SP CI L TT NTION to the cautonary notce on ths page that pub-
shed rungs of the ureau do not have the force and effect
of Treasury Decsons and that they ore appcabe ony to facts presented n the pubshed case
Treasury Department : : : : : ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn II-2
ULY-D C M R, 1928
IN T IS ISSU
Pafe
Introductory Notes I
Contents -1
Rungs Nos. 3785-4052
oard of Ta ppeas 1-53
Income Ta
Part I (1928 ct) 54-107
Part II (1926 ct) 108-184
Part III (1924 ct) 183-220
Part I (1921 and Pror cts) 221-330
Saes Ta 2S
state Ta
Capta Stock Ta 381-393
Msceaneous Ta 394_40
Msceaneous 407-423
Inde 425-443
The ratngs reported n the Interna Revenue uetn are for the nformaton of ta payers and ther counse as
showng the trend of offca opnon n the admnstraton of the ureau of Interna Revenue the rungs other than
Treasury Decsons have none of the force or e0ect 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
I state of facts upon whch a partcuar case rests. It s especay to be noted that the same resut w not ncccs-
sady be reached n another case uness o 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 cose. s bearng out ths dstncton, t may be observed that the
ratngs pubshed from tme to tme may appear to reverse rungs prevousy pubshed.
Offcers of the ureau of Interna Revenue ore 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 a
| a 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
I to pubsh a rungs and decsons, ncudng opnons of the Genera Counse for the ureau of Interna Revenue,
v.hch, because they announce a rung or decson upon a nove queston or noon a queston n regard to whch
there e sts no prevousy pubshed rung or decson, or for other reason , arc of such mportance as to be of
genera nterest. It s aso the pocy of the ureau to pubsh a rungs or decsons whch revoke, modfy, amend,
or affect n any manner whatever any pubshed rung or decson. In many nstances opnons of the 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 Rcvcuue are not consecutve.
No unpubshed rung or decson w be cted or reed upon by any offcer or empoyee of the ureau of Interna
Revenue as a precedent n the dsposton of other cases. Uness otherwse specfcay ndcated, a pubshed
mSngs and decsons have receved the consderaton and approva of the Genera Counse for the ureau of
ate a Revenue.
U. S. GO RNM NT PRINTING O IC
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NNOUNC M NT O 1929 ULL TIN S R IC
The Interna Revenue uetn servce for 1929 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 per 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 prces as foows: Dgest of Income
Ta Rungs No. 19 (contanng dgests of a rungs appearng
n Cumuatve uetns 1 to 5, ncusve), 50 cents per copy
Cumuatve uetns Nos. 1 to 5, contanng n fu a rungs
pubshed .snce pr, 1919, to and ncudng 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 thom
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 years 1922, 1923, 1924, 1925, 1926, 1927, and
1928 may do so at prces as foows:
Cumuatve uetn 1-1 ( anuary- une, 1922) 40 cents
Cumuatve uetn 1-2 ( uy-December, 1922) 30 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, 1925) 40 cents
Cumuatve uetn I -2 ( uy-December, 1925) 35 cents
Dgest No. 17 ( anuary-December, 1925) 25 cents
Cumuatve uetn 1 ( anuary- une, 1926) 40 cents
Cumuatve uetn -2 ( uy-December, 1926) 30 cents
Dgest No. 21 ( anuary-December, 1926) 15 cents
Cumuatve uetn -1 ( anuary- une, 1927) 40 cents
Cumuatve uetn I-2 ( uy-December, 1927) 40 cents
Dgest No. 22 ( anuary, 1925-December, 1927) 35 cents
Cumuatve uetn II-1 ( anuary- une, 1928) 35 cents
Cumuatve uetn TI-2 ( uy-December, 1928) 50 cents
nqures n regard to these pubcatons and subscrptons
shoud be sent to the Superntendent of Documents, Government
Prntng Offce, Washngton, D. C.
(n)
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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn II-2, 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. 27-53, ncusve) for the perod uy 1 to December 31, 1928.
It aso contans a cumuatve st of announcements reatng to dec-
sons of the Unted States oard of Ta ppeas pubshed n the
Interna Revenue uetn Servce from December 22, 1924, to
December 31, 1928.
Income Ta rungs are prnted n four parts. Rungs under the
Revenue ct of 192S 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 74. Rungs
under the Revenue ct of 1926 are pubshed as Part II, the secton
and artce headngs correspondng wth the secton and artce head-
ngs of the Revenue ct of 1926 and Reguatons 69. Rungs under
the Revenue ct of 1924 are prnted as Part III, the secton and
artce headngs correspondng wth the secton and artce headngs
of the Revenue ct of 1924 and Reguatons 65. Rungs under the
Revenue ct of 1921 or earer cts are prnted as Part I , the secton
and artce headngs correspondng wth the secton and artce head-
ngs of the Revenue ct of 1921 and Reguatons 62.
R I TIONS.
The foowng abbrevatons are used throughout the uetn:
, , C, etc. The names of ndvduas.
. R. M. Commttee on ppeas and Revew memorandum.
. R. R. Commttee on ppeas and Revew recommeudaton.
. T. . oard of Ta ppeas.
C. . Cumuatve uetn.
Ct. D. Court decson.
C. S. T. Capta Stock Ta Dvson.
D. C. Treasurv Department crcuar.
. T. state Ta Dvson.
G. C. M. Genera Counse s memorandum.
I. Income Ta Unt.
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 ttornev Genera.
S. T. Saes Ta Dvson.
S. M. Soctor s memorandum.
So. Op. Soctor s opnon.
S. R. Soctor s recommendaton.
T. Tobacco Dvson.
T. . M. dvsory Ta oard memorandum.
T. . R. dvsory Ta oard recommendaton.
T. D. Treasury decson.
and y are used to represent certan numbers, and when used wth the word
doars represent sums of money.
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 1926t
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
1926 ct, cause to be nsttuted a proceedng n court for the
coecton of any part of a ta determned by the Commssoner
to be 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 es.scs
before the ureau.
(v)
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CONT NTS.
Rung.
Treasury decsons:
4168--
4189
4170
4171.
4172-
4173
4174
4175
4176.
4177..
4178..
4179..
4180..
4181..
4182..
4183..
41S4_.
4185..
4186..
4187..
4188..
4189..
4190..
4101..
4192._
4193..
4194..
4195..
4190.-
4197..
4198. -
4199. -
4200. -
4201. -
4202..
4203..
4204..
4205..
4206._
4207..
4208..
4209..
4210--
4211..
4212..
4213.-
4214..
4215..
4216--
4217..
4218.-
4219..
4220..
4221..
4222..
4223..
4224..
4225.
4226.
4227-
4228.
4229.
4230.
4231.
Rung No.
I1-27-3790
I1-27-3792
I1-27-3791
II-28-3797
II-28-3798
II-29-3811
II-29-3812
II-29-3809
II-29-3813
II-29-38
II-29-3815
-2u :ts
II-29-3808
II-29-3818
II-31-3834
I1-31-3833
1I-31-3832
11-32-3838
II-32-3840
II-32-3841
II-32-3845
II-33-3854
11-33-3849
I1-33-3855
II-33-3857
/ II-33-3858
-33-3s59
II-33-3S00
II-33-3861
1I-34-3S66
II-34-3869
II-34-3868
I1-34-3871
I1-35-3876
II-35-3877
11-35-3880
I1-36-3885
II-36-3884
II-36-3888
I1-38-3902
I1-38-3903
II-38-3905
I1-38-3904
II-39-3911
II-39-3912
I1-39-3909
II-39-39I3
II-39-3914
II-10-3921
II-11-3934
II-41-3937
-41-3932
II-41-3927
II-41-3931
II-41-3928
1I-41-3936
II-41-3929
II-41-3930
II-41-3933
I1-41-3941
II-41-3940
( II-41-3942
II-41-3943
11 1I-41-3 44
II-42-3950
II-42-3951
II-42-3952
I1-43-3962
1I-43-3963
11-13-3964
I1-13-3965
1I-43-3966
Page.
Rung.
Rung No.
Page.
Treasury decsons Contd.
413
4234
I1-44-3976
213
399
4235
I1-44-3977
76
107
4236
11-44-3979
71
253
4237
I1-45-3984
300
323
I1-45-3985
356
355
4239
II-45-3986
373
361
4240
I1-46-3995
336
280
4241.
II-16-3994
266
397
4242
I1-46-3998
354
398
4243.
I1-46-3999
383
398
4244
I1-46-4000
386
3:s
4245
II-47-4007
218
134
4246
I1-47-4008
221
370
4247.
I1-17-4006
274
394
4248
I1-19-4022
358
381
4249.
I1-19-4025
405
286
4250. - -
1I-19-4026
402
294
4251 -
I1-52-4044
215
368
4252 -.
II-53-1050
290
358
Genera Counse s memo-
378
randa:
315
2467
II-37-3892
188
161
2663..
I1-40-3922
355
342
2757
I1-34-3805
302
347
3827
I1-27-3787
114
401
4024
II-27-3789
156
402
4120
II-36-3883
108
344
4196
I1-37-3893
241
283
4197
II-34-3863
87
312
4208
I1-31-3830
142
103
4217
II-3I-3831
162
331
4236.
I1-28-3795
131
170
4245
II-29-3805
279
224
4253
I1-29-3804
204
345
4299
11-30-3820
116
16S
4336
II-35-3875
199
244
4355
I1-42-3948
175
133
4363....
I1-29-3802
185
261
4421
1I-51-408S
144
178
4445
I1-35-3874
167
259
4533
I1-32-3839
329
310
4554
1I-33-3848
86
296
4565
I1-45-3982
109
207
4596
I1-46-3991
133
307
4606..
II-33-3851
256
172
4624...
II-33-3850
205
338
4639
I1-44-3970
88
182
4683
II-35-3873
69
272
4715
I1-36-3882
94
278
4729....
I1-50-4028
58
368
4741
II-40-3919
152
248
4783
I1-52-4042
183
228
4791
II-3S-3899
120
238
4794..
I1-42-3948
212
230
4797
I1-38-3900
121
305
4S05
I1-46-3989
58
232
4842.
I1-39-3907
103
236
4S59..
11 -13-3956
73
267
4875..
11-11-3926
137
359
4879.
I1-41-3971
90
208
4S92
I1-45-3983
195
406
4914
II-39-3910
181
400
4935
11-42-3947
112
408
4954
II-41-3935
293
270
4956
II-40-3918
128
125
4969.
I1-40-3920
269
335
4978.
II-43-396I
163
251
4983..
I1-43-3959
136
362
4993
I1-43-3058
106
299
5000
II-52-1041
176
326
5046
I1-43-3957
78
388
5060
1I-48-4013
04
( )
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Rung.
ng No.
Genern Counse s ne
randn Contnued.
5086
5103
5104.
5138
5148
5150
6169
5180
6215
5251
5265
5308.-
6355._
5362..
5396 -
6448
oard of Ta ppeas:
205
693.
1054
1356
1357
1415
1415
1895
1926
1927
2373. _
2374
2376.
2394..
2521..
2547..
2628..
2749..
2824..
2875.
2924..
2928.
2929..
3147..
3282.
3263.
3264.
3269.
3341.
3344.
3350.
3424.
3(500.
3021-
3717.
3795.
37 .t9.
3S61-.
3874.
4069.
4126.
4170.
4222.
4227.
4228.
4229.
4230.
4236.
4270.
4284.
4289.
4397.
4510.
4575.
4620.
II-44-3972
II-46-3990
I1-15-3981
I1-47-4001
I1-18-4012
II-17- )0.-
-4#-4019
I1-44-3973
II-47-4004
I1-47-4003
II-49-4018
11-52-1O10
II-53-4049
II-51-403
II-63-4048
II-53-4047
vn-32-r -3n
II-33-3847
I1-41-3925
II-49-10I7
II-49-4017
II-31-3828
I 9-4017
II-34-3862
II-31-3828
II-44-3969
II-19-4017
II-49-4017
II-27-3785
TI-46-3980
II-33-3847
II-29-3801
11-13-3955
II-31-3828
II-35-3872
1I-43-3955
II-49-1017
II-33-3847
II-29-3801
II-29-3801
f II-43-3955
II-43-3967
II-35-3872
II-35-3872
II-35-3872
II-29-3801
II-38-3898
II-38-3898
1I-10-3917
II-35-3872
I1-34-3862
II-38-3898
II-tO-3917
/ II-35-3872
II-35-3878
II-35-3872
II-33-3847
II-35-3872
II-34-3862
II-35-3872
II-38-3898
II-37-3SS9
II-19-4017
II-29-3801
II-31-3828
II-31-3828
II-31-3828
II-31-3828
II-35-3872
II-29-3801
II-27-3785
II-37-3889
I1-42-3945
II-49-1017
II-38-3898
II-44-3969
I1-53-4045
Rung No.
II-27-3785
37
II-49-4017
6
II-19-4017
3
II-49-4017
3
II-32-3838
24
II-30-3819
u
II-38-3898
3
II-49-4017
17
II-19-4017
17
II-49-4017
19
II-49-4017
33
n-52-4039
15
II-34-3862
26
II-32-3836
4
II-34-3862
S3
II-31-3828
44
II-49-4017
S
U-32-3836
43
II-31-3828
34
II-31-3828
31
II-33-3847
40.52
I1-40-3917
29
f II-30-3819
36
. II-30-38M
36
II-43-3955
26
n-35-3872
11
n-29-3801
18
II-48-4011
25
II-3S-3898
14
II-27-3785
2
II-2S-3794
49
II-30-3819
16
II- S . S
10
II-40-3917
47,49
II-40-3917
49
II-40-3917
SI
II-40-3917
45
II-40-3917
45
11-39-3908
SI
II-42-3915
61
II-42-3945
61
II-35-3872
25
11-39-3908
9
II-40-3917
48
II-S6-3881
3
-43-3955
3
TI-49-4017
39
II-43-3955
24
n-43-3955
24
II-13-3955
24
II-34-3882
44
II-53-4045
12
II-39-3006
28
II-36-3872
25
II-29-3801
45
n-39-3906
28
11-28-3794
24
TI-34-3S62
6
II-33-3847
n-27-3785
19
1I-30-3881
23
II-29-3801
37
II-35-3872
13
f II-34-5862
20
tvn-34-3867
20
TI-36-3872
25
II-37-3889
52
II-37-3889
21
II-52-4039
51
II-44-3 9
50
II-27-3785
43
II-34-3862
47
II-27-3785
11
II-37-3889
21
II-50-1027
3
II-29-3801
47
II-49-4017
13
II-49-4017
11
II-28-3794
Ths contents contan references to oard of Ta ppeasacquescences and nonaoquesoenoes pubshed
ony durng the s months ended December 31,1928, asrauch as references to the remander of the oard
of Ta ppeas acquescences and nonacquoscences contaned n the cumuatve st heren have been
furnshed n the cumuatve buetns coverng the earer respectve perods.
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7171
7244
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7288
7343
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7488
7532
7582
7597
7818
7638
7729
7747
7829
7834
7835
7836
7837
7866
7901
7904
7905
7914
7955
7962
7970
7973
8049
8085
8098
8115
8246
8268
8287
8268
8299
8323
8324
8347
8361
8425
8433
8471
8472
8494
8519
8584
8598
8601
8603
8814-
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884
8843
8864
8873
8704
8778
8904.
9006
9022 _
9023
9043
9047
9085
9072
9073
9088
9092.
9093
9119
9146_
9173
9195.
0216
Rung No.
Page.
oard of
II-34-3862
10
9221.
1I-29-3801
28
9233.
II-38-3881
45
9236
II-38-3898
40
9238
II-47-1001
13
9255
I1-41-3925
18
9265
L II-41-3938
18
9289
I I-14-3909
45,
9291)
47,49
9336
IT-3S-3898
28
9346
II-28-3794
1
9354
I1-28-3794
8,46
9357
11-36-3S81
39
9368
I1-42-3945
51
9421
I1-33-3847
25
1-50-4027
34
9440
II-37-38S9
51
9442
II -29-3801
27
9447
II-35-3872
41
9450
I1-35-3872
37
9501
1I-40 917
18
9504
II-37-3889
6
9.505
I1-33-3847
34
9524
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21
9550
11-49-1017
40
I1-49-4017
21
9582
.I-49-4017
21
9596
.1-36-3881
32
9598
I1-46-3988
2
9599
II-31-3828
33
9605
I1-31-3828
33
9615
I1-27-3785
18,37
9623
I1-32-3836
42,43
9652
I1-29-3801
28
9670
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2,18
8
9690
II-2M794
I1-35-3872
8
9706
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53
9707
II 31-3828
52
9708
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43
9753.
I-36-3881
41
9758
II-36-3881
41
9762
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15
9770
II-36-3881
15
9801
II-46-3988
45
II-16-3988
45
9822
II-35-3872
4
9834
II-46-3988
46
9847
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48
9872
II-16-3988
16,47
9896
II-35-3872
12
9975
II-35-3872
31.43
9987
II-49-4017
19,48
10020
II-35-3872
9
10021
II-38-3898
49
10043
I1-13-3955
34
10061
II-53-404S
6
10082
II-35-3872
8
10175
I1-48-4011
17
10176
II-35-3872
43
10180
II-29-3801
34
10184
II-29-3801
34
10202
II-37-3889
12
10212
II-18-1011
6
10230
II-16-3988
33
10231
II-41-3925
S3
10261
r II-32-383
44
10266
11-32-3842
44
10285
11-16-3988
33
10300
II-27-3785
31
10304
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31
-48-4011
2
10316
II-47-4001
20
10338
II-43-3955
31
10345
II-39-3906
17
10351
II-39-3906
17
10400
11-50-4027
40
II-49-1017
1.44
10101
II-19-4017
27,49
10433
II-49-4017
35
II-49-1017
42
10440
II-43-3955
5
10441
II-35-3872
39
10446
II-35-3872
49
10449.
Rung.
Rung No.
s
II-28-3794
46
I
1-35-3872
13
I
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38
I
1-28-3794
8,46
I
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40
I
1-41-3925
1
I
1-38-3898
4
I
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29
I
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26
I
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23
I
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12
I
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3
I
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7
I
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47
I
t-29-3807
47
I
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4
I
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38,52
I
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6
I
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10
I
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17,48
I
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31
I
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29
I
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7.45
I
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20,49
I
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20
I
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8
I
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28
I
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7
I
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29
I
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7
I
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31, 39
I
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17
I
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8
I
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22
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48, 51
I
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48,51
I
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9
I
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14
I
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37
I
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5
I
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29
I
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36
I
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12
T|
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26
I
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19
I
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19
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30
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19,48
I
1-33-3847
51
I
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51
I
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4
I
1-41-3925
19
I
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23
I
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39
I
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12
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46
I
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49
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31
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17,48
I
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15
I
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24
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34
II-36-3881
8
I
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34
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25
I
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41
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18
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38
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17
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11
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15, 36
I
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15,36
I
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43
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15
I
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8
I
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27
I
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32
I
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36
I
1-11-3925
4,37
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42
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42
I
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13
I
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14, 16
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26, 49
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Rung.
oard of Ta ppcas-
10514..
10547.
10557.
10563
10578
10577
10578
10579.
10585
10594...
10597...
10617.
10643...
10650.
10673.
10720. _.
1U742
10743
10747..
10755..
1079S
10801
10837...
10847
10S57
10891..
10892
10907.
10978..
10080..
10986
11061..
11064
11066
11067.
11076..
11084.
Con.
/ II-46-3988
II-46-3998
II-52-4039
I1-43-3955
II-34-3862
II-49-1017
I1-49-4017
II-49-4017
I1-43-3955
II-43-3955
I1-42-3945
II-29-3801
I1-18-4011
II-35-3872
II-37-3889
II-38-3898
II-53-4045
II-33-3847
II-37-3889
II-35-3872
II-36-38S1
II-49-4017
II-49-4017
1I-40-3917
II-29-3801
II-34-3862
I1-40-3917
II-48-4011
f II-34-3862
I1-34-3867
II-34-3862
II-34-3862
II-34-3862
f II-36-3881
-36-38S6
II-49-4017
II-38-3898
II-48-4011
II 29-3801
II-31-3828
I1-38-3898
II-45-3980
II-45-39S0
I1-45-3980
II-45-3980
II-15-39S0
II-41-3925
f II-53-4045
II-53-4051
II-45-3980
I -3925
I1-27-3785
f II-35-3872
II-3S-387S
II-48-40
II-38-3S98
II-35-3872
II-29-3801
II-33-3847
rvn- M07
I 11-49-4023
II-43-3955
If -30-3819
II-30-3826
II-37-3889
f II-48-4011
I I-8-1015
I1-39-3900
II-46-3988
r II-34-3802
II-34-3S67
II-35-3872
11-19-4017
I -19-1017
I1-19-4017
II-37-3889
II-32-38S6
I -39-3906
II-53-4045
-:s-4011
II-29-3801
II-49-4017
II-29-3801
II-42-3945
11820 I II-41-3925
11152.
11101.
11162.
11163.
11164.
11186.
11192.
11201.
11224.
11292.
11294.
11298.
11306.
11307.
11317.
11318.
113S0.
113S3.
11400.
1UC8.
11-125.
11448.
11451 .
11454.
11463-
11507.
11556
11558.
11603.
neos.
116-10.
11643.
11672.
11694.
11714.
11742.
11744.
11746.
Rung o.
Page.
41
41
12
10
11
14
14
s
27
14,47
27
24
25
35
29
43
33, 51
20
4
11
6
20
14
39
1
35
27
11
21
21
28
17
29
81
31
10
IS
43
28,50
15
8
S
5
18
10
11
48
19,48
19,48
5
43
19
47.53
47,53
a
14
43
22
25
35
35
16
35
35
43
12.28
12,28
35
17,48
15
Rung.
oard of Ta ppeas Con.
11850
11855
11894
11928
11944
11945
11972
11974
11990
11991
11992
12018
12023.
12024
12028..
12050
12096.
12120
12124
12288..
12309.
12315.
12337-
12355.
12368.
12410.
12433.
12438.
12456.
12468.
12488.
12489.
12492.
12493.
12498.
12587.
12657.
12704.
12739.
12744.
12764.
12S02.
12803.
12811.
12812.
12S62.
12944.
12945.
12962.
12988.
12990.
13004.
13030.
13042.
13055.
13093.
13099.
13100.
13117.
13118.
13119.
13120.
13145.
13179.
13186.
13244.
13276.
13303.
13344.
13393.
13405.
13424.
13436.
13526.
13542.
13565.
13569.
13570.
18571.
13581.
13(195.
13770.
Rung No.
II-46-3988
16,47
II-38-3898
46
II-29-3801
3.45
II-29-3801
16,47
II-37-3889
17
II-53-4045
32,51
II-34-3862
24
II-49-4017
10
II-41-3925
32
II-41-3925
32
II-41-3925
32
I1-27-3785
39
II-48-4011
43
II-48-4011
43
II-41-3925
14
II-36-3881
31
II-45-3980
43
I1-50-4027
50
II-29-3801
24
II-40-3917
22
II-37-3889
4
I1-37-3894
4
II-42-3945
52
II-52-4039
34
II-33-3847
22.49
II-37-3889
9,23
9,23
I1-48-1011
3
II-37-3889
22
I1-32-3830
27
II-40-3917
39
II-48-4011
49.52
II-51-4033
32
II-51-4033
19
II-51-4033
19
I1-40-3917
7
II-49-4017
8
II-48-4011
42
II-48-4011
47
I1-50 4027
9
II-35-3872
38
II-41-3925
40
II-43-3955
8
II-38-3898
32
II-49-4017
34
-35-3872
21
II-35-3872
21
II-41-3925
37
II-49-4017
20
II-49-4017
20
II-48-4011
2,4
II 48-4015
2,4
II-48-4011
6,40
II-33-3847
13
II-39-3906
37
II-50-4027
41
II-33-3847
30,34
II-48-4011
1
11-41-3925
53
1I-I2-3945
6
II-42-3945
6
II-46-3988
6
I1-16-3988
13
II-46-3988
17
II-46-3988
33
II-42-3945
38
II-43-3955
52
II-46-3988
37
II-36-3881
21
II-35-3872
40
II-49-4017
7
I1-19-4017
39
II-51-4033
47
II-42-3945
28
II-50-4027
13
II-40-3917
22
II-36-3881
11
I1-35-3873
27
II-36-3881
12
II-49-4017
27
II-49-4017
29
II-35-3872
31
I1-50-1027
34
II-37-3889
17
II-48-4011
21
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e
n
e
r
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t
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d
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L
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Z
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2
2
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#
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I
Rung.
oard of Ta ppeas Con.
13830
13927
14005
14034
14365 :.-
14370
14387
14452
14577
14080
14868
14924
15000
15235
15310
15610
15687
15888
15928
15996
16011
16025
16097
16342
10029
16959
16985
17002
17019
17082
17191
17334
17509
17646
17698
17780
17856
17882
17907
17945
18115
18119
18143
18145
18436
18516
18518
18611
18612
18613
18614
18615
18616...
18617...
18618
18619
18620
18621
18622
18623..
18624
18625.
18626
18627.
18628
18629.
18630
18631
18632...
18792
18793
19064
19107
19138...
19152
19156...
19271
19279
19619
19783
20046
20047
Rung No.
II-50-4027
II-35-3872
II-34-3862
II-35-3872
II-31-3828
II-40-3917
II-35-3872
II-35-3872
II-41-3925
11-49-4017
II-37-3889
II-49-4017
II-27-3735
II-34-3862
II-37-3889
II-4S-3980
II-49-4017
II-53-4045
II-49-4017
II-49-1017
II-48-4011
II-43-3955
II-35-3872
II-53-4045
II-37-3869
II-48-4011
I1-38-3898
II-19-4017
II-48-4011
II-11-3925
II-40-3917
II-35-3872
II-35-3872
II-35-3872
II-35-3872
II-35-3872
II-49-1017
II-37-3889
II-35-3872
II-48-4011
II-48-4011
II-38-3898
II-48-4011
I1-32-3836
II-38-3898
II-41-3925
II-41-3925
II-41-3925
II-11-3925
II-41-3925
II-41-3925
II-41-3925
II-11-3925
II-41-3925
II-41-3925
II-41-3925
II-41-3925
II-41-3925
II-41-3925
II-41-3925
II-41-3925
II-41-3925
II-41-3925
II-41-3925
II-41-3925
II-41-3925
II-41-3925
II-41-3925
II-41-3925
II-41-3925
II-41-3925
II-49-4017
II-41-3925
I I-29-3801
II-35-3872
II-45-3980
II-27-3785
II-43-3955
I1-34-3862
II-38-3898
II-44-3989
I1-44-3974
II-44-3969
II-44-3974
Page.
31,50
31
5
40
31
23
11
42
47
SO
4
34
18
24,38
29
11
47
43
3
20
17
16
8
13
IS
41
22
27
11,46
4
14
26
: :
25
34. 44
1,25
20
18
13
t
4
6
33
31
52
53
45
53
47
50
62
45
53
53
50
47
M
SO
51
46
51
50
52
46
53
49
53
45
45
14
48
29
11
21
25
Rung.
oard of Ta ppeas Con.
20048
20128
20230
20287 --
20308... -
20399
21024 -
21107 -
21116
21311
21340 --
22194
22557 - -
22631...
23204...
23948
24312
24414
24740 - -
25469
25747
26439
26472
26612
27688...
28049 -
28332
28531
29593
30198
30377 --
32561
34720.
offce decsons (I. T.):
2420
2421 -
2122
2423.......
2424
2425..
2426. I
2427
2428 -
2429..
2430.. -
2131
2433
2434 --
2435 -
2436 -
2437 -
2438
2139 -
2440..
2441 -
2442.
2443. --
2444. -
Offce decsons (MS.):
80 -
81
82.
83.. -
84
So
Mmeographs:
3645
3661... ----
31)52
3654. - -
3(157. - -
3659.
3660.
3607 -
36S9
Msceaneous -
Rung No.
II-44-3969
. II-44-8974
II-37-3889
II-40-3917
II-32-383G
II-51-4033
II-47-4001
II-35-3872
II-29-3801
II-35-3872
II-53-4045
II-35-3872
II-31-3828
II-47-4001
II-88-S898
II-38-3SS1S
II-35-3872
II-41-3925
II-28-3794
II-50-4027
II-29-3801
II-13-3955
II-49-4017
. II-49-4023
II-20-3801
II-34-3862
II-41-3925
II-49-4017
II-49-1017
1I-4S-4011
II-49-1017
II-33-3847
II-49-4017
II-34-3862
II-38-3898
II-27-3788
II-28-3796
I1-29-3803
11-29-3806
II-29-3810
11-30-3821
II-31-3829
I1-33-3852
II-33-3853
1I-34-3S64
I1-37-3890
I1-37-3891
II-39-3908
I1-42-3946
I1-43-3960
I1-16-3992
II -16-3993
II- LS-40 t
II 49-1020
I1-49-4021
11-50-4029
II-50-4030
I1-50-1031
II-51-4034
n-28-3798
11-32-3846
11-37-3895
11-42-3953
I1-47-4W
-51-4037
II-27-3786
I1-30-3823
II-30-S824
I -30-3S25
11-30-3822
11-32-3837
11-32-3843
I1-37-3897
11-53-4046
-14-3978
M-M 2
rvn-M
I 11-53
G
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CONT NTS O CUMUL TI ULL TINS (I. T.) 1 TO 5, S. T. OR 1920 ND 1S2I, INT RN L
revenue 1-1,1-2, n-, n-2. m-, ra-2, v-, rv-2, v-, v-2, v-, v-2, vn-L ND vn-2.
Cumuatve uetn.
Rung Nos.
Income Ta :
December, 1919 (No. 1)
anuary- une, 1920 (No. 2)
uy-December, 1920 (No. 3)
anuary- une, 1921 (No. 4)
uy-December, 1921 (No. 5)
Saes Ta :
1920 (ST. 1-20)
anuarv- une, 1921
uy-December, 1921
Interna Revenue uetn:
anuarv- une, 1922 (No. 1-1)
uv-December, 1922 (No. 1-2)
anuarv- une, 1923 (No. II-)
uy-December, 1923 (No. II-2)-.
anuarv- une, 1924 (No. III-)..
uv-December, 1924 (No. 111-2).
anuary- une, 1925 (No. I -1)..
uv-December, 1925 (No. I -2).
anuary- une, 1926 (No. -)._.
uy-December, 1926 (No. -2)-_
anuary- une, 1927 (No. I-1)..
uv-December, 1927 (No. I-2).
anuarv- une, 1928 (No. II-1)..
uv-December, 1928 (No. II-2)
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
3785-4052
( )
G
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d
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1
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1
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O RD O T PP LS.
CUMUL TI LIST O NNOUNC M NTS R L TING TO
D CISIONS O T UNIT D ST T S O RD O T
PP LS PU LIS D IN T INT RN L R NU UL-
L TIN S R IC ROM D C M R 22, 1924, TO D C M-
R 31, 1928, INCLUSI .
11-53-4045
The Commssoner acquesces n the foowng decsons of the
Unted States oard of Ta ppeas:
Ta payer.
oard of Ta ppeas.
oume.
.
aron, Theodore
battor Reaty Co
bbeve Cotton Ms
ckerman- ohnson Co
cme Ms, Inc
cme, Pamers DeMooy oundry Co
corn Refnng Co
dams, . G
dams Motor Co
damson, Chares ., trustee
daskn, erman
der Co., The...
der, Segmund
. G. S. Mnng Co
guar Land ssocaton, The
|a Coa Co
|a nameng oundry Co
abama Coca Coa ottng Co
ba o Paper Co
e ander Manufacturng Co
merca Cabes, Inc.
en, . ..
en, Mrs. .
en et. a., ames ., e ecutors
en, Lous
ance Mng Co
ng Cory Co.4
sop, dward ., estate of4
sop, dward ., e ecutor5.
umnum ake Co
Rung No. 4045 ncudes a acquescence and nonacquescence notces pubshed In the Interna
Revenue uetn servce to and ncudng December 31,1928.
1 cquescence reates to a ssues e cept as to tentatve ta .
1 state ta decson.
cquescence reates to a ssues e cept the thrd ssue.
state ta decson acquescence reates ony to 1912 trust.
13055
12
556
3346
3
415
11903
10
646
9265
11
820
1598
6
1065
4211
3
1126
1929
2
253
4361
5
113
3522
4
589
17780
10
763
9591
8
460
10847
10
849
3078
4059
787
9229
8
1260
3718
3
705
7476
7
305
7343
7
1230
1164
1
837
1907
4
1184
5656
9
347
9092
10
213
7290
7
1256
7289
7
1256
8690
8
693
383
2
1313
15649
10
457
6606
7
574
6519
7
S4S
6519
7
848
4669
8444
1193
(1)
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2
Ta payer.
mercan uto Trmmng Co. et a
mercan o Co
mercan Coortype Co
mercan Cream of Tartar Co
mercan rut Growers, Inc
mercan- awaan Steamshp Co -
mercan Lace Manufacturng Co
mercan LaDentee, Inc
mercan Manganese Stee Co
mercan Ms Co
mercan Packng Co., Inc
mercan Photo Payer Co
mercan Seatng Co.1.
mercan Show ntertanment Co
mercan Stee Co
mercan Stone Co
mercan Teegraph Cabe Co
mercan 3 Way Lu fer Prsm Co., Inc
mercan Trust Co., admnstrator 2
mercan ave Co
mes, ohn S
mgo Coa Co
nderson Gustafson
nderson Lnd Manufacturng Co
nderson, Gustave ., trustee
nderson- arrngton Coa Co
nderson, Isabe
nderson, ohn, estate of
nnston Cty Land Co ------
nthracte Trust Co., admnstrator estate of ohn
oseph rown, deceased 1
ntonopos, George.-
ntonopos, ast
ppe et a., bert ., e ecutors.
ppe, acob, estate of
ppegate, Raph ndrew, e ecutor
ransas Compress Co
rchbad, |r., et a., R. W., e ecutors
rchbod, ohn ., e ecutor8
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
tantc Coast Lne R. R. Co..
tas Tack Co
tterbury, Grosvenor
ubrey, George
uchncoss, . owand, e ecutor
Docket
oard of Ta ppeas.
No.
oume.
Page.
3430
6
1007
5418
3
824
7901
10
1276
2078
2
847
9043
11
635
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
5935
9
571
12962
13
105
4696
4
1204
8895
9
1336
11684
8
598
1556
3
531
3074
2
1297
32561
10
1376
743
6
759
1394
5
27
32561
10
1376
1368
2
526
4947
3
486
3925
3
1236
4013
3
1236
7041
10
1225
7041
10
1225
7970
10
705
4378
8
155
4695
4
483
8629
8
919
342
1
634
3297
6
384
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
24312
11
917
1 cquescence n 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) 500 for counse fees.
1 state ta decson.
state ta decson: acquescence reates to thrd ssue of decson.
cquescence reates to frst ssue of decson.
Nonacquescence notce n the case of Grosvenor tterbury (C, , I -1, 4) recaed.
G
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n
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3
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2
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3
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#
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3
Ta payer.
udtorum Co
uerbach, Sao
ustn, . Phmer, estate of.
uther, oseph P
uto Specates Manufacturng Co.
utovent an ower Co
ver -, Thomas
von Ms
von Street Trust
ycr, Wam P.
15.
ach, L.. estate of..
ackus Sons, ., |r
adger Takng Machne Co
ahr, W.
aey, ohn
ae, e ander
ac, Mrs. e ander
ard, ames
ard Machne Co., The
aker Lumber Co
aaban atz Corporaton
afour, Sr Robert
amert, . T
ank of rady -
ank of Commerce
ank of artsvc, The
ank of Rockngham
anna Manufacturng Co
arker, O. -
arnes Coa Mnng Co. and Coumbus Coa
Mnng Co
arrows, etcher L
arry, .
arry, ohn nthony
artey, R.
artron, .
ass Pubshng Co., . P
astrop Mercante Co., Ltd
atson-Cook Co
aumann et a., Ma , e ecutors
aumhoff, George W
ay State Securtes Co
eacon Coa Co.1
ecker, S. L
ecker ros
ecker Paper Co...
e, ames
c- ogcrs Zemurray ros. Co
eamore, Davd
cngrath, W.
emont Stone Co.2
Docket
No.
erdse O Co
et Raway Co. of Chcago
cms, sr., Thomas
endhem, . M., estate of
4483
1976
9357
2778
10449
15928
240
27688
6246
4459
16230
10637
3777
10239
5020
3901
4784
4783
9393
201
3271
5386
2344
3227
1899
4S00
909
4682
762
35S3
3209
3158
99
1724
2623
2721
11742
8124
5458
6981
1624
3685
11894
9949
16954
4555
8859
1220
6385
2018
12410
28531
6296
4280
3100
7964
oard of Ta ppeas.
oume.
5
2
10
5
5
11
7
3
10
0
G
s
10
3
12
12
4
2
2
0
2
S
3
10
1
3
1
3
3
1
1
2
1
3
12
7
0
s
:-:
3
8
.
10
7
1
:
12
I
0
s
cquescence reates to second nnd thrd ssues of decson.
cquescence rentes ony to ssues nvovng computaton of net ncome for 1918 and 1919 and
e cessve deprecaton restored to ncome for 1918 and 1919.
G
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2
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1
3
-
0
1
-
2
2
0
3
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3
3
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5
4
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6
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4
Ta payer.
endhem, enretta
endhen, uus, e ecutor
euham Ice Cream Co
enne, George ., estate of1
cutev, .
enton County ardware Co
ern, Inc., Irvng .
ermngham Lumber Co
ernard s, Inc., George
ecnd, ohn M
ernsten, . R
ernsten, anne
ernstorff, ans
esse, Ma we
essemer Investment Co
ettendorf, oseph W
ettens, bert
ckett-Swett Lvestock Co
ckey, Mton _-
g Rapds ectrc Co
g Western O Gas Co
s ros. Memora Corporaton
rd, Samue
rkeand, .
rmngham Trust Savngs Co., e ecutor.
rn, enry
tter Root Stock arm
|ornstad, Otto
ack Yates, Iuc
acke, . W
ackstone, D. L., admnstrator
ar eneer Co
ake, ohn . L
tzer, Ma
och, .
ogg Lttauer, Inc
oom ros., Inc
oomfed, rederck
hdworth, Mrs. W. M
ue Rdge Overas Co
ue Rver Pacer Mnng Co
umentha, S.
oadwee, Isahee M
oas, Chares S., estate of
ockhofr, arry W
oercke Runvon
ogart, Lacey L., admnstrator Leon C.
estate
Rggs
oggs uh, Inc
oggs, Mary Waker, e ecutr
oggs, R. ., estate of 1
oge Co., Inc., W. S
onger- rankn Lumber Co
onaparte, en C, estate of...
onneve Lumber Co
oone, D. W
oone, .
oone, ames D
oone, W. .
state ta decson.
Docket
oard of Tn ppeas.
No.
oume.
Pago.
7963
8
158
7964
8
158
3401
5
97
12962
13
105
2512
5
314
9S96
10
869
3049
2
377
2654
1
1201
5410
8
716
3340
4
201
1258
6
323
1258
6
323
4054
8
787
4971
3
507
5295
8
1011
2035
3
378
1488
2
535
8347
12
328
297
1
544
14868
9
737
7150
9
427
1340
7
1182
6721
4
259
3464
3
209
7440
5
245
610
1
416
5777
10
81
18115
12
20
3442
2
873
2282
2
747
10401
12
456
0703
5
886
7461
9
651
5443
3
696
10076
6
503
5297
3
427
9440
10
710
6501
6
298
6285
7
495
10210
0
1335
6299
8
166
170S2
12
1205
10743
11
1205
1139
2
522
3200
3
560
29S1
3
684
1932
2
668
f 9269
1 18119
612
12309
11
824
12309
11
824
2208
5
541
8077
7
402
1652
1
1101
3657
2
489
3053
9
442
3052
9
442
3051
9
442
3103
9
442
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2
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1
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1
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2
2
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3
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5
Ta payor.
ooth urnture Carpet Co..
orden, Spencer, estate of 1
urden, |r., Spencer, e ecutor
osshardt, rank __
oston Store, Inc., The
oston Structura Stee Co
otsford-Constantne Tyer,.
oucher-Cortrght Coa Co
ouden, Chares
owen, an
owman, . W
ovce tract Co
o d, .
oyer Co., .
oyne Cty Lumber Co
oynton, Chares T., estate of.
oynton Gasone Co
radey, W. C
radshaw, Rosena
rady, dwn
ray- ergU on Cn Co
rand, fred
rand, Php R .
randcs 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
rav, Rchard, estate of
rehmer, ugust . W., estate of 1
rehmcr et a., Otto T., e ecutors 1
revoort ote Co
rewer Co.,
rewster Laundry
rggs Turvas
rsto, P. L
rtt, en|amn T
rtt, Mary ., estate of
roadhead, met N., estate of
roadhead, Shedon ., estate of
roadhead, Wam ., admnstrator
rodbeck, Lucy
ronson, W. S
rooks Sons, M. S
rown rown, Inc
rown, dward T
rown, dwn M
rown, enry I
rown, ames
rown, ames Crosby
rown, ohn oseph, estate of1
rown, Rrves S., e ecutor
rown, Thatcher M
Docket
No.
426
5909
5909
4430
4216
S36
97.59
11610
6764
7965
2690
7467
9327
6751
5739
10495
840
5342
0909
6910
47
5621
7434
5399
8572
8132
1545
1546
7390
2836
730
730
2801
2801
5844
5844
539
78
14005
11672
9173
1905
1904
3897
3896
3897
11647
20527
7747
9748
7994
499
3075
11101
11224
4947
6056
11162
oard of Ta ppeas.
oume.
6
6
6
4
7
1
10
7
7
2
8
9
6
4
10
5
1
4
7
o
5
5
3
3
4
2
6
6
4
4
9
9
1
1
10
11
10
2
2
7
7
7
8
9
10
10
6
1
4
10
10
3
4
10
state ta decson.
G
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2
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1
3
-
0
1
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2
2
0
3
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3
3
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#
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6
Ta payer.
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 r---1
runer Wooen Co., Inc.
runner, rnod W., estate of
runner, mma ., e ecutr
rush, George De orest
uck, en ., estate of
edngen, 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, ernco
uock, .
urgess, Rchard
urg, Oscar
urgo, .
urgueres Co., Ltd., . M
urke ectrc Co.1 |
urkhart, Rosa
urktt, George W., estate of 2
urev Tobacco Co. of rankfort
urngton Overa Manufacturng Co., The.
urns, . R
urns, Samue
urns, W.
urnsde Stee Co
urr, erome P
urr, Water C
urtse et ah, ertram W., e ecutors
nsche, . C.
uss Co
uter Grocery Co. et a., ames
uter, Inc., ohn W
y fed, Gadys R
yron Shoe Manufacturng Co., Inc.
ywnters, . unter
vwaters, P.
ywaters, R. S
C.
Cadac utomobe Co. of Inos.
Carns, .
Docket.
No.
2975
7967
12703
11134
21634
4937
10995
1037
93
129
4055
176
7892
3719
3719
6568
12988
5855
2306
3170
3170
6035
6035
6888
6888
7566
13117
1311
5782
4232
S601
1697
2749
2038
21311
2106
12611
8673
4753
3292
13099
13100
2650
9447
10202
10755
2952
5978
1572
989
463
6288
6287
6289
oard of Ta
oume.
2657
18143
4
8
9
9
4
8
6
1
1
8
1
6
5
5
9
12
6
3
5
5
9
9
7
7
7
12
3
6
4
12
5
11
3
13
2
5
13
12
3
11
11
6
10
2
1
2
1
7
7
7
5
12
601
20
cquescence rcntes to ssue 5, as to patent group No. 2, and ssue 6.
a sac tu decson.
G
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2
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1
3
-
0
1
-
2
2
0
3
:
3
3
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3
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0
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0
8
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0
5
4
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6
9
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7
Ta payer,
Docket
No.
oard of Ta ppeas.
oume.
Pago.
Caforna rewng ssocaton 1
Caforna Canneres Co
Caforna Deta arms, Inc..
Caanan Road Improvement Co
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
Can von Lumber Co
Cape, . W.
Capta Cty Investment Co
Capto ote Co.1 --
Capto Park ote Corporaton. . .
Capto Securtes Co
Capto Theatre Co
CapS| Mary, deceased, estate ofs-
Capps, Lna
Carbo Petroeum Co.
Carey, C. W.
Carse Garment Co
Camchae, D. L
Carmchae, .
Carney, Rchard
Carpenter, D. M
Carpenter, ohn
Carpenter, Mary
Carpenter, Mary ., admnstratr .
Carpenter, Maud ., estate of
Carro Chan Co.
Carro Mercante Co., . S
Carter Co., W. W
Carrer, Yarren,
Case Pow Works, . I
Cassdy Co., Inc -
Ceuod Co --
Centadrnk ters Co., Inc
Centra musement Co
Centra uto Market
Centra States Coa Co
Chamber of Commerce udng Co
Champon Coated Paper Co
Champon Stove Co
Chander, . --
Channon Manufacturng Co., ames .
Chapn Laundry Co
3903
2228
9820
13303
4991
9313
5631
373
304
7111
7112
3141
4917
7069
5376
6610
7134
7705
3031
6224
6720
4451
9524
2432
3632
12061
12493
7027
11072
11073
11071
11070
11070
104
4222
11744
689
9605
664
9368
8543
19459
5214
2418
8327
8735
9598
19279
870
4039
6803
7650
5
2
6
12
3
9
6
1
1
6
6
3
4
7
4
5
3
8
4
2
12
6
3
6
12
6
8
8
8
8
8
1
1
11
3
11
6
2
7
4
11
10
1
3
8
6
cquescence reates to deducton of contrbuton to State rewers ssocaton and affaton
the Remar Co.
cquescence does not reate to that part of decson nvovng appcaton of yers decson (1
113S).
1 state ta decson.
cquescence reates to a Issues of decson e cept fourth Issue.
cquescence reates ony to Issues 2 and 4 n decson.
Nonacqucseence notce n case of Carro Chan Co. (C. . I -I, 4) recaed.
37229 -
347
109
1301
1109
C02
1123
561
441
720
446
446
1067
940
1076
933
441
1160
75
287
983
1271
166
539
1119
456
455
457
675
675
675
675
675
38
1157
849
900
981
190
989
662
886
973
1134
720
433
656
146
959
609
wth
T. .,
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2
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1
3
-
0
1
-
2
2
0
3
:
3
3
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8
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5
4
3
6
9
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#
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e
8
Ta payer.
Chareston Securty Co., e ecutor
Charters Creek Coa Co
Chatham Phen Natona ank
Chattanooga Mattress Co
Chatterton fe Son
Cherokee Ochre Co
Chcago cceptance Co
Chcago re rck Co
Chcago, Indanapos Lousve Ry. Co
Chcago Insuated Wre Manufacturng Co
Chcago Raway qupment Co
Chds Co., W. --
Chshom s Sons Co., Wn. (Chshom Shove Co.)
Chormann et a., gnes . C, e ecutors
Chormann, rederck, estate of
Chrstensen, N. P
Church fe oes Co
Cncnnat Mnng Co
Ctzens Loan ssocaton
Ctzens Natona ank
Ctzens Trust Co. of Utca
Ct y Park rewng Co
Cark, . ., estate of
Cark, Grace Scrpps and Re
Cark, arod
Cark, Le M...
Cark Co
Cark Co., ames T
Ceveand ome rewng Co
Ceveand Snow-Church Co
Ceveand Wooen Ms
Coates, ane
Coatesve oer Works
Cobb, L. S
Cockran, . T
Cocks-Cark ngravng Co
Codrngton, the M
Coffn, Irene
Coffn, Wnthrop
Coghn ectrc Co
Cohn Sons Co., M.1
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
Coumbus Cannng Co
Coumbus Coa Mnng Co
Co vert, Warner L
Combs, W. ., sr
1 cquescence reates to aowance of offcers saares.
oard of Ta ppeas.
No.
oume.
Page.
3843
4
1269
9652
10
984
107
1
400
3714
4
464
6057
5
105
9846
9
406
12764
12
150
11063
10
180
11152
10
1143
2380
10
1195
3964
4
452
4127
3
855
1840
3
1070
10345
10
920
10345
10
920
4380
7
625
3526
4
1067
8427
8
79
412
1
518
6148
5
156
3373
2
1239
7973
10
925
820
6
1085
536
1
491
1707
2
555
8049
9
460
5785
4
356
3660
5
1291
73
1
87
169
1
234
6029
8
49
5456
3
429
/ 8603
1 16097
1242
7136
9
547
3801
3
215
6604
8
468
4685
6
415
5930
8
421
f 11556
12498
12
702
1 2S049
1879
3
1071
f 7361
9238
87
7167
7
475
9134
7
903
9133
7
903
4891
3
835
3004
3
947
764
1
534
5986
5
102
11148
7
913
550
1
561
1414
3
622
5823
4
1126
9582
10
1085
3209
3
891
9170
6
623
10182
6
249
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9
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Comey ohnson Co
Commerca Co. of gypt, Inc
Commerca urnture Co..
Compton, nna L., e ecutr
Compton, orace ., estate of
Constock-Caste Stove Co
Concord ectrc Co
Conen, Wam
Connectcut ectrc Manufacturng Co
Connectcut Natona Pavements, Inc
Conne, zra ., estate of1
Connorzed Musc Co
Conover Co., C.
Courad ardware Co
Conrad Shoe Co
Consodated ectrc Lamp Co
Consumer s Coa Co
Consumers Ice Co
Conway, dran C
Cook, . G
Cook, ohn
Cook, R. ...
Cooper, . . T., estate of
Cooper, . T
Cooper, C.
Cooper, dna
Cooper, Samue
Cooper- rauan Nava Stores Co
Corbett, ott R
Corbett, amton .
Corbett, enry L
Corman Co
Cornng Gass Works
Corscana Gas ectrc Co
Cotton Concentraton Co
Couch, . C
Couter, |r., Chares __
Covert, sther ee 1
Covngton Cotton O Co
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
Crag O Co
Crak, ohn
Crampton, atharne S., e ecutr
Crampton, Orson L., estate of 1
Cranda orse Co
Crane, rederck G., estate of.
Crane, Rose P., e ecutr
Cravens, Water
Crawford Loan bstract Co_
Cray, ames R
Craytou, . S.
1 state ta decson.
11133
5810
6507
8519
8519
3347
4355
815
7549
3448
12368
7179
9830
11584
597
555
8121
12704
1614
1741
6331
3643
12634
3144
2206
2206
959
10068
11836
16643
11837
6227
9826
4499
4625
202
8181
20048
5534
691
691
6805
2121
9706
20230
2283
11362
11362
7924
10695
15374
167S9
10095
15374
16789
3381
7681
6364
11306
8
3
8
11
11
4
7
1
6
3
11
7
7
8
1
1
10
11
9
5
4
3
9
7
4
4
1
9
8
8
S
13
9
6
4
1
6
12
12
3
3
0
5
2
10
10
8
3
10
7
11
G
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n
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r
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f
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(
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2
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1
3
-
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1
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2
2
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3
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10
Ta payer.
Cremn, .
Cremn, T. O
Crescent Cap Co., Inc
Crescent Coa Mnng Co. --
Crews, C. W., estate of
Crews, Davd W., estate of 1
Crews et a., rank .1
Crews, ate Downng, admnstratr .
Crder ros. Commsson Co
Croker, |r., Rchard
Crompton udng Corporaton.
Crosby, verett U
Cross Investment Co
Crossman, are L
Crothers, R.
Crouse, Cavn
Crowc Corporaton
Crowe Lumber Gran Co
Crown Cemetery ssocaton.
Crown Manufacturng Co
Cruger Co
Cuba Grapefrut Co., Inc.
Cuman, . S
Cuum, Lous W
Cummngs, W.
Cunnngham Sons Co., R.
Curee, W. S
Curts, rank G., estate of
Curts, arret ., deceased, estate of.
Curts, Lous
Curtss, George W
Cusack Co., Thomas
Cushman Manufacturng Co., . T
Cuyahoga Co., The
Day News Pubshng Co., The
Day Pantagraph, Inc.2
Darada Reaty Co., Inc
Daton, dward
Daton Gymnasum and Swmmng Schoo, Inc
Day, Davd R., estate of
Daa Co., Inc., Wam
Dane ros. Co
Darng, ay N .
Darrow, rank D
Dartt Co., C.
Davs, C. R
Davs, I. M
Davs, Mrs. W.
Davs, Sade S., e ecutr 1
Davs fe ndrews Co
Docket
No.
9197
9198
10557
2208
981
9010
9010
981
128
5085
13847
6096
4301
3764
799
7052
19619
5841
3717
5411
366
s
532
9450
11974
7954
15828
16487
5914
2678
10640
7099
1638
4720
442
11164
2327
1987
2113
3721
4158
4126
5275
1657
194
1373
11064
10840
6302
929
1372
10299
2616
8219
3877
2691
oard of Ta ppeas.
oume.
5
5
10
6
s
s
8
8
10
12
2
4
2
10
5
11
5
12
11
5
3
9
10
6
6
3
10
4
3
2
3
4
9
5
2
1
3
11
7
4
S
5
10
2
S
9
2
1 state ta decson.
a cquescence reates ony to determnaton of pad-n surpus at date of organsaton and rates of
deprecatou.
G
e
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1
3
-
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1
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2
2
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3
:
3
4
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#
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11
Ta payer.
Davs Co., The - -
Davs Yarn Co., Inc
Dean, nne L
Deck Camp Tank Co
Deerand Turpentne Co
Deano, ugene, estate of
Deano, Moreau
Deano, Moreau and Wam .
Deatour everage Corporaton.
DcLsser, orace, estate of 1
Dcto Grass Rug Co.
Denhom Mc ay Co
Denta Co. of merca
e ecutors.
Denver Crown Ry. Co
Des Cogncts, sr., Lous...
Desher ote Co
Des Mones Improvement Co
Detrot gg scut Specaty Co.
Detrot apor Stove Co
Deutsch, uus W
Do an Co
Dewey, Mdred McLean
Dbbe, Leon N., e ecutor 1
Dbbe, Lous N., estate of 1
Dcenso, epo
Dckey Grocery Co., L. Z
Dcknson, .
Desng, red D., e ecutor
Detrch, Gustav
Detrck, erman T
D, Lews
Dng Cotton Ms
Ds ros. Co
D e Manufacturng Co
Dobson, ames
Dockum, arry
Doernbecher Manufacturng Co
Doherty Co., en C
Domenco ante s Sous, Inc
Donaghcy Rea state Constructon Co.
Donadson Iron Co
Donason, re M., e ecutor 1
Donason, ohn ., estate of1
Dougas, George P. and esse P
Dougas Park ockey Cub
Douty, .
Downg, Robert
Downng Co., T. D
Duncan Co.,
Dunn Co., ohn
Dunson Ms
Durabt Stee Locker Co
Durkn, P. rank
Dustn, nne M., estate of4
Dyer et a., George R., e ecutors 1
oard of Ta ppeas.
No.
oume.
Page.
5497
6
281
6885
8
299
1552
3
896
11227
10
191
6182
4
1236
15610
10
1036
11165
10
1036
15610
10
1036
10892
12
412
2459
2
102
6926
7
811
643
2
444
3331
3
343
118
532
773
8112
7
286
5025
7
158
8573
7
279
10563
9
1365
5663
4
1043
3005
2
729
8630
7
94
5040
10012
1155
2528
6
732
2528
6
732
13526
11
620
156
1
108
5193
8
722
548
1
507
8367
10
141
9730
6
1371
4563
3
65
1794
2
127
3575
2
983
475
1
641
863
1
1082
3874
11
39
14387
19152
248
10300
11
812
4468
2
1098
1050
5
766
5762
9
1081
1629
6
455
1629
6
455
288
1
372
5738
9
496
13329
9
218
11449
8
676
2276
2
469
3152
9
1210
7020
8
955
17019
10
1150
3121
5
239
3644
4
743
8629
8
919
3351
5
711
state ta decson.
9 cquescence reates to frst ssue n decson.
cquescence reates to ssue wth respect to stat ute of mtatons,
state ta decson acquescence reates to thrd ssue of decson.
G
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1
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2
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12
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
5593
4
24
13565
12
96
8664
11
796
12163
S
1169
4240
.3
41
9762
10
1245
2685
2
463
2684
2
463
2686
2
463
679
2
19
1171
2
19
9354
10
110
3940
4
967
3940
4
967
1842
1
998
10021
10
39
581
1
556
6413
7
152
4695
4
483
2270
2
603
6995
6
74
7096
7
290
11954
10
508
10639
9
1404
7636
5
309
6503
6
89
22557
11
101
672
2
44
7049
10
79
7048
10
79
11448
12
681
6S05
6
1322
802
1
760
6193
8
1239
5981
8
1289
8471
10
1248
10006
9
588
10251
7
919
10250
7
919
2333
3
51
2208
5
541
362
3
897
7347
5
806
3221
3
1180
6797
8
867
1669
2
115
6403
12
1232
21107
10
716
19022
9
416
19022
9
416
10547
11
818
3706
6
44
1601
3
726
7268
7
172
9823
6
1069
.
age Shoe Manufacturng Co., Inc
are, s P
ast Market Street ote Co.
astern Shoe Manufacturng Co.-.
astack, ames L
astand, Thomas
aton, Chares
aton, zra Z
aton, Macom
cksten, se S
cksten, Lous
dgar, Cnton G
dmonds, eanne, e ecutr
dmonds, ohn W., estate of
dmunds, . M ,
dwards, Water
gan ausman Co., Inc
ggnk, enry
hrch, |r., ranz, estate of
mer mend
ba Manufacturng Co
ectro Magnetc Too Co
as ro., Inc., G
ott, W. IT
m Cty Cotton Ms
m Cty Nursery Co
mhurst Investment Co
Paso Southwestern Co...
Paso ectrc Co
Paso ectrc Ry. Co
sasser, Neson ., e ecutor 1
mpre State nance Corporaton.
ngander, . L
ngcman, .
ngeuan, M. S
nns- rown Co
ntress rck Co
rwu, . C
rwn, Mrs. . C
scave, |r., Wam M
ssanbee Mnes Co
ttenson Wnng Dry Goods Co---
vans, Leroy G
vans, W. L
vens oward re rck Co
ves, . C
yestone, rank .
ysenbach, Oscar
.
archd, Marcus D., estate of
archd, Nee ., e ecutr 1
aketnd Shp Co
atco, George
arow, Samue, estate of
arm Impement Co
1 state ta decson.
G
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d
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(
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2
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1
3
-
0
1
-
2
2
0
3
:
3
4
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8
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5
4
3
6
9
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#
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13
Ta payer.
armers fe Merchants Natona ank
armers Merchants Natona ank of Nocona,
Te .
armers Merchants State ank
armers ank Trust Co., e ecutor 1
armers Cooperatve ssocaton
armers Cooperatve Co
armers evator Co
armers ue Co
armers Loan Trust Co., admnstrator :
armers Loan Trust Co. and Isabee W. Tford,
e ecutors
aro- tte Co
ear Co., Inc., red
edera earngs Co., Inc
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
bre Yarn Co
cken Tobacco Co., .
dea Investment Co
dety Trust Co
nance poraton Deveopment Corporaton
of merca
nck Co., enry
nk Co., George
nsver, Chares.
ppn, . 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
rst Natona ank of Marow, Oka
rst Natona ank of Rock Rapds, Iowa
rst Natona ank of Seepy ye, Mnn
rst Natona ank of Stoughton, Ws
rst State ank
sher, Car G
tchburg Steam ngne Co
a num Insuatng Co
emng, C. ., estate of 1
emng et a., dmund ., e ecutors 1
eteher, Chares ., estate of 1
nt, rnest P
nt Rver rck Co
orence Ms, Inc
orda Grocery Co
oer Wa Pa er Co
oey, D. O
ontus Shoe Co
orbes, Rose D
Docket
No.
5570
12990
1811
10914
654
16342
13424
210
1399
3286
737
9327
9233
2003
1055
5604
2089
5592
8980
2216
3671
7475
7244
10440
983
4920
6805
4339
1369
6468
980
740
6913
19
8021
1280
2817
9889
687
2334
2790
2581
7594
433
5120
7212
7212
7856
17945
746
10383
151
10103
13118
9944
10236
oard of Ta ppeas,
oume.
10
2
10
7
13
13
1
3
3
1
9
9
1
6
3
7
5
5
9
10
10
2
4
6
4
5
s
2
2
6
1
7
6
6
7
2
5
7
1
5
9
t
12
2
9
1
9
12
7
7
1 state ta decson.
Nonacquescence notce n ths case, pubshed n Cumuatve uetn I -2, recaed.
G
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1
3
-
0
1
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2
2
0
3
:
3
4
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#
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e
14
Ta payer.
orbes, W. S
orgeus, . W
orrester, D. ruce
orrester, W. S
orrester-Nace o Co
orstmann, uus
ort Orange Paper Co ---
ort Wayne ngneerng Manufacturng Co.
ort Worth Warehouse Storage Co
oster Gasse, Ltd
ostora Mng Gran Co
ower, sr., . S
o Rver Iron Co
ranccscon Co., . C.1
rancs, T.
ranke, Osmond ., e ecutor2
ranke, Inc., So
rankc Tton, Inc :
rankn, Wrt
rankn Ms
rank-Severs Undertakng Co
raser, rthur C
raser rck Co
raser, George
razer, red
reedom O Works Co.
reeand Catte Co
rees, |r., Peter ---
rey, |r., et a., Mtche M., e ecutors Wam .
Scafe estate
redench Sons Co.,
rend, George
rend, Oscar, e ecutor estate of erman . Meyer.
nschkorn, . S
rost et a., . Y., e ecutors
ruen Investment Co
uer, O. R
uton, Guy
urst ros. Co
G.
Gaats, erry
Gaen Paper Co
Gaumbeck, C
Gavn, ohn M., admnstrator,
Gambee, Wheeer
Gauon Meter Co
Gardner, .
Gardner Governor Co.3
Gardner Prntng Co
Garretson, Sopha M
Gaskns, . W
Gassuer, Lous
oard of Ta ppeas.
No.
oume.
Page.
7141
7
611
2881
6
291
10576
12
104
10577
12
104
19064
12
104
2521
6
21
641
1
1230
489
2
1223
3864
6
536
9232
5
118
17191
11
1401
3260
4
427
4743
5
810
10585
10
658
2525
2
1087
3182
3
1207
3253
3
494
307
1
510
9266
7
636
9267
S
977
11423
7
1290
2194
3
94
6495
6
346
12028
10
1252
5929
6
997
9865
10
409
9707
17882
9
823
20128
9518
8
1236
11307
12
737
391
1
338
3412
2
1318
5000
8
712
1062
4
6S6
7879
7
431
10441
12
1295
1126
2
542
10801
11
1025
9362
11
641
3362
2
960
10747
8
213
1377
5
76
10641
9
1404
820
6
10S5
3972
4
1234
395
1
1124
5218
7
10S9
321
5
70
5061
4
37
5818
10
1381
4242
4
619
4017
4
1071
cquescence reates to frst ssr.o of decson.
state ta decson.
3 cquescence duos not reate to that part of decson nvovng appcaton of yers decson (1 . T. .,
1135).
G
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)
o
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2
0
1
3
-
0
1
-
2
2
0
3
:
3
4
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2
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2
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3
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0
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0
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8
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0
5
4
3
6
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15
Ta payer.
oard of Ta ppeas.
No.
oume.
Tage.
4517
3
226
11084
8
726
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
10338
11
151
227
1
337
14029
10
165
3500
2
1290
5992
7
860
10176
7
955
5389
4
1073
11615
9
1355
243
1
249
11463
11
92
11403
11
92
6335
7
151
5161
3
425
8268
6
1142
8269
6
1142
4220
8
1277
3264
4
389
3263
4
388
4007
4
165
21337
9
1200
21338
9
1209
10304
11
833
6631
5
1210
2470
3
311
5224
11
305
8553
5
297
887
1
GS4
24631
8
1166
1356
2374
8
13
2373
8
13
Gate Cty Coffn Co
Gatff Coa Co... -----
Geger raverman urnture Co.
Gem State Lumber Co
Genera Lead atteres Co
George, Mke
Georga Car Locomotve Co.1
Georga Manufacturng Co
Georga State Savngs ssocaton..
Georga eneer Package Co
Germantown rad Co
Gerst et a., erbert _
Gettys.M.
Gant Tre Rubber Co
Gfford, arry N
Ges, da R
Ges Co., George
Gen, Margaret
Gespe, Rchard T
Gam Manufacturng Co
Govch fe Co., oe
Gson, arry W
Grard Coa Co ,
Gackner Reaty Corporaton, ohn
Gady Manufacturng Co
Gobe Outet Co
Goener urnture Co
Goerke Co., The
Goconda O Co
Godberg, arry S
Godberg, Lous M
Godberger, Leo G
Godman, Lous ., estate of2
Godman et. a., Robert P., e ecutors2-
Godsmth, Lan M
Godsten, Davd S
Godsten, as
Godsten, Mrs. as
Goodn, C. W., estate of2
Goodng, Mrs. . G.3
Goodng, Mrs. red W.s
Goodatte, Raymond R
Goodwn, C.
Goodwn, Moe
Goodyear, Chares ., estate of 2
Gopher Grante Co
Gordon urnture Co
Goss Prnt ng Press Co
Gottfred, edwg
Gotteb ros
Graft, George
Gramercy Investng Co. of New York
Gramercy Investng Co. of Pennsyvana
1 cquescence reates ony to ssue 1 n decson.
1 state ta decson.
Revokes nonacquescence pubshed n Cumuatve uetn I-1 at page 7,
G
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)
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2
0
1
3
-
0
1
-
2
2
0
3
:
3
4
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0
5
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3
6
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16
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Grand Rapds Natona ank
Grant Constructon Co., George _.-
Grant Trust Savngs Co., trustee.
Gras, Rudoph...
Graves, George
Gray, |r., .
Gray, W.
Gray Davs, Inc
Gray Prntng Co., The
Graydon, Samue
Great Northern Ry. Co.1
Green O Soap Co
Greenbaum, Mchae
Greene Co., .
Greenve Coa Co
Greenve Opera ouse ssocaton.
Greenve Te te Suppy Co
Greenwood Cemetery ssocaton
Greever, Mr. and Mrs. .
Greyock Ms2
Gresemer, Chester D
Grffn, P. P
Grffth, . C
Gr, Inc., ugust
Grmmer, enry
Grttman, red
Grover, rthur
Guarantee Tte Trust Co
Gueph ote Corporaton
Guenther, Pau
Guggcnhemor, . Randoph
Gurnee, Water S., estate of
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 of1.
ammond, . II
ampton Co
ampton Cotton Ms
aney and W fe, dgar P
any, W. W
ansen, ans C, estate of
ansen, . fred, e ecutor
21116
2584
3659
2340
8113
716
4552
143
4503
1477
8433
11850
3574
3836
3127
37S4
2311
168.
3000
5690
11926
10827
11546
11400
7372
3393
16025
1159
6063
1064
1755
13625
10441
10458
234
3542
463
11650
4612
3582
12470
12470
131
2507
10516
10914
11163
2054
589
3486
8516
6744
674 t
9
1119
5
395
3
1026
5
1163
7
2S6
2
672
6
347
1
222
4
1264
2
552
8
225
3
467
2
979
5
442
3
1323
5
887
1
152
2
910
6
587
9
1281
10
386
7
1094
11
565
9
381
3
313
11
122
3
508
10
599
7
1043
2
105.
9
418
12
1295
8
11S7
1
243
3
1
6
1-
10
10
1
3
6
10
10
2
2
5
6
6
6
1 cquesconco reates to a ssues of decson e cept ssue nvovng the queston whether the company
shoud accrue as ncome n the ta abe years nterest earned but not pad n those years on obgatons 1,1
other corporatons owned by t.
cquescence n decson n so far as the oard hods that there Is no defcency for 1917.
Nonacquescence notce n the case of . . a Co., nc.CC. . -, 6 , recaed.
state ta decson.
G
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)
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2
0
1
3
-
0
1
-
2
2
0
3
:
3
4
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2
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3
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0
0
8
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0
5
4
3
6
9
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#
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17
Ta payer.
anson, Maud astngs
ardy, George W
armony Grove Ms, Inc
arnsberger s, Inc
arrs, en.,
arrs, Chares L., admnstrator estate of Wam
L. arrs, deceased 1
arrs, Sam
Docket
No.
arrs Grocery Co., Inc., W.
arrs, Wam L., deceased, estate of .
arrods Motor Car Co
art Cotton Ms.
art, ohn W -
artford Connectcut Western R. R. Co
artford at Cap Co
art-Wood Lumber Co
aske, George S., estate of
aske, . mory, estate of
aske, athryn M., e ecutr George S. aske
estate
astngs, ce M
astngs, O.
atze ueher, Inc.s.
aupt, oseph
ausmann, Lous, e ecutor 1
ausmann, Theresa R.,estate of1
awkns, C.
awks Nursery Co
ayes Te te Co., Inc
aynes, Chares ., e ecutor
aynes, rederck
aynes, R. R., estate of
aysett, ohn
azett Moss, Inc
earn, en|amn ., estate of
earn, the D., admnstratr
eath, .
eathcote, ruce, admnstrator 1
eaton Constructon Co., C. T
eneman Lumber Co.
ed, ntonette ., e ecutr estate of Wam D.
ed.. ---
ed, Wam D., estate of
eer et a., . S., e ecutors
eer ros. Co ---
eer Too Co --
eman, Isaas W., 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.
ennger et a.,
enry, ohn
state ta decson.
cquescence reates to second ssue of decson. .
cquescence reates to ssue as to market vaue on March 1, 1913, of Umber owned on that date.
6109
7981
4500
7053
10980
4426
8614
9623
3884
4426
6184
834
9032
12781
3916
2021
7400
2984
4335
7102
4335
5106
5107
9501
11454
5781
5931
5931
418
1469
844
9584
7247
9584
13119
2247
10285
10285
6015
11141
11944
13695
10175
1988
1988
4575
9073
9072
4575
5272
5504
4776
1875
1917
1916
205
6375
oard of Ta ppeas.
oume.
Page.
8
670
5
981
2
1200
7
250
10
1374
5
41
11
871
3
216
5
41
5
429
2
973
9
1062
7
211
2
211
7
714
5
1171
2
1350
6
890
2
1300
s
670
S
670
10
993
6
1297
5
199
5
199
(|
1023
1
1207
4
1274
6
1166
7
465
6
1166
12
51
2
154
9
1362
1362
7
114
s
740
1302
1229
3
408
3
408
10
53
9
1328
9
1328
10
53
5
570
4
1212
4
1088
2
327
2
327
2
327
9
1318
6
131
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2
0
3
:
3
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18
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
cnrv, Mattc ., conservatr 1
enry, R. D
erad-Despatch Co
ercnden, en C, estate of 1
ermabrccht, ohn
eron Meta ed Co
ess ros.2
essenbruch et a., erman M., e ecutors
essenbruch, Ida M., estate of
e ter, Percy
eydrck, L. C
evn, Otto P
bbard, Spencer, artett Co
ckory Spnnng Co
cko , Lee
cks, ohn ., estate of1
cks, L. R. and R. ., dstrbutees 1
ggnbotham- aey-Logan Co.
h et a., orace S., benefcares
ghand musement Co
ghand Land Co., Ltd
ghands Casket Manufacturng Co
et a., G. ., admnstrators 1
, .
, . L
, Lena G
enmever, . ., estate of1 -------
enmeyer, Mary, e ecutr estate of . .
enmever, deceased 1
Uman, M. P. G
nckev, Raph L
rst egev Lnseed Co
tchcock, abert
ochschd, erthod
-
ochschd, arod
odges, red G
oe Co., Inc., R
of rau Co., The
offman, rnest Gustav, estate of- .
offman, . C
oden Martn Lumber Co
ongsworth, Turner Co
omes, Lea ., estate of
ot-Granto Ms Co
ot Pad Ms, Inc., . M
oton Co., rank
ome Industry Iron Works
on g-Cooper Co
ood, Chares
ooper, arry
opkns, Water L
ortenstne, . L., coadmnstrator .
oskns, ohn
ote Grunewad Co., Ltd
ouck Co., Ltd
7268
3545
4556
09S3
752
3236
8039
17907
17907
7878
4120
5503
378S
7431
367
367
6702
7253
7253
4691
6291
5316
2320
532
4220
16S9
6215
5800
1S62
1862
2372
4193
7482
6107
3081
4058
3080
4057
7729
7216
6134
7914
6611
826
656
7970
1784
8745
10261
7991
15000
6990
5271
1476
3633
10241
1593
8159
7
3
4
5
6
2
7
10
10
8
4
5
2
1
7
9
0
8
7
3
2
6
8
3
9
8
2
2
2
6
4
4
9
7
6
8
4
2
1
10
1
9
10
8
11
4
8
2
3
7
5
7
1 state ta decson.
2 cquescence reates to frst ssue of dec son.
cquescence reates to thrd ssue of decson.
G
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2
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1
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2
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3
:
3
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#
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19
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
ouston et Termna Ry.
ovey, Peter P
ovev Co., C.
owe, red
owe, Thomas
ower Seaman, Inc
ub Dress Manufacturng Co.
ub Shoe Co
Co. .
ub, Inc., The
uber, Wam D -
udson, Chares I., estate of1
uey, . L
uff, ndrews Thomas
ughes Coa Co
ughes Co., d. S
ughes, ohn N
ughson, rank C
ubert, dmund D., estate of ...
ume, .
umphres, C. C
unng Mercante Co
unncutt, Mary L
unt et a., the P., e ecutrces 2
unt, ohn ., estate of 2
unter Coa Co
unter, Mrs. Oe --
untngton Cearfed Teephone Co. and Sum-
merve Teephone Co
upfe Co., Inc., . Chr. G.
urey, . W -
uron Portand Cement Co
utchns Lumber Storage Co.5
uyer s
vams Coa Co., Ltd., et a., Robert P...
yme Pantng Manufacturng Co., Lous
Inos Merchants Trust Co., e ecutor -
Inos Merchants Trust Co., e ecutor estate of
Wam R. Manerre, deceased -.
.Inos Paper o Co.
Impera urnture Co
Independent rewng Co. of Pttsburgh 8
Independent ectrc Machnery Co
Inde Noton Co.7
Innes- ehney Optca Co
8494
1677
5448
12489
12492
4196
283
1170
3553
3554
9975
3351
6132
336
7142
6748
14120
9104
6690
11294
11204
11027
3511
15
3621
9801
9801
2503
6292
358
9834
7339
3334
4973
3307
1357
1445
219
2903
11204
3106
770
16929
3242
2742
1023
3368
6
2
4
12
12
4
1
2
12
5
4
1
8
6
S
10
12
0
3
1
10
12
12
2
7
1
0
6
9
4
8
1
5
12
4
4
0
4
3
3
7
cquescence reates to thrd Issue of decson.
state ta decson.
state ta decson acquescence reates to ssues concernng checkng account, rea estate, and penson
fund.
cquescence reates to good-w and bad-debt ssues.
cquescence does not reate to that part of decson nvovng appcaton of vers decson (1 .T. .,
1135).
cquescence reates ony to Issue 1 n decson.
cquescence does not appy to that part of decson reatng to appea of Guaranty Constructon Co.
(2 . T. ., 1145).
G
e
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2
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1
3
-
0
1
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2
2
0
3
:
3
4
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#
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20
Ta payer.
oard of Ta ppeas.
oume.
Internatona oer Works Co
Inter-Urban Constructon Co
I ron Cty ectrc Co
Iron Cty Improvement Co
Irwn, enne I., e ecutr estate of Mary . Mc
Cah
Irwn, .
Irwn ue Co., . - -- --
Isaacs Co., Inc., Reub
Isand Lne Shppng Co
Ives, omes
.
ackng, D. C
ackson, ames
ackson Sanatorum ospta Co
acobs, Wam M
ames, . R
amestown Worsted Ms
areck Manufacturng Co
enckes Spnnng Co
ennngs, . T
eweers udng Co
ewett Co
oe, .
oe, L.
ohn ancock Mutua Lfe Insurance Co
ohns, Margaret
ohns, Waace C
ohnson, C. L
ohnson, Chares R
ohnson, ar O
ohnson, dwn M
ohnson, anne W
ohnson et a., omer S., e ecutors 1
ohnson, . L
ohnson, |r., ohn ., estate of
ohnson, ate, estate of
ohnson, Nes
ohnson, R. ., estate of
ohnson, Robert G., e ecutor
ohnson, Sarah L., estate of
ohnson et a., Seymour, e ecutors2
ohnson, Stephen O., estate of 1
ohnson, T.
ohnson, Theodosa, e ecutr
ohnston, Mary rg, e ecutr 2
ohnstown udng and Loan ssocaton
ohnstown Democrat Co., Ino
oet-Norfok arm Corporaton
ones, . W., admnstrator
ones, George C
ones, enry M
state ta decson acquescence reates to vaue of stock.
2322
4387
6103
2138
2547
9392
9030
59
3414
5646
4272
12944
12945
15996
17856
3089
10742
4068
() _)
10798
215
3222
1533
5416
6801
6802
9047
8353
8352
7565
9877
8259
1415
15301
9550
10748
3839
7442
3265
7441
7441
7442
6812
6812
9550
6870
3839
6352
2898
1647
0795
8218
4864
7325
12662
12
9
11
2
1
12
4
3
2
3
9
9
10
9
9
7
8
5
10
8
11
8
4
10
6
10
10
10
10
11
7
-1
7
0
2
8
8
6
state ta decson.
G
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n
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r
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f
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L
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g
(
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2
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1
3
-
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1
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2
2
0
3
:
3
4
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#
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21
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
ones, ersche
unes Lumber Co
ones, Mrs. . W., estate of
ones Co., T. P
ordan Marsh Co
osyn Manufacturng fe Suppy Co
oyce- oebe Co., The
ustus Parker Co
.
ahuku Pantaton Co
aser, rthur
ansas Mng Co
ansas Savngs Trust Co. et a., admnstrators
of estate of . W. Shuths, deceased
arges osery Co
arr, dmund
artman, be
ass, Ma and enne
atz esthoff, Ltd
aufman, . R
aufman, Mrs. . R
aufman, Ltd., arry S
aufman, Samue R., estate of
aufman Straus Co
aufman, Una Lbby, e ecutr 1
aufmann, fred D , estat-e of1
aufmann, Raymond M., e ecutor1
aweah Lemon Co
ay, Waace G
ean, amton
ceer, Isaac P
eenan, atherne P.1
eener s O, Natura Gas ue Co
em, . D
eer, Ida .
eer Mechanca ngneerng Corporaton
eey, arry P
eey, Thomas
eogg Commsson Co
ey, rmn L., admnstrator1
ey, Dane
ev, .
ey, Over Warren, estate of1
esey, S. R
eso, rgna --------
cnefck, Nee, e ecutr estate of Wam ene-
fck, deceased
Renefck, Wam, estate of
ennedy, D. ., deceased, estate of1
ennedy et a., nne S., e ecutors 1
ennngton Co., R.
ennngton Reaty Co
enny ros. Co., The
enosha rut Co
entucky Land, Gas O Co
stato ta decson.
944
3275
8218
4294
4458
9809
4267
13770
19156
1289
2835
1827
11384
1525
13244
1259
4707
12811
12812
f 8154
11845
4698
2649
4698
10907
10907
45S3
10102
10745
6379
6352
7862
21NS
291
6741
6891
7036
3945
7092
8365
1790
7092
6082
8351
523
523
5244
5244
/ 7836
7837
7834
1530
410
1473
1
5
8
2
3
6
6
13
12
2
3
2
8
2
10
1
5
9
9
5
2
5
11
11
5
10
10
8
7
0
4
2
0
9
9
6
8
10
3
)
:
3
4
4
G
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n
e
r
a
t
e
d
f
o
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L
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Z
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a
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g
(
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Y
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U
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y
)
o
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2
0
1
3
-
0
1
-
2
2
0
3
:
3
4
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#
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22
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
esser, George ., estate of 1
ctcham, . R
by Car oundry Co
mba, Davd
ng, ar ---
ng, a Dav, e ecutr
ng Lumber O Co
ng-Parker, Inc
ng, Robert C., estate of
ng, Wam C
ngsey, Louse
ngston, George M
ngton, ammond L
ngton, O. M
ngton, W. W.
ns, braham
rk Coa Co
rkenda, . P., estate of 1
rtand ros. Co., Inc
ster Land Improvement Co.2.
au an Petersom, Dunap, Inc.
auber mbrodery Works
eeman Dry Goods Co
en, orence L. _
ng, Mary Cark. ---
se, mer
napp, tte
nmn, Leonard
no , Chester
no et s., 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 .
ocn ros., Inc
oynos Co
ongsberg, Nathan
onod, arbara
rauss, e ander
repke, . C
rcg Tannng Co
ru, rancs
uhr et s., urgen
uhr Sons, urgen
unke Co., Inc
urtz, Ma
3182
14531
6931
11968
9942
8283
9695
8315
8283
6729
12288
8392
8216
8409
8217
6760
2S79
3094
44S2
12355
6881
12433
2S74
4004
4005
0061
6102
10157
1495
11318
2775
7959
2441
2936
2936
4384
3308
322
6093
712
4130
6016
9670
3611
10716
3318
16985
13436
13436
3519
11411
15960
11412
15959
10659
3
ft
4
8
9
10
4
6
10
10
11
8
8
8
8
3
3
7
3
9
9
11
2
1
10
7
5
2
3
3
5
4
1
7
1
4
4
9
5
7
4
10
.1
12
3
urtz, Robert
urzman, Samue
1 state ta decson.
cquescence reates to a ssues e cept ssue wth respect to queston of aowance of amortzaton n
1918 of costs ncurred n 1919.
cquescence reates to a ponts of decson e cept that pertanng to the year 1919.
G
e
n
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d
f
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(
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)
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2
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1
3
-
0
1
-
2
2
0
3
:
3
4
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8
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4
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#
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23
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
12368
11
1254
2010
2
535
1323
8
785
14242
6
429
9346
13
177
8366
10
141
11603
10
1153
14370
12
435
8281
9
39
9842
7
1142
2131
2
777
2507
2
199
6420
9
1020
2733
3
245
12621
6
1086
6190
6
165
3431
6
241
6603
5
879
3930
3
331
6674
5
1287
508
5
57
2284
2
747
4510
12
1076
5985
6
1005
5984
6
1005
7676
6
1132
10911
10
283
7309
6
4
3847
3
193
6607
7
460
4867
4
133
10329
8
1006
5744
7
99
7768
8
974
7769
8
974
849
1
1051
1083
5
1206
3156
4
1221
3157
4
1221
6056
4
74
10587
8
11.50
0444
5
892
6832
5
689
7435
8
298
3247
3
422
9987
10
536
3097
2
788
4639
12
850
5902
6
41
7416
4
910
2212
3
617
2213
3
617
6257
5
778
4398
6
181
3760
4
155
L.
Lackawanna Trust Co. et a., e ecutors
Lake, . W
Lam, . W
Lamb Lumber Impement Co
Lamborn, rthur
Lambreeht, Rchard G
Lancaster Lens Co.2
Lang, ohn
Lang room Co
Langdon, arret
Langenbach, dward
Langey Co., W. C
Langey Mchaes Co
Larrowe Mng Co
Larsb, D. L
Lash Co., Lee
Lassen Lumber o Co
Lathrop Co., Inc., C. P
Laurens Trust Co
Lautz Marbe Corporaton
Law Credt Co
Lawson, ohn
Lawson, W.
Lee, Mrs. eanne
Lee, ohn C
Lee, Matda oz
Lee Co., Wson
Lefang, . M.
Leggett, Davd G., deceased, estate of3.
Lehgh udng Corporaton
Lechner ordan Co
Leghton ros. Prntng Co
Legh ton Suppy Co
Leand, enry M
Leand, Wfred C
Lembcke Co., Inc., crnuth
Leno Land Co
Leonard, rthur
Leonard, Chares M
Lester, Lucy C, estate of
Levee, nna L. Stark, e ecutr 1
Levn, N
Levne ros. Co., Inc.
Levne, yman
Levy Co., Ma
Lews, T.
Lews- a Iron Works
Le ngton Reaty Co
L ommedeu Sons Co., Chares ._.
Lbby oun, Ltd
Lberman, Meyer
Lberty gency Co
Lberty Iron Works
Lberty Lght Power Co
state ta decson.
cquescence reates to ssue whether nvested capta for 1919 shoud be reduced on account of the
1918 defcency barred by the statute of mtatons.
Nonacquescence notce n ths case, pubshed n Cumuatve uetn I -2, page 6, recaed.
cquescence reates to ssues 3, 6, and 8 n decson.
37229 29 3
G
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24
oard of Ta ppeas.
oume. Pago
Lckumovtz, Morrs -
Ldstone Co., R. D
Lebman-Swaney Reaty Co
Lfe Savng Devces Co
Lggett, . T -
Lhue Pantaton Co., Ltd
Lmbert, Chares P., estate of
Lmbert Co., Chares P
Lndahr Santarum, Inc
Lndsey-Long Coa Lumber Co
Lnn, Gus
Lster, ames R
Ltte, Theodore W
Lve Stock Natona ank
Lvermore, Norman
Lvermore Co., Norman
Locke, Thomas
Lock port Paper Co
Locks and Canas on Merrmack Rver, Propretors
of the
Lockwood, R. ., estate of
Loeb, Car M.
Loeb, uus
Loffand, . M
Loffand, T. S
Lofts, . M. and . S., admnstrators.
Lofts, S. T. ., deceased, estate of
Logan ryan
Lonergan, ohn
Loug Isand oundry Co., Inc
Long, M.
Lord, se
Lord ushne Co
Lord Motor Car Co .--
Los ngees Cemetery ssocaton
Los ngees Towe Servce Co
Los ngees Trust Savngs ank
Loughborough, .
Lousve eneer Ms
Loveacc- ubanks Lumber Co
Loveand, Russe -
Lovett, oanna, e ecutr , estate of Thomas .
Lovett
Lovett, Thomas ., deceased, estate of
Lowrv, . unt -
Loze r, Charotte C, estate of1
Luce urnture Co
Lukns, . W
Lynch Constructon Co
Lynes, my
Lynes, Samue
6842
4133
8805
2235
3480
38
6725
6S00
12738
1619
11279
11660
1935
3411
10699
2467
6423
6422
6424
10616
4872
299
3843
3082
9191
9192
3083
4061
13425
13426
7581
7581
400S
6441
2726
7721
17189
10597
12124
4718
293
SS66
23391
2818
8746
10180
15235
1926
2940
2940
11972
7513
6536
2544
3375
7089
7000
4
5
4
3
10
7
II
11
8
0
1
1
10
10
6
4
2
8
0
0
10
12
10
10
3
3
11
7
0
3
:
7
7
1 state ta decson.
G
e
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(
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1
3
-
0
1
-
2
2
0
3
:
3
4
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0
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0
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0
5
4
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6
9
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#
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25
Docket
No.
oard of Ta ppeas.
oume.
Lyon ard Co., Inc
M.
Mabe evator Co.1
Mac dam oster, Inc
Mac Donad- atchuck Prntng Co
MacRae, ugh
Mackay, Mton
Mackenze, R. ., estate of1
Macman Co., The
Madson edze State ank
Maer, Mrs. W. N
Maer, W. N
Magnus, Mabee Reynard, Inc
Mane Dary Co
Masc, |r., Nchoas
Manckrodt, sr., dward 1
Maone, dwn
Mande ros
Manerre, Wam R., deceased, estate of-
Mann, P. L
Mannng, Chares N
Mannng Co., L.
Manomet Cranberry Co
Manora Deveopment Corporaton
Mante, Lee
Manve cnckes Co
Margod Garden Co
Marne Insurance Co., Ltd
Markenhem Co., The
Marke, van
Marke (II), George ., estate of
Marke, |r. (I), George
Marke, sr., George ., estate of- --.
Marke, ohn
Marke, ohn, trustee
Markowtz, Dane S
Marks, . en|amn
Marks, Isaac
Marks, Wson
Marboro ertzer Co
Marsha, dward
Marsha Spencer Co
Martn, .
Martn, Darwn D
Maryott Spencer Loggng Co. et a
Mason Cotton M Co
Mason Machne Works Co
7486
11380
Massengae dvertsng gency-
Mather Paper Co.4
Maths ros. Co ,
Mattage, Chares enry
Maury Mng Co
1110
2
517
10443
8
967
279
4
996
4284
19271
428
6833
11
569
11141
8
740
5240
4
251
1127
1
922
7854
7
1256
7855
7
1256
119
1
907
4675
4
375
2422
2
66
1750
4
1112
5225
5
1226
1977
4
341
3106
4
103
9123
8
221
8111
7
286
10230
10
633
341
1
706
611
1
575
5808
13
145
215
4
765
1580
6
368
2242
4
867
544
1
1240
6208
10
763
177SO
10
763
3799
10
763
17646
10
763
3858
10
763
17646
10
763
20287
8
1100
10806
7
895
10S75
7
895
7132
6
729
3797
3
82
20308
10
1140
4574
7
454
10617
12
267
3001
6
472
3341
10
1221
448
1
449
289
3
745
1496
2
26
6514
11
973
1378
3
1
3861
9
338
2116
3
242
10853
10
1189
1 Noo cquescence notce pubshed n Cumuatve uetn I -2, page 6, recaed,
rotate ta decso
state t
cquescence reates to frst ssue n decson.
N onacquesoance notce pubshed n Cumuatve uetn -, page 7, recaed.
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26
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
1322
3
566
3774
5
181
4885
8
435
4885
8
435
21
1
57
2547
2
875
2547
2
875
17334
9
525
17334
9
525
354
1
1116
1273
1
937
3147
10
958
3147
10
958
3211
6
116
1880
1
1061
1605
2
430
10733
8
909
3557
4
967
3042
2
1295
9336
9
1340
3042
2
1295
6194
4
49
13546
6
685
11503
9
766
11210
9
759
11209
9
763
6647
4
209
4714
4
1005
10446
10
961
495
6
10S9
5317
10
177
9S32
9
301
121
1
326
2650
6
412
4048
3
1060
1534
4
487
2221
4
266
3841
2
797
7228
6
752
5756
10
887
9770
9
835
9755
9
1
2351
2
170
7119
5
1274
2815
5
1274
9248
5
1274
7118
5
1274
3098
6
341
3098
6
341
2100
3
612
7623
6
70
5699
7
717
1981
3
549
8233
6
564
8179
6
1167
10108
7
32
1540
2
290
Maus, nna R. and L. M
Mayer s, Inc
Me rde, . T., estate of 1
Mc rde, Rose L., admnstratr 1
McCabe Co., M.
McCah, ugene P., admnstrator estate of Mary
. McCah
McCah, Mary ., estate of
McCarthy, ohn rancs, estate of
McCarthy, Water R., e ecutor
McCarthy Sons, Inc., ohn
McCauey Co., C. R
McCogan, deade, admnstratr 1
McCogan, Dane ., estate of 1
McConne, .
McCormck, sr., ohn
McCormck et a., Robert
McCoy- randt Machnery Co
McCreery, enry
McDonad, Mary ., e ecutr 1
McDonad, Mrs. Lyde
McDonad, Patrck , estate of1
McDonne, dward
McDonne, . S
Mc etrdge, dward P
Mc etrdge, C.eorgana
Mc etrdge, Martha G
McGnns, ob
McGynn, . P
McGown- oshee Lumber Co.3
McGrath, . R
McGrath Co., Wam
Mcntosh Ms
Mc enna, ames P
Mc nnon, L. ., estate of
Mc nght, . udson
McLean, Carone S
McMchae, Morgan
McMan Meta Co
Mead et a., Wam W., e ecutors
Meade Cyce Co .
Meadow ork Coa Co
Mechancs ank of rookyn
Mechancs Reaty Co., Inc., and Mechancs Reaty
Co. of Pennsyvana
Mcgcath, Ida
Megeath, S.
Megeath, Samue
Megeath et a., George W
Mene, dward, estate of 1
Mene, the G., e ecutr 1
Menhard, Carre W
Mcck, .
Meton, ger
Mepham, George S
Mercer, ohn W
Merchants Natona ank
Merckcns, ugust
Meredth, . T
state ta decson.
cquescence reates to thrd ssue of decson.
G
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f
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2
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1
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-
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1
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2
2
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:
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0
0
8
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0
5
4
3
6
9
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#
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27
Ta payer.
oar of Ta ppeas.
No.
oume.
Page.
4478
9
1374
3531
5
400
11640
12438
444
10594
9
813
4953
3
1084
5695
5
694
1569
2
30
437
4
903
13569
12
1402
747
1
721
538
2
1062
9682
5
1230
7749
7
64
9093
10
213
5737
3
1329
1062
4
686
5384
4
481
3241
3
1327
439
5
979
4368
2
1314
1423
1
989
67 2 5
9
24
440
5
979
1125
1
1145
27
1
311
709
2
292
1983
2
296
2933
5
121
3439
9559
625
1063S
9
1404
840
5
294
1596
3
726
3465
7
921
4469
6
401
4397
11
854
4397
11
854
17002
12
702
10123
7
785
7560
5
1060
1028
3
1016
3424
1
13542
10
936
21024
10579
10
521
468
1
588
388
2
505
6284
6
151
10351
10
1311
7597
10
1001
10891
11
731
3552
3
163
7124
8
1224
8700
8
368
1240S
10
588
13405
12
158
11396
1 9
16
Meredth, G. W., estate of
Mereen- ohnson Machne Co
Merges Co.,
MerUat, Chares
Merke room Co -
Mcrtz, dward P_
Messenger Pubshng Co...
Metare Cemetery ssocaton
Metasap Chemca Co
Metro Pctures m change of Pennsyvana-
Metropotan Laundry Co
Metzger, L
Meurer Stee arre Co., Inc
Me can Teegraph Co.1
Meyer, nton M
Meyer, erman ., estate of
Meyer ro. Co.,
Meyrowtz, m
Mche, George
Mchgan Con Lock Co
Mchgan Lthographng Co
Mchgan Trust Co. et a., e ecutors
Mcke, 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.
Mer, ddson
Mer, .
Mer, G.
Mer, enne L., e ecutr
Mer, ohn L., estate of
Mer, Staney R
Mken, George W., estate of
Mng Moore Mercante Co
Ms, Lucy M., estate of 2
Mwaukee rass Manufacturng Co.
Mner rees Lumber Co
Mner Lthographng Co., . C
Mnneapos Sash Door Co
Mnnesota Cement Constructon Co
Mtche dvertsng gencv, Inc
Mtche uto Co., . P
Mtten, Robert
Mobery O Co
Mobe Devery Co
Mobe Rver Saw M Co..
Mogg Coa Coke Co
Monarch ectrc Wre Co
Monk, enry
cquescence reates to a ssues e cept as to tentatve ta .
1 state ta decson.
G
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#
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28
Tsuc payor.
Monroe Coca-Coa ottng Co
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 of1
Moorhouse et a., Mary zabeth, admnstrators1 -
Moors, ohn :
Mooyer, Chrstan, estate of
Mooyer, Margaret ., e ecutr estate of Chrstan
Mooyer, deceased 1
Morefed and wfe, W.
Morgan, Caud
Morgan, ohn
Morgan, Water G
Morrs, omer P
Morrs aey Stee Co_
Morrs Cummngs Dredgng Co
Morrson-Merr Co
Morton, . D
Mosby Co., Inc., .
Moscr Wacker, Inc
Mosher Manufacturng Co
Moser, M.
Mossberg Pressed Stee Corporaton
Mossman, Yarnee Co. 2
Mount ernon Natona ank
Movse, Sdney G
Mu dd Motor Co . Ray
Mueer Metas Co
Mur, ames S
Mutbestos Co
Muuson, dgar, e ecutor estate of arret .
Curts, deceased r
Murchson Natona ank
Murphy, .
Murphy Transfer Storage Co
Musseman, C.
Musser, R. C
Myer Thread Manufacturng Co., enry.
N.
Nabors O Gas Co
Nace, ruce
Nartzk, uus ., estate of
Nathan, Morrs, estate of 1
Natona ank of atmore
Natona m Pubcty Co
Natona Grocer Co
Docket
No.
7288
3310
2543
8675
8074
3544
5146
678
4209
5101
5101
1021
3404
3404
5721
6290
10978
3449
6510
6525
9492
9596
4358
3559
2781
4475
1886
5304
8757
3269
11076
237
5967
1192
4395
3648
7598
442
608
7137
26472
11554
160
4781
3641
7962
10578
4316
11448
3844
1807
562
oard of Ta ppeas.
oume.
6
172
2
743
6
385
ft
385
S
749
5
1211
2
368
3
301
S
964
8
964
1
868
2
723
2
723
4
394
7
495
10
1138
6
1035
0
1273
9
205
10
351
2
489
6
1295
6
722
4
1021
7
187
5
674
0
1161
9
45
2
581
4
834
3
629
3
169
3
165
6
1060
3
185
1
617
9
610
7
1148
1
41
3
498
2
665
7
1091
12
104
8
685
12
681
3
1038
4
118
1
688
1 state ta decson.
cquescence reates to ssues decded adversey to the Commssoner, wth the e cepton of Issue
nvovng deducton o tentatve ta es n determnng the earnngs avaabe for payment of dvdends
n 1U18 and 1919.
G
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1
3
-
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1
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2
2
0
3
:
3
4
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0
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#
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29
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
4853
7
1241
11130
10
527
13570
12
1402
3651
5
637
5788
5
931
5272
5
570
2446
4
1121
11793
8
437
9290
8
299
3035
3036
911
4001
8
477
3344
12
866
3350
12
869
3350
12
869
5698
7
471
10986
10
1032
9753
9
835
19138
9
158
3694
4
390
1489
2
537
11994
7
1175
400
6
436
9626
7
1153
9627
7
1153
3861
9
338
4945
3
606
974
1
1172
9505
10
922
2109
5
484
9599
10
919
9599
10
919
1961
3
173
1235
1236
1237
3
173
1238
1239
1967
3
173
1962
3
173
1186
2
524
3223
3
1180
4557
2
12
3601
3
597
5655
10
1290
6831
5
200
10545
6
917
2231
3525
332
276S
3
1099
3168
3
255
4316
8
68.5
7127
9
96
10650
15310
1111
5763
1 7
10456
1/ 7
oc _
Natona Industra coho Co
Natona Land Co
Natona O Products Co
Natona Pneumatc Co
Natona Sash Door Co
Natona Takng Machne Saes Corporaton
Nazareth Cement Co
Neapotan Ice Cream Co --
Ne, ames
Neubergcr, Ma and Rudoph
Neusteter Sut Co
Nevns, rank
Nevns, rank ., admnstrator
Nevns, Thomas ., estate of
Newbod Son Co., R. S
New Century Coor Pate Co
Newyn Coa Co
Newman, Lews D
Newman Theatre Co
Newmarket Co
New Oreans Can Co
New Oreans, Te as Me co Ry. Co.1
Newton, .
Newton, W.
New York ower Co --
New York, rookyn Manhattan each Ry. Co
New York, Ontaro Western Ry. Co
Nagara Searchght Co., Inc
Nce a earng Co
Nchos et a., George, e ecutors1
Nchos, ohn W. T., estate of
Nckey, . ., estate of... -
Nckey Sons, . .
Nckev, S. M
Nckey, W.
N on, ate I
Noe, Rchard ___ -
Nokoms Cotton Ms
Norfok Western Ry. Co.
North Iowa rck Te Co
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
Northwest Lumber Co
Northwestern States Portand Cement Co.4.
1 cquescence reates to second ssue of decson.
1 Revokes nonacquescence pubshed n Cumuatve uetn II-1, page 39.
state ta decson acquescence reates to trusts of 1012, 1919, and 1921.
cquescence reates to frst, second, thrd, fourth, and s th ssues of decson.
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2
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1
3
-
0
1
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2
2
0
3
:
3
4
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0
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0
0
8
9
0
5
4
3
6
9
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#
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30
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Northwestern Yeast Co
Northwood Co.,
Norve, . R
Norve, Mrs. . R
Norwood, Caef Co.
().
Oates, Mrs. Omer
O ren et a., anche, e ecutors
O ren Leather nsh Corporaton, oseph.--
Ocean ccdent Guarantee Corporaton, Ltd
O Connor Co., .
Oet|en, C. G
O ar, P. ., estate of
O are, . rank..
Oho Grease Co
Od armers O Co
Oeet, Israe
Onger ghanders, Inc
Onger Mortuary ssocaton
Osen, ohn
Osen Water Towng Co
O Meara, C.
O Ne, ohn, estate of1
O Ne, |r., et a., ohn ., e ecutors .
O Ne Machne Co
Oppenhemer, Leon
Opperman Coa Co
Orando Petroeum Co
Orth, rank L
Osage Steamshp Co., Ltd
Osborne Cark Lumber Co
Ostrow, Samue D
Ots, ames
Ots Stee Co
Ottoander, C. . W
Overand Lumber Co
Owen- mes- mba Co
Owens otte Co
Ovster, |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
Par wah Water Co
Paget, .
Paas de Modes
1 state ta decson.
1511
5122
7720
7719
8393
25747
13042
9630
3114
1060
11643
4184
30377
6023
2824
9622
532
532
1460
1908
9822
5185
5185
7922
9977
3317
14729
15792
20399
5588
3396
10493
14690
4711
7520
4494
3946
1637
1033
7390
4377
2227
84
1093
1847
8162
1943
4520
3028
6055
4279
5502
S
12
10
S
6
1
11
3
12
4
12
8
(
G
5
1
11
4
9
7
11
9
.3
8
12
7
f
5
2
5
8
4
6
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2
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1
3
-
0
1
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2
2
0
3
:
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4
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31
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Pamer, ar M
Pamer, . C
Pantazas, Chares
Pantazas, ames ---
I antnd ote Co. and Pantnd udng Co_
Pars Coak, Sut Mnery ouse
Parsh, S. W
Parsh-Watson, M
Parsh-Watson Co., Inc
Parsan, The
Park ros. Rogers, Inc
Parker, George S
Parker Wre Goods Co
Parkersburg Maretta Sand Co
Parsha, Wam W
Patapsco aast Co
Patch, radford C
Patterson Produce Co
Patterson, W.
Pau, ar
Pauson, Peder, estate of
Pauson et a., Wam I., e ecutors
Pavne, dward W
Pearce et aL, rthur P., trustees
Pearce, |r., Chares
Pearsa, Gbert _-
Pearua Co., Inc
Peck, Wber S.
Peebes et a., W. S., admnstrators 1
Peeress Pacfc Co
Pennsua Shpbudng Co
Perm Chemca Works
Pennngton-Gesser Co
Pennsyvana Co. for Insurance on Lves and
Grantng nnutes, e ecutor under the w of
Mary . rtt, deceased
Peopes Ice Cod Storage Co
Peopes Trust Co., trustee
Perkns, .
Perkns Land Lumber Co
Permanent Loan and Savngs ssocaton
Perrv, . G
Perry, . ..-
Perry Dormney
Perryman, . R
Persons, ames
Peru Char Works
Petauma Santa Rosa R. R.
Peters Manufacturng Co
Peterson Co., George C
Pevey Dary Co
Pheps, Martha ., e ecutr
Pheps, Wam L., estate of
Phps, dward S
. Co.
5447
1181
3382
3382
18436
5500
9504
4684
2833
4894
583
2460
5602
3999
5452
12050
6452
1800
6332
3994
8901
13927
13571
13571
9065
9615
5606
11997
1 722
11061
9380
14376
5741
9247
1904
14365
8472
5152
11363
17041
2268
9023
9022
852
2735
6301
3250
3408
13830
2091
1266
161
4803
4803
2376
3
1
5
5
9
5
9
3
2
4
2
6
111
11
7
1
4
4
:
n
10
10
12
13
6
10
5
5
10
9
7
11
2
10
10
6
9
9
1
6
5
3
11
1
1
1
6
0
9
1 state ta decson.
cquescence reates to that part of decson as to the purchase of ta payer s own bonds at ess than
per whch were hed as an nvestment.
G
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32
oard of Ta ppeas.
No.
oume.
Page.
63.52
7
1054
6352
7
1054
6352
7
1054
6352
7
1054
12802
9
153
5908
5
670
5840
5
670
4487
1
6661
5
416
11303
8542
8
72
1757
3
1009
893
2
396
21340
12
678
7189
4
625
7989
5
938
2208
5
541
6388
7
1104
4739
5
821
1804
5
929
5626
9004
45
2558
2559
2
712
2837
6
105
8788
10081
173
7866
10
1158
3370
7
20,5
3701
3
1265
3758
3
1265
3757
3
1265
3756
3
1265
4003
3
1023
83
1
6
1265
2
1263
3382
5
975
3382
5
975
2151
3
595
2500
3
595
4148
4
1085
2141
6
78
9222
8
831
2554
2
357
12488
12
510
11990
12
190
11992
/ 12
190
11991
12
190
5928
6
110
9888
10
166
9888
10
160
11945
12
492
10400
11
1313
10400
11
1313
3740
6
835
5422
6
633
5422
6
633
11558
12
702
6862
6
329
Phps, George .1
Phps, ohn D., estate of1
Phps, oseph dward, e ecutor 1
Phps, oseph W., estate of 1
Phps, T. C
Pckerng, Lorng
Pckerng, Rose C
Pctora Revew Co., The
Pednont-Mt. ry Guano Co
Perce- rrow Motor Car Co
Pcrson Co
Pke County Coa Corporaton
Pne uff Compress Warehouse Co
Pne Rdge Mnes Co
Pn horn, Rchard, estate of1
Poneer Laundry Co
Pttard, . T
Pttsburgh essemer Coa Co
Pttsburgh Grndng Whee Co .
Pttsburgh-Northern Coa Co
Panters Nut Chocoate Co
Panz, Inc., Theo
Pumb, Raph
Punkett, Chares T
Punkett, orence C
Punkett, Lvda
Punkett, Wam C
Pymouth Coa Mnng Co
Ponset Ms
Po ch ronades, Pau
Pomons, Denns
Pomons, Spro
Pope, Carence
Pope, Mrs. Carence
Pope Sanatorum Co
Popuar Dry Goods Co
Popuar Prced Taorng Co
Port Townsend Puget Sound Ry. Co
Post, ames
Pottash ros
Pottash, arry
Pottash, Ma
Potter arms, Inc
Powe, ope Ives, estate of1
Powe, T. I. are, e ecutor 1
Powe Coa Co.3
Power, Chares . and ohn M., e ecutors --
Power, Thomas C., estate of1
Power ro., T. C
Powers, Mary ., e ecutr -
Powers, Rchard ., estate of 1
Powers, Samue L
Powers Mayer, Inc
state ta decson.
cquescence reates ony to ssue 1 n decson.
a cquescence reates to a ssues e cept |ursdcton ssue.
G
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33
Ta payer.
Powers Mayer Manufacturng Co
Pratt, Wam ., estate of
Pratt Letch worth 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 1
pTouty, C. C, estate of 1
Pry or, Luke, estate of 1
Purce, nne L., e ecutr
Purce, oseph, estate of
Purdy enderson Co
Purty Oats Co
Purty Oats Co. of Davenport
Putnam, enretta, deceased, estate of .
Putney Mercante Co., 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
Raner Grand Co
Ransom, Inc., Stephen
Rauh Sons ertzer Co., .
Ravner, Wam
Ravmond- adev Corporaton
Rea state Trust Co. et a., e ecutors, estate
of George W. Mken 1
Reaty Saes Co
Redands Securty Co
Reed. . M
Reed, Lea
Rega Shoe Co...
Rechenback, arry L
Renhardt, ane R
Rezensten, Lous, trustee
Rezensten Trust state, Rosa
Renaker, .
Renfro, . T
Renfro, Mrs. Inez C
Reserve Natura Gas Co. of Lousana
Retaers
Retaw M
re Insurance Co_
nes Co
Docket
No.
6862
8858
4644
9816
3896
7755
7755
11764
159
2951
2951
9380
3838
3838
5198
4364
4365
5273
3195
4053
2814
7196
6985
5576
8175
8175
3619
7767
5983
1580
4236
7904
7905
10720
8284
5128
10123
18145
5703
6776
5110
784
2015
994
8146
8146
13120
6138
6138
8704
9006
3733
2208
oard of Ta ppeas.
oume.
8
3
6
6
6
11
12
1 )
4
7
10
5
6
8
1
1
2
9
9
12
8
8
12
3
Page.
329
621
492
645
414
1116
1116
1237
202
107
107
386
967
967
70
585
585
823
836
787
1119
419
521
250
1077
1077
71
3S1
188
368
520
120
468
698
889
785
1217
956
1140
670
896
1026
19
1184
1184
51
1295
1295
219
1186
541
1 state ta decson.
cquescence reates to ssue 1 of decson.
G
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34
Trapr yer.
Re Machnerv Suppy Co
Reynods, . D
Rhodes, rownson ampman, Inc
Rbbon Cff rut Co
Rce edng, Inc
Rch and wfe, C. R
Rchmond osery Ms ..
Rcker, George
Rcks, W. R
Rde, enry ... ---------
Rggs, Leon C, estate of, Lacey L. ogart, admns-
trator
Rgsby, G. D
Rker, |r., Samue, e ecutor
Rnger Co., George
Ro ectrc Co
Rver Ra Storage Co
Roberts, . S
Roberts, rances ., estate of
Roberts, .
Roberts Co., U. N
Roberts, ncent G
Robertson, Chares
Robertson, arry -
Robnson, ndrew P
Robnson Co., . M.1
Robnson, . M., estate of
Rockford rck Te Co
Rockford Maeabe Iron Works
Rodefcr O Co., Davd
Roden Coa Co
Docket
No.
Roebug, ar G., estate of.
Roesch, Wam
Roesse Co., Ltd., Lous. .
Rogers, ate
Rogers, R. M
Rogers, Robert C
Romayor Grave Co
Rome Wre Co
Roos, Mortz
Roper, sha
Roper, Mrs. sha
Rose, Co., dward
Rosentha, en|amn
Rosentha, annah S
Rosenwad fe We, Inc
Roshek ros. Co. Roshek Reaty Go.
Ross Co., Inc., .
Ross, .ames, estate of2
Ross-Sper Gove, Co
Rosser, Luther Z., estate of2
Roth, Chares ., estate of
Roth ote Co
Roth Shoe Co., Whtney
Rouse, empstonc Co.
Inc.
1 cquescence reates to ssues 2, 3, 4, 5, and 0 n decson
1 state ta decson.
cquescence reates to ssue concernng openng nventory at Dec
1791
7829
894
12337
5219
2823
7763
3703
6S17
12803
3576
1932
5599
7102
8565
12756
1233
5344
17698
9579
1270
5344
. 595
5436
14924
5652
6341
3873
2451
10184
7915
13042
25747
2551
1009
10843
10842
13581
24740
7532
8759
3079
4060
8642
8643
2092
990
991
8596
1844
7281
8690
10212
2161
1508
542
89
7673
10987
, 1917.
oard of Ta ppeas.
oume.
Page.
3
182
10
651
2
194
12
13
3
108O
6
822
6
1247
10
11
12
1381
3
436
2
668
6
194
6
890
10
1134
9
1332
1
1098
7
1162
10
763
9
376
2
1176
7
1162
1
501
5
748
12
1195
5
1217
4
47
4
313
2
817
11
782
5
654
10
6S2
12
1195
7
293
2
1141
7
711
7
711
12
816
11
82S
8
369
8
787
7
1112
7
1112
2
341
2
19
2
19
11
921
2
260
7
196
8
693
10
1340
3
809
3
868
1
1111
1
453
7
1018
G
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3
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4
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#
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35
Ta payer.
oard of Ta ppeas.
No.
oume.
Pago.
233
1
369
9386
8
741
5736
1
6356
6
626
12569
3795
10
864
3795
10
864
57
1
228
2928
9
921
2929
9
921
4277
5
534
4571
6
265
2069
4
476
4570
6
265
9119
13
240
24312
11
947
183
1
194
2029
3
1168
54
2
764
1986
2
1130
1986
2
1130
13108
6
1373
1706
5
.1288
1705
5
1288
7578
8
688
2077
2
649
7561
6
68
7577
4
1074
3796
2
1305
11451
10
1262
10807
7
267
5733
3
838
3115
3
723
12231
8
979
3725
4
1109
204
1
73
4871
6
198
431
3
927
10643
10
1242
6981
8
107
11507
10
1412
3678
4
298
3624
9
465
3040
2
166
391
1
338
11408
10
1024
11383
12
1353
11383
12
1353
10S57
11
836
4621
9
486
3659
3
1026
4742
3
640
5939
8
1048
1422
2
823
13728
11
601
10016
7
150
Rova Coeres Co., The.
Roya ue Co
Rubens Co., Chares
Rubensten, Gertrude G., e ecutr ,
Rubensten, Lous, estate of1
Rub-No-More Co
Rucker, .
Rucker, W.
Ruckman Coa Co
Rudoph, . L
Rudoph Co., Inc., M.
Rudoph, T. T
Ruos, . D-.
Russe, Chares ., estate of
Russe Mng Co
Russe Whee oundry Co
Ryan Co
Ryan, ohn C, estate of
Ryan, ate C, e ecutr
Rye each Peasure Park Co., Inc
Ryman, . ., estate of
Ryman, Nancy
S.
St. Car Guaranty Tte Co
St. Lous Screw Co
Sachs, Chares
Sackett, . T
Sadder, ohn
Safe Guard Check Wrter Corporaton
Sakowtz, Lous
Samon, George
Samon, Water
Saomon, Leon
Sampson, Wam C
Sand Sprngs ome
Saner-Ragey Lumber Co
San rancsco Lumber Co
Sanger, as ., estate of
Santa Mara Gas Co
Sargent, Mar|ore L
Savnar Co., Inc
Savre Stampng Co
Scafe, Wam ., estate of
Scaes, . L.2
Schatznger, ernhard, estate of 1
Schatznger, Sabna, e ecutr 1
Scheer, braham
Scheuer, erman, estate of 1
Schck, ndrew, deceased, estate of
Schff , en|amn 1
Schng Gran Co
Schemmer Graber Co., The
Schesnger, rmn
Schett, doph
state ta decson.
G
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2
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1
3
-
0
1
-
2
2
0
3
:
3
4
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36
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Schossberg, dwn
Schmck, Wson -
Sehmd, ohn
Schoekopf, Water
Schroth, oseph, estate of
Schroth, ua nna, e ecutr 1
Schubert, ndrew
Schuz, . ., estate of1
Schuz, mma ane, e ecutr 1
Schuz akng Co
Schwarzer Co., .
Schwng, Samue P., estate of 1
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. ( etmann Co., Inc., suc-
cessor)
Secor ote Co
Securtes Investng und, Inc.
Securty Trust Savngs ank, trustee 1
Securty Trust Co., e ecutor 1
Segman, George W., e ecutor
Segman, Isaac N., estate of
Sewyn Operatng Corporaton
Seneca Coa Mnng Co
Sentne Pubshng Co
Serren, nna, e ecutr 1
Serren, ohn, estate of 1
Servce Recorder Co., The
Seven Nneteen fth venue Co
Severa Co., W.
Shaffer, ohn C
Shamokn aev Pottsve It. R. Co
Sharp, W. Z
Shaw, Guthre, e ecutor
Shaw, ames G., |r., estate of
Sheakev ennedy ros
Sheane uto Co., W. 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
Shner O M Manufacturng Co
Shpowners Merchants Tugboat Co
Shope rck Co
Shotter, S. O. and Isabe, e ecutors
Shotter, S. P., deceased, estate of
Shuths, . W, deceased, estate of
Shure Co., N
Shutter, Maron D
Shntteworth, Wonv Co., Inc
Sk, Mrs. W. W
Sk, W. W
state ta decson.
2006
1971
11714
6212
3914
3914
6667
5686
5686
2074
667
3633
8441
10418
6180
2443
434
5499
5023
5024
224
10304
6720
9758
9758
4851
1049
5712
8836
8836
2201
6031
1702
1072
4944
10598
9644
9644
6282
5187
543
5089
2161
5493
13698
4313
7748
2875
3955
6531
3134
3134
1827
3655
1316
1362
10864
10864
2
3
10
4
5
S
4
7
7
3
3
3
9
6
9
2
5
7
1
11
4
10
10
6
2
8
7
7
2
5
3
9
3
8
9
9
7
9
6
3
3
10
4
4
8
11
4
5
2
2
2
4
2
5
7
7
G
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-
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37
Docket
No.
oard of Ta ppeas.
oume.
Page.
Co., Inc., Wam
n, e ander
Smmons Co
Smon, . S
Smon, ate M
Smonds Co., C.
Smons, |r., and wfe, ames
Snshemer, 8dney W
Sater, Chas. W
Sattery, Stephen
Sne, ohn T
Smth, ert
Smth, Mrs. ert
Smth, Mrs. D. Sydney1
Smth, rancs
Smth, arry ., e ecutor
Smth, arry . P
Smth, Theodore
Smth, Water T
Smth Insurance Servce, Inc
Smth Son Co., Lee S
Smth Machne Co., .
Snyder. Wam
Sofof, . W
Somers Lumber Co
Sonenbck, Davd
Sonora ank Trust Co
ugusta G., estate of
hern eed Co
Southern Press Coth Mfg. Co
Southern Sand Grave Co., Inc
Spadng, atherne
Spang-Chafant Co., Inc
Spezer, Lena
Spencer, Maron Parsons
Spencer Lumber Co. et a., .
Sphar rck Co
7ord, annah M., admnstratr of estate of
M. Ms ..
rg, Wam D., admnstrator
_|e, zabeth S
Sprague Tre Rubber Co
Sprng rook Ice Co
Sprngdae Cemetery ssocaton
Sprnke, ames L., estate of. _
Stafford-Lowdon Co
Staey, .
Staey, WmerC.
ey-Mackev Constructon Co
Gas Products Co
Marne Insurance Co., Ltd
Standard Refractores Co
Standard Sk Dyeng Co
Standfer Constructon Corporaton, G.
Stanfed, Theodore
Staney Insuatng Co
Star Porcean Co
M.
9708
10389
1927
4912
9993
267
5329
11068
4134
9312
6752
5329
5329
3262
1020
3098
2552
1054
4841
10901
3328
7519
13186
482
2401
3665
7838
6359
13587
13004
6603
7302
10469
2389
22194
7639
2086
1028
7914
6740
4717
12862
4169
10401
9088
6435
10750
1271
9843
4822
3617
3618
11694
5550
3076
4056
2983
5002
10
6
8
4
10
1
5
7
5
9
9
5
5
4
1
6
7
9
4
9
3
7
11
1
2
4
7
3
6
10
5
7
9
3
11
10
2
3
8
8
11
12
3
12
7
9
9
4
5
4
S
9
4
8
2
4
Revokes nonaoquescenoe notce pubshed In Cumuatve uetn I-1 at page 8.
3 state ta decson.
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38
Tmpayer.
Docket
No.
oard of Ta ppeas.
oume. Page.
Starck, Php ., estate of
Starck, Php T., e ecutor
Starck1
Stark, rthur L., estate of ..
Starr, C. L
Starr, oward W
Starrett, Pau
State ank of cester.
estate of Php .
Sten et a., Sade S., e ecutors
Stendach Co.
Sterng Reaty Co ---
Stern, Car
Stern, Lous
Stern et a., Samue . -, e ecutors1
Sevenson, D. M
Stewart Co., red S
Stewart Co., G. S
Stegtz, Trcber Co., Inc
St, George W
Stwater Mng Co
Stwe Paper Co., .
Stockbrdge, M. C
Stockbrdge,, Mrs. M. C
Stowerek Chocoate Co
Stouts Mountan Coa Co
Stratton Grocery Co--
Straus Market, Inc
Strauss, Davd, estate of1
Strffer, Inc., dward C
Stromberg ectrc Co
Strong, ewat Co., Inc
Strong, .
Strong, Stea
Strothcr Lumber Co., G.
Stumer, ne anche
Stumer, anche G
Stumer, Los M
Stumer II, Lous M
Suburban Investment O . The
Sugar Run Coa Mnng Co
Suhr, Chares L
Suvan Grante Constructon Co
Summt Whoesae Grocery Co.
Sumptcr aey Ry. Co
Sumter Coca-Coa ottng Co.
Sunfower Packng Corporaton
Sunny sde Coa Coke Co.2
Superor ngravng Co
Superor Motor Parts Co. a
Superor Pocahontas Coa Co
Susman, Otto
Sutff, S. D.
Swaney, wng
Swartz Co., Inc., . R
Sweeney ames Co
Sweet, Gertrude
4051
4051
10587
12739
101
6557
5913
4621
state ta decson.
10
8
cquescence reates to second ssue of decson.
19377
19376
2459
14698
5975
3065
653
6521
5687
7301
1866
1867
6030
6542
7645
3378
3877
5533
3398
5069
1909
1909
15235
992
993
904
905
1923
9236
6406
8790
676
13145
9079
531
9442
7949
17814
10348
5377
3077
0190
2786
2863
3688
10266
19783
9240
3
8
9
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
10
2
2
2
2
1
11
4
6
1
10
7
2
9
G
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g
(
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)
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2
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1
3
-
0
1
-
2
2
0
3
:
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4
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39
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Sweeten, P. P
Swnehart Tre Rubber Co..
Sydco Photopay Corporaton.
Syvan ectrc ath, Inc
4331
3
37
1436
2
223
10221
7
445
7411
5
1293
Takamne Laboratory, Inc.
Tampa ectrc Co
Tarr, rank
Tayor, -
Tayor, a D., e ecutr
Tayor, arret ., and Rowe, ohn
Tavor, Moses
Tavor, P. L. -
Tayor, T. ., estate of
Teague, .
Te- ectrc Co -
Tempe, Water P
Tempeton, eny Co., Ltd
Ter ush, Davd
Terre, dgar
Te arkana Cotton O Co., Inc ..
Te as Chemca Co
Thes, |r., George
Thomas, . L
Thomas Shoe Co., The
Thompson, . W
Thompson, Seetha O. (Mrs. . C.)
Thompson, W. an
Thompson ack
Thompson Co., ohn R
Thompson Pacfc Coast Co., L.
Thompson Scenc Raway Co., L.
Thompson, Mrs. T. C, e ecutr 1
Thompson, T. C, estate of1
Thompson, W.
Thorkdsen, Thomas
Thorpe, een Converse
315 West 97th Street Reaty Co., Inc
Threefoot, ., estate of
Tctz, Louse C, admnstratr
Tetz, Robert M., estate of
Tfft, Layer Co., Inc...
Tford, enry Morgan, deceased, estate of.
Tton. S. U., estate of
Tte Insurance Trust Co
Ttus, Lous
Ttusve Trust Co., e ecutor
Tvo Theatre Co
Todd, C. Lee.
Todd, George W
Todd, Lbanus M ---
Tomfohrde, ndreas, estate of
state ta decson.
37229 29 4
3199
7
963
13344
1
28332
12
1002
29593
I
3543
3
72
3050
9
442
7617
7
931
3066
3067
1 2
1159
8789
7
59
10020
11
441
7617
7
031
4040
3
146
315
1
434
12018
10
1238
6145
18432
61
4015
4
984
3132
7
773
1888
1
1142
6360
11
390
3958
3
1030
9213
6
297
209
1
124
7412
10
390
1895
9
1342
17509
10
1125
10837
11
729
7917
10
57
1869
2
661
9679
10315
1203
5280
3
902
5280
3
902
677
5
193
385
2
570
4206
3
1006
9898
10
368
521
9
499
9314
9
1123
9314
9
1123
12456
12
481
3286
3
884
6378
8
914
9195
11
288
85
2
582
2450
2
754
1508
3
868
7452
6
610
1022
1
868
2959
3
327
2960
3
327
9615
13
150
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2
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1
3
-
0
1
-
2
2
0
3
:
3
4
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40
Tomnson, . G
Tonawanda Power Co
Topeka Tent wnng Co.
Towns ospta, Chares .
Townsend, nna M.1
Townsend, . Ray 1
Townsend Lumber Co
To away Tannng Co
Transatantc Cock Watch Co
Trathen, Mrs. . Res
Treat ardware Corporaton
Trefrv, W. S --
Tr County Lght Power Co
Troost venue Cemetery ssocaton.
Tro e Manufacturng Co., The
Trov Manufacturng Co
Trust Co. of Georga, e ecutor
TschfTey, rederck _.
Tsvogou, Constantno
Tucker, Geneveve
Tur Iron Car Co., Inc
Turner, Mrs. W.
Turner Termna Co
Tweve ast Thrty-frst Street ote Co
Twn Cty Sand Grave Co
Two Nnety-Two atbush venue Corporaton.
Tyer ppach, Inc
Tyer, May L
Tyer Warehouse Co
U.
Uferts, .
Unon Department Store Co.
Unoa Rea state Co
Unon Meta Manufacturng Co
Unon Trust Co., e ecutor
Unon Trust Co. of Ceveand, Oho, e ecutor 1
Unted Motor Co
Unted States dety Guaranty Co
Unted States Mortgage Trust Co., e ecutor ..
Unte States Refractores Corporaton .
Unted States Too Co --
Unted States Trust Co. of New York et aL, e ecu-
tors 1
Unty Schoo of Chrstanty
Untermyer, vn
Utca Motor Car Co
.
anco Ms, Inc
ancouver ome Co
an do amps oand Dutch akers -
706S
3870
6506
3440
2317
20046
20047
830
5084
5694
4897
8270
4524
3397
2710
1114
587
6585
12988
6407
3634
3470
9255
4162
3934
3645
7171
5189
905
10722
512
14034
7835
3457
35
2524
4478
6983
12744
4263
2459
5642
4650
7856
1 799
26612
9086
13276
5550
1430
3
2
12
12
1
8
6
10
2
4
1
7
12
5
3
2
9
5
3
3
11
3
6
10
1
11
8
3
1
4
9
5
12
5
2
9
3
9
4
11
10
1 state ta decson.
1 cquescence reates to a ssues e cept ssue wth respect to quetoD of aowance of
1918 of costs ncurred n 1919.
G
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2
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1
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-
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2
0
3
:
3
4
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41
Ta payer.
n et aL, Wam ., e ecutors
anderbt, Wam ., estate of. ---
an tten, Chares
an eet, Carey.
an ook, .
an ook, Mrs. .
an orn Co., Inc., Over
an Lndey Nursery Co.,
an Lndev Orchard Co.,
an Schack, en L., estate of1
audreu Lumber Co
aughan, ohn Chares, estate of
aughan, Leonard oden, coe ecutor
aughan fe arnes, Inc
eteh, dwn P
rden, M. L
rgna Lumber o Co
scose Co., The
Uta de rroyo
oebe, acob, estate of
oebe, Water W., e ecutor 1
on Paten, ar
oyer, . L
Docket
No.
oard of Ta ppeas.
oume.
w.
Wadsworth, arod ., estate of
Wadsworth, esse ., e ecutr estate of arod .
Wadsworth, deceased
Wah, enry -
Wah, W. Wey
Wad, Lous
Waker, |r., . C
Waker, |r., Mrs. . C
Waker-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 ecutor
Water, George L., estate of 1
Water et a., oward ., e ecutors estate of George
L. Water, deceased
Water Co., Inc., D. N.
Water Co., Inc., et a., D. N.
Water Rea state Co
Ward, amton
Ward, Wm
Warren Co., The
Warren, b
Washburn, Cheney D
Washngton Cadac Co
Washngton Caterng Co
Washngton ote Co.
Washngton Paper Stock Co_
13030
13030
8793
2047
9358
9359
_ :-, _
3109
3109
7127
6908
10514
10514
7311
1179
5200
3546
3164
10231
6009
6009
16959
5453
1982
19S2
2292
2004
4629
8266
S _ 7
446
7359
3857
231
230
663
2410
6388
1782
1782
4006
7618
7618
11322
10471
4588
2550
2475
4471
7051
6609
7133
1321
11
11
8
2
8
8
9
2
2
0
8
10
10
6
1
3
3
11
7
7
10
4
1
2
2
8
6
1
4
4
4
4
3
4
7
2
2
4
10
10
8
7
3
7
7
3
9
4
1
291
291
611
825
68
68
76
1084
1084
96
383
140
140
1279
680
1123
341
444
893
276
276
250
1192
1043
1043
1106
1106
1003
1142
1142
599
915
1093
634
634
981
367
1104
453
453
142
620
620
704
1107
1154
293
483
844
743
441
1117
1 state ta decson acquescence reates to trusts of 1912, 1919, and 1921.
state ta decson.
cquescence does not reate to that part of decson nvovng appcaton of the yers
T. ., 1135).
(I .
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42
Ta payer.
Docket
No.
oard of Ta
oume.
Washngton Pece Dyeng nshng Co.
Wateon, Martha ., estate of.-
Watson, Mrs. Myrte
Watsontown rck Co
Waynesboro Manufacturers ssocaton...
Weakcv Coak Sut Co
Weaver, ee R ---
Weaver, ee R.
Weaver, ames
Weaver, M.
Weaver, M. ., estate of1
Weaver, S. P
Weaver, T. L
Weaver, Water
Webb ocorsesk, Inc.
Webb, Leand D
Webb Press Co., Ltd.
Webb, Stuart W
Weber- unke-Lange Coa Co
Wedgwood Sons, Ltd., osah.
Weed, enry D
Weeks Co., L. S
Wener, . L
Wengarten, Davd, estate of
Wengarten, Meve D., e ecutors.
Wess, Pau _
Wessenbach, Mnna .
Wech et a., . Soher, trustees.
Wech, rank P
Wesh Packng Co
Wenzc, rnst, estate of
Werbeovsky, braham, e ecutor
Wcrbcovskv, . II., estate of ---------
Werner Werner Cothng urnshng Goods Co.
West ay Co., The
West Corporaton, . C
West nd Consodated Mnng Co
Westergren, Inc., M.
West Pont Investment Co
West 28th Street Corporaton
Westermann fe Pagano, Inc
Western mercan O Co.3
Western Star Mng Co
Western Znc O de Co
Wharton et a., Gerad ., e ecutors 1
Wharton, ohn G., estate of2
Wheary, George
Whcatey, ames .
When Cothng Co
Whte, |r., ames
4619
7228
6286
3580
1277
4001
2925
2924
8488
2922
3852
2921
2923
7955
178
1279
7070
2404
2724
5591
9146
3647
2563
2604
13048
14672
10433
10433
10059
4004
4005
6061
6102
10157
11134
21634
12587
5199
548
10106
10106
2843
6872
2172
2723
300
6032
3763
14452
2852
8604
26439
26439
4799
9665
428
5622
4
6
7
3
1
8
2
4
8
2
4
2
2
4
1
1
9
3
3
5
11
3
2
6
10
13
13
7
12
9
1
8
8
9
2
4
3
5
1
4
2
10
5
7
13
13
5
8
1
4
Revokes nonacqucseencc notce pubshed n Cumuatve uetn -2,
1 state ta decson.
cquescence reates to second ssue of decson.
1 cquescence reates to tem (2) of decson.
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43
Ta payer.
Docket
No.
oard of Ta ppeas
oume.
Whte, ua
Whte, Robert P
Whtehead, C. P
Whtehouse Leather Products Co., Inc
Whteey, urt ., estate of-.- ...
Whtng, C. L., Inc
Whtman, Nathane, deceased, estate of _.
Whtman Sons, Inc., Carence -
Whtmeyer, a
Whtmore, vah P
Whtson, Thomas
Whorton et a., Gen C, e ecutors 2
Whybrow, Carence
Wck wre, Theodore ., estate of
Wckwre et a., Theodore ., |r., e ecutors.
Wedemann rewng Co., George
Wess, . C
Wess, Oga --
Wggnton, George P
Wbur, Loyd
Wdermann Co., C
Wkes, . rank
Wkes, . Renwek
Wkes- arre Lace Manufacturng Co
Wkns, L.
Wams, arry
Wams, Robert W., e ecutor of estate of en C.
onaparte
Wams Steamshp Co
Wamson, e ander
Wamson Rauers Co
Wamson Mng Co
Ws, Mrs. W. T --
Ws, W. T.
Wson ros. Co
Wson, Chares Scotto, estate of3
Wson, anne L., e ecutr 2
Wson urnture Co
Wnshp, Charc| N
Wnter Garden, Inc
Wsconsn vdro- ectrc Co
Wof, . . G
Wof Manufacturng Co
Woferman, red, e ecutor 8
Woferman, Lous, estate ofs
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
Woods Theatre Co., .
Wrght , O. ., estate of
Wrght, Pear Ross, admnstratr
Wrght, W.
Wrght s utomatc Tobacco Packng Machne Co.
Nonncquescence notce n ths case, pubshed n Cumuatve uetn I -2, page 6, recaed.
state ta decson.
state ta decson acquescence reates to frst ssue of decson.
5623
5554
23948
10673
8472
11046
1399
10316
15888
3090
7086
3478
3094
609
5574
5574
7955
7615
7637
11425
5636
10611
8289
12024
12023
452
4208
4207
1652
8725
2343
11292
1042
15679
15679
8460
4909
4909
11317
6754
8246
9601
2970
8626
11201
11291
4001
5877
11029
559
7262
6864
9156
11067
12096
12096
4270
1837
4
4
11
12
10
7
3
11
6
o
2
7
1
10
10
4
7
7
9
8
11
11
1
0
0
1
7
2
12
6
7
7
7
5
5
10
10
10
10
8
10
10
10
8
1
9
1
0
6
s
12
12
12
10
1
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2
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1
3
-
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1
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2
2
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3
:
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44
Docket
No.
oan of Ta ppeas.
oume.
Page.
Wyatt et aL, zabeth C. R., e ecutors..,
Wyman Co., C. C
Wyomng Te Tmber Co
Y.
Yahoa Sand Grave Co - ---
Yakma op Co --
Yae rcvda Paper o Manufacturng Co
Yoder, dward
Yokohama -Ito washa, Ltd
Yost erre
Young, I. ., estate of
Young, May S., e ecutr . - --
Young, Mna ., e ecutor
Young, . Marsh
Youngstown read Co
Younker ros., Inc
Yow, rances Whte
Z.
Zegen, rederck
Zenth Mng Co
Zeger, |r., Wam
Zmmerman, . W
Zmmerman, enne
Zour Drawn Metas Co
17698
10676
21370
24574
2281
9527
3353
3220
2653
2085
7440
3847
4720
1839
1333
5555
6426
5454
123
2513
2145
4908
8
10
8
1
5
2
8
763
408
1143
820
441
900
1180
1248
745
245
193
472
457
402
333
995
844
1279
186
314
667
853
Tho Commssoner does NOT acquesce n the foowng decsons
of the Unted States oard of Ta ppeas:
Ta payer.
.
merca Cabes, Inc.
ng Cory Co.
sop, dward ., estate of4...
sop, dward ., e ecutor
magamated Sugar Co
mercan press Co
mercan Leather Products Co.
mercan Seatng Co.s
mercan Stee Co
nkeny, ohn D., e ecutor
nken , Lev, estate of
rch)od, ohn ., e ecutor
tantc Coast Lne R R. Co.8.
oard of Ta ppeas.
Docket
No.
oume.
Page.
9092
10
213
6606
7
574
6519
7
848
6519
7
848
6439
4
568
350
2
498
10619
7
1043
4772
4
649
669
1
839
8904
9
1302
8904
9
1302
8629
8
919
10983
9
1193
1 Nonacquescence notce n ths case, pubshed n Cumuatve uetn I -2, page 6, s recaed.
1 Nonacqueacenco reates to ssue as to tentatve ta .
1 Nonacquescenco reates to thrd ssue.
sho a decson nonaequeseence reates ony to tt trust.
Nonacquescenco n so far as t reates to ncuson n nvested capta of the sum of 198,716.37.
state ta decson.
7 state ta decson nnnacquescence reates to frst and second ssues of decson.
Nonacqucscenoe reates to second ssue of decson.
G
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r
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g
(
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)
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2
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1
3
-
0
1
-
2
2
0
3
:
3
4
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45
Ta payer.
Dockot
No.
oard of Ta ppeas.
oume.
udubon Park Reaty Co.
ycrs Co., L. S.1
.
a et a., Water ., coe ecutors
amberg Cotton Ms Co
ancker, |r., .
arnes et a., Chares G., e ecutors
arnes, |r., ohn, estate of
arnes, oseph
arnes, oseph, admnstrator
an, Mary L., trustee
q, Ots, estate of
. . W. (Mrs.)
eacon Coa Co.1
emont Iron Works
eowskv, Morrs
et Raway Co. of Chcago 5
erger, Mathda W
erger, Water
erks oundry Manufacturng Co
est Stee Castngs Co
ngham, Robert W
ar, W. ., estate of 4
ar Co., . C
ock, . ates
ock, . ates, e ecutor
ock, rank ., estate of
ock ohner Mercante Co
ossburg Mercante Co
vdenburgh, a
on wt Teer Co
ourne, my ., estate of6
oyne Cty Lumber Co
rackenrdge, George W., estate of
renneman, Davd
renneman, . L.
renneman, erna L
rant, . S., admnstrator
ronson, et a., ames D., trustees 4
rown Co., M
rvant 8tratton Commerca Schoo, Inc-
urke ectrc Co.
urton, Lawrence mer
yck, W. 8
yers, oward Webster
rewng ssocaton 7-
y, uer
9629
1217
6858
9445
10104
18617
8624
8625
5266
9577
5266
12934
12934
18611
11894
10454
9656
4289
6110
6111
6998
8326
8823
2440
7147
18792
18793
18793
4576
2880
9921
26037
7883
4635
6515
8361
8323
8324
8860
7702
24864
43
1697
2689
2260
10319
3903
2264
8
8
11
8
7
7
7
5
5
11
9
6
7
9
10
10
6
6
8
4
11
11
11
11
4
4
5
10
8
7
11
10
10
10
6
7
9
1
5
5
4
8
1 Ths notce, whch was orgnay pubshed n uetn I -41, page 1, was repubshed n Cumuatvo
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.
1 Nonacquescence reates to frst ssue of decson.
1 Nonacquescence reates to ssues nvovng edera ncome ta es added to ncome for 1917, 1918, and
1919, n resect of whch pettoner was entted to be rembursed by ts tenant companes.
state ta decson.
Nonacquescence does not reate to deductbty of New York nhertance ta .
8 Nonacquescence reates to ssues 1 and 2, and ssue 5 as to patent group No. 1.
Nonacquescence reates to queston of affaton as to the companes ncuded n the
G
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3
-
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1
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2
2
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3
:
3
4
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46
Ta payer.
Docket
No.
oard of Ta ppeas.
oume. Page.
Cambrdge Ice Co
Campbe, rcher Maynard.
Campbe, . L
Capto ote Co.1 --
Carbo Petroeum Co.
Carey, C. W.
Chapn Constructon Co
Chapn, W.
Ceveand, Panesve shtabua R. R. Co
Ceveand, Panesve astern R. R. Co
Cngan, Margaretta T
Cohn Sons Co., M.
Cons-McCarthy Candy Co
Connectcut Passumpsc Rvers R. R. Co.5
Conneee, C. U
Conover Co., S.
Conway, . W
Corbett Stuart. _-
Corneus Lumber Co
Crabtree Co., . -
Crocker Co., . S
Cross Mountan Coa Co
Crown Potteres Co
Curran, Maurce
7282
18320
18321
6610
7134
9524
432
3200
2267
4927
4927
4227
7361
9238
43C2
8424
9100
3363
3926
2263
11855
4273
5889
4581
1219
10043
793
9
6
8
12
6
3
4
4
4
6
9
4
4
6
4
11
5
5
5
2
12
5
D ramon, enretta 10044 7
Dav Pantagraph, Inc.0 4126 9
Darbv, RufusC 2265 4
Davs, Chas. 18622 11
Davs, Oscar 18625 11
Dav, enry M 30198 12
De orest, ua N - 5857 4
Deto Grass Rug Co.7 6926 7
Dennett, red - 11498 7
DeRenter, Ronad 6243 7
Dckerman ngs, Inc.. 4928 4
Don, ohn P... 10985 9
Dochne, George, estate of 9344 6
Don, arret M., estate of8 5594 9
Downg, Mary M 2394 6
Dggan, anna, estate of9 4706
Duggan, ames, e ecutor8 4706
Duune, Ophea, estate of 6858 8
Dunson Ms10 17019 10
Dustn, nne M., estate of 11 8629 8
Dwgt Loyd Snterng Co .1 120 1
Nonacqucsceneo reates ony to that part of decson whch reates to appcaton of tho yers decson
(1 II. T. ., 1135).
1 Nonacqutoscenoe reates to fourth ssue of decson.
a Nonacquesceneo reates to ssues 1 and 3 n decson.
Nonacquesoence reates to 25 per cent penaty for faure to fe a return.
e Nonacquescence 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.
0 Nonacquesceuee reates ony to ssues nvovng reducng nvested capta by reducng current earnngs
avaabe for dvdends by ta accrued for current year.
7 Nonacqucsceneo reates to second ssue n decson.
e Nonacquesoence. does not reate to deductbty of New York nhertance ta .
6 state ta decson.
Nonacquesoence reates to ssue regardng |ursdcton.
I state ta decson uonacquescence reates to frst and second ssues of decson.
G
e
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(
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2
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1
3
-
0
1
-
2
2
0
3
:
3
4
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47
Ta payer.
Docket
No.
oard of Ta ppeas.
oume. I Page.
.
kn, Dr. Wm. S
mery et a., are C, e ecutors.
mery, |r., Lews, estate of
cesor-Leader Laundry Co
.
armers Depost Natona ank and ffated
anks
rst State ank of rackettve, Te
rst State ank of Wemar
rst Trust Savngs ank
erad, Mary
er, ce sher
cescon Co., . C
k, Wam G., admnstrator
ankn et a., Thomas ., e ecutors and trustees.
resh Pond Ice Co
uer, |r., ames W
Gaum, bert ., trustee
Gardner Governor Co.
Garneau Co., Inc., oseph .
Genera Manfod Prntng Co
Georga Car Locomotve Co.5
Gbson, ate oa, estate of4
Grard Trust Co-e ecutor
Genn, Thomas
Goddard, ohn N
Gonzous Creek O Co. (dssoved), trustees for cred-
tors of
Goodrum, |r., . -
Graves et a.. . ., commttee for credtors of
Whttaker acon
Great Northern Ry. Co.5
Greck Condensed uttermk Co.
Greyock Ms
.
adden, |r., et a., ohn spnwa, e ecutors4.
adden, Mare Torrance, estate of
aght, George W
amton, arrs Co
annba Mssour Land Co.
arbour-Longmre Co
aran Co., O. ...
18629
9766
9766
9221
6220
12876
12657
16011
11746
810
10126
10585
9344
6515
7282
3068
6101
321
40
14577
3131
7402
11298
2262
18621
13393
18613
22631
8433
11850
3691
11926
9421
9421
6141
4170
I 15687
9084
6905
1374
11
9
9
8
G
9
10
11
6
7
10
6
11
0
7
10
6
1
12
2
7
10
4
11
12
11
12
8
7
9
10
10
4
12
9
7
1
Nonacquescence reates to thrd ssue of decson.
N onacquesoence reates ony to that part of decson whch reates to appcaton of the yers decson
(1 . T. ., 113S).
Nonacquescence reates ony to ssue 3 n decson.
state ta decson.
Nonacquescence reates to ssue nvovng the queston whether the company shoud accrue as ncome
n the ta abe years nterest earned but not pad n those years on obgatons of other corporatons owned
by t.
Nonacquescence n decson n so far as the oard hods that t has ursdcton to determne the over-
payment for 1917.
G
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(
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)
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2
0
1
3
-
0
1
-
2
2
0
3
:
3
4
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3
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#
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48
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
arret Cotton Ms
arrs, zabeth
arrv Co., S.
aske arker Car Co
atze uehcr, Inc. 1
awkns, rank
eneman Lumber Co.2
enrch, Samue G., estate of
emock oow Coa Coke Co
endrcks, armon W
enn, . W., trustee
epburn, C. sher, estate of1
ermance, . P
erzog, Php W
ess ros.
ewtt Rubber Co
ckey, . 15
ggnbotham- aey-Logan Co.s
nman, Thos. P
rsch Co., doph
of rau Co., The1
offman, Isabea C, estate of
offman et a., Meyer C, e ecutors .
offmann, rederck
ofed, Marv D. Moore
oyoke Westfed R. R. Co
ome uders Shppng ssocaton..
ome Laundry Co
ouston et Termna Ry. Co. . -
ubert, dmund D., estate of
umphreys, . C
upfe Co., Inc., . Chr. G.8
utchus Lumber Storage Co.
I.
Inos Merchants Trust Co., e ecutor T._
Inos Rura Credt ssocaton
Independent rewng Co. of Pttsburgh 10_
Indana Stove Works
Indanapos Street Ry. Co
Indvdua Towe Cabnet Servce Co
Ingewood Park Cemetery ssocaton.
Inuan, dward
Interurban Constructon Co.
6228
11820
1644
7009
9501
11454
2572
10175
2420
8837
4554
4303
9690
11192
6245
8039
325
19107
4691
18615
3230
6134
5338
3301
10089
8425
7044
6047
8494
11204
4069
9834
3307
11204
5058
3242
8148
8787
1231
12586
3249
2501
7028
2G87
5
11
4
9
10
1
11
2
10
4
8
11
11
10
7
1
11
s
11
7
6
3
7
9
S
4
0
12
9
9
4
12
3
4
8
7
6
6
4
5
5
ackson, Mnne L., estate of 4219 I 3
1 Nonacqueseenec reates to thrd ssue. In decson.
1 Nonacquescenco reates to ssue as to tentatve ta .
1 state ta decson.
Nonaoquescenoe reates to second ssue of decson.
Nonacqueseenec reates to frst, second, and fourth ssues of decson.
Nonaoquescenoe reates to second and fourth ssues of decson.
7 state ta decson nonacquescence reates to ssue concernng transfer of stock.
1 Nonacquescence reates to obsoescence ssue.
Nonacquescence reates ony to that part of decson whch reates to appcaton of the yers decson
(1 . T. ., 1136).
y to ssue 2 n
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2
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1
3
-
0
1
-
2
2
0
3
:
3
5
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3
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0
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0
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8
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0
5
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6
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#
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49
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
ohnson et a., omer S., e ecutors .
ohnson, Stephen O., estate of 1
een, erbert Ide
ehota Mnng Co
eystone Coa Mnng Co
ster Land Improvement Co. .
en, orence L. _
yman, .
uhn, . .
Lancaster et a., ohn L., recevers.
Lancaster Lens Co.4
Lawson, ohn S
Lee Lve Stock Commsson Co
Lee Shoe Co., Inc., ohn
Levne ros. Co., Inc.
Ley Co., Inc., red T
Lghtnng Creek O Gas Co.
Loyd, rnest
Lock, Moore Co., Ltd
M.
Mc voy Co
McCung et a., u L., e ecutors
McGown- oshee Lumber Co.
McMurtre, dnah
Mahonng Coa R. R. Co
Maey Co., dward
Manckrodt, sr., dward 8
Manhattan rewng Co
Mann, rankn P., estate of
Martme Securtes Co.7.
Martn dvertsng gency, Inc., Mac.
Mathews, ohn
Matthessen, |r., . W
Me can Teegraph Co. 8
Manus Motor Works, Inc
Mddese Ice Co., et a
Md-West o Co
9550
9550
8423
1117
10168
12355
4004
4005
6001
6102
10157
6753
18631
9863
11603
6108
280
10061
6832
18168
8584
23204
24414
9295
9216
12468
10446
19740
2202
9677
1750
693
6101
324
8115
9583
2125
9093
6052
7282
11066
11
11
6
3
10
9
4
11
9
10
10
7
11
5
9
10
13
10
8
4
0
4
6
10
2
11
8
2
10
5
9
11
534
534
275
885
295
671
617
832
420
365
1153
747
532
187
689
749
1150
1029
1008
1017
335
961
1301
923
462
1112
952
747
188
162
209
( 21
213
435
156
1223
state ta decson nonacquescence reates to trust nstruments of 1918 and 1921.
Nonacquescence reates to ssue wth respect to queston of aowance of amortzaton In 1918 on costs
ncurred n 1919.
1 N onacuuescence reates to queston In decson pertanng to the year 1919.
Nonacquescence reates to the ssue as to whether a return sgned by the presdent and secretary was
the return requred by statute, the Cng of whch started the runnng of the statute of mtatons.
Nonacquescence reates to ssue 6 n docson.
1 Nonacquescence reates to second ssue ot decson.
Ths notce, whch was orgnay pubshed n uetn I -41, page 1, was repubshed n Cumuatve
uetn -, page 7, for the reason that the case was erroneousy ncuded n the st of cases acquesced n
pubshed n Cumuatve uetn I -2. page 3.
Nonacquescence reates to ssue as to tentatve ta .
G
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(
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2
0
1
3
-
0
1
-
2
2
0
3
:
3
5
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2
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3
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0
0
0
0
8
9
0
5
4
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6
9
P
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50
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Morgan, rooks
Mossman, Yarnee Co.1
M. S. C. odng Corporaton et a__
Murphy et a., ames C, e ecutors 2.
.
Natona Products Co
Natona Refnng Co. of Oho et a., The.
Natona Sugar Manufacturng Co
Natona Tank port Co
Neson, C. N., estate of2
New Oreans, Te as Me co Ry. Co.3__.
Nchos et a., George, e ecutors
Nchos, ohn . T., estate of
Nes re rck Co
900 Park ve. Co., Inc., et a
Nordhot, ohn
Norfok nttng Ms Corporaton
Northern Trust Co., e ecutor2
Northern Trust Co., e ecutor4
Northwestern States Portand Cement Co.5-
Norton et a., rank ., e ecutors4
Norwch Worcester II. R. Co
Norwood Lumber Co
Nmnay, .
Nunnay, Wnshp
0.
Od Coony R. R. Co
dnger Corporaton
Ottcy, ohn
Ou udng and Loan ssocaton.
Parrett, O. S
Peton, onoro Gbson, e ecutr 8
Petauma Santa Rosa R. R. Co.7
Petsch, my Lake, deceased, estate of -
Petsch, Water G., e ecutor2
Pke County Coa Corporaton 8
Pttsburgh nfe orge Co
Pttsburgh ave, oundry Constructon Co.
Potter, .
Powe Coa Co.
Prescott et a., Over, e ecutors
Prescott, Wm. R
18614
/ 3269
11076
4620
4166
6136
12120
186
10605
3274
7702
400
9599
9599
2628
6978
3766
4341
2473
7127
5763
10450
5594
2020
3785
IM- T
1S620
7S20
25469
18623
3865
6766
7402
13830
5424
5424
7189
7464
9089
7432
11945
7883
18626
11
9
7
5
7
11
1
7
3
7
6
10
10
6
7
4
5
9
9
9
2
6
11
11
6
9
11
6
4
7
11
6
6
4
6
6
10
12
8
11
1 Nonacquescence reates to ssue nvovng deducton of tentatve ta es n determnng the
avaabe for payment of dvdends n 1918 and 1919.
3 state ta decson.
3 Nonacquescence reates to ssues 1 and 4 n decson.
state ta decson nonacquescence reates to trust created on ebruary 9, 1917.
6 Nonacquescence reates to ffth ssuo of decson.
8 Nonacquescence does not reate to deductbty of New York nhertance ta .
I Nonacquescence reates to that part of decson as to the purchase of ta payer s own bonds at
par whch wero retred.
8 Nonacquescence reates ony to ssue 2 n decson.
Nonacquescence reates to |ursdcton ssue.
rnngs
than
G
e
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r
a
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f
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(
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t
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)
o
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2
0
1
3
-
0
1
-
2
2
0
3
:
3
5
G
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2
7
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3
0
0
0
0
0
8
9
0
5
4
3
6
9
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#
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51
Tapayer.
Docket
No.
oard of Ta ppeas.
oume. Page.
Prtzaff, rederck C.
Prosser, Seward
Provdence Worcester R. R. Co
Provdent Trust Co. et bL, admnstrators 1.
uaker Mad, Inc..
R.
Randa, George W., estate of
Rauh Sons ertzer Co., .a
eeb, M. .. -
Rey, Warren _ --
Reance Manufacturng Co
Remngton Rand, Inc
Remngton Typewrter Co
Renzehausen, rederck C
Reynods, Mary G., estate of
Revnods, Php M., estate of --
Rhode Isand Too Co
Rndge Land Navgaton Co
Robnson Co., . M.
Robnson, Mrs. C.
Rodenbough, zabeth McCahan, estate of1
Rodenbough, mer ., e ecutor of the estate of
zabeth McCahan Rodenbough, deceased 1
Root, enry L., estate of1
Root, Suse M., e ecutr 1
Rosseter, ohn ,
Roth, W.
Rouse, empstone Co., Inc. .
S.
Saeger, Wford C.
Sage, Margaret Ova, estate of
Sarfert, Ma --
Sam, Morrs
Schrecr Co., onrad
Sr.v Syrup Co., D.
Seaboard Natona Dank of New York, N. Y., e -
ecutor 1
Seas, ctora D. (Mrs.)
Shaffer, C. .
Shto Co., ohn
Shto Reaty Co
Sege, Inc., oe
Syer ng Consodated Mnng Co. of Utah
Snshemer ros., Inc
Socum et a., erbert erman, e ecutors
Smth, Carence C
Smth grcutura Chemca Co
rancs S., estate of 1
.5
6109
8520
6297
7775
4976
11421
5850
6765
10720
9847
5380
6021
34726
2788
10658
8625
8624
2832
3698
5652
8271
465
465
2825
2825
6179
6012
7673
10987
7562
5882
3436
6922
3600
10005
9690
18624
9872
6187
6186
1739
15153
6498
5882
3767
13179
665
553
1 state ta decson.
Nonaequescence reates to ssues 3 and 4 of decson.
3 Nonaequescence reates to frst ssue n decson.
Nonaequescence reates to fna ssue of decson.
1 cquescence notce n the case of . . Stange (C. . I -2, 4) recaed.
10
7
5
6
10
12
8
7
7
11
4
s
s
8
3
2
5
8
1
1
6
5
12
9
e
5
12
9
10
11
11
12
8
8
1
s
S
6
4
11
1
1
G
e
n
e
r
a
t
e
d
f
o
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L
n
Z
h
a
n
g
(
N
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Y
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U
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y
)
o
n
2
0
1
3
-
0
1
-
2
2
0
3
:
3
5
G
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2
0
2
7
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3
0
0
0
0
0
8
9
0
5
4
3
6
9
P
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#
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e
52
Ta payer.
Docket
No.
oard of Ta ppeas.
oume. Page.
Stanton, |r., ohn, estate of 1
Stevens Thompson Paper Co
Stone, George L
Stonev, Mary M. (Mrs.)..
Strong, . R., estate of
Sugg, . D., estate of
Sunn, L.
Sunnysde Coa Coke Co.1
Superor Motor Parts Co.s
Swft, Luce W
Swft Co., C. -
T.
Te as Pacfc Ry. Co-. -
Te te M Suppy Co --
Thomas, C. R
Thomas, Thomas ., estate of..
Thomas, W. ubrey
Thomas Coa Co.4
Turnure, George -
U.
Underwood, Lucy C, estate of 1
Unted States Refractores Corporaton 5
Unted States Trust Co. of New York et a., e -
ecutors of rancs S. Smthers, deceased 1
.
an Schack, en L., estate of
an Zandt, acobs Co -
rgna Carona Securtes Corporaton et a
W.
Wadde, Mary T ct a
Waggoner, da
Waggoner, R. M
Wagner, Rchard G
Wacott Lathe Co
Waters, rances W. (Mrs.)
Waworth, Chares W
Wardaw, W. C
Warner, red W
Warren, Wn. C
Washngton ote Co. 7
Washngton Post Co
Wessenbach, Mnna . 8
5892
3501
5
1213
10756
9
20
18628
11
420
12468
13
335
8860
6
651
7483
6
1232
9442
9
984
10348
8
407
18516
11
420
12315
12
974
9863
10382
7139
4230
4229
8098
10045
2473
5642
665
7127
/ 6863
11605
7484
4228
5881
58S0
4265
1142
18016
8794
2261
3713
18632
6609
133
8085
4004
4005
6061
6102
10157
9
8
8
6
6
10
9
6
9
9
9
2
11
6
4
5
11
4
10
1 stnto ta decson.
Nonacquescence reates to thrd ssue of decson.
Nonacquescence reates to fna ssue of decson.
Nonacquescence reates to second ssue of decson.
Nonacquescence reates to ssue wth respect to queston of aowance of amortzaton n 1918 on costs
ncurred n 1919.
state ta decson nonacquescence reates to trust created on ebruary 9, 1917.
Nonacquescence reates ony to that part of decson whch reates to appcaton of tbe vers decson
(1 I). T. ., 1135).
s Nonacquescence reates to queston n decson pertanng to the year 1919.
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53
Ta payer.
Wheatey, ames . 1
Whtehouse, Syb
I ckersham, Chas.
Wdeuer, George D
Wdener, oseph
Wndfeder, ohn ., estate of
Wnshp, C. R
Wnshp, zabeth T. (Mrs.)
Woferman, red, e ecutor
Woferman, Lous, estate of
Woodruff, rnest
Woodruff, Geo. C
Woodruff, as. W
Woodward, Davd
Wooston, euah . ., estate of -
W. T. M. Co
Wyomng Centra ssocaton
Y.
Young, ames ., estate of
Z.
Zakon, Wam.
Zeerbach, Isadore_.
Zeerbacb,
Znn,
Znn,
Docket
No.
9665
13220
18612
7723
7724
7725
4166
18618
18630
11291
11291
2050
18518
18619
2266
11298
8778
13093
9965
20546
4976
5450
2028
883
2789
3444
oard of Ta ppeas.
oume.
8
7
11
8
5
11
11
10
10
1
11
11
4
10
11
1 Nonacquescence reates to tem (3) n decson.
Rstate ta decson.
nstate ta decson nonacquescence reates to second ssue of decson.
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INCOM T RULINGS. P RT L
R NU CT O 1928.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtck 84: Interest n State obgatons. II 47 4002
G. C. M. 5138
R NU CT O 1928.
Under an agreement entered nto wth the O ank as depostary,
the M Company ssues certfcates of ownershp of muncpa
securtes. The ownershp certfcate rectes that the hoder s
the owner of an undvded share, to the e tent of a sum stated, n
-ertan muncpa securtes deposted wth the bank and s entted
to receve the fu amount to he receved by the depostary from
the coecton of the securtes and 5 per cent per annum, n sem-
annua nstaments, of the face amount of the securtes repre-
sented by the ownershp certfcate. The purchaser of a certfcate
has no recourse aganst the depostary or the M Company.
ed, a trust was created by the agreement, and the benefcares
or certfcate owners are not requred to ncude n ther gross
ncome, ncome dstrbuted to them from muncpa bond nterest
receved by the trustee.
n opnon s requested nvovng a trust agreement reatng to the
depost by the M Company of certan muncpa securtes wth the
O ank, as depostary. The M Company ssues and ses to the pubc
what are referred to n the trust agreement as certfcates of owner-
shp of muncpa securtes. The ownershp certfcate rectes that
the hoder or owner thereof s the owner of an undvded share, to the
e tent of a sum stated, n certan muncpa securtes deposted wth
the bank and that the certfcate owner s entted to receve, on a
date named, the fu amount to be receved by the depostary from the
coecton of the securtes, and to receve, n semannua nstaments,
5 per cent per annum of the face amount of the securtes represented
by the ownershp certfcate as the certfcate owner s share of the
nterest coected by the depostary on the securtes.
