Incíudes gaíns, profíts, and Income
deríved from saíaríes, wages, or compensatíon for personaí servíces €
of whatever kínd and ín whatever form paíd € and íncome deríved from
any source whatever. €
Sectíon 22(b) (3) of the Code provídes ín part as foííows:
(b) cíusíons from Gross Income. € ” The foííowíng ítems shaíí not be In-
cíuded ín gross íncome and shaíí be e empt from ta atíon under thís chapter
chapter 1 of the Code :
€ € €
(3) Gífts, bequests, devíses, and ínherítances. € ” Th vaíue of property
acquíred by gíft
The amount of a grant or feííowshíp award ís íncíudíbíe ín gross
íncome uníess ít can be estabííshed that such amount ís a gíft. If a
grant or feííowshíp award ís made for the traíníng and educatíon of
an índívíduaí, eíther as a part of hís program ín acquíríng a degree or
ín otherwíse furtheríng hís educatíonaí deveíopment, no servíces beíng
rendered as consíderatíon therefor, the amount of the grant or award
ís a gíft whích ís e cíudabíe from gross íncome. owever, whsn the
recípíent of a grant or feííowshíp appííes hís skííí and traíníng to
advance research, creatíve work, or some other pro|ect or actívíty,
the essentíaí eíements of a gíft as contempíated by sectíon 22(b) (3)
of the Internaí Revenue Code are not present, and the amount of the
grant or feííowshíp ís íncíudíbíe ín the recípíent s gross íncome.
It seems apparent that the awards hereín consídered were granted on
the basís of the quaíífícatíons of the recípíents to do the work requíred
by theír pro|ects, whích pro|ects were approved by the M Foundatíon
wíth the e pectatíon of resuíts consístent wíth the recípíents quaíífíca-
tíons. To the e tent there ís any donatíve íntent present ín the makíng
of an award, ít appears that the benefícíary ís socíety at íarge and not
the recípíent of the award whose servíces are e pected ín return for
the grant.
It ís evídent that ín the four cases wíth respect to whích the facts are
set forth above, the feííowshíps granted by the M Foundatíon are not
for the traíníng or educatíon of the recípíents. In the cases of , C,
and D, the feííowshíps were granted ín furtherance of research, and ín
the case of , the wríter, the feííowshíp was granted for the creatíon
of a noveí. The recípíents appíy theír respectíve skííís and traíníng to
advance research or creatíve work. Of. LeRoy . Robertson v. Uníted
States, decíded by the Uníted States Court of ppeaís for the Tenth
Círcuít on uíy 10,19 1.)
ccordíngíy, ít ís heíd that stípends receíved under feííowshíp
awards granted by the M Foundatíon are not e empt from Federaí
íncome ta as gífts under sectíon 22(b) (3) of the Internaí Revenue
Code but are íncíudíbíe ín gross íncome as compensatíon for personaí
servíces under sectíon 22(a) of the Code.
Sectíon 29.22 (a)- : Gross íncome from busíness.
INT RN L R NU COD
Georgía prívííege or íícense tu coííected by vendors from purchasers
or consumers. .(See I. T. 0 , page 22.)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
11 22(b).
Sectíon 29.22(a)- : Gross íncome from busíness.
INT RN L R NU COD
South Caroíína saíes and use ta es coííected by vendors from pur-
chasers or consumers. (See I. T. 066, page 26.)
S CTION 22(b). € ” GROSS INCOM : CLUSIONS
FROM GROSS INCOM
19 1-20-13667
L T. 060
INT RN L R NU COD
Dísabíííty benefít payments receíved by empíoyees pursuant to
artícíe 9 (known as the dísabíííty benefíts íaw) of the New York
workmen s compensatíon íaw are e cíudabíe from gross íncome
under sectíon 22(b) ( ) of the Internaí Revenue Code and are not
sub|ect to wíthhoídíng of íncome ta at the source on wages under
sectíon 1622 of the Code. Such payments wííí be deductíbíe by
empíoyers under sectíon 23(a) (1) ( ) of the Code oníy to the e tent
that they are made by the empíoyers out of theír own funds.
dvíce ís requested whether (1) payments receíved by empíoyees
pursuant to artícíe 9 (added by Laws of New York, chapter 600,
approved and effectíve príí 13,19 9), known as the dísabíííty benefíts
íaw, of the New York workmen s compensatíon íaw are e cíudabíe
from gross íncome under sectíon 22(b) ( ) of the Internaí Revenue
Code, (2) such payments are sub|ect to wíthhoídíng of íncome ta at
the source on wages under sectíon 1622 of the Code, and (3) such pay-
ments made by empíoyers are deductíbíe as busíness e penses under
sectíon 23(a) (1) ( ) of the Code.
The pertínent provísíons of artícíe 9 of the New York workmen s
compensatíon íaw read as foííows:
Sectíon 201. Defínítíons. € ” s used ín thís artícíe:
€ € € € € €
. Dísabíííty duríng empíoyment means the ínabíííty of an empíoyee, as a
resuít of ín|ury or síckness not arísíng out of and ín the course of an empíoyment,
to perform the reguíar dutíes of hís empíoyment or the dutíes of any other
empíoyment whích hís empíoyer may offer hím at hís reguíar wages and whích
hís ín|ury or síckness does not prevent hím from performíng. Dísabíííty
duríng unempíoyment means the ínabíííty of an empíoyee, as a resuít of ín|ury
or síckness not arísíng out of and ín the course of an empíoyment, to perform
the dutíes of any empíoyment for whích he Is reasonabíy quaíífíed by traíníng
and e períence.
9. enefíts means the money aííowances duríng dísabíííty payabíe to an
empíoyee who ís eíígíbíe to receíve such benefíts, as províded ín thís artícíe.
10. Carríer shaíí Incíude: the State fund, stock corporatíons, mutuaí cor-
poratíons and recíprocaí ínsurers whích ínsure the payment of benefíts províded
pursuant to thís artícíe; and empíoyers and assocíatíons of empíoyers or of
empíoyees and trustees authorízed or permítted to pay benefíts under the
Provísíons of thís artícíe.
€ € € € € €
Sec 20 . Dísabíííty Duríng mpíoyment. € ” 1. Dísabíííty benefíts shaíí be
payabíe to an eíígíbíe empíoyee for dísabííítíes commencíng after une thírtíeth,
níneteen hundred fífty, begínníng wíth the eíghth consecutíve day of dísabíííty
and thereafter duríng the contínuance of dísabíííty
€ € € € € €
Sec. 207. Dísabíííty Whííe Unempíoyed. € ” 1. mpíoyees entítíed to unempíoy-
ment ínsurance benefíts. € ” n empíoyee whose empíoyment wíth a covered em-
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
22(b).
12
píoyer ís termínated and who duríng a períod of unempíoyment wíthín twenty-sí
weeks ímmedíateíy foííowíng such termínatíon of empíoyment shaíí become
íneíígíbíe for benefíts currentíy beíng cíaímed under the unempíoyment ínsurance
íaw soíeíy because of dísabíííty commencíng after une thírtíeth, níneteen hundred
fífty, and who on the day such dísabíííty commences ís not empíoyed or workíng
for remuneratíon or profít and ís not then otherwíse eíígíbíe for benefíts under
thís artícíe, shaíí be entítíed to receíve dísabíííty benefíts as hereín províded for
each week of such dísabíííty duríng such twenty-sí week períod, for whích
week he wouíd have receíved unempíoyment ínsurance benefíts íf he were not
so dísabíed. €
2. mpíoyees not eíígíbíe for unempíoyment ínsurance benefíts. € ” n empíoyee
whose empíoyment wíth a covered empíoyer ís termínated and who was ín
empíoyment of one or more covered empíoyers and was paíd wages of at íeast
thírteen doííars ín such empíoyment ín each of twenty caíendar weeks duríng
the thírty caíendar weeks ímmedíateíy precedíng the date he íast worked for
such covered empíoyer, and who duríng a períod of unempíoyment wíthín twenty-
sí weeks ímmedíateíy foííowíng such termínatíon of empíoyment ís not eíígíbíe
to benefíts under the unempíoyment ínsurance íaw because of íack of quaíífyíng
wages but who duríng unempíoyment has evídenced hís contínued attachment to
the íabor market, shaíí be eíígíbíe for benefíts under the provísíons of thís sub-
dívísíon duríng such twenty-sí week períod for dísabíííty commencíng after
une thírtíeth, níneteen hundred fífty. If such empíoyee becomes dísabíed and
contínues to be dísabíed for at íeast eíght consecutíve days duríng such twenty-
sí week períod and on the day such dísabíííty commences he ís not empíoyed
or workíng for remuneratíon or profít and ís not then otherwíse eíígíbíe for
benefíts under thís artícíe, he shaíí be entítíed to receíve dísabíííty benefíts, as
hereín províded, begínníng wíth the eíghth consecutíve day of such dísabíííty,
for each week of such dísabíííty thereafter duríng such twenty-sí week
períod.
3. Payment of benefíts. € ” The benefíts payabíe under thís sectíon shaíí be sub-
|ect to the provísíons and íímítatíons generaííy appíícabíe to dísabíííty benefíts
payabíe under thís artícíe, and shaíí be paíd by the chaírman chaírman of the
State workmen s compensatíon board out of any assets ín the fund created
by sectíon two hundred fourteen.

Sec. 211. Provísíon for Payment of enefíts. € ” covered empíoyer shaíí,
wíth hís own contríbutíons and the contríbutíons of hís empíoyees, províde
dísabíííty benefíts to hís empíoyees ín one or more of the foííowíng ways:
1. by ínsuríng and keepíng ínsured the payment of such benefíts ín the State
fund, or
2. by ínsuríng and keepíng ínsured the payment of such benefíts wíth any
stock or mutuaí corporatíon or recíprocaí ínsurer authorízed to transact the
busíness of accídent and heaíth ínsurance ín thís State, or
3. by furníshíng satísfactory proof to the chaírman of hís fínancíaí abíííty
to pay such benefíts, ín whích case the chaírman shaíí requíre the deposít of
such securítíes as the chaírman may deem necessary or the fíííng
of the bond of a surety company authorízed to do busíness ín thís State, con-
dítíoned on the payment by the empíoyer of hís obíígatíons under thís artícíe
and ín form approved by the chaírman. The chaírman shaíí have
authoríty to deny an appíícatíon to províde benefíts pursuant to thís subdívísíon
or to revoke approvaí at any tíme for good cause shown. €
. by a pían ín e ístence on the effectíve date of thís artícíe. The
chaírman may requíre that the empíoyer shaíí enter ínto an agreement ín wrítíng
wíth the chaírman that he wííí pay the assessments € and that untíí
the e píratíon of nínety days after he shaíí have fííed wrítten notíce wíth the
chaírman of hís eíectíon to termínate such pían or agreement or to díscontínue
makíng necessary contríbutíons to íts cost, he wííí contínue to províde for the
payment of the dísabíííty benefíts under such pían or agreement or wííí províde
for the payment of benefíts deemed by the chaírman to be at íeast as favorabíe
as the benefíts províded under thís artícíe
. by a new pían or agreement. € ny such pían or agreement shaíí
contínue untíí the e píratíon of nínety days after wrítten notíce fííed wíth the
chaírman of íntentíon to termínate such pían or agreement, and any modífícatíon
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
13
22(b).
of nch pían or agreement snaíí be sub|ect to the wrítten approvaí of the chaír-
man. € € €
€ € € € € €
Sec. 213. Non-Compííance or Defauít. € ” Whenever a covered empíoyer does
not compíy wíth thís artícíe by provídíng for the payment of dísabíííty benefíts
to hís empíoyees ín one or more of the ways províded ín sectíon two hundred
eíeven or whenever a carríer faíís to pay the benefíts requíred by thís artícíe
to empíoyees of a covered empíoyer, then such empíoyer shaíí be fuííy and
dírectíy ííabíe to each of hís empíoyees for the payment of benefíts províded by
thís artícíe. The amount of the benefíts to whích empíoyees of such empíoyers
are entítíed under thís artícíe shaíí, on order of the chaírman, be paíd out of
the fund estabííshed under sectíon two hundred fourteen. €
Sec. 21 . Specíaí Fund foe Dísabíííty kneftts. € ” There ís hereby created
a fund whích shaíí be known as the specíaí fund for dísabíííty benefíts to províde
for the payment of dísabíííty benefíts under sectíons two hundred seven and two
hundred thírteen of thís artícíe.
Sectíon 22(b) ( ) of the Internaí Revenue Code provídes ín part as
foííows:
(b) cíusíons from Gross Income. € ” The foííowíng ítems shaíí not be
Incíuded ín gross íncome and shaíí be e empt from ta atíon under thís chapter
chapter 1 of the Code :
( ) Compensatíon for ín|uríes or síckness. € ” cept ín the case of
amounts attríbutabíe to (and not ín e cess of) deductíons aííowed under
sectíon 23 ( ) ín any príor ta abíe year, amounts receíved, through accídent
or heaíth ínsurance as compensatíon for personaí ín|uríes or
síckness € € Itaíícs suppííed.
It ís heíd that dísabíííty benefít payments to empíoyees, whether
made from the State ínsurance fund, by an ínsurance company pur-
suant to an ínsurance contract, or under an approved seíf-ínsured
pían are e cíudabíe from the gross íncome of the recípíents under
sectíon 22(b) ( ) of the Internaí Revenue Code as amounts receíved,
through accídent or heaíth ínsurance as compensatíon for
personaí ín|uríes or síckness and do not constítute wages for purposes
of wíthhoídíng of íncome ta at the source. (( /. I. T. 000, C. .
19 0-1,21. and I. T. 01 , C. . 19 0-1,23.)
It ís heíd further that dísabíííty benefít payments made by em-
píoyers under approved seíf-ínsured píans, to the e tent that such
payments are not attríbutabíe to contríbutíons made by empíoyees,
constítute deductíbíe busíness e penses under sectíon 23(a)(1)( )
of the Code for the year ín whích paíd or accrued, dependíng on the
method of accountíng used by the empíoyer. (See I. T. 010. C. .
19 0-1, 30.)
19 1-20-1366
I. T. 061
INT RN L R NU COD
Dísabíííty retírement pay receíved by a retíred commíssíoned
offícer of the Uníted States Coast and Geodetíc Survey ís not e cíud-
abíe from gross íncome under sectíon 22(b) ( ) of the Internaí
Revenue Code where such offícer was never transferred to duty
wíth the Department of the rmy or the Department of the Navy
and he díd not render servíce wíthín the scope of sectíon 2 of the
ct of December 3, 19 2 ( 6 Stat. 103 ).
dvíce ís requested whether the dísabíííty retírement pay receíved
by a retíred commíssíoned offícer of the Uníted States Coast and
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
22(b).
1
Geodetíc Survey ís e cíudabíe from gross íncome under sectíon
22(b) ( ) of the Internaí Revenue Code where such offícer was never
transferred to duty wíth the Department of the rmy or the Depart-
ment of the Navy and he díd not render servíce wíthín the scope of
sectíon 2 of the ct of December 3, 19 2 ( 6 Stat. 103 ).
In the ínstant case, the ta payer was a hydrographíc and geodetíc
engíneer wíth the rank of ííeutenant ín the Uníted States Coast and
Geodetíc Survey. e entered the servíce of the Coast and Geodetíc
Survey on September 1 , 192 . Pursuant to a recommendatíon of
the medícaí survey board of the Pubííc eaíth Servíce, the ta payer
was retíred on October 1, 19 2, because of a physícaí dísabíííty whích
was íncurred ín ííne of duty.
Sectíon 2 of the ct of December 3, 19 2 ( G Stat. 103 ), provídes
as foííows:
Sec. 2. Commíssíoned offícers of th: Coast and Geodetíc Survey who are
assígned, duríng the períod of the present war, to duty on pro|ects for the War
Department or the Navy Department ín areas outsíde the contínentaí Uníted
States or ín íaska, or ín coastaí areas of the Uníted States, determíned by the
War or Navy Department to be of ímmedíate mííítary hazard, shaíí, whííe on,
such duty, be entítíed to the ríghts and benefíts províded by íaw for offícers
of the Coast and Geodetíc Survey who are actuaííy transferred to the servíce
of the War Department or the Navy Department: Províded, That the benefíts
of thís sectíon shaíí be appíícabíe aíso to commíssíoned offícers of the Coast and
Geodetíc Survey servíng ín the Phíííppíne Isíands on December 7, 19 1.
Sectíon 22(b)( ) of the Internaí Revenue Code provídes ín part
as foííows:
(b) rc rsíoNS from Gross Income. € ” The foííowíng ítems shaíí not be
íncíuded ín gross íncome and shaíí be e empt from ta atíon under thís chapter
chapter 1 of the Code :
€ € € € € €
( ) Compensatíon for ín|uríes or síckness. € ” amounts re-
ceíved as a pensíon, annuíty or símííar aííowance for personaí ín|uríes or
síckness resuítíng from actíve servíce ín the armed forces of any country;
The Uníted States Coast and Geodetíc Survey ís ordínarííy a cívííían
agency under the Department of Commerce. (See sectíon , ct of
February , 1903. 32 Stat. 2 .) owever, the Presídent ís author-
ízed, whenever ín hís |udgment a suffícíent natíonaí emergency e ísts,
to transfer to the servíce and |urísdíctíon of the Department of the
rmy, or the Department of the Navy, such personneí of the Coast
and Geodetíc Survev as he mav deem to be ín the best ínterest of the
country. (See sectíon 16, ct of May 22, 1917, 0 Stat. , at page
7.) Personneí so transferred are, whííe servíng wíth the Depart-
ment of the rmy or the Department of the Navy, consídered as mem-
bers of the mííítarv and navaí forces of the Uníted States. (See I. T.
1 02, C. . 1-2, 72 (1922).)
In order for the ínstant ta payer s retírement pay to be e empt
under the provísíons of sectíon 22(b) ( ) of the Code, supra, hís
dísabíííty must have been íncurred whííe servíng wíth the Department
of the rmy or the Department of the Navy under authoríty of an
ecutíve order, or hís dísabíííty must have been íncurred whííe he
was entítíed to the benefíts of sectíon 2 of the ct of December 3.1912,
supra.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
1
29.22(d)- .
The facts ín the ínstant case show that the ta payer was not ín-
cíuded ín any ecutíve orders transferríng personneí from the Coast
and Geodetíc Survey to the Department of the rmy or the Depart-
ment of the Navy, and that he díd not render servíce wíthín the scope
of sectíon 2 of the ct of December 3, 19 2, supra. ccordíngíy, ít ís
heíd that the dísabíííty retírement pay receíved by the ta payer ís
not e cíudabíe from gross íncome under sectíon 22(b)( ) of the
Internaí Revenue Code, supra. I. T. 36 (C. . 19 , 63) shouíd
no íonger be foííowed ínsofar as ít unquaíífíedíy hoíds that commís-
síoned offícers of the Uníted States Coast and Geodetíc Survey are
members of the mííítary and navaí forces of the Uníted States wíthín
the meaníng of sectíon 3797(a) (1 ) of the Code.
Sectíon 29.22(b) (2)- : mpíoyees annuítíes.
( íso Reguíatíons 103.)
Reguíatíons 103 and 111 amended. (See T. D. 3, page 90.)
Sectíon 29.22(b) (3)-í: Gífts and bequests.
Stípends receíved under feííowshíp awards ínvoívíng oníy educatíon
or traíníng of the recípíent. (See I. T. 0 6, uage í)
S CTION 22(d). € ” GROSS INCOM : IN NTORI S-
L CTI M T OD
Príce índíces for uíy 19 1, pubííshed by the ureau of Labor
Statístícs under date of September 10, 19 1, for use by department
stores empíoyíng the retaíí Inventory and eíectíve ínventory
methods.
The foííowíng príce índíces for uíy 19 1, pubííshed by the ureau
of Labor Statístícs for use by department stores empíoyíng the retaíí
ínventory and eíectíve ínventory methods, are accepted by the ureau
of Internaí Revenue pursuant to Treasury Decísíon 60 (C. .
19 -1, 16), approved March , 19 , and Mímeograph 62 (C. .
19 -1, 21), dated March 9, 19 , for appropríate appíícatíon to ín-
ventoríes for ta abíe years of 12 months ended on une 30, 19 1,
and uíy 31,19 1.
INT RN L R NU COD
INT RN L R NU COD
Sectíon 29.22 (d)-í: Inventoríes under eíec-
tíve method.
19 1-23-13693
I. T. 06
INT RN L R NU COD
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.22(n)-í.
16
ureau of Labor Statístícs, department store ínventory príce índíces, by
department groups
( anuary 19 1 100
Group
uíy 19 0
uíy 19 1
uíy 19 0 to
uíy 19 1
percent
I. Píece goods, domestícs, and drapcríc --
II. Shoes
III. Ladíes underwear
I . Ladíes outerwear and gírís wear
. Men s and boys wear
I. Furníture and beddíng
II. ome furníshíngs
III. Ma|or appííances and eíectrícaí goods..
I . Notíons and toííet artícíes
. Ladíes accessoríes
19 .6
19 .2
10 .9
107.
1S3.
1 6.1
173.
1 .3
1 .0
163.6
Totaí, Groups I, II, III, I , , I , and ..
Totaí, Groups L II, and III
Store totaí.
17 .
173.
17 .
222.
222.
1 0.3
179.
203.3
209.
19 .0
167.3
16a 3
16 .3
193.7
19 .0
193.6
S CTION 22(n). € ” GROSS INCOM : D FINITION OF
D UST D GROSS INCOM
Sectíon 29.22(n)-í: d|usted gross íncome.
INT RN L R NU COD
Georgía prívííege or íícense ta paíd by índívíduaís ín connectíon
wíth trade or busíness. (See I. T. 0 , page 22.)
Sectíon 29.22(n)-í: d|usted gross íncome.
INT RN L R NU COD
New ersey cígarette ta paíd by consumer ín connectíon wíth cíg-
arettes used ín trade or busíness. (See I. T. 0 9, page 2 .)
Sectíon 29.22(n)-í: d|usted gross íncome.
INT RN L R NU COD
South Caroíína saíes and use ta es paíd by índívíduaís ín con-
nectíon wíth trade or busíness. (See I. T. 0C6, page 26.)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
17
29.22(e)- .
S CTION 22(o). € ” GROSS INCOM : D L RS IN
T - MPT S CURITI S
Sectíon 29.22 (o)-í: Treatment of bond premíums 19 1-23-1369
ín case of deaíers ín ta -e empt securítíes. T. D. 60
( íso Sectíon 113(b), Sectíon 29.113(b) (1)-1;
Sectíon 12 , Sectíons 29.12 -1 and 29.12 - .)
TITL 26 € ” INT RN L R NU € ” C PT R I, SU C PT R . P RT 20. € ”
INCOM T ; T L Y RS GINNING FT R D C M R 1, 19 1
Reguíatíons 111 amended to conform to sectíons 203 and 217
of the Revenue ct of 19 0.
Treasury Department,
Offíce or Commíssíoner of Internaí Revenue,
Washíngton So, D. C.
To Coííectors of Internaí Revenue and Others Concerned:
On uíy 11,19 1. notíce of proposed ruíe makíng regardíng the pro-
vísíons of sectíon 203, reíatíng to treatment of bond premíum ín case
of deaíers ín ta -e empt securítíes, and sectíon 217, reíatíng to amortí-
zatíon of premíum on convertíbíe bonds, of the Revenue ct of 19 0,
íghty-fírst Congress, second sessíon, approved September 23, 19 0,
was pubííshed ín the Federaí Regíster (16 F. R. 6720). fter con-
síderatíon of aíí such reíevant matter as was presented by ínterested
persons regardíng the ruíes proposed, the amendments set forth beíow
are hereby adopted. Such amendments are necessary to conform
Reguíatíons 111 26 CFR, part 29 to the provísíons of sectíons 203
and 217 of the Revenue ct of 19 0.
Paragraph 1. There ís ínserted ímmedíateív after sectíon
29.22(n)-í. as added by Treasurv Decísíon 2 C . 19 , 10, 1 ,
approved December 29,19 26 CFR 29.22(n)-í , the foííowíng:
S C. 203. TR TM NT OF OND PR MIUM IN C S OF
D L RS IN T - MPT S CURITI S R NU CT OF
19 0, PPRO D S PT M R 23, 19 0 .
(a) mendment of Sectíon 22. € ” Sectíon 22 ís h reby amended by add-
íng at the end thereof the foííowíng new subsectíon:
(o) Deaíers ín Ta - empt Securítíes. € ”
(1) d|ustment for bond premíum. € ” In computíng the gross
íncome of a ta payer who hoíds duríng the ta abíe year a short-term
munícípaí bond (as defíned ín paragraph (2) ( )) prímarííy for
saíe to customers ín the ordínary course of hís trade or busíness € ”
( ) íf the gross íncome of the ta payer from such trade or
busíness ís computed by the use of ínventoríes and hís ínven-
toríes are vaíued on any basís other than cost, the cost of se-
curítíes soíd (as defíned ín paragraph (2)( )) duríng such
year shaíí be reduced by an amount equaí to the amortízabíe
bond premíum that wouíd be dísaííowed as a deductíon for such
year pursuant to sectíon 12 (a) (2) íf the defínítíon ín sectíon
12 (d) of the term bond díd not e cíude such short-term
munícípaí bond; or
( ) íf the gross íncome of the ta payer from such trade
or busíness ís computed wíthout the use of Inventoríes, or by
use of Inventoríes vaíued at cost, and the short-term munícípaí
bond ís soíd or otherwíse dísposed of duríng such year, the
ad|usted basís (computed wíthout regard to thís subparagraph)
of the short-term munícípaí bond shaíí be reduced by he amount
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.22(o)-í.
IS
of the ad|ustment that wouíd be requíred under sectíon
113(b) (1) ( ) íf the defínítíon ín sectíon 12 (d) of the term
bond díd not e cíude such short-term munícípaí bond.
(2) Defínítíons. € ” For the purposes of paragraph (1) € ”
( ) The term short-term munícípaí bond means any ob-
íígatíon íssued by a government or poíítícaí subdívísíon thereof
íf the ínterest on such obíígatíon ís e cíudíbíe from gross ín-
come; but such term does not íncíude such an obíígatíon íf (í)
ít ís soíd or otherwíse dísposed of by the ta payer wíthín
thírty days after the date of íts acquísítíon by hím, or (íí) íts
earííest maturíty or caíí date ís a date more than fíve years
from the date on whích ít was acquíred by the ta payer.
( ) The term cost of securítíes soíd means the amount as-
certaíned by subtractíng the ínventory vaíue of the cíosíng
ínventory of a ta abíe year from the sum of (í) the ínventory
vaíue of the openíng ínventory for such year and (íí) the cost
of securítíes and other property purchased duríng such year
whích wouíd properíy be íncíuded ín the ínventory of the ta -
payer íf on hand at the cíose of the ta abíe year.

(c) ffectíve Date. € ” The amendments made by thís sectíon shaíí be
appíícabíe to ta abíe years endíng after une 30, 19 0, but ín the case
of a ta abíe year begínníng before and endíng after such date the
amendments shaíí appíy oníy wíth respect to obíígatíons acquíred after
such date.
Sf.c 29.22(o)-í. Treatment of Co d Premíums ín Case of Deaíers ín Ta -
empt Securítíes. € ” (n) In generaí. € ” Sectíon 22(o) requíres certaín ad|ust-
ments to be made by deaíers ín securítíes wíth respect to premíums paíd on short-
term munícípaí bonds whích are heíd for saíe to customers ín the ordínary
course of the trade or busíness. The ad|ustments depend upon the method of
accountíng used by the ta payer ín computíng the gross íncome from the trade
or busíness. See (b) and (c) of thís sectíon. d|ustment under sectíon 22(o)
ís requíred oníy for ta abíe years endíng after une 30, 1930, and, ín the case of
a ta abíe year begínníng before une 30, 19 0, and endíng thereafter ís requíred
oníy wíth respect to obíígatíons acquíred after une 30, 19 0.
The term short-term munícípaí bond under sectíon 22(o) means any obííga-
tíon íssued by a government or poíítícaí subdívísíon thereof íf the ínterest on
the obíígatíon ís e cíudabíe from gross íncome under sectíon 22(b) ( ). Such
term, however, does not íncíude an obíígatíon the maturíty or earííest caíí date
of whích ís a date more than years from the date of acquísítíon by the
ta payer, or an obíígatíon soíd or otherwíse dísposed of by the ta payer wíthín
30 days after the date of acquísítíon by hím. bond whích ís otherwíse wíthín
the defínítíon of short-term munícípaí bond ís sub|ect to the provísíons of
sectíon 22(o) íf heíd by the ta payer for a períod of more than 30 days, whether
or not such períod ís entíreíy wíthín one ta abíe year.
(6) Inventoríes not vaíued at cost. € ” In the case of a deaíer ín securítíes who
computes gross íncome from hís trade or busíness by the use of ínventoríes and
vaíues such ínventoríes on any basís other than cost, the ad|ustment requíred
by sectíon 22(o) ís the reductíon of cost of securítíes soíd by the amount equaí
to the nrnortíznbíe bond premíum whích wouíd be dísaííowed as a deductíon under
sectíon 12 (a)(2) íf the deaíer were an ordínary ínvestor hoídíng such bond.
Such amortízabíe bond premíum ís computed under sectíon 12 (b) by reference
to the cost or other orígínaí basís of the bond on the date of acquísítíon (de-
termíned wíthout regard to sectíon 113(a) (1), reíatíng to ínventory vaíue on a
subsequent date). If the date of acquísítíon precedes uíy 1,10 0, then, ín com-
putíng under sectíon 12 (b) the amount of such amortízabíe bond premíum,
there shaíí be made ad|ustments to bond premíum proper to refíect unamortízed
bond premíum on such bond for the períod íncíudíng the hoídíng períod (as de-
termíned under sectíon 117(h)) príor to the date as of whích sectíon 22(o) fírst
becomes appíícabíe to the bond ín the bauds of the ta payer. See sectíon
29.12 -2.
The precedíng paragraph may be íííustrated by the foííowíng e ampíe:
, a deaíer ín securítíes who vaíues hís ínventoríes on a basís other than
cost, makes hís íncome ta returns on the caíendar year basís. On anuary 1,
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
19
29.22(o)-í.
19 9. he buys, for 1,060 each, three short-term munícípaí bonds ( , , and C)
havíng a face obíígatíon of 1,000, and maturíng on anuary 1. 19 . On uíy
1, 19 0, he buys, for 1,0 2 each, three more bonds ( , Y, and Z) of the same
íssue. onds and are soíd on December 31, 19 0. onds and Y are soíd
on December 31, 19 1. onds C and Z are soíd on December 31, 19 2. The ad-
|ustment for each of the years 19 0,19 1, and 19 2 ís as foííows:
Date acquíred
Date soíd
d|ustment for € ”
..
_.
( ..
an. 1,19 9.
an. 1,19 9.
an. 1, 19 9.
uíy 1,19 ).
uív 1,19 ).
uíy 1, € ”
Totaí..
Dec. 31, 19 0
Dec. 31,10 1
Dec. 31.19f2
Dec. 31,1SS0
Dec. 31,19 1
Dec. 31,19 2
None
None
Non
tt.00
6.00
0.00
1 .00
12.00 I.
12.00
íí 66
12.00
.00 I
For the purpose of determíníng such ad|ustment, the amortízabíe bond premíum
ís computed under sectíon 12 (b) as foííows:
ond , , or C ond , 7, or Z
ond premíum 60 2
d|ustment for períod príor to fírst date of appííca-
tíon of sectíon 22 (o):
ppíícabíe an. 1, 19 1 2
ppíícabíe uíy 1, 19 0 0
mortízabíe bond premíum to maturíty 36 2
mortízabíe bond premíum per month . 1 1
The term cost of securítíes soíd means the amount ascertaíned by subtract-
íng the ínventory vaíue of the cíosíng ínventory of a ta abíe year from the sum
of the ínventory vaíue of the openíng ínventory for such year and the cost of
securítíes and ether property purchased duríng such year whích wouíd properíy
be íncíuded ín the ínventory of the ta payer íf on hand at the cíose of the ta -
abíe year.
(c) Inventoríes not used or ínventoríes vaíued at cost. € ” In the case of a deaíer
ín securítíes who computes gross íncome from hís trade or busíness wíthout the
use of ínventoríes or by use of ínventoríes vaíued at cost, the ad|ustment re-
quíred by sectíon 22(o) ís a reductíon of the ad|usted basís of each short-term
munícípaí bond soíd or otherwíse dísposed of duríng the ta abíe year. The
amount of such reductíon Is the amount by whích the ad|usted basís of such bond
wouíd be requíred to be reduced under sectíon 113(b)(1)( ) were such bond
sub|ect to the amortízabíe bond premíum provísíons of sectíon 12 , that ís, the
amount of the amortízabíe bond premíum whích wouíd be dísaííowed as a de-
ductíon under sectíon 12 (a) (2) íf the ta payer were an ordínary ínvestor.
If the bond was acquíred before uíy 1,19 0, the amount of the reductíon shaíí
not íncíude the amount of such amortízabíe bond premíum whích wouíd be dís-
aííowed as a deductíon under sectíon 12 (a)(2), íf the ta payer were an ordí-
nary ínvestor, for any ta abíe year begínníng before uíy 1, 19 0. In the case
of such bond, the amortízabíe bond premíum whích wouíd be dísaííowed as a
deductíon under sectíon 12 (a)(2) ís determíned after makíng ad|ustments to
bond premíum proper to refíect unamortízed bond premíum on such bond for the
períod íncíudíng the hoídíng períod (as determíned under sectíon 117(h)) príor
to the date as of whích sectíon 22(o) fírst becomes appíícabíe to the bond ín the
bands of the ta payer. See sectíon 29.12 -2.
The precedíng paragraph may be íííustrated by the foííowíng e ampíe:
Y, a deaíer ín securítíes who vaíues hís Inventoríes on the basís of cost, makes
hís íncome ta returns on the caíendar year basís. On anuary 1, 19 9, he
buys, for 1,060 each, three short-term munícípaí bonds (D, , and F) havíng a
face obíígatíon of 1,000, and maturíng on anuary 1, 19 . On uíy 1, 19 0, he
buys, for 1,0 2 each, three more bonds (U, , and W) of the same íssue. onds
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.22(o)-í.
20
D and U are soíd on December 31, 19 0. onds and are soíd on December
31,19 1. onds F and W are soíd on December 31, 19 2.
ond
Date acquíred
Date soíd
d|ustment or € ”
19 0
19 1
19 2
D
an. 1, 19 9
Dec. 31,19 0
None
None
None
6.00
None
None

an. 1,19 9
Dec. 31,19 1
12.00
None
F
an. 1,19 9
Dec. 31, 19 2
ín. 00
u
uíy 1,19 0
Dec. 31, 19 0
1 . 66
None

uíy 1, 19 0
Dec. 31, 19 1
w
uíy 1, 19 0... ..
Dec. 31, 19 2
30. 00
For the purpose of determíníng such ad|ustments, the amortízabíe bond premíum
ís computed under sectíon 12 ;bí as foííows:
andD, .arF ond . .orí
ond premíum 60 2
d|ustment for períod príor to fírst date of appííca-
tíon of sectíon 22(o):
ppíícabíe an. 1, 19 1 2
ppíícabíe uíy 1, 19 0 0
mortízabíe bond premíum to maturíty 36 2
mortízabíe bond premíum per month 1 1
Par. 2. There ís ínserted ímmedíateíy precedíng sectíon 29.113(b)
(1)-1 26 CF 29.113(b) (1)-1 the foííowíng:
S C. 203. TR TM NT OF OND PR MIUM IN C S OF
D L RS IN T - MPT S CURITI S R NU CT OF
19 0, PPRO D S PT M R 23, 19 0 .
€ € € € €
(b) Technícaí mendments. € ”
(1) Sectíon 113(b)(1) ís hereby amended by addíng at the end
thereof the foííowíng:
(I) ín the case of any short-term munícípaí bond (as de-
fíned ín sectíon 22(o)), to the e tent províded ín sectíon
22(o) (1)( ).
€ € € € € € €
(c) ffectíve Date. € ” The amendments made by thís sectíon shaíí be
appíícabíe to ta abíe years endíng after une 30, 19 0, but ín the case
of a ta abíe year begínníng before and endíng after such date the
amendments shaíí appíy oníy wíth respect to obíígatíons acquíred after
such date.
Par. 3. Sectíon 29.113(b) (1)-1, as amended by Treasury Decísíon
02 C. . 19 . 229, 239 , approved September . 19 26 CFR
29.113(b) (1)-1 , ís further amended by addíng at the end thereof
the foííowíng:
For ad|ustment to basís of short-term munícípaí bonds as denned ín sectíon
22(o) (2) ( ), see sectíon 29.22(o)-í.
Par. . There ís ínserted ímmedíateíy precedíng sectíon 29.12 -1
26 CF 29.12 -1 the foííowíng:
S C. 203. TR TM NT OF OND PR MIUM IN C S OF
D L RS IN T - MPT S CURITI S R NU CT OF
19 0, PPRO D S PT M R 23, 19 0 .
€ € € € € € €
(b) Technícaí mendments. € ”
€ € € € € € €
(2) Sectíon 12 ís hereby amended by addíng at the end thereof
the foííowíng new subsectíon:
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
21
í 29.22(o)-í.
(e) Dfaíehs ín Ta - empt Securítíes. € ” For specíaí ruíes appíí-
cabíe, In the case of deaíers ín securítíes, wíth respect to premíum at-
tríbutabíe to certaín whoííy ta -e empt securítíes, see sectíon 22(o).
(c) ffectíve Date. € ” The amendments made by thís sectíon shaíí be
appíícabíe to ta abíe years endíng after une 30, 19 0, but ín the case
of a ta abíe year begínníng before and endíng after such date the
amendments shaíí appíy oníy wíth respect to obíígatíons acquíred after
such date.
S C. 217. MORTIZ TION OF PR MIUM ON CON RTI L
OND R NU CT OF 19 0, PPRO D S PT M R 23,
19 0 .
(a) Premíum ttríbutabíe to Conversíon Features of ond. € ” Sec-
tíon 12 (b) (1) (reíatíng to determínatíon of amount of bond premíum)
ís hereby amended by addíng at the end thereof the foííowíng: In no
case shaíí the amount of bond premíum on a convertíbíe bond íncíude
any amount attríbutabíe to the conversíon features of the bond.
(b) ffectíve Date. € ” The amendment made by subsectíon (a) shaíí
be appíícabíe wíth respect to ta abíe years begínníng after une 1 ,
19 0, and shaíí aíso appíy, ín the case of a ta abíe year begínníng on
or before such date, wíth respect to bonds acquíred after such date.
Par. . Sectíon 29.12 -1, as amended by Treasury Decísíon 2
2G CFR 29.12 -1; C. . 19 ,10. 29 , ís further amended by addíng
at the end of (a) thereof the foííowíng sentence: See, however,
sectíon 29.22(o)-í.
Par. 6. Sectíon 29.12 - 26 CFR 29.12 - ís amended by stríkíng
tííeref rom the íast sentence and by ínsertíng at the end of such sectíon
the foííowíng new paragraphs:
convertíbíe bond Is wíthín the scope of sectíon 12 íf the optíon to convert
on a date certaín specífíed ín the bond rests wíth the hoíder thereof. owever,
for the purpose of determíníng the amount of amortízabíe bond premíum on a
convertíbíe bond for a ta abíe year begínníng after une 1 , 19 0, or for any
ta abíe year ín the case of a convertíbíe bond acquíred after une 1 , 19 0,
the amount of bond premíum shaíí not íncíude any amount attríbutabíe to the
conversíon features of the bond. For the purpose of thís ruíe, the term con-
vertíbíe bond íncíudes a bond íssued wíth detachabíe stock-purchase warrants.
The vaíue of the conversíon features of a partícuíar bond shaíí be determíned
by ascertaíníng the assumed príce at whích such bond wouíd be purchased on
the open market If wíthout conversíon features, and by subtractíng such as-
sumed príce from the cost of the bond. The determínatíon of the assumed príce
of the bond wíthout the conversíon features shaíí be made by ascertaíníng the
yíeíd on whích bonds of símííar character, not havíng conversíon features, are
soíd on the open market and ad|ustíng the príce of the bond ín questíon to thís
yíeíd. Thís ad|ustment may be made by the use of standard bond tabíes. In
– eíectíng quotatíons for comparatíve purposes, bonds of the same cíassífícatíon
and grade shaíí be used. The appíícatíon of the príncípíes set forth In thís
paragraph may be íííustrated as foííows:
ampíe. T purchased for 11 a 100 bond, maturíng ín years, on whích
ínterest ís payabíe semíannuaííy at the rate of 3. percent a year. Thís bond ís
convertíbíe ínto common stock at the optíon of the hoíder. It ís found that bonds
of the same character, not havíng conversíon features, were soíd on the open
market on or about the tíme of T s purchase on a basís to yíeíd 2. 0 percent.
y recourse to a standard bond tabíe, ít ís found that the cost of a 3 6 percent
-year 100 bond to yíeíd 2. 0 percent wouíd have been 103.2 . Sínce the ta -
payer paíd 11 for the convertíbíe bond, the dífference between 11 and
103.2 , or 11.7 , represents the vaíue of the conversíon features of the bond
at the tíme of the purchase. The baíance of 3.2 represents the bond premíum
sub|ect to amortízatíon under sectíon 12 .
If a convertíbíe bond acquíred on or before une 1 , 19 0, ís heíd duríng a
ta abíe year begínníng after such date, the amortízabíe bond premíum for such
ta abíe year shaíí be computed as íf the provísíons for the determínatíon of the
bond premíum wíthout the íncíusíon of any amount attríbutabíe to the conversíon
features of the bond were appíícabíe for each year for whích the bond was heíd
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.23(c)- .
22
príor to such ta abíe year. Thus, íf ín the e ampíe ín the precedíng paragraph,
T had acquíred the bond on anuary 1, 19 9, and íf T makes hís íncome ta
returns on the basís of the caíendar year, the amortízabíe bond premíum for
19 1 wouíd be 0.6 , determíned as foííows:
ond premíum not attríbutabíe to conversíon feature 3. 2
mortízabíe bond premíum for 19 9 and 19 0, determíned by reference to
bond premíum not attríbutabíe to conversíon feature 1. 30
Portíon of bond premíum amortízabíe over remaíníng íífe of bond 1. 9
mortízabíe bond premíum for each of the remaíníng 3 years (one-thírd
of 1.9 ) 0.6
(Thís Treasury Decísíon ís íssued under authoríty contaíned ín sec-
tíons 62 and 3791 of the Internaí Revenue Code ( 3 Stat. 32. 67; 26
U. S. C. 62, 3791) and pursuant to the provísíons of Pubííc Law 1
( 1st Cong.), approved September 23,19 0.)
ohn . Duníap,
Commíssíoner of Internaí Revenue.
pproved October 1 ,19 1.
. . Foíey,
ctíng Secretary of the Treasury.
(Fííed wíth the Dívísíon of the Federaí Regíster October 23, 19 1, : a. m.)
S CTION 23(a). € ” D DUCTIONS FROM GROSS
INCOM : P NS S
Sectíon 29.23(a)-1: usíness e penses.
INT RN L R NU COD
Contríbutíons by empíoyer to províde dísabíííty benefíts under
artícíe 9 of the New York workmen s compensatíon íaw. (See I. T.
060, page 11.)
S CTION 23(c). € ” D DUCTIONS FROM GROSS
INCOM : T S G N R LLY
Sectíon 29.23 (c)-í: Ta es. 19 1-1 -136
( íso Sectíon 22(a), Sectíon 29.22(a)- ; I. T. 0
Sectíon 22 (n), Sectíon 29.22 (n)-í.)
INT RN L revenue code
Deductíbíííty for Federaí íncome ta purposes of the ta ímposed
by sectíon 2 of the Georgía Retaííers and Consumers Saíes and Use
Ta ct approved on February 20, 19 1, effectíve príí 1, 19 1.
dvíce ís requested as to the deductíbíííty for Federaí íncome ta
purposes of the ta ímposed by sectíon 2 of the Georgía Retaííers and
Consumers Saíes and Use Ta ct approved on February 20, 19 1,
whích became of fuíí force and effect on príí 1, 19 1.
The pertínent provísíons of the Georgía statute ín questíon read ín
part as foííows:
Sec. 2. There ís hereby íevíed and ímposed, ín addítíon to aíí other ta es of
every kínd now ímposed by íaw, a prívííege or íícense ta upon every person who
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
23
29.23(c)- .
engages In the busíness of seíííng tangíbíe personaí property at retaíí In thís
State, or who rents or furníshes any of the thíngs or servíces ta abíe under thís
ct, or who stores for use or consumptíon ín thís State any ítem or artícíe of
tangíbíe personaí property as defíned hereín or who íeases or rents such property
wíthín the State of Georgía, the same to be coííected ín the amount to be de-
termíned by the appíícatíon of the foííowíng rates agaínst gross saíes, to wít:
(a) t the rate of three percent (3 ) of the saíes príce of each ítem or artícíe
of tangíbíe personaí property when soíd at retaíí ín thís State; the ta to be
computed on gross saíes for the purpose of remíttíng the amount of ta duo the
State, and to íncíude each and every retaíí saíe or amount of ta es coííected
whíchever be the greater.
(b) t the rate of three percent (3 ) of the cost príce of each ítem or artícíe
cf tangíbíe personaí property when the same ís not soíd but ís used, consumed,
dístríbuted, or stored for use or consumptíon ín thís State; províded there shaíí
be no dupíícatíon of the ta .
(c) t the rate of three percent (3 ) of the gross proceeds deríved from the
íease or rentaí of tangíbíe personaí property, as defíned hereín, e cept the rentaí
of motíon pícture fííms, where the íease or rentaí of such property ís an estab-
ííshed busíness, or part of an estabííshed busíness, or the same ís íncídentaí or
germane to saíd busíness.
(d) t the rate of three percent (3 ) of the monthíy íease or rentaí príce
paíd by íessee or rentee, or contracted or agreed to be paíd by íessee or rentee,
to the owner of the tangíbíe personaí property.
(e) t the rate of three percent (3 ) of the gross saíes of aíí servíces ta abíe
under thís ct.
(f) The saíd ta shaíí be coííected from the deaíer €
€ € € € € € €
Sec. . e ít further enacted, by the authoríty aforesaíd, that the aforesaíd ta
at the rate of three percent (3 ) of the retaíí saíes príce, as of the moment of
saíe, or three percent (3 ) of the cost príce, as of tíe moment of purchase, as
the case may be, shaíí be coííectíbíe from aíí persons € € engaged as
deaíerr € € € ín the saíe at retaíí, the use, the consumptíon, the dístríbu-
tíon, and the storage for use or consumptíon ín thís State, of tangíbíe personaí
property.
€ € € € € € €
very deaíer makíng saíes, whether wíthín or outsíde the State, of tangíbíe
personaí property, for dístríbutíon, storage, use, or other consumptíon, In thís
State, shaíí at the tíme of makíng saíes, coííect the ta ímposed by thís ct
from the purchaser.
€ € € € € € €
Sec. 12. e It further enacted, by the authoríty aforesaíd, that:
(a) The prívííege ta hereín íevíed, measured by retaíí saíes shaíí be coí-
íected by the deaíer from the purchaser or consumer. € €
(b) Deaíers shaíí, as far as practícabíe, add the amounts of the ta Imposed
under thís ct to the saíes príce or charge, whích shaíí be a debt from the pur-
chaser or consumer to the deaíer, untíí paíd, and shaíí be recoverabíe at íaw ín
the same manner as other debts.
€ € € €
(e) person engaged ín any busíness ta abíe under thís ct shaíí not adver-
tíse or hoíd out to the pubííc, ín any manner, dírectíy or índírectíy that he wííí
absorb aíí or any part of the ta , or that he wííí reííeve the purchaser of the pay-
ment of aíí or any part of the ta . € €
Sectíon 23(c)(1) of the Internaí Revenue Code provídes that ín
computíng net íncome there shaíí be aííowed as deductíons ta e paíd
or accrued wíthín the ta abíe year, wíth certaín e ceptíons not here
materíaí. Sectíon 29.23(c)-í(a) of Reguíatíons 111 provídes that
ín generaí ta es are deductíbíe oníy by the person upon whom they
are ímposed. Sectíon 23(c) (3) of the Code provídes ín part that a
ta ímposed by any State, Terrítory, Dístríct, or possessíon of the
Uníted States, or any poíítícaí subdívísíon thereof, upon persons en-
gaged ín seíííng tangíbíe personaí property at retaíí, whích ís meas-
ured by the gross saíes príce or the gross receípts from tíe saíe or
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.23(e)- .
2
whích ís a stated sum per unít of such property soíd, or upon persons
engaged ín furníshíng servíces at retaíí, whích ís measured by the
gross receípts for furníshíng such servíces, íf the amount of such ta
ís separateíy stated, then to the e tent that the amount so stated ís paíd
by the consumer (otherwíse than ín connectíon wíth the consumer s
trade or busíness) to hís vendor such amount shaíí be aííowed as a
deductíon ín computíng the net íncome of such consumer as íf such
amount constítuted a ta ímposed upon and paíd by such consumer.
It ís not necessary, for the purposes of sectíon 23(c) (3) of the Code,
that the purchaser be furníshed wíth a saíes sííp, bííí, ínvoíce, or other
statement on whích the ta ís separateíy stated. Inasmuch as the íaw
(sectíon 12(e) of the Georgía Retaííers and Consumers Saíes and
Use Ta ct) prohíbíts the seííer from absorbíng the ta . ít ís pre-
sumed that the amount of the ta . ín each ínstance, ís separateíy stated.
(See sectíon 29.23(c)-í(6) of Reguíatíons 111.)
In víew of the foregoíng, ít ís heíd that the ta ímposed by sectíon 2
of the Georgía Retaííers and Consumers Saíes and Use Ta ct ís
deductíbíe, under the provísíons of sectíon 23(c) (1) of the Internaí
Revenue Code, by the persons who engage ín the busíness of seíííng
tangíbíe personaí property at retaíí ín the State of Georgía and by
persons e ercísíng the respectíve prívííeges set forth ín the ct. If
such persons are índívíduaís, the deductíon must be taken ín computíng
ad|usted gross íncome. (See sectíon 22(n) (1) cf the Code.) In the
case of such persons who are net índívíduaís, the deductíon ís aííowabíe
ín determíníng net íncome. Where ta payers coííect the ta from
vendees, they must íncíude the totaí amounts so coííected ín theír
gross íncome for Federaí íncome ta purposes.
It ís further heíd that to the e tent the ta ímposed by sectíon 2 of
the Georgía Retaííers and Consumers Saíes and Use Ta ct ís paíd
by the purchaser or consumer, otherwíse than ín connectíon wíth hís
trade or busíness, ít ís deductíbíe by the purchaser or consumer under
sectíon 23(c) (3) of the Code, e cept ín the case of an índívíduaí who
eíects to take the optíonaí standard deductíon. In case the purchaser
or consumer ís an índívíduaí, and the ta ís paíd ín connectíon wíth
hís trade or busíness, the ta must be deducted ín computíng ad|usted
gross íncome. (See sectíon 22(n) (1) of the Code.)
Deductíbíííty for Federaí íncome ta purposes of the ta ímposed
by the Cígarette Ta ct of the State of New ersey (chapter 6 ,
P. L. 19 , as amended by chapter 13 , Laws of 19 0, effectíve
uíy 1, 19 0).
dvíce ís requested whether the ta on cígarettes ímposed by the
Cígarette Ta ct of the State of New ersey (chapter 6 , P. L. 19 ,
as amended by chapter 13 , Laws of 19 0, effectíve uíy 1, 19 0) ís
deductíbíe for Federaí íncome ta purposes by the consumer.
Sectíon 23(c)(1) of the Internaí Revenue Code provídes that ín
computíng net íncome there shaíí be aííowed as deductíons ta es paíd
or accrued wíthín the ta abíe year, wíth certaín e ceptíons not here
Sectíon 29.23(c)-1: Ta es.
( íso Sectíon 22(n), Sectíon 29.22(n)-í.)
19 1-19-13661
L T. 0 9
INT RN L R NU COD
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
2
M.23(c)-1.
materíaí. Sectíon 29.23(c)-1(a) of Reguíatíons 111 provídes that
ín generaí ta es are deductíbíe oníy by the person upon whom they
are ímposed.
In I. T. 39 2 (C. . 19 9-1, 61) ít ís heíd that the New ersey cíg-
arette ta ímposed by chapter 6 , P. L. 19 , as amended, effectíve
uíy 1, 19 S, ís deductíbíe for Federaí íncome ta purposes under
sectíon 23(c) (1) of the Internaí Revenue Code by íícensed dístríbu-
tors who purchase, affí , and canceí the cígarette ta stamps and by
íícensed consumers who remít the ta dírectíy to the State, and ís not
deductíbíe by purchasers under sectíon 23(c) (3) of the Code.
The pertínent provísíons of the New ersey Cígarette Ta ct,
chapter 6 , P. L. 19 , as amended by chapter 13 , Laws of 19 0,
effectíve uíy 1,19 0, read as foííows:
7. Ta Is Levy on Consumes.
The ííabíííty for, and the íncídence of, the ta on cígarettes ís hereby decíared
to be a íevy on the consumer. Dístríbutors shaíí add the amount of the ta on
cígarettes presentíy íevíed to the príce of cígarettes, and the dístríbutor may state
(be amount of the ta separateíy from the príce of such cígarettes on aíí príce
díspíay sípns, saíes or deíívery sííps, bííís and statements whích advertíse or
índícate the príce of such cígarettes. The provísíons of thís sectíon shaíí ín no
way affect the method of coííectíon of such ta on cígarettes as províded by
thís act.
In víew of the apparent íntent of the New ersey Legísíature to
ímpose the cígarette ta upon the consumer of cígarettes ín the State
of New ersey, ít ís heíd that the cígarette ta ímposed by the State
of New ersey under the provísíons of chapter 6 , P. L. 19 . as
amended by chapter 13 , Laws of 19 0, ís deductíbíe on and after
uíy 1,19 0, under sectíon 23(c) (1) of the Internaí Revenue Code by
the consumer ín computíng net íncome, e cept that ín the case of an
índívíduaí who eíects the optíonaí standard deductíon (see sectíon
23(aa) of the Code), the ta ís not deductíbíe uníess paíd ín connec-
tíon wíth cígarettes used ín a trade or busíness. In that event, the
ta ís deductíbíe from gross íncome ín computíng ad|usted gross ín-
come. (See sectíon 22(n) (1) of the Code.)
On and after uíy 1,19 0, no deductíon ís aííowabíe to deaíers and
dístríbutors on account of the purchase of cígarette ta stamps from
the State, and. accordíngíy, the portíon of the príce paíd by consumers
to deaíers and dístríbutors for cígarettes whích represents the New
ersey cígarette ta ís not íncíudíbíe ín the gross íncome of the deaíers
and dístríbutors.
Sectíon 29.23 (c)-í: Ta es. 19 1-21-13677
L T. 063
INT RN L R NU COD
The amount of gasoííne íícense ta ímposed by the Terrítory of
awaíí whích ís paíd by the consumer (otherwíse than ín connec-
tíon wíth the consumer s trade or busíness) ís deductíbíe by the
consumer ín computíng net íncome for ta abíe years begínníng after
December 31, 10 0.
dvíce ís requested whether the gasoííne íícense ta ímposed by
the Terrítory of awaíí under the provísíons of the awaíían Fueí
Ta ct, chapter 100 of the Revísed Laws of awaíí 19 , as amended,
ís deductíbíe by the consumer under sectíon 23(c) (3) of the Internaí
9 -íOíG € ” 2 3
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.23(c)- .
26
Revenue Code, as amended by Pubííc Law 29, íghty-second Con-
gress (C. . 19 1-1,1 3).
It ís understood that ít has not been the practíce of retaíí dístríbu-
tors of gasoííne ín awaíí to show the Terrítoríaí ta separateíy on
the gasoííne pumps, but ít appears that the combíned amounts of the
Federaí and Terrítoríaí gasoííne ta es have been shown on the pumps.
Sectíon 23(c)(3) of the Code, as amended, provídes ín part that
ín the case of a ta ímposed by any State, Terrítory, Dístríct, or pos-
sessíon of the Uníted States, or any poíítícaí subdívísíon thereof, upon
persons seíííng gasoííne or other motor vehícíe fueís eíther at whoíe-
saíe or retaíí, whích ís measured by the gross saíes príce or the gross
receípts from the saíe or whích ís a stated sum per unít of such prop-
erty soíd, íf the amount of such ta ís separateíy stated, then to the
e tent that the amount so stated ís paíd by the consumer (otherwíse
than ín connectíon wíth the consumer s trade or busíness) to hís
vendor such amount shaíí be aííowed as a deductíon ín computíng the
net íncome of such consumer as íf such amount constítuted a ta ím-
posed upon and paíd by such consumer.
Sectíon 29.23(c)-í(6) of Reguíatíons 111 provídes, among other
thíngs, that the requírement of sectíon 23(c) (3) of the Code that the
amount of the ta must be separateíy stated wííí be deemed compííed
wíth where ít cíearíy appears that the ta was added to the saíes
príce and coííected or charged as a separate ítem, and that ít ís not
necessary that the purchaser be furníshed wíth a saíes sííp, bííí, ín-
voíce, or other statement on whích the ta ís separateíy stated.
In víew of the foregoíng, ít ís heíd that the amount of gasoííne
íícense ta ímposed by the Terrítory of awaíí whích ís paíd by the
consumer (otherwíse than ín connectíon wíth the consumers trade
or busíness) ís aííowabíe as a deductíon to the consumer ín computíng
net íncome for ta abíe vears begínníng after December 31, 19 0.
In I. T. 337 (C. . 19 0-1, 36) ít was heíd that the íícense ta on
gasoííne ímposed by the Terrítory of awaíí ís deductíbíe by the
dístríbutor. Sínce the awaíían gasoííne íícense ta contínues to be
ímposed upon and payabíe by the dístríbutor, ít contínues to be de-
ductíbíe by the dístríbutor under the provísíons of sectíon 23(c)(1)
of the Internaí Revenue Code. íí íncome receíved by dístríbutors
by reason of passíng on the ta by íncreased saíes príces contínues to
be íncíudíbíe ín gross íncome. In I. T. 337 ít was aíso heíd that the
ta was not deductíbíe by the consumer. ffectíve for ta abíe years
begínníng after December 31,19 0, that concíusíon ís modífíed to con-
form to the ínstant ruííng.
Sectíon 29.23 (c) -1: Ta es. 19 1-26-1372
( íso Sectíon 22(a), Sectíon 29.22 (a)- ; L T. 066
Sectíon 22 (n), Sectíon 29.22(n)-í.)
INT RN L R NU COD
Deductíbíííty for Federaí íncome ta purposes of the ta es ím-
posed by subartícíes III and I of Uíe South Caroíína Saíes and
Use Ta ct, effectíve uíy 1, 19 1.
dvíce ís requested as to the deductíbíííty for Federaí íncome ta
purposes of the ta es ímposed by subartícíes III and I of the South
Caroíína Saíes and Use Ta ct, effectíve uíy 1,19 1.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
27
29.23(c)- .
The pertínent provísíons of the South Caroíína statute ín questíon
read ín part as foííows:
SU RTICL III
(1) Saíes Ta . € ” In addítíon to aíí other íícenses, ta es, and charges now
Imposed there ís hereby íevíed for the support of the pubííc schooís of South
Caroíína;
(a) Upon every person, or company engaged, or contínuíng wíthín thís
Síate, ín the busíness of seíííng at retaíí any tangíbíe personaí property what-
soever, íncíudíng merchandíse and commodítíes of every kínd and character (not
íncíudíng, however, bonds or other evídences of debt or stocks) an amount equaí
to three (3 ) percent of the gross proceeds of saíes of the busíness, € € €
Províded, however, that any person engagíng or contínuíng ín busíness as a re-
taííer, and whoíesaíer or |obber shaíí pay the ta requíred on the gross proceeds
of retaíí saíes of such busíness at the rates specífíed, when hís books arc kept
so as to show separateíy the gross proceeds of saíes of each busíness, and when
hís books are not so kept he shaíí pay the ta as a retaííer, on the gross saíes
of the busíness. €
€ € €
(3) Ta es Due Monthíy: ffort. ceptíons. € ” The ta es íevíed under the
provísíons of thís artícíe, e cept as otherwíse províded, shaíí be due and payabíe
ín monthíy ínstaííments on or before the twentíeth day of the month ne t suc-
ceedíng the month In whích the ta accrues.
( ) Ta racketed to be dded to Purchase Príce. € ” very person or com-
pany engaged ín or contínuíng wíthín thís State ín the busíness for whích n
íícense or prívííege ta ís requíred by thís artícíe may add to the saíes príce
and coííect from the purchaser on aíí saíes upon the gross receípts or gross
proceeds of whích there ís íevíed by thís artícíe a saíes ta at the rate of three
(3 ) percent an amount equaí to the foííowíng: It shaíí b3 un-
íawfuí for any person, or company descríbed ín thís subartícíe to faíí or refuse
to add to the saíes príce and coííect from the purchaser tííc amount requíred by thís
subartícíe to be so added to the saíes príce and coííected from the purchaser;
and ít shaíí ííkewíse be uníawfuí to refund or offer to refund aíí or any part of
the amount coííected, or to absorb or advertíse dírectíy or índírectíy the absorp-
tíon or refund of the amount requíred to be added to the saíes príce and coííected
from the purchaser, or any portíon of such amount. The provísíons
of thís subartícíe that there may be added to the saíes príce and coííected from
the purchaser the amounts províded hereín shaíí ín no way reííeve the person,
or company descríbed ín thís subartícíe of the ta íevíed by thís artícíe; nor
shaíí the ínabíííty, ímpractícabíííty, refusaí, or faííure to add to the saíes príce
and coííect from the purchaser the amounts províded hereín reííeve such person,
or company from the ta íevíed by thís artícíe.
Srn ííTícr. I
(1) Use Ta . € ” n e císe ta Is hereby ímposed on the storage, use or other
consumptíon ín thís .State of tangíbíe personaí property purchased at retaíí on
or after uíy 1, 10 1, for storage, use or other consumptíon ín thís Staíe at the
rate of three (3 ) percent of the saíes príce of such property, regardíess of
whether the retaííer ís or ís not engaged ín busíness ín thís Síate, €
very person storíng, usíng or otherwíse consumíng ín thís Síate tangíbíe per-
sonaí property purchased at retaíí shaíí b ííabíe for the ta ímposed by thís
artícíe, and (ííe ííabíííty shaíí not be e tínguíshed untíí the ta has been paíd
to thís State; € € €

( ) Seííer to Coí.íect Ta ; Reguíatíons: Penaítt. € ” very such seííer mak-
íng saíes of tangíbíe personaí property for storage, use or other consumptíon ín
thís State, shaíí, at the tíme of makíng such saíes or, íf the storage,
use or other consumptíon of the tnngíbíe personaí property ís not then ta abíe
hereunder, at the tíme such storage, use or other consumptíon becomes ta abíe
hereunder, coííect the ta ímposed by thís artícíe from the purchaser, and gíve
to the purchaser a receípt therefor ín the manner and form prescríbed by the
Ta Commíssíon. The ta requíred to be coííected by the seííer from the pur-
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.23(c)- .
2S
chaser shaíí be díspíayed separateíy from the ííst, advertísed ín the premíses,
marked or other príce on the saíes check or other proof of saíes. It shaíí be un-
íawfuí for any such seííer to advertíse or hoíd out or state to the pubííc or to
any customer, dírectíy or índírectíy, that the ta or any part thereof ímposed
by thís artícíe wííí be assumed or absorbed by the seííer or that ít wííí not be
added to the seíííng príce of the property soíd, or If added that ít or any part
thereof wííí be refunded. The ta hereín requíred to be coííected by the seííer
sheíí constítute a debt owed by the seííer to thís State.
€ € € -
SU RTICL
(1) The ta es ímposed by thís ct are due and shaíí be paíd to the Ta Com-
míssíon at the same tíme that the return requíred by Subartícíes III and I of
thís ct ís fííed, províded, that whenever the return ís fííed and the ta es shown
due thereon are paíd ín fuíí, on or before the fínaí due date províded by thís ct,
the ta payer shaíí be aííowed a díscount equaí to three (3v ) percent of the ta es
shown due by saíd return, €
Sectíon 23(c)(1) of the Internaí Revenue Code provídes that ín
computíng net íncome there shaíí be aííowed as deductíons ta es paíd
or accrued wíthín the ta abíe year, wíth certaín e ceptíons not here
materíaí. Sectíon 29.23(c)-í(a) of Reguíatíons 111 provídes that ín
generaí ta es are deductíbíe oníy by the person upon whom they are
ímposed. Sectíon 23(c)(3) of the Code provídes ín part that a ta
ímposed by any State. Terrítory. Dístríct, or possessíon of the Uníted
States, or any poíítícaí subdívísíon thereof, upon persons engaged ín
seíííng tangíbíe personaí property at retaíí, whích ís measured by the
gross saíes príce or the gross receípts from the saíe or whích ís a stated
sum per unít of such property soíd, or upon persons engaged ín fur-
níshíng servíces at retaíí, whích ís measured by the gross receípts for
furníshíng such servíces, íf the amount of such ta ís separateíy stated,
then to the e tent that the amount so stated ís paíd by the consumer
(otherwíse than ín connectíon wíth the consumer s trade or busíness)
to hís vendor such amount shaíí be aííowed as a deductíon ín comput-
íng the net íncome of such consumer as íf such amount constítuted a
ta ímposed upon and paíd by such consumer.
The saíes ta ímposed by subartícíe III of the South Caroíína Saíes
and Use Ta ct, effectíve uíy 1, 19 1, ís specífícaííy ímposed upon
every person or company ín the busíness of seíííng tangíbíe personaí
property at retaíí. The ííabíííty for the use ta ímposed by subartícíe
I ís specífícaííy ímposed on the person storíng, usíng, or otherwíse
consumíng tangíbíe personaí property purchased at retaíí, that ís, the
consumer or purchaser.
ccordíngíy, ít ís heíd that the saíes ta ímposed by subartícíe III
of the South Caroíína Saíes and Use Ta ct ís deductíbíe by the
retaííer under sectíon 23(c)(1) of the Internaí Revenue Code. If
the vendor (retaííer) ís an índívíduaí, the ta ís deductíbíe from gross
íncome ín arrívíng at ad|usted gross íncome. (See sectíon 22(n) (1)
of the Code.) In the case of vendors other than índívíduaís, the ta
ís deductíbíe ín determíníng net íncome. The saíes ta coííected by
a vendor from a purchaser must be íncíuded ín the vendor s gross
íncome for Federaí íncome ta purposes. It ís not necessary, for the
purposes of sectíon 23(c) (3) of the Code, that the purchaser be fur-
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29
29.23(í)-2.
níshed wíth a saíes sííp, bííí, ínvoíce, or other statement on -whích the
ta ís separateíy stated. Inasmuch as the íaw (paragraph ( ) of
subartícíe III of the South Caroíína Saíes and Use Ta ct) prohíbíts
the seííer from absorbíng the ta , ít ís presumed that the amount of
the ta , ín each ínstance, ís separateíy stated. (See sectíon 29.23(c)-
1(6) of Reguíatíons 111.) To the e tent that such ta ís paíd by the
purchaser, otherwíse than ín connectíon wíth hís trade or busíness,
ít ís deductíbíe by the purchaser under sectíon 23(c) (3) of the Code,
e cept ín the case of an índívíduaí who eíects to take the optíonaí
standard deductíon. Where the saíes ta ís paíd wíth respect to
property purchased for use ín the purchaser s trade or busíness, ít ís
deductíbíe by hím as a busíness e pense íf the cost of the property
acquíred ís properíy chargeabíe to e pense, or ít must be treated as a
capítaí ítem where the cost of the property ís properíy capítaíízed.
Where the purchaser ís an índívíduaí and the saíes ta ís deductíbíe
as a busíness e pense, the ta ís deductíbíe from gross íncome ín
determíníng hís ad|usted gross íncome. (See sectíon 22(n)(í) of
the Code.) In the case of purchasers (other than índívíduaís) en-
gaged ín trade or busíness, where the ta ís aííowabíe as a busíness
e pense ít ís deductíbíe from gross íncome ín determíníng net íncome.
It ís aíso heíd that the use ta ímposed bv subartícíe I of the South
Caroíína Saíes and Use Ta ct. effectíve uíy 1.19 1, ís deductíbíe by
the purchaser under sectíon 23(c) (1) of the Code, e cept that ín the
case of an índívíduaí who eíects the optíonaí standard deductíon, no
deductíon ís aííowabíe under sectíon 23(c)(1) of the Code. Where
the use ta ís attríbutabíe to a trade or busíness carríed on by an
índívíduaí, the amount of such ta ís deductíbíe from gross íncome
ín computíng ad|usted gross íncome. Where the use ta ís attríbut-
abíe to a trade or busíness carríed on by other than an índívíduaí,
the use ta ís deductíbíe from frross íncome ín determíníng net ín-
come. Where the use ta ís paíd wíth respect to property purchased
for use ín the purchaser s trade or busíness, ít may not be capítaíízed
e cept as províded ín sectíon 21(a)(7) of the Code. The amount
of use ta coííected by a vendor from a purchaser shouíd not be ín-
cíuded ín the vendor s gross íncome, e cept that amounts retaíned
by the vendor, aííowed by the South Caroíína Saíes and Use Ta
ct as díscount for prompt payment of or compensatíon for coííectíng
the ta , shouíd be íncíuded ín gross íncome, and no deductíon ís
aííowabíe to the vendor wíth respect to the amount of such ta re-
mítted by hím to the State.
S CTION 23(1). € ” D DUCTIONS FROM GROSS
INCOM : D PR CI TION
Sectíon 29.23(1)-2: Deprecíabíe property.
INT RN L U COD
Motor vehícíes temporarííy used as demonstrators by deaíers.
(See I. T. 062, page Gí.)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.23(p)-10.
30
S CTION 23(p). € ” D DUCTIONS FROM GROSS INCOM :
CONTRI UTIONS OF N MPLOY R TO N M-
PLOY S TRUST OR NNUITY PL N ND COMP NS -
TION UND R D F RR D-P YM NT PL N
Sectíon 29.23(p)-10: Contríbutíons of an 19 1-16-13632
empíoyer to a stock bonus or profít- L T. 0
sharíng trust (Sectíon 23(p) (1) (C)).
INT RN L R NU COD
Deductíons for contríbutíons to an empíoyees profít-sharíng trust,
e empt under sectíon 16 (a) of the Internaí Revenue Code, are
aííowabíe under the condítíons and wíthín the íímítatíons of sectíon
23(p) (1) (C) of the Code oníy to the e tent requíred by the terms
of the pían of whích the trust ís a part. Payments ín e cess of the
requíred amounts are not avaííabíe as carry-overs and are not
deductíbíe ín a subsequent year.
dvíce ís requested as to the amounts whích are deductíbíe for
Federaí íncome ta purposes under sectíon 23(p)(í)(C) of the
Internaí Revenue Code under the círcumstances hereínafter stated.
corporate empíoyer fííes íts Federaí íncome ta returns on a
caíendar-year basís and uses the accruaí method of accountíng. It
estabííshed a profít-sharíng pían effectíve anuary 1,19 . whích pían
meets the requírements of sectíon 16 (a) of the Internaí Revenue
Code. The pían provídes, among other thíngs, for annuaí contríbu-
tíons on the part of the empíoyer equaí to the íesser of 10 percent of
net profíts or 1 percent of compensatíon otherwíse paíd or accrued
to partícípants. The pían aíso provídes for an aííocatíon of such con-
tríbutíons among partícípants ín proportíon to the compensatíon
payabíe to them. The appíícabíe percentages of profíts and compen-
satíon for 19 and 19 9 were as foííows:
Year
10 percent of
net profíts
1 percent of
compensatíon
Requíred
contríbutíon
19 ..
S30, 000
3 , 000
0, 000
2 , 000
30,000
2 ,000
19 9
Instead of contríbutíng the smaííer amounts requíred by the profít-
sharíng pían, the empíoyer contríbuted 0,000 (1 percent of com-
pensatíon) ín 19 and 3 ,000 (10 percent of net profíts) ín 19 9.
Sectíon 23(p) (1) (C) of the Code provídes ín part as foííows:
S C. 23. D DUCTION S FROM GROSS INCOM .
In computíng net íncome there shaíí be aííowed as deductíons:
€ €
(p) Contríbutíons of an mpíoyer to ín mpíoyees Trust ob nnuíty
Pían and Compensatíon Under a Deferred-Payment Pían. € ”
(1) Generaí ruíe. € ” If contríbutíons are paíd by . n empíoyer to or
– under a stock bonus, pensíon, profít-sharíng, or annuíty pían, or íf compen-
satíon ís paíd or accrued on account of any empíoyee under a pían deferríng
the receípt of such compensatíon, such contríbutíons or compensatíon shaíí
not be deductíbíe under subsectíon (a) but shaíí be deductíbíe, If deductíbíe
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
31
29.23(p)-10.
under subsectíon (a) wíthout regard to thís subsectíon, under thís sub-
sectíon but oníy to the foííowíng e tent:
# € € € € €
(C) In the ta abíe year when paíd, íf the contríbutíons are paíd
ínto a stock bonus or profít-sharíng trust, and íf such ta abíe year
ends wíthín or wíth a ta abíe year of the trust wíth respect to whích
the trust ís e empt under sectíon íG (a), ín an amount not ín e cess of
1 per centum of the compensatíon otherwíse paíd or accrued duríng
the ta abíe year to aíí empíoyees under the stock bonus or profít-
sharíng pían. If ín any ta abíe year begínníng after December 31,
19 1, there ís paíd ínto the trust, or a símííar trust then ín effect,
amounts íess than the amounts deductíbíe under the precedíng sen-
tence, the e cess, or íf no amount s paíd, the amounts deductíbíe, shaíí
be carríed forward and be deductíbíe when paíd ín the succeedíng
ta abíe years ín order of tíme, but the amount so deductíbíe under
thís sentence ín any such succeedíng ta abíe year shaíí not e ceed 1
per centum of the compensatíon otherwíse paíd or accrued duríng sueíí
succeedíng ta abíe year to the benefícíaríes under the pían. In addí-
tíon, any amount paíd ínto the trust ín a ta abíe year begínníng after
December 31. 10 1, ín e cess of the amount aííowabíe wíth respect
to such year under the precedíng provísíons of thís subparagraph shaíí
be deductíbíe ín the succeedíng ta abíe years ín order of tíme, but the
amount so deductíbíe under thís sentence ín any one such succeedíng
ta abíe year together wíth the amount aííowabíe under the fírst sen-
tence of thís subparagraph shaíí not e ceed 1 per centum of the
compensatíon otherwíse paíd or accrued duríng such ta abíe year to
the benefícíaríes under the pían. ítaíícs suppííed.
Thus, the deductíon for contríbutíons may be as much as. or íess
than, but not ín e cess of, 1 percent of compensatíon. (See The
Wooster Rubber Co. v. Commíssíoner, 1 T. C. 1192, reversed on other
grounds by the Uníted States Court of ppeaís for the Sí th Cír-
cuít on une , 19 1.) ccordíngíy, sínce the requíred contríbutíons
under the pían were 30,000 for 19 and 2 ,000 for 19 9. such
amounts represent the ma ímum deductíons whích may be aííowed
for those years. The empíoyer, however, contends that contríbu-
tíons ín e cess of the amounts requíred under the pían are avaííabíe
as contríbutíon carry-overs and deductíbíe ín succeedíng years under
the thírd sentence of sectíon 23(p) (1) (C) of the Code.
The íntent of sectíon 23 (p) (1) (C) of the Code ís that the pían shaíí
govern the contríbutíons sínce a deductíon ís aííowabíe under the
appíícabíe íímítatíons íf the contríbutíons are paíd ínto a
profít-sharíng trust e empt under sectíon 10 (a). To be
entítíed to e emptíon under sectíon 16 (a) of the Code, a profít-
sharíng trust must be part of a pían whích ís based on a defíníte
predetermíned formuía for determíníng the profíts to be shared (sec-
tíon 29.16 -1 (a) of Reguíatíons 111), and the pían must be foííowed
ín operatíon. Contríbutíons ín e cess of the amount requíred under
the pían are pureíy voíuntary. The íntent of the contríbutíon carry-
over provísíons of sectíon 23(p) (1) (C) ís to save or heíp those em-
píoyers who are requíred under the terms of theír píans to contríbute
ín a partícuíar year amounts ín e cess of the 1 percent íímítatíon.
It was not íntended to benefít empíoyers who voíuntarííy contríbute
more than theír commítment under the pían.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29. 2-6. 32
P RT I . € ” CCOUNTING P RIODS ND M T ODS OF CCOUNTING
S CTION 2. € ” P RIOD IN W IC IT MS OF
GROSS INCOM INCLUD D
Sectíon 29. 2-6: Nonínterest-bearíng obííga- 19 1-17-136
tíorís íssued at díscount. D. C.
Reguíatíons Governíng Optíons Open to Owners of Maturíng Uníted States
Savíngs onds of Seríes
10 1. Department Círcuíar No. . Físcaí Servíce. ureau of the Pubííc Debt
Treasury Department,
Offíce of the Secretary,
Washíngton, March 26. 19 1.
Subpart
. Offeríng to Owners of Seríes Savíngs onds eretofore or ereafter
Issued.
. Further Interest /fter Maturíty.
C. change for Seríes G onds earíng Specíaí Par Redemptíon Prívííege.
D. Federaí Income Ta .
. Generaí Provísíons.
SU P RT . € ” OFF RING TO OWN RS OF S RI S S INGS ONDS R TOFOR
OR R FT R ISSU D
Sectíon 329.1. Pursuant to sectíon 22(b) (2) of the Second Líberty
ond ct, as amended (31 U. S. C. 7 7c(b) (2)1), the Secretary of the
Treasury offers to owners of Uníted States Savíngs onds of Seríes
(hereínafter referred to as onds of Seríes ) who wísh to contínue
theír ínvestment beyond maturíty, the optíons hereínafter set forth.
onds of Seríes were fírst íssued on May 1. 19 1, and wííí mature
begínníng on May 1, 19 1. Such optíons are hereby granted for the
benefít of owners of onds of Seríes heretofore or hereafter íssued
and are as bíndíng on the Uníted States as íf e pressíy set forth ín the
te t of the bonds. The term owners as used ín these reguíatíons ís
defíned ín Subpart .
Sec. 329.2. The provísíons of Subpart hereof do not ín any way
restríct the ríght of owners of onds of Seríes to cash theír bonds
at any tíme ín accordance wíth the terms of such bonds.
SU P RT . € ” FURT R INT R ST FT R M TURITY
Sec 329.3. Owners of onds of Seríes . whích mature on and
after May 1, 19 1, have the optíon of retaíníng the matured bonds
for a further 10-year períod and earníng ínterest upon the maturíty
vaíues thereof to accrue at the rate of 2 percent símpíe ínterest per
annum for the fírst 7 years and at a hígher rate thereafter so that
the aggregate return for the 10-year e tensíon períod wííí be about
2.9 percent compounded semíannuaííy. No actíon ís requíred of
OWN RS D SIRING TO T D NT G OF TII T NSION. M R LY Y
CONTINUING TO OLD T IR ONDS FT R M TURITY OWN RS WILL RN
FURT R INT R ST IN CCORD NC WIT TII SC DUL S T FORT IN
T T L T T ND OF T S R GUL TIONS.
1 ct of March 20, 1031.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29. 2-6.
Sec. 329. . Interest hereunder accrues at the end of the fírst haíf-
year períod foííowíng maturíty and each successíve haíf-year períod
thereafter. If the bonds are redeemed before the end of the fírst
haíf-year períod foííowíng maturít| , the owner ís entítíed to payment
oníy at the face vaíue thereof.
SU P RT C € ” C NG FOR S RI S G ONDS RING SP CI L P R
R D MPTION PRI IL G
Sec. 320. . Owners of onds of Seríes whích mature on and after
May 1, 19 1, who prefer to have an ínvestment payíng current íncome
rather than to e ercíse theír ríght to request cash, or to retaín the bonds
under Subpart , have the optíon of presentíng theír matured bonds ín
amounts of 00 (maturíty vaíue) or muítípíes thereof ín e change
for Seríes G bonds whích wííí bear the specíaí prívííege of redemptíon
at par at a t ttme at the owner s optíon as set forth ín sectíon 329.6.
The e change wííí be governed by the ruíes set forth ín sectíon 329.7.
cept as set forth ín thís subpart, the Seríes G bonds íssued upon e -
change wííí ín aíí other respects be the same as the Seríes G bonds
currentíy on saíe whích mature 12 years from íssue date and bear
ínterest at the rate of 2y2 percent per annum payabíe semíannuaííy by
check drawn to the order of the regístered owner.
Sec. 329.6. The Seríes G bonds íssued upon e change wííí be spe-
cíaííy stamped to índícate that they are uncondítíonaííy redeemabíe
by the owner at par at any tíme after 6 months from the íssue date
upon one caíendar month s notíce to a Federaí Reserve bank or branch
or to the Treasury Department. The Seríes G bonds currentíy on saíe
for cash subscríptíon may not be redeemed at par príor to maturíty
e cept ín the event of death as set forth ín the reguíatíons governíng
Uníted States Savíngs onds.
Sec. 329.7. The foííowíng ruíes govern the e change under thís sub-
part: (1) The Seríes G bonds wííí be regístered ín the names of the
owners of the matured onds of Seríes ín any authorízed form of
regístratíon; (2) Seríes G bonds wííí be íssued upon e change oníy
ín denomínatíons of 00, 1,000, ,000. and 10,000 (maturíty
vaíue) : (3) the onds of Seríes used ín the e change must be pre-
sented to a Federaí Reserve bank or branch or to the Treasury De-
partment, Washíngton 2 , D. C., not íater than two caíendar months
after the month of maturíty and the bonds of Seríes G íssued upon
e change wííí be dated as of the fírst day of the month ín whích the
onds of Seríes matured; but ( ) íf an owner desíres to accumuíate
a number of onds of Seríes for e change to bonds of Seríes G ín
any authorízed denomínatíon set forth ín (2) he may accumuíate
such bonds duríng any 12 consecutíve caíendar months and present
them for e change not íater than two caíendar months after the month
of maturíty of the íast bond ín the group to be e changed and the
Seríes G bonds íssued upon such e change wííí be dated on a weíghted
average datíng basís whích wííí afford an adequate ínterest ad|ustment
for the períod duríng whích the owner has accumuíated the onds of
Seríes for the e change; and ( ) cash subscríptíons ín whoíe or ín
part wííí not be accepted for the Seríes G bonds offered under thís
subpart.
subpart d. € ” federaí íncome ta
Sec. 329. . ta payer who has been reportíng the íncrease ín re-
demptíon vaíue of hís onds of Seríes , for Federaí íncome ta pur-
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29. 2-6.
3
poses, each year as ít accrues, must contínue to do so íf he retaíns the
bonds under Subpart , uníess ín accordance wíth íncome ta reguía-
tíons (Reguíatíons 111, sectíon 29. 2-6) the ta payer secures permís-
síon from the Commíssíoner of Internaí Revenue to change to a
dífferent method of reportíng íncome from such obíígatíons. ta -
payer who has not been reportíng the íncrease ín redemptíon vaíue of
such bonds currentíy for ta purposes may ín any vear príor to fínaí
maturíty, and sub|ect to the provísíons of sectíon 2(b) of the Internaí
Revenue Code and of the reguíatíons prescríbed thereunder, eíect for
such year and subsequent years to report such íncome annuaíív.
oíders of onds of Seríes who have not reported the íncrease m
redemptíon vaíue currentíy are requíred to íncíude such amount ín
gross íncome for the ta abíe vear of actuaí redemptíon or for the ta -
abíe year ín whích the períod of e tensíon ends, whíchever ís earííer.
Sec. 329.9. Ta payers who e change theír matured onds of Seríes
for Seríes G bonds under the provísíons of Subpart C must report
the dífference between the purchase príce of theír Seríes bonds and
the maturíty vaíue thereof ín theír returns for the year ín whích the
bonds mature to the e tent to whích such dífference has not been
reported ín prevíous returns. The ínterest payabíe on the Seríes G
bonds íssued upon e change must be reported as íncome for the ta abíe
year ín whích receíved or accrued.
Sec. 329.10. If further ínformatíon concerníng the íncome ta ís
desíred, ínquíry shouíd be addressed to the coííector of ínternaí revenue
of the ta paver s dístríct or to the ureau of Internaí Revenue, Wash-
íngton 2 , D. C.
SU P RT € ” G N R L PRO ISIONS
Sec. 329.11. Defínítíon of Terms. € ” (a) The term onds of Seríes
as used ín these reguíatíons íncíudes aíí onds of Seríes íssued
as Uníted States Defense Savíngs onds, Uníted States War Savíngs
onds, and aíí those íssued as Seríes savíngs bonds wíthout specíaí
desígnatíon; (6) The term owners as used ín these reguíatíons ín-
cíudes regístered owners, coowners, survívíng benefícíaríes, ne t of kín
and íegatees of a deceased owner, and persons who have acquíred bonds
pursuant to |udícíaí proceedíngs agaínst the owner, e cept that |udg-
ment credítors, trustees ín bankruptcy, and receívers of ínsoívents
estates wííí have the ríght oníy to payment of onds of Seríes ín
accordance wíth the reguíatíons governíng Uníted States Savíngs
onds.
Sec. 329.12. Ríght To Purchase onds of Sertes and G Cur-
rentíy. € ” The amount of matured onds of Seríes retaíned after
maturíty and the amount of bonds of Seríes G íssued upon e change
ín accordance wíth these reguíatíons wííí not be íncíuded ín the íímí-
tatíon on hoídíngs appíícabíe to the amount of bonds of such seríes
whích may be purchased by an ínvestor each caíendar year; e cept
that nothíng hereín contaíned shaíí be construed to permít the current
purchase of savíngs bonds of Seríes for the. account of organíza-
tíons and fíducíaríes or the purchase of savíngs bonds of eíther seríes
for the account of persons who are not entítíed to have them on orígí-
naí íssue, contrary to the provísíons of the reguíatíons governíng
Uníted States Savíngs onds.
Sec. 329.13. Modífícatíon of Other Círcuíars. € ” The provísíons
of these reguíatíons shaíí be consídered as amendatory of and suppíe-
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
9
29. 2-6..
SSSS SSS2 S3S3SS RSSS Sí S
C p cíc pí pS cí psmkm c | rí t – – - r
2 c
o o
2 c o a
0,0 0 u
SIS
sss
í g
t- f) M
I
3 g
t- o
wen
S M

