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

fshed rungs of the ureau do not have the force and effect
of Treasury Decsons and that they are appcabe ony to facts presented n the pubshed case
Treasury Department : : : : : ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn II 1
NU RY- UN , 1928
IN T IS ISSU f)U
p, e
Introductory Notes y I
Contents L bt _
Rungs Nos. 3558-3784 / -
Income Ta . /
Part I (1926 ct) . . 1-159
Part II (1924 ct) f t 16 -185
Part I (1921 and Pror cts) t 186-290
Saes Ta /// 291-310
state Ta , 311-328
capta stock Ta . . NOI M .UN G RSIT3t. . 329-331
Msceaneous Ta . . . LI R RI S332 -336
w Msceaneous ... . . gL G O
I reported n the Interna Revenue uetn arc for the nformaton of ta payers an ther counse as
showng the trend of offca opnon n the admnstraton of the ureau of Interna Revenue the rdngs other than
Treasury Decsons have none of the force or effect of Treasury Decsons and do not commt the Department to
any nterpretaton of the aw whch has not been formay approved and promugated by the Secretary of the
Treasury. ach rung embodes the admnstratve appcaton of the aw and Treasury Decsons to the entre
state of facts upon whch a partcuar case rests. It s especay to be noted that the same resut w not neces-
sary be reached n another case uness aD the matera facts are dentca wth those of the reported case. s t s
not aways feasbe to pubsh a compete statement of the facts underyng each rung there can be no assurance
that any new case s dentca wth the reported case. s bearng out ths dstncton, t may be observed that the
rungs pubshed from tme to tme may appear to reverse rungs prevousy pubshed.
Offcers of the ureau of Interna Revenue are especay cautoned aganst reachng a concuson n any case
merey on the bass of smarty to a pubshed rung, and shoud base ther |udgment on the appcaton of a per-
tnent provsons of the aw and Treasury Decsons to a the facts n each case. These rungs shoud be used as ads
n studyng the aw and ts forma constructon as made n the reguatons and Treasury Decsons prevousy ssued.
In addton to pubshng a Interna Revenue Treasury Decsons, t s the pocy of the ureau of Interna Revenue
o pubsh a ruSngs and decsons ncudng opnons of the Genera Counse for the ureau of Interna Revenue,
whch, because they announce a rung or decson upon a nove queston or upon a queston n regard to whch
there e sts no prevousy pubshed rung or decson, or for other reasons are of such mportance as to be of
genera Interest. It s aso the pocy of the ureau to pubsh a rungs or decsons whch revofce. modfy, amend,
or affect n any manner whatever any pnbshed rung or decson. In many nstances opnons of the Genera
Counse for the ureau of Interna Revenue are not of genera nterest because they announce no new rung or no
new constructon of the revenue aws but smpy appy rungs aready made pubc to certan stuatons of fact whch
are wthout speca sgnfcance. It s not the pocy of the ureau to pubsh such opnons. Therefore, the numbers
assgned to the pubshed opnons of the Genera Counse for the ureau of Interna Revenue arc not consecutve.
No unpubshed rung or decson w be cted or reed upon by any offcer or empoyee of the ureau of Interna
Revenue a a precedent n the dsposton of other cases. Uness otherwse specfcay ndcated, a pubshed
rnSngs and decsons have receved the consderaton and approva of the Genera Counse for the ureau of
Interna Revenue.
. S. GO RNM NT PRINTING O IC
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5 85
The Interna Revenue uetn servce or 1928 w consst
of weeky buetns and semannua cumuatve buetns.
The weeky buetns w contan the rungs and decsons to
be made pubc and a Treasury Department decsons (.known
as Treasury decsons pertanng to Interna Revenue matters.
The semannua cumuatve buetns w contan a rungs
and decsons (ncudng Treasury decsons) pubshed durng
the prevous s months.
The compete uetn servce may be obtaned, on a sub-
scrpton bass, from the Superntendent of Documents. Govern-
ment Prntng Offce. Washngton, D. C, for 2 er year.
New subscrbers and others desrng to obtan the 1919, 1920.
and 1921 Income Ta Servce may do so from the Supern-
tendent of Documents at prees as foows: Dgest of Income
Ta Rungs No. 19 (contanng dgests of a rungs appearng
n Cumuatve uetns 1 to 5, ncusve), 50 cents per copy
Cumuatve uetns Nos. 1 to 5, contanng n fu a rungs
pubshed snce pr, 1919, to and Incudng December, 1921, as
foows: No. 1, 30 cents No. 2, 25 cents No. 3,30 cents No. 4,
30 cents No. 5, 25-cents.
Persons desrng to obtan the one ssue of Saes Ta ue-
tn for 1920, uetn ST-1-20. and the Cumuatve uetns
for anuary- une and uy-December, 1921, may procure them
from the Superntendent of Documents at 15 cents and 5 cents
each, respectvey, per copy.
Persons desrng to .obtan the Interna Revenue uetn
servce for the year 1922, 1023. 1924, 1925, 1026, and 1927 may-
do so at prces as foows:
Cumuatve uetn 1-1 ( anuary- une. 1922) 40 cents
Cumuatve uetn 1-2 ( uy- Deoember, 1922) 80 cents
Cumuatve uetn II- ( anuary- une. 1923) _30 cents
Cumuatve uetn II-2 (. uy-December. 1923) 40 cents
Cumuatve uetn III- ( anuary- une. 1924) 50 cents
Cumuatve uetn III-2 ( uy-December. 1924) 50 cents
Dgest No. 13 ( anuary, 1922-December, 1924) 60 cents
Cumuatve uetn I -1 ( anuary- une. 1920) 40 cents
Cumuatve uetn 1 -2 ( uy-December. 1925) 35 cents
Dgest No. 17 ( anuary-December, 1925) 25 cents
Cumuatve uetn - ( anuary- une, 192t ) 40 cents
Cumuatve uetn -2 ( uy-December. 1926) :30 cents
Dgest No. 21 ( anuary-December, 1920) 15 cents
Cumuatve uetn I-1 ( anuary- une, 1927) 40 cents
Cumuatve uetn I-2 ( uy-Decemher, 1927) 40 cents
Dgest No. 22 ( anuary. 1925-December, 1927) 35 cents
nqures n regard to these pubcatons and subscrptons
shoud be sent to the Superntendent of Documents, Government
Prntng Offce. Washngton. D. O.
I . ,
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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn II-1, n addton to a
decsons of the Treasury Department (caed Treasury decsons)
pertanng to Interna Revenue matters, contans Genera Counse s
opnons, and rungs and decsons pertanng to ncome, estate, saes,
capta stock, and msceaneous ta es, as ndcated on the tte-page
of ths uetn, pubshed n the weeky uetns ( oume II,
Nos. 1-26, ncusve) for the perod anuary 1 to une 30. 1928.
It shoud be. retaned, as ts contents w not be reprnted n any
subsequent voume.
Income Ta rungs are prnted n three parts. Rungs under the
Revenue ct of 1926 are pubshed as Part I, the secton headngs
correspondng wth the sectons of that aw and the artce headngs
correspondng wth the artce headngs of Reguatons 69. Rungs
under the Revenue ct of 1924 are prnted as Part II, the secton and
artce headngs correspondng wth the secton and artce headngs
of the Revenue ct of 1924 and Reguatons 65, respectvey. Ru-
ngs under the Revenue ct of 1921 or earer cts are prnted as
Part III, the secton and artce headngs correspondng wth the sec-
ton and artce headngs of the Revenue ct of 1921 and Regua-
tons 62.
R I TIONS.
The foowngs abbrevatons are used throughout the uetn:
, , C, etc. The names of Indvduas.
. R. M. Commttee on ppeas and Revew memorandum.
. R. R Commttee on ppeas and Revew recommendaton.
. T. . oard of Ta ppeas.
C. . Cumuatve uetn.
Ct. D. Court decson. 1
C. S. T. Capta Stock Ta Dvson.
D. C. Treasury Department crcuar.
. T. state Tu Dvson.
G. C. M. Genera Counse s memorandum.
I. T. Income Ta Tnt.
M, N, , Y, Z, etc. The names of corporatons, paces, or busnesses, accord-
ng to content
Mm. Mmeographed etter.
MS. Msceaneous Dvson.
O. or L. O. Soctor s aw opnon.
O. D. Offce decson.
Op. . G. Opnon of the ttorney Genera.
8. T. Saes Tu Dvson.
S. M. Soctor s memorandum.
So. Op. Soctor s opnon.
S. R. So ctor s recommendaton.
T. Tobacco Dvson.
T. . M. dvsory Tu oard memorandum.
T. . R dvsory Ta oard recommendaton.
T. D. Treasury decson.
and v are used to represent certan numbers, and when used wth the word
doars represent sums of money.
or addtona nformaton whch w be of assstance n the use
of the Interna Revenue uetn servce read the Introductory Notes
to the atest Dgest.
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Under the provsons of the Revenue cts of 1924 and 1926,
reatng to appeas to the oard of Ta ppeas, the Comms-
soner may acquesce n the decson of the oard or he may,
f the appea was heard by the oard pror to the passage of the
192u ct, cause to be nsttuted a proceedng n court for the
coecton of any part of a tu determned by the Commssoner
to e due but dsaowed by the oard, provded that such pro-
ceedng s commenced wthn one year after fna decson of the
oard. s to appeas heard by the oard after the passage
of the 1926 ct, the Commssoner may, wthn s months after
the oard s decson s rendered, fe a petton for a revew of
the decson by a Crcut Court of ppeas or by the Court of
ppeas of the Dstrct of Coumba. In order that ta payers
and the genera pubc may be nformed as to whether or not
the Commssoner has acquesced n a decson of the oard of
Ta ppeas dsaowng a ta determned by the Commssoner
to be due, announcement w be made n the weeky uetn
at the earest practcabe date. Decsons so acquesced n
shoud be reed upon by offcers and empoyees of the ureau of
Interna Revenue as precedents n the dsposton of other cases
before the ureau.
(I )
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CONT NTS.
4112
4113
4114
4115.
4116
4117
4118
411 )
4120
4121
4122
4123
4124 ...
4125
4126
4127
4128
4129
4130
Rung No.
4131...
4132...
4133...
4134...
4135...
4136...
4137...
4138...
4139...
4140...
4141...
4142...
4143...
4144...
4145...
4146...
4147...
4148...
4149...
4150...
4151...
4152...
4153...
4154...
4155...
4156.
4157.
4158.
4159.
4160.
4161.
4162.
4164
4165
4166
4167
Genera Counse s memo-
1881.
1940.
2579..
2715..
2774..
II-1-3563
II-1-3560
-1-3566
1I-1-3565
I -1-3569
I1-2-3573
II-2-3575
I1-5-3592
I1-6-3598
II-6-3602
I1-6-3600
II-7-3611
II-7-3607
I1-7-3609
II-7-3610
II-7-3614
II-8-3619
II-8-3620
I1-8-3623
n-8-3624
I1-8-3625
I1-8-3626
II -3 22
I -9-3631
I -9-3633
I1-9-3634
II-10-3639
I I-12-3655
II-13 3662
I I-14-3669
II-14-3670
II-14-3668
I I-15-3675
II-15-3677
II-I5-3676
I I-15-3680
II-16-3687
II 17 3695
II-17-3694
II-17-3696
I1-16-3689
II-17-3702
II-17-3700
II-17-3699
II-17-3701
II-18-3708
II-21-3730
II-22-3740
II-22-3741
I1-22-3739
I1-24-3758
II-24-3759
II-24-3755
I1-25-3771
II-26-3781
I1-26-3777
II-26-3780
-26-3782
II-26-3778
II-2-3571
U-7-3606
II-5-3593
II-3-3579
1I-3-3577
I1-4-3588
II-15-3674
II-1-3564
II-1-3559
II-6-3601
Page.
207
148
334
308
155
324
310
275
1RI
280
247
329
2111
297
316
292
186
328
332
332
332
333
194
222
236
237
81
250
nr.
229
286
140
262
TS
265
55
M
282
189
283
334
333
291
215
287
291
227
327
326
253
. . .
302
a
335
273
08
268
295
184
42
46
am
198
56
196
175
234
128
255
Rung.
Genera Counse s me
rnna Contnued.
2862
2S67-.
2892
2911
2939
851
2983
3008
3016
3034
3048
3007
3098.
3110
3111
3142
3152
3179
31S0
3205
3234
3214
3266
3279
3291
3351
1357
3412
3421.
3463
3491
353
3555
3680
3688
3697
3804
3803
3830
3832
3845
3858
3876
31-90
3910
3f 83 - --
4015
I oa d of Tas ppea :1
93
118...
128
215
4C0
418
426
495
521
532
654..
6S7. .
7 0..
752..
770..
820..
929..
981..
995..
ra
1037.
Rung No.
Page.
II-1-3561
101
II-19-371I
115
II-3-3578
158
II-2-3572
219
II-6-3597
144
II-4-3587
160
II-19-3710
110
II-7-360S
235
II-11-3642
90
II-8-3617
104
I1-15-3672
60
II-14-3064
64
II-11-3644
164
II-9-3628
51
I I-12-3649
112
II-9-3629
78
I I-13-3657
153
II-13-36S8
240
II-12-3653
161
II-10-3638
136
I I-12-3650
124
II-10-3636
82
I I-16-3684
205
II-12-3651
136
II-14-3666
203
II-17-3692
62
II-12-3652
137
I1-17-3691
49
II-16-3682
106
I1-15-3673
142
II-16-3683
147
II-20-3719
190
II-19-3712
117
II-21-3725
68
II-25-3767
238
11-23-3713
133
II-24-3752
97
II-21-3728
217
II-25-3764
114
I1-22-3733
123
I1-22-3735
178
I1-26-3774
66
I1-25-3765
127
I1-22-3734
168
I1-23-3745
258
I1-23-3744
171
I1-24-3753
120
II-I4-3663
5
IT-10-368
8,9
I1-22-3732
8
II-13-3656
16,20
II-14-3663
23,39
II-10-3635
14
II-7-3605
4
I1-7-3105
21
1I-20-3716
31
II-10-3035
8. 9.
14,23
1I-6-3590
10
II-f-3596
11
II S-3615
4
II-f-3596
14
-17-3600
15
I1-1-3558
6,12
II-1 3681
8
II-10-3635
8
I1-18-3703
32
II-23-3742
24
II-17-3690
5
1 The contents contan references to oard of Ta ppeas acque cences and nonaequcscences pub-
shed ony durng the s months cuded une 30, 1928. nasmuch as references to the remander of the
oard of Ta ppeas acque-cences and nonaequescences contaned n the cumuatve st heren have
been furnshed n the cumuatve buetns coverng the earer respectve perods.
(v)
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I
Rung.
oard of Ta ppeas Con.
10(14
1072
1231-.-
1258
1323
1346
1614
Rung No. Page.
3094
3121
3127
3132 -
3144
3152.
3163
3170
3199_
3227.
3230
3249
3260
3310
3317.
3334
3370
3377..
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3896
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Rung No.
Page.
4409.-
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Page.
4
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Rung No.
Page.
II-16-3681
24
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11
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7617
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7740
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Rung No.
Page.
I1-22-3732
31
II-1-355S
34
II-17-3G90
30
I I-12-3648
27.40
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8
11-19-3709
19
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41
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41
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41
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18
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312,
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17
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31
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24
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20
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7
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17
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311,314
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91,56..
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9830.
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Rung No.
1 II-1-3558
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10315
10319
10329 _
10348
10 S2
10383
10418
10443
10456
10458
10469
10471
10493.
10495
10545
10587
aw
10605
10616
1061
10637
10638
10 39
10640
10641
10144
10858
10659
10576
10 9S
O gO
10716
10722
10733
10748
10748
10750
10756
o-o
10.07
10 53
IO M
Rung No.
II-25-3763
/ II-23-3742
I1-23-3749
TI-17-3090
-26-3772
II-22-3732
II-17-3090
I1-17-3690
vn-s-Mu
II-7-3605
II-25-3763
1I-20-3716
II-26-3772
II-25-3763
II-24-3751
II-19-3709
II-10-3635
II-11-3641
I1-26-3772
II-22-3732
II-21-3724
I1-14-3663
II-25-3763
II-16-3881
II-11-3641
II-7-3605
II-17-3090
II-19-3709
II-7-3605
II-7-3605
II-22-3732
II-26-3772
II-11-3641
I I-13-3656
II-25-3763
II-15-3671
II-22-3732
II-6-3596
II-16-3881
II-26-3772
II-17-3C90
II-25-3763
II-1-3558
II-22-3732
II-23-3742
. II-25-3763
/ II-23-3742
II-23-3749
II-15-3671
II-12-3048
II-13-3656
II-12-3648
II-26-3772
II-26-3772
I 26-3772
II-26-3772
II-26-3772
II-11-3641
I1-20-37I6
I I-13-3 ,50
II-14-3163
II-16-3681
II-26-3772
13 3 156
II-24-3751
-c-3ns
II-25-37-S1
I1-22-3732
II-16-3681
II-23-3742
II-3-3576
II-3-3576
II-22-3732
II-1-3558
II-7-3605
II-7 3 03
II-25-3763
II-14-3663
II-3-3576
II-22-3732
II-24-37M
II-24-3751
Page.
16
25
313
11
31
17
11
3
41
24
29
40
10
9
40
7
25
38
17
11
35
37
17,33,
38,41
31
2
15
10
10
9
31
36
18
30.40
40
11
28
20
23,39
13
29
33
24
4
23
18,30
312,
313
28
39
19
3. ,
2
21
10
8
12
37
40
18
34
8
19
18
32
20
17
16
29
40
20
28
13
8
27
27
20
29
20
2
29
18
Rung.
oard of Ta ppeus-
10914
Con.
10983.
10 S5.
10337.
O .
11027.
11029.
11046.
110 3
110-8.
110:0.
11071.
11072.
11073.
11130.
11133
11131.
11141.
11148.
11209.
11210.
11227.
11291-
/ II-
II-
II-
II
II-
II-
II-
II
II-
II-
II-
II-
II-
II-
II-
II-
TI-
II-
/ II
II-
II-
II-
II-
II
/ II-
1 II-
322. II-15-3671
mr,o / II-20-3716
II-20-3720
11363 . n-24-37.51
11334 II-17-3190
1139.1 II-1.1-3671
11411 II-14-3363
11412 II-14-3663
11421 II-25-3763
11423 II-17-3600
11449 1I-16-3681
11498 II-10-3635
11103 II-22-3732
11554 II-7-360.-)
IIS84- II-16-3681
11615 II-24-3751
1161 - II-22-3732
11647. II-18-3703
11684 II-6-3596
11764 II-1-3558
11793 TI-17-3690
11836 II-16-36M
11837 II-16-36S1
11903 II-23-3742
11951 II-24-3751
11968 1I-17-3690
11991 II-13-3703
11997 II- -3751
12163 _. II-34-37M
12231 _ II-20-3716
12408 .- II-22-3732
12470- II-26-377
12569 II-9-382
12588 II-25-3763
12634 II-14-3663
12703 I1-25-3
12738 II-25-3763
12756 II-21-3724
12781 II-2o-3772
12876 II-25-3763
13048 II-26-3772
13103 II-1-3558
13220 II-11-3641
13329 II-22-3732
13125 II-24-3751
13426 II-24-3751
13540 _ 1I-I3-3656
13587 II-11-3641
13625 II-22-3732
13728 II-25-3763
Rung No.
24-3751
24-3710
W S
18-3703
12-3148
20-3716
17- 3690
20-3716
10-8638
23- 3742
16-3681
16-3681
16-3681
16-3681
16-3681
22-3732
16-3181
24- 3751
18- 3703
18-3701
19- 3709
22-3732
22-3732
22-3732
25- 3763
25-3769
II-22-3732
II-22-3732
II-25-3763
II-22-3732
II-26-3772
II-23-3742
14729 1 II-15-3671
13347.
14029.
14376.
14531.
14672.
14093.
8
12
24
17
M
30
24
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Rung.
oard of Ta ppeas Con.
15153
15374
15485
15649
15(179
15792
15828
15969
15900
16230
16487
16643
16789
161164
17041
17189
17814.
18168..
18432..
19459..
19740..
20527..
20546..
21337..
21338..
21370..
21634..
24574
Offoe
(I. T.):
2397.
Rung No.
I1-6-3596
I-10-3881
U-20-3716
1I-23-3742
II-14-3663
II 15-3071
-7-3605
II-14-3663
II-14-3663
II-26-3772
II-7-3605
1I-16-3S81
1I-16-3681
I1-23-3742
I1-24-3751
I1-20-3716
II-17-3690
II-24-3751
II-IO-3635
II-21-3724
II-20-3716
L II-20-3720
II-24-3751
II-12-3648
II-17-3690
II-16-3681
I1-22-3732
II-22-3732
I1-22-3732
II-24-3751
I1-25-3763
II-22-3732
II-1-3558
II-16-3681
II-26-3772
II-1-3562
IM-3585
v ::.r8f
I1-5-3591
II-5-3594
II-8-3616
Page.
M
n
312
6

5
41
12
12
34
5,33
19
:
12
SI
M
177
.
75

56
77
Offc decsons (I. T.) Con.
2400
2401
2402
No.
CONT NTS O CUMUL TI ULL TINS (I. T.) 1 TO 5, S. T. OR 1920 ND 1921, INT RN L
R NU I I, 12, n-1, II 2. IDM, n-2, I -1, I -2, -. -2, I I. I-2. ND vn-.
Cumuatve uetn.
Rung No9.
Income Ta :
December, 1919 (No. 1)..
anuarv- une, 1920 (No. 2)
uy-December, 1920 (No. 3)
anuarv- une, 1921 (No. 4)
uv-December, 1921 (No. 5)
Saes Ta :
1920 (ST. 1-20)
anuary- une, 1921
uy-December, 1921.
Interna Revenue uetn:
anuarv- une, 1922 (No. 1-1)
uy December, 1922 (No. 1-2)..
anuarv- une, 1923 (No. II-1)__.
uv-December, 1923 (No. II-2).
anuarv- une, 1924 (No. III-)..
uv-December, 1924 (No. III-2).
anuary- une, 1925 (No. I -1)..
uv-December, 1925 (No. I 2).
anuarv- une, 1926 (No. -). _.
uy-December, 1926 (No. -2)..
anuary une. 1927 (No. T-1)--
My-December, 1927 (No. I-2).
anuary- une, 1928 (No. II-).
1-655
656-1033
1034-1368
1369-1710
1711-1996
1-112
113-265
266-356
1-383
384-665
666-956
957-1276
1277-1641
1642-1949
1950-2251
2252-2523
2524-2813
2814-3026
3027-3291
3292-3557
3558-3784
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e
INCOM T RULINGS.
R NU CT O 1926.
TITL I . O RD O T PP LS.
CUMUL TI LIST O NNOUNC M NTS R L TING
TO D CISIONS O T UNIT D ST T S O RD O
T PP LS PU LIS D IN T INT RN L R -
NU ULL TIN S R IC ROM D C M R 22, 1924,
TO UN 30, 1928.
1 -26-3772
The Commssoner acquesces n the foowng decsons of the
Unted States oard of Ta ppeas:
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
battor Reatv Co ---
bbeve Cotton Ms
cme Ms, Inc ---
cme, Pamers DeMooy oundry Co.
corn Refnng Co
dams, . G
dams Motor Co
daskn, erman
der, Segmund--
. G. S. Mnng Co.
guar Land ssocaton, The
a Coa Co
abama Coca Coa ottng Co
ba o Paper Co
e ander Manufacturng Co --
en, .
en, Mrs. . ... -
en, ames ., e ecutor
en, Lous
ance Mng Co
sop, dward ., estate of
sop, dward ., e ecutor1
umnum ake Co
Co. et a_
3346
11903
1598
4211
1929
4361
3522
9591
3078
4059
9229
3718
7476
1164
1907
5656
7290
72S9
8690
383
15649
6519
6519
4669
8444
3430
3
10
6
3
2
5
4
8
8
3
7
1

9
7
7
8
2
10
7
7
6
6
No. 3772 ncudes a
) to and
state ta decson.
1 state ta decson acquosoence
.. and nonacquescenoo notces pubshed In the Interna Rev-
une 30, 1928.
ony to 1912 trust.
(1)
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2
Ta payer.
oard of Ta |
No.
oume.
Page.
5418
3
824
2078
2
847
4225
7
13
8293
8
419
611
1
575
8145
7
659
1994
2
460
1173
3
195
1290
2
419
4772
4
649
7679
5
954
8368
7
641
10898
9
242
2967
2
991
4696
4
1204
8895
9
1336
11684
8
598
1556
3
531
3074
2
1297
743
6
759
1394
5
27
1368
2
526
4947
3
486
3925
3
1236
4013
3
1236
4378
8
155
4695
4
4S3
8629
8
.919
342
1
634
3297
6
3S4
232
1
296
3297
6
384
1574
2
1256
2468
3
374
4943
4
493
5650
9
1022
2296
2
263
15485
9
140
3377
9
140
10983
. 9
1193
2505
2
892
4725
9
1322
195
1
169
4409
8
70
4483
5
163
1976
2
67
2778
5
736
240
5
282
4459
3
553
16230
10
11
10637
9
1404
3777
6
690
10239
8
455
mercan o Co
mercan Cream of Tartar Co
mercan- awaan Steamshp Co
mercan Lace Manufacturng Co
mercan LaDentec, Inc.
mercan Manganese Stee Co
mercan Ms Co
mercan Packng Co., Inc
mercan Photo Payer Co -. - -
mercan Seatng Co.4
mercan Show ntertanment Co
mercan Stee Co
mercan Stone Co
mercan Teegraph Cabe Co
mercan ave Co
mes, ohn S
mgo Coa Co
nderson Gustafson
nderson Lnd Manufacturng Co
nderson- arrngton Coa Co
nderson, Isabe
nnston Cty Land Co
nthracte Trust Co., admnstrator estate of ohn
oseph rown, deceased 2
ntonopos, George
ntonopos, ast
ransas Compress Co
rchbad, |r., It. W., e ecutor
rchbod, ohn P., e ecutor 5
rcher Paper Co., The
rmstrong, rd
rmstrong, .
rmstrong, .
rter Pant Gass Co -
rthurs, W. C
rt Meta Constructon Co
ssocated Denta Suppy Co
ssocated Gas ectrc Co
tkns, ma oster
tkns, ohn ., estate of.-
tantc Coast Lne R. R. Co.8
tantc Coast Lne R. It. Co
tas Tack Co .
tterbury, Grosvenor
ubrey, George
udtorum Co
uerbach, Sao
uthT, oseph P
utovcnt an ower Co
von Street Trust
yer, Wam P.
1 ..
ach, L., estate of
ackus Sons, ., |r
adger Takng Machne Co
state ta decson.
cquescence u decson n so far as t reates to ncuson n nvested capta of (1) 25,000 pad by ta -
payer n 1915 for nventon on whch patents were pendng. (2) S. ) for counse fees.
state ta decson acquescence reates to thrd ssue of decson.
1 cquescence reates to frst ssue of decson.
Nonacquescence notce n the case of Urosvcnor tterbury (C. . 1 -1, ) recaed.
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3
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
The.
aey, ohn W
ard, ames
ard Machne Co.
aker Lumber Co
aaban atz Corporaton
afour, Sr Ro ert..-L
amert, . T
ank of rady
ank of Commerce
ank of artsve, The
ank of Rockngham
anna Manufacturng Co
arker, 0. -
arnes Coa Mnng Co. and Coumbus Coa
Mnng Co
arrows, etcher L
arry, .
arrv, ohn nthony
art ey, R.
artron, .
astrop Mercante Co., Ltd
at on-Cook Co
aumann et a., Ma , e ecutors
aumhoff, George W
ay State Securtes Co
ecker, S. L
ecker ros
ecker Paper Co., The
e, ames
e, Rogers Zemurray ros. Co
eamore, Davd
engrath, W.
ems, sr., Thomas
endhem, . M., estate of
endhem, enretta
endhem, uus, e ecutor -.
enham Ice Cream Co
entey, .
ern, Inc., Irvng
ermngham Lumber Co
ernd, ohn M
ernsten, . R
ernsten, anne
ernstorff, ans
esse. Ma we
essemer Investment Co
ettendorf, oseph W
ettens, bert, and Lake, . W
ckey, Mton
g Western O Gas Co
s ros. Memora Corporaton
rd, Samue
rkeand, .
rmngham Trust Savngs Co., e ecutor
rn, enry
tter Root Stock arm
ack Yates, Inc
acke, . W
ar eneer Co
ake, ohn . L
3901
9393
201
3271
5386
2344
3227
1899
4800
999
4682
762
3583
3209
3158
99
1724
2623
2721
S124
5458
6981
1624
3685
9949
16954
4555
8859
1220
6385
2018
3100
7964
7963
7964
3401
2512
3049
2654
3340
1258
1258
4054
4971
5295
2035
1488
2010
297
7150
1346
6721
3464
7440
610
5777
3442
2282
6703
7461
3
4
2
2
(
2

3
10
1
3
1
3
3
4
1
2
4
3
7
t
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3
3
8
9
10
7
4
3
3
2
S
8
8
5
5
2
1
4
0
t
S
3
8
3
1
9
7
4
3
5
1
10
2
2
5
9
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4
Docket
No.
tzer, Ma
och, . .
ogg Lttauer, Inc
oomfcd, rederck
ffttdworth, Mrs. W. M___
ue Rdge Overas Co.
Rver Pacer Mnng Co
Chares 8., estate of
ockhofT, arry W
oercke Runvon
ogart, Lacey L., admnstrator Leon C. Rggs
estat
oge Co., Inc., W. 8
onger- rankn Lumber Co..
onneve Lumber Co
oone, D. W
oone, .
oone, ames D
oone, W.
ooshardt. rank
ooth urnture Carpet Co..
orden, Spencer, estate of 2
orden, |r., Spencer, e ecutor 2_
oston Store, Inc., The
oston Structura Stee Co
otsford-Constantne Tyer..
oucher-Cortrght Coa Co
Maden, Chares
owen, an
owman, .
oyce tract Co
o vd, .
oyer Co., .
ovne Cty Lumber Co
oynton, Chares T., estate of..
oynton Gasone Co._
radey, W. C
radshaw, Mrs. Rosena W
rady, dwn
ray- erguson ( n Co ,
rand, fred
rand, Php R
randes Investment Co
randes Sons, . L
randenburg, dwn C, e ecutor estate of George
M. Oyster, |r
rannum Lumber Co
rauer, Pau, estate of
rauer et a., Mary ., e ecutors
ray, zabeth ., admnstratr estate of Rch-
ard ray
ray, Rchard, estate of
remer, ugust . W., estate of 1
rehmer et a., Otto T., e ecutors ..
revoort ote Co
rewer Co.,
1 state ta decson.
5443
10076
5297
6501
6285
10210
6299
1139
3206
29S1
1932
2208
8077
3657
3053
3052
3051
3163
4436
426
5909
5909
4216
836
9757
11616
6764
7965
2690
7467
9327
6751
5739
10495
840
5342
0909
0910
47
5621
7434
5399
8572
8432
1545
1546
7390
2836
730
730
2S01
2801
5844
5844
539
78
oard of Ta ppeas.
oume.
3
6
3
6
7
6
8
2
3
3
2
8
7
2
9
e
9
0
4
6
6
6
7
1
10
7
7
2
8
9

4
10
5
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5
Docket
oard of Ta ppeas.
oume. Page.
rtt. en|amn T
roadhead, met N., estate of
roadhead, Shedon ., estate of
roadhead, Wam ., admnstrator.
rodbeok, Lucy
ronson, W. S
rown, dward T
rown, dwn M
rown, enry I
rown, Rves S., e ecutor
rown, Warren
rown Co., .
rown Lumber Co
rowne, dward I., estate of
rowne, Water D
rownfed, Maro
rownng Co., . M. M. S
rownsve Matamoros rdge Co
ruce uman Drug Co
ruere, enry
run Coa Co
runer Wooen Co., Inc
runner, rnod W., estate of
runner, mma ., e ecutr
uedngen, Robert
uena sta ardwood Co
uffao orge Co
uffao Steam Pump Co
ugher, rederck ., estate of
ugher et a., rederck McLean, e ecutors.
u , rchbad ., estate of
u, rnest M., e ecutor
uard, ernce
urgess, Rchard
urg, Oscar
urgo, .
urke ectrc Co.
urktt, George W., estate of
urngton Overa Manufacturng Co., The.
urns, . R
urnsde fctee Co
urtse, ertram W., e ecutor
uss Co
uter Grocery Co. et a., ames
uter, Inc., ohn W
yfed, Gtadys R
yron Shoe Manufacturng Co., Inc
y waters, . unter
ywaters, P.
y waters, L. S
C.
Cadac utomobe Co. of Inos.
Caforna rewng ssocaton
Caforna Canneres Co
Caforna Deta arms, Inc
1905
3897
3896
3897
11047
20527
7994
499
3675
6056
2975
7967
12703
11134
21634
4937
10995
1037
93
129
4055
176
7892
3719
3719
5855
2306
3170
3170
C035
6035
68SS
6888
7566
1311
5782
4232
1G97
2038
2106
12611
3292
2050
2952
5978
1572
989
463
6288
6287
6289
2657
3903
2228
9820
53
414
414
414
969
1008
895
502
1129
74
56
112
719
1370
1191
1164
914
320
342
787
83
881
1135
1135
335
503
947
947
1155
1155
993
993
456
1134
1297
4
553
1158
143
1003
20
412
266
37S
1105
19
666
495
495
495
004
347
109
1301
3 otate La decson.
1 cquescence reates to ssue 5, as to pat-nt group No. 2, and ssue 6.
cquescence reates to deducton of centruuton to State rewers ssocaton and affaton wth tha
: Co.
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6
Ta payer.
oard of Ta ppeas.
No.
oume.
Page
4901
3
603
9313
9
1123
5631
6
561
373
1
441
304
1
720
7111
6
446
7112
6
446
3141
3
1067
4917
4
940
70C9
7
1076
5376
4
933
6610
I
7134

441
7705
5
1160
3031
3
75
6224
8
287
6720
4
983
4451
2
1271
2432
6
539
3632
3
1119
12061
5
456
7027
6
457
11072
8
675
11073
8
675
11071
8
675
11070
8
675
11070
8
675
104
1
38
7228
6
752
689
1
849
664
3
981
8543
19459

989
5214
6
662
2418
2
886
8327
7
973
8735
4
1134
S70
1
656
4039
3
146
6803
8
959
7650
6
609
3843
4
1269
107
1
460
3714
4
464
6057
5
105
9846
9
406
11063
10
180
3964
4
452
4127
3
855
1840
3
1070
4380
7
625
3526
4
1067
8427
8
79
412
1
518
6148
5
156
3373
2
1239
820
6
1085
Camden urngton County Ry. Co.
Cameron, W.
Campbe, . O
Campbe, Nge Lese
Canaan, arry and ate
Canton rt Meta Co
Canton Stee Ceng Co
Cantre Co., The red
Canvon Lumber Co
Cape, . W.
Capta Cty Investment Co
Capto ote Co.10
Capto Park ote Corporaton
Capto Securtes Co
Capto Theatre Co
Caps, Mary, deceased, estate of 3.
Capps, Lna
Carey, C. W.
Carse Garment Co
Carmchae, D. L
Carney, Rchard
Carpenter, D. M
Carpenter, ohn
Carpenter, Mary
Carpenter, Mary ., admnstratr .
Carpenter, Maud ., estate of
Carro Chan Co.
Carro. ua ., e ecutr
Carter Co., W. W
Case Pow Works, . I
Ceuod Co
Centadrnk ters Co., Inc
Centra musement Co
Centra uto Market
Centra States Coa Co
Champon Stove Co
Chander, .
Channon Manufacturng Co., ames
C hapn Laundry Co -
Chareston Securty Co., e ecutor
Chatham Phen Natona ank
Chattanooga Mattress Co
Chattcrton Son
Cherokee Ochre Co
Chcago re Prck Co
Chcago Rahvav qupment Co
Chds Co., W. -----
Chshom s Sons Co., Wm. (Chshom Shove Co.).
Chrstenscn, N. P
Church oes Co
Cncnnat Mnng Co _ ..
Ctzens Loan ssocaton
Ctzens Natona ank
Ctzens Trust Co. of Utca
Cark, . ., estate of
state ta decson.
10 cquescence does not reate to that part of decson nvovng appcaton of vers decson (1 . T.
., 113.1).
11 cquescence reates ony to Issues 2 and 4 n decson.
u IS onacquesccnce notce n case of Carro Cban Co. (C. . I -1, 4)
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7
Tapayer.
Cark, Grace Scrpps and Re
Cark, arod
Cark Co
Cark Co., ames T-_
Cement, Norman Parsons, e ecutor..
Ceveand ome rewng Co
Ceveand Snow-Church Co
Ceveand Wooen Ms
Coates, ane
Cobb, L. S
Cockran, . T
Cocks-Cark ngravng Co
Codrngton, the M
Coffn, Irene
Coghn ectrc Co
Cohn-Goodman Co
Coe, Mrs. W. C
Coe, W. C
Coeman, ames
Cotz, en|amn
Coege Pont oat Corporaton
Cons, W. C. and C. C
Cons and wfe, W. D
Conson, ohn W
Coumba Theatre Co
Coumbus read Co
Covert, Warner L
Combs, W. ., sr.
Comey c hnson o
Commerca Co. of gypt, Inc
Commerca urnture Co
Comstock-Caste Stove Co
Concord ectrc Co
Conen, Wam
Connectcut ectrc Manufacturng Co
Connectcut Natona Pavements, Inc_.
Connorzed Musc Co
Conover Co., C.
Conrad ardware Co
Conrad Shoe Co
Consodated ectrc Lamp Co
Consumer s Coa Co
Conwav, dran C
Cook, . G-.
Cook, ohn
Cook, R.
Cooper, . . T., estate of
Cooper, . T
Cooper, C. --
Cooper, dna
Cooper, Samue
Cooper- rannan Nava Stores Co
Corbett, ott R
Corbett, amton
Corbett, enry L
Cornng Gass Works
Corscana Gas ectrc Co
Cotton Concentraton Co
a, . C
r, |r., Chares
6342 28 2
Docket
No.
536
1707
5785
3660
2650
73
169
6029
5456
7136
3801
6604
4685
5930
1879
7167
9134
9133
4891
3004
764
5986
11148
550
1414
5823
9170
10182
11133
5810
6507
3347
4355
815
7549
3448
7179
9830
115S4
597
555
8121
1614
1741
6331
3643
12634
3144
2206
2206
959
10068
11836
16643
11S37
9826
4499
4625
202
8181
oard of Ta ppeas.
oume.
1
1
10
9
5
4
3
9
7
4
4
1
9
8
8
8
9
6
4
1
6
Page.
491
555
356
1291
412
87
234
49
429
547
215
468
415
421
1071
475
903
903
835
917
534
102
913
561
622
1126
623
249
52
1163
71
114
1027
472
1360
1124
213
1234
512
70S
616
851
664
111
916
668
21
798
1267
1267
615
10.5
438
438
438
771
565
121
103
426
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8
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Cowe, Matte, and Mona Cowe, e ecutrces
estate Robert Cowe
Cowe, Robert, deceased, estate of
Co e, |r., et a., fred C, trustees
Co e, Sopha G
Crak, ohn
Crampton, atharne S., e ecutr 2
Crampton, Orson L., estate of2
Cranda orse Co
Crane, rederck G., estate of
Crane, Rose P., e ecutr
Cravens, Water
Crawford I )an bstract Co
Cray, ames R
Cremn, .
Cremn, T. O
Crews, C. W., estate of
Crews, Davd W., estate of2
Crews et a., rank .2
Crews, ate Downng, admnstratr
Crder ros. Commsson Co
Crompton udng Corporaton
Crosby, verett U
Cross Investment Co
Crothers, R.
Crowe Corporaton
Crowe Lumber Gran Co
Crown Cemetery ssocaton.
Cuba Grapefrut Co., Inc
Cunan, . S
Cuum, Lous W
Cummngs, W.
Cunnngham Sons Co., .
Curee, W. S
Curts, rank G., estate of
Curts, arret ., deceased, estate of
Curtss, George W
Cusaek Co., Thomas
Cushman Manufacturng Co., II. T
Cuyahoga Co., The
I).
Day News Pubshng Co., The
Darada Reatv Co., Inc
Daton, ward
Daton Gymnasum and Swmmng Schoo, Inc
Day, Davd I ., deceased, estate of
Dane ros. Co
Darng, ay N
Darrow, rank D
state tns decson.
601
691
6805
2121
22S3
11362
11302
7021
10695
15374
16789
10005
15374
16789
3381
7681
6364
9197
9198
981
9010
9010
981
128
5085
13847
4301
3764
709
5841
5411
366
s
532
.7951
15828
16487
5914
2678
10640
7009
1038
4720
442
2327
1987
2143
3721
4158
5275
1657
194
1373
10840
6302
929
3
3
t
5
2
10
10
8
3
10
7
5
5
S
8
S
s
10
2
4
2
5
0
5
3
9
10
6
0
:

2
3
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9
Docket
No.
oard of Ta ppeas.
oume.
Dartt Co., C.
Davs, C. R---
Davs, I. M
Davs, Mrs. W.
Davs, Sade S., e ecutr --.
Davs ndrews Co
Davs Co., The
Davs Yam Co., Inc
Dean, nne L
Deck Camp Tank Co
Deerand Turpentne Co
DeLsser, orace, estate of1
DeLsser, one, e ecutr 1
Deto Grass Rug Co.
Denhom Mc ay Co
Denta Co. of merca
Denver Crown Ry. Co
Des Cognets, Lous, sr
Desher ote Co_.
Des Mones Improvement Co
Detrot apor Stove Co
Deutsch, uus W
De an Co
Dewey, Mdred McLean. --.
Dbbe, Leon N., e ecutor
Dbbe, Lous N., estate of2
Dckey Grocery Co., L. Z
Dcknson, .
Detrch, Gustav
Detrck, erman T
D, Lews
Dng Cotton Ms
DLs ros. Co
D e Manufacturng Co
Dobson, ames
Domenco ante s Sons, Inc
Donaghey Rea state Constructon Co
Donason, re M., e ecutor
Donason, ohn ., estate of
Dougas, George P. and esse P
Dougas Park ockey Cub ---
Douty, . -
Downg, Robert
Downng Co., T. D
Duncan Co.,
Durabt Stee Locker Co
Durkn, P. rank
Dustn, nne M., estate of
Dyer, George R., e ecutor2
.
age Shoe Manufacturng Co., Inc
astern Shoe Manufacturng Co
ast ack, ames L
aton, Chares
1372
5
76
10299
(12)
(12)
2616
2
359
8219
8
981
3877
9
1212
2691
2
328
5497
6
281
68S5
8
299
1552
3
896
11227
10
191
6182
4
1236
2459
2
102
2459
2
102
6296
7
811
643
2
444
3331
3
343
118

773
532
8112
7
286
5025
7
158
8573
7
279
5663
4
1043
3005
2
729
8630
7
94
5040
10012

1155
2528
6
732
2528
6
732
156
1
108
5193
8
722
8367
10
141
9730
6
1371
4563
(12)
(1 )
17 .)
2
127
3575
2
983
475
1
641
863
1
1082
4468
2
1098
1050
5
766
1629
6
455
1629
6
455
288
1
372
5738
9
496
13329
9
218
11449
8
676
2276
2
469
3152
9
1216
3121
5
239
3644
4
743
8629
8
919
3351
5
711
5593
12163
4240
2685
state ta decson.
state ta decson acquescence reates to thrd ssue of decson.
Decson not pubshed n Unted States oard of Ta ppeas Reports.
u cquescence reates to frst ssue n decson.
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10
Ta payer.
aton, zra Z
aton, Macom
cksten, se S
cksten, Lous
dmonds, eanne, e ecutr
dmonds, ohn W., estate of
dmunds, . M
gan ausman Co., Inc
ggnk, enry
hrch, |r., ranz, estate of
mer fe mend
ba Manufa turng Co
ectro Magnetc Too Co
as fe ro., Inc., G
ott, W.
m Cty Cotton Ms
m Cty Nursery Co
Paso Southwestern Co
mpre State nance Corporaton.
ngander, . L
ngeman, .
ngcman, M. S
ntress rck Co
rwn, . C
rwn, Mrs. . C
scave, Wam M., |r
ssanbee Mnes Co
ttenson Wnng Dry Goods Co
vans, Leroy G
vans, W. L
ves, . C
.
archd, Marcus D., estate of2
archd, Nee ., e ecutr 2
aketnd Shp Co
atco, George
arow, Samue, estate of 2
arm Impement Co
armers ank Trust Co., e ecutor 2
armers Cooperatve ssocaton
armers ue Co
armers Loan Trust Co., admnstrator 15
armers Loan Trust Co. and Isabce W. Tford,
e ecutors
armers Merchants Natona ank
armers Merchants State ank
aro- tte Co
ear Co., Inc., red
edera odng Co
edera Pate Gass Co
edman, Davd
e, .
eows Medca Manufacturng Co.
enner, Chares . and rgna S_.
erry Market, Inc
bre Contaner Co
Docket
No.
2684
2686
679
1171
3840
3840
1842
581
6413
4695
2270
6995
7096
11954
10639
7636
6503
672
6805
802
6193
5981
100C6
10251
10250
2333
2208
362
7347
3221
1669
19022
19022
3706
1601
7268
9S23
10914
654
210
1399
3286
5570
1811
737
9327
2003
1055
5604
2089
5592
8980
2216
3G71
7475
oard of Tat ppeas.
oume.
2
2
2
2
4
4
1
1
7
4
2
6
7
10
0
5
0
2
6
1
S
8
9
7
7
3
3
5
3
2
(12)
9
9
G
3
7
6
10
7
1
3
3
s
2
1
9
1
(
3
7
5
5
9
1 state ta decson.
Decson not pubshed n Unted States oard of Ta ppeas Reports.
N on acquesce nee notce n ths case, pubshed n Cumuatve uetn I -2, recaed.
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11
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
on Deveopment
pment Corporaton
dea Investment Co.
dety Trust Co
nance poraton
of merca
ck Co., enry
Co., George
sver, Chares
|pn, . O ,
restone, sther
rst Natona ank of Durant, Oka
rst Natona ank of vanston. Wyo
rst Natona ank of ort Dodge, Iowa
rst Natona ank of Goodand, ans
rst Natona ank of Los ngees
r-.t Natona ank of Marow, Oka
1 r-t Natona ank of Rock Rapds, Iowa
rst Natona ank of Seepy ye, Mnn
rst Natona ank of Stoughton
rst State ank
sher, Car G
tchburg Steam ngne Co
a num Insuatng Co
emng, C. ., estate of1
emng et a., dmund ., e ecutors
etcher, Chares ., estate of 2
nt Rver rck Co
orence Ms, Inc
orda Grocery Co
oer Wa Paper Co.-
ontus Shoe Co
orbes, Rose D
orbes, W. S
orgeus, . W
ort Orange Paper Co
ort Wayne ngneerng Manufacturng Co
ort Worth Warehouse Storage Co
oster Gasse, Ltd
ver, sr., . S
Rver Iron Co
ncs, T.
ake, Osmond ., e ecutor
nke, Inc., So
ranke Tton, Inc
rankn, Wrt
rankn Ms
rank-Severs Undertakng Co
raser, rthur C
raser, George
rft7,er, red
reeand Catte Co
rey, |r., ct a., Mtche M., e ecutors Wam .
Scafe estate
rederch 4 Sons Co.,
rend, Oscar, e ecutors estate of erman . Meyer
rschkorn, . S
ruen Investment Co
uton, Guy
urat ros. Co.. _
983
4920
6805
4339
1369
6-168
980
740
6913
19
8021
12S0
2817
9889
687
2334
2790
2581
7594
433
5120
7212
7212
7856
746
10383
151
10103
9944
10236
7141
2881
641
489
3864
9232
3260
4743
2525
3182
3253
307
9266
9267
11423
2194
6495
5929
9865
9518
391
3412
1062
7879
1126
9362
3362
2
4
6
4
5
8
2
2
6
1
7
.r)
6
9
6
7
2
5
7
1
5
9
9
9
2
9
1
9
7
7
7
6
1
2
6
T)
1

2
3
3
1
7
8
7
3
6
6
Id
8
1
2
4
7
2
(12)
1 state ta decson.
Decson not pubshed n Unted States oard of Ta ppeas
Reports.
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12
Ta payer.
Docket
oard of Ta ppeas.
No.
oume.
Page.
1377
5
76
10641
9
1404
820
6
1085
3972
4
1234
395
1
1124
5218
7
1089
321
5
70
5061
4
37
4242
4
619
4017
4
1071
4517
3
226
1906
2
171
3984
2
489
718
2
392
5774
6
124
3131
2
986
1718
5
893
5352
4
748
3479
2
584
5215
3
1336
3879
3888
5365
4
658
5366
5367
3495
3
441
9412
7
1249
2677
3
334
1536
1
1066
5387
4
335
1785
2
75
3851
2
1317
964
1
967
7746
6
864
2395
2
1221
3724
6
105
227
1
337
14029
10
165
3500
2
1290
5992
7
860
5389
4
1073
11615
9
1355
243
1
249
6335
7
151
5161
3
425
4220
8
1277
4007
4
165
21337
9
1209
21338
9
1209
6631
5
1210
2470
3
311
8553
5
297
887
1
684
24631
8
1166
2584
5
395
Gaen Paper Co
Gaumbeck, C
Gavn, ohn M., admnstrator
Gambee, Wheeer
Gamon Meter Co
Gardner, .
Gardner Governor Co.14.
Gardner Prntng Co
Gaskns, . W... --
Gassner, Lous
Gate Cty Coffn Co
Geger raverman urnture Co.
Gem State Lumber Co
Genera Lead atteres Co
George, Mke -------
Georga Car Locomotve Co. ...
Georga Manufacturng Co .
Georga State Savngs ssocaton..
Georga eneer Package Co
Gcrmantown rad Co
Gerst et a., erbert .
Gettvs, M.
Gant Tre Rubber Co...
Gfford, arrv N
Ges, da R
Ges Co., George
Gen, Margaret
Gespe Rchard T
Gam Manufacturng Co.
Govch Co., oe
Gson, arry W
Grard Coa Co
Gadv Manufacturng Co..
Gobe Outet Co
Gocner urnture Co
Goerke Co., The
Godberg, arry S
Godberg, Lous M
Godberger, Leo G
Godsmth, Lan M
Godsten, Davd S
Goodn, C. Y , estate of a_.
Goodatte, Raymond R
Goodwn, C.
Goodwn Moe
Gopher Grante Co
Gordon urnture Co
Gottfred, edwg .
Gotteb ros.
3n Co., George .
Graft, George _
Grant Construct
1 state ta decson.
cquescence does not reate to that part of decson nvovng appcaton of yers
., 1135).
cquescence reates ony to ssue 1 n decson.
(1 . T.
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13
Ta yer.
Grant Trust Savngs Co., trustee -.
Gras, Rudoph...
Graves, George
Grav, |r., .
Gra -, W. ...
Grav Davs, Inc
Gray Prntng Co., The
Graydon, Samue
Green O Soap Co
Greenbaum, Mchae
Greene Co., .
Greenve Coa Co
Greenve Opera ouse ssocaton
Greenve Te te Suppy Co
Greenwood Cemetery ssocat on
Greever, Mr. and Mrs. .
Gresemer, Chester D
Grffn P. P
Gr, Inc., ugust
Grmmer. enry
Grover, rthur
Gueph ote Corporaton
Guenther, Pau
Guggenhemer, . Randoph
Gutterman Sons Co., . M
Gutterman Strauss Co
.
aas, Otto --
agerstown Shoe Leggng Co
a, Chares Ward
a Co. Inc., . .
aam, dwn C
aenbeck, arry C, estate of
aenbeck, ohn ., e ecutor
amton Chambers Co., Inc
amton Manufacturng Co
ammack, Rsh Sons Co
ammon, ram ., estate of 3
ampton Co
ampton Cotton Ms
aney and wfe, dgar P
any, W. W -
ansen, ans C, estate of
ansen, enry ., e ecutor
ardy, George W
armony Grove Ms
arnsberger s, Inc
arrs, Chares L., admnstrator estate of Wam
L. arrs, deceased
arrs Grocery Co., Inc., W.
arrn, Wam L., deceased, estate of
arrods Motor Car Co..
art Cotton Ms.
Docket
No.
art, ohn W
artford Connectcut Western R. R. Co.
artford at Cap Co
state ta decson.
Nonacquescence notce n the
3659
2340
8113
716
4552
143
4503
1477
3574
3836
3127
3784
2311
168
3000
5690
10827
11546
7372
3393
1159
1064
1755
13025
10458
234
3542
463
11650
4612
3582
12470
12470
131
2507
10516
10914
2054
589
3486
8516
6744
6744
7981
4500
7053
4426
3884
4426
6184
834
9032
12781
3916
2021
7400
oard of Ta ppeas.
oume.
3
5
7
2
6
1
4
2
3
2
5
3
5
1
2
t
10
7
9

:s
7
2
9
8
1
3
1
0
:
2
10
()
1
3
(
10
2
2
:
6
6
6
5
2
7
6
3
5
5
2
of . . a Co., Inc. (C. . -, 6), recaed.
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14
Ta payer.
art-Wood Lumber Co
aske, . mory. estate of
aske, athryn M., e ecutr George S. aske
estate
aupt, oseph
ausmann, Lous, e ecutor1
ausmann, Theresa II., estate of1
awkns, C.
awks Nursery Co
ayes Te te Co., Inc
aynes, Chares ., e ecutor
ay Tes, rederck
avnes, R. R., estate of
azett fc Moss, Inc
eath, .
cathcotc, ruce, admnstrator 3
ed, ntonette ., e ecutr estate of Wam D.
ed
ed, Wam D., estate of
enderson Co., . C
enderson Cotton Ms
enderson Overand Co., The_
enderson, Mrs. ce D., e ecutr
enderson, |r., Mrs. S.
enderson, |r., S.
enry, ohn
enrv, Matte P., conservatr 3
enry, R. D
erad-Despatch Co
erenden, en C, estate of
crmabrceht, ohn
eron Meta ed Co
ess ros.
e ter, Percy
eydrck, L. C
cyn, Otto P
bbard, Spencer, artett fe Co.
ckory Spnnng Co
cko , Lee
ggnboth am- aey-Logan Co.30
gh, orace S
ghand musement Co
ghand Land Co., Ltd
ghands Casket Manufacturng Co
et a., G. ., admnstrators3..
, .
, . L . .....
enmeyer, Mary, e ecutr estate of . . -
enmever, deeeuaed3
man, M. P. G
nckey, Raph L
rst egev Lnseed Co..
tchcock, abcrt
ochschd, erthod
ochschd, arod .
2984
7102
4335
5781
5931
5931
418
1469
844
9584
7247
9584
2247
6015
11141
1988
1988
5272
5504
4776
1875
1917
1916
6375
7268
3545
4556
6983
752
3236
8039
7878
4120
5503
3788
7431
367
367
6702
4691
6291
5316
2320
532
4220
1689
6215
1862
2372
4193
7482
0107
3081
4058
3080
4057
oard of Ta ppeas.
oume.

state t decson.
cquescence reates to fr t ssue of decson.
cquescence rete. to thrd s|Ue of decson.
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15
Ta payer.
oe Co., Inc., R
of ran Co., The
offman, . C
oden 4 Martn Lumber Co
ongsworth, Turner Co
ot-Grante Ms Co.
ot Pad Ms, Inc., . M
ome Industry Iron Works
ood, Chares
ooper, arry
opkns, Water L
ortenstne, . L., coadmnstrator a
oskns, ohn
ote Grunewad Co., Ltd
ouck Co., Ltd
ovev, Peter P
ovey Co., C.
ower Seaman, Inc
ub Dress Manufacturng Co
ub Shoe Co
ub, Inc., The
udson, Chares I., estate of 1
udson, . erstede, e ecutor 1
uev, . L
uff , ndrews Thomas
ughes Coa Co
ughes Co., d. 8..
ughes, ohn N
ume, .
umphres, C. C
unng Mercante Co
unter Coa Co
unter. Mrs. Oe
untngton Cearfed Teephone Co. and Sum-
ruerve Teephone Co
urey, . W
uron Portand Cement Co
utchns Lumber Storage Co.31
yams Coa Co., Ltd., et a., Robert P
yme Pantng Manufacturng Co., Lous
I.
Inos Merchants Trust Co., e ecutor estate of
Wam R. Manerre, deceased
Inos Paper o Co
Independent rewng Co. of Pttsburgh -
Independent ectrc Machnery Co
Inde Noton Co.
Inncs- ehney Optca Co
Internatona oer Works Co --.
Inter-Urban Constructon Co -.
Iron Cty ectrc Co
Docket
No.
7216
6134
6611
S26
656
1784
8745
7991
6990
5271
1476
3633
10241
1593
8159
1677
5448
4196
283
1170
3553
3554
3351
3351
6132
336
7142
6748
14120
9104
11027
3511
15
2503
6292
358
7339
3334
4973
3307
219
2903
3106
770
3242
2742
1023
336S
2322
43S7
6103
oard of Ta ppeas.
oume.
state ta decson.
cquescence reates to frst us e of decson.
n cquescence does not reate to that part of decson nvovng appcaton of yers decson (1 . T. .f
1135).
cquescence reates ony to ssue 1 n decson.
cquescence does not appy to that part of decson reatng to appea of Guaranty Constructon Co,
(2 . T. ., 1145).
G
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16
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Iron Cty Improvement Co
Irwn, enne I., e ecutr estate of Mary . Mc-
Cah
Irwn, .
Irwn ue Co., .
Isaacs or Co., Inc., Reub
Isand Lne Shppng Co
Ives, omes
2138
4
306
2547
2
875
9392
8
687
9030
6
303
59
1
45
3414
4
1055
5646
5
934
ackng, D. C
ackson Sanatorum ospta Co
ames, . R
amestown Worsted Ms
enekes Spnnng Co
ennngs, . T
eweers udng Co
ewctt Co
oe, . ---
oe, L. -- --
ohns, Margaret
ohns, Waace C
ohnson, C. L
ohnson, Chares R
ohnson, ar O
ohnson, anne W
ohnson, ate, estate of
ohnson, . L
ohnson, |r., ohn ., estate of
ohnson, Nes
ohnson, R. ., estate of
ohnson, Robert G., e ecutor
ohnson, T. ...
ohnson, Theodosa, e ecutr
ohnston, Mary rg, e ecutr
ohnstown udng and Loan ssocaton.
ohnstown Democrat Co., Inc.. -.
oet-Norfok arm Corporaton
ones, . W., admnstrator
ones, George C
ones, enry M
ones, ersche
ones Lumber Co
ones, Mrs. . W., estate of
ones Co., T. P
ordan Marsh Co
osyn Manufacturng Suppy Co.
oyce- oebe Co., The
.
aser, rthur
ansas Mng Co
ansas Savngs Trust Co. et a., admnstrators
of estate of . W. Shuths, deceased
arges osery Co
arr, dmund
ass, Ma and enne
atz esthoff, Ltd...
state ta decson.
4272
3089
4068
92
215
3222
1533
5416
6801
6802
8353
8352
7565
9877
8259
15301
7442
10748
3839
3265
7441
7441
7112
6S70
3839
6352
2898
1647
6795
8218
4864
7325
12662
944
3275
8218
4294
4458
9809
4267
1289
2835
1827
11384
1525
1259
4707
9

2
1
4
3
2
3
9
9
0
9
7
S
5
8
10
8
4
6
10
10
7
4
7
6
2
S
s
( )
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17
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
aufman, arry S., Ltd..
aufman, Samue R., estate of3
aufman Straus Co
aufman, Una Lbby, e ecutr 2
aweah Lemon Co
y, Waace G...
ean, amton
ec-er, Isaac P
eenan, atherne P.1
eener s O, Natura Gas ue Co
em, . D...
eer, Ida .
eer Mechanca ngneerng Corporaton
eogg Commsson Co
ey, nnn L., admnstrator 3
ey, Dane
ey, .
ev, Over Warren, estate of2
esey, S. R
eso, rgna
enefck, Nee, e ecutr estate of Wam ene-
fck, deceased
enefck, Wam, estate of, Nee enefck, e e-
cutr
ennedy, D. ., deceased, estate of
ennedy et a., nne S., e ecutors 3
enny ros. Co., The
enosha rut Co
entucky Land, Gas O Co
esser. George ., estate of
etcham, R.
by Car oundry Co
mba, Davd
ng, ar
ng, a Day, e ecutr
ng Lumber O Co
ng-Parker, Inc
ng, Robert C, estate of
ngston, George M
ngton, ammond L
ngton, 0. M.
ngton, W. W..
ns, braham
rk Coa Co
rkenda, . P., estate of3
rtand ros. Co., Iuc
au, an Petersom, Dunap, Inc
eeman Dry Goods Co .
ng, Mary Cark
napp, tte
nftn, Leonard
no , Cheater
4698
2649
4698
4583
10102
10745
6379
6352
7862
2488
291
6741
3945
7092
8365
1796
7092
6082
8351
523
523
5244
5214
1530
410
1473
3182
14531
6931
11968
9942
8283
9695
8315
8283
8392
8216
8409
8217
6760
2879
3094
4482
6SS1
2874
4004
4005
6061
6102
10157
1495
2775
7959
2441
not pubshed n Unted States oard of Ta ppeas Reports.
reates to a ponts of decson e cept that pertanng to the year
en, orence L. 4...
/ 8154 11
11845
5
823
5
31
2
718
5
31
5
992
10
534
10
97
8
914
7
1054
6
263
4
1240
2
494
6
990
6
771
8
1193
10
141
3
257
8
1193
6
1068
9
232
3
659
3
659
4
330
4
330
1
1019
2
63
2
838
3
1207
9
1208
4
1294
8
475
9
502
0
C )
4
1253
6
884
)
( )
8
981
8
981
8
981
8
981
3
1348
3
755
7
771
3
669
9
1335
2
369
6
617
1
1048
7
790
5
1274
2
1107
1919.
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18
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
no et a., Grace M., e ecutors estate of Seymour
. no
no , Seymour ., estate of
nutson ardware Co
obbe Co., Inc., Php
och Co., Inc., Isse
oee, Wam .
oen ros., Inc
oynos Co
ongsberg, Nathan
rauss, e ander
repkc, . C
reg Tannng Co
unke Co., Inc
urtz, Ma
urtz, Robert
urzman, Samue-
Lam, . W
Lamb Lumber Impement Co
Lambrecht, Rchard G
Lang room Co
Langdon, arret
Langenbach, dward
Langey Co., W. C
Langey Mchaes Co
Larrowe Mng Co
Larsh, D. L
Lash Co., Lee
Lassen Lumber o Co
Lathrop Co., Inc., C. P
Laurens Trust Co
Lautz Marbe Corporaton
Law and Credt Co
Lawson, ohn
Lee, Mrs. eanne
Lee, ohn C
Lee, Matda oz
Lee Co., Wson
Lefang, . M.
Leggett, Davd G., deceased, estate of 2t.
Lehgh udng Corporaton
Leehner ordan Co
Leghton ros. Prntng Co
Leghton Suppy Co
Leand, enrv M -
Leand, Wfred C
Lembcke Co., Inc., ernuth
Leno Land Co
Leonard, rthur
Leonard, Chares M
Lester, Lucy C, estate of
Levee, nna L. Stark, e ecutr 2
Levn, N
Levne ros. Co., Inc.
2930
2936
4384
330S
322
6093
712
4130
6016
3611
10716
3318
3519
/ 11411
I 15960
11412
15959
10659
1323
14242
8366
8281
9842
2131
2567
6420
2733
12621
6190
3431
6603
3930
6674
508
2284
5985
5984
7676
10911
7309
3847
6607
4867
10329
5744
7768
7769
849
1083
3156
3157
6056
10587
6444
6832
8
6
10
9
7
2
2
9
3
6
6
6
5
3
5
5
2
6
6
6
10
6
3
7
4
8
7
8
8
1
5
4
4

8
5
5
state ta decson.
Nonacquesecnce notce n ths case, pubshed n Cumuatve uetn 1 -2, recaed.
cquescence reates to ssues 3, 5, and 8 n decson.
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19
Tas payer.
Docket
No.
oard of Ta ppeas.
oume.
Lcvne, yman
Levy : Co., Ma
Lews- a Iron Works..
L ommedeu Sons Co., Chares
Lbby oun, Ltd
Lberman, Meyer
Lberty gency Co.
Lberty Iron Works
Lberty Lght Power Co
Lckumovtz, Morrs
Ldstone Co., R. D
Lebman-Swaney Reaty Co
Lfe Savng Devces Co
Lggett, . T
L hue Pantaton Co., Ltd
Lmbert, Chares P., estate of
Lmbert Co., Chares P
Lndahr Santarum, Inc
Lndsey-Long Coa Lumber Co
Lnn, Gus
Lnton, ames N., e ecutor2
Lster, ames R
Ltte, Theodore W
Lve Stock Natona ank
Locke, Thomas
Locks and Canas on Merrmack Rver, Propretors
of the
Lockwood, R. ., estate of
Loeb, Car M
Locb, uus
Loffand, . M
Loffand, T. S
Lofts, . M. and . S., admnstrators
Lofts, 8. T. ., deceased, estate of
Logan ryan
Lonergan, ohn
Long Isand oundry Co., Inc
Long, M.
Lord, se
Lord Motor Car Co
Los ngees Cemetery ssocaton
Los ngees Towe Servce Co
Los ngees Trust Savngs ank
Loughborough, .
Lovett, oanna, e ecutr , estate of Thomas .
Lovett
Lovett, Thomas ., deceased, estate of
Lozer, Charotte C, estate of 2
Latns, . W-._-
Lynch Constructon Co
Lynes, my
Lynes, Samue
7435
32-17
3097
5002
7416
2212
2213
6257
4398
3760
6842
4133
8805
2235
3489
38
6725
6800
12738
1619
11279
11669
1935
8690
3411
10699
2467
10616
299
3S43
3082
9191
9192
3083
4061
13-125
13426
7581
7581
400S
6441
2726
7721
171S9
47 IS
293
8806
23391
2S18
8746
2910
2910
7513
2544
3375
7C89
7090
4
5
5
4
S
3
10
7
8
1
4
8
10
10
6
f
4
4
2
8
)
5
2

10
3
3
7
3
3
7
7
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-
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2

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5

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20
Ta payer.
oard of Ta ppeas.
No.
oume.
Pace.
1110
2
517
10443
8
97
279
4
996
11111
8
740
5240
4
251
1127
1
922
7854
7
1256
7855
7
1256
1 M
1
907
4675
4
375
2422
2
66
1750
4
1112
5225
5
1226
1077
4
341
3106
4
103
9123
8
221
M
7
286
341
1
706
CI 1
1
575
215
4
765
15 SO
6
368
2242
4
867
324
2
1SS
544
1
1240
10806
7
895
10875
7
895
7132
6
729
3797
3
82
4574
7
454
3001
6
472
448
1
449
289
3
745
14 90
1
26
1378
3
1
21 10
3
242
1C853
(U)
0 )
1322
3
560
3774
5
1S1
48S5
8
435
48S5
8
435
21
1
57
2547
2
875
2547
2
875
354
1
1116
1273
1
937
3211
6
116
1880
1
1061
1C05
2
430
10733
8
909
3557
4
967
3012
2
1295
3042
2
1295
6194
4
49
13546
6
685
tng Co.
2
M.
Mabe evator Co. 17
Mae dam oster, Inc...
MacDonad- .atehuck P
Mackenze, R. ., estate of
Macmat Co., The
Madson cdze State ank
Macr, Mrs. W. N
Maer, W. N
Magnus, Mace Reynard, Inc
Mane Dary Co
Mase, |r., Nchoas
Manckrodt, sr. dward
Maone, dwn
Mande ros
Manerre, Wam R., deceased, estate of
Mann, P. L
Mannng, Chares N
Manomet Cranberry Co
Manora Deveopment Corporaton
Manve enekes Co
Margod Garden Co
Marne Insurance Co., Ltd
Martme Securtes Co
Markcnhem Co., The
Marks, . en|amn
Marks, Isaac
Marks, Wson
Marboro ertzer Co
Marsha Spencer Co
Martn, Darwn D
Mason Cotton M Co
Mason Machne Works Co
Massengac dvertsng gency
Mather Paper Co. -
Mattage, Chares enry
Maury Mng Co
Maus, nna R. and L. M
Maver s, Inc
Me rde, . T.. estate of
Mc rde, Rose L., admnstratr 2
McCabe Co., M.
McCah. ugenc P., admnstrator estate
Marv . McCah .
McCah, Mary ., estate of
McCarthv Sons. Inc., ohn
McCauev Co., C. R
McConnc, .
McCormcU, ohn
McCormck et a., Robert
McCoy- randt Machnery Co
McCreery, enry 1
McDonad, Mary ., e ecutr
McDonad, Patrck ., estate of
McDonne, dward
McDonne, . S
of
state ta decson.
Decson nut pubshed n Unted .States oard of Ta ppeas Reports.
r Nonacqnmcence notce pubshed n Cumuatve uetn 1 -2, pane 6,
w cquescence reates to frst ssue n decson.
14 Nonacquescence notce pubshed n Cumuatve uetn -, page 7, recaed.
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21
Ta payer.
Mc etrdge, dward P
Mc etrdge, Georgana
Mc etrdge, Martha G
McGnns, ob
McGvnn, . P
McGrath, . R
Mcntosh Ms
Mc enna, ames P
Mc nnon, L. ., estate of
Mc nght, . udson
McLean, Carone S
McMchae, Morgan
McMan Meta Co
Mead, Wam W.. e ecutor
Mechancs ank of rookyn --
Mechancs eaty Co., Inc., and Mechancs Reaty
Co. of Pennsyvana
Megeath, Ida
Megeath, S.
Megeath, Samue
Megeath et a., George W
Meue, dw ard, estate ofa
Mene, the G., e ecutr
Menhard, Carre W
Meck, .
Meton, ger -- --
Mepham, George S
Mercer, ohn W
Merchants Natona ank
Merckens, ugust
Meredth, . T
Meredth, G. W., estate of
Mereen- ohnson Machne Co
Merke room Co --
Mertz, dward P
Mesrov, arry S., e ecutor
Messenger Pubshng Co...
Meare Cemetery ssocaton
Metro Pcture m change of Pennsyvana
Metropotan Laundry Co
Metzger, L
Meurer Stee arre Co., Inc
Meyer, nton M
Meyer, erman ., estate of
Meyer ro. Co.,
Meyrowtz, m
Mchgan Con Lock Co
Mchgan Lthographng Co
Mchgan Trust Co. et a., e ecutors
Mche, George .
Mkke Tom __
Mddeton Compress Warehouse Co
Mdand Coa Co
Mdand Refnng Co
Mdwest ote Co
Mes Co., W. C
Mar, W. D
Mard et a.. verett L., trustees
1 state ta decson.
11503
11210
11209
0647
4714
495
9832
121
2050
404S
1534
2221
3841
7228
9755
2351
7119
2815
9248
7118
309S
30 . 8
2100
702:
5699
ns
8233
8179
1010S
1540
4478
3531
4953
5C95
4095
1569
437
747
538
90S2
7749
5737
10(2
5384
32 11
4308
1423
0725
439
440
1125
27
1983
709
2933
3439
9559
10(3S
840
oard of Ta ppoas.
oume.
G
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22
Ta payer.
Mer, ddson..
Mer, .
Mer, G.
Mken, George W., estate of2
Mng Moore Mercante Co
Ms, Lucy M., estate of
Mner Lthographng Co., . C
Mnneapos Sash Door Co
Mnnesota Cement Constructon Co
Mobery O Co
Mobe Devery Co
Mobe Rver Saw M Co
Mogg Coa Coke Co
Monk, enry .
Monroe Cotton Ms
Monroe urnture Co., Ltd., et a
Moon, nne
Moon, O. L
Moore, .
Moore Stave Co., Lucas
Moore Scrver Co
Moores, arry C
Moorhouse, braham, estate ofa
Moorhouse et a., Mary zabet h, admnstrators .
Moors, ohn
Mooyer, Margaret ., e ecutr estate of Chrstan
Moover, deceased 2
Morefed and wfe, W.
Morgan, Caud
Morgan, Water G
Morrs aey Stee Co
Morrson-Merr Co
Morton, . D
Mosby Co., Inc., .
Moser Waeker, Inc
Moshcr Manufacturng Co
Moser, M. II
Mossberg Pressed Stee Corporaton
Mount ernon Natona ank
Movse, Sdnev G
Mu dd Motor Co., Ray
Mueer Metas Co
Mur, ames S
Mutbestos Co
Munson, dgar, e ecutor estate of arret .
Curts, deceased
Murchson Natona ank
Murphy Transfer Storage Co
Musseman, C.
Musser, R. C
Myer Thread Manufacturng Co., enry
N.
Nart/.k, uus ., estate of
Natona ank of atmore
Natona m Pubcty Co
Natona Grocer Co
Natona Industra coho Co
Natona Land Co
state ta decson.
oard of Ta ppeas.
No.
oume.
Page.
1596
3
726
3405
7
921
4469
6
401
10123
7
785
7560
5
1060
1028
3
1016
468
1
588
3S8
2
505
6284
6
151
3552
3
163
7124
8
1224
8700
8
368
12408
10
588
11390
9
16
3310
6
172
2543
2
743
8675
6
385
8674
6
385
3544
8
749
5146
5
1211
678
2
368
4209
3
301
5101
8
964
5101
8
964
1021
1
868
3404
. 2
723
5721
4
394
6290
7
495
3449
5
1035
9492
9
205
4358
2
489
3559
6
1295
2781
6
722
4475
4
1021
1886
7
187
5304
5
674
8757
9
1161
237
2
581
5967
4
834
1192
3
629
4395
3
169
3648
3
165
759S
6
1060
442
3
185
608
1
617
11554
7
1148
160
1
41
4781
3
498
3641
2
665
4316
8
685
3844
3
1038
1807
4
118
562
1
688
4853
7
1241
11130
10
527
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23
Ta payer.
Docket
No.
oard of Ta ppe f.
oume. Page.
Natona Pneumatc Co
Natona Sash Door Co
Natona Takng Machne Saes Corporaton
Nazareth Cement Co
Neapotan Ice Cream Co
Neuberger, Ma and Rudoph
Neusteter Sut Co
Newbod Son Co., R. S
Newman Theatre Co
Newmarket Co
New Oreans Can Co
New Oreans. Te as Me co Ry. Co.30
Newton, .
Newton, W. ----
New York, rookyn Manhattan each Ry. Co.
New York, Ontaro Western Ry. Co
Nce a earng Co
Nckey, . ., estate of
Nckey Sons, . .
Nckev, 8. M -
Nckey, W.
N on, ate I
Noe, Rchard
Nokoms Cotton Ms
Norfok Western Ry. Co.
Norment, Margaret gh..
North Mc ester Coa Co_.
North Street Trust
Northeastern O Gas Co
Northern ote Co
Northern Mchgan Transportaton Co
Northern Trust Co. et a., e ecutors
Northern Trust Co., e ecutor 11
Northwestern States Portand Cement Co.31.
Northwestern Yeast Co
Northwood Co.,
Norve, . R
Norve, Mrs. . R
Norwood, Caef Co
Oates, Mrs. Omer
O ren Leather nsh Corporaton, oseph
Ocean ccdent Guarantee Corporaton, Ltd
O Counor Co., .
O ar, P. ., estate of
Oho Grease Co
Oeet, Israe
Onger ghanders, Inc
Onger Mortuary ssocaton
3651
5788
5272
2446
11793
3C35
3036
4001
5698
3694
14S9
11994
400
9626
9627
4945
974
2109
1961
1235
1236
1237
1238
1239
1967
1962
1186
3223
4557
3601
6291
6831
1G545
2231
3525
2768
3168
4316
7127
5763
10456
1511
5122
7720
7719
9
8393
9630
3114
1060
4184
6023
9622
532
532
cquescence reates to second ssue of decson.
state ta decson acquescence reates to trusts of 1912, 1919. and 1921,
cquescence reates to frst, second, thrd, fourth, and s th ssues of decson.
C342 28-
-8
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24
Ta payer.
Oson, ohn
Osen Water Towng Co
O Ne, ohn, estate of 2
O Ne, |r., et a., ohn, e ecutors a
O Ne Machne Co
Oppenhemer, I eon
Opperman Coa Co
Orth, rank L
Osage Steamshp Co., Ltd
Osborne Cark Lumber Co
Ots, ames
Ots Stee Co
Ottoander, C. . W
Overand Lumber Co
Owen- mes- mba Co
Owen otte Co
Oyster, |r., George M., estate of
Ozark Ms, Inc.
P.
Pabst, rdon
Pacfc akng Co
Pacfc Car qupment Co
Pacfc Coast Redwood Co
Pacfc Novety Co
Pacfc Ppe Suppy Co
Pacfc Reaty Corporaton
Paducah Inos R. R. Co
Padueah Water Co
Paget, .
Pahs dc Modes
Pamer, ar M
Pamer, . C
Pantazas, Chares
Pantazas, ames
Pars Coak, Sut Mnery ouse
Parsh-Watson, M._
Parsh-Watson Co., Inc
Parsan, The
Park ros. Rogers, Inc
Parker Wre Goods Co
Parsha, Wam W
Patapsco aast Co
Patch, radford C
Patterson Produce Co
Patterson, W.
Pearce, |r., Chare9
Pearsa, Gbert II
Pearsa Co., Inc
Peebes, W. S., admnstrator
Peeress Pacfc Co
Pennsua Shpbudng Co
Penn Chemca Works
Pennsyvana Co. for Insurance on Lves and
Grantng nnutes, e ecutors under the w of
Mary . rtt, deceased
state ta decson.
Docket
No.
1460
1G0S
51S5
51S5
7922
9977
3317
14729
15792
5588
3396
10493
4711
7520
4494
3940
1637
1033
7390
4377
2227
84
1093
1847
81(12
1943
4526
3028
6055
4279
5502
5447
1181
33 2
3382
5500
4684
2833
4sf4
5S3
2460
3999
5452
6452
1800
6332
3994
8901
5606
11997
12722
93S0
14376
5741
9247
1904
oard of Ta ppeas.
oume.
Page.
5
889
1
1149
4
78
4
78
9
- 567
7
1156
6
1215
)
9
249
3
141
8
382
7
882
6
358
5
651
2
489
5
921
8
1197
4
108
6
1179
6
843
2
301
2
34S
5
423
5
1017
2
870
5
1223
2
1001
5
1067
6
310
5
189
3
403
1
882
5
975
5
975
5
189
3
840

851
4
605
2
415
6
719
8
448
7
318
1
1081
4
916
4
950
7
621
6
450
10
467
5
1177
5
386
10
103
9
189
7
442
2
48
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25
Perkns, .
Perkns Land Lumber Co
Permanent Loan and Savngs ssocaton.
Perry Dormney
R
Pcrrvman, .
Persons, ames
Peru Char Works
Peters Manufacturng Co
Peterson Co., George C
Pevcv Dary Co
Pheps, Martha ., e ecutr
Pheps, Wam L., estate of
Phps, George .
Phps, oseph dward, e ecutor
Phps, oseph N., estate of 2
Pckerng, Lorng
Pckerng, Rose C, estate of
Pctora Revew Co., The.
Pedmont-Mt. ry Guano Co
Perce- rrow Motor Car Co
Pke Countv Coa Corporaton M
Pne uff Compress Warehouse Co.
Pne Rdge Mnes Co
Pnhom, Rchard, estate of1
Poneer Laundry Co
Pttard, . T
Pttsburgh essemer Coa Co
Pttsburgh Grndng Whee Co
Pttsburgh-Northern Coa Co
Panters Nut Chocoate Co
Pumb, Raph ...
Punkett, Chares T
Punkett, orence C
Punkett, Lyda
Punkett, Wam C -
Pymouth Coa Mnng Co
Ponset Ms
Pouchronack s, Pau
Pomons, Denns
Pomons, Spro
Pope, Carence
Pope, Mrs. Carence
Pope Sanatorum Co
Popuar Drv Goods Co
Popuar Prced Taorng Co
Port Townsend Puget Sound Ry.
Potter arms, Inc
Powe, ope Ives, estate of
Powe, T. I. are, e ecutor
Power ro., T. C
Co.
Pocket
No.
5152 ,
:/ 11303
t 17041
2268
852
2735
0301
3250
3408
2001
1266
161
4S03
4S.I3
6352
6352
6352
5908
5840
44S7
6661
11303
8542
1757
893
7189
7989
2208
6388
4739
1804
5626
9004
2558
2559
2837
87SS
10081
3370
3701
3758
3757
3756
4003
83
1265
3382
3382
2151
2500
4148
2141
9222
2554
5928
9888
9888
3740
oard of Ta ppeas.
oume.
( )
7
3
3
3
3
3
1
2
5
5
3
3
4
6
8
2
6
10
10
6
state ta decson.
11 Decson not pubshed n Unted States oard of Ta ppeas Reports.
cquescence reates ony to ssue 1 n decson.
G
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26
Tapayer.
Powers, Mary ., e ecutr 2
Powers, Rchard ., estate of2
Powers Mayer, Inc
Powers Mayer Manufacturng Co
Pratt, Wam ., estate of
Pratt Letchworth Co
Preston, omer M
Preston et a ., omer M., admnstrators.
Prestwood, . M., estate of
Prestwood, N. ., admnstrator
Prce, Samue
Producers ue Co
Prouty et a., nson ., e ecutor 2
Prouty, C. C, estate of2
Prvor, Luke, estate of2
Pryor, Lute Patton, admnstrator 2
Pu rce, nne L., e ecutr
Purce, oseph, estate of
Purdv enderson Co
Purty Oats Co
Purty Oats Co. of Davenport
Putnam, enretta, deceased, estate of 2_.
Putney Co. Mercante, L.
Putze, enry .
.
uadrca Manufacturng Co.
ueay, P.
ueen Cty Prntng Co
R.
Rade Co., ohn
Radn, tta, admnstratr
Radn, Samue, estate of
Ranbow Royaty Co
Raegh Smokeess ue Co
Rammng, R. W
Randoph ote Co
Rayner, am
Raymond- adev Corporaton
Rea state Trust Co. and Samue M. Gayey,
e ecutors 2.
Redands Securty Co
Reed, . M
Rega Shoe Co
Rechenback, arry L
Renhardt, ane R
Rezensten, Lous, trustee
Rezensten Trust state, Rosa
Renfro, . T
Renfro, Mrs. Inez C
Retaers re Insurance Co
Re Machnery Suppy Co
Rhodes, rownson ampman, Inc
Rce edng. Inc
Rch an wfe, C. R
Rchmond osery Ms
10123
5703
6776
7N4
2015
994
8146
8146
6138
6138
3733
1791
894
5219
2823
7763 |
3703
oard of Ta ppeas.
No.
oume
Page.
5422
6
633
5422
6
633
6862
6
329
6862
6
329
8858
7
621
4644
7
492
9S16
9
645
3896
7
414
7755
6
1116
7755
6
1116
11764
7
1237
159
1
202
2951
5
107
2951
5
107
9380
5
386
9380
5
386
3838
4
967
3838
4
967
5198
4
70
4364
4
585
4365
4
585
5273
3
823
3195
3
836
4053
8
787
2814
2
1119
7196
6
419
69S5
6
521
5576
5
250
SI 75
8
1077
8175
8
1077
3619
3
71
77C.7
6
381
5983
6
188
1580
6
368
8284
()
p)
5128
4
889
state ta decson.
u Decson not pubshed n Unted States oard of Ta ppeas Reports.
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27
Ta payer.
Rcker, George
Rffe, enry
Rggs, Leon C, estate of, Laccy L. ogart, admns-
trator.
Rker, |r., Samue, e ecutor
Rnger Co., George
Ro ectrc Co ----
Rver 4 Ra Storage Co
Roberts, . S
Roberts, .
Roberts, Co., U. N
Roberts, ncent G
Robertson, Chares
Robertson, arry
Robnson Co., . M.
Robnson, . M., estate of
Rockford rck Te Co
Rockford Maeabe Iron Works
Roden Coa Co
Roesch, Wam
Roesse Co., Ltd., Lous
Rogers, ate
Rogers, R. M
Rome Wre Co
6817
3576
1932
7102
8505
12756
1233
5344
9579
1270
5344
595
5436
5652
6341
3873
2451
7915
2551
1009
10843
10842
8759
3079
4060
2092
990
991
1844
7281
8690
2161
1508
542
S9
7673
10987
233
9386
5736
6356
12569
57
4277
4571
2069
4570
183
2029
54
1986
13108
1706
1705
1 state ta derson.
a Decson not pubshed n Unted States oard of Ta ppeas Reports.
cquescence reates to ssues 2. 3, 4. 5. am n e(Mon.
cquescence reates to ssue concernng openng nventory at Dec. 1, 1817.
Roos, Mortz
Rose, Co., dward
Rosentha, en|amn
Rosentha, annah S
Roshek ros. Co. Roshek Reaty Co_
Ross Co., Inc., .
Ross, ames, estate of2
Rosser, Luther Z., estate of
Roth, Chares ., estate of
Roth ote Co
Roth Shoe Co., Whtney
Rouse, empstone Co., Inc.
Roya Coeres Co., The_
Roya ue Co
Rubens Co., Chares.
Docket
No.
Rub- o-More Co
Ruck man Coa Co
Rudoph, . L
Rudoph Co., Inc., M.
Rudoph, T. T
Russe Mng Co
Russe Whee oundry Co
Rvan Co
Rvan, ohn C, estate of
Rye each Peasure Park Co., Inc.
Ryman, . ., estate of
Ryman, Nancy
oard of Ta ppeas.
oume.
(U)
10
3
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28
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
rage.
S.
St. Car Guaranty Tte Co.
St. Lous Screw Co
Sachs, Churea
Sackett, . T
ter, ohn
|wtz, Lous
n, George
non, Water
Saomon, Leon
Sampson, Y:m C
Sand Sprngs ome
Saner-Ragey Lumber Co
Sanger, as ., estate of
Sargent, Mar|orc L._
Savnar Co., Inc
Sayre Stampng Co
Seheuer, erman, estate of
Schck, ndrew, deceased, estate of
Schff, en|amn -
Schng Gran Co
Schemmcr Grabcr Co., The
Schesnger, rmn
Schett, doph
Schossberg, dwn
Schmck, Wson
Schoekopf, Water
Schroth, oseph, estate of2
Schrot, ua nna, e ecutr
Schubert, ndrew
Schuz akng Co
Schwarzer Co., .
Schwng, Samue P., estate of1
Schwnn, Ignaz
Scott, ohn
Scott, Sheby D...
Scove, George S
Scrpps et a., Wam ., trustees under decara-
ton of trust e ecuted by ames . Scrpps
Seaboard Ms, Inc. ( ctmann Co., Inc., suc-
cessor)
Secor ote Co
Securtes Investng und, Inc
Securty Trust Co., e ecutor 2
Scwy n Operat ng Corporat on
Seneca Coa Mnng Co
Sentne Pubshng Co
Serren, nna, e ecutr 2
Serren, ohn, estate of2
Servce Recorder Co., The
Seven Nneteen fth venue Co
Severn Co., W.
Shaffer, ohn C
Shamokn aey Pottsve R. R. Co.
Sharp, W. Z
Shaw, Guthre, e ecutor
Shaw, ames G., |r., estate of_.
7578
2077
7561
7577
3796
10807
5733
3115
(12231
I 3725
204
4871
431
6981
3678
3624
3040
4621
3659
4742
5939
1422
13728
10016
2006
1971
6212
3914
3914
6667
2074
667
3633
8441
10418
6180
2443
434
5499
5023
5024
224
6720
4851
1049
5712
8836
8836
2201
6031
1702
1072
4944
10598
9644
9644
( )
8
2
(
4
2
7
3
3
N
4
1
(
3
8

2
9
3
3
8
2
7
2
3
4
5
5
4
3
3
3
9
(
a
2
688
649
68
1074
1305
267
838
723
979
1109
73
198
927
107
298
465
166
486
1026
640
150
683
1141
1032
326
326
35
470
535
697
1304
761
1219
813
491
575
158
279
983
1129
1129
96
565
664
504
605
399
459
459
1 state ta decson.
Decson not pubshed n Unted States oard of Ta ppeas Reports.
G
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29
Ta payer
Sheakey ennedy ros
Sheane uto Co., . W
Sheen, esse G
Sheet Meta Constructon Co., Inc
Sheton et a., Chares ., e ecutors 1
Sherdan Meat Co
Sherdan, Thomas
Sherman Stater Co
Sherwood, ohn W
Shpowners Merchants Tugboat Co
Shope rck Co
Shotter, S. O. and Isabe, e ecutors
8hott r, S. P., deceased, estate of
Shuths, . W., deceased, estate of
Shure Co., N
Shutter, Maron D
Shut te worth, Wony Co., Inc
Sk, Mrs. W. W
Sk, W. W
Sverman, e ander
Smon, . S
Smon, ate M
Smonds Co., C.
Smons, |r., and wfe, ames
Snshemer, Sdney W
Sater, Chas. W
Satterv, Stephen
Sne, ohn T ---
Smth, ert
Smth, Mrs. ert
Smth, rancs
Smth, arrv ., e ecutor
Smth, arry . P
Smth Insurance Servce, Inc
Smth Son Co., Lee S
Smth Machne Co., .
8mth, Water T
Soof, . W.
Somers Lumber Co
Sonenbck, Davd
Sonora ank Trust Co
Southack, ugust G., estate of
Southern eed Co
Southern Sand Grave Co., Inc
Spadng, atherne
Spang-Chafant Co., Inc.
Spezer, Lena
Sphar rck Co
Spofford, annah M., admnstratr of estate
Lucy M. Ms
Sprngdae Cemetery ssocaton
Stafford-Lowdon Co
Staey, .
Staey, Wmer C
Stamey-Mackey Constructon Co
Standard Gas Products Co
Standard Marne Insurance Co., Ltd
Docket
No.
of
Standard Refractores Co.
6282
r. ST
543
5089
2101
5493
13698
4313
7748
3955
6531
3134
3134
1827
3655
1316
1302
10S04
10S04
10389
4912
9993
- 67
5329
11008
4134
9312
6752
5329
5329
1020
3098
2552
10901
3328
7519
4841
482
2401
3665
7838
6359
13587
0603
7302
10469
2080
1028
4169
9088
6435
10750
1271
9843
1S _ 2
3617
3618
oard of Ta ppeas.
oume.
(U)
7
9
6
3
3
10
4
4
8
4
6
2
2
2
-
2
6
7
7
6
4
1
5
7
5
a
.)
5
6
1
6
7
9
3
7
t
1
2
4
7
3
6
5
7
.)
3
2
3
3
7
9
.)
4
5
4
Page.
1156
1317
114
461
809
211
1299
23
103
403
1042
912
912
1253
1181
23
76
1256
1256
1328
1078
(U)
105
480
1099
804
1123
1222
480
480
868
341
293
284
34:
525
397
776
10(
986
66
1003
736
879
588
858
413
946
1016
223
1121
932
1038
383
1221
853
24
state ta decson
Decson not pubshed n Unted .Staes oard o Ta ppeas Reports.
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30
Ta payer.
Standfer Constructon Corporaton, G. M
Stanfed, Theodore
Staney Insuatng Co
Star Porcean Co
Starck, Php ., estate of2
Starck, Php T., e ecutor estate of Php .
Starck a
Stark, rthur L., estate of 2
Starr, oward W
Starrett, Pau
State ank of cester
Sten et a., Sade S., e ecutors
Stenbach Co
Sterng Reaty Co
Stem, Car
Stern, Lous
Stern, Samue . ., e ecutor
Stevenson, D. M
Stewart Co., red S
Stewart Co., G. S
Stegtz, Treber Co., Inc
St, George W
Stwater Mng Co
Stwe Paper Co., .
Stock brdge, M. C
Stoekbrdge, Mrs. M. C
Stowerck Chocoate Co
Stouts Mountan Coa Co
Stratton Grocery Co
Straus Market, Inc
Strauss, Davd, estate of2
Strffer, Inc., dward C
Strombcrg ectrc Co
Strong, ewat Co., Inc
Strong, .
Strong, Stea
Stumer, ne anche
Stumer, anche G
Stumer, Los M
Stumer II, Lous M
Suburban Investment Co., The ,
Suhr, Chares L
Suvan Grante Constructon Co
Summt Whoesae roeery Co
Sumter Coca-Coa ottng Co
Sunfower Packng Corporaton
Superor ngravng Co
Superor Motor Parts Co. 34
Superor Pocahontas Coa Co
usman, Otto
Sutff, S. D
Swaney, wng
Swartz Co., Inc., . R
Sweet, Gertrude II
Docket
No.
5550
3076
4056
5002
4051
4051
10587
101
6557
5913
4621
2888
6333
19377
19376
2459
14698
5975
3065
653
6521
5687
7301
1866
1867
6030
6542
7645
3378
3877
5533
3398
5069
1909
1909
992
993
904
905
1923
6406
8790
676
9079
531
7949
17814
1034S
5377
3077
9190
2786
2863
3688
9240
oard of Ta ppeas.
oume. Page.
4
8
2
4
3
3
8
1
4
8
9
3
8
5
5
2
9
5
2
1
8
5
6
2
2
4
4
8
2
9
7
8
3
6
6
2
2
2
2
1
4
6
1
7
2
525
787
967
989
514
514
1150
681
398
878
486
348
1000
871
870
102
552
436
1016
452
391
280
531
327
327
467
1292
317
1264
1212
887
1170
1035
417
417
19
19
19
19
1121
1198
703
1040
890
1104
861
407
380
787
1068
990
264
404
1 state ta decson.
cquescence reates to second ssue of decson.
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31
Ta payer.
Sweeten, P. P
Swnehart Tre Rubber Co
Svdco Photopay Corporaton
Syvan ectrc ath, Inc
T.
Takamnc Laboratory, Inc
Tarr, rank
Tavor,
Tayor, a D., e ecutr
Tayor, arret ., and Rowe, ohn
Tayor, Moses
Tayor, T. ., estate of
Teague, .
Te- ectrc Co
Tempeton, eny Co., Ltd
Ter ush, Davd .
Terre, dgar
Te arkana Cotton O Co., Inc
Thes, |r., George
Thomas, . L
Thomas Shoe Co., The
Thompson Co., ohn R
Thompson Pacfc Coast Co., L.
Thompson Scenc Raway Co., L.
Thompson, T. C, estate of 1
Thompson, W.
Thorkdsen, Thomas
Thorpe, een Converse
315 West 97th Street Reaty Co., Inc
Threefoot, ., estate of
Tetz, Louse C, admnstratr
Tctz, Robert M., estate of
Tford, enry Morgan, deceased, estate of
Tton, S. U-, estate of
Ttus, Lous
Ttusve Trust Co., e ecutor
vo Theatre Co
Todd, C. Lee
Todd, George W
Todd, Lbanus M
Tomnson, . G
Tonawanda Power Co
Topeka Tent wnng Co
Towns ospta, Chares
Townsend Lumber Co
To away Tannng Co
Transatantc Cock Watch Co
Trathen, Mrs. . Res
Treat ardware Corporaton
1 state ta decson.
Docket
No.
4331
3
37
1436
2
223
10221
7
445
7411
5
1293
oard of Ta ppeas.
oume.
3199
7
963
3543
3
72
3050
9
442
7617
7
931
3066
3067
2
1159
8789
7
59
7617
7
931
4040
3
146
315
1
434
6145
18432

61
4015
4
984
3132
7
773
1888
1
1142
3958
3
1030
9213
6
297
209
1
124
7917
10
57
1869
2
661
10315
9679

1203
5280
3
902
677
5
193
385
2
570
4206
3
1006
9898
10
368
521
9
499
9314
9
1123
9314
9
1123
3286
3
884
6378
8
914
2450
2
754
85
2
582
1508
3
868
7452
6
610
1022
1
868
2959
3
327
2960
3
327
7068
7
961
2889
1
3870
3
1195
6506

3440
3
521
2317
2
701
830
1
894
5084
5694

371
4897
3
1064
8270
8
981
4524
6
768
G
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32
Ta payer.
Trefrv, W. S -
Tr County Lght Power Co
Troost venue Cemetery ssocaton
Tro e Manufacturng Co., The
Trov Manufacturng Co
Tscffey, rederck
Tsvogou, Constantno
Tucker, Geneveve
Turner, Mrs. .
Turner Termna Co
Tweve ast Thrty-frst Street ote Co
Two Nnety-Two atbush venue Corporaton
Tver ppach, Inc..-
Tyer, May L --
Tyer Warehouse Co
r.
Unoa Rea state Co
Unon Meta Manufacturng Co.
Docket
No.
Unon Trust Co., e ecutor
Unon Trust Co. of Ceveand, Oho, e ecutor
Unted States dety Guaranty Co
Unted States Mortgage Trust Co., e ecutor
Unted States Too Co
Unted States Trust Co. of New York et a., e ecu-
tors 2
Unty Schoo of Chrstanty
.
ancouver ome Co
an de amps oand Dutch akers.
an tten, Chares
an eet, Carey
an ook, . II
an ook, Mrs. .
an orn Co., Inc., Over II
an Lndey Nursery Co.,
an Lndey Orchard Co..
an Schack, en L., estate of
audreu Lumber Co
aughan arnes, Inc
etch, dwn P
rdcn, M. L ---
rgna Lumber o Co
scose Co., The
oebe, acob, estate of2
oebe, Water W., e ecutor 1
oyer, . L
3397
2710
1114
587
6585
6407
3034
3470
4162
3934
3645
5189
995
10722
512
3457
35
2524
4478
6983
4263
2459
4650
7856
1799
5550
1430
8793
2047
9358
9359
8252
3109
3109
7127
690.S
7311
1179
5200
3546
3164
(1009
6009
5453
oard of Tan ppeas.
oume.
W.
Warsworth, esse ., e ecutr estate of arod .
Wadsworth, deceased
Wah, enry
Wah, W. Wey.
Wad, Lous
state ta decson.
u Decson not pubshed n Unted States oard of Ta ppeas Reports.
state ta decson acquescence reates to trusts of 1912, 1919, and 1921.
1982
2292
2004
4629
10
2 I
4
1
7
5
3
2
5
3
W
3
6
10
1
2
8
8
9
2
2
9
8
6
1
6
3
3
7
7
4
134
1165
1169
653
119
1242
743
796
1006
827
0 1
830
636
300
504
1113
395
287
1374
1272
23
102
492
514
61
525
1247
8 611
4
68
68
76
10S4
1084
96
383
1279
680
1123
341
444
276
276
1192
1043
1106
1106
1003
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33
Docket
No.
oard of Ta ppeas.
oume.
Wakcr-Crm Co., Inc., The
Wa, rank
Wa Ochs, Inc
Wangford, C. ,
Wangford, mer R
Was Tractor Co
Wasdorf, Mr. and Mrs. dward
Wash, oseph ., e ecutor2
Water, George L., estate of
Water et a., oward ., e ecutors estate of George
Water, deceased5.
Water, T. fendrv, e ecutora
Water Co., Inc., D. N.
Ward, amton
Ward, Wm
Warren Co., The
Warren, b
Washburn, Cheney D
Washngton Cadac Co
Washngton ote Co. .
Washngton Paper Stock Co
Washngton Pece Dyeng nshng Co.
Watson, Martha ., estate of
Watson, Mrs. Myrte
Watsontown rck Co
Waynesboro Manufacturers ssocaton. - -
Weakey Coak Sut Co
Weaver, ee R
Weaver, ames
Weaver, M. -.
Weaver, S. P..-
Weaver, T. L
Webb ocorsesk, Inc
Webb, Leand D
Webb Press Co., Ltd.
Webb, Stuart W
Wedgwood Sons, Ltd., osah.
Weed, enrv D_
Weeks Co., L. S
Wess, Pau
Mnna .
Wech et a., . Soher, trustees
Wesh Packng Co
Wenze, rnst, estate of
Werbeovsky, braham, e ecutor
Werbeovsky, . ., estate of
West ay Co., The -
West Corporaton, . C
West nd Consodated Mnng Co
Westergren, Inc., M.
West Pont Investment Co
West 28th Street Corporaton
c uTe cTd not reate to that part o decson nvovng appcaton of the yers
T. ., 1136).
446
7359
3857
231
230
663
2410
6388
1782
1782
3351
4006
11322
10471
4588
2550
2475
4471
6609
7133
1321
4619
7228
6286
3580
1277
4001
2925
8488
2922
2921
2923
178
1279
7070
2404
2724
5591
3647
2563
2604
10059
4004
4005
6061
6102
10157
11134
21634
5199
548
10106
10106
2843
6872
2172
2723
300
6032
( .
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34
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Westermann Pagano, Inc
Western Star Mng Co
Western Znc O de Co
Wheary, George
Wheatey, ames .w
Wen Cothng Co
Whte, |r., ames..-
Whte, ua
Whte, Robert P
Whtng, C. L., Inc
Whtman, Nathane, deceased, estate of40
Whtmeyer, a
Whtmore, vah P
Whtson, Thomas
Whorton et a., Gen C, e ecutors
Whybrow, Carence
Wener, . L
Wess, . C
Wess, Oga
Wbur, Loyd _.
Wdermann Co., C
Wkcs- arre Lace Manufacturng Co
Wkns, L.
Wams, arry ---
Wams, Robert ., e ecutor of estate of en C.
onaparte
Wams Steamshp Co
Wamson, e ander
Wamson Mng Co
Ws, Mrs. W. T
Ws, W. T
Wson ros. Co
Wson, Chares Scotto, estate of 2
Wson, anne L., e ecutr 2
Wnshp, Chares N
Wsconsn vdro- cctrc Co
Wof, . . G
Woferman, red, e ecutor 41
Woferman, Lous, estate of41
Women s ppare Co
Wood ros. Thresher Co
Wood, T.
Woodcffe Sk Ms ---
Woodruff Lumber Co
Woodruff Son, ohn T
Woods Sons Co., oseph W
Wrght s utomatc Tobacco Packng Machne Co_
Wyman Co., C. C
Wyomng Te Tmber Co
3763
2852
8604
4799
9665
428
5622
5623
5554
11046
1399
3090
7086
3478
3094
609
13048
14672
7615
7637
5636
10611
8289
452
4208
4207
1652
8725
2343
1042
15679
15679
8460
4909
4909
6754
9601
2970
11291
11291
4001
5S77
11029
559
7262
6864
9156
1S37
10676
21370
24574
2
1308
5
109
7
972
5
829
8
1246
1
973
4
995
4
995
4
995
7
1170
3
97
6
472
5
1274
2
747
7
771
1
725
)
m
7
467
7
467
5
597
8
771
1
467
6
593
6
593
1
1101
7
451
2
747
5
814
7
1256
7
1256
7
820
5
615
5
615
10
237
10
933
8
1121
10
285
10
285
8
477
4
43
9
1206
1
715
6
515
6
535
8
705
1
1260
8
408
9
1143
I state ta decson.
II Decson not pubshes n Unte: States oard of Ta ppeas Reports.
cquescence reates to tem (2) of decson.
Nonacqueseence notce n ths cast, pubshed n Cumuatve uetn I -2, s recaed.
state ta decson acquescence reates to frst ssue of decson.
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35
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Yahoa Sand Grave Co
Yakma op Co --
-Yae rervda Paper o Manufacturng Co
Yoder. dward
Yokohama -Ito washa, Ltd
Yost erre
Young, I. ., estate of
Young, May S., e ecutr 42
Young, Mna ., e ecutor
Young, S. Marsh
Youngstown :eu3 Co
Yow, Mrs. rances Whte _
Z.
Zenth Mng Co.
Zeger, |r., Wam
Zmmerman, . W
Zmmerman, enne
Zour Drawn Metas Co
2281
9527
3353
3220
2653
2085
7440
3847
4720
1839
1333
5555
5454
123
2513
2145
4908
820
441
900
1180
1248
745
245
193
472
457
402
995
1279
186
314
667
853
The Commssoner does NOT acquesce n the foowng decsons
of the Unted States oard of Ta ppeas:
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
op, dward ., estate of 4S__
sop, dward ., e ecutor43..
magamated Sugar Co
mercan press Co
mercan Leather Products Co.
mercan Seatng Co.44
mercan Stee Co
rchbod, ohn ., e ecutor45..
tantc Coast Lne R. R. Co. .
udubon Park Reaty Co
yers Co., L. S.
6519
6519
6439
350
10619
4772
669
8629
10983
9629
1217
848
848
568
498
1043
649
839
919
1193
875
1135
180
1236
924
.
a et a., Water ., coe ecutors I 6858
amberg Cotton Ms Co __ |
arnes, |r., ohn, estate of 5266
41 Nonacquescencc notce n ths case, pubshed n Cumuatve uetn I -2, s recaed.
state ta decson nonacquescence reates ony to 1917 trust.
Nonacquescence n so far as t reates to ncuson n nvested capta of the sum of 198,716.37.
41 state ta decson nonacquescence reates to frst and second ssues of decson.
Nonacquescenco reates to second ssue of decson.
c Ths notce, whch was orgnay pubshed n uetn I -41, page 1, was repubshed n Cumuatve
uetn -, page 6, for the reason that the case was erroneousy ncuded n the st of cases acquesced
n pubshed n Cumuatve uetn I -2, page 1.
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36
Tapayer.
Docket
No.
oard of Ta
oume.
arnes ct a., Chares G., e ecutors.
arnes, oseph
arnes, oseph, admnstrator
arton, Mary L., trustee
emont Iron Works
eow sky, Morrs
erks oundry Manufacturng Co
est Stee Castngs Co
ngham, Robert W
ar, . W., admnstrator 1
ar, W. , estate of ---
ock ohner Mercante Co
ossburg Mercante Co
vdenburgh, a
on wt Teer Co
ourne, my ., estate of 48
oyne Cty Lumber Co
rant, . S., admnstrator
ronson, ames D., trustee 1
rown Co., M ----
ryant Stratton Commerca Schoo, Inc.
urke ectrc Co.
urton, Lawrence mer
yck, W. S --
yers, oward Webster
Caforna rewng ssocaton 50
Caaway, uer
Campbe, rcher Maynard
Campbe, . L
Capto ote Co. - --
Carey, C. W. -
Chapn Constructon Co
Chapn, W. --
Ceveand, Panesve shtabua R. R. Co.
Ceveand, Panesve astern R. R. Co..-
Cons-MeCarthy Candy Co
Connectcut Passumpsc Rvers R. R. Co. .
Conneee, C. U
Couover Co., S.
Conway, . W
Corneus Lumber Co
Crabtree Co., .
Crocker Co., . S
Cross Mountan Coa Co
Curran, Maurce
8624
SC. .-.
9577
5266
12934
10454
9656
6998
8326
8823
2440
2440
4576
2880
9921
26037
7883
4635
8860
7702
24864
43
1697
2689
1
3903
2264
18320
18321
6610
7134
2432
3200
2267
4927
4927
4: 2
8424
9100
3363
3926
2263
4273
5SS9
4581
1219
793
(12)
360
924
924
1008
722
424
756
274
603
959
959
673
690
834
m
582
36
651
127
753
32
553
9 )
842
1191
347
842
60
1076
441
539
25
842
637
637
12S0
492
359
679
812
215
732
537
587
180
state ta decson.
Decson nut pubshed n Unted States oard of Ta ppeas Reports.
M Nonacquesocncc does not reate to deductbty of New York nhertance ta .
- macqueseenec reates n sues 1 and 2, and ssue 5 as to patent. group No. 1.
w Nonacquescenca reates to queston of affaton as to the companes ncuded u the unts.
onacquescence reates ony to that part of decson whch reates to appcaton of the yers c
(1 . T. ., 1135).
u Nonacquescenee reates to ssues 1 and 3 n decson.
Nonacquesoence reates to frst ssue of decson n so far as t hods that, the ncome was not reazed
unt the year n whch the ta es became due and payabe and aso to the second ssue of decson.
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37
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
10644
7
600
2265
4
842
5857
4
1059
6926
7
811
11498
7
1173
6243
7
600
45)28
4
447
10985
9
177
9344
6
1071
5594
9
450
470G
8
482
4706
8
482
6858
8
180
8629
8
919
120
1
179
9766
9
328
9766
9
328
6220
5
520
12876
9
975
810
5
178
10126
7
1137
9344
6
1071
3068
7
28
321
5
70
40
1
75
3131
2
986
7402
7
1144
2262
4
842
3264
4
389
3263
4
388
3691
7
79
6141
4
1075
9084
9
1072
6905
7
314
1374
1
1027
6228
5
734
1644
4
211
2572
4
842
2420
a
406
2420
2
406
D.
D ramon, enretta
Darby, Rufus C
De orest, ua N
Deto Grass Rug Co.
Dennett, red
DeReuter, Ronad
Dkerna ngs, Inc
Don, ohn P
Dcehne, George, estate of
Don, arret M., estate of _
Dnggan, anna, estate of3
Duggun| ames, e eeutor
Dunme, Ophea, estate of
Dustn. nne M., estate of 58
Dwght 4 Loyd Snterng Co
.
nery et a., are C., e ecutors
mery, |r., Lews, estate of
.
armers Depost Natona ank and ffated
anks
rst State ank of rackettve, Te
t .gerad, Mary
oster, ce sher
rank, Wam G., admnstrator
uer, |r., ames W
Gardner Governor Co.
Gameau Co., Inc., oseph
Georga Car Locomotve Co.ss
Gbson, ate oa, estate of2
Genn, Thomas
Goodng, Mrs. . G
Goodng, Mrs. red W
Greck Condensed uttermk Co
.
aght, George W
annba Mssour Land Co
arbour-Longmre Co
aran 4 Co., O.
arret Cotton Ms
arry Co., S.
awkns, rank --
onrch, Rose ., e ecutr of estate of Samue G.
enrch
enrch, Samue G., estate of
state ta derson.
Nonacqucscence reates to second ssue n decson.
M onacquescenoc does not reate to deductbty of New York nhertance ta .
state ta decson nonacquescence reates to frst and second ssues of decson.
Nonacqucscence reates ony to that part of decson whch reates to appcnt on of the yers c
3 n decson.
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38
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
emock oow Coa Coke Co
endrcks, armon W
enn, . W., trustee
ess ros.
ewtt Rubber Co
ggnbotham- aey-Logan Co.M
rsch Co., doph
of ran Co., The e
offmann, rederck
offman, Isabea C, estate of 1
offman et a., Meyer C, e ecutors 3_
ofed, Mary D. Moore
ome Laundry Co
utchns Lumber Storage Co.p3
I.
Inos Rura Credt ssocaton
Independent rewng Co. of Pttsburgh ra.
Indana Stove Works 59 .
Indanapos Street Ry. Co
Indvdua Towe Cabnet Servce Co
Ingewood Park Cemetery ssocaton.
Inman, dward
Interurban Constructon Co
.
ackson, Mnne L., estate of .
.
een, erbert Ide
ehota Mnng Co
eystone Coa Mnng Co...
en, orence L.M.
yman,
L.
Lancaster ct a., ohn L., recevers.
Lee Lve Stock Commsson Co
Levne ros. Co., Inc.65
Ley Co., Inc., red T
Lock, Moore Co., Ltd
8837
4554
4303
8039
325
4691
3230
6134
5338
3361
533S
10089
6047
3307
5058
3242
8148
8787
1231
12586
3249
2501
7028
2687
4219
8423
1117
10168
4004
4005
C061
6102
10157
6753
9863
280
6832
18168
9295
state ta decson.
13 Decson not pubshed n Unted States oard of Ta ppeas Reports.
M Nonacquescence reates to second ssue of decson.
M Nonacquesceftee reates to frst, second, and fourth ssues of decson.
81 Non|equescence reates to thrd ssue n decson.
Nonacquescence reates ony to that part of decson whch reates to appcaton of the yers decson
(1 . T. ., 1135).
s Nonacquescence reates ony to ssue 2 n decson.
M Nonacquesc3nce reates to queston n decson pertanng to the year 1919.
Nonacquescence reates to ssue 0 n decson.
G
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39
Ta payer.
. Docket
No.
oard of Ta ppeas.
oume.
M.
McMurtre, dnah
Mahonng Coa R. R. Co
Maey Co,. dward
Manckrodt, sr., dward a
Martme Securtes Co.47
Mathews, ohn
Matthessen, |r., . W--,
Mercante Trust Depost Co., e ecutor
Ms, Lucy M., estate of, annah M. Spofford,
admnstratr
Murphy, ames C, e ecutor 1
The.
N.
Natona Products Co
Natona Refnng Co. of Oho et a.,
Natona Sugar Manufacturng Co
Natona Tank port Co
Neson, C. N., estate of2
New Oreans, Te as Me co Ry. Co. .
Nchos et a., George, e ecutors
Nchos, ohn W. T., estate of
Nordhot, ohn
Norfok nttng Ms Corporaton
Northern Trust Co., e ecutor 2
Northern Trust Co., e ecutor
Northwestern States Portand Cement Co.M_
Norton et a., rank ., e ecutors 70
Norwch fc Worcester R. R. Co
Norwood Lumber Co
0.
Od Coony R. R. Co
Ou udng and Loan ssocaton.
Parrett, O. S
Patapsco aast Co
Peton, onoro Gbson, e ecutr 2
Petsch, my Lake, deceased, estate of2
Petsch, Water G., e ecutor
Pke County Coa Corporaton 68
Pttsburgh nfe orge Co
Pttsburgh ave, oundry Constructon Co_
Pre ott et a., Over, e ecutors 70
Prnce, George ., trustee 2
Prosscr. Seward
10740
2202
9077
1750
324
9583
2125
4160
1028
4100
6136
ISO
10605
3274
7702
400
9599
9599
3706
4341
2473
7127
5703
10456
5594
2020
3785
7820
3805
0706
ISO )
7402
5424
5421
7189
7404
90S9
78S3
7702
8520 ,
/ 6297
I 7775 ||
4976
7
1
7
3
7
0
10
10
4
5
9
9
Provdence Worcester R. R. Co
Provdent Trust Co., admnstrator 2
1 state ta decson.
Ths notce, whch was orgnay pubshed n uotn I -41, page 1, was repubshed n CumubMvo
uetn -, age 7, for the reason that the case was erroneousy ncuded n the st of cases acquesced n
pubshed n Cumuatve uetn I -2, page .
Nonacquescence reates to second ssue of decson.
Nonaccuescence reates to ssues 1 and 4 n decson.
(r state ta decson nonacquescence reates to trust created on eb. 9, 1917.
onac Uesccnce reates to D/th ssue of decson.
M Nonacquescence reates ony to ssue 2 n decson.
Nonacquescence does not reate to deductbty of New York nhertance ta .
6342 28 4
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40
Docket
No.
oard of Ta ppeas.
oume.
uaker Mad, Inc.
R.
Randa, George W., estate of.
Rey, Warren
Reance Manufacturng Co
Remngton Typewrter Co
Renztehausen, rederck C
Reynods, Mary G., estate of
Reynods, Php M., estate of
Rhode Isand Too Co -- -
Rndge Land Navgaton Co
Robnson Co., . M.
Robnson, Mrs. C.
Rodcnbough, mer ., e ecutor of the estate of
zabeth McCahan Rodeubough, deceased
Root, enry L., estate of1
Root, Suse M., e ecutr 1
Roth, W.
Rouse, empstone Co., Inc.71
S.
Sage, Margaret Ova, estate of
Sarfcrt, Ma
Scuy, Syrup Co., D.
Sege Inc., oe
Sver ng Consodated Mnng Co. of I tah
Snker, Chares, admnstrator 3
Snshemer ros., Inc..
Socum et a., erbert erman, e ecutors
Smth, Carence C
Smth, Mrs. D. Sydney
Spofford. annah M., admnstratr estate of Lucy
M. Ms
Stange, . .n
Stanton, |r., ohn, estate of
Stevens Thompson Paper Co
Stone, George L
Sugg. . D., estate of
Sunn, L.
Superor Motor Parts Co.7
Te as Pacfc Rv. Co.
Te te M Suppy Co.
Thomas, C. R
Tumure, George
U.
Underwood, Lucy C, estate of
Unted States Trust Co. of New York et a., e -
ecutors of rancs S. Smthers, deceased
11421
5850
6765
5380
6021
2788
10658
S625
8624
2832
3698
5652
8271
405
2825
2825
6012
7673
10987
5882
3436
10005
1739
15153
4976
6498
58S2
3767
3262
:2N
553
6892
3501
10756
N60
r s:
10348
9863
10382
7139
10045
2473
665
state ta decson.
Decson not pubshed In Unted States oard of Ta ppeas Reports.
T1 Nonacqucseencc reates to frst ssue n decson.
n Nonacquescence reates to fna ssue of decson.
n cquescence notce n the case of . . Stance (C. . I -2. 4) recaed.
n Nonacqueseenoe reates to fna ssue of decson.
10
6
5
10
1
8
(U)
9
8
8
9
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41
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
an Schack, en L., estate of
rgna Carona Securtes Corporaton.
W.
Waggoner, da
Waggoner, R. M
Wagner, Rchard G
Wacott Lathe Co -
Waworth, Chares W
Wardaw, W. C -.
Warner, red W.. -
Washngton ote Co. ._
Weaver, ee R
Weaver, II. ., estate of.
Wessenbach, Mnna .7,_
Wheatey, ames .
Whtehouse, Syb
Wdener, George D
Wdener, oseph
Wndfeder, ohn ., estate of 2.
Woferman, red, e ecutor 78
Woferman, Lous, estate of 78
Woodruff. rnest
Woodward, Davd
Wyomng Centra ssocaton.
Y.
Young, ames ., estate of 1
Zeerbach, Isadore
Zeerbach, Theresa
Znn, rthur
Znn, Martn
7127
7484
5881
5880
4265
1142
8794
2261
3713
/ 66( ) 1
t 7133
2924
3852
4004
4005
6061
6102
10157
9665
13220
7723
7724
7725
4166
11291
11291
2050
2266
9965
20546
4976
2028
883
2789
3444
5
10
10
4
4
1 state ta decson.
state ta decson nonacqnescence reate to trust created on eb. 9, 1917.
71 Nonao|uescenoe reates ony to that part of decson whch reates to appcaton of the yers dec-
son (1 . T. .. 1135).
Nonaequescence reates to queston n decson pertanng to the year 1919.
71 Nonaequesopnce reates to tem (3) n decson.
state ta decson nonacquosecnoe reates to second ssue of decson.
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2, rt 1504. 42
TITL I. G N R L D INITIONS.
S CTION 2. G N R L D INITIONS.
rtce 1504: ssocaton dstngushed from II-2-3571
trust, G. C. M. 1881
R NU CT O 1926.
n agreement was entered nto between , caed the trustee,
and such persons as mght become subscrbers, whereby the trustee
was to supervse and drect ther nvestments. Subscrptons were
to be e pressed n terms of shares and were represented by certf-
cates. The trustee was gven power to purchase and se any
securtes. Tte to a funds was to be taken n hs name. In
a busness transactons wth outsders the funds were to be
handed as a unt. The trustee was to carry on operatons ke
the drectors of a corporaton.
ed, that the organzaton resutng from the agreement Is
ta abe as an assocaton wthn the severa Revenue cts.
n opnon has been requested as to whether the M Trust s ta -
abe as an assocaton.
It appears that on , 1926, an agreement was entered nto be-
tween , of (hereafter usuay caed the trustee ), and such
persons as mght become subscrbers n the manner thereafter pro-
vded (hereafter usuay caed the subscrbers ).
The agreement states that whereas substanta dversty n nvest-
ments and constant and nformed supervson of nvestments are
desrabe n the nterests of nvestors, and whereas t s beeved ther
nterests can best be served through the supervson and drecton of
ther nvestments by a trustee e perenced n the fed of nvestment,
and whereas to that end each subscrber desres to form a trust for
that purpose, now, therefore, the trustee for hmsef, and each sub-
scrber for hmsef, ndvduay and severay, as the grantor of a
separate and ndependent e press trust, agree as foows:
The trust s to be known as M Trust, and s named as trustee.
The N Company s consttuted gent and depostary.
Tte to a funds and securtes s to be n the trustee. Securtes
are to be regstered n the name of the agent or ts nomnee. ach
subscrber, as the grantor of an e press trust, agrees and consents
that the prncpa and ncome of hs trust may be combned and n-
vested or renvested wth the prncpa and ncome of any other
trust smary created by any other subscrber under the agreement,
and when so combned the certfcates of nterest referred to ater
are to represent proportonate nterests n the aggregate funds and
securtes hed by the trustee. ny reference n the agreement to
the trust fund means the aggregate funds and securtes hed by
the trustee under the agreement.
Subscrptons to the trust are to be e pressed n terms of shares
of the par vaue of doars per share, and are to be represented by
certfcates ssued on behaf of the trustee by the agent.
The form of certfcate s provded for n the trust agreement.
It states that s the owner of shares of the M Trust, and that
the certfcate s transferabe ony on the books of the trustee at the
offce of the agent.
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43
2, rt 1504.
The frst subscrptons are to be at the rate of doars per share,
and subsequent subscrptons or wthdrawas are to be at a rate
equa to doars per share pus or mnus the accumuated tota net
proft or oss per share of the trust fund at the tme of such subscrp-
ton or wthdrawa.
ach subscrber reserves the rght to wthdraw from and revoke
the trust created by hm upon 15 days wrtten notce to the trustee.
The trustee may termnate the trust created by any subscrber upon
smar notce.
The trust created by the agreement s to contnue unt the death of
the trustee uness sooner termnated. The trustee has power to ter-
mnate the trust by gvng 15 days notce to the subscrbers and the
agent. Upon the termnaton of the trust there s to be devered to
each subscrber hs pro rata share of the resut of the transactons
conducted by the trustee.
In the event of the death or permanent ncapacty of the trustee
the agent s to ca a meetng of the subscrbers. Notce of any acton
taken by a ma|orty n nterest of the subscrbers at such meetng s
to be gven by the agent to a of the subscrbers, and s to bnd a
such subscrbers who fa wthn 10 days thereafter to sgnfy ther
eecton to wthdraw from the trust.
Pendng acton by the subscrbers, or n the event of the temporary
ncapacty of the trustee, the agent may dea wth the trust property
n such manner as t may deem advsabe for the best nterests of the
trust.
The trustee ndvduay agrees to subscrbe to y shares of the trust
at doars per share, and to contnue to hod at east that many
shares as ong as he s trustee.
The trustee may amend the trust agreement at any tme f notce
of dssent therefrom s not receved from a ma|orty n nterest of the
subscrbers wthn 30 days after notce to them of the proposed
amendments, and provded aso that such amendments are acceptabe
to the agent.
The trustee has fu authorty to subscrbe for, purchase, hod, e -
change, se (ncudng what s generay known as seng short ),
or otherwse acqure or dspose of any stocks, bonds, notes or other
securtes and/or to end or borrow money for the trust. No sub-
scrber s to be personay abe for the repayment of any part of
oans made to the trustee. The trustee may aso buy and se certf-
cates of nterest n the trust. The enumeraton of specfc powers
s not to be construed as abrdgng the genera powers of the trustee,
but the trustee s to have fu power to do anythng whch n hs soe
|udgment s desrabe for the nterests of the trust, provded that,
e cept as to the revovng fund
(a) cash and securtes (e cept pedged securtes) are to be
deposted wth the acrent.
(b) dsbursements for the purchase of securtes are to be
made by the agent on the order of the trustee, but ony aganst
recept of b and securtes from a Stock change or frms.
(The agreement contans further smar provsons desgned to
prevent the trustee from camng that transactons have occurred
whch have not n fact been carred out.)
or the convenence of the trustee n makng dsbursements to sub-
scrbers and n purchasng securtes, a revovng fund n the form of
G
e
n
e
r
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44
a checkng account avaabe to the trustee s created, at no tme to
e ceed per cent of the then equty of the trust.
The trustee s to pay to the subscrbers durng each caendar month
nterest at per cent per annum on the par vaue of ther shares
whether or not such nterest sha have been earned.
The trustee from tme to tme s aso to make such dstrbuton to
subscrbers of accumuated net profts as may seem to hm to be
desrabe. dstrbutons to subscrbers are to be n proporton to
the respectve shares hed by each subscrber.
The trustee s to pay a operatng costs and e penses, and these
are not to be chargeabe aganst the trust property, e cept that n-
terest (ncudng the per cent pad to subscrbers), brokerage com-
mssons, transfer fees, and ta es may be so charged. s compensa-
ton for hs servces and for e penses pad by hm the trustee s to
receve of the net profts of the trust fund, over and above the
per cent due the subscrbers, the same to be determned on the
bass of the caendar year.
ta es requred to be pad n respect to the ncome of the trust
fund (whether or not dstrbuted to subscrbers), other than ncome
ta es requred to be wthhed at the source, are to be payabe by the
certfcate hoders.
Nothng s to consttute the subscrbers partners wth one another
or wth the trustee. The subscrbers are not to be abe to any
assessments or to any person e cept to the trustee for ther ndvdua
subscrptons.
The trustee s not to be responsbe to anyone e cept for the e er-
cse of good fath and reasonabe dgence, and s not to be abe to
the subscrbers beyond deverng to each subscrber at the termna-
ton of hs nterest n the trust a the pro rata porton of the resut
of the trustee s operatons.
The agent may resgn at any tme by gvng 30 days notce to the
trustee.
The payment of hs subscrpton and the recept of a certfcate of
nterest by a subscrber s to be of the same force and effect as a sgn-
ng of the trust agreement by the subscrber.
On the day the trust agreement was e ecuted there were two sub-
scrbers , the trustee, and one other.
It has been attempted by the agreement outned above to create a
separate trust for each subscrber, so that there w be as many
trusts as there are subscrbers, and each subscrber w be at once
the grantor and benefcary of hs own trust, of whch s the trustee
n each nstance. t the same tme the attempt has been made to
secure a the advantages of a snge trust embracng a the sub-
scrbers, by gvng fu authorty to the trustee to mnge the funds
of a the trusts, wthout any abty to keep separate accounts of
eac fund. In fact, the entre accountng system s based on the
dea that a snge fund has been created to whch a the subscrbers
have contrbuted and dstrbuton of profts s made on that bass.
urthermore, n a the busness operatons of the trustee wth out-
sders the funds are handed as a unt, and the organzaton operates
under a snge name, the I Trust. ven the certfcates of nterest
ssued to subscrbers state that the subscrber s the owner of
shares of the M Trust. nd n many sectons of the trust
agreement the aggregate of a the funds and securtes bought there-
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45
2, rt 1504
wth s spoken of as a snge trust. In vew of these facts, t s the
opnon of ths offce that, at east for ta ng purposes, the status of
the organzaton s to be determned on the bass that a snge trust
has been created n whch a the subscrbers are benefcares. The
fact that the agreement provdes that each subscrber may revoke hs
own trust does not prevent such a concuson. The practca effect
of ths provson s no dfferent than f the agreement purported to
create ony a snge trust embracng a the subscrbers, and provded
that the trustee at any tme woud purchase the nterest of any bene-
fcary and pay hm the actua vaue thereof, for the so-caed
revocaton of hs purported ndvdua trust does not entte the
subscrber n the nstant case to any porton of the actua property
hed by the trustee, but ony to the vaue of hs share n money. ven
the tte headng of the so-caed revocaton cause s edempton of
shares.
Treatng the enterprse, therefore, on the bass that a snge trust
has been created n whch a the subscrbers are benefcares, t s
apparent that the enterprse s organzed n quas corporate form.
The trustee, ke the drectors and offcers of a corporaton, carres
on operatons for benefcares, who, ke corporate stockhoders, do
not partcpate n the actua management but share n the profts.
Certfcates of benefca nterest have been ssued whch are smar
to corporate shares, and are transferabe n the same mamer, so
that the organzaton proceeds wthout regard to changes n ts per-
sonne. The agreement further provdes that the sharehoders, ke
the stockhoders of a corporaton, are not to be personay abe for
the debts of the concern.
Moreover, the actvtes of the organzaton consttute a busness
enterprse. The agreement n effect gves the trustee power to
specuate as we as to nvest. contnua process of buyng and
seng securtes seems to be contempated, and the purpose appears
to be proft, and not merey cautous nvestment. ven the nta
rate of nterest whch s promsed to subscrbers s hgher than
that pad by the ma|orty of strct nvestment companes, and
a proft over and above ths sum s evdenty e pected. In fact, the
trustee gets no compensaton for hs servces uness a greater net
proft than ths s made. The ureau has ong recognzed that
buyng and seng securtes on hs own account may consttute a
busness for an ndvdua and ths organzaton appears to be as
much engaged n that busness as any ndvdua coud we be. The
whoe purpose of the arrangement s to make a proft, and at the
same tme secure a certan amount of safety through the dversty
of securtes deat wth and the e pert servces of the manager.
n organzaton thus carryng on busness n quas corporate
form s an assocaton under the severa Revenue cts. echt v.
MaUy, 265 U. S., 144, T. D. 3595, C. . III-, 489 urk-Waggoner
O ssocaton v. opkns, 269 U. S., 110, T. D. 3790, C. . -,
147.)
The fact that the trust agreement purports to gve the grantor
of each purported separate trust the power to revoke such trust at
any tme does not brng the case wthn secton 219(g) of the
Revenue ct of 1926, as the ta payer contends. That secton appes
to strct trusts, and not to trusts organzed ke corporatons for
carryng on a busness enterprse. The purported revocaton pro-
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2, rt. 1504.
46
vson no more prevents the organzaton n the nstant case from
beng cassfed as an assocaton than an agreement by a corpora-
ton to purchase the shares of any stockhoder woud prevent the
corporaton from beng cassfed as a corporaton. (See 14 C. .,
pp. 506, 507, 406, 407, and 498.)
rtce 1504: ssocaton dstngushed from II-7-360G
trust. G. C. M. 1940
R NU CTS O 1924 ND 1926.
, the owner n fee smpe of a parce of rea estate, eased t n
1924, to the N Company wth an opton to purchase the property
durng a specfed perod at a stpuated prce. Subsequenty
conveyed the fee to a trustee to hod n trust for hm or any pur-
chasers to whom he mght se the whoe or any part of the
equtabe estate. The benefca nterest n the trust estate was
dvded nto shares represented by and trust certfcates. The
trustee ssued a certfcate representng the whoe number of shares
to , who sod the and trust certfcates to varous persons. No
meetngs of certfcate hoders are provded for or contempated,
and the benefcares have no rght to nstruct the trustee as to the
admnstraton of the trust nor can they ether amend or ter-
mnate t. Nothng anaogous to n board of drectors or corporate
offcers s found. The trustee manages no property and s not
engaged n buyng, seng, or easng rea estate.
ed, that the trust shoud be treated as a strct trust and not
as an assocaton for ncome ta purposes.
There has been presented to ths offce for consderaton the ques-
ton of whether, for ncome ta purposes, the M Trust shoud be
treated as an assocaton or as a strct trust.
It appears that , the owner n fee smpe of a vauabe parce of
rea estate n the cty of , eased the same on , 1924, to the
N Company, a corporaton. Ths ease was for a term of years,
wth an annua renta of doars. The renta specfed n the ease
was based upon a conservatve vauaton of the and aone, no account
beng taken of the budng ocated upon the property, whch was
apprased at more than twce the vaue of the and. The ease con-
taned a purchase opton gvng the essee the rght to purchase the
premses at any tme durng the perod from , 193-, to , 194 ,
for the sum of 22,t doars. On , 1924, conveyed the fee smpe
tte to the premses to the O Company, as trustee, to hod the prop-
erty n trust for hm or any purchasers to whom he mght se the
whoe or any part of the equtabe estate. The trustee e ecuted an
agreement and decaraton of trust whereby t agreed to hod the
property n trust for the beneft of the hoders of certfcates of
equtabe ownershp whch the trustee was authorzed to ssue under
the decaraton of trust. The benefca nterest n the trust estate
was dvded nto y equa shares to be represented by certfcates of
equtabe ownershp known as and trust certfcates. In consd-
eraton of the conveyance the trustee mmedatey ssued a certfcate
representng the entre y shares to , who n turn sod the and
trust certfcates to varous persons and estates seekng ong term
nvestments. Certfcates of ownershp were then ssued to the pur-
chasers by the trustee. ach certfcate descrbes the proportonate
nterest that the hoder owns n the equtabe estate. There s no
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47
2, rt. 1504.
restrant upon the aenaton of any nterest n the equtabe estate
and a form of assgnment, or deed, s prnted on the back of the
certfcates. Ths assgnment s n substance a qutcam deed, to be
e ecuted wth a the formates of a conveyance of an nterest n
rea estate, and contans a form for reease of dower for use n a
proper case. Under the decaraton of trust the trustee agreed to
dstrbute to the owners of the equtabe estate accordng to ther
respectve nterests the rentas pad to t as essor under the ong-
term ease. The trustee manages no property and s not engaged n
buyng, seng, or easng rea estate. Provson s made that shoud
the essee e ercse the opton to purchase the premses the trustee s
to convey the fee smpe tte to the essee and dstrbute the purchase
prce to the hoders of the certfcates. In case of a sae of the trust
estate, the proceeds are to be dstrbuted by the trustee to the bene-
fcares and the trust termnated.
The evdence shows that whe there s a arge number of persons,
wdey scattered, hodng certfcates of equtabe ownershp n the M
Trust, there s no assocate reatonshp or communty of purpose or
acton between them. No meetngs of certfcate hoders arc pro-
vded for or contempated. Nothng anaogous to a board of drec-
tors or corporate offcers s found. There s no quas corporate
organzaton but nstead what appears to be an ordnary trust
utzed soey to spt up the benefca nterests n certan rea
property sub|ect to a ong-term ease. The trustee s not engaged n
carryng on any busness.
It s apparent, therefore, that there s no bass for hodng the
M Trust to be an assocaton as dstngushed from a strct trust
uness t can be found that the benefcares thereof have postve
contro over the trust wthn the meanng of artce 1504 of Regu-
atons 65, as amended by Treasury Decson 3748 (C. . I -2, 7), and
Reguatons 69. If the benefcares of a busness trust meat perod-
cay and eect trustees, thus controng the poces and manage-
ment of ther trust, they may be sad to have the postve contro
mentoned n artce 1504, supra, whch consttutes a trust an assoca-
ton, but that s not the case here. In the nstant case the bene-
fcares have no rght whatever to nstruct the trustee as to the
admnstraton of the trust, nor can they ether amend or termnate
the trust.
The decaraton of trust provdes that the trustee sha have the
e cusve rght to manage and.contro the trust estate as t may
deem for the best nterests of the hoders of certfcates ssued and
at the tme outstandng hereunder, as fuy and to the same e tent as
though the trustee were the soe ega and equtabe owner thereof.
The ony provsons whch mght be deemed to gve the certfcate
hoders a modcum of contro over the trustee reate to remote con-
tngences and have tte, f any, sgnfcance. ven upon the
happenng of the contngences contempated by those provsons, the
rea contro of the trust remans n the trustee, as an e amnaton
of the provsons themseves demonstrates.
One of the provsons referred to s to the effect that upon a de-
faut by the essee the trustee s to request the advce of the certf-
cate hoders as to whether the property sha be sod or another ease
made, and, upon beng notfed by them concernng the course to be
taken, the trustee s to endeavor to effectuate the same, but, f the
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52, rt. 1504.
48
trustee fnds that s mpractcabe, t sha have fu authorty to
take such steps wth respect to seng, managng, easng, operatng
or otherwse dsposng of sad property as t may deem advsabe.
The other provson reads as foows:
In the event the essee under sad ease does not eect to e ercse ts opton
to purchase sad premses on or before , M- (and thereby termnate ths
trust, as herenabove provded), the hoders of certfcates representng of
the benefca nterest sha have the rght at any tme thereafter, upon ndemn-
fyng the trustee to ts satsfacton aganst any e pense to whch t may be
put, to request the trustee n wrtng to proceed to qudate and reaze upon
the trust estate by a sae of the propertes comprsng sad trust estate, and to
that end the trustee may take such measures as t may deem advsabe to pro-
cure a sae of such propertes as prompty as may be wthout undue sacrfce n
vaue. Pu power and authorty are vested n the trustee wth respect to tre
sae of sad propertes, absoute dscreton beng gven t as to how and when
the propertes, or any of them, sha be put upon the market the manner,
method, and terms of sae and the prce or prces to be reazed therefor (wth
the e cepton that a mnmum prce s named In the decaraton of trust).
If the certfcate hoders contro the trust n the nstant case t
must be because of ther rght of remova of the trustee. The decara-
ton of trust shows that that rght, f t may be caed such, s sub|ect
to restrcton and probaby can be e ercsed ony upon the remote
possbty of |ont acton by a the certfcate hoders. The per-
tnent provsons may be found n artce of the trust ndenture,
whch artce provdes that f the hoders of three-fourths n nterest
of the certfcates desre to change the trustee they sha gve four
weeks notce to a the hoders of certfcates. Then t s provded
that f the hoders of a ma|orty n nterest of these certfcates sha,
wthn two weeks after the e praton of the perod of notce above
provded, request the trustee n wrtng to convey the trust estate to
a specfed trustee who s wng to accept the trust, the trustee sha,
upon the makng of such conveyance and upon accountng for a
funds whch have prevousy come nto ts possesson, be dscharged
from further abty. There s nothng n the anguage used mak-
ng t mandatory upon the trustee to compy wth the request. It
merey provdes that f the trustee does deem t advsabe to compy,
t w be fuy reeased from a ts obgatons under the trust. That
the anguage quoted was not ntended as a postve requrement for
the trustee to resgn s ndcated by the foowng anguage used n
another provson n the .same artce of the trust:
The hoder or hoders of a certfcates ssued and at the tme outstandng
hereunder may by an nstrument or nstruments n wrtng requre the resgna-
ton of the then trustee hereunder and may desgnate as trustee hereunder
another bank or trust company quafed to act and thereupon the then trustee
sha resgn the trust hereby created and convey to the trustee so desgnated
the trust estate.
It seems, therefore, that the rght to remove the trustee of the M
Trust can ony be e ercsed when a of the benefcares of the trust
desre t. If a the benefcares shoud desre to remove the trustee
they woud have the rght to do so, regardess of whether ths had
been provded for by an e press decaraton n the trust nstrument.
quty gves to them ths prvege rrespectve of the provsons of
the trust. Ths was hed by the Supreme Court n May v. May
(1896) (167 U. S., 310). t page 320 the court sad:
The power of a court of equty to remove a trustee, and to substtute an-
other n hs pace, s ncdenta to ts paramount duty to see that trusts are
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49
2, rt. 1504.
propery e ecuted and may propery be e ercsed whenever such a state of
mutua feeng, growng out of hs behavor, e sts between the trustees, or
between the trustee In queston and the benefcares, that hs contnuance n
of -e woud be detrmenta to the e ecuton of the trust, even f for no other
reason than that human nfrmty woud prevent the cotrustee or the bene-
fcares from workng n harmony wth hm, and athough charges of ms-
conduct aganst hm are ether not made out, or are greaty e aggerated.
If the aw gves the benefcares of a strct trust ths genera rght
of remova, a trust s none the ess a strct trust merey because a dec-
araton of the aw has been ncuded n the trust nstrument. The
usua purpose of e pressy nco-poratng ths rue of aw n decara-
tons of trust s merey to save the benefcares from the useess and
burdensome e pense of resortng to a court of equty to enforce ther
rghts.
In vew of the foregong, t s the opnon of ths offce that the
M Trust shoud be treated as a strct trust and not as an assocaton
for ncome ta purposes.
rtce 1504: ssocaton dstngushed from II-17-3691
trust. G. CM. 3412
R NU CT O 1926.
Certan ndvduas ownng the fee smpe to varous parces
of rea estate eased the o and gas rghts thereon and thereunder
n 1921 to the O Company. In 1923 the essors conveyed to the
M Company by deed absoute n form a of the o, gas, and
mnera n, under, or upon the property n trust for the beneft
of hoders of certfcates of benefca nterest whch the trustee
was to ssue under the terms of the decaraton of trust. The
man dutes of the trustee are to hod tte to the trust property,
coect the ncome therefrom (assumed to be a money payment),
and pay the net proceeds to the benefcares. No meetngs of
certfcate hoders are provded for. There s no absoute rght of
remova of the trustee n the benefcares but merey a rght of
remova fOT msfeasance or mafeasance n offce.
The trust created by the decaraton of trust shoud be treated
as a strct trust and not as an assocaton.
n opnon s requested as to whether, for ncome ta purposes, the
M Company, trustee, s an assocaton.
The facts n the case appear to be as foows:
Certan ndvduas ownng the fee smpe tte to varous parces
of rea estate n the State of R, on May , 1921, eased the o and
gas rghts thereon and thereunder to the O Company. Ths ease was
tor a perod of 20 years wth a renta of one-s th part of a o,
gas, asphatum, or other hydrocarbon substances e tracted and saved
from sad premses. The essee agreed to pay ta es on sad prem-
ses. In the year 1923, the essors above mentoned conveyed to the
M Company, trustee, by deed absoute n form a of the o, gas,
and mnera rghts n, under, or upon the property herenafter de-
scrbed, to be hed by t n trust for the beneft of hoders of certf-
cates of benefca nterest whch the trustee was to ssue under the
terms of the decaraton. ach certfcate descrbes the proportonate
nterest that each hoder owns n the equtabe estate. The certf-
cates of benefca nterest are transferabe on the records of the
trustee by ndorsement and surrender of the orgna certfcate and
the ssuance of a new certfcate. The rent due from sad essee s
payabe drecty to the trustee, and t s requred to dstrbute the net
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202, rt. 1561.
50
ncome therefrom not oftener than once each caendar month. The
trustee s not requred to pay any ta es, ens, or other charges
aganst the property or to protect the trust estate or the trust aganst
any ega or equtabe actons e cept under certan crcumstances.
The decaraton provdes that the trustee heren may be removed
for msfeasance or mafeasance n offce, and specfes both the tme
and manner n whch the trust sha termnate and the compensaton
to be receved by the trustee for ts servces. No meetngs of certf-
cate hoders are provded for.
The man dutes of the trustee are to hod tte to the trust prop-
erty whch s sub|ect to a ong-term ease, coect the ncome there-
from, and pay the net proceeds to the benefcares at stated ntervas.
The carryng on of such actvtes does not consttute the dong of
busness. (See Zonne v. Mnneapos Syndcate, 220 U. S., 187.)
In the nstant case there s no absoute rght of remova n the
benefcares but merey a rght of remova for msfeasance or
mafeasance n offce. Ths s no more than equty woud aow
even n the absence of such provson. (See May v. May, 167 U. S.,
310.) If the benefcares of a strct trust have ths genera rght of
remova, a trust s none the ess a strct trust merey because a deca-
raton of the aw has been ncorporated n the trust agreement.
In vew of the foregong, t s the opnon of ths offce that the
trust created by the decaraton of trust descrbed heren, of whch
the M Company s trustee, shoud be treated as a strct trust and not
as an assocaton. Ths concuson s predcated on the assumpton
that the trustee receves n money the rent or royaty provded for by
the ease. If t shoud hereafter appear that the rent s pad n prod-
ucts whch are the sub|ect of the ease and that the trustee n seng
the products s engaged n carryng on a busness, the trust shoud be
ta ed as an assocaton. ( rtce 1504, Reguatons 69.)
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
TITL II. INCOM T .
P RT I. G N R L PRO ISIONS.
S CTION 202. D T RMIN TION O MOUNT
O G IN OR LOSS.