The agreement rectes that the purchaser of a certfcate of owner-
shp sha have no recourse aganst the depostary or the M Company,
but the purchaser s soe rght sha be to receve the prncpa and n-
come of the securtes as the same sha be reazed. owever, the
M Company agrees to keep on depost wth the depostary muncpa
securtes of a face vaue of 110 per cent of the face of the ownershp
certfcates ssued, the addtona securtes to be hed and deat wth
by the depostary for the purpose of mantanng a margn to
(54)
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55
43, rt. 342.
secure to purchasers the fu face vaue of ther securtes. The
M Company has the rght to e change the securtes on depost for
others of an equa par and market vaue, and agrees to ad and assst
the depostary wthout e pense to the atter n the coecton of the
prncpa of and ncome from the securtes. The depostary s not
requred to nsttute sut for the recovery of prncpa or nterest
uness pror thereto t s ndemnfed aganst a e pense. v-
denty any proft or ncome n e cess of that pad to the hoders of the
ownershp securtes w be receved by the M Company. owever,
the prmary ob|ect of the arrangement s not to make a proft out of
the handng of the securtes, but to factate saes of muncpa
securtes by reevng purchasers from the burdens of makng coec-
tons, renvestng the proceeds as securtes mature, brngng suts
n the event of defaut, and otherwse protectng ther nvestments.
fter carefu consderaton, t s the opnon of ths offce that a
trust was created by the agreement entered nto by and between the
M Company, the purchasers of certfcates, and the O ank. The
atter as trustee receves muncpa bond nterest whch t dstrbutes
perodcay to benefcares. The benefcares are the M Company
and the hoders of the certfcates of ownershp. The benefcares
are not requred to ncude n ther gross ncome for ncome ta
purposes ncome dstrbuted to them from muncpa bond nterest
receved by the trustee, snce the trust serves ony as a medum for the
dstrbuton to the benefcares of such ta -e empt nterest. If for
any reason the benefcares receve ncome whch s other than nterest
on the ta -e empt securtes, such ncome w not be wthn the
e empton.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 23(n). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
rtce 261: Contrbute ns or gfts by ndvduas.
NU CT O 1928 ND PRIOR CTS.
Contrbutons to a bar assocaton. (See G. C. M. 4805, page 58.)
P RT I . CCOUNTING P RIODS ND M T ODS O CCOUNTING.
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
rtce 342: When charges deductbe. II-49-4018
G. C. M. 5265
LL R NU CTS.
Lumber companes whch keep ther accounts and render ther
returns on an accrua bass shoud be permtted to deduct as an
accrued abty for the year n whch shpments are made (e
amount of the freght charges thereon, where such charges :re
determned n accordance wth the approved practce of umber
manufacturers, sub|ect to proper ad|ustments beng made when
the actua freght charges are fnay ascertaned.
37229 29 5
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43, rt. 342.
56
n opnon s requested regardng the correctness of the acton of
the ureau n denyng umber manufacturers deductons n comput-
ng net ncome on account of freght charges on shpments of umber.
The facts matera to the dscusson of the queston nvoved are
as foows:
It s the practce among umber manufacturers to b umber to
customers at a devered prce. owever, the customer or con-
sgnee pays the freght, and upon the return of the recepted freght
b to the shpper the consgnee receves credt therefor on hs
account. The usua method of handng those shpments on the books
of the umber concerns s to debt the customer s account wth the
f. o. b. destnaton prce and credt the umber saes account wth
the same amount ntres are then made debtng the umber saes
account and credtng the freght abty account for the amount
of the estmated freght charge. When the customer remts for hs
shpment of umber he remts cash ony to the e tent of the net
saes prce of the umber, takng proper credt for freght charges
pad by hm. e aso submts the pad freght b. On recept of
the remttance the customer s account s credted wth both the cash
and freght tem and the freght abty account s charged wth the
amount of the freght b.
Lumber shpments are ordnary n transt from one to four
weeks, and the terms of sae vary from 10 to 90 days. s a resut
of the practce of umber companes as above outned, t s not
unusua to have at the end of the ta abe year accounts recevabe
n a substanta amount coverng unqudated current shpments.
It appears that umber manufacturers have adequate factes
for determnng wth substanta accuracy the freght charges pay-
abe on umber shpments when made that s, statstcs gathered
by such manufacturers of the actua average shppng weght per
thousand board feet of the dfferent speces of umber based on e pe-
rence over a ong perod of years and pubshed freght tarff
schedues fed wth the Interstate Commerce Commsson.
The genera rue s that the person from whom goods are receved
for shpment assumes the obgaton to pay the freght charges and
the obgaton of such person s ordnary a prmary one. Ths s
true even where the bd of adng contans a provson mposng
abty upon the consgnee. In accordance wth ths rue, the um-
ber manufacturers ncur a rea abty for freght when the shp-
ments of umber are made. or ta purposes t s mmatera that
the abty s not presenty payabe. The basc dea under the
accrua system of returnng ncome s that obgatons and e penses
defntey ncurred shoud be refected wthout regard as to whether
payment has been made or whether payment s due. Nor s t neces-
sary under the accrua system n every nstance that the e act
amount o.f an ncurred abty be accuratey ascertaned n order
to accrue t. (Sec Unted States v. nderson et a., 269 U. S., 422.)
abty actuay ncurred must be dstngushed from a mere
contngent abty, reserves aganst whch are not ega deductons
from gross ncome.
Under the crcumstances shown n the nstant case, t must be
concuded that umber companes whch keep ther accounts and
render ther returns on nn accrua bass shoud be permtted to
deduct as an accrued abty for the year n whch the shpments
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52, rt. 391.
are made the amount of freght charges thereon, where such charges
are determned n accordance wth the practce above ndcated,
sub|ect to proper ad|ustments beng made when the actua freght
charges are fnay ascertaned. hen such deductons are taken,
however, t must be shown that the gross saes of the umber com-
panes for the year have not been reduced by the amount of the est-
mated freght charges. It Ls recommended that I. T. 1351 (C. .
I 1, 132), n so far as t confcts wth the concuson reached above,
be modfed to conform therewth.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
P RT . R TURNS ND P YM NT O T .
S CTION 52. CO POR TION R TURNS.
rtce 391: Corporaton returns. II-30-3823
Mm. 3651
Revsed corporaton ncome ta return, orm 1120/ , for fsca
year 102S.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, une 26, 1928.
To Coectors of Interna Revenue:
In the Revenue ct of 1928 the ta mposed on a corporaton s
reduced from 131/. per cent to 12 per cent, and the e empton n-
creased from 2,000 to 3,000, effectve as of anuary 1, 1928.
On account of ths reducton n ta the corporaton ncome ta
return for the fsca year 1928, orm 1120 , s now beng revsed,
and a suppy of these forms w be furnshed to coectors for
dstrbuton at an eary date.
The returns aready fed by corporatons for a fsca year ended
n 1928, on whch the ta was computed at 13 2 per cent for the
entre year and the assessment made, shoud be forwarded to the
ureau wthout makng the usua premnary audt. Such ta -
payers shoud be requested to fe amended returns on the revsed
orm 1120 on or before the date the second nstament of ta
s due.
Upon recept of these amended returns on the revsed form the
coectors w prepare offce cams n abatement for the amount of
ta overassassed and ad|ust the fna nstaments of ta accordngy.
These returns shoud be forwarded to the ureau after the usua
premnary audt together wth the cams n abatement.
In case a corporaton s granted an e tenson of tme n whch to
fe ts return for a fsca year ended n 1928, and a tentatve return
showng the estmated amount of ta s fed, such return shoud be
retaned n the offce of the coector unt a fna return s fed by
the corporaton on the revsed orm 1120 .
Correspondence n regard to the procedure outned heren shoud
refer to the number of ths mmeograph and to the symbos
IT: : RR.
. . Mres,
ctng Commssoner.
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103, rt. 527. 58
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S OP T .
S CTION 103. MPTIONS ROM T ON
CORPOR TIONS.
rtce 523: Mutua savngs banks. II-50-4028
G. CM. 4729
LL R NU CTS.
mutua savngs bank organzed under the aws of a foregn
State may be entted to e empton under the provsons of the
varous Revenue cts e emptng mutua savngs banks.
n opnon s requested as to whether foregn mutua savngs
banks can meet the requrements of the varous Revenue cts as to
the e empton of mutua savngs banks.
It s contended that the vew e pressed n Soctor s Memorandum
2268 (C. . III-2, 208), whch was made wth respect to an unn-
corporated assocaton formed n the Unted States but not chartered
by ether a State or the edera Government, woud precude foregn
mutua savngs banks from quafyng as e empt corporatons under
the e empton provsons of the varous Revenue cts.
Soctor s Memorandum 2268, supra, contans ths statement :
rom the egsatve hstory of secton 231(2) of the Revenue ct of 1921
and from the genera and ega conceptons of a savngs bank, t s the opnon
of ths offce that n e emptng mutua savngs banks Congress had n mnd
ony those nsttutons organzed n accordance wth State statutes and operated
sub|ect to State supervson and nspecton.
The term State as used above s not mted to States of the
Unted States or the edera Government, but s broad enough to
ncude foregn States as we.
It s the opnon of ths offce that a mutua savngs bank organ-
zed under the aws of a foregn State may be entted to e empton
under the provsons of the varous Revenue cts e emptng mutua
savngs banks.
C. M. Charest,
Genera Counse, ureau of Interna Revenue,
rtce 527: Regous, chartabe, scentfc, t- II-46-3989
erary, and educatona organzatons and com- G. C. M. 4805
muntv chests.
( so Secton 23 (n), rtce 261.)
R NU CT O 192S ND TRIOR CTS.
The R ar ssocaton s not an e empt corporaton under the
provsons of secton 103(6) of the Revenue ct of 1928 or the
correspondng provsons of pror Revenue cts. Contrbutons
made to t by ndvduas are not deductbe under the provsons
of secton 23(n) of the Revenue ct of 1928 or the correspondng
provsons of pror Revenue cts.
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59
103, rt. 527.
n opnon s requested as to whether the R ar ssocaton s
entted to e empton from ncome ta aton under the provsons of
secton 103(6) of the Revenue ct of 1928 and the correspondng
provsons of pror Revenue cts, and whether contrbutons thereto
are deductbe n the manner and to the e tent provded n secton
23 (n) of the Revenue ct of 1928 and the correspondng secton of
pror Revenue cts.
The R ar ssocaton was ncorporated under a speca statute of
the State of S for the purposes of cutvatng the scence of |urs-
prudence, promotng reforms n the aw, factatng the admnstra-
ton of |ustce, eevatng the standard of ntegrty, honor, and
courtesy n the ega professon, and chershng the sprt of brother-
hood among the members thereof. The assocaton mantans an
e tensve aw brary for the use of ts members and speca factes
for ega research. The assocaton aso mantans an audtorum n
whch ectures on ega topcs are frequenty gven by emnent mem-
bers of the bar. To these ectures arge numbers of aw students
come from the severa aw schoos n the cty of R, who thereby re-
ceve nstructon hepfu to them n ther aw schoo work and n
ther preparaton for bar e amnatons. No admsson charge s
made at any of these ectures or at any other functon hed n the
house of the assocaton.
In the case of the Medca Socety of ngs Covmty v. Neff
(34 pp. Dv., 83, 53 N. Y. S., 1077), the Supreme Court, ppeate
Dvson, of the State of New York sad:
The Medca Socety of the County of ngs s performng no servce of a
character cacuated to reeve the burdens of government more than a thousand
other mutua assocatons or corporatons, desgned for the promoton of the
ndvdua deveopment of ts members. It s, therefore, entted to none of
the e emptons whch are e tended to corporatons or assocatons whch are
devoted e cusvey to the mora and menta mprovement of men and women,
or to regous, chartabe, mssonary, hospta, educatona, patrotc, hs-
torca, or cemetery purposes. It s, n effect, a medca cubhouse, where the
members of a snge professon meet for menta mprovement and such
ncdenta benefts as fow from assocaton and cooperaton of effort. One of the
resuts of these medca socetes has been to estabsh a practcay unform
rate of charges, or at east to estabsh a mnmum rate, and to afford a degree
of protecton to ndvdua practtoners whch woud be practcay mpossbe
wthout an organzaton empowered to enforce obedence to by-aws and respect
for professona ethcs. It s not necessary to ascrbe sefsh motves, and t s
undoubtedy true that the reator s performng many chartabe and commend-
abe acts, n common wth manknd, n every wak of fe but ths s not,
of tsef, a |ustfcaton for the State to reeve t of the burdens whch are
common to good ctzenshp generay, and, acceptng the reator s own statement
of the case, there are no facts to brng t wthn the provsons of the aw.
The reator was not organzed e cusvey for the purpose of carryng out
any of the nes of work enumerated n the statute, or any two or more of such
ob|ects.
In ths connecton reference s aso made to the decson of the
oard of Ta ppeas n the appea of George O. May (1 . T. .,
1220, 1221), n whch t was concuded that a contrbuton to the
mercan Insttute of ccountants was not deductbe under secton
214(a) of the Revenue ct of 1918.
It s the opnon of ths offce that no substanta dstncton can be
made between the purposes and actvtes of the R ar ssocaton
and those of the organzatons consdered n the cases above referred
to. It s, therefore, concuded that the assocaton named s not
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112, rt. 579.
60
entted to e empton from ncome ta aton under the provsons of
secton 103(6) of the Revenue ct of 1928 or the correspondng
provsons of pror Revenue cts, and that contrbutons thereto by
ndvduas are not deductbe under secton 23(n) of the Revenue
ct of 1928 or the correspondng secton of pror Revenue cts.
C. M. Chakest,
Genera Counse, ureau of Interna Revenue.
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112. R COGNITION O G IN OR LOSS.
rtce 579: Invountary converson of property. II-48-4012
G. CM. 5148
R NU CT O 1928.
The e pendture by an aen of the proceeds of the sae of prop-
erty sezed by the en Property Custodan 15 months after ther
return to hm can not be sad to be an e pendture forth wth
upon the return of the proceeds of the sae or e change
to hm, so as to entte hm to ava hmsef of the nvountary
converson benefts of secton 24(d) of the Tradng wth the
nemy ct, as amended.
Where e pendture n actua repacement s too ate, e pend-
ture n the estabshment of a repacement fund s kewse too
ate.
n opnon s requested wth respect to the provsons of secton
24(d), Tradng wth the nemy ct, as amended, and rtce I
of Treasury Decson 4168 (See on page 412).
The ta payer, a nonresdent aen, purchased n anuary, 1915,
through certan brokers, woo ntended by the ta payer for use by
hm n the manufacture of wooen goods. Through nabty to
obtan shppng factes, the goods remaned n a New York ware-
house, for the account of the M ank, unt war ensued between the
Unted States and the German mpre. The woo was sezed by
the en Property Custodan and n due course sod by hm. Pro-
ceeds of such sae were, n ther entrety, returned to the ta payer
by the en Property Custodan n une, 1927. Upon ths factua
bass the ta payer requests an opnon upon the foowng ssues:
(a) May the camant now purchase woo, smar n knd and purpose to
that whch was sezed, and by ths purchase ava tsef of the benefts of sec-
ton 24(d) of the Tradng wth the nemy ct, as amended
(b) May the camant now set up a repacement fund and thereby ava
Itsef of the benefts of sad secton
The appcabe provsons of the aw and the reguatons requre
notce. Secton 24, Tradng wth the nemy ct, as amended (as
amended by the Settement of War Cams ct of 1928, effectve
March 10, 928), provdes, nter aa, as foows:
(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-
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61
112, rt. 679.
profts ta aws and reguatons and the provsons of stch 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 dnte
of the converson.
(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-
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.
rtce I, Treasury Decson 4168, provdes, nter aa, as foows:
(a) Computaton of tar. In the case of any property sod or e changed by
the en Property Custodan, no gan or oss sha be recognzed, for the pur-
poses of the ncome, war-profts, and e cess-profts ta aw, f the owner of
the property thus sod or e changed, forthwth upon the return of the proceeds
(or such part thereof as s returned) of the sae or e change to hm, n good
fath e pends such proceeds n the acquston of other property smar or
reated n servce or use to the property sod or e changed, or n the acquston
of contro of a corporaton ownng such other property, or n the estabshment
of a repacement fund (descrbed n subdvson (b) of ths artce). Itacs
supped.
Language the equvaent of that taczed w be found n a of
the provsons of the Revenue cts and the reguatons thereunder
n respect of nvountary conversons. (Sectons 214(a) 12 and
234(a)14, Revenue ct of 1921 secton 203(b)5, Revenue cts of
1924 and 1926 and secton 112(f), Revenue ct of 1928. See aso
artce 261, Reguatons 62, and artce 1579, Reguatons 65 and 69.)
The frst queston submtted s:
(a) May the camant now purchase woo, smar n knd and purpose to
that whch was sezed, and by ths purchase ava hmsef of the benefts of
secton 24(d) of the Tradng wth the nemy ct, as amended
The poston of the ureau of Interna Revenue has consstenty
been that ncome receved by the en Property Custodan was sub-
|ect to ta aton as ncome reazed by the owners of the property n
the same manner as though the property had not been sezed by the
en Property Custodan that the ncome ta was computabe and
payabe upon that bass n entre accord wth the provsons of the
varous Revenue cts and that the nvountary converson pro-
vsons of those cts and of the reguatons prescrbed thereunder
were entrey appcabe to saes or e changes of property by the
en Propertv Custodan. (See I. T. 2073, C. . III-2, 73, modfed
but not overrued by I. T. 2412, C. . II-1, 219.) t a tmes on
and after the date when the proceeds of the sae were returned to the
ta payer, the ureau of Interna Revenue recognzed the rght of
the ta payer to ava hmsef of the nvountary converson prov-
sons of the varous Revenue cts and reguatons. Secton 24(d)
thus merey gave e press statutory approva to the e stng practce
of the ureau and ts provsons are, of course, as appcabe to
property returned before the enactment of the Settement of War
Cams ct of 1928 as they are to property returned thereafter.
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112, rt. 579,
62
of the nvountary converson provsons (whether contaned
n the varous Revenue cts, the varous reguatons under those
cts, or n Treasury Decson 4168) are e pressy condtoned upon
the satsfacton of the requrement that the proceeds of the nvoun-
tary converson (the sae or e change by the en Property Custo-
dan) be forthwth n good fath, under reguatons prescrbed by
the Commssoner wth the approva of the Secretary, e pended.
(Sectons 214(a)12 and 234(a)14, Revenue ct of 1921 secton
203(b)5, Revenue cts of 1924 and 1926 and secton 112(f), Revenue
ct of 1928. See aso artce 261, Reguatons 62, and artce 1579,
Reguatons 65 and 69.) Or, as rtce I(a), Treasury Decson
4168, e presses the requrement, appyng t to the precse crcum-
stances of saes by the en Property Custodan: If the owner of
the property thus sod or e changed, forthwth upon the return of
the proceeds (or such part thereof as s returned) of the sae or e -
change to hm, n good fath e pends such proceeds. The requre-
ment s not for mere e pendture n one of the specfed modes t s
for e pendture by hm who owned the property when sod (1)
forthwth upon the return of the proceeds of the sae or e change
to hm, and (2) n good fath. It s unnecessary here to consder
whether an e pendture, occasoned by the desre or ntenton ap-
parenty frst manfested 15 months after the return of the proceeds,
can be sad to be an e pendture n good fath. Whether or not such
an e pendture made upon an afterthought s an e pendture n good
fath, t s obvous that the requrement of e pendture forthwth
upon the return of the proceeds of the sae or e change to
hm must be satsfed. unk Wagnas New Standard Dctonary
defnes forthwth as foows:
1. Wthout deay mmedatey drecty. 2. Lao wthn a reasonabe tme
n vew of the nature of the act requred wth a convenent dspatch usuay,
wthn 24 hours.
It s the opnon of ths offce that the e pendture by the ta payer
15 months after the return of the proceeds of the sae to hm can not
be sad, wthn the meanng ordnary attached to the words n
common speech, to be an e pendture forthwth upon the return of
the proceeds of the sae or e change to hm. Nor does
ths offce beeve that the anguage used n the varous aws and
reguatons reatng to nvountary converson s to be construed n
other than ts ordnary sense. ence, the answer to the frst ques-
ton submtted must be No.
The second queston submtted s:
(b) May the camant now set up a repacement fund and thereby ava
hmsef of the benefts of sad secton
If e pendture n actua repacement s now too ate, obvousy
e pendture n the estabshment of a repacement fund at ths tme
s aso too ate. The answer to the second queston must, therefore,
be No.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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113, rt. 691.
S CTION 113. SIS OR D T RMINING
G IN OR LOSS.
rtce 591: ass for determnng gan or oss
from sae.
II-51-4034
I. T. 2444
( so Secton 204, rtce 992.)
R NU CT O 1928.
The bass to be used n computng gan or oss resutng from the
sae or other dsposton of property by nsurance companes
(other tbun fe or mutua nsurance companes) on or after an-
uary 1, 1928, under the provsons of secton 204 of the Revenue
ct of 1928 s the cost, the far market vaue as of March 1, 1913,
or other bass as provded by secton 113 of the ct, and not the
far market vaue as of anuary 1, 1928, the effectve date of the
Income Ta ct of 1928.
The queston s presented reatve to the bass to be used n com-
putng gan or oss resutng from the sae or other dsposton of
property by nsurance companes (other than fe or mutua nsur-
ance companes) under secton 204 of the Revenue ct of 1928.
In defnng the term gross ncome, cause ( ) of secton 204(b)
of the Revenue ct of 1928, reatve to nvestment ncome and under-
wrtng ncome, s substantay the same as secton 246(b) 1 of the
Revenue ct of 1926. Secton 204(b) 1 of the Revenue ct of 1928,
however, contans a new provson, cause ( ), whch provdes that
gross ncome aso ncudes gan durng the ta abe year from the
tae or other dsposton of property. Secton 204(c)5 s aso new
and provdes that Losses sustaned durng the ta abe year from
the sae or other dsposton of property sha be aowed as de-
ductons n computng the net ncome or such nsurance companes.
Inasmuch as these provsons n the Revenue ct of 1928 are new,
the queston s presented as to whether, n the case of property owned
by such ta payers on anuary 1, 1928, the bass to be used n com-
putng gan or oss s the far market vaue of the propertv on that
date or whether the bass s that provded by secton 113 of the ct.
Secton 111(a) of the Revenue ct of 1928, reatng to the compu-
taton of gan or oss from the sae or other dsposton of property,
provdes as foows:
cept as herenafter provded n ths secton, the gan from the sae or other
dsposton of property sha be the e cess of the amount reazed therefrom
over the bass provded-n secton 113, and the oss sha be the e cess of such
bass over the amount reazed.
Inasmuch as ths s a genera provson for the determnaton of
gan or oss, t s appcabe to a saes or other dspostons of prop-
erty as a resut of whch a ta abe gan or deductbe oss s recog-
nzed for ncome ta purposes. Such beng the case, t s appcabe
to the sae or other dsposton of property by nsurance companes
under secton 204. The bass to be used n computng gan or oss re-
sutng from the sae or other dsposton of property by such n-
surance companes on or after anuary 1, 1928, under the provsons
of secton 204 of the ct s, therefore, the cost, the far market vaue
as of March 1, 1913, or other bass as provded by secton 113 of the
ct, and not the far market vaue as of anuary 1, 1928, the effectve
date of the Income Ta ct of 1928.
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113, t. 596. 64
rtce 596: Property transmtted at death. 11 48-4013
G. C. M. 506O
R NU CT O 1918 ND SU S U NT CTS.
ass for determnng gan or oss n the case of nstament notes
orgnay receved by a decedent and coected by the estate of the
decedent or by hs ne t of kn after the dstrbuton of the notes to
them by the estate. In vew of Treasury Decson 4177 (see age
134), I. T. 22 )6 (C. . I -2, 63) and Soctor s Memorandum
3256 (C. . IY-1, 186) must be regarded as overrued.
n opnon s requested as to the bass for determnng gan or
oss n the case of nstament notes orgnay receved by a decedent
and coected by the estate of the decedent or by hs ne t kn after
the dstrbuton of the notes to them by the estate. In one case pre-
sented the decedent ded n anuary, 1923, whe n the other case
the date of death was n November, 1920. It s contended, reyng
upon I. T. 2206 and Soctor s Memorandum 3256, that the bass
of the notes to the estate or ne t of kn s the same as t woud have
been had the decedent not ded and the notes had been coected by
hm. In vew of the decson of the Court of Cams n the case of
Nchos et a. v. Unted States (64 Ct. CI., 241), n whch certorar
was dened by the Unted States Supreme Court on pr 16, 1928,
and the fact that the Department s now foowng the decson n
that case (see T. D. 4177, supra), I. T. 2206 and Soctor s Memo-
randum 3256 must be regarded as overrued, and an ndvdua and
hs estate must be treated as separate and dstnct ta abe enttes
n determnng the ncome of the estate as dstngushed from the
ndvdua s ncome durng hs fetme.
The bass of the nstament notes under consderaton for the pur-
pose of determnng gan or oss to the estate of the decedent or to hs
ne t of kn woud be the same as f the notes were ordnary tangbe
property or as f the notes had orgnay been acqured by the dece-
dent n a transacton the entre profts from whch were returned as
ta abe ncome by the decedent. s to such bass, see secton 702 of
the Revenue ct of 1928 and Treasury Decson 4177, supra secton
113(a)5 of the Revenue ct of 1928 secton 204(a)5 of the Revenue
cts of 1926 and 1924 and secton 202 (a)3 of the Revenue ct
of 1921.
If, n the return of the decedent s estate or n the return of any of
the ne t of kn, the proper bass for such notes s the vaue of tne
notes at the tme of the death of the decedent, that vaue shoud corre-
spond wth the vaue of the notes estabshed for estate or nhertance
ta purposes, n the absence of cear and convncng evdence to the
contrary, f n such a case the actua vaue of a note at the tme of
the decedent s death was ess than ts face vaue, that proporton of
any payment on account of the prncpa of the note whch the e c ess
of the face vaue of the note over ts actua vaue at the tme of the
decedent s death bore to ts face vaue shoud be reported as ncome
when receved ether by the decedent s estate or by the ne t of kn.
(Sh-afpa Reaty Corporaton v. Commssoner, 8 . T. ., 283 S. M.
3820, C. . I -2, 32 I. T.-1650, C. . 11-1, 48.)
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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113, rt. 590.
rtce 596: Property transmtted at death. -50-4029
L T. 2441
R NU CT O 1928.
Where stock was acqured by w other than by specfc bequest,
the bass thereof as of anuary 1, 1928, for the purpose of computng
gan or oss was the far market vaue (wth proper ad|ustment
on account of stock rghts Issued pror to 1928) of the stock as of
the date of ts dstrbuton to the trustee named n the w. Ths
ad|usted far market vaue of the stock as of the date of ts dstr-
buton s the bass to be apportoned between the stock and the
stock rghts receved n 1928 for the purpose of determnng the
basLs on whch to compute the gan or oss resutng from the
sae of the stock rghts n 1928.
Informaton s desred reatve to the bass on whch to compute
the gan or oss resutng from the sae by the O Company as trustee
n 1928 of stock rghts ssued n that year n respect of certan
stock of the M ank. The M ank stock was hed by the O Company
as trustee under the w of , who ded n 1918.
The testator s w provded that after payment of debts, e penses,
and certan specfc egaces the resdue and remander of the
estate was to be dvded nto two equa parts or shares, desgnated
share and share , respectvey. The w provded aso that
out of the part desgnated as share the sum of 150a doars
was to be set apart and hed n trust for the beneft of the wdow
of the testator s deceased son. The remander of share was
to be transferred to the O Company to be hed n trust for the beneft
of , grandson of the testator.
The estate ncuded 22 shares of stock of the M ank havng
an apprased vaue of doars a share as of the date of the testator s
death. In accordance wth a decree of the surrogate s court dated
, 1921, the e ecutor under the w devered to the O Company
as trustee the stock of the M ank as a part of the remanng porton
of share to form a part of the corpus of the trust estate of whch
the grandson was the benefcary.
Stock rghts were receved by the trustee on such stock pror to
1928 enttng the hoder to acqure addtona stock of the company
by the payment of a specfed subscrpton prce. These rghts were
sod by the trustee. Smar rghts were aso receved n 1928, whch
kewse were sod wthout beng e ercsed. Wth reference to the
apportonment of the bass of the stock for the purpose of determn-
ng the bass on whch to compute the gan or oss resutng from the
sae of the stock rghts n 1928, the queston s presented as to
whether the vaue of the stock as of the date of the testator s death,
as ad|usted to anuary 1, 1928, shoud be used, or whether the far
market vaue of the stock as of the date of ts dstrbuton to the
O Company as trustee, wth proper ad|ustment on account of the
stock rghts ssued pror to 1928, shoud be used, n vew of secton
113(a)5 of the Revenue ct of 1928. That secton, n so far as
matera, provdes as foows:
If persona property was acqured by specfc bequest, or f rea property was
acqured by genera or specfc devse or by ntestacy, the bass sha be the
far market vaue of the property at the tme of the death of the decedent.
If the property was acqured by the decedent s estate from the decedent, the
bass n the hands of the estate sha be the far market vaue of the property
at the tme of the death of the decedent. Iu a other cases f the property
was acqured ether by w or by ntestacy, the bass sha be the far market
vaue of the property at the tme of the dstrbuton to the ta payer.
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144, rt. 761.
66
The sae of the stock rghts under consderaton took pace n 1928
and s therefore governed by the Revenue ct of 1928. Snce the
stock acqured by the O Company as trustee conssted of the reman-
ng porton of the resdue and remander of the estate referred to
as share , such stock was not acqured by specfc bequest, and,
under the above-quoted provsons of the statute, the bass of the
stock as of anuary 1, 1928, for the purpose of computng gan or
oss was the far market vaue (wth proper ad|ustment on account
of stock rghts ssued pror to 1928) of the stock as of the date of ts
dstrbuton to the O Company as trustee, and not the far market
vaue as of the date of the testator s death. Ths ad|usted far market
vaue of the stock as of the date of ts dstrbuton s the bass to be
apportoned between the stock and the stock rghts receved n 1928
for the purpose of determnng the bass on whch to compute the
gan or oss resutng from the sae of the stock rghts n 1928.
S CTION 119. INCOM ROM SOURC S WIT IN
UNIT D ST T S.
rtce 672: Interest. II-46-3990
G. CM. 5103
R NU CT O 1928.
The term foregn centra bank of ssue as used n secton
119(a) 1(C) of the Revenue ct of 1928 means a bank whch s by
aw or government sancton the prncpa authorty (other than the
government tsef) ssung nstruments ntended to crcuate as cur-
rency. Such banks are generay the custodans of the bankng
reserves of ther countres.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
suppement d. returns and payment of ta
S CTION 144. WIT OLDING O T T SOURC .
rtce 761: Wthhodng ta at source. IL-32-3837
Mm. 3659
Wthhodng of ta at source wth respect to nterest on ta -free
covenant bonds.
Treasury Department,
Offce of Commssoner of Interna R NU r
Washngton, D. C, uy 26, 1928.
To Coectors of Interna Revenue, Interna Revenue gents n
Charge, and Others Concerned:
Secton 144(a) of the Revenue ct of 1928 provdes n part as
foows:
(1) Requrement of wthhohng. In any case where bonds, mortgages, or
deeds of trust, or other smar obgatons of a corporaton contan a contract
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67
144, rt. 761.
or provson by whch the obgor agrees to pay any porton of the ta mposed
by ths tte upon the obgee, or to remburse the obgee for any porton of the
ta , or to pay the nterest wthout deducton for any ta whch the obgor may
be requred or permtted to pay thereon, or to retan therefrom under any aw
of the Unted States, the obgor sha deduct and wthhod a ta equa to 2 per
centum of the nterest upon such bonds, mortgages, deeds of trust, or other
obgatons, whether such nterest s payabe annuay or at shorter or onger
perods, f payabe to an ndvdua, a partnershp, or a foregn corporaton not
engaged n trade or busness wthn the Unted States and not havng any offce
or pace of busness theren: Provded, That f the abty assumed by the
obgor does not e ceed 2 per centum of the nterest, then the deducton and
wthhodng sha, after the date of the enactment of ths ct. be at the foow-
ng rates: ( ) 5 per centum n the case of a nonresdent aen ndvdua, or
of any partnershp not engaged n trade or busness wthn the Unted States
and not havng any offce or pace of busness theren and composed n
whoe or n part of nonresdent aens, ( ) 12 per centum n the case
of such a foregn corporaton, and (C) 2 per centum n the case of other
ndvduas and partnershps: Provded further, That f the owners of such
obgatons are not known to the wthhodng agent the Commssoner may
authorze such deducton and wthhodng to be at the rate of 2 per centum, or,
f the abty assumed by the obgor does not e ceed 2 per centum of the
nterest, then at the rate of 5 per centum.
(2) eneft of credts aganut net ncome. Such deducton and wthhodng
sha not be requred n the case of a ctzen or resdent entted to receve such
nterest, f he fes wth the wthhodng agent on or before ebruary 1 a sgned
notce n wrtng camng the beneft of the credts provded n secton 25 (c)
and (d) nor n the ease of a nonresdent aen ndvdua f so provded for n
reguatons prescrbed by the Commssoner under secton 215.
(3) Wthhodng at ower rate. Such deducton and wthhodng sha be
at the rate of 1 per centum nstead of at the rate of 2 per centu|n n the case
of a ctzen or resdent entted to receve such nterest f he fes wth the wth-
hodng agent on or before ebruary 1 a sgned notce n wrtng that hs net
ncome n e cess of the credts aganst net ncome provded n secton 25 doef
not e ceed 4,000.
or the purposes of ths secton corporaton bonds contanng a
ta -free covenant cause must be dvded nto two casses, accordng
to the abty assumed by the obgor. or the sake of brevty n
referrng to such bonds, corporate bonds whch contan a ta -free
covenant cause n whch the abty assumed by the obgor e ceeds
2 per cent w be herenafter referred to as ta -free covenant bonds
cass and corporate bonds whch contan a ta -free covenant cause
n whch the abty assumed by the obgor does not e ceed 2 per
cent w be herenafter referred to as ta -free covenant bonds cass .
The foowng provsons are typca ustratons of the two casses
of bonds:
Cass .
oth the prncpa and nterest of ths bond are payabe wthout deducton,
defacaton, or abatement to be made of anythng for or n respect of any ta es,
charges, or assessments whatsoever.
Cass .
payments upon ths bond, both of prncpa and nterest, sha be made
wthout deductng any edera ncome ta (not e ceedng the present rate of
2 per cent per annum upon sad Interest) mposed by any present or future aw
of the Unted States of merca whch M may be requred to pay, deduct, or
retan from sad nterest payments.
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144, rt. 761. 68
The foowng tabe shows the rates of ta requred to be wthhed
under secton 144(a) :
Owner.
Cass
bonds.
Cass
bonds.
Per cent.
2
2
2
Per cent.
Nonresdent aen (ndvdua or fducary)
1
3
6
Part nershp not engaged n trade or busness wthn Unted States and not havng
any offce or pace of busness theren, composed In whoe or In part of nonresdent
2
5
IS
oegn corporaton not engaged n trade or busness wthn Unted States and not
havng any offce or pace of busness theren _
Unknown owner
2 t
Secton 144(a) mposes no new requrement upon debtor corpora-
tons whose obgatons fa wthn cass , as the ta s requred
to be wthhed at the same rates and from the same cass of persons
as was requred under the Revenue ct of 1926. Debtor corporatons
whose obgatons fa wthn cass , however, w be requred to
ay to the Government not ony a ta equa to 2 per cent assumed
y them, but w aso be requred to wthhod a ta equa to 3 per
cent or 10 per cent, n order that the tota ta of 5 per cent or 12 per
cent may be pad to the Government.
The rates of ta requred to be pad to the Government wth
respect to nterest on cass bonds pad to ctzens or resdents of
the Unted States (ndvdua or fducary) or resdent partnershps
are at the same rates as were requred under the Revenue ct of 1926.
The ncreased rates of ta requred to be wthhed from nterest
on cass bonds are appcabe ony to payments of nterest made
after the enactment of the ct. The Revenue ct of 1928 was
enacted 8 a. m., eastern standard tme, May 29, 1928. Ta at the
rate of 2 per cent s, therefore, requred to be wthhed from nterest
payments made on ta -free covenant bonds, both cass and cass
, from anuary 1 to May 28, 1928, both dates ncusve, the n-
creased rates provded n secton 144(a) of the Revenue ct of 1928
beng appcabe ony to pavments made after 8 a. m., eastern
standard tme, May 29, 1928.
The provsons reatve to the benefts of credts aganst net n-
come and wthhodng at the rate of 1 per cent, n secton 221(b)
of the Revenue ct of 1920, are ncorporated n the Revenue ct of
1928 as secton 144(a) (2) and (3), respectvey, and need no further
e panaton.
orm 1000 s beng revsed. orm 1000, revsed March, 1926,
shoud be used unt the new form s dstrbuted.
nqures concernng ths mmeograph etter shoud be marked
for the attenton of IT: : RR.
. . Mres,
ctng Commssoner.
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69
145, rt. 781.
rtce 765: Ownershp certfcates for bond
nterest.
II-37-3897
Mn. 3667
( so Secton 148, rtce 814.)
uthorzaton for the contnued use of ownershp certfcates,
orm 1000, revsed March, 1 26, and orm 1001, revsed ugust,
To Coectors of Interna Revenue, and Others Concerned:
Ownershp certfcates, orm 1000, whch was revsed n une, 1928,
supersedes orm 1000, revsed March, 1926, and orm 1001, whch
was revsed n uy, 1928, supersedes orm 1001, revsed ugust,
1923. The atest revsed forms shoud, of course, be used whenever
practcabe. In order to aow a reasonabe tme for the dstrbuton
of the atest revsed forms, orm 1000, revsed March, 1926, and
orm 1001, revsed ugust, 1923, w be accepted wth respect to n-
terest due on and pror to December 31, 1928.
Coectors shoud satsfy themseves that they have a suffcent sup-
py of the new forms n order to meet antcpated demands, and where
the suppy s not deemed suffcent requston shoud be made wthout
deay for such addtona quantty as may be necessary. Coectors
are requested to dssemnate ths nformaton throughout ther ds-
trcts as qucky as possbe.
Correspondence n regard to the procedure outned heren shoud
S CTION 145. P YM NT O CORPOR TION INCOM
T T SOURC .
Where a bank makes ca oans to domestc corporatons and
resdent frma of the Unted States and assgns such oans n part
to nonresdent foregn corporatons, the ncome of whch s sub|ect
to wthhodng, the ta thereon shoud be wthhed by the bank
whch assgns the oans, so ong as t has the recept, contro, or
payment of the ncome.
n opnon s requested as to whether a bank s requred to wth-
hod ta wth respect to nterest pad to nonresdent foregn cor-
poratons under the foowng crcumstances:
It appears that the M ank frequenty makes ca oans to domestc
corporatons and resdent frms of the Unted States and that the
oans are sometmes assgned n whoe or n part to nonresdent
foregn corporatons. or e ampe, on September , 1927, the M
ank oaned the N Company, a domestc brokerage frm, 20ar doars,
and on May , 1928, t granted the O Company, a foregn corporaton
not engaged n trade or busness wthn the Unted States and not
havng any offce or pace of busness theren, an doars partcpa-
htce 781: Wthhodng n the case of non-
resdent foregn corporatons.
II-35-3873
G. C. M. 4683
R NU CT O 1928.
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145, rt. 781.
70
ton n the oan. rom the nformaton furnshed, t appears that t
has been the custom for banks n the cty of R whch ssue ca oans
to consder themseves the source wth respect to the payment of
nterest to foregn correspondents and the wthhodng or ta .
Secton 145 of the Revenue ct of 1928 provdes as foows:
In the case of foregn corporatons sub|ect to ta aton under ths tte not
engaged n trade or busness wthn the Unted States and not havng any offce
or pace of busness theren, there sha be deducted and wthhed at the source
n the same manner and upon the same tems of ncome as g provded n secton
a ta equa to 13 per centum thereof n respect of a payments of ncome
made before the enactment of ths ct. and equa to 12 per centum thereof n
respect of a payments of ncome made after the enactment of ths ct, and
such ta sha be returned and pad n the same manner and sub|ect to the s:me
condtons as provded n that secton: Provded, That n the case of nterest
descrbed n subsecton (a) of that secton (reatng to ta -free covenant bonds)
the deducton and wthhodng sha be at the rate specfed n such subsecton.
Itacs supped.
It s provded by secton 144(b) that a persons, n whatever
capacty actng, havng the contro, recept, custody, dsposa, or
payment of nterest (e cept nterest on deposts wth persons carry-
ng on the bankng busness pad to persons not engaged n busness
n the Unted States and not havng any offce or pace of busness
theren), rent, saares, wages, premums, annutes, compensatons,
remuneratons, emouments, or other f ed or determnabe annua or
perodca gans, profts, and ncome, of any nonresdent aen nd-
vdua, sha deduct and wthhod from such annua or perodca
gans, profts, and ncome, a ta equa to 5 per cent. y readng the
two sectons together, any persons havng the contro, recept, custody,
dsposa, or payment of f ed or determnabe annua or perodca
ncome of a foregn corporaton not engaged n trade or busness
wthn the Unted States and not havng any offce or pace of busness
theren, s requred to deduct and wthhod the ta of 13/ per cent
pror to the enactment of the Revenue ct of 1928, namey, May 29,
1928, 8 a. m., and after that tme the ta shoud be wthhed at the
rate of 12 per cent.
It s not necessary n a cases that the person actuay owng the
prncpa amount upon whch the nterest s payabe sha deduct and
wthhod the ta . The aw recognzes ths fact by mposng the duty
to wthhod the ta upon a persons havng the contro, recept,
custody, dsposa, or payment of ncome, rather than mtng the
wthhodng requrement to the debtor. To construe the aw other-
wse woud resut n the Government not recevng the amount of
ta whch was due under and mposed by the Revenue ct. In
the cass of cases referred to heren the debtor has no knowedge of
the utmate recpent of the ncome, nor does the debtor know
whether the nterest payabe represents ncome of the M ank or a
foregn corporaton. The debtor can not be e pected to deduct and
wthhod the ta where t does not know that ts obgaton has been
assgned to a foregn corporaton. It necessary foows, therefore,
that, where the bank makng the oan assgns part of t to a foregn
corporaton, the ncome of whch s sub|ect to wthhodng, the ta
thereon shoud be wthhed by the bank whch assgned the oan, for
t has the recept, contro, and payment of the ncome.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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71
149, rt. 831.
S CTION 148. IN ORM TION T SOURC .
rtce 814: Return of nformaton as to nterest
on corporate bonds.
R NU CT O 1928.
uthorzaton for the contnued use of ownershp certfcates,
orm 1000, revsed March, 1926, and orm 1001, revsed ugust,
1923. (See Mm. 3667, page 69.)
S CTION 149. IN ORM TION Y CORPOR TIONS.
rtce 831: Return of nformaton as to pay- II-44-3979
ments of dvdends. T. D. 4236
INCOM T .
Returns of nformaton to be rendered by every corporaton mak-
ng payment to any sharehoder of dvdends amountng to 500 or
more durng any caendar year.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 149(a) of the Revenue ct of 1928 provdes that every cor-
poraton sub|ect to ncome ta sha, when requred by the Comms-
soner, render a correct return, duy verfed under oath, of ts pay-
ments of dvdends, statng the name and address of each sharehoder,
the number of shares owned by hm, and the amount of dvdends
pad to hm.
In accordance wth ths secton every domestc or resdent foregn
corporaton, not specfcay e empt from ta aton, makng payments
of dvdends and dstrbutons out of ts earnngs or profts accumu-
ated snce ebruary 28, 1913 (other than stock dvdends or other
nonta abe dstrbutons), to any sharehoder who s an ndvdua
(ctzen, resdent, or nonresdent aen), a fducary, or a partner-
shp, amountng to 500 or more durng the caendar year, sha
render an nformaton return on orms 1096 and 1099 for the ca-
endar year 1928 and each caendar year thereafter.
separate orm 1099 must be prepared for each sharehoder, upon
whch w be shown the name and address of the sharehoder to
whom such payment was made, and the amount pad. These forms,
accompaned by etter of transmtta on orm 1096 showng the num-
ber of orms 1099 fed therewth, sha be forwarded to the Comms-
soner of Interna Revenue, Sortng Secton, Washngton, D. C, on
or before March 15 of the foowng year.
D. . ar,
Commssoner of Interna Revenue.
pproved October 25, 1928.
. W. Meon,
Secretary of the Treasury.
37229 29 6
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212, rt. 1042.
72
SUPPL M NT . ST T S ND TRUSTS.
S CTION 162. N T INCOM .
rtce 863: Decedent s estate durng II-37-3890
admnstraton. I. T. 2430
R NU CT OP 1928.
The wdow s aowance provded for under the aws of the
State of Mssour (Revsed Statutes of Mssour, 1919, sectons 105 to
109) s not a debt due from a decedent wthn the meanng of secton
3466 of the Revsed Statutes of the Unted States, but s a charge
aganst the decedent s estate created by the aw of the State, and
takes prorty n payment over edera ta es.
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 204. INSUR NC COMP NI S OT R
T N LI OR MUTU L.
rtce 992: Gross ncome of nsurance companes
other than fe or mutua.
R NU CT O 1928.
ass on whch to determne gan of oss on sae or other dspos-
ton of property by nsurance companes (other than fe or mutua
nsurance companes). (See I. T. 2444, page 63.)
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 212. GROSS INCOM .
rtce 1042: cuson of earnngs of foregn TT-48 014
shps from gross ncome. I. T. 2438
R NU CTS OP 1924, 1926, ND 1928.
raz does not satsfy the equvaent e empton requrement of
secton 213(b) 8 of Revenue cts of 1924 and 1926 and sectons 212(b)
and 231 (b) of Revenue ct of 1928.
rtce 1042: cuson of earnngs of foregn
shps from gross ncome.
R NU CT O 1928.
Interest receved by a rtsh corporaton on moneys, hed tempo-
rary n Unted States banks, whch represent surpus workng cash
arsng and coected n the Unted States from the busness of
shppng. (See G. C. M. 4859, page 73.)
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277, rt. 1202.
SUPPL M NT I. OR IGN CORPOR TIONS.
S CTION 231. GROSS INCOM .
rtce 1102: cuson of earnngs of foregn TI-43-3956
shps from gross ncome, G. C. M. 4859
R NU CTS O 1921, 1924, 1626, ND 1928.
Interest receved by a rtsh corporaton on moneys, hed tempo-
rary n Unted Srates banks, whch represent surpus workng cash
arsng and coected n the Unted States from the busness of shp-
png, s regarded as beng ncuded n the term earnngs derved
from the operaton of a shp or shps wthn the meanng of sec-
ton 213(b)8 of the Revenue cts of 1921, 1924, 1926, and sectons
212(b) and 231(b) of the Revenue ct of 1928, and n consequence
s e empt from Unted States ncome ta .
n opnon s requested reatve to the ta aton n ths country of
the nterest receved by the M Company, of , ngand, on moneys
hed temporary n Unted States banks.
The funds n queston represent surpus workng cash arsng and
coected n the Unted States from the busness of shppng. The
funds are hed on current account ether for mmedate dsbursement
or pendng remttance to the Unted ngdom.
Inasmuch as such deposts are a part of the current assets of the
corporaton and represent property used n the transportaton bus-
ness, any nterest on such deposts s regarded as ncome derved from
the transportaton busness and as ncuded n the term earnngs
derved from the operaton of a shp or shps wthn the meanng
of secton 213(b)8 of the Revenue cts of 1921, 1924, 1926, and sec-
tons 212(b) and 231(b) of the Revenue ct of 1928, and n conse-
quence s e empt from Unted States ncome ta .
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 1102: cuson of earnngs of foregn shps
from gross ncome.
R NU CT O 1928.
raz and the equvaent e empton requrement of secton 231(b).
(See I. T. 2438, page 72.)
SUPPL M NT L- SS SSM NT ND COLL CTION O D ICI NCI S.
S CTION 277. SUSP NSION O RUNNING O ST TUT .
rtce 1202: Perod of mtaton upon II-47-4003
coecton of ta . G. C. M. 5251
R NU CT O 1028.
Commssons earned whch are apped by the empoyer as a
credt aganst empoyee s overdrawn account and e pense money
advanced under an arrangement whereby t must be accounted
for by the empoyee are not sub|ect to dstrant for unpad ta es.
n opnon s requested as to whether commssons earned from
tme to tme by the ta payer, who s empoyed as a traveng saesman
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322, rt. 1254.
74
for the M Company, are sub|ect to dstrant for unpad ta es. It
appears that the M Company has been credtng such commssons
to the ta payer s account, whch was overdrawn by hm n the sum
of 32a doars, and that a notce of evy, orm 668- , has been
served on the company. Inqury s aso made whether the company
may contnue to advance the ta payer, weeky, sums of from doars
to 1.2a doars desgnated by t as e pense money.
Commssons earned by the ta payer but retaned n hs empoyer s
possesson are n the nature of contract debts, wthn the purvew
of secton 3187, Unted States Revsed Statutes, as amended by sec-
ton 1016 of the Revenue ct of 1924, and pursuant to the provsons
of secton 3187 are sub|ect to evy under a warrant of dstrant.
(I. T. 1557, C. . II-, 172.) owever, n vew of the decson n
the case of North Chcago Rong M Co. v. St. Lous Ore Stee
Co. (152 U. S., 596 ), n whch case certan appcabe prncpes were
recognzed concernng the rght of set-off n cases anaogous to the n-
stant case, the M Company as empoyer, n connecton wth the ds-
trant proceedngs whch have been brought, may set off aganst ts
debts owng to the ta payer whatever demands t mght tsef set off
aganst the ta payer f the atter were attempng to enforce payment
by the company of hs cam for commssons. Therefore, f n fact
the ta payer has overdrawn hs aecount wth the company so that he
s ndebted to t n the sum of 32a doars, commssons earned by the
ta payer may be apped by the company to reducton of ths debt,
and not unt the debt s thereby pad are the commssons earned
by the ta payer sub|ect to dstrant.
Whether the weeky sums pad as e pense money may be ds-
traned upon depends upon the nature of the contract of empoyment
between the ta payer and the company. If the money s advanced
to the ta payer for hs actua e penses and must be accounted for by
the ta payer, the money advanced s the company s money gven to
the ta payer for e pendture n ts busness, and f advanced n good
fath may not be dstraned upon. owever, f the ta payer s rem-
bursed for e penses actuay ncurred by hm n connecton wth hs
dutes as a saesman, the so-caed e pense money s money due
from the company to the ta payer and therefore s sub|ect to ds-
trant. Lkewse, f the ta payer receves a stpuated amount weeky
whch s desgnated as e pense money, but for whch he s not
requred to render any account to the company, the so-caed e pense
money s merey compensaton, and as such may be dstraned upon.
C. M. Charest,
Genera Counse, ureau of Interna Revenue,
SUPPL M NT O. O RP YM NTS.
S CTION 322. R UNDS ND CR DITS.
rtce 1254: Cams for refund by ta payers. II-49-4019
G. C. M. 5169
R NU CT O 1028.
Under the aws of Caforna, a father as such s not entted
to fe refund cams for hs mnor chdren, and the mnors are
wthout power, under the aws of that State, to appont hm as
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322, rt. 1254.
ther agent to fe such cams. No refund cams can he enter-
taned wth respect to mnors uness the cams are fed by the
mnors themseves or by a awfuy apponted guardan to the
mnors accompaned by certfed copes of such appontment.
n opnon s requested as to the vadty of aeged cams for
refund fed by n the names of hs mnor chdren.
It appears that was requested to furnsh certfed copes of
etters of guardanshp showng hs authorty to prosecute aeged
cams for refund and to receve such refunds as mght be aowed.
contends that he shoud not be requred to furnsh copes of etters
of guardanshp, nasmuch as the cams were not made by hm as
guardan but were made n the names of hs mnor chdren, to whom
he states the refunds shoud be payabe f aowed. When such
refunds become payabe, he states that the queston of the appont-
ment by the court of a guardan may be consdered. aso ponts
out that n these cams he swore to the statement that each cam-
ant was a mnor chd of hs, and that he sgned and verfed the
cams as natura guardan, havng aso sgned .the returns under
whch the ta es were pad, not ony because he knew a the facts
nvoved, but because he was ther natura guardan, no guardan
havng been apponted by a court, snce the amount of the property
or ncome was not suffcent to |ustfy such proceedng.
These facts present two questons for consderaton, frst, whether
as natura guardan may make cams for refund on behaf of hs
mnor chdren and, second f he may not do so, may the cams be
made by hm as agent of hs chdren
In consderng the frst queston, reference s made to the case of
In re unt (103 Ca., 355 37 Pac., 206), n whch t was hed that
parents, beng the natura guardans of a mnor chd, can be de-
prved of custody of the chd s person ony by a proceedng under the
Cv Code of Caforna. urther, n enda v. Mer (9 Ca., 592),
the court hed that the natura guardanshp of a parent e tends ony
to the custody of the person of the ward, and not to ts property, and
that to entte the parent to manage the ward s property, the parent
must be duy apponted a guardan by competent pubc authorty. It
s aso provded by secton 202 of the Cv Code of Caforna that
the parent, as such, has no contro over the property of the chd.
In vew of the authortes and statutes referred to, the concuson
s reached that , as natura guardan, may not make vad cams
for refund of ncome ta on behaf of hs mnor chdren.
In consderng the second queston, whether the cams may be
made by as agent of hs chdren, t s observed that artce 1304,
Reguatons 69, provdes that n a cam for refund, where an agent
e ecutes the affdavt requred by orm 843, a power of attorney
must accompany the cam. It woud therefore be necessary for ,
n makng cams as agent for hs chdren, to accompany the cams
wth powers of attorney e ecuted by hs chdren and consttutng
hm ther agent. owever, the genera rue s that an nfant can not
bnd hmsef by the appontment of an agent or by a power of at-
torney. Postcm v. Wams (99 Mo. pp., 513 73 S. W., 1099)
rmtage v. Wdoe (36 Mch., 124) state of Cah, supra.) ur-
thermore, transactons consummated through the. person whom an
nfant assumes to appont as agent are regarded as vod n some
States, athough n Caforna they appear to be vodabe ony at the
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322, rt. 1257.
7f
eecton of the nfant when the atter comes of age. (Chds v. Lan-
terman, 103 Ca., 387 37 Pac., 382 eatngs v. Doarhde, 24 Ca.,
195.) Secton 33 of the Cv Code of Caforna provdes e pressy
that a mnor can not gve a deegaton of power.
rom the foregong t s apparent that may not prosecute these
cams as fed, ether as the natura guardan or agent of hs mnor
chdren. The cams as fed shoud, therefore, be re|ected.
ccordngy, shoud be advsed that the refund cams as fed
are re|ected for the reason that he s not entted, under the aws of
Caforna, to fe these cams merey because he s the father of the
mnors, and that the mnors are wthout power, under the aws of
Caforna, to appont hm ther agent to fe such cams. shoud
be further advsed that no refund cams can be receved or enter-
taned wth respect of these mnors uness the cams are fed by the
mnors themseves or by a awfuy apponted guardan to the mnors
accompaned by certfed copes of such appontment, under the sea
of the appontng court, c M c ST|
Genera Counse, ureau of Interna Revenue.
rtce 1257: Lmtatons upon the credtng II-44-3977
and refundng of ta es pad. T. D. 4235
reopenng of refund cams.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and 0tters Concerned:
I. Cams Dsaowed Pror to May 29, 1928, n Whch the Perod of Lmta-
ton for rngng Sut as pred.
(a) If a cam for refund or credt of an nterna revenue ta was
dsaowed pror to May 29, 1928, and f the perod of mtaton for
brngng sut n court has e pred, such cam w be reopened f,
but ony f
(1) The rung pursuant to whch the cam was dsaowed was
reversed by the Commssoner of Interna Revenue and an appca-
ton for reopenng was fed after such reversa and pror to the
e praton of such perod of mtaton or
(2) The refund or credt s propery aowabe under a court dec-
son or a decson of the oard of Ta ppeas and a case or an
appea nvovng the pont upon whch the refund or credt s
aowabe was pendng after the dsaowance of the cam and pror
to the e praton of such perod of mtaton or
(3) The refund or credt s propery aowabe under a court
decson or a decson of the oard of Ta ppeas to whch the
appcant was a party and the ad|ustment n accordance therewth
requres a compensatng ad|ustment (such as an ad|ustment n nven-
tory, or nvested capta, or the shftng of an tem of ncome or oss
from one ta abe perod to another) for one or more other ta abe
perods, and the appcaton requests the reopenng of the case for
such other ta abe perods or
(4) The cam s based upon a queston of fact and ether (a)
evdence of such fact was presented, n respect of the ta abe year
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322, rt. 1257.
nvoved, pror to the e praton of such perod of mtaton, or (b)
evdence of such fact was duy presented for another ta abe perod
and an ad|ustment for such perod accordngy made whch requres
a compensatng ad|ustment (such as an ad|ustment n nventory, or
nvested capta or the shftng of an tem of ncome or oss from
one ta abe perod to another) for one or more other ta abe perods,
and the appcaton requests the reopenng of the case for such other
ta abe perods, or (c) evdence of such fact was duy presented
and a determnaton made n the cosng of a case of another ta payer
and such determnaton decreases the ta abty of the appcant
(such as a corporate dstrbuton and a stockhoder s abty n re-
spect thereof, a determnaton of the dstrbutve share of partners,
the abty of a trustee and of a benefcary, the abty of an estate
and a decedent or of an estate and a dstrbutee and the determnaton
of the ownershp of property).
(b) In no event w any such cam be reopened
(1) Uness an appcaton for reopenng has been fed wth the
Commssoner of Interna Revenue on or before anuary 31, 1929
and
(2) Uness the refund or credt s propery aowabe and
(3) Uness the specfc ground upon whch the refund or credt
s aowabe was stated n the cam, or n an amendment thereof
made pror to the e praton of the perod of mtaton upon the
fng of a cam for refund or credt and
(4) Uness the appcaton for reopenng states specfcay the cr-
cumstances upon whch the appcaton s based.
(c) In no event w a refund or. credt be aowed e cept to the
e tent that t s aowabe on the merts wthout regard to any bar
of the statute of mtatons upon assessment or coecton n respect
of the ta abe perod nvoved and of each ta abe perod n whch a
compensatng ad|ustment shoud be made and n no case w the
amount of the refund or credt e ceed the amount propery refund-
abe n respect of the grounds stated n the cam.
II. Cams Dsaowed on or fter May 29, 1928.
case n whch the cam was dsaowed on or after May 29,
1928, s governed by secton 608 of the Revenue ct of 1928, and no
such case w be reopened f, under the provsons of such secton,
a refund woud be consdered erroneous.
III. Reopenng Pror to the praton of the Statute of Lmtatons.
ny cam whch has been dsaowed w be reconsdered and
aowed, at any tme pror to the e praton of the statute of mta-
tons for brngng sut, f t ceary appears that the cam shoud be
aowed on the merts. No reopenng or appcaton for reopenng
w e tend the perod wthn whc sut must be brought, nor w a
reconsderaton of a cam be consdered as a reopenng.
I . Revocaton of Treasury Decson 3240 C. . 5, 313 .
Treasury Decson 3240 s hereby revoked.
D. . ar,
Commssoner of Interna Revenue.
pproved October 23, 1928.
. W. Meon,
Secretary of the Treaswy.
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603. 78
TITL I . DMINISTR TI PRO ISIONS.
S CTION 603. O RD O T PP LS-
COURT R I W O D CISION.
Secton 603. II-43-3957
G. C. M. 5046
R NU CTS O 1924, 1926, ND- 1928.
Where a decson was rendered by the oard of Ta ppeas
pror to the enactment of the Revenue ct of 1926, ether party
coud brng a court acton and try the case de novo, the oard s
fndngs of fact beng consdered prma face evdence aganst the
osng party.
In cases fed wth the oard of Ta ppeas subsequent to the
Revenue ct of 1926, a revew of the oard s decson on questons
of aw n a crcut court of appeas or n the Court of ppeas
of the Dstrct of Coumba s the ony remedy of a party dssats-
fed wth the decson of the oard.
Where a hearng has been hed before the oard of Ta ppeas
before the enactment of the Revenue ct of 1926 and a decson
s rendered thereafter, such decson s fna and nonrevewabe and
a ta payer s remedy n case of an adverse decson s to pay the
ta and brng sut for refund.
n opnon s requested wth respect to the rghts of ta payers
who had appeaed to the oard of Ta ppeas. Inqury s made
whether a ta payer who has fed a petton wth the oard of Ta
ppeas may pay the sum determned by the oard to represent hs
correct ta abty and sue to recover the amount so pad.
The oard of Ta ppeas was created by the Revenue ct of 1924
to decde ta appeas. (Revenue ct of 1924, secton 900(a).) It
was authorzed to estabsh ts own rues of evdence and procedure.
No appea from or rght of revew of the oard s decson was pro-
vded n the 1924 ct. hearng before the oard at that tme was
tte more than a premnary determnaton of the rghts of the
partes. ther party, f dssatsfed wth the oard s decson, coud
brng a court acton and try the matter de novo, the oard s fndngs
of fact beng prma face evdence aganst the osng party. See
sectons 274(b) and 900(g) of the Revenue ct of 1924. The Revenue
ct of 1926 ntroduced a radca change. The rght of a party ds-
satsfed wth the decson of the oard to brng a court acton and
have a tra de novo on ssues of fact and aw was taken away (sec-
ton 284(d)), and hs rght mted to a revew of the oard s dec-
son n a crcut court of appeas or n the Court of ppeas of the
Dstrct of Coumba on questons of aw ony. See n ths connecton
ar v. Curran (24 ed. (2d), 390) ar v. endrcks (24 ed.
(2d),819).
Secton 1001(a) of the Revenue ct of 1926 provdes as foows:
The decson of the oard rendered after the enactment of ths ct (e cept
as provded n subdvson (|) of secton 283 and n subdvson (h) of secton
318) may be revewed by a crcut court of appeas, or the Court of ppeas
of the Dstrct of Coumba, as herenafter provded, f a petton for such
revew s fed by ether the Commssoner or the ta payer wthn s mouths
after the decson s rendered.
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606, rt, 1301.
Secton 1003 provdes that the crcut courts of appeas and the
Court of ppeas of the Dstrct of Coumba sha have e cusve
|ursdcton to revew the decsons of the oard. Such a revew s
the soe remedy of both the Commssoner and the ta payer where
an adverse decson s rendered by the oard n cases fed subsequent
to the passage of the 1926 ct. It s to be noted, however, that the
provsons of the 1926 ct whch make the oard of Ta ppeas
the e cusve forum for the redetermnaton of the ta payer s ta
abty for the year or years covered n hs petton fed wth the
oard, e cept as the oard s decson may be modfed by an appea,
do not appy to cases whch had been heard but not decded by the
oard pror to the enactment of the 1926 ct. Secton 283 (|), whch
s made an e cepton n secton 1001(a) quoted above, provdes that
n cases where a hearng before the oard has been hed before the
enactment of the 1926 ct and a decson s rendered thereafter, such
decson sha be fna and nonrevewabe. In such a case, f the de-
cson s adverse to the ta payer, hs remedy s to pay the ta and
brng sut for refund.
The pertnent provsons of the Revenue ct of 1928 are to the
same effect as the correspondng provsons of the Revenue ct of
1926 n so far as the queston nvoved heren s concerned.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 606. CLOSING GR M NTS.
|tncu 1301: Cosng agreements reatng to ta II-30-3824
abty n respect of nterna-revenue ta es. Mm. 3652
greement as to fna determnaton of ta abty under
secton 606 of the Revenue ct of 1928.
Theasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, uy 5, 1928.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Other Offcers and mpoyees Concerned:
1. ttenton s nvted to secton 606 of the Revenue ct of 1928,
whch provdes as foows:
(a) The Commssoner (or any offcer or empoyee of the ureau of Interna
Revenue, ncudng the fed servce, authorzed n wrtng by the Comms-
soner) s authorzed to enter nto an agreement n wrtng wth any person
reatng to the abty of such person (or of the person or estate for whom
he acts) n respect of any nterna-revenue ta for any ta abe perod endng
pror to the date of the agreement.
(b) If such agreement s approved by the Secretary, or the Undersecretary,
wthn such tme as may be stated n such agreement, or ater agreed to, such
agreement sha be fna and concusve, and, e cept upon a showng of fraud
or mafeasance, or msrepresentaton of a matera fact
(1) the case sha not be reopened as to the matters agreed upon or the
agreement modfed, by any offcer, empoyee, or agent of the Unted States, and
(2) n any sut, acton, or proceedng, such agreement, or any determnaton,
assessment, coecton, payment, abatement, refund, or credt made n accordance
therewth, sha not be annued, modfed, set asde, or dsregarded.
(c) Secton 1106(b) of the Revenue ct of 1926 s repeaed, effectve on the
e praton of 30 days after the enactment of ths ct, but such repea sha not
affect any agreement made before such repea takes effect.
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606, rt. 1301.
O
2. The purpose of ths secton s to provde a method whereby a
ta payer and the Commssoner (or any offcer or empoyee author-
zed n wrtng by hm), sub|ect to the approva of the Secretary
or the Undersecretary, may reach a fna and concusve determna-
ton and cosng of the ta abty so that the case may not be
reopened as to the matters or abty agreed upon, nor may any
ad|ustment made n accordance therewth be modfed, annued, or
set asde e cept upon a showng of fraud or mafeasance or ms-
representaton of a matera fact.
3. Secton 606 removes the restrctons on agreements provded n
pror cts and t s no onger requred as a condton precedent
to a vad agreement that the abty determned be assessed and
pad or that the ta payer accept any abatement, credt, or refund
whch may be dscosed n the audt of the return. It s essenta
ony that there be a determnaton of the ta abty for the perod
to be covered by the agreement. The remova of the restrctons
referred to w permt agreements statng no ta abty n
cases where nonta abe returns have been hed and accepted by the
ureau.
4. orm 866, revsed to conform to the provsons of the Revenue
ct of 1928, has been so worded as to ncude a waver of the re-
strctons on assessment and coecton of any proposed defcency.
It w accordngy repace and be used n the same manner as orms
870, 874, Coectors form, Waver of restrctons upon the assess-
ment and coecton of a defcency, and orm 7858, n a cases
.where a fna determnaton dscoses a defcency.
5. Reguar procedure w be observed n advsng the ta payer of
the amount of any proposed defcency. The notce w be accom-
paned by orm 866 propery fed out as to the secton and year of
the. Revenue ct and the name and address of the ta payer, and
statng as the. ta abty the amount shown on the return, ncreased
or decreased by any pror defcences or overassessments as nd-
cated by stamps on. the return, pus the amount of the proposed
defcency.
ampe:
Ta reported on return 10,000. 00
ddtona ta prevousy assessed 2,000.00
12.000.00
Overassessment aowed 4,000.00
8, 000. 00
Proposed defcency 1, 500. 00
Labty stated on orm 866 9.500.00
6. In any case where a fed audt dscoses an overassessment
ony, orm 866 shoud repace and be used n the same manner as
orm 873. In the case of overassessments wthout acceptabe agree-
ments, new orms 866 sha be prepared and accompany certfcate to
cams contro secton where the tota ta for any year amounts to
5,000 or more.
7. In the event that a change n abty resuts upon the revew
n the ureau of a case n whch orm 866 has been sgned by the
ta payer, the ta payer w be so advsed n accordance wth regu-
ar procedure and a new form, statng the abty as corrected, w
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81
606, rt. 1301.
be forwarded for sgnature. Ths acton w consttute notce to
the ta payer of the re|ecton of the orgna proposed agreement.
8. Where returns for any year or years have been audted and
cosed and are on fe n the ureau, and the ta payer requests an
agreement reatng to hs abty for such year or years, orm 866
w be prepared n provng secton of the cearng dvson and for-
warded to the ta payer for sgnature.
9. Where an agreement s requested n any case where the returns
have been audted and cosed and retaned n the coector s fe,
orm 866 w be prepared n the coector s offce and submtted for
the sgnature of the ta payer. The sgned agreement wth the entre
fe, ncudng orgna and amended returns for the years covered,
w be forwarded to the Income Ta Unt of the ureau, marked
for the attenton of the cearng dvson.
10. greements e ecuted by ta payers n cases nvovng def-
cences to be assessed n the ureau w be detached from the return
n provng secton at the tme such ta s assessed. The agreements
w be sted on a schedue for the approva of the Secretary or
Undersecretary and w be routed for sgnature of the Commssoner
or the offcer or empoyee authorzed to sgn.
11. greements receved n connecton wth cases nvovng def-
cences assessed by coectors w be wthdrawn at the tme the case
s approved after revew n the premnary audt secton and for-
warded to provng secton for competon n the manner above
outned.
12. greements on overassessments ony accepted after revew w
be wthdrawn by cams contro secton at the tme the overassess-
ment s schedued and forwarded to provng secton.
13. When an agreement has been approved by the Secretary, the
orgna copy w be forwarded to the ta payer and the dupcate
copy w be attached to the return.
14. Inasmuch as any ta ncuded n the abty determned may
be assessed and coected, and any abatement, credt, or refund may
be aowed under secton 606 after the agreement has been entered
nto, transcrpts of ta payers accounts w no onger be requred
and the use of orm 899 s accordngy aboshed n agreement cases.
15. In the event the fna agreement s e ecuted by a person other
than the ta payer, there must be submtted, wth the agreement and
accompanyng papers, documentary evdence showng specfc author-
ty of the agent to e ecute an agreement as to the fna determnaton
under secton 606 of the Revenue ct of 1928. Where the agreement
s to be e ecuted by an admnstrator, e ecutor, trustee, or other fdu-
cary, documentary evdence, showng the authorty of the fducary
to act on behaf of the ta payer, must be submtted wth the agree-
ment, and t must appear from such evdence that the authorty
remans n fu force and effect as of the date of the agreement.
16. If the ta payer s a corporaton, the agreement sha be sgned
by an offcer havng authorty to bnd the corporaton, and hs sgna-
ture sha be attested by the secretary of the corporaton over the
corporate sea. In the absence of a sea, a certfed copy of the r sou-
ton of the board of drectors, specfcay authorzng an offcer or
offcers to enter nto the agreement, sha be fed wth the agreement.
If the corporaton s n process of qudaton or dssouton, the per-
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607.
82
son or persons authorzed so to do sha sgn the agreement. true
copy of the nstrument under whch the trustees derve ther author-
ty, certfed to before a notary pubc, sha accompany the sgned
agreement, or, f ther authorty arses under a State statute, such
statute sha be cted and quoted and an affdavt by a thrd party
showng the facts requred by the statute as a precedent to the vestng
of the authorty n sad trustee sha be furnshed. If the corpora-
ton has been egay dssoved, the agreement sha be sgned before a
notary pubc by former stockhoders representng a ma|orty of the
votng stock of the corporaton at the date of dssouton, and sha be
supported by an affdavt showng the tota number of outstandng
shares of votng stock at the date of dssouton and the number hed
by each sgnatory to the agreement. The affdavt must contan pos-
tve averments as to the none stence of any trustee and the date of
dssouton must be stated theren.
17. n nta suppy of orm 866, revsed, w be furnshed to
coectors and revenue agents n charge as soon as the forms are
avaabe for dstrbuton.
18. Cases may arse where ta payers, wng to wave the restrc-
tons on assessment and coecton, may not desre to e ecute the fna
agreement. In such cases, the ta payer s agreement shoud be ob-
taned on orm 870, orm 874, Coectors form, Waver of restrc-
tons upon the assessment and coecton of a defcency, or orm 7858.
19. The provsons of ths mmeograph are effectve as of une 29,
1928, and Commssoner s Mmeographs (Coectors ) Nos. 3543 and
3596 are hereby superseded and revoked.
20. Correspondence concernng the provsons of ths mmeograph
shoud refer to the number thereof and to the symbos IT: : C .
. . Mres,
ctng Commssoner.
S CTION 607. CT O PI TION O P RIOD O
LIMIT TION G INST UNIT D ST T S.
Secton 607. II-32-3843
( so Sectons 611 and 612.) Mm.3660
ffect of sectons 607, 611, and 612 of the Revenue ct of 1928
upon the coecton of ta es barred by the statute of mtatons
and the procedure to be foowed n respect of assessments and
payments affected by such sectons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, uy 27, 1928.
Deputy Commssoners and eads of Dvsons, ureau of Interna
Revenue, Coectors of Interna Revenue, Interna Revenue gents
n Charge, and Others Concerned:
Reference s made to I. T. 2382, pubshed on page 6 of Interna
Revenue uetn I-39, dated September 26, 1927 C. . I-2, 102 ,
n whch t was stated, nter aa, that, n vew of secton 1106 of the
Revenue ct of 1926, no acton toward makng refunds shoud be
taken by the ureau n reance upon the New York bany
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83
607.
Lghterage Co. decson uness and unt the stuaton s carfed by
further court decsons or by egsatve acton.
Sectons 007, 611, and 612 of the Revenue ct of 1928 provde as
foows:
S CTION 007. CT O PIR TION O P RIOD O LIMIT TION G INST UNIT D
ST T S.
ny ta (or any nterest, penaty, addtona amount, or addton to such ta )
assessed or pad (whether before or after the enactment of ths ct) after
the e praton of the perod of mtaton propery appcabe thereto sha be
consdered an overpayment and sha be credted or refunded to the ta payer
f cam therefor Is fed wthn the perod of mtaton for fng such cam.
S CTION 611. COLL CTIONS ST Y D Y CL IM IN T M NT.
If any nterna revenue ta (or any nterest, penaty, addtona amount, or
addton to such ta ) was, wthn the perod of mtaton propery appcabe
thereto, assessed pror to une 2, 1924, and f a cam n abatement was fed,
wth or wthout bond, and f the coecton of any part thereof was stayed, then
the payment of such part (made before or wthn one year after the enactment
of ths ct) sha not be consdered as an overpayment under the provsons of
secton 607, reatng to payments made after the e praton of the perod of
mtaton on assessment and coecton.
S CTION 612. R P L O S CTION 1106(a) O 1920 CT.
Secton 1106(a) of the Revenue ct of 1926 s repeaed as of ebruary 26,
1926.
COLL CTION NOT TO N ORC D.
(1) Sectons 607 and 611 do not authorze the ureau to enforce
coecton of a ta n any case after the e praton of the perod of
mtaton, but merey prescrbe the effect of the perod of mtaton
aganst the Unted States upon any assessment or payment made
ater the e praton of the perod of mtaton appcabe thereto.
Therefore, no attempt w be made to enforce coecton of any out-
standng assessment f the perod of mtaton wthn whch coec-
ton can be made has e pred, or to make any assessment of any ta
f the perod of mtaton wthn whch the assessment can be made
has e pred, or to enforce coecton of any ta f the assessment was
not made wthn the perod of mtaton prescrbed for the makng
of the assessment and f no sut for coecton wthout assessment
was begun pror to the e praton of such perod.
(2) Where the coecton of the ta has become barred, but a bond
(or coatera) has been gven (whether before or after the runnng
of the perod of mtaton) to secure payment of the ta , the ureau
w consder the advsabty of pursung ts remedy upon the bond,
as to whch the statute of mtatons upon the coecton of the ta
has no appcaton. (U. S. v. Onken ros. Co., Inc., and the Roya
Indemnty Co., T. D. 4108, C. . I-2, 270 McCaughn, Coector, v.
Phadepha arge Co. and Natona Surety Co., decded pr 25,
1928.)
CT O S CTION 607.
(1) Secton 607 provdes that regardess of the correct ta abty
any amount pad sha be consdered an overpayment f the assess-
ment of such amount was made after the e praton of the perod
of mtaton on assessment, or f the payment was made after the
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607.
e praton of the perod of mtaton on coecton by dstrant or
court proceedngs (no dstrant or court proceedng havng been
begun wthn such perod). It s mmatera whether the payment
was vountary or nvountary, and whether t was made before or
after the enactment of the Revenue ct of 1928. ny amount whch
s an overpayment under secton 607 s to be credted or refunded
(f a cam therefor s fed wthn the statutory perod) the same as
any other overpayment, e cept n the foowng cases:
(a) s provded n secton 611
(b) Where the payment was made pursuant to a fna decson of
the oard of Ta ppeas or of a court, uness, after consderaton
of the case by the Genera Counse, t s hed that the payment made
s propery refundabe
(c) Where a refund of the amount pad s prohbted by reason of
a fna agreement under secton 1106(b) of the Revenue ct of 19 26,
correspondng secton of a pror Revenue ct, or secton 606 of the
Revenue ct of 1928.
(2) In determnng whether any perod of mtaton has e pred
due consderaton must be gven to wavers whch have been gven,
and a waver w be consdered as vad even though gven after the
e praton of the perod of mtaton.
(3) The perod of mtaton upon coecton, n any case n whch
the perod of mtaton upon the assessment (as e tended by any
waver) e pred on or after une 2, 1924, w not e pre unt s
years from the date on whch the assessment was made.
(4) No refund w be made n any ca,se n whch a bond (or co-
atera) has been gven, whether gven before or after the e praton
of the perod of mtaton and whether the ta was pad by the ta -
payer or the abty under the bond enforced, uness, after consd-
eraton of the case by the Genera Counse, t s hed that the amount
pad s propery refundabe.
(5) Inasmuch as many ta payers w undoubtedy contnue the
practce heretofore foowed of payng the amounts determned to be
due notwthstandng the runnng of the statute of mtatons, ta -
payers offerng to pay shoud be advsed of ther rghts under the
aw and requested to e ecute wavers or enter nto cosng agree-
ments. Wavers gven after the e praton of the perod of mta-
ton and after the enactment of the Revenue ct of 1928 are vad
ony f gven pror to anuary 1, 1929 (see secton 506(c) of 1928
ct).
CT OP S CTION 611.
Secton 611 of the Revenue ct of 1928 prescrbes a very mportant
e cepton to the genera rue contaned n secton 607. It provdes
that n any case n whch an assessment was made pror to une
2. 1924, and wthn the perod of mtaton on assessment, and n
whch a cam n abatement was fed, then the payment of any part
of the ta , the coecton of whch was deayed, sha not be con-
sdered as an overpayment under the provsons of secton 607.
ccordngy, no refund or credt of an amount pad, whether voun-
tary or nvountary, w be made n any such case.
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85
607.
DMINISTR TI PROC DUR .
In any case (e cept n cases fang wthn the purvew of sec-
ton 611) where coecton of the ta has become barred, and no bond
(or coatera) has been gven to secure payment of ta , prompt
assessment coverng the amount barred from coecton. In cases
fang wthn the scope of secton 611, and coecton of the ta has
become barred, the foowng procedure w be observed:
(a) The ta payer w be advsed by the Income Ta Unt of
ts rghts under secton 611 of the Revenue ct of 1928, and uness
t s dsposed to make vountary payment, wthn one year after the
enactment of the sad ct, after a fu understandng of the meanng
of such secton, an approprate certfcate of overassessment w be
ssued.
(b) There w, among others, be cases where the foowng cr-
cumstances are present:
(1) Cam n abatement has been re|ected, demand has been made,
ta payer has camed beneft of statute, and uncoectbe cam on
orm 53 has been fed.
(2) Cam n abatement pendng n ureau. coecton waver
or a bond (or coatera), or both, have been fed.
(3) Cam n abatement pendng n ureau, no waver or bond (or
coatera) havng been fed.
In case (1), f there s on fe n the coector s offce a waver or
a bond (or coatera), or both, the coector w forward at once
to the ureau true copes of the waver and/or bond (or the co-
atera agreement) wth a compete statement of facts. If the co-
ector has no such documents, he w make a prompt report to the
ureau n order that a certfcate of overassessment may be ssued
and the case cosed.
In case (2), true copes of the waver and bond (or the coatera
agreement) shoud be forwarded at once to Washngton for the
attenton of rues and reguatons secton, Income Ta Unt. If
there are both a waver and a bond (or coatera), and the waver s
of no effect because quafed, the ureau w dscontnue ts efforts
to coect the ta and consder at once the advsabty of commenc-
ng sut on the bond (or coatera). If there s no bond (or coat-
era) and the waver s quafed on the bass of a cam that the
statute of mtatons has run, the ureau w cose the case and ssue
an approprate certfcate of overassessment.
In case (3) the coector w make a prompt report to the ureau.
If no waver or bond (or coatera) has been gven, the ta payer
w be advsed of ts rght to make vountary payment as provded
n paragraph (a).
The foregong procedure s for the purpose of enabng the
ureau to determne what acton to take wth respect to the cam
fed. Therefore, the work necessary to be done n the coectors
offces under the provsons of ths mmeograph shoud proceed at
once.
Correspondence n regard to the procedure outned heren shoud
refer to the number of ths mmeograph and to symbos IT: : RR.
acton w be taken toward
certfcate of over-
. . Mres,
ctng Commssoner.
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607. 86
Secton 607. II-33-3848
G. CM.4554
R NU CT O 1928.
Where the abty of the O Company as transferee of the assets
of the M Company was assessed after the e praton of the statu-
tory perod appcabe thereto, and a cam for refund was fed by
the O Company wthn the statutory perod, the amount so pad
must be credted or refunded.
n opnon s requested as to whether the amount of the abty of
a transferee based on the ta due from the M Company for the perod
anuary 1 to ebruary 28,1918, whch was pad by the transferee, the
O Company, may be credted or refunded to the atter company.
The abty nvoved n ths case was assessed aganst the O Com-
pany, as transferee of the assets of the M Company, under the prov-
sons of secton 280 of the Revenue ct of 1926, but the assessment
was made after the e praton of the statutory perod appcabe
thereto. The O Company pad the amount of the assessment and
mmedatey thereafter fed a cam for refund of the amount so pad.
The specfc queston presented to ths offce for opnon s whether
the assessment pad by the transferee can be refunded n
vew of secton 1106(a) of the Revenue ct of 1926 and the decson
rendered n the case of owers v. New York bany Lghterage
Co. (273 U. S., 346 T. D. 4009, C. . I-1, 268 ), decded by the
Supreme Court of the Unted States on ebruary 21, 1927.
Secton 1106(a) of the Revenue ct of 1926 was repeaed by .secton
612 of the Revenue ct of 1928 as of ebruary 26, 1926. Therefore,
the nstant case may not be consdered under secton 1106(a).
It appears unnecessary n the consderaton of the queston to
refer to the decson of the Supreme Court of the Unted States n
the case of owers v. New York bany Lghterage Co., snce
the proposton of credtng or refundng the amount or ta assessed
or pad after the e praton of the statutory perod s now governed
by secton 607 of the Revenue ct of 1928, whch provdes as foows:
ny ta (or any nterest, penaty, addtona amount, or addton to such
ta ) assessed or pad (whether before or after the enactment of ths ct)
after the e praton of the perod of mtaton propery appcabe thereto
sha be consdered an overpayment and sha be credted or refunded to the
ta payer f cam therefor s fed wthn the perod of mtaton for fng such
cam.
Under the provsons of secton 280 of the Revenue ct of 1926
and secton 311 of the Revenue ct of 1928, the assessment, coecton,
and payment of the abty, at aw or n equty, of a transferee of
the property of a ta payer are sub|ect to the same provsons and
mtatons as f a defcency n ta were nvoved, e cept wth re-
spect to the perod durng whch an assessment may be made.
Snce the abty nvoved n the nstant case was assessed after
the e praton of the statutory perod propery appcabe thereto,
the amount pad n respect to the assessment must be regarded as an
overpayment. cam for refund of such overpayment havng been
fed wthn the statutory perod, the amount of the overpayment
must be credted or refunded.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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611.
Secton 607.
revenue act of 1928.
Cam for abatement fed before coecton barred, ta pad after
bar of statute, and cam decded before e praton of perod of
mtaton. (See G. C. M. 5086, page 92.)
S CTION 608. CT O PIR TION O P RIOD
O LIMIT TION G INST T P Y R.
r
Secton 608. II-53-4046
Mm. 3689
orm 007. greement to suspend runnng of statute of mtatons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, December IS, 1028.
To Coectors of Interna Revenue, Interna Revenue gents n
Charge, and Others Concemad:
In order to put nto effect the provsons of secton 608(b) 2 of the
Revenue ct of 1928, whch provdes that a ta payer and the Com-
mssoner may enter nto an agreement to suspend the statute of
mtatons for fng a sut for the recovery of ta es aeged to have
been overpad unt fna decson of one or more named cases pendng
before the Unted States oard of Ta ppeas or the courts, the
ureau has recenty prepared orm 907 for ths purpose.
s ths agreement form w not be supped to coectors for ds-
trbuton, ta payers who desre to enter nto such an agreement
shoud be advsed to make wrtten appcaton to the Commssoner
of Interna Revenue, Rues and Reguatons Secton. Washngton,
D. C. The etter of appcaton shoud contan the foowng nfor-
maton: (a) The name and busness address of ta payer (b) charac-
ter and amount of the ta (c) ta abe year for wnch t was pad
(d) date notfed cam for refund or credt was dsaowed (e) ques-
ton nvoved n respect to the ta (f) name of case or cases pendng
n whch a smar queston s to be decded and (g) where such
case or cases are pendng.
ueres regardng ths mmeograph w refer to the number of the
mmeograph and to the symbos IT: : RR.
. . Mres,
ctng Commssoner.
S CTION 611. COLL CTIONS ST Y D Y CL IM
IN T M NT.
Secton 611. II-34-3863
G. CM. 4197
R NU CT O 1928.
Secton 011 of the Revenue ct of 192S has reference ony to the
refund of ta es pad after the runnng of the statute of mtatons
where a cam n abatement has een fed, and t does not authorze
the enforced coecton of ta smpy because a cam n abatement
has been fed.
37229 20 7
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611.
88
Reference s made to Genera Counse s Memorandum 2757 (see
page 302), n whch t s hed that the fng of a cam n abatement
whch merey contans grounds for the abatement of the ta does not
e tend the statutory perod of mtaton for the coecton of the ta
wth respect to whch the cam was fed.
In order that proper acton may now be taken n such cases, t s
deemed advsabe to render an opnon as to what e tent, f any, the
dsposton of such cases s affected by the Revenue ct of 1928.
Secton 611 of the Revenue ct of 1928 provdes as foows:
If any nterna-revenue ta (or, any nterest, penaty, addtona amount, or
addton to such ta ) was, wthn the perod of mtaton propery appcabe
thereto, assessed pror to une 2, 1924, and f a cam n abatement was fed,
wth or wthout bond, and f the coecton of any part thereof was stayed, then
the payment of such part (made before or wthn one year after the enactment
of ths ct) sha not be consdered as an overpayment under the provsons of
secton GOT, reatng to payments made after the e praton of the perod of
mtaton on assessment and coecton.
Ths secton of the Revenue ct of 1928 ceary has reference ony
to refund of ta es pad after the runnng of the statute of mtatons
where a cam n abatement has been fed, and as ceary t does not
authorze the enforced coecton of ta smpy because a cam n
abatement has been fed.
It woud seem, therefore, that those cases now pendng, where abate-
ment cams were fed and where coecton has not been made and the
statutory perod for coecton as e pred, shoud be dsposed of n
accordance wth Genera Counse s Memorandum 2757, supra.
C. M. Charest,
Genera. Counse. ureau of Interna Revenue.
Secton 611. II-44-3970
G, C. M. 4639
R NU CT O 1928.
The word stayed as used n secton O, Revenue ct of 1928,
does not contempate a |udca or statutory stay of proceedngs,
but merey refers to a deay of proceedngs to enforce coecton
by reason of the fng of a cam n abatement.
n opnon s requested as to whether the provsons of secton 611
of the Revenue ct of 1928 bar the refund of 10a doars, whch was
coected from the ta payer as addtona 1917 ta after the e pra-
ton of the fve-year perod for assessment and coecton provded by
secton 250(d) of the Revenue ct of 1921.
The facts are that the ta payer fed ts corporaton ncome and
e cess profts ta return for the caendar year 1917 on May 1, 1918,
and pad the ta shown to be due. n addtona assessment of 11a
doars appeared on the Commssoner s September, 1920, st. Notce
and demand was ssued on or about November , 1920. Immedatey
thereafter the ta payer fed a cam n abatement for the amount of
10,c doars, and pad the baance of the addtona assessment, amount-
ng to doars. nforcement of coecton of the amount covered
by the cam n abatement was wthhed whe a compete nvestga-
ton and audt of the corporaton s records were made. Carefu con-
sderaton was gven to the addtona evdence and arguments pre-
sented n support of the ta payer s contentons n respect of the
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89
611.
merts of the assessment. In ugust, 1924, the cam n abatement
was re|ected n fu, and n November, 1925, coecton of the out-
standng amount and nterest thereon was accompshed by means of
a dstrant evy on the ta payer s bank account. On December ,
1925, a cam for the refund of the amount so coected was fed.
The cam was re|ected and the ta payer advsed of the ureau s
acton by etter dated October , 1926. No waver or bond was fed.
In May, 1927, the ta payer requested that ts pror cam for refund
be reconsdered, n vew of the decson of the Unted States Supreme
Court n the case of owers v. New York bany Lghterage Co.
(272 U. S., 346 T. D. 4009, C. . I-1,268 ), wheren the court hed
that dstrant s a proceedng wthn the meanng of secton
250(d) of the Revenue ct of 1921, and that under that secton
coecton by dstrant becomes barred fve years from the date the
return was fed.
The ta payer s contenton that the facts n ths case brng t wthn
the rue of the New York bany Lghterage case, supra, appears
to be correct. The two cases are very smar. Moreover, secton
607 of the Revenue ct of 1928, enacted May 29, 1928, provdes:
ny ta pad after the e praton of the perod of m-
taton propery appcabe thereto sha be consdered an overpayment and
sha be credted or refunded to the ta payer .
owever, secton 611 of the same ct provdes:
If any nterna revenue ta was, wthn the perod of mtaton
propery appcabe thereto, assessed pror to une 2, 1924, and f a cam n
abatement was fed , and f the coecton of any part thereof wa9
stayed, then the payment of such part (made before or wthn one year after
the enactment of ths ct) sha not be consdered as an ovepayment under the
provsons of secton 607 .
Probaby the most reabe crteron by whch to determne the
ntent of Congress n enactng secton 611 of the Revenue ct of
1928 s to be found n the report of the ouse of Representatves
Commttee on Ways and Means, on the b dentfed as . R. 1,
b to reduce and equaze ta aton, provde revenue, and for other
purposes (Report No. 2, December 7, 1927, Seventeth Congress,
frst sesson). Wth respect to that part of secton 611 whch was
subsequenty enacted nto aw, the commttee report stated:
Secton 611. Coecton n cases n whch cams n abatement were fed.
Pror to the enactment of the Revenue ct of 15)24 t was the admnstratve
practce to assess mmedatey addtona ta es determned to be due. Cpon
the assessment, ta payers were frequenty permtted to fe cams n abate-
ment wth the coector and thus deay the coecton unt the cam n abate-
ment coud be acted upon. If ths practce had not been foowed, undue hard-
shp undoubtedy woud have been mposed upon the ta payer. It was sup-
posed that there was no mtaton upon the coecton by dstrant, of the
amount utmatey determned to be due. owever, the Supreme Court has
recenty hed n a case n whch the perod for assessment e pred pror to the
enactment of the 1924 ct, that the perod for coecton was mted to fve
years from the date on whch the return was fed. Decsons upon cams n
abatement are beng made every day. mounts have been pad, are beng pad,
by the ta payer even though the statute of mtatons may have run. cep-
tonay arge amounts are nvoved. ccordngy, t s of utmost mportance
to provde that the payments aready made shoud not be refunded.
Your commttee apprecates the fact that ths provson w probaby be
sub|ected to severe crtcsm by some of the ta payers affected. owever, t
must be borne n mnd that the provson authorzes the retenton and coecton
ony of amounts propery due, and merey wthdraws the defense of the statute
of mtatons. If t s determned that the amount pad s n e cess of the
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611.
90
proper ta abty, computed wthout regard to the statute of mtatons, such
e cess w consttute an overpayment whch may be refunded or credted as
n the case of any other overpayment.
It shoud be noted n tve report of the commttee that the word
stayed as used n secton 611 does not contempate a |udca or
statutory stay of proceedngs, but merey refers to a deay of pro-
ceedngs to enforce coecton by reason of the fng of a cam n
abatement. In other words, f enforcement of coecton was wthhed
or deayed whe the cam n abatement was pendng before the u-
reau, that s the stay of coecton contempated by secton 611 of the
Revenue ct of 1928. y reference to the statement of facts n the
nstant case, t s evdent that coecton of the amount camed as
refundabe was stayed by reason of the fng of the cam n
abatement.
In vew of the foregong, t s the opnon of ths offce that the
provsons of secton 611 of the Revenue ct of 1928 operate to bar
the refund of 10a doars, the amount camed to have been coected
after the runnng of the statute of mtatons.
C. M. C R ST,
Genera Counse, ureau of Interna Revenue.
Secton 611. II-44-3971
G. C. M. 4879
R NU CT OP 1028.
The phrase coecton was stayed as used n sec-
ton 611 of the Revenue ct of 1928 presupposes the ega rght
to coect, and the provsons of such secton are not appcabe
when, f payment had been made at the tme of the fng of the
cam n abatement, t woud have consttuted an overpayment of
the ta as defned by secton 607 of the Revenue ct of 1928.
n opnon s requested as to whether a refund shoud be made,
under the facts herenafter stated, on account of an overpayment of
1919 ta es by the M Company, the ta payer.
The ta payer fed ts return for the ta abe year 1917 on March
15, 1918. defcency n ta of 13a doars was assessed on March
13, 1923. The 5-year perod of mtaton upon the coecton of the
sad amount e pred on March 15, 1923. On March 20, 1923. pror
to the ssuance of a notce and demand for the payment of the ta ,
the ta payer e ecuted a cam n abatement, coverng the fu amount
so assessed, whch s stamped as havng been receved n the coec-
tor s offce on March 22,1923. On March 26,1923, the coector ssued
a 10-day notce and demand for the payment of the ta . The ta
was not pad pursuant to such notce, and no further acton appears
to have been taken by the coector toward the coecton thereof.
Durng the year 1925 the cam n abatement was aowed for 0
doars and re|ected for 3a doars. porton of an overpayment
of ta aowed for the ta abe year 1919 was then apped as a
credt aganst the re|ected porton of the cam n abatement. In
December, 1927, the ta payer fed a cam for refund of the amount
so apped as a credt, based upon the ground that coecton of the
amount aganst whch the credt was apped was barred by the
statute of mtatons.
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91
611.
Sectons 607, 609, and 611 of the Revenue ct of 1928 provde as
foows:
S CTION 607. CT O PIR TION O P RIOD O LIMIT TION G INST UNIT D
ST T S.
ny ta (or any nterest, penaty, addtona amount, or addton to such ta )
assessed or pad (whether before or after the enactment of ths ct) after the
e praton of the perod of mtaton propery appcabe thereto sha be con-
sdered an overpayment and sha be credted or refunded to the ta payer f
cam therefor s fed wthn the perod of mtaton for fng such cam.
S CTION 009. RRON OUS CR DITS.
(a) Credt aganst barred deftcenc/. ny credt aganst a abty n respect
of any ta abe year sha be vod f any payment n respect of such abty
woud be consdered an overpayment under secton 607.
(c) ppcaton of secton. The provsons of ths secton sha appy to any
credt made before or after the enactment of ths ct.
S CTION 611. COLL CTIONS ST Y D Y CL IM IN T M NT.
If any nterna-revenue ta (or any nterest, penaty, addtona amount, or
addton to such ta ) was, wthn the perod of mtaton propery appcabe
thereto, assessed pror to une 2, 1924, and f a cam n abatement was fed,
wth or wthout bond, and f the coecton of any part thereof was stayed, then
the payment of such part (made before or wthn one year after the enactment
of ths ct) sha not be consdered as an overpayment under the provsons of
secton 607, reatng to payments made after the e praton of the perod of
mtaton cn assessment and coecton.
Under the foregong provsons, any credt aganst a abty n
respect of any ta abe year s vod f any payment n respect of such
abty woud be consdered an overpayment under secton 607.
Under the facts herenabove stated, there s no queston but that f no
cam n abatement had been fed and f payment of the ta had
been made at the tme of the fng of such cam, or on or after the
date of the notce and demand for the payment thereof, t woud have
consttuted an overpayment of ta under secton 607. The queston
to be consdered, then, s, does the soe fact that a cam n abatement
was fed change the stuaton by vrtue of the provsons of secton
611. The fng of a cam n abatement does not n and of tsef
satsfy the provsons of that secton. Its provsons are appcabe
ony f a tmey assessment was made pror to une 2, 1924, and f,
upon the fng of a cam n abatement, coecton was stayed.
ere such a tmey assessment was made, but coecton of the ta
became barred pror to the date of the fng of the cam. Conse-
quenty the ega rght to enforce coecton of the ta was never
stayed as the resut of the cam beng fed. The phrase coecton
was stayed as used n secton 611 ceary presupposes
the ega rght to coect, and the provsons of that secton are not
appcabe when, f payment had been made at the tme of the fng
of the cam, t woud have consttuted an overpayment of the ta
as defned by secton 607.
Ths offce s accordngy of the opnon that the credt apped
aganst the outstandng abty for the ta abe year 1917 s vod,
and that the amount so apped shoud be refunded for the ta abe
year wth respect to whch t was aowed as an overpayment of ta .
C. M. Otarest,
Genera Counse, ureau of Interna Revenue.
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611. 92
Secton 611. IIh14-3972
( so Secton 607.) G. C. M. 5086
R NU CT O 1928.
ed, that where a cam n abatement was fed before coecton
of the ta became barred, secton 611 of the Revenue ct of 1928
prohbts a refund of an amount pad after the runnng of the
statute, regardess of whether there remaned suffcent tme after
re|ecton of the cam wthn whch to effect coecton pror to the
e praton of the appcabe perod of mtaton.
Sectons 607 and 611 of the Revenue ct of 1928 provde as
foow :
S CTION 607. CT O PIR TION O P MOD O LIMIT TION G INST UNIT D
ST T S.
ny ta (or any nterest, penaty, addtona amount, or addton to such
ta ) assessed or pad (whether before or after the enactment of ths ct) after
the e praton of the perod of mtaton propery appcabe thereto sha be
consdered an overpayment and sha be credted or refunded to the ta payer
f cam therefor s fed wthn the perod of mtaton for fng such cam.
S CTION 611. COLL CTIONS ST T D Y CL IM IN T M NT.
If any nterna-revenue ta (or any nterest, penaty, addtona amount,
or addton to such ta ) was, wthn the perod of mtaton propery appcabe
thereto, assessed pror to une 2, 1924, and f a cam n abatement was fed,
wth or wthout bond, and f the coecton of any part thereof was stayed, then
the payment of such part (made before or wthn one year after the enactment
of ths ct) sha not be consdered as an overpayment under the provsons of
see on 007, reatng to payments made after the e praton of the perod of
mtaton on assessment and coecton.
In connecton wth the foregong provsons, t was concuded n
Genera Counse s Memorandum 4879 (see page 90) that the phrase
coecton was stayed as used n secton 611 ceary pre-
supposes the ega rght to coect, and that the provsons of the sad
secton are not appcabe when, f payment had been made at the
tme of the fng of the cam, t woud have consttuted an over-
payment of ta as denned by secton 607.
The above memorandum does not touch upon the queston of
whether, n cases where the cam n abatement was fed before coec-
ton became barred, secton 611 prohbts a refund of an amount pad
after the bar of the statute regardess of whether there remaned
suffcent tme after re|ecton of the cam wthn whch to effect
coecton pror to the e praton of the appcabe perod of mta-
ton. It s deemed advsabe, n order to enabe the ureau to take
prompt acton n such cases, to render an opnon upon ths queston.
In sectons 607 and 611, Congress has, by specfc egsaton, pre-
scrbed the effect of the bar of the statute of mtatons aganst the
Unted States as contaned n the varous Revenue cts. Under
the provsons of the sad sectons any payment made after the run-
nng of the statute sha consttute an overpayment of ta and be
sub|ect to a refund upon the fng of a cam therefor, e cept n
cases where a tmey assessment was made before une 2, 1924, a
cam n abatement was fed, and coecton of the ta was stayed.
The appcabty of secton 611, or the e cepton referred to, s not
made dependent upon the necessty of a stay of coecton or upon
whether or not there remaned suffcent tme wthn whch to enforce
coecton seasonaby after the cam was re|ected. Its provsons
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93
611.
are fuy comped wth, n so far as the queston under consderaton
s concerned, f, as the resut of the fng of the cam, coecton was
deayed.
Ths offce s, therefore, of the opnon that secton 611 prohbts
a refund of ta es coected n the cass of cases referred to regardess
of whether there remaned suffcent tme after re|ecton of the cam
wthn whch to effect coecton pror to the e praton of the app-
cabe perod of mtaton.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
Secton 611. II-52-4040
G. C. M. 5308
R NU CT O 1928.
ddtona Income ta for 1917 was assessed In 1921, but coec-
ton was stayed by reason of a cam for abatement. Overpay-
ments of ncome ta for 1922 and 1923 were credted aganst the
1917 ta n 1926 after the e praton of the perod of mtaton on
coecton of the ta . In vew of secton 611 of the Revenue ct of
1928, the credts are vad under secton 609 of that ct.
n opnon s requested as to whether, n vew of secton 611 of the
Revenue ct of 1928, the credts of certan overpayments of ncome
ta aganst an outstandng assessment of ncome ta for a pror year
are vad. The ta aganst whch the credts were made was assessed
n 1921 for the ta abe year 1917. cam n abatement was fed
before the e praton of the perod of mtaton on coecton, by
reason of whch coecton of the ta was stayed. Durng ugust,
1926, and after the e praton of the perod of mtaton on coec-
ton, overpayments of ncome ta for the ta abe years 1922 and 1923
were credted aganst the 1917 ta .
Secton 607 of the Revenue ct of 1928 provdes that any ta pad
after the e praton of the perod of mtaton propery appcabe
thereto sha be consdered an overpayment and sha be credted or
refunded to the ta payer f cam therefor s seasonaby fed. Sec-
ton 609 provdes that any credt aganst a abty n respect of any
ta abe year sha be vod f any payment n respect of such abty
woud be consdered an overpayment under secton 607, supra. Sec-
ton 611 provdes, however, that f any nterna-revenue ta was,
wthn the perod of mtaton propery appcabe thereto, assessed
pror to une 2, 1924, and f a cam n abatement was fed, and f
the coecton of any part thereof was stayed, then the payment of
such part (made before or wthn one year after the enactment of the
Revenue ct of 1928) sha not be consdered an overpayment under
secton 607.
In the nstant case, because of the provsons of secton 611, the
payment of the 1917 ta n ugust, 1926, woud not be consdered an
overpayment under secton 607, snce the ta was assessed wthn the
perod of mtaton propery appcabe thereto, and pror to une
2, 1924, and coecton thereof was stayed by the fng of a cam n
abatement, and such payment woud have been made before or wthn
one year after the enactment of the 1928 ct. It foows, therefore,
that nasmuch as the payment of the 1917 ta n ugust, 1926, woud
not be consdered an overpayment under secton 607, the credts of
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613.
94
the overpayments aganst such ta durng that month are vad under
secton 609, because of the provsons of secton 611. (See aso Mn.
3660, on page 82.)
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
Secton 611.
revenue act of 1928.
ffect of sectons 607, 611, and 612 of the Revenue ct of 1928 upon
the coecton of ta es barred by the statute of mtatons and the
procedure to be foowed n respect of assessments and payments
affected hy such sectons. (See Mm. 3660, page 82.)
S CTION 612. R P L O S CTION 1106(a)
O 1926 CT.
Secton 012.
revenue act of 1028.
ffect of sectons 607, 611, and 612 of the Revenue ct of 1928
upon the coecton of ta es barred by the statute of mtatons and
the procedure to be foowed n respect of assessments and payments
affected by such sectons. (See Mm. 3660, page 82.)
S CTION 613. LI N OR T S.
Secton 613. II-31-3829
I. T. 2426
R NU CT O 1928.
The act of une 14, 1928, passed by the Legsature of Massachu-
setts, effectve September 12, 1928, s accepted by the ureau of
Interna Revenue as comng wthn the purvew of paragraph (b) 1
of secton 3186, Revsed Statutes, as amended, as further amended
by secton 613 of the. Revenue ct of 1928, authorzng the fng
of notces of edera ta ens wth certan desgnated county or
other offcas.
Secton 613. II-36-3882
G. C. M. 4715
R NU CT O 1928.
See nn 013(e) 1 of the Revenue ct of 1928 does not mean that
the Government s en aganst the property of a ta payer shoud
be reeased before the 6-year perod governng coecton has
e pred, snce a denquent ta payer may at any tme pror to the
e praton of the statutory perod of mtaton become possessed
of property aganst whch the en may attach.
coector states that numerous requests have been receved by
hs offce for the reease of ens attachng to property of ta payers
for the, nonpayment of ta es, and nqures how ths offce construes
the meanng of secton 613(c) of the Revenue ct of 1928 as t
affects ta ens and ther reease.
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05
613.
In connecton wth the nqury menton s made of an addtona
ta that was assessed aganst a certan corporaton whch had become
nsovent, athough not gong through bankruptcy, before the assess-
ment reached the coector s offce. It appears that durng the cor-
poraton s sovency a bank n the same ocaty had advanced t
moneys secured by a frst mortgage upon the corporaton s physca
assets, the mortgage beng propery recorded, and that when the
assessment reached the coector s offce warrants for dstrant were
n due tme ssued but no coecton made, thus necesstatng the
fng of edera ta ens. The bank has snce forecosed, and now
has an opportunty to make a sae of the property, but the purchaser
ob|ects, on the ground that the unsatsfed ta en becouds the
tte. The bank contends that the ta en s nvad and unenforce-
abe because of the prorty of the mortgage over the ta en, as
shown by the coector s records, and that secton 613(c) of the
Revenue ct of 1928 authorzes coectors of nterna revenue to
remove ens n cases of ths character.
The above-mentoned secton of the new aw reads as foows:
Sec. 613. (c) Sub|ect to such reguatons us the Commssoner of Interna
Revenue, wth the approva of the Secretary of the Treasury, may prescrbe,
the coector of nterna revenue charged wth an assessment n respect of any
ta
(1) May ssue a certfcate of reease of the en f the coector fnds that
the abty for the amount assessed, together wth a nterest n respect
thereof, has been satsfed or has become unenforceabe
ssumng the fact of the forecosed pror mortgage and a other
facts to be as stated, t s the opnon of ths offce that the above-
quoted secton of the aw does not mean that the Government s en
aganst the property of a ta payer shoud be reeased before the 6-
year perod governng coecton has e pred, for the reason that t
s atogether probabe that a denquent ta payer may at any tme
pror to the e praton of the statutory perod of mtaton become
posseased of property aganst whch the hen may attach, thus makng
the ta abty enforceabe through the en. If the ta payer s
nsovent the ta may be compromsed, offers n compromse beng
made through the coector of nterna revenue for the dstrct n
whch the ta payer ves, from whom the approprate forms may be
obtaned.
y reason of the foregong, the ony method authorzed by aw to
cear tte to property aganst whch a Government en attaches, n
the absence of payment or compromse of the ta , s the |udca
determnaton provded by secton 3207 of the Revsed Statutes, as
amended by secton 1030 of the Revenue ct of 1924 and reenacted
wthout change n secton 1127 of the Revenue ct of 1926. It s not
the practce of the ureau to nsttute the proceedngs authorzed by
secton 3207(a) for the purpose of ad|udcatng the status of encum-
brances on any property beongng to, or affectng, a ta payer.
owever, there s no ob|ecton to any nterested party takng such
acton as may be desred under secton 3207(b) of the Revsed Stat-
utes, as amended, n order to remove the en.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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614.
96
S CTION 614. INT R ST ON O RP YM NTS.
Secton 614. II-53-1047
G. C. M. 5448
R NU CT O 1928.
Where a check n payment of a refund was maed to the co .
ector on une 28, 1928, the refund coud not, n due course of
events, have been pad to the ta payer pror to the e praton
of 30 days after the enactment of the Revenue ct of 1928, and the
nterest on such refund shoud be computed under secton 614 of
such ct.
Interest on refunds pad after the effectve date of secton 614
of the Revenue ct of 1928 shoud be computed to the date the
schedue of overassessments s competed for transmsson to the
Comptroer Genera, f such date precedes the date of the refund
check by not more than 30 days.
n opnon s requested as to whether nterest was correcty com-
puted on a refund of ncome ta made to the ta payer for the fsca
years ended pr 30, 1918, 1919, and 1920.
The refund was aowed on a schedue of overassessments dated
May 26, 1928, and nterest was computed to that date under secton
1116 of the Revenue ct of 1926. The schedue was forwarded to
the Comptroer Genera for approva on une 19, 1928, and a check
n payment was maed to the coector on une 28, 1928. The ta -
payer states that the payment of the refund was made on uy 10,
1928, and requests that nterest be recomputed thereon under secton
614 of the Revenue ct of 1928. The queston to be determned,
therefore, s whether nterest n ths case has been correcty com-
puted under secton 1116 of the Revenue ct of 1926 or whether the
case comes wthn the provsons of secton 614 of the Revenue ct
of 1928.
Secton 614(a) of the Revenue ct of 1928 provdes that nterest
sha be aowed and pad upon any overpayment n respect of any
nterna-revenue ta , at the rate of 6 per cent per annum:
(2) In the case of a refund, from the date of the overpayment to a date
precedng the date of the refund check by not more than 30 days, such date
to be determned by the Commssoner.
Subdvson (d) of secton 614 provdes as foows:
(d) Subsectons (a), (b), and (c) sha take effect on the e praton of
30 days after the enactment of ths ct, and sha be appcabe to any credt
taken or refund pad after the e praton of such perod, even though aowed
pror thereto.
The Revenue ct of 1928 was approved May 29, 1928, 8 a. m.
Secton 614 thereof, quoted above, became effectve une 29, 1928.
Secton 614 s manfesty made to appy to any refund pad after
that secton became effectve, even though aowed pror thereto. If
the refund nvoved heren was not pad pror to une 29, 1928,
ths case comes wthn the provsons of secton 614 of the Revenue
ct of 1928. Under the facts n the nstant case, a check maed to
the coector on une 28, 1928, coud not n due course have been
receved by the ta payer or have been maed by the coector to the
ta payer pror to une 29, 1928. Ceary, t cannot be sad that pay-
ment to ta payer took pace pror to the happenng of one or the
other of such events. It s, therefore, the opnon of ths offce that
the refund was pad after the e praton of 30 days after the
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97
702.
enactment of ths ct, and consequenty nterest shoud be computed
on the refund under secton 614 of the ct.
It s to be noted that, under the Revenue ct of 1928, nterest
does not run to the date of payment, t beng provded n the statute
that nterest sha run to a date precedng the date of the refund
check by not more than 30 days. The ta payer, therefore, s at east
entted to nterest to May 29, 1928, on the amount refunded, nas-
much as the refund check was ssued on une 28, 1928. It s the
practce to compute nterest on a refunds of ncome ta es pad after
the effectve date of secton 614 of the 1928 ct to the date the sched-
ue of overassessments s competed for transmsson to the Comp-
troer Genera for the purpose of an audt of the proposed payment.
In the nstant case the schedue was forwarded to the Comptroer
Genera for approva on une 19, 1928,
In vew of the foregong, t s the opnon of ths offce that nterest
on the refund made to the ta payer m ths case shoud be computed
to une 19,1928, under secton 614 of the Revenue ct of 1928.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
TITL . G N R L PRO ISIONS.
S CTION 702. SIS O PROP RTY UPON S L
Y ST T R TRO CTI .
Secton 702. II-47 004
G. C. M. 5215
R NU CT O 1928.
Under the provsons of secton 702(a) of the Revenue ct of
1928 the ony ta payer havng the rght of eecton wth respect to
the bass of the computaton of the ta abty arsng out of the
sae of property of a decedent s estate s the one who durng the
tme Treasury Decsons 4010 (C. . I-1, 249), 4011 (C. . I-1,
77), and 4012 (C. . I-1, 248) were n force pr 6, 1927,
to uy 7, 1928 made an orgna return on the oass promu-
gated by the sad decsons.
n opnon s requested nvovng the constructon of secton 702
of the Revenue ct of 1928, whch deas wth the bass for determn-
ng gan or oss from the sae of property by a decedent s estate
durng ta abe years pror to 1928.
Secton 702 reads as foows:
(a) If n the return of any decedent s estate for any ta abe year pre-
cedng the ta abe year 1928, the bass, upon whch gan or oss reazed upon
the sae or other dsposton of property acqured by the estate from the
decedent was computed, was the vaue of the property at the tme of the
death of the decedent or was n accordance wth the reguatons n force at
the tme such return was fed, then the computaton of such gan or oss
sha be made upon such bass, uness cam for refund or credt n respect
of such bass, or a wrtten eecton not to come wthn the provsons of ths
subsecton, has been fed by the estate before the e praton of the perod of
mtaton for fng cams.
(b) In every other case the computaton of the gan or oss reazed by
an estate n any ta abe year precedng the ta abe year 1928 from the sae
or other dsposton by t of property acqured by the estate from the decedent,
sha be made on such bass as s n accordance wth the aw propery appcabe
thereto, wthout regard to any provson of ths ct.
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702.
98
The matter becomes ess compcated than t appears at frst, when
t s recognzed that, whe a readng of the statute mght ndcate
that there are severa bases, there are n fact ony two bases that
have ever had ega or offca recognton. One bass s that stated
n the sad secton, namey, the vaue of the property at the tme of
the death of the decedent. Pursuant to certan decsons of the
courts and the oard of Ta ppeas, ths has been accepted by the
ureau as the ega bass. (See T. D. 4177, on page 134.) It.
w be referred to herenafter as the ega bass. The other bass
s that ad down bv Treasury Decsons 4010, -4011, and 4012, n force
from pr 6, 1927, to uy 7, 1928. On the atter date they were
revoked by Treasury Decson 4177. cept durng the perod from
pr 6,1927, to uy 7,1928, the ureau has enforced the ega bass.
The bass ad down temporary by Treasury Decsons 4010, 4011,
and 4012 was cost or other bass of the property to the decedent.
Ths bass, now determned to be ncorrect, w be descrbed heren-
after as the temporary bass. Of course, bases other than the
two mentoned may have been used, but f so they were not sanctoned
by any reguaton and need no speca consderaton. They are
pany governed by the drecton of subdvson (b) of the secton
e tendng to every other case. Under ths subdvson, n every
case n whch the return has not been made n accordance wth ether
of the two bases mentoned, the computaton s to be n accordance
wth the aw propery appcabe thereto, whch n effect merey
means n accordance wth the ega bass.
ssumng the constructon heren ndcated to be correct, the
method of statement adopted n secton 702 may appear somewhat
tortuous. Ths s apparenty due to the fact that when the secton
was drafted the framers of the egsaton dd not know whch bass
woud fnay be approved. owever, n the ght of the decsons
on whch Treasury Decson 4177 s based, the effect of secton 702(a)
s that f the return fed was made ether (a) on the ega bass or
(b) on the temporary bass whe the Treasury decsons ayng down
such bass were n effect, the bass adopted n the return sha preva
uness the ta payer by seasonabe cam or eecton chooses otherwse.
There may be some queston as to whether the secton specfcay
provdes for the stuaton created by the choce of the ta payer not
to be bound by the return fed. The better vew appears to be that
the stuaton s wthn the scope of subdvson (b) coverng every
other case. Under ths vew, subdvson (a) ays down a rue for
certan cases, not ncudng those covered by the cause foowng the
word uness. The cases not ncuded wthn the scope of subd-
vson (a) must fa wthn subdvson (b) coverng every other
case, and are sub|ect to the aw propery appcabe thereto n
other words, the ega bass. It seems practcay concusve that
ths s the proper constructon. Otherwse, the secton s ncompete.
ut whether subdvson (b) be regarded as appyng to a case
n whch the ta payer e ercses the rght of choce or not, the resut
must be the same. If subdvson (b) does not cover the matter, the
ntenton as to the nature of the choce to be e ercsed becomes a
matter of mpcaton and common sense. The best gude woud be
subdvson (b),and t coud be assumed therefrom that the ntenton
was to aow a ta payer who had used the temporary bass to choose
G
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99
702.
between such bass and the ega bass. It coud not be presumed,
n the absence of e press provson, that Congress ntended to permt
one who had made a return on the ega bass to change to the
temporary bass.
The effect of both constructons s that where the ega bass was
used n makng the return there s no rea choce. Doubtess the
fact that the statute n form appears to e tend a choce to those
who have used the ega bass s due to the stuaton, aready referred
to, that the draftsmen coud not be certan that ths bass woud
fnay be sustaned. owever, from the decsons approvng ths
bass, t foows that those who used such bass n practce have no
choce. Those who fed returns on the temporary bass whe the
Treasury decsons promugatng such bass were n effect have a
choce between such temporary bass and the ega bass.
The stuaton then smpy s that there are practcay ony two
bases for consderaton, the ega bass and the temporary bass
promugated by the Treasury decsons that those who at any tme,
ncudng the perod when the Treasury decsons were n effect,
used the ega bass, must adhere to t, and that those who, durng
the tme the Treasury decsons were n effect, used the temporary
bass, may by seasonabe cam or eecton choose whether they w
adhere to t or be governed by the ega bass. If they do not season-
aby choose otherwse, those who, whe the Treasury decsons were
n effect, fed returns on the temporary bass, w be governed by
such bass, whether to ther advantage or dsadvantage. If a bass
dfferent from ether of the two n queston was adopted, the ta w
be computed on the ega bass. In short, the ony ta payer havng
a choce s the one who, whe the Treasury decsons were n effect,
made return on the temporary bass promugated by the sad
decsons.
In some cases the abty has been recomputed pursuant to fed
e amnatons. The new egsaton takes no cognzance of suc con-
tngences. Regardess of such e amnatons and recomputatons,
the ta shoud be computed as secton 702 drects.
In certan such cases amended returns have been fed. In these
cases a queston arses as to whether the orgna or amended return
contros. There s nothng n the secton under consderaton to
ndcate that amended returns were wthn the contempaton of
Congress. On the contrary the secton seems pany to be drawn n
contempaton of a snge return and a snge tme of fng. The
choce whch the secton e tends s dependent upon the fng of a
return n accordance wth the reguatons n force at the tme such
return was fed. The oard of Ta ppeas n numerous decsons
has hed that t s the orgna return whch f es the date or tme
of fng. (Mabe evator Co., 2 . T. ., 517, C. . I-1, 4
ee R. Weaver et a., 4 . T. ., 15 (see page 42) Daas rass
Copper Co., 3 . T. ., 856.) In other cases the oard has
hed that ta payers who have chosen one ega bass n makng
returns are not at berty to fe amended returns upon another bass.
II. nsten v. Commssoner, 10 . T. ., 240.) These decsons
pont to the concuson that n the nstant stuaton the orgna
return governs. consderaton pontng to the same concuson s
that f the amended return shoud be regarded as controng t
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702.
100
woud foow that there woud be dscrmnaton between ta payers
fng orgna returns pror to the frst amendment of the regua-
tons. ta payer who fed an amended return coud get anv beneft
arsng from the temporary bass. One who, nstead of fng an
amended return, fed a cam for refund or credt, coud not get the
beneft of the temporary bass. Such unreasonabe dscrmnaton
can not have been ntended. ccordngy, t s concuded that the
orgna return contros, and f, pror to promugaton of Treasury
Decsons 4010, 4011, and 4012, a return was fed on the ega bass,
and whe those Treasury decsons were n force a return was fed
on the temporary bass, the ta payer s bound by the orgna return
and therefore has no rght of choce. If, on the other hand, whe
the sad Treasury decsons were n force, an orgna return on the
temporary bass was fed, and thereafter an amended return on the
ega bass was fed, the orgna return on the temporary bass
governs and the ta payer has the rght of choce.
The genera rues stated may be apped to certan specfc stua-
tons as foows:
There are sad to be cases n each of whch, before the pubcaton
of the Treasury decsons, a return was fed on the ega bass.
fter the pubcaton of the sad Treasury decsons e amnaton by
a fed offcer and recomputaton on the temporary bass showed
an overassessment. In such a case t may be that a cam for credt
or refund or an amended return was fed. s aready stated, a ta -
payer who fes a return on the ega bass has no choce to seect the
temporary bass. Therefore n the crcumstances ndcated the cam
shoud be dened. Smary, when by an orgna return the ega
bass has been chosen, the ta payer may not by means of an amended
return adopt the temporary bass. The ta must be computed on the
bass of the orgna return.
One stuat on suggested s where the ta payer used the ega bass
for some and the temporary bass for other tems as was most favor-
abe to the ta payer n each nstance. If such a return was fed
whe the Treasury decsons were n effect the ta shoud be com-
puted n accordance wth the return, uness the ta payer seasonaby
chooses otherwse as to the tems returned on the temporary bass.
If the return was fed before or after the perod n whc the Treas-
ury decsons were n effect the ta shoud be computed on the ega
bass.
nother stuaton s where the ta payer at the request of the co-
ector fed one return on the ega bass, but at the same tme voun-
tary fed another return on the temporary bass. In such a stua-
ton the return vountary fed shoud be preferred over that made
under pressure or persuason. If t was fed whe the Treasury
decsons were n effect, the ta s to be computed on the temporary
bass, uness there s seasonabe choce otherwse. If fed before or
after the perod when the Treasury decsons were n effect, the ta
shoud be computed on the ega bass.
further stuaton s where a return on the temporary bass was
fed on anuary , 1928, pror to the passage of the Revenue ct of
1928. The fact that the Revenue ct was passed subsequent to the
rng of the return makes no dfference. If the return was fed on
the temporary bass whe the Treasury decsons were n effect and
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101
704.
the ta payer does not seasonaby eect otherwse, the ta shoud be
computed on the bass so used.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 704. T ILITY O TRUSTS S
CORPOR TIONS R TRO CTI .
Secton 704. II-27-3786
Mm. 3645
Retroactve provsons of Revenue ct of 1928 reatng to ta -
abty of trusts as corporatons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, I). C, une 19, 1928.
To Coectors of Interna Revenue, Interna Revenue gents n
Charge, and Others Concerned:
ttenton s nvted to secton 704 of the Revenue ct of 1928,
whch provdes as foows:
(a) If a ta payer fed a return as a trust for any ta abe year pror to the
ta abe year 1925 such ta payer sha be ta abe as a trust for such year and
not as a corporaton, f such ta payer was consdered to be ta abe as a trust
and not as a corporaton ether (1) under the reguatons In force at the tme
the return was made or at the tme of the termnaton of Its e stence, or (2)
under any rung of the Commssoner or any duy authorzed offcer of the
ureau of Interna Revenue appcabe to any of such years, and nterpretatve
of any provson of the Revenue ct of 1918, 1921, or 1924, whch had not been
reversed or revoked pror to the tme the return was made, or under any such
rung made after the return was fed whch had not been reversed or revoked
pror to the tme of the termnaton of the ta payer s e stence.
(b) or the purpose of the Revenue ct of 1926 and pror Revenue cts, a
trust sha, at the opton of the trustee e ercsed wthn one year after the
enactment of ths ct, be consdered as a trust the ncome of whch s ta abe
(whether dstrbuted or not) to the benefcares, and not as an assocaton, f
such trust (1) had a snge trustee, and (2) was created and operated for the
soe purpose of qudatng rea property as a snge venture (wth such powers
of admnstraton as are ncdenta thereto, ncudng the acquston, mprove-
ment, conservaton, dvson, and sae of such property), dstrbutng the pro-
ceeds therefrom n due course to or for the beneft of the benefcares, and
dschargng ndebtedness secured by the trust property, and (3) has not made
a return for the ta abe year as an assocaton.
Under the provsons of secton 704(a) of the Revenue ct of
1928, f a ta payer fed a return as a trust for the ta abe year 1924
or any pror ta abe year and was consdered to be ta abe as a trust
under the condtons stated n ether (1) or (2) of secton 704(a),
such ta payer sha be ta abe as a trust for such year and not as a
corporaton.
Under the provsons of secton 704(b), a trust whch has been
hed to be an assocaton and ta abe as a corporaton under the
Revenue ct of 1926 and pror Revenue cts sha, at the eecton of
the trustee e ercsed wthn one year after May 29, 1928, be con-
sdered as a trust and have ts ncome ta ed to the benefcares, pro-
vded the condtons stated n (1), (2), and (3) of secton 704(b)
are met. or the purpose of e ercsng such eecton the trustee
shoud secure from the coector orm 967M, whch he w provde
for ths purpose. separate form shoud be obtaned for each year
for whch a return was not fed as an assocaton. Ths form when
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704.
102
fed n and e ecuted shoud be forwarded to the coector for the
dstrct n whch the returns were orgnay fed. The coector w
forward the e ecuted forms to the Commssoner of Interna Revenue,
Records Dvson, Washngton, D. C.
Ta es outstandng on the coector s sts, whch n vew of sec-
ton 704 of the Revenue ct of 1928 are determned to be over-
assessed, w bo made the sub|ect of certfcates of overassessment n
the usua manner. cept where the nterests of the Government
are n |eopardy by reason of the runnng of the statute of mta-
tons or the fnanca condton of the ta payer, the coector shoud
not enforce coecton of the outstandng ta es n any case n whch
secton 704 appears to be appcabe, but shoud report a of the facts
to the ureau for consderaton.
Correspondence n regard to the procedure outned heren shoud
refer to the number of ths mmeograph and to the symbos
IT: :RR.
. . Mhes,
ctng Commsson r.
( ORM 967M.)
Notce op ecton by Trustee to ave Income of Trust Ta ed to
enefcary.
(To bo fed wth coector where return was fed.)
Date
Commssoner of Interna Revenue
( ttenton: Records Dvson, Income Ta Unt),
Washngton, D. C.
Through the coector of nterna revenue at
Sr: In accordance wth secton 704 (b) of the Revenue ct of 1928, the un-
dersgned trustee of the trust known as
hereby certfes that such trust (1) had a snge trustee, (2) was created and
operated for the soe purpose of qudatng rea property as a snge venture
(wth such powers of admnstraton as are ncdenta thereto, ncudng the
acquston, mprovement, conservaton, dvson, and sae of such property),
dstrbutng the proceeds therefrom n due course to or for the benefcares,
and dschargng ndebtedness secured by the trust property, and (3) has not
made a return for the ta abe year as an assocaton and therefore eects to
have the above-named trust consdered as a trust for the year and the
ncome thereof ta ed to the benefcares.
affdavt.
I swear (or affrm) that ths notce of eecton, ncudng the statements
theren, has been e amned by me, and, to the best of my knowedge and beef,
the statements made theren are true, and the eecton s made n good fath
pursuant to the Revenue ct of 1928 and the reguatons ssued under authorty
thereof.
(Sgnature of trustee or offcer repre-
sentng trustee.)
( ddress of trustee or offcer.)
Sworn to and subscrbed before me ths day of , 192-..
(Sgnature of offcer admnsterng oath.)
(Tte.)
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103
704.
Secton 704. II-30-3825
Mm.3654
Retroactve provsons of Revenue ct of 1928 reatng to
ta abty of trusts as corporatons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, uy 12,1928.
To Coectors of Interna Revenue, Interna Revenue gents n
Charge, and Others concerned:
Coectors Mmeograph No. 3645, and . . No. 460, dated une
19, 1928 see on page 101 , s amended by addng at the end thereof
the foowng new paragraph:
It w not be necessary to fe a separate form for each year for whch the
trustee desres to e ercse an eecton, an an eecton may be fed wth the
coector of nterna revenue, the revenue agent n charge, or the Commssoner
of Interna Revenue at Washngton, D. C. Ltera compance wth the form
attached to the mmeograph s not necessary f the form fed by the trustee
compes wth the provsons of secton 704(b).
Correspondence n regard to the procedure outned heren shoud
refer to the number ot ths mmeograph and to the symbos IT:
: RR.
. . Mres,
ctng Commssoner.
Secton 704. II-39-3907
G. C. M. 4842
R NU CT O 1928.
The condton f a ta payer fed a return as a trust for any
ta abe year pror to the ta abe year 1925 n secton 704(a),
Revenue ct of 1928, s satsfed f the trustee fed a return as
a trust, and t s mmatera whether the form was 1040 or 1041.
Secton 704(b) has no appcaton to the ta abe year 1928 or
any succeedng ta abe year.
Ony rarey coud so-caed o royaty trusts, trusts for the
deveopment of o ands, or testamentary trusts satsfy the statu-
tory requrements of secton 704(b), Revenue ct of 1928.
the ncome of a trust comng wthn secton 704(b), Revenue
ct of 1928. s ta abe to the benefcares, at the opton of the
trustee, wthout regard to dstrbuton or dstrbutabty.
n opnon has been requested regardng certan genera ega
ssues rased by secton 704, Revenue ct of 1928, whch reads as
foows:
T ILITY O TRUSTS S CORPOR TIONS R TRO CTI .
(a) If a ta payer fed a return as a trust for any ta abe year pror to the
ta abe year 1925 such ta payer sha be ta abe as a trust for such year and
not as a corporaton, f such ta payer was consdered to be ta abe as a trust
and not as a corporaton ether (1) under the reguatons n force at the tme
the return was made or at the tme of the termnaton of ts e stence, or
(2) under any rung of the Commssoner or any duy authorzed offcer of
the ureau of Interna Revenue appcabe to any of such years, and nter-
pretatve of any provson of the Revenue ct of 1918. 1921, or 1924, whch has
not been reversed or revoked pror to the tme the return was made, or under
any such rung made after the return was fed whch had not been reversed
or revoked pror to the tme of the termnaton of the ta payer s e stence.
37229 29 8
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704.
104
(b) or the purpose of the Revenue ct of f20 and pror Revenue cts, a
trust sha, at the opton of the trustee e ercsed wthn one year after the
enactment of ths ct, be consdered as a trust the ncome of whch s ta abe
(whether dstrbuted or not) to the benefcares, and not as an assocaton, f
such trust (1) had a snge trustee, and (2) was created and operated for the
soe purpose of qudatng rea property as a snge venture (wth such powers
of admnstraton as are ncdenta thereto, ncudng the acquston, mprove-
ment, conservaton, dvson, and sae of such property), dstrbutng the pro-
ceeds therefrom n due course to or for the beneft of the benefcares, and
dschargng ndebtedness secured by the trust property, and (3) has not made
a return for the ta abe year as au assocaton.
The ssues here under consderaton w be dscussed seratm.
I. re trusts (by whch no ta s payabe as a resut of the com-
putaton of ther ncome under secton 219, Revenue ct of 1924 or
pror Revenue ct) not wthn the scope of secton 704(a), Revenue
ct of 1928, merey by reason of the fact that no ta s payabe by
the trust upon any part of the trust ncome (the benefcares beng
ta ed upon partcuar shares of the trust ncome under the pro-
vsons of subdvsons (2) and (3) of secton 219(b), Revenue ct
of 1924, or pror Revenue ct ) 1
It s contended that secton 704(a) refers to those trusts whch may
be ta abe as trusts on orm 1040, and not to trusts the ncome of
whch s ta abe to the benefcares.
Ths woud seem to mpy that ony trusts whose trustees are,
pursuant to secton 225(a)4, 5, and 6, Revenue ct of 1924, and
artce 421, Reguatons 65 (and correspondng provsons of earer
aws and reguatons), obgated to fe orm 1040 returns, are by
possbty wthn the purvew of secton 704(a), Revenue ct of 1928
and that trusts whose trustees are, pursuant to the above-named pro-
vsons of the aw and reguatons, obgated ony to fe orm 1041
returns are absoutey wthout the purvew of secton 704(a). Revenue
ct of 1928. It s not beeved that ths dstncton s tenabe. So
far as the partcuar condton f a ta payer fed a return as a trust
for any ta abe year pror to the ta abe year 1925 n secton 704(a)
s concerned, t s satsfed by the fng by the trustee on behaf of
a trust of a return as a trust, and t s qute mmatera whether
the form s 1040 or 1041, the dstncton taken by artce 421, Regu-
atons 65, between the two casses of returns beng rreevant for a
purposes of secton 704(a), Revenue ct of 1928.
II. as secton 704(b) any appcaton to the ta abe year 1928
or any succeedng ta abe vear (as those terms are defned n sectons
1 and 48 of the Revenue ct of 1928)
Secton 704(b) by ts nta phrase or the purpose of the Reve-
nue ct of 1926 and pror Revenue cts specfcay e cudes from
ts operaton the ta aDe year 1928 and a succeedng ta abe years,
snce the Revenue ct of 1926 or any pror Revenue ct can have no
appcaton to ta es for any ta abe year subsequent to the ta abe
year 1927. (See sectons 1 and 48, Revenue ct of 1928.) The
status of the so-caed trusts descrbed n 704(b), Revenue ct of
1928, for the ta abe year 1928 and subsequent years s governed by
secton 701 (a)2 and secton 161, et seq., Revenue ct of 1928.
III. as secton 704(b), Revenue ct of 1928, any appcaton
to so-caed o royaty trusts, trusts for the deveopment of o ands,
or testamentary trusts
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105
704.
Whe a categorca genera answer may be made n the negatve,
there may be e ceptons thereto, and the accuracy of ths genera
answer obvousy rests upon the crcumstance that ony rarey coud
any one of the trusts named satsfy the statutory requrements that
such trust (1) had a snge trustee, and (2) was created and oper-
ated for the soe purpose of qudatng rea property as a snge
venture (wth such powers of admnstraton as are ncdenta thereto,
ncudng the acquston, mprovement, conservaton, dvson, and
sae of such property), dstrbutng the proceeds therefrom n due
course to or for the beneft of the benefcares, and dschargng n-
debtedness secured by the trust property, and (3) has not made a
return for the ta abe year as an assocaton. Partcuary when
the tte of secton 704 and the genera purpose and ntent of the
secton as reveaed by the Senate nance Commttee report on the
revenue b of 1928, dated May 1, 1928, pages 11 15, are consdered,
t becomes fary cear that there s sma kehood of secton 704(b)
havng appcaton to the cass of trusts named.
I . In many subdvson trusts there are no dstnoutons made or
avaabe to the benefcares unt a or part of the capta cost
(often n the form of ens) has been recovered. In these trusts the
terms of the trust ndentures frequenty provde that the benefcary
s entted to nothng (whether capta or ncome) unt the ens upon
the trust property have been dscharged and the capta costs have
been recovered. In other subdvson trusts, the capta costs w
have been recovered n years pror to the ta abe year under consder-
aton, and current dstrbutons w have occurred wthn the ta abe
year whch, under the terms of the trust ndentures, may be cassfed
as ncome or capta. re these crcumstances matera n the com-
putaton of the ncome of the trust and do they affect the ta abty
thereof to the benefcares under secton 704(h), Revenue ct of
1928, prescrbng that the trust sha be consdered as a trust the
ncome of whch s ta abe (whether dstrbuted or noO to the benef-
cares, and not as an assocaton
Ths anguage of secton 704(b), Revenue ct of 1928, s unam-
bguous, and, under t, t s entrey cear that a the ncome of a
trust comng wthn that secton s ta abe, at the opton of the
trustee, to the benefcares, whether dstrbuted or not, and wthout
regard to the fact that under the terms of a partcuar trust nstru-
ment no part of the ncome of the trust s dstrbuted or made ava-
abe, or may be dstrbuted or made avaabe, to the benefcares
unt a of the capta costs of the trust have been fuy pad and a
obgatons, whether or not secured by en upon the trust property,
have been dscharged. It s to be noted that t s the ncome of the
trust whch s ta abe to the benefcares. Obvousy, the ncome of
the trust s to be computed as prescrbed n secton 219 of the app-
cabe Revenue ct. Ceary, however, the requrement of secton
704(b), Revenue ct of 1928, that the ncome of the trust s ta abe
(whether dstrbuted or not) to the benefcares, supersedes the
provsons of secton 219(b) of the appcabe Revenue ct, so far
as they aow as a deducton to a trust, n computng ts net ncome,
amounts dstrbuted or dstrbutabe to benefcares. ccordngy
n computng the ncome of the trust, no deducton shoud be aowed
for any amounts dstrbuted or dstrbutabe to the benefcares.
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704.
106
The ncome of the trust s to be computed wthout regard to dstr-
buton or dstrbutabty, and the shares of that ncome whch nure
to the beneft of the respectve benefcares (as a genera rue, the
share of the ncome of the trust nurng to a partcuar benefcary
w be that proporton of the tota ncome of the trust whch hs
benefca nterest bears to the whoe benefca nterest n the trust)
are to be taken up as a part of ther ncome and ta ed as such.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
Secton 704. II-42-3946
I. T. 2434
R NU CT O 1928.
Where a trust s cosed and the trustee dscharged, orm 967M,
requred under the provsons of secton 704(b) of the Revenue
ct of 1928, may be sgned by the former trustee.
The M Company s a benefcary of Tmst No. , of whch
for the years 1923, 1924, 1925, and 1926 the O Company was the
trustee.
The trust has been cosed, and the trustee was dscharged n 1926.
The queston s rased as to who may sgn orm 967M, whch s the
notce of eecton made by a trustee for the ncome of a trust to be
ta ed to the benefcares n accordance wth the provsons of
secton 704(b) of the Revenue ct of 1928.
It s hed that the O Company, the former trustee, may sgn the
notce of eecton to have the ncome of the trust ta ed to the bene-
fcares for the years nvoved.
Secton 704. II-43-3958
G. C. M. 4993
R NU CT O 1928.
Returns on orm 1120 fed by a trust under protest do not con-
sttute returns as an assocaton wthn the meanng of secton
704(b).
n opnon s requested as to whether returns on orm 1120, fed
by a trust under protest, consttute returns as an assocatonrt
wthn the meanng of secton 704(b) of the Revenue ct of 1928, so
as to precude the trust from takng advantage of that secton.
In vew of the fact that the trust has mantaned throughout that
t was ta abe as a trust and not as a corporaton, and the returns
were fed under protest, t s the opnon of ths offce that they do
not consttute returns as an assocaton wthn the meanng of
secton 704(b). The concuson s reached under the same ne of
argument as that used n I. T. 2400 (C. . TI-1, 138). It was
there hed that the amount shown as the ta on a return was not
the amount shown as the ta by the ta payer upon hs return
wthn the meanng of secton 273(1) of the Revenue ct of 1926,
where the return n queston was fed under protest, the ta payer
camng that n fact no ta was due.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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107
714.
S CTION 714. R P LS.
Secton 714. II-27-3791
T. D. 4170
ffectve dates of repea of certan portons of the Revenue ct
of 1926 and effectve dates of certan portons of the Revenue ct
of 1928.
Treasury Department,
Oefce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
The Revenue ct of 1928 was approved by the Presdent at 8 a. m.,
May 29, 1928, Washngton tme, and, e cept as otherwse specfcay
provded theren, the aw became effectve on that date and at that
tme. (Secton 716.)
Wherever n the aw the words s repeaed are used, wthout
any tme beng specfed, the repea sha be construed as effectve at
8 a. m., May 29, 1928, Washngton tme.
Wherever n the aw the words sha take effect on the e praton
of 30 days after the enactment of ths ct are used, the pertnent
provsons sha be construed as effectve une 29, 1928.
ttenton s partcuary nvted to the foowng:
Tte I of the aw, reatng to the ncome ta , s effectve as of
anuary 1, 1928, e cept that sectons 146 and 151 and secton 65 are
effectve at 8 a. m., May 29, 1928, Washngton tme. (Secton 65.)
dmssons ta , amendment effectve une 29, 1928. (Secton
411(b).)
Ta on sae of tckets by brokers, amendment effectve une 29,
1928. (Secton 412(b).)
Cub dues ta , amendment effectve une 29, 1928. (Secton
413(b).)
utomobe ta , repea of secton 600(1) of the Revenue ct of
1926 effectve at 8 a. m., May 29, 1928, Washngton tme. (Secton
421.)
Ta on use of foregn-but boats, repea of secton 702 of the
Revenue ct of 1926 effectve uy 1, 1928. (Secton 431.)
Ta on narcotcs, amendment effectve uy 1, 1928. (Secton 432.)
Ta on steamshp tckets, amendment effectve une 29, 1928.
(Secton 442(b).)
Ta on st wnes, amendment effectve une 29, 1928. (Secton
451(c).)
Ta on grape brandv used n fortfyng, amendment effectve une
29,1928. (Secton 452(b).)
Ta on cerea beverages, repea of secton 903 of the Revenue ct
of 1926 effectve une 29, 1928. (Secton 453.)
Secton 714 of the Revenue ct of 1928, reatng to the sub|ect of
repeas, reads as foows:
The parts of the Revenue ct of 1926 whch are repeaed by ths ct sha
reman n force for the assessment and coecton of a ta es mposed thereby,
and for the assessment, mposton, and coecton of a nterest, penates, or
forfetures whch have accrued or may accrue n reaton to any such ta es.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved une 23, 1928.
. W. Meon,
Secretary of the Treasury.
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2, rt. 1504.
108
INCOM T RULINGS. P RT II.
R NU CT O 1926.
TITL L G N R L D INITIONS.
S CTION 2. G N R L D INITIONS.
rtce 1504: ssocaton dstngushed from trust-. YII-36-3883
G. C. M. 4120
R NU CT O 1926.
The decaraton of trust dscoses that a rea estate subdvson
and saes enterprse was entered nto between certan ndvduas
termed theren the seers, the orgna owners of the and, and
one , the purchaser, who s the desgnated benefcary. The O
Company, trustee, merey hods the ega tte to the and n order
to secure to the seers the purchase prce of the orgna acreage
and to protect the buyers of ots. , the purchaser of the and, s
not ony the desgnated but actuay the soe benefcary tnder
the entre scheme. e s n charge of operatons to subdvde the
and, effect the sae of ots, and s actng as the saes agent. No
assgnments of benefca nterest have been made.
ed, that the entre profts of the enterprse shoud be consdered
the ncome of the benefcary. The trust s substantay a mortgage
and no return s requred of the trustee.
Genera Counse s Memorandum 1T3G (O. . I-2, 11) dstn-
gushed.
n opnon s requested as to whether the M Trust, of whch the
O Company s trustee, shoud be cassfed as an assocaton under
the Revenue ct of 1926, and therefore ta ed as a corporaton.
The decaraton of trust makes t cear that a rea estate subdvson
and saes scheme was entered nto between certan ndvduas termed
theren the seers, who were the orgna owners of the and,
and one , the purchaser, who s the desgnated benefcary. It
s apparent aso from the document that the O Company, as trustee,
merey hods the ega tte to the and n order to secure to the
seers the purchase prce of the orgna acreage and to protect
the buyers of ots, and that , the purchaser of the and, s not ony
the desgnated but actuay the soe benefcary under the entre
scheme. e s n charge of operatons to subdvde the and, effect
the sae of ots, and s actng as saes agent. It s stated that to the
knowedge of the trustee no assgnments of benefca nterest have
been made. The trust deed does not provde for the assgnment of
benefca nterests e cept for a forma provson that the baance
of moneys receved by the trustee sha be pad to , benefcary
hereunder, hs hers or assgns.
though a busness enterprse n so far as , the purchaser, s
concerned, t can not be sad that the trust n queston gave rse to
an assocaton wthn the meanng of artce 1504 of Reguatons 69.
The soe benefcary s n mmedate drecton of the entre opera-
tons, and s e pressy made abe for debts pertanng thereto.
There has been no attempt to transfer or dvde the benefca nter-
est, or to use the trust n any way as a substtute for ncorporaton.
In the opnon of ths offce, therefore, the trustee does not have
smar or greater powers than the drectors n a corporaton for
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109
201, rt. 1541.
the purpose of carryng on some busness enterprse wthn the
meanng of artce 1504 of Reguatons 69. Such powers as the
trustee has are chefy for the purpose of securty, and not prmary
for carryng on the busness. In sgnng deeds and contracts the
trustee s not actng smary to a drector of a corporaton, but s
actng as an agent of the benefcary. Its rea powers e st wth
respect to the securty features ts power, for e ampe, to forecose
f the debt s not pad. nd here ts powers resembe those of a
mortgagee more than those of a drector.
Moreover, t s the opnon of ths offce that the benefcary does
not have postve contro of the trust wthn the meanng of artce
1504, supra. Postve contro shoud appear wth respect to those
matters for whch the trust s chefy used. In the nstant case the
trust s used merey as a securty devce, and t s precsey wth
respect to the securty features that the benefcary does not have con-
tro. Contro of the busness s not necessary contro of the trust
where the trust s ony ncdenta to the busness.
The case s dstngushabe from the pubshed rung, Genera
Counse s Memorandum 1736. In that case the trust, n addton to
beng a securty devce, tsef provded a scheme of busness organza-
ton whch contempated, and n fact dd, wthout the ssuance of a
corporate charter, secure at east two of the chef advantages of ncor-
poraton, namey, (1) the sharng of profts wthout the respons-
bty of management or mmedate drecton of pocy and (2) the
free transferabty of shares n the manner and form that corporate
shares are transferred. In the nstant case the trust appears to be
used smpy as a securty devce rrthe nature of a mortgage.
In vew of the foregong, t s the opnon of ths offce that the
entre profts of the enterprse shoud be consdered the ndvdua
ncome of . Snce the trust s substantay a mortgage, no return,
as trustee, w be requred of the O Company. (See G. C. M. 2185
(C. . I-2, 75).)
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
TITL II. INCOM T .
P RT I. G N R L PRO ISIONS.
S CTION 201. DISTRI UTIONS Y CORPOR TIONS.
rtce 1541: Dvdends. II-50-4030
I. T. 2442
R NU - CT O 1926.
Preferred stock of the M Company contaned a provson that a
f ed yeary cumuatve dvdend of 7 per cent shoud be pad
thereon and that arrears on such dvdends shoud draw nterest at
the rate of 7 per cent per annum. In 1925 the company decared
and wd to ts stockhoders a dvdend amountng to 7 per cent on
ts preferred stock. In 1926 the drectors of the company passed
a resouton to the effect that the dvdend decared and pad n
1925 shoud be desgnated as the 1921 dvdend and that nter-
est thereon at the rate of 7 per cent per annum shoud be pad to
the stockhoders.
G
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201, rt. 1549.
110
ed, that the amount pad as so-paed nterest was not nter-
est on ndebtedness but represented an addtona dvdend to the
stockhoders and shoud be so treated for ncome ta purposes.
The M Corporaton, whch was organzed n 191-, has outstandng
80a doars par vaue of 7 per cent cumuatve preferred stock. The
preferred stock certfcates contan the foowng provsons:
(1) The hoders of preferred stock sha be entted to receve and the
company sha be bound to pay a f ed yeary cumuatve dvdend of 7 per
centum, payabe out of the earnngs or surpus and payabe yeary before any
dvdend sha be set apart or pad on the common stock. The preferred stock
sha not partcpate n any of the earnngs of sad company over and above
the sad rate of 7 per cent per annum.
(2) rrears on dvdends sha draw nterest at the rate of 7 per cent per
annum.
The. corporaton n 1922 had suffcent surpus from whch to pay
the 1921 dvdend on the preferred stock. owever, t pad no
dvdend on the preferred stock ether for that year or for the years
1922, 1923, or 1924. On une 24, 1925, a dvdend of 7 per cent
on the preferred stock was decared, and the amount thereof was
pad to the stockhoders. In pr of 1926, at a meetng of the
board of drectors, a resouton was passed to the effect that the
dvdend pad n 1925 shoud be desgnated as the 1921 dvdend.
Inasmuch as provson (2) set forth n the preferred stock cer-
tfcates rected that the arrears on dvdends shoud draw nterest
at the rate of 7 per cent per annum, there was pad to the stock-
hoders the amount of doars as so-caed nterest on these dv-
dends. Ths amount was charged to e pense and deducted by the
corporaton for the fsca year ended anuary 31, 1926.
The queston s rased as to whether or not the so-caed nterest
pad under the provsons of the preferred stock certfcates con-
sttutes an aowabe deducton to the corporaton.
Under the facts presented t appears that pror to the actua
decaraton of the 7 per cent perferred stock dvdend n une, 1925,
no defnte corporate abty e sted wth respect thereto. It fo-
ows that the so-caed nterest for whch provson was made n
the preferred stock certfcates was not nterest on ndebtedness
for whch a deducton s provded n the Revenue cts. The deduc-
ton of such amount n the return of the corporaton for the fsca
year ended anuary 31. 1926, shoud accordngy be dsaowed. The
so-caed nterest payment was n the nature of an addtona dv-
dend n the hands of the preferred stockhoders and shoud be so
treated for ncome ta purposes.
rtce 1549: Dstrbuton n redempton or can- II-44-3973
ceaton of stock ta abe as a dvdend. G. C. M. 5180
R NU CTS O 1924 ND 1928.
Where dvdends were decared by a corporaton pror to any
acton taken toward parta or compete dssouton, amounts there-
after pad to satsfy the dvdend obgaton created by the decara-
ton can not be consdered as pad n canceaton or redempton of
the stock, and such payments woud not be controed by secton
201(c) of ether the evenue ct of 1924 or the evenue ct of
1920. I. T. 2388 (C. . I-2, 14) and S. M. 4181 (C. . 1 -2, 12)
dstngushed.
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I
201, rt. 1549.
n opnon s requested whether or not Soctor s Memorandum
4181 and I. T. 2388 are consstent, nqury beng made as to the
proper nterpretaton of secton 201(c) of the Revenue cts of 1924
and 1926 when apped to stuatons such as those e stng n the cases
referred to whch nvove the parta qudaton of a corporaton.
Soctor s Memorandum 4181 nvoves an nterpretaton of secton
201(c), Revenue ct of 1924, whe I. T. 2388 nvoves an nterpreta-
ton of secton 201(c) of the Revenue ct of 1926. Those sectons,
whch treat of corporate dstrbutons and more partcuary of ds-
trbutons n qudaton, are dentca and so far as matera provde:
mounts dstrbuted n compete qudaton of a corporaton sha be treated
as n fu payment n e change for the stock, and amounts dstrbuted n parta
qudaton of a corporaton sha be treated as n part or fu payment n
e change for the stock.
somewhat smar provson to the one |ust quoted s found n
secton 201(c) of the Revenue ct of 1918, whch was construed by
the Unted States Supreme Court n the case of emch, Coector,
v. eman (48 S. Ct., 244 T. D. 4217, page 238).
Secton 201(c) of the 1924 ct was consdered and apped n
Soctor s Memorandum 4181, where t was concuded that the fu
amount pad or dstrbuted by a corporaton to redeem a porton
of ts stock must be treated by the stockhoders as a payment n
e change for the stock surrendered for canceaton, and that no
part thereof was ta abe as a corporate dvdend. Such concuson
s n accord wth the rue, whch must now be regarded as estabshed
under both the 1924 and 1926 cts, that any amount receved by
a stockhoder from a corporaton n redempton of hs stock s to be
treated for ta purposes as a payment n e change for the stock,
and hs ncome ta abty determned accordngy. Ths s so
wthout regard to how the payment may be ncdentay desgnated
or abeed by the qudatng corporaton. (S. . Dandrdge v. Com-
mssoner, 11 . T. ., 421 S. . umentha v. Commssoner, 12
Ta ppeas stated the controng prncpe as foows:
The premnary step n the dssouton of a corporaton s a proper resou-
ton by the stockhoders to dssove. Thereafter any dstrbuton of assets
pursuant to that resouton may be sad to be a dstrbuton n the course
of qudaton of the corporaton.
It s the opnon of ths offce, therefore, that Soctor s Memo-
randum 4181 propery nterprets secton 201 (c) and s supported by
authorty.
The fna queston for decson s whether the poston taken n
Soctor s Memorandum 4181 s departed from n I. T. 2388, whch
hods under the Revenue ct of 1926 that where a corporaton
by approprate acton redeemed one-haf of ts cass stock of no
par vaue at a prce of doars a share and accumuated dvdends
thereon, the amount receved by the sharehoders as accumuated
dvdends s sub|ect ony to surta to the e tent that t represented
a dstrbuton from earnngs accumuated by the corporaton snce
ebruary 28, 1913. The facts n that case are not stated n suffcent
deta n the I. T. to make t cear |ust what was meant to be ncuded
n the term accumuated dvdends. The term shoud be under-
stood, however, n order to avod any nconsstency wth the memo-
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203, rt. 1573.
112
randum or authortes herenbefore dscussed, as mted to dvdends
whch Iwd been decared, athough not pad, pror to any acton beng
taken toward a dssouton, compete or parta, of the corporaton.
When a dvdend has been decared, the stockhoders have an m-
medate vested rght aganst the corporaton n the capacty of
credtors. (Unted States v. Gunzburg, 278 ed., 363, C. . 1-1,15.)
dvdend when decared becomes the separate property of the
stockhoder whoy dsconnected from the stock. ( opper v. Sage,
112 N. Y., 530 20 N. ., 350.) On the other hand, the obgaton
of a corporaton or ts board of drectors to decare a dvdend
can not be treated as the dvdend tsef. (Lockhart v. an styne,
31 Mch., 76.) It woud thus be true that where dvdends were
decared by a corporaton pror to any acton taken toward parta
or compete dssouton, amounts thereafter pad to satsfy the dv-
dend obgaton created bv the decaraton coud not be sad n a
strct or proper sense to be pad n canceaton or redempton of
the stock, and such payments woud not be controed by secton
201(c) of ether the Revenue ct of 1924 or the Revenue ct of
1926. The amounts receved by the sharehoders as accumuated
dvdends n I. T. 2388 shoud be regarded as fang n ths
category. When consdered n ths ght, I. T. 2388 s dstngushabe
from and not nconsstent wth Soctor s Memorandum 4181.
C. M. Charest,
Genera Counse. ureau of Interna Re venue.
S CTION 203. R COGNITION O G IN OR LOSS
ROM S L S ND C NG S.
rtce 1573: changes of property for other II-42 3947
property and money. G. C. M. 4935
R NU CT O 1026.
n e change of nvestment property was made for property of a
ke knd, the terms of the e change provdng aso for payment by
the party of the second part of cash and hs assumpton of a mort-
gage on the property gven n e change by the ta payer, party of
the frst part.
ed, that the transacton shoud be treated as an e change of
property by the ta payer for proerty of a ke knd and for money,
under the provsons of secton 203 (d) of the Revenue ct of 1926,
and that the mortgage assumed shoud be treated as money
under the provsons of such secton.
n opnon s requested reatve to the gan recognzed under the
Revenue ct of 1926 n respect of an e change by of rea estate n
1926.
The ta payer n 1922 acqured certan property for nvestment for
a consderaton of I doars obtaned through a oan secured by a
mortgage on the property so acqured. Subsequenty, the mortgage
ndebtedness n connecton wth ths property was ncreased by the
ta payer to 14a doars. The addtona amount so reazed was not
renvested n the property but was approprated for other purposes.
In 1926 the ta payer e changed the property for property of a ke
knd, havng a far market vaue of 6 doars. The terms of the
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113
203, rt. 1573.
e change provded, n addton, for the payment to the ta payer of
5a doars n cash and for the assumpton by the second party of the
mortgage ndebtedness of 14a doars.
To determne the ta abe gan resutng from ths transacton, sec-
ton 203(d) 1 of the Revenue ct of 1926 must be apped, n con-
|uncton wth sectons 202 and 204 of the statute.
In respect of saes or e changes of property, the entre amount of
the gan or oss, determned under secton 202, s recognzed, e cept
as provded n secton 203, subdvson (b) of whch provdes n
substance that no gan or oss s to be recognzed f property, hed
for nvestment, s e changed soey for property of a ke knd to be
hed for nvestment. Snce the ta payer heren receved money
(ncudng the mortgage assumed by the second party) n addton
to the property receved n e change for her property, the case fas
wthn the provsons of subdvson (d) of secton 203 of ths stat-
ute, the provsons of whch read:
(d) (1) If an e change woud be wthn the provsons of paragraph (1), (2),
or (4) of subdvson (b) f t were not for the fact that the property receved
In e change conssts not ony of property ermtted by such paragraph to be
receved wthout the recognton of gan, but aso of other property or money,
then the gan, f any, to the recpent sha be recognzed, but n an amount not
n e cess of the sum of such money and the far market vaue of such other
property.
These provsons are ceary to the effect that, when property hed
for nvestment s e changed for ke property and for other prop-
erty or money, the gan, f any, s to be recognzed, so that secton
203(b) 1 no onger appes. The ta abe gan, however, s not neces-
sary the entre gan, but by the statute s mted to an amount not
to e ceed the sum of such money and the far market vaue of such
other property receved. ppyng ths secton to the facts n the
nstant case, the net gan of Sy doars beng ess than the sum of
the money (ncudng the mortgage assumed) receved, to wt, 19a
doars, the entre net gan s ta abe.
The ta abe gan n respect of ths e change, under secton 203(d) ,
s to be computed as foows:
Consderaton: Doars. Doars.
Cash 5
Mortgage assumed by purchaser 14,t
ar market vaue of ke property
Tota 25a
Cost O
Deprecaton ad|ustment a
Cost as ad|usted 9 a
Ta abe gan 15 4
C. M. Charest,
Genera Cownse, ureau, of Interna Revenue.
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203, rt. 1575.
114
rtce 1575: changes n reorganzatons for II-27-3787
stock or securtes ana other property or money. G. C. M. 3827
R NU CT O 1926.
In accordance wth a pan of reorganzaton, the propertes of
the M Company were transferred to the O Company n e change
for cash and shares of that company s preferred stock. The out-
standng preferred stock of the M Company was then retred, the
cash receved from the O Company beng used for ths purpose.
The e penses of dssouton were met out of the proceeds of the
sae of .shares of the O Company preferred stock. The M Company
then dstrbuted to ts common stockhoders the remanng shares
of the O Company preferred stock acqured In the reorganzaton,
and formay dssoved.
The M Company was a party to the reorganzaton and derved
no ta abe gan from the e change of ts propertes for the cash
and stock of the O Company.
n opnon s requested as to the effect, for ncome ta purposes,
of a transacton camed by the M Company to be a reorganzaton
wthn the purvew of secton 203 of the Revenue ct of 1926.
It appears that n 1927 the ta payer company was an estabshed
concern, engaged n the manufacture and sae of products,
and that the O Company negotated for the acquston of the ta -
payer s busness as a gong concern, utmatey offerng therefor 5y
shares of ts 6 per cent preferred stock and doars n cash. The
ta payer consdered ths offer, and, foowng submsson of the
matter to the board of drectors and a specay caed stockhoders
meetng, a pan of reorganzaton was adopted and procedure
thereunder authorzed. Ths pan provded for the acceptance of
the offer of the O Company for the acquston of the ta payer s
busness for the redempton of the ta payer s outstandng preferred
stock, such redempton to be made out of the cash receved from the
O Company for the dstrbuton of the preferred stock of the O
Company to the ta payer s common stockhoders and for the forma
dssouton of the ta payer company.
In accordance wth the pan of reorganzaton, the propertes of the
ta payer company were transferred to the O Company n e change
for doars n cash and 5y shares of that company s preferred stock.
The ta payer s outstandng preferred stock was then retred, ths
requrng a dstrbuton of the entre amount of cash receved from
the O Company. The e penses of dssouton were met out of the
proceeds of the sae of ,5y shares of the O Company preferred stock.
The ta payer company then dstrbuted the remanng .oy shares of
the preferred stock of the O Company to ts common stockhoders
and formay dssoved.
The assets transferred to the O Company had a book vaue of
appro matey 3a doars and the O Company stock receved had a
market vaue sghty n e cess of par, or appro matey 4a doars.