e-: o
nor-
gas
not.
It
– 3 S

1
I
6|
to
C

c

o

C :t r-í € ” cr-1 - o – c í- c o O
or orcrt € ” t- í-í-r-í- tc r--r-acoo o
eí c-I c c cí cí c cí eí c pí pí pí eí pí p p rí
SSgS SSSS SSíSS SSSS SSSS
2 í c SS S| : 1 m S
e c c € ” € ” € ” - € ” € ” € ” cícíwn
c. c o o o cc cncw C c O Mí Cn r-
c n r- cwt.íí- o p í - Pít.- rt orf
I SSís sSSs SísS síísf í
SSSS SS 3 gS sg Ss S-L oS
Ssp fí wc|wpI P Sí íS3 fríNe-ící cícícíS
OOCí 0 OíOCO C O M79S
IS M tttt S Ss 3
c n ío c ín o í c cn íc cmoc p: r- r-a í
-.cpíqc í-í-n tcp ao o € ” t - rt p o
S ío o S cí í tSí ífeS íoSSs STS: S
c c € ” c í n c € ” pí - o r- í- c-; r- rs
SSíCsfíS SSS tí S-íSSS Sfí|íg 3
e o c í- p c í- c :í ít. a nkcí- n
€ - € p e ; íccí c-wra cí-o Níooco
c cTo o o - - - -í - p pírípíc| mí
_ _ p-, € - rí . nnrí
C 2 C CC CCC t t 2
cercíc: aercíc; edrtrt cr rt a I
c-í-oo opí o íog s|ooa 1 C. y ; g
v -S M rtNT - v 0 N - M00
s S3 3Sí 3Sa í.s7-s sía a 1s
SS sSy Ss S S - . as
€ ” 2 r y
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29. 3-2.
3G
mentary to the offeríng círcuíar for savíngs bonds of Seríes (De-
partment Círcuíar No. 6 3 and íts revísíons), the offeríng círcuíar
for savíngs bonds of Seríes G (Department Círcuíar No. 6 and íts
revísíons), and the círcuíar contaíníng the reguíatíons governíng
Uníted States Savíngs onds,2 whích círcuíars are hereby modífíed
to accord wíth the provísíons hereof.
Sec. 329.1 . Othek Círcuíars Generaííy ppíícabíe. € ” cept as
províded ín these reguíatíons, the círcuíars referred to ín the precedíng
sectíon wííí contínue to be generaííy appíícabíe.
Sec. b29.1 . Suppíements and mendments. € ” The Secretary of
the Treasury may at any tíme or from tíme to tíme suppíement or
amend the terms of these reguíatíons, or of any amendment or sup-
píement thereto.
ohn W. Snyder,
Secretary of the Treasury.
S CTION 3. € ” F RIOD FOR W IC D DUCTIONS
ND CR DITS T N
Sectíon 29. 3-2: When charges deductíbíe. 19 1-1 -1362
L T. 0
INT RN L R NU COD
Deductíbíííty of payment made ín advance of due date of en-
tucky State íncome ta and before the cíose of the cníendar year by
a ta payer who keeps accounts and fííes Federaí and State Income
ta returns on the cash and caíendar year bases.
dvíce ís requested whether an advance payment of entucky State
íncome ta by a ta payer who keeps accounts and fííes Federaí and
State íncome ta returns on the cash and caíendar year bases ís de-
ductíbíe ín hís Federaí íncome ta return for the ta abíe year ín whích
such payment ís made.
On December 31, 19 6, the ínstant ta payer fííed a tentatíve en-
tucky State íncome ta return for the caíendar year 19 6, and on the
same date paíd the amount of the ta ííabíííty shown thereon. The
ta payer s fínaí State íncome ta return for 19 6 was fííed ín príí
19 7.
Under the provísíons of chapter 1 1, títíe I, of the entucky
Revísed Statutes of 19 6, the entucky State íncome ta becomes a
fí ed charge or ííabíííty at the end of the ta abíe year, and such ta
for a caíendar year ís not due untíí príí 1 of the year foííowíng the
caíendar year. There ís no provísíon ín entucky íaw whích specífí-
caííy permíts advance payments of State íncome ta , but the State
ta authorítíes íssued a íetter to the effect that advance payments
wouíd be accepted.
Under sectíon 23(c) of the Internaí Revenue Code, State íncome
ta es constítute an aííowabíe deductíon ín computíng net íncome for
Federaí íncome ta purposes, and sectíon 1 of the Code provídes
that net íncome shaíí be computed upon the basís of the ta payer s
The reguíatíons currentíy In force governíng Uníted States Savíngs onds are set forth
In Department Círcuíar No. S30. Sí th Revísíon, as amended.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
37
29. 1-2.
annuaí accountíng períod ín accordance wíth the method of account-
íng reguíaríy used by the ta payer. Sectíon 3 of the Code, reíatíng
to the períod for whích deductíons and credíts are taken, provídes
ín part as foííows:
The deductíons and credíts províded for ín thís chapter chapter 1
of the Code shaíí be taken for the ta abíe year ín whích paíd or accrued or
paíd or íncurred, dependent upon the method of accounííng upon the basís
of whích the net íncome ís computed, €
In the case under consíderatíon the ta payer made an advance
payment of what purported to be hís entucky State íncome ta íí-
abíííty for 19 6. whích payment was accepted by the entucky State
ta authorítíes, ín accordance wíth theír e press approvaí and consent,
and credíted to hís account príor to the cíose of hís ta abíe year ín
such manner as to constítute a bona fíde payment of ta es wíthín the
meaníng of sectíon 23(c) of the Internaí Revenue Code, supra.
In Líííían acon Gíasseíí et aí. v. Commíssíoner (12 T. C. 232. ac-
quíescence. C. . 19 9-2, 2) and state of aron Lowensteín. Fírst
Natíonaí ank of Mobííe, ecutor, v. Commíssíoner (12 T. C. 09 ,
acquíescence, C. . 19 9-2, 2), the Ta Court heíd that advance pay-
ments of State íncome ta es ín Louísíana and íabama, respectíveíy,
made pursuant to specífíc provísíons of State íaw authorízíng such
payments, constítuted deductíbíe ítems ín the Federaí íncome ta re-
turns fííed for the years ín whích such payments were made. ppar-
entíy, the oníy vaííd dístínctíon between those cases and the ínstant
case ís the fact that there ís no specífíc provísíon of entucky íaw
permíttíng advance payments of State íncome ta es. owever, the
fact that the entucky State ta authorítíes accepted an advance pay-
ment ín the ínstant case bríngs ít wíthín the ruíe íaíd down by the
Ta Court ín the Gíasseíí and Lowensteín cases.
ccordíngíy, ít ís heíd that the amount paíd wíth the tentatíve
entucky State íncome ta return ís aííowabíe as a deductíon for
Federaí íncome ta purposes for the caíendar year 19 G.
P RT . € ” R TURNS ND P YM NT OF T
S CTION 1. € ” INDI IDU L R TURNS
Sectíon 29. 1-2: Form of return. 19 1-26-1372
Mím.C72G
Scheduíe and coíumn reference appearíng on .íne 3 of Scheduíe C
Summary, page 2, of return Form 10 0 for 19 1.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
SYashíngton 2 , D. C, December 3,19 1.
Coííectors of Internaí Revenue, Internaí Revenue gents ín Charge,
and Others Concerned:
1. Líne 3 of Scheduíe C Summary on page 2 of Form 10 0 for
19 1, on whích there ís to be reported partnershíp profít or íoss from
Form 106 , makes reference to Scheduíe , Coíumn 10. The ref-
erence shouíd read Scheduíe , Coíumn 3.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29. 2-1.
3
2. In the ínstructíons accompanyíng partnershíp return Form 106
the foííowíng statement ís made page :
ach partner shouíd be advísed by the partnershíp of hís proportíonate share
of the íncome and credíts as shown ín Scheduíe of the partnershíp return.
In víew of the foregoíng ínstructíon, the partners ín preparíng theír
returns Form 10 0 wííí have no need to refer to the partnershíp return
Form 106 . owever, ít ís essentíaí that aíí members of your offíce
engaged ín assístíng ta payers shouíd be prepared to answer ínquíríes
raísed wíth respect to the correct scheduíe and coíumn reference on
ííne 3, Scheduíe C Summary of Form 10 0 for 19 1.
ohn . Dr L P,
Commíssíoner.
S CTION 2. € ” CORPOR TION R TURNS
Sectíon 29. 2-1: Corporatíon returns. 19 1-17-136
Mím. 666
Computatíon of corporatíon íncome ta for ta abíe years begín-
níng after une 30, 1900.
Treasury Department,
Offíce of Commíssíoner of Internaí Reve t|e.
Washíngton 2 , D. C. uíy 17, 19 1.
Coííectors of Internaí Revenue, Internaí Revenue gents ín Charge,
and Others Concerned:
1. The cess Profíts Ta ct of 19 0. approved anuary 3, 19 1,
contaíns amendments to íncome ta sectíons of the Internaí Revenue
Code wíth respect to the computatíon of íncome ta affectíng corporate
ta payers. Form 1120 and Form 1120FY currentíy ín use for ta -
abíe years begínníng on and after anuary 1, 19 0, do not refíect
computatíons whích are deemed necessary to compíy wíth appíícabíe
provísíons of such amendments. The ínformatíon contaíned ín thís
mímeograph ís suppíementaí to ínstructíons contaíned ín 19 0 In-
structíons for Form 1120 and other dírectíons reíatíng to the use
of such forms and reíated scheduíes.
2. The príncípaí íncome ta sectíons of the Internaí Revenue Code
whích are amended by the cess Profíts Ta ct of 19 0 appear
beíow as so amended.
Sectíon 1 (b)(1) as amended:
S C. 1 . SURT ON CORPOR TIONS.
€ € € € € € €
(b) Imposítíon of Ta . € ”
(1) Ta abíe teabs begínníng after |une 30, 19 0. € ” In the case of ta -
abíe years begínníng after une 30, 19 0, there shaíí be íevíed, coííected, and
paíd for each ta abíe year upon the corporatíon surta net Income of every
corporatíon (e cept a corporatíon sub|ect to a ta ímposed by.sectíon 231(a),
Suppíement G, or Suppíement ) a surta of 22 per centum of the amount
of the corporatíon surta net íncome ín e cess of 2 ,000.
Sectíon 207(a) (3) ( ) (íí) as amended:
S C. 207. MUTU L INSUR NC COMP NI S OT R T N LIF OR
M RIN .
(a) Imposítíon of Ta . € ” There shaíí be íevíed, coííected, and paíd for each
ta abíe year € € upon the íncome of every mutuaí ínsurance company
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
39
29. 2-1.
(other than a íífe or a maríne ínsurance company or a fíre ínsurance company
sub|ect to the ta ímposed by sectíon 20 ) whích ís an ínterínsurer or recíprocaí
underwríter, a ta computed under paragraph (3) :
€ € € € € €
(3) In the case of an ínterínsurer or recíprocaí underwríter, íf the cor-
poratíon surta net íncome ís over 0,000 a ta computed as foííows:
( ) Ta abíe Tears egínníng fter une 30, 19 0. € ” In the case of
ta abíe years begínníng after une 30, 19 0 € ”
€ € € € € € €
(íí) Surta . € ” surta on the corporatíon surta net íncome,
computed as províded ín sectíon 1 (b) (1), or 33 per centum of the
amount by whích the corporatíon surta net íncome e ceeds
0,000, whíchever ís the íesser.
Sectíon 3G2(b) ( ) as amended:
S C. 362. T ON R GUL T D IN STM NT COMP NI S.
€ € € €
(b) Method of Ta atíon of Companíes and Sharehoíders. € ” In the case of
a reguíated ínvestment company whích dístríbutes duríng the ta abíe year to
íts sharehoíders as ta ubíe dívídends other than capítaí gaín dívídends an
amount not íess than CO per centum of íts net íncome for the ta abíe year com-
puted wíthout regard to net íong-term and net short-term capítaí gaíns, and com-
pííes for such year wíth aíí ruíes and reguíatíons prescríbed by the Commíssíoner,
wíth the approvaí of the Secretary, for the purpose of ascertaíníng the actuaí
ownershíp of íts outstandíng stock:

( ) In the case of ta abíe years begínníng after une 30. 1930. there
shaíí be íevíed, coííected, and paíd for each ta abíe year upon íts Suppíe-
ment surta net íncome a ta equaí to 22 per centum of the amount
thereof ín e cess of 2 ,000. In the case of ta abíe years begínníng after
December 31, 19 9, and before uíy 1, 19 0. there shaíí be íevíed, coííected,
and paíd for each ta abíe year upon íts Suppíement surta net íncome
a ta equaí to 19 per centum of the amount thereof ín e cess of 2 ,000.
Sectíon 10 (f) (2) as amended:
S C. 10S. FISC L Y R T P Y RS.

(f) Certaín Ta abíe Years of Corporatíons egínníng efore uíy 1,19 0,
and ndíng fter une 30,19 0. € ” In the case of a ta abíe year (other than one
begínníng on anuary 1, 19 0 and endíng on December 31, 19 0) of a corporatíon
begínníng before uíy 1, 19 0, and endíng after une SO, 19 0, the ta ímposed
by sectíons 13,1 , and 1 shaíí he an amount equaí to the sum of € ”

(2) that portíon of a tentatíve ta , computed under the provísíons of
sectíons 13(b) (1) and 1 (b) (1), as íf such provísíons (and the provísíons
of sectíons 26(b)(2)( ). 26(h)(1)( ), and 26(1) (1)) were appíícabíe to
such ta abíe year, whích the number of days ín such ta abíe year after une
30, 19 0, bears to the totaí : umber of days ín such ta abíe year. For the
purposes of thís paragraph, the provísíons of sectíons 1 (b) (1), 26(h) (1),
and 26(1) (1) shaíí be appííed wíthout regard to the amendments made to
such provísíons by Títíe II of the cess Fronts Ta ct of 19 0.
Sectíon 26 (h) (1) ( ) and (í) (1) as amended:
S C. 26. CR DITS OF CORPOR TIONS.
In the case of a corporatíon the foííowíng credíts shaíí be aííowed to the e tent
províded ín the varíous sectíons ímposíng ta € ”
€ € € € € € €
(h) Credít fob Dívídends Patd on Certaín Pbeferred Stock. € ”
(1) mount of credít. € ” In the case of a pubííc utíííty, the amount of
dívídends paíd duríng the ta abíe year on íts preferred stock, e cept that
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29. 2-1.
0
€ € ( ) ín the case of any ta abíe year begínníng after une 30, 10 0,
oníy an nmonnt equaí to 30 per centum of the íower of (í) the amount of
dívídends paíd duríng such ta abíe year on íts preferred stock or (íí) the
ad|usted net íncome for such ta abíe year mínus the credít for dívídends
receíved províded ín subsectíon (b) for such year. For the purposes of the
credít províded ín thís subsectíon the amount of dívídends paíd shaíí not
íncíude any amount dístríbuted ín the current ta abíe year wíth respect to
dívídends unpaíd and accumuíated ín any ta abíe year endíng príor to Octo-
ber 1,19 2. mounts dístríbuted ín the current ta abíe year wíth respect to
dívídends unpaíd and accumuíated for a príor ta abíe year shaíí for the
purposes of thís paragraph be deemed to be dístríbuted wíth respect to the
earííest year or years for whích there are dívídends unpaíd and accumuíated.
The credít províded ín thís subsectíon shaíí be subtracted from the basíc
surta credít províded ín sectíon 27.
€ € € €
(1) Western emísphere Trade Corporatíons. € ” In the case of a western
hemísphere trade corporatíon (as denned ín sectíon 109) € ”
(1) Ta abíe years begínníng after |cne 30, 19 0. € ” In the case of any
ta abíe year begínníng after une 30, íOí ). an amount equaí to 30 per centum
of íts normaí-ta net íncome computed wíthout regard to the credít províded
ín thís subsectíon.
3. new form desígnated Scheduíe FY (Form 1120) vííí be prínted
and dístríbuted to coííectors of ínternaí revenue. In the case of cor-
porate ta payers havíng ta abíe rears begínníng after une 30, 19 0,
and endíng before December 31.19 1. such scheduíe shouíd be used for
the purpose of computíng the normaí ta and surta , and the aíterna-
tíve ta íf net íong-term capítaí gaíns e ceed net short-term capítaí
íosses. The totaí normaí ta and surta on e cess profíts net íncome
whích ís requíred to be entered on ííne 30 of Scheduíe P (Form 1120)
shouíd be computed ín the manner and at the rates set forth ín Scheduíe
FY (Form 1120) íf the corporate ta abíe vear begíns after une 30,
19 0, and ends before December 31,19 1. owever, the e cess profíts
net íncome shouíd be substítuted for the surta net íncome on íínes
and 10 of Scheduíe FY (Form 1120). Inasmuch as mutuaí ínsurance
companíes (other than íífe or maríne ínsurance companíes or fíre ín-
surance companíes íssuíng perpetuaí poíícíes) are requíred to compute
net íncome on the caíendar year basís and fííe Form 1120M for the
caíendar year, the amendment made to sectíon 207(a) (3) ( ) (íí) of
the Code wííí not generaííy affect the computatíon set forth on Form
1120M for the caíendar year 19 0. Wíth respect to reguíated ínvest-
ment companíes havíng a ta abíe year whích begíns after une 30,
19 0. and ends before December 31, 19 1, the surta ís an amount
equaí to 22 percent of the Suppíement net íncome ín e cess of 2 ,000
ínstead of 20 percent as stated on page of 19 0 Instructíons for
Form 1120. The amendment made to sectíon 10 (f) (2) of the Code
provídes that for the purposes of computíng the normaí ta and sur-
ta wíth respect to corporate ta abíe years begínníng before uíy 1,
19 0, and endíng after une 30, 19 0, the amendments made to sectíon
1 (b)(1) of the Code (reíatíng to the rate of surta ín the case of
ta abíe years begínníng after une 30, 19 0), sectíon 26(h) (1) of the
Code (reíatíng to credít for dívídends paíd on certaín preferred stock),
and sectíon 26(í) (1) of the Code (reíatíng to credít of Western emí-
sphere trade corporatíons) shaíí not be appíícabíe.
. In the case of a corporate ta payer havíng an e cess of net íong-
term capítaí gaín over net short-term capítaí íoss, the aíternatíve ta
shouíd be computed by usíng ííne numbers 10 to 1 on Scheduíe FY
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
1
29. 2-3.
(Form 1120) ín ííeu of the computatíon outííned on Scheduíe C (Form
1120) and the computatíon ínstructíons set forth on Form 1120FY.
The resuít of the computatíon shouíd be carríed through the severaí
scheduíes as so índícated. Líne numbers 1 through 11 appearíng on
Scheduíe C (Form 1120) shouíd be used to report aíí capítaí gaíns and
íosses to be taken ínto account for the ta abíe year.
. ny return heretofore fííed for a short ta abíe year begínníng
after une 30, 19 0. and endíng before the íssuance of Scheduíe FY
(Form 1120) ís sub|ect to ad|ustments for changes made by amend-
ments contaíned ín the cess Profíts Ta ct of 19 0 íf the corporate
ta payer used sectíon ( ) of Form 1120FY to compute the ta .
Such ad|ustments shouíd be made by the fíííng of amended returns
on Form 1120 whích shouíd contaín a computatíon of the normaí ta
and surta , or the aíternatíve ta íf appíícabíe, made on Scheduíe FY
(Form 1120) ín accordance wíth the appíícabíe ínstructíons.
6. Corporate ta payers shouíd fííe any such amended returns, or
theír orígínaí returns when due, for the ta abíe years covered by cur-
rentíy íssued forms even though pendíng íegísíatíon may contaín
retroactíve features affectíng credíts agaínst net íncome and rates of
ta and make necessary the fíííng of addítíonaí scheduíes or forms
for the purpose of gívíng effect to any changes contaíned ín subse-
quentíy enacted íegísíatíon affectíng such years.
7. Correspondence reíatíng to thís mímeograph shouíd refer to íts
number and the symboís índícated: Coííectors of ínternaí revenue,
C: Coí; ínternaí revenue agents ín charge, IT: IM.
Geo. . Scííoeneman,
Commíssíoner.
Sectíon 29. 2-3: Certaín corporatíon returns for 19 1-23-1369
ta abíe years endíng after une 30, 19 0, and T. D. 61
before December 31, 19 0.
( íso Sectíon 3, Sectíons 29. 3-1 and 29. 3-3; Sec-
tíon 6, Sectíon 29. 6-1; Sectíon 1 3, Sectíon
29.1 3-7.)
TITL 26 € ” INT RN L R NU . € ” C PT R T, SU C PT R , P RT 20. € ”
INCOM T ; T L Y RS GINNING FT R D C M R 31, 19 1
Payment of Income ta by ínstaííment payments and of ta
wíthheíd at source from nonresídent aííens. Returns of estates,
trusts, and corporatíons.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. O.
To Coííectors of Internaí Revenue and Others Concerned:
On une 6,19 1, notíce of proposed ruíe makíng regardíng amend-
ments to conform Reguíatíons 111 26 CFR, part 29 to certaín sec-
tíons of the Revenue ct of 19 0 (Pubííc Law 1 , 1st Cong., 2d
sess.), approved September 23, 19 0, and the cess Profíts Ta
ct of 19 0 (Pubííc Law 909, 1st Cong., 2d sess.), approved anuary
3. 19 1, was pubííshed ín the Federaí Regíster (16 F. R. 3 3). No
ob|ectíon to the ruíes proposed havíng been receíved, the amendments
set forth beíow are hereby adopted.
9 016 € ” 2 € ”
t
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
20. 2-.3
2
Paragraph 1. There ís ínserted ímmedíateíy precedíng sectíon
29. 2-1 _26 CFR 29. 2-1 the foííowíng:
S C. 30 . FILING OF R TURNS FOR T L T RS NDING
FT R UN 30, 19 0, ND FOR D C M R 31. 1930 -
C SS PROFITS T CT OF 19 0, PPRO D NU RY 3,
19 1 .
In the case of a corporatíon sub|ect to the ta ímposed by subchapter
D of chapter 1 of the Internaí Revenue Code for a ta abíe year endíng
after une 30, 19 0, but príor to December 31, 1930. such corporatíon
shaíí after íe date of the enactment of thís ct and before March 1 ,
19 1, make a return for such ta abíe year wíth respect to the ta ímposed
by chapter 1 of the Internaí Revenue Code for such ta abíe year. The
return requíred by thís sectíon for such ta abíe year shaíí constítute
the return fcr such ta abíe year for aíí purposes of the Internaí Reve-
nue Code; and no return for such ta abíe year, wíth respect to any ta
ímposed by chapter 1 of su h Code, fííed on or before the date of the en-
actment of thís ct shaíí be consídered for any of such purposes as a
return for such year. The ta es ímposed by chapter 1 of such Code (de-
termíned wíth the amendments made by thís ct) for such ta abíe year
shaíí be paíd on March 1 , 1P 1, ín ííeu of the tíme prescríbed ín sectíon
0(a) of such Code. íí payments wíth respect to any ta for such
ta abíe yenr ímposed by chapter 1 of such Code under the íaw ín effect
príor to the enactment of tr.ís ct. to the e tent that such payments have
not been credíted or refunded, shaíí be deemed payments made at the
tíme of the fíííng of the return requíred by thís sectíon on account of the
ta for such ta abíe year under chapter 1 determíned wíth the amend-
ments made by thís ct.
Par. 2. There ís ínserted ímmedíateíy after sectíon 29. 2-2 26 CFR
29. 2-2 the foííowíng:
Sfc. 29.32-3. Certaín Corporatíon Returns for Ta abíe Years ndíng fter
une 30, 1930, and efore December 31, 19 0. € ” The return of a corporatíon
(other than a corporatíon e empt from the e cess profíts ta under sectíon )
for a ta abíe year endíng after une 30, 19 0, and before December 31. 19 0, shaíí
be fííed after anuary 3. 19 1 (the data of enactment of the cess Profíts Ta
ct of 19 0), and on or before March 1 , 19 1. Such return shaíí constítute the
return for such tn abíe year, and no return for such ta abíe year fííed on or
before anuary 3, 19 1, shaíí he consídered as a return for such year. The ta es
for such ta abíe yea shaíí be paíd on or before March 1 , 19 1. íí payments
of tn (íncíudíng ínterest, penaítíes, and addítíons to the ta ) for such ta abíe
year made on or before anuary 3, 19 1, shaíí be deemed to be payments of ta
made at the tíme of the fíííng of the return requíred by thís paragraph to be
fííed on or before March 13, 19 1, e cept to the e tent any such payments are
credíted or refunded príor to the tíme such return ís fííed. The provísíons of
sectíon 29. 0-1 (a) shaíí appíy wíth respect to the payment of such ta by ínstaíí-
ment payments, and for such purpose, the date prescríbed for the payment of
the ta as a síngíe payment ís March 1 , 19 1.
Par. 3. There ís ínserted ímmedíateíy precedíng sectíon 29. 3-1
26 CFR 29. 3-1 the foííowíng:
S C. 20 . P YM NT OF INCOM T Y INST LLM NT
P YM NTS. ND R TURNS OF ST T S ND TRUSTS
R NU CT OF 19 0, PPRO D S PT M R 23, 19 0 .
€ € €
(b) Fíííng of Returns and Payment of Ta by Fíducíaríes of
states and Trusts. € ”
(1) Sectíon 3(a)(1) (reíatíng to tíme for fíííng returns) ís
hereby amended to read as foííows:
(1) Generaí ruíe. € ” Returns made on the basís of the caíendar
year shaíí be made on or before the fífteenth day of March foííowíng
the cíose of the caíendar year, e cept that ín the case of the return
of the fíducíary of an estate or trust, the return shaíí be made on or
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
L3
29. 2-3.
before the fífteenth day of príí foííowíng the cíose of the caíendar
year. Returns made on the basís of a físcaí year shaíí be made
on or before the fífteenth day of the thírd month foííowíng the
cíose of the físcaí year, e cept that ín the case of the return of the
fíducíary of an estate or trust, the return shaíí be made on or before
the fífteenth day of the fourth month foííowíng the cíose of the
físcaí year.
€ € € € € € €
(3) The amendments made by thís subsectíon shaíí be appíícabíe
oníy wíth respect to ta abíe years endíng after the date of the
enactment of thís ct.
Par. . Sectíon 29. 3-1, as amended by Treasury Decísíon 1G
C. . 19 0-2. 62 , approved December , 19 0 20 CFR 29. 3-1 , ís
further amended as foííows:
( ) y ínsertíng ímmedíateíy after subparagraph (7) of the fírst
paragraph thereof the foííowíng:
( ) In the case of a return of a fíducíary of an estate or trust for a ta abíe
year endíng after September 23, 19 0, on or before the 1 th day of the fourth
month foííowíng the cíose of such year.
( ) y ínsertíng at the end thereof the foííowíng paragraph:
For provísíons reíatíng to the tíme for fíííng certaín corporatíon returns for
ta abíe years endíng after une 30, 10 0, and before December 31, 19 0, see
sectíon 29. 2-3.
Par. . Paragraph (b) of sectíon 29. 3-3 26 CFR 29. 3-3 ís
amended by ínsertíng after December 31, 19 1, the foííowíng:
and endíng before December 31,19 1,: .
Par. 6. There ís ínserted ímmedíateíy precedíng sectíon 29. 6-1
26CFR 29. 6-1 the foííowíng:
S C. 20 . P YM NT OF INCOM T Y INST LLM NT
P YM NTS, ND R TURNS OF ST T S ND T CSTS
R NU CT OF 19 0, PPRO D S PT M R 23, 19 0 .
(a) Payment of Income Ta by Instaííment Paymfnts. € ” ffectíve
wíth respect to ta abíe years endíng on or after December 31, 19 0,
sectíon 6(b) (reíatíng to ínstaííment payments of íncome ta ) ís
hereby amended to read as foííows:
(b) Instaííment Payments. € ”
(1) states or decedents. € ” In the case of the estate of a de-
cedent, the fíducíary may eíect to pay the ta ín four equaí
ínstaííments.
(2) Ccepobatíons € ” In the case of a corporatíon € ”
( ) Ta abíe Years ndín|: efore December 31. 19 . € ” The
ta payer may eíect wíth respect to any ta abíe year endíng
before December 31, 19 , to pay the ta ín four ínstaííments,
and ín such case the amount of the ta paíd by each ínstaííment
shaíí be determíned as foííows:
If the ta abíe year ends € ”
each of the fírst
two ín trWIments
shaíí be the
foííowíng
pereentace
of the ta
and each of tbo
íast two ínstaíí-
ments shaíí be
the foííowíng
percentage
of the ta
on or after € ”
and before € ”
December 31. 19 0
December 31, 19 1
30
3
0

20
16
10

tíwmber 31, 1961
Decern ber 31, 19 2
December 31. 19 2
December 31, 19 3
December 31,19
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
í 29. 2-3.

( ) Ta abíe Tears ndíng on or fter December 31, 10 . € ”
The ta payer may eíect wíth respect to any ta abíe year endíng
on or after December 31, 19 , to pay tbe ta ín two equaí
ínstaííments.
(3) Dates for ínstaííment payments. € ”
( ) Four Instaííments. € ” In any case In vhíeh the ta may
be paíd ín four ínstaííments, the fírst ínstaííment shaíí be paíd
on the date prescríbed for the payment of the ta by the ta -
payer, the second ínstaííment shaíí be paíd on the í th day of
the thírd month, the thírd ínstaííment on the 13th day of the
sí th month, and the fourth ínstaííment on the 1 th day of the
níntí) month, after such date.
( ) Two Instaííments. € ” In any case ín whích the ta may
be paíd ín two ínstaííments, the fírst ínstaííment shaíí be paíd
on the date prescríbed for the payment of the ta by the ta -
payer, and the second ínstaííment shaíí be paíd on the 1 th day
of the thírd month after such date.
( ) Requírement for payment. € ” If any ínstaííment ís not paíd
on or before the date fí ed for íts payment, the whoíe of the ta
unpaíd shaíí be paíd upon notíce and demand from the coííector.
(b) Fí íng of Returns and Payment of Ta by Fíducíaríes of
states and Trusts. € ”

(2) Sectíon 0(a) (r íatíng to tíme for payment of ta ) ís hereby
amended by ínsertíng before the períod at the end thereof the foííow-
íng: , e cept that ín the case of the ta ímposed upon an estate or
trust the ta shaíí be paíd on the fífteenth day o príí foííowíng
the cíose of the caíendar year, or, íf the return shouíd be made on
the basís of a físcaí year, then on the fífteenth day of the f.urth
month foííowíng the cíose of the físcaí year .
(3) The amendments made by thís sub|ectíon shaíí be appíícabíe
oníy wíth respect to ta abíe years endíng after the date of the
enactment of thís ct.
Par. 7. Sectíon 20. 6-1. as amended by Treasury Decísíon S16 26
CFR 29. 6-1 . ís further amended as foííows:
( ) y stríkíng out so much of such sectíon as precedes the fírst
sentence and by ínsertíng ín ííeu thereof the foííowíng:
Sec. 29. 0-1. Date on Wnícn Ta Shaíí e Paíd. € ” (a) Ta abíe years endíng
before December SI. IOoO. € ” The provísíons of thís paragraph shaíí appíy oníy
wíth respect to ta abíe years endíng before December 31, 19 0.
( ) y addíng at the end thereof the foííowíng:
Notwíthstandíng the precedíng provísíons of thís paragraph (a), ín the case
of an estate or trust the ta abíe yonr of whích end after September 23. 19 0.
the ta shaíí be paíd on or before the 1 th day of the fourth month foííowíng
the cícse of such year, or, íf paíd ín ínstaííments, shaíí be paíd ín equaí ínstaíí-
ments on or before such date and on or before the 1 th day of the thírd, sí th,
and nínth month foííowíng such date.
(6) Ta abíe years endíng on or after December St. 19 0. € ” (1) In generaí. € ”
Wíth respect to ta abíe years endíng on or after December 31, 19 0, the ta ,
uníess ít ís requíred to be wíthheíd at the source under sectíon 1G22, ís tc be
paíd on or before the 1 th day of March foííowíng the cíose of the caíendar year,
or, íf the return ís made on the basís of a físcaí year, on or before the 1 th day of
the thírd month foííowíng the cíose of such físcaí year. See, however, (2) of
thís subsectíon wíth respect to estates and trusts.
In any case ín whích an índívíduaí ta payer ís entítíed to eíect, and does so
eíect, to fííe as hís return Form 10 0 , as províded ín sectíon 29. 1-2, the amount
of the ta determíned by the coííector ís to be paíd wíthín 30 days after the date
of maíííng by the coííector to the ta payer of a notíce statíng the amount payabíe
by the ta payer and makíng demand upon tbe ta payer therefor.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


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

29. 2-3.
In the case of a return (other than a retnrn by a nonresídent aííen índívíduaí
who does not have wages sub|ect to wíthhoídíng under sectíon 1622 or a non-
resídent foreígn corporatíon) for a fractíonaí pnrt of a year, the ta ís to be
paíd on or before the íast day prescríbed for the fíííng of the return (see sectíon
29. 3-1). ut see sectíon 29. 3-3.
For the tíme of payment of ta by a nonresídent aííen índívíduaí (e cept a
bona fíde resídent of Puerto Ríco sub|ect to the provísíons of sectíon 220) who
does not have wages sub|ect to wíthhoídíng under sectíon 1622, see sectíon 21 .
In the case of a nonresídent aííen índívíduaí who ís a bona fíde resídent of Puerto
Ríco duríng the entíre ta abíe year and thus sub|ect to the provísíons of sectíon
220, the ta for ta abíe years begínníng after December 31, 1930, ís to be paíd
at the tíme províded In the case cf Uníted States cítízens and resídents.
For the tíme of payment of ta by a nonresídent foreígn corporatíon, see
sectíon 236.
(2) states and trusts. € ” In the case of the ta ímposed upon an estate or
trust, the ta shaíí be paíd on or before the 1 th day of príí foííowíng the cíose
of the caíendar year, or, íf the return ís made on the basís of a físcaí year, on
or before the 1 th day of the fourth month foííowíng the cíose of the físcaí year.
(3) Instaííment payments. € ” (í) states of decedents. € ” Wíth respect to estates
of decedents, the fíducíary may eíect to pay the ta ín four equaí ínstaííments.
Instead of ín a síngíe payment, ín whích case the fírst ínstaííment shaíí be paíd
on or before the date prescríbed for the payment of the ta as a síngíe payment,
the second ínstaííment shaíí be paíd on or before the 1 th day of the thírd
month, the thírd ínstaííment on or before the 1 th day of the sí th month, and
the fourth ínstaííment on or before the 1 th day of the nínth month, after such
date.
(íí) Corporatíons € ” Ta abíe years endíng before December St, 19 ). € ” Wíth
respect to ta abíe years of corporatíons endíng on or after December 31, 19 0,
and before December 31, 19 , the ta payer may eíect to pay the ta ín four
ínstaííments, and ín such case the amount of the ta paíd by each ínstaííment
shaíí be as foííows:
If the ta abíe year ends € ”
each of the fírst
two ínstaííments
shaíí be the
foííowíng
perccntfípe
of the ta
and each of the
íast two ínstaíí-
ments shaíí be
the foííowíng
percentage
of the taí
on or after € ”
and before € ”
December 31. 10 0
December 31. 1C.11
30
3
0

20
1
10
t
December 31, 10 1
December 31, ín 2
December 31, 19 2
December 31. 19 3
December 31. 19 3
December 31, 19
The fírst ínstaííment shaíí be paíd on or before the date prescríbed for the
payment of the ta as a síngíe payment, the second ínstaíímenC shaíí be paíd
on or before the 1 th day of the thírd month, the thírd ínstaííment on or before
the 1 th day of the sí th month, and the fourth ínstaííment on or before the 1 th
day of the nínth month, after such date.
(ííí) Corporatíons € ” Ta abíe year endíng on or after December SI, 19 . € ” Wíth
respect to ta abíe years of corporatíons endíng on or after December 31. 19 ,
the ta payer may eíect to pay the ta ín two equaí ínstaííments, ín whích case
the fírst ínstaííment shaíí be paíd on or before the date prescríbed for the pay-
ment of the ta as a síngíe payment and the second ínstaííment on or before
the 1 th day of the thírd month after such date.
(ív) In generaí. € ” If the ta payer eíects to pay the ta ín ínstaííments, any
ínstaííment may be paíd, at the eíectíon of the ta payer, príor to the date pre-
scríbed for íts payment. If an ínstaííment ís not paíc ín fuíí on or before the
date fí ed for íts payment eíther by the Internaí Revenue Code or by the Com-
míssíoner ín accordance wíth the terms of an e tensíon, the whoíe amount of
the ta unpaíd shaíí be paíd upon notíce and demand from the coííector.
In the case of ta payers other than estates of decedents, and other than cor-
poratíons, the prívííege of ínstaííment payments of the ta does not appíy wíth
respect to ta abíe years endíng on or after December 31, 19 0.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29. 3-2.
6
Par. . There ís ínserted ímmedíateíy precedíng sectíon 29.1 3-1
26 CFR 29.1 3-1 the foííowíng:
S C. 219. P IM NT OP T WIT LD T SOURC FROM
NONR SID NT LI NS R NU CT OF 19 0, PPRO D
S PT M R 23, 19 0 .
The fírst sentence of sectíon 1 3(c) ís hereby amended to read as
foííows: very person requíred to deduct and wíthhoíd any ta under
thís sectíon shaíí, on or before Match 1 of each year, make return
thereof aud pay the ta to the coííector desígnated ín sectíon 3(b).
Par. 9. Sectíon 29.1 3-7 26 CFR 29.1 3-7 ís amended by stríkíng
out the fírst sentence of the thírd paragraph and by ínsertíng ín ííeu
thereof the foííowíng:
In every case the ta wíthheíd duríng a caíendar year príor to the caíendar
year 19 0 must be paíd to the coííector on or before une 1 of the foííowíng
year. In every case the ta wíthheíd duríng a caíendar year subsequent to the
caíendar year 19 9 must be paíd on or before March 1 of the foííowíng year.
(Thís Treasury Decísíon ís íssued pursuant to the authoríty con-
taíned ín sectíon 62 of the Internaí Revenue Code ( 3 Stat. 32; 26
U. S. C. 62).)
ohn . Dun ap,
Commíssíoner of Internaí Revenue.
pproved October 1 , 19 1.
. . Foíey,
ctíng Secretary of the Treasury.
(Fííed wíth the Dívísíon of the Federaí Regíster October 23, 19 1, : a. m.)
S CTION 3. € ” TIM ND PL C FO FILING R TURNS
Sectíon 29. 3-1: Tíme for fíííng returns.
ínternaí revenue code
Reguíatíons 111 amended. (See T. D. 61, page 1.)
Sectíon 29. 3-2: tensíons of tíme for fíííng 19 1-20-13669
returns. Míní. 66 3
Fíííng of returns by corporatíons for ta abíe years endíng after
une 30,19 0, and before February 1,19 1.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C, September 6,19 1.
Coííectors of Internaí Revenue, Internaí Revenue gents ín Charge,
and Others Concerned:
1. Due to the probíems facíng corporatíons as the resuít of the
enactment of the cess Profíts Ta ct of 19 0, e tensíons of tíme
have been secured by many corporatíons for fíííng theír íncome ta
returns for ta abíe years endíng after une 30,19 0, and before Feb-
ruary 1, 19 1, to September 1 , 19 1, or October 1 ,19 1, ín the case
of físcaí years endíng anuary 31,19 1.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
7
11 .
2. Sínce sectíon 3(a) (2) of the Internaí evenue Code íímít e -
tensíons of tíme for fíííng returns to 6 months, no e tensíon of tíme
beyond September 1 , 19 1, or October 1 , 19 1, as the case may be,
may be granted wíth respect to such ta abíe years. owever, pro-
posed íegísíatíon ís pendíng whích wouíd e tend the períod for whích
the Commíssíoner may grant e tensíons of tíme for such ta abíe years
ín the case of corporatíons sub|ect to the e cess profíts ta ímposed
by the cess Profíts Ta ct of 19 0. ccordíngíy, ín the case of
a corporatíon sub|ect to the e cess profíts ta whích has been granted
an e tensíon of tíme to September 1 , 19 1, or October 1 , 19 1, as
the case may be, wíth respect to a ta abíe year descríbed ín paragraph
1, above, coííectors may entertaín appíícatíons for an e tensíon of
tíme, not beyond November 1 , 19 1, for fíííng returns of the ta es
ímposed by chapter 1 of the Code for such ta abíe year. Coííectors
may grant such e tensíons condítíoned, however, upon the enactment
of íegísíatíon authorízíng such e tensíons. The e tensíons wííí take
effect oníy íf such íegísíatíon ís enacted.
3. íí corporatíons are sub|ect to e cess profíts ta wíthín the
meaníng of paragraph 2 e cept those specífícaííy e empted under
sectíon of the Code.
. Correspondence regardíng thís mímeograph shouíd refer to
íts number and the symboís IT: P: C .
ohn . Duníap,
Comm. íssíoner.
Sectíon 29. 3-3: tensíons of tíme ín the case of
foreígn organízatíons, certaín domestíc corpora-
tíons, cítízens of Uníted States resídíng or traveí-
íng abroad, and nonta abíe returns of fíducíaríes
for estates or trusts.
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. G1, page 1.)
S CTION . € ” PU LICITY OF R TURNS
19 1-17-136 6
T. D.
TITL 26 € ” INT RN L R NU . € ” C PT R I, SUP.Cn PT , P RT . € ”
INSP CTION OF R TURNS
Inspectíon of íncome, e cess-profíts, decíared vníue e cess-profíts,
capítaí stock, estate, and gíft ta returns by the Senate Commíttee
on pendítures In the ecutíve Departments.
Treasury Department,
Washíngton 2 , D. C.
To Coííectors of Internaí Revenue and Others Concerned:
Sec. .307. Inspectíon of Returns by Senate Commíttee on
pendítures ín the ecutíve Departments. € ” (a) Pursuant to the
provísíons of sectíons (a), 0 ,603,729(a), and 120 of the Internaí
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


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

Revenue Code ( 3 Stat. 20, 111, 171; Stat. 9 9,100 : Stat. 722;
2G U. S. C. (a). 0 . 00 , 729(a), and 120 ), and of the ecutíve
order íssued thereunder, any íncome, e cess-profíts, decíared vaíue
e cess-profíts, capítaí stock, estate, or gíft ta return for the years
19 to 19 0, íncíusíve, whích contaíns ínformatíon necessary to the
ínvestígatíon of the saíe of tanker shíps by the Uníted States Marítíme
Commíssíon, shaíí, duríng the fírst sessíon of the íghty-second Con-
gress, be open to ínspectíon by the Senate Commíttee on pendítures
ín the ecutíve Departments or the duíy authorízed subcommíttee
thereof for the purpose of ínvestígatíng the saíe of tanker shíps by
the Uníted States Marítíme Commíssíon, as a part of the study of
the operatíon of Government actívítíes wíth a víew to determíníng íts
economy and efíícíency.
The ínspectíon of returns hereín authorízed may be made by the
commíttee or such duíy authorízed subcommíttee thereof, actíng dí-
rectíy as a commíttee or as a subcommíttee, or by or through such
e amíners or agents as the commíttee or the subcommíttee may desíg-
nate or appoínt ín íts wrítten request hereínafter mentíoned. Upon
wrítten request by the chaírman of the commíttee or of the authorízed
subcommíttee to the Secretary of the Treasur , gívíng the names and
addresses of the ta payers whose returns ít ís necessary to ínspect,
the ta abíe períods covered by the returns, and the reasons why. as a
part of the aforesaíd study of the operatíon of Government actívítíes,
ínspectíon of the returns ís necessary to the ínvestígatíon of the saíe
cf tanker shíps by the Uníted States Marítíme Commíssíon, the Sec-
retary and any offícer or empíoyee of the Treasury Department shaíí
furnísh such commíttee or subcommíttee wíth any data reíatíng to
or contaíned ín any such return, or shaíí make such return avaííabíe
for ínspectíon by the commíttee or the subcommíttee or by such e -
amíners or agents as the commíttee or the subcommíttee may desígnate
or appoínt, ín the offíce of the Commíssíoner of Internaí Revenue. ny
ínformatíon thus obtaíned by the commíttee or the subcommíttee
thereof shaíí be heíd confídentíaí: Províded, koícever, That any por-
tíon or portíons thereof reíevant or pertínent to the purpose of the
ínvestígatíon may be submítted by the commíttee to the Uníted States
Senate.
(b) ecause of the ímmedíate need of the saíd commíttee to ínspect
the ta returns hereín mentíoned, ít ís found that ít ís ímpractícabíe
and contrary to the pubííc ínterest to íssue thís Treasury Decísíon wíth
notíce and pubííc procedure thereon under sectíon (a) of the dmín-
ístratíve Procedure ct, approved une 11, 19 0, 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 Federaí Regíster.
oíí W. Snyder,
Secretary of the Treasury.
pproved uíy 2 , 19 1.
arry S. Truman,
2 he Whíte ouse.
(Fííed wíth the Dívísíon of the Federaí Regíster uíy 2 ,19 1,11: G a. ín.)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
9
.
INSP CTION OF INCOM . C SS-PROFITS, D CL R D LU C SS-PROFITS.
C PIT L STOC , ST T . ND GIFT T R TURNS Y TI1 S N T COM-
MITT ON P NDITUR S IN T CUTI D P RTM NTS
y vírtue of the authoríty vested ín me by sectíons (a). 0 , G03,
729(a), and 120 of the Internaí Revenue Code ( 3 Stat. 29. Iíí, 171;
Stat. 9 9,100 ; Stat. 722; 26 U. S. C. (a), 0 , 603, 729(a), and
120 ), 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 to 19 0, íncíusíve, whích contaíns ínformatíon necessary
to the ínvestígatíon of the saíe of tanker shíps by the Uníted States
Marítíme Commíssíon, shaíí, duríng the fírst sessíon of the íghty-
second Congress, be onen to ínspectíon by the Senate Commíttee on
pendítures ín the ecutíve Departments or the duíy authorízed
subcommíttee thereof for the purpose of ínvestígatíng the saíe of
tanker shíps by the Uníted States Marítíme Commíssíon, as a part
of the study of the operatíon of Government actívítíes wíth a víew to
determíníng íts economy and effícíency, sub|ect to the condítíons stated
ín the Treasury Decísíon reíatíng to the ínspectíon of such returns by
that commíttee, approved by me thís date.
Thís ecutíve order shaíí be effectíve upon íts fíííng for pubííca-
tíon ín the Federaí Regíster.
arry S. Truman.
The Whíte ouse.
uíy 2 ,10 1.
( . O. 1027 )
(Fííed wíth the Dívísíon of the Federaí Regíster uíy 2 , 19 1,11: 6 a. m.)
19 1-1 -136 7
T. D. 2
TITL 26 € ” INT RN L R NU . € ” C PT R I, SUP.C PT R , P RT . € ”
INSP CTION OF R TURNS
Inspectíon of íncome, e cess-prcfíts. decíared vaíue e cess-profíts,
capítaí stock, estate, and gíft ta returns for an| períod to and ín-
cíudíng 19 0 by the Senate Specíaí Commíttee to Investígate Organ-
ízed Críme ín Interstate Commerce.
Treasury Department,
11 ashíngton 2 , D. C.
To Coííectors of Internaí Revenue and Others Concerned:
Paragraph 1. Pursuant to the provísíons of sectíons (a), 0 ,
603.729(a), and 120 of the Internaí Revenue Code ( 3 Stat. 29. Iíí,
171; Stat. 9 9,100 ; Stat. 722; 26 U. S. C. (a), 0 , 603,729 (a),
and 120 ), and of the ecutíve order íssued thereunder, openíng
íncome, e cess-profíts, decíared vaíue e cess-profíts, capítaí stock,
estate, and gíft ta returns for any períod to and íncíudíng 19 0 to
ínspectíon by the Specíaí Commíttee to Investígate Organízed Críme
ín Interstate Commerce, estabííshed pursuant to Senate Resoíutíon
202 ( 1st Cong., 2d sess.), Treasury Decísíon 793 C. . 19 0-2, 37 ,
approved by me on une 17,19 0 26 CFR .30 , ís hereby amended
by stríkíng out 19 9 and ínsertíng ín ííeu thereof 19 0 .
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
.1
0
Par. 2. ecause of the ímmedíate need of the saíd Specíaí Com-
míttee to ínspect such ta returns for 19 0, ít ís found that ít ís
ímpractícabíe and contrary to the pubííc ínterest to íssue thís Treasury
Decísíon 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 saíd ct.
Par. 3. Thís Treasury Decísíon shaíí be effectíve upon íts fíííng for
pubíícatíon ín the Federaí Regíster.
ohn W. Snyder,
Secretary of the Treasury.
pproved ugust 16,19 1.
arry S. Truman,
The Whíte ouse.
(Fííed wíth tííe Dívísíon of tbe Federaí Regíster ugust I , 19 1, : 0 p. m.)
INSP CTION OF INCOM . C SS-PROFITS D CL R D LU C SS-PROFITS.
C PIT L STOC . ST T . ND GIFT T R TURNS FOR NY P RIOD TO ND
INCLUDING 1U 0 Y T S N T SP CI L COMMITT TO IN STIG T
ORG NIZ D CRIM IN INT RST T COMM RC
y vírtue of the authoríty vested ín me by sectíons (a). 0 , 603,
729(a), and 120 of the Internaí Revenue Code ( 3 Stat. 29. 111. 171;
Stat. 9 9, 100 ; Stat. 722; 26 U. S. C. (a), 0S, G03, 729(a),
and 120 ), ít ís hereby ordered that any íncome, e cess-profíts, de-
cíared vaíue e cess-profíts, capítaí stock, estate, or gíft ta return for
any períod to and íncíudíng 19 0 shaíí be open to ínspectíon by the
Specíaí Commíttee estabííshed pursuant to Senate Resoíutíon 202
( 1st Cong., 2d sess.), for the purpose of carryíng out the provísíons
of the saíd Senate Resoíutíon, sub|ect to the condítíons stated ín
Treasury Decísíon 793, approved une 17, 19 0, as amended by the
Treasury Decísíon approved by me thís date, reíatíng to the ínspectíon
of such returns by that commíttee.
Thís ecutíve order shaíí be effectíve upon íts fíííng for pubíícatíon
ín the Federaí Regíster.
arry S. Truman.
Thf. Whíte ouse,
ugust 16,19 1.
( . O. 10279)
(Fííed wíth tííe Dívísíon of the Federaí Regíster ugust 17, 19 1, 9:32 a. m.)
19 1-2 -13716
T. D. S66
TITL 26 € ” INT RN L R NU . € ” C PT R I. SU C PT R . P RT . € ”
INSP CTION OF R TURNS
Inspectíon of Income, e cess-profíts, decíared vaíue e cess-profíts,
capítaí stock, estate, and gíft ta returns by the Senate Commíttee
ou the Dístríct of Coíumbía.
Treasury Department,
Washíngton 2 , D. C.
To Coííectors of Internaí Revenue and Others Concerned:
Sec. .30 . Inspectíon of Returns by Senate Commíttee on
the Dístríct of Coíumbía. € ” (a) Pursuant to the provísíons of sec-
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
1
.
tíons (a), 0 , 60S. 729(a), and 120 of the Internaí Revenue Code
( 3 Stat. 29, 111, 171; Stat. 9 9, 100 ; Stat. 722; 26 U. S. C.
(a), 0 , 603, 729(a), and 120 ), and of the ecutíve order íssued
thereunder, any íncome, e cess-profíts, decíared vaíue e cess-profíts,
capítaí stock, estate, or gíft ta return for any períod to and íncíud-
íng 19 0 shaíí be open to ínspectíon by the Senate Commíttee on the
Dístríct of Coíumbía or any duíy authorízed subcommíttee thereof,
for the purpose of carryíng out the provísíons of Senate Resoíutíon
136 ( 2d Cong., 1st sess.).
The ínspectíon of returns hereín authorízed may be made by the
commíttee or a duíy authorízed subcommíttee thereof, actíng dírectíy
as a commíttee or as a subcommíttee, or by or through such e am-
íners or agents as the commíttee or subcommíttee may desígnate or
appoínt ín íts wrítten request hereínafter mentíoned. Upon wrítten
request by the chaírman of the commíttee or of the authorízed sub-
commíttee to the Secretary of the Treasury, gívíng the names and
addresses of the ta payers whose returns ít ís necessary to ínspect and
the ta abíe períods covered by the returns, the Secretary and any
offícer or empíoyee of the Treasury Department shaíí furnísh such
commíttee or subcommíttee wíth any data reíatíng to or contaíned ín
any such return, or shaíí make such return avaííabíe for ínspectíon by
(he commíttee or subcommíttee or by such e amíners or agents as
the commíttee or subcommíttee may desígnate or appoínt, ín the offíce
of the Commíssíoner of Internaí Revenue. ny ínformatíon thus
obtaíned by the commíttee or subcommíttee thereof shaíí be heíd
confídentíaí: Províded, hoícever, That any portíon or portíons thereof
reíevant or pertínent to the purpose of the ínvestígatíon may be
submítted by the commíttee to the Uníted States Senate.
(b) ecause of the ímmedíate need of the saíd Senate Commíttee
on the Dístríct of Coíumbía to ínspect the ta returns hereín men-
tíoned, ít ís found that ít ís ímpractícabíe and contrary to the pubííc
ínterest to íssue thís Treasury Decísíon wíth notíce and pubííc
procedure thereon under sectíon (a) of the dmínístratíve Proce-
dure ct, approved une 11,19 6, or sub|ect to the effectíve date íímí-
tatíon of sectíon (c) of saíd ct.
(c) Thís Treasury Decísíon shaíí be effectíve upon íts fíííng for
pubíícatíon ín the Federaí Regíster.
ohn T . Snyder,
Secretary of the Treasury.
pproved November 12, 19 1.
arry S. Truman,
The Whíte ouse.
(Fííed wíth the Dívísíon of the Federaí Regíster November 1 , 19 1, 3:19 p. m.)
INSP CTION OF INCOM , C SS-PROFITS. D CL R D LU C SS-PROFITS,
C PIT L STOC ST T . ND GIFT T R TURNS Y T S N T COM-
MITT ON T DISTRICT OF COLUM I
y vírtue of the authoríty vested ín me by sectíons (a), 0 , 603,
729(a), and 120 of the Internaí Revenue Code ( 3 Stat. 29, 111, 171;
í Stat. 9 9, 100 ; Stat. 722; 26 U. S. C. (a), 0 , 603, 729(a),
and 120 ), ít ís hereby ordered that any íncome, e cess-profíts, decíared
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29. 7-1.) 2
vaíue e cess-profíts, capítaí stock, estate, or gíft ta return for any
períod to and íncíudíng 19 0 shaíí be open to ínspectíon by the Senate
Commíttee on the Dístríct of Coíumbía or any duíy authorízed sub-
commíttee thereof for the purpose of carryíng out the provísíons of
Senate Resoíutíon 136 ( 2d Congress, 1st sessíon), sub|ect to the
condítíons stated ín the Treasury Decísíon reíatíng to the ínspectíon
of such returns by that commíttee, approved by me thís date.
Thís ecutíve order shaíí be effectíve upon íts fíííng for pubííca-
tíon ín the Federaí Regíster.
arry S. Truman.
The Whíte cuse,
November 12, 10 1.
( . 0.1030 )
(Fííed wíth the Dívísíon of the Federaí Regíster November 1 , 19 1, 3:19 p. m.)
S CTION 6. € ” P YM NT OF T
Sectíon 29. 6-1: Date on whích ta shaíí be paíd.
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. SG1, page 1.)
S CTION 7. € ” MIN TION OF R TURN ND
D T RMIN TION OF T
Sectíon 29. 7-1: amínatíon of return and 19 1-17-136 7
determínatíon of ta by the Commíssíoner. Míní. 612
( mendment 1)
Procedure wíth respect to fíeíd determínatíons of tn ííabíííty
agreed to by ta payers whích are dísapproved by post-revíew
authorítíes ín Washíngton.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue.
Washíngton 2 , D. C, uíy 19, 19 1.
Coííectors of Internaí Revenue, Internaí Revenue gents ín Charge,
and Others Concerned:
1. Mímeograph 612 (C. . 19 7-1, 0), dated March 12, 19 7, ís
hereby amended by changíng the number of the present concíudíng
taragraph thereof from to , and by ínsertíng, ímmedíateíy pre-
cedíng such paragraph, a new paragraph readíng as foííows:
. The procedure outííned ín subparagraphs (6), (c), and íd) of paragraph 3
of thís mímeograph wííí not be appíícabíe ín cases where e ceptíons to fíeíd
cíosíngs are based upon recommendatíons of the otííoe of the Chíef Counseí for
the ureau of Internaí Revenue ín connectíon wíth the revíew of proposed
overnssessmeuts ín e cess of 200,000, ít beíng tne practíce of that offíce ín those
cases to grant the ta payer or hís representatíve an opportuníty for a con-
ference before ít makes such recommendatíons.
Geo. . Schoeneman,
Commíssíoner.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
3 29.101 CD € ” 1.
SU C PT R C € ” SUPPL M NT L PRO ISIONS
SUPPL M NT . € ” R T S OF T
S CTION 101. € ” MPTION S FROM T
ON CORPOR TIONS
Sectíon- 29.101 (7)-í: usíness íeagues, eham- 19 1-1 -13616
bers of commerce, reaí estate boards, and I. T. 0 3
boards of trade.
INT RN L R NU COD
corporatíon composed of deaíers ín n certaín make of auto-
mobííe, such deaíers beíng íocated ín a desígnated area, ís organízed
and operated for the prímary purpose of promotíng the saíe of
automobííes by fínancíng generaí advertísíng campaígns from funds
contríbuted by deaíer-members. eíd, the corporatíon ís prímarííy
a servíce organízatíon for íts members, and ít ís not entítíed to
e emptíon from Federaí íncome ta as a busíness íeague under
sectíon 101(7) of the Internaí Revenue Code.
dvíce ís requested whether a corporatíon whích ís prímarííy
organízed and operated for the purpose of advertísíng and promot-
íng the saíe of a partícuíar make of automobííe ís entítíed to e emp-
tíon from Federaí íncome ta under sectíon 101(7) of the Internaí
Revenue Code.
Membershíp ín the corporatíon ín questíon ís restrícted to deaíers
who hoíd franchíses for the saíe of a certaín make of automobííe
ín a desígnated area. The corporatíon was organízed for the purpose
of unítíng such deaíers ín that area and promotíng the saíe of auto-
mobííes, parts, and servíces by fínancíng generaí advertísíng cam-
paígns from funds contríbuted by deaíer-members. These contríbu-
tíons, constítutíng the oníy source of íncome of the corporatíon, are
based upon the number of automobííes purchased from the manufac-
turer by each member. Part of the corporatíon s advertísíng ís pub-
ííshed over the names of íts members.
Sectíon 101(7) of the Internaí Revenue Code provídes for the
e emptíon of:
(7) usíness íeagues, chambers of commerce, reaí-estate boards or boards
of trade, not organízed for profít and no part of the net earníngs of whích
ínures to the benefít of any prívate sharehoíder or índívíduaí;
Sectíon 29.101 (7)-í of Reguíatíons 111, ín defíníng a busíness íeague,
states ín part as foííows:
busíness íeague ís an assocíatíon of persons havíng some common busíness
ínterest, the purpose of whích ís to promote such common ínterest and not
to engage ín a reguíar busíness of a kínd ordínarííy carríed on for profít. It
Iran organízatíon of the same generaí cíass as a chamber of commerce or board
of trade. Thus íts actívítíes shouíd be dírected to the ímprovement of busíness
condítíons of one or more íínes of busíness as dístínguíshed from the perform-
ance of partícuíar servíces for índívíduaí persons.
In the ínstant case, the corporatíon, ínstead of engagíng ín actíví-
tíes for the ímprovement of busíness condítíons ín the automotíve
índustry as a whoíe, ís performíng partícuíar servíces for íts members
by advertísíng a certaín make of automobííe whích ís soíd by íts
deaíer-members. ccordíngíy, ít ís heíd that the corporatíon hereín
ínvoíved ís prímarííy a servíce organízatíon for íts members, and ít
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.107-1.