rtce .r)61: Determnaton of the amount of

gan or oss.
R NU CT O 1926.
Trustees certfcates ssued to stockhoders of a merged bank ev-
dencng a rght to share n further e cess, f reazed, of assets
conveyed to bank wth whch merged, over abtes. (See G. C. M.
3110, page 51.)
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203, rt. 1671.
htce 1562: Instament contracts.
R NU CT O 1926.
Contract acqured as consderaton for rea estate dsposed of.
(See G. C. M. 3350, page 62.)
S CTION 203. R COGNITION O G IN OR LOSS
ROM S L S ND C NG S.
Upon the reorganzaton of the M ank under the crcumstances
shown, hed, that gan or oss shoud be recognzed n the case of
both the bank and ts stockhoders, and that the dstrbuton to the
stockhoders of the M ank for each share of stock hed by them
of the equvaent of doars n cash and one trustees certf-
cate evdencng a pro rata nterest n the remanng assets of the
M ank, hed by trustees n behaf of the stockhoders, was a ds-
trbuton n compete qudaton of t e stock of the 11 ank.
n opnon s requested as to whether the transactons herena fter
referred to consttuted such a reorganzaton of the M ank as to
resut n no recognton of gan or oss for ncome ta purposes wthn
the meanng of secton 203, Revenue ct of 1926, or whether there
was a sae of assets resutng n a cosed transacton, as contended by
the ta payer, who was a stockhoder n the M ank and the audt of
whose ncome ta return for the year 1925 w be affected by the
determnaton of the aforesad ssue.
Secton 203, Revenue ct of 1926, provdes n part as foows:
Sec. 203. (a) Upon the sae or e change of property the entre amount of the
gan or oss, determned under secton 202, sha be recognzed, e cept as heren-
after provded n ths secton.
(b)(2) No gan or oss sha be recognzed f stock or securtes n a corpora-
ton a party to a reorganzaton are, In pursuance of the pan of reorganzaton,
e changed soey for stock or securtes n such corporaton or In another cor-
poraton a party to the reorganzaton.
(3) No gan or oss sha be recognzed If a corporaton a party to a reor-
ganzaton e changes property, n pursuance of the pan of reorganzaton, soey
for stock or securtes n another corporaton a party to the reorganzaton.
Subdvson (h) (1) of the same secton defnes the term reorgan-
zaton as foows:
(1) The term reorganzaton means ( ) a merger or consodaton (ncud-
ng the acquston by one corporaton of at east a ma|orty of the votng stock
and at east a ma|orty of the tota number of shares of a other casses of
rtock of another corporaton, or substantay a the propertes of another cor-
poraton), or ( ) a transfer by a corporaton of a or a part of ts assets to
another corporaton f mmedatey after the transfer the transferor or ts stock-
hoders or both are n contro of the corporaton to whch the assets are trans-
ferred, or (C) a recaptazaton, or (I)) a mere change In dentty, form, or
Pace of organzaton, however effected.
. rom the foregong t s apparent that there may be a reorganza-
ton wth a recognton of gan or oss under the statute (a- n a
sae of assets for cash), provdng there s not an e change of stock
or securtes n (or of the property of) one corporaton for stock
rtce 1571: Recognton of gan or oss.
IT-9-36:28
G.C. M.3110
R NU CT O 1926.
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303, rt. 1571.
52
or securtes n such corporaton or n another corporaton, a party
to the reorganzaton.
The record n the nstant case dscoses that the M ank was n
such serous fnanca condton n , 1925, that mmedate acton
was necessary f t were to be saved. Consequenty, the foowng
pan was agreed upon and carred out n 1925 by ts drectors:
The drectors of the M ank organzed the N ank, wth a pad-up
capta of 2 doars and surpus of doars. To the atter bank
they sod and conveyed (or caused to be sod and conveyed) the assets
of the former bank for the foowng consderaton: , doars n cash
(representng a known e cess of assets over abtes) and the as-
sumpton by the new bank of a of the abtes of the od bank.
It was estmated that the actua e cess of assets over abtes
woud prove to be greater than doars therefore, t was agreed
that such further e cess, when reazed (wth a 5-year mtaton),
shoud be pad over to representatves of the od bank for the beneft
of the stockhoders of the od bank. Trustees certfcates (n the
rato of one certfcate to each share of od bank stock) enttng
the hoders to share n such further e cess were ssued by these
representatves of the od bank to the od bank s stockhoders, as
herenafter e paned.
The aforesad sum of doars was pad over n one check to a
representatve of the od bank and of ts stockhoders and deposted
by hm n the O ank. (It was equvaent to, and represented,
doars a share on the outstandng 10,000 shares of capta stock of
the od bank.) The representatve thereupon subscrbed n behaf
of the stockhoders of the od bank to 3,338 shares of stock of the
new bank, for whch he pad doars n cash, usng the money |ust
mentoned. ( ach doars on the od bank stock was equa
n vaue to, and suffcent to purchase, one-thrd of a share of the
new bank stock.) Substanta new nterests aso subscrbed to, and
pad for, stock n the new bank. urthermore, provson was made
by the drectors of the od bank whereby any stockhoder of the od
bank who dd not care to subscrbe for shares of stock n the new
bank coud receve doars n cash on each share of hs od bank
stock.
The stockhoders of the od bank dd not e change ther stock n
the od bank for stock n the new bank, nor was the od stock ever
turned over to, or receved by, the new bank. What happened was
ths: fter the representatve receved doars for ts assets, he
dstrbuted the proceeds n the form of new bank stock whch he had
purchased wth the doars to the od bank s stockhoders upon
ther presentng ther od bank stock for ndorsement of credt
thereon of the dstrbuton |ust mentoned. The od bank stock was
then returned to them, the ony vaue remanng n t beng repre-
sented by whatever e cess over doars there mght be n the od
bank s assets after the payment of ts abtes. When representa-
tves of the od hank (n ther then character as transferees of such
e cess equty n the od bank s assets for the beneft of the stock-
hoders) ssued ther trustees certfcates (evdencng a pro rata
rght to share n such e cess over doars) to the od bank s stock-
hoders n or about , 1925, the od bank stock was caed n by
them and canceed.
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53
203, rt 1671,
urthermore, under the bankng aws t appears that the new
bank was not permtted to ssue ts capta stock n payment or
e change for the assets of the od bank, for the reason that ts
capta stock had to be pad for n cash. (See Natona ankng
ct of une 3, 1864, ch. 106, sec. 14, 13 U. S. Stats, at Large, 103,
and Instructons of the Comptroer of the Currency Reatve to the
Organzaton and Powers of Natona anks, 1923, ch. 1, sec. 10.)
Ths accounts for the new bank s payment n cash for the od bank s
assets n the nstant case.
Under the facts of the nstant case ths offce s of the opnon that
there was not an e change of stock for stock or of property for stock
n a reorganzaton wthn the meanng of secton 203(b) (2) and
(3), Revenue ct of 1926, as above quoted, where no gan or oss sha
be recognzed, but on the contrary that there was a sae of assets
resutng n a cosed transacton where the entre amount of the
pan or oss sha be recognzed, as provded n sub-
dvson (a) of secton 203, Revenue ct of 1926, as above quoted.
Ths s true even though the seres of transactons n ths case resuted
n a reorganzaton and contnuaton of the busness.
The foowng authorty s drecty n pont n support of the
above opnon: ppeas of . . Sau et a. (4 . T. ., 639, decded
nv 31, 1926). Compare I. T. 1S36 (C. . 1-1, 12), under the
Revenue ct of 1921, and I. T. 2301 (C. . -2, 9), under the
Revenue ct of 1926. The nde statement of the hodng n the
. . Sau case, on page 13f 5 of 4 . T. ., s as foows:
Where, n effectng merger of bank wth trust company, stockhoders of bank
deposted ther stock wth a trustee, who receved payment therefor on behaf
M stockhoders from trust company, and trustee purchased stock n trust com-
pany wth moneys so receved and dstrbuted t among stockhoders of bank,
hed, there was a sae of stock by stockhoders of bank rather than an e change
by them of ther stock for stock In trust company, and that gan or oss shoud
be computed tnder secton 202(a), ct 1918.
No queston s presented to ths offce as to whether the od bank
derved gan from the sae of ts assets n an amount suffcent to
resut n net ta abe ncome and therefore no opnon s e pressed on
that pont.
The dstrbuton n 1925 to the stockhoders of the od bank of
(1) the equvaent of doars n cash on each share of stock hed
by them, though n the form of stock n the new bank, and (2) one
trustees certfcate for each share of od stock hed by them, ev-
dencng ther pro rata nterest n the remanng assets of the od
bank (now hed by trustees n ther behaf), represented a dstrbu-
ton n compete qudaton of the od bank stock whch was caed
n and canceed. (See secton 201, Dstrbutons by corporatons,
Revenue ct of 1926.)
Ths rases the ssue of the effect upon the stockhoders of the od
bank of the dstrbutons receved by them n 1925. Dd they sustan
deductbe osses n that year Or were ther osses for ncome ta
purposes to be postponed unt the sae or other dsposton of ther
trustees certfcates (after deductng from the cost or other bass of
ther od bank stock the sum of doars wth respect to each share
whch represented the above-mentoned doars per share ds-
trbuton wth whch new bank stock was purchased)
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203, rt. 1571.
54
The appcabe provsons of the Revenue ct of 1926 are secton
203(a), supra, and secton 202(c), readng as foows:
Sec. 202. (c) The amount reazed from the sae or other dsposton of
property sha be the sum of any money receved pan the far market vaue of
the property (other than money) receved. Itacs supped.
The bass for determnng the amount of any gan or oss s fuy
set forth n secton 204 of the Revenue ct of 1926.
Under secton 202(c), supra, the amount reazed by the stock-
hoders of the od bank for each share of od bank stock hed by them
was doars cash (wth whch one-thrd of a share of new bank
stock was purchased) pus the far market vaue of one trustees
certfcate, whch vaue, f sub|ect to determnaton, woud render t
mmatera as to when the certfcate tsef mght be reazed upon,
for such far market vaue woud then represent the bass for the
determnaton of gan or oss upon the subsequent sae or other
dsposton of the certfcate.
The stuaton s not the same as f there had been a proonged
seres of dstrbutons n compete qudaton of the od bank, for
t w be remembered that the stockhoders of the od bank sur-
rendered ther od bank stock for canceaton n 1925 (the year of
the recept of the cash payment or ts equvaent), and receved
trustees certfcates representng ther pro rata nterest n such e cess
of assets over doars as mght be reazed after the payment of
the od bank s abtes. Ths reazaton on ther od bank stock
was, therefore, compete n 1925 for ncome ta purposes, eavng
asde for the moment the queston of whether the trustees certf-
cates had a far market vaue. It s the same as f trustees apponted
by the stockhoders had physcay receved such e cess of assets n
knd n 1925 and dsposed of them n some subsequent year. The
e cess, nevertheess, f t had a far market vaue, woud be vaued
to the od stockhoders n 1925 for gan or oss purposes, and a new
bass estabshed for such assets for the determnaton of gan or oss
upon ther subsequent dsposton.
In ths connecton, the ast paragraph of the affdavt e ecuted
December , 1926, by , who as attorney handed the reorganza-
ton, s as foows:
On or about , 1925, the assets of the od bank then beongng to t
were conveyed to three trustees for the beneft of the stockhoders of the od
bank, who thereafter surrendered ther certfcates of stock n the od bank
n e change for so-caed trustees certfcates. These trustees certfcates
represented unts or fractona parts of the nssets so vested n sad trustees
equvaent to the fractona part of the od bank s capta whch had been
epresened by the stock certfcate surrendered by each stockhoder. Thus
a person who had formery been the owner of 100 shares of the stock of the
od bank receved n e change a trustees certfcate for 100/O.OOOth parts
represented by a certfcate ssued by the trustees therefor. Upon surrender,
the od stock certfcates of the M ank were canceed. The aforesad trustees
certfcates are the ones whch affant s nformed by (the ta payer) subse-
quenty sod at a prce of doars per part.
Whether these trustees certfcates had a far market vaue when
receved n 1925 s a queston of fact to be determned from the best
evdence avaabe or obtanabe. If they dd have, then the stock-
hoders of the od bank shoud not be aowed to take osses on ther
od bank stock n any other year than 1925, for t woud be n that
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55
204, rt. 1599.
year that they sustaned ther entre oss on such stock for ncome
a purposes. If they dd not have, then the stockhoders osses
woud be determnabe upon the sae or other dsposton of ther
trustees certfcates.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 1572: changes of property.
R NU CT O 1926 ND PRIOR CTS.
Tradng n of trucks and passenger cars used for busness purposes
on new trucks and passenger cars to be used for ke purposes. (See
Mn. 3641, page 86.)
S CTION 204. SIS OR D T RMINING G IN OR
LOSS, D PL TION, ND D PR CI TION.
rtce 1591: ass for determnng gan or oss from sae.
R NU CT O 1920.
Purchase monev mortgage satsfed for ess than face amount
thereof. (See I. f. 2406, page 68.)
rtce 1599: Stock or securtes dstrbuted II-15-3680
n reorganzaton. T. D. 4144
INCOM T .
rtce 1599 of Reguatons 69 amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
Paragraph (2) of artce 1599 of Reguatons 69 s hereby amended
by strkng out the ast sentence thereof.
D. . ar,
Commssoner of Interna Revenue.
pproved pr 3, 1928.
Ogden L. Ms,
ctng Secretary of the Treasury.
6342 28 5
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5213(a), rt. 31. 56
P RT II. INDI IDU LS.
S CTION 212. N T INCOM O INDI IDU LS
D IN D.
rtce 22: Computaton of net ncome. II-5-3594
I. T. 2398
R NU CT O 1920.
The foowng rates of e change are accepted by the ureau of
Interna Revenue as the current market rates of e change prevang
as of December 31, 1927:
Country or cty.
ustra
egum
ugara
Czechosovaka
Denmark
ngand
nand
rance
Germany
Greece
ungary ,
Itay
Netherands
Norway
Poand
Portuga
Rumana
Monetary unt.
Schng
ega
Lev.
rone
rone
Pound
Markka
ranc
Rcchsmark.
Drachma
Pngo.
Lra
Guder
rone
Zoty
scudo
Leu.
aue n
terms of
Unted
0.14107
. 1399
.00T2R5
. 029(30
.2 82
4.8831
.025191
.0394
.2387
.013319
. 1748
.0528
.4044
. 2002
.1121
.0495
.000183
Country or cty.
Span...
Sweden
Swtzerand.
ugos: va._
ongk
Chna
Chna
Inda
apan...
Sngapore
Canada
Cuba
Me co
rgentna
raz
Che-
Uruguay
Monetary unt
rtce 23: ases of computaton.
R NU CT O 1926.
ccrua of State, county, and muncpa ta es n Inos. (See
G. C. M. 3244, page 82.)
S CTION 213(a). GROSS INCOM D IN D:
INCLUSIONS.
rtce 31: What ncuded n gross ncome. II-3-3577
G. CM.2715
R NU CTS O 1924 ND 1926.
The ncome derved by a restrcted member of the Otoe Trbe of
Indans from restrcted bnd conveyed to hm by deed e ecuted by
a noneompetent member of the trbe nnd approved by the Secre-
tary of the Interor, sub|ect to a restrcton as to aenaton wth-
out the consent of the Secretary of the Interor, s e empt from
ta aton.
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57
213(a), rt 31.
n opnon s requested as to whether the ncome derved by ,
a restrcted member of the Otoe Indan Trbe, from restrcted and
conveyed to hm by the deed dated anuary , 1924, approved by the
ssstant Secretary of the Interor, s e empt from ncome ta
under the Revenue cts of 1924 and 1926.
It appears that s a noncompetent Otoe Indan under the |urs-
dcton of the Ponca Indan gency, Whfceage, Oka. The and
n queston was aotted to , a noncompetent Indan of the Otoe and
Mssoura Trbes, n 1907. Patent was ssued under the genera
aotment ct of 1887 (24 Stat., 388), and provded for a perod of
trust e tendng for 25 years. On anuary , 1924, , |onty wth
her husband, C, conveyed her nterest n the and to , wth the
consent and approva of the Secretary of the Interor. The grantors
reserved to the ncome from the and durng her fetme. On
pr , 1924, ded, and thereupon became entted to the n-
come from the and. or the ta abe years 1924 and 1925 he n-
cuded the ncome from sad and n hs ncome ta returns and pad
the ta thereon.
The ct of ebruary 8, 1887 (24 Stat., 388), known as the genera
aotment ct, provdes that the Presdent of the Unted States s
authorzed, whenever n hs opnon any reservaton or any part
thereof of the varous Indan trbes (wth certan e ceptons not
necessary to state) s advantageous for agrcuture and grazng pur-
poses to cause sad reservaton, or any part thereof, to be surveyed,
and to aot the and n severaty to Indans ocated thereon n
specfed quanttes.
In secton 5 of sad ct t s provded:
Sbc. 5. That upon the approva of the aotments provded for n ths ct
by the Secretary of the Interor, he sha cause patents to ssue therefor n the
name of the aottees, whch patents sha be of ega effect, and decare that
the Unted States does and w hod the and thus aotted, for the perod
of 25 years, n trust for the soe use and beneft of the Indan to whom such
aotment sha have been made, or, n c:se of hs decease, of hs hers accord-
ng to the aws of the State or Terrtory whore such and s ocated, and that
at the e praton of sad perod the Unted States w convey the same by
patent to sad Indan, or hs hers as aforesad, n fee, dscharged of sad trust
and free of a charge or ncumbrance whatsoever: Provded. That the Pres-
dent of the Unted States may n any case n hs dscreton e tend the perod.
nd f any conveyance sha be made of the ands set apart and aotted as
heren provded, or any contract made touchng the same, before the e praton
of the tme above mentoned, such conveyance or contract sha be absoutey
nu and vod.
The ct of 1887 was amended by the ct of March 1, 1907 (34
Stat., 1015. 1018). by the addton of the foowng provson:
That any noncompetent Indan to whom a patent contanng restrctons
aganst aenaton has been Issued for an aotment of and n severaty, under
any aw or treaty, or who may have an nterest n any aotment by nhertance,
may se or convey a or any part of such aotment or such nherted nterest
on such terms and condtons and under such rues and reguatons as the
Secretary of the Interor may prescrbe, and the proceeds derved therefrom
sha Ik used for the beneft of the aottee or her so dsposng of hs and or
nterest, under the superv son of the Commssoner of Indan ffars and
any conveyance made hereunder and approved by the Secretary of the Interor
sha convey fu tte to the and or nterest so sod, the same as f fee-smpe
patent had been ssued to the aottee.
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213(a), rt. 31.
58
The patent ssued to n 1907 provdes n part as foows:
the Unted States of merca, n consderaton of the premses,
hns aotted, and by these presents does aot, unto the sad the and above
descrbed and hereby decares that t does and w hod the and thus a-
o .tcd (sub|ect to a statutory provsons and restrctons) for the perod
of 25 years, n trust for the soe use and beneft of sad Indan, and that at
the e praton of sad perod the Unted States w convey the same by
patent o sad Indan n fee. dscharged of sad trust and free of a charge or
ncumbrance whatsoever (f the sad Indan does not de before the e praton
11 the trust perod but n the event sad Indan does de before the e pra-
ton of that erod (hs patent and the aotment upon whch t s based sha
be canceed, and the sad and sha revert to the Unted States and be there-
after dsposed of n the manner prescrbed by aw) : Provded, That the Pres-
dent of the Unted States may, n hs dscreton, e tend that perod.
The deed of , dated anuary , 1924, contans no reference to
the sad trust patent or the provsons thereof. It was, however,
approved by an ssstant Secretary of the Interor, and there ap-
pears n t a provson nserted at the nstance of the Interor Depart-
ment that the nterest transferred s sub|ect to the condton that
whe the tte s n the grantee or hs hers the and heren descrbed
sha not be aenated or ncumbered, wthout the consent of the
Secretary of the Interor.
pparenty n conformty wth the ast cause of the amendment
of March 1, 1907, supra, the deed from to contans the further
provson that the sad and thus conveyed to s conveyed to
have and to hod the sad descrbed premses unto the sad party of
the second part, hs hers, e ecutors, admnstrators, and assgns
forever. It woud appear, therefore, that the sad deed of an-
uary , 1924, purports to convey a fee tte sub|ect to the condton
wth respect to aenaton or ncumbrance set forth n the paragraph
ne t above precedng.
The case as thus presented s wthn the rue ad down by the
opnon of the ttorney Genera of March 20, 1925 (T. D. 3754,
C. . I -2, 37), wheren t was hed that naenabty and non-
ta abty shoud go hand n hand, at east unt Congress ceary
provdes otherwse, and that ncome from ands restrcted as to
aenaton s not sub|ect to the edera ncome ta . (See aso S.
M. 5632, C. . -, 193.) ccordngy, t s the opnon of ths
offce that the ncome of from the and conveyed to hm by the
deed of anuary , 1924, was e empt from ta aton durng the years
1924 and 1925, and that the ta pad thereon shoud be refunded.
C. M. Carest,
Genera Counse, ureau of Interna Revenue.
rtce 31: What ncuded n gross ncome.
R NU CTS O 1918, 1921, ND 1926.
Gan from nvestments n Germany. (See I. T. 2404. page 84.)
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59 1213(a), rt .
rtce 39: Sae of stock and rghts. II-16-3687
T. D.4145
INCOM T .
rtce 39 of Reguatons 69 not to be apped retroactvey.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Treasury Decson 4018 (C. . I 1, page 3C) s hereby amended
by strkng out the second sentence and nsertng n eu thereof the
foowng:
rtce 39 of Reguatons 09, accordngy, w not be apped retroactvey, and s ,
not appcabe to saes of stock or rghts acqured pror to anuary 1, 1925, the
effectve date of the Revenue ct of 1926, nor to saes of stock acqured at any
tme through the e ercse of such rghts. rtce 39 of Reguatons 65 w
appy to a such saes.
D. . ar,
Commssoner of Interna Revenue.
pproved pr 9, 1928.
Ogden L. Ms,
ctng Secretary of the Treasury.
rtce 39: Sae of stock and rghts. II-26-3773
I. T. 2417 |
R NU CTS O 1924 ND 1926.
Method outned of computng gan or oss resutng from the sae
of stock rghts where at the effectve date of ssung such rghts
the ta payer was the hoder of two ots of stock wth dfferent bases
on whch to compute the gan or oss.
dvce s requested reatve to the method of computng the gan
or oss resutng from the sae n anuary, 1926, of stock rghts ssued
by the M Company enttng the hoder thereof to acqure addtona
stock at a subscrpton prce of 75 a share. Rghts were prevousy
ssued by the company n uy of 1924 and une of 1925, the rghts n
each nstance beng e ercsed and the addtona stock acqured. It
aso appears that there was a recaptazaton n pr of 1925 n
connecton wth whch two sares of stock of a par vaue of 50
each were ssued for eac share then outstandng.
The queston reatve to the bass on whch to compute the gan
or oss resutng from the sae of the rghts n anuary of 1926 arses
from the fact that the method of computaton prescrbed by artce
39 of Reguatons 69 dffers from the method prescrbed by the pror
reguatons. The method of computaton prescrbed by Reguatons
69, however, s not to be apped retroactvey beyond anuary 1,
1925, the effectve date of the Revenue ct of 1926. as set forth n
Treasury Decson 4018 (C. . I-1, 36), as amended by Treasury
Decson 4145 (see above). Wth reference to the rghts acqured n
1924, the method of computaton to be apped s that prescrbed by
artce 39 of Reguatons 65. The computaton reatve to rghts
receved n 1925 s to be made n accordance wth the method outned
n artce 39 of Reguatons 69.
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213(a), rt. 44.
60
The method of computaton to be apped s shown wth reference
to the ot of 100 shares of M Company stock acqured by nhertance
pror to March 1, 1913, takng as the bass the far market vaue
thereof as of that date, whch t s stated was 11,750. ddng
thereto the 1,000 pad to acqure the addtona 10 shares of stock
n uy of 1924, a bass of 12,750 s obtaned for the 110 shares,
and that amount s kewse the bass wth respect to the 220 shares
acqured n connecton wth the recaptazaton n pr of 1925 n
eu of the 110 shares prevousy hed.
Rghts were ssued n une of 1925 enttng the stockhoders of
record to acqure 1 addtona share for each 10 shares then hed by
the payment of a stbscrpton prce of 50 a share. In accordance
wth the method of computaton outned n artce 39 of Reguatons
69, the ssuance of such rghts s anaogous to the dstrbuton of add-
tona stock as a stock dvdend ony to the e tent of the vaue of
the rghts as of the date of record on whch the rght thereto vests
n the stockhoders. The od bass of 12,750 apped to the 220
shares then hed s accordngy to be apportoned between the 220
shares of stock and the rghts ssued thereon n une of 1925 n the
rato or proporton of the respectve vaues of the stock and rghts as
of the effectve date of ssung the rghts, as provded by artce 39
of Reguatons 69. When the porton of the od bass whch attached
to the rghts s thus ascertaned, there shoud be added thereto the
subscrpton prce of 1,100, and the resut so obtaned s the bass
on whch to compute the gan or oss wth respect to the 22 shares
acqured by the e ercse of the rghts.
t the effectve date of ssung the rghts on December 30, 1925, the
ta payer was accordngy the hoder of two ots of stock consstng
of 220 shares and 22 shares, respectvey, wth dfferent bases on whch
to compute the gan or oss. The rghts n ths nstance ssued on
the two ots of stock wth dfferent bases are requred to be handed
separatey as to each ot, the bass wth respect to each ot of stock
beng apportoned between the stock and the rghts ssued thereon n
the rato or proporton of the respectve vaues thereof as of Decem-
ber 30, 1925. When the porton of the od bass whch attached to
the two groups of rghts ssued on December 30, 1925, s thus ascer-
taned, the gan or oss resutng from the sae of the rghts n an-
uary of 1926 s of course found by comparng wth such porton of
the od bass the seng prce of the rghts.
rtce 44: Sae of rea property nvovng II-15-3672
deferred payments. G. C. M. 3048
R NU CT O 192G.
Method of determnng, n the case of a sae of rea estate on the
nstament pan, the percentage of proft appcabe to amounts
pad by a purchaser n reducton of the purchase prce where a
reducng mortgage s nvoved.
n opnon s requested reatve to the proper method of deter-
mnng, n the case of a sae of rea estate on the nstament pan,
the percentage of proft appcabe to amounts pad by a purchaser n
reducton of the purchase prce where a reducng mortgage s
nvoved.
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61
213(a), rt. 44.
It appears that n and about the cty of R, State of S, there s n
genera use at the present tme a certan form of and contract,
wheren t s provded that the purchaser sha make a down payment
upon the e ecuton of the contract that the purchaser sha pay
monthy 1 per cent of the remanng baance of the purchase prce,
whch payment s to be apped frst to nterest that the purchaser
sha be gven mmedate possesson of the property that the vendor
sha retan tte to the property unt t s pad for that at any tme
durng the fe of the contract the vendor may encumber the property
by e ecutng a mortgage on the same for an amount not n e cess
of the baance remanng due under the contract and that the pur-
chaser may, f and when the amount due from hm to the vendor
on the contract becomes equa to the amount due on any e stng
mortgage from the vendor to the mortgagee, demand a deed and
assume and agree to pay the baance of the mortgage. If pror to
the e ecuton of the contract there was a mortgage aganst the
property, the same prncpes woud appy.
It further appears hat the terms of the mortgage e ecuted by the
vendor usuay ca for payment of part of the prncpa each year,
as we as nterest, ether n annua, semannua, or monthy nsta-
ments. It s, therefore, known as a reducng mortgage. Snce
the vendor retans tte to the property sod under the contract, he
remans personay abe on the reducng mortgage. ccordngy,
the purchaser makes monthy payments to hs vendor, and the
vendor makes perodc payments to hs mortgagee.
dvce s requested as to the method of determnng the percentage
of proft appcabe to amounts pad by a purchaser n reducton of
the purchase prce, where the vendor eects to report ncome from
the sae upon the nstament saes method.
rtce 44 of Reguatons 69 provdes, n respect to saes of prop-
erty on the nstament pan, that when rea property s sod sub|ect
to a mortgage or the mortgage s assumed by the purchaser, the
amount of the mortgage sha not be consdered as a part of ether
the nta payments or of the tota contract prce. It s
apparent, however, that under the terms of the nstruments now
under consderaton the property may be sod free of encumbrance,
yet may subsequenty be mortgaged, and t s equay cear that the
reducng mortgage, whether e ecuted pror to or subsequent to the
date of the contract, may be entrey pad off by the vendor before
the purchaser w have been abe to reduce the prncpa of hs
obgaton to the amount of the reducng mortgage and assume the
same. In the year of sae, therefore, t s mpossbe defntey to
determne ether that the property s taken sub|ect to a mortgage or
that the mortgage w ever be assumed by the purchaser. ence,
the rue prescrbed n the reguatons for the determnaton of the
percentage of proft returnabe each year n the case of mortgaged
property sod on the nstament pan s nappcabe to the present
stuaton, and so far as the amount of any mortgage s concerned
the tota contract prce and the purchase prce may be regarded
as equvaent.
It s the opnon of ths offce that n those cases where the reducng
mortgage, whether e ecuted pror to or subsequent to the e ecuton
of the and contract, s to be pad off by the vendor before the pur-
chaser s abe to reduce the prncpa of hs obgaton to the amount
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213(a), rt. 44.
G2
of the reducng mortgage, the percentage of proft may be regarded
as the quotent of the tota proft reazed or to be reazed from
the sae dvded by the purchase prce, such prce beng equva-
ent to the tota contract prce. ven though the purchaser may
subsequenty reduce hs obgaton to the amount of the outstandng
baance of the reducng mortgage and assume the same, the per-
centage of proft may be smary computed, but the baance of the
reducng mortgage, when assumed by the purchaser, must be treated
as the recept by the vendor n that year of a ke amount of cash pad
on account of the purchase prce.
C. M. Charest,
Genera Counse. ureau of Interna Revenue.
rtce 44: Sae of rea property nvovng II-17-3692
deferred payments. G. C. M. 3350
( so Secton 202, rtce 1562.)
R NU CT O 1926.
ta payer, whose busness s the se of rea estate, havng
transactons whch quafy as nstament saes, may treat a part
of such saes as cosed transactons for the year of sae and a part
as nstament saes, provded that after one bass for reportng the
ncome from the sae of a partcuar ot has been adopted, a sub-
sequent, ncome resutng from such sae sha be reported on the
same bass.
In the sae of bungaows where the purchaser s gven posses-
son at the date of e ecuton of the contract but the deferred pay-
ments are not represented by notes or any evdence of ndebtedness
other than the contract, the contract, where t s of a knd that s
freey sod and deat n, s uncondtona, and has a far market
vaue, consttutes property under secton 202, Revenue ct of
3 )20, and s to be ncuded at ts far market vaue for the purpose
of determnng the gan or ass resutng to the seer for the year
of sae.
dvce s requested reatve to the method of computng and re-
portng the proft resutng from saes of rea property on the
deferred-payment pan and on the nstament pan.
The frst queston presented pertans to a ta payer who has saes
from two separate subdvsons whch quafy as nstament saes, the
queston beng whether he may report the proft from saes made
from one subdvson on the nstament pan whe the proft from the
saes from the other subdvson s computed and reported by treatng
them as cosed transactons for the year of sae.
Secton 212(d) of the Revenue ct of 1926 provdes n substance
that n the case of a sae of rea property where the nta payments
do not e ceed one-fourth of the purchase prce the ncome may be
returned on the nstament bass.
rtce 45 of Reguatons 69 provdes n part as foows:
In transactons ncuded n ens (1) n artce 44 the vendor may return as
ncome from such transactons n any ta abe year that proporton of the
nstament payments actuay receved n that year whch the tota proft
reazed or to be reazed when the property s pad for bears to the tota
contract prce.
If the vendor chooses as a matter of consstent practce to return the ncome
from nstament saes on the straght accrua or cash recepts and dsburse-
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63
213(a), rt. 44.
ments bass, such a course s permssbe, and the saes w be treated as
deferred-payment saes not on the nstament pan.
rtce 43 of Reguatons 69 prescrbes the rues to be foowed n
connecton wth saes of ots n a subdvson. The artce provdes
n part as foows:
The sae of each ot or parce w be treated us a separate transacton, and
gan or oss computed accordngy.
It appears from the above-cted provsons of the statute and regu-
atons that when the saes of ots n a subdvson quafy as nsta-
ment saes the ta payer has the opton of reportng the saes on the
nstament bass or of reportng them on the straght accrua or cash
recepts and dsbursements bass. Inasmuch as the sae of each ot
s treated as a separate transacton and gan or oss s computed
severay n the case of each such separate transacton, t s beeved
that the ta payer shodd, f he chooses to do so, be permtted to report
th ncome from the sae of part of the ots on the nstament bass
and the ncome from the sae of the remander of the ots on the
straght accrua or cash recepts and dsbursements bass. fter hav-
ng e ercsed the opton n reportng the ncome from the sae of a
partcuar ot, a subsequent ncome receved by reason of such sae
and not prevousy reported must be reported on the same bass.
The other queston pertans to the sae of bungaows where the
purchasers are gven possesson at the date of e ecuton of the con-
tracts of sae but the deferred payments are not represented by notes
or any evdences of ndebtedness other than the contracts. owever,
these contracts are transferabe by assgnment are freey pedged,
sod, or otherwse deat n are not n any respect condtona and
have a far market vaue whch s ready ascertanabe. The ques-
ton presented s whether such transactons are governed by Genera
Counse s Memorandum 1387 (C. . I-1, 48) or whether the con-
tracts are to be consdered as property under secton 202 of the
Revenue ct of 1926 to the e tent of ther far market vaue for the
purpose of determnng the gan or oss resutng to the seer for
the year of sae.
Genera Counse s Memorandum 1387, supra, nvoved a deferred-
payment sae of persona property not on the nstament pan. That
memorandum apped artces 44 and 46 of Reguatons 69 by way
of anaogy to the queston there nvoved, and the concuson theren
reached was to the effect that the terms evdences of ndebtedness
of th purchaser and obgatons of the purchaser receved by the
vendor as used n those artces referred to somethng receved by
the vendor to represent the promses to pay contaned n the con-
son reached n that memorandum shodd bo mted to cases n whch
the facts are smar (o those theren consdered where there s n-
voved ony a premnary contract of sae such as s not ordnary
sod or deat n and whch can not be sad to have any far market
vaue.
The queston whether, n a deferred-payment sae of rea estate
not on the nstament pan under the facts presented by the nstant
case, the term evdences of ndebtedness of the purchaser as used
n artces 44 and 46 of Reguatons 69 shoud be consdered suff-
centy broad to ncude a contract of sae whch s unevdenced by
tract of sat that s, notes
The concu
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213( , rt. 45.
G4
any addtona promse to pay has n effect been passed upon by the
oard of Ta ppeas on severa occasons.
In W. . Geary, pettoner, v. Commssoner of Interna Revenue
(6 . T. ., 1109) the pettoner sod rea estate n 1921 to the . W.
Wooworth Corporaton for the sum of 146,800, of whch 46,800
was pad n cash and the baance was to be pad n 17 equa annua
nstaments of 5,882.35 each. No notes or evdences of ndebted-
ness were gven other than the agreement to make payments con-
taned n the contract of sae. The oard hed that the obgaton
to make the deferred payments, contaned n the contract of sae, was
worth the face amount thereof and shoud, accordngy, be treated
as the equvaent of cash n that amount receved n the year of sae.
In the case of Gertrude . Sweet v. Commssoner (8 . T. .,
404), the oard of Ta ppeas determned that a contract of sae
of rea estate had a far market vaue of 75 per cent of ts face vaue.
If the oard consdered ony notes or ke obgatons as representng
the promse to pay of the purchaser, ths acton woud have been
unnecessary.
It s apparent from the above-cted cases that the oard of Ta
ppeas has based ts decsons not upon the queston of whether notes
or ke obgatons of the purchaser were receved by the vendor n
addton to the contract of sae but rather upon the queston of
whether the promse to pay contaned n the contract, note, or other
obgaton has a far market vaue. If t has, then t s to be treated
as though cash were receved to the e tent of such far market vaue.
It s, therefore, the opnon of ths offce that for the purpose of
determnng the gan derved or the oss sustaned from a deferred-
payment sae of rea estate not on the nstament pan under the facts
presented by the nstant case, a contract of sae to the e tent of ts
far market vaue shoud be treated as the equvaent of cash receved
n the year of sae.
C. M. Chabest,
Genera Counse, ureau of Interna Revenue.
rtce 45: Sae of rea property on nsta- II-14-3664
ment pan. G. C. M. 3067
R NU CT O 1928.
In 1920 the ta payer sod rea estate acqured pror to March
1, 1013, and receved n cash ess than one-fourth of the purchase
prce together wth a frst mortgage coverng the deferred pay-
ments. In hs return for 1926 he reported ncome from the trans-
acton on the nstament hnss. In 1927 the purchaser defauted
on the baance of prncpa and nterest due and the ta payer
repad to the purchaser the prncpa sum of the payments receved
n 1926 and 1927. ess e penses, and accepted a deed from the pur-
chaser.
ed, the ta payer s return for 1926 was correct. e s entted
to take a oss on hs 1927 return to the e tent of the amount
prevousy reported as ncome and a reasonabe deprecaton of
the property whe t was n the hands of the purchaser, and the
bass of the property to the ta payer w be the orgna bass
at the tme of the nstament sae.
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65
5213(a), rt. 45.
n opnon s requested n the case of , reatve to the proper
treatment for ncome ta purposes of the sae and subsequent
repossesson of rea estate under the foowng crcumstances:
The ta payer acqured rea estate pror to March 1, 1913, the far
market vaue of whch on that date s stated to have been 5a doars.
There was a frst mortgage on the property n the amount of 3
doars.
In 1926 the ta payer sod the property for 40a doars, recevng
O doars n cash and a frst mortgage of 30a doars payabe at the
rate of 7.5a doars per year for four years. rom the 10a doars
cash receved the ta payer pad the 3a doars mortgage and saes
e penses of 1.35a doars. In hs return for 1926 the ta payer
reported ncome from ths transacton on the nstament bass, ds-
cosng a ta of doars.
In 1927 the purchaser of ths property pad 2a doars, and then
defauted on the baance of prncpa and nterest due. The tu -
payer fed sut for forecosure on , 1927. Due to the e tended
perod granted by the Code for the defendant n forecosure
to redeem, durng whch perod the property can not be advanta-
geousy mproved, eased, or sod, the ta payer cosed the transacton
by repayng to the purchaser the prncpa sum of the payments re-
ceved n 1926 and 1927, 12a doars, ess e penses of 1.35a doars
and accepted a deed from the purchaser.
The ta payer contends that he s n statu quo, that the report of
the transacton shoud be canceed from hs 1926 return, and that a
refund shoud be made of the amount of ncome ta pad upon the
transacton. It s hs theory that the case amounts now to the ta -
aton of an ncrease n vaue of the property, contrary to the dec-
sons of the Unted States Supreme Court reatve to that stuaton.
It s not beeved that the ureau of Interna Revenue woud be
|ustfed n accedng to the ta payer s request, as the ta was eved
upon the proft derved from a sae admtted to be a bona fde trans-
acton and treated, at the ta payer s eecton, as an nstament sae
of rea estate.
Snce the nta payment receved n 1926 was not more than one-
fourth of the purchase prce, the ta payer was wthn hs rghts n
reportng hs ncome from the sae on the nstament bass. In case
of the repossesson of rea estate the sae of whch was so treated and
reported for ncome ta purposes, artce 45 of Reguatons 69
governs, the appcabe porton of whch s as foows:
If for any reason the purchaser defauts n any of hs payments, and the
rendr returnng ncome on the nstament bass repossesses the property, the
entre amount receved on nstament payments and retaned by the vendor,
ess the sum of the profts prevousy returned as ncome and an amount repre-
sentng proper ad|ustment for e hauston, wear and tear, obsoescence, amort-
zaton, and depeton of the property whe n the hands of the purchaser, w
be ncome of the vendor for the year n whch the property s repossessed, and
the bass of the property n the hands of the vendor w be the orgna bass
at the tme of the nstament sae. Itacs supped.
ppyng ths artce to the nstant case, t appears that snce the
repossesson occurred n 1927, the ta payer may report n hs return
for that year the entre amount receved on nstament payments and
retaned by hm ( 0.00) ess the sum of the profts prevousy returned
as ncome and an amount representng proper ad|ustment for e haus-
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5213(a), rt. 45.
66
ton, wear and tear, etc., of the property whe n the hands of the
purchaser. The resut of ths computaton s a negatve quantty,
whch must be consdered and treated as a oss. The bass of the
property n the hands of the ta payer w be ts orgna bass at the
tme of the nstament sae.
Ths offce s, therefore, of the opnon that the ta payer s return
for 1926 was correct, that he s entted to take a oss on hs 1927
return to the e tent of the amount prevousy reported as ncome
and a reasonabe deprecaton of the property whe t was n the
hands of the purchaser, and that the bass for computng gan or oss
upon subsequent sae or other dsposton of the property by the
ta payer w be the orgna bass at the tme of the nstament sae.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 45: Sae of rea property on nsta- II-26-3774
mentpan. G. CM. 3858
R NU CT O 1926.
Treatment of seng e penses n determnng gan or oss n
year of repossesson of rea estate sod In pror year on nsta-
ment bass.
n opnon s requested as to the manner n whch ncome shoud
be reported from the sae of rea property n the year 1926, and ts
repossesson n the year 1927.
It appears that the ta payer acqured certan mproved rea prop-
erty n the State of R n 1895. and that the vaue of the property as
of March 1,1913, was doars, ths vaue presumaby beng n e cess
of the cost. The property was sod on March 2, 1926, for 4.4a do-
ars. The amount of cash payment receved at the tme of sae was
.64 doars and the baance of the purchase prce was represented
by notes due at ntervas, secured by a mortgage on the property.
The seng commsson pad by the vendor upon consummaton of
the transacton was .23 doars. The purchaser defauted n hs
nstament payments, wth the resut that the ta payer repossessed
the property n 1927, (he cost of repossesson ncudng attorney s
fees, court costs, etc., amountng to .08 doars. The property de-
precated whe n the hands of the vendee to the e tent of do-
ars. The amount of proft reported by the ta payer for the year
1926 was .5a| doars.
Wth reference to how the transacton shoud be treated for both
years attenton s drected to artce 44 of Reguatons 69, pertanng
to the sae of rea property nvovng deferred payments, whch
dvdes such saes nto two casses. Cass 1 s desgnated as saes of
property on the nstament pan that s. saes n whch the pay-
ments receved n cash or property other than evdences of ndebted-
ness of the purchaser durng the ta abe year n whch the sae s
made do not e ceed one-fourth of the purchase prce. rtce 45 of
Reguatons 69 provdes that n the case of a sae of rea estate on
the nstament pan the vendor may return as ncome from such
transactons n any ta abe year that proporton of the nstament
payments actuay receved n that year whch the tota proft reazed
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87
213(a), rt. 46.
or to be reazed when the property s pad for bears to the tota
contract prce.
s n the nstant case the purchase prce was 4.4a doars and the
amount of cash pad was ony .64a doars, the transacton s propery
dassfed as an nstament sae wthn the meanng of reguatons
referred to heren. The ta abe ncome for the year 1926 shoud
therefore be computed as foows :
Doars.
Purchase prce 4.
Seng commsson . 23a
Contract prce 1c. s offset 4.17a
Cost of property, or March 1, 1913, vaue
Tota proft to he reazed 3.17a
In accordance wth artce 45 of Reguatons 69. the vendor may
return for 1926, the year of sae, that proporton of the nstament
payments actuay receved n that year, namey, .64|| doars, whch
the tota proft reazed or to be reazed when the property s pad
for. namey, 3.17a doars, bears to the tota contract prce, namey,
3 17
4.4a doars, . e.,-|-|- .64 .46d doars ta abe ncome to be re-
ported for 1926. s the ta paver reported a gan for that year of
.5 doars for the reason that I. T. 2340 (C. . I-1, 43) had not
been ssued, he s entted to a refund of the ncome ta overpad
by reason of the dscrepancy.
rtce 45 of Reguatons 69 further provdes that f for any reason
purchaser defauts n any of hs payments, and the vendor returnng
ncome on the nstament bass repossesses the property, the entre
amount receved on nstament payments and retaned by the vendor,
ess the sum of profts prevousy returned as ncome and an amount
representng proper ad ustment for e hauston, wear and tear, obso-
escence, etc., of the property whe n the hands of the purchaser,
w be ncome of the vendor for the year n whch the property s
repossessed, and the bass of the property n the hands of the vendor
w be the orgna bass at the tme of the nstament sae. ppy-
ng these prncpes the computaton s as foows:
Doars.
mount receved on nstament payments . 64a
Reduced by: Doars.
Seng commsson .23a
Repossesson e penses . 08a
.31a
mount receved on nstament payments and retaned by the
vendor . 33
Less:
ctua proft prevousy returned as ncome . 46a
Deprecaton whe n hands of purchaser .
. 56a
Income for year of repossesson (oss) .23./
In vew of the fact that the computaton resuts n a mnus quantty
for the year of repossesson, the ta payer s entted to cam a oss
for the ta abe year 1927 of .23a doars.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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1213(b), rt. 77.
68
rtce 47: nnutes and nsurance poces.
R NU CT O 1926.
Ta abty of amount n e cess of the purchase prce of an annuty
contract ssued by a coege. (See I. T. 2397, page 90.)
rtce 49: orgveness of ndebtedness. II-18-3704
( so Secton 204, rtce 1591.) I. T. 2406
R NU CT O 1926.
The M Company bought a phce of property n the year 1926 and
gave a purchase money mortgage as part consderaton. In 1927
the mortgagee accepted a cash payment whch was ess than the
face of the mortgage n satsfacton thereof.
ed, the transacton resuted n no ncome to the ta payer.
The bass to be used n determnng gan or oss on subsequent sae
of the property w be the amount pad n satsfacton of the
mortgage pus the amount of the baance of the consderaton pad
for the property.
n opnon has been requested as to the effect for ncome ta
purposes of a transacton nvovng the satsfacton for ess than ts
face vaue of a purchase money mortgage on property bought by the
M Company durng the year 1920.
It appears that as part of the consderaton for the property n
queston a purchase money mortgage of 10 doars was gven bv
the M Company. Durng the year 1927 the estate of the pror owner,
desrng to reaze on the mortgage, accepted the offer of the company
of 7 doars n cash n satsfacton thereof.
It s hed that under the facts shown the transacton mentoned
consttuted merey a revson of the purchase prce of the property
as orgnay agreed upon, and resuted n no ncome to the M Com-
pany for 1927. Proper ad|ustment shoud be made on the books of
account of the company for the purpose of showng the actua cost
of the property. In the event of subsequent sae of the property so
acqured, the bass to be used n determnng gan or oss for ncome
ta purposes w be the amount pad n satsfacton of the mortgage
(7 doars) pus the amount of the baance of the consderaton pad
for the property.
S CTION 213(b). GROSS INCOM D IN D:
CLUSIONS.
rtce 77: Interest upon Unted States II-21-3725
obgatons. G. C. M. 3080
R NU CTS O 1917, 1918, 1921, 1924, ND 1926.
Method outned of determnng under secton 24, Tradng wth
the nemy ct, as amended (as amended by secton 18 of the
Settement of War Cams ct of 1928), the appcabty of the
varous e emptons accorded nterest on obgatons of the Unted
States to the nterest arsng from property nvested n such ob-
gatons under secton 12, Tradng wth the nemy ct.
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69
213(t ), rt. 77.
Secton 18 of the Settement of War Cams ct of 1928 (approved
March 10, 1928) amends secton 24, Tradng wth the nemy ct,
as amended, by addng severa new subsectons. Secton 24 as thus
amended s here quoted n fu:
Sec. 24. (a) The en Property Custodan s authorzed to pay a ta es
(ncudng speca assessments), heretofore or hereafter awfuy assessed by
any body potc aganst any money or other property hed by hm or by the
Treasurer of the Unted States under ths ct. and to pay the necessary
e penses ncurred by hm or by any depostary for hm n securng the posses-
son, coecton, or contro of any such money or other property, or n protectng
or admnsterng the same. Such ta es and e penses sha be pad out of the
muey or other property aganst whch such ta es are assessed or n respect of
whch such e penses are ncurred, or (f such money or other property s nsuff-
cent) out of any other money or propery hed for the same person, notwth-
standng the fact that a cam may have been ted or sut nsttuted under ths
ct.
(b) In te case of ncome, war-profts, e cess-profts, or estate ta es mposed
by any ct of Congress, the amount thereof sha, under reguatons prescrbed
by the Commssoner of Interna Revenue wth the approva of the Secretary
of the Treasury, be computed n the same manner (e cept as herenafter n ths
secton provded) as though the money or other property had not been sezed
by or pad to the en Property Custodan, and sha be pad, as far as prac-
tcabe n accordance wth subsecton (a) of ths secton. Pendng fna deter-
mnaton of the ta abty the en Property Custodan s authorzed to
return, n accordance wth the provsons of ths ct, money or other property
n any trust n such amounts as may be determned, under reguatons pre-
set bed by the Commssoner of Interna Revenue wth the approva of the
Secretary of the Treasury, to be consstent wth the prompt payment of the fu
amount of the nterna-revenue ta es.
(c) So much of the net ncome of the ta payer for the ta abe year 1917,
or any succeedng ta abe year, as represents the gan derved from the sae
or e change by the en Property Custodan of any property conveyed, trans-
ferred, assgned, devered or pad to hm, or sezed by hm, may at the opton
of the ta payer be segregated from the net ncome and separatey ta ed at
the rate of 30 per centum. Ths subsecton sha be apped and the amount
of net ncome to be so segregated sha be determned, under reguatons pre-
scrbed by the Commssoner of Interna Revenue wth the approva of the
Secretary of the Treasury, as neary as may be n the same manner as provded
n secton 208 of the Revenue ct of 1926 (reatng to capta net gans), but
wthout regard to the perod for whch the property was hed by the en
Property Custodan before ts sae or e change, and whether or not the ta payer
s an ndvdua.
(d) ny property sod or e changed by the en Property Custodan
(whether before or after the date of the enactment of the Settement of War
Cams ct of 1928) sha be consdered as havng been compusory or nvo-
untary converted, wthn the meanng of the ncome, e cess-profts, and war-
profts ta aws and reguatons and the provsons of such aws and regua-
tons reatng to such a converson sha (under reguatons prescrbed by the
Commssoner of Interna Revenue wth the approva of the Secretary of the
Treasury) appy n the case of the proceeds of such sae or e change. or
the purpose of determnng whether the proceeds of such converson have been
e pended wthn such tme as w entte the ta payer to the benefts of such
aws and reguatons reatng to such a converson, the date of the return of
the proceeds to the person entted thereto sha be consdered as the date of
the converson.
(e) In case of any nterna-revenue ta mposed n respect of property
conveyed, transferred, assgned, devered, or pad to the en Property Cus-
todan, or sezed by hm, and Imposed n respect of any perod (n the ta abe
yer 1917 or any succeedng ta abe year) durng whch such property was
hed by hm or by the Treasurer of the Unted States, no nterest or cv
penaty sha be assessed upon, coected from, or pad by or on behaf of. the
ta payer: nor sha any nterest be credted or pad to the ta payer n respect
of any credt or refund aowed or made n respect of such ta .
(f) The benefts of subsectons (c), (d), and (e) sha be e tended to the
ta payer f cam therefor s fed before the e praton of the perod of mta-
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213(b), rt. 77.
70
tons propery appcabe thereto, or before the e praton of s months after
the date of the enactment of the Settement of War Cams ct of 1928, whch-
ever date s the ater. The benefts of subsecton (d) sha aso be e tended
to the ta payer f cam therefor s fed before the e praton of s months
after the return of the proceeds.
Whe n many respects these provsons accord e press egsatve
sancton to the method and procedure by whch the ncrement to
enemy property n the custody of the Unted States under the Trad-
ng wth the nemy ct has been sub|ected to ncome, war-profts,
and e cess-profts ta es, n other respects they prescrbe new methods
and a new procedure. In partcuar, the ast sentence of secton
24(b) requres substantay that ony so much of the money or other
property n any trust may be returned to any person as the Comms-
soner sha determne to be consstent wth the prompt payment of
the fu amount of the nterna revenue ta es. The aw, therefore,
ceary contempates ether (1) that the fu amount of the nterna
revenue ta es has been determned and pad before the return of any
such property to any person, or (2) that, pendng fna determnaton
of the fu amount of nterna revenue ta es, an estmate has been
made of the fu amount thereof upon the bass of whch the Com-
mssoner w determne the amount of money or other property n
each trust, the return of whch s consstent wth the prompt pay-
ment of the fu amount of the nterna revenue ta es. In vew of
these crcumstances, t woud seem desrabe to determne and coect,
as prompty as possbe, a ncome, war-profts, and e cess-profts
ta es, for a ta abe years to and ncudng the ta abe year 1927, of
a persons whose property s n custody under the Tradng wth the
nemy ct : and, wth respect to those cases n whch the fna de-
termnaton of the ta es s not possbe, to evove the necessary pro-
cedure for the determnaton of the amount of property n each trust,
the return of whch s deemed consstent wth the prompt payment of
the fu amount of the nterna revenue ta es.
The payment of a part of the amount of a consderabe number of
cams for the return of property under the provsons of the Tradng
wth the nemy ct has been wthhed pendng the acton of Con-
gress. ence, the prompt dsposton of these partcuar cases s
mportant. In order that the assessment and coecton of these
ta es (and n the cases where the determnaton of the ta es s at
present mpossbe, the determnaton of the amount of property
whch may be returned consstent wth the payment of a ta es)
may proceed wthout unnecessary deay, ths offce makes the foow-
ng recommendatons wth respect to the appcabty under secton
24. Tradng wth the nemy ct, as amended, of the varous e emp-
tons accorded nterest on obgatons of the Unted States to the
nterest arsng from property nvested n such obgatons under
secton 12, Tradng wth the nemy ct.
The formua whch secton 24(b) prescrbes for the computaton
of the ncome, war-profts, and e cess-profts ta computed n the
same manner as though the money or other property had not been
sezed by or pad to the en Property Custodan necessary
requres that the acts of the offcers and agents of the Unted States
n assumng possesson, custody, and contro of property under the
Tradng wth the nemy ct (whether by payment, conveyance,
transfer, assgnment, or devery to the en Property Custodan or
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71
213(b), rt 77.
sezure by hm) sha be regarded as effectng no change n the rea-
tonshp of the owner (herenafter, for convenence, caed the enemy
or enemy owner) to such property that the ownershp of such
enemy owner sha be regarded as contnung unchanged that any
change n the form of the property by the offcers and agents of the
Unted States actng under the Tradng wth the nemy ct
(whether through converson nto cash by sae or e change, through
nvestment of the proceeds of such converson, or of other moneys, n
other property, ncudng nvestments n obgatons of the Unted
States under secton 12, Tradng wth the nemy ct, or through
any other conversons or reconversons of such nvestments) sha n
ke manner be deemed to work no change n the ownershp of the
enemy that a ncrements to the property (whether consstng of
reazed apprecaton n vaues, or of fruts and profts) sha ke-
wse be deemed to be owned by the enemy and that such ncrements
sha be deemed to resut, as of the tme that such ownershp s
deemed to attach (namey, when such ncrements come nto the pos-
sesson, custody, or contro of the offcers and agents of the Unted
States), n the same consequences for the purposes of the ncome,
war-profts, and e cess-profts ta aws as woud resut had the
enemy owner become entted unquafedy to both possesson and
ownershp at the tme when the offcers and agents of the Unted
States receved possesson.
Under secton 12, Tradng wth the nemy ct, arge amounts of
enemy property were deposted n the Treasury of the Unted States,
and by the Secretary of the Treasury nvested and renvested n ob-
gatons of the Unted States, resutng n arge ncrements by way of
nterest on these obgatons (whch under the Tradng wth the
nemy ct are returnabe to the enemy owners of the property
whence the ncrements arse n substantay the same manner as s
the propertv whch s the source of such ncrements).
The appcaton of the formua provded by secton 24(b), Tradng
wth the nemy ct, as amended, to the computaton of the ncome,
war-profts, and e cess-profts ta es, as respects the nterest thus
arsng from these obgatons of the Unted States, requres that the
nterest whch accrues to the account of a partcuar enemy owner
sha enter nto the computaton of hs ncome for ta purposes as
nterest from obgatons of the Unted States for the ta abe year n
whch receved by the offcer of the Unted States havng custody
thereof and that the obgatons of the Unted States whence the
nterest arses (or the share of the whoe amount of such obgatons
whch represents for the tme beng the property of the partcuar
enemy owner) sha be consdered as benefcay owned by such
owner.
It resuts that the ta e emptons accorded to nterest on obga-
tons of the Unted States by the varous statutes shoud be accorded
to nterest on the obgatons n whch the Secretary of the Treasury
has nvested enemy property, n the computaton of the ta es specfed
n subsecton (b). Of course, these e emptons are avaabe to a par-
tcuar enemy owner, n respect of whose ncome the ta s computed,
ony accordng to the terms of the appcabe statutes, and f, after
the formua prescrbed n subsecton (b) s apped, the provsons of
6342 28 6
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213 (b), rt. 87.
72
the appcabe statutes are not satsfed, there can be no e empton.
See, nter aa, secton 213(b)4, secton 216(b), secton 217(g), secton
233(a), secton 236(a), secton 1125, Revenue ct of 1926, and the
correspondng provsons of the earer ncome ta aws secton 7 of
the ct of September 24, 1917 (Comp. Stat, (1919), No. 6829LL)
secton 3 of the ct of uy 9, 1918, as amended by secton 4 of the
ct of March 3, 1919 (Comp. Stat. (1919), No. 6829LLL) and sec-
ton 2 of the ct of March 3, 1919 (Comp. Stat. (1919), No.
6829LLy2).
C. M. Chahest,
Genera Counse, ureau of Interna Revenue.
rtce 87: Income of States. II-17-3693
( so Secton 270, rtce 1204.) I. T. 2405
R NU CT OP 1926.
Income accrung to the cty of M from the actvtes of the M
Water oard and the M Street Raway s e empt from ncome ta ,
but the compensaton of offcers and empoyees of the cty engaged
n sttch actvtes s not e empt. ccrued saares of such em-
poyees n the hands of the cty treasurer may not be eved upon
for unpad ta es.
n opnon s requested whether the cty of M s abe for ncome
ta on the ncome derved from the operatons of the M Water oard
and the M Street Raway whether compensaton of the empoyees
of the cty engaged n such actvtes s e empt and, f not, whether
accrued saares may be eved upon for unpad ta es.
Secton 213(b)7 of the Revenue ct of 1926 specfcay provdes
for the e empton from ncome ta of ncome derved from any pubc
utty and accrung to any State, Terrtory, or the Dstrct of Coum-
ba, or any potca subdvson of a State or Terrtory.
The ncome accrung to the cty of M from the actvtes of the M
Water oard and the M Street Raway s e empt from ncome ta
under the secton of the statute above mentoned. It does not foow,
however, that the compensaton of the offcers and empoyees of the
cty engaged n such actvtes s e empt. The cty n provdng
water and transportaton for the genera use of ts resdents s con-
sdered to be e ercsng a propretary functon. (So. Op. 152, C. .
II-2, 93 S. M. 2232, C. . III-2, 83.) The compensaton of ts
offcers and empoyees engaged n such actvtes s sub|ect to ncome
ta under the Revenue ct of 1926. Returns shoud be obtaned from
each offcer and empoyee of the cty engaged n such actvtes whose
ncome s such as to requre the fng of a return.
In regard to the compensaton receved by the cty treasurer for
servces rendered n connecton wth the M Water oard, t s the
opnon of ths offce that the saary receved for such servces s
sub|ect to ncome ta under the Revenue ct of 1926. Such saary s
deemed to have been pad by the cty of M for servces rendered n
connecton wth the e ercse of a propretary functon of the cty.
The nqury as to whether the coector may dstran upon the
saares or the offcers and empoyees of the M Street Raway and the
M Water oard whe n the hands of the cty treasurer s answered
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73
213(b), rt. 88.
n the negatve. In I. T. 1557 (C. . II-, 172) t was hed that the
accrued saary or wage of an empoyee sub|ect to the ca or order of
such empoyee may be eved upon. ute probaby t woud be
wthn the power of Congress to authorze dstrant upon saares
and wages pad by a State or muncpaty for servces rendered n
connecton wth the e ercse of a nongovernmenta functon. I. T.
1557, however, refers to saares pad by prvate persons and corpora-
tons and s based upon the anaogy of accrued wages to bank
deposts, wthn the purvew of secton 3187. Revsed Statutes, and
not upon any specfc provson of that secton. It s not beeved that
the anaogy shoud be e tended to ncude saares pad by a State or
muncpaty operatng pubc uttes, even though such actvtes
are consdered a propretary rather than a governmenta functon.
rtce 88: Compensaton of State offcers II-4-3585
and empoyees. I. T. 2395
R NU CTS OP 1918, 1921, 1924, ND 1926.
The compensaton receved by the members of the rgna Pots
ssocaton for servces rendered as pots censed n accordance
wth the aws of rgna s not e empt from ncome ta .
dvce s requested as to whether the compensaton of the members
of the rgna Pots ssocaton for servces rendered as pots s
e empt from ncome ta .
Secton 3613. Code of rgna, 1919, provdes for the appontment
of a board of commssoners consstng of seven members to e amne
persons appyng for branches as pots. Such board s empowered
to make necessary rues for the proper government and reguaton
of pots censed by them.
Secton 3615 reads n part as foows:
very person appyng to the board to be e amned sha produce a certfcate
of the crcut court of the county, or corporaton court of the cty n whch
he resdes, that he s of honest demeanor, and a ctzen of the State, and
furnsh proof of hs havng served as apprentce to some pot of the State
for fve years. If the board fnd hm quafed to act as a pot, they sha take
from hm a bond, n the penaty of 500, and grant hm a branch, on hs payng
to the board 5. very pot hodng a branch sha renew the same
every 12 months for whch renewa he sha pay 1 provded, however, the
board sha, before the grantng or renewa of any branch, requre. In addton
to the foregong, the payment of a cense ta of 50, and a correspondng
cense ta sha be requred upon the renewa every 12 months of the branch
hed by every pot, provded, however, that no cty, town or county
sha assess any cense ta aganst any pot censed under ths secton.
Secton 3626 prescrbes the rates of potage. Secton 3635 pro-
vdes that the master and owner of the vesse sha each be abe to
the pot for potage aso that the consgnee or supercargo of any
vesse not owned by a ctzen of the State sha be abe for potage
fees.
In order that the compensaton n queston may be e empt from
ncome ta , the pots must be ether offcers or empoyees of t he State
of rgna or a potca subdvson thereof.
In the case of Metcaf ddy v. Mtche (269 D. S.. 514), decded
by the Unted States Supreme Court on anuary 11, 1926, Treasury
Decson 3824 (C. . -, 218), t was hed that an offce s a pubc
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213(b), rt. 88.
74
staton conferred by the appontment of government. The term
embraces the dea of tenure, duraton, emoument, and dutes f ed by
aw. Where an offce s created, the aw usuay f es ts ncdents,
ncudng ts term, ts dutes, and ts compensaton.
In order that a ta payer may be treated as an empoyee of a State,
or a potca subdvson thereof, t must be shown that the reaton-
shp of master and servant e sts between the State or potca sub-
dvson and the ta payer. In ane v. Newcomb (132 U. S., 220) t
was hed:
To be an empoyee wthn the meanng of the statute ane must have been
a servant, bound n some degree at east to the duty of a servant ,
The word branch as used n secton 3615 of the Code of r-
gna, 1919, s defned as The dpoma or commsson ssued by the
proper authorty to a pot who has passed an e amnaton for com-
petency. (Cent. Det.) s the sampe branch submtted ev-
dences, the pot commssoners do not pretend to appont a pot as
an offcer of the State. They merey Nomnate and decare the sad
to be a skfu and abe pot for the bay and rvers aforesad.
The aws of rgna do not descrbe or desgnate any such offce
as that of branch pot. No tenure or duraton s f ed, a pot
beng requred ony to renew hs branch every 12 months and to
pay a fee for the renewa, and n addton a cense ta . It s true
the statute does prescrbe the rate of potage that a pot sha
have, but the f ng of emoument or compensaton by aw s
ony one of the Supreme Court s tests, and there s nothng n the
rgna statutes to show any ntenton to desgnate these as offca
fees. The restrctons as to rates appear merey of a reguatory nature
such as are qute commony provded for n case of busnesses affected
wth a pubc nterest. Dutes f ed by aw aso s but a snge ee-
ment of the court s defnton. The rgna statutes, however, requre
no offca dutes of a pot. They merey provde that he sha offer
hs servces to the vesse of hs cass nearest to and, or n most ds-
tress, and prescrbe certan reguatons as to hs conduct. s
authorty s to have fu dscreton as to when such vesse sha be
poted to or from sea, etc. (secton 3623), and, ke the master of a
vesse, he s sub|ected to penates for breach of hs dutes. (See
sectons 3642, 3643, 3644, and 3623, Code of rgna.) though the
Supreme Court does not appear to make the takng of an oath of
offce an essenta part of ts defnton, t dd attrbute weght to the
fact that the ta payers n Metcaf ddy v. Mtche (supra) took
no oath of offce, and the fact that the rgna pots appear to take
no such oath woud seem aone to be qute concusve n ths case, n
vew of the requrement of the rgna consttuton (secton 34) that
a offcers sha take and subscrbe to a prescrbed oath or affrmaton
though t does not foow that the mere takng of an offca oath, n
the absence of one or more of the essentas of an offce as descrbed by
the court, woud consttute one an offcer.
These pots are, as secton 3621 of the Code of rgna ndcates,
empoyed by the masters or shpowners, and there s nothng whatever
to ndcate any such reatonshp as empoyee and empoyer between
them and the State. The rgna statutes appear merey to reguate
the busness or cang of potng vesses, and to sub|ect the quafca-
tons of those who wsh to enter that professon to an offca scrutny
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75
213(b), rt. 88.
as a securty aganst the mposture or ncompetency of mere pretend-
ers to sk, |ust as physcans and attorneys are e amned before beng
permtted to practce and as the trades of a pumber, steam engneer,
etc., are reguated and restrcted to those hodng censes from the
State or muncpa subdvson thereof. (See, for e ampe, chapter
68, Code of rgna, reguatng the practce of medcne secton
1544, reatve to pumbers secton 4022, prescrbng certan dutes
of steamshp captans secton 3981, mposng dutes of conserva-
tors of the peace on raroad conductors chapter 64, prescrbng
dutes of phvscans n contro of communcabe dseases, and secton
1577, as to brths and deaths secton 3927, compeng a common car-
rer to receve and recept for freght, and many other nstances where
dutes are mposed upon persons who have no offca status sectons
1526, 3428, and 5847, prescrbng fees to whch attorneys are entted,
and other cases where compensaton of a nonoffca character s
restrcted.)
or the reasons above stated, t s concuded that the compensaton
receved by the members of the rgna Pots ssocaton for serv-
ces rendered as pots censed n accordance wth the aws of r-
gna s not e empt from ncome ta . Ths rung s appcabe under
the Revenue cts of 1918, 1921, 1924, and 1926.
rtce 88: Compensaton of State offcers II-4-3586
and empoyees. I. T. 2396
R NU CTS O 1918, 1921, 1924, ND 1926.
The compensaton receved for servces rendered as a pot
censed under the aws of Oregon s not e empt from ncome ta
under the Revenue cts of 1918, 1921, 1924, and 1926.
dvce s requested reatve to whether the compensaton receved
for servces rendered by a pot censed under the aws of Oregon
s e empt from ncome ta .
It appears that the ta payer s a member of an organzaton known
as the Coumba Rver Pots, consstng of 22 pots who pot
vesses from stora, Oreg., to Portand, Oreg. that the ta payer s
not empoyed as a pot by any potca subdvson of the State of
Oregon and that he hods a pot s cense ssued by the State of
Oregon. The members of such organzaton have fed cams for
refund based upon the e empton of the fees receved as pots.
Cams for refund have aso been fed by the members of the ar
Pots ssocaton, kewse based upon the e empton of the potage
fees receved. It s stated that these pots are not empoyed as pots
by any potca subdvson of the State, and that each of them hods
a pot s cense granted by the State.
Secton 5157, Lord s Oregon Laws, provdes for the appontment
by the governor of pot commssoners for the bar and rver potage
grounds. Secton 51C7 confers upon the pot commssoners genera
supervson over potage, ncudng the e amnaton of appcants
for a pot s cense and the grantng of such a cense to propery
quafed persons. Under the provsons of secton 5169, an appca-
ton for a pot s cense must be made n wrtng to the board of
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213(b), rt. 88.
76
pot commssoners. If found to be worthy and quafed, the board
ssues a cense to the appcant for the term of one year. Secton
5170 provdes for the renewa of censes annuay, uness the board,
after a hearng, s of the opnon that the cense shoud not be
renewed. Secton 5172, as amended by chapter 182, Genera Laws of
Oregon, 1917, requres every pot, pror to the recept of hs cense,
to fe wth the board of pot commssoners an offca undertakng
n the sum of 3,000 to cover any oss resutng from hs negect of
duty. Secton 5186 prescrbes a fee of 10 for a pot s cense, and a
fee of 5 for each renewa thereof.
The compensaton receved by a pot censed under the aws of
Oregon s not e empt from ncome ta uness the pot as such s an
offcer or empoyee of the State of Oregon or a potca subdvson
thereof.
In the case of Metcaf rf: ddy v. Mtche (269 U. S., 514, T. D.
3824 (C. . -, 218)), the court stated that n offce s a pubc
staton conferred by the appontment of government. The term
embraces the dea of tenure, duraton, emoument, and dutes f ed
by aw. Where an offce s created the aw usuay f es ts ncdents,
ncudng ts term, ts dutes, and ts compensaton. In order that
a ta payer may be treated as an empoyee of a State or a potca
subdvson thereof, t must be shown that the reatonshp of master
and servant e sts between the State or potca subdvson and the
ta payer. In ane v. Newcomb (132 U. S., 220) t was hed:
To be an empoyee wthn the meanng of the statute ane must have been
a servant, bound n some degree at east to the duty of a servant .
It s cear that a pot under the aws of Oregon s not an empoyee
of the State. The compensaton s not receved from the State, and
he s not empoyed by t. No such offce as that of pot s created
by the aws of that State, nor do the pots receve ther staton by
the appontment of government. It s merey made the duty of
the pot commssoners to e amne and cense pots. The pots
take no oath of offce, and the statutes requre of them no dutes of
an offca nature. It s cear, aso, that the courts of Oregon do not
consder the pots of that State as havng any offca status. In
the case of Patterson v. oard of Pot Commssoners (30 Or., 201,
47 P., 786), t was sad: after a cense s once ssued, a
rght to the renewa thereof becomes, under the statute, a vested and
vauabe rght, of whch the hoder can not be deprved wthout
notce. Ths anguage s atogether nconsstent wth the dea of
an offce, for there s no such thng as a vested rght or nterest n
an offce. (Crenshaw v. Unted States, 134 U. S., 99 Tayar v.
eckham, 178 U. S., 558.)
or the reasons stated, t s concuded that the compensaton re-
ceved for servces rendered by a pot censed under the aws of
Oregon s not e empt from ncome ta under the Revenue cts of
1918, 1921, 1924, and 1926. Cams for refund based upon the
e empton of such compensaton shoud be re|ected.
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77
213(b), rt. 88.
rtce 88: Compensaton of State offcers
and empoyees.
II-8-3616
I. T.2399
R NU CTS O 1018, 1921, 1924, ND 1926.
The compensaton receved for servces rendered at the port of
Chareston as a pot censed under the aws of South Carona
Is not e empt from ncome ta under the Revenue cts of 1918,
1921, 1924, and 1920.
n opnon s requested as to the status for ncome ta purposes
of compensaton receved by certan ta payers for servces rendered
as pots operatng at the port of Chareston, S. C.
It s provded n secton 2471, chapter 37, of the Code of Laws of
South Carona of 1912 that the oard of arbor Commssoners of
the Port of Chareston sha be the commssoners of potage for
that port. In ths connecton, secton 2472 of the code, as amended
n 1923 by an act of the Genera ssemby of the State of South Caro-
na, provdes as foows:
The oard of arbor Commssoners of the Port of Chareston sha consst
of 13 members, as foows: The mayor of the cty of Chareston, the presdent
of the Chareston Chamber of Commerce, the presdent of the Chareston Cotton
change, the charman of the Port Uttes Commsson of Chareston, the
presdent of the Chareston Young Men s oard of Trade, the charman of
the e ecutve commttee of the State oard of eath, f e e a resdent of
sad cty, or, f he be not such resdent, some member of the e ecutve commttee
resdent of sad cty to be desgnated by sad commttee, and 7 resdents of
the cty of Chareston to be apponted by the governor, upon the recommendaton
of the senator and members of the house of representatves from Chareston
County, or a ma|orty of them, at east 2 of whom sha be seafarng men and
at east 1 of such seafarng men sha be a fu branch pot of the port of
Chareston. The mayor of the cty of Chareston sha be e offco charman
of the sad board, and the board at ts frst annua meetng, or at the frst
meetng after the tme f ed for such annua meetng, sha eect a charman
pro tempore, to act n the temporary absence, death, resgnaton or dsabty
of the sad charman.
The Commssoners of Potage for the Port of Chareston are
authorzed under secton 2474 of the code to organze from tme to
tme a board of e amnaton for the port of Chareston to e amne
each and a appcants as to hs or ther competency to work or
manage vesses and generay to dscharge the duty of a pot or
pots. pproved appcants are requred, pror to ssuance of the
pot s cense, to subscrbe the oath set forth n secton 2478, and to
e ecute to the board of commssoners as prescrbed by secton 2479
a bond wth two suretes, to be approved by such board, the amount
thereof varyng accordng to the draft of water to whch such cense
s appcabe. It s provded that such bond sha be condtoned for
the fathfu dscharge of the dutes of such approved appcant as
a pot.
rtce 88 of Reguatons 69, whch governs ths case n so far as
the compensaton for the years covered by the Revenue ct of 1926
s concerned, reads as foows:
Compensaton pad to ts offcers and empoyees by a State or potca sub-
dvson thereof for servces rendered n connecton wth the e ercse of an
essenta governmenta functon of the State or potca subdvson, ncudng
fees receved by notares pubc commssoned by States and the commssons of
recevers apponted by State courts, s not ta abe. Compensaton receves for
servces rendered to a State or potca subdvson thereof s ncuded n gross
ncome uness (a) the person receves such compensaton as an offcer or em-
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1213(b), rt. 88.
78
poyee of a State or potca subdvson, and (b) the servces are rendered n
connecton wth the e ercse of an essenta governmenta functon.
In Genera Counse s Memorandum 1867 (C. . I-2, 39) and
severa other opnons atey rendered by the Genera Counse the
genera rue s stated that uness .there s mposed upon a pot the
duty of makng, e ecutng, or enforcng some of the aws of the
State, a pot can not be consdered as an offcer of the State. The
statutes of the State of South Carona do not appear to requre of
a censed pot any dutes of the nature mentoned.
The Genera Counse s Memorandum 1867 aso ponts out that a
pot can not be treated as an empoyee of the State.
ccordngy, t s hed that the compensaton receved for servces
rendered at the port of Chareston as a pot censed under the aws
of South Carona s not e empt from ncome ta under the Revenue
ct of 1926. The rung heren made aso appes under the Revenue
cts of 1918, 1921, and 1924.
rtce 88: Compensaton of State offcers I1-9-3629
and empoyees. G. C. M. 3142
R NU CT O 1926.
speca commssoner or speca recever apponted under chap-
ter 132, secton 1, of the West rgna Code s not a recever
n the sense contempated by artce 88 of Reguatons 69, and com-
pensaton receved as such s not e empt from edera ta aton
under the Revenue ct of 1926.
n opnon s requested as to whether the compensaton receved by
durng the year 1925 as a speca commssoner to make sae of
certan ands s e empt from edera ncome ta .
The facts are substantay as foows:
In 1925 was apponted by the Crcut Court of County,
W. a., a speca commssoner to make sae of certan ands nvoved
n tgaton. or hs servces n the case he was pad doars. In
hs ta return, fed March , 1926, for the year 1925, the ta payer
ncuded ths amount as ncome and pad the ta thereon. On March
, 1926, the ta payer fed an amended return, omttng the tem n
queston, and thereafter fed a cam for refund of the ta pad
thereon.
The ta payer cams that hs compensaton as speca commssoner
n the above case s e empt from edera ta on the ground that
under the statutes of West rgna the term speca commssoner
s synonymous wth recever.
To become entted to e empton from edera ta aton on the fees
receved as speca commssoner or recever n the nstant case,
the ta payer must brng hmsef wthn the e empton aowed by
artce 88 of Reguatons 69, whch provdes, nter aa:
rt. 88. Compensaton of State offcers and empoyees. Compensaton pad
to ts offcers and empoyees by a State or potca subdvson thereof for
servces rendered n connecton wth the e ercse of an essenta governmenta
functon of the State or potca subdvson, ncudng the Comms-
sons of recevers apponted by State courts, s not tn abe .
It s apparent that the ta payer was not an offcer, namey, a
person who occupes a poston n the servce of the State or potca
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79
8 213(b), rt. 88.
subdvson, the tenure of whch s contnuous and not temporary
and the dutes of whch are estabshed by aw or reguatons and not
by agreement (art. 88 of Reguatons 69). Nor was he an empoyee,
namey, one whose dutes consst n the rendton of prescrbed serv-
ces and not the accompshment of specfc ob|ects, and whose
servces are contnuous, not occasona or temporary (art. 88 of
Reguatons 69).
Uness, then, the ta payer can show that the compensaton he
receved n the nstant case was commssons of a recever apponted
by a State court, he s not wthn the e empton of artce 88.
recever s an ndfferent person between the partes to a cause,
apponted by the court to receve and preserve the property or fund
n tgaton, and to receve ts rents, ssues, and profts and appy or
dspose of them at the drecton of the court, when t does not seem
reasonabe that ether party shoud hod them. (R. C. L., 23, page 7.)
The term recever means one who receves, and mpes a trans-
fer of possesson of the thng receved. (See eaney v. ome Ins.
Co., 3 Thomps. Cook, 478.) The great ob|ect of a recevershp s
to secure the property or thng n controversy so that t may be sub-
|ected to such order or decree as the court may make. (See rohn
v. Wenberger, 47 W. a., 127 34 S. ., 746.)
The statutes of West rgna provde for a recever n severa
contngences. Chapter 133, secton 15, of the West rgna Code,
arnes edton, provdes for a genera recever, who takes charge
of moneys pad nto court n varous ways, and has power to nvest
such moneys. Chapter 133, secton 28, provdes for a speca re-
cever n cases where the property of a corporaton, frm, or person
s nvoved, and where there s danger of oss or msappropraton.
The speca recever takes possesson of the property for conserva-
ton, and of the rents, ssues, and profts from the property. Chapter
53, secton 58, provdes for a recever of a corporaton, apponted
by the court, wdo takes charge of the assets of the corporaton.
Chapter 54, secton 81(a)7, provdes for a recever of a bank,
who s apponted by the commssoner of bankng and who takes
charge of the assets. Chapter 34, secton 4, provdes for a recever
of an nsurance company, who takes charge of ts property. Chapter
63, secton 12, provdes for a recever of the estate of a femae
mnor who marres under the age of 14 years, who takes charge of
her estate.
It s apparent n a the foregong nstances that a recever under
the statutes of West rgna, receves or takes charge of and
manages rea or persona property.
The ta payer, however, rees on the fact that he was apponted a
speca commssoner or recever under secton 1 of chapter 132 of
the West rgna Code.
Chapter 132, secton 1, of the West rgna Code, reatng to
|udca saes, provdes that n a case pendng n court, the court may
make an order for the sae of property and may appont a speca
commssoner or speca recever to make the sae. The statutory
provson reatng to hs dutes drects that the court prescrbe the
terms of the sae, and that after the sae s made the proceeds of the
sae are hed by the speca commssoner or speca recever ony
unt the order or decree of dstrbuton s made.
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8213(b), rt. 88.
80
Under ths secton he does not receve the property n the usua
ega sense, but smpy ses t under drecton of the court and
appes the proceeds as the court may order. Ths speca con-
mssonershp or speca recevershp does not come wthn the defn-
ton above gven, as there s no transfer to the commssoner of the
property sod. Ths speca commssoner s smpy a person caed
upon by the court to ad the court n makng the sae and appyng
the proceeds.
The dstncton between a recever n the ordnary ega sense
of the term and n the sense of the above defnton and a speca
commssoner s shown n the case of anawha Coa Co. v. aard
Wech Coa Co. (43 W. a., 721 29 S. ., 514), where a recever
was apponted to take charge of and operate the defendant corpora-
ton, to coect debts owng to t, and to keep, care for, and preserve
the property n hs charge. In the same tgaton a speca com-
mssoner was apponted by the court whose dutes were to take,
state, sette, and report to the court an account of the ndebtedness
of the corporaton n recevershp, and aso to report other matters
that to hm mght seem pertnent. s quoted by the court n that
case, a recevershp s one of those remeda agences devsed
orgnay n order to preserve the fund or thng n queston from
remova beyond the |ursdcton or from spoaton or waste or
deteroraton pendng tgaton. y means of the appontment of
a recever a court of equty takes possesson of the property whch
s the sub|ect of the sut. The recever took charge of the
property, but the speca commssoner smpy gathered nformaton
to ad the court n makng the proper decree.
In decdng whether the ta payer was actuay a recever wthn
the contempaton of artce 88, regard must be had, not to the tte
he bears, but to the functons he performs. It s cear that the func-
tons performed by a speca commssoner or speca recever, derv-
ng hs appontment from chapter 132, secton 1, of the est rgna
Code, are not those of a recever n the ordnary ega and usua sense
of the word.
Dsregardng the tte of the appontee and consderng hs func-
tons ony, t s cear that the status of the ta payer was qute
anaogous to that of a master n partton under the aws of Penn-
syvana, whose compensaton has been hed to be ta abe (I. T. 1245,
C. . 1-1, 103) or to that of an appraser apponted by the court
(I. T. 1305, C. . 1-1, 104) or to that of an audtor or e amner
apponted by a court (S. M. 5287, C. . -, 222).
or the foregong reasons, ths offce s of the opnon that a
speca commssoner or speca recever apponted under chapter
132, secton 1, of the West rgna Code s not a recever n the
sense contempated by artce 88 of Reguatons 69, and that there-
fore the compensaton of the ta payer as such speca commssoner
or speca recever s not e empt from edera ta aton under the
Revenue ct of 1926.
C. M. Charest,
Genera Counse, ureau of Intevna Revenue.
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81 21303), rt. 89.
rtce 89: ddtona e cusons from gross II-10-3639
ncome. T. D. 4135
INCOM T .
Ta aton of earnngs of shps documented under the aws of Canada.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 213(b) 8 of the Revenue cts of 1921, 1924, and 1926 pro-
vdes that there sha be e empt from ta aton the ncome of a non-
resdent aen or foregn corporaton whch conssts e cusvey of earn-
ngs derved from the operaton of a shp or shps documented under
the aws of a foregn country whch grants an equvaent e empton
to ctzens of the Unted States and to corporatons organzed n the
Unted States.
In 1926 the Canadan Income War Ta ct, 1917, was amended
to provde that there shoud be e empt from ta the ncome of a
nonresdent person or a nonresdent corporaton whch conssts
e cusvey of earnngs derved from the operaton of a shp or shps
regstered under the aws of a foregn country whch grants an
equvaent e empton to resdents of Canada and to corporatons
organzed n Canada. The Canadan Government has advsed that
secton 213(b) 8 of the Revenue ct of 1926 s not regarded as sats-
fyng the equvaent e empton provson of ths amendment, for the
reason that the Revenue ct of 1926 does not e tend reef from ncome
ta to Unted States ctzens resdent n Canada and to corporatons
organzed n the Unted States whch have shps regstered n Can-
ada. In vew of the poston taken by the Canadan Government,
t s hed that the amendment n 1926 of the Canadan Income War
Ta ct, 1917, does not satsfy the equvaent e empton provson
of secton 213(b)8 of the Revenue ct of 1926. Pror to 1926 there
was no provson n the Canadan ncome ta aw n regard to the
e empton of ncome derved from the operaton of a shp or shps
documented under the aws of a foregn country.
ccordngy, artce 89 of Reguatons 62. as amended by Treasury
Decsons 3813 (C. . -, p. 225), 4013 (C. . I-1, p. 59), and
4098 (C. . T-2, p. 58) artce 89 of Reguatons 65, as amended
bv Treasury Decsons 3812 (C. . -, p. 47), 4013 (C. . I-1,
p 59), and 4098 (C. . I-2, p. 58) and artce 89 of Reguatons 69,
as amended by Treasury Decsons 4013 (C. . I-1, p. 59) and 4098
(C. . T-2, p. 58), are hereby further amended so as to ncude
Canada n the st of countres whch do not e empt from ta so
much of the ncome of ctzens of the Unted States nonresdent n
such foregn countres and of corporatons organzed n the Unted
States as conssts of earnngs derved from the operaton of a shp
or shps documented under the aws of the Unted States.
D. . ar,
Commssoner of Interna Revenue.
pproved ebruary 25, 1928.
. W. Meon,
Secretary of the Treasury.
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214(b)3, rt. 131.
82
S CTION 214(a)3. D DUCTIONS LLOW D
INDI IDU LS: T S.
rtce 131: Ta es.
( so Secton 212, rtce 23.)
R NU CT O 1926.
though the Inos statutes provde that books for the co-
ecton of property ta es sha be devered to the town, dstrct,
or county coectors on the 2d day of anuary foowng the year
on whch such ta es are eved, there s no provson whch re-
qures the county cerk to hod them unt that date, and, f the
books are devered In December, the date of devery w be con-
sdered the date on whch the property ta es accrue for Income
ta purposes.
n opnon s requested reatve to the tme of accrua of property
ta es n the State of Inos for the purpose of determnng the
net ncome of ta payers whose books of account are kept on the
accrua bass.
Secton 214(a)3 and secton 234(a)3 of the Revenue ct of 1926
provde, wth certan e ceptons not here matera, that n com-
putng net ncome there sha be aowed as deductons ta es pad
or accrued wthn the ta abe year .
Secton 212(b) provdes n the case of an ndvdua that the net
ncome sha be computed upon the bass of the ta payer s annua
accountng perod (fsca year or caendar year, as the case may be)
n accordance wth the method of accountng reguary empoyed
n keepng the books of such ta payer. In sectons 218(c), 219(b),
and 232 t s provded that the ncome of partnershps, estates and
trusts, and corporatons sha be computed on the same bass as s
provded n secton 212. pproved standard methods of accountng
w ordnary be regarded as ceary refectng ncome, but a method
of accountng w not be regarded as ceary refectng ncome uness
a tems of gross ncome and deductons are treated wth reasonabe
consstency. ( rtce 23 of Reguatons 65.) Ta payers whose
books of account are kept on the accrua bass are requred to accrue
a tems of ncome and deductons n order to ceary refect net
ncome. ( mercan Natona Co., as receve - for the . . Cons
Investment Co., v. U. S., 274 U. S., 99.)
In Genera Counse s Memorandum 1240 (C. . I-1, 65) t was
stated as foows:
It may e stated generay that not unt the ta ro s competed and
turned over to the county treasurer or other offcer desgnated by aw to
coect property ta es, wth a warrant to coect such ta , have a the events
occurred whch f the amount of the ta and determne the abty of the
ta payer to pay t. Ths s usuay the due date. that the ta payer knows
pror to that tme s that he w have to pay ta es on hs property. The vaue
at whch t w be assessed and the rate to be apped to such vaue are deter-
mned by the offcas desgnated by aw.
The genera prncpe as to the proper accrua of ta es was recog-
nzed by the Supreme Court of the Unted States n the case of
Unted States v. nderson et a. (269 U. S., 422.) though ths
case pertaned to the accrua of muntons ta es, the prncpe s
appcabe to the accrua of property ta es. The court, n the course
of ts opnon, stated as foows:
s II-10-3636
G. C. M. 3244
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83
214(a)3. rt. 13L
Ony a word need be sad wth reference to the contenton thnt the ta upon
muntons manufactured and sod n 1916 dd not accrue unt 1917. In a
technca ega sense t may be argued that a ta does not accrue unt t has
been assessed and becomes due but t s aso true that n advance of the
assessment of a ta . a the events may occur whch f the amount of the
ta and determne the abty to the ta payer to pay t.
s ponted out n Genera Counse s Memorandum 1240, supra,
ncome and muntons ta es are sef-determned, n the sense that
the ta payer makes the computaton of the ncome sub|ect to ta
and the ta to be pad, whereas property ta es are not sef-deter-
mned. The property s vaued and the ta computed by the duy
authorzed offcers desgnated by aw, and not unt such offcers com-
pete ther computaton and the ta ro or ta book s made up
does a abty for any partcuar sum become f ed. It was further
stated that most property ta aws requre that the ta ros be
competed on a certan date or on or before a certan date, and that
the date on whch such ros are competed s ordnary the due date
of the ta .
rom the Inos Revsed Statutes, t appears that before the 1st
day of une of each year the county assessor s requred to assess the
vaue of both rea and persona property as of the 1st day of pr
and dever the assessment books to the county cerk on or before the
1st day of uy. The assessments are revewed and equazed as pro-
vded by aw, and on or before the 7th of September are devered to
the county cerk. The county cerk s then requred to ascertan the
rates per cent requred to be e tended upon the assessed vauaton
of the ta abe property n the respectve towns, townshps, dstrcts,
ncorporated ctes, and vages n hs county as equazed by the
State ta commsson for the current year to produce the severa
amounts certfed for e tenson by the ta ng authortes n the sad
county. There s no date specfed by the statute upon whch the
property ta es are due and payabe, but they are requred to be pad
upon demand by the coector, and n the case of negect or refusa
to pay the ta the property s sub|ect to dstrant. It s further pro-
vded that to each coector s book a warrant, under the hand and
offca sea of the county cerk, sha be anne ed, commandng the
coector to coect from the severa persons named n sad book the
severa sums entered n the coumn of totas opposte ther respectve
names. (Smth- urd Inos Revsed Statutes, 1925, ch. 120, sees. 94
to 330.)
Secton 331 of chapter 120 reads as foows:
When books devered to coector. 52. The county cerk sha hereafter de-
ver to the town, dstrct, or county coectors te books for the coecton of
ta es on the 2d day of anuary foowng the year on whch such ta es are
eved. s amended by act approved May 13, 1907. L., 1907, p. 500.
though the above-quoted secton of the Inos statutes provdes
that the ta books sha be devered to the coector on the 2d day
of anuary, there s no provson whch requres the county cerk to
hod them unt that date, and, f the books are devered n Decem-
ber, the date of devery w be consdered the date upon whch the
property ta es accrue for ncome ta purposes.
C. M. Chakest,
Genera Counse, ureau of Interna Revenue.
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214(a)4, 6, 6, rt. 141.
84
rtce 141: Losses.
( so Secton 213(a), rtce 81.)
II-14-3665
I. T. 2404
R NU CTS O 1918, 1921, ND 1928.
Method of determnng ga n or oss arsng from certan nvest-
ments n Germany durng the perod foowng the cose of the
Word War.
n opnon s requested as to whether the ta payer s entted to
a deducton for a oss ncurred as a resut of certan nvestments n
Germany under the foowng crcumstances:
It appears that nherted from a German reatve a frst-mortgage
note for 9 / marks, whch, after probate of the estate n the German
courts, was assgned to hm by the admnstrator on December ,
1918. In pr, 1920, the mortgage note was pad n fu by the
maker thereof. Of the proceeds, y marks were deposted n a bank
n Germany. Subsequenty, under date of anuary , 1924, the bank
nformed the ta payer that the depost was ost n 1923 through the
deprecaton of the mark. The baance of the proceeds of the n-
herted mortgage note that s, 2y marks was nvested n 19-0 n
another mortgage note, whch was pad n the year 1921. fter
payment of the atter note the 2y marks were renvested n bonds
of a German corporaton. These bonds were payabe n the usua
German currency and had a very sght vaue n 1923. In anuary,
1927, however, through the operaton of the German revauaton aw,
the ta payer receved n payment of the bonds marks (new), the
vaue of whch n mercan money amounted to doars. No re-
vauaton of the mortgage note whch was purchased n 1920 coud
be secured for the reason that the admnstrator who represented
n Germany faed to reserve the rght of revauaton. sut
aganst ths admnstrator brought by for aeged neggence n
handng the mortgage note for 2y marks was decded adversey
by the German court. The vaue of the 9u mark nherted mortgage
note at the current rate of e change on December 1, 1918, was 155
doars. The ta payer cams that as a resut of those transactons
he suffered a oss of 154 doars n 1927, and that he s entted to
take that oss as a deducton n hs return for that year.
The ta payer s statements n regard to the revauaton of the mort-
gage note and the bonds are supported by certan provsons of the
egsaton enacted by the German Rechstag on u 16, 1925, for
the revauaton of mortgage notes and other prvate cams whch
had decned n vaue as the resut of the deprecaton of the mark
durng and after the Word War. Ths egsaton provded n gen-
era that credtors who were pad n deprecated currency were not
requred to accept such payments n actua satsfacton of ther
cams but mght secure a payment based on a certan percentage of
the god mark vaue of the cam at the date when t arose. In a
case where a mortgage was repad before une 15,1922, the advantage
of the revauaton provsons mght ony be secured on the condton
that the credtor reserved hs rght to revauaton at the tme that the
Sayment was made and on the condton that he fed a cam before
anuary 1, 1926. The ta payer has stated that the German admns-
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85
214(a)4, 5, 6. rt. 141.
trator who represented hm n connecton wth the mortgage note
pad n 1921 dd not make ths reservaton. It s worthy of note that
the revauaton aw provded that the admnstrator of another per-
son s property shoud not be caed to account for any defaut en-
ttng the obgor to ndemnty f he acted n the beef, based upon
e stng egsaton, that revauaton was out of the queston.
It s beeved that the facts n ths case dscose a seres of trans-
actons resutng n a gan or oss to the ta payer for the year n
whch each of the transactons termnated. It s concuded: (1)
That the ta payer e perenced n 1920 a gan or oss dependng upon
whether the vaue of the marks receved that year n payment of the
nherted mortgage note, measured n mercan doars, was n e cess
of or ess than the far market vaue of that mortgage note, measured
n mercan doars, at the tme of the death of the ta payer s de-
cedent (2) that the ta payer e perenced gan or oss n 1921 de-
pendng upon whether the vaue of the marks receved n payment
of the 2y-mark mortgage note, measured n mercan doars, was n
e cess of or ess than the cost of that mortgage note, measured n
mercan doars at the tme of ts purchase and (3) that the ta -
payer e perenced gan or oss n 1927, dependng upon whether the
vaue of the marks, measured n mercan doars, whch he receved
n payment of the bonds was n e cess of or ess than the cost of these
bonds, measured n mercan doars, at the tme of ther purchase
n 1921.
The obgaton of the German bank to repay to the ta payer 7y
marks was a debt, and the ta payer s entted to deduct the same
f t was actuay determned to be worthess and charged off n ac-
cordance wth the requrements of secton 214(a) 7 of the Revenue
ct of 1921. ( ppea of Murchson Natona ank, 1 . T. ., 617
C. . I -1, 3.) The determnaton of worthessness n any ta abe
year must be reasonabe and supported by the facts n each case.
( ppea of Murchson Natona ank, supra appea of Samue
rd. 4 . T. ., 259, C. . I-2, 1 Lous Stern v. Commssoner,
5 . T. ., 870, C. . I-2, 6 Car Stern v. Commssoner, 5 . T.
.. 871, C. . I-2. 6.) debt may not be charged off n a year
subsequent to that ndcated by the evdence as the year n whch the
ta payer knew of the worthessness of the debt. (See decson of the
Unted States Crcut Court of ppeas n the case of Thomas .
very v. Commssoner of Interna Revenue, T. D. 4116 see page
155 .)
btce 141: Losses. II-20-3717
I. T. 2408
R NU CT O 1926.
oss occasoned by damage to an automobe mantaned for
peasure where such damage resuts from the fauty drvng of the
ta payer, but s not due to hs wfu act or neggence, s a de-
ductbe oss n the computaton of net ncome. Where damage to
a ta payer s automobe resuts from the fauty drvng of the
operator of an automobe wth whch the automobe of the ta -
payer codes, the oss occasoned to the ta payer by such damage
s kewse dednctbe.
ttenton s caed to the fact that Offce Decson 629 (C. . 3, 158)
and Offce Decson 857 (C. . 4. 160) were revoked by I. T. 2363
(C. . I 1, 220), n vew of Genera Counse s Memorandum 1802
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214(a)4, 5, 6, rt. 141.
86
(C. . T-1, 219), gvng effect to the decson of the crcut court of
appeas n the case of- Shearer v. nderson (16 ed. (2d) 995).
There appears to be some uncertanty n the ureau as to whether
a oss shoud be aowed as a deducton where damage to a peasure
automobe resuts from fauty drvng on the part of ether or both
of the drvers rather than from the condton of the road.
The facts n the case of Shearer v. nderson, supra, were that the
automobe whch was damaged was n the unauthorzed possesson of
the ta payer s chauffeur, who had taken the car for hs own use
wthout the owner s knowedge and aganst hs orders. The auto-
mobe was overturned on an cy roadway. The queston nvoved
n the case was whether the oss was deductbe under secton 214(a)6
of the Revenue ct of 1918, whch provdes for the deducton of
osses sustaned durng the ta abe year of property not connected
wth the trade or busness f arsng from fres, storms,
shpwreck or other casuaty, or from theft, and f not compensated for
by nsurance or otherwse. The Government contended that under
the rue of e|usdem geners the oss n queston dd not arse from
other casuaty wthn the contempaton of the statute. The court
n hodng that the oss was deductbe made the foowng statement:
n automobe used for recreaton and convenence woud seem to be most
cosey anaogous to a peasure yacht as Congress has made damages due to a
wreck of the atter a deductbe oss, the ct shoud be construed to show an
ntent to cover a wreck to the former, smary caused, nasmuch as such a
constructon can fary and reasonaby be gven thereto.
Whether the compant be nterpreted as chargng the oss to be due pro -
matey to the overturnng caused by the fauty drvng of the chauffeur over an
cy road or to subsequent freezng of the motor, n any event, t s aeged to be
cue to a casuaty, anaogous to a shpwreck, not caused by the wfu act or
negect of the owner or of one actng n hs behaf. We concude that such a
oss s deductbe.
In accordance wth the opnon of the court quoted n part above,
t s hed that a oss occasoned by damage to an automobe man-
taned for peasure where such damage resuts from the fauty drv-
ng of the ta payer but s not due to hs wfu act or neggence, s
a deductbe oss n the computaton of net ncome. It s aso hed
that where damage to a ta payer s automobe resuts from the fauty
drvng of the operator of an automobe wth whch the automobe
of the ta payer codes, the oss occasoned to the ta payer by such
damage s kewse deductbe.
ktce 141: Losses. II-26-3775
( so Secton 202, rtce 1566.) Mm. 3641
Recognton of gan or oss where trucks and passenger cars are
traded n on new trucks and cars.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton, D. C, une 11, 1928.
To Coectors of Interna Revenue, Interna Revenue gents n
Charge, and Others Concerned:
Reference s made to I. T. 2356, pubshed on page 168 of Cumu-
atve uetn I-1, n whch t s hed that no oss s recognzed
from the tradng n of trucks and passenger cars used for busness
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87
214(a)8, rt. 16L
purposes on new trucks and passenger cars to be used for ke pur-
poses. Ths offce has approved the recommendaton of the Genera
Counse that I. T. 2356 be revoked.
ccordngy, n a cases where a truck or passenger car used for
busness purposes s traded n on a new truck or car to be used for
ke purposes, the transacton n so far as t reates to the od truck
or car shoud be treated as cosed and competed that s, the transac-
ton shoud be treated as the sae of the od truck or car, makng
necessary a determnaton of the gan or oss resutng from such
-ae.
ny nqures n regard to ths mmeograph shoud refer to the
number of the mmeograph and the symbos IT: : RR.
. . Mres, ctng Commssoner.
S CTION 214(a)8. D DUCTIONS LLOW D
INDI IDU LS: D PR CI TION.
rtce 161: Deprecaton. II-26-3776
I. T. 2418
R NU CT O 1926.
Method of computng the deprecaton deductons n the case of
mproved rea estate devsed to the ta payer for fe wth remander
over, the property havng an estmated usefu fe wbcb e ceeds
the e pectancy of the fe tenant.
dvce s requested reatve to the method of computng the de-
precaton deductons n the case of mproved rea estate devsed to
for fe wth remander to .
The decedent devsed certan property n the foowng anguage:
I w, bequeath, and devse to my sad wfe, , the foowng houses and
and n the cty of , State of rgna, vz: these houses, a of them,
and the haf nterest n certan houses, as stated, to he hers durng her natura
fe, and at her death the same to pass to our son, .
, the fe tenant, survved her husband, and was 73 years of age
at the date of hs death. aso s vng at the present tme, and
was 43 years of age at the tme of testator s death. The e pectancy
of the fe of the fe tenant as of ebruary , 1925, the date of the
testator s death, was 7.26 years. The e pectancy of the remander-
man as of the date of the death of testator was 25.12 years, and the
mprovements had an estmated fe of 50 years from the date of the
death of the decedent.
The questons presented are as foows:
(1) Manner of computng the deprecaton aowabe and by whom
may t be taken each year
(2) Is the remanderman entted to any deprecaton on the
property n queston durng the fe of the fe tenant
rtce 161, Reguatons 69, provdes, n part, as foows:
In the case of mproved rea estate hed by one person for fe wth
remander to another person, the deducton for deprecaton sha be equtaby
apportoned between the fe tenant and the remanderman. Thus, f the m-
provement on rea property devsed to one for fe wth remander over has
an est matcd usefu fe whch e ceeds the e pectancy of the fe tenant.
tne far market vaue of the mprovement at the tme of ts acquston by
6342 28 7
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214(a)8. rt. 161.
88
devse sha be apportoned between the fe tenant and the remanderman, and
the fe tenant w be entted to deprecaton on the part of such far market
vau1 apportoned to hm n case he uses the mprovement n hs trade or
busness, a ratabe porton of the amount so aocated to be camed ns depreca-
ton each year, wh:e the remanderman, upon the termnaton of the fe
estate, w be entted to deprecaton on the baance of such far market vaue
of the mprovement provded the property s used by hm n hs trade or bus-
ness. In case the usefu fe of the mprovement s ess than the e pectancy
of the fe tenant, the fe tenant s entted to deprecaton thereon as f he
were the owner of the fee.
Under the provsons of secton 214(a)8 of the Revenue ct of
1926 and the porton of artce 161, Reguatons 69. above quoted,
n a cases where the estmated usefu fe of the mprovements on
rea estate hed by one person for fe wth remander to another
person, e ceeds the e pectancy of the fe tenant, the aowance for
deprecaton must be equtaby apportoned between the fe tenant
and the remanderman. Ths apportonment s based upon the vaue
of the mprovements as of the date of the death of the decedent
and the e pectancy of the fe of the fe tenant. Durng the e st-
ence of the fe estate, the remanderman s not entted to any aow-
ance for deprecaton. In the nstant case, therefore, . the fe
tenant, s soey entted to an aowance for deprecaton and ony
wth respect to the mprovements on the property. The amount of
deprecaton aowabe s to be ascertaned on the bass of the far
market vaue of the mprovements to the fe tenant as of ebruary
, 1925, the date of the vestng of her nterest.
The amount of deprecaton whch , the fe tenant, s entted
to deduct annuay s to be computed n the foowng manner: The
vaue of the remander nterest n the mprovements as of eb-
ruary , 1925, the date of the death of the testator, shoud be com-
puted n accordance wth the provsons of secton 5131 of the stat-
utes of rgna (Code of rgna, 1919), whch gves the fe ten-
ant a presumptve annuty of 6 per cent on the prncpa sum dur-
ng the probabe fe of the fe tenant. The vaue of the remander
nterest n the mprovements shoud be subtracted from ther far
market vaue on ebruary , 1925, and the baance of such far
market vaue shoud be spread over the e pected fe of the fe
tenant on that date that s, 7.26 years. Thus a ratabe porton of
such vaue, or thereof, may be deducted by the fe tenant an-
nuay as deprecaton, provded the property s hed for busness
purposes.
Secton 5131 (supra) contans a tabe whch gves the present
vaue of an annuty of 1 for a person 73 years of age as 5,170.
The vaue of the remander nterest n 1. the use and en|oyment of
whch s to be postponed unt the death of a person 73 years of age,
gvng the fe tenant a presumptve return of 6 per cent per annum,
s determned by mutpyng the factor, 5,170, bv .06, subtractng
the product from 1.00000. and dvdng the remander by 1.06. Thus
the vaue of the remander nterest n 1 s 0.65075.
ssumng n the nstant case that the vaue of the devsed depre-
cabe property s 20,000 at the date of the testator s death, the
vaue of such propert when presumptvey the remanderman w
be entted to possesson thereof at the death of the fe tenant,
whose e pectancy s 7.26 years, s 20,000, reduced by 2,904, whch
represents deprecaton for 7.26 years at the rate of 2 per cent per
annum, the mprovements havng had an estmated usefu fe of 50
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89
214(a)8, rt. 164.
years from the date of the testator s death. Thus, the vaue of the
deprecabe property to the possesson of whch the remanderman
w be entted s taken to be 17,096. The present vaue of the
remander nterest n the mprovements s found by mutpyng
17,096 by 0.65075, whch gves a product of 11,125.22. The vaue
of the fe nterest n the mprovements s found by subtractng the
present vaue of the remander nterest from 20,000, the far mar-
ket vaue of the mprovements. Such subtracton gves 8,874.78,
whch s the far market vaue of the nterest of the fe tenant. s
the fe tenant has an e pectancy of 7.26 years, she s entted to an
aowance for deprecaton of of 8,874.78, or 1,222.42, durng
each of the succeedng 7.26 years.
The remanderman s not entted to any aowance for depreca-
ton durng the e stence of the fe estate. (G. C. M. 1424, C. .
I-1, 69.)
rtce 164: Capta sum recoverabe through II-20-3718
deprecaton aowances. I. T. 2409
R NU CT OP 1926.
Iu 1926 eased rea estate to a essee for a perod of 99 years.
The essee was gven the rght to rase a budng ocated thereon
and to rebud and to have as ts own absoute property the ma-
tera n the budng and mprovements upon the premses. The
essee agreed that at the termnaton of the ease the essor shoud
have the rght to retan a the mprovements paced on the
premses, free of cost or e pense of any knd.
The cost of the od budng, ess sustaned deprecaton, was part
of the cost to the essor n acqurng the ease and Is propery
amortzabe over the fe of the ease.
dvce s requested as to whether a deductbe oss may be camed
by as a resut of the demoton of a budng ocated on rea estate
eased under a contract wth a essee for a perod of 99 years. The
undeprecated cost of the budng to at the tme the ease was
gven was doars.
The ease e ecuted by n 1926 provdes n part as foows:
Lessee s gven fu rght and authorty to ater, structuray or otherwse, to
tear down and rebud, repar and mprove the budngs ocated now or at any
other tme hereafter on the eased premses, provded, however, that a of such
work sha be done n a frst-cass and workmanke manner at the cost and
e |ense of essee and n conformance wth the budng reguatons of the cty
of R and the State of S.

It s agreed that essee sha, sub|ect to the rghts of the mortgagee heren-
after mentoned and wthout any further cost or e pense, have as ts own
abs hte property a and entre the matera In the budng and mprovements
now upon sad premses. ut essee agrees to procure the consent of the hoder
of the outstandng mortgage herenafter mentoned to the destructon of present
budngs and the remova of sad matera.

Lessee covenants and agrees that at the termnaton of ths ease, at the end
of the 99-year perod or before, essor sha have the rght to retan a the
mprovements paced on sad premses free of cost or e pense of any knd.
Under the facts presented, t s hed that the cost of the od bud-
ng, ess sustaned deprecaton, was part of the cost to the essor n
acqurng the ease and s propery amortzabe over the fe of the
ease.
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214(a)10, rt. 251.
90
S CTION 214 (a) 10. D DUCTIONS LLOW D INDI-
IDU LS: CONTRI UTIONS OR GI TS.
rtce 251: Contrbutons or gfts. TI-5-3591
( so Secton 213(a), rtce 47.) I. T.2397
R NU CT O 1026.
The ta payer, who was 72 years of age, transferred 50,000 to a
coege upon an agreement that he shoud receve an annuty of
2,500 per annum for fe.
ed, that the dfference between 50,000 and 13,642.50, the
amount representng the purchase prce of the annuty based on the
fe e pectancy of the ta payer accordng to e perence mortaty
tabes, s aowabe as a contrbuton (o the e tent provded n sec-
ton 214(a)10 of the Revenue ct of 1926. If the ta payer shoud
ve to recover any amount In e cess of the purchase prce
( 13,642.50) of the annuty, such amount w be ta abe to hm In
the year n whch receved.
The opnon of ths offce s requested reatve to the ncome ta
abty of .
It appears that n 1926 transferred 50,000 to the M Coege
upon the agreement that he shoud receve an annuty of 2,500 per
annum for fe. t the tme the transfer was made was 72 years
of age. The queston presented s whether any porton of the
50,000 may be consdered as a contrbuton to the M Coege, an
organzaton comng wthn those referred to n secton 214(a) 10|
cass , of the Revenue ct of 1926.
It s the opnon of ths offce under a the facts shown that the
sum of 50,000 transferred by to the M Coege consttuted n part
a contrbuton to the coege. The contrbuton s represented by the
dfference between the cash vaue of the fe annuty as at the date
of the transacton and the amount transferred.
ased on the fe e pectancy of n 1926, accordng to e perence
mortaty tabes, the vaue of an annuty of 1 for fe at 5 per cent
s 5,457. The vaue of s fe annuty of 2,500 was, therefore,
13,042.50. In other words, ths s the amount whch was pad as
consderaton for the annuty contract. The dfference between
50,000, the amount transferred, and 13,642.50, the amount represent-
ng the purchase prce of the annuty, or 36,357.50, s aowabe to
as a deductbe contrbuton for 1926 n the manner and to the
e tent provded for n secton 214(a) 10 of the Revenue ct of 1926.
If shoud ve to recover any amount or amounts n e cess of the
purchase prce ( 13,642.50) of the annuty, as above determned,
such amounts w represent ta abe ncome to hm n the year n
whch receved.
rtce 251: Contrbutons or gfts. II-11-3642
G. C. M. 3016
R NU CT O 1926.
Upon the death of the survvor of two fe benefcares, the prn-
cpa of a trust fund s to be pad to an agency desgnated by an
advsory commttee, to be used n nvestgatng, combatng, and
eradcatng eprosy or other tropca dseases. In the event the
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91
214(a) 10, rt. 251.
advsory commttee fas to gve such drectons wthn a reasonabe
tme after determnaton of the fe estates, the fund s to be
pad to the M Memora for the radcaton of Leprosy.
ed, that the gft of the remander nterest s to a fund organ-
zed and operated e cusvey for chartabe, scentfc, or educa-
tona purposes, and that the amount to be aowed as a deducton
under secton 214(a) 10 of the Revenue ct of 1926 s the present
vaue of 1, the use of whch s postponed for the fe of two per-
sons, mutped by the amount of the contrbuton made.
n opnon s requested as to whether and to what e tent a certan
contrbuton s deductbe under secton 214(a) 10 of the Revenue
ct of 1926.
It appears that certan frends of the ate have, by an appro-
prate trust ndenture, provded for the creaton of two trust funds to
hs memory, of whch the O Company s the trustee. The trustee
s to hod one of these funds, known as und , and to coect
the ncome therefrom and pay the same, ess e penses, to , wdow
of the ate , durng her fetme, and upon her death to her daugh-
ter, C, n the event the atter survves the former. Upon the death
of the survvor of the two benefcares the trustee s to pay the
prncpa to such agences as sha be desgnated by an advsory com-
mttee, provded for by the trust ndenture, to be used n nvestgat-
ng, combatng, and eradcatng eprosy or other tropca dseases.
In the event the advsory commttee fas to gve such drectons
wthn a reasonabe tme after the termnaton of the fe estates
mentoned, the fund s to be pad to an organzaton known as the
M Memora for the radcaton of Leprosy. The sad organzaton
s as yet unncorporated, but t s contempated that t w be
ncorporated at a ater date.
On October , 1927, D made a contrbuton to und of
doars. dvce s requested as to the amount, f any, that may be
deducted as a chartabe contrbuton wth respect to ths gft.
It s suggested that nasmuch as the fund after the death of the
benefcares may be turned over to an organzaton whch at the
present tme s not n e stence the vaue of the remander nterest
of the contrbuton to the trust can not be sad to have been donated
to an organzaton whch has been organzed and s operated for
chartabe or educatona purposes.
Secton 214(a) 10 provdes that n computng net ncome there
sha be aowed as deductons:
Contrbutons or gfts made wthn the ta abe year to or for the use of:
( ) any corporaton, or trust, or communty chest, fund, or founda-
ton, organzed and operated e cusvey for chartabe, scentfc,
or educatona purposes, no part of the net earnngs of
whch nures to the beneft of any prvate sharehoder or ndvdua .
In I. T. 1776 (C. . II-2, 151) t s hed that where a donor gave a
remander nterest n bonds to a church, the present vaue of the
remander nterest s deductbe, though the fe nterest was gven for
nonchartabe purposes. In the. nstant case t s uncertan what
organzaton w fnay admnster the remander nterest n und
. The advsory commttee named n the trust deed may appont
any person or agency t peases to admnster the fund after the fe
nterest has termnated. It s certan, however, that the remander
nterest must be apped whoy for chartabe, scentfc, or educa-
tona purposes, namey, n nvestgatng, combatng, and eradcatng
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214(a)10, rt. 251.
92
eprosy or other tropca dseases. In the opnon of ths offce, that
s a that s necessary n order to warrant the deducton camed n
the nstant case. It s not essenta that the agency whch s eventu-
ay to admnster the remander nterest be known n advance, for
under the secton of the ct above quoted the gft of that nterest s
deductbe f made to or for the use of any
fund organzed and operated e cusvey for
chartabe, scentfc or educatona purposes. Itacs
supped. In the nstant case the gft of the remander nterest s
to a fund organzed and operated e cusvey for one or more of the
purposes named. und n reaty conssts of two funds. One
fund s composed of the fe nterest n the contrbutons, and s used
for prvate purposes. The other fund s composed of the remander
nterest n the contrbutons, and that fund s organzed and operated
e cusvey for one or more of the purposes named n the secton of
the ct quoted above. Ths second fund s |ust as truy organzed
and operated at the present tme as the other fund s. The fact
that the fund may not actuay be e pended for combatng eprosy
unt a ater date s qute mmatera. In the meantme t s organ-
zed and operated for combatng eprosy by beng hed by the trustee,
and nvested and renvested, wth the ntent that ater t sha actvey
be used e cusvey for that purpose. The fact that the fe nterest
and the remander nterest are not e pressy caed two funds n the
trust deed s mmatera n vew of the fact that t ceary appears
from the trust deed taken as a whoe that the so-caed und
does n fact consst of two funds.
The amount to be aowed as a deducton under the crcumstances
of the nstant case s the present vaue of 1 the use or en|oyment of
whch s postponed for the fe of two persons (one of whom s 28
and the other 58 years of age) mutped by the amount of the con-
trbuton made. The present vaue of 1 under such crcumstances
s determned by a computaton as foows:
Prespnt vaue of . 1 due at denh of person apod 58 0.57514
Present vaue of 1 due at death of person aged 28 . 293S6
. 86900
aue of 1 payabe at death of frst decedent .00388
aue of 1 payabe at death of the survvor of two . 26512
C. M. Chaeest,
Genera Counse, ureau of Interna Revenue.
rtce 251: Contrbutons or gfts. TI-11-3643
I. T. 2403
R NU CT O 1926.
trust nstrument provdes that: Upon the death of the sur-
vvor of the sad and the sad , the trustee shn transfer,
assgn, and pay over the prncpa of ths trust fund to such person
or persons, natura or corporate, and n such proportons as the
sad sha nomnate and appont n and by her ast w and
testament, .
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93
214(a)10, rt. 251.
In case of her faure vady and effectuay to appont the
whoe or any part of the prncpa of ths trust fund, the trustee
sha transfer, assgn, and pa| over the sad prncpa (or so much
thereof as sha not have been vady and effectuay apponted
by the sad ) for the purpose of creatng a memora to the sad
C to be apped to the cause of nvestgatng, combatng, and erad-
catng eprosy or other tropca dseases, etc.
ed, that no part of any gft or contrbuton made to the trust
fund consttutes an aowabe deducton under secton 214(a) 10
of the Revenue ct of 1926.
n opnon s requested regardng the deductbty from a ta -
pa|Ter s 1927 gross ncome for ncome ta purposes of a contrbuton
made to a trust created for the beneft of durng her fetme, and
upon her death for the beneft of durng her fetme, shoud she
survve . Ths trust s referred to n the trust nstrument as und
and provdes that:
Upon the death of the survvor of the sad and the sad , the trustee
shaU transfer, assgn, and pay over the prncpa of ths trust fund to such
person or persons, natura or corporate, and n such proportons as the sad
sha nomnate and appont n and by her ast w and testament, .

In case of her faure vady and effectuay to appont the whoe or any part
of the prncpa of ths trust fund, the trustee sha transfer, assgn, and pay
over the sad prncpa (or so much thereof as sha not have been vady and
effectuay apponted by the sad ) for the purpose of creatng a memora to
the sad C to be apped to the cause of nvestgatng, combatng, and eradcatng
eprosy or other tropca dseases, etc.
Under these provsons of the trust deed, ony the remander over
upon the death of the ast survvng benefcary for fe s, by any
possbty, a gft to a trust or fund, or foundaton or-
ganzed and operated e cusvey for regous, chartabe, scentfc,
or educatona purposes , no part of the net earn-
ngs of whch nures to the beneft of any prvate sharehoder or
ndvdua, under secton 214(a) 10, Revenue ct of 1926. Whatever
s the character of that remander as respects the nsttuton to be
created as a memora to C for the purpose of nvestgatng, com-
batng, and eradcatng eprosy or other tropca dseases, the trust
deed provdes that that remander s sub|ect to the e ercse of the
power of appontment vested n . Regardess of whether the re-
mander nterest s vested or contngent, t s not commtted wthout
mtaton to any nsttuton of the character descrbed n secton
214(a) 10, but s sub|ect at the w of to dverson ether n whoe
or n part to uses and purposes havng no reaton to regous,
chartabe, scentfc, or educatona purposes. y an ap-
proprate e ercse of the power of appontment, the whoe remander
nterest may nure to the beneft of prvate ndvduas. Whether
any nsttuton organzed and operated e cusvey for regous,
chartabe, scentfc, or educatona purposes s ever to
be the benefcary n und s, and must reman unt the death
of , uncertan, contngent, and ndetermnate. No part, therefore,
of und satsfes the requrements of secton 214(a) 10, Revenue
ct of 1926, and accordngy no part of any gft or contrbuton
made to that fund consttutes an aowabe deducton under secton
214(a)10.
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215, rt. 292. 94
rtce 251: Contrbutons or gfts.
R NU CT O 1026.
Contrbutons to organzaton engaged n promotng the wefare
of the mercan Indan. (See G. C. M. 3830, page 114.)
S CTION 215. IT MS NOT D DUCTI L .
rtce 292: Capta e pendtures. II-10-3637
I. T. 2402
R NU CT O 1026.
mount e pended for the use of a regstered trade-mark beong-
ng to another consttutes a capta e pendture.
n opnon s requested n regard to the ncome ta abty of the
M Company for the year 1925.
The corporaton camed a deducton n ts return for an amount
pad to pursuant to an agreement entered nto between them
May , 1925. The agreement rectes that the O Company regstered
the trade-mark wth the Commssoner of Patents n 190-, and
that that company assgned a of ts rghts n the trade-mark to ,
and further provdes as foows:
Now, therefore, n consderaton of the sum of doars pad by the sad
M Company to the sad , recept of whch s hereby acknowedged, the sad
does hereby se, assgn and transfer unto the sad M Company a hs rght,
tte and nterest n and to the trade name or mark as apped to medcna
preparatons e cept that the sad sha have and retan the rght to use the
trade name or mark n connecton wth the sae of the tonc unt a
abes now made and n hs possesson have been used, but not after anuary 1,
192o and sad sha aso have and retan a the rght n and to sad trade-
mark as apped to certan other products.
It appears that on December , 1924, the M Company began
the manufacture and sae of a tonc known as . n nvestgaton
by the company pror to tat date faed to dscose that any other
company or ndvdua was usng ths trade-mark. The vce pres-
dent of the company states that n 1925 the company receved a etter
from , advsng that he was presdent of the O Company, that that
company had regstered the trade-mark , that the company
had assgned a of ts rghts theren to hm, and that he woud take
ega steps to prevent the further use of the name by the M Company
and to secure fu damages. The vce presdent cams that the
amount of doars was actuay pad for the nterest of n the
trade-mark, as a reease from any abty to hm for damages, and
as an assurance that the M Company woud be unmoested n ts use of
the name n the future. e consders that the tem represents
a deductbe e pense rather than the cost of a capta asset, on the
ground that had nothng to se and that the ony thng acqured
by the M Company was mmunty from awsuts. In support of hs
poston the vce presdent ponts out (1) that the perod of regs-
traton of the trade-mark had e pred when the contract wth was
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95
215, rt. 292.
entered nto by the M Company (2) that the O Company had ds-
contnued busness and had stopped usng the name severa
years pror to the tme that the M Company began ts use (3) that
a trade-mark may not be assgned e cept n connecton wth a trans-
fer of the busness wth whch t has become dentfed, and hence
(hat both the assgnment to by the O Company and the assgnment
by to the M Company were neffectua and (4) that a trade-mark
s not property, n support of whch contenton s cted the case of
the Commssoners v. entucky Dsteres (116 S. W., 766).
rung s requested n regard to the deductbty of the tem of
doars.
It s we estabshed that a common-aw rght to a trade-mark
may be acqured by adopton and user ndependent of statute.
(Chares roadway uss, Inc., v. Wnchester Co., 290 ed.. 463
eechnut Packng Co. v. Lortard Co., 7 ed. (2d), 967.) n app-
cant for regstraton of a trade-mark under the edera aw s re-
qured to show the ength of tme that the trade-mark has been n
use and must state that to the best of hs knowedge and beef no
other person has the rght to use such trade-mark. The effect of
regstraton s merey to gve prma face evdence of ownershp t
does not destroy any rght prevousy acqured by another or gve
to the regstrant any new rght n addton to that whch he had at
common aw e cept for the remedy of brngng sut n the edera
court to protect hs rght. (Sarrazn v. W. . Irby Cgar d- Tobacco
Co., 93 ed., 624 anover Star Mng Co. v. Met caf, 240 U. S.,
403.) Consequenty, no mportance s attached to the argument of
the ta payer that the regstraton of the trade-mark e pred
n 192-. The common-aw rght to the use of the trade-mark con-
tnued n the possesson of the O Company uness t was ost by
nonmer or abandonment. It s noted from the contract between the
0 Company and that on une , 1910, the corporaton sod to
certan persona property ocated at a desgnated address, the good
w of s busness, and the rght to use any names empoyed by the
corporaton n the operaton of ts busness, and that the corporaton
agreed not to engage n the manufacture and sae of certan products
or n the manufacture and sae of any of te artces prevousy
manufactured or sod e cept that the corporaton mght f orders
aready receved. It s stated that the corporaton went out of bus-
ness at some tme subsequent to 1910. It appears from the contract
that the corporaton sod ts entre busness to , ncudng good w
and trade-marks. Therefore, the assgnment of the trade-mark
to was effectve, and, f he contnued to manufacture the tonc
prevousy manufactured by the corporaton under the trade-mark
, he had a common-aw rght to use the name at the tme when
the M Company began the manufacture of ts product under the
same name.
carefu e amnaton of the wrtten contract between and the
M Company fas to dscose that the atter pad anythng to the
former as damages for nfrngng ts trade-mark or that the
M Company pad anythng for the purpose of wardng off threatened
awsuts. Under the agreement purports to se, assgn and
transfer to the M Company a hs rght, tte and nterest to
the trade-mark as apped to medcna preparatons e cept
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215, rt, 292. 96
t
that retaned ts use n connecton wth the sae of the tonc unt
a abes made and n hs possesson were used but not n any event
after anuary 1, 11)26, and that retaned the use of the trade-mark
as apped to certan other products. The ta payer s poston that
ths agreement was neffectua to convey any tte, to the trade-mark
to t must be conceded. The contract dd not provde for the con-
veyance of any physca assets or any gong busness to the M Com-
pany. It s we estabshed that a trade-mark can not be sod nde-
pendenty and s not the sub|ect of property rghts e cept n con-
necton wth an e stng busness. (Preatonettes, Inc., v. Coty. 44
Sup. Ct., 350 eechnut Packng Co. v. LorUard Co., supra er-
mont Mape Syrup Co. v. . N. ohnson Mape Syrup Go. et a., 272
ed., 478 Detz v. orton Manufacturng Co., 170 ed., 865 Inde-
pendent akng Powder Co. v. oorman, 175 ed., 448 Spege v.
Zuchcrman, 188 ed., 63.) In the frst case cted the Supreme
Court of the Unted States stated n effect that a trade-mark ony
carres the rght to prohbt ts use so far as to protect the owner s
good w aganst the sae of another s product as hs own, and that
the queston n regard to nfrngement depends upon vthether the
pubc s deceved.
It appears, however, that whether or not the assgnment was
effectua, the M Company pad doars for somethng whch t con-
sdered as an asset. The anguage of the contract between and the
M Company s cear n ths respect and s to be gven more weght
than the ora statements of an offcer of the company as to the rea-
sons for makng the payment. Whe the contract dd not convey
any rght or tte n the trade-mark to the M Company, the effect of
the transacton was that for a perod of tme up to the present the M
Company has remaned undsturbed n the manufacture and sae of
the tonc under the name of . There s a possbty that the
effect of ts contnuous use of the name and of s refranng from
usng t w resut n the acquston by the M Company of a com-
mon-aw rght to the trade-mark. In I. T. 1382 (C. . 1-2, 146) t
was hed that an amount pad to attorneys to contest the estabsh-
ment of a budng ne across the ta payer s property represented a
capta e pendture. In that rung t was ponted out that whe the
e pendture was more propery to be regarded as havng been n-
curred for the defense of the ta payer s en|oyment of hs property
as dstngushed from the defense of hs tte, the e pendture, never-
theess, came wthn the prncpe of artce 293 of Reguatons 45,
provdng that the cost of defendng or perfectng tte to property
consttutes a part of the cost of the property, and s not a deductbe
e pense. The present case s somewhat anaogous. It can not be
sad that the sum of doars pad to represented an ordnary or
necessary e pense ncurred n the operaton of the busness of the M
Company. The e pendture was n reaty made for the purpose of
enabng the ta payer to contnue n the busness of manufacturng
and seng the tonc , and n that sense s regarded as a capta
e pendture, whch s not deductbe.
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216, rt. 306.
S CTION 216. CR DITS LLOW D INDI IDU LS.
rtce 306: Credts to ctzen entted to TI-24-3752
benefts of secton 262 and nonresdent aen G. C. M. 3804
ndvdua.
R NU CT O 1 26.
The amount of persona e empton aowabe to a nonresdent
aen husband and wfe vng together who fe separate returns
Is 1,500 each. There s no authorty for dvdng between tem
the e empton of 1,500 whch each s entted to cam upon fng
a return nether s there any authorty for dvdng the two
e emptons between them as they see ft.
Recommended that I. T. 1390 (C. . 1-2, 148) be revoked n
so far as nconsstent herewth.
n opnon s requested reatve to the amount of persona e emp-
ton aowabe under the Revenue ct of 1926 to a nonresdent aen
ndvdua husband and wfe who fe separate returns.
The provsons of secton 216 of the Revenue ct whch are n-
voved n the queston for consderaton are quoted as foows:
or the purpose of the norma ta ony there sha be aowed the foowng
credts:

(c) In the case of a snge person, a persona e empton of 1,500: or n
the case of the head of a famy or a marred person vng wth husband or
wfe, a persona e empton of 3,500. husband and wfe vng together
sha receve but one persona e empton. The amount of such persona e emp-
ton sha be 3,500. If such husband and wfe make separate returns, the
persona e empton may be taken by ether or dvded between them.