The cam s made that no ta abe gan was derved by the ta payer
corporaton from ths transacton, due to the provsons of secton 203
of the Revenue ct of 1926, partcuary the foowng paragraphs of
such secton:
(b) (3) No gan or oss sha be recognzed f 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.
(e) If an e change woud he wthn the provsons of paragraph (3) of sub-
dvson (f) f t were not for the fact that the property receved n e change
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115
204, rt. 1602.
conssts not ony of stock or securtes permtted by such paragraph to be
receved wthout the recognton of gan, but aso of other property or money,
then
(1) If the corporaton recevng such other property or money dstrbutes t
n pursuance of the pan of reorganzaton, no gan to the corporaton sha be
recognzed from the e change.
(h) s used n ths secton and sectons 201 and 204
(1) The term reorganzaton means ( ) a merger or consodaton (ncud-
ng the acquston by one corporaton of substantay a the prop-
ertes of awther corporaton).
(2) The term a party to a reorganzaton ncudes a corporaton resutng
from a reorganzaton and ncudes both corporatons n the case of an acqus-
ton by one corporaton of at east a ma|orty of the votng stock and at east
a ma|orty of the tota number of shares of a other casses of stock of another
corporaton.
It s noted that the O Company acqured a of the propertes of
the ta payer company, and hence the transacton was a reorganza-
ton wthn the e press terms of the defnton contaned n secton
203 (h) above quoted. It s the opnon of ths offce that the ta -
payer company was a party to such reorganzaton.
The ta payer company, a party to a reorganzaton, receved n
e change for ts propertes not ony the stock and securtes of an-
other corporaton, a party to the reorganzaton, but aso money. Ths
money was mmedatey, n pursuance of the pan of reorganzaton,
dstrbuted n ts entrety to the ta payer s preferred stockhoders.
Ths dstrbuton of a of the money receved n an e change for
the propertes of the ta payer company, made pursuant to the pan
of reorganzaton, brngs the nstant case wthn the e press terms
of secton 203(e) 1, above quoted.
In vew of the foregong, t s the opnon of ths offce that the
ta payer company derved no ta abe gan from the e change of ts
propertes for the cash and stock of the O Company.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 204. SIS OR D T RMINING G IN OR
LOSS, D PL TION, ND D PR CI TION.
rtce 1602: ass for aowance of depeton II-45-3981
and deprecaton. G. C. M. 5104
R NU CT O 1926.
The statement n Genera Counse s Memorandum 2315 (C. .
I-2, 21) to the effect that the term net ncome, as used n
secton 204(c)2, shoud be taken to mean the net ncome defned
n sectons 212 and 232 of the Revenue ct of 1926 must be con- ,
strued as appyng ony to the net ncome derved on account of
o and gas produced from the property. Genera Counse s Mem-
orandum 1023 (C. . I-1, 19) and Genera Counse s Memoran-
dum 2315 (C. . I-2, 21) dstngushed.
n opnon s requested as to whether there s a confct between
Genera Counse s Memorandum 1023 and Genera Counse s
Memorandum 2315.
ttenton s drected to secton 204(c)2 of the Revenue ct of
1926, whch provdes as foows:
(2) In the case of o and gas wes the aowance for depeton sha be
27 per centum of the gross ncome from the property durng the ta abe
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116
year. Such aowance sha not e ceed 50 per centum of the net ncome of the
ta payer (computet wthout aowance for depeton) from the property, e -
cept that n no case sha the depeton aowance be ess than It woud be f
computed wthout reference to ths paragraph.
In Genera Counse s Memorandum 1023, the queston under con-
sderaton was whether the ncome arsng rom the sae of an nter-
est n o and gas producng propertes coud be consdered n com-
putng the aowance for depeton under secton 204(c)2, supra.
The concuson reached n that memorandum was to the effect that
the ncome arsng from the sae of o and gas propertes or an
nterest theren coud not be consdered n computng aowances
for depeton because secton 204(c)2 had reference to the gross
ncome and the net ncome derved on account of o and gas pro-
duced from the property and not to gross ncome and/or net ncome
arsng from the sae of the property or an nterest theren.
In Genera Counse s Memorandum 2315 the concuson was
reached under the Revenue ct of 1926 that where a ta payer had
eected to treat deveopment e pendtures as ordnary and necessary
busness e penses, such e pendtures must be deducted n determn-
ng the net ncove from the property, whch amount s used as a
mtaton n the computaton of the depeton aowance based on
ncome. In vew of the concuson reached n Genera Counse s
Memorandum 1023, and n vew of the nature of the queston under
consderaton n Genera Counse s Memorandum 2315, the state-
ment n the atter memorandum to the effect that the term net
ncome, as used n secton 204(c)2. shoud be taken to mean the
net ncome defned n sectons 212 and 232 of the Revenue ct of
1926, must be construed as appyng ony to the net ncome derved
on account of o and gas produced from the propertv.
It s, accordngy, the opnon of ths offce that there s no con-
fct between Genera Counse s Memorandum 1023 and Genera
Counse s Memorandum 2315.
C. M. Charest.
Genera Counse, ureau of Interna Revenue,
S CTION 208. C PIT L G INS ND LOSS S.
rtce 1651: Defnton and ustraton of II-30-3820
capta net gan. G. C. M. 4299
R NU ) CTS OP 1021, 1924, ND 1926.
Royaty payments from eases of o and gas ands n Te as
are not ta abe as capta gan under the provsons of secton
206 of the Revenue ct of 1921 and secton 208 of the Revenue
cts of 1924 and 1926.
n opnon s requested as to whether , herenafter referred to
as the ta payer, s entted to have certan payments ta ed as cap-
ta gan under the provsons of secton 206 of the Revenue ct of
1921 and secton 208 of the Revenue cts of 1924 and 1926, or
whether the payments must be treated as ordnary ncome under
sectons 210 and 211 of those cts.
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117
208, rt. 1651.
The facts are as foows: The ta payer -was the owner n fee
smpe of certan o ands n the State of Te as, whch n 1923 he
eased for an ndetermnabe perod of tme to certan o com-
panes for cash bonuses and royates payabe n cash or o as
provded n the severa eases. The ta payer reported these pay-
ments n the years 1923, 1924, and 1925 as o royates, but now
contends that the payments under the aws of Te as shoud be ta ed
as gans from the sae of capta assets. The eases gave the
essee the e cusve rght to prospect and dr for o and gas,
conveyed to the essee a the o and gas under sad and sub|ect to
the essor s royaty run for a perod of fve years or so ong there-
after as any of sad materas sha be produced n payng quanttes,
and contaned warrant of tte by the essor.
The ta payer was the owner of the and contanng the deposts
of o and gas for more than two years pror to the e ecuton and
devery of the eases, and s, therefore, entted to have the ncome
ta ed under secton 2( ) of the Revenue ct of 1921 and secton 208
of the Revenue cts of 1924 and 1926, provded t was gan from
the sae of capta assets as theren defned otherwse, t must be
ta ed as ordnary ncome under sectons 210 and 211 of sad cts.
The term capta assets as used n the ct of 1921 s defned as
foows:
Sec. 206. (a) That for the purpose of ths tte:
(6) The term capta assets as used In ths secton means property ac-
qured and hed by the ta payer for proft or nvestment for more than two
years (whether or not connected wth hs trade or busness), but does not
ncude property hed for the persona use or consumpton of the ta |ayer or
hs famy, or stock n trade of the ta payer or other property of a knd whch
woud propery be ncuded n the nventory of the ta payer f on hand at the
cose of the ta abe year.
nd n the cts of 1924 and 1926 as:
Sec. 208. (a) or the purposes of ths tte
(8) The term capta assets means property hed by the ta payer for
more than two years (whether or not connected wth hs trade or busness),
but does not ncude stock n trade of the ta payer or other property of a knd
whch woud propery be ncuded n the nventory of the ta payer f on hand
at the cose of the ta abe year, or property hed by the ta payer prmary
for sae n the course of hs trade or busness .
The oard of Ta ppeas has consdered the queston of whether
royates consttute ordnary ncome or ncome from the sae of
capta assets when derved under eases e ecuted n States other
than Te as but smar n ther provsons to the eases nvoved n
the nstant case. The decsons of the oard (e. g., arry L. erg,
6 . T. ., 1287) are based upon a carefu revew of the decsons
of the Supreme Court of the Unted States hodng that the royates
to be pad upon enterng nto the premses and dscoverng, deveop-
ng, and removng the mnera resources thereof consttute gross n-
come wthn the meanng of the varous Revenue cts and not ncome
from the sae of capta assets. (Stratton/s Independence v. ow-
bert, 231 U. S., 399 Stanton v. atc Mnng Co., 240 U. S., 103
on aumback v. Sargent Land Co., 242 IT. S., 503 Unted States v.
wdbk Mnng Co., 247 U, S., 116.) The concuson of the oard
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208, rt. 1651.
118
from a revew of the foregong cases, reached n the appea of
arry L. erg, supra, was that
the gross proceeds of mneras e tracted In mnng operatons have
been consdered gross ncome wthout reference to cost snce 1913 and a of the
Revenue cts passed snce that tme and the decsons of the courts have been
upon ths bass. It thus appears that ths theory s one emboded n the Reve-
nue cts and e sts rrespectve of what the aws of varous States may be
reatve to mnng.
The oard accordngy hed that the royaty ncome derved under
an o and gas ease consttuted ordnary ncome and not ncome from
the sae of a capta asset. See aso appea of . . Murphy (9 . T.
., 610) and decsons there cted.
The ta payer notes that the type of ease here nvoved has .been
hed by the Supreme Court of Te as to consttute a conveyance of a
the nterest n the gas and o n pace. Stephens County v. Md-
ansas O Gas Co., 113 Te ., 160, 254 S. W., 290 Te as Co. v.
Dougherty, 107 Te ., 236 vmphrey-Me a et a. v. Gannon, 113
Te ., 247 ager et a. v. Stokes, fa Coector, 294 S. W., 835
odkaw Lumber Co. v. Goode, 254 S. W., 345.) The ta payer aso
notes that the oard of Ta ppeas has recognzed that an absoute
sae and conveyance of a rght, tte, and nterest n and to gas and
o n pace consttutes a sae of a capta asset. ( ppea of . .
Murphy, supra.) It s, therefore, camed that, under the decsons of
the Supreme Court of Te as, the ease n the nstant case shoud be
treated as an absoute conveyance of the gas and o n pace, a sae
of a capta asset, and that the ta on the proceeds shoud be mted
by the capta gan provsons of the varous Revenue cts.
The queston of the e tent to whch effect must be gven to State
decsons n the appcaton of the edera ncome ta cts has been
presented to the courts n severa nstances. Thus the Supreme Court
has affrmed the power of Congress to sub|ect |ont enterprses to ta ,
athough the State aws hod such assocatons are not ega enttes.
urc-Waggoner O ssocaton v. opkns, 269 U. S., 110 (T. D.
3790, C. . -, 147) Iecht v. Maey, 265 U. S., 114 (T. D. 3995,
C. . III-, 489).) more anaogous stuaton arose n the case of
ate W. Rosenberger v. akcy D. MoCaughn, where an acton was
brought to recover ta es assessed on the bass that royaty payments
under a coa ease n Pennsyvana consttuted ncome. Under the
decsons of the State of Pennsyvana such a ease had been con-
strued to be. a sae of ore n pace and the royaty payments hed to be
payments on the purchase prce. The crcut court of appeas (25 ed.
(2d), 699 (see T. D. 4171, on page 253), n affrmng the decson of
the dstrct court, whch was adverse to the ta payer, stated:
It s estabshed beyond queston that the aw of the State n whch property
s stuated governs edera courts n many thngs n descent, aenaton, and
transfer, and the effect and constructon of ws (Dc aughn v. utchn son,
165 U. S., 566, 17 S. Ct., 461. 41 L. ed., S27) but whether t governs the
edera Government n the performance of ts soveregn power to evy ta es
s another queston, and s the precse queston here.
True. State decsons sometmes contro edera egsaton for nstance, n
determnng a deducton aowed by the edera estate ta but that s because
of the e press provson or permsson of the edera ct whch authorzes
deducton of such charges as are aowed by the aws of the |ursdcton
under whch the estate s beng admnstered. (Lcderer v. Northern Trust
Co. (C. C. .), 262 ., 52.) ut whether the edera Government s mted
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119
208, rt. 1651.
In ts seecton of sub|ects for ta aton by rues of State courts n respect to
property wthn the State s |ursdcton s another matter and t s one on
whch the Supreme Court n on aumbach v. Sargent Land Co. (242 U. S.,
503, 518, 37 S. Ct., 201, 61 L. ed., 460) dd not fee caed upon to pass, athough
the queston there, ke the one here, was whether royates or rents were
ncome, and the mere foowng of the State rue woud have been an easy way
to decde the queston. In that case a Mnnesota contract of ease sub-
stantay ke the Pennsyvana contract of sae n ths case was under
consderaton. That contract of ease, as the Supreme Court noted, was of
a cass ad|udged by the courts of Mnnesota and other States to be a ease as
dstngushed from the opposte hodng by Pennsyvana courts that t s a
sae. fter quotng the reasonng of Mnnesota courts on such nstruments, the
Supreme Court ad n respect to ts duty to foow the State rue:
These concusons of the Supreme Court of Mnnesota are not ony made
concernng contracts n that State, such as are here nvoved, but are supported
by many authortes. Ordnary, and as between prvate partes, there s no
queston of the duty of the edera court to foow these decsons of the Mn-
nesota Supreme Court, as a rue of rea property ong estabshed by State
decsons. Whether n consderng ths edera statute we shoud be
constraned to foow the estabshed aw of the State, as s contended by the
Government, we do not need to determne. The decsve queston n ths case
s whether the payments made as so-caed royates amount to ncome so as
to brng such payments wthn the scope of the Corporaton Ta ct of 1909
(36 Stat., 112).
Such beng the queston, the Supreme Court tsef construed the nstrument
there n queston n order to determne whether the payments Unt were made
under t were proceeds of sae, capta or ncome. Whoy asde from the
constructon whch the Mnnesota courts had paced upon nstruments of that
knd and soey because of the nature of the payment themseves, the Supreme
Court, as we read ts opnon, hed that the nstrument there n queston dd
not effect a sae of the property, that s, of the ore In pace (Unted States v.
u tbk Mnng Co., 247 U. S., 116, 126, 28 S. Ct., 462, 62 L. ed., 1017), and
that the moneys derved from mnng and pad under the nstrument were
not converted capta, but were royates or rents, and as such were ncome,
proper to be ncuded n measurng ta es under the appcabe Revenue ct,
wthn the rue of Stratton s Independence v. owbert (231 U. S., 399, 34 S. Ct.,
136, 58 L. ed., 285), and Stanton v. atc Mnng Co. (240 U. S., 103, 36
S. Ct, 278, 60 L. ed., 546).
In vew of the authortes above cted, t s the opnon of ths
offce that the constructon of the Te as courts shoud be dsregarded
n the determnaton of the ta abe ncome derved from the o and
gas eases n the nstant case, and that the royaty payments con-
sttuted ordnary ncome sub|ect to ta under the provsons of sec-
tons 210 and 211 of the Revenue cts of 1921, 1924, and 1926.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 1651: Defnton and ustraton of capta
net gan.
R NU CT O 1920.
Two-year perod n case of wash saes of stock. (See I. T. 2443,
page 127.)
37229 29 9
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120
S CTION 209. RN D INCOM .
rtce 1662: Defntons and mtatons. II-38-3899
G. C. M. 4791
R NU CT O 1926.
The ta payer, a nonresdent aen resdng n a contguous
country, had a tota net ncome for 1927 of over 100,000 from
sources -wthn the Unted States. ppro matey 2,900 repre-
sented compensaton for persona servces performed wthn the
Unted States.
ed, under the provsons of secton 209(a)3, Revenue rt of
1926, hs earned net ncome for the purpose of computng the
earned ncome credt was 5,000. The ma mum credt aowabe
s 25 per cent of the ta whch woud foe payabe under secton
210(b) f hs earned net ncome consttuted hs entre net ncome
. e., 25 per cent of the ta due, at 1 per cent, on that porton of
5,000 n e cess of hs persona e empton of 1,500.
n opnon s requested reatve to the earned ncome credt to
whch , of , Canada, a nonresdent aen ndvdua, s
entted.
It appears that out of a tota net ncome of over 100,000 receved
by the ta payer durng the year 1927 from sources wthn the Unted
States, ony about 2,900 represented compensaton for servces per-
formed wthn the Unted States. Under secton 210(b) of the
Revenue ct of 1926, the part of such compensaton n e cess of the
persona e empton s ta abe at y2 per cent. The baance of the
ncome of the ta payer abe for norma ta s sub|ect to the 5 pet-
cent rate.
Secton 209 of the Revenue ct of 1926 provdes n part as
foows:
Sec. 209. (a) or the purposes of ths secton
1) The term earned ncome means wages, saares, professona fees,
and other amounts receved as compensaton for persona servces actuay
rendered, .
(2) The term earned ncome deductons means such deductons as are
aowed by secton 214 for the purpose of computng net ncome, and are prop-
ery aocabe to or chargeabe aganst earned ncome.
(3) The term earned net Income means the e cess of the amount of tne
earned ncome over the sum of the earned ncome deductons. If the ta -
payer s net ncome Ls not more than 5,000, hs entre net ncome sha be
consdered to be earned net ncome, and f hs net ncome t more than S5.O00,
hs earned net ncome sha not be consdered, to be ess than 5,000.
(b) In th-e case of an ndvdua the ta sha, n addton to the credts
provded n secton 222, be credted wth 25 per centum of the amount of ta
whch woud be payabe f hs earned net ncome consttuted hs entre net
ncome but n no case sha the credt aowed under ths subdvson e ceed
25 per centum of hLs ta under secton 210 pus 25 per centum of the ta
whch woud be payabe under secton 211 f hs earned net ncome con-
sttuted hs entre net ncome. Itacs supped.
The ta payer s a nonresdent aen ndvdua, a resdent of a
contguous country. Under secton 210(b), such person s requred
to pay a norma ta of
(1) | per centum of the amount by whch the part of the net ncome
attrbutabe to wages, saares, professona fees, or other amounts receved as
compensaton for rsona servces actuay performed n the Unted States,
e ceeds the credts provded n subdvsons (d) and (e) of secton 216 but
the amount ta abe at such 1 per centum rate sha not e ceed 4,000
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121
(1213(a), rt. 32.
Under the provsons of secton 209(a)3, quoted above, the ta -
payer s earned net ncome for the purpose of computng the earned
ncome credt s 5,000. The credt aowabe s 25 per cent of the
ta whch woud be payabe f hs earned net ncome consttuted
hs entre net ncome. If 5,000 consttuted the entre ncome from
sources wthn the Unted States receved by a nonresdent aen
resdng n a contguous country, and was compensaton for per-
sona servces performed n the Unted States, the ta due on such
ncome woud oe computed at y2 per cent on that porton of the
5,000 n e cess of hs persona e empton of 1,500.
The mtaton contaned n that part of secton 209(b) whch
states but n no case sha the credt aowed under ths subdvson
e ceed 25 per cent of hs ta under secton 210, pus 25 per cent of
the ta whch woud be payabe under secton 211 f hs earned net
ncome consttuted hs entre net ncome, s a ma mum mtaton
on the amount of credt aowabe. It s to be noted that ths secton
does not provde that the credt aowed sha be equa to 25 per
cent of the ta mposed on the frst 5,000 of the ta payer s ncome,
n cases where the frst 5,000 s to be treated as earned net ncome.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
P RT n. INDI IDU LS.
S CTION213(a). GROSS INCOM D IN D:
INCLUSIONS.
rtce 31: What ncuded n gross ncome.
R NU CT OP 1926.
Interest on an award pad for the oss of fe. (See I. T. 2120,
page 123.)
rtce 32: Compensaton for persona TI-38-3900
servces. G. C. M. 4797
R NU - CTS O 1924 ND 1926.
partnershp agreement between a husband and wfe, resdents
of Caforna, whereby gans, commssons, and bonuses receved
by each shoud be dvded equay between them, s neffectua to
dvde, for ta ng purposes, the commssons receved by the hus-
band from hs empoyer.
n opnon s requested as to whether the entre amount of com-
mssons earned by shoud be reported bv hm n hs ncome ta
return or whether he and hs wfe shoud each report one-haf
thereof n accordance wth an aeged partnershp agreement between
them provdng for a dvson of the ncome.
The record ndcates the foowng facts:
In 192- , a resdent of Caforna, and one of the ta payers,
entered nto an agreement wth a corporaton dong busness n
Caforna to serve as manager of stores conducted by the corpora-
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213 (a), rt. 32.
122
ton n Caforna. was to be pad saary and an addtona com-
pensaton whch was to be a certan percentage of the net profts of
the corporaton, pus, n certan contngences, a percentage of the
e cess of saares pad to other offcers of the corporaton.
, wfe of , was empoyed by the same corporaton.
and hs wfe, n 1924 and 1925, each reported, n separate returns,
50 per cent of the commssons receved by from hs empoyer.
oth ta payers state that the dvson of the commssons was made
because of an aeged partnershp agreement entered nto on an-
uary , 192-, by and hs wfe, whereby a commssons, bonuses,
etc., arsng from or growng out of the partnershp were to be
dvded equay between them that the commssons were the resut
of the |ont efforts of and hs wfe and that the servces of both
ta payers were very mportant factors n the producton of the
commssons.
The pertnent parts of ths aeged partnershp agreement are as
foows:
That the sad partes have agreed to become, and by these presents do
become, copartners n a ther busness and a ther Indvdua transactons
on a past and future contracts. Sad copartnershp to commence on the
1st day of anuary, 192-, and to contnue unt further notce.
nd t s agreed by and between sad and that at a tmes durng the
contnuance of ths copartnershp they and each of them w assst one
another to ther utmost sk and power, e ert themseves n the management
of ther |ont affars, and at a tmes durng ther copartnershp bear, pay, and
dscharge, equay between them, a. e penses that may be requred for the
support of ther dfferent transactons
That a gans, commssons, and bonuses that sha come, grow or arse from
or by means of ther copartnershp sha be dvded equay between them
share and share ake, and a osses that sha occur sha be borne and pad
equay between them
That there sha be kept at a tmes durng the contnuance of ther co-
partnershp |ust and true accounts, wheren sha be entered and set down
as we as a gans, commssons, and bonuses, anythng bought and sod by
reason or account of sad copartnershp, and a other matters and thngs
whatsoever, n anywse beongng, whch sha be used n common between
sad copartners, so that ether of them may have access thereto.
The record does not dscose that the partnershp had any busness
or transactons. In fact, the contrary s ndcated. The ta payers
admt that the compensaton n queston was pad to , the husband,
by the corporaton, the empoyer for whom both husband and wfe
were workng. Under the terms of s empoyment as genera man-
ager he was to devote a hs efforts to hs empoyer s stores. It may
we be assumed that the efforts of both husband and wfe were
e erted to ncrease the busness of ther empoyer, and thus ncden-
tay to ncrease the husband s commssons. Ther efforts were ob-
vousy not e erted n behaf of any partnershp busness or trans-
acton. s a consequence, t s cear that the commssons or bonuses
receved by the husband arose or grew out of the busness of the
empoyer, and not out of the aeged partnershp. Such compen-
saton s ceary ta abe to the husband.
If, by any dstorton of meanng, the anguage of the aeged part-
nershp agreement coud be so e tended as to mean that a comms-
sons receved by the husband from hs empoyment shoud be pad
nto the partnershp and thus dvded equay between husband and
wfe, the case woud then fa drecty wthn the rung n Mtche v.
owers (15 ed. (2d), 287 T. D. 3798, C. . -, 273 ) and the
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123
213(b), rt. 71.
case of ar v. oth (22 ed. (2d), 932 T. D. 4152, C. . II-1,
215 ). In the atter case a husband and wfe had agreed that the
earnngs of both shoud be contrbuted to a common fund of whch
they, as partners, were to be the owners, share and share ake. The
court, reversng the oard of Ta ppeas, uphed the Comms-
soner s contenton that, at most, the agreement was for an assgnment
by each of the partes of one-haf of hs or her earnngs to the other,
and that, at the nstant they were receved, the saares were, by 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 computed coud not be escaped by contrbutng such ncomes to
the so-caed partnershp between the two members of the communty
any more effectvey than by contrbutng t to a ke enterprse as
between one member of the communty and a thrd person. Ths
case was foowed by the oard n the case of ar v. Commssoner
(10 . T. ., 723), where the oard hed that saares and fees of a
resdent of Caforna are ta abe to hm, notwthstandng the fact
that he had agreed to dvde them wth hs wfe. s the oard sad,
the saary and fees nvoved here frst became hs earnngs.
The earnngs are ta abe to the pettoner when receved.
Ths offce s therefore of the opnon that the so-caed partnershp
entered nto by the ta payers s neffectua to dvde, for ta ng pur-
poses, the commssons receved by , and that the entre amount of
the commssons receved by hm from hs empoyer s ta abe to
hm.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 213(b). GROSS INCOM D IN D:
CLUSIONS.
rtce 71: cusons from gross ncome. II-27-3788
( so Secton 213(a), rtce 31.) I. T. 2420
R NU CT O 1926.
award pad for the oss of fe s not e pressy ta abe under
the Revenue ct of 1926 and as t s not embraced n the genera
concept of the term ncome the amount of the award s not ta -
abe. The nterest on an award s ta abe ncome under the prov-
sons of secton 213(a).
n opnon s requested wth respect to the ta abe status of an
award of 40a doars, and nterest of appro matey 9a doars, pay-
abe to as compensaton for the death of her husband, , who was
a passenger on and went down wth the Lustana.
The award was made by the M ed Cams Commsson of the
Unted States and Germany n ts decson of , wheren t s
decreed that under the treaty of ern of ugust 25,
1921, and n accordance wth ts terms, the Government of Germany
s obgated to pay to the Government of the Unted States on behaf
of (1) , ndvduay, the sum of 40a doars wth nterest thereon at
the rate of 5 per cent per annum from November 1, 1923, .
The award s payabe by the Secretary of the Treasury n accordance
wth the provsons of secton 2 of the Settement of War Cams ct
of 1928.
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213(b), rt. 88.
124
The Revenue ct of 1926 contans no e press provson that an
amount receved as compensaton for oss of fe sha be ncuded as
ncome. It s, however, provded generay n secton 213(a) of the
ct that a gans, profts, and ncome derved from any source
whatever are ncome sub|ect to ta aton.
n award pad for the oss of a fe s compensaton for the oss,
and as such s not embraced n the genera concept of the term
ncome. In the nstant case, the award s, n fact, the undertak-
ng on the part of the Government of the Unted States under whch
the Government of Germany, by the substtuton of a sum of money
for the fe that was ost, s to restore to substantay the same
fnanca and economc status as she possessed pror to the death of
her husband.
It s hed, therefore, that nasmuch as the award of 4(te doars
payabe to s not e pressy ta abe under the provsons of the
Revenue ct of 1926, and s not embraced n the genera concept
of the term ncome, the amount of the award s not ta abe to .
(Z7. S. v. Suppee- dde ardware Co., 265 U. S., 189 C. .
TIavkns v. Commssoner, 6 . T. ., 1023, C. . II-1, 14.)
The nterest of appro matey 9a doars payabe on the award
of 4c doars, n accordance wth the terms of the decree, s ta -
abe ncome to , under the provsons of secton 213(a) of the
Revenue ct of 1926.
rtce 87: Income of States.
R NU CT O 1S26.
Income of muncpaty under contract wth a company organ-
zed to erect and operate a budng to be used as a market pace and
audtorum. (See I. T. 2436, page 147.)
rtce 88: Compensaton of State offcers II-47 005
and empoyees. G. C. M. 5150
R NU CT O 1026.
The compensaton of the controer of the harbor department
of the cty of R, whose actvtes reate to the management and
contro of ts fnanca affars and are rendered n connecton wth
the dutes of the e ecutve department of the cty government, s
not sub|ect to edera ncome ta .
n opnon s requested n reference to the ncome ta abty of
for the year 1926. The specfc queston nvoved s whether or
not compensaton receved by from the harbor department of the
cty of R s sub|ect to the edera ncome ta .
rtce 88 of Reguatons 69 reads n part as foows:
Compennaton 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,
s not ta abe.
There appears to be no doubt that the harbor department of the
cty of R s a part of that muncpaty. Lkewse, t seems wthout
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125
213(b), rt. 89.
queston to be nvested wth certan governmenta functons, for the
board of harbor commssoners s empowered to make and enforce
a necessary rues and reguatons governng the use and contro of
a navgabe waters and a tde ands, etc., wthn the harbor ds-
trct. (Secton , charter of the cty of R.) ut by other pro-
vsons of the charter t has power to operate wharves, warehouses,
water craft, raroads, and other factes. (Sectons and ,
charter, supra.) ctvtes such as these are qute ceary of a pro-
pretary rather than a governmenta character. (See S. M. 2232,
C. . III-2, 83: Packet Co. v. eokuk, 95 U. S., 80.) In cases such
as these, the poston of he ureau has been that the queston of
ta abty of the empoyees compensaton s to be determned by
the character of the actvtes of the muncpaty wth respect to
whch they are engaged.
s desgnated as the controer of the harbor department, and
hs dutes are n genera the same wth respect to the harbor depart-
ment as are those of the cty controer wth respect to the cty as a
whoe. Secton of the charter provdes for the appontment of a
chef accountng empoyee by each of the cty boards, and t
appears that occupes hs poston under ths authorty. s dutes
appear to be connected wth the supervson of the accounts of the
department and of the dsbursements of funds, etc., and generay to
make check of the fsca affars of the department. The evdence
shows that he draws the warrants upon the cty treasurer, whch are
sub|ect to the approva of the cty controer. s actvtes, there-
fore, appear to reate to the management and contro of the fnanca
affars of the harbor department and of the cty. Servces of ths
sort, t s beeved, are rendered n connecton wth the dutes of the
e ecutve department of the cty government. They are, therefore,
connected wth a governmenta functon, and the compensaton
receved by as an empoyee of the harbor department, by way of
saary, s not sub|ect to edera ncome ta .
C. M. Charest,
Genera Counse, ureau) of Interna Revenue.
ktce 89: ddtona e cusons from gross n- IT42-3951
come. T. D. 4227
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:
It s provded by secton 213(b) 8 of the Revenue cts of 1921,
1924, and 1926, and sectons 212(b) and 231(b) of the Revenue ct
of 1928, that the ncome of a nonresdent aen or foregn corpora-
ton whch conssts e cusvey of earnngs derved from the opera-
ton of a shp or shps documented under the aws of a foregn coun-
try whch grants an equvaent e empton to ctzens of the Unted
States and to corporatons organzed n the Unted States sha be
e empt from ncome ta .
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5214(a) , rt. 112.
126
Canada grants an equvaent e empton to ctzens of the Unted
States and corporatons organzed n the Unted States, from an-
uary, 1921. ccordngy, artce 89 of Reguatons 62, as amended
by Treasury Decsons 3813 (C. . -, p. 225), 4013 (C. . I-1,
p. 59), and 4098 (C. . I-2, p. 58) artce 89 of Reguatons 65,
as amended by 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. . I-2, p. 58), are hereby further
amended so as to ncude Canada n the st of countres whch
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.
Treasury Decson 4135 (C. . II 1, p. 81) s hereby revoked.
D. . ar,
Commssoner of Interna Revenue.
pproved October 6, 1928.
. W. Meon,
Secretary of the Treasury.
rtce 89: ddtona e cusons from gross ncome.
R NU CT O 1926.
Interest receved by a rtsh corporaton on moneys, hed tempo-
rary n Unted States banks, whch represent surpus workng cash
arsng and coected n the Unted States from the busness of
shppng. (See G. C. M. 4859, page 73.)
rtce 89: ddtona e cusons from gross ncome.
R NU CT O 1920.
raz and the equvaent e empton requrement of secton
213(b)8. (See I. T. 2438, page 72.)
S CTION 214(a) 1. D DUCTIONS LLOW D INDI-
IDU LS: USIN SS P NS S.
rtce 112: When charges deductbe.
R NU CT O 1926.
reghts charges of umber manufacturers keepng books on
accrua bass. (See G. C. M. 5265, page 55.)
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127
214(a) 4, 5, 6, rt. 146.
S CTION 214(a)4, 5, 6. D DUCTIONS LLOW D
INDI IDU LS: LOSS S.
btc e 146: Losses from the sae and repur- II-50-4031
chase of securtes. I. T. 2443
( so Secton 208, rtce 1651.)
R NU CT O 1926.
In the case of wash saes of stock, the deducton of any oss
sustaned s to be postponed unt the stock s dsposed of and not
repurchased wthn the proscrbed perod of tme, and t s mma-
tera whether the ad|ustment of bass be made on the orgna
bass or on the repurchase prce.
The two-year perod provded by secton 208 of the Revenue ct
of 1926 runs from the date of the repurchase, n the case of wash
saes, and not from the date of the orgna purchase.
(G. C. M. 1210, C. . I-2, 60, ampfed.)
Informaton s desred reatve to the nterpretaton paced on
artce 1601 of Reguatons 69 and secton, 204(a) 11 of the Revenue
ct of 1926 pertanng to wash saes of stock by Genera Coun-
se s Memorandum 1210. ttenton s caed to the fact that the
reguatons provde for determnng the ad|usted bass on whch to
compute the gan or oss resutng from the fna sae by ncreasng
or decreasng the orgna bass by the dfference between the prce
at whch the wash sae was made and the repurchase prce,
whereas the memorandum n queston provdes that such ad|usted
bass may be arrved at by ncreasng the repurchase prce by the
amount of the ndcated oss on the wash sae.
Whe the statute and reguatons provde that such ad|usted bass
s to be determned by ncreasng or decreasng the orgna bass by
the dfference between the prce at whch the wash sae s made
and the repurchase prce, the ob|ect or purpose s to postpone the
deducton of any oss unt the stock s dsposed of and not repur-
chased wthn the proscrbed perod of tme, and t s therefore mma-
tera whether the ad|ustment be made on the orgna bass or on
the repurchase prce, as the resut s the same n ether case. The
memorandum n queston, by way of summary, merey states that
the ndcated oss on the wash sae may be added to the repurchase
prce n arrvng at such ad|usted bass.
Wth reference to the appcaton of the capta gan and oss
provsons of secton 208 of the Revenue ct of 1926, t s noted that
athough the deducton of any oss s postponed n the case of such
wash saes unt there s a dsposton of the stock wth no repur-
chase wthn the proscrbed perod, the stock n the case under con-
sderaton was not hed for a perod of more than two years. Durng
the perod from the date of the wash sae to the date of repur-
chase the ta payer dd not own or hod any stock. The two-year
perod n such case, for the purpose of the capta gan and oss pro-
vsons of secton 208, accordngy runs from the date of the
repurchase and not from the date of the orgna purchase.
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214(b), rt. 271.
128
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 1026.
Contrbutons to a bar assocaton. (See G. C. M. 4805, page 58.)
S CTION 214(b). D DUCTIONS LLOW D: NON-
R SID NT LI N INDI IDU L.
rtce 271: Deductons aowed nonresdent II-40-3918
aen ndvduas and ctzens entted to G. CM.4956
the benefts of secton 262.
R NU CT O 1026.
The amounts pad by a nonresdent aen, permtted to enter the
Unted States under a temporary permt to pay n an orchestra, for
traveng e penses from the pace of hs resdence abroad to the
pace of hs empoyment n the Unted States are not drecty con-
nected wth ncome from sources wthn the Unted States, nor do
they represent e penses ncurred n carryng on a trade or busness.
Such amounts, therefore, are not aowabe deductons from gross
ncome.
n opnon s requested n regard to the ta abty of , whch
nvoves the queston of the deductbty of traveng e penses n
computng net ncome under the provsons of the Revenue ct of
1926.
The ta payer s a nonresdent aen, hs home beng n ,
ustra. e came to the Unted States drect from ustra to pay
n the Orchestra at , where he was engaged for the
season. e was permtted to enter the Unted States for a mted
tme to pay n the orchestra, and at the e praton of hs permt
he was obged to return to ustra. It appears that he has payed
n the Orchestra for a number of years and usuay returns
to , ustra, the mdde of each year. In repy to a request
for nformaton as to why t s not possbe for hm to mantan
a resdence n ths country, he states that he coud make an appca-
ton for a vsa under the quota from ustra but he woud have to
wat n ustra severa |-ears, the quota beng cosed for that country
at present. Ths woud have the effect of deprvng hm of hs em-
poyment wth the Orchestra, and, therefore, he woud rather
enter ths country under a temporary permt and return at the e pra-
ton thereof. e contends that nasmuch as he ncurs traveng
e penses such as steamshp fares, raroad fares, and baggage costs,
these tems are aowabe deductons from gross ncome, beng e -
penses ncurred n the pursut of hs trade or busness.
Wth respect to the queston of the deductbty of traveng e -
penses, secton 214(a) of the Revenue ct of 1926 provdes that n
computng net ncome there sha be aowed as deductons
(1) the ordnary and necessary e penses pad or ncurred durng the
ta abe year n carryng on any trade or busness, ncudng a reasonabe
aowance for saares or other compensaton for persona servces actuay
rendered traveng e penses (ncudng the entre amount e pended for meas
and odgng) whe away from home n the pursut of a trade or busness
.
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129
214(b), rt. 271.
Secton 214(b) of the ct provdes as foows:
In the case of a nonresdent aen ndvdua, the deductons aowed n
subdvson (a) sha be aowed ony f and to the e tent that they
are connected wth ncome from sources wthn the Unted States.
s to whether a ta payer may cam a deducton for traveng
e penses n computng net ncome depends upon whether they are
ncurred drecty n connecton wth hs trade or busness. If not,
they are persona e penses and not deductbe, for t s provded n
secton 215(a) of the Revenue ct of 192G that n computng net
ncome no deducton sha n any case be aowed n respect of per-
sona, vng, or famy e penses. These are presumaby taken care
of through an aowance of a persona e empton. (See secton
216(e) n the case of a nonresdent aen.) The aw provdes for
a deducton for traveng e penses (ncudng the entre amount e -
pended for meas and odgng) whe away from home n the pur-
sut of a trade or busness. The phrase whe away from home
n the pursut of a trade or busness must, n order to gve proper
effect to ts meanng, be construed to have reference to those e -
penses ncurred by a ta payer whose busness requres traveng
from one cty to another n the actve conduct of hs busness. It
s not mted to, but a far ustraton s, the case of a traveng
saesman who n order to earn the ncome upon whch the ta s
mposed s requred to be absent from hs headquarters. In Mort
L. bcer v. Commssoner (5 . T. ., 1181) t s stated:
In the opnon of the oard, traveng and vng e penses are deductbe
under the provsons of ths secton ony whe the ta payer s away from
hs pace of busness, empoyment, or the post or staton at whch he s empoyed,
n the prosecuton, conduct, and carryng on of a trade or busness.
In the nstant case the ta payer s pace of busness or post of duty
s n , and hs empoyment s such that he s not requred to
be away from hs pace of busness. In order to get the beneft of
the deducton for meas and odgng the ta payer must have ncurred
the e penses whe traveng, for cearv f he s not traveng such
e pendtures are not deductbe. (I. T . 1355, C. . 1-1, 194 I. T.
1104, C. . 1-2, 145 I. T. 1264, C. . 1-1 122.) Consequenty
amounts e pended by the ta payer for meas and odgng whe
statoned at can not be aowed as a deducton, for the reason
that durng the perod of hs engagement he does not have a trave
status.
though the e pendtures for raroad fares, steamshp fares,
and baggage costs from ustra to the Unted States and return are
necessary on account of the fact that the ta payer ves n ustra
and s empoyed n the Unted States, these e penses are not drecty
connected wth ncome from sources wthn the Unted States and
do not represent e penses ncurred n the actve conduct of a trade
or busness. It must be concuded, therefore, that a deducton for
such e penses not ony s not aowabe under secton 214 (a) 1, supra,
but s prohbted by secton 214(b), supra, whch aows the deduc-
ton for e penses of a nonresdent ndvdua ony to the e tent
that they are connected wth ncome from sources wthn the Unted
States.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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215, rt. 292.
130
S CTION 215. IT MS NOT D DUCTI L .
rtce 292: Capta e pendtures. II-39-3908
I. T. 2433
R NU CT O 1926.
mounts e pended for transportaton, feedng en route, etc.,
ncdenta to the mportaton of ve stock for breedng purposes,
do not consttute operatng e penses but represent capta e -
pendtures.
, as owner of a stock farm, was engaged n the busness of
rasng thoroughbred horses and n the year 1925 purchased certan
horses abroad for breedng purposes. The transportaton and n-
cdenta charges ncurred n mportng these anmas totaed so
doars. captazed the amount pad to the vendors as the cost of
the anmas, deprecated such cost at the rate of 10 per cent per
annum, and charged the amount of doars to current e penses on
her records. The edera ncome ta return fed by her for the year
1925 ncuded the tem of doars among the deductons from ta -
abe ncome. In the audt of the return that tem was dsaowed as
a deducton and treated as a part of the cost of the anmas, sub|ect
to deprecaton at the rate camed by the ta payer.
The queston presented s whether the amount of doars e -
pended for transportaton and charges ncdenta to the mportaton
of anmas acqured for breedng purposes s a proper charge to
capta account, or a current operatng e pense aowabe as a de-
ducton n computng net ncome. It s contended that the pont
nvoved s mportant not ony to the partcuar ta payer, but to the
ndustry n genera that the Unted States Department of gr-
cuture has urged stock rasers to mprove ther stock and that t
woud be n ne wth the efforts n ths drecton and woud factate
the operatons of the stock rasers to aow them to deduct, as operat-
ng e pense, the cost of transportng anmas purchased for breed-
ng purposes. It s aso contended that the same rue shoud appy to
transportaton e penses whether the anmas are purchased n ths
country or abroad.
The matter has been gven very carefu consderaton. It s the
desre of the Treasury Department that ths ndustry, and every
other ndustry, sha suffer no unnecessary handcap or hardshp by
reason of edera ta aton. The Department s furthermore qute
n harmony wth the vew that the same rue shoud appy whether
the anmas purchased for breedng purposes are procured abroad or
n ths country. owever, t seems egay necessary to requre a
such payments to be treated as capta e pendtures.
Nether the Revenue ct of 1926, whch s appcabe to the ta -
abe year 1925, nor the reguatons promugated thereunder con-
tan an e press provson wth regard to the dsposton to be made
of amounts e pended n mportng ve stock for breedng purposes.
ut the genera rue s to treat sums pad out n the acquston of
capta assets as capta e pendtures chargeabe to capta account.
In I. T. 1309 (C. . 1-1, 196) t was stated as foows:
The cost of nstang machnery, as we as the freght charges thereon,
are capta e pendtures to be added to the cost of the machnery. The tota
cost so computed f ncurred snce ebruary 28, 1913, s the bass to be used
n computng deprecaton charge.
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131
217, rt. 311.
The rue s supported by the works of recognzed wrters on
accountng. In udtng Theory and Practce, second edton,
page 383, Montgomery states that:
The cost of nstaaton, ncudng freght, abor, and other tems, s as much
a part of the cost as the prce of the machnery tsef.
It s stated by ester n ccountng Theory and Practce, o-
ume II, page 282, that:
u cost s understood to ncude nvoce prce, nsurance durng transt,
freght, duty and drayage charges, and nstaaton costs.
See aso artce 1613, deang wth nventores taken at cost, of
Reguatons 69, wheren t s stated that to the nvoce prce there
shoud be added transportaton or other necessary charges ncurred
n acqurng possesson of the goods.
It s therefore hed that the amount e pended n ths case for
transportaton ncdenta to the mportaton of anmas acqured for
breedng purposes s not an operatng e pense but a capta
e pendture.
S CTION 216. CR DITS LLOW D INDI IDU LS.
rtce 301: Credts aganst net ncome.
mounts dstrbuted to empoyee by a proft-sharng commttee.
(See G. C. M. 4875, page 137.)
S CTION 217. N T INCOM O NONR SID NT
LI N INDI IDU LS.
n aen whose stay n the Unted States s mted by mmgra-
ton or other aws to a comparatvey short perod of tme must be
cassfed, for ncome ta purposes, as a nonresdent aen n the
absence of e ceptona crcumstances whch woud requre or per-
mt a dfferent cassfcaton.
n opnon s requested as to whether an aen whose stay n the
Unted States s mted by the mmgraton aws can be sad to have
acqured the status of a resdent for the perod of hs temporary stay.
rtce 311 of Reguatons 69 provdes n part as foows:
n aen actuay present n the Unted States who s not a mere transent or
so|ourner s a resdent of the Unted States for purposes of the ncome ta .
Whether he s a transent or not s determned by hs ntentons wt regard
to the ength and nature of hs stay. mere foatng ntenton, ndefnte as to
tme, to return to another country s not sumcent to consttute hm a transent.
If he ves n the Unted States and has no defnte ntenton as to hs stay, he
s a resdent. One who comes to the Unted States for a defnte purpose
whch n ts nature may be prompty 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 resdent, 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.
R NU CT O 1026.
rtce 311: Defnton.
II-28-3795
G. C. M. 4236
R NU CT O 1926.
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217, rt. 311.
132
It appears from the foregong that an aen actuay present n the
Unted States s a resdent aen uness he s a mere transent or
so|ourner, and that ordnary hs ntentons regardng the ength
and nature of hs stay argey determne hs status. It further ap-
pears that f an aen ves n the Unted States and has no defnte
ntentons as to hs stay, he s a resdent.
rtce 313 of Reguatons 69 contans certan rues of evdence
whch govern n determnng whether or not an aen wthn the
Unted States has acqured resdence theren wthn the meanng
of the ct and provdes n part as foows:
n aen, by reason of hs aenage, s presumed to be a non-
resdent aen. Such presumpton may be overcome
2) In other cases by (b) proof that the nen has
fed orm 1078 or ts equvaent, or (c) proof of acts and statements of an
aen showng a defnte ntenton to acqure resdence n the Unted States or
showng that hs stay n the Unted States has been of such an e tended nature
as to consttute hm a resdent.
The mere fact, however, that an aen has fed orm 1078 or ts
equvaent does not estabsh absoutey hs status as a resdent
aen but t w rase a presumpton of resdence whch may be
rebutted by any proper evdence showng that the aen s, n fact,
a transent or nonresdent. vdence whch shows that an aen s
stay n the Unted States s mted by the mmgraton aws to a
comparatvey short perod woud be proper evdence as tendng to
rebut such presumpton.
In an opnon of the ttorney Genera dated March 1, 1921 (32
Op. tty. Gen., 497, at page 504), t s sad that the dstncton
between a transent and a resdent (not domced) aen s not so
much a matter of ntenton as of ength and nature of stay. The
ureau hed n Offce Decson 107 (C. . 1, 164) that f an
aen has been resdng n the Unted States for as much as one
year there s a presumpton that such aen s a resdent of the
Unted States and ths presumpton w be nduged for pur-
poses of ncome ta es n the absence of known facts showng that
the aen s, n fact, a transent. year s presence n the Unted
States by an aen does not, however, estabsh resdence beyond a
doubt. In the case of owrng v. owers (24 ed. (2d), 918
C. . II-1, 99 ), the court hed that owrng, who was a ctzen
of ngand but had spent appro matey 22 out of 27 years n
the Unted States, athough mantanng at a tmes an ntenton
to return to ngand when recaed by hs company, was ceary a
resdent aen for ncome ta purposes. In that case the resdence
was of such duraton that t woud be dffcut to arrve at a df-
ferent concuson, but t s qute mprobabe that a court woud
hod that an aen whose stay n the Unted States was mted by
aw to a comparatvey short perod coud have a bona fde ntenton
to acqure a resdence here.
In vew of the foregong, ths offce s of the opnon that an
aen whose stay n the Unted States s mted by mmgraton or
other aws to a comparatvey short perod of tme must be cass-
fed, for ncome ta purposes, as a nonresdent aen n the absence
of e ceptona crcumstances whch woud requre or permt a
dfferent cassfcaton.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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133
219, rt. 341.
rtce 329: Transportaton servce. II-36-3884
T. D.4201
INCOM T .
Income from sources wthn the Unted States.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 327(a) of Reguatons 62 (added thereto by T. D. 3387,
C. . 1-2, p. 153), artce 329 of Reguatons 65, and artce 329 of
Reguatons 69, whch contan dentca rues, are hereby amended
by nsertng certan provsons n the thrd paragraph of subdvson
(1) between the thrd and fourth sentences thereof, by addng a new
subdvson to be numbered (2), and by changng the numbers of the
present subdvsons (2), (3), and (4) to (3), (4), and (5), respec-
tvey, wth a correspondng change n the references to such sub-
dvsons.
The provsons to be nserted n the thrd paragraph of subdvson
(1) between the thrd and fourth sentences are as foows:
Current assets shoud be decreased by current abtes and aocated to
servces between the Unted States and foregn countres and to other servces.
The part aocated to servces between the Unted States and foregn countres
shoud be based on the proporton whch the gross recepts from such servces
bear to the gross recepts from a servces. The amount so aocated to servces
between the Unted States and foregn countres shoud be further aocated to
servces rendered wthn the Unted States and to servces rendered wthout the
Unted States. The porton aocabe to servces rendered wthn the Unted
States shoud be based on the proporton whch the e penses ncurred wthn the
terrtora mts of the Unted States bear to the tota e penses ncurred n
servces between the Unted States and foregn countres.
The new subdvson to be numbered (2) s as foows:
(2) In computng net ncome from sources wthn the Unted States there
sha be aowed as deductons from the gross ncome as determned n accord-
ance wth (1) above, (a) the e penses of the transportaton busness carred on
wthn the Unted States as determned under (1) above, and (b) the e penses
determned n accordance wth (3) and (4) beow.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved ugust 24, 1928.
enry errck ond,
ctng Secretary of te Treasury.
S CTION 219. ST T S ND TRUSTS.
rtce 341: states and trusts. II-46-3991
G. C. M. 4596
R NU CT O 1920.
Where a w s sent as to the dsposton of ncome receved
durng the perod of admnstraton, the aws of the partcuar
State nvoved must be consdered n order to determne whether
current ncome or gan on saes of property may be propery
pad or credted to resduary or other egatees durng any gven
ta abe year. ,
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134
n opnon s requested upon the foowng queston:
Where a w merey provdes for the dstrbuton of bequests and
resdue and s sent as to the dsposton of ncome receved durng
the perod of admnstraton, may the amount pad or credted to
resduary or other egatees n respect of tems of current ncome and
gan reazed on the sae of property by the estate be recognzed as
a deducton under secton 219(b) 3 of the Revenue ct of 1926
Where a w merey provdes for the dstrbuton of bequests and
resdue and s sent as to the dsposton of ncome receved durng
the perod of admnstraton the aws of the partcuar State nvoved
must be consdered n order to determne whether gan on saes of
property by the estate, or any other ncome, may be propery pad
or credted to resduary or other egatees durng any gven ta abe
year. I. T. 2349 (C. . I-1, 78). See aso appea of state of
W. S. Tyer (9 . T. ., 255). ny ncome of the estate whch s
propery pad or credted durng such year to any egatee, her, or
benefcary s deductbe n computng the net ncome of the estate,
whether such ncome s derved from the sae of corpus or otherwse.
Secton 219(b)3 of the Revenue ct of 1926 makes no dstncton n
ths regard between ncome derved from the sae of corpus and other
ncome. (I. T. 2349, supra.) In the case of trusts, the rue n most
States (uness the trust deed provdes otherwse) s that gan derved
from the sae of trust corpus must be added to the corpus, and s
not dstrbutabe unt the corpus tsef s dstrbuted (39 Cyc, 444),
and of course such dstrbuton may not occur for many years after
the gan s reazed. In such cases the gan s ta ed to the trust as
an entty. In the case of the estate of a deceased person, on the other
hand, the dstrbuton of the corpus of the estate often occurs durng
the same year the gan s reazed, and such gan mght be pad or
credted durng that year to the benefcary who s to receve the
corpus. Uness the w or the aws of the State make such payment
or credt mproper the amount pad or credted s deductbe n com-
putng the net ncome of the estate.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 343: Decedent s estate durng admns- II-29-3808
traton. T.D.4177
INCOM T S.
mendment of artce 343, Reguatons 45 (1920 edton), 62,
65, and 69.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washtgton, D. C.
To Coectors of Interna Revenue and Others Concerned:
In vew of the decson of the Unted States Dstrct Court for
the Southern Dstrct of New York n the case of ankers Trust Co.
v. owers (23 ed. (2d), 941), and the decson of the Court of
Cams n the case of Nchos et a. v. . S. (64 Ct. CL, 241),
n whch certorar was dened by the Unted States Supreme Court
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135
219, rt. 343.
on pr 16, 1928, and the decson of the oard of Ta ppeas n
the appea of Dorothy Payne Whtney Straght, e ecutr (7 . T. .,
177), a to the effect that an ndvdua and hs estate after hs
death are separate and dstnct ta abe enttes and must be regarded
as such n determnng the ncome of the estate durng the perod of
admnstraton as dstngushed from the ndvdua s ncome durng
hs fetme, Treasury Decson 4010 (C. . I-1, 249), amendng
artce 343 of Reguatons 62 Treasury Decson 4011 (C. . I-1,
77), amendng artce 343 of Reguatons 65 and 69 and Treasury
Decson 4012 (C. . I-1, 248), amendng artce 343 of Reguatons
45 (1920 edton), are hereby revoked and artce 343 of each of
the reguatons referred to s restored to read as t dd pror to the
promugaton of those Treasury decsons.
ccordngy, artce 343 o Reguatons 45 (1920 edton), as
amended by Treasury Decson 4012, s hereby amended by changng
the ast sentence thereof and the reference drecty foowng to read:
Where, however, the e ecutor ses property of the estate for more than ts
vaue at the death of the decedent, the e cess s Income ta abe to the estate.
See artce 1562.
rtce 343 of Reguatons 62, as amended by Treasury Decson
4010, s hereby amended by changng the ast sentence thereof and
the reference drecty foowng to read:
Where, however, the e ecutor ses property of the estate for more than ts
vaue at the death of the decedent, the e cess s ncome, or may be capta gan,
ta abe to the estate. See artces 1562 and 1563.
rtces 343 of Reguatons 65 and 69, as amended by Treasury
Decson 4011, are hereby amended by changng the thrd sentence
from the end thereof and the reference drecty foowng to read:
Where, however, the e ecutor ses property of the estate for more than ts
vaue at the death of the decedent, the e cess s ncome, or may be capta gan,
ta abe to the estate. (See artce 1594.)
In addton to the foregong, artce 343 of each of the reguatons
referred to s further amended by addng after the reference n each
artce a new sentence provdng as foows:
ut n the ease of a return of a decedent s estate for any ta abe year pre-
cedng the ta abe year 1928, fed between pr 6, 1927, and uy 7, 1928,
ncusve, see secton 702 of the Revenue ct of 1928 vadatng the computaton
of gan or oss from the sae or other dsposton of property by the estate, f
made n accordance wth the cost or other bass to the decedent, as the case
may be, of the property sod or dsposed of.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved uy 7, 1928.
. W. Meon,
Secretary of the Treasury.
Note. Genera Counse s Memorandum 2364 (C. . I-2, 26) and Genera
Counse s Memorandum 2705 (C. . I-2, 174) are overrued, In effect, by
Treasury Decson 4177, supra.
37229 29 10
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219, rt. 343.
136
rtce 343: Decedent s estate durng admn- II-43-3959
straton. G. C. M. 4983
R NU CT O 1920.
Interest on notes hed by a decedent whch had accrued as of
the date of hs death and whch was ncuded n hs gross estate for
estate ta purposes can not aso be hed to be ncome to hs estate.
Soctor s Memorandum 3256 (C. . I -1, 186) In so far as t s
n confct wth ths opnon s overrued.
n opnon s requested reatve to the ta abty of the estate of
, deceased, for the year 1927.
It appears that the decedent ded on ebruary , 1927, on whch
date there was due hm from the M Company, on sundry notes,
the amount of o doars, pus nterest to date of death amountng
to doars, the tota of whch sums, namey, 21 doars, was
ncuded as part of hs gross estate for estate ta purposes and estate
ta pad thereon.
Durng the year 1927 the M Company pad the tota amount of
the denquent nterest, together wth nterest amountng to
doars, whch accrued on sad 15a doars subsequent to date of
death.
The queston s whether, n the ncome ta return for the estate for
the year 1927, the e ecutor shoud ncude the tota amount of nterest
receved, or ony that porton of t whch accrued subsequent to date
of death. It s contended, on the authorty of Soctor s Memo-
randum 3256 (C. . I -1, 186), that the nterest n the amount of
G doars, due the decedent as of the date of hs death, must be
ncuded as part of the ncome of the estate, n spte of the fact
that t had been ncuded as part of the gross estate for estate ta
purposes.
In Safe Depost, Trust Co. of atmore, ecutor of state of
Robert II. enkns, v. Unted States (Court of Cams, November 7.
1927), the testator owned bonds, notes, mortgages, etc. The tota
amount of unpad nterest accrued thereon, f apportoned down to the
day of the testator s death, was on the date of hs death, 33,568.69.
Ths e act amount was ncuded as part of hs gross estate for estate
ta purposes, as beng the vaue at hs death of sad accrued nterest
The nterest was ater pad to hs e ecutor. The partes agreed that
the case was to be controed by the decson to be reached n Nchos
v. Unted States, whch atter case was then before the Court of
Cams. The court hed, n accord wth ts decson n Nchos v.
Unted States, that the nterest was not ncome to decedent s estate.
In vew of the foregong, t s evdent that the nterest n the amount
of 6a doars, whch t s stated was due the decedent as of the
date of hs death, and whch n any event had accrued as of the date
of hs death, and whch was ncuded n hs gross estate for estate ta
purposes, can not aso be hed to be ncome to hs estate. Soctor s
Memorandum 3256, supra, n so far as t s n confct wth ths
opnon, s overrued.
C. M. Charest,
Genera Counse, ur earn of Interna Revenue.
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137
219, rt. 346.
rtce 343: Decedent s estate durng admn- II-43-3960
straton. I. T. 2435
R NU CT O 1926.
I. T. 2166 (C. . I -1, 189) s revoked n so far as t s n confct
wth Genera Counse s Memorandum 4983, page 136.
rtce 343: Decedent s estate durng admnstraton.
R NU CT O 1926.
ass for determnng gan or oss n case of nstament notes
orgnay receved by decedent and coected by hs estate or ne t of
kn after dstrbuton. (See G. C. M. 5060, page 64.)
rtce 346: Stock bonus, penson, or proft- II -3926
sharng trust. G. C. M. 4875
( so Secton 216, rtce 301.)
R NU CT O 1926.
Under a proft-sharng pan a corporaton aotted n the case of
one of ts empoyees certan shares of stock as a bonus for the years
1923 to 1926, whch, however, were not ssued to hm but were hed
n trust by a proft-sharng commttee, certfcates of condtona
nterest beng ssued to the empoyee. Whe t was provded that
pror to devery of the stock the empoyee shoud be entted to re-
ceve the amount of dvdends decared thereon, he was not a stock-
hoder n the corporaton unt the devery of the stock. In 1927
certan shares of stock were dstrbuted by the corporaton to the
commttee as a stock dvdend, and the empoyee receved from the
commttee a proportonate share thereof.
ed, that as no contrbutons to the trust fund were made by the
empoyee the entre amount of stock dstrbuted to hm represents
ncome for the year of recept to the e tent of ts far market vaue.
The amount receved consttutes a dstrbuton of the corpus of
the fund and can not be cassfed as a dvdend under secton
216(a) of the Revenue ct of 1926.
n opnon s requested as to whether ncome was reazed by ,
durng the year 1927, from the recept of y shares of stock of the
M Company n connecton wth a proft-sharng pan of the corpo-
raton under the facts herenafter stated.
It appears that the ta payer was an empoyee of the M Company
and as such was aotted 2.5y shares of stock of the corporaton as a
bonus or bonuses for the years 1923 to 1926. Such stock was not
ssued, however, to the ta payer but was hed by a proft-sharng
commttee, certfcates of condtona nterest beng ssued to the
empoyee. In 1927 y shares of stock were ssued as a stock dvdend
on the 2.5 / shares so hed by the commttee, and such shares were
actuay dstrbuted by the commttee to the empoyee n that year.
The stated purpose of the proft-sharng pan of the M Company
s to accord to empoyees of the corporaton and those actvey
engaged n the conduct of ts busness, who by ther abty, ndustry,
and oyaty contrbute n an unusua degree to the success of the
corporaton, partcpaton n the profts of the corporaton as speca
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138
compensaton for such contrbutons, and thus to stmuate a con-
tnuance of same. Ths purpose s effected by settng asde n the
month of ebruary n each year a porton of the net profts of the
corporaton for the precedng caendar year as such profts sha be
ascertaned and decared by the board of drectors. The fund so
created s to be dstrbuted among the empoyees of the corporaton
and those actvey engaged n the conduct of ts busness as outned
hereafter. No contrbutons to the fund are made by the empoyees.
ny empoyee of the corporaton and any person actvey engaged
n the conduct of ts busness who sha have been n the reguar and
contnuous empoy of the corporaton or who sha have been actvey
engaged n the conduct of ts busness for the term of one year or
more, and who by hs abty, ndustry, and oyaty has, n the |udg-
ment of the commttee, rendered servces whch have contrbuted n
an unusua degree to the success of the corporaton, s entted to
share n the dstrbuton of the fund.
The dstrbuton of the fund sha be made by a commttee of three
stockhoders to be eected for that purpose at the annua meetng of
the corporaton. Sad commttee sha have power to f vacances
n ts number occurrng before the ne t annua meetng of the cor-
poraton. The members of the commttee sha not be egbe, ether
as offcers, empoyees, or otherwse, to share n such dstrbuton. The
commttee sha nform tsef by nqury of the dfferent departments
of the corporaton as to any servce rendered to the corporaton of the
knd and character mentoned above by any empoyee or other person
actvey engaged n the conduct of ts busness, and sha thereupon
make dstrbuton of sad fund n the manner herenafter stated
among such persons and empoyees n proporton to the vaue and
mportance to the corporaton of the servces so rendered by them
respectvey. The determnaton of the commttee wth respect to
the persons and empoyees who have rendered such servces and the
reatve vaue thereof to the corporaton sha be fna and concusve.
No person or empoyee sha be entted to share n such dstrbuton
who has not n the |udgment of the commttee rendered servces of
the character herenbefore mentoned durng the year on account of
whch the dstrbuton s made. The dstrbuton sha be made
whoy n cash, or part n cash and party n the capta stock of the
corporaton, ether common or preferred, as the commttee sha
determne. The commttee sha have authorty to nvest so much of
sad fund n the purchase of such stock as t sha determne to ds-
trbute n stock nstead of cash. Such stock may, n the dscreton of
the commttee, be devered to the benefcares at once, or may be
hed n whoe or n part by the commttee for a perod not to e ceed
fve years, sub|ect to forfeture n case the benefcary vountary
quts the servce of the corporaton or s dscharged for good cause,
of whch the commttee sha be the |udges. ny forfeted stock
sha be dstrbuted at the end of the perod for whch t s hed pro
rata among the empoyees and persons of the same cass who have
contnued n the servce of the corporaton to the end of the perod
and are then n good standng. In case any benefcary for whom
stock s hed sha de or become permanenty dsabed whe n the
servce of the corporaton or sha be retred under any penson pan,
such stock sha thereupon be devered to hm or hs estate.
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139
219, rt. 346.
benefcary for whom such stock s hed sha be entted to a dv-
dends decared thereon whe he contnues n the servce of the
corporaton.
The amount of stock awarded under ths proft-sharng pan s
represented by a nontransferabe certfcate of condtona nterest,
readng n part as foows:
Ths s to certfy that shares of common stock of the M Company
(herenafter caed the company) of the par vaue- of one hundred doars
( 100.00) each, are now hed by the proft-sharng commttee of the company
(herenafter caed the commttee) for the account of (herenafter
( aed the empoyee) under and pursuant to the proft-sharng pan of the com-
pany and the award made by the commttee n the month of ebruary, 1927, for
the year 1926. Sad stock wa awarded upon, and s hed by the commttee
sub|ect to, the foowng terms and condtons, vz:
1. If the empoyee remans contnuousy n the servce of the company for
the perod of fve years, or unt anuary 1, 1932, and durng a of such perod
renders fathfu and satsfactory servce to the company, then as soon after
anuary 1. 1932, as may be practcabe, and upon the surrender of ths cer-
tfcate, the commttee w assgn, transfer, and dever to hm as hs property
the shares of stock herenabove referred to.
2. Unt the devery of such shares and whe the empoyee remans n the
servce of the company, he sha be entted to receve and the commttee w
pay hm the dvdends, f any, decared upon the shares of stock referred to n
ths certfcate.
Then there foow certan other condtons as to forfeture, death,
etc.
In order to arrve at the proper souton of the queston submtted
t s necessary to consder the ega effect of the proft-sharng pan.
though the award to the empoyee s based upon abty, ndustry,
and oyaty manfested n an unusua degree by the empoyee n the
past, t s aso made to stmuate a contnuance of the same n the
future. Consequenty, the stock s not devered to the empoyee
when t s awarded, but nstead he receves a certfcate of condtona
nterest as outned above certfyng that the stock s hed for hs
account. s a prerequste to the fu possesson and ownershp of
the stock t s necessary that the empoyee reman n the servce of the
corporaton for a perod of fve years or unt anuary 1, 1932, and
durng that perod render fathfu and satsfactory servce. Unt
these condtons are fufed the empoyee s not the owner of the
stock whch s awarded, even though under the proft-sharng pan
he s permtted to receve the dvdends thereon.
In I. T. 1891 (C. . III-, 132) t was hed under the evenue ct
of 1918 n a smar case that nasmuch as tte to a partcuar award
of stock dd not pass to the empoyee unt the e praton of fve years
he was not a stockhoder. fter ctng York v. Pmsac Rong-M
Co. (1887) (30 ed., 471) and Gearhart v. Standard Stee Car Co.
(1909) (223 Pa., 385 72 t., 699), that opnon reads n part as
foows:
Smary, t s sad n etcher, Corporatons, at pages 5748-5749:
In order that a certfcate may be regarded as ssued, so as to confer
ghts, t must have been devered. So there s no ssuance of a certfcate
where t s never detached from the stock book, athough the banks theren
are propery fed up, f the person whose name s nserted theren has no
contro over the books of the company.
To the same effect s Wocott v. Wadsen (1916) (86 N. . q... 63 97
t., 951).
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219, rt. 346.
140
These cases ndcate that n the nstant case bonus stock does not beong
to the, empoyee at the tme of the award, .
rom the foregong t s evdent that the empoyee n the nstant
case s not a stockhoder n the corporaton by reason of the stock
bonus award unt the condtons set forth n the certfcate of cond-
tona nterest have been fufed and the stock devered, regardess
of the fact that he s permtted to receve the dvdends decared
thereon durng the perod the stock s hed by the proft-sharng
commttee.
Secton 219(f) of the Revenue ct of 1926 provdes as foows:
trust created by an empoyer as a part of a stock bonus, penson, or proft-
sharng pan for the e cusve beneft of some or a of hs empoyees, to whch
contrbutons are ma e by such empoyer, or empoyees, or both, for the purpose
of dstrbutng to such empoyees the earnngs and prncpa of the fund
accumuated by the trust n accordance wth such pan, sha not be ta abe
under ths secton, but the amount actuay dstrbuted or made avaabe to any
dstrbutee sha be ta abe to hm n the year n whch so dstrbuted or made
avaabe to the e tent that t e ceeds the amounts pad n by hm. Such
dstrbutees sha for the purpose of the norma ta be aowed as credts such
part of the amount so dstrbuted or made avaabe as represents the tems
specfed n subdvson (a) and (b) of secton 210.
Secton 216(a) of the Revenue ct of 1926 provdes as foows:
or the purpose of the norma ta ony there sha be aowed the foowng
credts:
(a) The amount receved as dvdends (1) from a domestc corporaton other
than a corporaton entted to the benefts of secton 262, and other than a
corporaton organzed under the Chna Trade ct, 1922 .
It seems cear from an e amnaton of the proft-sharng pan as
outned above that a trust was created by the corporaton for the
e cusve beneft of ts empoyees. No partcuar form of words s
requred to create a trust, and whether one e sts s to be ascertaned
from the ntenton of the partes as manfested by the words used
and the crcumstances of the partcuar case. If t appear to be the
ntenton of the partes, from the whoe nstrument creatng t, that
the property conveyed s to be hed or deat wth for the beneft of
another, a court of equty w aff to t the character of a trust and
mpose correspondng dutes on the party recevng the tte, f t
be capabe of awfu enforcement. In determnng whether or not
a trust has been created, courts w take nto consderaton the
stuaton and reatons of the partes, the character of the property,
and the purpose whch the settor had n vew n makng the decara-
ton. It s suffcent f the anguage show s that the settor ntended
to create a trust, and ceary ponts out the property, the benefcary,
and the dsposton to be made of the property. The use of the word
trust or trustee s not essenta to the creaton of a trust. Those
words have, t s true, a defned and technca meanng and are more
generay as we as more propery used, but t s we setted that
there s no magc n partcuar words, and any anguage whch
satsfactory ndcates an ntenton to create a trust w be suffcent.
(26 R. C. L., sec. 18.)
In vew of the foregong, t s the opnon of ths offce that a trust
was created wthn the meanng of secton 219(f) of the Revenue ct
of 1926. The proft-sharng commttee as trustee was the stockhoder
and hed for the account of the ta payer 2.5 / shares of stock of the
corporaton wth respect to whch t receved y shares of stock as a stock
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219, rt. 346.
dvdend. It s of course true that the Supreme Court has hed n
sner v. Macomber (252 U. S., 189 T. D. 3010, C. . 3, 25) that
a stock dvdend dstrbuted by a corporaton to ts stockhoders s not
ncome wthn the s teenth amendment, and kewse t s provded
n secton 201(f) of the Revenue ct of 1926 that a stock dvdend
sha not be sub|ect to ta . owever, the queston here s not whether
the stockhoder, whch s the proft-sharng commttee, receved any
ncome by reason of the stock dvdend, but whether an empoyee of
the corporaton who s not a stockhoder and who has ony a cond-
tona nterest n stock of the corporaton receved ncome by reason
of the dstrbuton to hm of what was a stock dvdend to the proft-
sharng commttee. In sner v. Macomber, supra, t was ponted out
that a stock dvdend s no more than a book ad|ustment, n essence
not a dvdend. In order to make the ad|ustment a charge s made
aganst surpus account, wth a correspondng credt to capta stock
account equa to the proposed dvdend. It does not ater the pre-
e stng proportonate nterest of any sharehoder. The new certf-
cates smpy ncrease the number of shares, wth consequent duton
of the vaue of each share, the capta, nterest remanng the same.
fter the stock dvdend there was thus hed for the account of the
ta payer 3.5y shares of stock nstead of 2.5y shares. If the com-
mttee had made no dstrbuton of the stock receved as a stock dv-
dend the ta payer woud, at the end of fve years, or on anuary 1,
1932, have receved 3.5y shares of stock, and not unt then woud
such stock have been consdered ncome n the form of compensaton
for servces rendered. ut, apparenty n pursuance of the provsons
contaned n the certfcates of condtona nterest to the effect that
the empoyees sha be entted to receve and the commttee w pay
hm the dvdends decared upon the stock represented by the certf-
cates of condtona nterest, the commttee dstrbuted to the ta payer
the y shares of stock receved as a stock dvdend, whch n fact
formed a part of the corpus of the trust fund. Thus the ta payer
receved n 1927 part of the addtona compensaton that he otherwse
woud have utmatey receved at the end of the stpuated perod.
It s provded n secton 219(f), supra, that a trust created as a
part of a stock bonus or proft-sharng pan sha not be ta abe, but
the amount actuay dstrbuted to any dstrbutee sha be ta abe
to hm n the year n whch dstrbuted to the e tent that t e ceeds the
amount pad n by hm. In the nstant case, nasmuch as no contrbu-
tons to the trust fund were made by the empoyee, the entre amount
of stock dstrbuted to hm represents ncome for the year of recept
to the e tent of ts far market vaue.
s the amount receved consttutes a dstrbuton of the corpus of
the fund, t can not be cassfed as a dvdend tem comng wthn
the purvew of secton 216(a) so as to permt the dstrbutee to receve
a credt thereon for the purpose of norma ta .
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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219, rt. 347.
142
II-31-3830
G. C. M. 4208
In two trust nstruments e ecuted by the ta payer t s decared
that he hods the property embraced theren (1) unt the e -
praton of years from the dates thereof or (2) unt the death
of the benefcary or (3) unt the death of the decarant, whch-
ever of sad events sha frst occur, to coect the ncome thereof
and to appy the same to the use of the benefcary. oth trust
Instruments provde that the decarant may at any tme appont a
successor trustee, dever the trust property to hm, and n such
case may restrct, ncrease, or modfy the powers of the successor.
ed, the trust nstruments do not create trusts whch are wthn
secton 219(g) of the Revenue ct of 1926 but estabsh dstrbut-
abe trusts the ncome from whch s ta abe to the benefcary.
n opnon s requested as to whether two trust nstruments e e-
cuted October , 1925, and November , 1925, respectvey, by ,
create trusts whch are wthn secton 219(g) of the Revenue ct
of 1926 or estabsh dstrbutabe trusts the ncome from whch s
ta abe to the benefcary.
Secton 219 (g), supra, reads as foows:
Sec. 219. (g) Where the grantor of a trust has, at any tme durng the ta -
abe year, ether aone or n con|uncton wth any person not a benefcary of the
trust, the power to revest n hmsef tte to any part of the corpus of the trust,
then the ncome of such part of the trust for such ta abe year sha be ncuded
n computng the net ncome of the grantor.
The two trust nstruments are practcay dentca e cept for the
ength of duraton of the trust and the property embraced theren.
s the benefcary n each trust. The pertnent causes are as
foows:
rst: The decarant hods for the purposes and upon the trusts herenafter
set forth the moneys and securtes specfed n schedue hereto.
The trusts on whch the decarant hods the trust estate are:
(a) To hod the trust estate (1) unt the e praton of years from the
date hereof or (2) unt the death of the benefcary or (3) unt the death of
the decarant, whchever of sad three events sha frst occur, and coect the
ncome thereof, and to appy the same to the use of the benefcary.
Thrd: The decarant may retan any securty specfed n schedue , and
may nvest, e change, and from tme to tme renvest the prncpa of the trust
estate n such bonds and stocks as the decarant n hs
uncontroed dscreton may deem wse, whether trustee s nvestments or not.
ourth: The decarant may at any tme n hs dscreton appont a trustee
Dr trustees of the trusts decared n ths decaraton of trust and dever the
trust estate to such appontee or appontees. The decarant may by any such
nstrument of appontment restrct, ncrease, or modfy the powers of such
appontee or appontees as trustee or trustees under ths decaraton of trust,
but uness by the nstrument of appontment e pressy conferred, such appontee
or appontees, whe authorzed to retan any securtes specfed n schedue
or any securtes n whch the decarant may have nvested the trust estate,
sha not. have power to renvest the trust estate n other securtes than those
n whch trustees may at the tme be authorzed by aw to renvest trust
funds.
It has been suggested that the word retan n the thrd cause
above quoted may gve the decarant such power over the securtes
n the trust that he coud revest n hmsef benefca tte to any part
of the corpus.
In the opnon of ths offce the word retan does not have such
effect. The ta payer has aready decared hmsef trustee of the
securtes n a pror cause, and the natura nference s, therefore,
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219, rt, 347.
that he has power to retan the securtes as trustee, not as bene-
fca owner. The thrd paragraph, as a whoe, moreover, ndcates
that the word retan was used to make t entrey cear that though
the securtes of whch the ta payer has decared hmsef trustee may
not be those authorzed by aw for the nvestment of trust funds, the
dentca securtes for the trust, or e change them for others, whch
aso need not be authorzed by aw for trustee s nvestments. In
other words, there s to be no obgaton on the trustee to get rd
of the securtes smpy because they are not authorzed by aw for
trust funds.
Ths nterpretaton s borne out by the fourth paragraph, whch
provdes n effect that f the decarant apponts a new trustee such
trustee, whe authorzed to retan for the trust any securtes turned
over to hm by the decarant (even though they are not authorzed
by aw for trust funds), sha not have power to nvest n any new
securtes not authorzed by aw for trust funds uness such power s
e pressy granted n the nstrument of appontment. In other words,
the decarant wshes to make t cear that whe he s wng to trust
hs own |udgment as to nvestments outsde the fed of those author-
zed by aw, the trust nstrument shoud not be nterpreted as grant-
ng such dscreton n advance to successor trustees. They may re-
tan the securtes the decarant has nvested n, but as to new ones
they must be guded by aw uness the decarant e pressy grants
them wder powers. If the thrd and fourth paragraphs are read
together t seems cear that n each cause the word retan means
retan as trustee, and not benefcay, and gves no power to the
decarant to become the owner of the trust property n hs own rght.
It may be contended, however, that the rght of the decarant,
under the fourth paragraph, to restrct, ncrease, or modfy the
powers of an appontee as trustee gves the decarant the power to
drect such appontee to turn the corpus over to the decarant as
benefca owner, or pay the decarant the ncome therefrom. ut
ths rght of the decarant to restrct, ncrease, or modfy the powers
of a successor trustee must be construed n the ght of the whoe
trust nstrument, and partcuary n reaton to the paragraph n
whch the rght s gven. In a pror porton of the nstrument the
decarant has stated n unquafed terms that the purpose of the
trust s to hod the securtes, coect the ncome thereof, and appy
t to the use of the benefcary. Later n the nstrument the decarant
s gven the rght to appont a successor trustee and to restrct, n-
crease, or modfy hs powers, but the sub|ect matter of the para-
graph ndcates that the word powers refers to the powers of the
trustee wth respect to the manner n whch the trust fund s to be
nvested, and not to a power to ater the whoe purpose of the trust
as unequvocay decared n a pror part of the nstrument. In-
deed, as the terms are ordnary used, the powers of a trustee
are one thng and the nature, ob|ect, or purpose of the trust s
another. trustee does not usuay have the rght to change the
purpose of a trust, and t s not customarv to thnk of such a rght
as beng one of the trustee s powers. (See 39 Cyc, pp. 290, 291.)
Therefore, uness the manner n whch the rght s conferred seems
affrmatvey to ndcate such an ntent, t woud seem that the rght
retaned by decarant to ater the powers of a successor trustee
decarant
dscreton, ether retan those
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225, rt. 421.
144
woud not ncude the rght to change the purpose of the trust or
revoke t atogether.
In the nstant case, far from affrmatvey showng such an ntent,
the sub|ect matter of the paragraph n whch the rght s conferred,
together wth the sub|ect matter of the nstrument as a whoe, tends
to ndcate that t was not ntended to confer such a broad rght.
In vew of the dgence wth whch courts protect the nterests of
benefcares under trust nstruments, t s dffcut to conceve that
any court, n a contest between the benefcary and the trustee over
the meanng of ths cause, woud hod that the decarant coud
deprve the benefcary of her ncome n such a roundabout and
unusua fashon when a much more obvous nterpretaton woud
secure her contnued en|oyment of the benefts of the trust.
In vew of the foregong, ths offce s of opnon that the trusts
are dstrbutabe trusts, the ncome from whch s ta abe to the
benefcary.
C. M. Chahest,
Genera Counse, ureau of Interna Revenue.
S CTION 225. IDUCI Y R TURNS.
rtce 421: ducary returns. II-51 035
( so Secton 239, rtce 621.) G. C. M. 4421
R NU CT9 O 1924 ND 1926.
The trustees under a w were requred to pay the net ncome
frnm the trust estate to a fe benefcary. corporaton was or-
ganzed for convenence n handng the trust property, and ts
stock was ssued n e change for the securtes consttutng the
corpus of the trust. The trustees contnued to act as trustees, the
corporaton not beng substtuted as trustee.
ed, the corporaton shoud fe reguar corporaton returns and
the trust shoud fe returns showng the amount dstrbutabe to
the benefcary f there s ncome suffcent n amount to requre
the fng of a return.
Under the w of , deceased, a certan porton of hs estate was
bequeathed to and C, as trustees, who were requred to pay the
net ncome therefrom to D durng her natura fe. Pror to 1924
and C, as trustees for D, fed fducary returns. On December ,
1923, the M Company, a corporaton, was organzed for the con-
venence of the trustees n handng the trust property. The out-
standng stock of the M Company, consstng ony of a nomna
amount, a of whch s hed by the trustees, and C, was ssued n
e change for the securtes consttutng the corpus of the trust, so
that from and after December 31, 1923, the trust property conssted
soey of stock of the M Company. The M Company was not sub-
sttuted as trustee, but and C contnued to act n that capacty
durng a of the perod under consderaton. Returns were made for
the M Company for 1924 and 1925, but the trustees dd not make
fducary returns for those years, t beng evdenty the thought of
the trustees that the returns made for the corporaton were suffcent
for the purposes of the trust estate aso.
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145
225, rt. 421.
The queston s presented as to what returns were requred to be
fed for 1924 and 1925.
Secton 230 of the Revenue cts of 1924 and 1926 mposes an
ncome ta at a f ed rate upon the net ncome of every corporaton
e cept the corporatons descrbed n secton 231 of the same cts,
whch secton e empts certan corporatons from ta aton. The
M Company, however, very ceary s not e empt under any of the
provsons of secton 231. It s qute evdent, therefore, that the
M Company s a ta abe corporaton and, as provded by secton
239 of the 1924 and 192G Revenue cts, was requred to make a
corporaton ncome ta return for each of the years 1924 and 1925.
Ths s true rrespectve of whether the trustees may aso be requred
to make and fe fducary returns for the same years rrespectve of
the ncome from the trust property whch D shoud report n her
ndvdua return and rrespectve of whether the corporaton was n
recept of any ta abe ncome.
Shoud and C, as trustees, have fed fducary returns coverng
the same years s before mentoned, t was evdenty the thought
of the trustees that the returns made for the M Company were suf-
fcent for the purposes of the trust estate aso. It s to be noted that
the M Company was never substtuted as trustee of the property from
whch D s entted to receve the ncome but, on the contrary, that
and C durng a the perod under consderaton contnued to act
as such trustees. It was n ther capacty as such trustees that
and C e changed the securtes, whch had theretofore consttuted the
corpus of the trust, for the stock of the M Company, so that the rea-
tonshp whch the trust had to the corporaton was that of a stock-
hoder. There s no warrant for treatng the returns of the M Com-
pany as suffcent for the purposes of the trust estate aso, even
though the trustees hed a of the outstandng stock of the corpora-
ton. or ncome ta purposes the M Company was one entty and
shoud fe reguar corporaton ncome ta returns the trust estate
was a separate and dstnct entty, and for each year that there
was ncome suffcent n amount to requre the fng of a return, the
trustees shoud fe a fducary return showng theren, among other
thngs, the amount whch s dstrbutabe to the benefcary.
rom and after December 31, 1923, the corpus of the trust con-
ssted soey of the capta stock of the M Company, a domestc
corporaton engaged n buyng and seng stock, bonds, and other
securtes. It appears, therefore, that the ncome whch the trustees
receved was prncpay dvdends on the stock of that company.
Such dvdends were ncome n the hands of the trustees whch was
dstrbutabe to the benefcary and therefore shoud be reported
by her n her ndvdua return as ncome sub|ect to surta whether
actuay dstrbuted to her or not.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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230, rt. 503. 146
P RT III. CORPOR TIONS.
S CTION 230. T ON CORPOR TIONS.
rtce 503: Corporatons abe to ta . II-37-3891
( so Secton 239, rtce 621.) I. T. 2431
R NU CT O 1926.
Secton 22 of the ct of March 1, 1879 ( 20 Stat. L., 35), whch
provdes that no ta sha be assessed, or coected, or pad nto
the Treasury, on account of a bank that has ceased to do busness
on account of nsovency or bankruptcy, s not appcabe so as
to e empt a eo oraton from payment of ncome ta , where
the recever of the bank forecosed on ts capta stock hed as
coatera for a oan, and thereafter coected rents as the owner
of the capta stock of the corporaton.
Under the aws of Oregon the corporaton was uot dvested
of tte to ts assets durng the perod from the date of the
revocaton of ts artces of ncorporaton n anuary, 1925, to
the date n October, 1927. when ts charter was restored. The
return as ted for the caendar year 1927 was correct and t
shoud not be amended so as to cover ony the perod from the date
of the restoraton of the charter to December 31, 1927.
dvce s requested reatve to the M Company s cam of e emp-
ton from ta under the ct of March 1, 1879, chapter 125. secton
22. It s aso camed that the M Company was not n e stence from
anuary , 1925, to October , 1927, and accordngy the return
for 1927 shoud not cover ncome receved durng that perod.
n e amnaton of the evdence dscoses that the artces of
ncorporaton of te M Company were revoked bv a procamaton
of the governor of the State of Oregon dated anuary , 1925.
of the M Company s capta stock had been pedged to the O
ank as coatera securty for a oan evdenced by a promssory
note n the sum of 5a doars. The bank suspended on pr ,
1927, on account of nsovency. The recever ot the bank forecosed
aganst the coatera, became the owner of the capta stock, and on
October , 1927, had the M Company restored to ts franchses and
prveges for the purpose of qudatng ts affars and payng the
amount due the nsovent O ank. The recever hods the offce of
presdent of the M Company and s coectng rents from the prop-
erty of the M Company as owner of the capta stock and as mort-
gagee n possesson, havng acqured a mortgage aganst the property
n the amount of 7 doars. The ony asset of the M Company
conssts of two ots, beng the property referred to as under the
contro of the recever. The O ank Deng nsovent, payment of
ncome ta on the M Company s ncome woud dmnsh the assets
of the bank necessary to pay depostors.
Secton 22 of the ct of March 1, 1879 (20 Stat. L., 351), pro-
vdes as foows:
That whenever and after any bank has ceased to do busness by reason
of nsovency or bankruptcy, no ta sha be assessed or coected, or pad nto
the Treasury of the Unted States, on account of such bank, whch sha
dmnsh the assets thereof necessary for the fu payment of a ts depostors
and such, ta sha be abated from such natona banks as- are found by the
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147
231, rt. 511.
Comptroer of Currency to be nsovent and the Commssoner of Interna
Revenue, when the facts sha so appear to hm, s authorzed to remt so much
of sad ta aganst nsovent State and savngs banks as sha be found to
affect cams of ther depostors.
It w be noted that the prohbton contaned n the above-
quoted e cerpt s restrcted to assessment, coecton, or payment of
any ta on account of such bank. In the nstant case the ta s
not assessed or coected, or pad, on account of the O ank. It s
the M Company aganst whch the ta was assessed and on whose
account coecton s sought. It s therefore hed that secton 22
of the ct of March 1, 18T9, s not appcabe to the facts n ths
case and the cam for e empton from ta s accordngy not
aowabe.
Reatve to the cam that the M Company s return fed ebruary
, 1928. for the caendar year 1927 shoud be amended to cover ony
the perod from October , 1927, the date on whch ts charter was
restored, to December 31, 1927, ncusve, ths offce construes sec-
ton 6875 of the Oregon statutes, as amended by chapter 340 of the
Genera Laws of Oregon, 1927, as authorty for the concuson that
the dssouton of the M Company on anuary , 1925, dd not
dvest t of ts tte to the assets above mentoned. Inasmuch as the
ega tte to such property remaned n the corporaton durng the
nterva between the date of ts dssouton and the restoraton of
ts charter, t foows that any rent pad for the use and occupancy
of such property was ncome to the M Company, so that the return
as fed was the proper return requred by aw.
S CTION 231. CONDITION L ND OT R
MPTIONS O CORPOR TIONS.
rtce 511: Proof of e empton. II-46-3992
( so Secton 213(b), rtce 87.) I. T. 2436
R NU CT O 1926 ND TRIOR CTS.
In 1911 the cty of R authorzed the R oard of Trade to form
a |ont stock company to erect a budng to be used as a market
pace and audtorum. The ta payer company was organzed, and
a budng was erected on a pot of ground owned by the cty. The
company operates n the same manner as any company woud that
was carryng on busness for ts own beneft. fter the payment
of dvdends and e penses a ncome remanng s turned over to
the cty to be used n retrng outstandng capta stock. fter a
capta stock has been retred, tte to the assets of the company
w be vested n the cty of R.
ed, that the ta payer s not e empt as a hodng company under
the provsons of secton 231(13) of the Revenue ct of 1926 and
correspondng sectons of pror Revenue cts. No ta coud egay
be eved upon such porton of the ncome receved for the years
1922 and 1923 as was, accordng to the contract, payabe to the
cty of R. The ta es pad for 1924, 1925. and 1926 are egay
refundabe to the cty of R n an amount whch bears the same
reaton to the amount of the ta as the amount whch (but for
the mposton of the ta ) woud have accrued drecty to or for
the use of the cty of R bears to the amount of the net ncome from
the operaton of such pubc utty for each ta abe year.
G
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231, rt. 611.
148
dvce s requested as to whether the M Company s entted to
refunds of ncome ta es for the caendar years 1922, 1923, 1924, 1925,
and 1926. ach of the refund cams s based upon the contenton
that the corporaton s e empt from ncome ta under the provsons
of secton 231(13) of the Revenue ct of 1926 and correspondng
sectons of pror Revenue cts.
It appears that the cty of R owned a pot of ground on whch there
was a market budng. In 1911, due to popuar demand for a mod-
ern budng, the cty passed an ordnance whereby the R oard
of Trade was authorzed to form a |ont stock company for the
purpose of erectng a sutabe budng to be used as a market pace
and audtorum. s a resut the company was organzed, stock was
sod to many of the ctzens of R, and the budng was erected and
operated as a market. The evdence shows that the company oper-
ates n e acty the same manner as any company woud that was
carryng on operatons for ts own beneft. Meetngs of the stock-
hoders may be caed by the board of drectors at ary tme or by
the hoders of one-tenth n vaue of the capta stock. The manage-
ment of the company s affars s vested n a board of drectors con-
sstng of nne members eected from ts stockhoders, three of whom
are eected by the cty counc. Under the provsons of the ord-
nance authorzng the R oard of Trade to form the M Company, t
s set forth that the capta stock s to pay per cent dvdends, that
ncome remanng after the payment of dvdends and necessary e -
penses s to be turned over to the cty of R, and that such ncome s
to be used by the cty n retrng a or any part of the outstandng
capta stock. Of the tota ssue of 5t/ shares, y shares have been
retred n the manner stated. fter a the capta stock has been
retred, tte to the assets of the corporaton w be vested n the
cty of R.
It s apparent, that the company does not quafy for e empton as
a hodng company under secton 231(13) of the Revenue ct of 1926
and correspondng sectons of pror Revenue cts, nasmuch as ts
actvtes and the purposes for whch t was formed are much broader
than those stated n the secton of the statute referred to. whch con-
tempates the e empton of those corporatons organzed for the pur-
pose of hodng tte to property, coectng ncome therefrom, and
turnng over such ncome, ess e penses, to an organzaton whch s
tsef e empt- The ureau has consstenty hed that where a cor-
poraton whch mght otherwse be e empt as a hodng company
engages n an actvty whch s not n connecton wth or ncdenta
to the upkeep of ts property, such actvty w operate to defeat
e empton.
further queston arses as to the effect of the second paragraph
of secton 213(b)7 of the Revenue cts of 1921, 1924, and 1926. The
second paragraph of secton 213(b) 7 of the Revenue ct of 1921
provdes as foows:
Whenever any State, Terrtory, or the Dstrct of Coumba, or any potca
subdvson of a State or Terrtory, pror to September 8. 1916. entered
good fath nto a contract wth any person, the ob|ect and purpose of whch s
to acqure, construct, operate, or mantan a pubc utty, no ta sha be eved
under the provsons of ths tte upon the ncome derved from the operatou of
such pubc utty, so far as the payment thereof w mpose a oss or bunen
upon such State. Terrtory, Dstrct of Coumba, or potca subdvson: but
ths provson s not ntended and sha not be construed to confer upon such
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149
231, rt. 513.
person any fnanca gan or e empton or to reeve such person from the pay-
ment of a ta as provded for n ths tte upon the part or porton of such
ncome to whch such person s entted under such contract.
Inasmuch as t appears that the cty of R, pror to September 8,
1916, entered n good fath nto a contract wth the M Company the
ob|ect of whc was to acqure, construct, or operate a budng to be
used as a market pace and audtorum, a pubc utty, no ta coud
egay be eved upon such porton of the ncome receved for the
years 1922 and 1923 as was, accordng to the contract, payabe to the
cty. The cams for refund, however, appear to be based upon the
theory that a of the ncome for those years was e empt. They
shoud be dened to the e tent that the ta was upon ncome whch
the ta payer was entted to retan under the contract and shoud be
aowed to the e tent that the ta was upon ncome whch under the
contract was payabe to the cty.
The second paragraph of secton 213(b)7 of the Revenue cts of
1924 and 1926, under whch the ta es for 1924, 1925, and 1926 were
eved, provdes n part as foows:
Whenever any State, Terrtory, or the Dstrct of Coumba, or any potca
subdvson of a State or Terrtory, pror to September 8, 1916, entered n good
fath nto a contract wth any person, the ob|ect and purpose of whch s to
acqure, construct, operate, or mantan a pubc utty
( ) If by the terms of such contract the ta mposed by ths tte s to be
pad out of the proceeds from the operaton of such pubc utty, pror to any
dvson of such proceeds between the person and the State, Terrtory, potca
subdvson, or the Dstrct of Coumba, and f, but. for the mposton of the
ta mposed by ths tte, a part of such proceeds for the ta abe year woud
accrue drecty to or for the use of such State, Terrtory, potca subdvson,
or the Dstrct of Coumba, then a ta upon the net ncome from the opera-
ton of such pubc utty sha be eved, assessed, coected, and pad n the
manner and at the rates prescrbed n th9 tte, but there sha e refunded to
such State, Terrtory, potca subdvson, or the Dstrct of Coumba (under
rues and reguatons to be prescrbed by the Commssoner wth -the approva
of the Secretary) an amount whch bears the same reaton to the amount
of the ta as the amount whch (but for the mposton of the ta mposed by
ths tte) woud have accrued drecty to or for the use of such State, Terrtory,
potca subdvson, or the Dstrct of Coumba, bears to the amount of the
net ncome from the operaton of such pubc utty for such ta abe year.
Under the crcumstances n the nstant case t appears that the
ta es for the caendar years 1924. 1925, and 1926 were propery
coected from the M Company. The cams for refund fed by the
M Company for those vears shoud be re|ected. The ta es pad
for 1924, 1925, and 1926 are egay refundabe to the cty of R
n an amount whch bears the same reaton to the amount of the
ta as the amount whch (but for the mposton of the ta ) woud
have accrued drecty to or for the use of the cty of R bears to the
amount of the net ncome from the operaton of such pubc utty
for each ta abe year. The cty of R shoud, however, fe cams
for refund of the ncome ta es whch are refundabe to t for those
years.
rtce 513: Mutua savngs banks.
R NU CT O 1926.
Mutua savngs banks organzed under the aws of a foregn State.
(See G. C. M. 4729, page 58.)
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231, rt. 517.
150
rtce 517: egous, chartabe, scentfc, II-28-3796
terary, and educatona organzatons and I. T. 2421
communty chests.
R NU CTS O 1918, 1921, 1924, ND 1926.
The M Company s a prvate hospta operated for the beneft
of Dr. and such other physcans as he may desgnate n the
performance of ther professona dutes wth respect to patents
treated by them. Dr. has fu power and contro over a
matters reatng to the operaton of the hospta n addton to
securng benefts through the factes of the hospta for hs
prvate practce. Wth few e ceptons a patents treated at the
hospta are pay patents. contrbutons and donatons to the
hospta are made by Dr. . No provson s made n the artces
of ncorporaton of the company for the dstrbuton of the assets
n case of dssouton. The net ncome s used n the enargement
and mprovement of hospta factes.
ed, that the company s not e empt from edera ncome
ta , snce t s not operated e cusvey for any one or more of the
purposes enumerated n secton 231(6) of the varous Revenue
cts.
n opnon s requested as to whether the M Company s e empt
from ncome ta under the provsons of secton 231(6) of the
Revenue ct of 1926 and the correspondng provsons of pror
Revenue cts.
The company was ncorporated under the aws of the State of R as
a nonstock corporaton for the purpose of operatng a hospta.
The offcers of the company consst of a presdent, vce presdent,
treasurer, and secretary, chosen annuay by the board of drectors
from among ther number. The artces of ncorporaton vest the
entre contro and management of the property, affars, and busness
of the company n the board of drectors, consstng of three mem-
bers, and the offcers thereof who are chosen by the board of drectors.
The power and authorty of the drectors and offcers are sub|ect to
the by-aws adopted by the members.
On anuary , 1918, the company entered nto an agreement wth
Dr. whereby Dr. conveyed to the company certan property for
a consderaton of 12 doars secured by nterest-bearng notes at
the rate of per cent per annum. s a part of the consderaton
for the transfer of the property, the company agreed to appont
Dr. as superntendent of the medca staff of the hospta for the
perod of hs natura fe or unt he vountary resgned from the
offce. s superntendent of the hospta Dr. has absoute contro
of the seecton and appontment of the assocate members of the
sad medca staff, and upon faure to compy wth any one of the
stpuatons n the agreement Dr. may rescnd the sae of the
property n queston. There are s physcans on the hospta med-
ca staff, and ony two outsde physcans have used the factes of
the hospta organzaton. Prmary a contrbutons and dona-
tons made to the hospta, ncudng the payment for the erecton of
a nurses home, have been made by Dr. , who occupes the entre
fourth foor of the hospta. Durng 1923 the hospta supped
Dr. wth a hep requred n the operatng rooms, ght, heat, etc,
for whch he pad the sum of 5.5a doars to the hospta as renta.
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151
231, rt. 517.
Ths arrangement, however, was unsatsfactory, and thereafter an
annua renta was pad to the hospta based whoy upon the budget
requrements of the hospta and not upon the vaue of the space or
factes utzed by Dr. . t the present tme the charge for serv-
ces rendered patents of Dr. s pad drect to the hospta. Wth
few e ceptons, a patents treated at the hospta are pay patents.
The artces of ncorporaton of the company make no provson
for the dstrbuton of the assets of the company n case ot dssou-
ton. The net ncome of the company s used n the enargement and
mprovement of the hospta factes. The mnutes of the varous
meetngs of the board of drectors of the hospta dscose that the
company at varous tmes has become ndebted to Dr. for sums of
money oaned to the hospta, the hospta property beng accepted
as securty for such oans.
n organzaton entted to e empton from ta aton under the
provsons of secton 231(6) of the Revenue ct of 1926 and the
correspondng provsons of pror Revenue cts must meet two
prmary tests: (1) It must be organzed and operated e cusvey
for one or more of the specfed purposes, r. e., regous, chartabe,
scentfc, terary, or educatona, and (2) ts net ncome must not
nure n whoe or n part to the beneft of prvate sharehoders or
ndvduas. Under the facts shown t can not be successfuy
camed ether that the M Company s operated e cusvey for one
or more of the purposes mentoned n sad secton 231 (G) or that
ts net ncome does not nure n whoe or n part to the beneft of
prvate ndvduas. The evdence shows that Dr. , as supern-
tendent of the hospta, contros a the affars of the organzaton
and receves benefts through the factes of the hospta for hs
prvate practce.
ccordngy, t s concuded that the M Company s a prvate
hospta operated for the beneft of Dr. and suc other physcans
as he may desgnate n the performance of ther professona dutes
wth respect to patents treated by them, not a pubc hospta the
factes of whch are accessbe to a reputabe physcans and ther
patents. The ony ground upon whch a hospta can be granted
e empton under secton 231 (6) of the respectve Revenue cts s
that t s organzed and operated prmary for pubc, chartabe,
educatona, or scentfc purposes, as dstngushed from prvate
professona purposes.
Inasmuch as the evdence fas to estabsh that the M Company
comes wthn the provsons of secton 231(6) of the respectve
Revenue cts, ts appcaton for e empton thereunder for the
purposes of the edera ncome ta must be dened.
rtce 517: Regous, chartabe, scentfc, terary,
and educatona organzatons and communty chests.
R NU CT O 1926.
ar assocaton. (See G. C. M. 4805, page 58.)
37229 29 11
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231, rt. 51S.
152
rtce 518: usness eagues, chambers of II 40-391
commerce, and boards of trade. G. C. M. 4741
R NU CT O 1926 ND TRIOR CTS.
The M Corporaton obtaned the e cusve rght to grant censes
for the use of certan patents. The prncpa busness of the corpo-
raton was the coecton from ts subcensees of royates, whch
were pad n part to the owner of the patents and n part retaned
by the corporaton the protecton of censees n tgaton nvovng
the patents the prosecuton of nfrngements and the advertsng
of the patents. Shares of stock were ssued to the censees, and
they were abe for assessments based on the e tent of servces
rendered. No dvdends ave been decared by the corporaton, but
the charter e pressy provdes for the decaraton thereof.
ed, that the organzaton s not e empt from ta aton as a
busness eague under secton 231(7) of the Revenue ct of 1926
and the correspondng provsons of pror Revenue cts.
The M Corporaton cams to be e empt from ta aton under sec-
ton 231(7) of the Revenue ct of 1926 and the correspondng pro-
vsons of pror Revenue cts. That secton provdes:
Seo. 231. The foowng organzatons sha be e empt from ta aton under
ths tte
(7) usness eagues, chambers of commerce, or boards of trade, not organ-
zed for proft and no part of the not earnngs of whch nures to the beneft uf
any prvate sharehoder or ndvdua.
was the owner of certan patents coverng apparatus used n the
manufacture of a certan artce. The M Corporaton obtaned from
hm the e cusve rght to grant censes for the use of these patents.
The compensaton whch the corporaton agreed to pay n return
for the grant of the rght was to be on a royaty bass. The corpora-
ton coected the royates from ts subcensees and made the stpu-
ated payments to . The baance of the royaty coectons t
retaned.
The corporaton s stock was ssued to censees under the pat-
ents. The stockhoders were abe for such assessments as mght
be made by the corporaton wthn certan mtatons.
The prncpa busness n whch the corporaton was engaged con-
ssted n the coecton of royates the protecton of censees n
tgaton nvovng the patents the prosecuton of nfrngements
of these patents and the advertsng of the patents.
The assessment of stockhoders was based upon the e tent and
nature of the servces rendered. The e penses of tgaton nvov-
ng a partcuar member were charged to hm.
No dvdends have ever been decared by the corporaton, but
under paragraph 36 of the by-aws of the corporaton an e press
provson s made for the decaraton of dvdends. It s theren
provded: Dvdends upon the capta stock, when earned, may be
decared by the board of drectors at any reguar or speca meet-
ng. rtce 518 of Reguatons 69, as amended by Treasury De-
cson 4089 (C. . T-2, 74), provdes that an ncorporated cotton
e change whose shares carry a rght to dvdends s organzed for
proft and s not e empt, from whch t foows that the fact that
no dvdends have been decared s not necessary a concusve test.
G
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153
231, rt. 521.
In Soctor s Memorandum 2325 (C. . III-2, 226) the foowng
anguage s used n ths connecton:
It w be noted that n order to entte the organsaton to e empton under
secton 231(7) t must be so organzed that no part of the net earnngs may
nure to the beneft of any prvate stockhoder or ndvdua. The payment
of dvdends on stock can not be construed otherwse than the dstrbuton of
net earnngs. specay s ths so where as n the nstant case the by-aw ot
the corporaton specfcaUy provde they sha be pad from surpus or net
profts of the corporaton. Ths s true notwthstandng the fact that the
earnngs of the corporaton n any partcuar year, or over a perod of years,
may not |ustfy the decaraton of such dvdends.
urthermore, t s apparent that the actvtes of the corporaton
were not the norma actvtes of a busness eague, whch s an
assocaton of persons havng some common busness nterest, the
purpose of whch s to promote such common nterest and not to
engage n a reguar busness of a knd ordnary carred on for
proft.
The actvtes of such a eague shoud be drected to the mprove-
ment of busness condtons or to the promoton of the genera ob|ects
of one or more nes of busness as dstngushed from the perform-
ance of partcuar servces for ndvdua persons. n organzaton
whose purpose s to engage n a reguar busness of a knd ordnary
carred on for proft, even though the busness s conducted on a
cooperatve bass or produces ony suffcent ncome to be sef-sustan-
ng, s not a busness eague. In the appea of Unform Prntng
Suppy Co. (9 . T. ., 251), the oard of Ta ppeas sad:
It seems to us that a busness easrue, to be entted to the e emp-
ton, shoud be engaged n and mted to actvtes smar to those of the ord-
nary chamber of commerce or board of trade, and that those actvtes shoud
be of a knd not ordnary engaged n for proft.
Certany the actvtes of the M Corporaton were not smar to
those of the ordnary chamber of commerce or board of trade.
In vew of the foregong, ths offce s of the opnon that the
M Corporaton s not e empt from ta aton as a busness eague
under secton 231(7) of the Revenue ct of 1926 and the correspond-
ng provsons of pror Revenue cts.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 521: Loca benevoent fe nsurance II-30-3821
assocatons, mutua rrgaton and teephone I. T. 2425
companes, and ke organzatons.
R NU CTS O 1924 ND 1928.
The M eef ssocaton, composed of empoyees of the M Com-
pany and affated corporatons, whch was organzed to provde
benefts for members whe dsabed by sckness or n|ures and
to pay pensons upon retrement and benefts to the fames of
deceased members, s entted to e empton under secton 231(10)
of Revenue cts of 1924 and 1926.
The M Reef ssocaton has forwarded to the ureau evdence
for use n consderng ts cam for e empton from ta aton under
secton 231 of the Revenue cts of 1924 and 1926.
G
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231, rt. 521.
154
The M Reef ssocaton s composed of empoyees of the M Com-
pany and affated corporatons. The assocaton s orgna pur-
poses were to provde benefts for members whe dsabed by reason
of sckness or n|ures and to pay benefts to the fames of deceased
members. Members pad dues of 1.25 per month. Subsequenty the
dues were ncreased to 2 per month, the ncrease n dues beng used
to create a fund to be used to pay pensons to members upon retre-
ment. More than 85 per cent of the assocaton s ncome conssts of
amounts coected from members n order to defray e penses and to
meet osses. The consttuton of the organzaton provdes that n
the event of the death of a member there sha be pad death benefts
n accordance wth the foowng schedues:
Contnuous membershp of ess than one year 500
Contnuous membershp from one to fve years 1, 000
Contnuous membershp of more than fve years 1, 500
Secton 231 (10) of the Revenue ct of 1924 provdes for the e emp-
ton from ncome ta aton of:
(10) enevoent fe nsurance assocatons of a purey oca character, farm-
ers or other mutua ha, cycone, casuaty, or re nsurance companes, mutua
dtch or rrgaton companes, mutua or cooperatve teephone companes, or
ke organzatons but ony f 85 per centum or more of the ncome conssts of
amounts coected from members for the soe purpose of meetng osses and
e penses.
Under the Revenue ct of 1926, what was secton 231(10) of the
Revenue ct of 1924 was dvded nto two sectons whch read as
foows:
(10) enevoent fe nsurance assocatons of a purey oca character, mutua
dtch or rrgaton companes, mutua or cooperatve teephone companes, or
ke organzatons but ony f 85 per centum or more of the ncome conssts of
amounts coected from members for the soe purpose of meetng osses and
e penses
(11) armers or other mutua ha, cycone, casuaty, or fre nsurance com-
panes or assocatons (ncudng nternsurers and recproca underwrters) the
ncome of whch s used or hed for the purpose of payng osses or e penses.
It w be noted that under secton 231(10) of the Revenue ct
of 1926 Congress has e pressy e empted enevoent fe nsur-
ance assocatons of a purey oca character, or ke
organzatons, and has paced the so-caed property nsurance
assocatons n a cass by themseves n secton 231(11). The phrase
ke organzatons n so far as nsurance companes are concerned
can not be construed to mean anythng but organzatons ke a
benevoent fe nsurance company. Certany, t woud be hard to
conceve of an organzaton more ke a benevoent fe nsurance
assocaton than one whch pays sck, heath, or accdent benefts as
we as death benefts. urthermore, t w be noted that Congress
has under secton 242 of the Revenue cts of 1924 and 1926 defned
the term fe nsurance company as used n Tte II of those cts
to mean an nsurance company engaged n the busness of ssung fe
nsurance and annuty contracts (ncudng contracts of combned
fe, heath, and accdent nsurance).
In vew of the foregong, t s hed that the M Reef ssoca-
ton comes wthn the e empton provsons of secton 231(10) of the
Revenue cts of 1924 and 1926.
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155
231, rt. 522.
rtce 522: armers or other mutua ha, II-53-4048
cycone, casuaty, or fre nsurance com- G. C. M. 5396
panes or assocatons.
R NU CT O 1926.
The M Mutua Insurance Co., a casuaty Insurance company, has
no capta stock or stockhoders, and ts members consst e cusvey
of Its pocyhoders. Income conssts of premum deposts of mem-
bers, the une pended baance of whch deposts, after the payment
of osses and e penses, Is returned to the pocyhoders pro rata.
Rsks have been restrcted up to the present tme soey to the
O Raway and empoyees of that company.
ed, that the company s entted to e empton as a mutua cas-
uaty nsurance company under secton 231(11) of the Revenue ct
of 1926.
The M Mutua Insurance Co. was ncorporated on March , 1921,
as a mutua casuaty nsurance company under the genera aws of
the State of R. It has submtted a certfcate from the actng com-
mssoner of nsurance of the State of R to the effect that havng
comped wth the requrements of the aws of that State reatng to
nsurance companes, t s fuy authorzed to transact the busness of
a mutua casuaty nsurance company, ncudng workmen s compen-
saton nsurance. The company has no capta stock and no stock-
hoders, and ts members consst e cusvey of ts pocyhoders. Its
ncome, whch conssts of premum deposts made by ts members
and such ncdenta ncome as accrues therefrom whe beng hed by
the company, s used soey for the purpose of payng osses and
e penses the une pended baance, f any, beng returned to ts
pocyhoders pro rata. Returns of une pended premum deposts
nave on severa occasons been made to the pocyhoders. Whenever
the ncome of the company s not suffcent to provde for the pay-
ment of osses and e penses, the pocyhoders are abe to addtona
assessments up to the amount of ther premum deposts.
The pocyhoders of the company up to the present tme have
been the O Raway Co. (whch s gven compete coverage under the
State workmen s compensaton act and the ongshoreman s and
harbor workers compensaton act) and 12 empoyees of the O
Raway Co. who are nsured n amounts not n e cess of 10,000.
The company has never wrtten accdent or heath nsurance. Under
the State aw each pocyhoder s entted to one vote n the meet-
ngs of the_ company for each pocy whch he hods rrespectve of
the amount covered by such pocy. though the company up to the
present tme has restrcted ts rsks as above ndcated to the O
Raway Co. and 12 of the atter s empoyees, t appears that under
the so-caed State of R compusory automobe nsurance aw the
company woud be obged to ssue poces of abty nsurance to
such persons as apped therefor, provded the character and acc-
dent e perence of the appcant was not such as to reasonaby |ustfy
any company n refusng to take that partcuar rsk.
Secton 231(11) of the Revenue ct of 1926 e empts from edera
ncome ta aton armers or other mutua ha, cycone, casuaty
or fre nsurance companes or assocatons (ncudng nternsurers
and recproca underwrters) the ncome of whch s used or hed
for the purpose of payng osses or e penses.
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2343, rt. 591.)
156
rtce 522 of Reguatons 69 states that The ony prerequste
to e empton under paragraph (11) of secton 231 s that the or-
ganzaton n queston must be mutua and that ts ncome must be
used or hed for the purpose of payng osses or e penses.
s prevousy stated, the ncome of the M Mutua Insurance Co. s
used to pay osses and e penses, and no part thereof nures to the
beneft of any prvate sharehoder or ndvdua. The practce of
the company or returnng to ts pocyhoders the une pended por-
tons of ther premum deposts s characterstc of a mutua nsur-
ance company. In Pem Mutua Lfe Insurance Co. v. Lederer (252
U. S., 523, 525 (T. D. 3046, C. . 3, 249)) the Supreme Court sad:
In a mutua company, -whatever the fed of ts operaton, the pre-
mum e acted s necessary greater than the e pected cost of the nsurance,
as the redundancy n the premum furnshes the guaranty fund out of whch
e traordnary osses may be met, whe n a stock company they may be met
from the capta stock subscrbed. It s of the essence of mutua nsurance that
the e cess n the premum over the actua cost as ater ascertaned sha be
returned to the pocyhoder.
In vew of the foregong, t s the opnon of ths offce that the
M Mutua Insurance Co., notwthstandng the fact that t has re-
strcted ts rsks to the O Raway Co. and persons n the atter s
empoy, s entted to e empton from edera ta aton as a mutua
casuaty nsurance company under secton 231(11) of the Revenue
ct of 1926.
C. M. Chakest,
Genera Counse, ureau of Interna Revenue.
S CTION 236. CR DITS LLOW D
CORPOR TIONS.
rtce 591: Credts aowed. II-27-3789
( so Secton 239, rtce G25.) G. C. M. 4024
R NU CT O 1926.
When a return of a domestc corporaton s made for a fractona
port of a year owng to a vountary change of ta abe year, the
credt of 2,000 shoud not be prorated, but the credt, when a-
owabe, shoud be apped n fu after the net ncome has been
paced on an annua bass n accordance wth secton 226(c).
n opnon s requested as to whether the M Company, a domestc
corporaton, s entted to the specrc credt of 2,000 provded by
secton 236(b) of the Revenue ct of 1926.
The ta payer changed ts ta abe year from a caendar year to a
fsca year endng September 30. Wth the approva of the Com-
mssoner (granted September 14, 1926) the ta payer fed a return
for the perod begnnng anuary 1, 1926, and endng September 30,
1926. It reported net ncome for that perod of 21,699, whch upon
beng paced on an annua bass was rased to 28,932. Ths presents
the queston whether the ta payer corporaton s enttecf to the
specfc credt mentoned above/
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157
236, rt. 591.
Under the provsons of secton 236 of the Revenue ct of 1926
corporatons are aowed certan credts. Ths secton, n part,
reads as foows:
Sao. 236. or the purpose ony of te ta mposed by secton 230 there sha
be aowed the foowng credts:
(b) In the case of a domestc corporaton the net ncome of whch s
125,000 or ess, a specfc credt of 2,000 .
Under the provsons of secton 239 of the ct of 1926 every cor-
poraton must make a return. If the corporaton changes ts ta abe
year (wth the approva of the Commssoner) t must make a return
for the perod ntervenng between the end of ts former ta abe year
and the begnnng of ts new ta abe year. Ths s done under
authorty of secton 226(a) of the 1926 ct, whch reads as foows:
Sec. 226. (a) If a ta payer, wth the approva of the Commssoner, changes
the bass of computng net ncome from fsca year to caendar year a separate
return sha be made for the perod between the cose of the ast fsca year
for whch return was made and the foowng December 31. If the change s
from caendar year to fsca year, a separate return sha be made for the
perod between the cose of the ast caendar year for whch return was made
and the date desgnated as the cose of the fsca year. If the change s from
one fsca year to another fsca year a separate return sha be made for
the perod between the cose of the former fsca year and the date desgnated
as the cose of the new fsca year.
Subdvson (c) of secton 226 provdes a method of computng
the ta for ths fractona part of a year, as foows:
Sec. 226. (c) If a separate return s made under subdvson (a) the net
ncome, computed n accordance wth the provsons of subdvson (b), sha
be paced on an annua bass by mutpyng the amount thereof by 12 and
dvdng by the number of months ncuded n the perod for whch the sepa-
rate return s made. The ta sha be such part of the ta computed on
such annua bass as the number of months n such perod s of 12 months.
Secton 239(b) of the same ct provdes:
Sec. 239. (b) Returns made under ths secton sha be sub|ect to the pro-
vsons of secton 226. In the case of a return made for a fractona part of
a year, e cept a return made tnder subdvson (a) of secton 226, the credt
provded n subdvson (b) of secton 236 sha be reduced to an amount whch
bears the same rato to the fu credt theren provded as the number of
months n the perod for whch the return s made bears to 12 months.
Itacs supped.
Ths s nterpreted by artce 625 of Reguatons 69, whch
provdes:
rt. 625. If a corporaton, wth the approva of the Commssoner, changes
Its accountng perod from caendar year to fsca year, from fsca year to
caendar year, or from one fsca year to another fsca year, a separate return
sha be made for a fractona part of a year and the not ncome on such
return sha be paced on an annua bass as provded n secton 226(c).
In a other cases the credt of 2,000 aganst net ncome aowed a
domestc corporaton havng a net ncome not e ceedng 25,000 sha be
reduced to such proporton of the fu credt as the number of months n the
perod for whch the return s made bears to 12 months. Itacs supped.
rom the foregong t s apparent that when a return s made for
a fractona part of a year, owng to a vountary change of ta abe
year, the credt of 2,000 shoud not be procated, but the credt, when
aowabe, shoud be apped n fu after the net ncome has been
paced on an annua bass. Thus, f the net ncome (for 1926 or
any subsequent year) when paced on an annua bass n accordance
wth secton 226(c), above quoted, s 25,000 or ess, the credt of
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240, rt. 632.
158
2,000 s aowabe n accordance wth secton 236(b). When the
net ncome for 1926 or any subsequent, year, so paced on an annua
bass, s n e cess of 25,000, the credt s not aowabe.
In the nstant case the ta payer made a return for the perod
begnnng anuary 1, 1926, and endng September 30, 1926. The
net ncome for the perod was 21,699, whch, when paced on an
annua bass, was equvaent to an annua ncome of 28,932. Snce
t s atter amount s n e cess of 25,000, no credt shoud be aowed
under the provsons of secton 236(b) of the Revenue ct of 1926.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 239. CORPOR TION R TURNS.
rtce 621: Corporaton returns.
R NU CT O 1926.
Labty of Oregon corporaton durng nterva between date of
ts dssouton by procamaton of governor and the restoraton of ts
charter. (See 1. T. 2431, page 116.)
rtce 621: Corporaton returns.
R NU CT O 1926.
Corporaton formed to hande trust property whch was trans-
ferred to t n e change for ts stock, the trustees contnung to act
n that capacty. (See G. C. M. 4421, page 144.)
rtce 625: Returns for fractona part of year.
NU CT O 1926.
mount aowabe as credt n fractona year returns. (See
G. C. M. 4024, page 156.)
S CTION 240. CONSOLID T D R TURNS
O CORPOR TIONS.
rtce 632: Consodated returns. TI-34-386-4
I. T. 2429
R NU CT O 1026.
change from a consodated bnss to a separate bass of fng
returns, or vce versa, w be aowed ony wbere t s shown that
by reason of changes n crcumstances affectng admnstraton of
the affars of the affated croup the bass prevousy adopted s no
onger practcabe. n advantage ganed by a ta payer n the
form of a reducton n ta abty s not suffcent reason for
grantng permsson to change from one bass to the other.
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159
240, rt. 632.
dvce s requested reatve to a request of the M Company
for permsson to change the bass of fng returns for the ta abe
year 1927 from a separate to a consodated bass.
The M Company durng the ta abe year 1926 owned a of the
stock of the N Company. separate ncome ta return was fed
for each company for that year, n accordance wth secton 240(a)
of the Revenue ct of 1926. On ebruary , 1928, the ta payer
requested permsson to change to a consodated bass for the ta abe
year 1927.
Secton 240(a) of the Revenue ct of 1926 provdes as foows:
Corporatons whch are affated wthn the meanng of ths secton may,
for any ta abe year, make separate returns or, under reguatons prescrbed
by the Commssoner wth the approva of the Secretary, make a consodated
return of net ncome for the purpose of ths tte, n whch case the ta es
thereunder sha be computed and determned upon the bass of such return.
If return s made on ether of such bases a returns thereafter made sha
be upon the same bass uness permsson to change the bass s granted by the
Commssoner.
rtce 632 of Reguatons 69, as amended by Treasury Decson
4026 (C. . I-1, 99), provdes, n part, as foows:
ffated corporatons, as defned n secton 240(c) and the frst sentence of
artce 633, rrespectve of the bass upon -whch returns were fed pror to 1925
under secton 240(a) of the Revenue ct of 1924, may for 1925 eect to make
separate returns or fe a consodated return n whch w be reported the con-
sodated net ncome of the affated group. ffated corporatons as defned
by secton 240(d) and the second sentence of artce 633, rrespectve of the
bass upon whch returns were fed for 1925 under secton 240(a) of the
Revenue ct of 1926, may for 1926 eect to make separate returns or fe a
consodated return n whch w be reported the consodated net ncome of the
affated group. If return s made upon ether of these bases for 1926, a sub-
sequent returns must be made upon the same bass e cept as permsson to
change may be granted by the Commssoner.
Under the above-quoted provsons of the aw and reguatons
affated corporatons had a rght to fe returns upon ether a con-
sodated or a separate bass for both 1925 and 1926. The aw and
reguatons contempate that the returns of the ta payer sha be
fed upon a consstent bass, and that where the ta payer has fed
returns upon an authorzed bass he sha contnue to fe upon such
bass uness permsson to change s granted by the Commssoner.
change from a separate to a consodated bass or vce versa gves
rse to many dffcut questons n the computaton of ncome. In
addton, such changes m bass pace a heavy admnstratve burden
upon the ureau. It appears, therefore, that a chantre from one
bass to the other shoud be aowed ony where t s shown that by
reason of changes n crcumstances affectng admnstraton of the
affars of the affated group the bass prevousy adopted s no onger
practcabe. The ureau has consstenty taken the poston that an
advantage ganed by a ta payer n the form of a reducton n ta
abty s not suffcent reason for grantng permsson to change
from one bass to the other.
In vew of the foregong, the request of the ta payer n the nstant
case must be dened.
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246 and 247, rt. 691.
160
S CTION 245. T S ON INSUR NC
COMP NI S.
rtce 681: Reserve funds.
R NU CT O 1926.
mendment of artce 681 of Reguatons 69. (See T. D. 4231,
page 299.)
S CTIONS 246 ND 247. T S ON INSUR NC
COMP NI S.
rtce 691: Ta on nsurance companes. II-53-4049
G. C. M. 5355
R NU CT O 1926.
Where the Income of a guaranty company s derved prncpay
from the nsurng of ttes to rea property and t does not engage
n any other dstnctve ne of busness, the company s ta abe as
an nsurance company wthn the provsons of secton 246 of the
Revenue ct of 1926.
n opnon s requested as to whether the M Guaranty Co. s
entted to be ta ed for ncome ta purposes as an nsurance company
(other than a fe or mutua nsurance company) under the prov-
sons of secton 246 of the Revenue ct of 1926.
The evdence presented dscoses that the company was ncorpo-
rated n March, 1920, under an ct of 1902 of the State of R, pro-
vdng for the reguaton of nsurance companes and the transacton
of nsurance busness. The company was duy authorzed by the
department of nsurance of the State of R to transact the busness
of nsurng aganst oss or damage on account of encumbrances upon
or defects n tte to rea property, and aganst oss by reason of the
nonpayment of prncpa of and. nterest on bonds and mortgages.
In addton thereto the company was authorzed to empoy ts capta
and surpus to take, buy, se, and dea n frst mortgages on rea
estate, and to ssue bonds, debentures, and certfcates aganst such
mortgages. It s stated that athough the company, under ts char-
ter and under the nsurance aw of the State, has power to dea n
frst mortgages and ssue certfcates aganst them, t has never ssued
any certfcates aganst such mortgages but has devoted ts efforts
e cusvey to the tte nsurance busness.
It appears that a of the company s ncome s derved from pre-
mums receved n payment of tte nsurance wth the e cepton of
(1) ncome from securtes deposted, as requred by the aw of the
State, wth the nsurance department of the State of R as securty
for pocyhoders, and (2) rent from subeasng a part of the
premses occuped by the company as ts home offce.
s the company s ncome s derved prncpay from the nsurng
of ttes to rea property and t does not engage n any other dstnc-
tve ne of busness, the company s ta abe as an nsurance company
(other than a fe or mutua nsurance company) under the prov-
sons of secton 246 of the Revenue ct of 1926.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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161 257, rt. 1090.
P RT I . DMINISTR TI PRO ISIONS.
S CTION 257. TURNS TO PU LIC
R CORDS.
rtce 1090: Inspecton of returns. II-33-3849
T. D.4187
mendng Treasury Decson 3856 C. . -, 106 Inspecton
of returns.
Treasury Department,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
(1) Paragraph 10 of Treasury Decson 3856 (beng reguatons
prescrbed by the Secretary and approved by the Presdent, pursuant
to secton 257 of the Revenue ct of 1926, governng the nspecton of
returns) s amended to read as foows:
10. The return of a corporaton sha be open to nspecton by the presdent,
rce presdent, secretary, or treasurer of such corporaton, or, f none, by any
of ts prncpa offcers upon satsfactory evdence of dentty and offca pos-
ton, or by the duy consttuted attorney n fact of such offcer. The return of a
corporaton whch has snce been dssoved sha, n the dscreton of the Com-
mssoner of Interna Revenue, be open to nspecton to any person who under
these reguatons mght have nspected the return at the date of dssouton.
(2) Pursuant to the provsons of secton 55 of the Revenue ct of
1928, the provsons of Treasury Decson 3856, as amended, are pre-
scrbed as the rues and reguatons appcabe to the nspecton of
returns made under Tte I of the Revenue ct of 1928, and the
Presdent has ordered that such returns sha be open to nspecton
ony n accordance and upon compance therewth.
Ogden L. Ms,
ctng Secretary of the Treasury.
pproved uy 23, 1928.
Cavn Coodge,
The Whte ouse.
CUTI order nspecton of ncome returns.
Pursuant to the provsons of secton 55 of the Revenue ct of 1928.
It s hereby ordered that returns fed under Tte I of the Revenue
ct of 1928 sha be open to nspecton n accordance and upon com-
pance wth rues and reguatons prescrbed by the Secretary of the
Treasury and approved by me, bearng date of pr 13, 1926, and the
amendment thereto, bearng even date herewth.
Cavn Coodge.
The Whte ouse,
uy 23, 1928.
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270, rt. 1203. 162
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 1203: Coecton of ta by sut. II-31-3831
G. CM.4217
R NU CT O 1926.
The wdow s aowance provded for under the aws of Coorado,
and funera e penses, are not debts due from a decedent but are
charges aganst the estate created by the aw of the State and
have prorty of payment over edera ta es. penses ncurred
by reason of the ast ness are debts due from a decedent and are
|unor n order of payment to edera ta es.
n opnon s requested as to the prorty of payment of edera
ta es n Coorado over the wdow s aowance, funera and ast -
ness e penses n cases where the assets of the decedent s estate are
nsuffcent to pay a debts and e penses.
Secton 3466 of the evsed Statutes of the Unted States provdes
that whenever the estate of any deceased debtor, n the hands of
the e ecutors or admnstrators, s nsuffcent to pay a the debts
due from the deceased, the debts due to the Unted States sha be
frst satsfed .
Secton 7206 of the Revsed Statutes of Coorado provdes that
cams aganst the estate of a decedent sha be pad n the foowng
order: Certan trust funds, admnstraton e penses, funera charges
and costs of ast ness, wdow s aowance, and a other cams.
The aowance to the wdow s provded for under secton 7223 of the
same statutes.
The case of Postmaster Genera v. obbns (19 ed. Cas., 1126,
No. 11,314), whch s drecty n pont, nvoved a constructon or
the aws of Mane touchng the order of payment of cams aganst
the estates of decedents. s apped to the questons under consdera-
ton the aws of Mane and Coorado are smar. The queston of
prortes among debts due to the Unted States and certan other
cams was dsposed of by the court. Wth reference to costs of ast
ness the court sad:
t s ceary a debt due from the deceased, and mast stand, In
pont of prvege, after that due to the Unted States.
In dsposng of the status of funera charges the court used the
foowng anguage:
t s not a debt due from the deceased but more propery a charge
on the admnstrator. The statute of Mane does ndeed seem to contempate
funera e penses as a debt due from the deceased, and assgns t a prvege
n the same grade wth ta es and debts due to the State. I do not mean to
queston the competency of the egsature to assgn to ths cam aganst the
estate of a deceased person any rank or prvege whch may seem |ust but t
appears too cear to admt of controversy that a man can not contract a debt
fter be s dead. In the nature of thngs, funera e penses are a charge on
the estate n the hands of the admnstrator, and stand n the same prvege
wth other charges of admnstraton.
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163
277 and 278, rt. 1271.
The opnon of the court wth reference to the wdow s aowance
was:
The Unted States are satsfed n gvng a prorty to ther cam on the
estate over a other debts. The aowance to the wdow s no more a debt of
the husband than her rght of dower. They are both of them charges on the
estate, created by the aw. They are not created, nor can they be defeated,
by any act of hs. The aw of the Unted States does not, n ts terms, gve to
debts due to them a prorty over charges of ths nature.
It s the opnon of ths offce that under the aw of Coorado
edera ta es have prorty of payment over e penses ncdent to the
ast ness of a decedent, and that funera e penses and the wdow s
aowance have prorty of payment over edera ta es. To ke
effect see Soctor s Memorandum 5032 (C. . -, 109) as to the
aw n Pennsyvana.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTIONS 277 ND 278. P RIOD O LIMIT TION UPON
SS SSM NT ND COLL CTION O T .
rtce 1271: Perod of mtaton upon II-43 3961
assessment of ta . G. C. M. 4978
R NU CT O 1926 ND TRIOR CTS.
The assessment and coecton of ncome and profts ta es n re-
spect of property hed by the en Property Custodan under the
Tradng wth the nemy ct, as amended (as amended by the Set-
tement of War Cams ct of 1928), s sub|ect to the perods of
mtaton prescrbed by the nterna revenue aws appcabe to
the varous ta abe years.
n opnon s requested as to the effect of secton 24, Tradng wth
the nemy ct, as amended (as amended by secton 18, Settement of
War Cams ct of 1928), upon the perods of mtaton prescrbed
by the varous Revenue cts upon the assessment and coecton of
ta es.
In vew of the fact that a the provsons of secton 24, as amended,
are ceary retroactve to the begnnng of the ta abe year 1917, the
queston arses whether the assessment and coecton of the nterna
revenue ta es n respect of, or the coecton of nterna revenue ta es
from, property n the custody of the Unted States under the Trad-
ng wth the nemy ct s sub|ect to the perods of mtaton pre-
scrbed by the nterna revenue aws appcabe to the varous ta abe
years. Secton 24, as amended, makes no e press decaraton on the
sub|ect. Subsecton (f), however, contans a decaraton that n
respect of cams for the benefts of subsectons (c), (d), and (e)
the perods of mtaton appcabe thereto sha appy, or n the
aternatve certan perods specfcay descrbed. The nference de-
ducbe from the anguage s that the entre secton proceeds on the
assumpton that e cept as otherwse specfcay provded the perods
of mtaton prescrbed by the nterna revenue aws are ntended
to reman n fu force and effect. Ths nference s necessary
strengthened by the crcumstance that the amendment of secton 24
G
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277 and 278, rt. 1271-3 164
by the Settement of War Cams ct of 1928 was to cear up a
doubt and protect the Government n the matter of ta aton (69
Congressona Record, p. 903), and that ts anguage proceeds upon
the assumpton that ta es have n genera aready been assessed and
coected n accordance wth the genera prncpes announced n
subsecton (b). On the other hand, subsecton (b) contans very
sweepng anguage. Thus t s provded that the amount (of the
ncome, war-profts, e cess-profts, or estate ta es mposed by any
ct of Congress) sha be pad by the en Property Custodan
as prescrbed n secton 24(a), Tradng wth the nemy ct, as
amended, and that the en Property Custodan s authorzed to
return property n anv trust n such amounts as may be
determned to be consstent wth the prompt payment of
the fu amount of the nterna revenue ta es. Whe ths anguage
does connote an ntenton that the fu amount of the ta es shoud
be pad pror to the return of the property, t gves tte ndcaton
of any ntenton to change e stng statutes of mtaton wth respect
to the assessment and/or coecton of ta es. The mpcaton of
the anguage of secton 24(b) s, therefore, that e cept as specfcay
provded otherwse, the perods of mtaton prescrbed n the e st-
ng statutes reman unaffected by the ct.
Ths mpcaton s not, however, so cear as to precude recourse
to the egsatve commttee reports and debates. . R. 7201 (whch
became the Settement of War Cams ct of 1928) contaned no
provson wth respect to ta es when ntroduced n the ouse or
when reported by the Commttee on Ways and Means. n amend-
ment to the b (n substance the same as the frst sentence of subsec-
ton (b)) was agreed to by the ouse, and the foowng comment
thereon was made by Mr. Green: Mr. Charman, ths amendment
s smpy to cear up a doubt and protect the Government n the mat-
ter of ta aton. (69 Congressona Record, p. 903.) The Senate
nance Commttee, by an amendment, substtuted n eu of the
ouse amendment a new secton, numbered 18, whch provded, nter
aa:
(f) ny perod of mtaton for the makng of n cam for credt or refund,
for the makng of an assessment, or for the begnnng of dstrant or proceedng
n court for the coecton, of any Interna-revenue ta (mposed n respect
of property conveyed, transferred, assgned, devered or pad to the en
Property Custodan, or sezed by hm. and mposed n respect to any perod,
n the ta abe year 1917 or any succeedng ta abe year, durng whch such
property was hed by hm or by the Treasurer of the Unted States) whch
has e pred or whch may e pre before the e praton of s mouths from
the date of the enactment of the Settement of War Cams ct of 1928, s
e tended unt the e praton of such s months perod.
The nance Commttee report (Report No. 273, dated ebruary 9,
1928, p. 34) contans the foowng statement:
Secton 18 of the b amends secton 24 of the Tradng wth the nemy ct,
by addng thereto severa new subsectons, coverng edera ta aton n the
case of persons whose property has been sezed by the en Property Custodan.
The provsons of the ouse b provde merey that the amount of the ta es
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. The com-
mttee amendment goes much further than Ibs, and attempts to provde equ-
tabe rues for the determnaton of the varous ta abtes.
G
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165
277 and 278, rt. 1271.
Inasmuch as the owner of the property was unabe to take any
acton n respect of the payment of ta es, t s aso provded that the provsons
of the varous aws reatng to nterest and cv penates (the provsons
usuay referred to n the revenue aws as nterest, penates, addtons to the
a , or addtona amounts) w not be coected. Inasmuch as the owner of
the property had no opportunty to know how much ta es were pad by the
en Property Custodan and n many cases no opportunty to fe a cam,
wthn the statutory perod, for a refund of any e cessve amounts pad, t s
provded that cams may be fed, wthn s months after the b becomes aw,
wth the same effect as though fed wthn the statutory perod appcabe
thereto. It w be noted that fu power to prescrbe reguatons for the app-
caton of the provsons s gven to the Secretary of the Treasury n order to
prevent proonged tgaton.
In conference, the Senate nance Commttee amendment, quoted
supra, was emnated, and the managers on the part of the two
ouses agreed to substtute for that subsecton the foowng, whch
became aw as subsecton (f) of secton 24, Tradng wth the nemy
ct, as amended:
(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-
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.
The statement on the part of the ouse managers (69 Congres-
sona Record, p. 3782) contans the foowng reference to the secton:
The ouse b provded that the edera ta es on aen property shoud be
computed n the same manner as f the property had not been sezed and shoud
be pad wherever possbe out of the funds hed by the en Property Custodan.
The Senate amendment added four quafcatons: fourth, that cams
for refund coud be fed and assessments made and proceedngs started for
coecton wthn s months after the date of enactment of the ct regardess
of the e praton of the ordnary statutory perod: and ffth, that tentatve
returns shoud be fed and tentatve assessments made and that the 20 per
cent of property wthhed shoud be retaned by the en Property Custodan
as securty for the payment of any defcency fnay determned to be due.
The ouse recedes wth an amendment provdng : that the aowance
of addtona tme for fng cams and for makng assessments shoud appy
ony n cases where the ta abty s changed by the provsons of ths secton,
and n eu of the ffth provson, provdng that property acqured may be
returned pror to a fna determnaton of ta abty, under Treasury regua-
tons whch w protect the nterests of the Government by makng certan
that suffcent property s retaned to pay the ta es or that a bond s gven
to secure such payment.
The debates upon agreeng to the conference report contan no
statement reevant to the statute of mtatons, athough the state-
ment wth reference to subsecton (c) was made, and one of the
ouse conferees agreed, that the ta es are to be f ed n accordance
wth the aw n force at the tme they became due.
It woud thus appear that Congress assumed, n amendng secton
24 by secton 18 of the Settement of War Cams ct, that the
perods of mtaton prescrbed by the appcabe nterna revenue
aws were to reman appcabe to the nterna revenue ta es n
respect of the property n ts custody under the Tradng wth the
nemy ct or coectbe therefrom. There s nothng n the com-
mttee reports and debates on the ct upon whch to premse an n-
tenton to abrogate the statute of mtatons upon the assessment
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277 and 278, rt. 1271.
166
and/or coecton of ta es, and snce the anguage of the amendment
tsef mpes that the perods of mtaton prescrbed n the e stng
nterna revenue aws are not abrogated e cept as specfcay pro-
vded, there s no bass upon whch t can be sad that secton 24,
Tradng wth the nemy ct, as amended, abrogates, n respect of
property n the custody of the Unted States under that ct, the
perods of mtaton upon the assessment and/or coecton of ta es
prescrbed by the appcabe nterna revenue aws.
It shoud be noted, however, that n respect of ncome, e cess-
profts, and war-profts ta es wthn the purvew of secton 24, Trad-
ng wth the nemy ct, as amended, the provsons of sectons 277
and 278, Revenue ct of 1926, and the correspondng provsons of
earer cts, are fuy appcabe. Where, however, no return s fed,
the event from whch the statutory perod begns to run has never
happened, and accordngy the perod wthn whch assessments may
be made or proceedngs n court wthout assessment for the coec-
ton of ta es may be begun s unmted. Congress n secton 24
proceeds upon the assumpton that the appcabe perods of mta-
ton prescrbed by the nterna revenue aws sha appy e cept as
otherwse n secton 24(f) specfcay provded. Whe Congress
mght n secton 24 have created a new perod of mtaton generay
upon the assessment and/or coecton of ta es wthn the purvew
of that secton, ether n e press terms or by decarng that returns
shoud be deemed to have been fed n accordance wth the aw.
Congress dd not do so. y e pressy decarng n secton 24(e)
that no penates shoud be asserted n the case of the ta n respect of
property n the custody of the Unted States, Congress ndcated ts
ntenton to save the ta payer harmess from some of the con-
sequences, nter aa, of the faure to fe returns, but Congress no-
where n secton 24 gves any ndcaton of ts ntenton to provde
that a return shoud be deemed to have been fed as prescrbed by
aw, nor of ts ntenton to create a new perod of mtaton by any
such statutory fcton. Such beng the ntenton manfested n the
provsons of secton 24, nether such a fcton nor such a new perod
of mtaton can be created by constructon. ccordngy, the
perods of mtaton prescrbed n the appcabe nterna revenue
aws reman n fu force and effect e cept as otherwse specfcay
provded n secton 24.
It s, therefore, recommended (hat n the assessment and/or coec-
ton of ta es pursuant to the provsons of secton 24(a), Tradng
wth the nemy ct, as amended, and n the determnaton of the
amounts of property returnabe to camants under secton 24(b).
Tradng wth the nemy ct, as amended, regard shoud be had to
the perods of mtaton prescrbed by the appcabe statutes upon
the assessment and/or coecton of ncome, e cess-profts, or war-
profts ta es.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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167
277 and 278, rt. 1272.
rtce 1272: Perod of mtaton upon coec- II-35-3874
ton of ta . G. C. M. 4445
R NU CT O 1926.
Ta payer fed ts return for 1917 on March 29, 1918. Def-
cences were assessed n March and uy, 1923. On ebruary 25,
1921, ta payer fed an unmted waver. On ebruary 12, 1924,
ta payer fed a waver by ts terms effectve from the date t s
sgned by the ta payer and w reman n effect for a perod of
one year after the e praton of the statutory perod of mtaton
as e tended by any wavers aready on fe wth the ureau,
wthn whch assessments of ta es may be made for the year or
years mentoned. Ths operated to e tend the statutory perod
for assessment to pr 1, 1925.
ed, that the statute of mtatons on coecton of the def-
cences w e pre n 1929.
n opnon s requested as to whether the statute of mtatons
has barred coecton of certan outstandng assessments for the
caendar year 1917.
The facts are that the ta payer fed ts ncome and profts ta
returns for 1917 on March 29, 1918. The defcences here nvoved,
doars and 4a doars, were assessed on the March, 1923, and uy,
1923, sts, respectvey. Under date of ebruary 25, 1921, the ta -
payer fed an unmted waver of assessment for 1917, whch, by
the provsons of Commssoner s Mmeograph 3085 (C. . II-,
174), e pred pr 1, 1924 a second waver of assessment and co-
ecton was fed ebruary 1, 1923, effectve for one year from the
date of ts sgnng and a thrd waver of assessment and coecton
was fed by the ta payer for the ta abe years 1916, 1917, and 1918
on ebruary 12, 1924. y ts terms ths waver was effectve from
the date t s sgned by the ta payer, and w reman n effect for a
perod of one year after the e praton of the statutory perod of
mtaton, or the statutory perod of mtaton as e tended by any
wavers aready on fe wth the ureau, wthn whch assessments
of ta es may be made for the year or years mentoned. Ths
operated to e tend the statutory perod for assessment for 1917 from
pr 1, 1924, the date of e praton of the unmted waver, to
pr 1, 1925. No bond was fed.
It has been hed that the statutory perod for assessment as e -
tended by wavers remans the statutory perod (appea of Sunshne
Coak Sut Co., 10 . T. ., 971), and that the statutory coecton
provsons n effect at the tme of the e praton of the assessment
perod as e tended are appcabe to any assessment propery made
wthn sad perod. ( ppea of Sugar Run Coa Mnng Co., . T.
., Docket 9236, promugated pr 16. 1928 appea of Morrs
Cummngs Dredgng Co., 10 . T. ., 351 (See page 28).)
In vew of the foregong, t s the opnon of ths offce that the
statute of mtatons on coecton of the defcences heren con-
sdered w e pre n 1929, n accordance wth secton 278(d) of
the Revenue ct of 1926, whch provdes that where assessment of
the ta s made wthn the statutory perod of mtaton, such ta
mav be coected by dstrant or by a proceedng n court, begun
wthn s years after assessment of the ta .
C. M. Chabest,
Genera Counse, wreau of Interna Revenue.
37229 29 12
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277 and 278, rt. 1272.
168
rtce 1272: Perod of mtaton upon coec- II-35-3880
ton of ta . T. D. 4199
nterna revenue aws hevence act of 1926 decson of co rt.
Sut Lmtaton ond.
sut commenced after the e praton of the statutory perod
wthn whch suts for the coecton of a ta may be begun, to
recover on a bond gven pror to the e praton of such perod n
connecton wth a cam for abatement of the ta and condtoned
for the payment of the ta found to be due, s not barred by the
statute of mtaton appcabe to the coecton of ta es, nor s the
abty on the bond e tngushed by secton 1106(a) of the
Revenue ct of 1926.
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,
astern Dstrct of Pennsyvana, n the case of akey D. Mc-
Cantghn, Coector of Interna Revenue, v. Phadepha arge Co.,
a Corporaton, and Natona Surety Co., a Corporaton, s pubshed
for the nformaton of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved ugust 20, 1928.
enry errck ond,
ctng Secretary of tte Treasury.
Dstrct Court of the Unted States for the astern Dstrct of
Pennsyvana.
akcy D. McCauahn, as Coector of Interna Revenue of the Unted. States
for the rst Coecton Dstrct of Pennsyvana, v. Phadepha arge Co.,
a Corporaton, and natona Surety Co., a Corporaton-.
T pr 25. 1928.
OPINION.
Ths s a sut by the Unted States upon a bond e ecuted by the defendants,
Phadepha arge Co. and Natona Surety Co., as prncpa and surety,
respectvey. It now comes before the court upon a statutory demurrer to the
statement of cam, under the Pennsyvana practce act. The foowng facts
are admtted:
In October, 1920, the Commssoner of Interna Revenue assessed aganst
the Phadepha arge Co. an addtona ta of 12,635 on account of ts ncome
for the year 1918. On ebruary 15, 1921, the ta payer presented a dam for
abatement and two days ater the bond n sut was fed. On May 14, 1923.
the Commssoner of Interna Revenue re|ected the arge company s cam
for abatement and found the addtona ta of 12,635 as assessed to be correct.
Demand was duy made and ths sut was begun n ugust, 1926.
It s agreed that the ta payer s return for the year 1918 (upon whch the
addtona assessment was made) was fed pr 29, 1919. It s aso conceded
by the Government that, f no bond had been gven, no proceedng for the co-
ecton of the addtona ta coud have been brought after pr 29, 1924.
by reason of the mtatons contaned n the Revenue ct of 1918. The queston
here for decson therefore s whether, after the e praton of the statutory
perod aowed for proceedngs to coect a ta , a sut can be mantaned upon
a bond gven before the statute had run by the ta payer and a surety n con-
necton wth the fng of a cam for abatement.
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169
277 and 278, rt. 1272.
The defendant s prncpa contenton s based upon secton 1106(a) of the
Revenue ct of 1926, whch reads n part as foows:
The bar of the statute of mtatons aganst the Unted States n respect
of any nterna-revenue ta sha not ony operate to bar the remedy but sha
e tngush the abty .
e says that snce ths secton of the Revenue ct operates whoy to e -
tngush the abty of the prncpa d btor, therefore no cause of acton can
e st aganst the surety.
It must be admtted that hs argument appears at frst to have consderabe
force. ut on further consderaton, t becomes apparent that the abty
referred to n ths secton must mean the abty for ta es mposed by the
revenue aw. Ths abty s the whoe bass and sub|ect matter of the
statute. It does not arse from any vountary act of the ta payer but s
created by the more w of the soveregn e pressed n egsaton. efore the
bond was e ecuted, t was the ony obgaton upon the ta payer and f the
ta payer were not a party to the bond I woud agree wth the contenton of the
defendants.
owever, as soon as the bond was e ecuted, the ta payer assumed a second
and entrey dstnct obgaton and became sub|ect to a new and entrey df-
ferent knd of abty. There was a surety but the ta payer was the party
prmary bound. The new abty was vountary and contractua. It was n
form a drect and prmary obgaton, not to pay a ta , but to pay the sum of
12,635 defeasbe ony upon payment by the ta payer of a certan amount to
be f ed by subsequent acton of the Commssoner. No mtaton was put upon
the tme wthn whch the Commssoner was requred to act n f ng such sum.
Inasmuch as the coector had the rght to proceed mmedatey for the co-
ecton of the ta , t foows that he aso had the rght to requre, as the prce
of forbearance from such acton, a genera promse to pay such amount as
mfrht be found due at any tme, ether before or after the e praton of the
statutory perod. Ths was unquestonaby the ntent and understandng of
the partes. The ta payer s promse s under sea and n addton s based
upon ampe consderaton. If the coector had proceeded by dstrant, as he
had the rght to do, the ta payer s ony course woud have been to pay the ta
and then to have sued for a recovery of the money. The gvng of the bond
and the wthhodng of proceedngs reeved hm of that necessty.
Ths vew of the case makes t unnecessary to determne whether the gvng
of the bond whoy reeved the ta payer from hs orgna ta abty, was n
substtuton for t, or whether two abtes contnued to subsst together, and,
f so, whether the gvng of the bond was a waver of the mtaton as to the
orgna abty. These questons woud arse f the coector were proceedng
by dstrant or were otherwse pursung a remedy gven by the statute for the
coecton of ta es. So far as ths sut s concerned, the e praton of the
statutory perod aowed for proceedngs to coect ta does not consttute a
defense.
Demurrer s overrued and defendants are drected to answer wthn 15 days.
rtch 1272: Perod of mtaton upon coec- II-45-3982
ton of ta . G. C. M. 4565
NU CTS O 1924 ND 1926.
The submsson of an offer n compromse, wthout more, does not
operate to suspend the runnng of the statute of mtatons, nor
does the mere ssuance of a warrant of dstrant wthout proceed-
ng thereunder wth evy upon the ta payer s property In accord-
ance wth the aw and reguatons governng dstrant proceedngs,
operate to satsfy the statute of mtatons upon coecton of an
outstandng ta .
n opnon s requested as to whether addtona ncome ta es n
the amount of O doars, assessed aganst the ta payer for the ta -
abe year 1917, may be coected at ths tme.
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280, rt. 1291.
170
The facts appear to be as foows:
The ta payer fed an ncome ta return for the caendar year 1917
on March 30, 1918. ddtona ta n the amount of I doars for
the year 1917 was assessed on the September, 1923, st. n unmted
waver of the statute of mtatons upon assessment and coecton
was fed on March 2, 1923, whch waver, under the terms of Com-
mssoner s Mmeograph No. 3085 (C. . II 1, 174), e pred on pr
1, 1924. No other waver was fed nor was a bond gven. No cam
n abatement was fed to cover the defcency n ta referred to.
In a etter from the coector t s stated wth respect to the
outstandng assessment above mentoned that
frst demand notce was ssued by the offce on October 23, 1923,
and a second demand notce on December 10, 1923. warrant for dstrant
was ssued on anuary 8, 1924.
The ta payer submtted an offer n compromse, n the amount of doars,
coverng the abty both for the years 1917 and 1918, whch offer was
re|ected by the Commssoner on May , 1925.
Upon the re|ecton of the offer, the ta was transferred to the coector of
nterna revenue, , because of the address of the ta payer beng ocated
n the State of R dstrct.
The perod of mtaton upon the coecton of the outstandng
assessment havng e pred pror to the enactment of the Revenue
ct of 1924, the s -year perod of mtaton upon coecton as pre-
scrbed n that ct and n the Revenue ct of 1926 s not appca-
be. The submsson of an offer n compromse does not, wthout
more, operate to suspend the runnng of the statute of mtatons
upon coecton.
The mere ssuance of a warrant of dstrant n anuary, 1924, as
stated by the coector, wthout proceedng thereunder wth evy
upon the ta payer s property n accordance wth the aw and the
reguatons governng dstrant proceedngs, does not, n and of
tsef, operate to satsfy the statute of mtatons upon coecton.
In ths connecton see secton 1130 of the Revenue ct of 1926, whch
defnes the date on whch a dstrant s begun wthn the meanng of
the statute of mtatons.
Ths offce s, therefore, of the opnon that coecton of the out-
standng ta s barred by the statute of mtatons.
C. M. Chakest,
Genera Counse, ureau of Interna Revenue.
S CTION 280. CL IMS G INST TR NS RR D
SS TS.
rtce 1291: Cams n cases of transferred II-34-3871
assets. T. D. 4196
INCOM T R NU CT OP 192ft D CISION O COURT.
Sut Transferef cusveness of Secton 280 for nforcng
Labty Trust und Doctrne.
Secton 2S0 of the Revenue ct of 1926 does not provde an e cu-
sve method of enforcng the abty of a transferee of property
of a ta payer. The Unted States may proceed by sut n equty
under the trust fund doctrne for the recovery of ta es assessed
aganst a transferor.
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171
280, rt. 1291.
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,
Dstrct of Massachusetts, n the case of Unted States of merca v.
Greenfed Tap De Corporaton, s pubshed for the nformaton
of nterna revenue offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved ugust 14, 1928.
enry errck ond,
ctng Secretary of the Treasury.
Dstbct Court of thk Unted States, Dstrct of Massachusetts.
Unted States of merca v. Greenfed Tap De Corporaton.
uy 30, 1928.
OPINION.
rewster, .: The Unted States brngs ths proceedng n equty to enforce
ts rghts to coect the baance due on 1920 ncome and e cess profts ta es
from the respondent as transferee of a the assets of the Lncon Twst Dr
Co. The respondent has asked to have the b dsmssed, averrng that secton
280 of the Revenue ct of 1926 provdes an e cusve method of enforcng the
abty, at aw or n equty, of a transferee of property of the ta payer. Ths
statute, so far as matera to the respondent s moton, s as foows:
Sec. 280. (a) The amounts of the foowng abtes sha, e cept as
herenafter n ths secton provded, be assessed, coected, and pad In the
same manner and sub|ect to the same provsons and mtatons as n the
case of a defcency n a ta mposed by ths tte (ncudng the provsons
n the case of denquency n payment after notce and demand, the provsons
authorzng dstrant and proceedngs n court for coecton, and the prov-
sons prohbtng cams and suts for refunds)
(1) The abty, at aw or n equty, of a transferee of property of a ta -
payer, n respect of the ta (ncudng nterest, addtona amounts, and
addtons to the ta provded by aw) mposed upon the ta payer by ths
tte or by any pror ncome, e cess-profts, or war-profts ta ct.
I assume, as the aegatons of the b woud ndcate, that the Government
dd not act pursuant to the provsons of secton 274(a) of the ct, whch set
out the procedure to be foowed n the determnaton of defcences, ncudng
a 60-day notce of defcency. Ths secton rends n part that no proceedng n
court for the coecton of the defcency sha be begun, or prose-
cuted unt such notce has been maed to the ta payer, nor unt the e praton
of such 60-day perod.
These provsons of the Revenue ct of 1926, the respondent contends, eave
the court wthout power to entertan an equty sut to estabsh the abty
of the transferee accordng to the theory that the assets n the hands of the
transferee consttute a (rust fund for the payment of ta es due the Unted
States from the Lncon Twst Dr Co.
To uphod ths contenton s to brng the provsons of secton 280 n drect
confct wth other edera enactments as we as wth other provsons of the
1926 ct. Thus, secton 3213 of the Revsed Statutes provdes that ta es
may be sued for and recovered n the name of the Unted States n any proper
form of acton before any dstrct court of the Unted States for the
dstrct wthn whch the abty to such ta s ncurred, or where the party
from whom such ta s due resdes at the tme of the commencement of the
sad acton. I ook upon ths secton as operatng not ony to f the venue
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284, rt. 1301.
172
of the acton but to confer upon the proper admnstratve offcer authorty to
sue, at aw or n equty, n the name of the soveregnty, for the recovery of
any ta es due the Unted States.
ut, referrng to the ct of 1026, we fnd two sectons that can not be recon-
ced wth the poston taken by the respondent.
Secton 278(d) provdes:
Where the assessment of any ncome, e cess-profts, or war-profts ta
mposed by ths tte or by pror ct of Congress has been made (whether before
or after the enactment of ths ct) snch a may be coected
bv a proceedng n court (begun before or after the enactment of
ths ct) .
nd secton 1122(b) s as foows:
Seo. 1122. (b) The dstrct courts of the Unted Staes at the nstance of
the Unted States are hereby nvested wth such |ursdcton to make and ssue,
boh n actons at aw and suts n equty, wrts and orders of n|uncton, and
of ne e eat repubca, orders appontng recevers, and such other orders and
process, and to render such |udgments and decrees, grantng In proper cases
both ega and equtabe reef together, as may be necessary or approprate for
the enforcement of the provsons of ths ct. The remedes hereby provded
are n addton to and not e cusve of any and a other remedes of the
Unted States n such courts or otherwse to enforce such provsons.
Ths secton, beng the atter porton of the ct of 1926, was hed to contro
n Unted States v. Updke ct a. (Dstrct of Nebraska. Omaha Dvson. pr
13. 1028). My vews are n accord wth the resuts reached n that case. The
rue of constructon there apped s we setted. (Unted States v. Danes, 279
P., 844. In re Lee, 236 , 987.)
I thnk there s mert n the suggeston that secton 280 deas wth admns-
tratve procedure to be foowed n assessng and coectng ta es from a trans-
feree as we as n the other cases specfed n the secton, and that t shoud
not be so construed as to deprve the Unted States of the power e pressy con-
ferred by other statutory provsons to pursue n the courts any proper remedy
for the coecton of ta es and other debts due to t.
Compare Unted States v. yer (12 . (2d), 194) Unted States v. Chcago
S. I. R. R. Co. (298 ., 779) The Doar Savngs ank v. Unted States (19
Wa., 227) : ngs v. Unted States (232 U. S., 261).
or these reasons I am unabe to accept the vews of the respondent respectng
the e cusveness of the provsons of secton 280. I am of the opnon that,
notwthstandng these provsons, the Unted States may proceed n equty for
the recovery of fhese ta es assessed to the respondent s assgnor, and that the
court has |ursdcton under secton 24(1) of the udca Code to entertan the
sut. The merts of the Government s cam are not now before the court.
I overrue respondent s moton to dsmss.
S CTION 2S4. CR DITS ND R UNDS.
rtce 1301: uthorty for abatement, credt. II-39-3909
and refund of ta . T. D. 4209
INT RN L R NU L WS R UNDS D CISION O COURT.
1. Refunds Sut n quty Unted States as Party Defendant.
The Unted States can not. be made a party defendant n a sut
n equty aganst the Government and a corporaton to restran
the atter from coectng a refund of ta es that the Government
has determned s due t and to decree that the Unted States pay
the refund to the pantffs.
2. Refunds Sut y Whom rought.
The statute provdng for a refund of ta es aeged to have
been wrongfuy coected contempates that the acton therefor
sha be brought by the one who actuay pad the ta and not by
one who n equty may have an nterest n the money n dspute.
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284, rt. 1301.
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
n and for the astern Dvson of the astern udca Dstrct of
Mssour, n the case of Careton Dry Goods Co. et a., pantffs, v.
Unted States of merca et a., defendants, s pubshed for the
nformaton of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved September 13, 1928.
. W. Meon,
Secretary of the Treasury.
Dstrct Court of the Unted States n and fob the astern Dvson of
the astern udca Dstrct of Mssour.
Careton Dry Goods Co. and Sdney G. Smth, Trustee n ankruptcy of
erguson Mc nney Manufacturng Co., pantffs, v. Unted States of
merca and Careton erguson Dry Goods Co., defendants.
March 15, 1928.
OPINION.
ars, .: There were submtted to the court not ong snce motons to ds-
mss the petton. These motons are bottomed on dvers and numerous aeged
nfrmtes.
I thnk the motons to dsmss, whch have been fed, perhaps, both |onty
and severay, ought to be sustaned. The reasons for ths vew are numerous .
I scarcey ever came n contact wth a stuaton whch seems to present so many
technca reasons why the motons ought to be sustaned.
Theoretcay, and fgured out from the pont of vew of ogc, as pantffs
most ngenousy vew t, the case presented by pantffs s a very strong one
In ogc, but t s an e ceedngy weak one when consdered n the ght of the
statutes whch are nvoved, and n the ght of the age-od practce.
refy, the facts set out n the petton are, so far as the matter up for ds-
cusson, at east, s nvoved, such wheren the Careton Dry Goods Co. and
the trustee for the bankrupt company seek to recover certan money whch was
overpad to the Unted States as aeged ncome ta es for a gven year. Ths
overpayment was made by defendant corporaton, whch was and s a hodng
company, havng no busness of ts own, save as a hoder and owner of prac-
tcay a of the stock of the bankrupt and a of the stock of the other ncor-
porated pantff.
s forecast, the corporate defendant, wth the money of the pantffs (and
I ca them both such, for brevty), pad the e cess on Income ta es now
here n controversy. Subsequenty, pursuant to the statute, an appcaton
was made by the defendants, and each of them, separatey and severay, t
seems, to the Treasury Department and to the proper bureau the-eof, for
the refund of the sums so respectvey overpad by the corporate defendant
for the account of ncome ta es of the pantff. t the same tme, the
corporate defendant, as the actua ta payer, made a cam for the whoe
of ths money to be refunded to t. Such proceedngs were had as that the
governmenta department agreed to refund to the corporate defendant, as the
actua ta payer, and dened the camed refund to pantffs, and to both and
each of them.
s forecast, t appears by the b of compant that the Unted States has
agreed to refund, and Is wng to refund, every cent of the money In contro-
versy here, but, as forecast furthermore, t has decded that ths refund s due
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174
to the corporate defendant as the actua ta payer, and that t s not due to
pantffs as the equtabe ta payers. Thereupon, pantffs brng ths b of
compant n equty |onng the Unted States as a party defendant, and askng
as reef, among other thngs, that the corporate defendant be en|oned.