ís not entítíed to e emptíon from Federaí íncome ta as a busíness
íeague under sectíon 101(7) of the Internaí Revenue Code.
S CTION 107. € ” COMP NS TION FOR S R IC S R N-
D R D FOR P RIOD OF T IRTY-SI MONT S OR
MOR ND C P Y
Sectíon 29.107-1: Personaí servíces. 19 1-22-13G 6
G. C. M. 2G993
INT RN L R NU COD
Income receíved by n partner as hís share of compensatíon for
servíces rendered by tííe partnershíp over a períod of 36 months or
more ís sub|ect to aííocatíon over the entíre períod under sectíon 107
of the Internaí Revenue Code, as amended, notwíthstandíng the fact
that part of the servíces was rendered príor to the partner s admís-
síon to the partnershíp.
G. C. M. 2 79o (C. 1 . 19 S-2, CI) revoked.
Reconsíderatíon íías been gíven to G. C. M. 2 79 (C. . 19 -2, Gí)
ín the ííght of the decísíons ín Commíssíoner v. íder IF. Marshaíí
et u . (1 Fed. (2d) G7 ). Commíssíoner v. Sígvaíd Níeíson et war.
(1 7 Fed. (2d) 233), and Commíssíoner v. urnham nersen et u .
(1 7 Fed. (2d) 233).
Príor to íts amendment by sectíon 139(a) of the Revenue ct of
19 2, sectíon 107 of the Internaí Revenue Code was appíícabíe to cases
ín whích compensatíon was receíved for personaí servíces rendered
by an índívíduaí ín hís índívíduaí capacíty, or as a member of a
partnershíp, and coveríng a períod of fíve caíendar years or more
from the begínníng to the compíetíon of such servíces. It was heíd
ín Raíph G. Líndstrom v. Commíssíoner (3 T. C. GSG, affírmed, 1 9
Fed. (2d) 3 ) that a new partner couíd not ínvoke sectíon 107 of
the Cede where neíther he as an índívíduaí, nor the partnershíp after
he became a member, had performed personaí servíces for the necessary
mínímum períod of years. The ta payer there was not permítted
to add to hís servíces as a partner the índívíduaí servíces of the other
partners rendered príor to the creatíon of the partnershíp.
Sectíon 139(a) of the Revenue ct of 19 2 amended sectíon 107 of
the Internaí Revenue Code so that ít now appííes to íncome receíved
or accrued ín one ta abíe year by an índívíduaí or a partnershíp.
G. C. M. 2 79 , supra, ín eírcct took the posítíon that the decísíon ín
the Líndstrom case was appíícabíe to cases ínvoívíng ta abíe years
covered by the amendment of sectíon 107 of the Code and heíd that
each índívíduaí who had been a partner for 36 caíendar months or
more at the tíme a fee was receíved by the partnershíp for personaí
servíces rendered by the partnershíp over a períod of 3G months or
more was entítíed to the benefíts of sectíon 107(a) of the Code, but.
that an índívíduaí who became a partner ín the year of receípt of
such fee was not entítíed to the benefíts of sectíon 107(a) of the Code
wíth respect to hís share of the fee.
In íder W. Marshaíí et u . v. Commíssíoner (1 T. C. 90. nonacquí-
escence wíthdrawn and acquíescence substítuted, page 3 thís uííe-
tín), the Ta Court saíd:
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
3
29.109-1.
Sínce ít ís tííe status of the recípíent of the íncome ín the year of receípt,
and not eíther hís status ín príor years, Federíco StaOforth, 6 T. C. 1 0, or the
ídentíty of the índívíduaí who contríbuted the servíces that ís made to govern
the appíícatíon of sectíon 107 ín íts present form, we are satísfíed that under
the facts of thís proceedíng petítíoner correctíy computed hís ta by use of
íts provísíons.
The decísíons ín the Níeíson and nersen eases are to the same effe; t
In each of these cases the admíssíon of the new partner was a genuíne
transactíon wíth a proper busíness purpose, not motívated by ta
consíderatíons.
In víew of the foregoíng, ít ís the opíníon of thís offíce that íncome
receíved by a partner as hís share of compensatíon for servíces
rendered by the partnershíp over a períod of 36 months or more ís
sub|ect to aííocatíon over the entíre períod under sectíon 107 of the
Internaí Revenue Code, as amended, notwíthstandíng the fact that
part of the servíces was rendered príor to the partner s admíssíon
to the partnershíp. ccordíngíy, G. C. M. 2 79 , supra, ís hereby
revoked.
Charíes Oííphant,
Chíef Counseí, ureau of Internaí Revenue.
S CTION 109. € ” W ST RN MISP R TR D
CORPOR TIONS
Sectíon 29.109-1: Western emísphere trade 19 1-26-13726
corporatíons. I. T. 067
INT RN L R NU COD
The írgín Isíands constítute a country ín the West Indíes wíthín
the meaníng of sectíon 109 of the Internaí Revenue Code, reíatíng to
Western emísphere trade corporatíons.
dvíce ís requested whether the írgín Isíands constítute a country
ín the West Indíes wíthín the meaníng of sectíon 109 of the Internaí
Revenue Code, reíatíng to Western emísphere trade corporatíons.
Under the provísíons of sectíon 1 (b) of the Internaí Revenue Code,
a domestíc corporatíon quaíífyíng as a Western emísphere trade
corporatíon ís e empt from the surta ímposed by that sectíon upon
corporatíons generaííy. Sectíon 109 of the Code provídes that for the
purposes of chapter 1 of the Code, the term western hemísphere trade
corporatíon means a domestíc corporatíon aíí of whose Dusíness ís
done ín any country or countríes ín North, Centraí, or South mer-
íca, or ín the West Indíes, or ín Newfoundíand, and whích satísfíes
certaín specífíed condítíons. The fírst of these condítíons ís that 9
percent or more of the gross íncome of such domestíc corporatíon for
the 3-year períod ímmedíateíy precedíng the cíose of the ta abíe year
(or for such part of such períod duríng whích the corporatíon was ín
e ístence) was deríved from sources other than sources wíthín the
Uníted States. Sectíon 29.109-1 of Reguíatíons 111 provídes ín part
that gross íncome from sources wíthout the Uníted States and wíthín
the Uníted States shaíí be determíned (for the purposes of sectíon 109
of the Code) as províded ín sectíon 119 of the Code and the reguíatíons
prescríbed thereunder. Sectíon 29.119- of Reguíatíons 111 provídes
uí part that a possessíon of the Uníted States constítutes a country,
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.112(b) (7)- .
3
wíthín th . meaníng of that sectíon of the reguíatíons, separate and
dístínct from the Uníted States. For Federaí íncome ta purposes,
the írgín Isíands constítute a possessíon of the Uníted States e cept
ín connectíon wíth sectíons 2 1 and 2 2 of the Internaí evenue Code.
In víew of the foregoíng and sínce the írgín Isíands are geographí-
caííy íocated ín the Lesser ntíííes, a part of the West Indíes, ít ís
heíd that the írgín Isíands constítute a country ín the West Indíes
wíthín the meaníng of sectíon 109 cf the Internaí Revenue Code.
SUPPL M NT . € ” COMPUT TION OF N T INCOM
S CTION 112(b). € ” R COGNITION OF G IN OR LOSS:
C NG S SOL LY IN IND
Sectíon 29.112(b) (7)-í: Corporate ííquída- 10 1-21-1367
tíons ín caíendar month ín 19 or 19 1. T. D. S G
( íso Sectíons 29.112(b) (7)-2, 29.112(b)
(7)- , 29.112(b) (7)- ; Sectíon 113(a).
Sectíon 29.113(a) (1 )-1; Sectíon 1 , Sec-
tíons 29.1 -2 and 29.1 S-3.)
TITL 26 € ” INT RN L R NU . € ” C PT R I. SU C PT R . P RT 29. € ”
INCOM T ; T L í RS NDING FT R D C M R 31. 19 1
Reguíatíons 111 amended to conform to sectíon 20C of the Revenue
ct of 19 0.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue.
Washíngton 26, D. C.
To Coííectors of Internaí Revenue and Others Concerned:
On une 22, 19 1, notíce of proposed ruíe maíríng regardíng the
provísíons of sectíon 20G, reíatíng to eíectíon as to recognítíon of gaín
ín certaín corporate ííquídatíons, of the Revenue ct of 19 0 ( 1st
Cong. 2d sess.), approved September 23, 19 0, was pubííshed ín the
Federaí Regíster (16 F. R. 9 2). No ob|ectíon to the ruíes proposed
havíng been receíved, the amendments set forth beíow are hereby
adopted. Such amendments are necessary ín order to conform Reguía-
tíons 111 26 CFR, part 29 to the provísíons of sectíon 206 of the Reve-
nue ct of 19 0.
Paragraph 1. There ís ínserted ímmedíateív precedíng sectíon
29.112(b) (7)-í 26 CFR 29.112(b) (7)-í the foííowíng:
S C 20 . L CTION S TO R COGNITION OF G IN IN C R-
T IN CORPOR T LI UID TIONS R NU CT OF 19 0,
LTRO D S PT M R 23, 19 0 .
(a) mendment of Sectíon 112(b) (7). € ” Sectíon 112(b) (7) (reíatíng
to recognítíon of gaín ín certaín corporate ííquídatíons) ís hereby
amended as foííows:
(1) Cíauses (í) and (íí) cf subparagraph ( ) are hereby amended
to rend as foííows:
(í) the ííquídatíon Is made ín pursuance of a pían of
ííquídatíon adopted after December 31, 19 0, whether the ta -
abíe year of the corporatíon began on, before, or nfter anuary
1, 19 1; and
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
o7
20. 2;b)C7;-í.
(íí) the dístríbutíon ís ín compíete canceííatíon or redemp-
tíon of ííí the stock, and the transfer of aíí the property under
the ííquídatíon occurs wíthín some one caíendar month ín
19 1 € ” .
(2) Subparagraph ( ), cíause (íí) of subparagraph ( ), and
cíause (1) cf subparagraph (F) are each amended by stríkíng out
December 10, 19 3 and ínsertíng ín ííeu thereof ugust 1 ,19 0 .
€ € € € €
(c) ffectíve Date. € ” The amendments made by thís sectíon shaíí be
appíícabíe oníy to ta abíe years endíng after December 31, 19 0.
Par. 2. Sectíon 29.112(b í (7)-í. as added bv Treasury Decísíon
3 6 fC. . 19 , 220 , approved príí 19, 19 26 CFR 29.112(b)
(7)-í , ís amended as foííows:
( ) y ínsertíng ín the headíng and ín the sectíon ímmedíateíy
after ín 19 , wherever ín 19 appears thereín, the foííowíng:
or 19 1 .
( ) y ínsertíng ín the fírst sentence of (b), ímmedíateíy after
February 2 , 19 , the foííowíng:
, íf the ííquídatíon occurs wíthín one caíendar month ín 191 , and after De-
cember 31, 19 0, íf the ííquídatíon occurs wíthín one caíendar month ín 19 1
(C) y stríkíng therefrom the second sentence of (b) and ínsertíng
ín ííeu thereof the foííowíng:
In the case of a ííquídatíon occurríng ín 191 , the pían may be adopted at any
tíme after February 2 , 19 , and before the fírst dístríbutíon under íhe ííquída-
tíon occurs. In the case of a ííquídatíon occurríng ín 19 1, the pían may be
adopted at any tíme after December 31, 19 0, and before the fírst dístríbutíon
under the pían occurs.
Par. 3. Sectíon 29.112(b) (7)-2, as added bv Treasury Decísíon
3 6 26 CF 29.112(b) (7)-2 , ís amended as foííows:
( ) y ínsertíng ín the fírst sentence ímmedíateíy after December
10, 19 3 , the foííowíng:
(In the case of a ííquídatíon occurríng wíthín one caífnr ar month ín 19 ), or
ugust 1 . 19 0 (ín the case of a ííquídatíon occurríng wíthín one caíendar
month ín 19 1)
( ) y stríkíng from the fírst sentence of the e ampíe 19 and
ínsertíng ín ííeu thereof the foííowíng: 19 1 .
Par. . Sectíon 29.112(b) (7 - . as added by Treasury Decísíon 3 C
26 CFR 29.112(b) (7)- , ís amended as foííows:
( ) y ínsertíng ín the fírst sentence of (b) ímmedíateíy after
December 10, 19 3 the foííowíng:
(ín the case of a ííquídatíon occurríng wíthín one caíendar month ín 19 ), or
after ugust 1 , 19 0 (ín the case of a ííquídatíon occurríng wíthín one caíendar
month ín 19 1)
( ) y stríkíng therefrom the second sentence of (b) and ínsertíng
ín ííeu thereof the foííowíng:
The mere repíacement after December 10, 19 3, or after ugust 1 , 19 1, whích-
ever date ís appíícabíe, of íost or destroyed certífícates or ínstruments acquíred
on or before such date, or the mere conversíon of certífícates or ínstruments ínto
certífícates or ínstruments of íarger or smaííer denomínatíon wííí not constítute
an acquísítíon wíthín the meaníng of the phrases acquíred after December 10,
í M .í and acquíred after ugust 1 , 19 0
0 016 € ” 2
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.112(b)(7)-í.
(C) y ínsertíng ímmedíateíy before the períod at end of (b) the
foííowíng:
, or from the íssuance after ugust 1 , 19 0, of certífícates of stock ín connectíon
wíth a subscríptíon made and accepted on or before ugust 1 , 19 0
(D) y stríkíng from the e ampíe ín (c) of such sectíon December
10.19 3, wherever December 10,19-13, appears ín such e ampíe and
ínsertíng ín ííeu thereof ugust 1 .19 0,r; and by stríkíng from such
e ampíe 19 and ínsertíng ín ííeu thereof 19 1 .
Par. . Sectíon 29.112(b) (7)- . as added by Treasury Decísíon
C 6 26 CFR 29.112(b) (7)- . ís amended by ínsertíng ímmedíateíy
after December 10.19 3 the foííowíng:
, ín the cnse of a ííquídatíon occurríng ín 10 , or after ugust 1 , 1930, In the
case of a ííquídatíon occurríng ín 19 1
Par. 6. There ís ínserted ímmedíateíy precedíng sectíon 29.113(a)
(1 )-1 26 CFR 29.113(a) (1 )-1 the foííowíng:
S C. 206. L CTION S TO R rOGNITION OF G IN IN CFRT IN
CORPOR T LI UID TIONS R NU CT OF 19 0, P-
PRO D S PT M R T3, 19 0 .

(b) asís or Property. € ” Sectíon 113(a) (IS) (reíatíng to basís oí
property receíved ín certaín corporate ííquídatíons ís hereby amended
by ínsertíng after the word Chapter the foííowíng (whether before
or after íts amendment by the Revenue ct of 19 0) .
(c) ffectíve Date. € ” The amendments made by thís sectíon shaíí be
appíícabíe oníy to ta abíe years endíng after December 31, 10 0.
Par. 7. Sectíon 29.113(a) (1 )-1. as amended bv Treasury Decísíon
3 6 20 CFR 29.113(a) (1 )-1 , ís further amended as foííows:
( ) y stríkíng and at the end of (a) (2) (íí) and ínsertíng ín
ííeu thereof the foííowíng:
, or
(ííí) pursuant to a pían of ííquídatíon adopted after December 31,
19 0, ín accordance wíth whích the dístríbutíon ís ín compíete canceíía-
tíon or redemptíon of aíí the stock and the transfer of aíí the property
ín the ííquídatíon occurs wíthín some one caíendar month of the caíendar
year 19 1; and
( ) y ínsertíng ímmedíateíy before the períod at the end of (n)
the foííowíng:
, or after ugust 1 ,19 0, íf subdívísíon (ííí) ís appíícabíe
Par. . Sectíon 29.1 -2. as amended by Treasury Decísíon 3 C
26 CFR 29.1 -2 , ís amended as foííows:
( ) y ínsertíng ín the headíng of (b) (2) ímmedíateíy after of
19 , the foííowíng: or 19 1 .
( ) y stríkíng from the fírst sentence of (b) (2) . adopted after
February 2 , 19 , and by ínsertíng ín such sentence ímmedíateíy
after caíendar year 19 the foííowíng: or 19 1 .
(C) y ínsertíng ín (b)(2) (ííí) ímmedíateíy after sharehoíders
as of December 10, 19 3 , the foííowíng:
(ín the case of a ííquídatíon wíthín one caíendar month ín 19 ) or as of
ugust 1 , 19 0 (ín the case of a ííquídatíon wíthín one caíendar month
ín 19 1)
(D) y ínsertíng ín (b) (2) (ííí), ímmedíateíy after between De-
cember 10. 19 3, the foííowíng: or ugust 2 . 19 0, whíchever date
ís appíícabíe,
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
9 2G.113(a)(íS)-í.
Par. 9. Sectíon 29.1 S-3. as amended bv Treamrv Decísíon 6S7
C. . 19 9-1, 9, 3 , approved February 16, 19 9 26CFR 29.1 -3 ,
ís further amended by stríkíng: from the second sentence of the second
paragraph thereof adopted after February 2 . 19 . : and by ínsert-
íng ín such sentence ímmedíateíy after caíendar year 19 the foí-
íowíng : or 19 1 .
(Thís Treasury Decísíon ís íssued under authoríty contaíned ín sec-
tíons 62 and 3791 of the Internaí Revenue Code ( 3 Stat. 32. 67;
26 U. S. C. 62. 3791) and pursuant to the provísíons of Pubííc Law
61 ( 1st Cong.), approved September 23. 19 0.)
Fred S. Martín1,
ctíng Commíssíoner of Internaí Revenue.
pproved September 1 . 19 1.
Thomas . Lynch,
ctíng Secretary of the Treamtray.
(Fííed wíth the Dívísíon of the ederní Regíster September 20,1031, : a. m.)
Sectíon 29.112(b) (7)-2: uaíífíed eíectíng share-
hoíder.
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. 3 C. page 6.)
Sectíon 29.112(b) (7)- : Treatment of gaín.
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. 6, page 6.)
Sectíon 29.112(b) (7)- : Records to be kept
and ínformatíon to be fííed wíth return.
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. S 6, page 6.)
S CTION 113(a). € ” D UST D SIS FOR D T RMINING
G IN OR LOSS: SIS (UN D UST D) OF PROP RTY
Sectíon 29.113(a) (1 )-1: asís of property receíved
ín certaín corporate ííquídatíons.
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. 6, page 6.)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.117-7. 60
S CTION 113(b). € ” D UST D SIS FO D T RMINING
G IN OR LOSS: D UST D SIS
Sectíon 29.113(b) (1)-1: d|usted basís: Generaí
ruíe.
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. S60, page 17.)
S CTION 117. € ” C PIT L G INS ND LOSS S
Sectíon 29.117-7: Gaíns and íosses from ínvoíun- 19 1-1 -13626
tary conversíons and from the saíe or e change of Mím. 6660
certaín property used ín the trade or busíness.
Treatment under sectíon 117(|) of the Internaí Revenue Code of
proceeds from the saíe of íívestock used for daíry, breedíng, or other
purposes.
I. T. 3GCC (C. 1 . 19 , 270) and I. T. 3712 (C. . 19 3, 176)
revoked.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue.
Washíngton 2 , D. C, une 27, 19 1.
Coííectors of Internaí Revenue. Internaí Revenue gents ín Charge,
eads of Fíeíd Dívísíons of the Technícaí Staff, and Others Con-
cerned:
1. Under sectíon 117(a)(1)( ) of the Internaí Revenue Code,
property used ín the ta payer s trade or busíness of a character whích
ís sub|ect to the aííowance for deprecíatíon províded ín sectíon 23(1)
of the Code ís e cíuded from the defínítíon of the term capítaí assets.
owever, under sectíon 117(|) (2) of the Code, gaíns and íosses from
saíes or e changes of such property heíd for more than 6 months may.
under certaín círcumstances, be treated as gaíns and íosses from saíes
or e changes of capítaí assets. Sectíon 117(|) (1) of the Code specífí-
caííy e cíudes from the treatment prescríbed by sectíon 117(|) (2)
( ) property heíd by the ta payer prímarííy for saíe to customers ín
the ordínary course of hís trade or busíness. Lívestock used for
draft, daíry, or breedíng purposes constítutes property used ín the
trade or busíness of a character whích ís sub|ect to the aííowance for
deprecíatíon, and the questíon has been raísed whether gaíns reaíízed
upon the saíe of such anímaís cuííed from the herds are sub|ect to the
favorabíe ta treatment prescríbed bv sectíon íí7(|) of the Code.
(See I. T. 3666, C. . 191 . 270. and I. T. 3712. C. . 19-1 . 176.)
2. In R. W. íbríght v. Uníted States (173 Fed. (2d) 339), ít was
heíd that the profíts (there beíng no offsettíng íosses) deríved from the
saíe of cattíe (heíd for more than 6 months) cuííed from a daíry herd
and from the saíe of breedíng herds of swíne (heíd for more than C
months) were sub|ect to treatment as capítaí gaíns pursuant to sectíon
117 (|) of the Internaí Revenue Code. The court heíd, ín effect, that a
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
CI
20.117-7.
daíry herd and that breedíng herds of swíne do not constítute prop-
erty heíd by the ta payer prímarííy for saíe to customers ín the ordí-
nary course of hís trade or busíness wíthín the meaníng of sectíon
117(|) (1)( ) of the Code. InUníted Síatesv. ohn M. ennett et aí.
(1 6 Fed. (2d) 07) . the same resuít was reached wíth respect to cattíe.
In Leonard C. ííne et aí. v. Commíssíoner (1 T. C. 09 ), ít was heíd
that oíd cows whích had been acquíred, bred once, and then soíd were
– property heíd by the ta payer prímarííy for saíe to customers ín the
ordínary course of hís trade or busíness wíthín the meaníng of sectíon
117(|) (1) ( ) of the Code and that the profíts deríved from the saíes
were ordínary íncome.
3. In víew of the decísíons ín the above-cíted case , the ureau has
ree amíned íts posítíon wíth respect to the appíícatíon of sectíon
117(|) of the Internaí Revenue Code to the proceeds deríved from
saíes of íívestock used for daíry, draft, or breedíng purposes as set
forth ín I. T. 3GG6. supra, and ín I. T. 3712, supra.
. It ís the present posítíon of the ureau that gaíns deríved from
the saíe of daíry, draft, or breedíng anímaís are to be recognízed as
comíng wíthín the purvíew of sectíon íí7(|) of the Internaí Revenue
Code íf the ta payer estabííshes th:ít the partícuíar anímaís soíd
were actuaííy used for daíry, draft, or breedíng purposes for substan-
tíaííy theír fuíí períod of usefuíness. If such anímaís are soíd príor
to such fuíí períod of usefuíness, the ta payer must show that they
were added to the herd for substantíaí use ín such herd and not tem-
porarííy wíth the ob|ect ín víew of an earíy saíe. Gaíns deríved from
the saíe of breedíng anímaís whích were used for the productíon of
oníy one offspríng or íítter of offspríng wííí not be sub|ect to the
capítaí gaíns treatment prescríbed by sectíon íí7(|) of the Code.
nímaís whích are used oníy temporarííy as breeders or producers,
íncíudíng ordínarííy hogs, chíckens, and turkeys, wííí not D3 sub|ect
to the capítaí gaíns treatment prescríbed by sectíon 117 (|) of the Cede.
. I. T. 366G. supra, and I. T. 3712, supra, are hereby revoked.
6. Correspondence reíatíng to thís mímeograph shouíd refer to íts
number and to the symboís índícated: Coííectors of ínternaí revenue.
C:Coí; ínternaí revenue agents ín charee, IT: IM; heads of
fíeíd dívísíons of the Technícaí Staff, TS: CY S.
Geo. . Scííof. eman ,
Commíssíoner.
Sectíon 20.117-7: Gaíns and íosses from ínvoí- 19 1-20-13070
untary conversíons and frcm the saíe or e - I. T. 0G2
change of certaín property used ín the trade
or busíness.
( ísoSectíon 23(1), Sectíon 29.23(í)-2.)
INT RN L R NU COD
Motor vehícíes acquíred by n deaíer ín tííe nsnní course of
purchase for resaíe, whích vehícíes are temporarííy used as dem-
onstrators, are presumabíy heíd for saíe to customers ín the ordí-
nary course of busíness and are properíy íncíudíbíe ín the ínventory
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.117-7.
62
of the deaíer If on hand at the cíose of the ta abíe year. Such
vehícíes are not sub|ect to the aííowance for deprecíatíon províded
ín sectíon 23(1) of the Internaí Revenue Code, nor do they con-
stítute property used ín the trade or busíness, and any gaín on
the saíe thereof may not be treated as capítaí gaín under sec-
tíon 117 (|) of the Code:
dvíce ís requested whether motor vehícíes acquíred by a deaíer
ín the usuaí course of purchase for resaíe, whích vehícíes are tem-
porarííy used as demonstrators, constítute property sub|ect to the
aííowance for deprecíatíon under sectíon 23(1) of the Internaí Reve-
nue Code, and whether any gaín reaíízed on the subsequent saíe of
such vehícíes may be treated as capítaí gaín under sectíon 117 (|) of
the Code.
deaíer ín motor vehícíes ís presumed to hoíd aíí such vehícíes
owned by hím prímarííy for saíe to customers ín the ordínary course
of hís trade or busíness, and those vehícíes whích are on hand at
the cíose of the ta abíe year are properíy íncíudíbíe ín the ínventory
of the deaíer. (See sectíon 29.22(c)-í, Reguíatíons 111.) ow-
ever, thís presumptíon may be overcome where a deaíer can estab-
íísh that a certaín vehícíe (for e ampíe, a tow truck) was acquíred
and used ín the operatíon of the busíness.
motor vehícíe acquíred by a deaíer ín the usuaí course of pur-
chase for resaíe does not become property used ín the trade or busíness
when ít ís mereíy used for a temporary períod as a demonstrator.
Merchandíse heíd for saíe and. therefore, constítutíng a part of the
ta payer s stock ín trade ís not property used ín the busíness, and a
ta payer ís not entítíed to a deductíon for deprecíatíon ín respect
thereof. (See Iten íscuít Co. v. Commíssíoner. 2 . T. . 70.)
Decreases ín vaíue of merchandíse are refíected ín the ta payer s
cíosíng ínventory ín whích aíí artícíes of merchandíse must be íncíuded
eíther at theír cost, or at cost or market vaíue, whíchever ís íower.
(See ppeaí of The Munísíng Motor Co.. 1 . T. . 2S6.) Under the
provísíons of sectíon 29.23(1)-2 of Reguíatíons 111. the aííowance for
deprecíatíon does not appíy to ínventoríes or stock ín trade.
ccordíngíy, ít ís heíd that motor vehícíes acquíred by a deaíer
ín the usuaí course of purchase for resaíe, whích vehícíes are tem-
porarííy used as demonstrators, are presumabíy heíd for saíe to
customers ín the ordínary course of busíness and are properíy ín-
cíudíbíe ín the ínventory of the deaíer íf on hand at the cíose of
the ta abíe year. Such vehícíes are not sub|ect to the aííowance
for deprecíatíon províded ín sectíon 23(1) of the Internaí Revenue
Code, nor do they constítute property used ín the trade or busíness,
and any gaín on the saíe thereof may not be treated as capítaí gaín
under sectíon 117(|) of the Code. (See W. I . Stephens Co. v. Com-
míssíoner, Ta Court memorandum opíníon dated ugust , 19 1.)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
03
29.12 -1.
S CTION 12 . € ” MORTIZ TION D DUCTION
Sectíon 29.12 -1: Introductory. 19 1-1 -130
( íso Sectíons 29.12 -2, 29.12 -3, 29.12 - , T. D. 1
29.12 - , 29.12 -6, 29.12 -7, 29.12 - ,
and 29.12 -9: Sectíon 117, Sectíon 29.117-9;
Sectíon 172, Sectíon 29.172-1; Sectíon 190,
Sectíon 29.190-1.)
TITL 26 € ” INT R L R NU . € ” C PT R I. SU C PT R . P RT 29. € ”
INCOM T ; T L Y RS GINNING FT R D C M R 31, 10 1
Reguíatíons 111 amended to conform to sectíon 21G of the Revenue
ct of 19 0, reíatíng to amortízatíon of emergency facííítíes.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue.
Washíngton 2- , D. G.
To Coííectors of Internaí Revenue and Others Concerned:
On príí 13,19 1, notíce of proposed ruíe makíng, regardíng amend-
ments to Recuíatíons 111 26 L FR, part 29 made necessary by sectíon
216 of the Revenue ct of 19 0, approved September 23, 19 0, was
| ubííshed ín (he Federaí Regíster (16 F. R. 32 6). fter consídera-
tíon of aíí such reíevant matter as was presented by ínterested persons
regardíng the ruíes proposed, the amendments to such reguíatíons set
forth beíow are hereby adopted.
Paragraph 1. There ís ínserted ímmedíateíy foííowíng sectíon 23 (t)
the foííowíng:
S C. 216. MORTIZ TION OF M RG NCY F CILITI S R -
NU CT OF 19 0, PPRO D S PT MíS U 23, 19 0 .
€ € € €
(b) Technícaí mendments. € ” Sectíon 23(t) ís hereby amended 1 y
stríkíng ou: € sectíon 12 and ínsertíng ín ííeu thereof sectíon 12 and
sectíon 12 .
€ € €
(d) ffectíve Dates. € ” The amendments made by thís sectíon shaíí
be appíícabíe wíth respect to ta abíe years endíng after December 31,
19 9.
Par. 2. There ís ínserted ímmedíateíy foííowíng sectíon 29.12 -10
26 CFR 29.12 -10 the foííowíng:
S C. 210. MORTIZ TION OF M RG NCY F CILITI S R -
NU CT OF 19 0, PPRO D S PT M 2:t, 19 0 .
(a) mortízatíon Deductíon. € ” Chapter 1 ís hereby amended by
ínsertíng after sectíon 12 the foííowíng:
S C. 12 . MORTIZ TION D DUCTION.
(a) Generaí Ruíe. € ” very person, at hís eíectícn, shaíí be entítíed
to a deductíon wíth respect to the amortízatíon of the ad|usted basís
(for determíníng gaín) of any emergency facíííty (as defíned ín sub-
sectíon (d)), based on a períod of sí ty months. Such amortízatíon
deductíon shaíí be an amount, wíth respect to each month of such períod
wíthín the ta abíe year, equaí to the ad|usted basís of the facíííty at
the end of such month dívíded by the number of months (íncíudíng the
month for whích the deductíon ís computed) remaíníng ín the períod.
Such ad|usted basís at the end of the month shaíí be computed wíthout
regard to the amortízatíon deductíon for such month. The amortíza-
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
I29.12 -1.
0
tíon deductíon above províded wíth respect to any month shaíí, e cept
to the e tent províded ín subsectíon (f) of thís sectíon, be ín ííeu of
the deductíon wíth respect to such facíííty for such month províded by
sectíon 23(1), reíatíng to e haustíon, wear and tear, and obsoíescence.
The sí ty-month períod shaíí begín as to any emergency facíííty, at the
eíectíon of the ta payer, wíth the month foííowíng tbe month ín whích
the facíííty was compíeted or acquíred, or wíth the succeedíng ta abíe
year.
(b) íectíon of mortízatíon. € ” The eíectíon of the ta payer to
take the amortízatíon deductíon and to begín the sí y-month períod
wíth the month foííowíng the month ín whích the facíííty was compíeted
or acquíred, or wíth the ta abíe year succeedíng the ta abíe year ín
whích such facíííty was compíeted or acquíred, shaíí be made by fíííng
wíth the Secretary, ín such manner, ín such form, and wíthín such
tíme, as the Secretary may by reguíatíons prescríbe, a statement of
such eíectíon.
(c) Termínatíon of mortízatíon Deductíon. € ” ta payer whích
has eíected under subsectíon (b) to take the amortízatíon deductíon
províded ín subsectíon (a) may, at any tíme after makíng such eíectíon,
díscontínue the amortízatíon deductíons wíth respect to the remaínder
of the amortízatíon períod, such díscontínuance to begín as of the be-
gínníng of any month specífíed by the ta payer ín a notíce ín wrítíng
fííed wíth the Secretary before the begínníng of . uch month. The de-
ductíon províded under sectíon 23(1) shaíí be aííowod. begínníng w;th
the fírst mor.th as to whích the amortízatíon deductíon ís not appíícabíe,
and the ta payer shaíí not be entítíed to any furthtr amortízatíon
deductíons wíth respect to such emergency facíííty.
(d) Defíníuc s. € ”
(1) mergenct facíííty. € ” s used ín thís sectíon, the term
emergency facíííty means any facíííty, íand, buíídíng, machínery,
or equípment, or any part thereof, the constructíon, reconstructíon,
erectíon, ínstaííatíon, or acquísítíon of whích was compíeted after
December 31, 10 ). and wíth respect to whích a certífícate under
subsectíon (e) has been made. In no event shaíí an amortízatíon
deductíon be aííowed ín respect of any emergency facíííty for any
ta abíe year uníess a certífícate ín respect thereof tínder thís para-
graph shaíí have been made príor to the fíííng of the ta payer s
return for such ta nbíe year, or, ín the case of an emergency
facíííty compíeted or acquíred by a ta payer after December 31,
10 9. and before the date of enactment of the Revenue ct of 10 0.
uníess a certífícate ín respect thereof under thís paragraph sha .I
have been made príor to the e píratíon of tweíve months after the
date of enactment of the Revenue ct of 19 0.
(2) mergency períod. € ” s used ín thís sectíon, the term
emergency períod means the períod begínníng anuary 1. 10 0, and
endíng cn the date on whích the Presídent procíaíms that the utííí-
zatíon of a substantía portíon of the emergency facííítíes wíth
respect to whích certífícatíons under subsectíon (e) have be síc
made ís no íonger requíred ín the ínterest of natíonaí defense.
(e) Determínatíon of d|usted asís of mergency Facíííty. € ” In
determíníng, for the purposes of subsectíon (a) or subsectíon (g), the
ad|usted basís of an emergency facíííty € ”
(1) There shaíí be íncíuded oníy so much of the amount of the
ad|usted basís of such facíííty (computed wíthout reg.írd to thís
sectíon) as ís properíy attríbutabíe to such constructíon, recon-
structíon, erectíon, ínstaííatíon, or acquísítíon after December 31,
10 9. as the certífyíng authoríty, desígnated by the Presídent by
ecutíve order, has certífíed as necessary ín the ínterest of natíonaí
defense duríng the emergency períod, and oníy such portíon of
such amount as such authoríty has certífíed as attríbutabíe to
defense purposes. Such certífícatíon shaíí be under such reguíatíons
as may be prescríbed from tíme to tíme by such certífyíng authoríty
wíth tííe approvaí of the Presídent. n appíícatíon for a certífícate
must be fííed at such tíme and ín such manner as may be prescríbed
by such certífyíng authoríty under such reguíatíons but ín no
event shaíí such certífícate have any effect uníess an appíícatíon
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
C
í 29.12 -í.
therefor ís fííed before the e píratíon of sí months after the begín-
níng of such constructíon, reconstructíon, erectíon, or ínstaííatíon
or the date of such acquísítíon, or before the e píratíon of sí
months after the date of enactment of the Revenue ct of 10 0,
whíchever ís íater.
(2) fter the compíetíon or acquísítíon of any emergency fa-
cíííty wíth respect to whích a certífícate under paragraph (1) has
been made, auy e pendíture (attríbutabíe to such facíííty and to
the períod after such compíetíon or acquísítíon) whích does not
represent constructíon, reconstructíon, erectíon, ínstaííatíon, or
acquísítíon íncíuded ín such certífícate, but wíth respect to whích a
separate certífícate ís made under paragraph (1), shaíí not be
appííed ín ad|ustment cf the basís of such facíííty but a separate
basís shaíí be computed therefor pursuant to paragraph (1) as íf ít
were a new and separate emergency facíííty.
(f) Deprecíatíon Deductíon. € ” If the ad|usted basís of the emer-
gercy facíííty (computed wíthout regard to thís sectíon) ís ín e cess
of the ad|usted basís computed under subsectíon (e), the deductíon pro-
víded by sectíon 23(1) shaíí, despíte the provísíons of subsectíon (a) cf
thís sectíon, be aííowed wíth respect to such emergency facíííty as íf íts
ad|usted basís for the purpose of such deductíon were an amount equaí
to the amount of such e cess.
(g) TM NT Y UNIT D ST T S OF UN MORTIZ D COST CF F CTLTTT. € ”
If an amount Is properíy íncíudíbíe ín the gross íncome of the ta payer or.
account of a payment wíth respect to an emergency facíííty and such
payment ís certífíed as províded ín paragraph (3). then, at the eíectíon
of the ta payer ín íts return for the ta abíe year ín whích such amouDt
ís so íncíudíbíe € ”
(1) The amortízatíon deductíon for the month ín whích such
amount ís so íncíudíbíe shaíí (ín ííeu of the amount of the deduc-
tíon for such month computed under subsectíon (a)) be equaí to
the amount so íncíudíbíe but not ín e cess of the ad|usted basís
of the emergency facíííty as of the end of such month (computed
wíthout regard to any amortízatíon deductíon for such month).
Payments referred to ín thís paragraph shaíí be payments the
amounts of whích are certífíed, under such reguíatíons as the Presí-
dent may prescríbe, by the certífyíng authoríty desígnated by the
Presídent as compensatíon to the ta payer for the unamortízed cost
of the emergency facíííty made because € ”
( ) a contract wíth the Uníted States ínvoívíng the nse
of the facíííty has been termínated by íts terms or by canceí-
íatíon, or
( ) the ta payer had reasonabíe ground (eíther from pro-
vísíons of a ccntract wíth the Uníted States ínvoívíng the use
of the facíííty, or from wrítten or oraí representatíons made
under authoríty of the Uníted States) for antícípatíng future
contracts Invoívíng the use of the facíííty, whích future con-
tracts have not been made.
(2) In case the ta payer ís not entítíed to any amortízatíon
deductíon wíth respect to the emergency facíííty, the deductíon
aííowabíe under sectíon 23(1) on account of the mouth ín whích
such amount ís so íncíudíbíe shaíí be íncreased by such amount,
but such deductíon on account of such month shaíí not be ín e cess
of the ad|usted basís of the emergency facíííty as of the end of such
month (computed wíthout regard to any amount aííowabíe, on
account of such month, under sectíon 2.3(1) or thís paragraph).
(h) Lífe Tenant and Remaínderman. € ” In the case of property heíd
by one person for íífe wíth remaínder to another person, the deductíon
shaíí be computed as íf the íífe tenant were the absoíute owner of the
property and shaíí be aííowabíe to the íífe tenant.
(í) Cross Reference. € ” For specíaí ruíe wíth respect to gaín deríved
from the saíe or e change of property the ad|usted basís of whích ís
determíned wíth regard to thís sectíon, see sectíon 117(g) (3).
€ €
(d) ffectíve Dates. € ” The amendments made by thís sectíon shaíí he
appíícabíe wíth respect to ta abíe years endíng after December 31, 10 0.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
S 29.12 -1. 66
Sec. 29.12 -1. Introductory € ” Sectíons 29.12 -2 to 29.12 -9, Incíusíve,
whích are appíícabíe oníy wíth respect to ta abíe years endíng after December
31, 19 9, compríse the reguíatíons under sectíon 12 of the Internaí Revenue
Code, reíatíng to the amortízatíon of emergency facííítíes, and are to be dís-
tínguíshed from the reguíatíons under sectíon 12 of the Code (sectíons 29.12 -1
to 29.12 -10, íncíusíve), reíatíng to the amortízatíon of emergency facííítíes
duríng Woríd War II. For the ríght of estates and trusts to amortíze emer-
gency facííítíes, see sectíon 172 and sectíon 29.172-1. For the aííowance of
amortízatíon deductíon ín the case of emergency facííítíes of partnershíps, see
sectíon 190 and sectíon 29.190-1. For íncome ta treatment of gaín from the
saíe or e change of an emergency facíííty for whích an amortízatíon deductíon
has been taken, see sectíon 117(g) (3) and sectíon 29.117-9.
Sec. 29.12 -2. Defínítíons. € ” s used ín thís sectíon and sectíons 29.12 -3
to 29.12 -9, íncíusíve, the term € ”
(a) Certífyíng authoríty means the certífyíng authoríty desígnated by the
Presídent by ecutíve order.
(6) mergency facíííty means any facíííty, íand, buíídíng, machínery, or
equípment, or any part thereof, the acquísítíon of whích occurred after December
31, 19 9, or the constructíon, reconstructíon, erectíon, or ínstaííatíon of whích
was compíeted after sucí. date, and wíth respect to whích a certífícate under
sectíon 12 (o) has been made. In the case of an appíícatíon for a certífícate
under sectíon 12 (e) wh;eh ís fííed after March 23, 1931, oníy the part of any
such facíííty whích ís constructed, reconstructed, erected, or ínstaííed by any
person not earííer than 6 months príor to the fíííng of such appíícatíon, and whích
ís certífíed ín accordance wítn sectíon 12 (e), shaíí be deemed to be an emergency
facíííty, notwíthstandíng that the other part of such facíííty was constructed,
reconstructed, erected, or ínstaííed earííer than 0 months príor to the 31íng of
such appíícatíon. The term emergency facíííty, as so d fíned, may íncíude,
among other thíngs, ímprovements of íand, such as the constructíon of roads,
brídges, and aírstríps, and the dredgíng of channeís.
(c) mergency períod means the períod begínníng on anuary 1, 19 0. and
endíng on the date on whích the Presídent procíaíms that the utííízatíon of a
substantíaí portíon of the certífíed emergency facííítíes ís no íonger requíred
ín the ínterest of natíonaí defense.
Sec. 29.12 -3. mortízatíon Deductíon € ” Generaí Ruíe. € ” (a) person Is
entítíed, at íts eíectíon, to a deductíon wíth respect to the amortízatíon of the
ad|usted basís (for determíníng gaín) of an emergency facíííty, such amortízatíon
to be based on a períod of 00 months. s to the ad|usted basís of an emergency
facíííty, see sectíon 29.12 -6. The ta payer may. wíth respect to an emergency
facíííty, eíect to begín the 00-monrh amortízatíon períod wíth (1) the month
foííowíng the month ín whích such facíííty was compíeted or acquíred, or (2) the
ta abíe year succeedíng that ín whích such facíííty was compíeted or acquíred
(see sectíon 29.12 - ). The date on whích, or the month wíthín whích, an
emergency facíííty ís compíeted or acquíred ís to be determíned upon the facts
ín the partícuíar case. Ordínarííy, the ta payer ís ín possessíon of aíí the facts
and, therefore, ín a posítíon to ascertaín such date. statement of the date
ascertaíned by the ta payer, together wíth a statement of the pertínent facts
reííed upon, shouíd be tííed wíth the ta payer s eíectíon to take amortízatíon
deductíons wíth respect to such facíííty.
(6) In no event shaíí an amortízatíon deductíon e aííowed wíth espect to
an emergency facíííty for any ta abíe year uníess such facíííty has been certífíed
príor to the date of fíííng of the ta payer s return for such ta abíe year, or, ín
the case of an emergency facíííty compíeted or acquíred after December 31. 19 9,
and before September 23, 1930, uníess certífíed on or before September 23, 19 1,
or the date on whích the return ís fííed, whíchever ís íater. See sectíon
12 (d)(í).
(c) In generaí, wíth respect to each month of the 60-month períod whích faíís
wíthín the ta abíe year, the amortízatíon deductíon ís an amount equaí to the
ad|usted basís of the facíííty at the end of such month dívíded by the number of
months (íncíudíng the partícuíar month for whích the deductíon ís computed)
remaíníng ín the 00-month períod. The ad|usted basís of the facíííty at the
end of any month shaíí be computed wíthout regard to the amortízatíon deduc-
tíon wíth respect to such facíííty for such month. The totaí amortízatíon deduc-
tíon wíth respect to an emergency facíííty for a partícuíar ta abíe year ís the
sum of the amortízatíon deductíons aííowabíe wíth respect to such facíííty for
each month of the 60-month períod whích faíís wíthín such ta abíe year. The
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
07
29.12 -1.
nmortízatíon deductíon wíth respect to an emergency facíííty taken for any
month ís ín ííeu of the deductíon for deprecíatíon whích wouíd otherwíse be
aííowabíe under sectíon 23(1) wíth respect to such facíííty for such month. See,
however, sectíon 29.12 -7, reíatíng to deprecíatíon wíth respect to any amount
not sub|ect to amortízatíon,
(d) Thís sectíon may be íííustrated by the foííowíng e ampíes:
ampíe (1). On uíy 1, 19130, the Corporatíon, whích makes íts íncome ta
returns on the caíendar-year basís, begíns the constructíon of an emergency
facíííty whích ís compíeted on September 30. 19 0. at a cost of 2 0,000. The
certífícate covers the entíre constructíon. The Corporatíon eíects to take
amortízatíon deductíons wíth respect to the facíííty and to begín the 60-month
amortízatíon períod wíth October, the month foííowíng íts compíetíon. The ad-
|usted basís of the facíííty at the end of October ís 210,G00. The a owabíe
amortízatíon deductíon wíth respect to such facíííty for the ta abíe year 19 0
ís 12,000, computed as foííows:
Monthíy amortízatíon deductíons:
October: 2 0,000 dívíded by 60 C . C-00
November: 230,000 ( 2 0,000 mínus ,000) dívíded by 9 . W0
December: 232,000 ( 230,000 mínus ,000) dívíded by S .000
Totaí amortízatíon deductíon for 19 0 12,000
ampíe (í). The Y Corporatíon, whích makes íts ínccme ta returns on the
basís of a físcaí year endíng November 30. purchases an emergency facíííty
(No. 1) on uíy 29. 19 1. On une 1 , 19 1, ít begíns the constructíon of an
emergency facíííty (No. 2) whích ís compíeted on ugust 2, 19 1. The entíre
acquísítíon and constructíon of such facííítíes are covered by the certífícate.
The Y Corporatíon eíects to take amortízatíon deductíons wíth respect to borh
facííítíes and to begín the 60-mcnth amortízatíon períod ín each case wíth the
month foííowíng the month of acquísítíon or compíetíon. t the end of the
fírst month of the amortízatíon períod the ad|usted basís of facíííty No. 1 ís
S300.000 and the ad|usted basís of facíííty o. 2 ís ,000. In September
19 1 facíííty o. 1 ís damaged by fíre, as a resuít of whích íts ad|usted basís ís
properíy reduced by 2 ,370. The aííowabíe amortízatíon deductíon wíth respect
tc such facííítíes for the ta abíe year endíng ovember 30, 19 1, Is 21, 10, com-
puted as foííows:
F CILITY SO. 1
Monthíy amortízatíon deductíons:
ugust: 300,000 dívíded by 60 ,000
September: 269,630 ( 300,000 mínus ,000 and 2 ,370)
dívíded by 9 . 70
October: 26 ,000 ( 269,630 mínus , 70) dívíded bv , 70
November: 260, 90 ( 26 ,060 mínus , 70) dívíded by 7 € ” , 70
mortízatíon deductíon for 19 1 1 ,710
F CILITY NO. 2
Motíthíy amortízatíon deductíons:
September: ,000 dívíded by 00
October: 3,100 dívíded by 9 00
November: 2,200 dívíded by 900
mortízatíon deductíon for 19 1 2,700
Totaí amortízatíon deductíon for 19 1 21, 10
ampíe (3). On une 1 , 19 1. the Z Corporatíon, whích makes íts íncome
ta returns on the caíendar-year basís, compíetes the constructíon of an emer-
gency facíííty at a cost of 110,000. In íts Income ta return for 19 1, fííed on
March 1 , 19 2, the Z Corporatíon eíects to take amortízatíon deductíons wíth
respect to such facíííty and to begín the 00-month amortízatíon períod wíth uíy,
the month foííowíng íts compíetíon. No certífícate wíth respect to such facíííty
Is made untíí príí 10.19 2, and therefore no amortízatíon deductíon wíth respect
to such facíííty ís aííowabíe for any month ín the ta abíe year 19 1. The Z
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.12 -1.
6
Corporatíon ís entítíed, however, to take a deductíon for deprecíntíon of such
facíííty for the ta abíe year 19 1, such deductíon beíng assumed, for the pur-
poses of thís e ampíe, to be 2,000. ccordíngíy, the ad|usted basís of such
facíííty at the end of anuary 19 2 (wíthout regard to the amortízatíon deduc-
tíon for such month) ís 10 ,000 ( 110,000 mínus 2,000). For the ta abíe year
19 2, the Z Corporatíon ís, wíth respect to such facíííty, entítíed to an amortíza-
tíon deductíon of 2 ,000, computed as foííows:
Monthíy amortízatíon deductíons:
anuarv: 10 ,000 dívíded by 2,000
Februarv: 100,000 ( 10 ,000 mínus 2 000) dívíded by 3 2. 000
March: 10 ,000 ( 106,000 mínus 2,000) dívíded by 32 2.000
For the remaíníng níne months (símííaríy computed) 1 ,000
Totaí amortízatíon deductíon for 19 2 2 , 000
Sínce the Z Corporatíon eíected ín íts return for 10 1 to take amortízatíon de-
ductíons wíth respect to such facíííty and to begín the (íO-month amortízatíon
períod wíth uíy 19 1, ít must compute íts amortízatíon deductíons for the 12
months ín the ta abíe year 19 2 on the basís of the remaíníng months of the
estabííshed 60-month amortízatíon períod, as índícated ín the above computatíon.
Sec. 29.12 - . íectíon of mortízatíon. € ” (n) Genuaí ruíe. € ” n eíectíon by
the ta payer to take amortízatíon deductíons wíth respect to an emergency
facíííty and to begín the 60-month amortízatíon períod eíther wíth the month
foííowíng the month ín whích such facíííty was compíeted or acquíred, or wíth
the ta abíe year succeedíng the ta abíe year ín whích such facíííty was com-
píeted or acquíred, shaíí be made by a statement to that effect ín íts return for
the ta abíe year ín whích fuíít, the tírst month of the 60-month amortízatíon
períod so eíected.
(6) Specíaí ruíes ín case return fííed on or before ugust 1 , 19 1. € ” In the case
of an emergency facíííty compíeted or acquíred by a ta payer after December 31,
19 9. and wíthín a ta abíe year for whích a return was tííed on or before ugust
1 , 19 1, an eíectíon by the ta payer to take amortízatíon deductíons wíth respect
thereto for such ta abíe year shaíí be made by a statement ín wrítíng to that
effect fded wíth the Commíssíoner of Internaí Revenue, Washíngton 2 , D. C,
on or before September 1, 19 1. statement of eíectíon by the ta payer ín a
return fííed on or before ugust 1 , 19 1, shaíí ííe consídered as the statement
of eíectíon províded for by thís paragraph uníess the ta payer does make the
statement of eíectíon províded for by thís paragraph.
(c) íectíon not made ín prescríbed manner. € ” If the statement of eíectíon ís
not made by the ta payer as prescríbed ín paragraph (a) or (6) of thís sectíon,
ít may. ín the díscretíon of the Commíssíoner and for good cause shown, be made
ín such manner and form and wíthín such tíme as may be approved by the
Commíssíoner.
(d) Other requírements and consíderatíons. € ” No method of makíng such
eíectíon other than those prescríbed ín thís sectíon ís permítted. ny statement
of eíectíon shouíd contaín a descríptíon cíearíy ídentífyíng each emergency fa-
cíííty for whích an amortízatíon deductíon ís cíaímed. ta payer whích does
not eíect, ín the manner proscríbed ín thís sectíon, to take amortízatíon de-
ductíons wítíí respect to an emergency facíííty shaíí not be entítíed to amortíza-
tíon deductíons wíth respect to such facíííty. See aíso the íast sentence of
sectíon 12 (d) (1) and sectíon 29.12 -3(6). restríctíng aííowance of amortíza-
tíon deductíon to cases where the facíííty has been certífíed príor to certaín
appíícabíe dates.
Sec 29.12 - . r cnoN to Díscontínue mortízatíon. € ” (a) If a ta payer
has eíected to take amortízatíon deductíons wíth respect to an emergency facíííty,
ít may, after such eíectíon and príor to the e píratíon of the 60-month amortíza-
tíon períod, díscontínue the amortízatíon deductíons wítíí respect to such fa-
cíííty for the remaínder of the 60-month períod. n eíectíon to díscontínue the
amortízatíon deductíons shaíí be made by a notíce ín wrítíng fííed wíth the Com-
míssíoner of Internaí Revenue, Washíngton 2 . D. C. specífyíng the month as
of the begínníng of whích the ta payer eíects to díscontínue such deductíons.
Such notíce shaíí be fííed before the begínníng of the month specífíed thereín,
nnd shouíd contaín a descríptíon cíearíy ídentífyíng the emergency facíííty wíth
respect to whích the ta payer eíects to díscontínue the amortízatíon deductíons.
If the ta payer so eíects to díscontínue the amortízatíon deductíons wíth respect
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
CO
29.12 -1.
to an emergency facíííty, ít shaíí not be entítíed to any further amortízatíon
deductíons wíth respect to such facíííty.
(6) ta payer whích thus eíects to díscontínue amortízatíon deductíons wíth
respect to nn emergency facíííty ís entítíed, íf such facíííty ís deprecíabíe property
under sectíon 23(1) and the reguíatíons thereunder, to n deductíon for depre-
cíatíon wíth respect to such facíííty. The deductíon for deprecíatíon shaíí begín
wíth the fírst month as to whích the amortízatíon deductíon ís not appíícabíe,
and shaíí be computed on the ad|usted basís of the proí erty as of the begínníng
of such month (see sectíon 113(b) and the reguíatíons thereunder).
(c) Thís sectíon may be íííustrated by the foííowíng e ampíe:
ampíe. On uíy 1, 19 0, the Corporatíon, wínch makes íts íncome ta
returns on the caíendar-year basís, purchases an emergency facíííty, consístíng
of íand wíth a buíídíng thereon, nt a cost of 306,000 of whích 00,00() ís aííocabíe
to the íand and 2 0,001) to the buíídíng. The certífícate covers the entíre ac-
quísítíon. The corporatíon eíects to take amortízatíon deductíons wíth respect
to the facíííty and to begín the GO-mcnth amortízatíon períod wíth tííe ta abíe
year 19 1. Deprecíatíon of the buíídíng ín the amount of 6,000 ís deducted
and aííowed for the ta abíe year 10 0. On March 2 , 19 2, the corporatíon fííes
notíce wíth the Commíssíoner of íts eíectíon to díscontínue the amortízatíon de-
ductíons begínníng wíth the month of príí 10 2. The ad|usted basís of tííe
facíííty on anuary 31, 19 1. ís . 300,000. or the cost of the facíííty ( 300,00(1)
íess the deprecíatíon aííowed for 19 0 ( 0,000). The amortízatíon deductíons fur
the ta abíe year 19 1 and the months of anuary, February, and March 1C 2,
amount to 7 ,000. or ,000 per month for 1 months. Sínce, at the begínníng
of the amortízatíon períod ( anuary 1, 19 1). the ad|usted basís of the íand ís
one-fífth of the ad|usted basís of the entíre facíííty and sínce th re are no ad-
|ustments to basís other than on account of amortízatíon duríng the períod, th
ad|usted basís of the íand shouíd be reduced by 1 ,000. or one-fífth of the entíre
amortízatíon deductíon, and the ad|usted basís of the buíídíng shouíd be reduced
by 60,000, or four-fífths of the entíre amortízatíon deductíon. ccordíngíy, the
ad|usted basís of the facíííty as of príí 1, 19 2. ís 22 ,000, of whích SISO. OO
ís aííocabíe to the buíídíng for the purpose of deprecíatíon deductíons un or
sectíon 23(1), and ,000 ís aííocabíe to the íand.
Sec. 29.12 -6. d|usted asís of mergency Facíííty. € ” (a) Ir generaí. € ” (1)
The ad|usted basís of an emergency facíííty for the purr/ose of computíng The
amortízatíon deductíon may díffer from what wouíd otherwíse constítute the
ad|usted basís of such emergency facíííty, ín that ít shaíí be the ad|usted basís
fcr determíníng gaín (see sectíon 113) and ín that ít may be oníy a portíon of
what wouíd otherwíse constítute the ad|usted basís. Ir wííí be oníy a portíon cf
such other ad|usted basís íf oníy a pcrtíon of the basís (unad|usted) ís attríb-
utabíe to certífíed constructíon, reconstructíon, erectícn, ínstaííatíon, or acquísí-
tíon takíng píace after December 31, 19 9. íso, ít wííí be oníy a portíon of
what wcuíd otherwíse constítute the ad|usted basís of the em rg ncy facíííty
íf oníy a portíon of the basís (unad|usted) ís certífíed as attríbutabíe to defense
purposes. It ís therefore necessary fírst to determíne the unad|usted basís of
the emergency facíííty from whích the ad|usted basís for amortízatíon purposes
ís deríved.
(2) The -|nad|usted basís for aíncrtízítíon purposes ís the same as the unad-
|usted basís otherwíse determíned oníy when the entíre constructíon, recon-
structíon, erectíon, ínstaííatíon, or acquísítíon takes píace after December 31,
19 9. and ís certífíed ín íts entírety by the certífyíng authoríty.
(3) In cases ín whích oníy a portíon of the constructíon, reconstructíon, erectíon,
ínstaííatíon, or acquísítíon attríbutabíe to the facíííty takos píace after December
31. 19 9. and that portíon ís certífíed ín íts entírety by the certífyíng authoríty,
the unad|usted basís for the purpose of amortízatíon ís so much of the entíre
unad|usted basís as ís attríbutabíe to the certífíed constructíon, reconstructíon,
erectíon, ínstaííatíon, or acquísítíon whích takes píace after December 31, 19 9.
For e ampíe, the Corporatíon begíns the constructíon of a facíííty on November
1 , 19 9. and such facíííty ís compíeted on príí 1. 19 0. at a cost of 00,000, of
whích 300,000 ís attríbutabíe to. constructíon after December 31, 19 9. The
entíre constructíon after December 31, 19 9. ís certífíed by the certífyíng authoríty.
The unad|usted basís of the emergency facíííty for amortízatíon purposes ís
therefore 300,000. For deprecíatíon of the remaíníng portíon of the cost ( 200-
000) see sectíon 29.12 -7.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.12 -1.
70
) If the certífyíng authoríty certífíes oníy a portíon of the constructíon,
reconstructíon, erectíon, ínstaííatíon, or acquísítíon of property whích takes
píace after December 31, 19 9, the unad|usted basís for amortízatíon purposes ís
íímíted to such portíon so certífíed. ssumíng the same facts as ín the e ampíe
ín subparagraph (3), e cept that oníy 0 percent of the constructíon, reconstruc-
tíon, erectíon, ínstaííatíon, or acquísítíon after December 31. 19 9. ís certífíed, the
unad|usted basís for amortízatíon purposes ís 0 percent of 300,000, or 1 0,000.
( ) The ad|usted basís of an emergency facíííty for amortízatíon purposes ís
the unad|usted basís for amortízatíon purposes íess the ad|ustments properíy
appíícabíe thereto. Such ad|ustments are those specífíed ín sectíon 113(b),
e cept that no ad|ustments are to be taken ínto account whích íncrease the
ad|usted basís. (See paragraph ( 6) of thís sectíon.) If the ta payer constructs,
reconstructs, erects, ínstaíís, or acquíres an emergency facíííty pursuant to a
cost reínbursement contract wíth ar. obíígatíon for reímbursement by the Uníted
States of aíí or a part of the cost of such facíííty, the unad|usted basís of sncb
facíííty for amortízatíon purposes shaíí not íncíude that part of the cost for
whích the ta payer ís entítíed to reímbursement, and the amount receíved as
reímbursement shaíí bo treated as a capítaí receípt. owever, amounts receíved
by a ta payer whích represent ín fact compensatíon by rea on of termínatíon
of a Government contract or payment for artícíes under such a contract, though
denomínated reímbursements for aíí or a part of the cost of an emergency facíííty,
are not to be treated as capítaí receípts but are to be taken ínto account ín com-
putíng íncome, and are therefore not to be appííed ín reductíon of the basís of
such facíííty.
(6) The foííowíng e ampíes wííí íííustrate the computatíon of the ad|usted
basís of an emergency facíííty for amortízatíon purposes:
ampíe (1). The Corporatíon compíetes an emergency facíííty on uíy
1. 19 0. the entíre unad|usted basís of whích ís 00,000. and the unad|usted
basís of whích for the purpose of amortízatíon ís 300,000. The Corporatíon
eíects to begín amortízatíon as of . anuary 1. 19 1. The oníy ad|ustment to
basís for the períod uíy 1. 10 0, to anuary 31, 19 1. other than deprecíatíon
or amortízatíon for anuary 19 1. ís ,000 for deprecíatíon for the íast 6 months
of 19 0. The adíusted basís for the purpose of amortízatíon ís therefore 300,000
íess 3,000 ( 300,000/ 00.000 ,000). or 297,000.
ampíe (2). On uíy 31, 19 , the T Corporatíon has an emergency facíííty
(a buíídíng) whích was compíeted on uíy 1, 19 0. the entíre basís of whích
ís 00,000, and the unad|usted basís of whích for the purpose of amortízatíon
ís 300,000. The corporatíon eíected to begín amortízatíon as of anuary 1,
19 1, at whích tíme ít was entítíed to ,000 deprecíatíon for the íast 6 months
of 19 0. On uíy 1, 19 . the facíííty was damaged by re, as the resuít of whích
íts ad|usted basís ís properíy reduced by 200,000. The ad|usted basís of the
emergency facíííty as of uíy 19 for the purpose of amortízatíon and deprecía-
tíon, and the ad|usted basís for other purposes, are 23,S 9.1S, 9,2 0.S2, and
73,100.00, respectíveíy, computed as foííows:
For amor-
tízatíon
For depre-
cíatíon
For other
300.000. 00
200. 000. 00 00. 000
2. 000.00 ,000
purposes
U ss deprecíatíon to anuary 1, 19 1
a. ooo. oo
CUT. ííí. 00
207. 900. Oo
193,000.00
9 .000
107, MO
1 .000
íí. 6oo.66
9 100.00
6 . 2 0. S2
1 .00.1.00
13 . 7 9. IS
273.100
roo.uoo
23, S 9. 1
9,2 0.00
73.100
The 200,000 fíre íoss ís appííed agaínst the ad|usted basís for the purpose of
amortízatíon and the ad|usted basís for the purpose of deprecíatíon ín the
proportíon that each such ad|usted basís at the tíme of the fíre bears to theír
sum. í. e., 9,100/273,100 200,000 or 0 ,2 0. 2, agaínst the amortízatíon basís,
and 1S ,000/273,100 200,000, or 13 ,7 9.1 , agaínst the deprecíatíon ba-íís.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
71
29.12 -1.
(Z ) Capítaí addítíons. € ” It, after the compíetíon or acquísítíon of an emer-
gency facíííty whích has been certífíed by the certífyíng authoríty, further e -
pendítures are made for constructíon, reconstructíon, erectíon, ínstaííatíon, or
acquísítíon attríbutabíe to such facíííty but not covered by such certífícatíon,
such e pendítures shaíí not be added to the ad|usted basís of the emergency
facíííty for amortízatíon purposes under such certífícatíon. If such further
e pendítures are separateíy certífíed ín accordance wíth the provísíons of sec-
tíon 12 (e)(í) and thís sectíon, they are treated as certífíed e pendítures ín
connectíon wíth a new and separate emergency facíííty and, íf proper eíectíon
ís made, wííí be taken ínto account ín computíng the ad|usted basís of such new
and separate emergency facíííty for the purpose of amortízatíon.
ampíe. On March 1, 19 1, the certífyíng authoríty certífíes as an emer-
gency facíííty a heatíng píant proposed to be constructed by the Z Corporatíon.
Such facíííty ís compíeted on uíy 1, 19 1. The Z Corporatíon, on ugust 1,
19 1, begíns the ínstaííatíon ín the píant of an addítíonaí boííer, whích ís not
íncíuded ín the certífícatíon for the píant but ís certífíed as a new and separate
emergency facíííty. For amortízatíon purposes, the ad|usted basís of the
heatíng píant ís determíned wíthout íncíudíng the cost of the addítíonaí boííer.
Such cost ís taken ínto account ín computíng the ad|usted basís of the new and
separate emergency facíííty (the boííer), as to whích the ta payer has a sep-
arate eíectíon for amortízatíon purposes and a separate amortízatíon períod.
Sec. 29.I2 -7. Deprecíatíon of Portíon of mergency Facíííty Not Sud|ect
to mortízatíon. € ” (a) The ruíe set forth ín sectíon 12 (a) (see sectíon
29.12 -3), that an amortízatíon deductíon wíth respect to an emergency facíííty
ís ín ííeu of any deductíon for deprecíatíon whích wouíd otherwíse he aííowabíe
under sectíon 23(1) wíth respect to such facíííty, ís sub|ect to the e ceptíon pro-
víded ín sectíon 12 (f). Under thís e ceptíon, íf the property constítutíng such
facíííty ís decrecíabíe property under sectíon 23(1) and the reguíatíons there-
nn er and íf the ad|usted basís of such facíííty as computed under sectíon 113(b)
for purposes other than the amortízatíon deductíons (see sectíon 29.113 (6) (1)-1)
ís ín e cess of the ad|usted basís computed under sectíon 12 (e) for the pur-
pose of the amortízatíon deductíons (see sectíon 29.12 -C), then the e cess
shaíí be charged off over the usefuí íífe of the facíííty and recovered through
deprecíatíon deductíons. Thus, íf the constructíon of an emergency facíííty ís
begun on or before December 31, 19 9, and compíeted after such date, no amortí-
zatíon deductíons are aííowabíe wíth respect to the amount attríbutabíe to such
constructíon on or before such date (see sectíon 29.12 -C). owever, íf the
property constítutíng such facíííty ís deprecíabíe property under sectíon 23(1)
and the reguíatíons thereunder, then the deprecíatíon deductíon províded by
such sectíon and reguíatíons ís aííowabíe wíth respect to the amount attríbutabíe
to such constructs n on or before December 31, 19 9.
(6) Símííaríy, íf oníy a portíon of the constructíon, reconstructíon, erectíon,
ínstaííatíon, or acquísítíon after December 31, 19 9, of an emergency facíííty
has been certífíed by the certífyíng authoríty, and íf sue .-, facíííty ís deprecíabíe
property under sectíon 23(1) and the reguíatíons thereunder, then the deprecíatíon
deductíon províded by such sectíon and reguíatíons ís aííowabíe wíth respect to
the portíon whích has not been so certífíed.
(c) For íííustratíon of the treatment of a deprecíabíe portíon of an emergency
facíííty, see e ampíe (2) ín sectíon 29.12 -6(a).
Sec. 29.12 -S. Payment ny Uníted Statícs of Unamortízed Cost of Fa-
cíííty. € ” (n) Sectíon 12 (g) contempíates that certaín payments may be made
by the Uníted States to a ta payer as compensatíon for the unamortízed cost
of an emergency facíííty. If any such payment ís properíy íncíudíbíe ín gross
Income and |ns been certífíed, as províded ín sectíon 12 (g). as havíng )cen
paíd under the círcumstances descríbed thereín, a ta payer whích ís recoveríng
the ad|usted basís of an emergency facíííty through amortízatíon rather than
deprecíatíon may eíect to take an amount equaí to such payment as an amortíza-
tíon deductíon wíth respect to such facíííty for the month ín whích such payment
ís so íncíudíbíe. Such amortízatíon deductíon shaíí be ín ííeu of the amortízatíon
deductíon otherwíse aííowabíe wíth respect to such facíííty for such month,
but It shaíí not ín any case e ceed the ad|usted basís of such facíííty (see sectíon
29.12 -0) as of the end of such month (computed wíthout regard to nny
amortízatíon deductíon for such month). The eíectíon referred to ín thís para-
graph shaíí be made ín the return for the ta abíe yenr ín whích the amount
of such payment ís íncíudíbíe ín gross íncome.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.12 -1.
72
(6) If a ta payer ís recoveríng the ad|usted basís of an emergency facíííty
through deprecíatíon rather than amortízatíon, the deprecíatíon deductíon aííow-
abíe under sectíon 23(1) for the month ín whích the amount of any such payment
ís íncíudíbíe ín gross íncome shaíí, at the ta payer s eíectíon, be íncreased by
such amount; but the totaí deductíon wíth respect to the certífíed portíon of
such facíííty shaíí not ín any case e ceed the ad|usted basís of such facíííty
(computed as províded ín sectíon 12 (e) and sectíon 29.12 -G for amortízatíon
purposes) as of the end of such month (computed wíthout regard to any amount
aííowabíe for such month under sectíon 23(1) cr 12 fg) (2)). The eíectíon
referred to ín thís paragraph shaíí be made ín the return for the ta abíe year
ín whích the amount of such payment ís íncíudíbíe ín gross íncome.
(c) Thís sectíon may be íííustrated by the foííowíng e. ampíes:
ampíe (1). On anuary 31, 19 1, the Corporatíon purchases nr emer-
gency facíííty at a cost of 1 00.000. The certífícate covers the entíre acquísítíon.
The Corporatíon eíects to take amortízatíon deductíons wíth respect to such
facíííty and to begín the 60-month amortízatíon períod wíth February 19 1, the
month foííowíng the month of acquísítíon. On uíy 1 . 19 2, as a resuít of
the canceííatíon of certaín contracts wíth the Corporatíon, the Uníted States
makes a payment of 300,000 to the corporatíon as con pensatíon for the un-
amortízed cost of such facíííty íív 300,000 payment ís íncíudíbíe ín the
Corporatíon s gross íncome for uíy 19 2. The ad|usted basís of such facíííty
for amortízatíon purposes as of the end of uíy 10 2. computed wíthout regard
to any amortízatíon deductíon for such month, ís 30,000. ccordíngíy, the
corporatíon ís entítíed to take an amortízatíon deductíon of 300,000 for such
month, ín ííeu of the 10,000 amortízatíon deductíon whích ís otherwíse aííowabíe.
ampíe (2). On November 30, 19 1, the Y Corporatíon purchases an eníer-
gencv facíííty, consístíng of íand wíth a buíídíng thereon, at a cost of 00,000,
of whích 200,000 ís aííocabíe to the íand and 300,000 to the buíídíng. The
certífícate covers the entíre acquísítíon. The Y Corporatíon does not eíect
to take amortízatíon deductíons wíth respect to such facíííty, but ís entítíed
to a deprecíatíon deductíon wíth respect to the buíídíng at the rate of 3 percent
per annum, or 7 0 per month. On ugust 12, 19 3, as a resuít of canceíía-
tíon of certaín contracts, the Uníted States makes a payment of 00,000 to
the corporatíon as compensatíon for rhe unreccvered cost of such facíííty. The
00,000 ís íncíudíbíe ín the Y Corporatíon s gross íncome for ugust 19 3. The
ad|usted basís of the facíííty as of the end of ugust 19 3, computed wíthout
the fuíí amount of the 00,000 payment.
Sec. 20.12 -9. Ltfe Tenant and Remaínderman. € ” In the case of an emer-
gency facíííty heíd by one person for íífe wíth remaínder to another person, the
amortízatíon deductíon shaíí be computed as íf the íífe tenant were the abso-
íute owner of the facíííty and shaíí be aííowabíe to the íífe tenant duríng hís
íífe.
Par. 3. There ís ínserted ímmedíateíy precedíng sectíon 29.117-1
the foííowíng:
S C. 21 . MORTIZ TION OF M RG NCY F CILITI S R -
NU CT OF 19 0, PPRO D S PT M R 23, 19 0 .
€ € € €
(c) Gaín ttríbutaíu.k to mortízatíon Deductíon. € ” Sectíon 117(g)
ís hereby amended by stríkíng out the períod at the end of paragraph (2)
and ínsertíng ín ííeu thereof ; and , and by ínsertíng after paragraph
(2) the foííowíng new paragraph:
(3) gaín from the saíe or e change of property, to the e tent
that the ad|usted basís of such property ís íess than íts ad|usted
basís determíned wíthout regard to sectíon 12 (reíatíng to
amortízatíon deductíon), shaíí be consídered as gaín from the saíe
or e chnnge of property whích ís neíther a capítaí asset nor
property descríbed ín subsectíon (|).
(d) ffectíve Dates. € ” The amendments made by thís sectíon shaíí
be appíícabíe wíth respect to ta abíe years endíng after December 31,
19 9.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
73
29.12 -1.
Par. . There ís ínserted ímmedíateíy foííowíng sectíon 29.117-
the foííowíng:
Sec. 29.117-9. Gaín ttríbutabíe to mortízatíon Deductíon. € ” ( í) Sectíon
117(g) (3) provídes that gaín from a saíe or e change of property, to the e tent
that the ad|usted basís of such property ís íess than íts ad|usted basís deter-
míned wíthout regard to sectíon 12 , shaíí be consídered as ordínary íncome.
For e ampíe, on December 31, 19 0, a ta payer makíng hís íncome ta returns
on the caíendar-year basís acquíres at a cost of 10,000 an emergency facíííty
fused ín hís busíness) whích normaííy wouíd have n usefuí íífe of 20 years.
Tender sectíon 12- he eíects to begín the 60-month amortízatíon períod on an-
uary 1, 19 1. e takes amortízatíon deductíons ín the amount of ,000 for
the years 19 1 and 19 2 (2 months). On December 31, 19 2, he seíís the
facíííty for 9, 00. The ad|usted basís of the facíííty on that date ís 0,000
( 10,000 cost íess ,000 amortízatíon). Wíthout regard to sectíon 12 , the
facíííty wouíd have been deprecíated at the rate of 00 a year and íts ad|usted
basís on December 31, 19 2, wouíd have been 9,000 ( 10,000 cost íess 1,000
deprecíatíon 1. The dífference between the facíííty s actuaí ad|usted basís
( 6,000) and íts ad|usted basís determíned wíthout regard to sectíon 12
( 9,000) ís 3,000. ccordíngíy, 3,000 of the 3, 00 gaín on the saíe of the
facíííty ( 9, 00 saíe príce íess 6,000 ad|usted basís) wouíd be treated as ordí-
nary íncome and the remaíníng 00 wouíd be sub|ect to the provísíons of
sectíon 117 ( ).
(6) If the ta payer acquíres other property ín an e change for an emergency
facíííty wíth respect to whích amortízatíon deductíons have been aííowed, and
íf the basís ín hís hands of such other property ís determíned by reference to
the basís of the emergency facíííty, then the basís of such other property Is de-
termíned wíth regard to sectíon 12 , and therefore the provísíons of sectíon
117(g)(3) appíy wíth respect to gaín reaíízed on a saíe or e change of such
other property. The provísíons of sectíon 117(g) (3) ííkewíse appíy wíth respect
to gaín reaíízed on the saíe cr e change of an emergency facíííty (or other
property acquíred, as descríbed ín the precedíng sentence, ín an e change for an
emergency facíííty) by a ta payer ín whose hands the basís of such facíííty (or
other property) ís determíned by reference to the basís thereof ín the hands
of another person who was aííowed deductíons wíth respect to such facíííty under
sectíon 12 .
Par. . Sectíon 29.172-1 26 CFR 29.172-1 ís amended by stríkíng
out the second sentence and ínsertíng ín ííeu thereof the foííowíng:
The same ruíe ís appíícabíe ín the case of an emergency facíííty, as defíned ín
sectíon 12 (d). acquíred or compíeted by an estate or trust after December
31. 19 9. See sectíon 23(t) and sectíons 12 and 12 and the reguíatíons
thereunder.
Par. 6. Sectíon 29.190-1 2G CFR 29.190-1 ís amended by stríkíng
cut the second sentence and ínsertíng ín ííeu thereof the foííowíng:
The same ruíe ís appíícabíe ín the case of an emergency facíííty, as defíned ín
sectíon 12 (d). acquíred or compíeted by a partnershíp after December 1, 19 9.
See sectíon 23(t) and sectíons 12 and 12 and the reguíatíons thereunder.
(Thís Treasury Decísíon ís íssued under the authoríty contaíned ín
sectíon 62 of the Internaí Revenue Code ( 3 Stat. 32, 26 U. S. C. 62)
and correspondíng provísíons of príor ínternaí revenue íaws.)
on . Duníap,
Com níssíoner of Internaí Revenue.
pproved ugust 10, 19 1.
Thomas . Lynch,
ctíng Secretary of the Treasury.
(Fííed wíth the Dívísíon of the Federaí Regíster ugust 1 , 19 1, : 2 a. m.)
9 010 € ” 2 0
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.131-1. 7
S CTION 12 . € ” MORTIZ L O D PR MIUM
Sectíon 29.12 -1: In generaí.
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. SC0, page 17.)
Sectíon 29.12 - : Caííabíe and convertíbíe bonds.
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. 60, page 17.)
SUPPL M NT C € ” CR DITS G INST T
S CTION 131. € ” T S OF FOR IGN COUNTRI S ND
POSS SSIONS OF UNIT D ST T S
Sectíon 29.131-1: naíysís of credít for 19 1-2 -1370
ta es. L T. 0G
INT RN L R NU COD
The ta ímposed by artícíe 21, chapter I of Cuban Law No. 2,
approved Síay 22, 19 1. on the surpíus from operatíons or undís-
tríbuted profíts of corporatíons, faíís wíthín the Uníted States
concept of an íncome ta and ís aííowabíe as a credít agaínst Uníted
States íncome ta under sectíon 131 of the Internaí Revenue Code.
dvíce ís requested whether the ta ímposed by artícíe 21. chapter
I of Cuban Law No. 2, approved May 22. 19 1, on the surpíus from
operatíons or undístríbuted profíts of corporatíons, faíís wíthín the
I níted States conc pt of an íncome ta and ís aííowabíe as a credít
agaínst Uníted States íncome ta under sectíon 131 of the Internaí
Revenue Code.
The pertínent provísíons of the Cuban íaw ín questíon read ín part
as foííows:
rtícíe 21. four percent ( Cr) ta ís hereby íevíed, oníy once, on the sur-
píus from operatíons cr undístríbuted profíts of every corporatíon, to the e tent
of íts e cess over a sum equívaíent to thírty í orcent (309,.) of the paíd capítaí
thereof, as represented by íts íssued and outstandíng capítaí stock.
Thís ta snaíí not be assessed ín the cases where before the fírst day of uíy,
30,11. ít Is resoíved to dístríbute, and the dístríbutíon ís actuaííy consummated
of, the above specífíed prcportíon of saíd surpíus.In any form that wííí render
ít sub|ect to the Dívídend Ta assessabíe under Taríff Second of rtícíe 3 of
Chapter I of the Law of anuary 29. 1931. ns hereby amended. In thís case
íí shaíí be requísíte that such Dívídend Ta be paíd wíthín the fírst fífteen
caíendar days of uíy, 19 1.
The ta ímposed by the fírst paragraph of thís rtícíe shaíí be computed cn
the fírst day of uí;-, 19 1, on the basís of the fígures apí earíng on the hooks
of each corporatíon as of une 30th of the same year, and shaíí be paíd through
certífíed returns whích must be fííed by the affected corporatíons wíthín the fírst
fífteen caíendar days of uíy, 19 1.