(e) In the ease of a nonresdent aen ndvdua or of a ctzen entted to
the benefts of secton 262, the persona e empton sha be ony 1,500. The
credt provded n subdvson (d) sha not be aowed n the case of a
nonresdent aen ndvdua uness he s a resdent of a contguous country,
nor n the cast of a ctzen entted to the benefts of secton 262.
It shoud be noted that the provson n subdvson (c) whch
states that a husband and wfe vng together sha receve but one
persona e empton s foowed by the statement that the amount of
swh persona e empton sha be 3,500 and that f such husband
and wfe make separate returns the persona e empton may be taken
by ether or dvded between them.
The one persona e empton aowed a husband and wfe vng
together s 3,500. whch s more than doube the e empton aowed
a snge person under subdvson (c), and aso more than doube the
persona e empton aowed a nonresdent aen ndvdua under
subdvson (e). There are two advantages gven a husband and wfe
vng together a arger e empton than the two together woud
have as snge persons and the prvege of dvdng such e empton
between them n any way they see ft.
The effect of subdvson (e) s to take out of the scope of sub-
dvson (c) a persons who are nonresdent aen ndvduas and
ctzens entted to the benefts of secton 262 and to gve such n-
dvduas a persona e empton of ony 1,500. The advantages
under subdvson (c) gven to the head of a famy and to a husband
and wfe vng together are not gven to a nonresdent aen n-
dvdua or to a ctzen entted to the benefts of secton 262, even
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217, rt. 311.
98
though such person s the head of a famy or a marred person v-
ng wth husband or wfe.
In vew of the e press provson n subdvson (c) that the one
persona e empton whch a husband and wfe vng together sha
receve and whch may be dvded between them s 3,500, and the
e press provson n subdvson (e) that a nonresdent aen n-
dvdua sha be entted to a persona e empton of ony 1,500, t
s the opnon of ths offce that the amount of persona e empton
aowabe to a nonresdent aen husband and wfe vng together
who fe separate returns s 1,500 each. There s no authorty for
dvdng between them the e empton of 1,500 whch each s entted
to cam upon fng a return. Nether s there any authorty for
dvdng the two e emptons between them as they see ft.
In vew of the foregong, t s the opnon of ths offce that the
rung contaned n I. T. 1390 s not a correct nterpretaton of the
aw wth respect to the ssue n queston and t s recommended that
I. T. 1390 be revoked n so far as t s nconsstent wth ths
memorandum.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 217. N T INCOM O NONR SID NT
LI N INDI IDU LS.
rtce 311: Defnton. I1-26-3777
T. D. 4164
INCOM T LL T R NU CTS D CISION O COURT.
1. Income en Resdence Domce.
Resdence and not domce determnes the status of an aen
for te purpose of ncome ta aton and an a who durng 27
years stays n the Unted States for perods aggregatng more than
22 years s a resdent of the Unted States wthn the meanng of
the ncome ta provsons of the severa Revenue cts and the
reguatons made thereunder and s, therefore, ta abe upon hs
entre net Income arsng from a sources.
2. Resdent Statutory Constructon Departmenta Regua-
tons.
contnuous constructon of the word resdent contaned n
departmenta reguatons ever snce the enactment of the frst n-
come ta ct, whch Congress n subsequent Revenue cts as not
defned dfferenty, shoud be adopted by the courts e cept where
the te t of the statute furnshes a cogent reason to depart from t.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Crcut Court of
ppeas for the Second Crcut, n the case of Chares W. o wrng,
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99
217, rt. 311.
pantff n error, v. owers, Coector, defendant n error, s pub-
shed for the nformaton of nterna revenue offcers and others
concerned.
. . Mres,
. ctng Commssoner of Interna Revenue.
pproved une 13, 1928.
enry errck ond,
ctng Secretary of the Treasury
Unted States Crcut Court of ppeas fob the Second Crcut.
Chares W. owrng, pantff n error (pantff beow), v. rank . owers,
Coector of Interna Revenue for the Second Dstrct of New York, defendant
n error (defendant beow).
In error to the Dstrct Court of the Unted States for the Southern Dstrct of New
York.
cton by Chares W. owrng to recover ncome ta es from rank . owers, a co-
ector of nterna revenue, whch were pad under protest and are aeged to have been
Iegay e acted. On a moton on behaf of the defendant for the drecton of a verdct
n hs favor the moton was grunted, |udgment was thereupon rendered for the defendant.
ad pantff brngs error. ffrmed.
March 19 1028.
OPINION.
efore Manton, Swan, and ugustus N. and, Crcut udges.
The compant embraces fve causes of acton to recover ncome ta es aeged
to have been wrongfuy e acted for the years 1917, 1918, 1919, 1920, und 1921,
upon ncome receved by pantff from sources outsde the Unted States. The
hues were eved upon the theory that pantff was durng these years a
resdent aen and the queston s whether he was such a resdent durng these
years wthn the meanng of the Revenue cts.
The pantff was born n St. ohns, Newfoundand, of parents who were aso
born there. In 1884, when 13 years of age, he was sent to schoo n ngand
for 4 4 years. On the death of hs father, n 1890, he entered the famy bus-
ness n ngand, whch was then a partnershp conducted under the name of
C. T. owrng Co. Two years ater the rest of hLs famy decded to gve
up ther Newfoundand home and move to ngand. The famy house n St.
ohns. Newfoundand, was sod and the pantff and hs mother, after vng
for a few months n a rented house n Lverpoo, purchased an estate there as
trustees under hs father s w, whch was known as Chsehurst. the
famy moved to t and pantff had hs own quarters n the house. e test-
fed that, wth the rest of the famy, he went to ngand ntendng to make
that hs home and regarded Chsehurst as hs permanent home and had never
had any ntenton of changng t unt he had to go to London and ve there 1
after the brngng of ths acton. e was vng at Chsehurst when he frst
came to the Unted States n 1895 and retaned hs persona quarters there up
to the me of hs mother s death n 1925. e occuped them wth hs famy
whenever he returned to ngand, had a sute there, furnshed wth furnture
whch he had hmsef purchased, and contrbuted toward t||e upkeep of the
house. etween the year 1895 and 1922. however, he spent the greater part
of hs tme n the Unted States. Out of that Interva of 27 years, perods
aggregatng about 22M years were spent n the Unted States and somethng
over 4 years n ngand. Ls stays n the Unted States averaged ess than
4 years and those n ngand 4 or 5 months at a tme.
In 190O pantff marred a natve of Staten Isand, N. T., and after hs
marrage usuay had two houses n ths country, one n Manhattan and the
other n Staten Isand. rom about 1901. whe n Manhattan, he ved n
eased houses unt 1919, when he purchased No. 160 ast Seventy-fourth
Street, whch he had for some tme before occuped under ease.
The Itowrng busness covered dversfed actvtes nsurance, e port and
mport busness, und genera tradng. It bad nes of steamers operatng be-
tween the Canadan ports and tank and tramp steamers runnng between
varous parts of the word, and aso embraced steamshp agences.
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217, rt. 311.
100
The prncpa houses n the owrng busness were at Lverpoo, London, New
York, and St. ohns, Newfoundand, nd, pror to 1000, there were three frms,
wth headquarters n ngand. Newfoundand, and New York, respectvey.
Thereafter the frms were ncorporated and the ngsh company hed substan-
tay a the stock of the New York and Newfoundand companes, whch owned
the busness n those paces. The busness was founded by the pantff s great-
grandfather and t remaned a famy affar. It whs the custom to gve an
nterest n the busness to a younger son after he had served hs apprentceshp,
and ths happened to the pantff. In every generaton snce the busness was
founded t had been the practce to send out the younger members of the
famy to conduct the foregn branches of the busness, but wth the e cepton
of the pantff s father, who ded at ony 50 years of age, n Newfoundand,
they a fnay returned to ngand, and ths the pantff sad he e pected
to do utmatey. Whe, from ong e perence here, he especay ftted nto
the New York busness, and became fnay ts presdent, he was aso a stock-
hoder and drector n the ngsh company, whch practcay owned the New
York and Newfoundand busness. In hs ws he descrbed hmsef as of the
cty of Lverpoo, as he frequenty dd n baggage decaratons for the customs.
e remaned a rtsh sub|ect, and hs fve chdren, though born n ths
country, were regstered by hm as rtsh sub|ects. In four deeds, however,
he was descrbed as resdng at 160 ast Seventy-fourth Street, New York, and
he was descrbed n a smar way n the certfcate of ncorporaton of the
New York busness, as we as n an appcaton for fe nsurance. e and hs
wtnesses, however, testfed to facts tendng to show a purpose to retan Chse-
hurst as hs home and not to abandon that domce and to return there to ve
at some future ndefnte tme when those n contro of the rtsh hodng
company shoud ca hm back to ngand, as the rtsh partners or offcers
had caed the other owrngs n the past. In 1922 the pantff went to ng-
and, thnkng that hs remova was to be permanent. e sod hs house n
the market, but apparenty has returned. There can be no doubt that n spte
of hs ong stay n ths country hs connectons famy, soca, and busness
were at a tmes pecuary rtsh.
Upon a record, of whch the foregong Is a summary, udge Grubb. who pre-
sded at the tra, e pressed the opnon that the pantff had acqured a New
York domce when he came here ntendng ony to return n the event that
hs partners caed on hm to return, though he dd not pace hs decson on
that ground. e hed that snce, upon the undsputed evdence, the pantff
had stayed n New York for over 20 years, wth an Intenton to reman ndef-
ntey, he wns a resdent aen wthn the meanng of the Revenue cts and was
sub|ect to ta aton as such. e accordngy drected a verdct for the defend-
ant, sayng to the |ury:
I have decded as a matter of aw, that the statute means resdence and
not what s caed domce n the aw. and that Mr. owrng was a permanent
resdent of ths country at the tme the ta was mposed, and, therefore, was
sub|ect to the ta .
It s a fact that the rung that pantff s ta abe on a hs ncome wherever
derved s a severe one for hm. Most of hs ncome, outsde of hs saary pad
n New York, whch was returned for ta aton here, conssted of dvdends from
hs stock n the rtsh hodng company. These were aready depeted by cor-
poraton ta es on ncome and e cess profts pad by the New York corporaton,
and to these were added arge ta es pad by the rtsh company n ngand.
uqostus N. and, C. .: It may be do bted whether n vew of such cases
as Wtons v. ttorney Genera (1904) ( . C, 287). Dupuy v. Wurtz (5 N. Y.,
550), and McDonad v. artford Trust Co. (104 Conn.. 109). the pantff dd
not retan hs ngsh domce. The testmony ndcates a desre on hs part
to do ths, and whe a purpose to retan hs orgna status woud not aone
be enough to prevent the acquston of a domce of choce, uness (n spte
of hs ong abode n New York) he st ntended ngand to be hs rea home,
and dd not ntend to resde permanenty, or for an ndefnte perod, n the
Unted States (Wamson v. Osenton, 282 U. S.. 619 Gbert v. Davd. 235
U. S., 561), yet there s some bass for the cam that hs ntenton to return
to ngand, when recaed by hs company, and hs e pectaton that he woud
be so recaed, prevented the acquston of a domce n New York. (Dcey,
3d ed., p. 113.1 The determnng queston here woud seem to be whether
the ntenton was so contngent or foatng as o amount to tte more than a
hope or reasonabe possbty ( ttorney Genera v. Pottnyer, 30 L. . Ch. .,
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101
R217, rt. 311.
at p. 294 Unted States v. nght, 291 ed.. 129 affd 299 ed., 571), or
whether, on the contrary, the ntenton was capabe of probabe fufment.
ut a the mtatons appcabe to acqurng a new domce, partcuary
when a domce of natona orgn s to be abandoned, do not necessary attach
to takng out a new resdence, ether n ths country or ngand. The Unted
States ncome ta cts from the ct of 1913 on have been unform n evyng
a ta on the entre ncome of aens f resdent here, and resdence has been
construed by te Commssoner n a hs rungs as somethng whch may be
ess than a domce whch f es the aw of the devouton of property and
determnes the ncdence of estate and successon ta es. It s true that res-
dence s ordnary used as the equvaent of domce n statutes reatng to
probate, admnstraton, and successon ta es. So, as mght be e pected, n
the Revenue cts the word resdent, when empoyed n the portons of
these cts deang wth the estate ta aw, means domced, and has been
so construed by the practce and reguatons of the Department. It s con-
tended that the same words when used n the ttes of the same cts deang
wth the ncome ta must have the same meanng. ut the estate ta pro-
vsons were frst ntroduced n the Revenue ct n 1910, after the constructon
of the word resdent n that ct had aready become f ed by the rung of
the Department at east as eary as Treasury Decson 2242 of September 17,
1915, nfra. Moreover, the ncdence of estate and successon ta es has hstor-
cay been determned by domce and stus and not by the fact of actua res-
dence. rck v. Pennsyvana, 268 U S., 473.) s ustce omes sad n
uen v. Wsconsn (240 U. S., at p. 631) :
s the States where the property s stuated, f governed by the
common aw, generay recognze the aw of the domce as determnng the
successon, t may be sad that, n a practca sense at east, the aw of the
domce s needed to estabsh the nhertance. Therefore the nhertance may
be ta ed at the pace of domce, whatever the mtatons of powers over the
8 ecfc chattes may be .
s was sad aso n the Matter of Martn (173 pp. Dv., at p. 3) :
n many nstances there s a dfference between the ega ntend-
ment of the terms resdence and domce but n the matter of
successon and transfer ta es the theory of the acton of the ta ng power
renders the terms synonymous. In the case of successon the ntestate s per-
sonaty s dstrbuted accordng to the statute of dstrbutons of the State
of the domce. Therefore that State whch permts the nhertance s entted
to mpose a duty on that prvege .
ut n persona and ncome ta es domce has payed no necessary part, and
resdence at a f ed date has determned the abty for the ta . ( e v.
Perce, 51 N. Y., 12 Dougas v. Mayor, 2 Duer, 110 Matter of usten, 13 pp.
Dv., 247 ney v. Phadepha, 32 Pa. St., 381.) In the New York ncome ta
aw, whch s argey based on the edera cts, secton 350 defnes a
resdent as
any person domced n the State of New York, and any other person who
mantans a permanent pace of abode wthn the State and spends n the aggre-
gate more than seven months of the ta abe year wthn the State.
Lkewse, under the ngsh ncome ta aws, pror to 1914, resdence, and not
domce, was the test of abty (Inand Revenue v. ohn Lambert Cadwaadcr
(1904), 7 Sesson Cases, 140 ttorney Genera v. Coote, 4 Prce, 183). though
nc.me, uness derved from a trade or empoyment carred on n ngand, had
to be receved there n order to render one sub|ect to ta aton upon t. (Lver-
poo, London d Gobe Ins. Co. v. ennett (1913), . C, 610.) ut snce 1914,
a resdent of more than s months (though not domced) has had to pay an
ncome ta on a ncome receved n the Unted ngdom, and a domced per-
son a ta on ncome derved from a sources. Thus, under the rtsh ncome
ta aws, a resdent, though havng no domce n ngand, had to pny a ra
on a ncome receved n ngand, whatever Its source. Whether he receved
a hs ncome there, of course, depended on crcumstances, but whatever he
receved was ta abe aganst a resdent rrespectve of hs domce.
In the edera ct of 1913. ncome ta es are mposed upon the entre net
Income arsng or accrung from a sources n the precedng caendar year to
every ctzen of the Unted States, whether resdng at home or abroad, and
to every person resdng n the Unted States, though not a ctzen thereof,
and a ke ta sha be assessed, eved, coected, and pad annuay
upon the entre net ncome from a property owned and of every busness.
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217, rt. 311.
102
trade, or professon carred on n the Unted States by persons resdng
esewhere.
The Treasury Department made ts rung as to the meanng of resdng
In the foregong ct n Treasury Decson 2242, n whch occurred the foowng
anguage:
Resdence, as used n subdvson 1 of paragraph of the ct of October
3, 1913, and Treasury Decson 2109, s hed to be
That pace where a man has hs true, f ed, and permanent home and prn-
cpa estabshment and to whch, whenever he s absent, he has the ntenton
of returnng, and ndcates permanency of occupaton as dstnct from odgng
or boardng or temporary occupaton.
or the purposes of the ncome ta t s hed that where, for busness pur-
poses or otherwse, an aen s permanenty ocated n the Unted States, has
there hs prncpa busness estabshment, and s there permanenty occuped or
empoyed, even though hs domce may bo wthout the Unted States, he w
be hed to be wthn the defnton of every person resdng n the Unted
States, though not a ctzen thereof , whe aens who are physcay
present n the Unted States but ony temporary resdent or empoyed theren
(as for a season or other smary defnte term, and wth the e pectaton or
ntenton of eavng the Unted States upon the termnaton of empoyment or
accompshment of the purpose whch necesstated presence n the Unted
States) are wthn the cass of persons resdng esewhere .
The Revenue ct of September 8, 1910 (ch. 403, 39 Stat. L., 750), as amended
by the ct of March 3, 1917 (39 Stat. L., 1000), as further amended by the ct
of October 3, 1917 (40 Stat. L., 300), provdes n part:
Secton 1. (a) That there sha be eved, assessed, coected, and pad
annuay upon the entre net ncome receved n the precedng caendar year
from a sources by every ndvdua, a ctzen or resdent of the Unted States,
a ta of 2 per centum upon such ncome and a ke ta sha be eved, assessed,
coected, and pad annuay upon the entre net ncome receved n the precedng
caendar year from a sources wthn the Unted States by every ndvdua,
a nonresdent aen, ncudng nterest on bonds, notes, or other nterest-bearng
obgatons of resdents, corporate or otherwse.
(b) In addton to the ncome ta mposed by subdvson (a) of ths secton
(heren referred to as the norma ta ), there sha be eved, assessed, co-
ected, and pad upon the tota net ncome of every ndvdua, or, n the case
of a nonresdent aen, the tota net ncome receved from a sources wthn the
Unted States, an addtona ncome ta (heren referred to as the addtona
ta ) .
The correspondng sectons of the Revenue ct of ebruary 24, 1919 (40 Stat.
L., 1057), read:
Sb . 210. That, n eu of the (a es m|Rsed by subdvson (a) of secton 1
of the Revenue ct of 1910 and by secton 1 of the Revenue ct of 1917, there
sha be eved, coected, and pad for each ta abe year upon the net ncome
of every ndvdua a norma ta at the foowng raes:
(a) or the caendar year 1918, 12 per centum of the amount of the net
ncome n e cess of the credts provded n secton 210: Provded, That n the
case of a ctzen or resdent of the Unted States the rate upon the frst 4,0: )
of such e cess amount sha be 0 per centum :
(b) or each caendar year thereafter, S per centum of the amount of the
net ncome n e cess of the credts provded n secton 210: Provded. That n
the case of a ctzen or resdent of the Unted States the rate upon the frst
4,000 of such e cess amount sha be 4 per centum.
Secton 213 contans the foowng provson :
(c) In the case of nonresdent aen ndvduas, gross ncome ncudes ony
the gross ncome from sources wthn the Unted States, ncudng nterest on
bonds, notes, or other nterest-bearng obgatons of resdents, corporate or
otherwse, dvdends from resdent corporatons, and ncudng a amounts
receved (athough pad under a contract for the sae of goods or otherwse)
representng profts on the manufacture and dsposton of goods wthn the
Unted States.
In the Revenue ct of 1921 (42 Stat. L 227) we fnd :
Sec. 210. That, n en of the ta mposed by secton 210 of the Revenue
ct of 1918, there sha be eved, coected, and pad for each ta abe year
upon the net ncome of every ndvdua a norma ta of 8 per centum of the
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103
217, rt. 311.
amount of the net Income In e cess of the credt provded n secton 216: Pro-
dded. That n the case of a ctzen or resdent of the Unted States the rate
upon the frst 4,000 of such e cess amount sha be 4 per centum.
Secton 213 defnes gross ncome n the case of varous casses of ta payers,
and subdvson (e) reads:
(c) In the case of a nonresdent aen ndvdua, gross ncome means ony
the gross ncome from sources wthn the Unted States, determned under the
provsons of secton 217.
We are referred to no forma rung of the Treasury Department after Treas-
ury Decson 2242, unt artce 312 of the reguaton promugated under the
919 ct, whch was as foows:
rt. 312. Who s a nonresdent aen ndvdua. Nonresdent aen nd-
vdua means an ndvdua (a) whose resdence s not wthn the Unted
States and (b) who s not a ctzen of the Unted States. ny aen vng n
the Unted States who s not a mere transent s a resdent of the Unted States
f r purposes of the ncome ta . Whether he s a transent or not s determned
by hs ntentons wth regard to hs stay. If he ves n the Unted States and
bs no defnte ntenton as to hs stay, he s a resdent. The Itest evdence of
hs ntenton s afforded by the conduct, acts, and decaratons of the aen. The
typca transent, s one who stops for a short tme n the course of a |ourney
through the Unted States, sometmes performng abor, sometmes not, or one
who enters the Unted States ntendng ony to stop ong enough to carry out
Ue purpose, ob|ect, or pan not nvovng an e tended stay. mere foatng
ntenton, ndefnte as to tme, to return to another country s not suffcent to
-onsttute hm a transent.
Under the ct of 1921, Reguaton 62 was promugated, whch provdes as
foows:
rt. 311. Who n a nonresdent aen. nonresdent aen ndvdua
means an ndvdua (a) whose resdence s not wthn the Unted States and
(b) who s not a ctzen of the Unted States. n aen actuay present In the
ked States who s not a mere transent or so|ourner s a resdent of the
1 nted States for purposes of the ncome ta . Whether he Is a transent or
not s determned by hs ntentons wth regard to the ength and nature of hs
stay. mere foutng ntenton, ndefnte as to tme, to return to another
tuuntry s not suffcent to consttute hm a transent. If he ves In the Unted
States and has no defnte ntenton as to hs stay, he s a resdent. One who
wmes to the Unted States for a defnte purpose whch n ts nature may be
pranpty accompshed s a transent but f hs purpose s of such a nature
that an e tended stay may be necessary for ts accompshment, and to that end
the aen makes hs home temporary n the Unted States, he becomes a res-
dent, though t may be hs ntenton at a tmes to return to hs domce abroad
when the purpose for whch he came has been consummated or abandoned.
Such a contnuous constructon of the word resdent ever snce the pas-
sage of the Income ta ct of 1913 woud n any case have great weght under
we known prncpes. ut to (hs s added the fact that ths constructon has,
| far as we are nformed, never before been questoned durng a these years
and Congress has agan and agan amended the ct wthout defnng the word
In any dfferent way. In such crcumstances, the departmenta constructon,
e r t where the te t of the statute furnshes cogent reason to depart from t,
most be adopted by the courts. (Natona Lead ( o. v. Unted States, 252 U. S.,
140 nener v. Coona Trust Co., 4S Sup. Ct, 06 (T. D. 4112, page 207
Robertson v. Dmcnng, 127 U. S., 607.) Moreover, the hardshp of the doube
ta aton woud have been prevented by reason of secton 222(a)3 of the Revenue
ct f Great rtan, the country of whch the pantff s a ctzen, had aowed
to ctzens of the Unted States resdng there a credt of ta es pad by them n
the Unted States upon ther ta es pad n Great rtan, but there has been
no such recproca egsaton. In the case of our own ctzens domced ese-
where we e act ncome ta es upon ther entre ncome from whatever source
Tved. (C oofc v. 7 af. 265 U. S., 47 T. D. 3504, C. . III-, 731.) Whe ths
egsaton s severe and as a matter of economc pocy may not be sound, t s
hard to see why aens who have acqured a f ed abode here shoud fare better.
Onrctz-ns domced abroad woud be generay sub|ected to a ta on a ther
ncome by the country n whch they ve, and even when vng n ngand ony
mo.tu- are abe to pay ta es on a ncome receved there.
6342 28 8
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218, rt. 335.
104
ut, n any event, we are bound by the ong unquestoned constructon of the
term resdence by the Department charged wth the admnstraton of the
Revenue cts. The word s fary capabe of the meanng they have gven to
t and has often receved that nterpretaton n ncome ta egsaton from the
earest tmes. Mr. owrng acqured an abode here of no transent character
and so ong contnued, and so substanta, as to be of a permanent nature. e
certany became a resdent wthn the meanng of the departmenta reguatons.
We hod these vad and, under a the crcumstances, bndng upon the courts
and accordngy affrm the |udgment
S CTION 218. P RTN RS IPS.
rtce 335: Partnershps. II-8-3617
G. C. M. 3034
R NU ) CTS OP 1921, 1924, ND 1926.
Under the aws of North Carona, a marred woman may enter
Into a vad partnershp wth persons other than her husband
the same as f she were unmarred, and may egay enter nto a
contract of partnershp wth her husband by compyng wth the
formates as to ts e ecuton prescrbed by the statutes of that
State.
n opnon s requested as to whether a vad partnershp may be
entered nto between husband and wfe under the aws of North
Carona.
It appears that on anuary 1, 1923, and , husband and wfe,
entered nto a partnershp agreement to carry on a busness under
the name of the M Company. They thereupon began the operaton
of the busness as a partnershp, and the busness has been so con-
ducted ever snce. The partes faed to e wth the authortes of
North Carona the statutory certfcate settng out the names of
the members of the partnershp. It has been hed, however, that the
faure to fe such a certfcate does not affect the rghts of the part-
ners as between themseves. (Prce v. dwards, 178 N. C, 493, 101
S. ., 33 Securty nance Co. v. endry, 189 N. C, 549, 127 S. .,
629.) ut the faure to fe such a certfcate mght have some bear-
ng on the queston whether the agreement was entered nto n good
fath.
The consttuton of the State of North Carona ( rt. , sec 6)
provdes as foows:
The rea and persona property of any femae n ths State acqured before
marrage, and a property, rea and persona, to whch she may, after marrage,
become n any manner entted, sha be and reman the soe and separate estate
and property of such femae, and sha not be abe for any debts, obgatons,
or engagements of her husband, and may be devsed, and bequeathed, and. wth
the wrtten assent of her husband, conveyed by her as f she were unmarred.
s amended by the aws of 1911, chapter 109, the statutes of the
State of North Carona provde as foows:
Sub|ect to the provsons of secton 2107 of the revsa of 1905, every marred
woman sha be authorzed to contract and dea so as to affect her rea and
persona property n (he same manner and wth the same effect as f she were
unmarred, but no conveyance of her rea estate sha be vad uness made
wth the wrtten assent of her husband as provded by secton 6 of rtce
of the consttuton, and her prvy e amnaton as to the e ecuton of the same
taken and certfed as now requred by aw. (Sec. 2094, Gregory s Suppement
to Pe s Revsa, 1913.)
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105
218, rt. 835.
Seeton 2107 referred to n the above quotaton reads as foows:
No contract between a husband and wfe made durng coverture sha be
vad to affect or charge any part of the rea estate of the wfe, or the accrung
ncome thereof, for a onger tme than three years ne t ensung the makng of
such contract, or to mpar or change the body or capta of the persona estate
of the wfe, or the accrung ncome thereof, for a onger tme than three years
ne t ensung the makng of such contract uness such contract sha be n
wrtng, and be duy proved as s requred for conveyances of and and upon
the e amnaton of the wfe separate and apart from her husband, as s now
or may hereafter be requred by aw n the probate of deeds of femes covert,
t sha appear to the satsfacton of such offcer that the wfe freey e ecuted
such contract, and freey consented thereto at the tme of her separate e am-
naton, and that the same s not unreasonabe or n|urous to her. The certf-
cate of the offcer sha state hs concusons, and sha be concusve of the
facts theren stated. ut the same may be mpeached for fraud as other |udg-
ments may be. (Pe s evsa of 1908, sec. 2107.)
It s setted n North Carona that snce the amendment of 1911
marred women may contract as f snge, e cept n reference to con-
veyances of rea estate and as to e ecutory contracts between hus-
band and wfe, n both of whch cases certan formates are requred
to make the conveyances and contracts vad and bndng. Roya
v. Sutherand, 168 N. C, 405, 84 S. ., 708.)
Pror to 1911 the e ecutory contract of a marred woman dd not
mpose a persona obgaton upon her but ony resuted, even when
e ecuted n conformty wth the statute, n mposng a charge upon
her separate estate, whch coud be enforced by a sut n equty n
the nature of a proceedng n rem. (t7ones v. Cvac|ntMes, 114 N. C,
613,19 S. ., 638 arthng v. Sheds, 106 N. C, 289, 10 S. ., 998.)
Nevertheess, t was hed that f a marred woman carred on busness
as a partner wth partes other than her husband, she woud under
certan crcumstances be treated as a free trader and abe to
credtors. (Stone v. McLamb Co., 153 N. C, 378, 69 S. .. 281.)
In the case of Rchardson v. Redd (118 N. C, 677, 24 S. ., 420)
the Supreme Court of North Carona sad:
It does not become necessary that we shoud determne the reaton of Mrs.
Rchardson to ths concern, further than to say that t appears from the case
that she put 5,000 nto the partnershp, and must have some nterest, and
t hardy es n the mouths of those who have deat, wth her as a partner
to set up her coverture for ther beneft.
The case of Oshorm v. Wkes (1891) (108 N. C, 667, 13 S. .,
285) was a sut by a credtor of a husband to reach certan ands
standng n the wre s name, the purchase prce consstng of a proft
she had reazed n the purchase on credt and resae of other prop-
erty whch had formery beonged to the husband, her purchase
thereof beng made at an e ecuton sae aganst hm. It was hed
that the proft reazed consttuted her separate property, notwth-
standng her obgatons for the purchase prce coud not have been
enforced aganst her, the court statng:
It s setted aw n North Carona that our statutes (chapter 42, Code)
mpose no mt upon the wfe s power to acqure property by contractng
wth her husband or any other person, but ony operates t restran her from
or protect her n dsposng of property aready acqured by her. (Ctng
cases.) The aw restrcts her |us dsponend, not her |us acqurend.
No decson has been found passng drecty upon the queston
at ssue n the nstant case. The nearest thereto s rsto G rocem|
Co. v. as (1919) (117 N. C, 298, 98 S. ., 708), n whch a hus-
band and wfe, aegng that they were partners, sought to cam
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5218, rt. 335.
106
ther consttutona e emptons out of the assets of the busness as
aganst frm credtors. The foowng e cerpts are quoted from the
opnon:
The abty of the wfe on her contracts has been setted ever snce the
statute whch provded:
very marred woman sha be authorzed to contract and dea so as to
affect her rea and persona property n the same manner and wth the same
effect as f she were unmarred. (Chapter 109, Laws 1911.)
The wfe, therefore, has been hed, ever snce, abe |onty and severay
whenever a partner or a surety. There s no queston arsng here between
husband and wfe as to the vadty of the contract of partnershp as between
them under revsed secton 2107, nor as to tte derved from them. ut they
each admt the partnershp and assent to the other assertng the cam to
e empton as a partner.
On the fndngs of the |ury, sse Lee as was a partner n the busness,
was abe for a ts debts, and s entted to her consttutona e emptons
aganst an e ecuton upon the |udgment rendered aganst her.
In vew of the consttutona and statutory provsons above quoted,
and the trend of |udca decsons as ndcated by the authortes
cted, ths offce s of the opnon that under the aws of North Caro-
na, a marred woman may enter nto a vad partnershp wth per-
sons other than her husband the same as f she were unmarred, and
that a wfe may egay enter nto a contract of partnershp wth
her husband by compyng wth the formates as to ts e ecuton
prescrbed n secton 2107, above quoted.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 335: Partnershps. II-16-3682
G. C. M. 3421
R NU CTS O 1924 ND 1928.
Two husbands and ther wves entered nto a partnershp agree-
ment to engage n busness n the Dstrct of Coumba. The con-
tract provded that one-haf of the partnershp profts shoud beong
and be credted |onty to the respectve coupes. There e sted an
agreement made at the ncepton of the partnershp that as between
one husband and wfe one-haf of the |ont fund arsng from ther
|ont share of the partnershp profts shoud beong to each sp use
and a smar agreement as to the other coupe that one-thrd of
ther |ont profts shoud beong to the husband and two thrds to
the wfe.
ed, the partnershp return shoud show the ncome as beongng
n two equa shares |onty to the spouses. The agreements as to
the ownershp of the |ont funds to arse n the future are vad
n the Dstrct of Coumba and the ta payers w be ermtted to
report n ther respectve separate returns the ncome to whch
they are egay entted under the agreements.
n opnon s requested wth respect to the ncome ta abty
of and , hs wfe, and C and I), hs wfe, a of Washngton,
D. C, for the ta abe years 1923 to 1925, ncusve.
The ta payers contend that they consttuted a copartnershp
carryng on a certan busness, and that the ncome from such bus-
ness beongs and s ta abe one-s th to , one-thrd to 15. one-fourth
to C, and one-fourth to D. In support of ther contenton, they have
submtted a copy of artces of copartnershp e ecuted by a at some
tme n 1922.
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107
218, rt. 335.
The artces recte that and , her husband, are partes of the
frst part, and D and C, her husband, are partes of the second
part that the partes of the frst part agree to contrbute, |onty,
the sum of doars and the partes of the second part,
|onty, a ke sum of doars that t s agreed that the capta
contrbuton of the partes of the frst part, |onty, sha be one-haf
the tota capta, and that of the partes of the second part,
|onty, the baance, or one-haf (y2) the tota capta that the
net profts, or osses. sha be dvded, or borne, as the
case may be, as foows: one-haf (y2) to or by the partes of the frst
part, |onty, and one-haf (y2) to or by the partes of the second
part, |onty that a transactons, deangs and accountng be-
tween the partnershp, as such, on the one hand, and ether or both
the partes of the frst part, on the other hand, sha be hed and
deemed to be |ont transactons of the partes of the frst part wth
the frm, and sha be comprehended n a |ont current account of
sad partes, and a transactons, deangs and accountng between
the partnershp as such, on the one hand, and ether or both the
partes of the second part, on the other hand, sha be hed and
deemed to be |ont transactons of the partes of the second part wth
the frm, and sha be comprehended n a |ont current account of
sad partes that n the event of the demse of ether one of the
partes of the frst part the survvng party of the frst part sha
be hed and deemed to succeed n every respect, to the
entre nterest of the deceased party, and, n the event of the demse
of ether of the partes of the second part the survvng
party of the second part sha be hed and deemed to succeed n
every respect to the entre nterest of the deceased party.
The artces aso provde that and , her husband, and D and C,
her husband, have agreed and do hereby agree to form a partner-
shp that books and accounts sha be at a tmes accessbe to
each and every member of the frm and each member sha have
the fu and unrestrcted rght to e amne sad books and accounts
that a checks sha be drawn and
sgned by D or by that each party makes varous covenants
wth respect to ndvdua debts, frm moneys, and property n hs
hands, e tra frm undertakngs, and fu e panatons and account-
ngs reatng to frm transactons that and D are |ont managers
of the busness wth fu power to transact a ordnary frm busness
accordng to ther best |udgment and dscreton that C and sha
act n every respect under the drecton and assgnment of the man-
agers that the managers sha devote ther entre tme, attenton, and
effort to the busness, wth stpuated saares, wth provsons re-
spectng the tme and attenton to be gven the busness by and C,
wth stpuatons wth respect to ther compensaton that each party
covenants not to bnd the frm n certan partcuars that any two
of the nonoffendng partners may dssove the partnershp for ms-
conduct of any partner and other and varous provsons unms-
takaby ndcatng that the ntenton of the agreement s that each
of the partes to the agreement sha be a partner.
The artces, consdered as a whoe, must be hod as ntended to
create a copartnershp between a the ta payers, wth pecuar pro-
vsons wth respect to partnershp accounts, namey, that nstead of
the capta beng consdered as contrbuted by each partner, t sha
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8218, rt. 335.
108
be consdered as contrbuted |onty by each husband and hs wfe,
and nstead of the net profts or osses beng consdered as accrung
to, or to be borne by, each partner, they accrue to, or are to be borne
|onty by, each husband and hs wfe. Such provsons wth respect
to the partnershp accounts woud n no way vtate a partnershp
agreement otherwse vad, snce they ony defne the rghts of the
partners nter se.
Two ssues are presented: (1) Under artces of copartnershp
whch contempate that a marred woman sha be the partner of her
husband n the Dstrct of Coumba, and under whch a busness s
actuay carred on n whch she acts n a respect as a partner, s
such a marred woman entted to the share of the partnershp earn-
ngs stpuated n the artces as beongng to her so as to render her
ta abe thereon as ncome under the evenue cts (2) Under the
pecuar provsons of the nstant partnershp artces, s such a mar-
red woman ta abe upon any porton of the partnershp profts
(1) In Norwood v. rancs (25 pp. D. C, 463), the Court of
ppeas of the Dstrct of Coumba hed (owng to the pecuar facts
t woud seem ony by way of dctum) that a marred woman was not
ndvduay abe to a credtor of the frm to the artces of whch
both she and her husband were subscrbers. The court sad:
Whe the tendency of egsaton has been to remove the dsabtes of
marred women, we Ihnk, n vew of a the authortes, that such statutes
removng such dsabtes shoud not be construed so broady as to permt a
partnershp between husband and wfe, uness the statute e pressy gves the
husband and wfe power to contract wth each other generay.
Subsequenty, n ronson v. rady (28 pp. D. C, 250), and n
Santmyer v. Santmyer (48 pp. D. C, 310), the court of appeas
hed under the same statute (st n force) that a marred woman
had power to contract wth her husband and mght mantan actons
on contracts so made. The wfe s status n the Dstrct of Coumba
as a partner of her husband s, therefore, not atogether cear.
ut snce the ssue here presented s not the ndvdua abty of
the wfe to the credtors of a partnershp n whch she has acted as
the partner of her husband, but her rgnt to the ncome of such a
partnershp, t does not necessary foow that because she s not
ndvduay abe to the credtors of the frm, she s not, therefore,
entted to an accountng and payment of her share of frm profts n
accordance wth the partnershp artces. t common aw a marred
woman had wth respect to her separate estate fu power to contract
and to embark her separate estate n a partnershp. No dstncton
was made between partnershps n whch her husband was a member
and other partnershps. Notwthstandng that no |udgment bndng
on her ndvduay mght be obtaned by a credtor of such a partner-
shp, her separate property was abe for the frm debts and she was
entted to an accountng and to her dstrbutabe share of the
profts, n accordance wth the partnershp agreement. Ltte v.
azett, 197 Pa., 591, 47 t.. 855 Matthewmanh Case, 3 q., 781
Lofan v. Wech (1899), 2 . ., 419 Peton ros. v. arrson (2)
(1892). 1 . ., 118.) In so far, therefore, as a marred woman s
ncapabe at common aw of beng a partner of her husband or a thrd
party, the ncapacty resuted aone from a contractua ncapacty.
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109
218, rt. 335.
Such |ursdctons as have hed that a marred woman, whe
capabe of contractng wth her husband, s ncapabe of beng made
ndvduay habe to the credtors of a frm n whch both she and her
husband have acted as partners, have based ther decsons upon the
fround that such a resut s necessary n order to prevent the
usband as a partner from sub|ectng the wfe s separate property,
not embarked n the partnershp busness, to such debts as mght
be ncurred by the husband n the partnershp busness. Whe no
case presentng facts cosey anaogous to those here presented n
any such |ursdcton has been found n whch the ssue presented
was the wfe s ega rght under the partnershp contract to her
stpuated share of the partnershp earnngs, n vew of the foow-
ng cases t s not to be supposed that her husband or the other
partners woud be permtted to nterpose the defense of her coverture
to a b for an accountng, n accordance wth the partnershp
artces. (Sveus v. Porter (1873), 74 Pa., 448, hodng that a hus-
band s credtors coud not set up her dsabty so as to sub|ect
partnershp s earnngs to the husband s debts Garter Merchandse
Go. v. Dckson (1893), 39 S. C, 433,17 S. ., 996, hodng that cover-
ture s a persona prvege of a marred woman and that a debtor
can not resst the acton of the partners, hs credtors, by proof that
one of the members s a marred woman orneeffer v. Duress
(1861), 13 Ws., 604, hodng that one who had converted property of
a partnershp n whch a marred woman had acted as a partner
coud not defend an acton on the ground that one of the members
was a marred woman Yarbrough v. ush (1881), 69 a., 170
Lenkmtff v. rende (1885), 80 a., 136 Rabtte v. Orr ros.
(1887), 83 a., 185, 3 So., 420 Le Grand v. ufcma Nat. ank
(1886), 81 a., 123, 60 m. Rep., 140, 1 So., 460 O Ne v. rmng-
ham revnng Co. (1892), 101 a., 383, 13 So., 576 eser v.
Tuscumba kg. Co. (1894), 105 a., 514, 17 So., 40, hodng that
coverture can not be set up as a defense to an acton aganst a
partnershp of whch a marred woman s a member where the
acton s brought aganst the partnershp by ts frm name, snce
partnershp property ony s affected and no persona abty of
It s true that f the wfe s contract of copartnershp wth her hus-
band be entrey vod, she s nevertheess entted to an accountng
and to her share of the benefts arsng under the e ecuted contract,
her rght n such a case beng quas contractua n character, namey,
a rght to have refunded to her the reasonabe vaue of the benefts
conferred upon the other copartners n the mstaken beef that a con-
tract e sted between the partners. It s beeved, however, that n
the Dstrct of Coumba the rght of a marred woman s on the
partnershp contract tsef and n accordance wth the terms thereof
n so far as her rght appertans to the ncome of the partnershp.
(2) Under the artces of copartnershp here n queston, the two
marred women dd not contract for any share n the partnershp
profts n ther ndvdua rght. Ther contract was that one-haf
of the partnershp profts shoud beong and be credted |onty to
the spouses. One-haf of the partnershp s profts, therefore, s n-
come to the spouses |onty. The partnershp return shoud, there-
fore, show the ncome as beongng n two equa shares |onty to the
spouses.
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222, rt. 387.
110
s to the respectve nterests of husband and wfe n the |ont funds
consttutng ther shares of the profts of the partnershp, the pre-
sumpton woud be, n the absence of prevous .agreement to the con-
trary, that each spouse was entted n the proporton n whch he had
contrbuted to the |ont fund consttutng eapttt embarked n the
busness. It appears , however, from affdavts fed by the ta payers
that as between C and D. hs wfe, there e sted an agreement made
at the ncepton of the partnershp that of the |ont fund arsng from
ther |ont share n the partnershp profts, one-haf shoud beong
to each: and that as between and , hs wfe, there e sted an
agreement made at the ncepton of the partnershp that of the |ont
fund arsng from ther |ont share of the partnershp profts, one-
thrd shoud beong to and two-thrds to . Such an agreement as
to the ownershp of a |ont fund to arse n the future s vad n the
Dstrct of Coumba and w be gven effect. In accordance there-
wth, the respectve ta payers shoud be permtted to report n ther
separate returns the ncome to whch they are egay entted.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 222. CR DIT OR T S IN C S
O INDI IDU LS.
rtce 385: Countres whch do or do not II-21-3726
satsfy the smar credt requrement. I. T. 2410
R NU CTS O 1924 ND 1926.
Me co satsfes the smar credts requrement of secton 222 of
the Revenue cts of 1924 and 1926.
rtce 387: When credt for ta es may be II-19-3710
taken. G. C. M. 2983
R NU CTS O 1824 ND 1926.
In December, 1925, rtsh ncome ta es for the years endng
pr 5, 1022, pr 5, 1923, and pr 5. 1924. were pad by the
M Company, a domestc partnershp whch mantaned an offce n
ngand. The books of the partnershp are kept on the cash re-
cepts and dsbursements bass. In 1925 the operatons of the
offce n ngand showed a oss.
If the members of the partnershp shoud eect to take credt for
ta es accrued, the ta pad wth respect to the year endng pr
5. 1921. may be taken as a credt aganst the ta due the Unted
States for the year 1924. The ta es pad wb respect to the years
1922 and 192 may not b taken as a credt aganst the ta es due
the L nted States for those years.
If the members of the partnershp shoud not eect to take credt
for ta es accrued durng the ta abe years, no part of the ta es
pad n 1925 to Great rtan may be taken as a credt aganst
Unted States ta for 1925, for the reason that they receved no
ncome from foregn sources durng that year. The amount pad
n 1925 woud, however, be a deducton n computng net ncome
for that year.
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222, rt. 387.
n opnon s requested as to the credt for foregn ta es whch
may be taken by the members of the M Company, a domestc part-
nershp, under the foowng crcumstances:
The frm s a partnershp whch has mantaned an offce n ng-
and n connecton wth the constructon of a budng. The desgn-
ng and pannng of the budng requred the outay of arge sums
of money commencng n 1920 and contnung n subsequent years.
The books of the partnershp are kept on the cash recepts and ds-
bursements bass, the resuts of the operatons of the offce n ngand
ng as foows:
Year.
Recepts.
Dsburse-
ments.
Profts or
oss.
Year.
Recepts.
Dsburse-
ments.
Profts or
oss.
Doars.
I

Ur
Doars.
23r
15.0.rtr
12
Doars.
-f
-1.0o.r
Doars.
341
Z

Doars.
Doars.
28r
12
-51
m
1923
S

1924
I 2

1925..
a
rtsh ncome ta es n the amount of doars were pad on
December , 1925. T recept furnshed by the rtsh Govern-
ment shows the foowng:
Number of assessment.
Year endng-
Ta pad.
pr. 5,1922
pr. 5, 1923
pr. 5,1924
Pounds.
2
3
4
Tota
9
In vew of the fact that the operatons of the offce n ngand n
1925 showed a oss of 5a doars, nqury s made how the members
of the partnershp may obtan credt for the ncome ta es, amount-
ng to 4 doars, pad to Great rtan n that year, and n what
year or vears the credt shoud be apped.
The Revenue ct of 1924 s the frst ct to ncude a provson
permttng a ta payer on the cash bass to take credt for ta es
accrued to a foregn country, The specfc provson of aw reads
as foows:
Sec. 222.
(c The credts provded fo n subdvson (a) of ths secton may, at the
opton of the ta payer and rrespectve of the method of accountng empoyed
kcc ng hs books, be taken n the year n whch the ta es of the foregn
country or the possesson of the Unted States accrued, sub| ct, however, to
the condtons prescrbed n subdvson (b) of ths secton. If the ta payer
eects to take such credts n the year n whch the ta es of the foregn country
or the possesson of the Unted States accrued, the credts for a subsequent
years sha be taken upon the same bass.
The same provson s contaned n the Revenue ct of 1920.
If the members of the partnershp shoud eect to take credt for
ta es accrued, the ta pad wth respect to the year endng pr 5,
1924, may be taken as a credt aganst the ta due the Unted States
for the year 1924. The ta es pad wth respect to the years 1922 and
1923 may not be taken as a credt aganst the ta es due the Unted
States for those years, nasmuch as the Revenue ct of 1921 dd not
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223, rt. 401.
112
contan a provson permttng a ta payer on the cash bass to take
credt for ta es accrued to a foregn country durng the ta abe year.
Shoud the ta payer not eect to take credt for ta es accrued dur-
ng the ta abe year, no part of the ta es pad n 1925 to Great
rtan may be taken as a credt aganst Unted States ta for that
year, for the reason that the members of the partnershp receved
no ncome from foregn sources durng that year. Ths s due to the
provson contaned n secton 222 (a) 5 of the Revenue ct of 1926
(whch s appcabe to the ta abe year 1925) mtng the credt for
foregn ta es to the same proporton of the ta aganst whch such
credt s taken whch the ta payer s net ncome from sources wthout
the Unted States bears to hs entre net ncome for the same ta abe
year. The amount pad n 1925 woud, however, be an aowabe
deducton under secton 214(a)3 of the Revenue ct of 1926 n
computng net ncome for 1925.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 223. INDI IDU L R TURNS.
rtce 401: Indvdua returns. II-12-3649
G. C. M.3111
R NU CT O 1926.
usband and wfe hodng property as tenants by the entrety n
the State of orda are each entted to report n hs or her
ndvdua ta return one-haf of the profts from the sae of such
property.
n opnon s requested as to whether the entre ncome from the
saes of certan propertes n 1925 shoud be reported n the return
of for that year or whether hs wfe s entted to report 50 per
cent of the profts on the saes n her ndvdua ta return for sad
year.
The facts reatve to whch an opnon s requested are brefy
these:
The ta payer, , and hs wfe moved to orda some tme n
1911. t that tme the wfe had as her separate property doars.
Later, n 19 L5, the wfe nherted some money from her mother n
a foregn country. rom tme to tme ths money, together wth
an equa amount beongng to the ta payer, was nvested n rea
estate on a 50-50 bass, and when any such property was sod the
proceeds were taken and nvested as soon as possbe n other rea
estate on the same 50-50 bass. The deeds were taken n the |ont
names of husband and wfe and were so recorded. Certan of the
propertes were sod n 1925. The revenue agent n hs report
recommended the ncuson of the entre ncome from the saes of
the propertes n the return of the husband.
Returns were fed by the ta payer and wfe, for the year 1925,
n whch each reported a proportonate share of the profts from
the saes of property durng the year 1925.
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113
223, rt. 401.
In ngsh v. ngsh (66 a., 427, 63 Southern, 822) t was hed
that .
Where m was conveyed to bot husband and wfe, an estate by entrety
was created at common aw. an upon the death of one spouse the entre
estate went to the other. Te common aw has been e pressy decared by
statute to be of force In ths State, e cept where t has been modfed by
competent governmenta authorty, and as there has been no such m..dfca-
ton of ths prncpe, an estate by entrety must be hed to st e st.
In ngsh v. ngsh, supra, the court made the foowng observa-
ton :
s we have aready sad, the pont whch we are cued upon to determne s
as to whether or not an estate by entrety e sts n ths State. We nd the
prncpe very ceary thus ad down n 15 mercan and ngsh ncycopeda
of Law (2d ed.), page 847:
Though the modern tendency s to regard the creaton of an estate by the
entretes as restng not upon a rue of aw arsng from the supposed ncapacty
of husband and wfe to hod n moetes, but upon a rue of constructon based
on the presumpton of ntenton, t may be ad down as a genera proposton
that, where and s conveyed to both husband and wfe, they become sezed of
the estate thus granted per tout et non per my, and not as |ont tenants or
tenants n common. The estate thus created s, however, essentay a |ont
tenancy, modfed by the common-aw doctrne that the husband and wfe are
one person. Upon the death of one spouse the entre estate goes to the sur-
vvor, but the survvor takes no new estate, snce there s a mere change n
the person hodng, and not an ateraton n the estate hed. Nether spouse
can aen or forfet any part of the estate wthout the assent of the other, so
as to defeat the rght of the survvor.
The prncpes announced n ngsh v. ngsh, supra, were re-
affrmed n the case of Oho utterne Co. et a. v. argrave et u .
(79 a., 458, 84 Southern, 376), n whch t was hed that the wfe s
rghts n an estate by entrety are as sacred as those of the husband s
and shoud be as we protected as hs and that the property beongs
as much to the wfe as to the husband. ( so see aey v. Smth
et a, 89 a.. 303. 103 Southern, 833.)
In I. T. 1574 (C. . II-, 143) t was hed that where husband and
wfe hod property as tenants by the entrety n the State of Mch-
gan, the wfe s entted to report her share of the proft from the
sae of such property n her separate ncome ta return.
In vew of the method of deang n rea estate by the husband and
wfe n the nstant case, and n vew of the above prncpes of aw
governng estates by entrety n the State of orda, t s the opnon
of ths offce that the ta payer and hs wfe are each entted to report
n hs or her ndvdua ta return for 1025 one-haf of the profts
from the sae of propertes owned by them as tenants by the entrety.
C. M. Charest,
Genera Counse. ureau of Interna Revenue.
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231, rt. 517.
114
P RT III. CORPOR TIONS.
S CTION 231. CONDITION L ND OT R
MPTIONS O CORPOR TIONS.
rtce 517: Regous, chartabe, scentfc, II-25-3764
terary, and educatona organzatons and G. CM.3830
communty chests.
( so Secton 214 (a) 10, rtce 251.)
R NU CT O 1026 ND PRIOR CTS.
The M ssocaton was organzed for the purpose of promotng
the wefare of the mercan Indan. Its ncome s derved from
vountary contrbutons and s used entrey n furtherance of ts
actvtes. The assocaton s hed to be e empt under secton
231(6) of the Revenue ct of 1926 and smar provsons of pror
cts.
Contrbutons made to the assocaton by ndvduas are deduct-
be for ncome ta purposes n the manner and to the e tent
provded n secton 214 (a) 10 of the Revenue ct of 1926 and
smar provsons of pror Revenue cts.
n opnon s requested as to whether contrbutons made to the
M ssocaton are deductbe under secton 214(a) 10 of the Revenue
ct of 1926 and the correspondng sectons of pror Revenue cts.
It appears that the M ssocaton was ncorporated for the de-
cared purpose of securng for the mercan Indan |ust treatment
from the Government and peope of the Unted States, and for the
purpose of promotng hs wefare. The actvtes of the assoca-
ton ncude the furnshng of ega ad to Indans, the encourage-
ment of Indan art, and the dssemnaton of nformaton that w
promote the menta and physca we-beng of the mercan In-
dans. The ncome of the assocaton s derved from vountary
contrbutons and s used whoy n the furtherance of ts actvtes.
No doubt some of the actvtes of the assocaton are drected
toward securng egsaton benefca to the Indans or toward defeat-
ng egsaton deemed nmcabe to ther best nterests. owever,
t shoud be borne n mnd that the restrcted Indan s a ward of
the Government and a that concerns hs property and person s n
a pecuar sense sub|ect to egsatve contro and drecton. or ths
reason the mprovement of the condton of the Indans s n a arge
measure dependent upon securng the enactment of wse and benef-
cent egsaton, based upon a thorough understandng of the cond-
ton and needs of the Indans. ny actvtes n ths drecton must,
n the case of restrcted Indans, be carred on through an agency of
the character of the one here n queston, for the reason that the
restrcted Indans are wthout funds or wthout authorty to use
ther funds for such a purpose. Snce dfferences of opnon e st
upon the queston of what egsaton s for the best nterests of the
Indans, the actvtes of the assocaton n attemptng to secure
egsaton deemed benefca to the Indans or n opposng egsaton
deemed nmcabe to ther best nterests mght, under dfferent cr-
cumstances, propery be consdered controversa n character. ow-
ever, for the reasons stated, t s beeved that the status of the re-
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115
5231, rt. 520.
treted Indans n the Unted States renders such actvtes an essen-
ta part of any work havng for ts purpose the betterment of the
condtons of such Indans, and, therefore, that these actvtes may
propery be consdered as necessary ncdenta to the chartabe or
educatona actvtes of ths assocaton.
The M ssocaton s entted to e empton under secton 231(6)
of the varous Revenue cts, and contrbutons made by ndvduas
thereto are deductbe sub|ect to the mtatons mposed under secton
214(a) 10 of the Revenue ct of 1926 and the correspondng sectons
of pror Revenue cts.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 520: Soca cubs. II-19-3711
G. C. M. 2867
R NU CTS O 1018, 1921, 1924, ND 1926.
n automobe cub w not be dened e empton from ta aton
because t operates an nsurance bureau for the purpose of secur-
ng for ts members the varous forms of nsurance ordnary
carred by operators and owners of automobes and pubshes a
magazne of nterest to ts members to whom ts crcuaton s
con ned.
n opnon s requested reatve to the e empt status of the M
utomobe Cub.
The M utomobe Cub was ncorporated wthout capta stock
under the provsons of Tte of the Cv Code of the State of
R, provdng for the ncorporaton of regous, soca, and benevoent
corporatons not operated for proft. The cub mantans a depart-
ment for the promoton and encouragement of the constructon, m-
provement, and mantenance of good roads a department for the ds-
semnaton of nformaton concernng roads and the dstrbuton of
maps a sgn postng department a department engaged n secur-
ng unform hghway and other egsaton of nterest to automo-
bsts a ega department an automobe shppng bureau and en-
gages n the actvtes common to an automobe cub. In addton
to the.-e actvtes, the cub mantans an nsurance bureau and pub-
shes a magazne of nterest to motorsts.
The nsurance bureau s operated by the cub for the purpose of
securng for ts members the varous forms of nsurance ordnary
carred by operators and owners of automobes. The ma|or porton
of ths busness s paced wth the O Company of the M utomobe
Cub, a separate assocaton organzed under the aws of the State
of R and operatng through an attorney n fact. The O Company
beng prohbted from acceptng certan rsks, such as those ncdent
to persona abty and the abty of empoyers of chauffeurs
under the workmen s compensaton act, t s necessary that the cub,
n order to meet the demand of ts members for that cass of nsur-
ance, pace such nsurance wth the companes acceptng those rsks.
Such nsurance s paced by the nsurance bureau of the cub ony
wth companes whch have been nvestgated by t and found reabe
and whch agree that ad|ustments of osses by them sha be made
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231, rt. 520.
116
sub|ect to the approva of the bureau. In return for the pacng
of ths nsurance wth t, the nsurance company aows the cub that
part of the premum ordnary pad to ts agents as a commsson.
The magazne pubshed by the cub, t s stated, s pubshed for
the purpose of dssemnatng nformaton of nterest to members of
the cub to whom ts crcuaton s confned, and subscrptons are
not socted or receved frem persons other than cub members.
The subscrpton fee s 1 per year for the frst year and 50 cents
for each succeedng year. In the bref fed on behaf of the cub
t s stated that ths charge s made soey to compy wth the Unted
States posta reguatons coverng second-cass matter.
rom the actvtes of ts nsurance bureau and the subscrpton
fees and advertsng carred n ts magazne the cub receved durng
the year 1920 a gross ncome of appro matey 5 doars and Gar,
doars, respectvey.
Secton 231 of the Revenue ct of 1918 provdes that, among
others, the foowng organzatons sha be e empt from ta aton
under Tte II of the ct:
(9) Cubs organzed and operated e cusvey for peasure, recreaton, and
other nonproftabe purposes, no part of the net earnngs of whch nures to
the beneft of any prvate stockhoder or member.
It w be noted that the e empton granted under the above-quoted
secton s not mted to organzatons whose ncome conssts soey
of dues and fees pad by members. On the contrary, the statute by
necessary mpcaton recognzes that an organzaton of the character
contempated may have net earnngs from other sources and yet
be e empt, provded no part of ts earnngs nures to the beneft of
any stockhoder or member. It foows, therefore, that a cub organ-
zed for peasure, recreaton, and other nonproftabe purposes may
derve a proft from actvtes whch are ncdenta to the prmary
purpose of the cub, wthout deprvng tsef of e empton, provded
t does not engage n those actvtes as a busness but for the con-
venence onv of ts members. In the case of Trndad v. Sagrada, etc.
(263 U. S., 578), the Supreme Court hed that ncdenta tradng
wthn an organzaton, otherwse e empt, dd not amount to an
engagng n a busness or destroy the e empt status of the organza-
ton provded the proceeds thereof were devoted e cusvey to ts
e empt actvtes. The prncpe of ths decson was adopted and
apped bv the oard of Ta ppeas n the appea of the Waynes-
boro Manufacturers ssocaton (1 . T. ., 911, C. . -, 6),
deang wth the e empton of the organzatons named under secton
231(7) of the Revenue ct of 1918, the provsons of whch secton
reatve to net earnngs and ther destnaton are smar to those
of secton 231(9), here under consderaton.
In the opnon of ths offce, the pubcaton of a magazne of
nterest to motorsts and the operaton of an nsurance bureau, such
as s operated by the M utomobe Cub, are actvtes whch are
fary ncdenta to the operaton of an automobe cub. Such
actvtes are carred on prmary to meet the demand for a servce
reasonaby to be e pected of the cub and not for proft. Consder-
ng the artces of ncorporaton of the M utomobe Cub and a
the evdence submtted, ths offce s convnced that the cub was
organzed for peasure, recreaton, and other nonproftabe purposes,
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117
231, rt. 520.
and that no part of the net earnngs of the cub nures to the beneft
of ts members, the earnngs beng devoted e cusvey to the pur-
poses for whch the cub was organzed. The concuson reached s
that the M utomobe Cub s entted to e empton from ta a-
ton under secton 231(9) of the Revenue ct of 1918 and subsequent
Revenue cts so ong as ts actvtes and mode of operaton conform
to those shown by the evdence submtted.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 520: Soca cubs. II-19-3712
G. C. M. 3555
R NU CT OP 1926 ND PRIOR CTS.
n assocaton functonng as a federaton of automobe cubs
and engaged n representng the motorng nterests of the Naton
and whose prmary purpose s nonproftabe and recreatona w
not be dened e empton because of the recept of revenue as the
resut of advertsements n a magazne the pubcaton of whch
s fary ncdenta to the egtmate actvtes of the assocaton.
n opnon s requested reatve to the status of the M ssocaton
under the provsons of secton 231 of the Revenue ct of 1926 and
correspondng sectons of pror Revenue cts.
The ob|ects of the M ssocaton, as set forth n ts charter as
we as ts by-aws, are as foows:
(a) To ad n the estabshment and mantenance of a unform system, of
aws reatng to the reguaton and use of automobes and the rghts of the
owners and users thereof (b) to promote the constructon and mantenance of
good roads and the mprovement of e stng hghways (c) to coect and
dssemnate tourng nformaton (d) to arrange for and carry on automobe
e hbtons and contests, and to offer and grant or contrbute toward the grant-
bg of awards and dstnctons, and to enter nto contracts to effectuate these
ob|ects or any of them (e) to factate the organzaton and mantenance of
assocatons and cubs wth ke or smar ob|ects, wherever stuated: and
(f) to do a thngs necessary to promote the nterests and wefare of the
automobe owner and drver.
The assocaton s actvtes may be dvded nto two casses, the
frst of whch ncudes those of a federaton of State and oca auto-
mobe cubs and the second of whch ncudes ts actvtes n oper-
atng an automobe cub n the cty of .R.
In functonng as a federaton of automobe cubs, the assocaton
s engaged prncpay n representng such cubs n matters of na-
tona mportance as to the wefare of the automobe owners, users,
and cubs. Ths representaton s both outsde and nsde the organ-
zaton. Outsde representaton ncudes campagns for and aganst
proposed edera and State egsaton, membershp on mportant
natona congresses and conferences, e pose of fagrant abuses of
automobe owners and users, and campagns for remeda acton.
Insde representaton ncudes actvtes n encouragng the stand-
ardzaton of the work and servces of oca automobe cubs on a
hgh scae, the deveopment of nformaton of vaue to cubs n
ncreasng the effectveness of ther work, and the deveopment of
safety codes and devces for the protecton of motorsts and the
pubc n genera.
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231, rt. 520.
118
Suppementng ts work n representng the motorng nterests of
the Naton, the assocaton offers certan drect servces to ts affated
cubs. mong such servces are a monthy magazne of tourng and
motorng nformaton, road maps, tour books, and camp-ste and
hote drectores. These servces are whoy ncdenta to the ob|ect
for whch they are offered, whch s to coordnate and make more
effectve the work of the oca cubs. The speca servces enabe the
cubs to render the hghest degree of servce to motorsts who are
members. or the convenence of the motor-traveng pubc, stand-
ard tourng matera s produced for dssemnaton through asso-
cated cubs.
The organzaton furnshes to ts members compete nformaton
as to tourng condtons and furnshes maps for ths purpose, whch
must be kept up to date on account of constanty changng condtons
rue to foods, repars to roads, detours, new road constructon, etc.
The arrangng for and conductng of automobe e hbtons and
contests have been carred on for a number of years, but the assoca-
ton has no fnanca nterest n any speedway, drt tracks, promoters,
racng cars, or drvers. Its contest board estabshes rues whch
contro automobe racng. The tracks upon whch the contests are
hed must be but accordng to detaed nstructons provdng safety
features for the drver as we as the pubc. It s stated that the
assocaton takes an nterest n racng for two reasons: rst, the
protecton of human fe second, the deveopment of sound engneer-
ng practce whch w gve better and ess e pensve cars to the
pubc.
The actvtes of the assocaton reatng to busses have been to
cooperate wth owners and operators of busses for the purpose of
estabshng a unform wdth and weght thereof to the end that the
hghways may be used to best advantage by both operators of com
merca vehces and peasure cars.
The assocaton pubshes a monthy magazne substantay a
of the subscrbers to whch are members of the assocated cubs. In
ths magazne are carred certan advertsements from whch the
assocaton derves revenue.
The cty of R dvson, whe operatng drecty for ts members,
performs servces for the pubc n genera. It mantans a patro
upon the hghways, for nstance, whch sweeps up broken gass, re-
moves wrecked cars (whether or not the cars beong to members),
and has frst-ad and ambuance equpment for nstant and free use n
case of emergences. It mantans a 24-hour teephone servce, wth
men nstanty avaabe for 365 days a year. Its offce s open every
day n the year from S a. n. to 10 p. m. for the convenence of the
motorng pubc t s erectng free of cost to the cty e pensve drec-
ton sgns t s nstang safety and drecton sgns n ad|onng
towns and ts emergency servce s constanty renderng unusua
types of humane servce, such as ocatng ost peope, ocatng motor-
sts en route whose reatves are dyng, and assstng n the securng
of medca ad for ts members.
rom the foregong t s evdent that the assocaton s carryng
on a work of natona mportance and one of nterest to every owner
and operator of an automobe. Its purpose appears to be to create
an nterest n the budng and upkeep of Natona and Stae hgh-
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119
231, rt. 520.
ways, the enactment of unform aws governng the operaton of
motor vehces, and advancement n the art of manufacture of auto-
mobes, as ndcated by the nterest manfested n racng contests
and the promugaton of rues governng such contests. Whatever
revenue t may derve through the pubcaton of a magazne or
through any other actvtes connected wth the assocaton, t s ev-
dent that the prmary purpose of the organzaton s nonproftabe
and recreatona. There has been no accumuaton of surpus nor
dstrbuton of earnngs ether n the form of cash or property.
or each ndvdua who |ons an assocated cub the M ssoca-
ton receves 25 cents of the membershp fee, and the ndvdua auto-
matcay becomes a member of the natona assocaton entted to
a ts prveges. Ths enabes each ndvdua member of an asso-
cated cub, when tourng across the States, to have avaabe a the
factes whch are e tended to a member of the oca cub. though
the assocaton may not be compared to a sma soca cub whch
meets at stated perods for the purpose of dscussng matters such
as art, terature, etc., yet t s a cub organzed for nonproftabe pur-
poses. The magntude of the assocaton s such that to appy the
test of an ordnary soca organzaton s mpossbe. The fact re-
mans that t s an assocaton of ndvduas organzed and operated
for the peasure, wefare, and recreaton of the members thereof,
and not organzed or operated for proft wthn the ordnary meanng
of the term.
In Offce Decson 643 (C. . 3, 241) t was hed:
n automobe enb organzed for the purpose of promotng the mprovement
of roads and bouevards, and other condtons and matters of beneft: to automo-
be owners and drvers, such as sgn-postng roads and securng egsaton of
beneft to automobe owners and drvers, ts ncome beng derved from mem-
bershp fees and subscrptons, no part of whch nures to the beneft of any
prvate stockhoder or ndvdua, s organzed for nonproftabe purposes
nd therefore e empt from ta aton under the provsons of paragraph 9, sec-
ton 231 of the Revenue ct of 1918.
It s we known that one of the prncpa sources of ncome n
connecton wth the pubcaton of any magazne s advertsng. It
woud seem unreasonabe to requre an organzaton whch otherwse
woud be e empt to dscontnue a advertsements n order to meet
the provsons of the statute, when the pubcaton of the magazne
n whch the advertsements are carred s fary ncdenta to the
egtmate actvtes of the organzaton. In the nstant case the
recept of revenue as the resut of the advertsements n the magazne
merey effects a reducton n the cost of pubcaton, and t s not
beeved that ths fact shoud operate to the detrment of the asso-
caton. urthermore, any ncome t may derve from other actv-
tes s from actvtes whch are ceary ncdenta to ts man pur-
pose, and a of ts ncome w eventuay be used for the e empt
purposes for whch the assocaton s organzed and can not nure
to the beneft of the prvate members thereof. The e stence of nc-
denta revenues shoud not defeat e empton for the reason that the
man purpose for whch organzed and the manner n whch oper-
ated must govern. Trndad v. Sag7-ada. etc., 263 U.S.,578 T. D.
3548 (C. . III-, 270) Waynesboro Manufacturers ssocaton,
1 . T. ., 911, C. . -, 6 G. C. M. 2867, on page 115.)
0342 28 9
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233, rt. 544.
120
In vew of the foregong, ths offce s of the opnon that the M
ssocaton s e empt from ta aton under secton 231(9) of the
Revenue ct of 1926 and pror Revenue cts as a cub organzed and
operated e cusvey for peasure, recreaton, and other nonprontabe
purposes.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 233. GROSS INCOM O CORPOR TIONS
D IN D.
rtce 544: Contrbutons by sharehoders. II-24 3753
G. C. M. 4015
R ND CTS O 1918, 1921, 1924, ND 1926.
The ntaton fee charged each new member of the M change,
whch s pad but once and s n addton to the annua dues
assessed aganst each member, s regarded as an addton to capta
and not as ta abe ncome to the e change.
Recommended that I. T. 1271 (C. . 1-1, 118) be revoked.
n opnon s requested as to whether the ntaton fee charged
each new member by the M change consttutes ncome to the
e change, or s to be consdered a capta contrbuton thereto.
Ths ofce has prevousy consdered the nature and actvtes of
the M change. (See L. O. 1121, C. . III-, 275.) Snce a fu
statement of facts s contaned n the opnon mentoned, t s consd-
ered suffcent to state here ony such facts as are necessary for the
determnaton of the present queston.
The consttuton of the e change s the contract of assocaton t
provdes, nter aa, for the government of the e change by a govern-
ng commttee, composed of the presdent, the treasurer, and 8y mem-
bers. The governng commttee apponts from ts members a stand-
ng commttee of y members, whch s known as the commttee on
admssons, the dutes of whch are to consder a appcatons for
membershp. two-thrds vote of ths commttee s necessary to
admt an appcant to membershp n the e change.
t the present tme, a membershps, or seats, n the e change
have been ssued. It s possbe, therefore, to acqure a seat ony by
transfer from a retrng member. t the ncepton of such a trans-
acton the retrng member and the prospectve purchaser enter nto
a wrtten agreement for the sae of the seat, a copy of whch agree-
ment s fed wth the secretary of the e change. The secretary
thereupon refers the contract and the appcaton of the proposed
member to the commttee on admssons. If favorabe acton s taken
by the commttee, the appcant s so notfed, and on the day desg-
nated for the transfer the appcant competes the purchase of hs
seat, and pays to the e change an ntaton fee of 8 doars requred
by artce . secton . of the consttuton of the e change, whch
reads as foows:
Members admtted by transfer sha pay to the e change an ntaton fee of
8 doars.
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121
233, rt. 544.
Secton of the same artce provdes that f the ntaton fee
of an appcant for admsson to membershp s not pad on the day
of hs eecton and notfcaton by the secretary, such eecton sha be
vod.
The ntaton fee s payabe to the e change n addton to the
annua dues of 2 doars assessed aganst each member, and s pad
but once. It s stated that for many years past the ntaton fees
have been consdered capta contrbutons and have been credted to
surpus on the books of the e change. The e change contends that
the ntaton fee of 8 doars s an enforced capta contrbuton
made by each new member as a condton of membershp, and that
the amount reazed from ths source shoud not be ncuded n gross
ncome.
s herenbefore noted, the e change s an assocaton. Congress
has drected that assocatons sha be treated as corporatons for the
purpo. -e of determnng ther ncome. Secton 1 of the Revenue ct
of 1918, secton 2(2) of the Revenue ct of 1921, and secton 2(a)2
of the Revenue cts of 1924 and 1926 provde that the term cor-
poraton ncudes assocatons, and sectons 200 (e) and (f) of
the Revenue cts of 1924 and 1926 provde, respectvey, that the
term stock ncudes a share n an assocaton and the term share-
hoder ncudes a member n an assocaton. In the consderaton
of the present queston, therefore, the e change must be treated as a
corporaton, and the effect of the fnanca transactons between t
and ts members must be regarded as dentca wth smar trans-
actons between a corporaton and ts stockhoders.
Payments made by a stockhoder to create or reenforce the capta
structure of the corporaton n whch he s nterested have ong been
hed to be capta contrbutons. rtce 542 of Reguatons 45 and
artce 543 of Reguatons 62, 65, and 69 read as foows:
Sae of capta stock. The proceeds from the orgna sae by a corporaton
of ts shares of capta stock, whether such proceeds are n e cess of or ess
than the par vaue of the stock ssued, consttute the capta of the company.
If the stock s sod at a premum, the premum s not ncome. Lkewse, f
the stock s sod at a dscount, the amount of the dscount s not a oss deduct-
be from gross ncome. If, for the purpose of enabng a corporaton to secure
workng capta or for any other purpose, the stockhoders donate or return to
the corporaton to be resod by t certan shares of stock of the company pre-
vousy ssued to them, or f the corporaton purchases any of ts stock and hods
t as treasury stock, the sae of such stock w be consdered a capta trans-
acton and the proceeds of such sae w be treated as capta and w not
consttute ncome of the corporaton. corporaton reazes no gan or oss
from the purchase of ts own stock.
rtce 543 of Reguatons 45, whch reads substantay the same
as artce 544 of Reguatons 62, 65, and 69, provdes as foows:
Contrbutons by stockhoders. Where a corporaton requres addtona funds
or conductng ts busness and obtans such needed money through vountary
pro rata payments by ts stockhoders, the amounts so receved beng credted
to ts surpus account or to a speca capta account, such amounts w not be
consdered ncome, athough there s no ncrease n the outstandng shares of
stock of the corporaton. The payments n such crcumstances are n the nature
of vountary assessments upon, and represent an addtona prce pad for, the
shares of stock hed by the ndvdua stockhoders, and w be treated as an
addton to and as a part of the operatng capta of the company.
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233, rt, 544.
122
rom ths t s apparent that capta contrbutons have been e -
cuded from gross ncome under the estabshed practce of the
ureau.
Cases nvovng capta contrbutons have been prevousy con-
sdered. In I. T. 1288 (C. . 1-1, 195) a corporaton offcer donated
hs accumuated saary to the corporaton he receved shares of
stock from the stockhoders, the corporaton prevousy havng
ssued a of ts authorzed capta stock. s accumuated saary
was consdered a capta contrbuton. I. T. 1168 (C. . 1-1, 194)
dscoses that stockhoders of a corporaton turned n a part of ther
stock for transfer by the corporaton to ts credtors n parta pay-
ment of the credtors cams. The vaue of the stock turned n to
the corporaton was hed to be a capta contrbuton. In I. T. 1751
(C. . II-2, 142) the stockhoders of a bank purchased ts frozen
assets, whch had been desgnated as worthess paper by the bank
e amner. The amount e pended by each stockhoder n the pur-
chase of hs proportonate share of the worthess paper was hed to
be a capta contrbuton. Offce Decson 1034 (C. . 5, 277) s
authorty for the statement that nterested partes may contrbute
to ther corporaton amounts other than n proporton to ther hod-
ngs of stock, and I. T. 1901 (C. . III-, 120) estabshes that one
stockhoder aone may make advances to the corporaton n whch he
s nterested. I. T. 1904 (C. . III-, 202) and Soctor s Recom-
mendaton 6135 (C. . I -2, 152) present further cases of add-
tona capta contrbutons made by a snge stockhoder. ( or
further e ampes of capta transactons, see appea of Smmons
ammond Mfg. Co., 1 . T. ., 803 appea of Cooperatve urn-
ture Co., 2 . T. ., 165 appea of Paducah Inos Raroad Co.,
2 . T. ., 1001, C. . -, 4 and appea of tantc Carton Co.,
2 . T. ., 380.)
rom the foregong, t s apparent that enforced or vountary
contrbutons to the capta of a corporaton, made by one or more
stockhoders, are capta e pendtures, and that smar contrbutons
made by one or more members of an assocaton must be dentcay
treated. The soe remanng queston, therefore, s whether the
ntaton fee charged by the M change must be cassfed as a
contrbuton of capta.
The ntaton fee s charged but once, s pad pror to and n
addton to the annua dues, and has no f ed reaton to any perod
of tme or to the speca servces rendered by the e change. It s,
therefore, to be dstngushed from the annua dues, whch are
perodcay assessed aganst each member, and from the fees whch
are coected for the use of the speca factes of the e change.
The evdence dscoses that the ntaton fees have for many years
past been treated as an addton to the surpus of the e change, as
other corporatons treat the surpus created by the contrbutons of
ther stockhoders. The ntaton fee s a payment requred by the
assocaton (corporaton) of the member eect as a condton
precedent to hs becomng a member (stockhoder), and beng such
a payment t appears to come ceary wthn the cass of contrbu-
tons to a corporaton whch, under the we-setted decsons of the
ureau and of the oard of Ta ppeas, are regarded as addtons
to capta and not as ta abe ncome.
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123
233, rt. 545.
It s hed, therefore, that the ntaton fees receved by the
M change are contrbutons of capta. Snce the ntaton fees
are capta e pendtures, t s recommended that I. T. 1271, hodng
that such fees are deductbe as busness e penses to the contrbutng
members, be revoked.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 545: Sae and retrement of corporate II-22-3733
bonds. G. C. M. 3832
R NU CT O 1926 ND PRIOR CTS.
I. T. 1412 (C. . 1-2, 91) has no appcaton to the amortzaton
of premum or dscount on bonds maturng seray hut reates
ony to bond ssue e penses. Where bonds mature seray, the
proper proporton referred to n Offce Decson 936 (C. . 4,
276) of the tota dscount or premum to be aocated to each seres
of bonds shoud be determned as foows:
The amount of each seres of bonds shoud be mutped by the
number of years t has to run, the product representng an amount
equvaent to the seres as though outstandng for one year.
To any seres of bonds shoud be aocated that proporton of the
tota dscount (or premum) whch the product for such seres bears
to the sum of the products for a the seres.
The porton of the dscount (or premum) thus appcabe to any
seres of bonds shoud then be prorated equay over the fe of the
bonds consttutng such seres.
The opnon of ths offce s requested as to the proper method to
be used n computng amortzaton of premum or dscount, and
e pense, n case of bonds maturng seray.
The treatment of bond dscount s covered generay n artce 545,
Reguatons 69, and the correspondng artces of pror reguatons.
The reguatons are sent as to bond ssue e penses, and as to the
method to be used n amortzng premum or dscount where the
bonds mature seray.
Offce Decson 936, supra, covers both questons n the foowng
anguage:
Where bonds mature seray, a proper proporton of the tota dscount and
e penses shoud be aocated to each seres and each seres then treated as a
separate unt. The deducton appcabe to each seres shoud be prorated
equay over the fe of the bonds consttutng the seres, provded, however,
that f the corporaton retred any of the bonds before maturty, the deducton
for that year shoud be ncreased by an amount equvaent to the amount whch
woud ordnary be deducted durng the succeedng years on account of those
partcuar bonds f they had not been prematurey retred.
I. T. 1412, supra, gves specfc nstructons for amortzng e -
penses ncurred n connecton wth the foatng of a bond ssue where
the bonds mature seray n equa nstaments over a perod of 10
years. Ths rung foows Offce Decson 936. supra, and states:
ppyng the foregong rue n the nstant ease, n vew of the fact that
there were 10 dstnct seres of bonds foated for the aggregate e pense of 20at
doars, one-tenth of 20a doars, or 2 doars, s the proportonate e pense of
each seres. Ths amount of 2 doars e pense of fotaton of each seres
shoud be prorated over the fe of each seres that s, n the case of the
one-year bonds the entre amount shoud be deducted n the frst year n the
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234, rt. 6S4.
124
case of t) two-year bonds, one-haf shoud be deducted n the frst year and
one-haf ucted n the second year, and so on wth the 3, 4, 5, 6, 7, 8, 9, and
10 year bonds.
Snce the tme eement s not a factor n the e penses ncdenta to
a bond ssue, the above rungs correcty state the method to be fo-
owed n amortzng such e penses. dfferent stuaton e sts as to
premum or dscount on bonds maturng seray, for the reason that
premum or dscount s consdered to be an nterest ad|ustment and
consequenty tme s a factor. ny method of amortzaton of bond
premum or dscount whch does not take nto consderaton the
eement of tme wth reference to dfferent seres s unsound.
I. T. 1412, supra, has no appcaton to the amortzaton of pre-
mum or dscount on bonds maturng seray, and some confuson
has resuted through faure to mt t to bond ssue e penses. so,
dfferences of opnon have arsen as to what consttutes a proper
proporton of the tota dscount (or premum) to be aocated to
each seres wthn the meanng of Offce Decson 936.
It s the opnon of ths offce that where bonds mature seray,
the proper proporton referred to n Offce Decson 936 of the
tota dscount or premum to be aocated to each seres of bonds
shoud be determned as foows:
The amount of each scres of bonds shoud be mutped by the
number of years t has to run, the product representng an amount
equvaent to the seres as though outstandng for one year.
To any seres of bonds shoud be aocated that proporton of the
tota dscount (or premum) whch the product for such seres bears
to the sum of the products for a the seres.
The porton of the dscount (or premum) thus appcabe to any
seres of bonds shoud then be prorated equay over the fe of the
bonds consttutng such seres.
The e penses ncdent to the ssue of seray maturng bonds
shoud be apportoned n accordance wth the method prescrbed n
I. T. 1412.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 234. D DUCTIONS LLOW D
CORPOR TIONS.
rtce 564: Interest. II-12-3650
G. C. M. 3234
R TNU CTS O 1024 ND 1928.
ta payer that captazes nterest pad on ndebtedness n-
curred for constructon purposes, as requred by a State reguatory
body, s not, by vrtue of such acton, precuded from deductng
such tems n determnng net ncome under edera ncome ta
cts.
n opnon s requested as to whether nterest pad on ndebtedness
ncurred for constructon purposes consttutes a proper deducton
from gross ncome under the Revenue cts of 1924 and 1926 under
the foowng crcumstances:
The ta payer s a Caforna corporaton and s cassfed as a
pubc utty under the aws of that State. Secton 48 of ct 6386,
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125
234, rt. 564.
Genera Laws of Caforna, 1923. part 2, pertanng to pubc ut-
tes, provdes that the raroad commsson of that State sha have
the power to estabsh a system of accounts to be kept by pubc
uttes sub|ect to ts |ursdcton. In compance therewth the
raroad commsson of the State of Caforna has formuated a
system of accounts for eectrca corporatons. Secton 394 of ths
system of accounts provdes that nterest pad on ndebtedness n-
curred for acquston or constructon of pant and equpment sha
be charged to capta account. Under ths requrement the ta payer
captazed on ts books the amounts of 9a doars and 8.5a: doars
for the years 1924 and 1925, respectvey, representng nterest on that
porton of ts funded debt used for current constructon purposes.
In ths connecton attenton s drected to secton 202(b) of the
Revenue cts of 1924 and 1926, artce 1501 of Reguatons 65 and
69. and Soctor s Memorandum 5033 (C. 13. -, 9). Secton 202(b)
of the Revenue ct of 1924 contans the foowng anguage:
In computng the amount of gan or oss under subdvson (a) proper ad-
|ustment sha be made for (1) any e pendture propery chargeabe to capta
account. . Itacs supped.
Smar anguage s contaned n secton 202(b) of the Revenue
ct of 1926. rtce 1561 of Reguatons 65 and 69 provdes n
substance that n computng gan or oss the cost or other bass of
the property must be ncreased by the cost of capta mprovements
and betterments and by carryng charges, provded such carryng
charges have not been deducted n computng net ncome or used n
determnng abty for fng returns of ncome for pror years.
In Soctor s Memorandum 5033, supra, the term carryng charges
as used n artce 1561 was hed to ncude nterest and ta es pad on
unproductve property.
It s suggested, contrary to ta payer s contenton, that because
nterest pad on ndebtedness ncurred for constructon purposes
must be captazed under the requrements of the State commsson
and because of the provsons of the edera Revenue cts reatng
to the determnaton of gan or oss, such nterest can not be deducted
n computng net ncome.
The queston thus presented s whether a ta payer whch capta-
zes certan tems, as requred by a State reguatory body, s by vrtue
of such acton precuded from deductng such tems n determnng
ts net ncome under the edera Revenue cts.
Secton 234(a) of the Revenue cts n queston provdes as
foows:
In computng the net ncome of a corporaton sub|ect to the ta mposed by
Moton 230 there sha he aowed as deductons:

nterest pad or accrued wthn the ta abe year on ts ndebted-
ness, . Itacs supped.
Ths secton makes the deducton for nterest a matter of rght
and not one whch may be aowed n the dscreton of the ureau.
If a ta payer estabshes that t has pad or accrued nterest wthn
the ta abe year on ts ndebtedness and cams t as a deducton,
the ureau can not deny the same.
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126
s noted above, secton 202(b) 1 provdes that n computng the
amount of gan or oss proper ad|ustment sha be made for any
e pendture or tem of oss propery chargeabe to capta account.
In construng ths provson artce 1561 of Reguatons 65 and 69
mts such tems to those whch have not affected the ta status or
abty n pror years. The statute and the reguatons, therefore,
contempate an eecton on the part of the ta payer ether to deduct
nterest n computng net ncome or to captaze t for the deter-
mnaton of gan or oss, but t can not do both.
In the nstant case the ta payer has not eected to captaze nter-
est for ncome ta purposes. It dd captaze ths tem on ts books
to compy wth the orders of the Caforna Raroad Commsson.
The mere fact that t was requred to do so for rate-makng purposes
does not estop t from avang tsef of the deducton aowed t as a
matter of rght for edera ncome ta purposes.
It s, accordngy, the opnon of ths offce that the captazaton
of nterest on ndebtedness ncurred for constructon purposes, whch
acton s requred by a State reguatory body, does not estabsh that
the same treatment must be accorded such e pendtures for ncome
ta purposes, and that, as the ta payer has camed the tems as de-
ductons from ts gross ncome, t s entted to the same under secton
234(a)2 of the Revenue cts of 1924 and 1926, f conformng to
the statute n a other respects.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 238. CR DIT OR T S IN C S
O CORPOR TIONS.
rtce 612: Domestc corporaton ownng a II-9-3630
ma|orty of the stock of foregn corporaton. I. T. 2401
R NU CT O 1026.
mercan corporaton ownng the ma|orty of stock In a
rtsh subsdary may cam credt under secton 238(a) of the
t venue ct of 026 for the rtsh ncome ta pad on profts
dstrbuted to t as dvdends by the rtsh corporaton. No credt
may be camed under secton 238(e) by the mercan corpora-
ton for rtsh ta es pad by the subsdary on ts undstrbuted
profts.
Inqury s made as to whether an mercan corporaton whch s
the ma|orty sharehoder of a rtsh corporaton may cam credt
under secton 238(e) of the Revenue ct of 1926 wth respect to the
ta borne by the rtsh subsdary on undstrbuted profts, as we
as credt for the amount of ta deducted from the dvdends ds-
trbuted to the parent corporaton.
The foowng e cerpts from secton 238 (a) and (e) of the Reve-
nue ct of 1926 are pertnent to the queston presented:
(a) In the case of a domestc corporaton the ta mposed by ths tte sha
be credted wth the amount of any ncome, war-profts, and e cess-profts ta es
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127
239, rt. 622.
pad or accrued durng the same ta abe year to any foregn country, or to any
possesson of the Unted States: .

(e) or the purposes of ths secton a domestc corporaton whch owns a
ma|orty of the votng stock of a foregn corporaton from whch t receves
dvdends (not deductbe under secton 234) In any ta abe year sha be
deemed to have pad the same proporton of any ncome, war-profts, or e cess-
profts ta es pad by such foregn corporaton to any foregn country or to any
possesson of the Unted States, upon or wth respect to the accumuated profts
of such foregn corporaton from whch such dvdends were pad, whch the
amount of such dvdends bears to the amount of such accumuated
profts: .
It s hed that nasmuch as the tota rtsh ncome ta pad oh
profts dstrbuted as dvdends by a rtsh corporaton to ts share-
hoders s a ta mposed on the sharehoder, the mercan corpora-
ton may cam as a credt under secton 238(a) the amount of ta
pad to the rtsh Government wth respect to the dvdends ds-
trbuted, the same as a ctzen sharehoder mght cam a ke credt
under secton 222(a). (See S. M. 3040, C. . I -1, 198. and S. M.
5363, C. . -, 89.) No credt s aowabe to the ma|orty share-
hoders under secton 238(e) wth respect to the ta pad by the sub-
sdary on the profts whch t retans, for the reason that (1) no part
of such ta was pad wth respect to the profts dstrbuted as dv-
dends, the entre amount of the ta pad on the profts dstrbuted as
dvdends beng a credt under secton 238(a), and (2) the ta pad on
the profts whch the subsdary retans w be passed on to the share-
hoder when such profts are dstrbuted as dvdends and w then
be a credt under secton 238(a).
S CTION 239. CORPOR TION R TURNS.
rtce 622: Returns by recevers. TI-25-3765
G. C. M. 3876
R NU CTS O 1916, 1917, 1918, 1921, 1924, ND 1926.
The superntendent of nsurance for the State of New York s
requred under the Revenue cts, from and ncudng that of
1916, to make ncome ta returns for nsurance companes n proc-
ess of qudaton under the provsons of secton 63 of the New
York nsurance aw.
n opnon s requested as to whether an offcer of the State of
New York who s charged wth the duty of qudatng an nsurance
corporaton s requred to fe returns of net ncome n behaf of
the corporaton.
Ths ssue arses n connecton wth secton 63 of the New York
nsurance aw, whch provdes, n substance, that when an nsurance
company becomes nsovent (there are aso severa other grounds) the
superntendent of nsurance sha appy to the supreme court for an
order of qudaton and that, f the order s granted, he marshas
the assets, receves and passes upon cams, and makes dstrbuton.
In actua practce the superntendent apponts a speca deputy who
handes qudatons.
Secton 239 of the Revenue ct of 1926 provdes that every cor-
poraton sub|ect to ta aton under the ncome ta aw sha make a
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240, rt. 636.
128
return and that n cases where recevers, trustees n bankruptcy,
or assgnees are operatng the property or busness of corporatons,
such recevers, trustees, or assgnees sha make returns for such
corporatons n the same manner and form as corporatons are
requred to make returns.
Smar provsons are contaned n the pror Revenue cts.
The method of qudatng nsurance companes as provded for
n the statute cted seems to dffer n no essenta from the method
prescrbed by the statutes of many of the States for the qudaton of
nsovent banks through the State offcer who has genera supervson
over State banks. The ureau has aways consdered such a per-
manent offcer as a recever when actng n the qudaton of a bank
(see S. M. 2040, C. . III-2,192), and ths has been defntey decded
by the Unted States oard of Ta ppeas n the case of Cfton
Cty ank v. Commssoner of Interna Revenue (6 . T. ., 643),
where numerous authortes to ths effect are cted. The Supreme
Court appears to vew the poston of a superntendent of nsurance
of the State of Mssour, when actng under a statute smar to the
New York aw, n the same ght. (Refe v. unde, 103 U. S., 222.)
Ths offce s, therefore, of the opnon that the superntendent of
nsurance for the State of New York s requred under a of the
Revenue cts, from and ncudng that of 1916, to make ncome ta
returns for nsurance companes n process of qudaton under the
provsons of secton 63 of the New York nsurance aw.
C. M. Charkst,
Genera Counse, ureau of Interna Revenue.
S CTION 240. CONSOLID T D R TURNS O
CORPOR TIONS.
rtce 636: Consodated accounts of reated TI-1-3559
trades or busnesses owned by same nterests. G. C. M. 2856
R NU CTS OP 1921, 1924, ND 1920.
The terms reated trades or busnesses and owned or con-
troed drecty or ndrecty by the same nterests as used n sec-
ton 240(d) of the Revenue cts of 1921 and 1924 and secton
240(f) of the Revenue ct of 1926 defned. Recommended that
I. T. 2201 (C. . -, 100) be modfed.
n opnon s requested reatve to the provsons of secton 240(d)
of the Revenue cts of 1921 and 1924 and secton 240(f) of the
Revenue ct of 1926.
The severa statutory provsons referred to read as foows:
Revenue ct of 1921 secton 240(d) :
or the purposes of ths secton a corporaton entted to the benefts of
secton 262 shn be treated as a foregn corporaton: Provded, That n any
case of two or more reated trades or busnesses (whether unncorporated or
Incorporated and whether organzed n the Unted States or not) owned or
controed drecty or ndrecty by the same nterests, the Commssoner may
consodate the accounts of such reated trades and busnesses, n any proper
case, for the purpose of makng an accurate dstrbuton or apwrtonment
of pans, profts, ncome, deductons, or capta between or among such reated
trades or busnesses.
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129
240, rt. 636.
Revenue ct of 1924 secton 240(d):
In any case of two or more reated trades or busnesses (whether unn-
corporated or ncorporated and whether organzed n the Unted States or
not) owned or controed drecty or ndrecty by the same nterests, the Com-
mssoner may and at the request of the ta payer sha, f necessary n order
to make an accurate dstrbuton or apportonment of gans, profts, ncome,
deductons, or capta between or among such reated trades or busnesses,
consodate the accounts of such reated trades or busnesses.
Secton 240(f) of the 1926 ct s dentca wth secton 240(d) of
the 1924 ct.
The questons upon whch an opnon s requested come under two
headngs, referred to as foows:
(a) Requrements to ncude ta payers wthn the provsons of secton
240 1) of the Revenue cts of 1921 and 1924 and secton 240(f) of the
Revenue ct of 1926.
( ) Method of audt under the sectons of the cts referred to above.
The questons under (a) are stated as foows:
1. Wheren does secton 240(d) of the Revenue ct of 1921 dffer from sec-
ton 240(d) of the Revenue ct of 1924 and secton 240(f) of the Revenue
ct of 192(3 n ts appcaton by the ureau, due to the dfference n the
wordng of the sectons referred to
2. Under the provsons of the sectons of the cts referred to above, what
consttutes reated trades or busnesses of ta payers
3. Under the provsons of the sectons of the cts referred to above, what
consttutes ownershp or contro, drecty or ndrecty, by the same nterests
4. If the ta payers have met the requrements outned above reatve to
reated trades or busnesses and ownershp or contro, what other requre-
ments are necessary to permt the consodaton of the accounts under the
sectons of the cts referred to
The questons under (b) are stated as foows:
1. Inasmuch as Soctor s Memorandum 2396 (C. . I -1, 240) and I. T.
22 1 appear to confct n ther appcaton, whch of the foowng methods
of audt shoud be empoyed after t has been decded that the corporatons
fa wthn the provsons of secton 240(d) of the Revenue cts of 1921 and
1924 or secton 240(f) of the Revenue ct of 1926
Shoud the specfc ntercompany accounts be consodated for the purpose
of makng an accurate dstrbuton of profts, gans, etc., n each account for
the purpose of computng a separate net ncome and ta on each company, or
Shoud the audt be handed by the same method as used n a computaton
under secton 240(c) e cept as to actua computaton of a separate ta for
each company
2. On what bass sha dstrbuton of gans, profts, etc., be made
(a) 1. cept as to the manner of nvokng t, secton 240(d) of
the Revenue ct of 1921 does not dffer from secton 240(d) of the
Revenue ct of 1924 and secton 240(f) of the Revenue ct of 1926
so far as ts appcaton by the ureau s concerned. Under a of
the cts the accounts of the reated trades or busnesses are to be
consodated for the purpose of makng an accurate apportonment
or dstrbuton of gans, profts, etc. Under the 1921 ct, however,
the provson may be apped n proper cases at the dscreton of the
Commssoner, whereas under the ater cts the accounts must be
consodated at the ta payer s request when the statutory condtons
are met.
2. The word reated means standng n reaton connected
aed akn as the reated occupatons of the spnner and
the weaver. ( unk Wagnas New Stand. Det.) Manfesty
the meanng of such a word must be adapted to the connecton n
whch t s used so as to gve effect to the purpose of the statute.
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240, rt. 636.
130
(See Lews Sutherand s Statutory Constructon, o. II, p. 717, et
seq.) The purpose e pressed n the sectons s that of makng an
accurate dstrbuton or apportonment of gans, etc. ence re-
ated may be taken to refer to such trades or busnesses as have
reatons wth one another of such a character as to render t mpos-
sbe to determne the proper aocaton of gans, profts, etc., between
them wthout a consodaton of ther accounts.
3. In the phrase owned or controed drecty or ndrecty by
the same nterests, Congress has agan used terms whch the oard
of Ta ppeas has characterzed as doubtfu and mpossbe of a
strct defnton. ( ppea of Rshe Phonograph Co., 2 . T. .,
229.) Owned has, of course, a we defned meanng, and no df-
fcuty w be found wth t. Controed the oard has hed not to
be necessary mted to strct ega contro, but to a genune and
rea contro actuay e ercsed. ( ppea of Isse och Co., Inc.,
1 . T. ., 624.) ere agan, however, ad may be sought from the
conte t. Obvousy the contro ntended s, however, not that of
the sock or shares of the enttes ownng the busnesses, as n the
case of consodated returns, but contro of the trades or busnesses
themseves. In Yazoo M. . R. Co. v. Seares (Mss.) (37 South.,
939, 953, 68 L. R. ., 715), t was sad that the contro of the bus-
ness of a corporaton meant the power to dctate the corporate
acton of the corporaton, not the mere management of some speca,
mted department of ts operatons. It woud seem, however, that
tte practca dffcuty w be found n ths respect. In every case
the reason for consodatng accounts must be found. If there has
been no such ntermngng of accounts as the provsons are ntended
to guard aganst, consodaton s not warranted even though con-
tro may e st. On the other hand, t s obvous that, save n the
most e ceptona cases, there woud be no such ntermngng of
accounts uness the contro prescrbed n the statutes e sted.
ence, uness the evdence n a case affrmatvey shows that the
trades or busnesses are not controed drecty or ndrecty by the
ame nterests, t may be assumed that the statutory requrements
n ths regard are met when t s found that the tems of gan,
proft, etc., can not be accuratey dstrbuted or apportoned wthout
a consodaton of the accounts.
4. If the ta payers have met the above requrements reatve to
reated trades or busnesses and ownershp or contro, there reman
ony the further requrements: (a) Under secton 240(d) of the
Revenue ct of 1921, a decson on the part of the Commssoner that
the accounts shoud be consodated for the specfed purpose (b)
under secton 240(d) of the Revenue ct of 1924 and secton 240(f)
of the Revenue ct of 1926, a necessty that the accounts be conso-
dated n order to make an accurate dstrbuton or apportonment
of gans. etc.
(b) 1. In answer to the frst queston under ths headng, ths
offce adheres to the poston taken n Soctor s Memorandum 2396,
supra. In that rung the report of the Commttee on Ways and
Means s quoted to the effect that secton 240(d) of the 1921 ct was
enacted
soey for the purpose of makng an accurate dstrbuton of gans,
profts. Income, deductons, or capta, and not for the purpose of computng
the ta on the bass of the consodated returns.
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131
245, rt. 684.
No dstncton n ths respect s made n the severa cts now beng
consdered.
It foows, therefore, that the audt shoud not be handed by the
same method as used n a computaton under secton 240(c), but that
the specfc ntercompany accounts shoud be consodated soey for
the purpose of makng an accurate dstrbuton of profts, gans,
etc., so that a separate net ncome and ta may be computed for each
company.
2. In Soctor s Memorandum 2396, supra, t was stated that the
ntenton of Congress n secton 240(d) of the 1921 ct was
merey to gve the Commssoner authorty to make a redstrbuton
or reapportonment of the tems mentoned between the accounts of corpora-
tons nterreated as descrbed n the secton, wherever such acton mght he
necessary to make an accurate aocaton of the ncome and to prevent any
mproper manpuaton of accounts or shftng of profts.
The correspondng provsons of the ater cts, athough possess-
ng mandatory features not found n the 1921 ct, e press a smar
purpose. Whe t s mpossbe to set forth n a specfc manner a
bass for makng the dstrbuton or apportonment, t seems cear
that n order to effectuate the ntenton of these provsons there
shoud be such an anayss of the accounts of the reated trades or
busnesses as w render t possbe to attrbute to each of such trades
or busnesses the gans, profts, etc., propery beongng to t. The
same practce shoud be foowed under each of the three cts..
I. T. 2261 shoud be modfed n so far as t s nconsstent wth
ths opnon. . .
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 245. T S ON INSUR NC COMP NI S.
rtce 684: Ta es and e penses wth respect II-25-3766
to rea estate. I. T. 2416
R NU CTS O 1918, 1021, 1924, ND 1926.
State ta es pad by fe nsurance companes on premums are
not deductbe from gross ncome under Revenue cts of 1921,
1024, and 1026. Such ta es, however, are an aowabe deducton
under the Revenue ct of 1918.
dvce s requested regardng the deductbty by a fe nsurance
company of State ta es on premums.
Secton 243 of the Revenue ct of 1926 provdes that n eu of the
ta es mposed by secton 230 of the ct, whch atter secton provdes
for a ta on corporatons, there sha be eved, coected and pad for
each ta abe year upon the net ncome of every domestc fe nsur-
ance company a ta of 12 per cent of ts net ncome. Secton 244
of the ct defnes the gross ncome of a fe nsurance company as the
pross amount of ncome receved durng the ta abe year from n-
terest, dvdends, and rents. rtce 071 of Reguatons 69, nter-
pretng the Revenue ct of 1920, provdes that the gross ncome n
the case of fe nsurance companes comprses tems 25 to 34, n-
cusve, of the ncome page of the annua statement for fe nsurance
companes (the edton of 1920) adopted by the Natona Conventon
of Insurance Commssoners. Secton 245 of the Revenue ct of
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270, rt. 1204.
132
1926 provdes that D the case of a fe nsurance company the term
net ncome means the gross ncome as contempated n secton 244 ess
certan specfc deductons named theren, among whch, n paragraph
(6) of subdvson (a) of the secton, are ta es pad durng the ta -
abe year upon or wth respect to the rea estate owned by the com-
pany, not ncudng ta es assessed aganst oca benefts. The rea
estate ta es aowabe as a deducton under ths secton are further
defned n artce G84 of Reguatons 69. There are aso aowed as a
deducton ta es whch are mposed upon the nterest of a share-
hoder n the company and whch are pad by the company wthout
rembursement from the sharehoder. There s no provson for tn-
aowance as a deducton of State ta es mposed upon the company
wth respect to premums. The above-referred to provsons of thv
Revenue ct of 1926 are smar to the provsons on the same sub|ect
of the Revenue cts of 1921 and 1924.
Reference to the provsons of the Revenue ct of 1918 and Regu-
atons 45 nterpretng that ct dscoses, however, that the rue
has not aways been as set out above. It appears that, under the
Revenue ct of 1918, nsurance companes were entted to the same
deductons from gross ncome as other corporatons and to certan
addtona deductons not matera to a consderaton of the queston
presented n ths case. See artce 568 of Reguatons 45. It was
e pressy provded n secton 234 of the Revenue ct of 1918 that,
n computng the net ncome of a corporaton, there shoud be aowed
as deductons ta es mposed by the authorty of any State or Terr-
tory. It foows that State ta es on premums were propery treated
as aowabe deductons by nsurance companes under the Revenue
ct of 1918.
It w be noted that under the Revenue cts of 1921, 1924, and
1926 fe nsurance, companes are ta ed under separate sectons from
other corporatons, and the defnton under these cts of gross n-
come, and deductons aowabe to such fe nsurance companes are
to be dstngushed from the gross ncome, net ncome, and aowabe
deductons of other corporatons. Under those cts the ony ta es
aowabe to a fe nsurance company as deductons from gross
ncome are ta es pad wth respect to rea estate and ta es pad wth
respect to sharehoders nterests where the company s not rem-
bursed. There s no provson whereby an nsurance company s
aowed ta es pad on the premums as a deducton from gross
ncome.
P RT . P YM NT, COLL CTION, ND R UND O T ND
P N LTI S.
S CTION 270. D T ON W IC T
S LL P ID.
rtce 1204: Coecton of ta by dstrant.
R NU CT O 1026.
ccrued saary of an empoyee of a muncpaty for servces ren-
dered n connecton wth the e ercse of a nongovernmenta functon.
(See. T. 2405, page 72.)
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133
270, rt. 1204.
rtce 1204: Coecton of ta by dstrant. II-23-3743
G. CM.3697
R NU CT O 1926.
There s no authorty for a evy aganst the wages of a seaman
n the hands of hs empoyer for unpad ta es, for the reason that
there s an e press nhbton n secton 12 of the Seaman s ct of
March 4, 1915, aganst attachment, encumbrance, or arrestment
thereon.
n opnon s requested by a coector of nterna revenue as to
whether the Government has the rght to evy on the unpad wages
of a seaman, n vew of the provsons of secton 12 of the Seaman s
ct of March 4, 1915 (38 Stat, at Large, ch. 153, p. 1169).
It appears that s ndebted to the Unted States for unpad ta es
n the amount of doars, and that the coector because of hs
nabty to coect the outstandng tem from has fed notce of
evy wth s empoyer, the M Steamshp Co. The company has
fed an answer wth respect to the proposed evy to the effect that
s a seaman and that a eves on the wages of seamen are prohbted
by the provsons of secton 12 of the ct of March 4, 1915, known as
the La oette Seaman s ct.
The anguage of secton 12 of the ct of March 4, 1915, s sub-
stantay the same as that of secton 4536 of the Revsed Statutes,
whch has receved the nterpretaton of the courts n a number of
eases.
Secton 12 of the ct of March 4, 1915, reads as foows:
Sec. 12. That no wages due or accrung to any seaman or apprentce sha
be sub|ect to attachment or arrestment from any court and every payment
of wages to a seaman or apprentce sha be vad n aw, notwthstandng
any prevous sae or assgnment of wages or of any attachment, encumbrance,
or arrestment thereon and no assgnment or sae of wages or of savage
made pror to the accrung thereof sha bnd the party makng the same,
e cept such aotments as are authorzed by ths tte. Ths secton sha
appy to fshermen empoyed on fshng vesses s we as to seamen: Provded,
That nothng contaned n ths or any precedng secton sha nterfere wth
the order by any court regardng the payment by any seaman of any part
of hs wages for the support and mantenance of hs wfe and mnor chdren.
Secton 4536 of the Revsed Statutes of the Unted States s hereby repeaed.
Secton 4536 of the Revsed Statutes reads as foows:
No wages due or accrung to any seaman or apprentce sha be sub|ect to
attachment or arrestment from any court and every payment of wages to
a seaman or apprentce sha be vad n aw, notwthstandng any prevous
sae or assgnment of wages or of any attachment, encumbrance, or arrestment
thereon: and no assgnment or sae of wages, or savage, made pror to the
accrung thereof, sha bnd the party makng the same, e cept such advance
securtes as are authorzed by ths tte.
In vew of the fact that the sectons of the statutes quoted above
are substantay dentca, the nterpretaton of the courts wth
respect to the provsons of secton 4530. Revsed Statutes, w be
appcabe to secton 12 of the ct of March 4, 1915.
The eadng case wth respect to the provsons of secton 4536,
Revsed Statutes, s that of Wder v. Inter-Isand Steam Navgaton
Co. (211 U. S., 239). In ths case the Supreme Court of the Unted
States revewed a number of cases prevousy decded by ower
edera courts and State courts wth respect to the nterpretaton
of the provsons of secton 4536, Revsed Statutes. In ndcatng
ts concuson to the effect that the wages of a seaman are not
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270, rt. 1204.
134
sub|ect to attachment, arrestment, or smar process, the court stated
n part as foows:
Secton 4536, therefore, has the effect of not ony securng the wages of the
seaman from drect attachment or arrestment, but further prevents the assgn-
ment or sae of hs wages, e cept n the mted cases we have mentoned, and
makes the payment of such wages vad notwthstandng any attachment,
ncumbrance, or arrestment thereon. It seems to be ceary nferabe from
these provsons that wages whch have thus been carefuy conserved to the
seaman were not ntended to be sub|ect to sezure by attachment, ether before
or after |udgment.