There are, as stated, many reasons why, n my opnon, ths sut can not-be
mantaned aganst these two defendants |onty on the equty sde. I thnk
|ust a few, ony, of these reasons need be stated. s sad aready, there are
many more. I am not: sure that a of these that I sha menton have been
rased, or barey rased, by the moton to dsmss, but they are ether rased, or
they coud hare been rased, and they appear upou the face of the b of
compant.
rst, thnk t s cear that, f the pantffs are the ta payers, as they by
counse strenuousy urge as a bass for the mantenance of ths acton, then
surey the sut s not |ont, but severa. Ths s so, I thnk, upon a of the
argument of the pantffs, for pantffs coud not be the ta payers to whom the
rght to sue for a refuud s gven uness n payng the ta they acted severay,
and not |onty. If the pantffs are the ta payers, wthn the purvew of the
statute whch permts a sut on ths account to be mantaned, each of them
havng aready comped wth condtons precedent, by makng a cam as
requred by statute, each pantff may now separatey sue the Unted States at
aw for a refund of the sum respectvey pad by t as a ta payer. In such case
the fact that the Department has aready determned that defendant, Careton
erguson Dry Goods Co., s the ta payer and as such the entty entted to
recover the refund, w be no defense, f, n fact, the Department s wrong as a
matter of aw, and, t goes wthout sayng, that pantffs strenuousy so contend
and, n effect, bottom ther rght to mantan ths acton upon ths basc conten-
ton. If, on the other hand, the money s a trust fund, and f the Careton
erguson Dry Goods Co. became a trustee n respect of ts payment of the ta es
for pantffs, wth the money of pantffs, so that a refund of such money
shoud, n equty, go to the pantffs and not to the Careton erguson Dry
Goods Co., then the nsovency of the atter company coud not, n my opnon,
affect the fund n queston. tmey sut n the proper forum shoud save
ths money n dspute from the credtors of the Careton erguson Dry Goods Co.,
however nsovent t actuay may be. Certany, a court on e equty sde w
protect a trust fund, such as pantffs aege the fund n queston to be, from the
rapacty of common credto-s, of even an nsovent concern. Moreover, the
Unted States s made a party defendant here n an acton wheren t has no
nterest, namey, n a sut as to a controversy actuay between pantffs and the
Careton erguson Dry Goods Co. The Unted States s aeged to be wng
to refund the money n dspute, and s prepared so to do at once, but t nssts,
through the Department havng the matter n charge, that the Careton erguson
Dry Goods Co. s the concern to whom the Unted States shoud pay the amount
of ths refund, because t deems the atter company to be the ta payer, wthn
the purvew of the statute governng the stuaton.
It s cear, therefore, that, n effect, what s here sought to be done Is to
compe the Unted States to nterpead and brng n before the court contend-
ng partes n order that these partes may fght out ther own persona
controversy over the shouders of the Unted States. ths s a thng, I
thnk, for whch there s no warrant of aw. In the absence of controng
authorty on the pont (and nether the court, nor counse, have found any),
t seems pan that the statute provdng for refundng aeged ncome ta
e actons contempates that the acton therefor sha be brought by hm who
actuay pad the ta , and not by hm, or them, who mght n equty, or as a
cestu qu trust, have some atent nterest n the money n dspute.
I can not be brought to beeve that t was contempated by Congress that
the Unted States shoud be drawn nto dsputes as a party defendant, whe
others threshed out between themseves the queston of atent equtes touchng
who actuay owned the money wth whch the aeged ncome ta es wrere pad.
It must be conceded, I thnk, that pantffs are ether rght or wrong n the
asserton that they, upon the facts, are such ta payers as are aowed to sue
to recover money overpad as ncome ta es. If they are wrong, then no acton
can be mantaned by them for the recovery of ths money. If they are rght,
I can, I repeat, see no reason why they can not sue the Unted States at aw
and recover |udgment for the sums severay pad by them, regardess of
whether the Department deems such money payabe aone to the corporate
defendant or not. I know of no rue of aw, save that found n the partcuar
statute before me (the force of whch, however, pantffs by the broadest
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175
284, rt. 1304.
nference deny), whch w e empt the Unted States from abty f t sha
pay to the corporate defendant money whch beongs to the pantffs.
There are, n my vew, other dffcutes and ob|ectons n the case, whch
are amost, f not qute equay, as obvous as the ones aready mentoned. So,
I concude that f a the ancent rues are not to be abandoned, the motons
must be sustaned, and so t s ordered.
rtce 1304: Cams for refund by ta payers. II-42-3948
G. C. M. 4355
R NU CT O 1926.
credt erroneousy camed on an ncome ta return wthout
more can not be construed as an nforma cam for refund of a
ta overpad for a pror year.
n opnon s requested as to whether and have fed suffcent
cams for refund of ta es for the year 1917.
The ta payers carred on a partnershp busness durng the ta abe
year 1917, and the partnershp return for that year refected an
e cess profts ta , whch was pad. The ta pa| ers faed to take
deductons on ther ndvdua returns for that year on account of
ther proportonate shares of the e cess-profts ta pad for the part-
nershp, an aowance for whch s provded n secton 29 of the
Revenue ct of 1916, added by secton 1211 of the Revenue ct of
1917. On ther ndvdua returns for 1918 each of the ta payers
erroneousy took as a credt under tem 40 of orm 1040 n use for
makng ndvdua returns for that year, hs proportonate share of
the e cess-profts ta pad for the partnershp n the precedng
year. Item 40 reates to the credt aowed for ta es pad to a
foregn country and possessons of the Unted States. Pursuant to
an offce audt made n 1921 of the returns for 1918, ths credt was
dsaowed for that year. On October , 1927, each of the ta payers
fed a forma cam for refund of ta es overpad for 1917, the ast
payments of whch were made on March 31, 1923.
It therefore appears that the forma cams for refund were fed
more than 4 years after the payment of the ta es for the year 1917
and more than 5 years after the returns for that year were due. In
order to brng themseves wthn the perod of mtaton the ta -
payers contend that the credt taken under tem 40 on ther returns
for the year 1918 consttuted nforma cams for the purpose of
preventng the runnng of the statute.
In every case where an nforma cam has been recognzed there
has been some wrtng submtted by the ta payer settng forth the
genera nature of hs cam or nformaton that woud ndcate a
possbe error n the computaton of the ta abty for the ta abe
year for whch the overpayment was made. The ta payers n the
present case camed credt on ther 1918 ndvdua returns for ta es
pad to a foregn government or a possesson of the Unted States,
hut subsequenty asked that ths be construed as nforma cams for
refund of a ta erroneousy pad for 1917 based on ther faure to
cam ther proportonate shares of the partnershp e cess-profts
ta es as deductons for 1917. Under these crcumstances t can not
be sad that the ta payers have submtted any nformaton from
whch the nature of ther cams coud have been determned and
whch was susceptbe of beng construed as nforma cams for
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284, rt. 1305.
176
refund capabe of beng perfected by the forma cams subsequenty
fed. credt erroneousy camed on an ncome ta return wth-
out more can not be construed as an nforma cam for refund of a
ta overpad for a pror year.
It s the opnon of ths offce that nether of the ta payers fed
a cam for refund wthn the statutory perod for the year 1917,
and that refunds of any ta es erroneousy pad for that year are
therefore barred.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 1305: Lmtatons upon the credtng TI-52-4041
and refundng of ta es pad. G. C. M. 5000
R NU CT O 1926.
The perods of mtaton prescrbed by the varous Revenue
cts upon the credtng or refundng of ta es appy, e cept as other-
wse provded by subsecton (f) of secton 24, Tradng wth the
nemy ct. as amended (as amended by secton 18, Settement of
War Cams ct of 1928), n the case of a cam fed by the
en Property Custodan.
n opnon s requested as to whether the bar of the statute of
mtatons has faen wth respect to a cam for refund of 1917
ta es hed by the en Property Custodan.
It appears that pursuant to the Tradng wth the nemy ct the
en Property Custodan sezed as enemy owned certan property
beongng to certan German or ustran natonas that on pr ,
1922, from funds derved from the property of these Germans or
ustrans, the en Property Custodan pad certan sums to ds-
charge a abty for ncome ta es for the year 1917 and that on
November , 1926, the en Property Custodan, on behaf of the
sad German or ustran natonas, whose property he then hed
and from whch property the funds pad had been derved, fed
a cam for refund n proper form.
Pror to March 4, 1923 (the effectve date of the Wnsow ct),
Germans and ustrans havng the status of those here nvoved
were under a compete dsabty wth respect to possesson, custody,
contro, and management of such of ther property as had been
sezed and was hed by the en Property Custodan, and they
woud not be heard n any court upon any matter wth respect to
such property.
It s contended, reyng upon the opnon of the ttorney Genera
of ugust 14,1924 (34 Op. . G., 302), and Soctor s Memorandum
5632 (C. . -, 193), that snce an offca of the Government,
the en Property Custodan, was responsbe for the aeged errone-
ous payment n the nstant case, that a refund of the amount thus
pad may be made wthout regard to the statutory perod of mta-
ton f the cam s aowabe on ts merts.
Subsecton (f) of secton 24, Tradng wth the nemy ct, as
amended (as amended by secton 18, Settement of War Cams ct
of 1928), provdes as foows:
(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-
G
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177
284, rt. 1305.
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 1 )28, 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 retnrn of the proceeds.
The statement of the managers on the part of the ouse of Repre-
sentatves pertanng to . R. 7201 (whch became the Settement of
War Cams ct of 1928), contans the foowng reference (69
Congressona Record, p. 3782) to the secton:
The ouse b provded that the edera ta es on aen property shoud be
computed n the same manner as f the property had not been sezed and shoud
be pad wherever possbe out of the funds hed by the en Property Custodan.
The Senate amendment added four quafcatons: fourth, that cams
for refund coud be ted and assessments made and proceedngs started for co-
ecton wthn s months after the date of enactment of the ct regardess
of the e praton of the ordnary statutory perod and, ffth, that tentatve
returns shoud be fed and tentatve assessments made and that the 20 per cent
of property wthhed shoud be retaned by the en Pro erty Custodan as se-
curty for the payment of any defcency fnay determned to be due. The
ouse recedes wth an amendment provdng that the aowance of
addtona tme for fng cams and for makng assessments shoud appy ony
n cases where the ta abty s changed by the provsons of ths secton
and, n eu of the ffth provson, provdng that property acqured may be
returned pror to a fna determnaton of ta abty, under Treasury regua-
tons whch w protect the nterests of the Government by makng certan
that suffcent property s retaned to pay the ta es or that a bond s gven to
secure such payment.
The benefts of subsectons (c), (d), and (e) of secton 24, Tradng
wth the nemy ct, as amended, can ony resut, as respects the
e -enemy ta payers, n credts or refunds of ta . When n subsecton
(f) Congress speaks of the perod of mtatons propery appcabe
thereto the obvous nference s that the perods of mtaton pre-
scrbed by the appcabe Revenue cts appy and the obvousness
of the nference s not changed by the crcumstance that subsecton
(f) prescrbes n the aternatve other perods wthn whch cams
for credt and refund as respects the benefts of subsectons (c), (d),
and (e) may be fed. Thus, n unequvoca terms Congress has pre-
scrbed that n so far as the ta abty s affected by subsectons
(e), (d), and (e) the perods of mtaton provded by the appcabe
Revenue cts are to be apped. The necessary nference from ths
prescrpton s that Congress assumed, and ntended, that the perods
of mtaton provded by the varous Revenue cts upon the credt-
ng or refundng of ta es shoud appy generay e cept as specfcay
otherwse provded by subsecton (f).
If, under the rue that congressona commttee reports and state-
ments upon a statute n the course of ts egsatve career may be re-
sorted to n case of doubt or ambguty, recourse may be had to the
statement of the managers on the part of the ouse pertanng to
the b whch became the Settement of War Cams ct of 1928,
a doubt must be resoved when the necessary mpcatons of the
statement are taken nto consderaton. See provsons quoted supra.
Nor are .these concusons rendered untenabe by any prncpes
or consderatons deducbe from the opnon of the ttorney Gen-
era of ugust 14, 1924, supra, or from Soctor s Memorandum
5632. Such genera nferences or prncpes may serve to furnsh a
rue appcabe to stuatons where the aw s sent or obscure, but
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1104, rt. 1331.
178
they can not serve to overthrow a cear and defnte ntenton e -
pressed by Congress n a statute.
In the nstant case the ta es under consderaton were ncome
ta es for the ta abe year 1917 were pad on pr , 1922 and
no cam for credt or refund of any knd was ever fed unt Novem-
ber , 1926. The perod wthn whch cams for credt or refund
are requred to be fed by secton 284, Revenue ct of 1926, n re-
spect of such ta es therefore e pred pror to November, 1926. The
cam for refund was fed too ate and shoud be dsaowed.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
TITL . O RD O T PP LS.
S CTION 1001. COURT R I W O O RD S
D CISION.
Secton 1001.
revenue act of 1026.
Remedes n case of adverse decson by oard of Ta ppeas.
(See G. C. M. 5046, page 78.)
TITL L G N R L DMINISTR TI PRO ISIONS.
S CTION 1104. MIN TION O OO S
ND WITN SS S.
rtce 1331: amnaton of records and II-38-3902
wtnesses. T.D.4203
nterna revenue aws revenue act of 1026 decson of court.
amnaton of ooks uthorty of Revenue gent.
summons by a revenue agent to a bank to produce a the
records of deposts and wthdrawas of a ta payer for the perod
covered by hs ta return does not go beyond the authorty con-
ferred upon hu by secton 1104 of the Revenue ct of t)2G.
Such a summons does not compe a bank to furns evdence mma-
tera or outsde the mts of a proper nvestgaton. bank
can not refuse to respond to the summons because ts books con-
tan whoy mmatera entres. No rghts of the depostor are
nvaded by an e amnaton of the records even f the resut s to
dscose transactons that have no hearng upon the matters n
ssue. .
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,
Dstrct of Massachusetts, n the case of Robert C. Cooey v. rank
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179 1104, rt. 1331.
. ergn et a. s pubshed for the nformaton of nterna revenue
offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved September 6, 1928.
Oon N L. Ms,
ctng Secretary of the Treasury.
Dstrct Court of the Unted States, Dstrct op Massachusetts.
Robert C. Cooey v. rank . ergn et aU
uy 30, 1928.
OPINION.
rewster, ., Dstrct udge: The respondent ergn s an nterna revenue
agent, engaged n checkng up the ncome ta return of the pettoner, and n
pursuance of hs dutes he ssued a summons to the respondent Thrd Natona
ank Trust Co. by whch the bank was requested to appear before the agent
and to brng wth t ts records showng the detas of the deposts and wth-
drawas of the pettoner for the perod begnnng anuary 1, 1925, and endng
December 31, 1926. The summons rected that f the bank shoud fa to compy
t woud become abe to proceedngs n the dstrct court of the Unted States
for ths dstrct to compe ts attendance, testmony, and producton of books, etc.
The pettoner thereupon fed ths b of compant aganst both the bank
and ergn, settng forth the summons, and asks for an n|uncton restranng
ony the bank from producng, or submttng, to the respondent ergn the sad
bonks, papers, and records n ts possesson and contro unt t has been deter-
mned by ths court what of such books, papers, and records, f any, the bank
may be requred to submt accordng to the terms of the sad summons. The
matter s before the court on the aegatons of the b and the testmony of the
pettoner.
The summons presumaby was ssued pursuant to the authorty conferred upon
revenue agents and nspectors under secton 1104 of the Revenue ct of 1926,
whch reads as foows:
Sec. 1104. The Commssoner, for the purpose of ascertanng the correct-
ness of any return or for the purpose of makng a return where none has been
made, s hereby authorzed, by any revenue agent or nspector desgnated by
hm for that purpose, to e amne any books, papers, records, or memoranda
bearng upon the matters requred to be ncuded n the return, and may requre
the attendance of the person renderng the return or of any offcer or empoyee
of such person, or the attendance of any other person havng knowedge n the
premses, and may take hs testmony wth reference to the matter requred by
aw to be ncuded n such return, wth power to admnster oaths to such
person or persons.
It s urged by the pettoner that the summons requrng the bank to produce
a the records of deposts and wthdrawas of the pettoner for the stated
perod went beyond any authorty conferred upon Ihe agent by secton 1104,
and that before the bank shoud respond to the summons there shoud be an
order of the court whc woud be mted n scope ony to such entres on the
records as were matera to the matters requred to be ncuded n the return.
The summons receved by the bank was, n ega effect, no more than a
request to furnsh nformaton n ts possesson reatve to ts deangs wth
the pettoner. The bank has the prvege of decdng whether t w respond
or awat an approprate order of the court. It can not be assumed n advance
that the bank w fa to e ercse a reasonabe dscreton n the premses.
Moreover, there s nothng n the summons that compes the bank to furnsh
evdence whoy mmatera or outsde the mts of a proper nvestgaton, and
here agan t s not for the court to proceed on the assumpton that the bank
w fa to act wth due regard for the rghts of the pettoner. or these
reasons, I regard these proceedngs as somewhat premature. I coud, there-
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1104, rt. 1331.
180
fore, wth proprety dspose of the case at ths pont, hut the pettoner has
urged upon the court certan ob|ectons to the acts of the revenue agent and
the contempated procedure before hm whch, whe nvovng more or ess
the merts of the case, deserve bref consderaton.
It s conceded that the respondent ergn has a rght to nqure of the bank
respectng transactons that reate to the pettoner s net ncome, and t must
be equay apparent that many of the entres n the boots of the bank do tend
to show the recept of ncome. ut the pettoner has aeged and has proved
that among these entres are those whch reate to deposts made by the pet-
toner of money beongng to cents, and to hs wfe, and have no reference to
the matters requred by aw to be ncuded n hs return. e aso cams the
protecton of the fourth amendment to the Consttuton aganst unreasonabe
search and sezure. The mere fact that the books contan entres of deposts
by the pettoner of money of other persons woud not, n my opnon, warrant
the bank n refusng to gve any nformaton whatever. ankers are frequenty
summoned to court to gve testmony respectng, and to produce records of,
ther deang wth depostors, and I have never heard t suggested that a bank
coud refuse to respond to the summons because the books contaned mma-
tera entres. Nor s the bank permtted to be the soe |udge of what s ma-
tera. The evdence s produced and the reevancy determned by proper
authortes after e panaton. No rghts of the depostor can be sad to be
nvaded by such a proceedng, even, f the resut s to dscose transactons that
have no bearng upon the matters n ssue.
In Unted States v. rst Ratona ank of Mote (295 ., 142 T. D. 3546.
C. . I 1, 422 ), the bank havng refused to produce before a revenue agent
Us records of transactons wth ta payers, who were ts customers, the agent
apped for an order of court to compe the bank to produce ts edgers and
other books contanng the accounts of these customers. The bank ressted
the grantng of the order, contendng that the order woud voate the rghts
secured by the fourth amendment to the Consttuton, that t had not been
made to appear that the books and entres were matera, and that there were
entres of deposts of money for other peope or whch, for one reason, or an-
other, woud have no tendency to show ncome. The earned |udge dsposed of
these contentons wth the foowng observatons:
Sad bank refuses to testfy and produce the books, and contends that t
s protected by the fourth amendment to the Consttuton from dong so.
s I understand the fourth amendment, t protects the partes to crmna
prosecnton aganst unreasonabe searches and sezure of ther papers, and I
do not understand ths to authorze a thrd party, who has books and papers
whch may be reevant to the nqury, to refuse to produce such books and
papers because of ths amendment. Ths s not a queston of a search and
sezure of a party s books and papers, but of whether a wtness who has n-
formaton as to a party s deangs may be requred to testfy to those facts,
and produce book entres as to such entres n connecton wth and supportng
such testmony.
It s not necessary to say that many accounts n the bank are accounts of
partes who hande money for other partes, and do not show any ndvdua
recept of ncome n such cases of fducary funds. These transactons, of
course, ke those of use of fuuds comng n fducary reaton, can be e -
paned but, unt e paned, they tend to show ncome receved. Nor s t
any e cuse for refusng to testfy and gve the facts to say that moneys whch
pass through a man s bank account are not aways ncome receved by hm.
Ths may be conceded, and yet t s evdence from whch ncome can be n-
ferred, and does tend to show ncome. Lke other transactons, however, t
may be e paned by anon and wfe.
The court n that case ssued an order whch, so far as appears from the
pubshed opnon, was comprehensve, e tendng to a entres of deposts,
nvestments, or any deangs wth the ta payers.
In the case at the bar any entry on the books of the bank that does not show
ncome or does not reate to matter requred to be ncuded n- the return of
the pettoner can be e paned and e cuded wthout workng any substanta
n|ury to anyone.
natona bank s a pubc nsttuton, recevng a vauabe franchse from
the Government, and t shoud recognze an obgaton to ad the edera
authortes n the admnstraton of Its aws, so far as t s compatbe wth ts
duty to ts customers. It s we setted that the reaton of banker and depostor
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181
1106, rt. 1341.
n ther pecunary deangs s that of debtor and credtor. (Ratona ank of
the Repubc v. Mard, 10 Wa., 152.) The pettoner has no propretary-
nterest n the books and records caed for by the summons. They are the
property of the bank, and the most the pettoner can cam s that the nforma-
ton they contan sha not be dscosed for the deberate purpose of nfctng
substanta n|ures upon hm. Wthout undertakng to defne the nature and
e tent of the duty whch the bank owes the pettoner n ths respect, t s
enough to say that the aegatons of the b and the evdence ntroduced by
the pettoner do not show any such threatened nvason of hs correspondng
rghts as woud warrant ths court, as a court of equty, n en|onng or restran-
ng the bank accordng to the prayers of the b. I fnd nothng n the case
that supports the pettoner s aegaton that rreparabe n|ury woud resut
to hm f the bank responded to the summons.
Whe I do not deny the rght of a ta payer to nvoke the equty |ursdcton
of the court to restran an agent of the Government from dong acts that t s
aeged that he has no authorty to do (see Coorado v. To, Sup t, 268 U. S.,
2 . S, 69 L. ed., 581), I am bound by estabshed precedent to refran from nter-
ferng wth the acton of an e ecutve or admnstratve department e cept
under e traordnary crcumstances whch render such a course necessary n
order to conserve rghts of person or property. (Georga v. Stanton, 6 Wa.,
50 In re Sawyer, 124 U. S., 200 Sherdan et a. v. Covn et a, 78 111., 237.)
I do not fnd here presented any such speca or e traordnary stuaton. It
foows that no equtabe grounds are shown to e st upon whch n|unctve
reef may be based, and pettoner s prayer for an n|uncton s dened.
s ths s the ony reef sought, I see no reason why, f a moton to dsmss
were fed, t shoud not be granted.
S CTION 1106. IN L D T RMIN TIONS
ND SS SSM NTS.
rtce 1341: na determnaton and assess- II-39-3910
ment of ta or penaty. G. C. M. 4914
R NU CT O 1926.
cosng agreement made under the provsons of secton
1106(b) of the Revenue ct of 1926 s of no effect where fraud
affectng the assessment covered by the agreement s ater dscosed,
even though such fraud may not be estabshed by |udca process.
n opnon s requested as to whether the abty of shoud
be redetermned on the ground that the cosng agreement entered nto
under secton 1106(b) of the ct of 1926 was of no effect because
of fraud materay affectng the assessment covered by the agree-
ment.
It s contended n behaf of the ta payer that the ta abty
covered by the agreement can not be redetermned by the Comms-
soner, despte an aeged showng of fraud, uness and unt the
agreement had been determned by |udca process to be nu and
vod. It s aso camed that the agreement s fna and concusve
aganst further acton by the admnstratve offcers of the Govern-
ment, and that a showng of fraud does not vtate the agreement
uness estabshed by |udca process.
The contentons made n behaf of the ta payer have been con-
sdered carefuy, and t s the opnon of ths offce that the agree-
ment n queston may be gnored and the ta abty redete mned.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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1113, rt. 1351.
182
S CTION 1113. LIMIT TIONS UPON SUITS ND
PROC DINGS Y T T P Y R.
rtce 1351: Suts for recovery of ta es erro- II-39-3914
neousy coected. T. D. 4211
nterna revenue aws cams for refund decson of coubt.
Sut Cam for Refund Statement of Ground.
sut to recover a ta aeged to have been Iegay coected
can not be mantaned uness the ground upon whch t s based
was stated n the cam for a refund fed wth the Commssoner
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 The eather Rver Lumber Co. v. The Unted States s
pubshed for the nformaton of nterna revenue offcers and others
concerned.
D. . ak,
Commssoner of Interna Revenue.
pproved September 14, 1928.
. W. Meon,
Secretary of the Treasury,
Court of Cams of the Unted States.
The eather Rver Lumber Co. v. The Unted States.
May 28, 1928.
opnon.
Moss, udge, devered the opnon of the court.
On une 16, 1010, pantff fed ts ncome-ta return for the year 1918 and
pad the ta shown to be due, amountng to . 3,008.03. On the 14th day of
March, 1924, pantff fed a cam for the refund of sad sum, settng forth
the grounds as foows:
Ta payer s 1918 return has not yet been audted by the Commssoner at
Washngton, D. C, but t appears from agreements reached n conference wth
representatves of the ureau of Interna Revenue reatve to deprecaton and
depeton that ts 1918 ta es have been overpad and that a refund s due. Ths
cam s fed n order to protect ta payer s rghts under sectons 252 and 1324
of the Revenue ct of 1921. because the rght to cam refunds for 1918 w
soon be barred by the statute of mtatons.
The cam for refund was aowed to the e tent of 126.08, whch was pad.
In March, 1920, pantff fed ts Income-ta return for the year 1919. whch
showed no ta abe ncome, but a net oss of 4,891.15. as aeged by pantff:
3,331.15, as computed by defendant. On May 13, 1925, pantff, n a etter
to the Commssoner of Interna Revenue, caed attenton to the fact that n
arrvng at the ta abe ncome for 1918 the Commssoner had not deducted
the net oss for 1919, and requested a recomputaton of pantff s ta abty
and a further refund of 586.94. Upon the refusa of the Commssoner to
grant pantff s request pantff nsttuted ths acton to recover sad sum.
No cam for refund was ever fed by pantff other than the cam heren-
above set forth. The transactons out of whch the cam sued on arose had
transpred pror to the fng n 1924 of the cam for refund, and there was no
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183
1114, rt. 1361.
menton of a cam on account of net oss n 1919. The cam merey stated
that agreements had been reached by the ta payer wth the Government rea-
tve to deprecaton, and depeton, that ts 1918 ta es had been overpad, and
that a refund was due. Ths cam, referrng ony to the queston of deprcoar
ton and depeton, was duy consdered and n part aowed. The frst menton
of the cnm whch consttutes the bass of ths acton was n the etter of
May 13, 1925.
The purpose of requrng cams for refund as a condton precedent to the
nsttuton of an acton to recover for ta es egay or erroneousy coected
was to afford an opportunty for the ureau offcas to correct errors arsng
through ther own mstakes. Not unt the Commssoner of Interna Revenue
had been presented wth a cam brngng to hs attenton the errors companed
of, and has re|ected same, or has aowed s months to eapse wthout takng
acton thereon, can the ta payer nvoke the ad of the courts. The mere show-
ng of a net oss for the year 1919 s not suffcent Pantff shoud have pre-
sented a cam for refund, statng ts grounds therefor. There s no ega
reaton between the cam fed n 1924, as a cam for refund, and the cam
whch consttutes the bass of ths acton. Whe t has been hed that the
form of the cam for refund s not essenta, there has been no devaton from
the we-estabshed rue that the aggreved ta payer must assert hs rght to
a refund by an appcaton to the Commssoner contanng the grounds upon
whch he rees for such recovery before he w be permtted to brng an acton
for same. See Rock Isand, rkansas Lousana Raroad Co. v. Unted States
(254 U. S., 141 Ct. D. 2, C. . 4, 342 ) and cases cted theren. The queston
nvoved n ths case presents an apt e ampe for the appcaton of the some-
what epgrammatc anguage of Mr. ustce omes n the Rock Isand case,
Men must turn square corners when they dea wth the Government. If It
attaches even purey forma condtons to ts consent to be sued those condtons
must be comped wth The petton w be dsmssed, and t s so ordered.
S CTION 1114. P N LTI S.
rtce 1361: Penates. II-52-4042
G. C. M. 4783
R NU ) CT O 1926.
The abty of a bank under a evy upon a denquent ta -
payer s bank account s mted by the amount of funds on hand at
the tme the evy s made. If, subsequent to such evy, the funds of
the ta payer are reduced beow the amount camed n the evy,
the bank s abe for the amount wthdrawn.
n opnon s requested reatve to a evy made on the bank depost
of at the M ank.
In the process of coectng ta es due from the ta payer, a evy n
the amount of 10a doars was made on the ta payer s bank account
at the M ank. It appears that when the bank accepted the evy the
foowng statement was wrtten on the notce: mount beng hed
6/7/28| The M ank, , ssstant Casher. It further appears,
accordng to a etter of the bank wrtten after the evy was made
and apparenty on the same day, that prevous to the evy the ta -
payer had wthdrawn the sum of 9a doars, eavng a baance on
depost amountng to doars, whch baance was beng hed sub|ect
to the evy. The bank s etter reads n part as foows:
One of your representatves caed at ths offce ths day and served notce
of evy on bank deposts of n the amount of 10a doars. Prevous to the
ca of your representatve had drawn doars. The baance at the present
wrtng amounts to doars, whch we are hodng sub|ect to your further
orders.
37229 29 13
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1114, rt. 1361.
184
The contenton s made that the acknowedgment of servce shoud
render the bank abe for such sum as t admtted t was hodng
under the evy.
uthorty to evy upon a denquent ta payer s bank account under
a warrant of dstrant s provded for by secton 3187, Unted States
Revsed Statutes, as amended by secton 1016 of the Revenue ct of
1924, whch atter secton made bank accounts of the person de-
nquent one of the casses of property sub|ect to dstrant. ur-
ther, secton 1114(e) of the Revenue ct of 1926 provdes n sub-
stance that a person n possesson of property or rghts to property
sub|ect to dstrant, upon whch a evy has been made, must sur-
render the same on demand of a coector or deputy coector makng
the evy, and, upon faure or refusa to so surrender, s abe to the
Unted States n a sum equa to the vaue of the property or rghts
not surrendered, but not e ceedng the amount of the ta es for whch
the evy was made.
Ctaton of authorty s not requred to substantate the poston
that by a evy n dstrant proceedngs on the bank account of a
denquent ta payer, ony such money as the account contans may
be taken. Ceary, f pror to the evy n ths case the sum of 9a
doars had been wthdrawn, no evy was made upon t, and the bank
s not abe therefor to the Unted States under secton 1114(e) of
the Revenue ct of 1926. ut f at the tme of the evv ths sum
had not been wthdrawn, the evy was made upon t, and the bank
offcas cognzant of the evy n order to protect ther nsttuton,
were requred to take mmedate steps to prevent any subsequent pay-
ments out of the account eved upon whch woud reduce t beow
the amounts camed by the Government.
If due to faure to take such steps, the sum was wthdrawn from
the account after the evy was made, reducng the fund n the account
beow the sum camed under the evy, the bank s abe to the Gov-
ernment for the amount camed, and, upon ts faure or refusa to
surrender such sum, t s abe therefor under secton 1114(e).
It must be concuded that the abty of the M ank under the
evy s mted by the amount of funds on hand at the tme evy was
made and s not determned by the amount ndcated n the acknow-
edgment of servce.
C. M. Charest,
Genera Counse., ureau of Interna Revenue.
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185 213(a), rt. 31.
INCOM T RULINGS. P RT III.
R NU CT O 1924.
TITL II. INCOM T .
P RT I. G N R L PRO ISIONS.
S CTION 201. DISTRI UTIONS Y
CORPOR TIONS.
rtce 1545: Dstrbutons n qudaton.
R NU CT O 1924.
I. T. 2388 (C. . I-2, 14) and S. M. 4181 (C. . I -2, 12) ds-
tngushed. (See G. C. M. 5180, page 110.)
S CTION 208. C PIT L G INS ND LOSS S.
rtce 1651: Defnton and ustraton of capta
net gan.
R NU CT OP 1924.
Royaty payments from eases of o and gas ands n Te as. (See
G. C. M 4299, page 116.)
P RT II. INDI IDU LS.
S CTION 213(a). GROSS INCOM D IN D:
INCLUSIONS.
rtce 31: What ncuded n gross ncome. II-29-3802
( so Secton 213(b), rtce 71.) G. C. M. 4363
R NU CT O 1924 NC PRIOR CTS.
Soctor s Memorandum 2042 (C. . I -1, 20), whch hods that
damages In the form of payments for breach of a contract to
marry consttute ta abe ncome, s revoked.
Recommended that Offce Decson 501 (C. . 2, 70) and I. T.
2170 (C. . I -1, 28) be revoked.
The attenton of ths offce has been caed to the Commssoner s
acquescence n the decson of the oard of Ta ppeas n the case
of Mrs. Lyde McDonad (see on page 26). In ts decson the
oard hed (9 . T. ., 1340) that damages for breach of contract
to marry do not consttute ta abe ncome. Ths decson s contrary
to the pubshed rungs of the ureau.
G
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213 (b), rt. 87.
186
In vew of the acquescence of the Commssoner n the above de-
cson of the oard of Ta ppeas, Soctor s Memorandum 2042
s hereby revoked. It s recommended that I. T. 2170 and Offce
Decson 501 aso be revoked.
C. M. Charest,
Genera Counse, ureau, of Interna Revenue.
rtce 31: What ncuded n gross ncome. II-29-3803
( so Secton 213 (b), rtce 71.) I. T. 2422
R NU CT O 1924 ND PRIOR CTS.
Offce Decson 501 (C. . 2, 70) and I. T. 2170 (C. . I -1, 28),
whch hod that amounts receved as damages for breach of a con-
tract to marry consttute ta abe ncome, are revoked, n vew of the
Commssoner s acquescence n the decson of the oard of Ta
ppeas n the case of Mrs. Lyde McDonad, pettoner, v. Comms-
soner (9 . T. ., 1340 (see on page 26)).
rtce 32: Compensaton for persona servces.
R NU CT O 1924.
Partnershp agreement between husband and wfe, vng n Ca-
forna, to dvde commssons, etc. (See G. C. M. 4797, page 121.)
S CTION 213(b). GROSS INCOM D IN D:
CLUSIONS.
rtce 71: cusons from gross ncome.
R NU CT O 1924.
mount receved for breach of contract to marry. (See G. C. M.
4363, page 185.)
rtce 71: cusons from gross ncome.
R NU CT O 1924.
mount receved for breach of contract to marry. (See I. T. 2422,
above.)
rtce 87: Income of States.
R NU CT O 1924.
Income of a muncpaty under contract wth a company organ-
zed to erect and operate a budng to be used as a market pace and
audtorum. (See I. T. 2436, page 147.)
G
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187
217, rt. 317.
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 satsfy the equvaent e empton requre-
ment of secton 213 (b)8 of the Revenue ct of 1924. (See T. D. 4227,
page 125.)
rtce 89: ddtona e cusons from gross ncome.
R NU CT O 1924.
Interest receved by a rtsh corporaton on moneys, hed tem-
porary n Unted States banks, whch represent surpus workng
cash arsng and coected n the Unted States from the busness of
shppng. (See G. C. M. 4859, page 73.)
rtce 89: ddtona e cusons from gross ncome.
R NU CT O 1924.
raz and the equvaent e empton requrement of secton
213 (b)8. (See I. T. 2438, page 72.)
S CTION 214(a) 1. D DUCTIONS LLOW D INDI-
IDU LS: USIN SS P NS S.
rtce 112: When charges deductbe.
R NU CT O 1924.
reghts charges of umber manufacturers keepng books on accrua
bass. (See G. C. M. 5265, page 55.)
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 a bar assocaton. (See G. C. M. 4805, page 58.)
S CTION 217. N T INCOM O NONR SID NT
LI N INDI IDU LS.
rtce 317: Income from sources wthn the Unted States.
R NU CT O 1924.
Profts from saes of cotton made n the Unted States to foregn
customers tte to whch passed from the seer upon devery of the
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221, rt. 361.
188
cotton to carrers at a port n the Unted States and the forwardng
of the necessary documents to the buyer. (See G. C. M. 2467,
beow.)
rtce 329: Transportaton servce.
R NU CT O 1924.
mendment of artce 329 of Reguatons 65. (See T. D. 4201,
page 133.)
S CTION 218. P RTN RS IPS.
rtce 336: Dstrbutve shares of partners.
R NU CT OP 1924.
Saares pad to nonresdent aen members of partnershp. (See
G. C. M. 2467, beow.)
S CTION 219. ST T S ND TRUSTS.
rtce 343: Decedent s estate durng admnstraton.
R NU CT O 1924.
mendment of artce 343, Reguatons 65. (See T. D. 4177,
page 134.)
rtce 343: Decedent s estate durng admnstraton.
R NU CT O 1924
ass for determnng gan or oss n case of nstament notes
orgnay receved by decedent and coected by hs estate or ne t of
kn after dstrbuton. (See G. C M. 5060, page 64.)
S CTION 221. P YM NT O INDI IDU L S
T T SOURC .
rtce 361: Wthhodng ta at source. II-37-3892
( so Secton 218, rtce 336 Secton 217, G. CM. 2467
rtce 317.)
R NU CT O 1924.
The M Company, a mted partnershp tnder the Te as statutes,
s not requred to fe orm 1012, reportng ta wthhed from
profts pad to Its nonresdent aen members whch were derved
from the operaton of ts busness n the Unted States.
The so-caed saares pad to the nonresdent aen members of
the partnershp can not be consdered compensaton for servces
rendered the partnershp, but must be ed to represent portons of
the dstrbutve profts of the partnershp.
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189
221, rt. 361.
Inasmuch as tte to the cotton sod to foregn customers passed
from the ta payer upon devery of the cotton to carrers at a port
n the Unted States and the forwardng of the necessary documents
to the buyer, the saes were made n the Unted States and profts
from such saes were from sources wthn the Unted States.
n opnon s requested regardng the protest of the M Company,
a partnershp, aganst a proposed assessment as wthhodng agent
for two of ts nonresdent aen members. The facts dscosed are
stated brefy as foows:
The M Company s a partnershp formed under the provsons of
chapter 1, tte 102, of the statutes of Te as, reatve to the creaton
of mted partnershps. The busness of the partnershp s that of
buyng and seng cotton. The buk of the cotton purchased s sod
to customers n foregn countres. Orders are secured by the non-
resdent aen members of the frm and by foregn agents, such
orders beng transmtted by cabe. Practcay a the cotton sod to
foregn customers was sod under c. . f. foregn port contracts.
The partnershp contends that the proft made on a cotton sod
to foregn customers s from sources wthout the Unted States and
that the porton of such profts dstrbutabe to ts nonresdent aen
members s not ta abe n ther hands. It has determned the amount
of the profts from sources wthout the Unted States by proratng
the tota profts on a bass of baes sod to customers wthout the
Unted States to tota baes sod.
The coector consders that the entre proft of the partnershp s
ncome from sources wthn the Unted States and therefore that the
M Company has contro of ncome from sources wthn the Unted
States, determnabe n 1924 and payabe to two nonresdent aens
at the dscreton of the managng partner and that ta shoud have
been wthhed under the provsons of secton 221 of the Revenue ct
of 1924. e recommends that the company be assessed n accordance
wth orm 1042, prepared by a deputy coector of hs dstrct under
authorty of secton 3176 of the Revsed Statutes.
The attorney for the partnershp ob|ects to the coector s recom-
mendatons. e refers to the provsons of sectons 217 and 218 of
the Revenue ct of 1924 and certan artces of the reguatons ssued
thereunder. e submts that a partnershp s recognzed by the aw
and reguatons merey as a medum through whch the ndvdua
receves ncome, each partner beng abe for ta on hs dstrbutve
share of the net ncome of the partnershp for the ta abe year pre-
csey as f he had receved an amount equa to such dstrbutve
share drecty and wthout the nterventon of the partnershp that
a nonresdent aen ndvdua s ta ed on ncome receved as hs ds-
trbutve share of the partnershp of whch he s a member |ust as he
s ta ed on any other ncome receved by hm that a nonresdent
aen member s abe to ta upon such porton of hs dstrbutve
share as may have been derved from sources wthn the Unted
States and s not to be ta ed on that porton derved from sources
wthout the Unted States that the partnershp of whch and
(nonresdent aens) are members, n purchasng cotton n the Unted
States and seng t to customers wthout the Unted States, was
actng merey as the agents of and , respectvey, wth precsey
the same effect so far as the revenue aws are concerned as f the
servces had been rendered by any other agent empoyed by them.
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221, rt. 361.
190
n opnon s requested on the foowng ponts:
1. Whether the M Company s a mted partnershp under the
aws of the State of Te as, and whether t s a partnershp or cor-
poraton wthn the meanng of secton 2 of the Revenue ct of 1924.
2. Whether the M Company s requred to fe orm 1042 reportng
ta wthhed from profts pad to ts nonresdent aen members whch
were derved from the operaton of ts busness n the Unted States.
3. Whether the saary pad by the M Company to those two non-
resdent aen members s sub|ect to ncome ta .
4. Does tte pass on the M Company s shpment of goods to
foregn ands n the Unted States or n the foregn countres
5. Does the method empoyed by the M Company n proratng
profts n rato to saes n determnng domestc and foregn gan
suffcenty dentfy such gan for ncome ta purposes
The Te as statutes, tte 102, chapter 1, authorze the creaton of
mted partnershps for the transacton of any mercante, mechan-
ca, manufacturng, or other busness, e cept bankng or nsurance,
by two or more persons. Such partnershps may consst of one or
more persons caed genera partners, who sha be |onty and
severay responsbe as genera partners are by aw, and of one
or more persons who sha contrbute n actua cash payments a
specfc sum as capta to the common stock, who are caed speca
artners and who are not abe for the debts of the partnershp
eyond the fund contrbuted by hm or them to the capta. The
genera partners ony are authorzed to transact busness, and sgn
for the partnershp, and bnd the same.
Persons formng such a partnershp are requred to make and
severay sgn a certfcate whch sha contan:
1. The name or frm under whch the partnershp s to be conducted.
2. The genera nature of the busness ntended to be transacted.
3. The names of a the genera and speca partners nterested
theren, dstngushng whch are genera and whch are speca, and
ther respectve paces of resdence.
4. The amount of capta each speca partner sha have con-
trbuted to the common stock.
5. The perod at whch the partnershp s to commence and the
perod at whch t s to termnate.
Ths certfcate s requred to be acknowedged and certfed n the
same manner as acknowedgment of conveyances of and, and when so
acknowedged and certfed s requred to be fed n the offce of the
cerk of the county court of the county n whch the prncpa pace of
busness of the partnershp s to be stuated, and recorded by the
cerk. n affdavt s aso requred to be fed by one or more of
the genera partners statng that the sums specfed n the certfcate
to have been contrbuted by each of the severa partners to the com-
mon stock have been actuay and n good fath pad n cash. The
makng, acknowedgng, fng, and recordng of the certfcate and the
fng of the affdavt are prerequste to the formaton of a mted
partnershp, and any fase statement n the certfcate or affdavt
renders a persons nterested n the partnershp abe as genera
partners.
The terms of the partnershp agreement are requred to be pub-
shed for at east s weeks after regstraton, n such newspapers
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191
221, rt. 361.
as the cerk of the county court sha desgnate, and f such pubca-
ton s not made the partnershp s deemed genera.
The same formates as to certfcate, affdavt, and pubcaton are
requred wth respect to every renewa or contnuaton of such
partnershp beyond the tme orgnay f ed for ts duraton. very
ateraton whch s made n the name of the partners, n the nature
of the busness, or n the capta or shares thereof, or n any other
matter specfed n the orgna certfcate s deemed a dssouton of
the partnershp.
Suts by and aganst the partnershp may be brought and conducted
by and aganst the genera partners n the same manner as f there
were no speca partners.
The copy of the memorandum of agreement entered nto between
the partners gves the names and addresses of the genera and speca
partners, decares that they have |oned as genera and speca
partners n the formaton of a mted partnershp n accordance
wth the provsons of chapter 1, tte 102, of the Revsed Statutes of
the State of Te as, under a certfcate e ecuted bv them for that
purpose and fed n the offce of the cerk of the County Court of
, Te as, and that such partnershp s to be conducted under the
name of the M Company. The amounts, contrbuted by both genera
and speca partners are set forth, and t s stated that a such
amounts have been fuy pad up n cash. The certfcate provdes
that the partnershp s to commence , 1924, and to contnue
for a perod of years from that date, and that uness and unt
a ma|orty of the genera partners sha otherwse drect, sha
be the managng partner, wth authorty to transact a busness of
the partnershp. The partners mutuay agree that such of the
partners, genera and speca, as sha be empoyed n the conduct
of the busness of the partnershp and devote ther tme and attenton
thereto sha receve reasonabe compensaton for ther servces, to
be f ed and determned from tme to tme by the managng partner.
The agreement aso provdes that at the cose of each fsca year, after
such compensaton to the partners, together wth a other e penses
of the busness, sha have been pad or provded for, the profts, f
any, remanng from the conduct of the busness sha be dstrbuted
among a of the partners, both genera and speca ake, pro rata
n proporton to the amount contrbuted by each to the common stock
of the partnershp, provded that the partnershp may, at the ds-
creton of the managng partner, retan n the treasury as surpus a
part or a of such profts f n the opnon of the managng partner
the best nterests of the partnershp w be subserved thereby. The
baance of the agreement reates to the method of dstrbuton n case
of qudaton.
In the absence of any evdence to the contrary t s assumed that a
of the requrements reatve to the fng of an affdavt and pubca-
ton have been comped wth by the M Company n accordance wth
the terms of the aw. It s the opnon of ths offce, therefore, that
the M Company s a mted partnershp under the Te as statutes.
It s aso the opnon of ths offce that a mted partnershp formed
under the Te as statutes s of the type descrbed n artce 1505 of
Reguatons 65, and s to be treated as a partnershp for ncome ta
purposes.
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221, rt. 361.
192
The nature of the ncome sub|ect to wthhodng, under the prov-
son of secton 221, s nterest, rent, saares, wages, premums, annu-
tes, compensatons, remuneratons, emouments, or other f ed or
determnabe annua or perodca ncome. Wthhodng s ony re-
qured when such ncome s pad to a nonresdent aen ndvdua
and at the rate n force at the tme of payment. The enumeraton
of varous tems of ncome sub|ect to wthhodng and the use of the
e presson or other f ed or determnabe annua or perodca n-
come pany ndcate the type of ncome that s sub|ect to wth-
hodng. Partnershp profts are ceary not of the type enumerated.
Whe the profts of each year are requred to be determned under
the ncome ta aws, such determnaton can not be made pror to the
cose of the ta abe year n whch they arose, and the partners may
or may not wthdraw ther shares after such determnaton. ur-
thermore, as was sad by the dstrct court n Unted States v. Covby
(251 ed., 982 affrmed n 258 ed., 293), The aw s so framed as
to dea wth the gans and profts of a partnershp as f they were the
gans and profts of the ndvdua partner. ven f t were con-
ceded, therefore, that partnershp profts are determnabe annua
ncome, no wthhodng by the partnershp woud be requred, snce
to do so woud be vrtuay requrng a ta payer to wthhod from
hmsef.
It s therefore concuded that the M Company s not requred to fe
orm 1042, reportng ta wthhed from profts pad to ts nonres-
dent aen members whch were derved from the operaton of ts
busness n the Unted States.
In vew of the acquescence of the Commssoner n the decson of
the oard of Ta ppeas n the appea of the e ecutors of the estate
of S. U. Tton and appea of Isaac P. eeer (8 . T. ., 914 C. .
members of the partnershp can not be consdered compensaton for
servces rendered the partnershp, but must be het to represent por-
tons of the dstrbutve profts of the partnershp.
Snce the aw s so framed as to dea wth the gans and profts
of the partnershp as f they were the gans and profts of the nd-
vdua partners, the nonresdent aen members w not be ta abe
on that porton of ther shares whch s from sources wthout the
Unted States. It s necessary to determne, therefore, whether the
proft derved from the sae of cotton to foregn customers s from
sources wthn or wthout the Unted States, Secton 217(e) of the
Revenue ct of 1924 provdes that Gans, profts and ncome de-
rved from the purchase of persona property wthn and ts sae
wthout the Unted States or from the purchase of persona property
wthout and ts sae wthn the Unted States, sha be treated as
derved entrey from sources wthn the country n whch sod. If
the sae of the cotton took pace n the Unted States, the proft s
from sources wthn the Unted States.
The copes of the cabes e changed between the M Company and
ts foregn representatve and foregn customers and the etters of
confrmaton ndcate that the cotton was sod under ordnary c. . f.
(named foregn port) contracts and c. and f. (named foregn port)
buyers nsurance contracts. There were no speca provsons n the
contracts of sae between the M Company and ts foregn customers
G
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193
221, rt. 361.
whch woud ndcate any dfferent ntenton as to when property
n the cotton was to pass than s present n the usua contracts of
such types.
These two types of contracts of sae am defned n the mercan
foregn trade defntons whch were adopted n December, 1919, at
a conference partcpated n by commttees representng the eadng
commerca bodes n the Unted States. These defntons of e port
quotatons were made wth the purpose of nducng seers to e press
wth greater accuracy than had often been the case ther meanng n
offers and contracts to se goods for e port. The two types of con-
tracts used by the M Company are defned as foows:
The seer may be ready to go further than the devery of hs goods upon
the overseas vesse and he wng to pay transportaton to a foregn pont of
devery. In ths ease, the proper term s: C. . (named foregn port).
Under ths quotaton:
. Seer must
(1) Make freght contract and pay transportaton charges suffcent to carry
goods to agreed destnaton
(2) Dever to buyer or hs agent cean bs of adng to the agreed
destnaton
(3) e responsbe for oss and/or damage unt goods have been devered
aongsde the shp and cean ocean b of adng obtaned (seer s not respon-
sbe for devery of goods at destnaton).
. uyer must
(1) e responsbe for oss and/or damage thereafter and must take out a
necessary nsurance
(2) ande a subsequent movement of the goods
(3) Take devery and pay costs of dscharge, ghterage, and andng at
foregn port of destnaton n accordance wth b of adng causes
(4) Pay foregn customs dutes and wharfage charges, f any.
The seer may desre to quote a prce coverng the cost of the goods, the
marne nsurance on the goods, and a transportaton charges to the foregn
pont of devery. In ths case, the proper term s: C. I. . (named foregn
port).
Under ths quotaton:
. Seer must
(1) Make freght contract and pay freght charges suffcent to carry goods
to agreed destnaton
(2) Take out and pay for necessary marne nsurance
(3) Dever to buyer or hs agent cean bs of adng to the agreed destna-
ton, and nsurance pocy and/or negotabe nsurance certfcate
(4) e responsbe for oss and/or damage unt goods have been devered
aongsde the shp, and cean ocean b of adng and nsurance pocy and/or
negotabe nsurance certfcate have been devered to the buyer, or hs agent.
(Seer s not responsbe for the devery of goods at destnaton, nor for
payment by the underwrters of nsurance cams.)
(5) Provde war rsk nsurance, where necessary, for buyer s account.
. uyer must
(1) e responsbe for oss and/or damage thereafter, and must make a
cams to whch he may be entted under the nsurance drecty on the under-
wrters
(2) Take devery and pay costs of dscharge, ghterage, and andng at
foregn port of destnaton n accordance wth b of adng causes
(3) Pay foregn customs dutes and wharfage charges, f any.
In ans Maersk (266 ed., 806) t was hed wth respect to c. and f.
contracts:
The contract of sae merey requred (the seer) to shp (the goods to
New York) by steamer n the ast haf of ugust and to gve credt for the
freght. It was a c. and f. contract that s. the freght, to New York was
ncuded n the prce. ad nsurance aso been ncuded, the contract woud
have been the ordnary c. . f., whch vests tte In the purchaser when the
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194
seer has shpped the goods, secured the nsurance, and arranged to pay
the freght . Ths partcuar contract dffers from a c. . f. sae
ony n requrng the seer to pay the freght. If t stopped there, and the New
York statute were appcabe, secton 100(5) (sec. 19(5) of the saes act)
mght contro but t went on to requre the buyer to take out marne nsurance.
Ths s the ony dfference between t and a c. . f. sae, and It seems to us
mmatera. The controng provson as to ntenton to pass tte s the
same n each case, vz, that the owner takes out the nsurance to protect hs
own goods. Ths partcuar contract requres the buyers to take out the
nsurance, and so shows the ntenton of the partes to pass the tte to them.
In Thames Mersey Insurance Co. v. Unted States (237 U. S., 19,
at page 26) Mr. ustce ughes refers to c. . f. contracts as foows:
The requrements of e portaton are refected n the famar c. 1. f. con-
tract (that s, at a prce to cover cost, nsurance, and freght), whch has ts
recognzed ega ncdents, one of whch s that the shpper fufs hs obga-
ton when he has put the cargo on board and forwarded to the purchaser a
b of adng and pocy of nsurance wth a credt note for the freght, as
e paned by Lord ackburn n Ireand v. Lvngston (L. R. 5 . L., 395,
406), Stroms ruks kte oag v. utchson (1905) ( . C. 515, 528). See aso
Mee v. McNder (109 N. Y., 500).
Two fary recent cases have arsen n connecton wth c . f. con-
tracts and furnsh persuasve authorty that tte to the goods sod
under c. . f. contracts passes upon devery of the goods to the carrer
and tender of the documents. These cases are Smth v. Marano
1920) (267 Penn., 107,110 t., 94) and Smth v. Moschades (1920)
183 N. Y. Sup., 500). ach of these cases nvoved a shpment of
fsh from Newfoundand. The premnary negotatons by ma and
teegraph n each case conssted of a request on the part of the pur-
chaser for quotatons and a response by the seer quotng prces on
the goods, c. . f. Phadepha n the one case and c. . f. New York
n the other. These were foowed by orders for a specfed quantty
and quaty of fsh. The goods sod n both cases were shpped on the
same boat, whch was sunk by a German submarne about two days
after eavng the Newfoundand port. In both cases the Smth com-
pany pad for the customary marne nsurance on the goods shpped
and pad the freght charges to ther destnaton. The b of adng
was taken to the order of the shpper but was ndorsed n bank and
wth a draft on the purchaser was transmtted together wth the
ocy of nsurance to a bank for coecton at the destnaton. In
oth cases the purchaser refused to accept the draft and sut was
brought by the seer for the amount of the draft. In the Marano
case t was hed that the defendant was abe for the purchase prce,
as the devery to the carrer was a devery to the defendant. No
partcuar emphass was ad on the queston of devery of shp-
png documents, t appearng that they were actuay tendered to
the defendant wth a sght draft for the amount due the pantff.
Ths decson quotes what Mr. ustce ughes sad wth respect to
c. . f. contracts n Thames Mersey Insurance Co. v. Unted States,
supra. In ths case t was argued that t was the ntenton of the
partes that the property n the goods shoud not pass to the buyer
unt devery to hm at Phadepha. The court hed that f the
prce had not ncuded nsurance ths mght have been true, but read-
ng the contract as a whoe, as t must be read wth the tem for
nsurance ncuded n t, a dfferent ntenton on the part of the buyer
s dscosed.
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223, rt. 404.
In the New York case, Smth v. MoscaMades, after rectng what
passed between the purchaser and the seer, the court stated:
Ths consummated the contract, whch became what s known as
a c. . f. contract, whch s a we-known form of shppng contract, and
means that the purchaser pays a f ed prce, for whch the seer furnshes the
goods and pays the freght and nsurance to the pont of devery, and that a
rsk, whe the goods are n transt, are for the account of the buyer.
Under such contracts the seer fufs a of hs obgatons by puttng the
cargo on board and forwardng to the purchaser a b of adng and a pocy of
nsurance of the knd then current and customary ssued n the trade, and
f the goods had not been pad for n advance t was customary to present a
draft for the purchase prce, accompaned by the b of adng and pocy of
nsurance and a credt sp for the nsurance and freght, f not actuay pad
for by the shpper, whch documents were to be devered to the purchaser
on hs payng the draft, and the nsurance s for the protecton of the purchaser,
who assumes a rsks after the goods have been paced on board and ths
consttutes a devery by the seer under such a contract, and tte thereupon
passes to the buyer, even though t be stated n the contract that devery was
to be made at the pont of destnaton. (Ctng Thames Mersey Marne Ins.1
Co., Ltd., v. Unted States, 237 U. S., 19 Mee v. McNder, 39 un, 345, affrmed
109 N. Y., 500, 17 N. ., 424 Ireand v. Lvngston, L. . 5 . L., 395, and other
cases.)
The rues ad down n these decsons and n others cted make
t cear that under a c. . f. (named foregn port) contract and a
c. and f. (named foregn port) buyer s nsurance contract, property
n goods passes upon devery to the carrer and the forwardng of
the necessary documents to the buyer and the rsks are on the buyer1
from that tme.
In a case where the sub|ect of sae was goods produced wthout
the Unted States and sod to customers wthn the. Unted States
under c . f. (New York) contracts, t was hed that as tte to the|
goods passed to the purchasers upon shpment on board vesses at
the foregn port, the proft was not from sources wthn the Unted
States. (1. T. 1569, C. . II-, page 126.)
It s the opnon of ths offce, therefore, n answer to the fourth
queston, that nasmuch as tte to the cotton sod td foregn cus-
tomers passed from the M Company upon devery of the cotton to
carrers at a port n the Unted States and the forwardng of the
necessary documents to the buyer, the saes were made n the Unted
States and profts from such saes were from sources wthn the
Unted States.
s under the terms of the saes made by the M Company tte to
a of the cotton sod to foregn customers passed n the Unted States
upon devery of the cotton to the carrer and the forwardng of the
necessary documents to the buyer, there are no profts from foregn
sources and t s unnecessary to answer the ffth queston.
S CTION 223. INDI IDU L R TURNS.
rtce 404: Return of ncome of nonresdent II-45-3983
aen. G. C. M. 4892
R NU CT O 1924.
Under an agreement between a domestc corporaton and a foregn
corporaton, the former advances money for the purpose of pur-
chasng raw and fnshed goods n a foregn country and seng
same n the Unted States. There s nothng n the agreement
whch ndcates that an agency e sts, nor can the domestc corpora-
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223, rt. 404.
196
ton be consdered the representatve of the foregn corporaton n
the Untod States. It s specfcay stated that fnancng of the
undertakng s the ob|ect of the arrangement.
ed, that the domestc corporaton s not abe for the fng
of returns n behaf of the foregn corporaton.
n opnon s requested n regard to the abty of the M Company,
a domestc corporaton, to fe a return for the year 1924 on orm
1120 n behaf of the () Company, a foregn corporaton, wth res| eet
to profts reazed by the O Company n the Unted States from the
sae of certan goods.
rom an e amnaton of an agreement between the two corpora-
tons, dated October , 1923, t appears that the O Company and the
M Company, havng the purpose to organze n the future a tradng
assocaton, meanwhe agreed, for a perod not e ceedng one year
commencng December , 1923, to |on n purchasng n a foregn
country raw and fnshed goods and seng same n the Unted States.
In accordance wth the agreement, the O Company sha acqure a
quantty of goods, the e act amount of whch s to be determned by
mutua agreement of the contractng partes, the mnmum cost of
whch sha be 2(U- doars. The coecton, assortment, warehousng,
nsurance, and e port of such goods sha be carred out by the O Com-
pany, through the medum of ts organzaton n the foregn country,
wth the cooperaton of the M Company s representatves. Shoud
one party to the contract desre to acqure a partcuar parce of
goods and the other party ob|ect to t, the agreed party s entted to
demand purchase of such parce n the name of the O Company wth
the funds of the contractng partes, on the condton that the
reazaton (sae) of such goods sha take pace entrey for ts own
account, and that after deducton of a e penses borne by the same
party per cent of the vaue of the parce of goods sha be pad
to the |ont account of the partes. The O Company may accept
for reazaton on commsson bass such parces as are not fnanced
by the M Company. goods acqured by the O Company on the
account of the contractng partes sha be e ported n the name of
the O Company, the bs of adng to be ndorsed by that company
and handed over to (he M Company.
The agreement further provdes that each party sha depost wth
the ank doars n an account to be opened n the name of the
O Company. Provson s aso made for the advancement by the
M Company of a moneys to cover the purchase of goods and e -
penses and for the advancement of money to seers unt the |ont
sum reazed for such purpose amounts to 20 doars. Shoud the
M Company suspend credt before t reaches 20# doars, t sha
pay to the O Company per cent on the baance of the unpad sum.
Wth the e cepton of the orgna doars contrbuted bv the O
Company, that company sha ssue promssory notes to the M Com-
any to secure to t the capta nvested, but such notes can not be
scountod or presented to the O Company for payment unt fna
settement of the accounts has taken pace, provded, however, that
when the M Company receves goods purchased by the O Company
t sha reease such promssory notes to the vaue of the good s
receved. e penses connected wth the transacton of the bus-
ness undertaken are to be borne by the contractng partes, and a
resutng cear profts, or osses, are to be shared equay. Upon fna
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231, rt. 511.
settement, shoud any goods reman on hand whch have not been
dsposed of, they sha be dvded nto equa portons between the
contractng partes, takng nto consderaton any sums contrbuted
by the M Company.
rom an e amnaton of the agreement t appears to be an arrange-
ment entered hto by the O Company and the M Company whereby
the atter company advances money for the purpose of purchasng
raw and fnshed goods n the foregn country and seng such goods
n the Unted States. rtce 404 of Reguatons 65, whch s sug-
gested as authorty for hodng the domestc corporaton abe for
rng the return n behaf of the O Company, requres the respons-
be representatve of a nonresdent aen to fe a return wth respect
to the ncome of such aen from sources wthn the Unted States.
It s aso stated n that artce that the agency appontment w
determne how competey the agent s substtuted for the prncpa
for ta purposes. There s nothng n the agreement whch ndcates
that an agency e sts, nor can the domestc corporaton be consdered
the representatve or the foregn corporaton n the Unted States.
It s specfcay stated n the agreement that the fnancng of the
undertakng s the ob|ect of the contractng partes, and that appears
to be .true from a readng of the nstrument as a whoe.
Under these crcumstances, and snce the domestc corporaton s
nether the agent nor the representatve n the Unted States of the
foregn corporaton, t s the opnon of ths offce that the domestc
corporaton can not be hed abe for the fng of a return n behaf
of the foregn corporaton.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 225. IDUCI RY R TURNS.
rtce 421: ducary returns.
R NU CT O 1924.
Corporaton formed to hande trust property whch was trans-
ferred to t n e change for ts stock, the trustees contnung to act
n that capacty. (See G. C. M. 4421, page 144.)
P RT III. CORPOR TIONS.
S CTION 231. CONDITION L ND OT R
MPTIONS O CORPOR TIONS
rtce 511: Proof of e empton.
R NU CT O 1924.
Company organzed to erect a budng to be used as a market pace
and audtorum on ground owned by a muncpaty, tte to the assets
of such company to be vested n the cty after ncome s used to
retre stock. (See I. T. 2436, page 147.)
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ktce 513: Mutua savngs banks.
R NU CT O 1924.
Mutua savngs banks organzed under the aws of a foregn State.
(See G. C. M. 4729, page 58.)
rtce 517: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT OP 1824.
empton of corporaton operatng a hospta. (See I. T. 2421,
page 150.)
rtce 517: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT O 1924.
ar assocaton. (See G. C. M. 4805, page 58.)
rtce 518: usness eagues.
R NU CT O 1924.
Company engaged n grantng censes for use of patent, obtanng
revenue from assessments aganst subcensees, wth power to decare
dvdends. (See G. C. M. 4741, page 152.)
rtce 521: Loca benevoent fe and mutua nsurance
companes and ke organzatons.
R NU CT O 1921.
mpoyees of a corporaton organzed as a reef assocaton to
provde sck and accdent benefts to members and to pay pensons
upon retrement and benefts to the fames of deceased members.
(See I. T. 24-25, page 153.)
S CTION 239. CORPOR TION R TURNS.
rtce 621: Corporaton returns.
R NU CT O 1924.
Corporaton formed to hande trust property whch was trans-
ferred to t n e change for ts stock, the trustees contnung to act
n that capacty. (See G. C. M. 4421, page 144.)
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245, rt. 683.
S CTION 245. T S ON INSUR NC COMP NI S.
rtce 681: Reserve funds.
R NU CT O 1924.
mendment of artce 681 of Reguatons 65. (See T. D. 4231,
page 299.)
rtce 683: Investment e penses. II-35-3875
G. C. M. 4336
R NU CT O 1924.
The ta payer, a fe nsurance company, erected a budng on
eased ground from whch t receved rentas from subeases for a
porton of the budng and returned as Income the renta vaue of
the space occuped by t and the subessees.
ed, that the ta es and e penses pad by ta payer wth refer-
ence to the budng are deductbe as nvestment e penses. If the
remander of the term of the ease s greater than the probabe fe
of the budng, a deducton may be taken for deprecaton. If the
probabe fe of the budng s onger than the remander of the
easehod perod, the fact that the essor s bound to pay the then
reasonabe vaue of the budng shoud be taken nto consderaton,
for the ta payer s entted to recover the cost of the budng ony
to the e tent that t s not rembursabe by the essor.
n opnon s requested as to the deductbty of ta es, e penses,
and deprecaton, under secton 245 of the Revenue ct ot 1924, for
the vear 1924, upon a budng erected and partay occuped by a
fe nsurance company, but stuated on eased ground.
It appears that on pr , 1921, the board of educaton of the
cty of R demsed a cty ot to the ta payer for 99 years. Under the
thrd paragraph of the ease the ta payer agreed that no budng
woud be constructed on the premses otner than one costng at east
50a doars, and begun wthn s months after the effectve date of
the ease. Pursuant to ths cause the ta payer, n 1921, erected a
12-story budng of brck and stee at a cost of 130a doars. The
ease provdes that the essor sha purchase the mprovements at the
e praton of the term at ther then cash vaue, and that the essee
w then convey them to the essor by deed, but that, nevertheess, at
the termnaton of the ease, the mprovements sha re-
vert to and become the e cusve property of the essor, and the tte
then to be vested n the sad essor wthout any such deed of convey-
ance, t beng understood, however, that ths provson sha not
consttute a waver of the essee s rght to payment of the cash vaue
of the mprovements. Itacs supped.
If the essee defauts n payng the rent or any of the rates, ta es
or assessments heren provded for to be pad by hm, or sha break
any of the other covenants, the essor may decare the term ended,
and the budngs and mprovements sha be and become the prop-
erty of the essor, and sha revert wth sad premses to the essor
as qudated damages for sad breach and become essor s property
wthout compensaton.
The renta s 1.5 doars a year for the frst fve years and a
reasonabe renta thereafter, to be determned by apprasers at
37229 29 14
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245, rt. 683.
200
reguar ntervas, based on the far market vaue of the premses
wthout ncudng the vaue of the mprovements thereon.
s addtona rent, the essee covenants to pay a
speca assessments, water rents and other ke mpostons whch
may be mposed upon sad premses, or on any mprove-
ments, on the understandng that the sad eased premses are now,
and sha be at a tmes durng the term of ths ease, e empt from a State,
county, muncpa ad vaorem ta es and n the event that the
essee sha pay such ad vaorem ta es the same sha be
deducted from the rentas .
It s further agreed that the essor sha have the rght
to pay any rates, ta es, assessments, water rents, ens or ndebtedness upon
sad premses and reversonary nterests remanng unpad after the same
have become due and payabe, and the amount so ad-
vanced sha be so much addtona rent due from the essee .
Durng 1924, the gross rents from the budng reported by ta payer
on ts ncome ta return amounted to 30a doars, ncudng .9
doars the vaue of the space occuped by the ta payer. rom
ths amount the company camed deductons of . z doars for
ta es, 2.5a: doars for deprecaton, and 10.5a doars for other rea
estate e penses n connecton therewth.
The Income Ta Unt dsaowed the deductons for ta es and other
rea estate e penses, on the ground that snce ta payer was a essee
of the premses t dd not own the rea estate n queston. Depreca-
ton was aso dsaowed n accordance wth secton 245(b) of the
Revenue ct of 1924.
Secton 245(a)6 of the Revenue ct of 1924 provdes for the de-
ducton of ta es and other e penses pad durng the ta abe year
e cusvey upon or wth respect to the rea estate owned by the
company .
Snce the ease e pressy provded that the tenant coud not remove
the budng at the termnaton of the ease, the budng became a
part of the rea estate at the tme of anne aton thereto. (R. L.
Oka., 1910, sec. 6749 1 Tffany, Rea Propertv, 2d ed., sec. 2G6: 35
C. ., 187 Crym v. WardeU, 263 ed., 248.) There are some e pres-
sons n the above-quoted portons of the ease that mght be nter-
preted as meanng that athough the budng s rea property as
soon as erected, the tte to t as rea property s nevertheess n the
essee n fee smpe unt the termnaton of the ease, sub|ect to a
contract to convey t to the essor at that tme, pus a condton that
tte sha shft automatcay f the conveyance s not e ecuted. (See
1 Tffany, Rea Property, 2d ed.. sees. 156-158-275.) Whe t s of
course qute possbe that the budng coud be owned n fee smpe
by the essee whe the and under t s hed ony under a ease for
99 years, t seems, nevertheess, that the ease shoud not be so con-
strued uness t ceary so provdes. In the nstant case the e pres-
sons referred to are at east equay susceptbe to the nterpretaton
that the estates n the budng and the and under t are dentca,
and that the provson for the conveyance of the budng to the
essor at the termnaton of the ease s for the purpose ony of mak-
ng the essor s record tte to t cear at that tme. It w therefore
be assumed that the company s nterest n both the and and the
budng s a easehod estate for 99 years.
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201
245, rt. 6S3.
Wthout decdng whether, n such a case, the and and budng
coud be sad to consttute rea estate owned by the company
wthn the meanng of secton 245 (a)6, supra, t s the opnon of ths
offce that the ta es and e penses wth reference thereto, f not
deductbe under that subdvson, are nevertheess nvestment e -
penses wthn the meanng of secton 245 (a) 5 and are deductbe
as such, sub|ect to the provso theren contaned that f any genera
e penses are n part assgned to or ncuded n the nvestment e -
penses, the tota deducton under ths paragraph sha not e ceed
one-fourth of 1 per centum of the book vaue of the mean of the
nvested assets hed at the begnnng and end of the ta abe year.
It s not ntended to mpy that the e penses n queston, however,
are genera e penses rather than nvestment e penses. On the
contrary, f, as camed, they are chargeabe strcty to producng
the ncome earned from the budng, they woud seem to consttute
nvestment e penses n the precse sense, n so far, at east, as they
are appcabe to the porton of the property rented out to other
tenants whch s by far the greater porton n the nstant case. That
part of the budng s as much an nvestment as money ad out
n bonds. The company has e pended a arge sum n erectng the
budng, and pays so much renta each year for the ease, n add-
ton to other yeary e penses n the form of ta es and upkeep. In
turn, t subeases most of the budng. The rentas t receves thereby
are the return on the nvestment, |ust as nterest s the return on
money oaned. The rentas are requred to be returned by the com-
pany as ncome, and are thereby recognzed as nvestment ncome,
for the present scheme of ta ng fe nsurance companes s but on
the dea of ta ng nvestment ncome ony.
If the rentas receved from the subeases are nvestment ncome, as
they certany are, t must foow that the e penses ncurred n
reazng that ncome are nvestment e penses.
On page 14 of the report from the ouse Commttee on Ways and
Means on the revenue b of 1921, t s stated:
Sectons 242-246: The provsons of the present aw (. e., under the Revenue
ct of 1918) appcabe to fe nsurance companes are mperfect and productve
of constant tgaton. Moreover, the ta es pad by fe nsurance companes
under the ncome ta are nadequate. It s accordngy proposed n eu of a
other ta es to ta fe nsurance companes on the bass of ther nvestment
ncome from nterest, dvdends, and rent , wth sutabe deductons for
e penses fary chargeabe to such nvestment ncome. Itacs supped.
On page 20 of the report of the Senate Commttee on nance on
the same b appears an amost dentca statement. The reports
of both commttees, therefore, appear to ndcate an ntent that e -
penses fary chargeabe to nvestment ncome earned n the form of
rents shoud be deducted as nvestment e penses.
If the budng were owned n fee smpe by the company, and
rented out to tenants n the same way, the e penses woud no ess be
nvestment e penses, athough they mght be deductbe n that event,
presumaby, under secton 245(a)6. That they are, -nevertheess,
nvestment e penses n such a case s recognzed by artce 683 of
Reguatons 65. The frst sentence theren speaks of nvestment
e penses (other than ta es and e penses wth respect to rea estate),
thereby recognzng that ta es and e penses wth respect to rea
estate are nvestment e penses, but are not treated as such because
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245, rt. 683.
202
they are deductbe under secton 245(a)6, where the rea estate s
owned n fee smpe. Certany the fact that the and and budng
are hed under a ease for years does not prevent the ta es and other
e penses wth respect to them from beng nvestment e penses, what-
ever ts effect may be on the queston of whether the and and budng
consttute rea estate owned by the company.
That ta es may consttute nvestment e penses deductbe under
secton 245 (a) 5 was recognzed wthout queston by the Commssoner,
and approved by the oard, n appea of Metropotan Lfe Insurance
Co. (8 . T. ., 938).
To the e tent the budng s occuped by the company t s not
so drecty an nvestment, because from the porton t occupes
the company does not receve tangbe ncome. It merey saves the
e pense that smar space woud cost t esewhere. ut n vew of
the fact that the company returns as ncome the renta vaue of
the space occuped by t, such space s treated as though, ke the
rest of the budng, t actuay were subeased and ncome receved
from t, and there appears to be no reason, therefore, why the entre
budng may not be treated as an nvestment, and the ta es and e -
penses wth reference thereto as nvestment e penses. n temzed
st of such e penses shoud be requred, however, n accordance wth
artce 683 of Reguatons 65 and 69.
The ne t queston arses wth respect to the deducton camed
for deprecaton on the budng. The Unt dsaowed the cam
n accordance wth secton 245(b) of the Revenue ct of 1924.
That secton ony provdes, however, that no deducton sha be
taken under secton 245(a)6 or secton 245(a)7 on account of rea
estate owned and occuped n whoe or n part by the company un-
ess there s ncuded n the return of gross ncome the renta vaues
of the space so occuped. Now, secton 245(a) provdes a deducton
for the e hauston, wear and tear of property, ncudng a reason-
abe aowance for obsoescence, wthout confnng such deducton
to rea property. It foows, therefore, that f the budng n ques-
ton s rea estate owned by the company a deducton for de-
precaton s aowabe because the ta payer has n fact returned as
ncome the renta vaue of the space occuped by t. On the other
hand, f t s not rea estate owned by the company, the company s
easehod estate n the budng s nevertheess property under
secton 245(a)7 and a deducton for deprecaton s aowabe.
That the deprecaton deducton s aowabe s further shown by
artce 685(2) of Reguatons 65, whch provdes that the deducton
aowed b secton 245(a)7 s dentca wth that aowed other cor-
poratons by secton 234(a)7. Secton 234(a)7 provdes for a reason-
abe aowance for the e hauston, wear and tear of property used
n the trade or busness, ncudng a reasonabe aowance for obso-
escence. If the budng, therefore, s used n the company s trade
or busness there can be no queston but that a deprecaton aow-
ance s proper. Snce, n the case of fe nsurance companes, ther
nvestments are as much a part of ther busness as the securng of
premums, and snce the budng n the nstant case s an nvestment,
t can hardy be doubted that the budng s property used n the
company s busness. The fact that ony the nvestment porton of
a fe nsurance company s ncome s ta ed affords an addtona
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203
277 and 278, rt. 1271.
reason, f any s needed, for concudng that deprecaton was n-
tended to be aowed on a budng used as an nvestment.
Therefore, snce the deducton aowed by secton 245 (a) 7 for
deprecaton s dentca wth that aowed other corporatons, artce
110 of eguatons 65 s appcabe. (See artce 561.) rtce 110
provdes n part:
The cost borne by a essee n erectng budngs or makng permanent
mprovements on ground of whch he s a essee s hed to be a capta nvest-
ment and not deductbe as a busness e pense. In order to return to such
ta payer hs nvestment of capta, an annua deducton may be made from
gross ncome of an amount equa to the tota cost of such mprovements dvded
by the number of years remanng of the term of ease, and such deducton sha
be n eu of a deducton for deprecaton. If the remander of the term of
ease s greater than the probabe fe of the budngs erected, or of the mprove-
ment made, ths deducton sha take the form of an aowance for deprecaton.
See artce 48.
In the nstant case t appears key that the remander of the term
of the ease s greater than the probabe fe of the budng (the fe
of the budng beng estmated by the ta payer to be 50 years). If
that s so, the deducton w take the form of an aowance for
deprecaton. If the probabe fe of the budng s onger than the
remander of the easehod perod, the fact that the essor s bound to
pay the then reasonabe vaue of the budng shoud be taken nto
consderaton, for the ta payer s entted to recover the cost of the
budng ony to the e tent that t s not rembursabe by the essor.
( ppea of Roshek ros. Co., 2 . T. ., 260, C. . I -2, 4 appea of
mer mend, 2 . T. ., 603, C. . -, 2 appea of Oppensten
ros., 1 . T. ., 259.)
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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 1202: Coecton of ta by sut.
R NU CT O 1024.
udgment aganst dssoved corporaton for unpad edera ta es
as a condton precedent to a sut n equty aganst stockhoders as
transferees. (See T. D. 4216, page 228.)
S CTIONS 277 ND 278. P RIOD O LIMIT TION UPON
SS SSM NT ND COLL CTION O T .
rtce 1271: Perod of mtaton upon assessments
of ta .
R NU CT O 1924.
Ta es n respect of property hed bv en Property Custodan
under Tradng wth nemy ct. (See G. C. M. 4978, page 163.)
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277 and 278, rt. 1272.
204
rtce 1272: Perod of mtaton upon co-
ecton of ta .
R NU CT O 1924.
II-29-3804
G. CM. 4253
y an unmted waver e ecuted on December 13, 1922, the ta -
payer and the Commssoner consented to the determnaton, assess-
ment, and coecton of any amount of ts ta due for 1917,
rrespectve of any statute of mtatons. y Mmeograph 3085
(C. . II-, 174) the Commssoner gave notce that unmted
wavers as to 1917 ta es then on fe woud e pre on pr 1. 1924.
In order to arrest dstrant proceedngs ta payer on pr 6, 1927,
deposted certan securtes to guarantee payment of any addtona
ta for the year n queston. No cam n abatement was fed and
no waver, other than the one mentoned, was secured.
ed, that coecton of the ta nvoved s barred by the statute
of mtatons, and the securtes posted by the ta payer shoud be
reeased.
n opnon s requested wth reference to a cam made by a ta -
payer for the reease of securtes deposted wth the M ank to
guarantee payment of an addtona ncome ta for the year 1917.
The facts are as foows: The ta payer fed ts ncome ta return
for the year 1917 on March 28, 1918. On October 9, 1922, the ta -
payer was notfed of a proposed assessment of addtona ta for the
year 1917 n the amount of 3.2a doars. On December 11, 1922, the
ta payer fed an appcaton for speca assessment under secton 210
of the Revenue ct of 1917. and on December 13, 1922, e ecuted an
unmted waver consentng to the determnaton, assessment, and
coecton of any amount of ncome ta due for the year 1917, rre-
spectve of any perod of mtaton. y vrtue of the appcaton
herenabove referred to, the case was reconsdered, resutng n the
determnaton of a defcency n the amount of 2a doars, whch was
assessed on the une, 1923, st. The ta payer was notfed thereof
n uy, 1923. On pr 11, 1923, Mmeograph 3085 was ssued by
the Commssoner, contanng notce that unmted wavers then on
fe were hed to e pre on pr 1, 1924. No attempt was made to
coect the ta as assessed unt pr 6. 1927, when the coector com-
menced dstrant proceedngs to enforce the coecton of the amount
of 2 doars, together wth nterest n amount of doars, a tota
of 3 doars. In order to arrest dstrant proceedngs, the ta payer
deposted wth the M ank / shares of stock n the 0 Company to
ndemnfy the coector pendng fna determnaton of ts abty
for the sad ta . No cam n abatement was fed, and no waver,
other than the one mentoned above, was secured. The ta payer now
contends that the coecton of the ta s barred by the statute of m-
tatons and demands the reease of ts securtes.
The case s presented to ths offce for an opnon as to whether the
coecton of the ta may, at ths t me, be enforced.
The Revenue ct of 1921 provdes:
Sec. 250. (d) The amount of ncome, e cess-profts, or war-profts ta es due
under any return made under ths ct for the ta abe year 1921 or succeedng
ta abe years sha be determned and assessed by the Commssoner wthn
four years after the return was ted, and the aruouut of any such ta es due
under any return made under ths ct for pror ta abe years 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 ndus-
tres of the Unted States, and for other purposes, approved ugust 5, 1 109,
sha be determned and assessed wthn fve years after the return was fed
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205
277 and 278, rt. 1272.
uness both the Commssoner and the ta payer consent n wrtng to a ater
determnaton, assessment, and coecton of the ta and no sut or proceedng
for the coecton of any snch ta es due under ths ct or under pror ncome,
e cess-profts, or war-profts ta cts, or of any ta es due under secton 38 of
such ct of ugust 5, 1909, sha be begun, after the e praton of fve years
after the date when such return was fed, but ths sha not affect suts or
proceedngs begun at the tme of the passage of ths ct: .
y the unmted waver e ecuted on December 13, 1922, the ta -
payer and the Commssoner consented to the determnaton, assess-
ment, and coecton of the ta heren nvoved, rrespectve of anv
statute of mtatons. The Commssoner, however, by Mmeograph
30S5, ssued pr 11, 1923, gave notce that such wavers woud e -
pre pr 1,1924. The effect of ths acton by the Commssoner has
been determned by the oard of Ta ppeas n the appea of Wrt
rankn v. Commssoner (7 . T. ., 636, C. . I-2, 3). wheren
the oard states n the syabus:
1. Where the Commssoner and the ta payer, pursuant to the statute, have
entered nto a consent n wrtng to the determnaton, assessment, and coec-
ton, of a ta after the tme otherwse prescrbed by aw for snch determnaton,
assessment, and coecton, such consent s an e tenson of the statutory perod,
batera n character.
2. Where snch a consent s ndefnte n duraton, the true ntent of the partes
s to be ascertaned. Rues ad down by the courts n the case of contracts
whch are smary ndefnte fur determnng such ntent are appcabe.
Where the Commssoner gave notce that such consent woud e pre at a cer-
tan tme, hed that n the absence of other factors, such as an estoppe aganst
the ta payer, the Commssoner may not determne, assess, or coect the ta
after the date f ed by hm for the termnaton of the consent
The facts n ths case are not suffcent to support an estoppe and
t s, therefore, the opnon of ths offce that the perod of mtaton
for coecton of the ta e pred on pr 1, 1924.
The Revenue ct of 1924, enacted une 2, 1924, provdes:
S o. 278. (e) Ts 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 ennctment of ths ct such assessment, dstrant, or proceedng was barred
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.
In vew of the foregong, t s the opnon of ths offce that the coec-
ton of the ta heren nvoved s barred by the statute of mtatons,
and that the securtes posted by the ta payer shoud be reeased.
The perod, as e tended by a waver fed by the ta payer, wthn
whch an assessment of ta es for the year 1918 was requred to be
made under the provsons of secton 277(a)2 of the Revenue ct of
1924 woud have e pred on December 31, 1925, but pror thereto the
ta payer fed an appea wth the oard of Ta ppeas, whch was
dsmssed on anuary , 1926. The ta was assessed on ebruary
24, 1926, wthn the statutory perod as e tended by the appea.
ed, that coecton of the ta based on the assessment of ebru-
ary 24, 1926, s not now barred by the statute of mtatons.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 1272: Perod of mtaton upon co-
ecton of ta .
R NU CT O 1924.
-33-3850
G. C. M. 4624
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277 and 278, rt. 1272.
206
n opnon s requested on the queston whether coecton of an
outstandng ncome ta for 1918, assessed aganst the nstant ta -
payer, the M Company, s barred by the statute of mtatons.
The pertnent facts are as foows:
The ta payer fed ts return for the ta abe year 1918 on pr 29,
1919. Under date of anuary 29, 1925, the ta payer fed a waver
e tendng the perod of mtaton for assessment of 1918 ta es unt
December 31, 1925. On ebruary 24, 1925, a 60-day etter was for-
warded to the ta payer, notfyng t of a defcency for 1918. ased
on ths etter the ta payer fed an appea wth the oard of Ta
ppeas. On anuary , 1926, the appea was dsmssed by the
oard, owng to ack of prosecuton on the part of the ta payer. n
assessment of the ta n queston was made on the ebruary, 1926,
st, whch was sgned ebruary 24, 1926.
The ta payer fed ts 1918 return on pr 29, 1919. Under the
provsons of secton 250(d) of the Revenue ct of 1921, the assess-
ment shoud have been made pror to pr 29, 1924, uness the Com-
mssoner and the ta payer consented to a ater assessment of the
ta . The ta had not been assessed when the Revenue ct of 1924
was enacted on une 2, 1924.
Secton 278(c) of the ct of 1924 provdes that the Commssoner
and the ta payer may consent to a ater date for the assessment.
Secton 278(c) s as foows:
(c) Where both the Commssoner and the ta payer have consented n
wrtng to the assessment of the ta after the tme prescrbed n secton 277
for ts assessment the ta may be assessed at any tme pror to the e praton
of the perod agreed upon.
The waver fed by the ta payer was dated anuary 29, 1925. -
though ths act of e tendng the perod of mtaton on assessment
occurred after the e praton of the 5-year perod provded by the
statute, such waver s vad. (See oy ora Co. v. Commssoner,
7 . T. ., 800 Lawrence Trust Co. v. Commsswner, 8 . T. ., 984.)
It seems cear that secton 277(a)2 and secton 278(c) shoud be
read together, and that the perod of mtaton as to assessment of a
defcency for 1928 woud nave e pred December 31, 1925, had no
appea been fed wth the oard of Ta ppeas but the ta payer
chose to fe an appea wth the oard.
Secton 277(b) of the ct of 1924, whch provdes for an e tenson
of the perod of mtaton n the event of such an appea, reads as
foows:
(b) The perod wthn whch an assessment s requred to be made by sub-
dvson (a) of ths secton n respect of any defcency sha be e tended (1)
by 60 days f a notce of such defcency has been maed to the ta payer under
subdvson (a) of secton 274 and no appea has been fed wth the oard of
Ta ppeas, or, (2) f an appea has been fed, then by the number of days
between the date of the mang of such notce and the date of the fna decson
by the oard.
rom the date of mang the 60-day etter n the nstant case
unt the oard dsmssed the appea there was a apse of over 10
months. The perod of mtaton wthn whch assessment was
requred to be made, whch perod manfesty ncudes the tme
agreed upon by the Commssoner and the ta payer pursuant to the
waver fed anuary 29, 1925 (see G. C. M. 491, C. . -2, 83), was
thus e tended at east 10 months. Were t not for the e tenson
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207
277 and 278, rt. 1272.
provded by secton 277(b), ths perod woud have e pred Decem-
ber 31, 1925, but as an appea was fed the perod was automatcay
e tended unt November , 1926. Inasmuch as the assessment was
made on ebruary 24, 1926, such assessment was propery made, and
therefore ths offce s of the opnon that coecton of the ta base. ,
on such assessment s not now barred by the statute of mtatons.
C. M. Chakest,
Genera Counse, ureau) of Intema Revenue.
rtce 1272: Perod of mtaton upon coec- II-39-3911
ton of ta . T. D. 4207
ncome ta revenue act of 1924 decson of court.
Coecton Sut Lmtaton Waver.
Where the rght to assess and coect ta es for the cnendar year
1918, whch woud otherwse e pre before une 2, 1924, s e tended
by an agreement n wrtng to pr 19, 1925, an assessment made
on pr 18, 1925, may be coected wthn s years from the date of
such assessment as provded by secton 278(d) of the Revenue ct
of 1924, the agreement not effectng a mtaton of the tme for
coecton.
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 Northern Dstrct of Georga, tanta Dvson, n the case
of ank of Commerce v. osah T. Rose, Coector of Interna Reve-
nue, s pubshed for the nformaton of nterna revenue offcers and
others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved September 12, 1928.
. W. Meon,
Secretary of the Treasury.
Dstrct Court of the Unted States for the Northern Dstrct of Georoa,
tanta Dvson.
ank of Commerce, pantff, v. osah T. Rose, Coector of Interna Revenue,
defendant.
May 15, 1928.
opnon.
The sut s to recover money pad under compuson on September f, 1925,
us Income ta es assessed for the cnendar year 1918, upon the ground that the
cam therefor was barred by mtaton. The ta return was sworn to before
a Sumpter County notary pubc, 200 mes from the coector s offce, on pr
19, 1919, and recept of the accompanyng ta es was acknowedged thereon by
the coector on pr 23, 1919, the atter date beng probaby the actua date
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277 and 278, rt. 1272.
208
of fng wth the coector. On ebruary 23, 1924, pursuant to the provsons
of secton 250(d) of the Revenue ct of 1921, then of force, the ta payer
consented n wrtng to a determnaton, assessment, and coecton of the
amount of ta es due, notwthstandng the mpendng mtaton of fve years
after the date that the return was fed, f ed by the other secton. The con-
sent provded ths waver s to be n effect from the date t s sgned by the
ta payer and w reman n effect for a perod of one year after the e praton
of the statutory perod of mtaton. On une 2, 1924, the Revenue ct of
1924 became of force, secton 277(2) of whch changed the appcabe aw so
that assessment ony was requred to be wthn fve years after the return was
fed, an addtona perod beng aowed by subsecton (d) to enforce an
assessment made n tme. These provsons were retroactve and e pressy
apped to ta es due under the Revenue ct of 1918, f not aready barred.
(Unted States v. Russe, 22 . (2). 249 T. D. 4107, C. . I-2, 1331 In re
McCure Co., 21 . (2d), 538 T. 1). 4097, C. . I-2. 130 .) n assessment
was made pr 18, 1925, of whch notce was maed the ta payer on pr
22, 1925. The queston s whether the ta camed was barred on September
16, 1925, when the coecton was enforced.
The notce of assessment requred by secton 274(a) of the Revenue ct
of 1924 affects the tme wthn whch the ta payer must pursue hs remedes,
but s not a part of the assessment tsef. So far as mtaton aganst the
Government s concerned the assessment made wthn the mt of tme s
suffcent, though the notce thereof be (not unreasonaby) deayed. The as-
sessment on pr 18, 1925, was, therefore, n tme, though the return be con-
sdered as fed on pr 19, 1919. the date of ts e ecuton n Sumpter County.
The Revenue ct of 1924 became of force before the assessment was made,
and ts enforcement was covered by that aw. Such was the hodng n Unted
States v. Crooh et a . (18 . (2d), 449). ut t s now urged that the wrtten
consent e ecuted before the passage of the Revenue ct of 1924 was a sort of
contractua mtaton affectng both the assessment and coecton of the ta
and mtng both to one year after pr 19, 1924. Such a constructon can not
be gven to the paper. No authorty has been vested by aw n the Comms-
soner or Coector of Interna Revenue to bnd the Government as to mta-
tons, but ony an authorty to accept the consent or waver on the part of the
ta payer respectng the mtatons that Congress had f ed. On the e praton
of the consent acton of the ta offcers, f barred, woud be barred by vrtue of
the aw and not by force of the contract of waver. Notwthstandng tbe
waver, Congress had fu power to modfy the mtaton aws or to repea tem
atogether. The ta payer as no vested rght not to pay hs ta es because of
mtatons. The acts of mtaton are of grace ony. I see nothng n the
waver agreement to prevent appcaton of the ct of 1924. The coecton
was, therefore, awfuy made. udgment may be entered for the defendunt.
rtce 1272 : Perod of mtaton upon co- II-41-3940
ecton of ta . T. D. 4224
INCOM T R NU CT O 1924 D CISION O COURT.
Coecton Lmtaton Waver.
Where the rght to assess and coect ta es for the year 1918 ,
whch woud otherwse e pre on une 16, 1924, s e tended by an
agreement n wrtng to une 16, 1925. an assessment made before
the atter date by vrtue of the agreement may be coected wthn
s years from the date of such assessment as provded by secton
.278(d) 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 Lousana, Shreveport Dvson, n the
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209
277 and 278, rt. 1272.
case of orshem ros. Dry Goods Co. v. Unted States of merca,
s pubshed for the nformaton of nterna revenue offcers and
others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved September 29, 1928.
. W. Meon,
Secretary of the Treasury.
Dstrct Court of the Unted States for the Western Dstrct of
Lousana, Shueveport Dvson.
orshem ros. Dry Goods Co. v. Unted States of merca.
ebruary 4, 1928.
opnon.
Dawkns, .: Pantff brngs ths sut to recover back from the Government
the sum of 11,517.57, pad under protest as ncome, war proft, and e cess proft
ta es for the year 1918. It made a tentatve return before the 15th of March,
1919, and obtaned an e tenson under whch ts fna fgures were submtted
and fed on une 10 of that year. Subsequenty there was a ree amnaton of
the return and on March 1,1924, an agreement wns sgned wth the Government,
readng as foows:
In pursuance of the provsons of subdvson (d) of secton 250 of the
Revenue ct of 1921, orshem ros. Dry Goods Co., Ltd., of Shreveport, La.,
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 orshem ros.
Dry Goods Co., Ltd., for the year 1918 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
ndustres of the Unted States, and for other purposes, approved ugust 5,
1909. Ths waver s n effect, from the date t s sgned by the ta payer and
w reman n effect for a perod of one year after the e praton of the statu-
tory perod of mtaton, or the statutory perod of mtaton as e tended by
any wavers aready on fe wth the ureau, wthn whch assessments of ta es
may be made for the year or years mentoned.
On une 10, 1925, the deputy commssoner maed to pantff the foowng
etter, to wt:
In accordance wth the provsons of secton 274(d) of the Revenue ct of
1924, there, has been assessed aganst you an ncome and profts ta amountng
to 11,282.15 for the ta abe year 1918, tfe detas of whch are set forth n the
attached statements.
Under the provsons of secton 279(a) of the ct you have the rght to fe
wth the coector of Interna revenue, wthn 10 dtys after notce and demand
for payment, a cam for abatement of ths ta or any part thereof. The cam
shoud have attached to t a evdence and data upon whch you rey for
support thereof, and shoud be accompaned by a bond not e ceedng doube
the amount of the cam, wth such suretes as the coector deems necessary.
When the cam s receved by the coector t w be transmtted to the
Commssoner of Interm 1 Revenue, Washngton, D. C, who w notfy you
of the acton taken.
ttached thereto was the foowng statement:
defcency n ta .
Caendar year 1918 11,282.15
You are advsed that after carefu conscrnton and revew, your appca-
ton under the provsons of secton 327 for assessment of your profts ta as
prescrbed by secton 328 of Revenue ct of 1918 has been aowed. Your
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277 and 278, rt. 1272.
210
proft tu s based upon a comparson wth a group of representatve con-
cerns whch n the aggregate may be sad to te engaged n a ke or smar
trade or busness to that of your company.
The resut of the audt under the above-mentoned provsons s as foows:
Profts ta , secton 328 71,135. 30
Net ncome, ureau etter dated May 21, 1924 132, 648. 81
Less: ddtona deprecaton aowed on furnture and
f tures captazed 10 per cent of 1,000 100. 00
Corrected net ncome 132, 548. 81
Less: Profts ta 71,135. 36
empton 2,000.00
73,135. 36
aance ta abe at 12 per cent 59,413.45 7,129.61
Tota ta assessabe 78, 264. 97
Ta prevousy assessed: ccount No. 41732 66, 982. 82
ddtona ta 11, 282.15
Subsequenty, under date of une 18, 1925, there was maed to the ta payer
a green sp, readng:
Notce and demand for ncome ta , Unted States Interna Revenue Servce.
Notce s hereby gven that there has been assessed aganst you the amount
stated hereon. Demand s hereby made for mmedate payment of sad ta .
If payment s not made wthn 10 days after date of ths notce, the ct pro-
vdes that nterest at the rate of 1 per cent per month w accrue from the
due date.
Date: une 18, 1925.
To the Coector of Interna Revenue at New Oreans:
Name and ddress. Items. Tota ssmnt.
obshem ros. Dry Goods Co., Ltd., 11, 282.15
Shreveport, La.,
518 Commerce St.
un 00 C SPL No. 4.
Return ths form wth remttance.
Thereafter the sum camed was pad n nstaments as foows:
ug. 31, 1925, pad on ta 1, 282.15
Sept. 4, 1925, nterest on ta 112. 82
Sept. 28, 1925, pad on ta 2, 000. 00
Sept. 28, 1925, nterest on ta 50. 00
Oct. 29, 1925, pad on ta 2, 000. 00
Nov. 2, 1925, nterest on ta 40. 00
Nov. 30, 1925, pad on ta 2, 000. 00
Nov. 30, 1925, nterest on ta 30. 00
an. 2, 1920, pad on ta 520. 19
an. 2, 1926, nterest on ta 2. 60
Ths sut was fed on October 15, 1926, for a refund.
The ony ssue s the one of prescrpton or mtatons. It s contended that,
because these addtona ta es were coected upon the return for the year
1918, both the rght to assess and coect woud have e pred on une 16, 1924,
but for the stpuaton of waver sgned by the ta payer on March 1, 1924,
above quoted and that nasmuch as the agreement was made under the aw
as t stood when e ecuted, both s anguage and effect was to e tend ony the
rghts and remedes as they e sted at that tme that s, the Government
was bound to assens and coect the ta es wthn the stpuated year of e ten-
son.
It s conceded by the Government that but for the e tenson these addtona
ta es woud have had to be assessed and coected pror to une 16, 1924, but
t cams that snce the assessment was made wthn the e tended perod
thereupon the provsons of the Revenue ct of 1924 became operatve and the
Government had ss addtona years n whch to coect.
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211 277 and 278, rt. 1272.
It w be noted that the agreement tsef refers to and s made n pur-
suance of the provsons of subdvson (d) of secton 250 of the Revenue ct
of 1921 and the ta payer and Commssoner consent to a determnaton,
assessment and coecton of the ta es due under any return made by or on
behaf of the ta payer for the year 1918 under the Revenue ct of 1921, or
any pror cts. It s to reman n effect for a perod of one year after the
e praton of the statutory perod of mtaton or the statutory perod of
mtaton as e tended wthn whch assessment of ta es may be
made for the year or years mentoned. In the meantme that s. between the
date of the makng of the agreement and the assessment and coecton of the
ta es n ths case the Revenue ct of 1924 was approved on une 2, 1924,
whch has been construed by the Court of ppeas for ths crcut n the case
of . 8. v. Crook et at. (18 ed. (2), p. 449) as gvng the Government s
years wthn whch to make coecton, provded the assessment was made
wthn the statutory perod of fve years. To ths e tent at east t was decded
that the ct of 1924 was appcabe to the ta es accrung pror thereto, and
specfcay for the year 1918, as the ta es n that case were for the same year
as the present one. I apprehend, n vew of ths decson, f, notwthstandng
the sad agreement made on March 1, 1924, after the passage of the ct of
une 2, 1924, the Commssoner had assessed the ta es before une 16 of that
year, he woud have had s addtona years n whch to make coecton, as
ths woud have put the case squarey wthn the rung n Crook et a., |ust
cted. ut the matter of prescrpton or mtatons appcabe to the cams of
the Government s one of grace, for t s the unversa rue that none such run
aganst the soveregn e cept us aowed by statute. Therefore, In order for the
pantff to escape n ths nstance, t s necessary that t pont to crcumstances
whch ceary brng t wthn that category. It must be remembered that the
agreement was made both wth respect to the aw as t then e sted and to the
power of Congress to change t. In other words, the ct of une 2, 1924, coud
have not ony e tended the rght to both assess and coect the ta es, but mght
have removed a mtatons thereon had Congress seen ft so to do. owever,
t dd not go that far but dd provde, as hed n the Crook case, f the assess-
ment was made wthn the fve years, the ta es mght be coected at any tme
wthn s years thereafter. Whe the agreement rectes that the partes
consent to a determnaton, assessment and coecton of the ta es, t does not
n that sentence decare that a of these acts sha be performed wthn the
year. On the other hand, the concudng sentence reads that: Ths waver
s n effect from the date t s sgned by the ta payer and w reman n effect
for a perod of one year after the e praton of the statutory perod of mtaton
or the statutory perod of mtaton as e tended by any wavers aready on fe
wth the ureau, wthn whch assessment of ta es may oe made for the year
or years mentoned. The effect of ths s to say that the assessment mght be
made up to the ast mnute of the perod as e tended, and f ths coud be done,
t must have been contempated that f assessed durng that tme such procedure
woud be for some practca purpose yet, f the ta es had aso to be coected
wthn that tme ths woud hardy be possbe n event the assessment was made
on or about the ast day. It s thus seen that under the anguage of the agree-
ment t s by no means cear that the rght to coect shoud be ost f not
e ercsed wthn the e tended perod. On the other hand, the nference to be
drawn from the wordng of ths ast sentence s rather strong that the assess-
ment was the man thng to be accompshed wthn that tme. It s true that
but for the ct of 1924 both rghts woud have e pred on une 16, 1924, but
snce Congress had the power to e tend them and t dd enarge the tme for
coecton f the assessment was tmey made, t must be hed, n the absence of
a cear and concusve agreement awfuy made, that the effect was to enarge
the perod for coecton to s years, where the assessment was made, ether
wthn the statute or wthn the tme of any conventona e tenson.
Counse for the pantff ctes paragraph (d) of secton 278 of the Revenue
ct of 1926, whch provdes that where the assessment has been made n accord-
ance therewth, proceedngs to coect sha be aowed ony f commenced (1)
wthn s years after the assessment of the ta es or (2) pror to the e pra-
ton of any perod for coecton agreed upon n wrtng by the Commssoner
and the ta payer. owever, I hardy thnk that ths was ntended to permt
an agreement whch woud shorten the s -year perod, but was rather to cover
cases where, f the Government faed to nsttute proceedngs for coecton
wthn that tme the ta payer mght escan the consequences of e ecuton by
consentng, wthn s years, to coecton after the runnng of such deay.
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281, rt. 1307.
212
Otherwse, t woud have the effect of empowerng the Commssoner to ds-
regard ths ong perod aowed by the statute and to consent to a shortenng
thereof to throe months or oss, even f the assessment was tmey made, whch
of course woud scarcey be contended. (See In re McCure (N. D. of Ga.),
21 ed. (2d), p. 538 ned States v. Russe et a., 22 ed. (2d), 249 T. D.
4107, C. . I-2, 133 .)
It s aso contended that there was never any assessment of the addtona
ta es wthn the perod as e tended that s. pror to une 16, 1925. owever,
the etter of uno 10, 1925, wth statement of the ta es camed, quoted earer
n ths opnon, states ceary that: n accordance wth the provsons of secton
274(d) of the Revenue ct of 1924, there has been assessed aganst you (the
pantff) an ncome ta amountng to , 11,282.15, for the ta abe year 1918,
the detas of whc set forth n the attached statement. There aso appears
upon the orgna return as fed une 16, 1924, the notaton, appearng to have
been stamped upon ts face n a square bock, headed udted Ta abty
ncreased 11,282.15, sgned by I. Graff, dated eb. 2nd (or 7th), 1925.
I take t that ths was a that was necessary to consttute an assessment, as
nothng has been ponted out to show that any partcuar form was requred
to accompsh that resut. There s no dena that the etter of une 10, 1925,
was duy and tmey receved and t must be presumed that t was, as t was
offered n evdence by the pantff. It s true that the green sp, aso quoted
aud refeTed to herenabove, boro date une 18, 1925, but ths was n the
nature of a demand or b wth warnng to pay wthn 10 days or the ta payer
woud ncur the statutory penaty of 1 per cent a month. rom ths I thnk t
s shown that there was an assessment pror to une 16, 1925.
My concuson s that the pea of mtatons can not be sustaned and there
shoud be |udgment re|ectng pantff s demand. pproprate ndorsements
showng the grantng or refusng of requested fndngs of fact aud rungs of
aw have been noted upon sad motons.
decree n accordance wth these vews may be presented, at whch tme a
e ceptons w be setted.
rtce 1272: Perod of mtaton upon coecton of ta .
R NU CT O 1924.
1918 ta es assessed pror to 1924 ct and wthn 5-year perod.
(See T. 1). 4216, page 228.)
rtce 1272: Perod of mtaton upon coecton of ta .
R NU CT O 1924.
ffect of offer n compromse, or ssuance of warrant of dstrant
to satsfy outstandng ta . (See G. C. M. 4565, page 169.)
S CTION 281. CR DITS ND Pv UNDS.
rtce 1307: Lmtatons upon the credtng II 44-307(5
and refundng of ta es pad. T. D. 4234
nterna revenue aws cams tor refund decson of court.
1. Sut Cam for Refund Ora Statement.
n ora demand s nsuffcent to consttute a cam for a refund
wthn the meanng of secton 3226 of the Revsed Statutes as
amended.
2. Same stoppe.
In a sut for the recovery of a ta erroneousy coected the
Government s not estopped from reyng u| m the faure of
the pantff to fe a wrtten cam for refund by the statement of
ts fed agent that the fng of a cam was not necessary.
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213
281, rt. 1307.
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 Thrd Crcut, n the case of Dane Rtter, 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,
Convmssoner of Interna Revenue.
pproved October 23, 1928.
. W. Meon,
Secretary of the Treasury,
Unted States Crcut Court of ppeas for the Thrd. Crcut.
Dane Rtter, pantff n error, v. Unted Staes of merca, defendant n error.
In error to the Dstrct Court of the Unted States for the Western Dstrct of Pennsyvana.
September 20, 1928.
OPINION.
Davs, Crcut udge: Ths was an acton brought by Dane Rtter to recover
from the Unted States an overpayment n ta es for the year 1917 of 1,09 .81
wth nterest. The case was argued on pantff s compant and defendant s
affdavt of defense, rasng questons of aw n the nature of a demurrer under
the Pennsyvana practce.
On pr 1, 1918, pantff fed hs ta return for 19 7, showng a ta abty
of 0,904.95, whch was pad on une 7, 1918. On December 30, 1922, an e am-
naton of pantffs books by Revenue ed gent Tmberake dscosed the
overpayment. The agent gave the pantff a copy of hs report and tod hm of
the overpayment. Pantff says that he then and there made an ora cam
for refund and that the agent tod hm that no further acton on hs part
woud be necessary and that the overpayment woud be refunded as a matter
of course.
The report was sent by ma to the ureau of Interna Revenue at Washng-
ton, but t appears to have been ost, for t never reached Washngton. Infor-
maton of the overpayment was not brought to the attenton of the ureau or
Commssoner of Interna Revenue unt September 11, 1924, when the pantff
wrote a etter to the Commssoner about the overpayment, though pantff
aeges that he began to make nqures as to what was hodng up ts return
as eary as November 20, 1923. The Department reped to the etter of Sep-
tember 11, 1924, on November 25, 1924, advsng pa||Mff that the return of
the overpayment appeared to be barred by the statute of mtatons that the
facts whch he had submtted were nsuffcent to consttute an nformU
cam, and that uness a statement was submtted evdencng hs ntenton to
cam refund pror to the operaton of the statute no overassessment mght be
aowed. owever, on December 0. 1924. pantff ted wth the coector of
nterna revenue at Pttsburgh a forma wrtten cam for refund. On ebru-
ary 4, 1925, the Commssoner of Interna Revenue agan advsed pantff that
hs cam for refund was barred by the statute of mtatons. Thereafter, on
May 26, 1926, sut was brought for ts recovery. The court hed thnt on the
admtted facts as a matter of aw the cam for refund was barred by the
statute of mtatons that the ora cam aeged to have been made to gent
Tmberake was neffectve because the statute requres that t be made to the
Commssoner of Interna Revenue and the Government was not estopped by
any statement made to pantff by the ed agent.
The case s here on pantff s wrt of error.
Secton 1112 of the Revenue ct of 1926 provdes that a cams for the
refund of any nterna revenue ta aeged to have been erroneousy or egay
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281, rt. 1307.
214
assessed or coected or any sum aeged to have been e cessve or n any
manner wrongfuy coected, must, wth e ceptons not here pertnent, be
presented to the Commssoner of Interna Revenue wthn four years ne t
after the payment of such ta .
Secton 1113 provdes that no sut or proceedng sha be mantaned n any
court for the recovery of any nterna revenue ta aeged to have been er-
roneousy or egay assessed or coected, or any sum aeged to have been
e cessve, unt a cam for refund has been duy fed wth the Commssoner
of Interna Revenue accordng to the provsons of aw n that regard, and the
reguatons of the Secretary of the Treasury estabshed n pursuance thereof.
s above stated, attenton of the ureau of Interna Revenue was not
caed to ths overpayment unt the etter of September 11, 1924. Secton
281 of the Revenue ct of 1924 was then n force. It provdes that a refund
of an overpayment of any ncome ta mposed by the Revenue cts of 1909,
1913, 1916, 1917, 1918, and 1921 sha not be aowed or made after four
years from the tme the ta was pad uness before the e praton of such
four years a cam therefor s fed by the ta payer.
The ta n ths case was pad by Rtter on une 7, 1918. There s no queston
but that the ta nvoved n ths sut was an overpayment nnocenty made.
In order to have t refunded, however, t was necessary that a cam be fed
wth the Commssoner of Interna Revenue wthn four years from the date
of payment. It s unfortunate and to be regretted that the pantff fnds
hmsef n the poston n whch hs neggence, msunderstandng, or the
unauthorzed statement of the fed agent, Tmber.ake, paces hm, but the
soveregn Government may not be sued e cept upon ts consent and then ony
upon the condtons under whch t has consented to be sued, even though they
be purey forma. (Cheatham v. Unted States, 92 U. S., 85 ng County
Savngs Insttuton v. ar, 116 U. S., 200 Rock Isand, rkansas Lousana
Raroad Co. v. Unted States, 254 U. S., 141 Ct. D. 2, C. . 4, 342 atmore
d Oho Raroad Co. v. Unted States, 260 U. S., 565 T. D. 3430, C. . II-,
3121 Unted States v. Rchards, 27 ed. (2d), 284.) One of those condtons
n ths case s that the cam for refund must have been fed wth the Com-
mssoner of Interna Revenue wthn four years after the tme of payment
of such ta . The pantff urges that there was no need or necessty for the
fng of the cam for refund because the fed agent of the Commssoner
had gone nto the ta payer s ofce and made the dscovery and therefore the
Commssoner knew of the overpayment, but the ease of Rock Isand v. Unted
States, supra, settes ths queston contrary to pantffs contenton.
The pantff says that hs ora statement to ed gent Tmberake con-
sttuted a cam for refund and was, wthn the meanng of the statute and
reguatons pursuant thereto, a fng of the same wth the Commssoner. e
further says that the statement of the fed agent to the effect that the
overpayment woud n due tme be refunded as a matter of course and that he
dd not need to fe a cam for refund estopped the Government from settng
up hs faure to fe a wrtten cam for refund as a defense.
The statute and reguatons prescrbed that a cam must be fed. Ths
means a wrtten cam and not an ora one, because t s dffcut to know |ust
how to fe an ora cam. It coud not be done, uness t was reduced to wrt-
ng ether by the pantff or some one for hm. The ora cam, therefore, was
n aw nsuffcent. Th fact that the Commssoner (accordng to a statement
made to the ouse Commttee on Ways and Means by the Genera Counse
of the ureau of Interna Revenue) makes refunds n 80,000 cases annuay
wthout a cam beng fed therefor does not suspend the operaton of the
statute and render t unnecessary to fe a cam for refund as the statute and
reguatons requre.
Is the Government estopped from settng up the faure of the pantff to
fe a cam by the statement of ts fed agent that t was not necessary for
hm to do so It s true, as pantff contends, that when the soveregn becomes
an actor n a court of |ustce, ts rghts must be determned upon those f ed
prncpes of |ustce whch govern between man and man n ke stuatons.
(Waker v. Unted States, 139 ed., 409 Cook v. Unted States, 91 T . S., 3S9
Unted States v. nt, 25 edera Cases, 1107.) The acts or omssons of the
offcers of the Government, f they be authorzed to bnd the Unted States n a
partcuar transacton, w work estoppe aganst the Government, f the
offcers have acted wthn the scope of ther authorty. The fed agent n the
nstant case was not authorzed to wave the requrements of the statute or the
reguatons, nor to make rues and reguatons n accordance wth whch
overpayments shoud be refunded. s duty was to audt accounts. e
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215
281, rt. 1307.
therefore had no authorty to t I he pantff that he need not observe the
requrements of the statute and of the reguatons. Therefore, the Government
s not estopped by hs unauthorzed statements.
What we have sad dsposes of ths case, but we are not ncned to the vew
e pressed by the earned dstrct |udge that t was necessary that the cam
for refund be made to the Commssoner of Interna Revenue personay. s
offce s a arge one and he coud not personay attend to the dutes of hs
offce. e must have deputes and agents to assst hm n that work. cam
s fed wth the Commssoner of Interna Revenue when t s fed n hs offce.
The offce of a coector of nterna revenue s a part of the machnery of the
Commssoner for the admnstraton of the revenue, and wthn the meanng
of the statute and reguatons a cam fed n the coector s offce by a ta -
payer n hs dstrct s fed wth the Commssoner of Interna Revenue.
rtce 1302 of Reguatons (55, approved October (3, 1924, provdes that the
cam for refund together wth approprate evdence must be fed n the
offce of the coector of nterna revenue charged wth the coecton of the
ta , or f the ta has been pad, n the offce of the coector for the dstrct n
whch the ta was pad.
The pantff havng faed to fe a cam for the refund of hs overpayment
n accordance wth any of the statutes or reguatons appcabe to hs case,
the |udgment of the dstrct court s affrmed.
rtce 1307: Lmtatons upon the credtng -52-4044
and refundng of ta es pad. T. D. 4251
INCOM T R NU CT O 1924 D CISION O COURT.
Credt and Ref nd Lmtaton Waver adty When e-
cuted by Persona Representatve.
w-aver of the statute of mtaton upon the assessment of a
ta duy e ecuted by an e ecutr or other persona representatve
of a decedent s, regardess of ts vadty under State aw, suff-
cent to e tend the tme for the fng of a cam for credt or refund
of a ta as provded by secton 281(e) 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 Court of Cams of the Unted
States, n the case of Mary S. drdge, ecutr of the Last W
and Testament of W. 0. drdge, Deceased, v. The Unted States of
merca, s pubshed for the nformaton of nterna revenue offcers
and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved December 15, 1928.
Ooden L. Ms,
ctng Secretary of the Treasury.
Court of Cams of the Unted States.
Mary 8. drdge, ecutr of the Last W and Testament of W. O. drdge,
Deceased, v. The Untrd States.
anuary 10, 1928.
opnon.
Graham, udge, devered the opnon of the court.
Ths s a sut brought by Mary S. drdge, e ecutr of the w of Wam
O. drdge, deceased, to secure a refund of 20,911.71, on account of a dup-
37229 29 15
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281, rt. 1307.
216
caton n the ncome ta for the year 1918 pad by sad Wam O. drdge.
The atter ded pror to December 16, 1920, and on that date pantff quafed
as e ecutr n the chancery court of Washngton County, Mss. Wam O.
drdge was at the tme of hs death a ctzen and resdent of the State of
Msssspp.
On pr 17, 1919, Wam O. drdge fed hs ncome ta return for the
year 1918, whch showed a ta due thereon of 36,655.50, and between pr
17 and December 12, 1919, he pad sad amount.
Upon a reTew and reaudt of the return the Commssoner of Interna
Revenue determned that the decedent was abe for an addtona ta for
the year 1918 n the sum of 13,491.38, and on ebruary 5, 1924, addressed
a etter to decedent to ths effect and requested, n the event he shoud desre
to appea, that he sgn and return the form of waver Incosed therewth agree-
ng to an e tenson of tme of one year beyond the statutory perod of mtaton
wthn whch the addtona ta mght be assessed, n order to avod m-
medate assessment. In response to ths etter Mary S. drdge, as e ecutr ,
wrote to the Commssoner ncosng the waver dated ebruary 11, 1924. It
does not appear that t was ever returned or that any e cepton was taken
to t unt the 6th of une, 1925.
On ebrnary 9, 1924, pror to the recept of the waver, the e ecutr fed
a cam for refund n the sum of 4,611.65, or such greater amount as s egay
refundnbe. of decedent s ncome ta for 1918. In March, 1924, an addtona
assessment of 13,491.38 was made by the Commssoner aganst Wam O.
drdge. On March 2S. 1924, pantff fed a second and substtuted cam for
refund of the sad sum of 4,611.65 and the abatement of 13,491.38, and at
some tme, not proved, after November 28, 1924, the Commssoner abated sad
addtona assessment and made a refund to pantff of 4,611.65, wth nterest.
On December 27, 1924, the e ecutr , through her agent, fed a cam for refund
of 25,523.36. wth nterest.
The defendant n ts bref rected:
The Unted States concedes that W. O. drdge overstated hs ncome n
hs 1918 return n the amount of 44,589.60 and overpad hs ncome ta for
sad year to the e tent of 25,523.36, and that after refundng 4,611.65. wth
nterest, there remaned a net overpayment of 20,911.71.
The questons nvoved are stated n defendant s bref as foows:
I. Can an e ecutr n the State of Msssspp e ecute a vad agreement
wavng the statute of mtatons runnng aganst the assessment of a edera
ncome ta
II. If the e ecuton by camant of the nstrument dated ebruary 11.
1924, was vad, s ths nstrument such a waver as s contempated by secton
281 of the Revenue ct of 1924
III. If the cam for refund fed December 27, 1924. s barred by the
statute of mtatons, are the cams for refund fed on ebruary 9. 1924.
and March 28, 1924, suffcent to support the refund now demanded
Let us frst consder the queston of the vadty of the waver. The ob|ecton
nterposed to ts vadty s that the courts of Msssspp have hed that a
persona representatve coud not wave the statute of mtatons as to a
debt asserted aganst an estate, and certan decsons of the Supreme Court
of the State of Msssspp are reed upon n support of ths.
There was no statute of the State of Msssspp at the tme on the sub|ect.
The opnons of the court are not harmonous but confctng. ut, asde from
ths, we know of no ease where t has been hed or even contended that a
decson of a State court can nufy, modfy, mt, or obstruct a rght granted
by an ct of Congress wthn ts consttutona power. The ta system of the
Unted States s reguated by the edera statutes and practce, and s not
controed by State enactments. (Unted Sates v. Snyder, 149 U. S., 210, 215.)
Congress havng undertaken to reguate the whoe sub|ect, ts egsaton s
necessary e cusve. ( rtuon v. Murphy, 109 . S., 238, 243.)
Ths s not the ordnary case of waver of a debt asserted aganst an estate.
The ct of Congress was ntended for the accommodaton of both the Govern-
ment and the ta payer. It was n the nature of an agreement to gve tme for
further consderaton of cams. The ta payer n ths case had fed a cam
for a refund. The Government n repy had asserted u cam for addtona
ta . The perod of mtaton for the enforcement of the Government ta
was about to e pre. The statute provded for a waver. The waver was
prepared by the Commssoner of Interna Revenue, fed n by hm and sent
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217
281, rt. 1307.
to the pantff. It dd not orgnate wth the pantff. The Commssoner
sent t to pantff wth the suggeston that n case an appea was desred from
the addtona assessment the pantff shoud sgn and return t, agreeng
to an e tenson of one year beyond the statutory perod wthn whch the
addtona assessment coud be assorted and to avod Immedate assessment.
The waver contaned the foowng provson:
Ths waver s n effect from the date sgned by the ta payer and w
reman n effect for a perod of one year after the e praton of the statutory
perod of mtatons,
Pantff sgned and returned t to the Commssoner, and t was accepted
by hm, as shown by hs subsequent acton n not ony wthdrawng the cam
for addtona ta but aowng the cam of pantff for refund.
Secton 281(e) of the Revenue ct of 1924 ( 43 Stat., 302), nvoved here, s
as foows:
If the ta payer has, wthn ve years from the tme the return for the
ta abe year 1917 was due, fed a waver of hs rght to have the ta es due
for such ta abe year determned and assessed wthn fve years after the
return was fed, or f he has, on or before une 15, 1924, fed such a waver
n respect of ta es due for the ta abe year 1918, then such credt or refund
reatng to the ta es for the year n respect of whch the waver was red
sha be aowed or made f cam therefor s fed ether on or before pr 1,
1925, or wthn four years from the tme the ta was pad.
s t turned out, there was no debt aganst the estate of pantff s decedent.
On the contrary, a reaudt showed, as stated, that the cam for addtona ta
by the Government was erroneous, and, more than that, that pantff was
entted to the refund she was then camng. y rng the waver pantff
was enabed not ony to estabsh her cam for refund but to convnce the
Commssoner that the cam for addtona ta was nvad.
The provson for refundng ta es egay coected, |ust as the provson
for ayng them, s a part of an ct of Congress passed n the e ercse of ts
consttutona power under the s teenth amendment to ay and coect n-
come ta es. It had power not ony to provde the method of ayng and co-
ectng ta es but the method of refundng ta es egay coected. It had
the power n prescrbng that method to provde not ony a statute of mta-
tons but the rght to wave the mtaton, and ths rght was gven to the
ta payer. It can not be contended that the power of Congress to confer the
rght can be taken away by a State statute, much ess by the decson of a
tate court. To say that the rght can be granted but the prvege of e er-
csng t can be mted or taken away by a State statute or a decson of a
State court woud be n effect to destroy the rght and thus nufy the ct
of Congress. The prncpe here nvoved was estabshed many years ago
n the case of C b ms v. Ogden (9 Wheat., 1), and s too we known to need
dscusson.
We, therefore, hod that the waver was vad and effectve so far as ths
case s concerned.
We ne t come to the queston as to whether the cam for refund fed
December 27, 1924, was suffcent n aw and not barred by the statute of m-
tatons. The waver was dated ebruary 11, 1924, and was bndng and
effectve for one year from ts date. The ct of Congress above quoted pro-
vdes that f the waver of the statute of mtatons runnng aganst add-
tona assessment for 1918 s fed before une 15, 1924 (and n ths case t
was), the cam for refund of 1918 ta es may be aowed f ted before pr
1, 1925, and n ths case t was fed on December 27, 1924. We concude that
the cam of December 27, 1924, was vad and not barred by the statute of m-
tatons.
We thnk there s no mert n the contenton that the cam here was setted
by the payment of the prevous cam for refund of 4,011.25. The cam
nvoved n ths case was not known to ether of the partes at that tme.
It dd not come to pantff s knowedge unt November 24, 1924, when t
deveoped from an e amnaton of hs papers and reaudt of hs accounts that
the pantff s decedent by mstake of dupcaton had overpad hs ta n the
amount of 25,523.30. Inasmuch as 4,011.05 was refunded, the pantff s
entted to a |udgment for the dfference between the two sums, or 20,911.71,
wth nterest, as shown by the foowng stpuaton between the partes:
It s agreed that f the court sha fnd that ether or both of the wavers
fed ebruary 7, 1924, and ebruary 11, 1924, respectvey, were
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1200.
218
vad and effectve wavers and that the cam for refund fed December 27,
1924, was .suffcent n aw and was not barred by the statute of mtatons,
then |udgment may be entered fur the pantff n the sum of 20,911.71, wth
nterest thereon as provded by aw.
udgment shoud be entered for 20,911.71, wth nterest, and t s so ordered.
TITL I O RD O T PP LS.
S CTION 900. O RD O T PP LS.
Secton 900.
revenue act of 1024.
Remedes n case of adverse decson by oard of Ta ppeas.
(See G. C. M. 5046, page 78.)
TITL II. R DUCTION O INCOM T P Y L
IN 1924.
Secton 1200. II-47-4007
T. D. 4245
INCOM T R NU CT O 1924 D CISION O COURT.
Credt or Refund 25 Per Cent Reducton of Ta for 1923
Computaton.
The aowance by credt or refund of 25 per cent of the amount
shown ns the ta upon a return for the caendar year 1923 to whch
a ta payer s entted under secton 1200(a) of the Revenue ct
of 1924 shoud be computed upon the baance of the ta shown
by the return after deductng the credt for ta es pad to a
foregn government whch s provded by secton 222(a) of
that ct.
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 C. . Stover
v. akey D. McCamghn, Coector of Interna Revenue, s pub-
shed for the nformaton of nterna revenue offcers and others
concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved November 8, 1928.
. W. Meon,
Secretare of the Treasury.
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219 2oo.
Dstrct Court op the Unted States fob the astern Dstrct of
Ten n s yvana.
C. . Sto-ver v. akcy D. McCaughn, Coector of Interna Revenue.
September 10, 1928.
opnon.
Ths s an affdavt of defense rasng the queston of aw that the facts set
forth n the pantff s statement of cam do not consttute a cause of acton,
and for the purposes of ths decson, a facts peaded are admtted. They
are as foows:
The pantff duy fed hs ncome ta return for the caendar year 1923,
showng a ta abty of , 2,190.01, as computed under the provsons of the
Revenue ct of 1921. further showng the amount of 529.64 credted aganst
that amount on account of ncome and profts ta es pad to a foregn govern-
ment (Domnon of Canada), eavng a net ta due of 1,660.97. Subsequent
to the enactment of the Revenue ct of 1924, and n accordance wth secton
1200 of that ct, the defendant, the coector of nterna revenue, credted the
pantff wth 25 per cent of the net ta shown to be due by the pantff s ta
return ( 1,600.97) that s, he aowed 25 per cent of the amount shown to be
due after deductng the credt on account of ta pad to the Domnon of
Canada. The pantff cacuated hs tu abty to the Government by takng
a credt of 25 per cent of the amount shown on hs return ( 2,190.61) before
takng credt for payment of the ta to the Domnon of Canada. y reason
of the dfference n the method of computaton the defendant on pr 8,
1927, coected from the pantff the addtona sum of 160.22, of whch 132.41
represented the unpad porton of the orgna ta abty and 27.81 repre-
sented nterest. The pantff duy fed hs cam for refund for the amount
so pad, whch cam has been re|ected. The pantff then brought ths sut.
The queston nvoved s whether the aowance by credt or refund of 25
per cent of the amount shown as t|| upon a ta payer s return, provded for
by secton 1200 of the Revenue ct of 1924, s to be computed upon the ta
shown by the return before takng credt for ta es pad to a foregn govern-
ment or upon the baance after takng such credt.
The reevant provson of Revenue ct of 1924 s as foows:
Sec. 1200. (a) ny ta payer makng return, for the caendar year 1923, of
the ta es mposed by Parts 1 and 11 of Tte II of the Revenue ct of 1921
sha be entted to an aowance by credt or refund of 25 per centum of the
amount shown as the ta upon ths return.
Sec. 1200. (b) If the amount shown as the ta upon the return has been
pad n fu on or before the tme of the enactment of ths ct, the amount of
the aowance provded n subdvson (a) sha be credted or refunded as
provded n secton 281 of ths ct.
The credt for ta es due a foregn government s aowed by secton 222 of
the Reveuue ct of 1921, the reevant part of whch s as foows:
Sec. 222. (a) That the ta computed under Part II of ths tte sha be
credted wth:
(1) In the case of a ctzen of the Unted States the amount of any ncome,
war-profts and e cess-profts ta es pad durng the ta abe year to any foregn
country or to any possesson of the Unted States: .
Secton 1200(a) of the ct of 1924 gves the ta payer an aowance of 25
per centum of the amount shown as the ta upon hs return. If ths cause
stood aone t mght be dffcut to determne whether the aowance shoud be
cacuated before or after the deducton of the credt for foregn ta es. ut
the words the ta contaned In the cause |ust quoted are modfed by the
precedng part of the sentence whch reads ny ta payer makng return
of the ta mposed by the Revenue ct of 1921, etc. It
seems perfecty cear from the whoe conte t that the amount shown as the
ta upon whch the aowance of 25 per centum s to be cacuated means the
amount shown as the ta mposed by the Revenue ct of 1921. If the word
the before the word ta were changed to such the meanng woud be
obvous, and I thnk that a constructon whch gves t such meanng s the
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220
natura one to be drawn from the conte t. Of course, the ta mposed s the
ta actuay due and payabe after aowance of a credts and not the net ta
as shown before the aowance of credts. That s not mposed but s merey
the bass upon whch a ta fnay mposed s computed after aowance of
credts.
The constructon contended for by the pantff woud ead to ogca and
nequtabe resuts. Suppose that the pantff n ths case had pad to the
Domnon of Canada, nstead of 540.65, ta es n the amount of 2,190.61. e
woud then have been entted to a credt n the amount of 2,190.61, and woud
have pad no ta es at a to the Government of the Unted States. In such case,
under the theory he now advances, he woud nevertheess be entted to cam
from ths Government, under secton 1200 of the ct of 1924, the amount of
547.05, or 25 per centum of the amount shown upon hs return as the ta
before aowance of credts. Not ony woud such a resut bo manfesty absurd
but the anguage of secton 1200 of the ct of 1924 e cudes t. That ct gves
aowance by credt or refund. owance by credt obvousy nvoves the
dea of some debt due aganst whch the credt s to be aowed and s not
propery descrptve of a cash payment to be made to one who owes nothng to
the payer. owance by refund means a return of money actuay pad, and
of course where nothng s due from the ta payer and nothng has been pad a
payment by the Government woud not be a refund. Ths word was ceary
nserted to cover ta payers who nstead of payng by nstaments had pad the
entre ta duo at the tme they fed ther returns.
The statement of cam s ad|udged nsuffcent n aw and |udgment may
be entered for the defendant.
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2, rt. 1504.
INCOM T RULINGS. P RT I .
R NU CT O 1921 OR PRIOR R NU CTS.
TITL I. G N R L D INITIONS.
S CTION 2. G N R L D INITIONS.
rtce 1504: ssocaton dstngushed from TI-47-4008
trust. T. D. 4246
ncome ta revenue act of 1918 decson of court.
1. Trust Ta abty as Corporaton.
Where the entre contro and management of a trust are vested
n trustees who are engaged n carryng on a busness enterprse
n much te same manner as the drectors of a corporaton, the
trust s an assocaton wthn the meanng of secton 1 of the
Revenue ct of 1918, and 3 sub|ect to ncome ta as a corporaton
under secton 230 of that ct.
2. Decsons oowed.
The decsons n echt v. Motey (285 U. S., 144 (T. D. 3595
O. . III-, 489 )) and urto-Waggoner O ssocaton v. op-
kns (269 U. S., 110 (T. D. 3790 C. . -, 147 )) foowed.
Treasury Department,
Offce of Commssoner of Interna, Revenue,
Washngton, D. C.
To CoUectorg 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 cases of Ltte our
O Gas Co., a Trust, Pttsburgh, Pa., pantff, v. C. G. LeweUyn,
ormery Coector of Interna Revenue, defendant, and Ltte our
O Gas Co., a Trust, Pttsburgh, Pa., pantff, v. D. . ene) ,
Coector of Inemcd Revenue, defendant, s pubshed for the nfor-
maton of nterna revenue offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved November 8, 1928.
. W. Meon,
Secretary- of the Treasury.
Dstrct Court or the Unted States for the Western Dstrct of
Pennsyvana.
Ltte our O Gas Co., a Trust, Pttsburgh, Pa., pantff, v. O. O.
Leweyn, ormery Coector of Interna Revenue, Twenty-thrd Dstrct of
Pennsyvana, Pttsburgh, Pa., defendant.
Ltte our O d Oas Co., a Trust, Pttsburgh, Pa., pantff, v. D. . Sener,
Coector of Interna Revenue, Twenty-thrd Dstrct of Pennsyvana, Ptts-
burgh, Pa., defendant.
une 28, 1928.
OPINION.
Thomson. .: These actons are brought aganst the defendants to recover
ncome and profts ta es pad under protest to the defendants for the caendar
years 1919 and 1920, cams for refund havng been duy made and re|ected.
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222
Pantff aeges n ts statements of cam that t s an organzaton operatng
under a decaraton of trust begnnng n 1916, a copy of whch s attached
to and made a part of the statement of cam, and, as such, not sub|ect to
ta aton as a corporaton under the Revenue ct of 1918.
Te defendants fed affdavts of defense rasng questons of aw, ther
ega poston beng that pantff, durng the years 1919 and 1920, was a cor-
poraton wthn the meanng of the Revenue ct of 1918, and partcuary
secton 1 thereof, whch defnes a corporaton to ncude assocatons, |ont
stock companes, and nsurance companes.
Pantff s contenton s that athough the term corporaton n the
Revenue cts has been defned to ncude assocatons, |ont stock companes,
and nsurance companes, beng a trust t does not come wthn the meanng
of those terms, whe defendant contends that, athough pantff has been
decared to be a trust, t s an assocaton wthn the meanng of the statute.
The facts of the case, brefy staed, are these: our men by decaraton of
trust, dated une 26, 1916. assgned certan property and contract rghts to them-
seves as trustees, t beng hed upon the terms theren set forth ths nstru-
ment was amended on anuary 14, 1918, both nstruments beng duy re-
corded. The trust was desgnated the Ltte our O Gas Co., and was
created for the purpose of buyng and seng rea estate and mnng and drng
for o and gas. Capta stock, common and preferred, was ssued to the benefc-
ares of the trust. The trustees were gven fu power n the management of
the trust, whch was to contnue for a perod of 21 years. It was provded that
addtona shares of stock shoud be sod from tme to tme n the dscreton of
the trustees that the death of any stockhoder durng the contnuance of the
trust sha not termnate the trust, and the shares of stock were transferabe.
Trustees were to ca meetngs of stockhoders annuay and report the re-
cepts and dsbursements of the precedng years, shoud decare dvdends from
the net ncome of the trust fund amongst the stockhoders quartery or oftener
f convenent, and th r decson as to the amount of dvdends, and as to usng
any porton of the surpus fund, shoud be fna. ny vacancy for any cause
shoud be fed by the remanng trustees. ach trustee shoud be responsbe
ony for hs own wfu and corrupt breach of trust. Whe the busness of the
trust was to be conducted by the trustees, certan contracts and acts requred
the concurrence of three trustees ony the assets of the trust were abe for
debts, and nether the trustees nor the stockhoders were personay abe for
osses.
Secton 1 of the Revenue cts of 1918 and 1921 provdes that the term per-
son sha ncude partnershps and corporatons, as we as ndvduas. That
the term corporaton ncudes assocatons, |ont stock companes, and nsur-
ance companes, and the term ta payer ncudes any person, trust, or estate
sub|ect to the ta mposed by the ct.
Secton 230(a) provdes for a ta upon the net ncome of every corporaton.
Secton 1000(a) provdes a speca e cse ta wth respect to carryng on or
dong busness. Secton 3, Schedue , provdes for a stamp ta on each org-
na ssue of certfcates of stock by any corporaton. The Revenue ct of 1924,
secton 2(a), provdes that When used n ths ct, the term corporaton n-
cudes assocatons, |ont stock companes, and nsurance companes.
1 thnk the proper decson n ths case may be reached from a carefu study
of the cases of Crocker v. Maey (249 U. S., 223 T. D. 3595, C. . III-, 489 ),
crht v. Maey (265 U. S., 144), and urk-Waggoncr O ssocaton v. opkns,
Coector (269 U. S., 110). In Crocker v. Maey, a Mane paper manufacturng
corporaton had ms n Massachusetts and outyng and. It formed a corpora-
ton n Massachusetts, conveyed to the atter ts ms and gave a ong term
ease for the rea property, recevng therefor the stock of the Massachusetts
corporaton. The Mane company then transferred to the trustees the fee of
the property sub|ect to the ease, eft the Massachusetts stock n the trustees
hands, and was dssoved. The court hed that the pantffs were not abe for
ncome ta as an assocaton or |ont stock company.
In ccht v. Maey, the Supreme Court commentng on the Crocker case, at
page 160, speakng of the opnon, sad:
Ths opnon s based prmary upon the vew that the Income Ta ct,
consderng ts purpose, dd not show a cear ntenton to mpose upon the
trustees as an assocaton a doube abty n reference to the dvdends
on stock n the corporaton that tsef pad an ncome ta , when consdered
as trustees they were by another provson of the ct e empt from such pay-
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2, rt. 1604.
nent nd the anguage used arguendo n reachng ths concuson that the
trustees coud not he deemed an assocaton uness a trustees wth dscre-
tonary powers are such s to be read n the ght of the trust
agreement there nvoved, under whch the trustees were, n substance, merey
hodng property for the coecton of the ncome and ts dstrbuton among
the benecares, and were not engaged, ether by themseves or In connecton
wth the benefcares, n the carryng on of any busness. (Zon-ne v. Mn-
neapo Syndcate, 220 U. S., 187, 190), and see Smth v. nderson (L. R., 15,
Ch. Dv., 247).
Ths case of echt v. Maey was deang wth the ta abe status, under the
Revenue ct of 1918, of three dfferent organzatons created by a decaraton
of trust. The organzatons were The Iecht Rea state Trust, The ay-
market Trust, and The Crocker urbank Co. ssocaton. The echt
Rea state Trust was estabshed on rea estate used for busness purposes.
enefcares were ssued no pur vaue certfcates of stock. The certfcates
were transferabe. The trust was a famy affar and t was provded that the
certfcates coud not be transferred to any person outsde of the famy wthout
frst beng offered to the trustees. The atter had fu and compete powers of
management but no power personay to bnd the certfcate hoders. There
were no reguar meetngs of the certfcate hoders but they had power to
remove and appont trustees or change the scope of the purposes of the
busness.
The aytnarket Trust was much the same as the frst e cept that t was
strcty a busness enterprse. The Crocker urbank Co. ssocaton was aso
a busness organzaton somewhat broader than the other trusts n that ts
busness aso nvoved manufacturng. In ths case the court ponted out a
substanta change n the Revenue ct here nvoved from earer cts, the
atter mposng a ta on busness enterprses organzed under the aws of
the Unted States, or of any State or Terrtory, whereas the ct here nvoved
mposes a ta on busness enterprses created or organzed n the Unted -
States, and carryng on or dong busness theren. In the opnon, the court,
among other thngs, sad:
In our opnon, the ntenton of Congress s pany shown to
e tend the ta from one mposed soey upon organzatons e ercsng statutory
prveges, as theretofore, to ncude aso organzatons e ercsng the prvege
of dong busness as assocatons at the common aw.
The word assocaton appears to be used n the ct n ts ordnary
meanng. It has been defned as a term used throughout the Unted States
to sgnfy a body of persons unted wthout a charter, but upon the methods
and forms used by ncorporated bodes for the prosecuton of some common
enterprse .
We thnk the word assocaton as used n the ct ceary ncudes
Massachusetts Trusts such as those heren Invoved, havng quas corporate
organzatons under whch they are engaged n carryng on busness
enterprses .
We do not beeve that t was ntended that organzatons of ths char-
acter shoud be e empt from the e cse ta on the prvege of
carryng on ther busness merey because such a sght measure of contro may
be vested n the benefcares that they mght be deemed strct trusts.
In the case of wk-Waggoncr O ssocaton v. opkns, Coector, t was
hed that unncorporated |ont stock assocatons, ke those descrbed n echt
v. Mae/, are corporatons wthn the meanng of the Revenue ct of 1918,
and sub|ect, ke corporatons, to the ncome and e cess profts ta es mposed
by that ct. Ths concuson was reached notwthstandng the fact that under
the aw of Te as such assocatons are partnershps, whch, under the Revenue
ct of 1918, are sub|ected to ncome and e cess profts ta es dfferent from
those Imposed upon corporatons. Mr. ustce randes, n hs opnon, sad:
It s cear that Congress ntended to sub|ect such |ont stock
assocatons to the ncome and e cess profts ta es as we as to the capta
stock ta . The defnton gven to the term corporaton n secton 1 appes
to the entre ct. The anguage of the secton presents no ambguty.
It s true that Congress can not convert nto a corporaton an
organzaton whch by the aw of ts State s deemed to be a partnershp. ut
nothng n the Consttuton precudes Congress from ta ng as a corporaton
an assocaton whch, athough unncorporated, transacts ts busness as f t
were ncorporated. The power of Congress so to ta assocatons s not
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224
affected by the fact that, under the aw of a partcuar State, the assocaton
can not hod tte to property, or that ts sharehoders are ndvduay abe
for the assocaton s debts, or that t s not recognzed as a ega entty.
Nether the concepton of unncorporated assocatons prevang under the oca
aw, nor the reaton under that aw of the assocaton to ts sharehoders, nor
ther reaton to each other and to outsders, s of ega sgnfcance as bearng
upon the power of Congress to determne how and at what rate the ncome
of the |ont enterprse sha be ta ed.
These cases woud seem to demonstrate that the Supreme Court has not
mted ts decson n eeht v. Macy to the e cse ta provsons of the ct,
but has ceary e tended the same to ncude the ncome and profts ta pro-
vsons of that ct.
It s my opnon that these decsons taken together are, on prncpe, de-
csve aganst the pantff s cam n ths case. Ths concuson s supported
by the provsons of Reguatons 45. artces 1501, 1502, 1504, promugated anu-
ary 28, 1921, by the Commssoner of Interna Revenue wth the approva of the
Secretary of the Treasury, reatng to the Revenue ct of 1918. The questons
of aw, therefore, rased by the defendants affdavts of defense, are found n
ther favor.
TITL II. INCOM T .
P RT I. G N R L PRO ISIONS.
S CTION 200. D INITIONS.
rtce 1523: Persona servce corporaton. II-35 3976
T. D. 4197
ncome and e cess profts ta es revenue acts of 1917 and 1918
decson of court.
Corporaton Persona Servce Cassfcaton Nomna Capta.
Where a arge part of a corporaton s ncome s derved (1) from
transactons n whch t acted as broker on a commsson bass but
wthout dscosng to the buyer the name of the seer, (2) from
the handng of goods on consgnment, advancng 80 per cent to 90
per cent of the vaue of consgnments whch t then sod on comms-
son, and (3) from |obbng transactons wheren t acqured for re-
sae the tte to other merchandse by means of ts capta, t s not
a corporaton descrbed n secton 209 of the Revenue ct of 1917
as one havng no nvested capta or not more than a nomna
capta and t s not entted to cassfcaton as a persona servce
corporaton under secton 200 of 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 Unted States Crcut Court of p-
peas, ghth Crcut, n the case of Dreyer C ovvmsson Co., a Cor-
poraton, -pantff n error, v. rnod . ettmch, Coector of Inter-
na Revenue, defendant n error, s pubshed for the nformaton of
nterna revenue offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved ugust 15, 1928.
enry errck ond,
ctng Secretary of the- Treasury.
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200, rt. 1523.
Unted States Cbcut Coubt of ppeas, ghth Crcut.
Dreyer Commsson Co., a Corporaton, pantff n error, v. rnod . emch,
Coector of Interna Revenue, defendant n error.
March 30, 1928.
Mungeb, Dstrct udge, devered the opnon of the court.
The queston presented n ths case s whether the pantff n error s entted
to recover from the defendant coector of nterna revenue an amount pad by
the pantff n error under protest under the Revenue cts of 1917 (40 Stats.,
300) and 1918 (40 Stats., 1057). The pantff was a corporaton engaged In
busness at St. Lous, Mo., and made a return for ts fsca year begnnng
March 1, 1917, and endng ebruary 28, 1918. The amount of the ta es assess-
abe for the 10 months of 1917 depends on the proper constructon of secton
209 of the ct of 1917, whch reads as foows:
Seo. 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, In addton to the ta es under e stng aw and under ths ct, In
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 part-
nershp or a ctzen or resdent of the Unted States 6,000 n the case of a
other trades or busness, no deducton.
The amount of the ta es assessabe for the two months of 1918 depends on
the proper constructon of portons of the Revenue ct of 1918, as foows:
Seo. 200. That when used n ths ttte
The term persona servce corporaton means a corporaton whose ncome
s to be ascrbed prmary to the actvtes of the prncpa owners or stock-
hoders who are themseves reguary engaged n the actve conduct of the
affars of the corporaton and n whch capta (whether nvested or borrowed)
s not a matera ncome producng factor
Seo. 205. (a) That f a ta payer makes return for a fsca year begnnng n
1917 and endng n 1918, hs ta under ths tte for the frst ta abe year sha
be the sum of: (1) the same proporton of a ta for the entre perod computed
under Tte I of the Revenue ct of 1916 as amended by the Revenue ct of
1917 and under Tte I of the Revenue ct of 1917, whch the porton of such
perod fang wthn the caendar year 1917 s of the entre perod, and (2) the
same proporton of a ta for the entre perod computed under ths tte at the
rates for the caendar year 1918 whch the porton of such perod fang wthn
the caendar year 1918 s of the entre perod: Provded, That n the case of a
persona servce corporaton the amount to be pad sha be ony that specfed
In cause (1).
Sew. 231. That the foowng organzatons sha be e empt from ta aton
under ths tte
(14) Persona servce corporatons.
Sec 304. (a) That the corporatons enumerated n secton 231 sha, to the
e tent that they are e empt from ncome ta under Tte II, be e empt from
ta aton under ths tte.
Seo. 335. (a) That f a corporaton (other than a persona servce cor-
poraton) makes return for a fsca year begnnng In 1917 and endng In
1918, the ta for the frst ta abe year under ths tte sha be the sum of:
(1) the same proporton of a ta for the entre perod computed under Tte II
of the Revenue ct of 1917 whch the porton of such perod fang wthn the
caendar year 1917 Is of the entre perod, and (2) the same proporton of a
ta for the entre perod computed under ths tte at the rates specfed n
subdvson (a) of secton 301 whch the porton of such perod fang wthn
the caendar year 1918 s of the entre perod.
The partes made a wrtten stpuaton wavng a |ury tra. The court made
fndngs and thereupon entered |udgment dsmssng the acton. The assgnment
of errors aeges error because the court found certan facts, because of certan
decaratons of aw, and n fang to render a |udgment for the pantff. These
assgnments present no revewabe queston e cept the queston whether the
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22G
|udgment s supported by the fndngs whch are made. (Tatum v. Davs, 283
ed., 948, 949 en v. Cartan effrey Co., 7 ed. (2d.), 21, 22 Denver Lve
Stock Commsson Co. v. Lee, 18 ed. (2d), 11, 14.)
rom these fndngs t appears that the pantff corporaton was engaged n
busness at St. Lous, Mo., durng the perod n queston, deang n grans, fonr,
bran, and reated commodtes. Its stockhoders were reguary engaged n the
actve conduct of ts affars. It had a pad-n nvested capta on March 1,
1917, of 35,007.69. Ths capta was ncreased n October, 1917, to 50,000,
and at the end of the fsca year t was 66,784.33. Some of ths capta was
nvested n securtes but the remander conssted of cash on depost n the
bank, and the bank baances vared durng the year from 10,000 to 30,000.
The corporaton s gross ncome for the year was a tte over 83,000 and ts
e penses somewhat e ceeded 46,0( ). The fndngs show the nature of the
pantff s busness, and dvde t nto three casses, as foows:
Cass . rokerage.
Ths cass embraced those transactons where the pantff dscosed the
names of the buyer and seer. It arranged saes by brngng the buyer and
seer together. The seer, upon shpment of the commodty, woud draw a
draft on the buyer and when the same was pad, or at the end of the month, the
beer woud pay the pantff ts commsson. The capta empoyed n ths
cass of busness was merey ncdenta.
Cass . rokerage.
Ths cass embraced those transactons where the pantff dd not dscose
the names of the buyer and seer. It woud ocate a buyer and then a seer,
or vce versa. The company woud then order the shpment n ts name from
the seer. The seer woud draw a draft on the pantff. When that draft
reached the pantff s bank a messenger woud dever same to pantff s offce.
efore the cose of bankng hours pantff woud gve the hank ts check n
payment of the seer s draft. Pantff woud then draw a draft on the buyer,
attachng b of adng thereto. Ths draft on the buyer ncuded pantff s
proft and when pad by the buyer ths proft was automatcay refected to
pantff s credt at ts bank. Ths cass of busness requred the use of pantffs
nvested capta and substanta capta was n fact so used.
Cass C. (1) Consgnment and (2) obbng.
(1) Consgnment Ths represented those transactons where a shpper
woud consgn commodtes to the pantff and draw a draft on t for 80 per
cent or 90 per cent of the vaue of the consgnment. The pantff woud pay the
draft. It then dsposed of the commodty to the best advantage, coected from
the buyer, and remtted the baance of the vaue of the consgnment, f any, to
the shpper, ess a f ed commsson.
(2) obbng. Ths represented transactons where the pantff purchased
the commodtes outrght and then sod and dstrbuted the same to oca buyers
n St. Lous. The dfference between the purchase prce to the pantff and the
seng prce to oca buyers was proft to the pantff. of the oca St. Lous
busness was done on a |obbng bass. Some |obbng busness was done wth
outsde deaers due to the reguatons of the ood dmnstraton after October,
1917. The oca demand for the commodtes handed by the pantff was so
great that t merey tred to effect equa dstrbuton of ts suppy.
Ths cass of busness requred the use of pantff s capta and substanta
capta was n fact so used.
The court found that the gross saes under cass amounted to 3,950,387.28,
under cass to 702,911.50, and under cass C to 358,213.79. The fndngs do
not show the amount of profts or ncome from any of these three casses, but
show that the commsson or brokerage receved by pantff from a cass
transacton was appro matey doube that receved from a cass transacton,
and that a |obbng transacton (cass C (2)) yeded greater profts than any
other transacton. fndng s made that after October, 1917, when reguatons
of the ood dmnstraton Department became effectve, the pantff s broker-
age on foodstuffs was restrcted to 25 cents a ton, whereas a proft of 1.25 per
ton was made on the same cass of commodtes handed on a |obbng bass.
fter makng these fndngs the court made specfc fndngs as foows:
13. That pantff s nvested capta payed a drect and necessary functon
n carryng on ts busness as t was n fact carred on durng sad fsca year,
and was more than nomna.
14. That pantff s capta was a matera ncome producng factor durng
sad fsca year.
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200, rt. 1523.
These specfc fndngs obvousy e cude the pantff from the e empted cass
descrbed n fecton 209 of the Revenue ct of 1917, as the cass of a trade or
busness havng no nvested capta, or not more than a nomna capta, and
aso e cude the pantff from the e empted cass of persona servce corpora-
tons under the Revenue ct of 1918, because by secton 200 of that ct the term
persona servce corporaton means a corporaton n whch capta (whether
nvested or borrowed) s not a matera ncome producng factor. These
fndngs are not ony not nconsstent wth the |udgment, but made t necessary.
These specfc fndngs are not nconsstent wth the fndngs whch have been
stated, .showng the methods of transactng busness and the amount of the
transactons and of the profts derved from the busness. The defendant n
error concedes that f substantay a of the ncome had arsen from the
brokerage transactons descrbed n the fndngs as cass brokerage, no ta
coud awfuy have been eved, because the use of nvested capta n such
transactons was neggbe.
The nature of the busness as conducted by the pantff, apart from the
transactons n cass , requred and used capta as a necessary part of ts
busness. The pan of busness as to cass 1 and cass C (2) transactons was
for the pantff n error to become the owner by the use of ts capta of
the commodtes, to acqure the ega tte, so that t mght f the sae prces to
yed such profts as t coud get.
The pantff n error contends that the cass transactons shoud be
regarded as of the same knd as cass , because purchasers were aways
ready to accept and to pay for the commodtes as soon as the pantff n
error receved them. rom ths fact t s argued that the use of capta was
temporary and ncdenta. It s a suffcent answer to ths contenton to say
that the fndngs do not show that any of the resaes were prompty made, as
contended by the pantff n error.
The pantff n error further contends that the capta was nomna n the
sense n whch the word s used n secton 209 of the Revenue ct of 1917,
because the tota saes made under cass method the use of ts capta was
amost four tmes the tota saes made by the use of ts capta n casses
and C, or a tota of saes of 3,950,337.28 as compared to a tota of 1,079,125.29.
Wthout consderng the effect of ths rato of saes f the rato of profts had
been the same, the fndngs do not dscose what, f any, gross or net profts
were made from any one of the severa casses of the busness. The fndngs
do not show what porton of the e penses are attrbutabe to any of the casses
of the busness. It may be that a of the ncome of the pantff n error was
reazed from the use of the capta, and that a oss was ncurred n the trans-
actons of cass . The burden was upon the pantff to prove what t had
aeged, that ts ncome was not propery attrbutabe to the use of ts capta.
tanta Casket Co. v. Rose, 22 ed. (2d), 800 T. D. 4139, C. . II-1, 286 .)
The use of capta may be merey ncdenta to the conduct of a trade or bus-
ness, as where t s used merey as a fund out of whch to advance saares,
rent, and other e penses of operaton (De Lask Thropp Crcuar Woven Tre
Co. v. Trefo, 268 ed., 377, 378 . Was rmstrong Co. v. McCaughn, 21
ed. (2d), 636, 637), but where an ncome s earned by a corporaton conductng
a trade or busness whch has a substanta capta, by the use of that capta
n purchasng commodtes for resae and whch are resod, n the customary
course of the trade or busness, and the use of the capta s a matera factor
n producng the ncome, the corporaton s not one havng merey a nomna
capta, as defned n secton 209 of the Revenue ct of 1917, nor s t a per-
sona servce corporaton as defned n secton 200 of the Revenue ct of 1918.
(I/ubbard-Ragsdae Co. v. Dean, 15 ed. (2d), 410, 411, 412 T. D. 3904, C. .
-2, 134 R. . Martn, Inc., v. dwards, 293 ed., 258. 260 T. I). 3334, C. .
1-1, 8 worth-Stcphcns Co. v. Lynch, 27S ed., 959. 968 Cotton ote Co. v.
ass, 7 ed. (2d), 900. 902 T. D. 3740, C. . I -2, 108 Unted States v. Pann,
23 ed. (2d). 714, 715.)
In the transactons mentoned as cass and n those of cass C (2) the
pantff n error purchased the commodtes by the use of ts capta. In cass
C (1) the pantff n error advanced 80 to 90 per cent of the vaue of the goods
shpped to t by the consgnors. None of these transactons coud have been
conducted wthout the use of arge sums of money ready avaabe to the
pantff n error. The fndngs do not show that these sums came from bor-
rowed money, or from any other source than capta. The transactons were
not soated nor e ceptona but consttuted a arge part of the reguar busness
of the pantff n error. s the fndngs do not show that any of the net ncome
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200, rt. 1523.
228
was derved from the cass transactons, there s no bass for the cam that
the ncome arose from the persona servce of the stockhoders n the corpora-
on and wthout capta as an ncome producng factor or for the cam that
the trade or busness had ony a nomna capta. The |udgment w be
affrmed.
ktce 1523: Persona servce corporaton. II-41-3927
( so Secton 250, rtce 1008.) T. D. 421(1
ncome ta revenue acts of 1918 and 1924 decson op court.
1. Persona Servce Corporaton Capta.
Capta s a matera ncome-producng factor In a corporaton
whose busness of buyng and seng fruts as broker s made
possbe by credt e tended to t and by the empoyment of ts cap-
ta stock as qud workng capta and t s, therefore, not entted
to cassfcaton as a persona servce corporaton under secton
200 of the evenue ct of 1918.
2. Dssovkd Corporaton Stockhodkr s Labty Sut udg-
ment.
It. s not necessary to obtan a |udgment aganst a dssoved cor-
poraton for unpad edera ta es as a condton precedent to a
sut n equty aganst stockhoders to enforce ther abty as
transferees where the rendton of such a |udgment woud be a
useess and de formaty.
3. Coecton Sut Lmtaton.
The amount of ncome ta mposed by the Revenue ct of 1918
assessed before the enactment of the Revenue ct of 1924 and
wthn fve years after the return was fed, the coecton of whch
was not barred at the tme of the enactment of the atter ct,
may be coected by a proceedng n court begun wthn s years
after the assessment as provded by secton 278(d) of the Revenue
ct of 3924.
4. Decsons oowed.
The decsons n IIubbard-Ran dac Co. v. Dean (15 ed. (2d),
410 (T. I). 3904 C. . -2, 134 )), . S. v. ara (16 ed. (2d),
328 (T. D. 4008 C. . I-1, 267 )), and . S. v. Russe et a. (22
ed. (2d), 249 (T. D. 4107 C. . I-2, 133 )) foowed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton D. C.
To Coectors of Interna Revenue and Otfers Concerned:
The foowng decson of the Dstrct Court n and for the South-
ern Dstrct of Caforna. Southern Dvson, n the case of Unted
States of merca, companant, v. Wam P. Pann et a., defend-
ants, s pubshed for the nformaton of nterna revenue offcers and
others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved September 25, 1928.
. W. Meon,
Secretary of the Treasury.
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200, rt. 1523.
Dstrct Codbt of the Unted States n and foe the Southern Dstrct of
Caforna, Southern Dvson.
Unted State of merca-, companant, v. Wam P. Pann, ane Doe Pann,
and een Donad, defendants.
December 14, 1927.
M MOR NDUM opnon.
In ths sut n equty a carefu revew of the record convnces me that the
aegatons of the b of compant as amended have been sustaned.
ngeus rokerage Co. can not be cassfed as a persona servce corporaton.
It acks at east one of the three essentas of a persona servce corporaton
under secton 200 of the Revenue ct of 1018 n that capta nvested and bor-
rowed was a matera ncome factor and aso because the ncome of the concern
s not to be ascrbed prmary to the prncpa owners or stockhoders. The
busness of the enterprse was made possbe by oans made to the corporaton
by banks and by empoyment of the capta stock of the corporaton whch the
evdence shows was utzed by the company In the conduct of Its busness.
The credt whch the company obtaned from banks t procured upon ts state-
ments as to the ownershp of rea and persona property whch t carred upon
ts books as assets of the corporaton. It was ceary estabshed that ngeus
rokerage Co. as a corporaton carred on the busness of buyng and seng
ctrus fruts and aso actng as broker n the purchase and sae of fruts In
ts own name. The nature of ts busness was entrey mercante or com-
merca. Its purchases and saes necessary nvoved the use of capta and
ts status s anaogous to the enterprse hed to be not a persona servce
corporaton n ubbard-Ragsduc Co. v. Dean, Coector (15 . (2d), 410).
The use of capta by ngeus rokerage Co. was not ncdenta but was mate-
ra and essenta.