The totaí of the revenues coííected as a resuít of the assessment of the ta
íevíed under the fírst paragraph of thís rtícíe shaíí be deposíted ín a Specíaí
I und and píaced at the |oínt dísposaí of the grícuíturaí and Industríaí
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
7
29.1 3-1.
Deveíopment rínk and the Mínístry of grícuíture, whích shaíí appíy ít to the
acquísítíon, deveíopment and dístríbutíon of íand among smaíí farmers, or to
facííítate the acquísítíon and deveíopment of íand hy the same, or to the pay-
ment of such amounts as may be necessary ín order to prevent evíctíons.
Sectíon 131 of the Internaí evenue Code provídes ín part as
foííows:
(a) ííowance of Credít. € ” If the ta payer chooses to have the benefíts of
thís sectíon, the ta ímposed by thís chapter chapter I of the Code , € €
shaíí be credíted wíth :
(1) Cítízens and domestíc corporatíons. € ” In the case of a
domestíc corporatíon, the amount of any íncome ta es paíd or
accrued duríng the ta abíe year to any foreígn country
In order for a ta paíd to a foreígn country to be aííowabíe as
a credít agaínst Uníted States íncome ta under sectíon 131 of the
Code, supra, ít must be shown that the ta ímposed by the foreígn
íaw ís a ta on íncome wíthín the Uníted States concept, or ís a ta
ín ííeu of an íncome ta .
The Cuban ta under consíderatíon, ímposed by the Cuban Govern-
ment on surpíus from operatíons or undístríbuted corporate profíts
nnd píaced ín a Government fund for the purpose of effectuatíng
agrarían reform, ís deemed to constítute a ta wíthín the Uníted States
concept. ta on undístríbuted profíts ís ín the nature of a ta
on íncome. ccordíngíy, ít ís heíd that the ta ímposed by artícíe
21, chapter I of Cuban Law No. 2, approved May 22, 19 1. on the
surpíus from operatíons or undístríbuted profíts of corporatíons, faíís
wíthín the Uníted States concept of an íncome ta and ís aííowabíe
as a credít agaínst Uníted States íncome ta under sectíon 131 of
the Internaí Revenue Code.
SUPPL M NT D. € ” R TURNS ND P YM NT OF T
S CTION 113. € ” WIT OLDING OF T T SOURC
Sectíon- 29.113-1: Wíthhoídíne ta at source. 19 1-2 -13717
( íso Sectíon 1 , Sectíon 29.1 -1.) T. D. 07
TITL 20 € ” INT RN L R NU . € ” C PT R 1. SU C PT R . P RT 7. € ”
T TION PURSU NT TO TR TI S. € ” SL í UT € ” SWITZ RL ND, R GUL -
TIONS FF CTI NU Y 1, 19 1
Reíease of e cess ta wíthheíd, and e emptíon from, or reductíon
ín rate of, wíthhoídíng under sectíons 1 3 and 1 of the Internaí
Revenue Code ín the case of resídents of Swítzeríand and of Swíss
corporatíons, as affected hy the recíprocaí Income ta conventíon
between the Uníted States and The Swíss Confederatíon procíaímed
by the Presídent of the Uníted States on October 1,10 1.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2- , D. C.
To Coííectors of Internaí Revenue and Others Concerned:
Tabíe of Contents
Swtíon
7.300. Introductory.
7.301. Dívídends.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.1 3-1.
76
Sectíon
7.302. Interest.
7.303. Patent and copyríght royaítíes and fíím rentaís.
7. 0 . Pensíons and íífe annuítíes.
7.30 . Naturaí resource royaítíes and reaí property rentaís.
7 0í3. Reíease of e cess ta wíthheíd at source.
7.307. ddressee not actuaí owner.
7.í. 0 . Return of ta wíthheíd and ínformatíon return wíth respect to persons
whose addresses are ín Swítzeríand.
7.C09. enefícíaríes of a domestíc estate or trust.
Sectíok 7.300. I trodcctort. € ” The íncome ta conventíon be-
tween the Uníted States and The Swíss Confederatíon, sígned May
ííí, 19 1, procíaímed by the Presídent of the Uníted States on October
1. 19 1, and effectíve as to ta abíe years begínníng after December
31, 19 0 (hereínafter referred to as the conventíon), provídes ín part
as foííows:
btícíe I
(1) The ta es referred to ín thís conventíon are:
(a) In the case of the Uníted States of meríca :
The Federaí íncome ta es, íncíudíng surta es and e cess profíts
ta es.
(b) In the case of The Swíss Confederatíon:
The federaí, cantonaí and communaí ta es on íncome (totaí íncome,
earned íncome, íncome from property, índustríaí and commercíaí
profíts, etc.).
(2) The present conventíon shaíí aíso appíy to any other íncome or profít s
ír. of a substantíaííy símííar character ímposed cy eíther contractíng state
subsequentíy to the date of sígnature of the present conventíon.
utícíe II
(1) s used ín thís conventíon:
(a) The term Uníted States means the Uníted States of meríca, and
when used ín a geographícaí sense means tíe States, the Terrítoríes of
íaska and awaíí, and the Dístríct of Coíumbía.
(b) The term Swítzeríand means The Swíss Confederatíon.
(c) The term permanent estabííshment means a branch, effíee, factory,
workshop, warehouse or other fí ed píace of busíness, but does not íncíude
the casuaí and temporary use of mereíy storage facííítíes, nor does ít ín-
cíude an agency uníess the agent has and habítuaííy e ercíses a generaí
authoríty to negotíate ar.d concíude cont-acts on behaíf of an enterpríse
or has a stock of merchandíse from whích he reguíaríy fííís orders on íts
behaíf. n enterpríse of enc of the contractíng states shaíí not be deemed
to have a permanent estabííshment ín the other state mereíy because ít
carríes on busíness deaííngs ín tuch other state through a commíssíon
agent, broker or custodían or other índependent agent actíng ín the ordí-
nary course of hís busíness as such. The fact that an enterpríse of one
of the contractíng states maíntaíns ín the other state a fí ed píace of
busíness e cíusíveíy for the purchase of goods or merchandíse shaíí not
of ítseíf constítute such fí ed píace of busíness a permanent estabííshment
of such enterpríse. The fact that a corporatíon of one contractíng state
has a subsídíary corporatíon whích ís a corporatíon of the other state or
whích ís engaged ín trade or busíness In the other state shaíí not of ítseíf
constítute that subsídíary corporatíon a permanent estabííshment of íts
parent corporatíon. The maíntenance wíthín the terrítory of one of the
contractíng states by an enterpríse of the other contractíng state of a
warehouse for conveníence of deíívery and not for purposes of díspíay
shaíí not of ítseíf constítute a permanent estabííshment wíthín that terrí-
tory even though offers of purchase have been obtaíned by an agent of the
enterpríse ín that terrítory and transmítted by hím to the enterpríse for
acceptance.
(d) The term enterpríse of one of the contractíng states means, as
the case may be, Uníted States enterpríse or Swíss enterpríse.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
77
29.1 3-1.
(e) The term Uníted States enterpríse means an Industríaí or com-
mercíaí enterpríse or undertakíng carríed on ín the Uníted States by a
resídent (íncíudíng an índívíduaí, fíducíary and partnershíp) of the Uníted
States or by a Uníted States corporatíon or other entíty; the term Uníted
States corporatíon or other entíty means a corporatíon or other entíty
created or organízed under the íaw of the Uníted States or of any State
or Terrítory of the Uníted States.
(f) The term Swíss enterpríse means an índustríaí or commercíaí
enterpríse or undertakíng carríed on ín Swítzeríand by an índívíduaí resí-
dent ín Swítzeríand or by a Swíss corporatíon or other entíty: the term
Swíss corporatíon or other entíty means a corporatíon or ínstítutíon or
fí nídatíon havíng |urídícaí personaííty, or a partnershíp (assocíatíon
en nam coííectíf or en commandíte ), or other assocíatíon wíthout
|urídícaí personaííty, created or organízed under Swíss íaws.
(g) The term competent authorítíes means, ín the case of the Uníted
States, the Commíssíoner of Internaí Revenue as authorízed by the Secretary
of the Treasury; and ín the case of Swítzeríand, the Dírector of the Fed-
eraí Ta dmínístratíon as authorízed by the Federaí Department of
Fínances and Customs.
(h) The term índustríaí or commercíaí profíts íncíudes manufacturíng,
mercantííe, míníng, fínancíaí and ínsurance profíts, but does not íncíude
íncome ín the form of dívídends, ínterest, rents or royaítíes, or remunera-
tíon for personaí servíces: Províded, however, that such e cepted ítems of
íncome shaíí, sub|ect to the provísíons of thís conventíon, be ta ed sep-
arateíy or together wíth índustríaí or commercíaí profíts ín accordance
wíth the íaws of the contractíng states.
(2) In the appíícatíon of the provísíons of the present conventíon by one
of the contractíng states any term not otherwíse defíned shaíí, uníess the con-
te t otherwíse requíres, have the meaníng whích such term has under íts own
ta íaws.
€ €
rtícíe I
1 The rate of ta ímposed by one of the contractíng states upon dívídends
deríved from sources wíthín such state by a resídent or corporatíon or other
entíty of the other contractíng state not havíng a permanent estabííshment ín
the former state shaíí not e ceed 1 percent: Províded, however, that thís para-
graph shaíí have no appíícatíon to Swíss ta ín the case of dívídends deríved
from Swítzeríand by a Swíss cítízen (who ís not aíso a cítízen of the Uníted
States) resídent ín the Uníted States.
(2) It ís agreed, however, that such rate of ta shaíí not e ceed percent
íf the sharehoíder ís a corporatíon controíííng, dírectíy or índírectíy, at íeast
). pen ent of the entíre votíng power ín the corporatíon payíng the dívídend, and
íf not more than 2 percent of the gross íncome of such payíng corporatíon ís
deríved from ínterest and dívídends, other than ínterest and dívídends receíved
from íts own subsídíary corporatíons. Such reductíon of the rate to percent
shaíí not appíy íf the reíatíonshíp of the two corporatíons has been arranged
or ís maíntaíned prímarííy wíth the íntentíon of securíng such reduced rate.
(3) Swítzeríand may coííect íts ta wíthout regard to paragraphs (1) and (2)
of thís artícíe but wííí make refund of the ta so coííected ín e cess of the ta
computed at the reduced rates províded ín such paragraphs.
rtícíe II
(1) The rate of ta ímposed by one of the contractíng states on ínterest on
bonds, securítíes, notes, debentures or on any other form of índebtedness (ín-
eíudíng mortgages or bonds secured by reaí property) deríved from sources
wíthín such contractíng state by a resídent or corporatíon or other entíty of
the other contractíng state not havíng a permanent estabííshment ín the former
state shaíí not e ceed 3 percent: Províded, hoícercr, that thís paragraph shaíí
have no appíícatíon to Swíss ta ín the case of ínterest deríved from Swítzeríand
by a Swíss cítízen (who ís not aíso a cítízen of the Uníted States) resídent ín
the Uníted States.
(2) Swítzeríand may coííect íts ta wíthout regard to paragraph (1) of thís
artícíe but wííí make refund of the ta so coííected ín e cess of the ta computed
at the reduced rate províded ín such paragraph.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.1 3-1.
7
TICI. III
Royaítíes and other amounts deríved, as consíderatíon for the ríght to use
copyríghts, artístíc and scíentífíc works, patents, desígns, píans, secret processes
and formuíae, trade-marks, and other ííke property and ríghts (íncíudíng rentaís
and ííke payments ín respect to motíon pícture fííms or for the use of índustríaí,
commercíaí or scíentífíc equípment), from sources wíthín cne of the contractíng
stí.tes by a resídent or corporatíon or other entíty of the other contractíng state
not havíng a permanent estabííshment ín the former state shaíí be e empt from
ta atíon ín such former state.
btícíe I
(1) Income from reaí property (íncíudíng gaíns deríved from the saíe or
e change of such property but not íncíudíng ínterest from mortgages or bonds
secured by reaí property) and royaítíes ín respect of the operatíon of mínes,
quarríes, or other naturaí resources, shaíí be ta abíe oníy ín the contractíng state
ín whích such property, mínes, quarríes, or other naturaí resources are sítuated.
(2) resídent or corporatíon or other entíty of one of the contractíng states
derívíng any such íncome from such property wíthín the other contractíng state
may, for any ta abíe year, eíect to be sub|ect to the ta of such other contractíng
state, on a net basís, as íf such resídent or corporatíon or entíty were engaged
ín trade or busíness wíthín such other contractíng states through a permanent
estabííshment thereín duríng such ta abíe year.
€ € €
btícíe I