We thnk that these provsons, read n connecton wth secton -1036, neces-
state the concuson that t was ntended not ony to prevent the seaman
from dsposng of hs wages by assgnments or otherwse, but to precude the
rght to compe a forced assgnment, by garnshee or other smar process,
whch woud nterfere wth the remedy n admraty for the recovery of hs
wages by condemnaton of the shp. These provsons woud be defeated f
the seaman s wages, to be recovered at the end of the voyage, coud be at once
sezed by an e ecuton or attachment. The evdent purpose of the
edera statutes, that the seaman sha have hs remedy n admraty, woud
be defeated, and the seaman, n many cases, be turned ashore wth nothng n
ds pocket, because of |udgments sezng hs wages, rendered t may be, upon
mprovdent contracts, from whch t was the desgn and very purpose of the
admraty aw to afford hm protecton.
We thnk that secton 4)3C, construed n the ght of the other provsons of
the same tte, prevents the sezure of the seaman s wages, not ony by wrts
of attachment ssued before |udgment, but e tends the ke protecton from
proceedngs n ad of e ecuton, or wrts of attachments, such as are authorzed
by the awaan statutes, after |udgment.
In the case of urns v. red L. Davs Co. (271 ed., 439), the
Crcut Court of ppeas for the rst Crcut, n construng secton
12 of the ct of March 4, 1915, reed upon the case of Wder v.
Inter-Isand Steam Navgaton Co., cted above, and hed that a
Massachusetts statute whch purported to authorze the attachment
of a seaman s wages was n confct wth secton 12 of the ct of
March 4, 1915, and that any attachment or process under a State
statute to arrest the wages of a seaman n the hands of hs empoyer
was of no efect, by reason of the confct of aw.
It woud thus appear from the decsons of the courts wth respect
to secton 4536, Revsed Statutes, and secton 12 of the ct of March
4, 1915, that the wages of a seaman may not be eved upon n the
hands of hs empoyer by attachment, arrestment, garnshee, wrt
of e ecuton, or smar form of evy e cept wth respect to a specfc
e empton for the beneft of a seaman s wfe or chdren. If the
decree of a court s wthout ava to authorze evy upon a seaman s
wages n the hands of hs empoyer, t woud seem to foow that a
evy by a coector of nterna revenue woud have no greater dgnty
or effect. To hod otherwse woud be to attach more effect to a
proceedng by a coector than s afforded to the enforcement of a
decree or |udgment of a court. In ths connecton, t may be noted
that t has been hed that n the assessment of a a the nterna
revenue offcers act n a quas |udca capacty Western press
Co. v. Unted States, 141 ed., 28) and n the case of the Natona
Surety Co. v. rock (97 S. ., 417), t was hed that a ta assess-
ment st when certfed to the coector of nterna revenue as the
force and effect of a |udgment and e ecuton. It was stated by the
court n the case of Wder v. Inter-Isand Steam Navgaton Co.,
n respect to secton 4536, Revsed Statutes, that ths statute s not
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135
270, rt 1205.
to be too narrowy construed, but rather to be beray nterpreted
wth a vew to effectng the protecton ntended to be e tended to a
cass of persons whose mprovdence and prodgaty have ed to
egsatve provsons n ther favor, and whch has made them, as
Mr. ustce Story decared. the wards of the dmraty arden
v.Gordon, 2 Mason, 541, ed. Cas. No. 6047).
Ths offce s of the opnon that there s no authorty for a evy
aganst the wages of a seaman n the hands of hs empoyer, n vew
of the nhbton n secton 12 of the Seaman s ct of March 4, 1915,
aganst attachment, encumbrance, or arrestment thereon, and that
such terms shoud be construed to ncude the process or procedure
of evy for unpad ta es.
C. M. Charest,
Genera Caunse, ureau of Interna Revenue.
rtce 1205: Lens and enforcement of ta II-10-3638
ens by b n equty. G. C. M. 3205
R NU CT O 1026.
eu for edera ta es may not be reeased n favor of a pror
recorded mortgage n order to preserve the prorty rghts of the
mortgagee where t s desred to renew the mortgage.
dvce s requested reatve to the reease of a en for edera
(a es.
It appears that the Government s en has attached to certan rea
property formery beongng to and by her deeded to the M Com-
pany. mortgage on the property was e ecuted by pror to the
transfer of the property to the M Company. It s desred to renew
the mortgage and the oan secured thereby, and ths renewa w
necesstate a reease of the present mortgage and the e ecuton of a
new one. The mortgage s pror n pont of tme of recordng to
the en for edera ta es, and the mortgagee wshes to preserve ths
status. The coector has been requested to reease the en pendng
the satsfacton of the present mortgage and the recordng of a new
mortgage.
The present nqury s for advce whether t s rght and proper
that the en shoud be temporary rased and refed upon the re-
newa of the mortgage.
Under the provsons of secton 3186 of the Revsed Statutes as
amended, f any person abe to pay a ta negects or refuses to pay
the same after demand, the amount sha be a en n favor of the
Unted States from the tme when the assessment st was receved
by the coector, e cept when otherwse provded, unt the ta s
pad, upon property or rghts to property beongng to the ta payer.
There s a further provson n the statute that such en sha not
be vad as aganst any mortgagee, purchaser, or |udgment credtor
unt notce of the en s fed as provded n the statute. When a
en has attached to the property of a denquent ta payer t may
not be reeased e cept as a resut of satsfyng the ta abty or,
after the nsttuton of proceedngs for the purpose of enforcng the
6342 28 10
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270, rt. 1206.
136
en. Secton 3207 of the Revsed Statutes, as amended, and as
reenacted n secton 1127 of the Revenue ct of 1926, sets forth
the approprate proceedng to enforce the en of the Unted States
upon rea property, or for the determnaton of the rghts of nter-
ested partes where the en of the Unted States s |unor to the
ens or cams of other partes.
It s, therefore, the opnon of ths offce that a coector s wthout
authorty to reease a en whch has attached to the propertv of a
denquent ta payer e cept as a resut of the satsfyng of the ta
abty or of nsttutng a proceedng as provded n secton 3207,
Where severa assessments for dfferent perods are outstandng
aganst a ta payer and notces of ens have been fed wth respect
to each assessment, as the amount of each assessment wth accruas
by way of nterest, etc., s pad, a notce of the dscharge of the en
whch hud attached to hs property as a resut of that assessment
shoud be ssued.
n opnon s requested n regard to ssung certfcates denotng
the dscharge of ens for edera ta es.
The queston presented s whether, n a case where severa notces
of ens have been fed aganst a denquent, ta payer coverng assess-
ments of ta es for dfferent years, f one of these assessments s pad
shoud the ssung of a notce of the dscharge of the en under that
assessment be wthhed unt a the outstandng assessments are pad.
Secton 3186 of the Revsed Statutes, as amended, provdes that f
any person abe to pay a ta negects or refuses to pay the same
after demand the amount of the ta w be a en n favor of the
Unted States upon a property or rghts to property beongng to
the ta payer unt such ta s pad. The prorty of a en s estab-
shed by recordng a notce thereof n the manner prescrbed n the
statute. y the terms of the statute the en e sts unt the taw
(wth nterest, penates, and costs that may accrue n addton
thereto) s pad. Consequenty, when the ta wth nterest, etc., s
pad, the en s automatcay e tngushed.
No advantage w nure to the Government as a resut of the
refusa of a coector to ssue a certfcate showng the dscharge of
a en for ta where the assessment, upon whch the en s based,
has been pad, snce the en does not e st after payment of the ta .
s an ncdent to the payment of an assessment the ta payer s
entted to have the record of hs property ceared to the e tent to
whch the fng of a notce of the en attachng under that par-
tcuar assessment has operated as an encumbrance. Ths offce s
of the opnon that where severa assessments for dfferent perods
are outstandng aganst a ta payer and notces of ens have been
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 1205: Lens and enforcement of ta
ens by b n equty.
II-12-3651
G. C. M. 3279
R NU CT O 1926.
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137
270, rt. 1206.
fed wth respect to each assessment, as the amount of each assess-
ment wth accruas by way of nterest, etc., s pad, a notce of the
dscharge of the en whch had attached to hs property as a resut
of t at assessment shoud be ssued.
C. M. Chakest,
Genera Counse, ureau of Interna Revenue.
rtce 1205: Lens and enforcement of ta
ens by b n equty.
II-12-3652
G. C. M. 3357
Lst of States whch have enacted sutabe approprate egs-
aton referred to n the second provso of secton 3186. Revsed
Statutes, as amended by ct of March 4, 1913 (37 Stat., 101G),
and ct of ebruary 2(5, 1925 (43 Stat., 994)
The second provso to secton 3186, Revsed Statutes of the Unted
States, as amended bv the ct of March 4, 1913 (37 Stat., 1016),
and the ct of ebruary 26, 1925 (43 Stat., 994), provdes that when-
ever any State by approprate egsaton authorzes the fng of a
notce of edera ta en n the offce of the regstrar or recorder
of deeds of the countes of that State (or n the parshes n the State
of Lousana, or n the offce of certan town or cty offcers n the
States of Connectcut, Rhode Isand, and ermont), the Govern-
ment s en sha not be vad n that State, as aganst any mortgagee,
purchaser, or |udgment credtor, unt such notce sha be fed wth
the proper county, parsh, town, or cty offcer wthn whose |urs-
dcton the property sub|ect to the en s stuated.
st of the States whch have heretofore enacted approprate
egsaton, together wth the date of the ct and the effectve date
thereof, s as foows:
State.
ct of-
eb.
Mar.
Mar.
une
pr.
une
ug.
eb.
uue
Mar.
pr.
Mar.
une
Mar.
pr.
May
pr.
Mar.
pr.
10. 1923
4. 1926
25. 1923
22, 1923
19.1919
23, 1925
11, 1924
10. 1925
27,1923
4. 1925
19, 1923
20, 1923
26.1924
9, 1925
16, 1914
2, 1923
18. 1923
13, 1924
2, 1923
ffectve
date
1 Covers ens on reaty ony.
eb.
une
Mar.
ug.
pr.
une
ug.
May
uy
Mar.
pr.
Mar.
une
uy
pr.
ug.
pr.
Mar.
pr.
10.1923
11. 1925
25,1923
17, 1923
19, 1919
23, 1925
11,1924
4,1925
1,1923
4, 19 25
24, 1923
24,1923
26, 1924
11, 1925
16, 1914
30, 1923
18, 1923
13, 1924
2,1923
State.
Montana
Nebraska __
Nevada
New York 1
North Carona...
North Dakota
Oho
Okahoma
Orogon
Rhode Isand
South Dakota
Tennessee
Te as
Utah
rgna
Washngton
West rgna
Wsconsn
Wyomng
ct of
eb.
Mar.
Mar.
pr.
ug.
eb.
pr.
eb.
an.
May
Mar.
Mar.
nn.
eb.
Mar.
eb.
pr.
May
eb.
7,1927
0,1923
21, 1925
11, 1925
22, 1924
19, 1923
18,1923
14, 1925
26, 1923
28, 1923
8, 1923
19. 1925
30. 1923
28, 1927
2a 1922
16, 1925
27, 1927
11, 1925
26, 1925
ffectve
date.
eb.
Mar.
Mar.
Sept.
ug.
uy
uy
eb.
May
May
uy
Mar.
an.
uy
Mar.
May
pr.
May
eb.
7,1927
9. 1923
21,1925
1, 1925
22, 1924
1. 1923
18, 1923
14. 1921
24, 1923
28, 1923
1, 1923
19, 1925
30, 1923
1, 1927
20, 1922
14, 1925
27, 1927
12. 1925
26. 1925
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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5 273 and 274, rt 1231.
138
rtce 1205: Lens and enforcement of ta II-18-3705
ens by b n equty. I. T. 2407
R NU CT O 1920.
The act of March L 1928, enacted by the Legsature of the State
of South Carona, effectve on uy 1, 1928, s accepted by the u-
reau of Interna Revenue as the approprate egsaton referred
to n the second provso of secton 3186, Revsed Statutes, as amended
by the ct of March 4,1913 (37 Stat.. 1016), and the ct of ebruary
26, 1925 (43 Stat., 994), authorzng the fng of notces of edera
ta ens wth certan desgnated county or other offcas.
rtce 1205: Lens and enforcement of ta II-21-3727
ens by b n equty. I. T. 2411
R NU CT O 1 26.
The act of May 4, 1927, enacted by the Legsature of the State of
Deaware, effectve on une 1, 1927, s accepted by the ureau of
Interna evenue as the approprate egsaton referred to n the
second provso of secton 3186, Revsed Statutes, as amended bv the
ct of March 4, 1913 (37 Stat., 1016), and the ct of ebruary 26,
1925 (43 Stat., 994), authorzng the fng of notces of edera ta
ens wth certan desgnated county or other offcers.
rtce 1205: Lens and enforcement of ta II-24-3754
ens by b n equty. I. T. 2413
R NU CT O 1926.
The act of the New ersey Legsature, known as Chapter No. 140
of the Laws of 1928, effectve on uy 1, 1928, s accepted by the
ureau of Interna Revenue as the approprate egsaton re-
ferred to n the second provso of secton 3186, Revsed Statutes,
as amended by the ct of March 4, 1913 (37 Stat., 1016), and the
ct of ebruary 26,1925 (43 Stat,, 994, tte 26, secton 115, U. S. C.),
authorzng the fng of notces of edera ta ens wth certan
desgnated county or other offcas.
S CTIONS 273 ND 274. D ICI NCY IN T .
rtce 1231: Defcency defned. TI-8-3618
I. T. 2400
NU CT O 1926.
Where a ta payer at a tmes cams to be e empt and, denyng
ta abty, fes a return under protest, the mere rng n of the
banks on the return s not an admsson of the ta beng due. The
ta determned to be due by the ureau under such crcumstances,
upon the bass of the net ncome dscosed n the ta payer s return,
represents a defcency wthn the meanng of secton 273 of the
Revenue ct of 1926.
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139 273 and 274, rt. 1231.
The M udng and Loan ssocaton states that t has receved
from the coector of nterna revenue of ts dstrct a demand for
the payment of ncome ta for the years 1919 to 1926, ncusve, and
that there has been no notce of defcency ssued.
It appears that the assocaton was dened e empton as a domestc
budng and oan assocaton under secton 231(4) of the Revenue
ct of 1926 and the correspondng provsons of pror Revenue cts.
Subsequenty the assocaton was caed upon to fe returns for the
years wth respect to whch t faed to estabsh e empton, and
accordngy orm 1120 was prepared and fed for the years 1919 to
1926, ncusve. On each return the assocaton made answers to the
varous questons and computed a ta , but the returns bore the nota-
ton fed under protest. Upon recept of the returns n the offce
of the coector of nterna revenue the ta es were sted for assess-
ment and demand for the payment thereof was made. No notce of
defcency as provded n secton 274(a) of the Revenue ct of 1926
was sent to the assocaton.
The assocaton contends that no ta was admtted to be due and
that, athough a ta was computed by t n accordance wth the net
ncome dscosed n the returns, snce the returns were fed under
protest and the assocaton camed to be e empt and dened abty
for ta n any amount, the return shoud be consdered as showng
no ta due.
In defnng the term defcency secton 273 of the Revenue ct
of 1926 recognzes the case of the ta payer makng a return showng
no ta abty and the case where the ta payer fas to make a
return. When a case s consdered for the frst tme, the defcency
s the e cess of the amount determned to be the correct amount of the
ta over the amount shown as the ta by the ta payer on hs return
or, f t s a case where no ta was reported by the ta payer, the
defcency s the amount determned to be the correct amount of the
ta . Whe t s true that the assocaton n the nstant case com-
puted a ta , the mere fng n of the banks was not an admsson of
the ta beng due, snce the returns so prepared were fed under a
specfc protest after the ureau had rued that the assocaton was
not a domestc budng and oan assocaton wthn the meanng of
secton 231(4) of the Revenue ct of 1926 and the correspondng pro-
vsons of pror Revenue cts. The assocaton at a tmes camed
to be e empt and dened abty for ta . It s not beeved, there-
fore, that the returns fed by the assocaton shoud be consdered as
showng any amount of ta to be due.
In vew of the foregong, t s the opnon of ths offce that the
ta determned to be due by the ureau on account of each of the
returns fed by the M udng and Loan ssocaton for the years
1919 to 1926, ncusve, consttutes a defcency wthn the meanng of
secton 273 of the Revenue ct of 1926, and that notce of the def-
cences found to be due shoud be sent to the assocaton by regstered
ma, as provded n secton 274(a) of the Revenue ct of 1926.
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273 and 274, rt. 1232.
140
rtce 1232: ssessment of a defcency. II-14-3668
( so Secton 279, rtce 1281.) T. D. 4140
INCOM T R NU CT O 1926 D CISION O COURT.
eopardy ssessment Coecton In|uncton.
Where a |eopardy assessment s made under secton 279 of the
Revenue ct of 1926 and thereafter the ta payer duy fes a pet-
ton wth the oard of Ta ppeas for a redetermnaton of the
defcency, secton 274(a) of that ct does not authorze a sut for
the purpose of restranng the coecton of the ta durng the
pendency of the petton uness the ta payer has fed a bond as
provded n secton 279(f).
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Dstrct Court of the Unted States
for the astern Dstrct of Pennsyvana, n the case of braham
Sakof v. akey D. McCaughn, s pubshed for the nformaton
of nterna revenue offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved March 27, 1928.
. W. Meon,
Secretary of the Treasury.
Dstrct Court of the Unted States for the astern Dstrct of
Pennsyvana.
braham Sakof v. akey D. McCaughn.
ebruary 10, 1928.
Opnon.
upon moton for premnary n|uncton.
It appears from the b and affdavts that the pantff, braham Sakof,
made |ont returns of Income ta es for hmsef and hs wfe, nna . Sakof,
and pad the amount of such returns for the years 1919 to 1925, ncusve.
The Commssoner of Interna Revenue on September 30, 1927, made a |eopardy
assessment aganst the pantff and hs wfe n the sum of 397,779.28 for
defcency ta es unpad on Income for the years 1919 to 1925, ncusve, wth
Interest and penates. On or about October 11, 1927, the coector gave notce
to the pantff and hs wfe of the assessment and made demand upon them
for the amount of the ta es, nterest, and penates for each of the sad years.
Thereafter, on November 2, 1927, the coector served upon the pantff a etter
of the Commssoner of Interna Revenue n the foowng form:
In accordance wth the provsons of secton 279(a) of the Revenue ct
of 1026, there has been assessed aganst you an ncome ta , penaty, and
nterest amountng to 397,779.28 for the ta abe years 1919 to 1925, ncusve,
the detas of whch are set forth n the attached statement.
In accordance wth the provsons of secton 274(a) of the same ct, you
are aowed 60 days (not countng Sunday as the s teth day) from the date
of the mang of ths etter wthn whch to fe a petton wth the Unted
States oard of Ta ppeas, contestng In whoe or n part the correctness
of ths determnaton.
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141
273 and 274, rt. 1232.
The pantff, havng engaged a certfed pubc accountant to go over hs
books and records, and beng advsed by hm that there were no ta es due
the Unted States for the years 1919 to 1925, and that the assessment was
erroneous, on December 28, 1927. wthn the 60 days aowed under secton
274(a) of the Revenue ct of 1926, referred to n that etter, fed a petton
wth the Unted States oard of Ta ppeas askng for a redetermnaton
of the ta and prayed that the assessment n queston be strcken off. Not-
wthstandng the fact that the 60-day perod for fng a petton wth the oard
of Ta ppeas had not e pred, the coector, on December 16, 1927, attached
and dstraned certan denatured acoho beongng to the pantff and ntended
for use by hm n hs busness of a manufacturer of toet suppes and artces,
for whch purpose he hods a permt authorzng hm to wthdraw specay
denatured acoho. The b prays for a perpetua n|uncton and for other
reef.
Whe secton 3224, Revsed Statutes, provdes that no sut for the purpose
of restranng the assessment or coecton of any ta sha be mantaned n
any court, t s contended on behaf of the pantff that he s entted to an
n|uncton under the provsons of secton 274(a) of the Revenue ct of 1926.
That ct provdes as foows:
If n the case of any ta payer, the Commssoner determnes that there s
a defcency n respect of the ta mposed by ths tte, the Commssoner s
authorzed to send notce of such defcency to the ta payer by regstered ma.
Wthn 60 days after such notce s maed (not countng Sunday as the s -
teth day), the ta payer may fe a petton wth the oard of Ta ppeas
for a redetermnaton of the defcency. cept as otherwse provded n sub-
dvson (d) or (f) of ths secton or n secton 279, 282, or 1001, no assessment
of a defcency n respect of the ta mposed by ths tte and no dstrant or
proceedng n court for ts coecton sha be made, begun, or prosecuted unt
such notce has been maed to the ta payer, nor unt the e praton of such
60-day perod, nor, f a petton has been fed wth the oard, unt the decson
of the oard has become fna. Notwthstandng the provsons of secton 3224
of the Revsed Statutes the makng of such assessment or the begnnng of such
proceedng or dstrant durng the tme such prohbton Is n force may be
en|oned by a proceedng n the proper court.
It s conceded on the part of the defendant that, uness the ta es for whch
demand, assessment, and dstrant were made, come wthn the e ceptons set
out n secton 274(a), the pantff havng fed ts petton wth the oard of
Ta ppeas wthn 60 days after the notce by etter of November 2, 1927, the
assessment of defcency ta es and the dstrant were both unawfu. The
Government cams, however, that the procedure comes wthn the e cepton to
secton 279 of the Revenue ct of 1926, whch provdes for |eopardy assessment
of defcency ta es. The pertnent provsons of secton 279 are as foows:
(a) If the Commssoner beeves that the assessment or coecton of a
defcency w be |eopardzed by deay, he sha mmedatey assess such
defcency (together wth a nterest, addtona amounts, or addtons to the
ta provded for by aw) and notce and demand sha be made by the coector
for the payment thereof.
(b) If the |eopardy assessment s made before any notce n respect of the
ta to whch the |eopardy assessment reates has been maed under subdvson
(a) of secton 274, then the Commssoner sha ma a notce under such
subdvson wthn 60 days after the makng of the assessment.
(f) When a |eopardy assessment has been made the ta payer, wthn 10
days after notce and demand from the coector for the payment of the amount
of the assessment, may obtan a stay of coecton of the whoe or any part
of the amount of the assessment by fng wth the coector a bond n such
amount, not e ceedng doube the amount as to whch the stay s desred, and
wth such suretes, as the coector deems necessary, condtoned upon the
Payment of so much of the amount, the coecton of whch s stayed by the
bond, as s not abated by a decson of the oard whch has become fna,
together wth nterest thereon as provded In subdvson (|) of ths secton.
The notce to the defendant of November 2, 1927, states that the ta cam
has been assessed aganst the pantff n accordance wth the provsons of
secton 279(a) of the Revenue ct of 1926 and the detas are set forth n the
statement attached. Ths ceary gave notce to the pantff that the procedure
was that reguatng defcency ta es whch the Commssoner beeved woud
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273 and 274, rt. 1232.
142
be eopardzed by deay. The assessment made beng a |eopardy assessment,
the Commssoner was requred to ma the notce under secton 274(a) wthn
6 days after the makng of such assessment. Wthn 60 days after notce the
pantff had the rght to fe hs petton wth the oard of Ta ppeas for
a redetermnaton of the defcency. ut, n order to obtan a stay of dstrant
for the coecton of the ta es, t s not enough that he sha wthn the 60-day
perod fe hs petton wth the oard of Ta ppeas. e may, wthn the
GO days, n the case of a |eopardy assessment, as n case of other defcency
ta es, fe hs petton wth the oard, but n order to obtan a stay, he must
compy wth secton 279(f) by fng wth the coector a bond condtoned upon
the payment of so much of the amount, the coecton of whch s stayed by the
bo::d, as s not abated by a decson of the oard whch has become fna. The
contenton of the pantff that, through the fng of n petton wth the oard
of Ta ppeas wthn 60 days after notce, he. thereby obtaned a stay unt
the fna decson of the oard s untenabe. The pan ntent and meanng of
the provsons of secton 274 and secton 279 of the Revenue ct of 1926 s that,
f a |eopardy assessment s made wthout notce, the Commssoner sha ma
the notce wthn 60 days after makng the assessment that the ta payer has
60 days after notce wthn whch to fe hs petton wth the oard of Ta
ppeas but the pendency of hs petton does not operate as a stay and the
ony manner n whch a stay may be obtaned s through fng the bond under
secton 279(f) wthn 10 days after notce.
The moton for a premnary n|uncton s, therefore, dened. Snce t
ceary appears that the prohbton contaned n secton 274(a) does not
appy to a case arsng under secton 279 and, therefore, secton 3224 appes
and the sut may not be mantaned, t s ordered that the b be dsmssed
wth costs.
rtce 1232: ssessment of a defcency. II-15-3673
G. C. M. 34G3
R NU CT O 1926.
waver of the statute of mtatons upon assessment of ta s
not nvad where one of the qudatng trustees of a Connectcut
corporaton sgned such waver on behaf of the corporaton subse-
quent to ts dssouton but durng the perod the corporaton was
contnued n e stence under the State aw for the purpose of
cosng up ts affars.
n opnon s requested whether under the facts herenafter stated
the cam for refund of the M Company shoud be aowed or re|ected.
It appears that the M Company, a corporaton, fed ts ncome and
profts ta return for the caendar year 1921 on March 14,1922, show-
ng no ta due. Durng the months of anuary and ebruary, 1926,
a ed nvestgaton was made of the corporatons accounts, and the
agent reported (hat there was ta abe ncome to the corporaton for
the year mentoned. On ebruary 10, 1926, a waver of the statute of
mtatons upon assessment of the ta was fed n the name of the
corporaton, sgned by , presdent, e tendng the perod for assess-
ment to December 31, 1926. t the tme was one of the qudatng
trustees of the M Company under the Connectcut statutes. The re-
port of the nvestgatng agent was receved n the Income Ta Unt
on March 15,1926. and a |eopardy assessment was made on March 17,
1926. On May 12. 1926, a 60-day etter was maed to the corporaton
under secton 274(a) of the Revenue ct of 1926. Shorty thereafter
the corporaton, after protestng the ad|ustments made, entered nto
an agreement consentng to the mmedate coecton of the defcency
for the year 1921. The coecton was forthwth made.
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143
273 and 274, rt. 1232.
The corporaton was dssoved n 1925 and the drectors became
trustees n qudaton n accordance wth the provsons of secton
3447 of the Connectcut statutes. It s to be noted that the assess-
ment n the case was made aganst the corporaton under secton 279
of the Revenue ct of 1926 and not aganst the stockhoders as
transferees under secton 280.
cam for refund has been fed for the fu amount of the ta
assessed and pad for the year 1921, sgned by and , qudatng
trustees for the M Company, and settng forth the foowng grounds:
1. That the ta was assessed after the runnng of the statute of
mtatons both as to the corporaton and as to the ndvduas
2. That the waver sgned by one of the trustees was not a vad
waver, as the waver shoud have been sgned by both trustees n
qudaton and
3. That the ta assessed aganst the dssoved corporaton can not
be egay assessed and coected from the stockhoders, as the stock-
hoders dd not receve any assets from the corporaton n qudaton,
and as secton 280 s unconsttutona under the decson n Owensboro
Dtcher Grader Co. v. Lucas (18 ed. (2d), 798).
Secton 3453 of the Genera Statutes of Connectcut (revson of
1918), entted Corporate e stence to be contnued for certan pur-
poses, provdes that:
corporatons, whether they e pre by ther own mtaton or are ds-
soved by vountary acton, by decree of court or by act of the genera assemby,
sha contnue so far as may be necessary to enabe them to prosecute and
defend suts by or aganst them, to cose up ther affars, dspose of ther
property and dstrbute ther assets.
The above provson of the Connectcut statutes contnues a cor-
poraton n e stence for the purpose of wndng up ts affars. In
ths case the ta was assessed aganst the corporaton n ts corporate
capacty wthn the statutory perod as e tended by the waver sgned
by , as presdent of the corporaton, who was, at the tme of ts ds-
souton, presdent, drector, and a prncpa stockhoder and at the
tme of sgnng the waver one of the qudatng trustees of the cor-
poraton. No authortes have been cted n support of the contenton
that the waver was nvad by reason of the fact that both trustees
dd not sgn t and an e amnaton of the Connectcut statutes and
decsons fas to dscose authorty for the contenton. The waver
was ceary vad. (Unted States v. emp, 12 ed. (2d), 7.)
rom the foregong, and wth respect to tems 1 and 2 set forth n
the cam, ths offce concudes that the ta was assessed wthn the
statutory perod of mtaton as e tended by the waver vady
e ecuted on behaf of the corporaton. s to tem 3, t s suffcent
to say that the ta was assessed and coected n accordance wth the
revsons of secton 279 of the Revenue ct of 1926 and no attempt
as been made to assess or coect any ta under the provsons of
secton 280 of the 1926 ct from the stockhoders. The cam for
refund shoud be re|ected.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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277 and 278, rt. 1272.
144
S CTIONS 277 ND 278. P RIOD O LIMIT TION UPON
SS SSM NT ND COLL CTION O T .
The ta payer s return for tun year 1917 was fed on pr 25,
1918. On ebruary 19, 1923, the ta payer and the Commsson r
sgned a waver provdng for an unmted perod n whch to
make coecton of any ta es assessed wthn one year from
March 1, 1923. ddtona ta was assessed n March, 1923.
ed, (1) that the unmted perod for coecton provded n
the waver was ntended to e tend a reasonabe tme after the fna
assessment (2) that suc perod was ntended by the partes to
take effect ony after the fna ad|ustments and the assessment had
been made (3) that such reasonabe tme after the ad|ustments
and assessment were made e tended the perod for coecton at
east to and through une 2, 1924 (4) that secton 278(d) of
the Revenue ct of 1924, provdng a s -year perod for coec-
ton after assessment, was enacted and cane effectve une 2,
1924, thus controng ths case (5) that the mtatons of Mmeo-
graph 3085 (C. . II-, 174), referrng to unmted wavers of
assessment then on fe, were not ntended to appy to the type of
waver fed (6) that under secton 278(d) of the Revenue ct
of 1926 proceedngs to enforce coecton of the ta n ths case w
not be barred unt March, 1929.
ppea of Wrt rankn (7 . T. ., 630, C. . I-2, 3) dstn-
gushed.
n opnon s requested as to whether the statute of mtatons
for coecton has run aganst the Government n the case of the M
Company.
The facts presented show that the ta payer s return for the caen-
dar year 1917 was fed pr 25. 1918 that on ebruary 19, 1923,
the ta payer and Commssoner sgned a waver provdng for an
unmted perod n whch to make coecton of any ta es assessed
wthn a year from March 1, 1923. ddtona ncome and profts
ta es for 1917 Mere assessed on the March, 1923, Commssoner s st,
n the sum of 2 doars. The ta payer fed a cam n abatement,
wthout bond, on March 29, 1923. The cam n abatement contaned
a petton for speca assessment under the provsons of secton 210
of the Revenue ct of 1917. On November , 1923, a certfcate of
overassessment was forwarded to the ta payer. Ths certfcate
showed an overassessment of doars by reason of a computaton
under the provsons of secton 210 of the Revenue ct of 1917.
Such computaton was made n accord wth ta payer s request n ts
cam for abatement. fter credtng the ta payer wth the amount
shown n the certfcate, an unpad baance of 2.c doars remaned.
Pertnent provsons of secton 250(d) of the Revenue ct of
1921 are:
The amount of ncome, e cess-profts, or war-profts ta es due under any
return , under pror ncome, e cess-profts, or war-profts ta
cts, sha be determned and assessed wthn fve years after the
return was fed, uness both the Commssoner and the ta payer consent n
wrtng to n ater determnaton, assessment, and coecton of the ta .
The assessment n ths case was made wthn the fve-year perod.
The waver fed, however, e pcty e tended the tme for assess-
ment to one year from March 1, 1923, and further provded for an
unmted perod wthn whch to coect the ta after the assessment
was made.
rtce 1272: Perod of mtaton upon coec-
ton of ta .
R NU CTS O 1924 ND 1926.
II-f-3597
G. C. M. 2939
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145
277 and 278, rt. 1272.
The waver fed n the case reads as foows:
ebruary 19, 1923.
ncome and profts ta waver.
In pursuance of the provsons of subdvson (d) of secton 250 of the
Revenue ct of 1921, the M Company, and the Commssoner of Interna
Revenue, hereby consent to a determnaton, assessment, and coecton of the
amount of ncome, e cess-profts, or war-profts ta es due under any return
made by or on behaf of the sad ta payer for the year 1917 under the Revenue
ct of 1921. or under pror ncome, e cess-profts, or war-profts ta cts,
or under secton 38 of the ct entted n ct to provde revenue, equaze
dutes, and encourage the Industres of the Unted States, and for other pur-
poses, approved ugust 5, 1909, provded assessment s made one year from
March 1, 1923.
M Company.
y
(Sgned)
Treasurer.
CORPOR T S L.
(Sgned) D. . ar,
Commssoner.
Under date of pr 11, 1923, the Commssoner ssued Mmeo-
graph 3085, whch reads as foows:
The form of waver now n use e tends the tme n whch assessments of
1917 ncome and e cess-profts ta es may be made to one year from the date of
sgnng by the ta payer. Inasmuch as there are many wavers on fe sgned
by ta payers contanng no mtaton as to the tme n whch assessments for
1917 may be made, a such unmted wavers w be hed to e pre pr 1, 1924.
y ts terms, the waver heren s not one of those contempated
by the second sentence of Mmeograph 3085. Unquestonaby t s
not a waver contanng no mtaton as to the tme n whch
assessments for 1917 may be made. On the contrary, t provdes
a one-year mtaton perod from March 1, 1923, for assessment of
1917 ta . Snce the statutory perod of mtaton for assessment
woud not have e pred unt pr 25, 1923, the waver operated as
an e tenson of the statutory perod for appro matey 10 months
n whch to assess the ta nvoved. The rght to coect such assess-
ment was contnued for an ndetermnate perod. The waver s not
a |ont waver for assessment and coecton of 1917 ta . In effect
t e presses two waver agreements, the frst provdng for a defnte
perod termnatng March 1, 1924, for fna ad|ustments and assess-
ment of the 1917 ta the second, an ndetermnate perod for coec-
ton of the ta after the assessment made under the provsons of
the frst agreement. Ths accords wth the prncpe adopted by
Congress n the Revenue ct of 1924, as ndcated by sectons 277 anc
278 of that ct, namey, one perod of mtaton n whch to assess
the ta and another perod of mtaton n whch to coect the ta
the frst beng four years after the fng of the return and the second
beng s years after the assessment of the ta .
The Revenue ct of 1924, enacted une 2, 1924, provded n sec-
ton 278:
(d) Where the assessment of the ta s made wthn the perod prescrbed n
secton 277 or n ths secton, such ta may be coected by dstrant or by a
proceedng n court, begun wthn s years after the assessment of the
ta .
(e) Ths secton sha not (1) authorze the assessment of a ta or the
coecton thereof by dstrant or by a proceedng n court f at the tme of
the enactment of ths ct such assessment, dstrant, or proceedng was barred
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277 and 278, rt. 1272.
146
by the perod of mtaton then n e stence, or (2) affect any assessment made,
or dstrant or proceedng n court begun, before the enactment of ths ct.
To the same effect s secton 278 (d) and (e) of the Revenue ct
of 1926.
Thus t s apparent that for every case wthn the purvew of the
Revenue ct of 1924 a s -year coecton perod attached after the
assessment was made, ths regardess of whether the assessment was
made before or after the enactment of the ct. (In re McCure Co.,
ankrupt, 21 ed. (2d), 538, T. D. 4097 C. . I-2, 130 . S.
v. Crook, 18 ed. (2d), 449, certorar dened by Unted States
Supreme Court October 17, 1927.) Ths hodng s based on the
genera rue of aw that a change n the statute of mtatons
operates to change the perod for enforcement of e stng causes
of acton as we as of those accrung thereafter. (Sampeyrea-c v.
. S., 7 Peters, 222 Sohn v. Waterson, 17 Waace, 596 Crothers v.
dson ectrc Co., 149 ed., 606.)
In the appea of Wrt rankn, whch has been acquesced n by
the Commssoner, the facts were n many respects smar to those
of the nstant case. The return for 1917 was fed n pr, 1918
an unmted waver was sgned n anuary, 1923 an addtona
assessment was made n September, 1923 a cam n abatement was
fed by the ta payer n October. 1923, and re|ected n September,
1925 the ta payer fed a bond to stay coecton n December, 1925
and the coector fed a en aganst the property of the ta payer
n December, 1926. The oard hed coecton of the ta barred n
vew of the provsons of the waver on fe and Mmeograph 3085,
supra. The waver n that case, however, provded :
a pursuance of the provsons of subdvson (d) of secton 2o0 of the
Revenue ct of 1921 Wrt rankn, of rdmore, Oka., and the Comms-
soner of Interna Revenue hereby consent to the determnaton, assessment,
and coecton of the amount of ncome, e cess-profts, or war-profts ta es
due under any return made by or on behaf of the sad ndvdua for the
year 1917, under the Revenue ct of 1921 or under pror ncome, e cess-
profta, or war-profts ta cts, or under secton 38 of the ct entted n ct
to provde revenue, equaze dutes, and encourage the ndustres of the Unted
States, and for other purposes. approved ugust 5, 1909, rrespectve of any-
perod of mtatons.
It w be noted that the provsons of the waver on fe n the
nstant case dverge wdey from those contaned n the waver fed
by Wrt rankn. Mmeograph 3085 provded that unmted
wavers as to assessment then on fe woud be hed to e pre pr
1, 1924. The waver as to assessment n the nstant case by ts pro-
vsons e pred pror to that tme, athough the waver as to co-
ecton contnued for a reasonabe perod thereafter. Certany
the effect ascrbed by the oard of Ta ppeas to Mmeograph
3085, when apped to the waver fed by Wrt rankn, can not be
accepted as the ntended or ogca effect n the nstant case. The
Commssoner and the ta payer here entered nto a waver agree-
ment dstncty dfferent from the waver agreement sgned by the
Commssoner and Wrt rankn. Mmeograph 3085 s hed to have
no appcaton whatever to the waver fed by the ta payer n the
nstant case.
It s the opnon of ths offce, therefore, (1) that the unmted
perod for coecton provded n the waver fed by the ta payer
was ntended to e tend a reasonabe tme after the fna assessment,
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147
280, rt. 1291.
whch was to be made n accordance wth the terms of the waver
wthn one year from March 1, 1923 (2) that such perod was n-
tended by the partes to take effect ony after the fna ad|ustments
and the assessment had been made: (3) that such reasonabe tme
after the-ad|ustments and the assessment were made e tended the
perod for coecton at east to and through une 2, 1924 (4) that
secton 278(d) of the Revenue ct of 1924, provdng a s -year
perod for coecton after assessment, was enacted and became ef-
fectve une 2, 1924, thus controng ths case (5) that the mta-
tons of Mmeograph 3085, referrng to unmted wavers of assess-
ment then on fe, were not ntended to appy to the type of waver
fed heren (6) that under secton 278(d) of the Revenue ct of
1926 proceedngs to enforce coecton of the ta n ths case w not
be barred unt March, 1929.
C. M. Chaksst,
Genera Counse, ureau of Interna Revenue.
S CTION 279. OP RDY SS SSM NTS.
rtce 1281: eopardy assessments.
R NU CT O 1926.
Necessty for fng bond n obtanng stay of coecton. (See T.
D. 4140, page 140.)
S CTION 280. CL IMS G INST TR NS-
RR D SS TS.
rtce 1291: Cams n cases of transferred II-16-3683
assets. G. C. M. 3491
R NU CT O 1926.
In the State of Coorado, artce 911 of the revsed statutes of
that State may be nvoked for the purpose of coectng denquent
ta es from the drectors of a corporaton where there has been a
faure to fe the annua report as requred, provded an acton for
ther recovery be commenced wthn one year after the ta es of
the corporaton became due and payabe.
n opnon s requested as to whether a State aw, enacted by the
State of Coorado, whch provdes n substance that f corporatons
do not fe, wthn a prescrbed tme and wth the secretary of state,
a certan requred annua report, then the drectors become personay
abe for the debts of the corporaton, may be nvoked for the purpose
of coectng denquent ta es from the drectors of such corporaton.
The pertnent parts of the State aw above referred to, contaned
n artce 911 of the Revsed Statutes of Coorado for 1908, are as
foows:
very corporaton, |ont stock company or assocaton, ncorporated by or
under any genera or speca aw of the State, or by any genera or speca aw
of any foregn State or kngdom, or any State or Terrtory of the Unted States,
beyond the mts of ths State, sha, wthn 60 days ne t after the 1st day of
anuary n-each year, commencng wth the year 1902, make and fc an annua
report n the offce of the secretary of state, showng: nd f any
such corporaton, |ont stock company or assocaton sha fa, refuse or omt
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284, rt. 1305.1
148
to fe the annua report aforesad, and to pay the fees prescrbed therefor,
wthn the tme above prescrbed, a the offcers and drectors of sad corpora-
ton sha be |onty and severay abe for a debts of such corporaton, |ont
stock company or assocaton, that shn bo contracted durng the year ne t
precedng the tme when such report shoud, by ths secton have been made
and fed, and unt such report sha be made and fed.
The Supreme Court of Coorado, n construng the above-quoted
statute, has hed that faure to compy therewth renders a drector
personay abe for ndebtedness of the corporaton ncurred durng
the perod prescrbed. (Cavanaugh v. Patterson et a.. 41 Coo.,
158, 91 Pac, 1117 Internatona State ank v. McGashan et a.,
71 Coo., 72, 204 Pac, 482 Washngton Semrtes Co. v. Goodsten,
79 Coo., 343. 246 Pac, 278.) The Supreme Court of Coorado has
aso hed that the above statute s pena n ts nature and sut for
recovery thereunder must be commenced wthn one year after the
cause of acton accrues. Coorado ue Iron Co. v. Lenhart et a.,
6 Coo. ., 511, 41 Pac, 834.)
The term debts as used m the statute referred to s beeved to
be broad enough n ts scope to ncude unpad ta es.
In Genera Counse s Memorandum 2514 C. . T-2, 99 ths
offce e pressed the opnon that under a secton of the Cv Code
of Caforna, by whch each stockhoder of a corporaton s ren-
dered ndvduay and personay abe for the debts and abtes
of the corporaton contracted durng the tme he was a stockhoder,
n proporton to hs hodngs of stock n the corporaton, the a-
bt) so created ncudes a abty for edera ta es accrung durng
the tme he was a stockhoder.
In vew of the foregong, t s the opnon of ths offce that the
artce of the aw of the State of Coorado, above referred to, may
be nvoked for the purpose of coectng denquent ta es from the
drectors of the corporaton, where there has been a faure to fe the
annua report as requred, provded an acton for the recovery thereof
be commenced wthn one year after the sad ta es became due and
payabe.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 284. CR DITS ND R UNDS.
rtce 1305: Lmtatons upon the credtng and II-1-3560
refundng of ta es pad. T. D. 4113
ncome ta revenue act of 1926 decson of court.
1. Credt ob Refund Stockhoder of Corporaton Dened Per-
sona-Servce Cassfcaton.
Where an ndvdua stockhoder pad the ta under the Revenue
ct of 1918 upon hs dstrbutve share of the ncome of a corpora-
ton upon the assumpton that t was a persona-servce corpora-
ton but subsequenty the corporaton was dened persona-servce
cassfcaton, the stockhoder s rght to a credt or refund of the
ta s governed by secton 1210 of the Revenue ct of 1926 and s
condtoned upon the payment of the ncome ta mposed upon the
corporaton by Tte II of the Revenue ct of 1918.
2. udgment ffrmed.
The |udgment of the dstrct court (20 ed. 2d), 245 (T. D.
4073 C. . I-2, 101 )) s affrmed.
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149
284, rt 1305.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Crcut Court of p-
peas, Nnth Crcut, n the case of ames . aght, |r., as Trustee
n ankruptcy of the state of George . a and the Marta Com-
munty of George . a and aze T. a, hs wfe, pantff n
error, v. Unted States of merca, defendant n error, s pubshed
for the nformaton of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved December 22, 1927.
. W. Meon,
Secretary of the Treasury.
Unted States Crcut Court op ppeas, Nnth Crcut.
ames . aght, |r., as Trustee n ankruptcy of the state of George . a
and the Marta Communty of George . a and aze T. a, hs wfe,
pantff n error, v. Unted States of merca, defendant n error.
November 7. 1927.
OPINION.
Detrch, Crcut udge: Ths s an appea from a |udgment denyng the
recovery by pantff of certan ncome ta es pad by George . a and hs
wfe for the years 1918 and 1919. The as are bankrupts and pantff,
tavng quafed as trustee of the estate on May 20, 1925, sues n that capacty.
The amounts n controversy were pad by the as as a resut of ther havng
ncuded n ther returns of ncome ther ratabe shares of the undstrbuted
profts of the O. atcheer a Co., a corporaton, of whch they were stock-
hoders. Ths was done upon the assumpton that ths company was what
s recognzed n secton 218(e) of the Revenue ct of 1918 as a persona
servce corporaton, whch for ta aton purposes s treated as a partnershp
( W Stat., 1070). Ths mode of treatment, t may be observed, ceased on
December 31. 1921 (sec. 218-d. 42 Stat., 245). The 1918 ta es were pad by
Ibp as on Decem er 15, 1919. and payment for 1919 was made n four equa
Instaments, namey, on the 15th day of March. une, and September. 1920,
and ebruary, 1921. In the sprng of 1924 the Commssoner of Interna Reve-
nue hed the a company was not a persona-servce corporaton and accord-
ngy assessed aganst t ta es for 1918 and 1919, pursuant to provsons of
te aw reatng to ordnary corporatons. These ta es the corporaton has
not pad, nor have the as ever receved from t ther dstrbutve shares
of ts ncome for the years 1918 and 1919. Upon beng notfed of ths rung,
the as, on March 7. 1924. fed ther cams for a refund, whch were, on
December 7, 1924, approved by the Commssoner and n the sprng of 1925
checks therefor were sent to the coector at Tacoma, Wash., for devery to
the camants. The coector, however, decned to dever them, but utmatey
returned them to the Commssoner, wth the resut that no refund has n fct
been made ether to the as or to the trustee. We are not advsed of the
reasons for wthhodng the checks otherwse than by appeant s bref, wheren
t s stated t was because of the nonpayment of the corporaton ta .
The controversy revoves around the meanng and appcaton of secton 1210
of the Revenue ct of 192(5, whch became effectve ebruary 20, 1920, two
fays pror to the commencement of ths sut. (44 Stat., vo. 2, p. 130.) That
secton Is as foows:
ny ndvdua who has pad a ta (n accordance wth secton 218 of the
evenue ct of 1918 or secton 218 of the Revenue ct of 1921) as a stock-
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284, rt. 1305.
150
hoder of a persona servce corporaton sha be entted to a credt or refund,
n the manner provded n secton 284, f (a) such corporaton has been
fnay determned not to be a persona servce corporaton, and (b) such
corporaton has pad the ta mposed by Tte II of the Revenue ct of 1918
or Tte II of the Revenue ct of 1921, as the case may he, and (c) cam
therefor s fed wthn one year after the enactment of ths ct, or before
the e praton of the perod of mtatons upon the fng of such cams,
whchever s the ater.
If pantff s cams rest upon or are governed by ths provson aone, man-
festy, he can not recover, for the rght theren defned s condtoned upon the
payment of the corporaton a , whch, as aready stated, has not been made.
e contends, however, that he does not need to rey upon ths secton at a,
but that, rrespectve of t, both hs rght and approprate remedes for :s
enforcement are otherwse fuy provded, and that these the secton was not
ntended to and can not vady destroy or wthdraw.
We therefore frst nqure what rghts the as or pantff had at the tme
ths provson was enacted, and then whether t s to be construed as destruc-
tve or restrctve of them. We assume, n harmony wth the Commssoner s
rung, that the a company was not n fact a persona servce corporaton,
and. therefore, there was no ega duty on the part of the as to pay ts ta ,
or ega rght n the Government to ook to them or ther property for ts
payment.
Under secton 252 of the Revenue ct of 1918 (approved ebruary 24. 1919,
40 Stat.. 1085), the ta payer was entted to a refund of any e cess pad, over
and above any other ta es due from hm, provded cam therefor was made
wthn fve years after return was due. In secton 252 of the ct of November
23, 1921 (42 Stat., 268), there s a smar provson for the refund of ta es
pad under any pror ct, wth an dentca mtaton, and a savng cause
recognzng cams fed under secton 252 of the ct of 1918. y the ct of
March 4. 1923 (42 Stat., 1504), ths secton of the 1921 ct was amended n
respect to the mtaton of tme by provdng that no refund shoud be made
uness before the e praton of such fve years (from the tme the return
was due) a cam therefor s fed by the ta payer, or uness before the e pra-
ton of two years from the tme the ta was pad a cam therefor s fed by
the ta payer. In the ct of une 2, 1924, secton 281 (43 Stat., 301). there
s a smar provson for refund respectng ta es pad under any pror ct. the
mtaton for fng cams beng four years from the date of ta payment.
nd by secton 284 of ebruary 26, 1920 (44 Stat., vo. 2, p. 66), smar pro-
vson for refund s made, wth a mtaton of three years for ta es eved
under that ct, and four years for payments made under pror cts.
We do not stop to dscuss the appcaton of these somewhat compcated
provsons to the facts here dscosed, for, as we understand, the Government
does not contend, and never has contended, that at any tme they operated to
bar or they now consttute a bar to pantff s cam. s to enforcement by
sut, there s no provson n the severa Revenue cts e pressy consentng
to actons aganst the Unted States to enforce cams for refunds. Nor can t
be sad that secton 1210 has any drect hearng upon that queston. Such
rght, however, s recognzed n subdvson 20 of secton 24 of the udca
Code (the Code of Laws of the Unted States. December 6, 1926, p. 867), gvng
to the dstrct courts |ursdcton, concurrent wth the Court of Cams, of
any sut or proceedng commenced after the passage of the Revenue ct of
1921, for the recovery of any nterna revenue ta aeged to have been errone-
ousy or egay assessed or coected, etc., where, as here, the coector by
whom the ta was coected s no onger n offce.
We have then the queston whether secton 1210 of the ct of 1926 s to be
construed as restrctng the rghts whch the pantff had or the remedes ava-
abe to hm when that ct was passed. s poston s that t was desgned to
be purey remeda, whe the Government contends that though that may have
been ts prmary purpose, ts pan anguage can not be dsregarded merey
because when apped to an e ceptona case, as here, t s measuraby restrc-
tve n ts operaton.
We fnd no avenue of escape from the atter vew. the provsons for
refund n pror cts were genera, as are sectons 2S4 and 1111 of the ct of
1926. The secton n queston was the frst and ony provson specfcay
referrng to refunds n connecton wth persona servce corporatons. It pur-
ports to be comprehensve wth respect to that cass, and contans no e cep-
tons. eng specfc, t must, wthn ts reach, preva over genera provsons.
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151
284, rt. 1305.
( . 8. v. ackson, 143 ed., 783, 787.) ortfyng ths consderaton n op-
poston to pantff s necessary assumpton that the secton appes ony to out-
awed cams, we have the seemngy concusve evdence of subdvson (a),
whch n e press terms makes t appcabe to cams aganst whch the statute
of mtatons had not run.
In the egsatve hstory of the secton, we fnd tte rea assstance. It s
trne that n presentng t as an amendment n the Senate, after the orgna
b had passed the ouse, the Senator offerng t e paned that t was to
provde reef for cams barred by e stng statutes, but, upon the other hand,
he made t equay cear that the cams he referred to were n cases whore
both the stockhoders and the corporaton had pad ta es upon the same earn-
ngs and where, therefore, t woud be un|ust for the Government to retan
both. (Congressona Record, ebruary 11, 1926, vo. 67, pt. 4, p. 3745.) The re-
port of the ouse conference commttee, upon acceptng the amendment, was
of ke mport. (Report 365, S ty-nnth Congress, frst sesson, upon revenue
b of 1926, p. 59.)
Whe upon frst mpresson the resuts from the operaton of the provson,
under ths constructon, may seem to be ncongruous and harsh, ts pan an-
guage can not for that reason be dstorted or set asde. ut after a, the
equtes supportng the cams do not furnsh strong argument for a straned
constructon n favor of pantff. dmttedy ta es were due upon the earn-
ngs of the a corporaton for the years n queston, and, that company beng
nsovent, they w be whoy ost to the Government f the pantff now suc-
ceeds. or the stuaton as we fnd t, not the Government, but the as are
measuraby responsbe. In a sense they stayed the hand of the Government
aganst the corporaton by erroneousy, f not wrongfuy, representng that It
was e empt, and by assumng the obgaton of makng return and themseves
payng the Ta . Ths course, t s to be borne n mnd, was ntended to be of
advantage to them and not to the Government, for by pursung t the ncome
of the corporaton, of whch they were the benefca owners, woud escape
wth a ghter burden than otherwse t woud bear. or ther own beneft,
therefore, they urged upon the Government that the corporaton was of such a
character that the fcton of corporate dentty shoud be gnored and the ta
treated as ther persona obgaton. It foows that dena of the reef prayed
for smpy eaves them In the poston n whch they vountary paced them-
seves.
The fna contenton of pantff, that t was ncompetent for Congress to
mpose condtons whch, n effect, eft the pantff remedess, we thnk s
answered n The Coector v. ubbard (79 U. S., 1). When there the ta payer
under protest pad the ta he sought to have refunded, the Revenue ct pro-
vded for an admnstratve appea, but dd not make t compusory or a con-
dton for mantanng sut n court. Camant dd not appea, but, ong after
the tme for appea, brought sut. In the meantme, and after he had faed to
appea as provded by aw, Congress passed an amendment prohbtng sut
n any court unt appea sha have been duy made accordng to the
e stng provsons of aw and the determnaton of such appea. Denyng hs
rpht to mantan the sut, the court sad:
Remedes of the knd, gven by Congress, may be changed or modfed, or
they may be wthdrawn atogether at the peasure of the awmaker, as the
ta payer can not have any vested rght n the remedy granted by Congress
for the correcton of an error In ta aton.
The |udgment s affrmed.
rtce 1305: Lmtatons upon the credtng II-12-36 )3
and refundng of ta es pad. G. C. M. 3180
R NU CT O 1820.
Under the aw of the State of Inos the reatonshp of guardan
and ward ceases at the tme the ward reaches hs or her ma|orty,
and a waver of the statute of mtatons e ecuted thereafter by
the former guardan, as such, s not the waver contempated by
secton 284(g) of the Revenue ct of 1926.
n opnon s requested as to whether a waver e ecuted by a
guardan after the ward has reached hs or her ma|orty s suffcent
6342 28 11
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284, rt. 1305.
152
under secton 284(g) of the Revenue ct of 1926 to e tend the
perod for fng refund cams.
It appears that , the mae ward, was born September , 1902, and
that , the femae ward, was born October , 1904, and was marred
November , 1922. On March , 1919, C, the mother of the two
wards, was apponted guardan of ther persons and property and et-
ters of guardanshp duy ssued from the proper court. On anuary
, 1926, a purported waver was e ecuted by the guardan for each of
the wards for the ta abe years 1920 and 1921. The guardan fed
a certfed copy of her etters of guardanshp and stated that she
had not rendered fna account or been fnay dscharged as guardan
at the tme of the e ecuton of the wavers.
The queston presented s not whether the guardan had the au-
thorty under the aws of Inos to wave the statute of mtatons,
but rather whether the reatonshp of guardan and ward n fact
e sted at the tme of the e ecuton of the purported wavers.
Secton 1, chapter 65, of the Inos Revsed Statutes of 1921
Smth dton) provdes n substance that the age of ma|orty
or maes s 21 years and for femaes s 18 years. It s noted that at
the tme of the e ecuton of the wavers both of the wards had
reached ther ma|orty and (hat the femae ward was marred.
The genera rue s stated n 12 R. C. L., page 1118, Guardan and
Ward, paragraph 19, as foows:
fter the termnaton of the guardanshp by any of the above-named events
marrage and ma|orty beng named above , any e ercse of ega authorty
a guardan woud be unauthorzed and vod but t s st the duty of the
guardan, or f the termnaton be by hs own death, of hs persona repre-
sentatve, to render an account and turn over the property n hs hands to the
proper person, and the guardanshp contnues, u a sense, to e st for that
purpose ony.
The State of Inos foows the genera rue wth regard to ths
queston. In Peope v. rooks (22 111. pp., 594) the court used
the foowng anguage:
y the condton of sad bond. Curts, the guardan, obgated hmsef, at
the e praton of hs trust, to sette hs accounts n the probate court or wth
the ward, or hs ega representatves, and to pay over and dever a the
estate, tte papers, and effects remanng n hs hands or due from hm on
such settement, to the person or persons awfuy entted thereto. s trust
e pred the nstant hn vr rd attaned hs ma|orty, and t then became hs
mmedate duty to sette wth hs ward and pay and dever over to hm a
money and pro erty n hs, the guardan s, hands beongng to sad wrard.
Itacs supped.
The decson n ths case was affrmed on appea (123 111., 246,
14 N. ., 39).
Thus t woud appear that the abty of a guardan to render a
fna account may be sad to contnue after the ma|orty of the
ward, but for a other purposes the reatonshp ceases absoutey.
Consequenty, any attempt on the part of the former guardan to
act for the ward after the ma|orty of the ward woud have no
bndng effect, ether upon the ward or a thrd party.
It foows that the reatonshp of guardan and ward between C
and her chdren ceased at the tme the chdren reached ma|orty,
and as a consequence C was not actng n : fducary capacty as
guardan at the tme of the e ecuton of the purported wavers,
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153
284, rt. 1305.
It s the opnon of ths offce that the purported wavers are not
such wavers as are contempated by secton 284(g) of the Revenue
ct of 1926, and that ther fng was neffectve to e tend the perod
for fng refund cams.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 1305: Lmtatons upon the credtng TI-13-3657
and refundng of ta es pad. G. C. M. 3152
R NU CT O 1926.
On anuary 29, 1923, the ta payer fed an unmted assessment
and coecton waver for the ta abe years 1917 to 1920. ncusve.
It can not be hed, merey because the orgna waver ncuded the
year 1917. that the waver e pred on pr 1, 1924, as to ta es due
for 1919 and 1920. On May S. 1926, a waver e prng December
31, 1920, for the years ended October 31, 1919, 1920, 1921, and 1922,
was sgned by the ta payer and the Commssoner. Ths waver
superseded the unmted waver for 1919.
ed, that the ta payer has comped wth the condtons pre-
scrbed n secton 284(g) and the perod of mtaton upon hs
rght to fe a cam for refund for the fsca year ended October
31. 1919, e pred on pr 1, 1927.
n opnon s requested whether, under the facts herenafter stated,
the cam for refund fed on March 17, 1927, by the M Company for
the ta abe year 1919 was fed wthn the perod of mtaton
provded by secton 284(g) of the Revenue ct of 1926.
The essenta facts are:
1. Ta payer, for the fsca year ended October 31, 1919, pad
ncome ta to the amount of 12a doars on anuary 14, 1920.
2. In March, 1922. an addtona assessment for the fsca vear
1919 was made aganst ta payer to the amount of doars, whch
ta was pad on pr 21, 1922.
3. In March, 1928, an addtona assessment for the same fsca
year was made aganst ta payer to the amount of 3a doars, whch
ta was pad n pr, 1923.
4. It was subsequenty determned that a the amounts referred
to were overpayments.
5. In anuary, 1923, an unmted waver for the years 1917 to
1920, ncusve, was sgned by ta payer and by the Commssoner.
6. On May 8, 1926, a waver e prng December 31, 1926, for the
years ended October 31, 1919, 1920, 1921, and 1922, was sgned by
ta payer and by the Commssoner.
7. On March 17, 1927, ta payer fed on orm 843 a cam for
refund for the overpayments of ta for the fsca year ended October
31,1919.
8. certfcate of overassessment was ssued to ta payer showng
an overpayment of 3a doars for the sad fsca year and aowng
a credt therefor. The overpayments of 12as doars and of doars
for the same year were dsaowed on the ground that refund of these
amounts was barred by the statute.
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284, rt. 1305.
154
Secton 284(g) of the Revenue ct of 1926 provdes, n part, that
If the ta payer has, on or before une 15, 1925, fed a
waver n respect of the ta es due for the ta abe year 1919, then such credt
or refund reatng to the ta es for the ta abe year 1919 sha be aowed or
made f cam therefor s ed ether on or before pr 1, 1926, or wthn four
years from the tme the ta was pad. If any such waver so fed
has, before the e praton of the perod thereof, been e tended ether by the
fng of a new waver or by the e tenson of the orgna waver, then such
credt or refund reatng to the ta es for the year n respect of whch the waver
was fed sha be aowed or made f cam therefor s fed ether (1) wthn
four years from the tme the ta was pad, or (2) on or before pr
1. 1927, n the case of credts or refunds reatng to the ta es for the ta abe
year 1919.
Under the above secton of the statute the perod of mtaton upon
the ta payer s rght to fe a cam for refund or credt for the ta abe
year 1919 dd not e pre unt pr 1, 1927, f the ta payer
(1) On or before une 15, 1925, fed a waver n respect of the
ta es due for that year, and
(2) Such waver, before the e praton of the perod thereof, was
e tended ether by the fng of a new waver or by the e tenson of
the orgna waver.
The orgna waver, whch was n respect of the ta es due for the
ta abe years 1917 to 1920, ncusve, was fed on anuary 29, 1923,
and meets the frst requrement outned above. It s wth respect
to the second requrement that certan questons arse. Due to the
announcement of the Commssoner (Mn. 3085, C. . II-, 174),
to the effect that unmted wavers for the ta abe year 1917 w be
hed to e pre on pr 1, 1924, there can be no doubt but that the
waver so fed, n so far as t concerns 1917 ta es, e pred on pr
1, 1924. owever, the Commssoner s mmeograph referred to 1917
wavers ony, and t can not be hed, merey because the waver
ncuded the year 1917, that the waver e pred on pr 1, 1924, as
to the ta es due for the ta abe years 1919 and 1920. The queston
to be determned, then, s. when, f ever, dd the orgna waver
e pre for the ta abe year 1919, and dd the second waver, whch
was fed on May 8, 1926. and whch was mted as to tme to
December 31, 1920, operate as an e tenson of the orgna waver
In the Wrt rankn case (7 . T. ., 636, C. . I-2. 3) the
Unted States oard of Ta ppeas, n referrng to wavers ndef-
nte as to tme, sad:
In such cases, rather than hod agreements whch contan smar
provsons vod for ndefnteuess. courts attempt to arrve at the ntent of the
pares. Occasonay the courts have construed agreements contanng such
ndefnte terms as termnabe at the w of ether party, but the more
generay accepted constructon s ether (1) that the contract must be per-
formed wthn a reasonabe tme, or (2) that t contnues unt termnated by
ether party upon reasonabe notce. nd where a reasonabe tme s aowed,
the party who s frst to perform the condtons of the contract may, by act
deed or otherwse, f a mtaton beyond whch he may not e tend the tme
for performance and upon whch the other party to the contract may rey.
(See Wston on Contracts, sec. G8, et seq., and cases cted.) We see no
reason why the rues ad down by the courts for the purpose of determnng
the ntent of the partes In such cases are not equay appcabe to a consent
In wrtng such as we have here. It was recognzed by ths oard n the
appea of Warner Sugar Refnng Co. (4 . T. ., 5), where, havng under
consderaton an nstrument whch n terms was a waver of a statutory
mtatons, the oard sad:
No notce was ever served upon the Commssoner by the ta payer pror to
the assessment of the amount here In controversy as to when t woud regard
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155
1003 and 1004.
the provsons of the waver as havng been fuy comped wth by both partes
and become noperatve.
ere the Commssoner, havng gven notce that a wavers then on fe,
contanng no mtaton as to the tme n whch assessments for 1917 mght
be made, woud be hed to e pre on pr 1, 1924, f ed the e praton date of
ths consent by hs own act.
To the same effect s the decson of the Dstrct Court for the
Northern Dstrct of Oho, n the case of the Peeress Paper o
Manufacturng Co. v. Routzahn (22 ed. (2d), 459). It woud
appear, therefore, that, f the Commssoner by hs own ndvdua
act can f the e praton date of wavers ndefnte as to the
perod wthn whch assessment mght be made, a fortor, both the
ta payer and the Commssoner by ther |ont acts can f the e -
praton date of such wavers. That s e acty what happened n
the nstant case. The unmted waver for the ta abe year 1919,
after beng n effect for a perod of appro matey one year and
four months after the e praton of the statutory perod for assess-
ment of the ta es, was superseded by the second waver fed by the
ta payer on May 8, 1926, whch e tended the tme for assessment
n respect of the 1919 ta es to December 31, 1926. Ths waver was
accepted by the Commssoner, and must be regarded as f ng the
e praton date of the unmted waver as of the date the second
waver was accepted or shorty thereafter.
It s, accordngy, the opnon of ths offce that the ta payer has
comped wth the condtons prescrbed n secton 284(g), and that
the perod of mtaton upon hs rght to fe a cam for refund for
the year n queston e pred on pr 1, 1927. Snce the ta payer s
cam for refund was fed on March 17, 1927, the cam may be
aowed at ths tme, f aowabe on ts merts.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTIONS 1003 ND 1004. URISDICTION.
II-1-3569
T. D. 4116
INCOM T R NU CT O 1918 D CISION O COURT.
1. Courts ursdcton ppeas oard op Ta ppeas.
Unted States Crcut Courts of ppeas, under secton 1003 of
the Revenue ct of 1926, have |ursdcton to revew decsons of
the oard of Ta ppeas.
2. Matters Revewabe.
Upon such an appea the court s nqury s mted to errors of
aw.
3. vdence.
Under secton 900(g) of the Revenue ct of 1924 the fndngs of
the oard of Ta ppeas are prma face evdence of the facta
theren stated.
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1003 and 1004.
156
4. urden of Proof.
Upon an appea from the Commssoner s rung to the oard of
Ta ppeas, the fndngs of the Commssoner are prma face
correct md the burden of dsprovng ther correctness s on the
ta payer.
5. ad Debts.
Under the Revenue ct of 1918 deducton for worthess debts
must be made n the ta abe year they are ascertaned to be
worthess.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Crcut Court of
ppeas for the fth Crcut n the case of Thomas . very, pet-
toner, v. Commssoner of Interna Revenue s pubshed for the n-
formaton of nterna-revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved December 23, 1927.
. W. Meon,
Secretary of the Treasury.
Unted States Crcut Court of ppeas, fth Crcut.
Thomas . very, pettoner, v. Commssoner of Interna Revenue, respondent.
Petton for revew of decson of Unted States oard of Ta ppeas.
November 1, 1927.
efore Waker, ryan, and oster, Crcut udges.
Ths s a petton for revew of a decson of the Unted States oard of
Ta ppeas.
Pettoner. Thomas . very, an nhabtant of Georga, n fng hs ncome
ta return for 1919, camed as a deducton the sum of 30,507.28 for debts
ascertaned to be worthess and charged oT durng that ta abe year. The
Commssoner of Interna Revenue, respondent, aowed a deducton of ony
1,841.20, and determned a defcency of tn es amountng to 15,335.05. On
appea the oard aowed an addtona deducton of 392.90, determned that
the other worthess accounts charged off n 1919 were not ascertaned to be
worthess durng that year, found (he defcency n ncome ta to be 15,143.10,
and entered an order accordngy.
The frst |ueston to be consdered s our |ursdcton to revew a decson
of the oard of Ta ppeas. The oard was created by Tte I of the
Revenue ct of 1924, and ta payers were gven the rght to appea to the
oard from decsons of the Commssoner of Interna Revenue determnng
a defcency of ta es. fter an adverse decson by the oard the ta payer
had no further remedy than to pay the ta es and sue to recover them, the
same as from an adverse decson of the Commssoner, and by the statute
creatng t (sec. 900(g)) the fndngs of the oard were made prma face
evdence of the facts theren stated n any sut or proceedng by the ta payer.
The oard was contnued as an ndependent agency n the e ecutve branch of
the Government by the Revenue ct of 1920, and by secton 1003 of the sad
ct the Crcut Courts of ppeas were gven |ursdcton to revew ts de-
csons. Secton 1003 reads as foows:
Sec. 1003. (a) The Crcut Courts of ppeas and the Court of ppeas of
the Dstrct of Coumba sha have e cusve |ursdcton to revew the dec-
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157
1003 and 1004.
ons of the oard (e cept as provded n secton 239 of the udca Code, as
amended) and the |udgment of any such court sha be fna, e cept that t
sha be sub|ect to revew by the Supreme Court of the Unted States upon
certorar, n the manner provded n secton 240 of the udca Code, as
amended.
(b) Upon such revew, such courts sha have powrer to affrm, or, f the
decson of the oard s not In accordance wth aw, to modfy or to reverse
the decson of the oard, wth or wthout remandng the case for a rehear-
ng, as |ustce may requre.
It was undoubtedy the ntenton of Congress to create an ndependent board
of e perts to decde mpartay between the Government and the ta payer
wth the rght to a fna determnaton of the questons presented n a reguary
consttuted court before payment of the ta . It s consstent wth that nten-
ton to say that t was not contempated that the courts of appeas shoud be
burdened wth revewng the mass of evdence usuay submtted before a board
charged wth the duty of consderng technca detas.
It w be noted that the courts of appeas have |ursdcton to reverse a
decson of the oard f t s not n accordance wth aw. It s cear from the
wordng of the statute that the |ursdcton gven to ths court s to revew ony
errors of aw n a decson of the oard and the nqury s mted the same
as t woud be In revewng the verdct of a |ury on a wrt of error, f the ,
oard has acted wthn ts |ursdcton n consderng the case presented.
It s contended by pettoner that the evdence before the Commssoner
and the oard was undsputed and that havng e ercsed an honest beef
n ascertanng and chargng off the debts sought to be deducted n the year
1919, both the Commssoner and the oard were concuded by hs |udgment.
The Revenue ct of 1918, whch appes to ths case, permts a ta payer
n computng net ncome to deduct debts ascertaned to be worthess and
charged off wthn the ta abe year. The reasonabe nterpretaton of the
aw Is that n order to secure a deducton of worthess debts they must be
charged off n the year they are ascertaned to be worthess. man Is pre-
sumed to know what a reasonabe person ought to know from facts brought
to hs attenton. ta payer shoud not be permtted to cose hs eyes to the
obvous and to carry accounts on hs books as good when n fact they are
worthess and then deduct them n a year subsequent to the one n whch he
must be presumed to have ascertaned ther worthessness. To do so woud
enabe hm to wthhod deductons n hs ess prosperous years, when they woud
have tte effect n reducng hs ta es, and then to appy the accumuaton to
another tme to the detrment of the sc. Ths woud defeat the ntent and
purpose of the aw.
onesty of beef In the ta payer Is not concusve nor bndng on the
oard. It s the provnce of the oard to determne on a revew of a the
facts and crcumstances surroundng the partcuar debt sought to be deducted
whether the ta payer knew or ought to have known ts worthessness n a pror
year. If knowedge of the worthessness of a debt sought to be deducted can
thus be brought home to the ta payer t can not be sad that the worthessness
was ascertaned n the subsequent year when It s actuay charged off.
There was a fu hearng before the oard, at whch the wtnesses on behaf
of the pettoner were heard and much evdence was offered. It s not urged
that any evdence was mpro ery receved or e cuded, but pettoner compans
that the oard treated the fndng of the Commssoner as prma face correct
and cast upon hm the burden of dsprovng t. Ths s the we-setted rue
and t was not error for the oard to appy t n ths case.
It s unnecessary to set out n fu the fndngs of the oard or to revew
the facts appearng n the record. We have e amned the transcrpt and
fnd ampe evdence to sustan the decson accordng to the concusons of
the oard. It s a famar rue that n tras at aw when dfferent concusons
may be drawn by reasonabe men from undsputed facts, the queston presented
s one for the |ury. Such s the ease before us. We are not at berty to sub-
sttute our opnon for that of the oard on the facts shown on the record,
even f we were dsposed to do so.
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1212. 158
TITL IL G N R L PRO ISIONS.
S CTION 1212. COMMUNITY PROP RTY.
II-3-3578
G. C. M. 2892
R NU CT O 1926.
usband and wfe, ctzens and resdents of Swtzerand, may
dvde the ncome from sources wthn the Unted States whch
consttutes communty ncome under the aws of Swtzerand n
ther returns for ta abe perods pror o anuary 1, 1925.
n opnon s requested reatve to the correctness of the separate
returns fed by and , husband and wfe, for the caendar year
1924.
It appears that these ta payers were ctzens of Swtzerand that
they resded n the cty of R, Swtzerand that ther gross ncome
arsng from sources wthn the Unted States was dvded equay
between them n makng sad returns and that the deductons and
persona e emptons set forth thereon were kewse equay dvded.
n opnon s requested as to whether or not the ncome of these ta -
payers was thereby correcty returned.
The gross ncome so reported by these ta payers was communty
ncome under the aws of Swtzerand. The Swss Cv Code of
December 10, 1907, effectve anuary 1, 1912, provdes that the
property and ncome of husband and wfe s common property be-
ongng to both undvded and n common uness mted by a
|udca decree or by a marrage contract, and further provdes that
the husband sha manage the common property. had, there-
fore, a vested nterest, as dstngushed from an e pectancy, n any
and a communty ncome and property owned by these ta payers.
Secton 1212 of the Revenue ct of 1926 reads as foows:
Sec. 1212. Income for any perod before anuary 1, 1925, of a marta com-
munty n the ncome of whch the wfe has a vested nterest as dstngushed
from an e pectancy, sha be hed to be correcty returned f returmd by the
spouse to whom the ncome beonged under the State aw appcabe to such
marta communty for such perod. ny spouse who eected so to return such
ncome sha not be entted to any credt or refund on the ground that such
ncome shoud have been returned by the other spouse.
Soctor s Memorandum 5783 (C. . -, 121) reads n part as
foows:
In the opnon of ths offce the effect of secton 1212 of the Revenue ct of
1926 s to vadate for 1924 and pror years Treasury Decsons 3071 and 3138
and artce 31 of Reguatons 62 and 65. In other words, there was no specfc
provson n any of the pror Revenue cts whch woud permt a ta payer
domced n the States n whch ether spouse had an mmedate vested
nterest n ncome recognzed by the aws of such States as communty ncome
to make returns upon the communty bass. Secton 1212 of the Revenue ct
of 1920 recognzes the rght of ta payers domced n communty property
States to make returns upon the communty bass n 1921 and pror
years.
Secton 1212, supra, as construed by the above porton of Soctor s
Memorandum 578 , has been hed to recognze the rght of husband
and wfe domced n communty property States whose aws
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159
1212.
then recognzed the wfe as havng an mmedate vested nterest n
the ncome of the marta communty to fe ther ncome returns for
any ta abe perod pror to anuary 1, 1925, upon the communty
property bass. In the case of ohn enry v. Commssoner (6 .
T. ., 131, C. . I-1, 3), t was hed that the fng of separate
returns by a husband and wfe domced n the State of Washngton
where the wfe had a vested nterest n the communty property, each
return reportng one-haf ther communty ncome for the year 1923,
was proper, and that the Commssoner was precuded by secton 1212
from ta ng the whoe of such ncome to the husband.
Secton 1212 and the opnons thereunder, above referred to, are
appcabe ony to cases of ta payers resdng n communty prop-
erty States of the Unted States. owever, attenton s drected to
ths secton of the aw and to these opnons for the purpose of
showng the prncpe governng the acceptabty of separate returns
fed by a husband and wfe domced n a communty property
State, upon whch the communty ncome for ta abe years pror
to anuary 1, 1925, was dvded equay between husband and wfe.
Such resdent ta payers have been permtted to fe separate returns
and report thereon each a one-haf share of ther communty ncome
whenever, under the aw of the State of ther domce, the wfe has
an mmedate vested nterest n such ncome. Inasmuch as had
a vested nterest n the communty property of these ta payers
under the aws of Swtzerand and the returns n the nstant case
were fed for the caendar year 1924, t foows that the gross ncome
of these ta payers was correcty reported n sad returns f t may
propery be sad that the same prncpe shoud appy as we to
cases of nonresdent ta payers. Snce there s no provson n the aw
or reguatons specfcay coverng the nstant case, sound admns-
tratve procedure warrants the appcaton of the same prncpe n
eases of both resdent and nonresdent ta payers. There appears to
be no |ust or compeng reason for hodng otherwse.
The separate returns of and for the caendar year 1924, there-
fore, correcty return the ta payers communty ncome arsng from
sources wthn the Unted States.
C. M. Chaest,
Genera Counse, ureau of Interna Revenue.
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201, rt. 1542. 160
INCOM T RULINGS. P RT II.
R NU CT O 1924.
TITL I. G N R L D INITIONS.
S CTION 2. G N R L D INITIONS.
rtce 1504: ssocaton dstngushed from trust.
R NU CT OP 1924.
enefca nterests of rea estate sub|ect to ong-term ease, under
trustee s contro. (See G. C. M. 1940, page 46.)
TITL II. INCOM T .
P RT I. G N R L PRO ISIONS.
S CTION 201. DISTRI UTIONS Y CORPOR TIONS.
rtce 1542: Source of dstrbuton. II-4 3587
G. C. M. 2951
R NU CTS O 1921 ND 1924.
In determnng the earnngs or profts for any year avaabe
for dvdends n the case of a corporaton whose books of account
are on the cash recepts and dsbursements bass, not ony must a
tems of e pense pad durng the year be gven consderaton but
any ncome ta es pad durng the year must aso be treated as a
charge aganst nc me, regardess of the fact that the ta es so pad
represent addtona assessments for pror years.
n opnon s requested as to whether addtona ta es for pror
years pad n 192:3 and 1924 by the M Company shoud be taken nto
consderaton n determnng the earnngs avaabe n those years
for dvdend purposes.
Secton 201(a) of the Revenue ct of 1921 provdes n part as
foows:
the term dvdend when used n ths tte means any
dstrbuton made by a corporaton to ts sharehoders or members, whether
n cash or n other property, out of ts earnngs or profts accumuated snce
ebruary 28. 1913, .
The defnton contaned n the Revenue ct of 1924 s substantay
the same.
The M Company, whch mantans books of account on the cash
recepts and dsbursements bass, s engaged n the busness of seng
rea estate and the natura products thereof, namey, standng tmber
and ron ore. Such busness s of a type wth respect to whch the
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161
203, rt. 1577.
accrua method of accountng s not requred. pproved standard
methods of accountng w ordnary be regarded as ceary refectng
ncome, but a method of accountng w not be regarded as ceary
refectng ncome uness a tems of gross ncome are treated wth
reasonabe consstency. ( rt. 23, Regs. 62 and 65.) It s recognzed
that no unform method of accountng can be prescrbed for a ta -
payers, and the aw contempates that each ta payer sha adopt such
forms and systems of accountng as are n hs or ts |udgment best
suted to hs purpose. ( rt. 24, Regs. 62 and 65.) In ascertanng
the amount of earnngs or profts avaabe for dvdend purposes the
books of account must be gven due consderaton, for they are pre-
sumed to refect the earnngs and profts avaabe for dvdend pur-
poses. corporaton whose books of account are on the cash re-
cepts and dsbursements bass can ony ascertan ts earnngs and
profts by treatng as gross ncome a tems of ncome when receved
and deductng tems of e pense when pad.
though artce 1542 of Reguatons 62, construng secton 201 of
the 1921 ct, provdes n part that n ascertanng whether a ds-
trbuton was made out of earnngs or profts of the ta abe year
there shoud frst be set asde a proper reserve for the payment of
accrued ncome and e cess profts ta es, t seems manfest that there
can be no accrua of such ta es by a corporaton whose books of ac-
count are kept on the cash bass and that the provson s nappcabe
n the nstant case. It s concuded under both the 1921 and 1924
cts that, n determnng the earnngs or profts for any year ava-
abe for dvdends, not ony must a tems of e pense pad durng
the year be gven consderaton but any ncome ta es pad durng the
year must aso be treated as a charge aganst ncome, regardess of
the fact that the ta es so pad represent addtona assessments for
pror years.
C. M. Chabest,
Genera Counse, ureau of Interna Revenue.
S CTION 203. R COGNITION O G IN OR LOSS
ROM S L S ND C NG S.
rtce 1572: changes of property.
R NU CT O 1924.
Tradng n of trucks and passenger cars used for busness purposes
on new trucks and passenger cars to be used for ke purposes.
(See Mm. 3641, page 86.)
rtce 1577: Defntons. II-1-3561
G. C. M. 2862
R NU CT O 1924.
The word property ns used n secton 203(b)4 of the Revenue
ct of 1924 means property other than money. The payment of
cash for stock s a purchase, not an e change.
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203, rt. 1577.
162
n opnon s requested as to whether ta abe gan was reazed by
the members of the M partnershp through the transfer of the assets
of the partnershp to the N Company, a corporaton.
The facts are stated as foows:
It appears that on or about une 20, 1924, and , partners n
the O Company, as partes of the frst part, entered nto a contract
wth s companes, partes of the second part, namey, the
P Company, the Company, the R Company, the S Company, the
T Company, and the U Company, whereby t was agreed that a cor-
poraton known as the N Company shoud be organzed as of uy 1,
1924, under the aws of the State of . wth an authorzed capta
stock of a doars dvded nto 140// shares. The partes of the frst
part were to subscrbe to 71.2// shams of stock, and ths stock was to
be pad for by the transfer to the corporaton of the assets of the
partnershp, whch were set forth n deta n the contract. Of ths
stock, 54.4// shares were to be ssued drecty to the ta payers and
16.8// shares were to be ssued to the W ank as trustee for . The
atter shares were to have no votng power unt certan treasury
stock was sod. The partes of the second part were to purchase 52 /
shares of stock for cash of 2 doars. The remanng 16.8y shares of
stock represented treasury stock, whch coud ater be sod at not
ess than par upon the approva of the board of drectors.
Under date of uy 1, 1924, the corporaton known as the N Com-
pany was ncorporated, and was made presdent and genera
manager, n accordance wth the agreement prevousy entered nto.
The busness was operated by and under the corporaton s name,
begnnng uy 1, 1924, and the corporaton came nto possesson of
the assets of the predecessor partnershp on that date. It was not
unt uy 28, 1924, that forma transfer and devery of the assets
occurred, and on that date stock n the amount of 2 doars was
ssued to the s companes, partes of the second part, upon payment
by them on that date of cash n the amount of 2a doars. The deay
n the forma transfer of the assets and the payment for and ssuance
of stock was apparenty caused by certan tgaton whch was setted
shares of stock representng the consderaton for the transfer of the
partnershp assets were ssued on or about the same date.
Secton 203 of the Revenue ct of 1924 provdes n part as
foows:
(a) Upon the sae or e change of property the entre amount of the gan
or oss, determned under secton 202, sha be recognzed, e cept as herenafter
provded n ths secton.
(b) (4) No gan or oss sha be recognzed f property s transferred to a
corporaton hy one or more persons soey n e change for stock or securtes n
such corporaton, and mmedatey after the e change such person or persons
are n contro of the corporaton but n the case of an e change by two or more
persons ths paragraph sha appy ony f the amount of the stock and secur-
tes receved by each s substantay n proporton to hs nterest n the property
pror to the e change.
Contro s defned under secton 203() as meanng ownershp
of at east 80 per centum of the votng stock and at east 80 per
centum of the tota number of shares of a other casses of stock of
the corporaton.
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163
203, rt. 1577.
In the appea of Lous brams (3 . T. ., 385), the ta payer
was a member of a partnershp consstng of hmsef and another.
s share of the partnershp assets was apprased at 30,000. The
partnershp transferred ts assets to a corporaton, and the ta payer
receved stock theren of the par vaue of 30,000 for hs nterest.
Others purchased for cash a substanta proporton of the stock.
The ta payer and hs partner dd not receve a suffcent percentage
of the stock to gve them contro wthn the meanng of the 1921 ct.
The cost of the assets to the ta payer was 19,778.47. The Com-
mssoner rued that the ta payer receved an equvaent of cash to
the e tent of 30,000 for hs nterest n the partnershp, whch the
Commssoner determned cost hm 19,778.47, makng a dfference
of 10,221.53, representng ta abe proft from the transacton. The
Commssoner s determnaton was sustaned.
The decson n the brams case was rendered under the prov-
sons of secton 202(c)3 of the Revenue ct of 1921, the mport of
whch s substantay the same as secton 203(b)4 of the Revenue
ct of 1924. The prncpe nvoved n that case s dentca wth
that nvoved n the case presented. The anguage of the govern-
ng provson appes to the tme mmedatey after the e change.
In the nstant case the contract to e change the partnershp assets for
stock was dated une 20, 1924, and provded for e change as of uy
1, 1924. The e change, however, was deaved unt uy 23, 1924,
and mmedatey after the e change and dd not have
ownershp of at east 80 per centum of the stock.
Under secton 203(a) gan or oss s recognzed n every sae or
e change, uness wthn one of the e ceptons enumerated n the other
subdvsons of the secton. The ta payers contend that they come
wthn the e cepton contaned n secton 203(b)4 and that the cash
pad for stock by the s companes s property wthn the meanng
of the e cepton. It s the opnon of ths offce that the word prop-
erty as used n secton 203(b) 4 means property other than money.
Ths subdvson refers to an e change n four nstances. The
word purchase s not used. The payment of cash for stock s a
purchase, not an e change. The anguage must be construed accord-
ng to ts commony accepted meanng. Ths poston s supported
by the manner n whch the word e change s used throughout the
ct, and aso by the manner n whch references are made to prop-
erty as dstngushed from money n the provsons wth ref-
erence to e changes, partcuary n secton 203 (d), (e), and (f).
To sustan the ta payer s contenton woud necesstate pacng a
straned constructon upon the anguage used.
It s, therefore, the opnon of ths offce, supported by the decson
n the brams case, supra, that the entre amount of the gan or oss
to the ta payers must be recognzed n the manner provded for n
secton 203(a).
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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204, rt. 1594.
164
S CTION 204. SIS OR D T RMINING G IN OR
LOSS, D PL TION, ND D PR CI TION.
rtce 1594: Property acqured by gft or trans- II-11-3644
fer n trust on or before December 31,1920, or by G. C. M. 3098
bequest, devse, or nhertance.
R NU CT O 1924.
The bass for determnng the gan or oss from the sae or otter
dsposton of property acqured by a gft made n contempaton
of death s the far market vaue of the property at the date of
acquston by the donee.
n opnon s requested n the case of as to the bass for deter-
mnng the gan or oss from the sae of property under the foowng
crcumstances:
On December , 1923. the ta payer receved from hs father, as
a gft, y shares of common stock of the M Company. Durng the
year 1924 the ta payer sod the stock for 6ar doars per share. The
ta payer s father ded on ebruary , 1925, and the vaue of the
stock on that date was ncuded n the estate ta return of the dece-
dent, t havng been determned that the gft of the stock was made
n contempaton of death. The cost of the stock n the hands of
the ta payer s father was appro matey doars per share. The
vaue of the stock on the date the gft was made, December , 1923,
was 4a doars per share. The vaue of the stock on the date of the
death of the ta payer s father, ebruary , 1925, was 7 doars per
share. The ta payer n hs return of ncome for 1924, the year dur-
ng whch he sod the stock, camed a oss on the transacton, havng
used as the bass of the stock ts vaue as apprased for the purpose
of the edera estate ta .
Secton 204 of the Revenue ct of 1924 provdes n part as foows:
Sec. 204. (a) The bass for determnng the gun or oss from the sae or other
dsposton of property acqured after ebruary 2S, 1913, sha be the cost of
such property, e cept that
,
(2) If the property was acqured by gft after December 31. 1920, the bass
sha be the same as t woud be n the hands of the donor or the ast precedng
owner by whom t was not acqured by gft

(5) If the property was acqured by bequest, devse, or nhertance, the
bass sha be the far market vaue of such property at the tme of such
acquston. The provsons of ths paragraph sha appy to the acquston
of such property nterests as are specfed n subdvson (c) or (e) of secton
402 of the Revenue ct of 1921, or n subdvson (c), (d), or (f) of secton
302 of ths ct.
The ta payer contends that nasmuch as the gft made to hm on
December , 1923, by hs father was made n contempaton of death,
the vaue of the stock as of the date of death of hs father shoud
govern n the determnaton of the gan or oss from the sae of the
stock by hm n 1924.
The foowng specfc questons are presented for an opnon:
1. Whether the transacton s governed by the provsons of sec-
ton 204(a)2 of the Revenue ct of 1924.
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165
204, rt. 1594.
2. Whether the transacton s governed by the provsons of sec-
ton 204(a)5 of that ct.
3. If the transacton fas wthn the atter subdvson, whether
the vaue on ebruary , 1925, the date of the death of the ta -
payer s father, shoud govern, or the vaue on December , 1923,
the date the gft was actuay made.
nter vvos, ceary the provsons of secton 204(a)2 woud govern
n determnng the gan or oss from the sae of the stock. ut the
gft was one made n contempaton of death. Secton 204(a) 5
of the Revenue ct of 1924, above quoted, provdes that the pro-
vsons of that paragraph sha appy to the acquston of such
property nterests as are specfed n subdvsons (c), (d), or (f)
of secton 302 of that ct. The secton thus referred to so far as
pertnent reads as foows:
Sec. 302. The vaue of the gross estate of the decedent sha be determned
by ncudng the vaue at the tme of hs death of a property, rea or persona,
tangbe or ntangbe, wherever stuated

(c) To the e tent of any nterest theren of whch the decedent has at
any tme made a transfer, or wth respect to whch he has at any tme created
a trust, n contempaton of or ntended to take effect n possesson or en|oy-
ment at or after hs death, e cept n case of a bona fde sae for a far con-
sderaton n money or money s worth. ny transfer of a matera part of hs
property n the nature of a fna dsposton or dstrbuton thereof made by
the decedent wthn two years pror to hs death wthout such a consderaton,
sha, uness shown to the contrary, be deemed to have been made n contem-
paton of death wthn the meanng of Part I of ths tte.
It w be seen that the provsons of secton 204(a)5 are e pressy
e tended to ncude the acquston of property acqured by a gft
made n contempaton of death, so that where property s acqured
n ths manner the bass for determnng the gan or oss from the
sae or other dsposton of such property sha be ts far market
vaue at the tme of acquston. It foows, therefore, that the frst
queston shoud be answered n the negatve and the second queston
answered n the affrmatve.
It havng been determned that the transacton s governed by
secton 204(a)5 of the Revenue ct of 1924, the queston then arses,
What s the tme of such acquston by the ta payer of the stock
nvoved n ths case, wthn the meanng of the ta ng statute
Is the vaue to be used as the bass for determnng the gan or oss
from the sae of the stock by the ta payer the vaue of the stock at
the date of the death of the ta payer s father, ebruary , 1925,
or s t the vaue of the stock on the date the gft was actuay made
by the father to the ta payer, December , 1923
It s apparent n the case of property passng under a w or
by nhertance that no date pror to the death of the decedent can
be taken as the date of acquston of the property. rtce 1594 of
Reguatons 65 provdes a consstent method of determnng the
vaue at the tme of acquston of property thus acqured. Ths
artce, n nterpretng secton 204(a)5 of the Revenue ct of 1924,
reads n part as foows:
In the case of property acqured by bequest, devse, or nhertance, ts vaue
as apprased for the purpose of the edera estate ta or n the case of estates
merey an ordnary gft
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204, rt. 1504.
166
not sub|ect to that ta Its vaue as apprased n the State court for the purpose
of State nhertance ta es sha be deemed to be ts far market vaue when
acqured.
The ta payer urges that, nasmuch as the statute e pressy brngs
property acqured as a gft n contempaton of death wthn the pro-
vsons of the secton appyng to property acqured bv bequest,
devse, or nhertance, the part of the reguatons quoted aTbove must
aso appy to property acqured by a gft n contempaton of death,
nsstng that the vaue of the property as apprased for the purpose
of the edera estate ta sha be deemed to be ts far market vaue
when acqured, rrespectve of the date when the property was actu-
ay transferred to the donee. The ta payer n support of the pos-
ton that property acqured by a gft n contempaton of death must
be treated n the same manner as property passng under a w or by
nhertance, further rees on that part of artce 1594 of Reguatons
65 whch reads as foows:
In computng the gan or oss from the sae or other dsposton of property
acqured by gft or by a transfer n trust on or before December 31, 1920,
or by bequest, devse, or nhertance, the bass sha be the far market prce
or vaue of such property at the tme of acquston. The term property
acqured by bequest, devse, or nhertance as used heren ncudes (a) such
property nterests as the ta payer has receved as the resut of a transfer,
or creaton of a trust. In contempaton of or ntended to take effect n possesson
or en|oyment at or after death .
s aready ponted out, the provsons of secton 204(a)5 of the
Revenue ct of 1924 are e pressy e tended to embrace property
acqured by a gft made n contempaton of death, so that the vaue
of such property at the tme of such acquston must be taken as
the bass for determnng the gan or oss from the sae or other
dsposton of the property rather than the bass of the property n
the hands of the donor, as provded n secton 204(a)2, above quoted,
n the case of ordnary gfts nter vvos. ut t does not foow
that where property s acqured by a gft made n contempaton of
death the bass when acqured sha be deemed to be the vaue of the
property as apprased for the purpose of the edera estate ta ,
regardess of the actua tme of acquston. Manfesty, property
passng under a w or by nhertance can not be acqured pror
to the death of the decedent. It s eementary that n such a case no
nterest at a vests unt the death of the decedent. Ths s not true
n the case of a gft made n contempaton of death. Tte to prop-
erty thus acqured passes to the donee at the tme the gft s made,
and the date the property s acqured s necessary a date pror to
the death of the donor. In vew of ths fundamenta dstncton
between the tme of acquston of property passng under a w or
by nhertance and the tme of acquston of property acqured by a
gft made n contempaton of death, ths offce s of the opnon that
the provson of artce 1594 of Reguatons 05, frst above quoted,
shoud not be taken to appy to property acqured by gft made n
contempaton of death. Where t appears that there was actuay
a compete transfer of the property to the donee durng the fetme
of the donor, the date of transfer shoud be taken as the date the
property was acqured by the donee wthn the meanng of sec-
ton 204(a)5 of the statute. The far market vaue of the property
upon that date must, therefore, be used as the bass of the property
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167
1213(b), rt. 77.
n computng the donee s gan or oss from hs subsequent sae or
other dsposton thereof. The soundness of ths vew and the fa-
acy of the poston of the ta payer appear to be we ustrated by
the partcuar facts of ths case. It woud be whoy ogca to
take as the bass for determnng the gan or oss from the sae of
the stock nvoved n the nstant case the vaue of the stock on eb-
ruary , 1925, when the ta payer s father ded, whch date was 14
months after the stock was actuay transferred to the ta payer and
severa months after the stock was n fact dsposed of by hm.
In vew of the foregong, ths offce s of the opnon that the far
market vaue of the stock on December , 1923, the date the gft was
actuay made to (he ta payer, shoud be used as the bass for deter-
mnng the ta payer s gan or oss from the sae of the stock n 1924.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
P RT II. INDI IDU LS.
S CTION 213(a). GROSS INCOM D IN D:
INCLUSIONS.
rtce 31: What ncuded n gross ncome.
R NU CT OP 1924.
Income from restrcted Indan ands conveyed by one member
of the Otoe Trbe of Indans to another member of the trbe. (See
G. C M. 2715, page 56.)
rtce 39: Sae of stock and rghts.
R NU CT O 1924.
Sae of stock rghts where the ta payer was the hoder of two ots
of stock wth dfferent bases on whch to compute the gan or oss.
(See I. T. 2417, page 59.)
S CTION 213(b). GROSS INCOM D IN D:
CLUSIONS.
rtce 77: Interest upon Unted States obgatons.
R NU CT O 1924.
Method outned of determnng under secton 24, Tradng wth
the nemy ct. as amended by secton 18 of the Settement of War
Cams ct of 1928 (approved March 10, 1928), the appcabty
of the varous e emptons accorded nterest on obgatons of the
Unted States to the nterest arsng from property nvested n such
obgatons under secton 12, Tradng wth the nemv ct. (See
G. C. M. 3680, page 68.)
6342 28 12
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214(a)4, 5, 6, rt. 141. 168
rtce 88: Compensaton of State offcers and
empoyees.
R NU CT OP 1924.
Compensaton receved by members of rgna Pots ssocaton
for servces rendered as pots not e empt from ncome ta . (See
I. T. 2395, page 73.)
rtce 88: Compensaton of State offcers and
empoyees.
R NU CT O 1924.
Compensaton receved as pot censed under aws of Oregon
not e empt from ncome ta . (See I. T. 2396, page 75.)
rtce 88: Compensaton of State offcers and
empoyees.
R NU CT OP 1924.
Compensaton receved as pot censed under aws of South Caro-
na not e empt from ncome ta . (See I. T. 2399, page 77.)
rtce 89: ddtona e cusons from gross ncome.
R NU CT OP 1924.
mendment of artce 89, Reguatons 65, to ncude Canada n the
st of countres whch do not satsfy the equvaent e empton
requrement of secton 213(b) 8 of the Itevenue ct of 1921. (See
T. D. 4135, page 81.)
S CTION 214(a)4. 5. 6 D DUCTIONS LLOW D
INDI IDU LS: LOSS S.
rtce 141: Losses. II-22-3734
G. C. M. 3890
R NU CT O 1924.
oss may he aowed as a deducton under the provsons of
secton 214(a) 4 and 5 of the Revenue ct of 1924, where an
nterest n o and gas rghts s ether dsposed of for ess than
ts cost or March 1, 1913, vaue, or becomes worthess durng the
ta abe year. The fact of abandonment of deveopment s. ke
the showng of a dry hoe, merey evdentary, and where the
Interest s retaned and deveopment abandoned, the worthessness
of the nterest must be estabshed aunde.
n opnon s requested as to the deductbty of osses camed
to have been sustaned by n connecton wth certan royaty
rghts.
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169
214(a)4, 5, 6, rt 141.
It appears that the ta payer acqured on uy , 1923, for a
doars, a one-fourth nterest n the o and gas n and under cer-
tan ands n County, State of R, sub|ect, however, to an
e stng o and gas ease. Durng 1924 a test we was dred by
the essee, a dry hoe resutng, and further deveopment was aban-
doned. The essees surrendered ther ease. The ta payer consdered
hs royaty nterest to be worthess and wrote off hs nvestment
theren as a oss. The Income Ta Unt dsaowed ths oss under
the rung contaned n Soctor s Memorandum 5700 (C. . -,
241).
In May, 1924, the ta payer acqured for 2 doars an undvded
one-haf share n a one-eghth nterest n the o and gas n and
under certan ands n County, State of S, sub|ect to an e stng
o and gas ease. Durng uy, 1924, a test we was dred, a dry
hoe resuted, and the ease was surrendered. The ta payer con-
sdered hs royaty nterest worthess and wrote off hs nvestment
theren as a oss. Ths deducton was aso dsaowed by the Income
Ta Unt under the rung contaned n Soctor s Memorandum
5700, supra.
rom the records of ths offce t s noted that Soctor s Memo-
randum 5700 was prepared n connecton wth a etter of nstructon
addressed by the Commssoner to an nterna revenue agent n
charge. Ths etter was n answer to an nqury as to the deduct-
bty of osses camed n connecton wth abandoned o eases, a
typca case beng stated by the nterna revenue agent n charge as
foows:
ta payer presents evdence showng that a the wes dred on and
covered by a ease purchased by hm were dry hoes. The ease has been aban-
doned but has not e pred or been canceed. The ease appears to be worthess.
In the etter to the nterna revenue agent n charge the genera
queston of the worthessness of an nterest n o and gas rghts was
not consdered. The pont consdered was the effect of abandonment,
as to whch the etter stated:
The mere abandonment of an o and gas ease does not of tsef estabsh
the worthessness thereof. It frequenty happens that a vauabe we s
brought n on and prevousy thought to contan no o or gas. It woud seem,
therefore, that as ong as the ta payer retans any nterest n the ease, the
ease can not be consdered to be worthess.
Ths concuson was repeated n the foowng sentence, whch was
quoted and approved n Soctor s Memorandum 5700:
In order to be entted to cam a deductbe oss wth respect to an nterest
In an o or gas ease, the ease must have e pred or been canceed or the ta -
payer must have renqushed by forfeture or otherwse a of hs rght, tte,
and nterest theren durng the ta abe year n whch the oss s camed as a
deducton.
It s beeved that the snge test of abandonment of deveopment
to determne the worthessness of an o or gas ease or royaty nterest
s open to the ob|ecton ndcated n Soctor s Memorandum 5700.
The abandonment has no necessary bearng upon the actua mnera
content of the and and may be attrbutabe to any number of causes,
such as from ack of funds to contnue e poraton, or to oss of conf-
dence n the presence of o and gas deposts n the property, etc. So
ong as the nterest s retaned by the ta payer the probatve effect
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214(a)4, 5, 6, rt. 141.
170
of abandonment of deveopment s negatved. The vew e pressed
n Soctor s Memorandum 5700, s, therefore, affrmed so far as t
precudes the aowance of a deducton for oss on a mere showng
of abandonment where the nterest s retaned.
n o and gas ease s a permt or cense to remove the o or gas
n pace (appea of . . e, 7 . T. ., 263, C. . I-2, 2),
and a royaty nterest s a rght to a proportonate part of the o
and gas recovered or proceeds thereof or to a payment per unt
of o e tracted beng n effect the renta pad for the easehod
nterest. Whether an o and gas ease and/or royaty rght com-
prehend a present nterest or estate n the reaty tsef or n the
o and gas n pace or whether they comprehend merey an nterest
n or rght to the o and gas n the reaty when e tracted (see L. O.
1103, C. . 1-2, 128), they bear a vaue n drect reaton to the
presence of o and gas n the and n commerca quanttes. Where
there s no o or gas n the and, the o and gas ease and royaty
rght reate to a none stent sub|ect matter and have absoutey no
vaue. It woud appear that the rght to e tract o and gas, or to
share n the same when produced, becomes worthess when the sub-
|ect matter of the rght s found to be none stent. It s beeved
that forma dsposa of the vaueess nterest by sae or renqush-
ment shoud not be requred as a prerequste to aowance of a oss.
carefu prospect of the entre fed whch demonstrates that the
same s barren of o n commerca quanttes may estabsh the
absoute worthessness of the nvestment n an o and gas ease or
royaty rght. The oard of Ta ppeas has aowed deductons
for osses camed n connecton wth eases and royaty nterests
found durng the year to be worthess and abandoned, regardess of
the fact that there was no forma reease or renqushment of the
nterest. ( ppeas of . . e, supra . G. dams, 5 . T. .,
113, C. . I-1,1 and . L. uey, 4 . T. ., 370 page 15 ).
It s, therefore, the opnon of ths offce that a oss may be aowed
as a deducton under the provsons of secton 214(a) 4 and 5 of the
Revenue ct of 1924, where an nterest n o and gas rghts s ether
dsposed of for ess than ts cost or March 1, 1913, vaue, or becomes
worthess durng the. ta abe year. The fact of abandonment of
deveopment s, ke the showng of a dry hoe, merey evdentary,
and where the nterest s retaned and deveopment abandoned, the
worthessness of the nterest must be estabshed aunde.
rom the facts presented n the nstant case, ths offce s unabe
to determne whether the royaty nterests of the ta payer became
worthess durng the year 1924. The determnaton of ths queston
w nvove a revew of the e tent of e poraton and resuts of
drng, n con|uncton wth a knowedge of the structure of the
fed and depth of test we, adequacy of number of test wes dred
to prospect the entre tract, and other facts of a technca nature.
C. M. Charest,
Genera Counse, ureau of Interna Revenue,
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171
217, rt. 326.
rtce 141: Losses.
R NU CT O 1924.
Tradng n of trucks and passenger cars used for busness purposes
on new trucks and passenger cars to be used for ke purposes. (See
Mm. 3641, page 86.)
S CTION 214(a) 10. D DUCTIONS LLOW D INDI-
IDU LS : CONTRI UTIONS OR GI TS.
rtce 251: Contrbutons or gfts.
R NU CT O 1924.
Contrbutons to organzaton engaged n promotng the wefare
of the mercan Indan. (See G. C. M. 3830, page 114.)
S CTION 217. N T INCOM O NONR SID NT
LI N INDI IDU LS.
rtce 311: Defnton.
R NU CT O 1924.
Resdence and not domce as determnng status of an aen.
(See T. D. 4164, page 98.)
rtce 326: pportonment of deductons. II-23-3744
G. C. M. 3983
R NU CTS O 1921 ND 1924.
s uo Canadan Income ta s pad by a Canadan corporaton
on dvdends receved by t from another Canadan corporaton,
such dvdends shoud not be taken nto consderaton n aocatng
or apportonng Canadan ncome ta to Unted States ncome and
Canadan ncome for the purpose of determnng the aowabe
deducton n computng net ncome from sources wthn the Unted
States.
n opnon s requasted reatve to the ncome ta returns of the
M Company for the years 1917-1924, ncusve.
The ta payer, a corporaton organzed under the aws of Canada,
pad ncome ta to the Canadan Government for the years nvoved
but faed to submt returns to the Unted States of the ncome
receved from sources wthn the Unted States. Denquent returns
have been secured for the years n queston, and the ta payer has
been aowed a certan porton of the ta es pad to the Canadan
Government as a deducton from ncome. In determnng the amount
of Canadan ncome ta aowabe as a deducton, the rato of gross
ncome from sources wthn the Unted States to the tota gross
ncome was used. Dvdends receved from Canadan corporatons
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217, rt. 326.
172
were ncuded n tota gross ncome. The ta payer cams that the
dvdends receved by a Canadan corporaton from other Canadan
corporatons are e empt from ta and shoud not be ncuded n the
tota gross ncome n determnng the rato on whch to aocate the
Canadan ta that the proporton of Canadan ncome ta whch s
deductbe s that proporton whch the gross ncome from sources
wthn the Unted States bears to the gross ncome of the company
ta abe n the Domnon of Canada. The ssue s thus rased as to
whether or not the dvdends shoud be ncuded n gross ncome n
determnng the rato of gross ncome from sources wthn the Unted
States to tota gross ncome.
Under the Revenue cts of 1916, 1917, and 1918 ta es pad to a
foregn country by a foregn corporaton on Unted States ncome
were not aowed as deductons n computng net ncome sub|ect to
edera ncome ta . See secton 12(b) ourth of the Revenue ct
of 1916, secton 1207 of the Revenue ct of 1917 amendng secton
12(b) ourth of the Revenue ct of 1916, and secton 234(a)3(e) of
the Revenue ct of 1918. It foows that no part of the ta pad to
Canada for the years 1917-1920 by the ta payer s aowabe as a
deducton n computng the net ncome sub|ect to Unted States ta .
Under the Revenue cts of 1921 and 1924 a deducton for ncome
ta es pad to a foregn country on ncome from sources wthn the
Unted States s aowed. See secton 234(a)3 and secton 234(b)
as nterpreted n Soctor s Memorandum 5363 (C. . -, 89).
If the amount of such ta es s known, t s not necessary to resort to
proratng n order to determne the amount of ta es deductbe. The
ta payer states n ts protest that n each of the years n queston the
tota gross ncome receved by the company conssted of two casses
certan amount of the nterest was from sources wthn the Unted
States and a certan amount from sources wthn the Domnon of
Canada. The dvdends receved n each year were from corpora-
tons organzed n the Domnon of Canada. Under the aws n
force n Canada durng those years dvdends receved by a Canadan
corporaton from other Canadan corporatons were not sub|ect to
ta . The ta payer contends that the Canadan ta es shoud be
aocated to the tems of ncome on whch the ta es were mposed,
namey, the nterest from sources wthn the Unted States and from
sources wthn Canada.
The ta payer further contends that secton 217(b) of the Revenue
cts of 1921 and 1924 embodes the rue whch shoud be apped
to a years n queston. The provson reads as foows:
(b) rom the tems of gross ncome specfed n subdvson (a) there sha
bo deducted te e penses, osses, and other deductons propery apportoned
or aocated thereto and a ratabe part of any e penses, osses, or other deduc-
tons whch can not defntey be aocated to some tem or cass of gross ncome.
The remander, f any, sha be Incuded n fu as net ncome from sources
wthn the Unted States.
The ta payer states that Canadan ta es can be propery aocated
and apportoned to ncome from sources wthn the Unted States.
It s noted that n some of the years a proft was derved from the
sae of stock. Such proft was not ta ed n Canada, as under the
Canadan aws capta gans are not consdered ncome. The ta -
payer s correct n ts contenton that dvdends receved by a Cana-
of ncome ony nterest
In each of the years a
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173
218, rt. 335.
dan corporaton from other Canadan corporatons are not ta ed.
In ths connecton see pages 12 and 16 of Senate Document No. 186,
entted Ta aton of ncome, corporatons, and nhertances n
Canada, Great rtan, rance, Itay, egum, and Span.
copy of the Canadan ncome ta return form for corporatons
for the year 1921, whch has been submtted by the ta payer shows
that both dvdends from Canadan corporatons and e empt nterest
(such as nterest on Domnon of Canada bonds ssued e empt from
ncome ta ) are requred to be reported n gross ncome but such
dvdends and nterest are e empted from ta by beng ncuded n
the tems deductons and e emptons. The tems of ta abe
ncome reman and are refected n the net ncome on whch the ta
s computed. The ncome ta es pad by a Canadan corporaton,
therefore, are pad wth respect to tems of ta abe ncome.
s the dvdends receved by the ta payer from other Canadan
corporatons are not ncuded n the net ncome on whch the ta s
computed, no part of the Canadan ta was pad on such ncome.
Snce the ony other tems of ncome reported for Canadan ta
purposes were nterest from Canadan sources and nterest from
Unted States sources, the Canadan ta was pad on such ncome
and shoud be apportoned or aocated to such tems.
It s, therefore, the opnon of ths offce that as no Canadan
ncome ta was pad on the dvdends they shoud not be taken nto
consderaton n aocatng or apportonng the Canadan ncome ta
to Unted States ncome and Canadan ncome n the determnaton
of the deducton for Canadan ncome ta es aowabe to the ta -
payer n computng net ncome from sources wthn the Unted States.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 218. P RTN RS IPS.
btce 335: Partnershps.
R NU CT O 1924.
Rght of husband and wfe to enter nto a partnershp n North
Carona. (See G. C. M. 3034, page 104.)
rtce 335: Partnershps.
R NU CT O 1924.
Partnershp between husband and wfe domced n the Dstrct
of Coumba. (See G. C. M. 3421, page 106.)
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231, rt. 820. 174
S CTION 222. CR DIT OR T S IN C S
O INDI IDU LS.
rtce 385: Countres whch do or do not satsfy
the smar credt requrement.
R NU CT O 1824.
Me co. (See I. T. 2410, page 110.)
rtce 387: When credt for ta es may be taken.
R NU CT O 1924.
Credt for rtsh ncome ta es for the years endng pr 5, 1922,
pr 5, 1923, and pr 5, 1924, pad n 1925 by a ta payer whose
books are kept on the cash recepts and dsbursements bass. (See
G. C. M. 2983, page 110.)
P RT III CORPOR TIONS.
S CTION 231. CONDITION L ND OT R
MPTIONS O CORPOR TIONS.
rtce 517: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT O 1924.
ssocaton organzed for promotng the wefare of the mercan
Indan. (See G. C. M. 3830, page 114.)
ktce 520: Soca cubs.
R ND CT O 1924.
utomobe cub operatng nsurance bureau and pubshng maga-
zne for ts members. (See G. C. M. 2867, page 115.)
rtce 520: Soca cubs.
R NU CT O 1024.
Recept of revenue as the resut of advertsements n a magazne
pubshed n connecton wth the actvtes of a soca cub. (See
G. C. M. 3555, page 117.)
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175 240, rt 633.
S CTION 233. GROSS INCOM O CORPOR TIONS
D IN D.
rtce 544: Contrbutons by sharehoders.
R NU CT OP 1024.
Intaton fee pad by new member of an e change. (See G. C. M.
4015, page 120.)
rtce 545: Sae and retrement of corporate bonds.
R NU CT O 1024.
ocaton of premum or dscount to bonds maturng seray.
(See G. C. M. 3832, page 123.)
S CTION 234. D DUCTIONS LLOW D
CORPOR TIONS.
rtce 564: Interest.
R NU CT O 1924.
Deductbty of nterest pad on ndebtedness ncurred for con-
structon purposes, requred to be. captazed by a State reguatory
body. (See G. C. M. 3234, page 124.)
S CTION 239. CORPOR TION R TURNS.
rtce 622: Returns by recevers.
R NU CT O 1024.
Income ta returns for nsurance companes n process of quda-
ton under secton 63 of the New York nsurance aw. (See G. C. M.
3876, page 127.)
S CTION 240. CONSOLID T D R TURNS O
CORPOR TIONS.
rtce 633: When corporatons are affated. II-15-3674
G. C. M. 2780
R NU CT O 1924.
1. Under the facts showu, 95 per cent or more of the votng sock
of the M Company and the O Company was not owned by the same
Interests.
2. There s no authorty for consderng the so-caed ndrect
ownershp of stock under the consodated returns provsons of the
Revenue ct of 1924.
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240, rt. 633.
176
The opnon of ths offce s requested upon the affaton status for
1924 of the M Company, the O Company, and the P Company.
The stock of the M Company was for the perod under consdera-
ton a owned by varous ndvduas who owned no stock n the
other two companes. The M Company owned 93.6 per cent of the
stock of the O Company. , who was reated to the owners of 60
per cent of the stock of the M Company, owned 5.7 per cent and
owned 0.7 per cent of the O Company stock. The stock of the P
Company was owned 36 per cent by the M Company and 64 per cent
by the O Company. tabe showng these facts, as we as the so-
caed ndrect hodngs, s as foows:
M Com-
pany.
O Com-
pany.
P Company.
Drect.
Indrect.
Per cent.
100
Per cent.
Per cent.
Percent.
93.
36
64
96.