Defendants contenton that pantff has an adequate remedy at aw heren
can not be sustaned. It was shown that because of ts faure to pay the
State cense ta ts status as a corporaton was suspended under Caforna
statutes, 1915, page 422. See . 8. v. ara (16 . (2d), 328), where t was
hed that -when t s proper to treat the dstrbuted assets of a dssoved cor-
poraton as a trust fund for credtors there s no need of obtanng |udgment
aganst the corporaton as a condton precedent to a sut n equty aganst the
drectors or stockhoders to whom there has been dstrbuted the property of
the corporaton. The record n ths cause shows that the defendants now own
property formery beongng to the corporaton whch was receved upon ds-
souton or suspenson thereof. Under these crcumstances resort to a |udg-
ment at aw woud be de and useess and equty w nterpose to prevent
useess crcuty. (See Murray v. Sot - asca t. Co., 9 C. C. ., 239 ed.,
818 Grossman v. venda Water Co., 150 Ca.. 575 Newha v. West Znc
Mnm) Co., 164 Ca., 380 randen v. Umpqua Lumber Co., 166 Ca.. 322.) Such
property n the hands of the stockhoders or drectors of the suspended or de-
funct corporaton Is a trust fund to whch credtors have the rght to resort
by a sut n equty.
In my opnon there s no mert n the cam of the defendants that ths
sut s barred by the statute of mtatons. The evdence shows that the return
for the fsca year endng ebruary 28, 1919, was. fed on uy 9, 1919, and the
return for the perod from March 1, 1919, to December 31. 1919, was fed
March 15, 1920, and that the assessment for the frst perod aforesad was
made on May 15, 1924, and for the atter perod on anuary 20, 1925. The
compant heren was fed March 14. 1925, and a of the requred acts appear
to have been performed we wthn the tme f ed by secton 277(a) and
subdvson (d) of secton 278 of the evenue ct of 1924, whch are the
statutes of mtaton appcabe to ths sut.
The ony queston concernng whch there s some uncertanty s the amount
of ta that s due and denquent for each of the two perods nvoved n ths
case. It woud appear from the etter of the Treasury Department, defend-
ants hbt heren, that there shoud be a deducton from the assess-
ments set out n the b of compant, and of course the decree heren shoud
provde for such reduced amount. Moreover, the record s not suffcenty
cear n showng the method of computaton of the ta due. It s not cear
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201, rt. 1542.
230
to me at ths tme as to whether the ta payer has been aowed and credted
wth the e emptons and deductons to whch he s awfuy entted under
the Revenue ct of 1918, and uness the partes can agree upon the amount
to be nserted n the decree heren t w be necessary to have a further hear-
ng so that a proper computaton of the ta es denquent and due can be
entered n the decree n tns sut.
Soctor for the pantff w prepare and present a decree n accordance
wth the vews e pressed n ths memorandum under the rues, and f unabe
to agree upon the computaton of ta es the matter may be set down for
further hearng so as to consder and determne such queston.
S CTION 201. DI ID NDS.
rtce 1542: Source of dstrbuton. II-41-3928
T. D. 4218
INCOM T R NU CT O 1916 D CISION O COURT.
1. Dvdends Profts Rates.
Where t affrmatvey appears that profts of a corporaton were
earned n 1917 pror to the date of a dvdend payment n that
year suffcent to pay the dvdend, such dvdend s deemed to
have been pad from such prots and s ta abe to the recpent
at the rates prescrbed for the year 1917 as provded by secton
31(b) of the Revenue ct of 1916.
2. Same.
Where t affrmatvey appears that profts of a corporaton
earned n 1917 pror to the date of a dvdend payment n that
year were suffcent to pay ony a part of the dvdend, ony such
part s deemed to have been pad from such profts and a recpent
s abe to ta at the rates prescrbed for the year 1917 ony to the
e tent of hs share of such part.
3. Decsons oowed.
The decsons n dward v. Dougas (2C9 U. S., 204 (T. D. 3797
C. . -, 1581)) and Mason v. Routzam (275 U. S., 175 (T. D.
4131 C. . II-1, 194 )) foowed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Court of Cams of the Unted
States n the case of bert arwe em s et a. v. The Unted
States s pubshed for the nformaton of nterna revenue offcers
and others concerned.
D. . ar,
C onvmssaver of Interna Revenue.
pproved September 25, 1928.
. W. Meon,
Secretary of the Treasury.
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( 201, rt. 1542.
Court of Cams of the Unted States.
bert artce ems, ce . Tayor, and Maude . Parsons v. The Unted
States.
anuary 16, 1928.
OPINION.
Graham, udge, devered the opnon of the court.
Ths s a sut for the recovery of ncome and e cess-profts ta es camed to
have been egay e acted. The defendant countercams for a sum n e cess
of the amount assessed and coected.
The prncpes appcabe to ths case have been passed upon n dwards v.
Dougas (269 U. S., 204) Mason v. Routzahn (decded by the Supreme Court
on November 21, 1927) and n the orst cases (C. Cs.), decded to-day by
ths court T. D. 4220, page 232, and T. D. 4221, page 236 .
The court sad n the Mason case:
The Government admts that no profts were earned n 1917 pror to the
payment of the dvdends here n queston, and that the 1917 rate dd not
appy for the reason that the most recenty accumuated net profts were
those earned n the year 1916, whch were more than suffcent to pay the
dvdend.
In that case t appeared that there had been no earnngs pror to the payment
of the dvdends. The crcut court of appeas hed that even though ths dd
appear, the ta , under the decson n the dwards case, shoud be prorated
aganst the year s earnngs for the perod pror to the payment of the dvdend.
The Supreme Court hed that ths was error, for the reason that where t
affrmatvey appeared that there had been no earnngs pror to the payment
of the dvdend the ta for 1917 was not appcabe, but t aso hed:
That where t dd not appear what the earnngs were for the antecedent
perod, the earnngs for the whoe year shoud be prorated to that perod and
the amount so shown was ta abe at the 1917 rate
That where the earnngs for the antecedent perod affrmatvey appeared,
the ta payer was ony abe at the 1917 rate to the e tent of the amount
of such proved earnngs.
The court further sad n the Mason case:
That the amount actuay avaabe for payment of dvdends out of the
current year s earnngs 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 1917 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 ts practce was, n substance, emboded n the
Revenue ct of 1918, ebruary 24, 1919 (ch. 18, sec. 201(e), 40 Stat., 1057,
1060). We concude that the crcut court of appeas paced an erroneoua
constructon on secton 31(b). (Secton added to Revenue ct of 1916 by
Revenue ct of 1917, ch. 63, Tte II, 40 Stat., 300, 338.)
The part of the ct of ebruary 24, 1918, above cted, s as foows:
ny dstrbuton made durng the frst 60 days of any ta abe year sha be
deemed to have been made from earnngs or profts accumutted durng preced-
ng ta abe years but any dstrbuton made durng the remander of the
ta abe year sha be deemed to have been made from earnngs or profts
accumuated betwreen the cose of the precedng ta abe year and the date of
dstrbuton, to the e tent of sue earnngs or profts, and f the books of the
corporaton do not show the amount of such earnngs or profts, the earnngs
or profts for the accountng perod wthn whch the dstrbuton was made
sha be deemed to have been accumuated rataby durng such perod.
udson M. Rems, then a ctzen of Mssour, on the 1st of pr, 1918, fed
a return of hs ncome nnd e cess profts for the year endng December 31,
1917. e kept hs books of account on a cash recepts and dsbursements bass
as dstnqushed from an accrua bass, and hs return was fed on that bass.
37229 29 16
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232
e ded on pr 1, 1921, Intestate. n admnstrator of hs estate was duy
apponted, who admnstered the estate, payng a debts and dstrbutng the
assets, and was dscharged on anuary 8, 1923. No other admnstrator has
snce been apponted. The pantffs are the hers at aw and ne t of kn of sad
ems.
In the year 1918 the Commssoner of Interna Revenue assessed upon sad
udson M. ems ncome and e cess-profts ta es for the year endng December
31, 1917, n the amount of 40,012.18, whch was pad by sad ems on une 12,
1918.
On or about ebruary 16, 1923, the pantffs fed wth the Commssoner a
cam for refund or credt of 13,681.04, or such greater amount us was egay
refundabe, wth nterest from une 12, 1918. whch cam was dsaowed on
or about uy 20. 1923.
Speakng generay, the matters n dspute concern certan dvdends whch
were pad to and receved by pantff durng 1917. The earnngs for 1917 of
the companes from whch the decedent receved these dvdends were suffcent
to pay the dvdends decared by them durng that year. Wth the e cepton
of the dvdend pad on ebruary 1, 1917, by the ems ro. ag Co., of whch
the decedent receved as hs share 29,060 ( ndng III), and the dvdend of
the ngus ute Co., Ltd., pad ebruary 15, 1917 ( ndng III), of whch
pantff receved 84,974.17, the corporaton payng the dvdend n ench case
had accumuated between anuary 1, 1917, and the date of payment of the
dvdend surpus and undvded profts suffcent to pay the dvdend. So that,
under the decsons and the aw as heretofore stated, these dvdends were
ta abe at the 1917 rate.
s to the dvdend of 29,060, the ems ro. ag Co., between anuary 1.
1917, and the date of ayment of the dvdend, had accumuated surpus and
undvded profts suffcent to pay to decedent, udson M. ems, 10,412.20 aa
hs share of the dvdend decared and a smar proporton to the other stock-
hoders of the company. Under the aw as stated, the decedent was sub|ect
to ta ony on 10,412.20. s he was ta ed by the Commssoner on the whoe
sum receved, pantffs are entted to a refund of the ta on 18,647.80, the
dfference between these two sums.
s to the dvdend of 84,974.17, the ngus ute Co., Ltd., between anuary
1, 1917, and the date of payment of the dvdend, ebruary 15, 1917. had
accumuated surpus and undvded profts suffcent to pay decedent 4,276.91
( ndng II). s decedent was sub|ect to ta ony on 4,276.91 and the
Commssoner ta ed hm at the 1917 rate on the whoe dvdend receved, the
pantffs are entted to a refund of the ta on the dfference between the two
sums, 80,697.26.
It s not for the court to cacuate the ta on these two sums, namey,
1S,647.80 and 80,697.28. to whch the pantffs are entted to a refund nor
has t been possbe to do so from the facts. n opportunty w be afforded
the partes to stpuate the amount of sad ta n accordance wth the fore-
gong concusons, and to submt an agreement coverng te amount of |udgment
to be entered n favor of the pantffs. or ths purpose further consderaton
of the case s deferred for thrty (30) days.
rtce 1542: Source of dstrbuton. II-41-3929
T. D. 4220
INCOM T R NU CTS O 1916 ND 1918 D CISION O COURT.
1. Dvdends Profts Rates.
Where the profts of a corporaton n 1917 pror to the date of
a dvdend payment n that year do not affrmatvey appear and
where the profts for the entre year prorated over the fractona
part of the year pror to the dvdend payment are suffcent to
pay ony a part of such dvdend, then ony such part s deemed to
have been pad from 1917 earnngs and s ta abe to the recpent
at the rates prescrbed for the year 1917 as provded by secton
31(b) of the Revenue ct of 1916.
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201, rt. 1542.
2. Same.
Where at the tme of the cash dstrbuton of profts n March,
1919, the undstrbuted profts of the corporaton accumuated snce
ebruary 28, 1913, are suffcent for ts payment, the dstrbuton
s deemed to have been made from such profts and s ta abe as a
dvdend to the recpent at the rates for that year.
3. Decsons oowed.
The decsons n dwards v. Dougas (269 U. S., 204 (T. D.
3797 C. . -, 198 )) and Mason v. Rottzahn (49 Sup. Ct.
Rep., 50 T. D. 4131, C. . II-1, 194 ) 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 George, D. orst v. The Unted States, s pubshed for
the nformaton of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved September 25, 1928.
. W. Meon,
Secretary of the Treasury.
Court op Cams or the Unted States.
George D. orst v. The Unted States.
anuary 16, 1928
OPINION.
Graham, udge, devered the opnon of the court.
The pantff made hs returns for Income ta es for the years 1917 and 1919,
and pad the same accordng to the ta abe amounts shown theren. The Com-
mssoner of Interna Revenue after a revew of the returns ncreased pantff s
assessment n certan nstances and demanded and receved from hm payment
of addtona ta es. The pantff camed that the addtona assessment was
ega, pad t under protest, and pettoned for a refund, whch was dened.
Thereupon he brought ths sut.
The questons n the case are whether the dvdends decared and receved
by the pantff n 1917 and 1919 were assessabe at rates for the years n whch
they were receved or at rates for other years, or whether they were assessabe
at a.
There s aso nvoved the queston whether the ta on ta -free covenant
bonds pad by the obgor at the source was ncome for whch pantff as hoder
of the bonds was abe.
The rate of ta aton for the year 1917 and subsequent years was hgher than
for the years whch preceded 1917. The purpose of the statutes for the year
1917 and foowng was to make war profts pay hgher war ta es. Thus, a ta
assessed under the statute controng the year 1916 woud be ess than the
ta for the year 1917.
s we vew ths case, a of the questons nvoved, e cept the one reatng
to ta -free covenant bonds, are rued by the case of dwards v. Done/as
(269 U. S., 204), decded November 23, 1925. mong other thngs t was hed
n that ease that the speca am of the ct of 1917 was to make war profts pay
hgh war ta es and to make a dvdend, n whatever year pad, bear the ta
rate of the year n whch the profts of whch t was a dstrbuton had been
earned, and for ths purpose to treat as a unt the profts of the whoe ta
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234
year. The dwards ease was revewed n the case of Mason . Routzahn,
decded by the Supreme Court November 21, 1927. In the atter case the crcut
court of appeas hed that f the net. profts of the whoe year prove suffcent
to meet a dvdends pad wthn t, these must be deemed to have been pad
from such profts, even f t affrmatvey appears that none had een earned
before the date when the atest dvdend was pad. Ths hodng was reversed
by the Supreme Court n the case |ust cted, the court sayng:
The Soctor Genera concedes that dwards 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 earnngs actuay accumuated durng
the fractona perod that the amount actuay avaabe for payment of dv-
dends out of the current year s earnngs 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 1917 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 ts practce was, n substance, emboded n the
Revenue ct of 1918, ebruary 24, 1919 (eh. 18, sec. 201(e), 40 Stat., 1057,
1060). We concude that the crcut court of appeas paced an erroneous
constructon on secton 31(b).
The dwards ease aso hed that n determnng the appcabe ta rate
the court woud nether accept any decaraton of the corporaton as to the
profts of what year were beng dstrbuted, nor adopt the earest year (snce
March, 1913) of whch there were accumuated profts avaabe for dstrbu-
ton. The appcabe provson of the statute s secton 31(b) of the Revenue
ct of 1917 (40 Stat., 300, 338), whch was .an addton to the ct of .1916,
and provdes as foows:
ny dstrbuton made to the sharehoders of a corporaton
n the year 1917, or subsequent ta years, sha be deemed to have
been made from the most recenty accumuated undvded profts or surpus,
and sha consttute a part of the annua ncome of the dstrbutee for the
year n whch receved, and sha be ta ed to the dstrbutee at the rates pre-
scrbed by aw for the years n whch such profts or surpus were accumu-
ated by the corporaton, but nothng heren sha e construed
as ta ng any earnngs or profts accrued pror to March 1, 1913, .
Construng ths ct n the dwards case, the court hed that the anguage
most recenty accumuated undvded profts appes to current earnngs,
and that the dvdends must be deemed to have been pad from the net profts
that appear to have been earned pror to the date of the payment of the dv-
dend, or f not so appearng, a pro rata part of such earnngs on a per dem
bass for the number of days precedng the payment of the dvdend, and are
sub|ect to the ncome ta rates of that year, athough when the dstrbuton
was made there were other funds adequate for the purpose carred n the
surpus account of the corporaton as made up to the end of the precedng fsca
year. It aso defnes the term surpus as empoyed n corporate fnance
and accountng as an account on the books representng the net assets of
the corporaton n e cess of a abtes, ncudng capta stock, and states
that the word surpus as used n the above-quoted provson of the ct
means that part of the surpus whch was derved from profts whch at the
cose of earer annua accountng perods were carred nto the surpus account
as undstrbuted profts.
It does not seem necessary to revew the facts n deta. They are fuy set
out n the fndngs. Suffce t to say that from one corporaton, the . Rchard
Meng Co., pantff receved a dvdend of 84,000, decared on anuary 8,
1917. and pad to and receved by hm n seven equa Instaments on ebruary
12, March 2. March 19, March 31. May 4, May 16, and une 18, 1917. Ths
dvdend was for 700 per cent and was ordered by the corporaton to be pad
out of the net earnngs shown for the year 1916, and the pantff contends
that t was actuay pad out of the net earnngs accumuated by sad corpo-
raton n 1916. The pantff n makng hs ta return accounted for ths
dvdend at the rate of ta aton appcabe to the year 1916. The Treasury-
Department decded that he was ta abe on ths dvdend at the rate f ed
for the year 1917. Pantff fed a cam for refund n connecton wth the
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201, rt. 1542.
assessment on ths dvdend, that of the Node orst Co., about to be ds-
cussed, and on ta -free covenant bonds, whch on une 17, 1924, was refused.
The Commssoner of Interna Revenue determned that 19,116.43 of sad
dvdend of 84,000, on a pro rata per dem bass, was earned by the sad
corporaton n the year 1917 and ta abe at the 1917 rate and the baance at
the 1916 rate. The facts as found show that the ncome of the corporaton for
the year 1917 was 277,818.82. and that t pad out In dvdends 350,000, of
whch pantff receved 84,000. Of ths atter sum, by proratng, 30,872.24
was earned pror to the tme the dvdend was pad, and, under the decson
n the case of Mason v. Routzahn, supra, shoud be aocated to the year 1917
and ta ed accordng to the rate of that year. s ony 19,116.43 was ta ed
at that rate, pantff was not overassessed and s not entted to a refund.
In the case of the 1917 dvdend from the Node orst Co., the Comms-
soner of Interna Revenue assessed the pantff on 71,066.94 of the 200,000
dvdends receved by pantff n 1917, at the 1917 rate, and assessed hm on
the baance at the 1916 rate. s found by the court ( ndng I ). the earn-
ngs of the Node orst Co. for 1917 were 1,133,450.90, and t dstrbuted In
dvdends durng that year, ncudng the dvdends to the pantff, 500,000
so that the earnngs for 1917 were more than suffcent to pay the dvdends,
and under the above rung n the case of Mason v. Routzahn, the pro rata part
of the pantffs dvdends earned pror to the payment of the same amounted
to 127,012.68, whch was sub|ect to assesSment on the bass of the 1917 rate,
and as ony 71,066.94 was ta ed at that rate by the Commssoner, pantff
was not overassessed and s entted as to ths tem to no refund.
The pantff n makng hs return returned under paragraph G, Interest
on ta -free covenant bonds (on whch one norma ta of 2 per cent was wth-
hed at source), the sum of 37,793.11. Ths was ncuded n hs return as
part of the amount sub|ect to the norma ta of 2 per cent, and under tem 31
of hs return, Less ta wthhed on ta -free covenant bonds (2 per cent of
net tota of tem G), 755.86 was deducted from hs ta . The Commssoner of
Interna Revenue hed that the amount pad by the corporaton obgor for the
bondhoder pursuant to a ta -free-covenant cause contaned n the bond
was n the nature of addtona ncome to the bondhoder and dsaowed the
ast-named sum. The pantff s here askng for a refund of the ta on sad
sum of 755.86.
We are of opnon that ths ta pad by the obgor corporaton was not
gan or proft from sources named n the statute and was not receved
by the ta payer. ( sner v. Macomber, 252 U. S., 189, 207 T. D. 3010, C. .
3, 25 .) It s not property and the hoder of the bond coud not recover t n
an acton at aw aganst the obgor. Nor s t payabe to the hoder. See
Duffy v. Ptney (2 ed. (2d ser.), 230), where the queston s very fuy and
satsfactory dscussed.
s to ths tem, the pantff s entted to a refund of the ta eved on the
sad sum of 755.86.
We come now to the second branch of ths case, whch nvoves assessments
n connecton wth the pantff s ncome for the year 1919. It may be stated
that the rates of ta aton under the Revenue cts of 1918 and 1919 are the
same. Ths branch of the case nvoves two separate dvdends receved by the
pantff durng 1919 from the Node orst Co. and from the Readng rew-
ng Co., corporatons.
Takng up the Node orst Co. dvdend frst, the facts are, brefy, as fo-
ows : On ebruary 21, 1919, the Node orst Co. decared a stock dvdend
( ndng III) of 900 per cent on ts capta stock of 250,000 and ssued
thereon addtona stock n the sum of 2,250,000, whch was dstrbuted pro
rata among the stockhoders on that date. The pantff receved 9,000 shares
thereof, beng hs pro rata share of the dstrbuton. avng thus ncreased ts
capta to the sum of 2,500,000, the sad company on ebruary 28, 1919, de-
cared and ordered pad as of March 6, 1919, on whch date t was pad, a dv-
dend of 20 per cent, or 500,000, on ts new capta of 2,500,000 ( ndng
I ). Pantff receved on March 6, 1919, 200,000 n cash as hs part of the
dvdend.
It s unnecessary to go nto a dscusson of the pantff s cams further
than to state that the drectors of the company n decarng the 20 per cent
cash dvdend decared t to be payabe from surpus or undvded profts
accumuated durng certan years pror to March 1, 1913, and as earnngs
pror to that date were, under the ct, nonta abe, camed ths dvdend was
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236
ta free. The drectors aso decared the above stock dvdend of 900 per cent to
be payabe out of the earnngs from March 1, 1013, to the date of decaraton,
ebruary 21, 1919. The dwards case has hed that the drectors of a corpora-
ton can not reguate out Of what earnngs a ta sha bo pad. The fndngs
show ( ndng III) that on ebruary 21, 1919, after the payment of the
stock dvdend, there was an avaabe surpus of 502,845.27, ncudng the
estmated profts for anuary and ebruary, 1919. doptng the prncpe
of the dwards case and treatng ths as a dstrbuton deemed to have been
made from the most recenty accumuated undvded profts or surpus, as
the statute provdes, the dstrbuton made beng taken to have been made
when the dvdend was pad, March 6, 1919 (Mason- v. Routzahn, supra), there
appears to have been enough surpus for the year 1919 and the years mmed-
atey precedng t out of whch sad dvdend of 500,000 must be taken to
have been pad, and consequenty the rates of ta aton for 1918 and 1919 are
appcabe. The pantff was assessed on ths bass by the Commssoner. It
thus appears that as to ths dvdend the pantff was propery assessed and s
not entted to a refund.
We sha now consder the Readng rewng Co. dvdend. Durng 1919
pantff receved from that company a cash dvdend of 90,000. The recrd
s qute unsatsfactory as to ths dvdend. The defendant cosed ts case
wthout ntroducng any evdence on any of the tems here nvoved, and the
fndngs requested are nadequate.
The pantffs contenton seems to be that the 90,000 receved by hm as
hs share of the dvdend n ths case shoud have been aocated appro matey
as foows: 55 per cent as pad out of dvdends accumuated by the corpora-
ton subsequent to the 1st of March, 1913, and 45 per cent to earnngs accumu-
ated pror to that date, and that the atter under the statute s e empt from
ta aton. e cams that more than 55 per cent was aocated to the earnngs
accumuated after March 1. 1913, under the assessment of the Commssoner
of Interna Revenue and sub|ected to ta aton, and to the e tent that ths
assessment e ceeded 55 per cent he s entted to a refund. There s no proof
of what amount was aocated to the earnngs of each of these perods by the
Commssoner, and we stop here and concude that the pantff havng faed
to show any ega act by the Commssoner s not entted to recover. s the
bass for the Commssoner s cacuaton has not been proved, hs acton n
evyng the addtona assessment as far as t affected ths dvdend must be
sustaned, and as to t we hod the pantff s not entted to a refund. It
may be we brefy to sum up our concusons.
s to the reassessment on pantff s return for 1919 he s not entted to
a refund as to the reassessment on hs return for 1917 he s ony entted
to a refund on the ta eved upon 755.86 ( ndng ), the amount pad
by the obgor corporaton and wthhed at the source from the nterest due
the pantff on ta -free covenant bonds owned by hm, whch the Commssoner
hed was n the nature of addtona ncome. s t does not appear what
amount was assessed on ths sum and pad by the pantff, t s not possbe
to render a |udgment for any sum.
The petton shoud be dsmssed, and t s so ordered.
Moss, udge, and ooth, udge, concur.
Campbe. Chef ustce, dssentng.
rtce 1542: Source of dstrbuton. II-41-3P30
T. D. 4221
INCOM T R NU CT O 1918 D CISION O COURT.
1. Dvdends DsT trrON Profts Ta abty.
Where a corporaton on March 1, 1913, had on hand undstrbuted
earnngs of 1,100,000 and where between March 1, 1913, and
March 1. 1919, t accumuated further undstrbuted earnngs of
1,652,845.27, and where on ebruary 21. 1919, It dstrbuted a
2,250,000 stock dvdend, a cash dvdend of 500,000 pad on
March 6, 1919. s ta abe to the recpents at the rates prescrbed
for that year even though decared by the drectors to be payabe
out of the earnngs accumuated pror to March 1, 1913.
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201, rt. 1542.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, . C.
To Coectors of Interna Revenue and Oters Concerned:
The foowng decson of the Court of Cams of the Unted States
n the case of nna Louse Node v. The Unted States s pubshed
for the nformaton of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved September 25, 1928.
. W. Meon,
Secretary of the Treasury.
Court of Cams of the Unted States.
nna |ouse Node v. The Unted States.
November 7. 1927.
OPINION.
Pantff s return of her ncome for the year 1919 showed a net ncome of
15,646.39, and a ta was pad on the bass of ths return amountng to 641.47.
On and pror to ebruary 21, 1919, the pantff was a hoder of stock n the
Node orst Co. On that date the board of drectors of sad company
decared a stock dvdend of 900 per cent, to be dstrbuted pro rata among the
stockhoders, the tota vaue of the shares so dstrbuted beng 2,250.000. The
pantff receved 4.950 shares, of the par vaue of 100 each, as her pro rata
share of ths dstrbuton.
On ebruary 28, 1919, seven days after the decaraton of the stock dvdend,
the board of drectors of sad company decared a dvdend of 20 per cent on
the outstandng capta stock as ncreased, amountng to 500,000, payabe n
cash on March 6, 1919, to the stockhoders of record on that date. Ths cash
dvdend was pad on March 6, 1919, and the pantff receved as a dvdend
upon her hodngs of stock of sad corporaton the sum of 110,000. The
resouton of the board decarng ths dvdend stated that t was payabe out
of the surpus representng undstrbuted profts of the years pror to March 1,
1913.
On March 1, 1913, sad company had on hand undstrbuted earnngs or
profts amountng to 1,100,000. Its earnngs for the years 1913, 1914, and
1915 were currenty dstrbuted. or the subsequent years the undstrbuted
earnngs were as foows:
Undstrbuted earnngs or profts of 1916 100,000.00
Undstrbuted earnngs or profts of 1917 643, 489. 97
Undstrbuted earnngs or profts of 1918 659,355.30
Undstrbuted earnngs or profts of anuary and ebruary, 1919__ 250, 000. 00
ccumuated undstrbuted earnngs or profts on March 3,
1919, earned after March 1, 1913 1,652.845.27
The Commssoner of Interna Revenue on anuary 22, 1923, notfed the
pantff of an addtona assessment of ncome ta for 1919, amountng to
37,339.53, based upon the recept by pantff of the cash dvdend decared
and pad by the Node orst Co. on March 6, 1919. The pantff appeaed
to the Commttee on ppeas and Revew, whch sustaned the acton of the
Commssoner, and thereupon pantff fed a cam for refund, and ths beng
dened sut was brought n ths court March 2, 1926.
In makng the addtona assessment the Commssoner hed that the 900
per cent stock dvdend was not a dstrbuton of undvded earnngs or profts
and that there remaned undstrbuted a suffcent amount of earnngs or profts
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238
accumuated subsequent to ebruary 28, 1913, to pay n fu the cash dvdend
dstrbuted March 6, 1919.
The soe queston presented, therefore, s whether the Commssoner, under
the facts of ths case, acted egay n assessng a ta upon the bass of the
cash dvdend receved. The appcabe statutes are secton 31 (a) and (b)
of the Revenue ct of 1917 (40 Stat, 300, 338) and secton 201 (a) to (e), ncu-
sve, of the Revenue ct of 1918 (40 Stat.. 1057, 1059).
Pror to the decson on March 8, 1920, n the case of sner v. Macomber
(252 U. S.. 189 T. D. 3010, C. . 3, 25 ), the Commssoner had hed that
stock dvdends were ta abe as ncome.
s stated, the company had on hand on March 1, 1913, earnngs or profts
accumuated pror to ebruary 28, 1913, amountng to 1,100,000, and earnngs or
profts on hand March 3, 1919, accumuated after March 1, 1913, amounted
to 1,652,845.27, makng a tota of 2,752,845.27 of accumuated and undstrbuted
earnngs or profts pror to the decaraton of the dvdends. s the dvdends
taken together amounted to 2,750,000, t w be seen that there were enough
earnngs and profts n the treasury of the company to cover both dvdends.
The court n the sner case hed that a stock dvdend s not ncome that a
stock dvdend s merey a change n the form of the hodng of the stockhoder,
evdenced by certan certfcates, due to the acton of the corporaton n takng a
porton of ts earnngs and profts, n whch the stockhoder, of course, had an
nterest, and convertng t nto capta, and that t was not such a dstrbuton of
profts wthn the meanng of the statute as to consttute t ta abe ncome. The
case aso dstngushed between the corporaton as a separate entty and the stock-
hoder, and hed that the stockhoder n recevng the stock dvdend took noth-
ng out of the company s assets for hs own use and beneft, whe hs nvestment
wth any addtons remaned the property of the corporaton sub|ect to busness
rsks, the payment of ts debts, etc. It made no change n the ownershp of the
assets of the corporaton. The decaraton of he cash dvdend segregated
certan of the company s profts as property of the stockhoder. It was pad to
the stockhoder and was therefore ncome to hm, and under the ct of 1918 cash
dvdends from profts accumuated after ebruary 28, 1913, were ta abe as
ncome.
s rected above, the drectors frst decared the stock dvdend to be pad
out of the earnngs and profts accumuated snce ebruary 28, 1913, and a week
ater decared the ea h dvdend payabe out of earnngs and profts accumuated
pror to ebruary 28, 1913. It was decded n the case of cards v. Dougas
(209 U. S., 204 T. . 3797. C. . -, 158 ), that the drectors coud not contro
by ther acton what year s earnngs the dvdends were to be pad from that
the statute reguated ths, and provded that the ta shoud be pad from the
avaabe profts or earnngs of the most recent year or years, and that ths
ntenton was to be gathered from the phrase most recenty accumuated n
connecton wth the words undvded profts or surpus.
It w be seen from the facts stated that there were ampe undstrbuted
earnngs and profts at the tme the cash dvdend was decared, from the years
foowng ebruary 28, 1913, out of whch the cash dvdend coud have been
pad. The dvdend amounted to 500,000, and the earnngs and profts accumu-
ated from the date mentoned to the tme of the decaraton of the dvdend
amounted to 1,652,845.27.
The petton shoud be dsmssed, and t s so ordered.
rtce 1545: Dstrbutons n qudaton. II-41-3931
T. D.4217
INCOM T R NU CT O 1918 D CISION O SUPR M COURT.
DsTRmmoN Lqudatng Dvdend Norma Ta .
The amount by whch the vaue of assets dstrbuted to a stock-
hoder n the qudaton of a corporaton e ceeds the cost of hs
stock or f acqured pror to March 1, 1913, the cost or ts vaue on
that date, whchever s hgher, s sub|ect to both the norma ta
and surta under secton 201(c) of the Revenue ct of 1918.
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201, rt. 1545.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Oters Conco ned
The foowng decson of the Supreme Court of the Unted States
n the cases of rnod . emch, Coector of Interna Revenue,
etc., pettoner, v. Isadore N. eUman and rnod . emch, Co-
ector of Interna Revenue, etc., pettoner, v. Mton C. eUman s
pubshed for the nformaton of nterna revenue offcers and others
concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved September 25, 1928.
. W. Meon,
Secretary of t e Treasury.
Supreme Court op the Unted States.
209. rnod, . emch, Coector of Interna Revenue, etc., pettoner, v. Isa-
dore N. cman.
300. rnod . emch, Coector of Interna Revenue, etc., pettoner, v. Mton
C. eUman.
On wrts of certorar to the Unted States Crcut Court of ppeas for the ghth Crcut
ebruary 20, 1928.
OPINION.
Mr. ustce Sanford devered the opnon of the court.
The two emans brought these suts aganst the coector to recover add-
tona ncome ta es assessed aganst them tor the year 1919, under Tte II
of the Revenue ct of 1918, and pad under protest. They recovered |udg-
ments n the dstrct court, whch were affrmed by the crcut court of appeas.
(18 . (2d), 239 and 244.)
The queston here s whether the gans reazed by stockhoders from the
amounts dstrbuted n the qudaton of the assets of a dssoved corpora-
ton, out of ts earnngs or profts accumuated snce ebruary 28, 1913, were
ta abe to them as other gans or profts, or whether the amounts so ds-
trbuted were dvdends e empt from the norma ta .
Secton 201(a) of the ct defned the term dvdend as any dstrbuton
made by a corporaton to ts sharehoders , whether n
cash or n other property , out of ts earnngs or profts accumuated
snce ebruary 28, 1913, . Secton 201(c) provded that: mounts
dstrbuted n the qudaton of a corporaton sha be treated as payments n
e change for stock or shares, and any gan or proft reazed thereby sha be
ta ed to the dstrbutee as other gans or profts. Secton 216(a) provded
that for the purpose of determnng the norma ta upon the net ncome
of an ndvdua (secton 210), there shoud be aowed as a credt the amount
receved as dvdends from a corporaton whch s ta abe upon ts
net ncome.
Treasury Reguatons 45, whch were promugated under the ct, stated, on
the one hand, n artce 1541, that for the purpose of the statute dvdends
comprse dstrbutons made by a corporaton to ts stockhoders n the ord-
nary course of busness, even though e traordnary n amount and. on the
other hand, n artce 1548, that: So-caed qudaton or dssouton dv-
dends are not dvdends wthn the meanng of the statute, and amounts so
dstrbuted, whether or not ncudng any surpus earned snce ebruary 28,
1913, are to be regarded as payments for the stock of the dssoved corporaton.
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240
ny e cess so receved over the cost of hs stock to the stockhoder, or over Its
far market vaue as of March 1, 1913, f acqured pror thereto, s a ta abe
proft. dstrbuton n qudaton of the assets and busness of a corporaton,
whch s a return to the stockhoder of the vaue of hs stock upon a surrender
of hs nterest n the corporaton, s dstngushabe from a dvdend pad by a
gong corporaton out of current earnngs or accumuated surpus when decared
by the drectors n ther dscreton, whch s n the nature of a recurrent return
upon the stock. These reguatons, wth a change made n 1921 as to the
second sentence of artce 1548, are st n effect so far as dstrbutons In
qudaton under the ct are concerned.
ach of the emans owned one-haf of the capta stock of a corporaton
whch had a net surpus of 40,466.27, of whch at east 31,545.58 conssted of
earnngs and profts accumuated snce ebruary 28, 1913. In 1919. the cor-
poraton was dssoved and qudated and ts assets were dstrbuted to the
stockhoders. In ths qudaton each of the emans reazed a gan of
15,004.55 n the dstrbuton made out of the earnngs and profts accumuated
snce ebruary 28, 1913. ach n hs ncome ta return camed that ths was
a dvdend whch under secton 216(a) was to be credted on hs net ncome
for the purpose of the norma ta . The Commssones of Interna Revenue,
rung these were gans sub|ect to the norma ta , dsaowed the cams and
made the addtona assessments here nvoved.
The decson of the crcut court of appeas n ths case s n drect confct
wth that of the Crcut Court of ppeas for the S th Crcut n Langstaff v.
Lucas (C. C. .) (13 . (2d), 1022 T. D. 3793, C. . -, 164 .)
The controng queston s whether the amounts dstrbuted to the stock-
hoders out of the earnngs and profts accumuated by the corporaton snce
ebruary 28, 1913, were to be treated under secton 201(a) as dvdends.
whch were e empt from the norma ta or, under secton 201(c) as payments
made by the corporaton n e change for ts stock, whch were ta abe as
other gans or profts.
It s true that f secton 201(a) stood aone ts broad defnton of the term
dvdend woud apparenty ncude dstrbutons made to stockhoders n the
qudaton of a corporaton athough ths term, as generay understood and
used, refers to the recurrent return upon stock pad to stockhoders by a gong
corporaton n the ordnary course of busness, whch does not reduce ther
stock hodngs and eaves them n a poston to en|oy future returns upon the
same stock. (See Lynch v. ornby, 247 U. S., 339, 344-346 and Langstaff v.
Lucas (D. C), . (2d), 691, 694.)
owever, when secton 201(a) and secton 201(c) are read together, under
the ong-estabshed rue that the Intenton of the awmaker s to be deduced
from a vew of every matera part of the statute ( ohsaat v. Murphy, 96 T . S..
153. 159), we thnk t cear that the genera defnton of a dvdend n secton
201(a) was not ntended to appy to dstrbutons made to stockhoders n the
qudaton of a corporaton, but that t was ntended that such dstrbutons
shoud be governed by secton 201(c), whch, deang .specfcay wth such
qudaton, provded that the amounts dstrbuted shoud be treated as pay-
ments n e change for stock and that any gan reazed thereby shoud be
ta ed to the stockhoders as other gans or profts. Ths brngs the two
sectons nto entre harmony, and gves to each ts natura meanng and due
effect. The Treasury reguatons correcty nterpreted the ct as makng
secton 201(a) appcabe to a dstrbuton made by a gong corporaton to ts
stockhoders n the ordnary course of busness, and secton 201(c) appcabe
to a dstrbuton made to stockhoders n qudaton of the corporaton. nd
ths s n accord wth the rungs of the oard of Ta ppeas. ( ppea of
Greenwood, 1 . T. ., 291, 295 appea of Chander, 3 . T. ., 146. 149.)
The gans reazed by the stockhoders from the dstrbuton of the assets
n qudaton were sub|ect to the norma ta n ke manner as f they had
sod ther stock to thrd persons. The ob|ecton that ths resuts n doube
ta aton of the accumuated earnngs and profts s no more avaabe n the
one case than t woud have been n the other. (See Merchants L. f T. Co. v.
mtetanka, 255 U. S., 509 T. D. 3173, C. . 4, 34 Goodrch v. dwards, 255
U. S., 527 T. D. 3174, C. . 4, 40 .) When, as here. Congress has ceary
e pressed ts ntenton, the statute must be sustaned even though doube ta a-
ton resuts. (See Patton v. rady, 184 U. S., 608 Cream of Wheat Co. v.
Grand orks, 253 U. S., 325, 330.)
The decree Is reversed.
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241
202, rt. 1566.
S CTION 202. SIS OR D T RMINING
G IN OR LOSS.
rtce 1561: ass for determnng gan or oss
from sae.
R NU CT O 1918.
Leased property orgnay acqured for resdenta purposes. (See
T.D. 4212, page 272.)
mce 1566: change of property whch II-37-3893
resuts n no gan or oss. G. C. M. 4196
( so Secton 233, rtce 541.)
R NU CT O 1921.
The transfer n 1921 by the e ecutor of the estate of of certan
nstament accounts recevabe and other assets to the M Com-
pany n e change for the entre capta stock of the corporaton
comes wthn the provsons of secton 202(c)3, and the estate
reazed no ta abe ncome from the transacton.
The M Company was entted to ncude the nstament accounts
recevabe n ts assets at ther far market vaue as at the date of
acquston, and ony the e cess, f any, over that vaue, subse-
quenty receved, consttuted ta abe ncome.
n opnon s requested upon the foowng questons:
Whether the transfer of nstament accounts recevabe and other
property to the M Company by the estate of , deceased, n e -
change for the entre capta stock of the corporaton, comes wthn
the provsons of secton 202(c)3 of the Revenue ct of 1921.
Whether the M Company reazed a gan from the recept of pay-
ments on the nstament accounts recevabe acqured from the
estate, and, f so, what s the bass to be used for the determnaton
of such gans.
, pror to hs death on ebruary 1, 1921, was engaged n the
busness of seng on the nstament pan. s ncome for
1919 and 1920 was determned upon the nstament bass. The un-
reazed profts on the nstament saes uncoected as at the date of
hs death amounted to 3a doars. s capta account as at that
tme showed a credt baance of 10a doars. The books were cosed
as at ebruary 1, 1921. The amount of the unreazed profts was
set up n the baance sheet as at that date as a part of the capta
account of the decedent. The e ecutor caused a corporaton to be
organzed on pr , 1921, under the name of the M Company,
wth an authorzed capta stock of the par vaue of 13a doars,
whch s appro matey the same amount as the capta account of
the decedent pus the unreazed profts referred to. The e ecutor
thereupon transferred to the corporaton the nstament accounts
recevabe and other assets as of ebruary 1, 1921, n e change for
the entre capta stock of the corporaton. The corporaton fed a
return coverng the perod ebruary 1, 1921, to December 31, 1921,
and ncuded theren the ncome reazed from the busness for that
perod. In audtng the return of the estate for the perod ebruary
1, 1921, to December 31, 1921, the Unt treated the unreazed profts
as ncome to the estate, thereby resutng n a defcency n ta , whch
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204, rt. 1601.
242
has been pad. The case s now before the ureau on a cam for
refund.
The nstament accounts recevabe and other property that passed
to the e ecutor upon the death of the decedent became the capta
or corpus of the estate. Under the reguatons appcabe to the
year 1921 (artce 343, Reguatons 62), the bass for computng gan
upon the sae of the assets of the estate was the vaue at the death
of the decedent. See secton 702(a), Revenue ct of 1928.
s above ndcated, the estate transferred the accounts n queston,
together wth ts other assets, to the M Company, recevng therefor
a of the atter s capta stock. Whether or not the estate reazed
ta abe ncome from ths transfer depends upon the appcabe pro-
vsons of secton 202 of the Revenue ct of 1921, whch reads n
part as foows:
(c) or the purposes of ths tte, on an e change of property, rea, persona
or m ed, for any other such property, no gan or oss sha be recognzed uness
the property receved n e change has a ready reazabe market vaue but
even f the property receved n e change has a ready reazabe market vaue,
no gan or oss sha be recognzed
(3) When ( ) a person transfers any property, rea, persona or m ed, to a
corporaton, and mmedatey after the transfer s n contro of such corpo-
raton, .
It s cear from the foregong that nasmuch as the estate trans-
ferred property to the corporaton n e change for stock, and mme-
datey after the transfer was n contro of the corporaton, the
transacton comes wthn the provsons of secton 202(c)3 above
quoted. It foows that the estate reazed no ta abe ncome from
the transacton.
In consderng whether the M Company reazed a gan from the
recept of payments on the nstament accounts recevabe acqured
from the estate, t s the opnon of ths offce that the corporaton
was entted to ncude the nstament accounts recevabe n ts assets
at ther far market vaue as at the date of acquston, and that ony
the e cess, f any, over that vaue, subsequenty receved, consttuted
ta abe ncome.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 204. N T LOSS S.
rtce 1G01: Net osses, defnton and com- II-42-3949
putaton. G. C. M. 4794
R NU CT O 1921.
Where a corporaton purchases suffcent stock n n compettve
corporaton to secure contro of such corporaton and drects the
poces of such corporaton n cooperaton wth ts own busness,
the transacton s one entered nto n furtherance of the ta -
payer s busness, and a oss sustaned by such stock becomng
worthess s a net oss ncurred n the operaton of the ta payer s
busness wthn the meanng of secton 204 of the Revenue ct of
1921.
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243
( 204, rt. 1601.
The ta payer s a corporaton wth ts prncpa offce at ,
and has been engaged snce 190- n the manufacture of a certan
artce. In 1917 ta payer, at a cost of 9a doars, acqured a ma-
|orty of shares of the common stock of the O Company, whch was
engaged n the same ne of busness.
The baance sheet of the O Company, as of December 31, 1921,
showed a defct of 8a doars. Its outstandng capta stock on
that date conssted of 3a doars par vaue of preferred stock and
12a doars par vaue of common stock. On anuary , 1922, the
stockhoders of the O Company authorzed the sae of the corpora-
ton s assets n an endeavor to qudate the company.
On anuary , 1922, the stockhoders of the O Company author-
zed the sae of the corporaton s assets n consderaton of an agree-
ment by the purchaser to assume the O Company s abtes and
redeem the preferred stock. Ths transacton was mmedatey car-
red out. The atter corporaton was dssoved on May , 1922.
The common stockhoders, ncudng the ta payer, receved nothng
for the stock n the O Company whch they hed.
The ta payer n ts ncome ta return for the year 1922 showed
a oss of 4a doars as the resut of ts manufacturng operatons,
pus a oss of 9a doars (the cost of ts O Company stock) as the
resut of qudaton of the O Company, the tota oss camed beng
13a doars.
The queston s rased as to whether the ta payer may cam as a
statutory net oss, under secton 204 of the Revenue ct of 1921, 13a
doars, or whether the oss shoud be reduced by 9a doars on the
ground that that much of the oss was not sustaned n the operaton
of the busness but was sustaned on account of a oss resutng from
worthess securtes, whch n ths case was the stock of the O
Company.
It appears that the 9a -doar oss was sustaned n 1922 wthn the
ntendment of secton 234(a)4 of the Revenue ct of 1921 and artce
144 of Reguatons 62. The amount s not n dspute. The ssue s
whether the oss sustaned by the worthessness of the Company
stock resuted from the operaton of any trade or busness regu-
ary carred on by the ta payer (ncudng osses sustaned from
the sae or other dsposton of capta assets, used n the
conduct of such trade or busness). If t dd so resut, then the oss
was a net oss wthn the contempaton of secton 204(a) of the
Revenue ct of 1921.
Ths was not smpy a case of nvestment by one corporaton n the
stock of another corporaton, as where a corporaton nvests some of
ts surpus funds n the stock of another corporaton for the sake of
the return or n the e pectaton of enhancement n the market vaue
of the stock. When, as n the nstant case, a corporaton purchases
stock n a compettve corporaton n the same ne of busness, pur-
chases enough stock to secure contro, and drects the poces of the
second corporaton n cooperaton wth ts own busness, t must be
concuded that the purchasng corporaton acqures the stock n con-
necton wth the operaton of ts own busness. ad ta payer n
the nstant case bought the entre pant of the second corporaton,
used t n ts busness, and sustaned a oss, there woud have been
no queston as to the statutory net oss. It dd the same thng
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204, rt. 1604.
244
ndrecty n the nstant case, by purchasng contro of the second
company, and ths contro, evdenced by the stock ownershp, was
mado use of n the operaton of the ta payer s busness.
The nstant case s somewhat anaogous to that of appea of obbc
Co., Inc. (4 . T. ., 663, C. . I-1, 3), where oss on stock pur-
chased, not for nvestment, but to further the busness ends of the
ta payer, was hed by the oard to come wthn the defnton of
net oss. See aso Soctor s Recommendaton 1509 (C. . III-2,
44), where t was stated that a net oss resutng from the oper-
aton of a busness s nothng more or ess than a net oss suffered
whe operatng a busness.
In 1922 the ta payer sustaned a oss through the faure and
dssouton of the second company. Such a oss s a deductbe oss
under the provsons of secton 234(a)4 of de Revenue ct of 1921.
ccordngy, snce the oss resuted from the operaton of the bus-
ness reguary carred on by ta payer, t s such a oss as to come
wthn the defnton of net oss contaned n secton 204(a) of
the 1921 ct.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 1604: Net osses, for what perods aowed. II-36-3S85
T. D. 42O0
INCOM T R NU CT O 1018 D CISION O COURT.
Deductons Net Loss Ta abe Yeab ractona Tart of a
Year ountary Change n ccountng Perod.
Where a ta payer wth the approva of the Commssoner voun-
tary changes hs accountng perod, the separate return for a frac-
tona part, of a yeur thereby requred under secton 220 of the
Revenue ct of 1918 s for a ta abe year wthn the meanng of
secton 204(b) of that ct, and a net oss as defned n secton
204(a) whch s sustaned for such fractona part of a year comng
wthn the perod specfed n secton 204(b) may bo deducted from
the net ncome of the ta payer for the precedng ta abe year as
provded theren.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interva Revenue and Oters Concerned:
The foowng decson of the Dstrct Court of the Unted States,
Western Dstrct of Penns|dvana, n the case of Pennsyvana Choco-
ate Co., a Corporaton., pantff, v. G. G. Leweh|n, Coector of
Interna, Revenue, defendant, s pubshed for the nformaton of
nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved ugust 21, 1928.
Car T. Schuneman,
ctng Secretary of te Treasury.
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204, rt. 1604.
Dstrct Court op the Unted States for the Western Dstrct of
Pennsyvana.
Pennsyvana Chocoate Co., a Corporaton, pantff, v. C. G-. LeweUyn, ormery
Coector of Interna Revenue for the Twenty-thrd, Dstrct of Pennsyvana,
defendant. /
une 20. 1928.
opnon.
Thompson, .: Ths acton s brought to recover the sum of 71,910.75, wth
nterest, beng ncome and e cess profts ta es pad under protest by the pan-
t for the fsca year endng anuary 31, 1919. cam for refund havng
been refused, ths acton was brought to recover the amount so pad.
The ssue arses on an affdavt of defense rasng questons of aw, the facts
of the case beng n no way dsputed. The pantff, a Pennsyvana corpora-
ton, pror to the aw n queston, had unformy fed ts ncome and e cess
profts ta returns on the fsca-year bass endng anuary 31, the ast return
beng fed on that bass beng on or about March 15, 1919, for the fsca year
endng anuary 31, 1919. That return showed a net ncome of 167,884.17, and
an ncome and e cess profts ta of 75,132.06, whch ta es were pad to- he
defendant on or about March 15, 1 )19. On une 30, 1919, the pantff requested
permsson of the Commssoner of Interna Revenue to change ts ta abe
perod from a fsca to a caendar year bass, and n October, 1919, the Com-
mssoner granted pantffs request.
Pursuant to the permsson so granted, pantff fed ts ncome and e cess
profts ta return on or about March 15, 1920, for the perod begnnng ebruary
1, 1019, and endng December 31, 1919, whch return showed a net oss of
172,090.24, and no ta due.
t that tme pantff had no k| owedge of the provsons of secton 204(b)
of the Revenue ct cf 1918, but n October, 1920, the pantff became nformed
of the provsons of sad ct, and on December 31, 1920, dd fe an amended
ncome and e cess profts ta return for the fsca year begnnng ebruary
1, 1918, and endng anuary 31, 1919, n whch return pantff deducted from
ts net ncome for sad fsca year ts sad net oss of 172.090.21, sustaned
durng the perod from ebruary 1, 1919, to December 31, 1919.
On December 3. 1920, pantff fed ts cam for refund of the sum of
78,705.58, beng the corrected amount of ncome and e cess profts ta es pad
by the pantff for the fsca year endng anuary 31, 1919. In the cam for
refund, pantff stated that t was entted to deduct the sad oss of 172,-
090.24 sustaned durng the perod from ebruary 1, 1919, to December 31,
1919. from ts net ncome for the fsca year endng nmary 31, 1919. the
resut of whch woud be that no ta whatever woud be due for the fsca
year endng on the atter date.
The Commssoner aowed sad cam for refund n the sum of 3,215.31 on
a read|ustment of severa sma tems of pantffs net ncome and nvested
capta, but dened pantff the rght to set off the oss sustaned n 1919
aganst the net ncome for the fsca year endng anuary 31. 1919.
The foowng questons of aw were rased by the defendant n hs affdavt
of defense:
1. Pantff s ncome and profts ta return for the perod begnnng eb-
ruary 1. 1919. and endng December 31, 1919, showng a net oss of 172.-
090.24, dd not consttute a return for a ta abe year as defned n secton 200
of the Revenue ct of 1918.
2. That n determnng the correct ncome and profts ta abty for the
fsca year begnnng ebruary 1, 1918. and endng anuary 31, 1919, secton
204(b) of the Revenue ct of 1918 authorzes no deducton from the net
ncome of the pantff for sad perod of a net oss for the 11-month perod
commencng ebruary 1, 1919, as averred n pantffs statement of cam.
snge queston of aw s thus rased nvovng the proper nterpretaton
of the reevant sectons of the ct of Congress. The queston Is, Is a return
for the perod of 11 months on a vountary change from a fsca to a caen-
dar year bass, whch was approved by the Commssoner, a return for a
ta abe year wthn the meanng of secton 204(b) of the Revenue ct of 1918
Secton 204(b) of the Revenue ct of 1918 s as foows:
(b) If for any ta abe year begnnng after October 31, 1918, and endng
pror to anuary 1, 1920, t appears upon the producton of evdence sats-
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204, rt. 1604.
24G
factory to the Commssoner that any ta payer has sustaned a net oss, the
amount of such net oss sha under reguatons prescrbed by the Comms-
soner wth the approva of the Secretary be deducted from the net ncome
of the ta payer for the precedng ta abe year and the ta es mposed by ths
tte and by Tte III for such precedng ta abe year sha be redetermned
accordngy. ny anount found to be due to the ta payer upon the bass
of such redetermnaton sha be credted or refunded to the ta payer n
accordance wth the provsons of secton 252. If such net oss s n e cess
of the net ncome for such precedng ta abe year, the amount of such e cess
sha nner reguatons proscrbed by the Commssoner wth the approva of
the Secretary be aowed as a deducton n computng the net ncome for the
succeedng ta abe year.
Under secton 200 of that ct the term ta abe year s defned as the ca-
endar year, or the fsca year endng durng such caendar year, upon the bass
of whch the net ncome s computed. The term fsca year means an account-
ng perod of 12 months endng on the ast day of any month other than Decem-
ber. The frst ta abe year, to be caed the ta abe year 1918, sha be the
caendar year 1918, or any fscn year endng durng the caendar year 1918.
It s provded n secton 212(b) that If a ta payer changes hs accountng
perod from fsca year to caendar year, from caendar year to fsca year, or
from one fsca year to another, the net ncome sha, wth the approva of the
Commssoner, be computed on the bass of such new accountng perod, sub|ect
to the provsons of secton 226.
Secton 226 provdes for a separate return where the bass of computng net
ncome has been changed from a fsca to a caendar year, from a caendar to
a fsca year, and from one fsca year to another, the net ncome n each case
beng computed on the bass of such perod for whch the separate return s
made, the ta beng pad thereon at the rate for the caendar year n whch
such perod s ncuded the credts provded n subdvson (c) and (d) of
secton 216 beng reduced respectvey to amounts whch bear the same rato to
the fu credts provded n such subdvson as the number of mouths n such
perod bears to 12 months.
It s the contenton of the defendant that nasmuch as the oss sustaned by
the pantff occurred n a perod of ony 11 months, the return for that perod
does not consttute a ta abe year wthn the meanng of the ct. and hence
that the oss can not be aowed aganst the ncome for the precedng ta abe
year.
It s the poston of the pantff that the term ta abe year s not restrcted
to a perod of 12 months. That nasmuch as the ct authorzes a ta payer to
change from a fsca year to a caendar year bass wth the approva of the
Commssoner, the ntervenng perod, whch woud be ess than a 12-month
perod, woud consttute a ta abe year. That Congress, by nsertng secton
266 n the ct, gave the ta payer the rght to brng tsef wthn the provsons
of secton 204(b), and that there Is no ntent upon the part of ths ta payer to
evade a |ust ta . The fact beng admtted that the pantff was not cognzant
of the provsons of secton 204(b) when t requested permsson to make the
change from a fsca to a caendar year, there was no ntent to evade a |ust ta .
The oard of Ta ppeas has, on numerous appeas, hed that the term
ta abe year, as used n secton 204(b), ncudes a perod of ess than 12
months where there was a net oss durng the frst perod, whch was ess than
12 months, after ncorporaton of the company for whch an ncome and e cess
profts ta return was fed. See appea of Carro Chan Co. (1 . T. ., 38),
appea of Lynch Constructon Co. (3 . T. ., 313), appea of Durabt Stee
Locker Co. (5 . T. ., 239). and other cases. That oard has aso hed where
a net oss was sustaned durng a fu 12-month perod, the oss be apped
aganst the precedng perod of ess than 12 months, when that perod was the
frst for whch a return was fed after ncorporaton.
The oard of Ta ppeas has aso hed that the term ta abe year
ncudes a perod of ess than 12 months where a corporaton dssoves wthn
the year and fes a return for the number of months n ts ta abe year pror
to dssouton. ( ppea of runer Wooen Co., 6 . T. ., 881 Purty Oats Co.,
4 . T. .. 585.)
Notwthstandng these severa rungs and the prncpes apparenty Invoved
theren as to the true meanng of the term ta abe year, the oard of Ta
ppeas has hed that such term dd not ncude a perod of ess than 12 months
f the ta payer vouutary changed ts accountng perod, even though approved
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206, rt. 1651.
by the Commssoner. ( ppea of Taeoma Grocery Co., 1 . T. ., 1062 Leand
Stave Co. v. Commssoner, 6 . T. ., 882, and other cases.)
The oard seeks to draw a dstncton between a ta payer who comes nto,
or goes out of. e stence durng a ta abe year and one who vountary changes
hs accountng perod, thereby beng requred to make a return for a part of a
|ear whch does not ncude a of the ncome receved durng the precedng 12
months. The opnon seems to be chefy based on the case of ankers Trust
Co. v. owers (295 ed., 89). I fnd mysef unabe to agree wth ths reasonng
or concuson. The dstncton s by no means cear between a case where the
ta payer s not n e stence for the fu fsca or caendar year and a case where,
by a vountary change of the accountng perod, the return s made for ony
a fractona part of the fu year of ts e stence.
It woud appear that n those cases where a ta payer adopts a fsca year
after ncorporaton, he fes a return for a perod of ess than 12 mouths, the
act of the ta payer s not ess vountary than a case where t eected to change
ts accountng perod from a fsca to a caendar year. There was no restrc-
ton on the act of the ta payer. It dd not even need the approva of the
Commssoner. It coud vountary eect for what perod t woud fe ts re-
turn. If t eected to fe a return for a perod of ess than 12 months, t was
a return for the ta abe year wthn the meanng of secton 204(b). Its act
was vountary, and n each case the ta payer had no other method of fng a
return for a ta abe perod. In each case, of necessty, t must fe a return
tor a perod of ess than 12 months, whe n the case at bar the approva of
the Commssoner s necessary.
It woud ap ear that n those cases where the ta payer adopts a fsca year
after ncorporaton, and fes a return for a perod of ess than 12 months, the
act of the ta payer s as truy vountary as where t eects to change ts account-
ng perod from a fsca to a caendar year. avng due regard to the varous
statutes n whch the term s used by Congress, I thnk the words ta abe
year, when fary nterpreted, mean ta abe perod, whether for 12 months or
ess. ny doubt or ambguty regardng the meanng of ta abe year has
) een removed n secton 200 of the Revenue cts of 1924 and 1926. y an
e press provson these cts contan net oss or reef provson somewhat sm-
ar to those contaned n secton 204(b) of the ct of 1918.
The return of ths ta payer for the perod from ebruary 1, 1919, to December
31, 1919, was requred both by ct and reguatons. It woud appear reason-
aby cear that that became the tme unt for the perods of the ta , and thus
the ta abe year. If there s doubt on the sub|ect t shoud be construed n
favor of the ta payer. The cts of 1924 and 1926 do not e pan or restrct
the appcaton of the cts of 1918 and 1921, but seem rather to e pan a pro-
vson n the former, the constructon of whch was doubtfu.
It s my concuson, therefore, that the term ta abe year ncudes a perod
of ess than 12 months when a ta payer vountary, but sub|ect to and wth
the approva of the Commssoner, changes ts accountng perod from a fsca to
a caendar year bass, and that the ta payer s, therefore, entted to appy the
net oss sustaned durng that perod aganst the net ncome for the fsca year
endng anuary 31, 1919. The case of Unted States v. Carro Chan Co. (8
ed. (2d), 529), n the Dstrct Court for the Southern Dstrct of Oho, s n
harmony wth the concuson heren reached.
s the facts are not n dspute and the questons of aw are hed n favor of
the pantff, the pantff s entted to |udgment for the amount set forth n
the statement of cam, together wth nterest and costs. n order to that
effect w be sgned when presented.
S CTION 206. C PIT L G IN.
rtce 1651: Defnton and ustraton of capta
net gan.
R NU CT O 1921.
Royaty payments from eases of o and gas ands n Te as. (See
G. C. M. 4299, page 116.)
37229 29 17
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248
rtce 1653: Partnershps, estates, and trusts. II-29-3810
I. T. 2424
R NU CT OP 1921.
Offce Decson 2391 (C. . I-2, 175) s revoked, n vew of
Treasury Decson 4177 (page 134) and I. T. 1638 (C. . II-, 37)
and I. T. 1719 (C. . II-2, 45), whch were modfed by L T. 2391, are
restored to fu force and effect, the prncpe that, n the determna-
ton of the perod for whch property has been hed by a decedent s
estate for capta gan purposes, the perod durng whch the prop-
erty was hed by the decedent sha not be ncuded beng hereby
affrmed.
P RT II. INDI IDU LS.
S CTION 212. N T INCOM O INDI IDU LS
D IN D.
rtce 23: ases of computaton. II-41-3932
T.D.4215
ncome ta revenue act of 1916 decson of court.
1. Deductons ccrua, ass Munton Manufacturer s Ta .
corporaton that enters on ts books as cash tems accounts
payabe and accounts recevabe and uses nventores n the deter-
mnaton of Income keeps ts books of account on an accrua bass,
and where t makes ts returns for the years 1916 and 1917 sub-
stantay on the same bass the munton manufacturer s ta pad
n 1917 on profts earned n 1916 s a deducton from gross ncome
for the year 1916 under sectons 12(a) and 13(d) of the Revenue
ct of 1916.
2. Decson oowed.
The decson n Unted States v. nderson (269 U. S., 422 (T. I .
3839 C. . -, 179 )) 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 Dstrct Court of the Unted States
for the Northern Dstrct of Oho, astern Dvson, n the case
of The umnum. Castngs Co., pantff, v. Car . Routzahn,
Indvduay and as Coector of Interna Revenue, s pubshed for
the nformaton of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved September 25, 1928.
. W. Meon,
Secretary of the Treasury.
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212, rt. 23.
dstrct court of the unted states fob the northern dstrct of oho,
astern Dvson.
The umnum Castngs Co., pantff, v. Car . Routzahn. Indvduay and
as Coector of Interna Revenue, defendant.
November 30, 1927.
OPINION.
Westenhaver, Dstrct udge: Ths acton s to recover back ta es pad
under protest. |ursdctona condtons precedent are admtted. ury
tra as been waved n wrtng. The controversy nvoves the year n whch
shoud be deducted certan ta es on muntons manufactured by pantff.
The answer turns on the proper constructon of sectous 12(a) and 13(d),
Interna Revenue ct of 1916. Ths ct was passed and became effectve
Septem er 6, 191G. Durng the remander of that year, pantff manufac-
tured and sod muntons from whch t derved certan profts, the ta on
whch, at the prescrbed rate, aggregated 240,275.03. It pad these ta es n
uy, 1917, and ncuded the same as a deducton from ts ncome return for
the year 1917 nstead of 1916. The Commssoner of Interna Revenue ater,
upon audtng these returns, hed that the ta shoud have been deducted
from the ncome for the year 1916. The resut of ths trausfer, together wth
certan correctons and credts for refunds, was an addtona payment of
146,304.46, amountng wth nterest to 166,910.90, for whch ths acton Is
brought
The case s submtted party on an agreed statement of facts and party
on ora and documentary testmony. The dspute between the partes s
as to whether pantff s accounts durng 1916 were kept upon an accrua bass,
and whether pantff made ts return dsbursements. The facts on whch
ths ssue turns are not reay n dspute. The dfference between counse
turns rather upon an apprecaton of we-estabshed facts or nferences
propery deductbe therefrom.
In my opnon, ths case s n prncpe controed by Unted States v. nder-
son (269 U. S., 422). The dstncton between that case and the present case s
based upon sght dfferences n the facts, whch are not controng. One of
t-he ma|or ponts then n dspute was whether secton 12(a), despte secton
13(d), requred munton ta es to be deducted from the year n whch they
were pad. It was strongy urged that the fourth paragraph of secton 12(a)
dd so requre, and that the provsons of secton 13(d), authorzng Income
returns to be made upon the bass on whch books were kept, . e., an accrua
bass, dd not requre the same to be deducted for the year durng whch the
ncome sub|ect thereto was beng earned. It was hed that f the return was
made on an accrua bass, as s permtted by secton 13(d), and not on the
bass of actua recepts and dsbursements, the deducton shoud be made for
te year n whch the ncome was earned, and not n whch t was pad. Ths
ma|or queston of doubt beng thus put at rest, nothng now Is eft for deter-
mnaton e cept whether pantff s books of account for the year 1916 were
kept on an accrua bass and ts ncome return made on that bass.
My concuson, brefy stated, s that pantffs books were so kept and ts
Income return was so made, and that ts munton ta on profts earned n 1916
was propery deductbe from ts ncome for that year, even though not pad unt
n 1917. The books are kept on an accrua bass whenever entres are made of
credts and debts as the abty arses, whether then receved or dsbursed.
In so keepng books, many entres w appear on the bass of actua recepts
and dsbursements. In a busness of any compe ty, books must be so kept n
order to dscose correcty the actua state of busness. In order to keep books
on the bass of actua recepts and dsbursements, credts yet to become due or
obgatons yet to be pad woud have to be gnored. Lkewse, n takng and
enterng nventory, work fnshed but not sod, or work n process, suppes
requred but not yet used, coud not be ncuded on a bass showng added vaues
not yet receved. Pantffs books were so kept.
The abstracts of counse s argument, and the opnon of Mr. ustce Stone, n
the nderson case, set forth fuy the hstory of the aw as t bears on ths
controversy, and deas fuy wth a consderatons necessary to be consdered.
It woud serve so usefu purpose to go over the same ground. It w be sum-
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250
eent to state pantff s present contentons as I understand them. Pantff
admts that ts books were kept on a m ed bass, . e., party of actua recepts
and dsbursements and party of accrued earnngs and e penses. It contends,
however, that ts ncome return was made on the bass of actua recepts and
dsbursements, as s provded n secton 12(a) that secton 13(d) confers
merey an opton on the ta payer to make ths return otherwse than on the
bass of actua recepts and dsbursements that he e ercsed ths opton to make
ts return on ths bass, correctng, for that purpose, such entres n ts books
as were n the nature of accruas and that, havng so e ercsed ths opton, t
was not wthn the power of the Commssoner of Interna Revenue to audt
ard correct ts returns so as to conform the same to a return made on an
accrua bass, as contempated by secton 13(d), even though ts books of account
uncorrected mght have permtted a return on that bass. In support of these
contentons are urged varous consderatons, of whch ony the most weghty
need be notced. rst, pantff, n ts ncome return, decares that t s made
on the bass of actua recepts and dsbursements. Obvousy, tre ta payer s
decaraton that hs ncome return s beng made n a certan way s not
controng. Ths decaraton must be tested by the actua facts. If these
dscose that, n substance arrd effect, the return as we as the books s on
another bass, the decaraton must be dsregarded. bass of keepng books
or of makng a return can not be made other than what t actuay s by the ta -
payer s decaraton.
Secondy, t s urged that pantff s ncome return was comped and made
n conformty to the practce and rungs prevang under pror revenue aws,
when returns coud not be made otherwse than on the bass of actua recepts
and dsbursements. Secton 12(a) s substantay the same as the correspondng
secton of the Revenue ct of 1913. Secton 13(d) s a quafcaton of sec-
ton 12(a), appearng for the frst tme n the Revenue ct of 1916. Pror
thereto the aw dd not authorze a return otherwse than on the bass of ac tua
recepts and dsbursements. s w appear from the abstracts of arguments
and the opnon n the nderson case, the aw was not susceptbe of tera
admnstraton upon ths bass. Consequenty the ta ng authortes had per-
mtted the makng of returns accordng to what s caed a mongre system. In
other words, notwthstandng the aw, the ta payer was requred to ncude
accounts and bs recevabe and enhancement of nventory by work In progress
or competed and not sod as earnngs, and was permtted to deduct therefrom
bs payabe and reserves and accruas estabshed to take care of abtes n
process of accrua but the amount of whch was not yet determned. s books
of account n a busnesses of any magntude or compe ty were usuay kept
on an accrua bass, the aw probaby coud not have been admnstered n any
other way. Under that aw, returns thus made were regarded as made on the
bass of actua recepts and dsbursements. Pantff, n makng ts ncome
return for 1916, adopted and foowed that system. The argument s that snce
what was dorre and accepted pror to the Revenue ct of 1916 as a return on the
bass of actua recepts and dsbursements, and snce secton 12(a) s the same
as the correspondng secton of the pror aw, ts present return, made n the
same form under the ct of 1916, must kewse be regarded as made on the
bass of actua recepts and dsbursements.
The argument s rot wthout weght, but t was strongy urged n the
nderson case and was re|ected. In substance, t s there hed that secton
13(d) s a quafcaton of secton 12(a), and not ony authorzed the ncome
return to be made n conformty to the ta payer s method of keepng hs
accounts, provded they refected ceary the net ncome, but, ndeed, requred
the return to be so made f the ta payer was unabe to make a return e cept
on that bass, and aso that when he eected so to keep hs books and so
to make hs return, he was bound by that eecton and must appy t consst-
enty to a the tems enterng nto the return. Of the purpose of ths secton,
t was sad: It was to enabe ta payers to keep ther books and make ther
returns accordng to scentfc accountng prncpes, by chargng aganst ncome
earned durng the ta abe perod the e penses ncurred n and propery
attrbutabe to the process of earnng ncome durng that perod and. ndeed,
to requre the ta return to be made on that bass, f the ta payer faed or
was unabe to make the return on a strct recepts and dsbursements bass.
Such s pantff s stuaton.
Pantff entered on ts books accounts and bs recevabe whenever a
credt arose n ts favor, regardess of the tme when t mght be receved.
It ncuded n ts nventory the ncreased vaue due to e pendtures made In
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212, rt. 23.
connecton therewth. or nstance, ths nventory shows fnshed costngs,
not sod, n the sum of 343,792.12 work n progress, n the sum of 77,742.10
suppes and matera on hand n arge amounts. s I understand the stua-
ton, a entres on the asset sde of pantffs baance sheet are made strcty
on an accrua bass, and ths apped equay to ts ncome return. Lkewse
on the abty sde are entered accounts payabe, ncudng unpad abor
and accrued ta es. Reserves are set up for commssons, ega e penses,
unad|usted cams, abty and other nsurance, and ta es, aggregatng 313,-
475.39. Incuded n ths aggregate s an tem of 108,006.55 for edera Income
ta . It s testfed that no reserve was set up for the muntons ta , but t
appears that pantff at that tme questoned whether ts product was of
such nature as to be sub|ect to that ta .
Pantffs ncome return conforms to ts books as thus kept, wth certan
mted e ceptons. It dd not deduct n ts return the fu reserve of 108,-
006.55 set up for edera ncome ta , but ony the amount of ta es actuay
pad durng the year 1916. It dd not deduct a of the other amounts set
up as reserves. It may even be conceded that the other reserves were ds-
regarded, e cept so far as actuay used or necessary to dscharge abtes
actuay pad durng 1916, or the amount of whch was defntey ascertaned.
The fact remans, however, that pantff s books were kept and pantffs
return was made substantay upon an accrua bass. It s probabe that
pantff coud not have made an ncome return on a strct bass of actua
ecepts and dsbursements. Secton 13(d), as was sad In the nderson case,
was enacted to meet ths stuaton. Its effect s to compe a departure from
the practce foowed pror to 1916, whenever the ta payer keeps hs books
or attempts to make hs return otherwse than on a strct bass of recepts and
dsbursements, or when he s not abe to make It n that way. n eecton
resuts from what Is done, notwthstandng the ta payer may dscam any such
ntenton.
s I understand the facts of the nderson case, they were not substantay
dfferent from the facts of ths case. The dfference most strongy stressed
s that In the nderson case, n reserve, begnnng wth September, 1916, was
n fact set up to take care of the muntons ta . ut n the nderson case that
reserve was cosed out by entry made December 31, 1916. dstncton can
not be based upon an entry thus made and ater corrected and a mere faure
to make any entry at a. The controng facts of the two cases are the
same.
It resuts from these vews that |udgment, wth costs, shoud be entered
for the defendant. ndngs of fact were requested and w be made.
udgment w be wthhed so as to permt the fndngs to be setted In con-
formty to Dstrct Court Rue 34. proper e ceptons w be aowed.
rtce 23: ases of computaton. II-43-3962
T. D. 42 29
INCOM T R NU CT O 1018 D CISION O COURT.
Deducton Loss edgng Contracts When Deductbe.
Where a deaer whose books are kept on the bass of cash recepts
and dsbursements contracts to se gran for devery n December,
1920, or any month thereafter at the opton of the buyer and aganst
ths sae enters nto a hedgng contract for the purchase of gran
for devery n December, 1920, the two contracts are separate trans-
actons and a oss resutng from the cosng out of the hedgng
contract n 1920 s deductbe n that year and not n the year 1921
when gran was devered under the seng contract pursuant to
the buyer s eecton.
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,
Northern Dstrct of Inos, astern Dvson, n the case of dward
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252
7 . acon. Gran Co. v. Mabe G. Ren-ecke, Coector of Interna Reve-
7vue, s pubshed for the nformaton of nterna revenue offcers and
others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved October 10,192a
. W. Meon,
Secretary of te Treasury,
Dstrct Court of the Unted States, Northern Dstrct of Inos,
astern Dvson.
tvard R. acon Gran- Co.. a Corporaton, pantff, v. Mabe O. Renecke,
Coector of Interna Revenue for te rst Dstrct of Inos, defendan.
May 26, 1928.
OPINION.
Water C. Lndet, Dstrct udge: Pantff seeks to recover addtona
ncome ta assessed and pad for te year 1921 n the sum of 27,722.39. The
proper steps premnary to such a sut have been taken. The soe queston,
nvoved s whether a deducton of 80,272.37 shoud be subtracted from the
ncome for the year 1921, as contended by pantff, or from that for the year
1920, as contended by the defense.
Pan ff s a cash gran deaer n the cty of Chcago. In ugust, 1020, t
had sod for future devery 390.000 bushes of cash oats for devery n
December, 1920, or any such month thereafter as the buyers mght eect, and
at the end of the year 320.000 bushes were as yet undevered. On ugust 30
pantff purchased on the Chcago oard of Trade 330,000 bushes of oats to
be devered n December. Ths was what was known as a December future,
and was ntended as a hedge aganst pantffs sae of cash oats for
December, or ater devery. Under the rues of the board of trade t was
necessary to cose out ths purchase of December oats pror to the end of that
month. ccordngy, on November 22, fearng that there woud be a further
oss on ths future contract, pantff cosed out ts hedge at a oss of
. 80,272.37. The buyers of the cash gran e ercsed ther opton to receve
ther oats n the year 1921. The oss of 80,272.37 was charged upon pantff s
books as an advance upon the cash oats not then devered, and carred
as such unt the devery of the oats n 1921, whereupon t was deducted
from the proft of the cash oats transacton. Pantff contends that the
sae of cash oats and the hedge were to a ntents and purposes one
ndvsbe transacton and that therefore t was proper not to deduct the oss
u n the future contract n returnng ts ncome for the year 1920, but to carry
the same over as one of ts costs of ts cash oats devered n 1921. Defend-
ant contends that the transactons were separate, and that the oss upon the
hedgng contract actuay occurred n the year 1920 and f deducted n
makng an ncome ta return shoud have been deducted n that year and not
n the succeedng year.
Income ta es are, under secton 200 of the Revenue cts of 1918 and 1921,
computed upon ether a caendar-year or a fsca-year bass. Secton 212 pro-
vdes that the ncome sha be computed upon the bass of the ta payer s actua
accountng perod, fsca or caendar as te case may be. Secton 234 provdes
that there sha be aowed as deductons from the gross ncome a of the ord-
nary or necessary e penses pad or ncurred (urng the ta abe year. nother
secton provdes for the deducton of osses sustaned durng that year. Under
secton 200, paragraph 4, the terms pad or ncurred and pad or accrued
are to be construed accordng to the method of accountng. That of the pan-
tff was a cash bass, and under the statute t was bound to take as deductons
a of the ordnary and necessary e penses pad durng the ta abe year, or a
osses sustaned durng the ta abe year, f at a. durng that year. It s
apparent from these provsons that the ncome ta s computed upon the actua
recepts durng a certan year, ess the deductons actuay pad durng foat
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253
t 213(a), rt. 31.
year, and that the net ncome upon whch the ta s to be computed s the
actua net cash ncome for the partcuar 12 months of the ta abe year. Noth-
ng appears n the statute changng the rue that where accounts are kept upon
a cash bass recepts may not be accounted for n any year other than that n
whch receved, or deductons made n any year other than n the year n
whch they were actuay sustaned. In other words, the ta s an annua ta ,
and the true accounts of each year are sub|ected to the ta . ach yeary
perod must stand by tsef. It woud seeu, therefore, that a ta payer who
makes hs return upon a cash bass may not depart from such method so as to
deduct some tems not actuay pad out, or to carry over actua osses to
another year, and thus dstort hs ncome for a snge year.
The court fnds t mpossbe to agree that the future saes and the hedg-
ng contract cosed out n dfferent years shoud be treated as one ndvsbe
transacton. It may we be that the hedgng contract was made for the
e press purpose of preventng specuaton, but t was an ndependent contract.
The dates of maturty of the two contracts were not contemporaneous they
were cosed out n dfferent years dentty of quanttes and dates does not
appear the actua oss was sustaned n the year 1020, and the mere fact that
the hedgng contract was entered nto for the purpose of preventng specu-
aton s mmatera so far as the actuates are concerned. It may we be
that a hardshp has accrued to the pantff because of ths assessment, and
because of the refusa of t e Commssoner to transfer the oss ncurred n 1920
to the year 1921. but the stuaton mght easy be reversed. If the future
contract had been cosed out at a proft and the cash transactons at a oss
the hardshp upon the pantff woud not e st. Ta es can not be based upon
tne contngences of the market. Wn or ose, ta es must be computed, under
the statute as Congress has enacted t, upon an annua bass.
Reference s made to the rung made by the Department concernng open
hedge contracts, but the stuatons are n no wse parae. In those refer-
ences the hedgng contracts are at the end of the year open and undeter-
mned. Rghtfuy they shoud be carred over to the succeedng year, and the
actua oss of proft determned ony when the hedgng contract s cosed.
The court fnds that there s no ground for the recovery of the ta . udg-
ment w be entered for the defendant n bar of pantffs acton and for costs.
S CTION 213(a). GROSS INCOM D IN D:
INCLUSIONS.
rtce 31: What ncuded n gross ncome. 11-28-3797
T. D. 4171
INCOM T R NU CTS O 1917 ND 1018 D CISION O COURT.
1. Income Mnera Lease mounts Receved by Lfe ene-
fcary.
mounts receved by a fe benefcary under a testamentary
trust as a dstrbuton of the proceeds from a contract made by
the testator before March 1, 1913. whch gave the rght for a term
of years to enter upon and and rase and se the underyng
coa, are n part ta abe ncome, athough under the aw of the
State where the property s ocated the contract effects a sae of
coa n pace.
2. udgment ffrmed.
The |udgment of the dstrct court (20 ed. (2d), 139 (T. D.
4058 C. . I-2, 178 )) s afrmed.
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 the case of ate W. Rosenberger,
s
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213(a), rt. 31. 254
pantff n error, v. akey D. McCaughn, Coector of Interna
Revenue, defendant n error, s pubshed for the nformaton of
nterna revenue offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved une 29, 1928.
. W. Meon,
Secretary of the Treasury.
Unted States Cbcut Court of ppeas for the Thrd Crcut.
ate W. Rosenberger, pantff n error, v. akey D. McCaughn, Coector of
Interna Revenue, defendant n error.
In error to the Dstrct Court of the Unted States for the astern Dstrct of Pennsyvana.
March 3, 1928. |
OPINION.
Wooey, Crcut udge: ate W. Rosenberger brought ths sut n the
dstrct court to recover amounts e acted as addtona ta es for the years 1917
and 1918 under provsons of the Revenue ct of 1916, as amended by the
Revenue ct of 1917 (39 Stat., 756. 757), and the Revenue ct of 1918 (40
Stat., 1057, 1065), respectvey. The court, on an affdavt of defense n the
nature of a demurrer fed to the pantff s statement of cam, gave |udgment
for the defendant. The pantff then sued out ths wrt of error. The facts,
admtted by the peadngs, are as foows:
In 1881, rancs Wess, ownng a tract of and n Luzerne County, Pa., under-
ad wth coa, entered nto an agreement wth the den Coa Co., a corpora-
ton, whereby, n consderaton of monthy rents reckoned on coa rased ard
prce reazed at the breaker, he demsed to the company a the coa n the
vens wth the rght to enter upon the and and carry on mnng for a term
of 99 years. In 1S88, Wess ded. y hs w he drected hs trustees to
coect the monthy rents due hs estate under the ease and pay them to hs
seven chdren n equa parts durng ther respectve ves, wth remanders
over, and on the e praton of the term, or the earer e hauston of the vens,
to se and convey the and for sums whch thereafter shoud form a part of
hs resduary estate. Durng the years 1917 and 1918 the trustees receved
the rents and n the annua dstrbutons made payments to the pantff whch
she omtted from her ta returns for those years. The Commssoner of
Interna Revenue, pn revew, ncuded them n a new computaton and ncreased
her net tn abe ncome by that porton of the payments made to her whch
represented the dfference between the tota amount she receved and the
capta vaue as of March 1, 1913, accordng to the rue for determnng ncome
from mnng ad down n New Creek Coa Co. v. Lederer (295 ed., 433 T. D.
35G2, C. . -1,192 ), and assessed addtona ta es.
Ths case had ts rse In the ta probem at one tme troubesome to Congress
and ater troubesome to the courts of separatng capta from ncome n gross
returns from mnng mneras, a part of whch, from the very nature of the
source, s aways capta and the baance whatever the amount and however de-
termned s ncome. (New Creek Coa Co. v. Lederer, 295 ed., 433, 435.) The
appcabe sectons of the cted Revenue cts addressed to that probem (secton
2(a), secton 5(a)8 of the ct of 1910, and sectons 213, 214(10) of the ct of
1918) provded that net ncome sha ncude gans, profts and ncome
from busness, trade, commerce, or deangs n property growng out of the
ownershp or use of or nterest n rea or persona property, aso from nterest,
rents or gans or profts and ncome derved from any source what-
ever, sub|ect ony to certan deductons, among whch, n the case of mnes, s a
reasonabe aowance for depeton.
Readng these provsons on the transacton of her father, from whch for 30
years she had receved arge payments, the pantff mantans that the sums so
receved were nether ncome derved from the use of capta ( ener, Coector,
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255
213(a), rt. 31.
v. eatty, 17 ed. (2d), 743 T. D. 4021, C. . I-1, 189 ), nor ncome from
converson of capta assets (Merchants Loan Trust Co. v. Smetanka, 255
U. S., 509 T. D. 3173, C. . 4, 34 ), nor ncome n any other sense of the
Revenue cts, but were n fact and aw deferred payments of the purchase prce
n a sae of her father s property.
though the nstrument by whch Wess gave another a rght to enter upon
hs and and rase and se the underyng coa s entted a ease, by whch n
terms he demsed named premses for a term on f ed rents wth the rght of
dstress reserved n the event of a breach of the rent covenant, and contans the
ega characterstcs of a demse and none of the characterstcs of aenaton,
the pantff says, qute correcty, that under a ong ne of Pennsyvana de-
csons, of whch the eadng ones are Sanderson v. Scranton (105 Pa., 469) and
osack v. Gr (18 Pa. Sup. Ct, 90), an nstrument such as ths, though nom-
nay a ease, s n aw a sae of coa n pace. She mantans, therefore, that
ths rue of Pennsyvana property ad down by the hghest court of that State
s bndng on edera courts ( ucher v. Cheshre Raroad Co., 125 U. S., 555,
583 Pennsyvana v. Wheeng emont rdge Co., 13 ow., 518), and
operates to e empt the payments n queston from ta aton under edera
Revenue cts.
It s estabshed beyond queston that the aw of the State n whch property
s stuated governs edera courts n many thngs n descent, aenaton, and
transfer, and the effect and constructon of ws (De aughn v. utchnson, 165
U. S., 566) but whether t governs the edera Government n the performance
of ts soveregn power to evy ta es s another queston, and s the precse
queston here.
True, State decsons sometmes contro edera egsaton for nstance, n
determnng a deducton aowed by the edera estate ta but that s because
of the e press provson or permsson of the edera ct, whch authorzes
deducton of such charges as are aowed by the aws of the |ursdcton under
whch the estate s beng admnstered. (Lederer v. Northern Trust Co., 262
ed., 52.) ut whether the edera Government s mted n ts se.ecton of
sub|ects for ta aton by rues of State courts n respect to property wthn the
State s |ursdcton s another matter and t s one on whch the Supreme Court
n Yon rumbach v. Sargent Land Co. (242 U. S., 503, 518) dd not fee caed
upon to pass, athough the queston there, ke the one here, was whether roya-
tes or rents were ncome, and the mere foowng of the State rue woud have
been an easy way to decde the queston. In that case a Mnnesota contract of
ease substantay ke the Pennsyvana contract of sae n ths c se
was under consderaton. That contract of ease, as the Supreme Court noted,
was of a cass ad|udged by the courts of Mnnesota and other States to be a
ease as dstngushed from the opposte hodng by Pennsyvana courts that t
s a sae. fter quotng the reasonng of Mnnesota courts on such nstruments,
the Supreme Court sad n respect to ts duty to foow the State rue:
These concusons of the Supreme Court of Mnnesota are not ony made
concernng contracts n that State, such as are here nvoved, but are supported
by many authortes. Ordnary, and as between, prvate partes, there s no
queston of the duty of the edera court to foow these decsons of the Mnne-
sota Supreme Court, as a rue of rea property ong estabshed by State de-
csons. Whether n consderng ths edera statute we shoud be
constraned to foow the estabshed aw of the State, as s contended by the
Government, we do not need to determne. The decsve queston n ths case s
whether the payments made as so-caed royates amount to ncome so as to
brng such payments wthn the scope of the Corporaton Ta ct of 1909.
Suc beng the queston, the Supreme Court tsef construed the nstrument
there n queston n order to determne whether the payments that were made
under t were proceeds of sae, capta or ncome. Whoy asde from the
constructon whch the Mnnesota courts had paced upon nstruments of that
knd and soey because of the nature of the payments themseves, the Supreme
Court, as we read ts opnon, hed that the nstrument there n queston dd
not effect a sae of the property that s, of the ore n pace (Unted Sates v.
hcabk Mnng Co., 247 U. S., 116, 126), and that the moneys derved from
mnng and pad under the nstrument were not converted cnpta, but were
royates or rents, and as such were ncome, proper to be ncuded n measur-
ng ta es under the appcabe Revenue ct, wthn the rue of Stratton s Inde-
pendence v. owbert (231 U. S., 399) and Stanton v. atc Mnng Co. (240
U. S., 103). Revertng to the pantffs contenton that a payments she had
receved under the nstrument here n queston were ta free because they were
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256
part payments of the purchase prce of property sod pror to March 1, 1913,
st aways keepng n vew the nature of mng, the source of the proceeds
we thnk each payment represented n some measure both capta and ncre-
ment, capta because t stood n the pace of coa and ncrement because n
the payments runnng through 99 years nterest on the capta must nevtaby
have been ncuded, and that ths ncrement or nterest was a gan derved
wthn the generazaton of the statute from any source whatever and was
ncome n substantay the sense of New Creek Coa Co. v. Lederer (295 ed.,
433). The pantff can very propery demand that the capta ncuded n her
proceeds from mnng sha not be ta ed. Unted States v. Ludey, 274 U. S..
295 T. D. 4046, C. . -2, 157 New Creek Coa Co. v. Lederer, supra.) ut
when the capta n the proceeds has been determned and set asde the baance
s ncome and s the very thng on whch the Government ays ts hand and
e acts a ta . Stratton s Independence v. owbert, 231 U. S., 399 Stanton v.
atc Mnng Co., 240 U. S., 103: on aumbach v. Sargent Land Co.. 242
U. S., 503 Unted States v. wabk Mnng Co., 247 U. S., 116, 125, 126 God-
fed Consodated Mnes Co. v. Scott, 247 U. S., 126.) Though n her brefs
the pantff attacks the cacuaton of ncome thus ncuded n the payments,
nowhere n her peadngs beow or n her assgnments of error here has she
questoned the cacuaton. We must therefore assume, foowng, as the Com-
mssoner dd, the rue of New Creek Coa Co. v. Lederer, supra, that the sepa-
raton of capta from ncome was propery made and that the ncome found
and ncuded as net ta abe ncome was propery determned and ta ed.
The |udgment of the dstrct court s affrmed.
rtce 31: What ncuded n gross ncome.
R NU CT O 1921 ND PRIOR CTS.
mount receved for breach of contract to marry.
4363, page 185.)
rtce 31: What ncuded n gross ncome.
R NU CT O 1921 ND TRIOR CTS.
mount receved for breach of contract to marry,
page 18G.)
rtce 31: What ncuded n gross ncome. II-33-3851
G. C. M. 4606
R NU CTS O 1918 ND 1921.
One-haf of the net raway operatng ncome n e cess of 6 per
cent of the vaue of raway property hed for and used n the serv-
ce of transportaton, whch s recoverabe by and requred to be
pad to the Interstate Commerce Commsson n accordance wth
the provsons of secton 15(a)6 of the Interstate Commerce ct,
as amended by the Transportaton ct of 1920, never n fact forms
a part of the raroad company s gross ncome. That part of the
earnngs whch s requred to be pad over to the Interstate Com-
merce Commsson apparenty beongs to the Unted States at the
tme t s earned. It s mproper, therefore, to treat the abty
for recapture amounts as an ordnary and necessary busness
e pense whch s deductbe n computng net ncome. The proper
treatment s to e cude such amounts from gross ncome.
It s recommended that I. T. 2300 (C. . -2, 164) and Offce
Decson 989 (C. . 5, 219) be revoked.
n opnon s requested n reerard to the case of the M Raroad
Co. for the ta abe years 1920, 1921, and 1922. The ta payer s books
of account are kept on the accrua bass, and the queston nvoved s
(See G. C. M.
(See I. T. 2422.
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257
213(a), rt. 31.
the proper treatment for ncome ta purposes of the abty for
recapture amounts as determned by the Interstate Commerce
Commsson n accordance wth the provsons of secton 15(a)6 of
the Interstate Commerce ct, as amended by the Transportaton ct
(41 Stat L., 489), whch provdes as foows:
If, under the provsons of ths secton, any carrer receves for any year a
net raway operatng ncome n e cess of 6 per centum of the vaue of the
raway property hed for and used by t n the servce of transportaton, one-
haf of such e cess sha be paced n a reserve fund estabshed and mantaned
by such carrer, and the remanng one-haf thereof sha, wthn the frst four
months foowng the cose of the perod for whch such computaton s made,
be recoverabe by and pad to the commsson for the purpose of estabshng
and mantanng a genera raroad contngent fund as herenafter descrbed.
or the purposes of ths paragraph the vaue of the raway property and the
net raway operatng ncome of a group of carrers, whch the commsson
fnds are under common contro and management and are operated as a snge
system, sha be computed for the system as a whoe rrespectve of the separate
ownershp and accountng returns of the varous parts of such system. In
the case of any carrer whch has accepted the provsons of secton 209 of
ths amendatory ct, the provsons of ths paragraph sha not be appcabe
to the ncome for any perod pror to September 1, 1920. The vaue of such
raway property sha bo determned by the commsson n the manner provded
n paragraph (4).
In pursuance of the above-stated provson, the Interstate Com-
merce Commsson determned the vaue of the ta payer s property
used for transportaton purposes, as we as the net raway operatng
revenue, and on une , 1925, notfed the ta payer of that fact and
asserted abtes of 7a doars for the year 1920, 2 doars for 1921,
and 5.c doars for 1922.
It s stated that the ta payer foowed the genera custom of other
carrers and dd not accrue ts abty under the ct for the years
m queston, but on October , 1924, and uy , 1925, t transmtted
to the Drector of the nance ureau of the Interstate Commerce
Commsson ts checks for 8a doars and a doars, respectvey, n
parta payment of ts abty. In the frst etter the ta payer stated
as foows:
Ths s a payment under protest and sub|ect to ad|ustment to bass of prop-
erty vauaton now beng made. The schedues on whch the payment s made
do not represent the true vaue of the property, and ths payment s tendered
ony to escape penates threatened.
In the second etter t was stated:
Ths payment s made under protest and s sub|ect to ad|ustment to bass of
pro erty vauaton to be ater determned. The vaues on whch recapture ca-
cuatons are made do not represent the true vaue of property and payment
based thereon s ony made to escape penates and pendng the f ng of a more
accurate bass.
Informaton has been receved from the ureau of nance of the
Interstate Commerce Commsson that the protest s st pendng,
and that no fna determnaton has been made of the vauaton of the
raway property and the amounts due under the recapture cause.
The ta payer fed amended ncome ta returns for the years 1920,
1921, and 1922 on December 15, 1926, and deducted as ts abty
under the ct 7a doars, 2a doars, and 5 doars, respectvey.
Subsequent to the above-mentoned date a fed e amnaton of ts
returns for the years 1920 to 1925, ncusve, was made by a revenue
agent, and he aowed the amounts actuay pad as deductons n the
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258
years n whch such amounts were pad, and dsaowed the deductons
as made by the ta payer on ts amended returns.
In I. T. 2300, supra, nvovng the queston as to when the recapture
amounts provded by secton 15(a) shoud be accrued, t was hed as
foows:
In the case of raway companes the Income of whch s computed on the
accrua bass there sha be treated as an accrued abty at the cose of the
ta abe year ony the amount shown by the books of account to be payabe to
the Interstate Commerce Commsson at that tme In accordance wth secton
15(a) of the Interstate Commerce ct as amended by the Transportaton ct
of 1920. The amount payabe to the Interstate Commerce Commsson becomes
an accruabe abty and a deductbe tem n the year n whch determnaton
of the amount of the abty s made. (O. D. 989, C. . 5, 219, ampfed.)
In secton 15(a)5 of the Interstate Commerce ct, as amended, t
s specfcay provded that nasmuch as t s mpossbe to estabsh
unform rates wthout enabng some carrers to receve a net oper-
atng ncome substantay and unreasonaby n e cess of a far return
upon the vaue of ther raway property hed for and used n the
servce of transportaton, any carrer whch receves such an ncome
so n e cess of a far return, sha hod such part of the e cess, as
herenafter prescrbed, as trustee for, and sha pay t to, the Unted
States.
In the case of the Dayton-Goose Creek Raway Co. v. Unted States
(263 U. S., 456, 44 S. Ct, 169) one of the questons nvoved was
whether the recapture cause resuted n the confscaton of property
wthout due process of aw n voaton of the ffth amendment to
the Consttuton. The opnon of the court, devered by Chef
ustce Taft, reads n part as foows:
We have been greaty pressed wth the argument that the cuttng down of
ncome actuay receved by the carrer for ts servce to a so-caed far return s
a pan appropraton of ts property wthout any compensaton that the ncome
t receves for the use of ts property Is as much protected by the ffth amend-
ment as the property tsef. The statute decares tho carrer to be ony a
trustee for the e cess over a far return receved by It. Though n ts posses-
son, the e cess never becomes ts property, and t accepts custody of the
product of a the rates wth ths understandng. It Is cear, therefore, that
the carrer never has such a tte to the e cess as to render the recapture of t
by the Government a takng wthout due process.
In vew of the foregong, t seems that the one-haf of the net ra-
way operatng ncome n e cess of 6 per cent of the vaue of raway
property hed for and used n the servce of transportaton, whch s
recoverabe by and requred to be pad to the Interstate Commerce
Commsson, never n fact forms a part of the raroad company s
gross ncome. That part of the earnngs whch s requred to be pad
over to the Interstate Commerce Commsson apparenty beongs to
the Unted States at the tme t s earned. Such earnngs consttute
a revovng fund under secton 15(a) 10 of the Interstate Commerce
ct, as amended, whch s admnstered by the commsson. The
revovng fund s used n furtherance of the pubc nterest n raway
transportaton ether by makng oans to carrers to meet e pend-
tures for capta account or by purchasng transportaton equpment
and easng t to carrers, and any of such fund not so empoyed s n-
vested n Unted States obgatons or paced n Unted States depos-
tares. If the ta payer desred to obtan a oan through the comms-
son t woud be n the same poston as any other carrer seekng to
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213(a), rt. 51.
obtan a oan. It s mproper therefore to treat the abty for
recapture amounts as an ordnary and necessary busness e pense
whch s deductbe n computng net ncome, as was hed n I. T. 2300
and Offce Decson 989. The proper treatment s to e cude such
amounts from gross ncome.
ta payer, however, sub|ect to the provsons of the recapture
cause, w not for ncome ta purposes be permtted to e cude
from gross ncome the abty for recapture amounts whch t
does not admt or refuses to pay. It can not deny the abty when
deang wth one branch of the Government and secure the beneft of
such abty when deang wth another branch. here ony a
part of the abty s pad or admtted and a protest as to the ba-
ance s fed, ony that porton of the abty actuay pad or ad-
mtted may be e cuded from gross ncome. Such amounts actuay
pad, and whch wth the approva or consent of the Interstate Com-
merce Commsson were desgnated by the ta payer as appyng to
specfc ta abe years, accordngy, may be e cuded from gross
ncome for the years as desgnated.
ny amounts pad to the Interstate Commerce Commsson whch
were not desgnated by the ta payer as appyng to any partcuar
year or years must necessary be aocated to the varous years by
assgnng to each year that proporton of the tota amounts pad
whch the amount of abty asserted by the Interstate Commerce
Commsson for that year bears to the tota amount of abty as-
serted for a years.
It s recommended that I. T. 2300, supra, and Offce Decson 989,
supra, be revoked.
C. M. Carest,
Genera Counse, ureau of Interna Revenue.
rtce 51: When ncuded n gross ncome. II-38-3903
T. D.4204
INCOM T R NU CT O 1918 D CISION O COU T.
Income Sae Rea state Defebbed Payments Cash ass
When Gan s Ta abe.
Where a ta payer whose accounts were kept on the bass of cash
recepts and dsbursements entered nto a contract n 1919 for the
sae of rea estate, pursuant to the terms of wbch 2 4 per cent of
the purchase prce was pad upon the e ecuton of the contract
and the baance was pad upon devery of the deed n 1920 n
cash and by a mortgage of the property securng one-haf the pur-
chase prce, the gan derved from the sae was ta abe Income for
the year 1920.
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,
Dstrct of Maryand, n the case of Gdeon N. Ste|f et ah., ecu-
tors under the W of Chares C. Steff, Deceased, v. Teat, Coector of
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213(a), rt. 51. 260
Interna Revenue, s pubshed for the nformaton of nterna reve-
nue offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved September 6, 1928.
Ogden L. Ms,
ctng Secretary of the Treasury.
Dstrct Court of the Unted States fob the Dstrct of Maryand.
Gdeon N. Steff. Ida . S. ford, dwn C. aet|cr, weoutors under the
W of Chares C. Steff, Deceased, v. Gaen L. Tat, Coector of Interna
Revenue.
pr 20, 1928.
a OPINION.
Coeman, Dstrct udge: The queston for determnaton n ths proceedng
s whether the gan arsng from a sae of rea estate s ta abe under the
Revenue ct of 1918 as of the year n whch the contract of sae was made,
or as of the year n whch the transfer was competed, ony a sma porton of
the purchase prce ng pad at the tme the contract was made, a substanta
payment beng made at the date of conveyance and the baance of the pur-
chase prce beng then secured by mortgage.
The facts whch gve rse to the present controversy are as foows: On Novem-
ber 11. 1919, the ta payer entered nto a wrtten contract for the sae of certan
rea estate for 100,0 0, pursuant to the terms of whch 2,500 was pad to
hm n cash on the sgnng of the contract, the baance payabe on pr 11,
1920, n the amount of 47,500 n cash and 50,000 by purchase money mortgage,
payabe n two nstaments of 25,000 each n three and fve years, respectvey,
from the date of the mortgage. The contract was carred out n accordance
wth ts provsons and as a resut the ta payer reazed a gan of 58,922.05.
In hs ndvdua ncome ta return for the caendar year 1919, he ncuded
ths gan, settng t off aganst certan osses that he had ncurred. Therefore,
n hs return for the caendar year 1920, he dd not ncude t. On May 26,
1923, the ta payer ded. On March 26, 1925, the Commssoner of Interna
Revenue notted the pantffs, the e ecutors of the estate of the deceased,
that the aforesad gan shoud have been reported n hs return for the year
1920 nstead of that for 1919, and that a defcency n the amount of 29,814.93
for the year 1920 had been determned aganst the ta payer. In due course,
the pantffs appeaed from ths determnaton of the Commssoner of Interna
Revenue to the oard of Ta p eas, whch oard, on October 30, 1925,
rendered ts decson, sustanng the Commssoner. ( ppea of Gdeon Steff
et a., state of Chares C. Steff, deceased, 2 . T. ., 1109.) Tereupou, the
aforementoned defcency was assessed aganst the Steff estate for the year
1920. It was pad by the pantffs under protest and cam for refund thereof
duy fed, whch cam beng re|ected, the pantffs brought the present sut
for recovery of the amount so pad.
The Revenue ct of IfS (40 Stat, 1057) governs n ths case. Secton 210
of ths ct mposes a ta upon the net ncome of every ndvdua. In
secton 212(a) such net ncome s defned as gross ncome as defned n
secton 213, ess aowabe deductons. Secton 213 thus defnes gross ncome:
That for the purposes of ths tte (e cept as otherwse provded n secton
233) the term gross ncome
(a) Incudes gans, profts and ncome derved from saes, or
deangs n property, whether rea or persona, growng out of the owner-
shp or use of or nterest n such property .
There s no queston that the proft reazed by Mr. Steff s to be regarded
as ta abe ncome. The soe queston s as of what year s t ta abe. In
short, s t ta abe as of the tme when actuay receved, or may t be con-
sdered as havng been receved at the tme when equtabe ownershp n tne
property out of whch the gan was reazed passed from the ta payer to
the purchaser
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261
t 213(a), rt. 51.
It s mportant to note that Mr. Steffs books were kept on a cash recepts
and dsbursements bass and not on an accrua bass. That s, no recepts were
entered unt actuay pad n cash or ts equvaent and dsbursements, ke-
wse, were ony entered when actuay pad out. The reguatons of the Com-
mssoner of Interna Revenue recognze these two dstnct methods of book-
keepng, and athough n 1919 and 1920 there appear to have been no specfc
rungs ssued by the Commssoner on ths queston, n 1921 there were such
rungs, construng the provsons of the aw as foows:
Reguatons 45, artce 22: Computaton of net ncome. Net ncome must
be computed wth respect to a f ed perod. Usuay that perod s 12 months
and s known as the ta abe year. Items of ncome and of e pendtures whch
as gross ncome and deductons are eements n the computaton of net ncome
need not be n the form of cash. It s suffcent that such tems, f otherwse
propery ncuded In the computaton, can be vaued n terms of money. The
tme as of whch any tem of gross ncome or any deducton s to be accounted
for must be determned n the ght of the fundamenta rue that the computa-
ton sha be made n such a manner as ceary refects the ta payer s ncome.
If the method of accountng reguary empoyed by hm n keepng hs books
ceary refects hs ncome, t s to be foowed wth respect to the tme as of
whch tems of gross ncome and deductons are to be accounted for. See
artce 52. If the ta payer does not reguary empoy a method of accountng
whch ceary refects hs ncome, the computaton sha be made n such manner
as n the opnon of the Commssoner ceary refects t
rtce 52: When ncuded n gross ncome. Gans, profts and Income are
to be ncuded n the gross ncome for the ta abe year n whch they are
receved by the ta payer, uness they are ncuded when they accrue to hm n
accordance wth the approved method of accountng foowed by hm. Itacs
nserted.
Of course the aforegong reguatons are of no more than persuasve authorty,
especay snce they were promugated subsequent to the date of sae here n-
voved, and aso because they are merey the nterpretaton of the aw by nn
admnstratve offcer and do not have the force of |udca determnaton. It s
to e noted, however, that the Commssoner of Interna Revenue, n nterpretng
the aw, has rued that the tme when ncome sha be ta abe s to be governed
by the method of accountng adopted by the ta payer and that f the accrua
method s not adopted, then gans such as those nvoved n the present case
are to be ncuded n the gross ncome for the ta abe year n whch they are
receved by the ta payer. Snce the ta payer n the present case kept hs books
on a cash recepts and dsbursements bass and not on an accrua bass, the court
beeves that there s no sound reason for sayng that the test n the present case
s ot when the ncome was actuay receved. or to argue otherwse s to con-
fuse the queston of when a gan s reazed for ta aton purposes wth the
totay dfferent equtabe doctrne of specfc performance whch s not con-
cusve n matters of ta aton.
What we must here determne s the e act tme when a substtuton of assets
has actuay taken pace, as requred by the agreement of the partes. It s, of
course, true that because of the rght of specfc performance, courts generay
hod that from the e ecuton of a contract for the sae of rea estate, the
vendor s nterest consttutes personaty and s dstrbutabe among hs ne t of
kn that, conversey, the vendee s nterest consttutes reaty and descends to hs
hers. Ctaton of cases governng ths prncpe woud be superfuous. ur-
ther, t s conceded that n most |ursdctons, ncudng Maryand, the rsk of
oss durng the perod between the e ecuton of the contract and the tme set for
ts performance s paced upon the owner of the property and that the vendee s
consdered as the owner. Conversey, the vendee s entted to any ncrement n
vaue. (Sknnsy v. ough-Ion, 92 Md., 68 Roya Insurance Co. v. Druru. 150
Md., 211 Payne v. Meer. 1801, 6 es. r., 349 : 27 L. R. . (N. S.), 233.) In
short, the aw, generay, s that from the e ecuton of a contract of sae of rea
estate, the vendor hods the same n trust for the vendee, and the atter becomes
a trustee of the purchase money for the vendor. ut ths prncpe, fundamen-
ta as t s, does not determne the pont here n ssue, because an acton n 1919
for specfc performance woud not have then succeeded and put the vendee n
the present case n possesson, snce he was not then, under the contract of sae,
entted to such possesson, nor was any negotabe nstrument or other securty
e ecuted or devered durng that year.
The rght to ownershp or possesson s not to he confused wth a ourden
upon ownershp or possesson. The thng to be burdened must frst be acqured.
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213(a), rt. 51.
262
When a purchaser of rea estate Is to be deemed the owner for the purposes of
ta aton may be dependent upon the terms of the partcuar ta statute. Ord-
nary the pro|erty s ta abe to the vendor f the vendee has not gone nto
possesson under an e ecutory contract. Certany the aw s generay we
setted that the owner of property for the purpose of ta aton s the one havng
ega tte thereto. See Cooey on Ta aton, 4th d., secton 603 State Trust Co.
v. Cheas County (79 ed., 282). ut the queston here s not one of ta aton
of the vendee s or the vendor s nterest, ega or equtabe, n the rea estate or
n ts purchase prce, but smpy n the proft derved from ts sae. To
derve means to obtan. So, even f we appy the equtabe doctrne of owner-
shp, we st can not say that the vendor has obtaned any proft, because what
he has s the rght to obtan the purchase money from the vendee who hods t n
trust for hm. Therefore, the court s not mpressed wth the argument that
we shoud n hs case, as n cases of equtabe ownershp, adopt the vew that
the partes must have ntended to agree that a substtuton of assets sha be
consdered as havng taken pace pror to the tme when t actuay dd take
pace. The possesson of the vendee was not acceerated, nor does t appear that
the e stng eases were assumed by the vendee n advance of takng tte.
The Treasury Department has decned to adopt the equtabe doctrne ether
wth respect to nstament transactons uness the nta payment equas one-
fourth of the tota purchase prce, or wth respect to deferred payment saes not
on the nstament pan (and the present sae s of ths cass), uness (as s not
the case here) there s a substanta nta payment of not ess than one-fourth
of the tota purchase prce, pus securty for the deferred payments. ere the
nta payment s ony 2 per cent wth no contemporaneous securty for
deferred payments. urther, the Department n defnng when ncome, generay,
not reduced to possesson, athough credted to the account of or set apart for a
ta payer, s ta abe, has decared t may ony be ta ed when credted to hm
wthout any substanta mtaton or restrcton as to the tme or manner of
payment or condton upon whch payment s to be made. See Reguatons 45,
artces 44-46, ncusve.
The oard of Ta ppeas, n ts decson n the present case, sad, page 1111:
The ta payer was on the cash bass and that dsposes of the matter. If he
had been on an accrua bass, the decsons of the Maryand court to whch we
were referred mght have some appcaton. ut the fact that tte, ega or
equtabe, passed to the purchaser when the contract was e ecuted n 1919 can
not affect the ta abty n ths appea, snce the ta payer dd not receve the
purchase prce as a cosed transacton unt 1920.
or a dscusson of the two dstnct methods bv whch ncome may be refected
by the ta payer s books, see U. 8. v. nderson (269 U. S., 422 T. D. 3839, C. .
-, 179 ).
Pantffs rey prmary upon the ease of Davdson Case Lumber Co. v.
otter (14 . (2d), 137), a recent decson by the Dstrct Court of ansas.
There t was hed under a contract qute smar to the one now before ths court
that for the purposes of the Revenue ct of 1918, the gan must be consdered
to have been reazed at the tme the contract of sae was made, the court
statng, pages 140 and 141 :
owever the domnon, contro, burdens, and benefts of the property were
passed to the purchasers n the year 1919 at the tme the contract of sae was
made absoute. I, therefore, fnd as a fact the sae of the rea estate
n ths case, whe not perfected by conveyance and fu payment of the pur-
chase prce unt une, 1920, was made n the year 1919 .
rom a carefu readng of ths decson, t woud appear that there are prob-
aby at east two features that dstngush t from the present case: (1) that te
ta payer s books were kept on an accrua bass and not on a cash bass, and (2)
t beng nconvenent for the vendor (the ta payer) to vacate the premses n
favor of the vendee pror to the tme when the contract was to be consummated,
he agreed to pay one-haf of the ta es for the year 1920 n consderaton of
beng permtted to reman on the premses, whereas n the present case, ta es
and other drect charges on the property were specfed to be pad by the vendor
up to the date of the transfer. If we assume that the aforegong ponts of
dfference are not matera, (hen the decson n the Davdson case woud appear
to be contrary to the anguage and ntent of the Revenue ct. It was not
appeaed.
We are not wthout certan anaoges whch very strongy tend to confrm
tho resut whch s here reached. or e ampe, t has beeu hed that the date
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263
213(b), rt. 71.
of payment, and not of the decaraton of a dvdend, s the date of dstrbuton
for ncome ta purposes under the Revenue ct of 1916 as amended In 1917.
The Supreme Court sad, n dwards v. Dougas (269 U. S., 204, 211, at 211
T. D. 3797, C. . -, 158 ) :
Ordnary, an ncome ta s ad upon a ta abe ncome actuay receved
durng the ta year and the ta s payabe at the ta rate of the year n whch
t s receved, athough none of the ncome may have been earned by the ta -
payer durng that year, or, where the ncome conssts of dvdends, athough the
corporaton may not have earned n that year any part of the profts of whch
the dvdend s a dstrbuton.
nd, agan, n the more recent case of Mason v. Routzahn (275 U. S., 175
T. D. 4131, C. . I-1, 194 ), the court sad:
we see no good reason for dsturbng the ong-setted practce of the Treas-
ury Department. Its contemporary nterpretaton s consstent wth the
anguage of the ct and ts practce was, n substance, emboded n the
Revenue ct of 1918, ebruary 24, 1919 (ch. 18, sec. 201(a), 40 Stat., 1057,
1060). We concude that the crcut court of appeas paced an erroneous
constructon on secton 31(b).
Snce two of the dvdends pad n 1917 were decared n 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 n 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.
See aso Unted States v. Phps (24 . (2d), 195) Park v. Ogan (293
ed., 129).
To the same effect are numerous decsons construng the Income Ta ct of
1913 and the Corporaton Ta ct of 1909. (See Man/and Casuaty Co. v.
Unted States, 251 U. S., 342 Unted States v. Chrstne O d Gas Co., 269
ed., 458 Mutua eneft Lfe Insurance Co. v. erod, 198 U. S., 199, 214.)
though the court n these cases was aded by the fact that the word
receved was empoyed n the earer statutes n descrbng what ncome was
ta abe, nevertheess, the same ntent s ceary mped n that part of the
atter enactment wth whch we are here concerned.
The court has been referred to numerous decsons of the oard of Ta
ppeas as authorty for arrvng at a dfferent concuson from the one here
reached, but the court consders t unnecessary, n vew of what has aready
been sad, to gve consderaton to these decsons, other than to pont out
that most, f not a, of them woud seem to embody facts whch make them
eary dstngushabe that s to say, securty, n the form of promssory notes
or vendors ens, was gven.
The case has been heard by the court sttng as a |ury. Therefore, n vew
of the concusons as above whch the court has reached, the prayer of de-
fendant to rue that there s no egay suffcent evdence to entte the pantff
to recover s granted, and the correspondng prayer of the pantff to rue,
as a mutter of aw, that the undsputed evdence n the case shows that the sse
was made on November 11, 1919, and that the proft from sad sae shoud be
ncuded n Mr. Steffs ncome ta return for the year 1919, s refused.
udgment w accordngy be entered for the defendant.
S CTION 213(b). GROSS INCOM D IN D:
CLUSIONS.
rtce 71: What e cuded from gross ncome.
R NU CT OP 1921 ND PRIOR CTS.
mount receved for breach of contract to marry. (See G. C. M.
4363, page 185.)
37229 29 18
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213(b), rt. 71. 264
rtce 71: What e cuded from gross ncome.
R NU CT O 1921 ND PRIO CTS.
mount receved for breach of contract to marry. (See I. T. 2422,
page 186.)
rtce 71: What e cuded from gross ncome. II-37-38S8
T. D.4202
ncome ta revenue acts of 191s and 1021 decson of court.
Income empton Compensaton Mtary or Nava
orces Pubc eath Servce.
person n the Pubc eath Servce who performs no mtary
duty of any knd, who s not sub|ect to the orders of the mtary
authortes, and who s not pad out of the appropraton for m-
tary purposes, s not n the actve servce of ether the rmy or the
Navy and s therefore not entted to the e empton from ncome
ta provded n secton 213(b)8 of the Revenue cts of 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 Court of Cams of the Unted States
n the case of Rupert ue v. The Unted States s pubshed for the
nformaton of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved ugust 28, 1928.
. W. Meon,
Secretary of the Treasury.
Court of Cams op the Unted States.
Rupert ue v. The Unted States.
pr 30, 1928.
OPINION.
Green, udge, devered the opnon of the court
The petton avers and the proof shows that on or about March 3, 1893. the
pantff was commssoned as an offcer of the Unted States Pubc eath
Servce under authorty of the ct of anuary 4, 1889 that on or about anuary
13, 1912, he was commssoned as Surgeon Genera of the Unted States n
charge of the Pubc eath Servce and contnued as such unt pr 8. 1920.
snce whch tme he has remaned n sad servce as ssstant Surgeon Genera
assgned to speca dutes n the Unted States and n foregn countres.
or each of the years 1918 to 1921, ncusve, the pantff fed ncome-ta
returns as requred by aw and n these returns camed an e empton of
3,500 out of the compensaton receved by hm from the Unted States for
servces rendered n hs offca capacty. Ths e empton was camed under
the provsons of secton 213(b)8 of the Revenue cts of 1918 and 1921, whch
e cude from gross ncome and e empt from ta aton so much of the amount
receved durng the present war by a person n the mtary or nava forces
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265
t 213(b), rt. 87.
of the Unted States as saary or compensaton n any form from the Unted
States for actve servces n such forces, as does not e ceed 3,500. The
Commssoner of Interna Revenue dsaowed ths cam for e empton on
the ground that the pantff was not entted thereto under the provsons of
the ct above quoted. The ssue n the case s whether ths rung was correct.
The pantff rests hs cam argey upon the order made by the Presdent
under date of pr 3, 1917, set forth n ndng 1 above, by whch t s
ordered that hereafter n tmes of threatened or actua war the Pubc eath
Servce sha consttute a part of the mtary forces of the Unted States. The
cam s made that by vrtue of ths order the Pubc eath Servce consttuted
a part of the mtary forces of the Unted States and that pantff s not
requred to show anythng further n order to entte hm to the e empton
provded by the statute.
Secton 4 of the ct of Congress of uy 1, 1902, provdes:
The Presdent s authorzed, n hs dscreton, to utze the Pubc eath
and Marne ospta Servce n tmes of threatened or actua war to such e tent
and n such manner as sha n hs |udgment promote the pubc nterest,
wthout, however, n any wse mparng the effcency of the servce for the
purposes for whch the same was created and s mantaned.
It s nssted on behaf of the defendant that the anguage of the ct does not
confer upon the Presdent the authorty to convert the Pubc eath and
Marne ospta Servce nto the mtary or nava forces of the Unted States,
and that the order of the Presdent set out above dd not have the effect of
ncorporatng the Pubc eath Servce nto the mtary or nava forces of
the Unted States. In vew of the decson of the court upon another matter
whch s controng n the case, we do not fnd t necessary to e press an
opnon upon ths queston. readng of the statute that creates the e empton
reed upon pany shows another provson that must be comped wth n
order to entte the pantff to the benefts of the e empton. To brng hmsef
wthn the provson of the statute, the pantff must show that the e empton
s camed out of a saary receved from the Unted States for actve servce n
such forces. It woud not of course be requred of pantff that he shoud
show that he took part, even n the smaest degree, n the actvtes of any
of the fghtng unts of such forces. It woud be suffcent f he partcpated n
any of the proceedngs of the mtary or nava forces, but the facts necessary
to sustan pantff s case n ths respect are not shown. It docs not appear that
the pantff was detaed for duty wth ether the rmy or the Navy, or that he
receved any compensaton durng the perod of the Word War from ether the
rmy or the Navy. In the absence of beng detaed to mtary duty, t s qute
obvous that the pantff performed no such duty, and t s conceded that he
receved hs compensaton from the Treasury Department and not from the
rmy or Navy. Not havng been detaed to the mtary forces, he was at no
tme sub|ect to the orders of the mtary authortes. It s cear that a person
who performs no mtary duty of any knd, who s not sub|ect to the orders
of the mtary authortes, and who s not pad out of the appropraton for
mtary purposes, s not n the actve servce of ether the rmy or the Navy,
regardess of any rung made by the former Commssoner of Interna Revenue.
The rung of the Provost Marsha Genera had no appcaton to the statute n
queston.
The Commssoner of Interna Revenue rghty refused pantff s cam for
e empton under ths statute and hs petton shoud be dsmssed. It s so
ordered.
rtce 87: Income of States.
R NU CT O 1921.
Income of a muncpaty under contract wth a company organzed
to erect and operate a budng to be used as a market pace and
audtorum. (See I. T. 2436, page 147.)
1 Not prnted n uetn crvec.
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213(b), rt. 88.
266
rtce 88: Compensaton of State offcers II-46-3994
and empoyees. T. D. 4241
ncome ta revenue act of 1018 decson of court.
Income empton Offcer ob mpoyee of State udtor
of Orphans Court.
n audtor apponted by the |udges of the Orphans Court n
Phadepha to ascertan and report the fnanca worth of com-
panes that appy to that court to furnsh surety bonds, whose
appontment s not authorzed by statute and whose compensaton s
pad from a fund contrbuted by the. surety companes, s not an
offcer or empoyee of a State and the compensaton receved by
hm as such audtor s not e empt from ta under secton 213(b)
of 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 Unted States Crcut Court of
ppeas for the Thrd Crcut, n the case of Phppus W. Mer,
pamtf n error, v. . D. McCaughn, Coector, defendant n error,
s pubshed for the nformaton of nterna revenue offcers and
others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved November 1, 1928.
. W. Meon,
Secretary of the Treasury.
Unted States Crcut Court of ppeas for the Thrd Crcut.
Phppus W. Mer, pantff n error, v. . D. McCaughn, Coector, defendant
n error.
une 20, 1928.
uffngton, Crcut udge: In the court beow Phppus W. Mer brought
sut aganst the coector to recover ncome ta whch he aeged he was wrong-
fuy forced to pay. ury havng been waved, the tra |udge found a verdct
n favor of the coector, whereupon the pantff brought the case to ths court
for revew. The facts, whch are undsputed, are that the |udges of the
Orphans Court n Phadepha, havng occason to be advsed as to the fnanca
worth of surety companes whose bonds were tendered to sad court by guard-
ans, admnstrators, etc., apponted Mr. Mer, who was a member of ts bar,
a standng audtor to ascertan and report the fnanca worth of such companes
as shoud appy to the court to so furnsh surety bonds. No statute of Pennsy-
vana authorzed such appontment and Mr. Mer receved no pay from the
State. s servces were pad from a fund contrbuted by appyng surety
companes. The ncome ta on the pay thus receved was coected from hm
by the Government. Ths he now seeks to recover on the ground that he s an
offca of the State and as such s not sub|ect to edera ncome ta . On the
other hand, the Government contends he does not come wthn the ncome e emp-
ton provson, whch s of an offcer or empoyee of any State or potca
subdvson thereof. We agree wth the Government s contenton and the fnd-
ng of the tra |udge. The e empton of State empoyees from edera ncome
ta rests on the ground that the agences the State empoys n government
shoud not be burdened by edera ta es whch woud essen the State s power
to empoy and compe t to pay more for the servces of ts empoyees. ut no
such reason e sts n the case of ths e amner. No power of the State s
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267
214(a), rt. 101.
crpped or essened by hs payng ta on hs ncome. Nether the State nor the
court pays Mr. Mer. Under modern condtons these companes become
suretes for pay, and as part of ther busness e pense, and n order to obtan
busness, they provde a fund by whch the court can be satsfed, through the
servces of an e amner or audtor, of ther sovency, and n no sense can such
e amner be regarded for ncome ta e empton as an offcer or empoyee of the
State of Pennsyvana So regardng, the |udgment beow s affrmed.
rtce 89: ddtona e cusons from gross ncome
under the Revenue ct of 1921.
R NU CT O 1921.
mendment of artce 89, Reguatons 62, to ncude Canada n
the st of countres whch satsfy the equvaent e empton requre-
ment of secton 213(b)8 of the Revenue ct of 1921. (See T. D.
4227, page 125.)
rtce 89: ddtona e cusons from gross ncome
under the Revenue ct of 1921.
R NU CT O 1921.
Interest receved by a rtsh corporaton on moneys, hed
temporary n Unted States banks, whch represent surpus work-
ng cash arsng and coected n the Unted States from the busness
of shppng. ( ee G. C. M. 4859, page 73.)
S CTION 214(a) 1. D DUCTIONS LLOW D:
USIN SS P NS S.
rtce 101: usness e penses. II-41-3933
T. D. 4222
INCOM T R NU CT O 1918 D CISION O SUPR M COURT.
1. Deductons usness pense Lega ees.
ttorneys fees ncurred n the defense of a sut by a former co-
partner for an accountng of aeged partnershp earnngs are de-
ductbe as a busness e pense under secton 214(a)1 of the Reve-
nue ct of 1918.
2. udgment Reversed.
The |udgment of the Court of Cams of the Unted States (62
C. Cs., 647 (T. D. 3964 C. . I-1, 202 )) reversed.
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 Samue . ornhauser, pettoner, v. The Unted
States s pubshed for the nformaton of nterna revenue offcers
and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved September 25, 1928.
. W. Meon,
Secretary of the Treasury.
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214(a), rt. 101.
2G8
St|pbeme Coubt op the Unted States.
Samue . ornhauser, pettoner, v. The Unted States.
On wrt of certorar to the Court of Cams.
ebruary 20, 1928.
Mr. ustce Sutherand devered the opnon of the court.
The pettoner sued n the Court of Cams to recover 1,126.15, the amount
by whch hs ncome ta for the year 1918 was ncreased by reason of the
refusa of the Commssoner of Interna Revenue to aow a deducton from
pettoner s gross ncome of the sum of 10,000 camed as a busness e pense
for that year. The petton aeges that the atter sum was pad by pettoner
for attorney s fees ncurred In the defense of a sut aganst m for an account-
ng nsttuted by hs former copartner, sad sut growng drecty out of the
conduct of the partnershp busness, t beng aeged by the copartner that
pettoner had coected fees or compensaton for professona servces per-
formed durng the e stence of the partnershp to a dvson of whch the
copartner was entted : that the aeged fees n fact conssted of stock n a
corporaton acqured subsequenty to the dssouton of the partnershp and not
for servces performed durng ts e stence: that the defense to the sut was
successfu and the amount pad was a necessary e pense ncurred n connec-
ton wth pettoner s busness wthn the meanng of secton 214(a), subdvson
(1), of the Revenue ct of 1918. or a oss wthn the meanng of subdvson (4)
of the same secton that a cam for refund of the e cessve ta was duy made
to the Commssoner and by hm re|ected. To ths petton a demurrer was
nterposed and by the court beow sustaned and the petton dsmssed on
te ground that the e pendture was not an aowabe deducton under ether
provson of the statute, but was a persona e pense under secton 215(a) of
the Revenue ct of 1918. (62 C. Cs., 647.)
We thnk t s obvous that the e pendture s not a oss and the ony
provsons of the Revenue ct (ch. 18, 40 Stat., 1057, 1066, 1069) whch need
be consdered are secton 214(a), subdvson (1), whch reads
Sec. 214. (a) That n computng net ncome there sha be aowed as de-
ductons :
(1) the ordnary and necessary e penses pad or ncurred durng the
ta abe year n carryng on any trade or busness,
nd secton 215(a), whch provdes:
Sec. 215. That n computng net ncome no deducton sha n any case be
aowed n respect of
(a) Persona, vng, or famy e penses.
On the case made by the petton the e pendture n queston was ether a
persona e pense or a busness e pense t was not a vng or famy e pense.
n t was an ordnary and necessary e pense, snce a sut ordnary and,
as a genera thng at east, necessary requres the empoyment of counse and
payment of hs charges. The petton s not as defnte as t mght have been,
but from ts aegatons, nterpreted as the Soctor Genera concedes they
may be, t appears that the accountng sut presented the queston whether the
compensaton n respect of whch the copartner sought an accountng was for
professona servces performed by pettoner durng the e stence of the part-
nershp or after ts termnaton, the defense to that sut beng based upon
the atter aternatve. In ether vew, the compensaton consttuted busness
earnngs.
The Soctor of Interna Revenue n a recent opnon has hed that ega
e penses ncurred by a doctor of medcne n defendng a sut for mapractce
were busness e penses wthn the meanng of the statute. In the course of the
opnon t was sad that such e pendtures were as much ordnary and necessary
busness e penses as they woud be f made by a merchant n defendng an
acton for persona n|ures caused by one of hs devery automobes, and
that n the atter case the deducton woud be aowed wthout queston. (C. .
-, p. 226.)
nother departmenta rung s to the effect that ega e penses ncurred
n defendng an acton for damages by a tenant n|ured whe at work on the
ta payer s farm are deductbe as a busness e pense. (C. . 5, p. 121.)
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269
214(a)3, rt. 131.
In the appea of . Meyer ro. Co. (4 . T. ., 481), the oard of Ta
ppeas hed that a ega e pendture made n defendng a sut for an account-
ng and damages resutng from an aeged patent nfrngement was deductbe
as a busness e pense.
The bass of these hodngs seems to be that where a sut or acton aganst
a ta payer s drecty connected wth, or, as otherwse stated (appea of
acker, 1 . T. .. 214, 216), pro matey resuted from, hs busness, the
e pense ncurred s a busness e pense wthn the meanng of secton 214(a),
subdvson (1), of the ct. These rungs seem to us to be sound and the
prncpe upon whch they rest covers the present case. If the e pense had
been ncurred n an acton to recover a fee from a cent who refused to pay
t, the character of the e pendture as a busness e pense woud not be doubted.
In the appcaton of the ct we are unabe to perceve any rea dstncton
between an e pendture for attorney s fees made to secure payment of the earn-
ngs of the busness and a ke e pendture to retan such earnngs after ther
recept. One s as drecty connected wth the busness as the other.
udgment reversed.
rtce 111: When charges deductbe. II-33-3852
I. T.2427
R NU CT O 1918.
I. T. 2300 (C. . -2,104) s revoked, n vew of Genera Counse s
Memorandum 4606, page 256.
rtce 111: When charges deductbe. II-49-4020
I. T. 2439
R NU CT O 1921.
I. T. 1351 (C. . 1-1, 132) s modfed n so far as t confcts wth
Genera Counse s Memorandum 5265, page 55.
rtce 111: When charges deductbe.
R NU CT O 1921 ND TRIOR CTS.
reghts charges of umber manufacturers keepng books on ac-
crua bass. (See G. C. M. 5265, page 55.)
S CTION 214(a)3. D DUCTIONS LLOW D:
T S.
rtce 131: Ta es. II-40-3920
( so Secton 222, rtce 381 Secton 238, G. C. M. 4969
rtce 611.)
R NU CT O 1918.
Where the operaton of a foregn branch by a ctzen of the
Unted States or a domestc corporaton resuts n a oss because
of a dfference n current rates of e change, there beng an actua
gan derved from the operaton of such branch n terms of the
currency of the country n whch t s ocated, the amount of for-
egn ncome ta es pad on such ncome s not aowabe as a credt
under secton 233(a) of the evenue ct of 1918, but shoud be
treated as a deducton n computng net ncome, provded such
ta es are not refected n the oss sustaned n the operaton of the
foregn busness.
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214(a)3, rt. 134.
270
In some of the years durng whch the Revenue ct of 1918 was
n effect the doar vaue of foregn money fuctuated very greaty.
s a resut domestc corporatons havng branches n foregn coun-
tres reported for some years a oss, n terms of doars, whereas
there was a proft, n terms of foregn money, on whch a foregn
ncome ta was pad. The queston arses as to whether n such
cases the domestc corporaton s entted to a credt under the pro-
vsons of secton 238 of the Revenue ct of 1918 for ta es pad
to a foregn country. That secton provdes n part as foows:
Sec. 238. (a) That n the case of a domestc corporaton the tota ta es
mposed for the ta abe year by ths tte and by Tte III sha be credted
wth the amount of any ncome, war-profts, and e cess-profts ta es pad dur-
ng the ta abe year to any foregn country, upon ncome derved from sources
theren, or to any possesson of the Unted States.
(b) Ths credt sha be aowed ony f the ta payer furnshes evdence
satsfactory to the Commssoner showng the amount of ncome derved from
sources wthn such foregn country or such possesson of the Unted States,
as the case may be, and a other nformaton necessary for the computaton of
such credt.
If the operaton of a foregn branch by a domestc corporaton
resuts n a oss n terms of doars, no credt under secton 238 s
aowabe. condton precedent to the aowance of such credt
s a showng of ncome n terms of doars derved from the foregn
source. The amount of any foregn ncome ta es pad under such
crcumstances, however, s a deducton from gross ncome n.com-
putng net ncome, provded the amount of such ta es s not refected
n the amount deducted as a oss, n terms of doars, sustaned n
the operaton of the foregn busness.
smar rung s appcabe n the case of a ctzen of the Unted
States havng a branch of hs busness n a foregn country.
C. M. Chaeest,
Genera Counse, ureau of Interna Revenue.
rtce 134: edera estate and State nhert- II-42-3950
ance ta es. T. D. 4226
INCOM T R NU CT O 1918 U CISION O COURT.
1. Deductons Ta es edera state Ta .
Where the books of account of the estate of a deceased are kept
on the bass of cash recepts and dsbursements the edera estate
ta due and payabe n 1920 but pad n 1921 s not deductbe
from gross ncome n 1920, even though nterest on the estate ta
was pad from the date t became due as a condton to the aow-
ance of an e tenson of the tme for ts payment.
2. Decson oowed.
The decson n the case of Unted States v. Mtche (271 U. S.,
9 (T. D. 3SG5 C. . -, 233 )) foowed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
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 ourth Centra Trust Co. of Cncnnat,
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271
214(a)3, rt. 134.
Oho, Soe Survvng ecutor of the state of ames . Mooney, v.
The Unted States s pubshed for the nformaton of nterna|
revenue coectors and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved October 4, 1928.
. W. Meon,
Secretary of the Treasury.
Court of Cams of the Unted States.
The ourth Centra Trust Co. of Cncnnat, Oho, Soe Survvng ecutor
of the state of ames . Mooney, v. The Unted States.
anuary 16, 1928.
opnon.
ooth, udge, devered the opnon of the court.
The pantff s the soe survvng e ecutor of the estate of ames . Mooney,
deceased. Mr. Mooney ded on September 15, 1919. s estate became abe
for a edera estate ta n the sum of 341,371.47. The pantff as e ecutor
of sad estate fed the estate s Income ta return for 1920 on March 14, 1921.
In statng gross ncome and aowabe deductons therefrom the pantff dd
not deduct the amount of the estate ta . The reported net ncome for the
year 1919-20 was 169,889.86, upon whch a ta was assessed and pad of
60,657.21. If the tem of 341,371.47, the estate ta , s deductbe, the estate
was not abe for the ncome ta of 60,651.21 pad, and t s for the recovery of
ths amount that ths sut s brought.
The estate ta s a deductbe tem under secton 214(a)3 of the Revenue ct
of 1918 (40 Stat., 1067). (Unted States v. Woodward, 256 U. S., 632 T. D.
3195, C. . 4, 153 .)
The Commssoner refused a refund cam for the amount of the ncome ta
stated above on the ground of the system empoyed by the pantff n keepng
the estate s books of account, sustanng the rght to do so on an aeged show-
ng that the same had been kept on a cash and dsbursements bass. Ths hod-
ng s supported by the decson of the Supreme Court n Unted States v.
Mtche (271 U. S., 9). There s at enst one ponted dfference between the
facts n the Mtche case and the present one. The pantff n ths case, pror
to September 15, 1920, durng the course of the admnstraton of the estate,
and before fng the estate s ncome ta return, apped to the Commssoner
for an e tenson of tme n whch to pay the estate ta . The Commssoner
granted the appcaton upon the condton that nterest must be pad upon the
tota amount of the ta due unt t was pad. Ths was acceded to, the tme
of payment e tended twce, and the accumuated nterest duy pad. The
Commssoner decned to refund.
We thnk ths case fas wthn the decson of the Supreme Court n the
Mtche case, supra, as the amount of the estate ta was not n fact charged
aganst the estate upon the books of the pantff unt the dates when t was
pad and the Commssoner aowed the deducton for the 1921 payment.
Under ths decson the pantff s entted to the deducton for the 1922 pay-
ment. The e tenson of tme wthn whch to pay was a prvege to pantff
and whe t pad nterest upon the deferred payments, ths fact aone does
not seem to e cept the case from the decson of the Supreme Court n the
Mtche case. We beeve the pantff s not entted to recover. The petton
w be dsmssed. nd t s so ordered.
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214(a)4, 5, 6, rt. 141.
272
S CTION 214(a)4, 5, 6. D DUCTIONS LLOW D:
LOSS S.
rtce 141: Losses. II-40-3921
( so Secton 202, rtce 15G1.) T.D.4212
INCOM T R NU CT O 1918 D CISION O SUPR M COURT.
1. Deducton Loss Sae Resdence.
Where property purchased by a ta payer as hs resdence Is ater
devoted e cusvey to the producton of ncome a oss resutng
from Its sae s deductbe from gross ncome under secton 214(a)5
of the evenue ct of 1918. The bass for determnng the amount
of oss s ts far market vaue when approprated to the produc-
ton of ncome or, f so approprated before March 1, 1913, ts far
market vaue on that date, whchever s ower.
2. Decson Reversed.
The decson of the dstrct court (17 ed. (2d), 522 (T. D.
3966 C. . T-1, 217 )) reversed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Ot/ers Concerned:
The foowng decson of the Supreme Court of the Unted States
n the case of D. . ener, Coector of Interna Revenue, v. ames
R. Tnde et a., Coe ecutors, s pubshed for the nformaton of
nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved September 20, 1928.
. W. Meon,
Secretary of the Treasury.
Supreme Court of the Unted States.
D. . Uener, Coector of Unted States Interna Revenue for the Tteenty-thrd
Dstrct of Pennsyvana, pettoner, v. ames R. Tnde and the Unon Trust
Co. of Pttsburyh, Coe ecutors, etc.
pr 9, 1928.
Mr. ustce Stone devered the opnon of the court.
efore 1892 the ate Phander C. no but a dweng house n Pttsburgh,
at a tota cost for and and budngs of 172,000. e occuped the house as
a resdence unt 1901, when, crcumstances requrng hs resdence esewhere,
he eased the property at a stpuated renta. e contnued so to ease t from
October 1 n that year unt 1920. when t was sod for 73,000. The far
market vaue of the property on March 1, 1913, was . 120,000. Its vaue n 1901
does not appear. In hs ncome ta return for 1920 he deducted from gross
ncome the dfference between the seng prce of the property and ts March 1,
1913, vaue, ess deprecaton from that date to the date of sae. The Comms-
soner dsaowed the deducton and assessed a corres| ndngy ncreased ta ,
whch was pad under protest. The present sut was brought n the Dstrct
Court for Western Pennsyvana to recover the addtona ta assessed. The
tra was to the court, a |ury havng been waved by wrtten stpuaton. udg-
ment was gven for the coector (17 . (2d), 522), whch was reversed by the
Crcut Court of ppeas for the Thrd Crcut (18 . (2d), 452).
The ta was assessed under the Revenue ct of 191S (ch. 18, 40 Stat, 1057).
Secton 214 specfes deductons whch may be made from gross ncome u com-
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273
214(a)4, 5, 6, rt. 141.
putng the ta , and subsecton (a)5 permts the deducton of osses sustaned
durng the ta abe year and not compensated for by nsurance or otherwse, f
ncurred n any transacton entered nto for proft, though not connected wth
the trade or busness. Secton 215 provdes that n computng net ncome no
deducton sha n any case be aowed n respect of (a) persona, vng, or
famy e penses. Treasury Reguatons 45, promugated pr 17, 1910, and
n force durng 1920, provde: rt. 141. oss n the sae of an
ndvdua s resdence s not deductbe. Ths was amended on anuary 28,-
1921, to read: oss n the sae of resdenta property s not
deductbe uness the property was purchased or constructed by the ta payer
wth a vew to ts subsequent sae for pecunary proft. Ths reguaton has
remaned unchanged under the Revenue cts of 1921, 1924, and 1926. See
artce 141 of Reguatons 62, Reguatons 65, and Reguatons 69.
That the e change vaue of a dweng house may ncrease or dmnsh s a
consderaton not usuay overooked by one who purchases t for resdenta
purposes, but the quoted reguatons appear to assume that the acquston of
such property can not be a transacton for proft wthn the meanng of sub-
secton (a)6 of secton 214 f the domnatng purpose of t s the use of the
property for a home. The correctness of that vew s not b fore us, for there s
no fndng that the ta payer but bs dweng wth any hope or e pectaton of
proft. See appea of D Oench (3 . T. ., 24).
ut the fndngs ampy support the vew of the court of appeas that the
purpose to use the property as a resdence of the ta payer came to an end when
t was eased n 1901, and that from that date unt t was sod 19 years ater
t was devoted e cusvey to the producton of a proft n the form of net rentas.
It s not questoned that f n 1901 the property had been purchased for that
use or nherted and so used the oss mght have been deducted, but t s sad,
as the dstrct court hed, that the ony transacton entered nto wth respect to
the property was the purchase of the and and the erecton of the house, regard-
ess of the use whch mght afterwards be made of t, and that these acts dd
not appear to be a transacton entered nto for proft.
ut the words any transacton as used n subsecton (a)5 are not a
technca phrase or one of art. They must therefore be taken n ther usua
sense and so taken, they are, we thnk, broad enough to embrace at east any
acton or busness operaton, such as that wth whch we are now concerned,
by whch property prevousy acqured s devoted e cusvey to the producton
of ta abe ncome. We can perceve no reason why they shoud not be so taken
uness that constructon s nconsstent wth the purpose or wth partcuar
provsons of the ct. Secton 214, read as a whoe, dscoses pany a genera
purpose to permt deductons of capta osses wherever the capta nvestment
s used to produce ta abe ncome, and the ncuson of the present deducton
n those descrbed n subsecton (a)5 woud seem to be entrey harmonous
wth that purpose.
ut t s ponted out that secton 202 of the Revenue ct of 1918, prescrbng
the method of computng gan or oss upon the sae of property, makes vaue
as of March 1, 1913, or cost f acqured ater, the bass of the computaton.
It s sad that ths s Inconsstent wth the use of the market vaue of the
property at the date of renta as the bass of the computaton, whch woud be
necessary f the constructon contended for were gven to subsecton (a)5, and
that n any case a computaton on that bass woud nvove admnstratve
dffcutes n determnng the vaue, whch shoud ead to a dfferent nter-
pretaton.
ut t s obvous that secton 202 s not a-ncusve. The same and no
greater nconsstency and dffcuty arse n the case of property acqured by
gft, bequest, or devse, when market vaue at the tme of acquston by
the donee and not cost s necessary the bass of computng the ta . That
n such cases the dfference between the sae prce and market vaue at the
date of acquston, f after March 1, 1913, s deductbe under subsecton
(a)5, s not questoned. The ascertanment of market vaue of the property
at that date woud not seem to nvove any greater admnstratve dffcuty
than the ascertanment of market vaue on March 1, 1913: Secton 202 tsef
provdes that In the case of e change the property sha be taken at ths far
market vaue, and under the ct of 1918 ths was kewse provded for n
the case of property acqured by gft, devse, or bequest, by Reguatons 45,
artce 1562, whch was ncorporated n the ater cts. (Revenue ct of
1821, ch. 136, 42 Stat., 227, secton 202(a)2 Revenue ct of 1924, ch. 234,
43 Stat., 253, secton 204(a)2 Revenue ct of 1926, ch. 27, 44 Stat., 9, secton
204(a)2.)
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214(a)7, rt. 151.
274
or the purpose of computng the oss resutng from ths partcuar trans-
acton, we thnk t must stand on the same footng as osses resutng from
a smar use of property acqured by gft or devse and that whenever needfu
the far vaue of the property at the tme when the transacton for proft
was entered nto may be taken as the bass for computng the oss.
rtce 141 of the reguatons presents no necessary nconsstency wth the
constructon of secton 214ta)5 contended for by the respondent. The artce
both n ts orgna and n ts amended form obvousy refers to the sae of
resdenta property of the ta payer that s to say, property used by hm
as a resdence up to the tme of the sae. Ony f that s ts meanng can
t be reconced wth the Treasury rungs that osses on the sae of resdenta
property acqured by gft, devse, or bequest and devoted to renta purposes
may be deducted. The oss here has resuted from the sae of property not
used for resdenta purposes by the ta payers, and the transacton entered nto
for proft and resutng n the oss was not the purchase of the property but
ts appropraton to renta purposes. The artce of the reguatons by Its
terms has no appcaton to a oss so ncurred.
The fndngs show that the property was sod for ess than ts cost and
the oss deducted was the dfference between ts March 1, 1913, vaue and the
sae prce. The ony oss deductbe here under subsecton (a)5 s one In-
curred n a transacton entered nto for proft ater than the date of purchase.
or a that appears from the fndngs the oss whch had occurred between the
date of purchase and March 1, 1913, may have occurred before the property
was devoted to renta purposes. or that reason the fndngs dc not support
the |udgment The cause shoud be remanded for a new tra so that the
vaue of the property as of October 1, 1901, when rented, may be found. If
that vaue s arger than the vaue of March 1, 1913, the deducton made
beow shoud be aowed f ess, ony the dfference, f any. between ts then
vaue and the sae prce shoud be aowed. (See Unted States v. annery,
268 U. S., 98 T. D. 3703, C. . I -1, 106 McCaughn, v. Ludngton, 268 U. S.,
106 T. D. 3705, C. . I -1, 110 .)
Reversed.
S CTION 214(a)7. D DUCTIONS LLOW D:
D D TS.
rtce 151: ad debts. II-47-4006
( so Secton 234, rtce 566.) T. D. 4247
ncome ta revenue act of 1918 decson of court.
1. Deductons ad Debts Promssory Notes.
Loans made by a bank evdenced by promss6ry notes whch are
not repad by the borrowers and overdrafts by depostors that are
not repad are debts wthn the meanng of secton 234(a)5 of the
Revenue ct of 1918, and no deducton on account thereof may be
taken unt same are ascertaned to be worthess and are charge 1
off.
2. Same: Ta on ank Stock.
State and county ta es mposed upon the stockhoders of a bank
on account of ther ownershp of such stock are not deductbe by
the bank notwthstandng the bank s requred by the State aw to
pay such ta es on behaf of ts stockhoders.
3. udgment ffrmed.
The |udgment of the dstrct court (T. D. 4078 C. . I-2,
201 ) 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 p-
peas for the Nnth Crcut, n the case of . W. Porter, Comms-
soner of nance of the State of Idaho, Lqudatng- gent of the
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275
214(a)7, rt. 151.
Ctzens State ank, uh, Idaho, an Insovent ankng Corpora-
ton, appeant, v. The Unted States of merca, appeee, s pub-
shed for the nformaton of nterna revenue offcers and others
concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved November 13, 1928.
Ogden L. Ms,
ctng Secretary of the Treasury.
Unted States Crcut Court of ppeas fob the Nnth Crcut.
. W. Porter, Commssoner of nance of the State of Idaho, Lqudatng
gent of the Ctzens State ank, uh, Idaho, an Insovent ankng Cor-
poraton, appeant, v. The Unted States of merca, appeee.
uy 16, 1928.
OPINION.
unt, Crcut udge: ppeant Porter, as commssoner of fnance of Idaho
and as statutory qudatng agent of the Ctzens State ank of uh, Idaho,
an nsovent bankng corporaton, appeas from a decree dsmssng hs com-
pant and n favor of the Government. The sut s for the recovery of ncome
and profts ta es assessed by the Unted States and pad by the bank for the
years 1917, 1918, 1919, and 1920.
Pettoner contends that the bank dd not have or make any ta abe net
ncome or any proft on net ncome whatever, for any of the years above referred
to, and that the assessment and coecton were erroneous and ega n the
foowng respects: 1. That nterest accrued or nterest earned but uncoected
on notes and oans of the bank was Incuded n gross ncome durng the years
above referred to. 2. That arge amounts by way of osses were sustaned by
the bank durng each of the years referred to whch shoud have been aowed
as deductons from gross ncome. 3. That certan specfed sums were pad by
the bank durng each of the years mentoned on account of State and county
ta es assessed aganst the net worth of the bank, whch were not aowed as
deductons from gross ncome. 4. That no e cess profts ta es shoud have been
assessed aganst the bank for the reason that there was n reaty no ta abe
net ncome.
fter the ntroducton of pantff s evdence, the court granted defendant s
moton for dsmssa.
The court found that the cam for refund of ta es for 1917 was barred by the
statute of mtatons because t was not fed unt November 29, 1924, or more
than four years from the date of payment of the ta , and that no waver was
fed wth the Commssoner wthn fve years from the date the return for the
ta abe year 1917 was due that the bank, for the ta abe years 1918, 1919, and
1920, fed ts ncome ta returns and pad the amounts nvoved n the present
tgaton that afterwards, n December, 1921, the bank cosed ts doors that
the cams for refund here nvoved were then fed by the qudatng agent, who
asserted that the bank had suffered a deductbe oss of 81,147.32 for the ta -
abe year 1918, 163,129.35 for the ta abe year 1919, and 100,083.07 for the
ta abe year 1920: that such sums were not deducted as osses for the years
specfed n the orgna returns and were reported as gross ncome : that
those tems conssted of oans made by the bank to borrowers and were evdenced
by promssory notes e ecuted by the borrowers that n some nstances nterest
was ncuded that the notes were not pad to the bank that certan oans were
made by the offcers of the bunk to themseves and others to secure whch there
was no adequate securty that overdrafts and oans aowed to those who were
not abe to repay the bank were nothng more than debts due upon e press con-
tracts whch the borrowers were bound to pay to the bank that State and
county ta es eved under Idaho State aws and pad by the bank durng the
years 1918, 1919, and 1920 on bank stock of stockhoders were assessed on the
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214 (a)7, rt. 151.
276
stockhoders of the bank and not upon the bank tsef, and therefore were not
aowabe as deductons from the gross ncome of the bank.
y secton 281 (b) and (e) of the Revenue ct of 1924, e cept as provded n
sectons (c) and (e), no refund s aowabe after four years from the tme the
ta was pad uness before the e praton of such four years a cam therefor s
fed by the ta payer nor sha the amount of the credt or refund e ceed the
porton of the ta pad durng the four years mmedatey precedng the fng
of the cam, or f no cam was fed, then durng the four years mmedatey
precedng (he aowance of the credt or refund. y subdvson (e). f the
ta payer has wthn fve years from the tme the return for the ta abe year
1017 was duo, fed a waver of hs rght to have the ta es due for such ta abe
year determned and assessed wthn fve years after the return was fed, or f
he has on or before une 15, 1024, fed such a waver n respect to the ta es
due for the ta abe year 1918, then such credt or refund reatng to the ta es
for the year n respect to whch the waver was fed sha be aowed or made
f the cam therefor s fed ether on or before pr 1, 1925, or wthn four
years from the date the ta was pad. y secton 1012 of the Revenue ct of
1024. a cams for refund of any nterna revenue ta aeged to have been
erroneousy or egay assessed or coected, or of any sum aeged to have been
e cessve, or n any manner wrongfuy coected, must, e cept as provded n
secton 281 of the ct of 1924, be presented to the Commssoner of Interna
Revenue wthn four years ne t after the payment of such ta , penaty or sum.
Under the Revenue ct of 1026, secton 1113(a), no sut or proceedng sha be
mantaned n court for the recovery of any nterna revenue ta aeged to have
been erroneousy or egay assessed or coected or any sum aeged to have
been e cessve or n any manner wrougfuy coected unt a cam for refund
or credt has been duy fed wth the Commssoner of Interna Revenue accord-
ng to the provsons of aw n that regard and the reguatons of the Secretary
of the Treasury estabshed n pursuance thereof. No such sut or proceedng
sha be nsttuted before the e praton of s mouths from the date of fng
such cam uness the Commssoner renders a decson thereon wthn that, tme,
nor after the e praton of fve years from the date of the payment of such ta
or sum uness such sut or proceedng s begun wthn two years after the ds-
aowance of the part of such cam to whch such sut or proceedng reates.
Referrng to the 1017 ta es, t was stpuated that about December 1, 1924,
pantff fed a cam for refund for the ncome and profts ta es for that year,
but that the Commssoner of Interna Revenue re|ected the cam n fu on
or about anuary 14, 1920. No waver for 1917 was fed. It s cear that
under the crcumstances the cam for refund for that year, not havng been
ted unt November 29, 1924, or more than four years from the date of the
pavment of the ta bv the bank, sut upon the cam s barred. (McDonad
Coa Co. v. LeweUyn, 9 . (2), 994 LT. D. 3802, C. . -, 122 Same, 16 .
(2), 274.)
Pantff argues that the court erred n re|ectng an offer of evdence whch,
he says, tended to show that a cam for refund for 1917 was fed n une,
1920. The offer conssted of correspondence reatng to a cam, but faed
to show that a cam was fed. Therefore t was mmatera and was propery
re|ected.
We attach no sgnfcance to appeant s suggeston that the statute of mta-
ton does not run because the State of Idaho, by the commssoner of fnance,
s sung the Unted States n ts soveregn capacty as trustee to enforce a
pubc rght and to assert a pubc nterest, etc. The commssoner of fnance
as qudatng agent of the bank has the same, but no greater, rght to sue than
the bank as a ta payer woud have. The case does not nvove ncome of the
State, nor of one of ts nstrumentates.
It s urged that the evdence dscoses that arge sums were oaned wthout
adequate securty to, and that heavy overdrafts were permtted to be made by,
the offcers and drectors of the bank durng 1017, 191S, and 1010, and that a
such oans and overdrafts that were not pad, and the uncoected nterest
thereon, were osses to the bank and were therefore deductbe.
Secton 234(a) provdes that n the case of a corporaton there sha be
aowed as deductons (4) osses sustaned durng the ta abe year and not
compensated for by nsurance or otherwse (5) debts ascertaned to be worth-
ess and charged off wthn the ta abe year (40 St., 1057). Losses, generay
speakng, may ncude debts but n the statute quoted by the enumeraton
separatey of osses and debts. Congress made a dstncton whch must be
recognzed. s smpe ustratons of a oss occurrng durng the ta abe year,
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277
214(a)7, rt. 161.
we mght cte destructon of property by fre where the property destroyed s
not covered by nsurance or, the theft of funds of a bank durng a ta abe
year wthout nsurance aganst such a oss. ut an nterest-bearng note for
an amount oaned by the bank, or an overdraft by a depostor but not pad,
and found to be worthess and charged off durng the ta abe year, s a worth-
ess debt. In Levoeyn v. ectrc Reducton, Co. (275 D. S., 243) the court
assumed that the above-quoted subdvsons (4 and 5) of the statute are
mutuay e cusve and that a oss under one may not be deducted under the
other. (Unted States v. ausner et a., 25 . (2), 608, O. C. ,, 2, pr. 0,
1928.) nd n the present case the tems whch made up the amounts reported
n the returns as gross ncome were found by the dstrct court to consst
of oans made by the bank to borrowers durng the years 1918, 1919, and 1920.
They were evdenced by promssory notes e ecuted by the borrowers, and at
maturty, n some nstances where the commttee thought securty was ampe,
nterest accumuated on the pror note was added to the renewa note. The
notes were not pad nor were Ihey charged off durng the years 1918, 1919, and
1920. (Roya Packng Co. v. Commssoner, 22 . (2), 536 very v. Comms-
soner, 22 . (2), 6 T. D. 4116, O. . II-1, 155 .) We agree wth the dstrct
court that the osses nvoved n the present case were reay but sums of money
due upon e press contracts under whch the borrowers were obgated to pay,
nnd as such are wthn the provsons of secton 234(a) of the ct of |918.
The testmony of the former casher of the bank was that there was an e amn-
ng commttee whch met quartery and went over the varous oans and ap-
proved them that he was a member of the commttee and that n approvng the
oans he beeved the borrowers woud be abe to pay. In 1920 he questoned
whether the oans coud be coected, but t was not unt after 1920 that t
was determned that they coud not be coected. In e panng the matter of
nterest, the wtness sad that where the nterest was added to the renewa
notes durng 1918, 1919, and 1920, and the ncome ta was pad for any one
year, the nterest woud be credted to the earnngs of the bank and the ta
was pad on that partcuar amount that the ncome and proft returns for
1918, 1919, and 1920 were made out n a way to show the true earnngs of the
bank as shown by the books that the records of the bank were correct that
the bank pad dvdends durng 1918 and 1919 and one dvdend durng 1920
and that f condtons had mproved the bank coud have reazed on prac-
tcay a of the accounts. The conduct of the bank offcas may have been
reprehensbe and n fang to charge off certan overdue and unsecured oans
they may have voated the bankng aws of the State of Idaho, but the test-
mony sustans the fndng that n negotatng such oans the offcas of the
bank acted wthout frauduent purpose to n|ure the bank or to approprate
the sums to ther own use to the detrment of the bank.
It was aso found that durng the three years mentoned the bank pad cer-
tan amounts upon bank stock ta es for whch t was not rembursed by the
stockhoders and whch were not ncuded n the returns of the bank as deduc-
tons nor n ts cams for refunds for the years specfed. Our concuson s
that the bank had no rght to make a deducton from the gross ncome of the
amount of such ta es. Pretermttng the pont that the pantff beow made no
cam for deducton of bank stock ta es and thus faed to compy wth the
statutory requrements (Tucker v. e ander, 15 ed. (2), 356 T. D. 3973.
C. . I-1, 287 ), we are, nevertheess, of the opnon that the contenton acks
ega mert. These ta es were eved under the Idaho aw, whch provdes
(sectons 3299, 3302, and 3303, Comp. St Idaho, 1919) that the stockhoders of
every bank assocaton must be assessed and ta ed n the county where the
bank s ocated n the vaue of ther shares of stock n the bank and that the
bank must furnsh to the assessor a fu and correct st of the names of ts
stockhoders, and that the ta must be assessed aganst the hoders whose
names appear on the st, as persona property, and must be pad by the bank,
but that the owners of such shares are abe for the ta pad by the bank.
In Sctammd v. rst Natona ank of We-ser (18 Ida., 290) the court n
consderng that statute regarded the shares of stock as persona property of
the sharehoders, and sad that whe the ta es aganst the shares must
utmatey be pad by the owner of the stock, st the statute makes the bank
the agent of the stockhoder and abe to the county for the ta so eved and
assessed. The bank was hed obgated to pay the ta assessed aganst the
stock of ts stockhoders, and such abty on the part of the bank carred wth
t an mped en n favor of the bank aganst the stock and the earnngs,
dvdends, and profts derved therefrom for rembursement n the sum so pad,
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214 (a) 8, rt. 163.
278
but that the bant as agent m.ade the payments for the owners of the stock.
It has aso been hed that the amount of the bank ta under the aw of Idaho
not beng upon the bank tsef, the ta s not deductbe from gross ncome by
the bank. ( ot Natona ank v. G, 218 ed., 60() rst Natona ank of
ackson, Mss., v. McNce, 238 ed., 559.)
Severa assgnments are based upon rungs on ob|ectons to certan evdence
offered n behaf of the pantff beow. They nvove questons subordnate
to those upon whch we thnk the decson n the case must turn, and we can
not see that pantff was n|ured by the rungs n respect to the offers.
The |udgment s affrmed.
S CTION 214(a)8. D DUCTIONS LLOW D:
D PR CI TION.
rtce 163: Deprecaton of ntangbe II-41-3934
property. T. D. 4213
ncome ta revenue act of 1918 decson of court.
1. Deductons Obsoescence Good W.
No deducton s aowabe for obsoescence of good w under
secton 214(a)8 of the Revenue ct of 1918 whch mts the aow-
ance for obsoescence to such property used n the busness as s
susceptbe to e hauston, wear and tear.
2. Decsons oowed.
The decsons n Red Wng Matng Co. v. Wcuts (15 ed. (2d),
626 (T. D. 3980 C. . I-1, 225 )) and abere Crysta Sprng
rewng Co. v. Cark (20 ed. (2d), 540 (T. D. 4067 C. . I-2,
213 )) are foowed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Interna Revenue Offcers and Others Concerned:
The foowng decson of the Unted States Crcut Court of
ppeas for the Nnth Crcut, n the case of enry N. Landsberger,
pantff n error, v. ohn P. McLaughn, Coector of Interna
Revenue, rst Dstrct of Caforna, defendant n error, s pub-
shed for the nformaton of nterna revenue offcers and others
concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved September 25, 1928.
. W. Meon,
Secretary of the Treasury.
Unted States Crcut Court of ppeas for the Nnth Crcut.
enr) N. Landsberger, pantff n error, v. ohn P. McLaughn, Coector of
Interna Revenue, rst Dstrct of Caforna, defendant n error.