(2) Prívate pensíons and íífe annuítíes deríved from wíthín one of the con-
tractíng states and paíd to índívíduaís resídíng ín the other contractíng state
shaíí be e empt from ta atíon ín the former state.
(3) The term pensíons, as used ín thís artícíe, means períodíc payments
made ín consíderatíon for servíces rendered or by way of compensatíon for
ín|uríes receíved.
( ) The term íífe annuítíes as vísed ín thís artícíe, means a stated sum
payabíe períodícaííy at stated tímes duríng íífe, or duríng a specífíed number of
years, under an obíígatíon to make the payments ín return fcr adequate and fuíí
consíderatíon ín money or money s worth.
€ € € €
btícíe I
(1) Dívídends and ínterest paíd by a corporatíon other than a Uníted States
domestíc corporatíon shaíí be e empt from Uníted States ta where the recípíent
ís a nonresídent aííen as to the Uníted States resídent In Swítzeríand or a Swíss
corporatíon, not havíng a permanent estabííshment ín the Uníted States.
(2) Dívídends and ínterest paíd by a corporatíon other than a Swíss corpora-
tíon shaíí be e empt from Swíss ta where the recípíent ís a resídent or corpora-
tíon of the Uníted States, not havíng a permanent estabííshment ín Swítzeríand.
€ € €
btícíe I
(1) The competent authorítíes of the contractíng states shaíí e change such
ínformatíon (beíng ínformatíon avaííabíe tínder the respectíve ta atíon íaws of
the contractíng states) as ís necessary for carryíng out the provísíons of the
present conventíon or for the preventíon of fraud or the ííke ín reíatíon to the
ta es whích are the sub|ect of the present conventíon. ny ínformatíon so e -
changed shaíí be treated as secret and shaíí not be díscíosed to any person other
than those concerned wíth the assessment and coííectíon of the ta es whích are
the sub|ect of the present conventíon. No ínformatíon shaíí be e changed whích
wouíd díscíose any trade, busíness, índustríaí or professíonaí secret or any
trade process.
(2) ach of the contractíng states may coííect such ta es ímposed by the
other contractíng state as though such ta es were the ta es of the former
staíe as wííí ensure that the e emptíon or reduced rate of ta granted under
rtícíes I, II, III and I(2) of the present conventíon by such other suae
shaíí not be en|oyed by persons not entítíed to such beneííts.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
79
29.1 3-1.
(3) In no case snaíí the provísíons of thís artícíe be construed so as to ímpose
upon eíther of the contractíng states the obíígatíon to carry out admínístratíve
measures at varíance wíth the reguíatíons and practíce of eíther contractíng
state or whích wouíd be contrary to íts sovereígnty, securíty or pubííc poíícy or
to suppíy partícuíars whích are not procurabíe under íts own íegísíatíon or that
of the state makíng appíícatíon.
€ € € € €
rtícíe I
(1) The competent authorítíes of the two contractíng states may prescríbe
reguíatíons necessary to carry ínto effect the present conventíon wíthín the
respectíve states.
(2) The competent authorítíes of the two contractíng states may communícate
wíth each other dírectíy for the purpose of gívíng effect to the provísíons of thís
conventíon.
rtícíe
(1) The present convent íon shaíí be ratífíed and the ínstruments of ratífíca-
tíon shaíí be e changed at erne as soon as possíbíe. It shaíí have effect for
the ta abíe years begínníng on or after the 1st day anuary of the year ín
whích such e change takes píace: Províded, however, that íf such e change
takes píace on or after October 1 of such year, rtícíe I (e cept paragraph C2)
thereof) and rtícíe II of the conventíon shaíí have effect oníy for ta abíe
years begínníng on or after the 1st day of . anuary of the year ímmedíateíy foí-
íowíng the year ín whích such e change takes píace.
(2) The present conventíon shaíí con;íuue effectíve for a períod of 3 years
begínníng wíth the caíendar year ín whích the e change of the ínstruments of
ratífícatíon takes píace and índefíníteíy after that períod, but may ííe termínated
by eíther of the contractíng states at the end of the -year períod, or at any
tíme thereafter, províded that at íeast C months príor notíce of termínatíon
has been gíven and, ín such event, the present conventíon shaíí cease to be
effectíve for the ta abíe years begínníng on or after the 1st day of anuary ne t
foííowíng the e píratíon of the 0-month períod.
€ € € € € € €
s used ín thís Treasury Decísíon, uníess the conte t otherwíse
requíres, the terms defíned ín the above artícíes of the conventíon shaíí
have the meaníngs so assígned them.
Sec. 7.301. Dívídends. € ” (a) Generaí. € ” Under rtícíe I of the con-
ventíon, the rate of ta ímposed wíth respect to dívídends by sectíon
211(a) of the Internaí Revenue Code (reíatíng to nonresídent aííen
índívíduaís not engaged ín trade or busíness wíthín the Uníted States)
and by sectíon 231(a) of the Internaí Revenue Code (reíatíng to for-
eígn corporatíons not engaged ín trade or busíness wíthín the Uníted
States) ís reduced to 1 percent ín the case of dívídends receíved ín
ta abíe years begínníng on or after anuary 1, 19 1, from sources
wíthín the I|níted States by a nonresídent aííen (íncíudíng a nonresí-
dent aííen índívíduaí, fíducíary, and partnershíp) who ís a resídent
of Swítzeríand or by a Swíss corporatíon íf such aííen or corporatíon
at no tíme duríng the ta abíe year had a permanent estabííshment
wíthín the Uníted States. s to what ís a Swíss corporatíon, see
rtícíe 11(1) (f) of the conventíon. Thus, íf a nonresídent aííen who
ís a resídent of Swítzeríand performs personaí servíces wíthín the
Uníted States duríng the caíendar year 10 2, but has at no tíme dur-
íng such year a permanent estabííshment wíthín the Uníted States,
he ís entítíed to the reduced rate of ta wíth respect to dívídends
deríved ín that year from Uníted States sources, as províded ín rtícíe
I of the conventíon, even though, by reason of hís havíng rendered
personaí servíces wítííín the Uníted States, he ís engaged ín trade or
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.1 3-1.
SO
busíness thereín ín that year wíthín the meaníng of sectíon 211(b)
of the Internaí evenue Code. s to what constítutes a permanent
estabííshment, see rtícíe 11(1) (c) of the conventíon.
In the case of dívídends paíd on or after anuary 1, 19 1, by any
foreígn corporatíon to a nonresídent aííen who ís a resídent of Swít-
zeríand or to a Swíss corporatíon, not havíng a permanent estabíísh-
ment ín the Uníted States, no wíthhoídíng of Uníted States ta ís
requíred. See rtícíe I of the conventíon.
b) Dívídends paíd by a Uníted States subsídíary corporatíon. € ”
Under the provísíons of rtícíe I(2) of the conventíon, dívídends
from sources wíthín the Uníted States paíd by a domestíc corpora-
tíon to a Swíss corporatíon controíííng, dírectíy or índírectíy, at the
tíme the dívídend ís paíd, 9 percent or more of the entíre votíng power
ín such domestíc corporatíon are, when receíved ín ta abíe years be-
gínníng on or after anuary 1, 19 1, sub|ect to ta at the rate of oníy
percent, íf (1) not more than 2 percent of the gross íncome of such
payíng corporatíon for the 3-year períod ímmedíateíy precedíng the
ta abíe year ín whích the dívídend ís paíd consísts of dívídends and
ínterest (other than dívídends and ínterest paíd to such domestíc
corporatíon by íts own subsídíary corporatíons, íf any), (2) the reía-
tíonshíp between such domestíc corporatíon and such Swíss corpora-
tíon has not been arranged or maíntaíned prímarííy wíth the íntentíon
of securíng such reduced rate of percent, and (3) such Swíss cor-
poratíon at no tíme duríng the ta abíe year had a permanent estab-
ííshment wíthín the Uníted States.
ny domestíc corporatíon whích cíaíms or contempíates cíaímíng
that dívídends paíd or to be paíd by ít on or after anuary 1, 19 1, are
sub|ect oníy to the percent rate shaíí fííe, as soon as practícabíe, wíth
the Commíssíoner of Internaí Revenue, the foííowíng ínformatíon:
(1) The date and píace of íts organízatíon; (2) the number of out-
standíng shares of stock of the domestíc corporatíon havíng votíng
power and the votíng power thereof; (3) the person or persons bene-
fícíaííy owníng such stock of the domestíc corporatíon and theír re-
íatíonshíp to the Swíss corporatíon; ( ) the amount of gross íncome,
by years, of the payíng corporatíon for the 3-year períod ímmedíateíy
precedíng the ta abíe year ín whích the dívídend ís paíd; ( ) the
amount of ínterest and dívídends, by years, íncíuded ín the gross ín-
come of such domestíc corporatíon and the amount of ínterest and
dívídends, by years, receíved by such corporatíon from íts subsídíary
corporatíons, íf any: and (G) the reíatíonshíp between the domestíc
corporatíon and the Swíss corporatíon to whích ít pays the dívídends.
s soon as practícabíe after such ínformatíon ís fííed, the Com-
míssíoner of Internaí Revenue wííí determíne whether the dívídends
concerned faíí wíthín the provísíons of rtícíe I(2) of the conven-
tíon and may authoríze the reíease of e cess ta wíthheíd wíth respect
ro dívídends whích come wíthín such provísíons. In any case ín whích
the Commíssíoner of Internaí Revenue has notífíed such domestíc cor-
poratíon that the dívídends come wíthín such provísíons, the reduced
wíthhoídíng rate of percent wííí appíy to any dívídends subsequent-
íy paíd by such corporatíon to the Swíss corporatíon uníess the stock
ownershíp of the domestíc corporatíon, or the character of íts íncome,
materíaííy changes, or uníess the Commíssíoner of Internaí Revenue
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
SI
29.1 3-1.
determínes that the reíatíonshíp between the two corporatíons ís beíng
maíntaíned prímarííy wíth the íntentíon of securíng such reduced
rate; and, íf such change ín stock ownershíp or character of íncome
occurs, such corporatíon shaíí promptíy notífy the Commíssíoner of
Internaí Revenue of the then e ístíng facts wíth respect to such stock
ownershíp or íncome.
(c) ffect of address ín Swítzeríand on wíthhoídíng ín case of díví-
dends. € ” For the purpose of wíthhoídíng of the ta ín the case of
dívídend , every nonresídent aííen (íncíudíng a nonresídent aííen ín-
dívíduaí, fíducíary, and partnershíp) whose address ís ín Swítzeríand
shaíí be deemed by Uníted States wíthhoídíng agents to be a resídent
of Swítzeríand not havíng a permanent estabííshment ín the Uníted
States; and every corporatíon whose address ís ín Swítzeríand shaíí
be deemed by such wíthhoídíng agents to be a Swíss corporatíon not
havíng a permanent estabíísííment ín the Uníted States.
(d) ate of wíthhoídíng. € ” On and after anuary 1, 19 1, wíth-
hoídíng ín the case of dívídends paíd to nonresídent aííens (íncíudíng
a nonresídent aííen índívíduaí, fíducíary, and partnershíp) and to
foreígn corporatíons, whose addresses are ín Swítzeríand, shaíí be at
the rate of 1 percent ín every case e cept (1) that ín whích, príor to
the date of payment of such dívídends, the Commíssíoner of Internaí
Revenue has notífíed the payíng corporatíon that such dívídends faíí
wíthín the provísíons of rtícíe I(2) of the conventíon and (2) that
ín whích the Commíssíoner of Internaí Revenue has, príor to the date
of payment of such dívídends, notífíed the wíthhoídíng agent that
the reduced rate of ta shaíí not appíy.
The precedíng provísíons reíatíve to resídents of Swítzeríand and
to Swíss corporatíons are based upon the assumptíon that the payee
of the dívídend ís the actuaí owner of the capítaí stock from whích
the dívídend ís deríved and consequentíy ís the person ííabíe to the
ta upon such dívídend. s to actíon by the recípíent who ís not the
owner of the dívídend, see sectíon 7.307.
Sec. 7.302. Interest. € ” (a) Generaí. € ” Interest on bonds, securítíes,
notes, debentures, or anv other form of índebtedness (íncíudíng ínter-
est on obíígatíons of the Uníted States, obíígatíons of ínstrumentaíítíes
of the Unned States, and mortgages and bonds secured by reaí prop-
erty) receíved ín ta abíe years begínníng cn or after anuary 1, 19 1,
from sources wíthín the Uníted States by a nonresídent aííen (íncíud-
íng a nonresídent aííen índívíduaí, fíducíary, and partnershíp) who ís
a resídent of Swítzeríand, or by a Swíss corporatíon, ís sub|ect to
Uníted States ta at the reduced rate of percent under the provísíons
of rtícíe II of the conventíon íf such aííen or corporatíon at no
tíme duríng the ta abíe year had a permanent estabííshment ín the
Uníted States.
(6) ppíícatíon of reduced rate at source. € ” To secure the reduced
rate of ta at the source ín the case of coupon bond ínterest, the non-
resídent aííen resídent ín Swítzeríand or the Swíss corporatíon shaíí
submít Form 1001-S, ín dupíícate, to the payíng agent wíth each
presentatíon of ínterest coupons. Such form shaíí be sígned by the
owner of the ínterest, trustee, or agent and shaíí show the name and
address of the obíígor, the name and address of the owner of such
ínterest, and the amount of such ínterest. Such form shaíí contaín
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.1 3-1.
2
a statement that the owner ís a resídent of Swítzoríand or a Swíss
corporatíon and that such owner has no permanent estabííshment ín
the Uníted States.
The reductíon ín the rate of Uníted States ta contempíated by
ínterest, ís appíícabíe oníy to the owner of such ínterest. The person
presentíng such coupen or on whose behaíf ít ís presented shaíí, for
the purpose of the reductíon, be deemed to be the owner of the ínterest
oníy íf he ís. at the tíme the coupon ís presented for payment, the
owner of the bond from whích the coupon has been detached. If the
person presentíng the coupon ís not the owner of the bond, Form 1001,
and not Form 1001-S. shaíí be e ecuted.
The orígínaí and dupíícate ownershíp certífícates. Form 1001-S,
must be forwarded to the Commíssíoner of Internaí Revenue by the
wíthhoídíng agent wíth the quarteríy return. Form 1012, as províded
ín e ístíng reguíatíons wíth respect to Form 1001. See sectíon 29.1 3-7
of (hís chapter (Reguíatíons 111). Form 1001-S need not be íísted
on Form 1012.
In the case of ínterest coupons presented ín Swítzeríand by a non-
resídent aííen who ís not a resídent of Swítzeríand, or by a foreígn
corporatíon other than a Swíss corporatíon, ownershíp certífícates.
Form 1001, shaíí be fííed as províded ín e ístíng reguíatíons wíthout
reference to the provísíons of the conventíon. See sectíon 29.113- of
thís chapter (Reguíatíons 111).
To secure the reduced rate of ta at the source ín the case of ínterest,
other than ínterest payabíe by means of coupons, the nonresídent aííen
who ís a resídent of Swítzeríand or the Swíss corporatíon shaíí fííe
Form 1001 -S. ín dupíícate, wíth the wíthhoídíng agent ín the Uníted
States. Such form shaíí be sígned by the owner of the ínterest,
trustee, or agent and shaíí show the name and address of the obíígor
and the name and address of the owner of such ínterest. Such form
shaíí contaín a statement that the owner ís a resídent of Swítzeríand,
or ís a Swíss corporatíon, not havíng a permanent estabííshment ín
the Uníted States.
Form 1001 -S must be fííed for each three-caíendar-year períod,
and the fírst such form fííed by the ta payer wíth any wíthhoídíng
agent shaíí be fííed not íater than 20 days precedíng the date of the
fírst payment of íncome ín such períod. If the ta payer fííes such
form wíth the wíthhoídíng agent ín the caíendar year 19 1, or ín any
subsequent caíendar year, no addítíonaí Form 1001 -S need be fííed
príor to the end of the two caíendar years ímmedíateíy foííowíng the
caíendar year ín whích such form ís so fííed uníess the Commíssíoner
of Internaí Revenue notífíes the wíthhoídíng agent that an addítíonaí
Form 1001 -S must be fííed by the ta payer at any earííer date. If,
after fíííng such form, the ta payer ceases to be eíígíbíe for the benefít
of the conventíon, he must promptíy notífy the wíthhoídíng agent.
When any change occurs ín the ownershíp of record of the íncome on
the books of the payor, the reductíon ín the rate of Uníted States ta
wííí no íonger appíy uníess Form 1001 -S ís duíy e ecuted and fííed
wíth the payor by the new owner of record of such íncome.
The dupíícate of Form 1001 -S must be ímmedíateíy forwarded by
the wíthhoídíng agent to the Commíssíoner of Internaí Revenue,
Records Dívísíon, Washíngton 2 , D. C.
rtícíe II of the conventíon,
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
S3
29.1 3-1.
In the case of ínterest paíd on or after anuary 1,19 1, by any for-
eígn corporatíon to a nonresídent aííen who ís a resídent of Swítzer-
íand or to a Swíss corporatíon, not havíng a permanent estabííshment
ín the Uníted States, no wíthhoídíng of Uníted States ta ís requíred.
See rtícíe I of the conventíon.
Sec. 7.1303. Patent and Copyríght Royaítíes and Fíím Rentaís. € ”
Royaítíes and other amounts receíved ín ta abíe years begínníng on or
after anuary 1,19 1. from sources wíthín the Uníted States by a non-
resídent aííen (íncíudíng a nonresídent aííen índívíduaí, fíducíary, and
partnershíp) who ís a resídent of Swítzeríand or by a Swíss corpora-
tíon, as consíderatíon for the ríghí, to use copyríghts, artístíc and
scíentífíc works, patents, desígns, píans, secret processes and formuíae,
trade-marks, and other ííke property and ríghts (íncíudíng rentaís
and ííke payments ín respect to motíon pícture fííms or for the use of
índustríaí, commercíaí, or scíentífíc equípment), are e empt from
Uníted States ta under the provísíons of rtícíe III of the conven-
tíon íf such aííen or corporatíon at no tíme duríng the ta abíe year ín
whích such royaítíes or other amounts are receíved has had a perma-
nent estabííshment wíthín the Uníted States. Such ítems are. there-
fore, not sub|ect to the wíthhoídíng provísíons of the Internaí Revenue
Code. s to what constítutes a permanent estabííshment, see rtícíe
11(1) (c) of the conventíon.
To obvíate wíthhoídíng at the source ín the case of such ítems, 1he
nonresídent aííen who ís a resídent of Swítzeríand or the Swíss cor-
poratíon shaíí fííe Form 1001 -S, ín dupíícate, wíth the wíthhoídíng
agent ín the Uníted States. The provísíons of sectíon 7.302 (b) of
these reguíatíons reíatíng to the e ecutíon and effectíve períod of such
form wíth respect to ínterest are equaííy appíícabíe wíth respect to the
íncome faíííng wíthín the scope oí thís sectíon.
The dupíícate of Form 1001 -S must be ímmedíateíy forwarded by
the wíthhoídíng agent to the Commíssíoner of Internaí Revenue,
Records Dívísíon, Washíngton 2 . D. C.
Sec. 7.30 . Pensíons and Lífe nnuítíes. € ” rtícíe I(2) of the
conventíon provídes that prívate pensíons and íífe annuítíes deríved
ín ta abíe years begínníng on or after anuary 1, 19 1, from sources
wíthín the Uníted States by a nonresídent aííen índívíduaí who ís a
resídent of Swítzeríand shaíí be e empt from Uníted States ta .
The person payíng such íncome shaíí be notífíed by íetter from the
resídent of Swítzeríand that the íncome ís e empt from ta atíon under
the provísíons of rtícíe I (2) and (3), or T (2) and ( ), as the
case may be, of the conventíon. Such íetter shaíí contaín the address
of the índívíduaí and a statement that such índívíduaí ís a resídent of
Swítzeríand. The íetter of notífícatíon, or a copy thereof, shaíí be
ímmedíateíy forwarded by the recípíent to the Commíssíoner of
Internaí Revenue, Records Dívísíon, Washíngton 2 , D. C. Such
íetter shaíí constítute authorízatíon to the payor of the íncome to pay
such íncome wíthout deductíon of the ta at the source uníess the
Commíssíoner subsequentíy notífíes such payor that the ta shouíd be
wíthheíd wíth respect to payments made after such notífícatíon.
Sec. 7.30 . Naturaí Resource Royaítíes and Reaí Property
Ren taís. € ” The conventíon does not change the rate of ta ímposed
under e ístíng íaw upon naturaí resource royaítíes and reaí property
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.1 3-1.
SI
rentaís. The wíthhoídíng of the ta wíth respect to such ítems de-
ríved from sources wíthín the Uníted States by nonresídent aííens who
are resídents of Swítzeríand and by Svnss corporatíons ís not affected
by the conventíon. See sectíons 211(a) and 231(a) of the Internaí
Revenue Code and rtícíe I of the conventíon.
Sec. 7.306. Reíease of cess Ta Wíthheíd at Source. € ” (a)
Generaí. € ” In order to bríng the conventíon ínto force and effect at
the earííest practícabíe date,
(1) the reduced rate of ta of 1 percent to be wíthheíd at the
source on dívídends,
(2) the reduced rate of ta cf percent to be wíthheíd at the
source on ínterest, and
(3) the e emptíon from ta otherwíse wíthheíd at the source
on patent royaítíes, copyríght royaítíes, fíím rentaís, and the ííke,
are hereby made effectíve begínníng anuary 1, 19 1, ín any case ín
whích such dívídends, ínterest, patent royaítíes, copyríght royaítíes,
fíím rentaís, and the ííke, are deríved from sources wíthín the Uníted
States by a nonresídent aííen (íncíudíng a nonresídent aííen índí-
víduaí, fíducíary, and partnershíp) who ís a resídent of Swítzeríand
or by a Swíss corporatíon.
In the case of every such ta payer who furníshes to the wíthhoíd-
íng agent Form 1001 -S, as prescríbed ín sectíon 7.302(6) or sec-
tíon 7.303 of these reguíatíons, where ta at the rate of 30 percent has
been wíthheíd on or after anuary 1, 19 1, there shaíí be reíeased by
the wíthhoídíng agent and paíd over to the person from whom wíth-
heíd (1) ín the case of ínterest (other than coupon bond ínterest), an
amount equaí to 2 percent of such ínterest, and (2) ín the case of
patent royaítíes, copyríght royaítíes, fíím rentaís, and the ííke, an
amount equaí to the ta so wíthheíd.
In the case of every such ta payer who furníshes to the wíthhoídíng
agent Form 1001-S, ín dupíícate, where ta at the rate of 2 percent
or 30 percent, as the case may be. has been wíthheíd on or after an-
uary 1, 19 1, from coupon bond ínterest, there shaíí be reíeased by
the wíthhoídíng agent and paíd over to the person from whom ít
was wíthheíd an amount equaí to 2 percent of such ínterest. Form
1001-S, cíearíy marked Substítute ín order to repíace any Forms
1001 prevíousíy fííed, ís to be used soíeíy for such reíease cf e cess ta
wíthheíd ín 19 1. One Form 1001-S. ín dupíícate, may be used to
repíace two or more Forms 1001 prevíousíy fííed ín such year. The
use of Form 1001-S wíth each presentatíon of ínterest coupons for
the purpose of securíng the reduced rate of ta ís set forth ín sectíon
7.302( ) of these reguíatíons.
In the case of dívídends paíd to a nonresídent aííen (íncíudíng a
nonresídent aííen índívíduaí, fíducíary, and partnershíp) whose ad-
dress at the tíme of payment was ín Swítzeríand, or to a Swíss cor-
poratíon whose address at the tíme of payment was ín Swítzeríand,
where ta at the rate of 30 percent has been wíthheíd on or after an-
uary 1, 19 1, from such dívídends, there shaíí be reíeased by the wíth-
hoídíng agent and paíd over to the person from whom ít was wíth-
heíd an amount equaí to 1 percent of such dívídends.
(b) Prívate pensíons ana íífe annuítíes paíd ín 19 1 or subsequent
years. € ” In order to bríng the conventíon ínto force and effect at the
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
S
29.1 3-1.
earííest practícabíe date, the e emptíon from ta otherwíse wíthheíd
at the source on prívate pensíons and íífe annuítíes ís hereby made
effectíve begínníng anuary 1, 19 1. ín any case ín whích such pen-
síons and íífe annuítíes are deríved from sources wíthín the Uníted
States by a nonresídent aííen índívíduaí who ís a resídent of Swítzer-
íand.
The person payíng such íncome shaíí be notífíed by íetter from the
resídent of Swítzeríand that the íncome ís e empt from ta atíon under
the provísíons of rtícíe I (2) and (3), or I (2) and ( ). as the
case may be. of the conventíon. See sectíon 7.30 of these reguíatíons.
Such íetter shaíí constítute authorízatíon to the payor of such íncome,
where ta at the rate of 30 percent has been wíthheíd on or after an-
uary 1, 19 1, to reíease and pay over to the person from whom ít was
wíthheíd an amount equaí to the ta so wíthheíd.
(c) Subsídíary s dívídends. € ” Wíth respect to a dívídend paíd on or
after anuary 1, 19 1, by a domestíc corporatíon to a Swíss corpora-
tíon whose address ís ín Swítzeríand, ta shaíí be wíthheíd ín accord-
ance wíth the provísíons of sectíon 7.301 of these reguíatíons uníess
príor to the date of payment of such dívídend the Commíssíoner of
Internaí Revenue has notífíed the payíng corporatíon that such díví-
dend faíís wíthín the scope of rtícíe I(2) of the conventíon. s
soon as practícabíe after ínformatíon requíred under sectíon 7.301(6)
of these reguíatíons ís fííed, the Commíssíoner of Internaí Revenue-
wííí determíne whether the dívídend ínvoíved faíís wíthín the scope
cf rtícíe I(2) and may authoríze the reíease of the e cess ta wíth-
heíd wíth respect to dívídends whích come wíthín the scope of such
provísíon.
Sec. 7.307. ddressee Not ctuaí Owner. € ” If the fírst recípíent
wíth an address ín Swítzeríand of any dívídend from sources wíthín
the Uníted States ís a nomínee or representatíve through whom the
dívídend fíows to a thírd person, such recípíent ín Swítzeríand wííí
wíthhoíd an addítíonaí amount of Uníted States ta equívaíent to
the dífference between the Uníted States ta whích wouíd have been
wíthheíd had the conventíon not been ín effect (30 percent as at the
date of approvaí of thís Treasury Decísíon) and the 1 percent wíth-
heíd at the source wíth respect to such dívídend pursuant to sectíon
7.301 (d) of these reguíatíons.
In any case ín whích a fíducíary or a partnershíp wíth an address
ín Swítzeríand receíves, otherwíse than as a nomínee or representa-
tíve, a dívídend from Uníted States sources, íf a benefícíary of such
fíducíary or a partner ín such partnershíp ís not entítíed to the re-
duced rate of ta províded ín rtícíe I of the conventíon, the fídu-
cíary or partnershíp wííí wíthhoíd an addítíonaí amount of Uníted
States ta wíth respect to the portíon of such dívídend íncíuded ín
such benefícíary s or partner s net dístríbutíve share of the íncome of
such fíducíary or partnershíp, as the case may be. The amount of
the addítíonaí ta ís to be caícuíated ín the same manner as under
the precedíng paragraph.
The amounts so wíthheíd by such wíthhoídíng agents ín Swítzer-
íand, as weíí as the amount of ta reíeased wíth respect to the caíendar
year 19 1 by the wíthhoídíng agent ín the Uníted States ín the case
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.1 3-1.
6
of a dívídend fíowíng to a thírd person through a nomínee or repre-
sentatíve whose address ís ín Swítzeríand, wííí be deposíted bv such
agents ín Swíss francs wíth the Federaí Ta dmínístratíon, erne,
Swítzeríand, ccount: Zusíítzíícher Steuerrííckbehaít US ( ddí-
tíonaí ta wíthhoídíngs US ); and the appropríate Swíss form
wííí be fííed therewíth. The Federaí Ta dmínístratíon has ar-
ranged that the amounts so deposíted wííí, after ad|ustment for ta
refunded to persons entítíed to the reduced rate of 1 percent, be
períodícaííy remítted by draft ín Uníted States doííars to the Coí-
íector of Internaí Revenue, aítímore. Md., U. S. .
Sec. 7.30 . Return of Ta Wíthheíd and Informatíon Return
Wíth Respect to Persons Whose ddresses re ín Swítzeríand. € ”
very Uníted States wíthhoídíng agent shaíí make and fííe wíth the
coííector, ín dupíícate, an ínformatíon return on Form 10 2F, ín addí-
tíon to the wíthhoídíng return. Form 10 2, for the caíendar year 19 1
and each subsequent caíendar year, wíth respect to:
(a) dívídends from whích a ta of 1 percent was wíthheíd
from persons whose addresses are ín Swítzeríand ( percent ín the
case of dívídends faíííng wíthín the scope of the provísíons of
rtícíe I(2) of the conventíon);
(6) ínterest (other than coupon bond ínterest reported on Form
1001-S) from whích a ta of percent was wíthheíd from persons
who have furníshed to the wíthhoídíng agent Form 1001 -S;
(c) royaítíes and ííke amounts from whích no ta was wíth-
heíd from persons who have furníshed to the wíthhoídíng agent
Form 1001 -S; and
(d) aíí other fí ed or determínabíe annuaí or períodícaí íncome
paíd to such persons.
Sec. 7.309. enefícíaríes of a Domestíc state or Trust. € ” non-
resídent aííen who ís a resídent of Swítzeríand and who ís a bene-
fícíary of a domestíc estate or trust shaíí be entítíed to the e emptíon
from ta , or reductíon ín the rate of ta . as the case may be, províded
ín rtícíes I. II, and III of the conventíon wíth respect to díví-
dends, ínterest, and royaítíes to the e tent such ítem or ítems are ín-
cíuded ín hís dístríbutíve share of the íncome of such estate or trust.
In such case such benefícíary must, ín order to be entítíed to the e -
emptíon from, or reductíon ín the rate of, ta ín the case of ínterest
or royaítíes, e ecute Form 1001 -S and fííe such form wíth the fídu-
cíary of such estate or trust ín the Uníted States.
ecause ít ís necessary to bríng ínto effect at the earííest practícabíe
date the ruíes of thís Ireasury Decísíon respectíng reduced rates of,
or e emptíons from, ta and the ruíes respectíng reíease of amounts
heretofore wíthheíd duríng the caíendar year 19 1 ín e cess of such
reduced rates, or wíth respect to e empt íncome, ít ís hereby found
that ít ís ímpractícabíe to íssue thís Treasury Decísíon wíth notíce
and pubííc procedure thereon under sectíon (a) of the dmínístra-
tíve Procedure ct, approved une 11, 19 C, or sub|ect to the effectíve
date íímítatíon of sectíon (c) of that ct.
(Thís Treasury Decísíon ís íssued under the authoríty contaíned
ín sectíons 62 and 3791 ( 3 Stat. 32 and G7; 20 U. S. C. 62 and 3791)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
7
29 1 7-3.
of the Internaí Revenue Code and ín rtícíe I of the íncome ta
conventíon between the Uníted States and The Swíss Confederatíon.)
Fred S. Martín,
ctíng Commíssíoner of Internaí Revenue.
pproved November 21, 19 1.
Thomas . Lynch,
ctíng Secretary of the Treasury.
(Fííed wíth the Dívísíon of the Federaí Regíster November 26, 1901, : 0 a. m.)
Sectíon 29.1 3-7: Return and payment of ta wíthheíd.
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. 661, page 1.)
S CTION 1 . € ” P YM NT OF CORPOR TION INCOM
T T SOURC
Sectíon 29.1 -1: Wíthhoídíng ín the case of
nonresídent foreígn corporatíons.
INT RN L R NU COD
Reíease of e cess ta wíthheíd, and e emptíon from, or reductíon
ín rate of, wíthhoídíng ín the case of Swíss corporatíons, as affected by
the recíprocaí-íncome ta conventíon between the Uníted States and
Swítzeríand. (See . D. 67, page 7 .)
S CTION 1 7. € ” INFORM TION T SOURC
Sectíon 29.1 7-1: Return of ínformatíon a to pay-
ment of 600 ( 00 for years príor to 19 ).
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. 9, page .)
Sectícn 29.1 7-7: Return of ínformatíon as to
foreígn ítems.
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. 9, page .)
Sectíon 29.1 7- : Informatíon as to actuaí owner.
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. 9, page .)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.1 - .
S CTION 1 . € ” INFORM TION Y CORPOR TIONS
Sectíon 29.1 -1: Return of ínformatíon as 19 1-21-13679
to payments of dívídends. T. D. 9
( íso Sectíon 29.1 -3; Sectíon 1 7, Sec-
tíons 29.1 7-1, 29.1 7-7, and 29.1 7- .)
TITL 2 € ” INT RN L R NU . € ” C PT R I, SU C PT R , P RT 29. € ”
INCOM T ; T L Y RS GINNING FT R D C M R 31, 19 1
Reguíatíons 111 amended wíth respect to the requírement that ín-
formatíon returns be furníshed by corporatíons payíng dívídends,
and wíth respect to the date for fíííng such returns.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue.
Washíngton 2 , D. C.
To Coííectors of Internaí Revenue and Others Concerned:
Notíce of proposed ruíe makíng ín respect of a proposed Treasury
Decísíon amendíng Reguíatíons 111 wíth respect to the fíííng of ínfor-
matíon returns by corporatíons payíng dívídends was pubííshed ín the
Federaí Regíster on anuary 20, 19 1 (1G F. R. 2). fter carefuí
consíderatíon of aíí reíevant matter presented by ínterested persons,
both ín communícatíons and ín conferences, the foííowíng amendments
are hereby adopted:
Paragraph 1. Sectíon 29.1 7-1, as amended by Treasury Decísíon
G 7 C. . 19 9-1, 9, 32 , approved February 1G, 19 9 26 CFR
29.1 7-1 , ís further amended by stríkíng out February 1 ín the
fírst sentence, and by ínsertíng ín ííeu thereof February 2S .
Par. 2. Sectíon 29.1 7-7, as amended by Treasury Decísíon GS7
26 CFR 29.1 7-7 , ís further amended as foííows:
( ) y stríkíng from the fírst sentence 00 . and ínsertíng ín
ííeu thereof 60(F; and
( ) y stríkíng out February 1 ín the second sentence, and
ínsertíng ín ííeu thereof February 2 .
Par. 3. Sectíon 29.1 7-S, as amended by Treasury Decísíon GS7
2(í CFR 29.1 7- , ís further amended by stríkíng out February
1 ín the fírst paragraph, and ínsertíng ín ííeu thereof February
2 .
Par. . Sectíon 29.1 -1 (a). as amended bv Treasury Decísíon G 7
26 CFR 29.1 -1 (a) , ís further amended as foííows :
( ) y revísíng the fírst sentence thereof to read as foííows:
cept as províded In paragraph (6) of thís sectíon, every domestíc cor-
poratíon or foreígn corporatíon engaged ín busíness wíthín the Uníted States or
havíng an offíce or píace of busíness or a físcaí or payíng agent ín the Uníted
States, makíng payments of dívídends and dístríbutíons (other than dístríbutíons
ín ííquídatíon) to any sharehoíder who ís an índívíduaí (cítízen or resídent of
(ííe Uníted States), a resídent fíducíary, or a resídent partnershíp any member
of whích ís a cítízen or resídent, shaíí render an ínformatíon return on Forms
1006 and 1009, e cept that for caíendar years precedíng 1. such return shaíí
be rendered oníy ín the case of payments amountíng to 100 or more duríng each
caíendar year.
( ) y stríkíng out February 1 ín the íast sentence of the fírst
paragraph, and ínsertíng ín ííeu thereof February 2S .
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
S9
29.1 -3.
Pak. a. Sectíon 29.1 S-1( ). as amended by Treasurv Decísíon
6 7 26 CFR 29.1 -1 (b) , ís further amended by addíng at the end
thereof the foííowíng:
In the cese of a buíídíng and íoan assocíatíon, a cooperatíve bank, a homestead
assocíatíon, a credít uníon, a savíngs and íoan assocíatíon, or a corporatíon de-
scríbed ín sectíon 101 (10), (11), (12), or (13), makíng a payment of a dívídend
or a dístríbutíon to any sharehoíder, the ínformatíon return on Fcrms 1096 and
1099 shaíí be rendered oníy ín the case of payments amountíng to 100 or more
duríng the caíendar year.
Par. . Sectíon 29.1 -3. as amended by Treasury Decísíon GS7
26 CFR 29.1 -3 , ís further amended as foííows:
( ) y stríkíng from the fírst sentence of the fírst paragraph
00 . and ínsertíng ín ííeu thereof 600 ; and
( ) y stríkíng out February 1 ín the fírst sentence of the sec-
ond pa -agraph. and ínsertíng ín ííeu thereof February 2 .
(Thís Treasury Decísíon ís íssued under the authoríty contaíned
ín sectíons 62. 1 , and 3791 of the Internaí Revenue Code ( 3 Stat.
32, 6 . 67 ; 26 U. S. C. 62,1 , 3791).)
oh . Dt| íap,
Commíssíoner of Internaí Revenue.
pproved September 20. 19 1.
Thomas . Lynch,
ctíng Secretary of the Treasury.
(Fííed wíth the Dívísíon of the Federaí Regíster September 2 , 19 1, : a. m.)
Secttc 29.1 S-2: Return of ínformatíon respectíng
contempíated díssoíutíon or ííquídatíon.
ínternaí revenue code
Reguíatíons 111 amended. (See T. D. 6, page 6.)
Sectío 29.1 -3: Return of ínformatíon respectíng
dístríbutíons ín ííquídatíon.
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. 6, page 6.)
Sectío 29.1 -3: Return of ínformatíon respectíng
dístríbutíons ín ííquídatíon.
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. 9, page .)
0 016 € ” 2 7
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.16 -7.
90
SUPPL M NT . € ” ST T S ND TRUSTS
S CTION 16 . € ” MPLOY S TRUSTS
Sectíon 29.16 -6: Ta abíííty of benefícíary
under a trust whích meets the requírements
of sectíon 16 (a).
( íso Reguíatíons 103.)
ínterna: revenue code
Reguíatíons 103 and 111 amended. (See T. D. 3, beíow.)
Sectíon 29.16 -7: Treatment of benefícíary of 19 1-19-13662
a trust not e empt under sectíon 16 (a).- T. D. 3
( íso Sectíon 29.16 -6; Sectíon 22(b), Sec-
tíon 29.22(b) (2)- ; and Reguíatíons 103.)
TITL 26 € ” INT RN L R NU . € ” C PT R I, SU C PT R , P RT 19
ND P RT 29
Reguíatíons 111 and 103 amended to conform to Pubííc Law 37
( 1st Cong., 1st sess. C. . 19 9-2, 27 ) reíatíng to ta atíon of
empíoyee benefícíaríes of certaín pensíon trusts.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue.
Washíngton 2 , D. C.
To Coííectors of Internaí Revenue and Others Concerned:
On May 2. 19 1. notíce of proposed ruíe makíng regardíng sectíon
of Pubííc Law 37 . 1st Congress C. . 19 9-2, 27 , 277 . approved
October 2 , 19 9. reíatíng to ta atíon of empíoyee benefícíaríes of
certaín pensíon trusts, was pubííshed ín the Federaí Regíster (16
F. R. 6 6 ). fter consíderatíon of aíí such reíevant matter as was
presented by ínterested persons regardíng the ruíes proposed, the
amendments to Reguíatíons 111 26 CFR. part 29 , and Reguíatíons
103 26 CFR, part 19 set forth beíow are hereby adopted. Such
amendments are necessary ín order to conform such reguíatíons to
sectíon of Pubííc Law 37 , 1st Congress.
R GUL TIONS 111 26 CFR, P RT 291
Paragraph 1. Sectíon 29.22(b) (2)- 26 CFR 29.22(b) (2)- ís
amended as foííows:
( ) y amendíng the thírd sentence of such sectíon to read as
foííows:
cept as províded ín sectíon 163(d), íf an empíoyer purchases an annuíty con-
tract whích ís not under a pían víth respect to whích hís contríbutíon ís deduct-
íbíe under sectíon 23(p)(í)( ). the amount of such contríbutíon shaíí be
íncíuded ín the íncome of the empíoyee ín the ta ííbíe year duríng whích such
contríbutíon ís made, íf the empíoyees ríghts under the annuíty contract are
nonforfeítabíe, e cept for faííure to pay future premíums, at the tíme the
contríbutíon ís made.
( ) y ínsertíng ímmedíateíy after the fírst paragraph of such
sectíon the foííowíng new paragraph:
If an empíoyer has purchased annuíty contracts and transferred the same
to a trust or íf an empíoyer has made contríbutíons to a trust for the purpose
of provídíng annuíty contracts for hís empíoyees as províded ín sectíon 16 (d)
(see sectíon 29.16 -7), the amount so paíd or contríbuted ís not requíred to be 1
Incíuded ín the íncome of the empíoyee, but any amount receíved or made avaíí-
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
01
11 20.16 -7.
abíe to the empíoyee under the annuíty contract shaíí be Incíudíbíe ín the gross
íncome of the empíoyee ín the ta abíe year ín whích receíved or made avaííabíe.
In such case the amount paíd or contríbuted by the empíoyer shaíí not constítute
consíderatíon paíd by the empíoyee for such annuíty contract ín determíníng
the amount of annuíty payments requíred to be íncíuded ín hís gross íncome under
sectíon 22(b) (2) uníess the empíoyee has paíd íncome ta for any ta abíe year
begínníng príor to anuary 1, 19 9, wíth respect to such payment or contríbu-
tíon by the empíoyer for such year and such ta ís not credíted or refunded
to the empíoyee. In the event such ta has been paíd and not credíted or
refunded the amount paíd or contríbuted by the empíoyer for such year shaíí
constítute consíderatíon paíd by the empíoyee for the annuíty contract ín deter-
míníng the amount of the annuíty requíred to be íncíuded ín the íncome of the
empíoyee under sectíon 22(b)(2) ( ). For e ampíe, an empíoyer ín 1939 pur-
chased and transferred to a trust meetíng the requírements of sectíon 16 (d)
a íífe annuíty contract (payabíe ín annuaí ínstaííments of ,000) for an em-
píoyee at a cost to the empíoyer of 0,000. If the empíoyee íncíuded the 0,000
íu hís gross íncome for such year and paíd a ta wíth respect thereto and íf
ít be assumed that such year ís cíosed so that the amount so paíd cannot be
credíted or refunded, oníy 1, 00 of each ,000 yearíy annuíty payment to the
empíoyee wííí be requíred to be íncíuded ín hís gross íncome (3 percent of
0,000), 3, 00 beíng e empt. If the empíoyee shouíd ííve íong enough to receíve
as e empt 0,000, then aíí amounts he receíves thereafter under the annuíty
contract wouíd be íncíuded ín gross íncome. If, ín the foregoíng case, the
empíoyee s ta abíe year 1939 was not cíosed and the empíoyee secured a refund
or credít of the ta prevíousíy paíd wíth respect to the 0,000 premíum pay-
ment made by hís empíoyer then aíí amounts receíved under the annuíty contract
wííí be requíred to be íncíuded ín hís gross íncome.
Par. í2. There ís ínserted ímmedíateíy precedíng sectíon 29.16 -1
the foííowíng:
PU LIC L W 37 ( 1st CONG.. 1st S SS.), PPRO D
OCTO R 2 , 19 9
e ít enacted by the Senate and ouse of Representatíves of the
Uníted States of meríca ín Congress assembíed.
€ € – € €
S C. . MPLOY NNUITY CONTR CTS.
(a) Sectíon 16 of the Internaí Revenue Code (reíatíng to empíoyees
trusts) ís hereby amended by addíng at the end thereof the foííowíng new
subsectíon:
(d) Cebtaín mpíoyees nnuítíes. € ” Notwíthstandíng subsectíon
(c) or any other provísíon of thís chapter, a contríbutíon to a trust by
an empíoyer shaíí not be íncíuded ín the íncome of the empíoyee ín the
year ín whích the contríbutíon ís made íf € ”
(1) such contríbutíon ís to be appííed by the trustee for the pur-
chase of annuíty contracts for the benefít of such empíoyee; .
(2) such contríbutíon ís made to the trustee pursuant to a wrítten
agreement entered ínto príor to October 21, 19 2, between the em-
píoyer and the trustee, or between the empíoyer and the empíoyee;
and
(3) under the terms of the trust agreement the empíoyee ís not
entítíed duríng hís íífetíme, e cept wíth the consent of the trustee, to
any payments under annuíty contracts purchased by the trustee
other than annuíty payments.
The amount so contríbuted by the empíoyer shaíí not constítute consíd-
eratíon paíd by the empíoyee for such annuíty contract ín determíníng
the amount of annuíty payments requíred to be íncíuded ín hís gross
íncome under sectíon 22(b) (2) ; e cept that íf the ta ímposed by thís
chapter for any ta abíe year begínníng before anuary 1, 19 9, has been
paíd by the empíoyee wíth respect to such contríbutíon for such year, and
not credíted or refunded, the amount so contríbuted for such year shaíí
constítute consíderatíon paíd by the empíoyee for such annuíty contract.
Thís subsectíon shaíí have no appíícatíon wíth respect to amounts con-
tríbuted to a trust after une 1. 19 9, íf the trust on such date was
e empt under subsectíon (a). For the purposes of thís subsectíon,
amounts paíd by an empíoyer for the purchase of annuíty contracts whích
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
129 íeí-7.|
92
are transferred to the trustee shaíí be deemed to be contríbutíons made
to a trust or trustee and contríbutíons appííed by the trustee for the pur-
chase of annuíty contracts; the term annuíty contracts purchased by
the trustee shaíí íncíude annuíty contracts so purchased by the em-
píoyer and transferred to the trustee; and the term empíoyee shaíí
íncíude oníy a person who was ín the empíoy of the empíoyer, and was
covered by the agreement referred to ín paragraph (2), príor to October
21, 19 2.
-(b) The amendment made by subsectíon (a) shaíí be appíícabíe to
ta abíe years begínníng after December 31,193 .
Par. 3. The fírst sentence of sectíon 29.16 -6 26 CFR 29.16 -6
ís amended to read as foííows:
Sectíon 10 (b), (c), and (d) reíates to the ta atíon of the benefícíary of an
empíoyee s trust.
Par. . Sectíon 29.16 -7 26 CF 29.16 -7 ís amended as foííows:
( ) y stríkíng out the headíng and the fírst sentence of such sec-
tíon and ínsertíng ín ííeu thereof the foííowíng:
Treatment or enefícíary of a Trcst Not empt Under Sectíon 16 (a). € ”
(o) In generaí. € ” Generaííy, any contríbutíon made by an empíoyer on behaíf
of an empíoyee to a trust duríng a ta abíe year of the empíoyer whích ends
wíthín or wíth a ta abíe year of the trust for whích the trust ís not e empt
under sectíon 16 (a), shaíí be íncíuded ín íncome of the empíoyee for hís ta abíe
year duríng whích the contríbutíon ís made íf the empíoyee s benefícíaí ínterest
ín the contríbutíon ís nonforfeítabíe at the tíme the contríbutíon ís made. ut
see sectíon 16 (d) and paragraph (6) of thís sectíon.
( ) y addíng at the end of such sectíon the foííowíng new para-
graph:
(6) ffect of sectíon /6 (d). € ” If the requírements of sectíon 16 (d) are met,
a contríbutíon made by an empíoyer on behaíf of an empíoyee to a trust whích
ís not e empt under sectíon 16 (a) shaíí not be íncíuded ín the íncome of the
empíoyee ín the year ín whích the contríbutíon ís made. Such contríbutíon wííí
be ta abíe to the empíoyee, when receíved ín íater years, as an annuíty. (See
sectíon 20.22(b) (2)- .) The íntent and purpose of sectíon 16 (d) ís to gíve
those empíoyees, covered under certaín none empt trusts to whích such sectíon
appííes, essentíaííy the same ta treatment as those covered by trusts quaíífyíng
under sectíon 16 (a).
very person cíaímíng the benefít of sectíon 16 (d) must be abíe to demon-
strate to the satísfactíon of the Commíssíoner that aíí of the provísíons of such
sectíon are met. The ta payer must produce suffícíent evídence to prove:
(1) That, príor to October 21, 19 2, he was empíoyed by the partícuíar
empíoyer makíng the contríbutíon ín questíon and was at such tíme defíníteíy
covered by a wrítten agreement, entered ínto príor to October 21, 19 2, be-
tween hímseíf and the empíoyer, or between the empíoyer and tíe trustee
of a trust estabííshed by the empíoyer príor to October 21, 19 2, and that the
contríbutíon by the empíoyer was made pursuant to such agreement. The
fact that an empíoyee may have been potentíaííy covered ís not suffícíent.
vídence that the empíoyment was entered ínto, or the agreement e ecuted,
as of a date príor to October 21, 19 2, or that the agreement or trust ín-
strument whích díd not tber:-tofore meet the requírements of sectíon 16 (d)
was modífíed or amended after October 20, 19 2, so as to come wíthín the
provísíons of such sectíon, wííí not satísfy the requírements of sectíon
16 (d).
(2) That such contríbutíon, pursuant to the terms of such agreement, was
to be appííed for the purchase of an annuíty contract for the ta payer. In
the case of a contríbutíon by the empíoyer of an annuíty contract purchased
by such empíoyer and transferred by hím to the trustee of the trust, evídence
shouíd be presented to prove that such contract was purchased for the ta -
payer by the empíoyer pursuant to the terms of a wrítten agreement between
the empíoyer and th empíoyee or between the empíoyer and the trustee,
entered ínto príor to October 21, 19 2.
(3) That under the wrítten terms of the trust agreement the ta payer Is
not entítíed duríng hís íífetíme, e cept wíth the consent of the trustee,
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
93
29.211-
to any payments other than annuíty payments under the annuíty contract
or contracts purchased by the trustee or by the empíoyer and transferred to
the trustee, and that the trustee may grant or wíthhoíd such consent free
from controí by the ta payer, the empíoyer or any other person (for defíní-
tíon of annuíty payments, see sectíon 29.22(b) (2)-2). owever, such con-
troí wííí not be presumed from the fact that the trustee ís hímseíf an offícer
or empíoyee of the empíoyer. s used ín sectíon 16 (d) the phrase íf
€ under the terms of the trust agreement the empíoyee ís not entítíed
means that the trust ínstrument must make ít ímpossíbíe for the prohíbíted
dístríbutíon to occur, whether by. operatíon or naturaí termínatíon of the
trust, whether by power of revocatíon or amendment, other than wíth the
consent cf the trustee, whether by the happeníng of a contíngency, by coí-
íateraí arrangement, or any other means. It ís not essentíaí that the em-
píoyer reíínquísh aíí power to modífy or termínate the trust but ít must be
ímpossíbíe, e cept wíth the consent of the trustee, for any payments under
annuíty contracts purchased by the trustee, or by the empíoyer and trans-
ferred to the trustee, to be receíved by the ta payer, dírectíy or índírectíy,
other than as annuíty payments.
( ) The nature and amount of such contríbutíon and the e tent to whích
íncome ta es have been paíd thereon príoí to anuary 1, 19-19, and not
credíted or refunded.
( ) If ít ís cíaímed that sectíon 16 (d) appííes to amounts contríbuted
to a trust after une 1, 19 9, the ta payer must prove to the satísfactíon
of the Commíssícner that the trust díd not, on une 1, 19 9, quaíífy for
e emptíon under sectíon 16 (a). Where an empíoyer buys an annuíty con-
tract whích ís transferred to the trustee, the date of the purchase of the
annuíty contract and not the date of the transfer to the trustee ís the con-
troíííng date ín determíníng whether or not the contríbutíon was made to
the trust r.fter une 1, 19 9.
R GUL TIONS 103 126 CFR, P RT 19
Par. . The above amendments to Reguíatíons 111 26 CFR, part
29 . whích reguíatíons are appíícabíe to ta abíe years begínníng after
December 31, 19 1, are hereby made appíícabíe to any ta abíe year
begínníng after December 31,193 , and príor to anuary 1,19 2, whích
ís covered by Reguíatíons 103 26 CFR, part 19 .
(Thís Treasurv Decísíon ís íssued under authoríty contaíned ín
sectíon 62 of the Internaí Revenue Code ( 3 Stat. 32; 26 U. S. C. 62)
and pursuant to the provísíons of Pubííc Law 37 ( 1st Cong., 1st sess.) f
approved October 2 ,19 9.)
G O. . Sc O N M N,
Commíssíoner of Internaí Revenue.
pproved ugust 29,19 1.
Thomas . Lynch,
ctíng Secretary of the Treasury.
(Fííed wíth the Dívísíon of the Federaí Regíster September ,19 1, : 0 a. m.)
SUPPL M NT . € ” NONR SID NT LI N INDI IDU LS
S CTION 211. € ” T ON NONR SID NT LI N
INDI IDU LS
Sectíon 29.211- : Loss of resídence by aííen. . 19 1-17-136
I. T. 0 7
INT RN L R NU COD
n aííen who has acquíred resídence ííí the Uníted States and
who upon íeavíng the Uníted States obtaíns a vaííd permít to reenter
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.211- .1
9
the Uníted States retaíns, ín the absence of e ceptíonaí círcum-
stances, hís status as a resíííent of the Uníted States for Federaí
íncome ta purposes untíí the períod covered by hís reentry permít
or any e tensíon thereof has e píred, or untíí some defíníte actíon
ís taken by hím whích shows that he has abandoned hís resídence
ín the Uníted Síates.
dvíce ís requested reíatíve to the status for Federaí íncome ta
purposes of aííens who are abroad and who hoíd vaííd permíts to re-
enter the Uníted States. The precíse questíon presented ís whether
resídent aííens who obtaíned reentry permíts príor to theír departure
from the Uníted States shouíd be treated as resídent aííens for
Federaí íncome ta purposes untíí the e píratíon of the períod of
tíme granted for reentry or of such períod as e tended.
The íncome of a resídent aííen ís sub|ect to Federaí íncome ta even
though such íncome ís deríved ín whoíe or ín part from sources wíth-
out the Uníted States. (See sectíons 29.11-2 and 29.211-1 of Reguía-
tíons 111.) Thís ís true notwíthstandíng the fact that the aííen may
be absent from the Uníted States duríng the entíre ta abíe year or
years or for oníy a portíon of the ta abíe year. (See Federíco Staíí-
forth v. Commíssíoner, 30 . T. . 6, affírmed, 77 Fed. (2d) ,
certíorarí deníed. 296 U. S. 606; L. . L. Thomas v. Commíssíoner, 33
. T. . 72 ; Waíter . aer y. Commíssíoner, 6 T. C. 119 .)
Sectíon 29.211- of Reguíatíons 111 provídes ín part as foííows:
n aííen who has acquíred resídence ín the Uníted States retaíns hís status
as a resídent untíí he abandons the same and actuaííy departs from the Uníted
States. n íntentíon to change hís resídence does not change hís status as a
resídent aííen to that of a nonresídent aííen.
It appears from the above that a resídence ín the Uníted States,
once acquíred, ís not íost e cept through a physícaí departure from
the Uníted States coupíed wíth an íntentíon to abandon the Uníted
States resídence. Such íntentíon may be ascertaíned from the per-
son s decíaratíons and hís acts. It ís weíí estabííshed that the ques-
tíon of resídence ís one to be determíned by aíí of the facts and
círcumstances ín each case.
Under the ímmígratíon íaws of the Uníted States, an aííen about
to depart temporarííy from the Uníted States may make appíícatíon
to the Commíssíoner of the Immígratíon and Naturaíízatíon Servíce
for a permít to reenter the Uníted States, and the vaíídíty of such
permít may be e tended for such períod or períods, and under such
condítíons, as shaíí be by reguíatíons prescríbed. The íssuance of
such a permít to an aííen íawfuííy admítted to the Uníted States for
permanent resídence has no effect under the ímmígratíon íaws e cept
to show that the aííen to whom ít ís íssued íntends to depart from the
Uníted States for a temporary vísít abroad. The íength of tíme an
aííen ís absent from the Uníted States ís not aíone determínatíve of
whether he ís returníng from a temporary vísít abroad. (See L. .L.
Thomas v. Commíssíoner, 33 . T. . 72 ,736.) In Serpíco v. Trudeíí
( 6 Fed. (2d) 669), an aííen went abroad ín 191 to compíete hís
educatíon, íeavíng hís parents and other members of hís famííy ín
the Uníted States. In 192 , after the compíetíon of hís educatíon,
he sought to return to the Uníted States. It was heíd that aíthough
he had been absent 11 years he was returníng from a temporary vísít
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
9
1 29.391-1.
abroad and was entítíed to be admítted to the Uníted States. (See
L. . L. Thomas v. Commíssíoner, supra.)
ccordíngíy, ít ís heíd that an aííen who acquíred resídence ín the
Uníted States and who upon íeavíng the Uníted States obtaíned a
vaííd permít to reenter the Uníted States retaíns, ín the absence of
e ceptíonaí círcumstances, hís status as a resídent of the Uníted States
for Federaí íncome ta purposes untíí the períod covered by hís re-
entry permít or any e tensíon thereof has e píred. ceptíonaí cír-
cumstances míght be shown by proof of acts and statements of the
aííen showíng that sínce the date of íssuance of the reentry permít or
the date of the íast renewaí thereof he has taken steps to acquíre a
resídence eísewhere, or proof that the aííen has appííed for cítízenshíp
ín some other country sínce the date of íssuance of the reentry permít
or the date of the íast renewaí thereof, or some other proof of defíníte
actíon on the part of the aííen whích shows that he has abandoned hís
resídence ín the Uníted States.
SUPPL M NT S. € ” T OF S R OLD RS OF P RSON L S R IC CORPOR TIONS
S CTION 391. € ” PPLIC ILITY OF SUPPL M NT
Sectíon 29.391-1: ppíícabíííty of Suppíe- 19 1-23-13702
ment S. T. D. 63
( íso Sectíon 393, Sectíon 29.393-1; Sectíon
39 , Sectíon 29.39 -1.)
TITL 26 € ” INT RN L R NU . € ” C PT R I, SU C PT R . P RT 20. € ”
INCOM T ; T I ; Y RS GINNING FT R D C M R 31. 19 1
Reguíatíons 111 amended to conform to sectíon 30 of the cess
Profíts Ta ct of 1900 (Pubííc Law 909, 1st Cong.), approved
anuary 3, 19 1.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C.
To Coííectors of Internaí Revenue and Others Concerned:
On uíy 2 , 19 1, notíce of proposed ruíe makíng regardíng the
amendment of Reguíatíons 111 to conform to sectíon 30 (f) and (g)
of the cess Profíts Ta ct of 19 0 (Pubííc Law 909, 1st Cong.),
approved anuary 3, 19 1, was pubííshed ín the Federaí Regíster
(16 F. R. 72 ). No ob|ectíon to the ruíes pubííshed havíng been
receíved, the amendments set forth beíow are hereby adopted.
Paragraph 1. There ís ínserted ímmedíateíy precedíng sectíon
29.391-1 26 CFR 29.391-1 and sectíon 29.396-1 26 CFR 29.396-1
the foííowíng:
S C. 30 . T C NIC L M NDM NTS C SS PROFITS T
CT OF 19 0, PPRO D NU RY 3, 19 1 .
€ €
(f) Suppíement S of chapter 1 of such Internaí Revenue Code ís
hereby amended by stríkíng out sectíon 72 wherever appearíng
thereín and ínsertíng ín ííeu thereof sectíon 9 .
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.393-1.
96
(g) The amendments made by thís sectíon shaíí be appíícabíe wíth
respect to ta abíe years endíng after une 30,1930.
Par. 2. Sectíon 29.391-1 26 CF 29.391-1 ís hereby amended as
( ) y stríkíng out (as defíned ín sectíon 72 and the reguíatíons
thereunder) and (See sectíon 72 (b)) .
( ) y addíng at the end of the sectíon the foííowíng sentences:
For defínítíon of a personaí servíce corporatíon and for method of íectíon for
ta abíe years to whích the e cess profíts ta ímposed by subchapter D of chap-
ter 1 of the Internaí Revenue Code ís appíícabíe, see sectíon 9 and the regu-
íatíons thereunder. For such defínítíon and the metboí of eíectíon for ta abíe
years to whích the e cess profíts ta ímposed by subchapter of chapter 2 of
the Code was appíícabíe, see sectíon 72 and the reguíatíons thereunder.
Par. 3. Sectíon 29.393-1, as amended by Treasury Decísíon
C. . 19 , , , approved une 1 , 19 26 CFR 29.393-1 ís
( ) y stríkíng cut 19 2 ín the e ampíe at the end of the sectíon
and substítutíng ín ííeu thereof 19 1 .
( ) y stríkíng out 76,000 , 9 ,000 and 106,000 ín the
e ampíe at the end of the sectíon and substítutíng ín ííeu thereof,
respectíveíy, wherever appearíng thereín, S3, 00; , 6,200 , and
ííS 00
Par. . Sectíon 29.39 -1 26 CFR 29.39 -1 ís hereby amended by
stríkíng out that portíon of the fírst sentence whích precedes the
undístríbuted Suppíement S net íncome and substítutíng ín ííeu
thereof the foííowíng:
If a personaí servíce corporatíon ís e empt from the e cess profíts ta ímposed
under subchapter D of chapter 1 of the Internaí Revenue Cede for any ta abíe
year by reason of an eíectíon under sectíon 9, or ís e empt from the e cess
profíts ta ímposed under subchapter of chapter 2 for any ta abíe year
begínníng before anuary 1, 19 6, by reason of an eíectíon under sectíon 72 ,
(Thís Treasury Decísíon ís íssued under the authoríty contaíned ín
sectíon 62 of the Internaí Revenue Code ( 3 Stat. 32, 26 U. S. C. 62)
and correspondíng provísíons of príor ínternaí revenue íaws.)
Fred S. Martín ,
ctíng Commíssíoner of Internaí Revenue.
pproved October 2 . 19 1.
Thomas . Lynch,
ctíng Secretary of the Treasury.
(Fííed wíth the Dívísíon of the Federaí Regíster October 30,19 1, : 3 a. m.)
S CTION 393. € ” SUPPL M NT S N T INCOM
Sectíon 29.393-1: Suppíement S net íncome.
foííows:
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. 63, page 9 .)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
97 0. 61-1.
S CTION 39 . € ” CORPOR TION INCOM T D TO
S R OLD RS
Sectíon 29.39 -1: Ta abíííty of sharehoíders.
INT RN L R NU COD
Reguíatíons 111 amended. (See T. D. S63, page 9 .)
SU C PT R D. € ” C SS PROFITS T
P T II. € ” C SS PROFITS CR DIT S D ON INCOM IN CONN CTION WIT
C RT IN C NG S
S CTION 61. € ” D FINITIONS
Sectíon 0. 61-1, Reguíatíons 130: Purpose 19 1-2 -1371S
and scope of Part II. T. D. S6
TITL 26 € ” INT RN L R NU . € ” C PT R I, SU C PT R . T RT 0. € ”
C SS PROFITS T S ; 1 L Y RS NDING FT R UN 30, 19 0
Part II of the cess Profíts Ta ct of 19 0 € ” cess profíts
credít based oa íncome ín connectíon wíth certaín e changes.
Tbeascry Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C.
To Coííectors of Internaí Revenue and Others Concerned:
On ugust 16, 13 1, notíce of proposed ruíe makíng was pubííshed
ín the Federaí Regíster (16 F. R. 11 ). ín order to conform Reguía-
tíons 130 26 CFR. part 0 to Part II of the cess Profíts Ta ct
of 19 0, approved anuary 3, 19 1, whích part, consístíng of sectíons
61 through 6 of the Internaí Revenue Code, ís set forth ín Reguía-
tíons 130 ímmedíateíy after sectíon 0. S-3. fter consíderatíon of
aíí such reíevant matter as was presented by ínterested persons regard-
íng the proposaí, the amendments to Reguíatíons 130 26 CFR, part
0 set forth beíow are hereby adopted.
Paragraph 1. There ís ínserted ímmedíateíy after sectíon 61, the
foííowíng:
Sec. 0. 61-1. Pcbpose and Sccpe of Paíít II. € ” (a) The term Part II when
used ín these reguíatíons, means sectíons 61 through 0 . Part II provídes
ruíes appíícabíe to the use of the e cess profíts credít based on íncome and the
method of computíng such credít, ín the case of acquíríng corporatíons and
of component corporatíons. n acquíríng corporatíon ís a domestíc corpora-
tíon whích has acquíred property from a domestíc corporatíon, partnershíp, or
soíe propríetorshíp ín a transactíon meetíng the requírements set forth ín sec-
tíon 61(a), whích transactíon ís sometímes referred to ín these reguíatíons
as a Part II transactíon. ach corporatíon, partnershíp, or soíe propríetorshíp
the propertíes of whích are acquíred by a corporatíon ín a transactíon descríbed
ín sectíon 61(a) ís desígnated a component corporatíon of the acquíríng corpora-
tíon. Furthermore, specíaí ruíes are províded for the case ín whích an acquír-
íng corporatíon íater becomes a component corporatíon oí another acquíríng
corporatíon. foreígn corporatíon cannot be an acquíríng corporatíon, and
neíther a foreígn corporatíon, a foreígn partnershíp, nor a foreígn soíe pro-
príetorshíp can be a component corporatíon.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
S 0. 61-1.
9
(b) Part II provídes the ruíes for determíníng the base períod e períence
and the capítaí changes of the transferee corporatíon by reference to the íncome
e períence and the capítaí changes of the transferor. For certaín purposes.
Part II treats an acquíríng corporatíon whích was not actuaííy ín e ístence for
part or aíí of íts base períod as havíng been ín e ístence and havíng had ta abíe
years for the períod duríng whích íts component corporatíon was actuaííy ín
e ístence. Specíaí ruíes are províded for appíyíng sectíon 3 (e), 2, 3, ,
, or 6. Part II ís aíso appíícabíe to component corporatíons.
(c) very corporatíon whích ís a party to a Part II transactíon, whether
as an acquíríng corporatíon or as a component corporatíon, must compute íts
e cess profíts credít based on íncome un.íer the provísíons of Part II. owever,
ín certaín cases specífícaííy set forth ín sectíon 62 (b) and (c), the average
base períod net íncome of an acquíríng corporatíon determíned under the gen-
eraí average method of sectíon 3 (d) or under the growth aíternatíve of sec-
tíon 3 (e), may be determíned unríer Part II eíther wíth or wíthout reference
to the recomputatíon of e cess profíts net íncme under Part II, dependíng
upon whíchever determínatíon produces the íesser e cess profíts ta . No
símííar aíternatíve ís avaííabíe ín the case of a component corporatíon or ín the
case of an acquíríng corporatíon computíng íts average base períod net íncome
under an aíternatíve method províded ín sectíon 2, 3, , , or 6. In
any case ín whích the determínatíon of the average base períod net Income of
the acquíríng corporatíon Is made wíthout reference to the recomputatíon of
e cess profíts net íncome under Part II. the base períod capítaí addítíon and
the net capítaí addítíon or reductíon of the acquíríng corporatíon shaíí not be
ad|usted nnder art II.
Sec. 0. 61-2. cquíríng Corporatíons. € ” (a) The types of transactíons
whereby a corporatíon becomes an acquíríng corporatíon are specífíed ín sec-
tíon 61(a). In addítíon to statutory mergers and consoíídatíons and the ac-
quísítíon of property ín a compíete ííquídatíon ín whích gaín or íoss ís not
recognízed because of the provísíons of sectíon 112(b)(6), oníy the foííowíng
types of transactíons are íncíuded:
(1) Under sectíon 61(a)(1)( ), the acquísítíon by one corporatíon, ín e -
change ín whoíe or ín rnrt for aíí of íts stock (e cept quaíífyíng shares) of
aíí cíasses, of substantíaííy aíí the propertíes of another corporatíon. See sec-
tíon 112(g) (1) (D).
(2) Under sectíon 61(a)(1)( ), the acquísítíon by one corporatíon. In e -
change soíeíy for aíí or a part of íts votíng stcck, of substantíaííy aíí the
propertíes of another corporatíon: but, ín determíníng whether the e change
ís soíeíy for votíng stock, the assumptíon 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. See sectíon 112(g) (1) (C).
(3) Under sectíon 61(a)(1)(C). the acquísítíon before December 1. 19 0,
by one corporatíon of propertíes of another corporatíon soíeíy as paíd-ín sur-
píus or as a contríbutíon to capítaí ín respect of votíng stock of the aequ ríng
corporatíon owned by the transferor corporatíon; but, ín determíníng whether
the acquísítíon ís soíeíy as paíd-ín surpíus or as a contríbutíon to capítaí, the
assumptíon 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. In thís
type of transactíon the transferor -corporatíon must be forthwíth compíeteíy
ííquídated pursuant to the pían under whích the transfer of propertíes was
made and the transactíon of whích the transfer ís a part must have the effect
of a statutory merger or consoíídatíon.
( ) Under sectíon 61(a)(1)(D), the acquísítíon of substantíaííy aíí the
propertíes of a partnershíp ín an e change to whích sectíon 112(b)( ), or so
much of sectíon 112 (c) or (e) as refers to sectíon 112(b)( ), ís appíícabíe.
For the purpose of thís paragraph, each busíness owned by a soíe propríetor-
shíp shaíí be consídered as owned by a separate partnershíp. For thís purpose,
the term busíness means a goíng busíness unít for whích adequate and separate
records were maíntaíned.
( ) Under sectíon 61(a) (1) ( ), the acquísítíon of a part, as dístínguíshed
from aíí or substantíaííy aíí, of the propertíes of a corporatíon (other than
a corporatíon e empt under sectíon 101) or of a partnershíp ín an e change,
not otherwíse descríbed ín thís sectíon or sectíon 01(a), to whích sectíon
112(b) ( ) or 112(b) ( ), or so much of sectíon 112 (c) or (e) as refers to sec-
tíon 112(b)( ) or 112(b)( ), ís appíícabíe. Types of transactíons under sec-
tíon 61(a)(1)( ) íncíude: (í) The transfer by the component corporatíon
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
09
0. G1-1.
of a part of Its propertíes to an acquíríng corporatíon and the retentíon of the
remaíníng part by the component corporatíon; (íí) The transfer of aíí or sub-
stantíaííy aíí of the propertíes of a component corporatíon to two or more
separate acquíríng corporatíons; and (ííí) The transfer of part of the propertíes
to two or more separate acquíríng corporatíons and the retentíon of the re-
maíníng part by the component corporatíon. transactíon whích quaíífíes as
a Part II transactíon wíthout regard to sectíon 61(a) (1) ( ), ís not a trans-
actíon descríbed ín sectíon 61(a)(1)( ) for the purpose of any specíaí ruíe
under Part II pertaíníng to transactíons descríbed ín sectíon 61(a) (1) ( ).
(b) The types of transactíons set forth In sectíon 61(a), other than those set
forth ín sectíon 01(a)(1)(C), eíther are embraced wíthín the defínítíon of a
reorganízatíon contaíned ín sectíon 112(g)(1), are transfers to a controííed
corporatíon wíthín the meaníng of sectíon 112(b) ( ) and reíated sectíons, or are
compíete ííquídatíons wíthín the meaníng of sectíon 112(b)(6). Sínce Part II
appííes oníy to eases where there ís a suffícíent contínuíty of ínterest to |ustífy
treatíng a corporatíon whích has acquíred the assets of another corporatíon, a
partnershíp, or a busíness owned by a soíe propríetorshíp, as standíng ín the
píace of íts predecessor, such transactíons must satísfy aíí the requírements of
the reguíatíons prescríbed under sectíon 112 wíth respect to such transactíons ín
order that the transferee corporatíon may be treated as an acquíríng corporatíon.
The fact that the property transferred consísts soíeíy of cash wííí not prevent the
transactíon from quaíífyíng as a transfer to whích sectíon 112(b) ( ) ís
appíícabíe.
Sec. 0. 61-3. Component Cobpobatío s. € ” (a) In generaí. € ” (1) Sectíon
61 (c) (1). € ” If a corporatíon ís a component corporatíon ín a transactíon de-
scríbed ín sectíon 61(a) (other than a transactíon descríbed ín sectíon
61(a)(1)( )), íts base períod e períence for the períod before the day after
such transactíon ís made avaííabíe to the acquíríng corporatíon ín such trans-
actíon or to an acquíríng corporatíon of whích the fírst acquíríng corporatíon ís a
component corporatíon. If such component corporatíon remaíns ín e ístence,
ít wííí not (after the transactíon) receíve any benefít from íts e períence on the
day of and príor to such transactíon, nor can íts e períence on the day of and
príor to such transactíon be mcdc avaííabíe to anotner acquíríng corporatíon ín a
subsequent Part II transactíon ínvoívíng such component corporatíon, regard-
íess of whether the fírst acquíríng corporatíon actuaííy utííízes such e períence.
owever, the base períod e períence of the component corporatíon occurríng
after such fírst transactíon may be avaííabíe to another acquíríng corporatíon
ín a subsequent Part II transactíon ínvoívíng such component corporatíon. The
same ruíes are appíícabíe to the capítaí changes of the component corporatíon.
These ruíes are appíícabíe to each successíve Part II transactíon descríbed ín
sectíon 61(a) (other than a transactíon descríbed ín sectíon 61(a)(1)( )).
Sectíon 01(c) (1) appííes to aíí such types of Part II transactíons, whether or
not compíete ííquídatíon of the component corporatíon ís specífícaííy requíred ín
connectíon therewíth.
(2) Sectíon |61 (c) (3). € ” If a corporatíon ís a component corporatíon ín a trans-
actíon descríbed ín sectíon 61(a)(1)( ), íts base períod e períence for the
períod before the day after such transactíon, tc the e tent aííocabíe to the proper-
tíes transferred, ís made avaííabíe to the acquíríng corporatíon ín such trans-
actíon or to an acquíríng corporatíon of whích the fírst acquíríng corporatíon ís a
component corpo-atíon. If the component corporatíon remaíns ín e ístence,
ít wííí not (after the transactíon) receíve any benefít from that portíon of íts
base períod e períence whích It made avaííabíe to the acquíríng corporatíon,
regardíess of whether the acquíríng corporatíon actuaííy utííízes such e períence.
Furthermore, oníy that part of the e períence whích ís not made avaííabíe to the
acquíríng coípuratíon may be avaííabíe to another acquíríng corporatíon ín
a subsequent Part II transactíon ínvoívíng such component corporatíon. ow-
ever, any part of the base períod e períence of the component corporatíon occur-
ríng after such fírst transactíon may be avaííabíe to another acquíríng corpora-
tíon ín a subsequent Part II transactíon ínvoívíng such component corporatíon.
The same ruíes are appíícabíe to the capítaí changes of the component corpora-
tíon. These ruíes are appíícabíe to each successíve Part II transactíon descríbed
In sectíon 01(a) (1) ( ).
(b) Ruíes for appíícatíon of sectíon 61(c). € ” (1) For ta abíe years of the
compouent corporatíon begínníng after the Part II transactíon (uníess such
transactíon ís descríbed ín sectíon 01(a) (1) ( ), ín whích case see (3) and ( )
beíow), the e cess profíts credít based on íncome of the component corporatíon
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-1.
100
shaíí be determíned wíthout regard to íts base períod e períence for the períod
endíng wíth the day of the Part II transactíon and wíthout regard to the capítaí
changes of the component corporatíon occurríng before such transactíon. Thus,
ín such cases, any computatíons whích sectíon 3 (f), reíatíng to the base períod
capítaí addítíon, requíres to be made as of a tíme precedíng the transactíon shaíí,
ínstead, be made as of the tíme ímmedíateíy after the transactíon. Símííaríy,
ín computíng the net capítaí addítíon or reductíon, íf the transactíon occurs
after the begínníng of the fírst ta abíe year endíng after une 30, 19 0, the com-
putatíons whích sectíon 3 (g) requíres o be made as of the fírst day of such
ta abíe year shaíí, ínstead, be made as of the tíme ímmedíateíy after the
transactíon.
(2) For the ta abíe year of the component corporatíon ín whích occurs the
Part II transactíon (other than a transactíon descríbed ín sectíon 61(a) (1) (. ),
ín whích case, see (3) and ( ) beíow), íf such ta abíe year ends after une 30,
10 0, and íf the component corporatíon does not termínate íts e ístence ín such
transactíon, the average base períod net íncome and the base períod capítaí
addítíon of the component corporatíon shaíí be íímíted to amounts whích are
the same portíons of íts average base períod net íncome and íts base períod
capítaí addítíon, respectíveíy, as the number of days ín such ta abíe year before
the day after such transactíon ís of the totaí number of days ín such ta abíe
year. The net capítaí addítíon or reductíon, as the case may be, for such ta -
abíe year shaíí be the sum of the foííowíng amounts (or the dífference between
such amounts íf one amount ís a net capítaí addítíon and the other amount ís a
net capítaí reductíon) :
(í) n amount whích bears the same ratío to the net capítaí addítíon or
reductíon computed as íf the ta abíe year ended on the day of the trans-
actíon as the number of days ín the portíon of the ta abíe year endíng wíth
the day of the transactíon bears to the totaí number of days ín the ta abíe
year, and
(íí) n amount whích bears the same ratío to the net capítaí addítíon
or reductíon computed under (1), above, as íf the ta abíe year began on
the day after such transactíon as the number of days ín the ta abíe year
after the day of the transactíon bears to the totaí number of days ín the
ta abíe year.
If the component corporatíon Is, by reason of the transactíon, entítíed to appíy
sectíon , It may Incíude ín íts e cess profíts credít a portíon (determíned on
the basís of the number of days ín the ta abíe year after the transactíon) of
the e cess profíts credít determíned by the appíícatíon of sectíon . See sec-
tíon 0. 61- (b) for the ruíes appíícabíe In any such case. If the component
corporatíon goes out of e ístence on the day of such Part II transactíon wíth
the resuít that íts ta abíe year ends on the day of such transactíon, the com-
ponent corporatíon for the purpose of computíng íts e cess profíts credít for
such year ís not requíred to prorate íts average base períod net íncome or íts
base períod capítaí addítíon and ís not requíred to recompute íts net capítaí
addítíon or reductíon. (For a correspondíng provísíon In the case of the acquír-
íng eorporatíon and for an íííustratíon of the appíícatíon of such correspondíng
provísíon and of sectíon 61(c) (2), see sectíon 62(|) (2) and sectíon 0. 62-11.)
(3) For ta abíe years of the component corporatíon begínníng after a Part II
transactíon descríbed ín sectíon 61(a) (1) ( ) (that ís, a transactíon ínvoívíng
a transfer of oníy a part, as dístínguíshed from a transfer of aíí or substantíaííy
aíí, of the propertíes of the component corporatíon), the e cess profíts credít
based on Income of the component corporatíon shaíí be determíned wíthout
regard to that portíon of íts base períod e períence for the períod endíng wíth
the day of . : Part II transactíon whích ís aííocabíe to the acquíríng corpora-
tíon, and wíthout regard to that portíon of the capítaí changes of the component
corporatíon occurríng before such transactíon whích Is aííocabíe to the acquír-
íng corporatíon. See sectíon 0. 61-7 for the method of appíyíng thís ruíe.
( ) For the ta abíe year of the component corporatíon ín whích occurs a
Part II transactíon descríbed In sectíon 61(a) (1) ( ) (that Is, a transfer by
the component corporatíon of oníy a part, as dístínguíshed from aíí or substan-
tíaííy aíí, of Its propertíes), íf such ta abíe year ends after une 30, 19 0, the
average base períod net íncome of the component corporatíon shaíí be íímíted
to the sum of (í) an amount whích ís the same portíon of íts average bas períod
net íncome as the number of days ín such ta abíe year before the day after such
transactíon Is of the totaí number of days In such ta abíe year, and (íí) an
amount whích ís the same portíon of íts average base períod net íncome aííocabíe
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
101
0. 61-1.
to ít after the appíícatíon of (3), above, as the number of days ín such ta abíe
year after the day of such transactíon ís of the totaí number of days ín such
ta abíe year. símííar ruíe appííes wíth respect to the base períod capítaí
addítíon of the component corporatíon. The net capítaí addítíon or reductíon,
as the case may be, for such ta abíe year shaíí be the sum of the foííowíng
amounts (or the dífferences between such amounts íf one amount ís a net capítaí
addítíon and the other amount ís a net capítaí reductíon) :
(í) n amount whích bears the same ratío to the net capítaí addítíon or
reductíon computed as íf the ta abíe year ended on the day of the transac-
tíon as the number of days ín the portíon of the ta abíe year endíng wíth
the day of the transactíon bears to the totaí number of days ín the ta nbíe
year, and
(íí) n amount whích bears the same ratío to the net capítaí addítíon or
reductíon computed under (3) of thís sectíon as íf the ta abíe year began
on the day after such transactíon as the number of days ín the ta abíe year
after the day of the transactíon bears to the totaí number of days ín the
ta abíe year.
( ) Sectíon 61(c) provídes that the acquíríng corporatíon shaíí not take ínto
account, for the purpose of determíníng Its average base períod net íncome, the
base períod e períence of the component corporatíon for any períod begínníng
wíth the day after the Part II transactíon.
(c) Proratíon of e cess profíts net íncome. € ” If the Part II transactíon, e cept
a transactíon descríbed ín sectíon 61(a) (1) ( ), occurred ín a ta abíe year of
the component corporatíon begínníng wíth or wíthín íts base períod, the e cess
profíts net íncome of such component corporatíon for the portíon of the ta abíe
year after the transactíon and for the príor portíon of the ta abíe year (whích
príor portíon ís to be taken ínto account oníy by the acquíríng corporatíon ín such
transactíon) shaíí be computed on the basís of íts íncome as shown by íts books
íf the accounts are so kept that e cess profíts net íncome for each of such portíons
can be cíearíy and accurateíy determíned. If the accounts are not so kept, the
e cess profíts net íncome for the portíon of the ta abíe year after the transactíon
shaíí be consídered to be an amount whích bears the same ratío to the e cess
profíts net íncome for such ta abíe year as the number of days ín such ta abíe
year after such transactíon benrs to the totaí number of days ín such ta abíe
year, and the e cess profíts net íncome for the príor portíon of such ta abíe
year shaíí be consídered to be the baíance of the e cess profíts net íncome for
such ta abíe year. owever, íf ítems of íncome and deductíon are cíearíy and
accurateíy determíned to be attríbutabíe to partícuíar portíons of the ta abíe
year, such ítems may be eíímínated before the above proratíon ís made, and
after the proratíon ís made such ítems wííí be added to (íf ítems of íncome)
or deducted from (íf deductíbíe ítems) the e cess profíts net íncome determíned
by the proratíon for the períod to whích such ítems are attríbutabíe.
(d) ampíe of appíícatíon of sectíon 61 c) (I) and (2). € ” The appíícatíon
of the provísíons of sectíon 61(c) (1) and (2) may be íííustrated by the foííow-
íng e ampíe:
ampíe. The Corporatíon, the Corporatíon, and the C Corporatíon,
whích corporatíons make theír íncome ta returns on the caíendar year basís,
commenced busíness before anuary 1, 19 6. On December 31, 19 7, the
Corporatíon acquíred the propertíes of the Corporatíon ín a transactíon de-
scríbed ín sectíon 61(a)(1)( ). The Corporatíon subsequentíy converted
ínto new propertíes the stock of the Corporatíon whích ít receíved ín such
transactíon. It operated such new propertíes untíí October 19, 19 1, when they
were transferred to the C Corporatíon ín a transactíon descríbed ín sectíon
61(a) (1) ( ). The Corporatíon contínued ín busíness throughout 19 1 and
19 2, operatíng propertíes whích ít purchased wíth the proceeds of the conver-
síon of the stock receíved ín the second transactíon. The operatíon of sectíon
61(c) (1) and (2) ís as foííows:
(1) s to the Corporatíon. In determíníng íts average base períod net
íncome under Part II for the purpose of the e cess profíts ta for 19 0 and íater
e cess profíts ta ta abíe years, the Corporatíon takes ínto account the
Corporatíon s base períod e períence for 19 6 and 19 7. Inasmuch as the trans-
actíon ínvoívíng the Corporatíon occurred príor to 19 , there ís no base períod
capítaí addítíon of the Corporatíon that couíd be transferred to the Cor-
poratíon. See sectíon 6 and sectíon 0. 6 -1.
(2) s to the Corporatíon. In determíníng íts average base períod net
íncome for the purpose of íts e cess profíts ta for 19 0, the Corporatíon
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-1.
102
takes ínto account íts base períod e períence for 19 and 19 9, but cannot
use íts base períod e períence for 19 6 and 19 7. The Corporatíon takes ínto
account, for the purpose of computíng íts e cess profíts credít for 19 1, oníy
four-fífths (the ratío of the number of days ín the períod anuary 1, 19 1 to
October 19, 19 1, íncíusíve (292), over the number of days ín 19 1 (36 )) of
íts average base períod net íncome determíned wíthout regard to íts base períod
e períence for 19 6 and 19 7. The Corporatíon aíso takes ínto account for
such purpose for 19 1 oníy four-fífths of íts base períod capítaí addítíon. See
(b) (2) of thís sectíon for the computatíon of the net capítaí addítíon |r reduc-
tíon for 19 1. owever, such corporatíon may be entítíed to compute íts average
base períod net íncome under sectíon as a new corporatíon, sínce for the
purpose of that sectíon a corporatíon that transfers substantíaííy aíí of íts
propertíes ín a Part II transactíon ís deemed not to have commenced busíness
untíí after the day of such transactíon. See sectíon 61(d). ssumíng that the
Corporatíon may quaíífy under Sectíon as a new corporatíon wíth respect
to both Part II transactíons (the one on December 31, 19 7, and the one on
October 19, 19 1) ít wííí compute íts e cess profíts credít for 19 1 by takíng ínto
account four-fífths of íts e cess profíts credít determíned by appíyíng sectíon
as íf ít commenced busíness on the day after the fírst Part II transactíon
(and ended íts ta abíe year on October 19, 19 1), and one-fífth of íts e cess
profíts credít determíned by appíyíng sectíon as íf ít commenced busíness
on the day after the second Part II transactíon (and as íf íts ta abíe year be-
gan on October 20, 19 1). See sectíon 0. 61-í(b). The Corporatíon wííí
be entítíed to use the credít based on Invested capítaí íf such credít resuíts ín
íess ta . The Corporatíon determínes íts e cess profíts credít for 19 2, wíth-
out regard to Its base períod e períence, íts base períod capítaí addítíon, íf any,
and íts net capítaí addítíons or reductíons príor to the transactíon on October
19, 19 1. Thus, for the purpose of sectíon 3 (g) (3) t, ), íts equíty capítaí at
the begínníng of anuary 1, 19 2, Is compared wíth íts equíty capítaí at the
begínníng of October 20, 19 1.
(3) s to the C Corporatíon. Sectíon 61(c) fírst affects the C Corporatíon
wíth respect to 19 1. In determíníng íts average base períod net Income under
Part II for the purpose of íts e cess profíts ta for that year, the C Corporatíon
takes ínto account one-fífth of the Corporatíon s base períod e períence for
19 S and 19 9 and one-fífth of íts base períod capítaí addítíon. See sectíon
62(|)(2) and sectíon 0. 62-11. In determíníng the C Corporatíon s average
base períod net íncome under Part II for the purpose of íts e cess profíts ta
for 19 2, the C Corporatíon takes ínto account aíí of the Corporatíon s base
períod e períence for 19 and 19 9. Sínce the C Corporatíon commenced busí-
ness before anuary 1, 19 6, ít may not use any average base períod net íncome
of the Corporatíon determíned under sectíon by reference to the fírst
Part II transactíon, e cept to the e tent that such average bnse períod net
íncome may be avaííabíe to the C Corporatíon under sectíons 0. 62-3(c) and
1. 62-11. For computatíons by the C Corporatíon ínvoívíng the Corporatíon s
capítaí addítíons and reductíons, see sectíon 63, sectíon 0. 63-1, sectíon 6 ,
and sectíon 0. 6 -1.
(e) ampíe of appíícatíon of sectíon 61(c) (S) and ( ). € ” The appíícatíon
of the provísíons of sectíon 61(c) (3) and ( ) may be íííustrated by the foííow-
íng e ampíe:
ampíe. The Corporatíon and the Corporatíon, whích corporatíons
make theír íncome ta returns on :he caíendar year basís, commenced busíness
before anuary 1, 19 6. On December 31, 19 7, the Corporatíon acquíred
part of the propertíes of the Corporatíon ín a transactíon descríbed In sectíon
61(a)(1)( ). The Corporatíon subsequentíy converted ínto new proper-
tíes the stock ín the Corporatíon whích ít receíved ín such transactíon. It
operated such new propertíes, together wíth the retaíned part of íts oíd prop-
ertíes, untíí October 19, 19 1, when, ín a transactíon descríbed ín sectíon 61(a)
(1) ( ), ít transferred part of íts propertíes to the C Corporatíon, a corpora-
tíon created íncídent to the transactíon. The Corporatíon contínued ín busí-
ness throughout 19 1 and 19 2. The operatíon of sectíon 61(c) (3) and ( )
ís as foííows:
(1) s to the Corporatíon. In determíníng Its average base períod net
íncome under Part II for the purpose of the e cess profíts ta for 19 0 and
íater e cess profíts .ta ta abíe years, the Corporatíon takes ínto accrunt
that portíon of the Corporatíon s base períod e períence for 19 6 and 1017
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
103
0. G1-1.
whích Is aííocabíe under sectíon 62(1) and sectíon 0. 62-9 to the propertíes
whích the Corporatíon transferred to the Corporatíon. Inasmuch as the
transactíon ínvoívíng the Corporatíon occurred príor to 19 , there ís no
base períod capítaí addítíon of the Corporatíon that couíd be transferred to
the Corporatíon. See sectíon 6 and sectíon 0. 6 -1.
(2) s to the Corporatíon. In determíníng íts average base períod net
íncome for the purpose of íts e cess profíts ta for 19 0, ít takes ínto account
íts entíre base períod e períence for 19 S and 19 9, and that portíon of íts base
períod e períence for 19 6 and 19 7 whích ís aííocabíe under sectíon 62(í)
and sectíon 0. 62-9 to the propertíes retaíned by the Corporatíon. Inasmuch
as the transactíon ínvoívíng the Corporatíon occurred príor to 19 S, the base
períod capítaí addítíon of the Corporatíon ís not affected by the transactíon.
The Corporatíon takes ínto account, for the purpose of computíng íts e cess
profíts credít for 19 1, the sum of the foííowíng: (1) an amount whích ís
four-fífths (the ratío of the number of days ín the períod anuary 1, 19 1, to
October 19, 19 1, íncíusíve (292), over the number of days ín 19 1 (36 )), of íts
average ta.se períod net íncome determíned wíthout regard to that portíon of
íts base períod e períence for 19 6 and 19 7 whích ís aííocabíe to the Corpora-
tíon, and (íí) an amount whích ís one-fífth of that portíon of íts average base
períod net íncome so determíned under (í) as Is aííocabíe under sectíon 62(í)
ímd sectíon 0. 62-9 to the propertíes retaíned by the Corporatíon. símííar
determínatíon ís made wíth respect to the base períod capítaí addítíon of the
Corporatíon. See (b)( ) of thís sectíon for the computatíon of the net capítaí
addítíon or reductíon for 19 1. The Corporatíon wííí be entítíed to use the
credít based on ínvested capítaí íf such credít resuíts ín íess ta . The Cor-
poratíon determínes íts e cess profíts credít for 19 2 wíthout regard to those
portíons of íts base períod e períeuce, íts base períod capítaí addítíon, íf any,
and Its capítaí addítíons and reductíons príor to the transactíon on October 19,
19 1, as are aííocabíe to the Corporatíon or the C Corporatíon. Thus, for the
purpose of sectíon 3 (g) (3) ( ), proper ad|ustment shaíí be made ín determín-
íng the e cess of equíty capítaí at the begínníng of anuary 1, 19 2, over equíty
capítaí at the begínníng of anuary 1, 19 0.
(3) s to the C Corporatíon. Sectíon 61(c) fírst affects the C Corporatíon
wíth respect to 19 1. - In determíníng íts average base períod net íncome under
í art II for the purpose of íts e cess profíts ta for that year, the C Corporatíon
takes ínto account that portíon of the Corporatíon s base períod e períence
for 19 6 and 19 7 whích ís aííocabíe under sectíon 62(í) and sectíon 0. 02-9
to those propertíes of the Corporatíon whích were not transferred to the íí
Corporatíon, and whích ís aííocabíe to the propertíes of the Corportíon trans-
ferred to the C Corporatíon, and that portíon of the Corporatíon s base períod
e períence for 19 S and 19 9 whích ís aííocabíe under sectíon 02(1) and sectíon
0. 02-9 to the propertíes of the Corporatíon transferred to the C Corporatíon.
See sectíon 02(|) (2) and sectíon 0. 02-11 for the ruíes appíícabíe íf the ta abíe
year of the C Corporatíon began príor to October 19, 19 1, the date of the Part II
transactíon. The C Corporatíon s average base períod net íncome under Part II
for the purpose of íts e cess profíts ta for 19 2, ís símííaríy determíned e cept
that sectíon C2(|)(2) and sectíon 0. 02-11 are not appíícabíe. The C Cor-
poratíon ís not eíígíbíe to compute íts average base períod net íncome under
sectíon . See sectíons (g), 02(g) (3), nnd 0. 62-7. For computatíons
by the C Corporatíon ínvoívíng the Corporatíon s capítaí addítíons and reduc-
tíons, see sectíon G3. sectíon 0. 63-1, sectíon 6 , and sectíon 0. 6 -1.
Sec. 0. 61- . ístence of cquíríng and Component Corporatíons. € ” (a)
n acquíríng corporatíon ís consídered, for certaín purposes, to have been ín
e ístence and to have had ta abíe years for any períod duríng whích ít or any
of íts component corporatíons was ín e ístence and to have commenced busíness
on the earííest date on whích ít or any of íts component corporatíons commenced
busíness. cept as otherwíse e pressíy províded ín sectíon 02, the above
ruíe appííes for the purpose of sectíon 3 (e) (aíternatíve based on growth),
sectíon 2 (abnormaíítíes duríng base períod), sectíon 3 (change ín products
or servíces), sectíon (íncrease ín capacíty for productíon or operatíon),
sectíon (new corporatíons), and sectíon 0 (depressed índustry subgroups).
Thus, íf the component corporatíon (but not the acquíríng corporatíon) was ín
e ístence and commenced busíness before the fírst day of the base períod of the
acquíríng corporatíon, the acquíríng corporatíon wííí be consídered to have been
ín e ístence and to have commenced busíness príor to such fírst day, and sectíon
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-1.
10
3 (e), 2, 3, , or 0, but not sectíon , may (sub|ect to the ruíes of
sectíon C2) be appíícabíe to the acquíríng corporatíon. In the case of aa
acquíríng corporatíon whích becomes a component corporatíon of another acquír-
íng corporatíon, effect ís gíven to the constructíve e ístence of the fírst acquíríng
corporatíon ín determíníng the constructíve e ístence of the second acquíríng
corporatíon. Duríng the períod of constructíve e ístence, the ta abíe years of
the acquíríng corporatíon wííí be determíned on the basís of the annuaí accountíng
períod estabííshed for íts fírst ta abíe year of actuaí e ístence.
(b) cept for the purpose of (a) above, a component corporatíon In a Part
II transactíon, other than a transactíon descríbed ín sectíon 61(a) (11 ( ),
shaíí be deemed not to have been ín e ístence or to have commenced busíness
príor to the day after such Part II transactíon In determíníng the appíícabíííty
to such corporatíon after such transactíon of sectíon 3 (e), 2, 3, , ,
or 6. Under thís ruíe, a component corporatíon whích transferred substantíaííy
aíí of íts propertíes ín a Part II transactíon occurríng duríng or after íts base
períod may quaíífy for the benefíts of sectíon as a new corporatíon. If the
ta payer was a component corporatíon ín two or more Part II transactíons
(other than transactíons of a type descríbed ín sectíon 61(a) (1) ( )) occurríng
príor to the ta abíe year for whích the e cess profíts credít ís computed, then
for the purpose of determíníng the appíícabíííty of sectíon 3 (e), 2, 3, ,
1 , or 6, the component corporatíon shaíí be deemed not to have been ín e -
ístence nor to have commenced busíness príor to the day after the íast such
Part II transactíon. If the Part II transactíon occurs duríng a ta abíe year
endíng after une 30, 19 0, and íf the component corporatíon ís entítíed to ap-
píy sectíon 1 as íf It becan e ístence and commenced busíness on the day after
such transactíon, the e cess profíts credít of the component corporatíon for such
ta abíe year (íf determíned wíth such appíícatíon of sectíon ) shaíí be the
sum of the foííowíng amounts of e cess profíts credít, each such amount beíng
fírst reduced to an amount whích ís such portíon thereof as the number of days
ín the períod for whích such credít ís computed ís of the number of days ín the
ta abíe year ín whích the transactíon occurred:
(1) The e cess profíts credít determíned as íf the portíon of the ta abíe year
endíng on the date of snch transactíon were a ta abíe year, and determíned
wíthout resard to such appíícatíon of sectíon (but wíth regard to any símííar
appíícatíon of sectíon ín respect to a prevíous Part II transactíon) ; and
(2) The e cess profíts credít determíned wíth such appíícatíon of sectíon
as íf the portíon of the ta abíe year after the day of the transactíon were a
ta abíe year.
Sec. 0. 61- . Partnershíps and Soíe Propríetorshíps Under Part IT. € ”
partnershíp (or a busíness owned by a soíe propríetorshíp) can be a component
corporatíon ín certaín types of Part II transactíons. partnershíp may be a
component corporatíon oníy ín a sectíon 01 (a)(1) (D) or ( ) type transactíon.
See sectíon 61(b) ( ) and (6) and sectíon 0. 61-2(a) ( ) and ( ). busíness
owned by a soíe propríetorshíp can be a component corporatíon oníy ín a sectíon
61(a)(1)(D) type transactíon. See sectíon 61(f). partnershíp (or a
busíness owned by a soíe propríetorshíp) cannot be an acquíríng corporatíon
and, therefore, the base períod e períence of nny predecessor of a partnershíp
(or a busíness owned by a soíe propríetorshíp) ís not made avaííabíe to the
acquíríng corporatíon of whích such partnershíp (or such busíness) ís a com-
ponent corporatíon.
Sec. 0. 61-6. Component Corporatíon Whích: Was an cquíríng Corporatíon
ín a Prevíous Transactíon. € ” Sectíon 0. 62-1 (a) provídes the method by
whích an acquíríng corporatíon, ín a transactíon descríbed ín Part II, determínes
íts average base períod net íncome under sectíon 3 (c) for the purpose of the
e cess profíts credít based on íncome. In the event that such an acquíríng cor-
poratíon becomes a component corporatíon ín a subsequent Part II transactíon,
the ruíes set forth ín sectíon 62(a) and ín sectíon 0. 62-1 (a) are sub|ect to
the provísíons of sectíon 61 ( ) whích sectíon provídes that, for the purpose of
such subsequent Part II transactíon, € ”
(a) If the subsequent Part II transactíon occurs príor to the cíose of the base
períod of the acquíríng corporatíon ín such transactíon, the base períod e perí-
ence of the component corporatíon ín such transactíon ís to be determíned after
the appíícatíon of Part II wíth respect to the prevíous transactíon;
(b) If the subsequent Part II transactíon occurs after the cíose of the base
períod of the acquíríng corporatíon ín such transactíon, € ”
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
10
0. 61-1.
(1) The average base períod net Income of the component corporatíon In
snch transactíon ís to be determíned under sectíon 3 (d), sectíon 3 (e),
or sectíon 2(c), wíth the appíícatíon to the prevíous transactíon of sectíon
62(b) and of sectíon 62 (c) or (d) (where appíícabíe). and
(2) The average base períod net íncome of the component corporatíon ín
snch transactíon ís to be determíned under sectíon 2(d), sectíon 3,
sectíon , sectíon , or sectíon 6, wíth the appíícatíon to the prevíous
transactíon of sectíon 62 (d), (e), (f), (g), or (h) (where appíícabíe).
For ruíe9 reíatíng to the constructíve e ístence of such component corporatíon
ín certaín cases, see sectíon 0. 61- . For the purpose of the reguíatíons under
Part II, where a corporatíon created íncídent to a prevíous Part II transactíon
ís a party to a subsequent Part II transactíon, such corporatíon shaíí, wíth
respect to the subsequent transactíon, be treated ín the same manner as íf íts
actuaí e ístence corresponded to that of íts most recentíy organízed component
corporatíon.
Sec. 0. 61-7. Provísíons Generaííy ppíícabíe Under Part II. € ” (a) Defíní-
tíon of base períod e períence . € ” s used ín the reguíatíons under Part II, the
term base períod e períence refers to the e cess profíts net íncome, to the
average base períod net íncome íf computed under aectíon 2, 3, , , or
6, and to any factor enteríng ínto the determínatíon of an average base períod
net íncome.
(b) ppíícatíon of Part II ín certaín types of transactíons descríbed ín sectíon
61(a)(1)( ). € ” In the case of a Part II transactíon descríbed ín sectíon
61(a) (1) ( ) whích ínvoíves € ”
(1) transfer by a component corporatíon to an acquíríng corporatíon
whích was not created íncídent to the transactíon, or
(2) transfer to an acquíríng corporatíon, whether or not the acquíríng
corporatíon was created íncídent to the transactíon, of propertíes by more
than one component corporatíon, where one or more of such component
corporatíons transferred íess than substantíaííy aíí of íts propertíes,
the acquíríng corporatíon shaíí compute íts e cess profíts credít under Part II
as though each component corporatíon ín any such transactíon whích trans-
ferred íess than substantíaííy aíí of íts propertíes had transferred those prop-
ertíes to a corporatíon created íncídent to the transactíon ín a transactíon
descríbed ín sectíon 61(a) (1) ( ) and such corporatíon had ímmedíateíy there-
after transferred aíí of such propertíes to the acquíríng corporatíon ín a Part II
transactíon other than a transactíon descríbed ín sectíon 61(a)(1)( ). See
sectíon 01(e), reíatíng to component corporatíons whích were acquíríng cor-
poratíons ín a prevíous Part II transactíon.
(c) cess profíts credít of component corporatíons ín Part II transactíons
descríbed ín sectíon 01(a) (1) ( ). € ” (1) In generaí. € ” The e cess profíts credít
of a component corporatíon ín a transactíon descríbed ín sectíon 61(a) (1) ( )
shaíí be determíned under Part II, for ta abíe years begínníng after the day
of such transactíon (and, to the e tent províded ín sectíon 0. 61-3(b) ( ) for
the ta abíe year ín whích such transactíon occurs) ín the same manner as
though (ín such transactíon) such component corporatíon were an acquíríng
corporatíon ín a transactíon descríbed ín sectíon 61(a)(1)( ), and as though
ít had receíved ín that transactíon the propertíes whích ít ín fact retaíned.
(2) Specíaí ruíe. € ” For the purpose of appíyíng sectíon 3 (f) and (g) (re-
íatíng to capítaí changes) ín the case of a component corporatíon whích con-
tínues ín e ístence after a Part II transactíon descríbed ín sectíon 61 (a) (1) ( ),
the consíderatíon receíved by such component corporatíon ín such transactíon
shaíí be consídered as havíng been heíd by ít at aíí such tímes príor to the
transactíon as are taken ínto account under sectíon 3 (f) and (g). For
e ampíe, ín computíng the ad|ustment wíth respect to ínadmíssíbíe assets or,
íf appíícabíe, stock ín a member of a controííed group, the stock ín an acquíríng
corporatíon receíved by the component corporatíon ín the transactíon wííí, for
the purpose of sectíon 3 (g), be deemed to have been heíd by the component
corporatíon on the 1st day of íts fírst ta abíe year endíng after une 30, 19 0, íf
the transactíon takes píace after the begínníng of such ta abíe year.
Par. 2. There ís ínserted ímmedíateíy after sectíon 62, the foí-
íowíng :
Sec. 0. 62 € ” 1. Generaí Ruíes tor Determíníng: verage ase Períod Net
Income of an cquíríng Corporatíon. € ” (a) Introductory. € ” (1) In the case of
9 016 € ” 2
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-1.
10G
an acquíríng corporatíon, íts average base períod net íncome, for the purpose of
the e cess profíts credít based on íncome, computed under the generaí average
method (sectíon 3 (d)), may be determíned by computíng íts e cess profíts net
íncome eíther wíth or wíthout reference to sectíon 62(b) of Part II, whíchever
resuíts ín the íesser e cess profíts ta . If computed wíthout reference to sectíon
62(b), the e cess profíts net íncome of the acquíríng corporatíon ís computed
wíth reference to íts base períod e períence but wíthout reference to the base
períod e períence of íts component corporatíons. If computed wíth reference to
sectíon 62(b), the e cess profíts net íncome of the acquíríng corporatíon shaíí
be the e cess profíts net íncome or defícít ín e cess profíts net íncome for each
month of the acquíríng corporatíon s base períod (as defíned ín sectíon 3 (b)),
íncreased or decreased, as the case may be, by the addítíon or reductíon resuítíng
from íncíudíng the e cess profíts net íncome or defícít ín e cess profíts net íncome
for that mouth of aíí component corporatíons ín the manner províded ín sectíon
02(b).
(2) In the case of an acquíríng corporatíon, Its average base períod net íncome,
for the purpose of the e cess profíts credít based on íncome, computed under
the aíternatíve based on growth (sectíon 3 (e)), may be determíned, sub|ect to
the ruíes províded ín sectíon 02(c), by computíng íts e cess profíts net íncome
eíther wíth or wíthout reference to sectíon 02(b) of Part II, whíchever resuíts
ín the íesser e cess profíts ta . Under sectíon C2(c), the acquíríng corporatíon s
eíígíbíííty to use the growth aíternatíve may be determíned, ín certaín ínstances,
wíth reference to íts base períod e perí nee and eíther wíth or wíthout reference
to the base períod e períence of íts component corporatíons. In other círcum-
stances, ít must be determíned wíth reference to the base períod e períence of
íts component corporatíons. See sectíon 0. 62-2.
(3) In the case of an acquíríng corporatíon, íts average base períod net íncome,
for the purpose of the e cess profíts credít based on íncome, computed under
sectíon 2 (c) and (d) (abnormaíítíes ín the base períod), sectíon 3 (change
ín products or servíces), sectíon (íncrease ín capacíty for productíon or opera-
tíon), sectíon (new corporatíons), or sectíon 6 (depressed índustry sub-
groups), shaíí be determíned under the ruíes set forth ín sectíon 62 (d), (e),
(f). (g). or (h). See sectíon 0. 62-3 through 0. 62- .
(b) Method of rccomputatíon of e cess profíts net íncome of acquíríng corpo-
ratíon wíth reference to that of íts component corporatíons. € ” (1) In generaí. € ”
The foííowíng steps are requíred for the recomputatíon of the e cess profíts net
íncome of the acquíríng corporatíon wíth reference to the base períod e períence
of íts component corporatíons:
(í) The e cess profíts net íncome (or defícít ín e cess profíts net íncome)
for each month ín the base períod of the acquíríng corporatíon, and. for the
purpose of sectíon 3 (e) (2) ( ) and (G), for each month ín the addítíonaí
períod endíng une 30, 19 0, must be determíned for the acquíríng corpo-
ratíop and for each component corporatíon. cept as províded beíow wíth
respect to the ta abíe year of the component corporatíon ín whích the Part 11
transactíon occurs, the e cess profíts net íncome (or defícít ín e cess profíts
net íncome) of any corporatíon for any month duríng any part of whích that
corporatíon was actuaííy ín e ístence (or constructíveíy ín e ístence by
reason of a prevíous Part II transactíon) ís determíned by dívídíng the
e cess profíts net íncome computed under sectíon 33(b) (or defícít ín e cess
profíts net íncome computed under sectíon 33(c)) for the ta abíe year of
that corporatíon ín whích such month faíís by the number of fuíí caíendar
months ín such ta abíe year, and, ín the case of a transactíon descríbed ín
sectíon 01(a)(1)( ), by takíng the portíon thereof properíy aííocabíe to
the propertíes transferred. In the case of the ta abíe year of the component
corporatíon ín whích the Part II transactíon occurs, the e cess profíts net
íncome (or defícít ín e cess profíts net íncome) for any month ín such ta abíe
year shaíí be determíned under the ruíes províded ín sectíon 0. 61-3(c), and,
ín the case of a transactíon descríbed ín sectíon 61(a) (1) ( ), by takíng the
portíon thereof properíy aííocabíe to the propertíes transferred. The e cess
profíts net íncome of any corporatíon for any mouth duríng no part of whích
such corporatíon was actuaííy ín e ístence (or constructíveíy ín e ístence
by reason of a prevíous Part II transactíon) shaíí be zero, e cept as províded
ín (íí) beíow. If any corporatíon was an acquíríng corporatíon ín a prevíous
Tart II transactíon, íts e cess profíts net íncome for any month príor to such
transactíon shaíí be íts e cess profíts net íncome for such month recomputed
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
107
I 0. 61-1.
under sectíon. 62(b) (but wíthout regard to the íast sentence of sectíon 62
(b) (3)) by reference to such prevíous Part II transactíon. For the purpose
of sectíon 3 (e)(2) ( ) and (G), the e cess profíte net íncome or d ít
ín e cess profíts net íncome ís sub|ect to the percentages specífíed ín sectíon
3 (e)(2)( ).
(íí) If the acquíríng corporatíon was ín e ístence (eíther actuaííy ín e íst-
ence or, under sectíon 61(d), constructíveíy ín e ístence through a compo-
nent corporatíon) at the begínníng of íts base períod, the e cess profíts not ín-
come for each month príor to the Part II transactíon, duríng aíí of whích
eíther the acquíríng corporatíon or any component corporatíon was not ín
e ístence (eíther actuaííy or constructíveíy by reference to a prevíous Part
II transactíon), ís computed for such acquíríng or component corporatíon
under thís subparagraph. The e cess profíts net íncome for any such month
shaíí be 1 percent of such corporatíon s equíty capítaí (as defíned ín sec-
tíon 37(c) and sectíon 0. 37- ), reduced by an amount determíned under
the ínadmíssíbíe asset ratío (computed under sectíon 0(b) and sectíon
0. - 0-1). both determíned as of the cíose of the day before the Part II trans-
– actíon occurred, or at the cíose of the base períod of such corporatíon, whích-
ever date Is earííer. See e ampíe, sectíon 0. 62-1 (c). There ís no such
determínatíon for any month after the Part II transactíon. For ad|ust-
ments to equíty capíta , see sectíon 0. 62-í(b) (3).
(ííí) For each month of the acquíríng corporatíon s base períod, and. for
the purpose of sectíon 3 (e) (2) ( ) and (G), for each month thereafter
for the períod endíng une 30, 1 t 0, the e cess profíts net íncome or defícít
ín e cess profíts net íncome of the acquíríng corporatíon for that month,
as determíned under (1) and (íí), above, shaíí be íncreased or decreased,
as the case may be, by the e cess profíts net íncome or defícít ín e cess profíts
net íncome of each component corporatíon for that month so determíned;
e cept that, íf the acquíríng corporatíon acquíres oníy a part of the com-
ponent corporatíon s propertíes ín a transactíon descríbed ín sectíon
61(a)(1)( ), then the íncrease or decrease shaíí be made for oníy that
portíon of such component corporatíon s e cess profíte net íncome or defícít
ín e cess profíts net íncome as ís aííocabíe under sectíon 62(í) and sectíon
0. 62-9 to the propertíes of the component corporatíon transferred to the
acquíríng corporatíon. The e cess profíts net íncome of the acquíríng cor-
poratíon for any month, recomputed as províded ín the prevíous sentence,
shaíí ín no event be íess than zero. íí component corporatíons must be
taken ínto consíderatíon ín makíng the recomputatíon of the e cess profíts
net íncome of the acquíríng corporatíon. In the case of a component cor-
poratíon whích does not termínate íts e ístence ín connectíon wíth the Part II
transactíon íts e cess profíts net íncome or defícít ín e cess profíts net íncome
for any month or part thereof after such transactíon shaíí not be taken
ínto account by the acquíríng corporatíon ín recomputíng íts e cess profíts
Det íncome for such month. See sectíon 61(c) and sectíon 0. 61-3(b) ( ).
(2) Specíaí ruíes for partnershíps and soíe propríetorshíps. € ” In the case of a
component corporatíon whích ís a partnershíp or a busíness owned by a soíe
propríetorshíp (see sectíon 0. 61- ), íts e cess profíts net íncome or defícít ín
e cess profíts net íncome for each month faíííng wíthín the acquíríng corpora-
tíon s base períod, and, for the purpose of sectíon 3 (e) (2) ( ) and (G), for
each month thereafter for the períod endíng une 30, 19. 0, shaíí be determíned
as though such partnershíp or such busíness owned by a soíe propríetorshíp
had been a corporatíon. See sectíon 62(k). mong the ad|ustments whích
are necessary ín such a case are the foííowíng:
(í) reasonabíe deductíon for saíary or compensatíon to each partner
or to the soíe propríetor for personaí servíces actuaííy rendered-shaíí be
aííowed;
(íí) The credít for dívídends receíved shaíí be that appíícabíe to cor-
poratíons ;
(ííí) The treatment of capítaí gaíns and íosses and of ta es (whether
State, íocaí, or other) shaíí be that appíícabíe to corporatíons;
(ív) The deductíon for charítabíe contríbutíons shaíí be that aííowed by
sectíon 23 (q).
(3) Límítatíons. € ” The determínatíon under (í)(íí), above, of e cess profíts
net íncome computed at 1 percent of equíty capítaí (hereínafter referred to as
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-1.
10
constructíve íncome ) for any month duríng no port of whích the corporatíon
was ín e ístence (hereínafter referred to as a vacant month ) ís sub|ect to each
of the foííowíng íímítatíons:
(í) Sectíon 02(b) (2) provídes for an ad|ustment to prevent dupíícatíon
ín determíníng the equíty capítaí factor, 1 percent of whích ís aííowed as
the e cess profíts net íncome. The cases generaííy covered by thís íímítatíon
are those ín whích there was cross-ownershíp of stock between corporatíons
príor to the Part II transactíon, but ít aíso covers cases where property
or stock of one corporatíon has been transferred to another corporatíon as
paíd-ín surpíus or as a contríbutíon to capítaí. s such, the prímary purpose
of thís íímítatíon ís to prevent doubííng up on the factor of equíty capítaí upon
whích the constructíve íncome nííowed under sectíon 02(b) (2) ís com-
puted. ríefíy stated, the íímítatíon under sectíon 02(b) (2) provídes that
ín ease eíther the acquíríng corporatíon or any component corporatíon
owned stock ín any other such corporatíon on the day for whích the equíty
capítaí factor ís determíned, then such equíty capítaí factor, upon whích
the constructíve íncome aííowed under sectíon 62(b) (2) wíth respect
to vacant months of such corporatíons ís computed, shaíí b ad|usted to such
e tent as may be necessary to prevent such constructíve íncome from
refíectíng money or property paíd ín by eíther of such corporatíons to
the other for stock or as paíd-ín surpíus or as a contríbutíon to capítaí,
or from refíectíng stock of eíther paíd ín for stock of the other or as paíd-ín
surpíus or as a contríbutíon to capítaí. For thís purpose, stock ín eíther
such corporatíon whích has ín the hands of the other corporatíon a basís
determíned wíth reference to the basís of stock prevíousíy acquíred by the
íssuance of such other corporatíon s own stock shaíí be deemed to have been
paíd ín for the stock of such other corporatíon. The foííowíng e ampíe
íííustrates the nature of the ad|ustment to be made ín cases to whích thís
íímítatíon under sectíon 62(b) (2) appííes:
ampíe. The Corporatíon, the Corporatíon, and the C Corporatíon
make theír íncome ta returns on the caíendar year basís. The Corpora-
tíon was ín e ístence and commenced busíness príor to anuary 1,19 0. The
Corporatíon came ínto e ístence on anuary 1, 19 S. The C Corporatíon
came ínto e ístence on December 31, 19 , and on that day ít íssued aíí
of íts capítaí stock to the Corporatíon for cash of the íatter. The
Corporatíon heíd thís stock contínuousíy untíí anuary 13, 19 0, at whích
tíme ít acquíred aíí of the propertíes of the Corporatíon and the C
Corporatíon ín a transactíon descríbed ín sectíon 01(a). oth the Cor-
poratíon and the C Corporatíon are entítíed under sectíon 02(b) (2) to a
constructíve íncome for each of the months ín the caíendar years 19 0 and
19 7. The C Corporatíon ís not entítíed to a constructíve íncome for the
fírst 11 months ín the year 19 . See (b) (1) (íí) of thís sectíon. The con-
structíve íncome for each such corporatíon ís for each vacant month an
amount equaí to 1 percent of the equíty capítaí of such corporatíon deter-
míned as of the cíose of December 31,19 9, such equíty capítaí beíng reduced
by an amount whích ís the same percentage of such equíty capítaí as the
percentage whích the totaí of the ad|usted bases of the ínadmíssíbíe assets
heíd by such corporatíon at the cíose of such day ís of the totaí of the ad-
|usted bases of the admíssíbíe nnd ínadmíssíbíe assets heíd at the cíose of
such day. In the case of the reductíon for the Corporatíon wíth respect to
ínadmíssíbíe assets, íf the amount of such reductíon attríbutabíe to the stock
ín the C Corporatíon ís an amount whích ís íess than the ad|usted basís of
such stock ín the hands of the Corporatíon at the cíose of December 31,
19 9, a further ad|ustment must be made to the Corporatíon s equíty
capítaí ín order to eíímínate dupíícatíon of the same equíty capítaí. ssum-
íng that the ad|usted basís of the C Corporatíon s stock ín the hands of the
Corporatíon ís 0,000; that on December 31, 19 9, the Corporatíon
owned shares ín other domestíc corporatíons havíng an ad|usted basís of
10,000; that the Corporatíon s equíty capítaí at the cíose of December 31,
19 9, ís 0,000; and that the totaí of the ad|usted bases of the admíssíbíe
and ínadmíssíbíe assets of the Corporatíon at the cíose of December 31,
19 9, ís 000,000, the computatíon of the ad|ustment requíred under sectíon
02(b) (2) because of the ownershíp by the Corporatíon of stock ín the C
Corporatíon may be Iííustrated as foííows:
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
109 0. 61-1.
( ) Totaí Inadmíssíbíe assets 00,000
( ) Totaí admíssíbíe and ínadmíssíbíe assets 000,000
(C) Percentage whích the totaí ínadmíssíbíe assets ís of totaí admíssíbíe
and ínadmíssíbíe assets (percent) 10
(D) quíty capítaí 0,000
( ) mount of reductíon ín equíty capítaí for ínadmíssíbíe assets € ”
10 percent of ítem (D) , 000
(F) Reductíon ín equíty capítaí attríbutabíe to the stock ín the C Cor-
poratíon
(S 37, 0
(G) asís of the C Corporatíon s stock 0,000
( ) ddítíonaí ad|ustment to be made ín equíty capítaí ín order to
arríve at the equíty capítaí under sectíon 62(b) (2) upon whích
constructíve íncome ís computed 12, 00
(I) quíty capíta 0,000
d|ustment for ínadmíssíbíe assets (ítem ( ) above) ,000
d|ustment under sectíon 162(b) (2) (ítem ( ) above)_ 12, 00
7, 00
( ) quíty capítaí as ad|usted under sectíon 02(b (2) upon whích
constructíve íncome ís computed 392, 00
(íí) Sectíon C2(|) (1) may requíre the e cíusíon of aíí or a part of the
constructíve íncome of a component corporatíon whích ís determíned under
sectíon 62(b)(2) for vacant months, íf the acquíríng corporatíon (or
any corporatíon whích íater became a component corporatíon of the acquíríng
corporatíon) acquíred for assets (other than íts own stock) the stock of such
component corporatíon. See sectíon 0. 62-10. The ad|ustment necessary
under sectíon 62( ) (1) where constructíve íncome for vacant months wouíd
otherwíse be determíned under sectíon 62(b) (2) ís íííustrated by the foííow-
íng e ampíe:
ampíe. The Corporatíon was ín e ístence and commenced busíness
príor to anuary 1, 19 6. The Corporatíon came ínto e ístence on an-
uary 1, 19 7. eth corporatíons make theír Income ta returns on the
caíendar year basís. The Corporatíon soíd certaín assets for cash, and
on anuary 1, 19 . ít used such cash to purchase aíí of the. stock of the
Corporatíon from the íatter s stockhoíders. On December 31, 19 0, the
Corporatíon acquíred aíí of the propertíes of the Corporatíon ín a Part
II transactíon. y reason of sectíon 62(|) (1), the base períod e períence of
the Corporatíon príor to anuary 1. 19 . ís to be e cíuded and, there-
fore, no constructíve Income need be determíned for the Corporatíon for
the year 19 6.
(c) Oeneraí average method. € ” The computatíon of the average base períod
net íncome of an acquíríng corporatíon, determíned under the generaí average
method of sectíon 3 (d) by computíng the e cess profíts net íncome wíth ref-
erence to sectíon 62(b), may be íííustrated by the foííowíng e ampíe:
ampíe. The Corporatíon came ínto e ístence and commenced busíness
príor to anuary 1, 19 6. The Corporatíon and the C Corporatíon each came
ínto e ístence on anuary 1, 19 7. The Corporatíon, the Corporatíon, and
the C Corporatíon each makes íts íncome ta returns on the caíendar year
basís. The Corporatíon acquíred aíí of the propertíes of the Corporatíon
amd of the C Corporatíon ín a Part II transactíon on anuary 1, 19 9. The
Corporatíon and the C Corporatíon each had equíty capítaí of 100,000 at the
cíose of December 31.19 (the day before the Part II transactíon). The e cess
profíts net íncome for each of the corporatíons for the base períod ta abíe years
ís as foííows:
cess profíts net Income for ta abíe year
Year
19 6
19 7
19
19 9
- 36,000
0
0
1 .000
-2 .000
12,000
fí0,000
2 .000
2 ,000
10 ,000
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-1.
110
Ths e cess profíts net íncome for each month ín such ta abíe years ís as foííows:
cess profíts net íncome for each month
For each month ín caíendar year
19
10 7
19
19 9
-S3.000
1,000
1.000
,000
-2,000
1.00U
,000
2.000
2.000
9,000
€ ” 1,000
3,000
,000
9. 000
Corporatíon
Corporatíon
C Corporatíon.
Totaí...
1 Constructíve Income computed under sectíon 01(b)(2). Sec (b)(í)(íí) of thís sectíon.
The e cess profíts net íncome of the Corporatíon for each month as recom-
puted under sectíon 62(b) ís the totaí e cess profíts net íncome for that month,
as shown ín th above tr.bíe, e cept that, for each month ín 19 6, the recomputed
e cess profíts net íncome ís íncreased to zero. Sínce the 36 consecutíve months
ín the years 19 7, 19 , and 19 9 have the híghest aggregate e cess profíts net
íncome, the average base períod net íncome ís such aggregate e cess profíts net
íncome dívíded by 3. The average base períod not íncome of the Corporatíon,
recomputed under sectíon 62(b), ís ,000, determíned as foííows:
ggregate for months ín 19 7 (12 3,000) 36,000
ggregate for months ín 10 (12 SP.000) 10 ,000
ggregate for months ín 19 9 (12 9,000) 10S. 000
ggregate for 36 months 2,000
ggregate dívíded by 3 , 000
Thís fígure, sub|ect to the prccentage prescríbed ín sectíon 3 (a), may be used
by the Corporatíon ín computíng íts e cess profíts credít based on íncome
for the purpose of determíníng íts e ces profíts ta fcr 19 0 and future e cess
profíts ta ta abíe years.
Sec. 0. 62-2. íternatíve verage ase Períod Net Income ased on
Growth. € ” (a) In generaí. € ” Sectíon 62(c) deaís wíth the effect of a Part II
transactíon upon the ríght of an acquíríng corporatíon to the use of the growth
aíternatíve províded ín sectíon 3 (e). See sectíon 0. 62-1 (a) (2). The ruíes
for appíyíng sectíon 3 (e) ín the case of a party to a Part II transactíon may
díffer, dependíng upon whether eíígíbíííty under sectíon 3 (e) (1) ( ) or under
sectíon 3 (e) (1) ( ) ís ínvoíved, whether the Part II transactíon ís of a type
descríbed ín sectíon 61(a) (1)( ), whether the acquíríng corporatíon actuaííy
or constructíveíy through a component corporatíon commenced busíness príor
to the begínníng of íts base períod, whether the acquíríng corporatíon determínes
íts e cess profíts net íncome wíth reference to the recomputatíon províded ín
sectíon 62(b), and whether the transactíon occurs príor to or after certaín
dates.
(b) Part II transactíons other than a transactíon descríbed ín sectíon
61 (a) (2) ( ). € ” (1) . ernafíre under sectíon 3 (c) (1) (. ). € ” (í) In the case
of a Part II transactíon other than a transactíon descríbed ín sectíon
61(a)(1)( ), sectíon 62(c) provídes that an acquíríng corporatíon shaíí be
entítíed to the use of an aíternatíve average base períod net íncome under
sectíon 3 (e)(1)( ), reíatíng to growth, oníy € ”
( ) If the Part II transactíon occurs after une 30, 19 0, íf such acquír-
íng corporatíon was entítíed under sectíon 3 (e) (1) ( ) to the use of an
aíternatíve average base períod net íncome based on growth ímmedíateíy
príor to the date of the Part II transactíon, and íf the acquíríng corporatíon
determínes íts e cess profíts net íncome wíthout reference to the recomputa-
tíon províded ín sectíon 02(b) ; or
( ) Regardíess of the date on whích the Part II transactíon occurs, íf
the acquíríng corporatíon (other than a corporatíon created íncídent to
such transactíon) and aíí the component corporatíons actuaííy commenced
busíness príor to the begínníng of the acquíríng corporatíon s base períod,
If the acquíríng corporatíon recomputes íts e cess profíts net Income under
sectíon 62(b), and íf the acquíríng corporatíon quaíífíes tínder the ruíes
of sectíon 3 (e)(1)( ) after appíyíng the ruíes set forth ín (íí), beíow.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
Iíí
0. 61-1.
(íí) For the purpose of (1)( ), above, the acquíríng corporatíon shaíí com-
bíne íts totaí assets on the date specífíed ín sectíon 30(e) (1) ( ) (1) wíth the
totaí assets of each component corporatíon on such date (the totaí assets of
each such corporatíon beíng determíned under that sectíon wíth the eíímínatíon
of stock of one such corporatíon heíd by another such corporatíon), and ít shaíí
combíne wíth Its totaí payroíí and íts totaí gross receípts for that portíon of íts
base períod whích preceded such transactíon the totaí payroíí and totaí gross
receípts of each such component corporatíon for that portíon of such períod.
The aííocatíon of payroíí and gross receípts of a component corporatíon for íts
ta abíe year to any such portíon of such períod shaíí be made ín accordance wíth
the ruíes províded ín sectíon :3 (e) ( ) and ( ) sub|ect, for the ta abíe year
of the transactíon, to the príncípíes descríbed ín sectíon 0. Cí-3(c). In com-
bíníng gross receípts, pre per ad|ustments shníí be made to prevent dupíícatíon,
íncíudíng the eíímínatíon of those gross receípts of a component corporatíon
or the acquíríng corporatíon whích are attríbutabíe to transactíons between
eíther such component corporatíon and the acquíríng corporatíon or such com-
ponent corporatíon and another component corporatíon.
(ííí) If the acquíríng corporatíon does not quaíífy under (í) ( ), above, for the
use of an aíternatíve average base períod net íncome under sectíon 3 (e) (1) ( )
becanse any corporatíon a party to the Part II transactíon (other than a cor-
poratíon created íncídent to such transactíon) had not actuaííy commenced busí-
ness príor to the begínníng of íts base períod or because the totaí of the assets
of the acquíríng corporatíon determíned under (íí), above, e ceeds 20 mííííon,
íf the Part II transactíon occurs after une 30, 19 0, íf the acquíríng corporatíon
determínes íts average base períod net íncome under sectíon 3 (d) after re-
computíng íts e cess profíts net íncome under sectíon 62(b), and íf any cor-
poratíon a party to the Part II transactíon (whether the acquíríng corporatíon
or a component corporatíon) was under sectíon 3 (e) (1) ( ) entítíed ímmedí-
ateíy príor to the date of the transactíon to the use of an aíternatíve average
base períod net íncome based on growth, then one-tweífth of such aíternatíve
average base períod net íncome of such corporatíon shaíí be treated as íts
monthíy e cess profíts net íncome for the purpose of determíníng such average
base períod net íncome of the acquíríng corporatíon under sectíon 3 (d).
(2) íternatíve under sectíon 3 (e) (1) ( ). € ” (í) In the case of a Part II
transactíon other than a transactíon descríbed ín sectíon 61(a) (1) ( ), sectíon
62(c) provídes that an acquíríng corporatíon shaíí be entítíed to the use of an
aíternatíve average base períod net íncome under sectíon 3 (e)(1)( ), reíat-
íng to growth, oníy € ”
( ) If the Part II transactíon occurs after December 31, 19 0, íf such
acquíríng corporaUon was entítíed under sectíon 3 (e)(1)( ) to the use
of an aíternatíve average base períod net íncome based on growth ímmedí-
ateíy príor to the date of the Part II transactíon, and íf the acquíríng cor-
poratíon determínes íts e cess profíts net íncome wíthout reference to the
recomputatíon províded ín sectíon G2(b) ; or
( ) If ímmedíateíy príor to a Part II transactíon occurríng príor to an-
nary 1, 19 1, the acquíríng corporatíon (other than a corporatíon created
íncídent to such transactíon) and aíí component corporatíons were furnísh-
íng products or cíasses of products of the type descríbed ín sec-
tíon 3 (e) (1) ( ) (íí), íf the acquíríng corporatíon (other than a corpora-
tíon created íncídent to such transactíon) and aíí component corporatíons
actuaííy commenced busíness príor to the begínníng of the acquíríng cor-
poratíon s base períod, íf the acquíríng corporatíon recomputes íts e cess
profíts net íncome under sectíon 02(b), and íf the acquíríng corporatíon
quaíífíes under the ruíes of sectíon 3 (e) (1) ( ) after appíyíng the ruíes
set forth ín (íí) beíow; or
(C) If ímmedíateíy príor to a Part II transactíon occurríng after Decem-
ber 31, 19 0, the acquíríng corporatíon (other than a corporatíon created
íncídent to such transactíon) and aíí component corporatíons were entítíed
under sectíon 3 (e) (1) ( ) to the use of an aíternatíve average base períod
net íncome based on growth, íf the acquíríng corporatíon (other than a
corporatíon created íncídent to such transactíon) and aíí component cor-
poratíons actuaííy commenced busíness príor to the begínníng of the acquír-
íng corporatíon s base períod, íf the acquíríng corporatíon recomputes íts
e cess profíts net íncome under sectíon 62(b), and íf the acquíríng corpora-
tíon quaíífíes under the ruíes of sectíon 3 (e)(1)( ) after appíyíng the
ruíes set forth ín (íí), beíow.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-1.
112
(Ií) For the purpose of (í) ( ) and (C), nbove, the acquíríng corporatíon
shaíí combíne wíth íts net saíes for that portíon of the períod príor to anuary
1,19 1, whích preceded such Part II transactíon, the net saíes of each such com-
ponent corporatíon for such portíon of such períod. In combíníng net saíes,
proper ad|ustment shaíí be made to prevent dupíícatíon, íncíudíng the eíímína-
tíon of those net saíes of a component corporatíon or the acquíríng corporatíon
whích are attríbutabíe to transactíons between eíther such component corpora-
tíon and the acquíríng corporatíon or such component corporatíon and another
component corporatíon.
(ííí) If the Part II transactíon occurs after December 31,19 0, íf the acquíríng
corporatíon does not quaíífy under (í) (C), above, for the use of an aíternatíve
average base períod net íncome under sectíon 3 (e)(1)( ), íf the acquíríng
corporatíon determínes íts average base períod net íncome under sectíon 3 (d)
after recomputíng íts e cess profíts net íncome under sectíon 62(b), and íf any
corporatíon a party to the Part II transactíon (whether the acquíríng corpora-
tíon or a component corporatíon) was entítíed under sectíon 3 (e) (1) ( ), ím-
medíateíy príor to the date of the transactíon, to the use of an aíternatíve average
base períod net íncome based on growth, then one-tweífth of such aíternatíve
average base períod net íncome of such corporatíon shaíí be treated as íts
monthíy e cess profíts net íncome for the purpose of determíníng such average
base períod net íncome of the acquíríng corporatíon under sectíon 3 (d).
(c) Part II transactíons descríbed ín sectíon 61(a) (1) ( ). € ” (1) íternatíve
under sectíon 3 (e) (1) ( ). € ” (í) In the case of a Part II transactíon descríbed
ín sectíon 61(a)(1)( ), sectíon 62 provídes that an acquíríng corporatíon
shaíí be entítíed to the use of an aíternatíve average base períod net íncome under
sectíon 3 (e) (1) ( ), reíatíng to growth, oníy íf ít recomputes íts e cess profíts
net íncome under sectíon 62(b) and € ”
( ) If the transactíon occurs after the cíose of the base períod of the
component corporatíon, and íf ímmedíateíy príor to the date of the transac-
tíon the component corporatíon quaíífíed under sectíon 3 (e) (1) ( ) for the
use of an aíternatíve average base períod net íncome under that sectíon ; or
( ) If the transactíon occurred duríng the base períod of the acquíríng
corporatíon, íf the component corporatíon actuaííy commenced busíness príor
to the begínníng of íts base períod, and íf the acquíríng corporatíon quaíífíes
under the ruíes of sectíon 3 (e) (1) ( ) after appíyíng the ruíes set forth
ín (íí) beíow.
(íí) For the purpose of (1)( ), above, the acquíríng corporatíon shaíí be
consídered as havíng heíd the totaí assets of the component corporatíon as of
the date specífíed ín sectíon 3 (e) (1) ( ) (í) as determíned under that sectíon
for that date, and ít shaíí be treated as havíng had, for the períod príor to the
day of the transactíon, an aííocated share of the payroíí and of the gross receípts
of the component corporatíon. Such payroíí and gross receípts shaíí be deter-
míned ín accordance wíth the ruíes províded ín sectíon 3 (e) ( ) and ( )
sub|ect, for the ta abíe year of the transactíon, to the príncípíes descríbed ín
sectíon 0. 61-3(c) ; and such aííocatíon of such payroíí and gross receípts shaíí
be ín the same ratío as that e ístíng ín the aííocatíon of the e cess profíts net
íncome. See sectíon 62(í) and sectíon 0. 62-9.
(2) íternatíve under sectíon 3 (e) (1) ( ). € ” (í) In the case of a Part II
transactíon descríbed ín sectíon 61(a)(1)( ), sectíon 62(c) provídes that an
acquíríng corporatíon shaíí be entítíed to tbe use of an aíternatíve, average base
períod net íncome under sectíon 3 (e)(1)( ), reíatíng to growth, oníy íf ít
recomputes íts e cess profíts net íncome under sectíon 62(b) and € ”
( ) If the transactíon occurs after December 31, 19 0, and íf ímmedíateíy
príor to the date of the transactíon the component corporatíon quaíífíes
under sectíon 3 (e) (1) ( ) for the use of an aíternatíve average base
períod net íncome under that sectíon; or
( ) If the transactíon occurred príor to anuary 1,10 1, íf the component
corporatíon actuaííy commenced busíness príor to the begínníng of íts base
períod, íf ímmedíateíy príor to the transactíon the component corporatíon
was furníshíng a product or cíass of products of the type descríbed ín sectíon
3 (e)(1)( ), and íf the acquíríng corporatíon quaíífíes under the ruíes
of sectíon 3 (e) (1) ( ) after appíyíng the ruíes set forth ín (íí), beíow.
(íí) For the purpose of (í) ( ), above, the acquíríng corporatíon shaíí be con-
sídered as havíng had, for the períod príor to the date of the transactíon, an
aííocated share of the net saíes of the component corporatíon, such aííocatíon
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
113
0. 61-1.
of net saíes beíng In the same ratío as that e ístíng ín the aííocatíon of the
e cess profíts net íncome. See sectíon 62(í) and sectíon 0. 62-9.
(3) Specíaí ruíes. € ” For specíaí ruíes wíth respect to a Part II transactíon
descríbed ín sectíon 61(a) (1) ( ) ínvoívíng a transfer to an acquíríng corpora-
tíon not created íncídent to the transactíon, or ínvoívíng a transfer by more than
one component corporatíon to an acquíríng corporatíon, see sectíon 0. 01-7(b).
Sec. 0. 62-3. íternatíve verage ase Períod Net Income Under Sectíon
2, 3, , , or 6. € ” (a) In generaí € ” Sectíon 62 (d), (e), (f), (k), and
(h) provídes specíaí ruíes appíícabíe ín determíníng the average base períod net
Income of an acquíríng corporatíon under sectíons 2 to 6, íncíusíve. Certaín
ruíes generaííy appíícabíe under those subsectíons of sectíon 62 are set forth
ín thís sectíon. ddítíonaí specíaí ruíes províded ín such subsectíons of sectíon
62 are set forth ín the sectíons ímmedíateíy foííowíng thís sectíon. The ruíes
for appíyíng sectíons 2 to 6, íncíusíve, and sectíon 02 (d) to (h), íncíusíve,
may díffer dependíng upon whether the Part II transactíon ís of a type descríbed
ín sectíon 61(a) (1) ( ) (reíatíng to a transfer by a component corporatíon of
a part, as dístínguíshed from aíí or substantíaííy aíí, of íts propertíes), whether
the transactíon occurs before or after certaín dates, and whether the acquíríng
corporatíon has actuaííy or constructíveíy through a component corporatíon (see
sectíon 61(d)) commenced busíness on or before the 1st day of the base períod.
(b) Commencement of busí íess. € ” If neíther the acquíríng corporatíon nor any
component corporatíon was ín e ístence and commenced busíness on or before
the fírst day of the base períod of the acquíríng corporatíon, the acquíríng cor-
poratíon ís not entítíed to determíne íts average base períod net Income under
sectíon 2, 3, , or 3, or under sectíon 62 (d), (e), (f), or (h). If eíther
the acquíríng corporatíon or any component corporatíon commenced busíness on
or before the fírst day of the base períod of the acquíríng corporatíon, the acquír-
íng corporatíon ís not entítíed to compute íts averatre base períod net íncome under
sectíon or sectíon 62(g . e cept to the evtent that such sectíons are ínvoíved
under (c) of thís sectíon. S e sectíon 61(d) as to constructíve e ístence and
constructíve commencement of busíness.
(c) Ruíe appíícabíe íf aíí partíes ícere prevíousíy entítíed to an aíternatíve
average base períod net íncome. € ” If ímmedíateíy príor to the transactíon each of
the corporatíons, partíes to the Part II transactíon, other than a corporatíon
created íncídent to the Part II transactíon, was entítíed to compute íts average
base períod net íncome under sectíon 2(d) (reíatíng to abnormaíítíes ín base
períod), sectíon 3 (reíatíng to change ín products or .servíces), sectíon (re-
íatíng to íncrease ín capacíty for rroductíon or operatíon), sectíon (reíatíng
to new corporatíons), or sectíon 6 (reíatíng to depressed índustry subgroups),
then the acquíríng corporatíon (whether or not created íncídent to the. Part II
transactíon) may determíne íts average base períod net íncome after the trans-
actíon by computíng íts own average base períod net Income under whíchever of
such sectíons ís appíícabíe to ít ímmedíateíy príor to the transactíon, and by
addíng thereto the average base períod net íncome of each component corpora-
tíon separateíy computed under whíchever of such sectíons ís appíícabíe to such
component corporatíon ímmedíateíy príor to the transactíon. owever, ín the
case of a transfer by a corporatíon of a part, as dístínguíshed from aíí or sub-
stantíaííy aíí, of íts propertíes to a corporatíon created íncídent to such transfer
ín a transactíon to whích sectíon 61(a) (1) ( ) ís appíícabíe, oníy so much of
the average base períod net íncome of such component corporatíon, so computed,
as ís aííocabíe under the ruíes of sectíon 62(1) and sectíon 0. 62-9 to the prop-
ertíes of such component corporatíon transferred to the acquíríng corporatíon ís
avaííabíe to such acquíríng corporatíon under the ruíe set forth ín the precedíng
sentence. The ruíes províded ín thís paragraph are not appíícabíe ín any case
ín whích aíí of the corporatíons (other than a corporatíon created íncídent to
the Part II transactíon), partíes to the Part II transactíon, were entítíed ímme-
díateíy príor to the transactíon to the benefíts of sectíon . See sectíon 0. 62-7
for ruíes appíícabíe ín such case. See sectíon 70 for ruíes appíícabíe, ín cer-
taín cases ínvoívíng íntercorporate stockhoídíngs, ín determíníng the totaí assets
of a component corporatíon for the purpose of the separate computatíon under
thís paragraph of íts average base períod net íncome ímmedíateíy príor to the
transactíon.
(d) Method of determínatíon. € ” n acquíríng corporatíon not entítíed to com-
pute íts average base períod net íncome under (c) of thís sectíon may neverthe-
íess be entítíed, under the círcumstances set forth In sectíons 0. 62- to 0. 62- ,.