5. 7
.6
.6
-
100
100
100
100
was the genera manager of the O Company. e purchased the
stock standng n hs name under an agreement dated anuary ,
1920, gvng hs note for doars n payment thereof. The certf-
cates were ndorsed n bank and hed by the M Company. The dv-
dends on the stock were to appy to the payment of nterest on the
note and the remander to the prncpa.
Upon the foregong facts the foowng questons are presented:
1. Were the M Company and the O Company affated durng the
year 1924 by reason of ownershp of 95 per cent of the votng stock
by the, same nterests
2. Were the M Company and the P Company affated by reason of
ownershp (drect and ndrect) of 95 per cent of the stock of the
P Company by the M Company
ffated corporatons are defned by secton 240(c) of the Revenue
ct of 1924 as foows:
or the purpose of ths secton two or more domestc corporatons sha be
deemed to be ttated (1) f one corporaton owns at east 95 per centum of
the votng stock of the other or others, or (2) f at east 95 per centum of the
votng stock of two or more corporatons s owned by the same nterests.
(1) It s cear that the M Company can not be consdered as own-
ng the stock whch stood n s name. (See appea of rgentne
Import port Corporaton, 2 . T. ., 138 appea of ort Cum-
berand ote Co., 1 . T. .. 1250.) The statute requres, n order
to consttute an affaton of two corporatons, ether that 95 per cent
of the votng stock of one be owned by the other, or that 95 per cent
of the votng stock of both be owned by the same nterests. The M
Company dd not own 95 per cent of such stock of the O Company
and, obvousy, even f the owners of 60 per cent of the stock of the
M Company were consdered as ownng a ke, or even greater,
percentage of the O Company s stock, and consttuted the same n-
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240, rt. 637.
terests as , the requred percentages of ownershp of the stock of
the two corporatons by the same nterests woud not be reached.
vdence tendng to show that and the M Company consttuted
the same nterests s mmatera, for t coud ony prove the owner-
shp of the stock of one of the corporatons by the same nterests.
The frst queston s. therefore, answered n the negatve.
(2) Ths offce s unabe to fnd any authorty for consderng the
so-caed ndrect ownershp of stock under the consodated re-
turns provsons of the 1924 ct. Possby that theory may have had
some vaue n appyng such terms as contros through cosey
affated nterests n the former cts. No doubt where one owns
stock n a corporaton whch n turn owns stock n a second corpora-
ton, he may be sad to have an nterest n such stock of the second, tor, as
was sad n the case of sner v. Macomber (252 U. S., 189 T. D.
3010, C. . 3, 25 ), the nterest of a stockhoder pertans, not to
any part dvsbe or ndvsbe, but to the entre assets, busness
and affars of the company. ut, as the court further observes, ths
nterest s not that of owner n the assets themseves snce the
corporaton has fu tte, ega and equtabe, to the vhoe. Itacs
supped.
In the nstant case the M Company owned but 36 per cent of the
stock of the P Company. nother corporaton, the O Company,
had fu tte to the remanng 64 per cent of the P Company s
stock. The M Company, by reason of ownng 93.6 per cent of the
stock of the O Company, may have had a percentage of nterest n
the P Company s stock n e cess of that ndcated by the stock t
owned, but ths coud not be added to the 36 per cent n order to
determne whether or not the requste 95 per cent of stock owned
has been reached. The statute does not say that corporatons may be
deemed affated f one corporaton has an nterest n 95 per centum
of the votng stock of the other or others, but f one corporaton
owns at east 95 per centum. etc.
The second queston s, therefore, aso answered n the negatve.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
ktce 637: Consodated accounts of reated II-1-3562
trades owned by same nterests. I. T. 2394
R NU CT O 1924.
I. T. 2261 (C. . -, 100) s modfed n so far as t s ncon-
sstent wth Genera Counse s Memorandum 2856, page 128.
rtce 637: Consodated accounts of reated trades
owned by same nterests.
R NU CT O 1924.
The terms reated trades or busnesses and owned or con-
troed drecty or ndrecty by the same nterests as used n sec-
ton 240(d) defned. (See G. C. M. 2856, page 128.)
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280, rt. 1121.
178
S CTION 245. T S ON INSUR NC
COMP NI S.
States ta es on premums. (See I. T. 2416, page 131.)
P RT I . DMINISTR TI PRO ISIONS.
S CTION 257. R TURNS TO PU LIC
R CORDS.
rtce 1095: Penates for dscosure of returns.
Dscosures made n response to subpoena of oard of Ta ppeas.
(See T. D. 4120, page 181.)
S CTION 260. CITIZ NS O POSS SSIONS O
T UNIT D ST T S.
In 1918 certan property of the ta payer stuated In the Php-
pne Isands was sezed under the Tradng wth the nemy ct and
converted nto moneys. The moneys were deposted n the Treas-
ury of the Unted States and nvested n obgatons of the Unted
States. In 1922 the ta payer renounced hs aegance to Germany
and throughout the ta abe year 1924 was a resdent, and ctzen
of the Phppne Isands (but not otherwse a ctzen of the Unted
States).
The entre amount receved by the ta payer durng 1924 from
the property n custody under the Tradng wth the nemy ct
was Income derved from sources wthn the Unted States. The
ncome s sub|ect, however, to the e empton accorded under the
varous statutes to nterest from obgatons of the Unted States.
n opnon s requested reatve to the contenton that an asserted
ta n respect of the ncome of the ta payer, , for the ta abe year
1924 was erroneous on the foowng grounds:
1. , for ncome ta purposes, was a nonresdent aen and the
ncome was not receved from a source wthn the Unted States
under the provsons of the Revenue cts.
2. or the purpose of ta aton the property producng the ncome
proposed to be ta ed must be consdered to be n the Phppne
Isands.
It appears that the ta payer was, durng the year 1918, a sub|ect of
Germany and a resdent wthn that country and that at some tme
R NU CT O 1924.
rtce 1121: Status of ctzen of Unted
States possesson.
R NU CT O 1924.
II-22-3735
G. C. M. 3845
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179
260, rt. 1121.
durng that year the offcers and agents of the Unted States, n pur-
suance of the powers conferred upon them by the Tradng wth the
nemy ct, sezed certan property of the ta payer then stuated n
the Phppne Isands, converted the same nto moneys, and n due
course deposted the sad moneys n the Treasury of the Unted
States, where, aong wth moneys derved from, or consttutng, other
sezed property, they were nvested from tme to tme n obgatons
of the Unted States by the Secretary of the Treasury pursuant to
the provsons of secton 12, Tradng wth the nemy ct. It aso
appears that at some tme n 1922 the ta payer renounced hs ae-
gance to Germany and became a resdent and ctzen of the Php-
pne Isands (but not otherwse a ctzen of the Unted States). y
vrtue of the amendment of March 4, 1923, to the Tradng wth the
nemy ct (42 Stat., 1511), the ta payer became entted to the
return of property not n e cess of the sum of 10,000 (sec. 9(b)9)
and to the net ncome, dvdend, nterest, annuty, or other earnngs
accrung and coected (after March 4, 1923) on any
property or money hed n trust for such person but not
n e cess of 10,000 per annum. (Sec. 23.) It s aso noted (athough
the matter s here rreevant) that by the ct of May 7, 1926, amend-
ng the Tradng wth the nemy ct (44 Stat., 406), the ta payer
became entted to the return of a hs property.
The ssues presented may be convenenty dscussed seratm.
I. The record ndcates that throughout the ta abe year 1924 the
ta payer was not a nonresdent aen, but was a resdent and ctzen
of the Phppne Isands (but not otherwse a ctzen of the Unted
States). e was, therefore, sub|ect to the provsons of secton 260,
Revenue ct of 1924, whch provde that
ny ndvdua who s a ctzen of any possesson of the Unted States (but ,
not otherwse a ctzen of the Unted States) and who s not a resdent of the
Unted States, sha be sub|ect to ta aton under ths tte ony as to ncome
derved from sources wthn the Unted States, and n such case the ta sha
be computed and pad n the same manner and sub|ect to the same condtons
as n the case of other persons who are ta abe ony as to ncome derved from
soch sources.
The ta payer was, therefore, sub|ect to ta aton upon ncome
derved from sources wthn the Unted States. The ncome here
n queston conssted of the net ncome, dvdend, nterest, annuty,
or other earnngs accrung and coected on the property of the
ta payer n custody under the Tradng wth the nemy ct and
was n fact pad by warrants drawn upon the Treasury of the
Unted States and from funds n the Treasury of the Unted States
at Washngton. The earnngs were e cusvey derved from ob-
gatons of the Unted States at a tmes n the custody of the Treas-
urer of the Unted States at Washngton and physcay present
n the Treasury of the Unted States at Washngton. oth the
property whch gave rse to the ncome, and the partcuar moneys
consttutng the ncome were at a tmes physcay wthn the
contnenta Unted States unt the ncome was actuay pad to the
representatves of the ta payer. Certany f any ncome can be
sad to be ncome derved from sources wthn the Unted States,
the ncome here n queston was such. Wrhe secton 217, Revenue
ct of 1924, s not, and does not purport to be, an e haustve cass-
fcaton of tems of ncome derved from sources wthn the Unted
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260, rt. 1121.
180
States, ncome derved from obgatons of the Unted States phys-
cay present n the Unted States s as unmstakaby ncome
derved from sources wthn the Unted States under that secton
as t s under fundamenta prncpes. Obgatons of the Unted
States are bonds, notes, or other nterest-bearng obgatons of
resdents, corporate or otherwse wthn the meanng of secton
217(a), Revenue ct of 1924, by reason of the facts that (1) the
Unted States s a corporaton (D on v. Unted States, 1 rock., 177,
ed. Cas. No. 3,934 Unted States v. Maurce, 2 rock., 96, 26 ed.
Cas. No. 15,747 In re Merrams state, 263 U. S., 179), and (2)
the Unted States s resdent wthn the terrtory of ts consttuent
States. If a resdence must be assgned to the Unted States as a
soveregn State, certany the seat of government or the terrtory of
the consttuent States of the Unon must be consdered that res-
dence. The entre amount of ncome receved by the ta payer as
payments under secton 23, Tradng wth the nemy ct, was, there-
fore, ncome derved from sources wthn the Unted States.
II. The second ground upon whch the ta payer rees n hs con-
tenton that the asserted ta was erroneous s that the property
producng the ncome must be consdered to be n the Phppne
Isands (athough physcay n the contnenta Unted States) be-
cause of the fact that t was sezed wthn the Phppne Isands
and removed therefrom wthout the consent of the owner. Ths
contenton s untenabe. The rght and power of the Unted States
wth respect to enemy property taken nto custody under the Tradng
wth the nemy ct are absoute. (Unted States v. Chemca
oundaton, 272 U. S., 1.) The property was sezed and removed
to the contnenta Unted States by offcers and agents of the Unted
States actng wthn the scope of ther authorty t was, therefore,
awfuy removed, and the Unted States owes no duty to the ta -
payer to restore the status quo ante of hs property, east of a to
restore t to ts physca stus n the Phppne Isands. Congress
has authorzed the restoraton to the ta payer of the ncome from
hs property arsng durng the ta abe year 1924. The ta payer has
accepted that restoraton, and he can not now be heard to say that
he w take the benefts but not the resutng ta burdens ncdent
thereto.
It s qute mmatera wth respect to any ta abty for the year
1924 that subsequent to the tme when hs property was sezed and
transferred to the contnenta Unted States the ta payer ceased
to be ether an enemy of the Unted States or a nonresdent aen
and became a resdent and ctzen of the Phppne Isands.
III. In so far as the ncome accrung to the account of the ta -
payer durng the ta abe year 1924 was derved n fact from obsra-
tons of the Unted States n whch the Secretary of the Treasury
had nvested the proceeds from the sae of the property of the ta -
payer, the ncome s sub|ect to the e empton accorded under the
varous statutes to nterest from obgatons of the Unted States.
Of course, these e emptons are avaabe to the ta pa37er ony n
the same amount and to the same e tent as they are avaabe to
other ctzens of the Phppne Isands wth respect to nterest
from smar obgatons of the Unted States owned by them.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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181 ( 900.
P RT . P YM NT, COLL CTION, ND R UND O T ND
P N LTI S.
S CTIONS 277 ND 278. P RIOD O LIMIT TION UPON
SS SSM NT ND COLL CTION O T .
rtce 1272: Perod of mtaton upon coecton of ta .
R NU CT O 1924.
Waver sgned ebruary 19, 1923, provdng for an unmted
perod for coecton of ta es assessed wthn one year from March 1,
1923. (See G. C. M. 2939, page 144.)
S CTION 900. O RD O T PP LS.
TI-6-8598
T. D.4120
O RD O T PP LS R NU CT O 1924 D CISION O SUPR M
COURT.
1. oard of Ta ppeas ursdcton Speca ssessment.
On appea from a proposed defcency fed under secton 274 of
the Revenue ct of 1924 the oard of Ta peas, by secton
900(e) of that ct, s authorzed to revew the Commssoner s
determnatons under sectons 327 and 328 of the Revenue ct of
1918. whch provde for a speca assessment of e cess profts ta
n specfed cases.
2. Same Subpozna Informaton n Returns.
Secton 1018 of the Revenue ct of 1924, whch prohbts the
pubcaton by offcers or empoyees of the Unted States of nfor-
maton ganed n the course of ther dutes, does not mt the
oard s authorty gven by secton 90O() of that ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, I). C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Supreme Court of the Unted States
n the case of Davd . ar, Commssoner of Interna Revenue,
pettoner, v. Osteren Machne Co. s pubshed for the nformaton
of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved anuary 26, 1928.
. W. Meon,
Secretary of the Treasury.
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900.
182
Supreme Court of the Unted States.
uvd . ar, Commssoner of Interna Revenue, pettoner, v. Osteren
Machne Co.
On wrt of certorar to the Court of ppeas of the Dstrct of Coumba.
November 21, 1927.
OPINION.
Mr. ustce Stone devered the opnon of the court.
Ths s a proceedng brought n the Supreme Court of the Dstrct of Coum-
ba under secton 1025(a) of the Revenue ct of 1924 (ch. 234, 43 Stat., 253,
34S U. S. C, tte 26, sec. 1258) to compe the Commssoner of Interna
Revenue to respond to a subpoena of the oard of Ta ppeas, ssued under sec-
ton 000(). requrng hm to answer nterrogatores, and to furnsh nformaton
contaned n the ta returns of 12 corporatons. The Commssoner dened the
authorty of the oard to requre a response to the subpoena. decree uphod-
ng the |ursdcton of the oard and orderng the Commssoner to o ey was
affrmed by the Court of ppeas of the Dstrct (17 ed. (2d), 663). The ease
s here on certorar. ( U. S., .)
Respondent corporaton returned and pad e cess profts ta es for the years
1918, 1919, and 1920. In the fna determnaton of these ta es the Comms-
soner consdered together the returns for a three years. e reduced the 1 )18
ta , ncreased the 1919 ta , and found the net baance as a defcency. In f ng
the amount of the ta for 1918 the Commssoner, as requested by the ta payer
n an amended return for that year, made a speca assessment under sectons
327 and 328 of the Revenue ct of 1918 (ch. 18, 40 Stat., 1057, 1093), but
decded that no grounds e sted for a speca assessment for the year 1919, and
so determned the ta for that year, usng the ordnary assessment method
provded by sectons 301, 311, and 312.
The nvested capta of the corporaton ta ed s one of the necessary factors
n the computaton of the ta under those sectons. In evdent antcpaton that
n some cases the Commssoner mght fnd t dffcut or mpossbe to ascertan
the nvested capta or that n the dsturbed economc condtons eft by the war
the ta n some cases mght be harsh n comparson wth others, a speca
method of assessment for those cases (enumerated n sec. 327) was provded
by secton 328. These sectons authorze the computaton of the e cess profts
ta on the bass of a comparson wth the data contaned n the ta returns of
other corporate ta payers smary stuated.
Respondent, on appea to the oard of Ta ppeas, assaed the determna-
ton of the Commssoner on the ground that athough the 1918 ta had been
assessed under secton 328 the standard of comparson apped was erroneous
and resuted n an e cessve assessment and on the ground that the ta for
1919 shoud have been assessed under secton 328. s to the atter contenton,
t set up that, as the Commssoner had been unabe satsfactory to determne
respondent s nvested capta for 1917 and 1918, he coud not have done so for
1919, and that, snce the net ncome for 1919 was abnorma, ts profts ta , f
assessed by the ordnary method, woud be found e cessve compared wth the
ta assessed on other representatve corporatons.
The subpoena caed for nformaton eoncededy reevant to tuse conten-
tons and was pro|ery Issued f the oard of Ta ppeas had authorty to
make the nqury. The Commssoner denes generay that any determnatons
made by hm under sectons 327 and 32S may be appeaed, and n any case
ob|ects that the appea as to the ytar 19 8 was not propery taken.
The appea was authorzed, f at a, by secton 900(e) of the Revenue
ct of 1924 (ch. 234. 43 Stat., 253, 337 I . S. C, tte 20. sec. 1210), under
secton 274 of that ct. Secton 274 permts an appea by the ta payer ony
f the Commssoner determnes that there s a defcency n respect of the
ta whch has been returned. Defcency s defned by secton 273 as
(1) The amount by whch the ta mposed e ceeds the amount
shown as the ta by the ta payer upon bs return: (2) If no
amount s shown as the ta by the ta payer on hs return, then
the amount by whch the ta e ceeds the amounts prevousy assessed
as a defcency.
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183
900.
It Is argued that athough there was a defcency for 1918 and 1919, as con-
sdered together by the Commssoner, the years must be treated separatey
n determnng whether a defcency e sted wthn the meanng of secton
274. for purposes of appea. So treated there was no defcency n the year
1918, snce the Commssoner had reduced the amount of the ta returned and
pad for that year. Ths argument was re|ected n appea of . . arry
(1 . T. ., 156), and the Commssoner appears formay to have announced
hs acquescence n ts re|ecton. (Int. Rev. C. . I -2, 1.)
We thnk the queston suggested s not propery before us. It was not
specfcay rased on the record before the oard or ether court beow and,
so far as tppears, was not consdered by any of them. We were asked to
grant certorar ony to pass upon the queston whether the Commssoner s
determnatons under sectons 32Y and 328 may be appeaed to the oard of
Ta ppeas. Ths court sts as a court of revew. It s ony n e ceptona
cas-es, and then ony n cases from the edera courts, that questons not
pressed or passed upon beow are consdered here. (Dugnan v. Unted
(state . 274 U. S., 95.) There are specay cogent reasons why ths rue shoud
be adhered to when the queston nvoves a practce of one of the great de-
partments of the Government. ence we do not pass upon ths as ect of
the case wth respect ether to the return or the amended return for 1918, and
onr decson s wthout pre|udce to the dsposton of the queston wherever
appropratey presented.
The Commssoner s ob|ecton that as to both years the oard of Ta p-
peas s wthout authorty to revew hs acton s based not on any mtatons
to be found n the sectons of the ct defnng the |ursdcton of the oard,
but upon the pecuar provsons of sectons 327 and 328 themseves. .These,
t s argued, vest In the Commssoner the e ercse of a |udgment and dscre-
ton n ther nature not sub|ect to appeate revew. It s ponted out that
by secton 327 assessments n the manner provded n secton 328 are permtted
where the Commssoner s unabe to determne the nvested capta of the
ta payer, or where the Commssoner s unabe satsfactory to determne
the vaue of a m ed aggregate of tangbe and ntangbe property pad n as
capta, or where the Commssoner fnds and so decares of record that the
a f determned wthout beneft of ths secton woud, owng to abnorma
condtons work a hardshp on the ta payer. nd t s urged that ths phrase-
oogy evdences an ntenton to make hs decson fna. The concuson s
sad to be fortfed by the confdenta nature of the returns of ta payers wth
whch comparson must be made n order to make the assessment under secton
328. Ther prveged character s thought to precude a constructon of the
appea statute that woud resut n gvng pubcty to ta returns and conf-
denta nformaton so carefuy guarded by other provsons of the Revenue
cts.
ut there s no nherent mpossbty or, ndeed, serous dffcuty n revew-
ng |udcay any determnaton authorzed by sectons 327 and 328. The
determnaton s to be made upon prescrbed and ascertanabe data and s to
conform to standards set up by the statute, a defned wth suffcent defnteness
and carty to e susceptbe of |udca scrutny. We can not assume that t s
to be ether arbtrary or unreated to the approprate data n the Comms-
soner s offce, or that he s more quafed to make t than the oard estabshed
to revew hs decsons. n e amnaton of the sectons creatng the oard
and nvestng t wth power can eave no doubt that they were ntended to
confer upon t appeate powers whch are |udca In character. Not ony s t
requred by secton 900(e) to hear and determne appeas taken under secton
274, whch n terms aows an appea n every case where a defcency s found
by te Commssoner, but t s empowered to admnster oaths and to compe
the attendance of wtnesses and the producton of documents and records. It
may nvestgate anew the ssues between the Government and the ta payer, and
upon the determnaton of the appea t may affrm, set asde, or modfy the
fndngs and decson of the Commssoner. In the ght of such provsons there
s pany no suffcent ground for readng nto secton 274. aowng an appea
wherever a defcency s found by the Commssoner, an e cepton based on the
supposedy sacrosanct character of hs determnatons under sectons 327 and
32S.
ut tte weght can be gven to the suggeston that the oard s appeate
powers are mted by the secton of he ct prohbtng te pubcaton by
coectors of nformaton ganed n the course of ther dutes. Secton 1018,
6342 28 13
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1019, rt. 1371.
184
reermctn secton 3167 of the Revsed Statutes (U. S. C. tte 18, sec. 216).
The prohbton s mted to dscosures made n any other manner than may
be provded by aw. It can not be deemed to forbd dscosures made n obed-
ence to process awfuy ssued n a |udca or quas |udca proceedng, as
has, ndeed. 1 een reo guzed by the Treasury Department tsef n Treasury
Decson No. 2 .2 C. . 2, 253 , drectng that copes of returns may be fur-
nshed for the Government s use as evdence n court. Nether the statute nor
the practce of the Department suggests the e stence of any governmenta
pocy wth respect to the use of the returns as evdence n any way nconsstent
wth the provsons of the statute authorzng the oard of Ta ppeas to hear
appeas and conduct proceedngs whch are |udca n character.
s we do not pass upon the queston whether the oard of Ta p|teas had
|ursdcton of the appea, e cept n so far as t s nvoved n our decson that
the determnaton of the Commssoner under sectons 327 and 32S are sub|ect to
revew by the oard, the decree w be so modfed as to be wthout pre|udce
to the pettoner s presentng n any approprate manner to the oard or the
Supreme Court of the Dstrct the questous whether the oard of Ta ppeas
had n other respects |ursdcton of the appea as to the ta for 1918 and, f
not, to what e tent the nformaton caed for by the subpoena s reevant and
admssbe upon the hearng of the appea as to the ta for 1919.
ffrmed as modfed.
TITL . G N R L DMINISTR TI PRO ISIONS.
S CTION 1019. INT R ST ON R UNDS
ND CR DITS.
rtce 1371: Interest on refunds and credts. II-26-3778
T. D. 4167
INCOM T R NU CT O 1924 D CISION OP COURT.
Interest on Refunds Sut ganst Coector.
No acton w e aganst a coector of Interna revenue for
nterest on a credt or refund of ncome ta es under secton 1019
of the Revenue ct of 1924.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Dstrct. Court of the Unted States
for the Western Dstrct of Pennsyvana, n the case of Penn
Smokeess Coa Co. v. Leweyn, ormery Coector of Interna
Revenue, s pubshed for the nformaton of nterna revenue offcers
and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved une 14, 1928.
S. Low M N,
ctng Secretary of the Treasury.
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185
1019, rt. 1371.
Unted States Dstrct Court, Western- Dstrct of Pennsyvana.
Penn Smokeess Coa Co., a Corporaton, v. Leweyn, Coector.
ebruary 10, 1928.
OPINION.
Schoonmaker, udge: Ths ease comes before the court on an affdavt of
defense fed under the Pennsyvana practce act rasng questons of aw.
Te ega defenses set up by the defendant are: (1) That the pantff has no
rght of acton aganst the defendant, as a matter of aw (2) that pantff s
cam s for nterest on ta es aeged to have been wrongfuy coected by the
defendant as coector, and s based soey on an ct of Congress provdng for
the payment of nterest, passed subsequenty to the date of recept of tu es by
the defendant as coector, and subsequenty to the date of the e praton of hs
term of offce, and therefore can not be mantaned aganst the defendant by
ths acton.
The facts of the case, as dscosed by the pantff s statement of cam, so
far as they are pertnent to the dscusson of the ega questons rased, are as
foows:
The pantff overpad ts ncome and e cess profts ta es for the fsca year
endng March 31, 1918, to the e tent of 7,317.30, such e cessve payments
beng made as foows: 3,703.67 on October 27, 1919 and . 3,013.03 thereof on
December 15, 1919. Such payments were made to the defendant as coector
of nterna revenue for the twenty-thrd dstrct of Pennsyvana, the defendant
servng n that capacty from the 1st day of October, 1913, unt the 1st day
of ugust, 1921.
The pantff fed cam wth the Commssoner of Interna Revenue for the
refundment of the overpayments n queston and on the 17th day of December,
1925. the Commssoner notfed the pantff that t had been overassessed n
these amounts. ut, on anuary 28, 1926, nstead of refundng the amount,
the Commssoner aowed a credt for sad overpayment of 7,313.30 upon
addtona ncome and e cess profts ta es for the fsca year endng March 31,
1919, whch had been assessed by the Commssoner aganst the pantff on
une 21, 1924. Under ths : -.ate of facts, the pantff contends that It s
entted to recover nterest on 3,703.67 from October 27, 1919, to anuary 28,
1926 and on 3,613.63 from December 15, 1919, to anuary 28, 1926 or a tota
Interest of 2,014.44 under and by vrtue of secton 1019 of the Revenue ct
m of 1924, whch provdes as foows:
Sec. 1019. Upon the aowance of a credt or refund of any nterna-revenue
ta erroneousy or egay assessed or coected, or of any penaty coected
wthout authorty, or of any sum whch was e cessve or n any manner wrong-
fuy coected, nterest sha be aowed and pad on the amount of such credt
or refund at the rate of 6 per centum per annum from the date such ta ,
penaty, or sum was pad to the date of the aowance of the refund, or n
case of a credt, to the due date of the amount aganst whch the credt s
taken, but f the amount aganst whch the credt s taken s an addtona
assessment, then to the date of the assessment of that amount.
The sut n queston was begun on May 23, 1927, ong after the defendant s
term of offce as coector of nterna revenue had e pred. t the outset of
ths case, t must be noted, frst, that an acton aganst a coector of nterna
revenue to recover ta es erroneousy pad s a persona acton. (Sage v.
Unted Staffs. 250 U. 8., 33: Smrtanka, Coector of Interna Revenue, v.
Indana Stee Co., 257 U. S., 1 Ct. D. 17, C. . 5. 251 .)
It may be noted further that ths acton s not based upon anythng that
the coector of nterna revenue dd, or faed to do, whe n offce, but s
based soey upon an ct of Congress for the aowance and payment of
nterest on sums wrongfuy coected by coectors of nterna revenue. Ths
cam, arsng specfcay under ths ct of Congress, we are of the opnon
that the acton s not propery brought aganst the former coector, and coud
be mantaned ony aganst the Unted States, whch, by ct of Congress, has
provded for ts payment. The ct of Congress dd not pace upon the coector
of nterna revenue the duty of payng nterest on sums wrongfuy coected,
but provded for ts payment by the Unted States. We concude, therefore,
that ths acton may not be mantaned aganst the coector n person.
We, therefore, sustan the affdavt of defense, and |udgment may be entered
theren In favor of the defendant
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5200, rt. 1523. 186
INCOM T RULINGS. P RT III.
R NU CT O 1921 OR PRIOR R NU CTS.
TITL II. INCOM T .
P RT I. G N R L PRO ISIONS.
S CTION 200. D INITIONS.
rtce 1523: Persona servce corporaton. II-8-3619
T. D. 4128
e cess profts ta revenue act of 1017 decson of court.
Invested Capta Nomna Capta.
corporaton that acqures n e change for ts capta stock a
mnera ease of a proven tract under whch the essee s gven
the rght to remove and reduce to ownershp arge quanttes of
vauabe ron ore s not a corporaton havng no nvested capta
or not more than a nomna capta wthn the meanng of secton
209 of the Revenue ct of 1917.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Dstrct Court for the
Dstrct of Mnnesota, Thrd Dvson, n the case of owe- urke
Mnng Co., a Corporaton, and owe- urke Co., a Corporaton, v.
Lev M. Wcuts, Coector, s pubshed for the nformaton of
nterna revenue offcers and others concerned.
C. R. Nash,
ctng Commssoner of Interna Revenue.
pproved ebruary 8, 1928.
. W. Meon,
Secretary of the Treasury.
Unted States Dstrct Court. Dstrct op Mnnesota, Thrd Dvson.
owe- urke Mnng Co., a Corporaton, and occ- urke Co., a Corporaton,
pantffs, v. Lev M. Wcuts, Coector of Interna Revenue of the Unted
States of merca n and for the D trct of Mnnesota, defendant.
uy 18, 1927.
M MOR NDUM.
The questons for consderaton n ths case are:
(a) Whether, for the year 1917, t was proper to consodate the pantff
corporatons for ncome ta purposes.
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187
200, rt. 1523.
(b) Whether the pantff mnng company durng the year 1917 was a
corporaton havng no nvested capta, or not more than a nomna capta,
wthn the meanng of the provsons of secton 209, Revenue ct of 1917.
(40 Stat , 300, C. 63.)
1. To |ustfy consodaton for the purposes here n queston, t s necessary
that one corporaton shoud have been a subsdary of the other, wth cose
reatons of the character herenafter specfed. There are two grounds, at
east, upon whch to base a hodng that the corporatons n queston do not
stand n the reaton of parent and subsdary toward each other
(2) They are not engaged n the same or cosey reated nes of busness.
The mnng company s not an arm or branch of the so-caed parent company,
and s not engaged n carryng out a deta of the work or busness of that
company, as, for e ampe, a saes corporaton mght do. Ths s the underyng
thought whch |ustfes consodaton n such cases, and such thought s empha-
szed n the case of Capetce orsena Co. v. Wash (1 ed. (2d), 815) and n
artce 77 of Reguatons 41, ssued by the Commssoner of Interna Revenue
n 1918, and n secton 1331 of the Revenue ct of 1921 (42 Stat., 319, C. 136).
(b) Under a the evdence the pcture s rather that Messrs. owe and
urke, for the purpose of carryng out ther busness undertakngs, organzed
two separate corporatons, of whch they have had compete contro, and whch
ordnary and reguary woud functon qute separate and apart, but whch, t
has been arranged, do n fact, and to a consderabe degree, coordnate wth
each other.
There are rather decate ponts to be consdered n determnng whether
one corporaton s a subsdary of the other for the purposes here n queston,
but the weght of the argument s wth the defendant thereon. Ths eads to
the concuson that the corporatons can not be consodated for the purpose
of makng ncome ta returns. Ths concuson s aso supported by the cam
of defendant that under the aw there s no authorty for aowng a conso-
daton for such purpose.
2. The mnng ease here nvoved, and the rghts acqured thereunder, can
not be consdered as ntangbe property. Such ease gave to the essee the
rght of possesson of vauabe property of a substanta character, and the
further rght to remove and reduce to ownershp arge quanttes of vauabe
ron ore theren or thereon. See Cotton ote Co. v. ass (7 ed. (2d), 900,
902 T. D. 3740, C. . I -2, 108 ), Lynch v. vorh-Stephons Co. (267 U. S.,
364, 369 T. D. 3690, C. . 1 -1, 162 ). though termed a ease, the nstru-
ment gave greater rghts n the property than a conveyance for fe of the same
property, wthout the rght to commt waste thereon, woud have done.
3. The character of the property, the fact that Messrs. owe and urke
were wng to e pend consderabe sums of money n testng and provng the
same, and the fact that Pckands, Mather Co. were wng to enter nto
the contract whch they dd, a suggest strongy that the ease was of sub-
stanta vaue. Wth such ease as the soe substanta bass therefor, the
mnng company n ts return camed a arge nvested capta, and e cept as
to amount, t made the cam rghty. Such cam does not necessary prevent
that company from now assertng that t had no nvested capta, but t has a
consderabe bearng upon the correctness of that asserton. The ease was pro-
cured through the superor knowedge, sk, and enterprse of Messrs. owe
and urke. When they had t turned over to the owe- urke Co., they prop-
ery mght have arranged for the ssue to them of consderabe addtona
stock n that company therefor, because they were contrbutng somethng of
substanta vaue, and when that company turned over the ease to the mnng
company, the former mght propery have e acted from the atter a consder-
abe amount of stock n the new company as a consderaton for the ease, and
ths, n fact, was done. In effect, ths was gvng the consderaton to Messrs.
owe and urke, because t ncreased the vaue of ther stock n the rst
company.
4. The queston s not what the ease cost Messrs. owe and urke, or what
t cost owc- urke Co., but what t cost the mnng company- what, f any-
thng, t represented as nvested capta n that company. In ths connecton
the corporatons must be consdered separate and apart from ther stock-
hoders. ( sner v. Macomber. 252 U. 8., 189, 214 T. . 3010, C. . 3, 25 .)
owe and urke and the owe- urke Co. mght have made a present of the
ease to the mnng company, whch woud have gven rse to other and nterest-
ng questons, but that was not the course taken. It was transferred n the
ordnary busness way, on the theory that t had vaue, and that those who
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200, rt. 1523.
188
contrbuted t to the mnng company shoud have stock n that company,
representng such vaue. If the ease was so contrbuted to the mnng com-
pany as a vauabe asset, as money s worth (La ee Iron Works v. Unted
States. 256 U. S.. 377-388 T. D. 3181, C. . 4, 3731). n payment for stock, t
became nvested capta to the e tent of ts reasonabe vaue. Ths woud have
been so f the stock had been pad for n mouey no matter how obtaned. It
was not ess so when the payment was n money s worth.
Ths s not a case where a the ater vaue of the ease represented appreca-
ton durng the perod of operaton under the ease. There was such appreca-
ton, but manfesty, from as eary a date as November, 1910, the ease was of
proven vaue. It was then recognzed as the very mportant underyng factor
n the producton of the ncome whch was antcpated. Whatever the amount
of that vaue, t was ceary suffcenty arge to take the mnng corporaton
qute out of the cass contempated by secton 2U9 of the Revenue ct of 1917.
The ease was reatvey too arge and mportant a factor n the contempated
operatons to be consdered as representng merey nomna capta n the cor-
poraton. The actua vaue of the ease as a bass for the computaton of
ncome ta es was determned by the Commssoner of Interna Revenue n the
usua course from a consderaton of the Informaton acqured through the
ed audt of the busness of pantffs, whch had been made under hs drec-
ton, and from the return whch had been made by the corporaton, appyng
thereto the rues of aw as he understood them to be, and hs e perence n
smar cases. It was not necessary that the Commssoner, or the person under
hm who actuay performed the servce, shoud have made a persona nspec-
ton of the property. That, often, woud not be practcabe, and n any event,
woud not hep. gratfyng feature of ths work of the Commssoner s
that, so far-as can be seen from the evdence whch has been ntroduced n the
case, hs concusons were probaby very neary rght. In any event, the strct
accuracy of the estmate as to vaue s not here of prmary mportance. The
matter of mportance s whether or not the rea vaue was ceary so arge
that t must be consdered as consttutng more than a merey nomna amount
of nvested capta. The utmate queston s whether or not the corporaton
came wthn the provsons of secton 209, Revenue ct of 1917. s aready
ndcated, the concuson reached s that t dd not.
5. In an attempt to dspose of ths matter correcty, the court has assumed
and consdered varous possbe stuatons wth a vew to gatherng ght hy
anaogy therefrom, and for the purpose aso of testng the accuracy of the vews
here e pressed. Messrs. owe and urke mght have retaned the ease n ther
own names or they mght have aowed t to reman n the name of the owe-
urke Co. or they mght have accepted therefor a very few shares of stock,
wth ow par vaue, n the mnng company. On consderaton, nothng of
speca vaue comes from any of these severa stuatons. The ndvduas
woud gan nothng by retanng the ease n ther own names. There were
doubtess good busness reasons for takng the steps whch they dd. There
were advantages n havng ths entrey separate ne of busness carred on
by a separate corporaton whch, n case of ater dsaster, woud not |eopardze
any nterest of owe and urke as ndvduas, or of owe- urke Co.. the
corporaton, e cept as they mght be stockhoders n the mnng company, and
there were speca reasons for havng the mnng operatons carred on by a
corporaton organzed under our aws reatng to mnng corporatons. Doubt-
ess these vews were consdered at ength and agreed to by both Messrs. owe
and urke and by ckanda, Mather Co. The course taken was open and
straghtforward. No attempt was made to cover up. It was undoubtedy the
ony course to pursue and the rghts of a partes have been best protected
thereby. Certa n of the other courses whch mght have been foowed, such
as acceptng a few shares of stock n the mnng company for the ease, woud
have nvoved sharp practces and woud have produced much troube and no
success. In such cases where money s worth s contrbuted as nvested capta,
and ths n the form of tangbe property, t s the vaue of the property and not
the par vaue of stock receved therefor whch contros. If the rue were other-
wse, t woud be a speces of trckery and fraud to accept the nomna amount
of stock and where the purpose was wrongfuy to brng the corporaton wthn
the provsons of secton 209, supra, the transacton woud be overturned.
6. On the whoe the matter has been worked out accordng to the substanta
|ustce thereof under the aw, and the concusons shoud be as ndcated
(a) That the corporatons may not be consodated for ncome ta purnses,
and
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189
201, rt. 1641.
(b) That the m nng company durng the year 1917 had more than a nomna
capta and dd not come wthn the purvew of secton 209, Revenue ct of
1917.
The |udgment w, therefore, be for the defendant
S CTION 201. DI ID NDS.
rtce 1541: Dvdends. II-17-3694
T. D.4147
ncome ta revenue act of 1918 decson ob court.
Dvdend Operatng Defct.
dstrbuton by a corporaton to ts sharehoders of ts earn-
ngs and profts n the year 1918, though n pror years t had
sustaned operatng defcts made up n part by ts stockhoders and
n part from ts earnngs, s not a return of capta but s a dv-
dend wthn the mannng of secton 201 of the Revenue ct of
1918 and, as such, s ta abe to the stockhoder as ncome.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Court of Cams n
the case of rank P. ar v. The Unted States s pubshed for the
nformaton of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved pr 12, 1928.
Ogden L. Ms,
ctng Secretary of the 7 reasury.
Coubt of Cams of the Unted States.
rank P. ar v. The Unted States.
ebruary 14, 1927.
OPINION.
Campbe, Chef ustce, devered the opnon of the court.
The pantff sues to recover ncome ta es pad whch the Commssoner of
Interna Revenue refused, upon pantff s appcaton therefor, to refund to hm.
The facts are stpuated and t appears from them that pantff was the prn-
cpa stockhoder n a coa company, ncorporated n 1905 wth an authorzed
Cfpta of 1,000,000, dvded nto 10,000 shares of common stock of the par
vaue of 100 each, of whch sock pantff owned 9,550 shares. The stnek was
pad for by the transfer to the corporaton of the assets of another corporaton.
The corporaton ssut d ts bonds to the amount of 710.0(10, upon whch t
reazed 403,000, whch went nto ts treasury. Durng the eary years of ts
e stence the corporaton ncurred heavy e penses n deveopment, and ts stock-
hoders, who were dso ts soe bondhoders, surrendered pror to December 31,
1912. bonds and accrued nterest to the amount of 540.400.51, whch was
credted to ts surpus account. Durng the perod from ts organzaton to
ebruary 28, 1913, the corpora on s operatng osses amounted to 440,000, whch
were charged aganst the surpus account on ts books. or the baance of the
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201, rt. 1541.
190
year 1913, and the years 1014 and 1915, the operatons showed a net ose of
appro matey 157,000, and durng the years 1916, 1917, and 1918 there were
gans of appro matey 130,000.
On December 17. 1918, the drectors decared a dvdend of 8 per cent on the
common stock, 0 per cent payabe at once and 2 per cent when, n the opnon of
the treasurer, funds were avaabe for the purpose. Pantff accordngy re-
ceved on hs 9,550 shares 8 per cent, amountng to 75,000, receved December 20,
and 1,400 receved December 31, 1918, a tota of 76,400. Pantff In hs ncome
ta return reported ths amount as receved by hm durng 1918 from the cor-
poraton as a ta abe dvdend, payng an ncome ta for the year 1918 n the
sum of 21,833.42. If the 76,400 be not ta abe hs ta for that year woud be
19,788.68 ess than he pad. In pr, 1921, pantff apped to the Comms-
soner for a refund of ths ast-named amount, camng that n hs return he
had erroneousy reported as a dvdend, and pad ta upon the amount receved
from the corporaton durng 1918, 76,400.
The queston for decson as stated by pantff s counse s Where a corpora-
ton has a oss n e cess of ts gans for the perod of ts corporate e stence, as
we as for the perod from March 1, 1918, to December 31, 1918, s a dstrbuton
of corporate funds to the stockhoders n 1918 a ta abe dvdend wthn the
meanng of the Revenue ct of 1918, or s such dstrbuton a return
of capta and therefore not ta abe More drecty, however, the queston s
whether the amount receved by the pantff n 1918 from the corporaton was a
part of hs ncome for that year. The corporaton had gans n three years,
1916, 1917, and 1918. It had gans n 1918 of 84,000. It decared an 8 per cent
dvdend to ts stockhoders n December, 1918. It was pad to and receved by
them, the pantff recevng hs proporton and keepng t. That t ncreased hs
ncome by that much there can be no queston. It was a dvdend wthn the
meanng of secton 201 of the Revenue ct of 191S, subdvson (a) and (e) (40
Stat., 1059). It was a dstrbuton out of ts earnngs or profts n 1918. If t
be concuded that the corporaton had the rght to wthhod dstrbuton and
appy the earnngs to make up ts osses durng pror years t dd not e ercse
that rght, and the pantff s n no poston to compan of ts acton. e was
propery ta abe on the dvdend as part of hs ncome. See dwards v. Dougas
(269 U. S., 204) dams case (60 C. Ca, 319).
The petton shoud be dsmssed. nd t s so ordered.
rtce 1541: Dvdends. II-20-3719
G. C. M. 3532
R NU CT O 1918.
The fact, wthout more, that a corporaton may have made a
proft n some partcuar year snce March 1, 1913, whch has not
been dstrbuted by way of dvdend does not estabsh that t
has avaabe for dvdend dstrbuton accumuated earnngs or
profts. Whether at a specfc tme a corporaton has any accumu-
ated earnngs or profts can e determned ony by e amnaton of
a the facts of the partcuar case, ncudng those reatve to the
earnngs, osses, and pad-n surpus of the corporaton.
ppeas and Revew Memorandum 82 (O. . 3, 36) s correct,
has not been superseded by the decson of the Unted States Cr-
cut Court of ppeas n Waker v. opkm (12 ed. (2d), 262,
T. D. 3854, C. . -, 157) or the decson of the Court of Cams
n the case of rank P. ar v. Unted States (03 Ct. CI., 193,
T. D. 4147 see page 18 . and shoud be foowed as a precedent n
cases where the facts are smar.
Reference s made to a memorandum of the Income Ta Unt n
whch nqury s made as to whether ppeas and Revew Memo-
randum 82 has been superseded by the decson of the Unted States
Crcut Court of ppeas n the case of Waker v. opkns or the
decson of the Unted States Court of Cams n the case of rank P.
ar v. Unted States.
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191
201, rt. 1541.
summary of the dvdend stuaton n the case consdered n
ppeas and Revew Memorandum 82 s as foows:
Mar. 1 to Dec. 31, 1913... 10,000
an. 1, 1014, to Dec. 31, 1916 25.000
arnngs an. 1 to Dec. 31. 1917 15,000
Losses an. 1 to Dec. 31, 1918 10,000
arnngs an. 1 to Dec. 31. 1919 5.000
arnngs an. 1, 1920, to date of dvdend., 15,000
Dvdend, 1920 _ 25,000
Surpus.
Mar. 1, 1913 100,000
Dec. 31, 1913 _ 110,000
Dec. 31, 11)16 86,000
Dec. 31, 1917 100,000
Dec. 31, 1918 99 000
Dec. 31. 1919 95,000
Date of dvdond 110,000
Ths case arose under the Revenue ct of 1918, and the specfc
provsons of aw appcabe thereto are as foows:
Sec. 201. (a) That te term dvdend when used n ths tte (e cept n
paragraph (10) of subdvson (a) of secton 234) means (1) any dstrbuton
made by a corporaton, other than a persona servce corporaton, to ts share-
hoders or members, whether n cash or n other property or n stock of the
corporaton, out of ts earnngs or profts accumuated snce ebruary 28, 1913,
or (2) any such dstrbuton made by a persona servce corporaton out of ts
earnngs or profts accumuated snce ebruary 28, 1913, and pror to anuary
1, 1918.
(b) ny dstrbuton sha be deemed to have been made from earnngs or
profts uness a earnngs and profts have frst been dstrbuted. ny dstr-
buton made n the year 1918 or any year thereafter sha be deemed to have
been made from earnngs or profts accumuated snce ebruary 28, 1913, or,
n the case of a persona servce corporaton, from the most recenty accumu-
ated earnngs or profts but any earnngs or profts accumuated pror to
March 1. 1913, may be dstrbuted n stock dvdends or otherwse, e empt
from the ta , after the earnngs and profts accumuated snce ebruary 28,
1913. have been dstrbuted.
In ppeas and Revew Memorandum 82, supra, there was a sur-
pus on hand accumuated pror to March 1, 1913, of 100,000. or
the baance of the perod of 1913 there were accumuated earnngs
of 10,000, whch were dsspated by the subsequent oss of 25,000
for the three years 1914, 1915. and 1916, eavng an unabsorbed oss
of 15,000. Ths must be apped aganst the surpus earned pror to
March 1, 1913, reducng t to 85,000. There were therefore no
earnngs accumuated snce ebruary 28, 1913, avaabe for dstr-
buton on December 31, 1916. The earnngs for the year 1917 of
15,000 ncreased the surpus to 100,000, but t was composed of
85,000 earned pror to March 1, 1913, and 15,000 earned on and
after that date. The atter fgure, however, was reduced by a 10,000
oss for 1918, eavng a baance of 5,000. The ast-named fgure
added to the earnngs of 5,000 for 1919 and 15,000 for 1920 to
date of dvdend made a tota of 25,000 avaabe for dstrbuton
as a ta abe dvdend, whch was the amount dstrbuted n the
ustraton gven.
In the memorandum of the Income Ta Unt reference s made to
the case of the M Corporaton, n whch the dvdend stuaton s as
foows:
Doars.
Losses Mar. 1 to Dec. 31, 1913 2z
Losses an. I to Dec. 31, 1914 3
arnngs an. 1 to Dec. 31, 1915 t
Losses an. 1 to Dee. 31, 1016. 4
Losses an. 1 to Dec. 31, 1917
arnngs an. 1 to Dec. 31,1918 3
Dvdends pad Dec. 31, 1918 2
arnngs an. 1 to Dec. 31, 1919 2
Dvdends pad Dec. 31, 1919 14
Surpus. Doars.
Mar. 1, 1913 Ota
Dec. 31, 1913 _ 9 s
Dec. 31, 1914 95
Dec. 31, 1915 971
Dec. 31, 1916 93
Dec. 31, 1917 921
Dec. 31, 1918- - 93|
Dec. 31, 1919. 811
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|201, rt. 1541.
192
Ths case, as we as the one consdered n ppeas and Revew
Memorandum 82, arose under the Revenue ct of 1918. and as the
facts are smar, b )th corporatons havng a arge surpus e stng
on March 1, 1913. the same prncpes shoud appy. Therefore, n
ths case the ony earnngs snce March 1, 1913, whch were not ds-
spated by subsequent osses are the earnngs of 3a doars for 1918
and 2a- doars for 1919. amountng to 5 doars. ta abe dvdend
of 2 doars havng been pad on December 31, 1918, there remaned
ony 3.r doars avaabe for dstrbuton n 1919. Inasmuch, how-
ever, as U doars was dstrbuted on December 31, 1919, there was
a ta -free dstrbuton amountng to a| doars. Ths souton of
the probem gves effect to the statute whch provdes that any ds-
trbuton made n the year 1918 or any year thereafter sha be
deemed to have been made from earnngs or profts accumuated snce
ebruary 28,1913. The use of the word deemed s concusve upon
the Government and the ta payer, so that for ncome ta purposes
the dstrbutons n 1918 and 1919 must be consdered to have been
from earnngs accumuated snce ebruary 28, 1913, to the e tent
thereof. dwards v. Dougas, 269 U. S.. 204. T. D. 3797 (C. .
-, 158) arder v. Irwn, 285 ed., 402, T. D. 3420 (C. . II-, 6).)
Wth respect to the case of Waker v. opkns, supra, that decson
hods that a stock dvdend does not affect the earnngs of a corpora-
ton, and s not a dstrbuton of profts. though that decson was
not handed down unt March 11, 1926, the ureau had occason
to consder the same queston n 1920 mmedatey after the decson
of the Unted States Supreme Court n the case of sner v. Ma-
comber, 252 U. S., 189, T. D. 3010 (C. . 3, 25), and hed n Offce
Decson 587 (C. . 3, 23) that a stock dvdend dd not consttute
a dstrbuton of earnngs. It was further hed n that offce dec-
son as foows:
Whore a corporaton, havng a surpus accumuated n part pror to March 1,
1913, and beng thereunto awfuy authorzed, transfers to ts capta account
a porton of ts surpus, ssues new stuck representng the amount so transferred
to the capta account, and then decares a dvdend payabe n part n cash aud
n part n shares of the new ssue of stock, that porton of the dvdend pad
n cash w be deemed to have been pad out of surpus accumuated snce
ebruary 28. 1913, to the e tent of the earnngs and profts accumuated snce
that date, and s sub|ect to ta .
The dvdend stuaton n the Waker v. opkns case was as
foows:
(a) arnngs (Mar. f, 1913)-- 250,665.63
(b) arnngs from Mar. 1, 1913, to Dec. 31, 1016 347. 238. 92
(c) arnngs ( an. 1, 1917) 97. 904. 55
(d) Stuck dvdend an. 1. 1917 400,000.00
(e) arnngs durng 1917 124, 733. 5S
(f) arnngs (Dec. 31, 1917) 722,638.13
(g) arnngs accumuated snce M:r. 1, 1913, and undstrbuted
on Dec. 31, 1917 471. 972. 50
(h) Cash dvdend March, 1918 200.000.00
T pantffs contended that the stock dvdend of 400,000, tem
(d), absorbed the earnngs from March 1, 1913, to December 31, 1916,
of 347,238.92, tem (b), and that the cash dvdend of 200,000 pad
n March, 1918, tem (h), was ta abe ony to the e tent of the
earnngs durng 1917 of 124,733.58, tem (e). The court hed, how-
ever, that the stock dvdend of 400,000, tem (d), was not a dstr-
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193
201, rt. 1541.
buton of earnngs, and that, under secton 201 of the Revenue ct
of 1918, the 200,000, tem (h), was ta abe as a dvdend n ts
entrety, for the reason that at the date of dstrbuton there was
471,972.50, tem (g), earned snce March 1, 1913, whch had not
been dstrbuted. The court, referrng to the decson n the case of
sner v. Maco-mber, supra, stated n part as foows:
Ths derson s app eabe to the ct of ebruary 24, 1019, and ts effect s
to take out of the statute the provson makng stock dvdends ta abe as the
Income of ndvdua stockhoders, the same as f that provson had never been
wrtten n the aw. That, however, does not affect the provson as to cash
dvdends at a, and t nevtaby foows that as a stock dvdend works no
change In the ownershp of the assets of the corporaton, any cash dstrbnon
of the profts accrung subsequent to ebruary 28, 1913, s ta abe as ncome of
the ndvdua stockhoders regardess of when t s actuay made.
Consderng the facts n ths case, t s cear that the stock dvdend of
anuary 1, 1917, was not a dstrbuton of profts or accretons at a and eft
the accumuatons of the corporaton untouched and avaabe for future
dsposa.
In the case of rank P. mr v. Unted States, supra, the company
n 1905 ssued bonds at a dscount whch were purchased by the stock-
hoders for 463,000 and that amount was pad nto the treasury of
the company. The osses snce the date of organzaton to ebruary
28, 1913, were 440,000. The stockhoders had on December 31,
1912, surrendered wthout consderaton the bonds and accrued n-
terest amountng to 546,460.51, whch eft a surpus of 106,460.51 on
March 1, 1913. The dvdend stuaton n that case was as foows:
Losses Mar. 1 to Dec. 31, 1913 37,091.66
Losses an. 1 to Dec. 31, 1914 74,128.20
Losses an. 1 to Dec. 31, 191S. 46,030.33
arnngs an. 1 to Dec. 31, 1918 7,087.37
arnngs an. 1 to Dec. 31, 1917 44,698.03
arnngs an. 1 to Dec. 31, 1918 84,868.39
Surpus.
Mar. 1, 1913 106,460.51
Dec. 31. 1613- 61), 368. S3
Dec. 31, 1914. 4, 757. 35
Dec. 31, 1915 -51,387.68
Dec. 31, 1916 -44, 300. 31
Dec. 31, 1917 397. 72
Dec. 31, 1918 85, 260.11
There were, therefore, 85,266.11 earnngs accumuated snce eb-
ruary 28, 1913. avaabe for dvdends n 1918, and the court hed
that the dstrbuton of 80,000 n that year consttuted a ta abe
dvdend.
fter carefu consderaton, ths offce s of the opnon that the
rung contaned n ppeas and Revew Memorandum 82, supra, s
correct, has not been superseded by the decsons n Waker v. op-
kns or rank P. ar v. Unted States, supra, and shoud be foowed
as a precedent n cases where the facts are smar. In cases nvovng
dssmar facts where no March 1, 1913, surpus e sted, there shoud
be consdered n connecton wth the appcaton of ppeas and
Revew Memorandum 82 the ater rungs (I. T. 2016 C. . III-,
29 and G. C. M. 1552 C. . I-1, 10 ), whch recognze that under
some crcumstances the earnngs and profts of a corporaton may
be dsspated by pror as we as by subsequent osses. In Genera
Counse s Memorandum 1552 the corporaton nvoved had never had
a surpus, ether earned or pad-n, havng sustaned severe osses
snce organzaton. In 1926 the corporaton earned a net proft of
2 doars and dstrbuted doars. It was concuded that the ds-
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8201, rt. 1542.
194
trbuton was a return of capta to the stockhoders, earnngs for the
current year beng regarded n a proper case as appcabe to pror
as we as to subsequent osses. The concuson was based upon the
foowng reasonng:
The term dvdend Is defned by secton 201(a) of the Revenue ct of
1926 us any dstrbuton made by a corporaton to ts sharehoders, whetter n
money or n other property, out of ts earnngs or profts accumuated after
ebruary 28, 1913. though t s provded n secton 201(b) that for the
purposes of the ct every dstrbuton s made out of earnngs or profts to
the e tent thereof, and from the most recenty accumuated earnngs or profts,
there can be no accumuaton of profts unt an operatng defct s made good.
s there was no surpus from, whch a dvdend coud have been pad, t
necessary foows that the dstrbuton must have been out of capta. (See
L. O. 942, C. . 1, 300, and I. T. 2016, C. . III-, 29.)
In ne wth the above quotaton, the Revenue cts sne that of
1918 defne a dvdend as a dstrbuton made by a corporaton to ts
sharehoders out of earnngs or profts accumuated after ebruary
28, 1913. The fact, wthout more, that a corporaton may have made
a proft n some partcuar year snce March 1, 1913, whch has not
been dstrbuted by way of dvdend by no means estabshes that t
has avaabe for dvdend dstrbuton accumuated earnngs or
profts. Whether at a specfc tme a corporaton has any accumu-
ated earnngs or profts can be determned ony by e amnaton of
a the facts of the partcuar case, ncudng those reatve to the
earnngs, osses, and pad-n surpus of the corporaton.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 1542: Source of dstrbuton.
R NU CT O 1921.
Treatment of ncome ta es pad durng year representng addtona
assessments for pror years n determnng amount avaabe for
dvdends. (See G. C. M. 2951, page 160.)
rtce 1542: Source of dstrbuton. II-8-3622
T. D.4131
INCOM T R NU CTS O 1010 ND 1917 D CISION O SUPR M
COURT.
1. Dvdends Dstrbuton Statutory Constructon.
The words dstrbuton made as used n secton 31(b), added
to the Revenue ct of 1916 by secton 1211 of the Revenue ct of
1917, mean dvdend pad, and the date of payment of the dv-
dend and not the date of decaraton determnes the year n whch
a dvdend s ncome to the recpent.
2. Dvdends Profts Rates.
Where t affrmatvey appears that no profts of a corporaton
were earned n 1917 pror to the dates of severa dvdend pay-
ments n that year and that profts n 1916 were suffcent to pay
such dvdends, the dvdends were ta abe to the dstrbutee at the
rates prescrbed for the year 1916 as provded by secton 31(b) of
the Revenue ct of 1916.
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195
201, rt. 1542.
3. Same.
Where t does not affrmatvey appear whether profts of a cor-
poraton were earned n 1917 pror to the date of a dvdend pay-
ment n that year, f a pro rata share of the profts of the whoe year
for the fractona part of the year pror to the dvdend payment
s suffcent for the payment of the dvdend, the dvdend s deemed
to have been pad from such profts and s ta abe to the recpent
at the rates prescrbed for the year 1917 us provded by secton
31(b) of the evenue ct of 1916.
4. udgment Reversed.
The |udgment of the crcut court of appeas (13 ed. (2d), 702
(T. D. 3902 fC. . -2, 137 )) s reversed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngtan, I). G.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Supreme Court n the
case of Mason v. Routzahn, Coector, s pubshed for the nforma-
ton of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved ebruary 14, 1928.
. W. Meon,
Secretary of the Treasury.
Unted States Supreme Court.
Mason v. Routzahn, Coector.
On certorar to the Unted States Crcut Court of ppeas for the S th Crcut.
November 21, 1927.
OPINION.
Mr. ustce randes devered the opnon of the court.
Secton 31(b), whch was added to the Revenue ct of 1916 by the Revenue
ct of 1917, October 3, 1917 (ch. 63, Tte II, 40 Stat., 300, 338), provdes that
any dstrbuton made to the sharehoders n the year .1917, or sub-
sequent ta years sha consttute a part of the annua ncome of the
dstrbutee for the year n whch receved, but that t sha be deemed to
have been made from the most recenty accumuated profts or surpus
and sha be ta ed to the dstrbutee at the rates prescrbed by aw for the
years n whch such profts were accumuated. See dwards v. Dougas (269
1 . S.. 204).
Mason, a sharehoder n the . . Goodrch Co., receved durng the year 1917
fve dvdends pror to uy 3. Two of them had been decared n the year
1916 three n anuary, 1917. In hs ncome ta return for 1917 he reported a
these dvdends as ta abe at the 1916 rate, and pad on that bass. The Com-
mssoner of Interna Revenue determned that the ta cm n these dvdends
was payabe at the 1917 rate, whch was hgher than that for 1916 and assessed
the addtona amount. It was pad under protest. Then ths sut was brought
aganst the coector, n the edera court for northern Oho, to recover the
amount e acted. The case was heard wthout a |ury upon stpuated facts,
whch were adoped by the court as ts fndngs. The dstrct court entered
|udgment for Mason for the fu amount. (8 . (2d), 56.) Its |udgment was
reversed by the crcut court of appeas. (13 . (2d), 702.) Ths court granted
a wrt of certorar. (273 U. S., 687.)
The Government admts that no profts were earned n 1917 pror to the
payment of the dvdends here n queston. Mason cams, as to two of the
(Lvdends, that the 1916 rate apped, because the dvdends had been decared
n that year and s to a the dvdends, that the 1916 rate apped, snce the
corporaton had not earned n 1917 any net profts pror to the date of the
severa dvdend payments, so that the most recenty accumuated net profts
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201, rt. 1545.
106
were those earned n the year 1916, whch were more than suffcent for ths
purpose.
The dstrct court hed that, despte the fact that the profts for 1917 were
n e cess for a dvdends pad n that year, the dstrbuton must be deemed
to have been made out of profts accumuated n 1916 and entered |udgment
for the fu amount. Thereafter, and before ths case was heard n the court
of appeas, dwards v. Dougas was decded by ths court. The court of
appeas recognzed hat dwards v. Dougas dffered n Its facts from the
case at bar. ut t concuded that, under the reasonng of the opnon n that
case, the ta ng year shoud be treated as a unt and t beeved that t
was requred to hod that, f the net profts of a whoe year prove suffcent
to meet a the dvdends pad wthn t, these must be deemed to have been
pad from such profts, even f t affrmatvey appears that none had been
earned before the date when the atest dvdend was pad.
The Soctor Genera concedes that dcards v. Dougas does not so
decde that the case s authorty ony for the proposton that a pro rata
share of the entre year s earnngs may be treated as appro matng the
actua earnngs for the fracton of the year pror to the payment of the
dvdend n the absence of crcumstances showng that there were no earn-
ngs actuay accumuated durng the fractona perod that the amount
actuay avaabe for payment of dvdends out of the current years earn-
ngs pror to the date of payment may aways be shown that such had been
the practce of the Treasury Department from the tme the Revenue ct of 1017
took effect unt the date of the court of appeas decson and that ths
rue was emboded n ts reguatons.
We see no good reason for dsturbng the ong-setted practce of the
Treasury Department. Its contemporary nterpretaton s consstent wth the
anguage of the ct and Its prac tce was, n substance, emboded n the
Revenue ct of 1918, ebruary 24, 1919 (ch. 18, sec. 201 (e), 40 Stat, Oo7,
1000). We concude that the crcut court of appeas paced an erroneous
constructon on secton 31(b).
Snce two of the dvdends pad n 1 17 were decared In 1916, t becomes
necessary for us to consder whether these aso are to be deemed dstrbutons
made n 1917, as t s ony to such that the secton appes. It decares that
the dvdend s ncome of the sharehoders In the year n whch t s receved.
We thnk t cear that, for ths purpose, the date of payment, not the date
of the decaraton of the dvdend, s the date of dstrbuton and as a
the dvdends here n queston were pad n 1917, the provson as to the
rate s appcabe to a. s there were no earnngs n 1917 pror to the dates
of the payments, and as there were confessedy ampe accumuated earnngs
of 1916 pror to the decaraton of the severa dvdends, we have no occason
to consder other questons whch were argned. The |udgment of the crcut
court of appeas s reversed: that of the dstrct court s affrmed.
Reversed.
rtce 1545: Dstrbutons n qudaton. II-4-3588
G. C. M. 2774
R NU CT O 1918.
Where two companes are affated wthn the meanng of sec-
ton 240, Revenue ct of 1918, the parent company reazes no
ta abe gan by reason of the mere qudaton and takng over
of the assets of ts totay owned subsdary.
The opnon of ths offce s requested reatve to the ncome ta
abty of the M Company.
The ta payer, the M Company, n ebruary. 1912, acqured a
concrete bock store budng known as the R udng, n the cty
of S, State of Y. In une, 1912, n order to factate the operaton
of ths property, the ta payer organzed a corporaton, the O Com-
pany, to take over the budng and operate t. The consderaton
par by the O Company was a of ts capta stock, 41a doars, and
the corporaton s soe asset was the budng. In anuary, 1918,
the O Company was dssoved and the budng turned back to the
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197
201, rt. 1545.
ta payer corporaton. The vaue of the budng as taken up on the
ta payer s books at that tme was 48a doars. It aso took over
the undstrbuted profts of pror years of the O Company, amount-
ng to 3 doars, makng the tota vaue of the assets receved n
qudaton 51a doars. rom ths amount the e amnng revenue
agent deducted the March 1, 1913, vaue of these assets n the amount
of 42| doars and ncuded the baance. d doars, as a qudatng
proft n 1918.
The ta payer contends that the revenue agent s n error n treat-
ng ths amount as ta abe ncome that no ncome or proft was or
coud be reazed from the sad R udng unt the property
was dsposed of by sae or otherwse that no change of ownershp
took pace nor even a transfer from one nterest to another, nasmuch
as the stock of the dssoved corporaton was owned 100 per cent
by the corporaton to whah the budng was transferred and that,
therefore, the transacton was a contnung one and no ta abe
gan resuted.
Soctor s Opnon 131 (C. . 1-1, 18) rued as foows:
1. Gan s reazed on the dstrbuton n qudaton of the assets of a
corporaton to another corporaton whch s the owner of a of ts stock,
e cept the quafyng shares hed by drectors, and s sub|ect to ta under
secton 10 of the Revenue ct of 1916 as amended.
2. Where such companes are requred to fe consodated returns for the
purpose of the e cess profts ta , the qudaton s an Intercompany transacton
and the gan derved therefrom s not sub|ect to ta under secton 201 of the
Revenue ct of 1917.
The Revenue ct of 1916 dd not provde for consodated returns,
and t was hed n Soctor s Opnon 131 that the two companes
there affated must be treated as separate and dstnct enttes for the
purpose of the ncome ta . owever, secton 1331 of the Revenue ct
of 1921 authorzed consodated returns for the purpose of the e cess
profts ta for companes that were affated durng the year 1917,
whch accounts for the dfferent rue n the second hodng n Soc-
tor s Opnon 131.
Wth respect to the Revenue ct of 1918, secton 240 provded n
part as foows:
(a) That con (oratons whch are affated wthn the meanng of ths secton
sha, under reguatons to be prescrbed by the Commssoner wth the ap-
prova of the Secretary, make a consodated return of net ncome and nvested
capta for the purposes of ths tte and Tte III. and the ta es thereunder
sha be computed aud determned upon the bass of such return: .
Ths tte was Tte II. Income ta , and Tte III was
8 War-profts and e cess-profts ta .
Ths provson of aw n the opnon of ths offce brngs the dspo-
ston of the nstant case (t beng understood that the O Company
was affated wth the M Company wthn the meanng of the above
secton) wthn the appcaton of the second part of Soctor s
Opnon 131.
In the appea of Unted States Trust Co. (1 . T. ., 901), decded
March 25. 1925, the foowng fndng (syabus) was made by the
oard of Ta ppeas:
Where a corporate ta payer purchased a of the stock of another corporaton
and took over the assets and busness thereof after the acquston of the stock,
ed that under the Revenue ct of 1918 the transacton resuted n an affa-
ton of the two corporatons, and that no deductbe oss resuted therefrom.
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198
In Mackechne read Co. v. Commssoner (5 . T. ., 883),
decded December 21, 1926, t was hed by the oard:
Durng the year 1917 the pettoner purchased 75 per cent of the capta
stock of a competng company. Pror to anuary 1 1919, ts three stockhoders,
as ndvduas, purchased the remanng 25 per cent of the capta stock of
such compettor. In 1920 the pettoner purchased a the assets and assumed
a the abtes of the competng company and pad therefor the amount of 1.
ed, that the purchase of the stock of the competng company by the pettoner
and ts sharehoders resuted n the affaton of the two companes, and that
the purchase of the assets was an Intercompany transacton from whch no
gan or oss resuted.
In vew of the foregong, ths offce s of the opnon that the ta -
payer derved no ta abe gan by reason of the mere qudaton n
anuary, 1918, and the takng over of the assets of ts totay owned
subsdary, the O Company.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 202, SIS OR D T RMINING
G IN OR LOSS.
rtce 1561: ass for determnng gan or oss -3-3579
from sae. G. C. M. 2579
R NU CT O 1 21.
In 1922 the sharehoders of the O Company e changed a the
shares of that company for a the shares of the M Company and
an amount n cash. Upon the same day the M Company as the
soe sharehoder of the O Company receved by dstrbuton n
qudaton the entre assets of the O Company.
ed, the bass for determnng gan or oss from the sae n
1923 by the M Company of part of the assets acqured from the O
Company was ther far market vaue at the date of acquston.
n opnon s requested reatve to the bass for determnng gan
or oss from the sae n 1923 of property acqured by the M Company
n certan transactons ncdent to the reorganzaton of the O Com-
pany.
It appears that the O Company, a corporaton wth an authorzed
ssue of capta stock of shares of a par vaue of 100 each,
had n 1922 accumuated a surpus suffcent to gve a vaue of ap-
pro matey 2 doars to each of ts shares. It was desred by the
members of the famy of , the e cusve owners of these shares, to
effect a reorganzaton of the company. Wth that purpose n mnd,
on , 1922, the M Company was organzed, wth an authorzed
capta stock of shares of no par vaue. On , 1922, the
sharehoders of the O Company e changed a the shares of that
company for a the shares of the M Company and 1,000a doars n
cash, the M Company havng acqured the moneys requred for the
cash payments by the ssuance of ts bonds. The sharehoders of
the O Company thus acqured for each share of stock n that corpora-
ton shares of the no par vaue stock of the M Company and
doars n cash. Upon the same day the M Company, as the soe
sharehoder of the O Company, receved by dstrbuton n quda-
ton the. entre assets of the O Company.
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202, rt. 1561.
The M Company entered these assets upon ts accountng records
at ther cost to the O Company. Durng the year 1923 the M Com-
pany sod certan of these assets, reazng upon the bass appearng n
ts accountng records a arge proft. The M Company n ts ncome
ta return dd not report any gans from these transactons, and con-
tends that the correct statutory bass for determnng gan or oss
from the sae of the assets sod n 1923 was ther far market vaue
on , 1922, the date of ther acquston by the ta payer.
The opnon of ths offce s requested as to the proper bass under
the Revenue ct of 1921 for determnng gan or oss from the sae
of these assets that s, whether the bass whch such assets had pror
to ther transfer n the hands of the O Company or the bass con-
tended for by the ta payer, namey, acquston vaue.
The ta payer was n no sense the same ega person as the O Com-
pany under the doctrne of Wess v. Steam (265 U. S., 242). Whe
as a resut of the transactons whch occurred the ta payer became
the owner of a the stock of the O Company, secton 240 of the Reve-
nue ct of 1921 does not requre affated corporatons to fe a
consodated return for any ta abe year begnnng on or after anu-
ary 1, 1922, and t appears that there was no eecton by these corpo-
ratons to fe a consodated return. The transactons between the
two corporatons shoud not, therefore, be treated as ntercompany
transact ons.
Whe the acquston by the ta payer of a the shares of the
capta stock of the O Company (n e change for ts own shares and
cash) s wthn the defnton of a reorganzaton n secton 202(c)2,
Revenue ct of 1921, that fact becomes mmatera to the present
ssue, for such acquston was n any event and wthout regard to
any reorganzaton provsons a nonta abe transacton to the M
Company, . e., a purchase of property. The bass to the ta payer
of the stock of the O Company was ts cost or the consderaton pad
therefor, . e., the sum of the amount of cash pad and the amount
of the far market vaue of the stock of the ta payer ssued therefor
(O. T . 955, C. . 4, 44), whch sum under the crcumstances shown
n the nstant case was the far market vaue of the O Company
stock at the tme of ts recept.
Immedatey upon the recept of the stock of the O Company, the
ta payer proceeded to surrender the stock for canceaton to the O
Company and receved n qudaton the entre assets of that com-
pany. In vew of the mmedate surrender for canceaton of the
O Company stock, there was no ncome reaMzed by the ta payer on
the qudaton, for presumaby the vaue of the assets receved was
not n e cess of the then vaue of a the stock of the O Company
surrendered, whch amount, t has been seen, consttuted the bass to
the ta payer of the surrendered stock. The resut s that the cost
to the ta payer of the O Company stock, the acquston vaue of
that stock, and the acquston vaue of the O Company assets were
a the same. Issues whch mght arse f those amounts dffered
need not, therefore, be consdered.
The foregong anayss of the transactons, n the opnon of ths
offce, compes the concuson that, as contended by the ta payer,
the bass for determnng gan or oss from the sae n 1923 of part
6342 28 14
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202, rt. 1561.
200
of ts assets acqured from the O Company was ther far market
vaue at the date of acquston. No provson n the Revenue ct
of 1921 has been dscovered the appcaton of whch woud ead to
any other resut.
C. M. Charest,
Genera Counse, ureau, of Interna Revenue.
rtce 1561: ass for determnng gan or II-2-1 3755
oss from sae. T 1). 4161
( so Secton 215, rtce 294.)
INCOM T R NU CTS O 1918 ND 1921 D CISION OP COURT.
1. Gan ok Loss Deprecaton.
In the determnaton of the amount of gan or oss on the sae of
a budng the cost or other bass must be decreased on account of
deprecaton.
2. Deprecaton Rate Commssoner s Determnaton Ta -
payer s ooks.
Mere entres on the books of a ta payer are nsuffcent to over-
come the prma face presumpton of correctness attachng to the
Commssoner s determnaton of the rate of deprecaton of prop-
erty as refected n the atter s assessment.
3. Deductons Premums on Lfe Insurance Pocks.
Deductons n respect of premums pad on a pocy of nsur-
ance coverng the fe of a ta payer whose estate s the benefcary
are nhbted by secton 215(d) of the Revenue ct of 1918 and
secton 215(a)4 of the Revenue ct of 1921, notwthstandng the
assgnment of the pocy to a bank as securty for a busness oan.
4. udgment ffrmed.
The |udgment of the dstrct court (T. D. 4087 C. . I-2, 161 )
Is affrmed.
Treasury Department.
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Crcut Court of
ppeas, Thrd Crcut, n the case of dward . Reck, pantff n
error, v. D. . ener, Coector of Interna Revenue, defendant n
error, s pubshed for the nformaton of nterna revenue offcers
and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved May 29, 1928.
Ogden L. Ms,
ctng Secretary of the Treasury.
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202, rt. 1661.
Unted States Crcut Couet of ppeas for the Thrd Crcut.
dward . Reck, pantff beow, pantff n error, v. D. . ener, Coector of
Unted States Interna Revenue for the Twenty-thrd Dstrct of Pennsy-
vana, defendant beow, defendant n error.
In error to the Dstrct Court of the Unted States for the Western Dstrct of
Pennsyvana.
ebruary 23, 1928.
OPINION.
Wooet. Crcut udge: Rec-k brought ths sut n the dstrct court to
recover amounts e acted as addtona ta es for the years 1920 and 1921 under
provsons of he Revenue ct of 1918 (40 Stat., 1057, sec. 202, 212, 215) and
the Revenue ct of 1921 (42 Stat., 227, sec. 202, 215), respectvey. The added
ta es grew out of two matters: One. the gan whch enured to the ta abe
from te sae of property he had acqured before March 1, 1913, n computng
whch he had n each return deducted from the vaue of I he property as of that
date a certan amount for deprecaton whch, ater, the Commssoner of
Interna Revenue ncreased and thereby ncreased the gan and, correspoud-
ngy, the ta the other, a fu deducton whch the ta abe made of prem-
ums for fe nsurance taken out and used for busness purposes whch the
Commssoner dsaowed, thereby rasng the ta abe net ncome and ncreasng
the ta .
The case was tred to the court wthout a |ury and, on fndngs of fact nfor-
may yet adequatey stated n ts opnon, the court entered |udgment for the
defendant coector. The pantff sued out ths wrt of error and brngs here
the questons that were tred beow.
Snce the dstrct court rendered ts decson, the Supreme Court n Unted
States v. Looey (274 U. S., 295 T. D. 4040, C. . I-2, 157 ) has set at rest the
queston of aw tred beow whether under the cted Revenue cts a gan
n the sae of property, requred to be ncuded n ta abe ncome of a ta year,
s to be determned merey by the dfference between cost, or vaue on March 1,
1913, and the sae prce, or by usng cost or vaue on that date as the bass
of a cacuaton nto whch other factors, and partcuary that of deprecaton,
enter. That court construed the Revenue cts pror to the ct of 1924 (the
frst to be specfc) havng ke provsons and hed (n accord wth the court
beow) that n computng the gan from a sae of property a deducton of de-
precaton durng the perod of operaton sha be made.
Therefore the frst queston as tred to the court beow has been ceared of
ts ega phases and s now reduced to one of fact whether the amount the
Commssoner deducted for deprecaton s rght.
The pantff, n hs ta returns, made deductons for deprecaton based on
hs own estmate of the condton of the propertes as refected by hs books.
The Commssoner, thnkng them too ow, computed the deprecaton of the
property sod n 1920 at 2 per cent per annum and of three propertes sod n
1921 at fgures varyng from 3 per cent to 5 per cent per annum, thereby found
greater gans and assessed the addtona fa es accordngy. The pantff
nterprets hs acton as a fat vauaton arbtrary made on the theoretca
bass that a propertes suffer deprecaton n those measures and contends that
such vauaton s nvad because opposed to the deprecaton aowances the
pantff had made on hs books n the reguar course of busness, n respect to
whch he cams there s a presumpton n aw that they show the actua facts.
We have not been mpressed by ths contenton. On the contrary, there s no
evdence and no cam that the Commssoner has adopted for hmsef a hard
and fast fgure of deprecaton appcabe ake to a propertes however but,
mantaned, and used and whatever stuate, though doubtess hs fgures drft
toward unformty n respect to propertes of dfferent casses. Nor s there a
burden on the Commssoner, when he has formay determned an amount of
deprecaton, to prove t rght as a condton to sustanng the assessment by
showng the nvestgaton he has pursued and the matters that have nfuenced
hs |udgment n arrvng at t, for havng found the deprecaton and havng
made an assessment based on t, the aw presumes hs acton rght and the
assessment prma face vad. (OarmanUmn Tru t Co. v. Lrdcrvr, 263 ed.,
672 Unted States v. Rndskopf, 105 . 8., 418. 26 L. ed., 1131.) It foows that
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202, rt. 1566.
202
the burden of provng t wrong rests on the companng ta abe ( nderson y.
armers Loan Trust Co., 241 ed., 322). who, whatever may he the evdenta
presumpton of hs book entres on other matters, can not use them to overcome
the presumed correctness of the soveregn s acton performed through ts agent.
In such case the Government affords the ta abe a remedy, as by a sut of ths
knd, where he may show by attackng the deprecaton deducted that the
assessment prma face rght, s n truth, wrong. (Cana rf ankng Co. v.
New Oreans, 99 U. S., 97, 99. 25 L. ed., 409.) The ta abe n ths case assumed
that burden and we thnk faed for ack of evdence.
Notwthstandng the nhbtons of the Revenue cts, of 1918 and 1921 (sec-
ton 215(d)) aganst aowance of a deducton n respect of premums pad on
a fe nsurance p cy when the ta payer s drecty or ndrecty a benefcary
under such pocy, the pantff contends that by force of secton 214(a) of the
cts aowng deductons for the ordnary and necessnry e penses pad or
ncurred durng the ta abe year n carryng on any trade or busness that
the deducton here made s vad because the pocy was requred and used for
coatera n hs busness and was therefore a necessary busness e pense wthn
the meanng of the cts. On the peadngs we accept as true the statement that
(he ta abe took out the nsurance on the nsstence of a credtor to be used as
coatera n securng a oan and n ths way the nsurance transacton had ts
rse n a busness need. ut the pocy was on the fe of the ta abe and hs
estate was the named benefcary. Though assgned to and hed by the credtor
and for two years used as coatera securty, t was, none the ess, a pocy n
whch the ta payer was drecty or ndrecty a benefcary, for f t had
matured when hed as coatera, and payment had been made to the credtor, t
woud ndrecty have augmented hs estate by decreasng hs abtes. Or If
t had matured after t was returned to hm by the credtor and payment had
been made to the estate the ta abe woud have benefted drecty. The nhb-
tons aganst deducton of premums pad on a fe nsurance pocy are drected
aganst the dmnuton of ncome as a sub|ect of ta aton whch s not to be
dmnshed by the uses to whch a pocy may be put, |ust as ncome from per-
sonay owned bonds s the sub|ect of ta aton and not deductbe as a busness
e pense when the bonds are used as coatera securty n the course of busness
deangs. The deducton was propery dsaowed and the addtona ta es
vady assessed.
The |udgment of the dstrct court s n a respects affrmed.
rtce 10G1: ass for determnng gan or oss from sae.
R NU CT O 1016.
vdence n determnng far market vaues. (See T. D. 41G5,
page 268.)
rtce 1566: change of property whch resuts n no gan
or oss.
R NU CT OP 1921 ND PRIOR CTS.
Tradng n of trucks and passenger cars used for busness pur-
poses on now trucks and passenger cars to be used for ke purposes.
(See Mm. 3641, page 86.)
rtce 1566: change of property whch resuts n no gan
or oss.
R NU CT O 1921.
Tradng n of trucks and passenger cars used for busness purposes
on new trucks and passenger cars to be used for ke purposes. (See
I. T. 2419, page 240.)
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203
202, rt. 1567.
rtce 1567: Gan or oss from subsequent sae. II-14-3666
G. C. M. 3291
R NU CT O 1921.
On December 30, 1922, stockhoders of the M Company receved
from the O Company, n e change for ther stock n the M Com-
pany, stock and debenture notes of the O Company, under a pan
of reorganzaton. In 1923 the M Company decared a dvdend n
the amount of the notes receved by ts former stockhoders. Wth
the funds thus obtaned the O Company took up the debenture
notes n 1923.
ed, that there was a reorganzaton on December 30, 1922,
wthn the meanng of secton 202(c)2 of the Revenue ct of 1921,
and no gan or oss was reazed on the e change. or the purpose
of determnng the bass of the stock and debenture notes of the O
Company n the hands of the former stockhoders of the M Com-
pany, the cost or other bass of the M Company stock shoud be a-
ocated to the O Company stock and notes n proporton to ther
respectve ready reazabe market vaues. The dfference be-
tween the bass aocated to the debenture notes and ther redemp-
ton prce n 1923 s ncome for that year.
n opnon s requested regardng the ncome ta abty of the
stockhoders of the M Company n connecton wth the foowng
transactons:
The M Company was ncorporated under the aws of the State of
R n the year 1897 the corporate charter was e tended n the year
1912 for a perod of 50 years. The capta stock at that tme was
ncreased to doars, consstng of 40// shares of a par vaue of
per share. The tota authorzed capta was outstandng on December
30, 1922, and was n the hands of eght ndvduas. The M Com-
pany s books as of December 31, 1922, show the company to have a
net worth of 18a doars, n whch was ncuded 4se doars n cash.
On December 30, 1922, the prncpa stockhoders of the M Com-
pany and ther attorney caused to be ncorporated, under the aws
of the State of S, the O Company, wth an authorzed capta of
200 / shares of no par vaue. The foowng e tract s from a meet-
ng of the board of drectors of the O Company hed December
30, 1922:
Whereas ths company s ncorporated under the aws of the State of S for
the purpose among others, of manufacturng, buyng, and seng of
every knd and descrpton, and to that end t s empowered to acqure by
purchase or otherwse the stock of any other corporaton or corporatons, and
whereas t s desrabe n order to carry out the ob|ects and purposes of ths
corporaton to acqure the capta stock of the M Company, the P Company,
the Company, and the T Company, wth a vew eventuay of acqurng a
of sad propertes and operatng them as a unt.
Therefore be t resoved, that the presdent and secretary of ths company
be. and they hereby are, authorzed and drected to acqure by e change the
capta stock of the M Company, so far as t can be accompshed, by e change
of shares of stock of ths company and n cash, payabe on demand,
for one (1) share of stock of the M Company.
On the same day the O Company receved from the stockhoders
of the M Company 39.9y shares of that company s stock, the stock-
hoders recevng n return therefor from the O Company 199.5y
shares of ts no par vaue stock pus 5 doars n the O Company s
debenture notes, payabe pr 1, 1923.
The drectors of the M Company at ther annua meetng on
anuary , 1923, decared a dvdend of per share to be pad
durng 1923, as the funds of the company woud permt, to stock-
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5202, rt. 1567.
204
hoders of record as of anuary f 1923. 5a doars was pad the
O Company n nstaments on pr , une , uy , and Sep-
tember , 1923, pursuant to ths resouton, that compan hodng
39.9y out of the 40y shares of the M Company s stock outstandng
on anuary , 1923. Wth the funds thus obtaned the O Company
took up n 1923 the debenture notes t ssued on December 30, 1922.
It appears that the O Company competed ts ncorporaton and
e changed ts shares and debentures for the stock of the M Company
on December 30, 1922.
Ths transacton of December 30, 1922, n the opnon of ths offce,
was a reorganzaton wthn the meanng of secton 202(c)2 of the
Revenue ct of 1921, whch provdes that no gan or oss sha be
recognzed upon an e change:
When In the reorganzaton of one or more corporatons a person receves n
pace of any stock or securtes owned by hm, stock or securtes n a corpora-
ton a party to or resutng from such reorganzaton. The word reorganza-
ton, as used n ths paragraph, ncudes a merger or consodaton (ncudng
the acquston by one corporaton of at east a ma|orty of the votng stock
and at east a ma|orty of the tota number of shares of a other casses of
stock of another corporaton, or of substantay a the propertes of another
corporaton), recaptazaton, or mere change n dentty, form, or pace of
organzaton of a corporaton (however effected).
though the mnutes of the meetng of the drectors of the O
Company hed December 30, 1922, provde that for each share of the
M Company stock receved there shoud be gven fve shares of the
O Company stock pus n cash, there was n fact gven to the
hoder of each share of the M Company stock shares of the O Com-
pany stock and a debenture note for payabe on pr 1, 1923,
the note beng a frst charge upon the property of the O Company.
It s apparent that these debenture notes were n fact securtes of
the O Company and were not cash or the equvaent of cash.
It must be concuded that on December 30, 1922, the stockhoders
of the M Company receved n pace of ther stock n that company
stock and securtes n a new company whch was a party to a reor-
ganzaton. or the purpose of determnng the bass of such stock
and securtes, the cost or other bass of the M Company stock shoud
be aocated to the O Company stock and debenture notes n propor-
ton to ther respectve ready reazabe market vaues. Thus the
bass of the debenture notes of the O Company receved by a former
stockhoder of the M Company was that proporton of the orgna
cost or other bass of the M Company stock owned by that stock-
hoder whch the ready reazabe market vaue of the debenture
notes receved by hm bore to the aggregate ready reazabe market
vaue on December 30, 1922, of the O Company s notes and stock
receved. (See art. 15G7, Reg. 62.) The dfference between the bass
aocated to the debenture notes and ther redempton prce n 1923
shoud be reported as ncome for the atter year.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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205
204. rt. 1601.
S CTION 204. N T LOSS S.
rtce 1601: Net osses, defnton and com-
putaton.
( so Secton 240, rtce 636.)
II-16-3684
G. C. M. 3266
R NU CT O 1921.
net oss sustaned by a subsdary for a ta abe year pror
to affaton can not be apped aganst the net ncome of the
affated group for subsequent years n an amount greater than
the porton of the consodated net ncome drecty attrbutabe
to the subsdary.
n opnon s requested as to whether the net oss sustaned by the
M Company n the year 1921 can be apped aganst the consodated
net ncome of the affated group of whch t was a part for the
year 1922 or for the year 1923.
or the year 1921 the M Company sustaned a net oss wthn the
meanng of secton 204(a) of the Revenue ct of 1921 n the sum
of doars. On December 31, 1921, the N Company acqured a
of the stock of the M Company. or the years 1922 and 1923 con-
sodated returns were fed, the N Company beng desgnated as
parent corporaton and the M Company and the O Company as
subsdary corporatons. Consdered separatey, the M Company
sustaned a net oss for each of the ta abe years 1922 and 1923.
owever, the N Company made a net gan n e cess of the net oss
of the M Company for each of the two ta abe years, so that the
affated corporatons, consdered as a unt, had a net ncome.
The corporatons contend that the net oss of the M Company
for the year 1921 shoud be treated as a deducton n computng the
consodated net ncome for the year 1922 or 1923. In support of
ths contenton t s urged that the net oss shoud be treated as
any other deducton aowed by statute, and that the oss shoud,
therefore, be aowed as a deducton from the gross ncome of the
affated group.
Secton 204(b) of the Revenue ct of 1921 provdes as foows:
If for any ta abe year begnnng after December 81, 1920, t appears upon
the producton of evdence satsfactory to the Commssoner that, any ta payer
has sustaned a net oss, the amount thereof sha be deducted from the net
Income of the ta payer for the succeedng ta abe year and f such net oss s
n e cess of the net ncome for such succeedng ta abe year, the amount of
such e cess sha be aowed as a deducton n computng the net ncome for
the ne t succeedng ta abe year the deducton n a cases to be made under
reguatons prescrbed by the Commssoner wth the approva of the Secretary.
rtce 1602 of Reguatons 62 provdes n part as foows:
If the evdence furnshed satsfes the Commssoner that the ta payer has
sustaned a net oss the amount of such net oss may be deducted from the
net ncome of the ta payer for the succeedng ta abe year and f such net oss
Is n e cess of the net ncome for such succeedng ta abe year the amount of
such e cess sha be carred over and credted aganst the net ncome for the
ne t succeedng ta abe year.
The contenton s made that the wordng of secton 204(b), supra,
and the fact that secton 206 of the Revenue cts of 1924 and 1926
aows the net osses under those cts as deductons n computng net
ncome, ndcate that Congress ntended that the net oss shoud be
aowed as a deducton n computng net ncome under the Revenue
ct of 1921.
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204, rt. 1601.
206
Ths offce can not agree wth the above contenton. I. T. 1725
(C. . II-2, 209) contans the foowng anguage:
rtce 1602 of Reguatons 62 provdes, wth respect to a deductbe oss
under secton 204 of the Revenue ct of 1921, that such oss sha be treated
as a credt and deducted after the net ncome of the ta payer has been deter-
mned, and that ths method sha be foowed n makng such deducton for
both the frst and second years succeedng the year n whch the oss was
sustaned.
It s to be noted that secton 232 of the Revenue ct of 1921 de-
fnes the net ncome of a corporaton as ts gross ncome ess ony the
deductons aowed by secton 234, whe secton 232 of the Revenue
cts of 1924 and 1920 makes e press provson for the deductons
aowed not ony by secton 234 but by secton 206, the net oss
secton of the atter cts.
The oard of Ta ppeas, n consderng the queston under con-
sderaton, has aso reached the concuson that net osses may not
be treated as deductons n computng net ncome under the Revenue
ct of 1921. In appea of mercan arnsh Co. (2 . T. ., 201),
te oard of Ta ppeas, n hodng that the ta payer was not
entted to the 2,000 specfc credt aowed by secton 236(b) of the
Revenue ct of 1921, based ts decson upon the ground that net
osses were not deductons aowed by secton 234 of that ct and
coud not be deducted n determnng whether the net ncome was n
e cess of 25,000. See aso appea of S. W. rdges Co. (4 . T. .,
750) and Chcago Nut Co. v. Commssoner (5 . T. ., 614).
Suggeston has been made that ths case may be affected by the
decson of the oard of Ta ppeas n appea of mercan La
Dentce, Inc. (1 . T. ., 575 C. . I -2,1). In that case the oard
hed that where two corporatons became affated on uy 1, 1919,
three returns were requred, a separate return for each of the corpora-
tons for the perod pror to affaton and a consodated return for
the perod of affaton. The Commssoner s acquescence n ths
decson appes ony to the concuson that three returns were re-
qured to be fed and does not mean that the Commssoner has
adopted the reasonng whereby the concuson was readed. When
the decson s mted to the queston actuay decded t becomes
apparent that the case s not controng of the queston here nvoved.
In Law Opnon 1113 (C. . III 2, 36) the foowng anguage
was used:
The beneft of the net osses sustaned n 1919 by the ndvdua corporatons
shoud not be gven to the consodated group whch fed a consodate return
for the years, snce ths woud not gve t the ta payer who sustaned the oss
the benefts of the reef resutng therefrom. Consequenty, the net
osses sustaned n 1919 by these corporatons must be apped aganst the ncome
for the precedng ta abe year of the affated group n whch the corporatons
whch sustaned osses for 1919 were ncuded. It s equay obvous, however,
that the beneft of the net oss shoud accrue not necessary to the entre
affated group but ony to those corporatons whch suffered osses durng the
year 1919, and n proporton to the amount of the oss suffered.
though Law Opnon 1113, supra, was wrtten n vew of the
Revenue ct of 1918. the prncpes t enuncates, t s beeved, are
appcabe to the nstant case.
ppyng the prncpe stated n Law Opnon 1113, supra, to the
case at hand, t appears that the net oss sustaned by the M Company
n 1921 coud not be apped aganst the net ncome of the affated
group for the year 1922 or 1923 n an amount greater than the
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207
213(a), rt. 31.
porton of the consodated net ncome drecty attrbutabe to the
M Company. The facts n ths case concusvey show that the M
Company was not responsbe for any part of the consodated net
ncome for those years, but n fact sustaned net osses. Conse-
quenty, no part of the net oss sustaned by the M Company n 1921
can be apped aganst the consodated net ncome of the affated
group for the year 1922 or for the year 1923.
C. M. Charest,
Genera Counse, ureau of Interna, Revenue.
P RT II -INDI IDU LS.
S CTION 213(a). GROSS INCOM D IN D:
INCLUSIONS.
rtce 31: What ncuded n gross ncome. II-1-3563
T. D. 4112
INCOM T R NU CTS O 1016, 1917, 1918. 1921 D CISION O
SUPR M COURT.
1. Income empton Restrcted Indan Lands.
The ncome of a non-Indan essee derved from a ense of re-
strcted Indan ands s sub|ect to ta under the Revenue cts of
1916, 1917, 1918, and 1921.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Supreme Court of the Unted States,
n the cases of Iener, Coector, v. The Coona Trust Co., ecutor
of the W of Genn T. raden, deceased, and Leweyn, former
Coector, v. The Coona. Trust Co., ecutor of the WU of Genn
T. raden, deceased, s pubshed for the nformaton of nterna
revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved December 22, 1927.
. W. Meon,
Secreta y of the Treasury.
Supreme Court of the Unted States.
ener, Coector, v. The Coona Trust Co., ecutor of the w of enn T.
fraden, deceased.
Leweyn, former Coector, v. The Coona Trust Co., ecutor of the w of
Genn T. raden, deceased.
November 21, 1927.
OPINION.
Respondent s decedent procured an o ease from the trba counc of the
Osage Trbe of Indans coverng and of the trbe n Okhhoma. The ease
was n the form prescrbed by the Secretary of the Interor and was approved
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213(a), rt. 31.
208
by hm. The essor reserved as royates an agreed percentage of the gross
proceeds from the sae of the o produced, to be pad to the superntendent
of the Osage Indan gency. On the net ncome derved by decedent from the
sae of the o between 1917 and 1921 there were assessed and coected ncome
ta es aggregatng more than 800,000. Respondent brought these suts n the
dstrct court for western Pennsyvana to recover the ta pad, on the theory
that, as the nterests of the Indans were concerned, Congress had not ntended
by the varous Revenue cts to ta the Income derved from the e potaton
of ther ands by non-Indan essees, and that t was thus mpedy e empt
from the ta . udgments of the dstrct court for respondent (12 ed. (2d),
481 (5 m. ed. Ta Rep., 5970)) were affrmed by the Court of ppeas for
the Thrd Crcut (17 ed. (2d), 36 (6 m. ed. Ta Rep., 6490)), and the
cases are here on certorar, the partes havng stpuated that No. 220 sha
abde the resut n No. 219.
Secton 1(a) of the Revenue ct of 1916 (ch. 463, 39 Stat., 756) provdes:
That there sha be eved, assessed, coected, and pad annuay upon the
entre net ncome receved In the precedng caendar year from a sources by
every Indvdua, a ctzen or resdent of the Unted States, a ta
at specfed rates.
Secton 2(a) of the Revenue ct of 1916, as amended by the ct of 1017
(ch. 63, 40 Stat., 800. 329), provdes:
That, sub|ect ony to such e emptons and deductons as are herenafter
aowed, the net ncome of a ta abe person sha ncude gans
growng out of the use of or Interest n rea or persona property,
aso (gans) from the transacton of any busness carred
on for gan or proft, or gans or profts and Income derved from any source
whatever.
The pertnent sectons of the ater Revenue cts durng the perod do not
dffer materay from those quoted from the 1916 ct. ( ct of ebruary 24,
1919. ch. 18, sees. 210, 213, 40 Stat., 1057, 1062, 1065 ct of November 23,
1921, ch. 136, sees. 210, 213, 42 Stat, 227, 233, 237.)
These statutes In terms pany embrace the ncome of a non-Indan essee
derved from the ease of restrcted Indan ands. ut we are remnded by
respondent that both the ease here nvoved and the ncome t brngs the
essee are beyond the ta ng power of the States, for the ease s merey the
nstrument whch the Government has chosen to use In fufng Its task of
deveopng to the fuest the ands and resources of ts wards, and a State
may not by ta aton essen the attractveness of eases for such a purpose
(Gespe v. Okahoma, 257 U. S., 501 Indan O Co. v. Okahoma, 240 U. S.,
522 and see Choctaw Guf R. R. v. arrson, 235 U. S., 292 aybrd Mnng
Co. v. Wer, 271 U. S., 609) and reance s paced on those cases, ndcatng
that genera acts of Congress are not appcabe to the Indans where to
appy them woud affect the Indans adversey. (. Washngton v. Mer, 235
U. S., 422, 427. 428 k v. Wkns, 112 U. S., 94, 100.) The concuson then
urged on us s that Congress can not be hed to have ntended by the genera
provsons of the Revenue cts to ta the ncomes of the Indans themseves
nor by ta ng that of ther essees to do tsef what the States are forbdden
to do.
The power of the Unted States to ta the ncome s undoubted. It seems
to us e travagant, n the face of the comprehensve anguage of the statute,
to nfer that Congress dd not ntend to e ercse that power merey because,
n the absence of congressona consent, t Is one wthhod from the States
or because the ta n terms mposed on others may have some economc
effect upon the Indans themseves. The dsposton of Congress has been
to e tend the ncome ta as far as t can to a speces of ncome, despte
Immunty from State ta aton. Durng the perod now n queston Ihe com-
pensaton of many edera offcas was sub|ect to edera ncome ta , and
ncome from Government bonds was ta ed e cept when e pressy e empted.
ssumng that the Indans are not sub|ect to the Income ta . as contended,
the fact that they are wards of the Government s not a persuasve reason
for nferrng a purpose to e empt from ta aton the ncome of others derved
from ther deang wth the Indans. Ta e emptons are never ghty to
be nferred ( cksburg, etc., R. R. v. Denns, 116 U. S., 665, 668 Phadepha
f Wmngton R. R. v. Maryand, 10 ow., 376, 393), and we thnk any mpca-
ton of an e empton of the ncome of the Indans themseves, f made, must
rest on too narrow a bass to |ustfy the Incuson of the ncome of other
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209
213(a), rt. 31.
persons merey because the statute, f apped as wrtten, may have some
perceptbe economc effect on the Indans.
It s not wthout weght that the Treasury Department from the begnnng
has consstenty coected ncome ta from essees of Indan o ands runnng
nto vast amounts. If ths was contrary to the ntenton of Congress t s
reasonabe to suppose that ths practce of the Department woud have
been specfcay corrected n some of the revsons of the aws ta ng ncome
n 1917, 1919, 1921, 1924, or 192G. Compare Natwa Lead Co. v. Unted States
(252 U. S.. 140, 145, 146 (3 m. ed. Ta ep., 3042)).
Reversed.
ehc e 31: What ncuded n gross ncome. II-5-3593
G. C. M. 2008
NU CTS O 1916 ND 1921.
Royates derved for the ta abe years 1916 and 1920 on behaf
of the ta payer, an ncompetent haf-bood Creek Indan, from the
producton of o on hs surpus aotment were propery sub|ect to
edera ncome ta ,
n opnon s requested reatve to the ta abty of , an ncom-
petent naf-bood Creek Indan, for the ta abe years 1916 and 1921.
It appears that s enroed upon the approved ro of membershp
of the Creek Naton of Indans opposte Ro No. , as of one-haf
Indan bood. e receved the homestead and surpus aotments
provded for each member of the trbe by the Creek otment ct
of March 1, 1901 (31 Stat., 867), as suppemented by the ct of une
30, 1902 (32 Stat., 500). Income derved from royates from the
producton of o on these aotments of and was receved on behaf
of the ta payer for the years 1916 and 1921. Such ncome was n-
cuded n returns for edera ncome ta purposes and the ta pad
thereon. Cams for refund have been fed for each of the years nd-
cated, on the ground that a of such ncome was e empt from
ta aton.
s mentay defectve and has been snce brth. e attaned hs
ma|orty some tme between 1916 and 1921 and, therefore, was a
mnor n 1916 and an adut n 1921.
The ta payer was under the guardanshp of hs mother durng the
ta abe years nvoved, actng under the authorty of the county court
of County, Oka. s surpus aotment was under her manage-
ment, sub|ect ony to the orders of the county court. s homestead
aotment was under the contro of the Secretary of the Interor,
through the superntendent for the ve Cvzed Trbes of Musko-
gee, Oka., by reason of restrctons on aenaton on homestead
aotments of Creek Indans mposed by Congress.
Wth respect to the homestead aotment, t was patented sub|ect
to the condtons that t shoud be naenabe and nonta abe for a
perod of 21 years from the date of the patent. (Secton 7 of the ct
of 1901 and secton 16 of the ct of 1902.) Snce t appears that the
ownershp of the homestead aotment has contnuay remaned n ,
he has hed such and as ta -e empt property for the perod specfed.
Income from such property was, therefore, not sub|ect to edera
ncome ta aton for 1916 or 1921, provded the perod of 21 years dd
not e pre unt after those years. Opnon of the ttorney Genera,
dated March 15, 1924, Treasury Decson 3570 (C. . III-, 85).
The surpus aotments of and patented to the Creek Indan aot-
tees were not e empted from ta aton by the cts of 1901 and 1902.
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2I3(a), rt. 31.
210
Secton 4 of the ct of 1901 provded that the aotments of a mnor
sha not be sod durng hs mnorty. Later Congress enacted, n
secton 19 of the ct of pr 26,1906 (34 Stat,, 137,144), that
ands upon whch restrctons on aenaton are removed sha be sub-
|ect to ta aton and the other ands sha be e empt from ta aton as ong as
the tte remans n the orgna aottee.
y secton 1 of the ct of May 27, 1908 (35 Stat., 312), Congress
removed the restrctons on the surpus aotments of a aottees of
ess than three-fourths Indan bood, and provded n secton 4 of
such ct that a ands from whch restrctons were removed shoud
be sub|ect to ta aton and a other cv burdens. s of one-haf
Indan bood, and snce the enactment of that ct hs surpus ands
have been free from restrctons on aenaton mposed by the edera
Government, and have been sub|ect to ta aton.
On the remova of restrctons by the ct of 1908, Congress pro-
vded n secton 6 of such ct that the persons and property of
mnor aottees of the ve Cvzed Trbes sha, e cept as otherwse
specfcay provded by aw, be sub|ect to the probate courts of the
State of Okahoma. The courts ndcated are the county courts of
Okahoma. The provson otherwse has reaton to edera restrc-
tons on aenaton whch were contnued as to certan casses of
aottees. s s usua n the case of the estates of mnors, convey-
ances of unrestrcted surpus aotments of mnor Creek aottees were
requred thereafter to be approved by the county court. It has been
contended that ths requrement represented a contnued restrcton
on aenaton whch protects the surpus ands of Creek mnors from
ta aton durng mnorty, or so ong as they hod such ands durng
mnorty. In the opnon of ths offce the contro of the county
courts durng mnorty s not of tsef a restrcton on aenaton
wthn the meanng of secton 4 of the ct of 1908, and does not
e empt such ands from ta aton. (McNee v. Whtehead, 253 ed.,
546.) See aso oard of Commssoners v. Lenachan (195 Pac.
(Oka.), 116) and oard of Commssoners v. rashears (215 Pac.
(Oka.), 763).
No e cepton s made by the ct of 1908 n the case of the unre-
strcted ands of adut ncompetent Indans. The edera restrc-
tons havng been removed, such persons came whoy wthn the
|ursdcton of the State probate courts. The contro of such courts
n the case of adut ncompetent Indans s no more a restrcton on
aenaton under secton 4 of the ct of 1908 than s the contro of
the courts n the case of mnors.
In the opnon of ths offce the surpus aotment of has been
ta abe snce 1908, and the ncome therefrom was propery sub|ect
to edera ncome ta for the ta abe years 1916 and 1921.
rtce 31: What ncuded n gross ncome. II-7-3607
T. D. 4124
ncome ta revenue act of 1918 decson of court.
Gross Income Gkant of Sum Out of Rents and Income.
Where an nstrument e ecuted by an owner n fee contans a
grant of a defnte monthy sum to be pad out of my share of the
rents, ncome, and profts from my Interest n certan descrbed
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211
213(a), rt. 31.
property, no tte to the property or to any Interest theren and no
rent charge on the property s created and the entre recepts from
the property become gross ncome of the grantor notwthstandng
the assgnment of a part thereof to another. fortor the re-
cepts from property are the grass ncome of the grantor where a
deed conveys net ncome and profts from such property.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Dstrct Court, South-
ern Dstrct of New York, n the cases of Leo S. ne/, pantff,
v. rank . owers, Coector of Interna Revenue for the Second
Dstrct of New York, defendant, and Leo S. ng, pantff, v.
Chares W. nderson, Coector of Interna Revenue for the Thrd
Dstrct of New York, defendant, s pubshed for the nformaton
of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved ebruary 2, 1928.
. W. Meon,
Secretary of the Treasury.
Unted States Dstrct Court, Southern Dstrct of New Yobk.
Leo S. ng, pantff, v. rank . owers, Coector of Interna Revenue for the
Second Dstrct of New York, defendant.
Leo S. ng, pantff, v. Chares W. nderson, Coector of Interna Revenue
for the Thrd Dstrct of New York, defendant.
September 15, 1927.
memorandum opnon.
Mack. Crcut udge: These actons are to recover ncome ta es assessed
fur the years 1918, 1919, and 1920, and pad under protest. The queston n-
voved s whether, under the crcumstances herenafter stated, the ncome, on
whch the ta es were assessed was ncome to pantff or to hs mother. The
souton depends upon the constructon of certan nstruments duy e ecuted n
the form requred under the aws of the State of New York for the grant of
nterests n rea estate. The frst nstrument was e ecuted anuary 2, 1918.
fter rectng the p autffs desre to assgn to hs mother for the term of
fve year3 or unt her death the net ncome and profts from hs nterest n
certan property thereafter specfed to the e tent of 9,600 per annum, pay-
abe n e ua monthy nstaments, and the consderaton of 1 pad and
ove and affecton, pantff does hereby grant, bargan, se, assgn, transfer,
and set over unto the sad Lousa ng for the perod herenabove stated,
e e, aforesad sum out of my share of the rents, ncome, and proft from my
nterest n a the property, ea and persona, conveyed or to e conveyed
by a certan company named to another company. The nstrument provdes
Ths annuty sha be and the same s hereby made a charge upon my n-
terest n the sad property, and the ncome therefrom, for the sad term of
fve years or unt the death of the sad Lousa ng. The ast-named com-
pany s then drected upon recept of ths document to cause such sums to
be pad to the sad Lousa ng as aforesad.
Ths nstrument was canceed one year ater and a smar nstrument e e-
cuted provdng for the payment of 19 200 nstead of . 9,000. Ths atter
s rumcnt s nvoved n the frst cause of acton n the nderson case the
earer one s nvoved n the owers case.
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213(a), rt 31.
212
The second cause of acton aganst nderson covers the ta abe year 1920
and covers payment of 15642 as thp entre net ncome and profts from a cer-
tan property from anuary 1, 1920. to uy 1, 1920. and 67,019.87 as the entre
net ncome and profts from anuary 1, 1920, to anuary 1, 1921, from another
pece of rea estate. The frst of these sums was receved by Mrs. ns pur-
suant to pantff s nstrument dnted December 16, 1919. It kewse rected
hs desre to assgn to hs mother for a term of two yenrs or unt her death
the net ncome and profts from my nterest n two certan apartment
houses, and stated the same consderaton as the earer nstruments. The
grantng cause n ths nstrument, however, gave the net ncome and profts
from my nterest n the aforesad two apartment houses to be pad to her n
monthy nstaments durng the sad two years, or unt her death, out of the
net profts from the sad budngs. There was aso an annuty cause
entrey smar to that above quoted from the frst deed.
ecause pantff sod hs haf of one property to hs brother and bought
from hm hs haf of the other pece, thus gvng pantff entre ownershp of the
fee theren, a modfyng deed was made to the mother on une 30. 1920. She
|oned theren to renqush her rghts n the net ncome and profts of ths
frst pece and consented to the canceaton of the aforesad assgnment of
Income and profts so far as t pertaned to the net ncome and profts from
the frst pece. Under ths deed she was gven the net ncome and profts
from the nterest n the other property to be sod and assgned to the sad
Leo S. ng by hs brother. Under the two deeds she was thus gven the
entre net ncome and profts of ths other property from uy 1, 1920.
It s contended on the one hand that each of these nstruments forthwth
vested n the mother ownershp pro tanto of a defnte nterest n rea estate,
or at east a rent charge therefrom, or that n any event the nstruments const-
tuted a perfected present assgnment of the moneys thereafter to he receved, so
that the moneys when receved by her became her ncome wthout havng
prevousy een part of the gross ncome of the pantff. On the other hand,
t s contended that under a of the nstruments propery nterpreted the entre
reet pts from the propertes became gross ncome of the pantff, snce t was
ony after net ncome had accrued therefrom and become ascertaned that the
mother was to be entted to anythng under any of the deeds, and that there-
fore the entre amount pad to her was propery ta abe to the pantff.
Pantff had an nterest n fee n a of these propertes, n some as cotenant
wth others, n one as owner of the entre property. Whe tte was apparenty
vested n the corporaton, nasmuch as t had no actve dutes (he ega tte
under New York aw was n the ndvduas, to whom so-caed certfcates of
ownershp statng ther respectve nterests had been ssued.
Under an agreement of the coowners. the management of a of the propertes
was n the hands of ng ng, who, actng for and n behaf of the certf-
cate hoders, coected the rents, performed a of the other actvtes n con-
necton wth the management and preservaton of the property, and pad over
the monthy nstaments drecty to the mother, pursuant to the provsons of
the respectve nstruments, and of the notaton ndorsed on the ownershp
certfcates after the e ecuton of the deeds, readng, respectvey, Sub|ect to
the drecton to ths company to pay ncome to Lousa ng. or Sub|ect to the
assgnment of ncome and net profts from the share of Leo S. ng. etc.
In the bref submtted on behaf of the Government the thrd nstrument s
frst consdered as beng the cearest n e presson of Intenton and n a sense
It s suggested that ght can thereby be thrown backward to umnate and
tnts make cear the more doubtfu anguage used n the earer deeds. I can
not, however, adopt ths method of nterpretaton. Whe t may we be that
pantff ntended a of the grants to the mother to have the same ega sgnf-
cance, the queston as between hm and the Government s whether or not each
nstrument can fary be sad to carry out that ntenton.
There s n my |udgment no mproprety n makng a gft or assgnment to
members of one s famy, even though t be for the very purpose of cuttng
down the tota famy ncome ta contrbuton to the Government, as ong
as the gft or assgnment Is as n ths case actua and bona fde. Whether
or not pantff was actuated by ths motve s therefore mmatera. The ques-
ton to be answered s, as he succeeded egay n effectuatng that purpose
or n producng that resut
Comng then to a consderaton of the frst and second deeds, ceary there
was a grant of a specfc sum. Was ths a rent charge It s unnecessary to
go nto an eaborate consderaton of the hstory and deveopment of the aw of
rents. (See Langde, 10 arv. Law Rev., 71 Wams, 11 arv. Law tev., 1.)
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213
1213(a), rt. 31.
It suffces that a rent charge s st recognzed n New York as an nterest In
the and tsef.
If the grantng cause were entrey unambguous t woud contro despte
doubts that mght arse from the rectas. The grant s of a defnte monthy
sum. to be pad out of my share of the rents, ncome, and profts from my
Interests n a the property, rea and persona, etc. The grant was thus
not mted to rents, ncome, and profts of rea estate those from persona
property were aso ncuded.
It may we be that at the tme of the grant the property was so we rented,
or was sure to be so rented, that the net ncome n the |udgment of the
partes woud certany yed at east the specfed sum. On that assumpton
the partes mght we use an e presson normay ndcatng a grant out of
gross rents even though the basc purpose was to have t come ony out of
the net return. ut propery to nterpret the grantng cause t s necessary
to consder the stuaton that woud arse f, by reason of fre or other casuaty,
the gross but not the net renta equaed or e ceeded the amount due to the
mother. If ncome from nsurance money, perhaps the persona property
referred to n the deed, woud he appcabe to the defcency, then the grant
s not a rent charge, an nterest n and payabe ony out of reaty, that s
out of the actua gross returns from the rea estate. If the defcency, then,
can not be deat wth n ths way, who, under the grant, was to bear t
If rents aone had been the word used, t mght we be hed that uness
modfed by the rectas, a part of the gross rents was granted. ut gross
rents are the ncome and the proft of the owner from the renta of the
budng. efore hs actua ncome and proft, whether as soe owner or
cotenant, can be determned there must be deducted from the gross rentas
the mantenance and management e penses. Whe the partes doubtess dd
not consder the possbty above stated, nevertheess t woud seem cear
that, n such an event, ony the net rents, that s, the actua ncome and profts,
woud be the fund out of whch payment was ntended to be made to the
nn ther.
The property was under the management of the frm of ng ng: the
contro over the managers was n the owners, sub|ect to abty for breach of
contract, the owners coud termnate the agency. Can t be sad that the
mother was ntended to have a share n ths contro: that pantff though
retanng hs ownershp n fee made a grant of such an nterest theren as
wad vest the grantee wth a ega estate, a rent charge n the property, an
estate whch woud gve her at common aw the rght to dstran and n
modern tmes, drect acton aganst the partes n possesson It s to be
remembered that the agents are aeged n the compants to act on behaf
of the certfcate of ownershp hoders. No such certfcate was ssued to
the mother. Pantff after the deeds n queston retaned hs fu rghts to
be represented by and, sub|ect ony to hs contractua obgaton wth them and
hs coowners. to contro the agents wthout nterference by the mother.
In my |udgment, the grantng cause dd not pass ths nterest n the prop-
erty, ths rent charge or any ownershp pro tanto of pantffs nterest n hs
property.
ut f there s at east a reasonabe doubt as to the correct nterpretaton
of the grantng cause, the entre nstrument s to be e amned. The e press
charge of the so-caed annuty on pantffs nterest both n the property t-
sef and n the ncome s but the gvng of coatera securty for the protec-
ton of whatever rghts were theretofore granted, whether they were a rent
charge or a share n net ncome. On the other hand, the recta precedng the
grant s a cear e press statement of the ntenton that the payments are to
be made out of net and not out of gross rents. The fact that the nstrument
was n form proper for a grant of an nterest n rea estate can not n my
udgment wegh aganst these consderatons.
If then no tte to the property or to any nterest theren and no rent
charge on the property was created by the earer deeds, there can be no
doubt as to the effect of the ater grants n ths respect. or here, not ony
n the rectas but aso n the grantng cause tsef, t s the net ncome and
profts that are sought to be conveyed. The fact stated n the bref that
the mother but not the pantff subsequenty took credt n the ncome ta
returns for the e penses of mantenance and management, even f peaded by
way of amendment, woud not affect ths nterpretaton. It coud not retro-
actvey throw ght on the ntenton when the deed was e ecuted.
The effectve dfference between a grant of the entre property rghts for
the perod n queston wth a contractua obgaton mposed to mantan the
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5213(a), rt. 31.
214
propertes and a grant of the net ncome to be derved from the property Is
that, In the former, contro s vested n the grantee, n the atter t remans
n the grantor. I can fnd no ntenton to vest contro over the property or
over the managng agents n the mother. nd yet that wond be the effect
of a grant of the entre estate for the two-year perod she coud utmatey
determne a questons of mantenance and management. or whe, as
counse argue, pantff may have antcpated that the agents woud contnue
to manage the property and pay over to hs mother nstead of to hmsef the
net rentas, the agents as such had no ega nterest n the estate ther rghts
were sub|ect to termnaton by the one egay entted to the entre gross
rentas. grant of net ncome can not, therefore, be deemed equvaent to
a grant of gross renta wth an obgaton of mantenance, ta payment, and
nsurance.
It s cear, too, that none of the deeds effectuate a transfer pro tanto or
fuy of e stng rghts to rentas reserved n eases as dstngushed from
the creat n of a new rent charge. ven f the peadngs were amended to
aege that te propertes were rented n whoe or n part at the e ecuton of
ench deed, I e words of grant do nut purport to convey the whoe or part of
su:h rents the andord s nterest whether n a of such eases or n certan
one: whs not transferred to the e tent of 9,600 or 19,200 n the earer
deeds or n ther entrety under the ater deeds. n ntent so to transfer
c ud have been apty e pressed. Under these deeds, the ntent seems cear
not to mt the grantee s rghts to rents from e stng eases thereby e cud-
ng rents from renewas thereof or from new eases on then unrented apart-
ments.
If then no nterest n the and or rent charge was created, f the grantee
was at best entted ony to the net ncome or to the stpuated sums to be pad
therefrom, dd the pantff have the use, beneft, and dsposa ( sner v.
Murombcr, 252 U. S., 189-207. C. . 3, 25) of the gross ncome from hs nerest
n the propertes so as to be chargeabe wth the ncome ta thereon
The deeds were assgnments of or from future net ncome and made wthout
vauabe consderaton whether n New York a sea makes such an nstru-
ment assgnng not an e stng chose n acton but at the best potenta property,
vad as an e ecuted and not an e ecutory assgnment (see u v. u. 172
pp. Dv., 287) need not be determned. or the queston presented s not
whether as between grantor and grantee the assgnment s effectve and en-
forcbe but whether the assgnment, even f enforcbe as aganst the grantor,
shoud he or Is agents fa to turn over the net ncome or the sums specfed
therefrom, prevents the entre gross ncome from beng ncome ta abe as
agnst the grantor.
s herenabove stated, the power over the creaton of ths gross ncome and
over the e pendture therefrom that determned the net, remaned n the
grantor, not as a trustee of the property tsef sub|ect to the cestu que trust s
rght to appea to a court of equty but as hs persona rght uncontroed. The
gross ncome. ke the prncpa, the property tsef, was hs the rght to
determne the deductons therefrom was hs ony when ths power bad been
e ercsed dd the net fund, or he as ts owner, become charged wth the duty
to perfect the gft by payment to the grantee or n any case by not preventng
the grantee from recevng therefrom the amount granted to her. Not unt the
net was ascertaned coud the grnuo s rght attach to any specfc fund. e-
fore that, the grantor had receved the rents as hs ncome from the property.
To permt the assgnor of future ncome from hs own property to escape
ta aton thereon by a gft grant n advance of the recept by hm of such ncome
woud by ndrecton enarge the mted cass of deductons estabshed by
statute. s ong as he remans the owner of the property the ncome there-
from shoud be ta abe to hm as fuy when he grunts t as a gft n advance
of ts recept as It ceary s despte a gft thereof mmedatey after ts
recept.
In owers v. N. Y. Trust Co. (9 ed. (2nd), 548) the court hed that certan
money receved by a copartnershp was receved strcty as trustee and there-
fore was not ta abe as ncome of the frm. In Irwn v. davt (2G8 1 . S., 161)
the court hed that a benefcary of part of the ncome from a trust fund coud
be ta ed thereon as hs ncome even though (p. 107) t was ncome n the
hands of the trustees. These cases are thus ceary dstngushabe.
The court s ndebted to counse on both sdes for a snguary abe and
cear presentaton of arguments both oray and n wrtng.
The motons to dsmss must be granted.
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215 213(a), rt. 81.
bttce 31: What ncuded n gross ncome.
R NU CTS O 1918 ND 1921.
Determnaton of gan from nvestments n Germany. (See I. T.
2404, page 84.)
rtce 31: What ncuded n gross ncome. II-17-3699
T. D. 4152
INCOM T R NU CT O 1921 D CISION O COURT.
Communty Income Wfe s arnngs.
n agreement between a husband and wfe vng together and
domced n Caforna to contrbute ther earnngs to a common
fund and to be equa owners thereof doe- nut have the effect of
changng the character, of the separate earnngs of the wfe, from
communty Income to separate ncome, and they are requred to be
returned by hm to whom they are ta abe under the Revenue ct
of 1921.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, I). C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Crcut Court of p-
peas for the Nnth Crcut, n the case of Davd II. ar, as Com-
mssoner of Interna Revenue, pantff n error, v. W. . Roth,
defendant n error, s pubshed for the nformaton of nterna
revenue offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved pr 14, 1928.
. W. Meon,
Secretary of the Treasury.
Unted States Crcut Court of ppeas for the Nnt Crcut. No. 5183.
D vd . ar, as Commssoner of Interna Revenue, pantff n error, v.
W. . Roth, defendant n error.
Upon wrt of error to the Unted States oard of Tu ppeas.
efore Gbert, Rudkn, and Detrch, Crcut udges.
Detrch, Crcut udge: Ths s nn appea from a decson of the oard of
Ta ppeas (44 Stat.. 105, 110). Durng the year 1921 the appeee, Wn. .
Roth, and dth M. Roth, hs wfe, were resdents of Caforna and were
severay n the empoy of the Los ngees Lme Co. The atter s saary was
5,309.90 and that of the appeee substantay greater. In hs ndvdua
ncome ta return for that year appeee reported, wth other tems, hs per-
sona saary, but not that of hs wfe, and n n separate return she reported her
saary. Upon audtng the returns, the Commssoner added to the reported
ncome of the appeee, the amount of hs wfe s saary and, presumaby, wth-
drew t from her return. rom ths determnaton appeee apeaed to the
oard of Ta ppeas, where, after a hearng, the acton of the Commssoner
was hed erroneous and |udgment was gven accordngy. rom that decson
the Commssoner prosecutes ths ap ea.
6342 28 15
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213(a), rt. 31.
216
It may be stated that under the prevang practce n such cases the Com-
mssoner makes hs rung or determnaton upon the ta payer s return and
other records of the offce, whereupon the ta payer, f dssatsfed, fes wth
the oard of Ta ppeas what s caed a petton on appea, n whch he
sets up the facts upon whch he predcates hs contenton that error was com-
mtted. To ths the Commssoner may fe an answer and f thus any ssues of
fact are presented, there s a hearng before the oard anaogous to a |udca
tra, the ta payer as a pantff havng the burden of proof. ( . T. . rue 30.)
y sectons 102, 163, and 164 of the Caforna Cv Code t s provded that
a property owned by ether spouse before marrage or thereafter acqured
by gft, bequest, devse, or descent, wth the rents, ssues, and profts thereof, s
se rate property and a other property acqured after marrage by ether
consttutes communty property. In the absence of a vad agreement to the
contrary, t s conceded that the earnngs of ether spouse become communty
property. (Mc ay on Communty Property (2d ed.), 154 Martn v. Southern
Pacfc Go. (Ga.). 62 Pac, 515 t enne v. Drnkhouse (Ca.), 63 Pac, 734.)
nd a communty ncome n Caforna s returnabe by and ta abe to the
husband. (Unted States v. Robbng, 20 ) U. S.. 315 T. D. 3817, C. . -,
1881.) ence, upon the face of the returns made by appeee and hs wfe,
the acton of the Commssoner was apparenty rght. u n hs petton on
apea ap|eee aeged: The wfe of ths ta payer was empoyed pror to her
marrage to ths ta payer and rendered returns upon her ncome. When she
became marred to ths ta payer, n the year 1919, t was agreed between them
that she shoud contnue to have contro of her savngs and make separate n-
come ta returns. y the Commssoner s answer ths averment whs dened
and such was substantay the ony ssue of fact before the oard. It s to he
noted that whe ths averment s not out of harmony wth the ncome ta
returns, It s materay at varance wth the case made by the evdence. There
was no wrtng, and the testmony of appeee and hs wfe, much of whch was
ected by hghy eadng questons, was to the effect that shorty after tev
marrage they had an understandng, not that the earnngs of each shoud
consttute the se arate property of the earner, but that the earnngs of both
shoud be contrbuted to a common fund of whch they were to bo the owners
share and share ake. They referred to themseves as equa partners n a
they had or shoud acqure, |onty or severay. Referrng to ths aspect of the
record, the oard n ts fna decson sad: The pettoner devoted the greater
part of hs evdence and hs bref to attemptng to show that, under the ora
agreement entered nto wth hs wfe about the tme of ther marrage, he and
hs wfe are each sub|ect to ta on one-haf of ther |ont ncome, and that by
the agreement ther ncome and property are removed from the operaton of the
communty property aws of Caforna. Ths queston s not paced before us
by the peadngs and t therefore becomes unnecessary to consder t. It fo-
ows as of course that the |udgment beow can not be sustaned upon the
theory refected n the petton.
Dsregardng the facts peaded or proved, the oard based ts rung on the
Randa case (4 . T. .. 679). ut nasmuch as appeee does not urge u n
us the reasonng of that decson, we need not dscuss t t s suffcent to say-
that we deem t to be unsound. or these consderatons aone we thnk the
|udgment must be reversed. ut f gnorng the form of the returns and the
theory of the petton, we consder the showng made by the testmony, we are
constraned to the same concuson. s e empfed n actua practce, the
agreement of the ap eee and hs wfe amounted to substantay ths: They
woud contrbute ther earnngs to a common fund, out of whch ther persona
and communty e penses woud be pad and of the savngs, f any, and the
propety n whch such savngs wore nvested, they were to e the owners
upon an equa footng. y the appeant t s not contended that under the
Caforna statutes (sees. 159, 160. Cv. Code Wren v. Wren, 100 Ca., 276, 34
Pac, 775 atschmdt v. Weber, 145 Ca., 596, 79 Pac, 272 Smth v. Smth, 191
Pac, 60 Perkns v. Sunset T. d T. Co., 155 Ca., 712, 103 Pac, 190) a husband
and wfe domced n that State may not make vad agreements reatng to
ether ther separate or ther communty property, or that t woud be ncom-
petent, by approprate agreement between them, to consttute the earnngs of
the wfe her separate estate. In essence hs contenton s that at most the
agreement here was for an assgnment by each of the partes of one-haf of hs
or her earnngs to the other that at the nstant they were receved, the saares
were, by the aw, mpressed wth the status of communty property and were
ta abe wth reference to that status: and that the obgaton to pay the ta so
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217
213(a), rt. 31.
computed coud not be escaped by contrbutng such ncomes to the so-caed
partnershp between the two members of the communty, any more effectuay
than by contrbutng t to a ke enterprse as between one member of the
communty and a thrd person. In ths vew we concur.
udgment reversed, wth drectons to the oard to dsmss the petton.
rtce 31: What ncuded n gross ncome.
R NU CT O 1918.
Income from sae of o produced from eases on Indan ands.
(See T. D. 4146, page 282.)
rtce 31: What ncuded n gross ncome. II-21-3728
G. C. M. 3805
R NU CT O 1918.
The e cess of the amount reazed by the en Property Cus-
todan from the sae n the year 1919 of certan shares of stock over
the bass of the shares n the hands of the M Company, the owners
thereof, a corporaton organzed under the aws of the German
mpre, s gan reazed from the sae of the shares, and consttutes
ncome for the year 1919, and s ta abe as such to the M Company,
sub|ect, however, to the provsons of secton 24, Tradng wth the
nemy ct, as amended (as amended by secton 18, Settement of
War Cams ct of 1928). Recommended that I. T. 2073 (C. .
III-2, 73) be modfed.
n opnon s requested wth respect to varous ssues rased n
connecton wth a cam for refund of ta es made by the en
Property Custodan on behaf of the M Company.
It appears that on November , 1900, the M Company, a corpo-
raton organzed under the aws of the German mpre, caused to be
organzed under the aws of the State of R, a corporaton, the O
Company. Under the charter of the ast-named corporaton, I y
shares of capta stock were ssued, havng a par vaue of each.
Of these shares y shares were ssued to the ta payer, and certany
pror to uy 17, 1918, were at a tmes owned by the ta payer.
(The remanng 3y shares, whe owned by the ta payer, were ssued
to two drectors as quafyng shares, and do not appear to be here
nvoved.)
In the due e erc se of powers conferred upon the en Property
Custodan by the Tradng wth the nemy ct, that offcer on uy
17, 1918. became entted to the possesson, custody, and management
of these y shares of stock as the property of an enemy, and thereupon
caused the shares to be transferred upon the corporate books. In
further e ercse of the powers conferred upon hm by the Tradng
wth the nemy ct, the en Property Custodan sod, on ,
1919. sad y shares, recevng therefor a consderaton of 10a doars.
The consderaton thus receved as the proceeds of property hed
under the Tradng wth the nemy ct was n due course deposted
n the Treasury of the Unted States pursuant to secton 12 of that
ct. In the year 1924, a deputy coector prepared under the prov-
sons of the Revsed Statutes, secton 817 . a return for the ta payer
for the caendar year 1919, upon whch appears a statement of ta -
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213(a). rt. 31.
218
abe ncome, ncudng among other tems, not here reevant, a proft
of 7.2 doars on the sae of the 1y shares, the bass for determnng the
proft beng taken as the par vaue of the shares sod, n eu of the
bass to the ta payer whch was unknown. The return shows a ta
abty of 3a doars whch was duy assessed. Upon demand there-
for, the en Property Custodan pad the sad sum as ncome ta es
awfuy assessed aganst property hed by hm for the ta -
paver under the provsons of secton 24, Tradng wth the nemy
ct
The ssues presented may be stated as foows:
(1) Is property n the custody of the Unted States under the
Tradng wth the nemy ct property owned by the Unted States
or property owned by the enemes from whom taken, n so far as the
ownershp of property from whch ncome s derved s reevant to
the determnaton of the person to whom the ncome s ta abe
(2) Do the Revenue cts mpose an ncome ta upon the ncome
arsng from property n the custody of offcers or agents of the State,
such as the en Property Custodan If so, what s the method
prescrbed n the Revenue ct for the computaton, assessment, and
coecton of the ta upon such ncome
(3) If the ncome thus arsng s sub|ect to the ncome ta , are the
provsons of artce 49, Reguatons 45 (1920 edton) secton
214(a)12 and secton 234 (a) 14, Revenue ct of 1921 secton 203(b) 5,
Revenue ct of 1924 and/or secton 203(b)5, Revenue ct of 1926,
appcabe to the stuaton here presented
The ssues may be convenenty dscussed seratm.
I. The frst ssue has become academc by vrtue of secton 24(b),
Tradng wth the nemv ct, as amended (as amended by secton 18,
Settement of War Cams ct of 1928). The mandate of Congress
contaned theren that n the case of ncome, war-profts, e cess-
profts, or estate ta es mposed by any ct of Congress, the amount
thereof sha, be computed n the same manner
as though the money or other property had not been sezed by or
pad to the en Property Custodan necessary requres that the
property n the custody of the Unted States under the Tradng wth
the nemy ct shoud be regarded at a tmes as owned, possessed,
and managed by the owners thereof.
II. The second ssue s aso competey resoved by the provsons
of secton 24. Tradng wth the nemy ct, as amended (as amended
by secton 18, Settement of War Cams ct of 1928), and the regu-
atons prescrbed pursuant thereto.
III. The provsons of artce 49, Reguatons 45 (1920 edton)
secton 214(a)12 and secton 234(a)14, Revenue ct of 1921 secton
203(b)5, Revenue ct of 1924 and/or secton 203(b)5, Revenue ct
of 1920, are not appcabe n terms to the stuaton here presented
but by secton 24(d), Tradng wth the nemy ct, as amended (as
amended by secton 18. Settement of War Cams ct of 1928). and
the reguatons prescrbed pursuant thereto are made appcabe to
the stuaton here presented, but ony upon the condtons and accord-
ng o the terms prescrbed theren.
I . In concuson, t s the opnon of ths offce that the e cess of
the amount reazed by the en Property Custodan from the sae
by hm of the 7y shares of stock n the year 1919 over the bass pre-
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219
213(a), rt. 51.
scrbed n secton 202(a), Revenue ct of 1918, of the sad shares n
the hands of the ta payer, s gan reazed from the sae of these
shares, and consttutes ncome for the year 1919 and s ta abe as
such to the ta payer. Gan thus reazed s recognzed for ncome
ta purposes, and the ncome, war-profts, and e cess-profts ta es of
the ta payer shoud be computed accordngy sub|ect, however, to
the provsons of subsectons (d) and (f) of secton 24. Tradng
wth the nemy ct, as amended (as amended by secton 18, Sette-
ment of War Cams ct of 1928), and the reguatons prescrbed
pursuant thereto, f and when the requrements of these provsons
are satsfed.
It s recommended that I. T. 2073 be modfed to accord wth the
vews heren e pressed.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 31: When ncuded n gross ncome. II-21-3729
I. T. 2412
R NU CT O 1018.
I. T. 2073 (C. . III-2, 73) s modfed, n vew of Genera Coun-
se s Memorandum 3805, page 217, to accord wth the poston theren
taken.
rtce 32: Compensaton for persona servces.
e: enue acts of se and 1917.
equest to e ecutor n eu of compensaton or commssons. (See
T. D. 4132, page 222.)
rtce 51: When ncuded n gross ncome. II-2-3572
G. CM.2911
R NU CT O 1918.
In November, 1917, the Unted States Shppng oard requs-
toned a tug for mmedate mtary servce. It. was devered n
December, 1917. The Nava oard of pprasas made ts fndngs
on anuary 24, 1918, and n December, 1918, the amount offered by
the Shppng oard was accepted by forma sae, when the ta -
payer receved part payment. The baance was pad n 1919.
ed, as the ta payer kept ts books on the accrua bass, the
entre amount was ncome for 1918, when the compensaton was
f ed.
n opnon s requested as to whether the proft resutng to the
N Company from the takng of the tug M by the Unted States
Shppng oard s ta abe n 1917 or n 1918.
On November 26, 1917, the N Company receved the foowng
teegram from the Unted States Shppng oard:
Pease take notce that the Unted States Shppng oard hereby requs-
tons the tte n and to the tug M for mmedate mtary purposes of the
Unted States. Compensaton w be made for ths vesse n due course n
accordance wth pocy of board, as t s proceedng under ts power to take
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213(a), rt. 51.
220
property n ths emergency and prce heretofore named or suggested hy yon as
|ust compensaton for ths property s not accepted by the hoard, athough t
may be further consdered. Communcate wth ava Dstrct regardng
devery tug.
Under date of November 30, 1917, the company was advsed by-
etter of the oard of pprasa n New York that that body had
been requested to report a |ust compensaton for the. tug. The com-
pany was requested to forward to t a evdence t desred taken nto
consderaton n determnng the amount of such compensaton, as
we as other specfed data desred by the board aso to advse the
board as to the earest date you w be abe to present to the board
the above-mentoned evdence n order that a date may be set for
your hearng.
On December 3,1917, the company teegraphed the Shppng oard
advsng t that the tug woud report to the commandant of the
Nava Dstrct as drected, but urged that t be permtted to keep
the boat and use t n the trade. etter of December 10, 1917,
from the Shppng oard dened ths request.
On December 4, 1917, the tug arrved at and at noon of that
day was turned over to the nava offca.
The Nava oard of pprasa made |ts fndngs anuary 24, 1918,
and on September 12. 1918. the Shppng oard notfed the company
that t had determned n accordance wth the provsons of the
urgent defcences ct, approved une 15, 1917, and the Presdent s
ecutve order of uy 11. 1917, that the |ust compensaton to be
pad your company for a cams arsng out of your vesse sha be
the net sum of 2 doars. Ths was accepted by a forma sae n
December, 1918, when the ta payer receved doars, the baance
beng receved n 1919.
The ct of une 15, 1917 (40 Stat, at Large, 182), authorzed and
empowered the Presdent
(e) To purchase, requston, or take over the tte to. or the possesson of,
for use or operaton by the Unted States ny shp now constructed or n
the process of constructon or hereafter constructed, or any part thereof, or
charter of such shp.
The ct further authorzed the Presdent to e ercse hs power
and authorty through such agences as he sha determne, and pro-
vded for the cost of purchasng, requstonng, etc., pants, shps,
etc. The. ecutve order of uy 11, 1917, deegated ths power and
authorty to the Shppng oard.
The N Company kept ts books upon the accrua bass, but con-
tends that, under ether ths bass or that of cash recepts and ds-
bursements, the proft from ths transacton shoud propery be con-
sdered as 1917 ncome.
ute ceary, there coud have been no ncome n 1917 upon the
cash recepts and dsbursements bass. There was no recept of
ncome, actuay or constructvey. The cam tsef coud not
have consttuted ncome. Cams aganst the Unted States are not
assgnabe unt aowed. (Rev. Stat. U. S., sec. 3477 Natona atk
of Commerce v. Dotcnc. 218 U. S., 345.) It coud have no such
market vaue as to render t the equvaent of cash.
Ths offce s further of the opnon that there coud be no ncome
n 1917 upon the accrua bass. The takng of the tug was not a
purchase or sae, as ta payer urges. The takng resuted from.
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221
( 213(a), rt. 51.
the e ercse of a governmenta power n the nature of emnent doman.
Guf Refnng Co. v. U. S., 58 Ct. Cs., 559: rooks-Scardon Corpo-
raton v. U. 8., 265 U. S., 106 North Carona R. R. Co. v. Lee, 260
U. S., 16 Mssour Pacfc R. R. Co. v. vt, 256 U. S., 554.) Upon
the takng of tte to the vesse the guarantee of the ffth amendment
to the Consttuton was set n moton, and the ta payer had the rght
to cam |ust compensaton therefor. Ta payer apparenty dd
make some sort of cam, for the Shppng oard, n ts teegram of
November 26, 1917 stated that the prce heretofore named or sug-
gested by you as |ust compensaton s not accepted by the board,
athough t may be further consdered.
No measure for the compensaton that mght be awarded by the
e ecutve department of the Government was provded by Congress,
as n the case of the raroads, wThere specfc authorty to pay the
amount of the standard return was gven. nd t does not seem
that an accrua n 1917 can be supported n the absence of some bass
anaogous to ths. Durng 1917 the ta payer had at best but an
unaowed, unassgnabe cam aganst the Unted States a mere
rght to demand money from the Unted States obbs v. Mc-
Lean, 117 U. S., 567), somethng asked for or demanded
on the one hand and not admtted or aowed on the other
and not a debt unt admtted, authorzed or provded for by aw
. (Dowe v. Cardwe 4 Sawy., 217, 7 ed. Cas. No. 4,039.)
(See, aso, wth speca reference to |ust compensaton, State v.
eackmo (Ind.), 8 ackf., 246. 250 Lowe v. oston Street Com-
mssoners, 106 Mass., 540.) The ta payer coud not f ts prce
the Government coud not compe the acceptance of any offer. Nor
was the camant obged to accept the fndngs of the board of ap-
prasa, because the ascertanment of what s |ust compensaton s ut-
matey a matter for |udca nqury, and no power e sts n any
other department to decare what the |ust compensaton sha be,
or to decare a bndng rue n that regard. Unted States v. New
Rver Coeres Co., 262 U. S., 341 Monongahea Navgaton Co.
v. Unted States, 148 U. S., 312, 327 Davs v. Newton Coa, Co., 267
U. S., 292.) (See aso Maron, c., Ry. v. U. S., 270 U. S., 280.)
In the absence of an agreement, |ust compensaton n such a case
as the nstant one s, therefore, an amount whch nether party coud
know. To use the phraseoogy of the Supreme Court n Unted States
v. nderson and Unted States v. The Yae Tovme Mfg. Co. (2G9
U. S., 422 T. D. 3839, C. . -, 179 ), the events whch f the
amount had not occurred n 1917. Under the authortes above
cted regardng cams aganst the Unted States, t may be doubted
that a abty on the part of the Government e sted n the common
acceptance of that term unt the cam was setted. ut even f a
abty dd e st t was contngent upon the possbtes of agree-
ment of the partes or fna decson by the court. (See Maeabe
Iron Range Co. v. Unted States, Ct. Cs. T. D. 3909, C. . -2,
166 .)
s the ta payer returned ts ncome upon the accrua bass, ths
offce reaches the concuson that the ncome resutng from the takng
over by the Government of the tugboat was ncome for the year 1918,
when the compensaton was f ed. It appears, however, that the
fu amount was not receved n 1918. Upon the cash recepts and
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213(b), rt. 73.
222
dsbursements bass, part of the ncome mght have been attrbuted
to the year 1919, when the baance of the award was pad.
The board that passed upon the dsputed vauaton was not a
board of arbtraton, but a board of apprasa, and ts fndngs
were not concusve upon camants. (See Maron, dec, Ry. Co. v.
U. S. (supra).) ence, unt accepted by the camant, t s hardy
proper to accord to t the standng of a court |udgment. The award
and acceptance thereof n the nstant case both occurred n 1918.
ence t s not necessary to decde here whether or not an award
made but not accepted, or a defnte offer made by the Shppng
oard and re|ected by camant, woud furnsh a bass for an accrua
of the amount of the offer or award.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 213(b). GROSS INCOM D IN D:
CLUSIONS.
rtce 73: Gfts and bequests. II-9-3631
( so Secton 213(a), rtce 32.) T. D. 4132
INCOM T R NU CTS O 1916 ND 1917 D CISION OP COURT.
1. Income Compensaton ecutor s Pees Gfts and equests.
Where a testator provdes that hs e ecutor sha receve n
fu payment for a commssons, percentages, and aowances by
statute or otherwse for actng as e ecutor of ths my w, the sum
of 50,000, the amount so receved by the e ecutor Is not e empt
as a gft or bequest wthn (e provsons of secton 4 of the Reve-
nue ct of 1916, as amended by secton 1200 of the Revenue ct of
1917, but s ta abe ncome under secton 2(a) of the Revenue ct
of 1 10, as amended by secton 1200 of the Revenue ct of 1917, as
compensaton for servces as e ecutor.
2. Decson Dstngushed.
The decson n Unted State v. Merram (263 U. S., 179 (T. D.
3. 35 O. . 11-2, 87 )) dstngushed.
3. udgment ffrmed.
The |udgment of the dstrct court (14 ed. (2d), 993 (T. D.
393(5 C. . -2, 157 )) s affrmed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Oters Concerned:
The foowng decson of the Unted States Crcut Court of
ppeas for the Second Crcut n the ease of Robert C. Ream, pan-
tff n error, v. rank . owers, defendant n error, s pubshed for
the nformaton of nterna revenue offcers and others concerned.
C. R. Nash,
ctng Commssoner of Interna Revenue.
pproved ebruary 18, 1928.
. W. Meon,
Secretary of the Treasury.
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5213(b), rt. 78.
Unted States Crcut Court of ppeas for the Second Crcut.
Robert C. Ream, pantff n error, v. rank . owers, defendant n error,
November 21, 1927.
OPINION.
efore L. and, Swan, and ugustus N. and, Crcut udges.
Norman . Rean ded a resdent of Connectcut, eavng a w whch was
admtted to probate n 1915 n the Connectcut Probate Court. y the s th
cause of ths w the testator drected that hs resduary estate be dvded
nto s equa parts for the beneft of each of hs s chdren. Of these s
parts he gave to hs sons, Norman P. Ream, and the pantff, Robert C. Ream,
and to hs daughter, rances M. emnerer, one-quarter of hs or her share
absoutey and drected that the remander thereof be hed n trust for such
son or daughter durng hs or her fe. The remanng three shares he drected
shoud be hed n trust for hs daughter, Maron . Stephens, and hs sons,
dward . Ream and Lous M. Ream, durng ther respectve ves. In case
of hs sons, Norman P. Ream, Robert C. Ream, and Lous M. Ream, certan
portons of the prncpa of ther trusts were to be pad to them upon ther
reachng the ages of 35 and 40 and certan powers of appontment by w
were gven to each of the testator s chdren over ortons of ther trusts. No
other dsposton was made by the testator n the form of devse or bequest
n favor of any of hs chdren, but pror to the s th cause he had gven one-
thrd of hs property to hs wfe and had created certan trusts for the ves
of hs brother and two ssters whch upon ther death were to fa nto the
resduary estate.
y the twefth cause of hs w the testator apponted as hs e ecutors
Otto T. anuard and the (estator s two sons, Norman P. Ream and Robert C.
Ream, the pantff. Letters testamentary were ssued to these three e ecutors
by the Connectcut Probate Court on the 3d day of March, 1915. Otto T.
annard was a frend of the testator and the presdent of the New York Trust
Co.. herenafter mentoned.
y the thrteenth cause of the w the testator apponted as the trustees
of each of the trusts the New York Trust Co.. caed the corporate trustee,
and hs sad sons, Norman P. Ream and Robert C. Ream, caed the ndvdua
trustees.
In the fourteenth cause he provded that n the event of the death or faure
or refusa to accept or quafy, or the retrement or remova of ether of hs
e ecutors or ndvdua trustees, he apponted hs son-n-aw, ohn L. emnerer,
n hs pace and stead as an e ecutor or an ndvdua trustee or both, as the
case mght be.
y the s teenth cause he reguated the compensaton of hs e ecutors and
trustees, as foows:
S teenth: It s my w and I drect that my e ecutors sha each be pad
and sha each receve n fu payment for a commssons, percentages, and
aowances by statute or otherwse, for actng as e ecutors of ths my w, the
sum of ffty thousand doars ( 50,000) each, and I do aso w and drect
that my sons Norman P. Ream and Robert C. Ream sha not be pad, nor
sha they receve any commsson, percentage, or aowance by statute or
otherwse, for actng as trustee hereunder, e cept a commsson of 1 per cent to
each of them on the amount of the ncome of the trust estate receved and
dsbursed by the trustees. I further w and drect that the New York Trust
Co. sha be pad and sha receve n fu payment for a commssons, per-
centages, and aowances by statute or otherwse for actng as a trustee of
ths my w 1 per cent of the prncpa amount of the trust estates receved
and dsbursed by t as trustee, together wth 1 per cent of the amount of the
ncome of the trust estates receved and dsbursed by It as trustee.
In pr, 1917, the sum of 50,000 was pad to the pantff, and n March,
WIS, he fed hs ncome ta return wth the coector of nterna revenue for
the second dstrct of New York, for the year 1917, wheren he set forth that
he had receved the sad sum of 50,000 and that he camed e empton as to
ths sum because t was a bequest and. therefore, e empt from ta aton under
the provsons of the ncome ta aws. Thereafter the defendant upon an assess-
ment ncudng the sad sum of 50,000 as ta abe ncome made a demand for
payment of a ta cacuated wth respect thereto. Such ta was pad by the
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213(b), rt. 73.
224
pantff under protest and ths acton brought to recover the sum of 10,204.08
representng the same, together wth Interest thereon.
The pantff aeged that the 50,000 whch he hud receved was a bequest
and. therefore, not ta abe as ncome. The dstrct court upon a moton made
by the defendant to dsmss the compant on the ground that t dd not state
facts suffcent to consttute a cause of acton hed that the 50,000 receved by
the pantff were for hs servces as e ecutor wthout reaton to any egacy
or bequest to hm, and that he was not entted to receve the same wthout
performng the dutes requred of an e ecutor. The compant was accordngy
dsmssed wth eave to amend wthn 20 days. No amended compant havng
been fed, fna |udgment dsmssng the compant was thereafter granted,
from whch, by wrt of error, the cause s brought before ths court.
ugustus N. and, C. .: Under the Revenue cts of 1913, 1916, and 1917 It
was provded that there shoud be eved upon the net ncome receved by each
person a specfed ta . Income was defned as ncudng:
gans, profts, and ncome derved from saares, wages or compensaton for
persona servce of whatever knd and n whatever form pad, or from pro-
fessons, vocatons, busnesses, trade, commerce, or saes, or deangs n property,
whether rea or persona, growng out of the ownershp or use of or Interest n
rea or persona property, aso from nterest, rent, dvdends, securtes, or the
transacton of any busness carred on for gan or proft, or gans or profts and
ncome derved from any source whatever . Secton II , chapter 16,
of the ct of October 3, 1913, and chapter 463. Tte I, Part I, secton 2(a), of
the ct of September 8, 1916.
There was e cepted from such ta abe ncome the vaue of property acqured
by gft, bequest, devse, or descent, but not the ncome from such property.
The queston before us, therefore, s whether the drecton by the testator n
the s teenth artce of hs w that my e ecutors sha each be pad and
sha each receve n fu payment for a commssons, percentages, and aow-
ances by statute or otherwse, for actng as e ecutors of ths my w, the sum
of ffty thousand doars ( 50,000) each created bequests that were e empt
from ta aton by the Income Ta cts, or whether t was nothng more than a
provson for payment of compensaton to the pantff and others for compete
servces as e ecutors.
Pantff s counse contends that the testamentary provsons drectng pay-
ment of 50,000 to each of the e ecutors of Norman . Ream must under the
recent decson of the Supreme Court n Unted States v. Me-ram (263 U. 8.,
179), be regarded as a bequest. ut the anguage n that case was n the form
of an ordnary bequest. The testator sad n artce eeventh of hs w:
I gve and bequeath to my brother, Regnad 0. anderbt, fve hundred
thousand doars ( 500,000) to my unce, rederck W. anderbt, two hundred
thousand doars ( 200,000) to rederck M. Daves, fve hundred thousand
doars ( 500,000) to enry . nderson, two hundred thousand doars
( 200,000) to rederck L. Merram, two hundred and ffty thousand doars
( 250,000) to Chares . Crocker, ten thousand doars ( 10,000) and to
oward Lock wood, one thousand doars ( 1,000).
No menton of e ecutora appontment or dutes was made n ths artce
of the fred G. anderbt w, the bequests greaty vared n amount, and the
ast two egatees were not among those afterwards named as e ecutors. It
goes wthout sayng that the subsequent appontment of the frst fve egatees
as e ecutors and trustees under the w coud by no possbty have gven rse
to the cam that these bequests shoud be regarded as compensaton for servces
e cept for the provson n the s teenth artce, wdch added to the appont-
ment the words:
The bequests heren made to my sad e ecutors are n eu of a compensa-
ton or commssons to whch they woud otherwse be entted as e ecutors or
trustees.
ut n vew of the strct constructon of ta ng statutes (.Goud v. Goud,
245 U. S.. 151) and because of varous decsons whch had hed that bequests
to e ecutors eo nomne even when for care and pans were not to be regarded
as compensaton for actng as e ecutor but as egaces condtoned ony upon
provng the w or unequvocay manfestng an ntenton to act, the Supreme
Court construed the causes of the anderbt w as creatng condtona
bequests and not as compensaton for persona servce. The cases cted
were Lews v. Mathews (L. R. S. q. Cas., 277, 281), rkand v. Narramore
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225
213(b), rt, 73,
(105 Mass., 31, 32), Scofted v. St. ohn (65 oward Pr. (N. .), 292, 204-296),
arrs v. ent (2 dwards Chancery, 175, 179), and arrson v. Rowey (4
esey, 212, 215). The precse meanng of the word bequest was not defned,
but the words of the ew York Court of ppeas n Orton v. O ton (3 eyes
(N. Y.), 486) were quoted, where the court sad that the term was not
mted to a mere gratuty but ncuded a thng gven, ether as a gratuty
or as a recompense. ence the word bequest may ncude a egacy n
eu of dower, a satsfacton of an ndebtedness, or a gft to an e ecutor upon
tn- condton that the person named sha, n good fath, cothe hmsef wth
the character.
In the anderbt w the bequests n the eeventh artce were n greaty
varyng amounts, though the dutes of those afterwards named as e ecutors n
the s teenth artce were not dfferentated and woud have been under the aw
entca they were n the form of ordnary bequests they were paced n an
artce of the w n whch there was no appontment of e ecutors or trustees
and aongsde of other bequests to persons nowhere mned as e ecutors there
was no provson requrng the persons apponted e ecutors to perform servces
and so both ths court and the Supreme Court construed the provsons as
condtona bequests nonta abe as ncome.
The present w s atogether dfferent. fter makng ampe provson both
by way of smpe egaces and trusts for the two sons who were apponted
e ecutors, the testator deas wth the compensaton of hs e ecutors and trustees
n artce s teenth. Ths artce s drected soey to the sub|ect of compensa-
ton for admnstratve dutes. It provdes that hs e ecutors sha each be
pad and sha each receve n fu payment for a commssons, percentages,
and aowances by statute or otherwse, for actng as e ecutors of ths my w,
the sum of ffty thousand doars ( 50,000) each .
We fnd here no words of bequest but smpy provsons for dentca com-
pensaton for each e ecutor paced n a cause reguatng compensaton and
nothng ese, and drectng that the e ecutors each be pad a f ed sum for
actng as e ecutors. y the aw of Connectcut, whch governs the admnstra-
ton of ths estate, there are no statutory commssons and the court s to award
what t deems reasonabe. ( ayward v. Pant, 98 Conn., 374.) ere (e tes-
tator perhaps had partcuar reason to f the compensaton hmsef. That he
made the amounts equa both for hs two sons and Mr. annard s strong nd-
caton that the provson was made ony to compensate for servces. n add-
tona reason s that the cause f ng the fees of the e ecutors s couped n the
same artce of the w wth a drecton as to compensaton of the pantff, hs
brother, Norman P. Ream, and the New York Trust Co. as trustees cacuated
upon a percentage bass.
ut t s argued that the Supreme Court n Unted States v. Meram, supra
(at p. 183), refused to decde whether an amount e pressy eft as compensa-
ton for servces actuay performed s st not a bequest e cepted from ta a-
ton under the statute. These words mtng the decson to the facts before
the court n that case certany are not even a dctum whch ths pantff can
nvoke n support of hs contenton. Nor can they be regarded as referrng to
a cause n a w whch s nether n form nor substance a bequest but a smpe
drecton as to compensaton for servces and nothng ese. Such provsons
have been hed n varous cases not to be bequests but soey words of compen-
saton for performance of fducary dutes. (Rchardson v. Rchardson, 145
pp. Dr., 540 Matter of rgg, 39 pp. Dv., 485 ngton, v. Durfcy, 156
N. C, 253 Re ay s state, 183 Pa. St., 296 Matter of Runvon s state, 125
Ca., 195.)
It s contended that there s no requrement n ths w for performance of
servces and that here, as n the Merram w, t was enough to quafy as
e ecutor to earn the 50,000. Such was not the rung n ngton v. Durfcy,
supra, where the court went so far as to deprve the estate of an e ecutor of
a ump sum gven n addton to commssons n fu compensaton for a
servces because he ded before the servces were competed. We thnk the
drecton n the Ream w to pay 50,000 to eac e ecutor for actng as
such contempated payment for renderng the entre servce and can see no
reason why the court coud not have apportoned the compensaton between an
e ecutor who resgned or ded and hs successor, emuerer, had such a
contngency arsen.
When the testator drected payment of 50,000 for actng as e ecutor t
seems unreasonabe to suppose that he ntended the fu sum to be p:d for a
parta admnstraton. It kewse seems mprobabe that he shoud have
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213(b), rt. 88.
226
ntended a compensaton to be wthhed because owng to death or other com-
peng crcumstance an e ecutor coud not compete hs admnstraton. If an
e ecutor who had party admnstered hs trust hod been obged to resgn or
had ded, we see no ega prncpe whch woud requre the adopton of such
a strct rue as that n the ngton case, supra, where no part of the gross
sum drected to be pad for e ecutora dutes was awarded. If such a con-
tngency had happened, the estate woud have benefted by the servce of each
e ecutor and enrchment coud not have been |usty aowed at the e pense of
ether. The vaue of compete admnstraton by a snge e ecutor s f ed by
the w at 50,000, and the two e ecutors, n the case assumed, woud have per-
formed aggregate servces upon the bass of that compensaton. It woud be
contrary to the apparent ntenton of the testator to burden the estate wth two
payments of 50,000 n case two e ecutors were requred to do the work of
one and equay un|ust to pay the frst e ecutor nothng because he coud not
fnsh hs task. To construe the prescrbed compensaton us payment for
compete admnstraton capabe of apportonment n case a successor shoud
act s the ony way to carry out the ntenton of the testator and to do |ustce
n a contngences.
The decsons whch have aowed recovery n quas contract for servces
whch were to be pad for at the end of a f ed tme or for competon of a
specfed pece of work when the faure to compete performance was due to no
faut of the promsee woud seem to |ustfy payments here of apportoned
amounts aggregatng 50,000 based upon the reatve vaue of the servces
of an e ecutor who had ded or resgned and those of hs successor had such
on event occurred. (Ryan v. Dayton, 25 Conn., 188 Wofe v. owes, 20 N. Y.,
197 Cark v. Gbert, 26 N. Y., 279: Parker v. Macomber, 17 R. I., 674 enton
v. Cark, 11 t., 557 uer v. rown, 11 Mete., 440 Green v. Gbert, 21 Wse.,
395 Lakeman v. Poard, 43 Mane, 403 ayes v. Gross, 9 pp. Dv., 12, nffrmed
162 N. Y., 610 Young v. Cheopee, 186 Mass., 518 Dame v. Wood, 75 N. Y., 38.)
e agree wth the opnon of udge aze, n the dstrct court, that the
50,000 was drected to be pad for persona servces and nothng ese, was not
a bequest condtona or otherwse, and consequenty was ta abe as ncome.
The |udgment s, therefore, affrmed.
rtce 77: Interest upon Unted States obgatons.
R NU CTS O 1917, 1918, ND 1921.
Method outned of determnng under secton 24, Tradng wth
the nemy ct, as amended by secton 18 of the Settement of War
Cams ct of 1928 (approved March 10, 1928), the appcabty of
the varous e emptons accorded nterest on obgatons of the Unted
States to the nterest arsng from property nvested n such obga-
tons under secton 12, Tradng wth the nemy ct. (See G. CM.
3680, page 68.)
rtce 88: Compensaton of State offcers and
empoyees.
R ND CTS O 1918 ND 1921.
Compensaton receved by members of rgna Pots ssocaton
for servces rendered as pots not e empt from ncome ta . (See
I. T. 2395, page 73.)
rtce 88: Compensaton of State offcers and
empoyees.
R ND CTS O 1918 ND 1921.
Compensaton receved as pot censed under aws of Oregon not
e empt from ncome ta . (See I. T. 2396, page 75.)
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227
213(b), rt. 88.
rtce 88: Compensaton of State offcers and
empoyees.
R NU CTS O 1018 ND 1921.
Compensaton receved as pot censed under aws of South
Carona not e empt from ncome ta . (See I. T. 2399, page 77.)
rtce 88: Compensaton of State offcers II-21-3730
and empoyees. T. D. 4155
ncome ta revenue acts of 1918 and 1921 decson of court.
Income empton State mpoyees udng pert.
The compensaton receved by a budng e pert from a munc-
paty pursuant to the terms of a contract for servces n appras-
ng property affected by a street mprovement pro|ect s not e empt
from edera ta aton, sad e pert beng an ndependent con-
tractor and not an offcer or empoyee of a State or potca sub-
dvson thereof.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Court of Cams of the Unted States
n the case of rank . Mesce v. The Unted /States s pubshed for
the nformaton of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved May 9, 1928.
. W. Meon,
Secretary of the Treasury.
Court of Cams of the Unted States.
rank . Mesce v. The Unted States.
anuary 16, 1928.
opnon.
Graham, udge, devered the opnon of the court.
The servces of the pantff were engaged by the board of oca mprovements,
an ad|unct of the muncpa government of the cty of Chcago, as a budng
e pert n connecton wth the vauaton of budngs affected by certan oca
mprovements n wdenng and openng streets.
The sad board was created by an act of the egsature of the State of
Inos to dea wth questons connected wth sad mprovement of streets
whch nvoved the vauaton of and and budngs to be taken n whoe or n
part aong the ne of mprovements, and the effect of the mprovements upon
the vaue of property whch woud be benefted thereby. The board conssted of
a presdent and fve other members named by the mayor and sub|ect to confrma-
ton by the counc of the cty of Chcago. The board was gven authorty
to submt ordnances to the cty for the aforesad mprovements, whch ord-
nances the counc had ony the rght to accept or re|ect., but no authorty to
modfy. fter the creaton of the board the cty counc passed an ordnance
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5213(b), rt. 88.
228
authorzng the board to retan the servces of budng e perts and other
persons, the budng e perts to be pad at the rate of 1 per cent of the vaue
of the property apprased and 50 a day for testfyng n court In proceedngs
growng out of the mprovements, and at the rate of / per cent of the vaue
of the budngs for detaed estmates of cost of budngs wthout pans, an
at rate of 2 per cent of the vaue of the budngs when pans, dagrams, and
deras were furnshed.
Under authorty of ths ordnance the board retaned the pantff as a
budng e pert for fve years hs empoyment, however, contnued for ony
about two years. The detas of ths are fuy set forth n the fndngs. Pan-
tff was pad for hs servce as budng e pert durng the years 1920 and 1921.
475,603.11. and was assessed by the Commssoner of Interna Revenue on
th.s sunt as ncome n the amount of 132,863.67. Pantff fed a cam for a
refund upon the ground that be had been egny assessed because the sums
receved for hs servces as a budng e port were e empt from ta aton as
they were earned by hm as an empoyee of a potca dvson of the cty of
Chcago.
rst, as to the character of the pantff s servce: Under hs contract wth
sad board be was engaged for a perod of fve years, was not to accept any
other empoyment wthout the consent of the board, and was to be pad monthy
1 per cent on the vaue of the property and 50 for each day he served as a
wtness, together wth a certan percentage for pans, etc. There was no
reguar compensaton. e was under the contro of the board as to whether
pans or detaed estmates of cost shoud or shoud not be made, the number,
and n some nstances the de gns. of pans of reconstructon as to the amount
of work to be done, but not the tme wthn whch t was done as to the order
n whch the work on the varous mprovements was to be performed, and
otherwse as set our n ndng III.
The board refused two requests of pantff to accept other empoyment and
aowed one. Pantff occuped no pubc offce and transacted no busness n
whch the pubc generay was nterested. e seected hs own offce, pad the
rent and or ts equpment, and empoyed at hs own e pense hs assstants. e
pad to these assstants a sum appro matng 100,000 out of what he receved
for hs servrce.
The retenton of hs servces was dctated by a pocy of havng some one other
than a cty empoyee do ths work, of havng avaabe an ndependent e pert n
cases of suts aganst the cty, and of havng wtnesses who were not reguar
cty empoyees. e used hs own methods nnd nstrumentates and dd the
work of apprasng vaues n hs own way and as hs |udgment dctated, and n
so dong he was free, and for such work he receved hs pay. s to how, wth
what assstance, and n what tme he shoud perform t he was |udge and
master. That the pantff was not a pubc nstrumentaty has been passed
upon by ths court. ( er York Trust Co. v. The Unted States, 03 C. Chs., 100
T. D. 4045, C. . I-2, 189 ). In ths case the Supreme Court refused a
certorar une 6, 1927 ( 274 U. S.. 756).
Ceary, from the foregong, the reaton of master and servant dd not e st.
It s not possbe, n the twght that e sts between the boundares of what
consttutes the reaton of master and servant and an ndependent contractor,
to draw a f ed ne. The constanty ncreasng varetes of human empoyment
under present-day condtons necessary render t so, and each case must of
necessty, to a great degree, be decded upon tss own facts. In the most recent
case on ths sub|ect, Meteaf rf ddy v. Mtche (269 U. S., 514, 521 T. D.
3824, C. . -, 218 ), pantffs were empoyed as consutng engneers ether
ndvduay or as copartners to advse States or subdvsons of States wth
reference to water suppy and sewerage dsposa system, and t was hed that
they were nether offcers nor empoyees. The court sad:
In each nstance the performance of ther contract nvoved the use of
|udgment and dscreton on ther part and they were requred to use ther best
professona sk to brng about (e desred resut. Ths permtted to them
berty of acton, whch e cudes the dea of that contro or rght of contro by
the empoyer whch chanrcternes the reaton of empoyer and empoyee and
dfferentates the empoyee or servant from the ndependent contractor. Ch-
cago. Rock Isand Pacfc Ry. Co. v. ond. 240 U. S., 449, 456: Standard O
Co. v. nderson, 212 U. S., 215. 227 and see Casement v. rown, 148 U. S.. 615
Snger Mfg. Co. v. Rahn, 132 U. S., 518. 523.)
Nor was the pantff s servce reguar and contnuous. It was for a partcu-
ar transacton or transactons. See Lousve, vans e d St. Lous Raroad
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229
214(a), rt. 109.
Co. v. Wson (138 U. S., 501. r 05). In addton to ths, the very purpose of hs
servce, to have other than cty empoyees avaabe as wtnesses, further
negatves the dea of hs beng an empoyee.
nother person, rnest . Lyons, engaged as a rea estare e pert under the
same ordnance of the counc f the cty of Chcago, brought a sut (Lyons v.
Renecke, 10 ed. (2d), 3) smar to ths n the Dstrct Court for the Northern
Dstrct of Inos at Chcago. The court on demurrer hed that the Income
receved n that capacty was ta abe under the crcumsrances. and on appea
to the Crcut Court of ppeas for the Seventh Crcut, sttng n the same cty,
the |udgment of the ower court was affrmed.
The pantffs reaton was that of an ndependent contractor, very smar
n character to what s known as a cost-pus contractor.
The pantff s camng the beneft of an e empton from ta aton and has
faed to sustan the burden cast upon hm of estabshng that hs servce was
that of an offcer or empoyee of a State or a subdvson thereof. (Metcaf d
d y v. Mtche, supra. 520 Netc York Trust Co. v. Unted States, supra.)
We are of opnon that the pantff s not entted to recover and the petton
shoud be dsmssed. It s so ordered.
rtce 89: ddtona e cusons from gross ncome
under the Revenue ct of 1921.
R NU CT O 1021.
mendment of artce. 89, Reguatons G2, to ncude Canada n the
st of countres whch do not satsfy the equvaent e empton
requrement of secton 213(b)8 of the Revenue ct of 1921. (See
T. D. 4135, page 81.)
S CTION 214(a) 1. D DUCTIONS LLOW D:
USIN SS P NS S.
rtce 101: usness e penses. 11-24-3750
I. T. 2414
R NU CT OP 1921.
I. T. 1271 (C. . 1-1, 118) s revoked, n vew of Genera Counse s
Memorandum 4015, pubshed on page 120.
rtce 109: Rentas. 1I-14-3669
T. D.4138
INCOM T R NU CT O 1916 decson of court.
1. Deductons usness pense Renta.
Where the consderaton for the ease of a budng for a term of
years commencng anuary 1, 1917, s a stpuated monthy amount
pus a part of the profts for the year 1917 from the busness to be
conducted theren and the essor s board for that year, ony an
aquot part of the amount of the profts and the vaue of the board
based on the number of years the ease has to run s deductbe by
the essee as a busness e pense n determnng hs net ncome for
the year 1917.
2. udgment ffrmed.
The |udgment of the dstrct court (11 ed. (2d), 878 T. D.
8853 C. . -, 229 ) affrmed.
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214(a), rt. 109.
230
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Crcut Court of
ppeas for the fth Crcut, n the case of Gaatore ros., pan-
tffs n error, v. D. rthur Lnes, Coector of Interna. Revenue,
defendant n error, s pubshed for the nformaton of nterna reve-
nue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved March 27, 1928.
. W. Meon,
Secretary of the Treasury.
Unted States Crcut Court of ppeas for the fth Crcut.
aatore ros., pantffs n error, v. D. rthur Lnes, Coector of Interna
Revenue, defendant n error.
rror to the Dstrct Court of the Unted States for the astern Dstrct, of Lousana.
anuary 23, 1928.1
OPINION.
Waker, Crcut udge: In November, 1910, ean Gaatore eased to pan-
tffs n error, Gaatore ros., a budng n the cty of New Oreans for the
term of 45 months commencng anuary 1, 1917, and endng September 30, 1920,
n whch budng the essor conducted a restaurant for severa years endng n
1916, and pantffs n error conducted a restaurant throughout the year 1917.
The ease contract contaned the foowng:
The present ease s made for and n consderaton of a monthy renta of
two hundred and ffty ( 200.00) doars, payabe monthy, and ffty (50) per
cent of the profts of the restaurant conducted n sad budng durng the
year 1917, and the obgaton on the part of sad essees to hoard the essor and
hs famy durng the year 1917.
The one-haf of the profts for the year 1917 amounted to 16,971.63. and the
cost of meas furnshed to the essor durng that year amounted to 2,736. The
queston presented s whether the pantffs n error n computng ther ta abe
net ncome for 1917 were entted, under the provson of secton 5(a) of the
Revenue ct of 1916 aowng the deducton of the necessary e penses actuay
pad In carryng on any busness or trade (39 Stat, 759), to deduct from ther
gross ncome the |ust mentoned amounts. The court s rung was to the effect
that the whoe of those amounts was not deductbe from the gross ncome for
the year 1917, hut shoud be prorated over the entre fe of the ease, nnd that
ony tweve forty-ffths of those amounts shoud be deducted from the gross
ncome for 1917.
The ease does not purport to make the promse to pay those amounts when
ascertaned part of the consderaton for the use of the rented premses durng
the year 1917 ony. y the terms of the ease contract the consderaton for
those payments was not the use of the premses durng 1917 ony, but the
present ease, whch was for a term of 45 months. In payng those amounts
the essees pad part of the consderaton for the use of the premses for 33
months succeedng the year 1917. The e pendtures n queston beng n part
a consderaton for the use of the rented premses after the year 1917. the
whoe thereof can not propery be consdered necessary e penses actuay
pad n carryng on any busness or trade durng that year, and ony the
part (hereof propery attrbutabe to the process of earnng ncome durng thut
year was deductbe from the gross ncome for that year. (Duffy v. Centra
R. R., 208 U. S., 55 T. D. 3704, C. . I -1, 143 Unted States v. nderson, 209
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231
214(a)4, 5, 6, rt. 145.
U. S., 422, 440 T. D. S83f), C. . -, 179 .) We concude that the conrt dd
not err n hodng that ony an aquot part of such e pendture was deductbe
from the gross ncome for the year 1917.
The |udgment s ffrmpd.
S CTION 214(a)4, 5, 6. D DUCTIONS LLOW D:
LOSS S.
rtce 141: Losses.
R NU CTS O 1018 ND 1021.
Loss arsng from certan nvestments n Germany. (See I. T.
2404, page 84.)
rtce 141: Losses. II-26-3779
( so Secton 202, rtce 1566.) I. T. 2419
R NU CT OP 1921.
I. T. 2356 (C. . I-1, 168), whch hods that no oss s recognzed
from the tradng n of trucks and passenger cars used for busness
purposes on new trucks and passenger cars to be used for ke pur-
poses, s revoked, n vew of the Commssoner s acquescence n the
decson of the oard of Ta ppeas n Waace G. ay, pettoner,
v. Commssoner, page 17.
rtce 141: Losses.
R NU CT O 1921 ND TRIOR CT8.
Tradng n of trucks and passenger cars used for busness pur-
poses on new trucks and passenger cars to be used for ke purposes.
(See Mm. 3641, page 86.)
rtce 145: Losses of farmers. II-17-3700
T.D. 4151
INCOM T R NU CTS O 1018 ND 1021 D CISION O COURT.
Debuotoss Losses arm Operated for Peasure.
Where a person, occuped much of Is tme wth varous fnanca
affars, operates a farm chefy for the breedng of hackney horses,
at a yeary e pense durng 17 years greaty n e cess of the yeary
gross ncome therefrom and n each of the ta abe years at an e -
pense about tweve tmes the gross ncome, of whch no part s
derved from the sae of horses and ony one-thrd from breedng
and boardng fees, the remander accrung from the ncdenta use
of the farm, the operaton of the farm s not for the purpose of
vehood or proft and s therefore not a busness and the osses
sustaned are not deductbe from ( ro. s ncome under secton
214(a)4 of the Revenue cts of 1918 and 1921.
6342 28 16
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214(a)4, 5, 6, rt. 145.1
232
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned :
The foowng decson of the Court of ppeas of the Dstrct of
Coumba n the case of ames R. Deerng, ecutor of the state of
Regnad C. anderbUt, Deceased, appeant, v. Davd . ar,
Commssoner of Ivtema Revenue, appeee, s pubshed for the
nformaton of nterna revenue, offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved pr 14, 1928.
. W. Meon,
Secretary of the Treasury.
Court op ppeas of the Dstrct of Coumba
No. 4590. ames R. Deerng, ecutor of the state of Regnad C. anderbUt,
Deceased, appeant, v. Davd . ar, Commssoner of Interna Revenue,
appeee.
No. 4591. ames R. Deerng, ecutor of the state of Regnad C. anderbUt,
deceased, appeant, v. Davd . ar, Commssoner of Interna Revenue,
appeee.
ppea from the oard of Ta ppeas.
efore Martn, Chef ustce Rom), ssocate ustce and Graham, Pre-
sdng udge of the Unted States Court of Customs ppeas.
Ths s an appea from an order of the oard of Ta ppeas Sdng certan
defcences n the ncome ta es of Regnad C. anderbUt, now deceased, for the
ta abe years 1919, 1921), and 1921. It appears that when Mr. anderbUt com-
puted hs net ncome durng those years for ta purposes he deducted certan
sums from hs gross ncome because of osses aeged to have been ncurred by
hm whe operatng a stock farm as a busness durng that tme. Ths cam
was based upon secton 214(a)4 of the Revenue ct of 1918 (40 Stat,. 1057, 1066,
1067), and the correspondng provsons of the Revenue ct of 1921 (42 Stat.,
227. 239, 240), whch provde that In computng net ncome for ta abe purposes
the ta payer may deduct from hs gross ncome Losses sustaned durng the
ta abe year and not compensated for by nsurance or otherwse, f ncurred n
trade or busness. The deductons thus made by Mr. anderbUt were dsa-
owed by the Commssoner of Interna Revenue, whose acton was affrmed by
the oard of Ta ppeas. The oard found that Mr. anderbUt had n fact
owned and operated a sock farm durng the year n queston, and that he had
e pended thereon arge sums of money n e cess of the ncome from the farm,
but the oard hed that he had not conducted te farm as a busness, fnd
therefore that the osses were not aowabe as deductons. The soe queston
at present, therefore, s whether Mr. anderbUt. n the years 1919. 1920. and
1921. mantaned and operated hs stock farm as a busness. If so, the deduc-
tons were awfu: f not, they were unawfu and were rghty dsaowed.
usness s defned to be that whch occupes the tme, attenton, and
abor of men for the purpose of vehood or proft. It s not necessary that
ths shoud be the soe occupaton or empoyment of the party. ( ouve s
usness nt v. Stone Tracy Co., 220 U. S.,-107.) n occupaton or em-
poyment w not be e cuded from the cassfcaton of busness merey because
t actuay resuts n oss nstead of proft: but t s essenta that vehood
or proft 1h at east one of the purposes for whch the empoyment s pursued,
In order to brng t wthn the accepted defnton of the word, and ths appes
to farmng as we as other empoyments. (Pant v. Wash, 280 ed.. 722
Thacher v. Lowe, 288 ed., 994 T. D. 3444, C. . II-, 83 .)
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233
214(a)7, rt. 151.
It appears that Mr. anderbt resded n New York and was occuped much
f not most of hs tme wth varous fnanca affars n that cty that he took
an nterest n hackney horses, and n mprovng that breed of horses that about
the year 1904 he acqured the farm n queston, consstng of 235 acres, ocated
near Portsmouth, . I., nd that he owned and operated t up to the tme of
hs death, whch occurred n the year 1925 that there were 13 budngs upon
the farm, ncudng a arge resdence for Mr. anderbt. whch, however, was
not occuped n 1919. 1920, or 1921 aso a wnter cottage, where Mr. ander-
bt stayed at tmes, and varous other cottages, some of whch were for servants,
and other budngs: that there was aso a arge coach stabe wth an umnated
top caed a and mark, wth a tranng and show rng In an Incosed and
covered budng whc was 250 feet ong, the peak of the roof beng 106 feet n
he:: t. part of the and was used for crops, and cows and chckens were
kept, bnt the farm was used chefy as a stock farm for the breedng of hackney
noses, and durng the years In queston about 20 mares and 3 staons of ths
st k were kept there the atter were used for servce at hre, and ths feature
was advertsed n stock |ournas and otherwse. bout 12 empoyees were
empoyed upon the pace. The e penses of operatng the farm n the year
1919 amounted to 27,260.81, whe the tota gross ncome from t amounted to
2,285.53. of whch 1,579.26 was derved from the sae of vegetabes, etc.. and
ony 706.27 from breedng and boardng fees. Nothng was reazed from the
sae of horses. The record for the years 1920 and 1921 shows smar osses
t aso appears that the farm had reguary shown arge osses durng the pror
years of ts operaton. The oard states n ts decson that, In such cond-
tons the operatng osses must have e tngushed the orgna nvested capta
before 1918, and, had the farm been operated for busness purposes by anyone
reyng on the recepts therefrom for vehood or Income, t woud probaby
have been sod by the sherff ong before the begnnng of the ta abe years
here n queston. In vew of ths apparenty unbroken record, e tendng from
the begnnng to the cose of Mr. anderbt s operaton of the farm, we thnk
the oard was |ustfed n the concuson that the farm was operated as a pace
of peasure, e hbton, and soca dverson, and not as a busness for proft
Such a concuson foows the reasonng of udge Learned and n Thacher v.
Lore, supra, readng n part as foows:
I have no doubt that a awyer can operate a farm for proft. owever
unkey t may be that he w succeed n the enterprse, the enterprse may
In fact be ntended as a busness. ut t s equay cear that a awyer may
mn a farm merey as an ad|unct to hs country pace, and between the two
the test appears to me to be ony of hs actua ntenton. Moreover, n ascer-
tanng that ntenton, I can see no escape from makng the cru of the deter-
mnaton hs recepts and e pendtures.