May 7, 1928.
opnon.
Gbert, Crcut udge: The pantff n error was for many years e ten-
svey engaged n the busness of buyng wnes and brandes from wne makers
n Caforna, and seng the same, generay n caroad ots, to whoesae
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279
214(a)9, rt. 183.
deaers. s busness was n the nature of that of a broker. e had no
capta nvested n t e cept that occasonay he woud oan money to grape
growers to fnance the rasng of ther crops. In hs ncome ta returns for
1919 and 1920 he camed that the good w of hs busness had been worth
90,113.90, but that t became obsoete by reason of natona prohbton,
whch went nto effect anuary 16, 1920, and he aocated hs oss by obsoes-
cence to the year 1919 n the sum of 45,964.54 and to the year 1920, 2,015.19.
The Treasury Department dsaowed the deductons and he pad under protest
the addtona ta . Thereafter he brought an acton n the court beow to
recover 13,426, the defcency n ncome ta assessed aganst hm for 1919,
and 1,154.31, assessed and pad for 1920.
The statute whch contros decson s the Revenue ct of 1918 (40 Stat.,
1057), whch provdes as foows: Sec. 214. (a) That n computng net ncome
there sha be aowed as deductons: (8) reasonabe aowance for
the e hauston, wear and tear of property used n the trade or busness, n-
cudng a reasonabe aowance for obsoescence. The pantff n error con-
tends that the oss of good w due to prohbton egsaton was propery
deductbe under the foregong statute that t comes wthn the provsons
whch permts a reasonabe aowance for obsoescence.
The dentca queston thus presented was before the Court of ppeas for
the ghth Crcut n Red Wng Matng Co. v. Wcuts (15 ed. (2d), 626),
where n a carefu and e haustve opnon t was hed that good w s a prop-
erty of ntangbe nature and that ts oss can not be the bass for ncome ta
reducton n the absence of a showng that such oss was not refected n gen-
era oss resutng from sae of property for deprecated vaue. Sad the court:
It seems to us that the anguage ncudng a reasonabe aowance for
obsoescence s but a part of and an enargement of the prevous phrase of
the sad subsecton (7) reatng to e hauston, wear, and tear, and that the
frst part of the sentence was ntended to cover the sub|ect matter thereof.
It does not add a new knd of deducton, but merey permts the ncuson of
an addtona eement, namey, obsoescence of such property used n the bus-
ness as s sub|ect to e hauston, wear, and tear. The aowance for obsoes-
cence was ntended to be n connecton wth the aowance for e hauston, wear,
and tear and that beng at tmes nsuffcent to restore the proper bass of
capta vaues.
Certorar was dened (273 U. S., 763). The decson was foowed n abere
Crysta Sprng rewng Co. v. Cark (20 ed. (2d), 540).
The pantff n error drects attenton to secton 325(a) of the statute,
whch provdes that as used n Tte II of the ct, The term ntangbe
property means patents, copyrghts, secret processes and formuae, good w,
trade-marks, trade-brands, franchses, and other ke property, and he contends
that good w s thus paced n the cass of property. Concedng that t be
true, t does not foow that subdvson (8) of secton 214 shoud receve a
constructon other than that whch ts pan terms mpy. Theren aowance
for obsoescence s made as to property used n trade or busness, and we
thnk t cear that good w s not property used n trade or busness n the
sense of the statute nor sub|ect to e hauston, wear, or tear. Our concuson
s that the decson n the Red Wng case propery dsposes of the questons
whch are here presented.
The |udgment s affrmed.
S CTION 214(a)9. D DUCTIONS LLOW D:
MORTIZ TION.
rtce 183: Property cost of whch may be II-29-3S05
amortzed. G. C. M. 4245
R NU CTS OP 1918 ND 1921.
pendtures for openng and deveopng a mne are sub|ect to
amortzaton. Soctor s Memorandum 3104 (C. . -2, 175)
revoked.
37229 29 19
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214(a), rt. 251
280
n opnon s requested as to whether e pendtures for mne deve-
opment may form the bass for an amortzaton aowance.
ttenton s drected to the decson of the Crcut Court of ppeas
for the fth Crcut n Unted States v. Corona Coa Co. (23 ed.
(2d), 673), affrmng the decson of the Unted States Dstrct Court
n Corona Coa Co. v. Unted States (21 ed. (2d), 489). The courts
hod that coa was an artce contrbutng to the prosecuton of the
war that a coa mne s a facty that everythng gong to make
up an operatng mne consttutes the facty, and that the cost of
openng two shafts n the coa mne under consderaton s amortz-
abe under secton 234(a)8 of the evenue ct of 1918.
Ths offce has prevousy hed n Soctor s Memorandum 3104,
supra, that costs of mne deveopment consstng of shafts, tunnes,
entres, crosscuts, etc., were not sub|ect to amortzaton wthn the
purvew of the above secton.
Inasmuch as t has been recommended that no petton for cer-
torar be fed n the Corona Coa Co. case, Soctor s Memorandum
3104, supra, s hereby revoked, and under the court decsons above
cted e pendtures for mne deveopment are sub|ect to the amortza-
ton deducton provded n secton 234 (a) 8 of the Revenue cts of 1918
and 1921.
C. M. Chaeest,
Genera Counse, ureau of Interna Revenue.
S CTION 214(a) 11. D DUCTIONS LLOW D:
C RIT L CONTRI UTIONS.
rtce 251: Chartabe contrbutons. II-29-3809
T. D. 4175
ncome ta revenue act of 1918 decson of court.
Deducton Chamtabe Contrbutons Lmtaton Income of
Indvdua s usness Ta ed as that of a Cobpobaton.
Where the net ncome of the busness of an ndvdua s at hs
opton ta ed as that of a corporaton as provded by secton 330 of
the Revenue ct of 1918 the deducton from hs gross ncome
aowed for chartabe contrbutons under secton 214(a) 11 of that
ct s mted to 15 per cent of hs net ncome e cudng that part
of t ta ed as corporate ncome pursuant to secton 330.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Conce ned:
The foowng decson of the Unted States Dstrct Court, South-
ern Dstrct of New York, n the case of Reuben Sadowsky v. Chares
W. nderson, Coector of Interna Revenue, s pubshed for the
nformaton of nterna revenue offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved uy 7, 1928.
. W. Meon,
Secretary of the Treasury.
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281
214(a), rt. 251.
Untes States Dstect Court, Southern Dstrct op New York.
Reuben Sadovtsky, pantff, v. Chares W. nderson, as Coector of Interna
Revenue for the Thrd Dstrct of New York, defendant.
March 27, 1928.
OPINION.
Thacheb, D. .: The ta payer was the owner of a busness whch was ncor-
porated une 26, 1919. e had other sources of ncome. Wth respect to the
ncome of the busness, he chose to be ta ed for the year 1918 and that porton
of the year 1919 pror to ncorporaton as f the Income was that of a corpora-
ton. Ths was permtted by secton 330 of the Revenue ct of 1918. The
soe queston presented s whether, n such a case, the deducton of chartabe
contrbutons s mted n amount to 15 per cent of hs net ncome ncudng
or e cudng that part of hs ncome ta ed as corporate ncome pursuant to
secton 330.
Under secton 330 the net ncome of the busness at the opton of the ta -
payer s to be ta ed ns the net ncome of a corporaton s ta ed under Ttes
II and III, and for ths purpose net ncome and nvested capta of the busness
are to be computed as f the busness had been ncorporated. the provsons
of Ttes II and III reatng to corporatons are made to appy. It foows
that n computng the ncome ta to be pad wth respect to the ncome of the
busness, sectons 232, 233, 234, 235, and 236 must be foowed, as they reate
to corporatons, and must contro n so far as they dffer from the provsons
of sectons 212, 213, 214, 215, and 216, reatng to ndvduas Now, the ony
authorty for deductng chartabe contrbutons s found n secton 214, para-
graph II, where the deducton s aowed n computng net ncome (214-a)
n the case of an ndvdua (212-n). In computng the net ncome of a
corporaton sub|ect to the ta mposed by secton 230 no such deducton s
aowed 234-a). The pan meanng of secton 330 forbds the aowance of
deductons not aowed n the case of corporatons. It woud be most unreason-
abe to construe secton 330, whch was manfesty ntended to gve the ta -
payer the opton of payng the ta mposed on corporate ncome nstead of the
ta mposed on ndvdua ncome, n such a way that the ta payer may pay
the corporate ta whe retanng the beneft of deductons aowabe ony to
ndvduas. Therefore I thnk that the ncome whch the ta payer chose to
have ta ed under secton 330, as corporate ncome s ta ed, coud have no
effect n determnng the amount to whch hs chartabe contrbutons coud
be deducted from the baance of hs ncome, whch was ta ed as ncome of an
ndvdua s ta ed. The phrase 15 per centum of the ta payer s net ncome
as computed wthout the beneft of ths paragraph, n paragraph II of secton
214, obvousy refers to the net ncome, whch s computed under sectons 212.
213, 214, and 215 as the net ncome of an ndvdua ta ed under secton 210.
There s nothng n the ct whch warrants the e tenson of ths phrase so as
to cover ncome computed and ta ed under the sectons reatng to corporatons.
The generaty of the words used does not authorze a constructon whch
woud defeat the obvous ntenton and scheme of the statute. The compant
s accordngy dsmssed, wth, costs.
rtce 251: Chartabe contrbutons.
R NU CT O 1921 ND PRIOR CTS.
Contrbutons to a bar assocaton. (See G. C. M. 4805,
page 58.)
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217. rt. 326.
282
S CTION 217. N T INCOM O NONR SID NT
LI N INDI IDU LS.
rtce 326: Other ncome from sources wthn II-49- 021
the Unted States. I. T. 2440
R NU CTS OP 1918 ND 1921.
The ncome receved by a foregn corporaton, whch operates a
mne n the Unted States, from the sae of ts product n a foregn
country to whch t has been shpped, s not ta abe under the
Revenue ct of 1918. Such ncome s ta abe under the Revenue
ct of 1921, uness t can be shown that such ncome shoud not be
aocated to sources wthn the Unted States.
dvce s requested reatve to the abty of the M Company, a
foregn corporaton, to edera ncome ta .
The facts as stated are these: The M Company was organzed under
the aws of a foregn country and owns mnes n the Unted States.
The product s mned and shpped to the home offce n urope,
where t s treated and dsposed of. The M Company has no saes
agents n the Unted States a saes take pace abroad and ts
books are kept n a foregn country. or the years 1913 to 1922
the M Company fed edera ncome ta returns and pad the ta
based upon the tota saes whch were made n urope ess the
proper cost of mnng, freght, seng, etc.
Secton 233(b) of the Revenue ct of 1918 provdes as foows:
In the case of a foregn corporaton gross ncome ncudes ony the gross
ncome from sources wthn the Unted States, ncudng the nterest on bonds,
notes, or other nterest-bearng obgatons of resdents, corporate or otherwse,
dvdends from resdent corporatons, and ncudng a amounts receved (a-
though pad under a contract for the sae of goods or otherwse) representng
profts on the manufacture and dsposton of goods wthn the Unted States.
It does not appear that any rung has been made under the Reve-
nue ct of 1918 reatve to the ta abty of ncome derved by a
foregn corporaton from saes made wthout the Unted States of
the product of a mne ocated wthn the Unted States. Treasury
Decson 3111 (C. . 4, 280), promugated under the Revenue ct of
1918, contans the defnton of the term ncome from sources wthn
the Unted States made by the ttorney Genera of the Unted
States. The frst case cted s that of a foregn corporaton whch
operated sawms n the Unted States and shpped the raw products
of the sawms to Great rtan to be fnshed and sod. The ttor-
ney Genera hed that no ncome s derved from the manufacture of
goods and that before there can be ncome there must be saes.
though the decson n that case was mted to the manufacture
of goods, there appears to be no reason why the prncpe under-
yng that decson shoud not be equay appcabe to the case of a
natura product mned n the Unted States and shpped abroad for
perfecton and sae. It s, therefore, hed that under the Revenue
ct of 1918 the ncome derved from the sae wthout the Unted
States of the product mned n the Unted States was not ncome
from sources wthn the Unted States and was not sub|ect to
edera ncome ta .
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283
219, rt. 341.
Secton 233(b) of the Revenue ct of 1921 provdes:
In the case of a foregn corporaton, gross ncome means ony gross ncome
from sources wthn the Unted States, determned (e cept n the case of
nsurance companes sub|ect to the ta mposed by secton 243 or 246) n the
manner provded n secton 217.
rtce 326 of Reguatons 62, nterpretatng secton 217 of the
Revenue ct of 1921, reads n part as foows:
The ncome derved from the ownershp or operaton of any farm, mne,
o or gns we, other natura depost, or tmber, ocated wthn the Unted
States, and from the sae by the producer of the products thereof wthn or
wthout the Unted States, sha ordnary be ncuded n gross ncome from
sources wthn the Unted States. If, however, t s shown to the satsfacton
of the Commssoner that due to the pecuar condtons of producton and
sae n a specfc case or for other reasons a of such gross Income shoud not
be aocated to sources wthn the Unted States, an apportonment thereof
to sources wthn the Unted States and to sources wthout the Unted States
sbaU be made as provded n artce 327.
ccordng to the artce quoted, the ncome of the M Company
derved from the sae of the product wthout the Unted States for
the years 1921 and 1922 was ta abe as ncome from sources wthn
the Unted States uness t can be shown to the satsfacton of the
Commssoner that a of such ncome shoud not be aocated to
sources wthn the Unted States.
rtce 327(a) : Transportaton servce.
R NU CT O 1921.
mendment of artce 327(a) of Reguatons 62. (See T. D. 4201,
page 133.)
S CTION 219. ST T S ND TRUSTS.
rtce 341: states and trusts. II-33-3861
T. D.4192
INCOM T R NU CT O 1916 D CISION O COURT.
Income Trust One Trust und Dvded Into Three Parts.
Where a testator drects hs trustees to nvest and renvest the
resdue of the annua ncome of hs estate and hod the same and
a accumuatons thereof unt three of hs chdren shoud re-
spectvey arrve at the age of 25 years dvdng the sad trust
fund nto three equa parts, one of the sad parts beng so hed
for each of my sad chdren, respectvey, and drects that add-
tons to the fund be made equay to each of sad three parts and
that the prncpa of such porton of sad accumuated fund so hed
for such chd be pad to such chd as sad chdren respectvey
arrve at that age, the fund so created s one trust.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Court of Cams of the Unted States
n the case of Robert W. ohnson, |r., et a., enefcares under the
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219, rt. 341. 284
W of Robert Wood ohnson, v. Unted States s pubshed for the
nformaton of nterna revenue offcers and others concerned.
. . Mkes,
ctng Commssoner of Interna Revenue.
pproved ugust 6, 1928.
enry errck ond,
ctng Secretary of the Treasury.
Coubt of Cams of the Unted States.
Robert W. ohnson, |r.. ohn 8. ohnson, and vangene . ohnson, ene-
fcares under the W of Robert Wood ohnson, v. The Unted States.
pr 2, 1928.
OPINION.
Gbaham, udge, devered the opnon of the court.
The pantffs are e ecutors. The queston presented s whether a fund
created by the w of the decedent out of the resduary ncome of s estate
shoud under the aw be construed to be one trust or three trusts. The Com-
mssoner of Interna Revenue construed t to be one trust and assessed a ra
accordngy. The pantff pad the ta , pettoned for a refund, whch was
refused, and then brought ths sut. The provson of the w n queston s
as foows:
Thrd. (4th) fter the foregong annua payments sha have been made
as aforesad out of sad ncome and after a of the aforesad egaces sha
have been made thereout, then I drect my trustees to hod and nvest and
fron tme to tme to renvest a the remander of such ncome and to hod and
retan the same and a accumuatons thereof n order that sad trust fund
may ncrease and keep the same ntact unt my sad three chdren by my
wfe vangene . (that s, Robert Wood, ohn Seward, and vangene
rewster) sha respectvey arrve at the age of 25 years, dvdng the sad
trust fun-d, however, nto three equa parts, one of the sad parts to be so hed
for each of my sad chdren respectvey, and n addng to such fund from
the resdue of sad annua ncome of my estate as aforesad I drect that such
addtons sha be made equay to each of sad three parts and as my sad
chdren sha respectvey arrve at the age of 25 years the prncpa of such
porton of sad accumuated fund so hed for such chd sha be pad to such
chd or the awfu ssue thereof. Itacs ours.
The appcabe statutes are as foows:
Secton 1, Tte I, of the Income Ta ct of September 8, 1916, as amendod
by the ct of October 3, 1917, provdes n part:
(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 .
Su secton (b) of secton 1 of the sad ct emphaszes what s ordnary
referred to as a surta upon the tota net ncome referred to n secton 1.
Secton 2(b) of the sad ct provdes:
Income receved by estates of deceased persons durng the perod of ad-
mnstraton or settement of the estate, sha be sub|ect to the norma and
addtona ta and ta ed to ther estates, and aso such ncome of estates or any
knd of property hed n trust, ncudng such ncome accumuated n trust for
the beneft of unborn or unascertaned persons, or persons wth contngent
nterests, and ncome hed for future dstrbuton under the terms of the w
or trust sha be kewse ta ed, the ta n each nstance, e cept when the
ncome s returned for the purpose of the ta by the euefcary, t be assessed
to the e ecutor, admnstrator, or trustee, as the case may be: Provded. That
where the ncome s to be dstrbuted annuay or reguary between e stng
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285 219, rt. 341.
hers or egatees, or benefcares the rate of ta and method of computng the
same sha be based n each case upon the amount of the ndvdua share to be
dstrbuted.
If the fund n ths case consttuted one trust t s sub|ect to a hgher rate of
ta aton than f three trusts were created, and the am of ths sut s to reeve
ths trust fund of the hgher ta by estabshng that three trusts were created
by the w.
The testator ded on ebruary 6, 1910. The ta nvoved s for the year 1917.
When the trustees made ther return for that year on une 15, 1918, they made
t on the bass of the fund beng one trust and not three. Thereafter, on October
19, 1922, they fed an amended return for the year 1917. camng that the
ncome of the estate for 1917 had been dstrbuted equay among the three
chdren, and one of the trustees fng three separate returns as and for three
separate trusts showng a ess amount of ta due than had been pad, and on
October 22, 1922, a refund was asked.
It appears that n une, 1918, 8 years after testator s death, they st regarded
t as one trust fund, so returned t, and pad the ta accordngy, and t was not
unt more than 4 years afterwards, namey, n October, 1922, 12 years after
the testator s death, that the thought apparenty came to them that they were
handng three trusts and not one trust. They then, accordng to the stpuated
facts, n ther return set forth a dstrbuton of the estate of 1917 equay
between the three chdren of the testator. There s nothng to show when ths
dstrbuton was made or that t had been made pror to ther return n une,
1918. So we have at the outset a faure of proof that there was any dvson
of ths tnst fund nto three parts pror to and at the tme of the frst return n
une, 1918.
Whe the opnon of hs e ecutors or trustees as to the ntenton of the
testator, and consequenty the meanng of the w, s not concusve, t s qute
persuasve, for the reason that they conssted of the testator s brother, son-n-
aw, and wfe, probaby as conversant wth the ntenton of the testator as any-
one from whom such ntenton coud be ascertaned, and for 12 years t appears
they mantaned the opnon that the testator ntended to create one trust.
The statute nvoved ta es ncome of estates or any knd of property hed
n trust where the ncome s not dstrbuted. To the trustees under the w
the testator gave and bequeathed the whoe of hs property n trust, and tnder
secton 4 provded for a dsposton of the resduary estate, and, after makng
certan bequests out of the ncome, provded that the trustees were to hod and
nvest a the remander of such ncome and t hod and retan the same and
a accumuatons thereof n order that sad trust fund may ncrease and keep
the same ntact unt the three chdren sha respectvey arrve at the age
of 25 years, dvdng the sad trust fund, however, nto three equa parts,
one of sad parts to be so hed for each of my sad chdren. ere s a trust
of what The testator does not say that the remander of hs ncome sha be
dvded Into three parts and each of the parts sha be hed n trust for the
beneft of certan of hs chdren. e drects that the remander of the
ncome sha be hed and retaned n order that sad trust fund may ncrease
and be kept ntact unt the chdren arrve at the age of 25 years. e speaks
of t as one fund and that t s to be hed ntact. It s true that he ater
uses the anguage above quoted, dvdng sad trust fund nto three equa
parts, but here agan he uses the word fund. urther on he speaks of t
as sad accumuated fund and as the porton of sad accumuated fund
of each chd theren. We are of the opnon that t was the ntenton of the
testator to create one fund that the provson for dvdng t was smpy
drectory and for the purpose of keepng the nterests of the chdren equay
dvded. One fund was created. ach of the benefcares was to receve an
equa share of the accumuated trust fund. The fund was to reman ntact
unt one of the benefcares arrved at the age of 25 years, when hs share
was to be pad to hm. The hstory of the conduct of the trustees ndcates
that the dvson of the fund nto three trusts was an afterthought. We are
of the opnon that the Commssoner of Interna Revenue propery assessed
t as one fund.
The petton shoud be dsmssed, and t s so ordered.
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230, rt. 603. 286
rtce 343: Decedent s estate durng admnstraton.
R NU CT O 1921 ND PRIOR CTS.
mendment of artce 343, Reguatons 62 and 45 (1920 edton).
(See T. D. 4177, page 134.)
rtce 343: Decedent s estate durng admnstraton.
R NU CTS OP 1918 ND 1921.
ass for determnng gan or oss n case of nstament notes
orgnay receved by decedent and coected by hs estate or ne t
of kn after dstrbuton. (See G. C. M. 5060, page 64.)
S CTION 222. CR DIT OR T S IN C S
O INDI IDU LS.
rtce 381: nayss of credt for ta es.
R NU CT O 1918.
oregn ta on ncome from foregn branch, the operaton of
whch resuts n a oss, n terms of doars, due to dfference n rates
of e change. (See G. C. M. 4969, page 269.)
P RT III. CORPOR TIONS.
S CTION 230. T ON CORPOR TIONS.
rtce 503: Corporatons abe to ta . II-31-3832
T. D.4181
INCOM T R NU CT OP 1918 D CISION O COURT.
1. Income Ta Income from ports Consttutonaty.
The mposton of a ta upon net ncome derved from the bus-
ness of e portng goods from the Unted States and seng them n
foregn countres does not deprve the ta payer of ts property
wthout due process of aw n voaton of the ffth amendment of
the Consttuton, though ncome from ke sources earned by cor-
poratons organzed n Porto co and the Phppne Isands s
e empt from such tu nor does such a ta voate the rue of un-
formty prescrbed by rtce I, secton 8, cause 1.
2. Same.
ta eved upon net ncome from the busness of e portng
goods from the Unted States and seng such goods n foregn
countres s not a ta ad on artces e ported from any State n
voaton of rtce I, secton 9, cause 5, of the Consttuton,
though ncome from ke sources of corporatons organzed n Porto
Rco and the Phppne Isands s e empt from such ta .
3. Decsons oowed.
The decsons n Porto Rco Coa Co. v. dcards (275 ed., 104)
and ccfc v. Lowe (247 U. S., 165 (T. D. 2726)) foowed.
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230, rt. 503.
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 Dstrct Court, South-
ern Dstrct of New York, n the case of Neuss essevn Co., Inc.,
v. dwards, s pubshed for the nformaton of nterna revenue
offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved uy 20, 1928.
Ogden L. Ms,
ctng Secretary of the Treasury.
Unted States Dstrct Court, Southern Dstrct op New York.
Neuss essen Co., Inc., pantff, v. Wam . dwards, as Coector of
Interna Revenue for the econd Dstrct of New York, defendant.
March 21, 1928.
opnon.
Goddard, Dstrct udge: Ths s a moton by the defendant to dsmss the
pantff s amended compant on the ground that t does not set forth facts
suffcent to consttute a cause of acton. rom the compant t appears that the
pantff s a corporaton organzed and e stng under the aws of the State of
New York, and wth ts prncpa pace of busness n the cty and State of New
York, and was, at a the tmes referred to and now s, engaged wthn the
Unted States n the busness of purchasng goods wthn the Unted States and
e portng the sad goods to countres foregn to the Unted States that on une
13, 1921, t pad under protest, to the Unted States coector of nterna revenue
at New York, 2,195.70 mposed under the Revenue ct of 1918 upon ts net
ncome or profts durng the caendar year 1920. Ths sut was brought to
recover the ta so pad, on the ground that ts mposton was unconsttutona,
t aeges, because corporatons organzed under the aws of Porto Rco and
Phppne Isands, whch are engaged n a busness smar to that of the pan-
tff, are not requred to pay as muc ta as t s compeed to pay that Congress
has attempted to cassfy corporatons of Porto Rco and of the Phppne
Isands as foregn corporatons under secton 1 of the Revenue ct of 1918, and
that such corporatons were e empted from the payment of ta on the net ncome
derved from the busness, of e portng artces from the Unted States and se-
ng them n foregn countres. Its precse grounds as stated by the pantff,
are
rst: That the sad ta assessed and coected under sectons 230 and 301
of the Revenue ct of 1918 on the net ncome of the pantff, derved from the
purchase of artces wthn the Unted States by the pantff and the e porta-
ton and dsposton or sae of sad artces n countres foregn to the Unted
States by the pantff durng the caendar year 1920, was not the e erton of
ta aton but the confscaton or takng of pantff s property n voaton of
the ffth amendment of the Consttuton of th.e Unted States nasmuch as the
ke net ncome of corporatons organzed under the aws of Porto Rco and the
Phppne Isands, derved from the sad ke busness of e portng carred on
wthn the Unted States durng sad caendar year 1920, under the same
crcumstances and condtons, and under the protecton of the Unted States n
whatever part of the word ther busness was conducted, was e empt from
ke ta under secton 233(b) of sad Revenue ct of 1918.
nd
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288
Second : That by reason of sad dscrmnaton aganst the pantff the sad
ta so mposed upon the sad net ncome of the pantff so earned durng sad
caendar year 1920 drecty hardened the e portaton of sad artces from the
Unted States by the pantff n voaton of paragraph 5 of secton 9 of
rtce I of the Consttuton of the Unted States.
The pertnent sectons of the ct of Congress approved ebruary 24, 1919,
known as the RcTenue ct of 1918 (40 Stat, at L., ch. 18), are
Secton 1. The term foregn when apped to a corporaton or partnershp
means created or organzed outsde the Unted States
The term Unted States when used n a geographca sense ncudes ony
the States, ttufTerrtores of aska and awa, and the Dstrct of Coumba.
Sec. 230. (a) That, n eu of the ta es mposed by secton 10 of the Revenue
ct of 1910, as amended by the Revenue ct of 1917, and by secton 4 of the
Revenue ct of 1917, (here sha be eved, coected, and pad for each ta abe
year upon the net ncome of every corporaton a ta at the foowng rates:
(1) or the caendar year 1918, 12 per centum of the amount of the net
ncome n e cess of the credts provded n secton 236 and
(2) or each caendar year thereafter, 10 per centum of such e cess amount.
Sec. 233. (b) In the case of a foregn corporaton gross ncome Incudes
ony the gross ncome from sources wthn the Unted States, ncudng the
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.
Sec. 261. That n Porto Rco and the Phppne Isands the ncome ta
sha be eved, assessed, coected, and pad n accordance wth the provsons
of the Revenue ct of 1916 as amended.
Returns sha be made and ta es sha be pad under Tte I of such ct
n Porto Rco or the Phppne Isands, as the case may be, by (1) every
ndvdua who s a ctzen or resdent of Porto Rco or the Phppne Isands
or derves ncome from sources theren, and (2) every corporaton created or
organzed n Porto Rco or the Phppne Isands or dervng ncome from
sources theren. n ndvdua who s nether a ctzen nor a resdent of Porto
Rco or the Phppne Isands but derves ncome from sources theren, sha
e ta ed n Porto Rco or the Phppne Isands as a nonresdent aen
ndvdua, and a corporaton created or organzed outsde Porto Rco or the
Phppne Isands and dervng ncome from sources theren sha be ta ed n
Porto Rco or the Phppne Isands as a foregn corporaton. or the pur-
pose of secton 216 and of paragraph (6) of subdvson (a) of secton 234 a
ta mposed n Porto Rco or the Phppne Isands upon the net ncome of a
corporaton sha not be deemed to be a ta under ths tte.
Sec. 301. (a) That n en of the ta mposed by Tte II of the Revenue ct
of 1017, but In addton to the other ta es mposed by ths ct, there sha be
eved, coected, and pad for the ta abe year 1918 upon the net ncome of
every corpoaton a ta equa to the sum of the foowng:
(b) or the ta abe year 1919 and each ta abe year thereafter there sha
he eved, coected, and pad upon the net ncome of every corporaton (e cept
corporatons ta abe under subdvson (c) of ths secton) a ta equa to the
sum of the foowng: .
Porto Rco and the Phppne Isands are not a part of the Unted States
wthn that provson of the Consttuton whch decares that a dutes,
mposts and e cses sha be unform throughout the Unted States, and
Congress has the power to make a dstncton between Porto Rco and Php-
pne Isand corporatons and purey domestc corporatons and to egsate
dfferenty for them. (Dowres v. dce, 182 U. S_, 244 Lawrence v. WardeU,
273 ed., 405.)
In 1 orto Rco Coa Co. v. dwards (275 ed., 104), a New York corporaton
whch derved practcay a ts ncome from orto Rco and dd a ts bus-
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231, rt. 513.
ness on that sand, was ta ed upon ts entre net ncome as a domestc corpora-
ton. It was aso requred to pay on e cess proft ta . Ths atter ta was
not n effect n Porto Rco. It companed that, snce corporatons of Porto
Rco had noon e empted from the e cess prot ta whe t, whch drew ts
ncome from that sand, was not e empted, therefore t was dscrmnated
aganst and udge Learned and hed there was no dscrmnaton or
voaton of the ffth amendment of the Consttuton.
In the case at bar the pantff, a New York corporaton, e ports goods from
the Unted States, and aeges dscrmnaton because t must pay a ta on
ts profts, whe a Porto Itco or Phppne Isand corporaton, smary
e |wrtng from the Unted States, s nut requred to pay a ta . The same
prncpe seems to me to appy as n the case of Porto Rco Coa Co. v. dwards,
supra. purey domestc corporatons carryng on a smar busness are
ta ed on the same bass as the pantff a such corporatons are treated
ake. Congress, for ts own good reasons, has not thought t advsabe to
mpose the same ta es on Porto Rco and Phppne Isand corporatons as
t does on mercan corporatons, and, under the authortes, Congress has
ths rght. It may be that Congress was actuated by the thought that these
terrtora corporatons dd not have the same protecton from the Unted
States Government as ts own corporatons aso Congress seems to have
thought t advsabe for these terrtores themseves to provde for and coect
ther own ta es and thereby drecty obtan suffcent revenue to meet ther
needs, rather than have ther ta es ad and coected by a dfferent method
wth appropratons from the revenue so coected by the mercan Congress.
Undoubtedy Congress coud have made the Revenue cts of 1917 and 1018
appcabe to Porto Rco and the Phppne Isands, but evdenty t dd not
desre to ncude them n the heaver ta es mposed upon mercan corporatons
whch were necesstated by the e pense of carryng on the Word War.
The second contenton made by the pantff, that the ta mposed upon
t drecty burdened ts e portaton busness n voaton of paragraph 5, secton
9. rtce I, of the Consttuton of the Unted States, s fuy dsposed of by the
decsons n Peek Co. v. Lore (247 U. S., 165) Natona Paper d Type Co. v.
dwards (292 ed.. 63. T. D. 3494, C. . II-2. 1971) Natona Payer d Type
Co. v. owers (266 U. S., 373 T. I). 3677, C. . I -1, 203 ).
ccordngy, the moton to dsmss the amended compant shoud be granted.
S CTION 231. CONDITION L ND OT R
MPTIONS O CORPOR TIONS.
rtce 511: Proof of e empton.
R NU CT OP 1021.
Company organzed to erect a budng to be used as a market pace
and audtorum on ground owned by a muncpaty, tte to the
assets of such company to be vested n the ctv after ncome s used
to retre stock. (See L T. 2436, page 147.)
rtce 513: Mutua savngs banks.
R NU CT O 1921 ND TRIOR CTS.
Mutua savngs banks organzed under the aws of a foregn State.
(See G. C. M. 4729, page 58.)
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231, rt. 515. 290
rtce 515: udng and oan assocatons and II-53-4050
cooperatve banks. T. D. 4252
INCOM T R NU CTS O 1018 ND 1921 D CISION O SU R M
COURT.
empton utdnq and Loan ssocaton Defnton State
Constructon.
n organzaton ncorporated under the aws of a State, operat-
ng as a budng and oan assocaton n accordance wth the State
aws (and after December 31, 1920, makng substantay a ts
oans to ts members), s a domestc budng and oan assocaton
entted to e empton under secton 231(4) of the Revenue cts of
1918 and 1921 uness there Is a gross msuse of the name.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Supreme Court of the Unted States,
n the case of the Unted States v. The Cambrdge Loan cfr udng
Co., s pubshed for the nformaton of nterna revenue offcers and
others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved December 21, 1928.
. W. Meon,
Secretary of the Treasury.
Supreme Court of the Unted States.
Unted States, Pettoner, v. Tw Cambrdge Loan udng Co.
November 19, 1928.
opnon.
Mr. ustce omes devered the opnon of the court.
Ths s a sut brought by the respondent to recover the amount of ta es for
the years 1918 through 1923, pad under duress, from whch t says that t was
e empt by the cts under whch the ta es were eved. It recovered n the
Court of Cams and a wrt of certorar was granted by ths court, pr
9, 1928.
The respondent s ncorporated under the aws of Oho, by whch t s recog-
nzed us budng and om assocaton, and t has conducted ts busness n
accordance wth the aws of that State. The Revenue ct of 1918, ebruary
24. 1919 (ch. 18. secton 231, 40 Stat., 1057, 1076), e empts from the ta es n
queston (4) Domestc budng and oan assocatons and cooperatve banks
wthout capta stock organzed am operated for mutua purposes and wthout
proft. The ct of November 23, 1921 (ch. 136, secton 231, 42 Stat., 227,
253), e empts (4) Domestc budng and oan assocatons substantay a
the busness of whch s confned to makng oans to members and cooperatve
banks wthout capta stock organzed and operated for mutua purposes and
wthout, proft. These are the statutes concerned. No defnton s gven of
budng and oan assocatons, and the queston s what scope s to be gven to
the words.
The rudmentary form of such assocatons s supposed to be a socety rasng
by subscrpton of ts members a fund for makng advances to members n order
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231, rt. 515.
to enabe them to bud or buy houses of ther own. member Is entted
to borrow on suffcent securty an amount, equa to hs subscrpton for shares
and when the shares are pad up by the nstament payments requred and the
profts of the company hs ndebtedness s canceed.
The Government argues that the essence of these socetes, what gves them
ther quas pubc character and the ony thng that warrants e emptng them
from ta es, s that ther snge purpose s to enabe peope to get homes of ther
owu. When one of them yeds to the temptaton to enarge ts operatons and
to make a tte money outsde, the Government says, t oses ts tte to ts
dstnctve name and to the e empton that the statute gves.
The respondent receved a arge proporton of deposts from persons who were
not members and t pad nterest upon the same, and t aso made consderabe
oans to such persons unt the passage of the ct of 1921. ven when the bor-
rower was a stockhoder he was requred ony to subscrbe for from one to fve
shares regardess of the amount of the oan. It s argued that thus the socety
became a mere money-makng nsttuton ke an ordnary bank.
ut for such an assocaton to start t must have some money to end, and the
typca member does not have t. Long before Congress deat wth oan and
budng assocatons, an esteemed wrter upon the sub|ect had nssted on the
reasonabeness of aowng them to ssue fu pad stock wth f ed dvdends,
both n hs book and upon the bench. ( ndch, udng ssocatons, 2d d.
(1895), secton 462 ok v. Capta Savngs Loan ssocaton, 214 Penn., 529,
534, 544 (1906).)
The same author recognzed depostors, secton 56, and wth more or ess
quafcaton the rght to end to outsders, sectons 314 et seq., and to borrow,
sectons 297 et seq.
Under the Oho statute the respondent has these powers, and st, as we have
sad, s caed a budng and oan assocaton by that State. The same name
was commony used n other States and smar powers were gven wth more
or ess restrcton. When Congress e empted such assocatons from the ncome
ta , of course t was speakng of e stng socetes that commony were known
as such, not of deas that woud have been hard to fnd. nd ths s not eft to
nference aone. Some corporatons havng been ta ed under the ct of ugust
5, 1909 (ch. 6, secton 38 36 Stat., 11, 12), whch e empted domestc budng
and oan assocatons organzed e cusvey for the mutua beneft of ther mem-
bers, the ct of ebruary 21, 1917 (ch. 112, 39 Stat., 1400), drected the ta
o be refunded as egay coected, and ncuded the respondent among the
corporatons named.
Ths ct foowed and by mpcaton sanctoned decsons to smar effect n
erod v. Park ew udng and. Loan ssocaton (210 ed. Rep., 577 ( 203
ed. Rep., 876)) Centra udng Loan Savngs Co. v. owand (216 ed.
Rep., 526).
Ths nterpretaton was adhered to for the ct of 1909 and succeedng cts,
ncudng that of 1918 now before us unt a few months before the ct of 1921.
It was ncorporated n reguatons of the Commssoner of Interna Revenue
approved by the Secretary of the Treasury as ate as anuary 28, 1921, and up
to then no ta es had been eved or pad.
In une of that year, however, the reguatons were modfed so as to decare
the socetes ta abe f the amounts borrowed from and ont to nonnembers
were out of proporton to the borrowng needs of the members and otherwse to
mt the use of such socetes as a mask to escape ta aton. The present ta es
are uphed by the Government on the ground that the respondent s such a mask.
It s argued that, even admttng a that has been sad thus far, a State can
not make a bank e empt merey by cang t a budng and oan assocaton.
No doubt e travagant cases mght be magned. ut these assocatons are we
known and a State s not key to be party to a scheme to enabe a prvate
company to avod edera ta aton by gvng t a fase name. The statutes
speak of domestc assocatons that s. assocatons sanctoned by the severa
States. They must be taken to accept wth the quafcatons e pressy stated
what the States are content to recognze, uness there s a gross msuse of the
name.
The State of Oho has recognzed and st recognzes the respondent as beong-
ng to the cass whch ts name ndcates. ery possby the company has
straned ts prveges to near the mt but we are not prepared to condemn the
nomencature adopted by the State. When the ct of 1921 was passed and
added the words substantay a the busness of whch s confned to makng
oans to members, the respondent conformed to the statute, by requrng mem-
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231, rt. 518.
292
bershp as a condton to a oan. The statute dd not mt oans to the amount
of stock subscrbed for. We may add that the net dvdends are dstrbuted to
members at an equa rate to a.
We deem It pan that no ta es were warranted before the ct of 1921, and
are of opnon that the ta es under that aso were not |ustfed, athough as we
have sad the rghts of the company were pressed somewhat far. In comng
to ths resut we have not thought t necessary to go nto detas of dsputed
sgnfcance, thnkng t enough to state the pont of vew from whch we regard
the case.
The assessment was not made unt September 18, 1924, up to whch tme the
respondent not unreasonaby hud supposed tsef e empt, aud then was ta t
retrospectvey for the fve years before the one then current. In the meantme
the respondent has dstrbuted Its money n dvdends to ts members and they
presumaby have pad ncome ta es on the dvdends receved. The statute of
mtatons had run or was runnng aganst them when the Government at the
ast moment fed a moton to remand that woud have deayed the case and
woud have gven the statute a further chance to run. The facts aeged n the
moton suffcenty appear n the fndngs of the Court of Cams and so far as
matera have been assumed In the dscusson of the case.
udgment affrmed.
rtce 517: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CTS O 1918 ND 1921.
empton of corporaton operatng a hospta. (See I. T. 2421,
page 150.)
rtce 517: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT OP 1921 ND PRIOR CTS.
ar assocaton. (See G. C. M. 4805, page 58.)
rtce 517: Regous, chartabe, scentfc, -46-3993
terary, and educatona organzatons and I. T. 2437
communty chests.
R NU CTS O 1918 ND 1921.
L T. 1882 (C. . II-2. 201) s revoked, n vew of Genera Counse s
Memorandum 4805, page 58.
rtce 518: usness eagues.
R NU CT O 1921 ND PRIOR CTS.
Company engaged n grantng censes for use of patent, obtanng
revenue from assessments aganst subcensees, wth power to decare
dvdends. (See G. C. M. 4741, page 152.)
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293 233, rt. 541.
S CTION 232. N T INCOM O CORPOR TIONS
D IN D.
rtce 531: Net ncome. II-41-3935
G. C. M. 4954
R NU CT O 1921.
The M Company s not entted to take as a deducton from
ncome osses on account of shrnkage n foregn e change, as
shown by nventoryng accounts recevabe and accounts payabe
coverng transactons wth foregn subsdares.
n opnon s requested reatve to the ncome and profts ta
abty for the year 1922 of the M Company.
It appears that n the computaton of ta abe net ncome for 1922
the ta payer corporaton camed a deducton of doars whch s
e paned as foows:
(d) Open current accounts wth foregn subsdares from whc there re-
suted a oss of doars. In the case of (d), the oss represents the
net of the ncreases and decreases n the open accounts recevabe from and
payabe t foregn subsdares, us between ther vaue n doars, at the rate
of e change prevang at the begnnng and at the end-of the year 1922.
carefu consderaton of the case eads to the concuson that
the ta payer s not entted to take as a deducton from ncome osses
on account of shrnkage n foregn e change, as shown by nventory-
ng accounts recevabe and accounts payabe coverng transactons
wth foregn subsdares. Such a oss s not based upon cosed
transactons, and the ta payer, not a deaer n e change, s not
entted to nventory such tems drecty or through ts accounts
recevabe and accounts payabe. ( ppeas of Theodore Tedemann
Sons, Inc., 1 . T. ., 1077, and Lous Roesse Co., Ltd., 2
. T. ., 1141.)
The prncpe enuncated n rederck Yetor and ches et a.
v. Sat s Te te Manufacturng Co. (26 ed. (2d), 249), ppeas
and Revew Recommendaton 15 (C. . 2, 60), Offce Decson 489
(C. . 2, 60), and Offce Decson 550 (C. . 2, 61) s not beeved to
appy, for the reason that those cases nvove the method of com-
putng the tradng proft of foregn branches, the ncome from such
sourcas. beng ncuded n ta abe ncome. In the nstant case, the
transactons are wth foregn subsdares whch for ta purposes
must be regarded as separate and dstnct enttes. It s the opnon
of ths offce, therefore, that the deducton n queston shoud be
dsaowed
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
S CTION 233. GROSS INCOM O CORPOR TIONS
D IN D.
rtce 541: Gross ncome.
R NU CT O 1921.
Instament accounts recevabe transferred to a corporaton n
e change for ts capta stock. (See. G. C. M. 4196, page 241.)
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234, rt. 562. 294
S CTION 234. D DUCTIONS LLOW D
CORPOR TIONS.
rtce 561: owabe deductons. II-33-3S53
I. T. 2428
R NU CT O 1018.
Offce Decson 989 (C. . 5, 219) s revoked, n vew of Genera
Counse s Memorandum 4G06, page 256.
rtce 562: Donatons. II-32-3838
T. D. 4182
INCOM T R NU CTS O 1916 ND 1918 D CISION O COURT.
Contrbutons by a corporaton to the Red Cros8, Young Men s
Chrstan ssocaton, and smar agences are rot deductbe from
gross ncome as ordnary and necessary e penses under secton 12
of the Revenue ct of 1916 or secton 234(a) 1 of 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 Consodated Gas ectnc Lght Power Co. of a-
tmore v. Unted States s pubshed for the nformaton of nterna
revenue offcers and others concerned.
. . Md|es,
ctng Commssoner of Interna Revenue.
pproved uy 27, 1928.
Ogden L. Ms,
ctng Secretary of the Treasury.
Court of Cams op the Unted States.
Consodated Gas ectrc Lght t Power Co. of atmore v. The Unted States.
pr 2, 1928.
OPINION.
Campbe, Chef ustce, devered the opnon of the court.
The queston for decson s whether subscrptons made by a Maryand
corporaton to war funds of the Red Cross, the Y. M. C. ., and smar agen-
ces, and pad durng the year 1917, after the begnnng of the war. and aso
pad n 1918, consttute ordnary and necessary e enses pad wthn the
year n the mantenance and operaton of ts busness ( ct of 1916), or
ordnary and necessary e penses pad or ncurred durng the ta abe year
n carryng on any trade or busness ( ct of 1918), wthn the ntent and
meanng of the quoted words n the Revenue ct of 1916 (39 Stat., 759, 707)
and the Revenue ct of 1918 (40 Stat., 330). In other words, are payments
so made proper deductons from the corporaton s gross ncome n ascertanng
ts ta abe net ncome The cam asserted s that the corporaton havng
been a arge contrbutor to the Red Cross and other such organzatons shoud
have been aowed to deduct the amounts of these contrbutons from Its gross
ncome. The Commssoner of Interna Revenue havng refused to aow the
deducton, the pantff pad ts ta es and stes to recover the amounts aeged
to have been overpad.
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295
234, rt. 566.
ndng the words we are caed upon to construe n a ta ng ct, we must
recognze that the tera meanng of the words empoyed s most mportant,
because such statutes are not to be e tended by mpcaton beyond the cear
mport of the anguage used. Doubts are to be resoved n favor of the ta -
payer. See Goud v. Goud (245 U. S., 151, 153) Unted States v. Mcrram
(263 U. S., 179, 188). In the atter case s cted wth approva the rue stated
by ord Carns n Partngton v. ttorney Genera (L. R. 4 . L., 100, 122), n
the course of whch t s sad:
In other words, f there be admssbe n any statute what s caed an
equtahe constructon certany such a constructon s not admssbe n a
ta ng statute, where you can smpy adhere to the words of the statute.
It s qute cear that the words of the ct of 1916, ordnary and neces-
sary e penses, coud not have been ntended when the ct was frst enacted
to be gven the wde meanng now urged. s then used they reated to e -
penses pad n the mantenance and operaton of the busness, and were n
the man the ordnary e penses ncdent to the partcuar trade or busness.
The e traordnary stuaton that deveoped ater was not n mnd when ts
ta ng ct was passed. When the ct of 1916 was amended (40 Stat, 330),
a deducton was aowed n favor of ndvdua ta payers to the e tent of
15 per cent of the ta payer s ta abe net ncome for contrbutons actuay
made to corporatons or assocatons organzed e cusvey for regous and
other desgnated purposes. ut these deductons, n ease of ndvduas, were
aowabe ony f verfed under rues and reguatons to be prescrbed by the
Commssoner wth the approva of the Secretary of the Treasury. The ct
s sent as to such deductons by corporatons. Ths provson for ndvduaa
on account of contrbutons s carred forward nto the Revenue ct of 1918,
but no such provson s made for corporatons, though the aowabe deduc-
tons n case of corporatons are stated at ength. (40 Stat, 1077.) ut the
deductons of ordnary and necessary e penses are appcabe to both n-
dvduas and corporatons, and f the deducton now urged s aowabe t
s snguar that a deducton of chartabe gfts s aowabe to ndvduas
and s not even mentoned n case of corporatons. In an opnon of the ttor-
ney Genera gven to the Secretary of the Treasury upon the queston before
us, that offca hed the deducton here sought was not to be aowed, gvng,
among others, the reason that an amendment, offered when the b was
under consderaton, whch woud have made appcabe to corporatons the
deducton for contrbutons to regous and other purposes, was defeated.
Whe the ct mentons ordnary and necessary e penses, t may perhaps be
sad that the e penses contempated need not be both ordnary and necessary,
but the e pense must be an ordnary or a necessary one, and n any event
the words shoud be gven ther usua meanng. It s argued for pantff
that payments to the Red Cross or other war agences are deductbe not
as chartabe contrbutons but as busness e penses for the protecton of ts
property. ut t was not an ordnary e pense nor was t a necessary one.
The amount was what the corporaton thought proper to subscrbe, and whether
to be subscrbed at a was a vountary act.
The argument based upon the dea that the corporaton was e pected to
hep In the emergency gves no new meanng to the words of the statute.
What shoud be deductbe e penses, n arrvng at the net ncome, s pr-
mary a egsatve queston. Whether Congress woud fee free to sancton
contrbutons by offcers of a corporaton or whether n any case acton by the
governng board or the stockhoders woud be necessary are not questons for
our determnaton. It s suffcent for ths case to say that Congress has
authorzed certan deductons and the court can not e tend the terms they
have empoyed. In our opnon the tems camed were not deductbe. The
petton shoud be dsmssed. nd t s so ordered.
ktce 566: Ta on bank or other stock.
R NU CT O 1918.
Idaho State and county ta es mposed upon hoders of bank stock
and payabe by bank. (See T. D. 4247, page 274.)
37229 29 20
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245, rt. 681.
296
S CTION 238. CR DIT OR T S IN
C S O CORPOR TIONS.
rtce 611: Credt for foregn ta es.
R NU CT O 1918.
oregn ta on ncome from foregn branch, the operaton of
whch resuts n a oss, n terms of doars, due to dfference n rates of
e change. (See G. C. M. 4969, page 269.)
S CTION 245. T S ON INSUR NC
COMP NI S.
rtce 681: Reserve funds. II-38-3904
T. D. 4206
ncome ta revenue act of 1921 decson of supreme court.
1. Lfe Insurance Companes Deducton of Reserve Ta -
empt INT R ST CO N 8TITUTION L TY DSO IMLN T10N.
Lfe nsurance companes are entted to the reserve deducton
specned n secton 245(a)2 of the Revenue ct of 1921 wthout
dmnuton, as theren provded, on account of nterest from ta -
e empt serurtes. That secton n so far as t undertook to abate
the 4 per cent deducton theren aowed by the amount of nterest
receved from ta -e empt securtes s hed nvad, as Congress has
no power to ta such securtes by refusng to ther owners deduc-
tons aowed to others.
2. udgment Reversed.
The |udgment of the Court of Cams of the Unfed States
(T. . 4035 C. . I-2. 2T 5 ) s reversed.
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 the Natona Lfe Insurance Co. v. The Unted St-ae-s
s pubshed for the nformaton of nterna revenue offcers and others
concerned.
II. . Mres,
ctng Commssoner of Interna Revenue.
pproved September 6, 1928.
Ooden L. Ms,
ctng Secretary of the Treasury.
Supreme Court of the Unted States.
Natona Lfe Insurance Co. v. The Unted States.
une 4, 1928.
Mr. ustce McRetno|s devered the opnon of the court.
In 1921. departng from prevous pans, Oonpress ad a ta on fe nsurance
companes based upon the sum of a nterest and dvdends and rents receved.
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297
245, rt. 681.
ess certan specfed deductons (1) nterest derved from ta -e empt secur-
tes, f any (2) a sum equa to 4 per centum of the company s ega reserve
dmnshed by the amount of the nterest descrbed n paragraph (1) (S) other
msceaneous tems seven not presenty mportant.
Pettoner mantans that, actng under ths pan, the coector Iegay re-
qured t to pay ta es, for the year 1921, on edera, State, and muncpa
bonds and t seeks to recover the amount so e acted. The Court of Cams
gave |udgment for the Unted States.
The Revenue ct of 1921, approved November 23, 1921 (ch. 136, Tte II,
Income Ta (42 Stat., 237, 238, 252, 261)), provdes
Sec. 213. That for the purposes of ths tte (e cept as otherwse provded n
secton 233) (the e ceptons not here mportant) the term gross ncome
(a) Incudes gans, profts, and ncome .
(b) Does not ncude the foowng tems, whch sha be e empt from ta a-
ton under ths tte:
(1) (2) and (3) (not here mportant).
(4) Interest upon (a) the obgatons of a State, Terrtory, or any potca
subdvson thereof, or the Dstrct of Coumba or (b) securtes ssued under
the provsons of the edera arm Loan ct of uy 17, 1916 or (c) the ob-
gatons of the Unted States or ts possessons:
Sec. 230. That, In eu of the ta mposed by secton 230 of the Revenue ct
of 1918, there sha be eved, coected, and pad for each ta abe year upon
the net ncome of every corporaton a ta at the foowng rates:
(a) or the caendar year 1921, 10 per centum of the amount of the net
ncome n e cess of the credts provded n secton 236 and
(b) or each caendar year thereafter, 12 per centum of such e cess
amount.
Sec. 243. That n eu of the ta es mposed by sectons 230 (genera cor-
poraton ta ) and 1000 (speca ta es on capta stock) and by Tte III
(war profts and e cess profts ta es) there sha be eved, coected, and pad
for the caendar year 1921 and for each ta abe year thereafter upon the net
ncome of every fe nsurance company a ta as foows:
(1) In the case of a domestc fe nsurance company, the same percentage
of ts net ncome as s mposed upon other corporatons by secton 230 (10
per cent for 1921, 12 thereafter)
(2) In the case of a foregn fe nsurance company, the same percentage
of ts net ncome from sources wthn the Unted States as s mposed upon
the net ncome of other corporatons by secton 230.
Sec. 244. (a) That n the case of a fe nsurance company the term gross
ncome means the gross amount of ncome receved durng the ta abe year
from nterest, dvdends, and rents.
(b) The term reserve funds requred by aw ncudes .
Sec. 245. (a) That n the case of a fe nsurance company the term net
ncome means the gross ncome ess
(1) The amount of nterest receved durng the ta abe year whch under
paragraph (4) of subdvson (b) of secton 213 s e empt from ta aton under
ths tte (nterest on ta e empt securtes)
(2) n amount equa to the e cess, f auy, over the deducton specfed n
paragraph (1) of ths subdvson, of 4 per centum of the mean of the reserve
funds requred by aw and hed at the begnnng and end of the ta abe year,
pus (certan other sums not here mportant) .
(3) (4) (5) (6) (7) (8) and (9) grant other e emptons not now mportant.
The mean of pettoner s reserve funds for 1921 was 67,381,8 77.92. our per
centum of ths s 2,695,279.12.
Durng 1921 nterest derved from a sources amounted to 3,811,132.78
from dvdends, nothng from rents, 13,460. Tota, 83.824,592.78. 1,125,788.26
of ths nterest came from ta -e empt securtes 873,075.66 from State and
muncpa obgatons and 252,712.00 from those of the Unted States.
The coector treated nterest pus dvdends pus rents. 3,824,592.78, as
gross ncome, and aowed deductons amountng to 2,899,690.79, made up of
the foowng tems: 1,125,788.26, nterest from ta -e empt securtes
1,569,490.86, the dfference between 4 per cent of the reserve fund
( 2,695,279.12) and 1,125,788.26, nterest receved from e empt securtes
msceaneous tems, not contested and neggbe here. 204,411.67. fter
deductng these from tota recepts ( 3.824,592.78 2,899,690.79), there
remaned a baance of 924,901.99. Ths he regarded as net ncome and upon
t e acted 10 per centum, 92,490.20.
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298
If a nterest receved by the company had come from ta abe securtes,
then, foowng the statute, there woud have been deducted from the gross of
3.S24,592.7S per cent of the reserve, 2, 95,279.12, pus the msceaneous
tems 204,411.67 2,899,690.79, and upon the baance of 924,901.9 ) the ta
woud have been 92,490.20. Thus t becomes apparent that pettoner was
accorded no advantage by reason of ownershp of ta -e empt securtes.
Pettoner mantans that the resut of the coector s acton was unawfuy
to dscrmnate aganst t and reay to e act payment on account of ts e empt
securtes, contrary to the Consttuton and aws of the Unted States. so
that dmnuton of the ordnary deducton of 4 er cent of the reserves because
of nterest receved from ta -e empt securtes, n effect, defeated the e emp-
ton guaranteed to ther owners.
The porton of pettoner s ncome from the three specfed sources whch
Congress had power to ta ts ta abe ncome was the sum of those tems
essthe nterest derved from ta -e empt securtes. ecause of the recept of
nterest from such securtes, and to ts fu e tent, pursung the pan or the
statute, the coector dmnshed the 4 per cent deducton aowabe to those
hodng no such securtes. Thus, he requred pettoner to pay more upon ts
ta abe ncome than coud have been demanded had ths been derved soey
from ta abe securtes. If permtted, ths woud destroy the guaranteed e emp-
ton. One may not be sub|ected to greater burdens upon hs ta abe property
soey because he owns some that s free. No devce or form of words can
deprve hm of the e empton for whch he has awfuy contracted.
The suggeston that, as Congress may or may not grant deductons from
gross ncome at peasure, t can deny to one and gve to another s specous, but
unsound. The burden from whch edera and State obgatons are free s the
one ad upon other property. To determne what ths burden s requres con-
sderaton of the mode of assessment, ncudng, of course, deductons from
gross vaues. What remans after subtractng a aowances s the thng reay
Unted States v. Rtche (1872) ( ed. Cases 16, 168).
Rtche was the State s attorney for rederck County, Md. The edera
statute aowed an e empton of 1,000. The coector camed that f Rtche s
saary was hed free from ta aton, 1,000 of t shoud be apped to the e emp-
ton cause. Ges, ., hed: The Unted States coud not appy the compensa-
ton of a State offcer to the satsfacton of the e empton aone, because that
woud, ndrecty, make hs ncome from such source abe to the ta aton from
whch t s e empt that to e haust the e empton cause by takng the amount
out of hs offca ncome, woud be to make t, n effect, sub|ect to the revenue
aw, and to deny to a State s offcer the advantage of the State s e empton, and
that therefore the offca ncome of defendant was not to be taken nto consdera-
ton n the assessment of the ta .
Peope, etc., v. Commssoners, etc. (1870) (41 ow. Prac. Reports, 459).
ed: That n determnng the amount of persona property of an ndvdua,
by assessors or commssoners of ta es, for the purpose of ta aton, stocks and
bonds of the Unted States are to form no part of the estmate. They can not
be e cuded or deducted from the amount of hs assets, abe to ta aton, for t
s error to ncude them n such assets.
Packard Motor Car Co. v. Cty of Detrot (1925) (232 Mch., 245).
ed: That ta -e empt credts may not be ta ed, drecty or ndrecty, and n
evyng a ta on property they must be treated as none stent. The provson of
act No. 297, Pub. cts 1921, provdng that f the person to be ta ed sha be
the owner of credts that are e empt from ta aton such proporton ony of hs
ndebtedness sha be deducted from debts due or to become due as s repre-
sented by the rato between ta abe credts and tota credts owned, whether
ta abe or not, s vod as an nterference wth the power of the Unted States
Government to rase money by ssuance of ta -e empt obgatons and s n con-
fct wth the Consttuton of the Unted States.
See aso Cty of Waco v. mcabe Lfe Ins. Co. (1923) ( Te as, 248
S. ., 332).
Mer et at, ecutors, v. Mwaukee (272 U. S., 713).
ed: That where ncome from bonds of the I nted States whch by ct
of Congress s e empt from State ta aton s reached purposey, n the case
of corporaton-owned bonds, by e emptng the ncome therefrom n the hands
of the corporatons, and ta ng ony so much of the stockhoder s dvdends
as corresponds to the corporate ncome not assessed, the ta s nvad.
It s setted doctrne that drecty to ta the ncome from securtes amounts
to ta aton of the securtes themseves. (Northwestern Mutua Lfe Ins. Co. v.
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299
245, rt. 681.
Wsconsn, 275 U. S., 136 (Nov. 21, 1927).) so that, the Unted States may
not ta State or muncpa obgatons. (Metcaf ddy v. Mtche, dtn .,
269 U. S., 514, 521 T. D. 3824, . -, 2181.)
ow far the Unted States mght repudate ther agreement not to ta we
need not stop to consder. Counse do not cam that here State obgatons
shoud have more favorabe treatment than s accorded to those of the edera
Government. The Revenue ct of 1921 (sec. 213) e pressy dsavows any
purpose to ta nterest upon the atter s obgatons.
Secton 1403 provdes
That f any provson of ths ct, or the appcaton thereof to any person
or crcumstances, s hed nvad, the remander of the ct, and the appcaton
of such provson to other persons or crcumstances, sha not be affected
thereby. .
Congress had no power purppsey and drecty to ta State obgatons by
refusng to ther owners deductons aowed to others. It had no purpose to
sub|ect obgatons of the Unted States to burdens whch coud not be m-
posed upon those of a State.
Consderng what has been sad, together wth the savng cause |ust quoted,
and the manfest genera purpose of the statute, we thnk that provson of the
ct whch undertook to abate the 4 per cent deducton by the amount of nterest
receved from ta -e empt securtes can not be gven effect as aganst pettoner
under the crcumstances here dscosed. It was unawfuy requred to pay
92,490.20 and s entted to recover.
The |udgment of the Court of Cams must be reversed. If wthn 10 days
counse can agree upon a decree for entry here, t may be presented. Other-
wse, the cause w be remanded to the Court of Cams for further proceedngs
n conformty wth ths opnon.
rtce 681: Reserve funds. II-43-3964
T. D. 4231
INCOM T .
Lfe nsurance companes deductons: rtces 681 of Regua-
tons 62, 65, and 69, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
In the case of the Natona Lfe Insurance Co. v. Unted States
(48 Sup. Ct., 591 see T. D. 4206, on page 296 ) the Supreme
Court of the Unted States hed that secton 245 (a)2 of the Revenue
ct of 1921, n so far as t undertakes to abate the 4 per cent deduc-
ton theren aowed by the amount of nterest receved from ta -
e empt securtes, s nvad, as Congress has no power to ta the
ncome from such securtes, and to gve effect to the abatement
woud be to deny the owners of such securtes deductons aowed
to others and thereby n effect to ta the ncome from such securtes.
The Supreme Court decson s equay appcabe to sectons 245 (a)2
of the Revenue cts of 1924 and 1926. s the frst sentences of
artces 681 of Reguatons 62, 65, and 69, n nterpretng secton
245(a)2 of the Revenue cts of 1921, 1924, and 1926, provde for the
abatement of the 4 per cent deducton by the amount of nterest
receved from the ta -e empt securtes, the amendment of those
sentences s requred to brng them nto accord wth the Supreme
Court decson.
ccordngy, the frst sentence of artce 681 of Reguatons 62 s
hereby amended to read:
rt. 681. Reserve funds. Under paragraphs (1) and (2) of secton 245(a),
fe nsurance companes are entted to deduct from gross ncome: (1) Interest
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300
whch s e empted n the case of other ta payers by secton 213(b)4 and
artces 74-83 and (2) 4 per cent of the mean of the reserve funds specfed
n secton 245(a)2 hed at the begnnng and tfnd of the ta abe year, wthout
any abatement on account of ta -e empt nterest.
The frst sentence of artce 681 of Reguatons 65 s hereby
amended to read:
rt. 681. Reserve funds. Under paragraphs (1) and (2) of secton 245(a),
fe nsurance companes are entted to deduct from gross ncome: (1) Interest
whch s e empted n the case of other ta payers by secton 213(b)4 and
artces 74-82 and (2) 4 per cent of the mean of the reserve funds specfed
n secton 245(a)2 hed at the begnnng and end of the ta abe year, wthout
any abatement on account of ta -e empt nterest.
The frst sentence of artce 681 of Reguatons 69 s hereby
amended to read:
rt. 681. Reserve funds. Under paragraphs (1) and (2) of secton 245(a),
fe nsurance companes are entted to deduct from gross ncome:
(1) Interest whch s e empted n the case of other ta payers by secton
218(b)4 and artces 74-82 and
(2) our per cent of the mean of the reserve funds specfed n secton 245(a)2
hed at the begnnng and end of the ta abe year, wthout any abatement on
account of ta -e empt nterest.
D. . ar,
Commssoner of Interna Revenue.
pproved October 13, 1928.
. W. Meon,
Secretary of the Treasury.
P RT I . DMINISTR TI PRO ISIONS.
S CTION 250. P YM NT O T S.
rtce 1004: Penaty for faure to fe return. TT-45-8984
T. D. 4237
INT RN L R NU L WS D LIN U NCY IN ILING R TURNS D CISION
O COURT.
Penaty tor aure to e Return Reasonabe Cause.
ta payer who fas wthn the tme prescrbed by aw to fe
a return of ncome from certan .saes of property because of a de-
cson of a dstrct court that profts from such saes are not ta a-
be s sub|ect to the penaty mposed by secton 3176 of the Revsed
Statutes as amended where he negects to fe a return of such n-
come unt two and one-haf years after the Supreme Court reverses
the |udgment of the dstrct court and decdes that such profts are
ta abe.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Dstrct Court of the Unted States.
Dstrct of Connectcut, n the cases of The art ford-Connectcut
Trust Co., Trustee, state of Php Corbn, and The artford-Con-
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250. rt. 1004.
nectcut Trust Co., Trustee, state of Orando Mner, v. Robert 0.
aton, Coector of Interna Revenue, s pubshed for the nforma-
ton of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved October 25, 1928.
. W. Meon,
Secretary of t e Treasury.
Dstrct Court of the Unted States, Dstrct op Connectcut. Nos. 3150
and 3151. Law.
The artford-Conneotcut Trust Co., Trustee, state of Php Coron, ate of
New rtan, Conn., Deceased, pantff, and The art ford-Connectcut Tru t
Co., Trustee, state of Orando Mner, Deceased, pantff, v. Robert 0. aton,
Coector of Interna Revenue, defendant.
L une 21, 1928.
memorandum of decson.
urrows. D. . : s the same queston Is n dspute n each of the above cases,
they w be dsposed of together n one memorandum.
s the partes have stpuated to the matera facts n each of these cases,
It s unnecessary to revew them.
ddtona evdence, however, was offered by the pantff, through Cark T.
Durant, vce presdent and trust offcer of the pantff Trust company, that at
the tme of fng the returns of ncome n the sad two estates he consuted
wth the coector of nterna revenue and was advsed to make return of
the proft from the sae of property n each case, about whch there was a
queston as to the abty to pay a ta , on ducary Return orm No. 1041,
wth a statement that the decson n the rewster v. Wash case, decded by
udge Thomas n ths dstrct (dated December 16, 1920), hed that sad profts
were not ncome. Mr. Durant further testfed that he rested upon the decson
of udge Thomas n rewster v. Wash, and dd not foow the course of the
case at a, other matters of busness engagng hs attenton.
The ony queston nvoved n these cases s whether or not the fact that at
the tme for fng returns on orm 1040 the case of rewster v. Wash, n
hodng that profts from such saes were not ta abe ncome, woud be reason-
abe cause for not fng such returns for appro matey two and a haf years
after the decson of the Supreme Court T. D. 3176, C. . 4, 41 reversng the
decson of udge Thomas n the sad case.
The pantff cams that the coector was not |ustfed n mposng any
penaty, because the decson of udge Thomas n the case of rewster v.
WaUh was reasonabe cause for not fng returns on or before March 15, 1921,
and as there was reasonabe cause for not fng them on that date, the Com-
mssoner s thereafter precuded from mposng any penaty. urther, that
under secton 3176. as amended by secton 1317 of the Revenue ct 6f 1918,
the ony penaty that can be mposed s for faure to fe wthn the prescrbed
tme wthout reasonabe cause for such faure that the ground for penaty s
compete on March 15, 1921, and that nothng that s done thereafter can change
the stuaton.
I can not agree wth the poston of the pantff. The pantff had reason-
abe cause for not makng a return on orm 1040 on March 15, 1921, n vew
of the rewster v. Wash case. The decson of the Supreme Court, however,
rendered the cause for not fng of no effect after March 28, 1921.
The fact that the pantff dd not foow the course of the rewster y.
Wash case, and that t had other busness to perform, does not seem to me a
reasonabe cause for faure to fe a return for more than two and a haf years
after the Supreme Court decson n the rewster v. Wash case and then not
unt two months after demand havng been made by the coector.
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250, rt. 1008.
302
It a not probabe that secton 3176, as amended, was ever ntended to mean
that f a reasonabe cause e sted ou the dare set for fng returns, and such
cause was thereafter emnated, the ta payer woud not be sub|ected to a
penaty for faure to fe, no matter how much tme eapsed. The pur|wse of
ths statute s to factate the coecton of ta es, and f such a constructon
were gven as urged by the pantff, a person coud negect to fe hs return
not ony two and a haf years, but any number of years, and the penaty
statute woud ava nothng, whch s ceary not a reasonabe constructon.
udgment may, therefore, be entered for the defendant n each case, wthout
costs.
rtce 1008: Coecton of ta by sut. II-34-3865
G. C. M. 2757
R NU CT OP 1021.
The fng of a cam n abatement whch merey contans grounds
for abatement of the ta does not e tend the statutory perod of
mtaton for the coecton of the ta wth respect to whch the
cam was fed.
n opnon s requested reatve to an addtona ncome ta assess-
ment for the year 1917 aganst a ta payer.
The facts are as foows: The ta payer fed hs return for the
caendar year 1917 on March 28, 1918. t pon audt of the return hs
ta abty was ncreased n the amount of 19a doars, whch
was paced on the March, 1925, assessment st. Under date of
December , 1922, the ta payer e ecuted a waver wheren he con-
sented to a determnaton, assessment, and coecton of the amount of
ncome, e cess profts, and war profts ta es due under any return
made by hm, or on hs behaf, for the year 1917, rrespectve of any
perod of mtatons. Gn pr , 1923, the ta payer fed a cam
n abatement n the amount of 19a doars aganst the addtona 1917
ta , whch was aowed on ebruary , 1925, n the amount of 10a
doars and re|ected n the amount of 9a doars. No bond was fed
by the ta payer and the cam for abatement contaned ony the
reasons advanced to show why the ta was not due.
n opnon s requested as to whether or not the statutory perod
of mtaton for the coecton of the outstandng ta was e tended
by the fng of a cam for abatement.
The evenue ct of 1921, wth reference to assessment and coec-
ton of ta , provdes n secton 250(d) as foows, to wt:
(d) The amount of ncome, e cess-profts, or war-profts ta es due under
any return made under ths ct for the ta abe year 1921 or succeedng ta abe
years sha be determned and assessed by the Commssoner wthn four years
after the return was fed, and the amount of any such ta es due under any
reurn made under ths ct for pror ta abe years 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 ndustres of
the Unted States, and for other purposes. approved ugust 5, 1909, sha be
determned and assessed wthn fve years after the return was fed
and no sut or proceedng for the coecton of any such ta es due under ths
ct or under pror ncome, e cess-profts, or war-profts ta cts, or of any
ta es due under secton 38 of such ct of ugust 5, 1009, sha be begun, after
the e praton of fve years after the date when such return was fed, but ths
sha not affect suts or proceedngs begun at the tme of the passage of ths
ct: .
The ony e ceptons to the runnng of the statute of mtatons
provded n the above-quoted secton are (1) when both the Comms-
soner and the ta payer consent n wrtng to a ater determnaton,
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303
250, rt. 1012.
assessment, and coecton of the ta , and (2) n the case of fase or
frauduent returns wth ntent to evade ta es, (3) faure to fe the
requred return, (4) cases comng wthn the scope of paragraph (9)
of subdvson (a) of secton 214 or paragraph (8) of subdvson (a)
of secton 234, or (5) cases of fna settement of osses contngenty
aowed by the Commssoner pendng a determnaton of the e act
amount deductbe.
The ta payer fed a cam n abatement merey for the purpose of
requestng a redetermnaton of hs abty for the amount assessed.
Manfesty, such a cam, whch sets forth ony the grounds reed
upon to show that the ta s not due, contanng no promse, ether
e press or mped, to pay the ta , does not gve rse to an under-
standng between the ta payer and the Commssoner to treat any
fact as setted. The stuaton, therefore, wth reference to the co-
ecton of the ta , remans the same as before the cam was fed the
Commssoner s not precuded from nsttutng approprate acton
for the coecton thereof, nor has the ta payer acqured a new or
addtona rght to have same postponed. s stated n artce 1032,
Reguatons 62:
The fng of a cam for abatement does not necessary operate as a suspen-
son of the coecton of the ta or make t any ess the duty of the coector to
e ercse due dgence to prevent the coecton of the ta beng |eopardzed.
e shoud, f he consders t necessary, coect the ta and eave the ta payer
to hs remedy by a cam for refund.
cam n abatement whch merey contans grounds for the abate-
ment of the amount assessed can not, therefore, De regarded as such a
consent n wrtng as s contempated n the e cepton as set forth n
subdvson (1) above. or obvous reasons t does not fa wthn
the purvew of e ceptons (2). (3), or (4). Due to the fact that the
case s submtted for an opnon reatve to the effect of a cam n
abatement ony, t s assumed that t does not fa wthn the scope of
e cepton (5).
In vew of the foregong, t s the opnon of ths offce that the
fng of a cam n abatement n the nstant case does not operate to
e tend the statutory perod of mtaton for the coecton or the ta .
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
rtce 1008: Coecton of ta by sut.
R NU CT O 1918.
udgment aganst dssoved corporaton for unpad edera ta es
as a condton precedent to a sut n equty aganst stockhoders as
transferees. (See T. D. 4216, page 228.)
rtce 1012: ssessment of ta .
R NU CT O 1921 ND PRIOR CTS.
Ta es n respect of property hed by en Property Custodan
under Tradng wth nemy ct. (See G. C. M. 4978, page 163.)
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304
rtce 1012: ssessment of ta . II-51-4036
G. C. M. 5362
R NU CT O 1921.
Where a waver was fed by a partnershp consentng to assess-
ment and coecton of ta es due under a return for a fsca year
ended n 1918, the waver s one for the ta abe year 1918 and s
not sub|ect to the provsons of Mmeograph 3085 (C. . II-, 174),
whch reates ony to wavers for the ta abe year 1917.
n opnon s requested as to whether an unmted waver fed for
the fsca year ended uy 31, 1918, shoud be regarded as havng
e pred on pr 1,1924, n accordance wth the provsons of Mmeo-
graph 3085.
summary of the essenta facts s as foows:
On October , 1918, the ta payer fed a partnershp e cess-profts
ta return, as requred by the Revenue ct of 1917, for the fsca year
ended uy 31, 1918. No further return was fed under the Revenue
ct of 1918, snce no addtona ta was due under that ct (see sec-
ton 335(c)), and the return fed n October, 1918. was regarded as
satsfyng the requrements of the 1918 ct. On September , 1922,
the foowng waver was sgned by the ta payer and approved by
the Commssoner:
In consderaton of the stponement of the coecton of certan addtona
ncome and/or e cess-profts ta es camed by the Unted States aganst and
from tu undersgned frm of , sad frm hereby e pressy waves and
renounces any rghts conferred upon or vested In t by any statute of mta-
tons, wth respect to any ta es whch hereafter may be shown to be due from
sad frm for the fsca year endng uy 31, 1918 and hereby assents to the
assessment of such ta es as may propery be due for sad perod, any rghts
under any such statute to the contrary notwthstandng.
In ebruary, 1924, an addtona ta for the fsca year nnder
consderaton was assessed, and was vountary pad by the ta -
payer on May , 1924. Under date of ugust , 1927, a cam for
a refund was fed coverng ths ta . The cam s based on the
aegaton that the ta was assessed and coected after the e pra-
ton of the statutory perod of mtaton, and shoud be refunded n
accordance wth decson n the case of owers v. New York tfc
bany Lghterage Co. (273 U. S.. 346, T. D. 4009, C. . T-1, 268).
The ta payer urges that the unmted waver, the provsons of
whch are quoted above, shoud be regarded as havng e pred on
pr 1, 1924, on the grounds that the partnershp e cess-profts
ta was computed under the 1917 ct, that there was no addtona
ta due under the 1918 ct, and that the waver covered ony ta es
on ncome receved n the year 1917 and thus came wthn the
terms of Mmeograph 3085.
Mmeograph 3085 reads as foows:
The form of waver now n nse 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 fo
sgned by ta payers contanng no mtaton as to the tme In whch assess-
ments for 1917 may be made, a such unmted wavers w be hed to
e pre pr 1, 1924.
The mmeograph reates ony to ta es for the year 1917. (See
Greyock Ms v. Convmssoner, 9 . T. ., 1281: O Ne Machne
Co., 9 . T. ., 567, C. . II-1, 24 G. C. M. 3152, C. . II-1,
153 S. R. 6421, C. . I -2, 246.)
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305
300, rt. 701.
or ncome and profts ta purposes, the ta abe year 1918
means the caendar year 1918 or any fsca year endng durng the
caendar year 1918 (sectons 200 and 300, Revenue ct of 1918).
ccordngy, f a waver s e ecuted and fed by a ta payer con-
sentng to a determnaton, assessment, and coecton of the amount
of ta es due under any return made for the year 1918, and the return
actuay covers a fsca perod endng n 1918, t s a waver for the
ta abe year 1918.
The prmary consderaton wth regard to wavers s the ntent
of the partes. It s reasonabe to suppose that when the waver n
the nstant case was entered nto the partes ntended t to cover the
whoe ta abe year ended uy 31, 1918 that s to say, the ta abe
year 1918 and not to be mted to any part of the caendar year
1917, as the ta payer contends. (See Consumers Ice Co. v. Comms-
soner, 11 . T. . (page 9).) It s aso obvous that the waver was
an assessment and coecton waver, nasmuch as a statutes of m-
tatons reatve to the ta were waved by the ta payer.
Snce Mmeograph 3085 drected that unmted wavers for the
year 1917 shoud e pre pr 1, 1924, and the waver n the nstant
case was not for 1917, but for the ear 1918 that s to say, for a fsca
year ended n 1918 the unmted waver n ths case dd not e pre
on pr 1, 1924, but was vad for assessment and coecton up to
and ncudng the date when the addtona ta was pad, namev,
May , 1924. (See I. T. 1875, C. . II-2, 238 S. M. 2586, C. .
III-2, 303.) The assessment was for addtona ta due for the ta -
abe year 1918, and was not for the ta abe year 1917, despte the
fact that the addtona ta was due from the ta payer on account
of ncome receved n 1917.
Ths offce s, therefore, of the opnon that the unmted waver
fed by the ta payer n ths case reatng to ta es for the fsca year
ended uy 31, 1918, dd not e pre on pr 1, 1924.
C. M. Charest,
Genera Counse, ureau of Interna Revenue-.
TITL n. 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 -3936
ta . T. D. 4219
e cess profts ta revenue act of 1017 decson of court.
Trade or usnbss Professona Snger Royates.
Income from royates receved by a professona snger n 1917
from the sae of dupcate phonograph records of her voce made
from master records perfected n prevous years s sub|ect to the
e cess-profts ta mposed by secton 209 of the Revenue ct of
1917.
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306
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washng ton, P. 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 case of ma Ghck Zmbast,
pantff, v. Chares W. nderson, Indvduay and as Coector of
Interna Revenue, defendant, s pubshed for the nformaton of
nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved September 25, 1928.
. W. Meon,
Secretary of the Treasury.
Unted States Dstrct Court, Southern Dstrct of New York.
ma Guck Zmbast. pantff, v. Chares W. nderson, Iumduay and as
Coector of Interna Revenue, defendant.
anuary 3, 1928.
OPINION.
Coeman, .: Ths Is an acton to recover 6,792, pad by pantff as part of
her e cess profts ta for the year 1917. She was a professona snger and her
Income was n part derved from the sae of phonograph records of her voce.
The soe queston now presented s as to what saes shoud be ncuded n the
e cess profts ta for that year.
In 1915 she made a contract wth the ctor Takng Machne Co. for a perod
. of 10 years, n whch she agreed to make at east 50 master records, from whch
the company woud make dupcates for sae. The contract provded that the
company woud pay her 10 per cent of the reta prce of each dupcate sod and
woud account to her perodcay. In the year 1917 she receved ths royaty from
a arge number of dupcate records sod durng that year, some of whch were
made from master records whch she had perfected before the begnnng of 1917.
She admts that her royates receved n 1917 from the master records made
durng that year are sub|ect to the e cess profts ta , and the ony queston pre-
sented s whether the royates from records made prevousy are aso ta abe.
The statute whch mposed the ta appcabe to ths pantff was secton 209
of the ct of October 3, 1917, and reads n part as foows:
That n the case of a trade or busness havng no nvested capta
there sha be eved, assessed, coected and pad a ta equvaent to
8 per centum of the net ncome of such trade or busness .
The reguatons of the Treasury Department provded:
In the case of an ndvdua, the terms trade, busness, and trade or bus-
ness comprehend a hs actvtes for gan, proft, or vehood, entered nto
wth suffcent frequency, or occupyng such porton of hs tme or attenton as
to consttute a vocaton, ncudng occupatons and professons. In
the foowng cases the gan or ncome s not sub|ect to e cess profts ta :
(b) The ncome from property arsng merey from ts ownershp,
ncudng nterest, rent and smar ncome from nvestments e cept n those
cases n whch the management of such nvestments reay consttutes a trade
or busness.
Pantff contends that her royates from dupcate records sod In 1917,
where the master records had been made before the begnnng of that year,
were ncome from property and not ncome from a trade or busness whch she
carred on durng the year 1917, even though she admts that the royates
from the master records made durng that year were ta abe as ncome from
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307
301, rt. 711.
her trade or busness for that year. er theory Is that the statute made ta -
abe ony the Income earned and receved durng the year 1917 and that the
royates receved n 1917 from master records prevousy made had been com-
petey earned by her before the begnnng of the year and therefore const-
tuted ncome from property rghts whch she hed aganst the ctor Takng
Machne Co.
In the frst pace, nether the statute nor the reguatons e pressy provdes
that the ncome must have been earned durng 1917. There s nothng n the
words of ether to ndcate that n ths respect the e cess profts ta was
dfferent from the ncome ta . The pantff was reportng on a cash recept
bass and the royates actuay receved, whenever they were earned, woud
have been ncuded n her ncome ta . She urges, however, that the purpose
and reason underyng the e cess profts ta shoud mt t to ncome earned
durng that year, even though e press provson s not made for t. There s a
good dea of force n ths argument, but I do not thnk t necessary to consder
It n deta, because even though t be correct I thnk t s nappcabe here.
Durng the year 1917 she n part earned the royates on the master records
whch she had made before that year.
The contract between pantff and the ctor Takng Machne Co. con-
tempated not merey the makng of 50 master records and the sae of dup-
cates, but aso the budng up of a good w around pantff s name. Ths re-
qured not ony e tensve advertsng but the contnung producton of new
records by her. She was prohbted from sngng for any other phonograph
concern, and was under the obgaton to contnue makng new records for
ths company to suppy the demand created by ts advertsng campagn. The
more she ncreased n popuar favor the arger woud be the demand not ony
for her new records but aso for her od ones. very tem of pubcty about
her woud have some bearng upon the amount of saes of a her records, od
as we as new.
It must be borne n mnd that the ncome n dspute n ths case s assumed
to have been from saes actuay made n the year 1917, though from master
records prevousy perfected. It s possbe that some of t was from saes
made before anuary 1, 1917, but pad to pantff by the company after that
date. The record does not dscose the specfc facts In regard to ths, and
both sdes agree that t s mmatera. Ths ncome was not f ed and de-
termned soey by what she had accompshed n precedng years and by the
economc condtons then prevang. er actvtes In 1917 and her perform-
ance of her contract durng that year had a drect bearng on the amount of
her royates from the records prevousy made and the economc condtons
of that year and not of prevous years, was a factor. So that the reason
underyng the e cess profts ta appes wth equa force to the royates from
both od and new records.
The ncome n queston was not from property arsng merey from ts
ownershp, but from her busness, whch was the performance of the 10-year
contract. She contnued n that busness a durng 1917, and though ths n-
come was partay earned before then, t was not competey earned unt the
saes were made. It was therefore propery ncuded n the e cess profts ta
for that year.
P RT II. IMPOSITION O T .
S CTION 301. IMPOSITION O T .
rtce 711: Imposton of ta . II-39-3912
T. D.4208
e cess profts ta revenue act of 1917 decson of supreme court.
Imposton of Ta Trustee n ankruptcy.
trustee n bankruptcy operatng the busness of a bankrupt
domestc corporaton under the drecton of a bankruptcy court s
not sub|ect to the e cess profts ta mposed by Tte II of the
Revenue ct of 1917.
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308
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 Mabe G. Renecke, Coector of Interna Revenue,
v. rank G. Gardner, Trustee n ankruptcy of the CPGwra Coa Co.,
s pubshed for the nformaton of nterna revenue offcers and
others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved September 12,1928.
. W. Meon,
Secretary of the Treasury.
Supreme Co bt of the Unted States.
Mabe O. Renecke, Coector of Inferna Revenue for the rst Dstrct of
Inos, v. rank O. Oardner, Trustee m ankruptcy of the O Gara Coa Co.
On certfcate from the Unted States Crcut Court of ppeas for the Seventh Crcut.
May 14, 1928.
OPINION.
Mr. ustce Stone devered the opnon of the court.
In ths case, pendng n the Court of ppeas for the Seventh Crcut, that
court as certfed to ths questons of aw concernng whch t asks nstruc-
tons for the proper dsposa of the cause. udca Code, secton 239. The
certfcate states that the appeee, trustee u hankruptcy of a coa mnng
corporaton, actng under order of the bankruptcy court, carred on the busness
of the bankrupt, usng for that purpose ts eutre property. rom October 3,
1913, the date of the ad|udcaton, unt about anuary 1, 1917, the busness
was conducted at a oss, but n 1917 and 1918 there were substanta profts.
In 1917 the bankruptcy court, on the appcaton of hoders of bonds secured
by trust deeds of a the bankrupt s property, ordered the paymeut of the bond
nterest maturng u 1916, the profts of the busness for 1910 e ceedng the
nterest maturng n that year. The trustee kept hs books on the uccrua
bass and the uterest comng due n 1916 was shown on the books as then
kept. The trustee deducted from gross ncome of that year the bond nterest
whch matured n 1916 and was pad u 1917. The Commssoner of Interna
Revenue dsaowed the deducton and fed In the bankruptcy court a cam
for the addtona ncome and the e cess profts ta due for 1917, on the
ground the nterest maturng on the bonds n 1910 had been mpropery
deducted from 1917 profts. The questons certfed are as foows:
ueston 1. Is a trustee n bankruptcy, operatng under order of the bank-
ruptcy court the busness of a bankrupt domestc corporaton n the year 1917,
and reazng net profts from the operaton, sub|ect to the e cess profts ta
mposed by the Revenue ct of 1917, n a case where the corporaton, f tsef
conductng the busness, woud, under the ct, have been sub|ect to such ta
ueston 2. Under the above stated facts, s the trustee n bankruptcy, n
computng ncome and e cess profts ta es for the year 1917, entted to deduct
from the gross ncome of 1917 the bond nterest maturng n 1910, and pad n
1917 out of profts of hs operaton n 1917 of the bankrupt s busness
s under the ankruptcy ct the entre property of the bankrupt vested n
the trustee, the ncome n queston was not the ncome of the bankrupt corpora-
ton but of the trustee and was sub|ect to ncome and e cess profts ta ony f
t e statutes authorzed the assessment of the ta aganst hm. The Revenue
ct of 1916 (ch. 403, 39 Stat, 750) and the War Revenue ct of 1917 (ch. 63,
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301, rt. 711.
40 Stat., 300) mposed ncome and e cess profts ta es on ndvduas, partner-
shps, nnd corporatons, but nether n terms mentoned trustees n bankruptcy
as ta abe persons. ut secton 13(c) of the ot of 1916 requred trustees n
bankruptcy of corporatons sub|ect to the ncome ta to make returns of net
ncome, and provded that any ncome ta due on the bass of such returns
sha be assessed and coected n the same manner as f assessed
drecty aganst the corporaton. Ths secton, as appeee concedes, by ts
terms e tends the ta mposed by secton 10 of the ct of 1916 to ncome
receved by trustees n bankruptcy of corporatons. (See Unted States v.
Cdcago astern, III. Ry., 298 ed., 779 T. D. 3591, C. . III-, 322 .)
In the ne t year secton 4 of Tte I of the ct of 1917 mposed an ncome
ta of 4 per cent n addton to the ta mposed by secton 10 of the ct
of 1016 as then amended on the same sub|ects ta ed by secton 10, and pro-
vded that the ta mposed by ths secton sha be computed, eved, assessed,
coected, and pad upon the same ncomes and n the same manner as the ta
mposed by secton 10. The respondent was thus sub|ected to the addtona
ncome ta of the ater ct.
The case s dfferent wth respect to the e cess profts ta . That ta was
mposed by Tte II of the ct of 1917 on corporatons, partnershps, and nd-
vduas engaged n trade or busness. The tte made no menton of e ecutors,
recevers, trustees, or persons actng n a fducary capacty, and contaned no
anguage correspondng to the quoted provson of Tte I, secton 4, e tendng
the addtona ncome ta to the same ncomes ta ed by secton 10 of the
ct of 1916. ta mposed on corporatons aone does not e tend to a trustee
n bankruptcy of a corporaton. (See Unted States v. Whtrdffe, 231 U. S.,
144: Soott v. Western Paofc Ry., 246 ed., 545 compare Smetanka v. rst
Trust d Savngs ank, 257 U. S., 602 T. D. 3321, C. . 1-1, 210 .) In sup-
port of the assessment of an e cess profts ta the coector rees on the genera
anguage of secton 212 of Tte II, prnted n the margn, provdng n sub-
stance that a the admnstratve provsons of the ct of 1916 not nconsst-
ent wth Tte II are made appcabe to t, and argues that the provsons of
secton 13(c) of the ct of 1916, requrng the trustee n bankruptcy of a cor-
poraton to fe a return and sub|ectng to ta the ncome thus dscosed are
ncorporated n the ct of 1917 by reference and e tended to the e cess profts
ta es mposed by that ct
It s to be noted that secton 212 purports to take over from the earer cts
admnstratve provsons ony. Its ast cause, adoptng the provson of Tte I
of the 1916 ct, reatng to returns and payment of the ta , refers to the
admnstratve provsons of the earer ct, f ng the tme and manner of
makng returns and payment of the ta and not to the casses of ncome to be
assessed. In ths connecton the omsson from secton 212 of any cause cor-
respondng to the assessment provsons of Tte I, by whch the addtona n-
come ta was mposed on the same ncomes ta ed by the earer ct, s sg-
nfcant. If the requrement n secton 13(c) that trustees sha make returns
be consdered an admnstratve provson, certany the added cause any
ta due on the bass of such returns sha be assessed and
coected s more than admnstratve and actuay mposes a ta . s such t
s not ncorporated n the ater ct by the reference n secton 212. Thus the
ater ct s wthout any provson sub|ectng one n the poston of appeee to
the e cess profts ta .
The apparent purpose of secton 212 was to take over from the earer ct
those apcabe admnstratve provsons whch woud ad n the coecton of
the new ta mposed by Tte II and not to e tend t to casses of persons or
sub|ects not mentoned n the tte. arous reasons may be urged why Congress
may not have ntended to e tend the e cess profts ta to trustees n bankruptcy.
ut whatever purpose Congress may have had, we thnk the anguage of secton
212 fas short of ndcatng any ntenton to enarge the casses of ta payers
mentoned n Tte II. The e tenson of a ta by mpcaton s not favored.
(Unted States v. Whtrdffe, supra Smetanka v. rst Trust Savngs ank,
supra.)
The Treasury Department tsef has hed that testamentary trustees and trus-
tees of estates n process of dstrbuton, notwthstandng the admnstratve pro-
vsons of the 1916 ct requrng them to make returns for ncome ta purposes,
are not ta abe for e cess profts. (L. O. 1100, C. . 1-2, 230 S. M. 2384, C. .
I 2. 330.)
The frst queston s answered No.
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326, rt. 831.
310
s te trustee In bankruptcy was sub|ect to an ncome ta under the ct of
1916, an answer to the second queston s not made unnecessary by our answer to
the frst. The second was, we assume, ntended to present the queston whether
the deducton of nterest accrued and payabe n 1916, but actuay pad n 1917,
was requred to be made from 1916 ncome because the ta payer kept hs books
on the accrua bass. We are unabe to answer the queston for the reason that
the certfcate omts to state facts essenta to ts determnaton. The appcabe
secton, 13(d) of the ct of 1916. drects that f the ta payer keeps hs books on
any bass other than that of actua recepts and dsbursements, and the return
s made on the bass adopted, the ta sha be computed on that bass uness the
books ceary do- not refect the ta payer s true ncome. In Unted States v.
nderson (269 U. S., 422 T. D. 3839, C. . -, 179 ), t was ponted out that
under the ct of 3916 and appcabe Treasury reguatons, the ta payer most
make a deductons from gross ncome as of the year when the payments were
made uness he keeps hs books on an accrua bass whch accuratey refects hs
ncome, and actuay made hs return on that bass. (Sue Unted States v.
Mtche, 271 U. S.. 9 T. D. 3865, C. . -, 2331 mercan Natona Co. v.
Unted States, 274 U. S., 99 T. D. 4099, C. . I-2, 193 .) The present certf-
cate fas to state whether the books of the trustee as kept refected hs ncome
or whether hs return was made on the accrua bass or on the bass of actua
recepts and dsbursements. 1 nder udca Code, secton 239, the facts pert-
nent to the queston asked must be certfed. When they are omtted from the
certfcate the queston need not be answered. (Don v. Strathearn S. S. Co.,
248 U. S., 182.)
P RT . IN ST D C PIT L.
S CTION 326. IN ST D C PIT L.
rtce 831: Meanng of nvested capta. II-38-3905
T. D. 4205
C SS PRO ITS T R NU CTS O 1017 ND 1918 D CISION O COURT.
1. Invested Capta Deprecaton pprecaton.
Under secton 207 of the Revenue ct of 1917 and secton 326
of the Revenue ct of 1918 nvested capta must be determned by
deductng from earned surpus deprecaton sustaned on the bass
of the nvestment n budngs wthout offsettng apprecaton n
ther market vaue.
2. Decson oowed.
The decson n La ee Iron Works v. Unted States (256
U. S., 377 (T. D. 3181 C. . 4, 373 )) s 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, ghth Crcut, n the case of The Lee ardware Co.,
pantff n error, v. Unted States of merca, defendant n error,
s pubshed for the nformaton or nterna revenue offcers and
others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved September 6, 1928.
Ogden L. Ms,
ctng ecretarg of the Treaswry.
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311
326, rt. 831.
Unted States Crcut Coubt op ppeas, ghth Crcut.
The Lee ardware Co., pantff n error, v. Unted States of merca, defendant
n error.
In error to the Dstrct Court ot the Unted States for the Dstrct of ansas.
March 16, 1928.
OPINION.
Stone, Crcut udge, devered the opnon of the court.
Ths s an acton at aw by the pantff n error aganst the Unted States to
recover the ncome and profts ta es, pad under protest, for the years 1917
to 1920, ncusve. t the tra, defendant conceded certan overpayments
arsng from dupcaton on two tems (equpment and automobes) and con-
cernng these matters there s no dspute here. The |udgment refused recovery
as to another character of tem and that matter s brought here on wrt of
error.
Pantff n error presents ony two contentons. The frst s that It was the
duty of the tra court to make fndngs of fact. The |ursdcton of the tra
court n ths character of cases s founded on secton 41, paragraph (20), of
U. S. C. ., Tte 28 ( udca Code, secton 24, paragraph Twenteth ). In
such cases, the court sts as a court of cams. ( rtch, Inc., v. Unted
States, 248 U. S., 458, 461, 462, 463, 464.) The above secton requres that a
suts thereunder sha be tred by the court wthout a |ury. The revewng
court bases ts acton upon the fndngs of the tra court, whch are to be
treated ke the verdct of a |ury. ( rothers v. Unted States, 250 U. S., 88,
93.) Obvousy, the purpose of such fndngs s to present to the revewng
court the facts n the case to whch the governng aw s to be apped. ere
there are no forma fndngs by the tra court. owever, the brefs and argu-
ment are cear that there s no dspute of fact n ths ease. The confct arses
purey from a dfference n vews as to what s the aw. In such a stuaton,
t seems an de thng to send the case back for a forma fndng of facts about
whch no queston s made here. Therefore, athough the tra court shoud
have made such fndngs, we w not remand the case for that reason aone.
The second and man contenton s a pure queston of aw. Part of these
ta es were assessed under the Revenue ct of 1917 (40 Stat., 300) and part
under the Revenue ct of 1918 (40 Stat., 1(R 7). Ths contenton nvoves
constructon of secton 207 of the Revenue ct of 1917 and secton 326 of the
Revenue ct of 1918 as to the meanng theren of the term nvested capta.
There s no dspute here as to the amount of cash actuay nvested n the
property, nor as to the surpus hed, nor as to the ta , nor the amount of
deprecaton beng wthn the amount of the e stng surpus.
The porton of the nvested capta here n queston was represented by rea
estate wth budngs thereon. In estmatng the nvested capta, the ta ng
offcas deducted 2 per centum each year from the nvestment n the above
budngs for deprecaton thereof. There s no dspute as to the fact of physca
deprecaton n such budngs nor as to the amount thereof as estmated by the
offcas. There s no dspute that the entre property (rea estate and bud-
ngs) has ncreased n vaue aong wth other propertes In that vcnty and
because of natura growth n vaues and of mprovement of other near-by prop-
erty. so, there seems no dspute that ths ncrease n vaue Is at east equa
to the amount charged off as deprecaton.
The ta payer contends that where such apprecaton n vaue e sts t may be
used to offset actua physca deprecaton n so far as deductons for depreca-
ton are aowabe n ascertanng nvested capta wthn the meanng of the
above sectons. To state the matter n dfferent words, that the nvested cap-
ta n the budngs shoud e f ed at repacement cost ess deprecaton, not
e ceedng, however, the actua cost. If ths contenton be correct, the reef
sought must foow, because the protested ta es arose ony as the resut of depre-
catng the actua nvestment of capta n the budngs. The case of La ee
Iron Works v. Unted States (256 U. S.. 377) nvoved the precse matter here
nvoved n regard to secton 207 of the Revenue ct of 1917 (t s not suggested
that secton 326 of the ct of 1918 s, n ths respect, dfferent). Theren the
court sad (p. 387) :
scrutny of the partcuar provsons of secton 207 shows that t was the
domnant purpose of Congress to pace the pecuar burden of ths ta upon the
37229 29 21
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326, rt. 842.
312
ncome of trades and busnesses e ceedng what was deomed a normay reason-
abe return upon the capta actuay embarked. ut f such capta were to be
computed accordng to apprecated market vaues based upon the estmates of
nterested partes (on whose returns perforce the Government must In great
part rey), e aggeratons woud be at a premum, correctons dffcut, and the
ta easy evaded. Secton 207 shows that Congress was fuy ave to ths and
desgnedy adopted a term- nvested capta and a defnton of t, that
woud measuraby guard aganst nfated vauatons. The word 4 nvested n
tsef mports a restrctve quafcaton. When speakng of the capta of a
busness corporaton or partnershp, such as the ct deas wth, to nvest
mports a ayng out of money, or money s worth, ether by an ndvdua n
acqurng an nerest n the concern wth a vew to obtanng ncome or proft
from the conduct of ts busness, or by the concern Itsef n acqurng somethng
of permanent use n the busness n ether ease nvovng a converson of weath
from one form nto another sutabe for empoyment n the makng of the
hoped-for gans. See Webster s New Internat-NDct., nvest, 8 Century Det,
nvest, 7 Standard Det., nvest, 1.
so at page 389:
It s cear that causes (1) and (2) refer to actua contrbutons of cash or
of tangbe property at ts cash vaue contrbuted n e change for stock or shares
specfcay ssued for t and that nether these causes, nor cause (3) whch
reates to surpus, can be construed as ncudng wthn the defnton of nvested
capta any markng up of the vauaton of assets upon the books to correspond
wth ncrease n market vaue, or any paper transacton by whch new shares
are ssued n e change for od ones n the same corporaton, but whch s not n
substance and effect a new acquston of capta propety by the company.
It s cear enough that Congress adopted the bass of nvested capta
measured accordng to actua contrbutons made for stock or shares and actua
accessons n the way of surpus, vaung them accordng to actua and bona fde
transactons and by vauatons obtanng at the tme of acquston, not ony n
order to-confne the capta, the ncome from whch was to be n part e empted
from the burden of ths speca ta , to somethng appro matey representatve
of the rsks accepted by the nvestors n embarkng ther means n the enterprse,
but aso n order to adopt tests that woud enabe returns to be more easy
cheeked by e amnaton of records, and make them ess abe to nfaton than
f a more bera meanng of capta and surpus had been adopted thus
avodng the necessty of empoyng a speca corps of vauaton, e perts to
grappe wth the many dffcut probems that woud have ensued had generu
market vaues been adopted as the crtera.
In vew of the speca anguage empoyed n secton 207, obvousy for the
purpose of avodng apprecated vauatons of assets over and above cost, the
argument that such vaue s as rea as cost vaue, and that n the termnoogy
of corporaton and partnershp accountng capta and surpus means merey
the e cess of a assets at actua vaues over outstandng abtes, and sur-
pus means the ntrnsc vaue of a assets over and above outstandng
abtes pus par of the stock, s besde the mark.
The above decson s drecty n pont and s decsve of ths case.
The |udgment shoud e and s affrmed.
C SS rtO TTS T R NU CTS O 1917, 1018, ND 1921 D CISION
OP COU T.
1. Invested Capta abned Surpus mount Pad n Redemp-
ton of onds Payabe out of abnnos.
Where a corporaton acqures the busness and assets of another
corporaton and ssues therefor, n addton to ts capta stock,
certan ncome bonds whch are payabe ony from future net
earnngs, t can not ncude n nvested capta any part of the
amount pad for the redempton of sad bonds.
2. udgment ffbmed.
udgment of the dstrct court (21 ed. (2d), 787 (T. D. 4100
C. . I-2,280 )) affrmed.
rtce 842: Surpus and undvded profts:
property pad n and subsequenty wrtten off.
-34-3866
T. D.4193
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326, rt. 842.
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, Second Crcut, n the cases of The aker Tayor Co.,
pantff n error, v. Unted States of merca, defendant n error,
and The aker Tayor Co., p-ant|f n error, v. rank . owers,
Coector of Interna Revenue, defendant n error, s pubshed for
the nformaton of nterna revenue offcers and others concerned.
C. . en,
ctng Commssoner of Int-erna Revenue.
pproved ugust, 8, 1928.
enry errck ono,
ctng Secretary of the Treasury.
Unted States C crrr Court or ppeas fob the Second Crcut.
The aker d Tayor Co., pantff n error, v. Unted States of mcnoa,
defendant n error.
The aker t Tayor Co., pantff n error, v. rank . owers, Coector of
Interna Revenue, Second Dstrct of New York, defendant n error.
In error to the Dstrct Court of the Unted States for the Southern Dgtrct of New York.
May 15, 1928.
opnon.
ugustus N. Rand, Crcut udge: The queston n each of the above cases
Is whether 400,000 pad by The aker Tayor Co. n ncome bonds for the
purchase of the good w of a busness ought to have been ncuded as n-
vested capta for the purpose of cacuatng e cess profts ta es. No part of
ths sum was aowed and through faure to aow t The aker Tayor Co.
contends that ts e cess profts were unduy enarged and the e cess profts
ta es were cacuated wth respect to an nvested capta smaer by 400,000
than the correct amount.
The aker Tayor Co. was the successor of a corporaton the charter of
whch e pred by mtaton n 1906. The assets of the former corporaton
thereupon vested n ts two stockhoders, aker and Tayor. The average
annua net earnngs of that corporaton for the ast four years of ts e stence
had been 42,000, and the average net tangbe eapta durng the same perod
was 354,000. y corporate resoutons The aker Tayor Co., whch had been
organzed n 3906 to take over the busness and property of the od company,
receved from the two stockhoders of the former company net assets other than
good w vaued at 40,000 and ssued to them as payment for the busness and
assets 40,000 of the stock and 400,000 of the ncome bonds of the new com-
pany. The prncpa of these bonds, bearng date pr 1, 1906, was payabe
pr 1, 1916, and they each provded as foows:
Sad prncpa sum and sad nterest thereon are to be pad ony
from the net earnngs of the sad The aker Tayor Co., ascertaned and
decared by Its board of drectors to be appcabe to such payments of prncpa
and nterest after appropratng to the capta account of sad corporaton such
porton of sad net earnngs as the sad board of drectors may deem advsabe.
In the event that the accumuated net earnngs of the sad The aker Tayor
Co. are nsuffcent to pay the prncpa hereof at maturty or any unpad nterest
due thereon, then ths obgaton sha be pad from sad net earnngs as when
and as soon as sad net earnngs are ascertaned and decared by ts board of
drectors. Ths bond may be redeemed n whqe or n part by The aker
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326, rt. 842.
314
Tayor Co. at ts opton at auy tme before the maturty hereof, by the payment
to the hoders hereof of the fu prncpa sum or such porton thereof as may
be requred to pay the part or porton of sad bond redeemed, together wth
nterest due thereon .
The ncome bonds were a redeemed by parta payments from the corpora-
ton earnngs, the ast of whch was made on une 4, 1914. The surpus earn-
ngs were charged wth these payments.
The cases came before the tra court on motons to dsmss the compants
n the severa actons. These motons were granted on the ground that the good
w of the busness was competey acqured n 1906 and nothng was gven
therefor e cept the agreement to pay f and when t mght demonstrate a vaue
by reason of earnngs thereafter to be made.
The earnngs of the busness, both before and after the transfer of the busness
and assets of The aker Tayor Co., ndcated a good w of substanta vaue
but pantffs books of account never carred the good w as a corporate asset.
There s doubt whether the compants n the actons to recover e cess profts
ta es reay set forth a the facts necessary to a decson, but both sdes have
argued the ap ea as though they dd. We have assumed ths, and n makng
the above statement have drawn the nferences most favorabe to the pantff,
as shoud be done when the |udgments appeaed from were rendered upon
demurrer.
Secton 207(a) of the Revenue ct of 1917 provdes n substance that n-
vested capta means: (1) ctua cash pad n (2) the actua cash vaue of
tangbe property pad n, other than cash (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, provded that the good w of a corporaton or
other ntangbe property sha be ncuded as nvested capta f the corporaton
made payment therefor specfcay as such n cash or tangbe property but good
w purchased wth shares n the capta stock of a corporaton ssued pror to
March 3, 1917, n an amount not to e ceed 20 per centum of the tota shares of
the capta stock of the corporaton sha be ncuded n nvested capta at a
vaue not to e ceed the actua cash vaue at the tme of such purchase, and n
case of ssue of stock therefor not to e ceed the par vaue of such stock.
Secton 326 (a) and (b) of the Revenue cts of 1918 and 1921 defnes
nvested capta as:
(1) ctua cash bona fde pad n for stock or shares
(2) ctua cash vaue of tangbe pro rty, other than cash, bona fde pad n
for stock or shares
(3) Pad n or earned surpus and undvded profts not ncudng surpus
and undvded profts earned durng the year
(4) and (5) Intangbe property bona fde pad n for stock or shares, pro-
vded that n no case sha the tota amount e ceed n the aggregate 25 per
centum of the par vaue of the tota stock or shares of the corporaton outstand-
ng at the begnnng of the ta abe year.
(b) Invested capta does not ncude borrowed capta.
The aker Tayor Co. not ony dd not set up the good w as an asset on ts
books, but the ncome bonds were not set up as a abty. The net ncome
earned after ts ncorporaton created a surpus whch was charged wth the
amounts pad n redempton of the bonds, thereby wpng t out pro tanto.
The aker Tayor Co. made ts ta returns for the years n queston wth-
out reference to the good w as an asset and wthout ncudng the tem of
400,000, or any porton of t, as part of ts nvested capta. y not ncudng
t, ts e cess profts ta was of course ncreased. fter vountary payng the
ta , t changed ts mnd about ts own computaton of nvested capta and fed
a cam for refund, whch the Commssoner of Interna Revenue dened. or
one of the years t appeaed to the oard of Ta ppeas, whch hed that the
tem of 400,000 coud not be ncuded n nvested capta. It s, of course, true
that the mere faure to make proper entry n the books of account, or to make
returns on a correct theory, s susceptbe of correcton.
Good w Is not tangbe property and can not come wthn (1) or (2) of
sectons 207(a) or 320(a), supra. Is t pad n or earned surpus It can
not be pad n surpus, for those words reate to a case where the stock s
ssued for cash or tangbe property at a prce above par, and t s not earned
surpus, for t was not derved from undstrbuted profts. ( dwards v. Dougas,
269, U. S., at p. 214 T. D. 3707, C. . -, 158 .) The good w was purchased
n 1906 and e hypothes nether wth present cash nor out of e stng earnngs,
but wth ncome bonds whch n terms were not abtes aganst the assets of
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315
326, rt. 858.
the corporaton but mere promses to pay from future net earnngs after appro-
pratng to the capta account such porton of sad net earnngs as
the board of drectors may deem advsabe.
It s sad that as the bonds were pad off, the surpus earnngs whch had
accumuated were dmnshed pro tanto and the good w took ts pace as sur-
pus. ut ths argument s not merey fancfu and wthout support n the
books of the corporaton, but can not possby be sound. The good w, after t
was purchased n 19()6, then became to ts fu e tent an asset and by no correct
reasonng can be thought to have grown by nches as the ncome bonds were
redeemed. or some reason, whch we can not know (possby to avod arge
capta stock or annua franchse ta es), aker and Tayor chose to take ncome
bonds rather than preferred stock n payment for the busness whch they trans-
ferred to the corporaton. Whatever the reason, these bonds were not obga-
tons affectng the capta of the company whch e sted at the tme of the
transfer. They depended for ther vaue soey upon future earnngs and were
nothng more than a means for securng a dstrbuton of future earnngs to the
stockhoders.
The most pausbe ground for grantng any reef to The aker Tayor Co.
s that ts ncome bonds were n essentas stock and that they shoud, therefore,
be treated as shares ssued for ntangbe property, a certan percentage whereof
shoud be ncuded n the nvested capta. ut whe t s true that n ngand
the word stock embraces bonds of a prvate corporaton, n merca t ether
refers to shares of a corporaton or to State and muncpa bonds. (1891) (In
re odman, 3 Ch., 135 Tucker v. Curtn, 148 ed., 929 ttree v. arve, 9 Ch.
Dv., 337.)
ut the ncome bonds n ths case dffer from any form of stock wth whch
we are famar, because nether prncpa nor nterest coud n any event be
payabe e cept out of earnngs, and f there had been no earnngs the rghts of
the hoders woud have been n even upon fna qudaton of the assets of the
company. stockhoder of a sovent corporaton, on the other hand, woud
share n the capta f the company were wound up. It can not be supposed that
the provsons of secton 207(a) of the Revenue ct of 1917, as to good w
purchased wth shares n the capta stock of a corporaton, or of secton
326(a) of the Revenue cts of 1918 and 1921 reatng to ntangbe property
pad n for stock or shares contempated such obgatons as these ncome
bonds whch more resembed the scrpt dscussed n aey v. Raroad Com-
pany (22 Wa., 604) than stock of a corporaton. Whether or not there has
been or may be a stock that can not partcpate n capta assets of a corpora-
ton on fna qudaton we need not say, but we do hod that the ncome bonds
n queston were not stock wthn the meanng of that term n the Revenue cts.
The ntangbe good w was not pad for n cash or tangbe property or n
stock of the corporaton. It, therefore, comes wthn none of the statutory pro-
vsons whch mght aow t to be treated as nvested capta n cacuatng
e cess profts ta es. It s unfortunate that t can not be ncuded at some
|ust vaue n assessng these ta es, but we are satsfed that the Revenue cts
do not permt such ncuson and that the compants were therefore propery
dsmssed.
udgment affrmed.
rtce 858: ffect of ordnary dvdend. II-33-3854
T.D.4186
e cess profts ta revenue act op 1918 decson of court.
Invested Capta ffect of Dvdend orrowed Capta.
Where a dvdend s decared durng the frst 60 days of the
ta abe year payabe at no f ed date n cash or nterest-bearng
demand notes at the convenence of the corporaton, the entre
amount of t s borrowed capta payabe on demand, whch s
e cuded from nvested capta by secton 326(b) of the Revenue
ct of 1918. The dvdend, though pad after that perod, effects
a reducton of nvested capta on the date of the decaraton,
the fu amount of whch s deemed, under secton 201(e) of that
ct, to have been pad from earnngs or profts accumuated durng
the precedng ta abe years.
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326, rt. 858.
316
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 Logan-
Gregg ardware Co. v. D. . ener, Coector of Interna Revenue,
s pubshed for the nformaton of nterna revenue offcers and
others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved uy 31, 1928.
enry errck ond,
ctng Secretary of the Treasury.
Dstrct Co-rt of the Unted States for the Western Dstrct of Penn-
syvana.
Logan-Gregg ardware Co., a Corporaton, v. D. . ener, Coector of In-
terna Revenue for the Twenty-thrd Dstrct of Pennsyvana.
anuary 30, 1028.
ndno of acts and Opnon.
Grson, Dstrct udge: The nstant acton has been brought by the pantff
to recover the sum of 5,209.10, wth nterest. The prncpa amount, t Is
camed, was e acted from pantff by defendant n e cess of the ncome
and e cess profts ta for the year 1918 that was actuay due from pantff
for that year.
INDING O CTS.
The Logan-Gregg ardware Co. s a corporaton organzed under the aws
of the State of Pennsyvana, and has mantaned an offce n the cty of
Pttsburgh, n the western dstrct of Pennsyvana and wthn the twenty-
thrd nterna revenue dstrct of Pennsyvana.
D. P.. ener. snce ugust 1. 1921, has been coector of Interna revenue
for the coecton dstrct above mentoned.
On anuary 25, 1918. the board of drectors of the pantff company duy-
passed the foowng resouton:
Resoved. That we decare speca saares out of the earnngs of the year
1917, representng 25 per cent on the common stock and partcpatng certfcates,
payabe n cash or notes of the company bearng 5 per cent nterest, at the
convenence of the company.
On anuary 31, 191S. n pursuance of the precedng resouton, pantff pad
to a stockhoder the sum of . 6,345.70 n cash and canceed hs debt to the
company n amount of 1,654.30 and at the same tme, t ssued notes, bearng
5 per cent nterest per annum, to other stockhoders n the aggregate amount
of 60,325 and on pr 17, 1918, pursuant to the same resouton, t ssued
ke notes, n the aggregate amount of 21,000, to the remanng stockhoder,
who coud have receved such notes on anuary 31, 1918, but who was absent
n urope at that tme and dd not demand hs notes unt pr 17, 1918.
Sad notes were devered n payment of dvdends.
On ebruary 25, 1918, one of such notes, n amount of 2,000, was pad to a
stockhoder by the company on May 28, 1918. another note, n amount of 1,000,
was pad and on May 31, 1918, others of such notes, n the aggregate amount of
70,825, were pad and the ast payment on sad notes was made on November
16, 1918.
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326, rt. 858.
t the tme sad dvdend was decared, and sad notes were devered on
anuary 31, 1918, and thereafter, the pantff company dd not have on hand
actua cash suffcent to pay the dvdend decared n fu, and ssued notes,
as aforesad, to mantan n the treasury cash suffcent to meet the sprng
purchases of the company.
The pantff company, on une 27, 1918, pad n cash a dvdend of 21,438
on the common stock of the company and a stock dvdend of 35,730 and
durng the same year pad dvdends aggregatng 11,987.50 on the preferred
stock. These dvdends were decared subsequent to the resouton of anuary
31, 1918.
t the dates apponted by aw the pantff company fed wth defendant s
predecessor n offce ts ncome and e cess profts ta return for the year 1918,
upon whch return ncome and e cess profts ta was assessed aganst the
pantff n the sum of 116,928.49. n amended return was subsequenty fed,
whereupon the Commssoner of Interna Revenue reduced the assessment to the
sum of 112,343.61, of whch amount 101,356.72 was pad to defendant s prede-
cessor n offce, and of the baance, 2,100.16 was pad to defendant n cash on
ebruary 13, 1926, and n uy 14, 1923, 8,886.73 was pad to hm by the app-
caton of a certfcate of overassessment n pantffs favor.
In f ng pantff s Incme and e cess profts ta for 1918 at the sum of
112,343.61, as stated, the Commssoner of Interna Revenue determned pan-
tff s net ncome at the sum of 220,492.98 and ts nvested capta at . 809,217.83.
In arrvng at the sum ast mentoned as the amount of pantff s nvested
capta n 1918, the Commssoner deducted the tota amount of the dvdend
decared on anuary 25, 1919, as aforesad, to wt, 98,325, from the amount of
pantff s nvested capta for the year 1918, as camed by pantff, proratng
the amount of sad dvdend from anuary 25, 1918. ad the Commssoner
not deducted the tota amount of the dvdend notes aforesad pad subsequent
to March 1, 1938, from pantffs nvested capta, the average amount of such
capta for 1918 woud be 8S3,628.28, and ts ncome and e cess profts ta woud
have been 107,134.51.
On or about September 23, 1925, the pantff fed wth the defendant co-
ector, n the form prescrbed by the Commssoner of Interna Revenue, a cam
for the refund of 5,209.10. Ths cam was based upon the amount of the sad
dvdend decared by resouton of anuary 25, 1918, pad subsequent to ebruary
25, 1918, deducted by the Commssoner from pantffs nvested capta for the
year 1918. It was re|ected by the Commssoner on ebruary 23, 1926.
OPINION.
The ssue n the nstant acton sprngs from the determnaton of the amount
of pantff s nvested capta for the year 1918 by the Commssoner of Interna
Revenue. The Commssoner hed such nvested capta to be 809,217.83. In
arrvng at ths amount he deducted from pantff s capta the tota amount
of the dvdend decared by the resouton of anuary 25, 1918, herenbefore set
forth. Pantff contends that the Commssoner s determnaton was erroneous,
n that ony 10,000 of the dvdend had been pad wthn the frst 60 days of
the ta abe year and was deductbe, and the baance, 79,325, had been actuay
pad at varous tmes after that perod, and when the current earnngs of the
year were suffcent to pay t, thus makng a deducton of more than 10,000 from
nvested capta contrary to aw. The defendant, by enforcng the aeged
erroneous deducton of the Commssoner, pantff cams, coected 5,209.10
more than was due from pantff n payment of ts ncome and e cess profts
ta es for the year 1918, and such amount, wth nterest, pantff now seeks to
recover.
The defendant contends that the amount deducted, as aforesad, from pan-
tffs nvested capta for the year 1918 was taken from t by the Commssoner
n compance wth the ROTcmug atntnt nd the awfu reguatons estabshed
for ts enforcement. e further urges, n defense o y a - tho cam, that
ths s a persona acton, and that pantff under no crcumstances can recover
more than 2,100.16, the amount of cash actuay turned over to defendant by
t n payment of ts 1918 ta es.
The second matter of defense aeged by defendant s not we founded, n
our opnon. On uy 14, 1923, pantff had a certfcate of overpayment of
ta es for the year 1917 to the amount of 8 -73, una on that date, nstead of
cashng the certfcate and turnng the over t0 defendant n payment of ts
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326, rt. 858.
318
1918 ta es, t transferred the certfcate to hm. The devery of the credt to the
defendant was a payment to hn. and pantff s entted to recover from defend-
ant any amount so pad, provded the payment was made to defendant pursuant
to the atter s coecton of ta es not awfuy due from the pantff.
The concuson |ust stated brngs us to the consderaton of the sub|ect of
the man ssue n the case, the rung of the Commssoner of Interna Revenue
to the effect that a dvdends pad pursuant to the resouton of anuary 25,
1918, reduced the pantff s nvested capta as of that date by the amount of
such dvdends.
Invested capta s defned by secton 326 of the Revenue ct of 1918 (40
St. L., 1092). So much of that secton as Is matera to the present matter s as
foows:
Sec. 326. (a) That as used n ths tte the term nvested capta for any
year means (e cept as provded n subdvsons (b) and (c) of ths secton) :
(3) Pad-n or earned surpus and undvded profts not ncudng surpus
and undvded profts earned durng the year
(b) s used n ths tte the term nvested capta does not ncude borrowed
capta.
(d) The nvested capta for any perod sha be the average nvested
capta for such perod.
y secton 325 of the same ct, t s enacted:
The term borrowed capta means money or other property borrowed,
whether represented by bonds, notes, open accounts, or otherwse .
On pr 17, 1919, under authorty of the Revenue ct of 1918, the Comms-
soner of Interna Revenue, wth the approva of the Secretary of the Treas-
ury, promugated certan reguatons for the enforcement of the ct. rtce
858 of such reguatons (see Reguatons 45, page 187) was desgned to carfy
secton 326 of the Revenue ct and to prescrbe the practce of the ureau of
Interna Revenue thereunder. It s as foows:
rt. 858. ffect of ordnary dvdend. dvdend other than a stock dv-
dend affects the computaton of nvested capta from the date when the dv-
dend s payabe and not from the date when t s decared, e cept that where
no date s set for ts payment the date when decared w be consdered aso
the date when payabe for the purpose of ths artce. or the purpose of com-
putng nvested capta a dvdend pad after the e praton of the frst 60
days of the ta abe year w be deemed to be pad out of the net ncome of
the ta abe year to the e tent of the net ncome avaabe for such purpose on
the date when t s payabe. See artce 857. The surpus and undvded
profts as of the begnnng of the ta abe year w be reduced as of the date
when the dvdend s payabe by the entre amount of any dvdend pad durng
the frst (O days of the ta abe year and by the amount of any other dvdend
n e cess of the current net. ncome avaabe for ts payment. In the case
of a dvdend pad durng the frst 60 days of a ta abe year whch e ceeds
n amount the surpus and undvded profts as of the begnnng of the ta abe
year the e cess w be deemed to be pad out of earnngs of the ta abe year
avaabe at the date when the dvdend s payabe, and to the e tent that
such earnngs are nsuffcent t w be deemed to be a qudaton of pad In
capta or surpus. rom the date when any dvdend s payabe the amount
whch the severa stockhoders are entted to receve w be treated as f
actuay pad to them, whether or not t s so pad n fact, and the surpus and
undvded profts, ether of the ta abe year or of the precedng years, w n
accordance wth the foregong provsons e deemed to be reduced as of that
date by the fu amount of the dvdend. mounts pad to stockhoders n
antcpaton of dvde-uds. or amounts wthdrawn by stockhoders n e cess
of dvdends decared, w n computng nvested capta have the same effect as
f actuay pad as dvdends. See aso artce 813, and see generay secton
201 and artces 1541-1549.
In the determnaton of the amount of pantffs nvested capta, the Com-
mssoner of Interna Revenue apped artce 858. s e nterpreted pantffs
dvdend resouton, supra, ts terms brought t squarey under that reguaton.
It decared a dvdend, payabe n cash or notes bearng 5 per cent nterest, at
the eecton of the pantff, and f ed no date for payment. The Commssoner
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319
326, rt. 858.
hed that the amount of the dvdend not actuay wthdrawn n cash from the
pantff by the stockhoders was borrowed capta, and as such was not to be
regarded as nvested capta. ssumng the appcabty of artce 858, the Com-
mssoner was supported n so hodng by artce 813 of Reguatons 45 (p. 174):
kt. 813. orrowed capta: mounts eft n busness. Whether a gven
amount pad nto or eft n the busness of a corporaton consttutes borrowed
capta or pad-n surpus s argey a queston of fact. Thus, ndebtedness to
stockhoders actuay canceed and eft n the busness woud ordnary con-
sttute pad-n surpus, whe amounts eft n the busness representng saares
of offcers n e cess of ther actua wthdrawas, or depost accounts n favor
of partners n a partnershp succeeded by the corporaton, w be consdered
pad n surpus or borrowed capta accordng to the facts of the partcuar
case. The genera prncpe s that f nterest s pad or s to be pad on any
such amount, or f the stockhoder s or offcer s rght to repayment of such
amount ranks wth or before that of the genera credtors, the amount so eft
wth the corporaton must be consdered as borrowed capta and be so treated
n computng nvested capta.
If the Commssoner s nterpretaton of the dvdend resouton was correct,
and artces 858 and 813 of Reguatons 45 are vad, the rung of the Comms-
soner was entrey |ustfed, and the nvested capta of pantff for the year
1918 was propery decreased and ts e cess profts thus ncreased. ut the
pantff nssts that the Commssoner has msnterpreted the resouton, and
that artce 858 s contrary to aw, or at east nappcabe to the stuaton
created by the decaraton of the dvdend n the nstant case, y ts nterpre-
taton the resouton decares a dvdend payabe at a future date, whch was
to be at the w of the company. It contends that artce 858 treats ony of
dvdends payabe on demand, whe the nstant dvdend was pany not payabe
upon demand. It admts that f the dvdend was pad out of the 1917 profts,
as decared n the resouton, the amount was propery deducted from ts n-
vested capta but t ponts out and correcty as we thnk that the profts
from whch dvdends are pad are not determned by decaratons of the
companys drectors, but by secton 201(e) of the Revenue ct of 1918, whch
setted a theretofore ve ed queston by concusvey decarng that any dstr-
buton made durng the frst 60 days of any ta abe year sha be deemed to
have been made from earnngs of precedng ta abe years, and that any dstr-
buton made durng the remander of the year sha be deemed to have been
made from earnngs accumuated between the cose of the precedng ta abe
year and the date of dstrbuton, to the e tent of such earnngs. Pantff
admts that the cash payment and credt, amountng to 8,000, of anuary 31,
1918, and the payment of 2,000 upon note on ebruary 25, 1918, were deductbe
from the 1918 Invested capta, athough not as of anuary 25, 1918, as they
were pad durng the frst 60 days of the year but t nssts that the baance
of the dvdend was not dstrbuted unt payment was made, and such payment
was made when the cash was wthdrawn from the company by the payment of
the notes gven to the stockhoders on anuary 31, 1918, a of the notes beng
pad after the frst 60 days of the year.
Were we to accept pantff s man proposton, that a dvdend p never de-
ductbe unt payment of t s actuay made whch we do not even so we
shoud not be abe to agree to ts contenton but upon that proposton, that
the dvdend was not deductbe from the nvested capta of 1918. The resou-
ton of anuary 25, 1918, decared a dvdend payabe n cash or notes of the
company tearng 5 per cent nterest, at the convenence of the company. On
anuary 31, 1918, t pad 8,000 by cash and credt, and ssued nterest-bearng
demand notes to each stockhoder, wth one e cepton, for hs e act share of
the dvdend. One of the stockhoders was n urope and dd not get a note for
hs share of the dvdend, but t s admtted that he was upon the same pane
as the other stockhoders, and dd not get t ony because he dd not demand t.
Why ths devery of notes shoud not be consdered a payment of the dvdend
we are unabe to conceve. True, some testmony was offered whch rather
vaguey gves sght support to counse s cam that the notes were not vad
notes of the company, hut were ssued merey to enabe the stockhoders to
reaze that some tme they woud receve the sum. The gratfcaton of hod-
ng a dummy note, t seems to us, woud not be great to a stockhoder who
had passed chdhood. If the ssuance of the notes was a mere gesture, how
are we to e pan the words, payabe n notes of the company
bearng 5 per cent nterest, n the dvdend decaraton The best proof of the
fact that the notes were vad s that they were actuay pad, wth nterest
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326, rt. 869.
320
The stockhoders may have agreed among themseves that they woud not
demand payment of them unt t was convenent for the company to pay them,
but no wtness has been caed who testfed that the notes were not vad
demand obgatons gven by the company n payment of the dvdend. It s
pan to us that they were so gven. Ths concuson practcay dsposes of the
pantff s cam, upon a consderaton of t upon the theory that the Com-
mssoner was n error n the nterpretaton of the resouton of anuary 25,
1918, and that the nvested capta of the company was not to be reduced at
the tme of the decaraton of the dvdend, but when t was pad. Under pan-
tff s theory, the date of payment and of wthdrawa of the assets woud be
s days ater than the date f ed by the Commssoner, and under t pantff s
nvested capta woud be ncreased by 89,325 for that perod. The average
nvested capta for the entre year woud be very sghty ncreased, and conse-
quenty the e cess profts ta of pantff woud be reduced amost to a neggbe
e tent. ut, as stated before, we do not accept the theory.
Pantff has urged that the court s precuded from consderng anuary 31,
1918, as the date of the wthdrawa of nvested capta, as an admsson of that
defense woud be permttng the defendant to mend hs hod, n voaton of
the prncpe ad down n Oho Mss. Ry. Co. v. McCarthy (96 U. S., 258).
In our opnon the mend hs hod doctrne s not appcabe to ths defense
n the nstant sut. Ths s a persona acton aganst the coector, not the
Commssoner. The coector has taken no poston pror to sut but even f
he were n the poston of the Commssoner, the poston of the atter has not
msed pantff n any respect to hs dsadvantage. s contenton that the date
of the wthdrawa of capta shoud be anuary 25, 1918, s not nconsstent
wth a payment on anuary 31, 1918. In the nstant acton, the pantff, to
recover, must prove that an amount of money has been unawfuy coected
from hm, and he can under no crcumstances recover more thnn was egay
coected.
Notce of ths contenton of pantff s supererogaton, because our decson
s not based upon payment of the dvdend on anuary 31, 1918. Our e amna-
ton of the dvdend resouton has satsfed us that the Commssoner was cor-
rect n hs nterpretaton of t, and that the wthdrawa of nvested capta
was propery decared as of anuary 25, 1918, pursuant to artce 858 of Regu-
atons 45. The vadty of thnt reguaton s not open to serous queston, n
our |udgment. It was promugated by authorty of Congress and snce ts pub-
caton t has set forth the nterpretaton and practce of the Treasury Depart-
ment n respect to severn sectons of the ct of 1918, and as such t s entted
to great consderaton. Ths s true of any reguaton adopted pursuant to an
ct whch paced the duty of enforcement of t upon the Department makng
the reguaton, but ths partcuar reguaton s entted to even greater weght
than an ordnary one, because Congress has severa tmes reenacted the prov-
sons of the sectons of the ct of 1918 whch the reguaton was desgned to
nterpret, and under such crcumstances t has the mped sancton of that
body. Ths s an estabshed rue of constructon. (See New aven R. R. v.
Interstate Commerce Commsson, 200 . S., 361 Copper ueen v. rzona, 206
U. S.. 474.)
We have concuded, from the testmony, that the amount of the dvdend
decared by the pantff company was payabe on demand and was borrowed
capta snce the decaraton of the dvdend on anuary 25, 1918, and that the
amount of t, 89,325. was not a part of pantff s nvested capta for the year
1918, after anuary 25, 1918, under the provsons of the Revenue ct of 1918,
secton 201(e). The consequence of ths concuson s that |udgment must be
entered for the defendant.
Let an order be drawn n accordance wth ths opnon.
rtce 869: Insurance companes. TI-29-3806
I. T. 2423
R NU CT O 1918.
The ega reserve funds of a stoek fe nsurance company shoud
not be ncuded n computng ts nvested capta, as such reserve
funds do not represent cash or property pad n by members for
shares.
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326, rt. 869.
dvce s requested reatve to the cams for refund of ncome
and profts ta es n the amounts of 2 doars and 8a doars for the
years 1918 and 1920, respectvey, fed by the M Lfe Insurance Co.
The cams are based upon the refusa of the ureau to permt the
company to ncude n nvested capta the amount of the ega
reserve funds whch the company mantaned durng those years.
The ta payer rees upon the decson of the Supreme Court of the
Unted States n the case of Duffy v. The Mutua eneft Lfe Insur-
ance Co. (272 U. S., 613 T. D. 3959, C. . I-1, 278) and upon
Treasury Decson 4053 (C. . I-2, 292), amendng artce 870,
Reguatons 45 (1920 edton), as amended by Treasury Decson
3153 (C. . 4, 398).
It appears that the company was ncorporated durng the year
190 under the aws of the State of R, for the purpose of ssung
fe, accdent, and dsabty nsurance and the grantng of annutes.
The artces of ncorporaton and the amendment thereto provde
that the capta stock sha be 48a doars, dvded nto y shares of
the par vaue of 100 each, wth the provson that the capta stock
may be ncreased, n the manner provded by aw, to an amount not
n e cess of 144a doars, and that the stock representatve of such
ncreased capta may be sod at such prces, but not ess than ts par
vaue, as the drectors may deem advsabe. It s provded that
dvdends may be decared and pad on the capta stock sub|ect to
the condton that the tota amount pad n the form of dvdends
sha not e ceed an amount computed at the rate of 10 per cent per
annum on the par vaue of the stock from the date of ssuance to the
date of retrement. The surpus of the company, whch s defned
as the e cess of the vaue of ts assets over ts abtes, ncudng
the ega reserve, unearned premum, and capta stock, sha beong
to the pocyhoders on a mutua pan and sha be dstrbuted to
them as the drectors may decde. Ths provson of the charter s
sub|ect to the condton authorzng the drectors to use such surpus
n retrng the pad-up capta stock at the prce of 200 per share.
It s provded that when and after the capta stock sha have been
retred, the company sha be reorganzed or converted, n a awfu
manner, nto a mutua nsurance company composed of ts pocy-
hoders. The certfcates of stock are requred by the charter to
contan a provson by whch the hoders thereof assent to a con-
dtons contaned n the charter. Durng the year 190 the share-
hoders adopted a resouton ncreasng the capta stock to an
amount not n e cess of 144a doars, consstng of Zy shares of the
par vaue of 100 each.
The company has operated n compete conformty wth the pro-
vsons of ts charter. On December 31, 1918 and 1920, there were
outstandng 2.5y shares of capta stock. The stock has been snce
these dates ncreased to 3y shares. nnnay a dvdend of 10 per
cent has been pad to the sharehoders. The reserve funds e cuded
n computng the nvested capta for the years 1918 and 1920 are n
the respectve amounts of 1,050a doars and 1,650a doars.
Wth respect to the ssue nvoved, the Supreme Court n the
Mutua eneft Lfe Insurance Co. case hed that n computng the
e cess profts ta of a mutua fe nsurance company havng no
capta stock, the ega reserve funds shoud be ncuded as nvested
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320, rt. 869.
322
capta under the defnton contaned n secton 207 of the Revenue
ct of 1917. The decson s equay appcabe n the ascertanment
of nvested capta under the Revenue ct of 1918.
The reasonng underyng the decson of the Supreme Court n
that case s that the premums pad by the pocyhoders were
ntended to serve the doube purpose of protecton and nvestment
and that, n fact, such payments were actuay nvested as capta n
the busness of the nsurance company. Treasury Decson 4053,
whch was ssued to take cognzance of the decson of the Supreme
Cou-t n the Mutua eneft Lfe Insurance Co. case, provdes as
foows:
bt. 870. Insurance companes. The reserve funds of Insurance companes,
other than stock fe Insurance companes, the net addtons to whch are
deductbe from gross ncome under the provsons of secton 234 of the statute,
may be ncuded n computng nvested capta. fe nsurance company
substantay a of the stock of whch has been trusteed for the beneft of ts
pocyhoders, sha be deemed to be a mutua company and not a stock company
wthn the contempaton of ths artce.
The poston of the company s that t s entted to have the
reserve funds ncuded n computng nvested capta, for the reason
that the company s for a practca purposes a mutua fe nsurance
company. Ths concuson s based upon the fact that the rate of
dvdend payabe on the capta stock s e pressy mted n the
charter to 10 per cent annuay that, beyond ths dvdend, the
sharehoders have no tte to or nterest n any surpus earnngs
of the company, and that the artces of ncorporaton whch do not
permt the ssuance of stock dvdends or an ncrease n the capta
stock to an amount n e cess of U doars consttute a contractua
agreement between the company sharehoders and pocyhoders
whereby a surpus earnngs beong to the pocyhoders.
It s manfest that the company does not come wthn the tera
provsons of Treasury Decson 4053, n that t s, n fact, a stock
nsurance company, and durng the years nvoved had outstandng
2.5y shares of stock, no porton of whch had been trusteed for the
beneft of ts pocyhoders.
Ths offce can not concede the contenton that the company comes
wthn the genera prncpe of Treasury Decson 4053. The pur-
pose of ths Treasury decson s to amend the e stng reguatons of
the Department to harmonze wth the decson of the Supreme
Court n the case of Duffy v. The Mutua eneft Lfe Insurance Co.
(supra). The substance of the decson of the Supreme Court s
that n the case of a mutua nsurance company the ega reserve funds
are ncudabe n nvested capta as cash or property pad n for
shares. It s the vew of ths offce that ths decson s not controng
n the case of a stock fe nsurance company and that the ega
reserve funds of a stock fe nsurance company shoud not be n-
cuded n computng ts nvested capta, as such funds do not repre-
sent cash or property pad n by members for shares (as n the case
of the Mutua eneft Lfe Insurance Co.), but that such reserve
funds represent the amount for whch a stock fe nsurance com-
pany s obgated to ts pocyhoders, who, contrary to the stuaton
e stng n the case of a mutua fe nsurance company, do not stand
n the reatonshp of members to the company.
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327, rt. 901.
It s, therefore, the opnon of ths offce that the form of organza-
ton and method of operaton of the M Lfe Insurance Co. do not
brng t wthn the prncpe underyng Treasury Decson 4053, and
accordngy the company s not entted to a refund.
S CTION 327. SP CI L C S S.
rtce 901: Treatment of speca cases. TI-28-3798
T. D.4172
e cess profts ta revenue act of 1918 decson of supreme court.
1. Speca ssessment Dscretonary Power Sut ursdc-
ton.
The provsons of the Revenue ct of 1918, authorzng the
Commssoner of Interna Revenue n the cases specfed n secton
327 to determne the ta as provded n secton 328, confer dscre-
tonary power, and hs determnatons under those sectons are not
revewabe by the courts n the absence of fraud or other rregu-
arty.
2. udgment ffrmed.
The |udgment of the Court of Cams of the Unted States (63
Ot. Cs., 463 (T. D. 4048 C. . I-2, 294 ) s affrmed.
Treasury Department,
Offce of Commssoner of Interna eve ue,
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 The Wamsport Wre Rope 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 29, 1928.
. W. Meon,
Secretary of the Treasury.
Supreme Court of the Unted States.
The Wamsport Wre Rope Co., pettoner, v. The Unted States.
On wrt of certorar to the Court of Cams.
une 4, 1928.
OPINION.
Mr. ustce randes devered the opnon of the court.
The Wamsport Wre Rope Co. brought ths acton n the Court of Cams,
on December 19, 1924, to recover the amount of tn aeged overpayment of
e cess profts and war profts ta es for the caendar year 1918, ad under
the Revenue ct of ebruary 24, 1919 (ch. 18, 40 Stat., 1057). The petton
aeged the foowng facts: The company had conceded n ts return, and had
pad, a tota ta of 300,381.77 for the year 1918. In pr, 1920, the Com-
mssoner of Interna Revenue eved upon t an addtona assessment of
89,094.85, whch the company pad under protest. On une 10, 1924, a
porton of the sum so pad was refunded. our days ater, the company
fed a cam for a further refund of 100,000. The cam aeged that for
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327, rt. 901.
324
reasons there set forth, whch are repeated n the petton, the company was
entted, under subdvsons (a) and (d) o secton 327 of the Revenue ct of
1918, to have a speca assessment made under secton 328 of that ct. The
Commssoner havng faed to make the refund wthn s months after
demand, ths sut was brought The Government demurred to the petton
on the ground that the Court of Cams was wthout |ursdcton to grant the
reef sought, and the demurrer was sustaned. (63 Ct. Cs., 4G3.) The case
s here on certorar. (277 . S., 551.)
In ts petton for a wrt of certorar, the Wamsport company aeged
that ts rghts woud presumaby be determned by the decson n ar v.
Oesteren Machne Co., a case then pendng n ths court and the Soctor
Genera, beng of the same opnon, dd not fee |ustfed n opposng te
grantng of the wrt. Decson on the petton was postponed pendng dec-
son of the Oesteren case. That case (275 U. S., 220 T. D. 4120, C. . IM,
181 ) was decded November 21, 1927. We there hed that the e ercse of the
|udgment or dscreton of the Commssoner to aow or deny the speca assess-
ment provded for n sectons 327 and 328 was sub|ect to revew by the oard of
Ta ppeas and that therefore the ta payer was entted to an order com-
peng the Commssoner to respond to the subpoena of the oard ssued under
secton 900(1) of the evenue ct of 1924 (ch. 234, 43 Stat, 253, 338). requrng
hm to answer nterrogatores and to furnsh nformaton contaned n the
returns of other corporatons. On November 28 the wrt of certorar n ths
case was granted. Thereu on, the Wamsport company moved, presumaby n
anaogy to motons to affrm under rue 6, that the |udgment aganst t be
reversed on the authorty of the Oesteren case. The Soctor Genera, whe
not opposng the moton, advsed as that the Court of Cams had, snce the
decson of the Oesteren case, adhered to the vew that t was wthout power
to determne whether the Commssoner of Interna evenue had erred n refus-
ng to make a speca assessment under sectons 327 and 328. We then assgned
the case for ora argument wthout passng on the moton to reverse and remand.
The contenton here Is that, snce the Commssoner s acton was made revew-
abe on appea by the oard of Ta ppeas, t s and was aways revewade
n an orgna proceedng before the Court of Cams. The argument s that
Cotgress has conferred upon the Court of Cams |ursdcton over suts to
recover ta es aeged to have been erroneousy or egay assessed or co-
ected that here ts |ursdcton s nvoked to recover ta es camed to have
been assessed egay, because assessed under secton 301 Instead of under
sectons 327 and 328 that, t must therefore have power to determne whether
condtons e sted whch entted the company to the speca assessment pro-
vded for by sectons 327 and 328: that f t fnds that such condtons dd
e st, t must aso have power to determne the true amount of the ta com-
puted as theren drected and that f t appears that the ta actuay pad
e ceeds that whch woud have been e acted under the speca assessment, the
court may award |udgment for the dfference.
Sectons 327 and 328 were ntended to broaden the powers of reef frst con-
ferred by secton 210 of the War Revenue ct of 1917 (ch. 63, 40 Stat. 300. 307).
It was beeved necessary to provde a speca method of determnng the ta
for those cases n whch the ordnary method of assessment woud resut n
crave hardshp or serous nequaty. (Senate report, 65th Cong., thrd se s..
No. 617, p. 14.) The speca assessment s to be made under paragraph (a)
when the Commssoner s unabe to determne the nvested capta. It s to
be made under paragraph (d) f he fnds and so decares of record that the
ta f determned wthout the beneft of ths secton woud work
an e ceptona hardshp . The task mposed on the Com-
mssoner by sectons 327 and 328 was one that coud ony be performed by an
offca or a body havng wde knowedge and e perence wth the cass of
probems concerned. or the requrement of a speca assessment under para-
graph (d) of secton 327 and ts computaton In a cases are dependent on the
average ta of representatve corporatons engaged n a ke or smar trade or
busness.
To perform that task, power dscretonary n character was necessary con-
ferred. Whether, as provded n paragraph (d) of secton 327, there are
abnorma condtons whether, because of these condtons, computaton
under secton 301 woud work e ceptona hardshp whether there woud be
gross dsproporton between the ta oomputed under secton 301 and that
computed by reference to the representatve corporatons specfed n secton
328 what are representatve corporatons engaged n a ke or smar trade
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325
327, rt. 901.
or busness whch corporatons are as neary as may be, smary crcum-
stanced wth respect to gross ncome, net ncome, profts per unt of busness
transacted and capta empoyed, the amount and rate of war profts or e cess
profts, and a other reevant facts and crcumstances these are a questons
of admnstratve dscreton.
The soundness of the |udgment e ercsed by the ndvdua or body to whom
the task was confded woud depend argey upon the e tent both of the know-
edge of the speca sub|ect possessed and of the e perence had n deang wth
ths partcuar cass of probems. The concusons reached woud rest argey
upon consderatons not entrey susceptbe of proof or dsproof. Congress dd
not, by the Revenue ct of 1918. requre the Commssoner to embody the re-
suts of hs deberaton n fndngs of fact. The purpose of the meager record
prescrbed by secton 328(c) n ease the Commssoner concudes to order a
speca assessment s apparenty to protect the Treasury, not the ta payer. or
f the Commssoner refuses to make the speca assessment, he s not requred
to state the grounds of hs refusa, or, ndeed even to record the fact of such
refusa. Thus the ams whch nduced Congress to enact sectons 327 and 328,
the nature of the task whch t confded to the Commssoner, the methods of
procedure prescrbed, and the anguage empoyed to e press the condtons
under whch the speca assessment s requred, a negatve the rght to a revew
of hs determnaton by a court.
It s true that whore the Commssoner s acton s revewabe |udcay, hs
fndngs of fact n makng an assessment, as dstngushed from hs determna-
tons nvovng admnstratve dscreton, consttute ony prma face evdence
and that, n eases arsng under the nterna revenue aws, such fndngs are
commony revewabe by courts n approprate proceedngs n whch the facts
become an ssue. (Unted States v. Rndskopf, 105 U. S., 418, 422 Wckutre v.
Renecke, 275 U. S., 101, 105.) It s aso true that n revewng the Comms-
soner s fndngs on such matters as vaue (compare Castner, Curran utt,
Inc., v. Lederer, 275 ed., 221 Ltte Cahaba Coa Co. v. Unted States, 15 .
(2d), 863 T. D. 3985. C. . I-1, 2811), aowances for deprecaton (compare
Cohen v. Lowe. 234 ed., 474 Camp rd, Ltd., v. owbert, 262 ed., 114), or
the accuracy wth whch a ta payer s books refect hs ncome (compare In re
Ghemman, 14 . (2d), 323), courts may be confronted wth probems requrng
a hgh degree of technca knowedge for ther souton. ut such probems
Invove prmary the stuaton of a snge ta payer, and the controng data
can easy be made avaabe to the court. ere, the consderatons whch de-
mand speca assessment under secton 327(d), and those whch govern ts
computaton n a cases, are facts concernng the stuaton of a arge group of
ta payers whch can ony be known to an offca or a body havng wde
e perence n such matters and ready access to the means of nformaton.
The |ursdcton of the Court of Cams, f any, rests on statutory provsons
whch ong antedate the Revenue ct of 1918. Its |ursdcton over suts to
recover ta es s based on the cause n the orgna ct of ebruary 24, 1855
(ch. 122, 10 Stat., 612), empowerng t to determne a cams founded upon
any aw of Congress. (Unted States v. aufman, 96 U. S., 567. 569 Doory
. Unted States, 182 T . S., 222. Compare Unted States v. mery. rd, Thayer
Co., 237 U. S., 28.) ut we have hed that the Court of Cams s wthout
|ursdcton where the statute creatng the cam e pressy refers t for fna
determnaton to an e ecutve department. (Unted States v. abeocc, 250
U. S., 328. 331.) nd that t s equay wthout |ursdcton where from an
e amnaton of a the terms of the statute t. appears that Congress ntended
to vest fna authorty n an admnstratve agency. (Unted States v. tchson,
Topeka Santa e Ry. Co., 249 U. S., 451 Sberschen v. Unted States. 266
U. S.. 221.) Long ago Congress conferred fna authorty upon such an agency
n the enforcement of the apprasa provsons by whch the amounts payabe
under the customs aws are determned. Compare arttett v. ane (16 ow.,
263. 272) Uton v. Merrtt (110 U. S., 97, 105) Passavant v. Unted States
(148 U. S., 214).
Moreover, whatever |ursdcton s possessed by the Court of Cams to re-
vew determnatons under sectons 327 and 328, woud be possessed aso by the
dstrct courts n suts aganst coectors and n actons aganst the Unted
States, under secton 24(20) of the udca Code. Thus the determnatons of
the Commssoner n ths decate and compe phase of revenue admnstraton
woud be sub|ected to revew by a arge number of courts, none of whch have
ready access to the nformaton necessary to enabe them to arrve at a proper
concuson n revsng hs decsons whose e perence n passng upon questons
of ths character woud be mted and whose varyng decsons woud tend to
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1318, 1319, and 1320, rt. 1050. 326
defeat, rather than promote, that equaty n the appcaton of the revenue aw
whch sectons 327 and 328 were desgned to nsure. We concude that the
determnaton whether the ta payer s entted to the speca assessment was
confded by Congress to the Commssoner, and coud not, under the Revenue
ct of 1918, be chaenged n the courts at east n the absence of fraud or
other rreguartes.
It remans to consder whether |ursdcton to revew the Commssoner s
acton was conferred upon the Court of Cams as a resut of the Revenue
ct of une 2, 1924 (eh. 234, 43 Stat., 253, 330), whch created the oard of
Ta ppeas. There s nothng n that ct whch purports to enarge the
|ursdcton of the Court of Cams or to e tend the scope of |udca revew
over determnatons of the Commssoner. The contenton that t had ths
effect rests whoy on our decson n ar v. Oe teren Mavhnc Co. (275
U. S., 220). The contenton fas to take account of the mportant dfferences
between an appea to the oard of Ta ppeas, on the one hand, and an
orgna sut n the Court of Cams, or n a dstrct court, on the other. The
oard of Ta ppeas was created to perform the admnstratve functons
theretofore dscharged by the Commttee on ppeas and Revew, whch the
Commssoner of Interna Revenue had estabshed n hs offce. (See ouse
report, 68th Cong., frst sess., No. 179, p. 7 Senate report, 68th Cong., frst
sess., No. 398, p. 8.) The commttee had reguary revewed determnatons
grantng or denyng speca assessment under sectons 327 and 328. The
grantng of these powers of revew to the oard of Ta ppeas dd not change
the character of the appea. nd t affords no reason to concude that Congress
ntended that the Court of Cams and the dstrct courts shoud aso be
authorzed to ree amne the decsons of the Commssoner on questons of the
character here nvoved.
It s true that, unke the commttee, the oard of Ta ppeas s not a
part of the ureau of Interna Revenue. The oard s an ndependent agency.
ut by specfc provson of the Revenue ct of 1924 (ch. 234, sec. 900(k), 43
Stat., 253, 338), t was defned as an agency n the e ecutve branch of the
Government. Compare Godsmth v. oard of Ta- ppeas (270 U. S., 117,
121-122). Its soe functon conssts n revewng, on appea, determnatons
of the Commssoner under the revenue aws. The fact that the Comms-
soner s a party to a cases before t enabes the oard, by rues of procedure
whch t has deveoped, to eave to the Commssoner the nta determna-
ton of many questons requrng the use of facts not n the record. Its mted,
specazed functons enabe ts members to acqure the e tensve speca know-
edge and the specfc e perence essenta to a sound e ercse of |udgment n
deang wth questons arsng under sectons 327 and 328. s was sad n
the Oesteren case, supra, at page 226, there s no reason for thnkng that
Congress consdered the Commssoner to be better quafed for makng deter-
mnatons under sectons 327 and 328 than ths admnstratve agency specay
estabshed to revew hs decsons.
TITL III. G N R L DMINISTR TI PRO ISIONS.
S CTIONS 1318, 1319, ND 1320. LIMIT TIONS
UPON SUITS ND PROS CUTIONS.
INT RN L R NU T S R UNDS D CISION O COURT.
Sut Cam for Refund empt Income of Indan.
sut by a Choctaw Indan, who s entted to a the rghts,
prveges, and mmuntes of ctzenshp, for the recovery of a ta
assessed and coected upon ncome derved from aotted and
whch s free from ta aton but from whch a restrctons aganst
aenaton have been removed by ct of Congress can not be man-
taned wthout frst fng cam for refund thereof as requred by
secton 3226, Revsed Statutes, as amended.
ffrmed.
rtce 1050: Suts for recovery of ta es
erroneousy coected.
II-43-3965
T. D. 4232
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327 1318,1319, and 1320, rt. 1050.
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, ghth Crcut, n the case of The Unted States of merca,
pantff n error, v. Cfton L. Rchards, defendant n error, s pub-
shed for the nformaton of nterna revenue offcers and others con-
cerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved October 13, 1928.
. W. Meon,
Secretary of the Treasury.
Unted States Crcut Couet or ppeas, ghth Crcut.
The Unted States of merca, pantff n error, v. Cfton L. Rchards, defendant
n error.
In error to the Dstrct Court of the Unted States for the Northern Dstrct of Okahoma.
une 13, 1928.
OPINION.
Lews, Crcut udge, devered the opnon of the court
Ths acton was brought by Rchards, a member of the Choctaw Trbe of
Indans and of one-s teenth Indan bood, to recover edera ncome ta es a-
eged to have been assessed and coected from hm erroneousy and egay oh
royates pad to hm on o produced from ands aotted to hm, and whch
under the cts of une 28, 1898, and uy 1, 1902 (30 Stat., 495, 507 32 Stat,,
041, 642), were e empt from ta aton at the tme the assessments were made.
s compant dscosed that he dd not present to the Commssoner of In-
terna Revenue wthn four years after payments hs cams for refund, as
requred by Revsed Statutes sectons 3226 and 3228 and amendments thereto,
(See 42 Stat., 314, 315 43 Stat., 342, 343 44 Stat., 115, 11G.) ecause of ths
negect defendant beow demurred and contended the acton s not mantanabe,
whch was overrued. Wthout further peadng |udgment went for pantff
for the amounts pad on the assessments for 1917, 1918, and 1919, a made more
than four years pror to uy 20, 1925, the date Rchards presented hs cams
to the Commssoner of Interna Revenue for refunds. The ssue on the de-
murrer s brought here on the assgnment that the court erred n overrung t
and n enterng |udgment on the compant for pantff.
Counse for pantff n error concedes that the ta es were erroneousy and
egay assessed that the aotted ands and the o produced from them were
e empt from ta aton, though a other restrctons thereon had been removed
by the ct of May 27, 1908 (35 Stat, 312). ut the terms of secton 3226
eave no bass to argue that the rght to mantan the acton s not dependent
on the precedent condton of a compance wth secton 3228 that s, pantff
must pead and prove that he presented to the Commssoner a cam for refund
of the ta wthn four yea s after payment. (De ary v. Dunne, 102 ed., 961
R. I. . t L. R. R. v. Unted States, 254 U. S., 141.) The sectons, so far as
matera here, read thus:
(3226) No sut or proceedng sha be mantaned n any court for the
recovery of any nterna revenue ta aeged to have been erroneousy or
egay assessed or coected unt a cam for refund or credt has
been duy fed wth the Commssoner of Interna Revenue, accordng to the
provsons of aw n that regard .
37229 29 22
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1318, 1319, and 1320, rt. 1050. 328
(3228) cams for the refundng or credtng of any nterna revenue
ta aeged to have been erroneousy or egay assessed or coected
must be presented to the Commssoner of Interna Revenue wthn four years
ne t after payment of such ta .
These sectons have been kept n force n ther essenta requrements for
more than haf a century. In Snyder v. Marks (109 C. S., 189) t was sad
of them:
The remedy so gven s e cusve, and no other remedy can be subst-
tuted for t. Such has been the current of decsons n the crcut courts of
the Unted States, and we are satsfed t s a correct vew of the aw (cta-
tons). In Cheatham v. Unted States (92 U. S., 85, 88), and agan n State
Raroad Ta cases (92 U. S., 575, (513), t was sad by ths court that the
system prescrbed by the Unted States n regard to both customs dutes and
nterna revenue ta es, of strngent measures, not |udca, to coect them, wth
appeas to specfed trbunas, and suts to recover back moneys egay
e acted was a system of correctve |ustce ntended to be compete, and enacted
under the rght beongng to the Government to prescrbe the condtons on
whch t. woud sub|ect tsef to the |udgment of the courts n the coecton
of ts revenues.
See aso Dodge v. Osoom (240 U. S., 118).
Counse for Rchards nssts that the reaton of guardan and ward e sts
between the Unted States and Rchards, and that statutes of mtaton, or
of that nature, are never apped aganst a ward In favor of hs guardan
unt the trust s repudated, and that there was no repudaton unt the
Commssoner refused to order a refund on pantff s cams on October 6,
192, when ths cause of acton frst arose. There s no pretense that Rchards
beeved when he made the payments they were beng made to the Unted
States as hs guardan, to be hed and accounted for n that capacty. e
had no cause to so beeve. e must have known they were beng demanded
of rght as a part of the pubc revenue due to t from hm as a ta payer.
The demand tsef was antagonstc to the camed trust reaton, and no such
obgaton aa camed e sted growng out of the transacton that coud be
ater repudated. e made the returns and ater the payments, we must
assume, wth fu knowedge that the ta was e acted of hm n dscharge
of hs obgaton to the Government. It s not aeged or camed that he was
n ncompos. Under the ct of May 27, 1908 (35 Stat., 312), a restrctons on
vountary dsposa of hs aotment were removed, and perforce of that ct the
aotment and Rchards s contro over t passed from governmenta super-
vson. Rchards thereafter hed tte wth a the rghts and ncdents of
fu ownershp by persons of fu capacty. (I nted States v. Maer, 243
U. S., 452.) ny reaton of guardanshp that may have prevousy e sted,
was termnated we thnk by ths ct and the two cts now to be mentoned.
y secton 6 of the ct of ebruary 8, 1S87 (24 Stat., 388, 390), as amended
by the ct. of March 3, 1901 (31 Stat., 1447), he was decared a ctzen of the
Unted States entted to a the rghts, prveges, and mmuntes of such
ctzens, whether sad Indan has been or not, by brth or otherwse, a mem-
ber of any trbe of Indans wthn the terrtora mts of the Unted States.
t the tmes the assessments and payments were made he had fu charge
and contro of the aotment and the ucone therefrom. e had the rght to
assert n hs own name, n court or esewhere, such cams as he cared to n ke,
and defend aganst those made by others. e was charged wth notce that
there was a speca and e cusve remedy provded for the recovery of a ta
that had been erroneousy and egay assessed and coected. e attempted
to ava hmsef of that remedy wthout compyng wth precedent condtons
on whch t rested and after hs rght to do so had e pred.
Counse nssts that hs noncompance wth the statutory requrement shoud
be gnored because Rchards was then and s now a member of the Choctaw
Trbe. The statute makes no e cepton based ony on the raca status or rea-
ton of the ta payer. We do not know on what prncpe we can do so.
On the facts set up we thnk pantff s cam can not be granted as of ega
rght. The refund, f t s ever to be made, must be as a matter of grace. The
errors assgned are we taken.
Reversed and remanded.
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329
1324, rt. 1040.
S CTION 1324. INT ST ON R UNDS
ND UDGM NTS.
rtce 1040: Interest on refunds and |udg- II-32-3839
ments. G. C. M. 4533
R NU CT O 1921.
cam for refund fed n the name of a parent company and
ts subsdary and affated companes and sgned and sworn to by
the treasurer of each of the affated companes, whch sets forth
the names of the affated companes, the amount of ta es pad by
each under separate returns, the amount of corrected ta es com-
puted under the consodated returns, and the amount of refund
camed, shoud be treated as a cam fed by each of the affated
companes, suffcent to start the runnng of nterest s months
after the date of fng such cam.
The opnon of ths offce s requested as to whether nterest may be
aowed, under the provsons of secton 1324(a) of the Revenue ct
of 1921, on the prncpa sum of 5.5a doars whch has been refunded
to the O Company n connecton wth ts ta abty for the year
1917.