íncíusíve, to appíy sectíons 2 to 6, íncíusíve, íf ít meets the requíreuíí ncs of
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
S 0. 61-1.
11
those sectíons and of sectíon 02 (d) through (h). The foííowíng ruíes are appíí-
cabíe for the purpose of determíníng whether, after the transactíon, an acquír-
íng corporatíon meets the requírements of sectíon 2, 3, , , or 6 and
sectíon 0. 62- , 0. 62- , 0. 62-0, 0. 62-7, or 0. 62- :
(1) t ssets. € ” For thís purpose, the totaí assets of each component corpo-
ratíon heíd by ít on a day for whích the computatíon of totaí assets of the
acquíríng corporatíon ís requíred by the appíícabíe sectíon, whích day pre-
ceded the day on whích the transactíon occurred, shaíí be treated as havíng
been heíd by the acquíríng corporatíon on such day.
(2) Interest. € ” For thís purpose, the ínterest paíd or íncurred by each
component corporatíon duríng the períod príor to the date of the transactíon,
taken ínto account ín computíng the ínterest ad|ustment appíícabíe ín deter-
míníng average base períod net íncome, shaíí be consídered as havíng been
paíd or íncurred by the acquíríng corporatíon at the tíme ít was paíd or
íncurred by such component corporatíon.
(3) Gross receípts. € ” For thís purpose, the gross receípts of each compo-
nent corporatíon for the períod príor to the date of the transactíon, taken
ínto account under such sectíon ín determíníng the índustry cíassífícatíon
of the acquíríng corporatíon, shaíí be treated as the gross receípts of the
acquíríng corporatíon. Such gross receípts for any portíon of a ta abíe year
of the component corporatíon ís determíned ín accordance wíth the ruíes
províded ín sectíon 3 (e) ( ) sub|ect, for the ta abíe year of the transac-
tíon, to the príncípíes descríbed ín sectíon 0. 0í-3(c).
In appíyíng the foregoíng ruíes, proper ad|ustment as to each ítem shaíí be made
to prevent dupíícatíon, íncíudíng the eíímínatíon of such portíon of any ítem wíth
respect to the component corporatíon or the acquíríng corporatíon as ís attríbu-
tabíe to transactíons between eíther such component corporatíon and the acquír-
íng corporatíon or such component corporatíon and another component corpo-
ratíon.
(e) Síethod of determínatíon ín case of transactíons descríbed ín sectíon
61(a) (1) ( ). € ” In the case of a transfer by a corporatíon of a part, as dístín-
guíshed from aíí or substantíaííy aíí, of íts propertíes to a corporatíon created
íncídent to such transfer ín a transactíon to whích sectíon 61(a)(1)( ) ía
appíícabíe, there shaíí be avaííabíe to such acquíríng corporatíon ín determíníng
íts average base períod net íncome under sectíon 2, 3, , , or 6, oníy
such portíon of each ítem referred to ín (d), above, as ís aííocabíe to the prop-
ertíes of such component corporatíon transferred to the acquíríng corporatíon.
Such portíon shaíí be determíned ín a manner consístent wíth that used ín th
aííocatíon to the acquíríng corporatíon under sectíon 02(í) and sectíon 0. 62-9
of the e cess profíts net íncome of the component corporatíon.
(f) ppíícatíon for benefíts of sectíons to . - ( . € ” n acquíríng corporatíon
whích computes íts average base períod net íncome under sectíon 2, 3, ,
, or 6, and under sectíon 62 (d), (e), (f), (g), or (h), must compíy wíth
the provísíons of sectíon 7(e) wíth respect to the fíííng of an appíícatíon for
the benefíts of such sectíons.
Sec 0. 62- . ppíícatíon of Sectíon 2. € ” (a) Part II transactíons other
than a transactíon descríbed ín sectíon 61(a) (1) ( ). € ” (1) In the case of a
í art II transactíon other than a transactíon descríbed ín sectíon 61(a) (1) ( ),
whích occurred duríng the base períod of an acquíríng corporatíon, the acquíríng
corporatíon shaíí be entítíed to determíne íts average base períod net íncome
under sectíon 2 (c) or (d) íf and to the e tent that ít satísfíes the requírements
of eíther such subsectíon and satísfíes the other requírements of sectíon 2
after the appíícatíon of the ruíes províded ín sectíon 0. 62-3 (b) and (d) and
of the foííowíng ruíes:
(í) For thís purpose, the e cess profíts net íncome (or defícít thereín)
of the component corporatíon for any part of the base períod of the acquíríng
corporatíon príor to the transactíon ís attríbuted to the acquíríng corporatíon
ín determíníng the e cess profíts net íncome (or defícít thereín) of the acquír-
íng corporatíon for any month of íts base períod for the purpose of sectíon
2 (c) or (d), and the acquíríng corporatíon shaíí recompute íts monthíy
e cess profíts net íncome as províded ín sectíon 62(b) ; however, the e cess
profíts net íncome of the acquíríng corporatíon for any month so recomputed
may h - íess than zero, and ín such case, such defícít ís taken ínto account to
the e tent províded ín sectíon 2;
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
11
0. 61-1.
(íí) For thís purpose, the busíness e períence of the component corpora-
tíon príor to the date of the transactíon ís attríbuted to the acquíríng cor-
poratíon for the purpose of determíníng the e ístence of an abnormaííty
under sectíon 2(a).
(2) If any corporatíon, a party to a Pnrt II transactíon other than a trans-
actíon descríbed ín sectíon 61(a)(1)( ), whích transactíon occurs after the
cíose of the base períod of the acquíríng corporatíon, was entítíed ímmedíateíy
príor to the transactíon to compute íts average base períod net íncome under
sectíon 2(c) or under sectíon 2(d), then ín recomputíng the acquíríng cor-
poratíon s e cess profíts net íncome under sectíon 62(b) for the purpose of the
generaí average method of determíníng íts average base períod net íncome under
sectíon 3 (d) € ”
(í) The substítute e cess profíts net íncome for any month ídentífíed under
sectíon 2(c) (1) and (3) of any corporatíon entítíed to the benefíts of
sectíon 2(c) ímmedíateíy príor to the transactíon shaíí be consídered the
e cess profíts net íncome of that corporatíon for such month ;
(íí) In the case of any corporatíon entítíed to the benefíts of sectíon
2(d) ímmedíateíy príor to the transactíon, one-tweífth of the average
base períod net íncome, separateíy computed, to whích such corporatíon was
entítíed under sectíon 2(d) shaíí be consídered the e cess profíts net
Income of that corporatíon for each month of íts base períod.
(3) n acquíríng corporatíon shaíí aíso be entítíed to appíy sectíon 2
to the e tent províded ín sectíon 0. 62-3(c), reíatíng to a Part II trans-
actíon ínvoívíng corporatíons each of whích was prevíousíy entítíed to the
benefíts of sectíon 2(d), 3, , , or 6.
(b) Part II transactíons descríbed ín sectíon 6t (a) (t)( ). € ” (1) In the case
of a Pnrt II transactíon descríbed ín sectíon 61(a)(1)( ), whích occurred
duríng the base períod of an acquíríng corporatíon, the acquíríng corpora-
tíon shaíí be entítíed to determíne íts average base períod net íncome under
sectíon 2 (c) or (d) If and to the e tent that ít satísfíes the requírements
of eíther such subsectíon and satísfíes the other requírements of sectíon 2
after the appíícatíon of the ruíes prescríbed ín (a)(1), above, and ín sectíon
0. 62-3 (b) and (e). In appíyíng the ruíes of (a)(1), above, there shaíí be
avaííabíe to the acquíríng corporatíon ín determíníng íts average base períod
net íncome under sectíon 2 oníy such portíon of each ítem of the com-
ponent corporatíon s e períence príor to the transactíon as ís aííocabíe to
the propertíes of such component corporatíon transferred to the acquíríng
corporatíon. Such portíon shaíí be determíned ín a manner consístent wíth
that used ín the aííocatíon to the acquíríng corporatíon under sectíon 62(í) and
sectíon 0. 62-9 of the e cess profíts net íncome of the component corporatíon.
(2) In the case of a Part II transactíon descríbed ín sectíon 61(a)(1)( ),
where the transactíon occurs after the cíose of the base períod of the acquíríng
corporatíon, and where the component corporatíon was entítíed ímmedíateíy
príor to the transactíon to compute íts average base períod net íncome under
sectíon 2(c) or under sectíon 2(d), then ín recomputíng the acquíríng cor-
poratíon s e cess profíts net íncome under sectíon 62(b) for any month for the
purpose of the generaí average method of determíníng íts average base períod
net íncome under sectíon 3 (d), the ruíes prescríbed ín (a) (2), above, shaíí be
appíícabíe, e cept that there shaíí be avaííabíe to the acquíríng corporatíon oníy
such portíon of the e cess profíts net Income of the component corporatíon com-
puted under (a)(2), above, as ís aííocabíe to the acquíríng corporatíon under
the ruíes of sectíon 62(í) and sectíon 0. 62-9.
(3) For specíaí ruíes wíth respect to a Part II transactíon descríbed ín sectíon
61(a)(1) ( ) ínvoívíng a transfer to an acquíríng corporatíon not created íncí-
dent to the transactíon, or ínvoívíng a transfer by more than one component
corporatíon to an acquíríng corporatíon, see sectíon 0. 61-7 (b).
Sec. 0. 62- . ppíícatíon of Sectíon 3. € ” (a) Part II transactíons other
than a transactíon descríbed ín sectíon 61 (a) ( ) ( ). (1) In the case of a
Part II transactíon, other than a transactíon descríbed ín sectíon 61(a) (1) ( ),
where any corporatíon a party to the transactíon (other than an acquíríng cor-
poratíon created íncídent to such transactíon) had not actuaííy commenced
busíness on or before the 1st day of the acquíríng corporatíon s base períod, the
acquíríng corporatíon shaíí not be entítíed to compute íts average base períod net
íncome under sectíon 3 e cept to the e tent províded ín sectíon 0. 62-3(c), or
to the e tent províded ín (3) beíow.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-1.
116
(2) In the case of a Part II transactíon other than a transactíon descríbed
ín sectíon 61(a) (1) ( ), where, at the tíme of the transactíon, one or more of
the corporatíons, partíes to the transactíon, had made a substantíaí change,
wíthín the meaníng of sectíon 3(a)(1) and sectíon 0. 3-1 (a) (1), ín the
products or servíces whích ít furníshed, but where such corporatíons at the tíme
of the transactíon were not yet quaíífíed to compute theír average base períod
net íncome under sectíon 3, the acquíríng corporatíon shaíí be entítíed to com-
pute íts average base períod net íncome under sectíon 3 wíth respect to such
change íf the requírements of such sectíon are satísfíed after the appíícatíon of
the ruíes províded ín sectíon 0. 62-3 (b) and (d) and of the foííowíng ruíes:
(í) For thís purpose, the acquíríng corporatíon shaíí recompute íts e cess
profíts net íncome ín the manner províded ín sectíon 62(b), e cept that the
e cess profíts net íncome so recomputed may be íess than zero;
(íí) For thís purpose, the gross íncome and the net íncome of aíí com-
ponent corporatíons for the ta abíe years begínníng wíth, wíthín, and subse-
quent to the ta abíe year ín whích the fírst change ín products or servíces
was made, such ta abíe year beíng determíned by reference to the corpora-
tíon whích made such change, shaíí he treated as the gross íncome and net
íncome, respectíveíy, of the acquíríng corporatíon;
(ííí) For thís purpose, each change ín products or servíces made by a
component corporatíon shaíí be treated as havíng been made by the acquíríng
corporatíon at the tíme ít was made by the component corporatíon.
(3) Where a corporatíon a party to the Part II transactíon commenced busí-
ness duríng the 36-month períod endíng on the íast day of the base períod of the
acquíríng corporatíon and the transactíon occurred príor to December 1, 19o0. the
actívítíes of that corporatíon shaíí be treated, for the purpose of sectíon 3, as
though they constítuted a substantíaí change ín products or servíces wíthín the
meaníng of sectíon 3(a) (1) and sectíon 0. 3-í(a) (1). In such a case, the
ruíes prescríbed ín (2) above, and ín sectíon 0. 62-3 (b) and (d) shaíí be
appíícabíe for the purpose of determíníng whether or not the acquíríng corpora-
tíon meets the requírements of sectíon 3.
( ) In the case of a Part II transactíon other than one descríbed ín sectíon
61(a) (1) ( ), where subsequent to the date of the transactíon there ís a sub-
stantíaí change ín the products or servíces furníshed by the acquíríng corpora-
tíon wíthín the meaníng of sectíon 3(a) (1) and sectíon 0. 3-1 (a) (1), the
acquíríng corporatíon shaíí be entítíed to determíne íts average base períod net
íncome under sectíon 3 wíth respect to such change íf ít quaíífíes under such
sectíon after the appíícatíon of the ruíes prescríbed ín (2), above, and ín sectíon
0. 62-3 (b) and (d).
( ) cept to the e tent províded ín (3). above, an acquíríng corporatíon shaíí
not be deemed, for the purpose of sectíon 3, to have made a substantíaí change
ín products or servíces furníshed by ít soíeíy by reason of a change ín such prod-
ucts or servíces resuítíng from the e ecutíon of a Part II transactíon.
(6) n acquíríng corporatíon shaíí aíso be entítíed to appíy sectíon 3 to the
e tent províded ín sectíon 0. 02-3(c), reíatíng to a Part II transactíon ínvoívíng
corporatíons each of whích was prevíousíy entítíed to the beuefíts of sectíon
2(d), 3, , , or 6.
(b) Part II transactíons descríbed ín sectíon 61(a) (1) ( ). € ” (1) In the case
of a Part II transactíon descríbed ín sectíon 61(a) (1) ( ). the acquíríng cor-
poratíon shaíí be entítíed to compute íts average base períod net íncome under
sectíon 3 oníy € ”
(í) To the e tent províded ín sectíon 0. 62-3(c); or
(íí) If there was, after the date of the transactíon, a substantíaí change
ín the products or servíces furníshed by the acquíríng corporatíon wíthín the
meaníng of sectíon 3(a) (1) and sectíon 0. 3-í(a) (1), and íf the acquír-
íng corporatíon quaíífíes under sectíon 3 after the appíícatíon of the ruíes
prescríbed ín (a) (2), above, and ín sectíon 0. 62-3 (b) and (e). In appíy-
íng the ruíes of (a)(2), above, there shaíí be avaííabíe to the acquíríng
corporatíon ín determíníng íts average base períod net íncome under sectíon
3 oníy such portíon of each ítem of the component corporatíon s e períence
príor to the transactíon as ís aííocabíe to the propertíes of such component
corporatíon transferred to the acquíríng corporatíon. Such portíon shaíí be
determíned ín a manner consístent wíth that used ín the aííocatíon to the
acquíríng corporatíon under sectíon 62(í) and sectíon 0. 02-9 of the e cess
profíts net íncome of the component corporatíon.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
117
0. 61-1.
(2) For specíaí ruíes wíth respect to a Part II transactíon descríbed ín sectíon
61(a) (1) ( ) Invoívíng a transfer to an acquíríng corporatíon not created íncí-
dent to the transactíon, or ínvoívíng a transfer by more than one component
corporatíon to an acquíríng corporatíon, see sectíon 0. 61-7 (b).
Sec. 0. 62-6. ppíícatíon of Sectíon . € ” (a) Part II transactíons other
than a transactíon descríbed ín sectíon 61 (a) (1) ( ). € ” (1) In the case of a
Tart II transactíon other than a transactíon descríbed ín sectíon 61(a) (1) ( ),
where at the tíme of the transactíon one or more of the corporatíons, partíes to
the transactíon, had made an addítíon or addítíons to íts facííítíes or had repíaced
aíí or a part of íts e ístíng facííítíes, wíthín the meaníng of sectíon (b) and
se-tíon 0. -2, and where the transactíon occurred príor to the cíose of the
base períod of the ccrporatícn makíng such addítíon or repíacement, the acquír-
íng corporatíon shaíí be entítíed to compute Its average base períod net íncome
under sectíon , íf the requírements of such sectíon are satísfíed after the
appíícatíon of the ruíes províded ín sectíon 0. 62-3 (b) and (d) and of the
foííowíng ruíes:
(í) For thís purpose, the capacíty for productíon or operatíon, the ad|usted
basís of the totaí facííítíes, and the basís (unad|usted) of the totaí facííítíes,
determíned ín accordance wíth the.ruíes appíícabíe under sectíon (b)
and sectíon 0. -2, of aíí component corpcratíons as they e ísted on the
day príor to the begínníng of the 36-month períod endíng wíth the íast day
of the base períod of the acquíríng corporatíon, shaíí be treated as havíng
been heíd by the acquíríng corporatíon on such day for the purpose of deter-
míníng whether an íncrease ín capacíty for productíon or operatíon shaíí
be deemed to have occurred wíthín the meaníng of sectíon (b) and sectíon
0. -2;
(íí) For thís purpose, each addítíon or addítíons to íts facííítíes or re-
píacement of aíí or part of íts e ístíng facííítíes by a component corporatíon
shaíí be treated as havíng been made by the acquíríng corporatíon at the
tíme ít was made by such component corporatíon;
(ííí) For thís purpose, íf the Part II transactíon occurred before the cíose
of the base períod of the acquíríng corporatíon and after the íast day of
the ta abíe year of the acquíríng corporatíon ímmedíateíy precedíng íts
fírst ta abíe year endíng after une 30, 19 0, then the computatíon under
sect on (e) (1) (reíatíng to the determínatíon of totaí assets) shaíí be
made by reference to the íast day of such base períod, and the 12-month
períod referred to ín sectíon (c) (2) (reíatíng to the ínterest ad|ustment)
shaíí be the 12-month períod endíng wíth the íast day of such base períod.
See sectíon 61(d).
(2) Where a corporatíon a party to the Part II transactíon commenced busí-
ness duríng the 36-month períod endíng on the íast day of the base períod of the
acquíríng corporatíon and the Part II transactíon occurred duríng the base
períod of the acquíríng corporatíon, the acquísítíon of facííítíes by that corpora-
tíon shaíí be treated, for the purpose of sectíon , as though they constítuted
an addítíon or addítíons to facííítíes wíthín the meaníng of sectíon (b) and
sectíon 0. -2. In such a case, the ruíes prescríbed ín (1), above, and ín sec-
tíon 0. 62-3 (b) and (d) shaíí be appíícabíe for the purpose of determíníng
whether or not the acquíríng corporatíon meets the requírements of sectíon .
(3) In the case of a Part II transactíon other than one descríbed ín sectíon
61(a)(1)( ), where subsequent to the date of the transactíon there ís an
addítíon or addítíons to íts facííítíes or a repíacement of aíí or part of íts e ístíng
facííítíes wíthín the meaníng of sectíon (.b) and sectíon 0. -2, the acquír-
íng corporatíon shaíí be entítíed to determíne íts average base períod net íncome
under sectíon íf ít quaíífíes under such sectíon after the appíícatíon of the
ruíes prescríbed ín (1), above, and ín sectíon 0. 62-3 (b) and (d).
( ) cept to the e tent províded ín (2), above, an acquíríng corporatíon
shaíí not be deemed, for the purpose of sectíon , to have made an addítíon or
addítíons to íts facííítíes or to have repíaced aíí or part of íts facííítíes soíeíy
by reason of the addítíons or repíacements to Its facííítíes resuítíng from the
e ecutíon of a Part II transactíon.
( ) n acquíríng corporatíon shaíí aíso be entítíed to appíy sectíon to the
e tent províded ín sectíon 0. 62-3 (c), reíatíng to a Part II transactíon ínvoívíng
corporatíons each of whích was prevíousíy entítíed to the benefíts of sectíon
2(d), 3, , , or 6.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-1.)
11
(b) Part II transactíons descríbed ín sectíon 61 (a) (1) ( ). € ” (1) In the
case of a Part II transactíon descríbed ín sectíon 61(a) (1) ( ), the acquíríng
corporatíon shaíí be entítíed to compute íts average base períod net íncome under
sectíon oníy € ”
(í) To the e tent províded ín sectíon 0. 62-3(c) ; or
(íí) If there was, after the date of the transactíon, an addítíon or addí-
tíons to íts facííítíes or a repíacement of aíí or part of íts e ístíng facííítíes
by the acquíríng corporatíon wíthín the meaníng of sectíon (b) and
sectíon 0. -2, and íf the acquíríng corporatíon quaíífíes under sectíon
after the appíícatíon of the ruíes prescríbed ín (a)(1), above, and ín
sectíon 0. 62-3 (b) and (e). In appíyíng the ruíes of (a) (1), above, there
shaíí be avaííabíe to the acquíríng corporatíon ín determíníng íts average
base períod net íncome under sectíon oníy such portíon of each ítem
of the component corporatíon s e períence príor to the transactíon as ís
aííocabíe to the propertíes of such component corporatíon transferred to the
acquíríng corporatíon. Such portíon shaíí be determíned ín a manner con-
sístent wíth that used ín the aííocatíon to the acquíríng corporatíon under
sectíon 62(í) and sectíon 0. 62-0 of the e cess profíts net íncome of the
component corporatíon.
(2) For specíaí ruíes wíth respect to a Part II transactíon descríbed In sectíon
61(a)(1)( ) ínvoívíng a transfer to an acquíríng corporatíon not created
íncídent to the transactíon, or ínvoívíng a transfer by more than one component
corporatíon to an acquíríng corporatíon, see sectíon 0. 01-7(b).
Sec. 0. 62-7. ppíícatíon op Sectíon . € ” (a) Part II transactíons other
than a transactíon descríbed ín sectíon 61(a)(1)( ). € ” (í)In the case of a
Part II transactíon other than a transactíon descríbed ín sectíon 61(a) (1) ( ),
whích occurred duríng the base períod of the acquíríng corporatíon, such ac-
quíríng corporatíon shaíí be entítíed to compute íts average base períod net
íncome under sectíon , ín the manner províded thereín, íf the requírements
of such sectíon are satísfíed after the appíícatíon of the ruíes províded ín sectíon
0. 62-3 (b) and (d). In such a case, for the purpose of the computatíons
under sectíon (see sectíon 0. -2), the ta abíe year of the acquíríng cor-
poratíon ín whích ít ís deemed to have commenced busíness under sectíon 61(d)
(see sectíon 0. 61- ) and íts two ímmedíateíy succeedíng ta abíe years shaíí
be consídered to be íts fírst three ta abíe years.
(2) In the case of a Part II transactíon other than a transactíon descríbed ín
sectíon 61(a) (1) ( ), whích occurred after the cíose of the base períod of the
acquíríng corporatíon, íf the requírements of sectíon are satísfíed after the
appíícatíon of the ruíes províded ín sectíon 0. 62-3 (b) and (d), the average
base períod net íncome of the acquíríng corporatíon after the transactíon shaíí
be determíned, for the purpose of sectíon 0, by whíchever of the foííowíng
three methods ís appíícabíe:
(í) Where the transactíon occurs after the cíose of the thírd ta abíe year
endíng after the actuaí commencement of busíness of both the component
corporatíon and the acquíríng coríwratíon (other than an acquíríng corpora-
tíon created íncídent to the transactíon), the average base períod net íncome
of the acquíríng corporatíon after the transactíon shaíí be determíned, ín
ííeu of the manner províded by sectíon , by addíng together the average
base períod net íncome of the acquíríng corporatíon and of the component
corporatíon as separateíy determíned under sectíon ín each ínstance as
of the 1st day of the fourth ta abíe year of the corporatíon ; or
(Ií) Where the transactíon occurs príor to the cíose of the thírd ta abíe
year endíng after the actuaí commencement of busíness of eíther the acquír-
íng corporatíon or the component corporatíon, but after the cíose of the
thírd such ta abíe year of one such corporatíon, the average base períod
net íncome of the acquíríng corporatíon after the transactíon shaíí be deter-
míned, ín ííeu of the manner províded by sectíon , by addíng together
( ) the average base períod net íncome determíned under sectíon as of
the 1st day of the fourth such ta abíe year of the corporatíon ín busíness
for more than three ta abíe years at the tíme of the transactíon, and ( )
an average base períod net íncome for the corporatíon not ín busíness for
three ta abíe years at the tíme of the transactíon, computed under sectíon -1
as though the day ímmedíateíy príor to the transactíon were the fírst day of
such corporatíon s fourth ta abíe year; or
(ííí) Where the transactíon occurs príor to the cíose of the thírd ta abíe
year after the actuaí commencement of busíness of both the acquíríng corpo-
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
119
0. 61-1.
ratíon and the component corporatíon, the average base períod net Income
of the acquíríng corporatíon after the transactíon shaíí be determíned by
the method specífíed ín sectíon . In such a case, for the purpose of the
computatíons under sectíon (see sectíon 0. -2), the ta abíe year
of the acquíríng corporatíon ín whích ít ís deemed to have commenced
busíness under sectíon 61(d) (see sectíon 0. 61- ) and íts two ímmedí-
ateíy succeedíng ta abíe years shaíí be consídered to be íts fírst three ta abíe
years. In makíng such computatíon under sectíon , the net capítaí addí-
tíon or reductíon specífíed ín sectíon (c) shaíí be the net capítaí addítíon
or reductíon of the acquíríng corporatíon determíned under the príncípíes
of sectíon 03 and sectíon 0. 63-1.
(3) n acquíríng corporatíon shaíí aíso be entítíed to appíy sectíon to
the e tent províded ín sectíon 0. 62-. (c). reíatíng to a Part II transactíon
ínvoívíng corporatíons each of whích was prevíousíy entítíed to the benefíts of
sectíon 2(d), 3, , , or 6.
(b) Part II transactíons descríbed ín sectíon 61(a) (1) ( ). € ” (1) In the case
of a Part II transactíon descríbed ín sectíon 61(a)(1)( ), whích occurred
duríng the base períod of the acquíríng corporatíon, such acquíríng corporatíon
shaíí be entítíed to compute íts average base períod net Income under sectíon ,
ín the manner províded thereín, íf the requírements of such sectíon are satísfíed
after the appíícatíon of the ruíes províded ín sectíon 0. 62-3 (b) and (e). In
such a case, for the purpose of the computatíons under sectíon (see sectíon
0. -2), the ta abíe year of the acquíríng corporatíon ín whích ít ís deemed
to have commenced busíness under sectíon 61(d) (see sectíon 0. 61- ) and
íts two ímmedíateíy succeedíng ta abíe years shaíí be consídered to be íts fírst
three ta abíe years.
(2) In the case of a Part II transactíon descríbed In sectíon 61(a)(1)( ),
whích occurred after the cíose of the base períod of the acquíríng corporatíon,
íf the requírements of sectíon are satísfíed after the appíícatíon of the ruíes
províded ín sectíon 0. 62-3 (b) and (e), the average base períod net íncome
of the acquíríng corporatíon after the transactíon shaíí be determíned, for the
purpose of sectíon , by whíchever of the foííowíng methods ís appíícabíe:
(1) Where the transactíon occurred after the cíose of the thírd ta abíe
year endíng after the actuaí commencement of busíness of the component
corporatíon, the average base períod net Income of the acquíríng corporatíon
after the transactíon 6haíí be that portíon of the average base períod net
íncome of the component corporatíon, determíned under sectíon . whích
ís aííocabíe to the acquíríng corporatíon under the ruíes of sectíon 62(í)
and sectíon 0. 62-9; or
(íí) Where the transactíon occurs príor to the cíose of the thírd ta abíe
year endíng after the actuaí commencement of busíness of the component
corporatíon, the average base períod net íncome of the acquíríng corporatíon
after the transactíon shaíí be determíned by the methods specífíed ín sectíon
after the appíícatíon of the ruíes prescríbed ín (a) (2) (ííí). above. In
appíyíng the ruíes of (a) (2) (ííí), above, there shaíí be avaííabíe to the
acquíríng corporatíon ín determíníng íts average base períod net íncome
under sectíon oníy such portíon of each ítem of the component corpora-
tíon s e períence príor to the transactíon as ís aííocabíe to the propertíes
of such component corporatíon transferred to the acquíríng corporatíon.
Such portíon shaíí be determíned ín a mnnner consístent wíth that used ín
the aííocatíon to the acquíríng corporatíon under sectíon 62(í) and sectíon
0. 62-9 of the e cess profíts net íncome of the component corporatíon. For
the purpose of the computatíons under sectíon (see sectíon 0. -2).
the ta abíe year of the acquíríng corporatíon ín whích ít ís deemed to have
commenced busíness under sectíon 61(d) (see sectíon 0. 61- ) and íts two
ímmedíateíy succeedíng ta abíe years shaíí be consídered to be íts fírst three
ta abíe years.
(3) For specíaí ruíes wíth respect to a Part II transactíon descríbed ín sectíon
61 (a)(1) ( ) ínvoívíng a transfer to an acquíríng corporatíon not created íncí-
dent to the transactíon, or ínvoívíng a transfer by more than one component
corporatíon to an acquíríng corporatíon, see sectíon 0. 61-7(b).
Sec. 0. 02- . ppíícatíon of Sectíon 6. € ” (a) Part II transactíons other
than a transactíon descríbed ín sectíon 61(a)(1)( ). € ” (1) In the case of a
Part II transactíon other than a transactíon descríbed ín sectíon 61(a) (1) ( ),
whích occurred príor to the cíose of the base psríod of the acquíríng corporatíon,
the acquíríng corporatíon shaíí be entítíed to compute íts average base períod net
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-í.
120
Income under sectíon G íf the requírements of such sectíon are satísfíed after
the appíícatíon of the ruíes províded ín sectíon 0. 62-3 (b) and (d).
(2) n acquíríng corporatíon shaíí aíso be entítíed to appíy sectíon 6 to the
e tent províded ín sectíon 0. 62-3(e), reíatíng to a Part II transactíon ínvoívíng
corporatíons each of whích was prevíousíy entítíed to the benefíts of sectíon
2(d), 3, , , or 6.
(b) Part 11 transactíons descríbed ín sectíon íGí (a) (1) ( ). € ” (1) In the
case of a Part II transactíon descríbed ín sectíon 61(a)(1)( ), the acquíríng
corporatíon shaíí be entítíed to compute íts average base períod net íncome under
sectíon 6 oníy € ”
. (í) To the e tent províded ín sectíon 0. 62-3(c) ; or
(íí) If the transactíon occurred duríng the base períod of the acquíríng
corporatíon, and íf the acquíríng corporatíon quaíífíes under sectíon (1
after the appíícatíon cf the ruíes prescríbed ín sectíon 0. 62-3 (b) and (e).
(2) For specíaí ruíes wíth respect to a Part II transactíon descríbed ín sectíon
61(a)(1)( ) ínvoívíng a transfer to an acquíríng corporatíon not created
Incídent to the transactíon, or ínvoívíng a transfer by more than oue component
corporatíon to an acquíríng corporatíon, see sectíon 0. 61-7(b).
Sec. 0. 62-9. ííocatíon Ruíes ín toe Case of Part II Transactíons De-
scríbed ín Sectíon 61(a) (1) ( ). € ” (a) Generaí ruíe. € ” (1) In the case of a Part
II transactíon descríbed ín sectíon 61(a)(1)( ) (that ís, a transactíon ín
whích a part, as dístínguíshed from aíí or substantíaííy aíí, of the propertíes of a
component corporatíon ís transferred to an acquíríng corporatíon, or ín whích
aíí or substantíaííy aíí of the propertíes of a component corporatíon are trans-
ferred to two or more acquíríng corporatíons), the base períod e períence of
the component corporatíon ímmedíateíy príor to the transactíon ís aííocated
among the corporatíons ín busíness after the transactíon ín proportíon to the
ratío that the faír market vaíue of the assets (íncíudíng both tangíbíe and ín-
tangíbíe assets) of the component corporatíon whích are heíd ímmedíateíy after
the transactíon by each of the corporatíons whích were partíes to the transactíon,
bears to the faír market vaíue of the totaí assets (íncíudíng both tangíbíe and
íntangíbíe assets) of the component corporatíon as tbey e ísted ímmedíateíy
príor to the transactíon. Thís generaí ruíe of aííocatíon ís used ín determíníng
that part of the e cess profíts net íncome, or substítute e cess profíts net íncome
íf computed under sectíon 2(c), of the component corporatíon for any month
príor to the transactíon whích may be used after the transactíon by a survívíng
component corporatíon or, ín recomputíng íts e cess profíts net íncome under
sectíon 62(b), by the acquíríng corporatíon sub|ect, for the ta abíe year of the
transactíon, to the príncípíes descríbed ín sectíon 0. 61-3(c). Thís ruíe of
aííocatíon ís aíso used ín determíníng that portíon of an aíternatíve average
base períod net íncome determíned under sectíon 2(d), 3, , , or C. to
whích the component corporatíon was entítíed ímmedíateíy príor to the trans-
actíon whích may be avaííed of by the acquíríng corporatíon under the ruíes set
forth ín sectíons 0. 62-3 to 0. 62-S, íncíusíve. Thís ruíe ís aíso appííed
wherever ít ís appropríate under such sectíons to aííocate some partícuíar ítem
of the component corporatíon s base períod e períence príor to the Part II trans-
actíon, for e ampíe, íts totaí assets, gross receípts, gross íncome, payroíí, or
net íncome. For ruíes of aííocatíon as to net capítaí addítíons or reductíons, see
sectíon 63 and sectíon 0. 63-1, and as to base períod capítaí addítíons, see
sectíon 6 and sectíon 0. 6 -1.
(2) For the purpose of (1), above, a determínatíon of the faír market vaíue
of the propertíes of the component corporatíon ímmedíateíy príor to the trans-
actíon descríbed ín sectíon 61(a) (1) ( ) and the faír market vaíue of the prop-
ertíes of the component corporatíon heíd after the transactíon by each of the cor-
poratíons whích nre partíes to the transactíon, may be made by agreement
between aíí persons (corporate or otherwíse) whích are partíes to the trans-
actíon, where the Commíssíoner agrees thereto. The foííowíng ruíes are appííca-
bíe to any such agreement:
(í) The agreement shaíí be ín wrítíng, shaíí fuííy descríbe the transactíon
ínvoíved, shaíí set forth In detaíí the facts upon whích the partíes reíy íu the
determínatíon of the faír market vaíue of the propertíes, and shaíí be sígned
by each party to the Part II transactíon.
(íí) Sub|ect to subsequent approvaí by the Commíssíoner, a ta payer whích
has made such an agreement may compute íts ta on íts return pursuant to
such agreement, provídíng that the orígínaí agreement (or a dupíícate orígí-
naí) ís attached to the return. If the return ís fííed príor to the agreement,
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
121
0. 61-1.
the orígínaí agreement (or a dupíícate orígínaí) shaíí be attached to a cíaím
for refund íf the appíícatíon of the agreement resuíts ín an overpayment,
or to an amended return íf the appíícatíon of the agreement does not resuít
ín an overpayment.
(ííí) In any case ín whích such an agreement ís approved by the Commís-
síoner, the faír market vaíue of the propertíes and the aííocatíon of the e cess
profíts net íncome or average base períod net íncome determíned ín such
agreement shaíí be bíndíng upon aíí partíes to such agreement for the ta abíe
year for whích the determínatíon ís made and for aíí subsequent ta abíe
years.
(3) In no case shaíí the aggregate of the aííocated portíons of the e cess profíts
net íncome be ín e cess of 100 percent of the e cess profíts net íncome of the
component corporatíon ímmedíateíy príor to the transactíon. Símííaríy, the
aggregate of the aííocated portíons of the average base períod net íncome shaíí
not e ceed 100 percent of the average base períod net íncome of the component
corporatíon ímmedíateíy príor to the transactíon. Thís íímítatíon shaíí appíy ín
the case of any other ítem whích ís aííocated among the partíes.
(b) íternatíve ruíe. € ” (1) In ííeu of the aííocatíon províded ín (a), above,
based on the faír market vaíue of the propertíes, an aííocatíon of base períod
e períence may be made on the basís of the actuaí base períod e períence of the
propertíes transferred to the acquíríng corporatíon and of the propertíes re-
taíned by the component corporatíon, íf aíí the partíes to the transactíon
agree thereto and íf ít ís estabííshed to the satísfactíon of the Commíssíoner
that such an aííocatíon faíríy represents an ídentífíabíe base períod e períence
of each such group of assets transferred or retaíned. The foííowíng ruíes are
appíícabíe to any such agreement:
(í) The agreement shaíí be In wrítíng, shaíí fuííy descríbe the transac-
tíon ínvoíved, shaíí set forth ín detaíí the facts upen whích the ta payers
reíy ín the determínatíon of the base períod e períence of the propertíes
transferred or retaíned and ín the determínatíon of the aííocatíons based
thereon, and shaíí be sígned by ea;h party to the Part II transactíon.
(íí) The aíternatíve ruíe of aííocatíon shaíí eníy be avaííabíe where the
transferred assets and the retaíned assets each constítuted, at aíí tímes
ínvoíved ín such aííocatíons, a goíng busíness unít for whích adequate and
separate records were maíntaíned.
(ííí) Sub|ect to subsequent approvaí by the Commíssíoner, a ta payer
whích has made such an agreement may compute íts ta on íts return pur-
suant to such agreement, provídíng that the orígínaí agreement (or a du-
píícate orígínaí) ís attached to the return. If the return ís fííed príor to
the agreement, the orígínaí agreement (or a dupíícate orígínaí) shaíí be
attached to a cíaím for refund íf the appíícatíon of the agreement resuíts
ín an overpayment, or to an amended return íf the appíícatíon of the agree-
ment does not resuít ín an overpayment.
(ív) In any ease ín whích such an agreement ís approved by the Com-
míssíoner, the aííocatíons of base períod e períence determíned ín such
agreement shaíí be bíndíng upon aíí partíes to such agreement for the ta abíe
year for whích the determínatíon ís made and for aíí subsequent ta abíe
years.
(2) In no case shaíí the aggregate of the aííocated portíons of the e cess profíts
net íncome or average base períod net íncome e ceed 100 percent of the e cess
profíts net íncome or average base períod net íncome, as the case may be, of the
component corporatíon ímmedíateíy príor to the transactíon, uníess the com-
ponent corporatíon ís a partnershíp and the transactíon occurred before De-
cember 1, 1000. Thus, oníy ín the case of a partnershíp In such a transactíon
may more than 100 percent of the e cess proííts net íncome of the component
corporatíon be aííocated to one party to the transactíon by reason of a defícít
ín e cess profíts net íncome aííocabíe to another party to the transactíon.
Sec. 0. 02-10. Límítatíons Under Sectíon G2(|) (1) ín Case of Certaín
Stock cquísítíons. € ” (a) In generaí. € ” (1) Sectíon 02(|)(í) ís desígned to
prevent certaín dupíícatíons ín base períod ínccme and transferred capítaí
addítíons and reductíons ín certaín cases where after December 31, 191 , assets
of the ta payer (or of a corporatíon whích íater becomes íts component) are
transferred for stock ín another corporatíon whích íater becomes a component
of the ta payer (or where assets of the component corporatíon are transferred
for stock ín the ta payer). Sectíon 02(|) (1) contempíates that, after the
0S oíc € ” y
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-1.
122
Part II transactíon, the e cess profíts net Income of the corporatíon whose
stock was acquíred (íncíudíng íts e cess profíts net íncome determíned under
sectíon 62 (c)(1)( ) or (d)(2)( )), attríbutabíe to the acquíred stock, for
any month or part thereof before the acquísítíon of íts stock shaíí be e cíuded
ín determíníng the ta payer s average base períod net íncome wíth reference
to the recomputntíons províded under Part II. Símííar e cíusíons are set forth
ín (d), beíow, wíth respect to other ítems ínvoíved ín such recomputatíons of the
base períod e períence of the component corporatíon. The ad|ustment under
sectíon 62(|) (1) shaíí be made ín the cases descríbed ín thís sectíon, and ín
aíí other cases to whích sectíon 62(|)(í) may be appíícabíe (íncíudíng cases
where assets of the component corporatíon are transferred for stock ín the ta -
payer), ín the manner consístent wíth the príncípíes underíyíng such descríbed
cases.
(2) cept to the e tent that dupíícatíon of e períence occurs, no ad|ustment
Is necessary under sectíon 62(|) (1) € ”
(I) where stock of the component corporatíon Is acquíred dírectíy from
the component corporatíon; or
(íí) where stock of the component corporatíon Is acquíred through a bona
fíde íong-term íncrease ín the capítaí structure of the acquíríng corporatíon
made ín con|unctíon wíth and for the purpose of such acquísítíon, and where
ít ís estabííshed to the satísfactíon of the Commíssíoner that the transactíon
ís not ín pursuance of a pían havíng as one of íts príncípaí purposes the
avoídance of Federaí Income or e cess profíts ta . bona fíde íong-term
íncrease ín the capítaí structure wíthín the meaníng of thís subparagraph
(whether an íncrease ín equíty capítaí or ín borrowed capítaí as defíned ín
sectíon 39(b)) shaíí be deemed to have occurred oníy to the e tent that
such íncrease ís refíected ín the capítaí structure throughout the períod be-
gínníng wíth the tíme such Increase ís orígínaííy made and endíng wíth the
cíose of the ta abíe year for whích the ta ís computed. For the purpose of
determíníng whether such Increase ís refíected ín the capítaí structure, proper
ad|ustment shaíí be made to eíímínate the effect of any íoss occurríng after
the orígínaí íncrease ís made, and, ín the case of such determínatíon as of
any tíme duríng a ta abíe year, the determínatíon shaíí be made wíthout
regard to the earníngs and profíts of such ta abíe year. If the íncrease ín
capítaí structure ís the resuít of a Part II transactíon, thís subparagraph and
sectíon 0. 62-9(b) (1) (íí) shaíí be appííed ín the ííght of the facts appíí-
cabíe both to the ta payer and to the component corporatíon ín such trans-
actíon. For the purpose of thís subparagraph, an Increase ín the capítaí
structure does not resuít from the conversíon of ínadmíssíbíe assets ínto ad-
míssíbíe assets or from the accumuíatíon of earníngs and profíts príor to the
begínníng of the fírst ta abíe year whích begíns after the date of the
acquísítíon.
If the stock of the component corporatíon ís acquíred partíy In the manner de-
scríbed ín thís paragraph and partíy ín another manner, the ad|ustment under
sectíon C2(|) (1) shaíí be mnde to the e tent the acquísítíon ís made ín such other
manner. See (c) ( ) of thís sectíon.
(3) The ruíes for the appíícatíon of sectíon 62(|) (1) for the purpose of com-
putíng under Part II any average base períod net íncome under the generaí aver-
age method (see sectíon 3 (d) and sectíon 62(a)), under the aíternatíve based
on growth (see sectíon 3 (e) and sectíon 62(c)), and under sectíons 2 throuch
6 and 62 (d) through (h) (see sectíon 0. 62-3 through 0. 62- ) are set forth
ín thís sectíon. s to determínatíon of e cess profíts net íncome for the purpose of
sectíon 62(b)(2) (for any vacant month) under the íímítatíons of sectíon
62(|)(í), see sectíon 0. 62-1 (b) (3) (íí). s to ad|ustment under sectíon
62(|) (1) of the net capítaí addítíon or reductíon, see sectíon 0. 63-í(e , and
as to ad|ustment under sectíon 62(|) (1) of the base períod capítaí addítíon, see
sectíon 0. 6 -í(e). For treatment of cases ínvoívíng sectíons 2 through 6
and sectíon 62 (d) through (h), see (d) of thís sectíon.
(b) ampíes. € ” The generaí appíícatíon of sectíon 62( ) (1) for the purpose
of sectíon 3 (d) or (e) may be íííustrated by the foííowíng e ampíes:
ampíe (1). The Corporatíon and the Corporatíon commenced busíness
before anuary 1, 19 6, and make theír íncome ta returns on the caíendar year
basís. The Corporatíon soíd certaín assets for cash, and on anuary 1, 19 7, ít
used such cash to purchase aíí of the stock of the Corporatíon from the stock-
hoíders of the Corporatíon. On December 31,19 9, the Corporatíon acquíred
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
123
0. 61-1.
aíí of the assets of the Corporatíon ín a Part II transactíon. In determíníng
the Corporatíon s average base períod net íncome under sectíon 3 (d) or (e),
the e cess profít net íncome (or defícít) of the Corporatíon wííí be determíned
under sectíon 62(b) wíthout regard to the e cess profíts net íncome (or defícít)
of the Corporatíon for 19 6.
ampíe (2). The C Corporatíon and the D Corporatíon commenced busíness
before anuary 1, 19 6, and make theír íncome ta returns on the caíendar year
basís. The C Corporatíon soíd certaín assets for cash, and on anuary 1, 19 1, ít
used such cash to purchase aíí of the stock of the D Corporatíon from the stock-
hoíders of the D Corporatíon. On December 31,19 1, the C Corporatíon acquíred
aíí of the assets of the D Corporatíon ín a Part II transactíon. In appíyíng
sectíon C2 (b) or (c) ín determíníng the average base períod net íncome of the
C Corporatíon, sectíon 62(|)(í) requíres the e cíusíon of the D Corporatíon s
entíre e períence for the base períod, and níso for the addítíonaí períod up to
une 30, 19 0, for certaín cases under sectíon 3 (e). The D Corporatíon s base
períod capítaí addítíon and íts net capítaí addítíon or reductíon for 19 0 are aíso
requíred to be e cíuded. See sectíon 0. 03-1 and sectíon 0. 6 -1.
ampíe (3). The Corporatíon commenced busíness before anuary 1,
19 6, and makes íts íncome ta returns on the caíendar year basís. The F Corpo-
ratíon was organízed on anuary 10, 19 . On anuary 1 , 19 S, tho F Corpora-
tíon íssued íts stock and íong-term bonds for cash, and on the same day, ít used
such cash to acquíre aíí of the stock of the Corporatíon from the stockhoíders
of the Corporatíon. On anuary 1, 19 1, the F Corporatíon acquíred aíí of the
assets of the Corporatíon ín a Part II transactíon. In determíníng the F Corpo-
ratíon s average base períod net íncome under sectíon 3 (d) or (e), based on a
recomputatíon of íts e cess profíts net íncome under sectíon 62(b), sectíon 62(|)
(1) does not requíre the eíímínatíon of any part of the e cess profíts net íncome
(or defícít) of the Corporatíon for any part of íts base períod. See (a) (2),
above. Under sectíon 6 , however, the F Corporatíon wííí not be aííowed any
base períod capítaí addítíon for the cash paíd ín for íts stock and bonds whích was
used ín acquíríng the stock of the Corporatíon. See sectíon 0. 6 -1.
ampíe ( ). The G Corporatíon commenced busíness before anuary 1,
19 6. The Corporatíon was organízed on anuary 1 , 19 , and on the same
day ít íssued íts capítaí stock to the G Corporatíon ín return for cash whích
was not obtaíned by the G Corporatíon ín a transactíon descríbed ín (a) (2) (íí),
above. Shortíy thereafter the Corporatíon acquíred the stock of the I Cor-
poratíon from the stockhoíders of the I Corporatíon ín return for the cash
receíved from the G Corporatíon. The I Corporatíon had commenced busíness
before anuary 1, 19 6. ach corporatíon makes íts íncome ta returns on the
caíendar year basís. On anuary 1, 19 0, the G Corporatíon acquíred aíí of
the assets of the Corporatíon and of the I Corporatíon ín a Part II transac-
tíon. In determíníng the G Corporatíon s average base períod net íncome under
sectíon 3 (d) or 3 (e), based On a recomputatíon of íts e cess profíts net
íncome under sectíon 62(b), sectíon 62(|)(í) requíres the e cíusíon of the
e cess profíts net íncome (or defícít) of the I Corporatíon for 19 6 and 19 7.
símííar e cíusíon appííes wíth respect to the Corporatíon. See sectíon
0. 62-í(b) (3) (íí). Under sectíon 6 , the II Corporatíon wííí not be aííowed
any base períod capítaí addítíon for the money paíd ín by the G Corporatíon
ín return for the stock of the Corporatíon. See sectíon 0. 6 -1.
(c) Specíaí ruíes. € ” (1) Partíaí acquísítíons of stock. € ” In cases ín whích the
ta payer does not at one tíme or at any tíme príor to the Part II transactíon
acquíre aíí of the other corporatíon s stock, oníy that part of the component
corporatíon s base períod e períence before the acquísítíon whích ís attríbutabíe
to the stock so acquíred ís to be e cíuded ín computíng the ta payer s nverage
base períod net íncome under sectíon 3 (d) or (e), based on a recomputatíon
of íts e cess profíts net íncome under sectíon 62(b). In cases ín whích the
component corporatíon had a fí ed number of shares of oníy one cíass of stock
outstandíng at aíí tímes príor to the Part II transactíon, the portíon of the
component corporatíon s e períence to be e cíuded under sectíon 62(|) (1) wíth
respect to any part of the base períod (and of the addítíonaí períod through
une 30, 19 0, ín certaín cases under sectíon 3 (e)), príor to the day of any
such acquísítíon ís an amount whích bears the same ratío to the whoíe of the
component corporatíon s e períence for such part of such períod as the number
of shares of such stock acquíred by the ta payer after such part, and not dís-
posed of príor to the Part II transactíon, bears to the aggregate number of such
shares outstandíng at the tíme of the acquísítíon of such stock. If any of such
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-1.)
12
shares of stock, whether acquíred before or after the begínníng of the base
períod, were dísposed of príor to the Part II transactíon, the shares dísposed
of shaíí, for the purpose of thís computatíon, be deemed to be those most
recentíy acquíred. The ad|ustment under sectíon 62(|) (1) ín cases descríbed
In thís paragraph may be íííustrated by the foííowíng e ampíes:
ampíe (/). The Corporatíon and the Corporatíon commenced busí-
ness before anuary 1, 19 6, and make theír íncome ta returns on the caíendar
year basís. The outstandíng capítaí stock of the Corporatíon consísts of
1.000 shares, aíí of one cíass. On anuary 1, 19 7. the Corporatíon purchased
for cash 10 shares of such stock from the stockhoíders of the Corporatíon.
The purchase was not of a type descríbed ín (a) (2), above. On December 31.
19 1, the Corporatíon íssued stock ín e change for the baíance of the stock
of the Corporatíon and acquíred aíí of the assets of the Corporatíon In a
Part II transactíon. For the purpose of computíng the Corporatíon s average
base períod net íncome under sectíon 3 (d) or (e), based on a recomputatíon
of íts e cess profíts net Income under sectíon 62(b), 1 percent of the Cor-
poratíon s e cess profíts net íncome (or defícít) for 19 0 ís to be e cíuded under
sectíon 02( ) (1).
ampíe (2). ssume the same facts as In e ampíe (1), above, and the
addítíonaí fact that on anuary 1, 19 , the Corporatíon purchased for casíí
(whích purchase was not of the type descríbed ín (a)(2), above) 3 0 addí-
tíonaí shares of the Corporatíon from the stockhoíders of the íatter, makíng
íts totaí stock hoídíng ín the Corporatíon 0 shares príor to the íssuance of
the Corporatíon s own stock for the baíance of the stock of the Corporatíon
and príor to the Part II transactíon. There shaíí be e cíuded under sectíon
02(|) (1) an amount equaí to percent ( 1 percent píus 3 percent) of the
Corporatíon s e cess profíts net íncome (or defícít) for 19 6 and 3 percent of
Its e cess profíts net íncome (or defícít) for 19 7.
ampíe (S). ssume the same facts as ín e ampíe (2), above, and the ad-
dítíonaí fact that on anuary 1, 19 9, the Corporatíon soíd 3 0 shares of the
Corporatíon s stock to varíous índívíduaís. ccordíngíy, ímmedíateíy príor
to the íssuance of the Corporatíon s own stock for the baíance of the stock of
the Corporatíon and príor to the Part II transactíon, the Corporatíon wííí own
00 shares of the stock of the Corporatíon acquíred for assets sínce Decem-
ber 31, 19 . Therefore, 0 percent of the Corporatíon s e cess profíts net
íncome (or defícít) for 19 6 wííí be e cíuded under sectíon 62(|) (1). No por-
tíon of such e períence for 19 7, 19 , or 19 9 wííí be e cíuded sínce the 3 0
símres soíd are presumed to íncíude aíí of the 3 0 shares acquíred on anuary
1. 19 (as ín e ampíe (2)), and oníy 10 shares of the 10 shares acquíred on
anuary 1, 19 7.
ampíe ssume the same facts as In e ampíes (1), (2), and (3),
e ppt that the orígínaí acquísítíon of 10 shares of the Corporatíon s sto -k
occurred príor to anuary 1, 19 6. No ad|ustment wííí be necessary under
sectíon 62(|) (1) because the 3 0 shares dísposed of on anuary 1, 19 9, are
deemed to be out of the most recentíy acquíred shares, íncíudíng ín thís case
aíí of the shares acquíred sínce December 31, 19 , that ís, the 3 0 shares
acquíred on anuary 1, 19 .
(2) More than one cíass of síock. € ” Where the corporatíon whose stock ís
acquíred íías at the tíme of such acquísítíon more than one cíass of stock out-
standíng and the ta payer does not, príor to the Part II transactíon, acquíre
aíí of the stock of aíí cíasses for assets (other than íts own stock), the e perí-
ence for the base períod (and for the addítíonaí períod through une 30. 10 0,
ín certaín cases under sectíon 3 (e)) of the component corporatíon whích ís
to be e cíuded under sectíon 62(|)(í) must be determíned upon the basís of
the earníngs whích may be attríbuted to each cíass of stock. Where preferred
stock Is nonvotíng and ís aíso íímíted and preferred as to dívídends, the base
períod e cess pn fíts net íncome may be aííocated fírst to the preferred stock
on the basís of the prescríbed dívídend rate per share. If the oníy other cíass
Is common stock, the baíance of such e cess profíts net íncome may be aííocated
to the common stock. The portíon of such base períod e cess profíts net Income
whích Is attríbutabíe to the stock owned by the acquíríng corporatíon ís that
portíon of such base períod e cess profíts net Income aííocated to the cíass to
whích such stock beíongs proportíonate to the number of shares of such cíass
acquíred by the acquíríng corporatíon after December 31, 19 . Thís ruíe may-
be íííustrated by the foííowíng e ampíe:
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
12
0. 61-1.
ampíe. The L Corporatíon commenced busíness before anuary 1, 19 6,
and makes íts Income ta returns on the caíendar year basís. It íías had out-
standíng at aíí tímes the foííowíng shares:
,000 shares of nonvotíng preferred stock of a par vaíue of 100 per share,
íímíted and preferred as to dívídends to the e tent of 6 per share annuaííy;
and
10,000 shares of no-par vaíue common stock possessíng soíe votíng power.
On anuary 1, 19 , the M Corporatíon purchased for cash (whích purchase
was not of a type descríbed ín (a) (2), above) 6,000 shares of the L Corpora-
tíon s common stock from the stockhoíders of the L Corporatíon. The e cess
profíts net íncome of the L Corporatíon for 19 0 and 10 7 was 100,000 each year.
Of thís amount, 30,000, representíng the prescríbed dívídend rate of 0 a share
on ,000 shares, ís aííocabíe to the preferred stock. Of the baíance of 70,000
whích ís aííocabíe to the common stock, 60 percent (the ratío of the 0,000 shares
of common stock acquíred by the I Corporatíon sínce December 31, 19 , to
the totaí of 10,000 shares of such stock outstandíng), or 2,000, wííí be con-
sídered attríbutabíe to the stock so acquíred by the M Corporatíon. Therefore,
íf the M Corporatíon subsequentíy acquíred aíí of the assets of the L Corpora-
tíon ín a Tart II transactíon (no stock of the L Corporatíon hnvíng been pur-
chased or dísposed of ín the íntervaí), 2,000 of the L Corporatíon s e cess
profíts net íncome for 19 6 and 19 7 ís to be e cíuded under sectíon 62 (|) (1)
ín computíng the average base períod net íncome of the M Corporatíon under
sectíon 3 (d) or (e), based on a recomputntíon of Its e cess profíts net
íncome under sectíon 62(b). If the L Corporatíon had a defícít ín e cess profíts
net íncome for eíther 19 6 or 19 7, or for both, such defícít wouíd be consídered
attríbutabíe soíeíy to the common stock for purposes of determíníng the portíon
to be e cíuded under sectíon 62(|) (1).
(3) Stock acquísítíon duríng year. € ” If the acquísítíon of stock by the acquír-
íng corporatíon occurs duríng a ta abíe year of the component corporatíon,
whích ta abíe year ís a factor ín determíníng the base períod e períence of the
component corporatíon, the e cíusíon requíred by sectíon 62(|)(í) wííí appíy,
after the determínatíon of the amount of the component corporatíon s e cess
profíts net íncome (or defícít) for each month of such ta abíe year, to the
amount so determíned for each month príor to the acquísítíon, and, In the case
of the month ín whích the acquísítíon was made, wííí appíy to the part of the
amount for such month proportíonate to the number of days of such month
príor to the date of the acquísítíon. In the case of an acquísítíon.of stock ín the
same ta abíe year ín whích the Part II transactíon cccurred, see sectíon
0. 61-3(c) for the príncípíes appíícabíe to the determínatíon of the e cess
profíts net íncome (or defícít) for the ta abíe year and for each month thereof.
ampíe. Corporatíon N and Corporatíon O commenced busíness before anu-
ary 1, 19 6, and make theír íncome ta returns on the caíendar year basís.
Corporatíon N purchased aíí of the stock of Corporatíon O from the íatter s
stockhoíders on uíy 12, 19 , ín a transactíon to whích sectíon 62(|)(í) ís
appíícabíe, and on December 31, 19 2, ít acquíred aíí of the assets of Corpora-
tíon O ín a Part II transactíon. The e cess profíts net íncome (or defícít) of
Corporatíon O for each month ín 19 ís fírst determíned wíthout regard to the
e cíusíon requíred by sectíon 62(|)(í). Under sectíon 62(|)(í), the e cess
profíts net íncome (or defícít) of Corporatíon O for 19 6, for 19 7, and for each
month ín 19 príor to uíy ís not avaííabíe to Corporatíon N. Símííaríy, there
ís not avaííabíe to Corporatíon N so much of the e cess profíts net íncome (or
defícít) of Corporatíon O for uíy 19 ns the number of days príor to the
date of the acquísítíon ís of the totaí number of days ín such month (11/31 of
the e cess profíts net íncome (or defícít) for uíy).
( ) Stock acquíred for stock. € ” Sectíon 62(|) (1) does not appíy where stock
of one corporatíon ís acquíred by another corporatíon soíeíy ín e change for
the íatter s stock. In case stock ís acquíred ín e change partíy for the acquíríng
corporatíon s own stock and partíy for other property, sectíon 62(|) (1) ís ap-
píícabíe oníy to the e tent that the acquísítíon ís attríbutabíe to such other prop-
erty. Stock whích has, ín the hands of the ta payer, a basís determíned wíth
reference to the basís of stock prevíousíy acquíred by the íssuance of the ta -
payer s own stock shaíí be consídered as havíng been acquíred ín consíderatíon
of the íssuance of the ta payer s own stock. These ruíes may be íííustrated by
the foííowíng e ampíes:
ampíe (1). Corporatíon P acquíres, after December 31, 19 , stock In
Corporatíon ín e change soíeíy for the stock of Corporatíon P. In a subse-
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-1.
126
quent nonta abíe reorganízatíon, Corporatíon P receíves new shares of Corpora-
tíon In e change for the orígínaí snares. If the new shares take the basís of
the orígínaí shares, the new shares are consídered, for the purpose of sectíon
62(|) (1), to have been acquíred for the stock of Corporatíon P, and such sectíon
ís ínappíícabíe.
ampíe (2). Corporatíons R and S commenced busíness before anuary
1, 10 6. On anuary 1, 19 7, Corporatíon R acquíred aíí of the stock of Corpora-
tíon S from the íatter s stockhoíders In e change for stock of Corporatíon R.
On anuary 1,10 , ín a nonta abíe reorganízatíon, Corporatíon T was organízed
and acquíred uíí the assets of Corporatíon S ín e change for Corporatíon T s
stock. In connectíon wíth thís reorganízatíon, Corporatíon R e changed íts
stock ín Corporatíon S for aíí of the stock ín Corporatíon T, and Corporatíon S
was díssoíved. On December 31, 10 0, Corporatíon R acquíred aíí of the assets
of Corporatíon T ín a Part II transactíon. For the purpose cf sectíon 2( ) (1),
the stock ín Corporatíon T acquíred by Corporatíon R ís regarded as havíng been
acquíred for Its own stock and, therefore, no ad|ustment ís requíred under sec-
tíon 62(|) (1).
( ) Muítípíe components. € ” Sectíon C2(|) (1) aíso appííes In cases ín whích
a component corporatíon (referred to as the fírst corporatíon ) of the ta payer
transfers assets for the stock ín a corporatíon (referred to as the second cor-
poratíon ) and both corporatíons become component corporatíons of the ta -
payer (the second corporatíon becomíng a component corporatíon eíther dírectíy
or as a component corporatíon of the fírst corporatíon). The statute aíso appííes
to any other corporatíon whích becomes a component corporatíon of the ta -
payer and whích at the tíme of a stock acquísítíon by the ta payer or fírst cor-
poratíon (under the círcumstances descríbed In sectíon 62( ) (1) ( ) or ( ))
was connected, dírectíy or índírectíy, through stock ownershíp wíth the corpora-
tíon the stock of whích was acquíred. In the case of such a corporatíon con-
nected through stock ownershíp, the statute appííes regardíess of the manner of
acquísítíon of the stock of such connected corporatíon heíd at such tíme (for
e ampíe, whether or not acquíred for a consíderatíon other than the íssuance
of stock). The statute aíso appííes regardíess of the date before such tíme that
the corporatíon hoídíng such stock, dírectíy or índírectíy, acquíred such stock
of such connected corporatíon. That ís, ít ís ímmateríaí whether the stock of
such connected corporatíon heíd at such tíme was acquíred before, on, or after
December 31, 10 , as íong as such stock was acquíred before the tíme the ac-
quísítíon of stock of the corporatíon to whích ít was so connected occurred ín a
transactíon descríbed ín sectíon 62( ) (1) ( ) or ( ). In the case of any such
corporatíon connected through stock ownershíp at such tíme, the amount of íts
e cess profíts net íncome (or defícít) whích ís to be eíímínated under sectíon
62( ) (1) ís to be determíned by reference to that part of such amount whích
Is attríbutabíe to the períod príor to such tíme and whích ís attríbutabíe to the
stock heíd, dírectíy or índírectíy, at such tíme, and not dísposed of thereafter,
by the corporatíon the stock of whích was acquíred at such tíme by the ta -
payer or fírst corporatíon. Such e períence to be eíímínated ís to be attríbuted
to the períod príor to such tíme and to such stock so heíd upon the basís of the
príncípíes prevíousíy stated ín thís sectíon. To the e tent that the stock of a
corporatíon (íater to become a component corporatíon) was not so heíd at such
tíme but was subsequentíy acquíred, after December 31, 10 , by the ta payer or
another corporatíon (a fírst or second corporatíon), for assets of the íatter, the
base períod e períence of such corporatíon ís to be e cíuded ín accordance wíth
the ruíes prevíousíy set forth ín tííís sectíon for e cíudíng the e períence of
a component corporatíon when the íatter s stock ís acquíred after December 31,
10 , for such assets by the ta payer. The appíícatíon of these ruíes ín such
cases ís íííustrated by the foííowíng e ampíes:
ampíe (1). The U, , W, and Corporatíons commenced busíness before
anuary 1, 19 6, and make theír íncome ta returns on the caíendar year basís.
The Corporatíon commenced busíness on anuary 1, 19 , and íssued aíí of
Its stock to the stockhoíders of the W Corporatíon for the stock of the íatter.
On anuary 1, 19 7, the Corporatíon purchased for cash (whích purchase was
not of a type descríbed ín (a) (2), above) aíí of the stock of the Corporatíon
from stockhoíders of the Corporatíon. On anuary 1, 19 , the T Corporatíon
purchased for cash (whích purchase was not of a type descríbed ín (a)(2),
above) aíí of the stock of the Corporatíon from the íatter s stockhoíders. On
December 31, 19 0, the U Corporatíon acquíred aíí of the assets of the , W, and
Corporatíons ín a Part II transactíon. In computíng the average base períod
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
127
0. C1-I.
net íncome of the U Corporatíon under sectíon 3 (d) or (e), based on a re-
computatíon of íts e cess profíts net íncome under sectíon 02(b), there ís to be
e cíuded under sectíon 62(|) (1) the e períence of the , W, and Corpora-
tíons for 19 6 and 19 7.
ampíe (2). ssume the same facts as ín e ampíe (1), above, e cept that the
Corporatíon made the acquísítíon of the Corporatíon s stock on anuary 1,
10 9 (after the acquísítíon by the U Corporatíon of the stock of the Corpora-
tíon). There ís to be e cíuded under sectíon C2(|) (1) the e períence of both
the and W Corporatíons for 19 0 and 19 7 and the e períence of the Cor-
poratíon for 19 0, 19 7, and 19 .
ampíe (3). The W, , Y, and Z Corporatíons commenced busíness ín 19
and make theír íncome ta returns on the caíendar year basís. In uíy, 19 , the
Corporatíon acquíred 0 percent of the stock of the Y Corporatíon from the
stockhoíders of the íatter. On anuary 1, 19 7, the W Corporatíon purchased
for cash (whích purchase was not of a type descríbed ín (a) (2), above) aíí of
the stock of the Corporatíon from the íatter s stockhoíders. On anuary 1,
19 , the Corporatíon símííaríy purchased for cash the remaíníng 0 percent
of the stock of the Y Corporatíon from other stockhoíders of the íatter. On an-
uary 1, 19 9, the Y Corporatíon símííaríy purchased for cash aíí of the stock of
the Z Corporatíon from the íatter s stockhoíders. On December 31, 19 9, the W
Corporatíon acquíred aíí of the assets of the , Y, and Z Corporatíons ín a Part II
transactíon. In computíng the average base períod net íncome of the W Corpo-
ratíon under sectíon 3 (d) or (e), based on a recomputatíon of íts e cess
profíts net íncome under sectíon 02(b), there ís to be e cíuded aíí of the e -
íwríence of the Corporatíon for 19 G. There ís aíso to be e cíuded aíí of the
e períence of the Y Corporatíon for 19 0, one-haíf of such e períence beíng e -
eíuded because of the 0 percent ownershíp of íts stock by the Corporatíon at
the tíme the stock of the Corporatíon was acquíred by the W Corporatíon and
the other haíf beíng e cíuded because of the subsequent acquísítíon of the other
0 percent of the stock of the Y Corporatíon by the Corporatíon. One-haíf of
the e períence of the Y Corporatíon for 19 7 ís aíso to be e cíuded because of the
acquísítíon of one-haíf of íts stock on anuary 1, 19 , by the Corporatíon.
The entíre e períence of the Z Corporatíon for 19 0, 19 7, and 19 ís to be e -
cíuded because of the acquísítíon from the stockhoíders of the Z Corporatíon on
anuary 1,19 9, of the stock of the Z Corporatíon by the Y Corporatíon.
(d) ppíícatíon of sectíon 62(|)(í) for the purpose of sectíon G2 (d)
through (ft). € ” (1) Generaí ruíe. € ” The ruíes of (a), (b), and (c), above, shaíí
be appííed e cept to the e tent modífíed by (2), beíow, where after a Part II
transactíon foííowíng a stock acquísítíon covered by sectíon 02(|)(í) the ac-
quíríng corporatíon determínes íts average base períod net íncome through the
appíícatíon of the provísíons of sectíon 02 (d) through (h). See sectíon 0. 02-3
through sectíon 0. 02- .
(2) Specíaí ruíes. € ” (í) In appíyíng sectíon 0. 02-3(c), reíatíng to a Part II
transactíon ínvoívíng corporatíons each of whích was prevíousíy entítíed to the
benefíts of sectíon 2(d), 3, , , or 0, no ad|ustment of the average base
períod net íncome separateíy computed for each such corporatíon ímmedíateíy
príor to the transactíon ís necessary under sectíon 02(|) (1) íf the stock of the
component corporatíon was acquíred by the acquíríng corporatíon before, and
was heíd by ít on, the day (or each day ín the case of sectíon 2(d) or 0) for
whích totaí assets are determíned for the purpose of determíníng the average
base períod net íncome of the acquíríng corporatíon separateíy computed ím-
medíateíy príor to the transactíon. If the stock ís acquíred by the acquíríng
corporatíon after such day (or after the íast of such days ín the case of sectíon
2(d) or 6), the average base períod net íncome separateíy computed for the
component corporatíon shaíí not be avaííabíe to the acquíríng corporatíon for the
purpose of sectíon 0. 62-3(c). If the acquíríng corporatíon separateíy computes
under sectíon 2(d) or 6 íts average base períod net íncome ímmedíateíy príor
to the transactíon, and If the stock ís acquíred after the fírst and príor to the íast
day for whích totaí assets are determíned for the purpose of such computatíon
under sectíon 2(d) or 6, then sectíon 62(|) (1) requíres the eíímínatíon of
so much of the average base períod net íncome of the component corporatíon as
the number of such days, for each of whích totaí assets are determíned, before
the acquísítíon of the stock ís to the totaí number of such days for each of whích
totaí assets are determíned. See (c) (1), above, for príncípíes appíícabíe under
thís paragraph ín the case of partíaí acquísítíons of stock, and see (c) ( ), above,
for .príncípíes appíícabíe under thís paragraph ín the case of muítípíe components.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-1.
12
(íí) In appíyíng sectíon 62(d) (2) ( ) In the case of an acquíríng corporatíon
entítíed, ímmedíateíy príor to the Part II transactíon, to compute íts average base
períod net Income nnder sectíon 2(d), the e cíusíon requíred by sectíon
62(|) (1) shaíí appíy to the e cess profíts net íncome of the component corpora-
tíon for the períod endíng on the íast day. príor to the acquísítíon of the stock of
the component corporatíon, for whích totaí assets are determíned for the purposes
of sectíon 2(d).
(ííí) In appíyíng sectíon 0. 62- ín the case of an acquíríng corporatíon (n a
Part II transactíon occurríng duríng the base períod of the acquíríng corporatíon,
sectíon 62(|) (1) requíres that the totaí assets computed under sectíon 2(d)
for any day príor to the acquísítíon of the component corporatíon s stock shaíí be
determíned after e cíudíng the assets of the component corporatíon attríbutabíe
to such stock. correspondíng e cíusíon shaíí be made ín appíyíng sectíon
2(d) wíth respect to ínterest paíd or íncurred by the component corporatíon
príor to the íast such cíay. Whether an abnormaííty occurríng príor to the stock
acquísítíon ís sígnífícant and not trívíaí shaíí be determíned after nppíyíng sectíon
G2(|)(í) to the e cess profíts net íncome and the assets of the component
corporatíon.
(ív) Sectíon 0. 62- (a) (2) and (3), reíatíng to the case of an acquíríng
corporatíon ín a Part II transactíon occurríng príor to the tíme the partíes to
such transactíon were quaíífíed to compute average base períod net Income under
sectíon 3, appííes oníy where the acquísítíon of the component corporatíon s
stock occurred on or príor to the date for whích totaí assets are determíned for
the purpose of sectíon 3 and sectíon 0. 62- . ccordíngíy, ín any case under
sectíon 0. 62- (a) (2) and (3) no ad|ustment Is requíred under sectíon
62(|) (1) In appíyíng sectíon 3 to the acquíríng corporatíon.
(v) Sectíon 0. 62-6(a) (1) and (2), reíatíng to the case of an acquíríng cor-
poratíon ín a Part II transactíon occurríng príor to the tíme the partíes to such
transactíon were quaíífíed to compute average base períod net íncome under sec-
tíon , appííes oníy where the acquísítíon of the component corporatíon s stock
occurred on or príor to the date for whích totaí assets are determíned for the
purpose of sectíon and sectíon 0. 62-6. ccordíngíy, ín any case under sec-
tíon 0. 62-6(a) (1) and (2), no ad|ustment ís requíred under sectíon 62( ) (1)
ín appíyíng sectíon to the acquíríng corporatíon.
(ví) In appíyíng sectíon 0. 62-7 ín the case of an acquíríng corporatíon ín a
Part II transactíon, If the amount of the totaí assets for the purpose of sectíon
ís determíned under sectíon (b) (2) ( ) or (c) (1) for a day príor to the
acquísítíon of the component corporatíon s stock, sectíon 62( ) (1) requíres the
e cíusíon of so much of the totaí assets of the component corporatíon for such
day as Is attríbutabíe to the stock acquíred. In computíng the Interest ad|ust-
ment under sectíon (b), a correspondíng e cíusíon shaíí be made wíth respect
to the ínterest paíd or íncurred by the component corporatíon príor to the date
of the acquísítíon of such stock. The net capítaí addítíon or reductíon of the
acquíríng corporatíon determíned for the purpose of sectíon (c) shaíí be
ad|usted so as to remove any addítíon or reductíon of the component corporatíon,
attríbutabíe to the stock acquíred, whích occurred príor to the acquísítíon of such
Stock.
(víí) In appíyíng sectíon 0. 62- ín the case of an acquíríng corporatíon In a
Part II transactíon occurríng duríng (he base períod of the acquíríng corporatíon,
sectíon 62(|) (1) requíres that the totní assets computed under sectíon 6(b)
for any day príor to the acquísítíon of the component corporatíon s stock shaíí be
determíned after e cíudíng the assets of the component corporatíon attríbutabíe
to such stock. correspondíng e cíusíon shaíí be made ín appíyíng sectíon
6(b) wíth respect to ínterest paíd or íncurred by the component corporatíon
príor to the íast such day.
Sec. 0. 62-11. Límítatíon Under Sectíon 62(|) (2). € ” (a) Tn the case of
a Part II transactíon occurríng ín a ta abíe year of the acquíríng corporatíon
endíng after une 30, 19 0, sectíon C2(|) (2) ímposes a íímítatíon for such ta -
abíe year ín computíng the acquíríng corporatíon s e cess profíts credít based
on íncome. In computíng the acquíríng corporatíon s average base períod net ín-
come under sectíon 3 (d) or (e) for such ta abíe year, there ís avaííabíe to
the acquíríng corporatíon oníy a proportíonate part of the amount of the monthíy
e cess profíts net íncome (or defícít) of the component corporatíon whích ís
otherwíse avaííabíe to the acquíríng corporatíon under sectíon 62 (b), (c), or
.(d). In computíng the average base períod net íncome of the acquíríng cor-
poratíon under sectíon 0. G2-3(c) or under sectíon 0. 02-7 (a) (2) (1) or (íí)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
129
0. C1-1.
or (b) (2) (í) (whích sectíons reíate to certaín cases ín whích the average base
períod net íncome of the component corporatíon, separateíy computed, ís added
to that of the acquíríng corporatíon) there ís avaííabíe to the acquíríng corpora-
tíon oníy a proportíonate part of the amount of the average base períod net ín-
come of the component corporatíon whích ís otherwíse avaííabíe to the acquíríng
corporatíon under such sectíons. Such proportíonate part shaíí he determíned
ín each case by the ratío whích the number of days ín the ta abíe year of the
acquíríng corporatíon after the day of the transactíon bears to the totaí number
of days ín such ta abíe year. In the computatíon of the e cess profíts credít
based on íncome for subsequent ta abíe years, the íímítatíons of sectíon 62(|)
(2) are not appíícabíe. Sectíon 02(|)(2) may be íííustrated by the foííowíng
e ampíe:
ampíe. On October 19, 19 1, the Corporatíon acquíred aíí of the assets
of the Y Corporatíon ín a transactíon descríbed ín sectíon 01(a). oth the
Corporatíon and the Y Corporatíon commenced busíness before anuary 1, í.9 6,
and both corporatíons make theír íncome ta returns on the caíendar year
I asís. The Y Corporatíon had an e cess profíts net íncome of 10,000 for each
month ín the caíendar year 19 G, a defícít ín e cess profíts net íncome of 00 for
each month ín the caíendar year 19 7, an e cess profíts net íncome of 3,000 for
each month ín the caíendar year 39 , and an e cess profíts net íncome of 7, 00
for each month ín the caíendar year 19 9. In computíng íts average base períod
net íncome for 19 1 under sectíon 3 (d), based on n recomputatíon of íts e -
cess profíts net íncome under sectíon 02(b), the Corporatíon shaíí íncíude
oníy one-fí th (73/30 ) of the above amounts, í.e., 2,000 for each mouth ín 19 6,
a defícít of 100 for each month ín 19 7, 000 for each month ín 19 , and 1, 00
for each month ín 19 9. In computíng the e cess profíts credít for 19 2, and
subsequent years, however, the Corporatíon may íncíude the entíre amount
of the e cess profíts net íncome and defícít ín e cess profíts net íncome of the
Y Corporatíon.
(b) If a corporatíon becomes an acquíríng corporatíon ín a ta abíe year end-
íng after une 30, 19 0, and íf the ta payer s average base períod net íncome for
the purpose of the e cess profíts credít for such ta abíe year ís determíned
under sectíon 0. 02- through sectíon 0. 02- , other than ín a case to whích (a)
of thís sectíon ís appíícabíe, the average base períod not íncome of the ta payer
shaíí be computed by takíng ínto account oníy a proportíonate part of the amount
of the totaí assets of the component corporatíon otherwíse avaííabíe to the ac-
quíríng corporatíon ín such computatíon. If the totaí assets are determínrd for
a day príor to the day of the Part II transactíon, such proportíonate part shaíí
bear the same ratío to the totaí assets of the component corporatíon otherwíse
avaííabíe to the acquíríng corporatíon as the number of days ín the ta abíe year
of the acquíríng corporatíon after the day of the Part II transactíon bears to the
totaí number of days ín such ta abíe year. If the totaí assets are determíned
for the day of, or for a day subsequent to, tha Part II transactíon, there shaíí
be e cíuded from such totaí assets an amount whích ís the same portíon of the
totaí assets of the component corporatíon acquíred by the acquíríng corporatíon
ín the Part II transactíon as the number of days ín the ta abíe year of the ac-
quíríng corporatíon príor to the day of the Part II transactíon ís of the totaí
number of days ín such ta abíe year. ppropríate ad|ustment shaíí be made ín
any case sub|ect to the ruíes of thís paragraph ín whích ínterest paíd or íncurred
by the component corporatíon ís taken ínto account ín computíng the average
base períod net íncome of the acquíríng corporatíon. In appíyíng sectíon 0. 02-7
(a)(2)(ííí) or (b)(2)( ), appropríate ad|ustment shaíí be made ín any case
ín whích the net capítaí addítíon or reductíon of the acquíríng corporatíon Is
determíned for the purpose of sectíon (c) by reference to addítíons or re-
ductíons of the component corporatíon. In the computatíon of the e cess profíts
credít based on íncome for subsequent ta abíe years, the íímítatíons of sectíon
02f|) (2) are not appíícabíe.
(c) símííar íímítatíon appííes ín the case of a component corporatíon for
the purpose of computíng íts e cess profíts credít for a ta abíe year of such
component corporatíon endíng after une 30, 19 0, ín whích the Part II trans-
actíon occurs. See sectíon 01(c) (2) and ( ) and sectíon 0. 01-3(b) (2)
and ( ).
Sec. 0. 02-12. Partnershíps and Soíe Propríetorshíps. € ” In the case of a
component corporatíon whích ís a partnershíp or a busíness owned by a soíe
propríetorshíp (see sectíon 0. 61- ), the computatíons requíred under Part II
and under these reguíatíons shaíí be made as though such partnershíp or such
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-1.
130
busíness owned by a soíe propríetorshíp bad been a corporatíon. See sectíon
0. 62-1 (b) (2) for e ampíes of the ad|ustments requíred.
Sec. 0. 62-13. Mínímum verage ase Períod Net Income or c tríRíNa
Corporatíon Under Part II. € ” Sectíon 62(1) provídes for a mínímum average
base períod net íncome ín certaín cases. In cases to whích sectíon 62(1)
ís appíícabíe, the average base períod net Income of the acquíríng corporatíon
shníí not be íess than eíther íts average base períod net íncome computed wíth-
out regard, under Part II, to any of the quaíífíed component corporatíons, or
the average base períod net íncome separateíy computed for any quaíífíed com-
ponent corporatíon. Sectíon 62(1) ís appíícabíe oníy ín the ease of a Part II
transactíon occurríng ín a ta abíe year of the acquíríng corporatíon endíng after
une 30, 19 0, and ís appíícabíe oníy If, at the begínníng of the fírst ta abíe
year of the acquíríng corporatíon endíng after une 30, 19 0, and at aíí tímes
thereafter untíí such transactíon, eíther the acquíríng corporatíon owned at
íeast 7 percent of each cíass of stock of each of the quaíífíed component
corporatíons ínvoíved ín the transactíon, or one of such quaíífíed component
corporatíons owned at íeast 7 percent of each cíass o stock of the acquíríng
corporatíon and of each of the other quaíífíed component corporatíons. The term
quaíífíed component corporatíon, as used ín thís sectíon, means a component
corporatíon whích was actuaííy ín e ístence and had actuaííy commenced busí-
ness at the begínníng of the base períod of the acquíríng corporatíon. For the
purpose of determíníng whether a corporatíon ís a quaíífíed component corpora-
tíon, sectíon 61(d) does not appíy. Sectíon 02( )(1) does not requíre a re-
ductíon, by reason of the Part II transactíon, of the mínímum average base
períod net íncome to whích the acquíríng corporatíon Is entítíed under sectíon
62(1) and thís sectíon, but sectíon 62( )(2) requíres, for the ta abíe year
ín whích the transactíon takes píace, a proratíon of the average base períod net
íncome of the quaíífíed component corporatíon. In case the Part II transactíon
ís a transactíon descríbed ín sectíon 61(a)(1)( ), see sectíon 0. 61-7(b).
Sec. 0. 62-1 . Treatment or bnormaíítíes ín Income ín Ta abíe Year. € ”
In the case of a Part II transactíon occurríng on or before December 31, 19 0,
the actívítíes of the component corporatíon shaíí be treated as actívítíes of
the acquíríng corporatíon for the purpose of appíyíng sectíon 6 to Income,
receíved or accrued by the acquíríng corporatíon after the transactíon, whích
ís attríbutabíe to such actívítíes for a ta abíe year of the component corpora-
tíon whích cíosed príor to or wíth the cíose of the base períod of the acquíríng
corporatíon. In any such case, aíí íncome of the component corporatíon of the
same cíass as the abnormaí íncome receíved or accrued by the acquíríng corpora-
tíon, whích Income ís íncome for a ta abíe year of the component corporatíon
príor to the Part II transactíon, shaíí be treated under sectíon 6 as íncome
of the acquíríng corporatíon.
Par. 3. There ís ínserted ímmedíateíy after sectíon G3, the foí-
íowíng :
Sec. 0. 63-1. Net Capítaí ddítíon or Reductíon Under Part II. € ” (a) In
generaí. € ” (1) ppíícabíííty of sectíon. € ” It a ta payer acquíres propertíes of a
component corporatíon ín a Part II transactíon occurríng ín a ta abíe year of
the ta payer endíng after une 30, 19 0, and íf the ta payer s average base
períod net íncome for the purpose of íts e cess profíts credít for any ta abíe
year endíng after the transactíon ís computed by appíícatíon of Part II, then
the net capítaí addítíon or net capítaí reductíon of the acquíríng corporatíon
after the Part II transactíon shaíí be computed for such ta abíe year under
sectíon 3 (g) wíth the appíícatíon of thís sectíon. Thís sectíon does not appíy
ín the case of any Part II transactíon occurríng príor to the begínníng of the
ncquíríng corporatíon s fírst ta abíe year endíng after une 30, 19 0. In such
a case, see sectíon 0. 0 -1, reíatíng to the acquíríng corporatíon s base períod
capítaí addítíon. The ruíes províded ín thís sectíon for determíníng the net
capítaí addítíon and net capítaí reductíon of the acquíríng corporatíon after
the Part II transactíon díffer, dependíng upon whether the Part II transac-
tíon ís of a type descríbed ín sectíon 61(a)(1)( ). In the case of a com-
ponent corporatíon whích ís a partnershíp or a busíness owned by a soíe pro-
príetorshíp, see sectíon 0. 62-12.
(2) Constructíve ta abíe years of component corporatíon. € ” If the Part II
transactíon occurred príor to uíy 1, 19 0, the component corporatíon shníí be
deemed to have as many ta abíe years endíng after the transactíon as are neces-
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
131
0. 61-1.
sary for ít to have a fírst ta abíe year endíng after une 30,19 0, and the ta abíe
years of the component corporatíon endíng after the date of the transactíon
shaíí, for the purpose of thís sectíon, be determíned on the basís of the annuaí
accountíng períod appíícabíe to the component corporatíon ímmedíateíy príor
to the transactíon.
ampíe. The Corporatíon, whích makes Its íncome ta returns on the
caíendar year basís, acquíres the propertíes of the C Corporatíon on príí 1,
19 0, In a Part II transactíon. The C Corporatíon, príor to the transactíon,
made íts íncome ta returns on the basís of a físcaí year endíng uíy 31. The
C Corporatíon (whether or not ít remaíns ín e ístence after the transactíon
and whether or not ít maíntaíns the same annuaí accountíng períod) ís deemed
to have a ta abíe year begínníng ugust 1, 19 9, and endíng uíy 1, 19 0, and
the transactíon ís treated as havíng occurred ín the fírst ta abíe year of the
component corporatíon endíng after une 30, 19 0.
(b) Part II transactíons other than a transactíon descríbed ín sectíon
íGí(a) (1) ( ). € ” If the e cess profíts credít of an acquíríng corporatíon, other
than an acquíríng corporatíon ín a Part II transactíon descríbed ín sectíon
61(a) (1) ( ), ís computed by appíícatíon of Part II, the foííowíng ruíes shaíí
appíy ín computíng the net capítaí addítíon and net capítaí reductíon of the
acquíríng corporatíon:
(1) For the purpose of sectíon 3 (g) (3) ( ), ín the case of the ta abíe year
of the acquíríng corporatíon ín whích the transactíon occurs, íf the transactíon
occurs ín a ta abíe year of the component corporatíon endíng after une 30, 19 0,
ín determíníng the amount of money and property paíd ín for stock or as paíd-ín
surpíus or as a contríbutíon to capítaí after the begínníng of the ta abíe year
of the acquíríng corporatíon, there shaíí be íncíuded, begínníng wíth the day after
the transactíon, the amounts of money and property paíd ín for the same pur-
poses to the component corporatíon príor to the transactíon and after the begínníng
of the ta abíe year of the component corporatíon ín whích such transactíon
occurred.
(2) For the purpose of sectíon 3 (g) ( ) ( ), ín the case of the ta abíe year
of the acquíríng corporatíon ín whích the transactíon occurs, íf the transactíon
occurs ín a ta abíe year of the component corporatíon endíng after une 30, 19 0,
there shaíí bs íncíuded, begínníng wíth the day after the transactíon, the amount
of the dístríbutíons not out of earníngs and profíts of the ta abíe year, made by
the component corporatíon to íts sharehoíders príor to the transactíon and after
the begínníng of íts ta abíe year ín whích such transactíon occurred.
(3) For the purpose of sectíon 3 (g) (3) ( ) and ( )( ), ín the case of
the ta abíe year of the acquíríng corporatíon ín whích the transactíon occurs,
íf the transactíon occurs ín a ta abíe year of the component corporatíon endíng
after une 30, 19 0, there shaíí be added to the acquíríng corporatíon s daííy
capítaí addítíon begínníng wíth the day of the transactíon, the amount by whích
the component corporatíon s equíty capítaí at the begínníng of íts ta abíe year ín
whích the transactíon occurs e ceeds íts equíty capítaí as of the begínníng
of íts fírst ta abíe year endíng after une 30, 19 0. In case thís comparíson
of the component corporatíon s equíty capítaí shows n decrease to have taken
píace, the amount of that decrease shaíí be refíected ín the computatíon of the
daííy capítaí reductíon of the acquíríng corporatíon begínníng wíth the day of
the transactíon.
( ) For the purpose of sectíon 3 (g) (3) ( ) and ( ) ( ), for ta abíe years
of the acquíríng corporatíon begínníng after the transactíon, there shaíí be added
to the equíty capítaí of the acquíríng corporatíon at the begínníng of the acquír-
íng corporatíon s fírst ta abíe year endíng after une 30, 19 0, € ”
(í) If the transactíon occurs ín a ta abíe year of the component corpora-
tíon endíng after une 30, 19 0, the equíty capítaí of the component corpora-
tíon as of the begínníng of the component corporatíon s fírst ta abíe year
endíng after une 30, 19 0, or
(íí) If the transactíon occurred ín a ta abíe year of the component corpora-
tíon endíng before uíy 1, 19 0, the equíty capítaí of the component corpora-
tíon determíned as of the tíme ímmedíateíy príor to the transactíon.
( ) For the purpose of sectíon 3 (g), ín the case of the ta abíe year of the
acquíríng corporatíon ín whích the transactíon occurs, and ín the case of subse-
quent ta abíe years, there shaíí be added to the daííy borrowed capítaí of the
acquíríng corporatíon for the fírs day of íts fírst ta abíe year endíng after une
30,10 0, and to íts orígínaí ínadmíssíbíe assets, € ”
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-1.
132
(í) If the transactíon occurs ín a ta abíe year of the component corpora-
tíon endíng after une 30, 10 0, the daííy borrowed capítaí of the component
corporatíon for the fírst day of íts fírst ta abíe year endíng after une 30,
10 0, and the orígínaí ínadmíssíbíe assets of the component corporatíon,
respectíveíy, or
(íí) If the transactíon occurred ín a ta abíe year of the component corpora-
tíon endíng before uíy 1, 10 0, the daííy borrowed capítaí of the component
corporatíon determíned as of the tíme ímmedíateíy príor to the transactíon,
and the totaí of the ínadmíssíbíe assets heíd by the component corporatíon
ímmedíateíy príor to the transactíon, respectíveíy.
(6) For the purpose of sectíon 3 (g), ín the case of the ta abíe year of the
acquíríng corporatíon ín whích the transactíon occurs, the daííy borrowed capítaí
and the ínadmíssíbíe assets of the acquíríng corporatíon for each day of such
ta abíe year precedíng the day after the transactíon shaíí be computed by addíng
to the daííy borrowed capítaí and the ínadmíssíbíe assets of the acquíríng cor-
poratíon the amount of the daííy borrowed capítaí and the amount of the ínad-
míssíbíe assets, respectíveíy, of the component corporatíon whích are determíned
under ( ) (í) or (íí), above, whíchever ís appíícabíe.
(7) For the purpose of determíníng the amount referred to ín sectíon 3
(g) ( ) (D) and (e) (6), for any day after the day of the transactíon, the ínad-
míssíbíe assets of the acquíríng corporatíon for the 1st day of íts fírst ta abíe
year endíng after une 30,10 0. shaíí (for the purpose of sectíon 3 (g) (6) ( ) )
be determíned under ( ), above, and there shaíí be added (for the purpose of
sectíon 3 (g) (6) ( )) to the aggregate of the ad|usted basís (for determíníng
gaín upon saíe or e change) ot stock ín members of a. controííed group of whích
the acquíríng corí oratíon ís a member, heíd by the acquíríng corporatíon on the
fírst day of íts fírst ta abíe year endíng after une 30,10 0, € ”
(í) If the transactíon occurs In-a ta abíe year of the component corpora-
tíon endíng after une 30, 10 0, the aggregate of the ad|usted basís (for
determíníng gaín upon saíe or e change) of stock ín members of a controííed
group, of whích the component corporatíon ís a member, heíd by the com-
ponent corporatíon on the fírst day of íts fírst ta abíe year endíng after une
30, 10 0, cr
(íí) If the transactíon occurred ín a ta abíe year of the component cor-
poratíon endíng before uíy 1,10 0, the aggregate of the ad|usted basís (for
determíníng gaín upon saíe or e change) of stock ín members of a controííed
group, of whích the component corporatíon ís a member, heíd by the com-
ponent corporatíon ímmedíateíy príor to the transactíon.
( ) For the purpose of determíníng the amount referred to ín sectíon
3 (g)(7) for any day after the day of the transactíon (7 percent of whích
amount ís taken ínto account under sectíon 3 (g) ( ) ( )), there shaíí be added
to the amount of the Indebtedness descríbed ín sectíon 3 (g)(7) owed to the
acquíríng corporatíon for the fírst day of íts fírst ta abíe year endíng after
une 30, 10 0, € ”
(1) If the transactíon occurs ín n ta abíe year of the component corpora-
tíon endíng after une 30, 10 0, the amount of the índebtedness descríbed
In sectíon 3 (g) (7) whích was owed to the component corporatíon for the
fírst day of íts fírst ta abíe year endíng after une 30, 10 0, or
(íí) If the transactíon occurred ín a ta abíe year of the component cor-
poratíon endíng before uíy 1. 10 0, the amount of the índebtedness descríbed
ín sectíon 3 (g) (7) whích was owed to the component corporatíon ímme-
díateíy príor to the transactíon,
(c) Intercompany stockhoídíngs, etc. € ” The computatíon of the net capítaí
addítíon or reductíon under sectíon 3 (g) Is sub|ect to the foííowíng addítíonaí
ruíes reíatíng to cases Invoívíng Intercorporate stock ownershíp, and contríbu-
tíons, dístríbutíons, stock purchases, and íoans between partíes to a Part II
transactíon or theír sharehoíders:
(1) In computíng the daííy capítaí addítíon of the acquíríng corporatíon under
sectíon 3 (g) (3) ( ) for any day after the day of the Part II transactíon, there
shaíí be dísregarded any amount paíd ín to one corporatíon, a party to the Part II
transactíon, whích consísted of stock In another corporatíon a party to the Part II
transactíon, and there shaíí be dísregarded any amount paíd In by one such
corporatíon to another such corporatíon.
(2) In computíng the daííy capítaí reductíon of the acquíríng corporatíon under
sectíon 3 (g)( )( ) for any day after the day of the Part II transactíon,
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
133
0. 61-1.
there shaíí be dísregarded any dístríbutíon made by one corporatíon, a party to
the Part II transactíon, whích consísted of stock ín another corporatíon a party
to the Part II transactíon, and there shaíí be dísregarded any dístríbutíon made
by one such corporatíon to another such corporatíon.
(3) In computíng the daííy capítaí addítíon of the acquíríng corporatíon under
sectíon 3 (g) (3) ( ), or the daííy capítaí reductíon of the acquíríng corporatíon
under sectíon 3 (g)( )( ), for any day after the day of the transactíon, the
equíty capítaí of the acquíríng corporatíon at the begínníng of the ta abíe year
and íts equíty capítaí at the begínníng of íts fírst ta abíe year endíng after
une 30, 19 0, shaíí each be determíned after e cíudíng aíí stock of the com-
ponent corporatíon heíd by the acquíríng corporatíon at the begínníng of each
f.uch year. In determíníng the amount wíth respect to the component corporatíon
to be added under (b) (3) and ( ), above, for the purpose of computíng the
acquíríng corporatíon s daííy capítaí addítíon or reductíon, the equíty capítaí
of the component corporatíon as of any tíme for whích equíty capítaí ís computed
under (b) (3) or ( ), above, shaíí be determíned after e cíudíng aíí stock of
the acquíríng corporatíon, or of any other corporatíon a party to the Part II
transactíon, heíd by the component corporatíon as of such tíme.
( ) For the purpose of the computatíons under sectíon 3 (g) (3) (C) and
(g)( )(C) € ”
(í) In determíníng the amount wíth respect to the component corporatíon
to be added to the daííy borrowed capítaí of the acquíríng corporatíon under
(b) ( ) or (0), above, the daííy borrowed capítaí of the component cor-
poratíon, computed as of any tíme for whích such daííy borrowed capítaí ís
computed under (b) ( ) or (0), shaíí be determíned as íf any índebtedness
owed at such tíme by the component corporatíon to the acquíríng corporatíon
or to any other corporatíon whích ís a party to the Part II transactíon were
not borrowed capítaí wíthín the meaníng of sectíon 30.
(íí) In the case of the ta abíe year ín whích the Part II transactíon occurs,
If the daííy borrowed capítaí of the acquíríng corporatíon for the 1st day
of íts fírst ta abíe year endíng after une 30, 10 0, íncíudes an índebtedness
for such day of the acquíríng corporatíon to any corporatíon whích ís a
party to the Part II transactíon, then the computatíons under sectíon 3
(g) (3) (C) and (g) ( ) (C) shaíí be made, sub|ect to the ruíes províded In
(b) of thís sectíon and ín (í), above, ín the foííowíng manner:
( ) The daííy capítaí addítíon of the acquíríng corporatíon under
sectíon 3 (g)(3)(C) for any day ín such ta abíe year shaíí be 7
percent of the amount, íf any, by whích the daííy borrowed capítaí of
the acquíríng corporatíon for such day (ín ííeu of íts average borrowed
capítaí for such ta abíe year) e ceeds íts daííy borrowed capítaí for
the fírst day of íts fírst ta abíe year endíng after une 30, 19 0, and
( ) The daííy capítaí reductíon of the acquíríng corporatíon under
sectíon 3 (g) ( ) (C) for any day ín such ta abíe year shaíí be 7 percent
of the amount, íf any, by whích the daííy borrowed capítaí for the fírst
day of the acquíríng corporatíon s fírst ta abíe year endíng after une
30, 10 0, e ceeds íts daííy borrowed capítaí for such day (ín ííeu of íts
average borrowed capítaí for such ta abíe year).
For the purpose of such computatíon ín the case of any day after the day
of the Part II transactíon, the daííy borrowed capítaí of the acquíríng cor-
poratíon for the fírst day of íts fírst ta abíe year endíng after une 30, 19 0,
shaíí be determíned as íf any índebtedness for such day of the acquíríng
corporatíon to any corporatíon whích ís a party to the Part II transactíon
were not borrowed capítaí wíthín the meaníng of sectíon 39.
(ííí) In the case of any ta abíe year subsequent to the ta abíe year In
whích the Part II transactíon occurs, ín computíng the daííy capítaí addítíon
of the acquíríng corporatíon under sectíon 3 (g) (3) (C) or the daííy capítaí
reductíon of the acquíríng corporatíon under sectíon 3 (g)( )(C), the
daííy borrowed capítaí of the acquíríng corporatíon for the fírst day of íts
fírst ta abíe year endíng after une 30, 19 0, shaíí be determíned as íf any
índebtedness for such day of the acquíríng corporatíon to any corporatíon
whích ís a party to the Part II transactíon were not borrowed capítaí wíthín
the meaníng of sectíon 39.
- ( ) In computíng the daííy capítaí reductíon of the acquíríng corporatíon under
sectíon 3 (g) ( ) (D) for any day after the day of the Part II transactíon, the
stock of any corporatíon whích ís a party to the Part II transactíon, heíd by the
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
S 0. 61-1.
13
acquíríng corporatíon on the fírst day of íts fírst ta abíe year endíng after une
30, 19 0, shaíí not be consídered stock referred to ín sectíon 3 (g) (6) ( ), and
shaíí not be consídered an ínadmíssíbíe asset for the purpose of the computatíon
under sectíon 3 (g)(6)( ). In determíníng the amount wíth respect to the
component corporatíon to be added under (b) (7), above, for the purpose of com-
putíng the acquíríng corporatíon s daííy capítaí addítíon or reductíon, the stock
heíd by the component corporatíon ín the acquíríng corporatíon or In any other
corporatíon whích ís a party to the Part II transactíon shaíí be dísregarded In
makíng the computatíons under (b) (7).
(6) In computíng the daííy capítaí reductíon of the acquíríng corporatíon under
sectíon 3 (g) ( ) ( ) for any day after the day of the transactíon, íoans by the
acquíríng corporatíon to another corporatíon, a party to the Part II transactíon,
shaíí not be consídered índebtedness descríbed ín sectíon 3 (g) (7) for the fírst
day of the fírst ta abíe year endíng after une 30, 19 0. In determíníng the
amount wíth respect to the component corporatíon to be added under (b) ( ),
above, for the purpose of computíng the acquíríng corporatíon s daííy capítaí
reductíon, íoans by the component corporatíon to the acquíríng corporatíon or to
any other corporatíon whích ís a party to the Part II transactíon shaíí not be
consídered índebtedness descríbed ín sectíon 3 (g) (7).
(7) In computíng the íncrease or decrease ín ínadmíssíbíe assets for the pur-
pose of sectíon 3 (g) (1) and (2) € ”
(í) In the case of any ta abíe year of the acquíríng corporatíon subsequent
to the ta abíe year ín whích the transactíon occurs, the orígínaí ínadmíssíbíe
assets of the acquíríng corporatíon and the amount added thereto under
(b) ( ), above, shaíí each be computed wíthout regard to any stock heíd by
the acquíríng corporatíon ín the component corporatíon or ín any other
corporatíon a party to the Part II transactíon, and wíthout regard to any
stock heíd by the component corporatíon ín the acquíríng corporatíon or ín
any other corporatíon a party to the Part II transactíon;
(11) In the case of the ta abíe year of the acquíríng corporatíon ín whích
the transactíon occurs, íf the orígínaí Inadmíssíbíe assets of the acquíríng
corporatíon íncíude an amount wíth respect to stock heíd by the acquíríng
corporatíon ín the component corporatíon or ín any other corporatíon a party
to the Part II transactíon, then the computatíon of the íncrease or decrease
ín ínadmíssíbíe assets for the purpose of sectíon 3 (g) (1) and (2) shaíí
be made ín the foííowíng manner:
( ) The íncrease ín ínadmíssíbíe assets for such ta abíe year shaíí
be the e cess, dívíded by the number of days ín the ta abíe year, of the
aggregate of the daííy íncreases ín ínadmíssíbíe assets over the aggre-
gate of the daííy decreases ín ínadmíssíbíe assets, and
( ) The decrease ín ínadmíssíbíe assets for such ta abíe year shaíí
be the e cess, dívíded by the number of days ín the ta abíe year, of the
aggregate of the daííy decreases ín ínadmíssíbíe assets over the aggre-
gate of the daííy íncreases ín ínadmíssíbíe assets.
The daííy íncrease ín ínadmíssíbíe assets shaíí be computed fur each day of
the ta abíe year, and shaíí be the e cess of the daííy amount attríbutabíe
to the ínadmíssíbíe assets for such day over the amount of the orígínaí ínad-
míssíbíe assets. The daííy decrease ín ínadmíssíbíe assets shaíí be computed
for each day of the ta abíe year, and shaíí be the e cess of the orígínaí
ínadmíssíbíe assets over the daííy amount attríbutabíe to the ínadmíssíbíe
assets for such day. For the purpose of the computatíon of the daííy In-
crease or daííy decrease ín ínadmíssíbíe assets for any day of the ta abíe
year, the daííy amount attríbutabíe to ínadmíssíbíe assets for any day príor
to the day after the transactíon shaíí be computed wíth the appíícatíon of
(b) (6), above, and the orígínaí ínadmíssíbíe assets shaíí be computed wíth
the appíícatíon of (b)( ), above. For the purpose of the computatíon of
the daííy íncrease or daííy decrease In Inadmíssíbíe assets for any day after
the day of the transactíon, the orígínaí Inadmíssíbíe assets shaíí be com-
puted under the ruíe províded ín (í), above (reíatíng to ta abíe years subse-
quent to the ta abíe year of the transactíon).
( ) If the acquíríng corporatíon acquíred stock In the component corporatíon
In a transactíon descríbed ín sectíon 0. 62-10(a) (2), that ís, In a transactíon
not covered by sectíon 620) (1), proper ad|ustment shaíí be made by decreasíng
the daííy capítaí addítíon or Increasíng the daííy capítaí reductíon, as the case
may be. for each day after the day of the Part II transactíon, to the e tent
necessary so that such amounts shaíí not refíect the transactíon descríbed ín
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
13
0. 61-1
sectíon 0. 62-10(a) (2). For e ampíe, assume that the Corporatíon (the
acquíríng corporatíon) and the C Corporatíon (the component corporatíon) each
makes íts íncome ta returns on the caíendar year basís, that (ín a transactíon
descríbed ín sectíon 0. 62-10(a) (2)) the Corporatíon íssued íts stock on
une 1,19 0, for 1,000,000 ín cash and on the same day used such cash to acquíre
aíí the stock of the C Corporatíon, and that the Corporatíon acquíred aíí the
propertíes of the C Corporatíon on December 1, 1930, ín a Part II transactíon.
In computíng the daííy capítaí addítíon of the Corporatíon for each day of
19 0 after December 1, 19 0, the 1,000,000 paíd ín for stock on une 1, 19 0,
shaíí be dísregarded. In computíng the equíty capítaí of the Corporatíon on
anuary 1,19 1, for the purpose of comparíng such amount wíth íts equíty capítaí
on anuary 1, 19 0, such equíty capítaí on anuary 1, 19 1, shaíí be reduced by
1,000,000 (the amount paíd ín for stock ín the transactíon descríbed ín sectíon
0. 02-10(a) (2)). The same ad|ustment (a decrease of 1,000,000) shaíí be
made for such purpose ín computíng equíty capítaí for the fírst day of each
subsequent ta abíe year.
(9) To the e tent that stock of a component corporatíon was acquíred ín an
e change for other than stock of the acquíríng corporatíon, wíthín the meaníng
of sectíon 62(|) (1) (see sectíon 0. 02-10(c) ( ) for ruíes appíícabíe ín deter-
míníng when stock ís consídered acquíred for stock), the basís of the assets of
the component corporatíon shaíí be redetermíned as províded ín sectíon 70,
whether or not more than SO percent of the ntock of the component corporatíon
ís acquíred, and such redetermíned basís shaíí be used where appropríate for aíí
computatíons under sectíon 3 (g), sectíon 63, and thís sectíon. See the e ampíe
ín (e) beíow.
(d) Specíaí ruíes under sectíons 3 and US. € ” (1) Ruíes under sectíon 3- € ”
If the average base períod net íncome ís determíned under sectíon 3, sectíon
3(d) provídes that no net capítaí addítíon or reductíon shaíí be aííowed ín
computíng the e cess profíts credít for the quaíífyíng ta abíe year. If the quaíífy-
íng ta abíe year ends after une 30, 19 0, sectíon 3(d) provídes that the net
capítaí addítíon or reductíon for subsequent ta abíe years shaíí be determíned by
reference to the fírst day of the fírst ta abíe year foííowíng the quaíífyíng ta abíe
year rather than by reference to the fírst day of the fírst ta abíe year endíng
after une 30, 19 0. These ruíes of sectíon 3(d) appíy ín computíng the net
capítaí addítíon or reductíon of the acquíríng corporatíon íf íts average base
períod net íncome ís computed under sectíon 3. If such average base períod
net íncome ís computed under sectíon 0. 62-3 (c) (reíatíng to cases ín whích the
Part II transactíon occurs after aíí partíes to the transactíon are entítíed to an
aíternatíve average base períod net íncome), the specíaí ruíes of sectíon 3íd)
shaíí be appíícabíe oníy wíth respect to the ítems of capítaí addítíon and reduc-
tíon of each corporatíon entítíed to appíy sectíon 3.
(2) Ruíes under sectíon . € ” If the average base períod net íncome ís deter-
míned under sectíon , then sectíon (e) provídes that no net capítaí addítíon
or reductíon shaíí be aííowed ín computíng the e cess profíts credít for the fírst
three ta abíe years of the ta payer. Such net capítaí addítíon or reductíon ís,
however, taken ínto account ín computíng totaí assets for the purpose of sectíon
(c). If the thírd ta abíe year ends after une 30, 19 0, sectíon (e) pro-
vídes that the net capítaí addítíon or reductíon for subsequent ta abíe years shaíí
be determíned by reference to the fírst day of the fourth ta abíe year of the ta -
payer ínstead of by reference to the fírst day of íts fírst ta abíe year endíng after
une 30, 19 0. These ruíes of sectíon (e) appíy ín computíng the net capítaí
addítíon or reductíon of the acquíríng corporatíon íf íts average base períod net
íncome ís computed under sectíon . See sectíon 0. 62-7(a) (2) (íí) for certaín
cases ín whích the day before the Part II transactíon ís treated as though ít were
the fírst day of the fourth ta abíe year. If such average base períod net íncome
ís computed under sectíon 0. 62-3(c) (reíatíng to cases ín whích the Part II
transactíon occurs after aíí partíes thereto are entítíed to an aíternatíve average
base períod net íncome), the specíaí ruíes of sectíon (e) shaíí be appíícabíe
oníy wíth respect to the ítems of capítaí addítíon and reductíon of each corpora-
tíon entítíed to appíy sectíon .
(e) Límítatíons under sectíon íG2(|)(í). € ” In order to prevent dupíícatíon
under sectíon 63 ín computíng the net capítaí addítíon or reductíon of the acquír-
íng corporatíon ín the case of a Part II transactíon foííowíng a stock acquísítíon
covered by sectíon 62(|) (1), whích stock acquísítíon occurred after the begín-
níng of the fírst ta abíe year of the component corporatíon endíng after une 30,
19 0, sectíon 02(|) (1) requíres that each ítem wíth respect to the component
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
I 0. 61-1.
136
corporatíon determíned under (b) and (e), above, shaíí be properíy ad|usted to
eíímínate the portíon of the transferred ítems of capítaí addítíon and reductíon
of the component corporatíon attríbutabíe to the stock acquíred.
ampíe (1). If the Corporatíon (the acquíríng corporatíon) and the C
Corporatíon (the component corporatíon) each makes Its íncome ta returns on
the caíendar year basís, íf the Corporatíon purchases 30 percent of the stock
of the C Corporatíon on príí 1, 19 1, and íf the Part II transactíon takes píace
on September 1, 19 1, then any ítems arísíng before príí 1, 19 1, descríbed ín
(b) (1), above (that ís, money or property paíd ín for stock, etc., to the C Corpo-
ratíon duríng the ta abíe year and before príí 1,19 1), or (b) (2), above (that
ís, dístríbutíons not out of earníngs and profíts of the ta abíe year, made by the
C Corporatíon duríng the ta abíe year and before príí 1, 19 1). shaíí be avaíí-
abíe to the Corporatíon under (b) (1) and (2) oníy to the e tent of 70 percent
thereof, that ís, the 30 percent of each such ítem attríbutabíe to the stock pur-
chased after such ítems arose shaíí be eíímínated. Símííaríy, 30 percent of the
amount determíned under (b)(3), above (the e cess of equíty capítaí of the
C Corporatíon on anuary 1, 19 1, over íts equíty capítaí on anuary 1, 19 0),
shaíí not be avaííabíe to the Corporatíon. ach of the ítems under (b) ( ),
( ,, (6), (7), and ( ) (reíatíng to equíty capítaí, daííy borrowed capítaí, ínadmís-
síbíe assets, controííed group stock, and controííed group Indebtedness, as of
anuary 1, 19 0) shaíí be avaííabíe to the acquíríng corporatíon In an amount
equaí to 70 percent of such Item, that ís, 30 percent of each such Item shaíí be
eíímínated.
ampíe (2). The facts ín thís e ampíe are the same as ín e ampíe (1),
e cept that the stock acquísítíon occurred on príí 1, 19 0, ínstead of on príí
1, 19 1. In thís case, no ad|ustment ís requíred wíth respect to the ítems under
(b) (1) and (2), above, sínce such ítems arose ín a ta abíe year subsequent
to the ta abíe year of the acquísítíon. ach of the ítems under (b) ( ), ( ),
(6), (7), and ( ) (reíatíng to equíty capíta , daííy borrowed capítaí, ínadmís-
síbíe assets, controííed group stock, and controííed group Indebtedness, as of
anuary 1, 19 0) are ad|usted ín the same manner as ín e ampíe (1), that ís, 30
percent of each such ítem ís eíímínated. owever, ín thís case, the amount
avaííabíe to the Corporatíon for íts ta abíe year 19 1 under (b)(3) (that
ís, the capítaí addítíon or reductíon based on the dífference between the equíty
capítaí of the C Corporatíon on anuary 1.19 1, and íts equíty capítaí on anuary
1. 19 0) ís determíned by usíng, ín ííeu of the equíty capítaí of the C Corporatíon
on anuary 1, 19 0, an amount equaí to the sum of 70 percent of íts equíty capítaí
on anuary 1, 19 0. píus so much of íts equíty capítaí on príí 1,19 0, computed
for thís purpose after the redetermínatíon of the basís of the assets of the C
Corporatíon under the príncípíes of sectíon 70, as Is attríbutabíe to the stock ac-
quíred on príí 1, 19 0, by the Corporatíon. Símííaríy, for thís purpose, the
equíty capítaí of the C Corporatíon on anuary 1, 19 1, wouíd be determíned
under the príncípíes of sectíon 70 whích determínatíon wííí refíect the cost basís
of the stock. See (c) (9), above, and sectíon 63(a) (12).
(f) Part II transactíons descríbed ín sectíon 61 (a) (/) ( ). € ” (1) In generaí. € ”
In the case of a Tart II transactíon descríbed ín sectíon 61(a) (1) ( ), the net
capítaí addítíon or reductíon of the acquíríng corporatíon Is computed ín the
same manner as ín the case of other Part II transactíons, e cept that there
shaíí be taken ínto account by the acquíríng corporatíon oníy such portíon of
the transferred ítems of capítaí addítíons and reductíons of the component
corporatíon as ís aííocabíe to the propertíes transferred. The foííowíng ruíes
are appíícabíe ín the case of a Part II transactíon descríbed ín sectíon
61(a)(1)( ) :
(í) The ítems descríbed ín (b) (1), (2), and (3), above, reíatíng to
money and property paíd ín for stock, etc., dístríbutíons not out of earníngs
and profíts of the ta abíe year, and íncrease or decrease ín equíty capítaí,
shaíí not be taken ínto account by the acquíríng corporatíon. The capítaí
changes refíected In such ítems are, ínstead, refíected under the ruíes set
forth ín (íí) and (ív) beíow.
(íí) There shaíí be taken ínto account by the acquíríng corporatíon, ín
ííeu of the amount determíned under (b) ( ), above (reíatíng to the equíty
capítaí of the component corporatíon for the fírst day of íts fírst ta abíe year
endíng after une 30, 19 0), an amount whích ís such portíon of the amount
determíned under (b) ( ) as the equíty capítaí transferred to the acquíríng
corporatíon ín the Part II transactíon ís of the equíty capítaí of the com-
ponent corporatíon ímmedíateíy príor to the transactíon. For the purpose
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
137
0. 61-1.
of sectíon 3 (g) (3) ( ) and (g) ( ) ( ), the equíty capítaí of the acquír-
íng corporatíon for the fírst day of the ta abíe year ín whích the transac-
tíon occurs (whích equíty capítaí Is compared wíth the equíty capítaí of the
acquíríng corporatíon, determíned wíth the appíícatíon of the precedíng
sentence, for the fírst day of íts fírst ta abíe year endíng after une 30,
19 0) shaíí be determíned as of the day foííowíng the transactíon ín ííeu
of the fírst day of such ta abíe year.
(ííí) There shaíí be taken ínto account by the acquíríng corporatíon, ín
ííeu of each of the ítems determíned under (b) ( ), (6), (7), and ( ),
above, an amount wíth respect to each such ítem whích ís such portíon of
that ítem as the amount of such ítem transferred to the acquíríng cor-
poratíon ín the transactíon bears to the amount of such ítem determíned
ímmedíateíy príor to the transactíon.
(ív) In the case of the ta abíe year of the acquíríng corporatíon ín whích
the transactíon occurs, for the purpose of any compuríson requíred under
sectíon 3 (g) between amounts for such ta abíe year and amounts deter-
míned as of the fírst day of the ta payer s fírst ta abíe year endíng after
une 30, 19 0, the amounts for such fírst day shaíí be the amounts requíred
to be taken ínto account for such fírst day by the acquíríng corporatíon
under (íí) and ( í), above.
(2) Specíaí ruíes. € ” See sectíon 0. 61-7(b) for specíaí ruíes appíícabíe ín the
case of a Part II transactíon descríbed ín sectíon 61(a) (1) ( ) whích ínvoíves
a transfer to an acquíríng corporatíon by two or more component corporatíons,
or whích ínvoíves a transfer to an acquíríng corporatíon not created íncídent to
the transactíon.
Sec. 0. 63-2. Capítaí Changes ín Case of Successíve Pabt II Transac-
tíons. € ” If one corporatíon becomes a component of a second corporatíon ín a ta -
abíe year endíng after une 30, 19 0, and íf the second corporatíon thereafter
becomes a component of a thírd corporatíon, the net capítaí addítíon or reductíon
of the thírd corporatíon shaíí be determíned under sectíon 0. 63-1 by computíng
the ítems of transferred capítaí addítíon and reductíon of the second corporatíon
after such ítems have been ad|usted under the provísíons of sectíon 0. 63-1 by
reference to the fírst corporatíon. Such ad|ustment shaíí be made whether or
not the second corporatíon computed íts average base períod net íncome by
appíícatíon of Part I The fírst corporatíon shaíí be treated as a party to the
íater Part II transactíon for the purpose of the appíícatíon under thís sectíon of
sectíon 0. 63-í(c), above, reíatíng to íntercompany stockhoídíngs, etc.
Par. . There ís ínserted ímmedíateíy after sectíon 6 , the foííow-
íng:
Sec. 0. 6 -1. ase Períod Capítaí ddítíons Under Part IT. € ” (a) In gen-
eraí. € ” (1) ppíícabíííty of sectíon. € ” If a ta payer acquíres propertíes of a com-
ponent corporatíon ín a Part II transactíon occurríng after the begínníng of the
second ta abíe year of the ta payer precedíng íts fírst ta abíe year endíng after
une 30, 19 0, and íf the ta payer s average base períod net íncome for the
purpose of íts e cess profíts credít for any ta abíe year endíng nfter the transac-
tíon ís computed by appíícatíon of Part II, then the base períod capítaí addítíon
of the acquíríng corporatíon shaíí be computed for such ta abíe year under sec-
tíon 3 (f) wíth the appíícatíon of thís sectíon. The base períod capítaí addítíon
shaíí be aííowed to an acquíríng corporatíon computíng íts average base períod
net íncome wíth respect to Part II oníy íf such acquíríng corporatíon computes
íts average base períod net Income under the generaí average method províded
In sectíon 3 (d) wíth reference to sectíon 62(b) or, ín certaín ínstances,
under sectíon 2(c) wíth reference to sectíon 62(d). See sectíon 3 (f)(3).
If the Part II transactíon occurs príor to the begínníng of the second ta abíe
year precedíng the fírst ta abíe yenr of the acquíríng corporatíon endíng after
une 30, 19 0, no base períod capítaí addítíon of the component corporatíon ís
avaííabíe to the acquíríng corporatíon. See e ampíes In sectíon 0. 61-3 (d)
and (e). The ruíes for determíníng the base períod capítaí addítíon of the
acquíríng corporatíon after the Part II transactíon díffer, dependíng upon
whether the Part II transactíon ís of a type descríbed ín sectíon 61(a) (1) ( ),
and dependíng upon the ta abíe year ín whích the transactíon occurs. In the
case of a component corporatíon whích Is a partnershíp or a busíness owned by
a soíe propríetorshíp, see sectíon 0. 02-12.
S 016 € ” 02 10
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
I 0. 61-1.
13
(2) Constructíve ta abíe years of component corporatíon. € ” If the Part II
transactíon occurred príor to uíy 1, 19 0, the component corporatíon shaíí be
deemed to have as many ta abíe years endíng after the transactíon as are neces-
sary for ít to have a fírst ta abíe year endíng after une 30, 19 0, and the ta -
abíe years of the component corporatíon endíng after the date of the transactíon
shaíí for the purpose of thís sectíon be determíned on the basís of the annuaí
accountíng períod appíícabíe to the component corporatíon ímmedíateíy príor to
the transactíon. Wherever ít ís necessary under sectíon 6 to determíne a yearíy
base períod capítaí for any such constructíve ta abíe year begínníng after the
Part II transactíon, such yearíy base períod capítaí shaíí be deemed to be an
amount equaí to the yearíy base períod capítaí of the component corporatíon
determíned as of the day of the transactíon ín the same manner as íf such day
were the fírst day of a ta abíe year.
ampíe. The Corporatíon, whích makes íts íncome ta returns on the
caíendar year basís, acquíres the propertíes of the C Corporatíon on príí 1,19 0.
ín a Part II transactíon. The C Corporatíon, príor to such transactíon, made íts
íncome ta returns on the basís of a físcaí year endíng une 30. For the purpose
of determíníng the base períod capítaí addítíon of the C Corporatíon, aíí or part
of whích wííí be added under (b) (1) of thís sectíon to the base períod capítaí
addítíon of the Corporatíon, the ta abíe year of the C Corporatíon begínníng
uíy 1, 10 9, ín whích year the Part II transactíon takes píace, wííí be deemed
to end une 30, 19 0, and the C Corporatíon wííí be deemed to have another
ta abíe year begínníng uíy 1. 19 0, and endíng une 30. 19 1. whích ta abíe year
wííí be deemed to be íts fírst ta abíe year endíng after une 30,19 0. The yearív
base períod capítaí for the constructíve ta abíe year begínníng uíy 1, 19 0, and
endíng une 30, 10 1, wííí be deemed to be an amount equaí to the yearíy ba e
períod capítaí of the C Corporatíon determíned as of príí 1, 19 0, the day of
the transactíon. Thís yearíy base períod capítaí wííí be compared under sectíon
3 (f) (2) wíth the yearíy base períod capítaí of the C Corporatíon for the físcaí
year begínníng uíy 1, 19 9 (whích year ís deemed to end une 30, 19 0), that ís.
wíth the amount determíned as of uíy 1, 19 9. and wíth the yearíy base períod
capítaí for the físcaí year begínníng uíy 1, 19 S, and endíng une 30, 19 9, that
ís, wíth the amount determíned as of uíy 1,19 .
(b) Part II transactíons other than a transactíon descríbed ín sectíon
í(Sí a) (1) ( ). € ” (1) In the case of a Part II transactíon other than a transac-
tíon descríbed ín sectíon 01(a) (1) ( ), whích occurs duríng or after the fírst
ta abíe year of the acquíríng corporatíon endíng after une 30, 19 0, for the
purpose of sectíon 3 (f) and sectíon 0. 3 -6, the base períod capítaí addítíon
of the acquíríng corporatíon for the ta abíe year ín whích the transactíon occurs
shaíí be the sum of (1) the base períod capítaí addítíon of the acquíríng corpora-
tíon, and (íí) an amount whích bears the same ratío to the base períod capítaí
addítíon of the component corporatíon as the number of days ín the ta abíe year
cf the acquíríng corporatíon after the transactíon bears to the totaí number of
days ín such ta abíe year ín whích the transactíon occurs. The base períod
capítaí addítíon of the acquíríng corporatíon for any ta abíe year thereafter
shaíí be the aggregate of the base períod capítaí addítíon of the acquíríng corpo-
ratíon and the base períod capítaí addítíon of the component corporatíon.
(2) In the case of a Part II transactíon other than a transactíon descríbed ín
sectíon 01(a) (1) ( ), whích occurred duríng the fírst ta abíe year of the acquír-
íng corporatíon ímmedíateíy precedíng íts fírst ta abíe year endíng after une 30,
19 0. the base períod capítaí addítíon of the acquíríng corporatíon shaíí be com-
puted after (í).addíng to the yearíy base períod capítaí of the acquíríng corpo-
ratíon for íts ta abíe year ímmedíateíy precedíng íts fírst ta abíe year endíng
after une 30. 19 0, the yearíy base períod capítaí of the component corporatíon
for íts ta abíe year ímmedíateíy precedíng íts fírst ta abíe year endíng after
une 30, 19 0, and (íí) addíng to the yearíy base períod capítaí of the acquíríng
corporatíon for íts second ta abíe year precedíng íts fírst ta abíe year endíng
after une 30, 19 0, the yearíy base períod capítaí of the component corporatíon
for íts second ta abíe year precedíng íts fírst ta abíe year endíng after une 30,
19 0.
(3) In the case of a Part II transactíon other than a transactíon descríbed ín
sectíon 01(a)(1)( ), whích occurred duríng the second ta abíe year of the
acquíríng corporatíon precedíng íts fírst ta abíe year endíng after une 30, 19 0,
íts base períod capítaí addítíon shaíí be computed after addíng to íts yearíy base
períod capítaí for such second precedíng ta abíe year, the yearíy base períod
capítaí of the component corporatíon for the second ta abíe year precedíng the
component corporatíon s fírst ta abíe year endíng after une 30, 19 0.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
139
0. 61-1.
(c) Intercompany stockhoídíngs, etc. € ” (1) In computíng under sectíon 6
the yearíy base períod capítaí of eíther the acquíríng corporatíon or the com-
ponent corporatíon for any ta abíe year, the equíty capítaí and ínadmíssíbíe
assets of such corporatíon shaíí be determíned after e cíudíng aíí of the stock
of the other such corporatíon, and of any other corporatíon a party to the Part
II transactíon, heíd by such corporatíon on the day for whích equíty capítaí
and ínadmíssíbíe assets are determíned. In determíníng daííy borrowed capítaí,
and the Interest ad|ustment under sectíon 33(f)( ), for the purpose of com-
putíng yearíy base períod capítaí ín the case of eíther the acquíríng or the com-
ponent corporatíon, any índebtedness of one such corporatíon to the other such
corporatíon, or to any other corporatíon a party to the Part II transactíon, shaíí
not be consídered borrowed capítaí. Símííaríy, ín computíng the amount of
íoans to members of a controííed group for the purpose of determíníng the yearíy
base períod capítaí, any índebtedness to one such corporatíon owed by the other
corporatíon, or by any other corporatíon a party to the Part II transactíon, shaíí
be e cíuded.
(2) There shaíí be e cíuded from the base períod capítaí addítíon of the
acquíríng corporatíon for any ta abíe year endíng after the day of the Part II
transactíon so much of the base períod capítaí addítíon for such ta abíe year
as ís attríbutabíe to assets obtaíned for the purpose of acquíríng stock ín the
component corporatíon ín a transactíon descríbed ín sectíon 0. 62-10(a) (2),
that ís. ín a transactíon not covered by sectíon 62 ( ) (1).
(3) There shaíí be e cíuded from the base períod capítaí addítíon of the
acquíríng corporatíon for any ta abíe year endíng after the Part II transactíon
so much of the base períod capítaí addítíon for such ta abíe year as ís attríbut-
abíe to assets obtaíned by the component corporatíon (whether as equíty or
borrowed capítaí) from the acquíríng corporatíon, or from any other corporatíon
a party to the Part II transactíon, after the begínníng of the second ta abíe year
of the component corporatíon precedíng Its fírst ta abíe year endíng after une
30, 19 0.
( ) To the e tent that stock of a component corporatíon was acquíred ín an
e change for other than stock of the acquíríng corporatíon wíthín the meaníng
of sectíon 62(|) (1) (see sectíon 0. 62-10(c) ( ) for ruíes appíícabíe ín deter-
míníng when stock ís consídered acquíred for stock), the basís of the assets
of the component corporatíon shaíí be redetermíned as províded ín sectíon 70,
whether or not more than 0 percent of the stock of the component corporatíon ís
acquíred, and such redetermíned basís shaíí be used where appropríate for aíí
computatíons under sectíon 3 (f). sectíon 6 , and thís sectíon.
(d) Límítatíons under sectíon 6 (; )(/). € ” In order to prevent dupíícatíon
under sectíon 6 ín computíng the base períod capítaí addítíon In the case of
a Part II transactíon foííowíng a stock acquísítíon covered by sectíon 62(|) (1),
whích stock acquísítíon occurred after the begínníng of the second ta abíe year
of the acquíríng corporatíon precedíng íts fírst ta abíe year endíng after une
30, 19 0, sectíon 62( )(1) requíres that ín any case under (b) (2) or (3) of
thís sectíon ín whích the yearíy base períod capítaí of the component corporatíon
ís determíned as of the day of such stock acquísítíon or a precedíng day, such
yearíy base períod capítaí shaíí be reduced by an amount whích ís such portíon
thereof as the stock acquíred by the acquíríng corporatíon on or after such
day ís of the totaí stock of the component corporatíon at the tíme of such acquísí-
tíon. The same reductíon shaíí be made ín the foííowíng cases ín whích the
yearíy base períod capítaí of the component corporatíon ís determíned as of a day
subsequent to the day of such stock acquísítíon:
(1) In any case ín whích such yearíy base períod capítaí ís to be added
under the provísíons of (b) (2) or (3) of thís sectíon to the yearíy base
períod capítaí of the acquíríng corporatíon determíned as of a day pre-
cedíng the day of such stock acquísítíon; and
(2) In any case under (b) (1) of thís sectíon ín whích such stock acquísí-
tíon occurs after the fírst day of the acquíríng corporatíon s fírst ta abíe
year endíng after une 30, 19 0.
Further ad|ustment shaíí be made to the e tent proper In any case under (b) (1)
of thís sectíon ín whích there wouíd be no base períod capítaí addítíon of the
acquíríng corporatíon íf computed wíthout regard to the base períod capítaí
addítíon of the component corporatíon.
ampíe (1). The Corporatíon (the acquíríng corporatíon) and the C Cor-
poratíon (the component corporatíon) each makes íts íncome ta returns on the
caíendar year basís. The Corporatíon purchases 30 percent of the stock of the
0 Corporatíon on príí 1, 1901, and acquíres aíí of the propertíes of the C Cor-
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
0. 61-1.
1 0
poratíon ín a Part II transactíon on September 1, 19 1. In computíng the base
períod capítaí addítíon of the C Corporatíon, whích ís added to the base períod
capítaí addítíon of the Corporatíon under the ruíes of (h) (1), above, oníy 70
percent of the yearíy base períod capítaí of the C Corporatíon for 19 , for 19 9,
and for 19 0 shaíí be taken ínto account, that ís., there shaíí be eíímínated the
30 percent of each such yearíy base períod capítaí attríbutabíe to the stock pur-
chased after the day ( anuary 1 of each such year) for whích yearíy base períod
capítaí ís determíned.
ampíe (2). The facts ín thís e ampíe are the same as ín e ampíe (1),
e cept that the stock acquísítíon occurred on príí 1, 19 9, ínstead of on príí
1, 19 1. In thís case, no ad|ustment ís requíred wíth respect to the yearíy base
períod capítaí for 19 0 sínce that amount ís determíned as of anuary 1, 19 0, a
day subsequent to the day of the stock acquísítíon. The same ad|ustment ís re-
quíred wíth respect to the yearíy base períod capítaí for 10 S and 19 9 as that
requíred ín e ampíe (1), sínce both such amounts are determíned as of a day
precedíng the day of the stock acquísítíon. ssume further that the Corpora-
tíon paíd 300,000 for the stock, that ít wouíd have no base períod capítaí addítíon
If computed wíthout regard to the base períod capítaí addítíon of the C Corpora-
tíon, and that ít wouíd have a . 12 ,000 base períod capítaí addítíon (aíso com-
puted wíthout regard to the base períod capítaí addítíon of the C Corporatíon)
íf ít had not acquíred the stock. The base períod capítaí addítíon of the C Cor-
poratíon must be further reduced by 17 ,000, the amount by whích the stock
acquísítíon ís noí refíected ín the base períod capítaí addítíon of the Corporatíon.
ampíe (3). The facts ín thís case are the same as ín e ampíe (1), e cept
that the stock acquísítíon occurred on príí 1, 19 9, and the Part II transactíon
occurred on September 1, 19 9. In determíníng the yearíy base períod capítaí of
the C Corporatíon for 19 and 19 9, whích amounts wííí be added to the yearíy
base períod capítaí of the Corporatíon for 19 and 19 9, respectíveíy, oníy
70 percent of each such amount wíth respect to the component corporatíon shaíí
be avaííabíe to the acquíríng corporatíon, that ís, 30 percent of each such amount
shaíí be eíímínated.
(e) Part II transactíons descríbed ín sectíon fít(a) (1) ( ). € ” (1) In the case
of a transactíon descríbed ín sectíon 01(a) (1) ( ) whích occurs duríng or after
the fírst ta abíe year of the component corporatíon endíng after une 30, 19 0,
for the purpose of sectíon 3 (f), the base períod capítaí addítíon of an acquíríng
corporatíon shaíí be an amount whích bears the same ratío to the base períod
capítaí addítíon of the component corporatíon as the faír market vaíue of the
assets transferred to such acquíríng corporatíon ín the transactíon bears to the
faír market vaíue of the assets of the component corporatíon ímmedíateíy príon
to the transactíon.
(2) In the case of a transactíon descríbed ín sectíon 01(a)(1)( ) whích
occurred duríng a ta abíe year of the component corporatíon whích ís a ta abíe
year precedíng íts fírst ta abíe year endíng after une 30, 19 0, the yearíy base
períod capítaí of the acquíríng corporatíon for the year ín whích the transactíon
occurred shaíí be computed as of the day foííowíng the transactíon.
(3) In case the transactíon descríbed ín (2), above, occurred ín a ta abíe
year of an acquíríng corporatíon whích ís íts fírst ta abíe year endíng after
une 30, 19 0, such acquíríng corporatíon s base períod capítaí addítíon shaíí
be computed as foííows:
(í) The acquíríng corporatíon s yearíy base períod capítaí for íts fírst
ta abíe year ímmedíateíy precedíng íts fírst ta abíe year endíng after une
30, 19 0, shaíí consíst of a portíon of the yenríy base períod capítaí of the
component corporatíon for the fírst day of the ta abíe year of the component
corporatíon ín whích such transactíon occurred, and
(íí) The acquíríng corporatíon s yenríy base períod capítaí for íts second
ta abíe year precedíng íts fírst ta abíe year endíng after une 30,19 0, shaíí
consíst of a portíon of the yearíy base períod capítaí of the component cor-
poratíon for the fírst day of íts fírst ta abíe year ímmedíateíy precedíng
íts ta abíe year ín whích the transactíon occurred;
Such portíon ín each ínstance beíng determíned by the ratío whích the faír
market vaíue of the assets transferred to the acquíríng corporatíon ín the trans-
actíon bears to the faír market vaíue of the assets of the component corporatíon
ímmedíateíy príor to the transactíon.
( ) In case the transactíon descríbed ín (2), above, occurred duríng the ta -
abíe year of an acquíríng corporatíon ímmedíateíy precedíng íts fírst ta abíe
year endíng after une 30, 19 0, then, for the purpose of computíng the base
períod capítaí addítíon of such acouíríng corporatíon, íts yearíy base períod capí-
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
1 1
29. 0-1.
taí for íts second ta abíe year precedíng íts fírst ta abíe year endíng after une
30, 19o0, shaíí consíst of a portíon of the yearíy base períod capítaí of the com-
ponent corporatíon for the fírst day of the ta abíe year of the component corpo-
ratíon ín whích such transactíon occurred. Such portíon shaíí be determíned
by the ratío whích the faír market vaíue of the assets transferred to the acquír-
íng corporatíon ín the transactíon bears to the faír market vaíue of the assets
of the component corporatíon ímmedíateíy príor to the transactíon.
( ) See sectíon 0. Cí-7(b) for specíaí ruíes appíícabíe ín the case of a Part
II transactíon descríbed ín sectíon 01(a)(1)( ) whích ínvoíves a transfer to
an acquíríng corporatíon by two or more component corporatíons, or whích ín-
voíves a transfer to an acquíríng corporatíon not created íncídent to the trans-
actíon.
Sec. 0. 6 -2. ase Períod Capítaí ddítíon ín Case or Successíve Part II
Transactíons. € ” If one corporatíon becomes a component of a second corporatíon,
and íf the second corporatíon thereafter becomes a component of a thírd cor-
poratíon, the base períod capítaí addítíon of the thírd corporatíon shaíí be de-
termíned under sectíon 0. 0 -1 by computíng the second corporatíon s yearíy
base períod capítaí and íts base períod capítaí addítíon (whíchever ís avaííabíe
to the thírd corporatíon) after such ítems have been ad|usted under the pro-
vísíons of sectíon í0. 0 -í by reference to the fírst corporatíon. Such ad|ustment
shaíí be made whether or not the second corporatíon computed íts average base
períod net íncome by appíícatíon of Part II. The fírst corporatíon shaíí be
treated as a party to the íater Part II transactíon for the purpose of the appíí-
catíon under thís sectíon of sectíon 0. 0 -1 (c), above, reíatíng to íntercompany
stockhoídíngs, etc.
(Thís Treasury Decísíon ís íssued under the authoríty contaíned ín
sectíon 02 of the Internaí Revenue Code ( 3 Stat. 32; 20 U. S. C. 62)
and ín sectíons 61 through 0 of the Internaí Revenue Code (6 Stat.
1191-1210; 26 U. S. C. 61- 6 ).)
Fred S. Martín,
ctíng Commíssíoner of Internaí Revenue.
pproved November 13, 19 1.
Thomas . Lynch,
ctíng Secretary of the Treasury.
(Pííed wíth the Dívísíon of the Federaí Regíster November 13,19 1, 12; p. m.)
SU C PT R . € ” T ON S LF- MPLOYM NT INCOM
S CTION 0. € ” R T OF T
Sectíon 29. 0-1: Ta on seíf-empíoyment ín- 19 1-20-13671
come. T. D.
TITL 26 € ” INT RN L R NU . € ” C PT R I, SU C PT R , P RT 29. € ”
INCOM T ; T L Y RS GINNING FT R D C M R 31, 10 1
Reguíatíons 111 amended to conform to sectíon 20 of the
Socíaí Securíty ct mendments of 19 0 C. . 19 0-2, 217, 239 ,
reíatíng to ta on seíf-empíoyment íncome, and to sectíons 221 (í)
and (|) (1) of the Revenue ct of 19 0.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C.
To Coííectors of Internaí Revenue and Others Concerned:
On uíy 6, 19 1, notíce of proposed ruíe makíng regardíng the
amendment of Reguíatíons 111 to conform to sectíon 20 of the Socíaí
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29. 0-1.
1 2
Securíty ct mendments of 19 0 (Pubííc Law 73 . 1st Cong. C. .
19 0-2, 217, 239 ), approved ugust 2 , 19 0, and to sectíons 221 (í)
and (|) (1) of the evenue ct of 19 0 (Pubííc Law 1 , 1st Cong.),
approved September 23, 19 0, was pubííshed ín the Federaí Regíster
(16 F. R. 6 6 ). No ob|ectíon to the ruíes proposed havíng been
receíved, the amendments set forth beíow are hereby adopted.
Paragraph 1. There ís ínserted ímmedíateíy precedíng sectíon
29.3-1 26 CFR 29.3-1 the foííowíng:
S C. 20 . S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .
€ € € € €
(d) (1) Sectíon 3 of the Internaí Revenue Code Is amended by ínsert-
íng at the end thereof the foííowíng:
Subchapter .- € ” Ta on Seíf- mpíoyment Income (the Seíf- m-
píoyment Contríbutíons ct), dívíded ínto sectíons.
€ € € € €
Par. 2. Sectíon 29.3-1, as amended by Treasury Decísíon 391
. C. . 19 , 7 , approved uíy 1 , 19 26 CFR 29.3-1 , ís further
amended by changíng the fífth sentence thereof to read as foííows:
Subpart D reíates to íctory Ta on Indívíduaí for ta abíe years begínníng
príor to anuary 1, 19 , and to Ta on Seíf- mpíoyment Income for ta abíe
years begínníng after December 31,19 0.
Par. 3. There ís ínserted ímmedíateíy precedíng sectíon 29.12-1
26 CFR 29.12-1 the foííowíng:
S C. 20 . S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .

(d) €
(2) Sectíon 12(g) of the Internaí Revenue Code ís amended by ínsert-
íng at the end thereof the foííowíng:
(C) Ta on seíf-empíoyment íncome. € ” For ta on seíf-empíoy-
ment íncome, see subchapter .

Par. . There ís ínserted ímmedíateíy after sectíon 31 of the In-
ternaí Revenue Code, as set forth precedíng sectíon 29.3 -1, as added
by Treasury Decísíon 32 C. . 19 , 1 2 , approved anuary ,
19 26 CFR 29.3 -1 , the foííowíng:
S C. 20 . S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .

(d) € €
(3) Sectíon 31 of the Internaí Revenue Code ís amended by Insert-
íng ímmedíateíy after the words the ta the foííowíng: (other than
the ta ímposed by subchapter , reíatíng to ta on seíf-empíoyment
íncome) .

Par. . There ís ínserted ímmedíateíy after sectíon of the In-
ternaí Revenue Code, as set forth precedíng sectíon 29. -1, as added
by Treasury Decísíon 30 C. . 19 3, 260 , approved November 12,
19 3 26 CFR 29. -1 , the foííowíng:
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
1 3
f 29. 0-1.
S C. 20 . S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 1930, PPRO D UGUST 2S. 1930 .
€ € € € € €
(d) € € €
( ) Sectíon (b)(1) of the Internaí Revenue Code Is amended by
Insertíng ímmedíateíy after the words wíthheíd at source the foííow-
íng : and wíthout regard to the ta ímposed by subchapter on seíf-
empíoyment íncome .

Pak. G. Sectíon 29. -3(b), as added by Treasury Decísíon 30
and amended by Treasury Decísíon 6 7 C. . 19 9-1, 9, 2 ,
approved February 16,19 9 20 CFR 29. -3 , ís further amended by
addíng at the end thereof the foííowíng:
The estímated ta need not íncíude an amount estímated as the ta on seíf-
empíoyment íncome ímposed by sectíon 0.
Par. 7. There ís ínserted ímmedíateíy precedíng sectíon 29.107-1
26 CFR 29.107-1 the foííowíng:
S C. 20 . P LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .
€ € € € €
(d) € €
( ) Sectíon 107 of the Internaí Revenue Code ís amended by ínsert-
íng at the end thereof the foííowíng new subsectíon:
(e) Ta on Seíf- mpíoyment Income. € ” Thís sectíon shaíí be ap-
pííed wíthout regard to, and shaíí not affect, the ta ímposed by sub-
chapter , reíatíng to ta on seíf-empíoyment íncome.
€ € € €
Par. . Sectíon 29.107-1 26 CFR 29.107-1 ; sectíon 29.107-2, as
amended by Treasury Decísíon C. . 19 , , approved une
1 , 19 26 CFR 29.107-2 ; and sectíon 29.107-3, as added by Treas-
ury Decísíon 3 9 C. . 19 . 196 , approved uíy 10, 19 26 CFR
29.107-3 , are amended by addíng at the end of each the foííowíng
new paragraph:
The provísíons of sectíon 107 and of thís sectíon shaíí be appííed wíthout
regard to, and shaíí not affect, the ta on seíf-empíoyment íncome ímposed
by sectíon 0.
Par. 9. There ís ínserted ímmedíateíy precedíng sectíon 29.120-1
26 CFR 29.120-1 the foííowíng:
S C. 20 . S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .

(d)
(6) Sectíon 120 of the Internaí Revenue Code Is amended by ínsert-
íng ímmedíateíy after the words amount of íncome the foííowíng:
(determíned wíthout regard to subchapter , reíatíng to ta on seíf-
empíoyment íncome) .
€ € € € €
Par. 10. Sectíon 29.120-1 26 CFR 29.120-1 ís amended by ínsert-
íng ín the second paragraph, ímmedíateíy after the words píus the
aggregate amount of íncome , the foííowíng:
(determíned wíthout regard to the ta on seíf-empíoyment Income ímposed by
sectíon 0)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29. 0-1.
1
Par. 11. There ís ínserted ímmedíateíy precedíng sectíon 29.131-1
26 CFR 29.131-1 the foííowíng:
S C. 20S. S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .
€ € €
(d) €
(3) sectíon 131(a) of the Internaí Revenue Code ís
amended by ínsertíng ímmedíateíy after the words e cept the ta ím-
posed under sectíon 102 the foííowíng: and e cept the ta ímposed
under subchapter .

Par. 12. Sectíon 29.131-1 26 CFR 29.131-1 ís amended by addíng
at the end of the fífth paragraph thereof the foííowíng:
No credít for ta es shaíí be aííowed agaínst the ta on seíf-empíoyment íncome
ímposed by sectíon S0.
Par. 13. Sectíon 29.131- . as amended by Treasury Decísíon 17
C. . 19 6-2, , 21 , approved une 12, 19 6 26 CFR 29.131- , ís
further amended by changíng the íast sentence of the fírst paragraph
to read as foííows:
In computíng the ta agaínst whích the credít ís taken there must, for ta abíe
years begínníng before anuary 1, 19 3, be e cíuded the ta , íf any, ímposed
by sectíon 102; for ta abíe years begínníng after December 31, 19 2, there must
be e cíuded both the ta ímposed by sectíon 102 and the ta ímposed by sectíon
0 (príor to íts repeaí by sectíon 6(a) of the Indívíduaí Income Ta ct of
19 ) ; and, ín addítíon, for ta abíe years begínníng after December 31, 19 0,
there must be e cíuded the ta ímposed by sectíon 0.
Par. 1 . There ís ínserted ímmedíateíy precedíng sectíon 29.161-1
26 CFR 29.161-1 the foííowíng:
S C, 20S. S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .

(d) € €
(7) Sectíon 161(a) of the Internaí Revenue Code ís amended by ín-
sertíng ímmedíateíy after the words The ta es ímposed by thís chap-
ter the foííowíng: (other than the ta ímposed by subchapter , re-
íatíng to ta on seíf-empíoyment íncome) .
€ €
Par. 1 . Sectíon 29.161-1 (a), as amended by Treasury Decísíon
C. . 19 6-1, 19 , approved December 29, 19 26 CFR
29.161-í(a) , ís further amended by ínsertíng ín the fírst sentence of
the fírst paragraph, ímmedíateíy after the words ímposed upon ín-
dívíduaís by chapter 1 , the foííowíng:
(other than the ta on seíf-empíoyment íncome ímposed by sectíon 0)
Par. 16. There ís ínserted ímmedíateíy precedíng sectíon 29.29 € ” 1,
as added by Treasury Decísíon 30 and amended by Treasury De-
císíon C. . 19 , 2 6 , approved March 2 , 19 26 CFR
29 -1 , the foííowíng:
S C. 20 . S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2S, 19 0 .
€ €
(d) € €
(S) Sectíon 29 (d) of the Internaí Revenue Code ís amended by ín-
sertíng at the end thereof the foííowíng new paragraph:
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
1
29. 0-1.
(3) Ta on seíf-empíoyment íncome. € ” Thís subsectíon shaíí be
appííed wíthout regard to the ta ímposed by subchapter , reíatíng
to ta on seíf-empíoyment íncome.
Par. 17. Sectíon 29.29 -1, as added by Treasury Decísíon 30 and
amended by Treasury Decísíon 26 CFR 29.29 -1 , ís further
amended by addíng at the end thereof the foííowíng:
(c) Ta on seíf-empíoyment íncome. € ” The provísíons of sectíon 29 (d) and
of thís sectíon shaíí be appííed wíthout regard to the ta on seíf-empíoyment
Income ímposed by sectíon 0.
Par. 1 . The títíe of Subpart D ís changed to read as foííows:
Subpart D. € ” íctory Ta on Indívíduaís and Ta on Seíf- m-
píoyment Income.
Par. 19. There ís ínserted ímmedíateíy precedíng Subpart , reíat-
íng to personaí hoídíng companíes, the foííowíng:
S C. 20 . S LF MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .
(a) Chapter 1 of the Internaí Revenue Code ís amended by addíng at
the end thereof the foííowíng new subchapter consístíng of sectíons 0,
1, and 2 :
SU C PT R € ” T ON S LF- MPLOYM NT INCOM
S C. 0. R T OF T .
In addítíon to other ta es, there shaíí be íevíed, coííected, and paíd
for each ta abíe year begínníng after December 31. 19 0, upon the seíf-
empíoyment Income of every índívíduaí, a ta as foííows:
(1) In the case of any ta abíe year begínníng after December
31, 19 0, and before anuary 1, 19 , the ta shaíí be equaí to 2
per centum of the amount of the seíf-empíoyment íncome for such
ta abíe year.
(2) In the case of any ta abíe year begínníng after December 31,
19 3, and before anuary 1, 1960, the ta shaíí be equaí to 3 per
centum of the amount of the seíf-empíoyment íncome for such
ta abíe year.
(3) In the case of any ta abíe year begínníng after December
31, 19 9, and before anuary 1, 196 , the ta shaíí be equaí to 3
per centum of the amount of the seíf-empíoyment íncome for such
ta abíe year.
( ) In the case of any ta abíe year begínníng after December 31,
196 , and before anuary 1, 1970, the ta shaíí be equaí to per
centum of the amount of the seíf-empíoyment íncome for such ta -
abíe year.
( ) In the case of any ta abíe year begínníng after December
31, 1969, the ta shaíí be equaí to per centum of the amount of
the seíf-empíoyment íncome for such ta abíe year.
€ € € € €
Sec. 29. 0-1. Ta on Seíf- mpíoyment Income. € ” For ta abíe years begín-
níng after December 31, 19 0, there ís Imposed, ín addítíon to other ta es, a ta
upon the seíf-empíoyment íncome of every índívíduaí at the rates prescríbed ín
sectíon 0. Thís ta shaíí be íevíed, assessed, and coííected as part of the
Income ta ímposed by chapter 1 of the Internaí Revenue Code and, e cept as
otherwíse e pressíy províded, wííí be íncíuded wíth the ta es ímposed by sec-
tíons 11 and 12 ín computíng any d3fícíency or overpayment and ín computíng
the Interest and addítíons to any defícíency, overpayment, or ta . Sínce the
ta on seíf-empíoyment Income Is part of the íncome ta , ít ís sub|ect to the
|urísdíctíon of The Ta Court of the Uníted States to the same e tent and ín
the same manner as .he other ta es under chapter 1 of the Code. owever, thís
ta ís not requíred to be taken ínto account ín computíng any estímate of the
ta es requíred to be decíared under sectíon .
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29. 0-1.
1 6
In generaí, seíf-empíoyment íncome consísts of the net earníngs derfved by an
índívíduaí (other than a nonresídent aííen) from a trade or busíness carríed
on by hím as soíe propríetor or by a partnershíp of whích he ís a member, sub-
|ect to certaín e cíusíons, e ceptíons, and íímítatíons.
S C. 1. D FINITIONS DD D Y S CTION 20 (a), SOCI L
S CURITY CT M NDM NTS OF 19 0, PPRO D UGUST
2 , 19 0, ND M ND D Y S CTION 221 (|), R NU CT
OF 19 0, PPRO D S PT M R 23, 19 0 .
For the purposes of thís subchapter € ”
(a) Net arníngs From 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 de-
ductíons aííowed by thís chapter whích are attríbutabíe to such trade or
busíness, píus hís dístríbutíve share (whether or not dístríbuted) of
the ordínary net íncome or íoss, as computed under sectíon 1 3, from any
trade or busíness carríed on by a partnershíp of whích he ís a member;
e cept that ín computíng such gross íncome and deductíons and such
dístríbutíve share of partnershíp ordínary net íncome or íoss € ”
(1) There shaíí be e cíuded rentaís from reaí estate (íncíudíng
personaí property íeased wíth the reaí estate) and deductíons at-
tríbutabíe thereto, uníess such rentaís are receíved ín the course
of a trade or busíness as a reaí estate deaíer;
(2) There shaíí be e cíuded íncome deríved from any trade or
busíness ín whích, íf the trade or busíness were carríed on e -
cíusíveíy by empíoyees, the ma|or portíon of the servíces wouíd
constítute agrícuíturaí íabor as denned ín sectíon 1 20(h); and
there shaíí be e cíuded aíí deductíons attríbutabíe to such íncome;
(3) There shaíí be e cíuded dívídends on any share of stock,
and ínterest on any bond, debenture, note, or certífícate, or other
evídence of Indebtedness, íssued wí: í ínterest coupons or ín regís-
tered form by any corporatíon (íncíudíng one íssued by a govern-
ment or poíítícaí subdívísíon thereof), uníess such dívídends and
ínterest (other than ínterest descríbed ín sectíon 2 (a)) are re-
ceíved In the course of a trade or busíness as a deaíer ín stocks or
securítíes;
( ) There shaíí be e cíuded any gaín or íoss ( ) whích ís con-
sídered ns gaín or íoss from the saíe or e change of a capítaí asset,
( ) from the cuttíng or dísposaí of tímber íf sectíon 117(3) ís
appíícabíe to such gaín or íoss, or (C) from the saíe, e change,
ínvoíuntary conversíon, or other dísposítíon of property íf such prop-
erty ís neíther (í) stock ín trade or other property of a kínd whích
wouíd properíy be íncíudíbíe ín ínventory íf on hand at the cíose of
the ta abíe year, nor (íí) property heíd prímarííy for saíe to cus-
tomers ín the ordínary course of the trade or busíness;
( ) The deductíon for net operatíng íosses províded ín sectíon
23(s) shaíí not be aííowed;
(6) ( ) If any of the íncome deríved from a trade or busíness
(other than a trade or busíness carríed on by a partnershíp) Is
communíty íncome under communíty property íaws appíícabíe to
such íncome, aíí of the gross íncome and deductíons attríbutabíe to
such trade or busíness shaíí be treated as the gross íncome and de-
ductíons of the husband uníess the wífe e ercíses substantíaííy aíí
of the management and controí of such trade or busíness, ín whích
case aíí of such gross íncome and deductíons shaíí be treated as the
gross íncome and deductíons of the wífe;
( ) If any portíon of a partner s dístríbutíve share of the ordí-
nary net íncome or íoss from a trade or busíness carríed on by a
partnershíp ís communíty íncome or íoss under the communíty prop-
erty íaws appíícabíe to such share, aíí of such dístríbutíve share
shaíí be íncíuded ín computíng the net earníngs from seíf-empíoy-
ment of such partner, and no part of such share shaíí be taken ínto
account ín computíng the net earníngs from seíf-empíoyment of the
spouse of such partner;
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
1 7
29. 0-1.
(7) ( ) In the ease of any ta abíe year begínníng before the
effectíve date specífíed ín sectíon 3 10, the term possessíon of the
Uníted States when used In sectíon 2 1 wíth respect to cítízens of
the Uníted States shaíí íncíude Puerto Ríco;
( ) In the case of any ta abíe year begínníng on or after the
effectíve date specífíed ín sectíon 3 10, a resídent of Puerto Ríco shaíí
compute hís net earníngs from seíf-empíoyment ín the same manner
as a cítízen of the Uníted States but wíthout regard to the pro-
vísíons of sectíon 116(1).
If the ta abíe year of a partner ís dífferent from that of the partnershíp,
the dístríbutíve share whích he ís requíred to íncíude ín computíng hís
net earníngs from seíf-empíoyment shaíí be based upon the ordínary net
íncome or íoss of the partnershíp for any ta abíe year of the partner-
shíp (even though begínníng príor to anuary 1, 10 1) endíng wíthín
or wíth hís ta abíe year.
(b) Seíf- mpíoyment Income. € ” The term seíf-empíoyment íncome
means the net earníngs from seíf-empíoyment deríved by an índívíduaí
(other than a nonresídent aííen índívíduaí) duríng any ta abíe year
begínníng after December 31, 19 0; e cept that such term shaíí not
íncíude € ”
(1, That part of the net earníngs from seíf-empíoyment whích
ís ín e cess of: ( ) 3,600, mínus ( ) the amount of the wages
paíd to such índívíduaí duríng the ta abíe year; or
(2) The net earníngs from seíf-empíoyment, íf such net earníngs
for the ta abíe year are íess than 00.
For the purposes of cíause (1) the term wages íncíudes such re-
muneratíon paíd to an empíoyee for servíces íncíuded under an agree-
ment entered ínto pursuant to the provísíons of sectíon 21 of the
Socíaí Securíty ct (reíatíng to coverage oí State empíoyees) as wouíd
be wages under sectíon 1 26(a) If such servíces constítuted empíoy-
ment under sectíon 1 26(b). In the ease of any ta abíe year begínníng
príor to the effectíve date specífíed ín sectíon 3 10, an índívíduaí who
ís a cítízen of Puerto Ríco (but not otherwíse a cítízen of the Uníted
States) and who ís not a resídent of the Uníted States or of the írgín
Isíands duríng such ta abíe year shaíí be consídered, for the purposes
of thís subchapter, as a nonresídent aííen índívíduaí. n índívíduaí
who ís not a cítízen of the Uníted States but who ís a resídent of the
írgín Isíands or (after the effectíve date specífíed ín sectíon 3 10) a
resídent of Puerto Ríco shaíí not, for the purposes of thís subchapter,
be consídered to be a nonresídent aííen índívíduaí.
(c) Tbaoe oe usíness. € ” 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 23,
e cept that such term shaíí not íncíude € ”
(1) The performance of the functíons of a pubííc offíce;
(2) The performance of servíce by an índívíduaí as an empíoyee
(other than servíce descríbed ín sectíon 1 26(b) (16) ( ) per-
formed by an índívíduaí who has attaíned the age of eíghteen) ;
(3) The performance of servíce by an índívíduaí as an empíoyee
or empíoyee representatíve as defíned ín sectíon 1 32;
( ) The performance of servíce by a duíy ordaíned, commís-
síoned, or íícensed míníster of a church ín the e ercíse of hís
mínístry or by a member of a reíígíous order ín the e ercíse of
dutíes requíred by such order; or
( ) The performance of servíce by an índívíduaí In the e ercíse
of hís professíon as a physícían, íawyer, dentíst, osteopath, veterí-
narían, chíropractor, naturopath, optometríst, Chrístían Scíence
practítíoner, archítect, certífíed pubííc accountant, accountant
regístered or íícensed as an accountant under State or munícípaí
íaw, fuíí-tíme practícíng pubííc accountant, funeraí dírector, or
professíonaí engíneer; or the performance of such servíce by a
partnershíp.
(d) mpíoyee aíto Waoes € ” The term empíoyee and the term
wages shaíí have the same meaníng as when used ín subchapter of
chapter 9.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29. 0-1.
1
Sec. 29. 1-1. Net arníngs From Seíf- mpíoyment. € ” (a) Defínítíon. € ”
Sub|ect to the specíaí ruíes díscussed ín (c) of thís sectíon and to the e cíusíons
díscussed ín sectíon 29. 1-3, the term net earníngs from seíf-empíoyment
means € ”
(1) the gross íncome deríved by an índívíduaí from any trade or busíness
carríed on by such índívíduaí, íess the deductíons aííowed by chapter 1
of the Internaí Revenue Code whích are attríbutabíe to such trade or busí-
ness, píus
(2) hís dístríbutíve share (whether or not dístríbuted) of the ordínary
net íncome (or mínus the ordínary net íoss) from any trade or busíness,
as computed under sectíon 1 3, carríed on by any partnershíp of whích he
ís a member.
(b) Incíuded ín net earníngs. € ” The gross Income and deductíons of an ín-
dívíduaí attríbutabíe to a trade or busíness, for the purpose of ascertaíníng hís
net earníngs from seíf-empíoyment, are to be determíned by reference to the
provísíons of íaw and reguíatíons appíícabíe wíth respect to the ta es ímposed
by sectíons 11 and 12. Thus, íf an índívíduaí uses the accruaí method of ac-
countíug ín computíng net íncome from a trade or busíness for the purpose of
Ihe ta es ímposed by sectíons 11 and 12, he must use the same method In de-
termíníng net earníngs from seíf-empíoyment. Líkewíse, íf a ta payer engaged
ín a trade or busíness of seíííng property on the ínstaííment pían eíects, under
the provísíons of sectíon , tc use the ínstaííment basís ín computíng íncome
for the purpose of the ta es under sectíons 11 and 12, he must use the same
basís ín determíníng net earníngs from seíf-empíoyment.
The trade or busíness must be carríed on by the índívíduaí, eíther personaííy
or through agents or empíoyees. ccordíngíy, íncome deríved from a trade or
busíness carríed on by an estate or trust ís not íncíuded ín determíníng the net
earníngs from seíf-empíoyment of the índívíduaí benefícíaríes of such estate
or trust.
Where an índívíduaí ís engaged In more than one trade or busíness wíthín the
níeaníng of sectíon 1(c) and sectíon 29. 1-3, hís net earníngs from seíf-em-
píoyment consíst of the aggregate of the net íncome and íosses (computed
sub|ect to the specíaí ruíes províded ín thís sectíon) of aíí such trades or
busínesses carríed on by hím. Thus, a íoss sustaíned ín one trade or busíness
carríed on by an índívíduaí wííí operate to offset the íncome deríved by hím
from another trade or busíness.
The not earníngs from seíf-empíoyment of an índívíduaí íncíude, ín addítíon
to the earníngs from a trade or busíness carríed on by hím, hís dístríbutíve share
of the ordínary net íncome or ordínary net íoss from any trade or busíness car-
ríed on by each partnershíp of whích he ís a member. n índívíduaí s dístríb-
utíve share of the ordínary net íncome or ordínary net íoss of a partnershíp shaíí
be computed under sectíon IS. ), sub|ect to the specíaí ruíes set forth ín sectíon
1(a) and ín thís sectíon and to the e cíusíons províded ín sectíon Sí(c) and
ín sectíon 29. S1-3.
If the ta abíe year of a partner díffers from that of the partnershíp, the
partner shaíí íncíude, ín computíng net earníngs from seíf-empíoyment, hís
dístríbutíve share of the ordínary net íncome or ordínary net íoss of the partner-
shíp for íts ta abíe year (even though begínníng príor to anuary 1, 1931) end-
íng wíth or wíthín the ta abíe year of the partner.
For the purpose of determíníng net earníngs from seíf-empíoyment, a partner-
shíp ís one whích ís recognízed as such for íncome ta purposes. For íncome
ta purposes, the term partnershíp íncíudes not oníy a partnershíp as known
at common íaw, but, aíso, a syndícate, group, pooí, |oínt venture, or other unín-
corporated organízatíon whích carríes on any trade or busíness, fínancíaí opera-
tíon, or venture, whích ís not, wíthín the meaníng of the Internaí Revenue Code,
a trust, estate, or a corporatíon.
The net earníngs from seíf-empíoyment of a partner íncíude hís dístríbutíve
share of the ordínary net íncome or ordínary net íoss of the partnershíp of
whích ííe ís a member, írrespectíve of the nature of hís membershíp. Thus, ín
determíníng hís net earníngs from seíf-empíoyment, a íímíted or ínactíve partner
íncíudes hís dístríbutíve share of the ordínary net íncome or ordínary net íoss
of the partnershíp.
(c) cíuded from net earníngs. € ” For the purpose of computíng net earníngs
from seíf-empíoyment, the gross Income deríved by an índívíduaí from a trade
or busíness carríed on by hím, the aííowabíe deductíons attríbutabíe to such
trade or busíness, and the índívíduaí s dístríbutíve share of the ordínary net
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
1 9
29. 0-1.
íncome or ordínary net íoss from any trade or busíness carríed on by a partner-
shíp of whích he ís a member shaíí be computed ín accordance wíth the foííowíng
specíaí ruíes:
(1) Rentaís from reaí estate. € ” Rentaís from reaí estate (íncíudíng personaí
property íeased wíth the reaí estate), and the deductíons attríbutabíe thereto,
nníess such rentaís are receíved by an índívíduaí ín the course of a trade or
busíness as a reaí estate deaíer, are e cíuded. Whether or not an índívíduaí ís
engaged ín the trade or busíness of a reaí estate deaíer ís determíned by the
appíícatíon of the príncípíes foííowed ín respect of the ta es ímposed by sectíons
11 and 12. In generaí, an índívíduaí who ís engaged ín the busíness of seíííng
reaí estate to customers wíth a víew to the gaíns and profíts that may be deríved
from such sníes ís a reaí estate deaíer. On the other hand, an índívíduaí who
mereíy hoíds reaí estate for Investment or specuíatíon and receíves rentaís
therefrom ís not consídered a reaí estate deaíer. Where a reaí estate deaíer
hoíds reaí estate for ínvestment or specuíatíon ín addítíon to reaí estate heíd for
saíe to customers ín the ordínary course of hís trade or busíness as a reaí estate
deaíer, oníy the rentaís from the reaí estate heíd for saíe to customers ín the
ordínary course of hís trade or busíness as a reaí estate deaíer, and the deduc-
tíons attríbutabíe thereto, are íncíuded ín determíníng net earníngs from seíf-
empíoyment ; the rentaís from the reaí estate heíd for ínvestment or specuíatíon,
and the deductíons attríbutabíe thereto, are e cíuded.
Payments for the use or occupancy of entíre prívate resídences or íívíng
quarters ín dupíe or muítípíe-housíng uníts are generaííy rentaís from reaí
estate. cept ín the case of reaí estate deaíers, such payments are e cíuded
ín determíníng net earníngs from seíf-empíoyment even though such payments
are ín part attríbutabíe to personaí property furníshed under the íease.
Payments for the use or occupancy of rooms or other space where servíces
are aíso rendered to the occupant, such as for the use or occupancy of rooms
or other quarters ín hoteís, boardíng bouses, or apartment houses furníshíng hoteí
servíces, or ín touríst camps or touríst homes, or for the use or occupancy of
space ín parkíng íots, warehouses, or storage garages, do not constítute rentaís
from reaí estate; consequentíy, such payments are íncíuded ín determíníng net
earníngs from seíf-empíoyment. Generaííy, servíces are consídered rendered
to the occupant If they are prímarííy for hís conveníence and are other than
those usuaííy or customarííy rendered ín connectíon wíth the rentaí of rooms
or other space for occupancy oníy. The suppíyíng of maíd servíce, for e ampíe,
constítutes such servíce; whereas, the furníshíng of heat and ííght, the cíeaníng
of pubííc entrances, e íts, staírways and íobbíes, the coííectíon of trash, and so
forth, are not consídered as servíces rendered to the occupant.
cept ín the case of a reaí estate deaíer, where an índívíduaí or a partnershíp
ís engaged ín a trade or busíness the íncome of whích ís cíassífíabíe ín part as
rentaís from reaí estate, oníy that portíon of such íncome whích ís not cíassífíabíe
as rentaís from reaí estate, and the e penses attríbutabíe to such portíon, wííí
be íncíuded ín determíníng net earníngs from seíf-empíoyment.
ampíe. , an índívíduaí, owns a buíídíng contaíníng four apartments.
Duríng the ta abíe year, he receíves 1, 00 from apartments numbered 1 and 2,
whích are rented wíthout servíces rendered to the occupants, and 3,600 from
apartments numbered 3 and , whích are rented wíth servíces rendered to the
occupants. ís fí ed e penses for the four apartments aggregate 1,200 duríng
the ta abíe year. In addítíon, he has 00 of e penses attríbutabíe to the servíces
rendered to the occupants of apartments 3 and . In determíníng bís net earn-
íngs from seíf-empíoyment, íncíudes the 3,000 receíved from apartments
3 and , and the e penses of 1,100 attríbutabíe thereto. The rentaís and
e penses attríbutabíe to apartments 1 and 2 are e cíuded. Therefore, has
2, 00 of net earníngs from seíf-empíoyment for the ta abíe year.
(2) Income from agrícuíturaí actívíty. € ” Income deríved from any trade or
busíness ín whích, íf the trade or busíness were carríed on e cíusíveíy by
empíoyees, the ma|or portíon of the servíces wouíd constítute agrícuíturaí íabor
as defíned ín sectíon 1 26(h), and aíí deductíons attríbutabíe to such íncome,
are e cíuded. In case the servíces are ín part agrícuíturaí and ín part non-
agrícuíturaí, the tíme devoted to the performance of each type of servíce ís the
test to be used to determíne whether the ma|or portíon of the servíces wouíd
constítute agrícuíturaí íabor. If more than hníf of the tíme spent ín performíng
aíí the servíces ís spent ín performíng servíces whích wouíd constítute agrí-
cuíturaí íabor under sectíon 1 26(h), aíí íncome, and the deductíons attríbutabíe
to the íncome, shaíí be e cíuded. If oníy haíf, or íess, of the tíme spent ín per-
formíng aíí the servíces Is spent ín performíng servíces whích wouíd constítute
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29. 0-1.
1 0
agrícuíturaí íabor under sectíon 1 20(h), aíí íncome, and the deductíons attríb-
utabíe to the Income, shaíí be íncíuded. In every case the tíme spent ín perform-
íng the servíces wííí be computed by addíng the tíme spent ín the trade or busí-
ness duríng the ta abíe year by every índívíduaí (íncíudíng the índívíduaí
carryíng on such trade or busíness and the members of hís famííy) ín performíng
such servíces. The operatíon of thís specíaí ruíe ís not affected by sectíon
1 26(c), reíatíng to the íncíuded-e cíuded ruíe for determíníng empíoyment.
Thís ruíe has no appíícatíon where the nonagrícuíturaí servíces are performed
ín connectíon wíth an enterpríse whích constítutes a trade or busíness separate
and dístínct from the trade or busíness conducted as an agrícuíturaí enterpríse.
Thus, the operatíon of a roadsíde automobííe servíce statíon on farm premíses
constítutes a trade or busíness separate and dístínct from the agrícuíturaí enter-
príse, and the gross íncome deríved from such servíce statíon, together wíth
the deductíons attríbutabíe thereto, are íncíuded ín determíníng net earníngs
from seíf-empíoyment.
(3) Dívídends and ínterest. € ” íí dívídends on shares of stock are e cíuded
uníess they are receíved by an índívíduaí ín the course of hís trade or busíness
as a deaíer ín stocks or securítíes.
Interest on any bond, debenture, note, or certífícate, or other evídence of
índebtedness, íssued wíth ínterest coupons or ín regístered form by any corpo-
ratíon (íncíudíng one íssued by a government or poíítícaí subdívísíon thereof),
ís e cíuded uníess such ínterest ís receíved ín the course of a trade or busíness
ns a deníer ín stocks or securítíes. owever, ínterest whích ís e empt under
sectíon 2 (a) from the normaí tn ímposed by sectíon 11, that ís, ínterest on
certaín obíígatíons of the Uníted States and íts ínstrumentaíítíes, ís not íncíuded
ín net earníngs from seíf-empíoyment even though receíved ín the course of a
trade or busíness as a deaíer ín stocks or securítíes. Oníy ínterest on bonds,
debentures, notes, or certífícates, or other evídence of índebtedness, íssued wíth
ínterest coupons or ín regístered form by a corporatíon, ís e cíuded ín the case
of aU persons other than deaíers ín stocks or securítíes; other ínterest receíved
ín the course of any trade or busíness (such as ínterest receíved by a pawn-
broker on hís íoans or ínterest receíved by a merchant on hís accounts or notes
receívabíe) ís not e cíuded.
Dívídends and ínterest of the character e cíudabíe under the precedíng para-
graphs receíved by an índívíduaí on stocks or securítíes heíd for specuíatíon
or ínvestment are e cíuded whether or not the índívíduaí ís a deaíer ín stocks
or securítíes.
deaíer ín stocks or securítíes ís a merchant of stocks or securítíes wíth an
estabííshed píace of busíness, reguíaríy engaged ín the busíness of purchasíng
stocks or securítíes and reseíííng them to customers; that ís, he ís one who as
a merchant buys stocks or securítíes and seíís them to customers wíth a víew
to the gaíns and profíts that may be deríved therefrom. Persons who buy and
seíí or hoíd stocks or securítíes for ínvestment or specuíatíon, írrespectíve of
whether such buyíng or seíííng constítutes the carryíng on of a trade or busí-
ness, are not deaíers ín stocks or securítíes.
( ) Gaín or íoss from dísposítíon of property. € ” There ís e cíuded any gaín
or íoss: (í) whích ís consídered as gaín or íoss from the saíe or e change of
a capítaí asset; (íí) from the cuttíng or dísposaí of tímber, even though heíd
prímarííy for saíe to customers, íf sectíon 117(|) ís appíícabíe to such gaín or
íoss; and (ííí) from the saíe, e change, ínvoíuntary conversíon, or other dís-
posítíon of property íf such property ís neíther ( ) stock ín trade or other
property of a kínd whích wouíd properíy be íncíudíbíe ín ínventory íf on hand
at the cíose of the ta abíe year, nor ( ) property heíd prímarííy for saíe to
customers ín the ordínary course of a trade or busíness. For the purpose of
the specíaí ruíe ín (ííí), ít ís ímmateríaí whether a gaín or íoss ís treated as a
capítaí gaín or íoss or as an ordínary gaín or íoss for purposes other than deter-
míníng net earníngs from seíf-empíoyment. For ínstance, where the character
of a íoss ís governed by the provísíons of sectíon 117(|), such íoss ís e cíuded
ín determíníng net earníngs from seíf-empíoyment even though such íoss ís
treated under sectíon 117(|) as an ordínary íoss. For the purposes of thís
specíaí ruíe, the term ínvoíuntary conversíon means a compuísory or ínvoíun-
tary conversíon of property ínto other property or money as a resuít of íts
destructíon ín whoíe or ín part, theft or seízure, or an e ercíse of the power
of requísítíon or condemnatíon or the threat or ímmínence thereof; and, the
term other dísposítíon íncíudes the destructíon or íoss, ín whoíe or ín part,
of property by fíre, storm, shípwreck, or other casuaíty, or by theft, even though
there ís no conversíon of such property ínto other property or money.
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
1 1
29. 0-1.
ampíe. Duríng the ta abíe year 19 1. . who owns a grocery store, reaíízed
a net profít of 1, 00 from the saíe of groceríes and a gaín of 3 0 from the saíe
of a refrígerator case. Duríng the same year, he sustaíned a íoss of 2,000 as a
resuít of damage by fíre to the store buíídíng. In computíng net Income, aíí of
these ítems are taken ínto account. In determíníng net earníngs from seíf-em-
píoyment, however, oníy the 1, 00 of profít deríved from the saíe of groceríes ís
Incíuded. The 3 0 gaín and the 2,000 íoss are e cíuded.
( ) Set operatíng íoss deductíon € ” The deductíon províded by sectíon 23(s),
reíatíng to net operatíng íosses sustaíned ín years other than the ta abíe year,
ís e cíuded.
(6) Communíty íncome. € ” (í) In vase of an índívíduaí. € ” If any of the íncome
deríved by an índívíduaí from a trade or busíness (other than a trade or busíness
carríed on by a partnershíp) ís communíty íncome under communíty property
íaws appíícabíe to such íncome, aíí of the gross íncome, and the deductíons
attríbutabíe to such íncome, shaíí be treated as the gross íncome and deductíons
of the husband uníess the wífe e ercíses substantíaííy aíí of the management
and controí of such trade or busíness, ín whích case aíí of such gross íncome
and deductíons shaíí be treated as the gross Income and deductíons of the wífe.
For the purpose of thís specíaí ruíe, the term management and controí means
management and controí ín fact, not the management and controí ímputed to
the husband under the communíty property íaws. For e ampíe, a wífe who
operates a beauty paríor wíthout any apprecíabíe coííaboratíon on the part of her
husband wííí be consídered as havíng substantíaííy aíí of the management and
controí of such busíness despíte the provísíon of any communíty property íaw
vestíng In the husband the ríght of management and controí of communíty prop-
erty ; and the íncome and deductíons attríbutabíe to the operatíon of such beauty
paríor wííí be consídered the íncome and deductíons of the wífe.
(íí) In case of a partnershíp. € ” ven though a portíon of a partner s dístríbutíve
f-hare of the ordínary net íncome or ordínary net íoss from a trade or busíness
carríed on by a partnershíp ís communíty íncome or íoss under the communíty
property íaws appíícabíe to suvh share, aíí of such dístríbutíve share shaíí he
Incíuded ín computíng the net earníngs from seíf-empíoyment of such partner;
no part of such share shaíí be taken ínto account ín computíng the net earníngs
from seíf-empíoyment of the spouse of such partner. In any case In whích both
spouses are members of the same partnershíp, the dístríbutíve share of the
ordínary net íncome or ordínary net íoss of each spouse ís íncíuded ín computíng
the net earníngs from seíf-empíoyment of that spouse.
(7) Puerto Ríco. € ” (1) Resídents. € ” In the case of any ta abíe year begínníng
on or after anuary 1,19 1, a resídent of Puerto Ríco, whether or not a bona fíde
resídent thereof duríng the entíre ta abíe year, and whether or not an aííen, a
cítízen of the Uníted States, or a cítízen of Puerto Ríco, shaíí compute hís net
earníngs from seíf-empíoyment ín the same manner as wouíd a cítízen of
the Uníted States resídíng ín the Uníted States. For the purpose of the ta
on seíf-empíoyment íncome, the gross íncome of such a resídent of Puerto Ríco
aíso Incíudes íncome from Puerto Rícan sources. Thus, under thís specíaí ruíe,
íncome from Puerto Rícan sources wííí be íncíuded ín determíníng net earníngs
from seíf-empíoyment of a resídent of Puerto Ríco engaged ín the actíve conduct
of a trade or busíness ín Puerto Ríco despíte the fact that, under sectíon 116(1),
such íncome may not be taken ínto account for the purpose of the ta es under
sectíons 11 and 12.
(íí) Nonresídents. € ” cítízen of Puerto Ríco who ís aíso a cítízen of the Uníted
States and who ís not a resídent of Puerto Ríeo wííí compute hís net earníngs from
seíf-empíoyment ín the same manner and sub|ect to the same provísíons of íaw
and reguíatíons as other cítízens of the Uníted States.
Sec. 29. S1-2. Seíf- mpíoyment Income. € ” (a) In generaí. € ” cept for the
e cíusíons ín (b) and (c) and the e ceptíon ín (d) of thís sectíon, and term seíf-
empíoyment Income means the net earníngs from seíf-empíoyment deríved by
an índívíduaí duríng any ta abíe year begínníng after December 31, 19 0.
(b) Ma ímum seíf-empíoyment íncome. € ” The ma ímum seíf-empíoyment ín-
come of an índívíduaí for any ta abíe year (whether a períod of 12 months or
íess) ís 3,600. If an índívíduaí ís paíd wages as defíned ín sectíon 1 26(a),
the ma ímum ís the e cess of 3,600 over the amount of such wages. For e -
ampíe, íf duríng the ta abíe year no such wages are paíd and the índívíduaí has
,000 of net earníngs from seíf-empíoyment, he has 3,600 of seíf-empíoyment
íncome for such ta abíe year. If, ín addítíon to havíng ,000 of net earníngs
from seíf-empíoyment, such índívíduaí ís paíd 1,000 of such wages, he has oníy
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29. 0-1.
1 2
2,600 of seíf-empíoyment Income for the ta abíe year. For the purpose of thís
íímítatíon, the term wages íncíudes remuneratíon paíd to an empíoyee for
servíces covered by an agreement entered Into pursuant to sectíon 21 of the
Socíaí Securíty ct, whích sectíon provídes for e tensíon of the Federaí oíd-age
and survívors ínsurance system to State and íocaí government empíoyees under
voíuntary agreements between the States and the Federaí Securíty dmínístrator.
(c) Mínímum net earníngs from seíí-empíoyment. € ” Seíf-empíoyment íncome
does not íncíude the net earníngs from seíf-empíoyment of an índívíduaí when
the amount of such earníngs for the ta abíe year ís íess than 00. Thus, an
índívíduaí havíng oníy 300 of net earníngs from seíf-empíoyment for the ta -
abíe year wouíd í .ot have any seíf-empíoyment íncome. owever, an índívíduaí
havíng net earníngs from seíf-empíoyment of 00 or more for the ta abíe year
may have íess than 00 of seíf-empíoyment íncome. Thís wouíd occur ín a
case ín whích the amount of the índívíduaí s net earníngs from seíf-empíoyment
ís 00 or more for a ta abíe year and the índívíduaí aíso receíves more than
3,200 but íess than 3,G00 of wages duríng that ta abíe year. For e ampíe,
íf an índívíduaí has net earníng from seíf-empíoyment of 1,000 for a ta abíe
year and aíso receíves wages of 3, 00 duríng that ta abíe year, hís seíf-empíoy-
ment íncome for that ta abíe year ís 200.
(d) Nonresídent aííens. € ” nonresídent aííen índívíduaí never has seíf-
empíoyment Income. For the purpose of the ta on seíf-empíoyment íncome, an
índívíduaí who ís not a cítízen of the Uníted States but who ís a resídent of the
írgín Isíands or of Puerto Ríco ís not consídered- to be a nonresídent aííen
índívíduaí. Whííe a nonresídent aííen índívíduaí who deríves hís íncome from a
trade or busíness carríed on wíthín the Uníted States, Puerto Ríco, or the írgín
Isíands (whether by agents or empíoyees, or by a partnershíp of whích he ís a
member) may be sub|ect to the appíícabíe íncome ta provísíons on such íncome,
such nonresídent aííen índívíduaí wííí not be sub|ect to the ta on seíf-empíoy-
ment íncome, sínce any net earníngs whích he may have from seíf-empíoyment
do not constítute seíf-empíoyment íncome.
Sec. 29. 1-3. Tbade ob usíness. € ” (a) In generaí. € ” It ís necessary for an
Indívíduaí to carry on r. trade or busíness, eíther as an índívíduaí or as a member
of a partnershíp, ín order for hím to have net earníngs from seíf-empíoyment.
cept for the e cíusíons díscussed ín (b), (c), (d), (e),and (f) of thís sectíon,
the term trade or busíness , for the purpose of the ta on seíf-empíoyment
íncome, shaíí have the same meaníng as when used ín sectíon 23. n índívíduaí
engaged ín one of the e cíuded actívítíes specífíed ín thís sectíon may aíso be
engaged ín carryíng on a none cíuded trade or busíness. Whether or not he ís
aíso engaged ín an íncíuded trade or busíness wííí be dependent upon aíí of the
facts and círcumstances ín the partícuíar case.
(b) Pubííc offíce. € ” The performance of the functíons of a pubííc offíce does
not constítute a trade or busíness. The term pubííc offíce íncíudes any eíectíve
or appoíntíve offíce of the Uníted States or any possessíon thereof, or of a State
or íts poíítí aí subdívísíon, or of a whoííy owned ínstrumentaííty of any one
or more of the foregoíng. For e ampíe, the Presídent, the íce Presídent, a
governor, a mayor, the Secretary of State, a Member of Congress, a State repre-
sentatíve, a county commíssíoner, a |udge, a county or cíty attorney, a marshaí,
a sheríff, a regíster of deeds, or a notary pubííc performs the functíons of a pubííc
offíce.
(c) mpíoyees. € ” The performance of servíce by an índívíduaí as an empíoyee,
as defíned ín the Federaí Insurance Contríbutíons ct, wíth one e ceptíon,
does not constítute a trade or busíness. The e ceptíon ís as foííows: Servíce
performed by an índívíduaí, who has attaíned the age of 1 , ín, and at the
tíme of, the saíe of newspapers or magazínes to uítímate consumers, under an
arrangement under whích the newspapers or magazínes are to be soíd by hím
at a fí ed príce, hís compensatíon beíng based on the retentíon of the e cess of
such príce over the amount at whích the newspapers or magazínes are charged
to hím, whether or not he ís guaranteed a mínímum amount of compensatíon
for such servíce, or ís entítíed to be credíted wíth the unsoíd newspapers or
magazínes turned back, does constítute a trade or busíness. s to when an
índívíduaí ís an empíoyee see the appíícabíe reguíatíons under the Federaí
Insurance Contríbutíons ct.
(d) Indívíduaís under Raííroad Retírement System. € ” The performance of
servíce by an índívíduaí as an empíoyee or empíoyee representatíve as defíned
ín sectíon 1 32, that ís, an índívíduaí covered under the raííroad retírement
system, does not constítute a trade or busíness. s to when an índívíduaí ís
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
1 3
29. 0-1.
an empíoyee or empíoyee representatíve under sectíon 1 32, see the appíícabíe
reguíatíons under the Raííroad Retírement Ta ct.
(e) Mínísters or members of reíígíous orders. € ” The performance of servíce
by a duíy ordaíned, commíssíoned, or íícensed míníster of a church ín the e er-
císe of hís mínístry or by a member of a reíígíous order ín the e ercíse of
dutíes requíred by such order does not constítute a trade or busíness. The
dutíes of mínísters íncíude the mínístratíon of sacerdotaí functíons and the
conduct of reíígíous worshíp, and the controí, conduct, and maíntenance of
reíígíous organízatíons (íncíudíng the reíígíous boards, socíetíes, and other
íntegraí agencíes of such organízatíons), under the authoríty of a reíígíous
bedy constítutíng a church or church denomínatíon.
(f) Members of certaín professíons. € ” The performance of servíce by an
índívíduaí ín the e ercíse of hís professíon as a physícían, íawyer, dentíst,
osteopath, veterínarían, chíropractor, naturopath, optometríst, Chrístían
Scíence practítíoner, archítect, certífíed pubííc accountant, accountant regístered
or íícensed as an accountant under State or munícípaí íaw, fuíí-tíme practícíng
pubííc accountant, funeraí dírector, or professíonaí engíneer does not constítute
a trade or busíness. Thís e cíusíon appííes oníy íf the índívíduaí meets the
íegaí requírements, íf any, for practícíng hís professíon ín the píace where he
performs the servíce. Thus, an accountant who ís neíther certífíed, regístered,
nor íícensed but who ís pubíícíy engaged ín the practíce of accountancy on a
fuíí-tíme basís ín a |urísdíctíon whích requíres that an índívíduaí engaged
ín such practíce be certífíed, regístered, or íícensed ís not wíthín the e cíusíon.
These desígnatíons are to be gíven theír commoníy accepted meaníng. Thus,
the term physícían means an índívíduaí who ís íegaííy quaíífíed to practíce
medícíne: the term íawyer means an índívíduaí who ís íegaííy quaíífíed to
practíce íaw; and the term professíonaí engíneer means an engíneer íegaííy
quaíífíed to practíce before the pubííc ín a consuítíng capacíty.
In the case of a partnershíp engaged ín the practíce of any of the desígnated
professíons, the partnershíp shaíí not be consídered as carryíng on a trade or
busíness for the purpose of the ta on seíf-empíoyment íncome, and none of
the dístríbutíve shares of the ordínary net íncome or the ordínary net íoss
of such partnershíp shaíí be íncíuded ín computíng net earníngs from seíf-
cínpíoyníent of any member of the partnershíp. On the other hand, where a
partnershíp ís engaged ín a trade or busíness not wíthín any of the desígnated
professíons, each partner must íncíude hís dístríbutíve share of the ordínary
net íncome or the ordínary net íoss of such partnershíp ín computíng hís net
earníngs from seíf-empíoyment, írrespectíve of whether such partner ís aíso
engaged ín the practíce of one or more of such professíons and contríbutes hís
professíonaí servíces to the partnershíp.
Sec. 29. 1- . mpíoyee and Wages. € ” For the purpose of the ta on seíf-
otupíoyment íncome, the term empíoyee and the term wages shaíí have
the same meaníng as when used ín the Federaí Insurance Contríbutíons ct.
For an e píanatíon of these terms, see the appíícabíe reguíatíons under that ct.
S C. 2. MISC LL N OUS PRO ISIONS S DD D Y S C-
TION 20S(n), SOCI L S CURITY CT M NDM NTS OF 19 0,
PPRO D UGUST 2 , 19 0 .
(a) Returns. € ” very índívíduaí (other than a nonresídent aííen
Indívíduaí) havíng net earníngs from seíf-empíoyment of 00 or more
for the tn abíe year shaíí make a return contaíníng such ínformatíon
for the purpose of carryíng out the provísíons of thís subchapter as the
Commíssíoner, wíth the approvaí of the Secretary, may by reguíatíons
prescríbe. Such return shaíí be consídered a return requíred under
sectíon 1(a). In the case of a husband and wífe fíííng a .1oínt return
under sectíon 1(b), the ta ímposed by thís subchapter shaíí not be
computed on the aggregate íncome but shaíí be the sum of the ta es
computed under thís subchapter on the separate seíf-empíoyment íncome
of each spouse.
(b) Títíe op Subchapter. € ” Thís subchapter may be cíted as the Seíf-
mpíoyment Contríbutíons ct .
(c) ffectíve Date ín Case of Puerto Ríco. € ” For effectíve date In
case of Puerto Ríco, see sectíon 3 10.
(d) Coííectíon of Ta es ín írgín Isíands and Puerto Ríco. € ” For
provísíons reíatíng to coííectíon of ta es ín írgín Isíands and Puerto
Ríco, see sectíon 3 11.
9 010 € ” 2 11
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29. 0-1.
1
Sec. 29. 2-1. Returns. € ” (a) In generaí. € ” For each ta abíe year begínníng
after December 31, 19 0, every índívíduaí, other than a nonresídent aííen, havíng
net earníngs from seíf-empíoyment of 00 or more for the ta abíe year shaíí
make a return on Form 10 0 ín accordance wíth the ínstructíons thereon, or
íssued therewíth, and the provísíons of the reguíatíons appíícabíe thereto. Such
return shaíí be consídered a return requíred under sectíon 1(a), and the
provísíons appíícabíe to returns under sectíon 1(a) shaíí be appíícabíe to thís
return. Thís return wííí be requíred íf there ís seíf-empíoyment íncome even
though the índívíduaí may not be requíred to make a return for the purpose of
the ta es ímposed by sectíons 11 and 12.
(b) oínt returns. € ” In the case of a husband and wífe fíííng a |oínt return
nnder sectíon 1(b), the ta on seíf-empíoyment íncome ís computed on the
separate seíf-empíoyment íncome of each spouse, and not on the aegregate of
the two amounts. The requírement of sectíon 1(b) that ín the case of a oínt
return the ta ís computed on the aggregate íncome of the spouses ís not appíí-
cabíe wíth respect to the ta on seíf-empíoyment íncome. Where the husband
and wífe each has net earníngs from seíf-empíoyment of 00 or more, ít wííí
be necessary for each to compíete a separate scheduíe of Form 10 0 wíth respect
to such net earníngs, despíte the fact that a |oínt return ís fííed. If the net
earníngs from seíf-empíoyment of eíther the husband or the wífe are íess than
00, such net earníngs are not sub|ect to the ta on seíf-empíoyment íncome,
even though they must be shown on the oínt return for the purpose of the ta es
ímposed by sectíons 11 and 12.
cept as otherwíse e pressíy províded, sectíon 1(b) ís appíícabíe to the
return of the ta on seíf-empíoyment íncome; therefore, the ííabíííty wíth respect
to such ta ín the case of a oínt return ís |oínt and severaí.
(c) Socíaí securíty account numbers. € ” very índívíduaí makíng a return of
net earníngs from seíf-empíoyment ís requíred to show thereon hís socíaí securíty
account number, or, íf he has no such account number, to make appíícatíon
therefor on Form SS- príor to the fíííng of such return. owever, the faííure
to appíy for a socíaí securíty account number wííí not e cuse the índívíduaí
from the requírement that he fííe such return on or before the due date thereof.
Form SS- may be obtaíned from any fíeíd offíce of the Socíaí Securíty dmínís-
tratíon or from any coííector. The appíícatíon on Form SS- shaíí be fííed wíth
the fíeíd offíce of the Socíaí Securíty dmínístratíon nearest the íegaí resídence
or príncípaí píace of busíness of such índívíduaí, or íf he has no íegaí resídence
or príncípaí píace of busíness wíthín the Uníted States. Puerto Ríco, or the
írgín Isíands, wíth the offíce of the Socíaí Securíty dmínístratíon at aítí-
more, Maryíand. n índívíduaí who has prevíousíy secured a socíaí securíty
account number as an empíoyee shaíí use that account number on bís return
of net earníngs from seíf-empíoyment.
Par. 20. There ís ínserted ímmedíateíy precedíng sectíon
29.3 01(a) (1)-1 26 CFR 29.3 01(a) (1)-1 the foííowíng:
S C. 20S. S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .
€ € € € €
(c) Sectíon 3S01 of the Internaí Revenue Code ís amended by addíng
at the end thereof the foííowíng new subsectíon :
(g) Ta es Imposeo by Chapter 9. € ” The provísíons of thís sectíon
shaíí not be construed to appíy to any ta ímposed by chapter 9.
€ € €
Par. 21. Sectíon 29.3 01(a) (1)-1 r26 CFR 29.3 01(a) (1)-1 ís
amended by addíng at the end thereof the foííowíng new sentence:
The provísíons of sectíon 3 01 and of the reguíatíons promuígated under such
sectíon shaíí not appíy to any ta ímposed by chapter 9, reíatíng to empíoyment
ta es.
Par. 22. There ís ínserted ímmedíateíy after sectíon 29.3 0 - . as
added by Treasury Decísíon 0 , approved príí 1 , 19 6 26 CFR
29.3S0 - , the foííowíng:
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
1
29. 0-1.
S C. 3 10. FF CTI D T IN C S OF PU RTO ICO S
DD D Y S CTION 20 (b), SOCI L S CURITY CT M ND-
M NTS OF 19 0, PPRO D UGUST 2 , 19 0 .
If the Governor of Puerto Ríco certífíes to the Presídent of the Uníted
States that the íegísíature of Puerto Ríco has, by concurrent resoíutíon,
resoíved that ít desíres the e tensíon to Puerto Ríco of the provísíons
of títíe II of the Socíaí Securíty ct, the effectíve date referred to ín
sectíons 1 26(e), 1(a) (7), and 1(b) shaíí be anuary 1 of the fírst
caíendar year whích begíns more than nínety days after the date on
whích the Presídent receíves such certífícatíon.
Sec. 29.3 10-1. ffectíve Date of Seíf- mpíoyment Ta ín Puerto Ríco. € ”
Sínce the Governor of Puerto Ríco has certífíed to the Presídent of the Uníted
States that the Legísíature of Puerto Ríco has, by concurrent resoíutíon, re-
soíved that ít desíres the e tensíon to Puerto Ríco of the provísíons of títíe II
of the Socíaí Securíty ct, the certífícate havíng been receíved by the Presídent
on September 2 , 19 0, the effectíve date specífíed ín sectíon 3 10 ís anuary 1,
19 1. (See sectíon 29. 1-1 (e) (7).)
S C. 3 11. COLL CTION OF T S IN PU RTO RICO ND IR-
GIN ISL NDS S DD D Y S CTION 20 (b), SOCI L S -
CURITY CT M NDM NTS OF 1930, PPRO D UGUST 2 ,
19 0, ND M ND D Y S CTION 221 (í), R NU CT OF
19 0, PPRO D S PT M R 23, 19 0 .
(a) Puerto Ríco. € ” Notwíthstandíng any other provísíon of íaw re-
spectíng ta atíon ín Puerto Ríco, aíí ta es ímposed by chapter 1, and
by subchapters and D of chapter 9, shaíí be coííected under the dí-
rectíon of the Secretary and shaíí be paíd ínto the Treasury of the
Uníted States as ínternaí revenue coííectíons. íí provísíons of the
íaws of the Uníted States appíícabíe to the admínístratíon, coííectíon,
and enforcement of any ta ímposed upon the íncomes of índívíduaís,
estates, and trusts by chapter 1 (íncíudíng the provísíons reíatíng to
The Ta Court of the Uníted States), and of any ta ímposed by sub-
chapter or by subchapter D of chapter 9, shaíí, ín respect to such
ta , e tend to and be appíícabíe ín Puerto Ríco ín the same manner and
to the same e tent as íf Puerto Ríco were a State, and as íf the term
Uníted States when used ín a geographícaí sense íncíuded Puerto
Ríco.
(b) írgín Isíands. € ” Notwíthstandíng any other provísíon of íaw
respectíng ta atíon ín the írgín Isíands, aíí ta es ímposed by sub-
chapter of chapter 1, and by subchapter of chapter 9, shaíí be coí-
íected under the dírectíon of the Secretary and shaíí be paíd ínto the
Treasury of the Uníted States as ínternaí revenue coííectíons. íí pro-
vísíons of the íaws of the Uníted States appíícabíe to the admínístratíon,
coííectíon, and enforcement of the ta ímposed by subchapter of
chapter 1 (íncíudíng the provísíons reíatíng to The Ta Court of the
Uníted States), and of any ta ímposed by subchapter of chapter 9,
shaíí, ín respect to such ta , e tend to and be appíícabíe ín the írgín
Isíands ín the same manner and to the same e tent as íf the írgín
Isíands were a State, and as íf the term Uníted States when used ín
a geographícaí sense íncíuded the írgín Isíands.
(c) Defínítíon € ” s used ín thís sectíon, the term ta Incíudes
any penaíty wíth respect to the ta , any addítíon to the ta , and any
addítíonaí amount wíth respect to the ta , províded for by any íaw of
the Uníted States.
S C. 3 12. MITIG TION OF FF CT OF ST TUT OF LIMIT -
TIONS ND OT R PRO ISIONS IN C S OF R L T D
T S UND R DIFF R NT C PT RS S DD D Y S C-
TION 20 (b), SOCI L S CURITY CT M NDM NTS OF 19 0,
PPRO D UGUST 2 , 19 0 .
(a) Seíf- mpíoyment Ta and Ta on Wages. € ” In the case of the
ta ímposed by subchapter of chapter 1 (reíatíng to ta on seíf-em-
píoyment íncome) and the ta ímposed by sectíon 1 00 of subchapter
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
29.-1 0-1.
1 6
of chapter 9 (reíatíng to ta on empíoyees under the Federaí In-
surance Contríbutíons ct) € ”
(1) (1) íf au amount ís erroneousíy treated as seíf-empíoyment
Income, or
(íí) íf an amount ís erroneousíy treated as wages, and
(2) íf the correctíon of the error wouíd requíre an assessment
of one such ta and the refund or credít of the other ta , and
(3) íf at any tíme the correctíon of the error Is authorízed as
to one such ta but ís prevented as to the other ta by any íaw
or ruíe of íaw (other than sectíon 3701, reíatíng to compromíses),
then, íf the correctíon authorízed ís made, the amount of the assessment,
or the amount of the credít or refund, as the case may be, authorízed
ns to the one ta shaíí be reduced by the amount of the credít or refund,
or the amount of the assessment, as the case may be, whích wouíd be
requíred wíth respect to such other ta for the correctíon of the error
íf such credít or refund, or such assessment, of such other ta were not
prevented by any íaw or ruíe of íaw (other than sectíon 3701, reíatíng
to compromíses) :
(b) Defínítíons. € ” For the purposes.of subsectíon (a) of thís sectíon,
the terms seíf-empíoyment íncome- and wages shaíí have the sam
meaníng as when used ín sectíon S1 (b).
Skc 29.3 12-1. ppíícatíon of Sectíon. € ” Sectíon 3 12 may b appííed ín the
correctíon of a certaín type of error ínvoívíng both the ta on seíf-empíoyment
íncome and the empíoyee ta under sectíon 1 00 íf the correctíon of the error
as to one ta ís, on the date the correctíon ís authorízed, prevented ín whoíe or
ín part ííy the operatíon of any íaw or ruíe of íaw other than sectíon 3701, reíatíng
to compromíses. ampíes of such íaw are sectíons 27 , 311 (b) and (c),322 (b)
and (d), 1117(e), 103 , 1030, 3710, and 3772; sectíons 272(f) and 322(c);
sectíon 3700; and sectíons 3770(a) (2), 377 , and 377 .
If the ííabíííty for eíther ta wíth respect to whích the error was made has
bren compromísed under sectíon 3761, the provísíons of sectíon 3S12 íímítíng the
correctíon wíth respect to the other ta do not appíy.
Sectírn 3 12 ís not appíícabíe íf, on tíí date of the authorízatíon, correctíon
of the effect of the error ís permíssíbíe as to both ta es wíthout recourse to such
sectíon.
If. because an amount of wages (as defíned ín sectíon 1 20(a)) ís erroneousíy
treated as seíf-empíoyment íncome (as defíned ín sectíon Sí(b) ), or an amount
oí seíf-empíoyment íncome ís erroneousíy treated as wages, ít ís necessary ín
correctíng the error to assess the correct ta and gíve a credít or refund for
the amount of the ta erroneousíy paíd, and eíther, but not both, of such ad-
|ustments ís prevented by any íaw or ruíe of íaw (other than sectíon 3701),
the amount of the assessment or of the credít or refund authorízed shaíí refíect
the ad|ustment whích wouíd be made ín res ect of the other ta (eíther the ta
on seíf-empíoyment íncome under sectíon 0 or the empíoyee tn under sectíon
1-100) but for the operatíon of such íaw or ruíe of íaw. For e ampíe, assume
that duríng 10 1 paíd 10 as ta on an amount erroneousíy treated as wages,
when such amount was actuaííy seíf-empíoyment íncome, and that credít or
refund of the 10 ís not barred. shouíd have paíd a seíf-empíoyment ta of
1 on the amount. If the assessment of the correct ta , that ís. 1 . ís barred
by the statute of íímítatíons, no credít or refund of the 10 shaíí bo made wíthout
offsettíng agaínst such 10 the 1 . assessment of whícíí ís barred. Thus, no
creííít or refund ín respect of the 10 can be made.
s another e ampíe, assume that duríng 19 1 a ta payer reports wages of
3,000 and net earníngs from seíf-empíoyment of )00. y reason of the íímí-
tatíons of sectíon 1(b) he shows no seíf-empíoyment íncome. ssume further
that by reason of a fínaí decísíon by The Ta Court of the Uníted States, further
ad|ustments to hís íncome tn ííabíííty are barred. The questíon of the amount
of hís wages, as defíned ín sectíon 1 20. was not ín íssue ín the Ta Court íítí-
gatíon, but ít ís subsequentíy determíned (wíthín the períod of íímítatíons
appíícabíe under the Federaí Insurance Contríbutíons ct) that 700 of the
3,000 reported as wages were not for empíoyment as defíned ín sectíon 1 26(b),
and he ís entítíed to the aííowance of a refund of the 10. 0 ta paíd on such
remuneratíon under sectíon 1 00. The reductíon of hís wages from 3,600 to
2,000 wouíd resuít ín the determínatíon of 700 seíf-empíoyment íncome, the
ta on whích Is 1 .7 for the year. The overpayment of 10. 0 wouíd be offset
under sectíon 3S12 by the barred defícíency of 1 .7 , thus eíímínatíng the refund
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
1 7
29. 0-1.
otherwíse aííowabíe. If the facts were changed so that the ta payer erroneousíy
paíd ta on seíf-empíofment íncome of 700, havíng been ta ed on oníy 2,900
as wages, and wíthín the períod of íímítatíons appíícabíe under the Federaí
Insurance Contríbutíons ct, ít ís determíned that hís wages were 3,600, the
ta of 10. 0 under sectíon 1 00, otherwíse coííectíbíe, wouíd be eíímínated by
offsettíng under sectíon 3 12 the barred overpayment of 1 .7 . The baíance of
the barred overpayment. .2 , cannot be credíted or refunded.
nother íííustratíon of the operatíon of thís sectíon ís the case of a ta payer
who ís erroneousíy ta ed on 2, 00 as wages, the ta on whích ís 37. 0, and
who reports no seíf-empíoyment íncome. fter the statute of íímítatíons has
run on the refund of the ta under the Federaí Insurance Contríbutíons ct,
ít ís determíned that the amount treated as wages shouíd have been reported
as net earníngs from seíf-empíoyment. The ta payer s seíf-empíoyment íncome
wouíd then be 2, 00 and the ta thereon wouíd be 0.2 . ssume that the
períod of íímítatíons under chapter 1 has not e píred, and that a notíce of defí-
cíency may properíy be íssued. Under sectíon 3S12, the amount of the defícíency
of . 6.2 must be reduced by the barred overpayment of 37. 0.
Sec. 29.3S12-2. Law ppíícabíe ín Determínatíon of rror. € ” The questíon
of whether there was an erroneous treatment of seíf-empíoyment íncome or of
wages Is determíned under the provísíons of íaw and reguíatíons appíícabíe
wíth respect to the year or other ta abíe períod as to whích the error was made.
The fact that the error was ín pursuance of an ínterpretatíon, eíther |udícíaí
or admínístratíve, accorded such provísíons of íaw and reguíatíons at the tíme
of such actíon ís not necessarííy determínatíve of thís questíon. For e ampíe,
íf a íater |udícíaí decísíon authorítatíveíy aíters such ínterpretatíon so that
such actíon was contrary to such provísíons of the íaw and reguíatíons as íater
ínterpreted, the error ís wíthín the meaníng of sectíon 3 12.
(Thís Treasury Decísíon ís íssued under the authoríty contaíned ín
sectíons 62. 3791 ( 3 Stat. 32, 67; 2G U. S. C. 62. 3791).)
Fred S. Martín,
ctíng Commíssíoner of Internaí Revenue.
pproved September 13, 19 1.
Thomas . Ly ch,
ctíng Secretary of the Treasury.
(Fííed wíth the Dívísíon of the Federaí Regíster September 17, 19 1, : 0 a. m.)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


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

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
ST T ND GIFT T S
ST T T
S CTION 12(e). € ” N T ST T : U STS, TC.,
TO SUR I ING SPOUS
Sectíon 1. 7a. Reguíatíons 10 : equests, 19 1-21-136 0
etc., to survívíng spouse. T. D. 7
TITL 26 € ” INT RN L R NU . € ” C PT R I. SU C PT R , P RT 1. € ”
R GUL TIONS R L TING TO ST T T
Sectíon 1. 7a(c) and 1. 7a (d) of Reguíatíons 10 amended
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue.
Washíngton 2 , D. C.
To Coííectors of Internaí Revenue and Others Concerned:
Reguíatíons 10 26 CFR. part 1 are amended as foííows:
Paragraph 1. There ís ínserted ímmedíateíy precedíng the íast sub-
paragraph of sectíon 1. 7a(c), as added by Treasury Decísíon 699
C. . 19 9-1,1 1, 197 , approved May 13, 19 9 26 CFR 1. 7a (c) ,
the foííowíng:
The provísíons of sectíon 12(e)(1)(D) (reíatíng to termínatíon or faííure
of an ínterest ín the event of the death of the survívíng spouse wíthín 6 months
after the decedent s death or as a resuít of a common dísaster whích aíso causes
the decedent s death) are operatíve ín the case of a transfer descríbed ín sectíon
12(e)(1)(F) so that the trust wííí not be dísquaíífíed by reason of the fact
that the e ercíse of the power ís sub|ect to a condítíon of survívorshíp descríbed
ín sectíon 12(e) (1) (D) íf the terms of the condítíon, that ís, the survívorshíp
of the survívíng spouse, are fuífíííed. See paragraph (d) of sectíon 1. 7b.
Par. 2. Sectíon 1. 7a (d). as added by Treasury Decísíon 699
26 CFR 1. 7a(d) , ís amended by ínsertíng ímmedíateív precedíng
the períod at the end of the second sentence of the sí th subparagraph
thereof the foííowíng: sub|ect, however, to the operatíon of sectíon
612(e) (1) (D). See the second íast subparagraph of such paragraph
ecause the purpose of thís Treasury Decísíon ís mereíy to cíarífy
certaín provísíons ín e ístíng reguíatíons, and ís not restríctíve ín íts
effect, ít ís found that ít ís unnecessary to íssue thís Treasury Decísíon
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 saíd ct
(Thís Treasury Decísíon ís íssued under authoríty contaíned ín sec-
tíon 3791 of the Internaí Revenue Code ( 3 Stat. 67; 26 U. S. C.
3791).)
ohn . Duníap,
Commíssíoner of Internaí Revenue.
pproved September 1 , 19 1.
Thomas . Lynch,
ctíng Secretary of the Treasury.
(Fííed wíth the Dívísíon of the Federaí Regíster September 19,10 1, : 3 a. m.).
(1 9)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
1.2, Regs. 10 .
160
S CTION 939. € ” C RT IN M M RS OF RM D FORC S
Sectíon 1.2, Reguíatíons 10 : Descríptíon 19 1-21-136 1
of ta . T. D.
TITL 26 € ” INT RN L R NU . € ” C PT R I, SU C PT R , P RT 1. € ”
ST T T UND R C PT R 3 OF T INT RN L R NU COD . S
M ND D
Reguíatíons 10 amended to conform to Pubííc Law 3 ( 2d Cong.)
C. . 19 1-1, 1 3 , reíatíng to e tensíon of tíme for fíííng cíaíms
for refund by estates of certaín deceased servícemen.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C.
To Coííectors of Internaí Revenue and Others Concerned:
In order to conform Reguíatíons 10 26 CFR. part 1 to Pubííc
Law 3 ( 2d Cong., 1st sess.) C. . 19 1-1, 1 3 , approved May 17,
19 1, reíatíng to e tensíon of tíme for fíííng cíaíms for refund of addí-
tíonaí estate ta by estates of certaín deceased servícemen, such regu-
íatíons are amended as foííows:
Paragraph 1. There ís ínserted ímmedíateíy precedíng sectíon 1.2.
as amended by Treasury Decísíon 3 C. . 19 1-1, 72 , approved
March ,19 1 26 CFR 1.2 , the foííowíng:
PU LIC L W 3 ( 2d CONG., 1st S SS.), PPRO D M Y 17, 19 1
e ít enacted by the Senate and ouse of Representatíves of the Uníted
States of meríca ín Congress assembíed. That subsectíon (b) of sectíon
10 of the ct entítíed n ct to amend certaín provísíons of the Internaí
Revenue Code , approved October 2 , 19 9 (Pubííc Law 37 ), ís hereby
amended (1) by stríkíng out wíthín one year from such date and
ínsertíng ín ííeu thereof at any tíme príor to anuary 1, 19 2 , and
(2) by stríkíng out wíthín one year from the date of the enactment of
thís ct and ínsertíng ín ííeu thereof príor to anuary 1, 19 2 .
Par. 2. Sectíon 1.2, as amended by Treasury Decísíon 3 26
CFR 1.2 , ís amended by stríkíng therefrom the fífth subparagraph
of paragraph (b) and ínsertíng ín ííeu thereof the foííowíng:
If refund of the addítíonaí estate ta paíd by an estate entítíed to the e emp-
tíon províded by sectíon 939 ís prevented at any tíme príor to anuary 1, 19 2, by
the operatíon of any íaw or ruíe of íaw (íncíudíng a príor udícíaí determínatíon)
other than sectíon 3761 of the Internaí Revenue Code, reíatíng to compromíses,
refund of such ta may, nevertheíess, be made íf cíaím therefor ís fííed príor
to anuary 1, 19 2.
ecause of the technícaí nature of the amendments made hereín, ít ís
found that ít ís unnecessary to íssue thís Treasury Decísíon 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 saíd ct,
(Thís Treasury Decísíon ís íssued under authoríty contaíned ín sec-
tíon 3791 of the Internaí Revenue Code ( 3 Stat. 67; 26 U. S. C. 3791)
and Pubííc Law 3 ( 2d Cong., 1st sess.), approved May 17,19 1.)
ohn . Duníap,
Comíníssíoner of Internaí Revenue.
pproved September 1 , 19 1.
Thomas . Lynch,
ctíng Secretary of the Treasury.
(Fííed wíth the Dívísíon of the Federaí Regíster September 20,19 1, : 9 a. n.)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
MPLOYM NT T RULINGS
INT RN L R NU COD
C PT R 9, SU C PT R . € ” F D R L INSUR NC CONTRI UTIONS
CT
Sectíon 1 01: Deductíon of ta from wages.
Reguíatíons 12 . Sectíon 0 .30 : Coííec-
tíon of, and ííabíííty for, empíoyee ta .
Wíthhoídíng tabíe combíníng empíoyee ta under the Federaí Insur-
ance Contríbutíons ct and Federaí íncome ta to be wíthheíd from
weekíy wages paíd on and after November 1, 19 1. (See Míní. 6703,
page 17 .)
Sectíon 1 26: Defínítíons. 19 1-1 -13617
Reguíatíons 12 , Sectíon 0 .20 : Who are em- Mím. 06 1
píoyees.
Status after 19 0 of home workers for Federaí empíoyment ta
purposes Incíudíng íncome ta wíthhoídíng.
Mímeograph O0S6 (C. . 1031-1, 99) amended.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue.
Washíngton 2 , D. C, une 7, 19 1.
Coííectors of Internaí Revenue and Others Concerned:
1. The purpose of thís mímeograph ís to amend paragraph of
Mímeograph 6 S6 (C. . 19 1-1, 99) whích sets forth the names of
those States havíng íícensíng requírements respectíng the perform-
ance of certaín servíces by certaín home workers.
2. Informatíon now before the ureau díscíoses that the States of
Míssourí, Ohío, Oregon, and Tennessee have certaín requírements re-
íatíng (a) to the ínspectíon of workshops, factoríes, and rooms where
persons are empíoyed at íabor; (b) to the manufacture of varíous
artícíes of cíothíng and other ítems ín prívate homes; (c) to the
maíntenance of a regíster by an empíoyer of home workers; or (d)
to the íssuance of sanítary permíts to home workers. It ís the opín-
íon of the ureau that such requírements are not íícensíng requíre-
ments as contempíated by the provísíons of sectíon 1 20(d) (3) (C)
of the Federaí Insurance Contríbutíons ct, as added by the Socíaí
Securíty ct mendments of 19 0. owever, ín the case of Tennes-
see the provísíons of Mímeograph 0 6. supra, are appíícabíe wíth
respect to chíídren under 16 years of age ín víew of the fact that
such State requíres work permíts for such índívíduaís.
3. Paragraph of Mímeograph 6 6 ís amended by eíímínatíng
Míssourí, Ohío, and Oregon from the ííst of States havíng íícensíng
(161)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
Regs. 12 , 0 .20 .
162
íaws fuífííííng the requírements of sectíon 1 26(d)(3)(C) of the
Federaí Insurance Contríbutíons ct.
. Correspondence reíatíng to thís mímeograph shouíd refer to íts
number and to the symboís mT: R.
Fred S. Martín,
ctíng Commíssíoner.
Sectíon 1 26: Defínítíons.
Reguíatíons 12 , Sectíon 0 .20 : Who are em-
píoyees.
( íso Subchapter C (Federaí Unempíoyment
Ta ct), Sectíon 1607; Reguíatíons 107,
Sectíon 03.20 .)
Status of ta ícab drívers for Federaí empíoyment ta purposes.
S. S. T. 1 7 (C. . 1037-1, 3 ) revoked.
Treasury Department,
Offíce of Commíssíoner of Internaí Revenue,
Washíngton 2 , D. C, une ,1961.
Coííectors of Internaí Revenue and Others Concerned:
1. The purpose of thís mímeograph ís to state the present posítíon
of the ureau wíth respect to the status, for empíoyment ta purposes,
of owner-drívers and certaín other drívers of ta ícabs. In determín-
íng such posítíon further consíderatíon has been gíven to the ruííng
pubííshed as S. S. T. 1 7 (C. . 1937-1, 3 ), ín the ííght of the decí-
síons ín the cases of ones v. Goodson (19 1), 121 Fed. (2d) 176;
Magruder v. Yeííow Cab Co. of D. C, Inc. (19 ), 1 1 Fed. (2d) 32 ;
Uníted States v. Davís (19 6), 1 Fed. (2d) 31 ; and Woods v.
Níchoías (19 7), 163 Fed. (2d) 61 ; Pubííc Law No. 6 2 C. . 19 -2,
317 , enacted une 1 , 19 ; the decísíons ín the cases of Party t ab
Co. v. Uníted States (19 9), 172 Fed. (2d) 7; New Deaí Cab Co. v.
Fahs (19 9), 17 Fed. (2d) 31 ; conomy Cab Co. of acksonvíííe
and Thríft Cabs, Inc., v. Fahs (19 9), 17 Fed. (2d) 321; and the
deníaí of certíorarí ín the three íatter cases, 70 S. Ct. 61, 62.
S. S. T. 1 7
2. In S. S. T. 1 7 ít was heíd that the drívers of ta ícabs owned
by the M Company and operated on a rentaí basís ín accordance wíth
the terms of contracts entered ínto between the drívers and the com-
pany were empíoyees of that company for Fedevaí socíaí securíty ta
purposes. In such case the company furníshed garage space, an
offíce, teíephone servíce, and ííabíííty ínsurance; kept íts ta ícabs re-
paíred; and paíd aíí of the operatíng e penses e cept for gasoííne.
dríver agreed to operate the ta ícab as a unít of the company s fíeet
rather than as a separate unít; to use the ta ícab ín transportíng
persons for híre oníy; not to operate the ta ícab whííe under the
ínfíuence of ínto ícants or narcotícs or for any íííegaí purpose; not
to tow any other vehícíe; to report every accídent ín wrítíng wíthín a
specífíed tíme thereafter; and to obey ín every partícuíar the ruíes
of the company, and any further ínstructíons that míght be gíven
hím. The dríver was requíred to deposít a specífíed sum to guarantee
19 1-1 -1361
Mím.66 2
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
163
Regs. 12 , C .2G .
hís compííance wíth the terms of the agreement. In the event the
dríver faííed to operate the ta ícab on any day, the deposít míght be
appííed by the company on the rentaí for such day. The company
reserved the ríght to díscharge a dríver ímmedíateíy íf such índívíduaí
víoíated certaín provísíons of hís contract or íf ít appeared that he
was not a proper person to operate the ta ícab.
C S OF ON S v. GOODSON
3. In ones v. Goodson the Uníted States Círcuít Court of ppeaís
for the Tenth Círcuít heíd that the drívers of ta ícabs owned by the
Y Y Operatíng Co. and of índívíduaííy owned ta ícabs operated
under the company s name were íts empíoyees for socíaí securíty ta
purposes.
Duríng the períods ínvoíved the Y Y Operatíng Co., a corpora-
tíon, operated under íts name and ínsígnía a íarge fíeet of ta ícabs,
about one-haíf of whích ít owned; had a centraí offíce and garage,
two downtown statíons, and a number of caíí statíons at varíous
píaces throughout Okíahoma Cíty, Okía.- and had a corps of per-
sonneí consístíng of more than 20 empíoyees other than ta ícab
drívers. The owner-drívers and other drívers of the ta ícabs were
members of a íocaí uníon whích had contracts wíth the company.
Such contracts províded, among other thíngs, that the uníon wouíd
furnísh the company wíth competent drívers; specífíed ma ímum
rentaí payments for a company car for each 12-hour shíft and a
fí ed taríff for an índívíduaííy owned car for each 2 -hour períod,
and a ma ímum mííeage per híft for a company car wíth a fí ed
sum for aíí addítíonaí mííeage; and províded that the company míght,
at íts optíon, operate the ta ícabs on a percentage basís. The com-
pany was obíígated to keep íts cars repaíred and to furnísh oíí for
them.
The court found that the company had and e ercísed the ríght to
say whether a dríver shouíd work on the day or the níght shíft; to
say whích car he shouíd dríve íf he operated a company car; to
requíre that the company s ínsígnía and teíephone number be píaced
on aíí índívíduaííy owned and operated cars; to requíre that drívers
purchase aíí of theír gasoííne from the company, and, ín addítíon,
that the drívers of the índívíduaííy owned cars purchase aíí theír oíí
from ít; to requíre that the drívers operate oníy wíthín the cíty íímíts
and not go outsíde; and to requíre that they teíephone the mam offíce
houríy gívíng theír whereabouts, maíntaín a good record for accí-
dents, be courteous to customers, and be presentabíe ín theír personaí
appearance. The court found aíso that the company had the ríght
to díscharge a dríver for ínfractíon of these requírements, and the
ríghts to promuígate ruíes from tíme to tíme and to díscharge drívers
for the víoíatíon of such ruíes.
C S OF M OR D R v. Y LLOW C CO. OF D. C, INC.
. In Magruder v. Yeííow Cab Co. of D. C, Inc., the Uníted States
Círcuít Court of ppeaís for the Fourth Círcuít heíd that the
drívers who operated ta ícabs whích they íeased from the company
under bona fíde íease agreements were not íts empíoyees for empíoy-
ment ta purposes. (The court dístínguíshed such case from the case
of ones v. Goodson.)
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
Regs. 12 , 0 .20 .
16
Duríng the year 19 1 the Yeííow Cab Co. of D. C, Inc., maíntaíned
a teíephone swítchboard and about 17 caíí bo es, had a garage and a
servíce statíon, owned severaí hundred ta ícabs, and, ín addítíon, heíd
íegaí títíes to about 7 other ta ícabs of whích ít was not the equítabíe
owner. íí of the ta ícabs were paínted ín a uníform coíor and
desígn, and were operated under the íícenses and name of the com-
pany, whích carríed ínsurance thereon. The company íeased ta ícabs
to drívers under wrítten íeases on a standard prínted form for a term
of weeks. The equítabíe owners of the 7 ta ícabs were drívers who
had operated under íeases on the standard form, and had made pay-
ments ín fuíí for the ta ícabs. Such íessees eíected not to take títíes
to theír ta ícabs, but contínued to dríve them and paíd the company
a set amount per week for ínsurance and teíephone servíce. In addí-
tíon, the company íeased certaín of íts ta ícabs under daííy íeases
the substance of whích was that each íessee shouíd pay the company
a specífíed rentaí per day, dependíng upon the age of a ta ícab. The
company paíd no money to the drívers for theír servíces.
The court found that the company díd not possess the ríght to say
whether any íessee shouíd work on a day or níght shíft, where he
shouíd work, when he shouíd work, or whether he shouíd work at
aíí so íong as ít receíved the stípuíated rentaí; that the íessees were
not requíred to take orders from the company, were free from controí
by the company, and drove the ta ícabs when and íf they píeased;
and that the company díd not requíre the drívers to observe certaín
so-caííed ruíes on cards píaced ín some of the ta ícabs, such ruíes
havíng been regarded by the comparty and the drívers oníy as sug-
gestíve and ínformatíve. The court found aíso that under the ar-
rangements ínvoíved the company had no power to dísmíss a dríver
who operated under a wrítten íease for a term of weeks, or to dísmíss
a dríver who was a daííy íessee e cept by refusaí to contínue the
íeasíng of a ta ícab to hím on the ne t day.
C S OF UNIT D ST T S . D IS
. In Uníted States v. Davís the Uníted States Court of ppeaís
for the Dístríct of Coíumbía heíd that the dríver of a ta ícab íeased
from a member of an assocíatíon of ta ícab owners was not an em-
píoyee of such member for Federaí empíoyment ta purposes.
Duríng the períod ínvoíved Mr. Davís owned severaí ta ícabs whích
were paínted ín the coíor scheme and desígn seíected by the Inde-
pendent Ta í Owners ssocíatíon, Inc., a nonprofít nonstock corpora-
tíon whích had severaí hundred members. The assocíatíon acted as
agent for íts members ín íeasíng or rentíng theír ta ícabs to drívers;
operated a teíephone swítchboard; had concessíons at varíous poínts
wíthín the Dístríct; maíntaíned a ííabíííty ín|ury fund; purchased
group íífe ínsurance and paíd síck benefíts; and had a subsídíary whích
soíd gasoííne, oíí, tíres, and accessoríes to íts members and the other
drívers of the members ta ícabs. Mr. Davís, through the assocíatíon,
íeased a ta ícab to a dríver under a rentaí agreement on a day-to-day
basís at the rate fí ed by members of the assocíatíon. The dríver
agreed to compíy wíth an order of the Pubííc Utííítíes Commíssíon
requíríng a manífest, showíng the orígín and destínatíon of each tríp
and the amount of fare receíved therefor; to purchase at hís e pense
aíí gasoííne used ín the ta ícab from statíons desígnated by members
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
16
Regs. 12 , 0 .20 .
of the assocíatíon; to observe and compíy wíth aíí ruíes and reguíatíons
adopted by members of the assocíatíon, partícuíaríy those appíyíng
to courtesy, servíce, rates, safe drívíng, compííance wíth trafííc regu-
íatíons, and reportíng to the chíef díspatcher before íeavíng on tríps
beyond a specífíed area; and to report each day, uníess unavoídabíy
detaíned, at the assocíatíon s servíce íot. The dríver agreed aíso that
he wouíd not knowíngíy permít any other person to operate the ta ícab
assígned to hím.
The court found that the ta ícab owner díd not have the ríght to
say whether the dríver shouíd work on a day or níght shíft, where or
when he shouíd work, and he paíd no remuneratíon to the dríver.
The court agreed wíth a víew of a dístríct court that the dríver op-
erated the ta ícab ín hís own behaíf, runníng the rísk of íoss and
en|oyíng the advantages of success.
C S OF WOODS v. NIC OL S
6. In the case of Woods v. Níchoías the Círcuít Court of ppeaís
for the Tenth Círcuít heíd that owner-drívers and other drívers usíng
Mr. Woods ta ícab servíce and operatíng under hís trade name of
Zone Cab Co., íícense, and certífícate of conveníence and necessíty
were not hís empíoyees for empíoyment ta purposes. (The court
dístínguíshed such case from the case of ones v. Goodson, and reííed
on the cases, among others, of Magruder v. Yeííow Cab Co. of D. C,
Inc., and Uníted States v. Síík (19 7), 67 S. Ct. 1 63, hoídíng owner-
drívers of trucks who híre theír own assístants, pay theír own e -
penses wíth mínor e ceptíons, and depend on theír own ínítíatíve,
|udgment, and energy for a íarge part of theír success to be índe-
pendent contractors.)
Duríng the years ínvoíved, ín order to compíy wíth the cíty requíre-
ments, Mr. Woods heíd íegaí títíes to a number of ta ícabs of whích
he was not the equítabíe owner; furníshed the íícense and the certífí-
cate of conveníence and necessíty, as weíí as certaín facííítíes, for
whích he was compensated by a fí ed fee daííy for each ta ícab; and
was reímbursed by the ta ícab owners for a part of the costs of íícense
píates, ínsurance, rent on a garage, and the saíaríes of a mechaníc and
of teíephone operators who aíso acted as díspatchers. The poíícíes
and the ruíes and reguíatíons for the operatíon of the ta ícabs were
formuíated at meetíngs of the drívers. Duríng each shíft a ta ícab
owner, seíected at the meetíngs, acted as foreman and ín such capacíty
empíoyed, díscípííned, suspended, and díscharged drívers not owníng
ta ícabs. Whether such a dríver worked on the day or níght shíft
was determíned by agreement between the dríver and the owner
or hís representatíve; and the dríver was responsíbíe to the owner,
rather than to Mr. Woods, wíth respect to the method and manner
of operatíng the ta ícab. owever, aíí drívers were requíred to pur-
chase gasoííne from the owner of the ta ícab servíce.
PU LIC L W NO. 6 2
7. Pubííc Law No. 612 amended sectíon 1126(d) of the Federaí
Insurance Contríbutíons ct and sectíon 1607(í) of the Federaí Un-
empíoyment Ta ct by provídíng, ín part, that the term empíoyee
does not íncíude (1) any índívíduaí who, under the usuaí common-íaw
ruíes appíícabíe ín determíníng the empíoyer-empíoyee reíatíonshíp,
has the status of an índependent contractor or (2) any índívíduaí
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
Regs. 12 , 0 .20 .)
166
(e cept an offícer of a corporatíon) who ís not an empíoyee under such
common-íaw ruíes. Pubííc Law No. 6 2 affírmed ín effect the concept
of empíoyee contaíned ín sectíon 02.20 of Reguíatíons 106 and sectíon
03.20 of Reguíatíons 107. The provísíons of thís íegísíatíon were
íncorporated ínto these reguíatíons by Treasury Decísíon 6 3 C. .
19 -2.1 0 , dated September 7,19 .
C S OF P RTY C CO. . UNIT D ST T S
. In the case of Party Cab Co. v. Uníted States the Círcuít Court of
ppeaís for the Seventh Círcuít heíd that the drívers who operated
ta ícabs owned by the company under oraí agreements were not íts
empíoyees for empíoyment ta purposes. (The court reversed a dís-
tríct court decísíon reíyíng on Uníted States v. Síík, supra, and ín
effect, e pressed the víew that the ratíonaíe of the Supreme Court ín
such case carríed ííttíe weíght at the present tíme by reason of the
congressíonaí ínt nt ín enactíng Pubííc Law No. 6 2. to appíy the
common-íaw test oníy, ín determíníng who ís an empíoyee. )
Duríng the períod ínvoíved the Party Cab Co. owned a number of
ta ícabs; had a garage for the servícíng of such vehícíes: and empíoyed
teíephone operators who receíved caíís for servíce. The drívers op-
erated the company s ta ícabs duríng specífíed períods on a day-to-day
basís: paíd for the gasoííne and oíí used ín the ta ícabs; and paíd the
company a fí ed fee daííy. They were not requíred to answer the
caíís gíven to them, to report as to theír whereabouts duríng a shíft,
or to account to the company for the fares and típs receíved from
patrons. The company controííed whether a partícuíar dríver worked
and when hís workíng shíft commenced and ended, and íf he dísobeyed
íts ínstructíons, ít couíd refuse to íet hím have and operate a ta ícab.
Períodícaííy the company ínstructed the drívers on such sub|ects as
safe drívíng, the procedure to be foííowed ín cases of accídents, and
the dísposítíon of artícíes íeft ín ta ícabs, and forbade them to drínk
whííe on duty.
The court e pressed the víew that the matter of controí whích ís
materíaí ís that whích (he píaíntíff e ercísed over the drívers duríng
the períod they were ín possessíon of the cabs rather than what the
píaíntíff míght do eíther príor or subsequent to such períod. Con-
síderíng such víew and the facts ín the case ít appeared to the court
that the Party Cab Co. had ííttíe, íf any, controí over the detaíís,
means, and method by whích the drívers performed theír servíces.
N W D L C CO. . F ffS
CONOMY C CO. OF C SON ILL ND T RIFT C S, I C, . F S
9. In the above-entítíed cases the Uníted States Círcuít Court of
ppeaís for the Fífth Círcuít heíd that the drívers who operated ta í-
cabs whích they rented from the companíes were not empíoyees for
Federaí empíoyment ta purposes. (The court reversed príor dístríct
court decísíons; índícated that the Supreme Court decísíons ín the case
of Uníted States v. Síík, supra, and certaín other cases are no íonger
controíííng by reason of the íegísíatíve changes made by Pubííc Law
No. 6 2; and reííed on the case of Party Cab Co. v. Uníted States.)
Duríng the years ínvoíved the New Deaí Cab Co. had a cíty íícense
to operate a ta ícab busíness; carríed pubííc ííabíííty and property
damage ínsurance coveríng the operatíon of íts ta ícabs; and had a
garage for servícíng and repaíríng such ta ícabs, wíth an ad|oíníng
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
167
(Regs. 12 , -10 .20 .
parkíng íot. Duríng a part of the períod the company had teíephones
ín outíyíng dístrícts for the use of drívers oníy ín reportíng break-
downs. The drívers of the ta ícabs were members of a íocaí uníon
wíth whích the company had a contract contaíníng the terms on whích
such vehícíes were operated. Such contract specífíed that the uníon
was to be the soíe representatíve of the drívers, who rent cars from
the company for use as ta ícabs, ín aíí coííectíve bargaíníng of the
íessees wíth the company, and to handíe aíí gríevances and dísputes;
obíígated the company to permít oníy members of, or índívíduaís
eíígíbíe for membershíp ín. the uníon to dríve ta ícabs operated under
íts name; províded for seníoríty ríghts; and specífíed the rates to be
charged bv the company as rentaí to the íessees for day and níght
shífts, and the círcumstances under whích a dríver was to be reííeved
from payíng rentaí for aíí or a part of a shíft. The company agreed
í.ot to refuse to rent ta ícabs to a íícensed dríver acceptabíe to íts
ínsurance carríer or e cept for two specífíed reasons to refuse perma-
nentíy to rent ta ícabs to a dríver wíthout a hearíng. ach dríver
was requíred to deposít 10 wíth the company as securíty, and to ob-
taín gasoííne from such organízatíon. They reported at the parkíng
íot at the tímes fí ed for the begínníng of shífts. When a dríver
returned to the íot at the end of hís shíft he paíd the rentaí and for
the gasoííne used, but he made no report as to where he had been or
what he had earned. The court found that a dríver was under no
controí of the company; had no ínstructíons as to where he shouíd
seek patrons, what he shouíd charge them, or what he shouíd do wíth
the ta ícab duríng hís shíft; that a dríver took the entíre rísk of hís
day s busíness and míght íose ínstead of gaíníng; and that the com-
pany s oníy ínterest was to receíve íts rentaí and pay for gasoííne.
In the case of the conomy Cab Co. of acksonvíííe and Thríft
Cabs, Inc., the drívers operated pursuant to the terms of a uníon
contract símííar to the contract ín the case of the New Deaí Cab Co.
owever, such a dríver gave the ta ícab owner a bond of 10 ínstead
of deposítíng cash to secure the daííy ta ícab rentaí and for gasoííne,
and the charges to passengers were on a zone rate basís fí ed ín a uníon
agreement. The ta payer had a centraí offíce wíth a teíephone swítch-
board for receívíng caíís for ta ícab servíce, concessíons at two bus
termínaís, and severaí caíí bo es ín dífferent parts of the cíty from
whích the drívers were supposed to caíí the offíce every GO mínutes,
but they díd not aíways do so. The court stated that e cept for
these dífferences thís case ís ííke that of the New Deaí Cab Co.
10. On October 10, 19 0, the Uníted States Supreme Court deníed
certíorarí ín the cases of Party Cab Co. v. Uníted States, New Deaí
Cab Co. v. Fahs, and conomy Cab Co. of acksonvíííe and Thríft
Cabs, Inc., v. Fahs.
SOCI L S CURITY CT M NDM NTS OF 10 0
11. Sectíon 20 (a), Socíaí Securíty ct mendments of 19 0, ap-
proved ugust 2 , 19 0, amends sectíon 1 26(d) of the Internaí Rev-
enue Code to read as foííows:
(d) mpíoyee. € ” The term empíoyee means € ”
(1) € € €
(2) ny índívíduaí who, under the usuaí common íaw ruíes ap-
píícabíe ín determíníng the empíoyer-empíoyee reíatíonshíp, íías the
status of an empíoyee; or
(3) € €
G
e
n
e
r
a
t
e
d

f
o
r

L
í
b
í
n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n
í
v
e
r
s
í
t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d
í
.
h
a
n
d
í
e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b
í
í
c

D
o
m
a
í
n
,

G
o
o
g
í
e
-
d
í
g
í
t
í
z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h
í
t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
í
e
Regs. 12 , 0 .20 .
16
Posítíon of ureau
S. . T. 1 7 R O D
12. Consíderíng the trend of the |udícíaí opíníons, as índícated ín
the afore-mentíoned cases, the ruííng pubííshed as S. S. T. 1 7 no
íonger ís controíííng ín determíníng the status of ta ícab drívers. It
ís now the posítíon of the ureau that generaííy owner-drívers of
ta ícabs are not empíoyees for Federaí empíoyment ta purposes.
Líkewíse, for such purposes, generaííy drívers who íease ta ícabs
from other persons, pay a specífíed rentaí daííy or weekíy for th