It does seem to me that f a man does not e pect to make any gan or proft
out of the management of the farm, t can not be sad to be a busness for proft,
and whe I shoud be the ast to say that the makng of a proft was not n
tsef a peasure, I hope I shoud aso be one of those to agree there were other
peasures than makng a proft. Indeed, t makes no dfference whether a man
s engaged n a busness whch gves hm peasure, f t be a busness that s
rreevant, as was sad n Wson v. sner. ut t does make a dfference
whether the occupaton whch gves hm ph asure can honesty be sad to be
carred on for proft. Uness you can fnd that eement t s not wthn the
tatute.
Conformaby wth these vews, we affrm the decson appeaed from.
S CTION 214(a)7. D DUCTIONS LLOW D:
D D TS.
rtce 151: ad debts.
R NU CT O 1918.
Year n whch deductbe. (See T. D. 4116, page 155.)
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214(a)8, rt. 164.
234
rtce 151: ad debts.
R NU CT O 1921.
Loss of marks deposted n German bank. (See L T. 2404,
page 84.)
S CTION 214(a)8. D DUCTIONS LLOW D:
D PR CI TION.
The bass to be used In the computaton of deprecaton on new
vesses acqured wth a repacement fund, estabshed as a resut
of Ihe nvountary converson of certan other vesses, s the
deprecated cost of the od vesses on the date of converson,
pus the cost of the new vesses over and above the amount of
the repacement fund.
n opnon s requested as to the bass to be used for the ta abe
year 1923 n computng the deprecaton aowance of the M Com-
pany on certan barges and tugs acqured wth a repacement fund
estabshed as the resut of the nvountary converson of certan
other barges and tugs.
Two vews of the queston are presented: (1) The bass to be used
n the computaton of deprecaton on the new vesses shoud be the
deprecated cost of the od vesses on the date of converson, pus
the sum pad for the new vesses over and above the amount of the
repacement fund and (2) the bass shoud be the entre sum pad
for the new vesses ncudng the fu amount of the repacement
fund.
Ths offce s of the opnon that the former vew s correct, such
vew beng n accord wth I. T. 1413 (C. . 1-2, 121), whch reads as
oows:
budng, the book vaue of whch was O doars, was destroyed by
re. Ths budng was repaced by a new structure at a cost of 20|- doars,
the amount receved from the nsurer.
Snce the entre proceeds from the nvountary converson of the od budng
were nvested n the new budng, the new budng sha be consdered as
takng the pace of the od and the bass for the deprecaton of the new
budng w be the cost of the od, or, t acqured pror to March 1, 1913, ts
far market vaue as of that date, ess deprecaton sustaned and aowabe
as a deducton. The new budng shoud be deprecated over ts estmated
usefu fe.
Under secton 234(a)7 of the Revenue ct of 1921 the ta payer
n the computaton of ts not ncome for the ta abe year 1923 s
entted to a reasonabe aowance for the e hauston, wear and
tear of property used n the trade or busness, ncudng a reasonabe
aowance for obsoescence. n aowance computed on the bass
of (1), above (whch aggregate bass shoud be deprecated over the
estmated fe of the new vesses), woud seem under the crcum-
stances of the case to be proper, as the statute does not specfcay
provde a bass for deprecaton n such cases, but drects merey that
the aowance must be reasonabe. It s recognzed that the bass
rtce 164: Capta sum recoverabe through
deprecaton aowances.
II-1-3564
G. C. M. 282G
R NU CT O 1921.
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235
214(a)9, rt. 183.
for deprecaton n such cases s not prescrbed by the anguage of
secton 202(d)2 of the 1921 ct, to the effect that property acqured
n pace of property nvountary converted sha be treated as tak-
ng the pace of the property converted, as that secton has appca-
ton ony n arrvng at the bass for determnng gan or oss.
owever, t s beeved that the provsons of that secton may
propery be taken nto consderaton n determnng what s a rea-
sonabe aowance for deprecaton. That secton 202 may be con-
sdered n such connecton s demonstrated by I. T. 2337 (C. . T-1,
144), whch hed under the 1921 ct that n the case of property
acqured by gft on or after anuary 1, 1921, the bass for depreca-
ton sha be that whch t woud have been for the purpose of
determnng gan or oss n the hands of the donor or the ast
precedng owner by whom the property was not acqured by gft.
I. T. 2038 (C. . III-, 174) s not n confct wth the concuson
reached heren, for the reason that n that case the ta payer was a
new corporate entty resutng from a reorganzaton and the de-
precabe assets wrere not acqured as the resut of a contnung
transacton n whch, e cept for the provsons of secton 202(c) of
the 1921 ct, gan or oss to the ta payer woud have been recognzed.
C. M. Chakest,
Genera Counse, ureau of Interna Revenue.
S CTION 214(a)9. D DUCTIONS LLOW D:
MORTIZ TION.
rtce 183: Property cost of whch may be II-7-3608
amortzed. G. CM. 3008
R NU CT O 1918.
corporaton whch acqured property n 1918 an rented t to
empoyees of a parent corporaton organzed after ugust 1, 1914,
and not successor to n then e stng busness, whose ncome was
derved from a Government contract made between pr 6, 1917,
and November 11, 1918. both dates ncusve, s not entted to a
deducton for amortzaton of war factes on account of the
property so rented.
n opnon s requested regardng the cam of the O Company
for a deducton for amortzaton of war factes for the year 1918.
Under date of November , 1917, the M Company and the Unted
States Shppng oard entered nto a contract whereby the M Com-
pany agreed to construct certan vesses for the Shppng oard.
The M Company caused the O Company to be organzed and ncor-
porated on pr , 1918. The () Company owned the townste
of R, a hote of rooms, and houses, and was organzed for the
purpose of furnshng housng factes for the empoyees of the M
Company.
The stock of the O Company was a owned by the M Company.
Durng the year n queston separate returns were fed on behaf
of the two corporatons under the provso of secton 240(a) of the
Revenue ct of 1918, whch reads as foows:
Provded, That there sha be taken out of such consodated net ncome and
Invested capta, the net ncome and nvested capta of any such affated

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214(a|9, rt. 185.
236
corporaton organzed after ugust 1, 1914, and not successor to a then e stng
busness, 50 per centum or more of whose gross ncome conssts of gans, profts,
commssons, or other ncome, derved from a Government contract or contracts
made between pr 6, 1917, and November 11, 1918, both dates ncusve. In
such case the corporaton so taken out sha be separatey assessed on the bass
of ts own nvested capta and net ncome and the remander of such affated
group sha be assessed on the bass of the remanng consodated nvested
capta and net ncome.
The ureau has consstenty adhered to the doctrne of separate
corporate dentty (see L. O. 1062, C. . 4, 168) and the oard of
Ta ppeas has kewse foowed that prncpe n oases where con-
sodated returns are not nvoved. (See appea of Rega Shoe Co.,
1 . T. ., 896, C. . I -1, 3.) Moreover, the provso above quoted
requres, n a case such as ths, that the corporaton havng Govern-
ment contracts made between pr 6, 1917, and November 11. 1918,
both dates ncusve, be separatey assessed on the bass of ts (nan
nvested capta and net ncome.
In appea of Moore Investment Co. (2 . T. ., 579), the oard of
Ta ppeas hed that secton 234(a)8 of the Revenue ct of 1918
was ntended to afford reef ony to manufacturers or producers who
constructed or acqured addtona factes for war tme purposes
and not to ta payers who acqured budngs for renta or nvestment
purposes. s a separate ta abe entty the poston of the O Com-
pany n the nstant case s ess favorabe than was that of the
||et toner n the Moore Investment Co. case. Not ony was the ta -
payer merey a renter of property, but ts property was not rented to
a concern whch produced war artces but to the empoyees of such
a concern.
The appea of G. M. Standfer Constructon Corporaton et a.
(4 . T. ., 525 C. . -2, 1), upon whch the ta payer rees, has
no appcaton to ths case. It s concerned wth the aowance of
the amortzaton deducton n a consodated return.
It s, therefore, the opnon of ths offce that no deducton for
amortzaton of war factes may be aowed on account of the
property owned by the O Company.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 185: mortzaton perod. IT-9-3633
T. D. 4133
INCOM T .
mortzaton deducton, returns for other than caendar year.
rtce 85 of Reguatons 45 (1920 edton) amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Co-ncerned:
rtce 185 of Reguatons 45 s hereby amended by the emnaton
of the thrd paragraph and the substtuton for the paragraph
emnated of a paragraph readng as foows:
ta payers camng an aowance for amortzaton sha compute the
amount of ther cams appcabe to each accountng perod between anuary
1, 1918, to the date specfed above. In a such cams costs durng the
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237
214(a)9, rt. 185.
amortzaton perod Incurred n one ta abe perod sha be segregated from
those costs ncurred n any other ta abe perod, e cept that there sha be
ncuded as the costs of the frst such ta abe perod those costs ncurred from
pr 0, 1917, to the end of such ta abe perod. separate aowance sha
be determned n respect of such costs ncurred n each separate ta abe perod
fa ng party or whoy wthn the amortzaton perod. The aowance so
computed n respect to the group of costs ncurred n each ta abe perod sha
then be spread over that ta abe perod and the succeedng (but not precedng)
ta abe perods fang party or whoy wthn the amortzaton perod. The
apportonment of the aowance for each ta abe perod to such perod and the
foowng per ods sha be based upon the rato whch the ncome ( tang wthn
the amortzaton perod) of each of such perods bears to the tota ncome
(fang wthn the amortzaton perod) for such perod and such foowng
perods. In ths computaton the ncome sha be the ncome before the deduc-
ton for amortzaton. The porton of the aowance aocated to the ta abe
perod begnnng n 1917 and endng n 1918 sha be the amortzaton deducton
used n computng the net ncome for such perod sub|ect to 1918 rates. The
sum of the portons of aowances aocated to each subsequent ta abe perod
sha be aowed as a deducton In computng the ta abe net ncome of such
ta abe perod.
C. R. Nash,
ctng Commssoner of Interna Revenue.
pproved ebruary 21, 1928.
. W. Meon,
Secretary of the Treasury.
rtce 185: mortzaton perod. II-9-3634
T. D.4134
INCOM T .
mortzaton deducton, returns for other than caendar years.
rtce 185 of Reguatons 62 amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
rtce 185 of Reguatons 62 s hereby amended by the emna-
ton of the second paragraph and the substtuton for the paragraph
emnated of a paragraph readng as foows:
ta payers camng an aowance for amortzaton sha compute the
amount-of ther cams appcabe to each accountng perod between anuary
1, 1918, to the date specfed above. In a such cams costs durng the
amortzaton perod ncurred n one ta abe perod sha be segregated from
those costs ncurred n any other ta abe perod, e cept that there sha be
Incuded as the costs of the frst such ta abe perod those costs ncurred from
pr 6, 1917. to the end of such ta abe perod. separate aowance sha then
be determned n respect of such costs ncurred n each separate ta abe perod
fa ng party or whoy wthn the amortzaton perod. Th a aowance so
computed n respect to the group of costs ncurred n each ta abe perod sha
then be spread over that ta abe perod and the succeedng (but not precedng)
ta abe perods fang party or whoy wthn the amortzaton perod. The
apportonment of the aowance for each ta abe perod to such perod and the
foowng per ods sha be based upon the rato whch the ncome (fang wthn
the amortzaton perod) of each of such perods bears to the tota ncome
(fang wthn the amortzaton perod) for such perod and such foowng
perods. In ths computaton the ncome sha be the ncome before the deduc-
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214(a)10, rt. 203.
238
on for amortzaton. The sum of the portons of aowances aocated to
the varous ta abe perods sha be aowed as deductons In computng the
ta abe net ncome of such ta abe perods.
C. R. Nash,
ctng Commssoner of Interna Revenue.
pproved ebruary 21, 1928.
. W. Meon,
Secretary of the Treasury.
S CTION 214(a) 10. D DUCTIONS LLOW D:
D PL TION.
rtce 203: mount returnabe through depe- II 25-3767
ton and deprecaton deductons n tbe case of G. C. M. 3688
essee.
R NU CT O 1918.
Ta payer, n addton to stpuated royates and n consderaton
for the assgnment of eases, agreed to pay a stpuated amount on
gross tonnage mned durng the years 1918 to 1920, ncusve. Ths
addtona abty of ta payer was whoy contngent upon opera-
ton, and the contract mposed no obgaton upon ta payer to
operate the eased propertes.
ed, as the ta payer was not uncondtonay obgated to pay
any amount durng the years 1918 to 1920, ncusve, there was no
capta nvestment sub|ect to return through depeton pror to a
maturty of the contngent abty nto an absoute abty
through actua operaton of the eased propertes. The actua pay-
ments durng the years 1918 to 1920. ncusve, shoud be capta-
zed and returned through depeton based upon the remanng
ore content of the eased propertes after each payment was made.
n opnon s requested as to the manner n whch aowabe depe-
ton shoud be computed n the case of the M Company for the vears
1918 to 1920, ncusve.
In addton to stpdated royates, the ta payer corporaton
agreed, n consderaton for the assgnment of eases, to pay to the
partes securng the eases and assgnments to t y cents per gross
ton mned durng the years 1918 to 1920, ncusve. The payments
under ths agreement amounted to 4ar doars. 3a doars, ard 3a
doars, n the years 1918, 1919, and 1920, respectvey. These pay-
ments have been hed to be the capta cost of acquston, of the
eases, recoverabe through depeton aowances. The opnon of
ths offce s requested as to the proper bass for the depeton of the
foregong capta cost of the eases.
On one hand t s urged that the tota capta cost, aggregatng
10a doars, shoud be returned over the entre coa reserve covered
by a of the eases as of the date of the assgnment, thus securng
a unform depeton rate n a years. On tbe other hand, reyng
on Soctor s Opnon 86 (C. . 4, 138). t s camed that the yeary
payments shoud be captazed when made and the capta cost be
returned over the remanng mnera reserves e stng after each
payment. Ths method woud resut n ncreasng or pyramdng
the depeton rate as each payment was captazed.
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239
214(a)10, rt 208.
Soctor s Opnon 86 was rendered n a case nvovng a bond
and ease agreement where the e tent of ore reserves was argey
con|ectura and where there was no bndng obgaton to pay the
entre saes prce. It was not known when the frst payments were
made whether the ore content woud warrant the competon of the
purchase, and no abty for the entre purchase prce was mposed
by the contract. Under the crcumstances of that case t was con-
cuded that depeton coud not be based upon the entre purchase
prce that the e cess payments, representng amounts appcabe
aganst the optona purchase prce, consttuted a capta e pend-
ture and coud not be consdered a deductbe e pense and that such
e cess payments shoud be recovered through deductons for depe-
ton over the mnera reserve remanng after each e pendture.
In Genera Counse s Memorandum 2270 (C. . I-2, 21G) ths
offce e pressed the opnon that the entre contract prce of a ease
propery shoud be ncuded n the cost of such ease for depeton
purposes. Whe the sad purchase prce was payabe n nsta-
ments over severa years, the separate nstaments were not hed
captazabe upon payment, but the entre contract prce capta-
zabe when the obgaton was ncurred. ut n that case the
vendee was uncondtonay obgated to pay the entre amount of the
purchase prce.
In the nstant case the contract, by whch the ta payer acqured
the eases, provded that the y cents per ton payment durng the years
1918 to 1920, ncusve, shoud not be made
e cept as, when, and f the M Company operates sad propertes and
mnes and shps mnera therefrom durng the perod aforesad t beng the
understandng and agreement of the partes that no payments sha be made to
the partes of the frst part e cept when the party of the second part operates
-sad mnera propertes and s abe by reason thereof to make the payments as
stpuated and nothng heren contaned sha obgate the M Company to make
any payments whatsoever to the partes of the rst part under the terms of ths
agreement uness, durng the perod aforesad, the M Company sha actvey
operate sad propertes and mne and shp mnera therefrom. t the con-
cuson of four years from the date hereof, a rghts to remuneraton, as heren
stpuated on behaf of the partes of the frst part, sha cease.
The abty of the ta payer to pay the y cents per ton was whoy
contngent upon operaton and the contract mposed no obgaton
upon the ta payer to operate the eased propertes. The ta payer
was not uncondtonay obgated to pay any amount upon the e ecu-
ton of the contract by whch t acqured the eases.
s the ta payer was not uncondtonay obgated to pay any
amount durng the years 1918 to 1920, ncusve, there was no capta
nvestment sub|ect to return through depeton pror to a maturty of
the contngent abty nto an absoute abty through actua
operaton of the eased propertes. It s therefore the opnon of ths
offce that the actua payments durng the years 1918 to 1920, ncu-
sve, shoud be captazed and returned through depeton based
upon the remanng ore content of the eased propertes after each
payment was made.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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|217, rt 325. 240
S CTION 214(a) 11. D DUCTIONS LLOW D:
C RIT L CONTRI UTIONS.
rtce 251: Chartabe contrbutons.
R NU CT O 1021 ND PRIOR CTS.
Contrbutons to organzaton engaged n promotng the wefare of
the mercan Indan. (See G. C. M. 3830, page 114.)
S CTION 215. IT MS NOT D DUCTI L .
rtce 294: Premums on busness nsurance.
R NU CTS O 1918 ND 1021.
Premums pad on pocy of nsurance coverng the fe of a ta -
payer whose estate s benefcary, such pocy havng been assgned
as securty for a busness oan. (See T. D. 4161, page 200.)
S CTION 216. CR DITS LLOW D INDI IDU LS.
rtce 306: Credts to ctzens entted to II-24-3757
benefts of secton 262 and nonresdent I. T. 2415
aen ndvdua.
R NU CT O 1921.
I. T. 1390 (C. . 1-2, 148) s revoked n so far as t s nconsstent
wth Genera Counse s Memorandum 3804, page 97.
S CTION 217. N T INCOM O NONR SID NT
LI N INDI IDU LS.
rtce 311: Defnton.
R NU CT O 1921 ND PRIOR R NU CTS.
Resdence and not domce as determnng status of an aen.
(See T. D. 4164, page 98.)
rtce 325: pportonment of deductons. TI-13-3658
G. C. M.3179
R NU CT O 1921.
Method of determnng deducton for rtsh ncome ta es pad
by a nonresdent aen ndvdua n connecton wth ncome from
sources wthn the Unted States.
Recommended that I. T. 1707 (C. . II-2, 159), I. T. 2097
(C. . 111-2, 104), and I T. 2102 (C. . III-2, 165) be revoked.
n opnon has been requested, n the case of . reatve to the
aowance for the years 1921 and 1922 of a deducton for rtsh
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241
217, rt. 325..
ta es pad by nonresdent aen on Unted States ncome. The ques-
ton arses as to the correctness of I. T. 1707, I. T. 2097, and I. T.
2102 n hodng that the entre rtsh ncome and superta es shoud
be prorated n the rato of gross ta abe Unted States ncome to
tota gross ncome from a sources receved durng the rtsh ta -
abe year endng n the caendar year for whch the deducton s
camed. These rungs seem to assume that proratng the entre
rtsh ncome ta and superta pad durng the year s necessary.
Secton 214(b) of the Revenue ct of 1921 provdes that n the
case of a nonresdent aen ndvdua the deductons aowed n sub-
dvson (a) (wth certan e ceptons not pertnent hereto) sha be
aowed ony f and to the e tent that they are connected wth
ncome from sources wthn the Unted States. Under paragraph
(3) of subdvson (a), so much of the ncome, war-profts, and e -
cess-profts ta es pad durng the ta abe year to any foregn country
as s not aowed as a credt under secton 222 s deductbe. Snce a
nonresdent aen s not entted to any credt under secton 222, the
ncome, war-profts, and e cess-profts ta es pad durng the ta abe
year to a foregn country, n connecton wth ncome from sources
wthn the Unted States, are deductbe.
Secton 217(d) of the Revenue ct of 1921 provdes that from the
tems of gross ncome from sources wthn the Unted States there
sha be deducted the e penses, osses, and other deductons propery
apportoned or aocated thereto, and a ratabe part of any e penses,
osses, or other deductons whch can not defntey be aocated to
some tem or cass of gross ncome.
In other words, ta es (as deductbe e penses) are to be appor-
toned or aocated to those tems of gross ncome to whch they
reate n a cases where the actua amount of ta pad wth respect
to those partcuar tems of gross ncome can be determned. It s
ony where such determnaton can not be made that t ever becomes
necessary to compute the ratabe part of a ta that s deductbe.
The rungs above referred to were apparenty predcated on the
assumpton that a rtsh ta payer does not know and can not de-
termne what part of the rtsh ncome ta and superta pad for
any year was pad wth respect to ncome from Unted States sources,
and for ths reason they authorze the deducton of a ratabe part
of the rtsh ncome ta es pad for a gven ta abe year, based upon
receved n such year.
n e amnaton of the rtsh system of ncome ta aton as re-
fected n the aw tsef, the outne of the ta by the Commssoners
of Inand Revenue, the forms requred to be fed and nstructons
for reportng ncome, the te ts on rtsh ncome ta , and rtsh
ta cases dscoses the fact that a rtsh ta payer does know or can
determne what part of the rtsh ncome ta and superta for any
ta abe year was pad wth respect to ncome from foregn sources.
bref outne of the pertnent portons of the rtsh Income Ta
ct w show how ths can be done.
rtsh ncome ta may be charged n one of two ways:
(a) y drect assessment on the person entted to the ncome, or
(b) y deducton of ta at the source by the person payng the
ncome (the atter accounts to the revenue offcas for such ta de-
States ncome to tota ncome
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217, rt. 325.
242
ducted as provded for n the acts and the recpent of the ncome s
entted to receve a voucher certfyng that the ncome has been pad
under deducton for ta ). Such ncome s not abe to ncome ta
agan n the hands of the recpent and s not ncuded n the ncome
whch s assessed drecty aganst the ta payer. On the other hand,
as the ncome ta deducted n such cases s aways deducted wth
reference to the fu standard rate of ta , the recpent may have
suffered more ta by deducton than he s abe to pay n accordance
wth hs tota ncome, and he may have the e cess set-off aganst ta
payabe by hm n drect assessments, or, f he s not drecty assessed,
he may cam to have the e cess repad.
rtsh superta for a gven ta abe year s aso charged by
drect assessment on the person entted to the ncome, but, as t s
measured by the tota statutory net ncome of the person for the
precedng ta abe year, t w be consdered separatey.
or the purpose of chargng to ncome ta , ncome s dvded nto
fve categores or schedues caed , , C, I), and . The ncome
under these schedues s dstngushed varousy accordng to the
source from whch t s derved and charged accordng to specfc
rues and bases e pressed n each schedue.
The prncpa schedue of the act, and the one under whch ncome
from Domnon and foregn sources fas, s Schedue D. ( of the
recepts for ncome ta pad n 1921 by the ta payer n the nstant
case show that the assessments were made under Schedue D.) The
sub|ects of charge n ths schedue are grouped under s heads
caed cases and the profts charged under each case are computed
for the purpose of assessment on varous bases, as foows:
Cnse.
Profts or ncome fang under each case.
ass of
II
III
I

I
Profts of trade, manufacturng, etc-
Incomc from professons, vocatons, and
empoyments not contaned n any other
schedue.
Income from nterest, dscounts, etc., not
ta ed at source and profts of an uncer-
tan vaue.
Income from Domnon and foregn secur-
tes.
Income from Domnon and foregn pos-
sessons.
Msceaneous profts not fang under
foregong cases and not ta ed under any
other schedue.
verage of profts arsng
n the three precedng
years.
Same as n Case I.
mount arsng n pre-
cedng year.
Income arsng n year of
assessment.
verage of ncome arsng
n the three precedng
years, as n Case I.
s the case may requre.
(The nance ct of 192G made changes n the bass of assessment
of the ncome fang n certan cases above, begnnng wth the year
1927-28.)
The ncome or profts receved by rtsh sub|ects from sources
wthn the Unted States fa under Case I or Case , dependng
on whether such ncome s from foregn securtes or from foregn
possessons. The word securtes has been nterpreted as denotng
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243
217, rt. 325.
a debt or cam, the payment of whch s n some way secured.
(Snger v. Wams, 7 T. C, at page 41.) Income from foregn pos-
sessons ncudes ncome from foregn stocks, shares, rents, and a
other foregn property not ncuded under foregn securtes.
recent decson of the rtsh courts has hed that ncome from a
foregn trust s ncome from a foregn possesson even though the
trust funds are nvested n foregn securtes. (Sr. M. rcher-Shoe
v. aker, Court of ppeas, 1926.)
Under the rues appcabe to Cases I and , any sum pad n
respect to ncome ta n the pace where the ncome arose s aowed
to be deducted n computng the ncome brought nto charge. Con-
sequenty, ony the Unted States ncome, ess Unted States ta , s
the amount ncuded n the statutory ncome.
vduas are requred to report a unta ed ncome assessabe under
Schedue D, contans a secton n whch the ta payer makes a state-
ment of hs unta ed ncome. There are separate headngs, corre-
spondng to the cases fang under Schedue D, under whch the
ncome from each source s to be reported. The amounts to be
ncuded under each head are the amounts estmated n accordance
wth the ega bass of assessment. Drectons are gven on the form
for estmatng such amounts. or e ampe, the ta payer s nstructed
to nsert under ncome from foregn possessons the amount arsng
on average of the three precedng years. t the foot of the state-
ment the ta payer sgns a genera decaraton that n the foregong
statement I have gven a fu and true return of the whoe of the
ncome chargeabe upon me under Schedue D, estmated to the best
of my |udgment and beef accordng to the provsons of the ncome
ta act. It s the unta ed ncome reported n ths statement whch
s assessed and on whch ta s charged drecty aganst the
ta payer.
The ta payer does not compute the amount of ta due on the
ncome reported for assessment. fter the return s fed, the ncome
reported under each headng as estmated by the ta payer s revewed
by the proper nand revenue authortes and the amount of ncome
to be assessed s determned. fter the ncome to be assessed under
each head s determned a Notce of assessment under Schedue D
s sent to the ta payer, whch advses hm of the amount of the as-
sessment made n respect of ncome fang under each head, the
tota amount of the assessment, the ta chargeabe thereon, the ta
payabe on or before anuary 1 of the year of assessment, and the
amount payabe on or before the foowng uy 1. The ta payer s
gven 21 days from the date of the notce n whch to appea aganst
the assessment under any head. If he does not appea from the
assessment n respect of the ncome fang under any head, the as-
sessment as to such ncome becomes fna and concusve for ncome
ta purposes for the year of assessment. It aso becomes fna and
concusve as to ncome from such sources for superta purposes for
the ne t year.
It s the sum of the ncome assessed under the varous heads whch
forms the statutory ncome assessabe under Schedue D, but the ta
charged on such ncome s charged and pad n respect to the actua
ncome of the year of assessment. Pror to the nance ct of 1926
The Return
Schedue D, on whch nd-
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217, rt. 325.
244
no ncome ta was mposed n respect of any source of ncome uness
the person assessed possessed that source of ncome durng the year
of assessment Natona Provdent Insttuton v. rown, 8 T. C, 57)
or had receved ncome from that source durng the year of assessment
(Whaen v. ennmg, 10 T. C, 263). Consequenty, the ncome
ta pad for the year of assessment on the statutory ncome from a
partcuar source was the ncome ta pad wth respect to the actua
ncome from that source arsng n the year of assessment.
In vew of the foregong, t requres ony a smpe computaton to
determne what part of the tota rtsh ncome ta pad on any assess-
ment under Schedue D was pad wth respect to the ncome from
each partcuar source contaned n the assessment. The ta on the
ncome fang under each head s the same proporton of the tota
ta pad on the assessment as such ncome s of the tota ncome
assessed. urthermore, nforma nformaton has been receved from
the Commssoners of Inand Revenue that a ta payer can, upon
request to the proper nand revenue offcer, secure a statement of
the amount of the assessment of ncome from any partcuar source
for a gven year and the ta pad thereon.
The ncome from foregn possessons reported under Case may
ncude ncome from severa foregn countres, and n the case of
ncome from Unted States possessons woud ncude any ncome
whch s e empt from Unted States ta es. It woud be necessary,
therefore, n computng the ta pad on ta abe Unted States n-
come, to segregate the ncome from other foregn possessons and the
ta -e empt ncome from Unted States sources, and to emnate the
ta pad on such ncome. The statutory ncome reported s the
average of the ncome of the three precedng years. Suppose, for
e ampe, that ncome from foregn possessons receved durng the
three years precedng the ta abe year 1920-21 had been as foows:
Income from Unted
States possessons.
Income from other for-
egn possessons.

Ta abe.
Ta
e empt.
1917-18
1. 100,000
1, 200.000
1.300,000
100,000
50.000
100,000
10,000
98-a
10,000
..
191S-20
Tota
3.000,000
1,200,000
250,000
20,000
3 870,000
The statutory ncome reported under Case woud be 1,290,000.
Of ths statutory ncome, 1,200,000 s ta abe Unted States ncome.
The rtsh ncome ta pad on ths amount s deductbe n com-
putng net ncome sub|ect to edera ncome ta . To determne the
amount of rtsh ncome ta pad on ta abe Unted States ncome
contaned n the tota ncome assessed s a smpe matter where the
amount of the ta abe Unted States ncome and the tota ncome
assessed s known.
In the case of ncome ta deducted at the source or upon payment
of ncome the recept whch s gven to the ta payer dscoses whether
the ncome was from rtsh sources, from Unted States sources, or
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245
217, rt. 328.
from other sources. If the ncome was from sources wthn the
Unted States, the ta deducted was pad on Unted States ncome
and s deductbe n ts entrety, provded the ncome was ta abe
Unted States ncome and no part of the ta deducted was repad
or credted n computng the ta pad drecty. (In the nstant case
none of the ncome from whch ta was deducted at the source or
upon payment of the ncome was from sources wthn the Unted
States.)
The fnanca year for superta purposes s the same as for ncome
ta purposes that s, from pr 6 of one year to pr 5 of the
foowng year- and abty arses on an ndvdua whose tota
ncome far the year for superta purposes e ceeds 2,000. In ths
connecton tota ncome for superta purposes s the tota ncome for
ncome ta purposes for the precedng year for e ampe, superta
abty for 1920-21 that s, the year endng pr 5, 1921 s
based on the tota ncome for ncome ta purposes for the year 1919-
20. Income ta assessments as fnay ad|usted are fna and con-
eusve wth regard to the determnaton of superta abty. In
arrvng at the tota ncome for ncome ta purposes for determna-
ton of the superta abty of the succeedng year, the amount
of ta ed ncome that s, dvdends, nterest, etc. to be taken nto
account s the tota amount receved n the ncome ta year, rre-
spectve of the perod for whch or the profts out of whch the
payments were made.
Snce the superta for the year 1920-21 s based on the tota n-
come from a sources for the year 1919-20, the ncome ta assess-
. nent wth respect to ncome from foregn possessons as fnay
ad|usted for the year 1919-20 s the ncome from foregn posses-
sons on whch superta s pad for the year 1920-21. The amount of
superta pad on such ncome for a gven year or assessment s the
same proporton of the tota superta for such year as the ncome
from foregn possessons contaned n the assessment (on whch the
superta was charged) bears to the tota amount of ncome contaned
n the assessment.
In vew of the fact that a rtsh sub|ect can determne the
rtsh ncome ta and superta pad on ta abe ncome from
Unted States sources, the rungs contaned n I. T. 1707, 2097. and
2102 are ncorrect n hodng that the entre rtsh ncome ta
and superta shoud be prorated n the rato of gross ta abe Unted
States ncome to tota ncome from a sources receved durng
the rtsh ta abe year endng n the caendar year for whch the
deducton s camed.
The ta payer n the nstant case shoud be requested to secure
a statement from the approprate nand revenue offcer showng the
tota amount of ncome assessed under each assessment for whch the
ta payer has recepts, the amount of ncome from foregn sources
contaned n each assessment, and the ta pad wth respect to such
foregn ncome. If the revenue offcer n hs statement does not
dvde the foregn ncome so as to show the amount of ta abe
Unted States ncome contaned n the foregn ncome assessed, the
ta payer shoud submt a suppementa statement showng the n-
come for the three precedng years (the average of whch was used
as a bass for the assessment) dvded for each year nto ta abe
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8217, rt 325.
246
Unted Sates ncome, ta -e empt Unted States ncome, and ncome
from other foregn sources.
Wth the nformaton referred to above, both the ta payer and
the Unt can determne the rtsh ncome ta and superta pad
wth respect to ta abe ncome from Unted States sources.
The foregong concusons are summarzed as foows:
Ta es pad by an ndvdua under the rtsh Income Ta ct,
1918. for any year of assessment are (1) ncome ta deducted at the
source or upon payment of ncome. (2) ncome ta charged drecty
aganst the ndvdua, and (3) superta .
Tn- recept gven to the ta payer for ta deducted at the source
or upon payment of ncome w dscose the source of the ncome. If
(e ncome was ta abe ncome from sources wthn the Unted
States, the ta wthhed s deductbe n ts entrety n computng
net ncome sub|ect o Unted States ta , provded no part of the ta
wthhed has been repad or credted on computng ta payabe d-
recty. Ta deducted upon payment of ncome s consdered to be
pad at the tme the ta s deducted.
The amount of rtsh ncome ta charged drecty wth respect to
ta abe Unted States ncome contaned n any assessment under
Schedue D for a gven ta abe year s the same proporton of the
ota tu pad on such assessment whch the ta abe Unted States
Mcre contaned n the assessment (on whch the ta was charged)
bears to the tota amount of the ncome contaned n the as essment.
The amount of superta pad on ta abe Unted States ncome for
a gven ta abe year s the same proporton of the tota superta
for such year whch ta abe Unted States ncome contaned n the
assessment (on whch the superta was charged) bears to the tota
amount of ncome contaned n the assessment.
nonresdent aen who cams a deducton on account of rtsh
ncome ta and superta pad on Unted States ncome shoud not
ony be requred to submt recepts showng the payment of such
ta es, but n cases where the ta pad on Unted States ncome s
ncuded n ta on ncome from other sources to submt evdence to
prove1 what proporton the ta abe Unted States ncome bears to
to a ncome on whch the ta was pad. Such evdence may consst
of statements secured from the approprate nand revenue author-
tes, suppemented where necessary by statements of the ta payer.
It s recommended that I. T. 1707, I. T. 2097, and I. T. 2102 be
revoked.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
ktce 325: pportonment of deductons. II-13-3659
I. T. 2403
NU CT O 1921.
I. T. 1707 (C. . II-2,159), I. T. 2097 (C. . III-2, 164), and I. T.
2102 (C. . III-2, 165) are revoked, n vew of Genera Counse s
Memorandum 3179, page 240.
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247 219, rt. 341.
rtce 325: pportonment of deductons.
R NU CT O 1921 ND TRIOR CTS.
Dvdends receved by Canadan corporaton from another Cana-
dan corporaton. (See G. C. M. 3983, page 171.)
S CTION 218. P RTN RS IPS ND P RSON L
S R IC CORPOR TIONS.
rtce 331: Partnershps.
R NU CT O 1921.
Rght of a husband and wfe to enter nto a partnershp n North
Carona. (See G. C. M. 3034, page 104.)
S CTION 219. ST T S ND TRUSTS.
rtce 341: states and trusts. II-6-3600
T. D.4122
ncome ta revenue act of 1918 uecson of court.
1. Decedent s state Deducton Income for Chartabe Cor-
poraton.
Where a testatr , after makng certan specfc bequests and
devses, gave tbe resdue to cmrtabe corporatons, e empt from
ta aton under secton 231(6) of tbe Revenue ct of 1918, tbe n-
come receved by the e ecutors durng the perod of admnstraton,
In e cess of an amount necessary to pay such specfc bequests, s
permanenty set asde by the w for chartabe corporatons wthn
the meanng of secton 219(b), and s, therefore, deductbe from
tbe gross ncome of the estate.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Crcut Court of p-
peas for the Second Crcut, n the case of rank W. ocers, Co-
ector of Interna Revenue for the Second Dstrct of New York,
pantff n error (defendant beow), v. erbert erman Socum,
Stephen ULTommedeu Socum, Robert W. De orest, and enry W.
De orest, as Survvng ecutors of the Last W and Testament
of Margaret Ova Sage, deceased, defendants n error (pantffs
beow), s pubshed for the nformaton of nterna revenue offcers
and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved anuary 26, 1928.
. W. Meon,
Secretary of the Treasury.
6342 28 17
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5219, rt. 341.
248
Unted States Crcut Court or ppeas fob te Second Crcut.
rank W. owers, Coector of Interna Revenue for the Second Dstrct of
New York, pantff n error (defendant beoto), v. erbert erman Socum,
Stephen L omnn deu Socum, Robert W. De orest, and enry W. De
orest, as Survvng ecutors of the Last W and Testament of Margaret
Ova Sage, deceased, defendants n error (pantffs beow).
une 4, 1927.
OPINION.
Margaret Ova Sage ded November 4, 1918, a resdent of the cty, county,
and State of New York.
She eft a ast w and testament and two codcs, whch were duy admtted
to probate by the surrogate s court of New York County on or about December
6, 1918, and etters testamentary thereon were duy ssued out of sad court
to the defendants n error and aso to one oseph eremah Socum, snce
deceased, a of whom quafed as e ecutors and took upon themseves the
admnstraton of the decedent s estate.
The decedent eft a gross estate of 48,939,045.94, and her debts, so far as
they had been ascertaned up to December 31, 1919, amountng to sghty over
2,000,000, were pad before the end of the caendar year 1919.
In and by sad w and codcs the decedent, after makng certan bequests
and devses and provdng for certan trusts, eft her entre resduary estate
to 35 separate chartabe, regous, and educatona corporatons, whch organ-
satons, as such, were e empt from the payment of ncome ta es under the
provsons of the Revenue ct of 1918.
Durng the entre caendar year of 1919 decedent s estate was beng admn-
stered by the defendants n error as her e ecutors, and they have not yet
competed the admnstraton.
Durng the year 1919 the defendants n error, as such e ecutors, n addton
to the amount of ncome payabe by them on genera egaces and trust funds,
and other tems whch were aowed to them as deductons, receved ncome
amountng to 2,142,713.02.
etween March 13, 1920, and uy 25, 1921, the defendants n error fed
orgna and amended ta returns for the estate, both on ndvdua orm 1040
and fducary orm 1041, and n a of these returns they reported the ncome
receved by the estate durng the year 1919 as beongng to the chartabe,
regous, and educatona resduary egatees, and no ta was due thereon.
The defendants n error kept ther books on a cash recept and cash dsburse-
ment bass durng the year 1919, and the ncome aforesad was not credted to
the resduary egatees on the estate books durng the year 1919, nor unt the
year 1923.
The chef of the dvson of audt of ncome ta at frst agreed wth the vew
taken by the defendants n error, but subsequenty, on March 9, 1925, a |eopardy
assessment was made aganst the defendants n error, as such e ecutors, n the
prncpa sum of 1,517,107.21.
fter notce and demand for payment of the assessment, and under threat of
dstrant and under duress, the defendants n error pad the ta 10 days ater.
The Commssoner subsequenty aowed, to the e tent of 108,598.53, for
reasons not mportant, a cam for refund fed by the defendants n error, as
requred by aw, and re|ected the cam as to the baance of 1,408,508.68, for
the recovery of whch amount wth nterest ths sut was brought.
The sectons of the Revenue ct of 1918, whch are drecty nvoved n ths
case, namey, secton 219 (a), (b), and (c) and secton 231 (6), are set forth
In the margn.1
The pantff n error, defendant beow, moved to dsmss the second amended
compant, upon the ground that the same dd not consttute a cause of acton,
whch moton w as dened, and the pantff n error, defendant beow, was gven
eave to answer n 20 days, and upon faure to answer, defendants n error,
pantffs beow, were to have |udgment aganst the pantff n error, defendant
beow, for a specfed amount.
The pantff n error, defendant beow, havng faed to answer, |udgment
was rendered n accordance wth the order denyng the moton to dsmss.
Not prnted n uetn servce.
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249
5219, rt 341.
Campbe, Dstrct udge (havng stated the facts as above):
The determnaton of the queston rased n the case at bar depends upon the
constructon of the provsons of secton 219 (a), (b), (c) and 231(C) of the
Revenue ct of 1918.
The provson of secton 219(a) 1 of the Revenue ct of 1918 apped to a
of the ncome receved by the estate durng the perod of admnstraton or
settement of the estate, and by subdvson (b) the duty was mposed on the
e ecutors to make a return of the ncome of the estate.
y that ct the estate became a ta payer as dstngushed from the egatees
or benefcares, and can not escape from ta aton under that ct by mpca-
ton, but ony by takng the deductons provded for under the provsons of
subdvsons (b) or (c) of secton 219, t the same are aowabe.
Reef from the provsons of secton 219 can not be found n secton 231(6),
generay e emptng corporatons organzed and operated e cusvey for
regous, chartabe, scentfc, or educatona purposes, but that secton may
propery be consdered n determnng the ntent of Congress, as e pressed n
secton 219, f the anguage of that secton may fary be susceptbe of two n-
terpretatons, one of whch woud reeve the estate from ta aton on the ncome
receved, whch passes to the resduary egatees, whch are corporatons of the
character descrbed, and the other woud not.
We are thus brought to a consderaton of the deductons provded for under
secton 219 (b) and (c).
Subdvson (c). t woud appear, deas wth ncome propery pad or credted
to any egatee, her, or other benefcary, such as ncome pad n the e ercse
of the dscreton of the fducary n acknowedgng the egatee of a pecunary
or specfc egacy, as dstngushed from any part of the gross ncome whch,
pursuant to the terms of the w or deed creatng the trust, s durng the ta abe
year pad to or permanenty set asde for corporatons of the character of the
resduary egatees n queston.
The deductons ncuded n subdvson (b) appy ony to such corporatons.
There s, therefore, no overap of the two subdvsons, and our consderaton
w be ony of subdvson (b), wheren t s provded that there sha be
aowed as a deducton, n eu of certan specfed deductons, any part of the
gross ncome whch pursuant to the terms of the w or deed creatng the
trust Is durng the ta abe year pad to or permanenty set asde for
or any corporaton organzed and operated e cusvey for regous, chartabe,
scentfc or educatona purposes .
Te purpose of the Congress to encourage bequests to corporatons of the
character of the resduary egatees Is made pan by the deductons provded
for by secton 219, and the purpose of the ct of 1918 was to nsure the
ta aton of ncomes whch woud eventuay go to ta abe persons n a more
accurate and enforceabe manner than was possbe under pror aws, but not
to ta ncomes whch woud go to corporatons of the character of the resduary
egatees.
No part of the ncome of ths estate was pad to any of the resduary egatees
durng the year 1919.
No entry was made on the books of the e ecutors credtng the resduary
egatees wth the ncome, but In the return made by the e ecutors, n March,
1920. and n the amended returns of the ncome receved durng the year 1919,
such ncome was returned as passng to the sad corporaton, and as sub|ect
to no ta .
Secton 219(b) does not make the deducton depend upon the acton of the
e ecutors n credtng the ncome u m ther books, but upon the permanent
settng asde of the ncome by the w tsef, for corporatons of the character
n queston.
The queston, therefore, resoves tsef nto ths: Was the ncome receved by
the estate durng the year 1919 permanenty set asde for the resduary egatees
by the w tsef
There s no force n the argument that the cause does not appy to estates
n process of settement, but ony to trusts, n vew of ts anguage, pursuant
to the w or deed creatng the trust.
The w of the decedent provdes, so far as matera here, as foows:
I gve, devse and bequeath a the rest, resdue and remander of my estate,
wheresoever and whatsoever, as foows:
I dvde my sad resduary estate nto 52 equa parts, and I gve such parts
as foows:
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219, rt. 347.
250
Shoud any of the regous, educatona, or chartabe corporatons named
as resduary egatees n my w be ncapabe for any reason of takng the
whoe or any part of the egaces gven to them, I gve, devse and bequeath
the amount whch any such corporatons woud have taken, f capabe of takng,
to the other corporatons entted to share n my resduary estate, n the same
proporton whch the egacy gven to each corporaton capabe of takng bears
to the entre amount of egaces gven to a such corporatons.
The ntenton of the testatr pany appears from her w, that a of her
resduary estate sha go to corporatons of the character descrbed n secton
219(b), and the resduary estate ncudes the ncome n queston.
Ths appears from the care she e ercsed to prevent ntestacy as to any part
of the resduary estate.
The Government, as I understand t, argues that the ncome n queston mght
have been aowed as a deducton f t had been pad by the e ecutors or
credted on ther books.
Ths woud make the mposton of the ta depend upon some act of the
e ecutors whch had no resut n aw upon the rghts of the partes, and s not
n accordance wth what we have found to be the e pressed ntent of the
Congress, whch was to ta the ncome receved by the estate whch woud pass
to any person sub|ect to ta aton, but reeve from ta aton the ncome set
asde by the terms of the w for corporatons of the character descrbed.
Much stress s ad by the Government upon the contenton that the persona
property of a decedent passes to her persona representatves, but whatever
may be sad on that sub|ect, t does not ater the fact that the ncome n ques-
ton, n the case at bar, reaches the benefcares of the bounty of the testatr
through the e ecutors, and f that ncome shoud be ost or reduced n amount,
the oss occasoned thereby woud be that of the resduary egatees, and there-
fore the ncome whch the Government s proposng to ta s the ncome of the
resduary egatees. (Stockton v. ,edcrer, 262 ed., 173 Lederer v. Stockton,
266 ed., 076 Lederer v. Stockton, 260 U. 8., 8.)
We do not agree wth the reasonng n the opnon n, nor accept as an
authorty whch we shoud foow, ngs County Trust Co. v. Law (201 pp.
Dv., 181, affrmed, wthout opnon, 234 N. Y., 610), n whch a State statute
was passed upon by a State court.
In the case at bar the testatr took the most effectve method of settng
asde the ncome n queston for the resduary egatees, because by the w
tsef she set asde for them everythng that was eft, and thus we fnd that
the ncome, when receved by the e ecutors, was by the w permanenty set
asde for the resduary egatees, the corporatons n queston, and that the
ncome n queston for the year 1919 was deductbe under the provsons of
secton 219(b).
The |udgment s affrmed.
rtce 347: states and trusts wth ncome II-12-3655
whch s dstrbuted perodcay and other T. D. 4136
ncome.
ncome ta revenue act of 1918 decson of court.
1. Deductons Deprecaton Lfe enefcabt.
fe benefcary to whom ncome of a trust created by w s
dstrbuted s not entted to deduct therefrom an aowance for
deprecaton of the corpus of the estate under the Revenue ct of
1918.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Court of Cams of the Unted
States n the case of Mary Ro burghe v. The Unted States s pub-
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251 219, rt. 347.
Ised for the nformaton of nterna revenue offcers and others
concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved March 13, 1928.
. W. Meon,
Secretory of the Treasury.
Court op Cams op the Unted States.
Mary Ro burghe v. The Unted States.
November 7, 1927.
OPINION.
Campbe, C. .: y the w of her father certan trusts were created In
favor of the pantff. copy of the w s attached to the petton. Cause 12
devses to the e ecutors and trustees certan rea estate wth drectons to pay
the net ncome to hs son and daughter n a desgnated way, and cause 13
devses and bequeaths to the e ecutors and trustees the resduary of hs estate
wth drectons as to the net ncome, to be mentoned. The property mentoned
n cause 12 s requred aways to be kept n good condton and repar and
the e penses of repars and mprovements are chargeabe aganst the ncome
of the trust estate. Cause 13, reatng to the resduary estate, and succeedng
causes vest a arge dscreton n the trustees n the matter of repars and
mprovements. The queston n the Instant case reates to the resduary
estate. The trustees are drected to pay one-haf of the net nterest, ncome,
dvdends, rents and profts of the resduary estate to each the son and
daughter, but provdes that when the son attans a stated age he sha have
one-haf of the estate n fee, whe as to the daughter the provson s that
she sha have the entre net ncome of one-haf of the resduary estate for
and durng her natura fe. Upon her death the one-haf of the estate goes to
her chdren or ther ssue, and f there be no chdren or ssue of chdren t
goes to the son. Pror to the tme durng whch the crcumstances gvng rse
to ths acton occurred the testator s son had become vested In possesson and
en|oyment of one haf of the resduary estate, and the other haf was beng
admnstered n accordance wth the trusts created by the w. The pantff
s a ctzen of Great rtan, and made ta returns for the years n queston
of ncome accrung to her from sources n the Unted States other than ncome
receved from the trusts created by her father s w. s to the atter, the
trustees made returns for her, the fducary beng requred to make a return of
ncome for the trust for whch he acts. (Revenue ct of 1918, 40 Stat., 1071.)
In makng up ths return the trustees reported the net ncome of one-haf
of the resduary estate and made a deducton therefrom of an tem for depreca-
ton, stated n the fndngs to be for wear and tear on the aforesad budngs
at the average rate of 3 per cent cacuated (wth respect to sad undvded
one-haf nterest) upon the far market vaue of sad budngs as of March 1,
1913, or n case of those acqured after sad date, upon ther actua cost. The
trustees pad over to pantff, and she actuay receved, the amount of net
ncome shown n the return undmnshed by the amount of the 3 per cent
deprecaton. She pad (or the trustees pad for her) ta es on the net ncome
dmnshed by the amount of the 8 per cent deprecaton. In other words, she
cams that she was entted to a deducton for and on account of deprecaton,
ascertaned as stated. The Commssoner woud not aow the deducton, and
requred her to pay ta es based upon the entre net ncome receved by her
from the resduary estate. She pad the ta accordngy, and the Commssoner
havng refused to refund the amount she sues n ths court. The queston
therefore s whether she was entted to the deducton for deprecaton.
t seems to be conceded that attenton need ony be gven the Revenue ct
of 1918, so far as the matera queston s concerned. Secton 219 (40 Stat.,
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219, rt. 347.
252
1071) Imposes upon the ncome of any knd of property hed In trust the ta
Imposed by sectons 210 and 211, ncudng (4) ncome whch s to be ds-
trbuted to the benefcares perodcay. The fducary s made responsbe
for makng the returns of ncome of the estate or trust for whch he acts,
and the net ncome s to be computed n the same manner and on the same
bass as provded In secton 212, wth an e cepton not matera here. In cases
arsng under paragraph (4) the fducary does not pay the ta , but there
sha be ncuded n computng the net ncome of each benefcary hs dstrbutve
share, whether dstrbuted or not, of the net ncome of the trust for the ta abe
year. The trust here referred to s n the nstant case the trust created by
the w. Subsecton (b) of secton 219, n provdng for an addtona deduc-
ton n computng the net. ncome of the estate or trust, refers to the w or
deed creatng the trust, showng that reference must be had to the nstrument
creatng the trust n ascertanng the dstrbutve share thereunder. What the
w conferred was the rght to receve the net ncome accrung durng pantffs
fe. The statute does not attempt to enarge ths nterest or ncrease her ds-
trbutve share. The amount of t s not In dspue, because the trustees stated
t accuratey n makng the returns. Nor s the amount receved by pantff
n doubt. If she was not entted to deduct the 3 per cent deprecaton, she
was propery ta abe on her ncome as ascertaned by the Commssoner. The
statute ta ed her ncome, and there can be no doubt that the net revenue from
the trust estate receved by her consttuted ncome. See Merchants Loan
Trust Co. v. Smetanka, (255 T . S., 509, 517 T. D. 3173, C. . 4, 34 ). ut
secton 214 provdes that n computng net ncome certan deductons sha be
aowed, among others, (8) reasonabe aowance for the e hauston, wear
and tear of property used n the trade or busness, ncudng a reasonabe
aowance for obsoescence, and pantff contends that she shoud be aowed
the beneft of ths provson. The queston has been decded adversey n two
cases by the oard of Ta ppeas. (Whtcomb s ppea, 4 . T. ., 80
5 . T. ., 191.) In atze v. Mtche (3 ed. (2d Ser.), 428 T. D. 3608,
C. . r -1, 191 ) t was hed that a fe benefcary of an estate hed n trust was
ta abe upon the ncome actuay pad over to hm and was not entted to
credt hs proportona share of osses of prncpa sustaned by the trust estate
durng the year. See atze v. Casey (1 ed. (2d Ser.), 29 T. D. 3642,
O. . III-2, 184 ). The crcut court of appeas sad n the frst case cted:
The benefcary s not nterested n the capta of the trust, but ony n the
ncome. If there are accretons to the capta, these are not dstrbutabe as
ncome, so that the benefcary may receve any part of them and f there are
capta osses they can not be made good out of the ncome.
The pantff coud have the entre net ncome of the one-haf of the resdu-
ary estate, rea and persona, for and durng her natura fe. The corpus or
capta was hed by the trustees for remandermen. The pantff coud not
compe them to mprove or repar t. The authorzed deducton for deprecaton
reates to capta assets.
In Unted States v. Ludey T. D. 4046, C. . I-2, 157 , decded May 16, 1927,
the court say:
The deprecaton charge permtted as a deducton from the gross ncome n
determnng the ta abe ncome of a busness for any year represents the reduc-
ton, durng the year, of the capta assets through wear and tear of the pant
used. The amount of the aowance for deprecaton s the sum whch shoud
be set asde for the ta abe year, n order that at the end of the usefu fe of
the pant n the busness, the aggregate of the sums set asde w (wth the
savage vaue) suffce to provde an amount equa to the orgna cost.
ut f ths deprecaton be pad over to the benefcary for fe and the
amount of t be deducted from her ta abe ncome, of what possbe beneft has
t been to the estate or to those utmatey succeedng to the capta or corpus
of the estate The e emptons aowabe are those authorzed by the statute
and the pantff must brng hersef wthn the ntent of the statute before she
can e empt part of her ncome, beng the net ncome of the trust estate, from
ta aton. She has not done ths.
The petton shoud be dsmssed, and t s so ordered.
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253 231, rt. 517.
P RT III. CORPOR TIONS.
S CTION 231. CONDITION L ND OT R
MPTIONS O CORPOR TIONS.
rtce 517: Regous, chartabe, scentfc, II-22-3739
terary, and educatona organzatons and T. D. 4158
communty chests.
INCOM T R NU CT O 1919 D CISION O COURT.
empton Regous Corporaton.
corporaton wh se property and ncome are n a arge degree
hed for the comn|o: use and beneft of ts members to be used for
ther support and mantenance and aso for the support, man-
tenance, and educaton of the hers of deceased members s not
e empt from ta under secton (a)6 of the Revenue ct of 1916.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Inferna Revenue and Others Concerned:
The foowng decson of the Court of Cams of the Unted States
n the case of Davd Iofer et d.. Trustees of uttersche Church,
v. The Unted States s pubshed for the nformaton of nterna
revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved May 21, 1928.
. W. Meon,
Secretary of the Treasury.
Court or Cams of the Unted States.
Davd ofcr, Peter . ofer, ohn . Wpf, acob ofer, Samue ensasscr,
Mchae . ntz, George Groas, George Wadner, and. acob . Wpf, Trustees
of uttersche Church, v. The Unted States.
ebruary 20, 1928.
OPINION.
Campbe, Chef ustce, devered the opnon of the court.
Ths s a sut by certan ndvduas as trustees of uttersche Church to
recover an amount of ncome and e cess-profts ta es pad by uttersche
Gemende msprng, a corporaton, upon ncome for the year 1917. The cor-
poraton was organzed n 1S97 under the aws of South Dakota and was ds-
soved by acton of ts members n November, 1923. copy of ts artces of
ncorporaton s attached to tbo stpuaton of facts upon whch the case has been
submtted. These artces provde, among other thngs, that the corporaton may
be dssoved wth te consent of two-thrds of a Its members The uttersche
Church s. accordng to the stpuaton, the successor to ths corporaton.
decaraton of trust e ecuted by the trustees n uy, 1 )23. rectes that they
have been duy seected by the members to take and hod the ega tte to a
of the rea and persona property of the corporaton and a other property
of the uttersche Church and that the property has been conveyed to them
for the use, mantenance, support, and beneft of a of the members of sad
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231, rt. 517.
254
socety and church and ther dependent fames and ther successors
so ong as they ve a communty fe and use the srae as communty property.
The trustees are to care for, protect, farm, cutvate, and rase gran, crops,
produce, and stook thereon as may he requred by sad members.
The cam here, as aready stated, s for a refund of ta es pad by the corpora-
ton, afterwards dssoved. Its property, as stated In the artces of ncorpora-
ton, shoud forever be owned, used, occuped, and possessed by sad corpora-
ton for the common use, nterest, and beneft of each and a the members
thereof, for the purposes of sad corporaton durng the tme and so ong as they
reman munbers thereof. The property of the ndvdua members acqured
by gft or purchase after they became members or hed when they became mem-
bers was to be the property of the corporaton for the common use, nterest, and
beneft of a the members. It s decared that each and every member of the
corporaton sha devote a hs tme, abor, servces, and earnngs to the corpora-
ton wthout compensaton or reward e cept as e pressed, and t s provded
that the members sha be entted to and have ther husbands, wves, and
chdren who are not members resde wth them and be supported, mantaned,
nstructed, and educated accordng to the rues of the corporaton, and the
Chrstan regon and beef promoted by the corporaton. Durng the year
1917 ths corporaton hed tte to about 18,000 acres of ands. It engaged
n agrcuture and rased wheat, rye, oats, corn, catte, sheep, hogs, horses, and
poutry. It owned our ms, backsmth shops, broom works, harness and shoe
shops, and a bakery. Its gross ncome from saes to the pubc from the sources
mentoned was above 225,000. fter deductng a aowabe deductons ts
ncome for 1917 was 145,969.50, upon whch the ta es here sought to be re-
covered were assessed and pad. The queston s whether ths corporaton was
e empt from ta aton under the provson of the Revenue ct of 1916, as
amended by the Revenue ct of 1917 (39 Stat., 766), as foows:
Sew. 11. (a) That there sha not be ta ed under ths tte any ncome
receved by any
S th. Corporaton or assocaton organzed and operated e cusvey for
regous, chartabe, scentfc, or educatona purposes, no part of the net
ncome of whch nures to the beneft of any prvate stockhoder or ndvdua.
We thnk that the recta of the purposes of the corporaton e cudes t from
the cass e empted by the statute. It s dstncty dfferent from that of
Trndad v. Sayrada Ordcn (263 T . S., 578 T. D. 3548. C. . III-, 2701), where
the stpuaton was n the frst pace that the pantff was a corporaton soe
organzed and operated for regous, benevoent, scentfc, and educatona
pur )ses n the Phppne Isands and esewhere and, secondy, that nether
ts net ncome nor part of ts rents from whatever source t may come s
apped to the beneft of any partcuar stockhoder or ndvdua or of any of
ts members. Concedng these thngs, the defendant contended that the cor-
poraton was not operated e cusvey for the purpose above enumerated.
In effect, say the court (p. 5S1), the contenton puts asde as mmatera the
fact that the ncome from the property was devoted e cusvey to regous,
chartabe, and educatona purposes. Construng the e emptng cause, t s
sad:
rst, t recognzes that a corporaton may be organzed and operated
e cusvey for regous, chartabe, scentfc, or educatona purposes and yet
have a net ncome. Ne t, t says nothng about the source of the ncome but
makes the destnaton the utmate test of e empton.
If there may st be a corporaton soe under mercan aw, t s qute pan
that the corporaton whose ncome was ta ed n the present case s not one.
Its property was controed by a board seected by ts members, and the stpu-
aton found n the Trndad case, supra, reatve to ncome Is not ony absent
from the present case, but the facts show that the ncome as we as the prop-
erty was n arge degree hed for the common use and beneft of ts members
to be used for ther support and mantenance, and aso for the support, man-
tenance, and educaton of the hers of deceased members. Certany t may
not be sad that no part of the net ncome nured to the beneft of any nd-
vdua. It was for the beneft of ts members. Nor can t be sad that such a
corporaton w s operated e cusvey for a regous purpose wthn the meanng
of the e empton cause n the act mentoned.
The petton shoud be dsmssed. nd t s so ordered.
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255 233, rt. 641.
rtce 517: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT O 1921 ND PRIOR CTS.
ssocaton organzed for promotng the wefare of the mercan
Indan. (See G. C. M. 3830, page 114.)
rtce 520: Soca cubs.
R NU CTS OP 191S ND 1921.
utomobe cub operatng nsurance bureau and pubshng mag-
azne for ts members. (See G. C. M. 2867, page 115.)
rtce 520: Soca cubs.
R NU CT O 1921 ND PRIOR CTS.
Recept of revenue as the resut of advertsements n a magazne
pubshed n connecton wth the actvtes of a soca cub. (See
G. C. M. 3|55, page 117.)
S CTION 233. GROSS INCOM O CORPOR TIONS
D IN D.
rtce 541: Gross ncome. II-6-3601
G. C. M. 2861
R NU CT O 1918.
Defaut was made In the payment of nterest on frst mortgage
bonds ssued by the O Company and guaranteed by the N Com-
pany. The trustee for the bondhoders under the mortgage ob-
taned |udgment aganst the N Company for the unpad porton
of the prncpa of the bonds wth accrued nterest.
ed, f t can be estabshed that the vaue of the bonds on the
date of ther acquston n 1916 by the ta payer was equa to or n
e cess of the tota amount reazed upon the bonds as a resut of
the |udgment the fu amount coected shoud be treated as a
return of capta.
n opnon s requested reatve to the ncome ta abty of the
M Company for the year 1918.
It appears that the ta payer pad, for 1918, a ta assessed upon
ts orgna return n the amount of doars. In May, 1926, an
addtona assessment n the amount of 1.02a doars was made for
the year 1918, whch assessment was based n part upon the ncu-
son n gross ncome of 20a doars (aeged nterest accrued on
|udgment aganst the N Company). The ta payer, havng taken
no appea to the Unted States oard of Ta ppeas, pad the
assessment and fed a cam for refund of the addtona ta es pad.
The O Company, organzed n 190-, ssued 500a doars of frst
mortgage bonds n 190-, n whch ssue the P Company was trustee
for the bondhoders. On the date of ssuance of the mortgage and
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233, rt. 541.
256
bonds the trustee, the O Company, and the N Company entered nto
a contract, whch contract was ater construed by the courts to be n
the nature of a guaranty by the N Company of the payment of prn-
cpa and nterest of the bonds of the O Company.
Subsequenty the O Company and the N Company defauted n
the payment of the bond nterest. The trustee thereupon fed sut
for forecosure of the frst mortgage and the appontment of re-
cevers. The assets of the O Company were sod under the decree
of forecosure for 180a doars, of whch 170a doars was apped n
payment of the prncpa of the bonds, eavng an unpad baance of
330a doars. bondhoders protectve commttee purchased the
assets at the forecosure sae and caused them to be conveyed to the R
Company. The entre capta stock of ths new company was ssued
to ta payer, a hodng company, whch n turn ssued ts entre cap-
ta stock to the former bondhoders n proporton to ther nterests
n the bonds.
In 1916 the bondhoders who were nterested n the reorganzaton
transferred to ta payer, wthout consderaton, ther bonds, wth
such cams aganst the N Company as nhered n them. The trustee
n addton to the forecosure sut aso fed sut aganst the N Com-
pany on the contract herenabove mentoned, and on the date of
transfer of the bonds to ta payer that sut was awatng tra.
Thereafter |udgment for appro matey 390a doars (the unpad
porton of the prncpa of the bonds n the amount of 330a doars
wth accumuated or accrued nterest to the date of the |udgment
n the amount of 60a doars) was rendered n favor of the trustee
aganst the N Company. The trustee reazed, by resort to varous
methods of coecton, about 50 per cent of the amount of the |udg-
ment before a of the avaabe assets of the N Company were e -
hausted. The entre amount reazed was 200a doars. fter
aowng for e penses the trustee, dstrbuted to the hoders of the
bonds the net amount of 190a doars, of whch the ta payer, as
the owner of appro matey 95 per cent of the bonds, receved a
tota of 180a) doars. The ta payer s share of the frst dstrbuton,
pad . 1918, amounted to 70a doars.
In makng the assessment n May. 192G, the Income Ta Unt
ncuded n the gross ncome of ta payer for the year 1918 the sum
of 20a doars, whch ncuson was made upon the ground that sad
sum represented nterest whch had accrued upon the ta payer s
bonds from the date of ther acquston by the ta payer to the date
of the |udgment aganst the N Company. Ths acton was based
upon the theory that where a payment s made by a debtor to a
credtor, the payment s presumed to be apped frst to nterest, and
the baance to prncpa. Thus stated, the theory s too broad and
fnds no support n aw.
The matter of appcaton of payments under a contract, ke the
contract tsef, generay concerns the orgna partes, and thrd
partes as a genera rue are not permtted to dctate the appcaton
of payments between debtor and credtor. Probaby the earest
reported decson n ths country on the pont was made n 1836, n
the case of Gordon et a. v. obard et a. ( edera Cases 5608).
ustce Story sad:
What, under such crcumstances, s the rue of aw promugated by both
courts of aw and courts of equty It Is, that, where money s pad by, or
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257
233, rt. 641.
receved for, a debtor, by hs credtor, the debtor has a rght to make t e
appropraton to what purpose he peases. If the debtor makes no appropra-
ton, then the credtor may appy t to the satsfacton of any demand, whch
he has aganst hs debtor, at hs own peasure. If nether party make any
such appcaton, then, f there are varous debts due to the credtor, the court
w make the appcaton accordng to ts own vew of the aw and equty of
the ease, under a crcumstances.
ut ths rght of appropraton s one strcty e stng between the orgna
partes: and no thrd person has any authorty to nsst upon an appropra-
ton of such money n hs own favor, where nether the debtor nor the credtor
have made or requred any such appropraton.
Ths rae of aw, as enuncated by ths dstngushed |urst, has
been foowed wthout hestaton snce ts decaraton, n many cases,
ncudng Mack et a. v. der et a. (22 ed., 570) Case v. ant et a.
(53 ed., 41) Wyandotte Coa Lme Co. v. Wyandotte Pavng
d- Constructon Co. (97 ansas, 203, 154 Pacfc, 1012, nn. Cases,
1917, C, 580) Consodated Nava Stores Co. v. Wson ( a.) (90
Southern, 461) Peek v. Powe (Te as) (259 S. W., 640) Rung
Case Law, voume 21, page 107.
In ths case there s no evdence of any specfc appcaton made by
the debtor at the tme of payment, nor s there any evdence that the
ta payer made any such appcaton. In the absence of any app-
caton by ether party frst to nterest, t may not be sad as a matter
of aw that the frst payment made by the debtor must necessary
be presumed as appcabe frst to nterest. The bass of the prn-
cpe under whch payments not specfcay apped by the debtor
or credtor are deemed to be n reducton of nterest s that n |ustce
to the credtor parta payments shoud ordnary be apped to the
porton of the debt whch does not draw nterest (. e., the unpad
nterest) rather than to the nterest-bearng porton (. e., the prn-
cpa). (Moson y. Meyer, 190 111., 105,195 111., 142.) The prncpe
s not concerned wth what may be of beneft to thrd persons. It s
natura, therefore, that the aw shoud be that where the debtor and
credtor have made no specfc appropraton of a payment to nterest
or otherwse, a thrd party may not nsst on dong so. In Peck v.
Powe, supra, t s stated that thrd persons can not contro the
appcaton of a payment by ether the debtor or a credtor, and that
nether the debtor nor the credtor need appy the payment n such
manner as to beneft any thrd persons. In cases where no specfc
appropraton of payments has been made, the genera rue woud
seem to be that payments are to be apped n the manner whch most
accords wth the equty and |ustce of the partcuar case. In ths
connecton t s sgnfcant that the court n renderng ts |udgment
aganst the N Company regarded the proceeds of the forecosure sae
as havng been apped entrey to the prncpa of the bonds. In
fact, n cases of nsovency and bankruptcy, a cams of equa rank
share on the bass of ther prncpa amounts ony (nterest s not
even computed), uness and unt t becomes apparent that there w
be more than enough assets to pay the prncpa of a cams n fu.
Ths means that where a bankrupt s assets are not suffcent to pay hs
debts n fu, a payments are apped on the prncpa of the debts.
(See 39 . L. R., 458 mercan Iron Stee Mfg. Co. v. Seaboard
r Lne R. / ., 233 U. S., 261 Reyson v. Peden, 318 111., 105, 148
N. ., 849.)
In the nstant case the bonds were pad n to the ta payer by ts
stockhoders for the purpose of enabng t to reaze a donated or
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240, rt. 632.
258
pad-n surpus. The bonds on the date of ther transfer to ta payer
had a certan vaue, whch estabshed ther bass to the ta payer for
the determnaton of gan or oss upon ther subsequent sae or other
dsposton. The queston of such vaue s not before ths offce for
determnaton, and no opnon s e pressed thereon. If, however, the
ta payer can estabsh that the vaue of the bonds at the tme of ther
acquston was equa to or n e cess of 180a doars (the tota amount
subsequenty reazed upon the bonds by the ta payer), ths offce s
of the opnon that, n vew of the authortes heretofore cted and n
accordance wth the equty and |ustce of the matter, the nstant case
s not a proper one for the appcaton of a rue under whch any of
the payments receved by the ta payer on account of the bonds shoud
arbtrary be deemed to have been receved as nterest. In such case
the fu amount coected by the ta payer on the bonds shoud be
treated as a return of capta.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 544: Contrbutons by stockhoders.
R NU CTS O 1018 ND 1921.
Intaton fee pad by new member of an e change. (See G. C. M.
4015, page 120.)
rtce 545: Sae and retrement of corporate bonds.
R NU CT O 1021 ND PRIOR CTS.
ocaton of premum or dscount to bonds maturng seray.
(See G. C. M. 3832, page 123.)
S CTION 239. CORPOR TION R TURNS.
rtce 622: Returns by recevers.
R NU CT O 1921 ND PRIOR CTS.
Income ta returns for nsurance companes n process of quda-
ton under secton 63 of the New York nsurance aw. (See G. C. M.
3876, page 127.)
S CTION 240. CONSOLID T D R TURNS O
CORPOR TIONS.
rtce 632: Consodated returns. II-23-3745
G. C. M. 3910
R NU CT O 1918.
orm 1122 was fed for each of the subsdares of a parent com-
pany for the year 1920, and on each such form t was ndcated
that no ta shoud be assessed aganst the subsdary. of
these forms, ncudng the consodated ncome ta return for 1920,
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259
240, rt. 632.
were sgned by two ndvduas, actng n the capacty of presdent
and treasurer, respectvey, of the corporatons. The ta ndcated
on the orgna return, as we as an addtona assessment, was
pad by the parent company wthout ob|ecton or request for
apportonment.
ed, that nether the parent company nor a subsdary can at
ths tme queston the egaty of the assessments on the ground that
the ta shou d have been aocated to the respectve affated
corporatons.
n opnon s requested reatve to the payment of assessments of
ta for the year 1920 n the case of a parent and subsdary corpo-
ratons under the foowng crcumstances:
consodated return was fed for the year 1920, whch ncuded
the ncome of the M Company, herenafter referred to as the parent
company, and of severa affated subsdares, one of whch was the
N Company, herenafter referred to as the ta payer.
orm 1122 was fed for each subsdary for 1920 and on each such
form t was ndcated that no ta shoud be. assessed aganst the
subsdary. of these orms 1122, ncudng that of the ta payer,
were sgned by , presdent, and , treasurer. The consodated
return was sgned by the same two ndvduas, actng n the same
capactes.
The tota ta ndcated on the orgna return was assessed aganst
the parent company, whch pad the ta wthout ob|ecton. Upon
fna audt of the consodated return, an addtona ta abty
was ndcated. 60-day etter to the parent company was maed
March , 1927. No appea was taken to the oard of Ta ppeas.
ssessment was then made under secton 274(c) of the Revenue ct
of 1926, and the ta was pad by the parent company wthout ob|ec-
ton. fter t had pad the addtona ta , the parent company
hed ts subsdares for ther respectve proportons thereof.
the subsdares pad the parent company e cept the ta payer, whch,
snce uy , 1923, has been n the hands of recevers. The recevers
refused to pay to the parent company the ta payer s proporton
of the addtona ta . The parent company then fed a cam for
refund of the amount computed by t as appcabe to the ta payer,
contendng that the assessment of the tota addtona ta aganst
the parent company was contrary to secton 240 of the Revenue
ct of 1918, whch provdes that n the absence of an agreement
among the affated companes the ta sha be assessed upon the
respectve affated companes on the bass of the net ncome ||ropery
assgnabe to each.
The Income Ta Unt notfed the parent company on Decem-
ber , 1927, that a certfcate of overassessment woud be ssued
n ts favor n an amount equa to the addtona ta pad by t n
behaf of the ta payer. The Unt then made an aocaton of the
ta on the bass of the net ncome propery assgnabe to each of
the affated companes, and notfed the ta payer by etter dated
December , 1927, that an assessment of the ta aocated to t
had been made n accordance wth the provsons of secton 282 of
the Revenue ct of 1926, whch provdes for the mmedate assess-
ment of a defcency n the case of bankruptcy and recevershps.
Thereafter the recevers for the ta payer requested reconsderaton
of the assessment, ther prncpa contenton beng that the waver
under whch the assessment was made s vod and that the assess-
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240, rt. 632.
260
ment s therefore barred by vrtue of the runnng of the statute of
mtatons.
It appears that the waver n queston s dated October 2, 1926,
e pres on December 31, 1927, and was e ecuted by the ta payer s
treasurer, athough the company was then n the hands of two
recevers apponted by a State court.
The record shows that n the court order creatng the recevershp
the corporate offcers were en|oned from actng for the corporaton,
e cept n certan nstances not matera here. The record further
shows that for the year 1923 the ta payer s ncome ta return was
sgned by the recevers, for the year 1924 by the presdent and
treasurer, and for the year 1925 by the recevers.
n opnon has been requested on the foowng questons:
(1) Is the waver vod and the assessment thereunder ega
(2) If the assessment was egay made, shoud the ureau revoke
the aocaton and cance the certfcate of overassessment n favor
of the M Company, on the grounds that the statement made n
orm 1122 consttutes an agreement wthn the meanng of secton
240(a) of the Revenue ct of 1918
The questons w be dscussed seratm.
(1) Secton 278(c) of the Revenue ct of 1926 provdes that the
runnng of the statute of mtatons may be stayed by a consent n
wrtng entered nto by the Commssoner and the ta payer.
rtce 622 of Reguatons (59. wth reference to the sub|ect of
returns by recevers, provdes:
Recevers, trustees n dssouton, trustees n bankruptcy, and assgnees,
operatng the property or busness of corporatons, must make returns of
ncome for such corporatons on orm 1120. coverng each year or part of
a year durng whch they are n contro. Notwthstandng that the powers
and functons of a corporaton are suspended and that the property and
busness are for the tme beng n the custody of the recever, trustee, or
assgnee, sub|ect to the order of the court, such recever, trustee, or nssgnee
stands n the pace of the corporate offcers and s requred to erform n the
dutes and assume a the abtes whch woud devove upon the offcers
of the corporaton were they n contro. (See secton 282 and artces 1293
and 1294.)
The ta payer s treasurer, who sgned the waver n behaf of the
corporaton, was wthout authorty to act, both by reason of the
prohbton referred to and under the provsons of artce 622, quoted
above. The recevers were the ony competent persons to enter nto
an agreement consttutng a consent n wrtng wthn the meanng
of secton 278(c), supra.
It s therefore the opnon of ths offce that the waver s nvad
and consequenty the assessment of December , 1927, s ega.
(2) The courts have passed on a case smar to the nstant case
n severa mportant respects. In re Temtor Corn rut Products
Co. (299 ed., 326), the court consdered a petton for revew of the
aowance of a cam of the Unted States for the baance of ncome
ta es due for 1920. The referee n bankruptcy had submtted hs
opnon, settng forth the facts and hs concusons of aw. The facts
and concusons pertnent to a consderaton of the nstant case are as
foows:
The bankrupt, Temtor Corn rut Products Co., and the est-Cymer Manu-
facturng Co., now aso n bankruptcy, fed a consodated return for the caen-
dar yenr 1920, and ths return proceeded upon the assumpton that the Temtor
company was the parent corporaton and the est-Cymer company ts sub-
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261
240, rt. 632.
sdary. The ncome and e cess profts ta es for both companes were assessed
as a unt upon the bass of ths return at the sum of 114,688.30. The Temtor
company pad three quartery nstaments upon the ta es so assessed, but dd
not pay the fourth quartery nstament, whch u norma course shoud have
been pad n December, 1921. In December. 1 I22. the Commssoner of Inter-
na Revenue made an addtona assessment of ncome and e cess proft ta es
for the year 1920 n the sum of 12,713.35. Ths addtona assessment was
made upon the bass of the consodated return before mentoned, and resuted
from the dsaowance of certan tems of pant deprecaton ncuded n the
return. The cam of 30,695.23 now asserted by the Government s made up
of the unpad fourth nstament of the ta es for 1920. wth certan nd|ustments
for overpayment for the year 1919, and for nterest. 23,981.88, together wth
the addtona assessment, 12,713.35. above mentoned.
The trustee n bankruptcy urges three prncpa ob|ectons to the aowance
of the Government s cam: (1) That among the tems of ncome embraced n
the consodated return s an tem of renta, 1,240,000. and that 1,000,000
of ths sum was mpropery reported as ncome of the Temtor company, and
shoud be e cuded n determnng the amount of ncome and e cess profts
ta es propery payabe. (2) That upon the facts here presented a consodated
return for the Temtor company and the est-Cymer company was not proper,
and not warranted by aw. (3) That, even though a consodated return was
proper, the Government was requred to apporton the ta as between the
two companes. or the nformaton of counse the referee w state the con-
cuson reached by hm upon each of the ob|ectons urged on behaf of the
trustee n bankruptcy.

It s fnay contended on behaf of the trustee n bankruptcy that, even
though the ta here n queston was propery computed on the bass of the
consodated return, the Government n makng the assessment shoud have
apportoned the ta between the two companes, as provded n secton 240 of
the Revenue ct of 1918. The evdence snows that the ta was computed as
a unt, and was not apportoned, but was a assessed aganst the Temtor com-
pany. Under the statute t was proper for the two corporatons concerned to
agree as between themseves as to the proporton of the entre ta to be
assessed aganst each. s the entre ta appears to have been assessed aganst
the Temtor company, and as that company, wthout ob|ecton or request for
an apportonment, pad three quartery nstaments of the ta , t must be
nferred that both companes agreed to the assessment as made. s aready
stated, the companes had practcay the same offcers and drectors, and the
course foowed by them was the ega equvaent of an agreement and request
that the entre ta be assessed aganst the Temtor company. In the present
posture of the case, I do not thnk t s open to ether company to ob|ect to the
course taken by the Government In assessng the ta .
The court adopted the referee s fndngs of fact and concusons of.
aw on ponts (1) and (3). It reached the same concusons of aw
on pont (2) by dfferent reasonng. The petton for revew was
dened.
The above decson was sustaned by the Crcut Court of ppeas
for the ghth Crcut n the case of ohn . Schafy, Trustee n
ankruptcy of the Temtor Com rut Products Co., v. Unted
States (4 ed. ( 2d), 195, aso pubshed as T. D. 3093, C. . I -1,
220).
The smarty between the nstant case and the case consdered by
the courts s at once apparent. s the court stated n the Temtor
case, the corporatons coud have agreed among themseves as to the
proporton of the entre ta to be assessed aganst each. s a matter
of fact, each subsdary notfed the coector of ts dstrct on orm
U22 that no ta v s to be assessed aganst t. The entre ta was
assessed aganst the parent company, and that company, wthout
ob|ecton or request for an apportonment, pad not ony the orgna
ta but the defcency. The companes had practcay the same of-
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250, rt. 1005.1
262
fcers and drectors and the course foowed by them was the ega
equvaent of an agreement and request that the entre ta be assessed
aganst the parent.
In the opnon of ths offce, the above case s suffcent authorty for
hodng that nether the parent company nor the ta payer can at
ths tme queston the egaty of the assessment on the ground that
the ta shoud have been aocated to the respectve affated
corporatons.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 636: Consodated net ncome of affated
corporatons.
R NU CT O 1921.
ppcaton of net-oss provsons of secton 204, Revenue ct of
1921, n connecton wth consodated returns. (See G. C. M. 3266,
page 205.)
rtce 637: Consodated accounts of reated trades
owned by same nterests.
R NU CT O 1921.
The terms reated trades or busnesses and owned or controed
drecty or ndrecty by the same nterests as used n secton 240(d)
defned. (See G. C. M. 2856, page 128.)
S CTION 245. T S ON INSUR NC COMP NI S.
rtce 684: Ta es and e penses wth respect to rea
estate.
R NU CT O 1921 ND TRIOR CTS.
States ta es on premums. (See I. T. 2416, page 131.)
P RT I . DMINISTR TI PRO ISIONS.
S CTION 250. P YM NT O T S.
rtce 1005: Defcency n payment Interest I1-15-3675
and penaty. T. D. 4141
INCOM T R NU CT O 1916 D CISION O COURT.
Intebest Cam for batement.
ddtona ncome ta es for the year 1916 not pad wthn 10
days from demand hear nterest at the rate of 1 per cent per month
n accordance wth secton 9(a) of the Revenue ct of 1916,
athough a bona fde cam for abatement as to such addtona
ta es s fed after the effectve date of secton 250(e) of the
Revenue ct of 1918.
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263
8250, rt. 1006.
Treasury Department,
Offce of Commssoner of Interna evenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Dstrct Court of the Unted States
for the astern Dstrct of Pennsyvana, n the case of Wam
Cam v. phram Lederer, Coector, s pubshed for the nforma-
ton of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved March 31, 1928.
. W. Meon,
Secretary of the Treasury.
Dstrct Court of the Unted States for the astern Dstrct of
Pennsyvana.
Wam Cam v. phram Lederer, Coector.
November 25, 1927.
Opnon.
upon moton fob |udgment on speca fndng of the |ury.
Thompson, .: The pantff brought ths fcton aganst the defendant as
coector of nterna revenue to recover sums pad by hm under protest as
addtona ncome ta es wth nterest upon a gan or proft reazed by hm
upon the sae of stock n the O Co. The pantff had acqured the stock
pror to March 1, 1913. In une, 1916, he sod the stock for . 6,060,000. In hs
ncome ta return t was set forth that the vaue of the stock, as of March 1,
1913, was 5,050,000, and the proft upon the sae, 1,010,000. The Comms-
soner of Interna Revenue f ed the far market vaue of the stock as of
March 1, 1913, at 430,765, and eved and assessed aganst the pantff an
addtona ta of 709,408.02, wth nterest. The pantff pad the amount under
protest and fed a cam for abatement. The cam was aowed n the sum of
26,739 75 and the addtona assessment was thereby reducfd to the sum of
682,608.67, together wth 75,093.51, nterest upon the addtona ta from the
tme when demand was made for payment of the ta es orgnay assessed unt
the date of payment, December 27, 1919. urther abatement beng dened, after
appcaton for refundng of the ta and nterest, the pantff brought ths sut
for recovery of the entre amount of the ta es and nterest pad under protest,
settng up that the vaue the pantff bad f ed as the vaue of the stock as of
March 1, 1913, was the true vaue.
e further camed that, nterest havng been cacuated at the rate of 1 per
cent per month pendng acton upon the cam for abatement, the pantff was
entted to a refund of one-haf of 1 per cent per month, upon the ground that
the cam was made n good fath under the provsons of the Revenue ct of
ebruary 24, 1919.
Upon the tra, two ssues were submtted to the |ury for determnaton n
the nature of a speca verdct. These ssues and the answers thereto were
as foows:
1. What was the far market prce or vaue on March 1, 1913, of the 50
per cent of the cnpta stock of the O Gas Co. owned by Wam
Cam
nswer. 430,765.
2. Was the cam of Wam Carn for abatement of the ncome ta es
assessed aganst hm a bona fde cam That s to say, was the cam made
n good fath
nswer. Yes.
6342 28 18
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250, rt. 1005.
264
The |ury havng found the vaue on March 1, 1913. In the same amount as
that f ed by the Commssoner of Interna Revenue, the defendant moved for
udgment upon the verdct. Upon that moton, the ony queston for decson
s whether the provsons of the Revenue ct ot ebruary 24, 1919, contro h
the matter of recovery of nterest on ta es assessed under the ct of 1918.
Secton 9(a) of the ct of 1916 provdes:
That a assessments sha be made by the Commssoner of Interna Revenue
and a persons sha be notfed of the amount for whch they are respectvey
abe on or before the 1st day of une of each successve year, and sad
amounts sha be ad on or before the 15th day of uue, e cept n cases of
refusa or negect to make such return and n oases of erroneous, fase, or
frauduent returns, n whch cases the Commssoner of Interna Revenue .sha,
upon the dscovery thereof, at any tme wthn three years after sad return s
due. or has been made, make a return upon nformaton obtaned as provded
for n ths tte or by e stng aw, or requre the necessary correctons to be
made, and the assessment made by the Commssoner of Interna Revenue
thereon sha be pad by such person or persons mmedatey upon notfcaton
of the amount of such assessment and to any sum or sums due and unpad
after the 15th day of une n any year, and for 10 days after notce and
demand thereof by the coector, there sha be added the sum of 5 per centum
on the amount of ta unpad, and nterest at the rate of 1 per centum per month
upon sad ta from the tme the same became due, e cept from the estates
of nsane, deceased, or nsovent persons.
Secton 22 of the same ct provdes:
That a admnstratve, speca, and genera provsons of aw, ncudng
the aws n reaton to the assessment, remsson, coecton, and refund of
nterna-revenue ta es not heretofore specfcay repeaed and not nconsstent
wth the provsons of ths tte, are hereby e tended and made appcabe
to a the provsons of ths tte and to the ta heren mposed.
t the date of the passage of the ct of 1916, secton 3184, Revsed Statutes,
was n force and effect, and provdes as foows:
Where t s not otherwse provded, the coector sha n person or by
deputy, wthn 10 days after recevng any st of ta es from the Comnss oner
of Interna Revenue, gve notce to each person abe to pay any ta es stated
theren, to be eft at hs dweng or usua pace of busness, or to be sent b|
ma, statng the amount of such ta es and demandng payment thereof. If
such person does not pay the ta es, wthn 10 days after the servce or the
send ng by ma of such notce, t sha be the duty of the coector or hs
deputy to coect the sad ta es wth a penaty of 5 per centum addtona
upon the amount of ta es, and nterest at the rate of 1 per centum a month.
If the above cted statutes are controng, the Commssoner rghtfuy re-
qured the payment of nterest at the rate of 1 per cent per month upon the
ncome ta es pad under protest by the pantff. The pantff contends, how-
ever, that nasmuch as the |ury has found that the cam of the pantff for
abatement of the ncome ta es assessed aganst hm was a bona fde cam, and
n vew of the fact that ts cam for abatement was made on anuary 9. 1919.
and the ta es demanded pad on December 27, 1919, nterest was recoverabe
ony at the rate of one-haf of 1 per cent per month. Ths contenton of the
pantff s based upon the provsons of the Revenue ct of ebruary 24. 1919,
commony known as The ct of 1 )18.
Secton 250(e) of the ct s as foows:
If any ta remans unpad after the date when t s due, and for 10 days
after notce and demand by the coector, then, e cept In the case of estates of
Insane, deceased, or nsovent persons, there sha be added as part of the ta
the sum of 5 per centum on the amount due but unpad, pus nterest at the rate
of 1 per centum per month upon such amount from the tme t became due :
Provded, That as to any such amount whch s the sub|ect of a bona fde cam
for abatement such sum of 5 per centum sha not be added and the nterest
from the tme the amount was due unt the cam s decded sha be at the
rate of one-haf of 1 per centum per month.
It Is under the provso of the above cted secton that the pantff seeks now
to have |udgment entered n ts favor for a of the nterest coected n e cess
of one-haf of 1 per cent per month. The queston to be determned, then, s
whether that provso appes to ta es assessed under the ct of 1916, and,
therefore, contros the rate of nterest chargeabe upon the ta es assessed n
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265
250, rt. 1005.
the nstant case. y secton 1400(a) of Tte I of the Revenue ct of 1918,
Tte I (caed Income Ta ) of the Revenue ct of 1916, nter aa, a
repeaed. Certan parts of the ct of March 3, 1917, entted n ct to
provde ncreased revenue to defray the e penses of the ncreased appropra-
tons for the rmy and Navy and (he e tenson of fortfcatons, and for other
purposes, and of the Revenue ct of 1917, are aso repeaed.
Secton 1400(b), however, provdes as foows:
Such parts of cts sha reman n force for the assessment and coecton
of a ta es whch have accrued thereunder, and for the mposton and coec-
ton of a penates or forfetures whch have accrued and may accrue n rea-
ton to any such ta es, and e cept that the une pended baance of any appro-
praton heretofore made and now avaabe for the admnstraton of any such
part of an ct sha be avaabe for the admnstraton of ths ct or the cor-
respondng provson thereof: Provded, That, e cept as otherwse provded n
ths ct, no ta es sha be coected under Tte I of the Revenue ct of 1918
as amended by the Revenue ct of 1917, or Tte I or II of the Revenue ct of
1917, n respect to any perod after December 31, 1917: Provded further, That
the assessment and coecton of a estate ta es, and the Imposton and co-
ecton of a penates or forfetures, whch have -accrued under Tte II of
the Revenue ct of 1916 as amended by the ct entted n ct to provde
ncreased revenue to defray the e penses of the Increased appropratons for
the rmy and Navy and the e tensons of fortfcatons, and for other pur-
poses, approved March 3, 1917, or Tte I of the Revenue ct of 1917, sha
be accordng to the provsons of Tte I of ths ct. In the case of any ta
mposed by any part of an ct heren repeaed, f there s a ta mposed by ths
ct n eu thereof, the provson mposng such ta sha reman n force unt
the correspondng ta under ths ct takes effect under the provsons of ths
ct.
It s cear from the provsons of the atter secton that the parts of the ct
of 1916 provdng for the assessment and coecton of a ta es whch accrued
thereunder reman n force and effect e cept n respect to any perod after
December 31, 1917.
The ta es n the nstant case havng accrued under the ct of 1916 and not
beng n respect to any perod after December 31, 1917, but beng entrey n
respect to a perod durng the year 1916, the mposton of nterest s governed
by the ct of 1916. and s not affected by the repeaer. It Is contended on the
part of the pantff, however, that the provso n secton 1400(b) for the co-
ecton of penates or forfetures under Tte I appes to the mposton of
nterest n the case of a bona fde cam for abatement. n e amnaton of
the severa Revenue cts under consderaton, however, ceary ndcates that
penates or forfetures are not the same thng as nterest. orfetures and
penates are the sub|ect of paragraphs whch have no connecton wth nterest
as part of the ta . The nterest prescrbed at the rate of 1 per cent per
month s recoverabe as nterest and not as a penaty. (Unted States v. uest,
143 ed., 456.)
eng of the opnon, therefore, that the provsons of the ct of 1916, under
whch the ta es n the nstant case were assessed, were not affected by the
provsons of the Revenue ct of 1918 and that, therefore, nterest at the rate
of 1 per cent per month was propery chargeabe and coectbe, t s ordered
that |udgment be entered upon the verdct for the defendant.
rtce 1005: Defcency n payment Interest II-5-3676
and penaty. T. D. 4143
ncome ta revenue act of 1921 decson of court.
Interest Defcency ountary Payment efore Commsson-
er s amnaton of Return.
Under secton 250(b) of the Revenue ct of 1921, nterest s
coectbe on any addtona ta due on a return fed under the
provsons of that ct from the due date of the ta or nstaments
thereof, though such addtona ta s dscovered by the ta payer
and an amended return s vountary fed and the ta vountary
pad before the Commssoner s e amnaton of the return.
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5250, rt. 1005. 266
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Dstrct Court,
Southern Dstrct of New York, n the case of the Unon Pacfc
Raroad Co. v. rank . owers, Coector of Interna Revenue, s
pubshed for the nformaton of nterna revenue offcers and others
concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved March 31, 1928.
. W. Meon,
/Secretary of the Treasury.
Unted States Dstrct Court, Southern Dstrct of New York.
Unon Paefo Raroad Co., pantff, v. rank . ocers, Coector of Interna
Revenue, defendant.
October 3, 1927.
OPINION.
Goddard, Dstrct udge: Ths s a moton to dsmss the compant on the
ground that t does not set forth a cause of acton.
The acton was brought by the Unon Pacfc Raroad Co. aganst owers,
as coector of nterna revenue, to recover 44,475.32, wth Interest thereon
from September 21, 1925, aeged to have been erroneousy assessed and coected
as nterest mposed by secton 250(b) of the Revenue ct of 1921 (42 Stat., 227)
and pad by the pantff under protest.
The raroad company on or before March 15, 1923. fed ts edera ncome
ta return for the year 1922, and n une, 1923, pad the ta of 1,720,722.62
shown theren to be due. On May 13, 1925. t vountary fed an amended
return for 1922, showng an addtona ta abty for 1922 to the amount of
413,724. On une 10, 1925, pantff pad ths addtona ta of 413,724, but
pad no nterest thereon. On September 12, 1925, the coector notfed the
pantff that an assessment had been made aganst pantff of nterest upou
the addtona ta n the sum of 44,475.32, and served upon t a notce and
demand for payment. Pantff, on September 21, 1925, under protest, pad the
nterest and fed a refund cam. Ths cam for a refund was re|ected, the
Commssoner of Interna Revenue rung
In accordance wth secton 250(b). nterest s coectbe on any defcency
n ta on returns fed under the provsons of the Revenue ct of 1921, whether
or not such defcency s dscovered by the ta payer and amended return voun-
tary fed and the ta vountary pad, or as a resut of the e amnaton of
returns by ths offce.
t the tme of the payment of the addtona ta the Commssoner of Interna
Revenue had made no e amnaton of ether the orgna return or the amended
return.
Secton 250(a) of the Revenue ct of 1921 (42 Stat., at p. 264) provded for
the payment of ncome ta es In four nstaments, beng March 15, une 15,
September 15, and December 15 n the case of returns on the caendar-year
bass. Secton 250(b) provded
s soon as practcabe after the return s fed, the Commssoner sha
e amne t. If t then appears that the correct amount of the ta s greater
or ess than that shown In the return, the nstaments sha be recomputed. If
the amount aready pad e ceeds that whch shoud have been pad on the
bass of the nstaments as recomputed, the e cess so pad sha be credted
aganst the subsequent nstaments and f the amount aready pad e ceeds
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267
250, rt. 1005.
the correct amount of the ta , the e cess sha be credted or refunded to
Ihe ta payer n accordance wth the provsons of secton 252.
If the amount aready pad s ess than that whch shoud have been pad,
Ihe dfference, to the e tent not covered by any credts due to the ta payer
under secton 252 (herenafter caed defcency ), together wth nterest
thereon at the rate of one-haf of 1 per centum per month from the tme the
ta was due (or, f pad on the nstament bass, on the defcency of each
nstament from the tme the nstament was due), sha be pad upon notce
and demand by the coector.
Pantff s counse takes the poston that as the amended return showng
an ncreased ta abty was fed vountary before an e amnaton or demand
hy the Commssoner, no nterest was due on the addtona ta that the
provsons of secton 250(b) reate ony to ad|ustments of the returned ta
abty deveoped by the audt of the ureau that the second sentence of the
quoted subsecton provdes for a recomputaton of the ta f t then appears
that the correct amount of the ta s greater or ess than shown n the return
. Pantff contends that the word then confnes the sub|ect mat-
ter to the audt, and that the meanng s the same as If the anguage of the
sentence were f t appears upon such e amnaton, etc. The remander of
the subsecton deang entrey wth what sha be done as the resut of the
audt depends on whether the recomputaton shows that the correct ta s
greater or ess than the amount aready returned.
I do not thnk that the contenton urged by pantff s n accordance wth
the ntenton of those who drew or passed the statute, or wth a far construc-
ton of t, and, of course, the resut urged by pantff woud pace n a favored
group those who deayed fng accurate returns and permt them to fe a cor-
rect return and pay ther ta any tme pror to the tme the ureau coud
reach the return for audt, and f the pantff s counse are correct n ther
contenton, whether the fng of the proper return or payment of ta was
ntentonay deayed woud make no dfference. Ceary, t seems to me that
the defcency came nto e stence on March 15, 1922, for t was then that
the short payment or defcency arose. No change n respect to the ega status
of the obgaton to pay the fu ta occurred between that date and the date
upon whch t was pad. The obgaton to pay Is not under the statute made
contngent upon the e amnaton of the return by the Commssoner. The
statute not ony mposes the obgaton, t aso determnes the date or dates for
the payment of the ta , e cept n speca nstances, such as the grantng of an
e tenson of tme upon appcaton. It generay provdes for the payment of
nterest on defcences, and the statute Is barren of words, t seems to me,
whch ndcate an ntenton to e cept those makng vountary payments for
overdue ta es from Interest charges. It woud be humany mpossbe to
e amne and audt a returns mmedatey. There s bound to be more or
ess deay. y antcpatng the Commssoner s dscoverng the shortage and
yng what t owes, the pantff s merey savng tsef the nterest on a
onger perod of tme. I do not mean to have t nferred that n the present
nstance there was any uteror motve In the deay n fng a correct return
and the payment of the ta , and t may we be assumed that, there was a
sncere msapprehenson on the part of the pantff n regard to the amount
of ts ta es. ut, under the statute n queston, that does not reeve t from
ayng the nterest on the ta whch was f ed on March 15. 1923, and not pad
unt September 21, 1925. The requrement that nterest thereon at the rate
of one-haf of 1 per centum per month sha be pad s not a penaty t s
merey the usua nterest or compensaton pad for the deayed payment.
Unted States v. Chds, Trustee n ankrtfttc of . Menst Co., Inc., 266
U. S. 304 T. D. 3671, C. . I -1, 241 .) If t was a penaty, perhaps there
mght be more force n pantff s argument. Ths dstncton between nterest
and a penaty s aso ndcated n the ct, wheren a 5 per cent penaty Is
specfcay provded for. It seems cear that Congress used the word nterest
n ts ordnary sense and not wth the ntenton that t was to be nterpreted
as penaty. Secton 250(a) provdes for the grantng by the Commssoner of
e tensons of tme n whch to pay ta es where appcaton s made, and the
ta payer to whom such e tenson s granted pays nterest thereon.
Comparng the Revenue ct of 1918 (40 Stat., 1057), partcuary secton
250, subdvsons (b) and (e), wth the evenue ct of 1921, secton 250(b),
I thnk the vew that t was not the ntenton of Congress to reeve a ta -
payer from the payment of nterest where a ate vountary payment s made
before the e amnaton by the Commssoner s emphaszed. rom the stand-
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250, rt. 1005.
268
pont set forth above, t s unnecessary to consder whether, f the statute dd
not provde for payment of nterest on deayed ta payments, the rue n
ngs v. Unted States (232 U. S., 261) woud appy.
ccordngy, the moton to dsmss the compant s granted.
rtce 1005: Defcency n payment Interest II-26-3780
and penaty. T. D. 4165
( so Secton 202, rtce 1005.)
INCOM T R NU CT O 31110 D CISION O COURT.
1. ase Return.
Where a corporaton pursuant to a resouton of the drectors
after te sae of a ts assets n 1917 sets up on ts books a vaua-
ton of the assets as of anuary 1, 1909, and March 1, 1913, n an
amount n e cess of ther actua vaue on those dates and n e cess
of the seng prce, acton whch has the effect of conceang a
proft on the sae and showng a defct for the year, the faure of
the corporaton to dscose the sae of ts assets n ts return for
the year 1917 nukes the return ncorrect, mseadng, and fase.
2. auaton vdence.
ar market vaue s ne trcaby woven wth condtons e stng
at the dae for whch such vaue s to be determned. pert
opnon of far market vaue s to be weghed n the ght of cond-
tons e stng at the date for whch the vaue s to be determned.
resouton of the board of drectors of a corporaton authorzng
the e ecutve offcers of the company to enter nto negotatons
for the sae of the company s property at a stated prce s a crcum-
stance worthy of notce n arrvng at the vaue of the property.
In the case of mnng property, e tenson of known reserves n
ad|acent propertes s a factor affectng far market vaue. Where
property s sod at a vaue n e cess of ts cost and the vaue at
any date between the date of purchase and the date of sae s
requred but. Is dffcut of determnaton, a reasonabe check may
be made by proratng the ncrement n vaue between the date of
acquston and the date of sae of the property on a tme bass.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Dstrct Court, South-
ern Dstrct of New York, n the case of the Unted States v. Coe
et a., s pubshed for the nformaton of nterna revenue offcers
and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved une 13, 1928.
enry errck ond,
ctng Secretary of the Treasury.
Unted States Dstrct Court, Southern Dstrct, New York. quttT.
Unted States v. Coe et a.
October 25, 1927.
no , D. .: Ths s a sut n equty, brought by the Unted States aganst
some 500 persons, who, for the most part, were owners of shares of the capta
stock of Warren Reaty Deveopment Co., at the tme of ts dssouton n
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269
( 250, rt. 1008.
1817. Tbe ob|ect Is to recover from the stockhoders, among whom the com-
pany s assets have been dstrbuted, certan Income and e cess profts ta es
for the year 1917, whch It s camed shoud have been pad by the corporaton.
Whe many of the defendants are resdents of varous portons of the
Unted States, a number of them are resdents of and nhabtants of ths
dstrct, and the authorty for the sut s to be found n the provsons of the
ct of Congress of September 19, 1922, whch umends secton 51 of the udca
Code, and permts, for a perod of three years, an acton of ths character to
be brought or had on behaf of companant n the dstrct n whch one of
the defendants s an nhabtant.
Warren Reaty Deveopment Co. was organzed In une of 1905. Shorty
thereafter t became the owner of 133 mnng cnms, stuate n Cochse
County. rz., together wth 1,250 shares of the ssued capta stock of the War-
ren company, whch then owned the town ste of Warren, n Warren County,
rz.
The authorzed capta stock of Warren Reaty Deveopment Co. was
60,000 shares, of the par vaue of 15 per share, a of Whch was ssued for
cash. Wth the money so reazed, the mnng cams and the stock of the
townste company were purchased. Certan e poratons and deveopment work
upon the mnng cams were carred on unt the summer of 1909, at whch
tme a such operatons were suspended: and, durng the tme to whch ths
sut reates, were not resumed. The mnng cams and stock n the townste
company were purchased at a cost of 659,519.29. The e poraton and
deveopment work, ncudng carryng charges of the company and ta es,
amounted to 261,616.60.
t the tme of the purchase of the mnng cams, the same were unpatented,
but patents were subsequenty ssued, and tte to the deveopment company
confrmed.
In 1907, and thereafter, the Unted States, through the Interor Depart-
ment and Genera Land Offce, sought to cance the patents, upon the ground
that they had been obtaned through fraud, and that the ands were non-
mnera bearng.
In 1911 the suts were dscontnued and the charges of fraud that had
been made aganst the Warren company and ova . Smth, one of ts or-
ganzers, were wthdrawn. Not ony ths, but the ctng ttorney Genera of
the Unted States gave e pressons of hs regret that the Government shoud
have been paced n the poston of accusng of dshonesty and fraud persons
whose condnct, for aught that appears, was above reproach.
Nevertheess, the damage was done, and the company, wth an outstandng
ndebtedness of 81,450.49, was unabe to rase capta wth whch to deveop
the property. Matters were aowed to drft unt pr of 1917, when the
company, by acton of ts drectors and stockhoders, sod a of ts aforemen-
toned property to the Pheps Dodge Corporaton for the sum of 2,387,000.
The purchase money, after the payment of debts of the corporaton, was ds-
trbuted to the hoders of 59.800 shares of the company s stock as a capta ds-
trbuton 39,254 per share 35 beng dstrbuted n une, 1917 4 n uy,
1917 and 25.4 cents In October, 1917. oowng ths, a decree for a fna
dssouton and termnaton of the deveopment company was Issued by the
county court of Cochse County on November 24, 1917.
On March 21, 1918. the former secretary and former treasurer of Warren
Reaty Deveopment Co. made and fed wth the coector of nterna
revenue for the second dstrct of New York an ncome ta return for the
company for the year 1917. Upon the face of the return t appeared that.
Instead of a proft, the company had a defct for that year. The apparent
reason for ths was that on pr 30. 1917, the drectors of the company adopted
a resouton whereby the vaue of the property as of anuary 1, 1909, and ever
snce that date, was at east 2,400,000, and ths sum was then set up on the
hooks of the company. The return carred a rder to the effect that the com-
pany had been dssoved on November 24. 1917, but gave no nformaton wth
respect to the dstrbuton of assets that had been made. Some s months
ater an agent of the nterna revenue e amned a the books, fes, and records
of the company, and was furnshed wth fu Informaton concernng ts affars,
ncudng the sae of ts assets, payment of ts debts, and dstrbuton of ts
assets to the stockhoders. t the tme the assets were dstrbuted the stock-
hoders of the company were advsed that the remttance made to them con-
sttuted a dstrbuton of capta.
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250, rt. 1005.
270
Upon the tra, a vaue of the townste company stock, In the sum of 125,000,
was conceded by the Government. It does, however, queston the vaue of
2,275,000 paced upon the mnng cams as of March 1, 1913. and contends
that at that tme ther far and reasonabe market vaue was not n e cess of
1,500,000. Its further contenton s that ncome and e cess proft ta es shoud
be assessed upon the ncrease n the vaue of sad cams over the erod
between the ast-mentoned date and the tme of ther sae to Pheps Dodge
Corporaton.
In passng, t s observed that the ncome ta return of the corporaton was
audted and cosed as of March 18. 1018. ut, between December 9, 1921, and
uy 14, 1922, the ureau of Interna Revenue a n requested, and agan re-
ceved nformaton concernng the affars of the corporaton, and n September
of 1922, the Commssoner of Interna Revenue made an aeged assessment of
ta es aganst the company on account of aeged ncome for 1917, whch,
together wth a penaty of 100 per cent, aggregated 1,790,842.44.
The ssues now before the court for determnaton are the foowng:
rst. Was the ncome ta return for the Warren company for 1917 ncorrect,
mseadng, and fase, as aeged n the b of compant
Second. What was the far market vaue of the property of the Warren
Reaty Deveopment Co. as of March 1. 1913
Other ssues n the tgaton have been dsposed of by stpuaton between
the partes, or are reserved unt the determnaton of the foregong questons.
The voumnous record, taken at the tra, conssts prncpay of the test-
mony of the mnng e | erts who apprased the property n queston, as of the
varous dates matera to ths tgaton, and who then, at great ength, gave
reasons whch ed them to arrve at ther respectve estmates of vaue.
To attempt a summary of ths evdence, and to baance the weght to be
gven to the testmony of the severa wtnesses woud unduy e tend ths memo-
randum, and add hut tte to the certanty of ts concuson. n apprecaton
of the dffcuty of reconcng the dfferng vaues of the varous e perts may
be ndcated by statng that Donahoe. who testfed for the Government, f ed
the vaue of the cams as of March 1, 1913, at 1,500,000, whe the seven
engneers, caed by the defendants, vaued the property as of the same date,
at sums rangng from 2,500,000 to 5,800,000. Indeed, one of them, named
Not man. suggests that as of March 1. 1913. the property may have had a market
vaue of 9,000,000.
If the vaue of the cams was no greater on the day of sae than t was on
March 1, 1913, the Government s case, of course, must fa, and defendants
strenuousy argue that such shoud he the resut.
fter carefu consderaton of a the evdence. I am unabe to concde wth
ths vew. If the apprasas paced upon the property by the defendants
wtnesses, as of March 1. 1913, represented ts far and actua market vaue
I thnk the corporaton woud have posted wth haste to take advantage of the
fact, and woud have dsposed of ts hodngs at or about that tme. s has
been stated, the company dd nothng n the way of deveopment of the prop-
erty over the perod e tendng from 1909 to 1913. It was wthout funds to
pay e penses of e poraton. It was n debt, and ts stockhoders were weary
of ther orgna nvestment. The drectorate of the corporaton was composed
of men famar wth mnng ventures and ther possbtes, and t may he
nssume: that they were aware of what was beng dscosed n copper mnes
ad|acent to ther own property. Informaton upon ths sub|ect appears to
have been open to the numerous engneers who were caed as wtnesses by the
defendant, and there s no reason to beeve that t was unknown to the
practca men who composed the board of Warren Reaty Deveopment Co.
These men, however, contnued to awat the events of the future. ut such
pocy, accordng to defendants evdence, was of no ava, nasmuch as the
property sod n 1917 for a sum consderaby beow the vaue that s now
paced upon t as of March 1, 1913.
s hearng upon the property s market vaue n 1913, t s to he rememhered
that at such tme the condton of the copper meta market was not a happy
one. The days of hgh copper prces that were to come as a resut of the out-
bre k of the war coud not then be antcpated, and t s hardy probabe that
there was a ready dsposton on the part of operatng companes n the sbee
dstrct to spend arge sums of money upon undeveoped cams. On the con-
trary, these companes doubtess consdered t advantageous to permt sma
concerns ownng near-by property of potenta vaue to carry the same unt
the arrva of a tme when the wearness of ther stockhoders woud be com-
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271
250, rt. 1005.
pete. Whatever may have been the ntrnsc vaue of these cams, ther
market vaue, as of March 1, 1913, s ne trcaby nterwoven wth condtons
as they then e sted. veryone w admt, us omes ponts out n hs work
on edera Ta e.s. that strkes, pancs, wars and other such upheavas have
more or ess effect upon the market vaue of a knds of property that arc n
anywse affected thereby, and, very often, such market vaue may be far out of
ne wth norma or average vaues. The varaton n prces of commodtes,
rea estate, and other speces of property over the perod antedatng 1914 and
the present day s certan proof of the truth of the foregong observatons.
When the condton of the copper market, as t e sted n 1913, s taken nto
account, I am bound to say that the vaue whch Donahoe paced on the and
of Warren Reaty Deveopment Co., as of March 1, 1913, appeas to me more
strongy than those suggested by defendants wtnesses. The Pheps odge
Corporaton was operatng mnes In the vcnty of the Warren group of patents
both n 1913 and 1917. It purchased the and on the advce of Notman, who
gave evdence for defendants. ccordng to hs testmony, the purchaser ob-
taned a rea bargan. ut, so far as outay n money s concerned, I am
ncned to doubt f the bargan was as great as mght have been obtaned n
1913. In the years ntervenng between 1913 and 1917 the demand for copper
reached enormous proportons. Its prce ncreased from around 12 or 13 cents
to 28 cents per pound. t the tme of the sae of these propertes the Unted
States had |ust entered the war, and no man knew how ong an nfated copper
nnrket mght contnue. Not ony dd dscouraged owners of favoraby stuated
propertes see an opportunty to reaze upon ther hodngs, but far-sghted
mnng companes, baskng n the prosperty of ntensve producton and hgh
prces, were undoubtedy ave to the possbty of ncreasng ther reserves,
provded t mght be done upon reasonabe terms. Then, too, n ths perod,
there was a deveopment of mnng operatons n ad|onng propertes that
tended to ncrease the vaue of the cams of Warren Reaty Deveopment
Co. Whe there may have been no outstandng dscoveres of new ore bodes
n ad|acent mnes, there s no doubt that pror dscoveres In such mnes were
more e tensvey bocked out. s has been testfed, ths process may have
been n vertca rather than n atera| drectons, but the fact remans that
some e tenson of reserves toward the Warren cams dd take pace. ur-
thermore, the deveopment of ore at depth n ad|acent propertes, whch carred
surface ndcatons smar to those found on the W arren cams, aso tended
to ncrease the kehood that a smar deveopment, when carred on to the
eastward, mght show correspondng resuts. nother crcumstance worthy of
notce s that n anuary of 1917 the board of drectors of Warren Reaty
Deveopment Co. authorzed the e ecutve offcers of the company to enter nto
negotatons for the sae of a the company s property at a prce of 2,000,000
or more, on such terms and condtons as shoud e consdered to be for the best
nterest of the company and ts stockhoders. Ths resouton was passed at a
tme when there was no queston of ta aton before the offcers of the company,
and t may be regarded as some evdence of the amount of money whch the
drectors beeved mght he derved from the sae of the company s hodngs.
If from ths tentatve vauaton of the property there be deducted the sum of
125,000, the conceded vaue of the stock n the townste company, there woud
reman the sum of 1,875,000, whch may be consdered to represent the vaue
of the mnng property. rom a of the foregong facts, I have no hestancy n
concudng that the far and reasonabe market vaue of the and In 1917 was
greater than t was n 1913. The determnaton of the e tent of the ncrease
over ths perod of four years s a matter of opnon whch, n the ast anayss,
must be based upon more or ess arbtrary nferences, to be deduced from a
the evdence n the case.
or th: purpose of cacuaton, t may he assumed that the drectors of the
Warren Reaty Deveopment Co., n pacng a tentatve saes prce of
1,875,000 upon the company s rea estate, had some reasonabe bass for ther
acton. If, then, ths vauaton he compared wth that of Donahoe, as of
March 1, 1913, t w be seen that the dfference s hut 375,000. dfference
of ths amount, t seems to me, may fary be attrbuted to the effect of the war,
and to the e tenson of ore reserves n ad|onng propertes. ut. as matters
turned out, the actua market vaue of the cams, as estabshed by the prce
for whch they were sod n pr of 1917, was 2,262,000. It may be sad,
therefore, that the tentatve saes prce of the rea estate, f ed by the drectors
of the company n anuary, 1917, was too ow by 387,000. nd, n vew of
the record before me, t may aso be found that Donahoe n reachng hs con-
cuson that 700 acres of the and were worth 2,000 per acre, and that toe
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250, rt. 1005.
272
remanng thousand or so acres had a vaue of but 100,000, was too con-
servatve. It appears that n f ng the area that shoud be vaued at 2,)00
per acre, the Government wtness drew a ne around certan patents whch he
thought shoud te worth that sum. s a matter of fact, the ne ncosed about
8(0 acres. If ths addtona area be gven a vaue of 2,000 per acre, t w
ncrease the tota vauaton of the aud wthn the ncosure to 1,720,000.
Ths ncrease, t may be argued, shoud brng about a correspondng educton
n the vaue of the acreage yng wthout Donahoe s ncosure. Shoud such
argument be made, I thnk t shoud be regarded ghty. My thought s that
f SCO acres of the entre tra t be worth 1,720,000, t s de to hagge about a
vauaton of 100,000 or so on a thousand or more acres of ad|onng and
whch gves substanta evdence of mnera content. ron my anayss of
Donahue s testmony, and that of some of the other wtnesses, I am prepared
to f the mnmum vaue of the cams, as of March 1, 1913, at 1,S20,000,
Ths sum s ony 55,000 beow the amount at whch the drectors ndcated
they mght be wng to se the property n 1917. To the end that the vaua-
ton shoud not be cut too fney, I w add the foregong sum of 55,000 to the
mnmum vauaton of 1,820,000 and fnd the far market vaue of the cams,
as of March 1, 1913, to have been 1,875,000.
The foregong resut, curousy enough, s not strkngy dfferent from that
whch woud be obtaned by an aowance for mprovements to the property,
and by then proratng the dfference between the purchase prce of the property
n 1905 and ts sae prce n 1917. In other words, the cost of the and to the
company n 1905 was appro matey 535,000. In the ne t few years the sum
of 200,000 was e pended upon t n snkng shafts, drng test hoes, etc., and
n 1900, the rea estate, e cudng ta es and carryng charges, stood the com-
pany about 735,000. There was doubtess some deprecaton whch shoud be
charged over ths perod. I have, however, no fgures bearng upon that sub-
|ect, and for such reason w dsregard t as an eement of cacuaton. The
dfference between the seng prce of 1917, whch was 2,202,000, and the cost
of the property n 1005, pus mprovements, s 1,527,000. Proratng ths In-
crement n vaue over the 12 years the property was owned by the company,
the resut s that the annua ncrease In vaue amounted to about 127,250.
ppyng ths rate of ncrease to the eght years that eapsed between the date
of acquston of the property and March 1, 1913, It w be found that the
property shoud be gven a vaue as of the atter date of 1,753,000, or 122,000
ess than the vaue I have paced upon t as of the same date, based upon my
consderaton of the evdence.
Whatever ese may be obscure n ths tgaton, one thng s certan, and
It s: That the tmes at whch the ncreases In the vaue of the property
occurred, and the e tent of the same can not be accuratey determned. (IIays
v. Gaucy Mountan Coa Co., 247 U. S., 189 (3 m. ed. Ta Rep., 2982).)
In vew of ths fact, I have resorted to the proratng method of vauaton for
the purpose of testng the soundness of my concusons as to the vaue of the
and as of March 1, 1913. The resut, roughy cacuated though t be, a
enough to satsfy me that a vauaton of 1,875,000 Is not far from rght, and
so far as ths court s concerned, t w stand.
Upon the queston as to whether the ncome-ta return for 1917 was ncor-
rect, fase, and mseadng, the fndng must be In favor of the Governneut-
There can be tte or no doubt that the purpose of the resouton of pr 30,
1917, f ng the vaue of the property at 2,400,000 as of anuary 1, 1909, was
to overcome the necessty of showng a proft on the sae wthn the ta abe
perod. In 1909, the vadty of the company s tte was under attack for
aeged fraud commtted n obtanng patents to the and. Irrespectve of the
merts of the Government s aegatons, they were suffcent to n|ure the com-
pany s prospects and the market vaue of Its and. The prce of ts stock
dropped to 2 per share, and a number of persons who had purchased the same
on parta payments defauted on ther contracts. ccordng to Smth, a wt-
ness for the defendants, the stuaton was so bad that t was uttery mpos-
sbe to refnance the company. Not ony ths, sad he, but peope were
scared of the tgaton. Under these condtons, t passes beef that the prop-
erty can propery be sad to have had an actua cash market vaue of at east
2,400,000 on anuary 1. 1909. When the drectors adopted ther resouton of
pr 30, 1917, they must have recaed the events of 1909, and thereabouts, and
recang them, shoud have accorded them ther fu effect.
When the company made a ta return for 1917, t seems strange that no
Informaton wth respect to the sae of the capta assets was furnshed the
evenue ureau. That such dstrbuton had taken pace mght possby be
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273
250, rt. 1005.
Inferred from the rder attached to the return, to the effect that the company
was dssoved In November of 1917, but no cean-cut statement of the fact was
made, athough the form upon whch the return was made specfcay caed
for ths nformaton. If the good fath of the company as to ts vauaton of
the property be assumed, there s no adequate e panaton as to why the return
faed to state facts wth respect whch nformaton was propery asked, and
whch t shoud have been furnshed. On the whoe case, I am of opnon that
the return shoud be hed to have been ncorrect, mseadng, and fase.
rtce 1005: Defcency n payment Interest II-26-3781
and penaty. T. D. 4163
INCOM T R NU CT O 1921 D CISION O COURT.
L Interest Defcency ountary Payment efore Comms-
soner s amnaton or Return.
Under secton 250(b) of the Revenue ct of 1921 nterest s
coectbe on any addtona ta due on a return fed under the
provsons of that ct from the due date of the ta or Instaments
thereof, though such addtona ta s dscovered by the ta payer
and an amended return s vountary fed and the ta vountary
pad before the Commssoner s e amnaton of the return.
2. udgment ffrmed.
The udgment of the dstrct court (21 ed. (2d.), 856 (T. D.
4143 page 265 ) s affrmed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Crcut Court of
ppeas for the Second Crcut, n the case of the Unon Pacfc
Raroad Co., pantff n error, v. rank . owers, defendant n
error, s pubshed for the nformaton of nterna revenue offcers
and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved une 13, 1928.
enry errck ond,
ctng Secretary of the Treasury.
Unted States Crcut Court of ppeas for the Second Crcut.
Unon Pacfc Raroad Co., pantff n error, v. rank . owers, defendant
n error.
In error to the Unted States Dstrct Court tor the Southern Dstrct of New York.
Pantff sued the coector of Interna revenue to recover Interest aeged to have been
unawfuy aswssed aganst It on ts Income ta return for the year 1922, amountng to
44,475.32, and to have been pad by It to the coector under protest nnd duress. The
compant was dsmssed for faure to state facts suffcent to consttute a cause of acton
and from the |udgment entered thereon n favor of the defendant-coector pantff brngs
error. udgment affrmed.
March 19, 1928.
opnon.
efore L. and, Swan, and ugustus N. and, Crcut udges.
The pantff, Unon Pacfc Raroad Co., fed a edera ncome ta return ,
for the caendar year 1922 and pad the ta shown to be due on the face of
the return. Thereafter, on May 13, 1925, the raroad fed wth the coector
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250, rt. 1005.
274
an amended return for the same year whch showed a ta abty of 413,724
n addton to that shown n the orgna return. The amended return was fed
vountary and ts soe effect was to emnate a certan deducton camed n
the orgna return and n consequence to ncrease the tu abty of the raroad
for the year 1922 by 413,724. Thereupon the raroad pad to the coector the
addtona ta but pad no nterest thereon. Thereafter the coector notfed
the raroad that an assessment had been made aganst t of nterest upon the
addtona ta n the sum of 44,475.32, and served a demand for the payment
of the sad nterest, whch was accordngy pad under protest and duress to
the coector. The payment of the addtona ta of 413,724 was made voun-
tary and no assessment thereof (e cept nterest thereon) was ever made.
Contemporaneousy wth the payment of nterest, pantff fed a cam wth
the Commssoner for a refund, whch was re|ected by hm on the foowng
ground:
In accordance wth secton 250(b), nterest s coectbe on any defcency
n ta on returns fed under the provsons of the Revenue ct of 1921, whether
or not such defcency s dscovered by the ta payer and amended return voun-
tary fed and the ta vountary pad or as a resut of the e amnaton of the
returns by (hs offce.
t the tme of payment of the addtona ta the Commssoner had made no
e amnaton of ether the orgna return or the amended return. No part of
the nterest so pad under duress was refunded and the raroad brought ths
acton accordngy on the ground that the assessment and coecton of the
nterest were unauthorzed by aw. udge Goddard hed that the nterest was
propery assessed aganst the raroad and dsmssed ts compant to recover
t accordngy.
The queston whether nterest shoud have been assessed n ths case depends
upon the proper nterpretaton of secton 250(b) of the Revenue ct of 1921.
The pertnent provsons of that secton are the foowng:
(b) s soon as practcabe after the return s fed, the Commssoner sha
e amne t. If t then appears that the correct amount of the ta s greater or
ess than that shown n the return, the nstaments sha be recomputed. If
the amount aready pad e ceeds that whch shoud have been pad on the
bass of the nstaments as recomputed, the e cess so pad sha be credted
aganst the subsequent nstaments and f the amount aready pad e ceeds
the correct amount of the ta , the e cess sha be credted or refunded to the
ta payer n accordance wth the provsons of secton 252.
If the amount aready pad s ess than that whch shoud have been pad,
the dfference, to the e tent not covered by any credts due to the ta payer
under secton 252 (herenafter caed defcency ), together wth nterest
thereon at the rate of one-haf of 1 per centum per month from the tme the
ta was due (or, f pud on the nstament bass, on the defcency of each
nstament from the tme the nstament was due), sha be pad upon notce
and demand by the coector. If any part of the defcency s due to neggence
or ntentona dsregard of authorzed rues and reguatons wth knowedge
thereof, but wthout ntent to defraud, there sha be added as part of the ta
5 per centum of the tota amount of the defcency n the ta , and nterest In
such a ense sha be coected at the rate of 1 per centum per month on the
amount of such defcency n the ta from the tme t was due (or, f pad on
the nstament bass, on the amount of the defcency n each nstament from
the tme the nstament was due), whch penaty and nterest s-a become
due and payabe upon notce and demand by the coector. If any part of the
defcency s due to fraud wth ntent to evade ta , then, n eu of the penaty-
provded by secton 3170 of the Revsed Statutes, as amended, for fase or
frauduent returns wfuy made, but n addton to other penates provded by-
aw for fase or frauduent returns, there sha be added as part of the ta
50 per centum of the tota amount of the defcency n the ta . In such ease
the whoe amount of the ta unpad, ncudng the penaty so added, sha
become due and payabe upon notce and demand by the coector.
ugustus N. and. Crcut udge: There s tte, f anythng, to be added
to the opnon of the court beow. The pantff contends that the statute ony
contempated nterest upon a defcency of ncome ta payments whch e sted
at the tme of the e amnaton and audt of the returns by the Commssoner
and says that at the tme of such e amnaton the ta had been pad n fu, so
that there was no defcency and coud, therefore, be no nterest due.
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275
250, rt. 1008.
The anguage of the secton appcabe Is:
s soon as practcabe after the return s fed, the Commssoner sha
e amne t. If t then appears that the ta s greater or ess than
that shown n the return, the nstaments sha be recomputed. If
the amount aready pad s ess than that whch shoud have been pad, the
dfference (herenafter caed defcency ) together wth nterest
thereon at the rate of one-haf of 1 per centum per month from the tme the
ta was due sha be pad upon notce and demand by the coector.
If t then appears means appears at the tme when the Commssoner
make. hs e amnaton, but t does not foow that the Commssoner has a
rght to make hs recomputaton upon the bass of an amended return fed
to correct mstakes. The orgna return aone has any statutory recognton
and that st showed a defcency of 413,724, n vew of the nformaton
avaabe at the tme the Commssoner made the assessments of 44,475.32,
nterest due n September, 1925.
It s true that there had meanwhe been a vountary payment of the sum
of 413,724 on une 10, 1925, and the fng of an amended return under
the approved practce of the Department, and that ths payment wped out
the prncpa of the ta . ut t had nothng to do wth the bass of the
assessment and was ony a credt pro tanto by payment on account of the
defcency whch stopped nterest runnng. There s no reason to suppose
that the coector coud not have refused to receve t n order to contnue
nterest runnng upon the defcency unt the Commssoner made hs
assessment.
That the rght to cam arge sums of nterest coverng ong perods of
tme when the Government was not pad ts awfu ta es shoud depend on a
re|ecton of payments of defcences n ta es by wng ta payers wth a
the attendant rsks of change of heart, nsovency or death of the debtor,
seems ncredbe. Nor s an nterpretaton of the secton reasonabe whch
woud enabe a ta payer, the ncorrectness of whose return s frst dscosed
to hm by a Government nspecton, to pay hs defcency at the eeventh hour
and thus deprve the Government of nterest by comng out ahead n a race
wth the Commssoner. There woud be a great temptaton to hod back n
a doubtfu cases and make vountary payments at the ast mnute n order
to avod payng nterest.
It s no answer to the foregong to say that under the Revenue cts pror to
1921 the nterest ran upon a defcency ony from the date of assessment notce
and demand by the coector and that such was the setted practce of the
Department. ( entucky ockey CUb v. Lucas, 14 ed. (2d), 539 T. D. 3915,
C. . -2, 1911.) The ct of 1918, ke the ct of 1921, and unke the former
cts, made the ta payer s computaton of the ta suffcent notce of the amount
and the nstructons prnted on the return suffcent demand for payment. ut
none of the pror cts contaned any provson for nterest upon a defcency
even when dscovered by a ureau audt uness, as was not the case here, the
defcency was due to neggence. The ct of 1921 was the frst to provde that
nterest shoud run on defcences pror to the date of assessment and demand.
It requres nterest here uness the recomputaton s to be based on the amended
return, whch we thnk s not the case.
The secton says that the defcency on whch nterest s to run s to be
the dfference between the amount aready pad and that whch shoud
have been pad. Ths phrase aready pad the pantff sezes upon n ts
favor. owever, the amount aready pad must be referred to the amount
pad on the return, the ony return recognzed anywhere n the statute. If the
pantff be rght, a payment made wthout any return whatever must be
accepted and woud stop a nterest meanwhe. The amended return can of
tsef not change the stuaton. Thus a ta payer woud be gven an easy way
of crcumventng the statute and escapng the equa burden of ta aton.
udgment affrmed.
rtce 1008: Coecton of ta by sut. II-r-3592
T.D.4119
federa ta es revenue act of 1921 decson of court.
1. ssessment adty Dssoved Corporaton.
n assessment aganst a corporaton s not vod by reason of the
fact that t was made after the dssouton of the corporaton.
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250, rt. 1008.1
27G
2. ssessment Pbma face vdence- Sut ganst Transferer
n assessment aganst a corporaton s prma face evdence of
the correct ta abty n an acton to coect the ta aganst a
transferee of the assets under the trust fund doctrne.
3. urden of Proof Trust und Doctrne.
In an acton to charge stockhoder wth a trust n favor of
the Unted States to the e tent of corporate ta es due and unpad
the burden of proof s cn (he Government to show that he receved
property from the corporaton as a stockhoder and not as a bona
fde credtor.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, I). C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Dstrct Court of the Unted States
for the Western Dstrct of entucky n the case of Unted States
of merca, pantff, v. /. W. Lam, defendant, s pubshed for the
nformaton of nterna revenue offcers and others concerned.
C. R. Nash,
cthg Commssoner of Interna Revenue.
pproved anuary 21, 1928.
. W. Meon,
Secretary of the Treasury.
Dstrct Court of the Unted States for the Western Dstrct of kntucky.
Unted States of merca pantff, v. . W. Lam. defendant.
October 21, 1927.
M MOR NDUM OPINION.
I can not agree wth the contenton of the defendant that the defcency
assessment made by the Commssoner aganst the sde Coa Co. was vod
because that corporaton had dssoved and gone out of busness pror to the
assessment. The sde Coa Co. was organzed under the aws of entucky.
Secton 561 of entucky Statutes provdes that after the charter of a entucky
corporaton has e pred, or after t has gone out of busness by the vountary
act of ts stockhoders, t may thereafter contnue to act as a corporaton for
the purpose of cosng up ts busness. Ths undoubtedy gves to the corpora-
ton the rght to sue n ts corporate name, to coect accounts due t, and to do
other acts n ts corporate name, ookng aone to the cosng up of ts busnesa.
Lkewse, ths secton undoubtedy was ntended to gve to credtors of a corpo-
raton the rght, wthn a reasonabe tme after ts dssouton, to qudate
cams aganst t, based on busness transactons whch took pace and abtes
whch arose durng ts corporate e stence. It s true that the Court of
ppeas of entucky has hed that, ordnary, two years s a reasonabe tme
for a corporaton to wnd up ts busness under secton 561, but ths s no hard
and fast rue, and certany can not be apped aganst the Government to
prevent the assessment of ta es wnch the corporaton shoud have pad, pro-
vded the assessment s made before proceedngs to coect the ta es are barred
by mtaton. I am satsfed that the defcency assessment made by the
Commssoner n ths case s not vod.
Nor do I thnk there s anythng n the contenton of the defendant that the
assessments made n ths case aganst the sde Coa Co. can not be accepted
as prma face correct as aganst the defendant n ths acton. It s too we
setted to need ctaton of authorty that an assessment made by the proper
admnstratve offcer s prma face correct as aganst the ta payer aganst
whom the assessment s made. Therefore, f the sde Coa Co. were beng
sued n ths case, the defcency assessments nnde by the Commssoner woud
be prma face correct, and the burden woud be upon the coa company to
estabsh that they were ncorrect. It s the genera rue that a stockhoder
Is such an ntegra part of the corporaton that he. n vew of the aw, s prvy
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277
250, rt. 1008.
to the proceedngs touchng the body of whch he s a member, and s bound
by such proceedngs, even though he hmsef s not a party thereto, uness such
proceedngs aganst the corporaton are vod because of vvnt of |ursdcton
over the sub|ect matter or over the corporaton tsef. Compare Sanger v.
Upton, ssgnee (91 U. S., 56) awkns v. Genn (131 U. S., 319) Seg v.
amton (234 U. S., 052) Coe v. rmour ertzer Works (237 U. S 413)
Marn v. ugedah (247 U. S., 142).
I am therefore of the opnon that the defcency assessments made by the
Commssoner aganst the |sde Coa Co. must be accepted as prma face
correct n ths acton to coect the ta so assessed from the defendant under the
trust fund theory. The burden s upon the defendant to show that the defcency
assessments were ncorrect. I do not thnk the defendant has sustaned that
burden. The burden Is on the pantff, however, to show that the defendant,
as a stockhoder, receved property from the sde Coa Co. whch, under
the trust fund doctrne, shoud be apped to the payment of the ta es assessed
aganst the sde Coa Co. 1 do not thnk the pantff has sustaned ths
burden.
The proof n ths case shows that when the sde Coa Co. sod ts proper-
tes to the Lberty Coa Mnng Co., the Oakand Coa Co., and the Sausberg
Coa Co. t receved 38,500 n cash and 110,000 n notes, secured by a en on
the property sod. The pantff charges that the defendant, Lam, upon the
dssouton of the sde Coa Co., as a stockhoder of that company, receved
the beneft of the 38,500 n cash receved by t n the sae of ts propertes,
but Lam swenrs to the contrary. e says the money was e pended n payng
the debts of the sde Coa Co. The burden s on the Government to prove
that Lam receved ths 38,500, as a stockhoder of the corporaton. It has
whoy faed to sustan ths burden. The Government contends that the
110,000 n notes were turned over to Lam as a stockhoder of the corporaton
upon ts dssouton. Lam contends that there notes were turned over to hm as
a credtor of the corporaton, n satsfacton of the amount due hm on account
of 100,000 of bonds of the sde Coa Co. owned by hm and 40,000 nterest
on these bonds.
If these notes were not receved by Lam as a stockhoder, as hs part of the
corporate assets of the sde Coa Co. upon ts dssouton, but were pad
to hm n satsfacton of the en debt whch he cams he hed aganst that
corporaton, ther recept by Lam woud create no abty on hs pnrt for any
part of the ta es assessed aganst the sde Coa Co.
The Government contends that at the tme the sde Coa Co. dssoved
and Lam receved the 110,000 n notes, the sde Coa Co. was not Indebted
to hm for the 100,000 of bonds and nterest thereon, or, If t was so ndebted,
Lam s estopped to assert such Indebtedness because of the rectas n the deed
from the sde Coa Co. and . W. Lam to the Lberty Coa Mnng Co., to
the effect that sad bonds had aready been fuy pad and satsfed.
I do not thnk the doctrne of estoppe by deed has any appcaton, because
the Government was not prvy to ths Instrument. The rectas In the deed, how-
ever, are some evdence n support of the cam of the Government that the bonds
had actuay been satsfed pror to the sae of the sde Coa Co. s property.
Lam hmsef swears postvey that the bonds had not been satsfed. If ths
were the ony testmony n the case on that sub|ect, I woud be ncned to
accept as true the statements n the deed, but the testmony of Mr. Lam s
corroborated by Mr. ubert Meredth, secretary of the sde Coa Co., whom
I have known personay for many years and n whose word I have mpct
fath. I thnk t s cear from the testmony as a whoe that when the sde
Coa Co. commenced to se ts property to the Lberty Coa Mnng Co., the
Oakand Coa Co., and the Sausberg Coa Co., t was agreed that Lam shoud
surrender hs bonds and cance them, and receve In e change therefor the
notes whch the purchasng companes were to e ecute. In vew of the fact
that Lam was practcay the soe stockhoder of the sde Con Co., I do
not attach any partcuar mportance to the fact that he was wng to and
dd acknowedge of record that the bonds had been satsfed before he receved
the notes e ecuted by the purchasng companes. e was at a tmes n pos-
ton, because of hs contro of the sde Con Co., to fuy protect hs nterest
t any rate, I thnk the Government has faed to satsfactory sustan the
burden of provng that these notes were receved by Lam as a stockhoder n
satsfacton of hs nterest n the corporate assets of the sde Coa Co. upon
Its dssouton.
decree w therefore be entered dsmssng the b.
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300, rt. 701.
278
TITL III. W R-PRO ITS ND C SS-PRO ITS T
OR 1921.
P RT I. G N R L D INITIONS.
S CTION 300. G N R L D INITIONS.
rtce 701: War-profts and e cess-profts II-15-3677
ta . T. D. 4142
C SS PRO ITS T R NU CT OP 1017 D CISION O COt RT.
Net Income Loss Unket.ate) to usness.
The net ncome of an ndvdua derved from hs trade or bus-
ness whch s sub|ect to the e cess profts ta mposed by secton
209 of the Revenue ct of 1017 s determned wthout n deducton
for a oss sustaned on account of a transacton not a part of such
trade or busness.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Court of Cams of the Unted States
n the case of hdwn N. C apman v. The Unted States s pubshed
for (he nformaton of nterna revenue offcers and others concerned.
I). II. ar,
Commssoner of Interna Revenue.
pproved March 31, 1928.
. W. Meon,
Seeretay of the Treasury.
Unted States Court of Cams.
dwn . Chaptnan v. The Unted States.
November 7. 1927.
OPINION.
Moss. udge, devered the opnon of the court.
Pant ff, dwn N. Chapman, throughout the year 1917 was a member of
the stock and bond brokerage frm of Chsom Chapman. e had no net
ncome for that year, and pad no ncome ta . e dd, however, show on the
face of hs a return for that year a abty for an e cess-profts ta amount-
ng to 801. whch was pad.
In the beef that sad ta was erroneousy pad, pantff fed a cam for a re-
fund of that amount, whch cam was re|ected by the Commssoner of Interna
Revenue. Th s sut s brought for the recovery of same.
The e cess-profts ta arses under the Revenue ct of 1917 (40 Stat.. 302-
805), the pertnent provsons of whch are as foows:
Secton 200 provdes n part:
The fenns trade and busness ncude professons and occupatons.
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300, rt. 701.
Secton 201, n so far as appcabe:
That n addton to the ta es under e stng aw and under ths ct there
sha be eved, assessed, coected, and pad for each ta abe year upon the
ncome of every corporaton, partnershp, or ndvdua, a ta (herenafter n
ths tte referred to as the ta ) equa to the foowng percentages of the net
ncome:

or the purpose of ths tte every corporaton or partnershp not e empt
under the provsons of ths secton sha be deemed to be engaged n busness,
and a the trades and busnesses n whch t s engaged sha be treated as a
snge trade or busness, and a ts ncome from whatever source derved sha
be deemed to be receved from such trade or busness.
Ths tte sha appy to a trades or busnesses of whatever descrpton,
whether contnuousy carred on or not, e cept (certan e ceptons not here
appcabe) .
Secton 203 provdes n part:
That for the purposes of ths tte the deducton sha be as foows, e cept
as otherwse n ths tte provded