It appears that the O Company, the ta payer, was a subsdary of
the M Company, a of ts capta stock beng owned by the atter
corporaton. The ta payer n turn owned more than 95 per cent of
the capta stock of the N Company. The parent company, the M
Company, fed a separate ncome ta return for the year 1917 on
orm 1031. The parent company was not sub|ect to e cess-profts
ta . The ta payer fed a separate ncome ta return for the year
1917 on orm 1031 and fed an e cess-profts ta return for the year
1917 on orm 1103. The atter was a consodated return n that t
ncuded the ta payer s subsdary company, the N Company, but
ths e cess-profts ta return dd not ncude the parent company, the
M Company. The ta payer was assessed and pad the e cess-profts
ta as shown on ts orgna return. It was ater determned that
the three companes were affated for the year 1917 for e cess-profts
ta purposes ony, and a consodated return was fed on March ,
1920. On the same date a cam for refund for the year 1917 n the
sum of 5.6a doars was fed n the name of M Company and ts
subsdary and affated companes, t beng stated that an error was
made n not orgnay fng a consodated return whch ncuded a
companes hed to be affated for e cess-profts ta purposes. No
separate cam for refund was fed by the O Company for the year
1917.
fter gvng effect to the affated status of the companes, the
ta payer s correct ta abty for the year 1917 was determned to
be 12a) doars, nstead of 17.5a doars, whch was the sum pad by
the ta payer for that perod. n ad|ustment was accordngy made
whch resuted n the aowance of 5.5a doars, and a certfcate of
overassessment n that amount was prepared n favor of the ta payer.
In accordance wth the ta payer s request contaned n a etter dated
pr , 1923, the sum of Z doars was apped aganst the de-
fcences n ta determned to be due by the parent company, the M
Company, for the years 1916 to 1918, ncusve, and the baance of
2.5a doars was sted as a refund to the ta payer. The schedue of
overassessments contanng ths tem was dated October , 1923.
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1324, rt. 1040.
330
The ta payer contends that nterest shoud be aowed on the fu
amount of the overpayment referred to above under the provsons of
secton 1324(a) of the Revenue ct of 1921, whch provdes, so far
as matera to ths case, as foows:
Sec. 1324. (a) That upon the aowance of a cam for the refund of or
credt for nterna revenue ta es pad, nterest sha be aowed and pad upon
the tota amount of such refund or credt at the rate of one-haf of 1 per centum
per month to the date of such aowance, as foows: (3) If no
protest was made and the ta was not pad pursuant to an addtona assess-
ment, from s months after the date of fng of such cam for refund or
credt.
ppyng the provsons of the statute to the nstant case, t
remans to determne whether the ta payer fed a cam for refund
wthn the meanng of secton 1324(a). Was the cam for refund
fed n the name of the M Company and ts subsdary and affated
companes a cam for refund fed by the O Company, one of the
subsdary companes, so as to start the runnng of nterest n favor
of the O Company s months after the date of fng of such cam
The cam for refund whch was fed sets forth the names of the
affated companes, the amount of ta es pad by each under sep-
arate returns, the amount of corrected ta es computed under the
consodated return, and the amount of refund camed. The grounds
urged n support of the cam are rected n deta, and t seems
cear that the cam was ntended to be a cam n behaf of each of
the companes n the affated group. The cam was sgned and
sworn to by , Treasurer. n e amnaton of the evdence ds-
coses that was the treasurer of a three companes, and that the
orgna returns of a three companes were sgned by hm n that
capacty. It aso appears that the amended returns of the three
companes, whch accompaned the cam for refund and whch were
made a part thereof by reference, were sgned by ths same ndvdua
as treasurer. Inasmuch as the cam specfcay states that t was
fed n behaf of the M Company and ts subsdary and affated
companes, and snce t appears that the ndvdua who sgned the
cam as treasurer was the treasurer of each of the companes, t s
the opnon of ths offce that the cam shoud be treated as a cam
fed by each of the three companes. It foows that nterest s pay-
abe, n accordance wth the provsons of secton 1324(a) 3 or the
Revenue ct of 1921, upon the bass of the cam so fed.
Whe the ta payer has argued that wth respect to refunds af-
fated companes shoud be treated as a unt, t s unnecessary, n
vew of the foregong nterpretaton of the facts of the nstant case,
to consder that pont.
C. M. Charest,
Genera Counse, ureau of Interna Revenue.
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S L S T RULINGS.
TITL I. CIS T S. (1926 ND 1924)
S L S Y T M NU CTUR R.
Reguatons 47(1926), rtce 23: Records and II-30-3822
return and payment of ta . Mm. 3657
urther e 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, uy 18, 1928.
To Coectors of Interna Revenue, Interna Revenue gents n
Charge, and Others Concerned:
Representaton has been made that the e tenson for fng pr
and May, 1928, e cse returns under secton 600(1), Revenue ct of
1926, to uy 31, 1928, n order to factate the takpg of credts
granted under secton 422 of the Revenue ct of 1928, dd not grant
suffcent tme to accompsh the desred resuts.
In vew of ths fact, the tme for fng such returns s hereby
further e tended to September 29, 1928.
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.
Ths mmeograph amends MT: M: Mmeograph 3634, dated May
25, 1928 C. . II-1, 299 .
ny correspondence regardng ths mmeograph shoud refer to
the number thereof and to the symbo MT: MT
. . Mres,
ctng Commssoner.
pproved.
Car T. Schuneman,
ctng Secretary of the Treasury.
Reguatons 47(1924), rtce 30: Credts and II-34-3868
refunds. T. D. 4195
refund of automobe accessores ta .
Reguatons to be observed by manufacturers, producers, and m-
porters of parts or accessores for automobes, motor cyces, auto-
mobe trucks or automobe wagons n makng cams for refund
of tu .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 424 of the Revenue ct of 1928, reatng to the refund of
automobe accessores ta , reads as foows:
(a) No refund sha be made of any amount pad by or coected from any
manufacturer, producer, or mporter n respect of the ta mposed by subdvson
(331)
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Reg. 47(1924), rt. 30.
332
(3) of secton 600 of the Revenue ct of 1924, or subdvson (3) of secton
900 of the Revenue ct of 1921 or of the Revenue ct of 1918, uness ether
(1) Pursuant to a |udgment of a court n an acton duy begun pror to
pr 30, 1928 or
(2) It s estabshed to the satsfacton of the Commssoner that such
amount was n e cess of the amount propery payabe upon the sae or ease of
an artce sub|ect to ta , or that such amount was not coected, drecty or
ndrecty, from the purchaser or essee, or that such amount, athough co-
ected from the purchaser or essee, was returned to hm or
(3) The Commssoner certfes to the proper dsbursng offcer that such
manufacturer, producer, or mporter has fed wth the Commssoner, under
reguatons prescrbed by the Commssoner wth the approva of the Secretary,
a bond n such sum and wth such suretes as the Commssoner deems neces-
sary, condtoned upon the mmedate repayment to the Unted States of such
porton of the amount refunded as s not dstrbuted by such manufacturer,
producer, or mporter, wthn s months after the date of the payment of the
refund, to the persons who purchased for purposes of consumpton (whether
from such manufacturer, producer, mporter, or from any other person) the
artces n respect of whch the refund s made as evdenced by the affdavts
(n such form and contanng such statements as the Commssoner may pre-
scrbe) of such purchasers, and that such bond, n the case of a cam aowed
after ebruary 28, 1927, was fed before the aowance of the cam by the
Commssoner.
(b) The second provso under the headng Interna Revenue n secton 1
of the rst Defcency ct, fsca year 1928, and the second provso of the
fourth paragraph under the headng Interna Revenue Servce n secton 1
of the Treasury and Post Offce ppropraton ct for the fsca year 1929, are
repeaed.
In order to secure a refund under the terms of subdvson (a) (1)
of that secton t must be estabshed that the camant was a party to
an acton duy begun pror to pr 30, 1928, and that pursuant to
the |udgment of a court, whch s fna, he s entted to the refund
sought.
refund under subdvson (a) (2) of the secton w not be made
uness
(aa) It s estabshed that the ta was mpropery computed, resut-
ng n an overpayment of the same or
(bb) It s estabshed that the amount to be refunded was not
coected, drectv or ndrecty, from the purchaser or essee. Ord-
nary, t w be suffcent f the manufacturer or essee shows
ether that he dd not know, at the tme of the sae or ease, that the
artce was sub|ect to ta or that the amount was pad pursuant to
an addtona assessment made after the sae or ease or that the
manufacturer or essee dd not coect the amount, drecty or nd-
recty, from the purchaser or essee, by quotng or bng the prce
and ta separatey, by seng sub|ect to ta , or by ncreasng the
prce so as to ncude such amount n the amount coected from the
purchaser or essee. owever, a camant may be requred to furnsh
addtona proof n any case n whch there s reason to beeve that
the amount was coected, drecty or ndrecty, from the purchaser or
essee notwthstandng the satsfactory estabshment of the above
facts or
(cc) It s estabshed that the amount to be refunded, athough
coected from the purchaser or essee, has, pror to the date of the
aowance of the refund, been returned to hm and that there was no
consderaton for such return.
The procedure wth respect to cams affected by subdvson (a) (3)
of the secton, now on fe or fed hereafter, w be as foows:
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333
Reg. 47(1924), rt. 30.
The camant s attenton w be caed to the terms of the subd-
vson and he w be requested to advse the ureau whether, n vew
of the condtons mposed thereby, he ntends to prosecute the cam
and compy wth the terms mposed. If he decares hs ntenton not
to prosecute the cam t w be re|ected, wthout further acton, and
the camant so advsed.
If the camant decdes to prosecute the cam and agrees to furnsh
the bond and proof of dstrbuton requred by the aw, the cam for
refund w then be deveoped by the ureau to the pont where the
amount refundabe s determned. The manufacturer, producer, or
mporter w be advsed of ths determnaton and requested to fe
a bond n an amount equa to one and one-haf tmes the sum deter-
mned to be refundabe. The bond must be n the form and wth a
surety or suretes approved by the Secretary of the Treasury under
the provsons of e stng aw, and condtoned upon the mmedate
repayment to the Unted States of such porton of the amount re-
funded (nterest ncuded) as s not dstrbuted by such manufac-
turer, producer, or mporter wthn s months after the date of the
payment of the refund, to the persons who purchased for purposes of
consumpton (whether from such manufacturer, producer, mporter,
or from any other person) the artces n respect of whch the refund
s made, as evdenced by the affdavts of such purchasers. cor-
porate surety company, duy censed by the Secretary of the Treasury
under the provsons of e stng aw, s preferred as surety on the
bond. The face of the bond must show the effectve date and the
date e ecuted, the fu name and address of prncpa and surety, and
the rate and tota amount of the premum charged. erasures or
nterneatons must be noted above the sgnature of the wtnesses as
havng been made before e ecuton of the bond. corporate surety
must aff ts corporate sea. When furnshed, the bond w be for-
warded to the Commssoner of Interna Revenue for the attenton of
the Msceaneous Ta Unt and no warrant for any amount aow-
abe sha be ssued uness and unt a satsfactory bond s fed.
Upon recept of the bond t w be carefuy e amned and f found
to be n proper form and made n accordance wth the terms of sec-
ton 424(a)3 of the Ievenue ct of 1928, the cam w be aowed
n the amount determned to be due. The Commssoner w then
make the certfcate requred by the aw to the proper dsbursng
offcer.
manufacturer, producer, or mporter w be furnshed wth the
Treasury warrant n the fu amount for whch hs cam has been
aowed. Wthn s months after the date of payment the manufac-
turer, producer, or mporter must dstrbute the proper proporton
thereof to the persons who purchased the nonta abe artces for con-
sumpton. If the refund aowance ncudes nterest, the dstrbuton
to the purchasers sha aso ncude the proper share of nterest due
n each case.
The manufacturer, producer, or mporter must procure from each
consumer to whom dstrbuton s made an affdavt, for transmsson
to the Commssoner of Interna Revenue, n substantay the fo-
owng form, vz:
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Reg. 47(1924, rt. 30.
334
Consumer s ffdavt.
The undersgned, beng duy sworn, decares that durng the perod
from , 10 , to , 19 , he purchased from
(Nameof seer.)
for purposes of consumpton, artces manufactured, produced, or mported
by and wth respect to whch, accordng to nformaton
(Name.)
and beef, ta es were pad as beng sub|ect to the provsons of subdvson (3)
of secton 600 of the Revenue ct of 1924, or subdvson (3) of secton 900 of
the Revenue ct of 1921 or the Revenue ct of 1918.
The undersgned aso decares that the sad manufacturer, producer, or m-
porter pad to hm on ta es coected under one or more of those
(Date.)
aws, n the sum of , together wth nterest n the sum of , te
recept of whch s hereby acknowedged.
(Sgnature.)
( ddress.)
Subscrbed and sworn to before me ths day of 19 .
(Sgnature and tte of offcer admnsterng oatb.)
S L.
On or before the e praton of s months after the date of pay-
ment of the refund, the manufacturer, producer, or mporter must
dever to the coector of nterna revenue to whom the ta was
orgnay pad (1) the orgna affdavts furnshed by purchasers
as evdence of recept of ta es and nterest, (2) a certfed check drawn
n favor of the coector, for the baance of the amount refunded to
hm and nterest aowed, not dstrbuted to purchasers, and (3) a
sutabe etter of e panaton. The coector w forward the aff-
davts and etter or e panaton to the Commssoner of Interna
Revenue wth an approprate report
The Commssoner sha not reease the manufacturer, producer, or
mporter from abty under hs bond uness and unt the ureau
s n recept of evdence estabshng that the entre amount refunded,
ncudng nterest, has been propery accounted for as havng been
dstrbuted to the purchasers or as havng been repad to the coector.
Treasury Decson 4015 C. . I-1, 299 , approved pr 19, 1927,
s revoked.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved ugust 10, 1928.
enry errck ond,
ctng Secretary of the Treasury.
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335 Reg. 43-11, rt. f.
TITL II. T ON DMISSIONS ND DU S. (1921)
T ON DU S.
Reguatons 43-11, rtce 5: Soca cub. II 2-3952
T. D. 4228
ta on dues revenue acts of 1921 and 1024 decson of court.
Soca Cub Character of Organzaton.
cub whose predomnant purpose as descrbed n ts const-
tuton s to promote mutua acquantance and feowshp among
the offcers of nstructon of a unversty, whose drectors may eect
to soca membershp persons who woud be of assstance n cub
entertanments by vrtue of ther taents, and whch mantans
quarters that afford ts members and guests an opportunty for
soca ntercourse and entertanment s a soca cub, the dues to
whch are ta abe under secton 801 of the Revenue ct of 1921
and secton 501 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 Court of Cams of the Unted
States n the case of the acuty Cub of the Unversty of Ca-
forna v. The Unted States s pubshed for the nformaton of
nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved October 6, 1928.
. W. Meon,
Secretary of the Treasury.
Court op Cams of the Unted States.
acuty Cub of the Unversty of Caforna v. The Unted States.
May 28, 1928.
opnon.
Moss, udge, devered the opnon of the court.
The queston for determnaton n ths ease s whether or not the acuty
Cub of the Unversty of Caforna s a soca cub wthn the ntent and
meanng of secton 801 of the Revenue ct of 1921 (42 Stat., 291) and secton
oO of the ct of 1924 (43 Stat., 253). The pertnent provson of each of sad
cts mposes a ta on the amount pad as ntaton fees, or dues, to any
soca, athetc, or sportng cub or organzaton. It s provded n artce 4 of
Treasury Reguatons 43 that every cub or organzaton havng socu. athetc,
or sportng features, s presumed to be ncuded wthn the meanng of the
phrase any soca, athetc, or sportng cub or organzaton, unt the con-
trary has been proved, and the burden of proof s upon t.- rtce 5 of the
same reguaton provdes that any organzaton whch mantans quarters, or
arranges perodca dnners or meetngs, for the purpose of affordng ts mem-
bers an opportunty of congregatng for soca ntercourse, s a soca
G
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Reg. 47, rt. 8.
336
cub or organzaton, wthn the meanng of the ct, uness ts soca features
are not a matera purpose of the organzaton, but are subordnate and merey
ncdenta to the actve furtherance of a dfferent and predomnant purpose,
such as, for e ampe, regon, the arts, or busness.
The acuty Cub of the Unversty of Caforna was organzed n 1902 t
was an outgrowth of a dnng assocaton. Its charter provdes as foows:
The name of ths organzaton sha be the acuty Cub of the Unversty of
Caforna. Its ob|ect sha be to promote mutua acquantance and feowshp
among the offcers of nstructon of the unversty. The budng occuped by
the cub s stuated on and whch s a part of the unversty campus. It was
erected from funds provded by ts members. There are ounges and readng
rooms, dnng rooms, a bard room wth 2 bard and 2 poo tabes, a ktchen,
cgar .stand, and offce, servants quarters, and 20 bedrooms, whch are rented
and occuped by bacheor members. The dnng rooms are used by members
and ther guests. ounge s provded for women who are occasona guests
factes are provded for card games and chess games perodcas are ava-
abe, and a tenns court s provded for the e cusve use of members. Tenns
and bard tournaments are hed, as we as dances, muscaes, and ectures.
Speca dnners are gven for guests who are deemed worthy of beng entertaned.
The cub serves as a convenent and comfortabe meetng pace for members of
the facuty and such other members of the cub as are egbe under the
rues. The actve membershp conssts of members and offcers of the board of
regents and of the facuty of the unversty. There are aso assocate, non-
resdent, transent, and honorary members. The predomnant purpose of ths
cub as descrbed n ts consttuton s to promote mutua acquantance and
feowshp among the offcers of nstructon of fft-t) unversty. Ths s pany
the e presson of a purey soca purpose. It shoud be noted aso that artce
2 of the consttuton provdes: y unanmous vote the board of drectors may
eect to assocate membershp persons who woud be of assstance n cub enter-
tanments by vrtue of ther speca taents. Whe ths cub undoubtedy
serves an mportant admnstratve use by members of the facuty and offcers
of the unversty, and furnshes a medum for a wde range of academc actv-
tes, t s not an essenta ad|unct to the unversty. It s shown n the evdence
that a the work now performed n the cub coud be done wthout such a
cub. owever, a soca cub of ths nature must unquestonaby have a very
defnte vaue n the promoton of the genera wefare of ths great unversty.
To hod that ts soca features are not a matera purpose of the organzaton
or that Its purposes and actvtes are merey ncdenta to the actve further-
ance of a dfferent and predomnant purpose, woud be contrary to the decared
purposes of ts organzaton and to the usua and customary soca actvtes of
the cub throughout the 2(5 years of ts e stence. The court has reached the
concuson that the acuty Cub of the Unversty of Caforna s n soca
cub wthn the meanng of the ta ng statutes. It s ad|udged and ordered
that pantff s petton be dsmssed.
TITL I . CIS T S. (1921 ND 1918)
S L S Y T M NU CTUR R.
Reguatons 47, rtce 8: Ta payabe by II-46-3995
the manufacturer (or mporter). T. D. 4240
e cse ta es revenue act of 1921 decson of court.
Saes by Importer Ta es Prevousy Pad on Saes by Domes-
tc Manufacturer.
utomobe trucks manufactured n the Unted States and used
abroad n the Word War upon the saes of whch the manufac-
turer pad e cse ta es are agan sub|ect to the e cse ta es m-
posed by secton 900(1) of the Revenue ct of 1921 when mported
nto the Unted States and sod.
G
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337
Reg. 47, rt. 8.
Theast|ry Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Court of Cams of the Unted
States n the case of dward P. Lupfer and rederck N. Remck,
a Copartnershp Dong usness as Lupfer Remck, v. The Unted
States s pubshed for the nformaton of nterna revenue offcers
and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved November 1, 1928.
. W. Meon,
Secretary of the Treasury.
Coukt of Cams of the Unted States.
dcard P. Lupfer and rederck N. Remck, a Copartnershp Dong usness
as Lupfer t Remck, v. The Unted States.
une 18, 1928.
OPINION.
Green, udge, devered the opnon of the court.
Secton 900 of the Revenue ct of 1921 (42 Stat, 291) mposed an e cse
ta upon the sae of automobe trucks by the manufacturer, producer, or m-
porter thereof. There s no queston but that the pantffs mported the trucks
upon -whch the ta was assessed and sod them wthn the Unted States, and
the queston n the case s whether they thereby became abe for the ta re-
qured by ths secton.
The argument of pantffs s that the ta on saes by an mporter appes
ony to artces of foregn manufacture and not to remported artces of domes-
tc manufacture aso that the aw contempated a snge transacton and a
snge assessment of the ta and that the payment of more than one ta on
any truck was nut requred. It s further argued on behaf of pantffs that as
the trucks n queston were a second hand, they were not ta abe under the
Treasury rungs.
There s nothng n the ct to |ustfy such a constructon. Its terms are
cear and unmstakabe and f the abty of pantffs for the ta . It s
qute probabe that Congress dd not foresee that some of the automobes
shpped abroad for the Word War woud be brought back to ths country and
resod, but, f so, ths woud not |ustfy us n puttng a constructon on the
ct that woud vrtuay amount to rewrtng t. The aw provded that the
ta shoud be pad on the sae of trucks by an mporter thereof, and ths court
has no rght to engraft e ceptons upon t. The ta was propery assessed
under the aw and pantffs petton must be dsmssed. It s so ordered.
G
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Reg. 47(1921), rt. 15.
338
Reguatons 47(1921), rtce 15: Defnton II-39-3913
of parts. T. D. 4210
e cse ta revenue acts of 1918, 1021, and 1924 decson of court.
Pabts ob ccessores fob utomobes Cakbubetobs.
Carburetors advertsed, desgned, manufactured, and sod for
use n connecton wth the operaton of automobes and generay
so used are propery cassfed as parts or accessores for
automobes ta abe under secton 900(3) of the Revenue cts
of 1918 and 1921 and secton 600(3) of the Revenue ct of 1924,
notwthstandng ther occasona use n connecton wth the oper-
aton of tractors, marne engnes, or other type of Interna com-
buston gasone engne.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D, O.
To Coectors of Interna Revenue and Others Concerned:
The foowng decson of the Dstrct Court of the Unted States,
Southern Dstrct of Oho, Western Dvson, n the cases of Murray
C. Wer, as Recever of The r rcton Carburetor Co., v. Stephen
McGrath, as Coector of Interna Revenue, and Murray C. Wer, as
Recever of The r reton Carburetor Co., v. Chares M. Dean, aa
Coector of Interna Revenue, s pubshed for the nformaton of
nterna revenue offcers and others concerned.
D. . ab,
Commssoner of Interna Revenue.
1 pproved September 13, 1928.
. W. Meon,
Secretary of the Treasury.
Dstrct Coubt of the Unted States, Southern Dstrct of Oho, Western
Dvson.
Murray C. Wer, as Recever of The r rcton Carburetor Co.. pantff, v.
Stephen McOrah, as Coector of Interna Revenue for the Unted State
for the Southern Dstrct of Oho, defendant.
Murray C. Wer, as Recever of The r rcton Carburetor Co., pantff, v.
Chares M. Dean, as Coector of Interna Revenue of the Unted States for
the Southern Dstrct of Oho, defendant.
May 21, 1928.
opnon.
ckenoopeb, Dstrct udge: These two cases are actons brought by the
pantff aganst coectors of nterna revenue for the Unted States to recover
certan e cse ta es camed to have been erroneousy and egay assessed
and coected from the r- rcton Carburetor Co. for the perods and n the
amounts set forth n the severa e hbts attached to and made parts of the
pettons.
The r- rcton Carburetor Co. manufactured a patented carburetor and the
ta was assessed and coected under coor of Tte I . secton 900, of the
Revenue ct of 1918, and Tte I , secton 900, of the Revenue ct of 1921.
Ths secton provdes that there sha be eved, assessed and coected and
pad upon the foowng artces sod or eased by the manufacturer a ta
equvaent to the foowng per cent of the prce for whch so sod or eased:
(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
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Reg. 47(1921), rt. 15.
or producer of any of the artces enumerated n subdvson (1) or (2), 5
per centum. (40 Stat, 1057, 1122.)
The artces enumerated n subdvsons (1) and (2) are automobe trucks,
automobe wagons, other automobes, and motor cyce , but e ceptng tractors.
The carburetors manufactured by the r- rcton Carburetor Co. may be
adapted for use and used wth tractors, murne engnes, or any other type of
nterna combuston gasone engne. The court fnds, however, that they are
prmary desgned for and adapted to use n substtutons for or repacements
of standard equpment n automobes. The advertsng s repete wth repre-
sentatons that ths patented carburetor w deveop 30 to 50 per cent more
meage and power than any other, that the car may be operated at a speed
ess than 3 mes per hour on hgh gear, that the sudden openng of the throtte
w not choke or starve the motor, that these quates permt drvng n sow-
movng traffc wthout shftng gears, that some cars need speca tops for con-
nectng to the manfod, and other references showng the chef use and purpose
of the manufacture. The sts prepared by the manufacturer gve the partcuar
stye and sze appcabe to amost every known type and manufacture of auto-
mobe and truck, and whe there are a few such szes and styes gven for
tractors and marne engnes, these are n the hopeess mnorty and the case
contans no defnte evdence that the carburetors were even nfrequenty used
upon tractors, marne or statonary nterna combuston gasone engnes. The
ony evdence s that they mght be so used by the proper ad|ustment of top to
ntake manfod.
Two questons are presented for determnaton. The frst s whether the
payments were made under suffcent protest and duress to |ustfy recovery. The
second s whether these carburetors n queston are sub|ect to ta as automobe
or truck or motor cyce parts, or e empt from ta aton as outsde of that defn-
ton, I. e., as artces 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. ( rtce 16 of
Reguatons 47, adopted by the Commssoner.)
t the tme the ta es were pad there was no forma protest of any knd but
at the tme the assessment was made and at the tme of payment there was con-
sderabe compant that the ta es were not due, shoud not egay be assessed,
and were egay and erroneousy demanded. To these compants and argu-
ments propounded by the then presdent of the corporaton the deputy coector
who made the assessment and caed to demand and coect payment of the
ta es, at east part of them, reped that they must be pad or the offcers of the
company woud e pose themseves to arrest and crmna prosecuton. There
coud be no doubt n the mnd of such deputy coector that the offcers of the
company consdered the assessment as ega or that payment was made other-
wse than In the beef that there was no means of avodng such payment.
Ths In the opnon of the court woud n tsef consttute coercon or duress and
be suffcent payment under protest to |ustfy recovery even wthout regard to
the amendment of R. S. secton 3226 by the ct of une 2, 1924 (U. S. C,
Tte 26, sec. 156).
In the case of Radch v. utchns (95 U. S., 210, 213) the court says:
To consttute the coercon or duress whch w be regarded as suffcent to
make a payment nvountary, , there must be some actua or threatened
e ercse of power possessed, or beeved to be possessed, by the party e actng
or recevng the payment over the erson or property of another, from whch the
atter has no other means of mmedate reef than by makng the payment.
No defnton of duress coud be more appcabe to the facts n ssue than the
above, for the deputy coector threatened to e ercse a power of arrest for fa-
ure to make true return, whch he ether possessed or was beeved to possess,
and the offcers of the company certany beeved that there was no means of
escape e cept by payment.
The same doctrne of duress s ustrated by the cases of oft Co. v. U. 8.
(I U. S., 22, 28-29) tchson, etc., Ry. Co. v. O Connor (223 . S., 280)
Ward v. Love County (253 U. S., 17, 23). Compare Oaur. Scott Co. v. Shannon
(223 U. S., 468). In the tchson case, supra, at page 286, the court says:
and the party ndcates by protest that he s yedng to what he
can not prevent, courts sometmes perhaps have been a tte too sow to recog-
nze the mped duress under whch payment s made.
ut apart from such mped duress, R. S. secton 3226 was amended n 1924
bo as to provde specfcay that such sut or proceedng may be mantaned,
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340
whether or not such ta , penaty, or sum has been pad under protest or duress.
Ths secton st retans the provson that no such sut or proceedng sha be
mantaned for the recovery of any nterna revenue ta aeged to have been
erroneousy or egay assessed or coected, unt a cam for refund or credt
has been duy fed wth the Commssoner of Interna Revenue. Ths appca-
ton for refund has been made n the nstant case and t s our opnon that the
addton of a provson makng protest or duress unnecessary s but a recog-
nton of the fact that n substance and true effect the recovery s from the
Government and an e ampe of beraty and farness upon the part of the Gov-
ernment and a dsncnaton to rean the beneft of that whch has wrongfuy
been e acted whether techncates have been comped wth or not. Other
ustratons of ths attude are to be found n the ncome ta aws orderng
credt or refund n a cases where the amount assessed and coected s found
to have been erroneousy computed, whether there s any payment under protest
or even any cam of such error.
ut t s ob|ected that suts aganst coectors of nterna revenue are persona
(Sage et at v. . 8., 250 U. S., 33) and that payments made pror to the amend-
ment of une 2, 1024, wthout protest, created a vested rght to a then e stng
defense on the p:rt of the coector whch coud not thereafter be defeated by
egsaton. (Prtchard v. Norton, 106 U. S., 124, 132.) The Sage case undoubt-
edy hed that such suts aganst coectors of nterna revenue were persona to
the e tent that, the Unted States not beng a party, the ad|udcaton of the sut
aganst the coector dd not forecose acton aganst the Unted States for any
unrecoverud rtou of the cam. ut we do not thnk that such actons are to
be consdered as so far persona to the coector, ndvduay, that Congress a
prevented from provdng any reasonabe system, by sut aganst the coector
or otherwse, for the repayment to the ta payer of ta es egay or erroneousy
coected, and even though such ta es were pad wthout forma protest. Ths
power upon the part, of Congress s recognzed n Wcktwre v. Renecke (275
U. S., 101, 105-106 T. D. 4126, C. . YII-1, 316 ). The amendment of 1924
obvousy had reference and appcaton to payments aready made, and suts
founded thereon, as we as to payments to be made. Whe the cam was not
there fed wthn the perod aowed by ct of Congress, and the sut therefore
faed, the case of Coeman v. U. S. (250 U. S., 30) recognzes the vadty of a
cam under a specfc statute creatng the rght, even though the payment was
made wthout protest or reservaton of rghts before the passage of the ct.
On the frst pont, therefore, we are of the opnon that sufcent protest
and duress dd n fact e st but even though ths were not so, we are of the
opnon that the pantff s nevertheess wthn the protecton of . S. secton
3226 as amended. (U. S. C, Tte 20, sec. 156.)
The correct determnaton of the second |ustcabe queston, vz, whether
the carburetors here n queston come fary and ceary wthn the descrp-
ton of automobe parts, nvoves the constructon and nterpretaton of the
sense n whch these words are used n the ct. In gvng such constructon
to the cts of Congress the rue s we setted that Congress must be deemed
to use terms n ther ordnary, popuar, and commerca sense rather than n a
dstnctve or techdca sense, uness t ceary appears that the atter sense
was ntended. (Sran v. rthur, 103 U. S., 597-598 Mardock v. agone. 152
U. S., 368 . 8. v. uffao Gag ue Co., 172 U. S., 339, 341.) It s true that
the artce upon whch the ta s eved must come fary and ceary wthn the
descrptve words of the ct and that the tera meanng of the words ,,
empoyed s most mportant, for such statutes are not to be e tended by
mpcaton beyond the cear mport of the anguage used. If the words are
doubtfu, the doubt must be resoved aganst the Government and n favor of
the ta ayer. ( /. S. v. Merram, 263 U. S., 179, 187-1S8 T. D. 3535, C. .
II-2, 871 Goud v. Goud, 245 U. S., 151, 153.) Ths does not meau, however,
that f the artce does fa, fary and ceary, wthn the anguage of the ct,
the mere possbty of occasona or ncdenta use n a manner not covered
w wthdraw the artce from the operaton of the aw. In Magone v. eer
(150 U. S., 70) the queston or determnaton was whether suphate of potash
was a substance e pressy used for manure. t page 75 the court uses the
foowng anguage:
If the ony common use of a substance s to be made nto manure, or to be
tsef spread upon the and as manure, the fact that occasonay, or by way of
e perment, t s used for a dfferent purpose w not take t out of the e emp-
ton. ut f t s commony, practcay, and prottuby used for a dfferent
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Reg. 47(1921), rt. 15.
purpose, t can not be consdered as e pressy used for manure even n the
ma|orty of nstances t s so used.
The queston of cassfcaton of mports for customs duty purposes s cosey
anaogous to the queston here nvoved, for there t s necessary to determne
whether the artce fas wthn the descrptve provsons of the statute.
Under such crcumstances, ordnary use, not occasona or subsequent use,
furnshes the gude for cassfcaton. (Sonn v. Magone, 159 U. S., 417, 421.)
In Magone v. Wederer (159 U. S., 555) the doctrne s stated that t s the
chef use rather than the e cusve use whch determnes the cassfcaton,
and ths same concuson s reached by udge Dcknson (eastern dstrct of
Pennsyvana) n hs unreported decson n the case of Phadepha Storage
attery Co. v. Lcderer, Coector, hodng that the word automobe, as used
n ths connecton, s purey descrptve of the artces ta ed, an ad|ectve
modfyng parts, and that n order to ta batteres under ths desgnaton,
such batteres must fa wthn the defnton of automobe batteres, no
such artce beng known ether n genera parance or n the trade.
The severa uses to whch such artces may be put are hepfu and reevant
ony to the e tent that such possbe uses may assst n the constructon of the
ct and the determnaton whether such artces ceary fa wthn the de-
scrpton or are artces commony used for other recognzed purposes. Thus
f the common, genera, practca, predomnatng, and chef use of the car-
buretors s n connecton wth the operaton of an automobe, the possbe or
occasona use n connecton wth other nterna combuston gas engnes w
not defeat the constructon that the carburetors were automobe carburetors
or parts and wthn the cassfcaton or type of artces ntended by Con-
gress to be ta ed. Conversey, f the carburetors are commony, practcay,
generay, and proftaby used wth varous types of nterna combuston gas
engnes they are not automobe parts, eo nomne, and the mere fact that
they are aso used on automobes w not make them ta abe.
Upon ths doctrne the otherwse seemngy confctng opnons of the De-
partment and Court of Cams are easy reconcabe. Thus nducton cos
and tmers have been hed not wthn the anguage of the statute because t
appeared that such artces were commony, generay, practcay, and proft-
aby used wth a types of gasone engnes as we as wth automobes.
( tuater ent Mfg. Co. v. . 62 C. Cs., 419.) On the other hand, where a
manufacturer of storage batteres sought the custom of the automobe trade,
assured the atter of the especa quates of hs battery, and desgns t as a
part of the automobe nto whch t s to be ntroduced, such storage batteres
were hed to be automobe parts. (Coe Storage attery Co. v. U. S.. decded
by the Court of Cams pr 2, 1928 T. D. 4159 (C. . II-1, 299 .) So
aso where a ftng |ack s desgned and sod to meet the pecuar needs of the
automobst t s hed to be an accessory for such automobes athough sus-
ceptbe of use wth tractors, wagons, or as machne shop equpment. (Waker
Mfg. Co. v. U. S., decded by the Court of Cams pr 16, 1928 see T. D. 4188,
ou page 342 .) Spark pugs, pston rngs, eaf sprngs, mnature ncan-
deseent amps, bots, nuts, washers, screws, wrenches, etc., a fa nto the
category that they are commony, generay, practcay, and proftaby used
n other connectons. The semtraer (Martn Rockng fth Whee Co. v.
U. S., 60 C. Cs., 466 T. D. 3716, C. . I -1, 317 ) and a tre fer to be used
wth worn-out casngs (Natona Rubber er Co. v. U. S., 6 C. Cs., 337) are
decded upon the dfferent doctrne that as such artces do not consttute any
essenta eement or even accessory to the norma operaton of an automobe,
they can not therefore be consdered as accessores or parts of such automobe.
carburetor of some sort s a necessary and component part of every auto-
mobe, and the burden rested upon the pantff n these actons to estabsh
that t was commony, generay, practcay, and proftaby used for dfferent
purposes (Wckwre v. Ren-ecke, Coector, 275 U. S., 101) before the court
woud be |ustfed n hodng that t was an artce n genera commerca use
and not especay desgned and pecuary adapted for use n connecton wth
automobes before the court woud be |ustfed n cassfyng such carburetor
as beyond the provsons of the ct. Ths burden the pantff has faed to
sustan. On the contrary, the carburetors n queston are advertsed as
pecuary adapted to use n automobes. They are desgned wth the dea of
ncreasng meage, permttng operaton at sow speed whe n hgh gear, pro-
motng ease of startng and effcency of operaton. The tops or attachments
are further desgned partcuary wth reference to attachment to ntake man-
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Reg. 47, rt. 16.
342
fods of automobes and trucks, and the utmost that may be sad of the
proofs s that such carburetors may be adapted wth advantage to tractors
and marne or statonary engnes. The evdence does not estabsh that any
of the carburetors are commony or generay so used, but smpy that they
mght be.
Under the above crcumstances, we are of the opnon that the ta was
propery assessed and coected, and the petton must be dsmssed. If error
proceedngs are to be prosecuted separate fndngs of fact shoud be prepared
and submtted to the court n conformty to the fndngs here Incuded.
Reguatons 47, rtce 16: Defnton of II-33-3855
accessores. T. D. 4188
CIS T S R NU CTS O 1918 ND 1921 D CISION O COURT.
1. Parts or ccessores for utomobes Lftng acks.
Lftng |acks advertsed In the manufacturer s cataogues as
automobe |acks and desgned, manufactured, and sod as |acks
pecuary adapted for use In connecton wth automobes are sub-
|ect to ta as parts or accessores under secton 900(3) of
the Revenue cts of 1918 and 1921.
2. Decson oowed.
The decson n the case of Coe Storage attery Co. v. Unted
States (T. D. 4159 C. . II-1, 299 ) 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 Waker Manufacturng Co. v. Unted States s pub-
shed for the nformaton of nterna revenue omcers and others
concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved ugust 4, 1928.
enry errck ond,
ctng Secretary of the Treasury.
Court of Cams of the Unted States.
Waker Manufacturng Co. v. The Unted States.
pr 16, 1928.
opnon.
Moss, udge, devered the opnon of the court.
Ths Is an acton to recover an e cse ta amountng to 101,929.56 pad by
pantff on an artce known as ftng |acks, whch pantff cams was
egay coected under the provsons of secton 900 of the Itevenue ct of
1918 (40 Stat., 1057, 1122) and secton 900 of the ct of 1921 (42 Stat, 227,
291). In each ct t s provded that a ta sha be eved and coected upon
the foowng artces:
(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
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Reg. 47, rt. 16.
(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 enumerated
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
The soe queston to be determned s whether or not the ftng |acks descrbed
n the record consttute a part or ccessory of an automobe. The partcuar
type of ftng |acks upon the sae of whch the e cse ta was eved and co-
ected was desgned, manufactured, and sod for use wth automobes. The
|acks were advertsed n pantff s cataogues as automobe |acks. Ony ths
cass of |acks, so desgnated, has been sub|ected to the payment of the ta . No
ta has been requred on certan other types manufactured and sod by pantff.
In artce 16 of Treasury Reguatons 47, accessory s defned as foows:
n accessory for an automobe truck, automobe wagon, other automobe,
or motor cyce s 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.
The term accessores ncudes, for e ampe, automobe tops, back and sde
curtans, horns, speedometers, sef-starters, spot ghts, shock absorbers, tre
pumps, pressure gauges, and hydrometers.
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. Thus a wrench or other too of a knd ordnary
sod n hardware stores for genera purposes s not sub|ect to ta when sod
separatey, but f Incorporated n an automobe too kt, desgned, ntended,
advertsed, or hed out for use on an automobe as dstngushed from garage
or shop equpment, s ta abe as part of the competed kt.
wrench or other too of speca desgn or constructon prmary adapted
for use n connecton wth automobes Is ta abe.
If any doubt e sts as to the speca adaptabty of any artce, the fact of
ts sae by the manufacturer to be used wth an automobe, or to an automobe
accessores deaer, woud determne ts ta abty.
Pantffs contenton s that under the nterpretaton of the statute, as e -
pressed n the reguatons, ts product s e empt from the ta . It s urged, for
nstance, that nasmuch as ftng |acks can not be used n the operaton of
an automobe, that they do nut add to the utty or ornamentaton of the auto-
mobe, that they are not desgned to be attached to or used n connecton
wth automobes, they shoud be e empt from the ta . The argument s
unconvncng and unsound. The amost unversa use for the artce nvoved
heren s demonstrated by the fact that ftng |acks consttute a part of the
automobe equpment of a vast ma|orty of automobe owners. arge part
of pantffs busness as a manufacturer s n the producton and sae of ftng
|acks of ths type. Durng the perod from ebruary, 1919, to ugust, 1923,
pantffs saes on ths product, manufactured, advertsed, and sod for use n
connecton wth automobes, amounted to 2,037,214.43. In varyng forms,
questons of ths character, nvovng the constructon of secton 900, have been
before ths court. In the recent case of Coe Storage attery Co., No. D-784,
decded pr 2, 1928, ths court sad n an opnon by udge ooth:
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.
It Is the opnon of the court that the ta n ths case was propery coected,
pantff s not entted to recover and ts petton shoud be dsmssed, and t Is
so ordered.
37229 29 23
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Reg. 47(1921), rt. 26. 344
Reguatons 47 (1921), ktce 26: Thermostatc II-33-3860
contaners. T. D. 4191
e cse ta es revenue act of 1918 decson of court.
Thermostatc Contaner Nonvacttum ab.
|ar manufactured so as to obtan resstance to heat conduc-
tvty upon a nonvacuun prncpe s sub|ect to the e cse ta
Imposed by secton 900(14) of the Revenue ct of 1918.
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 Mante Lamp Co. of merca, Inc., of Chcago.
III., v. The Unted States s pubshed for the nformaton of nterna
revenue offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved ugust 6, 192S.
enry errck ond,
ctng Secretary of the Treasury.
Coubt of Cams of the Unted States.
The Mante Lamp Go. of merca, Inc., of Chcago, III., v. The Unted State .
pr 16, 1928.
opnon.
ooth, udge, devered the opnon of the court.
Ths ta case arses under sectons 900 and 903 of Tte I of the Revenue
ct of 1918 (40 Stat., 1057, 1122), as foows:
TITL I . - CIS T S.
Sec. 900. That there sha be eved, assessed, coected and pad upon the
foowng artces sod or eased by the manufacturer, producer, or mporter, a
ta equvaent to the foowng ercentages of the prce for whch so sod or
eased
(14) Thermos and thermostatc bottes, carafes, |ugs, or other thermostatc
contaners. 5 per centum.
Sec. 903. That every person abe for any ta mposed by secton 900, 902.
or 906 sha make monthy returns under oath n dupcate and pay the ta es
mposed by such sectons to the coector for the dstrct n whch s ocated the
prncpa pace of busness. Such returns sha contan such nformaton and
be made at such tmes and n such manner as the Commssoner, wth the
approva of the Secretary, may by reguatons prescrbe.
The ta sha, wthout assessment by the Commssoner or notce from the
coector, be due and payabe to the coector at the tme so f ed for fng the
return. If the ta s not pad when due, there sha be added as part of the
ta a penaty of 5 n r centum, together wth nterest at the rate of 1 per centum
for each fu month, from the tme when the ta became due.
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345
Reg. 48, rt. 4.
The pantff manufactures and markets what t styes an addn Therma-
ware ar. The vesse s composed of an nner contaner, havng a snge wa
surrounded by matera resstant to heat conductvty (usuay ground cork)
and the whoe s ncased n a meta |acket, both contaners beng |oned and
seaed at the neck. It s apparenty conceded that the ony dfference
between the pantff s |ar and the we-known thermos botte s that n
the atter thermostatc retenton s obtaned by the vacuum prncpe, whereas
n pantff s |ar thermostatc retenton s obtaned upon a nonvacuum prn-
cpe. oth vesses are desgned for the same purpose and both functon n
the same way. One may afford more and onger preservaton of the contents
than the other, but beyond queston each s ntended for the same demand
and fnds sae among e acty the same cass of users.
Pantff seeks to restrct the anguage of the ta ng ct to a partcuar
artce descrbed by a trade-mark term. We thnk ths poston s untenabe.
Congress was appyng to ths source of revenue a ta burden, a ta known
as a u ury ta , and n so dong was usng the we-estabshed meanng
and notorousy known artce of commerce whch, by reason of ts pecuar
constructon, woud mantan thermostatc retenton of the contents put nto
the artce.
We deem t unnecessary to nduge a technca dscusson of the dfferences
n constructon between thermostatc contaners. Congress was usng the
term n a generc sense and dd not ntend to e empt a mere change n form
whch served the same purpose.
The pantff s |ar fas wthn the meanng and ntent of the aw, and we
thnk the petton shoud be dsmssed. It s so ordered.
W LRY.
Reguatons 48, rtce 4: When ta attaches. II-35-3877
T. D. 4198
e cse ta es revenue acts of 1918, 1921, and 1924 decson of coukt.
Ta on ewery Condton. Sab ass of Ta .
Where a deaer sod |ewery at reta wthn the meanng of
secton 90S of the Revenue cts of 1918 and 1921 and secton
604(a) of the Revenue ct of 1924 and took a condtona sae con-
tract securng payment of the seng prce n fu, the ta s
measured by such fu prce, whether or not t s coectbe.
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 Nnth Crcut, n the case of ohn P. Carter, for-
mery Coector of Interna Revenue Re . G-oodce, Coector of
Interna Revenue and Gaen Wech, present Coector of Interna
Revenue, pantffs n error, v. Savck ewery Co., a Corporaton,
defendant n error, s pubshed for the nformaton of nterna
revenue offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved ugust 15, 1928.
enry errck ond,
ctng Secretary of the Treasury.
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Reg. 48, rt. 4.
346
Unted States Cbcut Coubt of ppeas fob the Nnth Cbcut.
ohn P. Carter, formery Unted States Coector of Interna Revenue, S th
Dstrct of Caforna Re . Ooodce, Unted States Coector of Interna
Revenue, S th Dstrct of Caforna and Gaen Wech, present Unted States
Coector of Interna Revenue, S th Dstrct of Caforna, pantffs n. error,
v. Savck ewery Co., a Corporaton, defendant n error.
Upon wrt of eror to the Unted States Dstrct Court for the Southern Dstrct of
Caforna, Southern Dvson.
une 4, 1928.
OPINION.
Detbch, Crcut udge: The Savck ewery Co. s engaged n seng
|ewery at reta under a pan by whch t devers possesson of the mer-
chandse sod but retans tte unt the fu purchase prce s pad. Durng the
perod from December. 1920, to December, 1924, t made appro matey 700 of
such saes, for the gross aggregate prce of 72,746.80, and actuay receved
on account thereof the aggregate sum of 49,113.55. In no case was the purchase
prce pud n fu, n some nstances the arger part remanng unpad and n
some the baance beng trng, as, for e ampe, 1 on a 00 or 75 sae, and
1.75 on an 85 transacton. t dvers dates (urng the perod mentoned the
severa baances, aggregatng 23,031.25, were charged oft to proft and oss, and
the accounts cosed, for what reason s not dscosed.
Secton 905 of the Revenue cts of 1918 and 1921 (40 Stat., 1124, and 42 Stat,
293) provdes for a ta upon |ewery when sod by or for a deaer
equvaent to 5 per centum of the prce for whch so sod, and actng there-
under the Commssoner of Interna Revenue assessed a ta of 3,537.34, whch
s at the rate of 5 per cent computed upon the gross contract saes prce. The
ewery company havng pad ths under protest and faed n ts efforts to
obtan a refund, brought ths sut for a recovery. odng that the assessment
was vad upon the moneys coected, but to that e tent ony, the ower court
entered a |udgment n ts favor for 1,161.50, from whch both partes appea.
It s undoubtedy true, as the ewery company contends, that n ts prmary
meanng the term sae mports a consummated transfer of tte from one
person to another for a money consderaton. ut t s equay true that n
prvate contracs and pubc aws It s not nfrequenty empoyed to char-
acterze transactons whch do not effect an absoute transfer. Iustratve are
the foowng cases: Crn v. Commonweath (49 S. .. 63S, 640: s. o. 49 S. .,
1038) Cty of South end v. Martn (41 N. ., 315 29 L. . ., 531) Watson.
v. rooks (13 ed., 540) aton v. Rchcr (23 Pac, 28C) : Shantcat v. Cady
(28 Pac, 101) Pettengcr v. ast (25 Pac, 680) Smth v. Marner (5 Ws., 551,
581) ouston S. d W. Ry. Co. v. eer (37 S. ., 1061, 1065) Rce v. Mayo
(107 Mass., 560) umphres, etc., v. Smth (63 S. ., 248, 249) State v. etz
(106 S. W., 64, 66).
ven n treatses on Saes the sub|ect of so-caed condtona saes s
sometmes treated. See, for e ampe, Mecam on Saes, secton 558, et seq.
Upon the street and n the commerca word such s common usage. Indeed,
we have no other snge word descrptve of transactons such as are here
nvoved. One who procures an automobe or a pece of furnture upon the
nstament pan where, as here, the deaer retans tte, s commony thought
and spoken of as a purchaser, and when the deaer so dsposes of merchandse
t s treated and regarded as a sae and moneys receved on account thereof
as saes recepts. In the absence of somethng n the ct to suggest that
Congress ntended the term to be understood n ts restrcted prmary meanng
we must assume t was used n the broad sense n whch t s commony under-
stood. Measurabv n pont s the case of ar C. nthony v. Unted States
(57 C. of Cams, 259).
Whe there s here no charge of a frauduent scheme to evade the payment
of ta es, n construng the statute we may propery consder the consequence
of the nterpretaton for whch the ewery company contends, namey, that
there Is no sae unt every cent, of the stpuated purchase prce s pad.
In that vew a transacton woud not become ta abe so ong as there remaned
any amount, however trfng, of the purchase prce and It woud be a severe
stran to assume that a deaer woud endeavor to coect the ast doar when
such coecton woud operate to mpose upon hm the duty to pay 3 or 4 to
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347
Reg. 58.
the Government. s above ndcated, the record here e hbts specfc nstances
of such trfng baances.
To concude, t s our vew that Congress ntended no dstncton between
an absoute sae and a condtona sae, and that n ether case the transacton
s assessabe chen t s entered nto. If t be suggested that under that con-
structon the ewery company here woud be requred to pay a ta upon a part
of the sae prce t has not receved, the answer s that wth equa force the
same pea coud be made upon behaf of the deaer who ses outrght upon
credt.
Our attenton s drawn to a pertnent admnstratve reguaton, artce 4 of
Reguatons 48 (Revsed), as foows:
The ta attaches when the artce s sod that s to say, when the tte to t
passes from the vendor to the purchaser. When tte passes s a queston of
fact, dependent upon the ntenton of the partes as gathered from the contract
of sae and the attendant crcumstances. Where goods are segregated from
other goods owned by the vendor and t s the ntenton of both the vendor and
the purchaser at the tme the goods are segregated that they sha then beong
to the purchaser, the tte w be presumed to pass at such tme. In the absence
of any ntenton to the contrary the tte s presumed to pass upon devery of
the artce to the purchaser or to a carrer for the purchaser. In the case of a
condtona sae, where the tte s reserved unt payment of the purchase prce
n fu, the ta attaches (a) upon such payment, or (b) when tte passes f
before competon of the payments, or (c) when, before competon of the pay-
ments, the deaer dsposes of the sae by chargng off by any method of account-
ng he may adopt the unpad porton of the contract prce, or (d) when the
vendor dscounts the notes of the purchaser for cash or otherwse, or (e) when
the vendor transfers hs tte n the artce sod to another.
If under the rue that n case of a doubtfu statute the courts w gve weght
to an admnstratve constructon thereof, the meanng thus put upon the term
sae be adopted, the resut here s manfesty the same uness, as the ewery
company urges, we yed to one part of the reguaton and gnore another,
namey, subdvson (c). ut such a course, f adopted, woud have hghy
unreasonabe resuts. Merchants dong a credt busness upon the pan of the
ewery company here coud coect the ma|or part of the saes prce, and by
chargng off the resdue escape the saes ta entrey, and at the same tme ut-
ze the charge-off as a credt aganst gross ncome and thus escape a ratabe
porton of that ta aso whereas a merchant engaged n the same busness, but
e tendng credt wthout the protecton afforded by condtona-sae contracts, s
requred to pay the saes ta upon the entre prce, whether coected or not.
We can not beeve that Congress contempated such an unreasonabe and
dscrmnatory resut.
It foows that the |udgment must be reversed, and such w be the order.
TITL . T ON TR NSPORT TION ND OT R
CILITI S, ND ON INSUR NC . (1918)
M RIN , INL ND, ND IR INSUR NC .
Reguatons 58: Scope of ta . II-33-3857
T. D.4189
INSUR NC PR MIUM T S R NU CTS O 1917 ND 1918 D CISION
O COURT.
ssocaton Recproca or Internsurance Contracts.
number of persons actng through an attorney n fact to pro-
vde among themseves nsurance or ndemnty to each other
through the medum of recproca or nternsurance contracts con-
sttute an assocaton wthn the meanng of the Revenue cts of
1917 and 1918 whch s abe for the ta es on the ssuance of nsur-
ance poces mposed by those cts.
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Reg. 58. 348
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 ardware Underwrters and Naton-a ardware Serv-
ce Corporaton v. Unted States s pubshed for the nformaton of
nterna revenue offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved ugust 4, 1928.
enry errck ond,
ctng Secretary of the Treasury.
Court of Cams of the Unted States.
Uardoare Underwrters and natona ardware Servce Corporaton, a Cor-
poraton, v. The Unted States.
pr 2, 1928.
OrNION.
Gbaham, udge, devered the opnon of the court.
Ths s a sut brought by the ardware Underwrters and the Natona ard-
ware Servce Corporaton, a corporaton descrbed as attorney n fact and trus-
tee, to recover monthy premum ta es assessed and coected by defendant
under the provsons of sectons 504(b) of the Revenue ct of 1917 and 503(b)
of the Revenue ct of 1918, respectvey, for the perod begnnng November 1,
1917, and endng December 31, 1921.
Durr.g ths perod about 4,000 hardware merchants, made up of ndvduas,
partnershps, and corporatons, caed subscrbers, through a common agent or
attorney n fact were engaged n the busness of makng, ssung, and renew-
ng re nsurance contracts upon the recproca or nternsurance pan, wth the
common ob|ect of securng re nsurance and protecton for themseves at cost.
ach subscrber appyng for nsurance e ecuted a subscrber s agreement n
common or dentca form, appontng Leon L). Nsh (Inc.) (ths name was
changed to Natona ardware Servce Corporaton snce ths sut was
brought), attorney n fact. The essenta detas of ths agreement are ds-
cussed further on.
Durng sad perod there was ssued to eac subscrber an nsurance contract
e ecuted n the name of the subscrbers by Leon D. Nsh (Inc.) as attorney n
fact, and each subscrber at the tme hs contract went nto effect was re-
qured to pay a sum f ed by the attorney n fact, payment of whch was a
necessary prerequste to the ssuance or renewa of the nsurance contract.
moneys receved by the attorney n fact, ess 25 per cent for hs com-
pensaton, e penses, etc., and a nterest earned on cash n bank and on n-
vestments were deposted n bank and commnged n one common fund to the
credt of the advsory commttee, trustee for the subscrbers.
The meetngs of the subscrbers were hed annuay, at whch the advsory
commttee was eected and reports were receved from sad commttee. The ad-
vsory oomu.ttee was authorzed to and dd adopt rues and reguatons for the
conduct of the subscrbers busness. They seected a charman, vce charman,
and trensurer, and named an e ecutve commttee to have genera supervson
and co tro of the busness between the meetngs of the advsory commttee.
Under the rues and reguatons the attorney n fact acted under the drecton
of these commttees.
surpus was accumuated to the credt of the subscrbers and was n the
hands of the advsory commttee as trustee for the subscrbers.
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349
Reg. 58.
ta es sought to be recovered n ths sut were pad wth money of the
subscrbers from the common fund. No part of t was pad wth money
beongng to Leon D. Nsh (Inc.).
The subscrbers were changng from tme to tme durng each year by reason
of the e praton of contracts, the makng of new contracts wth new sub-
scrbers, the canceatons by subscrbers or canceaton by the attorney n
fact when money caed for was not pad. So that many subscrbers who
were sufh at the tme the ta es were pad have ceased to be subscrbers and
have been setted wth and ther accounts cosed.
The assocaton dd a arge busness of rensurance wth other companes,
was censed by a ma|orty of the States, and conducted ts busness wth
subscrbers n 27 States of the Unon.
The appcabe statutes aTe as foows:
Sectons 504 and 505 of the Revenue ct of 1917 (40 Stat., 315, 31G) :
Sec. 504. That from and after the 1st day of November, 1917, there sha
be eved, assessed, coected, and pad the foowng ta es on the ssuance of
nsurance poces:
(b) Marne, nand, and fre nsurance: ta equvaent to 1 cent on
each doar or fractona part thereof of the premum charged under each
pocy of nsurance or other nstrument by whatever name the same s caed
whereby nsurance s made or renewed upon property of any descrpton
(ncudng rents or profts), whether aganst per by sea or nand waters, or
by fre or ghtnng, or other per: Provded, That poces of rensurance sha
be e empt from the ta mposed by ths subdvson.
Sec. 505. That every person, corporaton, partnershp, or assocaton ssung
poces of nsurance upon the ssuance of whch a ta s mposed by secton
504, sha, wthn the frst 15 days of each month, make a return under oath,
n dupcate, and pay such ta to the coector of nterna revenue of the
dstrct n whch the prncpa offce or pace of busness of such person,
corporaton, partnershp, or assocaton s ocated. Such returns sha contan
such nformaton and be made n such manner as the Commssoner of Interna
Revenue, wth the approva of the Secretary of the Treasury, may by reguaton
prescrbe.
Sectons 503 and 504 of the Revenue ct of 1918 (40 Stat., 1104) :
Sec. 503. That from and after pr 1, 1919. there sha be eved, assessed,
coected, and pad, n eu of the ta es mposed by secton 504 of the Revenue
ct of 1917, the foowng ta es on the ssuance of nsurance poces, ncudng,
n the case of poces ssued outsde the Unted States (e cept those ta abe
under subdvson 15 of Schedue of Tte I), ther devery wthn the
Unted States by any agent or broker, whether actng for the nsurer or the
nsured such ta es to be pad by the nsurer, or by such agent or broker:
(b) Marne, nand, and fre nsurance: ta equvaent to 1 cent on each
doar or fractona part thereof of the premum charged under each pocy
of nsurance or other nstrument by whatever name the same s caed whereby
nsurance s made or renewed upon property of any descrpton (ncudng
rents or profts), whether aganst per by sea or nand waters, or by fre or
ghtnng, or other per
Sec. 504. That every person ssung poces of nsurance upon the ssuance
of whch a ta s mposed by secton 503 sha make monthy returns undT
oath, n dupcate, and pay such ta to the coector of the dstrct n whch the
prncpa offce or pace of busness of such person s ocated. Such returns
sha contan such nformaton and be made at such tmes and n such manner
as the Commssoner, wth the approva of the Secretary, may by reguaton
prescrbe.
The ta sha, wthout assessment by the Commssoner or notce from the
coector, be due and payabe to the coector at. the tme so f ed for fng
the return. If the ta s not pad when duet there sha be added as part of
the ta a penaty of 5 per centum, together wth nterest at the rate of 1 per
centum for each fu month, from the tme when the ta became due.
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Reg. 58.
350
TITL I. G N R L D INITIONS.
Secton 1 (40 Stat, 1057) :
Secton 1. That when used n ths ct
The term person ncudes partnershps and corporatons, as we as
ndvduas
The term corporaton ncudes assocatons, |ont-stock companes, and
nsurance companes
The term ta payer ncudes any person, trust, or estate sub|ect to a
ta mposed by ths ct
In order to reach a proper concuson n the matter t s necessary to anayze
somewhat the character of the pantffs, ther purpose, and the end
accompshed.
What s the purpose of ths assocaton It s to secure the makng of n-
surance, and n the pursut of that purpose, t ssues poces, coects premums,
and pays osses. rom the fund coected as premums a certan percenage
s set asde for e penses. The baance of the fund arsng from deposts or
premums and ncome from nvestments s paced n bank sub|ect to check and
from t are pad the osses. The ony dfference between t and the ordnary
mutua nsurance company s that the subscrbers do not mutuay guarantee
each other s osses. ut the resut s the same. The purpose s nsurance
soey for the beneft of the members of the assocaton and those nsured that
s, there are no stockhoders as n the ordnary nsurance company, the members
reapng the benefts and makng good the osses. In addton to the attorney
n fact ts organzaton conssted of an advsory commttee, eected annuay,
whch eected a charman, vce presdent, and a manager. These offcas con-
sttuted the e ecutve commttee and had genera supervson and contro of
the affars when the advsory commttee was not n sesson. The assocaton
s not ncorporated, but ths does not ater the fact (hat t s, n substance and n
resut of ts operatons, a mutua nsurance company or a recproca assoca-
ton for the purpose of makng nsurance, and securng protecton and payng
osses. Its method s for each member to make a depost wth the attorney n
fact, who has a f ed offce, and s the attorney n fact for each and every
person enterng the assocaton, and nomnay, as a matter of bookkeepng, the
depost of each member s kept separate from the others, but, after deductng a
percentage for e penses, etc., the whoe of the fund secured from the members
s deposted as one fund n the name of the trustees. The attorney n fact de-
cdes who sha be nsured, socts the nsurance, ssues the poces, cances
them when premums are not pad, and pays the osses out of the genera fund
n bank wth the approva of the advsory commttee. To say that such an
assocaton s a mere pace s to say that a wrtten consttuton that has been
put n operaton s st nothng more than a scrap of paper. Ths assocaton
s not a mere pace t s a vng entty dong an nsurance busness through
cooperaton of ts subscrbers wth the attorney n fact and advsory commttee
and performs a those thngs necessary to carry on effectvey the busness
of makng nsurance.
Let us ook at ths .so-caed attorney n fact, n ths case a corporaton. It
w be seen that t s not the case of an ordnary attorneyshp n fact. There
s |oned wth t a dstnct and rea nterest whch pervades and contros the
operatons of the assocaton. s power of substtuton can be vetoed ony
by the advsory commttee, chosen annuay by the subscrbers. Ths body aso
passes upon the nvestment of funds and deposts by the attorney, and payment
of osses s by and wth ts advce and consent.
The attorney decdes as to who may be accepted as subscrbers, what rates
of ndemnty must e pad, what subscrbers must pay from tme to tme to
meet good osses, canceaton of contracts and thus the termnaton of the
subscrbers reatons wth the assocaton, the settement and payment of osses
wth the approva of the advsory commttee, the compromse of cams n short,
practcay a of the powers whch a board of drectors mght e ercse, n
addton to certan mportant ones whch they coud not. The attorney n fact
for hs servces as the drector of the concern receves a certan fee from each
subscrber on bs appcaton for nsurance 25 per cent of a commssons
receved and out of t he pays a e penses ncdent to conductng the e change
of nsurance authorzed, e cept osses n ad|ustng osses, fees and ta es, ega
e penses, and e penses of the advsory commttee. e s therefore much more
than the ordnary attorney n fact. e s the engne for whch the subscrbers
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Reg. 58.
furnsh the fue. rom the foregong t s pan that the attorney and the
subscrbers are n cooperaton n the accompshment of a certan purpose.
It s not necessary to cassfy ths concern as an assocaton. The statute
uses the word person. Ths, of course, ncudes the pura. If these persons,
whether techncay or not, n effect are an assocaton, ssue nsurance poces,
whether unto themseves or others, the ta s payabe. The name of the busness
or the pace where t s transacted s not matera. The rght to ta does not
depend upon ether.
It s contended that the subscrbers are ndvduas and separate that
ther transactons are ndvdua and not connected that what s pad by each
subscrber s a depost and not a premum that each subscrber has a separate
contract of ndemnty for oss wth each of the other members and s abe on
a separate undertakng. ut ths s mere theory. When t comes to an e -
amnaton of the practce t has no appcaton. The subscrbers do not ssue
the poces and do not pay the osses. They are assessed from tme to tme
to cover osses and e penses. The controng factor who f es the amount of
ths assessment s the attorney n fact, not the subscrbers, and, f the sub-
scrbers fa to pay, ther nsurance ceases and ther reatons as subscrbers
are termnated. The attorney ad|usts a oss where t occurs and pays t from
the accumuated fund. The nvestments are made by the attorney, wth the
approva of the advsory commttee, and the reservatons mantaned out of
funds not mmedatey requred, and to a practca and outward ndcatons
the attorney n fact runs the busness as any other arge busness s run. The
fact that the busness s not conducted soey for proft does not reeve t from
ta aton. Whatever the pan of bookkeepng may be, the premums, ess the
attorney s commsson, are paced n bank as a whoe, and osses and e penses
are pad out of t wthout acton by or reference to the subscrbers, ndvduay
or coectvey, or contrbuton by them other than by the payment of premums.
The ta s mposed upon the ssuance of the pocy that s, the contract
of ndemnty, the amount beng reguated by the premum pad. The contract of
ndemnty n ths case was ssued by a centra agency, thus f ng abty for
ta aton for the ssung of the pocy under the Revenue ct, and the amount
of ta payabe was f ed by the premum whch was receved. The power of
attorney authorzes the attorney n fact to pay ta es out of premum recepts
presumaby a awfu ta es.
There s nothng n the ct whch nterferes n any way wth the power of
Congress to ta an assocaton, whch, athough unncorporated, transacts ts
busness as f t were ncorporated, and the power to ta such an assocaton
Is not affected by the fact that under the aw of the State n whch t does
busness t s not regarded as a ega entty where the sharehoders are nd-
vduay abe for ts deeds. (Unted States v. Chds, 266 U. S., 304, 309
T. D. 3671, C. . I -1, 241 urk-Waggoner O ssocaton v. opkns, 269
U. S., 110 T. D. 3790, C. . -, 147 Steed-man et a. v. Unted States, 63
C. Cs., 226 Mary S. drdge, e ecutr , v. Unted States, 64 C. Cs., 424
oston Mane R. R. v. Unted States, 265 ed., 578 and N. Y., N. . .
R. R. v. Unted States, 269 ed., 907 Ct. D. 3, C. . 4, 256 .)
n assocaton has been defned, wth approva by the Supreme Court,
as a body of persons organzed for the prosecuton of some purpose, wthout
a charter but havng the genera form and mode of procedure of a corporaton.
It s cear n ths case that the ndvduas or subscrbers were engaged n the
prosecuton of a common enterprse, to wt, the busness of a mutua nsurance
company, and had the genera purpose and accompshed the same er.d as a
formay ncorporated assocaton.
The purpose of the pocyhoder n both a mutua company and recproca
assocaton such as ths s to obtan nsurance at cost. The pocyhoders are
the utmate nsurers n ether case. The premums or deposts, or whatever
they may be caed because the name s not mportant, as n each case t s a
sum pad for protecton provde the funds for payment of osses and e penses
and to mantan those reserves whch the aw requres. These premums are
rrevocaby pedged for the payment of these osses and e penses. (Penn
Mutua Lfe Insurance Co. v. Lederer, 252 U. S., 523, 533 et seq. T. D. 3046, C. .
3, 249 .)
Ths assocaton s a ta abe entty. The court w regard the methods and
forms used for the prosecuton of a common enterprse that s, nsurance
busness conducted through an unncorporated assocaton wth a common
purpose and wth a common pan of cooperaton. See urk-Waggoner O
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Reg. 58.
352
ssocaton v. opkns (269 U. S., 110) and ohn L. Pckerng v. yea-Nchos
Co. (21 . (2d), 501 T. D. 4096, C. . I-2, 314 ). In the atter case the
prncpes Invoved n the nstant case are very fuy and ceary dscussed by
udge schuer, who devered the opnon of the court
The ne t queston rased here s whether under the statute ths assocaton
s e empt from ta aton. There s a stpuaton r connecton wth ths case,
sgned by 19 other assocatons of smar knd, agreeng to be bound by the
decson n ths case. Therefore t appears that the constructon gven the
statute n ths case by the Commssoner of Interna Revenue has been of
frequent and genera appcaton, and the nterpretaton s therefore entted to
weght wth a presumpton n ts favor. (Unted States v. Phbrck, 120 U. S.,
52, 59 Natona Lead Co. v. Unted States, 252 U. S., 140, 145.)
Wthout gong nto a dscusson of the queston at ength, t seems suffcent
to say that the queston of e empton must be confned to the statutes n
force durng the years when the ta es n ths case were pad, . e., from 1917
to 1921. The proceedngs n Congress on the ct of 1924 show a refusa to
specfcay e empt recproca and nternsurance companes or assocaton,
though by the ct of 1920 t dd e empt them. Ths ceary ndcates that n
the |udgment of Congress they were not e empt under the cta here n queston.
The statutes as to e empton are as foows:
Secton 504(d) of Revenue ct of 1917 (40 Stat, 316):
(d) Poces ssued by any person, corporaton, partnershp, or assocaton,
whose ncome s e empt from ta aton under Tte I of the ct entted n ct
to ncrease the revenue, and for other purposes, approved September 8, 1916,
sha be e empt from the ta es mposed by ths secton.
Secton 503(d) of the Revenue ct of 1918 (40 Stat, 1104):
(d) Poces ssued by any corporaton enumerated n secton 231, and po-
ces of rensurance, sha be e empt from the ta es mposed by ths secton.
Specfcay secton (a)10 of the Revenue ct of 1916 (39 Stat, 766-767) :
Sec. 11. (a) That there sha not be ta ed under ths tte any ncome
receved by any
Tenth. armers or other mutua, ha, cycone, or fre nsurance company,
mutua dtch or rrgaton company, mutua or cooperatve teephone company,
or ke organzaton of a purey oca character, the ncome of whch conssts
soey of assessments, dues, and fees coected from members for the soe
purpose of meetng ts e penses
nd secton 231(10) of the Revenue ct of 1918 (40 Stat, 1076) :
Sbo. 231. That the foowng organzatons sha be e empt from ta aton
under ths tte
(10) armers or other mutua ha, cycone, or fre nsurance companes,
mutua dtch or rrgaton companes, mutua or cooperatve teephone com-
panes, or ke organzatons of a purey oca character, the ncome of whch
conssts soey of assessments, dues, and fees coected from members for the
goe purpose of meetng e penses.
In approachng the queston of e empton we must regard the rue that the
e empton shoud be construed strcty and n favor of the Government and that
t must be dened f there s doubt. (Swan d nch Co. v. Unted States, 190
U. S., 143, 146 Corne v. Coyne, 192 U. S.. 418, 431 ank of Commerce v. Ten-
nessee, 161 U. S., 134, 146 Phoen re and Marne Insurance Co. v. Tennessee,
161 U. S., 174, 177 New York Trust Co. v. Unted States, 63 C. Cs., 100, 102
T. D. 4045, C. . I-2, 189 .)
The cam for e empton must be ceary made out Ta es beng the soe
means by whch the State can mantan ts e stence, any cam on the part
of anyone to e empton from the fu payment of hs share of ta es on any
porton of ds property must on that account be ceary defned and founded
upon pan anguage. There must be no doubt or ambguty n the anguage
upon whch the cam s based. It has been sad that where there s a we-
founded doubt, t s fata to the cam. The provson of the statute nvoved
here s secton 231(10) of the Revenue ct of 1918 (40 Stat., 1076), supra. It
w be seen that ths ct. after enumeratng I he character of companes to be
e empt, uses the anguage or ke organzatons of a purey oca character.
The words purey oca character gve a very cear descrpton. They refer
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353
Reg. 58.
to organzatons whose busness s confned to a ocaty, whose subscrbers come
from that ocaty. They pertan n a sense to a f ed pace or a mted porton
of the country, havng reference to a certan determnate porton of the country,
mted and dentfed wth a gven area or regon. We speak of a oca queston,
oca customs and observances, of a board admnsterng oca affars, of a
oca statute whch affects a partcuar ocaty or ts nhabtants. So that the
word oca has a dstncty confned meanng and s to be contradstngushed
from genera, that s, wdespread, common to a greater number, arge or
unmted n scope, not restrcted n appcaton or pace, as opposed to oca.
few facts w ceary ndcate that the assocaton nvoved here was not
oca n character. It had 4,000 subscrbers. It dd busness n 27 States.
Recproca and nterstate e changes were censed to do busness by t n 32
States, and t paces a arge amount of rensurance wth other companes. The
statute ntended to confne the e empton to assocatons or companes of a
purey oca character. The assocaton here was not of that character, and s
not wthn the e empton.
urther, the statute uses ths anguage:
the ncome of whch conssts soey of assessments, dues, and fees
coected from members for the soe purpose of meetng e penses
The ncome of ths assocaton dd not consst soey of assessments, dues,
and fees coected from members. If t dd not consst soey of these, t Is not
wthn the e empton. It had ncome from arge nvestments n certfcates of
deposts and Unted States bonds (see ndng I ), and ths ncome, as stated,
was deposted and commnged wth the genera fund of the assocaton n bnk
and used for the purpose of payng e penses. It was ncome derved from
nvestments. Certany there s at east a grave doubt as to whether the pan-
tffs come wthn the e empton, and t must be hed that they are not entted
to be e empted. The petton shoud be dsmssed, and t s bo ordered.
Moss, udge ooth, udge and Campbe, Chef ustce, concur.
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ST T T RULINGS.
TITL III. ST T T . (1926)
GROSS ST T INSUR NC .
Reguatons 70, rtce 27: Insurance recevabe
by other benefcares.
II-46-3998
T. D. 4242
ST T T INSUR NC .
rtce 27, Reguatons 70, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 27 of Reguatons 70, as amended by Treasury Decson
3945 C. . -2, 228 , s hereby amended to read as foows:
Insurance recevabe by other benefcares. nsurance n e cess of 40,000
recevabe by benefcares other than the estate must be ncuded n the gross
estate of any decedent dyng after the enactment of the Revenue ct of 1924,
where such nsurance was taken out, or the benefcary recevng the proceeds
was named, after the enactment of the Revenue ct of 1918. Insurance n
e cess of 40,000 recevabe by benefcares other than the estate need not be
ncuded n the gross estate of any decedent dyng after the passage of the
Revenue ct of 1918 but before the effectve date of Tte III of the Revenue
ct of 1924 uness such nsurance was taken out, or the benefcary recevng
the proceeds was named, after the enactment of the partcuar Revenue ct n
force and effect at the tme of such a decedent s death, n whch case the amount
n e cess of 40,000 so recevabe shoud be ncuded n the gross estate of the
decedent.
The estate s entted to ony one e empton of 40,000 upon nsurance recev-
abe by benefcares other than the estate. or e ampe, f the decedent eft
fe nsurance payabe to three such benefcares n amounts of 10,000, 40,000,
and 50,000 (tota 100,000), the fu amount shoud be sted on the return
and therefrom subtracted the 40,000 e empton as provded n Schedue C of
orm 706. The word benefcares, as used n reference to the 40,000 e emp-
ton, means persons entted to the actua en|oyment of the nsurance money.
D. . ar,
Commssoner of Interna Revenue.
pproved November 6, 1928.
enry errck ond,
ctng Secretary of the Treasury,
(354)
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355
Reg. 70, rt. 88.
D DUCTIONS PROP RTY PR IOUSLY T D.
Reguatons 70, rtce 43: Property acqured II-29-3811
n e change. T. D. 4173
rtce 43, Reguatons 70, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, I). C.
To Coectors of Interna Revenue and Others Concerned:
rtce 43, Reguatons 70, reatng to the estate ta , s amended to
read as foows:
rt. 43. Property acqured n e change. The deducton for substtuted prop-
erty s not mted to property acqured by a snge e change of property
receved from the donor or the pror decedent but e tends to substtuted prop-
erty acqured by the process of e change, whether through the medum of
money or otherwse, rrespectve of the number of conversons nvoved, ncud-
ng the proceeds of the sae or other dsposton of property so receved or
acqured, as we as property acqured by purchase wth the proceeds of the
sae or other dsposton of such property so ong as such proceeds can be con-
cusvey dentfed as such and ceary traced to the property orgnay so
receved.
The e ecutor must descrbe and fuy dentfy both the property orgnay
receved from the donor or the pror decedent and the substtuted property
for whch deducton s camed, gvng the date and statng the nature of the
transacton by whch the substtuted property was acqured, together wth the
name and address of the transferee. If the transacton was evdenced by wrt-
ten nstrument of pubc record, precse reference to such record must be made,
and f by nstrument not of record, a verfed copy thereof must be supped. If
there was no wrtten nstrument, there must be furnshed the affdavt of one
or more persons havng persona knowedge of the matter, settng forth the
facts n connecton therewth.
. . Mres,
ctng Commssoner of Interned Revenue.
pproved uy 7, 1928.
. W. Meon,
Secretary of the Treasury,
S CTION 315. LI N.
Reguatons 70, rtce 88: Property sub|ect II-40-3922
to en. G. CM.2663
It s hed that the en mposed by secton 315 of the Revenue ct of
1926, as amended by the Revenue ct of 1928, and correspondng
sectons of the pror cts, s a en entrey separate and dstnct from
that mposed by secton 3186, Revsed Statutes, as amended by the
Revenue ct of 1928, and s not sub|ect to the provson of the atter
secton reatve to the fng of notce of the en theren mposed.
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Reg. 70, rt. 99.
356
Reguatons 70, rtce 99: Cam for refund. 11-45-3985
T. D. 4238
nterna revenue aws sut res |udcata decson of court.
Sut Res udcata.
Where the acton of a testamentary trustee n commencng
a sut for the recovery of an estate ta s ratfed by the probate
court but not hs acton n dscontnung t, a |udgment n force
and effect dsmssng the sut on the merts on the trustee s mo-
ton foowng an agreement under secton 1106(b) of the Reve-
nue ct of 1926 consentng to the fna determnaton and assess-
ment of the ta s a bar to a second sut by the trustee to recover
a part of the ta pad.
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 the Second Natona ank of Sagnaw, Sag-
naw. Mch., Trustee of the state of Weru/ton R. urt, Deceased,
v. The Unted States s pubshed for the nformaton of nterna
revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved October 27, 1928.
. W. Meon,
Secretary of the Treasury.
Court of Cams of the Unted Statf.s.
Second Ratona ank of Sagn-aw, Sagnaw, Mch., Trustee of the state of
Wengton R. urt, Deceased, v. The Unted- States.
une 18, 1928.
OPINION.
Green, udge, devered the opnon of the court.
The petton rectes among other thngs that on March 2, 1919, Wengton
R. urt, a ctzen of the Unted States and a resdent of the State of Mchgan,
ded, eavng a w, a copy of whch s attached to the petton. On. ugust
13, 1920, the Probate Court for the County of Sagnaw, State of Mchgan,
apponted the pantff e ecutor of sad w. The pantff quafed and served
as e ecutor unt May 24, 1922. when the sad court approved ts account
as e ecutor and pursuant to the w apponted pantff as testamentary trustee
of the assets of the estate. The pantff quafed as such trustee and has snce
acted as such, and s the owner of the cam presented.
The petton further rectes n substance that a controversy arose between
the pantff and the Unted States Commssoner of Interna Revenue as to
the amount of edera estate ta es due the Unted States, and that after
certan proceedngs had been had between the trustee and the Commssoner by
whch ta es were assessed and a porton thereof refunded, the pantff, as
trustee, on November 20, 1925, brought sut In the Court of Cams askng
a refund theren of 510,768.02, whch cause was docketed as -5S4, and ssue
was |oned on ths petton by a genera dena entered by the ttorney Genera.
The petton further states that pendng ths sut and on une 26. 1926. the
pantff and the sad Commssoner, wth the approva of the Secretary of
the Treasury, entered nto an agreement entted greement as to fna deter-
mnaton and assessment of ta , whereby t was determned that the amount
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357
Reg. 70, rt. 99.
of ta due was 2,940,568.28, and ths determnaton was accepted by the
ta payer. Ths agreement resuted n a further refund to the pantff by
the Commssoner on uy 15, 1926, of 249,220.14.
The petton further rectes that thereafter, on uy 21, 1926, counse for
pantff n the sad cause, -584, n ths court, fed a moton to dsmss that
sut, showng thut the cam for refund suc-d upon had been reopened by the
Commssoner, aowed n part, and the amount of the aowance pad to
pantff, and the partes had entered nto an agreement by vrtue of secton
1106(b) of the 1926 Revenue ct consentng to the fna determnaton and
assessment of the estate ta , whereupon ths court entered an order dsmssng
sad cause as of October 18, 1926, and the sad cause was accordngy dsmssed.
Pantff further avers n the petton that by vrtue of paragraph 22 of the
w of the decedent t was to act as testamentary trustee and to make yeary
reports to the decedent s son as to the condton of the estate that no such
report was made to the son as to the agreement entered nto between pantff
and the Commssoner and that the son had no knowedge of the agreement
or of the moton to dsmss the case.
The petton aso avers that on une 4, 1927, pantff fed a cam for refund .
n the sum of 256,888.61, whch was re|ected by the Commssoner on the
ground that the prevous agreement above set forth had setted a questons
between the partes.
The petton further avers that on November 23, 1927, pantff fed a pet-
ton n the Probate Court of Sagnaw County, Mch., askng |udgment of that
court as to whether or not the sad greement as to fna determnaton and
assessment of ta dated une 26. 1926, shoud be ratfed.
The petton further shows that on November 25. 1927, the sad probate
court rued that a the ta es assessed and coected on gfts made by the
decedent to hs chdren were ega and that the refund of the sad 249.-
220.14 pad pantff as descrbed above was |ust and vad and formed no
consderaton for the sad agreement and no consderaton for the surrender
of pantff s cam for further refund.
The petton further rectes that the sad agreement of une 26, 1926, was
made and entered nto by the trustee wthout power or authorty havng
frst been obtaned from the probate court and that ts acton has never
been ratfed or confrmed by that court, and n ts sad order, among other
thngs, the court decreed that the acton of pettoner n begnnng
sad sut n the Unted States Court of Cams be and the same s hereby ratfed
and confrmed, but not ts acton n dscontnung sad sut.
Pantff further aeges that the Commssoner ncuded n the gross estate
of the decedent certan corporate stocks and bonds whch the decedent had
transferred by absoute gft to hs chdren pror to the enactment of the
Revenue ct of 1918, and whch transfers were not made n contempaton of
death aso that the Commssoner ncuded a cement pant whch had been
conveyed by the decedent to hs son December 31, 1914 and that the wrongfu
ncuson of the vaue of ths property n the gross estate ncreased the amount
of ta es 256,888.61, for whch sum the pantff asks |udgment.
It w be observed that the nstant case s not the frst whch the pantff
has egun n ths court to recover the amount to whch t cams t s entted
as a refund. The former case was dsmssed on October 18, 1926. by the court
on moton of the pantff tsef, and upon a showng that a matters nvoved
n the sut had been fuy setted by the partes thereto. The pantff now
contends that t had no authorty to make ths moton or the settement
upon whch t was based. Indeed, t s aso camed that the pantff had no
authorty to commence the acton n whch |udgment was rendered.
There may be some queston as to whether n Mchgan a trustee under a
w, even though he has fu power to take charge of the assets n the estate,
s authorzed to commence a sut whch woud determne the amount of estate
ta es for whch the trust estate was abe. ut however that may be. there
s no queston about the authorty n ths respect now, for f pantff had
none at the tme t commenced the sut, the Probate Court of Sagnaw County,
Mch., has by order and decree ratfed ts acton n ths respect. avng
authorty to commence the case through ts duy apponted attorneys, and the
Government havng appeared and fed ts answer to ts petton, ths court
unquestonaby had |ursdcton over the partes and the sub|ect matter of the
case. In what the court dd subsequenty t mght have erred, but ts |udg-
ment must stand unt set asde or modfed by some drect proceedngs. Unt
ths s done the |udgment stands of fu force and effect
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Regs. 68 and 70, rt. 22.
358
ut the pantff has not In any way attempted to set asde or modfy the
orgna |udgment by any drect proceedngs. No moton has been fed to set
tat. |udgment asde. The argument that t s of no effect s based on the
contenton that the pantff had no authorty to enter nto any such sette-
ment or to fe a moton to dsmss the case. Concedng for the sake of the
argument, and for that purpose ony, that pantff dd not have such authorty,
t woud ony show that the court erred n enterng the |udgment wthout
havng before t some evdence of the pantff s authorty so to act. ut ths
does not affect the vadty of the |udgment. It dsmssed the pantff s case
upon the merts and the cam now set up n the case at bar s res ad|tdcata.
The vews above set forth make t unnecessary for ths court to consder
whether the pantff, n ts capacty of trustee n charge of the estate, had
authorty to commence the former sut n ths court wthout drectons from
the Probate Court of Mchgan whether n any event the pantff can hod
the money refunded to t through the settement of the former case and gnore
the |udgment theren by commencng ths new sut and other matters that
have been suggested as mertng serous consderaton.
The demurrer must be sustaned and the petton dsmssed. It s so ordered.
Moss, udge, and ooth, Chef ustce, concur.
Graham, udge, took no part In the decson of ths case.
TITL III. ST T T . (1926)
TITL n. P RT I. ST T T . (1924)
GROSS ST T TR NS RS Y D C D NT IN IS LI TIM .
Reguatons 68 and 70, rtce 18: Reservaton II-32-3841
of ncome or an annuty. T. D. 4184
state ta Transfers. rtce 18, Reguatons 68 and 70,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 18 of Reguatons 68 and 70 s hereby amended by strkng
out ts thrd paragraph and nsertng n eu thereof the foowng
sentence:
The rue woud be the same, so far as concerns the proporton of the property
to be ncuded n the gross estate, f an annuty were reserved, whether out of
the property transferred or the ncome therefrom.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved uy 27, 1928.
enry errck ond,
ctng Secretary of the Treasury.
GROSS ST T PROP RTY LD OINTLY.
Reguatons 68 and 70, rtce 22: Property II-49-4022
hed |onty or as tenants by the entrety. T. D. 4248
state ta Property hed as |ont tenants and as tenants by
the entrety. rtce 22, Reguatons 68 and 70, amended.
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359 Reg. 67, rt. 9(a).
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 22 of Reguatons 68 and 70 s hereby amended by addng
thereto the foowng sentence:
The statute appes ony to |ont ownershps based on the rght of survvorshp
and created subsequent to September 8, 1916.
D. . ar,
Commssoner of Interna Revenue.
pproved November 23, 1928.
. W. Meon,
Secretary of the Treasury.
TITL III. P RT I. ST T T . (1924)
CR DITS G INST ST T T .
Reguatons 67, rtce 9(a): Credt for II-41-3941
estate, nhertance, egacy, or successon T. D. 4223
ta es.
estate ta revenue act of 1924 decson of court.
Credt ganst Ta State Inhertance Ta Consttuton-
aty.
The ta mposed by subdvson (a) of secton 301 of the Reve-
nue ct of 1924 s n no purt unconsttutona by reason of sub-
dvson (b), whch provdes that the ta mposed by subdvson
(a) sha be credted wth the amount of any nhertance ta , not
n e cess of 25 per cent of the edera estate ta , whch s pad
to any State n respect to any property ncuded n .the gross 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 Court of Cams of the Unted
States, n the case of ohn G. Rouse, ecutor of the W of Wam,
C Rouse, v. The Unted States, s pubshed for the nformaton of
nterna revenue offcers and others concerned.
D. . ar,
Cammssaner of Interna Revenue.
pproved September 29, 1928.
. W. Meon,
Secretary of the Treasury.
37229 29 24
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Reg. 67, rt. 9(a).
360
Court of Cams of the Unted States.
ohn G. Rouse, ecutor of the W of Wam G. Rouse, v. The Unted Sta tes.
May 2S, 1928.
OPINION.
Graham, udge, devered the opnon of the court.
The pantff as an e ecutor made a return for edera estate ta n the
manner prescrbed by the Commssoner of Interna Revenue. The detas
as to the assessments and payments are set forth n the fndngs.
Secton 301 of the Revenue ct of 1924 (43 Stat., 303) s the secton of the
statutes nvoved and Is quoted beow.1
Subdvson (a) was amended by secton 322 of the Revenue ct of 1920.
reducng the graduated percentages of the net estate retroactvey, as of une
2, 1924.
The pantff camed a deducton of 25 per cent of the ta . athough he had
pad no estate, nhertance, egacy, or successon ta In any State. Terrtory,
or the Dstrct of Coumba. The Commssoner dsaowed ths deducton and
assessed hm for the fu amount of the ta provded In the statute. The
pantff rests hs case here upon the ground that the sad ct s unconst-
tutona. e states hs contenton as foows:
Ths so-caed estate ta , to the e tent of 25 per cent (the e cess over 75
per cent) of the amount mentoned n subdvson 301(a), s unconsttutona,
because to ths e tent (1) t s a ta , not on the transfer of estates but on te
ta ng powers of the severa States, and a ta or penaty on the e ercse and
none ercse of such powers, and (2) It s contrary to the provson of rtce I,
secton 8, of the Consttuton that a dutes, mposts, and e cses sha be un-
form throughout the Unted States.
The prncpes controng here were setted n the cases of New York Trust Co.
v. sner (256 U. S., 345, 349) and orda v. Meon (273 U. S., 12 . The atter
case e pressy hed consttutona a correspondng secton of the Revenue ct of
1926. e cept for the dfference n the ncrease of the credt for estate ta es from
25 to 80 per cent, and whch s dentca wth secton 301 of the Revenue ct of
1924 under consderaton here.
The ct here s unform n ts operaton, as the rue of abty s the same
n a parts of the Unted States. If n the case of ndvdua resdents of
dfferent States t resuts n nequates t s not due to the ct. but t the
nequates created by the acton of the State authortes ether n the knd of
estate ta act estabshed or the faure to estabsh one. It s In no sense a re-
strcton on the e ercse or none ercse of the ta ng powers of the State. ny
State can pass any sort of an estate ta t peases or refran from dong so.
There are no restrctons. The ct does not appy to the States but to ndvduas.
art t aowed no deducton, there coud have been no queston n regard to ts
consttutonaty. It was an ct passed n the e ercse of the consttutona
power of Congress to evy and coect the ta , and t has been repeatedy hed
that such an ct can not be nufed or set asde by any statute of a State, and
that where the two come n confct, the atter must gve way.
The power to evy and coect ta es s a vta and necessary port of sover-
egnty. No government can e st wthout ts e ercse. It s a power, where
granted by the Consttuton to the edera Government, whch can not be
nterfered wth or nufed by any act of the States. Rut, as stated, ths ct
does not nterfere n any way wth State statutes. Ths court has on severa
occasons n somewhat smar enses uphed ths prncpe. See Steedman et a.
1 Sec. 301. (a) In eu of the ta mposed by Tte I of the Revenue rt of 1P.21. a ta
equa to the sum of the foowng percenters of the vaue of the net estate (determned
as provded n secton 303) Is hereby Imposed upon the transfer of the net estate of
every decedent vu after the enactment of ths ct, whether a resdent or nonresdent
of th t ned States :
(b) The ta mposed by ths secton sha bo credted wth the amount of nny estate,
nhertance, egacy, or successon ta es actuay pad to any State or Terrtory, or the
Dstrct of Coumba, n respect of any property ncuded n the gross estate. The credt
aowed by ths subdvson ha not e ceed 25 per centum of the ta mposed by ths
secton.
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361
Reg. 67, rt. 16.
v. Unted States (63 C. Cs., 226, 233 T. D. 4049, C. . I-2 342 ) and drdge
v. Unted States, decded anuary 16, 1928.
In the orda case, supra, the court sad:
Congress can not accommodate ts egsaton to the confctng or dssmar
aws of the severa States nor contro the dverse condtons to he found n the
varous States whch necessary work unke resuts from the enforcement of
the same ta .
The petton shoud he dsmssed, and t s so ordered.
TITL III. P RT II. GI T T . (1924)
D DUCTIONS PROP RTY PR IOUSLY T D.
Reguatons 67, rtce 16: Property acqured II-29-3812
n e change. T. D. 4174
rtce 16, Reguatons 67, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 1C, Reguatons 67, reatng to the gft ta , s amended to
read as foows:
rt. 16. Property acqured n e change. The deducton for suhsttuted prop-
erty s not mted to property acqured by a snge e change of property receved
from the pror donor or the decedent but e tends to substtuted property ac-
qured by the process of e change, whether through the medum of money or
otherwse, rrespectve of the number of conversons nvoved, ncudng the pro-
ceeds of the sae or other dsposton of property so receved.or acqured, as
we as property acqured by purchase wth the proceeds of the sae or other
dsposton of such property so ong as such proceeds can be concusvey dent-
fed as such and ceary traced to the property orgnay so receved.
The donor must descrbe and fuy dentfy both the property orgnay re-
ceved from the pror donor or the decedent and the substtuted property for
whch deducton s camed, gvng the date and statng the nature of the trans-
acton by whch the substtuted property was acqured, together wth the name
and address of the transferee. If the transacton was evdenced by wrtten
nstrument of pubc record, precse reference to such record must be made, and
f by nstrument not of record, a verfed copy thereof must be supped. If
there was no wrtten nstrument, there must be furnshed the affdavt of one or
more persons havng persona knowedge of the matter, settng forth the facts
n connecton therewth.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved uy 7, 1928.
. W. Meon,
Secretary of the Treasury.
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Reg. 63, rt. 16. 362
TITL I . ST T T . (1921)
GROSS ST T DOW R ND CURT SY.
Reguatons 63, rtce 16: Dower and curtesy. II-43 3963
T. D. 4230
estate ta revenue act of 1921 decson op court.
Gross state Wdow s Statutory Interest Nebraska Con-
sttutonaty.
The vaue of the nterest of a wdow n the estate of her deceased
husband created by a statute of Nebraska n eu of dower shoud
be ncuded n the vaue of the gross estate under secton 402 of the
Revenue ct of 1921. The edera estate ta on the transfer of
such nterest s consttutona.
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 Nes S. Nyberg, as dmnstrator of the state of Peter
ergman, v. The Unted States, s pubshed for the nformaton of
nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved October 10, 1928.
. W. Meon,
Secretary of the Treasury.
Court of Cams of The Unted States.
Nes S. Nyberff, as dmnstrator of the state of Peter ergman, v. The
Unted States.
Uune 18, 1028.
OPINION.
Moss, udge, devered the opnon of the court.
Peter ergman ded ntestate and wthout ssue n the State of Nebraska,
eavng survvng hm a wdow, Mary ergman, and certan coatera kndred.
s estate conssted of bot rea and persona property. etters of admn-
straton were ssued to pantff, Nes S. Nyberg, who n due tme ted an
estate ta return, whch ncuded the vaue of a property, rea and persona,
eft by the decedent, and pad the ta shown to be due, 14,692.30. Upon audt
and revew the Commssoner of Interna Revenue determned the gross vaue
of the estate to be .349,.r 7.16, the net estate . 472,022.04, and the tota ta
f 14,821.32, makng an addtona ta of 129.03, whch was pad by pantff.
On December 15, 1920, pantff ted a cam for refund, based on the grounds,
(1) that the vaue of the nterest of the wdow, and (2) the vaue of the home-
Rtead shoud not have been ncuded n the gross estate. The Commssoner
re|ected the frst contenton and aowed the second n the sum of 110.98. The
queston for determnaton s whether or not the vaue of the nterest of the
wdow, Mary ergman, n her husband s estate shoud be ncuded In hs gross
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363
Reg. 63, rt. 16.
estate for estate ta purposes. The queston nvoved s controed by sec-
tons 402 and 403 of the Revenue ct of 1921 (42 Stat., 278), the appcabe
portons of whch are as foows:
Sec. 402. That the vaue of the gross estate of the decedent sha be de-
termned by ncudng the vaue at the tme of hs death of a property, rea
or persona, tangbe or ntangbe, wherever stuated
(a) To the e tent of the nterest theren of the decedent at the tme of hs
death whch after hs death s sub|ect to the payment of the charges aganst
hs estate and the e penses of ts admnstraton and s sub|ect to dstrbuton
as part of hs estate
(b) To the e tent of any nterest theren of the survvng spouse, e stng
at the tme of the decedent s deat as dower, curtesy, or by vrtue of a statute
creatng an estate n eu of dower or curtesy .
Secton 403 of the Revenue ct of 1921 provdes, n part, as foows:
That for the purpose of the ta the vaue of the net estate sha be de-
termned
(a) In the case of a resdent, by deductng from the vaue of the gross
estate
(1) Such amounts for funera e penses, admnstraton e penses, cams
aganst the estate, unpad mortgages upon, or any ndebtedness n respect to,
property, , osses ncurred durng the settement of the estate ars-
ng from tres, storms, shpwreck, or other casuaty, or from theft, when such
osses are not compensated for by nsurance or otherwse, and such amounts
reasonaby requred and actuay e pended for the support durng the sette-
ment of the estate of those dependent upon the decedent, as are aowed by
the aws of the |ursdcton, whether wthn or wthout the Unted States,
under whch the estate s beng admnstered, but not ncudng any ncome
ta es upon ncome receved after the death of the decedent, or any estate,
successon, egacy, or nhertance ta es .
Dower and curtesy n the State of Nebraska were aboshed by statute. In
eu thereof the Nebraska statute on the sub|ect, secton 1220 of the Comped
Statutes of Nebraska, n makng provson for the descent of rea property
when the husband or wfe survve, provdes that sub|ect to hs or her debts,
and the rghts of homestead, such property sha descend one-haf to the hus-
band or wfe, f there be no chdren nor the ssue of any deceased chd or
chdren, survvng. It s the contenton of pantff that the nterest of
the wdow n the property of the decedent e stng at the tme of the de-
cedent s death was n the nature of a vested estate, or, as descrbed n pan-
tff s bref, a vested ownershp, accordng to the aws of the State of Nebraska,
and that such property dd not come to her through the death of her husband
ether by Inhertance or as a dstrbutve share n hs estate, and that the
effect of the ncuson of such an nterest n the gross estate of the decedent
s to authorze a drect ta , and s, therefore, an unconsttutona e ercse of
the ta ng powers of the Government. We are unabe to agree wth ths
contenton.
The nterest of the wdow, Mary ergman, n the rea property of her hus-
band, was an nterest created by statute n eu of dower. Under secton 1220 of
the Nebraska statute, rea estate of whch the deceased s sezed at the tme of
hs death passes by descent, sub|ect to hs or her debts. Upon the decease of the
husband, f hs persona property s not suffcent for the payment of the
famy aowance, debts, funera charges, and e penses of admnstraton, any
part, or a, of the rea estate may be sod, and the proceeds apped to those
purposes. If there s a resdue, and ony n that event, the statute provdes
that t sha descend to desgnated benefcares. It s at no tme durng
the fe of the husband a vested estate or a vested ownershp. It w be seen
at once that ths nterest does not have the certanty of the rght of dower of
whch the wfe may not be deprved, e cept by her own e press consent. Sec-
ton 402(a), above quoted, mentons three condtons for determnng the
character of the property, the vaue of whch shoud be ncuded n the gross
estate, (1) that t be sub|ect to the payment of the debts of the decedent
(2) that t be sub|ect to the payment of admnstraton e penses (3) that
It be sub|ect to dstrbuton. The property under dscusson was sub|ect to
each of these condtons. Under secton 1222 of the Nebraska statutes, whch
deas wt the dstrbuton of persona property, t s provded n the s th
cause thereof, The resdue, f any, of the persona estate sha be dstrbuted
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Reg. 63, rt. 16.
364
n the same proportons to the same persons as prescrbed for the descent of
rea estate. Our tacs. The property n queston passed to the wdow
as a dstrbutee. Under the Nebraska statute, the nterest of Mary erg-
man was a mere rght to nhert. The ta under consderaton s not a ta on
property. It s an e cse ta Imposed on the transfer of the net estate of
the decedent. In arrvng at the net estate for the purpose of computng
the ta , Congress deemed t proper to ncude n the gross estate the vaue
of a property, rea or persona, tangbe or ntangbe, ncudng n specfc
terms any nterest of the survvng spouse n any of sad property, and, re-
sortng agan to specfc terms, as dower, curtesy, or by vrtue of a statute
creatng an estate n eu of dower or curtesy. The consttutonaty of ths
statute s we estabshed n a ong ne of cases, n whch the genera prn-
cpes whch must contro the decson n ths case, have been consdered. See
New York Trust Co. v. sner (256 U. S., 345 T. D. 3267 ) dtrmrds v. o-
cum (264 U. S., 61 T. D. 3584, C. . III-, 479 ) Unted States v. obbns
(260 U. S., 315 T. D. 3817, C. . -, 188 ). Numerous other cases mght be
cted.
Pantff depends chefy on rck v. hewe yn (298 ed., 803 T. D. 3715. C.
. rv-. 322 ) Munroe v. Unted States (10 ed. (2d), 230) Strahan v.
Wayne (93 Neb.. 828 142 N. W., 678). In the rck case t was sought to
m se the estate ta upon fe nsurance taken out by the decedent payabe to
hs wfe and daughter. The vaue of these poces, n e cess of 40,000. under
a provson of the statute now beng consdered ha been ncuded n the gross
estate. The court propery hed that the rght of the benefcares dd not
sprng from the death of the testator, but arose from the contracts of nsurance,
and that the provson n queston was, n effect, the evyng of a drect ta ,
and was therefore unconsttutona. The dstncton between that case and the
nstant case s too obvous to requre dscusson. The decson n the Munroe
case supports pantff s contenton that the ta under consderaton s a drect
ta . Ths decson s, however, contrary to the prncpes announced by the
Unted States Supreme Court n the decsons above cted, and n others not
enumerated. It s stated n pantff s bref that the wrt of error n ths case
was dsmssed on moton of the Soctor Genera. It s e paned n defend-
ant s bref that the Government nadvertenty prosecuted a drect appea to the
Unted States Supreme Court, when the case shoud have been appeaed to the
Crcut Court of p|eas, and for ths reason the appea had to be dsmssed.
In the Strahan case the court construed the Nebraska nhertance ta aw and
hed that the nterest of a survvng spouse s not ta abe under that aw.
Whe t announced certan rues as to the nature of the rght of a survvng
spouse, no queston was nvoved as to the authorty of Congress to ncude n
the gross estate the vaue of an nterest whch s dstrbuted to the survvng
spouse out of the estate of the deceased. If. however, ths decson coud
propery be construed as sustanng pantffs contenton, t s, ke the Munroe
case, out of harmony wth the rungs of the Unted States Supreme Court, and
has no bndng force on ths court.
or the reasons herenabove set forth, the court s of the opnon that the
nterest of the wdow, Mary ergman, n the estate of her deceased husband,
Peter ergman, was propery ncuded n the gross estate of sad decedent.
The petton w be dsmssed, and t s so ad|udged and ordered.
Green, udge, concurrng: The contenton on behaf of pantff concsey
staed s that n Nebraska the wfe s the owner n common wth her husband
of the property whch but for her marrage woud be hs aone, and hs death
merey e tngushes hs rght n the porton thereof whch s then set apart to
her. It s therefore nssted that her dstrbutve share s not covered by the
edera estate ta , and f t s, the ta to that e tent s a drect ta . and s
unconsttutona and vod. In support of ths cam of ownershp n the wfe
whch s repeatedy made n the argument on behaf of pantff, a decson
of the Nebraska court s cted whch s camed to be controng and bndng
upon ths court.
That the edera courts are not aways bound by the constructon of a State
statute made by the Supreme Court of the State n whch such a statute was
enacted woud seem to foow from the decson n the case of urk-Waggoner
O ssocaton v. opkns (209 U. S., 110 T. D. 3582, C. . III-, 1 ). Con-
cedng, however, as I thnk we shoud, that a rue of property announced by a
State court n construng a statute of ts State must be foowed by the edera
court n such a case as the one at bar, there st remans much more to be con-
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365
Reg. 03, rt. 10.
sdered. It s sometmes dffcut to determne what the State courts have
actuay hed, for the reason that the anguage of the opnon consdered may
not be cear, or t may appear that mpcatons drawn from t appear to be n
confct wth other decsons of the same court and the aw as unversay
accepted n the State where the opnon s rendered. ven when a concuson
s reached as to what the State court has hed, t becomes necessary to consder
whether t has any appcaton to the case whch s under consderaton by the
edera court.
Such s the stuaton wth reference to the decson of the Nebraska Supreme
Court n the case of the state of Strahan (93 Neb., 828), upon whch pantff s
case Is based and whch the Unted States Dstrct Court for the Dstrct of
Nebraska cted as an authorty n the case of Munroe v. Unted States (10 ed.
(2d), 230), a case whc was not revewed by the Supreme Court for the reason
that counse for the Government mstook the remedy.
The report of the Strahan case dscoses a very pecuar record. The ques-
ton n the case to be determned by the Nebraska court was whether the statutes
of that State mposed an nhertance ta on the dstrbutve share whch the
wdow receved out of the estate of her husband upon hs death. What s
sometmes referred to as the ma|orty opnon of the court hed that her share
was not sub|ect to such a ta , reversng the ower court. nother |udge ds-
sented entrey a thrd dd not st a fourth |udge (Sedgwck) concurred n
the resut but construed the Nebraska statute and sad that, Under ths act
the survvng spouse succeeds to the rghts whch the statute gves
n the property that was hed n the name of the decedent. basng ths state-
ment upon the tte of the act, whch was n act to provde for successon to
the- estates of decedents and to repea (sectons named). If ths be a correct
constructon of the Nebraska aw, t woud seem to need no argument to show
that the decson does not support pantff s case athough n the same opnon
t s hed, concurrng wth what s caed the ma|orty opnon, that the nhert-
ance ta aw of Nebraska does not appy to the wdow s nterest. The reman-
ng |udge dssented e pressy from the ma|orty opnon n so far as t hed that
persona property of the estate was not sub|ect to an nhertance ta and ds-
sented aso wth the argument made n the concurrng opnon that the nhert-
ance ta shoud not appy to property acqured by successon. s opnon
aso states (referrng to Nebraska statutes) :
The nhertance ta aw makes a property ta abe whch sha pass by
w or by the ntestate aws of ths State. The successon aw of 1907 s n-
dubtaby the ntestate aw of ths State. In fact, t s now the ony ntestate
aw there s n ths State, and s ceary ncuded wthn the terms of the ta ng
statute.
No opnon was e pressed by hm as to the effect of the statute on rea estate
other than as contaned n the quotaton above set forth. It s obvous that the
opnon ast referred to s an authorty for the appcaton of the edera ta
nstead of aganst t.
that can be ascertaned from the confctng opnon n ths case s that
two |udges concurred n hodng that the Nebraska nhertance aw dd not appy
to the wdow s dstrbutve share. s ths concuson was reached from the
appcaton of dfferent and nconsstent prncpes, I am unabe to understand
how t can be sad that the Supreme Court of Nebraska has ad down a rue
of property whch must be foowed n the case at bar and f t dd, I woud
ask from whch opnon the rue s taken, and what the rue s.
n e amnaton of the Strahan case shows that n none of these confctng
opnons s t hed that the ownershp of the property dstrbuted to the wdow
e sted n her pror to the death of her husband. On the contrary, n both
the State and edera cases from Nebraska whch are reed upon by pantff
her rght s spoken of as nchoate. In other words, she had nothng but an
e pectancy. Some reance has been paced on a statement n what s caed
the ma|orty opnon that the effect of the Nebraska decedent aw Is pract-
cay the same as that where communty property prevas. Ths may be
true so far as e emptons from State nhertance ta es are concerned. So aso
t s sad In the same opnon that the nterest of the wfe s smar to that of
a sent partner. Smar t may be n some respects, but as Nebraska
courts have hed and st hod that the husband s not mere agent or partner,
these oose e pressons ought not to be nterpreted as meanng that the husband
s ether an agent for, or a partner of, hs wfe n regard to the property whch
may subsequenty be dstrbuted to her by reason of hs death.
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Reg. 63, rt. 16.
366
In the concurrng opnon by udge Sedgwck t s aso sad, The pocy of
our aw, as deveoped by egsaton from tme to tme, has been more and more
to pace husband and wfe upon an equaty as to ther property, and to regard
each as nterested n the property hed n the name of ether. ut ths s
far from sayng that actua ownershp e sted as t does n the case where prop-
erty s hed n common. In fact, the same opnon says that Under ths act
the husband and wfe are paced upon an e act equaty as to the rghts of each
n the property of the other tacs mne , whch Is equvaent to sayng that
property aotted the wfe was not hers, but was owned by her husband up to
hs death. Ths constructon accords wth the words of the Nebraska statute,
whch as rected theren appes to rea estate of whch the deceased s sezed
at the tme of hs death tacs mne , and aso says that such property sha
descend to desgnated benefcares, and provdes for the dstrbuton of the
persona property. That the husband can not deprve the wfe of her nterest
by w s mmatera. Ths s true as to the dower rght whch the Nebraska
statute aboshed and whch s st prevaent n many States, and ths dower,
ke the rghts conferred by the Nebraska statute, s transmtted by operaton
of aw and not by any act of the decedent. urther on n ths opnon the
effect of the transfer of the husband s property at hs death by operaton of
aw w be consdered. nough has, I thnk, been presented to show that the
Strahan case does not support pantff s contenton. ater case s cted by
counse for pantff as affrmng the Strahan case, but an e amnaton of the
opnon theren shows that the sub|ect n controversy n the case s qute df-
ferent, and nothng contaned In the decson has any appcaton to the case
at bar.
Counse for pantff ca attenton to the fact that the edera ta s upon
the transfer of the net estate, and t s argued that ths requres a transfer
by the decedent n order that the ta may be appcabe, and that as the dstrbu-
tve share of the wdow came to her by operaton of aw It s not covered by
the edera ta . Ths argument appears to me to be based upon an entre
msconcepton of the edera estate ta and the prncpes upon whch It Is
based, an error whch runs a through the argument of pantff.
In consderng ths queston It ought to be kept n mnd that the edera ta
s not a ta upon the property, athough t s often spoken of as such for the
reason that the ta s pad out of the estate. In nowton v. Moore (178 U. S.,
41 T. D. 129 t Is sad:
Confuson of thought may arse uness t be aways remembered that, funda-
mentay consdered, t s the power to transmt or the transmsson or recept
of property by death whch s the sub|ect eved upon by a death dutes.
The court aso quotes from anson s Death Dutes the foowng:
What t ta es s not the nterest to whch some person succeeds on a death,
but the nterest whc ceased by reason of the death.
urther on n the same case t s aso stated that the act of 1864 ndded a
duty on the passng of rea estate, so that a system prevaed by whch them
was a probate duty charged upon the whoe estate, a egacy duty upon egaces
or dstrbutve shares, and a successon duty charged aganst each Interest n
rea property. through ths case nhertance and successon dutes as to
rea property are treated as beng on the same footng and a of the ta es
referred to above are spoken of as beng vad and consttutona.
Concedng for the purposes of the argument that the wdow n Nebraska
does not take her dstrbutve share by vrtue of nhertance but smpy by
operaton of aw, there can e no queston but that the edera aw appes to
the estate whch she receved.
It s true that the edera aw eves a ta upon the transfer of the net
estate, but there can be no cam that there was not a transfer when the wdow
receved her share. The net estate s ascertaned by takng what s ncuded
n the gross estate and then deductng certan e emptons and aowances.
In fact, the words net estate used n the edera statute have a speca
meanng very dfferent from ther ordnary use and are often msunderstood by
those not sked n aw. It s not the net vaue of the estate that the decedent
owned, but a sum made up by subtractng from the gross estate these e emp-
tons and aowances. The gross estate kewse has a speca meanng gven
t by the ct and t ncudes any nterest acqured by the survvng spouse
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367
Reg. 63, rt. 16.
e stng at the tme of the decedent s death by vrtue of a statute
creatng an estate n eu of dower or curtesy. The statute e pressy says:
The term net estate means the net estate as determned under the prov-
sons of secton 403.
Secton 403 provdes that the vaue of the net estate sha be determned as
stated above.
Whe the .statute mposes a ta ony upon the transfer of the net estate,
t shoud he observed that t does not requre that the transfer shoud be
made by the decedent. The transfer referred to s unmstakaby the transfer
or recept of the property as the resut of death. Ths ceary appears from
the anguage of the statute n specfyng the tems whch make up the gross
estate. No reference theren s made to a transfer by the decedent e cept n
one separate paragraph appyng to a partcuar condton.
If the rue was, as contended on behaf of pantff, that the edera ta does
not appy to property whch was not transferred by the husband and passed by
operaton of aw, t woud ead to some very absurd resuts. In fact, t woud
be easy to avod the edera ta entrey by makng no w, n whch event
a of the property w oud pass by operaton of aw. The part receved by the
chdren or parents n the estate of the decedent as we as that of coatera
hers woud a be determned by the aw of the domce of the decedent and a
ta upon the estate woud be fute. Such a prncpe carres ts own refutaton.
Congress n framng the estate ta had other decsons whch sustaned t.
In ec York Trust Co. v. sner (256 U. S., 345, 348 T. D. 3207 ), nowton
. Moore, supra, s affrmed, and t s sad, quotng n part from that case, that
t treated the power to transmt or the transmsson or recept of property by
death as a standng on the same footng. In ths decson the practca and
hstorca grounds of ths ta were auded to, doubtess for the reason that they
had prevaed for more than a hundred years, and t s sad that upon ths
pont a page of hstory s worth a voume of ogc.
Surey a transfer s ncuded n a transmsson. That there was a trans-
msson of the property does not seem to me to admt of dscusson. The hus-
band s ownershp and I thnk t cear that he dd have an ownershp of the
property subsequenty apportoned to hs wfe ceased by death and was
transmtted or transferred to hs wfe.
Prck v. Leweyn (298 ed., 803 T. D. 3715, C. . I -1, 322 ) s cted by
pantff s attorneys as authorty for ther contenton, but n my vew t has no
appcaton to the case now under consderaton.
In the rck case no property of the decedent passed by reason of hs death.
s death merey matured a contract for the payment of money not to hs
estate but to certan benefcares. The ony connecton whch hs death had
wth the matter was to f the date at whch the nsurance poces n queston
matured and the tme at whch they were payabe.
It seems to me cear that the edera nhertance ta was especay ntended
and wrtten to cover such cases as the one at bar and to meet and avod the
ob|ectons made to the ta n the argument on behaf of pantff.
There remans ony the queston arsng upon the consttutonaty of the
ta wth respect to ts admeasurement. ere agan the argument for ts uncon-
sttutonaty s based upon a msconstructon of the edera statute. In New
York Trust Co. v. sner, supra, t s sad or f the ta attaches to the estate
before dstrbuton f t s a ta on the rght to transmt, or on the transmsson
at ts begnnng, obvousy t attaches to_he whoe estate e cept so far as the
statute sets a mt. Itacs mne. The whoe estate was transferred upon
the death of the husband, part of t dstrbuted by o eraton of aw, but what s
there n ths that shoud e cude ths part from ta aton or prevent ts beng
ncuded wth the rest of the estate In admeasurng the ta The vaue of a
the property transferred or of any part thereof bears a reasonabe reaton to
the admeasurement of the ta . The fact that the wdow may have had some
nterest theren whch under the Nebraska statute she was abe to ose by
death or by |udca sae mght be a reason for reducng the ta f Congress saw
ft, but does not prevent ths vaue from beng used for the purpose of admeasur-
ng the ta . If the ta was upon the property, the rue woud be dfferent, but
t st remans an e cse, not upon the property but upon ts transmsson, and
every prncpe that sustans the estate ta n any respect sustans ths appca-
ton of t.
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Reg. 63, rt. 25. 368
GROSS ST T TR NS RS Y D C D NT IN IS LI TIM .
Reguatons 63, rtce 20: Reservaton of II-32 3840
ncome. T. D. 4183
state ta Transfers. rtce 20, eguatons 63, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 20 of Reguatons 63 s hereby amended by strkng out
the s th sentence of ts frst paragraph and nsertng n eu thereof
the foowng sentence:
transfer s ta abe n accordance wth these prncpes whether the
decedent reserved the annuty out of the property transferred or the ncome
therefrom.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved uy 27, 1928.
enry errtck ond,
ctng Secretary of the Treasury.
PROP RTY P SSING UND R POW R O PPOINTM NT.
Reguatons 63, rtce 25: Genera rues. II t-3937
T. D. 4214
ST T T R NU CT O 1921 decson of court.
Gross state Genera Power Power to ppont bt W.
power gven the benefeary of a trust to appont the trust
estate by w s a genera power wthn the meanng of secton
402(e) of the Revenue ct of 1921 and the vaue of the property
passng by the e ercse of the power shoud be ncuded n the
vaue of (e gross estate.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, t . 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 bram Mns, ecutor, and Mara Mns,
ecutr , under the W of Lavna . Mns, deceased, v. The
Unted States s pubshed for the nformaton of nterna revenue
offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved September 25, 1928.
. W. Meon,
Secretary of the Treasury.
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369
Reg. 63, rt. 25.
Court or Cams of the Unted States.
bram Mns, ecutor, and Mara Mns, ecutr , under the W of Lavna
. Mma:, deceased, v. The Unted States.
May 28, 1925.
OPINION.
Moss, udge, devered the opnon of the court.
Lavna orence and bram Mns before ther marrage entered nto a
marrage settement by the terms of whch certan property then hed by
Lavna orance, or to be subsequenty receved by her from her father, was
conveyed to one Isaac Mns n trust. It was provded n snd settement that
Lavna orance shoud have fu power to dspose of the whoe estate or any
part of same by w. She ded October 12. 1923, eavng a w dsposng of
a her estate, ncudng the property beongng to the marrage settement
trust. er husband ha prevousy ded. The e ecutors of the w of Lavna
Mns ncuded the trust property n the estate ta return and pad the ta
thereon. Thereafter a cam for refund was red for the recovery of that
porton of the estate ta resutng from the ncuson of the marrage sette-
ment trust property, whch cam was dened. The ta nvoved here s con-
troed by the Revenue ct of 1921 (42 Stat., 278), the appcabe provsons
of whch are as foows:
Sec. 402. That the vaue of the gross estate of the decedent sha he
determned by ncudng the vaue at the tme of hs death of a property,
rea or persona, tangbe or ntangbe, wherever stuated
(e) To the e tent of any pro erty passng under a genera power of
appontment e ercsed by the decedent (1) by w, or (2) by deed e ecuted
n contempaton of, or ntended to take effect n possesson or en|oyment at or
after, hs death, e cept n case of a bona tde sae for a far consderaton n
money or money s worth .
The property covered by the marrage trust was vaued n the ta return at
193,545.68. and the ta on same amounted to 19,126.52. Ths acton s
brought for the recovery of that amount.
It s the contenton of pantff that the property nvoved was not a part
of the estate of Lavna Mns, and, further, that the power of appontment
contaned n the marrage settement was not a genera power of appontment
wrhn the meanng of the statute.
The estate ta s an e cse mposed upon the transfer of the net estate of
the decedent. n e amnaton of secton 402 n ts entrety woud seem to
ndcate that t was the purpose of Congress to ncude n the gross estate
any nterest n property whch mght otherwse escape the payment of ths ta
on transfers, such as dower or curtsey transfers made by the decedent n con-
tempaton of, or ntended to take effect at or after, death, and (e) Tt the
e tent of any property passng under a genera power of appontment e ercsed
by the decedent, (1) by w, or (2) by deed e ecuted n contempaton of,
or ntended to take effect at or after hs death . Obvousy,
the omsson of the atter provson mght easy resut n the avodance of
the ta , to the e tent of a practca nufcaton of the statute. It Is not the
property that s beng ta ed as a part of the net estate of the decedent. Con-
gress has merey sad that n measurng the ta on the transfer of the net
estate, property covered by a genera power of appontment sha be ncuded
n the gross estate. In the case of dety Trust Co. v. McCaughn (1 ed.
(2d), 987), whe the court correcty hed that the power of appontment n
that case was not a genera power, the dscusson of the queston whch we
are now consderng s nterestng and umnatng. It s sad In that opnon:
The stuaton s not unusua n whch a person may have two knds of
property. One s that whch s emphatcay hs own, over whch he has fu
domnon, because of hs ownershp the other e sts n the form of a power,
whch he has the rght to e ercse over property whch does not otherwse
beong to hm, by whch power, however, he may assert n practca effect as
fu domnon over the property as f t beonged to hm outrght.
That s precsey the stuaton n regard to the property n the present case.
Under the power of unrestrcted dsposton by w, the decedent had a fu
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Reg. 37, rt. 23.
370
domnon over ths property as f t had beonged to her outrght. The opnon
n the dety Trust case, supra, contaned the further decaraton of prn-
cpe :
Congress, t s true, can not change the aw of property n the States.
It s |ust as true, however, that no State can, by decarng the aw of property
to be dfferent from what t s n other |ursdcton, force the hand of Congress
n respect to how the ta sha be admeasured.
In Unted States v. ed (255 U. S., 257), cted by both partes, there was
nvoved the constructon of secton 202 of the Revenue ct of 1916, the
predecessor of secton 402 of the ct of 1921, and of a Treasury reguaton
provdng that Property passng under a genera power of appontment s to
be ncuded as a porton of the gross estate of a decedent appontor. The
court hed that the nterest n queston, not havng been property of Mrs.
ed at the tme of her death, nor sub|ect to dstrbuton as part of her
estate, was not ta abe under cause (a), but added the sgnfcant suggeston:
It woud have been easy for Congress to e press a purpose to ta property
passng under a genera power of appontment e ercsed by a decedent, bad
such a purpose e sted, and none was e pressed n the ct under consderaton.
In that of ebruary 24, 1919, whch took ts pace, the secton provdng how
the vaue of the gross estate of the decedent sha be determned contans a
cause precsey to the pont (secton 402(e), 40 Stat., 1097) : To the e tent
of any propery passng under a genera power of appontment e ercsed by
the decedent (1) by w, or (2) by deed e ecuted n contempaton of, or ntended
to take effect n possesson or en|oyment at or after, hs death.
It s a ogca nference that f paragraph (e) of secton 402 had been
n e stence when the ed case was beng consdered, the court woud have
hed that the property covered by the power of appontment shoud be ncuded
n the gross estate, athough t was not the property of Mrs. ed at the tme
of her death.
Pantffs contenton can not be sustaned. The power contaned n the
marrage settement, and e ercsed by the decedent, was a genera power of
appontment, and the property covered by sad power was propery ncuded
n the gross estate of decedent. Whtock-Roae v. McCaughn (21 ed. (2d), 164
T. D. 4095, C. . I-2, 356 ) s drecty n pont. The petton w be
dsmssed, and t s so ad|udged.
TITL I . ST T T . (1918)
TR NS R Y D C D NT IN IS LI TIM .
Reguatons 37, rtce 23: Nature of transfer. II-29-3818
T. D. 4178
ST T T R NU CT O 1918 D CISION O COURT.
Gft Inter vos Stock Devery.
Where a decedent segregates from hs stock a certan number of
shares, ndorses them to hs son, and repaces them n hs safety
bo n an enveope attached to whch s hs statement that the stock
beongs to hs son, and the son takes no physca possesson of the
stock, not knowng before hs father s death of hs father s ntenton
to make such a gft, the gft s ncompete for want of a devery
and the vaue of the stock shoud be ncuded n determnng the
vaue of the gross estate under secton 402 of 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 ohn . Steer et as., ecutors of the Last W of
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371
Reg. 37, rt. 23.
Wam, . ones, Deceased, v. The Unted States, s pubshed for
the nformaton of nterna revenue offcers and otners concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved uy 10, 1928.
O. L. Ms,
ctng Secretary of the Treasury.
Court of Cams of the Unted States.
ohn . Steer, Thomas . ones, and Warren Oman ones, ecutors of the
Last W of Wam . ones, deceased, v. The Unted States.
pr 16, 1928.
OPINION.
ooth, udge, devered the opnon of the court.
Ths s an estate ta case. The pantffs seek to recover 11,223.62 eved
and coected by the Commssoner of Interna Revenue from the pantffs,
e ecutors of the estate of Wam . ones, deceased. The facts, about whch
there s no mportant dspute, nvove the prmary queston of a gft nter
vvos. The decedent, Wam . ones, was presdent and owner of 800 of the
1,000 outstandng shares of the capta stock of the Wam . ones oundry
Machne Co., an Inos corporaton. Mr. ones resded at La Porte, Ind.,
and ded there on May 30, 1921. The cam s now made that on Thanksgvng
Day, 1920, Mr. ones gave to hs son. Warren ones, 288 shares of stock n the
above corporaton of the vaue of 176,472. The e ecutors of the estate dd
not ncude n ther returns for the estate ta the vaue of sad shares. The
Commssoner, after audt and revew, dd ncude the amount as part of de-
cedent s estate, and assessed an addtona ta thereon of the amount camed
n ths case. No |ursdctona questons are nvoved.
The fndngs dscose that the decedent contnued the actve and domnatng
fgure n the corporaton up to about 1915. e was an ous to have hs son,
Warren ones, succeed hm, and was dong a he coud to arouse the son s
nterest n the busness, as we as test hs capacty to take t over. e assured
the son that f he successfuy managed affars t was hs ntenton to gve hm
a substanta nterest n the busness pror to hs death and a controng
nterest theren after that event. The son dd succeed. The father made hs
ast w n 1916 and bequeathed to the son 599 shares of stock n the corpora-
ton. Ths egacy, wth the addton of 1 share then owned by the son, gave
hm 600 shares, more than a ma|orty of the stock.
On Thanksgvng Day, 1920, some four years after the date of decedent s
w, the decedent caed upon hs attorney and requested hm to accompany
decedent to a bank where he kept hs safety depost bo wheren a hs stock
hodngs n the corporaton were contaned, statng at the tme that he was on
the pont of eavng for orda and wshed to attend to transferrng the stock
to Warren. The decedent s awyer segregated from hs stock 288 shares
thereof, and by the drecton of the decedent ndorsed the same over to hs son,
Warren. The decedent sgned each ndorsement. Thereafter the 288 shares
were paced n a separate enveope, upon whch, on a separate pece of paper
attached to the enveope by rubbers, the awyer wrote the foowng: 288
shares of stock beongng to Warren ones. Ths ndorsement the decedent
aso sgned. The package was then repaced n the decedent s safety bo and
remaned theren unt hs death. The awyer retaned a key to the bo and
t was avaabe for use to Warren ones. The awyer knew no more of the
transacton unt the tme came for the settement of decedent s estate. Warren
ones dd not take physca possesson of the stock and no cam s made that
he was present when the aeged gft was made. e dd know of hs father s
ntenton- to make such a gft and camed ony a tota of 599 shares of stock,
311 from the estate and 288 from ths aeged gft.
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Reg. 37, rt. 23.
372
The pantffs nsst that the gft was eompete that devery was made
ether actuay or constructvey. There 9 a manfest ntent to make at some
tme a gft of the stock to the son, but more than ntent s essenta to com-
pete the transacton. The dffcuty s one of devery. t once from the record
we are faced wth the proposton of tte, . e transfer of tte. The st -k
certfctes, though segregated from others, never changed ocaton. There
was no tme subsequent to the aeged transfer when the son may be sad to
have had domnon over them. s a matter of fact, the son seems to have been
whoy gnorant of what dd take pace. It s evdent that the father under the
e stng condtons retaned the stock n hs possesson and mght have sod t.
If a queston of ownershp of the stock had deveoped between the father and
son durng the contnuance of the status quo, the father undoubtedy woud
have been decared the owner so that as between the partes we have tte
doubt that the gft was ncompete. The testmony of the attorney precudes
the possbty of sustanng a contenton that ho accepted devery of the stock
as trustee for the donee. e was actng for the donor, and gave hmsef no
concern whatever over the transacton after ts competon at the bank.
The cases cted by the pantffs do not depart from the a omatc rue as
to the essentas of a gft nter vvos. They each one dscose ceary a devery
ether to the donee, or some one actng for hm. s stated n the bref:
Whore the donor ntended to gve the bonds to the donee and paced wthn
the power of the donee to obtan them and where the donee does n fact obtan
them there s suffcent devery. (Ctng Mur v. Gregory, 16S ed., 641.)
Unfortunatey for the pantffs the donee n ths case dd not receve by
devery the key to the donor s safety depost bo , as ustrated n the case
of agemann v. agemann (204 111., 378).
We do not thnk t necessary to contnue the dscusson. It s an easy
and far from cumbersome matter to make a vad gft of certfcates of stock
one free from doubt and eavng no avenue open for adverse contentons. The
donor n ths case was a man of arge busness e perence, he knew how
to transfer corporate stock, and he and hs son were upon amcabe reatons,
and no reason appears of record why a departure from such a course was
adopted. If the donor dd not ntend to retan domnon over the stock, and
keep wthn hs power the reserved rght to e ercse ownershp over t f
occason demanded, he shoud have gven t to the son outrght and not resort
to unusua and obscure means whch serve ony to becoud the transacton aud
throw t open to n|ecton of questons of doubt and con|ecture.
The ta was assessed under secton 402 of the Revenue ct of 1918 (40
Stat., 1057, 1097). Ths secton and pertnent subdvsons read as foows:
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
(a) To the e tent of the nterest theren of the decedent at the tme of
hs death whch after hs death s sub|ect to the payment of the charges aganst
hs estate and the e penses of ts admnstraton and s sub|ect to dstrbuton
as part of hs estate
(c) To the e tent of any nterest theren of whch the decedent has at any
tme made a transfer, n contempaton of or ntended to take effect
n possesson or en|oyment at or after hs death e cept n case of a
bona fde sae for a far consderaton 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 contempaton of death wthn the meanng of
ths tte .
The defendant rases the addtona queston of a transfer n contempaton
of or ntended to take effect n possesson and en|oyment after death. The
donor was at the tme of the gft n somewhat the same stuaton as to hs
heath whch had prevaed for many years. e dd not contempate m-
medate demse and n vew of the terms of hs w t woud seem that the
transacton was an arrangement of stock certfcates n such a way that he
mght, f so ncned, compete t before hs death, and thus acceerate a
porton of the egacy eft to the son n hs w. In any event, the donee woud
receve the gft ether through the w or pror to the donor s death.
The petton w be dsmssed. It s so ordered.
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373
Reg. 37(1921), rt. 30.
PROP RTY P SSING UND R POW R O PPOINTM NT.
Reguatons 37(1921), rtce 30: Genera II-45-3986
rues. T. D. 4239
estate ta revenue act of 1918 decson of court.
Gross state Genera Power op ppontment Lfe enef-
cary s Power to ppont Income and Prncpa.
power e ercsabe by deed or w gven a fe benefcary of
a trust to ap ont wthout restrcton as to benefcares the ncome
accrung after her death and the prncpa sfter the termnaton
of the trust s a genera power of appontment wthn the meanng
of secton 402(e) of the Revenue ct of 1918 and the vaue of the
property pussng by the donee s e ercse of the power by w s
propery ncuded n the vaue of the donee s gross 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 Dstrct Court of the Unted States
for the astern Dstrct of Pennsyvana, n the case of dety-
Phadepha Trust Co., ecutor of the W of Therese L. Coes,
Deceased, v. akey D. McCaughn-, ormery Coector of Interna
Revenue for the rst Dstrct of Pennsyvana, s pubshed for the
nformaton of nterna revenue offcers and others concerned.
D. . ar,
Commssoner of Interna Revenue.
pproved October 27, 1928.
. W. Meon,
Secretary of the Treasury.
Dstrct Court of the Unted States for the astern Dstrct of
Pennsyvana.
dety-Phadepha Trust Co., ecutor of the- W of Therese L. Coe ,
Deceased, v. akey D. McCaughn, ormery Coector of Interna Revenue
for the rst Dstrct of Pennsyva-na.
une 20, 1928.
opnon.
Ths s an acton for the recovery of a porton of an nhertance ta pad
under protest. It s now before the court upon a statutory demurrer to the
pantff s statement of cam. The admtted facts are concsey and accuratey
summarzed by the pantff as foows:
ohn C. utt, a ctzen and resdent of Pennsyvana, ded n 1902. y
hs w he created a trust for the beneft of hs seven chdren, among them
beng Therese L. Coes, whch trust was to endure throughout the ves of a
of hs grandchdren then n beng and for 21 years thereafter. The ffteenth
and s teenth artces of hs w vested certan powers of appontment n the
seven chdren. There was some uncertanty as to the nterpretaton of these
artces. The matter came up n the Orphans Court of Phadepha County
Id utt s state No. 2 (24 D. R., 224). That court construed the sad
artces to vest n the seven chdren powers of appontment of the foowng
character:
1. ach chd was gven power to appont one-seventh of the entre estate.
2. The power coud be e ercsed ether by deed or w.
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Reg. 37(1921), rt. 30.
374
3. s to ncome, the dsposton thereof coud take effect n possesson ony
upon the death of the donee.
4. s to the prncpa, the dsposton thereof coud take effect n wssesson
ony at the termnaton of the trust.
5. ntcpaton by sae or aenaton n possesson of ether ncome or
prncpa was e pressy prohbted each donee durng hs or her fe.
Thereso L. Coes, a ctzen and resdent of Pennsyvana, ded on December
25, 1922, and, emnatng certan rreevant aternatve provsons, she e ercsed
the powers of appontment conferred by her father s w as foows:
1. The ncome of the trust, to her granddaughter, zabeth Therese Tyer,
for fe, and thereafter to the person that grandchd shoud appont by w.
2. The prncpa to such persons as her granddaughter, zabeth Therese
Tyer, shoud by w appont, to take effect at the termnaton of the trust.
ecause of ths e ercse of the power of appontment, the Unted States
coector of nterna revenue at Phadepha ncuded a one-seventh porton
of ohn C. utt s trust estate n the gross estate of Therese L. Coes, and
assessed va ta measured thereby upon (he htter s e ecutor under the authorty
of secton 402(e) of the ct of 1919, whch reads us foows:
Sec. 402. That the vaue of the gross estate of the decedent sha be deter-
mned by Incudng the vaue at the tme of hs death of a property, rea or
persona, tangbe or ntangbe, wherever stuated
(e) To the e tent of any property passng under a genera power of ap-
pontment e ercsed by the decedent by w, .
Therese L. Coes s e ecutor pad the ta es so assessed under protest, fed
seasonabe cams for refund whch were re|ected, and n due tme brought
ths sut to recover.
Whether or not the vaue of the property apponted by the decedent,
Therese L. Coes, was propery ncuded n her ta abe gross estate (whch
s the queston for decson) depends entrey upon whether or not the powers
of appontment conferred upon Mrs. Coes by the ffteenth cause of her
father s w are genera powers of appontment wthn the meanng of the
revenue aw. The cause n queston shorty stated s as foows: I ds-
tncty empower Therese L. Coes to dspose
by w of one-seventh of the ncome durng
the contnuance of the trusts hereunder, and I aso gve and confer upon each
of my sad seven chdren (of whom Mrs. Coes was one) the power
to dspose of the one-seventh part of the prncpa from whch such ncome
sha be derved, such w as to the prncpa to take effect at
the tme that the trusts under ths w sha cease and determne. It w
be noted that ths cause confers upon Mrs. Coes two separate powers, the one
to appont ncome and the other to apwnt prncpa.
efore takng up the prncpa queston, t s necessary to dspose of the
contenton, strongy urged by the pantff, that by secton 402(e) of the ct
of 1919 Congress ntended to reach property sub|ect to a power of appont-
ment ony n those States where such property consttutes a part of the
donee s estate or assets for the beneft of hs or her credtors, not n Penn-
syvana where the contrary hods. The pantff ctes and rees strongy
upon Lederer v. Pearce (266 ed., 497). owever, f that case be e amned
n connecton wth the constructon gven to the Revenue ct of 1916 by the
Supreme Court n . 8. v. ed (255 U. S., 257), t w be seen that the
reasonng of the opnon (upon whch the pantff partcuary bases hs pos-
ton) has been overrued by . 8. v. ed, athough the concuson reached
s not dsturbed. bref consderaton of these two cases w dscose the
dffcuty wth the pantff s argument.
The Revenue ct of 1916 dd not refer n terms to property passng under
a power of appontment e ercsed by the decedent. Secton 202 of that ct
(whch s the bases of secton 402 of the ct of 1919) defned the property
whch was to be ncuded n vaung the gross estate for ta aton. The cond-
tons mposed were that the property must be (1) an nterest of the decedent
at the tme of hs death, (2) whch after hs death s sub|ect to the payment
of the charges aganst hs estate and the e penses of Its admnstraton, and
(3) s sub|ect to dstrbuton as part of hs estate. The queston consdered n
Lederer v. Pearce was whether or not the property as to whch the decedent
had a power of appontment met the second condton, vz, whether or not
t was sub|ect to cams of credtors of the decedent. Under the ngsh rue
foowed n many States, property apponted consttutes equtabe assets whch
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375
Reg. 37(1921), rt. 30.
the e ecutor s bound to appy to the cams of credtors n preference to
vountary appontees. The aw n Pennsyvana, however, was and s otherwse,
and the property so apponted s not sub|ect to such charges and cams. The
court hed that under the aw of Pennsyvana the property n queston dd not
meet the second condton of the ct of 1916, and therefore that t coud not
be ncuded n the estate for purposes of ta aton. That was reay a that
was decded. The court, however, n statng the ngsh rue, sad: The rue n
ngand s that a donee of a power takes a benefca nterest n the property
of the power and, upon the e ercses of the power, the property becomes a
part of hs estate sub|ect to hs debts ke hs other property n preference to
I the cams of egatees or appontees, and, upon the assumpton that apponted
property, f sub|ect to cams of credtors, w aso be part of the estate of the
donee of the power and thus compy wth a condtons of the ct of 1916, the
opnon goes on to say that the edera estate ta may reach property n one
State when t woud fa to reach ke property n another, accordng as the aws
of dstrbuton and admnstraton vared, and that the aw, of the State
upon that pont was the test of the vad assessment of the ta aganst gven
property. Ths s the rea bass of the pantff s argument. e argues that
when the ct of 1919 was passed Congress ntended to act n harmony wth
State aws, by vrtue of whch (he says) the ct of 1916 operated upon property
n some States whch t dd not touch n others, dependng on whether or not
the property was sub|ect to cams of credtors.
U. . v. ed, came up from Inos, a State where the ngsh rue waa
foowed and where the property coud be made sub|ect to the payment of
charges aganst the decedent s estate, so that the second condton of the ct
of 1916 was met by the property n queston. ut the court there hed that
the three condtons of the ct must be construed con|unctvey, and addressed
tsef to the queston of whether or not property passng under a genera power
of appontment was sub|ect to dstrbuton as part of the donee s estate (the
thrd condton). The ngsh rue was e amned and the concuson reached
that even under that rue such property was not part of the donee s estate
and consequenty not sub|ect to dstrbuton as such. study of the
e haustve revew of the ngsh authortes n O Orady v. WOmot (1916) (2 .
C, 231) eaves no doubt of ths. The Supreme Court thus hed that property
passng under a genera power of appontment dd not meet the thrd condton
n any State, and such property was therefore n no State part of the ta abe
estate under the ct of 1916. The effect of the decson of 17. 8. v. ed waa
to make the pont whch was the bass of the decson n Lederer v. Pcorce
(. e., whether the property was sub|ect to cams of the donee s credtors)
entrey academc, snce even f the Pennsyvana rue had been otherwse,
the property consdered n that case coud not have been ta ed, not beng
sub|ect to dstrbuton as part of the decedent s estate.
When Congress passed the ct of 1919 and added to the property whch t
had aready ncuded n the gross estate of the decedent for ta purposes prop-
erty passng under a genera power of appontment e ercsed by the decedent,
ts purpose coud ony have been to e tend the ncdence of the ta to property
whch had not prevousy been sub|ect to t. If the pantff s poston were
correct, secton 402(e) of that ct woud have added no new sub|ect to those
aready seected for ta aton. In that event ts purpose coud ony have been
to carfy the ct of 1916. ut that suggeston was e pressy re|ected by the
Supreme Court, whch consdered the effect of the ct of 1919 n . S. v. ed,
though that ct had been passed too ate to drecty affect the case then before
the court.
The power of Congress, n creatng a new fed for ta aton, to mpose ta es
entrey wthout regard to the characterstcs gven to the property so ta ed
by the aw of ts stus was recognzed by the court n Rosenbcrger v. Mo-
Cavghn (25 ed. (2d), 699 see T. D. 4171, on page 253 ), n whch case the
court by udge Wooey sad:
It s estabshed beyond queston that the aw of the State n whch prop-
erty s stuated governs edera courts n many thngs n descent, aenaton,
and transfer and the effect and constructon of ws (De aughn v. utchn-
son, 165 U. S., 566) but whether t governs the edera Government n the
performance of ts soveregn power to evy ta es s another queston, and s
the precse queston here.
True, State decsons sometmes contro edera egsaton, for nstance,
n determnng a deducton aowed by the edera estate ta , but that s
37229 29 25
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Reg. 37(1921), rt. 30.
37G
because of the e press provson of permsson of the edera ct whch
authorzes deducton of such charges as are aowed by the aws of the |urs-
dcton under whch the estate s beng admnstered. (LrUerer v.
Northern Trust Co., 262 ed- 52.) ut whether the edera Government s
mted In ts seecton of sub|ects for ta aton by rues of State courts n
respect to property wthn the State s- |ursdcton s another matter
nd the court hdd that athough the nstrument n queston was a sae n
Pennsyvana, nevertheess under the genera revenue statute the ncome arsng
from t woud be hed to be ncome whch was ta abe.
The Congress thus had the power to ta any transmsson of property effected
by death even though by the aw of the decedent s donc such property was
not part of hs estate. In vew of the constructon of the ct of 1916. gven
by the court n . tk v. ed, the enactment of secton 402(e) of the ct of
1919 ndcates a cear ntent to e ercse that power. The ueston of an ntent
to act n harmony wth State aws does not arse. In the sense that the ct
of 1919 dd not create any dversty n the ncdence of the ta n the dfferent
States, t operated n harmony wth the State aws. In the sense that t n-
cuded a sub|ect of ta aton whch n no State was part of the decedent s
estate, the Congress was actng n dsregard of State rues of property.
Comng now to the controng ssue n ths ease, what dd the. Congress n-
tend by the words genera power of appontment y a genera power
we understand a rght to appont to whomsoever the donee peases. y a par-
tcuar power s meant that the donee s restrcted to some ob|ect desgnated
In the deed creatng the power. (Sugden on Powers, 8th d., page 394.)
Powers may be ether genera or mted. Genera powers are such as the
donee can e ercse n favor of such person or persons as be peases, ncudng
hmsef. Lmted powers, whch are sometmes caed speca powers, are such
as the donee can e ercse n favor of certan persons or casses. ( arwe
on Powers, chapter 1, secton 6.) y a genera power t s understood the
rght to appont to whomsoever the donee peases. y a partcuar power s
meant that the donee s restrcted to some ob|ects desgnated n the deed cre-
atng the power, as to hs own chdren. (21 R. C. L., 774.)
The rght of the donee to vest a fee smpe estate n the appontee s not an
essenta attrbute of a genera power of appontment. The statement of the
Supreme Court of Pennsyvana n Thompson v. Garwood (3 Wharton, 286, 305),
that a genera power s, n regard to the estate whch may be created by
force of t, tantamount to a mtaton fee because t enabes hm
(the donee) to gve the fee to whom he peases, reed on by the pantff,
must be read n connecton wth the defnton whch cosey precedes t, whch
Is: y a genera power s understood a rght to appont to whomsoever the
donee peases by a partcuar power s meant that the donee s restrcted to
some ob|ects n the deed creatng the power, as to hs own chdren. It a
true that the donee of a genera power s vrtuay absoute owner of the prop-
erty over whch hs power e tends, but t s not true that to make the power
a genera one t s necessary that the property over whch t e tends must be a
fee smpe. Whatever t may be, f the donee can appont t to anyone he
peases, the power of appontment Is a genera power. In any event, however,
the e act defnton adopted by the court n Thompson, v. Garwood s not neces-
sary bndng upon ths court n construng a ta statute. Rosenborger v.
McCaughn, supra.)
There are penty of cases n whch the courts have reeesmzed genera powers
to appont remanders e stng concdenty wth powers to appont fe estates.
requenty the power as to the fe estate w be a speca one and thus a
genera power and a speca power may e st together as to dfferent estates
h the same property. Thus n In re ekerey (1 Ch. (1913), 510), the
ncome of the donee s shnre was to be hed n trust for her durng her fe.
fter her death, the capta was to be hed sub|ect to the fe nterest of a
future husband of the donee upon trusts for the chdren of the donee, wth
the provson that f no chdren shoud obtan a vested nterest under the trust,
the share was devsed to such person as the donee shoud by w appont.
The queston was the constructon of the donee s w, but the court sad: It
Is conceded that ths w undoubtedy e ercses the genera potrer of appont-
ment whch the testatr had over the setted property n defaut of any chf-
dton or ssue attannc a vested nterest theren. The pont for decson s
whether t aso e ercses n favor of the pantff the speca power
of appontng a fe nterest n the setted fund to any future husband. There
was thus recognzed not ony the grant of separate powers by the donor but
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Reg. 37(1921), rt. 30.
aso that the rght to appont future estate n the nature of a contngent re-
mander or e ecutory devse wthout mtaton as to persons s a genera
power. Ths was one of a cass of cases ncudng errer v. ay (L. R., 10 q.,
550) and In re Sharand (2 Ch. (1899), 536), whch the court referred to as
two power cases. In . 8. v. ted (supra) the opnon assumes that the
power of appontment nvoved was a genera power, athough t e tended ony
to one-haf of the ncome from a trust fund, under a trust whose terms were
smar to those n the w of ohn C. utt, and there was no power at a
gven to the prncpa at tht end of the trust.
It s aso argued that the power was speca because the donee coud not
e ercse t for her own beneft durng her fetme. Ths argument s dsposed
of by the decson of the Crcut Court of ppeas n Whtook-Rose v. McCauyhn
(21 ed. (2d), 164 T. D. 3960, C. . I-1, 323 ). Of course, where a power s
e ercsed ony by w, the donee can not appont to hersef. ut ths, t was
hed, dd not nterfere wth t beng a genera power.
The pantff further says that even f we accept the defntons above cted,
ths power was speca, because the donee coud not gve the prncpa to whom-
soever she peased n that she coud not appont t to those of the grand-
chdren who were vng at the tme of her father s death. In consderng ths
argument, et us not overook the fact that there are here two separate powers,
the one to appont the ncome or benefca fe nterest or nterests durng the
contnuance of the trust and the other to appont the remander n fee after
the termnaton of the trust. ach of these powers coud be e ercsed by Mrs.
Coes n favor of whomsoever she peased wthout restrcton. The fact that
f she apponted the prncpa to any of the grandchdren of ohn C. utt
who had been vng at the tme of hs death, such appontee woud have been
precuded by the terms of the trust from takng a benefca nterest, s a
mtaton arsng from the nherent nature of the property rather than from
any restrcton as to the e ercse of the power tsef.
In other words, f genera powers can e st at a as to property ess e ten-
sve than an absoute and uncondtona fee smpe, then Mrs. Coes had such
genera powers, for after the orgna testator had determned to mt hs
estate by carvng out a benefca estate n the ncome durng a certan perod,
he coud not have gven any more genera or unrestrcted powers over t than
he gave to Mrs. Coes. It s true the dstncton between genera and mted
powers n the common anguage of ngsh aw reates not to condtons
affectng the donees of a power, or otherwse antecedent to an appontment, but
to the nature of the appontment whch may be made under the power.
(Charton v. ttorney Genera, 4 pp. Cas., 427, 446.) In ths w, f there s
any condton mtng the e ercse of the powers n any way, t arses from the
speca nature of the property as to whch they are e ercsabe and are
antecedent not ony to the appontment but antecedent to the creaton of the
power.
The purpose of the Revenue ct s to estabsh a ta upon the transmsson
of property and not upon the property tsef. ogca e panaton of the
ncuson of property passng under genera powers of appontment and the
e cuson of property passng under speca powers s that where the orgna
testator has mted the rght to appont to certan named benefcares or to
a mted cass of benefcares, t s he and not the donee of the power who
n the broadest sense transmts the property to the benefcares. The donee s
e ercse of such narrow and mted powers may be taken rather as a mere
stage n the orgna scheme of nhertance than as an ndependent source
of descent. In such case, t s reay the death of the orgna testator whch
may reasonaby be taken as the transmsson of the property for the purpose
of ta aton. Where, however, the donee has fu power to drect the property
to any benefcary that he peases, there s n a rea sense a transmsson of t
from hm rather than from the orgna testator. The mportant thng s the
attude of the donee s power of dsposton rather than the quantum of the
nterest whch he may dspose of or the tme of ts vestng. Under ths vew,
t s of tte moment whether the property tsef s a fee or ess than a fee
whether t s a ega or an equtabe nterest or whether t s susceptbe of
Immedate en|oyment or ts en|oyment s postponed unt a future perod.
I therefore concude that the property passng under the e ercse of Mrs.
Coes s power of appontment was property passng under a genera power of
appontment, wthn the meanng of the revenue aw. The ncuson of the
entre vaue of the one-seventh porton of ohn C. utt s trust estate was
proper. If the power had been gven ony as to the prncpa or ony as to
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Reg. 37, rt. 53.
378
ncome, or f ether of the powers had been speca, a somewhat dffcut ques-
ton of vauaton mght have arsen. ut here, by her e ercse of the powers
gven her, Mrs. Coes reay dsposed of the entre heneca nterest n the
fund. The ony thng she dd not and coud not appont was the naked ega
tte durng the contnuance of the trust, whch has no pecunary vaue. I
do not thnk that t matters at a that the nterests apponted by her coud
not coaesce to form a fee. Taken together they consttute the whoe benefca
nterest n the property, the vaue of whch was propery ncuded n her
gross estate.
The affdavt of defense s ad|udged suffcent and the rue Is dscharged.
D DUCTIONS C RIT L ND SIMIL R U STS.
Reguatons 37, rtce 53: Pubc, chartabe, II-32-3845
and smar bequests. T. D. 4185
estate ta revenue act of 1918 decson of supreme court.
1. Gross state Deducton Chartabe equest Upon Con -
tngency.
Under secton 403 of the Revenue ct of 1918, permttng the
deducton from gross estate of the amount of a bequest for char-
tabe purposes, Congress dd not ntend that a. deducton shoud be
made for a contngent gft the actua vaue of whch can not be
determned from any known data.
2. udgment ffrmed.
The |udgment of the Court of Cams of the Unted States (03
Ct, CI., 013 (T. D. 4051 C. . I-2, 363 )) 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 Supreme Court of the Unted
States n the case of ugustne L. umes et a. v. The Unted State
s pubshed for the nformaton of nterna revenue offcers and
others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved uy 31, 1928.
enry errck ond,
ctng Secretary of the Treasury.
Supreme Court of the Unted States.
ugustne L. umes et at, pettmcrs, v. The Unted States.
pr 9, 192
opnon.
Ths acton was brought n the Court of Cams by the e ecutors of Deora
R. Gates to recover 120,508.50, a part of the estate ta aeged to have been
egay e acted under the Revenue ct of 1918 (ch. 18, sec. 403, 40 Stat.,
1057, 1098). The bass of the cam s that a sum of 482,034, whch was
dsaowed n ascertanng the net estate ta abe, shoud have been deducted
from the gross amount of 11,783,07:2.30 dsposed of by artce 51 of the w.
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379
Reg. 37, rt. 53.
The sum dsaowed represents the aeged present vaue of certan contngent
bequests to chartes made by that artce. The queston for decson s
whether the aeged present vaue of such contngent bequests s deductbe
under secton 403, paragraph (a), subparagraph 3, of the Revenue ct The
Court of Cams hed that the Commssoner of Interna Revenue was rght n
refusng to aow the deducton. (63 Ct. CI., 613.) Ths court granted a wrt
of certorar. (276 I . S., 487.)
The governng provson of the ct s:
That for the purpose of the ta the vaue of the net estate sha be
determned
(a) In the case of a resdent, by deductng from the vaue of the gross
estate
(3) The amount of a bequests to or for the use of any corpora-
ton organzed and operated e cusvey for chartabe
purposes.
owance of the deducton was dened pursuant to Treasury Department
Reguatons 37, artce 56, whch decared:
Condtona bequests. Where the bequest, egacy, devse, or gft s dependent
upon the performance of some act, or the happenng of some event, n order to
become effectve t s necessary that the performance of the act or the occur-
rence of the event sha have taken pace before the deducton can be aowed.
Where, by the terms of the bequest, devse or gft, t s sub|ect to be defeated
by a subsequent act or event, no deducton w be aowed.
rtce 51 of the w gves one-haf of the resduary estate to the testatr s
trustees n trust for her nece, Deora . nge, portons of the prncpa to
be pad to her upon her attanng the ages of 30 and 35 years, the baance to
be pad to her upon her attanng the age of 40, the ncome to be pad to her
n the meantme. In the event that the nece shoud de wthout ssue before
attanng the age of 40, the amount of the prncpa not pad to her was gven
to chartes. The remanng haf of the resdue was to be hed n trust for the
testatr s brother durng hs fe, the prncpa to be dsposed of on hs death
n ke manner as the haf frst mentoned. The testatr ded n 1918.
Deora . nge was then vng, was 15 years od, and was unmarred. The
contenton of the e ecutors s that the bequests gave the chartes a present
property r ht n the estate that the present vaue of a property rght whch
s dependent upon some future event may be determned by the use of standard
mortaty and e perence tabes and by the cacuatons and testmony of
actuares that the vaue so determned of the contngency that the whoe or a
part of the gft woud go to chartes s at east 482,034 that the deducton
must be taken now, for f the e ecutors shoud wat unt the contngency
happens and then, f the chartes receve the property, cam a refund, the
cam for refund woud be barred by the statute of mtatons and that, be-
cause t was the purpose of Congress to encourage bequests for chartabe pur-
poses, the ct shoud be construed so as to aow such a deducton.
The Court of Cams dd not fnd that the present vaue of the contngent
bequests to the chartes can be determned by the cacuatons of actuares
based upon e perence tabes. No bass s ad n the record for suppement-
ng the fndngs n ths respect. ut the e ecutors urge that we may take |ud-
ca notce that such tabes e st and that, by the use of them, actuares are abe
to determne that n 1918 the possbty that the resduary gft of 11,783,072.30,
or a part thereof, woud utmatey go to the chartes was worth at east
482,034 or n other words, 4.0909 per cent of the amount of that resdue. The
fgure, 482,034, we are tod, s reached through the actuara art, by some
combnaton and ad|ustment of the standard e perence tabe of mortaty,
ong n use (see Smpson v. Unted States, 252 U. S., 547, 550), wth two other
tabes whch are reatvey tte known and whch do not appear to have ever
been used n merca n ega proceedngs. One of these s supposed to show
what the probabty s that a woman dyng at a gven age w de unmarred
the other to show what the probabty s that f she marres, she w de
chdess.
If a the facts stated had been emboded n fndngs, no ega bass woud be
ad for the deducton camed. The voume and character of the e perence
upon whch the concusons drawn from these two tabes are based dffer
from the voume and character of the e perence emboded n standard mor-
taty tabes amost as wdey as possbty from certanty. oth of these
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Reg. 37, rt. 53.
380
tabes arc based on data contaned n voumes of Lodge s Peerage. The frst
tabe, whch may be found n the Transactons of the acuty of ctuares n
Scotand (vo. 1, pp. 278-279), and s caed Lees emae Peerage Tabes, was
constructed by M. Mackeuse Lees. It deas wth 4,440 ves, of whom 2,010
ded durng the perod of observaton. The second of the tabes, whch may
be found n an artce entted On the Probabty that a Marrage entered
nto by n Man of any ge, w be rutfu, n the ourna of the Insttute
of ctuares of Great rtan (vo. 27, pp. 212-213), was constructed by Dr.
Thomas ond Sprague. It deas wth e perence of 1,522 mae members of
the yeotch peerage and purports to show the probabty that a marrage w
be chdess both as respects men marred as peer or her apparent and men
who dd not marry as peer or her apparent. In order to appy the atter
tabe to femaes certan assumptons and ad|ustments are necessary made.
It was on such data that the pettoners sought to set a money vaue on
the probabty that ths Te as gr of 15 w not marry, or f she does, w
de wthout Issue before the age of 30. or 35, or 40. Obvousy, the cacuaton
that the contngent nterest of the chartes was equa to 4.0909 per cent of the
resdue was mere specuaton bearng the deusve appearance of accuracy.
One may guess, or gambe on, or even nsure aganst, any future event. The
Soctor Genera tes us that Loyds of London w nsure aganst havng
twns. ut the fundamenta queston n the case at bar s not whether ths
contngent Interest can be nsured aganst or ts vaue guessed at, but what
constructon sha be gven to a statute. Dd Congress, n provdng for the
determnaton of the net estate ta abe, ntend that a deducton shoud be made
for a contngency the actua vaue of whch can not be determned from any
known data Nether ta payer, nor revenue offcer even f equpped wth
a the ad whch the actuara art can suppy coud do more than guess at
the vaue of ths contngency. It s cear that Congress dd not ntend that a
deducton shoud be made for a contngent gft of that character. Compare
dward v. Sooum (264 U. S., 61, 63 T. D. 35S4, C. . III-, 479 ).
ffrmed.
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C PIT L STOC T RULINGS.
TITL . SP CI L T S. (1921 ND 1918)
Reguatons 50 (1920), rtce 10: ass of the II-31-3833
ta : Carryng on or dong busness. T. D. 4180
capta stock ta revenue act of 1918 decson of court.
corporaton hodng company estate ok resduary devsees
Dong usness.
corporaton organzed to acqure from resduary egatees and
devsees property queathed and devsed to them under a w, to
hod, se, and otherwse dspose of the same and dstrbute the pro-
ceeds to the stockhoders, and whch carred on and competed a
the necessary busness actvtes for whch t was ncorporated, was
dong busness and sub|ect to the capta stock ta mposed by
secton 1000 of 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 dgar states Corporaton v. The Unted States,
s pubshed for the nformaton of nterna revenue offcers and other
concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved uy 19, 1928.
Ooden L. Ms,
ctng Secretary of the Treasury.
Court of Cams of the Unted Statts.
dgar states Corporaton v. The Unted Staes.
pr 16, 1928.
opnon.
ooth, udge, devered the opnon of the court
The pantff contends for an e empton from corporate ta abty, whch
the Commssoner of Interna Revenue refused to grant. The amount nvoved
s 1,929. The ta was mposed and coected by the Commssoner under
secton 1000 of the Revenue ct of 1918 (40 Stat., 1126), readng as foows:
Sec. 1000. (a) That on and after uy 1, 1918, n eu of the ta mposed
by the frst subdvson of secton 407 of the Revenue ct of 1916 (1) every
domestc corporaton sha pay annuay a speca e cse ta wth respect to
(381)
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Reg. 50(1920), rt. 10.
382
carryng on or dong busness, equvaent to 1 for each 1,000 of so much of
(he far average vaue of ts capta 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 by
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 States) durng the precedng year endng une 30,
The ta was coected for the years 1918, 1919, 1920, 1921, and 1922.
refund cam was dened.
The pantff corporaton was organzed under the aws of the State of New
York on September 7, 1917, wth a capta stock of 60,000, dvded nto 600
shares of common stock of the par vaue of 100 per share. The certfcate of
ncorporaton n the foowng anguage states ts ob|ects and purposes, vz:
To acqure from the resduary egatees and hod a the rea and persona
property devsed and bequeathed to sad resduary egatees under the w
of ane . dgar, deceased, and to se, transfer, mortgage, assgn, e change,
and otherwse dspose of any and a of the rea and persona property afore-
sad, upon such terms as to the board of drectors may seem pro|er, and to
receve the proceeds thereof and to dstrbute the same among the stockhoders,
after payment of e penses, and to ease and rent the sad rea property for
any term or terms whatsoever, and to receve the rents and Income derved
from sad rea and persona property, and to dstrbute the same among the
sad stockhoders after payment of e penses. To ater, mprove, reconstruct,
repar, and otherwse manage and mantan the sad rea and persona pro erty,
and generay to do and perform any and a other thngs whch may be at
any tme necessary or convenent, n the |udgment of the board of drectors,
for the proper mantenance and upkeep of the sad rea and persona property
acqured by the corporaton as aforesad.