(b) In the case of a domestc partnershp or of a ctzen or resdent of the
Unted States, the sum of (1) an amount equa to the same percentage of the
nvested capta for the ta abe year whch the average amount of the annua
net ncome of the trade or busness durng the pre-war perod was of the
nvested capta for the pre-war perod (but not ess than 7 or more than 9
per centum of the nvested capta for the ta abe year), and (2) 6,000

Secton 206, second paragraph:
The net ncome of a partnershp or ndvdua sha be ascertaned and
returned for the caendar years 1911, 1912, and 1913, and for the ta abe year,
upon the same bass and n the same manner as provded n Tte I of such
ct of September 8, 1916, as amended by ths ct, e cept that the credt
aowed by subdvson (b) of secton 5 of such ct sha be deducted .
Secton 209:
That n the case of a trade or busness havng no nvested capta or not
more than a nomna capta there sha be eved, assessed, coected, and pad,
n addton to the ta es under e stng aw and under ths ct, n eu of the
ta mposed by secton 201, a ta equvaent to 8 per centum of the net ncome
of such trade or busness n e cess of the foowng deductons: In the case of
a domestc corporaton, 3,000 and n the case of a domestc partnershp or
a ctzen or res dent of the Unted States, 6,000 n the case of a other
trades or busness, no deducton.
Pantff s frm had no nvested capta, and the deducton provded for In
secton 209 of sad ct, amountng to 6,000, s appcabe to pantffs case.
The amount of the e cess profts ta returned and pad n ths case was
arrved at n the foowng manner: y agreement between the partners each
member thereof drew as saary a certan amount monthy. In the event of
profts n e cess of the tota of such amounts, such profts were to remnn n
the busness, and at the e praton of each s months perod durng the
year 1917 the persona accounts of each partner were to be credted or debted
wth hs proporton of the frm s profts or osses, as the case mght be. The
tota sum drawn by the pantff as saary under the above pan amounted to
16,800, and the ta pad heren was computed at 8 per cent on 10,800. whch
s the dfference between the specfc statutory e cess-profts ta e empton of
6,000 and the tota amount of saares drawn for that year.
It s pantff s contenton that he was entted to deduct from hs 1917
saary s osses sustaned on account of certan transactons not a part of the
busness of the partnershp, under the authorty of secton 206 above quoted,
whch provdes that the net ncome of a partnershp or ndvduas sha be
ascertaned and returned upon the same bass and n the same
manner as provded n Tte I of such ct of September 8, 1916, as amended
by ths ct . Ths s the statutory provson for computng net
6342 28 19
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280
Income for ncome-ta purposes. Under pantff s theory a osses deductbe
In computng net ncome for ncome-ta purposes woud aso be deductbe n
arrvng at the net ncome for the e cess-profts ta . Ths theory s ceary
erroneous. The e cess-profts statute was an emergency war measure, and the
tu was n addton to the ta es under e stng aw . It was a ta
on the proceeds of the trade or busness, and pantff s busness for the ta -
abe year 1917 was the stock and bond brokerage busness of the frm of
Chsom Chapman. s osses were sustaned on account of the qudaton
of the predecessor partnershp of the same name, Chsom Chapman nter-
est on persona ndebtedness and ta es pad n 1917, and the sum of these
osses, deducted from hs gross ncome, reduced pantffs net ncome for ncome
ta es to a nonta abe bass but there were no osses for the year 1917, n
the trade or busness In whch pantff was engaged. The court s of the
opnon, for the reasons heren stated, that pantff s not entted to recover.
nd t s so ordered.
P RT . IN ST D C PIT L.
S CTION 326. IN ST D C PIT L.
rtce 831: Meanng of nvested capta. I1-6-3602
T. D.4121
C SS PRO ITS T R NU CT O 1917 D CISION O COURT.
Invested Capta orrowed Capta mount Left n usness.
Where the members of a partnershp succeeded by a corporaton
eave n the busness an amount n e cess of the authorzed capta
stock for whch the corporaton e ecutes and devers Interest-bear-
ng notes n amounts equa to ther respectve nterests payabe at a
f ed tme, the amount so eft n the busness s borrowed capta,
even though the notes accordng to the terms thereof are on an
equa footng as obgatons and are subordnate to the cams of
genera credtors, and It s, therefore, no part of Invested capta
as defned by secton 207 of the Revenue ct of 1917.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue amd Others Concerned:
The foowng decson of the Court of Cams of the Unted States
n the case of /. T nterberg cf Co., Inc., v. Unted States s pubshed
for the nformaton of nterna revenue offcers and others concerned.
D. . ak,
Commss o-ner of Interna Revenue.
pproved anuary 26, 1928.
. W. MeLLON,,
Secretary of the Treasury.
Court of Cams of the Unted States.
. Unterberg Co., Inc.. v. The Unted State .
November 7, 1927.
OPINION.
Moss, udge, devered the opnon of the court:
On anuary 1, 1910, Israe Unterberg. Wam Sutske, and Israe L. nter
formed a partnershp under the frm name of I. Unterberg Co., wth a capta
of 419,843.33, contrbuted n varyng proportons by the three members thereof.
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326, rt. 831.
It was agreed between the partners that before the dstrbuton of any profts
the ndvduas contrbutng capta thereto shoud receve nterest at the rate
of G per cent per annum on the amount that each hud contrbuted to the
busness.
On May 2, 1916, the partnershp was dssoved and a corporaton composed of
tt same ndvduas was formed under the corporate name, I. Unterberg Co.,
Inc., to contnue the busness of the partnershp.
t the tme of the dssouton of the partnershp the net vaue of the respec-
tve nterests of sad partners theren was as foows: Israe Unterberg, 296,-
638.35 Wam Sutske (whose name was ater changed to Wam S. Sater),
S96.304.72 and Israe L. uter, 43,622.64. The authorzed capta stock of
the corporaton was 200,000, whch was dstrbuted to the three members of
the corporaton n amounts equa to ther respectve contrbutons as stated
above. The dfference between the amount of the stock so dstrbuted, and the
tota sum of the workng capta, sad dfference amountng to 236,655.71, was
aowed by the partners to reman n the company, for whch the company e e-
cuted and devered to each of the partners ts note. These notes were dentca
n terms e cept as to name and amount. They were payabe on a f ed date and
bore nterest from date at the rate of 6 per cent per annum payabe seman-
nuay, wth the prvege to sad company of payng the prncpa at any tme
afttT May 1, 1917, on gvng 30 days notce to the hoder. Sad notes contaned
the foowng provson:
Ths note s one of three smar notes, bearng ke date, amountng n
the aggregate to the sum of two hundred and thrty-s thousand s hundred
and ffty-fve 71/100 ( 236,655.71) doars, whch have been ssued by sad
company, and are to stand on an equa bass as obgatons, wthout prefer-
ence or prorty of one over another. of sad notes are ssued on condton
that they sha be subordnate to the cams of the genera busness credtors
of sad company, and upon the qudaton or dssouton of sad company, or
upon the fna dstrbuton of ts assets, such genera busness credtors sha
be entted to prorty of payment n fu over sad notes.
n agreement was entered nto between the three stockhoders on pr 17,
1917. whch provded for certan optons to purchase the stock of the stock-
hoders retrng from the busness, and t further provded that f sad optons
were e ercsed, sad notes shoud aso be purchased.
On anuary 8, 1919, the authorzed capta of pantff company was n-
creased to 600,000, and on anuary 17. 1919, the stockhoders surrendered to
pantff sad notes, and receved n e change therefor certan shares of the
capta stock of pantff company.
In ts ta return for the ta abe year 1)117 pantff based ts ta upon an
nvested capta of 436,655.71, whch ncuded the tota amount of sad notes.
The Commssoner of Interna Revenue assessed an addtona ta of 15,-
812.04. on the ground that sad notes represented borrowed money, and that the
fund for whch they were e ecuted coud not propery be ncuded n nvested
capta. Ths acton s for the recovery of sad addtona ta .
Secton 207 of the Revenue ct of 1917 (40 Stat., 300) defnes nvested
capta n the foowng anguage:
That as used n ths tte, the term nvested capta for any year means
the average nvested capta for the year, as defned and mted n ths tte,
averaged monthy.
s used n ths tte nvested capta does not Incude stocks, bonds (other
than obgatons of the Unted States), or other assets, the ncome from whch
s not sub|ect to the ta mposed by ths tte nor money or other property
borrowed, and means, sub|ect to the above mtatons:
fa) In the case of a corporaton or partnershp: (1) ctua cash pad n,
(2) the actua cash vaue of tangbe property pad n other than cash, for
stock or shares n such corporaton or partnershp, at the tme of such pay-
ment (but n case such tangbe property was pad n pror to anuary 1, 1914,
the actua cash vaue of such property as of anuary 1, 1914. but n no case
to e ceed the par vaue of the orgna stock or shares specfcay ssued there-
for), and (3) pad n or earned surpus and undvded profts used or empoyed
n the busness, e cusve of undvded profts earned durng the ta abe
year: .
It s pantffs contenton that the notes under consderaton represented a
speces of preferred stock, and that the fund eft wth the company n e change
therefor shoud propery be ncuded n ts nvested capta. We are unabe
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326, rt. 838.
282
to agree wth pantff s theory on that pont The money eft wth the com-
pany beonged to the ndvduas. The notes provded for ts repayment at a
f ed tme, wth nterest, from date, payabe semannuay. The provson that
the three notes were to stand on an equa bass, and that they shoud be sub-
ordnate to any cam of genera credtors, does not n anywse affect the ega
status of the transacton. It s nothng more nor ess than a decaraton of
the ega requrements under the partcuar crcumstances nvoved theren.
Preferred stock enttes the hoder to an nterest n the assets of the corpora-
ton, wth a voce n ts management, and to the rght to share n ts surpus
profts. The hoder of these note.5 , as such, acqured no such rghts or
prveges. They were merey entted to the payment of the notes n accord-
ance wth the terms thereof and each of them was so pad, and ndorsed
across the face of the note anuary 27, 1919. Stock ssued In payment of
these notes. Davd W. Unterberg, secretary.
The court hods that the fund, for whch the notes Invoved heren were
e ecuted, was borrowed money, whch s e pressy e cuded from consderaton
as nvested capta.
It foows that the petton shoud ba dsmssed. nd t s so ordered.
rtce 838: Surpus and undvded profts: II-17-3695
earned surpus. T. D. 4146
( so Secton 213(a), rtce 31.)
INCOM ND C SS PRO ITS T S R NU CT O 1918 D CISION O
COURT.
1. Invested Capta arned Surpus Depeton and Depreca-
ton.
or nvested capta purposes deprecaton and depeton must
be treated as an mparment of capta whch must be restored be-
fore there can be surpus or undvded profts wthn the meanng
of secton 326 of the Revenue ct of 1918.
2. Income empton Restrcted Indan Lanos.
The ncome of a essee derved from a ease of restrcted Indan
ands s sub|ect to ta under the Revenue ct of 1918.
3. Decson oowed.
The decson n cwr v. The Coona Trust Co. (48 Sup. Ot.
Rep., 65) (T. D. 4112 page 207 ) s foowed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton., D. O.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Court of Cams of the Unted States
n the case of the Cortez O Co. v. The Unted States s puhshed
for the nformaton of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved pr 12, 1928.
Ogden L. Ms,
ctng Secretary of the Treasury.
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283
326, rt, 838.
Court of Cams of the Unted States.
Cwtez OU Co. v. The Unted State .
anuary 0, 1928.
OPINION.
ooth, udge, devered the opnon of the court.
The pantff fed ts consodated ta return for the ta abe year 1920 on
ebruary 25, 1921. The return so fed reported n totas as foows: Net
ncome, 285,773.49 nvested capta, 2,158,363.81 ncome ta , 26,175.26
e cess profts ta , 22,020.88 tota ta , 48,190.14. The Commssoner of Inter-
na Revenue caused an e amnaton and audt of pantff s books of account, n
consequence of whch pantff s net ncome was ncreased to 337,115.76 and ts
nvested capta decreased to the sum of 956,749.76, resutng n an addtona
assessment of 57,916.92 ncome and e cess profts ta . The sum of 302,925.11
of the entre net ncome upon whch the above ta was assessed was derved by
the pantff from the sae of o and gas produced from eases upon homestead
and surpus Indan ands, and the cam s made heren that a of ths sum s
free from ta aton because of fhs fact. The ssue wth respect to ths tem s
concuded adversey to the pantff by the decson of the Supreme Court n the
case of ener v. The Coona Trust Co.. announced November 21, 1927.
The Commssoner reduced the consodated nvested capta of the pantff
by deductng from ts reported nvested capta 697,842.65 for depeton and
128,579.59 for deprecaton sustaned by pantff on ts o and gas propertes
durng the years 1914 to 1919, ncusve. Pantff chaenges the vadty of the
deducton and seeks to recover 38,138.32, egay e acted n pursuance of the
Commssoner s rung. The bass for pantff s contenton s the wordng of
sectons 325-326 of the Revenue ct of 1918 (40 Stat., 1091-1092), assertng
that nvested capta under the aw s purey a statutory concept and s not to
be reduced by depeton and deprecaton. We can not sustan the contenton.
Secton 312 of the Revenue ct of 1918 (40 Stat., 1091) provdes for e emptons
n ascertanng e cess profts ta es. Sectons 325-326 pont out the manner of
ascertanng nvested capta from these sectons. It s apparent that nvested
capta may be ncreased by the addton of earned surpus and undvded
profts. The reguatons of the ureau pont out that ony true-earned surpus
and undvded profts can be ncuded n the computaton of nvested capta
and n computng earned surpus and undvded profts reasonabe aowances
for deprecaton and depeton are made. See artces 838 and 839, Reguatons
45, 1920 edton. s pertnenty observed n the defendant s bref, the regua-
tons treat these tems as an mparment of capta whch must be made good
before there can be any surpus or undvded profts. The Commssoner must
under secton 312 ascertan nvested capta, and the reguatons cted above
have been n force and foowed by the ureau snce the frst enactment of the
statute, and were so n force, observed, and foowed when the Revenue ct of
1921 was enacted. omada d Co. v. Unted States, 215 U. S., 392.) See aso
Unted States v. Ludey (274 U. S., 295 TT. D. 4046, C. . I-2, 1571).
The petton w be dsmssed. It s so ordered.
rtce 838: Surpus and undvded profts: II-17-3696
earned surpus. T. D. 4148
C SS PRO ITS T R NU CT OP 1018 D CISION O SUPR M COURT.
1. Invested Capta, Undvded Profts Imparment of Capta.
Where the capta of a corporaton s mpared by an operatng
defct the capta must be restored to the e tent of ts mparment
before net earnngs remanng n the busness may be ncuded n
nvested capta as undvded profts wthn the meanng of
secton 326(a)3 of the Revenue ct of 1918.
2. udoment ffrmed and udgment Reversed.
The |udgment of the dstrct court (8 ed. (2d), 178 (T. D. 3751
C . I -2, 236 )) s affrmed the |udgment of the crcut court
of appeas (15 ed. (2d), 814) s reversed.
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326, rt. 838.
284
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Supreme Court of the Unted States
n the case of L. M. Wcuts, Coector of Interna Revenue for the
DUtrct of Mnnesota, pettoner, v. Mton Dary Co. s pubshed
for the nformaton or nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved pr 12, 1928.
Ogden L. Ms,
ctng Secretary of the Treasury.
Supreme Court of the Unted States.
L. M. Wcuts, Coector of Interna Revenue for the Dstrct of Mnnesota,
pettoner, v. Mton Dary Co.
On wrt of certorar to the Unted State Crcut Court of ppeas for the ghth Crcut.
November 21, 1927.
OPINION.
Mr. ustce Sanford devered the opnon of the court
The dary company, a Mnnesota corporaton, brought ths sut aganst the
coector to recover addtona e cess-profts ta es assessed aganst t under
Tte III of the Revenue ct of 1918 for ts ta abe years 1919 and 1920. and
pad under protest. udgment for the coector n the dstrct court (8 . (2d),
178) was reversed by the crcut court of appeas (15 . (2d), 814).
The queston here s whether profts earned by the company that were nsuff-
cent to offset an Imparment of ts pad-n capta were undvded profts to be
ncuded as nvested capta n computng the e cess-profts credts aowed
by the ct.
Secton 312 of the ct provded that the e cess-profts credt of a domestc
corporaton shoud consst of a specfc e empton of 3,000 pus an amount
equa to 8 per centum of the nvested capta for the ta abe year. Secton
320(a) defned the term nvested capta, wth certan e ceptons not now
matera, as the actua cash and cash vaue of other property bona fde pad
n for stock or shares, at the tme of such payment, and (3) Pad-n or earned
surpus and undvded profts not ncud . surpus and undvded profts
earned durng the year. rtce 838 of Treasury Reguatons 45 decared
that: Ony true earned surpus and undvded profts can be ncuded n the
computaton of nvested capta . In the computaton fu
recognton must frst be gven to a e penses ncurred and osses sustaned
from the orgna organzaton of the corporaton down to the ta abe year.
There can, of course, be no earned surpus or undvded profts unt
any defct or mparment of pad-n capta due to depeton, deprecaton, e -
pense, osses, or any other cause has been made good.
The company was organzed wth a pad-n capta of 145,817.04. t the end of
1917 an operatng defct of 70 206.12, shown on the books, mpared the capta
to that e tent. In 1918 the company had a net ncome of 11,489.26 and
n 1919 a net ncome of 22,908.14. These earned profts were not dstrbuted,
and 29,853.03 thereof remaned n the busness at the cud of 1919, wthout
havng been apped to reduce the mparment of the capta.
In the returns on whch the e cess-profts ta es were orgnay assessed and
pad the company, treatng these earnngs as undvded profts consttutng
part of ts nvested capta, reported as nvested capta for 1919 the sum of
the pad-n capta. 145,817.04, and the profts, 11,489.26, earned n 1918 and
as nvested capta for 1920 the sum of the pad-n capta and the 29,853.03 of
profts earned n 1918 and 1919 and remanng n the busness.
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285
326, rt. 838.
Thereafter, on an audt of the returns, the Commssoner of Interna Revenue,
whe aowng for each year as nvested capta the amount of the pad-n
capta, e cuded from the computatou of the nvested capta the amounts
camed as undvded profts, on the ground that they dd not consttute true
undvded profts but shoud be apped to reduce the mparment of the
capta. nd on the bass of such e cusons he assessed the addtona ta es.
We thnk that cause (3) reatng to surpus and undvded profts was cor-
recty nterpreted by artce 838 of the Treasury reguatons. oth these terms
as commony empoyed n corporate accountng denote an e cess n the aggre-
gate vaue of a the assets of a corporaton over the sum of a ts abtes,
ncudng capta stock. See dwards v. Dougas (209 U. S., 204. 214 T. D.
3797, C. . -, 158 ) Insurance Co. of North merca v. McCoach (D. C.)
(218 ed., 905, 908). sde from the fact that a surpus may not ony be
earned, as where t s derved from undstrbuted profts, but pad-n,
as where the stock s Issued at a prce above par, the dstncton between these
terms, as commony empoyed, s that the term surpus descrbes such part
of the e cess n the vaue of the corporate assets as s treated by the corpora-
ton as part of Its permanent capta, usuay carred on the books n a separate
surpus account, whe the term undvded profts desgnates such part
of the e cess as conssts of profts whch have nether been dstrbuted ns dv-
dends nor carred to surpus account. ( dwards v. Dougas, supra, 214.) ut
t s a prerequste to the e stence of undvded profts as we as a surpus
that the net assets of the corporaton e ceed the capta stock. ence, where
the capta s Impared, profts, though earned and remanng n the busntss,
f nsuffcent to offset ths mparment do not consttute undvded profts.
We can not doubt that ths term was used n cause (. ) wth ts ordnary mean-
ng, nor agree wth the vew of the crcut court of appeas that the arbtrary
defnton gven by the ct to the term Invested capta not equvaent to that
of the ordnary nvested capta of commerce, ndcates that the words surpus
and undvded profts were not used wth ther ordnary meanng as cond-
toned by an e cess of assets. We do not thnk Congress ntended that a
corporaton whose capta was mpared shoud be entted to treat profts that,
though earned, were Insuffcent to make good the mparment and create a
surpus, as undvded profts. Ths woud not ony gve the term undvded
profts a meanng entrey at varance wth ordnary usages makng t merey
equvaent to any earned profts remanng n the busness but woud grant the
prvege of twce dsregardng the mparment of capta that s, once n
computng the pad-n capta, whch under the e press terms of the ct was
to be taken at the fu cash or money vaue at the tme of payment, and agan
n computng the undvded profts. Ths term s entrey Inapt to e press
such a purpose.
Ths concuson s n harmony wth the genera vew e pressed n La ce
Iron Works v. Unted States (256 D. S., 377, 388 T. D. 3181, C. . 4, 373 ).
Deang there s n another aspect wth the Revenue ct of 1917, whch con-
taned a smar cause concernng the ncuson of pad-n or earned surpus
and undvded profts as nvested capta n determnng the amount of the
e cess-profts ta , ths court sad, arguendo, that In order to avod e aggerated
vauaton of nvested capta the ct resorted to the test of ncudng nothng
but money, or money s worth, actuay contrbuted or converted n e change
for shares of the capta stock, or actuay acqured through the busness actv-
tes of the corporaton and comng n ah e tra, by way of ncrease
over the orgna capta stock, and that the provson ncudng pad n or
earned surpus and undvded profts used or empoyed n the busness recog-
nzed that n some cases contrbutons are receved from stockhoders n money
or ts equvaent for the specfc purpose of creatng an actua e cess capta
over and above the par vaue of the stock. nd see appea of adosta Grocery
Co. (2 . T. ., 727, 729) and appea of Goud Couper Co. (5 . T. ., 499,
517).
The fact that under Tte II of the Revenue ct of 1918, provdng for an n-
come ta , a corporaton, as was hed n Long each Improvement Co. v. Com-
mssoner of Interna Revenue (5 . T. ., 590), was sub|ect to a ta upon ts
net ncome despte an mparment of Its capta, s not of moment. The deduc-
tons from gross ncome aowed by that tte do not refer to nvested capta,
surpus, or undvded profts, and ts provsons throw no ght upon the hk nng
of those terms as used n Tte III, provdng for an e cess-profts ta .
The |udgment of the dstrct court s affrmed and that of the crcut court
of appeas reversed.
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328, rt. 911. 286
S CTION 328. COMPUT TION O T IN
SP CI L C S S.
rtce 911: Computaton of ta n speca cases.
R NU CT O 1021.
Revew by oard of Ta ppeas of Commssoner s determna-
ton. (See T. D. 4120, page 181.)
rtce 911: Computaton of ta n speca II-14 3670
cases. T. D. 4139
C SS-PRO ITS T R NU CT O 1918 D CISION O COURT.
1. SS SSM NT LIDITY URD N O PROO .
In a sut for the recovery of an e cess-profts tu aeged to have
been Iegay coected by reason of the refusa of the Commssoner
to compute such ta under sectons 327 and 328 of the Revenue
ct of 1918, t s ncumbent upon the pantff to aege facts show-
ng wheren the assessment as made s erroneous and what the
correct assessment shoud be. mere aegaton of facts de-
sgned to show that the Commssoner used a wrong method s
nsuffcent to overcome the presumpton of correctness whch
attaches to an assessment.
2. Decson oowed.
nderson v. The arnters Loan rf Trust Co. (241 ed., 322
T. D. 2460) foowed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Crcut Court of
ppeas, fth Crcut, n the case of the tanta Casket Co., pan-
tff n error, v. /. T. Rose, Coector of Interna Revenue of the
Unted States for the Dstrct of Georga, defendant n error, |s
pubshed for the nformaton of nterna revenue offcers and others
concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved March 27, 1928.
. W. Meon,
Secretary of the Treasury.
Unted States Crcut Court of ppeas, fth Crcut.
tanta Casket Co., pantff n error, v. . T. Roue, Coector of Interna Revenue
of the Unted states for the D trct of Georga, defendant n error.
November 30, 1027.
opnon.
Pantff In error, a Georga corporaton, engaged n the manufacture of
coffns, brought sut to recover 18,487.53, aeged to have been erroneousy
assessed as addtona ncome and e cess-proft ta es for the year 1918.
demurrer was sustaned and the sut dsmssed.
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287
1324, rt 1040.
refy stated, the matera aegatons of the petton are these: In ugust,
1910, at the behest of a ma|orty stockhoder, the net worth of the company
was arbtrary reduced on the books to 57,382.50. whch undervaued the
stock 12 018.34 and wped out the accumuated surpus. fter new books
were opened on that bass a pror books and records were destroyed, and a
subsequent statements were added to the erroneous statement. The Comms-
soner had no means of ascertanng nvested capta n 1910 and for the year
1918, and therefore was requred to compute the ta under the provsons of
sectons 327 and 328 of the Revenue ct of 1918 by a comparson of the rato
between the average ta and the average net ncome of representatve corpo-
ratons n the same busness, whch he refused to do. Some 10 corporatons
n the same ne of busness are named n the petton.
It s not shown on what bass the return was made nor s t shown what
the actua net worth of the corporaton was ether n ugust, 1910. or durng
the year 1918, nor s t aeged what woud be shown by a comparson of the
busness of the named corporatons.
It s eementary that n sung to recover ta es the burden s on the pantff
to aege and prove what the correct amount shoud be and t s mmatera
what method the coector uses n makng hs assessment. It coud hardy be
sad that the coector had no means of ascertanng the nvested capta of the
corporaton ether n ugust, 1910, or 1918, when the corporaton had deb-
eratey stated the amount of the net worth on ts books. If the Commssoner
was not satsfed wth the correctness of the books, he mght have ascertaned ,
the true fgures by nqurng from nterested partes or by some other nvest-
gaton. Te aegatons tendng to show that the Commssoner used the wrong
method n determnng and assessng the ta are contradcted and destroyed by
the facts aeged.
It was not suffcent to aege that the Commssoner used a wrong method n
assessng the ta . That was a matter whoy wthn hs dscreton and the
assessment must be taken as prma face correct. ( nderson v. armers Loan
d Trust Co., 241 ., 322.) It was ncumbent on the pantff to aege ceary
wheren the assessment was erroneous and what the correct assessment shoud
have been. That the petton fas to do. We fnd no error n the record.
TITL III. G N R L DMINISTR TI PRO ISIONS.
S CTION 1324. INT R ST ON R UNDS
ND UDGM NTS.
INCOM T R NU CT O 1021 D CISION O SUPR M COURT.
1. Interest on Refunds Computaton.
The amount of nterest on a refund of tu es aowed whe sec-
ton 1324(a) of the Revenue ct of 1921 was n force shoud bo
determned under that secton, though the nterest was pad after
the effectve date of secton 1019 of the Revenue ct of 1924.
2. Same Specfc Protest.
Genera statements that the ta ng cts are ambguous, uncer-
tan, and unconsttutona that they dd not appy to the ta -
payer that the reguatons prescrbed under them were not au-
thorzed and that the method prescrbed for appyng the rates
under the e cess profts ta ct was arbtrary and un|ust are not
suffcent to consttute n specfc protest and do not, therefore, af-
ford a bass for the aowance of nterest from the date of the y-
ment of the ta under secton 1324(a) of the Revenue ct of 1921.
ffrmed.
rtce 1040: Interest on refunds and |udg-
ments.
II-17-8701
T. D. 4153
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1324, rt. 1040.
288
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue amd Others Concerned:
The foowng decson of the Supreme Court of the Unted States
n the case of The Unted States of merca, pettoner, v. Magnoa
Petroeum, Co. et a. s pubshed for the nformaton of nterna
revenue offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved pr 14, 1928.
. W. Meon,
Secretary of the Treasury.
Supreme Court op the Unted States.
The Unted States of merca, pettoner, v. Magnoa Petroeum Co. et a.
Oa wrt of certorar to the Court of Cams.
ebruary 20, 1928.
OPINION.
Mr. ustce uter devered the opnon of the court.
Respondent was assessed and pad for 1916 an Income ta of 105,571.95 and
for 1917 ncome and e cess profts ta es of 1,131,075.86 n e cess of the
amounts for whch t was abe. October 11, 1923, the Commssoner of In-
terna Revenue so determned and, November 22, 1923, the respondent receved
certfcates showng such overassessrnents and Treasury warrants for the return
of these amounts. ach certfcate ncuded a statement that Interest status
w be determned as soon as necessary data can be assembed.
Secton 1324(a) of the Revenue ct of 1921, whch was then n force, au-
thorzed nterest from the date of the payment of the ta es f pad under pro-
test but, f not pad under protest or pursuant to an addtona assessment, t
aowed Interest to commence s months after the fng of cam for refund.
Secton 1019 of the Revenue ct of 1924 provded that nterest on refunds
shoud be computed from the date the ta es were pad.
anuary 18, 1924, the Commssoner notfed respondent that the nterest
payabe on the refunds had been determned. uy 2, 1924. after the passage
of the Revenue ct of that year, the Commssoner wrote respondent that the
amounts stated n hs etter of anuary 18. 1924 corrected by reason of an
error as to the date of fng the cam for refund of 1917 ta es woud be pad,
and on uy 18. 1924, ssued a Treasury warrant to respondent for 35,369.05.
beng 19,171.21 on the refund of 1916 ta es and 16,197.84 on the refund of
1917 ta es. Respondent, savng ts rght to sue for addtona nterest, accepted
payment of the nmount specfed, and ater brought ths sut. The Court of
Cams hed that the ct of 1924 apped, cacuated nterest from dates of pay-
ment of the ta es, and pave |udgment for 365,799.42. Ths court granted a
wrt of certorar. (275 U. S.. 512.)
The pettoner mantans that the nterest shoud be computed accordng to
secton 1324(a) of the ct of 1921. Respondent contends that by secton 1019
of the ct of 1924 and contemporaneous repea of secton 1324(a), the bass of
nterest aowances was changed and that, as the nterest had not yet been pad,
respondent became entted to an amount cacuated accordng to the ater enact-
ment. Undoubtedy t was wthn the power of Congress to appy that bass to
cams ke those of respondent. ut the queston s whether the statute shoud
be so construed. The date of aowance was October 11, 1923, when the
Commssoner approved the refunds. Grard Trust Co. v. Unted States. 270
U. S 163, 169 T. D. 3919, C. . -2, 209 .) Under secton 1324(a), upon
the aowance of the refunds, respondent became entted to Interest accordng
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289
1324, rt. 1040.
to the rue then n force. (Cf. ar v. rkenstock, 271 U. S., 348, 350 T. D.
38S6, C. . -. 142 .) Computaton and payment were a that remaned to be
doffe. There s nothng to suggest that secton 1019 was ntended to change
the rue as to refunds theretofore aowed. The anguage empoyed shows the
contrary. The words are upon the aowance of a refund
nterest sha be aowed from the date such ta was
pad. Statutes are not to be gven retroactve effect or construed to change
the status of cams f ed n accordance wth earer provsons uness the egs-
atve purpose so to do pany appears. (Unted States v. Ieth, 3 Cranch, 398,
413 Wh te v. Unted States, 191 U. S., 545. 552 Shwab v. Doye, 258 U. S.,
529. 534 T. D. 3339, C. . 1-2, 312 .) Respondent cas attenton to secton 1100
of the ct of 1924, repeang the ct of 1921, and says that the savng cause
theren does not e tend to nterest on refunds aowed under secton 1324(a).
ut, save as gven by Congress, respondent had no rght to nterest as shown
above, the bass prescrbed by the ater ct was not substtuted for that f ed
by the earer one: and, as respondent s rght to have the rue prescrbed by
the ct of 1921 apped s not questoned, we need not consder the effect of the
repeang and savng causes. It s cear that respondent s not entted to
aowances on the bass of the ct of 1924, and that the |udgment must be
reversed.
Respondent, assumng that the ct of 1921 appes, nssts that the facts found
by the ower court show that the Commssoner s aowances of nterest were
erroneous and that t Is entted to much more than t has receved.
It appears from cacuatons made n ts bref that f the bass contended for
by the respondent be apped to the refund of the 1916 ta , respondent has been
aowed and pad 864.99 n e cess of what t was entted to have. s pet-
toner s not companng of that, we need not consder the matter.
s to the 1917 ta es, respondent fed returns May 18. 1918. hut pad no
ta thereon. May 27 foowng, t fed amended returns showng ta es of
1,966,600.87, and, on une 15, pad that amount under protest. Pettoner con-
tends that the protest was not suffcent under secton 1324(a) to support a
cam for nterest from the date of payment. On une 12, 1920, respondent fed
a cam for the fu amount pad and, September 20, 1920, fed cam for
1,005,519.42. October 8, 1923, the Commssoner wrote respondent that ts
cam frst fed woud be aowed for 1,131,075.86 and that the one ast fed
woud be re|ected n fu. anuary 18, 1924, the Commssoner wrote respond-
ent concernng the nterest aowance, statng that no part of the cam frst fed
had been aowed that 105,556.84 had been aowed on the bass of the cam
ast fed and that 1,025,519.52 of the refund was attrbutabe to ponts not
rased n the cam. The nterest pad was cacuated on the amount sad to
have been aowed on the atest cam for the perod commencng March 20,
1921 s months after the fng of that cam and endng October 11. 1923,
the date of the aowance.
If the protest was suffcent under secton 1324(a), nterest shoud have
been cacuated on the amount of the refund from the date of the payment of
the ta es. The ower court hed t vad. In order to meet the condton
specfed u secton 1324(a), the payment must be made under a specfc
protest settng forth In deta the bass of and reasons for such protest. The
fndngs set forth ts anguage. The grounds usserted were that the ta ng
cts were ambguous, uncertan, and unconsttutona that they dd not appy
to respondent that the reguatons prescrbed under them were not authorzed,
and that the method prescrbed for appyng the rates under the War cess
Profts Ta ct was arbtrary and un|ust. It was not found that any part of
the refund was aowed on any ground or for any reason specfed n the protest.
It requres no dscusson to show that these genera statements were not suff-
cent to consttute a bass for the aowance of nterest from the date of the
payment of the ta es. The protest gave no nformaton and stated nothng that
woud ad n determnng whether an overassessment had been made. It was
not suffcent. (Grard tru.t Co. v. Unted States, supra, 172.)
ssumng the protest nadequate, respondent nssts that t s entted to
Interest on the fu amount of the refund from s months after the fng of
Its frst cam. ut, as the merts of that contenton depend upon ambguous
fndngs above referred to, the ower court shoud agan consder (he case and
make defnte determnaton of the controng facts and gve |udgment thereon.
The |udgment s reversed and the case s remanded for further proceedngs
n harmony wth ths opnon.
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Msc.
290
MISC LL N OUS.
II-16-3688
Mm. 3621
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, pr 10, 1928.
To Coectors of Interna Revenue, Interna Revenue gents n
Charge, Offcas and mpoyees of the ureau of Interna Reve-
nue, and O tters Concerned:
ffectve ths date the fed servce of the Income Ta Unt s
paced under the mmedate drecton of Mr. Chares . en,
Deputy Commssoner.
Commssoner s mmeograph dated October 1,1927 (Co. No. 3569
R. . 432 Mm. 3569, C. . I-2, 300 ), s hereby modfed to ths
e tent.
D. . ar, Commssoner.
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S L S T RULINGS.
TITL . T ON DMISSIONS ND DU S. (1924)
T ON DU S.
Ieguatons 43-11, rtce 11: Lfe membershp. I1-18-3708
T. D.4154
dues ta revenue acts of 1918, 1921, and 1924 decson of court.
Consttutonaty cse Ta .
The ta on dues n the case of fe membershps n a soca cub
mposed by secton 801 of the Revenue cts of 1918 and 1921 and
secton 501 of the Revenue ct of 1924 s consttutona as an e -
cse ta on the e ercse of the prveges of membershp.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Crcut Court of
ppeas for the Thrd Crcut n te case of . D. McCaughn, Co-
ector, pantff n error, v. Ira ewe Wams, defendant n error,
s pubshed for the nformaton of nterna revenue offcers and
others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved pr 21, 1928.
. W. Meon,
Secretary of the Treasury.
Unted States Crcut Court of ppeas for the Thrd Crcut.
. D. McGaughn, Coector, pantff n error, v. Ira ewe Wams, defendant
n error.
In error to the Dstrct Court of the Unted States for the astern Dstrct of Pennsyvana.
I anuary 4, 1928.1
OPINION.
ufpnqton, .: In the court beow Ira ewe Wams brought sut and
had |udgment aganst the Unted States for ta on dues aeged to have been
wrongfuy assessed aganst hm and whch he pad under protest. Thereupon
the Government sued out ths wrt of error, and the queston nvoved s, Is a
ta mposed annuay upon a fe membershp n a soca cub a drect ta upon
property and as such vod as beng unapportoned under rtce I, sectons 2
and 9, of the edera Consttuton
bout une 30, 1919, Mr. Wams became a fe member of the Unversty
Cub of Phadepha on payment of the fe membershp fee of 750, and thereby
and thereafter was e cused from the payment of annua dues. Whe the cub
owns vauabe rea estate, It s chartered by the State of Pennsyvana as a
(291)
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Reg. 43-1, rt. 3.
292
corporaton, not for proft, but for soca purposes. The ta n queston was
assessed by vrtue of that provson whch, n secton 801 of the ct of 1918,
secton 801 of 1921, and secton 501 of 1924, reads as foows:
In the case of fe membershps a fe member sha pay annuay, at the tme
for the payment of dues by actve resdent annua members, a ta equvaent
to the ta upon the amount pad by such a member, but sha pay no ta upon
the amount pad for fe membershp
nd the decsve queston s whether the present ta s one on property, as
Mr. Wams contends, or an e cse ta , as the Government avers.
though the ta here n queston s sma, the prncpe Invoved s mpor-
tant, and the case has been presented on both sdes wth great earnestness,
and the parer books dspay a weath of schoary research whch refects credt
on the counse concerned. We su not attempt to dscuss these questons, but
mt ourseves to statng our concusons upon the cruca queston to whch a
dscusson fnay centers, namey, whether the ta assessed aganst Mr. W-
ams was ad on hs property. That the cub owns vauabe rea estate and
that Mr. Wams, as a member of the cub, has a present propretary nterest
n ts property and n the event of ts dssouton mght partcpate n the
dstrbuton thereof among ts then members s the fact. ut such propr eary
nterest does not of tsef determne the queston, for t st remans to consder
the queston, What s the reatonshp of cub membershp toward the property
of the cub The annua member as dstngushed from a fe member, so ong
as he pays hs dues and remans n good standng, s entted to share wth
other members n the use of the cub s property for the soca purposes for
whch t was chartered. The e ercse of such soca prveges consttutes the
purpose whch caed the cub nto beng, and ts ownershp of property s an
ncdent to enabe the cub to carry out the soca purposes of ts creaton.
When the annua member ceases to pay hs dues or for any reason ends hs
membershp, the chartered soca purposes of the cub as to hm ends and per-
force a rght, share, or partcpaton n ts ncdent of property. e can not
by hs own act se hs membershp, t s not an asset, t does not survve
the severng of hs connecton wth the cub, and equay wth a fe member-
shp a rghts to the cub end wth death. Seeng then that membershp of
a cub, whe t nvoves a certan usufruct of property for soca purposes and
s to that e tent an nterest n ts property of such a substanta sort that
a cnb member can not be un|usty e peed therefrom, yet where substance
s concerned we are of opnon that membershp of a cub can not be regarded
for ta ng purposes as property, but as a rght to share n the soca features
afforded by the cub n the use of ts property md factes. It s the e ercse
of ths persona prvege of the member, annua by vrtue of mantaned con-
tnuty of annua dues and antcpaton and prepayment of a dues at once by a
fe member, whch the edera statute, and rghty, we hod, ta es. So regard-
ng, the |udgment beow must be reversed.
TITL III. T ON DMISSIONS ND DU S. (1921)
DMISSIONS T R NU CTS Of 1918 ND 1021 D CISION O COURT.
Swmmng Poo dmsson.
Where a charge s made for a tcket whch enttes the purchaser
thereof to the use of a swmmng poo whether he uses hs own
bathng sut or one furnshed by the propretor of the poo, the
charge s an admsson sub|ect to the ta mposed thereon by the
Revenue cts of 1918 and 1921.
T ON DMISSIONS.
Reguatons 43-1, rtce 3 : Meanng of
admsson.
II-7-3614
T. D. 4127
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293
Reg. 43-1, rt. 3.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna. Revenue and Others Concerned:
The foowng decson of the Unted States Dstrct Court for the
Dstrct of Idaho, Southern Dvson, n the case of Twn a/Is Nata-
torum, a Corporaton, v. Unted States of merca and van vans,
Coector of Interna, Revenue for the Dstrct of Idaho, s pubshed
for the nformaton of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved ebruary 6, 1928.
. W. Meon,
Secretary of the Treasury.
Dstrct Coubt of the Unted States fob the Dstrct of Idaho, Southern
Dvson.
Twn as Natatorum, a Corporaton, v. Unted States of merca and van
vans, Coector of Interna Revenue for the Dstrct of Idaho.
November 10, 1927.
OPINION.
Cavanah, Dstrct udge: The pantff, Twn as Natatorum Co., was
ncorporated under the aws of the State of Idaho, and durng the years 1021
and 1922 operated for proft a swmmng poo and bath house near the cty
of Twn as, Idaho, and charged ts patrons for the use of ts factes
certan amounts, whch the Government cams are sub|ect to admsson
ta es wthn the meanng of the Revenue cts of 1918 and 1921. The com-
pany was assessed by the Commssoner of Interna Revenue the sum of
512.15 as admsson ta es for the years 1921 and 1922, whch was coected
by the coector of the dstrct of Idaho, and hence ths sut was brought to
recover back the amount, upon the contenton that the assessment was egay
made, as the ony charges made by the company were for renta of dressng
rooms, bathng suts, towes, and other factes furnshed by t to ts patrons.
In due tme a cam for refund for such amount was presented to the Com-
mssoner s offce, dscosng the assessments made, together wth the cams
fed by the company, and a stpuaton of facts contanng fve affdavts
attached, of whch four were made by the manager of the company and one
by W. . Lawrence, consttute the record upon whch a decson s to be made
of the ssues as to whether or not the charges so made by the company to
ts patrons, on enterng ts pace of busness and usng ts swmmng poo
and bath house, are sub|ect to admsson ta es wthn the meanng of the
Revenue cts of 1918 and 1921. The ony record as to the manner n whch
the natatorum was conducted s dscosed by the four affdavts of the
manager, and an anayss of them becomes necessary n order to determne
that ssue of fact. In the frst affdavt, of October 28, 1923. t s stated n
cear anguage that the company has mantaned a pubc punge or natatorum
snce the sprng of 1921, and that a fee was charged to a patrons usng the
dressng rooms, bathng suts, towes, and poo, as foows:
or aduts who were furnshed wth suts and usng the poo, 50 cents.
or those havng ther own suts and usng the poo, 35 cents.
or chdren between the ages of 12 and 10 years, who are furnshed wth
bathng suts and usng the poo, 35 cents.
or such chdren havng ther own bathng suts and usng the poo, 25 cents.
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Reg. 43-1, rt. 3.
294
or chdren under 12 years, whether furnshed wth bathng suts or not and
usng the poo, 25 cents.
nd that a of the charges were made for the use of the poo or punge,
dressng rooms, towes, and renta of bathng suts.
On ebruary 7, 1924, the manager made hs second affdavt, termed a sup-
pementa affdavt to hs frst one, and specfcay refers to the affdavt of
Lawrence, statng the knd of tckets used, and sampes thereof were attached
and marked hbts and , as foows:
hbt . st. prce, 27 cents ta pad, 3 cents tota, 30 cents.
hbt . st. prce, 13 cents ta pad, 2 cents tota, 15 cents.
It Is further stated n ths affdavt, and In the affdavt of Lawrence, that
the tckets were ssued and used for the purpose of keepng an accurate account
of moneys pad as ta on admssons, and for no other purpose, and that
Lawrence had advsed the manager that the company woud be abe under
the nterna revenue aws for the admsson ta .
The thrd and fourth affdavts of Laubenhem, the manager, are n contra-
dcton of hs former affdavts, for t s there stated that no charge was made
by the company for admsson to the poo, and the ony charge made reated to
the renta of dressng rooms, bathng suts and towes, and other factes fur-
nshed by t. If the frst two affdavts of Laubenhem are true, then there can
be no queston but that the company made a charge for the use of the poo when-
ever t furnshed a bathng sut, or where a patron used hs own. The use
of the poo was not free, f we take these frst two affdavts of Laubenhem and
the affdavt of Lawrence as true, as we are nformed that a charge of 35 cents
was made to patrons enterng the natatorum for the use of the poo, when
havng ther own suts, and 50 cents to those to whom suts were furnshed
by the company. Ths was a sworn statement made by the manager of the
company and presented to the Commssoner when Its cam for refund was
consdered and passed upon. The Commssoner upon such affdavts coud not
have done otherwse than decde as he dd that the charges were for the use
of the swmmng poo, and therefore wthn the provsons of the aw reatng
to admsson ta es. To now, after ths sut s nsttuted, accept the affdavts
of pantff s manager of date March 2, 1927. n whch he contradcts hmsef
and the affdavt of Lawrence, woud open the door to the panest fraud.
Such reckess testfyng s to be condemned nstead of basng a decree thereon.
The prncpe that dsposes of ths case s that where the assessment made by
the Commssoner s based upon the return and affdavts of pantff, show-
ng that a charge was made for the use of the swmmng poo to persons whether
they or the company furnshed the suts, the amount pad means the amount
necessary pad because requred for admsson to the use of the poo. The
bathng tcket s a charge for a sut, and aso a charge for admsson to the
use of the swmmng poo, and the mere fact of those usng ther own suts
not havng to pay as much as those to whom suts are furnshed does not
remove the necessty of the use of the poo. The charge s prmary for the
use of the poo, and no one s permtted, f we accept as true the return to the
Commssoner, the frst affdavts of the manager and the affdavt of Lawrence,
n the poo wthout the payment of the charge of ether 35 cents or 50 cents.
Ths s n effect the rue ad down by udge Cushman (I . S. v. Roer ct a,
287 ed., 418 T. D. 3431. C. . II-, 266 ). The further prncpe s appcabe
here, n determnng whether or not the pantff has estabshed that the
assessment made by the Commssoner was erroneous, that the burden s upon
the pantff, when the |udgment of the Commssoner s nvoved, to show by
cear evdence that the assessment s erroneous before t w be overturned.
Ths the pantff has not done. (Park as hub. Co. v. urngame, 1 ed.
(2d), 855 (U. S. Ta Cases, 2nd Supp. 1428 T. D. 3626, C. . III-2, 386 ).
decree dsmssng the compant w be entered.
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295
Reg. 49, rt. 92.
TITL . T ON TR NSPORT TION ND OT R
CILITI S, ND ON INSUR NC . (1918)
S CTION 500(e). TR NSPORT TION O OIL Y PIP LIN .
Reguatons 49, rtce 92: Msceaneous II-26-3782
provsons. T. D. 4166
TR NSPORT TION T R NU CT O 1918 D CISION O COURT.
1. Transportaton of O by Ppe Lne Prvate Carrer.
Under subdvson (d) of secton 501 the ta mposed by sub-
dvson (e) of secton 500 of the Revenue ct of 1918 appes to
the transportaton of o by a producer whch owns ts own ppe
ne throu h whch t transports e cusvey ts own o from
ts producng wes 8,000 feet to the man ne of a raway com-
pany for transportaton by ra.
2. Same Rates or Tarffs vdence.
Where a transporter of o by ppe ne has no tarff or rates
of ts own evdence of the rates or tarffs of other ppe nes for
smar servces s admssbe n arrvng at a bass for computng
the ta .
3. Decson oowed.
The decson n the case of otter v. Derby O Co. (16 ed.
(2d), 717 (T. D. 3965 C. . I-1, 294 )) s foowed.
4. udgment ffrmed.
The |udgment of the dstrct court (23 ed. (2d), 888 (T. D.
4111 C. . I-2, 312 )) s affrmed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Crcut Court of
ppeas for the fth Crcut, n the case of the D e O Co. v.
The Unted States, s pubshed for the nformaton of nterna
revenue offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved une 13, 1928.
enry errck ond,
ctng Secretary of the Treasury.
Unted States Crcut Court of ppeas for the fth Crcut.
D e O Co., pantff n error, v. Unted States of merca, defendant n error.
rror to the Dstrct Court of the Unted States for the Western Dstrct of Lousana,
March 12, 1928.
OPINION.
Waker, Crcut udge: Ths was an acton by pantff n error (heren
caed pantff) to recover an amount of ta es pad by t under protest, whch
amount was camed by the ta ng offcas to be due under the provsons of the
6342 28 20
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Reg. 49, rt. 92.
296
Revenue ct of 1918, sectons 500(e) and 501(d) (40 Stat, 1102, 1108), mposng
a ta on a transportaton of o by ppe ne, The case was tred by the
court wthout a ury on a stpuaton of facts made by the partes. The foow-
ng was shown by that stpuaton: Pantff owned and operated a gas and o
ease coverng appro matey 700 acres on whch there were a number of pro-
ducng o and gas wes, the eastern boundary of the ease beng about 8.000
feet from the nearest raroad, the Te as Pacfc Raroad. Pantff owned
a ppe connectng the wes on ts ease wth a oadng nck on the Te as fc
Pacfc Raroad, the oadng rack aso beng owned by pantff. The o pro-
duced was pumped from the wes nto a battery of settng tanks ocated n the
western part of the ease and another battery of such tanks ocated near the
eastern sde of the ease. rom those settng tanks the o was pumped to the
oadng ruck, and there oaded nto tank cars, f such tank cars were avaabe.
If no tank oars were avaabe, the o was stored n the storage tank ocated
near the eastern boundary of the ease, and when tank cars were avaabe the
o was pumped from the storage tank to the oadng rack. When the o was
oaded n tank cars t was shpped to Whtng, Ind., to the Standard O Co. of
Indana, for refnng by that company. The contro of the o remaned e cu-
svey n pantff unt devery was made to the raroad by ts beng oaded
n tank cars. Sad ppe was never used as a common carrer ppe ne. No
charge has been made for the use thereof, and t has not. been used e cept by
pantff for the purpose of carryng ts own o produced on sad ease to the
oadng rack, where ts trans rtaton by ra began. The stpuaton contaned
an admsson that evdence coud be produced showng practces of common car-
rer p e nes as to charges for transportaton of o by ppe ne. That adms-
son was made sub|ect to pantffs ob|ecton that the evdence referred to was
rreevant, ncompetent, and mmatera.
In behaf of pantff t was contended that Its carrage of ts own o n
ts own ppe e tendng from ts ease to ts oadng rack was not trans-
portaton of o by ppe ne wthn the meanng of the statute.
In addton to other ta es mposed by secton 500 of that ct from and after
pr 1, 1910, that secton mposed (e) ta equvaent to 8 per centum of the
amount pad for the transportaton on or after such date of o by ppe ne.
Immedatey succeedng provsons of secton 501 of that ct n reference to
ta es on transportaton by carrers other than ppe ne s the foowng provson
of that secton:
(d) The ta mposed by subdvson (e) of secton 500 sha appy to a
transportaton of o by ppe ne. In case no charge for transportaton s made,
by reason of ownershp of the commodty transported, or for any other reason,
the person transportng by ppe ne sha pay a ta equvaent to the ta
whch woud be mposed f such person receved payment for such transportaton,
and f the ta can not be computed from actua bona fde rates or tarffs, t
sha be computed (1) on the bass of the rates or tarffs of other ppe nes for
ke servces, as determned by the Commssoner, or (2) f no such rates or
tarffs e st, on the bass of a reasonabe charge for such transportaton.
The anguage of the |ust quoted provson s nconsstent wth the concuson
that the appcaton of the ta was made dependent upon the person transport-
ng o by ppe ne beng a common carrer or a carrer of n for hre, or upon
any o other than that owned by the transporter by ppe ne beng at any tme
transported by means of that ne. The anguage used requres the concuson
that the e cse ta apped to transportaton of o by ppe ne, though the trans-
porter owned that ne and a o transported by means of t. Labty for
the ta can not be escaped by mtng the use of the ppe ne to the transporta-
ton of o owned by the transporter, whether the ownershp of a or some
of the o was acqured by purchase or as a resut of the transporter operatons
as an o producer. We do not thnk that the carrage of the o by ppe ne
from pantff s settng tanks or ts storage tank or ts ease to the oadng rack,
a dstance of more than a me and a haf, can propery be sad to be not
transportaton of o by ppe ne but an ncdent or part of the producton of
the o or of the oadng of t nto tank cars for transportaton. There s trans-
portaton of a tng when t s carred from one pace to another. (Goucester
erry Co. v. Pcm yh ana, 114 I . S., 196, 203: Unted States v. ambetz, 256
ed., 247.) The producton of the o, the e tracton of t from beneath the
earth s surface, and the preparaton of t for transportaton by depostng t n
settng or storage tanks were competed before the movement of t from pan-
tff s ease began. The-o s |ourney to ts destnaton had begun when t eft
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297
Reg. 49, rt. 105.
pantff s premses, though that |ourney was nterrupted by puttng the o n
the oadng rack. The movement of the o from pantff s ease preparatory
to ts beng oaded nto tank cars was as much transportaton of t by ppe ne
as t woud have been f the dstance covered had greaty e ceeded a me and
a haf.
It foows that, as the ta appes to a transportaton of o by ppe ne,
abty for the ta was ncurred by what was done by pantff. Concusons
smar to those above stated were reached n the case of otter v. Derby O
Co. (16 ed. (2d), 717, 273 U. S., 762).
The terms of the provson n queston ndcate that t was contempated
by the awmakers that where the transporter of o by ppe ne has uo tarff
or rates of ts own, evdence of the rates or tarffs of other ppe nes for smar
servces coud be consdered n arrvng at a bass for computng the ta . It
was such evdence that was admtted sub|ect to the above mentoned ob|ecton.
We are of opnon that that evdence was not sub|ect to the ob|ecton made to
t. Servces by a transporter for hre of o by ppe ne may be smar to
servces rendered by a transporter who owns both the ppe ne and a o trans-
ported by means thereof.
No reversbe error beng shown by the record, the |udgment s affrmed.
MPTION PRO ISIONS PROP RTY ND P RSONS.
Reguatons 49, rtce 105: Certfcate re- II-7-3609
qured when charges pad. T. D. 4125
TR NSPO T TION T R NU CT O 1918 D CISION O COURT.
Person Labe to Ta .
Where a consgnor devers property to a common carrer for
account of a consgnee pursuant to a contract for ts sae at a
stpuated prce devered at an agreed pont of destnaton, the
transportaton servce s rendered for the consgnor, and he s abe
for the transportaton ta mposed by secton 500 of the Revenue
ct of 1918 upon the payments for the same whch he made to
the carrer.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Court of Cams of the Unted States
n the case of . R. Long Co., Inc., v. The Unted States s pub-
shed for the nformaton of nterna revenue offcers and others
concerned.
L . . ar,
Commssoner of Interna Revenue.
pproved ebruary 3, 1928.
. W. Meon,
Secretary of the Treasury.
Coubt of Cams of the Unted States.
. R. Long d Co., Inc., v. The Unted States.
December 5, 1927.
opnon.
Campbe, Chef ustce, devered the opnon of the court.
The pantff sues to recover the sum of certan ta es pad under secton 500
of the ct of ebruary 27, 1919 (40 Stat.. 1057, 1101). It s aeged that these
ta es were egay assessed and coected and that the Commssoner of
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Reg. 49, rt. 105.
298
Inrern Revenue has refused to refund the sme. The facts show that the
pantff entered nto two contracts wth the Drector Genera of Raroads,
namng the raroad concerned (and sgned by the purchasng agent of ths
road), copes of the contracts beng attached to the petton. They bear
separate daes and reate to shpments to two dfferent raroads, hut for the
purposes of the case t s ony matera to consder one of them, because the
effect of the two s the same. The contract cas for 150,000 tons of coa to be
devered over the perod from May 17, 1919, to March 31, 1920, ncusve. The
coa was to be shpped from mnes n arrson County. W. a.. and the prce
was f ed at (5.13 per gross ton devered aongsde Mystc Wharf, oston,
Mass., through one brdge. The contract desgnates the pantff as seer
and the Drector Genera of Raroads. oston Mane Raroad, as buyer.
The coa was shpped at dfferent tmes, consgned n the case mentoned to the
oston Mane Raroad. Pany the coa was sod and shpped by pantff
to be devered at a pace stated n the contract. The devery at the mnes for
transportaton to the agreed pont of destnaton was not, therefore, a devery
of the coa to the buyer wthn the meanng of the contract. Nor was t a
devery to the buyer wthn the famar rue of aw. that a devery to a
common carrer may consttute a devery to the buyer. It s a genera rue
that the devery of goods by a consgnor to a common carrer for account of a
consgnee consttutes devery to the atter. nd t s therefore to be conceded
that where a buyer drects the devery of goods for hs account to a desgnated
carrer the atter becomes the buyers agent. ut these genera rues do not
contro n a case where by contract t appears that the goods are to reman
at the consgnor s rsk unt arrva and devery at the pont of utmate
destnaton. (See Unted States v. ndrews, 207 U. S., 229, 240 Lousve 4
ashvtc . R. Co. v. Unted States, 2G7 U. S., 395, 400.)
In the nstant case the prce agreed upon was for coa devered f. o. D.
at an agreed pont of destnaton. The seer pad the freght, as t was hs
duty to do. There s nothng to ndcate that tte passed, or coud pass, before
devery at the agreed prce. In such case devery to the common carrer was
a devery to the seer s agent and was n nowse a devery to the consgnee.
The ta requred by secton 500 of the Revenue ct s requred to be pad
by the person payng for the servces rendered by the transportaton agency.
Pantff havng comped wth ths provson can not recover the amount so
pad. It contends, however, that the ta es were egay coected because of
secton 500(h), provdng that no ta sha be mposed upon any payment
receved for servces rendered to the Unted States, and urges that nasmuch
as the raroad to whom the shpment was consgned was under edera
contro the e empton appes. Ths rght of e empton, t s provded, sha
be evdenced n such manner as the Commssoner of Interna Revenue, wth
the approva of the Secretary of the Treasury, may by reguatons prescrbe.
The Commssoner prescrbed reguatons provdng for e empton certfcates.
See Reguatons 49, artces 97. 105. mong other thngs they provde that
the e empton certfcate shoud not he ssued when the matera trans-
ported s sod to the Government at a devered prce, and undoubtedy the
property here was sod at a devered prce, even f we shoud adopt pantffs
contenton that the Government was the rea purchaser of the coa. Theae
reguatons further provde that the e empton certfcate must he devered
to the carrer by the person payng the charges, when the charges are pad,
otherwse there sha be no e empton from the ta . Ths court sad n Cty
of Wchta as case (62 C. Cs., 239, 244), speakng of the e empton such
as s here camed: The pantff dd not observe the condtons of the aw
nor the reguatons of the Interna Revenue ureau. The court may not
overook an unfufed condton. The duty to observe the aw and regua-
tons ssued n pursuance of ts authorty s a condton precedent to the rght
of e empton, and f the pantff omts to take advantage of the prescrbed
rght the court s poweress to suppy the omsson. wrt of certorar
was dened n ths case. (273 U. S., 750.) The pantff not ony faed
to brng tsef wthn the terms of the reguatons, but was bound n the trst
nstance to pay the freght by the terms of ts contract. It foows that It s
not entted to recover the ta es pad and the petton shoud be dsmssed.
nd t s so ordered.
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299 Reg. 47, rt. 15.
TITL I. CIS T S. (1926)
S L S Y T M NU CTUR R.
Reguatons 47 (1926), rtce 23: Records and II-23-3746
return and payment of ta . Mm. 3634
tenson of tme for fng returns under secton 600(1), Tte
I, of the Revenue ct of 1926.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, May 25, 1928.
To Coectors of Interna Revenue, Interna Revenue gents n
Charge, and Others Concerned:
ttenton s caed to secton 422 of the proposed Revenue ct of
1928, reatng to the refund of automobe ta to the manufacturer,
producer, or mporter n connecton wth artces hed by deaers and
ntended for safe on the effectve date of the ct.
In vew of the fact that t w be to the nterest of the Government
to hande the matter as credts nstead of refunds, the tme for fng
pr and May, 1928, returns ( orms 728) by persons abe for ta
under secton 600(1) of the Revenue ct of 1926 s hereby e tended
to uy 31, 1928, n order to factate the takng of credts.
Coectors shoud mmedatey notfy a automobe, automobe
body, and motor cyce manufacturers affected by ths mmeograph.
These nstructons are promugated pursuant to the authorty
vested n the Commssoner, wth the approva of the Secretary, by
secton 602 of the Revenue ct of 1926.
ny correspondence regardng ths mmeograph shoud refer to
the number thereof and to the symbo MT: M.
D. . ar, Commssoner.
pproved.
. W. Meon,
Secretary of the Treasury.
mended by Mm. 3657, uetn II-30, 13.
TITL I . CIS T S. (1918 ND 1921)
S L S Y T M NU CTUR R.
Reguatons 47, rtce 15: Defnton of II-24-3758
parts. T. D. 4159
CIS T S R NU CTS O 1918 ND 1921 D CISION O COURT.
Parts or ccessores for utomobes Storage atteres.
Storage batteres especay desgned and pecuary adapted for
use n connecton wth automobes are sub|ect to ta as parts
or accessores under secton 900(3) of the Revenue cts of 1918
and 1921.
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Reg. 47, rt. 15.1
300
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interned Revenue and Others Concerned:
The foowng decson of the Court of Cams of the Unted States,
n the case of the Coe Storage attery Co. v. The Unted States, s
pubshed for the nformaton of nterna revenue offcers and others
concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved May 29, 1928.
Ogden L. Ms,
ctng Secretary of the Treasury.
Court of Cams op the Unte) States.
Coe Storage attery Co., a Corporaton, v. The Unted State .
pr 2, 1928.
OPINION.
ooth, udge, devered the opnon of the court
Pantff sues to recover e cse ta es camed to have been egay e acted
by the Commssoner of Interna Revenue over a perod e tendng from eb-
ruary 28, 1922, to November 30, 1923. The amount of ta pad Is 4,963.06.
The pantff s an Inos corporaton engaged n the manufacture and sae of
storage batteres. The batteres ta ed and upon whch ths sut s founded
were batteres desgned for use n automobes. The Commssoner assessed
and coected the ta under secton 900 of the evenue cts of 1918-1919. Ths
secton and Its subdvsons read as foows:
Sec. 900. On and after ebruary 1, 1919 (1918 ct) ( anuary 1, 1922. 1921
ct), there sha be eved, assessed, coected, and pad upon the foowng
artces sod or eased by the manufacturer, producer, or mporter, a ta equva-
ent to the foowng per cent of the prce for whch so sod or eased:
(1) utomobe trucks and automobe wagons (ncudng tres, nner tubes,
parts, and accessores therefor, sod on or n connecton therewth or wth the
sae thereof), 3 per centum.
(2) Other automobes and motor cyces (ncudng tres, nner tubes, parts,
and accessores therefor, sod on or n connecton therewth or wth the sae
thereof), e cept tractors, 5 per centum.
(3) Tres, nner tubes, parts, or accessores for any of the artces enumer-
ated n subdvson (1) or (2). sod to any person other than a manufacturer or
producer of any of the artces enumerated n subdvson (1) or (2), 5 per
centum. (40 Stat.. 1057, 1122.)
The ssue narrows to the snge contenton, . e., are storage batteres a
part or accessory of an automobe
rtce 14 of Reguatons 47 adopted by the Commssoner s n part as
foows:
any artce whch has reached a state of manufacture wheren t
s n tsef a component part or accessory, and s of such a nature that t may
be n cd or attached by an ordnary repar man or ndvdua user as dstn-
gushed from a manufacturer or producer, s sub|ect to ta as a part or
accessory.
rtce 15 of the same reguaton s n the foowng anguage:
any artce desgned or manufactured for the speca purpose of
beng used as or to repace a component part of any such vehce and whch by
reason of some pecuar characterstc s not such a commerca commodty as
woud ordnary be sod for genera use and whch s prmary adapted ony
for use as a component part of such vehce.
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301
Reg. 47, rt. 18.
rtces, however, whch ordnary woud be cassed as commerca com-
modtes become parts when, because of ther desgn or constructon, they are
prmary adapted for use as component parts of such vehces.
Component parts of artces ta abe under ths defnton are ta abe when
sod separatey, f they have reached such stage of manufacture that they are
prmary adapted for use as such a component part.
rtce 16 contans the foowng provsons:
any artce desgned to be attached to or used n connecton wth
such vehce to add to ts utty or ornamentaton and whch s prmary
adapted for use n connecton wth such vehce, whether or not essenta to ts
operaton.
rtces whch have a genera commerca use and whch are not especay
desgned and pecuary adapted for use n connecton wth automobe trucks,
automobe wagons, other automobes, or motor cyces are not sub|ect to ta as
parts or accessores.
Parts or accessores for automobe trucks, automobe wagons, other auto-
mobes or motor cyces prmary adapted for use on or n connecton therewth
when sod for any other purpose are not ta abe provded the purchaser fes
wth hs order a statement that such parts or accessores are to be used on or
n connecton wth another artce of commerce not enumerated or ncuded n
subdvson (1), (2), or (3) of secton 900. or e ampe, a sef-starter prma-
ry adapted for use on an automobe, f sod to a manufacturer of motor boats,
such manufacturer statng n hs order that t s to be used In the manufacture
of a motor boat and not upon au automobe, s not ta abe.
The pantff dots not assert that a storage battery, such as here nvoved,
does not fa wthn artce 14 of the reguatons. The e empton camed s
obvousy predcated upon the second paragraph of artce 16 of the reguatons.
n argument s advanced that the pantfTs product s one of genera commer-
ca use and whe adaptabe to use n an automobe t s not restrcted to such
a u.-e. In other words, whe used n automobes, storage batteres are of such
genera utty that t may not be sad of them that they are especay desgned
for automobes.
We hardy thnk t essenta to enter upon a scentfc resume of the orgn
and deta constructon of storage batteres and manner of functonng. It s
not dened, and obvousy s ncapabe of dsputaton, that an automobe so far
as ocomoton s concerned, f operated by a gasone engne, woud be a more
than useess devce wthout a storage battery. Ths case n our opnon turns
upon the restrcted ssue as to whether a storage battery, especay adapted for
and so desgned and advertsed as to meet the essenta requrements of oco-
motve power, s a part or accessory of an automobe. The fact that a storage
battery s avaabe for use for a number of purposes other than for an auto-
mobe, or that ts creaton antedated the Inventon of the automobe, s not
determnate of the ssue. varety of parts of an automobe are susceptbe
of use n other devces, and other parts, both as to form and functonng ee-
ments, e sted ong pror to the comng of the automobe tsef. What seems
to us to turn the contenton s the fact that n a combnaton of varous eements
to functon In a certan way the accompshment of the purpose Is ony attan-
abe where a gasone engne s used by coupng certan eements up wth a
storage battery, and wthout ts presence the mechansm s useess. We thnk,
therefore, that where a manufacturer of storage batteres seeks the custom of
the automobe trade, assures the atter of the especa quates of hs battery,
and desgns t as part of the automobe nto whch t s to be ntroduced,
Congress ntended by the ta ng ct to reach t as a source of revenue. The
Commssoner Is carefu not to ta storage batteres as such, and adopts a
method of procedure whch reaches ony those as descrbed n the fndngs.
The defendant s quotaton from the case of Magone v. Wedcrcr (15 ) U. S.,
555. 559) seems apposte:
If e cusve use were made the test, then an e cepton woud destroy the
rue for however genera and unversa the use of a partcuar artce mght
be. f e ceptonay used for another purpose, such use woud destroy the
effect of the genera and common use, and make the e cepton the controng
factor. It s urged that f e cusve use s not made the crteron t w be
mpossbe to assess dutes, because of the dffcuty of ascertanng the chef or
genera and common use but t s manfest that ths argument of nconvenence
Is a mstaken one. and that, on the contrary, t woud bo Impossbe to resort
to use as a crteron of cassfcaton f e cusve use must be ascertaned n
bo dong, for that whch s generay and commony done may be known, but
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Reg. 48(1921), rt. 5.
302
that whch s so unversay done as to be wthout any e cepton s dffcut, If
not mpossbe, of ascertanment.
Ths court has passed upon somewhat smar contentons to those nvoved
n the nstant case, and the pantff has cted them as appcabe to ts argu-
ment. In the Martn Rockng fth Whee Co. case (60 C. Cs., 466 T. D. 3716,
C. . I -1, 317 ), the devce sought to be made a part of an automobe was
a dstnct and totay separate devce. True, t was attached to the automobe
but t was more or ess a convenence and n nowse essenta to the movement
of he automobe tsef. The Natona Rubber er Co. case (63 C. Cs., 337)
s dfferent from ths case n most a respects. The substance used to engthen
the fe of a tube on the verge of fna e tncton was no more than an e terna
appcaton of somethng cacuated to proong the fe of the tube. It at no
tme entered nto ts orgna constructon, nor was t an ntegra part thereof.
The twater ent Manufacturng Co. case (62 C. Cs., 419) s sef-e pana-
tory.
We thnk the petton must be dsmssed. It s so ordered.
S L S Y T D L R.
Reguatons 48(1921), rtce 5: Gvng of I1-24-3759
premums. T. D. 4160
e cse ta es revenue acts of 1018 and 1s21 decson of court.
1. Saes Ta ewery Deaer Premums.
corporaton, prmary engaged n the manufacture and sae
of soap, whch at a arge e pense purchases and transfers |ewery
to ts utmate consumers n redempton of coupons s a deaer
wthn the meanng of secton 905 of the Revenue cts of 1918
and 1921
2. Same Sae Premums Redempton of Coupons.
transacton, whereby an artce of |ewery Is transferred by
a manufacturer of soap to a purchaser thereof from a retaer In
redempton of coupons, s a sae wthn the meanng of secton
905 of the Revenue cts of 1918 and 1921.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, I). C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Court of Cams of the Unted States
n the case of Cogate rf Co. v. The Unted States s pubshed for the
nformaton of nterna revenue offcers and others concerned.
1). . ar,
Commssoner of Interna Revenue.
pproved May 29, 1928.
Oqden L. Ms,
ctng Secretary of the Treasury.
Court of Cams of the Unted States.
Cogate rf Co. v. The Unted States.
ebruary 20, 1928.
OPINION.
ooth, udge, devered the opnon of the court.
The pantff, a New ersey corporaton, manufactures and ses toet and
aundry products, such as soaps, washng powders, etc. In marketng ts var-
ous products the corporaton, n or about the year 1890, estabshed the system
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303
Reg. 48(1921), rt. 5.
of ssung coupons to consumers of ts aundry products, e changeabe for
certan artces of |ewery sted n Its cataogue.
On each wrapper or contaner of ts aundry soaps and powders a pace was
reserved for prntng a coupon. ttenton was drawn to the coupon n rather
bod-faced type by the foowng words, appearng upon another porton of the
wrapper or contaner, vz: Save the coupon on the other sde of the package.
tendng aong the narrow sdes of the wrapper or contaner n conspcuous
type appeared au engagng soctaton to save the coupons and drectons as to
how to procure premums. When a suffcent number of coupons had been ac-
cumuated the hoder thereof was entted to the specfc artce of merchandse
sted n the cataogue as obtanabe upon presentaton of the requste numoer
of coupons. vast number of ustrated cataogues were crcuated by the
pantff among the trade, settng forth wth precson the e act number of
coupons necessary to obtan a specfed artce of merchandse. In addton to
ths the pantff mantaned durng the perod nvoved n ths tgaton ap-
pro mate y 50 separate stores, each empoyng 2 cerks, at an annua e pense
of 13,000, where coupons coud be presented n e change for premums, as
stated n the cataogues. Twenty trucks owned and operated by the pantff
suppemented the above method of redeemng coupons. Some of these trucks
traversed the streets of certan ctes, whe others e tended ther tour nto
the country dstrcts redeemng coupons as per cataogues.
Ths speca feature of the pantff s busness actvtes attaned vast pro-
porton. In a perod of four years, . e., from 1920 to 1924, ncusve, the
pantff redeemed over 920,000,000 coupons, havng concededy ssued mons
whch had not been presented for redempton.
The pantff admts that appro matey 25 per cent of a the merchandse
cataogued as premums durng the perod covered by ths controversy con-
ssted of artces of |ewery. It s manfesty a fact, not. dsputabe, for the
cataogues confrm the admsson both by ustraton and descrpton.
Secton 905 of the Revenue ct of 1918 (40 Stat., ch. 18, p. 1057) s as
foows:
Sec. 905. That on and after pr 1, 1919, there sha be eved, assessed,
coected, and pad (n eu of the ta mposed by subdvson (e) of secton 000
of the Revenue ct of 1917) upon a artces commony or commercay known
as |ewery, whether rea or mtaton pears, precous and semprecous stones,
and mtatons thereof artces made of, or ornamented, mounted, or ftted
wth, precous metas or Imtatons thereof or vory (not ncudng surgca
nstruments) watches cocks opera gasses orgnettes marne gasses fed
gasses and bnocuars upon any of the above when kod by or for a deaer or
hs estate for consumpton or use, a ta equvaent to 5 per centum of the prce
for whch so Md.
On May 2, 1919, the Commssoner of Interna Revenue, wth the approva of
the Secretary of the Treasury, ssued the foowng reguaton:
The gvng of so-caed premums n return for wrappers, abes, coupons,
tradng stamps, or other scrp devered or sod n connecton wth the sae of
a commodty, s a sae wthn the meanng of secton 902 and secton 905 f the
premum s wthn the cass of artces enumerated n those sectons. In such
cases, the ta attaches at the tme tte n the premum passes to the person
recevng t n e change for such scrp and s to be computed on the far
market vaue of the premum at such tme.
On uy 17, 1919, the above reguaton was amended by the addton of the
foowng words:
No ta attaches to the gft of an artce whch f sod woud be ta abe.
Premums gven n return for wrappers, abes, coupons, tradng stamps, or
other scrp are not consdered as gfts.
The Revenue ct of 1921, secton 905(a) (42 Stat., ch. 136, p. 227), contaned
the e cse ta by the foowng provsons:
Sec. 905. (a) That on and after anuary 1, 1922, there sha be eved,
assessed, coected, and pad (n eu of the ta mposed by secton 905 of the
Revenue ct of 1918) upon a artces commony or commercay known as
|ewery, whether rea or mtaton pears, precous and semprecous stones,
and mtatons thereof artces made of, or ornamented, mounted or ftted wth,
precous metas or mtatons thereof or vory (not ncudng surgca nstru-
ments, eyegasses, and spectaces) watches cocks opera gasses, orgnettes
marne gasses fed gasses and bnocuars upon any of the above when sod
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Reg. 48(1921), rt. 5.
304
by or for a deaer or hs estate for consumpton or use, a ta equvaent to 5 per
centum of the prce for whch so sod.
oowng the quoted statutes, and n pursuance of the adopted reguatons
contnued n force durng the e stence of the revenue aw, the Commssoner
eved, assessed, and coected between December 27, 1920, and uy 23. 1924,
from the pantff e cse ta es to the amount of 16,944.22, cassfyng pantff
as a deaer n |ewery. cam for refund was seasonaby fed, subsequenty
refused, and ths sut Is for the recovery of the above amount, predcated upon
an aeged ega e acton under the appcabe statutes.
It s frst nssted that secton 905 of the Revenue ct as orgnay enacted
and subsequenty reenaced, wth modfcatons, was ceary ntended as an
e cse ta upon reguar and estabshed deaers n |ewery, and was not desgned
to reach an enterprse soey ncdenta to the substanta purpose and rea
busness of the corporaton nvoved. The orgna purpose of Congress In
Imposng ths so-caed u ury ta , as ceary deductbe from the act of 1917,
was to ta the |ewery ndustry at the source. The ta by ths egsaton
was mposed upon the manufacturer, producer, or mporter. The ct of 1918
reverses ths egsatve pocy and the ta s ad upon one whose prncpa
busness s the sae of such artces for consumpton or use, provded the gTosa
recepts of the deaer e ceeded 200 for the precedng year endng une 30.
s apty observed by the pantff, the effect of ths egsaton was to transfer
the ta drecty to the consumer and mt the mposton to reguar deaers.
The ct of 1921 emphaszes the egsatve ntent as to ths partcuar nsst-
ence by nsertng the words when sod by or for a deaer or hs estate for
consumpton or use. The progress of the varous cts through Congress con-
frms the contenton of the pantff, to the e tent at east of sustanng the
asserton that deaers n |ewery were to be reached. Notwthstandng the
apparent postveness of the desgned purpose and e tent of the ta , the ques-
ton oaves open for decson the rea crtca ssue n the case, . e., s the
pantff a reguar deaer or a deaer n |ewery wthn the terms of the ct.
The ct tsef s not ambguous. The court need not resort to rues of con-
structon to ascertan ts meanng or scope. The ssue nvoved s obvousy
one as to whether under the facts deveoped the pantff comes wthn Its terms
and s thus sub|ect to the ta .
There s nothng mysterous or partcuary obscure n the term deaer
or reguar deaer. Congress dd not empoy the term n any restrcted,
narrow, technca sense. Revenue was to be e acted from a busness enter-
prse where |ewery was sod n e cess of the 200 mentoned n the aw as a
busness. Congress dd not ntend to burden an ncdenta sae or nconse-
quenta Incomes from saes, even though the artce of merchandse was re-
garded as a u ury hence the words prncpa busness were nserted n
the aw. Surey a busness enterprse may not escape the ta because per-
chance t hods tsef out to the word as prmary engaged n the manufac-
ture and sae of soap, when at the same tme t purchases and transfers to ts
utmate consumers a cass of merchandse costng vast sums to accumuate
and equay arge sums to dstrbute. If ths s so, t woud be dffcut, ndeed,
to reach any mercante estabshment deang n numerous commodtes but
specazng n a snge one. There s no nsurmountabe obstace n the way
of cassfyng a busness upon the bass of two attanabe ob|ectves, both of
whch are suffcent n e tent to come wthn the meanng of the word prn-
cpa. We can not doubt that ancary enterprses, nseparaby nked wth
the prncpa ob|ect of nducng returns upon what the owners and operators
of a arge corporaton desgnate ther prncpa busness, may become so cosey
merged that t s dffcut to segregate one from the other. Ths case, t seems
to us, demonstrates the fact. Wthn a perod of four years over nne hundred
mon coupons are ssued, each of whch has an ntrnsc monetary vaue,
obgatng the corporaton to purchase and mantan avaabe artces of |ewery
at the cost at east of 338,884.40: enterng nto nnumerabe contracts to
e change one for the other, and mantanng at great e pense a segregated
organzaton to care for and admnster the enterprse. If ths does not con-
sttute the pantff a deaer n |ewery, and one, f not the prncpa, actvty
n the sae of ts merchandse, t s ndeed dffcut to defne the term. Cata-
ogues by the thousands were freey crcuated throutrh the desred terrtory
of the trade, n each of whch there were conspcuousy dspayed by attrac-
tve ustratons and descrptons nnumerabe artces of |ewery, rangng n
vaue from nsgnfcant sums to rea and vauabe god and sverware, that
a consumer was entted to cam upon presentaton of the requste number
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305 Reg. 48( a), r s7
of coupons. It Is common knowedge, unversa e perence, that |ewery s
the most entcng form of premum. The supposed acquston of an artce of
u ury by a consumer upon the erroneous mpresson that he acqures some-
thng for nothng s the fundamenta reason for the wde e panson of the f
system.
n argument s advanced that the recept of a ega consderaton for the
premum |ewery artces dd not of tsef render them ta abe, that the gvng
of coupons to be e changed for |ewery s not a sae wthn the meanng of the
Revenue ct, The statement of the frst proposton removes the possbty of
characterzng the transacton as a gft. If the second one s to be conceded,
there s but one other source of refuge, uness t may be possbe to soate
the transacton and attach to t a hybrd cassfcaton partakng of the
characterstcs of nether a sae, e change, nor gft. revew of the State
cases ndcates a contrarety of opnon upon ths very sub|ect. In every
nstance when the above controversy has come before the State courts, the
contenton of the proponents of the system has consstenty been that the
transacton s not a gft nor a sae, but an tem of overhead e penses aottabe
to the advertsng budget. The cases are far too numerous to cte, and have
unformy arsen through some form of State egsaton drected toward the
restrcton or prohbton of the system. The pantff In ts bref ctes the
foowng typca cases: ewn v. tanta (121 Ga., 723), O eeffe v. Somer-
vUe (190 Mass., 110), m Parte Mc enna (126 CaL, 429), State v. Daton (22
. I., 77).
On the other hand, t Is not dffcut to fnd an array of emnent State au-
thortes sustanng the contenton of the defendant that the transacton s
a sae. In Commonweath v. merson (165 Mass., 146) the supreme court
of the Commonweath reeved a deaer accused under a prohbtve statute
forbddng the gvng of przes or gfts as an nducement for the sae of an
artce of merchandse by hodng a transacton substantay smar to the
one n sut to be a sae and not a gft. The opnon of the court uses ths
sgnfcant anguage:
We must gve these words a reasonabe meanng. They were not ntended,
and do not purport, to forbd a sae of two thngs at once, even f one of them
s the prncpa ob|ect of desre, and the other an addtona nducement whch
turns the scae.
See aso Commonweath v. Ssson (178 Mass., 578), Merchants Lega Stamp
Co. v. Murphy (220 Mass., 281).
The court In decdng the case of Sperry utchnson Go. v. ertzben| (69
N. . ., 264) characterzed a premum transacton whch n our opnon
appes wth especa force to the one n sut. The court sad:
I thnk that t s very mportant to the comprehenson of ths case to
perceve at the start that, whe the tradng stamp s of no vaue whatever,
and evdences no rght of redempton unt t has been ssued n the reguar
way by a subscrber of the companant to hs cash customer, and therefore
necessary has been coected n the reguar way by such customer, after
such ssuance and coecton t represents a property rght of qute defnte
pecunary vaue, whch the companant has most dstncty and ntentonay
made generay transferabe. Ths property rght s bought and pad for by
the coector. The stamp s practcay a negotabe order for merchandse.
It s a mstake to regard t. as n gratuty. Shoppers are nvted to buy
morcand.se for cash from the companant s subscrbers because for ther
money they get certan artces whch the subscrbers purvey, and aso the
rhht to seect and receve certan other artces whch the companant
purveys. Under ths tradng stamp scheme 100 buys goods of that prce or
vaue from the merchant and goods of the vaue of 3, 4, or 5 from the
ompanant.
See aso enbow- rammer Co. v. effron-Tanner Co. (144 ed., 429- 31).
Wthout burdenng ths opnon wth addtona ctatons of decded cases,
many avaabe to the same effect, we deem t suffcent to cose ths pont of
the dscusson by referrng to what was sad by the Supreme Court n the
case of Rast v. an Demon Lews (240 U. S.. 342). ero the Supreme Court
had before t the consttutonaty of State egsaton sub|ectng premum-
gvng merchants to a speca ta . In the course of the opnon, and decsve
of a contenton that proft-sharng coupons and tradng stamps were n ega
effect no more than a process of advertsng, the court sad:
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Reg. 48(1921), rt. 5.
306
It woud be an endess task to cte cases n demonstraton (of awfu re-
strctons upon berty of contract and busness), and that the suppementng
of the sae of one artce by a token gven and to be redeemed n some other
artce has accompanments and effects beyond mere advertsng the aegatons
of the b and the argument of counse estabshed. dvertsng s merey
dentfcaton and descrpton, apprsng of quaty and pace. It has no other
ob|ect than to draw attentot to the artce to be sod, and the acquston of
the artce to be sod consttutes the ony nducement to ts purchase .
The schemes of cdmpanants have no such drectness and effect. They vey
upon somethng ese than the artce sod. They tempt by a promse of a
vaue greater than that artce and apparenty not represented n ts prce.
The pantff contends that the method empoyed by t n the redempton of
coupons and dstrbuton of premums competey removes the transacton from
the operaton of the ta ng aw and from the concusve effect of the precedents
ast cted. To sustan ths contenton emphass s ad upon a camed ds-
tncton between a drect transacton between the deaer and the coupon re-
cpent and one, as In ths case, where the merchandse s sod drecty to the
consumer by the retaer and the coupons redeemed by the pantff, the whoe-
saer. y ths method a cam s made that the premum artces were not sod
by the pantff, and the ta ng ct ceary contempates reachng ony actua
saes. The argument s not mpressve. The statute ays the ta upon the
artces when sod by or for a deaer or hs estate. It s apparenty unm-
portant, so far as the statute s concerned, whether the deaer hmsef ses
the artces drecty or engages through another to compete transactons the
deaer e pressy authorzes hm to compete. The pantff earnesty urges
that
The soe ega consderaton passng to camant from the persons purchasng
ts wares from the corner groceryman, or other reta deaers theren, teas
not the payment to t of any money whatsoever. On the contrary, t was the
payment of money fo a dstnct stranger or thrd party. Certany,
nether camant nor the utmate consumers of ts wares had the sghtest n-
tenton, on the one hand of seng, or on the other of buyng, n the ordnary
sense of these terms, premum |ewery artces merey e changed for camant s
coupons wthout any payment of money to t whatsoever.
The argument quoted appes to a gft, and the pantff franky admts that
the premums are not gfts. The record dscoses and the fndngs e hbt that
the cost of premums nvoved and the overhead e pense of admnsterng the
system are ncuded n the seng prce of the aundry products, and the re-
taer who dstrbutes the product pays the same. So that n ts fna anayss
the consumer receves from the whoesaer a sma or arge dscount, accordng
to the e tent of hs purchases. u| n the purchase prce of the whoesaer s
products pad to the retaer, and the retaer derves the vauabe consder-
aton whch ths offer of dscounts attracts n the way of added customers and
a arger voume of saes. In pan words, the pantff says to the consumng
pubc: If you w buy my aundry products from the comer groceryman, I
w pass tte to you to more than a cake of soap or a package of powdered
soap. I w enhance the vaue of your purchase by addng thereto n pro-
porton to the quantty you purchase such artces of merchandse as the
amount of your purchase warrants, and agree that when my agent, the corner
groceryman, makes the sae, he w dever to you a due b upon me whch
I promse to honor n payment. The groceryman by ths transacton pays to
the whoesaer more for the soap than he woud pay wthout t, and passes
the added cost on to the consumer. Is there any possbe doubt as to who In
the end receves consderaton for the premums transferred s a matter of
fact, the whoesaer receves the consderaton for the premnms to be ds-
trbuted n advance of ther dstrbuton, and f osses occur the retaer suffers,
uness duy com ensated by the ncreased voume of busness nduced by the
estabshment of the premum system.
Many other arguments are persstenty and aby set forth n pantff s brefs,
pontng out the nappcabty of the ta ng aw. They have not escaped
attenton nor carefu consderaton, notwthstandng the ack of comment wth
reference thereto. We can not escape the concuson that where one engages
In a busness, vast n e tent, nvovng a separate and dstnct organzaton,
ncurrng great annua e pense and advertsng the enterprse e tensvey and
contnuousy, such a one s a deaer n the commodtes dsposed of. In our
vew of the case, there must of necessty e st thousands of sma deaers n
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307
Reg. 48 (1921), rt. 5.
|ewery In the country, not even approachng the magntude of the pantff s
|ewery transactons, and wth whom the pantff came nto actua and effectve
competton, who have had to pay the ta mentoned n the Revenue ct.
We are unabe to abstract from the arguments put forth to escape the ta
wheren the pantff essentay dfferentates ts |ewery busness from the
ordnary and customary method of saes over the counter for cash or on credt
by smpy departng therefrom to the e tent of recognzng an obgaton to
transfer tte to an artce of |ewery kept on hand, upon the presentaton of
coupons prevousy ssued to the purchaser for a vauabe consderaton and
ths concuson s not affected by the fact that upon sporadc occasons for the
estabshment and promoton of pantff s busness t sometmes dsposed of ts
products for ess than ts usua whoesae prce and perhaps at a oss.
Obvousy such a cam agn was temporary n character and duy compensated
for wthn a reasonabe tme or permanenty dscontnued. t any rate, there
s nothng n the record to ndcate that t n any way retarded the deveopment
of the coupon system or converted the e change of coupons for |ewery nto an
adopted system of gvng the premum |ewery away. On the contrary, the
evdence estabshes that the coupons ssued possessed a suffcent monetary
vaue that despte the e pressed terms upon whch they were ssued, forbddng
ther transfer, they fe n arge numbers nto the hands of brokers, buyng up
te same, a practce whch cost the pantff both tme and money to n part
foresta.
fna mpedment to the coecton of the ta s sad by the pantff to resde
n the fact that the prce for whch the artces of |ewery are e changed for
coupons s not ascertanabe, and hence the reguatons for the coecton of the
ta are contrary to the wordng and ntent of the aw. To so contend s the
equvaent of assertng that f a deaer n |ewery estabshes a method of seng
bs merchnndse, whch method obscures the ready ascertanment of the seng
prce of the artce sod, he may escape the revenue aws and carry on free
from ths burden. In other words, he may ndrecty accompsh a resut
whch he may not drecty do. The statute uses the words a ta equvaent
to 5 per centum of the prce for whch so sod. Manfesty, the Commssoner
n the admnstraton of the revenue aws s not bound to accept the return of
the deaer as to prce. Investgatons and audt may be made of the deaer s
transactons to ascertan the verty of the returns, or reasonabe reguatons,
awfu, of course, and conducve to the correct admnstraton of the aw, may
be promugated. Tested by the Commssoner s authorty and the e tent of hs
power under the statute, we are unabe to fnd the dffcutes whch the pan-
tff so vgorousy protests as present. The pantff, n f ng the vaue of |ew-
ery premums, predcates ther acquston upon a suffcent number of re-
deemed coupons to cover not ony the market vaue of the artce transferred,
but adds thereto the proportonate cost of overhead ncurred n the conduct of
the busness, and thereby reay obtans an estmated prce somewhat n e cess
of the market vaue of the |ewery. The prce thus f ed by the pantff em-
braces wthn ts computaton eements of uncertanty and estmates, and may
or may not refect stabe and precse return for the artces sod. The Comms-
soner, on the other hand, resorts to a bass easy ascertanabe and obvousy
to the advantage of the ta payer n that estmates and pro rata apporton-
ments of overhead, etc., are absent.
We have not overooked the prncpes of statutory constructon apped to
ta ng cts by the Supreme Court n the Goud- cane (245 U. S, 151) or the
fcrram case (263 U. S., 179). The dstncton we observe between ths case
and those ad|udcated n the above-cted cases es n the fact that the record
n ths case ceary proves the e stence of a sae prce wthn the statute,
and the court s not at berty to overook decsve precedents whch mpose
upon a tgant seekng e empton from the payment of a ta the burden of
ceary provng hs rght to the same. (Corne v. Coyne, 192 U. S., 418, 431.)
The Commssoner promugated the reguatons chaenged as a reasonabe
method of ascertanng the ta , wheren the statute measures t by the prce
receved, under the Revenue cts of 1918, 1921, and 1924. The u ury ta on
|ewery saes contnued as e pressed n the foregong statutes unt omtted
from the Revenue ct of 1926. Treasury decsons have repeatedy construed
the reguatons, and Congress, fuy aware of ths setted constructon of the
aw by the Commssoner, reenacted wthout matera change the secton n-
voved, thereby gvng to the reguatons the weght of ts approva. (Provost
t. Unted .States, 269 U. S., 443 T. D. 3811, C. . -, 417 .)
The petton w be dsmssed. It s so ordered.
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308
Sut to recover erroneous refund. II-1-3566
T. D. 4115
INT RN L R NU L WS R NU CTS O 1918 ND 1921 D CISION O
COURT.
1. rroneous Refund Sut.
Where manufacturers e cse ta es Imposed by secton 900(3) of
the Revenue cts of 1918 and 1921 upon the sae of automobe
parts were erroneousy refunded by the Commssoner, the Govern-
ment may mantan an acton for ther recovery as money errone-
ousy refunded out of the Treasury.
2. Same Res |udcata stoppe.
Where the Unted States brought an acton aganst the ta -
payer on the theory that the money thus refunded represented
unpad ta es, a |udgment of dsmssa n the former sut does not
estop the Government from thereafter sung to recover the errone-
ous refund.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowngdecson of the Unted States Dstrct Court, Dstrct
of Mnnesota, ourth Dvson, n the case of Unted States of
merca, pantff, v. Standard Sprng Manufacturng Co., defend-
ant, s pubshed for the nformaton of nterna revenue offcers and
others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved December 23, 1927.
. W. Meon,
Secretary of the Treasury.
Unted States Dstrct Court, Dstrct of Mnnesota, ourth Dvson.
Unted States of merca, pantff, v. Standard Sprng Manufacturng Co,
defendant.
October 15, 1927.
opnon.
ndngs of act.
I.
That at a tmes herenafter mentoned the pantff was and now s a cor-
poraton soveregn, and body potc that the Standard Sprng Manufacturng
Co. was and s a corporaton havng ts post-offce address and prncpa
pace of busness at Mnneapos, Mnn., wthn the |udca dstrct of Mnne-
sota and wthn the |ursdcton of ths court.
II.
That the defendant Standard Sprng Manufacturng Co. was durng the year
1919 and n partcuar the months of March to November of sad year, ncusve,
the manufacturer of parts and accessores for automobes, to wt, eaf sprngs,
and engaged n the busness of seng the same to persons other thau the
manufacturers of automobes.
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309
n.
That pursuant to the provsons of the ct of Congress approved ebruary
24, 1919, entted n ct to provde revenue and for other purposes, and n
partcuar secton 900, subdvson 3, thereof, the Standard Sprng Manufac-
turng Co. was requred to make a return of a saes of eaf sprngs by t
and to pay a ta on such saes at the rate of 5 per cent of the prce for whch
they were sod that durng the months of March to November, 1919, ncusve,
the defendant sod eaf sprngs for a tota prce upon whch a ta of 2,459.27
was requred to be pad that the sum of 2,459.27 was by defendant duy
pad to pantff through Its coector of nterna revenue for the dstrct of
Mnnesota.
I .
That thereafter, and on ugust 8, 1922, pantffs Commssoner of Interna
Revenue addressed and pubshed a etter and rung to the Leaf Sprng
Manufacturers ssocaton, Rchmond, Ind., wheren and whereby the sad
Commssoner rued that vehce eaf sprngs, as dstngushed from hghy
specazed eaf sprngs, such as au ary shock absorbng devces usng the
eaf-sprng prncpe, whch are not prmary adapted ony for use as a com-
ponent part of an automobe or motor cyce, are not sub|ect to ta under
secton 900 of the Revenue cts of 1918 or 1921.
.
That thereafter defendant ted wth pantff s coector of nterna revenue
for the dstrct of Mnnesota Its cam for refund of the ta es pad as afore-
sad. That the reason assgned for sad cam for refund and the bass thereof
was the etter and rung of pantff s Commssoner of Interna Revenue
aforesad, a copy whereof was attached to and made a part of sad cam for
refund. That pantff s Commssoner of Interna Revenue approved and
aowed sad cam for refund on the 23d day of ugust, 1923, on the authorty
of the etter and rung of ugust 8, 1922, aforesad.
I.
That thereafter, and on September 24, 1923, pantff s Treasury Department
refunded and pad to defendant sad sum of 2,459.27. That athough duy
demanded so to do, defendant has refused to and st refuses to pay to pantff
the sad sum of 2,459.27 or any part thereof.
II.
That the eaf sprngs manufactured by defendant and sod by t durng the
months of March to November, 1919, ncusve, the saes of whch were returned
by defendant as ta abe and upon whch t pad the ta as aforesad, were
manufactured and adapted by defendant for use on partcuar automobes
and were parts and accessores of automobes and were sod to persons other
than the manufacturers of automobes, a wthn the meanng of secton 900,
subdvson 3, of the ct of Congress approved ebruary 24, 1919, aforesad.
Concusons op Law.
Sanborn, Dstrct udge: I fnd that the acton of pantffs Commssoner of
Interna Revenue n aowng the refund heren found and the payment
thereof to defendant out of the Treasury of the Unted States was unauthor-
zed, erroneous, and ega.
Wherefore, t s ordered that pantff have |udgment aganst defendant for
2,459.27, together wth nterest from September 24, 1923, at 6 per cent per
annum, and for ts costs and dsbursements heren.
M MOR NDUM.
There are ony two questons nvoved n ths case: (1) Whether the Unted
States can recover a refund of a ta made n error (2) whether the |udgment
n a former sut brought by the Unted Staes aganst the defendant un the
theory that t had faed to pay the ta refunded creates an estoppe.
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310
The obgaton to pay the ta referred to n ths case was created by the
aws of the Unted States. No offcer of the Government coud wave the
rght of the Government to receve the ta or coud refund the ta when
pad. It was concusvey estabshed n ths case that the Commssoner of
Interna Revenue erroneousy aowed the cam for a refund, and that the
defendant receved from the Government 2,459.27, by vrtue of that aowance,
whch t was not entted to. The aw therefore mpes an obgaton to return
ths money egay refunded.
The second queston s covered by the case of Natona Surety Co. v. enkns
(18 ed. (2d), 707), n whch the foowng anguage appears:
The cause of acton asserted by the Natona company n the former sut
was predcated upon ts aeged rght of subrogaton. The cause of acton
sought to be enforced by the Natona company n ths case s predcated upon
ts contract of ndemnty. It s a cause of acton whch s whoy ndependent
of, and entrey separate and dstnct from, the aeged cause of acton asserted
by the Natona company n the former sut. Snce the Natona company
seeks reef n the nstant case upon a dfferent and dstnct cause of acton
from the one asserted by t n the former sut, the |udgment n the former
sut s concusve ony as to such ponts or questons as were actuay n ssue
aud ad|udcated theren.
The cause of acton asserted by the Government n the former sut aganst
the defendant was for the recovery of a ta whch t was asserted the defendant
was abe to pay, but had not pad. The evdence showed that the ta had
been pad, but had been erroneousy refunded. It s apparent, therefore, that
the Government coud not recover on the cause of acton asserted, and ts
compant was dsmssed for that reason. It thereupon commenced ths sut to
recover the refund erroneousy made. It s not estopped by the |udgment n the
former acton.
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ST T T RULINGS.
TITL I . O RD O T PP LS. (1924)
CUMUL TI LIST O NNOUNC M NTS R L TING TO
D CISIONS O T UNIT D ST T S O RD O T
PP LS PU LIS D IN T INT RN L R NU
ULL TIN S R IC ROM D C M R 22, 1924, TO
UN 30, 1928.
1 II-2 -3783
The Commssoner aequ sces n the foowng decsons of the
Unted States oard of Ta ppeas:
Ta payer.
Dockot
No.
oard of Ta ppeas.
oume.
en, ames ., e ecutor
sop, dward ., estate of
sop, dward ., e ecutor8
nthracte Trust Co., admnstrator estate of ohn
oseph rown, deceased
rchbod, ohn ., e ecutor
.
orden, Spencer, estate of
orden, |r., Spencer, e ecutor
rehmer, ugust . W., estate of.
et a., Otto T., e ecutors.
George W., estate of
Caps, Mary, deceased, estate of...
Crampton, atharne a., e ecutr .
Crampton, Orson L., estate of
Crews, Davd W., estate of
Crews et a., rank
D.
Davs, Sade S., e ecutr
DeLsser, orace, estate of
DeLsser, one, e ecutr
Dbbe, Leon N., e ecutor
Dbbe, Lous N., estate of
Donason, re M., e ecutor..
Donason, ohn ., estate of..
Dustn, nne M., estate of
Dyer, George R., e ecutor
8G90
6519
6519
4947
8629
5909
5909
5844
5844
2038
6720
11362
11362
9010
9010
3877
2459
2459
2528
2528
1629
1629
8629
3351
I
II)
10
8
8
Rung No. 3783 ncudes a acquescence and nonacquescence notces pubshed n the Interna Reve-
nue uetn servce to and ncudng une 30, 1928.
1 cquescence reates ony to 1912 trust.
1 cquescence reates to thrd ssue of decson.
6342 28 21
(311)
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312
Ta payer.
.
archd, Marcus D., estate of
archo, Nee ., e ecutr
arow, Samue, estate of
armers ank Trust Co., e ecutor
emng, C. ., estate of ...
emng et a., dmund ., e ecutors
etcher, Chares ., estate of
ranke, Osmond ., e ecutor
Goodn, C. W., estate of.
.
ammon, ram ., estate of
arrs, Chares L., admnstrator estate of Wam
L. arrs, deceased
arrs, Wam L., deceased, estate of
ausmann, Lous, e ecutor.
Docket
No.
oard of Ta ppeas.
oume. Page.
ausmann, Theresa R.| estate of.
eathcote, ruce, admnstrator.
enry, Matte ., conservatr
erenden, en C, estate of
et a., G. ., admnstrators
enmeyer, Mary, e ecutr
enmeyer, deceased
ortenstne, . L., coadmnstrator
udson, Chares I., estate of
udson, . erstede, e ecutor
.
ohnston, Mary rg, e ecutr .
.
estate of . .
aufman, Samue R., estate of
aufman, Una Lbbv, e ecutr
eenan. atherne P
ey, rmn L., admnstrator
ey, Over Warren, estate of
ennedy, D. ., deceased, estate of.
ennedy et a., nne 8., e ecutors.
esser, George ., estate of
rkenda, . P., estate of
Levee, nna L. Stark, e ecutr .
Lnton, ames N., e ecutor
Lozer, Charotte C, estate of
M.
Mackenze, R. ., estate of
Mc rde, . T., estate of
Mc rde, Rose L., admnstratr .
McDonad, Mary ., e ecutr
19022
19022
7268
10914
7212
7212
7S56
3182
4220
10914
4426
4426
5931
5931
11141
7208
6983
4220
1862
3633
3351
3351
6352
4698
4698
6352
7092
7092
5244
5244
31S2
3094
10587
8690
7513
11141
4885
4885
3042
7
10
9
9
9
3
10
5
5
5
5
8
7
5
8
416
416
172
43
419
419
514
1207
7
1277
43
41
41
199
199
740
172
1273
1277
1322
697
711
711
1064
31
31
1054
1193
1193
330
330
1207
771
1150
693
1050
740
435
435
1295
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313
Ta payer.
Patrck ., estate of
_d ward, estate of
, the G., e ecutr
MUken, George W., estate of
Moorhouse, braam, estate of
Moorhouse et a., Mary zabeth, admnstrators_
Mooyer, Margaret ., e ecutr estate of Chrstan
Mooyer, deceased
oard of Ta ppeas.
No.
oume.
Page.
3042
2
1295
3098
6
341
3098
6
341
10123
7
785
5101
8
964
5101
8
964
3404
2
723
7127
9
96
5185
4
78
5185
4
78
9380
5
386
4803
6
648
4803
6
648
6352
7
1054
6352
7
1054
6352
7
1054
6388
7
1104
9888
10
166
9888
10
166
5422
6
633
5422
6
633
2951
5
107
2951
5
107
9380
5
386
9380
5
386
5273
3
823
10123
7
785
8690
8
693
2161
3
809
4621
9
486
3914
5
326
3914
5
326
3633
3
697
6720
4
983
8836
7
1129
8836
7
1129
2161
3
809
3098
6
341
10587
8
1150
4051
3
514
4051
3
514
4621
9
486
2459
2
102
3877

1212
N.
Northern Trust Co., e ecutor .
O.
O Ne, ohn, estate of
O Ne |r., et a., ohn, e ecutors.
P.
Peebes, W. S., admnstrator
Pheps, Martha ., e ecutr
Pheps, Wam L., estate of
Phps, George
Phps, oseph dward, e ecutor
Phps, oseph N., estate of
Pnhorn, Rchard, estate of
Powe, ope Ives, estate of
Powe, T. L are, e ecutor
Powers, Mary ., e ecutr
Powers, Rchard ., estate of
Prouty et a., nson ., e ecutors
Prouty, C. C., estate of
Pryor, Luke, estate of
Pryor, Lute Patton, admnstrator
Putnam, enretta, deceased, estate of.
R.
Rea state Trust Co. and Samue M. Gayey,
e ecutors
Ross, ames, estate of
Rosser, Luther Z., estate of
Scheuer, erman, estate of
Schroth, oseph, estate of
Schroth, ua nna, e ecutr
Schwng, Samue P., estate of
Securty Trust Co., e ecutor
Serren, nna, e ecutr
Serren, ohn, estate of
Sheton et a., Chares ., e ecutors
Smth, arry ., e ecutor
Stark, rthur L., estate of
Starck, Php ., estate of
k, Php T., e ecutor estate of Php . Starck
Sten et a., Sade S., e ecutors
Stern, Samue . ., e ecutor -
Strauss, Davd, estate of --
cquescence reates to trusts of 1912. 19U , and 1921.
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314
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Thompson, T. C, estate of
U.
Unon Trust Co. of Ceveand, Oho, e ecutor
Unted States Mortgage Trust Co., e ecutor
Unted States Trust Co. of New York et a., e ecu-
tors
.
an Sehack, en L., estate of4
oebe, acob, estate of
oebe, Water W., e ecutor
.
Wash, oseph ., e ecutor
Water, George L., estate of
Water et a., oward ., e ecutors estate of
George L. Water, deceased
Water, T. endry, e ecutor
Whorton et a., Gen C, e ecutors
Wson, Chares Scotto, estate of
Wson, anne L., e ecutr
Woferman, red, e ecutor 5
Woferman, Lous, estate of
5280
69S3
2459
7856
7127
C009
G009
6388
1782
1782
3351
3094
4909
4909
11291
11291
7
2
2
5
7
5
.r)
10
10
902
1272
102
514
96
276
276
1104
453
453
711
771
615
615
285
2S5
The Commssoner does NOT acquesce n the foowng decsons
of the Unted States oard of Ta ppeas:
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
.
sop, dward ., estate of 8
sop, dward ., e ecutor
rchbod, ohn ., e ecutor 7
,
ar, . W., admnstrator
ar, W. ., estate of
ronson, ames D., trustee
D.
Duggan, anna, estate of
Duggan, ames, e ecutor
Dustn, nne M., estate of
1 cquescence reates to trusts of 1912, 1919, and 1921.
oquesconoe reates to frst ssue of decson.
Nonacquoscence reates ony to 1917 trust.
1 Nonacquescence reates to frst and second ssues of decson.
6519
6519
8629
2440
2440
7702
4706
4706
8629
S48
848
919
959
959
127
482
482
919
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816
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
7402
7
1144
5338
3
1361
5338
3
1361
4219
3
832
4166
6
952
4166
5
952
7702
7
127
2473
9
1310
7127
9
96
7402
7
1144
5424
6
582
5424
6
582
7702
7
127
4976
5
1004
465
1
477
2825
5
696
2825
5
696
4976
5
1004
5892
( )
( )
2473
9
1310
665
1
1086
7127
9
96
4166
5
952
11291
10
285
11291
10
285
4976
5
1004
.
Gbson, ate oa, estate of
.
offman, Isabea C, estate of
offman et a., Meyer C, e ecutors
.
ackson, Mnne L., estate of
M.
Mercante Trust Depost Co., e ecutor.
Murphy, ames C, e ecutor
N.
Neson, C. N., estate of
Northern Trust Co., e ecutor..
Northern Trust Co., e ecutor .
Peton, onoro Gbson, e ecutr
Petsch, my Lake, deceased, estate of.
Petsch, Water G., e ecutor
Prnce, George ., trustee
Provdent Trust Co., admnstrator
R.
Rodenbough, mer e ecutor of the estate of
zabeth McCahan Rodenbough, deceased
Root, enry L., estate of
Root, Suse M., e ecutr
S.
Snker, Chares, admnstrator.
Stanton, |r., ohn, estate of
U.
Underwood, Lucy C, estate of
Unted States Trust Co. of New York et a., e ecu-
tors of rancs S. Smthere, deceased
.
an Schack, en L., estate of 8.
W.
Wndfeder, ohn ., estate of
Woferman, red, e ecutor
Woferman, Lous, estate of 19
Y.
Young, ames ., estate of.
onacquesoenoe reates to trust created on eb. 9,1917.
1 Decson not pubshed n Unted States oard of Ta ppeas Reports.
Nonacquescenoe reates to second ssue of decson.
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Reg. 37, rt. 23. 316
TITL m. ST T T . (1926)
GROSS ST T G N R L.
Reguatons 70, rtce 11: Specfc property to II-2-3575
be ncuded. T. D. 4118
state ta cuson from gross estate of nonresdent aen of
Unted States bonds, notes, and certfcates of ndebtedness, and
bonds of the War nance Corporaton. rtce 11, Reguatons 70,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 11, Reguatons 70, s hereby amended by addng at the end
of the thrd paragraph thereof the foowng new sentence:
In case the decedent was a nonresdent aen not engaged n busness n the
Unted States, bonds, notes, and certfcates of Indebtedness of the Unted States,
and bonds of the War nance Corporaton, benefcay owned by such aen,
shoud not be ncuded.
D. . ar,
Conwnssoner of Interna Revenue.
pproved anuary 5, 1928.
. W. Meon,
Secretary of the Treasury.
TITL I . ST T T . (1918)
TR NS RS Y D C D NT IN IS LI TIM .
Reguatons 37, rtce 23: Nature of transfer. II-7-3610
T. D. 4126
federa ta es commssoner s determnaton of fact decson of
supreme codrt.
1. Commssoner s Determnaton of act Concusveness
Prma ace vdence.
The determnaton of the Commssoner on a queston of fact s
not concusve on courts, but s ony prma face evdence of ts
correctness.
2. Decsons oowed.
Unted States v. Rndskopf (105 U. S., 418) and dety d Co-
umba Trust Co. v. Lucas (7 ed. (2d), 146) foowed.
3. udgment Reversed.
The |udgment of the Crcut Court of ppeas (14 ed. (2d),
856) s reversed.
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317
Reg. 37, rt. 23
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Supreme Court of the Unted States
n the case of esse L. Wckwre, Indvduay and as ecutr and
Trustee under the Last W and Testament of dward L. Wckwre,
Deceased, pettoner, v. Mabe G. Renecke, as Coector and as ctng
Coector of Interna Revenue, etc., s pubshed for the nformaton
of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved ebruary 3, 192
. W. Meon,
Secretary of the Treasury.
Supreme Goubt or the Unted States.
esse L. Wckwre, Indvduay and as ecutr and Trustee Under the
hau W and Te tame.n of dward, L. Wckwre, Deceased, pettoner, v.
Mabe O. Renecke, a Coector and as ctng Coector of Interna Revenue,
etc.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh Crcut.
November 21, 1927.
OPINION.
Mr. Chef ustce Taft devered the opnon of the court.
Ths s a sut by esse L. Wckwre, ndvduay and as e ecutr of her
husband, dward L. Wckwre, to recover ta es from the Unted States co-
ector of nterna revenue for the frst dstrct of Inos, on the ground that
they were assessed aganst her and coected wthout ega authorty. The tu
was a so-caed estate ta assessed by the Commssoner of Interna Revenue
under secton 402(c) of the Revenue ct of 1918 (eh. IS, 40 Stat, 1057, 1097).
The secton and paragraph provded:
That the vaue of the gross estate of the decedent sha be determned by
ncudng the vaue at the tme of hs death of a property, rea or persona,
tangbe or ntangbe, wherever stuated

(c) To the e tent of any nterest theren of whch the decedent has at any
tme made a transfer, or wth respect to whch he has at any tme created a
trust, n contempaton of or ntended to take effect n possesson or en|oyment
at or after hs death (whether such transfer or trust s made or created before
or after the passage of ths ct), e cept n case of a bona fde sae for u far
consderaton n money or money s worth. ny transfer of a matera part of
Us property n the nature of a fna dsposton or dstrbuton thereof, made by
the decedent wthn two years pror to hs death wthout such a consderaton,
sha, uness shown to the contrary, be deemed to have been made n contem-
paton of death wthn the meanng of ths tte .
On December 22, 1919, the decedent, dward L. Wckwre, transferred to
hs wfe, the pettoner heren, cash and securtes to the vaue of 302,028.48.
e ded pr 21, 1920. The e ecutr dd not ncude the vaue of the trans-
ferred property as part of the gross estate n her return for edera estate
ta purposes. The Commssoner of Interna Revenue camed and, after the
usua admnstratve hearngs, determned that the transfer was made n
contempaton of death, and assessed as a ta 18,021.41, whch was pad. The
decaraton of the pettoner set up these facts and aeged that the transfer
by her husband to her was not n contempaton of death. The case came on
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Res: 37, rt. 23.
318
for tra, a |ury was mpaneed and sworn, counse for the e ecutr made
hs openng statement, caed one wtness and was e amnng hm when the
court nterrupted the proceedngs to rase on ts own moton the pont that the
fndng of the Commssoner of Interna Revenue, uness mpeached for fraud,
bad fath, or mstaken ega theory, coud not be revewed by the court.
ccordngy the attorney for the Unted States thereupon nterposed a moton
to dsmss. The pettoner then made certan offers of proof to estabsh the
fact that the transfer was not n contempaton of death, whch was e cuded
by the court. The case was then dsmssed.
The tender of evdence was ncuded In a b of e ceptons, and was. n
genera, that the deceased was 62 years od at the tme of hs death that he
had been sufferng for 18 years from dabetes, but that hs condton unt
eary n 1920 was as good as, or better than, t had been for 10 years before
that tme that hs death was from uremc posonng, the resut of an attack
of nfuenza suffered whe he was n the South after the transfer that he had
ong agreed wth hs wfe that haf of what|e had beonged to her, but that
ther capta had been ted up so n busness n hs name that her haf coud
not be gven her unt the busness was reorganzed and turned over to a
stock company that hs doctor, a specast n dabetes, assured hm that, whe
hs condton was that of a dabetc, he was not actuay affcted wth dabetes,
though t mght recur that he had no reason to antcpate death n the near
future when e made the transfer n December, 1919 that the transfer was
n pursuance to a pan ong made and not n antcpaton of death.
The acton of the court beow was based on the supposed authorty of
Park as Lumber Co. v. urngame (1 ed. (2d), 855), a decson of the
Crcut Court of ppeas for the Seventh Crcut. On a wrt of error, the
atter court hed that the case cted was not In pont, and that the ower court
was not concuded by the fndng of the Commssoner on the queston of fact
as to whether the transfer was n contempaton of death, and that the ques-
ton was possby a |udca one. ut the court added: Notwthstandng
ths, the case, on the whoe record, shoud be, and s, affrmed. The e pana-
ton of ths acton, as suggested by the Soctor Genera, s that, whe the
crcut court of appeas hed that the tra court had gven a wrong reason for
ts acton, ts |udgment shoud be affrmed because the openng statement of
counse for the pettoner, together wth the evdence ntroduced by hm and
that offered by her, but re|ected, showed concusvey as a matter of aw that
the transfer was n contempaton of death.
It s qute cear that, as hed by the crcut court of appeas, the rung
of the tra court was erroneous, and that the decson of the Commssoner of
Interna Revenue was not concusve, but ony furnshed prma face evdence
of ts correctness. (Unted States v. Rndstopf, 105 U. S., 418 dety d
Coumba Trust Co. v. Lucas, 7 ed. (2d), 146.) Upon the ssue whether the
transfer had been made n contempaton of death, the burden of proof was
by the terms of the statute on the pettoner, as ndeed It woud have been
wthout the speca provson of the statute, because he was the pantff. We
have not set forth n e terna the evdence whch was offered, but t s very
cear that there was enough to go to the |ury to meet the burden aganst the
pettoner on ths man ssue, and that the crcut court of appeas was n
error n hodng otherwse. Indeed, we do not understand the Soctor Genera
to contest ths.
It was suggested, n the bref for the Unted States n resstng the appca-
ton for certorar, that the assgnment of error made on be af of the pet-
toner was nadequate In that t was not based on a reference to the seventh
amendment to the Consttuton requrng a |ury tra n a cv case nvovng
more than 20. Ths ob|ecton has not been renewed n the bref on the merts,
doubtess because the rght of the pettoner to a |ury n such a case s not
to be found n the seventh amendment to the Consttuton but merey arses
by mpcaton from the provsons of secton 3226, Revsed Statutes, whch has
reference to a sut at aw. It s wthn the undoubted power of Congress to
provde any reasonabe system for the coecton of ta es and the recovery of
them when ega, wthout a |ury tra f ony the n|uncton aganst the
takng of property wthout due process of aw n the method of coecton and
protecton of the ta payer s satsfed. (Murray s Lessee v. oboken Land t
Im rovement Co., 18 ow., 272, 281, 282, 284 NchoU v. Unted States, 7 Wa.,
122, 127 Cheatham v. Unted States, 92 U. S.. 85. 88, 89.)
The |udgments, both of the crcut court of appeas and of the dstrct court,
are reversed, and the cause s remanded to the dstrct court for further
proceedngs.
G
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319
Reg. 37, rt. 27.
GROSS ST T PROP RTY LD OINTLY.
eguatons 37, rtce 27: Property hed |onty TI-13-8662
or as tenants by the entrety. T. D. 4137
ST T T R NU CT O 1918 D CISION O COURT.
1. Gboss state Communty Property Caforna.
In determnng the gross estate of a deceased husband for the
purpose of the edera estate ta , there shoud be ncuded the
entre vaue of the communty property acqured under the aws of
the State of Caforna.
2. Lmtatons Mstake.
There s no statutory mtaton to the recovery by the Govern-
ment of ta es refunded by msttke under an erroneous constructon
of the aw.
3. udgment ffrmed.
The |udgment of the dstrct court (21 ed. (2d), 493 (T. D.
4032 C. . I-2, 355 ), s affrmed.
4. Case Superseded.
Wardett v. um (276 ed., 226).
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Unted States Crcut Court of
ppeas for the Nnth Crcut, n the case of Cyntha, R. Tacott,
ecutr of the Last W and Testament of ohnathan R. Tacott,
Deceased, pantff n error, v. Unted States of merca, defendant
n error, s pubshed for the nformaton of nterna revenue offcers
and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved March 21, 1928.
. W. Meon,
Secretary of the Treasury.
Unted States Crcut Court or ppeas fob the Nnth Crcut.
Cyntha R. Tacott, weeutrm of the Last W and Testament of ohnathan R.
Tacott, Deceased, pantff n error, v. Unted (States of merca, defendant
n error. I
anuary 20, 1928.
opnon.
efore Gbert, Rudkn, and Detrch, Crcut udges.
The pantff, as e ecutr of the estate of her deceased husband, brought an
acton aganst the Unted States under the authorty of the Tucker ct to
recover 5,927.96, whch had been pad as an estate ta upon the estate of
ohnathan R. Tacott, who ded December 8, 1919. The case was tred upon
the foowng agreed statement of facts: ohnathan It. Tacott, a resdent of
the State of Caforna, ded testate. e and the pantff were marred n
1869 and from the year 1878 unt hs death they ved together contnuousy as
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Reg. 37, rt. 27.
320
husband and wfe and were resdents of and domced n the State of Ca-
forna, and a of the property of the decedent was acqured by hm n that
State whe he and hs wfe were vng together, and a of the property of
whch he ded possessed was communty property of hmsef and hs wfe under
the aws of the State of Caforna. On September 20, 1920, the pantff as
e ecutr made a return to the coector of nterna revenue for the estate ta
on the estate of her deceased husband, ncudng theren the entre vaue of the
communty property us sub|ect to a ta n the sum of 8,440.87, and on Novem-
ber 23, 1920. pad that sum to the coector at San rancsco. The Comms-
soner of Interna Revenue ncreased the vaues stated n the return and
mposed an addtona ta n the sum of 1,103.50. whch sum the pantff pad
on uy 27, 1922. On March 3, 1925, the pantff ted wth the Commssoner
of Interna Revenue her verfed cam for a refund of a porton of the ta es
so pad upon the ground that ony one-haf of the communty property was
sub|ect to the mposton of an estate ta . On September 9, 1925, the Com-
mssoner aowed the appcaton to the e tent of the 1,103.50 ast pad, and
on March 17, 1926, repad the same to her wth nterest, but he dened the
appcaton as to the remander. t the tme when the pantff fed her
return and at the tme when she pad ta es thereupon there was n effect a
Treasury decson requrng the ncuson for estate ta purposes of the entre
vaue of the property of a deceased husband and a survvng wfe where both
were domced n Caforna. On anuary 27, 1925, a contrary rung was
promugated, by the terms of whch ony one-haf of the vaue of the com-
munty property of a deceased husband and hs survvng wfe domced n
Caforna was made sub|ect to the mposton of the ta . In passng upon the
pantff s sad appcaton for a refund the Commssoner dened t as to a
e cept the 1,103.50 payment, on the ground that under secton 3228(a) of
the Revsed Statutes te cam for the remander was barred for the reason that
t was pad more than four years pror to the appcaton. Thereafter, on uy
7, 1926, a new Treasury decson was promugated as to communty property n.
Caforna, to the effect that the entre vaue of the communty property of a
deceased husband was sub|ect to the edera estate ta . Sad rung was
promugated after the pantff had commenced the present acton, but pror to
the fng of the answer, and the defendant took ssue upon the pantff s cam
for |udgment, both on the ground that the estate ta was propery based upon
the entre vaue of the communty property an on the ground that the demand
was burred by the mtaton provson n secton 3228(a) of the Revsed
Statutes. Thereafter the defendant fed an amended answer, settng up a
countercam for the recovery from the pantff of the 1,103.50 and nterest
thereon upon the ground that the refund of that sum to the pantff was caused
by the mstake of the Commssoner n beevng that one-haf of the com-
munty property was free from the mposton of the edera estate ta . The
pantff s moton to strke the countercam from the fes on the ground that
t was barred by the statute of mtatons was overrued. Upon the ssues the
court found for the defendant and awarded |udgment aganst the pantff for
the sum so peaded as a countercam.
Gbert, Crcut udge, after statng the facts:
The man queston here presented s whether under the Revenue ct of 1918
the one-haf nterest of the survvng wfe n the communty property of her
deceased husband and hersef, where both were domced n Caforna, s sub-
|ect to the edera estate ta . That queston was before ths court n Wnrde
v. um (270 ed., 220), and t was there hed that the one-haf nterest of a
wfe n the communty property whch on the death of her husband she hed
under the aws of Caforna was not sub|ect to the ta . petton to the
Supreme Court for certorar was dened (258 U. S., 617). In the present case
the court beow was of the opnon that the decson n Warde v. um was m-
pedy overrued by the decson n Unted Mates v. obbns (269 U. S., 315),
and ts foundaton was overturned u Stetcart v. Stewart (199 Ca., 31S). The
frst of those cases arose not under the estate ta provson of the edera
Revenue ct but under the provson whch mposes an ncome ta . We turn
frst to that case to ascertan what was the purport and scope of the decson
so far as t affects the questons here nvoved. In the opnon n that case no
reference was made to our decson n WwrdeU v. um, athough t was brought
to the court s attenton by the brefs of both the partes. Nor dd the court
defne the nature of the wfe s estate n the communty property further than to
advert to the decsons of the Supreme Court of Caforna and observe that the
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321
Reg. 37, rt. 27.
setted opnon, at east wth reference to the tme before the ater statutes,
was that the wfe had a mere e pectancy whe vng wth her husband.
Decson was not based, however, upon that vew of the wfe s estate, and n the
syabus t s rected that the rung was made wthout decdng whether the
wfe s nterest s a mere e pectancy or somethng more. The court took the
vew that even f t was wrong as to the aw of Caforna, the ncome of
the communty property was sub|ect as a whoe to nn ncome ta whch was
propery assessabe aganst the husbnnd. Ths was hed n vew of the hus-
band s power over the communty property and hs rght to the dsposton of
the same and the ncome therefrom, and the fact that the property, whe abe
for the payment of hs debts, was not abe for those of hs wfe, under sec-
ton 167 of the Cv Code of Caforna. In other words, the substance of the
decson s that the ta aton of the ncome of communty property under the
Revenue ct does not depend upon the tte to the property from whch t s
derved but upon the ownershp and power of the husband over t and hs
rght to dspose of the same, restrcted ony by a prohbton aganst gfts
wthout hs wfe s consent, as defned n the decsons of the courts of Caforna.
rom that vew of the nature of the husband s rght to the ncome the con-
cuson necessary foowed that the wfe who receves no ncome s not ta abe
for ncome nnd woud have no property out of whch to pay an ncome ta .
The dena of the wrt of certorar In Warden v. um was not equvaent to
an affrmance of the |udgment ( amton Shoe Co. v. Wof ros., 240 U. S.,
251, 258.)
In Stewart v. Stewart the Supreme Court of Caforna, upon an e haustve
revew of ts own pror decsons and the statutes concernng the rghts of
husband and wfe n communty property n that State, sad:
We wsh to say n concuson that we are n accord wth the ntmatons
from tme to tme refected by ths court n the ong ne of ts past decsons
to the effect that the Interest of the wfe n the property of the communty
durng the contnuance of the marrage reaton, whe t has not yet reached
the status of a vested nterest theren, Is, and aways has been, from a tme
reachng back nto the Spansh and Me can orgnas of our communty prop-
erty aws, a much more defnte and present nterest than s that of an
ordnary her. She has, by vrtue of the share whch n her own sphere she has
contrbuted toward the acquston and conservaton of such propertes, rshts
theren whch have been aways safeguarded aganst the frauduent or ncon-
sderate acts of her husband wth reaton thereto, and for the asserton and
safeguardng of whch she has been gven access to approprate |udca
remedes, both before and after the tme when her sad rghts and nterests
woud rpen and become vested through the death of the husband or other
severance of the marrage reaton, whenever such rghts and utmate nterests
were affected by or threatened wth such forms of nvason.
In the course of the opnon the court sad that the decson In Roberts v.
Wehmeuer (191 Ca., 601, 614) correcty dsposes of the case of Warden v.
um. In Roberts v. Wehmeyer the court had e pressed Its agreement wth
(he decson n Warde v. um, so far as t was based on an nterpretaton
of the nhertance act of 1917, to the effect that the part of the communty
property passng to the wfe shoud not be sub|ect to such ta , but went on
to say that In so far as It rees on rnett v. Reade, supra, as ndcatng that
a wfe has at a tmes had an nterest or estate n the communty property,
we are constraned to dsagree wth t. In bref, the court n the Stewart
case approved the decson of ths court n Warde v. um ony so far as
It deat wth the State nhertance ta aw of Caforna of 1917. t dsagreed
wth It so far as t paced reance upon rnett v. Rrade (220 U. S., 311, 320) :s
authorty for the proposton that a wfe has at a tmes had an nterest or
estate In the communty property, a decson whch was based upon the aw of
New Me co.
The constructon paced upon communty property rghts In Caforna,
together wth the approva of Warde v. um, as thus e pressed n the Stewart
case, nvoves two propostons, frst, that the nterest of the wfe n the com-
munty property In that State s a much more defnte and present nterest
than that of an ordnary her, but yet not a vested nterest, and, second, that
such an estate s, In the opnon of that court, sub|ect to the State Inhertance
ta . The decson as to the frst proposton s bndng upon us. s to the
second, t s not matera to the present dscusson. We have therefore to
nqure whether the nterest n the communty property so defned s upon the
death of the husband ta abe wthn the terms of the Revenue ct of 1918.
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Reg. 37, rt. 27.
322
Thut ct mposes a ta upon the transfer of the net estate of every decedent.
Secton 402 provdes that the vaue of the gross estate of the decedent sha be
determned by ncudng the vaue at the tme of hs death of a hs property,
rea or persona, tangbe or ntangbe. Secton 402(b) provdes: To the
e tent of any nterest theren of the survvng spouse e stng at the tme of the
decedent s death as dower, courtesy, or by vrtue of a statute creatng an estate
n eu of dower or courtesy. Secton 402(d) makes a dstncton n favor of
|ont tenants and tenants by the entrety and reeves from the ta such por-
ton of the property as may be shown to have orgnay beonged to the survvor
and never to have beonged to the decedent. Was there n ths case a transfer
of an estate to the survvng wfe and was her nterest In the communty prop-
erty an estate n eu of dower s to the atter queston, t was sad n eard
v. no (5 CaL, 252, 256), Our statute has done away wth the common-aw
rght of dower and substtuted n pace a haf nterest n the common property.
That decson does not have the effect so to defne the nterest of the wfe n
the communty property that t necessary Is sub|ect to an estate ta under
secton 402(b), provded t can be ascertaned that the nterest so substtuted
for dower s of such greater present nterest n the estate than a dower rght
woud be that upon the death of the husband t Is not transferred to the wfe.
The ground on whch n the Stewart case t was found that the nterest of tho
wfe n the communty property was a much more defnte and present nterest
than that of an ordnary her seems to have been the fact that she contrbuted
toward the acquston and conservaton of t, and that by access to the courts
durng coverture her rght to safeguard her nterest aganst the frauduent or
nconsderate acts of her husband had been recognzed. ut the fact that the
wfe contrbuted to the acquston and conservaton of the communty property
and durng coverture s gven access to the courts for the protecton of her
nterest does not n tsef materay dstngush her nterest from an nchoate
rght of dower, for t s generay hed that whe the Inchoate rght of dower Is
contngent, t s nevertheess a subsstng, separate, and dstnct nterest
(Cass v. Strack, 85 N. . q., 319 ccett v. edheser, 68 Oh. St.. 523), and
that the estate of the tenant n dower does not descend to her, but that she takes
by purchase and her sezn s deemed a contnuance of the sezn of her hus-
band (10 C. .1., 493, 593: Powe v. Monson Urtnfed Mfg. Co., 3 Mas., 347
Goder v. Coder, 95 Me., 259 Reese v. Stves, 87 N. . q., 32 arton v. W sor,
16 rk., 400), and that durng coverture she may mantan a separate acton
for ts protecton (9 R. O. L., 531 usck v. usck, 44 a., 259 Petty v. Petty,
4 Monroe, 215 rown v. rmcn, 82 N. . q., 40 tcher v. Grffths. 216
Mass., 174).
Secton 1402 of the Ov Code of Caforna provdes:
Upon the death of the husband one haf of the communty property goes
to the survvng wfe, and the other haf s sub|ect to the testamentary ds-
poston of the husband, and n the absence of such dsposton, goes to hs
descendant.
The nterest of the survvng wfe s there paced n the same category wth
the nterest of the hers and the use of the word goes woud seem to con-
tempate a transfer, both as to the wfe and as to the hers. In state of
Mofftt (153 Ca., 359), a case whch arose under the Caforna nhertance
tu statute of 1905, whch provded that a property whch sha pass by
w or by the ntestate aws of ths State from any person who may de sezed
or possessed of the same sha be and s sub|ect to a ta herenafter
provded for, the queston presented was whether the survvng wfe s share
of the communty property was sub|ect to the ta . In answerng t the court
quoted wth approva the foowng from Packard v. reanos (17 Ca., 525) :
So ong as the communty e sts her nterest s a mere e pectancy and
possesses none of the attrbutes of an estate ether at aw or n equty, and
hed that the communty Interest of the wfe was sub|ect to the provsons of
sad nhertance ta aw. nd n the Stewart case the court, referrng to the
act of 1905 as nterpreted n the state of Mofftt, and to the amendment of the
act n the year 1917, whch provded that for the purpose of the act the one-
haf of the communty property whch goes to the survvng wfe sha
not be deemed to pass to her as her to her husband, but sha, for the purpose
of ths act, be deemed to go, pass, or be transferred to her for vauabe and
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323
Reg. 37, rt. 27.

adequate consderaton, and her sad one-haf of the communty sha not
be sub|ect to the provsons of ths act, sad that t was not the purpose of
the act of 1917 to change the otherwse genera and ong estabshed rue of
property e cept n ts appcaton to the partcuar and mted purpose of sad
nhertance ta aw. Sad the court:
that the egsature by these amendments dd do, or attempt to do, was
to cast about the nterest of the wfe n both the rea and persona property
of the communty durng the contnued e stence of the marrage reaton added
safeguards and protecton aganst the frauduent or nconsderate acts of the
husband n the e ercse of hs contro and domnon over these propertes of
the nature of those aready provded for n earer statutes, and especay n
and by the 1891 amendment to secton 172 of the cv code . We are
therefore ceary of the opnon that the amendments to the cv code, adopted
n 1917, dd not operate to change such rue to the e tent of creatng n the
wfe a present vested Interest n the property of the communty durng the
contnuance of the marrage reaton.
In bref, the status, of the wfe s nterest n communty property as defned n
In re the state of Mof tt remans the aw of Caforna and s unaffected by
the fact that n 1917 by an act of the egsature the wfe s estate on the death
of her husband was reeved from the burden of the State nhertance ta .
We see no escape from the concuson that the nterest of the survvng wfe,
as t s fnay determned by the Supreme Court of Caforna, s of a nature
that renders t sub|ect to ta aton under the pan terms of the edera
Revenue ct.
It Is contended that recovery upon the defendant s countercam s barred by
the statute of mtatons, and reference s made to the Revenue ct of 1926,
whch provdes that a revenue ta es, wth certan e ceptons, sha be assessed
wthn four years after such ta e.s become due and no proceedng n court
wthout assessment for the coecton of such ta es sha be begun after the,
e praton of fve years after such ta es become due. ut here the counter-
cam s not a proceedng for the coecton of ta es. It s a demand for the
repayment to the Government of moneys whch had been egay and by
mstake pad by an offcer of the Unted States.
In Unted States v. Nashve d O. Ry. Co. (118 U. S., 120, 125) the court
ad:
It s setted beyond doubt or controversy upon the foundaton of the great
prncpe of pubc pocy, appcabe, to a Governments ake, whch forbds
that the pubc nterests shoud be pre|udced by the neggence of the offcers
or agents to whose care they are confded that the Unted States, assertng
rghts vested n them as a soveregn Government, are not bound by any statute
of mtatons, uness Congress has ceary manfested ts ntenton that they
shoud be so bound.
In Wsconsn Centra R d. v. Unted States (164 U. S., 190, 210) t was sad :
The queston s not presented as between the Government and ts offcer, or
between the offcer and the recpent of such payments, but as between the
Government and the recpent, and s then a queston whether the atter can be
aowed to retan the fruts of actons not authorzed by aw, resutng from
an erroneous concuson by the agent of the Government as to the ega effect
of the partcuar statutory aw under or n reference to whch he s proceedng.
mong other cases In ne wth the foregong are Grand Trunk Wm. Ry. Co. v.
Unted States (252 U. S., 112), Sutton v. Unted States (256 U. S., 575). They
estabsh the prncpe that t s mmatera-whether payments whch are thus
sought to be recovered where made under mstake of aw or mstake of fact,
that the ony queston s whether they were pad wthout ega authorty or
ega abty therefor, and that the repayment to a ta payer of a sum pad
for ta es s not a fna determnaton of hs rght to receve the same, that the
Government may recover as for money had and receved a payments egay
pad by a pubc offcer, and that the decsons of e ecutve offcers n makng
soeh payments are not |udca and are. not bndng on a court (Unted States v.
urchard, 125 U. S., 176).
The |udgment s affrmed.
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Rag, 67, rt. 1. 324
TITL III. P RT II. GI T T . (1924)
Reguatons 67, rtce 1: Transfers reached. II-2-3573
T. D.4117
GI T T R NU CT O 1024 D CISION O SUPR M COURT.
1. Gft Ta Retroactvty Consttutonaty.
The gft ta mposed by secton 319 of the Revenue ct of 1924,
approved une 2, 1924, s unconsttutona n so far as t appes to
a transfer made In anuary, 1924.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Canceed:
The foowng decson of the Supreme Court of the Unted States
n the case of ohn W. odgett v. Chares oden, Coector of
Interna Revenue, s pubshed for the nformaton of nterna reve-
nue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved December 30, 1927.
. W. Meon,
Secretary of the Treasury.
Supreme Court of the Unted States.
ohn I . odgett v. Chares oden, Coector of Interna Revenue.
On certfcate from the Unted States Crcut Court of ppeas for the S th Crcut.
November 21, 1927.
OPINION.
Mr. ustce McReynods devered the opnon of the court.
The Crcut Court of ppeas for the S th Crcut has certfed three ques-
tons and asked nstructons n respect to them. Tte 28, secton 346, Unted
States Code. It s ony necessary to answer the one whch foows:
re the provsons of secton 319-324 of the Revenue ct of 1924 (ch. 234, 43
Stat., 313) unconsttutona n so far as they mpose and evy a ta upon trans-
fers of propery by gfts nter vwon. not made n contempaton of death, and
made pror to une 2. 1924, on wch date the ct was approved, because the
same s a drect a and unapportoued, or because It takes property wthout
due process, or for pubc use wthout |ust compensaton, n voaton of the
ffth amendment
The Revenue ct approved une 2, 1924, provdes
Sec. 319. or the caendar year 1924 and each caendar year thereafter, a
ta equa to the sum of the foowng Is hereby mposed upon the transfer by
a resdent by gft durng such caendar year of any property wherever stuated,
whether made drecty or ndrecty, and upon the transfer by a nonresdent by
gft durng such caendar year of any property stuated wthn the Unted
States, whether made drecty or ndrecty: per centum of the amount of the
ta abe gfts not n e cess of 50,000: etc.
Sec. 320. If the gft s made n property, the far market vaue thereof at
the date of the gft sha be consdered the amount of the gft. Where property
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325
Reg. 67, rt 1.
Is sod or e changed for ess than a far consderaton n money or money s
worth, then the amount by whch the far market vaue of the property e ceeded
the consderaton receved sha, for the purpose of the ta mposed by secton
319. be deemed a gft, and sha be ncuded n computng the amount of gfts
made durng the caendar year.
Secton 321 aows certan deductons ( 50,000 donatons for chartabe
purposes, etc.).
Secton 322 s unmportant here.
Sec. 323. ny person who wthn the year 1924 or any caendar year there-
after makes any gft or gfts n e cess of the deductons aowed by secton 321
sha, ou or before the 15th day of March, fe wth the coector a return
under oath n dupcate, stng and settng forth theren a gfts and contrbu-
tons made by hm darng such caendar year .
Sec. 324. The ta mposed by secton 319 sha be pad by the donor on
or before the 15th day of March, and sha be assessed, coected, and pad
n the same manner and sub|ect, n so far as appcabe, to the same provsons
of aw as the ta mposed by secton 301.
ct of ebruary 26, 1926 (44 Stat, 86, ch. 27)
Sec. 324. (a) Secton 319 of the Revenue ct of 1924 s amended to read
as foows:
Sec. 319. or the caendar year 1924 and the caendar year 1925, a ta
equa to the sum of the foowng s hereby mposed upon the transfer by a
resdent by gft durng such caendar year of any property wherever stuated,
whether made drecty or ndrecty, and upon the transfer by a nonresdent
by gft durng such caendar year of any property stuated wthn the Unted
States, whether made drecty or ndrecty: 1 per centum of the amount of the
ta abe gfts not n e cess of 50,000 . (Some of the succeedng
percentages are ess and some are hgher than those specfed by the ct of
1924.)
(b) Subdvson (a) of ths secton sha take effect as of une 2, 1924.
Durng the caendar year 1924, and pror to une 2, pantff odgett, a
resdent of the Unted States, transferred by gfts nter vvos, and not n
contempaton of death, property vaued at more than 850,000 after une 2
he made other gfts vaued at 6,500. The coector e acted of hm the ta
prescrbed by the ct of 1924, as amended, on such transfers, and ths sut
seeks recovery of the sum so pad. The cam Is that the ta ng ct, f app-
cabe n the crcumstances stated, confcts wth the ffth amendment
t the argument here counse for odgett affrmed that a the transfers
pror to une 2 were reay made durng the month of anuary and the
accuracy of ths statement was not questoned. Under the crcumstances, we
w treat ths affrmaton as f t were part of the recta of facts by the
court beow.
The bref n behaf of the coector sets out the egsatve hstory of the gft
ta provsons n the Revenue ct of 1924, and shows that they were not pre-
sented for the consderaton of Congress pror to ebruary 25 of that year. We
must, therefore, determne whether Congress had power to mpose a charge
upon the donor because of gfts fuy consummated before such provsons
came before It.
In Nchos v. Coodge (May 31, 1927 T. D. 4072, C. . I-2. 351 ) ts
court ponted out that a statute purportng to ay a ta may be so arbtrary
and caprcous that ts enforcement woud amount to deprvaton of property
wthout due process of aw wthn the nhbton of the ffth amendment. s
to the gfts whch odgett made durng anuary, 1924, we thnk the chaenged
enactment s arbtrary and for that reason Invad. It seems whoy unreason-
abe that one who, n entre good fath and wthout the sghtest premonton
of such consequence, made absoute dsposton of hs property by gfts shoud
thereafter be requred to pay a charge for so dong.
Determnaton of the cause does not requre us to consder other ob|ectons
to the statute whch have been advanced. nd t s unnecessary to e press an
opnon concernng the vadty of the statute as to transfers subsequent to
une 2. ere, a such gfts were wthn the e empton granted.
So far as the Revenue ct of 1924 undertakes to mpose a ta because of the
gfts made durng anuary, 1924, It s arbtrary and nvad under the due
process cause of the ffth amendment. nd the queston s so answered.
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Reg. 67, rt L
326
Reguatons 67, rtce 1: Transfers reached. II-22-3741
T. D.4157
gft ta revenue act of 1924 decson of supreme court.
Gft Ta Retroactvty Consttutonaty.
The gft ta mposed by secton 319 of the Revenue ct of 1924
Is unconsttutona n so far as t appes to a transfer made before
the date of the approva of the ct, une 2, 1924.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton., D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Supreme Court of the Unted States
n the case of anne . Untermyer, as ecutr , and dward D.
Untermyer, ecutor, under the Last W and Testament of Isaac
ntermyer, Deceased, pettoners, v. nderson, Coector of Interna
Revenue, s pubshed for the nformaton of nterna revenue offcers
and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved May 21, 1928.
. W. Meon,
Secretary of the Treasury.
.Supreme Court of the Unted States. No. 221. October Term, 1927.
anne . Untermyer, as ecutr , and dward D. ntermyer, as ecutor,
undt r the Last W and Testament of saae ntermyer, Deceased, pet-
toners, v. Chares W. nderson, as Coector of Interna Revenue of the
Unted States of merca for the Thrd Dstrct of New York.
On wrt of certorar to the Unted Statc-s Crcut Court of ppeas for the Second Crcut.
pr 9, 192a
OPINION.
Mr. ustce McReynods devered the opnon of the court.
y the orgna acton commenced n the Unted Stutes Dstrct Court,
Southern Dstrct of New York, Isaac Untermyer sought to recover of the
Unted States coector of nterna revenue the ta e acted of hm under the
ct of une 2, 1924 sectons 319, et seq. on account of a gft whch he made
May 23, 1924. fter hs death the cause was revved In the name of the
e ecutors pettoners heren and was then heard upon an agreed statement
of facts. oth sdes moved for a drected verdct. udgment went for the
coector and was affrmed by the crcut court of appeas.
The questons now presented for consderaton are smar to those nvoved
n odt|ett v. oden, decded here November 21, 1927 T. D. 4117, page 324 .
The two causes dffer n ths: odgett s gfts were made durng anuary,
1924. before the provsons for ta ng such transfers were presented for the
consderaton of Congress Untermyer made hs gft May 23, 1924, some three
months after those provsons were frst presented and whe the conference
report upon the b was pendng. Ths report went to the Senate May 22, 1924,
and three days thereafter the b had fnay passed both ouses. The Pres-
dent approved t on une 2. 1924.
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327
Reg. 67, rt. L
Uness the dfference In crcumstances stated s matera, the same rue of
aw must govern both cases.
Two opnons were announced n odgett v. oden. The one prepared by
the present wrter, e pressed the vews of four of the eght ustces who
partcpated n the consderaton of the cause. fter quotng the pertnent
provsons of the statute, etc., the opnon decared:
So far as the Revenue ct of 1924 undertakes to Impose a ta because of the
gfts made durng anuary, 1924, t Is arbtrary and nvad under the due
process cause of the ffth amendment.
We need not now further repeat what was there set out.
In the ght of arguments advanced by counse n the present cause the matter
has been consdered by a members of the court and a ma|orty of them are
of the opnon that the gft ta provsons of the ct of 1924 here chaenged
must be construed as appcabe to gfts made durng the entre caendar year
1924. nd, further, that so far as appcabe to bona fde gfts not made n
antcpaton of death and fuy consummated pror to une 2, 1924, those pro-
vsons are arbtrary and Invad under the due process cause of the ffth
amendment.
The mere fact that a gft was made whe the b contanng the questoned
provsons was n the ast stage of progress through Congress we thnk s not
enough to dfferentate ths cause from the former one and to reeve the egs-
aton of the arbtrary character there ascrbed to t. To accept the contrary
vew woud produce nsuperabe dffcutes touchng nterpretaton and prac-
tca appcaton of the statute and render mpossbe proper understandng of
the burden ntended to be mposed. The ta payer may |usty demand to know
when and how he becomes abe for ta es he can not foresee and ought not to
be requred to guess the outcome of pendng measures. The future of every
b whe before Congress s necessary uncertan. The w of the awmakers
s not defntey e pressed unt fna acton thereon has been taken.
The |udgment beow must be reversed.
Reguatons 67, rtce 1: Transfers reached. II-22-3740
T. D.4156
GI T T C L ND R Y R 1924 D IN D.
rtce 1, Reguatons 67, as amended by Treasury Decson 4129
page 328 . amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
rtce 1, Reguatons 67, reatng to the gft ta under the Reve-
nue ct of 1924, as amended by Treasury Decson 4129, dennng the
caendar year 1924, s hereby further amended by substtutng n eu
of the ast sentence of the frst paragraph of sad artce, as amended,
the foowng:
The term caendar year or year as apped to the caendar year 1924
ncudes that porton ony of the caendar year 1924 from 4.01 p. m., une 2,
Washngton, D. C, tme, to December 31, ncusve.
D. . ab,
Commssoner of Interna Revenue.
pproved May 21, 1928.
. W. Meon,
Secretary of the Treasury.
6342 28 22
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Reg. 67, rt. 1. 328
Reguatons 67, rtce 1: Transfers reached. II-8-3620
T. D.4129
Gft ta . Caendar year 1924 defned. rtce 1, Reguatons 67,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 1, Reguatons 67, reatng to the gft ta under the Revenue
ct of 1924, s hereby amended by addng at the end of the frst
paragraph thereof the foowng:
The term caendar year or year as apped to the caendar year 1924
ncudes that porton ony of the caendar year 1924 from ebruary 25 to
December 31, both dates ncusve.
D. . ab,
Commssoner of Interna Revenue.
pproved ebruary 11, 1928.
. W. Meon,
Secretary of the Treasury.
mended by T. D. 4156, on page 327.
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C PIT L STOC T RULINGS.
TITL . SP CI L T S. (1918)
Reguatons 50(1920), rtce 10: ass of the II-7-3611
ta : Carryng on or dong busness. T. D. 4123
capta stock ta revenue act of 1818 decson of court.
1. Dong usness.
Where a corporaton after the sae of ts good w and manu-
facturng assets contnues to carry on wth ts remanng assets,
partcpatng n the actvtes of two other corporatons whose
success resuted benefcay to t and otherwse engagng n trans-
actons not desgned to effect fna qudaton of ts assets but to
produce proft for ts stockhoders, the corporaton s dong bus-
ness and s sub|ect to the capta stock ta mposed by the
Revenue ct of 1918.
2. Decsons oowed.
The decsons n an aumbach v. Sargent Land Co. (242 II. S.,
503 (T. D. 2436)) and dward v. Che Copper Co. (270 . S., 242
(T. D. 3857 C. . -. 410 )) foowed.
Treasury Department.
Offce of Commssoner of Interna Revenue.
Washngton. D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Court of Cams of the Unted States
n the case of Chevroet Motor Co. v. The Unted States s pubshed
for the nformaton of nterna revenue offcers and others concerned.
D. . ar,
Com/nssoner of Interna Revenue.
pproved ebruary 2, 1928.
. W. Meon,
Secretary of the Treasury.
Court of Cams of the Unted States.
Chevroet Motor Co. v. The Unted States.
November 7, 1927.
opnon.
ooth, udge, devered the opnon of the court.
The Chevroet Motor Co., a Deaware corporaton, sues to recover . 89,787
and nterest thereon. The sut s predcated upon an aeged ega assessment
and e acton of capta-stock ta es made by the Commssoner of Interna
Revenue upon the corporaton s ta return for the perod uy 1, 1920, to une
30, 1921.
(329)
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Reg. 50(1920), rt. 10.
330
The Commssoner acted under secton 1000(a) of the Revenue ct of 1918
(40 Stat., 1057, 1126), whch, n so far as pertnent, reads as foows:
Sec. 1000. (a) That on and after uy 1, 1918, In eu of the ta mposed by
the frst subdvson of secton 407 of the Revenue ct of 1916, (1) very
domestc corporaton sha pay annuay a speca e cse ta wth respect to
carryng on or dong busness, equvaent to 1 for each 1,000 of so much of
the far average vaue of ts capfa stock for the precedng year endng une 30
as s n e cess of 5,000. In estmatng the vaue of capta stock the surpus
and undvded profts sha be ncuded | (c) The ta es mposed oy
ths secton sha not appy n any year to any corporaton whch was not
engaged n busness (or n the case of a foregn corporaton not engaged n
busness n the Unted Staes) durng the precedng year endng une 30.
There s no |ursdctona queston nvoved. The facts upon whch the pan-
tff now rees are substantay smar to the record before the Commssoner
and are not nvoved or dsputed. The pantff s corporate powers under ts
charter were e tensve prmary the purpose of ts ncorporaton was to engage
n the manufacture and sae of motor vehces of a knds. On May 1, 1918,
the pantff sod and transferred to the Genera Motors Corporaton, another
Deaware corporaton, a of ts assets, e cept 450,000 shares of the common
stock of the Genera Motors Corporaton whch t then and had for some tme
owned. The consderaton for the sae was the assumpton of a outstandng
abtes of the pantff and the transfer to t of 2S2,6S4 addtona shares of
Genera Motors common stock. Subsequent to the cose of ths transacton the
pantff contnued Its corporate entty and durng the perod here nvoved
engaged n and competed the foowng actvtes, vz: It provded for the
e change of ts sharehoders stock for Genera Motors stock at the rato of
1 share of ts own stock for h shares of Genera Motors stock and 44 cents
n cash. In ugust and September, 1919, pantff borrowed 5,000,000 to enabe
t to e ercse stockhoders rghts n acqurng addtona Genera Motors com-
mon stock at ess than ts market vaue. In October, 1920, the pantff agan
borrowed 7,000,000 for the same purpose.
In October, 1919, the Genera Motors Corporaton subscrbed for 300.000
shares of stock of the sher ody Corporaton, of New York State, at an
agreed prce of 92 per share. Under the aws of New York the sher ody
Corporaton was precuded from acceptng the notes of the Genera Motors
Corporaton for such amounts as the Genera Motors Corporaton dd not wsh
to pay n cash. In order to consummate the dea the Genera Motors Corpo-
raton arranged wth the pantff to ssue ts notes to the sher ody Cor-
poraton for 22,840,000, whch was done 5,840,000 of the tota amount of the
ndebtedness remaned outstandng and unpad to the pantff by the Genera
Motors Corporaton on une 30, 1921. On May 28, 1920, pantff agan bor-
rowed 4,500,000 to purchase an addtona 150,000 shares of the common stock
of the Genera Motors Corporaton. Ths purchase, as the proof shows, was
made to prevent the sae of the stock nvoved n the open market and for fear
of depressng the market prce.
t another tme ater, actuated by the same ntent, ths pantff and a new
corporaton, known as the Du Pont Securtes Co., a Deaware corporaton,
organzed for the e press purpose of acqurng a arge bock of Genera Mo-
tors stock about to be sod n the open market, fnanced the purchase of the
entre ot. The Du Pont Securtes Co. obtaned 20,000,000 wth whch to
make the purchase by ssung ts notes and seng ts stock for that amount,
the pantff at the tme oanng to the Du Pont Securtes Co. 549,453 shares of
ts common stock of the Genera Motors Corporaton to pedge as coatera n
securng n part the oan of 20,000,000 to the Du Pont company, and n addton
thereto subscrbng for 2,800,000 worth of 8 per cent preferred and 16,000 shares
of no par vaue stock n the Du Pont company. Subsequenty ths entre
bock of stock, together wth 270.000 shares of Genera Motors common stock,
was sod by the pantff to the . I. du Pont de Nemours Co. at a prce of
13 per share for Genera Motors and 2,800,000 and accrued dvdends for the
Du Pont stock. The above transactons, so far as the record dscoses, e -
hbts pantff s actvtes durng the perod for whch a refund of the ta
heren camed was refused by the Commssoner.
Pantff s case rests e cusvey upon a contenton that by the terms of
the capta stock ta statute t s e pressy e empted from the payment of
the ta , because for the perod stated t was not carryng on or dong bus-
ness wthn the meanng and ntent of the aw that foowng the sae of ts
assets to the Genera Motors Co. t was no more than a mere hodng company,
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331
Reg. 50(1920), rt. 10.
engaged In protectng Its assets and qudatng ts affars. great number
of cases are cted to sustan Its argument. Whatever may be the dffcuty
n appyng the vurous precedents to the nstant case, t must be conceded
that the ssue tsef s not determnabe from any f ed and nfe be rue,
but s whoy dependent upon the partcuar stuaton whch presents t. In
most, f not a, of the cases the courts have been partcuar n ayng down
the rue that each case presents ts own pecuar facts, and from these facts
the queston s aone determnabe. Many cose and doubtfu cases have been
before the courts, but where a manufacturng corporaton, orgnay organzed
for proft and gan, contnues after the dsposton and sae of ts good w
and manufacturng assets to mantan ts corporate entty and cnrry on wth
ts remanng assets, engagng n busness transactons nmca to the pre-
cesses of fna qudaton, a of whch resuts n proft to ts stockhoders, t
can hardy escape the cassfcaton of dong busness.
It s not the voume of busness done, athough n ths case that s a most
sgnfcant factor, but the rea ntent and purpose of the actvtes of the corpo-
raton and those engaged n ts management, and conduct, f the pantff had
done no more than receve and dstrbute dvdends upon ts Genera Motors
stock to ts sharehoders ant borrow funds to mantan and ncrease ther
vaue, the contenton made for |udgment n ths case mght e mertorous.
ut the fndngs dscose that t dd a great dea more. Whe t dscontnued
to manufacture motor vehces, t dd not reduce ts actvtes to a mere hodng
company. It contnued a seres of busness transactons desgned and ntended
to factate the successfu conduct of the corporaton n whch t owned a
controng stock nterest, and oaned not ony ts vauabe assets to enabe the
atter to fnance vast and mportant busness undertakngs but served tsef as
a condut, a subsdary for the accompshment of the purpose, and t s seem-
ngy de to contend that a ths, nvovng mons of doars, was done wth-
out hope or e pectaton of proft.
Deductbe from the fndngs s a seemngy ogca concuson that pantff s
contnuance as a corporaton durng ths perod of tme served an e tremey
Important purpose n adng Genera Motors n ts busness actvtes and serv-
ng the r_ u Pont Securtes Co. n securng oans to fnance ts operatons.
Whe pantff s offcers drew no saary and t mantaned no e pensve organza-
ton and had reduced Its overhead to the mnmum, a fact accounted for n the
transfer of the entre organzaton of the pantff to the Genera Motors Cor-
poraton on the date of sae, nevertheess t contnued to functon n a way that
ceary demonstrates that what was done was not n mere passve, nert actvty
ookng toward the qudaton of ts assets or the usua actvtes of a hodng
company, but a vey partcpaton n the actvtes of two other corporatons
nked wth t, aud whose success and profts redounded benefcay to the pan-
tff. The pantff oaned ts corporate powers to other corporatons, engaged n
and became an mportant Instrumentaty n ther actvtes and partcpated n
ther busness transactons. Surey ths s carryng on busness. If not, t s
dffcut to characterze t.
We are n accord wth defendant s contenton, and beeve ths case to be
rued by the prncpes announced n on aumbach, Coector, etc., v. Sargent
Land Co. (242 U. S.. 503 T. D. 24361) and dcardt v. Che Copper Co. (270
. S , 452 T. D. 3857, C. . -, 410 ).
The petton w be dsmssed. It s bo ordered.
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MISC LL N OUS T RULINGS.
TO CCO.
Reguatons 8(1922), Secton 70: Szes of pack- II-8-3623
ages of tobacco and snuff. T. D. 4130
TO CCO.
Reguatons No. 8, revsed, Is amended to provde for approva
by Commssoner of packages for tobacco, snuff, cgars, and cga-
rettes other than wooden packages used for packng cavendsh,
pug, twst, and eaf tobacco and wooden cgar bo es for nner
statutory packages of tobacco n tn contaners and change n
mode of aff ng strp tobacco stamps.
Treasury Department,
Offce or Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
Reguatons No. 8, revsed (reatng to the ta on tobacco, snuff,
cgars, and cgarettes), s hereby amended as foows:
Secton 70 s amended by nsertng after the second paragraph
thereof the foowng new paragraph:
package of the foregong descrpton to be used for packng the casses
of tobacco mentoned must be approved by the Commssoner as provded n
sectons 78 and 134. ther wa or oed paper, tn or ead fo or a combna-
ton thereof, may consttute a statutory package, that s, a package on whch
the nterna revenue stamp must be aff ed and on whch the cauton notce
must appear. Packages made of tn may ncose approved statutory packages
made of above materas, n whch case the outer tn contaner must not be
stamped or bear the cauton notce.

Reguatons 8(1922), Secton 73: Packages other II-8-3624
than wooden. T. D. 4130

Secton 73 of such reguatons s amended to read as foows:
Seo. 73. Packages other than wooden. Packages to be used for packng
manufactured tobacco and snuff other than those made from wood for packng
cavendsh, pug, twst, and eaf tobacco must be approved by the Comms-
soner, under the provsons of secton 134.
Reguatons 8(1922), Secton 77: Mode of aff ng II-8-3625
tobacco and snuff stamps. T. D. 4130

Paragraph (a) of secton 77 of such reguatons s amended to
read as foows:
(332)
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333
Reg. 8, 188.
(a) very package contanng 16 ounces or ess of tobacco or suuff must be
ta -pad by aff ture of a snge stamp of the proper cass and denomnaton.
Such stamp sha be aff ed so as to sea the package and render t mpossbe
to remove the contents wthout breakng the stamp. In the case of a combna-
ton wa paper and fo package on whch the stamp Is aff ed, and whch bears
a abe wrapper, that porton of the stamp whch shows ts denomnaton
must be e posed to vew. The stamp must be aff ed to tn statutory packages
ether over the d, or under the d seang the nner package, and down the
outer sdes. When tn s used to ncose and protect an nner statutory pack-
age (see secton 70) the stamp must be aff ed to, and cauton notce must
appear on, the nner statutory package ony. The use of two or more stamps
on any such package s prohbted, snce a stamp s provded for each sze of
package contanng not over 16 ounces, prescrbed by aw, and no other szes
of packages are authorzed.

Reguatons 8(1922), Secton 134: Packages other II-8-3626
than wooden to be approved by Commssoner. T. D. 4130

Secton 134 of such reguatons s amended to read as foows:
Sec. 134. Packages to be approved by Commssoner. cept wooden pack-
ages used for packng cavendsh, pug, eaf, or twst tobacco, and wooden bo es
used for packng cgars, whch packages or bo es compy wth the requrements
of these reguatons as to cauton notces, factory brands or marks, and mode
of aff ng and canceng stamps, manufacturers sha submt a sampe of
each package whch they desre to use for packng tobacco, snuff, cgars and
cgarettes. Meta, paper, or other materas may be used ether separatey or
In combnaton, or n combnaton wth wood n the constructon of such pack-
ages. Such packages must show how the requrements above w be comped
wth. statement whch the manufacturer must aso submt sha show the
knd or cass of goods and the quantty thereof ntended to be packed n the
package.
D. . ar,
Commvssoner of Interna Revenue.
pproved ebruary 14, 1928.
. W. Meon,
Secretary of the Treasury.
Reguatons 8, Secton 188: endng machnes. II-17-3702
T. D. 4150
TO CCO- NOI NO M C IN S.
Reguatons No. 8 (revsed), secton 188. amended n respect to
requrements for constructon of vendng machnes for sae of fu
and unbroken packages of tobacco products.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coector of Interna Revenue and Others Concerned:
Secton 188 of Reguatons No. 8 (revsed) s hereby amended to
read as foows:
Sec. 188. endng machnes. -Machnes desgned for the automatc sae of
tobacco products must be approved by the Commssoner before ther use s
authorzed. workng mode or photographs of such machne, whch w
show that ts constructon conforms wth the foowng requrements, must be
submtted to the Commssoner for nspecton:
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Reg. 9, 40.
334
(a) Machnes for vendng a tobacco product from a statutory package must
have gass panes so paced that the ta -pad stamp together wth the requred
cauton notce and marks or brands are pany vsbe. The mechansm for
devery must provde for practcay a drect feed of the artce from the
orgna stamped package. The stamp must reman ntact on the package unt
the contents are sod, when the empted package sha be mmedatey removed,
and the stamp thereon uttery destroyed. (See sec. 181.) No such empted
package may agan be used for a tobacco product under severe penates mposed
by aw.
(b) Machnes for vendng fu and unbroken statutory packages of tobacco
products must be so constructed, and such packages must be so paced theren,
that the cass of product, sze of package and ta -pad stamp attached thereto
are pany vsbe through gass panes.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved pr 14, 1928.
. W. Meon,
Secretary of the Treasury.
OL OM RG RIN .
Reguatons 9, Secton 40: Substances ta abe as II-16-3689
oeomargarne. T. D. 4149
oeomargarne cookng compounds.
Treasury Decson 4006 C. . I-1, 383 and Treasury Decson
4114 see beow revoked.
Treasury Department,
Offce of Commssoner of Interna e venue,
Washngton, D. C.
To Go-ectors of Interna Revenue and Others Cancerned:
Treasury Decson 4006, amendng paragraph (b) of secton 40,
Reguatons 9 (revsed ugust, 1925), reatve to the ta on oeo-
margarne and other substances, and Treasury Decson 4114, e tend-
ng the effectve date thereof to uy 1,1928, are both hereby revoked
to take effect mmedatey.
D. . ar,
Commssoner of Interna Revenue.
pproved pr 13, 1928.
. W. Meon,
Secretary of the Treasury.
Reguatons 9, Secton 40: Substances ta abe as II-1-3566
oeomargarne. T. D. 4114
OL OM RG RIN COO ING COMPOUNDS.
ffectve date of Treasury Decson 4006 C. . I-1, 333 ,
amendng paragraph (b) of secton 40, Reguatons 9 (revsed
ugust, 1925), reatve to oeomargarne, etc., as amended by
Treasury Decson 4085 fC. . I-2, 381 , e tended.
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835
Reg. 61(1925), rt. 4.
Treasury Department,
Offce or Commssoner or Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to e tend for a further perod of s months the effectve
date of the amendment to paragraph (b) of secton 40 of Regua-
tons 9 (revsed ugust, 1925), reatve to the ta on oeomargarne
and other substances, the ast paragraph of Treasury Decson 4006,
as amended by Treasury Decson 4085, s further amended to read
as foows:
The provsons of ths Treasury decson w take effect on uy 1, 1928.
D. . ar,
Commssoner of Interna Revenue.
pproved December 23, 1927.
. W. Meon,-
Secretary of the Treasury.
Revoked by T. D. 4149, on page 334.
PRO I ITION.
Reguatons 61(1925), rtce 4: Ta and II-25-3771
ens. T. D.4162
Losses under secton 14, Tte III, of the Natona Prohbton ct
and secton of the ct of November 23, 1921, suppementa thereto.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
Under authorty conferred upon the undersgned wth respect to
nterna-revenue ta es arsng out of the manufacture, transportaton,
and sae of dsted sprts, where no voaton of a aw reatng to
the enforcement of the eghteenth amendment to the Consttuton s
nvoved, the foowng decson s promugated for the nformaton
and gudance of a concerned:
Secton 14, Tte III, of the Natona Prohbton ct provdes as
foows:
Whenever any acoho s ost by evaporaton or other shrnkage, eakage,
casuaty, or unavodabe cause durng dstaton, redstaton, denaturaton,
wthdrawa, ppng, shpment, warehousng, storage, packng, transfer, or
recovery of any such acoho the Commssoner may remt or refund any ta
Incurred under e stng aw upon such acoho, provded he s satsfed that the
acoho has not been dverted to any ega use: Provded, aso, That such
aowance sha not be granted f the person camng same s ndemnfed
aganst such oss by a vad cam of Insurance.
Secton 5 of the ct of November 23, 1921, suppementa to the
Natona Prohbton ct, provdes n part as foows:
If dsted sprts upon whch the nterna-revenue ta has not been pad are
ost by theft, accdenta fre, or other casuaty whe n possesson of a common
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Reg. 61(1925), rt. 4.
336
carrer sub|ect to te Transportaton ct of 1920 or the Merchant Marne ct,
1920, or f ost by theft from a dstery or other bonded warehouse, and t
sha be made to appear to the Commssoner that such osses dd not occur as
the resut of neggence, connvance, couson, or fraud on the part of the owner
or person egay accountabe for such dsted sprts, no ta sha be assessed
or coected upon the dsted sprts so ost, nor sha any ta penaty be
mposed or coected by renson of such oss, but the e empton from the ta
and penaty sha ony be aowed to the e tent that the camant s not
ndemnfed aganst or recompensed for such oss. Ths provson sha appy
to any cam for ta es or ta penates (hat may have accrued snce the passage
of the Natona Prohbton ct or that may accrue hereafter. Nothng n ths
secton sha he construed as n any mamer mtng or restrctng the pro-
vsons of Tte III of the Natona Prohbton ct.
The words such oss n the provso n secton 14, Tte III, of
the Natona Prohbton ct, and where they appear at the end of
the frst sentence n the above-quoted porton of secton 5 of the ct
of November 23, 1921, reate to and mean oss of ta and not oss of
acoho or of dsted sprts.
D. . ar,
Commssoner of Interna Revenue.
pproved une 12, 1928.
enry ekrk k ond,
ctng Secretary of the Treasury.
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MISC LL N OUS RULINGS.
OL OM RG RIN .
II-3-3582
MS. 74
Schedue of oeomargarne produced and materas used durng the month of
November, 19S7, as compared wth November, 19S6.
November,
1927.
November,
1926.
Tota producton uncoored oeomargarne
Ingredent schedue for uncoored oeomargarne:
utter..
Cocoanut o
Corn o
Cottonseed (
dbe taow.
Mk
Mustard o...
Neutra ard _.
Oeoo
Oeo stearne. _
Oeo stock
Pam o.
Pam-kerne o.
Peanut o
Sat.
Sesame o
Soda
Soya-bean o.
ana
Tota.
Ingredent schedue for coored oeomargarne:
utter
Cocoanut o
Coor
Mk
Mustard o
Cottonseed o
Neutra ard
Oeo o - -
Oeo stearne
Oeo stock
Pam o..
Pam-kerne o - -
Peanut o
Sat.
Sesame o
Pounds.
24, 552, 772
Pounds.
22, 111, 722
209, 524
919,347
OO
101,779
2,700
601, 169
6,455
992,547
571, 764
450, 837
154,046
54,792
18,302
479, 724
023, 959
5,350
8, 100
16
196, 024
9,457,322
19,425
1, 943,334
2,600
8, 366, 732
4,628
2,005, 976
8,947, 791
423,252
217, 329
49, 581
4,300
487, 399
1,834, 793
1,203
6,402
300
22
29,601,07
1,360,665
26,968,418
1,316,888
1,554
453,569
1,715
432, 677
140
168,351
154, 725
808, 776
8,410
13, 217
20,486
6,468
29,806
111,786
119
, 700, e
1,407
392,408
1,253
624,230
214, 644
174, 973
365, 906
r.. 7
35, 869
13,010
200
25,035
107,796
2,484
139
1,874,828
(337)
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Msc.
338
II-6-3604
MS. 75
Schedue of oeomargarne produced and materas used durng the month of
December, 1927, as compared wth December, 19S6.
December,
1927.
December,
1926.
Ingredent schedue for uncoorod oeomargarne:
Pounds.
26, 033,869
Pounds.
23, 369,846
utter
222,227
13,063,320
9,000
190,860
10, 181.724
5,850
L 857, 210
2,035
6,798,305
5,130
2,360,850
4, 044. 762
403, 100
188,354
49,376
3.000
560.653
1,940,026
2,040
7.100
24
1, 999, 389
dbe taow
6,800
6,874,898
5,093
M k
2, 149, 642
8, 488,720
Oco o
Oeo stearne .
417,024
124,935
32,974
23,507
544, 220
2, 109, 789
14,963
8,880
23
Oeo stock
Pam o
Sat..
Soda
ana e tract
Tota
31,153,983 28,600,399
Tota producton coored oeomargarne
1,435,082 1,428.573
Ingredent schedue for coored oeomargarne:
1.643
485, 821
1.220
428.931
Coor
1,897
154,777
1,551
150.705
dbe taow
7.048
464, 188
149.855
382.219
Mk
488,297
153,798
321, 621
28,580
14.110
24, 218
4,222
32, 105
110,083
Oeo o
5,565
27,428
13, 422
Pam o
29,337
108,069
4.320
184
Sat
154
1,821,328
1,774.043
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339 fMso.
II-11-3646
MS. 76
Schedue of oeomargarne produced and materas used durng the month of
anuary, 1928, as compared wth anuary, 1937.
anuary,
1928.
anuary,

1927.
Ingredent schedue for uncoored oeomargarne:
Pounds.
24,818,463
Pounds.
21,500,222
utter
202,922
12, 707, 811
2.700
2,003,415
5,100
6,719,671
4,260
2,135,362
8,167, 702
433,535
110,194
80,630
19,785
609,354
2,107, 846
1,050
8,032
22
195,681
9,460.970
6,426
1,878,451
21,009
S.gv , ::
5,740
1,967, 627
8,750.743
885,839
168,156
49,003
3,000
475,504
1,800,548
1,650
6,495
23
Cocoanut o
Cottonseed o....
Mk
Neutra ard.
OteooD.
Pam o
Pam-kerne o
at
Sesame o.
Soda
Tota
30,209, 391
26,062,994
Ingredent schedue for coored oeomargarne:
1,386,231
1,241,821
utter .
2,432
482,983
1,882
300
386,218
2,303
600
134,461
22,698
401,294
134, 591
296,864
6,678
24,448
4,839
Coor
158,339
dbe taow
Mk
470,484
Neutra ard
163,652
296,622
85,375
11,427
24,104
3,586
34,740
111,401
123
Oeo o
27,001
104, 281
100
Sat
Soda
Tota
1,787,160
1,544, 661
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Msc.
340
II-15-3678
MS. 77
Schedue of oeomargarne produced and materas used durng the month of
ebruary, 1928, as compared wth ebruary, 1927.
r obruary,
ebruary.
1928.
Pounds.
20, 223,558
Pounds.
21,051.401
Ingredent schedue for uncoored oeomargarne:
uter
Cocoanut o
Corn o
Cottonseed o--
dbe taow.,-
Mk
Mustard o
Neutra ard..
Oeo o
Oeo stearnc.
Oeo stock
Pam o.
Pam-kerne o.
Peanut o
Sat
Sesame o
Soda..
ana e tract..
Tots
Tota producou coored oeomargarne
Ingredent schedue for coored oeomargarne:
utter
Cocoanut o -
Coor
Corn o -
Cottonseed o
dbe taow
Mk
Neutra ard-
Oeo o
Oeo stcarne,.-
Oeo sock
Pam o - -
P 4m-kerue o . __ .
Peanut o - -
Sat
Soda
211.095
13. 43. 340
8 550
1. 27 622
1I.SS9
7, 645, 689
3.185
2, 142,143
3.239.093
393,473
100,455
79.266
26,424
688,105
2, 120,385
9,001
19
32.049, 734
1.400,752
465,
1,
1 So, 252
Tota- 1,816,748
470,865
188,501
300.033
15,010
7,246
24,303
2,802
33, 135
111,341
143
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341
Msc.
II-20-3721
MS. 78
Schedue of oeomargarne produced and materas used durng the month of
March, 19S8, as compared wth March, 1987.
|fm
March,
1628.
March,
1927.
Ingredent schedue for uncoored oeomargarne:
Pounds.
25,830,789
Poundt.
33,975,161
utter
215, 427
13,897,215
5,400
2,035, 586
8,705
7,284,867
3,480
3,136, 679
3,342,194
474,502
104,743
74,549
10,048
543,793
2,135,018
210,503
10, 703,010
7,328
2,325,450
18,983
6, 555, 358
5,464
3, 245,654
4,120, 640
45C, 644
163,023
16,859
2,700
368,646
2,043,868
4,050
7,073
21
dbe taow
Mk. .
Oeoo
Pam o
Sat
7,072
20
Tota
31,279,188
29,265, 170
redant schedue for coored oeomargarne:
1,456, 741
1, 508, 672
utter
287
483,565
1,479
178, 262
2,446
466, 348
1,863
161,960
41.353
486,215
160
167,428
362,018
10,423
17,308
12,669
Coor
Mk
477, 149
Oeoo
183, 055
290,588
23,210
8,529
24,160
1,871
31,234
116,316
251
150
Oeo stearne -
Oeostock.. ... ... .
Pam o
Peanut o
25,635
123, 491
157
Sat
Soda
Tota
1,829,106
1,869,458
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Mao.
342
II-24-3761
MS. 79
Schedue of oeomargarne produced and materas used durng the, month of
pr, 1928, as compared toth pr, 1927.
pr, 1928.
pr, 1927.
Pount.
22.989,710
Pound).
Ingredent schedue for uneoorcd oeomargarne:
22,261,431
Cottonseed o
185, 627
11,838. 107
3,900
1,856,390
6,780
6,607.980
3,300
1, 707, 630
2,8 9, M0
433, 102
107,341
84.463
2.832
443,645
2,119,840
195.572
9,886,423
1.200
2,044,399
8,949
6,064,174
5.193
2,099, 124
3,887,141
421,754
153,829
2.955
2,286
310,301
1,870,185
3,450
6,891
22
dbe taow
Mk
Mustard o
Oeo stock
Pam-kerne o - . . .
Peanut o ..
Sat
soda
7.879
19
ana etract ... . .
Tota _
28.298,481
26.961,823
Tota producton coored oeomargarne
1, 300,807
1,307,691
Ingredent schedue for coored ocomagarne:
316
445.649
1.244
156, 647
1,660
392,650
1,538
128,819
22,301
453,439
60
Coor--.
dbe taow
Mk
426 954
Mustard o.. .
I.-9,026
282,686
10,410
10,887
156,246
364,501
30.755
16,648
5,700
Pam o
2r,. coo
Pam-kerne o
644
Sat
27, 537
105, 559
207
20,995
108,368
99
Soda
Tota 1,674,366 1,703,779
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Me.
MISC LL N OUS.
II-25-3768
RUL S O PR CTIC OR T UNIT D ST T S O RD O
T PP LS. R IS D TO M Y 1, 1928.
I These rues arc promugate) pursuant to authorty of secton 907(a) of the Revenue
ct of 1024, as amended by secton 1000 of fe Revenue ct of t 2t , whch provdes n
part tac The proceedngs of the oard and ts dvsons sha be conducted In accord-
ance wth such rues of practce and procedure (other than rues of evdence) as the
oard may prescrbe and In accordance wth the rues of evdence appcabe n courts of
equty of the Dstrct of Coumba.
Rue 1. usness ours.
The offce of the oard at Washngton, D. C, w be open each busness day
from 9 o cock a. m. to 4.30 p. m.
Rue 2. dmsson to Practce.
regster w be mantaned by the oard n whch w be entered the
names of a persons entted to practce before the oard. Corporatons and
frms w not be admtted or recognzed.
The foowng casses of persons whom the oard fnds, upon consderaton of
ther appcatons, to be of good mora character and to possess the requste
quafcatons to represent others may be admtted to practce before the oard:
(a) ttorneys at aw who are admtted to practce before the Supreme Court
of the Unted States or the hghest court of any State or Terrtory or the
Dstrct of Coumba.
(6) Certfed pubc accountants duy quafed under the aw of any State or
Terrtory or the Dstrct of Coumba.
n appcaton tnder oath for admsson to practce sha be addressed to
the Unted States oard of Ta ppeas. Washngton, D. C, and must state the
name, resdence address, and busness address of the appcant, and the tme
and pace of hs admsson to the bar, or quafcaton as a certfed pubc
accountant. Such appcaton sha aso state whether the appcant has ever
been suspended or dsbarred as an attorney n any court, or hs rght to prac-
tce as a certfed pubc accountant suspended or revoked n any |ursdcton.
Such appcaton sha be accompaned by a certfcate of the cerk of the court
h whch the appcant s admtted to practce to the effect that he has been
so admtted and s n good standng: or a certfcate by the proper Sate. Terr-
tora, or Dstrct authorty to the effect that the appcant s a certfed pubc
accountant n good standng, duy quafed and entted to practce n such
State or Terrtory or the Dstrct o Coumba.
(See orm No. 1.)
The oard may, n Its dscreton, deny admsson, suspend, or dsbar any
person who, t fnds, does not possess the requste quafcatons to represent
others, or s ackng n character, ntegrty, or proper professona conduct. n
attorney or certfed pubc accountant who has been admtted to practce may
be dsbarred ony after he s afforded an opportunty to be heard.
The oard sha have the rght at any tme to requre a statement, under oath,
of the terms and crcumstances of any contract of empoyment of an attorney
or certfed pubc accountant wth the ta payer he represents.
ny ndvdua ta payer or member of a ta payer partnershp may appear
for hmsef or such partnershp upon adequate dentfcaton to the oard.
ta payer corporaton may be represented by a bona fde offcer of the corpora-
ton upon permsson granted, n Its dscreton, by the oard or the dvson
sttng.
Rue 4. I orm and Stye of Papers.
papers fed wth the oard sha be ether prnted or typewrtten, and f
typewrtten sha b on one sde of pan whte paper ony, whch sha be not
more than Y nches wde and 11 nches ong, weghng not ess than pounds
to the ream, foo base 17 by 22 nches, and fastened on the eft sde. Copes
6342 28 23
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344
sha be egbe, bat may be on any weght paper. If prnted, they sha be n
10 or 12 pont type, on good ungazed paper, 5 nches wde by ) nches ong,
wthn sde margn not ess than 1 nch wde, and wth doube-oaded te t am
|ngh:-eaded quotatons. Ctatons sha be n tacs.
Roe 5. Intaton of a Proceedng Petton.
proceedng sha be ntated by fng wth the oard a petton, as provded
n rues 6, 7. and 8. It sha contan:
(a) capton n the foowng form:
UNIT D ST T S O tD O T PP LS.
Pettoner,
Commssoner of Interna Revenue, Respondent.
Docket No.
P TITION.
(b) Proper aegatons showng |ursdcton n the oard.
(c) statement of the amount of the defcency, the nature of the ta , the
year for whch asserted, and the amount thereof (as neary us may be deter-
mned) n controversy.
(d) Cear and concse assgnments of error aeged to have been commtted
by the Commssoner. Such assgnments of error sha be numbered.
(c) cear and concse statement of the facts upon whch the pettoner
rees as sustanng the assgnments of error.
(f) prayer, settng forth reef sought by the pettoner.
(a) verfcaton by the pettoner.
(7) copy of the notce of defcency sha be appended to the petton.
The petton sha be compete n tsef so as fuy to nform the oard of the
ssues to be presented. The petton sha be sgned by the pettoner or hs
counse and sha be verfed by the pettoner. The sgnature of counse sha
be n ndvdua and not n frm name. The name and mang address of the
pettoner or of counse sha be typed or prnted mmedatey foowng the
sgnature.
The sgnature of counse and the verfcaton of the pettoner to the petton
sha be consdered the certfcate of each that there s good ground for the
petton, that the proceedng has not been nsttuted merey for deay and s
not frvoous.
(See orm No. 2.)
Rue 6. Desgnaton of Pastes.
The proceedng sha be brought n the name of the party n nterest. If an
ndvdua, the fu gven name and surname sha be set forth n the capton.
If a marred woman, her gven name sha be used. If n fducary, both the
names of the fducary and of the estate, trust, or other person for whom he
acts sha be used. In the event of a varance between the name set forth n
the defcency notce and the correct name, as used n the capton of the petton,
a statement of the reasons for such varance sha be set forth n the petton.
The orgna capton sha be paced on a papers fed.
Rue 7. ng of Petton.
n orgna and four cear copes of the petton, ether prnted or typewrtten
as provded n rue 4, sha be fed wth the oard at Washngton, D. C. The
copes of the petton sha be conformed to the orgna by the pettoner.
aure to fe a suffcent number of copes, as provded n ths rue, or to
conform to the requrements of rue 5, sha be ground for dsmssa of the
proceedng.
Rue 8. ee fob ng Petton.
fee of 10 s hereby mposed for the fng, after the enactment of the
Revenue ct of 1926, of any petton. No such petton may be fed unt such
fee s pad to the oard, nor w the fng of any petton be antedated to a
tme pror to the payment of such fee.
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Mso.
Rue 11. Docket.
Upon recept of the petton, accompaned by the tng fee provded by rue 8,
the proceedng w be docketed and assgned a number and the partes notfed
thereof. Ths number sha be paced by the partes on a papers fed there-
after n the proceedng.
Rue 12. Servce on the Commssoner.
Upon fng of a petton and the copes, as prescrbed n rue 7, the oard
w serve a copy upon the Commssoner.
The Commssoner sha not be requred to answer any petton uness and
unt he has been served wth a copy thereof as heren provded.
Servce of copy of petton on the Commssoner, or a person desgnated by
hm. sha suffce n eu of process.
Rue 14. nswer.1
fter servce upon hm of a copy of the petton, the Commssoner sha have
00 days wthn whch to fe an answer or 45 days wthn whch to move n
respect of the petton. The answer sha be su drawn as fuy and competey
to advse the pettoner and the oard of the nature of the defense. It sha
contan a specfc admsson or dena of each matera aegaton of fact con-
taned n the petton and sha set forth any new matters upon whch the
Commssoner rees for defense or affrmatve reef. ach paragraph con-
taned n the answer sha be numbered to correspond wth the paragraphs of
the petton. n orgna and four copes of the answer sha be fed, of whch
the orgna sha be sgned by the Commssoner or hs counse and the copes
conformed by hm.
Rue 15. Servce of nswer.
Upon the fng of the answer the oard w serve one copy thereof on the
pettoner or hs counse by regstered ma.
Rue 16. Servce on Counse.
Servce of any peadng, order, or notce upon the counse of record sha e
deemed servce thereof upon the party.
Rue 17. onder of Issue.
proceedng sha be deemed at ssue upon the tng of the answer, and any
new or affrmatve matter theren sha be deemed to be dened by the pettoner.
Rue 18. mended and Suppementa Peadngs.
The pettoner may, as of course, amend hs petton at any tme before
answer s fed. fter answer s fed, a petton may be amended ony by
consent of the Commssoner or on eave of the oard.
Upon moton made, the oard may. n ts dscreton, at any tme before the
concuson of the hearng, permt a party to a proceedng to amend the pead-
ngs to conform to the proofs.
Rue 19. urther and etter Statement n Peadng May be Requred.
further and better statement of the nature of the cam or defense, or of
any matter stated n any peadng, may be ordered n any proceedng.
Rue 20. tensons of Tme.
Contnuances, e tensons of tme (e cept for the fng of the petton), and
ad|ournments may be ordered by the oard on ts own moton or may be
granted by t n ts dscreton on moton of ether party fed n wrtng and
showng good and suffcent cause therefor.
1 mended May 1. 1928.
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Rue 24. Caendars.
(a) Genera caendar. proceedngs w as of course be paced upon the
genera caendar n the order n whch they are at ssue.
(6) Crcut caendar. proceedng may, n the dscreton of the oard and
upon tmey moton, be paced upon the crcut caendar for hearng outsde
Washngton.
(o) Day caendar.- -The cerk w, from tme to tme as drected by the
charman, prepare a day caendar of the proceedngs to e heard n Washng-
ton and esewhere, and cases w be paced thereon as neary as may be n the
order n whch they are at ssue.
(d) Reserve caendar. The heavng of a proceedng may be paced on the
reserve caendar for good cause shown, as. for e ampe, to awat the decson
of the Supreme Court In a case pendng.
Rue 25. Notce of earng.
When a proceedng has been paced upon the day caendar the cerk w, not
ess than 15 days In advance, notfy the partes of the pace where and the date
when t w be caed upon the day caendar.
Rue 26. earng eks.
hearng fee of 10 Is hereby mposed on every proceedng pendng before
the oard at the tme of the enactment of the Revenue ct of 1926. whch has
not been heard on the merts before such enacmcnt. Such fees sha be pad
on demand and before the hearng of any such proceedng. aure to pay such
fee sha be suffcent ground for the dsmssa of the proceedng.
Rue 27. Ca op Caendar and ssgnment fob earng.
caendar of proceedngs to be heard at Washngton w be caed at 9.30
a. m., and esewhere at 10 a. m., on the date set, and the proceedngs whch are
ready to be heard w be assgned for hearng n due course.
Rue 29. Submsson Wthout Persona ppearance.
proceedng n whch ssue has been |oned, n whch no ssue of fact s
rased, or n whch evdence of contested facts has been submtted other than
by ora hearng before the oard, or one n whch there Is a contested moton
not predcated on an ssue of fact, and both partes are not present n person or
by counse at the tme of hearng, w be regarded as submtted on the part
of the absent party or partes. refs may be fed n eu of persona appear-
ance, but the oard may, n ts dscreton, requre appearance for argument.
Whore there s a |onder of ssue on questons of fact, the provsons of ths
rue reatve to submsson wthout argument sha not reeve the party upon
whom rests the burden of proof from adducng at the hearng proper evdence
n support of the ssues. Statements u the petton, e parte affdavts, and
brefs do not consttute evdence. aure to adduce evdence n support of
facts aeged n the petton and dened by the Commssoner n hs answer w
be ground for dsmssa.
Rue I0. urden of Proof.
The burden of proof sha be upon the pettoner, e cept that n respect of any
new matter of fact peaded In hs answer, t sha be upon the respondent.
Rue 31. Dsmssa.
proceedng may be dsmssed for cause upon moton of ether party or by
the oard upon ts own moton..
Rue 32. Motons.
Motons must be tmey and, e cept durng tra, must be n wrtng, and
an orgna and four copes fed. One copy w be served upon the adverse
party. Motons w be acted upon as |ustce may requre and may, n the ds-
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Msc.
creto of the oard, be paced upon the day caendar n Washngton fur argu-
ment, and n that event both partes w be notfed thereof not ess (ban 15
days before the date so set.
The fng of a moton sha not consttute cause for postponement of a hearng
from the date set.
Rue 35. refs.
refs may be fed wthn the tme f ed by the dvson before whch the
hearng s had. If the brefs are typewrtten, an orgna and 4 copes sha be
fed: f prnted. 20 copes.
refs sha contan, n the order here stated:
(a) statement of the nature of the ta and how the proceedng comes
before the oard.
(6) concse statement, of the facts, whch shoud contan references to the
pages of the transcrpt or to the e hbts reed upon n support thereof,
(c) concse statement of the ponts upon whch the pettoner rees.
I d) The argument.
very bref of more than 20 pages sha contan on ts front fy-eaves a tabe
of contents wth page references, suppemented by a st, of a cases referred to,
aphabetcay arranged, together wth references to pages where the eases are
cted.
Re 36. Substtuton or Wthdrawa of Counse Notce of ppearance.
Counse of record sha prompty notfy the oard of hs wthdrawa as
counse for the pettoner n any proceedng pendng. Where the petton s
not subscrbed by counse, or counse has wthdrawn, counse subsequenty
appearng for the pettoner sha mmedatey fe a notce of appearance, whch
sha ncude a statement of the mang address of such counse.
Rue 37. Substtuton of Partes.
In the event of the death of a pettoner or for other cause, the oard may
order the substtuton of the proper partes. In event of mstake n the name of
tte of a proper party the oard may order substtuton of the proper name or
tte n any proceedng before the oard.
Rue 38. Stpuatons.
The partes may, by stpuaton n wrtng ted wth the oard or presented
at the hearng, agree upon any facts nvoved n the proceedng.
Rue 351. vdence.
The rues of evdence appcabe n courts of equty of the Dstrct of Coumba
sha govern the admsson fr e cuson of evdence before the oard or any of
ts dvsons.
Rue 40. Transcrpts of Proceedngs.
earngs before the oard or ts dvsons sha e stenographcay reported
and a transcrpt thereof sha be made f. n the opnon of the oard or of the
dvson hodng the hearng, a permanent record of the hearng s deemed neces-
sary. Transcrpts sha e supped to the partes and to the pubc by the
offca reporter at such rates as may be f ed by contract between the oard
and the reporter.
Rue 43. Documentary vdence. ,
(o) When books, records, papers, or documents have been receved n ev-
dence, a copy thereof or of so much thereof as may be matera or reevant may,
n the dscreton of the dvson hodng the hearng, be substtuted therefor.
(6) fter the decson of the oard In any proceedng as become fnn 1he
oard may, upon moton of ether party, permt the wthdrawa by the party
entted thereto of orgnas of books, documents, and records, and of modes,
dagrams, and other e hbts, ntroduced n evdence before the oard or any
dvson: or the oard may. on ts own moton, make such other dsposton
thereof as t deems advsabe.
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Rue 44. Subpoenas.1
(a) 17oo ssued. No subpoena w be ssued at the nstance of ether party
e cept upon wrtten appcaton tmey made.
(6) ppcaton for. The appcaton sha state the name and address of
each wtness requred, the tme and pace at whch and the person before whom
he s to appear, and whether he may desgnate some one to appear n hs pace.
(See orm No. 3.)
(0) or producton of documents. If evdence other than ora testmony s
requred, such as documents or wrtten data, the appcaton sha set forth
the specfc matter to be produced and suffcent facts to ndcate that such
matter s reasonaby necessary to estabsh the cause of acton or defense of
the appcant.
d) Servce and proof. The oard w not serve subpoenas, but w eave
servce to be procured by the party makng the appcaton. Servce may be
made by any ctzen of the Unted States over the age of 21 years and compe-
tent to be a wtness, and not a party to or n any way nterested n the
proceedng. Proof of servce may be made by affdavt.
(See orm No. 4.)
Rue 45. Depostons.
Depostons may be taken n accordance wth the foowng rues:
(a) ppcaton to take. When ether party proposes to take a deposton,
a verfed appcaton, wth two conformed copes, sha be fed wth the oard
settng forth the foowng:
(1) The name and post-offce address of the wtness whose deposton s
proposed to be taken.
(2) The sub|ect matter or matters concernng whch the wtness s to testfy,
together wth a statement of the reasons why t s desred to take the depos-
tons and why the wtness shoud not be requred to appear personay and
testfy at the hearng.
(3) The tme and pace of takng the deposton and the name, post-offce
address, and offca desgnaton of an ndvdua competent to admnster oaths
under the Revenue ct of 1926 before whom t s proposed that the deposton
sha be taken.
(See orm No. 5.)
(6) Order for. Upon recept of such appcaton, the oard w serve a
copy thereof on the opmste party, aow a reasonabe tme for ob|ecton
thereto and w, n ts dscreton make an order, copy of whch w be maed
or devered to the partes or ther counse, wheren the oard w name the
wtness whose deposton s to be taken and specfy the tme when, the pace
where, and the offcer before whom the wtness s to testfy, but such tme and
pace and the offcer before whom the deposton s to e taken, so specfed
n the oard s order, may or may not be te same as those named n the
appcaton to the oard.
(See orm No. 6.)
(c) y stpuaton. t any tme after ssue s |oned the partes or ther
counse may, by stpuaton duy sgned and fed, take depostons. In such
cases the stpuaton sha state the name and address of each wtness, the
tme when, and the pace where such de ston w be taken, and the name,
address, and offca tte of the offcer before whom t s proposed to take the
deposton. In such cases no order to take such deposton w be ssued, but
such deposton sha be taken and returned by the offcer n accordance wth
the rues of the oard.
(d) Manner of takng. ach queston propounded to the wtness must be
recorded and hs answers must be taken down n hs own words.
Ob|ectons to questons or answers sha be e pcty but brefy and con-
csey stated, but no comment, e panaton, or argument of any knd sha be
recorded nether sha there be recorded any comment, e panaton, or argu-
ment by e amnng counse. ny matter reported n voaton of ths rue may
be suffcent cause for the suppresson of the deposton.
(c) Wtnesses not named n notce. If both partes are present or repre-
sented at the tme and pace specfed In the notce, ether party may. after
the e amnaton of the wtness produced under the notce, be entted to pro-
mended Dee. 27, 1927.
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(uce and e amne other wtnesses but n such case one day s notce must be
gven to the adverse party or hs attorney there present, uness such notce s
waved.
Rue 46. Genera Provsons as to Depostons.
(a) Other otnes.tes to be e cuded, t the request of ether party a person
whom ether e pects or ntends to ca as wtness n the same cast or n any
kndred case sha be e cuded from the room where the testmony of a wtness
s beng taken. If such )erson remans n the room or wthn hearng of the
e umnatou after such request has been made, he sha not thereafter e
admtted t testfy n the case or any kndred case e cept by the consent of the
party who requested hs e cuson.
(6) Of the oath. Wtnesses must be sworn or affrmed before any questons
are put to them.
(c) Depostons to be sgned. The testmony of the wtness when transcrbed
sha be read over to or by hm and be sgned by hm.
( ) What return must show. In hs return the offcer must show that the
wtness was propery sworn or affrmed and that the questons and answers
were taken down n hs presence.
(See orm No. 6.)
(e) Sheets to be attached. The offcer must so fasten the sheets of the
deposton that they can not be tampered wth. e must spare no pans to
return to the oard the e act evdence he has taken. e hbts must be care-
fuy marked so as to he capabe of dentfcaton and when practcabe must be
attached to the deposton.
(/) Capton. The offcer must state n the capton of the deposton the
cause n whch t was taken, the pace and date of takng, the name of the
wtness, the party by whom caed, and the names of partes and counse present,
and the body of the deposton must aso show by whom the wtness was
e amned and cross-e amned.
(g) uafcaton of offcer. In no case sha a deposton be taken before any
person who has any offce connecton or busness empoyment wth the ta -
payer or hs attorney e cept by consent of pares and when no other offcer
s avaabe, and n hs certfcate to such deposton such offcer sha so certfy.
( ) Return of. The offcer must ncose the orgna depostons and e hbts,
together wth two copes of the depostons, n a seaed packet, wth postage
or charges prepad, and drect and ma or e press the same to the I nted
States oard of Ta ppeas. Washngton. 1). ( . In each case the orgna
of the depostons must be drected and maed or e pressed to the oard. The
offcer may. upon wrtten request, dever a copy of the depostons to ether or
to both of the partes or to ther representatves, n eu of sendng such copes
to the oard as above provded. If one or both of the requred copes are
devered by the offcer takng the depostons, he sha attach to hs return the
wrtten request of the party or partes, or of ther counse to whom such copy
or copes were devered, and sha state n hs certfcate of return the fact
of devery by hm of such copy or copes. If copes of the depostons are
devered by the offcer takng the same, no servce of copes of such depostons
upon the party or hs counse of record w be made by the oard.
(/) Lmtaton on tme for appcaton to take. ppcatons to take depos-
tons must be fed at east 30 days pror to the date set for the hearng of
the proceedng, and such depostons must be competed and ted wth the
oard at east 10 days pror to the hearng: Provded, Such appcatons w
not be regarded as suffcent ground for the grantng of a contnuance from
the date or pace of the hearng theretofore set. uness the proceedng sha
have been at ssue ess than 60 days and the moton for contnuance sha have
een fed not ess than 20 days pror to sad date of hearng: Provded further.
That under speca crcumstances, and for good cause shown, the oard may
otherwse order.
Rue 47. Depostons on rtten Interrogatores.
Depostons may be taken n the dscreton of the oard on wrtten nter-
rogatores n substantay the same manner as provded n rues 45 and 46 for
depostons on ora e amnatons. The nterrogatores must be ted wth the
mended ug. 1, 1927.
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appcatons n trpcate and a copy thereof w be served upon, or maed to,
the opposte party by the oard. Wthn 10 days after such notce such oppo-
ste party may fe wth the oard hs ob|ectons, f any, to such nterrogatores,
together wth any cross-nterrogatores he desres to propose. If he fe cross-
nterrogatores, they sha be fed wtt the oard In trpcate and one copy
thereof w be forwarded to the opposte party, or hs counse, who sha wthn
10 days thereafter fe hs ob|ectons, f any, to such cross-nterrogatores. No
ob|ectons to the nterrogatores or cross-nterrogatores w be consdered at
the hearng uness taken before the order for the takng of the deposton ssues.
When a deposton s taken upon wrtten nterrogatores and cross-nterroga-
tores nether the counse for the ta payer nor for the Commssoner, nor any
person other than the wtness, a stenographc reporter, and the offcer takng
the deposton sha be present at the e amnaton of the wtness, whch fact
sha be certfed by the offcer takng the deposton, who sha n such case
propound the nterrogatores and cross-nterrogatores to the wtness n ther
order and reduce the testmony to wrtng n the wtness s own words.
Depostons obtaned n foregn countres must be taken on wrtten nter-
rogatores.
Rue 50. Settement of na Determnaton.1
When the oard determnes the ssues n any proceedng and wthhods fna
decson of the defcency or overpayment for ater computaton, the partes
sha, f they are n agreement as to the amount of the defcency or overpay-
ment, n accordance wth the determnaton of the oard, fe wth the oard
an orgna and four copes of a computaton showng the amount for entry of
fna decson forthwth. If the partes are not n agreement as to the amount
to be entered n the fna decson, ether of them may fe wth the oard a
computaton of the defcency or overpayment beeved by hm to be n accord-
ance wth the determnaton of the oard. The cerk w serve a copy thereof
upon the opposte party and w thereupon pace the matter upon the day
caendar for hearng n due course and gve the usua notce. If the opposte
party fas to fe ob|ecton, accompaned by an aternatve computaton, wthn
5 days pror to the date of such hearng, or any contnuance thereof, the
defcency or overpayment shown n the computaton aready submtted sha
be taken to be correct and decson thereon w be entered. If the partes
submt dfferent computatons and amounts, they w be afforded an oppor-
tunty to Ik- heard thereon on the date f ed, and the oard w determne the
correct defcency or overpayment and enter fna decson.
ny hearng under ths rue w be confned .strcty to the consderaton
of the correct computaton of the defcency or overpayment resutng from the
determnaton aready made, and no argument w be heard upon or consder-
aton gven to the ssues or matters aready dsposed of by such determnaton
or of any new ssues. Ths rue s not to be regarded as affordng an oppor-
tunty for rehearng or reconsderaton.
Rue 51. Costs Prep aba tton of Record on Revew.
It sha be the duty of the cerk, mmedatey after the contents of a record
on revew have been setted or agreed to, to notfy the pettoner of the costs
and charges for the preparaton, comparson, and certfcaton of sad record
such charges to be determned n accordance wth the provsons of an ct of
Congress entted n ct to provde fees to be charged by cerks of the dstrct
courts of the Unted States, approved ebruary 11, 1925 (13 Sat., 857-S5S).
No transcrpt w be certfed and transmtted to the appeate court unt the
costs and charges therefor have been pad to the oard.
Rue 52. Costs Prntng of Record on Revew.
In each proceedng for revew of a decson of the oard by the Unted
States Crcut Court of ppeas for the Second Crcut when revew s sought
by the Commssoner of Interna Revenue, the cerk of the oard sha, Imme-
datey after the contents of the record on revew, as requred by rue 35 of the
mended pr. 28, 1928. dopted uy 2, 1927. dopted Dec. 6, 1927.
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court, have been setted or agreed upon, make avaabe to the Commssoner,
or hs counse, the record of the oard In the proceedng. The Commssoner
sha cause the record to be prnted. S teen copes of the prnted record sha
be devered to the cerk of ths oard for certfcaton and fng wth the cerk
of the crcut court of appeas. The cerk of the oard sha serve fve copes
of the prnted record upon counse for the ta payer by regstered ma.
Rue 60. ees and Meage.
The foowng s from the Revenue ct of 1926:
Sec. 909. (a) ny wtness summoned or whose deposton s taken under
secton 908 sha receve the same fees and meage as wtnesses n courts of
the Unted States. Such fees and meage and the e penses of takng any such
deposton sha be pad as foows:
(1) In the case of wtnesses for the Commssoner, such payments sha be
made by the Secretary out of any moneys approprated for the coecton of
nterna-revenue ta es, and may be made n advance.
(2) In the case of any other wtnesses, such payments sha be made, sub|ect
to rues prescrbed by the oard, by the party at whose nstance the wtness
appears or the deposton s taken.
(b) Ths secton sha take effect as of une 2, 1924, n the case of fees,
meage, or e penses accrued pror to, but remanng unpad at the tme of, the
enactment of the Revenue ct of 1926.
No wtness, other than one for the Commssoner, sha be requred to testfy
n any proceedng before ths oard unt he sha have been tendered the fees
and meage to whch he s entted n accordance wth the above provson
of aw.
Rue 61. Computaton of Tme Sundays and odays.
When the tme prescrbed by those rues for dong any act e pres on a
Sunday or a ega hoday n the Dstrct of Coumba, such tme sha e tend
to and ncude the ne t succeedng day that s not a Sunday or such a ega
hoday: Provded, That when the tme for performng any act s prescrbed by
statute nothng n these rues sha be deemed to be a mtaton or e tenson of
the statutory tme f ed.
The foowng-named days are ega hodays wthn the Dstrct of Coumba:
New Year s Day, anuary 1 (sec. 993, Revsed Stat., reatng to D. C).
Washngton s rthday, ebruary 22 ( ct of an. 31, 1879).
Inauguraton Day, every fourth year ( ct of une 18, 18S8).
Decoraton Day, May 30 ( ct of ug. 1. 1888).
ourth of uy (sec. 993, Revsed Stat., reatng to D. C).
Labor Day. frst Monday In September ( ct of une 28, 1894).
Thanksgvng Day. day procamed by Presdent (sec. 993, Revsed Stat.,
reatng to D. C).
Chrstmas Day. December 25 (sec. 993, Revsed Stat., reatng to D. C).
When ega hodays fa on Sunday the ne t day sha be a hoday ( ct of
Dec. 20, 1881).
Rue 62. Speca ssessment.1
(a) If some of the ssues rased by the petton nvove secton 327 or secton
328 of the Revenue ct of 1918 or of 1921 (or secton 210 of the Revenue ct
of 1917, as the case may be), and some do not nvove such sectons, the
hearng may, |n the dscreton of the oard, on moton, be mted n the frst
nstance to tra of the ssues whch do not nvove such sectons.
(6) fter decson on such other ssues, or f no such other ssues are rased
by the peadngs, a hearng may, n the dscreton of the oard, on moton, be
had. mted to the tra of the ssue whether the pettoner s entted to have
ts ta determned as provded n secton 328 (or secton 210, as the case
may be).
(c) If the oard decdes that the pettoner s entted to have ts ta
detennned as provded n secton 328 (or secton 210. as the case may be),
the respondent sha wthn 60 days after such decson fe wth the oard an
orgna and four copes of a proposed redetermnaton showng the bass and
1 dopted Dec. 28. 1927.
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method of the computaton. If, wthn 20 days after servce by the oard
upon the pettoner of a copy of such proposed redetermnaton, the partes are
unabe to agree upon the amount of ta , ether party may move, or the oard
may upon ts own moton order, that the case be paced upon the day caendar
for further hearng, at whch ether party may submt proof of the correct
amount of ta and defcency or overpayment.
d) If from the peadngs or otherwse t appears of record before the oard
that the partes agree that pettoner s entted to have ts ta determned us
provded n secton 328 (or .secton 210, as the case may be), and the ony ssue
s as to the correct amount of the ta so determned, the case w be paced
upon the day caendar n due course for hearng, at whch ether party may
submt proof of the correct amount of the ta and defcency or overpayment.
PP NDI .
ORMS.
These forms are sub|ect to amendment as crcumstances may render necessary.
No. 1. ppcaton for admsson to practce.
No. 2. Petton.
No. 3. ppcaton for subpoena.
No. 4. Subpoena.
No. 5. ppcaton for order to take depostons.
No. 0. Order to take depostons and certfcate on return.
(Note. Read rue 4 of the rues of practce of the oard and carefuy
observe the requrements thereof as to form, sze, and stye of papers.)
No. 1. PPLIC TION OI DMISSION TO PR CTIC .
(See rue 2.)
Unted States oard of Ta ppeas.
appcaton for admsson to practce.
I. , hereby appy for admsson to prac-
tce ef ore the Unted States oard of Ta ppeas, and submt the foowng:
1. I resde at ,
(Street number.) (Cty.)
(County.) (State.)
2. My offce address s ,
(Street number.) (Cty.)
(County.) (State.)
3. I was admtted to the bar of the _ Court of the
( nter name of hghest court.)
State of , on the day of 192__,
and have never been suspended or dsbarred from practce before sad court or
any court of any State or the Unted States, e cept as foows: __,
4. I am a member (or assocate) of the frm
5. I am a member of
(State membershp n professona socetes.)
Certfed Pubc ccountants w use the foowng:
I was ssued a certfcate and authorzed to practce as a certfed pubc
accountant by the of the State of
(Gve name (f board or commsson.)
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353 Msc.
on the day of , 192__, and such certfcate has never been
revoked nor have I been suspended from practce, e cept as foows:
I am a member of
(State names of accountants socetes to whch you beong.)
and have never been suspended or e peed from any such socety or any other
recognzed socety of certfed pubc accountants, e cept as foows:
(Name of appcant.)
State of
County of.
, beng frst duy sworn, says that he s the
person named n the foregong appcaton for admsson to practce before the
Unted States oard of Ta ppeas and that the statements of fact theren
contaned are true.
(Sgnature of appcant.)
Subscrbed and sworn to before me ths day of , 192..
C RTI IC T .
I,
(State whether cerk of court or secretary of State board or commsson of accountancy.)
hereby certfy that , the appcant for ad-
msson to practce before the Unted States oard of Ta ppeas, s duy
admtted to practce as by the
(State whether attorney or C. P. .)
of the State of
(State name of court or State board or commsson of accountancy.) and that he s now n good standng as such
(State whether attorney or C. P. .)
(Cerk of court or secretary of State
board or commsson of accountancy.)
Dated , 192...
sea,.
No. 2. P TITION.
(See rues 4, 5, 6, 7, and 8.)
Unted States oard op Ta ppeas.
, Pettoner,
v. Docket No.
Commssoner of Interna Revenue, Respondent.
The above-named pettoner hereby pettons for a redetermnaton of the
defcency set forth by the Commssoner of Interna Revenue n hs notce of
defcency ( ureau symbos) dated , 192.., and as a bass
of hs proceedng aeges as foows:
1. The pettoner s (set forth whether ndvdua, corporaton, fducary, etc.,
as provded n rue 6) wth prncpa offce (or resdence) at _
(Street.)
(Cty.) (State.)
2. The notce of defcency (a copy of whch s attached and marked hbt )
maed to the pettoner on , 192...
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354
3. The ta es n controversy are (ncome, profts, estate, or gft) ta es for the
(caendar or fsca) year 19 and for doars (state as e acty
as possbe the amount n dspute).
4. The determnaton of ta set forth n the sad notce of defcency s based
upon the foowng errors: ( numerate specfcay the assgnments of error n a
concse manner and avod peadng facts whch propery beong n the succeedng
paragraph.)
5. The facts upon whch the pettoner rees as the bass of ths proceedng
are as foows: ( ere set forth aegatons of the facts reed upon but not the
evdence n ordery and ogca sequence, wth subparagraphs ettered, so as
fuy to nform the oard of the ssues to be presented and to enabe the Com-
mssoner to admt or deny each specfc aegaton.)
Wherefore, the pettoner prays that ths oard may hear the proceedng and
(here state the reef desred).
Counse for Pettoner,
(Post-offce address.)
State of 1
County of
, beng duy sworn, says that he s the pet-
toner (f a corporaton, or fducary, state tte of offce or trust of person ver-
fyng and that he s duy authorzed to verfy the foregong petton) above
named that he has read the foregong petton, or had the same read to hm,
and s famar wth the statements contaned theren, and that the facts stated
are true, e cept as to those facts stated to be upon nformaton and beef, and
those facts he beeves to be true.
Subscrbed and sworn to before me ths .
day of , 192...
Docket No.
No. 3. PPLIC TION OR SU PC N .
(See rue 44.)
Unted States oard of Ta ppeas.
, Pettoner.
v.
Commssoner of Interna Retenue, Respondent.
PPLIC TION OR SU PO.N .
To the Unted Mates oard nf Ta ppeas:
ppcaton s hereby made for the ssuance of a subpoena for the attendance
before
(The Unted States oard of Ta ppeas, or the name
and offca tte of the person authorzed o take depostons.)
at of the foowng persons whose ora test-
mony s desred on behaf of n the matter of
(Pettoner or respondent.)
the ta abty of the above-named pettoner now pendng on appea:
N M . DDR SS.
Detas requred under rue 44:
Dated
, 192._
(Sgned)
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355
Mne.
No. 4 SU Pt N .
(See rue 44.)
Unted States oard of Ta ppeas.
, Pettoner,
v. Docket No.
Commssoner of Interna Revenue, Respondent.
STT PC N .
The Presdent of the Unted States of merca:
To Greetng.
You are hereby commanded under penaty of aw to be and appear n your
proper person before the
(Unted States oard of Ta ppeas
or the name and offca tte of the person authorzed to take depostons.)
at on the day of , 192. _,
at o cock m., then and there to testfy on behaf of
n the matter of the ta abty of
(Pettoner or respondent.)
now pendng before thn oard.
You are requred to brng wth you the foowng, to wt:
y order of the Unted States oard of Ta ppeas, ths day
of . . , 192...
sea.
(Member.)
PROO O S R IC .
State of 1
County of
, beng frst and duy worn, says: I am a
ctzen of the Unted States of merca, over the age of 21 years, and not a
party to or n any way nterested n the proceedng n whch ths subpoena was
ssued.
That on the day of , 192.., I served the anne ed
subpoena on the foowng wtnesses named theren at the paces set opposte
ther respectve names, by deverng to and eavng wth each of them per-
sonay a copy of sad subpoena and at the same tme e hbtng to each of them
ths orgna:
name. pace of servce.
( or wtnesses subpoenaed on behaf of pettoner.)
That at the tme of such servce I tendered to each of sad wtnesses the sum
of , the same beng the fees and meage requred by rue CO of
the rues of practce of the oard.
Subscrbed and sworn to before me ths day of , 192..
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No. S. PPLIC TION OR ORD R TO T D POSITIONS.
(See rues 45, 46, and 47.)
Unted States oard of Ta ppeas. , Pettoner,
v.
Commssoner of Interna Revenue, Respondent.
Docket No.
appcaton for order to takf, depostons.
To the Unted States oard of Ta ppeas:
1. ppcaton s hereby made by the above-named
(Pettoner or respondent.)
for an order to take the deposton-_ of the foowng-named person.-:
N M O WITN SS. POST-O IC DDR SS.
fa)
(b)
(c)
(d)
2. It s desred to take the depostons of the persons above named and each
of them for the foowng reasons:
(a) w testfy to the foowng matera
matters:
(Set forth brefy the matter upon whch sad wtness w te caed to testfy.)
(b) w testfy to the foowng matera
matters:
(c) w testfy to the foowng matera
matters: ..
(d) w testfy to the foowng matera
matters:
3. The reasons why desres to take the
(Pettoner or respondent.)
testmony of the above-named persons rather than have them appear personay
and testfy before the oard are as foows: (State specfcay reasons for each
wtness for whom subpoena s requred.)
4. It s desred to take the testmony of
(Names of wtnesses.)
on the day of , 192.at the hour of o cock m.
( date suffcenty n advance of the day sot for hearng of the proceedngs o enabe the deposton to be
competed and fed wth the oard at east 10days pror to the hearng.)
before n the Cty of
(State name and tte of offca.)
State of at Room
(Gve number of room, street number, and name
of budng.)
5. That _ s a
(Name of offca before whom depostons are to be taken.)
, who has no offce connecton or busness empoy-
(fve offca tte.)
ment. wth the pettoner or hs counse.
Dated , 192...
Counse for Pettoner.
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Msc.
State or 1
County of /
, beng duy sworn, says that the foregong
(Pettoner or counse.)
appcaton for order to take depostons s made n good fath and for the reasons
theren stated and that the same s not made for purposes of deay.
Subscrbed and sworn to before me ths day of , 192_
No. 6. ORD R TO T D POSITIONS.
(Sec rue 45.)
Unted States oard of Ta ppeas.
, Pettoner,
v. Docket No.
Commssoner of Interna Revenue, Respondent.
ORD R TO T D POSITIONS.
On consderaton of the appcaton of to take
(Pettoner or respondent.)
the testmony by deposton of
(Names of wtnesses.)
resdng at , aeged to be matera wtnesses
n ths proceedng, at
(Room number, street number, and pace.)
on the day of , 192__,
at o cock m., and t appearng therefrom that.
a of s a person
(Offca tte.) ( ddress.)
authorzed to admnster oaths under the Revenue ct of 1926, t s by the
oard:
Ordered, That the depostons of t he sad wtnesses above named be taken
at
( oom number, street number, and pace.)
commencng on the day of , 192.
at o cock . . m.
nd t s further Ordered, That the sad depostons be taken before
of , a
(Offca tte.)
who s hereby desgnated by the oard for that purpose.
The sad depostons sha be taken and the same returned to ths oard n
accordance wth the rues of the oard.
(Member, Unted States oard of Ta ppeas.)
Dated ., 192...
sea.
certfcate on return.
(See rue 46.)
I, , the person named n the foregong
order to take depostons, hereby certfy:
1. I proceeded, on the day of , . D. 192.., at
the offce of , n the cty of ,
State of , at o cock, m., under the sad
order and n the presence of and
, the counse of the respectve partes, to take the foow-
ng depostons, vz:
, a wtness produced on
behaf of the
(Pettoner or respondent.)
,a wtness produced on
behaf of the
(Pettoner or respondent.)
, a wtness produced on
behaf of the .
(Pettoner or respondent.)
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358
That sad wtness were e amned under oath at such tmes and paces as
condtons of ad|ournment requred, and that the testmony of sad wtness
(or ther answers to the nterrogatores fed) was taken stenographcay and
reduced to typewrtng by me or under my drecton.
2. I further certfy that after the sad testmony of sad wtness was
reduced to wrtng the transcrpt of the testmony was read and sgned by sad
wtness n my presence, and that acknowedged
( ach of them or he.)
before me that sad testmony was n a respects truy and correcty transcrbed.
3. I further certfy that, after the sgnng of the deposton n my presence,
no ateratons or changes were made theren.
4. I have no offce connecton or busness empoyment wth the pettoner or
hs attorney e cept that of , ob|ecton to whch was waved
(State connecton.)
by both the partes to the proceedng.
S . L. (Sgnature of person takng deposton.)
(Offca tte.)
(Note. Ths Certfcate on Return, when propery e ecuted, and aso the
Order to Take Depostons, shoud be attached to and bound wth the transcrpt,
precedng the frst page thereof. It shoud then be ncosed n a seaed enveope
and addressed to Unted States oard of Ta ppeas, are udng, Washng-
ton, D. C. See rues 45 and 46 of the rues of practce and procedure of the
oard as to specfc requrements for takng depostons.
TI-3-3580
December 27. 19-27.
The oard of Ta ppeas announces the promugaton of the
foowng rue 44. effectve mmedatey:
t I. 44. SC PIIN S
(a) No subpoena w be ssued at the nstance of ether party e cept upon
wrtten appcaton tmey made.
b) The appcaton sha state the name and address of each wtness
requred, the tme and pace at whch he s to appear, and efore whom, and
whether he may desgnate some one to appear n hs pace.
(c) If evdence other than ora testmony s requred, such as documents or
wrtten data, the appcaton sha set forth the specfc matter to he produced
and suffcent facts to ndcate that such matter s reasonaby necessary to
estabsh I he cause of acton or defense of the appcant.
Id The oard w not serve subptenas. but w eave servce to be pro-
cured by the party makng the appcaton. Servce may he made by any
ctzen of the Unted States over the age of 21 years and competent to be a
wtness, and not a party to or n any way nterested n the proceedng. Proof
of servce may he made by affdavt.
Ths supersedes rue 44, appearng n the pr 1, 1927. ssue of the
oard s rues of practce.
II-3-3581
December 28. 1927.
The oard of Ta ppeas announces the promugaton of the
foowng rue 62. effectve mmedatey:
Ruk 02. Spwa. ssessment.
(a) If some of the ssues rased by the petton nvove secton 327 or sec-
ton 32S of the Revenue c of I fS or of 11)21 (or secton 210 of the Revenue
ct of 1SI17. as the case may be), and some do not nvove such sectons, the
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Msc.
hearng may, n the dscreton of the oard, on moton, be mted In the frst
nstance to tra of the ssues whch do not nvove such sectons.
(b) If after decson on such other ssues, or f no such other ssues are
rased by the peadngs, a hearng may, n the dscreton of the oard, on moton,
be had, mted to the tra of the ssue whether the pettoner s entted to
have ts ta determned as provded n secton 328 (or secton 210, as the case
may be).
(c) If the oard decdes that the pettoner s entted to have ts ta
determned as provded n secton 328 (or secton 210, as the case may be), the
respondent sha wthn 60 days after such decson fe wth the oard an
orgna and four copes of a proposed redetermnaton showng the bass and
method of the computaton. If, wthn 20 days after servce by the oard
upon the pettoner of a copy of such proposed redetermnaton, the partes are
unabe to agree upon the amount of ta , ether party may move, or the oard
may upon ts own moton order, that the case be paced upon the day caendar
for further hearng, at whch ether party may submt proof of the correct
amount of ta and defcency or overpayment.
(d) If from the peadngs or otherwse t appears of record before the oard
that the partes agree that pettoner s entted to have ts ta determned as
provded n secton 328 (or secton 210, as the case may be) and the ony ssue
s as to the correct amount of the ta so determned, the case w be paced
upon the day caendar n due course for hearng, at whch ether party may
submt proof of the correct amount of the ta and defcency or overpayment.
II-19-3714
May 1, 1928.
The oard of Ta ppeas announces the promugaton of an
amendment to rue 14, effectve mmedatey.
Rue 14. nswer.
fter servce upon hm of a copy of the petton, the Commssoner sha have
60 days wthn whch to fe an answer or 45 days wthn whch to move n
respect of the petton. The answer sha be so drawn as fuy and competey
to advse the pettoner and the oard of the nature of the defense. It sha
contan a specfc admsson or dena of each matera aegaton of fact con-
taned n the petton and sha set forth any new matters upon whch the
Commssoner rees for defense or affrmatve reef. ach paragraph con-
taned n the answer sha be numbered to correspond wth the paragraphs of
the petton. n orgna and four copes of the answer sha be fed, of
whch the orgna sha be sgned by the Commssoner or hs counse and the
copes conformed by hm.
II-19-3715
pr 28, 1928.
The oard of Ta ppeas announces the promugaton of an
amended rue 50, effectve mmedatey.
Rue 50. Settement of na Determnaton.
When the oard determnes the ssues n any proceedng and wthhods fna
decson of the defcency or overpayment for ater computaton, the partea
sha, If they are n agreement as to the- amount of the defcency or overpay-
ment, n accordance wth the determnaton of the oard, fe wth the oard
an orgna and four copes of a computaton showng the amount for entry of
fna decson forthwth. If the partes are not n agreement as to the amount
to be entered n the fna decson, ether of them may fe wth the oard a
computaton of the defcency or overpayment beeved by hm to be In accord-
ance wth the determnaton of the oard. The cerk w serve a copy thereof
6342 28 24
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360
upon the opposte party and w thereupon pace the matter upon the day
caendar for hearng n due course and gve the usua notce. If the opposte
party fas to fe ob|ecton, accompaned by an aternatve computaton, wthn
fve days pror to the date of such hearng, or any contnuance thereof, the
defcency or overpayment shown n the computaton aready submtted sha
be taken to be correct and decson thereon w be entered. If the partes
submt dfferent computatons and amounts, they w be afforded an oppor-
tunty to be heard thereon on the date f ed, and the oard w determne the
correct defcency or overpayment and enter fna decson.
ny hearng under ths rue w be confned strcty to the consderaton of
the correct computaton of the defcency or overpayment resutng from the
determnaton aready made, and no argument w be heard upon or consd-
eraton gven to the ssues or matters aready dsposed of by such determna-
ton or of any new ssues. Ths rue s not to be regarded as affordng an
opportunty for rehearng or reconsderaton.
II-23-3747
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, May 16,1928.
Coectors of Interned Revenue, Interna Revenue gents n Charge,
Genera Counse, Deputy Commssoners, eads of Dvsons, and
Others Concerned:
ffectve May 16, 1928, Mr. arrs . Mres, ssstant to the Com-
mssoner, w assume drect charge of the ccounts and Coectons
Unt.
D. . ar, Commssoner.
II-23-3748
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, May 26,1928.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Supervsors of ccounts and Coectons, Genera Counse, Deputy
Commssoners, eads of Dvsons, and Ot/ers Concerned:
Reference s made to Commssoner s crcuar dated May 16, 1928
above , ndcatng that effectve May 10, 1928, Mr. arrs . Mres,
ssstant to the Commssoner, woud assume drect charge of the
ccounts and Coectons Unt.
In preparng correspondence ntended for the ccounts and Co-
ectons Unt, such communcatons shoud be addressed to:
Mr. . . Mres,
ssstant to the Commssoner,
ttenton ccounts and Coectons Unt.
D. . ar, Conumssoner.
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Msc.
II-22-3737
Mn. 3633
Symbos for use n correspondence.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, May 18, 1928.
Deputy Commssoners and eads of Dvsons, ureau of Interna
Revenue, Coectors of Interna Revenue, Interna Revenue gents
n Charge, and Others Concerned:
The foowng drectons supersede those contaned n Comms-
soner s Mmeograph, Coector s No. 3491 C. . -2. 291 ,
and a other nstructons n confct therewth. so secton 00,
Part I, of the Interna Revenue Manua s amended to conform to
the foowng:
very etter prepared n the ureau n Washngton w bear n
the upper eft-hand corner of the frst page, and mmedatey beow
the nstructons ddress repy to, etc., a symbo that w ndcate
the offce of orgn: Provded, That ths practce w not appy to
congressona correspondence, nor to etters prepared for sgnature
by other than offcas of ths ureau.
very etter addressed to the ureau by a fed offce, f t be n
repy to a communcaton from the ureau, w bear, mmedatey
above the body of the etter and near the center of the sheet, the sym-
bo that appears n the communcaton that s beng answered thus:
ttenton: IT: R: 3: ST . If the etter be, not n repy to a
ureau communcaton, the symbo of the unt, dvson, or secton
n the ureau concerned w be ndcated n the same manner, pro-
vded there s no queston as to the proper symbo f any doubt
e sts, no symbo whatever o be used.
Where a fed offce uses a system of symbos n conductng ts cor-
respondence, the symbo used n ths connecton w be paced n
the upper eft-hand corner of the frst sheet of each etter addressed
to the ureau |ust beow the nstructons In repy refer to. The
ureau etter, f any, repyng to such communcaton w show the
fed offce symbo above the body of the etter n the same manner
as s prescrbed n the ne t precedng paragraph.
nveopes wth prnted or typewrtten address w be used by fed
offces n transmttng ma to the ureau, rather than wndow enve-
opes. so, every such enveope or wrapper w bear, n the ower
eft-hand corner of the face thereof, the same symbo that s quoted
n the communcaton whch t ncoses. There s no ob|ecton to for-
wardng n one enveop a number of communcatons ntended for
the same unt or dvson of the ureau n fact, ths s desrabe.
Under no crcumstances, however, shoud correspondence pertanng
to the work of one unt be ncosed n an enveope addressed to
another unt.
Informaton whch w assst the fed offcer to determne the dest-
naton of correspondence that s not n repy to ureau etters may
be obtaned by drectng an nqury to the dmnstratve Dvson,
Communcaton Secton.
Ony one sub|ect w be treated n any one etter.
The foowng represents the organzaton and symbos used:
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Offce of Commssoner.
d dmnstratve Dvson.
d-C Communcaton Secton.
d-P Prntng and ndng Secton.
d-SL Space and Lease Secton.
d-S Suppes and qupment Secton.
P ppontment Dvson.
S Speca dvsory Commttee.
ccounts and Coectons Unt.
C : DC Deputy Commssoner.
C: D Dsbursement ccountng Dvson.
C : Co Coecton ccountng Dvson.
C : P S Personne, qupment, and Space Dvson.
Offce of the Geneka Counse.
GC: I: I Interpretatve Dvson No. 1.
GC : I: II Interpretatve Dvson No. 2.
GC: P Pena Dvson.
GC : p ppeas Dvson.
GC:C Cv Dvson.
GC : OC Compromse Secton.
GC : dm dmnstratve Dvson.
Ma and Record Secton.
Lbrary and Manuscrpt Secton.
Income Ta Unt.
IT: Deputy Commssoner.
ssstant Deputy Commssoner.
IT: : P Personne Secton.
IT: : RR Rues and Reguatons Secton.
IT: : Sr Servce Secton.
IT: : | Speca d|ustment Secton.
IT: : ed Procedure Dvson.
UDIT R I W DI ISION.
IT : R ead of Dvson.
IT: R: SM Speca ssessment Secton.
IT: R: Secton .
IT: R : Secton .
IT: R: C Secton C.
IT: R: D Secton D.
IT: R: Secton .
IT: R: G Secton G.
IT: R: RR Raroad Secton.
IT: R: n ngneerng Secton.
CL RING DI ISION.
IT: C ead of Dvson.
IT: C: CC Cams Contro Secton.
IT: C : Pr Premnary udt Secton.
IT: C: P Provng Secton.
IT: C: St Statstca Secton.
R CORDS DI ISION.
IT : R ead of Dvson.
IT: R : es Secton.
IT: R: S Sortng Secton.
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363
Mao.
INT LLIG NC UNIT.
SI Chef, Integence Unt.
MISC LL N OUS T UNIT.
MT: DC Deputy Commssoner.
MT: T state Ta Dvson.
MT: T:GT Gft Ta Secton.
T : M Msceaneous Dvson.
MT: T Tobacco Dvson.
. . Mres, ctng Commssoner.
II-20-3723
. . 7224. PU LIC, No. 229, S NTI T CONGR SS.
n ct to e tend the tme for the refundng of certan egacy
ta es erroneousy coected.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That cams for
the refundng of any egacy ta es erroneousy or egay assessed
or coected under the provson of secton 29 of the ct or Congress
approved une 13, 1898 (37 Stat. L., 240), may be presented to the
Commssoner of Interna Revenue not ater than s months after
the passage of ths ct and the Commssoner of Interna Revenue s
hereby authorzed and drected to receve, consder, and determne,
n accordance wth aw but wthout regard to any statute of mta-
tons, such cams as may have been presented heretofore and not
aowed and such cams as may be presented wthn the perod above
named, where and when and ony when t be found and determned
that such ta es were coected upon the erroneous nterpretaton of
the aw passed upon and condemned by the Unted States Supreme
Court n decsons rendered n the case of Unted States aganst
ones, admnstrator, and n the case of McCoach, coector, aganst
Pratt, both reported n the Two hundred and thrty-s th Unted
States Reports: Provded, That no nterest sha be aowed on any
of these cams.
Sec. 2. That the Secretary of the Treasury s hereby authorzed
and drected to pay, out of any money n the Treasury not otherwse
approprated, to such camants as have presented or sha hereafter
so present ther cams, any amounts aowed n the determnaton of
any cams so defned and whch sha have been presented n
accordance wth ths ct.
pproved March 30, 1928.
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364
1 II-26-3784
Dsbarments and suspensons from practce before Treasury Department of
attorneys and agents
DIS RM NTS.
Tho Secretary of the Treasury, after due notce and opportunty
for hearng, and upon the recommendaton of the Commttee on
nroment and Dsbarment, has approved the dsbarment from
further practce before the Treasury Department of the foowng-
named attorneys and agents:
Date of
dsbarment.
Cause.
erkey, ohn O..
Washngton, D. C
enomann, Water .
Cfford, ames
Conn, arry ..
Dec. 6,1027 I Charged wth nukng a fase fnanca state-
ment of tho assets and abtes of a corpora-
ton, showng that such corporaton possessed
assets of arge vaue, and certfyng that sad
statement was true and correct, when In fact
such corporaton had practcay no assets
that such fnanca statement was used to In-
duce persons to purchase stock n such cor-
poraton, to the oss of such persons. Charges
found proven by the commttee.
Mar. 22,1927 Charged wth embezzng a confdenta report,
the property of the Unted States, whe em-
poyed as an accountant by the Department
of ustce, and defauted for faure to fe
answer to such charges, as requred by the
rues, and charges found proven by the com-
mttee by reason of such defaut.
Mar. 19,1927 Charged wth havng entered nto a conspracy
to defraud a ta payer and defauted for faure
to fe answer to such charge, as requred by
the rues, and charges found proven by com-
mttee.
Nov. 5,1927 Charged wth havng been convcted of grand
arceny, defauted for faure to fe answer,
and charges found proven by the commttee.
Mar. 27,1928 Charged that he practced before the Treasury
Department for and on behaf of an account-
ng corporaton and that such corporaton
socted empoyment n edera ta matters
by addressng and mang etters to edera
ta payers. Respondent faed to fe answer
to the compant and was defauted. Charges
found proven by the commttee.
Mar. 31,1928 Charged wth soctng empoyment n a ed-
era ta case n whch he ganed knowedge
of the facts and Issues nvoved whe em-
poyed as an audtor n the Interna Revenue
ureau, and charges found proven by the
commttee.
Nov. 7,1927 Charged wth brbery of a revenue agent, and
charges found proven by the commttee.
Oct. 24,1927 | Charged wth preparng fase Income-ta return
for a corporaton and pubshng an advertse-
ment soctng empoyment n edera ta
matters, and charges found proven by the
commttee.
Sept. 30,1927 Charged wth havng been Indcted and con-
vcted for embezzng funds n a court of the
State of Pennsyvana. Charges found
proven by commttee.
Mar. 22,1927 I Charged wth havng been dsbarred as an
attorney by the Supreme Court of the Ds-
trct of Coumba and defauted for faure to
fe answer to such charge, as requred by the
rues, and charges found proven by com-
mttee.
1 Ths rung (3784) ncudes aso rungs Nos. 3568, 3574, 3583, 3589, 3595, 3599, 3813, 3621, 3632, 3640, 3647.
8664, 3661, 3667, 3679, 36 , 3698, 3707, 3713, 3722, 3731. 3738, 3750, 3762, and 3770. These rungs have been
thus consodated because pubcaton of each one separatey heren woud he mere dupcaton.
Ths st Incudes a agents and attorneys dsbarred from practce durng the 12-month perod uy 1,
1927- une 30, 1928, ncusve, and a suspensons n effect durng the 6-month perod anuary 1- une 30,
1928, ncusve. It does not ncude those barred from practce by reason of dsapprova of ther appcaton
for enroment.
Daey, Law-son
Odom.
ngsh, II. R.
atmore, Md
Washngton.D. C|
ormory New
York, N. Y.
ormery Daas,
Te ., now M-
am, a.
Washngton.D. C.
ath, dward | New York, N. Y
ackney, ames ._ St. Petersburg,
a.
ebrank, arrv M_. Phadepha, Pa

, Chares S 1 Washngton, D. C.
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Mfc.
Name.
ouhan,
rancs.
Laskey. s ...
Marsha, L. .
Roseroot. fred
Schwartman, Theo-
dore I.
Sweetser, George ..
Wagner. Peter .
Wenhander, oseph
amson.
Wenshenk, Maurce
T.
ddress.
Water town, S.
Dak.
rookyn, N. Y...
Omaha, Nebr.
Detrot, Mch-
rookyn, N. Y...
ormery oston,
Mass., now We-
es 1 ey s,
Mass.
New York, N. Y.
New York, N. Y_.
Chcago, 111..
Date of
dsbarment.
Oct. 14,1927
pr. 27,1927
Nov. 5,1927
Sept. 23,1927
Sept. 16,1927
Mar. 27,1928
eb. 11,1928
uy 11,1927
Mar. 26,1927
Causo.
Charged wth recevng money n payment of
ta es from a ta payer whe empoyed as
deputy coector of nterna revenue and fa-
ng to account for such money, and charges
found proven by commttee.
Charged wth enterng nto an agreement wth
an audtor In the Interna Revenue ureau
whch provded that such audtor was to n-
form sad respondent of the names of ta pay-
er entted to refunds, and that such audtor
was to receve 10 per cent of the fees receved
by sad res ondent n such cases. Charges
found proven by the commttee.
Charged wth conspracy to defraud the Unted
States out of money due as ta es from a ta -
payer, and makng a fase ncome-ta return,
and charges found proven by commttee.
Charged wth preparng fase ncome-ta re-
turns for ta payer, and charges found proven
by the commttee.
Charged wth msconduct n connecton wth a
matter pendng before the Prohbton Unt.
Charges found proven by commttee.
Charged that he was ndcted on fve counts
n Superor Court of Suffok County, Mass.,
for convertng money beongng to cents to
hs own use, and that ho pead guty to the
frst and fourth counts of sad ndctment.
Respondent faed to fe answer to the com-
pant and was defauted. Charges found
proven by the commttee.
Charged wth msconduct n a ta case pendng
before the Interna Revenue ureau, and
charges found proven by the commttee.
Charged wth havng been ndcted for and
havng pead guty of grand arceny n the
Court of Genera Sessons of the Peace n and
for the County of New York, State of New
York: and charged wth havng been ndcted
for voaton of secton 47, Unted States
Crmna Code, upon whch Indctment he
was ater convcted and sentenced to a term
of 6 months n |a and a fne of 2,000 n the
Dstrct Court of the Unted States of mer-
ca for the Northern Dstrct of New York,
and charges found proven by commttee.
Charged wth preparng fase ncome ta re-
turns for ta payers, and charges found proven
by commttee.
SUSP NSIONS.
The Secretary of the Treasury, after due notce and opportunty
for hearng, and upon the recommendaton of the Commttee on
nroment and Dsbarment, has approved the suspenson from prac-
tce before the Treasury Department for the perod stated n each
case of the foowng-named attorneys and agents:
Name.
ddress.
Perod of sus-
penson.
Cause.
rden, enneth ._
Cark, Staney
Mnneapos,
Mnn.
60 days, from
an. 17, 1928.
Charged wth soctng empoyment In
edera ta matters, and charges found
proven by commttee.
Newburgh, N. Y..
Los ngees, Caf.
2 months, from
Mar. 24,1928.
Charged wth pubshng an advertsement
soctng empoyment n edora ta mat-
ters, and that such work woud be handed
by men traned n the Income Ta Unt of
the Government, and charges found proven
by the commttee.
30 days, from
Mar. 27.1928.
Charged wth soctng empoyment n ed-
era ta matters by addressng and mang
posta cards soctng such empoyment to
ta payers wth whom respondent had no
prevous assocaton, and charges found
proven by the commttee.
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Msc.
366
Name.
ddress.
Perod of sus-
penson.
Cause.
Darrow, ohn C.
Derbes, bert .
Mer, Grant L.
Murton, George T..
Nederwesen, Rch-
ard .
Newburgh, N. Y.
New Oreans, La.
Seatte, Wash
an rancsco,
Caf.
New York, N. Y..
4 months, from
Mar. t, 1928.
30 days, from
May 11,1928.
60 days, from
Nov. 25,1927.
80 days, from
Mar.27,1928.
30 days, from
Mar. 17,1928.
Charged wth pubshng an advertsement
soctng empoyment n edera ta mat-
ters, and that such work woud be handed
by men traned n the Income Ta Unt of
the Government, and charges found proven
by the commttee.
Charged wth havng made and fed fase
ncome ta returns for a corporaton ta -
payer. ound by commttee that such re-
turns were made by empoyees of respond-
ent, and that respondent was neggent
n permttng such returns to be prepared
and fed.
Charged wth havng ganed knowedge of
the fac ts and Issues nvoved n a ta case
as an empoyee of the Interna Revenue
ureau, and that after severng hs connec-
ton wth sad ureau, accepted empoy-
ment from the ta payer, prepared protest
and brof used n support of cams for
abatement and refund n sad ta case, and
charges found proven by the commttee.
Charged wth soctng empoyment n ed-
era ta matters by addressng and mang
etters soctng such empoyment to ta -
payers wth whom respondent had no pre-
vous assocaton, and charges found proven
by the commttee.
Charged wth advertsng that hs ta servce
was under the drecton of a ta e pert who
was formery empoyed n the Interna
Revenue ureau, and charges
proven by the commttee.
Resgnatons from enroment to practce before the Treasury Department.
The foowng persons have tendered ther resgnatons from en-
roment to practce before the Treasury Department and, upon
recommendaton of the Commttee on nroment and Dsbarment
after e amnaton of ther cases, the Secretary of the Treasury has
approved the resgnatons, and they are therefore no onger entted
to practce before the Treasury Department:
Name.
ddress.
Desgnaton.
Date of ac-
ceptance.
Remarks.
Cannon, .
Chareston, W. a.
Medford, Oreg
Ceveand, Oho... do
pr. 30, 1928
eb. 11,1928
eb. 8,1928
Wthout pre|udce.
Do.
Do.
Do.
Do.
Do.
D hn, G.
rankp, rederck.
ranke. Php
do
ttorney
do
do
Greperson. 11 enry M
Gregeraon, Lous .
Omaha, Nebr
do
Dec. 23,1927 do
Name of attorney strcken from ro of attorneys and agents.
On May .11, 1928, the Secretary of the Treasury ordered that the
name of Over . Pheps, an attorney, of Washngton, D. C, be
strcken from the ro of attorneys and agents authorzed to represent
camants before the Treasury Department.
G
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IND .
Rung
No.
.
batement, cams for. (See Cams.)
ct e tendng tme for refundng certan egacy ta es erroneousy
coected
dmssons, meanng of
ffated corporatons. (-See Corporatons.)
greement, assessment of ta on consodated bass, mped
en Property Custodan, sae of stock owned by enemy corpora-
ton, ta computaton
ens:
Nonresdent
Credts, rtsh ncome and superta es, apportonment.
nemy s property sezed n Phppnes, ncome from,
ta abty
Persona e empton. (See Credts.)
Status, resdence determnng
What ncuded n gross ncome
mendments:
Reguatons 8, secton 188
Refatons 8 (1922)
Secton 70
Secton 73
Secton 77
Secton 134
Reguatons 9, secton 40
Reguatons 45 (1920 edton), artce 185..
Reguatons 62
rtce 89
rtce 185
Reguatons 65, artce 89
Reguatons 67, artce 1
Reguatons 69
rtce 39
rtce 89
rtce 1599
Reguatons 70, artce 11 -.
Rues of practce, oard of Ta ppeas. ( See Unted States
oard of Ta ppeas.)
mercan Indan, wefare assocaton, e empton
mortzaton:
Computaton bass, artce 185, Reguatons 45 and 62,
amended
ousng factes rented to empoyees of war-contract concern
Premum or dscount on sera bonds, computaton
ppeas and hearngs:
oard of Ta ppeas. (See Unted States oard of Ta
ppeas.)
Crcut courts |ursdcton of matters before Ta oard,
mtaton
3723
3614
3745
(3728
3729
(3658
(3659
3735
3777
3575
3702
3623
3024
3625
3026
/3506
13689
3033
3639
3034
3039
3620
13740
3087
3039
3080
3575
3704
(3633
13634
3608
3733
3569
(367)
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2
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1
3
-
0
1
-
2
2

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:
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3

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368
Rung
No.
ssessment, ta es. (See Ta es.)
ssets, sae, acqured ncdenta to reorganzaton, gan or oss bass.
ssocatons:
Dstngushed from trust
empton. (See empt corporatons.)
uas corporate operaton under trust agreement
ttorneys and agents, dsbarments, suspensons, and resgnatons
utomobes:
Cubs, e empton
Damaged by fauty drvng, osses
Parts. (See Manufacturer s e cse.)
Traded n new purchases, oss deducton.
.
ad debts:
Deducton under 1918 ct
Marks, deposted n German bank, post-war perod
anks, merger, assets e changed for cash and trustees certf-
cates, gan or oss
equest made n eu of compensaton or commsson as e ecutor.
onds:
Defaut recovery, appcaton aganst prncpa and nterest..
eopardy assessment, fng to stay coecton condton prec-
edent
Sae of. (See Saes.)
Sera, premum or dscount amortzaton
orrowed capta. (See Invested capta.)
udng e pert apprasng muncpa property, compensaton,
gross ncome
ungaows, deferred-payment saes, contract of sae vaue
ureau of Interna Revenue:
Correspondence symbos
3579
3571
3606
3691
3571
3784
13711
13712
3717
/3775
13779
3560
3665
3628
3631
3601
3668
3733
Organzaton, changes n.
usness e penses:
Intaton fee pad by new member of an e change
Rentas, addtona, profts share and board
Trade-mark, amount pad for use of
C.
Caforna:
Communty property, earnngs contrbuted to common fund,
wfe s separate return, status
Gross estate and communty property
Canada:
Corporatons. (See Corporatons: oregn.)
quvaent e empton, earnngs of documented shps,
reguatons amended
Capta contrbutons. (See Contrbutons.)
Capta e pendtures:
Rentas, addtona, profts nterest and board vaue prora-
ton
Trade-mark, amount pad for use of
Capta stock ta es, bass of ta : Carryng on or dong busness .
Changes n ureau of Interna Revenue organzaton
Chartabe contrbutons. (See Contrbutons.)
3730
227
3692
62
3737
361
3688
290
3747
360
3748
360
3753
120
3756
229
3669
229
3637
94
3699
215
3662
319
3039
81
3669
229
3637
94
3611
329
3688
290
3747
360
3748
360
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369
Crcut courts. (See Courts.)
Cams, abatement, 1916 ta es, fng after effectve date of 1918
ct, nterest
Coectors, nterest on refund, sut to recover, rght of acton
aganst ,
Coorado, corporaton s denquent ta es, drectors abty
Commssons, e ecutor s, bequests n eu of
Communty property and ncome:
Caforna, earnngs contrbuted to common fund, wfe s
separate return, status
Swtzerand, ncome from Unted States sources, returns
Compensaton:
ecutor s, bequests n eu of
State offcers and empoyees. (See State: Offcers and
empoyees.)
esse requstoned by Government, when ta abe
Connectcut, dssoved corporaton, waver by qudatng trustee,
vadty
Consodated accounts. (See Returns: Consodated.)
Consodated returns. (See Returns.)
Contracts:
Government, amortzaton. (See mortzaton.)
Instament, rea estate sae, deferred-payment pan, vaue
Contrbutons:
Capta, ntaton fee pad by new member of e change
Chartabe-
mercan Indan wefare assocaton
Trust fund, remander nterest to eprosy eradcaton
memora, deducton
Gft to coege sub|ect to fe annuty, deducton
Trust fund, remander nterest uncertan, contngent and
ndetermnate, deducton
Corporatons:
ffaton
ssessment aocaton requested subsequent to mped
contrary agreement
Consodated returns. (See Returns.)
Indrect stock ownershp
Lqudaton dstrbuton, gan or oss
Net osses of subsdary pror to affaton, group s
deducton
Reated busnesses, consodated accounts
Coorado, denquent ta es, drectors abty
Consodated returns. (See Returns.)
Dssouton
ssessment
Subsequent thereto vadty
Waver by qudatng trustee, Connectcut
aure to dscose proft from sae of assets, frauduent
returns
Sut, transferee s abty under trust fund doctrne, bur-
den of proof.-
Dstrbutons, earnngs avaabe, addtona ta es for pror
years
Dvdends. (See Dvdends.)
arnngs avaabe for dstrbuton, determnaton
empton. (See empt corporatons.)
oregn, Canada, ta apportonment to Unted States and
foregn ncome, dvdend e cuson
Persona servce, mnera ease n e change for capta stock,
nomna capta
Pubc utty, nterest charge captazed under State regu-
aton, ncome deducton
3675
3778
3683
3631
3699
3578
3631
3572
3673
3692
(3753
3756
3764
3642
3591
3643
3745
3674
3588
3684
3559
3592
3673
3780
3592
3587
3719
3744
3619
3650
262
184
147
222
215
158
222
219
142
62
120
229
114
90
00
92
258
176
196
205
128
147
275
142
268
275
160
190
171
186
124
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1
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-
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1
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2

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370
Correspondence symbos, ureau of Interna Revenue
Court decsons:
tanta Casket Co. v. Rose, coector
very v. Commssoner of Interna Revenue
Rng v. nderson, coector
ng v. owers, coector
ar, Commssoner, v. Osteren Machne Co
ar, Commssoner, v. Roth
ar v. Unted States
odget v. oden, coector
owe- urke Mnng Co. v. Wcuts, coector
owers, coector, v. Socum e a
owrng v. owers, coector
Carn v. Le.dercr, coector
Chapman v. Unted Sates
Chevroet Motor Co. v. Unted States
Coe Storage attery Co. v. Unted States
Cogate Co. v. Unted States
Cortez O Co. v. Unted States
Deerng, e ecutor, v. ar, Commssoner
D e O Co. v. Unted Staes
(aatore ros. v. Lnes, coector
aght, trustee n bankruptcy, v. Unted States
ener, coector, v. The Coona Trust Co., e ecutor
ofer et a. v. Unted States
uttersche Church Trustees v. Unted States
Lewcyn, former coector, v. The Coona Trust Co., e ecutor.
Long Co. v. Unted States
McCaughn, coector, v. Wams.
Mason v. Rottzan _
Mesce v. Unted States
Penn Smokeess Coa Co. v. Leweyn, coector.
Ream v. owers
Reck v. ener, coector
Ro burghe v. Unted Staes
Sakof v. McCaughn, coector
Tacott, e ecutr , v. Unted Staes
Twn ras Natatorum v. Unted States
Unon Pacfc Raroad Co. v. owers, coector 378I
Unted States v. Coe et a
Unted States v. Lam
Unted States v. Magnoa Petroeum Co. et a
Unted States v. Standard Sprng Manufacturng Co
Untcrherg Co., I c., v. Unted States
Untermyer, e ecutor, v. nderson, coector
Wck wre v. Renecke. coector
Wcuts, coector, v. Mton Dary Co
Courts, crcut, revew of decsons before Ta oard, |ursdcton.
Credt or refund:
utomobe ta , returns, e tenson of tme of fng ,
Interest
owance, effectve dates
Sut to recover, rght of acton aganst coector
Legacy ta es, e tenson of tme for refund .
Persona servce cassfcaton subsequenty dened, condton
precedent to stockhoder s refund
Credts:
oregn ta es. ( S ee Credts: Ta es.I
Persona e empton, aens, husband and wfe, separate returns
Rung
Page.
No.
3737
361
3670
286
3.5R9
155
3007
210
3G07
210
3598
181
3699
215
3694
189
3573
324
3619
186
3600
247
3777
98
3675
262
3677
278
3611
329
3758
299
3759
302
3695
282
3700
231
3782
295
3669
229
3560
148
3563
207
3739
253
3739
253
3563
207
3609
297
3708
291
3622
194
3730
227
3778
184
3031
222
3755
200
3655
250
3008
140
3662
319
3614
292
13676
26.5
3781
273
3780
268
3592
275
3701
287
3565
80S
3602
280
3741
326
3610
316
3696
283
3569
155
3746
299
3701
287
3778
184
3723
363
3560
148
13752
97
13757
240
G
e
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a
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0
1
3
-
0
1
-
2
2

0
3
:
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3

G
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2
7
/

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0
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0
0
8
9
0
5
4
3
6
9
P
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G
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371
Rung
No.
3711
115
/3658
240
13659
246
3630
126
3710
110
3726
110
3593
209
3618
138
3559
128
3561
161
3559
128
3777
98
3727
138
3767
238
3695
282
3718
89
3655
250
3755
200
3776
87
3755
200
3695
282
3564
234
3771
335
3622
194
3588
196
3682
106
3744
171
3622
194
3719
190
3588
196
3694
189
3622
194
3777
98
3708
291
Credts Contnued.
Ta es
oregn-
ccrued, ndvdua on cash bass.
Great rtan -
Nonresdent aen deducton apportonment
Subsdary s payment on undstrbuted profts
Indvdua s foregn offce operated at oss, aowance.
Me co, smar credt requrement
Creek Indans, ncompetent haf bood, ncome from surpus
aotments
Deferred payment saes. (See Saes.)
Defcences, ta es. (See Ta es.)
Defntons:
Defcency, secton 273, ct of 1926
Owned or controed drecty or ndrecty by same n-
terests, secton 240, varous cts
Property, secton 203(b)4, ct of 1924.
Reated trades or busnesses, secton 240, varous cts
Resdence
Deaware, edera ta en, fng of notces
Denquent ta es. (See Ta es.)
Depeton:
Mnng property, addtona payments for ease assgnments
contngent on operaton, computaton
Undstrbuted earnngs apped aganst, nvested capta
Deprecaton:
udng razed and rebut by essee
states and trusts, fe benefcary
Rates, Commssoner s determnaton, ta payer s book entres
as bass, suffcency
Rea estate
Improved, devse to fe tenant wth remander over
Saes, gan or oss computaton
Undstrbuted earnngs apped aganst, nvested capta
esses, repacements resutng from nvountary converson,
bass
Dsbarments. (See ttorneys and agents: Dsbarments and sus-
pensons.)
Dsted sprts, osses, theft or other unavodabe cause
Dstrant, coecton of ta es. (See Ta es: Coecton.)
Dstrbutons:
Dvdends pad, year n whch ta abe
Lqudaton, affated corporaton, gan or oss
Dstrct of Coumba, husband and wfe, partnershp
Dvdends:
Canadan corporaton s ta and ncome apportonment, e -
cuson
Decaraton and payment n dfferent years, when ta ed
arnngs avaabe, determnaton
Lqudaton, affated corporaton, ta abe gan .
Operatng defcts sustaned n pror years
Presumpton as to earnngs from whch pad
Domce, aen s ta abe status, resdence determnng
ta consttutona --
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372
.
nemy property nvestments, Unted States obgatons, nterest
e empton
quvaent e empton, Canada, earnngs of documented shps,
reguatons amended
states and trusts see aso Trusts):
Income, admnstraton perod, set asde for e empt resdu-
ary egatees, deducton
Lfe benefcary, deprecaton
Remander nterest
Payment to eprosy eradcaton memora, deducton._.
Uncertan, contngent and ndetermnate, deducton
state ta :
Gross estate and Caforna communty property
Specfc property to be ncuded Reguatons 70 amended...
Transfers by decedent n hs fetme
vdence, far market vaue determnaton
cess-profts ta es. See Ta es: War-profts and e cess-profts.)
change rates (see aso oregn e change), foregn, December
31, 1927
changes:
utomobes traded n new purchases, oss deducton
Intaton fee pad by new member, capta contrbuton
Partnershp assets for stock and cash, reorganzaton
Stock, reorganzaton
empt corporatons:
mercan Indan wefare assocaton
utomobe cubs
Regous organzaton, ncome supportng members and hers
empt on:
Corporatons. See empt corporatons.)
Income
Indans
Creek, ncompetent haf bood, surpus aotments.
Otoe, restrcted aotments
Muncpa water board and street raway
State offcers and empoyees. See State: Offcers and em-
poyees.)
tenson of tme, fng of returns, credt or refund of automobe
ta
.
armers, osses. (See Losses.)
ederaton of automobe cubs, e empton
ducares, returns. (See Returns.)
orda, tenants by entrety, returns
oregn:
Corporatons. See Corporatons.)
change, rates prevang December 31, 1927
Ta es. ( S ee Ta es.)
Ratng
No.
3725
3639
3 00
3655
3642
3643
3662
3575
3610
3780
3594
3775
13779
(3753
13756
3561
3666
3561
3764
(3711
3712
3739
3593
3577
3U93
3746
3712
3649
3594
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373
Rung
No.
Page.
3775
86
3779
231
3588
196
3704
68
3665
84
3631
222
3591
90
3644
164
3020
328
3740
327
3573
324
3741
326
3058
240
3059
246
3710
110
3030
120
3591
90
3031
222
3001
255
3586
75
:_tG16
77
3585
73
3629
78
3572
219
3753
120
3756
229
3728
217
3729
219
3065
84
3007
210
3563
207
3593
200
3577
,r)
3095
282
3704
68
3664
64
3774
66
3728
217
3729
219
G.
Gan or oss:
utomobes traded n new purchases
change of property. (See changes.)
Lqudaton of affated corporaton
Purchase money mortgage satsfed for ess than face vaue..
Saes. (See Saes.)
German nvestments, post-war perod, oss and bad-debt deduc-
tons
Gfts:
equest to e ecutor n eu of compensaton or commssons-
Indvdua s donaton to coege, sub|ect to fe annuty, de-
ducton
Made n contempaton of death, subsequent sae, gan or
oss bass
Gft ta :.
Caendar year 1924 defned
Consttutonaty
Gfts made n anuary, 1024
Retroactve provsons
Great rtan:
Income and superta es, nonresdent aen, deducton appor-
tonment
Ta es
Credts for
Subsdary s undstrbuted profts and dvdend dstr-
buton, credt
Gross ncome:
nnuty payments from gft to coege
equest to e ecutor n eu of compensaton or commssons
ond defaut recovery, appcaton aganst prncpa and
nterest
Communty ncome. (See Communty property and n-
come.)
Compensaton
Pots-
Oregon
South Carona
rgna
Speca commssoner for and saes, West rgna
State offcers and empoyees. (See State: Offcers and
empoyees.)
esse requstoned by Government, when ta abe
Corporatons, ntaton fee pad by new member of an e -
change
nemy s stock hodngs sod at gan by en Property
Custodan
German nvestments, post-war perod
Grant of sum out of rents and ncome of rea property
Income of non-Indan essee from ease of restrcted Indan
ands
Indans
Creek, ncompetent haf bood, surpus aotments
Purchase money mortgage satsfed for ess than face vaue...
Repossesson of rea estate sod on nstament pan
Stock saes by en Property Custodan
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374
.
usband and wfe:
Communty property and ncome.
erty and ncome.)
Partnershps. (See Partnershps.)
Returns. (See Returns.)
(.See Communty prop-
Inos:
Ta es, property, accrua and deducton
Waver by guardan subsequent to ward s ma|orty, vadty-
Income from sources wthn Unted States:
Nonresdent aen, credts for rtsh ncome and superta es.
Resdents of Swtzerand, communty property, returns
Income from sources wthn Unted States possessons, enemy
aen s property sezed n Phppnes
Indans:
Creek, ncompetent haf bood, ncome from surpus aot-
ments
Lands
Lessee s ncome, ta abty. _
Restrcted, non-Indan essee s ncome from ease,
ta abty
Otoe, ncome from restrcted aotments
Intaton fee pad by new member of e change, capta contr-
buton
Instament saes. (See Saes.)
Insurance, fe pocy as oan securty, premum deducton
Insurance companes:
Lfe, State ta es pad on premums, deducton
New York, nsovent returns by superntendent of nsurance.
Interest:
batement cam, 1916 ta es, fng after effectve date of
1918 ct
ond defaut recovery, appcaton aganst prncpa and
accrua
Capta tem under State reguaton, ncome deducton
Refund
Dates of aowance
Sut for recovery, rght of acton aganst coector
Ta es, defcences, vountary pad before Commssoner s
e amnaton
Unted States obgatons, e empton appcaton to enemy
property nvestments
Invested capta:
Deprecaton and depeton, reducton of undstrbuted earn-
ngs
Nomna, mnera ease n e change for capta stock, persona
servce corporaton
Notes e ecuted for amount eft n busness, borrowed capta. _
Operatng defct, reducton of undstrbuted earnngs
Surpus, earned
Deprecaton and depeton reducton
eopardy assessment, bond to stay coecton condton precedent..
ewery, gvng of premums..
ursdcton:
Crcut courts, revew of decsons before Ta oard
Ta oard s, revew of Commssoner s speca assessment
determnaton
Rung
No.
Paw.
3636
3653
82
151
/3658
3659
3578
240
246
158
3735
178
3593
209
3695
282
3563
3577
3753
3756
207
56
120
229
3755
200
3766
3765
131
127
3675
262
3601
3650
255
124
3701
3778
3676
13781
287
184
265
273
3725
68
3695
282
3619
186
280
283
3602
3696
282
283
3696
3668
3759
140
302
3569
155
3598
181
G
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1
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5
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375
Rung
No.
3718
89
3G95
282
37C7
238
3734
168
3669
229
3563
207
3723
363
3767
238
3651
136
3727
138
3652
137
3754
138
3705
138
3638
135
3597
144
3657
153
3673
142
3653
151
3597
144
3657
153
3588
196
3717
85
3718
89
3771
335
3700
231
3665
84
3734
168
3775
86
3779
231
3677
278
3758
299
3565
308
3758
299
3746
299
3665
84
Leases:
udng razed and rebut by essee, oss
Indan, ands, ncome from, ta abty
Mnng, addtona payments contngent on operaton, depe-
ton computaton
O and gas, worthess, oss deducton
Rentas, addtona, profts share and board, deducton
Restrcted Indan ands, non-Indan essee s ncome, ta -
abty
Legacy ta es, ct e tendng tme for refundng egacy ta es erro-
neousy coected
Lessees, mnng propertes, depeton
Lens. edera ta es:
ssessments coverng dfferent perods, separate dscharge
certfcates
ng of notces
Deaware
Lst of States authorzng
New ersey
South Carona
Reease, refng upon renewa of mortgage, coector s au-
thorty
Lfe nsurance. (See Insurance.)
Lmtaton perod:
Coecton of ta es, 1917, waver mtng assessment ony,
1924 ct appcaton
Credt or refund, 1919 ta es, unmted waver superseded by
mted e tenson
Wavers
Dssoved corporaton, Connectcut, qudatng trustee s
authorty
Guardan, e ecuton subsequent to ward s ma|orty,
Inos,-
Unmted
1917 ta es, one-year assessment perod, effect
1919 ta es, e tended to defnte date, suffcency
Lqudaton, affated corporaton, gan or oss
Losses:
utomobes, damage by fauty drvng
udng demoton by essee
Dsted sprts, by theft or other unavodabe cause
arm operated for peasure
German nvestments, post-war perod
O and gas nterests, deveopment abandoned, estabshment
of worthessness
Traded n
purchases.
Unreated to busness, net ncome sub|ect to e cess-profts
ta , deducton
M.
Manufacturer s e cse:
utomobe parts
Storage batteres as
Ta es erroneousy refunded, recovery
atteres, storage, hed parts of automobes
Credt or refund, automobe ta , repea e tenson of tme
for fng returns
Marks, German, post-war bank deposts, bad-debt deducton
0342 28 25
G
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3
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7
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0
0
0
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8
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0
5
4
3
6
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376
Me co:
Mnes operated by mercan company, Me can tte hoder,
consodated returns
Smar credt requrement
Mortgage, purchase money, satsfed for ess than face vaue, gan
or oss
3562
3726
3704
N.
Net osseR, affated corporatons, subsdary s osses pror to aff-
aton, group s deducton 3684
New ersey, edera ta en, fng of notces 3754
New York, nsurance companes, nsovent, returns by supern-
tendent of nsurance 3765 127
Nonresdent aens. (See ens.)
Notes, nterest-bearng, e ecuted for amount eft n busness.
nvested capta-
O and gas, nterest become worthess, oss deducton
Oeomargarne:
Certan substances known or styed as cookng compounds-
ffectve date of Treasury Decson 4006
Treasury Decsons 4006 and 4114 revoked
Statstcs of producton and materas used
November, 1927 and 1926
December, 1927 and 1926 --
anuary, 1928 and 1927_
ebruary, 1928 and 1927
March, 1928 and 1927
pr, 1928 and 1927..
Operatng defcts:
arnngs dstrbuted n ater year, effect
Undstrbuted earnngs apped aganst, nvested capta..
Oregon, pots, compensaton
Otoe Indans, ncome from restrcted aotments
Partnershps, husband and wfe:
Dstrct of Coumba
North Carona
Penates. (See Ta es: Penates.)
Persona e empton. (See Credts.)
Persona servce corporatons. (See Corporatons.)
Personne changes, ureau of Interna Revenue
Phppnes, ctzen former German sub|ect, ncome from property
hed by en Property Custodan
Pots, compensaton:
Oregon
South Carona
rgna
Practce requrements, oard of Ta ppeas, revsed May 1, 192S
Premums, nsurance. (See Insurance.)
Prohbton osses of dsted sprts by theft or other unavoda-
be cause
Property ta es. (See Ta es.)
3602
3734
3566
3689
3582
3004
3646
3678
3721
3761
3694
3696
3586
3577
3682
3617
-
3688
3747
3735
3586
3616
3585
3768
3771
G
e
n
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a
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d

f
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1
3
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0
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2

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:
3
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8
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5
4
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377
Rung
No.
Page.
R.
Rea estate:
Devse to fe tenant wth remander over, deprecaton
aowance -
Instament saes. (See Saes: Instament.)
Saes. (See Saes.)
Recevers, returns. (See Returns: ducares.)
Refunds. (See Credt or refund.)
Reguatons, amendments. (See mendments: Reguatons.)
Reated trades or busnesses, consodated accounts, returns
Regous organzatons, e emptons. (See empt corporatons.)
Rentas, addtona, profts share and board, e panse deducton._
Reorganzaton:
ank merger, assets e changed for cash and trustees cer-
tfcates, gan or oss
ureau of Interna Revenue changes-
Partnershp assets e changed for stock
Stock dstrbuton, artce 1599, Reguatons 69, amended
Stock e changed for stock and securtes, gan or oss
Repacements, vesses, nvountary converson, deprecaton bass
Repossesson of rea estate sod on nstament pan, treatment
Resdence, aen s ta abe status determnaton
Returns:
ens, nonresdent. (See Returns: Nonresdent aens.)
Communty ncome (See aso Communty property and
ncome)
Caforna, earnngs contrbuted to common fund, wfe s
separate return, status
Swtzerand, ncome from Unted States sources
Consodated (see aso Corporatons: ffaton)
ffated corporatons, ndrect stock ownershp
ocaton of ta requested subsequent to mped con-
3776
3559
3669
3628
(3688
3747
13748
3561
3680
3666
3564
3664
(3774
3777
Domestc company operatng mnes, tte n Me can
company .
Subsdary s osses pror to affaton, net osses
Corporatons
Dssouton, frauduent, faure to dscose proft from
sae of asset s
New York nsurance companes, nsovent. State super-
ntendent s abty
Dscosures of nformaton n response to Ta oard s sub-
poena, authorty
ducares, New York superntendent of nsurance, returns
fed for nsovent companes
rauduent, dssoved corporaton, faure to dscose proft
from sae of assets
usband and wfe
Communty ncome. (See Returns: Communty
ncome.)
Tenants by entrety, orda
ont. (See Returns: usband and wfe.)
Nonresdent aens, husband and wfe, persona e empton..
Recevers. (See Returns: ducares.)
Tenants by the entrety, orda
Rues of practce, oard of Ta ppeas, amendments. (See
Unted States oard of Ta ppeas.)
87
128
229
51
290
360
360
161
55
203
234
64
66
OS
3699
3578
215
158
3674
175
3745
258
3562
3684
177
205
3780
268
3765
127
3598
181
3765
127
37S0
268
3649
112
3752
3757
97
240
3649
112
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378
S.
Saares. (See Compensaton.)
Saes:
ssets acqured ncdenta to reorganzaton, gan or oss
bass
ank merger, assets e changed for cash and trustees certf-
cates
onds, amortzaton of premums or dscount
Deferred payment, rea estate, contract of sae vaue
Gft made n contempaton of death, gan or oss bass
Instament, rea estate
orecosure and repossesson
Part saes on dfferent bass
Reducng mortgage assumed by purchaser
Repossesson n subsequent year, gan or oss compu-
taton
Rea estate
Deferred payment. (See Saes: Deferred payment.)
Deprecaton, gan or oss computaton
Instament. (See Saes: Instament.)
Stock-
en Property Custodan, ta computaton
Reorganzaton, payment n cash, e change
Stock rghts
odngs wth dfferent bases, gan or oss computaton..
Retroactve appcaton, artce 39, Reguatons 69,
amended
Seamen s wages, evy for unpad ta es, authorty
South Carona:
edera ta en, fng of notces
Pots, compensaton
Speca assessment. (See Speca cases.)
Speca cases, speca assessment:
Commssoner s determnaton, revew by Ta oard, |urs-
dcton
Refusa by Commssoner aeged erroneous, burden of proof
Speca commssoner for and saes, compensaton, West rgna
Specfc protest, refund or credt nterest, suffcency
State:
Income, muncpa water board and street raway, e empton.
Offcers and empoyees, compensaton
udng e pert apprasng muncpa property
Muncpa water board and street raway
Pots-
Oregon
South Carona
rgna
Speca commssoner for and saes, compensaton, West
rgna
Ta es, property, accrua and deducton, Inos
Stock:
Dstrbutons n reorganzaton, artce 1599, Reguatons 69,
amended
change of. (See changes.)
Rghts to subscrbe to, sae of. (See Saes.)
Saes. (See Saes.)
Stockhoders:
Persona servce cassfcaton subsequenty dened, condton
precedent to ta refund
Stock rghts, sae of. (See Saes.)
Suts:
Coecton of ta es, dssoved corporaton, transferee s abty
under trust fund doctrne
Rung
No.
3579
3628
3733
3692
3644
3664
8692
3672
3774
3755
/3728
3729
3561
3773
3687
3743
3705
3616
3598
3670
3629
3701
3693
3730
3586
3616
3585
3629
3636
3680
3560
3592
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379
Suts Contnued.
Interest on refund, rght of acton aganst coector
Recovery of erroneous refunds
Surpus, earned:
Deprecaton and depeton, reducton of undstrbuted earn-
ngs
Operatng defct, reducton of undstrbuted earnngs
Suspensons. (See ttorneys and agents: Dsbarments and sus-
pensons.)
Swtzerand, communty property, ncome from Unted States
sources, returns
Symbos, correspondence, ureau of Interna Revenue
T.
Ta es:
batement, cams for. (See Cams.)
ddtona, earnngs avaabe for dstrbuton, charge
aganst
ssessment
ffated corporatons, aocaton requested subsequent
to mped contrary agreement
Commssoner s determnaton aeged erroneous, burden
of proof
eopardy, bond to stay coecton condton precedent
Subsequent to corporate dssouton, vadty
Capta stock. (See Capta stock ta es.)
Coecton
Dstrant
ccrued saares of muncpa empoyees, nongov-
ernmenta actvty
Seamen s wages, authorty
1917, unmted waver, one-year assessment perod,
1924 ct appcaton
Sut. See Suts.)
Corporaton camng e empt status, returns fed under pro-
test, defcency notce requrement
Credts for. (See Credts.)
Defcences
ssessment, waver by qudatng trustee of dssoved
Connectcut corporaton..
Corporaton camng e empt status, returns fed under
protest
ountary pad before Commssoner s e amnaton,
nterest
Denquent, Coorado corporaton, drectors abty
state. (See state ta .)
edera, ens. (See Lens: edera ta es.)
oregn
Canadan ncome, apportonment to Unted States and
foregn ncome, dvdend e cuson
Credts for. (See Credts.)
Great rtan, nonresdent aen, apportonment
Gft. (See Gft ta .)
Legacy. (See Legacy ta es.)
Lens for edera ta es. (See Lens: edera ta es.)
Payment, nterest. (See Interest.)
Penates, fraud, faure to report assets sae
Property, State, accrua, Inos
State, fe nsurance company s premum payments, deducton
Waver of statutes of mtaton. (See Lmtaton perod.)
War-profts and e cess-profts, net ncome sub|ect to, deduc-
ton for oss unreated to busness
ung
No.
3778
3565
3695
3696
3578
3737
3587
3745
3670
3668
3592
3693
3743
3597
3618
3673
3618
3676
13781
3683
3744
(3658
13659
3780
3636
3766
3677
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380
Tenants by entrety, orda, reportng ncome
Tobacco and snuff:
Packages other than wooden
To be approved by Commssoner
Szes of packages
Stamps, mode of aff ng to packages
endng machnes Reguatons S amended
Trade-mark, amount pad for use of, capta e pendture.
Transportaton:
empton, evdence of rght s requred
O by ppe ne
Trusts (gee aso states and trusts):
ssocaton dstngushed
Lfe benefcary, deprecaton
Nomna contro by benefcares
uas corporate operaton, purported separate trust for each
subscrber, cassfcaton
Reaty under ung-term ease, contro n trustee, assocaton
dstngushed
Remander nterest
Payment to eprosy eradcaton memora, deducton
Uncertan, contngent and ndetermnate, deducton
U.
Unted States oard of Ta ppeas:
Decsons, st of acquescences and nonaequeseences
Revew of
Commssoner s speca assessment determnaton, |urs-
dcton
Decsons, crcut courts |ursdcton
Rues of practce
Revsed May 1, 1928
mendments
Rue 14
Rue 50
Rue 44, Subpoenas
Rue 62, Speca assessment
Unted States obgatons, nterest e emptons, appcaton to
enemy property nvestments--
aues, far market, evdence n determnng
endng machnes, tobacco
esses:
Repacements resutng from nvountary converson, de-
precaton bass
Requstoned by Government, compensaton n ater year,
when ta abe
rgna, pots compensaton
w.
Wages, seamen s, evy for unpad ta es, authorty
Waver of statutes of mtaton. (See Lmtaton perod:
Wavers.)
West rgna, speca commssoner for and saes, compensaton,
e empton
Rung
No.
3649
3624
3626
3623
3625
3702
3637
3609
3782
3571
3606
3691
3655
3691
3571
3606
3642
3643
(3772
3783
3598
3569
3768
3714
3715
3580
3581
3725
3780
3702
3564
3572
3585
3743
3629
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