The facts agreed upon dscose that Mrs. ane . dgar, a ctzen of New
York, ded testate on March 12, 1895, eavng an estate made up of varous
parces of vauabe rea estate and some persona property. The ast w of
the decedent, after makng certan specfc bequests, devsed and bequeathed the
resdue of her estate, n trust for the use and beneft of her two chdren for
fe, wth a provson that upon the death of the survvor the estate shoud
pass n fee to certan named egatees and devsees. The survvor of Mrs.
dgar s two chdren ded n une, 1917, and the estate descended as men-
toned above. In September foowng, the pantff corporaton was organzed
tor the e press purpose of acqurng from the aforesad egatees and devsees
the property then nherted as above, and thus admnsterng the estate n
what the ncorporators regarded as a much more advantageous and proftabe
way than to pursue the estabshed aws for the admnstraton of deceased
persons estates n the probate court of New York. The corporaton contnued
n e stence from ts organzaton unt pr, 1922. Durng ts contnuance
eght separate parces of reaty came under ts management and contro, rents
were coected, repars were made, and the property managed and controed
n such a way as to obtan for t the most advantageous prce. When saes
were made n some nstances for a cash, n others, part cash and mort-
gages for baance the cash receved was mmedatey dstrbuted to the
stockhoders and the mortgages were hed by the corporaton. Unformy,
when nstament payments were receved upon mortgages the funds were at
once dstrbuted. In .September, 1920. a proft of 60.65 was reazed from
I he purchase and sae of certan ctory bonds, and two stock transactons
In the same year yeded a tota proft of 66.72. The corporaton was under
the e cusve management of one man, a practcng awyer, and ts overhead
e pense was nomna. The record shows that the trustees under Mrs. dgar s
w had eased a the reaty, e cept one parce, and these eases e tended
from three to fve years from date. The corporaton dd not renew the eases
upon the e praton of the term. The pantff, reyng upon the above state
of facts, nssts that the corporaton was not carryng on or dong busness
durng the perod of ts e stence, wthn the meanng and ntent of the ta -
ng ct, and hence s entted to |udgment for the amount of the capta stock
ta es pad.
The nature of the capta stock ta s obvous. It s, as setted by |udca
decson too famar to cte, an e cse ta mposed upon the prvege of dong
busness as a corporaton. The pantff n ths case was prompted to ncor-
porate n vew of a stuaton wheren ncorporaton offered, at east IU the
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383
Reg. 64(1921), rt. 11.
opnon of the stockhoders, a dstnct advantage and proft over the ordnary
course of aw appcabe to ther stuaton. The corporaton came nto e st-
ence, manfesty, because t enabed the stockhoders, the resduary egatees
and devsees of Mrs. dgar s w, to conserve an estate of consderabe pro-
portons, curta e penses, and provde for e pedtous management and ds-
poston n a way and by a method superor to the estabshed aws of the
State respectng the admnstraton of deceased persons estates and the sae
and dvson of reaty owned by tenants n common. To accompsh the desred
end ndspensaby entaed the customary proceedngs nvoved n the sae of
and and persona property. Rents were to be coected, some funds of the
corporaton were nvested, and whe the deta of actvtes resembes a process
of qudaton, t s to be remembered that that s precsey the purpose of the
ncorporaton, ts one ob|ect to the dscharge of whch a busness actvtes
were soey drected. The corporaton came nto beng to manage, contro, and
dspose of ths estate It had no purpose to contnue onger, and whe so
engaged dd carry on and compete a the necessary busness actvtes for
whch t was dstncty ncorporated. Surey ths was a prvege. Ceary t
was the e ercse of a ega opton to take from the channes of ordnary and
customary ega procedure a consderabe estate n ands and persona property,
erect a ega entty, and thereby accrue an advantage whch ownershp n com-
mon dd not afford those entted to the property. The fact that overhead
e pense was nomna, proven profts from nvestments sma, and busness
actvtes not especay e actng, n nowse mtates aganst the rue. If the
corporaton was pursung the ob|ect for whch t was organzed and dong a
the essenta thngs to accompsh that ob|ect, t can not cam a cassfcaton
of an nactve corporaton, dong no more than qudatng ts assets. It s not
the amount of busness done whch sgnfes, athough n ths case t s apparent
that the corporaton dd conserve and save to the estate e penses whch other-
wse t woud have ncurred, and kewse enabed the stockhoders to awat
a proptous moment for saes of rea estate, as we as enabe the corporaton
to coect rents, mantan the property, and make sma nvestments. To do a
ths we thnk compeed a degree of busness actvty wthn the meanng of
the revenue aw.
The cases refectng the varous phases of controverses smar to the one In
sut are found n the foowng ctatons: on aumbach v. Sargent Land Co.
(242 U. S., 503 T. D. 2436 ) Zonne v. Mnneapos Smdrat (220 U. S., 187)
Unted States v. mery, rd, Thayer Reaty Co. (237 U. S., 28 T. D. 2188 )
MoCoach v.. Mnehtt Raroad Co. (228 U. S., 295 T. D. 1847 ) Chevroet Motor
Co. v. Unted States, decded by ths court November 7, 1927 T. D. 4123, O. .
II-1, 329 ) dcards v. Che Copper Co. (270 U. S., 452 T. D. 3857, C. . -,
410 ) Conham odng Co. v. W cuts (D. C. Mnn., ug. 10, 1927 T. D. 4090,
C. . I-2, 374 ), a case strkngy smar to the one n sut
The petton w be dsmssed. It s so ordered.
Regth tons 64(1921), rtce 11: ass of the L 6-3999
ta : Carryng on or dong busness. T. D. 4243
capta stock ta revenue acts of 1918 and 1021 decson of court.
Dong usness.
corporaton engaged n mantanng ts od nvestments of cap-
ta and makng new ones, soey for the purpose of producng n-
come therefrom, and n dstrbutng the same to four members of
one famy, who were ts soe stockhoders, s not carryng on or
dong busness wthn the meanng of secton 1000 of the Revenue
cts of 1918 and 1921 and s not abe to the capta stock ta
mposed by those aws.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Tho foowng decson of the Unted States Crcut Court of p-
peas, fth Crcut, n the case of osah T, Rose, Coector of Inter-
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Reg. 64(1921), rt. 11.
384
na Revenue, pantff n error, v. Nunnay Investment Co., defend-
ant n error, s pubshed for the nformaton of nterna revenue
offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved November 6, 1928.
enry errck ond,
ctng Secretary of the Treasury.
Unted States Crcut Court of ppeas, fth Crcut.
o ah T. Rose , Coector of Interna Revenue for the Dstrct of Georga,
pantff n error, v. Nunnay Investment Co.. defendant n error.
rror to the Dstrct Court of the Unted States for the Northern Dstrct of Georga.
November 1, 1927.
OPINION.
efore Waker, ryan, and oster, Crcut udges.
ryan, Crcut udge: Ths s a sut by the Nunnay Investment Co. to
recover amounts assessed as capta stock ta es, and pad by t to the coector
of nterna revenue under protest.
The amounts here nvoved wore assessed for the two-year perod begnnng
uy 1, 1921, and endng une 30, 1923, under secton 1000 of the Revenue cts
of 1918 and 1921, both of whch mpose upon corporatons a capta stock ta
wth respect to carryng on or dong busness, but e empt corporatons whch
were not engaged n busness durng the precedng year endng
une 30, etc. The dstrct |udge before whom by wrtten stpuaton the
tra was had wthout a |ury, hed, upon the evdence submtted, that the
pantff was not engaged n busness wthn the meanng of the cted secton,
and entered |udgment n ts favor. Defendant assgns error, and contends that
the evdence shows that pantff was so engaged n busness.
The pantff company was ncorporated, pursuant to the aws of Georga, under
the name of the Nunnay Co., and thereafter engaged n the manufacture and
sae of candy unt the year 1920, when t sod ts busness to a company of the
same name, but whch was ncorporated under the aws of Deaware and
secured amendments to ts own charter changng ts name to Nunnay Invest-
ment Co., and mtng ts charter powers, but eavng t st authorzed to
own, buy and se stocks and bonds, evdences of ndebtedness and other
persona property. The proceeds of the sae to the Deaware company con-
sttuted pantff s entre assets. part of the consderaton of that sae
whch pantff r,eceved was represented by about 40 per cent of the out-
standng capta stock of the purchasng company. It was the deberate nten-
ton of pantff not to do anythng durng the perod here nvoved that woud
sub|ect t to abty for the capta stock ta . Durng that perod t had but
four stockhoders, . . Nunnay, hs wfe, son, and daughter, who hed ts
annua meetngs of stockhoders, and eected offcers. Meetngs of the board of
drectors were hed semannuay, and decared semannua dvdends of 50,000.
Saares were pad ony to the presdent and vce presdent There were no
regusr empoyees. On uy 1, 1921, at the begnnng of the perod for whch
the ta es n queston were eved, the capta and surpus of the pantff com-
pany amounted to . 2,493,748.43. and were whoy n persona property n the
manner shown by the foowng statement:
Cash 8, 419. 35
Loans to stockhoders 963,100. 00
Loans to empoyees 1. 934. 08
Stocks 645. 765. 97
Industra bonds 342, 525. 41
Muncpa bonds 434.75S. 50
oregn bonds 97, 245.12
Tota 2,493,748.43
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385
Reg. 64(1921), rt. 11.
On une 30, 1923, at the end of the perod n queston, the assets were sm-
ary nvested or hed, but had ncreased to 2,722,990.79, as appears from the
foowng statement:
Cash 32, 228. 98
Loans to stockhoders __, 1,020,200.00
Loans to empoyees 5, 839.15
Stocks 941,747.85
Industra bonds 267, 233. 96
Muncpa bonds , 833, 800. 10
oregn bonds 24, 918. 75
Tota - 2,722,990.79
It thus appears that the net ncreases were:
Cash 23,809. 03
Loans to stockhoders 57,100. 00
Loans to empoyees 3, 905. 07
Stocks and bonds 144,427.66
Tota 229,242.36
Loans to stockhoders and empoyees were represented by notes. Dvdends
equa to net ncome were not pad to stockhoders, because of the pocy of
payng semannua dvdends of 50,000, and aso because t was thought ad-
vsabe to mantan a reserve to pay, f requred, arge ncome ta cams that
were n dspute.
The empoyees to whom oans were made were nne empoyees of the Dea-
ware corporaton Who bought stock n t Ther notes bore nterest at rates
rangng from 6 per cent to 8 per cent, and were secured by ther stock. The
ob|ect of these oans was not to make a proft for pantff but to enabe such
empoyees to acqure stock n that corporaton, the controng nterest n whch
was at that tme owned by pantff and ts stockhoders payments were re-
ceved from tme to tme and other oans were made both to stockhoders and
to empoyees. The tota amount of oans to stockhoders was 65,400, and to
empoyees, 7,511.65. Severa oans amountng In a to 8,000 were made to
the owden Sprngs Co., and 7,800 was repad by t. That company was
owned by . . Nunnay. Stock of the Nunnay company of the par vaue
of 4,400 was sod to . . Nunnay, but for hs accommodaton, at the market
prce, and at a oss. No other saes of stock were made but stock n the Trust
Co. of Georga was e changed for stock of equa vaue ssued by ts successor.
onds of the vaue of about 400,000 matured and were converted Into cash,
but no bonds were sod. The cash receved, n e cess of that on hand, advanced
on oans, and pad out n dvdends, were nvested or renvested n stape stocks
and bonds.
The corporaton ta of 1909 was mposed upon net ncome, whereas the ta
under consderaton s upon capta stock. ut In each nstance the ta was
or s requred to be pad by corporatons engaged n busness, and therefore the
queston whether abty e sts s the same under ether statute. What con-
sttutes carryng on, or engagng n, or dong busness, s a queston that has
severa tmes been passed upon by the Supreme Court. It was hed that bus-
ness was beng done by the corporatons affected n the Corporaton Ta Cases
(220 U. S., 107), on aumbach v. Sargent Land Co. (242 U. S., 503 T. D.
2436 ), dwards v. Che Copper Co. (270 U. S., 452 T. D. 3857, C. . -,
410 ),andP/u Mp v. Internatona Sat Co. (274 U. S., 71S). On the other hand,
t was hed that busness was not beng done n Zonne v. Mnneapos Syndcate
(220 U. S., 187), McCoach v. Mneh Ry. Co. (228 U. S., 295 T. D. 1847 ),
and Unted States v. mery (237 U. S., 28 (T. D. 2188 ). Upon the authorty
of these cases t may safey be stated that the ta s based, not upon the
charter powers of the corporaton, but upon ts actvtes and that a corpo-
raton whch merey receves the ncome earned by assets whch t owns, and
dstrbutes that ncome among stockhoders, s not engaged n busness. In
the on aumbach case, supra, the earer cases are revewed, and the rue
for determnng whether or not a corporaton s engaged n busness s stated
In the foowng anguage:
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Reg. 64(1921), rt. 11.
386
It s evdent, from what ths court has sad n deang wth the former cases,
that the decson n each nstance must depend upon the partcuar facts before
the court. The far test to be derved from a consderaton of a of them s
between a corporaton whch has reduced ts actvtes to the ownng and
hodng of property and the dstrbuton of ts avas and dong ony the acts
necessary to contnue that status, and one whch s st actve and s mantan-
ng ts organzaton for the purpose of contnued efforts n the pursut of proft
and gan and such actvtes as are essenta to those purposes.
We are of opnon that a resut of the appcaton of the test there stated
s to reeve pantff from abty. The case here presented appears to us to
be governed by the decson n McCoach v. Mneh Ry. Co., supra. The n-
crease n oans to stockhoders was sma, comparatvey speakng, and was not
greater than coud have been pad to them as dvdends derved from ncome.
The sae of stock to . . Nunuay was made merey for hs accommodaton and
not for the purpose of makng a proft or dsposng of the stock. There was
nothng n the handng of the stock or bonds whch consttuted the dong of
busness. The capta nvested and renvested, and not the actvtes of pan-
tff, earned the profts. In mantanng ts od nvestments, and n makng
new nvestments, pantff was ony en|oyng the fruts of ts ownershp, and
nether these od or new nvestments were used to further busness opportunty
or standng, but soey for the purpose of producng ncome. If t can be hed
that pantff was engaged n busness, t must n our opnon be because of
oans made to empoyees of the Nunnay company, whch was controed by
pantff and ts stockhoders. If t had drecty nvested that part of ts
ncome whch t ent to the empoyees of the Nunnay company, t woud have
been but en|oyng the fruts of ts own property. Yet t took the stock as
securty, and woud have owned t f the oans had not been pad off. In the
fna anayss t was nvestng n that stock. esdes, t was deang, not wth
the pubc for proft to tsef, but wth a cass whose ncreased nterest mght
drecty beneft the company n whose success t was argey concerned. The
most that can be sad s that there was an ndrect beneft to pantff, n that
ts stock woud become more vauabe. In the recent case of dwards v. Che
Copper Co., supra, reed on by defendant, the actve assstance of the hodng
company hed abe was gven to the subsdary corporaton. Wthout such
assstance the busness desred coud not have been carred on. In Phps v.
Internatona Sat Co., supra, decded May 22, 1927, on the authorty of the
Che Copper Co. case, the hodng company that was hed abe ndorsed the
notes for ts subsdary corporatons, and actvey ent ts credt to them. In
our opnon these two atest decsons of the Supreme Court do not contro the
case at bar.
The |udgment s affrmed.
Reguatons 64(1921), rtce 11: ass of the II-46-4000
ta : Carryng on or dong busness. T. D. 4244
C PIT L STOC T R NU CTS O 1918 ND 1921 D CISION O COURT.
Dong usness.
corporaton whch merey owns and hods a tract of tmber-
and and engages n ony such narrow actvtes as are ncdent to
the ownershp of property s not carryng on or dong busness
wthn the meanng of secton 1000 of the Revenue cts of 1918
and 1921 and s not abe to the capta stock ta mposed by those
aws.
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 Nnth Crcut, n the case of the Unted States of
merca, pantff n error, v. Iotchkss Red oood Co., defendant n
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387
Reg. 64(1921), rt. 11.
error, s pubshed for the nformaton of nterna revenue offcers
and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved November 6, 1928.
enry errck ond,
ctng Secretary of the Treasury.
Unted States Cbcut Court of ppeas fob the Nnth Crcut.
Unted States of merca, pantff n error, v. otchkss Redwood Co., defendant
n error.
pr 16, 1928.
OPINION.
Rudkn, Crcut udge: Ou and pror to une 19, 1919, the otchkss Tmber
Co., a Caforna corporaton, was the owner of appro matey 20,000 acres of
tmberand n De Norte County, acqured n the year 1906 for the soe purpose
of ownng and hodng the same and reseng as a whoe at a proft The
otchkss Redwood Co. was organzed n 1919 to take over the tmberand for
the ke purpose and to pace a new bond ssue, whch for some reason the od
corporaton was unabe to do. fter ts ncorporaton the new company ssued
bonds n the sum of 550,000, secured by mortgage on ts property, and used the
proceeds of the bonds to redeem smar bonds ssued by the od company
and secured by a ke mortgage. Snce ts organzaton the new company has
from tme to tme eved and coected assessments on ts capta stock to pay
ta es, nterest on ts bonded ndebtedness, and other necessary charges and
e penses to avod condemnaton proceedngs t sod a strp of and to De
Norte County for hghway purposes for appro matey 5,000 from November,
1919, to une, 1923, t pad the sum of 50 per month as saary to ts secretary,
and from uy , 1923, to une 30, 1924, the presdent was pad the sum of 150
per month on account of offce e penses t has at a tmes mantaned ts cor-
porate e stence and from tme to tme has carred on negotatons through
ts presdent wth prospectve purchasers and brokers ookng to the sae of ts
ands as a whoe, but no person or agent has been empoyed for that purpose,
the and has never been advertsed for sae, and no part of t has been sod
e cept the rght of way to De Norte County. Such n bref were the actvtes
of the corporaton from the tme of ts organzaton up to une 30, 1924.
The present acton was nsttuted by the corporaton aganst the Unted States
to recover ta es mposed and coected under the Revenue cts of ebruary 24,
1919, and November 23, 1921 (40 Stat, 1126 42 Stat., 924), for the ta year
endng une 30, 1924, and for the four years mmedatey precedng. The
pantff had |udgment beow and the Unted States sued out the present wrt
of error. The soe queston presented for decson s, Was the defendant n
eror carryng on or dong busness durng the perod n queston wthn the
meanng of the Revenue cts If so, the |udgment shoud be reversed other-
wse, t must be affrmed.
The mere substtuton of one mortgage or one form of ndebtedness for
another, the evy of stock assessments to pay ta es and nterest, the mantenance
of corporate e stence, the sae of a rght of way for a pubc road to avod
condemnaton proceedngs, and the payment of nomna saares to the secretary
and presdent dd not, wthout more, consttute carryng on or dong busness
wthn the meanng of the aw. Of course, we must |udge the actvtes of the
corporaton as a whoe, but f t was not carryng on or dong busness because
of the actvtes mentoned t has done nothng ese and waa not sub|ect to the
ta , uness, as contended by the Government, every corporaton organzed for
the purpose of hodng property for gan or proft s dong busness regardess of
ts other actvtes.
s sad by the Crcut Court of ppeas of the Second Crcut n aton v.
Phoen Securtes Co. (22 ed. (2d), 497) : We do not thnk that anythng
w be ganed by an e tended dscusson of ths tanged sub|ect. Suffce t to
say that under the authorty of Zonne v. Mnneapos Syndcate (220 U. S.,
18T), McCoach v. Mneh Schuyk aven R. R. Co. (228 U. S., 295 T. D.
1847 ), and Unted States v. mery, rd, Thayer Reaty Co. (237 U. S., 28
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388
T. D. 2188 ), we are of opnon that the defendant n error was not carryng
on or dong busness durng the perod n qnestou wthn the meanng of the
aw.
on anmboch . Sargent Land Co. (242 U. S., 503 T. P. 2436 ), doards v.
Che Copper Co. (270 . S., 452 T. D. 3857, C. . -, 410 ), and Phps v.
Internatona Sat Co. (274 U. S., 718) are not n confct wth the earer dec-
sons, athough they rather ndcate that the rue of e empton w not be
e tended. (See aso Lane Tmber Co. v. rn on, 4 ed. (2d). 666 Cannon v.
k Creek Lumber Co., 8 ed. (2d), 996 Unted States v. Three orks Coa
Co., 13 ed. (2d), 631 and Rose v. Nunnay Investment Co. (22 ed. (2d),
102 see T. D. 4213, on page 383 ).
In Lane Tmber Co. v. Iynson, supra, the court sad:
It s defendant s contenton that a corporaton whch does what ts charter
authorzes t to do Is abe for the corporaton ta , and that the pantff,
because t was authorzed to hod tte to the and, and was dong so wth the
e pectaton of seng at a proft, was engaged n busness. If a corporaton s
not engaged n busness, t can not make any dfference that what t s dong
s authorzed by ts charter. Ownng and s not dong busness, nor s payng
ta es. Most owners of and, whether corporatons or ndvduas, woud e
wng to se at a prot. In our opnon the mere fact that the pantff
seected agents who made efforts to se ts and does not render t abe.
rom 1900 to 1924 the defendant n error and ts predecessor n nterest
owned and hed ths tract of tmberand as ther ony asset Durng that perod
they made no use of the and, added nothng to t, took nothng from t, engaged
n ony such narrow actvtes as are ncdent to the ownershp of property, and
t woud be gong very far to say that such corporatons are carryng on or
dong busness wthn the meanng of a revenue aw.
The |udgment of the court beow s therefore affrmed.
MPTION ROM T .
Reguatons 64, rtce 29: Organzatons and TI- 13-3966
nsurance companes e empt. T. D. 4233
C PIT L STOC T INCOM T R NU CT O 1021 D CISION O
COURT.
empton Insurance Company.
corporaton engaged n the nsurance busness, but whch n
addton thereto conducts a separate and dstnct busness from
whch t derves a substanta ncome, s not an nsurance company
wthn the meanng and ntent of secton 246 of the Revenue ct
of 1921 and s therefore not e empt from the capta stock ta
mposed by secton 1000(b) of sad Revenue ct of 1921. The rght
of a corporaton to cassfcaton as an nsurance company for
purposes of edera ta aton depends not upon the aws of the
State of ts ncorporaton but upon the cts of Congress.
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 entucky, at Lousve, n the case of
Lousve Tte Co. v. Robert . Lucas, Coector of Interna Revenue
for the Dstrct of entucky, s pubshed for the nformaton of
nterna revenue offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved October 13, 1928.
. W. Meon,
Secretary of the Treasury.
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389
Reg. 64, rt. 2 .
Dstrct Court of the Unted States fob the Western Dstrct op hntuctct,
us ousvuab.
Lousve Tte Co pantff, v. Robert . Lucas, Coector of Interna Revenue
for the Dstrct of entucky, defendant.
une 30. 1928.
OPINION.
In ths sut pantff seeks to recover of the defendant 704, pad by t to
the defendant as coector on uy 22, 1922, under secton 1000 of the Revenue
ct of 1921, for the year endng une 30, 1923. The sut s bottomed upon the
cam that the pantff, at the tme of the mposton and coecton of the ta
sought to be recovered heren, was an nsurance company other than a fe or
mutua nsurance company, and sub|ect to ncome ta aton under the provsons
of sectons 246 and 247 of the Revenue ct of 1921, and that by vrtue of the
e press provsons of sectons 246 and 1000 of that ct, t was not sub|ect to the
capta stock tu mposed by secton 1000. The necessary |ursdctona facts
appear, and the soe queston to be determned s whether or not under the facts
of ths case pantff s an nsurance company other than a fe or mutua n-
surance company, wthn the meanng of sectons 246 and 1000 of the Revenue
ct of 1921. proper understandng of the case necesstates a somewhat e -
tended statement of the facts.
Pantff s a entucky corporaton, organzed under the provsons of sec-
tons 725 to 742, both ncusve, of entucky statutes, deang wth the organza-
ton, conduct, and reguaton of the busness of rea estate tte nsurance com-
panes. Under the provsons of secton 736, entucky Statutes, the nsurance
commssoner of the Commonweath s gven the same supervsory and vs-
tora powers over the busness of corporatons organzed and conductng ther
busness under the sectons referred to. as he s gven over the busness of other
domestc nsurance companes. Secton 733 of entucky Statutes provdes as
foows:
The capta stock, not e ceedng 33 per centum of the mnmum amount
thereof, of any such corporaton organzed under ths aw, or now dong
busness n ths State, may be nvested n the acquston of such books, maps,
abstracts or copes of deeds or other nstruments as sha be necessary or
convenent for the transacton of ts busness and such porton of ts accumua-
tons as sha be necessary or convenent may be used n the mantenance,
enargement, and mprovement of such pant. The remander of such stock
and accumuatons sha be nvested, e cept as herenafter provded, n bonds
and mortgages, eu notes or deeds of trust, on unencumbered rea estate wthn
the State of entucky, worth at east 50 per centum more than the sum
oaned thereon but n estmatng the vaue of such rea estate, the vaue of
the bndngs thereon sha be e cuded, uness such budngs be nsured
aganst fre, and the pocy transferred to the corporaton, and such nsurance
sha be contnued n force as ong as the oan contnues aso n bonds of
ths State or of any other State of the Unted States, or of the Unted States,
or of any county or ncorporated cty or town of ths State, authorzed by
aw to he Issued aso n the stocks of ncorporated banks and trust companes
of ths State, and of natona banks of ths State, or of ad|acent States:
aso n the frst mortgage bonds of raroads of ths and other States, bonds
or stocks of any brdge, water, street raroad, gas or eectrc corporatons
of ths State, whch have, for two years prevous to the tme of makng the
Investment, pad nterest or dvdends of not ess than 4 per eentum per annum,
and sha have a market vaue not ess than 20 per centum beow par. Sad
capta and surpus may be oaned on the securty of any such bonds, stocks,
or en notes bonds and mortgages, and the nvestments and oans heren
authorzed may be changed, and the proceeds renvested as occason may,
from tme to tme, requre, and the evdences of such oans sod and the
payment thereof ndorsed or guaranteed. No such corporaton sha own
more than one-s th of the capta of any hank or corporaton, nor nvest n
nor oan on the stocks and bonds, both ncuded, of any one raroad, mora
than one-tenth of ts capta and accumuated funds, nor n the aggregate
sha the nvestment n and oan on a raroad property e ceed one-ffth of
ts capta and accumuated funds and no such corporaton chartered by ths
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Reg. 64, rt. 29.
390
State, and awfuy dong the busness heren authorzed, sha be compeed
to change any nvestment heretofore egay made.
t a tmes snce ts organzaton pantff s busness has been conducted
and ts capta and surpus nvested under the provsons of the statutes dea-
ng wth rea estate tte nsurance companes, above referred to.
Durng the caendar year 1922 pantff s pad-up capta stock was 500,000
of the par vaue of 100 per share. Durng the year 1922, 45,600, or sub-
stantay 9 per cent of ts capta, and 46,500, or substantay 15 per cent
of ts accumuatons, or a tota of 92,100, were nvested n ts home offce
budng and n books, maps, abstracts, etc., necessary for the transacton of
ts busness. orty per cent of ts pad-up capta stock, amountng to 200,000,
was set apart as a guaranty fund, as requred by secton 734 of entucky
Statutes, to secure the fathfu performance of ts nsurance contracts, and
ths amount was nvested as s requred by that secton. The remander of
ts capta stock, amountng to 254,400, and the remander of ts accumua-
tons, amountng to 261,836, or a tota of 516,236, were nvested n or oaned
on the securty of bonds, mortgage en notes or deeds of trust on unencum-
bered rea estate ocated wthn the State of entucky, as authorzed by
secton 733 of entucky Statutes.
rom the begnnng of ts e stence pantff s busness has faen under
two genera heads rea estate tte nsurance and trustee and bond sa
servce, and has been carred on n substantay the foowng way:
S L ST T TITL INSUR NC .
The pantff ssues poces of rea estate tte nsurance, for whch t re-
ceves a f ed and fna premum, based upon the amount of the pocy and pad
at the tme of ts ssua. Soey as a premnary step to the Issua of such
pocy, the pantff e amnes and prepares an abstract of tte to the property
the tte to whch It s proposed to nsure. If the tte to the property s found
to be nsurabe, the cost of e amnaton of the tte s merged In the pocy
premum f found to be unnsurabe, the person seekng the nsurance rem-
burses the pantff for ths servce.
TRUST ND OND S L S R IC .
If a person appes to the pantff for ts trustee and bond sae servce cov-
erng a proposed ssua of frst mortgage rea estate 6 per cent god coupon
bonds, to be secured by mortgage deed of trust to the pantff as trustee, on
appcant s rea property, and ths appcaton s approved, pantff e amnes the
tte to appcant s rea property, apprases the property, prepares and causes
to be e ecuted the bonds, coupons, and deed of trust to the pantff as trustee,
securng the payment of the bonds and coupons, causes same to be put to record,
and certfes the bonds ssued thereunder. s a part of ts undertakng pantff
guarantees the payment of prncpa and nterest of the bonds at maturty, and
aso nsures to the hoders of the bonds the deed of trust tte. These under-
takngs arc ndorsed on the back of each of the bonds. The guaranty of the
payment of prncpa and nterest reads as foows:
The Lousve Tte Co. guarantees payment to the hoder of ths bond and
the coupons attached the amount thereof at ther respectve maturtes In awfu
money of the Unted States of merca provded that the same sha be pre-
sented at ts offce for payment at or wthn 12 days after maturty, and not
otherwse. Upon makng such payment sad company sha become the owner
as by purchase of the bond and coupons so pad.
The guaranty, or more accuratey, the nsurance as to the mortgage tte s
n ths anguage:
The Lousve Tte Co. guarantees to the hoder of the wthn bond that
the mortgage teren referred to s vad, and nsures hm aganst oss by rea-
son of defects of tte to or encumbrance on the premses theren descrbed at
the tme of recordng sad mortgage, e ceptng, however, the defects or encum-
brances created by or wth the prvty of sad hoder, and sad company at ta
own cost w defend the vadty and prorty of en of sad mortgage pro-
vded that sad hoder sha, wthn a reasonabe tme, not e ceedng 10 days
after servce of any process upon hm, notfy sad company thereof, n wrtng,
and sha ca upon sad company and gve to t the e cusve rght to prosecute
or defend, as the case may be, any acton or proceedng wheren the vadty or
prorty of sad mortgage deed of trust, or the e stence of such defects or
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fReg. 64, rt. 29.
encumbrances, may be drawn n queston to the pre|udce of sad bondhoder
provded further, that the refusa or faure of sad bondhoder so to notfy or
to ca upon sad company and to gve t the rght so to prosecute or defend
such acton sha avod the obgaton mposed by ths cause.
Pantff secures from the proper authortes, where necessary, a permt
authorzng these bonds to be sod to the pubc, the ega fees therefor to be
pad by the appcant. The pantff thereupon pays to the appcant par for
the bonds, pus accrued nterest, retanng the bonds as securty, so t s
sad, for the repayment of such advancements, together wth 6 er cent nterest
thereon. The bonds are marketed by the pantff and the pantff retans
not ony the amount advanced to the appcant, wth nterest thereon, but
any premum whch may be reazed from the sae of such bonds. In addton
to any premum so reazed, the pantff receves for ts trustee and bond sae
servce a f ed charge. Durng the year 1922, and pror thereto, however,
the pantff dd not make separate charges for the dfferent tems of servce
gong to make up ts trustee and bond sae servce. ump sum was charged
the customer for the entre servces, and t was so entered upon the books.
In 1922, however, and pror thereto, the pantff was ntentonay ncudng
n ths ump sum a suffcent amount, n ts |udgment, to compensate t for
guaranteeng the payment of the bonds and coupons and for nsurng the
mortgage tte, but durng that perod of tme pantff had not defntey
determned that part of the entre charge whch shoud be aocated, respectvey,
to ts guaranty of payment and to ts nsurance of mortgage tte servce.
Durng the atter part of 1922, or the eary part of 1923, the pantff fnay
setted on 50 cents per 100 as the proper charge for guaranteeng payment
of bonds and coupons at maturty, and on 1.75 per 1,000 for mortgage tte
nsurance.
or the caendar year 1922, as shown by the annua statement of the pantff
fed wth the nsurance department of the Commonweath of entucky, the
pantff s ncome was as foows:
mount of premums receved for nsurance (rea estate tte
nsurance) 81, 873.62
Receved for nterest 42, 928. 57
nes, oad 546. 06
ees for wrtng deeds 8, 542. 56
pprasement fees 720. 00
Premums on rea estate bonds sod and fees for trustee servces 103,104. 48
rom a other sources, msceaneous gan 7, 511. 23
Tota ncome 245,226.52
It w thus be observed that for the caendar year 1922, the amount receved
by the pantff as ncome for ts trustee and bond sae servce, e cusve of
any nterest on money advanced, e ceeded the tota amount of premums
receved for the same perod on rea estate tte nsurance, and was equvaent
to 42 per cent of the entre ncome of the company for that year. In the
absence of any showng to the contrary, t may be assumed that the ncome
summary for 1922 s a typca one.
s heretofore stated, the charges aganst ndvdua customers gong to
make up the tota of 103,104.48, receved for bond saes and trustee servce,
were ump charges. If the books of the company for the year 1922, however,
were reconstructed, and a rate of 1.75 per 1,000 shoud be apped as com-
pensaton for mortgage tte nsurance and a rate of 50 cents per 100 shoud
be apped as compensaton for guaranteeng the payment of mortgage bonds
and coupons at maturty, and f the other tems embraced n the tota of 103,-
104.48 were separatey stated, that tota woud be dvded as foows:
Mortgage tte nsurance 4,877. 85
or guaranteeng payment of bonds and coupons 41,153. 04
Other fees and charges... 33, 834. 56
Ta repad 12, 767.13
Premums on bonds sod 10, 480.47
Tota 103,313.05
Less refund 208. 57
aance 103,104.48
37229 29 26
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Reg. 64, rt. 29.
392
Dd these facts entte the pantff to be cassed as an nsurance company
under sectons 246, 247, and 1000 of the Revenue ct of 1921, and e empt t
from the payment of the capta stock ta mposed by secton 1000
Secton 246 n part provdes:
Sec. 246. (a) That n eu of the ta es mposed by sectons 230 and 1000
there sha be eved, coected and pad for the caendar year 1922, and
for each ta abe year thereafter, u on the net ncome of every nsurance com-
pany (other than a fe or mutua nsurance company), a ta as foows:
#
(b) In the case of an nsurance company sub|ect to the ta mposed by ths
secton-
(1) The term gross ncome means the combned gross amount, earned
durng the ta abe year, from nvestment ncome and from underwrtng n-
come as provded In ths subdvson, computed on the bass of the underwrtng
and nvestment e hbt of the annua statement approved by the Natona Con-
venton of Insurance Commssoners
(2) The term net ncome means the gross ncome as defned n para-
graph (1) of ths subdvson ess the deductons aowed by secton 247
(3) The term nvestment ncome means the gross amount of ncome
earned durng the ta abe year from nterest, dvdends and rents computed as
foows:
To a nterest, dvdends and rents receved durng the ta abe year, add
nterest, dvdends and rents due and accrued at the end of the ta abe year,
and deduct a nterest, dvdends and rents due and accrued at the end of the
precedng ta abe year
(4) The term underwrtng ncome means the premums earned on n-
surance contracts durng the ta abe year, ess osses ncurred and e penses
Secton 1000 n part provdes:
Sec. 1000. (a) That on and after uy 1, 1922, n eu of the ta mposed
by secton 1000 of the Revenue ct of 1918
(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 capta 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
(b) The ta es mposed by 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 States) durng the precedng
year endng une 30, nor to any corporaton enumerated n secton 231, nor to
, any nsurace company sub|ect to the ta mposed by secton 243 or 246.
rom the foregong provsons of the ct t s apparent that the rght of a
corporaton to e empton from ta aton under secton 1000 depends upon
whether or not t s an nsurance company wthn the meanng and sub|ect to
ta aton under the provsons of secton 246. Ths secton does not undertake
to defne the meanng of the term nsurance company as used theren. We
are therefore remtted to the rue that n construng statutes, nothng to the
contrary appearng, words used theren must be construed n ther ordnary
sense and wth the meanng commony attrbuted to them.
So, when Congress used the term nsurance company n secton 246. t
must be presumed that t had n mnd the same concepton of an nsurance
company as s hed by the usua run of peope nformed on the sub|ect, vz. a
cor oraton whose capta and efforts are prmary devoted to the earnng of
ncome through premums charged for the ssua of ts contracts of nsurance,
of whatever nature they may be. When we speak of an nsurance company we
do not have a menta pcture of a company aso conductng a bankng busness,
a mercante busness, or a stock and bond brokerage busness. Of course, t s
a matter of common knowedge and understandng that a nsurance com-
panes derve a very matera ncome from the nvestment of ther capta and
accumuatons n ncome-producng securtes and from rents n those cases
where a part of the capta, as s usuay authorzed, s nvested n an offce
budng. These tems of ncome, however, are ncdenta to the rea busness
of the corporaton and do not represent ncome arsng from a separate and
dstnct busness. The fact that secton 246 provdes for the reportng aud ta ng
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Reg. 64, rt. 29.
of these ncdenta tems of ncome under the head of nvestment ncome
demonstrates, t seems to me, that Congress had the same menta pcture of
an nsurance company and ts busness and sources of ncome as s hed by the
usua run of peope. Congress was undoubtedy undertakng, n secton 24G.
to provde for the ta aton of a of the ncome of nsurance companes sub|ect
to ts provsons. In so dong t provded for the ta aton of ony that ncome
ordnary understood to be en|oyed by nsurance companes, vz, premum
ncome and ncdenta ncome, fowng from the nvestment of ts capta and
surpus. If t had been the ntenton of Congress to gve those companes
whch were conductng not ony an nsurance busness, but aso some separate
and dstnct busness, the beneft of secton 246, undoubtedy provson woud
have been made for reportng and ta ng the ncome derved from such sepa-
rate and dstnct busness. To assume otherwse woud be to mpute to Congress
a deberate ntenton to e empt the ncome of some busnesses from ta aton
atogether, smpy because they were conducted by a corporaton aso engaged
n the nsurance busness.
I thnk, therefore, we must concude that f an nsurance company, n addton
to ts nsurance busness, conducts a separate and dstnct busness, from whch
t obtans a substanta ncome, t s not sub|ect to ta aton under secton 246,
nor e empt from ta aton under secton 1000.
I can not escape the concuson that the trustee and bond sae servce busness
of the pantff, n arge part, s a whoy unreated and dstnct busness from
the nsurance busness conducted hy t. Certany the busness of actng as a
trustee for bondhoders under a mortgage deed of trust, preparng the bonds,
securng permts authorzng ther sae to the pubc, guaranteeng ther payment,
and marketng them, s not commony understood as beng a part of or ncdenta
to the nsurance busness. Of course, a guaranty of the payment of the obga-
ton of another, accordng to the terms thereof, s not an nsurance contract any
more than s the ndorsement of a negotabe nstrument an nsurance contract
The ony feature of nsurance I can dscover n the pantffs trustee and bond
sae servce s the mortgage tte nsurance feature, whch s, of course, a typca
nsurance undertakng. The returns from ths feature of the busness, however,
n 1922, consttuted such a sma fracton of the entre ncome receved by the
pantff from ts trustee and bond sae servce that t can not be aowed to gve
character to that entre ne of busness.
In reachng the concusons heren announced, I am not unmndfu of the
fact that a of the actvtes of the pantff n reaton to ts trustee and bond
sae servce are specfcay authorzed by the entucky statutes deang wth
the organzaton and the busness of rea estate tte nsurance companes, but
the mere fact that the entucky statutes authorze rea estate tte nsurance
companes to engage n the trustee and bond sae servce busness does not make
that busness nsurance busness, or make such companes nsurance companes,
wthn the meanng of secton 246. If such were the aw, there coud be no
unformty of admnsterng sectons 246 and 1000 of the Revenue ct of 1921,
or smar provsons n other Revenue cts of the Unted States, as a corpora-
ton s rght to a partcuar cassfcaton woud thus depend upon the aws of
the State of ts ncorporaton, rather than upon the ct of Congress. I am not
mpressed wth the suggeston that to deny the pantff e empton under secton
1O00 woud resut n denyng to t an e empton accorded to other nsurance
companes. The aw, as heren construed, does not work any sueh dscrmna-
ton. The pantff has ost the beneft of the e empton granted to an nsurance
company by vountary embarkng n a separate and dstnct busness. The
oss of caste fows from the pantffs own vountary act not from the statute.
or the reasons stated, t foows, of course, that I am of the opnon that
pantff s not entted to recover the capta stock ta sought to e recovered
heren.
|udgment, wth a fndng of facts and concusons of aw as heren set out,
may be prepared and presented for entry.
s
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MISC LL N OUS T RULINGS.
S CTION 709. R MISSION OR MITIG TION O OR I-
TUR S. (1928)
TI-31-3834
1 T. D. 4179
Procedure for fng and ad|udcatng pettons for the remsson
or mtgaton of forfetures under secton 709 of the Revenue
ct of 1928.
Treasury Department,
Offce of the Secretary of the Treasury,
Washngton, I). C, uy 12, 192S.
To Commssoner of Interna Revenue, Commssoner of Prohbton,
Prohbton dmnstrators, Coectors of Interna- Revenue, and
Others Concerned:
Secton 709 of the Revenue ct. of 1928, enacted May 29, 1928,
authorzes the admnstratve remsson or mtgaton of forfetures
ncurred under the nterna revenue aws, and adopts, for ths
purpose, the procedure estabshed by Congress for the Customs
Servce by the Tarff ct of 1922. Secton 709 s as foows:
The provsons of aw appcabe to the remsson or mtgaton by the
Secretary of the Treasury of forfetures under the customs aws sha appy
to forfetures ncurred or aeged to have been ncurred, before or after the
enactment of ths ct, under the nterna-revenue aws.
The appcabe provsons of the Tarff ct of 1922 are as foows:
Sec. 613. Dsposton of proceeds. ny person camng any vesse, vehce,
merchandse, or baggage, or any nterest theren, whch has been forfeted
and sod under the provsons of ths ct, may at any tme wthn three months
after the date of sae appy to the Secretary of the Treasury f the forfeture
and sae was under the customs aws, for a remsson of the for-
feture and restoraton of the proceeds of such sae, or such part thereof as
may he camed by hm. Upon the producton of satsfactory proof that the
appcant drt not know of the sezure pror to the decaraton or condemnaton
of forfeture, and was n such crcumstances as prevented hm from knowng
of the same, and that such forfeture was ncurred wthout any wfu neg-
gence or ntenton to defraud on the part of the appcant, the Secretary of the
Treasury may order the proceeds of the sae, or any part, thereof,
restored to the appcant, after deductng the cost of sezure and of sae, the
dutes, f any, accrung on the merchandse or baggage, and any sum due on a
en for freght, charges, or contrbuton n genera average that may have been
fed. If no appcaton for such remsson or restoraton s made wthn three
months after such sae, or f the appcaton be dened by the Secretary of
the Treasury , the proceeds of sae sha be dsposed of as foows:
(1) or the payment of a proper e penses of the proceedngs of forfeture
and sae, ncudng e penses of sezure, mantanng the custody of the property,
advertsng and sae, and f condemned by a decree of a dstrct court and a
bond for such costs was not gven, the costs as ta ed by the court
(2) or the satsfacton of ens for freght, charges, and contrbutons n
genera average, notce of whch has been fed wth the coector accordng
to aw
Ths decson s nso pubshed under Prohbton Treasury Decson 35.
(394)
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395
709.
(3) or the payment of the dutes accrung on such merchandse or baggage,
f the same s sub|ect to duty and
(4) The resdue sha be deposted wth the Treasurer of the Unted States
as a customs fne.
Sec. 618. Remsson or mtgaton of penates. Whenever any person n-
terested n any vesse, vehce, merchandse, or baggage sezed under the pro-
vsons of ths ct, or who has ncurred, or s aeged to have ncurred, any
fne or penaty thereunder, fes wth the Secretary of the Treasury f under
the customs aws, before the sae of such vesse, vehce, merchan-
dse, or baggage a petton for the remsson or mtgaton of such fne, penaty,
or forfeture, the Secretary of the Treasury, f he fnds that such fne,
penaty, or forfeture was ncurred wthout wfu neggence or wthout any
ntenton on the part of the pettoner to defraud the revenue or to voate the
aw, or fnds the e stence of such mtgatng crcumstances as to |ustfy the
remsson or mtgaton of such fne, penaty, or forfeture, may remt or
mtgate the same upon such terms and condtons as he deems reasonabe and
|ust, or order dscontnuance of any prosecuton reatng thereto. In order to
enabe hm to ascertan the facts, the Secretary of the Treasury may ssue a
commsson to any speca agent, coector, member of the oard of Unted
States Genera pprasers, or Unted States commssoner, to take testmony
upon such petton: .
The purpose to be served by the provsons of secton 709 s, ob-
vousy, that of protectng the nterests of nnocent persons whose
property, or any nterest theren, s |eopardzed by a sezure and
proposed forfeture under the nterna revenue aws. It appes to
a nterna revenue statutes whch provde for such forfetures, but
partcuary to secton 3450 of the Revsed Statutes.
The authorty so granted s not, however, n a regards coe tensve
wth the power conferred upon the Secretary of the Treasury by
sectons 613 and 618 of the Tarff ct. The requrements of sub-
dvsons (1), (2), (3), and (4) of secton 613 reate to the dspos-
ton of the proceeds of the sae of forfeted property and not to an
appcaton for the remsson or mtgaton of the forfeture. Pro-
ceeds of the sae of forfeted property shoud, therefore, be covered
nto the Treasury as provded by secton 3210(a) of the Revsed
Statutes as amended by secton 1128(b) of the Revenue ct of 1926
(44 Stats., 124). so by secton 618 of the Tarff ct fnes and
penates may be remtted or mtgated, whe secton 709 of the
Revenue ct of 1928 appes ony to forfetures. Otherwse, the
provsons of sectons 613 and 618 are nvoked for nterna revenue
voatons, ncudng the authorty (sec. 618) to order the dscon-
tnuance of any prosecuton reatng thereto, and to provde for
the takng of testmony by the ssuance of a commsson as theren
provded.
The foowng procedure s adopted for the fng and ad|udcaton
of pettons under secton 709:
Treasury Decson No. 1 Prohbton C. . I-1, 350 ( rtce
I , subdvson (e), and rtce III) confers upon the Comms-
soner of Prohbton the authorty to seze and dspose of property
forfeted under the nterna revenue aws, where the facts aso ds-
cose a voaton of any aw reatng to the eghteenth amendment
and upon the Commssoner of Interna Revenue n a cases n whch
a voaton of the nterna revenue aws aone s commtted.
The petton for remsson or mtgaton of any such forfeture
shoud accordngy be fed, as the case may be, ether wth the proh-
bton admnstrator or the coector of nterna revenue of the ds-
trct n whch the property s detaned or has been sod. It shoud
be addressed to the Secretary of the Treasury and e ecuted, under
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709.
396
oath, by the person, frm, or corporaton presentng the cam. It
shoud state n cear and concse terms the nterest of the pettoner
n the property to be forfeted, or whch has been forfeted and sod,
ant the facts reed upon to show that the forfeture was ncurred
wthout wfu neggence or wthout any ntenton upon the part
of the pettoner to def raud the revenue or to voate the aw, or such
other mtgatng crcumstances as, n the opnon of the pettoner,
woud |ustfy the remsson or mtgaton of the forfeture. In the
event the petton s fed for the restoraton of the proceeds of sae,
t shoud aso contan, or be supported by, satsfactory proof that the
pettoner dd not know of the sezure pror to the decaraton or
condemnaton of forfeture, and was n such crcumstances as pre-
vented hm from knowng of the same. Where the pettoner s
not the one who n person commtted the act whch caused the sezure,
the petton shoud state how the property came nto the possesson
of such other person, and the nvestgaton, f any, of such person
made pror to partng wth the property. It shoud gve such a de-
scrpton of the property and the facts of the sezures as w enabe
the oca offcers ready to dentfy the property. If a forfeture
proceedng s pendng n court, or has resuted n a sae of the prop-
erty pursuant to court order, the pettoner shoud state the stye
of the case, the court n whch pendng, or n whch the property
was sod, the docket number, and the fact that the property has
not as yet been sod, or, f sod, the date and pace of sae. If an
e ecutve proceedng for summary forfeture s pendng, the petton
shoud state such fact and f the property has been sod, the date
and pace of sae. The pettoner shoud further undertake n sad
petton to pay a the costs and e penses ncurred n sezng and stor-
ng the property, as we as the court costs borne or to be borne by
the Unted States, the ta es, f any, payabe by the pettoner, or
mposed n respect of the property to whch the petton reates, and
any sum due on a en for freght, charges, or contrbutons n genera
average that may have been fed, and, f the property has been sod,
or s n the course of beng sod, the e penses so ncurred. The pet-
ton shoud aso be accompaned by copes, certfed by the pettoner
under oath as correct, of contracts, bs of sae, chatte mortgages,
reports of nvestgators, affdavts, cams for freght, charges, or
contrbutons n genera average, and any other papers or documents
that woud tend to support the cams made n the petton.
Upon recept of the petton the admnstrator or coector of
nterna revenue, as the case may be, f a proceedng s pendng n
court, w mmedatey notfy the Unted States attorney and the
Unted States marsha, and request that the case be hed n abeyance
to awat fna acton on the petton. If an e ecutve proceedng
for summary forfeture s pendng, he w mmedatey postpone
the proceedngs to awat acton on the petton. e w then cause
such nvestgaton to be made of the cam of the pettoner as the
facts of the case may warrant. copy of the report of the nvest-
gaton, f any, and of the orgna report of the voaton shoud then
be attached to the petton and forwarded to the Commssoner of
Prohbton or the Commssoner of Interna Revenue, as the case
may be, wth recommendaton as to the fna acton to be taken
thereon. If a proceedng for forfeture s pendng n court, the
recommendaton of the Unted States attorney must aso be for-
warded wth the petton.
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397
Reg. 71, rt. 29.
The petton when so forwarded shoud aso be accompaned by
a statement of the e penses and costs ncurred, and the ta es, f
any, payabe by the pettoner or mposed n respect of the property
to whch the petton reates.
The Commssoner of Prohbton or the Commssoner of Interna
Revenue, as the case may be, sha thereupon submt for the approva
of the Secretary of the Treasury a recommendaton as to the fna
acton to be taken on the petton. Such recommendaton sha be
accompaned by a memorandum of the facts, approved by the chef
aw offcer of the servce n whch the petton s pendng.
na acton upon any petton fed pursuant to these reguatons
sha be (1) the dena by the Secretary of the Treasury of the
cam, or (2) the remsson by hm of the forfeture and restoraton
of the property or the proceeds, after the payment or deducton of
the costs, ta es, freght charges, etc., or (3) mtgaton by hm
through the remsson n part of the forfeture or of the proceeds
of sae. If mtgaton by remsson n part of the forfeture can not
be accompshed wthout a sae, the Secretary of the Treasury w,
f a forfeture proceedng s pendng n court, wthhod further
acton unt after the sae of the property, or, f a proceedng s not
pendng, w, at the e pense of the pettoner, cause a proceedng
to be nsttuted and the property to be sod, and pay to the pettoner
hs proportonate share of the proceeds. In such case the petton
fed before the sae, and pendng thereafter, sha be consdered as
havng been fed wthn three months after the date of sae.
Shoud there be pendng, at the tme of the remsson or mtga-
ton of any forfeture, a proceedng n court n whch the estabsh-
ment of the forfeture s sought, and the sae of the property s not
requred to accompsh such remsson or mtgaton, the Secretary
of the Treasury w request the ttorney Genera to notfy the
Unted States attorney to dsmss the same.
Ogden L. Ms,
ctng Secretary of the Treasury.
TITL I -ST MP T S. (1926)
C RTI IC T S O STOC , PRO ITS, OR O INT R ST.
Reguatons 71, rtce 29: Issues not sub|ect II-29-3813
to ta . T.D.4176
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Ot ers Concerned:
Pursuant to the provsons of the Revenue ct of 1928 (see sec-
tons 441, 442, and 443), Reguatons 71 are amended as foows:
(1) rtce 29 s amended (to take effect on May 29, 1928) by
addng thereto the foowng new subdvson:
(|) The ssue of stocks and bonds and other certfcates of ndebtedness by a
farmers or frut growers or ke assocaton organzed and operated on a
cooperatve bass, but ony f such assocaton s wthn the cass of organza-
tons e empt from ta aton under secton 231(12) of the Revenue ct of 1926.
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Reg. 71, rt. 82.
398
P SS G TIC TS.
Reguatons 71, rtce 58: Passage tckets II-29-3814
to ports not n the Unted States, Canada, or T.D.4176
Me co.
To Coectors of Interna Revenue and, Others Concerned:
Pursuant to the provsons of the Revenue ct of 1928 (.see sectons
441, 442, and 443), Reguatons 71 are amended as foows:
(2) rtce 58 s amended (to take effect on une 29, 1928) to read
as foows:
rt. 58. Passage tckets to ports not n the Unted Sates, Canada, Me co,
or Cuba. (a) Passage tckets from any foregn port or domestc port sod or
ssued n the Unted States costng more than 10, whose port of destnaton s
not wthn the Unted States, Canada, Me co, or Cuba, are sub|ect to ta .
(b) Passage tckets sod or ssued n the Unted States to a port n Newfound-
and are sub|ect to ta .
Reguatons 71, rtce 60: Passage tckets II-29-3815
to ports n the Unted States, Canada, or T.D.4176
Me co.
To Coectors of Interna Revenue and Others Concerned:
Pursuant to the provsons of the Revenue ct of 1928 (see sectons
441, 442, and 443), Reguatons 71 are amended as foows:
(3) rtce 60 of Reguatons 71 s amended (to tako effect on
une 29, 1928) to read as foows:
rt. 60. Passage tckets to ports n the Unted States, Canada, Me co, or
Cuba. Passage tckets sod or ssued n the Unted States whose ports of des-
tnaton are n the Unted States, Canada, Me co, or Cuba|are not sub|ect to
ta uness sod or ssued n the Unted States as a r nd trp or through tcket
for a port not wthn the Unted States, Canada, Me co, or Cuba.
PURC S O ST MPS.
Reguatons 71, rtce 82: Stamps, where pur- II-29-3816
chased. T. D. 4176
To Coectors o| Interna Revenue and Others Concerned:
Pursuant to the provsons of the Revenue ct of 1928 (see sec-
tons 441, 442, and 443), Reguatons 71 are amended as foows:
(4) rtce 82 of Reguatons 71 s amended to read as foows:
rt. 82. Stamps, where purchased. The stamps may be purchased from co-
ectors and stamp deputy coectors of nterna revenue and from postmasters
n ctes n the Unted States of over 25,000 nhabtants. The Commssoner
sha furnsh to the Postmaster Genera wthout prepayment a sutabe quantty
of adhesve stamps to be dstrbuted to and kept on sae by the varous post-
masters n the Unted States n ctes of over 25,000 nhabtants. The Post-
master Genera may requre each such postmaster to gve addtona or ncreased
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399
611 and 612.
bond as postmaster for the vaue of the stamps so furnshed, and each such
postmaster sha depost the recepts from the sae of such stamps to the credt
of and render accounts to the Postmaster Genera at such tmes and n such
form as he may by reguatons prescrbe. The Postmaster Genera sha at
east once monthy transfer a coectons from ths source to the Treasury as
nterna-revenue coectons.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved uy 7, 1928.
. W. Meon,
Secretary o| the Treasury.
TITL I. T ON R G S. (1918)
Secton 611: Ta on st wnes. TI-27-3792
Secton 612: Ta on grape brandy used n 1 T. D. 4169
fortfyng.
Revenue ct of 1928. Changes n ta on st wnes, deaco-
hozed wnes, and grape brandy used for fortfcaton.
Treasury Department,
Offce of Commssoner of Prohbton,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Prohbton dmnstrators, Coectors o| Interna Revenue, and
Others Concerned:
The Revenue ct of 1928, approved May 29, 1928, provdes as fo-
ows n respect to ta on st wnes, deacohozed wnes contanng
ess than one-haf of 1 per centum of acoho by voume, and grape
brandy used n fortfyng wnes.
Secton 451. Ta on St Wnes.
(a) So much of secton 611 of the Revenue ct of 1918 as reads as foows:
On wnes contanng not more than 14 per centum of absoute acoho, 16
cents per wne gaon, the per centum of acoho ta abe under ths secton to be
reckoned by voume and not by weght
On wnes contanng more than 14 per centum and not e ceedng 21 per
centum of absoute acoho, 40 cents per wne gaon
On wnes contanng more than 21 per centum and not e ceedng 24 per
centum of absoute acoho, 1 per wne gaon
s amended to read as foows:
On wnes contanng not more than 14 per centum of absoute acoho, 4
cents per wne gaon, the per centum of acoho ta abe under ths secton to
be reckoned by voume and not by weght:
On wnes contanng more than 14 per centum and not e ceedng 21 per
centum of absoute acoho, 10 cents per wne gaon
On wnes contanng more than 21 per centum and not e ceedng 24 per
centum of absoute acoho, 25 cents per wne gaon
(b) Such secton s further amended by addng at the end thereof two new
paragraphs to read as foows:
ny such wnes may, under such reguatons as the Secretary may prescrbe,
be sod or removed ta free for the manufacture of vnegar, or for the produc-
ton of deacohozed wnes contanng ess than one-haf of 1 per centum of
acoho by voume.
Ths decson s aso pubshed under Prohbton Treasury Decson 33,
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611 and 612.
400
The ta es mposed by ths secton sha not appy to deacohozed wnes
contanng ess than one-haf of 1 per centum of acoho by voume.
(c) Subsectons (a) and (b) of ths secton sha take effect on the e praton
of 30 days after the enactment of ths ct.
Sec. 452. Ta on Grape randt Used n ortfyng.
(a) Secton 6T2 of the Revenue ct of 1918 (mposng ta on grape brandy
or wne sprts used for the fortfcaton of wnes) s amended by strkng out
60 cents per proof gaon and nsertng n eu thereof 10 cento per proof
gaon and by addng at the end of the frst provso a coon and the foowng:
Provded further, That when such wnes are sod or removed for the manu-
facture of vnegar, or the producton of deacohozed wnes contanng ess
than one-haf of 1 per centum of acoho by voume, the ta on 6uch gra e
brandy or wne sprts under ths secton, sha, under such reguatons as the
Secretary may prescrbe, be abated or refunded.
(b) Subsecton (a) of ths secton sha take effect on the e praton of 30
days after the enactment of ths ct.
These provsons of aw become effectve on une 29, 1928.
St wnes removed from bonded premses for ta abe purposes on
and after une 29, 1928, w be ta pad at the foowng rates:
4 cents per wne gaon when contanng not over 14 per centum
of absoute acoho by voume.
10 cents per wne gaon when contanng more than 14 per centum
and not e ceedng 21 per centum of absoute acoho by voume.
25 cents per wn gaon when contanng more than 21 per centum
and not e ceedng 24 per centum of absoute acoho by voume.
St wnes removed from bonded premses on and after une 29,
1928, for the manufacture of vnegar may be removed ta free. Such
wnes may bo removed ony pursuant to permt to purchase for shp-
ment to the hoder of a basc permt to manufacture vnegar. efore
remova from the bonded premses the wnes must be converted nto
vnegar stock by the addton of gaca acetc acd, acetc acd or
wne vnegar n the manner provded by secton 711(b) of Regua-
tons 2, the provsons of whch secton, e cept as to payment of ta ,
are hereby e tended to cover the remova of wne ta free for use
n the manufacture of vnegar.
St wnes removed from bonded premses on and after une 29,
1928, for the manufacture of deacohozed wnes contanng ess than
one-haf of 1 per centum of acoho by voume may be removed ta
free. Such wnes may be removed ony pursuant to permt to pur-
chase for shpment to the hoder of a basc permt to manufacture
deacohozed wnes. The provsons of secton 707 (subparagraph
4, ast provso) and secton 1009 of Reguatons 2, requrng payment
of ta when wnes are sod or removed for use n the manufacture of
beverages, are hereby amended accordngy.
Deacohozed wnes contanng ess than one-haf of 1 per centum
of acoho by voume removed from frut dsteres and deacohoz-
ng pants on and after une 29, 1928, may be removed ta free.
Producers of such deacohozed wnes w contnue to render
monthy reports thereof on orm 1493 or orm 1413.
Grape brandy or wne sprts used n the fortfcaton of wnes
under secton 612 of the Revenuo ct of 1918 on and after une 29,
1928, w be ta abe at the rate of 10 cents per proof gaon.
Where wnes fortfed under the provsons of secton 612 of the
Revenue ct of 1918 are sod or removed on or after une 29,
1928, for the manufacture of vnegar or the producton of deaco-
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401
Reg. 8(1928), rt. 74.
hozed wnes contanng ess than one-haf of 1 per centum of aco-
ho by voume, the ta on the grape brandy or wne sprts used
to fortfy the wnes w be abated or refunded upon the fng of
proper cam by the producer of the wnes, supported by evdence
ceary estabshng the quantty, n proof gaons, of grape brandy
or wne sprts added n fortfcaton to the wne so removed.
ecause of the varaton n acohoc content of wnes both before
and after fortfcaton and n the quantty of brandy added to wnes
n fortfcaton, and because of the m ng of dfferent wnes by
bendng, the wnery records pertanng to the fortfcaton, storage,
and remova of wnes for the manufacture of vnegar or deaco-
hozed wnes must ceary show the acohoc content of the wnes
both before and after fortfcaton, and the quantty n proof gaon s
of brandy added to the wnes n fortfcaton. Ths nformaton
must be noted on orms 275 and orms 702 as to a wnes fortfed
and removed for the manufacture of vnegar or deacohozed wnes.
Such wnes must be stored n separate tanks, packages, or other
contaners, kept competey separated from other wnes, and a abe
contanng ths nformaton must be attached to the contaners of
the wne. Where abatement or refund s camed on wnes hereto-
fore fortfed and whch can not be so dentfed, other evdence
satsfactory estabshng the brandy content of the wne may be
submtted n support of the cam.
Where fortfed wnes are removed for the manufacture of vnegar,
the offcer supervsng converson of the wne nto vnegar stock w
test the wne and report the acohoc content thereof.
O. D. ackson,
ctng Commssoner of Prohbton.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved une 21, 1928.
Ogden L. Ms,
ctng Secretary of the Treasury.
TO CCO.
Reguatons 8(1928), rtce 74: Szes of pack- II-33-3858
ages of cgars and cgarettes. T. D. 4190
N W P C G OR CIG RS.
n addtona package of 20 arge cgars provded by secton
425(a) of the Revenue ct of 1928. Reguatons No. 8 amended
accordngy.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Pursuant to the provsons of secton 425 of the Revenue ct of
1928, amendng secton 3392 R. S., as amended, to ncude an add-
tona package contanng 20 cgars, Reguatons No. 8, revsed pr,
1928, s amended, effectve une 29, 1928, as foows:
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eg. 8, rt. 86.
402
The frst sentence of artce 74 s amended to read as foows:
cgars weghng more than 3 pounds per 1,000 sha be packed by the
manufacturer n bo es not before used for that purpose contanng 3, 5, 7, 10,
12, 13, 20, 25, 50, 100, 200, 250, or 500 cgars each, no more and no ess.
Reguatons 8(1928), rtce 79: Stamps pro- II-33-3859
vded denomnaton and cass. T. D. 4190
To Coectors of Interna Revenue and Others Concerned:
Paragraph (a) of artce 79 s amended to read as foows:
(a) Stamps of Cass , Cass , Cass C. Cass D, and Cass for the
dfferent rates of ta mposed on cgars weghng more than 3 pounds per
thousand n the denomnatons of 3, 5, 7, 10, 12, 13, 20, 25, 50, 100, 200, 250,
and 500.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved ugust 4, 1928.
enry errck ond,
ctng Secretary of the Treasury.
Reguatons 8, rtce 86: Cassfcaton II-49-4026
abes. T. D. 4250
CIGaRS cassfcaton abes.
The cassfcaton abe may be reduced n sze or aff ed ese-
where than on the front of certan bo es or contaners other than
wooden. Reguatons No. 8, artce 80, amended accordngy.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 86 of Reguatons No 8, approved pr 24, 1928, s
amended by strkng out the second paragraph and by changng the
second and part of the thrd sentence of paragraph to read:
Such abe sha be not oss than y2 nches ong nor ess than three-fourths
of an nch wde and sha be aff ed to, or prnted drecty on, the front of the
bo or contaner. In the ease of bo es or contaners other than wooden (see
artce 77), the sze or stye of whch w not permt compance wth the
above provsons, the abe may be proportonatey reduced n sze, or ese-
where aff ed to, or prnted drecty on, the bo or contaner. The abe must be
egbe n a cases and bear the approprate one of the foowng statements:
. . Mres,
ctng Commssoner of Interna Revenue.
pproved November 24, 1928.
. W. Meon,
Secretary of the Treasury.
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403
Reg. 8(1922), 41.
M NU CTUR R O CIG R TT S.
Reguatons 8(1922), Secton 41: Computaton II-34-3869
of ta . T. D. 4194
TO CCO M NU CTUR RS T R NU CT O 1918 D CISION O COURT.
Occupatona Ta Manufacturer of Cgarettes Saes for -
port adty of Ta .
The ta mposed by secton 1002 of the Revenue ct. of 1918 s an
e cse upon the manufacturer measured by the number of cgarettes
manufactured and sod, ncudng those manufactured for e port
and actuay e ported. Such ta s consttutona and not n voa-
ton of secton 3385 of the Revsed Statutes, under whch cgarettes
may be e ported wthout payment of ta .
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, Second Crcut, n the case of S. nargyros, as pantff n
error, v. Wam- . dwards, Coector of Interna Revenue, de-
fendant m error, s pubshed for the nformaton of nterna revenue
offcers and others concerned.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved ugust 9, 1928.
enry errck ond,
ctng Secretary of the Treasury.
Unted States Crcut Court of ppeas for the Second Crcut.
8. narffyros, pantff n error, v. Wam . dwards, Coector of Interna
Revenue for the Second Dstrct of New York, defendant n error.
May 17, 1928.
OPINION.
Manton, Crcut udge: The compant, seekng to recover for a ta pad by
the pantff n error, a manufacturer of cgarettes, for the prvege of engagng
n that occupaton, was dsmssed beow on moton, where t was hed not to
state a cause of acton. or the year endng une 30, 1921, n accordance wth
the provsons of Tte , secton 1002, of the Revenue ct of 1918, the ta In
queston was mposed on manufacturers of cgarettes. It was measured by the
number of cgarettes sod by t n the precedng year endng une 30, 1920. u
computng ths ta , the Commssoner ncuded n the number of cgarettes sod
by the pantff n error, cgarettes whch t sod for e port. The cam s that
such mposton of ta s contrary to secton 3385 of the Revsed Statutes, whch
provdes that tobacco products may be e ported wthout payment of a ta .
eow, t was hed that the ta n queston was an e cse ta upon a specfc
occupaton, measured by the amount of saes n the precedng year, and that
the statute e emptng tobacco e ported reated ony to the ta mposed upon
the saes-of cgarettes by other ta ng statutes. Secton 1002 reads:
Sec. 1002. That on and after anuary 1, 1919, there sha be eved, coected
and pad annuay, n eu of the ta es mposed by secton 408 of the Revenue
ct of 1916, the foowng speca ta es, the amount of such ta es to be com-
puted on the bass of the saes for the precedng year endng une 30
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Reg. 8(1922), 41.
404
Manufacturers of cgarettes, ncudng sma cgars weghng not more than
3 pounds per thousand sha each pay at the rate of 6 cents for every 10,000
cgarettes, or fracton thereof.
In arrvng at the amount of speca ta to be pad under ths seetkm, and n
the evy md coecton of such ta , each person engaged n the manufacture of
more than one of the casses of artces specfed n ths secton sha be con-
sdered and deemed a manufacturer of each cass separatey.
R. S. secton . 5385, amendng 24 Stat.. 218, provdes that manufactured
tobacco, snuff, and cgars may be removed for e port to a foregn country
wthout payment of ta , under such reguatons, and the makng of such
entres, and the fng of such bonds and bs of adng as the Commssoner
of Interna Revenue, wth the approva of the Secretary of the Treasuy, sha
prescrbe.
The argument for reversa of the |udgment beow rests u m the cam that
because certan tobacco products may be e ported to a foregn country wthout
payment of the ta under condtons specfed n secton 3385 of the Revsed
Statutes, a dfferent ta may not be mposed under secton 1002. Irrespectve
of the destnaton of cgars and tobaccos or the amount of saes n the ta
year, a ta s mposed upon a manufacturer measured by the amount of saes
n the prevous year. The two ta es are dfferent, n ther nature. captn
stock ta s mposed on corporatons under Tte , secton 1000, and by secton
1002 a speca ta s mposed upon persons engaged n occupatons as there
enumerated. y secton 1005 ta es are mposed upon persons or groups of
persons for the prvege of conductng a partcuar busness, as we as penates
for nonpayment of sad ta es. Ths method of ta aton s awfu. nt v.
Stone Tracy Co.. 220 . S., 107.) Secton 1002 mposed a ta upon the sae
of cgarettes as opposed to a ta upon the manufacture, and the ta mposed
by secton 700(a) of the Interna Revenue ct s an ordnary nterna revenue
ta . Cgarettes manufactured by the pantff n error used for domestc con-
sumpton pay the ta provded by secton 700(a), and secton 3385 e empts
from the ordnary Interna revenue ta the saes of tobacco cgarettes whch
are sod for e ort. The two statutes are not n confct. One mposes a ta
upon the manufacturer of cgarettes for engagement n that busness the
second e empts the manufacturer from payment of addtona ta f the
goods are destned for e port. The ta s based upon the saes of the prevous
year, rrespectve of whether those saes were for domestc consumpton or
for e port. If they be for e port, he does not pay the ta mposed by secton
700(a). If a mstake be made, and a manufacturer pays a saes ta upon
cgarettes e ported, he may recover t back. (Sec. 1310(c) of the ct of 101,8.)
In the nt case, supra, an e cse upon the prvege of dong busness n
the partcuar form was mposed, whe here t s an e cse upon the prvege
of dong busness of a partcuar knd. There t was sad:
In evyng e cse ta es the most ampe authorty has been recognzed from
the begnnng to seect some and omt other possbe sub|ects of ta aton, to
seect one cang and omt another .
In Corne v. Coyne (192 T . S., 418) a ta was mposed upon fed cheese
and was hed not to be a ta upon e ports wthn the meanng of the con-
sttutona prohbton merey because some of the fed cheese eventuay was
e ported
In Spreckes Sugar Refnng Co. v. cGan (192 U. S., 397) the ct provded
that
very person, frm, corporaton or company carryng on or dong the
busness of refnng petroeum, or refnng sugar sha be sub|ect to
pay annuay a speca e cse ta , equvaent to one quarter of 1 per centum
on the gross amount of a recepts.
In sustanng the vadty of the ta the court hed that It was not mposed
upon the gross annua recepts as property but ony n respect of the carryng
on or dong the busness of retnng sugar. The ta ncuded persons as we as
corporatons. Pantff h error s argument drawng a dstncton between
attempted e cse on the knd of, as dstnct from the form of busness, s wth-
out force. The nt case dd not. decde that the ta n queston was an e cse
ta , because t ta ed the prTege of dong that knd of busness, but that t
was a ta on toe prvege of dong a certan knd of busness and was an e cse
ta . The ta here s not a ta uh u the goods whch may hereafter become
the sub|ect of e portaton, t s the ta upon the prvege of manufacturng
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405
Reg. 73, rt. 4(a).
cgarettes, and ts measurement merey s by the manufactured cgarettes n
whch are ncuded those whch are sub|ect to e port. ta mposed under
secton 700(a) may he supported as a ta on the sae of goods. Secton 700(a)
reads that upon cgars and cgarettes manufactured n or mported nto the
Unted States and hereafter sod, the foowng ta es are to be pad.
Ths contempates a sae and the ta s on the manufacture and sae or the
mportaton and sae. Whe t may be true that there can be no ta wthout
manufacture or mportaton, t s equay true there can be rone wthout a sae.
In . 8. Gue Co. v. Town of Oato reek (247 U. S., 321) there was nvoved an
ncome ta of Wsconsn passed pursuant to the State consttuton. It ta ed
the net ncome, ncudng the ncome from goods sod to customers outsde of
the State and devered from ts factory to such customers, the saes havng
been made and the goods shpped from pantff s branches n other States. The
court sustaned the vadty of the act, hodng that t dd not pace a burden
upon nterstate commerce. It nvoved a State and not a edera statute and
concerned ony the nterstate commerce cause of the edera Consttuton.
In rown v. Maryand (12 Wheat., 419) the State statute provded that a
mporters of foregn goods sha take out a cense for whch they sha pay 50.
The court hed the act unconsttutona because t confcted wth the consttu-
tona provson that no State sha, wthout the consent of Congress, ay any
mposts or dutes on mports or e ports e cept what may be absoutey necessary
for e ecutng ts nspecton aws and because t aso confcted wth the power
of the edera Government to reguate nterstate commerce. In Western Unon
Te. Co. v. Te as (105 U. S., 460), the State statute mposed a ta on messages
sent and the court decared the act nvad on the ground that where the burden
of the ta aton fas upon the thng whch s sub|ect to ta aton, the ta s to be
consdered as ad on the tng rather than on the person who s charged wth
the duty of payng t nto the treasury, and on ths ground concuded that t
mposed a burden upon nterstate commerce. ere agan the State statute was
nvoved and the queston was whether t voated the nterstate commerce
cause. These cases presented entrey dfferent probems than the ta n the
nstant case.
e thnk the ta In queston was propery ad and propery coected.
udgment affrmed.
Reguatons 73, rtce 4(a): Tobacco, snuff, TI-49-4025
cgars, and cgarettes. T. D. 4249
S LING PORT TO CCO P C G S.
ny abe used to sea a package for e port must be ready
dstngushabe from an nterna revenue stamp. Reguatons 73
amended accordngy.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To CoUectora of Interna Revenue and Others Concerned:
The ast sentence of subdvson (a) of artce 4, Chapter I, of
Reguatons 73, approved une 14, 1928 (reatng to e portaton
wthout payment of ta of tobacco manufactures, etc.), s amended
to read as foows:
ny abe used to sea a package for e port mast be ready dstngushabe
from an nterna revenue stamp.
. . Mres,
ctng Commssoner of Interna Revenue.
pproved November 24, 1928,
. W. Meon,
Secretary of the Treasury.
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Reg. 73, rt. 22.
406
DR W C O T ON TO CCO, SNU , CIG RS, ND CIG -
R TT S PORT D.
Reguatons 73, rtce 20: Stencng the II 11-3942
shppng cases. T. D. 4225
TO CCO PORT P C G S.
Packages of tobacco products e ported wth beneft of drawback
need not be corded and seaed. Reguatons No. 73 amended
accordngy.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton I). C.
To Coectors of Interna Revenue and Others Concerned:
rtces 20 of Chapter III of Reguatons 73, approved
une 14, 1928 (reatng to drawback on tobacco manufactures), are
amended by emnatng therefrom the foowng words:
In the ast sentence of artce 20, cord and sea each case and.
Reguatons 73, rtce 21: Schedue of stamps II-41-3943
n entry. T. D. 4225
To Coectors of Interna Revenue and Others Concerned:
rtces 21, of Chapter III of Reguatons
73, approved une 14, 1928 (reatng to drawback on tobaccfc manu-
factures), are amended by emnatng therefrom the foowng
words:
In the second sentence of artce 21, the number of sea used, .
Reguatons 73, rtce 22: Deputy s report. II -3944
T. D. 4225
To Coectors of Interna Revenue and Others Concerned:
rtces 22 of Chapter III of Reguatons 73, approved
une 14, 1928 (reatng to drawback on tobacco manufactures), are
amended by emnatng therefrom the foowng words:
In the second sentence of artce 22, n the seaed cases.
D. . ar,
Commssoner of Interna Revenue.
pproved October 4, 1928.
. W. Meon,
Secretary of the Treasury.
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MISC LL N OUS RULINGS.
OL OM RG RIN .
II-28-3799
MS. 80
Schedue of oeomargarne produced and materas used durng the month of
May, 192S, as compared wth May, 19 7.
May, 1028.
Tota producton of uncoored oeomargarne..
Ingredent schedue for uncoored oeomargarne:
utter
Cocoanut o -
Corn o..
Cottonseed o
dbe taow
Mk...
Mustard o... .--
Neutra ard
Oeo o
Oeo stearne
Oeo stock
Pam o
Pam-kerne o
Peanut o-.
Sat.
Sesame
oda
ana e tract.
Tota
Tota producton of coored oeomargarne
Ingredent schedue for coored oeomargarne:
utter
Cocoanut o
Coor
Cottonseed o
dbe taow
Mk
Mustard o
Neutra ard
Oeo o -
Oeo stearne
Oeo stock.
Pam o
Peanut o.
Sat
Soda
Tota-
Pounds.
22.441,087
321,229
11,155.044
1,918. 3(10
6,881. 589
4, 040
1,878, 322
3, 229. 023
436,923
131, 592
68,805
1,298
372, 257
1,887,414
3,975
7,844
19
28, 306, 491
1, 303.383
115
457, 886
1,659
216,415
573,047
219, 242
441.248
16, 75S
10,265
21,803
23, 259
130, 960
168
2, 142, 822
37229 29 27
(407)
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408
II-32-3846
MS. 81
Schedue of oeomargarne produced and materas used durng the month of
une, 1028, as compared wth une, 1927.
une, 1928.
une, 1927.
Ingredent schedue for uncoored oeomargarne:
Pounds.
22,499,418
Pounds.
19,451.096
186,770
11,345,862
174,016
7,7W,073
Corn o .
m
dbe taow
1,899,977
6,297
6,466.680
3,520
1,833.108
3,162, 067
429.081
119.229
59,431
3.993
360,306
1,887,907
1,812,857
8.6
5,276,943
5,235
1,S00, 7
4,018,7
397.981
146.177
40,789
Mk
Oeoo
Oeo stock
255.781
1,635. 143
2.250
6,067
22
Sat- -
7,566
18
Tota
27,771.512
23.376.532
Ingredent schedue for coored oeomargarne:
1.238.414 1 1.193.6 :
uter
224
445,283
1.428
205,967
567.665
240,280
427,128
16,452
11,088
22,400
19,695
124.200
223
1.550
350. I
1,670
. nr|
412,142
1 7,213
338,250
11.685
26,287
13,040
10.58f
95,843
101
Coor
Mk .
Oeo o
Oeo stock ._,
Pam o . _.
at..
Soda -
Tota
2,082,243
1.623,003
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Msc.
II-37-3895
MS. 82
Schedue of oeomargarne produced and materas used durng the month of
uy, 1928, as compared wth uy, 1927.
uy, 1928.
uy, 1927.
Ingredent schedue for uncoored oeomargarne:
Pounds.
20,434.798
Pounds.
16.229,041
Mk
1.10,862
10.290,075
1,705,358
1,900
6,192,382
1,435
1,557,187
2,918,300
444,186
112,555
58,315
2,104
134,597
6.942,866
1,474.487
2,650
4, 476,240
3,810
1,450.958
3,101.052
372,403
135.542
38,340
Oeo o
Oeo steartne
Pam o
429,438
1,086,380
238.747
1,397,781
1,200
7,613
14
Sat
7,070
18
Tota
U, 67 I
19,778,111
Tota producton coored oeomargarne..
1,009,135
84,824
Ingredent schedue for coored oeomargarne:
124
343,413
1,730
305,096
1,501
84,023
341,041
117,972
263.368
26,065
20,588
14.830
17,959
78,720
70
Coor
1,307
161,528
459,355
198.920
367,885
11,360
15,438
16,217
19,720
99,997
107
Mk
Neutra ord
Oeo o
Oeo stock
Pcmut o
gat
Soda
Tota
1,095,371
1,272,933
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410
II-42-3953
MS. 83
Schedue of oeomargarne produced and matera used durng the month of
ugust, 1928, as compared wth ugust, 1927.
Tota producton of uneoored oeomargarne
Ingredent schedue for uncoored oeomargarne:
utter
Cocoanut o
Cottonseed o
dbe taow
Mk
Mustard o
Neutra ard
Oeo o
Oeo stearne
Oeo stock
Pam o.
Pam-kerne o
Peanut o
Sat --
Sesame o -
Soda -
aua e tract
Tota.
Tota producton of coored oeomargarne
Ingredent schedue for coored oeomargarne:
utter
Cocoanut o
Coor -
Cottonseed o
Mk..
Neutra ard
Oeo o
Oeo stearne
Oeo stock
Pam o
Pam-kerne o
Peanut o..
Sat
Soda
Tota.
173,730
11.474.2SO
1,887,910
2.235
6,483,955
1.265
1,595,056
3,167,019
424,599
101,778
62,716
1,711
416,394
1,895,059
10, 465
18
27, 698, 160
1,173, 484
210
435,833
1,303
173.708
530,326
224,791
417.310
12,030
13,605
22,546
339
23, 538
115,567
194
1,971,300
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411
Msc.
-47-4009
MS. 84
Schedue of oeomargarne produced and materas used durng the month of
September, 1928, as compared wth September, 1927.
September,
1923.
September,
1927.
Ingredent schedue for uncoored oeomargarne:
Pounds.
27, 210, 828
Pounds.
22, 2S4, 014
utter...
218,948
14, 028, 353
2,240,664
3,170
7,999,276
1,070
1,926,979
3,890,377
498, 348
122, 594
70,329
1,056
495.260
2, 262, 331
202,242
10,062,387
2,004, 824
4,200
5, 998, 978
6,720
1,802, 689
4,934.285
499,453
107,097
45, 422
dbe taow
Mk
Oeoo
Pam-kerne o
340, 308
1,907,341
4,200
7,365
19
Sat
Soda...
9,439
24
ana e tract
Tota
33, 768. 218
27, 987, 530
Tota producton of coored oeomargarne . .
1, 235, 061
1, 210, 989
IngTedent schedue for coored oeomargarne:
utter
378
424, 020
1,536
195, 951
530,419
218, 740
445, 516
16,585
13,800
4,450
22,120
116, 590
116
1,650
373, 508
1,788
107, 948
410, 661
147, 952
348, 448
28,942
23,087
6,989
25, 371
99,852
100
Coor _ _ _
Mk
Neutra ard
Oeo o
Peanut o
Sat
Soda
Tota
1, 990, 221
1,576,294
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412
II-51-4037
MS. 85
Schedue of oeomargarne produced and matera used durng the month of
October, 1928, as compared wth October, 1927.
October,
1928.
Tota producton of uncoored oeomargarne
Ingredent schedue for uncoored oeomargarne:
utter
Cocoanut o -
Corn o
Cottonseed o
dbe taow
Mk
Mtstard o
Neutra o
Oeo o
Oeo stearne ...
Oeo stock
Pam o.
Pam-kerne o.
Peanut o
Sat
Sesame o
Soda
ana e tract..
Tota.
Tota producton coored oeomargarne:
Ingredent schedue for coored oeomargarne:
utter
Cocoanut o
Coor
Cottonseed o
Mk.
Neutra ard..
Oeo o
Oeo stearne... _
Oeo stock
Pam o
Pam-kerne o. _ _
Peanut o
Sat
Soda
Po T f .
29,181, 242
.2n. ovs
15,177, 219
2,436,933
2,905
8, 515, 204
935
2,032,119
3,877, 869
523,635
106,247
88,896
6,300
I2N
2,351,689
8,374
35,945,639
30,226,911
1,449.975
1,239, I S
2.851
537,002
1,768
241,414
63:.. mk
259,838
485,896
16,885
6,820
24,630
s.su
139,817
123
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413 Msc.
MISC LL N OUS.
II-27-3790
T. D.4168
INCOM , PRO ITS, ND ST T T S.
Computaton of ncome, war-profts, e cess-profts, and estate
ta es n cases where property s or has been n the custody of the
Unted States under the Tradng wth the nemy ct, and the
coecton and payment of nterna-revenue ta es from such property.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 24, Tradng wth the nemy ct. as amended (as amended
by secton 18, Settement of War Cams ct of 1928) (40 Stat. L.,
411, as amended by 42 Stat. L., 1511, as amended by Pubc, No. 122,
Seventeth Congress), provdes as foows:
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
money 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
nsuffcent) out of any other money or property hed for the same person,
notwthstandng the fact that a cam may have been fed or sut nsttuted
under ths ct.
(b) In the 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 evenue 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 prescrbed
by the Commssoner of Interna Revenue wth the approva of the Secretary
of the Treasury, to be consstent wth the prompt payment of the fu amount of
the nterna-revenue ta es.
(c) So much of the net ncome of a 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
In secton 208 of the Revenue ct of 1026 (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-
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Msc.
414
profts ta aws and reguatons and the provsons of such aws and reguar
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 n converson, the date of the return of
the proceeds to the person entted thereto sha be consdered as the date erf
the converson.
(e) In case of any nterna-revenue ta mposed n respect of property con-
veyed, transferred, assgned, devered, or pad to the en Propery Custodan,
or sezed by hm, and mposed n respect of any perod (n the ta abe year
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 bo assessed upon, coected from, or pad by or on behaf of, the ta payer
nor sha rfny 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 ted before the e praton of the erod of mta-
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.
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws, the foowng reguatons are hereby
prescrbed:
rtce I. Defntons.
When used n these reguatons
(a) The term property ncudes money, the proceeds of property, ncome,
dvdends, nterest, annutes, and other earnngs (ncudng amounts aocated
or payabe out of the unaocated nterest fund). Income payabe under secton
23, and amounts payabe under secton 10, of the Tradng wth the nemy ct.
(b) The term propery sezed by the en Property Custodan ncudes
property conveyed, transferred, assgned, devered, or pad to the en Property
Custodan or to the Treasurer of the Unted States, under the Tradng wth the
nemy ct.
(c) The term property hed by the en Property Custodan ncudes
property hed by the Treasurer of the Unted States under the Tradng wth,
the nemy ct.
(d) The term unaocated nterest fund has the meanng assgned to such
term by the Tradng wth the nemy ct.
(e) The term Tradng wth the nemy ct ncudes a amendments of
such ct, and a orders, raes, and reguatons ssued or prescrbed under such
ct or any such amendment
rtce II. ppcaton of Reguatons.
(a) Income or profts tares. These reguatons are appcabe to any ncome,
war-profts, or e cess-profts ta mposed by any ct of Congress and pay-
abe by any person whose property s or has been hed by the en Property
Custodan, whether or not such ta s mposed n respect of such property or
n respect of the perod durng whch any of such property has been hed by
the en Property Custodan.
(b) stdte ta es. These reguatons are appcabe to any estate ta m-
posed by any ct of Congress upon the transfer of the estate of any decedent
f any of the property of such estate s or has been hed by the en Property
Custodan or f any of such ta s payabe by any person whose property s
or has been hed by the en Pro erty Custodan.
(c) Ctzens of the Unted States. ny property hed by the en Property
Custodan may be returned, pror to any computaton or payment of nterna-
revenue ta es, to any ndvdua who at the tme of the sezure of such
property was a ctzen of the Unted States.
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415
Msc.
rtce III. Computaton op Ta .
(a) Income or profts ta es. The amount of any ncome, war-profts, or
e cess-profts ta payabe for any ta abe perod sha be computed n accord-
ance wth the Revenue ct and the reguatons promugated thereunder app-
cabe to such perod (ncudng a amendments enacted or promugated pror
to the computaton), e cept as specfcay otherwse provded by these
reguatons.
(b) state ta es. The amount of any estate ta sha be computed n
accordance wth the Revenue ct and the reguatons promugated thereunder
appcabe at the tme of the death of the decedent (ncudng a amendments
enacted or promugated pror to the computaton), e cept as specfcay other-
wse provded by these reguatons.
(c) Genera. In makng any such computaton, the sezure of property from
the owner sha be consdered as not affectng the ownershp thereof the
sezure of property from any person not the owner sha be consdered as the
recept of such property by the owner and any act of the en Property Cus-
todan, the Treasurer of the Unted States, or the Secretary of the Treasury
n respect of such property (ncudng any nvestment, sae, or other dspos-
ton and any payment or other e pendture) sha be consdered as the act of
the owner.
(d) Tentatve computatons. In order that the return of property by the
en Property Castodan may not be deayed unt the amount of ta es payabe
by the person to whom such property s returnabe, or out of the property to
be returned, s fnay computed and pad, a tentatve computaton of such
amount w be made n every case, uness such person or the en Property
Custodan notfes the Commssoner of Interna Revenue n wrtng that he
prefers that the return of hs property be postponed unt the amount of such
ta es can be fnay computed or uness the Commssoner of Interna Revenue
beeves that a fna computaton w not postpone the return of the property.
In makng any such tentatve computaton, the gross ncome or the gross estate
(as the case may be) as shown by the records of the en Property Custodan
(e cudng therefrom tems e empt from ta aton) sha be consdered :s the
net ncome or net estate (as the case may be), uness a return has been fed
or facts are avaabe upon whch a more accurate computaton of the amount
of such ta es can be made.
(e) na computatons. fna computaton of the amount of ta es pay-
abe by the person to whom property s returnabe by the en Property Cus-
todan, or out of property to be returned, w be made as soon as practcabe
n every case. In any case n whch the amount shown by a tentatve compu-
taton has been pad, a refund or credt of any amount pad n e cess of the
amount propery due w be made n accordance wth the fna computaton,
even though a cam therefor has not been fed, f the perod of mtaton
appcabe to the fng of such cam has not e pred. If, however, the ta -
payer desres to protect hs rght to any credt or refund determned to be due,
a cam for credt or refund shoud be fed. ny such cam n respect of the
amount pad n accordance wth a tentatve computaton w be accepted even
though t does not ceary set forth n deta a the facts upon whch the cam
s based. ny such cam n respect of an amount pad n accordance wth a
fna computaton, however, must ceary set forth n deta under oath a the
facts reed upon n support of the cam and must conform to the reguatons
appcabe to an ordnary cam for refund or credt. (See, for e ampe,
artce 1304, Reguatons 69.)
(f) Informaton requred Income and profts ta es. The foowng nforma-
ton submtted under oath s necessary n each case for a fna computaton,
for each ta abe year for whch the computaton s to be made:
(1) ncome (other than ncome receved by the en Property Custodan)
regardess of amount receved durng such ta abe year from sources wthn
the Unted States, or f no such ncome has been receved, then a statement to
that effect.
(2) If a return of such Income has been made, then the foowng data n
respect of such return:
( ) The ta abe year for whch the return was made and the ta (whether
ncome, war-profts, or e cess-profts) pad
( ) The name of the ta payer for whom the return was made
(C) The name of the agent or other person (f any) by whom such return
was made
(D) The offce of the coector n whch such return was fed.
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41G
(3) Such other facts as may be requred, from tme to tme, by the Com-
mssoner of Interna Revenue.
(g) Informaton requred state ta es. In order to make a fna computa-
ton of the amount of estate ta es payabe n any case, the usua estate ta
return shoud be fed, together wth the supportng documents requred by the
reguatons.
(h) Returns. It shoud be noted that n many cases aowance of deductons
and credts w be contngent upon the makng of a return n accordance wth
the appcabe Revenue ct. The submsson of nformaton n accordance
wth subdvson (f) above w be consdered as the makng of the return,
requred by such Revenue ct.
() Ta abe years. The amount of ncome, e cess-profts, and war-profts
ta es w be computed for each ta abe year pror to the return of a the
property out of whch the ta s payabe or to the person by whom the ta s
payabe, uness the amount of any ta pad woud be consdered an overpayment
under secton 607 of the Revenue ct of 1028 (provdng for the credt or refund
of amounts pad after the e praton of the perod of mtatons). owt-ver,
uness facts are avaabe ndcatng a abty for ta es for a ta abe year
endng pror to the sezure of the property by the en Property Custodan or
begnnng after the return of a the property out of whch the ta s payabe,
or to the person by whom the ta s payabe, the computatons (both tentatve
and fna) w be made ony n respect of perods durng whch the property
s hed by the en Property Custodan. In any case n whch a duy author-
zed offcer or empoyee of the ureau of Interna Revenue has computed the
amount of ta es payabe n respect of any such perod, such computaton w be
accepted as a tentatve computaton, uness the facts ceary ndcate that a
more accurate computaton can be made.
(|) Deta of offcas of the ureau of Interna Revenue. The Commssoner
of Interna Revenue w deta to the offce of the en Property Custodan
such offcers and empoyees of the ureau of Interna Revenue as may be neces-
sary to make the computatons under these reguatons prompty and accuratey.
n offcer or empoyee of the coector of nterna revenue, atmore, may be
detaed by the coector, for such perods of tme as may be necessary, to receve
payments at the offce of the en Property Custodan.
rtce I . Payment op Ta es.
(a) Tentatve computatons. The amount of ta es shown by a tentatve
computaton sha be pad by the en Property Custodan to the coector of
nterna revenue. atmore, or to a representatve of such coector, as soon as
practcabe after the tentatve computaton has been made. It w not be
necessary, however, for the payment to be made pror to the return of property
f an amount suffcent to make the payment s retaned by the en Property
Custodan out of the property whch woud otherwse be returnabe.
(b) na computatons. If a fna computaton shows that the fu amount
of nterna-revenue ta es propery payabe s n e cess of the amount (f any)
prevousy pad, the amount remapng unpad sha be pad by the en Prop
erty Custodan to the coector of nterna revenue, atmore, or to a representa-
tve of such coector, as soon as practcabe after the fna computaton has
been made. If the fna computaton shows that the fu amount of nterna-
revenue ta es propery payabe s ess than the amount prevousy pad, the
dfference sha be credted or refunded n accordance wth the provsons of
these reguatons. fna computaton w not prohbt a subsequent computaton
f t s determned that the amount shown by the fna computaton s erroneous.
(c) unds avaabe for payment. If the property hed by the en Property
Custodan s nsuffcent to make the payment, payment sha be made by the
en Property Custodan to the e tent of the property hed by hm (f any),
ncudng any property subsequenty receved by hm, and the amount remanng
unpad may be coected from the person abe therefor n the same manner as
a defcency n ta .
(d) Gvng of bond pror to computaton. If t appears n any case that
nether a tentatve nor a fna computaton of the amount of ta es propery
payabe can be made wthn two months after the date on whch the en
Property Custodan woud otherwse return the property, and f the en
Property Custodan deems t advsabe not to postpone the return of the property
unt a computaton can be made, the property may be returned n accordance
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417
Msc.
wth subdvson (a) f a bond s fed wth the coector n such amount (or
unmted n amount) and wth such suretes as the Commssoner of Interna
evenue deems necessary (or coatera authorzed by aw deposted n eu of
surety), condtoned upon the payment of the fu amount of the nterna-revenue
ta es fnay computed to be due. Ony surety companes hodng certfcates of
authorty from the Secretary of the Treasury as acceptabe suretes on edera
bonds w be approved as suretes.
(e) Defcency etters and notce and demand. payments by the en
Property Custodan sha be made wthout regard to the provsons of aw
reatng to the mang of a defcency etter or to notce and demand, and a
refunds shu be made drecty to the en Property Custodan.
rtce . Segregated Capta Net Gans.
(a) Ta on gans from saes by en Property Custodan. In any case n
whch a cam therefor (as prescrbed n secton 24(f) of the Tradng wth
the nemy ct) s fed by the ta payer (or as prescrbed n rtce III, n
makng a tentatve computaton), so much of the net ncome of a ta payer for
the ta abe year 1917, or any succeedng ta abe year, as represents gan
derved from the sae or e change by the en Property Custodan of any
property hed by hm, sha be segregated and separatey ta ed n the manner
herenafter provded n ths artce.
(b) Defntons. or the purposes of ths artce
(1) The term segregated capta gan means ta abe gan from the sae
or e change by the en Property Custodan of segregated capta assets
(2) The term segregated capta oss means deductbe oss resutng from
the sae or e change by the en Property Custodan of segregated capta
assets
(3) The term segregated capta deductons means such deductons as are
aowed by the ncome, e cess-profts, and war-profts ta aws for the purpose
of computng net ncome, and are propery aocabe to or chargeabe aganst
segregated capta assets sod or e changed by the en Property Custodan
durng the ta abe year
(4) The term ordnary deductons means the deductons aowed by the
ncome, e cess-profts, and war-protts ta aws for the pupose of computng
net ncome, other than segregated capta osses and segregated capta
deductons
(5) The term segregated capta net gan means the e cess of the tota
amount of segregated capta gan over the sum of ( ) the segregated capta
deductons and segregated capta osses, pus ( ) the amount, f any, by whch
the ordnary deductons e ceed the gross ncome computed wthout ncudng
segregated capta gans
(6) The term ordnary net ncome means the net ncome computed n
accordance wth the ncome, e cess-profts, and war-profts ta aws appcabe
to the ta abe year, after e cudng a tems of segregated capta gan, segre-
gated capta oss, and segregated capta deductons and
(7) The term segregated capta assets means any property hed by the
en Property Custodan other than (the sezure by the en Property Cus-
todan beng dsregarded and the property regarded as n the possesson of the
ta payer) stock n trade of the ta payer, or other property of a knd whch
woud propery be ncuded n the nventory of the ta payer f on hand at the
cose of the ta abe year, or property hed by the ta payer prmary for sae
n the course of hs trade or busness.
(c) Computaton of ta . In any case n whch gan derved from the sae
or e change by the en Property Custodan of any property hed by hm s
segregated and separatey ta ed, the aggregate of the amount of ncome, e cess-
profts, or war-profts ta es sha be computed as foows:
(1) n ncome ta sha be computed upon the bass of the ordnary net
ncome
(2) The war-profts and e cess-profts ta es sha be computed upon the bass
of the ordnary net ncome
(3) ta of 30 per centum sha be computed upon the bass of the segregated
capta net gan
(4) The amount of ncome, e cess-profts, and war-profts ta es sha be the
sum of the amounts determned under paragraphs (1) to (3), ncusve.
(d) Partners, estates, trusts, and benefcares. If any member of a partner-
shp, any estate or trust, or any benefcary of an estate or trust, compes wth
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418
the provson of subdvson (a) of ths nrtce, he sha be entted to the
benefts of the provsons of ths artce, and the proper part of the share of
the net ncome whch conssts, respectvey, of ordnary net ncome, or segregated
capta net gan, sha be computed by the Commssoner of Interna Revenue,
and ta ed to the member or benefcary or to the estate or trust as provded n
the provsons of the appcabe ncome, war-profts, and e cess-profts ta aws
wth respect to partnershps, estate or trusts, and the members or benefcares
thereof.
rtce I. Invountary Converson.
(a) Computaton of ta- . In the case of any property sod or e changed by
the en Property Custodan, no gan or oss sha be recognzed, for the pur-
poses of the ncome, war-profts, and e cess-profts ta aws, f the owner of the
property thus sod or e changed, forthwth upon the return of the proceeds (or
such part thereof as s returned) of the sae or e change to hm, n good fath
e pends such proceeds n the acquston of other property smar or reated
n servce or use to the property sod or e changed, or n the acquston of
contro of a cor oraton ownng such other property, or n the estabshment of
a repacement fund (descrbed n subdvson (b) of ths artce). If any part
of such proceeds s not so e pended the gan, f any, sha be recognzed but
n nn amount not n e cess of the money whch s not so e pended. ny ncome
derved from such proceeds n the nterm between such sae or e change and
such e pendture sha, however, not be consdered wthn the provsons of ths
artce. s used n ths artce the term contro of a corporaton means the
ownershp of at east 80 per centum of the votng stock and at east SO per
centum of the tota number of shares of a other casses of stock of the cor-
poraton. In any ease where the proceeds of the property sod or e changed
are not dentfabe when returned to the owner, the money or property frst
returned to hm (not ncudng amounts payabe under secton 23. Tradng wth
the nemy ct. or otherwse dentfabe as not the proceeds of such property)
sha be deemed the proceeds of the sae or e change.
(b) Repacement fund. In any case where the owner eects to repace the
property sod or e changed but t s not practcabe to do so mmedatey, he
may obtan permsson to estabsh a repacement fund n hs accounts n whch
part or a of the proceeds returned sha be hed, wthout deducton for the
payment of any mortgage. In such case the owner shoud, In connecton wth
hs cam for the benefts of ths artce, make appcaton to the Commssoner
on orm 1114 for permsson to estabsh such a repacement fund and n hs
appcaton shoud recte the matters requred n subdvson (e) of ths artce
and decare that he w proceed as e pedtousy as possbe to repace such
property. In each case the owner w be requred to furnsh a bond as provded
n subdvson (f) of ths artce.
(c) Cams pror to return of proceeds. In any case where the proceeds of the
sae or e change have not yet been returned by the en Property Custodan,
and the owner eects to repace the property sod or e changed upon the return
of the proceeds to hm. the owner may obtan the benefts of ths artce by fng
a proper cam therefor (as set forth n subdvson (e) of ths artce) decar-
ng that he w forthwth upon the return of the proceeds to hm e pend the
proceeds as requred n subdvson (a). In such a case the owner w be
requred to furnsh the bond prescrbed n subdvson (f) of ths artce. If the
provsons of ths subdvson are comped wth, the benefts of subdvson (a)
sha be apped both n the tentatve and the fna computaton of the ta es.
(d) Premnary cams. Secton 24(f), Tradng wth the nemy ct, pre-
scrbes defnte perods of tme wthn whch cams for the benefts of ths
artce may be fed. Where It s not possbe to fe wthn such perod the
compete cam as prescrbed n ths artce, a premnary cam for the benefts
of ths artce shoud be fed wthn such perod. If wthn s months after the
fng of such premnary cam, or wthn such further perod as the Comms-
soner sha upon appcaton aow, the compete cam s fed n accordance
wt subdvson (e) of ths artce, the camant sha be entted to the benefts
of ths artce. Upon faure to fe such compete cam wthn such perod the
premnary cam sha become nu and vod.
(e) Compete cams. No person sha be entted to the benefts of ths
artce uness he fes a compete cam therefor as prescrbed heren and agrees
to fe at the tme prescrbed by aw a true and correct return of a ncome for
the ta abe perod n whch the property, n the acquston of whch the pro-
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419
Msc.
ceeds have been e pended, s sod or otherwse dsposed of, and to pay a
nternn-revenue ta es n respect of such ncome.
ach compete cam must contan under oath the foowng nformaton:
(1) In respect to the property sod or e changed by the en Property
Custodan
( ) descrpton thereof (ncudng specfcay the knd and the servce
and use to whch the owner devoted the property)
( ) The date and mode of acquston
(C) The cost thereof, and, f acqured pror to March 1, 1913, the vaue
thereof on that date.
(2) In respect of the property n the acquston of whch the proceeds have
been e pended (or f the proceeds have not yet been returned, or f the es-
tabshment of a repacement fund s contempated, the property n the ac-
quston of whch the owner undertakes to e pend the proceeds)
( ) descrpton thereof (ncudng specfcay the knd and the servce
and use to whch the owner s devotng or proposes to devote the property)
( ) The cost or contempated cost thereof
(C) The date or contempated date of acquston.
(4) other necessary nformaton n respect of the transacton and/or
contempated transacton.
ach such cam must be accompaned by the statements under oath of three
competent wtnesses to each matera fact set forth n the cam.
(f) onds. In any case where a bond s requred under ths artce, the
bond must be fed wth such surety as the Commssoner may requre n an
amount not n e cess of doube the estmated addtona ncome, war-profts, and
e cess-profts ta es whch woud be payabe f the benefts of ths artce were
not camed. The estmated addtona ta es, for the amount of whch the
camant s requred to furnsh securty, shoud be computed at the rates at
whch the camant woud have been obged to pay, takng nto consderaton
the remander of hs net ncome and resovng aganst hm a matters n
dspute affectng the amount of the ta . Ony surety companes hodng cer-
tfcates of authorty from the Secretary of the Treasury as acceptabe suretes
on edera bonds w be approved as suretes. The cam and/or appcaton
accompanyng the bond shoud be e ecuted n trpcate so that the Comms-
soner, the camant, and the surety or depostary may each have a copy.
(g) ppcabty of aw and reguatons. cept as otherwse specfcay
provded n these reguatons, the provsons of the nterna-revenue aws and
reguatons n respect of the bass for determnng gan or oss from the sae
or other dsposton of property acqured by the e pendture of the proceeds
of an nvountary converson and a matters ncdent, reated, or consequent
to such a converson or to the e pendture of the proceeds thereof, sha appy
In a cases where the benefts of ths artce are camed. (See nter aa,
secton 204(a)6, Revenue ct of 1926, and secton 113(a) 10, Revenue ct
of 1928.)
rtce II. Interest and Penates.
(a) Labty for nterest and cv penates. Labty for nterest or cv
penates s governed by secton 24(e) of the Tradng wth the nemy ct.
Ths subsecton s not appcabe to nterest or cv penates payabe n respect
of any nterna-revenue ta mposed n respect of any perod pror to tho
sezure of the property by the en Property Custodan, or after the return of
the property, or n respect of property not sezed by the en Property
Custodan.
(b) Retroactve ad|ustments. In any case n whch nterest or a cv
penaty has- been assessed contrary to the provsons of secton 24(e), the
sssessment thereof sha be abated. In any case n whch nterest or a cv
penaty has been coected from or pad by or on behaf of the ta payer, or
n whch nterest has been credted or pad to the ta payer n respect of any
credt or refund, contrary to the provsons of secton 24(e), proper ad|ust-
ment sha be made therefor n determnng the fu amount of nterna-
revenue ta es propery payabe.
rtce III. Cams for Refund or Credt and fob Other enefts.
(a) Cams for the benefts of subsectons (c), (d), and (e) of secton 24
of the Tradng wth the nemy ct must be fed wthn the perod pre-
scrbed by subsecton (f). ny such cam must contan a statement n deta
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420
under oath of a the facts reed upon n support of the cam and shoud be
red wth the coector of nterna revenue, atmore, Md., or wth hs repre-
sentatve n the offce of the en Property Custodan. In makng any ten-
tatve computaton, t w be assumed that a cam for the benefts of secton
24(c), f the rate of ta Is n e cess of 30 per centum, and for the refund
or credt of nterest or cv penates pad contrary to secton 24(e), w
be duy fed. cam for the beneft of secton 24(e) s necessary ony n
case an amount of nterest or cv penates has actuay been pad by the
en Property Custodan or by the ta payer. (See, aso. rtce I(dI,
above, reatng to premnary cams for the benefts of secton 24(d).)
(b) ny act of the en Property Custodan for, or on behaf of, a ta -
payer n respect of any cam under these reguatons w be consdered as the
act of such ta payer, uness such ta payer notfes the Commssoner of In-
terna evenue n wrtng that he does not ratfy such act.
rtce I . Cosng greements.
(a) Secton C06 of the Revenue ct of 1928 authorzes cosng agreements
to he entered nto as to the entre ta abty, any part of the ta abty, or
any method to be foowed n computng the abty, of any person. cosng
agreement may be entered nto n respect of the computaton of the ta under
rtce I (reatng to nvountary converson), ether before or after the
e pendture of the proceeds. If. however, the cosng agreement s entered
nto pror to the e pendture of the proceeds, the terms of the agreement w
provde for compance wth the requrements of rtce I, and for the agree-
ment becomng fna ony upon the actua e pendture of the proceeds (as ds-
tngushed from the estabshment of a repacement fund). It s beeved that
the fna settement of ta abtes w be materay e pedted and w
prove a beneft to both the Government and the ta payer. In order to factate
cosng agreements, one or more of the offcers or empoyees of the ureau of
Interna Revenue detaed to the offce of the en Property Custodan w be
authorzed to enter nto any cosng agreement and to advse and assst the
ta payer n respect thereof.
(b) The effect of a duy e ecuted cosng agreement s prescrbed by secton
60f(b) as foows:
If such agreement s approved by the Secretary, or the Undersecretary,
wthn such tme as may be stated n such agreement, or ater agreed to. such
agreement sha e fna and concusve, and, e cept upon a showng of fraud
or mafeasance, or msrepresentaton of a matera fact
(1) The case sha not be reopened as to the matters agreed upon or the
agreement modfed, by any offcer, empoyee, or agent of the Unted States, and
(2) In any sut, acton, or proceedng, such agreement, or any determnaton,
assessment, coecton, payment, abatement, refund, or credt made n accord-
ance therewth, sha not be annued, modfed, set asde, or dsregarded.
rtce . Reservaton of Power to mend.
The power to amend or repea these reguatons or any provson thereof s
e pressy reserved.
. . Mkes.
ctng Commssoner of Interna Revetue.
pproved une 21, 1928.
Ogden L. Ms,
ctng Secretary of the Treasury.
II-44-3978
October 22, 1928.
The Unted States oard of Ta ppeas announces the addton
of the foowng paragraph to rue 36 of ts rues of practce:
Notce of a change n the mang address of counse, or pettoner, sha be
prompty fed wth the oard u each pendng proceedng affected thereby.
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1 TI-53-4052
Dsbarments and suspensons from practce before Treasury Department of
attorneys and agents
DIS RM NTS.
The Secretary of the Treasury, after cue notce and opportunty
for hearng, has ordered the dsbarment from further practce before
the Treasury Department of the foowng-named attorneys and
agents:
Name.
ddress.
Date of
dsbarment.
Cause.
Ceveand,Thomas
Cordn, Cephas W_
Daey, Lawson
Odom.
, . R.
rost, Chares.
adery, May ...
Showen, rank G.
r, Oeorge .
Wagner, Peter .
Watts, Chares .
Okahoma Cty,
Oka.
ormery Saw-
tee, Caf., now
Los ngees,
Caf.
ormery Daas,
Te., now M-
am, a.
Washngton, D. C
New York, N. Y.-
C hattanooga,
Tenn.
ormery ansas
Cty, Mo., now
Ottawa, ans.
ormery oston,
Mass., now We-
esey s,
Mass.
New York, N. Y.
Mwaukee, Ws.
Sept. 19,1928
Sept. 19,1928
Mar. 27,1928
Mar. 31,1928
uy 2,1928
ug. 30,1928
uy 2,1928
Mar. 27,1928
eb. 11,1928
ug. 4, 1928
Charged wth msappropraton of funds of h
empoyer, obtanng money by fase pre-
tenses, and drunkenness. Charges found
proven.
Charged wth havng been dsbarred from
practce before the Interor Department
for dsreputabe conduct. Charges found
proven.
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.
Charged wth soctng empoyment n a ed-
era ta ense n whch ho ganed knowedge
of the facts and ssues nvoved whe em-
poyed as an audtor n the Interna Revenue
ureau, and charges found proven.
Charged wth havng been accused and con-
vcted of the crme of arson n the State of
Connectcut and sentenced to serve a term
of from one to three years n |a, and charges
found proven.
Charged wth preparng and fng fase ncome-
ta returns. Charges found proven.
Charged wth havng been convcted n the
I ted Staes Dstrct Court for the Western
Dvson of the Western Dstrct of Mssour
for te voaton of secton 145, Unted States
Crmna Code, and sentenced to a term of
10 months n |a, and charges found proven.
Charged that he was ndcted on fve counts
n Su eror Court of Suffok County, Mass.,
for convertng money beongng to cents to
hs own use, and that he 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.
Charged wth msconduct n a ta case pendng
before the Interna Revenue ureau, and
charges found proven.
Charged wth makng fase Income-ta returns
for ta payers aso churgod wth makng
fase and mseadng statements of facts n
brefs fed wt the ureau of Interna Rev-
enue n ta cases aso charged wth advsng
the ta payer to make a fase ncome-ta
return, who foowed such advce and fed a
fase ncome-ta return. Charges found
proven.
1 Ths rung (4002) ncudes aso rungs Nos. 3793, 3800, 3N17. 3827, 3835, 3844, 3856,
3870, 3879, 3887, 3896, 3((), 3011). 3024, 3939, 3954. 31108, 31175, 3087. 3007, 4010, 4016,
4024, 4032, 4038, nnd 4043. These rungs have been thus consodated because pubca-
ton of each one separatey woud be argey dupcaton.
- Ths st ncudes a agents and attorneys dsbarred from practce durng the 12-month
perod anuary 1 December 31, 1928, ncusve, and a suspensons n effect durng the
0-mouth perod uy 1-December 31, 1928. Incusve. It does not Incude those barred
from practce by reason o dsapprova of ther appcaton for enroment.
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Msc.
422
SUSP NSIONS.
The Secretary of the Treasury, after due notce and opportunty
for hearng, has ordered the suspenson from practce 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.
deson, braham..
Cost, Raph erbert.
Darrow, ohn C
Du os, Leon
aas, enry
ocombe, esse L...
Levnc, Samue
MagTuder, LeRoy M.
May, arry P.
Morwood, Cyde .
Roper, ames D.
Wams, Raph . D.
Yusman, en|amn.
New York, N. Y_.
Sacramento, Caf.
Newburgh, N. Y_.
Phadepha, Pa ..
Sprngfed, Mo...
Macon, Ga
New York, N. Y.
Sprngfed, Mo..
ormery of Wash-
ngton, D. C,
now Los nge-
es, Caf.
Sprngfed, Mo...
Sprngfed, Mo...
rngton, N. ...
Phadepha, Pa..
00 days, from
uy 1 , 1928.
00 days, from
uy 17,1928.
4 months, from
Mar. 24,1928.
4 months, from
uy 20, 1928.
30 days, from
Sept. 19,1928.
30 davs, from
ug. 13,1928.
6 months, from
ept. 21,1928.
30 days, from
Sept. 19,1928.
00 days, from
Dec. 6,1928.
30 davs, from
Sept. 19,1928.
30 davs, from
Sept. 19,1928.
30 days, from
une 2f, 1928.
8 months, from
uy 20,1928.
Charged wth havng fed fase persona n-
come-ta returns and not mantanng ade-
quate records to propery refect hs edera
ta status, and charges found proven.
Charged wth mproper handng of certan
ncome ta cases, andch arges found proven.
Charged wth pubshng an advertsement
soctng empoyment n edera a mat-
ters, and that, such work woud be handed
by men traned u the Income Ta Unt of
the Government,and chargesfound proven.
Charged wth soctaton of empoyment n
edera ta matters and fng bref n ta
case contanng fase statements of fact.
Charges found proven.
Charged wth soctng emnoyment n ed-
erata matters by mang etters to ta -
payers wth whom respondent had no
prevous busness or persona assocaton.
Charges found proven.
Charged wth preparng and fng fase and
mseadng amended schedues for a ta -
payer a a ta case before the ureau of
Interna Revenue. so charged vth pre-
parng and fng fase ncome-ta return
for a ta payer. Charges found proven.
Charged wth preparng fase ncome-ta
return for a ta payer. C harges found
proven.
Charged wth soctng empoyment n ed-
era ta matters by mang etters to ta -
payers wth whom respondent had no
prevous busness or persona assocaton.
Charges found proven.
Charged wth soctng empoyment n
edera ta matters of ta payers wth
whom he had no prevous busness or
persona assocaton. Charges found
proven.
Charged wth soctng empoyment n ed-
era ta matters by mang etters to ta -
payers wth whom respondent had no
prevous busness or persona assocaton.
Charges found proven.
Charged wth soctng empoyment n ed-
era ta matters by mang etters to ta -
payers wth whom respondent had no
prevous busness or persona assocaton.
Charges found proven.
Charged wth soctng empoyment n ed-
era ta matters, and charges found proven.
Charged wth soctaton of empoyment n
edera ta matters, preparng and fng
bref n a ta case contanng fase state-
ments of fact, and other msconduct u a
ta case. Charges found proven.
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423 Msc.
Resgnaton from enroment to practce before the Treasury Department.
The foowng person has tendered hs resgnaton from enroment
to practce before the Treasury Department and, after e amnaton
of hs case, the Secretary of the Treasury has approved the resgna-
ton, and he s therefore no onger entted to practce before the
Treasury Department:
Name.
ddress.
Desgnaton.
Date of
acceptance.
Remarks.
eaury, Oeorge C...
Memphs, Tenn
Oct. 12,1928
Wthout pre|udce.
37229 29 28
0
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IND .
Rung
No.
Page.
batement, cams for. (See Cams.)
ccountng methods:
ccrua bass
Munton manufacturer s ta , when deductbe
ccountng perod:
ountary change, net oss sustaned for fractona year, de-
ducton
ffated corporatons. (See Corporatons.)
gents. (See ttorneys and agents.)
greement, fna determnaton and sut to nufy
en Property Custodan:
ssessment and coecton of ta es on property hed by, m-
taton perod
Income, profts, and estate ta es, computaton
Refund cam fed by, mtaton perod
Saes. (See Saes.)
ens:
nemy, repacement e pendtures from proceeds of sezed
property sae
Nonresdent
Contguous country, earned ncome credt
Returns. (See Returns.)
Sae abroad of product mned n Unted States, ta abe
ncome
Stay n Unted States mted by mmgraton aws,
status
Traveng e penses from resdence abroad, temporary
Unted States empoyment
mendments:
Reguatons 8 (1928)
rtce 74
rtce 79.
rtce 86
Reguatons 45 (1920 edton)
rtce 343
Reguatons 62
rtce 89
rtce 327(a)
rtce 343..
rtce 681.
Reguatons 63
rtce 20
Reguatons 65
rtce 89...
rtce 329...
rtce 343
rtce 681
Reguatons 67
rtce 16
3932
3885
3985
3961
3790
4041
4012
3899
4021
3795
3918
3858
3859
4026
3808
3951
3884
3808
3964
3840
3951
3884
3808
3964
3812
(425)
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426
mendments Contnued.
Reguatons 68
rtce 18
rtce 22 -
Reguatons 69
rtce 89. . ---
rtce 329 - -
rtce 343
rtce 681
Reguatons 70
rtce 18..
rtce 22
rtce 27 --
rtce 43
Reguatons 71
rtce 29 ---
rtce 58
rtce 60
rtce 82
Reguatons 73
rtce 4
rtce 20
rtce 21.
rtce 22
mortzaton:
Coa mne, cost of openng and deveopment--
ppeas and hearngs:
Unted States oard of Ta ppeas decsons.
States oard of Ta ppeas.)
pprecaton of assets, effect on nvested capta
ssessments:
Ta es. (See Ta es.)
ssets:
Transferred, cams aganst
Sut n equty for coecton of ta es
ssocatons:
(See Unted
Dstngushed from trust.
ttorney fees. (See ees.)
ttorneys and agents:
gents
Parents fng refund cam for mnor chdren, vadty,
Caforna
Revenue, e amnaton, ta payer s bank books and
records, authorty
Dsbarments, suspensons, and resgnatons
udtor of orphans court, Pennsyvana, compensaton
utomobes:
Parts and accessores, refund cam requrements by manufac-
turers
ward for oss of fe, ta abty
.
ad debts:
Promssory notes
ankruptcy:
Trustee, corporate busness operated by, profts ta .
Rung
No.
Page.
3841
4022
358
358
3951
3884
3808
3964
125
133
134
299
3841
4022
3998
3811
358
358
354
355
3813
3814
3815
3816
397
398
398
398
4025
3942-
3943
3944
405
406
406
406
3805
270
3905
310
3871
170
3786
3825
3883
4008
101
103
108
221
4019
74
3902
4052
3994
178
421
266
3868
3788
331
123
4006
274
3912
307
G
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427
ng
No.
anks:
ooks and records of ta payer, agent s authorty to e amne. _
Depostor s account under ta evy, abty
Stock ta . (See Ta es: ank stock.)
ar assocaton, e empton
ass of property upon sae by estate, rght of eecton
oard of Ta ppeas. (See Unted States oard of Ta ppeas.)
onds:
batement cam, sut on
Muncpa, nterest dstrbuton to certfcate owners
Redempton payment from earnngs, nvested capta n-
cuson
Ta -free covenant, wthhodng, nterest, secton 144(a),
1928 ct
ooks and records, bank, e amnaton, agent s authorty
randy, grape, ta changes, 1928 ct
raz:
quvaent e empton, earnngs of documented shps
rtsh shppng companes. (See Great rtan.)
rokerage and commsson busness:
Persona servce cassfcaton
udng and oan assocatons. (See empt corporatons.)
usness e penses:
ttorney s fees, defense of accountng acton by former partner.
Contrbutons
Red Cross and Young Men s Chrstan ssocaton war
funds
reght charges, umber manufacturers, accrua bass, when
deductbe
Raroads recapture amounts pad to Interstate Com-
merce Commsson
3902
178
4042
183
3989
58
4004
97
usness eague. (See empt corporatons.)
Caforna:
usband and wfe partnershp, dvson of husband s com-
mssons
Mnors, refund cam fed by parent, vadty
Canada:
quvaent e empton, earnngs of documented shps, reg-
uatons amended
Capta e pendtures:
Transportaton e penses ncdenta to mportaton of ve
stock
Capta gans and osses:
states, two-year hodng perod, commencement date
Royates, o and gas eases, Te as
Wash saes of stock, 2-year perod, appcaton
Capta stock ta :
3880
4002
3860
3837
3902
3792
4014
3876
3933
3838
/4018
1 (020
3851
3852
13S53
3900
4019
3951
ass of ta : Carryng on or dong busness
empton of nsurance companes not appcabe
Insurance company wth addtona busness
Chartabe contrbutons. (.See Contrbutons.)
Choctaw Indan, sut for recovery of ta es, refund cam condton
precedent
Cgars:
Cassfcaton abe, Reguatons 8 amended
3908
130
3810
248
3820
116
4031
127
3833
381
3999
383
4000
386
3966
388
3966
388
3965
326
4026
402
G
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428
Cams:
batement
Coecton stayed
Credt of overassessment aganst earer barred
ta es, vadty
Interpretaton
Refund mtaton
tenson of ta coecton perod
Credt or refund. (.See Credt or refund.)
Refund of ta es. (See Credt or refund.)
Cosng agreements. (See Ta es: na determnaton and assess-
ment.)
Coecton of ta es. (See Ta es.)
Coorado:
Last ness and funera e penses, prorty of edera ta es..
Commssons:
ppcaton aganst overdrawn account, dstrant
usband s, dvson under partnershp agreement, Caforna
Compensaton:
udtor of orphans court, Pennsyvana ..
Commssons earned apped aganst overdrawn account, ds-
trant
Controer of muncpa harbor department
Pubc eath Servce offcer, e empton
State offcers and empoyees. (See State: Offcers and em-
poyees.)
Compromse of ta abty, effect of offer on coecton mtaton
perod
Computaton:
Income, profts, and estate ta es, property n custody of
en Property Custodan
Consodated returns. (Sec Returns.)
Consttutonaty, ncome ta on e portng busness
Contracts:
uture, gran deaer, osses from hedgng, when deductbe.
Contrbutons:
ar assocaton
Chartabe
Indvdua s busness ta ed as corporaton, deducton
mtaton
Red Cross
Scentfc assocaton cdtvatng |ursprudence
Young Men s Chrstan ssocaton
Controer of muncpa harbor department, compensaton
Corporatons:
ffaton
Refund cam by parent coverng group, nterest
Consodated returns. (See Returns.)
Dssoved t
Stockhoders abty, sut
Dstrbutons. (See Dstrbutons.)
Domestc, foregn ta , branch s oss due to e change rates,
credt
empton. (See empt corporatons.)
oregn
Income from Unted States sources. (See Income from
sources wthn Unted States.)
Sae abroad of product mned n Unted States, ta abe
ncome
Transportaton servce, reguatons amended
Rung
No.
4040
3970
3971
3972
(3863
3S65
3831
4003
3900
3994
4003
4005
3888
3982
3790
3832
3962
3989
3S09
3838
3993
3838
4005
3839
3927
3920
4021
3884
Page.
G
e
n
e
r
a
t
e
d
f
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L
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Z
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g
(
N
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Y
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U
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s
t
y
)
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2
0
1
3
-
0
1
-
2
2
0
3
:
4
3
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2
7
/
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3
0
0
0
0
0
8
9
0
5
4
3
6
9
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#
p
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g
e
429
Corporatons Contnued.
Losses. (See Losses.)
Persona servce
rokerage and commsson busness, nomna capta
rut broker, e tended credt and workng capta em-
poyed
Returns. (See Returns.)
Ta abty, stock coatera forecosed by bank recever...
Trusts ta abe as, 1928 ct, retroactve provsons.
3876
3927
3891
(3786
1.3825
Court decsons:
drdge, e ecutr , v. Unted States
umnum Castngs Co. v. Routzahn
nargyros v. dwards, coector
acon Gran Co., dward R., v. Renecke, coector
dker Tayor Co. v. owers, coector
aker Tayor Co. v. Unted States
ank of Commerce v. Rose, coector
ems e a. v. Unted Staes
ue v. Unted Sates
Careton Dry Goods Co. et a. v. Unted Staes et a
Carter et a. v. Savck ewery Co
Consodated Gas ectrc Lght Power Co. of atmore v.
Unted Staes ---
Cooey v. ergn et a
Dreyer Commsson Co. v. emch, coector
dgar states Corporaton v. Unted States
acuty Cub of the Unversty of Caforna v. Unted States. .
eather Rver Lumber Co. v. Unted Staes
dety-Phadepha Trust Co., e ecutor, v. McCaughn, former
coector
orshem ros. Dry Goods Co. v. Unted Staes
ourth Centra Trust Co., e ecutor, v. Unted States
ardware Underwrters and Natona ardware Servce sso-
caton v. Unted States
artford-Connectcut Trust Co., trustee estate of Php Cor-
bn, v. aton, coector
artford-Connectcut Trust Co., trustee estate of Orando
Mner, v. aton, coector
ener, coector, v. Tnde et a., coe ecutors
emch, coector, v. eman et a
orst v. Unted Sates
umes et a. v. Unted Staes
ohnson et a. v. Unted Staes
ornhauser v. Unted States
Landsberger v. McLaughn, coector
Lee ardware Co. v. Unted Staes
Ltte our O Gas Co. v. ener, coector
Ltte our O Gas Co. v. Leweyn, former coector
Logan-Gregg ardware Co. v. ener, coector
Lousve Tte Co. v. Lucas
Lupfer Remck v. Unted States
McCaughn, coector, v. Phadepha arge Co.eta
Mante Co. of merca v. Unted States
Mer v. McCaughn, coector
Mns et a. v. Unted States
Natona Lfe Insurance Co. v. Unted States
Neuss, essen Co., Inc., v. dwards
Node v. Unted States
Nyberg, admnstrator, v. Unted States
Pennsyvana Chocoate Co. v. Leweyn, coector 3885
Porter, commssoner, v. Unted States 1 400b
4044
3932
3869
3962
3866
3866
3911
3928
3888
3909
3877
3838
3902
3876
3833
3952
3914
3986
3940
3950
3857
3984
3984
3921
3931
3929
3845
3861
3933
3934
3905
4008
4008
3854
3966
3995
3880
3860
3991
3937
3904
3832
3930
3963
G
e
n
e
r
a
t
e
d
f
o
r
L
n
Z
h
a
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g
(
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Y
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t
y
)
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0
1
3
-
0
1
-
2
2
0
3
:
4
3
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8
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5
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s
s
_
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#
p
d
-
g
o
o
g
e
430
Court decsons Contnued.
Renecke, coector, v. Gardner, trustee n bankruptcy of O Gara
Coa Co --
Rtter v. Unted Staes
Rose, coector, v. Nunnay Investment Co
Rosenbcrger v. McCaughn, coector
Rouse v. Unted Staes
Sadowsky v. nderson
Second Natona ank of Sagnaw, Sagnaw, Mch., trustee, v.
Unted Staes
Szer e a. v. Unted States
Seff et a. v. Tat, coector
Stover v. McCaughn, coector - -
Unted States v. Greenfed Tap De Corporaton
Unted States v. otchkss Redcood Co
Unted Staes v. Pann et a
Unted States v. Rchards --.
Unted States v. The Cambrdge Loan and udng ssoca-
ton
Waker Manufacturng Co. . Unted States
Wer v. Dean
Wer v. McGrnth
Wamsport Wre Rope Co. v. Unted Sates
Zmbast v. nderson
Court s:
ursdcton
Revew of ureau s speca assessment determnaton-.
Credt or refund:
batement cam fed, coecton stayed
3798
/3971
3972
3822
utomobe ta , returns, e tenson of tme for fng
Cams
en Property Custodan fng, for aen enemy, mta
ton perod 4041
ass of sut, prerequste 3914
Credt erroneousy camed on return as bass, suffcency. 3948
Indan, prerequste to sut 3965
Informa, erroneous credt on return as bass 3948
Mnors, Caforna, parent s authorty to fe 4019
Ora demand as bass, suffcency 3976
Refund, reopenng of, nstructons I 3977
Requrements of manufacturers of automobe parts and
accessores I 3868
Interest
Cam by parent coverng affated group, suffcency | 3839
Date to whch aowed I 4047
Lmtaton perod. (See Lmtaton perod.)
Overassessments credted aganst earer barred ta es 1 4040
Suts
Indan, cam condton precedent 3965
Restranng payment, Unted States party defendant 3909
Transferee, assessment subsequent to statutory perod 3848
Wavers
Persona representatve, vadty I 4044
Credts:
Corporaton, fractona year return I 3789
Dstrbuton to empoyee under proft-sharng trust I 3926
arned ncome
Nonresdent aen, contguous country
oregn ta es. (.See Credts: Ta es.)
ng
No.
3912
3976
3999
3797
3941
3809
3985
3818
3903
4007
3871
4000
3927
3965
4050
3855
3913
3913
3798
3930
G
e
n
e
r
a
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f
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)
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2
0
1
3
-
0
1
-
2
2
0
3
:
4
4
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8
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431
Credts Contnued.
Ta es
oregn-
ranch offce operatng at oss due to e change
rates
Computaton of 25 per cent reducton, 1923
D.
Damages, breach of promse to marry
Decedents:
states. (See states and trusts.)
unera e penses, prorty of edera ta es, Coorado
Deferred-payment saes. (See Saes.)
Defntons:
udng and oan assocaton, secton 231, 1918 and
1921 cts
oregn centra bank of ssue, secton 119(a)(C), 1928
ct
Resdence
Stayed, secton 611, 1928 ct.
Depeton:
O and gas
Computaton, net ncome defned
Deprecaton:
Invested capta determnaton, apprecaton offset .
Lfe nsurance company s budng on eased ground
Dsbarments. (See ttorneys and agents: Dsbarments and sus-
pensons.)
Dstrant, coecton of ta es. (See Ta es: Coecton.)
Dstrbutons:
Dvdends decared pror to dssouton, treatment
Interest on preferred-stock dvdend arrears
Lqudaton, ta abty
Presumpton as to earnngs from whch pad.
Stock dvdend under trust s proft-sharng pan, credt.
Dvdends:
Decaraton pror to dssouton, treatment
Interest on preferred-stock dvdend arrears
Lqudaton
Presumpton as to earnngs from whch pad
Ta abty
Payment date not f ed, nvested capta effect
Stock, dstrbuton under trust s proft-sharng pan, credt.
Donatons:
Red Cross
Young Men s Chrstan ssocaton
Dues:
Soca cub, what s
.
arned ncome credt. (See Credts.)
mpoyees:
Dstrbuton from proft-sharng fund, ncome-
Reef assocaton, e empton
quvaent e empton:
arnngs of documented shps
raz
Canada
Rung
Page.
No.
3920
269
4007
218
/3802
185
3803
180
3831
162
4050
290
3990
66
3795
131
3970
88
3981
115
3905
310
3875
199
3973
110
4030
109
3931
238
f3928
230
3929
232
3930
236
3926
137
3973
110
4030
109
(3928
230
3929
232
13930
236
3931
238
3854
315
3926
137
3838
294
3952
335
3926
137
3821
153
4014
72
3951
125
G
e
n
e
r
a
t
e
d
f
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L
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a
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g
(
N
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Y
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y
)
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2
0
1
3
-
0
1
-
2
2
0
3
:
4
4
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3
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8
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#
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432
Rung
No.
states and trusts (see aso Trusts):
Decedents-
Capta gan, two-year hodng perod, commencement
date
state durng admnstraton, amendment to reguatons.
change of nstament accounts recevabe for corporaton s
stock, gan or oss
und hed n dvded parts for benefcares, status
Income
Corporaton formed to hande trusts, returns and ta
abty
Current, and saes proft propery credted to bene-
fcares, deducton
Instament notes of decedent, gan or oss bass
Interest accrued durng decedent s fetme, ncome
Perod of admnstraton
Income propery credted to benefcares, deducton..
Royaty payments recevabe under w, benefcary s ncome.
Saes
ass of property, rght of eecton
Proft propery credted to benefcares, deducton
state ta :
greement and determnaton, sut to nufy
Cam for refund, |udgment bar to recovery by second sut...
Credts aganst, State nhertance ta , consttutonaty
Deducton for ncome ta . (See Ta es: state and nhert-
ance, deducton.)
Deductons
Contngent chartabe bequests
Property prevousy ta ed
Gross estate, transfer
y decedent n hs fetme
ffectve at or after death
state n eu of dower
Power of appontment, property passng under
Insurance recevabe by other benefcares Reguatons 70
amended
Len mposed by statute
Power of appontment
Property passng under
What s
Property hed |onty or as tenants by the entrety, regua-
tons amended
stoppe, sut for ta recovery, ora cam for refund
amnaton, ta payer s bank books and records, agent s
authorty
cess-profts ta es. (See Ta es: War-profts and e cess-profts.)
changes:
ssets for stock and cash, reorganzaton, gan or oss
Instament accounts receved for corporaton s stock, gan or
oss
Investment property, ke knd and cash and mortgage
empt corporatons:
ar assocaton
udng and oan assocatons
Loans substantay a made to members, State con-
structon
usness eagues
Patent cense dstrbuton, royaty ncome, dvdends
payabe
3810
3808
3893
3861
Page.
4035
144
3991
133
4013
64
3959
136
3960
137
3991
133
3797
253
4004
97
3991
133
3985
356
3985
356
3941
359
3845
3811
(3818
3841
3840
3963
3986
3998
3922
3937
3986
4022
3976
3902
3787
3893
3947
3989
4050
3919
G
e
n
e
r
a
t
e
d
f
o
r
L
n
Z
h
a
n
g
(
N
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Y
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k
U
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)
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2
0
1
3
-
0
1
-
2
2
0
3
:
4
4
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#
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433
Rung
No.
empt corporatons Contnued.
mpoyees reef assocatons
ospta, prvate enterprse .
Market pace and audtorum operated by corporaton for
muncpaty
Mutua nsurance companes
Casuaty nsurance, rsks restrcted
Mutua savngs banks
oregn State organzaton
Scentfc, cutvaton of |ursprudence
Stock coatera forecosed by bank recever
empton:
Corporatons. (See empt corporatons.)
. pense money apped aganst overdrawn account, dstrant
penses, nvestment, nsurance company s budng on eased
ground
portng busness, ncome ta , consttutonaty
tenson of tme:
ng of returns
Credt or refund of automobe ta
ees, attorneys
Defense of accountng acton by former partner, deducton..
ducares:
Returns. (See Returns.)
na determnaton and assessment. (See Ta es.)
sca year:
nded n 1918, partnershp, assessment and coecton waver.
oregn:
Centra bank of ssue, secton 119(a)(C), 1928 ct,
nterpretaton
Corporatons. (See Corporatons.)
change, osses, shrnkage coverng transactons wth foregn
subsdares, deducton
State mutua savngs banks, e empton
orfetures, remsson or mtgaton, procedure, secton 709, 1928
3821
3796
153
150
3992
147
4048
155
4028
3993
3891
58
292
146
4003
73
3875
3832
199
286
ct.
orms:
907, agreement to suspend runnng of statute of mtatons,
1928 ct _
1000 and 1001, ownershp certfcates, contnued use of,
authorzaton
1120 , revsed, corporaton returns, fsca year 1928
reght charges, reserves, umber manufactures, deducton
rut broker usng e tended credt and workng capta, persona
servce corporaton
unera e penses, prorty of edera ta es, Coorado
uture contracts. (See Contracts.)
G.
Gan or oss:
change of property. (See changes.)
Instament notes dstrbuted to decedent s estate, computa-
ton
Saes. (See Saes.)
Gft ta :
Deductons, property prevousy ta ed
Good w:
Obsoescence
Gran deaer, osses from hedgng contracts, when deductbe.
3822
3933
4036
3990
3935
4028
3834
4046
3897
3823
/4018
4020
3927
3831
4013
3812
3934
3962
G
e
n
e
r
a
t
e
d
f
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g
(
N
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Y
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)
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2
0
1
3
-
0
1
-
2
2
0
3
:
4
4
G
M
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3
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0
0
0
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8
9
0
5
4
3
6
9
P
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s
_
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#
p
d
-
g
o
o
g
e
434
Great rtan:
Shppng company s nterest on Unted States bank deposts.
Gross ncome:
ward for oss of fe
Compensaton
Pubc eath Servce offcer
State offcers and empoyees. (See State: Offcers and
empoyees.)
Corporatons
Stock e changed for nstament accounts recevabe
Damages, breach of promse to marry
Interest
ccrued durng decedent s fetme, estate s abty
ank deposts, rtsh shppng company s surpus work-
ng cash
Ownershp certfcates, muncpa securtes
Ta -e empt securtes, fe nsurance companes
Muncpa market pace and audtorum operated by prvate
corporaton
Raroads , recapture amounts pad to Interstate Com-
merce Commsson
Royaty payments receved by benefcary under mnng
property eases
Shp earnngs-
raz
Canada
.
edgng contracts, gran deaer s osses, when deductbe
ospta, prvate enterprse, e empton
usband and wfe:
Partnershps. (See Partnershps.)
I.
Income from sources wthn Unted States:
oregn corporatons
Sae abroad of product mned n Unted States
Transportaton servce, reguatons amended
Saes n Unted States to foregn customers
Indans:
Choctaw
Sut for recovery of ta es, refund cam condton prece-
dent
Informa cam for refund, erroneous credt as bass, suffcency
Informaton at source:
Ownershp certfcates, orms 1000 and 1001, use of
Informaton returns. (See Returns.)
Inhertance ta es, deducton. (See Ta es: state and nhert-
ance, deducton.)
Inspecton of returns. (See Returns.)
Instructons, reopenng of refund cams
Insurance:
re nsurance by nterndemnty e change
Recevabe by other benefcares
Rung
No.
3956
3788
3888
3893
/3802
3803
/3959
3960
3956
4002
3904
3992
3851
3852
3853
3797
4014
3951
3962
3796
4021
3884
3892
3965
3958
3897
3977
3857
3998
G
e
n
e
r
a
t
e
d
f
o
r
L
n
Z
h
a
n
g
(
N
e
w
Y
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k
U
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e
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s
t
y
)
o
n
2
0
1
3
-
0
1
-
2
2
0
3
:
4
4
G
M
T
/
h
t
t
p
:
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/
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d
.
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a
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2
0
2
7
/
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3
0
0
0
0
0
8
9
0
5
4
3
6
9
P
u
b
c
D
o
m
a
n
,
G
o
o
g
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-
d
z
e
d
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p
:
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/
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w
w
.
h
a
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t
r
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s
t
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/
a
c
c
e
s
s
_
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s
e
#
p
d
-
g
o
o
g
e
435
Insurance companes:
Lfe-
Investment e penses, budng on eased ground
Reserves-
Deductons, reguatons amended
Percentage aowed n computng nterest deducton
Mutua e empton. (See empt corporatons.)
Other than fe or mutua
Sae of propertes, gan or oss computaton, 1928 ct..
Stock fe, reserve funds, nvested capta, ncuson
Tte guaranty busness, cassfcaton
Interest:
ccrued durng decedent s fetme,, estate ncome
ward for oss of fe, gross ncome
ank deposts, rtsh shppng company s surpus workng
cash, gross ncome
onds, ta -free covenant, wthhodng, secton 144(a), 1928
ct
Loans assgned to foregn corporatons, wthhodng requre-
ments
Overpayments. (See Interest: Refunds.)
Ownershp certfcates, muncpa securtes
Preferred-stock dvdend arrears, deducton
Refunds
Cam by parent coverng affated group, suffcency..
Date to whch aowed
Invested capta:
pprecaton of assets
ond redempton from earnngs
Deprecaton deducton
Dvdend payment date not f ed, effect
arned surpus, ncome bonds pad n for good w
Reserve funds, stock fe nsurance company, ncuson
Investment e penses, fe nsurance company, budng on eased
ground
Invountary conversons:
en Property Custodan s saes, repacement e pendtures
by aen deayed
.
ewery:
When ta attaches condtona sae
ursdcton:
Courts
Revew of ureau s speca assessment determnaton
L.
Last ness e penses, prorty of edera ta es, Coorado
Leases:
Mnng, royaty payments receved under w, benefcary s
ncome
O and gas
Royates, capta gan, Te as
Lens:
edera ta es
ng of notces, Massachusetts
Reease, appcaton of 6-year mtaton perod
Lfe nsurance companes. (See Insurance companes.)
Rung
No.
3875
3964
3904
4034
3806
4049
3959
3960
3788
3956
3837
3873
4002
4030
3839
4047
3905
3866
3905
3854
3866
3806
3875
4012
3877
3798
3831
3797
3820
3829
3882
G
e
n
e
r
a
t
e
d
f
o
r
L
n
Z
h
a
n
g
(
N
e
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Y
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k
U
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t
y
)
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n
2
0
1
3
-
0
1
-
2
2
0
3
:
4
4
G
M
T
/
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t
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2
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2
7
/
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3
0
0
0
0
0
8
9
0
5
4
3
6
9
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u
b
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G
o
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w
w
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a
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e
s
s
_
u
s
e
#
p
d
-
g
o
o
g
e
436
Lmtaton perod:
ssessment of ta es
en Propert y Custodan
Coecton of ta es
batement cam, effect of.
Compromse offer, effect
Dstrant wthout evy proceedng, effect
ffect of sectons 607, 611, and 612 on barred ta es
1918 ta es, assessment made pror to e praton date as
e tended by waver
Property hed by en Property Custodan
Sut, assessment pror to 1924 ct and wthn 5-year
perod -
Wavers
praton, reease of posted securtes
tenson by oard appea, assessment subsequent
to re|ecton
tenson of unmted assessment perod, effect
Credt or refund
en Property Custodan
praton, subsequent assessment aganst transferee, refund-
orm 907, suspenson agreement, 1928 ct
Sut, 1918 ta es, waver e tendng assessment pror to 1924
ct..
Sut on bond n connecton wth abatement cam
Ta es barred by statute, effect and procedure of sectons 607,
611, and 612 1928 ct.. _
Wavers
tenson of unmted assessment perod, coecton
1918 ta es, assessment made pror to e tended e praton
date
1918 ta es, sut for coecton, assessment e tended pror
to 1924 ct
Partnershp, fsca year ended n 1918
Persona representatve, vadty
Unmted, 1917 ta es
Lve stock, transportaton e penses ncdenta to mportaton,
capta e pendtures
Loans:
Ca, assgnment to foregn corporaton, wthhodng ta on
nterest
Losses:
oregn e change shrnkage, transactons wth foregn sub-
sdares
Net. (See Net osses.)
Resdenta property, sae of
Stock wash saes
Wash saes of stock
3961
/3863
3865
3982
3982
3S43
3940
3961
3927
3804
3850
3874
4041
3848
4046
3911
3880
3843
3874
3940
3911
4036
4044
3804
3908
3873
Lumber manufacturers, freght charges, reserve deducton.
M.
3935
3921
4031
4031
4018
4020
Manufacturer of cgarettes, speca ta
Manufacturer s e cse:
utomobe accessores, ftng |acks as
utomobe parts: carburetors
utomobe parts and accessores, refund cam requrements-
Carburetors as automobe parts
Credt or refund, automobe ta , repea e tenson of tme
for fng returns
ports remported and sod
3869
403
3855
342
3913
338
3868
331
3913
338
G
e
n
e
r
a
t
e
d
f
o
r
L
n
Z
h
a
n
g
(
N
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Y
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U
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t
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)
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2
0
1
3
-
0
1
-
2
2
0
3
:
4
4
G
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3
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0
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0
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8
9
0
5
4
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6
9
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s
s
_
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e
#
p
d
-
g
o
o
g
e
437
Manufacturer s e cse Contnued.
Importer, ta payabe by
acks, ftng, hed automobe accessores
Thermostatc contaners
Market pace and audtorum operated by corporaton for munc-
paty, e empton
Massachusetts:
edera ta ens, fng of notces
Mnes:
Coa, cost of openng and deveopment, amortzaton
Leases
Royaty payments receved under w, benefcary s n-
come
Mnor chdren, refund cam fed by parent, vadty, Caforna.
Mssour:
Wdow s aowance, prorty of edera ta es
Muncpa:
onds. (See onds.)
Market and audtorum operated by prvate corporaton,
e empton
Munton manufacturer s ta , accrua bass, when deductbe
Mutua nsurance companes, e empton, ncome ta . (See -
empt corporatons.)
Mutua savngs banks. (See empt corporatons.)
N.
Net osses:
ractona year, change of accountng perod, deducton from
precedng year s ncome
Stock contro purchased by compettor, deducton aowance.
Nonresdent aens. (See ens.)
Notes:
Instament, dstrbuton to decedent s estate, gan or oss
bass
Promssory, bad debt deducton
O.
Obsoescence:
Good w
O and gas:
Depeton. (See Depeton.)
Leases
Royates, capta gan
Oeomargarne:
Statstcs of producton and materas used
Mav, 1928 and 1927
une, 1928 and 1927
uy, 1928 and 1927
ugust, 1928 and 1927
September, 1928 and 1927
October, 1928 and 1927 ...
Operatng e penses, transportaton costs ncdenta to mportaton
of ve stock
Oregon:
Corporaton, abty between charter revocaton and restora-
ton, returns
Overpayments, nterest on. (See Interest.)
Ownershp certfcates:
Use of orms 1000 and 1001 contnued, authorzaton
Rung
No.
3995
3855
3860
3992
3829
3S05
3797
4019
3890
3992
3932
Page.
3885
244
3949
242
4013
64
4006
274
3934
278
3820
116
3799
407
3846
408
3895
409
3953
410
4009
411
4037
412
3908
130
3891
146
3897
69
G
e
n
e
r
a
t
e
d
f
o
r
L
n
Z
h
a
n
g
(
N
e
w
Y
o
r
k
U
n
v
e
r
s
t
y
)
o
n
2
0
1
3
-
0
1
-
2
2
0
3
:
4
4
G
M
T
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2
7
/
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3
0
0
0
0
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8
9
0
5
4
3
6
9
P
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/
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s
s
_
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#
p
d
-
g
o
o
g
e
438
Partnershps:
Dstrbutve shares, saares pad to nonresdent aen
members, ta abty
sca year ended n 1918, assessment and coecton waver..
usband and wfe
4, Caforna, dvson of husband s commssons
Patent cense dstrbutng assocaton, e empton
Penates. (See Ta es: Penates.)
Pennsyvana:
udtor of orphans court, compensaton
Persona e penses:
ttorneys fees, defense of accountng acton by former
partner
Traveng e penses of nonresdent aen, temporary Unted
States empoyment .
Persona servce corporatons. (See Corporatons.)
Prorty of edera ta es. (See Ta es: edera prorty.)
Professona snger, royates from sae of phonograph records,
profts ta es
Promssory notes. (See Notes.)
Pubc eath Servce, offcer s compensaton, e empton
Rung
No.
Raroads:
Recapture amounts pad to Interstate Commerce Com-
msson, deductbty
Rea estate:
Deferred-payment saes. (See Saes: Deferred payment.)
penses, nsurance company s budng on eased ground,
deducton
Trust adopted for securty purposes, cassfcaton
Records, bank, authorty of agent to e amne
Red Cross, contrbutons to
Reducton:
25 per cent, 1923, computaton, foregn ta credts
Refunds. (See Credt or refund.)
Reguatons:
mendments. (See mendments: Reguatons.)
Inspecton of returns
Reef assocatons, e empton
Reopenng of refund cams, nstructons
Reorganzaton:
change of assets for stock and cash, gan or oss
Repacement fund, aen s e pendture of proceeds from sezed
property sae
Reserves:
reght charges, umber manufacturers, deducton
Insurance companes
Lfe-
Deductons, reguatons amended ....
Percentage aowed n computng nterest deducton
Stock fe, nvested capta
Resdenta property:
Sae of, oss deducton
Resgnatons. (See ttorneys and gents: Dsbarments, sus-
pensons, and resgnatons.)
Returns:
Consodated
Change to or from separate bass, requrements
3S92
4036
3900
3919
3994
3933
3918
3936
3888
3851
3852
3853
3875
3883
3902
3838
4007
3849
3821
3977
3787
4012
Page.
188
304
121
152
267
128
305
264
256
269
294
199
108
178
294
218
161
153
76
114
60
55
4020
269
3964
299
3904
296
3806
320
3921
272
G
e
n
e
r
a
t
e
d
f
o
r
L
n
Z
h
a
n
g
(
N
e
w
Y
o
r
k
U
n
v
e
r
s
t
y
)
o
n
2
0
1
3
-
0
1
-
2
2
0
3
:
4
4
G
M
T
/
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p
:
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/
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.
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a
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2
7
/
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3
0
0
0
0
0
8
9
0
5
4
3
6
9
P
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a
n
,
G
o
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w
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#
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439
Rung
No.
Returns Contn ted.
Corporatons
ractona year, credts
Interva between charter revocaton and restoraton,
Oregon
Revsed, orm 1120 , fsca year 1928
Trust fund handed by
aure to fe, fraud, etc. (See Returns.)
ducares
Trust fund handed by corporaton
ractona part of year, corporaton, credts
Indvdua
nancng agreement wth foregn corporaton, fng
abty
Informaton
Dvdends and dstrbutons by corporatons, requre-
ments, 1928 ct
Inspecton of
Reguatons governng
Nonresdent aens-
nancng agreement wth domestc corporaton, fng
abty
Tte guaranty busness, nsurance company cassfcaton..
Trust fng orm 1120 under protest, effect
Revenue ct of 1924:
25 per cent reducton, 1923
Computaton, foregn ta credt
Revenue ct of 1926:
Ttes and sectons repeaed by Revenue ct of 1928, effectve
dates
Revenue ct of 1928:
Repea sectons, effectve dates
Royates:
O and gas eases, capta gan, Te as
Professona snger, ncome from sae of phonograph records,
profts ta es
Rues of practce, oard of Ta ppeas, addtons. (See Unted
States oard of Ta ppeas.)
S.
Saares. (See Compensaton.)
Sae and repurchase:
Stock wash saes, oss deducton
3789
3891
3823
4035
4035
3789
3983
3979
3849
3983
4049
3958
4007
3791
3791
3820
3930
en Property Custodan, repacement e pendture by aen,
nvountary converson appcaton
Decedent s estate, bass, rght of eecton
Deferred payment
Rea estate, gan from, when ta abe
Insurance company propertes, gan or oss computaton, 1928
ct _
Rea estate
Deferred payment. (See Saes: Deferred payment.)
Resdenta property, oss deducton
Stock rghts acqured by trustee under w, gan or oss bass.
Securtes:
Wash saes
Loss deducton
2-year perod, appcaton
Shppng companes, rtsh. (See Great rtan.)
Shrnkage, foregn e change, transactons wth foregn subsdares,
deducton
37229 29 20
4031
4012
4004
3903
4034
3921
4029
4031
4031
3935
G
e
n
e
r
a
t
e
d
f
o
r
L
n
Z
h
a
n
g
(
N
e
w
Y
o
r
k
U
n
v
e
r
s
t
y
)
o
n
2
0
1
3
-
0
1
-
2
2
0
3
:
4
4
G
M
T
/
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t
p
:
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/
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d
.
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a
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e
.
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/
2
0
2
7
/
n
u
.
3
0
0
0
0
0
8
9
0
5
4
3
6
9
P
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b
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D
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m
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n
,
G
o
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:
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w
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#
p
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e
440
Rung
No.
Page.
Speca assessment. (See Speca cases.)
Speca cases:
Speca assessment appcaton, Commssoner s dscretonary
power, courts |ursdcton
Speca ta :
Manufacturer of cgarettes
Stamp ta es:
Issues not sub|ect to ta
Passage tckets, sub|ect to
Stamps:
Where purchased
State:
udtor of orphans court, Pennsyvana
oregn, mutua savngs banks, e empton
Income
Market pace and audtorum operated by corporaton
for muncpaty
Inhertance ta , deducton. (.See Ta es: state and nhert-
ance, deducton.)
Offcers and empoyees
Compensaton
Controer of muncpa harbor department
Stock:
ank, ta on. (See Ta es: ank stock.)
Contro purchased by compettor, net oss deducton
Dvdend, dstrbuton under trust s proft-sharng pan, credt
change of. (See change.)
Redempton or canceaton, dvdends decared pror to ds-
souton
Rghts to subscrbe to, sae of. (See Saes.)
Saes. (See Saes.)
Wash saes, oss deducton
Stockhoders:
Labty for dssoved corporaton s ta es, |udgment cond-
ton precedent to sut
Stock fe nsurance companes. (See Insurance companes.)
Stock rghts, sae of. (See Saes.)
Suts:
Coecton of ta es
ssessment pror to 1924 ct and wthn 5-year perod,
mtaton
ond n connecton wth abatement cam
Transferred assets
Dssoved corporaton, stockhoders abty, |udgment con-
dton precedent to sut
191S ta es, waver e tendng assessment pror to 1924 ct,
mtaton
Recovery of ta es
Indan, cam for refund condton precedent
Cam for refund, ora statement
Grounds presented n refund cam, prerequste
Speca assessment appcaton, ureau s dscretonary
power, court s |ursdcton
Unted States as party defendant
Suspensons. (See ttorneys and agents: Dsbarments, suspen-
sons, and resgnatons.)
T.
Ta es:
batement
Cams for. (Sec Cams.)
ssessment
na determnaton. (See Ta es: na determnaton
and assessment.)
3798
3869
3813
13814
13815
3816
3994
4028
3992
4005
3949
3926
3973
4031
3927
3927
3880
3871
3927
3911
3965
3976
3914
3798
3909
323
403
397
398
266
58
147
124
242
137
110
127
228
228
168
170
228
207
326
212
182
323
172
G
e
n
e
r
a
t
e
d
f
o
r
L
n
Z
h
a
n
g
(
N
e
w
Y
o
r
k
U
n
v
e
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441
Ta es Contnued.
ank stock, Idaho
Capta stock. (See Capta stock ta .)
Coecton
Compromse offer, mtaton perod
Dstrant
Commssons and e pense money apped aganst
overdrawn account, vadty
Wthout evy, mtaton perod
Lmtaton perod. (See Lmtaton perod.)
Sut
Dssoved corporaton, stockhoders abty, |udg-
ment condton precedent
1918 ta es, waver e tendng assessment pror to
1924 ct, mtaton
Unmted assessment waver e tended
Waver e pred, reease of posted securtes
Waver perod e tended by oard appea, assessment
subsequent to re|ecton
Coecton stayed by cam n abatement
Credt of overassessments aganst earer barred ta es, _
Compromse offer, effect on coecton mtaton perod
Computaton
Income, profts, and estate ta es, property n custody of
en Property Custodan
Credts. ( S ee Credts.)
state. (See state ta .)
state and nhertance, deducton
edera
edera
Lens. (See Lens: edera ta es.)
Prorty
Last ness e penses, Coorado
Wdow s aowance. Mssour
na determnaton and assessment-
Cosng agreements under secton 606, 1928 ct
raud ater dscosed, redetermnaton
Sut to nufy agreement
oregn
ranch offce operatng at oss due to e change rates
Credts for. (See Credts.)
Income
portng busness, consttutonaty
Lens for edera ta es. ( S ee Lens: edera ta es.)
Lmtaton perod coverng assessments, etc. (See Lmta-
ton perod.)
Munton manufacturer s. (See Munton manufacturer s
ta .)
Net ncome, e portng busness, consttutonaty of ta
1923, 25 per cent reducton
Computaton, foregn ta credt
Penates
ank s abty under evy on depostor s account
aure to fe return, reasonabe cause
Prorty of edera. (See Ta es: edera.)
Refund or credt. ( See Credt or refund.)
Waver of statute of mtatons. (See Lmtaton perod.)
War-profts and e cess-profts
Professona snger,ncome from sae of phonograph records.
Trustee operatng busness of bankrupt corporaton
Wthhodng at source. (See Wthhodng at source.)
Ta -free covenant bonds, wthhodng, nterest, secton 144(a),
1928 ct
4006
3982
4003
3982
3927
3911
3874
3804
3850
4040
3982
3790
3950
3831
3890
3824
3910
3985
3920
3832
3832
4007
4042
3984
3936
3912
3837
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442
Rung
No.
Page.
Te as:
Lmted partnershp, nonresdent members, ncome from
Unted States sources, wthhodng
Royates, o and gas eases, capta gan
Tte guaranty busness, nsurance company cassfcaton
Tobacco:
Labe seang e port packages, Reguatons 73 amended
Packages for e port and drawback
Szes of packages of cgars and cgarettes
Speca ta es, manufacturer of cgarettes
Stamps provded denomnaton and cass
Tradng wth the nemy ct:
Income, profts, and estate ta es, computaton
Transferred assets, cams aganst:
ssessment subsequent to transferor s statutory perod,
refund
Sut n equty for coecton of ta es
Transportaton servce:
oregn corporatons, determnaton of ncome, reguatons
amended
Traveng e penses:
Nonresdent aen from resdence abroad, temporary Unted
States empoyment
Trustees:
ankrupt corporaton sbusness operated by, profts ta abty
Trusts (see aso states and trusts):
ssocatons dstngushed
Dstrbutabe, decarant controng ncome for use of bene-
fcary, ta abty
ntre contro by trustees
und hed n dvded parts for benefcares, status
Muncpa securtes, nterest dstrbuton to certfcate owners.
Proft-sharng, no contrbuton by empoyee, status
Rea estate deveopment, soe purchaser-benefcary drectng.
Ta abe as corporatons, 1928 ct
ppcaton of secton 704 (a) and (b)
ecton notce sgnature requrements
Retroactve provsons
Returns ( orm 1120) fed under protest, effect
U.
Unted States oard of Ta ppeas:
Decsons
Lst of acquescenccs and nonacquescences
Revew, rghts under varous cts
Rues of practce
ddtons
Rue 36
W.
Wavers of statute of mtatons. (See Lmtaton perod:
Wavers.)
War-profts and e cess-profts ta es. (See Ta es.)
Wdow s aowance, Mssour, prorty of edera ta es
Wnes:
St and deacohozed, ta changes, 1928 ct
3 92
3820
4049
4025
3942
3943
3944
3858
3869
3S59
3790
3848
3871
3884
3918
3912
3883
14008
3830
4008
3861
4002
3926
3883
3907
3946
3786
,3825
3958
4045
3957
3978
3890
3792
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443
Wthhodng at source:
Rung
No.
Page.
Lmted partnershp, Te as, nonresdent members, ncome
from unted States sources.
3873
69
Ownershp certfcates
3892
188
orms 1000 and 1001, use of... ... . .
3897
3837
69
66
Ta -free covenant bonds, nterest, secton 144(a), 1928 ct..
Y.
Young Men s Chrstan ssocaton, contrbutons to
3838
294
DDITION L COPI S
O T IS PU LIC TION M T PROCUR D ROM
T SUP RINT ND NT O DOCUM NTS
U.S.GO P.NM NT PRINTING O IC
W S INGTON, D. C.
T
50 C NTS P R COPY
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